FILED PURSUANT TO RULE NO. 424(b)(5)
REGISTRATION NO. 333-52822
PROSPECTUS SUPPLEMENT
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(To prospectus dated January 24, 2001)
[LOGO]
5,800,000 Units
Merrill Lynch & Co., Inc.
Strategic Return Notes (SM)
Linked to the Institutional Holdings Index due June 28, 2006
(the "Notes")
$10 original public offering price per Unit
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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 Institutional Holdings
cash payment during a specified Index, which reflects the total
period in June of each year from return on a group of twenty stocks,
2002 through 2005 as described in which is reconstituted annually, in
this prospectus supplement. the Amex Institutional Index that
meet specified criteria less an
. No payments prior to maturity annual index adjustment factor of
unless exchanged. 1.5%.
. At maturity or upon exchange, the
. Linked to the value of the amount you receive will depend on
Institutional Holdings Index (index the value of the Institutional
symbol "IXH"). Holdings Index. The value of the
Institutional Holdings Index must
. The Notes have been approved for increase in order for you to
listing on the American Stock receive at least the original
Exchange under the trading symbol public offering price of $10 per
"DSN". Note upon exchange or at maturity.
If the value of the Institutional
. Expected closing date: July 5, Holdings Index has declined or has
2001. not increased sufficiently, you
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.
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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
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Public offering price.................................... $10.00 $58,000,000
Underwriting fee......................................... $.20 $1,160,000
Proceeds, before expenses, to Merrill Lynch & Co.,Inc.... $9.90* $57,420,000
The public offering price and the underwriting fee for any single
transaction to purchase 100,000 Units or more will be $9.90 per Unit and $.10
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 28, 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 Institutional Holdings Index and what does the
Institutional Holdings Index measure?.................................. S-5
How has the Institutional Holdings 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 Institutional Holdings 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 Institutional
Holdings Stocks........................................................ S-7
There may be an uncertain trading market for the Notes.................. S-8
Risk factors specific to companies included in the Institutional
Holdings 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 Institutional Holdings Index; Market Disruption
Events................................................................. S-13
Discontinuance of the Institutional Holdings Index...................... S-13
Events of Default and Acceleration...................................... S-14
Depositary.............................................................. S-15
Same-Day Settlement and Payment......................................... S-17
THE INSTITUTIONAL HOLDINGS INDEX.......................................... S-17
Institutional Holdings Index............................................ S-17
Dividends............................................................... S-20
Adjustments to the Share Multiplier and Institutional Holdings
Portfolio.............................................................. S-20
Historical Data on the Institutional Holdings Index..................... S-22
UNITED STATES FEDERAL INCOME TAXATION..................................... S-23
General................................................................. S-23
Tax Treatment of the Notes.............................................. S-24
Non-U.S. Holders........................................................ S-24
Backup Withholding and Information Reporting............................ S-25
ERISA CONSIDERATIONS...................................................... S-25
USE OF PROCEEDS AND HEDGING............................................... S-25
WHERE YOU CAN FIND MORE INFORMATION....................................... S-25
UNDERWRITING.............................................................. S-26
VALIDITY OF THE NOTES..................................................... S-27
INDEX OF DEFINED TERMS.................................................... S-28
ANNEX A................................................................... A-1
S-2
Prospectus
Page
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MERRILL LYNCH & CO., INC................................................. 2
USE OF PROCEEDS.......................................................... 2
RATIO OF EARNINGS TO FIXED CHARGES AND RATIOS OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS............................. 3
THE SECURITIES........................................................... 3
DESCRIPTION OF DEBT SECURITIES........................................... 4
DESCRIPTION OF DEBT WARRANTS............................................. 10
DESCRIPTION OF CURRENCY WARRANTS......................................... 12
DESCRIPTION OF INDEX WARRANTS............................................ 14
DESCRIPTION OF PREFERRED STOCK........................................... 19
DESCRIPTION OF DEPOSITARY SHARES......................................... 24
DESCRIPTION OF PREFERRED STOCK WARRANTS.................................. 28
DESCRIPTION OF COMMON STOCK.............................................. 30
DESCRIPTION OF COMMON STOCK WARRANTS..................................... 34
PLAN OF DISTRIBUTION..................................................... 36
WHERE YOU CAN FIND MORE INFORMATION...................................... 37
INCORPORATION OF INFORMATION WE FILE WITH THE SEC........................ 37
EXPERTS.................................................................. 38
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 Institutional
Holdings Index due June 28, 2006 (the "Notes"). You should carefully read this
prospectus supplement and the accompanying prospectus to fully understand the
terms of the Notes, the Institutional Holdings 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 28, 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 Institutional Holdings 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 Institutional Holdings Index declines
or has not increased sufficiently, you will receive less than the original
public offering price of the Notes.
The "Starting Value" of the Institutional Holdings Index was set to 100
on June 28, 2001, the date the Notes were priced for initial sale to the
public.
For purposes of determining the Redemption Amount, the "Ending Value"
means the average, arithmetic mean, of the values of the Institutional Holdings
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 Institutional Holdings Index or certain futures or
options contracts relating to the Institutional Holdings Stocks.
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 Institutional Holdings 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 Institutional Holdings 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 Institutional Holdings Index on the Exchange
Date. The Exchange Amount will be paid 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 Institutional Holdings
Index during the period from the Exchange Date until the stated maturity date.
In addition, if the value of the Institutional Holdings 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 Institutional Holdings Index and what does the Institutional
Holdings Index measure?
The Institutional Holdings Index will be calculated and disseminated by
the American Stock Exchange under the index symbol "IXH". The Institutional
Holdings Index is an index which reflects the price changes and dividends of
twenty stocks from a group of certain stocks in the Amex Institutional Index
less an annual index adjustment factor of 1.5% applied daily (the "Index
Adjustment Factor"). The Institutional Holdings 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
Institutional Holdings Index and its reconstitution, and the Index Adjustment
Factor, please see the section entitled "The Institutional Holdings Index" in
this prospectus supplement.
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
Institutional Holdings Index (collectively, the "Institutional Holdings
Stocks").
S-5
How has the Institutional Holdings Index performed historically?
The value of the Institutional Holdings Index was set to 100 on June 28,
2001, the date the Notes were priced for initial sale to the public. While
there is currently no historical information on the Institutional Holdings
Index, we have provided a table and a graph showing the hypothetical month-end
closing values of the Institutional Holdings Index from May 1996 to May 2001,
assuming the Institutional Holdings 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 Institutional Holdings Index will be calculated. We
have provided this information to illustrate how the Institutional Holdings
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
Institutional Holdings Index during this hypothetical historical period is not
an indication that the Institutional Holdings 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 Institutional Holdings 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?
