FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 333-52822
PROSPECTUS SUPPLEMENT
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(To prospectus dated January 24, 2001)
[LOGO]
2,200,000 Units
Merrill Lynch & Co., Inc.
Strategic Return Notes/SM/
Linked to the Oil and Natural Gas Index due March 28, 2007
(the "Notes")
$10 original public offering price per Unit
----------------
The Notes: Payment at maturity or upon exchange:
. Senior unsecured debt securities of . At maturity or upon exchange, you
Merrill Lynch & Co., Inc. will receive a cash amount based upon
the percentage change in the value of
. Exchangeable at your option for a the Oil and Natural Gas Index, which
cash payment during a specified reflects the performance of the Amex
period in March of each year from Oil Index/SM/ and the Amex Natural
2003 through 2006 as described in Gas Index/SM/, rebalanced annually,
this prospectus supplement. less an annual index adjustment
factor of 1.5%.
. No payments prior to maturity unless
exchanged. . At maturity or upon exchange, the
amount you receive will depend on the
. Linked to the value of the Oil and value of the Oil and Natural Gas
Natural Gas Index (index symbol Index. The value of the Oil and
"OGX"). Natural Gas Index must increase in
order for you to receive at least the
. The Notes have been approved for original public offering price of $10
listing on the American Stock per Note upon exchange or at
Exchange under the trading symbol maturity. If the value of the Oil and
"OGN", subject to official notice of Natural Gas Index has declined or has
issuance. not increased sufficiently, you will
receive less, and possibly
. Expected closing date: March 28, 2002. significantly less, than the original
public offering price of $10 per Note.
Investing in the Notes involves risks that are described in the "Risk
Factors" section 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
-------- -----
Public offering price.................................. $10.00 $22,000,000
Underwriting fee....................................... $.20 $440,000
Proceeds, before expenses, to Merrill Lynch & Co., Inc. $9.90* $21,780,000
----------------
Merrill Lynch & Co.
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* $.10 per Unit of the underwriting fee will be paid to the underwriter by a
subsidiary of Merrill Lynch & Co., Inc. For a description of this payment,
please see the section entitled "Underwriting" in this prospectus supplement.
The date of this prospectus supplement is March 25, 2002.
"Strategic Return Notes" is a service mark of Merrill Lynch & Co., Inc.
"Amex Oil Index/SM/" and "Amex Natural Gas Index/SM/" are service marks of the
American Stock Exchange and have been licensed for use for certain purposes by
Merrill Lynch, Pierce, Fenner & Smith Incorporated. The Strategic Return Notes
are not sponsored, endorsed, sold or promoted by the American Stock Exchange.
TABLE OF CONTENTS
Prospectus Supplement
Page
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SUMMARY INFORMATION--Q&A.............................................................................. S-4
What are the Notes?................................................................................ S-4
What will I receive upon maturity of the Notes?.................................................... S-4
How does the exchange feature work?................................................................ S-5
Who publishes the Oil and Natural Gas Index and what does the Oil and Natural Gas Index measure?... S-5
How has the Oil and Natural Gas Index performed historically?...................................... S-6
Will I receive interest payments on the Notes?..................................................... S-6
What about taxes?.................................................................................. S-6
Will the Notes be listed on a stock exchange?...................................................... S-6
What is the role of MLPF&S?........................................................................ S-6
Who is ML&Co.?..................................................................................... S-6
Are there any risks associated with my investment?................................................. S-7
RISK FACTORS.......................................................................................... S-8
Your investment may result in a loss............................................................... S-8
The value of the Oil and Natural Gas Index is expected to affect the trading value of the Notes.... S-8
Changes in our credit ratings may affect the trading value of the Notes............................ S-8
Your investment may become concentrated............................................................ S-8
Your yield may be lower than the yield on other debt securities of comparable maturity............. S-8
Your return will not reflect the return of owning the Oil and Natural Gas Stocks or the Underlying
Indices.......................................................................................... S-9
Risk factors specific to companies included in the Underlying Indices.............................. S-9
There may be an uncertain trading market for the Notes............................................. S-10
Amounts payable on the Notes may be limited by state law........................................... S-10
Purchases and sales by us and our affiliates may affect your return................................ S-10
Potential conflicts................................................................................ S-11
Uncertain tax consequences......................................................................... S-11
DESCRIPTION OF THE NOTES.............................................................................. S-12
Payment at maturity................................................................................ S-12
Exchange of the Notes prior to maturity............................................................ S-13
Hypothetical returns............................................................................... S-13
Adjustments to the Oil and Natural Gas Index; Market Disruption Events............................. S-14
Discontinuance of the Oil and Natural Gas Index.................................................... S-15
Events of Default and Acceleration................................................................. S-16
Depositary......................................................................................... S-16
Same-Day Settlement and Payment.................................................................... S-18
THE OIL AND NATURAL GAS INDEX......................................................................... S-19
Oil and Natural Gas Index.......................................................................... S-19
Dividends.......................................................................................... S-20
Hypothetical Historical Data on the Oil and Natural Gas Index...................................... S-20
License Agreement.................................................................................. S-21
UNITED STATES FEDERAL INCOME TAXATION................................................................. S-22
General............................................................................................ S-22
Tax Treatment of the Notes......................................................................... S-23
Non-U.S. Holders................................................................................... S-23
Backup Withholding and Information Reporting....................................................... S-24
ERISA CONSIDERATIONS.................................................................................. S-24
USE OF PROCEEDS AND HEDGING........................................................................... S-24
WHERE YOU CAN FIND MORE INFORMATION................................................................... S-24
UNDERWRITING.......................................................................................... S-25
VALIDITY OF THE NOTES................................................................................. S-26
EXPERTS............................................................................................... S-26
INDEX OF DEFINED TERMS................................................................................ S-27
S-2
Prospectus
Page
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MERRILL LYNCH & CO., INC.............................................................................. 2
USE OF PROCEEDS....................................................................................... 2
RATIO OF EARNINGS TO FIXED CHARGES AND RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS..................................................................................... 3
THE SECURITIES........................................................................................ 3
DESCRIPTION OF DEBT SECURITIES........................................................................ 4
DESCRIPTION OF DEBT WARRANTS.......................................................................... 10
DESCRIPTION OF CURRENCY WARRANTS...................................................................... 12
DESCRIPTION OF INDEX WARRANTS......................................................................... 14
DESCRIPTION OF PREFERRED STOCK........................................................................ 19
DESCRIPTION OF DEPOSITARY SHARES...................................................................... 24
DESCRIPTION OF PREFERRED STOCK WARRANTS............................................................... 28
DESCRIPTION OF COMMON STOCK........................................................................... 30
DESCRIPTION OF COMMON STOCK WARRANTS.................................................................. 34
PLAN OF DISTRIBUTION.................................................................................. 36
WHERE YOU CAN FIND MORE INFORMATION................................................................... 37
INCORPORATION OF INFORMATION WE FILE WITH THE SEC..................................................... 37
EXPERTS............................................................................................... 38
S-3
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this prospectus supplement and the accompanying prospectus to
help you understand the Strategic Return Notes/SM/ Linked to the Oil and
Natural Gas Index due March 28, 2007 (the "Notes"). You should carefully read
this prospectus supplement and the accompanying prospectus to fully understand
the terms of the Notes, the Oil and Natural Gas Index and the tax and other
considerations that are important to you in making a decision about whether to
invest in the Notes. You should carefully review the "Risk Factors" section,
which highlights certain risks associated with an investment in the Notes, to
determine whether an investment in the Notes is appropriate for you.
References in this prospectus supplement to "ML&Co.", "we", "us" and
"our" are to Merrill Lynch & Co., Inc., and references to "MLPF&S" are to
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
What are the Notes?
The Notes will be a series of senior debt securities issued by ML&Co. and
will not be secured by collateral. The Notes will rank equally with all of our
other unsecured and unsubordinated debt. The Notes will mature on March 28,
2007 unless exchanged by you as described in this prospectus supplement.
A Unit will represent a single Note with an original public offering
price of $10.00 (a "Unit"). You may transfer the Notes only in whole Units. You
will not have the right to receive physical certificates evidencing your
ownership except under limited circumstances. Instead, we will issue the Notes
in the form of a global certificate, which will be held by The Depository Trust
Company, also known as DTC, or its nominee. Direct and indirect participants in
DTC will record your ownership of the Notes. You should refer to the section
entitled "Description of the Notes--Depositary" in this prospectus supplement.
What will I receive upon maturity of the Notes?
At maturity, if you have not previously exchanged your Notes, you will
receive a cash payment on the Notes equal to the "Redemption Amount".
The "Redemption Amount" per Unit will equal:
( Ending Value )
$9.90 X ( -------------- )
( Starting Value )
The Oil and Natural Gas Index must increase in order for you to receive a
Redemption Amount equal to or greater than the original public offering price,
and, if the value of the Oil and Natural Gas Index declines or has not
increased sufficiently, you will receive less than the original public offering
price of the Notes.
The "Starting Value" equals 100, the level to which the Oil and Natural
Gas Index was set on March 25, 2002, the date the Notes were priced for initial
sale to the public (the "Pricing Date").
