PRICING SUPPLEMENT
- ------------------
(To prospectus supplement and
prospectus dated January 24, 2001)
$40,000,000
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series B
0.25% Callable and Exchangeable Stock-Linked Notes due June 27, 2008
(Linked to the performance of the common stock of Marriott International, Inc.)
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The notes: Payment formula:
o The issue price for each note equals its o For each $1,000 principal amount of the notes
principal amount, plus accrued interest, if any, you own, the cash amount you will receive
from June 27, 2001. upon our redemption will equal the greater of:
o We will pay you interest on the notes semi- o the product of the exchange ratio and the
annually at a rate per year equal to 0.25%. market price of the common stock of
Marriott International, Inc. determined as
o At maturity, for each $1,000 principal amount described in this pricing supplement;
of the notes you own, we will pay you $1,000 provided, however, that if the amount you
plus accrued and unpaid interest through but receive upon early redemption is based on
excluding the maturity date. this formula, you will not receive accrued
interest from and including the
o We may redeem all of the notes, at our option, immediately preceding interest payment
before their maturity for an amount in cash date through the date of early redemption
based on the payment formula described in or
this pricing supplement.
o $1,000 plus accrued and unpaid interest
o You may exchange any number of notes you through but excluding the date of early
own, at your option, before maturity for an redemption.
amount in cash equal to the product of the
exchange ratio and the market price of the o The exchange ratio initially equals 18.6598
common stock of Marriott International, Inc. and is subject to adjustment from time to time
determined as described in this pricing as described in this pricing supplement.
supplement.
o The notes have been approved for listing on
the American Stock Exchange under the
trading symbol "MMW.A".
Investing in the notes involves risks.
See "Risk Factors" beginning on page PS-8 of this pricing supplement.
Neither the Securities and Exchange Commission nor any state
securities commission has approved these securities or passed upon the
adequacy or accuracy of this pricing supplement or the accompanying prospectus
supplement and prospectus. Any representation to the contrary is a criminal
offense.
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Merrill Lynch & Co.
----------------------
The date of this pricing supplement is June 20, 2001.
Terms of the notes:
Notes............................................ 0.25% Callable and Exchangeable Stock-Linked Notes
due June 27, 2008 (Linked to the performance of the
common stock of Marriott International, Inc.).
Aggregate principal amount ...................... $40,000,000.
Issuer .......................................... Merrill Lynch & Co., Inc.
References to "ML&Co.", "we", "us" and "our" are to
Merrill Lynch & Co., Inc.
Maturity date ................................... June 27, 2008.
Interest rate ................................... 0.25% per year. Interest on the note will be computed on
the basis of a 360-day year of twelve 30-day months.
Interest payment dates .......................... June 27 and December 27, commencing December 27, 2001; provided
that if any interest payment date or the maturity date falls on
a day that is not a Business Day, the related payment of
principal, premium, if any, or interest will be made on the
next succeeding Business Day as if made on the date the
applicable payment was due, and no interest will accrue on the
amount payable for the period from and after the interest
payment date or maturity date, as the case may be.
Issue price ..................................... $1,000 per note.
Original issue date ............................. June 27, 2001.
CUSIP number .................................... 59018Y KD2.
Form of notes ................................... Book-entry only.
Denominations ................................... We will issue and sell the notes in denominations of $1,000 and
integral multiples of $1,000 in excess thereof.
Trustee ......................................... The Chase Manhattan Bank.
Amount payable at maturity ...................... Provided that the notes previously have been neither redeemed
nor exchanged, at maturity, you will receive for each $1,000
principal amount of the notes you own, an amount in cash equal
to $1,000 plus accrued and unpaid interest through but
excluding the maturity date.
ML&Co. redemption................................ We may redeem all of the notes outstanding at any time, on any
Business Day on or after June 28, 2004, upon not more than 30
nor fewer than 15 calendar days notice to you. Any date on
which we give you notice that we are redeeming the notes is
referred to as the redemption notice date.
If we redeem the notes, including as a result of acceleration,
for each $1,000 principal amount of the notes you own, we will
pay you an amount in cash equal to the greater of:
(i) the product of the exchange ratio and the average market
price of Marriott common stock on the first
two Calculation Days during the Calculation Period
immediately following the redemption notice date;
provided, however:
o that if there is only one Calculation Day during the
Calculation Period with respect to the Marriott common
stock, then the amount payable upon early redemption
shall be calculated using the market price of Marriott
common stock on such Calculation Day, and if no
Calculation Days occur during the Calculation Period
with respect to Marriott common stock, then the amount
payable upon early redemption shall be calculated using
the market price on the fourth scheduled Trading Day
following the redemption notice date regardless of
whether a Market Disruption Event occurs on such date;
and
o that if the amount you receive is based on this formula,
you will not receive accrued interest from and including
the immediately preceding interest payment date through
the date of early redemption; or
(ii) $1,000 plus accrued and unpaid interest on your notes
through but excluding the date of early redemption.
In the event of certain reorganization events, the market price
of the shares of Marriott common stock may be adjusted to include
certain cash and/or the market price of securities in addition
to, or in lieu of, the market price of shares of Marriott common stock.
o For any cash received in a Reorganization Event (as
defined in the section entitled "Dilution and
Reorganization Adjustments-Reorganization Events"), any
amount payable upon early redemption or exchange will
include an amount equal to the amount of cash received
per share of Marriott common stock multiplied by the
exchange ratio in effect on the date all of the holders
of shares of Marriott common stock irrevocably receive
such cash.
o For any property or securities other than cash received
in a Reorganization Event, any amount payable upon early
redemption or exchange will include an amount equal to
the market value or market price, as the case may be, as
determined by the calculation agent, of the property or
securities received for each share of Marriott common
stock at the date of the receipt of the property or, in
the case of securities, on the date of determination for
any amounts payable multiplied by the then-current
exchange ratio.
Once we have given notice that we are going to redeem the
notes, you are precluded from exercising your holder exchange
right.
Holder exchange right............................ On any Trading Day during the period beginning June 27, 2001
and ending the earlier of (i) 5 scheduled Trading Days before
the maturity date or (ii) the redemption notice date, upon
written notice to the calculation agent and the trustee, you
may exchange your notes for an amount in cash equal to the
"Exchange Amount" as described below. Any date on which you
give us notice to cause us to exchange your notes is referred
to as the exchange notice date. If the calculation agent
receives your notice after 3:00 p.m. on any Trading Day, the
calculation agent will consider your notice as received on the
following Trading Day. The date the calculation agent is
deemed to have received your notice is referred to as the
exchange receipt date.