The Notes have been approved for listing on the AMEX under the symbol
"DSN", subject to official notice of issuance. You should be aware that listing
the Notes on the AMEX 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
Institutional Holdings 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 Institutional Holdings Index. Because the value of the
Institutional Holdings 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,
then 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
Institutional Holdings 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 Institutional Holdings 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 Institutional Holdings Index exceeds or does not exceed the Starting
Value. The value of the Notes is related to the Institutional Holdings Index,
and consequently, a sale of the Notes may result in a loss. Additionally,
because the trading value and perhaps final return on your Notes is dependent
upon factors in addition to the Institutional Holdings Index, such as our
credit rating, an increase in the value of the Institutional Holdings 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 Institutional Holdings
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 Institutional Holdings
Stocks
While the Institutional Holdings Index does reflect the payment of
dividends on the Institutional Holdings Stocks as described in more detail
below, the yield to the maturity of the Notes will not produce the
S-7
same yield as if the Institutional Holdings Stocks were purchased and held for
a similar period. At the end of each calendar quarter, the dividends accrued on
the Institutional Holdings Stocks will be incorporated into the Institutional
Holdings Index by adjusting the Share Multipliers of the stocks and the amounts
will then be subject to the price movements of the Institutional Holdings
Stocks. In addition, at the end of each day, the Institutional Holdings 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 loss", the return
on an investment in the Notes will be less than the return on a similar
investment in the Institutional Holdings 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 Institutional
Holdings 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
The Notes have been approved for listing on the AMEX under the trading
symbol "DSN", subject to official notice of issuance. 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 Institutional Holdings 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 Institutional Holdings Index
The Institutional Holdings Index is an index which reflects the price
changes and dividends of twenty Qualifying Stocks in the Amex Institutional
Index less an annual Index Adjustment Factor. The stock prices of some of the
companies included in the Institutional Holdings Index (the "Institutional
Holdings 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 Institutional Holdings Companies;
. announcements of technological innovations or new services offered by
competitors of the Institutional Holdings Companies;
. changes in financial estimates by securities analysts;
. regulatory or legal developments, including significant litigation
matters, affecting the Institutional Holdings Companies or in the
industries in which they operate;
. announcements by competitors of the Institutional Holdings Companies
of significant acquisitions, strategic partnerships, joint ventures
or capital commitments; and
. departures of key personnel of the Institutional Holdings Companies.
The international operations of some of the Institutional Holdings
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 Institutional Holdings 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;
S-8
. 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;
. 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 Institutional
Holdings Stocks or futures or options contracts on the Institutional Holdings
Stocks for our own accounts for business reasons and expect to enter into these
transactions in connection with hedging our obligations under the Notes. These
transactions could affect the price of the Institutional Holdings Stocks and,
in turn, the value of the Institutional Holdings 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 date the Notes are priced for initial
sale to the public may temporarily increase the prices of the Institutional
Holdings Stocks. Temporary increases in the market prices of the Institutional
Holdings Stocks may also occur as a result of the purchasing activities of
other market participants. Consequently, the prices of the Institutional
Holdings Stocks may decline subsequent to the date the Notes are priced for
initial sale to the public reducing the value of the Institutional Holdings
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 Institutional Holdings 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 Institutional Holdings
Index. See the sections entitled "Description of the Notes--Adjustments to the
Institutional Holdings Index; Market Disruption Events" and "--Discontinuance
of the Institutional Holdings 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 client accounts
purchased their Units in the initial distribution and continue to hold the
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.
S-9
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.
ML&Co. or its affiliates may presently or from time to time engage in
business with one or more of the Institutional Holdings Companies including
extending loans to, or making equity investments in, the Institutional
Holdings Companies or providing advisory services to the Institutional
Holdings Companies, including merger and acquisition advisory services. In the
course of business, ML&Co. or its affiliates may acquire non-public
information relating to the Institutional Holdings Companies and, in addition,
one or more affiliates of ML&Co. may publish research reports about the
Institutional Holdings Companies. ML&Co. does not make any representation to
any purchasers of the Notes regarding any matters whatsoever relating to the
Institutional Holdings Companies. Any prospective purchaser of the Notes
should undertake an independent investigation of the Institutional Holdings
Companies as in its judgment is appropriate to make an informed decision
regarding an investment in the Notes. The composition of the Institutional
Holdings 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 28, 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" of the Institutional Holdings Index was set to 100
on June 28, 2001, the date the Notes were priced for initial sale to the
public.
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 Institutional Holdings 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 Institutional Holdings 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 Institutional Holdings 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 Institutional
Holdings 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 AMEX are open for trading and the Institutional Holdings 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 Institutional Holdings 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. The Exchange Amount will be paid 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
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 Institutional Holdings Index during the Calculation Period:
. the total amount payable at maturity of the Notes, and the total
amount payable on an investment in the Institutional Holdings Stocks,
. the total rate of return to beneficial owners of the Notes, and the
total return on an investment in the Institutional Holdings Stocks,
and
. the pretax annualized rate of return to beneficial owners of the
Notes, and the pretax annualized rate of return on an investment in
the Institutional Holdings Stocks.
The tables below assume an initial investment of $10 in the Notes and an
initial investment of $10 in the Institutional Holdings Stocks.
Hypothetical Returns to Strategic Return Notes Hypothetical Returns Related to an Investment
based on the Institutional Holdings Index in the Institutional Holdings Stocks
- ---------------------------------------------------- ----------------------------------------------------------------
Total Pretax Hypothetical Total Pretax Annualized
Hypothetical Amount Total Annualized Ending Value of Total Rate of Rate of
Ending Value of Payable at Rate of Rate of an Investment in Amount Return on the Return on the
the Institutional Maturity Return on Return on the Institutional Payable at Institutional Institutional
Holdings Index(1) per Note the Notes the Notes(2) Holdings Stocks(3) Maturity Holdings Stocks Holdings Stocks(2)
- ----------------- ---------- --------- ------------ ------------------ ---------- --------------- ------------------
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 Institutional Holdings Index reflects the total return of twenty
Qualifying Stocks in the Amex Institutional Index less an annual Index
Adjustment Factor of 1.5%.
(2) The annualized rates of return are calculated on a semiannual bond
equivalent basis and assume an investment term of 5 years.
(3) An investment in the Institutional Holdings Stocks is assumed to be the
equivalent to an investment in the Institutional Holdings Index, including
the method and timing of reinvesting dividends, except that the
Institutional Holdings Index is reduced daily by the pro rata portion of
the annual Index Adjustment Factor of 1.5%. The hypothetical investment in
the Institutional Holdings Stocks presented in this column does not take
into account transaction costs and taxes.
(4) This is the Starting Value of the Institutional Holdings Index.
S-12
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.
Adjustments to the Institutional Holdings Index; Market Disruption Events
If at any time the AMEX changes its method of calculating the
Institutional Holdings Index, or the value of the Institutional Holdings Index
changes, in any material respect, or if the Institutional Holdings Index is in
any other way modified so that the Institutional Holdings Index does not, in
the opinion of the calculation agent, fairly represent the value of the
Institutional Holdings 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
Institutional Holdings 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
Institutional Holdings Index as if those changes or modifications had not been
made, and calculate the closing value with reference to the Institutional
Holdings Index, as so adjusted. Accordingly, if the method of calculating the
Institutional Holdings Index is modified so that the value of the Institutional
Holdings 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 Institutional Holdings Index in order to arrive at a value of the
Institutional Holdings 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
Institutional Holdings 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 Institutional Holdings Stocks, or the
stocks included in 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 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 Institutional Holdings Index
If the AMEX discontinues publication of the Institutional Holdings Index
and the AMEX or another entity publishes a successor or substitute index that
the calculation agent determines, in its sole discretion, to be comparable to
the Institutional Holdings 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 AMEX or any other entity for the Institutional Holdings 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.
S-13
In the event that the AMEX discontinues publication of the Institutional
Holdings 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,
the calculation agent will compute a substitute value for the Institutional
Holdings Index in accordance with the procedures last used to calculate the
Institutional Holdings Index before any discontinuance. If a successor index is
selected or the calculation agent calculates a value as a substitute for the
Institutional Holdings Index as described below, the successor index or value
will be used as a substitute for the Institutional Holdings Index for all
purposes, including for purposes of determining whether a Market Disruption
Event exists.
If the AMEX discontinues publication of the Institutional Holdings 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 Institutional Holdings 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 6.01% 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.
S-14
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.
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.
S-15
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 & 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.
S-16
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.
