FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 333-83374
Subject to Completion
Preliminary Prospectus Supplement dated May 15, 2002
PROSPECTUS SUPPLEMENT [LOGO] Merrill Lynch
- --------------------- Protected Growth/SM/ Investing
(To prospectus dated April 1, 2002) Pursuit of Growth, Protection of Principal
$25,000,000
Merrill Lynch & Co., Inc.
1% Convertible Securities Exchangeable into
McDonald's Corporation common stock
due May , 2009
(the "Notes")
$1,000 principal amount per Note
----------------
The Notes: Exchange at holder's election:
... 100% principal protection at . If you exchange your Notes prior
maturity. to the stated maturity or the
... Senior unsecured debt securities call notice date, we will
of Merrill Lynch & Co., Inc. deliver to you, for each $1,000
... Payable in cash or shares of principal amount of the Notes, a
McDonald's Corporation common number of shares of McDonald's
stock (trading symbol "MCD"), as common stock equal to the
described in this prospectus exchange ratio, but no accrued
supplement. McDonald's and unpaid interest to the
Corporation has no obligations exchange date.
relating to, and does not
sponsor or endorse, the Notes. . The exchange ratio, as
... Callable at the option of determined on the pricing date,
Merrill Lynch & Co., Inc. on or will initially equal for each
after May , 2005. $1,000 principal amount of
... You may elect to exchange your Notes. The price of McDonald's
Notes prior to the maturity or common stock must increase by
the call notice date. 20-25% after the pricing date in
... We will pay you interest on the order for you to receive
Notes semi-annually at a rate of McDonald's shares having an
1% per year, beginning November aggregate value greater than the
, 2002. $1,000 principal amount of
... We have applied to have the Notes. That percentage, which
Notes listed on the American will be determined on the
Stock Exchange under the symbol pricing date, and the closing
"MNV.A". market price of McDonald's
... Expected settlement date: May common stock on the pricing
, 2002. date, will be used to compute
the exchange ratio.
Payment if called by
Merrill Lynch & Co., Inc.:
Payment on the stated maturity:
... If we elect to call the Notes on
or after May , 2005, for each . On the stated maturity, if we
$1,000 principal amount of Notes have not called the Notes and
you own, we will pay you an you have not elected to exchange
amount in cash equal to the your Notes, for each $1,000
greater of: principal amount of Notes you
. the product of the exchange own, we will pay you an amount
ratio and the average closing in cash equal to the greater of:
market price of one share of
common stock of McDonald's . the product of the exchange
Corporation determined as ratio and the average closing
described in this prospectus market price of one share of
supplement (this amount will common stock of McDonald's
not include any accrued but Corporation determined as
unpaid interest to the call described in this prospectus
date), or supplement (this amount will
. $1,000 plus accrued and not include any accrued but
unpaid interest to but unpaid interest to the
excluding the call date. maturity date), or
. $1,000 plus accrued and
unpaid interest to but
excluding the maturity date.
Investing in the Notes involves risks that are described in the "Risk
Factors" section beginning on page S-9 of this prospectus supplement.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
Per Note Total
-------- -----
Public offering price (1).............................. $1,000 $25,000,000
Underwriting discount.................................. $ $
Proceeds, before expenses, to Merrill Lynch & Co., Inc. $ $
(1) Plus accrued interest from May , 2002, if settlement occurs after
that date
The public offering price and the underwriting fee for any single
transaction to purchase: (a) between 1,000 Notes and 1,999 Notes will be $
per Note and $ per Note, respectively, (b) between 2,000 Notes and 2,999
Notes will be $ per Note and $ per Note, and (c) over 3,000 Notes will
be $ per Note and $ per Note, respectively.
----------------
Merrill Lynch & Co.
----------------
The date of this prospectus supplement is May , 2002.
"Protected Growth" is a service mark of Merrill Lynch & Co., Inc.
TABLE OF CONTENTS
Prospectus Supplement
Page
----
SUMMARY INFORMATION--Q&A................................................................................. S-4
What are the Notes?................................................................................... S-4
When will I receive interest?......................................................................... S-4
What will I receive on the stated maturity date of the Notes?......................................... S-4
What will I receive if the Notes are called by ML&Co. on or after May , 2005?....................... S-6
What will I receive if I elect to exchange my Notes?.................................................. S-6
Who is McDonald's?.................................................................................... S-6
What is McDonald's role in the Notes?................................................................. S-7
How has McDonald's common stock performed historically?............................................... S-7
What about taxes?..................................................................................... S-7
Will the Notes be listed on a stock exchange?......................................................... S-7
What is the role of MLPF&S?........................................................................... S-7
Who is ML&Co.?........................................................................................ S-8
Are there any risks associated with an investment in the Notes?....................................... S-8
RISK FACTORS............................................................................................. S-9
The Notes are subject to call before their maturity................................................... S-9
Your yield may be lower than the yield on a standard debt security of comparable maturity............. S-9
Your return on the Notes will not be the same as the return you could earn by owning McDonald's
common stock directly............................................................................... S-9
There may be an uncertain trading market for the Notes................................................ S-9
Many factors affect the trading value of the Notes; these factors interrelate in complex ways and the
effect of any one factor may offset or magnify the effect of another factor......................... S-10
The amount payable to you upon call or exchange is not subject to adjustment for all corporate
events.............................................................................................. S-11
There is no affiliation between ML&Co. and McDonald's................................................. S-11
As a holder of the Notes, you have no stockholder rights with respect to McDonald's common stock...... S-11
Amounts payable on the Notes may be limited by state law.............................................. S-11
Purchase and sales of McDonald's common stock by us and our affiliates may affect your return......... S-11
Potential conflicts................................................................................... S-12
Tax consequences...................................................................................... S-12
DESCRIPTION OF THE NOTES................................................................................. S-13
Interest.............................................................................................. S-13
Payment at maturity................................................................................... S-13
Call at the option of ML&Co........................................................................... S-16
Early exchange at holder's election................................................................... S-17
Fractional Shares..................................................................................... S-17
Hypothetical returns on the earliest Call Date and the stated maturity................................ S-18
Events of Default and Acceleration.................................................................... S-19
Dilution and Reorganization Adjustments............................................................... S-19
Exchange Ratio adjustments............................................................................ S-19
Reorganization Events................................................................................. S-22
Alternative Dilution and Reorganization Adjustments................................................... S-23
Depositary............................................................................................ S-23
Same-day settlement and payment....................................................................... S-26
MCDONALD'S COMMON STOCK.................................................................................. S-26
McDonald's Corporation................................................................................ S-26
Historical data....................................................................................... S-27
S-2
Page
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UNITED STATES FEDERAL INCOME TAXATION..................................... S-28
U.S. Holders........................................................... S-28
Non-U.S. Holders....................................................... S-30
Backup withholding..................................................... S-31
ERISA CONSIDERATIONS...................................................... S-31
USE OF PROCEEDS AND HEDGING............................................... S-33
WHERE YOU CAN FIND MORE INFORMATION....................................... S-33
ML&Co.................................................................. S-33
McDonald's Corporation................................................. S-33
UNDERWRITING.............................................................. S-34
VALIDITY OF THE NOTES..................................................... S-34
EXPERTS................................................................... S-35
INDEX OF DEFINED TERMS.................................................... S-36
Prospectus
Page
----
MERRILL LYNCH & CO., INC.................................................. 2
USE OF PROCEEDS........................................................... 2
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS................................... 3
THE SECURITIES............................................................ 3
DESCRIPTION OF DEBT SECURITIES............................................ 4
DESCRIPTION OF DEBT WARRANTS.............................................. 10
DESCRIPTION OF CURRENCY WARRANTS.......................................... 12
DESCRIPTION OF INDEX WARRANTS............................................. 14
DESCRIPTION OF PREFERRED STOCK............................................ 19
DESCRIPTION OF DEPOSITARY SHARES.......................................... 24
DESCRIPTION OF PREFERRED STOCK WARRANTS................................... 28
DESCRIPTION OF COMMON STOCK............................................... 30
DESCRIPTION OF COMMON STOCK WARRANTS...................................... 34
PLAN OF DISTRIBUTION...................................................... 36
WHERE YOU CAN FIND MORE INFORMATION....................................... 37
INCORPORATION OF INFORMATION WE FILE WITH THE SEC......................... 37
EXPERTS................................................................... 38
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 1% Convertible Securities Exchangeable into McDonald's
Corporation common stock due May , 2009 (the "Notes"). You should carefully
read this prospectus supplement and the accompanying prospectus to fully
understand the terms of the Notes, certain matters related to the common stock
of McDonald's Corporation ("McDonald's"), as well as 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, 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 May , 2009,
if not called by us on or prior to that date or you have not elected to
exchange your Notes for shares of McDonald's common stock prior to that date.
We have designed the Notes for investors who want to protect their investment
by receiving at least the principal amount of their investment at maturity, who
want to participate in possible increases in the value of McDonald's common
stock, subject to ML&Co.'s right to call the Notes, and who want to receive the
stated interest payments on their investment.
The Notes will be issued in denominations of $1,000 and integral
multiples of $1,000. 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.
When will I receive interest?
Interest on the Notes will accrue at the rate of 1% per year on the
principal amount of each Note from May , 2002. You will receive semi-annual
interest payments on May and November of each year, beginning November ,
2002. Interest will accrue to but excluding the maturity date or the date we
call the Notes. However, in certain instances, including if you elect to
exchange your Notes or, upon a call or at maturity, if we pay you an amount
equal to the product of the Exchange Ratio (as defined in this prospectus
supplement) and the average closing market price of McDonald's common stock, we
will not pay unpaid interest which has accrued since the immediately preceding
interest payment date. See "Description of the Notes--Interest," "--Payment at
maturity," "Early exchange at holder's election" and "--Call at the option of
ML&Co."
