Subject to Completion
Preliminary Prospectus Supplement dated July 13, 2004
No securities commission or similar authority in Canada or the United States
of America has in any way passed upon the merits of the securities offered
hereunder and any representation to the contrary is an offence.
PROSPECTUS SUPPLEMENT Filed Pursuant to Rule 424(b)(6)
- -------------------- Registration No. 333-109802
(To prospectus dated June 29, 2004)
[LOGO OMITTED]
Merrill Lynch & Co., Inc.
Up to Cdn. $ |X|
Global Equity Performance Weighted Notes, Series 1 due August |X|,
2011 (the "Notes") Global Equity Performance Weighted Warrants,
Series 1 exercisable August |X|, 2011 (the "Warrants")
(collectively, the "Securities")
Cdn. $100 per unit of Securities
The Notes: Payment at maturity for the Notes:
o Senior unsecured Notes of Merrill Lynch & Co., Inc. o On the maturity date, for each unit of the Notes you own,
o Recommended only for registered retirement savings plans we will pay you the redemption amount in cash; provided,
and other Canadian tax deferred accounts. however, that in no event will you receive less than 20% of
o No payments before the maturity date. the principal amount per unit. If the value of one or more
o Minimum repayment at maturity will not be less than 20% of the Regional Baskets decreases, you may lose a portion
of the principal amount per unit. of your initial investment, and that loss could be
o The Notes will not be listed on any securities exchange. significant.
o Expected settlement date: August |X|, 2004.
o Maturity date: August |X|, 2011. Payment on exercise of the Warrants:
The Warrants: o On the exercise date, for each unit of the Warrants you
own, we will pay you the redemption amount in cash or, if
o Index warrants of Merrill Lynch & Co., Inc. you and Merrill Lynch & Co., Inc. both agree, in one or
o Recommended only for Canadian taxable investors. more securities underlying the equity indices that comprise
o No payments before the exercise date. the Regional Baskets. If the value of one or more of the
o No minimum repayment on exercise. Regional Baskets decreases, you may lose a portion of your
o The Warrants will not be listed on any securities exchange. initial investment, and that loss could be significant. The
o Expected settlement date: August |X|, 2004. Warrants do not provide for a minimum payment on exercise.
o Exercise date: August |X|, 2011.
Redemption Amount:
Regional Baskets:
o The redemption amount for a unit of Securities will be
o The return on the Securities will be linked to the relative equal to the product of Cdn. $100 and the weighted average
performance of three index baskets (collectively, the of the performance of the three Regional Baskets over the
"Regional Baskets"), each comprised of one or more equity term of the Securities determined in Canadian dollars as
indices from a particular geographic region, converted into more fully described herein, less an adjustment fee. The
Canadian dollars. The three Regional Baskets are (i) the weighting factors will be 44.45%, 33.33% and 22.22% for the
"North American Regional Basket", which will be 100% weighted best performing, second best performing and third best
to the S&P 500 Index, (ii) the "European Regional Basket", performing Regional Baskets, respectively, over the term of
which will be 60% weighted to the Dow Jones EURO STOXX 50 the Securities. The adjustment fee will be calculated and
Index and 40% weighted to the FTSE 100 Index, and (iii) the accrue for each calendar day during the term of the
"Asian Regional Basket", which will be 55% weighted to the Securities at an annual rate of 1.0% of the amount that
Nikkei 225 Index, 35% weighted to the MSCI Hong Kong Index would be the Redemption Amount for the Securities on that
and 10% weighted to the S&P/ASX 200 Index. calendar day (determined without regard to the adjustment
fee) if that calendar day was the maturity date or exercise
date, as the case may be.
INVESTING IN THE SECURITIES INVOLVES RISKS THAT ARE DESCRIBED IN THE "RISK
FACTORS" SECTION BEGINNING ON PAGE S-14 OF THIS PROSPECTUS SUPPLEMENT.
Per Note Unit Note Total Per Warrant Warrant
(Cdn. $) (Cdn. $)(1) Unit (Cdn. $) Total (Cdn. $)(1)
Public offering price........................................... 100.00 |X| 100.00 |X|
Agency fee...................................................... 5.25 |X| 5.25 |X|
Proceeds, before expenses, to Merrill Lynch & Co., Inc.......... 94.75 |X| 94.75 |X|
(1) The values in this column reflect the maximum offering size. There is no
minimum offering size.
-----------------
Merrill Lynch Canada Inc.
-----------------
The date of this prospectus supplement is August |X|, 2004.
"MSCI(R)" is a registered trademark of Morgan Stanley Capital International
Inc. and has been licensed for use to Merrill Lynch, Pierce, Fenner & Smith
Incorporated, and Merrill Lynch & Co., Inc. is an authorized licensee. Other
relevant licenses are described herein.
This prospectus supplement, together with the prospectus to which it relates,
constitutes a public offering of securities offered pursuant hereto only in
the jurisdictions where they may be lawfully offered for sale and therein only
by persons permitted to sell such securities.
This offering is being made by a U.S. issuer pursuant to disclosure documents
prepared in accordance with U.S. securities laws. Purchasers should be aware
that these requirements may differ from those of each of the provinces and
territories of Canada. The financial statements included or incorporated by
reference in the prospectus accompanying this prospectus supplement have not
been prepared in accordance with Canadian generally accepted accounting
principles and may not be comparable to financial statements of Canadian
issuers.
All of the directors and officers of the issuer and certain of the experts
named in the prospectus to which this prospectus supplement relates reside
outside of Canada. Substantially all of the assets of these persons and of the
issuer may be located outside Canada. The issuer has appointed Merrill Lynch
Canada Inc., 181 Bay Street, Suite 400, Toronto, Ontario M5J 2V8 as its agent
for service of process in Canada, but it may not be possible for investors to
effect service of process within Canada upon the directors, officers and
certain of the experts referred to above. It may also not be possible to
enforce against the issuer, its directors and officers and certain of the
experts named in this prospectus supplement judgments obtained in Canadian
courts predicated upon the civil liability provisions of applicable securities
laws in Canada.
Merrill Lynch Canada Inc. and National Bank Financial Inc., as agents, are
conditionally offering the Securities subject to prior sale on a best efforts
basis, if, as and when issued by Merrill Lynch & Co., Inc. and accepted by the
agents in accordance with the conditions contained in the Agency Agreement
between Merrill Lynch & Co., Inc. and the agents.
S-2
TABLE OF CONTENTS
Prospectus Supplement
Page
----
SUMMARY OF THE OFFERING........................................................................................................S-4
- -----------------------
EXAMPLES OF REDEMPTION AMOUNT CALCULATIONS.....................................................................................S-8
- ------------------------------------------
SUMMARY INFORMATION--Q&A.......................................................................................................S-11
- ------------------------
RISK FACTORS..................................................................................................................S-14
- ------------
DESCRIPTION OF THE SECURITIES.................................................................................................S-21
- -----------------------------
THE REGIONAL BASKETS..........................................................................................................S-29
- --------------------
INCOME TAX CONSIDERATIONS APPLICABLE TO CANADIAN RESIDENT INVESTORS...........................................................S-53
- -------------------------------------------------------------------
ELIGIBILITY FOR INVESTMENT....................................................................................................S-54
- --------------------------
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS...............................................................................S-55
- -----------------------------------------------
ERISA CONSIDERATIONS FOR U.S. PERSONS.........................................................................................S-58
- -------------------------------------
USE OF PROCEEDS AND HEDGING...................................................................................................S-59
- ---------------------------
WHERE YOU CAN FIND MORE INFORMATION...........................................................................................S-59
- -----------------------------------
PLAN OF DISTRIBUTION..........................................................................................................S-59
- --------------------
VALIDITY OF THE SECURITIES....................................................................................................S-60
- --------------------------
EXPERTS.......................................................................................................................S-61
- -------
PURCHASERS' STATUTORY RIGHTS IN CANADA........................................................................................S-62
- --------------------------------------
INDEX OF CERTAIN DEFINED TERMS................................................................................................S-63
- ------------------------------
CERTIFICATE OF THE AGENTS.....................................................................................................S-64
- -------------------------
Prospectus
Page
----
MERRILL LYNCH & CO., INC.........................................................................................................3
USE OF PROCEEDS..................................................................................................................3
CURRENCY.........................................................................................................................3
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS.................4
THE SECURITIES...................................................................................................................4
DESCRIPTION OF DEBT SECURITIES...................................................................................................5
DESCRIPTION OF DEBT WARRANTS....................................................................................................14
DESCRIPTION OF CURRENCY WARRANTS................................................................................................16
DESCRIPTION OF INDEX WARRANTS...................................................................................................17
DESCRIPTION OF PREFERRED STOCK..................................................................................................23
DESCRIPTION OF DEPOSITARY SHARES................................................................................................28
DESCRIPTION OF PREFERRED STOCK WARRANTS.........................................................................................32
DESCRIPTION OF COMMON STOCK.....................................................................................................34
DESCRIPTION OF COMMON STOCK WARRANTS............................................................................................37
PLAN OF DISTRIBUTION............................................................................................................40
WHERE YOU CAN FIND MORE INFORMATION.............................................................................................41
INCORPORATION OF INFORMATION ...................................................................................................41
EXPERTS.........................................................................................................................42
PURCHASERS' STATUTORY RIGHTS IN CANADA..........................................................................................43
CERTIFICATE OF THE COMPANY.....................................................................................................C-1
CERTIFICATE OF MERRILL LYNCH CANADA INC........................................................................................C-2
S-3
SUMMARY OF THE OFFERING
The following summary of the terms of the offering of the Securities is
subject to, and should be read in conjunction with, the more detailed
information which follows in this prospectus supplement and the accompanying
prospectus. References in this prospectus supplement to "dollars" or "$" are
to Canadian currency unless otherwise specified.
Issuer: Merrill Lynch & Co., Inc. ("ML&Co.")
Securities: Global Equity Performance Weighted Notes, Series 1 (the "Notes")
Global Equity Performance Weighted Warrants, Series 1
(the "Warrants")
Issue Price: $100 per Security
Denominations: Each of the Notes and the Warrants will be issued in denominations of $100 units.
Minimum Subscription: $2,000
Issue Date: August |X|, 2004
Maturity Date and Term August |X|, 2011 (resulting in a term of approximately seven years).
of Notes:
Exercise Date and Term August |X|, 2011 (resulting in a term of approximately seven years).
of Warrants:
Regional Baskets: The three Regional Baskets are (i) the "North American Regional Basket", which will
be 100% weighted to the S&P 500 Index, (ii) the "European Regional Basket", which
will be 60% weighted to the Dow Jones EURO STOXX 50 Index and 40% weighted to the
FTSE 100 Index, and (iii) the "Asian Regional Basket", which will be 55% weighted
to the Nikkei 225 Index, 35% weighted to the MSCI Hong Kong Index and 10% weighted
to the S&P/ASX 200 Index.
Payment at Maturity for Notes: On the maturity date, for each unit of the Notes you own, we will pay you the
Redemption Amount in cash. In no event will you receive less than 20% of the
principal amount per unit. If the value of one or more of the Regional Baskets
decreases, you may lose a portion of your initial investment, and that loss could
be significant.
Payment on Exercise of Warrants: On the exercise date, for each unit of the Warrants you own, we will pay you the
Redemption Amount in cash or, if you and ML&Co. both agree, by delivery of one or
more securities underlying the equity indices that comprise the Regional Baskets.
If the value of one or more of the Regional Baskets decreases, you may lose a
portion of your initial investment, and that loss could be significant. The
Warrants do not provide for a minimum payment on exercise.
Redemption Amount: The redemption amount for a unit of Securities will be equal to the product of $100
and the weighted average of the performance of the three Regional Baskets over the
term of the Securities determined in Canadian dollars (as more fully described
herein), less the Adjustment Fee. The weighting factors will be 44.45%, 33.33% and
22.22% for the best performing, second best performing and third best performing
Regional Baskets, respectively, over the term of the Securities.
S-4
Calculation of Redemption Amount: The Redemption Amount for a Security will be determined by the Calculation Agent in
accordance with the following formula (provided that in no event will the
Redemption Amount of a Note be less than $20):
$100 x [W1P1+ W2P2 + W3P3] - AF
where:
W1 is the weight for the best performing Regional Basket over the term of the
Securities (after giving effect to the conversion of the Regional Basket into
Canadian dollars) which will be equal to 44.45%.
W2 is the weight for the second best performing Regional Basket over the term of
the Securities (after giving effect to the conversion of the Regional Basket into
Canadian dollars) which will be equal to 33.33%.
W3 is the weight for the third best performing Regional Basket over the term of the
Securities (after giving effect to the conversion of the Regional Basket into
Canadian dollars) which will be equal to 22.22%.
P1 is the performance of the best performing Regional Basket.
P2 is the performance of the second best performing Regional Basket.
P3 is the performance of the third best performing Regional Basket.
AF is the Adjustment Fee.
Performance of Regional Baskets: The performance of the North American Regional Basket will be:
IE1
---
IS1
The performance of the European Regional Basket will be:
[ 60% x IE2 ] [ 40% x IE3 ]
[ --- ] + [ --- ]
[ IS2 ] [ IS3 ]
The performance of the Asian
Regional Basket will be:
[ 55% x IE4 ] [ 35% x IE5 ] [ 10% x IE6 ]
[ --- ] + [ --- ] + --- ]
[ IS4 ] [ IS5 ] IS6 ]
Index Values: ISi is the Starting Value of Indexi.
IEi is the Ending Value of Indexi.
Starting Value is the closing value for an Index multiplied by the then current
exchange rate between the Canadian dollar and the relevant Index currency, each as
determined on the date the Securities are priced for initial sale to the public.
Ending Value is the average, arithmetic mean of the values of an Index at the close
of the market on ten business days shortly before August |X|, 2011, as determined
by the designated Index Calculation Agent for that Index, multiplied by the then
current exchange rate between the Canadian dollar and the relevant Index currency.
S-5
Underlying Equity Indices: Index1 = S&P 500 Index
Index2 = Dow Jones EURO STOXX 50 Index
Index3 = FTSE 100 Index
Index4 = Nikkei 225 Index
Index5 = MSCI Hong Kong Index
Index6 = S&P/ASX 200 Index
Adjustment Fee: The Adjustment Fee is calculated for each calendar day and accrues over the term of
the Securities at an annual rate of 1.0% of the amount that would be the Redemption
Amount for the Securities on that calendar day (determined without regard to the
Adjustment Fee) if that calendar day was the maturity date or exercise date, as the
case may be. The Adjustment Fee will accrue to the benefit of ML&Co.
No Payments Before We will not make any payments on the Notes until the maturity date except in the
August |X|, 2011: limited circumstances described under "Description of the Securities - Events of
Default and Acceleration" in this prospectus supplement.
The Warrants cannot be exercised prior to the exercise date except in the
circumstances described under "Description of the Securities - Events of Default
and Acceleration" in this prospectus supplement.
Status/Ranking: The Notes will be unsecured and will rank equally with our unsecured and
unsubordinated debt. The Warrants will be unsecured contractual obligations of
ML&Co. and will rank equally with our other unsecured contractual obligations and
with our unsecured and unsubordinated debt.
Income Tax Considerations: The Notes are recommended only for Canadian tax deferred accounts (registered
retirement savings plans, registered retirement income funds, deferred profit
sharing plans and registered education savings plans). The Warrants are recommended
only for Canadian taxable investors. See "Income Tax Considerations Applicable to
Canadian Resident Investors" in this prospectus supplement.
Investment Eligibility: The Notes will be qualified investments for registered retirement savings plans,
registered retirement income funds, registered education savings plans and deferred
profit sharing plans. The Notes will be foreign property.
Risk Factors: You should consider carefully the factors set out under "Risk Factors" in this
prospectus supplement before reaching a decision to buy the Securities.
Calculation Agent: Merrill Lynch International, as Calculation Agent, will be our agent for purposes
of calculating, among other things, the Redemption Amount.
Index Calculation Agents: The Index Calculation Agent, with respect to the S&P 500 Index and the S&P/ASX 200
Index, will be Standard & Poor's, a division of The McGraw-Hill Companies, Inc.,
with respect to the Dow Jones EURO STOXX 50 Index, will be STOXX Limited, with
respect to the FTSE 100 Index, will be FTSE International Limited, with respect to
the Nikkei 225 Index, will be Nihon Keizai Shimbun, and with respect to the MSCI
Hong Kong Index, will be Morgan Stanley Capital International Inc.
No Listing of Securities: The Securities will not be listed on any stock exchange.
Secondary Trading of Securities: After the initial offering, Merrill Lynch Canada Inc. ("ML Canada") may, from time
to time, purchase and sell the Securities in the secondary market, but is not
obligated to do so. There can be no assurance that there will be a secondary market
for the Securities.
S-6
Book Entry Registration: The Securities will be issued in the form of global certificates which will be held
by The Canadian Depository for Securities Limited, also known as CDS, or its
nominee. Except in certain limited circumstances, you will not be entitled to
receive certificates evidencing the Securities in certificated form.
Service Fee: ML&Co. will pay a service fee quarterly (commencing November 30, 2004) to
investment advisers whose client accounts hold the Securities at the end of the
quarter. The service fee is calculated for each calendar day at an annual rate of
0.5% of the last price for the Securities published by ML Canada.
Early Sales Fee: To the extent that you sell any Securities to ML Canada, the purchase price you
receive for those Securities will reflect the deduction of a fee as follows:
Sale Period Fee Deduction
----------- -------------
August |X|, 2004 - August |X|, 2005 $3 per unit
August |X|, 2005 - August |X|, 2006 $2 per unit
August |X|, 2006 - August |X|, 2007 $1 per unit
After August |X|, 2007 Nil
S-7
EXAMPLES OF REDEMPTION AMOUNT CALCULATIONS
Below are examples of Redemption Amount calculations assuming an
investment term equal to that of the Securities. These examples are included
for purposes of illustration only and should not be construed as a forecast or
projection. No assurance can be given that the results shown in these examples
would ever be realized.
Example #1: "Gain" Scenario
In this example, the European Regional Basket performs the best over the
term of the Securities and receives a weighting of 44.45% of the
Redemption Amount, the Asian Regional Basket performs second best over
the term of the Securities and receives a weighting of 33.33%, and
finally the North American Basket performs third best over the term of
the Securities and receives a weighting of 22.22%.
A) Regional Basket Performance:
-------------- ---------------------- ------------ ---------------------- -------------------------- ---------------------
Weight in Ending Value of the Weighted Ending Value of Regional
Regional Index Expressed as % the Index Expressed as % Basket
Region Index Basket of Starting Value of Starting Value Performance
(Cdn. $) (Cdn. $)
-------------- ---------------------- ------------ ---------------------- -------------------------- ---------------------
North S&P 500 100% x 180% = 180% 180%
American
-------------- ---------------------- -------- --- ---------------------- -------- ----------------- ---------------------
Dow Jones EURO STOXX 60% x 220% = 132%
European 50
---------------------- -------- --- ---------------------- -------- ----------------- ---------------------
FTSE 100 40% x 200% = 80% 212%
-------------- ---------------------- -------- --- ---------------------- -------- ----------------- ---------------------
Nikkei 225 55% x 200% = 110%
---------------------- -------- --- ---------------------- -------- ----------------- ---------------------
Asian MSCI Hong Kong 35% x 190% = 67% 196%
---------------------- -------- --- ---------------------- -------- ----------------- ---------------------
S&P ASX 200 10% x 190% = 19%
-------------- ---------------------- -------- --- ---------------------- -------- -----------------
B) Ranking of Regional Basket Performance:
------------------------------- ------------------------------- -------------------------------------------
Region Regional Basket Performance
------------------------------- ------------------------------- -------------------------------------------
Best Performing European 212%
------------------------------- ------------------------------- -------------------------------------------
Second Best Performing Asian 196%
------------------------------- ------------------------------- -------------------------------------------
Third Best Performing North American 180%
------------------------------- ------------------------------- -------------------------------------------
C) Weighted Overall Performance:
----------- ------------ -------------
= [ 44.45% x Best ] + [ 33.33% x Second Best ] + [ 22.22% x Third Best ]
Performing Performing Performing
Regional Regional Regional
Basket Basket Basket
----------- ------------ -------------
= [ 44.45% x European ] + [ 33.33% x Asian ] + [ 22.22% x North ]
American
----------- ------------ -------------
= [ 44.45% x 212% ] + [ 33.33% x 196% ] + [ 22.22% x 180% ]
----------- ------------ -------------
= 199.39%
-----------------------------------------------------------------------------------------------------------------------------
Redemption Amount = Initial Price of the Security x Weighted Overall Performance - Adjustment Fee*
= $100.00 x 199.39% - $10.48**
= $188.91 (a 9.51% annual compounded return)
-----------------------------------------------------------------------------------------------------------------------------
* The Adjustment Fee will be calculated and accrue daily at an annual
rate of 1.0% of the amount that would be the Redemption Amount for the
Securities on each calendar day (determined without regard to the
Adjustment Fee) if that calendar day was the maturity date or exercise
date, as the case may be.
** The above Adjustment Fee has been calculated assuming that the average
Redemption Amount for the Securities over their term (determined without
regard to the Adjustment Fee) is $144.46 per unit.
S-8
Example #2: "Gain" Scenario
In this example, the North American Regional Basket performs the best
over the term of the Securities and receives a weighting of 44.45% of the
Redemption Amount, the European Regional Basket performs second best over
the term of the Securities and receives a weighting of 33.33%, and
finally the Asian Regional Basket performs third best over the term of
the Securities and receives a weighting of 22.22%.