If you choose to exercise your holder exchange right, ML&Co.
may no longer redeem your notes as of the applicable exchange
notice date. If you choose to exercise your holder exchange
right prior to the maturity date, you will receive the
Exchange Amount, which could be less than the principal
amount plus interest to which you would otherwise have been
entitled had you held the notes until maturity. Therefore,
you should carefully consider this risk before exercising the
holder exchange right option.
Exchange Amount.................................. For each $1,000 principal amount of the notes you exchange, the
Exchange Amount will be an amount in cash equal to the product
of the exchange ratio and the average market price of Marriott
common stock on the first two Calculation Days during the
Calculation Period immediately following the exchange receipt
date; provided, however, that you will not receive accrued
interest from and including the immediately preceding interest
payment date through the date of exchange. We will pay you the
Exchange Amount no more than 5 Business Days after the date of
determination. However, if there is only one Calculation Day
during the Calculation Period with respect to the Marriott
common stock, then the amount payable upon exchange shall be
calculated using the market price of Marriott common stock on
such Calculation Day, and if no Calculation Days occur during
the Calculation Period with respect to Marriott common stock,
then the amount payable upon exchange shall be calculated using
the market price on the fourth scheduled Trading Day following
the applicable exchange receipt date regardless of whether a
Market Disruption Event occurs on such date.
In the event of certain reorganization events, the market price
of the shares of Marriott common stock may be adjusted to
include certain cash and/or the market price of securities in
addition to, or in lieu of, the market price of shares of
Marriott common stock.
Exchange ratio................................... The exchange ratio is equal to the product of 18.6598 and the
share multiplier.
Share multiplier................................. The share multiplier initially will be set at 1.0, but will be
subject to adjustment upon the occurrence of certain corporate
events described in the section entitled "Dilution and
Reorganization Adjustments".
Market price..................................... If Marriott common stock (or any other security for which a
market price must be determined for purposes of the notes) is
listed on a national securities exchange in the United States,
is a Nasdaq NMS security or is included in the OTC Bulletin
Board Service operated by the NASD, then the market price for
any date of determination on any Trading Day means for one
share of Marriott common stock (or any other security for which
a market price must be determined for purposes of the notes):
(1) the last reported sale price, regular way, on that day
on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on
which that security is listed or admitted to trading
(without taking into account any extended or
after-hours trading session), or
(2) if not listed or admitted to trading on any such
securities exchange or if the last reported sale price
is not obtainable, the last reported sale price on the
over-the-counter market as reported on the Nasdaq Stock
Market or OTC Bulletin Board on that day (without
taking into account any extended or after-hours trading
session), or
(3) if the last reported sale price is not available for
any reason, including, without limitation, the
occurrence of a Market Disruption Event, pursuant to
(1) and (2) above, the mean of the last reported bid
and offer price of the principal trading session on the
over-the-counter market as reported on the Nasdaq Stock
Market or OTC Bulletin Board on that day as determined
by the calculation agent or from as many dealers in
such security, but not exceeding three, as have made
the bid prices available to the calculation agent after
3:00 p.m., local time in the principal market, on that
date (without taking into account any extended or
after-hours trading session).
If Marriott common stock (or any other security for which a
market price must be determined for purposes of the notes) is
not listed on a national securities exchange in the United
States, is not a Nasdaq NMS security or included in the OTC
Bulletin Board Service operated by the NASD, then the market
price for any date of determination on any Trading Day means
for one share of Marriott common stock (or any other security
for which a market price must be determined for purposes of
the notes) the last reported sale price on that day on the
securities exchange on which that security is listed or
admitted to trading with the greatest volume of trading for
the calendar month preceding such Trading Day as determined
by the calculation agent; provided that if such last reported
sale price is for a transaction which occurred more than four
hours prior to the close of that exchange, then the market
price shall mean the average (mean) of the last available bid
and offer price on that exchange.
If Marriott common stock (or any other security for which a
market price must be determined for purposes of the notes) is
not listed or admitted to trading on any such securities
exchange or if such last reported sale price or bid and offer
are not obtainable, then the market price shall mean the
average (mean) of the last available bid and offer prices in
such market of the three dealers which have the highest
volume of transactions in that security in the immediately
preceding calendar month as determined by the calculation
agent based on information that is reasonably available to
it.
If any prices are quoted in a currency other than in U.S.
dollars, the calculation agent shall translate such prices
into U.S. dollars in order to calculate the market price by
using the spot rate on the same calendar day as the date of
determination for any price. The calculation agent will
determine the "spot rate" for any date of calculation equal
to the spot rate of such currency per U.S. $1.00 on such date
at approximately 3:00 p.m., New York City time, as reported
by a recognized reporting service for such spot rate,
provided that if the calculation agent shall determine that
such reported rate is not indicative of actual rates of
exchange that may be obtained in the currency exchange rate
market, then the spot rate shall equal the spot rate of such
currency per U.S. $1.00 on such date at approximately 3:00
p.m., New York City time at which the calculation agent is
able to convert such currency into U.S. dollars.
References above to the Nasdaq Stock Market or DTC Bulletin
Board shall include any successors to such systems.
If certain reorganization events described in the section
entitled "Dilution and Reorganization Adjustments" occur, the
market price may be adjusted to include an additional amount.
Calculation Period............................... The period from and including the first scheduled Calculation
Day immediately following the redemption notice date (in the
event ML&Co. redeems the notes) or the exchange receipt date
(in the event you elect to exchange your notes) to and
including the fourth scheduled Calculation Day following the
redemption notice date or the exchange receipt date (as
applicable).
Calculation Day.................................. Any Trading Day during the Calculation Period on which a Market
Disruption Event has not occurred with respect to Marriott
common stock.
Trading Day...................................... A day on which the NYSE, the AMEX and the Nasdaq Stock Market
are open for trading as determined by the calculation agent.
Business Day..................................... Any day other than a Saturday or Sunday that is neither a legal
holiday nor a day on which banking institutions are
authorized or required by law, regulation or executive order
to close in The City of New York.
Calculation agent................................ Merrill Lynch, Pierce, Fenner & Smith Incorporated.
References to "MLPF&S" are to Merrill Lynch, Pierce, Fenner &
Smith Incorporated.
All determinations made by the calculation agent shall be at
the sole discretion of the calculation agent and, absent
manifest error, shall be conclusive for all purposes and
binding on ML&Co. and beneficial owners of the notes.
All percentages resulting from any calculation on the notes
will be rounded to the nearest one hundred-thousandth of a
percentage point, with five one-millionths of a percentage
point rounded upwards, e.g., 9.876545% (or .09876545) would
be rounded to 9.87655% (or .0987655), all dollar amounts used
in or resulting from this calculation will be rounded to the
nearest cent with one-half cent being rounded upwards, and
all adjustments to the share multiplier will be rounded to
the nearest one thousandth with five ten-thousandths being
rounded upward.
