Filed Pursuant to Rule 424(b)(5)
Registrant No. 333-52822
PROSPECTUS SUPPLEMENT
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(To prospectus dated January 24, 2001)
[LOGO]
6,400,000 Units
Merrill Lynch & Co., Inc.
8% Callable STock Return Income DEbt Securities/SM/
due November 21, 2003
"Callable STRIDES/SM/"
Payable at maturity with EMC Corporation common stock
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The Callable STRIDES: Payment at maturity:
. Principal amount per unit and original issue price per . If we have not called the Callable STRIDES prior to or on the
unit of the Callable STRIDES is $16.15, which was the stated maturity date, for each Callable STRIDES you own at
closing market price of one share of EMC Corporation maturity, in addition to accrued and unpaid interest, we will
common stock on November 15, 2001, the date the Callable deliver to you one share of EMC Corporation common stock,
STRIDES were priced for initial sale to the public. subject to adjustment for certain corporate events relating to
. We will pay interest on the principal amount of the EMC Corporation as described in this prospectus supplement.
Callable STRIDES quarterly, at the rate of 8% per year, . At maturity, if the price of EMC Corporation common stock
beginning February 21, 2002. has decreased, the value of the EMC Corporation common
. Callable at the option of Merrill Lynch & Co., Inc. stock that you will receive will be less than the principal
beginning November 22, 2002. amount of your Callable STRIDES.
. Senior unsecured debt securities of Merrill Lynch & Co.,
Inc. Payment if called by Merrill Lynch & Co., Inc.:
. Linked to the price of EMC Corporation common stock . If we call the Callable STRIDES on or after November 22,
(trading symbol "EMC"). EMC Corporation has no 2002, we will pay you a cash amount that, together with all
obligations relating to and does not sponsor or endorse other payments made on the Callable STRIDES to and
the Callable STRIDES. including the call date, will provide a yield to call equal to
. The Callable STRIDES have been approved for listing on 37% per year on the principal amount of the Callable
the American Stock Exchange under the trading symbol STRIDES from the original issue date until the call date.
"EMH", subject to official notice of issuance.
. Expected settlement date: -November 21, 2001.
Investing in the Callable STRIDES involves risk.
See "Risk Factors" beginning on page S-8 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(1)..................................... $16.15 $103,360,000
Underwriting discount........................................ $.323 $2,067,200
Proceeds, before expenses, to Merrill Lynch & Co., Inc....... $15.827 $101,292,800
(1)Plus accrued interest from November 21, 2001, if settlement occurs
after that date
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Merrill Lynch & Co.
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The date of this prospectus supplement is November 15, 2001.
"STock Return Income DEbt Securities" and "STRIDES" are service marks of
Merrill Lynch & Co., Inc.
TABLE OF CONTENTS
Prospectus Supplement
Page
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SUMMARY INFORMATION--Q&A................................................................................. S-4
What are the Callable STRIDES?........................................................................ S-4
When will I receive interest?......................................................................... S-4
What will I receive on the stated maturity date of the Callable STRIDES?.............................. S-4
How does the call feature work?....................................................................... S-5
Who is EMC?........................................................................................... S-5
What is EMC's role in the Callable STRIDES?........................................................... S-6
How has EMC common stock performed historically?...................................................... S-6
When will I receive cash instead of shares of EMC common stock?....................................... S-6
What about taxes?..................................................................................... S-6
Will the Callable STRIDES be listed on a stock exchange?.............................................. S-6
What is the role of MLPF&S?........................................................................... S-7
Who is ML&Co.?........................................................................................ S-7
Are there any risks associated with an investment in the Callable STRIDES?............................ S-7
RISK FACTORS............................................................................................. S-8
Your investment may result in a loss.................................................................. S-8
The Callable STRIDES are subject to being called at our option........................................ S-8
Your yield may be lower than the yield on other standard debt securities of comparable maturity....... S-8
Your return may be limited and will not be identical to the return of owning EMC common stock......... S-8
There may be an uncertain trading market for the Callable STRIDES..................................... S-9
Many factors affect the trading value of the Callable STRIDES; these factors interrelate in complex
ways and the effect of any one factor may offset or magnify the effect of another factor.............. S-9
Amounts payable on the Callable STRIDES may be limited by state law................................... S-10
No affiliation between ML&Co. and EMC................................................................. S-10
No stockholder's rights............................................................................... S-11
Purchases and sales of EMC common stock by us and our affiliates may affect your return............... S-11
Potential conflicts................................................................................... S-11
Uncertain tax consequences............................................................................ S-11
DESCRIPTION OF THE CALLABLE STRIDES...................................................................... S-12
Interest.............................................................................................. S-12
Payment at maturity................................................................................... S-12
Fractional Shares..................................................................................... S-13
Call at the option of ML&Co........................................................................... S-13
Hypothetical returns at maturity...................................................................... S-15
Events of Default and Acceleration.................................................................... S-15
Dilution and Reorganization Adjustments............................................................... S-16
Depositary............................................................................................ S-21
Same-Day Settlement and Payment....................................................................... S-23
EMC COMMON STOCK......................................................................................... S-24
EMC Corporation....................................................................................... S-24
Historical Data....................................................................................... S-25
UNITED STATES FEDERAL INCOME TAXATION.................................................................... S-26
General............................................................................................... S-26
Tax Treatment of a Callable STRIDES................................................................... S-27
Sale, Exchange or Redemption of the Callable STRIDES.................................................. S-27
S-2
Page
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Premium...................................................................... S-28
Possible Alternative Tax Treatments of an Investment in a Callable STRIDES... S-28
Constructive Ownership Law................................................... S-29
Non-U.S. Holders............................................................. S-29
Backup Withholding and Information Reporting................................. S-29
ERISA CONSIDERATIONS............................................................ S-29
USE OF PROCEEDS AND HEDGING..................................................... S-30
WHERE YOU CAN FIND MORE INFORMATION............................................. S-30
ML&Co........................................................................ S-30
EMC Corporation.............................................................. S-30
UNDERWRITING.................................................................... S-31
VALIDITY OF THE CALLABLE STRIDES................................................ S-31
EXPERTS......................................................................... S-32
INDEX OF DEFINED TERMS.......................................................... S-33
ANNEX A......................................................................... A-1
Prospectus
Page
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MERRILL LYNCH & CO., INC........................................................ 2
USE OF PROCEEDS................................................................. 2
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO 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
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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 Callable STock Return Income DEbt Securities/SM/ due
November 21, 2003 (the "Callable STRIDES/SM/") payable at maturity with EMC
Corporation ("EMC") common stock. You should carefully read this prospectus
supplement and the accompanying prospectus to fully understand the terms of the
Callable STRIDES, as well as the tax and other considerations that are
important to you in making a decision about whether to invest in the Callable
STRIDES. You should carefully review the "Risk Factors" section, which
highlights certain risks, to determine whether an investment in the Callable
STRIDES 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 Callable STRIDES?
The Callable STRIDES will be a series of senior debt securities issued by
ML&Co. and will not be secured by collateral. The Callable STRIDES will rank
equally with all of our other unsecured and unsubordinated debt. The Callable
STRIDES will mature on November 21, 2003, if not called by us on or prior to
that date. We have designed the Callable STRIDES for investors who want to
receive interest payments on their investment and who also want to participate
in the change in the price of EMC common stock over the term of the Callable
STRIDES, subject to ML&Co.'s right to call the Callable STRIDES.
Each unit of Callable STRIDES represents $16.15 principal amount of
Callable STRIDES, which was the closing market price of one share of EMC common
stock on November 15, 2001, the date the Callable STRIDES were priced for
initial sale to the public (the "Pricing Date"). For a detailed explanation of
the closing market price, please see the section entitled "Description of the
Callable STRIDES--Dilution and Reorganization Adjustments".
You may transfer the Callable STRIDES 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 Callable STRIDES
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 Callable STRIDES. You should refer to the
section entitled "Description of the Callable STRIDES--Depositary" in this
prospectus supplement.
When will I receive interest?
Interest on the Callable STRIDES will accrue at the rate of 8% per year
on the principal amount of each unit from November 21, 2001 to but excluding
the maturity date or the date we call the Callable STRIDES. You will receive
quarterly interest payments on February 21, May 21, August 21 and November 21
of each year, beginning February 21, 2002. If any interest payment date is not
a Business Day, you will receive payment on the following Business Day.
What will I receive on the stated maturity date of the Callable STRIDES?
If we have not called the Callable STRIDES on or prior to the stated
maturity date, for each unit of the Callable STRIDES that you own at maturity,
in addition to accrued and unpaid interest, we will deliver to you one share of
EMC common stock, subject to adjustment to account for certain corporate events
relating to EMC described in this prospectus supplement.
For more specific information regarding the corporate events referred to
above, please see the section entitled "Description of the Callable
STRIDES--Payment at Maturity" in this prospectus supplement.
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You should understand that the opportunity to participate in possible
increases in the price of EMC common stock through an investment in the
Callable STRIDES is limited because if we call the Callable STRIDES the total
yield on your investment will never exceed 37% per year. However, in the event
that the price of EMC common stock declines over the term of the Callable
STRIDES, you will realize the entire decline in the value of the Callable
STRIDES and may lose a part or all of your initial investment. For more
information about risks associated with the Callable STRIDES, please see the
section entitled "Risk Factors" in this prospectus supplement.
How does the call feature work?