For purposes of determining the Redemption Amount, the "Ending Value"
means the average, arithmetic mean, of the values of the Oil and Natural Gas
Index at the close of the market on five business days shortly before the
maturity of the Notes. We may calculate the Ending Value by reference to fewer
than five or even a single day's closing value if, during the period shortly
before the maturity date of the Notes, there is a disruption in the trading of
a sufficient number of stocks included in the Amex Oil Index/SM/ or the Amex
Natural Gas Index/SM/ (the "Underlying Indices") or certain futures, options or
other contracts relating to the stocks included in the Underlying Indices or
the Underlying Indices themselves.
For more specific information about the Redemption Amount, please see the
section entitled "Description of the Notes" in this prospectus supplement.
S-4
Examples
Here are two examples of Redemption Amount calculations:
Example 1--The Oil and Natural Gas Index is below the Starting Value at
maturity:
Starting Value: 100
Hypothetical Ending Value: 20
( 20 )
Redemption Amount (per Unit) = $9.90 X ( --- ) = $1.98
( 100 )
Total payment at maturity (per Unit) = $1.98
Example 2--The Oil and Natural Gas Index is above the Starting Value at
maturity:
Starting Value: 100
Hypothetical Ending Value: 180
( 180 )
Redemption Amount (per Unit) = $9.90 X ( --- ) = $17.82
( 100 )
Total payment at maturity (per Unit) = $17.82
How does the exchange feature work?
You may elect to exchange all or a portion of your Notes during a
specified period in the month of March in the years 2003 through 2006 by giving
notice to the depositary or trustee of the Notes, as the case may be, as
described in this prospectus supplement. The amount of the cash payment you
receive upon exchange (the "Exchange Amount") will be equal to the Redemption
Amount, calculated as if the Exchange Date, as defined in this prospectus
supplement, were the stated maturity date, except that the Ending Value will be
equal to the closing value of the Oil and Natural Gas Index on the Exchange
Date. The Exchange Amount will be paid three Business Days following the
Exchange Date. If you elect to exchange your Notes, you will receive only the
Exchange Amount and you will not receive the Redemption Amount at maturity. The
Exchange Amount you receive may be greater than or less than the Redemption
Amount at maturity depending upon the performance of the Oil and Natural Gas
Index during the period from the Exchange Date until the stated maturity date.
In addition, if the value of the Oil and Natural Gas Index has not increased
sufficiently above the Starting Value, the Exchange Amount will be less than
the original public offering price.
For more specific information about the exchange feature, please see the
section entitled "Description of the Notes--Exchange of the Notes prior to
maturity" in this prospectus supplement.
Who publishes the Oil and Natural Gas Index and what does the Oil and Natural
Gas Index measure?
The Oil and Natural Gas Index is calculated and disseminated by the
American Stock Exchange under the symbol "OGX". The Oil and Natural Gas Index
is an index which reflects the weighted performance of the Amex Oil Index and
the Amex Natural Gas Index, plus the value of dividends paid on the stocks
underlying the Oil and Natural Gas Index, less an annual index adjustment
factor of 1.5% applied daily (the "Index Adjustment Factor"). Initially each
Underlying Index is assigned a multiplier so that each Underlying Index
represents 50% of the value of the Oil and Natural Gas Index. The Oil and
Natural Gas Index will then be rebalanced annually so that each of the
Underlying Indices represents approximately an equal percentage of the value of
the Oil and Natural Gas Index. For more specific information about the Oil and
Natural Gas Index and its rebalancing, and the Index Adjustment Factor, please
see the section entitled "The Oil and Natural Gas Index" in this prospectus
supplement.
The Notes are debt obligations of ML&Co., and an investment in the Notes
does not entitle you to any ownership interest in the stocks included in the
Underlying Indices (the "Oil and Natural Gas Stocks") or the Underlying Indices
themselves.
S-5
How has the Oil and Natural Gas Index performed historically?
The value of the Oil and Natural Gas Index was set to 100 on the Pricing
Date. While there is currently no historical information about the Oil and
Natural Gas Index, we have provided a table and a graph showing the
hypothetical month-end closing values of the Oil and Natural Gas Index from
February 1997 through February 2002, assuming the value of the Oil and Natural
Gas Index was initially calculated and set to 100 on February 28, 1997. These
closing values have been calculated hypothetically according to the same
methodology by which the Oil and Natural Gas Index is currently calculated. We
have provided this information only to illustrate how the Oil and Natural Gas
Index would have performed in the past. For further details on the calculation
of these hypothetical closing values please refer to the section entitled "The
Oil and Natural Gas Index--Hypothetical Historical Data on the Oil and Natural
Gas Index" in this prospectus supplement. Any historical upward or downward
trend in the level of the Oil and Natural Gas Index during this hypothetical
historical period is not an indication that the Oil and Natural Gas Index is
more or less likely to increase or decrease at any time during the term of the
Notes.
Will I receive interest payments on the Notes?
You will not receive any interest payments on the Notes, but you will
receive the Exchange Amount following the exercise of your exchange option or
the Redemption Amount at maturity. We have designed the Notes for investors who
are willing to forego market interest payments on the Notes, such as fixed or
floating interest rates paid on standard senior non-callable debt securities,
in exchange for the Exchange Amount or the Redemption Amount.
What about taxes?
The U.S. federal income tax consequences of an investment in the Notes
are complex and uncertain. By purchasing a Note, you and ML&Co. hereby agree,
in the absence of an administrative or judicial ruling to the contrary, to
characterize a Note for all tax purposes as a pre-paid cash-settled forward
contract linked to the value of the Oil and Natural Gas Index. Under this
characterization of the Notes, you should be required to recognize gain or loss
to the extent that you receive cash on the maturity date or upon a sale or
exchange of a Note prior to the maturity date. You should review the discussion
under the section entitled "United States Federal Income Taxation" in this
prospectus supplement.
Will the Notes be listed on a stock exchange?
The Notes have been approved for listing on the AMEX under the symbol
"OGN", subject to official notice of issuance. You should be aware that the
listing of the Notes on the AMEX will not necessarily ensure that a liquid
trading market will be available for the Notes. You should review the section
entitled "Risk Factors--There may be an uncertain trading market for the Notes"
in this prospectus supplement.
What is the role of MLPF&S?
Our subsidiary, MLPF&S, is the underwriter for the offering and sale of
the Notes. After the initial offering, MLPF&S intends to buy and sell Notes to
create a secondary market for holders of the Notes, and may stabilize or
maintain the market price of the Notes during their initial distribution.
However, MLPF&S will not be obligated to engage in any of these market
activities or continue them once it has started.
MLPF&S will also be our agent for purposes of calculating, among other
things, the Ending Value, Redemption Amount and Exchange Amounts. Under certain
circumstances, these duties could result in a conflict of interest between the
status of MLPF&S as our subsidiary and its responsibilities as calculation
agent.
Who is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various subsidiary
and affiliated companies that provide investment, financing, insurance and
related services on a global basis.
S-6
For information about ML&Co., see the section entitled "Merrill Lynch &
Co., Inc." in the accompanying prospectus. You should also read other documents
we have filed with the SEC, which you can find by referring to the section
entitled "Where You Can Find More Information" in this prospectus supplement.
Are there any risks associated with my investment?
Yes, an investment in the Notes is subject to risks. Please refer to the
section entitled "Risk Factors" in this prospectus supplement.
S-7
RISK FACTORS
Your investment in the Notes will involve risks. An investment in the
Notes involves credit risks which are identical to those related to investments
in any other debt obligations of ML&Co., and additional risks which are similar
to investing in the Oil and Natural Gas Stocks or in each of the Underlying
Indices that comprise the Oil and Natural Gas Index. You should carefully
consider the following discussion of risks before deciding whether an
investment in the Notes is suitable for you.
Your investment may result in a loss
We will not repay you a fixed amount of principal on the Notes at
maturity or upon exchange. The payment on the Notes will depend on the change
in the value of the Oil and Natural Gas Index. Because the value of the Oil and
Natural Gas Index is subject to market fluctuations, the amount of cash you
receive may be more or less than the original public offering price of your
Notes. If the applicable Ending Value, at maturity or at the time you exchange
your Notes, is less than or not sufficiently above the Starting Value, then the
amount you receive will be less than the original public offering price of each
Note, in which case your investment in the Notes will result in a loss to you.
The original public offering price of $10 per Unit exceeds the $9.90 per Unit
amount used to calculate the Redemption Amount and therefore the Oil and
Natural Gas Index must increase in order for you to receive a Redemption Amount
or Exchange Amount equal to the original public offering price.
The value of the Oil and Natural Gas Index is expected to affect the trading
value of the Notes
The market value of the Notes will depend substantially on the amount by
which the Oil and Natural Gas Index exceeds or does not exceed the Starting
Value. The value of the Notes is related to the Oil and Natural Gas Index, and
consequently, a sale of the Notes may result in a loss. Additionally, because
the trading value and perhaps final return on your Notes are dependent on
factors in addition to the Oil and Natural Gas Index, such as our credit
rating, an increase in the value of the Oil and Natural Gas Index will not
reduce the other investment risks related to the Notes.
Changes in our credit ratings may affect the trading value of the Notes
Our credit ratings are an assessment of our ability to pay our
obligations. Consequently, real or anticipated changes in our credit ratings
may affect the trading value of the Notes. However, because the return on your
Notes is dependent upon factors in addition to our ability to pay our
obligations under the Notes, such as the value of the Oil and Natural Gas Index
at maturity, an improvement in our credit ratings will not reduce the other
investment risks related to the Notes.
