FILED PURSUANT TO RULE NO. 424(b)(5)
FILE NO. 333-52822
Subject to Completion
Preliminary Prospectus Supplement dated June 11, 2001
PROSPECTUS SUPPLEMENT
- --------------------
(To prospectus dated January 24, 2001)
[LOGO]
2,500,000 Units
Merrill Lynch & Co., Inc.
Strategic Return Notes SM
Linked to the Industrial 15 Index due June , 2006
(the "Notes")
$10 original public offering price per Unit
--------------
The Notes: Payment at maturity or upon exchange:
. Senior unsecured debt securities of . At maturity or upon exchange, you
Merrill Lynch & Co., Inc. will receive a cash amount based
upon the percentage change in the
. Exchangeable at your option for a value of the Industrial 15 Index,
cash payment during a specified which reflects the total return of
period in June of each year from fifteen of the top dividend
2002 through 2005 as described in yielding stocks in the S&P
this prospectus supplement. Industrial Index less an annual
index adjustment factor of 1.5%.
. No payments prior to maturity
unless exchanged. . At maturity or upon exchange, the
amount you receive will depend on
. Linked to the value of the the value of the Industrial 15
Industrial 15 Index (index symbol Index. The value of the Industrial
" "). 15 Index must increase in order for
you to receive at least the
. We will apply to have the Notes original public offering price of
listed on a national securities $10 per Note upon exchange or at
exchange under the trading symbol maturity. If the value of the
"DSI". Industrial 15 Index has declined or
has not increased sufficiently, you
. Expected closing date: June , 2001. will receive less, and possibly
significantly less, than the
original public offering price of
$10 per Note.
Investing in the Notes involves risk.
See "Risk Factors" beginning on page S-7 of this prospectus supplement.
--------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
Per Unit Total
-------- -----
Public offering price............................... $10.00 $25,000,000
Underwriting fee.................................... $.20 $
Proceeds, before expenses, to Merrill Lynch & Co.,
Inc. .............................................. $9.90* $
The public offering and the underwriting fee for any single transaction to
purchase:
(a) between 100,000 Units and 499,999 Units will be $ per Unit and $
per Unit respectively, and
(b) 500,000 Units or more will be $ per Unit and $ per Unit,
respectively.
--------------
Merrill Lynch & Co.
--------------
- -------
* $.10 per Unit of the underwriting fee will be paid to the underwriter by a
subsidiary of Merrill Lynch & Co., Inc. For a description of this payment,
please see the section entitled "Underwriting" in this prospectus supplement.
The date of this prospectus supplement is June , 2001.
"Strategic Return Notes" is a service mark of Merrill Lynch & Co., Inc.
TABLE OF CONTENTS
Prospectus Supplement
Page
----
SUMMARY INFORMATION--Q&A.................................................. S-4
What are the Notes?..................................................... S-4
What will I receive upon maturity of the Notes?......................... S-4
How does the exchange feature work?..................................... S-5
Who publishes the Industrial 15 Index and what does the Industrial 15
Index measure?......................................................... S-5
How has the Industrial 15 Index performed historically?................. S-6
Will I receive interest payments on the Notes?.......................... S-6
What about taxes?....................................................... S-6
Will the Notes be listed on a stock exchange?........................... S-6
What is the role of MLPF&S?............................................. S-6
Who is ML&Co.?.......................................................... S-6
Are there any risks associated with my investment?...................... S-6
RISK FACTORS.............................................................. S-7
Your investment may result in a loss.................................... S-7
The value of the Industrial 15 Index is expected to affect the trading
value of the Notes..................................................... S-7
Changes in our credit ratings may affect the trading value of the
Notes.................................................................. S-7
The Notes may have risks similar to concentrated investments............ S-7
Your yield may be lower than the yield on other debt securities of
comparable maturity.................................................... S-7
Your return will not reflect the return of owning the Industrial 15
Stocks................................................................. S-7
There may be an uncertain trading market for the Notes.................. S-8
Risk factors specific to companies included in the Industrial 15 Index.. S-8
Amounts payable on the Notes may be limited by state law................ S-9
Purchases and sales by us and our affiliates may affect your return..... S-9
Potential conflicts..................................................... S-9
Uncertain tax consequences.............................................. S-10
DESCRIPTION OF THE NOTES.................................................. S-10
Payment at maturity..................................................... S-10
Exchange of the Notes prior to maturity................................. S-11
Hypothetical returns.................................................... S-12
Adjustments to the Industrial 15 Index; Market Disruption Events........ S-13
Discontinuance of the Industrial 15 Index............................... S-13
Events of Default and Acceleration...................................... S-14
Depositary.............................................................. S-14
Same-Day Settlement and Payment......................................... S-17
THE INDUSTRIAL 15 INDEX................................................... S-17
Industrial 15 Index..................................................... S-17
Dividends............................................................... S-19
Adjustments to the Share Multiplier and Industrial 15 Portfolio......... S-19
Historical Data on the Industrial 15 Index.............................. S-21
UNITED STATES FEDERAL INCOME TAXATION..................................... S-22
General................................................................. S-22
Tax Treatment of the Notes.............................................. S-23
Non-U.S. Holders........................................................ S-23
Backup Withholding and Information Reporting............................ S-24
ERISA CONSIDERATIONS...................................................... S-24
USE OF PROCEEDS AND HEDGING............................................... S-24
WHERE YOU CAN FIND MORE INFORMATION....................................... S-25
UNDERWRITING.............................................................. S-25
VALIDITY OF THE NOTES..................................................... S-26
INDEX OF DEFINED TERMS.................................................... S-27
ANNEX A................................................................... A-1
S-2
Prospectus
Page
----
MERRILL LYNCH & CO., INC................................................. 2
USE OF PROCEEDS.......................................................... 2
RATIO OF EARNINGS TO FIXED CHARGES AND RATIOS OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS............................. 3
THE SECURITIES........................................................... 3
DESCRIPTION OF DEBT SECURITIES........................................... 4
DESCRIPTION OF DEBT WARRANTS............................................. 10
DESCRIPTION OF CURRENCY WARRANTS......................................... 12
DESCRIPTION OF INDEX WARRANTS............................................ 14
DESCRIPTION OF PREFERRED STOCK........................................... 19
DESCRIPTION OF DEPOSITARY SHARES......................................... 24
DESCRIPTION OF PREFERRED STOCK WARRANTS.................................. 28
DESCRIPTION OF COMMON STOCK.............................................. 30
DESCRIPTION OF COMMON STOCK WARRANTS..................................... 34
PLAN OF DISTRIBUTION..................................................... 36
WHERE YOU CAN FIND MORE INFORMATION...................................... 37
INCORPORATION OF INFORMATION WE FILE WITH THE SEC........................ 37
EXPERTS.................................................................. 38
S-3
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 Strategic Return NotesSM Linked to the Industrial 15
Index due June , 2006 (the "Notes"). You should carefully read this prospectus
supplement and the accompanying prospectus to fully understand the terms of the
Notes, the Industrial 15 Index and the tax and other considerations that are
important to you in making a decision about whether to invest in the Notes. You
should carefully review the "Risk Factors" section, which highlights certain
risks associated with an investment in the Notes, to determine whether an
investment in the Notes is appropriate for you.
References in this prospectus supplement to "ML&Co.", "we", "us" and
"our" are to Merrill Lynch & Co., Inc., and references to "MLPF&S" are to
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
What are the Notes?
The Notes will be a series of senior debt securities 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 June , 2006
unless exchanged by you as described in this prospectus supplement.
A Unit will represent a single Note with an original public offering
price of $10.00 (a "Unit"). 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 Depository Trust
Company, also known as DTC, or its nominee. Direct and indirect participants in
DTC will record your ownership of the Notes. You should refer to the section
entitled "Description of the Notes--Depositary" in this prospectus supplement.
What will I receive upon maturity of the Notes?
At maturity, if you have not previously exchanged your Notes, you will
receive a cash payment on the Notes equal to the "Redemption Amount".
The "Redemption Amount" per Unit will equal:
(Ending Value )
$9.90 X (---------------)
(Starting Value )
The Industrial 15 Index must increase in order for you to receive a
Redemption Amount equal to or greater than the original public offering price
and if the value of the Industrial 15 Index declines, you will receive less
than the original public offering price of the Notes.
The "Starting Value" will be set to 100 on the date the Notes are priced
for initial sale to the public (the "Pricing Date").
For purposes of determining the Redemption Amount the "Ending Value"
means the average, arithmetic mean, of the values of the Industrial 15 Index at
the close of the market on five business days shortly before the maturity of
the Notes. We may calculate the Ending Value by reference to fewer than five or
even a single day's closing value if, during the period shortly before the
maturity date of the Notes, there is a disruption in the trading of a stock
included in the Industrial 15 Index or certain futures or options contracts
relating to the Industrial 15 Index.
For more specific information about the Redemption Amount, please see the
section entitled "Description of the Notes" in this prospectus supplement.
S-4
Examples
Here are two examples of Redemption Amount calculations:
Example 1--The Industrial 15 Index is below the Starting Value at maturity:
Starting Value: 100
Hypothetical Ending Value:20
( 20 )
Redemption Amount (per Unit) = $9.90 X ( --- ) = $1.98
( 100 )
Total payment at maturity (per Unit) = $1.98
Example 2--The Industrial 15 Index is above the Starting Value at maturity:
Starting Value: 100
Hypothetical Ending Value:180
( 180 )
Redemption Amount (per Unit) = $9.90 X ( --- ) = $17.82
( 100 )
Total payment at maturity (per Unit) = $17.82
How does the exchange feature work?
You may elect to exchange all or a portion of your Notes during a
specified period in the month of June in the years 2002 through 2005 by giving
notice to the depositary or trustee of the Notes as the case may be, as
described in this prospectus supplement. The amount of the cash payment you
receive upon exchange (the "Exchange Amount") will be equal to the Redemption
Amount, calculated as if the Exchange Date, as defined in this prospectus
supplement, were the stated maturity date, except that the Ending Value will be
equal to the closing value of the Industrial 15 Index on the Exchange Date. You
will receive payment of the Exchange Amount three Business Days following the
Exchange Date. If you elect to exchange your Notes you will receive only the
Exchange Amount and you will not receive the Redemption Amount at maturity. The
Exchange Amount you receive may be greater than or less than the Redemption
Amount at maturity depending upon the performance of the Industrial 15 Index
during the period from the Exchange Date until the stated maturity date. In
addition, if the value of the Industrial 15 Index has not increased
sufficiently above the Starting Value, the Exchange Amount will be less than
the original public offering price.
For more specific information about the exchange feature, please see the
section entitled "Description of the Notes--Exchange of the Notes prior to
maturity" in this prospectus supplement.
Who publishes the Industrial 15 Index and what does the Industrial 15 Index
measure?
The Industrial 15 Index will be calculated and disseminated by a
nationally recognized securities exchange (the "Index Calculation Agent"). We
will disclose the Index Calculation Agent to you in the final prospectus
supplement delivered to you in connection with sales of the Notes. The
Industrial 15 Index is an index which reflects the price changes and dividends
of the top fifteen dividend yielding stocks from a group of certain stocks in
Standard & Poor's Industrial Index (the "S&P Industrial Index") less an annual
index adjustment factor of 1.5% applied daily (the "Index Adjustment Factor").
The Industrial 15 Index will be reconstituted each year on the anniversary of
the Pricing Date or, under certain circumstances, on a day shortly after the
anniversary date, as described in this prospectus supplement. For more specific
information about the Industrial 15 Index and its reconstitution, and the Index
Adjustment Factor, please see the section entitled "The Industrial 15 Index" in
this prospectus supplement.