We may call the Callable STRIDES on any scheduled Business Day beginning
on November 22, 2002, through and including the maturity date (the day on which
the call occurs, if any, being the "Call Date") by giving notice to the trustee
of the Callable STRIDES at least ten Business Days prior to the Call Date as
described in this prospectus supplement and specifying the Call Date, Call
Price and amount of accrued and unpaid interest payable on the Call Date. The
"Call Price" will be determined based upon the applicable Call Date. The Call
Price will equal $20.6805 if we call the Callable STRIDES on November 22, 2002,
the first date the Callable STRIDES may be called, and $26.8529 if we call the
Callable STRIDES on November 21, 2003, the last date the Callable STRIDES may
be called. For a list of month-end, midmonth, first and last Call Prices for
November 22, 2002 through the maturity date, please see the section entitled
"Description of the Callable STRIDES--Call at the option of ML&Co." in this
prospectus supplement; and for an example of the Call Price calculation, please
see Annex A to this prospectus supplement. If we elect to exercise our call
option, the Call Price will be disclosed to DTC, or its nominee, while the
Callable STRIDES are held by DTC as depositary. So long as DTC, or its nominee,
is the registered holder of the Callable STRIDES, notice of our election to
exercise the call option will be forwarded as described in the section entitled
"Description of the Callable STRIDES--Depositary" in this prospectus
supplement. The Call Price does not include the amount of unpaid interest
accrued to but excluding the Call Date; instead, on the Call Date you will
receive an amount equal to the Call Price plus any accrued and unpaid interest
to but excluding the Call Date (the "Final Amount").
The Call Price on any Call Date is the amount of cash, per Callable
STRIDES, that when discounted from the Call Date to the original issue date by
a discount factor based on an annual yield to call of 37% and added to the
present value of all interest payments discounted to the original issue date by
that same discount factor, will equal the original issue price. The yield to
call represents the interest rate per year used in determining the present
values, discounted to the original issue date, of all payments made or to be
made on the Callable STRIDES, including the Call Price and all interest
payments, such that the sum of these present values is equal to the original
issue price. The present values of the interest payments made on the Callable
STRIDES will be calculated assuming each payment is made on the calendar day
scheduled for that payment, without regard to whether that day is a Business
Day.
If we elect to call your Callable STRIDES, you will receive only the
Final Amount, and you will not be entitled to receive EMC common stock at
maturity.
Who is EMC?
EMC Corporation has disclosed that it designs, manufactures, markets and
supports a range of hardware and software products and provides services for
the storage, management, protection and sharing of electronic information. You
should independently investigate EMC and decide whether an investment in the
Callable STRIDES linked to the EMC common stock is appropriate for you.
Because EMC common stock is registered under the Securities and Exchange
Act of 1934, EMC is required to file periodically certain financial and other
information specified by the Securities and Exchange Commission. For more
information about EMC and the EMC common stock that you may receive at
maturity, information provided to or filed with the SEC by EMC can be located
by reference to SEC file number 1-9853 and inspected at the SEC's public
reference facilities or accessed over the
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Internet through the SEC's web site. In addition, information regarding EMC may
be obtained from other sources including, but not limited to, press releases,
newspaper articles and other publicly disseminated information. We make no
representation or warranty as to the accuracy or completeness of any such
information. For further information, please see the sections entitled "EMC
Common Stock--EMC Corporation" and "Where You Can Find More Information" in
this prospectus supplement.
What is EMC's role in the Callable STRIDES?
EMC has no obligations relating to the Callable STRIDES or amounts to be
paid to you, including any obligation to take the needs of ML&Co. or of
beneficial owners of the Callable STRIDES into consideration for any reason.
EMC will not receive any of the proceeds of the offering of the Callable
STRIDES and is not responsible for, and has not participated in, the offering
of the Callable STRIDES and is not responsible for, and will not participate
in, the determination or calculation of the amount receivable by beneficial
owners of the Callable STRIDES. ML&Co. is not affiliated with EMC.
How has EMC common stock performed historically?
You can find a table with the high and low closing prices per share of
EMC common stock during each quarter from 1998 to the present in the section
entitled "EMC Common Stock--Historical Data" in this prospectus supplement. We
have provided this historical information to help you evaluate the behavior of
EMC common stock in various economic environments; however, past performance of
EMC common stock is not necessarily indicative of how it will perform in the
future.
The terrorist attacks on September 11, 2001 affected the prices of
securities in the United States equity markets, including EMC common stock. We
are unable to predict the effect of these events or related events on the
future price or volatility of EMC common stock.
When will I receive cash instead of shares of EMC common stock?
If we call the Callable STRIDES, you will receive the Call Price in cash.
Please see the section entitled "Description of the Callable STRIDES--Call at
the option of ML&Co." in this prospectus supplement.
Also, in the event that the number of shares of EMC to be delivered for
each unit of Callable STRIDES is adjusted to account for certain corporate
events described in this prospectus supplement, on the maturity date for each
unit of Callable STRIDES you own, you may be entitled to receive a number of
shares of EMC common stock that is not divisible by a whole number. We will not
distribute any fractional shares of EMC common stock. We will aggregate all
amounts due to you for the total number of Callable STRIDES you hold on the
maturity date, and in lieu of delivering to you a fractional share of EMC
common stock to which you would otherwise be entitled, we will pay you the cash
value of the fractional share.
What about taxes?
The U.S. Federal income tax consequences of an investment in the Callable
STRIDES are complex and uncertain. Pursuant to the terms of the Callable
STRIDES, ML&Co. and you agree, in the absence of an administrative or judicial
ruling to the contrary, to characterize a Callable STRIDES for all tax purposes
as an investment unit consisting of a debt instrument of ML&Co. and a forward
contract to acquire EMC common stock. Under this characterization of the
Callable STRIDES, for U.S. Federal income tax purposes, you will generally
include payments of interest on the Callable STRIDES in income in accordance
with your regular method of tax accounting. You should review the discussion
under the section entitled "United States Federal Income Taxation" in this
prospectus supplement.
Will the Callable STRIDES be listed on a stock exchange?
The Callable STRIDES have been approved for listing on the AMEX under the
trading symbol "EMH", subject to official notice of issuance. You
S-6
should be aware that listing of the Callable STRIDES on the AMEX will not
necessarily ensure that a liquid trading market will be available for the
Callable STRIDES. You should review the section entitled "Risk Factors--There
may be an uncertain trading market for the Callable STRIDES" in this prospectus
supplement.
What is the role of MLPF&S?
MLPF&S, our subsidiary, is the underwriter for the offering and sale of
the Callable STRIDES. After the initial offering, MLPF&S intends to buy and
sell Callable STRIDES to create a secondary market for holders of the Callable
STRIDES, and may stabilize or maintain the closing market price of the Callable
STRIDES during the initial distribution. However, MLPF&S will not be obligated
to engage in any of these market activities or to continue them once it has
started.
MLPF&S also will be our agent for purposes of calculating, among other
things, the Call Price and the number of shares of EMC common stock deliverable
to you at maturity. Under certain circumstances, these duties could result in a
conflict of interest between MLPF&S's status as our subsidiary and its
responsibilities as calculation agent.
Who is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various subsidiaries
and affiliated companies that provide investment, financing, insurance and
related services on a global basis. For information about ML&Co., please see
the section entitled "Merrill Lynch & Co., Inc." in the accompanying
prospectus. You should also read the 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 an investment in the Callable STRIDES?
Yes, an investment in the Callable STRIDES is subject to certain risks.
Please refer to the section entitled "Risk Factors" in this prospectus
supplement.
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RISK FACTORS
Your investment in the Callable STRIDES will involve certain risks. You
should consider carefully the following discussion of risks before you decide
that an investment in the Callable STRIDES is suitable for you.
Your investment may result in a loss
The Callable STRIDES do not provide for a minimum repayment amount at
maturity. If we do not elect to exercise our call option on or prior to the
maturity date, you will receive one share of EMC common stock at maturity,
subject to adjustment as described in this prospectus supplement. Because the
price of EMC common stock is subject to market fluctuations, the value of the
EMC common stock that we will deliver to you at maturity may be more or less
than the principal amount of your Callable STRIDES. The value of the Callable
STRIDES may decline, and that decline could be substantial. If you purchased
your Callable STRIDES in the initial distribution, and if, at maturity, the
closing market price of EMC common stock is less than the initial issue price
of each Callable STRIDES, your investment in the Callable STRIDES will result
in a loss to you of part or all of your initial investment.
The Callable STRIDES are subject to being called at our option
We may call all of the Callable STRIDES on any scheduled Business Day
beginning November 22, 2002 to and including the maturity date. In the event
that we elect to call the Callable STRIDES, you will receive only the Call
Price and any accrued and unpaid interest to but excluding the Call Date, and
you will not be entitled to receive shares of EMC common stock at maturity. You
should not expect to obtain a total annualized yield of more than 37% on the
original issue price.
Your yield may be lower than the yield on other standard debt securities of
comparable maturity
The interest payments and the value of the EMC common stock that we
deliver to you at maturity may together be less than the return you could earn
on other investments. Your yield may be less than the yield you would earn if
you bought a standard senior non-callable debt security of ML&Co. with the same
stated maturity date. Your investment may not reflect the full opportunity cost
to you when you take into account factors that affect the time value of money.
Unlike standard senior non-callable debt securities, the Callable STRIDES do
not guarantee the return of a principal amount at maturity.
Your return may be limited and will not be identical to the return of owning
EMC common stock
You should understand that the opportunity to participate in the possible
increases in the price of EMC common stock through an investment in the
Callable STRIDES is limited because the amount you receive if we call the
Callable STRIDES will never exceed a total annualized yield of 37% on the
original issue price. However, if we choose not to exercise our call option and
the value of EMC common stock declines over the term of the Callable STRIDES,
you will realize the entire decline in value of the Callable STRIDES, and will
lose a part or all of your initial investment.
In addition, your return on the Callable STRIDES will not reflect the
return you would realize if you actually owned EMC common stock and received
the dividends, if any, paid on EMC common stock. You will not be entitled to
receive dividends, if any, paid on the EMC common stock unless and until you
actually hold EMC common stock on the applicable record date for the payment of
a dividend.
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There may be an uncertain trading market for the Callable STRIDES
The Callable STRIDES have been approved for listing on the AMEX under the
trading symbol "EMH", subject to official notice of issuance. Listing the
Callable STRIDES on the AMEX does not necessarily ensure that a trading market
will develop for the Callable STRIDES. 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 Callable STRIDES will depend on our
financial performance and other factors such as the appreciation, if any, in
the price of EMC common stock. In addition, it is unlikely that the secondary
market price of the Callable STRIDES will correlate exactly with the price of
EMC common stock.