Your investment in the Notes is concentrated
An investment in the Notes carries risks similar to a concentrated
investment in the oil and natural gas industries.
Your yield may be lower than the yield on other debt securities of comparable
maturity
The amount we pay you at maturity or upon exchange may be less than the
return you could earn on other investments. Your yield may be less than the
yield you would earn if you bought other senior non-callable debt securities of
ML&Co. with the same stated maturity date. Your investment may not reflect the
full opportunity cost to you when you take into account factors that affect the
time value of money.
S-8
Your return will not reflect the return of owning the Oil and Natural Gas
Stocks or the Underlying Indices
While the Oil and Natural Gas Index does reflect the payment of dividends
on the Oil and Natural Gas Stocks as described below in more detail, the yield
to the maturity of the Notes will not produce the same yield as that of other
investments with the same term which are based on the performance of each
Underlying Index and/or the Oil and Natural Gas Stocks. On the Pricing Date,
and the anniversary dates of the Pricing Date, the Multipliers of the
Underlying Indices will be rebalanced so that each Underlying Index represents
approximately an equal percentage of the value of the Oil and Natural Gas Index
and will then be subject to the price movements of the Underlying Indices until
the next anniversary date. Also, at the end of each calendar quarter, the
dividends accrued on the Oil and Natural Gas Stocks will be incorporated into
the Oil and Natural Gas Index by adjusting the Multipliers of the Underlying
Indices and will thereafter be subject to the price movements of the Underlying
Indices until the end of that calendar quarter. In addition, at the end of each
day, the Oil and Natural Gas Index will be reduced by a pro rata portion of the
Index Adjustment Factor of 1.5%. Due to the effect of the annual Index
Adjustment Factor and to the matters discussed above under "Your investment may
result in a loss", the return on an investment in the Notes will be less than
the return on a similar investment in the Underlying Indices and the Oil and
Natural Gas Stocks, assuming transaction costs and taxes are not taken into
account. The trading value of the Notes and final return on the Notes may also
differ from the results of the Oil and Natural Gas Index for the reasons
discussed above under "Changes in our credit ratings may affect the trading
value of the Notes".
Risk factors specific to companies included in the Underlying Indices
The stock prices of some of the companies included in the Underlying
Indices (the "Oil and Natural Gas Companies") have been and may continue to be
volatile. These stock prices could be subject to wide fluctuations in response
to a variety of factors, including the following:
. general market fluctuations;
. actual or anticipated variations in the quarterly operating results
of the Oil and Natural Gas Companies;
. announcements of technological innovations or new services offered by
competitors of the Oil and Natural Gas Companies;
. changes in financial estimates by securities analysts;
. legal developments, including significant litigation matters,
affecting the Oil and Natural Gas Companies or in the industries in
which they operate;
. regulatory developments to which the Oil and Natural Gas Companies
are subject;
. reduced demand for oil and natural gas, which is negatively impacted
by economic downturns; and
. announcements by competitors of the Oil and Natural Gas Companies of
significant acquisitions, strategic partnerships, joint ventures or
capital commitments.
The international operations of some of the Oil and Natural Gas Companies
expose them to risks associated with instability and changes in economic and
political conditions, foreign currency fluctuations, changes in foreign
regulations and other risks inherent to international business. Some of the Oil
and Natural Gas Companies have international operations, which are essential
parts of their businesses. The risks of international business that these
companies are exposed to include the following:
. the policies and political environment of various governments
regarding exploration and development of oil and natural gas reserves;
. the ability of the Organization of Petroleum Exporting Countries
("OPEC") to set and maintain production levels and pricing;
. the level of production in non-OPEC countries;
. general economic, social and political conditions;
S-9
. the difficulty of enforcing agreements and collecting receivables
through certain foreign legal systems;
. differing tax rates, tariffs, exchange controls or other similar
restrictions;
. currency fluctuations;
. changes in, and compliance with, domestic and foreign laws and
regulations which impose a range of restrictions on operations, trade
practices, foreign trade and international investment decisions; and
. reduction in the number or capacity of personnel in international
markets.
Oil and Natural Gas Companies are also exposed to risks related to:
. significant operating hazards including fires, explosions and oil
spills resulting in potentially significant cleanup costs,
compensation costs and fines or other sanctions;
. involvement in a highly competitive and cyclical industry; and
. significant dependence on contracts covering the exploration,
acquisition and delivery of oil and natural gas, which may be
terminated for a variety of reasons.
There may be an uncertain trading market for the Notes
The Notes have been approved for listing on the AMEX under the trading
symbol "OGN", subject to official notice of issuance. However, you cannot
assume that a trading market will develop for the Notes. If a trading market
does develop, there can be no assurance that there will be liquidity in the
trading market. The development of a trading market for the Notes will depend
on our financial performance and other factors such as the change in the value
of the Oil and Natural Gas Index.
If the trading market for the Notes is limited, there may be a limited
number of buyers for your Notes if you do not wish to hold your investment
until maturity. This may affect the price you receive.
Amounts payable on the Notes may be limited by state law
New York State law governs the 1983 Indenture under which the Notes will
be issued. New York has usury laws that limit the amount of interest that can
be charged and paid on loans, which includes debt securities like the Notes.
Under present New York law, the maximum rate of interest is 25% per annum on a
simple interest basis. This limit may not apply to debt securities in which
$2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state or
Federal court sitting outside of New York, many other states also have laws
that regulate the amount of interest that may be charged to and paid by a
borrower. We will promise, for the benefit of the Note holders, to the extent
permitted by law, not to voluntarily claim the benefits of any laws concerning
usurious rates of interest.
Purchases and sales by us and our affiliates may affect your return
We and our affiliates may from time to time buy or sell the Oil and
Natural Gas Stocks or certain futures, options or other contracts relating to
the Oil and Natural Gas Stocks or the Underlying Indices themselves for our own
accounts for business reasons and expect to enter into such transactions in
connection with hedging our obligations under the Notes. These transactions
could affect the price of the Oil and Natural Gas Stocks and the values of the
Underlying Indices, and in turn, the value of the Oil and Natural Gas Index in
a manner that would be adverse to your investment in the Notes. Any purchases
by us, our affiliates or others on our behalf on or before the Pricing Date may
temporarily increase the prices of the Oil and Natural Gas Stocks and the
values of the Underlying Indices. Temporary increases in the market prices of
the Oil and Natural Gas Stocks and the values of the Underlying Indices may
also occur as a result of the purchasing activities of other
S-10
market participants. Consequently, the prices of the Oil and Natural Gas Stocks
and the values of the Underlying Indices may decline subsequent to the Pricing
Date reducing the value of the Oil and Natural Gas Index and therefore the
market value of the Notes.
Potential conflicts
Our subsidiary, MLPF&S, is our agent for the purposes of calculating the
Ending Value, Redemption Amount and Exchange Amounts. Under certain
circumstances, MLPF&S' role as our subsidiary and its responsibilities as
calculation agent for the Notes could give rise to conflicts of interest. These
conflicts could occur, for instance, in connection with its determination as to
whether the value of the Oil and Natural Gas Index can be calculated on a
particular trading day, or in connection with judgments that it would be
required to make in the event of a discontinuance of the Oil and Natural Gas
Index. See the sections entitled "Description of the Notes--Adjustments to the
Oil and Natural Gas Index; Market Disruption Events" and "--Discontinuance of
the Oil and Natural Gas Index" in this prospectus supplement. MLPF&S is
required to carry out its duties as calculation agent in good faith and using
its reasonable judgment. However, you should be aware that because we control
MLPF&S, potential conflicts of interest could arise. MLPF&S, the underwriter,
will pay an additional amount on each anniversary of the Pricing Date in 2003
through 2006 to brokers whose client accounts purchased Notes in the initial
distribution and continue to hold the Notes. In addition, MLPF&S may from time
to time pay additional amounts to brokers whose client accounts purchased Notes
in the secondary market and continue to hold those Notes. You should understand
that as a result of this additional payment, your broker receives a financial
benefit each year you retain your investment in the Notes. Please see the
section entitled "Underwriting" in this prospectus supplement.
We have entered into an arrangement with one of our subsidiaries to hedge
the market risks associated with our obligation to pay amounts due at maturity
on the Notes. This subsidiary expects to make a profit in connection with this
arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
ML&Co. or its affiliates may presently or from time to time engage in
business with one or more of the Oil and Natural Gas Companies including
extending loans to, or making equity investments in, the Oil and Natural Gas
Companies or providing advisory services to the Oil and Natural Gas Companies,
including merger and acquisition advisory services. In the course of business,
ML&Co. or its affiliates may acquire non-public information relating to the Oil
and Natural Gas Companies and, in addition, one or more affiliates of ML&Co.
may publish research reports about the Oil and Natural Gas Companies. ML&Co.
does not make any representation to any purchasers of the Notes regarding any
matters whatsoever relating to the Oil and Natural Gas Companies. Any
prospective purchaser of the Notes should undertake an independent
investigation of the Oil and Natural Gas Companies as in its judgment is
appropriate to make an informed decision regarding an investment in the Notes.