Please note that the Notes are debt obligations of ML&Co., and an
investment in the Notes does not entitle you to any ownership interest in the
stocks underlying the Industrial 15 Index (collectively, the "Industrial 15
Stocks").
S-5
How has the Industrial 15 Index performed historically?
The value of the Industrial 15 Index will be set to 100 on the Pricing
Date. While there is currently no historical information on the Industrial 15
Index, we have provided a table and a graph showing the hypothetical month-end
closing values of the Industrial 15 Index from May 1996 to May 2001, assuming
the Industrial 15 Index was initially calculated and set to 100 on May 31,
1996. The closing values have been calculated hypothetically on the same basis
that the Industrial 15 Index will be calculated. We have provided this
information to illustrate how the Industrial 15 Index would have performed in
the past. For further details on the calculation of these hypothetical closing
values please refer to the section entitled "Hypothetical Historical Month-End
Closing Levels" in this prospectus supplement. Any historical upward or
downward trend in the level of the Industrial 15 Index during this hypothetical
historical period is not an indication that the Industrial 15 Index is more or
less likely to increase or decrease at any time during the term of the Notes.
Will I receive interest payments on the Notes?
You will not receive any interest payments on the Notes, but you will
receive the Exchange Amount following the exercise of your exchange option or
the Redemption Amount at maturity. We have designed the Notes for investors who
are willing to forego market interest payments on the Notes, such as fixed or
floating interest rates paid on standard senior non-callable debt securities,
in exchange for the Exchange Amount or the Redemption Amount.
What about taxes?
The U.S. federal income tax consequences of an investment in the Notes
are complex and uncertain. Pursuant to the terms of the Notes, ML&Co. and you
agree, in the absence of an administrative or judicial ruling to the contrary,
to characterize a Note for all tax purposes as a pre-paid cash-settled forward
investment contract linked to the value of the Industrial 15 Index. Under this
characterization of the Notes, you should be required to recognize gain or loss
to the extent that you receive cash on the maturity date or upon a sale or
exchange of a Note prior to the maturity date. You should review the discussion
under the section entitled "United States Federal Income Taxation" in this
prospectus supplement.
Will the Notes be listed on a stock exchange?
We will apply to have the Notes listed on a national securities exchange.
We will disclose the exchange and the trading symbol of the Notes to you in the
final prospectus supplement delivered in connection with sales of the Notes.
You should be aware that listing the Notes on a national securities exchange
will not necessarily ensure that a liquid trading market will be available for
the Notes. You should review the section entitled "Risk Factors--There may be
an uncertain trading market for the Notes" in this prospectus supplement.
What is the role of MLPF&S?
Our subsidiary, MLPF&S, is the underwriter for the offering and sale of
the Notes. After the initial offering, MLPF&S intends to buy and sell Notes to
create a secondary market for holders of the Notes, and may stabilize or
maintain the market price of the Notes during their initial distribution.
However, MLPF&S will not be obligated to engage in any of these market
activities or continue them once it has started.
MLPF&S will also be our agent for purposes of calculating, among other
things, the Ending Value, Redemption Amount and Exchange Amounts. Under certain
circumstances, these duties could result in a conflict of interest between the
status of MLPF&S as our subsidiary and its responsibilities as calculation
agent.
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 entitled "Merrill Lynch &
Co., Inc." in the accompanying prospectus. You should also read other documents
we have filed with the SEC, which you can find by referring to the section
entitled "Where You Can Find More Information" in this prospectus supplement.
Are there any risks associated with my investment?
Yes, an investment in the Notes is subject to risk. Please refer to the
section entitled "Risk Factors" in this prospectus supplement.
S-6
RISK FACTORS
Your investment in the Notes will involve risks. An investment in the
Notes involves credit risks which are identical to those related to investments
in any other debt obligations of ML&Co., and additional risks which are similar
to investing in each of the underlying securities that comprise the Industrial
15 Index. You should carefully consider the following discussion of risks
before deciding whether an investment in the Notes is suitable for you.
Your investment may result in a loss
We will not repay you a fixed amount of principal on the Notes at
maturity or upon exchange. The payment on the Notes will depend on the change
in the value of the Industrial 15 Index. Because the value of the Industrial 15
Index is subject to market fluctuations, the amount of cash you receive may be
more or less than the original public offering price of your Notes. If the
applicable Ending Value, at maturity or at the time you exchange your Notes, is
less than or not sufficiently above the Starting Value the amount you receive
will be less than the original public offering price of each Note, in which
case your investment in the Notes will result in a loss to you. The original
public offering price of $10 per Unit exceeds the $9.90 per Unit amount used to
calculate the Redemption Amount and therefore the Industrial 15 Index must
increase in order for you to receive a Redemption Amount or Exchange Amount
equal to the original public offering price.
The value of the Industrial 15 Index is expected to affect the trading value of
the Notes
The market value of the Notes will depend substantially on the amount by
which the Industrial 15 Index exceeds or does not exceed the Starting Value.
The value of the Notes is related to the Industrial 15 Index, and consequently,
a sale of the Notes may result in a loss. Additionally, because the trade value
and perhaps final return on your Notes is dependent upon factors in addition to
the Industrial 15 Index, such as our credit rating, an increase in the value of
the Industrial 15 Index will not reduce the other investment risks related to
the Notes.
Changes in our credit ratings may affect the trading value of the Notes
Our credit ratings are an assessment of our ability to pay our
obligations. Consequently, real or anticipated changes in our credit ratings
may affect the trading value of the Notes. However, because your return on your
Notes is dependent upon factors in addition to our ability to pay our
obligations under the Notes, such as the value of the Industrial 15 Index at
maturity, an improvement in our credit ratings will not reduce the other
investment risks related to the Notes.
The Notes may have risks similar to concentrated investments
As a result of market fluctuations and/or reconstitution events, an
investment in the Notes may carry risks similar to a concentrated investment in
one or more industries.
Your yield may be lower than the yield on other debt securities of comparable
maturity
The amount we pay you at maturity or upon exchange 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 other senior non-callable debt securities of
ML&Co. with the same stated maturity date. 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 return will not reflect the return of owning the Industrial 15 Stocks
While the Industrial 15 Index does reflect the payment of dividends on
the stocks underlying the Industrial 15 Index as described in more detail
below, the yield to the maturity of the Notes will not produce the same yield
as if the Industrial 15 Stocks were purchased and held for a similar period. At
the end of each calendar quarter, the dividends accrued on the Industrial 15
Stocks will be incorporated into the Industrial 15
S-7
Index by adjusting the Share Multipliers of the stocks and the amounts will
thereafter be subject to the price movements of the Industrial 15 Stocks. In
addition, at the end of each day, the Industrial 15 Index will be reduced by a
pro rata portion of the annual Index Adjustment Factor of 1.5%. Due to the
effect of the annual Index Adjustment Factor and to the matters discussed above
under "Your investment may result in a loss", the return on an investment in
the Notes will be less than the return on a similar investment in the
Industrial 15 Stocks, assuming transaction costs and taxes are not taken into
account. The trading value of the Notes and final return on the Notes may also
differ from the results of the Industrial 15 Index for the reasons discussed
above under "Changes in our credit ratings may affect the trading value of the
Notes".
There may be an uncertain trading market for the Notes
We will apply to have the Notes listed on a national securities exchange
which we will disclose to you in the final prospectus supplement delivered to
you in connection with sales of the Notes. However, you cannot assume that a
trading market will develop for the Notes. If a trading market does develop,
there can be no assurance that there will be liquidity in the trading market.
The development of a trading market for the Notes will depend on our financial
performance and other factors such as the change in the value of the Industrial
15 Index.
If the trading market for the Notes is limited, there may be a limited
number of buyers for your Notes if you do not wish to hold your investment
until maturity. This may affect the price you receive.
Risk factors specific to companies included in the Industrial 15 Index
The Industrial 15 Index is an index which reflects the price changes and
dividends of the top fifteen dividend yielding Qualifying Stocks in the S&P
Industrial Index less an annual Index Adjustment Factor. The stock prices of
some of the companies included in the Industrial 15 Index (the "Industrial 15
Companies") have been and may continue to be volatile. These stock prices could
be subject to wide fluctuations in response to a variety of factors, including
the following:
. general market fluctuations;
. actual or anticipated variations in the quarterly operating results
of the Industrial 15 Companies;
. announcements of technological innovations or new services offered by
competitors of the Industrial 15 Companies;
. changes in financial estimates by securities analysts;
. regulatory or legal developments, including significant litigation
matters, affecting the Industrial 15 Companies or in the industries
in which they operate;
. announcements by competitors of the Industrial 15 Companies of
significant acquisitions, strategic partnerships, joint ventures or
capital commitments; and
. departures of key personnel of the Industrial 15 Companies.
The international operations of some of the Industrial 15 Companies
expose them to risks associated with instability and changes in economic and
political conditions, foreign currency fluctuations, changes in foreign
regulations and other risks inherent to international business. Some of the
Industrial 15 Companies have international operations, which are essential
parts of their businesses. The risks of international business that these
companies are exposed to include the following:
. general economic, social and political conditions;
. the difficulty of enforcing intellectual property rights, agreements
and collecting receivables through certain foreign legal systems;
. differing tax rates, tariffs, exchange controls or other similar
restrictions;
. currency fluctuations;
S-8
. changes in, and compliance with, domestic and foreign laws and
regulations which impose a range of restrictions on operations, trade
practices, foreign trade and international investment decisions; and
. reduction in the number or capacity of personnel in international
markets.
Amounts payable on the Notes may be limited by state law
New York State law governs the 1983 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 debt securities in which
$2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state or
Federal court sitting outside of New York, many other states also have laws
that regulate the amount of interest that may be charged to and paid by a
borrower. We will promise, for the benefit of the Note holders, to the extent
permitted by law, not to voluntarily claim the benefits of any laws concerning
usurious rates of interest.
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 Industrial 15
Stocks or futures or options contracts on the Industrial 15 Index for our own
accounts for business reasons or in connection with hedging our obligations
under the Notes. These transactions could affect the price of Industrial 15
Stocks and, in turn, the value of the Industrial 15 Index in a manner that
would be adverse to your investment in the Notes. Any purchases by us, our
affiliates or others on our behalf on or before the Pricing Date may
temporarily increase the prices of the Industrial 15 Stocks. Temporary
increases in the market prices of the Industrial 15 Stocks may also occur as a
result of the purchasing activities of other market participants. Consequently,
the prices of the Industrial 15 Stocks may decline subsequent to the Pricing
Date reducing the value of the Industrial 15 Index and therefore the market
value of the Notes.
Potential conflicts
Our subsidiary, MLPF&S, is our agent for the purposes of calculating the
Ending Value, Redemption Amount and Exchange Amounts. Under certain
circumstances, MLPF&S' role as our subsidiary and its responsibilities as
calculation agent for the Notes could give rise to conflicts of interest. These
conflicts could occur, for instance, in connection with its determination as to
whether the value of the Industrial 15 Index can be calculated on a particular
trading day, or in connection with judgments that it would be required to make
in the event of a discontinuance of the Industrial 15 Index. See the sections
entitled "Description of the Notes--Adjustments to the Industrial 15 Index;
Market Disruption Events" and "--Discontinuance of the Industrial 15 Index" in
this prospectus supplement. MLPF&S 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 MLPF&S, potential conflicts of interest
could arise. MLPF&S, the underwriter, will pay an additional amount on each
Anniversary Date (as defined in this prospectus supplement) in 2002 through
2005 to brokers whose clients purchased their Units in the initial distribution
and continue to hold their Notes. You should understand that as a result of
this additional payment, your broker receives a financial benefit each year you
retain your investment in the Notes. Please see the section entitled
"Underwriting" in this prospectus supplement.