A) Regional Basket Performance:
-------------- ---------------------- ------------ ---------------------- -------------------------- ---------------------
Weight in Ending Value of the Weighted Ending Value of Regional
Regional Index Expressed as % the Index Expressed as % Basket
Region Index Basket of Starting Value of Starting Value (Cdn. Performance
(Cdn. $) $)
-------------- ---------------------- ------------ ---------------------- -------------------------- ---------------------
North S&P 500 100% x 220% = 220% 220%
American
-------------- ---------------------- -------- --- ---------------------- -------- ----------------- ---------------------
Dow Jones EURO STOXX 60% x 180% = 108%
European 50
---------------------- -------- --- ---------------------- -------- ----------------- ---------------------
FTSE 100 40% x 190% = 76% 184%
-------------- ---------------------- -------- --- ---------------------- -------- ----------------- ---------------------
Nikkei 225 55% x 90% = 50%
---------------------- -------- --- ---------------------- -------- -----------------
Asian MSCI Hong Kong 35% x 80% = 28%
---------------------- -------- --- ---------------------- -------- ----------------- ---------------------
S&P ASX 200 10% x 100% = 10% 88%
-------------- ---------------------- -------- --- ---------------------- -------- ----------------- ---------------------
B) Ranking of Regional Basket Performance:
------------------- -------------------------------------------------------
Region Regional Basket Performance
------------------------------- ------------------- -------------------------------------------------------
Best Performing North American 220%
------------------------------- ------------------- -------------------------------------------------------
Second Best Performing European 184%
------------------------------- ------------------- -------------------------------------------------------
Third Best Performing Asian 88%
------------------------------- ------------------- -------------------------------------------------------
C) Weighted Overall Performance:
----------- ------------ -------------
= [ 44.45% x Best ] + [ 33.33% x Second Best ] + [ 22.22% x Third Best ]
Performing Performing Performing
Regional Regional Regional
Basket Basket Basket
----------- ------------ -------------
= [ 44.45% x North ] + [ 33.33% x European ] + [ 22.22% x Asian ]
American
----------- ------------ -------------
= [ 44.45% x 220% ] + [ 33.33% x 184% ] + [ 22.22% x 88% ]
----------- ------------ -------------
= 178.67%
-----------------------------------------------------------------------------------------------------------------------------
Redemption Amount = Initial Price of the Security x Weighted Overall Performance - Adjustment Fee*
= $100.00 x 178.67% - $9.75**
= $168.92 (a 7.78% annual compounded return)
-----------------------------------------------------------------------------------------------------------------------------
* The Adjustment Fee will be calculated and accrue daily at an annual
rate of 1.0% of the amount that would be the Redemption Amount for the
Securities on each calendar day (determined without regard to the
Adjustment Fee) if that calendar day was the maturity date or exercise
date, as the case may be.
** The above Adjustment Fee has been calculated assuming that the average
Redemption Amount for the Securities over their term (determined without
regard to the Adjustment Fee) is $134.46 per unit.
S-9
Example #3: "Loss" Scenario
In this example, the North American Regional Basket performs the best
over the term of the Securities and receives a weighting of 44.45% of the
Redemption Amount, the European Regional Basket performs second best over
the term of the Securities and receives a weighting of 33.33%, and
finally the Asian Regional Basket performs third best over the term of
the Securities and receives a weighting of 22.22%.
A) Regional Basket Performance:
-------------- ---------------------- ------------ ---------------------- -------------------------- ---------------------
Weight in Ending Value of the Weighted Ending Value of Regional
Regional Index Expressed as % the Index Expressed as % Basket Performance
Region Index Basket of Starting Value of Starting Value (Cdn.
(Cdn. $) $)
-------------- ---------------------- ------------ ---------------------- -------------------------- ---------------------
North S&P 500 100% x 100% = 100% 100%
American
-------------- ---------------------- -------- --- ---------------------- -------- ----------------- ---------------------
Dow Jones EURO STOXX 60% x 90% = 54%
European 50
---------------------- -------- --- ---------------------- -------- ----------------- ---------------------
FTSE 100 40% x 75% = 30% 84%
-------------- ---------------------- -------- --- ---------------------- -------- ----------------- ---------------------
Nikkei 225 55% x 80% = 44%
---------------------- -------- --- ---------------------- -------- -----------------
Asian MSCI Hong Kong 35% x 90% = 32%
---------------------- -------- --- ---------------------- -------- ----------------- ---------------------
S&P ASX 200 10% x 74% = 7% 83%
-------------- ---------------------- -------- --- ---------------------- -------- ----------------- ---------------------
B) Ranking of Regional Basket Performance:
------------------- -------------------------------------------------------
Region Regional Basket Performance
------------------------------- ------------------- -------------------------------------------------------
Best Performing North American 100%
------------------------------- ------------------- -------------------------------------------------------
Second Best Performing European 84%
------------------------------- ------------------- -------------------------------------------------------
Third Best Performing Asian 83%
------------------------------- ------------------- -------------------------------------------------------
C) Weighted Overall Performance:
----------- ------------ -------------
= [ 44.45% x Best ] + [ 33.33% x Second Best ] + [ 22.22% x Third Best ]
Performing Performing Performing
Regional Regional Regional
Basket Basket Basket
----------- ------------ -------------
= [ 44.45% x North ] + [ 33.33% x European ] + [ 22.22% x Asian ]
American
----------- ------------ -------------
= [ 44.45% x 100% ] + [ 33.33% x 84% ] + [ 22.22% x 83% ]
----------- ------------ -------------
= 90.87%
-----------------------------------------------------------------------------------------------------------------------------
Redemption Amount = Initial Price of the Security x Weighted Overall Performance - Adjustment Fee*
= $100.00 x 90.87% - $6.68**
= $84.19 (a -2.43% annual compounded return)
-----------------------------------------------------------------------------------------------------------------------------
* The Adjustment Fee will be calculated and accrue daily at an annual
rate of 1.0% of the amount that would be the Redemption Amount for the
Securities on each calendar day (determined without regard to the
Adjustment Fee) if that calendar day was the maturity date or exercise
date, as the case may be.
** The above Adjustment Fee has been calculated assuming that the average
Redemption Amount for the Securities over their term (determined without
regard to the Adjustment Fee) is $92.09 per unit.
S-10
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this prospectus supplement and the accompanying prospectus to
help you understand the Global Equity Performance Weighted Notes, Series 1 due
August |X|, 2011 (the "Notes") and the Global Equity Performance Weighted
Warrants, Series 1 exercisable August |X|, 2011 (the "Warrants") (the Notes
and the Warrants being referred to collectively as the "Securities").
You should carefully read this prospectus supplement and the accompanying
prospectus to fully understand the information relating to ML&Co., the terms
of the Notes, the terms of the Warrants, the Regional Baskets and the tax and
other considerations that are important to you in making a decision about
whether to invest in the Securities. You should carefully review the "Risk
Factors" section in this prospectus supplement, which highlights certain risks
associated with an investment in the Securities, to determine whether an
investment in either of the Securities is appropriate for you.
References in this prospectus supplement to "ML&Co.", "we", "us" and
"our" are to Merrill Lynch & Co., Inc., references to "MLPF&S" are to Merrill
Lynch, Pierce, Fenner & Smith Incorporated, and references to "dollars" or "$"
are to Canadian currency unless otherwise specified.
Who is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various subsidiary
and affiliated companies that provide investment, financing, insurance and
related services on a global basis. For information about ML&Co., see the
section "Merrill Lynch & Co., Inc." in the accompanying prospectus. You should
also read the other documents we have filed with the U.S. Securities and
Exchange Commission and the securities regulatory authorities in Canada, which
you can find by referring to the section "Where You Can Find More Information"
in this prospectus supplement.
What are the Notes?
The Notes will be a series of senior Notes issued by ML&Co. and will not
be secured by collateral. The Notes will rank equally with all of our other
unsecured and unsubordinated debt. The Notes will mature on August |X|, 2011.
We cannot redeem the Notes at an earlier date. We will not make any payments
on the Notes until maturity or such earlier date as described under
"Description of the Securities - Events of Default and Acceleration" in this
prospectus supplement.
Each unit of the Notes represents $100 principal amount of Notes. You may
transfer the Notes only in whole units. You will not have the right to receive
physical certificates evidencing your ownership except under limited
circumstances. Instead, we will issue the Notes in the form of a global
certificate, which will be held by The Canadian Depository for Securities
Limited, also known as CDS, or its nominee. Direct and indirect participants
in CDS will record your ownership of the Notes. You should refer to the
section "Description of the Securities -- Depository" in this prospectus
supplement.
What are the Warrants?
The Warrants will be issued by ML&Co. and will not be secured by
collateral. The Warrants constitute a call option in respect of the three
Regional Baskets and will be automatically exercised at the exercise date. The
option is in respect of 44.45% of the Regional Basket which performs the best
over the term of the Warrants, 33.33% of the Regional Basket which performs
second best over the term of the Warrants and 22.22% of the Regional Basket
which performs third best over the term of the Warrants.
The Warrants will rank equally with all of our other unsecured
contractual obligations and unsubordinated and unsecured debt. You cannot
exercise your Warrants before August |X|, 2011. The Warrants will be
automatically exercised for no additional consideration on August |X|, 2011 or
on an earlier date as described under "Description of the Securities - Events
of Default and Acceleration" in this prospectus supplement.
Each unit of the Warrants represents a single Security with an original
public offering price of $100. You will not have the right to receive physical
certificates evidencing your ownership except under limited circumstances.
Instead, we will issue the Warrants in the form of a global certificate, which
will be held by CDS, or its nominee. You should refer to the section
"Description of the Securities - Depository" in this prospectus supplement.
Should I buy Notes or Warrants?
We recommend that only Canadian tax deferred accounts (registered
retirement savings plans
S-11
("RRSPs"), registered retirement income funds ("RRIFs"), deferred profit
sharing plans ("DPSPs") and registered education savings plans ("RESPs"))
purchase the Notes and that only Canadian taxable investors purchase the
Warrants.
Are there any risks associated with my investment?
Yes, an investment in the Securities is subject to certain risks,
including the risk that you may, in the case of the Notes, lose up to 80% of
your initial investment, and, in the case of the Warrants, lose all of your
initial investment. Please refer to the section "Risk Factors" in this
prospectus supplement.
Will I receive interest payments on the Notes?
You will not receive any interest payments on the Notes, but will instead
receive the Redemption Amount at maturity. We have designed the Notes for
investors who are willing to forego periodic interest payments on the Notes,
in exchange for the ability to participate in possible increases in the
Regional Baskets.
Who determines the value of the Regional Baskets and what does each Regional
Basket reflect?
Merrill Lynch International (the "Calculation Agent") will determine the
value of each Regional Basket as described in the section entitled "The
Regional Baskets" in this prospectus supplement. The Regional Baskets are
designed to allow investors to participate in the movement of the values of
certain indices (each, a "Basket Index"), based on the weighting of the Basket
Indices in their respective Regional Baskets expressed in Canadian dollars,
over the term of the Securities. The "North American Regional Basket" will be
100% weighted to the S&P 500 Index, which is denominated in U.S. dollars. The
"European Regional Basket" will be 60% weighted to the Dow Jones EURO STOXX 50
Index, which is denominated in euros, and 40% weighted to the FTSE 100 Index,
which is denominated in British pounds. The "Asian Regional Basket" will be
55% weighted to the Nikkei 225 Index, which is denominated in Japanese yen,
35% weighted to the MSCI Hong Kong Index, which is denominated in Hong Kong
dollars, and 10% weighted to the S&P/ASX 200 Index, which is denominated in
Australian dollars. General information relating to each Basket Index, its
publisher and its composition is included in the section entitled "The
Regional Baskets" in this prospectus supplement.
How have the Basket Indices performed historically?
The Regional Baskets will not exist until the date the Securities are
priced for initial sale to the public (the "Pricing Date"). We have, however,
included tables showing the historical values of each Basket Index, as well as
the historical exchange rate of the Canadian dollar against the currency in
which that Basket Index is denominated (each, an "Index Currency") for those
months.
We have provided this historical information to help you evaluate the
past performance of the Basket Indices, including the behavior of the Canadian
dollar relative to the Index Currencies, in various economic environments;
however, this past performance is not indicative of how the Basket Indices
(expressed in Canadian dollars) will perform in the future.
What will I receive on August |X|, 2011?
On August |X|, 2011, you will receive a cash payment equal to the
"Redemption Amount" for each unit of Notes and for each unit of Warrants
exercised under the cash settlement option. The Redemption Amount to which you
will be entitled will be equal to the product of $100 and the weighted average
of the performance of the three Regional Baskets over the term of the
Securities determined in Canadian dollars (as more fully described herein),
less the Adjustment Fee. The weighting factors will be 44.45%, 33.33% and
22.22% for the best performing, second best performing and third best
performing Regional Baskets, respectively, over the term of the Securities.
Accordingly, the performance of each Regional Basket will not affect the
Redemption Amount equally, but instead, 44.45% of the Redemption Amount will
be based on the Regional Basket that performs the best over the term of the
Securities, 33.33% of the Redemption Amount will be based on the Regional
Basket that performs second best over the term of the Securities and 22.22% of
the Redemption Amount will be based on the Regional Basket that performs third
best over the term of the Securities. In the case of the Notes, however, the
Redemption Amount will not be less than $20 per unit.
For more specific information about the Redemption Amount, please see the
section entitled "Description of the Securities - Payment" in this prospectus
supplement.
S-12
What about taxes?
The Notes will constitute a qualified investment under the Income Tax Act
(Canada) (the "Act") for RRSPs, RRIFs, DPSPs and RESPs. The Notes will
constitute foreign property for persons subject to the foreign property rules
in that Act. In order for Canadian taxable investors to avoid the application
of the interest accrual rules in that Act, it is recommended that those
persons not purchase the Notes. The circumstances in which the Warrants will
constitute capital property to a Canadian taxable investor are discussed in
the section entitled "Income Tax Considerations Applicable to Canadian
Resident Investors". Canadian resident investors should review this section
and the section entitled "Eligibility for Investment".
We do not expect that the Securities will be acquired by United States
persons as that term is defined for purposes of the United States Internal
Revenue Code of 1986, as amended. However, any United States person that does
acquire Securities should review the discussion of tax considerations in the
section entitled "United States Federal Income Tax Considerations".
Will the Securities be listed on a stock exchange?
Neither the Notes nor the Warrants will be listed on any securities
exchange and we do not expect a trading market for either the Notes or the
Warrants to develop, which may affect the price that you receive for your
Notes or Warrants upon any sale prior to August |X|, 2011. You should review
the section entitled "Risk Factors - Risk Factors Relating to the Securities -
A trading market for the Securities is not expected to develop" in this
prospectus supplement.
What is the role of Merrill Lynch Canada Inc.?
Our subsidiary, Merrill Lynch Canada Inc. ("ML Canada"), is the lead
agent for the offering and sale of the Securities. After the initial offering,
ML Canada intends to buy and sell the Securities to create a secondary market
for holders of the Securities, and may stabilize or maintain the market price
of the Securities during the initial distribution of the Securities. However,
ML Canada will not be obligated to engage in any of these market activities or
continue them once it has started. For the purpose of calculating the service
fee payable to investment advisers whose client accounts hold the Securities,
ML Canada will publish daily a price for the Securities over the term of the
Securities in the national edition of The Globe and Mail or another major
Canadian newspaper.
What are the roles of the Calculation Agent and the Index Calculation Agents?
Merrill Lynch International will be our agent for purposes of
calculating, among other things, the value for each Regional Basket and the
Redemption Amount. Under certain circumstances, these duties could result in a
conflict of interest between the Calculation Agent's status as a subsidiary of
ML&Co. and its responsibilities as Calculation Agent. Each of the Index
Calculation Agents will be our agent for purposes of calculating the value for
each Basket Index. Under certain circumstances, the duties of each Index
Calculation Agent and its other business activities could give rise to
conflicts of interest. Whenever the Calculation Agent is required to act, it
will do so in good faith using its reasonable judgment.
S-13
RISK FACTORS
Your investment in the Securities will involve risks. You should
carefully consider the following discussion of risks before deciding whether
an investment in either of the Securities is appropriate for you.
RISK FACTORS RELATING TO THE SECURITIES
The performance of each Regional Basket will not affect the Redemption Amount
equally and you will not know how the Regional Baskets will be weighted in
determining the Redemption Amount until the Redemption Amount is determined
The Redemption Amount to which you will be entitled will depend primarily
on the relative performance of the Regional Baskets over the term of the
Securities. The performance of each Regional Basket will not affect the
Redemption Amount equally, but instead, 44.45% of the Redemption Amount will
be based on the Regional Basket that performs the best over the term of the
Securities, 33.33% of the Redemption Amount will be based on the Regional
Basket that performs second best over the term of the Securities and 22.22% of
the Redemption Amount will be based on the Regional Basket that performs the
third best over the term of the Securities. Because the weighting of the
Regional Baskets in determining the Redemption Amount will be based on the
relative performance of the Regional Baskets over the term of the Securities,
you will not know what the respective weightings will be until the Redemption
Amount is determined.
Your return will not reflect the total return of owning the securities
included in the Basket Indices
The return on your Securities will not reflect the total return you would
realize if you actually owned the securities included in indices underlying
each of the Basket Indices and received the dividends paid on those securities
because the value of the Regional Basket is calculated, in part, by reference
to the prices of the securities included in each Basket Index without taking
into consideration the value of dividends or other distributions paid on those
securities.
You are not entitled to any of the securities which comprise the Basket Indices
By purchasing a Security, you will not be entitled to any rights with
respect to any securities which comprise the Basket Indices. A Warrant may be
physically settled only if you and ML&Co. both agree. Even if ML&Co. agrees,
you will only be entitled to receive securities that are eligible under the
multijurisdictional disclosure system, or "MJDS". See "Description of the
Securities - Description of the Warrants" in this prospectus supplement.
Your return may be affected by factors affecting international securities
markets
The Basket Indices that comprise the Regional Baskets are computed by
reference to the value of the equity securities of companies listed on various
U.S., European, Asian and Australian exchanges. The return on the Securities
will be affected by factors affecting the value of securities in these
markets. The European, Asian and Australian securities markets may be more
volatile than U.S., Canadian or other securities markets and may be affected
by market developments in different ways than U.S., Canadian or other
securities markets. Direct or indirect government intervention to stabilize a
particular securities market and cross-shareholdings in companies on these
markets may affect prices and the volume of trading on those markets. Also,
there is generally less publicly available information about European, Asian
and Australian companies than about North American companies that are subject
to the reporting requirements of Canadian or U.S. securities regulatory
authorities. Additionally, accounting, auditing and financial reporting
standards and requirements in the U.S., Europe, Asia and Australia differ from
one another and from those applicable to Canadian reporting companies.
The prices and performance of securities of companies in the U.S.,
Europe, Asia and Australia may be affected by political, economic, financial
and social factors in those regions. In addition, recent or future changes in
a country's government, economic and fiscal policies, the possible imposition
of, or changes in, currency exchange laws or other laws or restrictions, and
possible fluctuations in the rate of exchange between currencies, are factors
that could negatively affect international securities markets. Moreover, the
U.S., Australian and the relevant European and Asian economies may differ
favorably or unfavorably from the Canadian economy in economic
S-14
factors such as growth of gross national product, rate of inflation, capital
reinvestment, resources and self-sufficiency.
You must rely on your own evaluation of the merits of an investment linked, in
part, to foreign currency exchange rates
In the ordinary course of their businesses, affiliates of ML&Co. from
time to time express views on expected movements in foreign currency exchange
rates. These views are sometimes communicated to clients who participate in
foreign exchange markets. However, these views, depending upon world-wide
economic, political and other developments, may vary over differing
time-horizons and are subject to change. Moreover, other professionals who
deal in foreign currencies may at any time have significantly different views
from those of our affiliates. For reasons such as these, we believe that most
investors in foreign exchange markets derive information concerning those
markets from multiple sources. In connection with your purchase of the
Securities, you should investigate the foreign exchange markets and not rely
on views which may be expressed by our affiliates in the ordinary course of
their businesses with respect to future exchange rate movements.
You should make such investigations as you deem appropriate as to the
merits of an investment linked, in part, to foreign currency exchange rates.
Neither the offering of the Securities nor any views which may from time to
time be expressed by our affiliates in the ordinary course of their businesses
with respect to future exchange rate movements constitutes a recommendation as
to the merits of an investment in the Securities.
The value of each Regional Basket will be influenced by changes in the
exchange rates between the Canadian dollar and the Index Currencies
The value of any currency, including the Index Currencies, and the
Canadian dollar, may be affected by complex political and economic factors.
The exchange rate of each relevant Index Currency in terms of the Canadian
dollar is at any moment a result of the supply and demand for the two
currencies, and changes in the exchange rate result over time from the
interaction of many factors directly or indirectly affecting economic and
political conditions in the originating country of each relevant Index
Currency and Canada, including economic and political developments in other
countries. Of particular importance are the relative rates of inflation,
interest rate levels, the balance of payments and the extent of governmental
surpluses or deficits in those countries and in Canada, all of which are in
turn sensitive to the monetary, fiscal and trade policies pursued by the
governments of those countries, Canada and other countries important to
international trade and finance.
Foreign exchange rates can either be fixed by sovereign governments or
floating. Exchange rates of most economically developed nations, including
those issuing the relevant currencies, are permitted to fluctuate in value
relative to the Canadian dollar. However, governments sometimes do not allow
their currencies to float freely in response to economic forces. Governments,
including those issuing the relevant currencies, use a variety of techniques,
such as intervention by their central bank or imposition of regulatory
controls or taxes, to affect the exchange rates of their respective
currencies. They may also issue a new currency to replace an existing currency
or alter the exchange rate or relative exchange characteristics by devaluation
or revaluation of a currency. Thus, a special risk in purchasing the
Securities is that their liquidity, trading value and Redemption Amount could
be affected by the actions of sovereign governments which could change or
interfere with theretofore freely determined currency valuation, fluctuations
in response to other market forces and the movement of currencies across
borders. There will be no adjustment or change in the terms of the Securities
in the event that exchange rates should become fixed, or in the event of any
devaluation or revaluation or imposition of exchange or other regulatory
controls or taxes, or in the event of the issuance of a replacement currency
or in the event of other developments affecting the Index Currencies, the
Canadian dollar specifically or any other currency.