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 INSTITUTIONAL HOLDINGS INDEX
Institutional Holdings Index
The Institutional Holdings Index will be calculated and disseminated by
the AMEX under the symbol "IXH". On any Business Day, the value of the
Institutional Holdings Index will equal (i) the sum of the products of the
current market price for each of the Institutional Holdings Stocks and the
applicable share multiplier (the sum equals the "Institutional Holdings
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 Institutional Holdings Index each day by the pro rata
amount. The AMEX will generally calculate and disseminate the value of the
Institutional Holdings Index based on the most recently reported prices of the
Institutional Holdings Stocks (as reported by the exchange or trading system on
which the Institutional Holdings Stocks are listed or traded), at approximately
15-second intervals during the AMEX's business hours and at the end of each
Index Business Day via the Consolidated Tape Association's Network B.
Initial Determination of Institutional Holdings Portfolio
At any time, the "Institutional Holdings Portfolio" will consist of the
then current Institutional Holdings Stocks. The initial stocks in the
Institutional Holdings Portfolio are shown below, and have been determined by
the AMEX to be the twenty Qualifying Stocks in the Amex Institutional Index
meeting the criteria described below on May 31, 2001 (the "Initial Stocks"). A
"Qualifying Stock" is any stock in the Amex Institutional Index (excluding
utilities, if any, and the common stock of ML&Co.) which passes the following
screening tests:
Price Momentum Screen. First the 38 stocks with the greatest 1-year price
return are selected. These stocks are then ranked in descending order based on
1-year price return improvement.
Recovery Screen. The 38 stocks with the worst 3-year price return are
selected. These stocks are then ranked in descending order based on 1-year
price return.
Dividend Yield Screen. The 38 stocks with the greatest dividend yield are
selected. These stocks are then ranked in descending order by 1-year price
return.
Price to Earnings Ratios Screen. The 38 stocks with the lowest price to
earnings ratios are selected. These stocks are then ranked in descending order
based on 1-year price return.
S-17
The 20 Qualifying Stocks selected to make up the Institutional Holdings
Index at the time of initial composition or any reconstitution are chosen from
the highest ranked stock in each category in the following order: Price
Momentum Screen, Recovery Screen, Dividend Yield Screen, and Price to Earnings
Ratios Screen. The selection process includes one stock from each screen added
to the Institutional Holdings Index in the order set forth above until there
are 20 unique stocks. If a stock in a particular screen has already been
included in the Institutional Holdings Index, the screen in which the duplicate
appears is skipped and a stock from the next screen is chosen.
We have included a brief description of each of the Institutional
Holdings Companies and historical stock price information for the Initial
Stocks in Annex A to this prospectus supplement.
Initial
Dividend Share
Company Yield Multiplier
- ------- -------- ----------
Abbott Laboratories......................................... 1.68% 0.09879
American Home Products Corporation.......................... 1.51% 0.08130
Anheuser-Busch Companies, Inc. ............................. 1.57% 0.11696
Bank of America Corporation................................. 3.71% 0.08336
The Bank of New York Company, Inc. ......................... 1.47% 0.10183
Bank One Corporation........................................ 2.40% 0.14077
The Boeing Company.......................................... 1.18% 0.08735
Citigroup Inc. ............................................. 1.08% 0.09506
Colgate-Palmolive Company................................... 1.04% 0.08203
Eli Lilly and Company....................................... 1.51% 0.06786
Emerson Electric Co. ....................................... 2.47% 0.08110
Exxon Mobil Corporation..................................... 2.02% 0.05759
Federal Home Loan Mortgage Corporation...................... 1.18% 0.07276
Federal National Mortgage Association....................... 1.42% 0.05815
Microsoft Corporation....................................... 0.00% 0.06874
Minnesota Mining and Manufacturing Company.................. 2.10% 0.04316
PepsiCo, Inc. .............................................. 1.28% 0.10967
Philip Morris Companies Inc. ............................... 4.50% 0.10354
Tyco International Ltd. .................................... 0.09% 0.09251
United Technologies Corporation............................. 1.23% 0.06729
The average (mean) Dividend Yield of the Initial Stocks set forth above,
calculated as of June 28, 2001, was 1.67%.
The Initial Share Multipliers set forth in the table above were
calculated by the AMEX on June 28, 2001, the date the Notes were priced for
initial sale to the public. Each "Initial Share Multiplier" equals the number
of shares of that Initial Stock, or portion thereof, based upon the closing
market price of that Initial Stock on June 28, 2001, so that each Initial Stock
represented approximately an equal percentage of the Starting Value of 100 of
the Institutional Holdings Index. Each Initial Share Multiplier will remain
constant until adjusted for certain corporate events, quarterly dividend
adjustments and annual reconstitutions as described below.
Annual Institutional Holdings Portfolio Reconstitution
As of the close of business on each Anniversary Date through the
Anniversary Date in 2005, the Institutional Holdings Portfolio will be
reconstituted to include the twenty Qualifying Stocks in the Amex Institutional
Index passing the screening tests described above (the "New Stocks") on the
second scheduled
S-18
Index Business Day prior to the applicable Anniversary Date (the "Annual
Determination Date"). "Anniversary Date" shall mean June 28th of each year,
which is the anniversary date of the date the Notes were 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 AMEX will
only add a stock having characteristics as of the applicable Annual
Determination Date that will permit the Institutional Holdings Index to remain
within the criteria specified in the rules of the AMEX 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 AMEX
will replace it with a Qualifying Stock which meets the criteria and rules.
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 Institutional Holdings 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
Institutional Holdings Index may have an average monthly trading volume of
500,000 shares or more in the last six months; (3) 90% of the Institutional
Holdings 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 AMEX; 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 AMEX
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
Institutional Holdings Index in effect at the close of business on the
applicable Anniversary Date. As an example, if the Institutional Holdings Index
in effect at the close of business on an Anniversary Date equaled 200, then
each of the twenty New Stocks would be allocated a portion of the value of the
Institutional Holdings Index equal to 10 and if, for example, the closing
market price of a New Stock on the Anniversary Date was 20, the applicable
Share Multiplier would be 0.5. If the Institutional Holdings Index equaled 80,
then each of the twenty New Stocks would be allocated a portion of the value of
the Institutional Holdings 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.
Amex Institutional Index
The Amex Institutional Index measures the performance of the 75 stocks
currently held in highest dollar amounts in institutional portfolios with
market values of more than $100 million. Component stocks in the Amex
Institutional Index are selected based on stock positions declared in reports
filed pursuant to Rule 13(f) of the Securities Exchange Act of 1934, which must
be made quarterly to the SEC on behalf of all institutions with portfolios with
market values larger than $100 million. To qualify for inclusion in the Amex
Institutional Index, stocks must be held by a minimum of 200 of the reporting
institutions and must have traded at least 7 million shares in each of the two
preceding calendar quarters. The Amex Institutional Index is market-value
(capitalization) weighted, so that the value of the index corresponds to the
sum of the market values (i.e., share price times number of shares outstanding)
of each of the component stocks. The 13(f) reports are reviewed quarterly and
component stocks in the Amex Institutional Index are adjusted as necessary to
maintain conformity with current institutional investments. The Amex
Institutional Index is calculated and disseminated by the AMEX, a subsidiary of
the National Association of Securities Dealers, and is not affiliated with
ML&Co.