We have entered into an arrangement with one of our subsidiaries to hedge
the market risks associated with our obligation to pay amounts due at maturity
on the Notes. This subsidiary expects to make a profit in connection with this
arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
S-9
ML&Co. or its affiliates may presently or from time to time engage in
business with one or more of the Industrial 15 Companies including extending
loans to, or making equity investments in, the Industrial 15 Companies or
providing advisory services to the Industrial 15 Companies, including merger
and acquisition advisory services. In the course of business, ML&Co. or its
affiliates may acquire non-public information with respect to the Industrial
15 Companies and, in addition, one or more affiliates of ML&Co. may publish
research reports about the Industrial 15 Companies. ML&Co. does not make any
representation to any purchasers of the Notes with respect to any matters
whatsoever relating to the Industrial 15 Companies. Any prospective purchaser
of the Notes should undertake an independent investigation of the Industrial
15 Companies as in its judgment is appropriate to make an informed decision
with respect to an investment in the Notes. The composition of the Industrial
15 Index does not reflect any investment or sell recommendations of ML&Co. or
its affiliates.
Uncertain tax consequences
You should consider the tax consequences of investing in the Notes,
aspects of which are uncertain. See the section entitled "United States
Federal Income Taxation" in this prospectus supplement.
DESCRIPTION OF THE NOTES
ML&Co. will issue the Notes as a series of senior debt securities under
the 1983 Indenture, which is more fully described in the accompanying
prospectus. Unless exchanged by you, the Notes will mature on June , 2006.
While at maturity or upon exchange a beneficial owner of a Note will
receive an amount equal to the Redemption Amount or the Exchange Amount, as
the case may be, there will be no other payment of interest, periodic or
otherwise. See the section entitled "--Payment at maturity" and "--Exchange of
the Notes prior to maturity" in this prospectus supplement.
The Notes may be exchanged by you during an Exchange Notice Period, but
are not subject to redemption by ML&Co. before maturity. If an Event of
Default occurs with respect to the Notes, beneficial owners 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 Debt
Securities--Events of Default" in the accompanying prospectus.
ML&Co. will issue the Notes in denominations of whole Units each with an
original public offering price of $10 per Unit.
The Notes do not have the benefit of any sinking fund.
Payment at maturity
For each Note that has not been exchanged prior to maturity, the holder
will be entitled to receive the Redemption Amount, as provided below.
Determination of the Redemption Amount
The "Redemption Amount" for a Note will be determined by the calculation
agent and will equal:
( Ending Value )
$9.90 X ( -------------- )
( Starting Value )
The "Starting Value" will be set to 100 on the Pricing Date.
S-10
For the purpose of determining the Redemption Amount, the "Ending Value"
will be determined by the calculation agent and will equal the average,
arithmetic mean, of the closing values of the Industrial 15 Index determined on
each of the first five Calculation Days during the Calculation Period. If there
are fewer than five Calculation Days during the Calculation Period, then the
Ending Value will equal the average, arithmetic mean, of the closing values of
the Industrial 15 Index on those Calculation Days. If there is only one
Calculation Day during the Calculation Period, then the Ending Value will equal
the closing value of the Industrial 15 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 Industrial 15 Index determined on the last
scheduled Index Business Day in the Calculation Period, regardless of the
occurrence of a Market Disruption Event on that day.
The "Calculation Period" means the period from and including the seventh
scheduled Index Business Day prior to the maturity date to and including the
second scheduled Index Business Day prior to the maturity 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 a day on which the New York Stock Exchange
and the American Stock Exchange are open for trading and the Industrial 15
Index or any successor index is calculated and published.
All determinations made by the calculation agent shall be at the sole
discretion of the calculation agent and, absent a determination by the
calculation agent of a manifest error, shall be conclusive for all purposes and
binding on ML&Co. and the holders and beneficial owners of the Notes.
Exchange of the Notes prior to maturity
You may elect to exchange all or a portion of the Notes you own during
any Exchange Notice Period by giving notice as described below. An "Exchange
Notice Period" means any Business Day from and including the first calendar day
of the month of June to and including 12:00 noon in The City of New York on the
fifteenth calendar day during the month of June in the years 2002, 2003, 2004
and 2005. If the fifteenth calendar day of the applicable month of June is not
a Business Day, then the Exchange Notice Period will be extended to 12:00 noon
in The City of New York on the next succeeding Business Day. The amount of the
cash payment you receive upon exchange (the "Exchange Amount") will be equal to
the Redemption Amount, calculated as if the Exchange Date were the stated
maturity date, except that the Ending Value will be equal to the closing value
of the Industrial 15 Index on the Exchange Date. An "Exchange Date" will be the
second Index Business Day following the end of the applicable Exchange Notice
Period. If a Market Disruption Event occurs on the second Index Business Day
following an Exchange Notice Period, the Exchange Date for that year will be
the next succeeding Index Business Day on which a Market Disruption Event does
not occur. You will receive the Exchange Amount three Business Days after the
Exchange Date.
The Notes will be issued in registered global form and will remain on
deposit with the depositary as described in this prospectus supplement.
Therefore, you must exercise the option to exchange your Notes through the
depositary. To make your exchange election effective, you must make certain
that your notice is delivered to the depositary during the applicable Exchange
Notice Period. To ensure that the depositary will receive timely notice of your
election to exchange all or a portion of your Notes, you must instruct the
direct or indirect participant through which you hold an interest in the Notes
to notify the depositary of your election to exchange your Notes prior to 12:00
noon in The City of New York on the last day of the applicable Exchange Notice
Period, in accordance with the then applicable operating procedures of the
depositary. Different firms have different deadlines for accepting instructions
from their customers. You should consult the direct or indirect participant
through which you hold an interest in the Notes to ascertain the deadline for
ensuring that timely notice will be delivered to the depositary.
S-11
If at any time the global securities are exchanged for Notes in
definitive form, notice of your election to exchange must be delivered to the
The Chase Manhattan Bank, as trustee under the 1983 Indenture, through the
procedures required by the trustee by 12:00 noon in The City of New York on
the last day of the applicable Exchange Notice Period.
Hypothetical returns
The following tables illustrate, for a range of hypothetical Ending
Values of the Industrial 15 Index during the Calculation Period:
. the total amount payable at maturity for the Notes and an investment
in the Industrial 15 Stocks,
. the total rate of return to beneficial owners of the Notes and the
Industrial 15 Stocks, and
. the pretax annualized rate of return to beneficial owners of the
Notes and the Industrial 15 Stocks.
The tables below assume an initial investment of $10 in the Notes and in
the Industrial 15 Stocks.
Hypothetical Returns to Strategic Return Notes Hypothetical Returns Related to an Investment in the
based on the Industrial 15 Index Industrial 15 Stocks
- ------------------------------------------------ ------------------------------------------------------
Hypothetical
Ending Pretax
Hypothetical Total Pretax Value of an Annualized
Ending Amount Total Annualized Investment in Total Total Rate of Rate of Return
Value of the Payable at Rate of Rate of the Amount Return on on
Industrial 15 Maturity Return on Return on Industrial 15 Payable at the Industrial the Industrial
Index(1) per Note the Notes the Notes(3) Stocks(2) Maturity 15 Stocks 15 Stocks(3)
- ------------- ---------- --------- ------------ ------------- ---------- -------------- --------------
20 1.98 -80.20% -29.89% 21.56 2.16 -78.44% -28.44%
40 3.96 -60.40% -17.69% 43.12 4.31 -56.88% -16.13%
60 5.94 -40.60% -10.15% 64.68 6.47 -35.32% -8.52%
80 7.92 -20.80% -4.61% 86.23 8.62 -13.77% -2.94%
100(4) 9.90 -1.00% -0.20% 107.79 10.78 7.79% 1.51%
120 11.88 18.80% 3.47% 129.35 12.94 29.35% 5.21%
140 13.86 38.60% 6.63% 150.91 15.09 50.91% 8.40%
160 15.84 58.40% 9.41% 172.47 17.25 72.47% 11.20%
180 17.82 78.20% 11.89% 194.03 19.40 94.03% 13.70%
200 19.80 98.00% 14.13% 215.59 21.56 115.59% 15.96%
220 21.78 117.80% 16.18% 237.14 23.71 137.14% 18.03%
240 23.76 137.60% 18.07% 258.70 25.87 158.70% 19.93%
260 25.74 157.40% 19.82% 280.26 28.03 180.26% 21.70%
280 27.72 177.20% 21.45% 301.82 30.18 201.82% 23.35%
300 29.70 197.00% 22.99% 323.38 32.34 223.38% 24.89%
- --------
(1) The Industrial 15 Index reflects the total return of the top fifteen
dividend yielding Qualifying Stocks in the S&P Industrial Index less an
annual Index Adjustment Factor of 1.5%.
(2) An investment in the Industrial 15 Stocks is equivalent to an investment
in the Industrial 15 Index, including the method and timing of reinvesting
dividends, except that the Industrial 15 Index has been reduced daily by
the pro rata portion of the annual Index Adjustment Factor of 1.5%. The
hypothetical investment in the Industrial 15 Stocks presented in this
column does not take into account transaction costs and taxes.
(3) The annualized rates of return are calculated on a semiannual bond
equivalent basis and assume an investment term of 5 years.
(4) This will be the Starting Value of the Industrial 15 Index.
The above figures are for purposes of illustration only. The actual
Redemption Amount received by investors in the Notes and the resulting total
and pretax annualized rates of return will depend on the actual Ending Value
and term of your investment.
S-12
Adjustments to the Industrial 15 Index; Market Disruption Events
If at any time the Index Calculation Agent changes its method of
calculating the Industrial 15 Index, or the value of the Industrial 15 Index
changes, in any material respect, or if the Industrial 15 Index is in any
other way modified so that the Industrial 15 Index does not, in the opinion of
the calculation agent, fairly represent the value of the Industrial 15 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 Industrial 15 Index 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 the Industrial 15 Index as if those
changes or modifications had not been made, and calculate the closing value
with reference to the Industrial 15 Index, as so adjusted. Accordingly, if the
method of calculating the Industrial 15 Index is modified so that the value of
the Industrial 15 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 adjust the Industrial 15 Index in order to arrive at a value of the
Industrial 15 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 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 one or more
Industrial 15 Stocks; or
(B) the suspension or material limitation, 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 Industrial 15 Index, or any successor index,
which are traded on any major U.S. exchange.
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 and
(2) for the purpose of clause (A) above, any limitations on trading
during significant market fluctuations under New York Stock Exchange
(the "NYSE") Rule 80A, or any applicable rule or regulation enacted
or promulgated by the NYSE or any other self regulatory organization
or the SEC of similar scope as determined by the calculation agent,
will be considered "material".
Discontinuance of the Industrial 15 Index
If the Index Calculation Agent discontinues publication of the Industrial
15 Index and the Index Calculation Agent or another entity publishes a
successor or substitute index that the calculation agent determines, in its
sole discretion, to be comparable to the Industrial 15 Index (a "successor
index"), then, upon the calculation agent's notification of any determination
to the trustee and ML&Co., the calculation agent will substitute the successor
index as calculated by the Index Calculation Agent or any other entity for the
Industrial 15 Index and calculate the closing value as described above under
"--Payment at maturity". Upon any selection by the calculation agent of a
successor index, ML&Co. shall cause notice to be given to holders of the
Notes.