If the trading market for the Callable STRIDES is limited, there may be a
limited number of buyers if you decide to sell your Callable STRIDES rather
than hold your investment until the maturity date. This may affect the price
you receive.
Many factors affect the trading value of the Callable STRIDES; these factors
interrelate in complex ways and the effect of any one factor may offset or
magnify the effect of another factor
The trading value of the Callable STRIDES will be affected by factors
that interrelate in complex ways. It is important for you to understand that
the effect of one factor may offset the increase in the trading value of the
Callable STRIDES caused by another factor, and that the effect of one factor
may exacerbate the decrease in the trading value of the Callable STRIDES caused
by another factor. For example, an increase in U.S. interest rates may offset
some or all of any increase in the trading value of the Callable STRIDES
attributable to another factor, such as an increase in the price of EMC common
stock. The following paragraphs describe the expected impact on the market
value of the Callable STRIDES given a change in a specific factor, assuming all
other conditions remain constant.
The price of EMC common stock is expected to affect the trading value of
the Callable STRIDES. We expect that the market value of the Callable STRIDES
will depend substantially on the price of EMC common stock, as adjusted for
certain dilution and reorganization events described in this prospectus
supplement. However, you generally should not expect the market value of your
Callable STRIDES to be identical to the market value of the EMC common stock.
For example, if you choose to sell your Callable STRIDES when the price of EMC
common stock, as adjusted, exceeds the principal amount, you may receive
substantially less than the current market value of the EMC common stock
because of the expectation that the price of EMC common stock will continue to
fluctuate until the maturity date.
Changes in the levels of interest rates are expected to affect the
trading value of the Callable STRIDES. We expect that changes in interest rates
will affect the trading value of the Callable STRIDES. In general, if U.S.
interest rates increase, we expect that the trading value of the Callable
STRIDES will decrease and, conversely, if U.S. interest rates decrease, we
expect that the trading value of the Callable STRIDES will increase.
Changes in the volatility of EMC common stock are expected to affect the
trading value of the Callable STRIDES. Volatility is the term used to describe
the size and frequency of price and/or market fluctuations. If the volatility
of EMC common stock increases, we expect the trading value of the Callable
STRIDES will decrease; and, if the volatility of EMC common stock decreases, we
expect that the trading value of the Callable STRIDES will increase.
As the time remaining to maturity of the Callable STRIDES decreases, the
"time premium or discount" associated with the Callable STRIDES will decrease.
We anticipate that before their maturity, the Callable STRIDES may trade at a
value above or below that which would be expected based on the level of
interest rates and the price of EMC common stock. This difference will reflect
a "time premium or discount" due to expectations concerning the price of EMC
common stock during the period before the stated maturity of the
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Callable STRIDES. As the time remaining to maturity decreases, any discount or
premium attributed to the trading value of the Callable STRIDES will diminish,
increasing or decreasing the trading value of the Callable STRIDES.
Changes in dividend yields of EMC common stock are expected to affect the
trading value of the Callable STRIDES. The current dividend yield on EMC common
stock is zero. If the dividend yield on EMC common stock were to increase, we
expect that the value of the Callable STRIDES would decrease. However, should
there be a subsequent decrease in the dividend yield on EMC common stock, we
expect the value of the Callable STRIDES would increase.
Changes in our credit ratings may affect the trading value of the
Callable STRIDES. 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 Callable STRIDES. However, because
your return on your Callable STRIDES is dependent upon factors in addition to
our ability to pay our obligations under the Callable STRIDES, such as the
percentage change in the price of EMC common stock at maturity, an improvement
in our credit ratings will not reduce the other investment risks related to the
Callable STRIDES.
In general, assuming all relevant factors are held constant, we expect
that the effect on the trading value of the Callable STRIDES of a given change
in most of the factors listed above will be less if it occurs later in the term
of the Callable STRIDES than if it occurs earlier in the term of the Callable
STRIDES. However, we expect that the effect on the trading value of the
Callable STRIDES of a given change in the price of EMC common stock will be
greater if it occurs later in the term of the Callable STRIDES than if it
occurs earlier in the term of the Callable STRIDES.
The terrorist attacks on September 11, 2001 affected the prices of
securities in the United States equity markets, including EMC common stock. We
are unable to predict the impact that these attacks or related events may have
on the future price or volatility of EMC common stock and the risk factors
previously mentioned.
Amounts payable on the Callable STRIDES may be limited by state law
New York State law governs the 1983 Indenture under which the Callable
STRIDES 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 Callable STRIDES. 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 promise, for the benefit of the holders of the Callable STRIDES,
to the extent permitted by law, not to voluntarily claim the benefits of any
laws concerning usurious rates of interest.
No Affiliation Between ML&Co. and EMC
We are not affiliated with EMC, and EMC has no obligations relating to
the Callable STRIDES or amounts to be paid to you, including any obligation to
take the needs of ML&Co. or of beneficial owners of the Callable STRIDES into
consideration for any reason. EMC will not receive any of the proceeds of the
offering of the Callable STRIDES and is not responsible for, and has not
participated in, the offering of the Callable STRIDES and is not responsible
for, and will not participate in, the determination or calculation of the
amount receivable by beneficial owners of the Callable STRIDES.
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No stockholder's rights
Beneficial owners of the Callable STRIDES will not be entitled to any
rights in EMC common stock including, for example, the right to receive
dividends or other distributions, voting rights and the right to tender or
exchange common stock in any tender or exchange offer by EMC or any third party.
Purchases and sales of EMC common stock by us and our affiliates may affect
your return
We and our affiliates may from time to time buy or sell EMC common stock
or futures or option contracts on EMC common stock for our own accounts for
business reasons. We expect to enter into such transactions in connection with
hedging our obligations under the Callable STRIDES. These transactions could
affect the price of EMC common stock and, in turn, the value of the Callable
STRIDES in a manner that would be adverse to your investment in the Callable
STRIDES. Any purchases by us, our affiliates or others on our behalf on or
before the Pricing Date may temporarily increase the price of EMC common stock.
Temporary increases in the market price of EMC common stock may also occur as a
result of the purchasing activities of other market participants in
anticipation of this transaction. Consequently, the price of EMC common stock
may decline subsequent to the Pricing Date reducing the market value of the
Callable STRIDES.
Potential conflicts
The calculation agent for the Callable STRIDES is MLPF&S, our subsidiary.
Under certain circumstances, MLPF&S' role as our subsidiary and its
responsibilities as calculation agent for the Callable STRIDES could give rise
to conflicts of interests. 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.
We have entered into an arrangement with one of our subsidiaries to hedge
the market risks associated with our obligations in connection with the
Callable STRIDES. This subsidiary expects to make a profit in connection with
this arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
Uncertain tax consequences
You should consider the tax consequences of investing in the Callable
STRIDES, aspects of which are uncertain. See the section entitled "United
States Federal Income Taxation" in this prospectus supplement.
S-11
DESCRIPTION OF THE CALLABLE STRIDES
ML&Co. will issue the Callable STRIDES as a series of senior debt
securities under the 1983 Indenture which is more fully described in the
accompanying prospectus. The Callable STRIDES will mature on November 21, 2003.
The Callable STRIDES may be called by ML&Co. as described below, but are
not otherwise subject to redemption by us or at the option of any beneficial
owner before maturity. If an Event of Default occurs with respect to the
Callable STRIDES, beneficial owners of the Callable STRIDES may accelerate the
maturity of the Callable STRIDES, as described under the sections entitled
"Events of Default and Acceleration" in this prospectus supplement and
"Description of Debt Securities Events of Default" in the accompanying
prospectus of ML&Co.
ML&Co. will issue the Callable STRIDES in denominations of whole units
with a principal amount per unit of $16.15, which was the closing market price
of one share of EMC common stock on the Pricing Date.
The Callable STRIDES will not have the benefit of any sinking fund.
Interest
The Callable STRIDES will bear interest at a rate of 8% per year on the
principal amount of each unit from November 21, 2001 or from the most recent
interest payment date for which interest has been paid or provided for, to but
excluding the stated maturity date or the Call Date, as applicable. We will pay
interest on the Callable STRIDES in cash quarterly in arrears on February 21,
May 21, August 21 and November 21 of each year and on the maturity date or Call
Date, beginning February 21, 2002. We will pay this interest to the persons in
whose names the Callable STRIDES are registered at the close of business on the
immediately preceding February 12, May 12, August 12 and November 12,
respectively, whether or not a Business Day. Nothwithstanding the foregoing, in
the event that the Callable STRIDES are called at the option of ML&Co., the
final payment of interest will be paid to the person to whom the Call Price
shall be paid. Interest on the Callable STRIDES will be computed on the basis
of a 360-day year of twelve 30-day months. If an interest payment date falls on
a day that is not a Business Day, that interest payment will be made on the
next Business Day and no additional interest will accrue as a result of the
delayed payment.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in The City of New York are
authorized or obligated by law to close and with respect to the stated maturity
is also a day that is a Trading Day.
Payment at maturity
If we do not call the Callable STRIDES on or prior to the maturity date,
then at maturity, for each unit of Callable STRIDES you own, you will receive a
cash payment of accrued and unpaid interest and one share of EMC common stock;
provided, however, if the Share Multiplier is more or less than one (1) due to
certain corporate events, you will receive the number of shares equal to the
product of one (1) and the Share Multiplier.
If the maturity date is not a Business Day, we will deliver the EMC
common stock and make all accrued and unpaid interest payments on the first
Business Day following the maturity date and no additional interest will accrue.
"Share Multiplier" initially means 1.0, but is subject to adjustment for
certain events described under "--Dilution and Reorganization Adjustments".
S-12
"Trading Day" means a day on which the New York Stock Exchange, the AMEX
and the Nasdaq Stock Market are open for trading as determined by the
calculation agent.
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 beneficial owners of the Callable STRIDES.
Fractional Shares
In the event that the Share Multiplier is adjusted to account for certain
corporate events described in this prospectus supplement, on the maturity date
for each unit of Callable STRIDES you own, you may be entitled to receive a
number of shares of EMC common stock that is not divisible by a whole number.