Even though currencies trade around-the-clock, your Securities will not
The interbank market in foreign currencies is a global, around-the-clock
market. Therefore, the hours of trading for the Securities will not conform to
the hours during which the Index Currencies and Canadian dollar are traded.
Significant price and rate movements may take place in the underlying foreign
exchange markets that will not be reflected immediately in the price of the
Securities. The possibility of these movements should be taken into account in
relating the value of the Securities to those in the underlying foreign
exchange markets.
S-15
There is no systematic reporting of last-sale information for foreign
currencies. Reasonably current bid and offer information is available in
certain brokers' offices, in bank foreign currency trading offices and to
others who wish to subscribe for this information, but this information will
not necessarily be reflected in the value of the Basket Index used to
calculate the Redemption Amount. There is no regulatory requirement that those
quotations be firm or revised on a timely basis. The absence of last-sale
information and the limited availability of quotations to individual investors
may make it difficult for many investors to obtain timely, accurate data about
the state of the underlying foreign exchange markets.
A trading market for the Securities is not expected to develop
Neither the Notes nor the Warrants will be listed on any securities
exchange and we do not expect a trading market for either the Notes or the
Warrants to develop. Although our affiliate, ML Canada, has indicated it
expects to bid for Securities offered for sale to it by holders of the
Securities, it is not required to do so and may cease making such bids at any
time. The limited trading market for your Securities may affect the price that
you receive for your Securities if you do not wish to hold your investment
until August |X|, 2011. In addition, if you sell your Securities prior to
August |X|, 2007 to ML Canada, ML Canada will deduct an early sales fee from
the price paid to you for the Securities ranging from $3 per unit to $1 per
unit depending on when you sell your Securities.
The Index Publishers have no obligations relating to the Securities
The Index Publishers, as defined below, have no obligations relating to
the Securities or amounts to be paid to you, including any obligation to take
the needs of ML&Co. or of beneficial owners of the Securities into
consideration for any reason. The Index Publishers will not receive any of the
proceeds of the offering of the Securities and are not responsible for, and
have not participated in, the offering of the Securities and are not
responsible for, and will not participate in, the determination or calculation
of the amount receivable by beneficial owners of the Securities.
The Index Publishers are under no obligation to continue the calculation
and dissemination of any of the Basket Indices. The Securities are not
sponsored, endorsed, sold or promoted by the Index Publishers. No inference
should be drawn from the information contained in this prospectus supplement
or the accompanying prospectus that the Index Publishers make any
representation or warranty, implied or express, to ML&Co., the holders of the
Securities or any member of the public regarding the advisability of investing
in securities generally or in the Securities in particular or the ability of
the Index Publishers or the Basket Indices to track general stock market
performance.
Many factors affect the trading value of the Securities; 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 Securities 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
Securities caused by another factor and that the effect of one factor may
exacerbate the decrease in the trading value of the Securities caused by
another factor. The following paragraphs describe the expected impact on the
market value of the Securities given a change in a specific factor, assuming
all other conditions remain constant.
The values of the Basket Indices are expected to affect the trading value
of the Securities. We expect that the market value of the Securities will
depend substantially on the amount by which the value of each of the Basket
Indices exceeds its Starting Value. If you choose to sell your Securities when
the values of the Basket Indices exceed their respective Starting Values, you
may receive substantially less than the Redemption Amount that would be
payable on August |X|, 2011 based on that value because of the expectation
that the value of the Basket Indices will continue to fluctuate until their
respective Ending Values are determined. If you choose to sell your Securities
when the values of the Basket Indices are below, or not sufficiently above,
their respective Starting Values, you may receive less than the $100 per unit
of Securities.
As the time remaining to August |X|, 2011 decreases, the "time premium"
associated with the Securities will decrease. We anticipate that before August
|X|, 2011, the Securities may trade at a value above that which would be
expected based on the level of interest rates and the value of the Regional
Baskets. This difference will reflect a "time premium" due to expectations
concerning the relative performance of the Regional Baskets during the period
S-16
before August |X|, 2011. However, as the time remaining to August |X|, 2011
decreases, we expect that this time premium will decrease, lowering the
trading value of the Securities.
Changes in the levels of interest rates may affect the trading
value of the Securities. In general, if Canadian interest rates increase, we
expect that the trading value of the Securities will decrease because the
Securities may be less attractive relative to interest bearing alternative
investments and, conversely, if Canadian interest rates decrease, we expect
that the trading value of the Securities will increase. In general, if
interest rates in the U.S., Europe, Asia and Australia increase, we expect
that the global equity markets could be adversely affected which could cause
the trading value of the Securities to decrease and, conversely, if interest
rates in the U.S., Europe, Asia and Australia decrease, we expect that the
trading value of the Securities could increase. The level of interest rates in
Canada, the U.S., Europe, Asia or Australia may also affect the applicable
economies and, in turn, the values of the Basket Indices. Rising interest
rates may lower the value of a Basket Index and, thus, may decrease the value
of the Securities. Falling interest rates may increase the value of a Basket
Index and, thus, may increase the value of the Securities.
Changes in the levels of exchange rates may affect the trading value of
the Securities. The Securities are denominated in Canadian dollars. However,
the equity securities underlying the Basket Indices are denominated in foreign
currencies, such as U.S. dollars, British pounds, euros, Hong Kong dollars,
Australian dollars and Japanese yen. Fluctuations in the value of the Canadian
dollar against these currencies may have a significant effect (either positive
or negative) on the trading value of the Securities. In general, if the
Canadian dollar appreciates in value against these currencies, we expect that
the trading value of the Securities will decrease.
Changes in the volatilities of the Basket Indices are expected to affect
the trading value of the Securities. Volatility is the term used to describe
the size and frequency of price and/or market fluctuations. If the volatility,
or anticipated volatility, of the Basket Indices decreases, the trading value
of the Securities may be adversely affected.
Changes in the degree of correlation between the performance of the
Basket Indices may affect the trading value of the Securities. In general, we
expect the trading value of the Securities to decrease as the correlation
between the performance of the Basket Indices decreases because we would
expect the volatility of the associated Regional Baskets to also decrease. In
general, we expect the trading value of the Securities to decrease as the
correlation between the performance of the Regional Baskets increases because
this would decrease the effectiveness of the weighting factors used in
calculating the Redemption Amount.
Changes in dividend yields of the stocks included in the Basket Indices
are expected to affect the trading value of the Securities. In general, if
dividend yields on the stocks included in the Basket Indices increase, we
expect that the value of the Securities will decrease and, conversely, if
dividend yields on the stocks included in the Basket Indices decrease, we
expect that the value of the Securities will increase.
Changes in our credit ratings may affect the trading value of the
Securities. 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 Securities. However, because your return
on your Securities is dependent upon factors in addition to our ability to pay
our obligations under the Securities, such as the relative performance of the
Regional Baskets, an improvement in our credit ratings will not reduce the
other investment risks related to the Securities.
In general, assuming all relevant factors are held constant, we expect
that the effect on the trading value of the Securities of a given change in
most of the factors listed above will be less if it occurs later in the term
of the Securities than if it occurs earlier in the term of the Securities.
However, we expect that the effect on the trading value of the Securities of a
given increase in the value of the Regional Baskets will be greater if it
occurs later in the term of the Securities than if it occurs earlier in the
term of the Securities.
Purchases and sales by us and our affiliates may affect your return
We and our affiliates may from time to time buy or sell the stocks
included in the Basket Indices or futures or options contracts on the Basket
Indices for our own accounts for business reasons or in connection with
hedging our obligations under the Securities. These transactions could affect
the price of these stocks and, in turn, the value of the Regional Baskets in a
manner that would be adverse to your investment in the Securities.
S-17
Potential conflicts
Our subsidiary, Merrill Lynch International, is our agent for the
purposes of calculating the value of each Regional Basket and the Redemption
Amount. Under certain circumstances, the role of Merrill Lynch International
as our subsidiary and its responsibilities as Calculation Agent for the
Securities could give rise to conflicts of interest. These conflicts could
occur, for instance, in connection with judgments that it would be required to
make in the event of a discontinuance or unavailability of any Basket Index.
See "Description of the Securities -- Adjustments to the Basket; Market
Disruption Events" and "-- Discontinuance of the Basket Indices" in this
prospectus supplement. Merrill Lynch International is required to carry out
its duties as Calculation Agent in good faith and using its reasonable
judgment. However, you should be aware that because we control Merrill Lynch
International, potential conflicts of interest could arise.
We will pay an amount, calculated on a daily basis at an annual rate of
0.5% of the last price for the Securities published by ML Canada, at the end
of each quarter commencing November 30, 2004 as a service fee to investment
advisers whose client accounts hold the Securities at the end of that quarter.
This service fee will not be paid with respect to Securities sold during that
quarter. As a result of this service fee, your investment adviser will receive
a financial benefit for each full quarter during which you retain your
investment in the Securities.
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 on the
Securities. This subsidiary expects to make a profit in connection with this
arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
ML&Co. or its affiliates may presently or from time to time engage in
business with one or more of the companies included in the Basket Indices
including extending loans to, making equity investments in, or providing
advisory services to such companies, including merger and acquisition advisory
services. In the course of business, ML&Co. or its affiliates may acquire
non-public information relating to the companies included in the Basket
Indices and, in addition, one or more affiliates of ML&Co. may publish
research reports about the companies included in the Basket Indices. ML&Co.
does not make any representation to any purchasers of the Securities regarding
any matters whatsoever relating to the companies included in the Basket
Indices. Any prospective purchaser of the Securities should undertake an
independent investigation of the companies included in the Basket Indices as
in its judgment is appropriate to make an informed decision regarding an
investment in the Securities. The composition of the companies included in the
Basket Indices does not reflect any investment or sell recommendations of
ML&Co. or its affiliates.
The Securities may have adverse tax consequences depending on whether you are
a Canadian taxable investor or a Canadian tax deferred account
You should consider the tax consequences of investing in the Securities.
See "Income Tax Considerations Applicable to Canadian Resident Investors" in
this prospectus supplement. We recommend that a Canadian taxable investor not
purchase the Notes because the Notes may be subject to the application of the
interest accrual rules in the Act and that a Canadian RRSP, RRIF, DPSP or RESP
not purchase the Warrants because of uncertainty regarding whether the
Warrants will constitute a qualified investment under the Act. We do not
expect that the Securities will be acquired by United States persons as that
term is defined for purposes of the United States Internal Revenue Code of
1986, as amended. However, any United States person that does acquire
Securities should review the discussion of tax considerations in the section
entitled "United States Federal Income Tax Considerations" in this prospectus
supplement.
You may not be able to effect service of process or enforce judgments obtained
against us in Canada
We are incorporated under the laws of Delaware, a foreign jurisdiction,
and reside, and our principal assets are located, in the United States. It may
not be possible therefore for you to effect service of process within Canada
upon us in respect of actions under the Notes and Warrants. Although we have
appointed ML Canada as our agent for service of process for certain securities
law purposes in each of the provinces and territories of Canada, it may not be
possible for you to collect from us judgments obtained in Canadian courts.
Judgments against us may therefore have to be enforced in the United States
and may be subject to additional defences as a result. In addition, all of our
directors and officers reside outside Canada and most of their assets are
located outside Canada. It may not be possible therefore for you to effect
service of process within Canada upon our directors and officers or to collect
from them judgments obtained in Canadian courts.
S-18
RISK FACTORS RELATING TO THE NOTES
Your yield may be lower than the yield on a standard debt security with a
comparable term
The amount you receive on your investment 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. for a comparable term. Your investment may not reflect the full
opportunity cost to you when you take into account factors that affect the
time value of money.
Your investment may result in a loss
We will not repay you a fixed amount of principal at maturity equal to
your initial investment in the Notes. The payment at maturity on the Notes
will depend on the change in the value of the Regional Baskets. Because the
value of the Regional Baskets is subject to market fluctuations with respect
to both the Basket Indices and the exchange rates between the Canadian dollar
and the Index Currencies, the amount you receive at maturity may be more or
less, and possibly significantly less, than the principal amount per unit of
the Notes, but will never be less than 20% of the principal amount per unit of
the Notes.
Amounts payable on the Notes may be limited by applicable law
New York State law governs the Indenture dated April 1, 1983, as amended
and restated, between ML&Co. and JPMorgan Chase Bank, as trustee (the "Senior
Indenture"), under which the Notes will be issued. New York has usury laws
that limit the amount of interest that can be charged and paid on loans, which
includes debt securities 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 US$2,500,000 or more has been invested.
While we believe that New York law would be given effect by a U.S. state
or federal court sitting outside of New York or a Canadian court, many other
jurisdictions in the U.S. and Canada also have laws that regulate the amount
of interest that may be charged to and paid by a borrower. Under the Criminal
Code (Canada), a lender is prohibited from entering into an agreement or
arrangement to receive interest at an effective annual rate of interest,
calculated in accordance with generally accepted actuarial practices and
principles, exceeding 60% of the credit advanced under the agreement or
arrangement. We will promise, for the benefit of the holders of the Notes, to
the extent permitted by law, not to voluntarily claim the benefits of any laws
concerning usurious rates of interest.
RISK FACTORS RELATING TO THE WARRANTS
The Warrants are long-term options and may result in a loss
Your Warrants will be automatically exercised for no additional
consideration on the exercise date and are not exercisable at your option. You
will receive a cash payment upon automatic exercise only if the Warrants have
a Redemption Amount greater than zero on the date of exercise.
The Warrants do not provide for a minimum repayment of the initial
offering price on the exercise date. The payment on the exercise date will
depend on the change in values of the Regional Baskets and the amount of the
Adjustment Fee. Because the values of the Regional Baskets are subject to
market fluctuations with respect to both the Basket Indices and the exchange
rates between the Canadian dollar and the Index Currencies, the amount you
receive on exercise may be less, and possibly significantly less, than the
initial offering price of the Warrants.
The initial public offering price of the Warrants may be greater than the
price a commercial user of, or dealer in, options on the Basket Indices might
pay for a comparable option involving significantly larger amounts.
Physical settlement of Warrants requires further agreement by you and ML&Co.
A Warrant may be physically settled only if you and ML&Co. both agree.
Even if ML&Co. agrees to the physical settlement of a Warrant in whole or in
part, you will only be entitled to receive securities of one or more issuers
that are MJDS eligible. Only securities of Canadian or U.S. incorporated
issuers are capable of meeting the eligibility requirements for MJDS.
Accordingly, we expect that none of the securities underlying the equity
indices that comprise the European Regional Basket or the Asian Regional
Basket will be MJDS eligible. Moreover, we
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also expect that many of the securities underlying the equity indices that
comprise the North American Regional Basket will not be MJDS eligible.
Treatment of gains and losses has not been confirmed by an income tax ruling
The practice of the Canada Revenue Agency is not to grant an advance
income tax ruling on the characterization of items as capital gains or income
and no advance ruling has been requested or obtained with respect to the
treatment of the Warrants. If gains and losses realized by you upon the
disposition of Warrants (including upon exercise on the exercise date) were
required to be treated on income account rather than on capital account, your
after-tax returns could be reduced.
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DESCRIPTION OF THE SECURITIES
Description of the Notes
ML&Co. will issue the Notes as a series of senior notes under the Senior
Indenture, which is more fully described in the accompanying prospectus. The
Notes will mature on August |X|, 2011.
While at maturity a beneficial owner of a Note will receive an amount
equal to the Redemption Amount, there will be no other payment of interest,
periodic or otherwise. See " -- Payment" in this prospectus supplement.
The Notes will not be subject to redemption by ML&Co. or at the option of
any beneficial owner before maturity. If an Event of Default occurs with
respect to the Notes, holders of the Notes may accelerate the maturity of the
Notes, as described under "-- Events of Default and Acceleration" in this
prospectus supplement and "Description of Notes -- Events of Default" in the
accompanying prospectus.
ML&Co. will issue the Notes in denominations of whole units each with a
principal amount of $100 per unit and a minimum subscription of $2,000. You
may transfer the Notes only in whole units. You will not have the right to
receive physical certificates evidencing your ownership except under limited
circumstances. Instead, we will issue the Notes in the form of a global
certificate, which will be held by The Canadian Depository for Securities
Limited ("CDS"), or its nominee. Direct and indirect participants in CDS will
record your ownership of the Notes. You should refer to the section "--
Depository" in this prospectus supplement.
The Notes will not have the benefit of any sinking fund.
Description of the Warrants
The Warrants will be issued in denominations of whole units, each with an
original public offering price of $100 per unit and a minimum subscription of
$2,000. The Warrants are contractual obligations governed by a Warrant
Agreement (the "Warrant Agreement") dated August |X|, 2004, between ML&Co. and
|X|, as Warrant Agent (the "Warrant Agent"). The following statements about
the Warrants summarize the detailed provisions of the Warrant Agreement.
Wherever we refer to particular provisions of the Warrant Agreement or its
terms, those provisions or definitions are incorporated by reference as a part
of the statements made, and the statements are qualified in their entirety by
those references.
The Warrants constitute a call option in respect of the three Regional
Baskets exercisable on the exercise date. The option is in respect of 44.45%
of the Regional Basket which has performed the best over the term of the
Warrants, 33.33% of the Regional Basket which has performed the second best
over the term of the Warrants and 22.22% of the Regional Basket which has
performed the third best over the term of the Warrants.
You cannot exercise your Warrants before August |X|, 2011. The Warrants
will be automatically exercised for no additional consideration on August |X|,
2011 or on an earlier date as described under "--Events of Default and
Acceleration" in this prospectus supplement. On the exercise date you will be
entitled to a cash settlement amount equal to the Redemption Amount or, in
limited circumstances described below, to physical settlement.
In the event of physical settlement of a Warrant on the exercise date,
you will be entitled without payment of any further amount to receive
securities which comprise the Regional Baskets having a value equal to the
Redemption Amount, provided those securities are issued by one or more issuers
that are MJDS eligible, that is, they satisfy the eligibility criteria under
either: (1) section 3.1(c) of National Instrument 71-101 - The
Multijurisdictional Disclosure System for U.S. issuers distributing securities
in Canada, which requires that the issuer (i) is incorporated or organized
under the laws of the United States or any state or territory of the United
States or the District of Columbia, (ii) has a class of securities registered
under section 12(b) or 12(g) of the U.S. Securities Exchange Act of 1934 (the
"Exchange Act") or is required to file reports under section 15(d) of the
Exchange Act, (iii) has filed with the U.S. Securities and Exchange Commission
(the "SEC") all Exchange Act filings for a period of 12 calendar months, (iv)
is not registered or required to be registered as an investment company under
the Investment Company Act of 1940, (v) is not a commodity pool issuer, and
(vi) has an aggregate market value of the public float of its outstanding
equity shares of U.S. $75 million or more; or (2) Form E-10 for Canadian
issuers distributing securities in the United States under the U.S.
multijurisdictional disclosure system, which requires that the issuer (i) be
incorporated or organized under the laws of Canada or any Canadian province or
territory, (ii) be a "foreign private
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issuer" (as defined under the Exchange Act), (iii) has been subject to the
continuous disclosure requirements of any securities commission or equivalent
regulatory authority in Canada for at least 12 calendar months immediately
preceding the date thereof and (iv) has an aggregate market value of the
public float of its outstanding equity shares of U.S. $75 million or more. A
Warrant may be physically settled only if you and ML&Co. both agree. If ML&Co.
agrees to physical settlement, it will provide notice to you of the terms of
the physical settlement at least 60 days prior to the exercise date. ML&Co.
may also indicate in the notice that it will agree to a combination of
physical and cash settlement. The notice will indicate how you may accept the
offer of physical settlement. In the event of cash settlement of a Warrant at
its maturity, you will be entitled without payment of any further amount to
receive a cash payment equal to the Redemption Amount. See " - Payment" in
this prospectus supplement.
The Warrants will be unsecured contractual obligations of ML&Co. and will
rank equally with our other unsecured contractual obligations and with our
unsecured and unsubordinated debt. Because ML&Co. is a holding company, the
right of ML&Co. and its creditors, including the Warrant holders, 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 a bankruptcy
court may recognize claims of ML&Co. itself as a creditor of the subsidiary.
In addition, dividends, loans and advances from certain subsidiaries to ML&Co.
are restricted by net capital requirements under the Exchange Act, and under
rules of certain exchanges and other regulatory bodies.
Payment
On August |X|, 2011, a beneficial owner of a Security will be entitled to
receive the Redemption Amount for each unit of Notes and for each unit of
Warrants exercised under the cash settlement option. The Redemption Amount to
which you will be entitled will be denominated in Canadian dollars and will be
equal to the product of $100 and the weighted average of the performance of
the three Regional Baskets over the term of the Securities determined in
Canadian dollars (as more fully described herein), less the Adjustment Fee. In
the case of the Notes, the Redemption Amount will not be less than $20 per
unit. The weighting factors will be 44.45%, 33.33% and 22.22% for the best
performing, second best performing and third best performing Regional Baskets,
respectively, over the term of the Securities. Accordingly, the performance of
each Regional Basket will not affect the Redemption Amount equally, but
instead, 44.45% of the Redemption Amount will be based on the Regional Basket
that performs the best over the term of the Securities, 33.33% of the
Redemption Amount will be based on the Regional Basket that performs second
best over the term of the Securities and 22.22% of the Redemption Amount will
be based on the Regional Basket that performs third best over the term of the
Securities.