In the event that the Index Calculation Agent discontinues publication of
the Industrial 15 Index and:
. the calculation agent does not select a successor index, or
. the successor index is no longer published on any of the Calculation
Days,
S-13
the calculation agent will compute a substitute value for the Industrial 15
Index in accordance with the procedures last used to calculate the Industrial
15 Index before any discontinuance. If a successor index is selected or the
calculation agent calculates a value as a substitute for the Industrial 15
Index as described below, the successor index or value will be used as a
substitute for the Industrial 15 Index for all purposes, including for purposes
of determining whether a Market Disruption Event exists.
If the Index Calculation Agent discontinues publication of the Industrial
15 Index before the period during which the Redemption Amount is to be
determined 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:
. the determination of the Ending Value, or
. 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 of each value
to be published not less often than once each month in The Wall Street Journal
(the "WSJ") or another newspaper of general circulation, and arrange for
information with respect to these values to be made available by telephone.
A "Business Day" is any day on which the NYSE and the AMEX are open for
trading.
Notwithstanding these alternative arrangements, discontinuance of the
publication of the Industrial 15 Index may adversely affect trading in the
Notes.
Events of Default and Acceleration
In case an Event of Default with respect to any Notes has occurred and is
continuing, the amount payable to a beneficial owner of a Note upon any
acceleration permitted by the Notes, with respect to each Unit, will be equal
to the Redemption Amount, if any, calculated as though the date of early
repayment were the stated maturity date of the Notes. See the section entitled
"--Payment at maturity" in this prospectus supplement. If a bankruptcy
proceeding is commenced in respect of ML&Co., the claim of the beneficial owner
of a Note may be limited, under Section 502(b)(2) of Title 11 of the United
States Code, to the original public offering price of the Note plus an
additional amount of contingent interest calculated as though the date of the
commencement of the proceeding was the maturity date of the Notes.
In case of default in payment of the Notes, whether at their stated
maturity or upon exchange or acceleration, from and after the maturity date the
Notes will bear interest, payable upon demand of their beneficial owners, at
the rate of % per annum to the extent that payment of any interest is legally
enforceable on the unpaid amount due and payable on that date in accordance
with the terms of the Notes to the date payment of that amount has been made or
duly provided for.
Depositary
Description of the Global Securities
Upon issuance, all Notes will be represented by one or more fully
registered global securities. Each global security will be deposited with, or
on behalf of, DTC (DTC, together with any successor, being a "depositary"), as
depositary, registered in the name of Cede & Co., DTC's partnership nominee.
Unless and until it is exchanged in whole or in part for Notes in definitive
form, no global security may be transferred except as a whole by the depositary
to a nominee of the depositary or by a nominee of the depositary to the
depositary or another nominee of the depositary or by the depositary or any
nominee to a successor of the depositary or a nominee of that successor.
S-14
So long as DTC, or its nominee, is a registered owner of a global
security, DTC or its nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by the global security for all
purposes under the 1983 Indenture. Except as provided below, the beneficial
owners of the Notes represented by a global security will not be entitled to
have the Notes represented by a global security registered in their names, will
not receive or be entitled to receive physical delivery of the Notes in
definitive form and will not be considered the owners or holders of the Notes
including for purposes of receiving any reports delivered by ML&Co. or the
trustee under the 1983 Indenture. Accordingly, each person owning a beneficial
interest in a global security must rely on the procedures of DTC and, if that
person is not a participant of DTC, on the procedures of the participant
through which that person owns its interest, to exercise any rights of a holder
under the 1983 Indenture. ML&Co. understands that under existing industry
practices, in the event that ML&Co. requests any action of holders or that an
owner of a beneficial interest in a global security desires to give or take any
action which a holder is entitled to give or take under the 1983 Indenture, DTC
would authorize the participants holding the relevant beneficial interests to
give or take that action, and those participants would authorize beneficial
owners owning through those participants to give or take that action or would
otherwise act upon the instructions of beneficial owners. Conveyance of notices
and other communications by DTC to participants, by participants to indirect
participants and by participants and indirect participants to beneficial owners
will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
DTC Procedures
The following is based on information furnished by DTC:
DTC will act as securities depositary for the Notes. The Notes will be
issued as fully registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One or more fully registered global securities
will be issued for the Notes in the aggregate original public offering price of
such issue, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. DTC holds securities that its participants
deposit with DTC. DTC also facilitates the settlement among participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct participants of DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. DTC is owned
by a number of its direct participants and by the NYSE, the AMEX, and the
National Association of Securities Dealers, Inc. Access to DTC's system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly. The rules applicable to DTC and its
participants are on file with the SEC.
Purchases of Notes under DTC's system must be made by or through direct
participants, which will receive a credit for the Notes on DTC's records. The
ownership interest of each beneficial owner is in turn to be recorded on the
records of direct and indirect participants. Beneficial owners will not receive
written confirmation from DTC of their purchase, but beneficial owners are
expected to receive written confirmations providing details of the transaction,
as well as periodic statements of their holdings, from the direct or indirect
participants through which the beneficial owner entered into the transaction.
Transfers of ownership interests in the Notes are to be made by entries on the
books of participants acting on behalf of beneficial owners.
To facilitate subsequent transfers, all Notes deposited with DTC are
registered in the name of DTC's partnership nominee, Cede & Co. The deposit of
Notes with DTC and their registration in the name of Cede &
S-15
Co. effect no change in beneficial ownership. DTC has no knowledge of the
actual beneficial owners of the Notes; DTC's records reflect only the identity
of the direct participants to whose accounts such Notes are credited, which may
or may not be the beneficial owners. The participants will remain responsible
for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Notes. Under its usual procedures, DTC mails an omnibus proxy to ML&Co. as soon
as possible after the applicable record date. The omnibus proxy assigns Cede &
Co.'s consenting or voting rights to those direct participants identified in a
listing attached to the omnibus proxy to whose accounts the Notes are credited
on the record date.
Principal, premium, if any, and/or interest, if any, payments made in
cash on the Notes will be made in immediately available funds to DTC. DTC's
practice is to credit direct participants' accounts on the applicable payment
date in accordance with their respective holdings shown on the depositary's
records unless DTC has reason to believe that it will not receive payment on
that date. Payments by participants to beneficial owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street
name", and will be the responsibility of that participant and not of DTC, the
trustee or ML&Co., subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of principal, premium, if any, and/or
interest, if any, to DTC is the responsibility of ML&Co. or the trustee,
disbursement of those payments to direct participants shall be the
responsibility of DTC, and disbursement of any payments to the beneficial
owners will be the responsibility of direct participants and indirect
participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to the Notes,
the global securities will be exchangeable for Notes in definitive form of like
tenor in whole Units and multiples of Units. The definitive Notes will be
registered in the name or names as the depositary shall instruct the trustee.
It is expected that instructions may be based upon directions received by the
depositary from participants with respect to ownership of beneficial interests
in the global securities.
DTC may discontinue providing its services as securities depositary with
respect to the Notes at any time by giving reasonable notice to ML&Co. or the
trustee. Under these circumstances, in the event that a successor securities
depositary is not obtained, Notes are required to be printed and delivered.
ML&Co. may decide to discontinue use of the system of book-entry
transfers through DTC or a successor securities depositary. In that event,
Notes will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that ML&Co. believes to be reliable, but ML&Co. takes no
responsibility for its accuracy.
S-16
Same-Day Settlement and Payment
Settlement for the Notes will be made by the underwriter in immediately
available funds. ML&Co. will make all payments in immediately available funds
so long as the Notes are maintained in book-entry form.
THE INDUSTRIAL 15 INDEX
Industrial 15 Index
The value of the Industrial 15 Index on any Index Business Day will be
calculated and disseminated by the Index Calculation Agent and will equal (i)
the sum of the products of the current market price for each of the Industrial
15 Stocks and the applicable share multiplier (the sum equals the "Industrial
15 Portfolio Value"), plus (ii) an amount reflecting Current Quarter Dividends
(as defined below), and less (iii) a pro rata portion of the annual Index
Adjustment Factor. The Index Adjustment Factor is 1.5% per annum and will
reduce the value of the Industrial 15 Index each day by the pro rata amount.
The Index Calculation Agent will generally calculate and disseminate the value
of the Industrial 15 Index based on the most recently reported prices of the
Industrial 15 Stocks (as reported by the exchange or trading system on which
the Industrial 15 Stocks are listed or traded), at approximately 15-second
intervals during the Index Calculation Agent's business hours and at the end of
each Index Business Day via the Consolidated Tape Association's Network B.
Initial Determination of Industrial 15 Portfolio
At any time the "Industrial 15 Portfolio" consists of the then current
Industrial 15 Stocks. The initial stocks in the Industrial 15 Portfolio and
their respective Dividend Yields are shown below, and have been determined by
the Index Calculation Agent to be the fifteen Qualifying Stocks in the S&P
Industrial Index having the highest Dividend Yield on May 31, 2001 (the
"Initial Stocks"). A "Qualifying Stock" is any stock from the S&P Industrial
Index that are in the top 75% of the stocks, as measured by market
capitalization after the elimination of (i) stocks included in the Dow Jones
Industrial Average; and (ii) stocks that do not have an S&P Common Stock
Ranking of A or A+. The Industrial 15 Index will be comprised of the fifteen
Qualifying Stocks with the highest Dividend Yields at the time of the initial
composition or any reconstitution of the Industrial 15 Index. We have included
a brief description of each of the Industrial 15 Companies and historical stock
price information for the Initial Stocks in Annex A to this prospectus
supplement. "Dividend Yield" for each common stock is determined by the Index
Calculation Agent by annualizing the last quarterly or semi-annual ordinary
cash dividend for which the ex-dividend date has occurred, excluding any
extraordinary dividend as determined by the Index Calculation Agent in its sole
discretion, and dividing the result by the last available sale price for each
stock on its primary exchange on the date that Dividend Yield is to be
determined.
Indicative
Dividend Share
Company Yield Multiplier
- ------- -------- ----------
Albertson's, Inc. .......................................... 2.65% 0.23229
ALLTEL Corporation.......................................... 2.28% 0.11496
Avery Dennison Corporation.................................. 2.05% 0.11400
Bristol-Myers Squibb Company................................ 2.03% 0.12291
The Clorox Company.......................................... 2.42% 0.19246
ConAgra, Inc. .............................................. 4.32% 0.31974
Emerson Electric Co. ....................................... 2.26% 0.09846
The Gillette Company........................................ 2.25% 0.23044
Hershey Foods Corporation................................... 1.85% 0.10994
Johnson Controls, Inc. ..................................... 1.76% 0.09470
The May Department Stores Company........................... 2.87% 0.20387
Newell Rubbermaid Inc. ..................................... 3.32% 0.26382
Pitney Bowes Inc. .......................................... 2.93% 0.16861
Rohm and Haas Company....................................... 2.41% 0.20080
Textron Inc. ............................................... 2.26% 0.11572
S-17
The average (mean) dividend yield of the fifteen Initial Stocks set forth
in the table above, as of May 31, 2001, was 2.51%.
The indicative Share Multipliers set forth in the table above were
calculated assuming the Industrial 15 Index was equal to 100 on May 31, 2001.