The composition of the Oil and Natural Gas Index does not reflect any
investment or sell recommendations of ML&Co. or its affiliates.
Uncertain tax consequences
You should consider the tax consequences of investing in the Notes,
aspects of which are uncertain. See the section entitled "United States Federal
Income Taxation" in this prospectus supplement.
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DESCRIPTION OF THE NOTES
ML&Co. will issue the Notes as a series of senior debt securities under
the 1983 Indenture, which is more fully described in the accompanying
prospectus. Unless exchanged by you, the Notes will mature on March 28, 2007.
While at maturity or upon exchange a beneficial owner of a Note will
receive an amount equal to the Redemption Amount or the Exchange Amount, as the
case may be, there will be no other payment of interest, periodic or otherwise.
See the section entitled "--Payment at maturity" and "--Exchange of the Notes
prior to maturity" in this prospectus supplement.
The Notes may be exchanged by you during an Exchange Notice Period, but
are not subject to redemption by ML&Co. before maturity. If an Event of Default
occurs with respect to the Notes, beneficial owners of the Notes may accelerate
the maturity of the Notes, as described under "--Events of Default and
Acceleration" in this prospectus supplement and "Description of Debt
Securities--Events of Default" in the accompanying prospectus.
ML&Co. will issue the Notes in denominations of whole Units each with an
original public offering price of $10 per Unit.
The Notes will not have the benefit of any sinking fund.
Payment at maturity
For each Note that has not been exchanged prior to maturity, the holder
will be entitled to receive the Redemption Amount, as provided below.
Determination of the Redemption Amount
The "Redemption Amount" per Unit will be determined by the calculation
agent and will equal:
( Ending Value )
$9.90 X ( -------------- )
( Starting Value )
The "Starting Value" equals 100.
For the purpose of determining the Redemption Amount, the "Ending Value"
will be determined by the calculation agent and will equal the average,
arithmetic mean, of the closing values of the Oil and Natural Gas Index
determined on each of the first five Calculation Days during the Calculation
Period. If there are fewer than five Calculation Days during the Calculation
Period, then the Ending Value will equal the average, arithmetic mean, of the
closing values of the Oil and Natural Gas Index on those Calculation Days. If
there is only one Calculation Day during the Calculation Period, then the
Ending Value will equal the closing value of the Oil and Natural Gas Index on
that Calculation Day. If no Calculation Days occur during the Calculation
Period, then the Ending Value will equal the closing value of the Oil and
Natural Gas Index determined on the last scheduled Index Business Day in the
Calculation Period, regardless of the occurrence of a Market Disruption Event
on that day.
The "Calculation Period" means the period from and including the seventh
scheduled Index Business Day prior to the maturity date to and including the
second scheduled Index Business Day prior to the maturity date.
A "Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
S-12
An "Index Business Day" means a day on which the New York Stock Exchange,
AMEX and the Nasdaq National Market are open for trading and the Oil and
Natural Gas Index or any successor index is calculated and published.
All determinations made by the calculation agent shall be at the sole
discretion of the calculation agent and, absent a determination by the
calculation agent of a manifest error, shall be conclusive for all purposes and
binding on ML&Co. and the holders and beneficial owners of the Notes.
Exchange of the Notes prior to maturity
You may elect to exchange all or a portion of the Notes you own during
any Exchange Notice Period by giving notice as described below. An "Exchange
Notice Period" means any Business Day from and including the first calendar day
of the month of March to and including 12:00 noon in The City of New York on
the fifteenth calendar day during the month of March in the years 2003, 2004,
2005 and 2006. If the fifteenth calendar day of the applicable month of March
is not a Business Day, then the Exchange Notice Period will be extended to
12:00 noon in The City of New York on the next succeeding Business Day. The
amount of the cash payment you receive upon exchange (the "Exchange Amount")
will be equal to the Redemption Amount, calculated as if the Exchange Date were
the stated maturity date, except that the Ending Value will be equal to the
closing value of the Oil and Natural Gas Index on the Exchange Date. An
"Exchange Date" will be the second Index Business Day following the end of the
applicable Exchange Notice Period. If a Market Disruption Event occurs on the
second Index Business Day following an Exchange Notice Period, the Exchange
Date for that year will be the next succeeding Index Business Day on which a
Market Disruption Event does not occur. The Exchange Amount will be paid three
Business Days after the Exchange Date.
The Notes will be issued in registered global form and will remain on
deposit with the depositary as described in this prospectus supplement.
Therefore, you must exercise the option to exchange your Notes through the
depositary. To make your exchange election effective, you must make certain
that your notice is delivered to the depositary during the applicable Exchange
Notice Period. To ensure that the depositary will receive timely notice of your
election to exchange all or a portion of your Notes, you must instruct the
direct or indirect participant through which you hold an interest in the Notes
to notify the depositary of your election to exchange your Notes prior to 12:00
noon in The City of New York on the last day of the applicable Exchange Notice
Period, in accordance with the then applicable operating procedures of the
depositary. Different firms have different deadlines for accepting instructions
from their customers. You should consult the direct or indirect participant
through which you hold an interest in the Notes to ascertain the deadline for
ensuring that timely notice will be delivered to the depositary.
If at any time the global securities are exchanged for Notes in
definitive form, from and after that time, notice of your election to exchange
must be delivered to JPMorgan Chase Bank, as trustee under the 1983 Indenture,
through the procedures required by the trustee by 12:00 noon in The City of New
York on the last day of the applicable Exchange Notice Period.
Hypothetical returns
The following tables illustrate, for a range of hypothetical Ending
Values of the Oil and Natural Gas Index during the Calculation Period:
. the total amount payable at maturity of the Notes, and the total
amount payable on an investment in the Oil and Natural Gas Stocks,
. the total rate of return to beneficial owners of the Notes, and the
total return on an investment in the Oil and Natural Gas Stocks, and
. the pretax annualized rate of return to beneficial owners of the
Notes, and the pretax annualized rate of return on an investment in
the Oil and Natural Gas Stocks.
S-13
The tables below assume an initial investment of $10 in the Notes and an
initial investment of $10 in the Oil and Natural Gas Stocks.
Hypothetical Returns Related to Strategic Return Notes Hypothetical Returns Related to an Investment in
based on the Oil and Natural Gas Index the Oil and Natural Gas Stocks
- ------------------------------------------------------ -----------------------------------------------
Hypothetical Total Pretax
Ending Rate of Annualized
Hypothetical Value of an Return on Rate of
Ending Total Investment the Oil Return on
Value of the Amount Total Rate Pretax in the Oil Total and the Oil and
Oil and Payable at of Return Annualized Rate and Natural Amount Natural Natural
Natural Gas Maturity on the of Return on the Gas Payable at Gas Gas
Index(1) per Note Notes Notes(2) Stocks(3) Maturity Stocks Stocks(2)
- ------------ ---------- ---------- ---------------- ------------ ---------- --------- -----------
20 $ 1.98 -80.20% -29.89% 21.56 $ 2.16 -78.44% -28.44%
40 $ 3.96 -60.40% -17.69% 43.12 $ 4.31 -56.88% -16.13%
60 $ 5.94 -40.60% -10.15% 64.68 $ 6.47 -35.32% -8.52%
80 $ 7.92 -20.80% -4.61% 86.23 $ 8.62 -13.77% -2.94%
100(4) $ 9.90 -1.00% -0.20% 107.79 $10.78 7.79% 1.51%
120 $11.88 18.80% 3.47% 129.35 $12.94 29.35% 5.21%
140 $13.86 38.60% 6.63% 150.91 $15.09 50.91% 8.40%
160 $15.84 58.40% 9.41% 172.47 $17.25 72.47% 11.20%
180 $17.82 78.20% 11.89% 194.03 $19.40 94.03% 13.70%
200 $19.80 98.00% 14.13% 215.59 $21.56 115.59% 15.96%
220 $21.78 117.80% 16.18% 237.14 $23.71 137.14% 18.03%
240 $23.76 137.60% 18.07% 258.70 $25.87 158.70% 19.93%
260 $25.74 157.40% 19.82% 280.26 $28.03 180.26% 21.70%
280 $27.72 177.20% 21.45% 301.82 $30.18 201.82% 23.35%
300 $29.70 197.00% 22.99% 323.38 $32.34 223.38% 24.89%
- --------
(1) The Oil and Natural Gas Index reflects the weighted performance of the Amex
Oil Index and the Amex Natural Gas Index less an annual Index Adjustment
Factor of 1.5%.
(2) The annualized rates of return are calculated on a semiannual bond
equivalent basis and assume an investment term from March 28, 2002 to March
28, 2007.
(3) An investment in the Oil and Natural Gas Stocks is assumed to be equivalent
to an investment in the Oil and Natural Gas Index, including the method and
timing of reinvesting dividends, except that the Oil and Natural Gas Index
is reduced daily by the pro rata portion of the annual Index Adjustment
Factor of 1.5%. The hypothetical investment in the Oil and Natural Gas
Stocks presented in this column does not take into account transaction
costs and taxes.
(4) This is the Starting Value.
The above figures are for purposes of illustration only. The actual
Redemption Amount received by investors in the Notes and the resulting total
and pretax annualized rates of return will depend on the actual Ending Value
and term of your investment.