RISK FACTORS
Your investment in the notes will involve certain risks, including
risks not associated with similar investments in a conventional debt security.
You should consider carefully the following discussion of risks before you
decide that an investment in the notes is suitable for you.
The notes are subject to redemption before their maturity
We may elect to redeem all of the notes on any Business Day beginning
on or after June 28, 2004, upon not more than 30 nor fewer than 15 calendar
days notice to you. In the event that we elect to redeem the notes, you may
receive an amount that is less than the amount to which you would otherwise
have been entitled had you held the notes until maturity.
Your yield may be lower than the yield on a standard debt security of
comparable maturity
The amount we pay you at maturity or upon early redemption may be
less than the return you could earn on other investments. Your yield may be
less than the yield you would earn if you bought a standard senior
non-callable debt security of ML&Co. with the same stated maturity date. Your
investment may not reflect the full opportunity cost to you when you consider
the effect of factors that affect the time value of money.
You need to exchange your notes to realize any appreciation from increases in
the market price of Marriott common stock
If the market price of Marriott common stock increases prior to
maturity such that the Exchange Amount would exceed the principal amount of
the notes and ML&Co. has not elected to redeem the notes, you will need to
exchange your notes in order to realize such Exchange Amount. If you do not
exchange your notes, you will receive only the principal amount plus accrued
interest at maturity which could be less than the Exchange Amount you might
otherwise receive shortly before maturity.
Your return on the notes will not reflect the payment of dividends
The calculation of the market price of Marriott common stock, and in
certain circumstances, other securities, property and/or cash, and any amounts
payable to you upon any redemption or exchange, as the case may be, does not
take into consideration the value of cash dividends, if any, paid on Marriott
common stock, other than as described in the section entitled "Dilution and
Reorganization Adjustments". Your return will not be the same as the return
you could earn by owning Marriott common stock directly and receiving the
dividends, if any, paid on those securities.
There may be an uncertain trading market for the notes
The notes have been approved for listing on the AMEX under the symbol
"MMW.A", subject to official notice of issuance. There is no historical
information to indicate how the notes will trade in the secondary market.
Listing the notes on the AMEX does not necessarily ensure that a liquid
trading market will develop for the notes. The development of a liquid trading
market for the notes will depend on our financial performance and other
factors such as the appreciation, if any, in the price of Marriott common
stock. In addition, it is unlikely that the secondary market price of the
notes will correlate exactly with the value of Marriott common stock.
If the trading market for the notes is limited, there may be a
limited number of buyers when you decide to sell your notes if you do not wish
to hold your investment until the maturity date. This may affect the price you
receive.
Many factors affect the trading value of the notes; these factors interrelate
in complex ways and the effect of any one factor may offset or magnify the
effect of another factor
The trading value of the notes will be affected by factors that
interrelate in complex ways. It is important for you to understand that the
effect of one factor may offset the increase in the trading value of the notes
caused by another factor and that the effect of one factor may exacerbate the
decrease in the trading value of the notes caused by another factor. For
example, an increase in interest rates may offset some or all of any increase
in the trading value of the notes attributable to another factor, such as an
increase in the value of Marriott common stock. The following paragraphs
describe the expected impact on the market value of the notes given a change
in a specific factor, assuming all other conditions remain constant.
The value of Marriott common stock is expected to affect the trading
value of the notes. The market value of the notes will depend substantially on
the value of Marriott common stock. In general, the value of the notes will
decrease as the value of Marriott common stock decreases and the value of the
notes will increase as the value of Marriott common stock increases. However,
as the value of Marriott common stock increases or decreases, the value of the
notes is not expected to increase or decrease at the same rate as the change
in value of Marriott common stock. You should understand that for each $1,000
principal amount of the notes that you own, you will not receive more than
$1,000 upon early redemption or exchange unless the market price of Marriott
common stock has appreciated by more than approximately 15.25% from the
original pricing date to the period in which the calculation agent calculates
the amount payable on the notes upon early redemption or exchange.
Additionally, political, economic and other developments that can affect the
capital markets generally and the market segment of which Marriott common
stock is a part, and over which we have no control, may affect the value of
Marriott common stock and, consequently, may also affect the value of the
notes.
Changes in the levels of interest rates are expected to affect the
trading value of the notes. In general, we anticipate that if U.S. interest
rates increase, the trading value of the notes will decrease, and conversely,
if U.S. interest rates decrease, the trading value of the notes will increase.
In general, fluctuations in interest rates will affect the U.S. economy and,
in turn, the value of Marriott common stock. Rising interest rates may lower
the value of Marriott common stock and, as a result, the value of the notes.
Falling interest rates may increase the value of Marriott common stock and, as
a result, may increase the value of the notes.
Changes in the volatility of Marriott common stock is expected to
affect the trading value of the notes. Volatility is the term used to describe
the size and frequency of market price fluctuations. In general, if the
volatility of Marriott common stock increases, we expect that the trading
value of the notes will increase and if the volatility of Marriott common
stock decreases, we expect that the trading value of the notes will decrease.
As the time remaining to maturity of the notes decreases, the "time
premium" associated with the notes will decrease. We believe that before the
maturity date the notes will trade at a value above that which would be
expected based on the value of Marriott common stock. In general, as the time
remaining to maturity decreases, including because of early redemption at our
option, the value of the notes will approach the amount that would be payable
at maturity or early redemption, as the case may be, based on the then-current
value of Marriott common stock. As a result, as the time remaining to
maturity, or early redemption, decreases, any premium attributed to the
trading value of the notes will diminish, decreasing the trading value of the
notes, as applicable.
Changes in dividend yield on Marriott common stock is expected to
affect the trading value of the notes. In general, if the dividend yield, if
any, on Marriott common stock increases, we expect that the value of the notes
will decrease, and conversely, if the dividend yield, if any, on Marriott
common stock decreases, we expect that the value of the notes will increase.
Changes in our credit ratings may affect the trading value of the
notes. Our credit ratings are an assessment of our ability to pay our
obligations. Consequently, real or anticipated changes in our credit ratings
may affect the trading value of the notes. However, because your return on
your notes is dependent upon factors in addition to our ability to pay our
obligations under the notes, such as the percentage increase in the value of
Marriott common stock, an improvement in our credit ratings will not reduce
the investment risks related to the notes.
In general, assuming all relevant factors are held constant, we
expect that the effect on the trading value of the notes of a given change in
most of the factors listed above will be less if it occurs later in the term
of the notes than if it occurs earlier in the term of the notes.