The actual Initial Share Multiplier for each Initial Stock will be determined
by the Index Calculation Agent on the Pricing Date and will be disclosed in the
final prospectus supplement. Each "Initial Share Multiplier" will equal the
number of shares of that Initial Stock, or portion thereof, based upon the
closing market price of that Initial Stock on the Pricing Date, so that each
Initial Stock represents approximately an equal percentage of the Starting
Value of 100 of the Industrial 15 Index as of the Pricing Date. Each Initial
Share Multiplier will remain constant until adjusted for certain corporate
events, quarterly dividend adjustments and annual reconstitutions as described
below.
Annual Industrial 15 Portfolio Reconstitution
As of the close of business on each Anniversary Date through the
Anniversary Date in 2005, the Industrial 15 Portfolio shall be reconstituted to
include the fifteen Qualifying Stocks in the S&P Industrial Index having the
highest Dividend Yield (the "New Stocks") on the second scheduled Index
Business Day prior to the applicable Anniversary Date (the "Annual
Determination Date"). "Anniversary Date" shall mean June of each year, which
is the anniversary date of the date the Notes are priced for initial sale to
the public; provided, however, that if the date is not an Index Business Day or
a Market Disruption Event occurs on that date, then the Anniversary Date for
that year shall mean the immediately succeeding Index Business Day on which a
Market Disruption Event does not occur. The Index Calculation Agent will only
add a stock having characteristics as of the applicable Annual Determination
Date that will permit the Industrial 15 Index to remain within the criteria
specified in the rules of the Index Calculation Agent and within the applicable
rules of the Securities and Exchange Commission. The criteria and rules will
apply only on an Annual Determination Date to exclude a proposed New Stock. If
a proposed New Stock does not meet these criteria or rules, the Index
Calculation Agent will replace it with the Qualifying Stock with the next
highest Dividend Yield which meets the rules and criteria. These criteria
currently provide, among other things, (1) that each component stock must have
a minimum market value of at least $75 million, except that up to 10% of the
component securities in the Industrial 15 Index may have a market value of $50
million; (2) that each component stock must have an average monthly trading
volume in the preceding six months of not less than 1,000,000 shares, except
that up to 10% of the component stocks in the Industrial 15 Index may have an
average monthly trading volume of 500,000 shares or more in the last six
months; (3) 90% of the Industrial 15 Index's numerical index value and at least
80% of the total number of component stocks will meet the then current criteria
for standardized option trading set forth in the rules of the Index Calculation
Agent; and (4) all component stocks will either be listed on the AMEX, the
NYSE, or traded through the facilities of the National Association of
Securities Dealers Automated Quotation System and reported as National Market
System Securities.
The "Share Multiplier" for each New Stock will be determined by the Index
Calculation Agent and will equal the number of shares of each New Stock, based
upon the closing market price of that New Stock on the Anniversary Date, so
that each New Stock represents approximately an equal percentage of a value
equal to the Industrial 15 Index in effect at the close of business on the
applicable Anniversary Date. As an example, if the Industrial 15 Index in
effect at the close of business on an Anniversary Date equaled 150, then each
of the fifteen New Stocks would be allocated a portion of the value of the
Industrial 15 Index equal to 10 and if, the closing market price of a New Stock
on the Anniversary Date was 20, the applicable Share Multiplier would be 0.5.
If the Industrial 15 Index equaled 60, then each of the fifteen New Stocks
would be allocated a portion of the value of the Industrial 15 Index equal to 4
and if the closing market price of a New Stock on the Anniversary Date was 20,
the applicable Share Multiplier would be 0.2. The last Anniversary Date on
which a reconstitution will occur will be the Anniversary Date in 2005, which
will be approximately one year prior to the maturity date of the Notes.
S-18
S&P Industrial Index
The S&P Industrial Index is a subset of the S&P 500 Index made up of the
companies in the S&P 500 Index that are considered industrial companies. The
S&P 500 Index is published by Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. and is intended to provide an indication of the pattern of
common stock price movement. The value of the S&P 500 Index 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. Companies included in the S&P 500 Index are
classified as one of four different types of companies: utility,
transportation, financial or industrial.
Dividends
Current Quarter Dividend
As described above, the value of the Industrial 15 Index will include an
amount reflecting Current Quarter Dividends. "Current Quarter Dividends" for
any day will be determined by the Index Calculation Agent and will equal the
sum of the products for each Industrial 15 Stock of the cash dividend paid by
an issuer on one share of stock during the Current Quarter multiplied by the
Share Multiplier applicable to such stock on the ex-dividend date. "Current
Quarter" shall mean the period from and including June , 2001, to and
including June 30, 2001, and after June 30, 2001, the calendar quarter
containing the day for which the applicable Current Quarter Dividends being
determined.
Quarterly Stock Dividend
As of the first day of the start of each calendar quarter, the Index
Calculation Agent will allocate the Current Quarter Dividends as of the end of
the immediately preceding calendar quarter to each then outstanding Industrial
15 Stock. The amount of the Current Quarter Dividends allocated to each
Industrial 15 Stock will equal the percentage of the value of each Industrial
15 Stock contained in the Industrial 15 Portfolio relative to the value of the
entire Industrial 15 Portfolio based on the closing market price on the last
Index Business Day in the immediately preceding calendar quarter. The Share
Multiplier of each such outstanding Industrial 15 Stock will be increased to
reflect the number of shares, or portion of a share, that the amount of the
Current Quarter Dividend allocated to such Industrial 15 Stock can purchase of
each such Industrial 15 Stock based on the closing market price on the last
Index Business Day in the immediately preceding calendar quarter.
Adjustments to the Share Multiplier and Industrial 15 Portfolio
The Share Multiplier for any Industrial 15 Stock and the Industrial 15
Portfolio will be adjusted as follows:
1. If an Industrial 15 Stock is subject to a stock split or reverse stock
split, then once the split has become effective, the Share Multiplier for that
Industrial 15 Stock will be adjusted to equal the product of the number of
shares issued with respect to one such share of that Industrial 15 Stock and
the prior multiplier.
2. If an Industrial 15 Stock is subject to a stock dividend, issuance of
additional shares of the Industrial 15 Stock, that is given equally to all
holders of shares of the issuer of that Industrial 15 Stock, then once the
dividend has become effective and that Industrial 15 Stock is trading ex-
dividend, the Share Multiplier will be adjusted so that the new Share
Multiplier shall equal the former Share Multiplier plus the product of the
number of shares of that Industrial 15 Stock issued with respect to one such
share of that Industrial 15 Stock and the prior multiplier.
3. If an Industrial 15 Company is being liquidated or is subject to a
proceeding under any applicable bankruptcy, insolvency or other similar law,
that Industrial 15 Stock will continue to be included in the Industrial 15
Portfolio so long as a market price for that Industrial 15 Stock is available.
If a market price is no longer available for an Industrial 15 Stock for
whatever reason, including the liquidation of the issuer of the
S-19
Industrial 15 Stock or the subjection of the issuer of the Industrial 15 Stock
to a proceeding under any applicable bankruptcy, insolvency or other similar
law, then the value of that Industrial 15 Stock will equal zero in connection
with calculating the Industrial 15 Portfolio Value for so long as no market
price is available, and no attempt will be made to immediately find a
replacement stock or increase the value of the Industrial 15 Portfolio to
compensate for the deletion of such Industrial 15 Stock. If a market price is
no longer available for a Industrial 15 Stock as described above, the
Industrial 15 Portfolio Value will be computed based on the remaining
Industrial 15 Stocks for which market prices are available and no new stock
will be added to the Industrial 15 Portfolio until the annual reconstitution of
the Industrial 15 Portfolio. As a result, there may be periods during which the
Industrial 15 Portfolio contains fewer than ten Industrial 15 Stocks.
4. If an Industrial 15 Company has been subject to a merger or
consolidation and is not the surviving entity or is nationalized, then a value
for that Industrial 15 Stock will be determined at the time the issuer is
merged or consolidated or nationalized and will equal the last available market
price for that Industrial 15 Stock and that value will be constant until the
Industrial 15 Portfolio is reconstituted. At that time, no adjustment will be
made to the Share Multiplier of the relevant Industrial 15 Stock.
5. If an Industrial 15 Company issues to all of its shareholders equity
securities that are publicly traded of an issuer other than the Industrial 15
Company, or a tracking stock is issued by an Industrial 15 Company to all of
its shareholders, then the new equity securities will be added to the
Industrial 15 Portfolio as a new Industrial 15 Stock. The Share Multiplier for
the new Industrial 15 Stock will equal the product of the original Share
Multiplier with respect to the Industrial 15 Stock for which the new Industrial
15 Stock is being issued (the "Original Industrial 15 Stock") and the number of
shares of the new Industrial 15 Stock issued with respect to one share of the
Original Industrial 15 Stock.
No adjustments of any Share Multiplier of an Industrial 15 Stock will be
required unless the adjustment would require a change of at least 1% in the
Share Multiplier then in effect. The Share Multiplier resulting from any of the
adjustments specified above will be rounded to the nearest ten-thousandth with
five hundred-thousandths being rounded upward.
The Index Calculation Agent expects that no adjustments to the Share
Multiplier of any Industrial 15 Stock or to the Industrial 15 Portfolio will be
made other than those specified above, however, the Index Calculation Agent may
at its discretion make adjustments to maintain the value of the Industrial 15
Index if certain events would otherwise alter the value of the Industrial 15
Index despite no change in the market prices of the Industrial 15 Stocks.
S-20
Historical Data on the Industrial 15 Index
The following table sets forth the hypothetical level of the Industrial
15 Index at the end of each month (the "Historical Month-End Closing Level"),
in the period from May 1996 through May 2001 calculated as if the Industrial 15
Index had existed during that period. All hypothetical historical data
presented in the following table were calculated by the Index Calculation
Agent. The closing levels have been calculated hypothetically on the same basis
that the Industrial 15 Index will be calculated in the future. The Historical
Month-End Closing Level was set to 100 on May 31, 1996 to provide an
illustration of past movements of the Historical Month-End Closing Level only.
We have provided this hypothetical historical information to help you evaluate
the behavior of the Industrial 15 Index in various economic environments;
however, these historical data on the Industrial 15 Index are not necessarily
indicative of the future performance of the Industrial 15 Index or what the
value of the Notes may be. Any historical upward or downward trend in the level
of the Industrial 15 Index during any period set forth below is not any
indication that the Industrial 15 Index is more or less likely to increase or
decrease at any time during the term of the Notes.
1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ ------
January............................... 116.66 156.88 180.23 148.16 156.96
February.............................. 121.94 163.76 177.61 134.75 157.47
March................................. 116.35 166.13 173.50 144.08 151.86
April................................. 122.42 160.81 179.67 147.40 157.06
May................................... 100.00 129.24 160.45 180.42 153.39 158.44
June.................................. 102.43 133.98 166.00 182.75 146.02
July.................................. 100.27 138.89 158.69 174.86 139.99
August................................ 100.53 132.00 147.36 165.36 136.43
September............................. 106.19 139.56 157.49 152.86 138.76
October............................... 108.67 137.94 169.59 159.93 147.94
November.............................. 115.62 146.17 174.35 158.64 150.78
December.............................. 111.65 153.56 179.81 155.87 155.93
The following graph sets forth the hypothetical historical performance of
the Industrial 15 Index presented in the table above. Past movements of the
Industrial 15 Index are not necessarily indicative of the future Industrial 15
Index values.