Adjustments to the Oil and Natural Gas Index; Market Disruption Events
If at any time the AMEX changes its method of calculating the Oil and
Natural Gas Index, or the value of the Oil and Natural Gas Index changes, in
any material respect, or if the Oil and Natural Gas Index is in any other way
modified so that the Oil and Natural Gas Index does not, in the opinion of the
calculation agent, fairly represent the value of the Oil and Natural Gas Index
had those changes or modifications not been made, then, from and after that
time, the calculation agent shall, at the close of business in New York, New
York, on each date that the closing value of the Oil and Natural Gas Index is
to be calculated, make those adjustments as, in the good faith judgment of the
calculation agent, may be necessary in order to arrive at a calculation of a
value of a stock index comparable to the Oil and Natural Gas Index as if those
changes or modifications had not been made, and calculate the closing value
with reference to the Oil and Natural Gas Index, as so adjusted. Accordingly,
if the method of calculating the Oil and Natural Gas Index is modified so that
the value of the Oil and Natural Gas
S-14
Index is a fraction or a multiple of what it would have been if it had not been
modified, e.g., due to a split, then the calculation agent shall adjust the Oil
and Natural Gas Index in order to arrive at a value of the Oil and Natural Gas
Index as if it had not been modified, e.g., as if a split had not occurred.
"Market Disruption Event" means either of the following events as
determined by the calculation agent:
(A) the suspension or material limitation on trading for more than two
hours of trading, or during the one-half hour period preceding the
close of trading, on the applicable exchange, in 20% or more of the
Oil and Natural Gas Stocks (without taking into account any extended
or after-hours trading session); or
(B) the suspension or material limitation, in each case, for more than
two hours of trading, or during the one-half hour period preceding
the close of trading, on the applicable exchange (without taking into
account any extended or after-hours trading session), whether by
reason of movements in price otherwise exceeding levels permitted by
the relevant exchange or otherwise, in option contracts or futures
contracts related to Oil and Natural Gas Stocks, the Underlying
Indices or the Oil and Natural Gas Index, or any successor index or
stocks included in any successor index, which are traded on any major
U.S. exchange.
For the purpose of the above definition:
(1) a limitation on the hours in a trading day and/or number of days of
trading will not constitute a Market Disruption Event if it results
from an announced change in the regular business hours of the
relevant exchange, and
(2) for the purpose of clause (A) above, any limitations on trading
during significant market fluctuations under NYSE Rule 80A, or any
applicable rule or regulation enacted or promulgated by the NYSE or
any other self regulatory organization or the SEC of similar scope as
determined by the calculation agent, will be considered "material".
As a result of the terrorist attacks in Manhattan and Washington, D.C.,
the financial markets were closed from September 11, 2001 through September 14,
2001 and values of the Oil and Natural Gas Index would not have been available
for such dates. Such market closures would have constituted Market Disruption
Events.
Discontinuance of the Oil and Natural Gas Index
If the AMEX discontinues publication of the Oil and Natural Gas Index and
the AMEX or another entity publishes a successor or substitute index that the
calculation agent determines, in its sole discretion, to be comparable to the
Oil and Natural Gas Index (a "successor index"), then, upon the calculation
agent's notification of any determination to the trustee and ML&Co., the
calculation agent will substitute the successor index as calculated by the AMEX
or any other entity for the Oil and Natural Gas Index and calculate the closing
value as described above under "--Payment at maturity". Upon any selection by
the calculation agent of a successor index, ML&Co. shall cause notice to be
given to holders of the Notes.
In the event that the AMEX discontinues publication of the Oil and
Natural Gas Index and:
. the calculation agent does not select a successor index, or
. the successor index is no longer published on any of the Calculation
Days,
the calculation agent will compute a substitute value for the Oil and Natural
Gas Index in accordance with the procedures last used to calculate the Oil and
Natural Gas Index before any discontinuance. If a successor index is selected
or the calculation agent calculates a value as a substitute for the Oil and
Natural Gas Index as described below, the successor index or value will be used
as a substitute for the Oil and Natural Gas Index for all purposes, including
for purposes of determining whether a Market Disruption Event exists.
S-15
If the AMEX discontinues publication of the Oil and Natural Gas Index
before the period during which the Redemption Amount is to be determined and
the calculation agent determines that no successor index is available at that
time, then on each Business Day until the earlier to occur of:
. the determination of the Ending Value, or
. a determination by the calculation agent that a successor index is
available,
the calculation agent will determine the value that would be used in computing
the Redemption Amount as described in the preceding paragraph as if that day
were a Calculation Day. The calculation agent will cause notice of each value
to be published not less often than once each month in The Wall Street Journal
(the "WSJ") or another newspaper of general circulation, and arrange for
information with respect to these values to be made available by telephone.
A "Business Day" is any day on which the NYSE, AMEX and The Nasdaq
National Market are open for trading.
Notwithstanding these alternative arrangements, discontinuance of the
publication of the Oil and Natural Gas Index may adversely affect trading in
the Notes.
Events of Default and Acceleration
In case an Event of Default with respect to any Notes has occurred and is
continuing, the amount payable to a beneficial owner of a Note upon any
acceleration permitted by the Notes, with respect to each Unit, will be equal
to the Redemption Amount, if any, calculated as though the date of early
repayment were the stated maturity date of the Notes. See the section entitled
"--Payment at maturity" in this prospectus supplement. If a bankruptcy
proceeding is commenced in respect of ML&Co., the claim of the beneficial owner
of a Note may be limited, under Section 502(b)(2) of Title 11 of the United
States Code, to the original public offering price of the Note plus an
additional amount of contingent interest calculated as though the date of the
commencement of the proceeding was the maturity date of the Notes.
In case of default in payment of the Notes, whether at their stated
maturity or upon exchange or acceleration, from and after that date the Notes
will bear interest, payable upon demand of their beneficial owners, at the rate
of 2.24% per year to the extent that payment of any interest is legally
enforceable on the unpaid amount due and payable on that date in accordance
with the terms of the Notes to the date payment of that amount has been made or
duly provided for.
Depositary
Description of the Global Securities
Upon issuance, all Notes will be represented by one or more fully
registered global securities. Each global security will be deposited with, or
on behalf of, DTC (DTC, together with any successor, being a "depositary"), as
depositary, registered in the name of Cede & Co., DTC's partnership nominee.
Unless and until it is exchanged in whole or in part for Notes in definitive
form, no global security may be transferred except as a whole by the depositary
to a nominee of the depositary or by a nominee of the depositary to the
depositary or another nominee of the depositary or by the depositary or any
nominee to a successor of the depositary or a nominee of that successor.
So long as DTC, or its nominee, is a registered owner of a global
security, DTC or its nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by the global security for all
purposes under the 1983 Indenture. Except as provided below, the beneficial
owners of the Notes represented by a global security will not be entitled to
have the Notes represented by a global security registered in their names,
S-16
will not receive or be entitled to receive physical delivery of the Notes in
definitive form and will not be considered the owners or holders of the Notes
including for purposes of receiving any reports delivered by ML&Co. or the
trustee under the 1983 Indenture. Accordingly, each person owning a beneficial
interest in a global security must rely on the procedures of DTC and, if that
person is not a participant of DTC, on the procedures of the participant
through which that person owns its interest, to exercise any rights of a holder
under the 1983 Indenture. ML&Co. understands that under existing industry
practices, in the event that ML&Co. requests any action of holders or that an
owner of a beneficial interest in a global security desires to give or take any
action which a holder is entitled to give or take under the 1983 Indenture, DTC
would authorize the participants holding the relevant beneficial interests to
give or take that action, and those participants would authorize beneficial
owners owning through those participants to give or take that action or would
otherwise act upon the instructions of beneficial owners. Conveyance of notices
and other communications by DTC to participants, by participants to indirect
participants and by participants and indirect participants to beneficial owners
will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
DTC Procedures
The following is based on information furnished by DTC:
DTC will act as securities depositary for the Notes. The Notes will be
issued as fully registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One or more fully registered global securities
will be issued for the Notes in the aggregate original public offering price of
such issue, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. DTC holds securities that its participants
deposit with DTC. DTC also facilitates the settlement among participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct participants of DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. DTC is owned
by a number of its direct participants and by the NYSE, the AMEX, and the
National Association of Securities Dealers, Inc. Access to DTC's system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly. The rules applicable to DTC and its
participants are on file with the SEC.
Purchases of Notes under DTC's system must be made by or through direct
participants, which will receive a credit for the Notes on DTC's records. The
ownership interest of each beneficial owner is in turn to be recorded on the
records of direct and indirect participants. Beneficial owners will not receive
written confirmation from DTC of their purchase, but beneficial owners are
expected to receive written confirmations providing details of the transaction,
as well as periodic statements of their holdings, from the direct or indirect
participants through which the beneficial owner entered into the transaction.
Transfers of ownership interests in the Notes are to be made by entries on the
books of participants acting on behalf of beneficial owners.
To facilitate subsequent transfers, all Notes deposited with DTC are
registered in the name of DTC's partnership nominee, Cede & Co. The deposit of
Notes with DTC and their registration in the name of Cede & Co. effect no
change in beneficial ownership. DTC has no knowledge of the actual beneficial
owners of the Notes; DTC's records reflect only the identity of the direct
participants to whose accounts such Notes are credited, which may or may not be
the beneficial owners. The participants will remain responsible for keeping
account of their holdings on behalf of their customers.