S-19
Dividends
Current Quarter Dividend
As described above, the value of the Institutional Holdings 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 Institutional Holdings 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 that stock on the ex-
dividend date. "Current Quarter" shall mean the period from and including June
29, 2001, to and including September 30, 2001, and after September 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 AMEX will
allocate the Current Quarter Dividends as of the end of the immediately
preceding calendar quarter to each then outstanding Institutional Holdings
Stock. The amount of the Current Quarter Dividends allocated to each
Institutional Holdings Stock will equal the percentage of the value of each
Institutional Holdings Stock contained in the Institutional Holdings Portfolio
relative to the value of the entire Institutional Holdings Portfolio based on
the closing market price on the last Index Business Day in the immediately
preceding calendar quarter. The Share Multiplier of each outstanding
Institutional Holdings 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 that Institutional Holdings Stock can purchase of each such
Institutional Holdings 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 Institutional Holdings Portfolio
The Share Multiplier for any Institutional Holdings Stock and the
Institutional Holdings Portfolio will be adjusted as follows:
1. If an Institutional Holdings Stock is subject to a stock split or
reverse stock split, then once the split has become effective, the Share
Multiplier for that Institutional Holdings Stock will be adjusted to equal the
product of the number of shares of that Institutional Holdings Stock issued in
the split and the prior multiplier.
2. If an Institutional Holdings Stock is subject to a stock dividend,
issuance of additional shares of the Institutional Holdings Stock, that is
given equally to all holders of shares of the issuer of that Institutional
Holdings Stock, then once the dividend has become effective and that
Institutional Holdings 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 Institutional
Holdings Stock issued with respect to one such share of that Institutional
Holdings Stock and the prior multiplier.
3. If an Institutional Holdings Company is being liquidated or is subject
to a proceeding under any applicable bankruptcy, insolvency or other similar
law, that Institutional Holdings Stock will continue to be included in the
Institutional Holdings Portfolio so long as a market price for that
Institutional Holdings Stock is available. If a market price is no longer
available for an Institutional Holdings Stock for whatever reason, including
the liquidation of the issuer of the Institutional Holdings Stock or the
subjection of the issuer of the Institutional Holdings Stock to a proceeding
under any applicable bankruptcy, insolvency or other similar law, then the
value of that Institutional Holdings Stock will equal zero in connection with
calculating the Institutional Holdings 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 Institutional Holdings Portfolio
to compensate for the deletion of that Institutional Holdings Stock. If a
market price is no longer available for a
S-20
Institutional Holdings Stock as described above, the Institutional Holdings
Portfolio Value will be computed based on the remaining Institutional Holdings
Stocks for which market prices are available and no new stock will be added to
the Institutional Holdings Portfolio until the annual reconstitution of the
Institutional Holdings Portfolio. As a result, there may be periods during
which the Institutional Holdings Portfolio contains fewer than twenty
Institutional Holdings Stocks.
4. If an Institutional Holdings Company has been subject to a merger or
consolidation and is not the surviving entity or is nationalized, then a value
for that Institutional Holdings 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 Institutional Holdings Stock and that value will be
constant until the Institutional Holdings Portfolio is reconstituted. At that
time, no adjustment will be made to the Share Multiplier of the relevant
Institutional Holdings Stock.
5. If an Institutional Holdings Company issues to all of its shareholders
equity securities that are publicly traded of an issuer other than the
Institutional Holdings Company, or a tracking stock is issued by an
Institutional Holdings Company to all of its shareholders, then the new equity
securities will be added to the Institutional Holdings Portfolio as a new
Institutional Holdings Stock. The Share Multiplier for the new Institutional
Holdings Stock will equal the product of the original Share Multiplier with
respect to the Institutional Holdings Stock for which the new Institutional
Holdings Stock is being issued (the "Original Institutional Holdings Stock")
and the number of shares of the new Institutional Holdings Stock issued with
respect to one share of the Original Institutional Holdings Stock.
No adjustments of any Share Multiplier of an Institutional Holdings 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 AMEX expects that no adjustments to the Share Multiplier of any
Institutional Holdings Stock or to the Institutional Holdings Portfolio will be
made other than those specified above, however, the AMEX may at its discretion
make adjustments to maintain the value of the Institutional Holdings Index if
certain events would otherwise alter the value of the Institutional Holdings
Index despite no change in the market prices of the Institutional Holdings
Stocks.
S-21
Historical Data on the Institutional Holdings Index
On June 28, 2001 the value of the Institutional Holdings Index was set to
100. The following table sets forth the hypothetical level of the Institutional
Holdings 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
Institutional Holdings Index had existed during that period. All hypothetical
historical data presented in the following table were calculated by the AMEX.
The closing levels have been calculated hypothetically on the same basis that
the Institutional Holdings 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 Institutional Holdings Index in various economic
environments; however, these historical data on the Institutional Holdings
Index are not necessarily indicative of the future performance of the
Institutional Holdings Index or what the value of the Notes may be. Any
historical upward or downward trend in the level of the Institutional Holdings
Index during any period set forth below is not any indication that the
Institutional Holdings 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............................... 125.88 165.23 231.62 321.69 314.55
February.............................. 127.02 177.11 227.75 362.54 271.10
March................................. 120.21 181.57 236.82 381.90 249.17
April................................. 129.23 191.42 245.73 371.83 271.45
May................................... 100.00 136.98 187.60 235.69 345.01 270.30
June.................................. 100.81 144.56 199.14 255.25 366.40
July.................................. 95.23 159.81 199.26 253.11 368.51
August................................ 97.21 149.74 161.42 256.16 384.20
September............................. 104.54 157.82 166.52 258.20 347.32
October............................... 109.68 155.11 186.34 276.34 340.34
November.............................. 119.09 160.31 200.88 300.42 311.04
December.............................. 115.52 158.24 223.04 334.53 316.63
The following graph sets forth the hypothetical historical performance of
the Institutional Holdings Index presented in the table above. Past movements
of the Institutional Holdings Index are not necessarily indicative of the
future Institutional Holdings Index values.
Hypothetical Historical Month-End Closing Levels
[THE GRAPH APPEARING HERE SETS FORTH THE HYPOTHETICAL MONTH-END
PERFORMANCE OF THE INSTITUTIONAL HOLDINGS INDEX FROM MAY 1996 THROUGH MAY 2001,
AS SET FORTH IN THE TABLE ABOVE. THE VERTICAL AXIS HAS A RANGE OF NUMBERS FROM
50 TO 400 IN INCREMENTS OF 50. THE HORIZONTAL AXIS HAS A RANGE OF DATES FROM
MAY 1996 THROUGH MAY 2001 IN INCREMENTS OF ONE MONTH.]
S-22
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 Institutional Holdings 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
S-23
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.
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 Institutional Holdings Index, in the case
of a non-U.S. Holder, a payment made with respect to a Note on
S-24
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 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.
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
S-25
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. $58,000,000 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 Institutional
Holdings Index on that date.
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.