The amount payable to you upon early redemption or exchange is not subject to
adjustment for all corporate events
The amount that you are entitled to receive upon early redemption or
exchange of the notes is subject to adjustment for the specified corporate
events affecting Marriott common stock described in the section entitled
"Dilution and Reorganization Adjustments". However, these adjustments do not
cover all corporate events that could affect the market price of Marriott
common stock. The occurrence of any other event not described under "Dilution
and Reorganization Adjustments" may adversely affect the determination of the
market price and the trading value of the notes.
No affiliation between ML&Co. and Marriott
We are not affiliated with Marriott, and Marriott has no obligations
with respect to the notes or amounts to be paid to you, including any
obligation to take the needs of ML&Co. or of beneficial owners of the notes
into consideration for any reason. Marriott will not receive any of the
proceeds of the offering of the notes made hereby and is not responsible for,
and has not participated in, the determination or calculation of the amount
receivable by beneficial owners of the notes on the maturity date. In
addition, Marriott is not involved with the administration or trading of the
notes and have no obligations with respect to the amount receivable by
beneficial owners of the notes.
As a holder of the notes, you have no stockholder rights with respect to
Marriott common stock
You will not be entitled to any rights with respect to Marriott
common stock including, without limitation, the right to receive dividends or
other distributions, if any, on, to vote or to tender or exchange Marriott
common stock in any tender or exchange offer by Marriott or any third party.
Amounts payable on the notes may be limited by state law
New York State law governs the 1993 Indenture under which ML&Co. will
issue the notes. New York has certain usury laws that limit the amount of
interest that can be charged and paid on loans, which includes notes like the
notes. 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 notes in which
$2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state
or federal court sitting outside of New York, many other states also have laws
that regulate the amount of interest that may be charged to and paid by a
borrower. We will promise, for your benefit, to the extent permitted by law,
not to voluntarily claim the benefits of any laws concerning usurious rates of
interest.
Potential conflicts
The calculation agent for the notes is one of our subsidiaries. Under
certain circumstances, MLPF&S' role as our subsidiary and its responsibilities
as calculation agent for the notes could give rise to conflicts of interests
between the calculation agent and the holders of the notes. These conflicts
could occur, for instance, in connection with the calculation agent's
determination as to whether a Market Disruption Event (as defined herein) has
occurred or in connection with judgments that the calculation agent would be
required to make with respect to certain anti-dilution and reorganization
adjustments to the market price of Marriott common stock or other securities,
cash or property. MLPF&S is required to carry out its duties as calculation
agent in good faith and use its reasonable judgment. However, you should be
aware that because we control MLPF&S, potential conflicts of interest could
arise.
We have entered into an arrangement with one of our subsidiaries to
hedge the market risks associated with our obligation to pay the amounts due
under the notes. Our subsidiary expects to make a profit in connection with
this arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
Tax consequences
You should also consider the tax consequences of investing in the
notes. See "United States Federal Income Taxation" below.
WHERE YOU CAN FIND MORE INFORMATION
ML&Co.
We file reports, proxy statements and other information with the SEC.
Our SEC filings are also available over the Internet at the SEC's website at
http://www.sec.gov. The address of the SEC's Internet site is provided solely
for information of prospective investors and is not intended to be an active
link. You may also read and copy any document we file at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms. You may also inspect our SEC reports and other information at
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
We will send you copies of our SEC filings, excluding exhibits, at no
cost upon request. Please address your request to Lawrence M. Egan, Jr.,
Corporate Secretary's Office, Merrill Lynch & Co., Inc., 222 Broadway, 17th
Floor, New York, New York 10038; telephone number (212) 670-0425.
Marriott International, Inc.
Marriott files reports, proxy statements and other information with
the SEC. Information provided to or filed with the SEC by Marriott pursuant to
the Securities Exchange Act of 1934 can be located at the SEC's facilities or
accessed through the SEC's website by reference to SEC file number 1-13881.
You may also inspect Marriott's SEC reports and other information at the NYSE.
In addition, information regarding Marriott may be obtained from other sources
including, but not limited to, press releases, newspaper articles and other
publicly disseminated documents. We make no representation or warranty as to
the accuracy or completeness of the information or reports.
DILUTION AND REORGANIZATION ADJUSTMENTS
The share multiplier used to calculate the exchange ratio on any date
of determination is subject to adjustment by the calculation agent as a result
of the dilution and reorganization adjustments described in this section.
Stock splits and reverse stock splits
If Marriott common stock is subject to a stock split or reverse stock
split, then once any split has become effective, the share multiplier relating
to Marriott common stock will be adjusted to equal the product of the prior
share multiplier and the number of shares which a holder of one share of
Marriott common stock before the effective date of that stock split or reverse
stock split would have owned or been entitled to receive immediately following
the applicable effective date.
Stock dividends
If Marriott common stock is subject (i) to a stock dividend, i.e.,
issuance of additional shares of Marriott common stock, that is given ratably
to all holders of shares of Marriott common stock or (ii) to a distribution of
such shares of Marriott common stock as a result of the triggering of any
provision of the corporate charter of Marriott, then once the dividend has
become effective and the shares are trading ex-dividend, then the share
multiplier will be adjusted so that the new share multiplier shall equal the
prior share multiplier plus the product of:
o the number of shares of Marriott common stock issued with
respect to one share of Marriott common stock and
o the prior share multiplier.
Extraordinary Dividends
There will be no adjustments to the share multiplier to reflect cash
dividends or distributions paid, if any, with respect to Marriott common stock
other than distributions described under clause (e) of the section entitled
"--Reorganization Events" below and Extraordinary Dividends as described
below.
An "Extraordinary Dividend" means, with respect to a cash dividend or
other distribution with respect to Marriott common stock, the extent to which
a dividend or other distribution exceeds the immediately preceding
non-Extraordinary Dividend for Marriott common stock (as adjusted for any
subsequent corporate event requiring an adjustment hereunder, such as a stock
split or reverse stock split) by an amount equal to at least 10% of the market
price of Marriott common stock on the Trading Day preceding the ex-dividend
date with respect to the Extraordinary Dividend (the "ex-dividend date"). If
an Extraordinary Dividend occurs with respect to Marriott common stock, the
share multiplier will be adjusted on the ex-dividend date with respect to the
Extraordinary Dividend so that the new share multiplier will equal the product
of:
o the prior share multiplier and
o a fraction, the numerator of which is the market price per
share of Marriott common stock on the Trading Day preceding the
ex-dividend date, and the denominator of which is the amount by
which the market price on the Trading Day preceding the
ex-dividend date exceeds the Extraordinary Dividend Amount.
The "Extraordinary Dividend Amount" with respect to an Extraordinary
Dividend for Marriott common stock will equal:
o in the case of cash dividends or other distributions that
constitute quarterly dividends, the amount per share of that
Extraordinary Dividend minus the amount per share of the
immediately preceding non-Extraordinary Dividend for such
shares of Marriott common stock, or
o in the case of cash dividends or other distributions that do
not constitute quarterly dividends, the amount per share of
that Extraordinary Dividend.