For each Basket Index, the "Starting Value" will equal the closing value
for that Basket Index multiplied by the then current exchange rate between the
Canadian dollar and the relevant Index Currency, each as determined on the
Pricing Date.
For each Basket Index, the "Ending Value" means the average, arithmetic
mean of the values of that Basket Index determined on each of the ten
Calculation Days during the Calculation Period multiplied by the then current
exchange rate between the Canadian dollar and the relevant Index Currency. If
there are fewer than ten Calculation Days, then the Ending Value will equal
the average, arithmetic mean, of the closing values of the Basket Index on
those Calculation Days. If there is only one Calculation Day, then the Ending
Value will equal the closing value of the Basket Index on that Calculation
Day. If no Calculation Days occur during the Calculation Period, then the
Ending Value will equal the closing value of the Basket Index determined on
the last scheduled Index Business Day in the Calculation Period, regardless of
the occurrence of a Market Disruption Event (as defined below under "--
Adjustments to the Basket; Market Disruption Events" in this prospectus
supplement) on that scheduled Index Business Day.
The "Calculation Period" means the period from and including the
thirteenth scheduled Index Business Day prior to the maturity date or exercise
date, as the case may be, to and including the third scheduled Index Business
Day prior to the maturity date or exercise date.
A "Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
An "Index Business Day" means, for each Basket Index, a day on which the
Basket Index or any successor index is calculated and published.
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The "Adjustment Fee" will be calculated for each calendar day and accrue
over the term of the Securities at an annual rate of 1.0% of the amount that
would be the Redemption Amount for the Securities on that calendar day
(determined without regard to the Adjustment Fee) if that calendar day was the
maturity date or exercise date, as the case may be. The Adjustment Fee will
accrue to the benefit of ML&Co.
The "Index Calculation Agent", with respect to the S&P 500 Index and the
S&P/ASX 200 Index, will be Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("Standard & Poor's" or "S&P"), with respect to the Dow Jones
EURO STOXX 50 Index, will be STOXX Limited ("STOXX"), with respect to the FTSE
100 Index, will be FTSE International Limited ("FTSE"), with respect to the
Nikkei 225 Index, will be Nihon Keizai Shimbun ("NKS"), and with respect to
the MSCI Hong Kong Index, will be Morgan Stanley Capital International Inc.
("MSCI").
For purposes of determining the Redemption Amount, the exchange rate
between the Canadian dollar and each Index Currency will be the amount of the
relevant Index Currency (expressed as the number of that Index Currency or
part thereof) for which one Canadian dollar could be purchased as quoted at
12:00 noon (Toronto time) by the Bank of Canada on the applicable Bloomberg
page (or its successor page for the purpose of displaying that rate) on each
Calculation Day in respect of all Index Currencies. In the event that the
applicable Bloomberg page (or successor page) should not be available or no
rate is quoted on that page on a Calculation Day at the applicable time, the
exchange rate will be the rate of exchange as determined by the Calculation
Agent.
All determinations made by the Calculation Agent and each Index
Calculation Agent shall be at its sole discretion and, absent manifest error,
shall be conclusive for all purposes and binding on ML&Co. and the holders and
beneficial owners of the Securities. Whenever the Calculation Agent is
required to act, it will do so in good faith using its reasonable judgment.
Formula for Calculation of Redemption Amount
The Redemption Amount for a Security will be determined by the
Calculation Agent in accordance with the following formula (provided that in
no event will the Redemption Amount of a Note be less than $20.00):
$100 x [W1P1+ W2P2 + W3P3] - AF
Where:
W1 is the weighting of the best performing Regional Basket over the term
of the Securities (after giving effect to the conversion of the Regional
Basket into Canadian dollars) which will be equal to 44.45%.
W2 is the weighting of the second best performing Regional Basket over
the term of the Securities (after giving effect to the conversion of the
Regional Basket into Canadian dollars) which will be equal to 33.33%.
W3 is the weighting of the third best performing Regional Basket over the
term of the Securities (after giving effect to the conversion of the
Regional Basket into Canadian dollars) which will be equal to 22.22%.
P1 is the performance of the best performing Regional Basket.
P2 is the performance of the second best performing Regional Basket.
P3 is the performance of the third best performing Regional Basket.
AF is the Adjustment Fee.
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The performance of the North American Regional Basket is:
IE1
---
IS1
The performance of the European Regional Basket is:
[ 60% x IE2 ] [ 40% x IE3 ]
[ --- ] + [ --- ]
[ IS2 ] [ IS3 ]
The performance of the Asian Regional Basket is:
[ 55% x IE4 ] [ 35% x IE5] ] [ 10% x IS6 ]
[ --- ] + [ --- ] + [ --- ]
[ IS4 ] [ IS5 ] [ IE6 ]
The Index Values are:
ISi is the Starting Value of Indexi.
IEi is the Ending Value of Indexi.
The underlying equity indices are:
Index1 = S&P 500 Index
Index2 = Dow Jones EURO STOXX 50 Index
Index3 = FTSE 100 Index
Index4 = Nikkei 225 Index
Index5 = MSCI Hong Kong Index
Index6 = S&P/ASX 200 Index
Adjustments to the Basket; Market Disruption Events
If at any time S&P, STOXX, FTSE, NKS or MSCI (each an "Index Publisher")
makes a material change in the formula for or the method of calculating its
respective Basket Index or in any other way materially modifies such Basket
Index so that the Basket Index does not, in the opinion of the Calculation
Agent, fairly represent the value of such Basket Index had those changes or
modifications not been made, then, from and after that time, the Calculation
Agent shall, at the close of business in New York, New York, on each date that
the closing value of the Basket is to be calculated, make those adjustments
as, in the good faith judgment of the Calculation Agent, may be necessary in
order to arrive at a calculation of a value of a stock index comparable to
such Basket Index as if those changes or modifications had not been made, and
calculate the closing value with reference to the Basket Index, as so
adjusted. Accordingly, if the method of calculating a Basket Index is modified
so that the value of the Basket Index is a fraction or a multiple of what it
would have been if it had not been modified, e.g., due to a split, then the
Calculation Agent shall make appropriate adjustments to the Basket Index in
order to arrive at a value of the Basket Index as if it had not been modified,
e.g., as if a split had not occurred.
"Market Disruption Event" means either of the following events as
determined by the Calculation Agent:
(A) the suspension of or material limitation on trading for more than
two hours of trading, or during the one-half hour period preceding
the close of trading, on the applicable exchange, in 20% or more of
the stocks which then comprise a Basket Index or any successor
index; or
S-24
(B) the suspension of or material limitation on trading, in each case,
for more than two hours of trading, or during the one-half hour
period preceding the close of trading, on the applicable exchange,
whether by reason of movements in price otherwise exceeding levels
permitted by the relevant exchange or otherwise, in option contracts
or futures contracts related to the applicable Basket Index, or any
successor index.
For the purpose of the above definition:
(1) a limitation on the hours in a trading day and/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 limitation on trading imposed during the course of a day by reason
of movements in price otherwise exceeding levels permitted by the
relevant exchange will constitute a Market Disruption Event;
(3) a decision to permanently discontinue trading in the relevant
futures or options contracts related to the applicable Basket Index,
or any successor index, will not constitute a Market Disruption
Event;
(4) a suspension in trading in a futures or options contract on the
applicable Basket Index, or any successor index, by a major
securities market by reason of (a) a price change violating limits
set by that securities market, (b) an imbalance of orders relating
to those contracts or (c) a disparity in bid and ask quotes relating
to those contracts will constitute a suspension or material
limitation of trading in futures or options contracts related to
that index; and
(5) an absence of trading on the relevant exchange will not include any
time when that exchange is closed for trading under ordinary
circumstances.
Discontinuance of the Basket Indices
If an Index Publisher discontinues publication of its respective Basket
Index and the Index Publisher or another entity publishes a successor or
substitute index that the Calculation Agent determines, in its sole
discretion, to be comparable to that Basket Index (a "successor index"), then,
upon the Calculation Agent's notification of its determination to the
indenture trustee, the Warrant Agent and ML&Co., the Calculation Agent will
substitute the successor index as calculated by the Index Publisher or any
other entity for the Basket Index and calculate the Ending Value as described
above under "--Payment". Upon any selection by the Calculation Agent of a
successor index, ML&Co. shall cause notice to be given to holders of the
Securities.
In the event that an Index Publisher discontinues publication of its
respective Basket Index and:
o the Calculation Agent does not select a successor index, or
o the successor index is no longer published on any of the Calculation
Days,
the Calculation Agent will compute a substitute value for the Basket Index in
accordance with the procedures last used to calculate the Basket Index before
any discontinuance. If a successor index is selected or the Calculation Agent
calculates a value as a substitute for the Basket Index as described below,
the successor index or value will be used as a substitute for the Basket Index
for all purposes, including for purposes of determining whether a Market
Disruption Event exists.
If an Index Publisher discontinues publication of its respective Basket
Index before the Calculation Period and the Calculation Agent determines that
no successor index is available at that time, then on each business day until
the earlier to occur of:
o the determination of the Ending Value, and
o a determination by the Calculation Agent that a successor index is
available,
the Calculation Agent will determine the value that would be used in computing
the Redemption Amount as described in the preceding paragraph as if that day
were a Calculation Day. The Calculation Agent will cause notice
S-25
of each value to be published not less often than once each month in the
national edition of a major English language Canadian newspaper and a French
language newspaper of general circulation in the Province of Quebec, and
arrange for information with respect to these values to be made available by
telephone.
For the purposes of the foregoing, a "business day" is any day other than
a Saturday or Sunday that is neither a legal holiday nor a day on which
banking institutions in London are authorized or required by law, regulation
or executive order to close and those banks are open for dealing in a foreign
exchange and foreign currency deposits.
Notwithstanding these alternative arrangements, discontinuance of the
publication of a Basket Index may adversely affect trading in, or the trading
value of, the Securities.
Events of Default and Acceleration
In case an Event of Default (as described under "Description of Notes --
Events of Default" in the accompanying prospectus) 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 Note,
will be equal to the Redemption Amount, calculated as though the date of early
repayment were the stated maturity date of the Notes. See "--Payment" in this
prospectus supplement. If a bankruptcy proceeding is commenced in respect of
ML&Co., the claim of the holder of a Note may be limited, under Section
502(b)(2) of Title 11 of the United States Code, to the principal amount of
the Note plus an additional amount of contingent interest calculated as though
the date of the commencement of the proceeding were the maturity date of the
Notes.
In case an Event of Default (as described under "Description of Index
Warrants -- Events of Default" in the accompanying prospectus) with respect to
any Warrants has occurred and is continuing, the amount payable to a
beneficial owner of a Warrant upon any acceleration permitted by the Warrants,
with respect to each Warrant, will be equal to the Redemption Amount,
calculated as though the date of early repayment were the stated exercise date
of the Warrants. See "--Payment" and "--Description of the Warrants" in this
prospectus supplement.
Depository
Book-Entry Only Securities
Upon issuance, the Securities will be issued in book-entry form and will
be represented by fully registered global certificates ("Global
Certificates"). Each Global Certificate will be held by, or on behalf of, CDS
or such other entity designated in writing by ML&Co. to act as depository. The
Global Certificates will be registered in the name of CDS or its nominee.
Except as described under "-- Exchange for Securities in Certificated Form" in
this prospectus supplement, no Global Certificate may be transferred except as
a whole by the depository to a nominee of the depository or by a nominee of
the depository to the depository, or another nominee of the depository, or by
the depository or any such nominee to a successor of the depository, or a
nominee of the successor.
Ownership of the Securities will be constituted through beneficial
interests in the Global Certificates, and will be represented through
book-entry accounts of institutions, as direct and indirect participants of
the depository, acting on behalf of the beneficial owners of these Securities.
Each purchaser of a Security represented by a Global Certificate will receive
a customer confirmation of purchase from the selling agent from whom the
Securities are purchased in accordance with practices and procedures of that
selling agent.
CDS Procedures
The following is based on information provided by CDS:
Upon the issuance by ML&Co. of Securities represented by Global
Certificates, the depository will credit, on its book-entry registration and
transfer system, the respective principal amount of the Notes and public
offering price of the Warrants represented by such Global Certificates to the
accounts of its participants. The accounts to be credited will be designated
by the Agents. Ownership of beneficial interests in a Global Certificate will
be limited to participants or persons that hold interests through
participants. Ownership of beneficial interests in Securities represented by
Global Certificates will be shown on, and the transfer of that ownership will
be effected only through, records maintained by the depository (with respect
to interests of participants in the depository), or by
S-26
participants in the depository or persons that may hold interests through
these participants (with respect to persons other than participants in the
depository).
So long as CDS or its nominee is the registered owner of the Global
Certificates, CDS or its nominee, as the case may be, will be considered the
sole owner or holder of the Securities represented by these Global
Certificates. Except as provided below, owners of beneficial interests in
Securities represented by these Global Certificates will not be entitled to
have Securities represented by these Global Certificates registered in their
names, will not receive or be entitled to receive physical delivery of
Securities in definitive form and will not be considered the registered owners
or holders thereof.
Accordingly, each person owning a beneficial interest in a Global
Certificate 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 a Global
Certificate. ML&Co. understands that under existing policies of the depository
and industry practices, if ML&Co. requests any action of holders or if an
owner of a beneficial interest in a Global Certificate desires to give any
notice or take any action which a holder is entitled to give or take under a
Global Certificate, the depository would authorize the participants holding
the relevant beneficial interests to give that notice or take that action. Any
beneficial owner that is not a participant must rely on the contractual
arrangements it has directly, or indirectly through its financial
intermediary, with a participant to give that notice or take that action.
Payments of the Redemption Amount on the Securities represented by a
Global Certificate registered in the name of the depository or its nominee
will be made by ML&Co. (or a paying agent, if specified by ML&Co.) to the
depository or its nominee, as the case may be, as the registered owner of the
Global Certificates. None of ML&Co., the paying agent (if any) or any other
agent of ML&Co. will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests of a Global Certificate or for maintaining, supervising or reviewing
any records relating to beneficial ownership interests. Except in the
circumstance described in the following paragraph, ML&Co. expects that the
depository or its nominee, upon receipt of any payment of the Redemption
Amount on a Global Certificate will immediately credit the accounts of the
related participants with payment in amounts proportionate to their respective
holdings in the principal amount of beneficial interests in such Global
Certificate as shown on the records of the depository. ML&Co. also expects
that payments by participants to owners of beneficial interests in a Global
Certificate will be governed by standing customer instructions and customary
practices as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name" and will be the
responsibility of those participants.
Exchange for Securities in Certificated Form
If an Event of Default has occurred or CDS is at any time unwilling or
unable to continue as depository for the Securities and a successor depository
is not appointed by ML&Co. within 60 days, ML&Co. will issue certificated
Securities in exchange for all outstanding Global Certificates. In addition,
ML&Co. may at any time determine not to have Securities represented by Global
Certificates and, in that event, will issue certificated Securities in
exchange for all Global Certificates. In either instance, an owner of a
beneficial interest in a Global Certificate will be entitled to have
certificated Securities registered in its name and will be entitled to
physical delivery of those certificated Securities. Those certificated
Securities will be registered in such name or names as the depository will
instruct ML&Co. or its paying agent. It is expected that those instructions
may be based upon directions received by the depository from participants with
respect to beneficial interests in those Global Certificates. Certificated
Securities so issued will be issued in such denominations as ML&Co. may
determine from time to time and will be issued in registered form only. No
service charge will be made for any transfer or exchange of certificated
Securities, but ML&Co. may require payment of a sum sufficient from the
beneficial owner to cover any tax or other governmental charge payable in
connection therewith.
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CDS
CDS was incorporated in 1970 and is Canada's national securities clearing
and depository services organization. Functioning as a service utility for the
Canadian financial community, CDS provides a variety of computer automated
services for financial institutions and investment dealers active in domestic
and international capital markets. CDS participants include banks, investment
dealers and trust companies and may include the Agents and some of the selling
agents. Access to CDS is available to other organizations that clear through
or maintain a custodial relationship with a CDS participant. Transfers of
ownership and other interests, including cash distributions, in securities
held by CDS may only be processed through CDS participants and will be
completed in accordance with existing CDS rules and procedures. CDS operates
in Montreal, Toronto, Calgary and Vancouver to centralize securities clearing
functions through a central securities depositary.
CDS is a private corporation, owned one-third by investment dealers,
one-third by banks and one-third by trust companies through their respective
industry associations. CDS is the exclusive clearing house for equity trading
on both the Toronto and Montreal stock exchanges and also clears a substantial
volume of "over the counter" trading in equities and bonds.
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THE REGIONAL BASKETS
The Regional Baskets are designed to allow investors to participate in
the movement of the values of the Basket Indices based on the weighting of the
Basket Indices in their respective Regional Baskets expressed in Canadian
dollars, over the term of the Securities. The Regional Baskets and the related
Basket Indices are described in the sections below.
The Index Publishers have no obligations relating to the Securities or
amounts to be paid to you, including any obligation to take the needs of
ML&Co. or of beneficial owners of the Securities into consideration for any
reason. Index Publishers will not receive any of the proceeds of the offering
of the Securities and are not responsible for, and have not participated in,
the offering of the Securities and are not responsible for, and will not
participate in, the determination or calculation of the amount receivable by
beneficial owners of the Securities.
The North American Regional Basket
The North American Regional Basket will consist of a 100% weighting to
the S&P 500 Index, which is denominated in U.S. dollars.
The S&P 500 Index
Standard & Poor's publishes the S&P 500 Index. The S&P 500 Index is
intended to provide an indication of the pattern of common stock price
movement in the United States. The calculation of the value of the S&P 500
Index, discussed below in further detail, is based on the relative value of
the aggregate market value of the common stocks of 500 companies as of a
particular time compared to the aggregate average market value of the common
stocks of 500 similar companies during the base period of the years 1941
through 1943. As of July 9, 2004, 424 companies or 84.80% of the market
capitalization of the S&P 500 Index traded on the New York Stock Exchange; 74
companies or 14.80% of the market capitalization of the S&P 500 Index traded
on The Nasdaq Stock Market; and two companies or 0.40% of the market
capitalization of the S&P 500 Index traded on the American Stock Exchange.
Standard & Poor's chooses companies for inclusion in the S&P 500 Index with
the aim of achieving a distribution by broad industry groupings that
approximates the distribution of these groupings in the common stock
population of the Standard & Poor's Stock Guide Database, which Standard &
Poor's uses as an assumed model for the composition of the total market.
Relevant criteria employed by Standard & Poor's include the viability of the
particular company, the extent to which that company represents the industry
group to which it is assigned, the extent to which the market price of that
company's common stock is generally responsive to changes in the affairs of
the respective industry and the market value and trading activity of the
common stock of that company. Ten main groups of companies comprise the S&P
500 Index with the percentage weight of the companies currently included in
each group indicated in parentheses: Consumer Discretionary (11.08%), Consumer
Staples (11.10%), Energy (6.59%), Financials (20.39%), Health Care (13.27%),
Industrials (11.42%), Information Technology (17.12%), Materials (2.94%),
Telecommunication Services (3.40%) and Utilities (2.69%). Standard & Poor's
may from time to time, in its sole discretion, add companies to, or delete
companies from, the S&P 500 Index to achieve the objectives stated above.
Computation of the S&P 500 Index
Standard & Poor's currently computes the S&P 500 Index as of a particular
time as follows:
(a) the product of the market price per share and the number of then
outstanding shares of each component stock is determined as of that
time (referred to as the "market value" of that stock);
(b) the market values of all component stocks as of that time are
aggregated;
(c) the mean average of the market values as of each week in the base
period of the years 1941 through 1943 of the common stock of each
company in a group of 500 substantially similar companies is
determined;
(d) the mean average market values of all these common stocks over the
base period are aggregated (the aggregate amount being referred to
as the "base value");
S-29
(e) the current aggregate market value of all component stocks is
divided by the base value; and
(f) the resulting quotient, expressed in decimals, is multiplied by ten.
While Standard & Poor's currently employs the above methodology to
calculate the S&P 500 Index, no assurance can be given that Standard & Poor's
will not modify or change this methodology in a manner that may affect the
Redemption Amount payable to holders of the Securities upon maturity or
otherwise.
Standard & Poor's adjusts the foregoing formula to offset the effects of
changes in the market value of a component stock that are determined by
Standard & Poor's to be arbitrary or not due to true market fluctuations.
These changes may result from causes such as:
o the issuance of stock dividends;
o the granting to shareholders of rights to purchase additional shares
of stock;
o the purchase of shares by employees pursuant to employee benefit
plans;
o consolidations and acquisitions;
o the granting to shareholders of rights to purchase other securities
of the issuer;
o the substitution by Standard & Poor's of particular component stocks
in the S&P 500 Index; and
o other reasons.
In these cases, Standard & Poor's first recalculates the aggregate market
value of all component stocks, after taking account of the new market price
per share of the particular component stock or the new number of outstanding
shares of that stock or both, as the case may be, and then determines the new
base value in accordance with the following formula:
(New Market Value)
Old Base Value x (----------------)= New Base Value
(Old Market Value)
The result is that the base value is adjusted in proportion to any change
in the aggregate market value of all component stocks resulting from the
causes referred to above to the extent necessary to negate the effects of
these causes upon the S&P 500 Index.
S-30
Historical Data on the S&P 500 Index
The following graph sets forth the closing values of the S&P 500 Index on
the last business day of each year from 1947 through 2003, as published by
Standard & Poor's. The historical performance of the S&P 500 Index should not
be taken as an indication of future performance of the S&P 500 Index, and no
assurance can be given that the value of the S&P 500 Index will not decline
and thereby reduce or, in the case of the Warrants, eliminate the Redemption
Amount which may be payable to holders of the Securities.