S-17
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Notes. Under its usual procedures, DTC mails an omnibus proxy to ML&Co. as soon
as possible after the applicable record date. The omnibus proxy assigns Cede &
Co.'s consenting or voting rights to those direct participants identified in a
listing attached to the omnibus proxy to whose accounts the Notes are credited
on the record date.
Principal, premium, if any, and/or interest, if any, payments made in
cash on the Notes will be made in immediately available funds to DTC. DTC's
practice is to credit direct participants' accounts on the applicable payment
date in accordance with their respective holdings shown on the depositary's
records unless DTC has reason to believe that it will not receive payment on
that date. Payments by participants to beneficial owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street
name", and will be the responsibility of that participant and not of DTC, the
trustee or ML&Co., subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of principal, premium, if any, and/or
interest, if any, to DTC is the responsibility of ML&Co. or the trustee,
disbursement of those payments to direct participants shall be the
responsibility of DTC, and disbursement of any payments to the beneficial
owners will be the responsibility of direct participants and indirect
participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to the Notes,
the global securities will be exchangeable for Notes in definitive form of like
tenor in whole Units and multiples of Units. The definitive Notes will be
registered in the name or names as the depositary shall instruct the trustee.
It is expected that instructions may be based upon directions received by the
depositary from participants with respect to ownership of beneficial interests
in the global securities.
DTC may discontinue providing its services as securities depositary with
respect to the Notes at any time by giving reasonable notice to ML&Co. or the
trustee. Under these circumstances, in the event that a successor securities
depositary is not obtained, Notes are required to be printed and delivered.
ML&Co. may decide to discontinue use of the system of book-entry
transfers through DTC or a successor securities depositary. In that event,
Notes will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that ML&Co. believes to be reliable, but ML&Co. takes no
responsibility for its accuracy.
Same-Day Settlement and Payment
Settlement for the Notes will be made by the underwriter in immediately
available funds. ML&Co. will make all payments in immediately available funds
so long as the Notes are maintained in book-entry form.
S-18
THE OIL AND NATURAL GAS INDEX
Oil and Natural Gas Index
The Oil and Natural Gas Index is calculated and disseminated by the AMEX
under the symbol "OGX". The Oil and Natural Gas Index is an index which
reflects the performance of the Amex Oil Index and the Amex Natural Gas Index,
as described below. Initially, each Underlying Index is assigned a weighting of
50% of the Oil and Natural Gas Index. The Oil and Natural Gas Index is then
rebalanced annually so that each Underlying Index represents approximately an
equal percentage of the Oil and Natural Gas Index value, as described below. On
any Business Day, the value of the Oil and Natural Gas Index equals (i) the sum
of the values of each Underlying Index multiplied by its Multiplier, plus (ii)
an amount reflecting Current Quarter Dividends (as defined below), and less
(iii) a pro rata portion of the annual Index Adjustment Factor. The Index
Adjustment Factor is 1.5% per annum and reduces the value of the Oil and
Natural Gas Index each day by the pro rata amount. The AMEX generally
calculates and disseminates the value of the Oil and Natural Gas Index at
approximately 15-second intervals during the AMEX's business hours and at the
end of each Index Business Day via the Consolidated Tape Association's Network
B.
Annual Oil and Natural Gas Index Rebalancing
As of the close of business on each Anniversary Date the Oil and Natural
Gas Index will be rebalanced so that each Underlying Index represents
approximately an equal percentage of the value of the Oil and Natural Gas Index
on such Anniversary Date. The "Anniversary Date" means the anniversary of the
Pricing Date, provided, however, that if the date is not an Index Business Day
or a Market Disruption Event occurs on that date, then the Anniversary Date for
that year will be the immediately succeeding Index Business Day on which a
Market Disruption Event does not occur. The "Multiplier" for each Underlying
Index will be determined by the AMEX based upon the closing value of that
Underlying Index on the Pricing Date or Anniversary Date, as applicable, so
that each Underlying Index represents approximately an equal percentage of the
Oil and Natural Gas Index value in effect at the close of business on the
applicable date. As an example, assuming no dividends have been paid during the
Current Quarter, if the value of the Oil and Natural Gas Index at the close of
business on an Anniversary Date equaled 200, then each of the Underlying
Indices would be allocated a portion of the value of the Oil and Natural Gas
Index equal to 100; and if, for example, the closing market price of one
Underlying Index on the Anniversary Date was 160, the applicable Multiplier
would be reset to 0.625. Conversely, if the Oil and Natural Gas Index value
equaled 80, then each of the Underlying Indices would be allocated a portion of
the value of the Oil and Natural Gas Index equal to 40; and if the closing
market price of one Underlying Index on the Anniversary Date was 20, the
applicable Multiplier would be reset to 2.
Amex Oil Index
The Amex Oil Index is designed to represent a cross section of
widely-held corporations involved in various phases of the oil industry. The
Amex Oil Index is price weighted, measuring the performance of the oil industry
through changes in the sum of the prices of component stocks. The Amex Oil
Index was developed with a base value of 125 as of August 27, 1984. As of March
25, 2002 the index divisor for the Amex Oil Index was 1.24043136. The following
is a list of the companies included in the Amex Oil Index, their trading
symbols and index weight as of March 25, 2002: Amerada Hess Corporation (AHC)
(11.39%); BP Amoco PLC (BP) (7.52%); Chevron Texaco Corp. (CVX) (12.87%);
Conoco Inc. (COC) (4.13%); Exxon Mobil Corporation (XOM) (6.24%); Kerr-McGee
Corporation (KMG) (8.97%); Marathon Oil Corp. (MRO) (4.14%); Occidental
Petroleum Corporation (OXY) (4.10%); Phillips Petroleum Corporation (P)
(8.89%); Repsol, YPF, S.A. (REP) (1.88%); Royal Dutch Petroleum Co. (RD)
(7.69%); Sunoco Inc. (SUN) (5.77%); Total Fina SA (TOT) (10.84%); and Unocal
Corporation (UCL) (5.57%). The AMEX may at its discretion add companies to, or
delete companies from, the Amex Oil Index at any time.
S-19
Amex Natural Gas Index
The Amex Natural Gas Index is designed to measure the performance of
highly capitalized companies in the natural gas industry involved primarily in
natural gas exploration and production and natural gas pipeline transportation
and transmission. The Amex Natural Gas Index is equal-dollar weighted to ensure
that each of its component securities is represented in approximate
equal-dollar value. Equal-dollar weighting was established by designating the
number of shares of each component stock that represented approximately $10,000
in market value, based on closing prices on October 15, 1993 (e.g., a stock
that closed at $20 per share would be represented in the Amex Natural Gas Index
by 500 shares for a total market value of $10,000). The aggregate value of the
stocks was divided by a divisor to establish an index benchmark value of
300.00. A two-for-one split of the Amex Natural Gas Index occured on March 23,
1999, making the split-adjusted base value of the index 150.00. As of March 25,
2002 the index divisor for the Amex Natural Gas Index was 1048.44179. To ensure
that each component stock continues to represent approximate equal market
value, adjustments are made quarterly after the close of trading on the third
Friday of January, April, July and October. After these quarterly adjustments
are made, the weight of each component stock in the Amex Natural Gas Index will
fluctuate with its market price. As of March 25, 2002 the Amex Natural Gas
Index was composed of shares of the following companies (the trading symbol of
each company is listed in parentheses): Anadarko Petroleum Corporation (APC);
Apache Corporation (APA); Burlington Resources Inc. (BR); Dynegy Inc. (DYN); El
Paso Energy Corporation (EP); EOG Resources Inc. (EOG); Kinder Morgan Inc.
(KMI); National Fuel Gas Company (NFG); Nicor Inc. (GAS); NiSource Inc. (NI);
Noble Affiliates, Inc. (NBL); Ocean Energy Inc. (OEI); Pogo Producing Company
(PPP); Questar Corporation (STR) and Williams Company (WMB). The AMEX may at
its discretion add companies to, or delete companies from, the Amex Natural Gas
Index at any time.
Dividends
The current quarter dividend for any day for each Oil and Natural Gas
Company will be determined by the AMEX by taking the dividend amount per share
paid by that Oil and Natural Gas Company and (i) multiplying that number by the
number of shares of that Oil and Natural Gas Company's stock in the applicable
Underlying Index on the relevant ex-dividend date; (ii) dividing that product
by the index divisor applicable to that Underlying Index; and (iii) multiplying
that quotient by the Multiplier applicable to that Underlying Index on the
ex-dividend date. "Current Quarter Dividends" will be determined by the AMEX
and will equal the sum of the results obtained from the above formula for each
dividend paid during the Current Calendar Quarter by each Oil and Natural Gas
Company. "Current Quarter" shall mean the calendar quarter containing the day
for which the applicable Current Quarter Dividends are being determined.
As of the first day of the start of each calendar quarter, the AMEX will
allocate the Current Quarter Dividends as of the end of the immediately
preceding calendar quarter to each Underlying Index. The Multiplier of each
Underlying Index will be adjusted to reflect a reinvestment of such current
quarter dividends into each Underlying Index based on the closing market price
of the Underlying Index on the last Index Business Day in the immediately
preceding calendar quarter.