To the extent an Extraordinary Dividend is not paid in cash, the
value of the non-cash component will be determined by the calculation agent,
whose determination shall be conclusive. A distribution on Marriott common
stock described in clause (e) of the section entitled "--Reorganization
Events" below that also constitutes an Extraordinary Dividend shall only cause
an adjustment to the share multiplier pursuant to clause (e) under the section
entitled "--Reorganization Events".
Issuance of transferable rights or warrants
If Marriott issues transferable rights or warrants to all holders of
Marriott common stock to subscribe for or purchase Marriott common stock,
including new or existing rights to purchase Marriott common stock pursuant to
a shareholder's rights plan or arrangement, once a triggering event shall have
occurred thereunder, at an exercise price per share less than the market price
of one share of Marriott common stock on:
o the date the exercise price of those rights or warrants is
determined and
o the expiration date of those rights or warrants,
then, in each case, if the expiration date of those rights or warrants
precedes the maturity date of the notes, then the share multiplier will be
adjusted to equal the product of the prior share multiplier and a fraction,
the numerator of which shall be the number of shares of Marriott common stock
outstanding immediately prior to the issuance of such rights or warrants plus
the number of additional shares of Marriott common stock offered for
subscription or purchase pursuant to those rights or warrants and the
denominator of which shall be the number of shares of Marriott common stock
outstanding immediately prior to the issuance of such rights or warrants plus
the number of additional shares of Marriott common stock which the aggregate
offering price of the total number of shares of Marriott common stock so
offered for subscription or purchase pursuant to those rights or warrants
would purchase at the market price of one share of Marriott common stock on
the expiration date of those rights or warrants, which shall be determined by
multiplying the total number of shares offered by the exercise price of those
rights or warrants and dividing the product so obtained by such market price.
Reorganization Events
If before the maturity date of the notes,
(a) there occurs any reclassification or change of Marriott common
stock, including, without limitation, as a result of the
issuance of tracking stock by Marriott,
(b) Marriott, or any surviving entity or subsequent surviving
entity of Marriott (a "Successor Entity"), has been subject to
a merger, combination or consolidation and is not the surviving
entity,
(c) any statutory exchange of securities of Marriott or any
Successor Entity with another corporation occurs, other than
pursuant to clause (b) above,
(d) Marriott is liquidated or is subject to a proceeding under any
applicable bankruptcy, insolvency or other similar law,
(e) Marriott issues to all of its shareholders equity securities of
an issuer other than Marriott, other than in a transaction
described in clauses (b), (c) or (d) above (a "Spin-off
Event"), or
(f) a tender or exchange offer or going-private transaction is
consummated for all the outstanding shares of Marriott (an
event in clauses (a) through (f) of a "Reorganization Event"),
then the market price shall be adjusted to include the Reorganization Event
Amount so long as a market price is available. If a market price is no longer
available for any security, including the liquidation of the issuer of such
security or the subjection of such issuer to a proceeding under any applicable
bankruptcy, insolvency or other similar law, then the value of such security
will equal zero for so long as no market price is available.
The "Reorganization Event Amount" shall be determined by the
calculation agent and shall equal for each $1,000 principal amount of notes
the sum of the following:
(1) for any cash received in a Reorganization Event, an amount
equal to the amount of cash received per share of Marriott
common stock multiplied by the share multiplier in effect
on the date all of the holders of shares of Marriott
common stock irrevocably receive such cash,
(2) for any property other than cash or securities received in
a Reorganization Event, the market value, as determined by
the calculation agent, of the property received for each
share of Marriott common stock at the date of the receipt
of the property multiplied by the share multiplier in
effect and payable in cash,
(3) for any security received in a Reorganization Event, an
amount in cash equal to (a) the market price for such
security calculated in the same manner as the market price
of Marriott common stock is calculated, multiplied by (b)
the number of units of such security received for each
share of Marriott common stock multiplied by the share
multiplier in effect, and
(4) for any security received in the case of a Spin-off Event,
in addition to the shares of Marriott common stock, an
amount in cash equal to (a) the market price for such
security calculated in the same manner as the market price
of Marriott common stock is calculated, multiplied by (b)
the number of units of such security received for each
share of common stock of Marriott multiplied by the share
multiplier in effect.
If a security is received in a Reorganization Event, the market price of such
security shall be included in determining any amounts due pursuant to the
notes in the same manner as shares of common stock of Marriott. The share
multiplier with respect to these securities shall equal the product of the
share multiplier in effect for Marriott common stock at the time of the
issuance of these securities multiplied by the number of shares of these
securities issued with respect to one share of Marriott common stock. The
share multiplier of these securities will be subject to the same adjustments
as that of the share multiplier of Marriott common stock. The amount payable
shall be calculated so as to include the market price of any securities
received in the Spin-off Event in addition to the market price of shares of
Marriott common stock already included in the amount payable upon redemption
or exchange.
In the event of a tender or exchange offer with respect to Marriott
common stock or any security received in a reorganization event in which an
offeree may elect to receive cash or other property, Marriott common stock or
any such security received in a reorganization event shall be deemed to
include the kind and amount of cash and other property received by offerees
who elect to receive cash.
If Marriott, or any Successor Entity, has been subject to a merger,
combination or consolidation and is not the surviving entity, or a tender or
exchange offer is consummated for all the outstanding shares of Marriott, then
the amount to be paid shall be calculated to include the market price of the
securities, if any, received in that event instead of Marriott common stock.
The share multiplier for these securities shall equal the product of the share
multiplier in effect for Marriott common stock at the time of the issuance of
the securities multiplied by the number of shares of the securities issued
with respect to one share of Marriott common stock. The respective share
multiplier for each of these securities will be subject to the same
adjustments as that of the share multiplier of Marriott common stock.
Adjustments to the share multiplier
No adjustments to the share multiplier will be required unless the
share multiplier adjustment would require a change of at least 0.1% in the
share multiplier then in effect. The share multiplier resulting from any of
the adjustments specified above will be rounded to the nearest one thousandth
with five ten-thousandths being rounded upward.
No adjustments to the share multiplier will be required other than
those specified above. However, ML&Co. may, at its sole discretion, cause the
calculation agent to make additional adjustments to the share multiplier to
reflect changes occurring in relation to Marriott common stock or any other
security received in a reorganization event in other circumstances where
ML&Co. determines that it is appropriate to reflect those changes. The
required adjustments specified above do not cover all events that could affect
the market price of Marriott common stock, including, without limitation, a
partial tender or exchange offer for Marriott common stock.