What will I receive on the stated maturity date of the Notes?
If we have not elected to call, and you have not elected to exchange, the
Notes prior to the stated maturity date, then for each $1,000 principal amount
of Notes that you own at maturity, we will pay you an amount in cash equal to
the greater of:
. the product of the Exchange Ratio and the average closing market
price of McDonald's common stock during the specified Calculation
Period immediately preceding the maturity date, in which case no
additional amount will be payable as accrued and unpaid interest for
the period from and including the preceding interest payment date
through the maturity date; or
. $1,000 plus accrued and unpaid interest on your Notes to but
excluding the maturity date.
The "Exchange Ratio" will initially equal for each $1,000
principal amount of Notes and
S-4
is subject to periodic adjustment as described in this prospectus supplement.
The closing market price of one share of McDonald's common stock as of the
pricing date ($ ) multiplied by the Exchange Ratio equals $ . The price
of McDonald's common stock will therefore be required to increase approximately
20-25% from the pricing date to the Calculation Period in order for you to
receive more than the minimum amount described above. The actual Exchange Ratio
will be determined on the pricing date and will be disclosed in the final
prospectus supplement delivered in connection with the sales of the Notes.
In the event of certain reorganization events of McDonald's Corporation,
we will make an adjustment to any computation which is to be based on the
Exchange Ratio. For more specific information, please see the section entitled
"Description of the Notes--Reorganization Events".
Examples
Here are three examples which illustrate how the cash payment on the Notes at
maturity will be calculated, assuming that you have not exchanged your Notes
and that ML&Co. has not called the Notes/(1)/:
Example 1--The hypothetical average closing market price of McDonald's common
stock at maturity is less than the closing market price of McDonald's common
stock on the pricing date:
Hypothetical Exchange Ratio: 27.229 (the actual Exchange Ratio will be
determined on the pricing date)
Hypothetical average closing market price of McDonald's common stock at
maturity: $25.00
27.229 x $25.00 = $680.73
In this case, the cash amount payable with respect to each $1,000 principal
amount of Notes at maturity would equal $1,000 plus accrued and unpaid
interest to but not including the maturity date.
Example 2--The hypothetical average closing market price of McDonald's common
stock at maturity is greater than the closing market price of McDonald's common
stock on the pricing date, but has not increased sufficiently to result in a
payment at maturity that is greater than the minimum $1,000 plus accrued and
unpaid interest payment amount on the Notes:
Hypothetical Exchange Ratio: 27.229
Hypothetical average closing market price of McDonald's common stock at
maturity: $32.00
27.229 x $32.00 = $871.33
In this case, although the average closing market price of McDonald's common
stock at maturity is greater than on the pricing date, the cash amount
payable with respect to each $1,000 principal amount of Notes would again
equal $1,000 plus accrued and unpaid interest to but not including the
maturity date.
Example 3--The hypothetical average closing market price of McDonald's common
stock at maturity is sufficiently greater than the closing market price of
McDonald's common stock on the pricing date to result in a cash payment at
maturity that is greater than the minimum $1,000 plus accrued and unpaid
interest payment amount on the Notes:
Hypothetical Exchange Ratio: 27.229
Hypothetical average closing market price of McDonald's common stock at
maturity: $50.00
27.229 x $50.00 = $1,361.45
In this case, the cash amount payable with respect to each $1,000 principal
amount of Notes at maturity would equal $1,361.45. You would not be entitled
to any accrued but unpaid interest.
(1)From and after May , 2005, ML&Co. has the right to call the Notes, as
discussed in more detail below. You should be aware that, if and to the
extent that the closing market price of McDonald's common stock increases
above the closing market price of McDonald's common stock on the pricing
date, it may become more likely that we will call the Notes.
S-5
What will I receive if the Notes are called by ML&Co. on or after May , 2005?
We may call all (but not less than all) of the Notes on any Business Day
beginning on May , 2005, through and including the stated maturity date (the
day on which the call occurs, if any, being the "Call Date") by giving notice
to the trustee of the Notes at least ten scheduled Business Days prior to the
Call Date, as described in this prospectus supplement, and specifying the Call
Date. The date we give notice to the Trustee is referred to as the "Call Notice
Date." If we elect to call the Notes, for each $1,000 principal amount of Notes
you own, we will pay you the Call Amount on the Call Date. The "Call Amount"
for each $1,000 principal amount of Notes you own will be equal to the greater
of:
. the product of the Exchange Ratio and the average closing market
price of McDonald's common stock during the specified Call
Calculation Period immediately preceding the Call Date, in which case
no additional amount will be payable as accrued and unpaid interest
for the period from and including the preceding interest payment date
through the Call Date, or
. $1,000 plus accrued and unpaid interest on your Notes to but
excluding the Call Date.
As stated above, the closing price of one share of McDonald's common
stock as of the pricing date multiplied by the Exchange Ratio equals $ . The
price of McDonald's common stock will therefore be required to increase
approximately 20-25% from the pricing date to the Call Calculation Period in
order for you to receive more than the minimum amount described above.
For more specific information regarding the calculation of the amount
payable if we call the Notes, please see the section entitled "Description of
the Notes--Call at the option of ML&Co." in this prospectus supplement.
If we elect to exercise our call option, the Call Amount will be
disclosed to DTC, or its nominee, so long as the Notes are held by DTC as
depositary. So long as DTC, or its nominee, is the registered holder of the
Notes, notice of our election to exercise the call option will be forwarded as
described in the section entitled "Description of the Notes--Depositary" in
this prospectus supplement.
Once we have given notice that we are going to call the Notes, you may
not exercise your exchange right.
What will I receive if I elect to exchange my Notes?
You may require us to exchange your Notes by giving notice at any time,
beginning on May , 2002 and ending the earlier of (i) eight scheduled
Business Days before the stated maturity date, or (ii) the Call Notice Date. If
you elect to exchange your Notes, we will deliver to you a number of shares of
McDonald's common stock equal to the Exchange Ratio. Upon an exchange, we will
not pay you any accrued and unpaid interest from the immediately preceding
interest payment date through the exchange date. For more information about
exchange, please see the section entitled "Description of the Notes--Exchange
at holder's election" in this prospectus supplement.
Also, we will not distribute any fractional shares of McDonald's common
stock. Instead, we will pay the cash value of the fractional share as more
fully described in this prospectus supplement. For more information, please see
"Description of the Notes--Fractional Shares."
Who is McDonald's?
McDonald's has disclosed that it operates in the food service industry
and primarily operates quick-service restaurant businesses under the McDonald's
brand in 120 countries around the world. You should independently investigate
McDonald's and decide whether an investment in the Notes is appropriate for you.
Because McDonald's common stock is registered under the Securities and
Exchange Act of 1934, McDonald's is required to file periodically certain
financial and other information specified by the Securities and Exchange
Commission.
S-6
Information provided to or filed with the SEC by McDonald's can be located by
reference to SEC file number 1-5231 and inspected at the SEC's public reference
facilities or accessed over the Internet through the SEC's web site. In
addition, information regarding McDonald's may be obtained from other sources
including, but not limited to, press releases, newspaper articles and other
publicly disseminated information. We make no representation or warranty as to
the accuracy or completeness of any such information. For further information,
please see the sections entitled "McDonald's Common Stock--McDonald's
Corporation" and "Where You Can Find More Information" in this prospectus
supplement.
What is McDonald's role in the Notes?
McDonald's has no obligations relating to, or other role in connection
with, the Notes, amounts of cash to be paid to you or shares of McDonald's
common stock to be delivered to you, including any obligation to take the needs
of ML&Co. or of beneficial owners of the Notes into consideration for any
reason. McDonald's will not receive any of the proceeds of the offering of the
Notes and is not responsible for, and has not endorsed or participated in, the
offering of the Notes and is not responsible for, and will not participate in,
the determination or calculation of the amounts receivable by beneficial owners
of the Notes. ML&Co. is not affiliated with McDonald's.
How has McDonald's common stock performed historically?
You can find a table with the high and low closing prices per share of
McDonald's common stock during each quarter from 1998 to the present in the
section entitled "McDonald's Common Stock--Historical data" in this prospectus
supplement. We have provided this historical information to help you evaluate
the behavior of McDonald's common stock in various economic environments;
however, past performance of McDonald's common stock is not necessarily
indicative of how it will perform in the future.
What about taxes?
Each year, you will be required to pay taxes on ordinary income from the
Notes over their term based upon an estimated yield for the Notes. We have
determined this estimated yield in accordance with regulations issued by the
U.S. Treasury Department and solely in order for you to calculate the amount of
taxes that you will owe each year as a result of owning a Note. This estimated
yield is neither a prediction nor a guarantee of the actual amounts payable on
the Notes. We have determined that this estimated yield will equal % per
annum, compounded semi-annually.
Based upon this estimated yield, you will generally be required to pay
taxes on ordinary income from the Notes each year in excess of the annual yield
on the Notes for non-tax purposes (i.e., in excess of the semi-annual interest
payments payable on the Notes). You will also recognize gain or loss on the
maturity, sale, exchange, or election by us to call a Note. Any gain recognized
by you generally will be treated as ordinary interest income; any loss will be
ordinary loss to the extent of the interest previously included in income, and
thereafter, capital loss. For further information, see "United States Federal
Income Taxation" in this prospectus supplement.