We will not distribute any fractional shares of EMC common stock. We will
aggregate all amounts due to you for the total number of Callable STRIDES you
hold on the maturity date, and in lieu of delivering to you a fractional share
of EMC common stock to which you would otherwise be entitled, we will pay you
the cash value of the fractional share based on the closing market price.
Call at the option of ML&Co.
ML&Co., in its sole discretion, may call the Callable STRIDES, in whole
but not in part, on any scheduled Business Day beginning on November 22, 2002,
to and including the maturity date (the date on which the call, if any, occurs
being the "Call Date") by giving notice to the trustee on any Business Day at
least ten Business Days prior to the Call Date. The notice to the trustee will
specify the Call Date, Call Price and amount of interest payable on the Call
Date. The trustee will provide notice of the call election to the registered
holders of the Callable STRIDES, specifying the Call Date, Call Price and
amount of interest payable on the Call Date. While the Callable STRIDES are
held at the depositary, the registered holder will be the depositary, and the
depositary will receive the notice of the call. So long as the depositary is
the registered holder of the Callable STRIDES, notice of our election to
exercise the call option will be forwarded as more fully described below under
"--Depositary".
The Call Price on any Call Date will be the amount of cash, per Callable
STRIDES, that when discounted from the Call Date to the original issue date by
a discount factor based on an annual yield to call of 37% and added to the
present value of all interest payments discounted to the original issue date by
that same discount factor, will equal the original issue price. The present
value of each interest payment on the Callable STRIDES used to determine the
Call Price will be calculated assuming each payment is made on the calendar day
scheduled for that payment. A delay in payment may arise for reasons such as a
scheduled interest payment date falling on a day that is not a Business Day
and, as a result, the payment being delayed until the next succeeding Business
Day. Any delay will not be taken into account when calculating the applicable
Call Price. The Call Price will not include the amount of unpaid interest
accrued to but excluding the Call Date; however, on the Call Date you will
receive the Call Price plus an amount equal to the accrued and unpaid interest
(the "Final Amount"). The yield to call represents the annual interest rate
used in determining the present values, discounted to the original issue date,
of all payments made or to be made on the Callable STRIDES, including the Call
Price and all interest payments, such that the sum of these present values is
equal to the original issue price.
S-13
The following table sets forth the month-end, midmonth, first and last
Call Prices from November 22, 2002 to November 21, 2003. For an example of the
Call Price calculation, see Annex A to this prospectus supplement. If we elect
to exercise our call option, the Call Price will be disclosed in the notice we
deliver to DTC in connection with our call of the Callable STRIDES.
Interest Payable on Final Amount
Call Price per Call Date per per
Call Date Callable STRIDES Callable STRIDES Callable STRIDES
--------- ---------------- ------------------- ----------------
November 22, 2002................ $20.6805 $0.0036 $20.6841
November 29, 2002................ $20.7823 $0.0287 $20.8111
December 16, 2002................ $21.0330 $0.0897 $21.1227
December 31, 2002................ $21.2581 $0.1436 $21.4016
January 15, 2003................. $21.4715 $0.1938 $21.6653
January 31, 2003................. $21.7193 $0.2512 $21.9705
February 18, 2003................ $21.9873 $0.3122 $22.2996
February 28, 2003................ $22.1453 $0.0251 $22.1705
March 17, 2003................... $22.4486 $0.0933 $22.5419
March 31, 2003................... $22.6760 $0.1436 $22.8196
April 15, 2003................... $22.9069 $0.1938 $23.1007
April 30, 2003................... $23.1580 $0.2476 $23.4057
May 15, 2003..................... $23.4132 $0.3015 $23.7147
May 30, 2003..................... $23.6700 $0.0323 $23.7023
June 16, 2003.................... $23.9465 $0.0897 $24.0362
June 30, 2003.................... $24.1923 $0.1400 $24.3323
July 15, 2003.................... $24.4598 $0.1938 $24.6536
July 31, 2003.................... $24.7497 $0.2512 $25.0009
August 15, 2003.................. $25.0074 $0.3015 $25.3089
August 29, 2003.................. $25.2667 $0.0287 $25.2954
September 15, 2003............... $25.5657 $0.0861 $25.6518
September 30, 2003............... $25.8505 $0.1400 $25.9905
October 15, 2003................. $26.1399 $0.1938 $26.3337
October 31, 2003................. $26.4535 $0.2512 $26.7047
November 17, 2003................ $26.7723 $0.3086 $27.0810
November 21, 2003 (maturity date) $26.8529 $0.3230 $27.1759
S-14
Hypothetical returns at maturity
The following table illustrates, for a range of hypothetical closing
market prices of EMC common stock at maturity:
. the percentage change from the original issue price to the
hypothetical closing market price at maturity,
. the Final Amount payable on the Callable STRIDES, including the
payment of accrued and unpaid interest on the maturity date,
. the total annualized yield on the Callable STRIDES at maturity, and
. the total yield from direct ownership of EMC common stock.
This table also assumes that the Callable STRIDES have not been called
prior to the maturity date and will be called by ML&Co. on the maturity date if
the total annualized yield on the Callable STRIDES would otherwise be greater
than or equal to 37% at maturity.
Percentage change from Final Total annualized
the original issue price to Amount Total annualized yield from
Hypothetical closing the hypothetical payable on yield on the direct ownership of
market price closing market price the Callable Callable STRIDES EMC common
at maturity at maturity STRIDES(1) at maturity(2) stock(3)
----------- --------------------------- ------------ ---------------- -------------------
3.23 -80% $ 3.5530 -45.21% -55.28%
6.46 -60% $ 6.7830 -27.72% -36.75%
9.69 -40% $10.0130 -13.93% -22.54%
12.92 -20% $13.2430 -2.18% -10.56%
16.15(4) 0% $16.4730 8.24% 0.00%
19.38 20% $19.7030 17.70% 9.54%
22.61 40% $22.9330 26.42% 18.32%
25.84 60% $26.1630 34.56% 26.49%
29.07 80% $27.1759 37.00% 34.16%
32.30 100% $27.1759 37.00% 41.42%
- --------
(1)The Final Amounts specified in this column include payment of accrued and
unpaid interest payable on the maturity date.
(2)The total annualized yield at maturity represents the interest rate per year
used in determining the present values, discounted to the original issue
date (computed on the basis of a 360-day year of twelve 30-day months), of
all payments made or to be made on the Callable STRIDES, including the Call
Price and all interest payments, the sum of these present values being equal
to the original issue price. This annualized yield assumes:
(a)coupon payments are (i) made quarterly on the 21/st/ of February, May,
August and November of each year beginning February 21, 2002, and (ii)
reinvested for the remainder of the term of the Callable STRIDES at the
applicable yield listed in this column,
(b)an investment term equal to the term of the Callable STRIDES, and
(c)computed on the basis of a 360-day year of twelve 30-day months
compounded annually.
(3)Assumes the dividend yield on EMC common stock is zero for the term of the
Callable STRIDES.
(4)This was the closing market price of EMC common stock on the Pricing Date
and the principal amount of one unit of Callable STRIDES.
Events of Default and Acceleration
In case an Event of Default with respect to any Callable STRIDES has
occurred and is continuing, the amount payable to a beneficial owner of a
Callable STRIDES upon any acceleration permitted by the Callable STRIDES will
be equal to the consideration due at maturity, calculated as though the date of
acceleration were the maturity date. The value of such consideration shall not,
however, be greater than an amount equal to the Final
S-15
Amount, calculated as though the date of acceleration were the Call Date
(whether or not such date is before or after November 22, 2002). If a
bankruptcy proceeding is commenced in respect of ML&Co., the claim of the
beneficial owner of a Callable STRIDES may be limited, under Section 502(b)(2)
of Title 11 of the United States Code, to the principal amount of the Callable
STRIDES plus an additional amount of contingent interest calculated as though
the date of the commencement of the proceeding were the maturity date of the
Callable STRIDES.
In case of default in payment of the Callable STRIDES, whether at any
interest payment date, the stated maturity date, the Call Date or upon
acceleration, from and after that date the Callable STRIDES will bear interest,
payable upon demand of their beneficial owners, at the rate of 2.3% per year,
to the extent that payment of such interest shall be legally enforceable, on
the unpaid amount due and payable on that date in accordance with the terms of
the Callable STRIDES to the date payment of that amount has been made or duly
provided for.
Dilution and Reorganization Adjustments
The Share Multiplier used to determine the number of shares of EMC common
stock to be delivered at maturity is subject to adjustment by the calculation
agent as a result of the dilution and reorganization adjustments described in
this section. However, if we elect to call the Callable STRIDES you will
receive only the Final Amount, and you will not be entitled to receive EMC
common stock or any other consideration at maturity.
Stock splits and reverse stock splits
If EMC common stock is subject to a stock split or reverse stock split,
then once any split has become effective, the Share Multiplier relating to EMC
common stock will be adjusted to equal the product of the prior Share
Multiplier and the number of shares which a holder of one share of EMC common
stock before the effective date of that stock split or reverse stock split
would have owned or been entitled to receive immediately following the
applicable effective date.
Stock dividends
If EMC common stock is subject to a (i) stock dividend, i.e., issuance of
additional shares of EMC common stock, that is given ratably to all holders of
shares of EMC common stock or (ii) distribution of shares of EMC common stock
as a result of the triggering of any provision of the corporate charter of EMC,
then, once the dividend has become effective and the shares are trading
ex-dividend, the Share Multiplier will be adjusted so that the new Share
Multiplier shall equal the prior Share Multiplier plus the product of:
. the number of shares of EMC common stock issued with respect to one
share of EMC common stock and
. the prior Share Multiplier.
Extraordinary Dividends
There will be no adjustments to the Share Multiplier to reflect any cash
dividends or distributions paid with respect to EMC common stock other than
distributions described under clause (e) of the section entitled
"--Reorganization Events" below and Extraordinary Dividends as described below.