[GRAPHIC OMITTED]
The following table sets forth the value of the S&P 500 Index at the end of
each month, in the period from January 1996 through June 2004. These
historical data on the S&P 500 Index are not indicative of the future
performance of the S&P 500 Index or what the value of the Securities may be.
Any historical upward or downward trend in the value of the S&P 500 Index
during any period set forth below is not any indication that the S&P 500 Index
is more or less likely to increase or decrease at any time during the term of
the Securities.
1996 1997 1998 1999 2000 2001 2002 2003 2004
-------- ------ --------- ---------- ---- ---------- --------- ---------- -------
January.......... 636.02 786.16 980.28 1,279.64 1,394.46 1,366.01 1,130.20 855.70 1,131.13
February......... 640.43 790.82 1,049.34 1,238.33 1,366.42 1,239.94 1,106.73 841.15 1,144.94
March............ 645.50 757.12 1,101.75 1,286.37 1,498.58 1,160.33 1,147.39 848.18 1,126.21
April............ 654.17 801.34 1,111.75 1,335.18 1,452.43 1,249.46 1,076.92 916.92 1,107.30
May.............. 669.12 848.28 1,090.82 1,301.84 1,420.60 1,255.82 1,067.14 963.59 1,120.68
June............. 670.63 885.14 1,133.84 1,372.71 1,454.60 1,224.42 989.82 974.50 1,140.84
July............. 639.95 954.29 1,120.67 1,328.72 1,430.83 1,211.23 911.62 990.31
August........... 651.99 899.47 957.28 1,320.41 1,517.68 1,133.58 916.07 1,008.01
September........ 687.31 947.28 1,017.01 1,282.71 1,436.51 1,040.94 815.28 995.97
October.......... 705.27 914.62 1,098.67 1,362.93 1,429.40 1,059.78 885.76 1,050.71
November......... 757.02 955.40 1,163.63 1,388.91 1,314.95 1,139.45 936.31 1,058.20
December......... 740.74 970.43 1,229.23 1,469.25 1,320.28 1,148.08 879.82 1,111.92
S-31
The following graph sets forth the performance of the S&P 500 Index at
the end of each month, in the period from January 1999 through June 2004, as
presented in the table above. Past movements of the S&P 500 Index are not
necessarily indicative of the future S&P 500 Index values. On July 9, 2004,
the closing value of the S&P 500 Index was 1,107.93.
[OBJECT OMITTED]
License Agreement
S&P and MLPF&S have entered into a non-exclusive license agreement
providing for the license to MLPF&S, in exchange for a fee, of the right to
use indices owned and published by S&P in connection with some securities,
including the Notes and the Warrants, and ML&Co. is an authorized sublicensee
of MLPF&S.
The license agreement between S&P and MLPF&S provides that the following
language must be stated in this prospectus supplement:
"S&P, S&P 500 and Standard & Poor's are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by MLPF&S and ML&Co."
"The Securities are not sponsored, endorsed, sold or promoted by Standard
& Poor's, a division of The McGraw Hill Companies, Inc. ("S&P"). S&P makes no
representation or warranty, express or implied, to the holders of the
Securities or any member of the public regarding the advisability of investing
in securities generally or in the Securities particularly or the ability of
the S&P 500 Index to track general stock market performance. S&P's only
relationship to MLPF&S and ML&Co. (other than transactions entered into in the
ordinary course of business) is the licensing of certain trademarks and trade
names of S&P and of the S&P 500 Index which is determined, composed and
calculated by S&P without regard to ML&Co. or the Securities. S&P has no
obligation to take the needs of ML&Co. or the holders of the Securities into
consideration in determining, composing or calculating the S&P 500 Index. S&P
is not responsible for and has not participated in the determination of the
timing of the sale of the Securities, prices at which the Securities are to
initially be sold, or quantities of the Securities to be issued or in the
determination or calculation of the equation by which the Securities are to be
converted into cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Securities."
S-32
" S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR ANY DATA INCLUDED IN THE S&P 500 INDEX AND S&P SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY ML&CO., MLPF&S,
HOLDERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
S&P 500 INDEX OR ANY DATA INCLUDED IN THE S&P 500 INDEX IN CONNECTION WITH THE
RIGHTS LICENSED UNDER THE LICENSE AGREEMENT DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR FOR ANY OTHER USE. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES,
AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA
INCLUDED IN THE S&P 500 INDEX. WITHOUT LIMITING ANY OF THE ABOVE INFORMATION,
IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT
OR CONSEQUENTIAL DAMAGE (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE
POSSIBILITY OF THESE DAMAGES."
Historical data on the Canadian dollar/U.S. dollar exchange rate
The S&P 500 Index is denominated in U.S. dollars and, as a result, the
Ending Value that will be calculated for the S&P 500 Index will be affected by
changes in the exchange rate between the Canadian dollar and the U.S. dollar.
The following table sets forth the historical Canadian dollar/U.S. dollar
exchange rates (expressed as the number of U.S. dollars for which one Canadian
dollar could be purchased) for each month from January 1999 through June 2004.
Any upward or downward trend in the value of the Canadian dollar against the
U.S. dollar during any period set forth below is not any indication that the
Canadian dollar is more or less likely to increase or decrease in value
against the U.S. dollar at any time during the term of the Securities.
Monthly Closing Values
----------------------
1999 2000 2001 2002 2003 2004
------------ ------------ ------------ ------------ ------------ ---------
January........... 0.662032 0.690655 0.667646 0.629287 0.658111 0.754603
February.......... 0.662471 0.689798 0.650872 0.624376 0.673582 0.749513
March............. 0.663878 0.690226 0.634679 0.626999 0.681570 0.763767
April............. 0.686577 0.675767 0.651466 0.637918 0.699252 0.728757
May............... 0.678702 0.668226 0.650195 0.654493 0.731743 0.734053
June.............. 0.683480 0.675265 0.660371 0.659065 0.742556 0.754600
July.............. 0.663746 0.672812 0.652103 0.631233 0.712099
August............ 0.669927 0.679348 0.644662 0.641643 0.721241
September......... 0.681570 0.665247 0.633232 0.630199 0.739590
October........... 0.679995 0.656297 0.629564 0.641684 0.757691
November.......... 0.678518 0.650660 0.635728 0.638855 0.768758
December.......... 0.691515 0.667067 0.627746 0.636213 0.771010
S-33
The following graph sets forth the historical Canadian dollar/U.S. dollar
exchange rates (expressed as the number of U.S. dollars for which one Canadian
dollar could be purchased) for each month from January 1999 through June 2004
set forth in the table above. This historical information is furnished as a
matter of information only and should not be taken as an indication of future
performance.
[GRAPHIC OMITTED]
The European Regional Basket
The European Regional Basket will consist of a 60% weighting to the Dow
Jones EURO STOXX 50 Index, which is denominated in euros, and a 40% weighting
to the FTSE 100 Index, which is denominated in British pounds.
The European Regional Basket Indices
The Dow Jones EURO STOXX 50 Index
The Dow Jones EURO STOXX 50 Index was created by STOXX, a joint venture
founded by SWX Group, Deutsche Borse AG and Dow Jones & Company, Inc. ("Dow
Jones"). Publication of the Dow Jones EURO STOXX 50 Index began on February
26, 1998, based on an initial value of the Dow Jones EURO STOXX 50 Index of
1,000 at December 31, 1991.
The Dow Jones EURO STOXX 50 Index is currently calculated by: (i)
multiplying the per share price of each underlying security by the number of
free-float adjusted outstanding shares (and, if the stock is not quoted in
euros, then multiplied by the related country currency and an exchange factor
which reflects the exchange rate between the related country currency and the
euro); (ii) calculating the sum of all these products (the "Index Aggregate
Market Capitalization"); and (iii) dividing the Index Aggregate Market
Capitalization by a divisor which represents the Index Aggregate Market
Capitalization on the base date of the Dow Jones EURO STOXX 50 Index and which
can be adjusted to allow changes in the issued share capital of individual
underlying securities, including the deletion and addition of stocks, the
substitution of stocks, stock dividends and stock splits, to be made without
distorting the Dow Jones EURO STOXX 50 Index. Because of this capitalization
weighting, movements in share prices of the underlying securities of companies
with relatively greater market capitalization will have a greater
S-34
effect on the value of the entire Dow Jones EURO STOXX 50 Index than will
movements in share prices of the underlying securities of companies with
relatively smaller market capitalization.
The composition of the Dow Jones EURO STOXX 50 Index is reviewed
annually, and changes are implemented on the third Friday in September, using
market data from the end of August as the basis for the review process.
Changes in the composition of the Dow Jones EURO STOXX 50 Index are made to
ensure that the Dow Jones EURO STOXX 50 Index includes those companies which,
within the eligible countries and within each industry sector, have the
greatest market capitalization. Changes in the composition of the Dow Jones
EURO STOXX 50 Index are made entirely by STOXX without consultation with the
corporations represented in the Dow Jones EURO STOXX 50 Index or ML&Co. The
Dow Jones EURO STOXX 50 Index is also reviewed on an ongoing basis, and a
change in the composition of the Dow Jones EURO STOXX 50 Index may be
necessary if there have been extraordinary events for one of the issuers of
the underlying securities, e.g., delisting, bankruptcy, merger or takeover. In
these cases, the event is taken into account as soon as it is effective. The
underlying securities may be changed at any time for any reason. Neither STOXX
nor any of its founders is affiliated with ML&Co. nor have they participated
in any way in the creation of the Securities.
ML&Co. or its affiliates may presently or from time to time engage in
business with the publishers, owners, founders or creators of the Dow Jones
EURO STOXX 50 Index or any of its successors or one or more of the issuers of
the underlying securities, including extending loans to, making equity
investments in or providing advisory services, including merger and
acquisition advisory services, to the publishers, their successors, founders
or creators or to any of the issuers. In the course of business with issuers,
ML&Co. or its affiliates may acquire non-public information with respect to
the issuers. ML&Co. may also act as market maker for the common stocks of the
issuers. ML&Co. does not make any representation to any purchaser of the
Securities with respect to any matters whatsoever relating to any of the
publishers, their successors, founders or creators or to any of the issuers.
Any prospective purchaser of the Securities should undertake an independent
investigation of the issuers of the underlying securities and with respect to
the competency of its publisher to formulate and calculate the Dow Jones EURO
STOXX 50 Index as in its judgment is appropriate to make an informed decision
with respect to an investment in either of the Securities. The composition of
the Dow Jones EURO STOXX 50 Index does not reflect any investment or sell
recommendations of ML&Co. or its affiliates.
A representative of an affiliate of ML&Co. may from time to time be a
member of the STOXX Limited Advisory Committee. STOXX states in its Guide to
the Dow Jones STOXX Indexes that STOXX's Advisory Committee advises the
Supervisory Board on matters relating to the Dow Jones EURO STOXX 50 Index.
This advisory committee proposes changes in the composition of the Dow Jones
EURO STOXX 50 Index to the Supervisory Board and makes recommendations with
respect to the accuracy and transparency of the index computation. Decisions
on the composition and changes in the Dow Jones EURO STOXX 50 Index are
reserved to the Supervisory Board.
License Agreement
STOXX and ML&Co. have entered into a non-exclusive license agreement
providing for the license to ML&Co., in exchange for a fee, of the right to
use the Dow Jones EURO STOXX 50 Index, which is owned and published by STOXX,
in connection with certain securities, including the Notes and the Warrants.
The license agreement between STOXX and ML&Co. provides that the
following language must be set forth in this prospectus supplement:
"The Dow Jones EURO STOXX 50 Index is proprietary and copyrighted
material. The Dow Jones EURO STOXX 50 Index and the related trademarks have
been licensed for certain purposes by ML&Co."
"STOXX, Dow Jones and Dow Jones EURO STOXX 50 Index are trademarks of Dow
Jones & Company, Inc. and have been licensed for use."
"STOXX and Dow Jones have no relationship to ML&Co., other than the
licensing of the Dow Jones EURO STOXX 50 Index and the related trademarks for
use in connection with the Securities. STOXX and Dow Jones do not:
o Sponsor, endorse, sell or promote the Securities.
S-35
o Recommend that any person invest in the Securities or any other
securities.
o Have any responsibility or liability for or make any decisions about
the timing, amount or pricing of Securities. Have any responsibility
or liability for the administration, management or marketing of the
Securities.
o Consider the needs of the Securities or the owners of the Securities
in determining, composing or calculating the Dow Jones EURO STOXX 50
Index or have any obligation to do so."
- -------------------------------------------------------------------------------
STOXX and Dow Jones will not have any liability in connection with the
Securities. Specifically,
o STOXX and Dow Jones do not make any warranty, express or implied and
disclaim any and all warranty about:
o The results to be obtained by the Securities, the owner of the
Securities or any other person in connection with the use of the Dow
Jones EURO STOXX 50 Index and the data included in the Dow Jones
EURO STOXX 50 Index;
o The accuracy or completeness of the Dow Jones EURO STOXX 50 Index;
or
o The merchantability and the fitness for a particular purpose or use
of the Dow Jones EURO STOXX 50 Index and its data;
o STOXX and Dow Jones will have no liability for any errors, omissions or
interruptions in the Dow Jones EURO STOXX 50 Index or its data; and
o Under no circumstances will STOXX or Dow Jones be liable for any lost
profits or indirect, punitive, special or consequential damages or
losses, even if STOXX or Dow Jones knows that they might occur.
The licensing agreement between ML&Co. and STOXX is solely for their benefit
and not for the benefit of the beneficial owners of the Securities or any
other third parties.
- -------------------------------------------------------------------------------
Historical Data on the Dow Jones EURO STOXX 50 Index
The following table sets forth the value of the Dow Jones EURO STOXX 50
Index at the end of each month in the period from January 1999 through June
2004. These historical data on the Dow Jones EURO STOXX 50 Index are not
necessarily indicative of the future performance of the Dow Jones EURO STOXX
50 Index or what the value of the Securities may be. Any historical upward or
downward trend in the level of the Dow Jones EURO STOXX 50 Index during any
period set forth below is not an indication that the Dow Jones EURO STOXX 50
Index is more or less likely to increase or decrease at any time during the
term of the Securities.
1999 2000 2001 2002 2003 2004
-------- --------- ---------- --------- --------- ---------
January........ 3,547.15 4,684.48 4,779.90 3,670.26 2,248.17 2,839.13
February....... 3,484.24 5,182.62 4,318.88 3,624.74 2,140.73 2,893.18
March.......... 3,559.86 5,249.55 4,185.00 3,784.05 2,036.86 2,663.32
April.......... 3,757.87 5,303.95 4,525.01 3,574.23 2,324.23 2,707.69
May............ 3,629.46 5,200.89 4,426.24 3,425.79 2,330.06 2,669.36
June........... 3,788.66 5,145.35 4,243.91 3,133.39 2,419.51 2,687.68
July........... 3,638.62 5,122.80 4,091.38 2,685.79 2,519.79
August......... 3,769.14 5,175.12 3,743.97 2,709.29 2,556.71
September...... 3,669.71 4,915.18 3,296.66 2,204.39 2,395.87
October........ 3,922.91 5,057.46 3,478.63 2,518.99 2,575.04
November....... 4,314.38 4,790.08 3,658.27 2,656.85 2,630.47
December....... 4,904.46 4,772.39 3,806.13 2,386.41 2,760.66
The following graph sets forth the historical performance of the Dow
Jones EURO STOXX 50 Index presented in the preceding table. Past movements of
the Dow Jones EURO STOXX 50 Index are not necessarily indicative of the future
Dow Jones EURO STOXX 50 Index values. On July 9, 2004, the closing value of
the Dow Jones EURO STOXX 50 was 2,655.89.
S-36
[GRAPHIC OMITTED]
Historical data on the Canadian dollar/euro exchange rate
The Dow Jones EURO STOXX 50 Index is denominated in euros and, as a
result, the Ending Value that will be calculated for the Dow Jones EURO STOXX
50 Index will be affected by changes in the exchange rate between the Canadian
dollar and the euro. The following table sets forth the historical Canadian
dollar/euro exchange rates (expressed as the number of euros for which one
Canadian dollar could be purchased) for each month from January 1999 through
June 2004. Any upward or downward trend in the value of the Canadian dollar
against the euro during any period set forth below is not any indication that
the Canadian dollar is more or less likely to increase or decrease in value
against the euro at any time during the term of the Securities.
Monthly Closing Values
----------------------
1999 2000 2001 2002 2003 2004
--------- --------- --------- --------- --------- ---------
January........ 0.5826827 0.7115412 0.7130633 0.7323325 0.6112096 0.6047777
February....... 0.6006728 0.7152053 0.7043742 0.7183908 0.6232471 0.5999160
March.......... 0.6165608 0.7223346 0.7239033 0.7192692 0.6242977 0.6201935
April.......... 0.6495615 0.7410152 0.7339988 0.7082153 0.6251954 0.6083095
May............ 0.6511688 0.7124029 0.7687577 0.7005745 0.6210409 0.6019745
June........... 0.6607202 0.7081150 0.7768800 0.6646285 0.6445791 0.6150800
July........... 0.6196555 0.7259528 0.7441584 0.6459114 0.6334727
August......... 0.6340350 0.7651695 0.7064641 0.6531252 0.6569007
September...... 0.6372674 0.7534092 0.6948787 0.6386104 0.6345178
October........ 0.6445791 0.7733952 0.6991540 0.6479622 0.6538512
November....... 0.6724497 0.7461016 0.7093708 0.6425496 0.6409024
December....... 0.6872852 0.7078644 0.7057163 0.6064281 0.6122199
The following graph sets forth the historical Canadian dollar/euro
exchange rates (expressed as the number of euros for which one Canadian dollar
could be purchased) for each month from January 1999 through June 2004 set
forth in the table above. This historical information is furnished as a matter
of information only and should not be taken as an indication of future
performance.
S-37
[GRAPHIC OMITTED]
The FTSE 100 Index
The FTSE 100 Index is a capitalization-weighted index of the 100 most
highly capitalized companies traded on the London Stock Exchange. The FTSE 100
Index is designed to measure the performance of the largest blue chip
companies in the UK market.
The FTSE 100 Index represents approximately 80% of the total UK market
capitalization and is suitable as the basis for investment products, such as
derivatives and exchange-traded funds. The FTSE 100 Index was developed with a
base level of 1000 as of January 3, 1984 and is reviewed quarterly by an
independent committee in March, June, September and December. The FTSE 100
Index is calculated throughout the day, from 8:00 a.m. to 4:30 p.m. (London
time) with values published every 15 seconds on major data vendors.
The FTSE 100 Index represents the largest capitalized companies in the
FTSE All-Share Index. The FTSE All-Share Index is composed of the FTSE 100
Index, FTSE 250 Index (combined to form the FTSE 350 Index) and the FTSE
Smallcap Index. The FTSE All-Share Index represents approximately 98% of the
total UK equity market.
The indices are continuously monitored for corporate actions such as
initial public offerings, mergers and takeovers, spin-offs, etc. and resulting
shares in issue changes are adjusted when an aggregate change of 1% or more
has been reached. The indices are free float adjusted for restricted holdings
such as trade investments, significant long-term holdings, employee share
schemes, government holdings and/or other portfolio investments subject to
lock-in clauses. The liquidity screen stipulates that a security must turnover
at least 0.5% of its shares in issue, after the application of any free float
restrictions, per month in at least ten of the twelve months prior to the
annual review by the independent committee.
An independent steering committee keeps the FTSE 100 Index under
quarterly review. It adds and deletes stocks from the FTSE 100 Index based on
the current market capitalization of their issuers. Changes in the constituent
companies are kept to a minimum in order to reduce turnover in the index. A
company will usually be replaced only if it has fallen below 110th in ranking
and if the replacement company has moved into the top 90, in terms of market
capitalization. At all times there is a reserve list of companies ready to
fill any vacancy in the FTSE 100 Index.
S-38
License Agreement
FTSE International Limited ("FTSE"), as licensee of the London Stock
Exchange Limited and The Financial Times Limited, and Merrill Lynch
International ("MLI") have entered into a non-exclusive license agreement
providing for the license to MLI, in exchange for a fee, of the right to use
certain indices calculated by FTSE, in connection with the issuance and
marketing of securities, including the Notes and the Warrants, and ML&Co. is
an authorized sublicensee of MLI.
The license agreement provides the following information must be set
forth in this prospectus supplement:
"The Securities are not in any way sponsored, endorsed, sold or promoted
by FTSE International Limited ("FTSE") or by The London Stock Exchange Limited
("Exchange") or by The Financial Times Limited ("FT") and neither FTSE or the
Exchange or FT makes any warranty or representation whatsoever, expressly or
impliedly, either as to the results to be obtained from the use of the FTSE
100 Index (the "Index") and/or the figure at which the said Index stands at
any particular time on any particular day or otherwise. The Index is compiled
and calculated solely by FTSE. However, neither FTSE or Exchange or FT shall
be liable (whether in negligence or otherwise) to any person for any error in
the Index and neither the Exchange or FT shall be under any obligation to
advise any person of any error therein."
"FTSE(TM)" is a trademark of London Stock Exchange Limited and The
Financial Times Limited and is used by FTSE International Limited under
license."
"The FTSE 100 is calculated by FTSE International Limited in conjunction
with the Institute of Actuaries. FTSE International Limited accepts no
liability in connection with the trading of any products on the FTSE 100
Index."
"All copyright in the index values and constituent list vest in FTSE
International Limited. ML&Co. has obtained full license from FTSE
International Limited to use such rights in the creation of this product."