Will the Notes be listed on a stock exchange?
We have applied to have the Notes listed on the American Stock Exchange
under the trading symbol "MNV.A". You should be aware that 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?
MLPF&S, our subsidiary, is the underwriter for the offering and sale of
the Notes. After the initial offering, MLPF&S intends to buy and sell Notes to
S-7
create a secondary market for holders of the Notes, and may stabilize or
maintain the closing market price of the Notes during the initial distribution.
However, MLPF&S will not be obligated to engage in any of these market
activities or to continue them once it has started.
MLPF&S also will be our agent for purposes of calculating, among other
things, the Call Amount, the amount payable at maturity and the Exchange Ratio.
Under certain circumstances, these duties could result in a conflict of
interest between MLPF&S's status as our subsidiary and its responsibilities as
calculation agent.
Who is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various subsidiaries
and affiliated companies that provide investment, financing, insurance and
related services on a global basis. For information about ML&Co., please see
the section entitled "Merrill Lynch & Co., Inc." in the accompanying
prospectus. You should also read the other documents we have filed with the
SEC, which you can find by referring to the section entitled "Where You Can
Find More Information" in this prospectus supplement.
Are there any risks associated with an investment in the Notes?
Yes, an investment in the Notes is subject to certain risks. Please refer
to the section entitled "Risk Factors" in this prospectus supplement.
S-8
RISK FACTORS
Your investment in the Notes will involve certain risks, including risks
not associated with similar investments in a conventional debt security. You
should consider carefully the following discussion of risks before you decide
that an investment in the Notes is suitable for you.
The Notes are subject to call before their maturity
We may elect to call all of the Notes on any Business Day on or after May
, 2005, upon at least ten scheduled Business Days prior notice to the
trustee. In the event that we elect to call the Notes, you may receive an
amount that is less than the amount to which you would otherwise have been
entitled had you been able to hold the Notes until maturity (or less than the
value of shares of McDonald's common stock that you would have received upon an
exchange at your option, at any time other than the Call Date).
Your yield may be lower than the yield on a standard debt security of
comparable maturity
The amount we pay you at maturity or upon early call, or the value of any
shares of McDonald's common stock that you may receive upon an 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 a standard senior non-callable
debt security of ML&Co. with the same stated maturity date. Your investment may
not reflect the full opportunity cost to you when you consider the effect of
factors that affect the time value of money.
Your return on the Notes will not be the same as the return you could earn by
owning McDonald's common stock directly
The closing market price of one share of McDonald's common stock as of
the pricing date ($ ) multiplied by the Exchange Ratio equals $ .
The price of McDonald's common stock will therefore be required to increase
approximately 20-25% from the pricing date to the Calculation Period, the Call
Calculation Period or the Exchange Date, as the case may be, in order for you
to receive cash (or in the case of an exchange, securities having a cash value)
in excess of the principal amount of the Notes, plus any accrued and unpaid
interest.
The calculation of the average closing market price of McDonald's common
stock, and in certain circumstances, other securities, property and/or cash,
and any amounts payable to you upon any redemption or exchange, as the case may
be, does not take into consideration the value of cash dividends, if any, paid
on McDonald's common stock, other than as described in the section entitled
"Description of the Notes--Dilution and Reorganization Adjustments".
There may be an uncertain trading market for the Notes
We have applied to have the Notes listed on the AMEX debt floor under the
symbol "MNV.A". There is no historical information to indicate how the Notes
will trade in the secondary market. Listing the Notes on the AMEX does not
necessarily ensure that a liquid trading market will develop for the Notes.
Quotations for securities listed on the AMEX debt floor may not be as easily
obtainable as securities listed on the AMEX equity floor. This could affect the
development of a liquid trading market for the Notes. Also, the development of
a liquid trading market for the Notes will depend on our financial performance
and other factors such as the appreciation, if any, in the price of McDonald's
common stock. In addition, it is unlikely that the secondary market price of
the Notes will correlate exactly with the value of McDonald's common stock.
If the trading market for the Notes is limited, there may be a limited
number of buyers when you decide to sell your Notes if you do not wish to hold
your investment until the maturity date or exchange your Notes for shares of
McDonald's common stock. This may affect the price you receive.
S-9
Many factors affect the trading value of the Notes; these factors interrelate
in complex ways and the effect of any one factor may offset or magnify the
effect of another factor
The trading value of the Notes will be affected by factors that
interrelate in complex ways. It is important for you to understand that the
effect of one factor may offset the increase in the trading value of the Notes
caused by another factor and that the effect of one factor may exacerbate the
decrease in the trading value of the Notes caused by another factor. For
example, an increase in interest rates may offset some or all of any increase
in the trading value of the Notes attributable to another factor, such as an
increase in the value of McDonald's common stock. The following paragraphs
describe the expected impact on the market value of the Notes given a change in
a specific factor, assuming all other conditions remain constant.
The value of McDonald's common stock is expected to affect the trading
value of the Notes. The market value of the Notes will depend substantially on
the value of McDonald's common stock. In general, the value of the Notes will
decrease as the value of McDonald's common stock decreases and the value of the
Notes will increase as the value of McDonald's common stock increases. However,
as the value of McDonald's common stock increases or decreases, the value of
the Notes is not expected to increase or decrease at the same rate as the
change in value of McDonald's common stock. You should understand that for each
$1,000 principal amount of the Notes that you own, you will not receive more
than $1,000 in cash at the stated maturity or upon a call unless the average
closing market price of McDonald's common stock has appreciated by more than
approximately 20-25% from the original pricing date to the period in which the
calculation agent calculates the amount payable on the Notes. Additionally,
political, economic and other developments that can affect the capital markets
generally and the market segment of which McDonald's common stock is a part,
and over which we have no control, may affect the value of McDonald's common
stock and, consequently, may also affect the value of the Notes.
Changes in the levels of interest rates are expected to affect the
trading value of the Notes. In general, we anticipate that if U.S. interest
rates increase, the trading value of the Notes will decrease, and conversely,
if U.S. interest rates decrease, the trading value of the Notes will increase.
In addition, fluctuations in interest rates will affect the U.S. economy and,
in turn, the value of McDonald's common stock. Rising interest rates may lower
the value of McDonald's common stock and, as a result, may lower the value of
the Notes. Falling interest rates may increase the value of McDonald's common
stock and, as a result, may increase the value of the Notes.
Actual or anticipated changes in the volatility of McDonald's common
stock are expected to affect the trading value of the Notes. Volatility is the
term used to describe the size and frequency of market price fluctuations. In
general, if the volatility of McDonald's common stock increases, or is
anticipated to increase, we expect that the trading value of the Notes will
increase and if the volatility of McDonald's common stock decreases, or is
anticipated to decrease, we expect that the trading value of the Notes will
decrease.
As the time remaining to maturity of the Notes decreases, the "time
premium" associated with the Notes will decrease. We believe that before the
maturity date the Notes will trade at a value above that which would be
expected based on the value of McDonald's common stock. In general, as the time
remaining to maturity decreases, including because of a call at our option, the
value of the Notes will approach the amount that would be payable at maturity
or the Call Date, as the case may be, based on the then-current value of
McDonald's common stock. As a result, as the time remaining to maturity
decreases, any premium attributed to the trading value of the Notes will
diminish, decreasing the trading value of the Notes.
Changes in dividend yield on McDonald's common stock are expected to
affect the trading value of the Notes. In general, if the dividend yield, if
any, on McDonald's common stock increases, we expect that the value of the
Notes will decrease, and conversely, if the dividend yield, if any, on
McDonald's common stock decreases, we expect that the value of the Notes will
increase.
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Changes in our credit ratings may affect the trading value of the
Notes. Our credit ratings are an assessment of our ability to pay our
obligations. Consequently, real or anticipated changes in our credit ratings
may affect the trading value of the Notes. However, because your return on your
Notes is dependent upon factors in addition to our ability to pay our
obligations under the Notes, such as the percentage increase in the value of
McDonald's common stock, an improvement in our credit ratings will not reduce
the investment risks related to the Notes.
The amount payable to you upon call or exchange is not subject to adjustment
for all corporate events
The amount that you are entitled to receive upon call or exchange of the
Notes is subject to adjustment for the specified corporate events affecting
McDonald's common stock described in the section entitled "Description of the
Notes--Dilution and Reorganization Adjustments". However, these adjustments do
not cover all corporate events that could affect the market price of McDonald's
common stock. The occurrence of any other event not described under
"Description of the Notes--Dilution and Reorganization Adjustments" may
adversely affect the determination of the average closing market price and the
trading value of the Notes.
There is no affiliation between ML&Co. and McDonald's
We are not affiliated with McDonald's, and McDonald's has no obligations
or other role with respect to the Notes or amounts to be paid to you, including
any obligation to take the needs of ML&Co. or of beneficial owners of the Notes
into consideration for any reason. McDonald's will not receive any of the
proceeds of the offering of the Notes made hereby and is not responsible for,
and has not participated in, the determination or calculation of the amount
receivable by beneficial owners of the Notes on the maturity date. In addition,
McDonald's is not involved with the administration or trading of the Notes and
has no obligations with respect to the amount receivable by beneficial owners
of the Notes.
As a holder of the Notes, you have no stockholder rights with respect to
McDonald's common stock
You will not be entitled to any rights with respect to McDonald's common
stock including, without limitation, the right to receive dividends or other
distributions, if any, on, to vote or to tender or exchange McDonald's common
stock in any tender or exchange offer by McDonald's or any third party.