Hypothetical Historical Data on the Oil and Natural Gas Index
The following table sets forth the hypothetical value of the Oil and
Natural Gas Index at the end of each month (the "Historical Month-End Closing
Values"), in the period from February 1997 through February 2002 calculated as
if the Oil and Natural Gas Index had existed during that period. All
hypothetical historical data presented in the following table were calculated
by the AMEX, except that the historical dividend information was derived from
Bloomberg Financial Markets. The closing values have been calculated
hypothetically on the same basis that the Oil and Natural Gas Index is
currently calculated. The Historical Month-End Closing Value was set to 100 on
February 28, 1997 to provide an illustration of past movements of the
Historical Month-End Closing Value only. We have provided this historical
information to help you evaluate the behavior of the Oil and Natural Gas Index
in various economic environments; however, these historical data on the Oil and
Natural Gas Index are not necessarily indicative of the future performance of
the Oil and Natural Gas Index or what the value of the Notes may be. Any
historical upward or downward trend in the level of the Oil and Natural Gas
Index during any period set forth below is not an indication that the Oil and
Natural Gas Index is more or less likely to increase or decrease at any time
during the term of the Notes.
S-20
Historical Month-End Closing Values
1997 1998 1999 2000 2001 2002
------ ------ ------ ------ ------ ------
January.............................. 108.34 83.17 106.30 151.21 127.92
February............................. 100.00 115.35 83.19 101.21 152.38 132.17
March................................ 102.18 119.45 97.46 122.68 152.58
April................................ 102.51 120.51 114.09 122.54 166.88
May.................................. 110.01 114.69 113.97 141.52 164.16
June................................. 109.50 112.98 115.90 134.03 147.77
July................................. 116.14 100.11 118.14 125.93 148.54
August............................... 118.60 83.87 119.03 145.44 144.20
September............................ 124.20 97.67 113.73 147.52 130.18
October.............................. 119.34 98.89 111.28 144.05 135.79
November............................. 115.81 93.93 106.60 139.58 126.97
December............................. 114.79 92.05 106.98 163.88 135.40
The following graph sets forth the hypothetical historical performance of
the Oil and Natural Gas Index presented in the preceding table. Past movements
of the Oil and Natural Gas Index are not necessarily indicative of the future
Oil and Natural Gas Index values.
[THE GRAPH APPEARING HERE SETS FORTH THE HYPOTHETICAL HISTORICAL PERFORMANCE OF
THE OIL AND NATURAL GAS INDEX FROM FEBRUARY 1997 THROUGH FEBRUARY 2002, AS SET
FORTH IN THE TABLE ABOVE. THE VERTICAL AXIS HAS A RANGE OF NUMBERS FROM 0 TO 250
IN INCREMENTS OF 50. THE HORIZONTAL AXIS HAS A RANGE OF DATES FROM FEBRUARY 1997
TO FEBRUARY 2002 IN INCREMENTS OF ONE MONTH.]
License Agreement
The "Amex Oil Index/SM/" and "Amex Natural Gas Index/SM/" are service
marks of the AMEX and are used with the permission of the AMEX. The AMEX in no
way sponsors, endorses or is otherwise involved in the Notes and disclaims any
liability to any party for any inaccuracy in the data on which the Amex Oil or
Amex Natural Gas Index are based, for any mistakes, errors, or omissions in the
calculation and/or dissemination of the Amex Oil Index or Amex Natural Gas
Index, or for the manner in which they are applied in connection with the Notes.
Unless otherwise stated, all information herein on the Oil and Natural
Gas Index, Amex Oil Index and Amex Natural Gas Index is derived from the AMEX
or other publicly available sources.
S-21
UNITED STATES FEDERAL INCOME TAXATION
The following discussion is based upon the opinion of Sidley Austin Brown
& Wood LLP, counsel to ML&Co. ("Tax Counsel"). As the law applicable to the
U.S. federal income taxation of instruments such as the Notes is technical and
complex, the discussion below necessarily represents only a general summary.
The following summary is based upon laws, regulations, rulings and decisions
now in effect, all of which are subject to change (including changes in
effective dates) or possible differing interpretations. It deals only with
Notes held as capital assets and does not purport to deal with persons in
special tax situations, such as financial institutions, insurance companies,
regulated investment companies, dealers in securities or currencies, persons
holding Notes as a hedge against currency risks, as a position in a "straddle"
or as part of a "hedging" or "conversion" transaction for tax purposes, or
persons whose functional currency is not the United States dollar. It also does
not deal with holders other than original purchasers (except where otherwise
specifically noted). Persons considering the purchase of the Notes should
consult their own tax advisors concerning the application of United States
federal income tax laws to their particular situations as well as any
consequences of the purchase, ownership and disposition of the Notes arising
under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for U.S. federal income tax purposes (i) a citizen or resident of the
United States, (ii) a corporation or a partnership (including an entity treated
as a corporation or a partnership for U.S. federal income tax purposes) created
or organized in or under the laws of the United States, any state thereof or
the District of Columbia (unless, in the case of a partnership, Treasury
regulations are adopted that provide otherwise), (iii) an estate whose income
is subject to U.S. federal income tax regardless of its source, (iv) a trust if
a court within the United States is able to exercise primary supervision over
the administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust, or (v) any other
person whose income or gain in respect of a Note is effectively connected with
the conduct of a United States trade or business. Certain trusts not described
in clause (iv) above in existence on August 20, 1996 that elect to be treated
as a United States person will also be a U.S. Holder for purposes of the
following discussion. As used herein, the term "Non-U.S. Holder" means a
beneficial owner of a Note that is not a U.S. Holder.
General
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization and treatment,
for U.S. federal income tax purposes, of the Notes or securities with terms
substantially the same as the Notes. Accordingly, the proper U.S. federal
income tax characterization and treatment of the Notes is uncertain. Pursuant
to the terms of the Notes, ML&Co. and every holder of a Note agree (in the
absence of an administrative determination or judicial ruling to the contrary)
to characterize the Notes for all tax purposes as a pre-paid cash-settled
forward contract linked to the value of the Oil and Natural Gas Index. In the
opinion of Tax Counsel, such characterization and tax treatment of the Notes,
although not the only reasonable characterization and tax treatment, is based
on reasonable interpretations of law currently in effect and, even if
successfully challenged by the Internal Revenue Service (the "IRS"), will not
result in the imposition of penalties. The treatment of the Notes described
above is not, however, binding on the IRS or the courts. No statutory, judicial
or administrative authority directly addresses the characterization of the
Notes or instruments similar to the Notes for U.S. federal income tax purposes,
and no ruling is being requested from the IRS with respect to the Notes.
Due to the absence of authorities that directly address instruments that
are similar to the Notes, significant aspects of the U.S. federal income tax
consequences of an investment in the Notes are not certain, and no assurance
can be given that the IRS or the courts will agree with the characterization
described above. Accordingly, prospective purchasers are urged to consult their
own tax advisors regarding the U.S. federal income tax consequences of an
investment in the Notes (including alternative characterizations of the Notes)
and with respect to any tax consequences arising under the laws of any state,
local or foreign taxing jurisdiction. Unless otherwise stated, the following
discussions are based on the assumption that the treatment described above is
accepted for U.S. federal income tax purposes.
S-22
Tax Treatment of the Notes
Assuming the characterization of the Notes as set forth above, Tax
Counsel believes that the following U.S. federal income tax consequences should
result.
Tax Basis. A U.S. Holder's tax basis in a Note will equal the amount
paid by the U.S. Holder to acquire the Note.
Payment on the Maturity Date. Upon the receipt of cash at maturity of
the Notes, a U.S. Holder will recognize gain or loss. The amount of such gain
or loss will be the extent to which the amount of the cash received differs
from the U.S. Holder's tax basis in the Note. It is uncertain whether any such
gain or loss would be treated as ordinary income or loss or capital gain or
loss. Absent a future clarification in current law (by an administrative
determination or judicial ruling), where required, ML&Co. intends to report any
such gain or loss to the IRS in a manner consistent with the treatment of such
gain or loss as capital gain or loss. If such gain or loss is treated as
capital gain or loss, then any such gain or loss will generally be long-term
capital gain or loss, as the case may be, if the U.S. Holder held the Note for
more than one year at maturity.
Sale or Exchange of the Notes. Upon a sale or exchange of a Note prior
to the maturity of the Notes, a U.S. Holder will generally recognize capital
gain or loss equal to the difference between the amount realized on such sale
or exchange and such U.S. Holder's tax basis in the Note so sold or exchanged.
Capital gain or loss will generally be long-term capital gain or loss if the
U.S. Holder held the Note for more than one year at the time of disposition.
Possible Alternative Tax Treatments of an Investment in the Notes
Due to the absence of authorities that directly address the proper
characterization of the Notes, no assurance can be given that the IRS will
accept, or that a court will uphold, the characterization and tax treatment
described above. In particular, the IRS could seek to analyze the U.S. federal
income tax consequences of owning the Notes under Treasury regulations
governing contingent payment debt instruments (the "Contingent Payment
Regulations").
If the IRS were successful in asserting that the Contingent Payment
Regulations applied to the Notes, the timing and character of income thereon
would be significantly affected. Among other things, a U.S. Holder would be
required to accrue original issue discount on the Notes every year at a
"comparable yield" for us, determined at the time of issuance of the Notes.