Historical Data on the FTSE 100 Index
The following table sets forth the value of the FTSE 100 Index at the end
of each month in the period from January 1999 through June 2004. These
historical data on the FTSE 100 Index are not necessarily indicative of the
future performance of the FTSE 100 Index or what the value of the Securities
may be. Any historical upward or downward trend in the level of the FTSE 100
Index during any period set forth below is not an indication that the FTSE 100
Index is more or less likely to increase or decrease at any time during the
term of the Securities.
1999 2000 2001 2002 2003 2004
------- ------- ------- ------- ------- -------
January....... 5,896.0 6,268.5 6,297.5 5,164.8 3,567.4 4,390.7
February...... 6,175.1 6,232.6 5,917.9 5,101.0 3,655.6 4,492.2
March......... 6,295.3 6,540.2 5,633.7 5,271.8 3,613.3 4,385.7
April......... 6,552.2 6,327.4 5,966.9 5,165.6 3,926.0 4,489.7
May........... 6,226.2 6,359.3 5,796.1 5,085.1 4,048.1 4,430.7
June.......... 6,318.5 6,312.7 5,642.5 4,656.4 4,031.2 4,464.1
July.......... 6,231.9 6,365.3 5,529.1 4,246.2 4,157.0
August........ 6,246.4 6,672.7 5,345.0 4,227.3 4,161.1
September..... 6,029.8 6,294.2 4,903.4 3,721.8 4,091.3
October....... 6,255.7 6,438.4 5,039.7 4,039.7 4,287.6
November...... 6,597.2 6,142.2 5,203.6 4,169.4 4,342.6
December...... 6,930.2 6,222.5 5,217.4 3,940.4 4,476.9
S-39
The following graph sets forth the historical performance of the FTSE 100
Index presented in the preceding table. Past movements of the FTSE 100 Index
are not necessarily indicative of the future FTSE 100 Index values. On July 9,
2004, the closing value of the FTSE 100 Index was 4,393.20.
[GRAPHIC OMITTED]
S-40
Historical data on the Canadian dollar/British pound rate
The FTSE 100 Index is denominated in British pounds and, as a result, the
Ending Value that will be calculated for the FTSE 100 Index will be affected
by changes in the exchange rate between the Canadian dollar and the British
pound. The following table sets forth the historical Canadian dollar/British
pound exchange rates (expressed as the number of British pounds for which one
Canadian dollar could be purchased) for each month from January 1999 through
June 2004. Any upward or downward trend in the value of the Canadian dollar
against the British pound during any period set forth below is not any
indication that the Canadian dollar is more or less likely to increase or
decrease in value against the British pound at any time during the term of the
Securities.
Monthly Closing Values
----------------------
1999 2000 2001 2002 2003 2004
------- ------- ------- ------ ------- -------
January....... 0.40246 0.42728 0.45591 0.44601 0.39949 0.41382
February...... 0.41283 0.43697 0.45025 0.44061 0.42838 0.40111
March......... 0.41200 0.43363 0.44833 0.43946 0.43068 0.41375
April......... 0.42657 0.43563 0.45490 0.43762 0.43743 0.40987
May........... 0.42350 0.44512 0.45836 0.44918 0.44701 0.40059
June.......... 0.43324 0.44539 0.46614 0.42946 0.44873 0.41225
July.......... 0.40947 0.44869 0.45746 0.40380 0.44203
August........ 0.41813 0.46977 0.44342 0.41380 0.45716
September..... 0.41382 0.45090 0.42953 0.40177 0.44506
October....... 0.41368 0.45325 0.43281 0.41000 0.44699
November...... 0.42439 0.45643 0.44673 0.41024 0.44649
December...... 0.42799 0.44665 0.43159 0.39516 0.43275
The following graph sets forth the historical Canadian dollar/British
pound exchange rates (expressed as the number of British pound for which one
Canadian dollar could be purchased) for each month from January 1999 through
June 2004 set forth in the table above. This historical information is
furnished as a matter of information only and should not be taken as an
indication of future performance.
[GRAPHIC OMITTED]
S-41
The Asian Regional Basket
The Asian Regional Basket will consist of a 55% weighting to the Nikkei
225 Index, which is denominated in Japanese yen, a 35% weighting to the MSCI
Hong Kong Index, which is denominated in Hong Kong dollars, and a 10%
weighting to the S&P/ASX 200 Index, which is denominated in Australian
dollars.
The Asian Regional Basket Indices
The Nikkei 225 Index
All disclosure contained in this prospectus supplement regarding the
Nikkei 225 Index, including, without limitation, its make-up, method of
calculation and changes in its components, unless otherwise stated, has been
derived from the Stock Market Indices Data Book published by NKS and other
publicly available sources. The information reflects the policies of NKS as
stated in these sources and the policies are subject to change at the
discretion of NKS.
The Nikkei 225 Index is a stock index calculated, published and
disseminated by NKS that measures the composite price performance of selected
Japanese stocks. The Nikkei 225 Index is currently based on 225 underlying
stocks trading on the Tokyo Stock Exchange (the "Tokyo Exchange") and
represents a broad cross-section of Japanese industry. All 225 of the stocks
underlying the Nikkei 225 Index are stocks listed in the First Section of the
Tokyo Exchange. Stocks listed in the First Section are among the most actively
traded stocks on the Tokyo Exchange. Futures and options contracts on the
Nikkei 225 Index are traded on the Singapore International Monetary Exchange,
the Osaka Securities Exchange and the Chicago Mercantile Exchange.
The Nikkei 225 Index is a modified, price-weighted index. Each stock's
weight in the Nikkei 225 Index is based on its price per share rather than the
total market capitalization of the issuer. NKS calculates the Nikkei 225 Index
by multiplying the per share price of each underlying stock by the
corresponding weighting factor for that underlying stock (a "Weight Factor"),
calculating the sum of all these products and dividing that sum by a divisor.
The divisor, initially set on May 16, 1949 at 225, was 23.156 as of July 9,
2004, and is subject to periodic adjustments as set forth below. Each Weight
Factor is computed by dividing (Y)50 by the par value of the relevant
underlying stock, so that the share price of each underlying stock when
multiplied by its Weight Factor corresponds to a share price based on a
uniform par value of (Y)50. Each Weight Factor represents the number of shares
of the related underlying stock which are included in one trading unit of the
Nikkei 225 Index. The stock prices used in the calculation of the Nikkei 225
Index are those reported by a primary market for the underlying stocks, which
is currently the Tokyo Exchange. The level of the Nikkei 225 Index is
calculated once per minute during Tokyo Exchange trading hours.
In order to maintain continuity in the level of the Nikkei 225 Index in
the event of certain changes due to non-market factors affecting the
underlying stocks, such as the addition or deletion of stocks, substitution of
stocks, stock dividends, stock splits or distributions of assets to
stockholders, the divisor used in calculating the Nikkei 225 Index is adjusted
in a manner designed to prevent any instantaneous change or discontinuity in
the level of the Nikkei 225 Index. The divisor remains at the new value until
a further adjustment is necessary as the result of another change. As a result
of each change affecting any underlying stock, the divisor is adjusted in such
a way that the sum of all share prices immediately after the change multiplied
by the applicable Weight Factor and divided by the new divisor, i.e., the
level of the Nikkei 225 Index immediately after the change, will equal the
level of the Nikkei 225 Index immediately prior to the change.
Underlying stocks may be deleted or added by NKS. However, to maintain
continuity in the Nikkei 225 Index, the policy of NKS is generally not to
alter the composition of the underlying stocks except when an underlying stock
is deleted in accordance with the following criteria. Any stock becoming
ineligible for listing in the First Section of the Tokyo Exchange due to any
of the following reasons will be deleted from the underlying stocks:
bankruptcy of the issuer; merger of the issuer into, or acquisition of the
issuer by, another company; delisting of the stock or transfer of the stock to
the "Seiri-Post" because of excess debt of the issuer or because of any other
reason; or transfer of the stock to the Second Section of the Tokyo Exchange.
Upon deletion of a stock from the Nikkei 225 Index, NKS will select, in
accordance with certain criteria established by it, a replacement for the
deleted underlying stock. In an exceptional case, a newly listed stock in the
First Section of the Tokyo Exchange that is recognized by NKS to be
representative of a market may be added to the underlying stocks. As a result,
an existing underlying stock with low trading volume and not representative of
a market will be deleted.
S-42
License Agreement
NKS and ML&Co. have entered into a non-exclusive license agreement
providing for the license to ML&Co., in exchange for a fee, of a right to use
indices owned and published by NKS in connection with some securities,
including the Notes and Warrants.
NKS is under no obligation to continue the calculation and dissemination
of the Nikkei 225 Index. The Securities are not sponsored, endorsed, sold or
promoted by NKS. No inference should be drawn from the information contained
in this prospectus supplement that NKS makes any representation or warranty,
implied or express, to ML&Co., the holder of the Securities or any member of
the public regarding the advisability of investing in securities generally or
in the Securities in particular or the ability of the Securities to track
general stock market performance. NKS has no obligation to take the needs of
ML&Co. or the holders of the Securities into consideration in determining,
composing or calculating the Nikkei 225 Index. NKS is not responsible for, and
has not participated in the determination of the timing of, prices for, or
quantities of, the Securities to be issued or in the determination or
calculation of the equation by which the Securities are to be settled in cash.
NKS has no obligation or liability in connection with the administration or
marketing of the Securities.
The use of and reference to the Nikkei 225 Index in connection with the
Securities have been consented to by NKS, the publisher of the Nikkei 225
Index.
None of ML&Co., the Calculation Agent and NKS accepts any responsibility
for the calculation, maintenance or publication of the Nikkei 225 Index or any
successor index. NKS disclaims all responsibility for any errors or omissions
in the calculation and dissemination of the Nikkei 225 Index or the manner in
which the Nikkei 225 Index is applied in determining any Starting Values or
Ending Values or any Redemption Amount.
The Tokyo Stock Exchange
The Tokyo Exchange is one of the world's largest securities exchanges in
terms of market capitalization. Trading hours are currently from 9:00 a.m. to
11:00 a.m. and from 12:30 p.m. to 3:00 p.m. (Tokyo time), Monday through
Friday.
Due to the time zone difference, on any normal trading day the Tokyo
Exchange will close prior to the opening of business in London on the same
calendar day. Therefore, the closing level of the Nikkei 225 Index on a
trading day will generally be available in London by the opening of business
on the same calendar day.`
The Tokyo Exchange has adopted certain measures, including daily price
floors and ceilings on individual stocks, intended to prevent any extreme
short-term price fluctuations resulting from order imbalances. In general, any
stock listed on the Tokyo Exchange cannot be traded at a price lower than the
applicable price floor or higher than the applicable price ceiling. These
price floors and ceilings are expressed in absolute Japanese yen, rather than
percentage limits based on the closing price of the stock on the previous
trading day. In addition, when there is a major order imbalance in a listed
stock, the Tokyo Exchange posts a "special bid quote" or a "special asked
quote" for that stock at a specified higher or lower price level than the
stock's last sale price in order to solicit counter-orders and balance supply
and demand for the stock. Prospective investors should also be aware that the
Tokyo Exchange may suspend the trading of individual stocks in certain limited
and extraordinary circumstances, including, for example, unusual trading
activity in that stock. As a result, changes in the Nikkei 225 Index may be
limited by price limitations or special quotes, or by suspension of trading,
on individual stocks which comprise the Nikkei 225 Index, and these
limitations may, in turn, adversely affect the value of the Securities.
Historical data on the Nikkei 225 Index
The following table sets forth the closing values of the Nikkei 225 Index
on the last Business Day of each year from 1967 through 2003. The historical
experience of the Nikkei 225 Index should not be taken as an indication of
future performance and no assurance can be given that the value of the Nikkei
225 Index will not decline and thereby reduce the Redemption Amount which may
be payable to the beneficial owners of the Securities.
S-43
Year-End Closing Values of the Index
Closing Closing
Year Value Year Value
------- --------- ------ ----------
1967 1,281 1986 18,701
1968 1,715 1987 21,564
1969 2,359 1988 30,159
1970 1,987 1989 38,916
1971 2,714 1990 23,849
1972 5,208 1991 22,984
1973 4,307 1992 16,925
1974 3,817 1993 17,417
1975 4,359 1994 19,723
1976 4,991 1995 19,868
1977 4,866 1996 19,361
1978 6,002 1997 15,259
1979 6,569 1998 13,842
1980 7,116 1999 18,934
1981 7,682 2000 13,786
1982 8,017 2001 10,543
1983 9,894 2002 8,579
1984 11,543 2003 10,677
1985 13,113
The following table sets forth the level of the Nikkei 225 Index at the
end of each month, in the period from January 1996 through June 2004. These
historical data on the Nikkei 225 Index are not necessarily indicative of the
future performance of the Nikkei 225 Index or what the value of the Securities
may be. Any historical upward or downward trend in the level of the Nikkei 225
Index during any period set forth below is not an indication that the Nikkei
225 Index is more or less likely to increase or decrease at any time during
the term of the Securities.
1996 1997 1998 1999 2000 2001 2002 2003 2004
------ ------ ------ ------ ------ ------ ------ ------ -----
January....... 20,813 18,330 16,628 14,499 19,540 13,844 9,998 8,340 10,784
February...... 20,125 18,557 16,832 14,368 19,960 12,884 10,588 8,363 11,042
March......... 21,407 18,003 16,527 15,837 20,337 13,000 11,025 7,973 11,716
April......... 22,041 19,151 15,641 16,702 17,974 13,934 11,493 7,831 11,762
May........... 21,956 20,069 15,671 16,112 16,332 13,262 11,764 8,425 11,237
June.......... 22,531 20,605 15,830 17,530 17,411 12,969 10,622 9,083 11,859
July.......... 20,693 20,331 16,379 17,862 15,727 11,861 9,878 9,563
August........ 20,167 18,229 14,108 17,437 16,861 10,714 9,619 10,344
September..... 21,556 17,888 13,406 17,605 15,747 9,775 9,383 10,219
October....... 20,467 16,459 13,565 17,942 14,540 10,366 8,640 10,560
November...... 21,020 16,636 14,884 18,558 14,649 10,697 9,216 10,101
December...... 19,361 15,259 13,842 18,934 13,786 10,543 8,579 10,677
S-44
The following graph sets forth the historical performance of the Nikkei
225 Index at the end of each month, in the period from January 1999 through
June 2004, as presented in the table above. Past movements of the Nikkei 225
Index are not necessarily indicative of the future Nikkei 225 Index values. On
July 9, 2004 the closing value of the Nikkei 225 Index was 11,423.53.
[GRAPHIC OMITTED]
Historical data on the Canadian dollar/Japanese yen exchange rate
The Nikkei 225 Index is denominated in Japanese yen and, as a result, the
Ending Value that will be calculated for the Nikkei 225 Index will be affected
by changes in the exchange rate between the Canadian dollar and the Japanese
yen. The following table sets forth the historical Canadian dollar/Japanese
yen exchange rates (expressed as the number of Japanese yen for which one
Canadian dollar could be purchased) for each month from January 1999 through
June 2004. Any upward or downward trend in the value of the Canadian dollar
against the Japanese yen during any period set forth below is not any
indication that the Canadian dollar is more or less likely to increase or
decrease in value against the Japanese at any time during the term of the
Securities.
Monthly Closing Values
----------------------
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
January............... 77.01 74.16 77.80 84.77 78.89 79.77
February.............. 78.97 76.05 76.38 83.28 79.57 81.78
March................. 78.90 70.95 80.18 83.22 80.46 79.60
April................. 81.87 73.05 80.41 82.00 83.12 80.54
May................... 82.44 71.94 77.50 81.30 87.30 80.33
June.................. 82.83 71.59 82.34 78.73 88.91 81.61
July.................. 76.02 73.61 81.52 75.69 85.79
August................ 73.50 72.41 76.60 75.98 84.42
September............. 72.42 71.94 75.71 76.72 82.47
October............... 70.78 71.51 77.08 78.60 83.32
November.............. 69.31 71.75 78.50 78.30 84.28
December.............. 70.89 76.32 82.65 75.59 82.79
The following graph sets forth the historical Canadian dollar/Japanese
yen exchange rates (expressed as the number of Japanese yen for which one
Canadian dollar could be purchased) for each month from January 1999
S-45
through June 2004 set forth in the table above. This historical information is
furnished as a matter of information only and should not be taken as an
indication of future performance.
[GRAPHIC OMITTED]
The MSCI Hong Kong Index
The MSCI Hong Kong Index is a free float-adjusted market capitalization
index that is designed to measure equity market performance in the Hong Kong
market. The MSCI Hong Kong Index was developed with a base level of 100 as of
December 31, 1969.
License Agreement
MSCI and MLPF&S have entered into a non-exclusive license agreement
providing for the license to MLPF&S, in exchange for a fee, of a right to use
indices owned and published by MSCI in connection with some securities,
including the Notes and Warrants, and ML&Co. is an authorized sublicensee of
MLPF&S.
The license agreement between MLPF&S and MSCI provides the following
information must be set forth in this prospectus supplement:
"THE SECURITIES ARE NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY MSCI,
ANY AFFILIATE OF MSCI OR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR
COMPILING THE MSCI HONG KONG INDEX. THE MSCI HONG KONG INDEX IS THE EXCLUSIVE
PROPERTY OF MSCI. MSCI AND THE MSCI HONG KONG INDEX NAMES ARE SERVICE MARK(S)
OF MSCI OR ITS AFFILIATES AND HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES
BY ML&CO. NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN,
OR RELATED TO, MAKING OR COMPILING THE MSCI HONG KONG INDEX MAKES ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE HOLDERS OF THE
SECURITIES OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF INVESTING
IN FINANCIAL SECURITIES GENERALLY OR IN THESE SECURITIES PARTICULARLY OR THE
ABILITY OF THE MSCI HONG KONG INDEX TO TRACK CORRESPONDING STOCK MARKET
PERFORMANCE. MSCI OR ITS AFFILIATES ARE THE LICENSORS OF CERTAIN TRADEMARKS,
SERVICE MARKS AND TRADE NAMES AND OF THE MSCI HONG KONG INDEX WHICH IS
DETERMINED, COMPOSED AND
S-46
CALCULATED BY MSCI WITHOUT REGARD TO THESE SECURITIES OR THE ISSUER OR OWNER
OF THIS FINANCIAL PRODUCT. NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER
PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING THE MSCI HONG KONG INDEX
HAS ANY OBLIGATION TO TAKE THE NEEDS OF ML&CO. OR HOLDERS OF THE SECURITIES
INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE MSCI HONG KONG
INDEX. NEITHER MSCI, ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR
RELATED TO, MAKING OR COMPILING THE MSCI HONG KONG INDEX IS RESPONSIBLE FOR OR
HAS PARTICIPATED IN THE DETERMINATION OF THE TIMING OF, PRICES AT, OR
QUALITIES OF THESE SECURITIES TO BE ISSUED OR IN THE DETERMINATION OR
CALCULATION OF THE EQUATION BY WHICH THESE SECURITIES ARE REDEEMABLE FOR CASH.
NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR
RELATED TO, THE MAKING OR COMPILING THE MSCI HONG KONG INDEX HAS ANY
OBLIGATION OR LIABILITY TO THE OWNERS OF THESE SECURITIES IN CONNECTION WITH
THE ADMINISTRATION, MARKETING OR OFFERING OF THESE SECURITIES."
"ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN
THE CALCULATION OF THE MSCI HONG KONG INDEX FROM SOURCES WHICH MSCI CONSIDERS
RELIABLE, NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN,
OR RELATED TO MAKING OR COMPILING THE MSCI HONG KONG INDEX WARRANTS OR
GUARANTEES THE ORIGINALITY, ACCURACY AND/OR THE COMPLETENESS OF THE MSCI HONG
KONG INDEX OR ANY DATA INCLUDED THEREIN. NEITHER MSCI, ANY OF ITS AFFILIATES
NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING THE MSCI
HONG KONG INDEX MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE
OBTAINED BY ML&CO., HOLDERS OF THE SECURITIES OR ANY OTHER PERSON OF ENTITY,
FROM THE USE OF THE MSCI HONG KONG INDEX OR ANY DATA INCLUDED THEREIN IN
CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE. NEITHER
MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO,
MAKING OR COMPILING THE MSCI HONG KONG INDEX SHALL HAVE ANY LIABILITY FOR ANY
ERRORS, OMISSIONS OR INTERRUPTIONS OF OR IN CONNECTION WITH THE MSCI HONG KONG
INDEX OR ANY DATA INCLUDED THEREIN. FURTHER, NEITHER MSCI, ANY OF ITS
AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING
THE MSCI HONG KONG INDEX MAKES ANY EXPRESS OR IMPLIED WARRANTIES OF ANY KIND,
AND MSCI, ANY OF ITS AFFILIATES AND ANY OTHER PARTY INVOLVED IN, OR RELATED TO
MAKING OR COMPILING THE MSCI HONG KONG INDEX HEREBY EXPRESSLY DISCLAIM ALL
WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH
RESPECT TO THE MSCI HONG KONG INDEX AND ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MSCI, ANY OF ITS AFFILIATES
OR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI
HONG KONG INDEX HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL,
PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES."
S-47
Historical Data on the MSCI Hong Kong Index
The following table sets forth the value of the MSCI Hong Kong Index at
the end of each month in the period from January 1999 through June 2004. These
historical data on the MSCI Hong Kong Index are not necessarily indicative of
the future performance of the MSCI Hong Kong Index or what the value of the
Securities may be. Any historical upward or downward trend in the level of the
MSCI Hong Kong Index during any period set forth below is not an indication
that the MSCI Hong Kong Index is more or less likely to increase or decrease
at any time during the term of the Securities.