Amounts payable on the Notes may be limited by state law
New York State law governs the 1983 Indenture under which ML&Co. will
issue the Notes. New York has certain usury laws that limit the amount of
interest that can be charged and paid on loans, which includes notes like the
Notes. Under present New York law, the maximum rate of interest is 25% per
annum on a simple interest basis. This limit may not apply to notes in which
$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 your benefit, to the extent permitted by law,
not to voluntarily claim the benefits of any laws concerning usurious rates of
interest.
Purchase and sales of McDonald's common stock by us and our affiliates may
affect your return
We and our affiliates may from time to time buy or sell McDonald's common
stock or futures or option contracts on McDonald's common stock of our own
accounts for business reasons. We expect to enter into such transactions in
connection with hedging our obligations under the Notes. These transactions
could affect the price of McDonald's common stock and, in turn, the value of
the Notes 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 price of McDonald's common stock.
Temporary increases in the market price of
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McDonald's common stock may also occur as a result of the purchasing activities
of other market participants in anticipation of this transaction or otherwise.
Consequently, the price of McDonald's common stock may decline subsequent to
the pricing date, reducing the market value of the Notes.
Potential conflicts
The calculation agent for the Notes is MLPF&S, our subsidiary. Under
certain circumstances, MLPF&S's role as our subsidiary and its responsibilities
as calculation agent for the Notes could give rise to conflicts of interest
between the calculation agent and the holders of the Notes. These conflicts
could occur, for instance, in connection with the calculation agent's
determination as to whether a Market Disruption Event, as defined in this
prospectus supplement, has occurred or in connection with judgments that the
calculation agent would be required to make with respect to certain
anti-dilution and reorganization adjustments to the market price of McDonald's
common stock or other securities, cash or property. MLPF&S is required to carry
out its duties as calculation agent in good faith and use its reasonable
judgment. However, you should be aware that because we control MLPF&S,
potential conflicts of interest could arise.
We have entered into an arrangement with one of our subsidiaries to hedge
the market risks associated with our obligation to pay the amounts due under
the Notes. Our subsidiary expects to make a profit in connection with this
arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
Tax consequences
You should also consider the tax consequences of investing in the Notes.
See "United States Federal Income Taxation" below.
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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. The Notes will mature on May , 2009.
The Notes may be called by ML&Co. as described below, but are not
otherwise subject to redemption by us 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 section and "Description of Debt Securities--Events of
Default" in the accompanying prospectus of ML&Co.
ML&Co. will issue the Notes in denominations of $1,000 and integral
multiples of $1,000.
The Notes will not have the benefit of any sinking fund.
Interest
The Notes will bear interest at a rate of 1% per year on the principal
amount of each Note from May , 2002 or from the most recent interest payment
date for which interest has been paid or provided for, to but excluding the
stated maturity date or the earlier Call Date, as defined in this prospectus
supplement, if applicable. Notwithstanding the foregoing, in the event that the
Call Amount (as defined below) or the amount payable at maturity is a result of
the product of the Exchange Ratio (as defined below) and the average closing
market price of McDonald's common stock being greater than $1,000 plus accrued
and unpaid interest, or in the event shares of McDonald's common stock are to
be delivered upon an exchange at your election, the Notes shall cease bearing
interest after the immediately preceding interest payment date.
Subject to the preceding paragraph, we will pay interest on the Notes in
cash semi-annually in arrears on May and November of each year and on the
maturity date or the Call Date, as applicable, beginning November , 2002. We
will pay this interest to the persons in whose names the Notes are registered
at the close of business on the immediately preceding May and November ,
respectively, whether or not that date is a Business Day, as defined below.
Notwithstanding the foregoing, in the event that the Notes are called at the
option of ML&Co., the final payment of interest, if any, will be paid to the
person to whom the Call Amount shall be paid. Interest on the Notes will be
computed on the basis of a 360-day year of twelve 30-day months. If an interest
payment date falls on a day that is not a Business Day, that interest payment
will be made on the next Business Day and no additional interest will accrue as
a result of the delayed payment.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in The City of New York are
authorized or obligated by law to close.
Payment at maturity
If we do not call the Notes on or prior to the stated maturity date and
you have not elected to exchange your Notes, then at maturity we will pay you,
for each $1,000 principal amount of Notes you own on the maturity date, an
amount in cash equal to the greater of:
1. the product of the Exchange Ratio and the average closing market
price of McDonald's common stock on the first five Calculation Days
during the Calculation Period, as defined below; provided, however,
that
. if there are fewer than five Calculation Days during the
Calculation Period, then the amount payable shall be calculated
using the average on those Calculation Days,
. if there is only one Calculation Day during the Calculation
Period, then the amount payable shall be calculated using the
closing market price of McDonald's common stock on that
Calculation Day, and
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. if no Calculation Days occur during the Calculation Period with
respect to McDonald's common stock, then the amount payable shall
be calculated using the closing market price on the last scheduled
Calculation Day in the Calculation Period regardless of whether a
Market Disruption Event, as defined in this prospectus supplement,
occurs on that date,
and provided further that if the amount you receive is based on this
formula, you will not receive accrued interest from and including the
immediately preceding interest payment date through the maturity
date, or
2. $1,000 plus accrued and unpaid interest on your Notes to but
excluding the maturity date.
If the maturity date is not a Business Day, we will pay the cash amount
due at the stated maturity date on the first Business Day following the
maturity date and no additional interest will accrue to such payment date.
All determinations made by the calculation agent shall be at the sole
discretion of the calculation agent and, absent a determination by the
calculation agent of a manifest error, shall be conclusive for all purposes and
binding on ML&Co. and beneficial owners of the Notes.
"Exchange Ratio" initially means , but is subject to adjustment
for certain events described under "Dilution and Reorganization
Adjustments--Exchange Ratio adjustments" and "--Alternative Dilution and
Reorganization Adjustments" in this section.
"Calculation Period" means the period from and including the seventh
scheduled Calculation Day immediately preceding the maturity date to and
including the second scheduled Calculation Day before the maturity date.
"Calculation Day" means any Trading Day during the Calculation Period on
which a Market Disruption Event has not occurred.
"Trading Day" means a day on which The New York Stock Exchange, the AMEX
and the Nasdaq Stock Market are open for trading as determined by the
calculation agent.
"Closing market price" means:
If McDonald's common stock (or any other security for which a closing
market price must be determined for purposes of the Notes) is listed on a
national securities exchange in the United States, is a Nasdaq National Market
System ("Nasdaq NMS") security or is included in the OTC Bulletin Board Service
("OTC Bulletin Board") operated by the National Association of Securities
Dealers, Inc. (the "NASD"), then the "closing market price" for any date of
determination on any Trading Day means for one share of McDonald's common stock
(or any other security for which a closing market price must be determined for
purposes of the Notes):
. the last reported sale price, regular way, on that day on the
principal United States securities exchange registered under the
Exchange Act on which that security is listed or admitted to trading
(without taking into account any extended or after-hours trading
session), or
. if not listed or admitted to trading on any such securities exchange
or if the last reported sale price is not obtainable, the last
reported sale price on the over-the-counter market as reported on the
Nasdaq NMS or OTC Bulletin Board on that day (without taking into
account any extended or after-hours trading session), or
. if the last reported sale price is not available for any reason,
including, without limitation, the occurrence of a Market Disruption
Event, as described below, the mean of the last reported bid and
offer price of the principal trading session on the over-the-counter
market as reported on the
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Nasdaq Stock Market or OTC Bulletin Board on that day as determined
by the calculation agent or from as many dealers in such security,
but not exceeding three, as have made the bid prices available to the
calculation agent after 3:00 p.m., local time in the principal
market, on that date (without taking into account any extended or
after-hours trading session).
If McDonald's common stock (or any other security for which a closing
market price must be determined for purposes of the Notes) is not listed on a
national securities exchange in the United States, is not a Nasdaq NMS security
or included in the OTC Bulletin Board Service operated by the NASD, then the
closing market price for any date of determination on any Trading Day means for
one share of McDonald's common stock (or any other security for which a closing
market price must be determined for purposes of the Notes) the last reported
sale price on that day on the securities exchange on which that security is
listed or admitted to trading with the greatest volume of trading for the
calendar month preceding such Trading Day as determined by the calculation
agent; provided that if the last reported sale price is for a transaction which
occurred more than four hours prior to the close of that exchange, then the
closing market price shall mean the average (mean) of the last available bid
and offer price on that exchange.
If McDonald's common stock (or any other security for which a closing
market price must be determined for purposes of the Notes) is not listed or
admitted to trading on any such securities exchange or if such last reported
sale price or bid and offer are not obtainable, then the closing market price
shall mean the average (mean) of the last available bid and offer prices in
such market of the three dealers which have the highest volume of transactions
in that security in the immediately preceding calendar month as determined by
the calculation agent based on information that is reasonably available to it.
"Market Disruption Event" means:
1. a suspension, absence, including the absence of an official closing
price, or material limitation of trading of McDonald's common stock
on the primary market for McDonald's common stock for more than two
hours of trading or during the one-half hour period preceding the
close of trading, as determined by the calculation agent in its sole
discretion, or the suspension or material limitation on the primary
market for trading in options contracts related to McDonald's common
stock, if available, during the one-half hour period preceding the
close of trading in the applicable market, in each case as determined
by the calculation agent in its sole discretion, and
2. a determination by the calculation agent in its sole discretion that
the event described in clause (1) above materially interfered with
the ability of ML&Co., MLPF&S or any of their affiliates to unwind
all or a material portion of the hedge with respect to the Notes.