Hypothetical Historical Month-End Closing Levels
[THE GRAPH APPEARING HERE SETS FORTH THE HYPOTHETICAL MONTH END
PERFORMANCE OF THE SELECT TEN INDEX FROM MAY 1996 THROUGH MAY 2001, AS SET FORTH
IN THE TABLE ABOVE. THE VERTICAL AXIS HAS A RANGE OF NUMBERS FROM 90 TO 190 IN
INCREMENTS OF 10. THE HORIZONTAL AXIS HAS A RANGE OF DATES FROM MAY 1996 THROUGH
MAY 2001 IN INCREMENTS OF ONE MONTH.]
S-21
UNITED STATES FEDERAL INCOME TAXATION
The following discussion is based upon the opinion of Sidley Austin Brown
& Wood LLP, counsel to ML&Co. ("Tax Counsel"). As the law applicable to the
U.S. federal income taxation of instruments such as the Notes is technical and
complex, the discussion below necessarily represents only a general summary.
The following summary is based upon laws, regulations, rulings and decisions
now in effect, all of which are subject to change (including changes in
effective dates) or possible differing interpretations. It deals only with
Notes held as capital assets and does not purport to deal with persons in
special tax situations, such as financial institutions, insurance companies,
regulated investment companies, dealers in securities or currencies, persons
holding Notes as a hedge against currency risks, as a position in a "straddle"
or as part of a "hedging" or "conversion" transaction for tax purposes, or
persons whose functional currency is not the United States dollar. It also does
not deal with holders other than original purchasers (except where otherwise
specifically noted). Persons considering the purchase of the Notes should
consult their own tax advisors concerning the application of United States
federal income tax laws to their particular situations as well as any
consequences of the purchase, ownership and disposition of the Notes arising
under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
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 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 a United States person will also be a U.S. Holder for purposes of the
following discussion. As used herein, the term "Non-U.S. Holder" means a
beneficial owner of a Note that is not a U.S. Holder.
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 securities with terms
substantially the same as the Notes. Accordingly, the proper U.S. federal
income tax characterization and treatment of the Notes is uncertain. Pursuant
to the terms of the Notes, ML&Co. and every holder of a Note agree (in the
absence of an administrative determination or judicial ruling to the contrary)
to characterize the Notes for all tax purposes as a pre-paid cash-settled
forward contract linked to the value of the Industrial 15 Index. In the opinion
of Tax Counsel, such characterization and tax treatment of the Notes, 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 Internal Revenue Service (the "IRS"), will not result in the
imposition of penalties. The treatment of the Notes 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 instruments similar to the Notes for U.S. federal income tax purposes, and
no ruling is being requested from the IRS with respect to the Notes.
Due to the absence of authorities that directly address instruments that
are similar to the Notes, significant aspects of the U.S. federal income tax
consequences of an investment in the Notes 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 (including alternative characterizations of the Notes)
and with respect to any tax consequences arising under the laws of any state,
local or foreign taxing jurisdiction. Unless otherwise stated, the following
discussions are based on the assumption that the treatment and the allocation
described above are accepted for U.S. federal income tax purposes.
S-22
Tax Treatment of the Notes
Assuming the characterization of the Notes as set forth above, Tax
Counsel believes that the following U.S. federal income tax consequences should
result.
Tax Basis. A U.S. Holder's tax basis in a Note will equal the amount paid
by the U.S. Holder to acquire the Note.
Payment on the Maturity Date. Upon the receipt of cash at maturity of the
Notes, a U.S. Holder will recognize gain or loss. The amount of such gain or
loss will be the extent to which the amount of the cash received differs from
the U.S. Holder's basis in the Note. 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 at maturity.
Sale or Exchange of the Notes. Upon a sale or exchange of a Note prior to
the maturity of the Notes, a U.S. Holder will generally recognize capital gain
or loss equal to the difference between the amount realized on such sale or
exchange and such U.S. Holder's tax basis in the Note so sold or exchanged.
Capital gain or loss will generally be long-term capital gain or loss if the
U.S. Holder held the Note for more than one year at the time of disposition.
Possible Alternative Tax Treatments of an Investment in the Notes
Due to the absence of authorities that directly address the proper
characterization of the Notes, no assurance can be given that the IRS will
accept, or that a court will uphold, the characterization and tax treatment
described above. In particular, the IRS could seek to analyze the U.S. federal
income tax consequences of owning the Notes under Treasury regulations
governing contingent payment debt instruments (the "Contingent Payment
Regulations").
If the IRS were successful in asserting that the Contingent Payment
Regulations applied to the Notes, the timing and character of income thereon
would be significantly affected. Among other things, a U.S. Holder would be
required to accrue original issue discount on the Notes every year at a
"comparable yield" for us, determined at the time of issuance of the Notes.
Furthermore, any gain realized at maturity or upon sale or other disposition of
the Notes would generally be treated as ordinary income, and any loss realized
at maturity would be treated as ordinary loss to the extent of the U.S.
Holder's prior accruals of original issue discount and capital loss thereafter.
Even if the Contingent Payment Regulations do not apply to the Notes,
other alternative U.S. federal income tax characterizations or treatments of
the Notes may also be possible, and if applied could also affect the timing and
the character of the income or loss with respect to the Notes. Accordingly,
prospective purchasers are urged to consult their tax advisors regarding the
U.S. federal income tax consequences of an investment in the Notes.
Non-U.S. Holders
Based on the treatment of each Note as a pre-paid cash-settled forward
contract linked to the value of the Industrial 15 Index, in the case of a non-
U.S. Holder, a payment made with respect to a Note on the maturity date will
not be subject to United States withholding tax, provided that such non-U.S.
Holder complies with applicable certification requirements and that such
payments are not effectively connected with a United States trade or business
of such non-U.S. Holder. Any capital gain realized upon the sale, exchange or
other
S-23
disposition of a Note by a non-U.S. Holder will generally not be subject to
U.S. federal income tax if (i) such gain is not effectively connected with a
United States trade or business of such non-U.S. Holder and (ii) in the case of
an individual non-U.S. Holder, such 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 such individual in the United States and such individual does not
have a "tax home" (as defined for U.S. federal income tax purposes) in the
United States.
As discussed above, alternative characterizations of the Notes for U.S.
federal income tax purposes are possible. Should an alternative
characterization of the Notes, by reason of a change or clarification of the
law, by regulation or otherwise, cause payments with respect to the Notes to
become subject to withholding tax, ML&Co. will withhold tax at the statutory
rate. Prospective non-U.S. Holders of the Notes should consult their own tax
advisors in this regard.
Backup Withholding and Information Reporting
A beneficial owner of a Note may be subject to information reporting and
to backup withholding at a current rate of 31% (which rate is scheduled to be
reduced periodically through 2006) of certain amounts paid to the beneficial
owner unless such 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 such
beneficial owner's U.S. federal income tax provided the required information is
furnished to the IRS.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and Section 4975 of the Internal Revenue Code (the "Code") prohibit
various transactions between certain parties and the assets of employee benefit
plans, unless an exemption is available; governmental plans may be subject to
similar prohibitions. Because transactions between a plan and ML&Co. may be
prohibited absent an exemption, each fiduciary, by its purchase of any Notes on
behalf of any plan, represents on behalf of itself and the plan, that the
acquisition, holding and any subsequent disposition of the Notes will not
result in a violation of ERISA, the Code or any other applicable law or
regulation.
USE OF PROCEEDS AND HEDGING
The net proceeds from the sale of the Notes 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.
S-24
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., New York, New York and Chicago,
Illinois. 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 and other securities. For further information on ML&Co. and the
Notes, 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 underwriter has 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
underwriter is 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 appearing 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.
UNDERWRITING
MLPF&S, the underwriter of the offering, has agreed, subject to the terms
and conditions of the underwriting agreement and a terms agreement, to purchase
from ML&Co. $ aggregate original public offering price of Notes. The
underwriting agreement provides that the obligations of the underwriter are
subject to certain conditions and that the underwriter will be obligated to
purchase all of the Notes if any are purchased. ML&Co. has entered into an
arrangement with one of its subsidiaries to hedge the market risks associated
with ML&Co.'s obligation to pay amounts due at maturity on the Notes. In
connection with the arrangement, this subsidiary will pay MLPF&S, the
underwriter, $.10 per Unit as part of the underwriting fee.
The Notes are ineligible assets in MLPF&S' asset-brokerage service
Unlimited Advantage, which means that purchasers will not pay Unlimited
Advantage annual asset-based fees on the Notes but will pay commissions on any
secondary market purchases and sales of the Notes.
The underwriter has advised ML&Co. that it proposes initially to offer
all or part of the Notes directly to the public at the offering prices set
forth on the cover page of this prospectus supplement. After the initial public
offering, the public offering price may be changed. The underwriter is offering
the Notes subject to receipt and acceptance and subject to the underwriter's
right to reject any order in whole or in part.
In addition to the underwriting fee payable at the time of the original
sale of the Notes, the underwriter will pay an additional amount on each
Anniversary Date in 2002 through 2005 to brokers whose client accounts
purchased the Units in the initial distribution and who continue to hold their
Notes. This additional amount will equal 1% per Unit based on the Redemption
Amount of the Notes calculated as if the Anniversary Date is the maturity date
and the Ending Value is equal to the closing value of the Industrial 15 Index
on that date.
S-25
The underwriting of the Notes will conform to the requirements set forth
in the applicable sections of Rule 2720 of the Conduct Rules of the NASD.
The underwriter is permitted to engage in certain transactions that
stabilize the price of the Notes. These transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Notes.
If the underwriter creates a short position in the Notes in connection
with the offering, i.e., if it sells more Units of the Notes than are set forth
on the cover page of this prospectus supplement, the underwriter may reduce
that short position by purchasing Notes in the open market. In general,
purchases of a security for the purpose of stabilization or to reduce a short
position could cause the price of the security to be higher than it might be in
the absence of these purchases. Neither ML&Co. nor the underwriter makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Notes. In
addition, neither ML&Co. nor the underwriter makes any representation that the
underwriter will engage in these transactions or that these transactions, once
commenced, will not be discontinued without notice.
The underwriter may use this prospectus supplement and the accompanying
prospectus for offers and sales related to market-making transactions in the
Notes. The underwriter may act as principal or agent in these transactions, and
the sales will be made at prices related to prevailing market prices at the
time of sale.
VALIDITY OF THE NOTES
The validity of the Notes will be passed upon for ML&Co. and for the
underwriter by Sidley Austin Brown & Wood LLP, New York, New York.
S-26
INDEX OF DEFINED TERMS
Page
----
Anniversary Date........................................................... S-18
Annual Determination Date.................................................. S-18
Business Day............................................................... S-14
Calculation Day............................................................ S-11
Calculation Period......................................................... S-11
Code....................................................................... S-24
Contingent Payment Regulations............................................. S-23
Current Quarter............................................................ S-19
Current Quarter Dividends.................................................. S-19
depositary................................................................. S-14
Dividend Yield............................................................. S-17
DTC........................................................................ S-4
Ending Value............................................................... S-4
ERISA...................................................................... S-24
Exchange Amount............................................................ S-5
Exchange Date.............................................................. S-11
Exchange Notice Period..................................................... S-11
Historical Month-End Closing Level......................................... S-21
Index Adjustment Factor.................................................... S-5
Index Business Day......................................................... S-11
Index Calculation Agent.................................................... S-5
Industrial 15 Companies.................................................... S-8
Industrial 15 Portfolio Value.............................................. S-17
Industrial 15 Stocks....................................................... S-5
Initial Share Multiplier................................................... S-18
Initial Stocks............................................................. S-17
IRS........................................................................ S-22
Market Disruption Event.................................................... S-13
ML&Co...................................................................... S-4
MLPF&S..................................................................... S-4
New Stocks................................................................. S-18
Non-U.S. Holder............................................................ S-22
Notes...................................................................... S-1
NYSE....................................................................... S-13
Original Industrial 15 Stock............................................... S-20
Pricing Date............................................................... S-4
Qualifying Stock........................................................... S-17
Redemption Amount.......................................................... S-4
S&P Industrial Index....................................................... S-5
Share Multiplier........................................................... S-18
Starting Value............................................................. S-4
successor index............................................................ S-13
Tax Counsel................................................................ S-22
U.S. Holder................................................................ S-22
Unit....................................................................... S-4
WSJ........................................................................ S-14
S-27
ANNEX A
This annex contains a brief synopsis of the business of each of the
Industrial 15 Companies as well as the split-adjusted closing market prices for
each Industrial 15 Stock on its primary exchange in each month from January
1996 through May 2001. Please note that the historical prices of the Industrial
15 Stocks are not indicative of the future performance of the Industrial 15
Stocks or the Industrial 15 Index. The following information has been derived
from publicly available documents published by the Industrial 15 Companies.