1999 2000 2001 2002 2003 2004
-------- -------- -------- -------- -------- ------
January...... 5,527.922 8,520.170 7,912.814 5,951.676 4,836.639 6,969.137
February..... 5,563.318 9,005.324 7,732.838 5,717.343 4,774.088 7,201.343
March........ 6,277.732 9,232.521 6,887.794 6,033.694 4,501.160 6,747.766
April........ 7,661.860 8,351.847 6,849.334 6,341.748 4,463.126 6,404.797
May.......... 7,035.462 7,381.633 6,722.788 6,031.748 4,777.140 6,352.064
June......... 7,695.345 7,940.225 6,358.953 5,666.992 4,838.862 6,349.035
July......... 7,433.529 8,463.686 6,343.249 5,432.665 5,146.554
August....... 7,487.633 8,525.362 5,878.593 5,145.166 5,756.667
September.... 7,173.324 7,809.652 4,964.248 4,758.240 6,011.455
October...... 7,532.918 7,272.376 5,118.109 4,918.738 6,279.290
November..... 8,489.806 7,001.548 5,765.395 5,200.885 6,228.644
December..... 9,231.456 7,690.072 6,057.967 4,808.440 6,341.312
The following graph sets forth the historical performance of the MSCI
Hong Kong Index presented in the preceding table. Past movements of the MSCI
Hong Kong Index are not necessarily indicative of the future MSCI Hong Kong
Index values. On July 9, 2004, the closing value of the MSCI Hong Kong Index
was 6,381.18.
[GRAPHIC OMITTED]
S-48
Historical data on the Canadian dollar/Hong Kong dollar exchange rate
The MSCI Hong Kong Index is denominated in Hong Kong dollars and, as a
result, the Ending Value that will be calculated for the MSCI Hong Kong Index
will be affected by changes in the exchange rate between the Canadian dollar
and the Hong Kong dollar. The following table sets forth the historical
Canadian dollar/Hong Kong dollar exchange rates (expressed as the number of
Hong Kong dollars for which one Canadian dollar could be purchased) for each
month from January 1999 through June 2004. Any upward or downward trend in the
value of the Canadian dollar against the Hong Kong dollar during any period
set forth below is not any indication that the Canadian dollar is more or less
likely to increase or decrease in value against the Hong Kong dollar at any
time during the term of the Securities.
Monthly Closing Values
----------------------
1999 2000 2001 2002 2003 2004
-------- -------- -------- -------- -------- ------
January....... 5.1296 5.3735 5.2068 4.9087 5.1332 5.8686
February...... 5.1327 5.3667 5.0761 4.8687 5.2535 5.8332
March......... 5.1442 5.3745 4.9502 4.8904 5.3141 5.9484
April......... 5.3211 5.2633 5.0805 4.9744 5.4518 5.6838
May........... 5.2622 5.2068 5.0712 5.1049 5.7063 5.7205
June.......... 5.3063 5.2655 5.1509 5.1354 5.7926 5.8514
July.......... 5.1520 5.2464 5.0856 4.9246 5.5498
August........ 5.2017 5.2983 5.0292 5.0041 5.6306
September..... 5.2910 5.1865 4.9391 4.9153 5.7269
October....... 5.2821 5.1172 4.9102 5.0046 5.8846
November...... 5.2702 5.0735 4.9576 4.9826 5.9696
December...... 5.3755 5.2029 4.8951 4.9616 5.9857
The following graph sets forth the historical Canadian dollar/Hong Kong
dollar exchange rates (expressed as the number of Hong Kong dollars for which
one Canadian dollar could be purchased) for each month from January 1999
through June 2004 set forth in the table above. This historical information is
furnished as a matter of information only and should not be taken as an
indication of future performance.
[GRAPHIC OMITTED]
S-49
The S&P/ASX 200 Index
The S&P/ASX 200 Index is designed to provide a benchmark for the
Australian equity market. The S&P/ASX 200 Index is comprised of the S&P/ASX
100 Index plus an additional 100 stocks. It forms the basis for the SPI 200
Index and the ASX mini200 futures contract and the streetTRACKS S&P/ASX 200
exchange-traded fund.
License Agreement
S&P and MLPF&S have entered into a non-exclusive license agreement
providing for the license to MLPF&S, in exchange for a fee, of the right to
use indices owned and published by S&P in connection with some securities,
including the Notes and the Warrants, and ML&Co. is an authorized sublicensee
of MLPF&S.
The license agreement between S&P and MLPF&S provides that the following
language must be stated in this prospectus supplement:
"S&P and S&P/ASX are trademarks of The McGraw-Hill Companies, Inc. and
have been licensed for use by MLPF&S and ML&Co."
"The Securities are not sponsored, endorsed, sold or promoted by Standard
& Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). Neither S&P
nor the Australian Stock Exchange ("ASX") makes any representation or
warranty, express or implied, to the holders of the Securities or any member
of the public regarding the advisability of investing in securities generally
or in the Securities particularly or the ability of the S&P/ASX 200 Index to
track general stock market performance. S&P's and ASX's only relationship to
MLPF&S and ML&Co. (other than transactions entered into in the ordinary course
of business) is the licensing of certain trademarks and trade names of S&P and
ASX and of the S&P/ASX 200 Index which is determined, composed and calculated
by S&P without regard to ML&Co. or the Securities. S&P and ASX have no
obligation to take the needs of ML&Co. or the holders of the Securities into
consideration in determining, composing or calculating the S&P/ASX 200 Index.
S&P and ASX are not responsible for and have not participated in the
determination of the timing of the sale of the Securities, prices at which the
Securities are to initially be sold, or quantities of the Securities to be
issued or in the determination or calculation of the equation by which the
Securities are to be converted into cash. S&P and ASX have no obligation or
liability in connection with the administration, marketing or trading of the
Securities."
"S&P AND ASX DO NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
S&P/ASX INDEX OR ANY DATA INCLUDED THEREIN AND S&P AND ASX SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. S&P AND ASX MAKE
NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY ML&CO.,
MLPF&S, HOLDERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE
OF THE S&P/ASX 200 INDEX OR ANY DATA INCLUDED IN THE S&P/ASX 200 INDEX IN
CONNECTION WITH THE RIGHTS LICENSED UNDER THE LICENSE AGREEMENT DESCRIBED IN
THIS PROSPECTUS SUPPLEMENT OR FOR ANY OTHER USE. S&P AND ASX MAKE NO EXPRESS
OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE
S&P/ASX 200 INDEX OR ANY DATA INCLUDED IN THE S&P/ASX 200 INDEX. WITHOUT
LIMITING ANY OF THE ABOVE INFORMATION, IN NO EVENT SHALL S&P AND ASX HAVE ANY
LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGE
(INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF THESE
DAMAGES."
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Historical Data on the S&P/ASX 200 Index
The following table sets forth the value of the S&P/ASX 200 Index at the
end of each month in the period from January 1999 through June 2004. These
historical data on the S&P/ASX 200 Index are not necessarily indicative of the
future performance of the S&P/ASX 200 Index or what the value of the
Securities may be. Any historical upward or downward trend in the level of the
S&P/ASX 200 Index during any period set forth below is not an indication that
the S&P/ASX 200 Index is more or less likely to increase or decrease at any
time during the term of the Securities.
1999 2000 2001 2002 2003 2004
-------- -------- -------- -------- -------- ------
January...... 2,781.7 3,080.2 3,341.7 3,464.2 2,956.9 3,272.0
February..... 2,768.4 3,124.6 3,326.5 3,414.3 2,800.9 3,360.6
March........ 2,867.0 3,133.3 3,147.2 3,414.8 2,885.2 3,415.3
April........ 3,027.8 3,115.8 3,329.4 3,350.0 3,007.5 3,400.8
May.......... 2,831.9 3,081.0 3,379.1 3,373.6 3,011.0 3,460.2
June......... 2,903.7 3,311.2 3,490.3 3,216.0 3,025.8 3,532.9
July......... 2,951.0 3,251.1 3,324.5 3,086.2 3,122.3
August....... 2,875.7 3,297.8 3,275.6 3,120.1 3,199.7
September.... 2,817.0 3,298.8 3,049.5 2,970.9 3,169.5
October...... 2,821.4 3,254.6 3,249.6 3,042.9 3,272.0
November..... 2,970.3 3,274.6 3,337.5 3,061.4 3,186.4
December..... 3,117.7 3,206.2 3,422.3 3,007.1 3,299.8
The following graph sets forth the historical performance of the S&P/ASX
200 Index presented in the preceding table. Past movements of the S&P/ASX 200
Index are not necessarily indicative of the future S&P/ASX 200 Index values.
On July 9, 2004, the closing value of the S&P/ASX 200 Index was 3,564.02.
[GRAPHIC OMITTED]
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Historical data on the Canadian dollar/Australian dollar exchange rate
The S&P/ASX 200 Index is denominated in Australian dollars and, as a
result, the Ending Value that will be calculated for the S&P/ASX 200 Index
will be affected by changes in the exchange rate between the Canadian dollar
and the Australian dollar. The following table sets forth the historical
Canadian dollar/Australian dollar exchange rates (expressed as the number of
Australian dollars for which one Canadian dollar could be purchased) for each
month from January 1999 through June 2004. Any upward or downward trend in the
value of the Canadian dollar against the Australian dollar during any period
set forth below is not any indication that the Canadian dollar is more or less
likely to increase or decrease in value against the Australian dollar at any
time during the term of the Securities.
Monthly Closing Values
----------------------
1999 2000 2001 2002 2003 2004
------ ------ ------ ------ ------ -----
January....... 1.0504 1.0836 1.2118 1.2397 1.1211 0.9875
February...... 1.0707 1.1164 1.2368 1.2055 1.1070 0.9681
March......... 1.0465 1.1370 1.3067 1.1769 1.1272 0.9975
April......... 1.0381 1.1574 1.2754 1.1843 1.1164 1.0112
May........... 1.0458 1.1673 1.2847 1.1536 1.1201 1.0252
June.......... 1.0316 1.1321 1.2907 1.1715 1.1032 1.0733
July.......... 1.0177 1.1588 1.2791 1.1631 1.0970
August........ 1.0457 1.1775 1.2178 1.1647 1.1153
September..... 1.0446 1.2257 1.2890 1.1613 1.0874
October....... 1.0645 1.2647 1.2517 1.1568 1.0697
November...... 1.0679 1.2325 1.2181 1.1389 1.0616
December...... 1.0531 1.1939 1.2322 1.1332 1.0252
The following graph sets forth the historical Canadian dollar/Australian
dollar exchange rates (expressed as the number of Australian dollars for which
one Canadian dollar could be purchased) for each month from January 1999
through June 2004 set forth in the table above. This historical information is
furnished as a matter of information only and should not be taken as an
indication of future performance.
[GRAPHIC OMITTED]
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INCOME TAX CONSIDERATIONS APPLICABLE TO CANADIAN RESIDENT INVESTORS
Canadian Federal Income Tax Considerations
In the opinion of Davies Ward Phillips & Vineberg LLP, Canadian counsel
to ML&Co., the following is, as of the date hereof, a summary of the principal
Canadian federal income tax considerations generally applicable to the
acquisition, holding and disposition of Warrants by an investor pursuant to
this offering. This summary is applicable to an investor who is an individual
(other than a trust) and who, for the purposes of the Income Tax Act (Canada)
(the "Act"), is a resident of Canada and deals at arm's length with and is not
affiliated with ML&Co. This summary further assumes that the investor does not
hold the Warrants in the course of carrying on a business and that the
Warrants are acquired by the investor without the intention or secondary
intention of selling them prior to the exercise date and that the Warrants are
therefore capital property to the investor. If a taxable Canadian investor
were to purchase Notes, the prescribed debt obligation rules in the Act would
be applicable. This would likely result in an unfavourable tax result to the
taxable Canadian investor. Accordingly, it is hereinafter assumed that taxable
Canadian investors do not purchase Notes.
This summary is based on the current provisions of the Act and the
regulations thereunder, the published administrative practices of the Canada
Revenue Agency (the "CRA"), and all specific proposals to amend the Act and
regulations thereunder publicly announced by the Minister of Finance (Canada)
prior to the date hereof. This summary does not otherwise take into account or
anticipate any changes in law or the CRA's administrative practices, whether
by legislative, governmental or judicial action, nor does it take into account
provincial, territorial or foreign income tax legislation or considerations.
This summary is not exhaustive of all possible Canadian federal tax
considerations applicable to an investment in Warrants. Accordingly, this
summary is of a general nature only and is not intended to be legal or tax
advice to any investor. Investors are urged to consult their own tax advisors
for advice with respect to the potential income tax consequences to them of an
investment in Warrants.
Acquiring and Holding Warrants
An investor will not be required to include any amount in income solely
as a result of acquiring and holding Warrants.
Sale of Warrants Prior to Exercise Date
If a Warrant is sold prior to the exercise date and is held as capital
property as assumed above, the investor will realize a capital gain (or
capital loss) on the sale equal to the amount by which the proceeds of
disposition net of any reasonable costs of disposition exceed (or are exceeded
by) the adjusted cost base of the Warrant to the investor. Investors who sell
a Warrant prior to the exercise date, particularly those who sell a Warrant
within a short period of time prior to the exercise date, should consult their
own tax advisors with respect to that disposition.
Exercise of Warrants for Cash
The published administrative practices of the CRA do not directly address
whether it is appropriate for an investor to treat as capital property
Warrants (or securities substantially identical to the Warrants) which are
exercised for cash, considering that all of the gain or loss of the investor
will arise upon the exercise. The CRA has addressed some comparable situations
in Interpretation Bulletins IT-479R and IT-346R. The CRA has indicated that
the gain or loss realized by a holder of options on shares is on the same
account as the holder's transactions in shares. The Warrants constitute an
option on various indices of securities. The CRA has also indicated that it is
generally acceptable for "speculators" who take one or more positions in
commodity futures, debt obligation futures or actual commodities (otherwise
than in the course of a business) to report all of their gains and losses from
such transactions on capital account provided this reporting practice is
consistently followed from year to year and provided further that the taxpayer
is not in a business relating to commodities or foreign currency transactions
and is not in possession of special information not generally available to the
public. Futures and commodities are similar to the Warrants in that all of the
gain or loss from futures and commodities may be considered to arise upon the
disposition thereof. Based on these positions, an investor may be willing to
take the position that Warrants which are exercised for cash are held on
capital account. However, an investor should discuss with his or her own tax
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advisors whether it is reasonable to treat Warrants which are exercised for
cash as held on capital account having regard to the investor's particular
circumstances and the established law on this issue.
If an investor takes the position that a Warrant which is exercised for
cash is held on capital account, the investor will realize a capital gain (or
capital loss) equal to the amount by which the proceeds of disposition net of
any reasonable costs of disposition exceed (or are exceeded by) the adjusted
cost base of the Warrant to the investor. If the investor holds the Warrant as
part of an adventure in the nature of trade, the investor will be required to
include an amount in income equal to the amount by which the proceeds of
disposition net of any reasonable costs of disposition exceed (or are exceeded
by) the cost of the Warrant to the investor.
Exercise of Warrants for Securities
Where a Warrant is held on capital account as assumed above and is
exercised for securities, the investor will be deemed not to have disposed of
the Warrant and will not realize any gain or loss as a result of the exercise.
The total cost to the investor of the securities acquired upon the exercise
will be equal to the investor's adjusted cost base of the Warrant immediately
before the exercise. It would be reasonable to allocate that cost among the
securities of different issuers in proportion to the fair market values of
such securities. The adjusted cost base to the investor of the securities of
different issuers will be determined by averaging the cost of those securities
with the adjusted cost base of all other identical securities then held by the
investor on capital account.
Treatment of Capital Gains and Capital Losses
One-half of any capital gain (a "taxable capital gain") realized upon the
sale or exercise of a Warrant will be included in the investor's income and
one-half of any capital loss (an "allowable capital loss") realized upon a
sale or exercise of a Warrant may be deducted from taxable capital gains in
accordance with the provisions of the Act. Capital gains realized by an
individual may give rise to a liability for alternative minimum tax under the
Act.
Summary of United States Federal Income Tax Considerations for Canadian
Resident Investors
The discussion in this section is directed to individual Canadian
resident holders of Securities who are not engaged in the conduct of a trade
or business within the United States and have no presence in, or connection
with, the United States. For a more detailed summary of the U.S. federal
income tax considerations applicable to Canadian resident holders of
Securities, see the section entitled "United States Federal Income Tax
Considerations" in this prospectus supplement. In order for payments to an
individual Canadian resident holder of Securities to be exempt from U.S.
federal income tax, withholding tax or backup withholding tax, the holder may
be required, among other things, to provide a properly executed Internal
Revenue Service ("IRS") Form W-8BEN or other similar form to ML&Co. The IRS
Form W-8BEN is a signed written statement certifying, among other things, that
the holder is not a United States person within the meaning of the United
States Internal Revenue Code of 1986, as amended (the "Code").
Assuming that an individual Canadian resident holder of Securities
provides a properly executed IRS Form W-8BEN or other similar form, the
following are certain U.S. federal income tax considerations generally
applicable to such a holder based upon the treatment of each Note and Warrant
as a pre-paid cash-settled forward contract linked to the Regional Baskets:
(a) a payment made with respect to a Note or a Warrant on the
maturity or exercise date will not be subject to United States
withholding tax; and
(b) any gain realized upon the sale or disposition of a Note or a
Warrant will generally not be subject to U.S. federal income
tax.
Canadian resident holders of Securities should also see the section entitled
"United States Federal Income Tax Considerations - Non-U.S. Holders" in this
prospectus supplement.
ELIGIBILITY FOR INVESTMENT
In the opinion of Davies Ward Phillips & Vineberg LLP, Canadian counsel
to ML&Co., the Notes offered hereby will be qualified investments under the
Income Tax Act (Canada) for trusts governed by registered retirement
S-54
savings plans, registered retirement income funds, deferred profit sharing
plans or registered education savings plans. The Notes will constitute foreign
property for purposes of the tax imposed under Part XI of the Income Tax Act
(Canada).
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Set forth in full below is the opinion of Sidley Austin Brown & Wood LLP,
U.S. counsel to ML&Co. As the law applicable to the U.S. federal income
taxation of instruments such as the Notes and the Warrants is technical and
complex, the discussion below necessarily represents only a general summary.
The following discussion 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 and Warrants 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 or Warrants as a hedge against currency
risks, as a position in a "straddle" or as part of a "hedging" or "conversion"
transaction for tax purposes, or persons whose functional currency is not the
United States dollar. It also does not deal with holders other than original
purchasers (except where otherwise specifically noted). Persons considering
the purchase of the Notes or the Warrants should consult their own tax
advisors concerning the application of U.S. federal income tax laws to their
particular situations as well as any consequences of the purchase, ownership
and disposition of the Notes or the Warrants arising under the laws of Canada
and any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
or a Warrant that is for U.S. federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation or a partnership (including
an entity treated as a corporation or a partnership for U.S. 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), (iii)
an estate whose income is subject to U.S. federal income tax regardless of its
source, (iv) 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 (v) any other person whose income or gain in respect of a Note
or a Warrant is effectively connected with the conduct of a United States
trade or business. Certain trusts not described in clause (iv) above in
existence on August 20, 1996, that elect to be treated as United States
persons will also be U.S. Holders for purposes of the following discussion. As
used herein, the term "non-U.S. Holder" means a beneficial owner of a Note or
a Warrant that is not a U.S. Holder.
General
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization and treatment,
for U.S. federal income tax purposes, of the Notes or the Warrants, or
securities with terms substantially the same as the Notes or the Warrants.
Accordingly, the proper U.S. federal income tax characterization and treatment
of the Notes and the Warrants is uncertain. Pursuant to the terms of the Notes
and the Warrants, ML&Co. and every holder of a Note or a Warrant agree (in the
absence of an administrative determination or judicial ruling to the contrary)
to characterize each Note and Warrant for all U.S. tax purposes as a pre-paid
cash-settled forward contract linked to the Regional Baskets. In the opinion
of Sidley Austin Brown & Wood LLP, this characterization and tax treatment of
the Notes and the Warrants, although not the only reasonable characterization
and tax treatment, is based on reasonable interpretations of law currently in
effect and, even if successfully challenged by the IRS, will not result in the
imposition of penalties. The treatment of the Notes and the Warrants described
above is not, however, binding on the IRS or the courts. No statutory,
judicial or administrative authority directly addresses the characterization
of the Notes or the Warrants, or instruments similar to the Notes or the
Warrants for U.S. federal income tax purposes, and no ruling is being
requested from the IRS with respect to the Notes or the Warrants.
Due to the absence of authorities that directly address instruments that
are similar to either the Notes or the Warrants, significant aspects of the
U.S. federal income tax consequences of an investment in the Notes or the
Warrants are not certain, and no assurance can be given that the IRS or the
courts will agree with the characterization described above. Accordingly,
prospective purchasers are urged to consult their own tax advisors regarding
the U.S. federal income tax consequences of an investment in the Notes or the
Warrants (including alternative characterizations of the Notes or the
Warrants) and with respect to any tax consequences arising under the laws of
any state, local or foreign taxing jurisdiction, including Canada. Unless
otherwise stated, the following
S-55
discussion is based on the assumption that the treatment of the Notes and the
Warrants described above is accepted for U.S. federal income tax purposes.
Tax Treatment of the Notes and the Warrants
Assuming the characterization of the Notes and the Warrants as set forth
above, Sidley Austin Brown & Wood LLP believes that the following U.S. federal
income tax consequences should result.
Purchase of Canadian Dollars. To the extent that a U.S. Holder purchases
Canadian dollars in order to invest in the Notes or the Warrants, a U.S.
Holder will have a tax basis in those Canadian dollars equal to the U.S.
dollar value of the Canadian dollars on the date of the purchase of Canadian
dollars.
Purchase of Notes or Warrants and Tax Basis. The purchase by a U.S.