S-26
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-27
INDEX OF DEFINED TERMS
Page
----
Anniversary Date........................................................... S-19
Annual Determination Date.................................................. S-19
Business Day............................................................... S-14
Calculation Day............................................................ S-11
Calculation Period......................................................... S-11
Code....................................................................... S-25
Contingent Payment Regulations............................................. S-24
Current Quarter............................................................ S-20
Current Quarter Dividends.................................................. S-20
depositary................................................................. S-15
DTC........................................................................ S-4
Ending Value............................................................... S-4
ERISA...................................................................... S-25
Exchange Amount............................................................ S-5
Exchange Date.............................................................. S-11
Exchange Notice Period..................................................... S-11
Historical Month-End Closing Level......................................... S-22
Index Adjustment Factor.................................................... S-5
Index Business Day......................................................... S-11
Initial Share Multiplier................................................... S-18
Initial Stocks............................................................. S-17
Institutional Holdings Companies........................................... S-8
Institutional Holdings Portfolio........................................... S-17
Institutional Holdings Portfolio Value..................................... S-17
Institutional Holdings Stocks.............................................. S-5
IRS........................................................................ S-23
Market Disruption Event.................................................... S-13
ML&Co...................................................................... S-4
MLPF&S..................................................................... S-4
New Stocks................................................................. S-18
Non-U.S. Holder............................................................ S-23
Notes...................................................................... S-1
Original Institutional Holdings Stock...................................... S-21
Qualifying Stock........................................................... S-17
Redemption Amount.......................................................... S-4
Share Multiplier........................................................... S-19
Starting Value............................................................. S-4
successor index............................................................ S-13
Tax Counsel................................................................ S-23
U.S. Holder................................................................ S-23
Unit....................................................................... S-4
WSJ........................................................................ S-14
S-28
ANNEX A
This annex contains a brief synopsis of the business of each of the
Institutional Holdings Companies as well as the split-adjusted closing market
prices for each Institutional Holdings Stock on its primary exchange in each
month from January 1996 through May 2001. Please note that the historical
prices of the Institutional Holdings Stocks are not indicative of the future
performance of the Institutional Holdings Stocks or the Institutional Holdings
Index. The following information has been derived from publicly available
documents published by the Institutional Holdings Companies. Because the common
stock of the Institutional Holdings Companies is registered under the Exchange
Act, the Institutional Holdings Companies are required to file periodically
financial and other information specified by the SEC. For more information
about the Institutional Holdings Companies, information provided to or filed
with the SEC by the Institutional Holdings 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".
ABBOTT LABORATORIES
Abbott Laboratories develops, manufactures and sells a broad and
diversified line of healthcare products and services. Abbott's products include
pharmaceuticals, diagnostic, hospital, nutritional, chemical and agricultural
products. Abbott markets its products worldwide through affiliates and
distributors to retailers, wholesalers and hospitals.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 21.25 January 27.25 January 35.41 January 46.44 January 32.56 January 44.86
February 20.88 February 28.13 February 37.41 February 46.31 February 33.00 February 48.99
March 20.38 March 28.06 March 37.66 March 46.81 March 35.19 March 47.19
April 20.31 April 30.50 April 36.56 April 48.38 April 38.44 April 46.38
May 21.56 May 31.50 May 37.09 May 45.19 May 40.69 May 51.98
June 21.75 June 33.38 June 41.00 June 45.38 June 44.56
July 21.94 July 32.72 July 41.63 July 42.94 July 41.63
August 22.50 August 29.97 August 38.50 August 43.38 August 43.75
September 24.63 September 31.97 September 43.44 September 36.69 September 47.56
October 25.38 October 30.66 October 47.00 October 40.38 October 52.81
November 27.81 November 32.56 November 48.00 November 38.00 November 55.06
December 25.38 December 32.75 December 49.00 December 36.31 December 48.44
The closing price on June 28, 2001 was 50.61.
AMERICAN HOME PRODUCTS CORPORATION
American Home Products Corporation researches, develops, manufactures and
markets a diversified line of products in three primary business segments:
pharmaceuticals, consumer healthcare and agricultural products. The
pharmaceutical segment manufactures and sells branded and generic ethical
pharmaceuticals, and animal biologicals and pharmaceuticals. The consumer
healthcare segment manufactures and distributes cold and allergy remedies and
nutritional products including Advil, Robitussin, Dimetapp and Centrum Silver
vitamins. The agricultural products segment manufactures and distributes crop
protection and pest control products.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 25.50 January 31.69 January 47.72 January 58.69 January 47.06 January 59.10
February 24.66 February 32.00 February 46.88 February 59.50 February 43.50 February 61.77
March 27.09 March 30.00 March 47.69 March 65.25 March 53.75 March 58.75
April 26.38 April 33.06 April 46.56 April 61.00 April 56.25 April 57.75
May 26.75 May 38.00 May 48.31 May 57.63 May 53.88 May 63.30
June 30.06 June 38.25 June 51.75 June 57.38 June 58.75
July 28.38 July 41.22 July 51.50 July 51.00 July 53.06
August 29.63 August 36.00 August 50.13 August 41.50 August 54.19
September 31.88 September 36.50 September 52.63 September 41.50 September 56.56
October 30.63 October 37.06 October 48.94 October 52.25 October 63.50
November 32.19 November 34.91 November 53.38 November 52.00 November 60.13
December 29.31 December 38.25 December 56.38 December 39.25 December 63.55
The closing price on June 28, 2001 was 61.50.
A-1
ANHEUSER-BUSCH COMPANIES, INC.
Anheuser-Busch Companies, Inc. is the holding company parent of Anheuser-
Busch, the world's largest brewer of beer. Anheuser-Busch is engaged in the
manufacturing and marketing of domestic beer, international beer, packaging and
other related products. In addition, Anheuser-Busch is active in the
entertainment field and operates and directs theme parks through its
subsidiaries.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 17.38 January 21.25 January 22.47 January 35.34 January 33.75 January 43.36
February 16.84 February 22.25 February 23.44 February 38.34 February 32.00 February 43.70
March 16.84 March 20.63 March 23.13 March 38.06 March 31.13 March 45.93
April 16.78 April 21.44 April 22.91 April 36.56 April 35.28 April 39.99
May 17.81 May 21.44 May 22.97 May 36.53 May 38.75 May 44.00
June 18.75 June 20.97 June 23.59 June 35.47 June 37.34
July 18.69 July 21.47 July 25.91 July 39.47 July 40.25
August 18.94 August 21.31 August 23.38 August 38.50 August 39.41
September 18.88 September 22.56 September 27.00 September 35.03 September 42.31
October 19.25 October 19.97 October 29.75 October 35.97 October 45.75
November 21.19 November 21.59 November 30.31 November 37.41 November 47.44
December 20.00 December 22.00 December 32.81 December 35.44 December 45.50
The closing price on June 28, 2001 was 42.75.
BANK OF AMERICA CORPORATION
Bank of America Corporation is a bank holding company and a financial
holding company that provides, through its subsidiaries, a diversified range of
banking and non-banking financial services and products both domestically and
internationally. The financial services offered by Bank of America's
subsidiaries include consumer and commercial banking services, asset
management, global corporate and investment banking services, and equity
investment services.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 34.94 January 54.06 January 59.88 January 66.88 January 48.44 January 53.82
February 36.88 February 60.00 February 68.50 February 65.31 February 46.00 February 49.95
March 40.06 March 55.50 March 72.94 March 70.63 March 52.44 March 54.75
April 39.94 April 60.38 April 76.00 April 71.56 April 49.00 April 56.00
May 40.56 May 58.88 May 75.50 May 64.69 May 55.44 May 59.25
June 41.31 June 64.56 June 76.69 June 73.31 June 43.00
July 43.00 July 71.19 July 79.75 July 66.38 July 47.38
August 42.56 August 59.75 August 57.50 August 60.50 August 53.56
September 43.44 September 61.88 September 53.50 September 55.69 September 52.38
October 47.13 October 59.81 October 57.50 October 64.44 October 48.06
November 51.81 November 60.06 November 65.19 November 58.50 November 39.94
December 48.88 December 60.81 December 60.13 December 50.19 December 45.88
The closing price on June 28, 2001 was 59.98.
A-2
THE BANK OF NEW YORK COMPANY, INC.