For purposes of determining whether a Market Disruption Event has
occurred:
. a limitation on the hours or number of days of trading will not
constitute a Market Disruption Event if it results from an announced
change in the regular business hours of the relevant exchange,
. a decision to permanently discontinue trading in the relevant options
contracts related to McDonald's common stock will not constitute a
Market Disruption Event,
. limitations pursuant to any rule or regulation enacted or promulgated
by The New York Stock Exchange or the Nasdaq Stock Market or other
regulatory organization with jurisdiction over The New York Stock
Exchange or the Nasdaq Stock Market on trading during significant
market fluctuations will constitute a suspension or material
limitation of trading in McDonald's common stock,
. a suspension of trading in an options contract on McDonald's common
stock by the primary securities market trading in the options
contracts related to McDonald's common stock, if available, by reason
of:
. a price change exceeding limits set by the securities exchange or
market,
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. an imbalance of orders relating to options contracts on McDonald's
common stock, or
. a disparity in bid and ask quotes relating to options contracts on
McDonald's common stock
will constitute a suspension or material limitation of trading in
options contracts related to McDonald's common stock, and
. a suspension, absence or material limitation of trading on the
primary securities market on which options contracts related to
McDonald's common stock are traded will not include any time when
that securities market is itself closed for trading under ordinary
circumstances.
As a result of the recent terrorist attacks in Manhattan and Washington
D.C., the financial markets were closed from September 11, 2001 through
September 14, 2001. Such market closures would have constituted Market
Disruption Events.
Call at the option of ML&Co.
ML&Co., in its sole discretion, may call the Notes, in whole but not in
part, on any Business Day beginning on May , 2005, to and including the
maturity date (the date on which the call, if any, occurs being the "Call
Date") by giving notice to the trustee on any Business Day at least ten
scheduled Business Days prior to the Call Date. Any date on which we give
notice to the trustee that we are calling the Notes is referred to as the "Call
Notice Date". The notice to the trustee will specify the Call Date. The trustee
will provide notice of the call election to the registered holders of the
Notes, specifying the Call Date. While the Notes are held at the depositary,
the registered holder will be the depositary, and the depositary will receive
the notice of the call. So long as the depositary is the registered holder of
the Notes, notice of our election to exercise the call option will be forwarded
as more fully described below under "--Depositary".
If we call the Notes, for each $1,000 principal amount of the Notes you
own on the Call Date, we will pay you on the Call Date an amount in cash (the
"Call Amount") equal to the greater of:
1. the product of the Exchange Ratio and the average closing market
price of McDonald's common stock on the first five Calculation Days
during the Call Calculation Period, as defined below; provided,
however, that
. if there are fewer than five Calculation Days during the Call
Calculation Period, then the amount payable shall be calculated
using the average on those Calculation Days,
. if there is only one Calculation Day during the Call Calculation
Period, then the amount payable upon such call shall be calculated
using the closing market price of McDonald's common stock on that
Calculation Day, and
. if no Calculation Days occur during the Call Calculation Period
with respect to McDonald's common stock, then the amount payable
upon such call shall be calculated using the closing market price
on the last scheduled Calculation Day in the Call Calculation
Period regardless of whether a Market Disruption Event, as defined
in this prospectus supplement, occurs on that date,
and provided further that if the amount you receive is based on this
formula, you will not receive accrued interest from and including the
immediately preceding interest payment date through the Call Date, or
2. $1,000 plus accrued and unpaid interest on your Notes to but
excluding the Call Date.
"Call Calculation Period" means the period from and including the seventh
scheduled Calculation Day immediately preceding the Call Date to and including
the second scheduled Calculation Day before the Call Date.
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Early exchange at holder's election
You may elect to exchange all or a portion of the Notes you own by giving
notice as described below on any Business Day which is also a Trading Day
during the period beginning on May , 2002 and ending on the earlier of (i)
eight scheduled Business Days before the stated maturity date, or (ii) the
Business Day before the Call Notice Date. Your written notice must be given to
the calculation agent and the trustee by 3:00 p.m., New York City time on such
date. If the calculation agent receives your notice after 3:00 p.m., New York
City time, on any Trading Day, your notice will be deemed to have been given on
the following Trading Day. Any date on which you give us proper notice
requiring us to exchange your Notes early, or day on which such notice shall be
deemed to have been given, is referred to as the "Exchange Notice Date".
If you exercise your exchange right, as described above, then as of the
applicable Exchange Notice Date, ML&Co. may no longer call your Notes and you
will receive shares of McDonald's common stock, the value of which could be
less than the cash amount which you would otherwise have been entitled had you
held the Notes until maturity. Therefore, you should carefully consider this
risk before exercising the exchange right.
For each $1,000 principal amount of the Notes you require us to exchange,
we will deliver to you a number of shares of McDonald's common stock equal to
the Exchange Ratio (subject to adjustment for certain corporate reorganization
events, as described below), as determined on the Exchange Notice Date.
If you elect to exercise your exchange option, then you will not receive
accrued interest from and including the immediately preceding interest payment
date through the Exchange Date. We will deliver the shares of McDonald's common
stock to you no more than five Business Days after the Exchange Notice Date. We
refer to that fifth Business Day after the Exchange Notice Date as the
"Exchange Date."
All determinations made by the calculation agent shall be at the sole
discretion of the calculation agent and, absent a determination by the
calculation agent of a manifest error, shall be conclusive for all purposes and
binding on ML&Co. and beneficial owners of the Notes.
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 your exchange option in respect of your Notes
through the depositary, by delivering notice of your election to the
depositary. 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 of exchange of your Notes, 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.
Fractional Shares
Because the Exchange Ratio is not a whole number and because it may be
adjusted to account for certain corporate events described in this prospectus
supplement, on your election for exchange, for each $1,000 principal amount of
Notes you own, you may be entitled to receive a number of shares of McDonald's
common stock that is not divisible by a whole number. We will not distribute
any fractional shares of McDonald's common stock. We will aggregate all amounts
due on any delivery date, and in lieu of delivering a fractional share of
McDonald's common stock, we will pay the cash value of the fractional share
based on the closing market price. While the Notes are held at the depositary,
the sole registered holder will be the depositary. Depositary participants have
different policies pertaining to fractional shares. You should consult the
participant through which you hold the Notes to ascertain a participant's
specific policy.
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Hypothetical returns on the earliest Call Date and the stated maturity
Based upon the assumptions described below, the following table
illustrates, for a range of hypothetical closing market prices of McDonald's
common stock:
. the percentage change from the closing market price on the
hypothetical pricing date to the determination of the hypothetical
closing market price of McDonald's common stock,
. the cash amount payable on the Notes, including the payment of
accrued and unpaid interest, if applicable, on the earliest possible
Call Date,
. the cash amount payable on the Notes, including the payment of
accrued and unpaid interest, if applicable, at the maturity date,
. the total annualized yield on the Notes, calculated as of the
earliest possible Call Date and as of the maturity date, and
. the total annualized yield from direct ownership of McDonald's common
stock on the earliest Call Date and at the maturity date.
The table below also assumes:
. original issue date: May 15, 2002
. Exchange Ratio: 27.229 (based on the closing market price of McDonald's common stock
on May 14, 2002 of $29.98)
. interest rate: 1% per year, payable semi-annually
. interest payment dates: On the 15th day of each May and November beginning on November 15,
2002 (computed on the basis of a 360-day year of twelve 30-day months
compounded annually)
. Call Date: May 16, 2005
. maturity date: May 15, 2009
Total
annualized Total
yield from annualized
Percentage change direct yield from
from hypothetical Amount Total ownership of Total direct
issue price to payable on annualized McDonald's Amount annualized ownership of
Hypothetical hypothetical the Notes at yield on the common stock payable on yield on the McDonald's
average closing closing the earliest earliest Call on earliest the Notes at Notes at common stock
market price market price Call Date(1)(2) Date(2)(3) Call Date(4) maturity(1) maturity(3) at maturity(4)
------------ ----------------- ---------------- ------------- ------------ ------------ ------------ --------------
6.00 -80% $1,000.03 1.00% -40.09% $1,005.00 1.00% -18.91%
11.99 -60% $1,000.03 1.00% -25.25% $1,005.00 1.00% -11.13%
17.99 -40% $1,000.03 1.00% -14.75% $1,005.00 1.00% -6.10%
23.98 -20% $1,000.03 1.00% -6.35% $1,005.00 1.00% -2.31%
29.98(5) 0% $1,000.03 1.00% 0.75% $1,005.00 1.00% 0.75%
35.98 20% $1,000.03 1.00% 6.97% $1,005.00 1.00% 3.33%
41.97 40% $1,142.86 5.52% 12.53% $1,142.86 2.82% 5.58%
47.97 60% $1,306.12 10.24% 17.59% $1,306.12 4.74% 7.56%
53.96 80% $1,469.39 14.59% 22.25% $1,469.39 6.47% 9.35%
59.96 100% $1,632.65 18.63% 26.57% $1,632.65 8.04% 10.98%
- --------
(1)The cash amounts specified in this column include, if applicable, payment of
accrued and unpaid interest payable on the earliest Call Date or at
maturity, as the case may be. These hypothetical cash payment amounts are
for illustrative purposes only. ML&Co. may elect at any time between the
earliest Call Date and the stated maturity to call the Notes or an investor
may choose to exchange the Notes at any time until shortly before the stated
maturity. Whether amounts are actually paid at the times indicated depends
on numerous factors, including but not limited to future market conditions.