Because the common stock of the Industrial 15 Companies is registered under the
Exchange Act, the Industrial 15 Companies are required to file periodically
financial and other information specified by the SEC. For more information
about the Industrial 15 Companies, information provided to or filed with the
SEC by the Industrial 15 Companies can be inspected at the SEC's public
reference facilities or accessed through the SEC's web site referenced in this
prospectus supplement under the section entitled "Where You Can Find More
Information".
ALBERTSON'S, INC.
Albertson's, Inc., is a retail food and drug chain. Albertson's operates
under the names of Albertson's Acme Markets, Jewel Food Stores, Seessel's,
Super Saver, Max Foods, Osco Drug and Sav-on Drugs. Their stores consist of
combination food-drug stores, stand-alone drug stores, conventional
supermarkets, warehouse stores and an electronic-commerce retail site.
Albertson's distribution centers provide product exclusively to its retail
stores.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 33.88 January 35.00 January 47.75 January 61.00 January 30.50 January 28.35
February 37.00 February 35.25 February 46.81 February 57.00 February 24.50 February 29.05
March 37.13 March 34.00 March 52.75 March 54.44 March 30.88 March 31.82
April 38.50 April 33.00 April 50.06 April 51.50 April 32.63 April 33.40
May 39.88 May 33.50 May 46.31 May 53.50 May 36.63 May 28.70
June 41.38 June 36.50 June 51.81 June 51.56 June 33.25
July 41.00 July 37.06 July 48.00 July 49.75 July 30.19
August 42.38 August 34.25 August 50.56 August 47.94 August 21.50
September 42.13 September 34.88 September 54.13 September 39.56 September 21.00
October 34.38 October 36.88 October 55.75 October 36.00 October 23.69
November 34.88 November 44.38 November 57.06 November 32.00 November 25.56
December 35.63 December 47.25 December 63.69 December 32.25 December 26.50
The closing price on June 8, 2001 was 29.29.
ALLTEL CORPORATION
ALLTEL Corporation is an information technology company that provides
wireline and wireless communications and information services. ALLTEL owns
subsidiaries that provide wireless and wireline local, long-distance, network
access and Internet services, wide-area paging service and information
processing management services and advanced application software. A subsidiary
of ALLTEL also publishes telephone directories for affiliates and other
independent telephone companies.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 31.38 January 32.13 January 42.75 January 64.56 January 66.75 January 59.18
February 33.25 February 35.38 February 45.69 February 59.88 February 58.00 February 53.70
March 30.88 March 32.50 March 43.69 March 62.38 March 63.25 March 52.46
April 32.88 April 31.50 April 42.75 April 67.44 April 66.63 April 54.61
May 31.50 May 32.88 May 39.44 May 71.69 May 65.63 May 57.99
June 30.75 June 33.44 June 46.50 June 71.50 June 61.94
July 27.38 July 32.88 July 41.94 July 71.81 July 61.63
August 28.25 August 31.63 August 44.88 August 67.63 August 50.56
September 27.88 September 34.50 September 47.13 September 70.38 September 52.19
October 30.50 October 35.38 October 46.81 October 83.25 October 64.44
November 31.88 November 39.75 November 53.00 November 86.50 November 61.25
December 31.38 December 41.06 December 59.81 December 82.69 December 62.44
The closing price on June 8, 2001 was 58.05.
A-1
AVERY DENNISON CORPORATION
Avery Dennison Corporation is engaged in the production of pressure-
sensitive adhesives and related products such as labels, tapes and reflective
sheeting. Avery Dennison also manufactures and sells a variety of consumer
products not involving pressure-sensitive components, such as notebooks, three-
ring binders, organizing systems, markers, fasteners, business forms, tickets,
tags and imprinting equipment. Avery Dennison manufactures and markets its
products in several countries worldwide.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 26.69 January 36.63 January 44.88 January 49.44 January 67.75 January 54.22
February 26.94 February 40.38 February 50.50 February 53.69 February 60.69 February 53.00
March 27.00 March 38.50 March 53.38 March 57.50 March 61.06 March 52.02
April 28.50 April 36.75 April 52.38 April 68.25 April 65.63 April 56.07
May 28.50 May 37.63 May 51.81 May 59.88 May 61.25 May 58.48
June 27.44 June 40.13 June 53.75 June 60.38 June 67.13
July 25.88 July 44.13 July 57.44 July 61.38 July 54.25
August 25.56 August 41.06 August 53.69 August 54.88 August 54.06
September 27.75 September 40.00 September 43.69 September 52.75 September 46.38
October 32.94 October 39.81 October 41.44 October 62.50 October 50.50
November 35.31 November 41.88 November 47.94 November 59.38 November 55.00
December 35.38 December 44.75 December 45.06 December 72.88 December 54.88
The closing price on June 8, 2001 was 56.80.
BRISTOL-MYERS SQUIBB COMPANY
Bristol-Myers Squibb Company is a diversified health and personal care
company that focuses on the manufacture and sales of a broad range of
pharmaceutical and related products. These products include: cardiovascular,
anti-cancer, anti-infective and central nervous system prescription
pharmaceuticals; consumer medicines, such as analgesics; personal care, such as
skin and hair care products, cold remedies and deodorants; nutritional
products; medical devices; and beauty care products. Bristol-Myers Squibb
markets its products internationally to the retail and wholesale markets and
some of its products are sold directly to other pharmaceutical companies,
hospitals and healthcare professionals.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 22.13 January 31.69 January 49.84 January 64.13 January 66.25 January 61.89
February 21.28 February 32.63 February 50.09 February 62.97 February 57.25 February 63.41
March 21.40 March 29.50 March 52.16 March 64.13 March 58.00 March 59.40
April 20.56 April 32.75 April 52.94 April 63.56 April 52.44 April 56.00
May 21.34 May 36.69 May 53.75 May 68.75 May 55.06 May 54.24
June 22.50 June 40.50 June 57.47 June 70.44 June 58.25
July 21.66 July 39.16 July 56.97 July 66.50 July 49.63
August 21.94 August 38.00 August 48.94 August 70.38 August 53.00
September 24.09 September 41.38 September 51.94 September 67.50 September 57.13
October 26.44 October 43.94 October 55.34 October 76.81 October 60.94
November 28.44 November 46.81 November 61.00 November 73.00 November 69.31
December 27.25 December 47.31 December 66.91 December 64.19 December 73.94
The closing price on June 8, 2001 was 56.46.
A-2
THE CLOROX COMPANY
The Clorox Company is engaged primarily in the production and marketing
of non-durable consumer products sold primarily through grocery and other
retail stores. Clorox's extensive product line includes household cleaning
products, home care products, water filtration products, charcoal, automotive
care products, pet supplies, insecticides, dressings, sauces, professional
products, food storage products and various other consumer products. Clorox
manufactures and markets its products in several continents worldwide.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 20.59 January 29.66 January 38.31 January 62.56 January 47.75 January 33.75
February 21.19 February 29.88 February 43.88 February 59.16 February 40.44 February 35.96
March 21.53 March 28.09 March 42.97 March 58.59 March 33.00 March 31.45
April 20.66 April 31.84 April 41.97 April 57.69 April 36.75 April 31.83
May 21.28 May 31.56 May 41.81 May 50.47 May 39.63 May 34.64
June 22.16 June 33.05 June 47.81 June 53.41 June 44.81
July 22.72 July 34.95 July 51.38 July 56.00 July 41.31
August 23.41 August 32.84 August 48.22 August 45.25 August 36.19
September 23.97 September 37.13 September 41.25 September 38.25 September 39.56
October 27.22 October 35.06 October 54.63 October 40.94 October 44.63
November 26.06 November 38.97 November 55.53 November 44.56 November 44.69
December 25.09 December 39.69 December 58.41 December 50.38 December 35.50
The closing price on June 8, 2001 was 34.84.
CONAGRA, INC.
ConAgra, Inc. operates in several different areas of the food business,
from basic agricultural inputs to production and sale of branded consumer
products. ConAgra produces a wide variety of packaged foods, refrigerated foods
and agricultural products in addition to marketing bulk agricultural
commodities throughout the world through its grain procurement and
merchandising, food-related commodity trading and commodity services.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 22.94 January 25.25 January 31.75 January 32.50 January 21.44 January 23.40
February 21.06 February 26.50 February 30.00 February 30.06 February 16.38 February 19.68
March 20.31 March 27.13 March 32.13 March 25.63 March 18.13 March 18.24
April 19.13 April 28.81 April 29.19 April 24.88 April 18.88 April 20.81
May 21.31 May 30.19 May 29.25 May 26.06 May 23.06 May 20.85
June 22.69 June 32.09 June 31.69 June 26.63 June 19.06
July 21.25 July 35.19 July 25.88 July 25.56 July 20.44
August 21.06 August 32.22 August 24.75 August 24.50 August 18.31
September 24.63 September 33.09 September 26.94 September 22.56 September 20.06
October 24.94 October 30.88 October 30.63 October 26.06 October 21.38
November 26.56 November 36.00 November 31.44 November 24.13 November 25.44
December 24.88 December 33.13 December 31.50 December 22.69 December 26.00
The closing price on June 8, 2001 was 20.25.
A-3
EMERSON ELECTRIC CO.
Emerson Electric Co. is principally engaged in the design, manufacture
and sale of a broad range of electrical, electromechanical and electronic
products and systems. Emerson offers an extensive product line which includes
various products and systems involving industrial automation, electronics and
telecommunications, heating, ventilating and air conditioning systems,
appliances and tools. Emerson manufactures and markets its products in several
countries worldwide.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 41.88 January 49.25 January 60.50 January 58.19 January 55.06 January 76.00
February 38.94 February 49.50 February 63.81 February 57.44 February 45.56 February 66.90
March 40.38 March 45.00 March 65.19 March 52.94 March 53.13 March 62.00
April 41.81 April 50.75 April 63.69 April 64.50 April 54.88 April 66.65
May 42.81 May 54.00 May 60.75 May 63.88 May 59.00 May 67.71
June 45.19 June 55.06 June 60.38 June 62.94 June 60.38
July 42.19 July 59.00 July 59.44 July 59.69 July 61.06
August 41.88 August 54.69 August 57.00 August 61.94 August 66.19
September 45.06 September 57.63 September 62.25 September 63.19 September 67.00
October 44.50 October 52.44 October 66.00 October 60.06 October 73.44
November 49.06 November 55.00 November 65.00 November 57.00 November 72.88
December 48.44 December 56.44 December 60.50 December 57.38 December 78.81
The closing price on June 8, 2001 was 67.07.