MLPF&S, as calculation agent, shall be solely responsible for the
determination and calculation of any adjustments to the share multiplier and
of any related determinations and calculations with respect to any
distributions of stock, other securities or other property or assets,
including cash, in connection with any corporate event described above, and
its determinations and calculations shall be conclusive absent manifest error.
No adjustments will be made for certain other events, such as
offerings of common stock by Marriott for cash or in connection with
acquisitions or the occurrence of a partial tender or exchange offer for
Marriott common stock by Marriott or any third party.
ML&Co. will, within ten Business Days following the occurrence of an
event that requires an adjustment to the share multiplier, or if ML&Co. is not
aware of this occurrence, as soon as practicable after becoming so aware,
provide written notice to the trustee, which shall provide notice to the
holders of the notes of the occurrence of this event and, if applicable, a
statement in reasonable detail setting forth the adjusted share multiplier.
MARKET DISRUPTION EVENT
"Market Disruption Event" means:
(1) a suspension, absence, including the absence of an
official closing price, or material limitation of trading
of Marriott common stock on the NYSE or the Nasdaq Stock
Market for more than two hours of trading or during the
one-half hour period preceding or at the close of trading,
as determined by the calculation agent in its sole
discretion; or the suspension or material limitation on
the primary market for trading in options contracts
related to Marriott common stock, if available, during the
one-half hour period preceding or at the close of trading
in the applicable market, in each case as determined by
the calculation agent in its sole discretion; and
(2) a determination by the calculation agent in its sole
discretion that the event described in clause (1) above
materially interfered with the ability of ML&Co. or any of
its affiliates or MLPF&S to unwind all or a material
portion of the hedge with respect to the notes.
For purposes of determining whether a Market Disruption Event has
occurred:
(1) a limitation on the hours or number of days of trading
will not constitute a Market Disruption Event if it
results from an announced change in the regular business
hours of the relevant exchange,
(2) a decision to permanently discontinue trading in the
relevant options contract will not constitute a Market
Disruption Event,
(3) limitations pursuant to any rule or regulation enacted or
promulgated by the NYSE or the Nasdaq Stock Market or
other regulatory organization with jurisdiction over the
NYSE or the Nasdaq Stock Market on trading during
significant market fluctuations will constitute a
suspension or material limitation of trading in Marriott
common stock,
(4) a suspension of trading in an options contract on Marriott
common stock by the primary securities market trading in
the options, if available, by reason of:
o a price change exceeding limits set by the securities
exchange or market
o an imbalance of orders relating to the contracts or
o a disparity in bid and ask quotes relating to the
contracts will constitute a suspension or material
limitation of trading in options contracts related to
Marriott common stock, and
(5) a suspension, absence or material limitation of trading on
the primary securities market on which options contracts
related to Marriott common stock are traded will not
include any time when that securities market is itself
closed for trading under ordinary circumstances.
If the Reorganization Event Amount includes the market price of
securities other than Marriott common stock, then the above definition shall
be revised to include each such security in the same manner as Marriott common
stock is considered in determining whether a Market Disruption Event exists.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any notes has occurred
and is continuing, the amount payable to a beneficial owner of a note upon any
acceleration permitted by the notes, with respect to each $1,000 principal
amount of the notes, will be equal to an amount as described under "ML&Co.
redemption" on page PS-2 calculated as though the date of default were the
redemption notice date for the notes. If a bankruptcy proceeding is commenced
in respect of ML&Co., the claim of the beneficial owner of a note may be
limited, under Section 502(b)(2) of Title 11 of the United States Code, to the
original issue price of the note plus an additional amount of contingent
interest calculated as though the date of commencement of the proceeding were
the maturity date of the notes.
MARRIOTT COMMON STOCK
The following information has been derived from publicly available
documents published by Marriott International, Inc. We make no representation
or warranty as to the accuracy or completeness of the following information.
Marriott International, Inc. (together with its subsidiaries, "Marriott") is a
worldwide operator and franchisor of hotels and related lodging facilities, an
operator of senior living communities, and a provider of distribution
services. In March 1998, Marriott became a public company when it spun off as
a separate entity from a company whose present successor is Sodexho Marriott
Services, Inc. The operations of Marriott are grouped in three business
segments: Lodging, Senior Living Services and Distribution Services, which
represent 78%, 7% and 15%, respectively, of total sales in the fiscal year
ended December 29, 2000. In the Lodging segment, Marriott operates, develops
and franchises lodging facilities and vacation timesharing resorts. In
addition, Marriott provides over 6,900 furnished corporate housing units. In
the Senior Living Services segment: Marriott develops and presently operates
153 senior living communities offering independent living, assisted living and
skilled nursing care for seniors in the United States. Marriott Distribution
Services supplies food and related products to external customers and to
internal lodging and senior living services operations throughout the United
States.
Information provided to or filed with the SEC by Marriott can be
located at the SEC's facilities or through the SEC's website by reference to
SEC file number 1-13881 for Marriott. See "Where You Can Find More
Information". ML&Co. makes no representation or warranty as to the accuracy or
completeness of the information or reports.
The selection of Marriott common stock is not a recommendation to buy
or sell Marriott common stock and neither ML&Co. nor any of its affiliates
make any representation to any purchaser of notes as to the performance of
Marriott common stock.
Marriott common stock trades on the NYSE under the symbol "MAR".
ML&Co. is not affiliated with Marriott and Marriott does not have any
obligations with respect to the notes. This pricing supplement relates only to
the notes and does not relate to Marriott common stock or other securities of
Marriott. All disclosures contained in this pricing supplement regarding
Marriott are derived from the publicly available documents described in the
preceding paragraph. Neither ML&Co. nor MLPF&S has participated in the
preparation of these documents or made any due diligence inquiry with respect
to Marriott in connection with the offering of the notes. Neither ML&Co. nor
MLPF&S makes any representation that the publicly available documents or any
other publicly available information regarding Marriott are accurate or
complete. Furthermore, there can be no assurance that all events occurring
prior to the date hereof, including events that would affect the accuracy or
completeness of the publicly available documents described in the preceding
paragraph, that would affect the trading price of Marriott common stock have
been publicly disclosed. Subsequent disclosure of any events or the disclosure
of or failure to disclose material future events concerning Marriott could
affect the amount received upon redemption or exchange with respect to the
notes and therefore the trading prices of the notes. Neither ML&Co. nor any of
its affiliates make any representation to any purchaser of the notes as to the
performance of Marriott common stock.
ML&Co. or its affiliates may presently or from time to time engage in
business, directly or indirectly, with Marriott including extending loans to,
or making equity investments in, Marriott or providing investment banking or
advisory services to Marriott, including merger and acquisition advisory
services. In the course of such business, ML&Co. or its affiliates may acquire
non-public information with respect to Marriott and, in addition, one or more
affiliates of ML&Co. may publish research reports with respect to Marriott.