Holder of a Note or a Warrant with Canadian dollars should be treated as (i) a
deemed exchange of (A) the amount of Canadian dollars paid by the U.S. Holder
for that Note or Warrant for (B) the U.S. dollar value of the Canadian dollars
(as determined on the date of purchase) and (ii) the purchase of the Note or
the Warrant for the U.S. dollar value received in that deemed exchange. A U.S.
Holder's tax basis in a Note or a Warrant will equal the U.S. dollar value of
the Canadian dollars (determined in the manner described above) paid by the
U.S. Holder to purchase the Note or Warrant.
In addition, the deemed exchange of Canadian dollars for U.S. dollars
described above could result in exchange gain or loss to a U.S. Holder,
depending upon the U.S. Holder's tax basis in the Canadian dollars used to
purchase the Note or Warrant. Any such exchange gain or loss will generally be
characterized as ordinary gain or loss. U.S. Holders should consult their own
tax advisors regarding the U.S. federal income tax consequences relating to
foreign currency transactions that may result from an investment in the Notes
or the Warrants.
Payment on the Maturity Date or the Exercise Date. Upon the receipt of
the Redemption Amount in cash (denominated in Canadian dollars) at maturity of
the Notes or upon exercise of the Warrants, a U.S. Holder should be required
to recognize gain or loss. The amount of that gain or loss should be equal to
the difference between (i) the Redemption Amount paid to the U.S. Holder in
Canadian dollars, translated into the U.S. dollar value of the Canadian
dollars on the maturity or exercise date and (ii) the U.S. Holder's tax basis
in the Note or the Warrant. Under current law, it is uncertain whether any
such gain or loss would be treated as ordinary income or loss or capital gain
or loss. Absent a future clarification in current law (by an administrative
determination or judicial ruling), where required, ML&Co. intends to report
any such gain or loss to the IRS in a manner consistent with the treatment of
such gain or loss as capital gain or loss. If such gain or loss is treated as
capital gain or loss, then any such gain or loss will generally be long-term
capital gain or loss, as the case may be, if the U.S. Holder held the Note for
more than one year as of the maturity or exercise date. The deductibility of
capital losses is subject to certain limitations.
In the event that a U.S. Holder of a Warrant receives the Redemption
Amount upon exercise in the form of securities of the Regional Baskets, rather
than in cash (denominated in Canadian dollars), a U.S. Holder generally should
not be required to recognize gain or loss. Rather, the U.S. Holder should be
deemed to have purchased those securities for the U.S. dollar value of the
U.S. Holder's initial investment in the Warrant (i.e., the U.S. Holder's tax
basis in the Warrant). In that event, the U.S. Holder should have a tax basis
in those securities equal to the U.S. dollar value for which the U.S. holder
was deemed to have purchased those securities. Future dispositions of those
securities for a currency other than U.S. dollars could result in exchange
gain or loss to the U.S. Holder, which will generally be characterized as
ordinary gain or loss. U.S. Holders should consult their own tax advisors
regarding the U.S. federal income tax consequences relating to foreign
currency transactions that may result from an investment in the Notes or the
Warrants.
Sale or Exchange of the Notes or the Warrants. Upon a sale or exchange of
a Note or a Warrant prior to the maturity of the Notes or exercise of the
Warrants, a U.S. Holder should generally recognize capital gain or loss equal
to the difference between (i) the amount of cash (denominated in Canadian
dollars) received, translated into the U.S. dollar value of the Canadian
dollars on the date of the sale or exchange and (ii) the U.S. Holder's tax
basis in the Note or the Warrant. Capital gain or loss will generally be
long-term capital gain or loss if the U.S. Holder held the Note or the Warrant
for more than one year at the time of disposition. As discussed above, the
deductibility of capital losses is subject to certain limitations.
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Canadian Dollars Received upon Maturity, Exercise, Sale or Exchange of
the Notes or the Warrants. A U.S. Holder will have a tax basis in any Canadian
dollars received upon maturity, exercise, sale or exchange of the Notes or the
Warrants in an amount equal to the U.S. dollar value of the Canadian dollars
received, determined as of the date of maturity, exercise, sale or exchange.
Any gain or loss recognized by a U.S. Holder on the future sale or other
disposition of the Canadian dollars will be treated as exchange gain or loss,
which will generally be characterized as ordinary gain or loss. U.S. Holders
should consult their own tax advisors regarding the U.S. federal income tax
consequences relating to foreign currency transactions that may result from an
investment in the Notes or the Warrants.
Tax Return Disclosure Regulations
Pursuant to recently enacted Treasury regulations (the "Disclosure
Regulations"), any taxpayer that has participated in a "reportable
transaction" and who is required to file a United States federal income tax
return must generally attach a disclosure statement disclosing the taxpayer's
participation in the reportable transaction to the taxpayer's tax return for
each taxable year in which the taxpayer participates in the reportable
transaction. The Disclosure Regulations provide that certain foreign currency
transactions that generate losses constitute reportable transactions. Persons
considering the purchase of the Notes or the Warrants should consult their own
tax advisors concerning the application of the rules contained in the
Disclosure Regulations with respect to an investment in the Notes or the
Warrants, and to determine their own tax return disclosure obligations, if
any, with respect to an investment in the Notes or the Warrants.
Possible Alternative Tax Treatments of an Investment in the Notes or the
Warrants
Due to the absence of authorities that directly address the proper
characterization of the Notes and the Warrants, no assurance can be given that
the IRS will accept, or that a court will uphold, the characterization and tax
treatment described above. Thus, the IRS could seek to analyze the U.S.
federal income tax consequences of owning the Notes or the Warrants under any
number of alternative U.S. federal income tax characterizations or treatments
of the Notes or the Warrants and, if applied, that alternative
characterizations or treatments of the Notes or the Warrants could
significantly alter the timing and the character of the income or loss with
respect to the Notes or the Warrants. Accordingly, prospective purchasers are
urged to consult their tax advisors regarding the U.S. federal income tax
consequences of an investment in the Notes or the Warrants.
Constructive Ownership Law
Section 1260 of the Code treats a taxpayer owning certain types of
derivative positions in property as having "constructive ownership" of that
property, with the result that all or a portion of any long-term capital gain
recognized by that taxpayer with respect to the derivative position will be
recharacterized as ordinary income. In its current form, Section 1260 of the
Code does not apply to a Note or a Warrant. If Section 1260 of the Code were
to apply to a Note or a Warrant in the future, however, the effect on a U.S.
Holder of a Note or a Warrant would be to treat all or a portion of any
long-term capital gain recognized by the U.S. Holder on the sale, exchange,
maturity or exercise of a Note or a Warrant as ordinary income. In addition,
Section 1260 of the Code would impose an interest charge on any such gain that
was recharacterized. U.S. Holders should consult their tax advisors regarding
the potential application of Section 1260 of the Code, if any, to the
purchase, ownership and disposition of a Note or a Warrant.
Non-U.S. Holders
Based on the treatment of each Note and Warrant as a pre-paid
cash-settled forward contract linked to the Regional Baskets, in the case of a
non-U.S. Holder, a payment made with respect to a Note or a Warrant on the
maturity or exercise date or upon exchange will not be subject to United
States withholding tax, provided that the non-U.S. Holder complies with
applicable certification requirements and that those payments are not
effectively connected with a United States trade or business of the non-U.S.
Holder. Any capital gain realized upon the sale, exchange or other disposition
of a Note or a Warrant by a non-U.S. Holder will generally not be subject to
U.S. federal income tax if (i) that gain is not effectively connected with a
United States trade or business of the non-U.S. Holder and (ii) in the case of
an individual non-U.S. Holder, the individual is not present in the United
States for 183 days or more in the taxable year of the sale or other
disposition, or the gain is not attributable to a fixed place of business
maintained by the individual in the United States, and the individual does not
have a "tax home" (as defined for U.S. federal income tax purposes) in the
United States.
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As discussed above, alternative characterizations of the Notes or the
Warrants for U.S. federal income tax purposes are possible. Should an
alternative characterization of the Notes or the Warrants, by reason of a
change or clarification of the law, by regulation or otherwise, cause payments
with respect to the Notes or the Warrants to become subject to withholding
tax, ML&Co. will withhold tax at the applicable statutory rate.
Backup Withholding
A beneficial owner of a Note or a Warrant may be subject to backup
withholding at the applicable statutory rate of U.S. federal income tax on
certain amounts paid to the beneficial owner unless the beneficial owner
provides proof of an applicable exemption or a correct taxpayer identification
number, and otherwise complies with applicable requirements of the backup
withholding rules.
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 that
beneficial owner's U.S. federal income tax provided the required information
is furnished to the IRS.
ERISA CONSIDERATIONS FOR U.S. PERSONS
Each fiduciary of a pension, profit-sharing or other employee benefit
plan (a "plan") subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), should consider the fiduciary standards of ERISA
in the context of the plan's particular circumstances before authorizing an
investment in the Securities. Accordingly, among other factors, the fiduciary
should consider whether the investment would satisfy the prudence and
diversification requirements of ERISA and would be consistent with the
documents and instruments governing the plan, and whether the investment would
involve a prohibited transaction under Section 406 of ERISA or Section 4975 of
the Code.
Section 406 of ERISA and Section 4975 of the Code prohibit plans, as well
as individual retirement accounts and Keogh plans subject to Section 4975 of
the Code (also "plans") from engaging in certain transactions involving "plan
assets" with persons who are "parties in interest" under ERISA or
"disqualified persons" under the Code ("parties in interest") with respect to
the plan or account. A violation of these prohibited transaction rules may
result in civil penalties or other liabilities under ERISA and/or an excise
tax under Section 4975 of the Code for those persons, unless exemptive relief
is available under an applicable statutory, regulatory or administrative
exemption. Certain employee benefit plans and arrangements including those
that are governmental plans (as defined in section 3(32) of ERISA), certain
church plans (as defined in Section 3(33) of ERISA) and foreign plans (as
described in Section 4(b)(4) of ERISA) ("non-ERISA arrangements") are not
subject to the requirements of ERISA or Section 4975 of the Code but may be
subject to similar provisions under applicable federal, state, local, foreign
or other regulations, rules or laws ("similar laws").
The acquisition of the Securities by a plan with respect to which we,
MLPF&S or certain of our affiliates is or becomes a party in interest may
constitute or result in a prohibited transaction under ERISA or Section 4975
of the Code, unless those Securities are acquired pursuant to and in
accordance with an applicable exemption. The U.S. Department of Labor has
issued five prohibited transaction class exemptions, or "PTCEs", that may
provide exemptive relief if required for direct or indirect prohibited
transactions that may arise from the purchase or holding of the Securities.
These exemptions are:
(1) PTCE 84-14, an exemption for certain transactions determined or
effected by independent qualified professional asset managers;
(2) PTCE 90-1, an exemption for certain transactions involving insurance
company pooled separate accounts;
(3) PTCE 91-38, an exemption for certain transactions involving bank
collective investment funds;
(4) PTCE 95-60, an exemption for transactions involving certain
insurance company general accounts; and
(5) PTCE 96-23, an exemption for plan asset transactions managed by
in-house asset managers.
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The Securities may not be purchased or held by (1) any plan, (2) any
entity whose underlying assets include "plan assets" by reason of any plan's
investment in the entity (a "plan asset entity") or (3) any person investing
"plan assets" of any plan, unless in each case the purchaser or holder is
eligible for the exemptive relief available under one or more of the PTCEs
listed above or another applicable similar exemption. Any purchaser or holder
of the Securities or any interest in the Securities will be deemed to have
represented by its purchase and holding of the Securities that it either (1)
is not a plan or a plan asset entity and is not purchasing those Securities on
behalf of or with "plan assets" of any plan or plan asset entity or (2) with
respect to the purchase or holding, is eligible for the exemptive relief
available under any of the PTCEs listed above or another applicable exemption.
In addition, any purchaser or holder of the Securities or any interest in the
Securities which is a non-ERISA arrangement will be deemed to have represented
by its purchase and holding of the Securities that its purchase and holding
will not violate the provisions of any similar law.
Due to the complexity of these rules and the penalties that may be
imposed upon persons involved in non-exempt prohibited transactions, it is
important that fiduciaries or other persons considering purchasing the
Securities on behalf of or with "plan assets" of any plan, plan asset entity
or non-ERISA arrangement consult with their counsel regarding the availability
of exemptive relief under any of the PTCEs listed above or any other
applicable exemption, or the potential consequences of any purchase or holding
under similar laws, as applicable.
USE OF PROCEEDS AND HEDGING
The net proceeds from the sale of the Securities will be used as
described under "Use of Proceeds" in the accompanying prospectus and to hedge
market risks of ML&Co. associated with its obligation to pay the Redemption
Amount.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC. Our
SEC filings are also available over the Internet at the SEC's web site at
http://www.sec.gov. The address of the SEC's Internet site is provided solely
for the 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. and New York, New York. Please call
the SEC at 1-800-SEC-0330 for more information on the public reference rooms
and their copy charges. 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 have filed a registration statement on Form S-3 with the SEC covering
the Notes, Warrants and other securities. For further information on ML&Co.
and the Securities, you should refer to our registration statement and its
exhibits. The prospectus accompanying this prospectus supplement summarizes
material provisions of contracts and other documents that we refer you to.
Because the prospectus may not contain all the information that you may find
important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not, and the Agents have not, authorized any other person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
Agents are not, making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted.
You should assume that the information in this prospectus supplement and
the accompanying prospectus is accurate as of the date on the front cover of
this prospectus supplement only. Our business, financial condition and results
of operations may have changed since that date.
PLAN OF DISTRIBUTION
Under an agreement dated as of | |, 2004 (the "Agency Agreement") between
ML Canada and National Bank Financial Inc. (collectively, the "Agents") and
ML&Co., the Agents have agreed to offer the Securities for sale in Canada, as
agents of ML&Co., on a best efforts basis, if, as and when issued by ML&Co.
National Bank Financial Inc. will receive a fee equal to $5.25 for each unit
of the Notes or unit of the Warrants sold. ML Canada will not receive a fee in
connection with its acting as an Agent for the distribution of the Securities.
The Agents will
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be reimbursed for out-of-pocket expenses incurred by them. The Agents may form
a selling group including other qualified investment dealers and determine the
fee payable to the members of that group, which fee will be paid out of the
Agents' fees. While the Agents have agreed to use their best efforts to sell
the Securities offered hereby, the Agents will not be obligated to purchase
Securities which are not sold.
In addition to the compensation paid at the time of the original sale of
the Securities, ML& Co. will pay quarterly a service fee to investment
advisers whose client accounts hold the Securities at the end of the quarter.
The service fee will not be payable on Securities sold during the quarter. The
service fee is calculated on a daily basis at an annual rate of 0.5% of the
last price for the Securities published by ML Canada. The service fee will
first be paid in respect of the quarter ending November 30, 2004 and paid
quarterly approximately 15 days after the last business day of each three
month period thereafter in arrears.
Under the terms of the Agency Agreement, the Agents may, at their
discretion on the basis of their assessment of the state of the financial
markets and upon the occurrence of certain stated events, terminate the Agency
Agreement. Subscriptions for Notes and Warrants will be received subject to
rejection or allotment in whole or in part. The right is reserved to close the
subscription books at any time without notice. Closing will take place on | |,
2004 or a later date as may be agreed upon by ML&Co. and the Agents that is on
or before | |, 2004.
Each of the Agents may be deemed to be an "underwriter" within the
meaning of the Securities Act of 1933 (the "Securities Act"). ML&Co. has
agreed to indemnify the Agents against or to make contributions relating to
certain civil liabilities, including liabilities under the Securities Act and
Canadian provincial securities legislation, or to contribute to payments the
Agents may be required to make in respect thereof. ML&Co. has agreed to
reimburse the Agents for certain expenses.
From time to time, ML&Co. may issue and sell other securities described
in the accompanying prospectus, and the amount of Securities that ML&Co. may
offer and sell under this prospectus supplement may be reduced as a result of
those sales.
In connection with this offering, ML Canada intends to buy and sell the
Securities to create a securities market for the holders of the Securities,
and may stabilize or maintain the market price of the Securities during the
initial distribution of the Securities. However, ML Canada will not be
obligated to engage in any of those market activities or continue them once it
has started. Neither ML&Co. nor the Agents 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 Securities. In
addition, neither ML&Co. nor the Agents make any representation that the
Agents will engage in any of those transactions or that those transactions,
once commenced, will not be discontinued without notice.
ML Canada, a broker-dealer subsidiary of ML&Co., will participate in
distributions of the Securities. Accordingly, offering of the Securities will
conform to the requirements of Rule 2720 of the Conduct Rules of the U.S.
National Association of Securities Dealers, Inc.
ML Canada was involved in the decision to distribute Securities
hereunder. ML Canada is an indirect wholly-owned subsidiary of ML&Co.
Consequently, ML&Co. is a "related issuer" and is also a "connected issuer" of
ML Canada within the meaning of the securities legislation of each of the
provinces of Canada in connection with the offering of Securities under this
prospectus supplement and accompanying prospectus. National Bank Financial
Inc., the independent Agent, has performed due diligence in connection with
the offering of the Securities and participated, together with ML Canada, in
the structuring and pricing of the Securities.
The Agents propose to offer the Securities initially at the offering
price specified on the cover page of this prospectus supplement. After the
Agents have made a reasonable effort to sell all of the Securities at the
price specified on the cover page, the offering price may be decreased and may
be further changed from time to time to an amount not greater than that set
out on the cover page.
VALIDITY OF THE SECURITIES
The validity of the Securities will be passed upon for ML&Co. and for the
Agents by Sidley Austin Brown & Wood LLP, New York, New York.
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EXPERTS
The restated consolidated financial statements and the related restated
financial statement schedule incorporated in this prospectus supplement by
reference from the Current Report on Form 8-K of Merrill Lynch & Co., Inc. and
subsidiaries ("Merrill Lynch") dated May 4, 2004 for the year ended December
26, 2003 have been audited by Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their reports dated March 1, 2004 (May 4,
2004 as to Note 2) (which express unqualified opinions and which report on the
consolidated financial statements includes explanatory paragraphs for the
change in accounting method in 2002 for goodwill amortization to conform to
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, and for the change in accounting method in 2004 for
stock-based compensation to conform to Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, as amended by
Statement of Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure by retroactively
restating its 2003, 2002 and 2001 consolidated financial statements), which
are incorporated herein by reference, and have been so incorporated in
reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
Unaudited Financial Information
With respect to the unaudited condensed consolidated financial statements
for the periods ended March 26, 2004 and March 28, 2003, which are
incorporated herein by reference, Deloitte & Touche LLP have applied limited
procedures in accordance with the standards of the Public Company Accounting
Oversight Board (United States). However, as stated in their report included
in Merrill Lynch's Quarterly Report on Form 10-Q for the quarter ended March
26, 2004 and incorporated by reference herein, they did not audit and they do
not express an opinion on those unaudited condensed consolidated financial
statements. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied. Deloitte & Touche LLP are not subject to the liability
provisions of Section 11 of the Securities Act of 1933 for their reports on
the unaudited condensed consolidated financial statements because such reports
are not "reports" or "parts" of the registration statement prepared or
certified by an accountant within the meaning of Sections 7 and 11 of the Act.
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PURCHASERS' STATUTORY RIGHTS IN CANADA
Securities legislation in certain of the provinces and territories of
Canada provides purchasers with the right to withdraw from an agreement to
purchase securities within two business days after receipt or deemed receipt
of a prospectus and any amendment. In several of the provinces and
territories, the securities legislation further provides a purchaser with
remedies for rescission or, in some jurisdictions, damages if the prospectus
and any amendment contains a misrepresentation or is not delivered to the
purchaser, provided that those remedies for rescission or damages are
exercised by the purchaser within the time limit prescribed by the securities
legislation of the purchaser's province or territory. The purchaser should
refer to the applicable provisions of the securities legislation of the
purchaser's province or territory for particulars of these rights or consult
with a legal advisor. Rights and remedies also may be available to purchasers
under U.S. law; purchasers may wish to consult with a U.S. legal advisor for
particulars of these rights.
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INDEX OF CERTAIN DEFINED TERMS
Page
---------
Adjustment Fee S-6
Agents S-61
Asian Regional Basket S-12
Basket Index S-12
Calculation Agent S-6
Calculation Day S-23
Calculation Period S-22
Ending Value S-5
European Regional Basket S-12
Global Certificates S-26
Index Business Day S-23
Index Calculation Agent S-23
Index Currency S-12
Index Publisher S-24
Market Disruption Event S-25
North American Regional Basket S-12
Notes S-4
Pricing Date S-12
Redemption Amount S-4
Regional Baskets S-4
Securities S-4
Starting Value S-5
Successor index S-25
Warrants S-4
S-63
CERTIFICATE OF THE AGENTS
Dated: July 13, 2004
To the best of our knowledge, information and belief, this MJDS
prospectus supplement, together with the documents incorporated herein,
constitutes full, true and plain disclosure of all material facts relating to
the securities offered under this prospectus supplement as required by the
securities legislation of each of the provinces and territories of Canada and
does not contain any misrepresentation likely to affect the value or the
market price of the securities to be distributed.
MERRILL LYNCH CANADA INC.
By: (Signed) P. SCOTT MCBURNEY
NATIONAL BANK FINANCIAL INC.
By: (Signed) SERGE FECTEAU
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[GRAPHIC OMITTED]
Merrill Lynch & Co., Inc.
Up to Cdn. $| |
Global Equity Performance Weighted Notes,
Series 1 due August | |, 2011 (the "Notes")
Global Equity Performance Weighted Warrants,
Series 1 exercisable August | |, 2011 (the "Warrants")
(collectively, the "Securities")
Cdn $100 per unit of Securities
-------------------------------------
PROSPECTUS SUPPLEMENT
-------------------------------------
Merrill Lynch Canada Inc.
August | |, 2004