(2)For purposes of this table, if we elect to exercise our right to call the
Notes, the earliest Call Date would be May 16, 2005.
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(3)The total annualized yield represents the interest rate per year used in
determining the present values, discounted to the original issue date
(computed on the basis of a 360-day year of twelve 30-day months), of all
payments made or to be made on the Notes, including all interest payments
made or accrued through and including the earliest Call Date or stated
maturity date, as the case may be, the sum of these present values being
equal to the original issue price. This annualized yield assumes:
(a)coupon payments are (i) made semi-annually on the 15th of May and
November of each year beginning on November 15, 2002, and (ii)
reinvested for the remainder of the term of the Notes at the
applicable yield listed in this column,
(b)an investment term, with respect to the earliest Call Date, from
May 15, 2002 to May 16, 2005, and with respect to the stated
maturity, from May 15, 2002 to May 15, 2009, and
(c)a computation on the basis of a 360-day year of twelve 30-day
months compounded annually.
(4)Assumes the dividend on McDonald's common stock is 22.5 cents per year,
which is (i) paid annually on the 15th of May of each year beginning on May
15, 2003, and (ii) reinvested for the remainder of the term of the Notes at
the applicable yield listed in this column; also assumes no increases in
dividend payments on McDonald's common stock, although in reality dividend
payments may increase or decrease during the term of the Notes. McDonald's
states that it has increased its dividend payment in each of the past 26
years. McDonald's last dividend, paid in 2001, equaled 22.5 cents per share
per year. At the present time, McDonald's pays dividends on a yearly basis,
in December of each year.
(5)This was the closing market price of McDonald's common stock on May 14,
2002, the hypothetical pricing date.
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 Notes upon any
acceleration permitted by the Notes, with respect to each $1,000 principal
amount of Notes, will be equal to an amount as described under "--Call at the
option of ML&Co." above, calculated as though the date of default were the Call
Notice Date for the Notes. If a bankruptcy proceeding is commenced in respect
of ML&Co., the claim of the beneficial owner of the Notes may be limited, under
Section 502(b)(2) of Title 11 of the United States Code, to the original issue
price of the Notes plus an additional amount of contingent interest calculated
as though the date of commencement of the proceeding were the maturity date of
the Notes.
In case of default in payment of the Notes, whether at any interest
payment date, the stated maturity date, the Call Date, the Exchange Date or
upon acceleration, from and after that date the Notes will bear interest,
payable upon demand of their beneficial owners, at the rate of % per year, to
the extent that payment of such interest shall be legally enforceable, on the
unpaid amount due and payable on that date in accordance with the terms of the
Notes to the date payment of that amount has been made or duly provided for.
Dilution and Reorganization Adjustments
The Exchange Ratio used to calculate amounts payable on any date of
determination is subject to adjustment by the calculation agent as a result of
the dilution and reorganization adjustments described in this section.
Exchange Ratio adjustments
No adjustments to the Exchange Ratio will be required unless the Exchange
Ratio adjustment would require a change of at least 0.1% in the Exchange Ratio
then in effect. The Exchange Ratio resulting from any of the adjustments
specified in this section will be rounded to the nearest one thousandth with
five ten-thousandths being rounded upward. The calculation agent will not be
required to make any adjustments to the Exchange Ratio after the close of
business on the eighth scheduled Business Day immediately prior to the maturity
date, the Call Date or the Exchange Date, as applicable.
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No adjustments to the Exchange Ratio will be required other than those
specified below. However, ML&Co. may, at its sole discretion, cause the
calculation agent to make additional adjustments to the Exchange Ratio to
reflect changes occurring in relation to McDonald's common stock or any other
security received in a reorganization event in other circumstances where ML&Co.
determines that it is appropriate to reflect those changes. The required
adjustments specified in this section do not cover all events that could affect
the closing market price of McDonald's common stock, including, without
limitation, a partial tender or exchange offer for McDonald's common stock.
MLPF&S, as calculation agent, shall be solely responsible for the
determination and calculation of any adjustments to the Exchange Ratio and of
any related determinations and calculations with respect to any distributions
of stock, other securities or other property or assets, including cash, in
connection with any corporate event described in this section, and its
determinations and calculations shall be conclusive absent manifest error.
No adjustments will be made for certain other events, such as offerings
of common stock by McDonald's for cash or in connection with acquisitions or
the occurrence of a partial tender or exchange offer for McDonald's common
stock by McDonald's or any third party.
ML&Co. will, within ten Business Days following the occurrence of an
event that requires an adjustment to the Exchange Ratio, or if ML&Co. is not
aware of this occurrence, as soon as practicable after becoming so aware,
provide written notice to the trustee, which shall provide notice to the
holders of the Notes of the occurrence of this event and, if applicable, a
statement in reasonable detail setting forth the adjusted Exchange Ratio.
Stock splits and reverse stock splits
If McDonald's common stock is subject to a stock split or reverse stock
split, then once any split has become effective, the Exchange Ratio relating to
McDonald's common stock will be adjusted to equal the product of the prior
Exchange Ratio and the number of shares which a holder of one share of
McDonald's common stock before the effective date of that stock split or
reverse stock split would have owned or been entitled to receive immediately
following the applicable effective date.
Stock dividends
If McDonald's common stock is subject to a (i) stock dividend, i.e.,
issuance of additional shares of McDonald's common stock, that is given ratably
to all holders of shares of McDonald's common stock, or (ii) distribution of
shares of McDonald's common stock as a result of the triggering of any
provision of the corporate charter of McDonald's, then, once the dividend has
become effective and the shares are trading ex-dividend, the Exchange Ratio
will be adjusted so that the new Exchange Ratio shall equal the prior Exchange
Ratio plus the product of:
. the number of shares of McDonald's common stock issued with respect
to one share of McDonald's common stock, and
. the prior Exchange Ratio.
Extraordinary Dividends
There will be no adjustments to the Exchange Ratio to reflect any cash
dividends or cash distributions paid with respect to McDonald's common stock
other than Extraordinary Dividends, as described below, and distributions
described under the section entitled "--Reorganization Events" below.
S-20
An "Extraordinary Dividend" means, with respect to a cash dividend or
other distribution with respect to McDonald's common stock, a dividend or other
distribution which exceeds the immediately preceding non-Extraordinary Dividend
for McDonald's common stock (as adjusted for any subsequent corporate event
requiring an adjustment as described in this prospectus supplement, such as a
stock split or reverse stock split) by an amount equal to at least 10% of the
closing market price of McDonald's common stock on the Trading Day preceding
the ex-dividend date with respect to the Extraordinary Dividend (the
"ex-dividend date"). If an Extraordinary Dividend occurs with respect to
McDonald's common stock, the Exchange Ratio will be adjusted on the ex-dividend
date with respect to the Extraordinary Dividend so that the new Exchange Ratio
will equal the product of:
. the prior Exchange Ratio, and
. a fraction, the numerator of which is the closing market price per
share of McDonald's common stock on the Trading Day preceding the
ex-dividend date, and the denominator of which is the amount by which
the closing market price on the Trading Day preceding the ex-dividend
date exceeds the Extraordinary Dividend Amount.
The "Extraordinary Dividend Amount" with respect to an Extraordinary
Dividend for McDonald's common stock will equal:
. in the case of cash dividends or other distributions that constitute
quarterly dividends, the amount per share of that Extraordinary
Dividend minus the amount per share of the immediately preceding
non-Extraordinary Dividend for those shares of McDonald's common
stock, or
. in the case of cash dividends or other distributions that do not
constitute quarterly dividends, the amount per share of that
Extraordinary Dividend.
To the extent an Extraordinary Dividend is not paid in cash, the value of
the non-cash component will be determined by the calculation agent, whose
determination shall be conclusive. A distribution on McDonald's common stock
described in clause (a), (d) or (e) of the section entitled "--Reorganization
Events" below that also constitutes an Extraordinary Dividend shall only cause
an adjustment pursuant to clause (a), (d) or (e) under the section entitled
"--Reorganization Events". A distribution on McDonald's common stock described
in the section entitled "--Issuance of transferable rights and warrants" that
also constitutes an Extraordinary Dividend shall only cause an adjustment
pursuant to that section.
Issuance of transferable rights or warrants
If McDonald's issues transferable rights or warrants to all holders of
McDonald's common stock to subscribe for or purchase McDonald's common stock,
including new or existing rights to purchase McDonald's common stock pursuant
to a shareholder's rights plan or arrangement, then the Exchange Ratio will be
adjusted on the Business Day immediately following the issuance of such
transferable rights or warrants so that the new Exchange Ratio shall equal the
prior Exchange Ratio plus the product of:
. the prior Exchange Ratio, and
. the number of shares of McDonald's common stock that can be purchased
with the cash value of such warrants or rights distributed on a
single share of McDonald's common stock.
The number of shares that can be purchased will be based on the closing market
price of McDonald's common stock on the date the new Exchange Ratio is
determined. The cash value of such warrants or rights, if the warrants or
rights are traded on a national securities exchange, will equal the closing
price of such warrant or right, or, if the warrants or rights are not traded on
a national securities exchange, will be determined by the calculation agent and
will equal the average (mean) of the bid prices obtained from three dealers at
3:00 p.m., New York City time, on the date the new Exchange Ratio is
determined, provided that if only two such bid prices
S-21
are available, then the cash value of such warrants or rights will equal the
average (mean) of such bids and if only one such bid is available, then the
cash value of such warrants or rights will equal such bid.