Any prospective purchaser of a note should undertake an independent
investigation of Marriott as in its judgment is appropriate to make an
informed decision with respect to an investment in the notes.
Historical data
Marriott common stock is principally traded on the NYSE. The
following table sets forth the high and low closing prices during 1998, 1999,
2000 and during 2001 through June 20, 2001. On June 20, 2001, the last
recorded transaction price on the NYSE for Marriott common stock was $46.50
per share. The closing prices and dividends per share listed below were
obtained from Bloomberg Financial Markets. The historical closing prices of
Marriott common stock should not be taken as an indication of future
performance, and no assurance can be given that the price of Marriott common
stock will not decrease. In addition, no assurance can be given that the price
of Marriott common stock will increase above the issue price so that upon
redemption or exchange the beneficial owners of the notes will receive cash in
an amount in excess of the principal amount of the notes.
Dividends
High Low per Share(1)
---------------- --------------- --------------
Marriott(2)
1998
First Quarter................................. $ 37.9375 $ 35.8125 -
Second Quarter................................ $ 37.1875 $ 30.125 $.045
Third Quarter................................. $ 34.125 $ 23.875 $.05
Fourth Quarter................................ $ 30.1875 $ 19.875 $.05
1999
First Quarter................................. $ 39.6875 $ 29.5 $.05
Second Quarter................................ $ 43.9375 $ 33.75 $.05
Third Quarter................................. $ 38.0625 $ 30.8125 $.055
Fourth Quarter................................ $ 35.75 $ 29.9375 $.055
2000
First Quarter................................. $ 33.875 $ 26.625 $.055
Second Quarter................................ $ 37.5625 $ 29.8125 $.055
Third Quarter................................. $ 42 $ 36.25 $.06
Fourth Quarter................................ $ 42.6875 $ 34.75 $.06
2001
First Quarter................................. $ 47.6875 $ 38.76 $ .06
Second Quarter (through June 20, 2001)........ $ 49.68 $ 38.50 $ .06
- ---------------------------
1 ML&Co. makes no representation as to the amount of dividends, if any,
that issuers of Marriott common stock will pay in the future. Holders of
the notes will not be entitled to receive dividends, if any, that may be
payable on Marriott common stock.
2 In March 1998, Marriott became a public company when it spun off as a
separate entity from a company whose present successor is Sodexho Marriott
Services, Inc.
USE OF PROCEEDS AND HEDGING
We intend to use the net proceeds from the sale of the notes for
general corporate purposes and, in part, by ML&Co. or one or more of its
affiliates in connection with hedging ML&Co.'s obligations under the notes.
See also "Use of Proceeds" in the accompanying prospectus.
In connection with ML&Co.'s obligations under the notes, ML&Co. has
entered into hedging arrangements related to Marriott common stock with
MLPF&S. MLPF&S has purchased shares of Marriott common stock in secondary
market transactions at or before the time of the pricing of the notes. MLPF&S
and other affiliates of ML&Co. may from time to time buy or sell Marriott
common stock for their own accounts, for business reasons or in connection
with hedging ML&Co.'s obligations under the notes. These transactions could
affect the price of Marriott common stock.
UNITED STATES FEDERAL INCOME TAXATION
General
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization, for United
States federal income tax purposes, of the notes or securities with terms
substantially the same as the notes. However, although the matter is not free
from doubt, under current law, each note should be treated as a debt
instrument of ML&Co. for United States federal income tax purposes. ML&Co.
currently intends to treat each note as a debt instrument of ML&Co. for United
States federal income tax purposes and, where required, intends to file
information returns with the Internal Revenue Service ("IRS") in accordance
with such treatment, in the absence of any change or clarification in the law,
by regulation or otherwise, requiring a different characterization of the
notes. Prospective investors in the notes should be aware, however, that the
IRS is not bound by ML&Co.'s characterization of the notes as indebtedness,
and the IRS could possibly take a different position as to the proper
characterization of the notes for United States federal income tax purposes.
The following discussion of the principal United States federal income tax
consequences of the purchase, ownership and disposition of the notes is based
upon the assumption that each note will be treated as a debt instrument of
ML&Co. for United States federal income tax purposes. If the notes are not in
fact treated as debt instruments of ML&Co. for United States federal income
tax purposes, then the United States federal income tax treatment of the
purchase, ownership and disposition of the notes could differ from the
treatment discussed below with the result that the timing and character of
income, gain or loss recognized in respect of a note could differ from the
timing and character of income, gain or loss recognized in respect of a note
had the notes in fact been treated as debt instruments of ML&Co. for United
States federal income tax purposes.
As used in this pricing supplement, the term "U.S. Holder" means a
beneficial owner of a note that is for United States federal income tax
purposes (a) a citizen or resident of the United States, (b) a corporation,
partnership or other 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
(other than a partnership that is not treated as a United States person under
any applicable Treasury regulations), (c) an estate the income of which is
subject to United States federal income taxation regardless of its source, (d)
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 (e) 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.
Notwithstanding clause (d) of the preceding sentence, to the extent provided
in Treasury regulations, certain trusts in existence on August 20, 1996, and
treated as United States persons prior to that date that elect to continue to
be treated as United States persons also will be a U.S. Holder. 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
On June 11, 1996, the Treasury Department issued final regulations
(the "Final Regulations") concerning the proper United States federal income
tax treatment of contingent payment debt instruments such as the notes, which
apply to debt instruments issued on or after August 13, 1996 and, accordingly,
will apply to the notes. In general, the Final Regulations cause the timing
and character of income, gain or loss reported on a contingent payment debt
instrument to substantially differ from the timing and character of income,
gain or loss reported on a contingent payment debt instrument under general
principles of prior United States federal income tax law. Specifically, the
Final 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 Final Regulations, any gain recognized by a U.S. Holder on
the sale, exchange, or retirement of a contingent payment debt instrument is
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 Final Regulations provide no definitive guidance as to
whether or not an instrument is properly characterized as a debt instrument
for United States federal income tax purposes.