The Bank of New York Company, Inc. provides an array of financial
services to a broad range of financial institutions and individual clients. BNY
provides such fiduciary services as securities servicing, global payment
services, private client services and asset management. BNY also provides a
variety of commercial and consumer lending services, such as terms loans, lines
of credit, asset based financings, commercial and residential mortgages, and
retail deposit services. In addition, BNY is engaged in the financial markets,
including the trading of foreign exchange and interest rate products, various
investing and leasing activities, and the offering of a variety of treasury
services.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 12.81 January 18.19 January 27.09 January 35.50 January 40.63 January 54.73
February 12.97 February 19.31 February 29.28 February 34.94 February 33.25 February 51.78
March 12.88 March 18.38 March 31.41 March 35.94 March 41.56 March 49.24
April 12.16 April 19.75 April 29.53 April 39.75 April 41.06 April 50.20
May 12.97 May 21.31 May 30.56 May 35.75 May 46.94 May 54.61
June 12.81 June 21.81 June 30.44 June 36.69 June 46.50
July 12.88 July 24.31 July 32.00 July 36.94 July 46.81
August 13.94 August 22.31 August 24.50 August 35.75 August 52.44
September 14.69 September 24.00 September 27.38 September 33.44 September 56.06
October 16.56 October 23.53 October 31.56 October 41.88 October 57.56
November 17.94 November 26.88 November 34.56 November 39.94 November 55.19
December 16.88 December 28.91 December 40.25 December 40.00 December 55.19
The closing price on June 28, 2001 was 49.10.
BANK ONE CORPORATION
Bank One Corporation is a bank holding company which, through its
subsidiaries, provides retail banking, worldwide corporate and institutional
banking and trust and investment management services. Bank One also engages in
credit card processing, mortgage lending and servicing, insurance, venture
capital financing, investment and merchant banking, trust, brokerage and
investment management services and data processing. Bank One operates banking
offices in Florida and the midwest and southwest United States.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 31.30 January 41.25 January 50.80 January 52.38 January 29.81 January 39.20
February 32.39 February 40.11 February 56.50 February 53.75 February 25.88 February 35.27
March 32.39 March 36.14 March 63.25 March 55.06 March 34.50 March 36.18
April 31.59 April 38.52 April 58.81 April 58.09 April 30.50 April 37.77
May 33.64 May 39.32 May 55.13 May 56.56 May 33.13 May 39.60
June 30.91 June 44.03 June 55.81 June 59.56 June 26.56
July 31.36 July 51.02 July 51.69 July 54.56 July 31.81
August 34.89 August 48.69 August 38.06 August 40.13 August 35.25
September 37.27 September 50.91 September 42.44 September 34.81 September 38.63
October 38.75 October 47.39 October 48.75 October 37.81 October 36.50
November 43.30 November 46.70 November 51.50 November 35.31 November 35.81
December 39.09 December 49.38 December 51.06 December 32.00 December 36.63
The closing price on June 28, 2001 was 35.52.
A-3
THE BOEING COMPANY
The Boeing Company, together with its subsidiaries, is one of the world's
major aerospace firms. Boeing is engaged in the research, development,
production, marketing and support of commercial jet aircraft, military
aircraft, helicopters and missiles. In addition, Boeing is also involved in the
research, development, production, modification and support of missile defense
systems, satellites, rocket engines and battle management systems.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 38.75 January 53.56 January 47.63 January 34.69 January 44.50 January 58.50
February 40.56 February 50.88 February 54.25 February 35.63 February 36.94 February 62.20
March 43.31 March 49.31 March 52.13 March 34.00 March 37.81 March 55.71
April 41.06 April 49.31 April 50.06 April 40.63 April 39.69 April 61.80
May 42.63 May 52.69 May 47.75 May 42.06 May 39.06 May 62.89
June 43.56 June 53.06 June 44.56 June 44.00 June 41.81
July 44.25 July 58.69 July 38.81 July 45.38 July 49.00
August 45.25 August 54.50 August 30.94 August 45.31 August 53.63
September 47.25 September 54.44 September 34.31 September 42.63 September 63.00
October 47.69 October 48.00 October 37.56 October 46.06 October 67.81
November 49.69 November 53.13 November 40.63 November 40.63 November 69.06
December 53.25 December 48.94 December 32.63 December 41.44 December 66.00
The closing price on June 28, 2001 was 57.24.
CITIGROUP INC.
Citigroup Inc. is a financial holding company with businesses providing a
range of financial services to consumer and corporate customers worldwide.
Citigroup's activities are conducted through six segments: Global Consumer,
Global Corporate and Investment Bank, Global Investment Management and Private
Banking, Associates, Investment Activities and Corporate/Other. Citigroup
offers credit cards and banking mainly through its subsidiary Citibank. Other
subsidiaries include Salomon Smith Barney, Primerica, a life insurance and
mutual funds company, Associates First Capital, a consumer lending company, and
Travelers Property Casualty.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 10.96 January 17.46 January 24.78 January 28.03 January 42.75 January 55.97
February 11.15 February 17.88 February 27.81 February 29.38 February 38.86 February 49.18
March 11.00 March 16.00 March 30.00 March 31.94 March 44.91 March 44.98
April 10.25 April 18.50 April 30.59 April 37.44 April 44.67 April 49.15
May 10.38 May 18.33 May 30.63 May 33.13 May 46.64 May 51.25
June 11.41 June 21.02 June 30.31 June 35.63 June 45.19
July 10.56 July 23.98 July 33.63 July 33.42 July 52.92
August 10.84 August 21.17 August 22.19 August 33.33 August 58.38
September 12.28 September 22.77 September 18.75 September 33.00 September 54.06
October 13.56 October 23.33 October 23.50 October 40.69 October 52.63
November 15.00 November 25.44 November 25.13 November 40.41 November 49.81
December 15.13 December 26.94 December 24.84 December 41.77 December 51.06
The closing price on June 28, 2001 was 52.60.
A-4
COLGATE-PALMOLIVE COMPANY
Colgate-Palmolive Company is a consumer products company whose products
are marketed worldwide. Colgate's core businesses are oral care, personal care,
household surface care, fabric care and pet dietary care. Colgate manufactures
and markets toothbrushes, toothpaste, liquid soaps, men's deodorant,
dishwashing soaps, all-purpose cleaners, fabric softeners and bleach.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 18.50 January 24.19 January 36.63 January 40.22 January 59.25 January 60.08
February 19.56 February 25.88 February 40.59 February 42.44 February 52.19 February 59.05
March 19.47 March 24.91 March 43.38 March 46.00 March 56.38 March 55.26
April 19.16 April 27.75 April 44.84 April 51.22 April 57.13 April 55.85
May 19.69 May 31.00 May 43.50 May 49.94 May 52.63 May 56.64
June 21.19 June 32.63 June 44.00 June 49.25 June 59.88
July 19.63 July 37.88 July 46.13 July 49.38 July 55.69
August 20.31 August 31.31 August 36.06 August 53.50 August 50.94
September 21.72 September 34.84 September 34.38 September 45.75 September 47.20
October 23.03 October 32.38 October 44.19 October 60.50 October 58.76
November 23.16 November 33.41 November 42.81 November 54.88 November 58.75
December 23.06 December 36.75 December 46.44 December 65.00 December 64.55
The closing price on June 28, 2001 was 60.95.