Reorganization Events
If prior to the maturity date of the Notes,
(a)there occurs any reclassification or change of McDonald's common
stock, including, without limitation, as a result of the issuance
of tracking stock by McDonald's,
(b)McDonald's, or any surviving entity or subsequent surviving entity
of McDonald's (a "Successor Entity"), has been subject to a
merger, combination or consolidation and is not the surviving
entity,
(c)any statutory exchange of securities of McDonald's or any
Successor Entity with another corporation occurs, other than
pursuant to clause (b) above,
(d)McDonald's is liquidated or is subject to a proceeding under any
applicable bankruptcy, insolvency or other similar law,
(e)McDonald's issues to all of its shareholders equity securities of
an issuer other than McDonald's, other than in a transaction
described in clauses (b), (c) or (d) above (a "Spin-off Event"), or
(f)a tender or exchange offer or going-private transaction is
consummated for all the outstanding shares of McDonald's (an event
in clauses (a) through (f), a "Reorganization Event"),
then the method of determining the amount payable or deliverable on each Note
will be adjusted as set forth below.
"Exchange Property" will consist of any McDonald's common stock continued
to be held by the holders of McDonald's common stock, and any securities, cash
or any other assets distributed to the holders of McDonald's common stock in or
as a result of the Reorganization Event. No interest will accrue on any
Exchange Property.
For the purpose of all relevant calculations to be made under the Notes
after the occurrence of a Reorganization Event, the Exchange Ratio shall be
applied to an amount of Exchange Property equal to the amount of Exchange
Property delivered with respect to one share of McDonald's common stock at the
time of the Reorganization Event.
If the Exchange Property consists solely of securities (including without
limitation securities of McDonald's Corporation or securities of foreign
issuers represented by American depositary receipts) traded on the New York
Stock Exchange, American Stock Exchange or Nasdaq National Market ("Exchange
Traded Securities"), then the method of determining the amount payable or
deliverable on each Note upon any call or exchange, or at the stated maturity
date, shall be unchanged except that the Exchange Ratio shall be applied to
Exchange Property rather than to shares of McDonald's common stock.
If the Exchange Property consists of cash, other property that is not
Exchange Traded Securities or a combination thereof, MLPF&S shall liquidate all
non-cash Exchange Property upon terms that it deems commercially reasonable,
and the Exchange Property shall, after such liquidation, equal the aggregate
cash amount, including the amount resulting from that liquidation. We refer to
the aggregate cash amount attributable to Exchange Property delivered with
respect to one share of McDonald's common stock as the "Per Share Liquidation
Value". Following a Reorganization Event of this sort, the method of
determining the amount payable or deliverable on each Note upon any call or
exchange, or at the stated maturity date, shall be unchanged
S-22
except that the Exchange Ratio shall be applied to the Per Share Liquidation
Value rather than to shares of McDonald's common stock.
If the Exchange Property consists of any other combination of Exchange
Traded Securities, cash or other property that is not Exchange Traded
Securities, MLPF&S shall liquidate all non-cash property that is not Exchange
Traded Securities upon terms that it deems commercially reasonable. Following a
Reorganization Event of this sort, the method of determining the amount payable
or deliverable on each Note upon any call or exchange, or at the stated
maturity date, shall be unchanged except that the Exchange Ratio shall be
applied to the sum of the Per Share Liquidation Value and the Exchange Traded
Securities rather than to shares of McDonald's common stock.
In the event Exchange Property consists of securities, those securities
will, in turn, be subject to the antidilution adjustments set forth in this
prospectus supplement.
In the case of a consummated tender or exchange offer or going-private
transaction involving Exchange Property of a particular type, Exchange Property
shall be deemed to include the amount of cash or other property paid by the
offer or in the tender or exchange offer with respect to such Exchange Property
(in an amount determined on the basis of the rate of exchange in such tender or
exchange offer or going-private transaction). In the event of a tender or
exchange offer or a going-private transaction with respect to Exchange Property
in which an offeree may elect to receive cash or other property, Exchange
Property shall be deemed to include the kind and amount of cash and other
property received by offerees who elect to receive cash.
MLPF&S, as calculation agent, shall be solely responsible for
determination and calculation of the Exchange Property if a Reorganization
Event occurs and the cash amount due upon exchange, including the determination
of the cash value of any Exchange Property and the Per Share Liquidation Value,
if necessary. Its determinations and calculations shall be conclusive absent
manifest error.
Alternative Dilution and Reorganization Adjustments
The calculation agent may elect at its discretion to not make any of the
adjustments to the Exchange Ratio or to the method of determining the amount
payable on each Note described above under "Exchange Ratio Adjustments" and
"Reorganization Events", but may instead make adjustments in its discretion to
the Exchange Ratio or the method of determining the amount payable on each Note
that will reflect the adjustments to the extent practicable made by the Options
Clearing Corporation on option contracts on McDonald's common stock or any
successor common stock. ML&Co. will provide notice of any such election to the
trustee not more than two Business Days following the date that the Options
Clearing Corporation publishes notice of its adjustments relating to McDonald's
common stock and will detail in such notice the actual adjustment made to the
Exchange Ratio or to the method of determining the amount payable on each Note.
Depositary
Description of the global securities
Upon issuance, all Notes will be represented by one or more fully
registered global security. Each global security will be deposited with, or on
behalf of, DTC (DTC, together with any successor, being a "depositary"), as
depositary, registered in the name of Cede & Co., DTC's partnership nominee.
Unless and until it is exchanged in whole or in part for Notes in definitive
form, no global security may be transferred except as a whole by the depositary
to a nominee of the depositary or by a nominee of the depositary to the
depositary or another nominee of the depositary or by the depositary or any
nominee to a successor of the depositary or a nominee of that successor.
S-23
So long as DTC, or its nominee, is a registered owner of a global
security, DTC or its nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by the global security for all
purposes under the 1983 Indenture. Except as provided below, the beneficial
owners of the Notes represented by a global security will not be entitled to
have the Notes represented by a global security registered in their names, will
not receive or be entitled to receive physical delivery of the Notes in
definitive form and will not be considered the owners or holders of the Notes
including for purposes of receiving any reports delivered by ML&Co. or the
trustee under the 1983 Indenture. Accordingly, each person owning a beneficial
interest in a global security must rely on the procedures of DTC and, if that
person is not a participant of DTC, on the procedures of the participant
through which that person owns its interest, to exercise any rights of a holder
under the 1983 Indenture. ML&Co. understands that under existing industry
practices, in the event that ML&Co. requests any action of holders or that an
owner of a beneficial interest in a global security desires to give or take any
action which a holder is entitled to give or take under the 1983 Indenture, DTC
would authorize the participants holding the relevant beneficial interests to
give or take that action, and those participants would authorize beneficial
owners owning through those participants to give or take that action or would
otherwise act upon the instructions of beneficial owners. Conveyance of notices
and other communications by DTC to participants, by participants to indirect
participants and by participants and indirect participants to beneficial owners
will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
DTC procedures
The following is based on information furnished by DTC:
DTC will act as securities depositary for the Notes. The Notes will be
issued as fully registered securities registered in the name of Cede & Co.,
DTC's partnership nominee. One or more fully registered global securities will
be issued for the Notes in the aggregate principal amount 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 Exchange
Act. DTC holds securities that its participants deposit with DTC. DTC also
facilitates the settlement among participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct participants
of DTC include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
direct participants and by The New York Stock Exchange, the AMEX, and the
National Association of Securities Dealers, Inc. Access to DTC's system is also
available to others such as security brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly. The rules applicable to DTC and its
participants are on file with the SEC.
Purchases of the 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.
S-24
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 the Notes are credited, which may or may
not be the beneficial owners. The participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Notes. Under its usual procedures, DTC mails an omnibus proxy to ML&Co. as soon
as possible after the applicable record date. The omnibus proxy assigns Cede &
Co.'s consenting or voting rights to those direct participants identified in a
listing attached to the omnibus proxy to whose accounts the Notes are credited
on the record date.
Principal, premium, if any, and/or interest, if any, and 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 will be the
responsibility of DTC, and disbursement of those payments to the beneficial
owners will be the responsibility of direct participants and indirect
participants.
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 and of an equal aggregate principal amount, in denominations of $1,000
principal amount per unit and integral multiples of $1,000 principal amount per
unit. 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, Note certificates are required to be printed and
delivered.
ML&Co. may decide to discontinue use of the system of book-entry
transfers through DTC or a successor securities depositary. In that event, Note
certificates will be printed and delivered.
S-25
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.
MCDONALD'S COMMON STOCK
McDonald's Corporation
The following information has been derived from publicly available
documents published by McDonald's. We make no representation or warranty as to
the accuracy or completeness of the following information.
McDonald's has disclosed that it operates in the food service industry
and primarily operates quick-service restaurant businesses under the McDonald's
brand in 120 countries around the world. Information provided to or filed with
the SEC by McDonald's can be located at the SEC's facilities or through the
SEC's web site by reference to SEC file number 1-5231 for McDonald's. See
"Where You Can Find More Information". ML&Co. makes no representation or
warranty as to the accuracy or completeness of the information or reports.
The selection of McDonald's common stock is not a recommendation to buy
or sell McDonald's common stock and neither ML&Co. nor any of its affiliates
make any representation to any purchaser of the Notes as to the performance of
McDonald's common stock.
McDonald's common stock trades on The New York Stock Exchange under the
symbol "MCD".