An "Extraordinary Dividend" means, with respect to a cash dividend or
other distribution with respect to EMC common stock, a dividend or other
distribution which exceeds the immediately preceding non-Extraordinary Dividend
for EMC common stock (as adjusted for any subsequent corporate event requiring
an adjustment hereunder, such as a stock split or reverse stock split) by an
amount equal to at least 10% of the closing market price of EMC common stock on
the Trading Day preceding the ex-dividend date with respect to the
Extraordinary Dividend (the "ex-dividend date"). If an Extraordinary Dividend
occurs with respect to EMC
S-16
common stock, the Share Multiplier will be adjusted on the ex-dividend date
with respect to the Extraordinary Dividend so that the new Share Multiplier
will equal the product of:
. the prior Share Multiplier and
. a fraction, the numerator of which is the closing market price per share
of EMC common stock on the Trading Day preceding the ex-dividend date,
and the denominator of which is the amount by which the closing market
price on the Trading Day preceding the ex-dividend date exceeds the
Extraordinary Dividend Amount.
The "Extraordinary Dividend Amount" with respect to an Extraordinary
Dividend for EMC common stock will equal:
. in the case of cash dividends or other distributions that constitute
quarterly dividends, the amount per share of that Extraordinary Dividend
minus the amount per share of the immediately preceding
non-Extraordinary Dividend for such shares of EMC common stock, or
. in the case of cash dividends or other distributions that do not
constitute quarterly dividends, the amount per share of that
Extraordinary Dividend.
To the extent an Extraordinary Dividend is not paid in cash, the value of
the non-cash component will be determined by the calculation agent, whose
determination shall be conclusive. A distribution on EMC common stock described
in clause (e) of the section entitled "--Reorganization Events" below that also
constitutes an Extraordinary Dividend shall only cause an adjustment to the
Share Multiplier pursuant to clause (e) under the section entitled
"--Reorganization Events".
"Closing market price" means:
If EMC common stock (or any other security for which a closing market
price must be determined for purposes of the Callable STRIDES) is listed on a
national securities exchange in the United States, is a Nasdaq National Market
System ("Nasdaq NMS") security or is included in the OTC Bulletin Board Service
("OTC Bulletin Board") operated by the National Association of Securities
Dealers, Inc. (the "NASD"), then the closing market price for any date of
determination on any Trading Day means for one share of EMC common stock (or
any other security for which a closing market price must be determined for
purposes of the Callable STRIDES):
. the last reported sale price, regular way, on that day on the principal
United States securities exchange registered under the Exchange Act on
which that security is listed or admitted to trading (without taking
into account any extended or after-hours trading session), or
. if not listed or admitted to trading on any such securities exchange or
if the last reported sale price is not obtainable, the last reported
sale price on the over-the-counter market as reported on the Nasdaq NMS
or OTC Bulletin Board on that day (without taking into account any
extended or after-hours trading session), or
. if the last reported sale price is not available for any reason,
including, without limitation, the occurrence of a Market Disruption
Event, pursuant to (1) and (2) below, the mean of the last reported bid
and offer price of the principal trading session on the over-the-counter
market as reported on the Nasdaq Stock Market or OTC Bulletin Board on
that day as determined by the calculation agent or from as many dealers
in such security, but not exceeding three, as have made the bid prices
available to the calculation agent after 3:00 p.m., local time in the
principal market, on that date (without taking into account any extended
or after-hours trading session).
If EMC common stock (or any other security for which a closing market
price must be determined for purposes of the Callable STRIDES) is not listed on
a national securities exchange in the United States, is not a Nasdaq NMS
security or included in the OTC Bulletin Board Service operated by the NASD,
then the closing
S-17
market price for any date of determination on any Trading Day means for one
share of EMC common stock (or any other security for which a closing market
price must be determined for purposes of the Callable STRIDES) the last
reported sale price on that day on the securities exchange on which that
security is listed or admitted to trading with the greatest volume of trading
for the calendar month preceding such Trading Day as determined by the
calculation agent; provided that if such last reported sale price is for a
transaction which occurred more than four hours prior to the close of that
exchange, then the closing market price shall mean the average (mean) of the
last available bid and offer price on that exchange.
If EMC common stock (or any other security for which a closing market
price must be determined for purposes of the Callable STRIDES) is not listed or
admitted to trading on any such securities exchange or if such last reported
sale price or bid and offer are not obtainable, then the closing market price
shall mean the average (mean) of the last available bid and offer prices in
such market of the three dealers which have the highest volume of transactions
in that security in the immediately preceding calendar month as determined by
the calculation agent based on information that is reasonably available to it.
"Market Disruption Event" means:
(1)a suspension, absence, including the absence of an official closing
price, or material limitation of trading of EMC common stock on the
primary market for EMC common stock for more than two hours of trading
or during the one-half hour period preceding or at the close of trading,
as determined by the calculation agent in its sole discretion; or the
suspension or material limitation on the primary market for trading in
options contracts related to EMC common stock, if available, during the
one-half hour period preceding or at the close of trading in the
applicable market, in each case as determined by the calculation agent
in its sole discretion; and
(2)a determination by the calculation agent in its sole discretion that the
event described in clause (1) above materially interfered with the
ability of ML&Co. or any of its affiliates or MLPF&S to unwind all or a
material portion of the hedge with respect to the notes.
For purposes of determining whether a Market Disruption Event has
occurred:
(1)a limitation on the hours or number of days of trading will not
constitute a Market Disruption Event if it results from an announced
change in the regular business hours of the relevant exchange,
(2)a decision to permanently discontinue trading in the relevant options
contract will not constitute a Market Disruption Event,
(3)limitations pursuant to any rule or regulation enacted or promulgated
by the NYSE or the Nasdaq Stock Market or other regulatory
organization with jurisdiction over the NYSE or the Nasdaq Stock
Market on trading during significant market fluctuations will
constitute a suspension or material limitation of trading in EMC
common stock,
(4)a suspension of trading in an options contract on EMC common stock by
the primary securities market trading in the options, if available,
by reason of:
. a price change exceeding limits set by the securities exchange or
market,
. an imbalance of orders relating to the contracts, or
. a disparity in bid and ask quotes relating to the contracts
will constitute a suspension or material limitation of trading in
options contracts related to EMC common stock, and
(5)a suspension, absence or material limitation of trading on the
primary securities market on which options contracts related to EMC
common stock are traded will not include any time when that
securities market is itself closed for trading under ordinary
circumstances.
S-18
If the Reorganization Event Amount includes the market price of
securities other than EMC common stock, then the above definition shall be
revised to include each such security in the same manner as EMC common stock is
considered in determining whether a Market Disruption Event exists.
Issuance of transferable rights or warrants
If EMC issues transferable rights or warrants to all holders of EMC
common stock to subscribe for or purchase EMC common stock, including new or
existing rights to purchase EMC common stock pursuant to a shareholder's rights
plan or arrangement, once a triggering event shall have occurred thereunder, at
an exercise price per share less than the closing market price of one share of
EMC common stock on:
. the date the exercise price of those rights or warrants is
determined, and
. the expiration date of those rights or warrants,
then, in each case, if the expiration date of those rights or warrants precedes
the maturity date of the Callable STRIDES, then the Share Multiplier will be
adjusted to equal the product of:
. the prior Share Multiplier and
. a fraction, the numerator of which shall be the number of shares of
EMC common stock outstanding immediately prior to the issuance of
such rights or warrants plus the number of additional shares of EMC
common stock offered for subscription or purchase pursuant to those
rights or warrants and the denominator of which shall be the number
of shares of EMC common stock outstanding immediately prior to the
issuance of such rights or warrants plus the number of additional
shares of EMC common stock which the aggregate offering price of the
total number of shares of EMC common stock so offered for
subscription or purchase pursuant to those rights or warrants would
purchase at the closing market price of one share of EMC common stock
on the expiration date of those rights or warrants, which shall be
determined by multiplying the total number of shares offered by the
exercise price of those rights or warrants and dividing the product
so obtained by such closing market price.
Reorganization Events
If prior to the maturity date of the Callable STRIDES,
(a)there occurs any reclassification or change of EMC common stock,
including, without limitation, as a result of the issuance of
tracking stock by EMC,
(b)EMC, or any surviving entity or subsequent surviving entity of EMC (a
"Successor Entity"), has been subject to a merger, combination or
consolidation and is not the surviving entity,
(c)any statutory exchange of securities of EMC or any Successor Entity
with another corporation occurs, other than pursuant to clause (b)
above,
(d)EMC is liquidated or is subject to a proceeding under any applicable
bankruptcy, insolvency or other similar law,
(e)EMC issues to all of its shareholders equity securities of an issuer
other than EMC, other than in a transaction described in clauses (b),
(c) or (d) above (a "Spin-off Event"), or
(f)a tender or exchange offer or going-private transaction is
consummated for all the outstanding shares of EMC (an event in
clauses (a) through (f) a "Reorganization Event"),
then at maturity you will receive the Reorganization Event Amount described
below.
The "Reorganization Event Amount" shall be determined by the calculation
agent and shall equal for each unit of the Callable STRIDES the sum of the
following:
(1)for any cash received in a Reorganization Event, an amount equal to
the amount of cash received per share of EMC common stock multiplied
by the Share Multiplier in effect on the date all of the holders of
shares of EMC common stock irrevocably receive such cash,
S-19
(2)for any property other than cash or securities received in a
Reorganization Event, the market value, as determined by the
calculation agent, of the property received for each share of EMC
common stock at the date of the receipt of the property multiplied by
the Share Multiplier in effect and payable in cash,
(3)for any security received in a Reorganization Event, an amount in
cash equal to (a) the average of the closing market prices for such
security calculated over one to ten Trading Days from the date of the
distribution of such security, as selected at the sole discretion of
the calculation agent, in the same manner as the closing market price
of EMC common stock is calculated (or, if the use of the same manner
of determining the closing market price of such security is not
possible, in a manner determined by the calculation agent),
multiplied by (b) the number of units of such security received for
each share of EMC common stock multiplied by the Share Multiplier in
effect, and
(4)for any security received in the case of a Spin-off Event, in
addition to the shares of EMC common stock, an amount in cash equal
to (a) the average of the closing market prices for such security
calculated over one to ten Trading Days from the date of the
distribution of such security, as selected at the sole discretion of
the calculation agent, in the same manner as the closing market price
of EMC common stock is calculated (or, if the use of the same manner
of determining the closing market price of such security is not
possible, in a manner determined by the calculation agent),
multiplied by (b) the number of units of such security received for
each share of common stock of EMC multiplied by the Share Multiplier
in effect.