ELI LILLY AND COMPANY
Eli Lilly and Company researches, develops, manufactures and sells
pharmaceutical products for humans and animals. Research efforts are primarily
directed toward discovering and developing products to diagnose and treat
disease in humans and animals and to increase the efficiency of animal food
production. Eli Lilly products include neuroscience products, such as Prozac,
endocrine products, cardiovascular agents, oncology products and animal health
products for cattle, poultry and swine. Eli Lilly's pharmaceutical products are
distributed primarily through independent wholesale distribution outlets and
marketed through its own sales force. The animal health products are marketed
by its own direct sales force to distributors and feed manufacturers.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 28.63 January 43.56 January 67.63 January 93.69 January 66.88 January 78.80
February 30.31 February 43.69 February 65.81 February 94.50 February 59.44 February 79.46
March 32.50 March 41.13 March 59.63 March 84.88 March 62.63 March 76.66
April 29.56 April 43.94 April 69.56 April 73.63 April 77.13 April 85.00
May 32.13 May 46.50 May 61.38 May 71.44 May 76.13 May 84.70
June 32.50 June 54.66 June 66.25 June 71.63 June 99.88
July 28.00 July 56.50 July 67.25 July 65.69 July 103.88
August 28.63 August 52.31 August 65.75 August 74.63 August 73.00
September 32.25 September 60.50 September 78.31 September 64.19 September 81.13
October 35.25 October 67.06 October 81.00 October 68.88 October 89.38
November 38.25 November 63.00 November 89.69 November 71.75 November 93.69
December 36.50 December 69.63 December 88.88 December 66.50 December 93.06
The closing price on June 28, 2001 was 73.68.
A-5
EMERSON ELECTRIC CO.
Emerson Electric Co. is engaged principally 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, and
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 28, 2001 was 61.65.
EXXON MOBIL CORPORATION
Exxon Mobil Corporation develops and markets energy products in the
United States and internationally. Exxon Mobil is engaged in the exploration,
production, transportation and sale of oil, natural gas and petroleum products.
In addition, Exxon Mobil manufactures petrochemicals, packaging films and
specialty chemicals. Exxon Mobil also participates in coal and mineral mining
and electric power generation.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 40.13 January 51.81 January 59.31 January 70.25 January 83.44 January 84.15
February 39.75 February 50.13 February 63.75 February 66.56 February 75.31 February 81.05
March 40.75 March 53.88 March 67.63 March 70.56 March 77.94 March 81.00
April 42.50 April 56.63 April 73.06 April 83.06 April 77.69 April 88.60
May 42.38 May 59.25 May 70.50 May 79.88 May 83.31 May 88.75
June 43.44 June 61.25 June 71.38 June 77.13 June 78.50
July 41.13 July 64.25 July 70.25 July 79.38 July 80.00
August 40.75 August 61.19 August 65.44 August 78.88 August 81.63
September 41.63 September 64.06 September 70.63 September 76.00 September 89.13
October 44.31 October 61.44 October 71.63 October 74.06 October 89.19
November 47.19 November 61.00 November 75.00 November 79.31 November 88.00
December 49.00 December 61.19 December 73.13 December 80.56 December 86.94
The closing price on June 28, 2001 was 86.82.
A-6
FEDERAL HOME LOAN MORTGAGE CORPORATION
The Federal Home Loan Mortgage Corporation is a stockholder-owned
corporation established by Congress in 1970 to support home ownership and
rental housing. The Federal Home Loan Mortgage Corporation purchases single-
family and multifamily residential mortgages and mortgage-related securities,
which it finances primarily by issuing mortgage passthrough securities and debt
instruments in the capital markets.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 21.41 January 30.25 January 44.50 January 62.00 January 50.19 January 61.00
February 20.63 February 29.75 February 47.25 February 58.88 February 41.75 February 65.85
March 21.31 March 27.25 March 47.44 March 57.31 March 44.19 March 64.83
April 20.84 April 31.88 April 46.31 April 62.63 April 45.94 April 65.80
May 20.66 May 33.00 May 45.50 May 58.31 May 44.50 May 66.20
June 21.38 June 35.00 June 47.06 June 58.00 June 40.50
July 21.06 July 36.06 July 47.25 July 57.38 July 39.44
August 22.09 August 32.63 August 39.50 August 51.50 August 42.13
September 24.41 September 35.25 September 49.63 September 52.00 September 54.06
October 25.25 October 37.88 October 57.50 October 54.00 October 60.00
November 28.56 November 41.25 November 60.50 November 49.38 November 60.44
December 27.59 December 41.94 December 64.44 December 47.06 December 68.88
The closing price on June 28, 2001 was 68.72.
FEDERAL NATIONAL MORTGAGE ASSOCIATION
The Federal National Mortgage Association is a federally chartered and
stockholder-owned corporation organized and existing under the Federal National
Mortgage Association Charter Act, and was established to provide supplemental
liquidity to the mortgage market. To this end, Fannie Mae provides funds to the
mortgage market by purchasing mortgage loans from lenders, thereby replenishing
their funds for additional lending. In addition, Fannie Mae issues mortgage-
backed securities, primarily in exchange for pools of mortgage loans from
lenders. Fannie Mae also offers technology services for originating and
underwriting mortgage loans.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 34.50 January 39.38 January 61.75 January 72.88 January 59.94 January 74.18
February 31.63 February 40.00 February 63.75 February 70.00 February 53.00 February 79.70
March 31.88 March 36.13 March 63.25 March 69.25 March 56.56 March 79.60
April 30.63 April 41.25 April 59.88 April 70.94 April 60.31 April 80.26
May 30.88 May 43.75 May 59.81 May 67.94 May 60.13 May 82.44
June 33.50 June 43.63 June 60.75 June 68.25 June 52.19
July 31.75 July 47.25 July 61.50 July 68.94 July 49.88
August 31.00 August 44.00 August 56.63 August 62.13 August 53.75
September 34.88 September 47.00 September 64.25 September 62.69 September 71.50
October 39.13 October 48.63 October 70.81 October 70.81 October 77.00
November 41.25 November 52.75 November 72.75 November 66.63 November 79.00
December 37.63 December 57.06 December 74.00 December 62.44 December 86.75
The closing price on June 28, 2001 was 85.99.
A-7
MICROSOFT CORPORATION
Microsoft Corporation develops, manufactures, licenses, and supports a
wide range of software for a multitude of computing devices. Microsoft software
includes scalable operating systems for servers, personal computers and
intelligent devices, server applications for client/server environments,
knowledge worker productivity applications and software development tools.
Microsoft's online efforts include the MSN network of Internet products and
services and alliances with companies involved with broadband access and
various forms of digital interactivity. Microsoft also licenses consumer
software programs, sells hardware devices, provides consulting services, trains
and certifies system integrators, and researches and develops advanced
technologies for future software products.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 11.56 January 25.50 January 37.30 January 87.50 January 97.88 January 61.06
February 12.34 February 24.38 February 42.38 February 75.06 February 89.38 February 59.00
March 12.89 March 22.92 March 44.75 March 89.63 March 106.25 March 54.69
April 14.16 April 30.38 April 45.06 April 81.31 April 69.75 April 67.75
May 14.84 May 31.00 May 42.41 May 80.69 May 62.56 May 69.18
June 15.02 June 31.59 June 54.19 June 90.19 June 80.00
July 14.73 July 35.34 July 54.97 July 85.81 July 69.81
August 15.31 August 33.05 August 47.97 August 92.56 August 69.81
September 16.48 September 33.08 September 55.03 September 90.56 September 60.31
October 17.16 October 32.50 October 52.94 October 92.56 October 68.88
November 19.61 November 35.38 November 61.00 November 91.05 November 57.38
December 20.66 December 32.31 December 69.34 December 116.75 December 43.38
The closing price on June 28, 2001 was 72.74.