Furthermore, any gain realized at maturity or upon sale or other disposition of
the Notes would generally be treated as ordinary income, and any loss realized
at maturity would be treated as ordinary loss to the extent of the U.S.
Holder's prior accruals of original issue discount and capital loss thereafter.
Even if the Contingent Payment Regulations do not apply to the Notes,
other alternative U.S. federal income tax characterizations or treatments of
the Notes may also be possible, and if applied could also affect the timing and
the character of the income or loss with respect to the Notes. Accordingly,
prospective purchasers are urged to consult their tax advisors regarding the
U.S. federal income tax consequences of an investment in the Notes.
Non-U.S. Holders
Based on the treatment of each Note as a pre-paid cash-settled forward
contract linked to the value of the Oil and Natural Gas Index, in the case of a
non-U.S. Holder, a payment made with respect to a Note on the maturity date or
upon exchange will not be subject to United States withholding tax, provided
that such non-U.S. Holder complies with applicable certification requirements
and that such payments are not effectively connected with a United States trade
or business of such non-U.S. Holder. Any capital gain realized upon the sale,
exchange
S-23
or other disposition of a Note by a non-U.S. Holder will generally not be
subject to U.S. federal income tax if (i) such gain is not effectively
connected with a United States trade or business of such non-U.S. Holder and
(ii) in the case of an individual non-U.S. Holder, such individual is not
present in the United States for 183 days or more in the taxable year of the
sale or other disposition, or the gain is not attributable to a fixed place of
business maintained by such individual in the United States and such individual
does not have a "tax home" (as defined for U.S. federal income tax purposes) in
the United States.
As discussed above, alternative characterizations of the Notes for U.S.
federal income tax purposes are possible. Should an alternative
characterization of the Notes, by reason of a change or clarification of the
law, by regulation or otherwise, cause payments with respect to the Notes to
become subject to withholding tax, ML&Co. will withhold tax at the statutory
rate. Prospective non-U.S. Holders of the Notes should consult their own tax
advisors in this regard.
Backup Withholding and Information Reporting
A beneficial owner of a Note may be subject to information reporting and
to backup withholding at the applicable statutory rate of certain amounts paid
to the beneficial owner unless such beneficial owner provides proof of an
applicable exemption or a correct taxpayer identification number, and otherwise
complies with applicable requirements of the backup withholding rules.
Any amounts withheld under the backup withholding rules from a payment to
a beneficial owner would be allowed as a refund or a credit against such
beneficial owner's U.S. federal income tax provided the required information is
furnished to the IRS.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and Section 4975 of the Internal Revenue Code (the "Code") prohibit
various transactions between certain parties and the assets of employee benefit
plans, unless an exemption is available; governmental plans may be subject to
similar prohibitions. Because transactions between a plan and ML&Co. may be
prohibited absent an exemption, each fiduciary, by its purchase of any Notes on
behalf of any plan, represents on behalf of itself and the plan, that the
acquisition, holding and any subsequent disposition of the Notes will not
result in a violation of ERISA, the Code or any other applicable law or
regulation.
USE OF PROCEEDS AND HEDGING
The net proceeds from the sale of the Notes will be used as described
under "Use of Proceeds" in the accompanying prospectus and to hedge market
risks of ML&Co. associated with its obligation to pay the Redemption Amount.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC. Our
SEC filings are also available over the Internet at the SEC's web site at
http://www.sec.gov. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an
active link. You may also read and copy any document we file at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for more information on the
public reference rooms and their copy charges. You may also inspect our SEC
reports and other information at the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
S-24
We have filed a registration statement on Form S-3 with the SEC covering
the Notes and other securities. For further information on ML&Co. and the
Notes, you should refer to our registration statement and its exhibits. The
prospectus accompanying this prospectus supplement summarizes material
provisions of contracts and other documents that we refer you to. Because the
prospectus may not contain all the information that you may find important, you
should review the full text of these documents. We have included copies of
these documents as exhibits to our registration statement.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not, and the underwriter has not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriter is not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus
supplement and the accompanying prospectus is accurate as of the date on the
front cover of this prospectus supplement only. Our business, financial
condition and results of operations may have changed since that date.
UNDERWRITING
MLPF&S has agreed, subject to the terms and conditions of the
underwriting agreement and a terms agreement, to purchase from ML&Co.
$22,000,000 aggregate original public offering price of Notes. The underwriting
agreement provides that the obligations of the underwriter are subject to
certain conditions and that the underwriter will be obligated to purchase all
of the Notes if any are purchased. ML&Co. has entered into an arrangement with
one of its subsidiaries to hedge the market risks associated with ML&Co.'s
obligation to pay amounts due at maturity on the Notes. In connection with the
arrangement, this subsidiary will pay MLPF&S, the underwriter, $.10 per Unit as
part of the underwriting fee.
The Notes are ineligible assets in MLPF&S' asset-based brokerage service
Unlimited Advantage, which means that purchasers will not pay Unlimited
Advantage annual asset-based fees on the Notes but will pay commissions on any
secondary market purchases and sales of the Notes.
The underwriter has advised ML&Co. that it proposes initially to offer
all or part of the Notes directly to the public at the offering price set forth
on the cover page of this prospectus supplement. After the initial public
offering, the public offering price may be changed. The underwriter is offering
the Notes subject to receipt and acceptance and subject to the underwriter's
right to reject any order in whole or in part. Proceeds to be received by
ML&Co. will be net of the underwriting fee and expenses payable by ML&Co.
In addition to the compensation paid at the time of the original sale of
the Notes, the underwriter will pay an additional amount on each anniversary of
the Pricing Date in 2003 through 2006 to brokers whose client accounts
purchased the Notes in the initial distribution and who continue to hold their
Notes. This additional amount will equal 1% per Unit based on the Redemption
Amount of the Notes calculated as if the applicable anniversary of the Pricing
Date is the maturity date and the Ending Value is equal to the closing value of
the Oil and Natural Gas Index on that date. Also, MLPF&S may from time to time
pay additional amounts to brokers whose client accounts purchased Notes in the
secondary market and continue to hold those Notes.
The underwriting of the Notes will conform to the requirements set forth
in the applicable sections of Rule 2720 of the Conduct Rules of the NASD.
The underwriter is permitted to engage in certain transactions that
stabilize the price of the Notes. These transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Notes.
S-25
If the underwriter creates a short position in the Notes in connection
with the offering, i.e., if it sells more Notes than are set forth on the cover
page of this prospectus supplement, the underwriter may reduce that short
position by purchasing Notes in the open market. In general, purchases of a
security for the purpose of stabilization or to reduce a short position could
cause the price of the security to be higher than it might be in the absence of
these purchases. "Naked" short sales are sales in excess of the underwriter's
overallotment option or, where no overallotment exists, sales in excess of the
number of units an underwriter has agreed to purchase from the issuer. Because
MLPF&S, as underwriter for the Notes, has no overallotment option, it would be
required to close out a short position in the Notes by purchasing Notes 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 Notes. In addition, neither ML&Co.
nor the underwriter makes any representation that the underwriter will engage
in these transactions or that these transactions, once commenced, will not be
discontinued without notice.
MLPF&S may use this prospectus supplement and the accompanying prospectus
for offers and sales related to market-making transactions in the Notes. 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.
VALIDITY OF THE NOTES
The validity of the Notes will be passed upon for ML&Co. and for the
underwriter by Sidley Austin Brown & Wood LLP, New York, New York.
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 28, 2001 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.
S-26
INDEX OF DEFINED TERMS
Page
----
Anniversary Date.......................................................... S-19
Business Day.............................................................. S-16
Calculation Day........................................................... S-12
Calculation Period........................................................ S-12
Code...................................................................... S-24
Contingent Payment Regulations............................................ S-23
depositary................................................................ S-16
DTC....................................................................... S-4
Ending Value.............................................................. S-4
ERISA..................................................................... S-24
Exchange Amount........................................................... S-5
Exchange Date............................................................. S-13
Exchange Notice Period.................................................... S-13
Historical Month-End Closing Values....................................... S-20
Index Adjustment Factor................................................... S-5
Index Business Day........................................................ S-13
IRS....................................................................... S-22
Market Disruption Event................................................... S-15
ML&Co..................................................................... S-4
MLPF&S.................................................................... S-4
Multiplier................................................................ S-19
Non-U.S. Holder........................................................... S-22
Notes..................................................................... S-1
Oil and Natural Gas Companies............................................. S-9
Oil and Natural Gas Stocks................................................ S-5
OPEC...................................................................... S-9
Pricing Date.............................................................. S-4
Redemption Amount......................................................... S-4
Starting Value............................................................ S-4
successor index........................................................... S-15
Tax Counsel............................................................... S-22
Underlying Indices........................................................ S-4
Unit...................................................................... S-4
U.S. Holder............................................................... S-22
WSJ....................................................................... S-16
S-27
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[LOGO]
2,200,000 Units
Merrill Lynch & Co., Inc.
Strategic Return Notes/SM/
Linked to the Oil and Natural Gas Index due March 28, 2007
(the "Notes")
$10 original public offering price per Unit
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
Merrill Lynch & Co.
March 25, 2002
"Strategic Return Notes" is a service mark of Merrill Lynch & Co., Inc.
================================================================================