In the case of a Spin-off Event, if EMC common stock is outstanding after the
Reorganization Event, then instead of receiving the Reorganization Event Amount
at maturity, the Share Multiplier may be adjusted in the discretion of the
calculation agent to equal the Share Multiplier in effect for EMC common stock
at the time of the issuance of the securities received in the Spin-off Event
plus a value equal to the Reorganization Event Amount divided by the average of
the closing market prices of EMC common stock over one to ten Trading Days
selected at the sole discretion of the calculation agent at the time of the
election by the calculation agent to adjust the Share Multipler. Such
adjustment may be made by the calculation agent in its sole discretion instead
of paying the Reorganization Event Amount described in (4) above.
In the event of a tender or exchange offer with respect to EMC common
stock or any security received in a reorganization event in which an offeree
may elect to receive cash or other property, EMC common stock or any such
security received in a reorganization event shall be deemed to include the kind
and amount of cash and other property received by offerees who elect to receive
cash.
Adjustments to the Share Multiplier
No adjustments to the Share Multiplier will be required unless the Share
Multiplier adjustment would require a change of at least 0.1% in the Share
Multiplier then in effect. The Share Multiplier resulting from any of the
adjustments specified above will be rounded to the nearest one-thousandth with
five ten-thousandths being rounded upward.
No adjustments to the Share Multiplier will be required other than those
specified above. However, ML&Co. may, at its sole discretion, cause the
calculation agent to make additional adjustments to the Share Multiplier to
reflect changes occurring in relation to EMC common stock or any other security
received in a reorganization event in other circumstances where ML&Co.
determines that it is appropriate to reflect those changes. The required
adjustments specified above do not cover all events that could affect the
closing market price of EMC common stock, including, without limitation, a
partial tender or exchange offer for EMC common stock.
S-20
MLPF&S, as calculation agent, shall be solely responsible for the
determination and calculation of any adjustments to the Share Multiplier and of
any related determinations and calculations with respect to any distributions
of stock, other securities or other property or assets, including cash, in
connection with any corporate event described above, and its determinations and
calculations shall be conclusive absent manifest error.
No adjustments will be made for certain other events, such as offerings
of common stock by EMC for cash or in connection with the occurrence of a
partial tender or exchange offer for EMC common stock by EMC.
ML&Co. will, within ten Business Days following the occurrence of an
event that requires an adjustment to the Share Multiplier, or if ML&Co. is not
aware of this occurrence, as soon as practicable after becoming so aware,
provide written notice to the trustee, which shall provide notice to the
holders of the Callable STRIDES of the occurrence of this event and, if
applicable, a statement in reasonable detail setting forth the adjusted Share
Multiplier.
Depositary
Description of the Global Securities
Upon issuance, all Callable STRIDES 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
Callable STRIDES 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 Callable STRIDES represented by the global security for
all purposes under the 1983 Indenture. Except as provided below, the beneficial
owners of the Callable STRIDES represented by a global security will not be
entitled to have the Callable STRIDES represented by a global security
registered in their names, will not receive or be entitled to receive physical
delivery of the Callable STRIDES in definitive form and will not be considered
the owners or holders of the Callable STRIDES 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 Callable STRIDES. The
Callable STRIDES 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 Callable STRIDES in the aggregate
principal amount of such issue, and will be deposited with DTC.
S-21
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 Exchange
Act. DTC holds securities that its participants deposit with DTC. DTC also
facilitates the settlement among participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct participants
of DTC include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
direct participants and by the NYSE, the AMEX, and the National Association of
Securities Dealers, Inc. Access to DTC's system is also available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a direct participant, either
directly or indirectly. The rules applicable to DTC and its participants are on
file with the SEC.
Purchases of the Callable STRIDES under DTC's system must be made by or
through direct participants, which will receive a credit for the Callable
STRIDES 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
Callable STRIDES are to be made by entries on the books of participants acting
on behalf of beneficial owners.
To facilitate subsequent transfers, all Callable STRIDES deposited with
DTC are registered in the name of DTC's partnership nominee, Cede & Co. The
deposit of Callable STRIDES 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 Callable STRIDES; DTC's records reflect only
the identity of the direct participants to whose accounts the Callable STRIDES
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
Callable STRIDES. 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
Callable STRIDES are credited on the record date.
Principal, premium, if any, and/or interest, if any, payments made in
cash on the Callable STRIDES 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
will be the responsibility of DTC, and disbursement of those payments to the
beneficial owners will be the responsibility of direct participants and
indirect participants.
S-22
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 Callable STRIDES,
the global securities will be exchangeable for Callable STRIDES in definitive
form of like tenor and of an equal aggregate principal amount, in denominations
of the principal amount per unit and integral multiples of the principal amount
per unit. The definitive Callable STRIDES will be registered in the name or
names as the depositary shall instruct the trustee. It is expected that
instructions may be based upon directions received by the depositary from
participants with respect to ownership of beneficial interests in the global
securities.
DTC may discontinue providing its services as securities depositary with
respect to the Callable STRIDES 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, Callable STRIDES certificates 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,
Callable STRIDES certificates 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 Callable STRIDES will be made by the underwriter in
immediately available funds. ML&Co. will make all payments in immediately
available funds so long as the Callable STRIDES are maintained in book-entry
form.
S-23
EMC COMMON STOCK
EMC Corporation
The following information has been derived from publicly available
documents published by EMC. We make no representation or warranty as to the
accuracy or completeness of the following information.
EMC has disclosed that it designs, manufactures, markets and supports a
range of hardware and software products and provides services for the storage,
management, protection and sharing of electronic information. Information
provided to or filed with the SEC by EMC can be located at the SEC's facilities
or through the SEC's web site by reference to SEC file number 1-9853 for EMC.
See "Where You Can Find More Information". ML&Co. makes no representation or
warranty as to the accuracy or completeness of the information or reports.
The selection of EMC common stock is not a recommendation to buy or sell
EMC common stock and neither ML&Co. nor any of its affiliates make any
representation to any purchaser of the Callable STRIDES as to the performance
of EMC common stock.
EMC common stock trades on the NYSE under the symbol "EMC".
ML&Co. is not affiliated with EMC and EMC does not have any obligations
with respect to the Callable STRIDES. This prospectus supplement relates only
to the Callable STRIDES and does not relate to EMC common stock or other
securities of EMC. All disclosures contained in this prospectus supplement
regarding EMC are derived from the publicly available documents described
above. Neither ML&Co. nor MLPF&S has participated in the preparation of these
documents or made any due diligence inquiry with respect to EMC in connection
with the offering of the Callable STRIDES. Neither ML&Co. nor MLPF&S makes any
representation that the publicly available documents or any other publicly
available information regarding EMC are accurate or complete. Furthermore,
there can be no assurance that all events occurring prior to the date hereof,
including events that would affect the accuracy or completeness of the publicly
available documents described above, that would affect the trading price of EMC
common stock have been publicly disclosed. Subsequent disclosure of any events
or the disclosure of or failure to disclose material future events concerning
EMC could affect the value of the EMC common stock to be received at maturity
of the Callable STRIDES and therefore the trading prices of the Callable
STRIDES. Neither ML&Co. nor any of its affiliates make any representation to
any purchaser of the Callable STRIDES as to the performance of EMC common stock.
ML&Co. or its affiliates may presently or from time to time engage in
business, directly or indirectly, with EMC including extending loans to, or
making equity investments in, EMC or providing investment banking or advisory
services to EMC, including merger and acquisition advisory services. In the
course of such business, ML&Co. or its affiliates may acquire non-public
information with respect to EMC and, in addition, one or more affiliates of
ML&Co. may publish research reports with respect to EMC.
Any prospective purchaser of the Callable STRIDES should undertake an
independent investigation of EMC as in its judgment is appropriate to make an
informed decision with respect to an investment in the Callable STRIDES.
S-24
Historical data
EMC common stock is principally traded on the NYSE. The following table
sets forth the high and low closing prices for the calendar quarters during
calendar years 1998, 1999, 2000 and 2001. On November 15, 2001, the last
recorded transaction price on the NYSE for EMC common stock was $16.15 per
share. The closing prices listed below were obtained from Bloomberg Financial
Markets. The historical closing prices of EMC common stock should not be taken
as an indication of future performance, and no assurance can be given that the
price of EMC common stock will not decrease. In addition, no assurance can be
given that the price of EMC common stock will increase above the original issue
price so that the value of EMC common stock that the beneficial owners of the
Callable STRIDES may receive at maturity, if not previously called by us, will
exceed the principal amount of the Callable STRIDES.