MINNESOTA MINING AND MANUFACTURING COMPANY
The Minnesota Mining and Manufacturing Company develops, manufactures and
markets a wide range of products derived from its research and technology in
coating and bonding for coated abrasives, the company's original product. 3M's
major product lines include abrasives, adhesives and pressure sensitive tapes,
Scotch brand tapes, 3M brand tapes, and many specialized products that are sold
worldwide to a variety of different markets including industrial,
transportation, graphics and safety, healthcare, consumer and office,
electronic and communications and specialty material markets.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 64.50 January 85.25 January 83.50 January 77.63 January 93.63 January 110.65
February 65.13 February 92.00 February 85.31 February 74.06 February 88.19 February 112.75
March 64.63 March 84.63 March 91.00 March 70.75 March 88.56 March 103.90
April 65.75 April 87.00 April 94.38 April 89.00 April 86.63 April 119.01
May 68.25 May 91.88 May 92.63 May 85.75 May 85.75 May 118.58
June 69.00 June 102.25 June 82.19 June 86.94 June 82.50
July 65.00 July 94.75 July 75.13 July 87.94 July 90.06
August 68.75 August 89.88 August 68.50 August 94.50 August 93.00
September 69.75 September 92.44 September 73.69 September 96.06 September 91.13
October 76.38 October 91.50 October 79.63 October 95.06 October 96.63
November 83.75 November 97.44 November 80.50 November 95.56 November 99.88
December 83.00 December 82.06 December 71.13 December 97.88 December 120.50
The closing price on June 28, 2001 was 115.86.
A-8
PEPSICO, INC.
PepsiCo, Inc. is engaged in the manufacturing and marketing of snack
food, soft drinks, juice, and related consumer products. PepsiCo consists of
the Frito-Lay Company, a manufacturer and distributor of snack chips, the
Pepsi-Cola Company, a soft drink business, and Tropicana Products, a marketer
and producer of branded juice. In December 2000, PepsiCo announced a merger
with The Quaker Oats Company, a leading manufacturer of hot cereals, pancake
syrups and mixes, cornmeal and a variety of pasta products.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 29.81 January 34.88 January 36.13 January 39.00 January 34.13 January 44.07
February 31.63 February 33.00 February 36.50 February 37.56 February 32.13 February 46.08
March 31.63 March 32.38 March 42.69 March 39.19 March 34.88 March 43.95
April 31.75 April 34.88 April 39.69 April 36.94 April 36.69 April 43.81
May 33.25 May 36.75 May 40.81 May 35.50 May 40.88 May 44.76
June 35.50 June 37.56 June 41.19 June 38.69 June 44.44
July 31.75 July 38.25 July 38.94 July 38.94 July 45.81
August 28.75 August 36.00 August 27.88 August 34.13 August 42.63
September 28.25 September 40.56 September 29.44 September 30.50 September 46.00
October 29.63 October 36.88 October 33.75 October 34.69 October 48.44
November 30.25 November 36.88 November 38.69 November 34.56 November 45.38
December 29.25 December 36.25 December 40.88 December 35.25 December 49.56
The closing price on June 28, 2001 was 45.59.
PHILIP MORRIS COMPANIES INC.
Philip Morris Companies Inc. is a holding company whose principal wholly-
owned subsidiaries, Philip Morris Incorporated, Philip Morris International
Inc., Kraft Foods, Inc., and Miller Brewing Company are engaged in the
manufacture and sale of various consumer products. Philip Morris Incorporated
and Philip Morris International Inc. are engaged primarily in the manufacture,
sale and distribution of cigarettes and other tobacco products. Kraft Foods,
Inc. produces and markets a large variety of retail packaged foods, such as
cheese, processed meat products, coffee and grocery products. Miller Brewing
Company produces beer and other related products.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 30.92 January 39.63 January 41.50 January 46.88 January 20.88 January 44.00
February 33.00 February 45.08 February 43.50 February 39.13 February 20.19 February 48.18
March 29.25 March 38.04 March 41.69 March 35.19 March 21.13 March 47.45
April 30.04 April 39.38 April 37.13 April 35.06 April 21.88 April 50.11
May 33.13 May 44.00 May 37.38 May 38.56 May 26.13 May 51.41
June 34.67 June 44.25 June 39.38 June 40.19 June 26.56
July 34.88 July 45.13 July 43.81 July 37.25 July 25.25
August 29.92 August 43.69 August 41.56 August 37.44 August 29.63
September 29.92 September 41.56 September 46.25 September 34.19 September 29.44
October 30.79 October 39.63 October 51.13 October 25.19 October 36.63
November 34.42 November 43.50 November 55.94 November 26.25 November 38.19
December 37.67 December 45.25 December 53.50 December 23.00 December 44.00
The closing price on June 28, 2001 was 48.29.
A-9
TYCO INTERNATIONAL LTD.
Tyco International Ltd. is a diversified manufacturing and service
company that, through its subsidiaries, designs, manufactures and distributes
electrical and electronic components, multi-layer printed circuit boards,
disposable medical supplies and other related specialty products. In addition,
Tyco designs, engineers, manufactures, installs, operates and maintains
undersea cable communications systems, fire detection and suppression systems,
and electronic security systems, as well as provides flow control products and
environmental consulting services.
Closing Closing Closing Closing Closing Closing
1996 Price 1997 Price 1998 Price 1999 Price 2000 Price 2001 Price
- --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------
January 8.84 January 14.28 January 22.19 January 38.56 January 43.06 January 61.60
February 9.03 February 14.69 February 25.31 February 37.22 February 37.88 February 54.65
March 8.94 March 13.75 March 27.31 March 35.88 March 50.13 March 43.23
April 9.66 April 15.25 April 27.31 April 40.63 April 45.94 April 53.37
May 9.88 May 15.88 May 27.69 May 43.69 May 47.06 May 57.45
June 10.19 June 17.39 June 31.50 June 47.38 June 47.38
July 10.25 July 20.25 July 30.97 July 48.84 July 53.50
August 10.56 August 19.61 August 27.63 August 50.66 August 57.00
September 10.78 September 20.52 September 27.63 September 51.63 September 51.88
October 12.41 October 19.00 October 30.97 October 40.13 October 56.69
November 13.69 November 19.63 November 32.91 November 40.25 November 52.75
December 13.22 December 22.53 December 37.72 December 39.00 December 55.50
The closing price on June 28, 2001 was 54.05.
UNITED TECHNOLOGIES CORPORATION
United Technologies Corporation is primarily engaged in the manufacturing
and marketing of elevators, escalators, commercial and residential heating,
ventilating and air conditioning systems, general aviation and military
aircraft engines, and commercial and military helicopters. United also provides
maintenance services for their extensive product line. United 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 25.66 January 34.88 January 40.63 January 59.72 January 52.94 January 74.98
February 26.84 February 37.63 February 44.66 February 61.94 February 50.94 February 77.91
March 28.06 March 37.88 March 46.16 March 67.72 March 63.19 March 73.30
April 27.63 April 37.81 April 49.22 April 72.44 April 62.19 April 78.08
May 27.34 May 40.19 May 47.00 May 62.06 May 60.44 May 83.31
June 28.75 June 41.50 June 46.25 June 72.00 June 58.88
July 28.13 July 42.28 July 47.94 July 66.69 July 58.38
August 28.19 August 39.03 August 36.28 August 66.13 August 62.44
September 30.09 September 40.50 September 38.22 September 59.31 September 69.25
October 32.19 October 35.00 October 47.63 October 60.50 October 69.81
November 35.06 November 37.47 November 53.59 November 56.50 November 70.81
December 33.13 December 36.41 December 54.38 December 65.00 December 78.63
The closing price on June 28, 2001 was 74.30.
A-10
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[LOGO]
5,800,000 Units
Merrill Lynch & Co., Inc.
Strategic Return Notes (SM)
Linked to the Institutional Holdings Index due June 28, 2006
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PROSPECTUS SUPPLEMENT
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Merrill Lynch & Co.
June 28, 2001
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