In particular, solely for purposes of applying the Final Regulations
to the notes, ML&Co. has determined that the projected payment schedule for
the notes will consist of the stated interest payments on the notes (other
than the final stated interest payment) and a payment immediately prior to
maturity equal to $1,515.1404 per $1,000 of principal amount of the notes
("Projected Redemption Amount"). This represents an estimated yield on the
notes equal to 6.23% per annum, compounded semiannually. Accordingly, during
the term of the notes, a U.S. Holder of a note will be required to include in
income the sum of the daily portions of interest on the note that are deemed
to accrue at this estimated yield for each day during the taxable year, or
portion of the taxable year, on which the U.S. Holder holds such note. The
amount of interest that will be deemed to accrue in any accrual period, i.e.,
generally each six-month period during which the notes are outstanding, will
equal the product of this estimated yield, properly adjusted for the length of
the accrual period, and the note's adjusted issue price at the beginning of
the accrual period. The daily portions of interest will be determined by
allocating to each day in the accrual period the ratable portion of the
interest that is deemed to accrue during the accrual period. In general, for
these purposes a note's adjusted issue price will equal the note's issue
price, increased by the interest previously accrued on the note and reduced by
interest payments received on the notes. As a result of the foregoing rules, a
U.S. Holder will not be required to include in income the stated interest
payments received on its notes. Upon maturity of a note, in the event that the
amount payable upon maturity (the "Actual Redemption Amount") exceeds
$1,515.1404 on every $1,000 note, a U.S. Holder will be required to include
the excess of the Actual Redemption Amount over $1,515.1404 per $1,000 of
principle amount of notes (i.e., the Projected Redemption Amount) in income as
ordinary interest on the maturity date. Alternatively, in the event that the
Actual Redemption Amount is less than $1,515.1404 per $1,000 of principal
amount of notes (i.e., the Projected Redemption Amount), the excess of the
Projected Redemption Amount over the Actual Redemption Amount will be treated
first as an offset to any interest otherwise includible in income by the U.S.
Holder with respect to the note for the taxable year in which the maturity
date occurs to the extent of the amount of such includible interest. A U.S.
Holder will be permitted to recognize and deduct, as an ordinary loss that is
not subject to the limitations applicable to miscellaneous itemized
deductions, any remaining portion of the excess of the Projected Redemption
Amount over the Actual Redemption Amount that is not treated as an interest
offset pursuant to the foregoing rules. U.S. Holders purchasing a note at a
price that differs from the adjusted issue price of the note as of the
purchase date (e.g., subsequent purchasers) will be subject to special rules
providing for certain adjustments to the foregoing rules, and such U.S.
Holders should consult their own tax advisors concerning these rules.
Upon the sale, redemption or exchange of a note prior to the maturity
of the note, a U.S. Holder will be required to recognize taxable gain or loss
in an amount equal to the difference, if any, between the amount realized by
the U.S. Holder upon such sale, redemption or exchange and the U.S. Holder's
adjusted tax basis in the note. A U.S. Holder's adjusted tax basis in a note
generally will equal such U.S. Holder's initial investment in the note
increased by any interest previously included in income with respect to the
note by the U.S. Holder and reduced by interest payments received on the note.
Any such taxable gain will be treated as ordinary income. Any such taxable
loss will be treated as ordinary loss to the extent of the U.S. Holder's total
interest inclusions on the note. Any remaining loss generally will be treated
as long-term or short-term capital loss, depending upon the U.S. Holder's
holding period for the note. All amounts includible in income by a U.S. Holder
as ordinary interest pursuant to the Final Regulations will be treated as
original issue discount.
Prospective investors in the notes should consult their own tax
advisors concerning the application of the Final Regulations to their
investment in the notes. Investors in the notes may also obtain the projected
payment schedule, as determined by ML&Co. for purposes of the application of
the Final Regulations to the notes, by submitting a written request for such
information to Merrill Lynch & Co., Inc., Corporate Secretary's Office, 222
Broadway, 17th Floor, New York, New York, 10038 (212) 670-0432,
corporatesecretary@exchange.ml.com.
The projected payment schedule, including both the Projected
Redemption Amount and the estimated yield on the notes, has been determined
solely for United States federal income tax purposes, i.e., for purposes of
applying the Final Regulations to the notes, and is neither a prediction nor a
guarantee of what the Actual Redemption Amount will be.
The following table sets forth the amount of interest that will be
deemed to have accrued with respect to each $1,000 principal amount of the
notes during each accrual period over the term of the notes based upon the
projected payment schedule for the notes, including both the Projected
Redemption Amount and the estimated yield equal to 6.23% per annum (compounded
semiannually), as determined by ML&Co. for purposes of applying the Final
Regulations to the notes:
Total interest
deemed to
have accrued
Interest deemed on the notes
to accrue during as of the end of
accrual period accrual period
Accrual Period (per $1,000) (per $1,000)
-------------- ------------------ -----------------
June 27, 2001 through December 27, 2001.................................. $30.4578 $30.4578
December 28, 2001 through June 27, 2002.................................. $32.0607 $62.5185
June 28, 2002 through December 27, 2002.................................. $33.0204 $95.5389
December 28, 2002 through June 27, 2003.................................. $34.0101 $129.5490
June 28, 2003 through December 27, 2003.................................. $35.0306 $164.5796
December 28, 2003 through June 27, 2004.................................. $36.0828 $200.6624
June 28, 2004 through December 27, 2004.................................. $37.1679 $237.8303
December 28, 2004 through June 27, 2005.................................. $38.2867 $276.1170
June 28, 2005 through December 27, 2005.................................. $39.4404 $315.5574
December 28, 2005 through June 27, 2006.................................. $40.6300 $356.1874
June 28, 2006 through December 27, 2006.................................. $41.8567 $398.0442
December 28, 2006 through June 27, 2007.................................. $43.1216 $441.1658
June 28, 2007 through December 27, 2007.................................. $44.4259 $485.5917
December 28, 2007 through June 27, 2008.................................. $45.7709 $531.3626
- ----------------
Projected Redemption Amount = $1,515.1404 per $1,000 principal amount of
notes.
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 Internal Revenue Code of 1986, as amended.
However, income allocable to non-U.S. Holders will generally be subject to
annual tax reporting on IRS Form 1042S. For a non-U.S. Holder 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 (a) is
signed by the beneficial owner of the note under penalties of perjury, (b)
certifies that such owner is not a U.S. Holder and (c) provides the name and
address of the beneficial owner. The statement may be made on the applicable
IRS Form W-8, Form W-8BEN 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 applicable IRS Form W-8, form W-8BEN or the substitute form
provided by the beneficial owner to the organization or institution.
Under current law, a note 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 such note 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% (which rate is scheduled to be reduced periodically through 2006) may
apply to payments made in respect of the note to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the
required manner. Generally, individuals are not exempt recipients, whereas
corporations and certain other entities generally are exempt recipients.
Payments made in respect of the note 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 (a) the
broker determines that the seller is a corporation or other exempt recipient
or (b) 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 (a) the broker
determines that the seller is an exempt recipient or (b) 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 or W-8BEN under penalties of perjury, although in certain cases it may be
possible to submit other documentary evidence.
Any amounts withheld under the backup withholding rules from a
payment to a beneficial owner would be allowed as a refund or a credit against
such beneficial owner's United States federal income tax provided the required
information is furnished to the IRS.