High Low
-------- -------
1998
First Quarter....................................... $ 9.491 $ 6.159
Second Quarter...................................... $ 11.493 $ 8.788
Third Quarter....................................... $ 15.130 $10.866
Fourth Quarter...................................... $ 20.785 $11.050
1999
First Quarter....................................... $ 31.758 $21.274
Second Quarter...................................... $ 32.996 $23.352
Third Quarter....................................... $ 36.495 $26.225
Fourth Quarter...................................... $ 53.429 $30.810
2000
First Quarter....................................... $ 69.445 $48.722
Second Quarter...................................... $ 79.960 $52.817
Third Quarter....................................... $101.661 $72.869
Fourth Quarter...................................... $ 97.749 $54.407
2001
First Quarter....................................... $ 78.140 $29.000
Second Quarter...................................... $ 45.100 $25.200
Third Quarter....................................... $ 31.620 $11.150
Fourth Quarter (through November 15, 2001).......... $ 16.150 $11.000
S-25
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 Callable STRIDES 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 Callable STRIDES 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 Callable STRIDES 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 Callable STRIDES 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 Callable STRIDES arising under the laws of any other
taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a
Callable STRIDES that is for United States 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 United
States Federal income tax purposes) created or organized in or under the laws
of the United States, any state thereof or the District of Columbia (unless, in
the case of a partnership, Treasury regulations are adopted that provide
otherwise), (iii) an estate whose income is subject to United States 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 Callable STRIDES 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 Callable STRIDES 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 Callable STRIDES or securities
with terms substantially the same as the Callable STRIDES. Accordingly, the
proper U.S. Federal income tax characterization and treatment of the Callable
STRIDES is uncertain. Pursuant to the terms of the Callable STRIDES, ML&Co. and
every holder of a Callable STRIDES agree (in the absence of an administrative
determination or judicial ruling to the contrary) to characterize a Callable
STRIDES for all tax purposes as an investment unit consisting of the following
components (the "Components"): (i) a debt instrument of ML&Co. (the "Debt
Instrument") with a fixed principal amount unconditionally payable on the
maturity date equal to the principal amount of the Callable STRIDES and bearing
stated interest at the stated interest rate for the Callable STRIDES (the
"Interest Rate") and (ii) a contract (the "Forward Contract") pursuant to which
the holder agrees to use the principal payment due on the Debt Instrument to
make a payment to ML&Co. in exchange for the right to receive one share of EMC
common stock at maturity, subject to adjustment as described in this prospectus
supplement. In the opinion of Tax Counsel, such characterization and tax
treatment of the Callable STRIDES, 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.
Furthermore, based on ML&Co.'s determination of the relative fair market values
of the Components at the time of issuance of the Callable STRIDES, ML&Co. will
assign $16.9881 (i.e., 105.19%) of the initial issue price of the Callable
STRIDES to the Debt Instrument and will assign $0.8381 (i.e., 5.19%) of the
initial issue price of the Callable STRIDES to the Forward Contract. Based upon
the foregoing, a U.S. Holder who acquires a Callable STRIDES in connection with
the original issuance thereof will be treated as
S-26
having purchased the Debt Instrument for $16.9881 and as having received an
initial payment (the "Initial Forward Contract Payment") with respect to the
Forward Contract in an amount equal to $0.8381. The initial payment deemed to
have been received by a U.S. Holder with respect to the Forward Contract (i.e.,
the Initial Forward Contract Payment) should only be taken into account by the
U.S. Holder as an additional amount realized with respect to the Forward
Contract on the earlier of the sale or other disposition of the Callable
STRIDES by the U.S. Holder or at maturity (which would reduce the U.S. Holder's
tax basis in any EMC common stock received thereby at maturity). ML&Co.'s
allocation of the issue price will be binding on a U.S. Holder of a Callable
STRIDES, unless such U.S. Holder timely and explicitly discloses to the IRS
that its allocation is different from ML&Co.'s. The treatment of the Callable
STRIDES described above and ML&Co.'s allocation are not, however, binding on
the IRS or the courts. No statutory, judicial or administrative authority
directly addresses the characterization of the Callable STRIDES or instruments
similar to the Callable STRIDES for U.S. Federal income tax purposes, and no
ruling is being requested from the IRS with respect to the Callable STRIDES.
Due to the absence of authorities that directly address instruments that
are similar to the Callable STRIDES, significant aspects of the U.S. Federal
income tax consequences of an investment in the Callable STRIDES 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 tax advisors regarding the U.S. Federal income tax
consequences of an investment in a Callable STRIDES (including alternative
characterizations of a Callable STRIDES) and with respect to any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction. Unless otherwise stated, the following discussions are based on
the assumption that the treatment and the allocation described above are
accepted for U.S. Federal income tax purposes.
Tax Treatment of a Callable STRIDES
Interest on the Debt Instrument. As described above, the Debt Instrument
is treated as bearing interest at a stated rate of 8% per annum (i.e., the
Interest Rate). A U.S. Holder will include "qualified stated interest" equal to
the stated interest on the Callable STRIDES in income in accordance with the
U.S. Holder's method of accounting for U.S. Federal income tax purposes
(subject to the bond premium rules). Based on ML&Co.'s determination set forth
above, the U.S. Holder's tax basis in the Debt Instrument will initially be
105.19% of the issue price.
Settlement of the Forward Contract. Upon the final settlement of the
Forward Contract on the maturity date, a U.S. Holder would be deemed to have
applied an amount (the "Forward Contract Payment Amount") equal to the
principal amount of the Debt Instrument less the Initial Forward Contract
Payment toward the purchase of EMC common stock, and such U.S. Holder should
not recognize any gain or loss with respect to the EMC common stock received
upon the final settlement of the Forward Contract. However, a U.S. Holder would
be required to recognize gain or loss with respect to any cash received in lieu
of fractional shares of EMC common stock. The amount of such gain or loss would
be equal to the difference, if any, between the amount of cash received and the
portion of the Forward Contract Payment Amount that is allocable to such
fractional shares. Any such gain or loss would be treated as short-term capital
gain or loss. A U.S. Holder's tax basis in the EMC common stock so received
would be equal to the Forward Contract Payment Amount less the portion of the
Forward Contract Payment Amount that is allocable to any fractional shares.
Such U.S. Holder's holding period for the EMC common stock would begin on the
day immediately following the maturity date.
Sale, Exchange or Redemption of the Callable STRIDES
Upon a sale, exchange or redemption of a Callable STRIDES prior to the
maturity of the Callable STRIDES, a U.S. Holder would recognize taxable gain or
loss equal to the difference between the amount realized on such sale, exchange
or redemption (as allocated among the Components in accordance with their
S-27
relative fair market values) and such U.S. Holder's tax basis in the Components
deemed so sold, exchanged or redeemed. Any such gain or loss would generally be
long-term or short-term capital gain or loss (depending on the U.S. Holder's
holding period for the Callable STRIDES). For these purposes, the amount
realized does not include any amount attributable to accrued interest on the
Debt Instrument, which would be taxed as described under "Tax Treatment of a
Callable STRIDES--Interest on the Debt Instrument" above.
Premium
If a U.S. Holder purchases the Debt Instrument for an amount that is
greater than the sum of all amounts payable on the Debt Instrument after the
purchase date other than payments of qualified stated interest (i.e., the
principal amount), such U.S. Holder will be considered to have purchased the
Debt Instrument with "amortizable bond premium" equal in amount to such excess.
A U.S. Holder may elect to amortize such premium using a constant yield method
over the remaining term of the Debt Instrument and may offset interest
otherwise required to be included in respect of the Debt Instrument during any
taxable year by the amortized amount of such excess for the taxable year.
However, since the Callable STRIDES may be optionally called by ML&Co. on or
after November 22, 2002, special rules would apply which could possibly result
in a deferral of the amortization of some bond premium until later in the term
of the Debt Instrument. U.S. Holders are urged to consult their own tax
advisors regarding the application of these special rules. Any election to
amortize bond premium applies to all taxable debt instruments acquired by the
U.S. Holder on or after the first day of the first taxable year to which such
election applies and may be revoked only with the consent of the IRS.
Possible Alternative Tax Treatments of an Investment in a Callable STRIDES
Due to the absence of authorities that directly address the proper
characterization of the Callable STRIDES, 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 a Callable STRIDES under
Treasury regulations governing contingent payment debt instruments (the
"Contingent Payment Regulations").
ML&Co. will take the position that the Contingent Payment Regulations do
not apply to the Callable STRIDES. If the IRS were successful in asserting that
the Contingent Payment Regulations applied to the Callable STRIDES, the timing
and character of income thereon would be significantly affected. Among other
things, a U.S. Holder would be required to accrue as original issue discount,
subject to the adjustments described below, income at a "comparable yield" on
the issue price, regardless of the U.S. Holder's usual method of accounting for
U.S. Federal income tax purposes. In addition, the Contingent Payment
Regulations require that a projected payment schedule, which results in such a
"comparable yield," be determined, and that adjustments to income accruals be
made to account for differences between actual payments and projected amounts
(including upon receipt of EMC common stock at maturity). Furthermore, any gain
realized with respect to a Callable STRIDES would generally be treated as
ordinary income, and any loss realized would generally be treated as ordinary
loss to the extent of the U.S. Holder's prior ordinary income inclusions (which
were not previously reversed) with respect to the Callable STRIDES.
Even if the Contingent Payment Regulations do not apply to the Callable
STRIDES, other alternative U.S. Federal income characterizations or treatments
of the Callable STRIDES are also possible, which may also affect the timing and
the character of the income or loss with respect to the Callable STRIDES.
Accordingly, prospective purchasers are urged to consult their tax advisors
regarding the U.S. Federal income tax consequences of an investment in a
Callable STRIDES.
S-28
Constructive Ownership Law
Section 1260 of the Internal Revenue Code of 1986, as amended (the
"Code") treats a taxpayer owning certain types of derivative positions in
property as having "constructive ownership" of that property, with the result
that all or a portion of any long-term capital gain recognized by such taxpayer
with respect to the derivative position will be recharacterized as ordinary
income. In its current form, Section 1260 of the Code does not apply to a
Callable STRIDES. If Section 1260 of the Code were to apply to a Callable
STRIDES in the future, however, the effect on a U.S. Holder of a Callable
STRIDES would be to treat all or a portion of any long-term capital gain
recognized by such U.S. Holder on the sale, exchange, redemption or maturity of
a Callable STRIDES (or upon the sale of any EMC common stock received thereon)
as ordinary income. In addition, Section 1260 of the Code would impose an
interest charge on any such gain that was recharacterized. U.S. Holders should
consult their tax advisors regarding the potential application of Section 1260
of the Code, if any, to the purchase, ownership and disposition of a Callable
STRIDES.
Non-U.S. Holders
In the case of a non-U.S. Holder, ML&Co. intends to withhold applicable
United States withholding taxes at a rate of 30% on payments of interest made
with respect to the Callable STRIDES subject to reduction by applicable treaty
or upon the receipt of a Form W-8ECI from a non-U.S. Holder claiming that the
payments are effectively connected with the conduct of a United States trade or
business. Any capital gain realized upon the sale or other disposition of a
Callable STRIDES by a non-U.S. Holder will generally not be subject to United
States 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 and such individual does not have a "tax home" (as defined for
United States Federal income tax purposes) in the United States.