THE GILLETTE COMPANY
The Gillette Company manufactures and sells a wide variety of consumer
products throughout the world. Gillette's wide-ranging product line includes
shaving products, toothbrushes, power plaque removers, various toiletries and
specialty batteries and cells. Gillette also produces small household, hair
care and personal diagnostic appliances.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 26.81 January 41.25 January 49.25 January 58.50 January 37.63 January 31.62
February 27.06 February 39.56 February 54.00 February 53.94 February 35.25 February 32.51
March 25.88 March 36.31 March 59.34 March 59.44 March 37.69 March 31.17
April 27.00 April 42.50 April 57.72 April 52.19 April 37.00 April 28.36
May 29.56 May 44.44 May 58.56 May 51.00 May 33.38 May 28.93
June 31.19 June 47.38 June 56.88 June 41.00 June 34.94
July 31.88 July 49.50 July 52.25 July 43.63 July 29.19
August 31.88 August 41.44 August 41.13 August 46.63 August 30.00
September 36.06 September 43.16 September 38.25 September 33.94 September 30.88
October 37.38 October 44.53 October 45.06 October 36.25 October 34.88
November 36.94 November 46.16 November 45.94 November 40.13 November 33.88
December 38.88 December 50.22 December 47.81 December 41.19 December 36.13
The closing price on June 8, 2001 was 27.90.
A-4
HERSHEY FOODS CORPORATION
Hershey Foods Corporation and its subsidiaries are engaged in the
manufacture, distribution and sale of consumer food products. Hershey's product
line includes chocolate and non-chocolate confectionery products sold in the
form of bar goods, bagged and boxed items, grocery products such as baking
ingredients, chocolate drink mixes, peanut butter, dessert toppings and
beverages.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 35.31 January 42.38 January 63.69 January 56.25 January 42.50 January 59.50
February 37.69 February 45.63 February 66.69 February 62.25 February 43.94 February 64.09
March 37.25 March 50.00 March 71.63 March 56.06 March 48.75 March 69.32
April 37.94 April 54.25 April 73.25 April 52.63 April 45.50 April 60.41
May 36.38 May 56.13 May 69.13 May 54.25 May 51.88 May 60.64
June 36.69 June 55.31 June 69.00 June 59.38 June 48.50
July 41.00 July 55.25 July 63.13 July 58.00 July 46.25
August 43.56 August 53.38 August 70.00 August 53.56 August 42.69
September 50.25 September 56.50 September 68.44 September 48.69 September 54.13
October 48.38 October 55.25 October 67.81 October 50.50 October 54.31
November 49.88 November 61.38 November 67.25 November 49.13 November 63.25
December 43.75 December 61.94 December 62.19 December 47.44 December 64.38
The closing price on June 8, 2001 was 60.96.
JOHNSON CONTROLS, INC.
Johnson Controls, Inc. installs and services facility control systems and
provides broad-based management services for the non-residential buildings
market. Johnson also manufactures various automotive interior products,
including seating systems, instrument panels, overhead components and systems,
floor consoles and storage systems, door systems, electronics, cargo
management, and battery and power management.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 36.13 January 43.00 January 50.69 January 64.44 January 55.25 January 64.98
February 35.88 February 42.13 February 55.56 February 61.50 February 53.38 February 66.48
March 37.31 March 40.25 March 60.69 March 62.38 March 54.06 March 62.46
April 35.75 April 38.38 April 59.38 April 72.94 April 63.31 April 72.40
May 34.88 May 42.38 May 59.50 May 63.06 May 56.94 May 70.40
June 34.75 June 41.06 June 57.19 June 69.31 June 51.31
July 36.00 July 44.81 July 52.31 July 68.56 July 51.94
August 35.25 August 47.69 August 42.81 August 68.38 August 53.44
September 37.50 September 49.56 September 46.50 September 66.31 September 53.19
October 36.50 October 44.88 October 56.25 October 61.00 October 59.63
November 38.75 November 45.81 November 57.88 November 54.50 November 55.13
December 41.44 December 47.75 December 59.00 December 56.88 December 52.00
The closing price on June 8, 2001 was 71.61.
A-5
THE MAY DEPARTMENT STORES COMPANY
The May Department Stores Company operates regional department store
companies, including Lord & Tayor, Hecht's, Foley's, Robinsons-May, Filene's,
Kaufmann's, Famous-Barr, L.S.Ayres, The Jones Store, and Meier & Frank. May
also operates David's Bridal, a retailer of bridal gowns and other bridal party
merchandise.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 29.67 January 29.67 January 35.04 January 40.25 January 31.13 January 38.95
February 31.08 February 31.08 February 40.50 February 39.50 February 26.19 February 39.59
March 32.17 March 30.33 March 42.33 March 39.13 March 28.50 March 35.48
April 34.00 April 30.83 April 41.13 April 39.81 April 27.50 April 37.25
May 31.58 May 31.42 May 42.96 May 43.31 May 30.06 May 32.70
June 29.17 June 31.50 June 43.67 June 40.88 June 24.00
July 29.83 July 37.21 July 42.79 July 38.69 July 23.75
August 30.33 August 35.88 August 37.50 August 39.06 August 22.94
September 32.42 September 36.33 September 34.33 September 36.44 September 20.50
October 31.58 October 35.92 October 40.67 October 34.69 October 26.25
November 32.50 November 35.83 November 40.21 November 33.63 November 28.06
December 31.17 December 35.13 December 40.25 December 32.25 December 32.75
The closing price on June 8, 2001 was 33.47.
NEWELL RUBBERMAID INC.
Newell Rubbermaid Inc. is a global manufacturer and full-service marketer
of name-brand consumer products serving the needs of volume purchasers,
including discount stores, warehouse clubs, home centers, hardware stores,
office superstores and contract stationers. Newell's product line consists of
name-brand consumer products involving home decor, office supply, infant care,
food preparation, hardware and household storage, organization and cleaning.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 26.38 January 33.00 January 41.06 January 41.56 January 29.94 January 27.20
February 27.75 February 37.13 February 45.88 February 42.50 February 23.25 February 26.31
March 26.75 March 33.50 March 48.44 March 47.50 March 24.81 March 26.50
April 28.50 April 35.13 April 48.31 April 47.44 April 25.19 April 26.96
May 30.00 May 38.25 May 48.25 May 40.50 May 26.25 May 25.27
June 30.63 June 39.75 June 49.81 June 46.38 June 25.75
July 32.00 July 42.13 July 51.50 July 43.25 July 26.94
August 31.13 August 39.50 August 47.75 August 41.00 August 25.94
September 30.00 September 40.00 September 46.06 September 28.56 September 22.81
October 28.38 October 38.38 October 44.13 October 34.63 October 19.19
November 31.00 November 40.81 November 44.25 November 32.81 November 19.44
December 31.50 December 42.50 December 41.25 December 29.00 December 22.75
The closing price on June 8, 2001 was 26.44.
A-6
PITNEY BOWES INC.
Pitney Bowes Inc. and its subsidiaries provide global mailing, enterprise
solutions and capital services. Pitney Bowes' global mailing division is
engaged in the sale, renting and financing of mailing equipment. Their
enterprise solutions division provides management services and document
messaging technology products and services. Their capital services division
provides large-ticket financing and fee-based programs covering a broad range
of products and other financial services. Pitney Bowes' products and services
are marketed through an extensive network of offices in the United States and
through a number of subsidiaries and independent distributors and dealers in
many countries throughout the world as well as through direct marketing,
outbound telemarketing and the Internet.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 22.63 January 28.81 January 45.88 January 68.81 January 49.00 January 34.97
February 24.13 February 31.06 February 46.88 February 63.19 February 49.50 February 34.05
March 24.50 March 29.38 March 50.19 March 63.75 March 44.69 March 34.75
April 24.38 April 32.00 April 48.00 April 69.94 April 40.88 April 38.07
May 24.81 May 35.13 May 47.00 May 63.75 May 43.50 May 39.54
June 23.88 June 34.75 June 48.13 June 64.25 June 40.00
July 24.25 July 37.56 July 50.50 July 63.63 July 34.63
August 24.13 August 38.19 August 49.63 August 59.00 August 36.56
September 26.38 September 41.59 September 52.56 September 60.94 September 39.44
October 27.94 October 39.66 October 55.06 October 45.56 October 29.69
November 29.50 November 42.03 November 56.00 November 47.94 November 29.06
December 27.38 December 44.97 December 66.06 December 48.31 December 33.13
The closing price on June 8, 2001 was 40.55.
ROHM AND HAAS COMPANY
Rohm and Haas Company manufactures and markets a wide variety of
specialty chemicals. Extensive use of these specialty chemicals is made in the
manufacture of paint and coatings, electronics, household products, water
treatment products, adhesives, plastics and salt. Rohm and Haas and its
subsidiaries operate manufacturing facilities worldwide.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 23.08 January 27.33 January 28.58 January 31.00 January 42.25 January 35.90
February 23.21 February 30.67 February 34.00 February 31.25 February 40.25 February 36.75
March 22.17 March 24.96 March 34.44 March 33.56 March 44.63 March 30.81
April 22.13 April 27.75 April 35.94 April 44.81 April 35.63 April 34.37
May 22.58 May 28.75 May 36.63 May 40.13 May 34.13 May 33.20
June 20.92 June 30.02 June 34.63 June 42.88 June 34.50
July 19.83 July 32.67 July 32.46 July 42.63 July 26.00
August 20.83 August 31.94 August 28.77 August 37.38 August 28.94
September 21.83 September 31.98 September 27.81 September 36.13 September 29.06
October 23.79 October 27.77 October 33.75 October 38.25 October 30.06
November 26.54 November 30.65 November 35.00 November 36.63 November 29.75
December 27.21 December 31.92 December 30.13 December 40.69 December 36.31
The closing price on June 8, 2001 was 33.40.
A-7
TEXTRON INC.
Textron Inc. is a global multi-industry company with operations in
various business segments including aircraft, automotive, fastening systems,
industrial products and finance. Textron offers an extensive product line
ranging from helicopters, light and mid-size jets, automotive interior and
exterior plastic components and systems, fasteners and fastening systems, hand
and hydraulic powered tools, lawn care machinery and military defense weapons.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 39.31 January 48.69 January 59.81 January 74.44 January 59.69 January 51.00
February 39.38 February 49.31 February 74.94 February 78.00 February 61.00 February 52.98
March 40.00 March 52.50 March 77.00 March 77.38 March 60.88 March 56.84
April 42.88 April 55.69 April 78.25 April 92.13 April 61.94 April 53.02
May 42.38 May 59.25 May 74.19 May 89.06 May 62.75 May 57.61
June 39.94 June 66.38 June 71.69 June 82.31 June 54.31
July 40.00 July 70.06 July 73.88 July 82.25 July 57.06
August 42.69 August 62.31 August 62.75 August 80.75 August 56.06
September 42.50 September 65.00 September 60.63 September 77.38 September 46.13
October 44.38 October 57.81 October 74.38 October 77.19 October 50.44
November 47.69 November 59.13 November 77.69 November 71.50 November 50.63
December 47.13 December 62.50 December 75.94 December 76.69 December 46.50
The closing price on June 8, 2001 was 59.27.
A-8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
2,500,000 Units
Merrill Lynch & Co., Inc.
Strategic Return Notes SM
Linked to the Industrial 15 Index due June , 2006
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
Merrill Lynch & Co.
June , 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------