Backup Withholding and Information Reporting
A beneficial owner of a Callable STRIDES may be subject to information
reporting with respect to certain amounts paid to the beneficial owner. A
beneficial owner of a Callable STRIDES may also be subject to backup
withholding 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 United States 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, as amended (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 Callable STRIDES on behalf of any plan, represents on behalf of itself
and the plan, that the acquisition, holding and any subsequent disposition of
the Callable STRIDES will not result in a violation of ERISA, the Code or any
other applicable law or regulation.
S-29
USE OF PROCEEDS AND HEDGING
The net proceeds from the sale of the Callable STRIDES will be used as
described under "Use of Proceeds" in the accompanying prospectus and to hedge
market risks of ML&Co. associated with its obligations in connection with the
Callable STRIDES.
WHERE YOU CAN FIND MORE INFORMATION
ML&Co.
We file reports, proxy statements and other information with the SEC. Our
SEC filings are also available over the Internet at the SEC's 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 by visiting the
SEC's public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information about the public reference rooms 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 Callable STRIDES and other securities. For further information on ML&Co.
and the Callable STRIDES, 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.
EMC Corporation
EMC files reports, proxy statements and other information with the SEC.
Information provided to or filed with the SEC by EMC pursuant to the Securities
Exchange Act of 1934 can be located at the SEC's facilities or accessed through
the SEC's web site by reference to SEC file number 1-9853. You may also inspect
EMC Corporation's SEC reports and other information at the NYSE. In addition,
information regarding EMC may be obtained from other sources including, but not
limited to, press releases, newspaper articles and other publicly disseminated
documents. We make no representation or warranty as to the accuracy or
completeness of the information or reports.
S-30
UNDERWRITING
MLPF&S has agreed, subject to the terms and conditions of the
underwriting agreement and a terms agreement, to purchase from ML&Co.
$103,360,000 aggregate principal amount of Callable STRIDES. 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 Callable STRIDES if any are purchased.
The underwriter has advised ML&Co. that it proposes initially to offer
the Callable STRIDES 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 prices may be changed. The underwriter is
offering the Callable STRIDES subject to receipt and acceptance and subject to
the underwriter's right to reject any order in whole or in part. Proceeds to be
received by ML&Co. will be net of the underwriting discount and expenses
payable by ML&Co.
The underwriting of the Callable STRIDES will conform to the requirements
set forth in the applicable sections of Rule 2720 of the Conduct Rules of the
NASD.
The underwriter is permitted to engage in certain transactions that
stabilize the price of the Callable STRIDES. These transactions consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Callable STRIDES.
If the underwriter creates a short position in the Callable STRIDES in
connection with the offering, i.e., if it sells more units of the Callable
STRIDES than are set forth on the cover page of this prospectus supplement, the
underwriter may reduce that short position by purchasing units of the Callable
STRIDES 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.
"Naked" short sales are sales in excess of the underwriter's overallotment
option. Because the underwriter has no overallotment option, it would be
required to close out a short position in the Callable STRIDES by purchasing
Callable STRIDES in the open market. 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 Callable
STRIDES. 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.
MLPF&S may use this prospectus supplement and the accompanying prospectus
for offers and sales related to market-making transactions in the Callable
STRIDES. MLPF&S 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.
ML&Co. has previously marketed (and anticipates continuing to market)
series of securities under the servicemark "STRIDES". The Callable STRIDES we
are offering hereby contain certain terms and provisions which are different
from the other previously marketed STRIDES, the terms and conditions of which
also vary. Please see the section entitled "Description of the Callable
STRIDES" in this prospectus supplement.
VALIDITY OF THE CALLABLE STRIDES
The validity of the Callable STRIDES will be passed upon for ML&Co. and
for the underwriter by Sidley Austin Brown & Wood LLP, New York, New York.
S-31
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus supplement by reference from the
Annual Report on Form 10-K of Merrill Lynch & Co., Inc. and subsidiaries for
the year ended December 29, 2000 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports, which are incorporated herein
by reference, and have been so incorporated in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
With respect to unaudited interim financial information for the periods
included in the Quarterly Reports on Form 10-Q which are incorporated herein by
reference, Deloitte & Touche LLP have applied limited procedures in accordance
with professional standards for a review of such information. However, as
stated in their report included in each of the Quarterly Reports on Form 10-Q
and incorporated by reference herein, they did not audit and they do not
express an opinion on such interim financial information. Accordingly, the
degree of reliance on their report on such information should be restricted in
light of the limited nature of the review procedures applied. Deloitte & Touche
LLP are not subject to the liability provisions of Section 11 of the Securities
Act of 1933, as amended, for their reports on unaudited interim financial
information because such report is not a "report" or a "part" of the
Registration Statement prepared or certified by an accountant within the
meaning of Sections 7 and 11 of the Securities Act of 1933, as amended.
S-32
INDEX OF DEFINED TERMS
Page
----
Business Day.............................................................. S-12
Call Date................................................................. S-5
Call Price................................................................ S-5
Callable STRIDES.......................................................... S-1
Closing market price...................................................... S-17
Code...................................................................... S-29
Components................................................................ S-26
Contingent Payment Regulations............................................ S-28
Debt Instrument........................................................... S-26
depositary................................................................ S-21
DTC....................................................................... S-5
ERISA..................................................................... S-29
EMC....................................................................... S-4
ex-dividend date.......................................................... S-16
Extraordinary Dividend.................................................... S-16
Extraordinary Dividend Amount............................................. S-17
Final Amount.............................................................. S-5
Forward Contract.......................................................... S-26
Forward Contract Payment Amount........................................... S-27
Initial Forward Contract Payment.......................................... S-27
Interest Rate............................................................. S-26
IRS....................................................................... S-26
Market Disruption Event................................................... S-18
ML&Co..................................................................... S-4
MLPF&S.................................................................... S-4
NASD...................................................................... S-17
NASDAQ NMS................................................................ S-17
non-U.S. Holder........................................................... S-26
OTC Bulletin Board........................................................ S-17
Pricing Date.............................................................. S-4
Reorganization Event...................................................... S-19
Reorganization Event Amount............................................... S-19
Share Multiplier.......................................................... S-12
Spin-off Event............................................................ S-19
Successor Entity.......................................................... S-19
Tax Counsel............................................................... S-26
Trading Day............................................................... S-13
U.S. Holder............................................................... S-26
S-33
ANNEX A
Call Price Calculation Methodology
The Call Price is the amount of cash, per Callable STRIDES, that when
discounted from the Call Date to the original issue date by a discount factor
based on an annual yield to call of 37% and added to the present value of all
interest payments discounted to the original issue date by that same discount
factor, will equal the original issue price.
As an example, the following steps describe the calculation of the Call
Price for May 30, 2003:
. First, the sum of the present values on the original issue date of
all interest payments made (assuming a discount factor based on an
annual yield to call of 37%) on the Callable STRIDES through and
including the applicable Call Date is calculated. For a more detailed
description of this calculation, please see the table below.
The following table illustrates, for the scheduled interest payment dates
and the scheduled Call Date listed, the:
(a)amount of interest payable (computed on the basis of a 360-day
year of twelve 30-day months) on the applicable date;
(b)years from the original issue date to the applicable interest
payment date (computed on the basis of a 360-day year of twelve
30-day months);
(c)discount factor/(1)/ based upon the yield to call of 37%;
(d)present value at the original issue date of the interest payments;
and
(e)the sum of the present values of all interest payments discounted
to the original issue date.
Discount
Years Factor/(1)/
From based Present Value at
Interest Original on the Original Issue
Amount Issue Yield to Date of Interest
Date/(2)/ Payable Date Call Payments/(3)/
--------- -------- -------- ---------- ----------------
November 21, 2001 -- 0.000000 1.000000 --
February 21, 2002 $0.323000 0.250000 0.924315 $0.298554
May 21, 2002 $0.323000 0.500000 0.854358 $0.275958
August 21, 2002 $0.323000 0.750000 0.789695 $0.255072
November 21, 2002 $0.323000 1.000000 0.729927 $0.235766
February 21, 2003 $0.323000 1.250000 0.674682 $0.217922
May 21, 2003 $0.323000 1.500000 0.623619 $0.201429
May 30, 2003 $0.032300 1.525000 0.618730 $0.019985
---------
Sum of the present values of all interest payments: $1.504686
=========
. Next, the sum of the present values of the interest payments is
subtracted from the original issue price to produce the present value
of the Call Price on the original issue date:
$16.15 - $1.504686 = $14.645314 (the present value of the Call Price).
. Finally, the present value of the Call Price is divided by the
applicable discount factor(1) and rounded to the fourth decimal
place, the quotient being the present value of the Call Price payable
on the applicable Call Date:
$14.645314
---------- = $23.6700 (the Call Price).
0.618730
( 1 )x
(1) The discount factor is equal to (----), where X is the number of years from
(1.37)
the original issue date (computed on the basis of a 360-day year of twelve
30-day months compounded annually).
(2) The dates in this column reflect the original issue date, the scheduled
interest payment dates and May 30, 2003, the Call Date used in calculating
this example. If a scheduled interest payment date falls on a day that is
not a Business Day, payment will be made on the following Business Day,
however, the present values of the interest payments will be calculated
assuming each payment is made on the calendar day scheduled for that
payment.
(3) The present values in this column represent the product of the applicable
interest payment amount and the corresponding discount factor. Due to
rounding, the numbers in this column may not equal the sum of the present
values of all interest payments.
A-1
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[LOGO]
6,400,000 Units
Merrill Lynch & Co., Inc.
8% Callable STock Return Income DEbt Securities/SM/
due November 21, 2003
"Callable STRIDES/SM/"
Payable at maturity with EMC Corporation common stock
---------------------
PROSPECTUS SUPPLEMENT
---------------------
Merrill Lynch & Co.
November 15, 2001
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