ML&Co. is not affiliated with McDonald's. McDonald's has no obligations
with respect to the Notes. This prospectus supplement relates only to the Notes
and does not relate to McDonald's common stock or other securities of
McDonald's. All disclosures contained in this prospectus supplement regarding
McDonald's are derived from the publicly available documents described above.
Neither ML&Co. nor MLPF&S has participated in the preparation of these
documents or made any due diligence inquiry with respect to McDonald's in
connection with the offering of the Notes. Neither ML&Co. nor MLPF&S makes any
representation that the publicly available documents or any other publicly
available information regarding McDonald's is accurate or complete.
Furthermore, there can be no assurance that all events occurring prior to the
date hereof, including events that would affect the accuracy or completeness of
the publicly available documents described above, that would affect the trading
price of McDonald's common stock have been publicly disclosed. Subsequent
disclosure of any events or the disclosure of or failure to disclose material
future events concerning McDonald's could affect the value of the McDonald's
common stock and therefore the trading prices of the Notes. Neither ML&Co. nor
any of its affiliates makes any representation to any purchaser of the Notes as
to the performance of McDonald's common stock.
ML&Co. or its affiliates may presently or from time to time engage in
business, directly or indirectly, with McDonald's including extending loans to,
or making equity investments in, McDonald's or providing investment banking or
advisory services to McDonald's, including merger and acquisition advisory
services. In the course of such business, ML&Co. or its affiliates may acquire
non-public information with respect to McDonald's and, in addition, one or more
affiliates of ML&Co. may publish research reports with respect to McDonald's.
S-26
Any prospective purchaser of the Notes should undertake an independent
investigation of McDonald's as in its judgment is appropriate to make an
informed decision with respect to an investment in the Notes.
Historical data
McDonald's common stock is principally traded on The New York Stock
Exchange. The following table sets forth the high and low closing prices for
the calendar quarters during calendar years 1998 through 2002. On May 14, 2002,
the last recorded transaction price on The New York Stock Exchange for
McDonald's common stock was $29.98 per share. The closing prices listed below
were obtained from Bloomberg Financial Markets. The historical closing prices
of McDonald's common stock should not be taken as an indication of future
performance, and no assurance can be given that the price of McDonald's common
stock will not decrease. In addition, no assurance can be given that the price
of McDonald's common stock will increase above the original issue price so that
the value of shares of McDonald's common stock that the beneficial owners of
the Notes may receive upon an exchange, if the Notes have not been previously
called by us, will exceed the principal amount of the Notes.
High Low
---- ---
1998
First Quarter........................ $ 30.000 $ 22.688
Second Quarter....................... 34.594 29.063
Third Quarter........................ 37.188 28.031
Fourth Quarter....................... 39.156 28.719
1999
First Quarter........................ 47.156 37.656
Second Quarter....................... 47.000 38.063
Third Quarter........................ 44.750 39.125
Fourth Quarter....................... 48.375 38.938
2000
First Quarter........................ 42.813 29.875
Second Quarter....................... 39.188 31.000
Third Quarter........................ 33.688 26.813
Fourth Quarter....................... 34.250 27.875
2001
First Quarter........................ 34.688 25.000
Second Quarter....................... 30.760 25.790
Third Quarter........................ 30.840 26.250
Fourth Quarter....................... 30.050 25.640
2002
First Quarter........................ 28.800 25.620
Second Quarter (through May 14, 2002) 30.410 27.160
S-27
UNITED STATES FEDERAL INCOME TAXATION
Set forth in full below is the opinion of Sidley Austin Brown & Wood LLP,
tax counsel to ML&Co., as to certain United States federal income tax
consequences of the purchase, ownership and disposition of the Notes. This
opinion is based upon laws, regulations, rulings and decisions now in effect,
all of which are subject to change (including retroactive changes in effective
dates) or possible differing interpretations. The discussion below 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, traders in
securities that elect to mark to market, tax-exempt entities, persons holding
Notes in a tax-deferred or tax-advantaged account, or 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. It also does not deal
with holders other than original purchasers (except where otherwise
specifically noted in this prospectus supplement). The following discussion
also assumes that the issue price of the Notes, as determined for United States
federal income tax purposes, equals the principal amount thereof. Persons
considering the purchase of the Notes should consult their own tax advisors
concerning the application of the 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 in this prospectus supplement, the term "U.S. Holder" means a
beneficial owner of a Note that is for United States federal income tax
purposes (a) a citizen or resident of the United States, (b) a corporation,
partnership or other entity treated as a corporation or a partnership created
or organized in or under the laws of the United States, any state thereof or
the District of Columbia (other than a partnership that is not treated as a
United States person under any applicable Treasury regulations), (c) an estate
the income of which is subject to United States federal income taxation
regardless of its source, (d) 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 (e) 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. Notwithstanding clause (d) of the preceding sentence, to the extent
provided in Treasury regulations, certain trusts in existence on August 20,
1996, and treated as United States persons prior to that date that elect to
continue to be treated as United States persons also will be U.S. Holders. As
used herein, the term "non-U.S. Holder" means a beneficial owner of a Note that
is not a U.S. Holder.
U.S. Holders
Classification of the Notes
We have received an opinion from our counsel, Sidley Austin Brown & Wood
LLP that the Notes will be treated as indebtedness for United States federal
income tax purposes and that the Notes will be subject to the special Treasury
regulations governing contingent payment debt instruments (which we refer to as
the CPDI regulations).
Accrual of interest on the Notes
Pursuant to the terms of the indenture, we and each holder of the Notes
agree, for United States federal income tax purposes, to treat the Notes as
debt instruments that are subject to the CPDI regulations. Pursuant to these
regulations, U.S. Holders of the Notes will be required to accrue interest
income on the Notes, in the amounts described below, regardless of whether the
U.S. Holder uses the cash or accrual method of tax accounting. Accordingly,
U.S. Holders will generally be required to include interest in taxable income
in each year in excess of the annual yield on the Notes for non-tax purposes
(i.e., in excess of the semi-annual interest payments payable on the Notes).
S-28
The CPDI regulations provide that a U.S. Holder must accrue an amount of
ordinary interest income, as original issue discount for United States federal
income tax purposes, for each accrual period prior to and including the
maturity date of the Notes that equals:
(1)the product of (i) the adjusted issue price, as defined in this
prospectus supplement, of the Notes as of the beginning of the
accrual period; and (ii) the comparable yield to maturity, as defined
in this prospectus supplement, of the Notes, adjusted for the length
of the accrual period;
(2)divided by the number of days in the accrual period; and
(3)multiplied by the number of days during the accrual period that the
U.S. Holder held the Notes.
An Note's issue price is the first price to the public at which a
substantial amount of the Notes is sold, excluding sales to bond houses,
brokers or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers. The adjusted issue price of a
Note is its issue price increased by any interest income previously accrued,
determined without regard to any adjustments to interest accruals described
below, and decreased by the amount of any projected payments, as defined below,
with respect to the Notes.
Sidley Austin Brown & Wood LLP, our counsel, has advised us that the term
"comparable yield" means the annual yield we would pay, as of the initial issue
date, on a fixed-rate debt security with no contingent payments, but with terms
and conditions otherwise comparable to those of the Notes. Based in part on
that advice, we intend to take the position that the comparable yield for the
Notes is % (other than the scheduled semi-annual interest payment payable at
maturity) compounded semi-annually. The precise manner of calculating the
comparable yield is not absolutely clear.
The CPDI regulations require that we provide to U.S. Holders, solely for
United States federal income tax purposes, a schedule of the projected amounts
of payments, which we refer to as projected payments, on the Notes. This
schedule must produce the comparable yield. The projected payment schedule
includes the semi-annual payments of interest on the Notes at a rate of % per
year and an estimate for a payment at maturity taking into account a
calculation of the amount payable at maturity as if we had called the Notes
immediately preceding the maturity date as a contingent payment with respect to
the Notes.
The comparable yield and the schedule of projected payments will be set
forth in the indenture. U.S. Holders may also obtain the projected payment
schedule by submitting a written request for such information to Merrill Lynch
& Co., Inc., Corporate Secretary's Office, 222 Broadway, 17th Floor, New York,
New York 10038 or to corporatesecretary@exchange.ml.com.
For United States federal income tax purposes, a U.S. Holder must use the
comparable yield and the schedule of projected payments in determining its
interest accruals, and the adjustments thereto described below, in respect of
the Notes, unless such U.S. Holder timely discloses and justifies the use of
other estimates to the IRS. A U.S. Holder that determines its own comparable
yield or schedule of projected payments must also establish that our comparable
yield or schedule of projected payments is unreasonable.
The comparable yield and the schedule of projected payments are not
determined for any purpose other than for the determination of a U.S. Holder's
interest accruals and adjustments thereof in respect of the Notes for United
States federal income tax purposes and do not constitute a projection or
representation regarding the actual amounts payable on the Notes.
Amounts treated as interest under the CPDI regulations are treated as
original issue discount for all purposes of the Code.
S-29
Adjustments to interest accruals on the Notes
If, during any taxable year, a U.S. Holder receives actual payments with
respect to the Notes for that taxable year that in the aggregate exceed the
total amount of projected payments for that taxable year, the U.S. Holder will
incur a "net positive adjustment" under the CPDI regulations equal to the
amount of such excess. The U.S. Holder will treat a "net positive adjustment"
as additional interest income for the taxable year.
If a U.S. Holder receives in a taxable year actual payments with respect
to the Notes for that taxable year that in the aggregate were less than the
amount of projected payments for that taxable year, the U.S. Holder will incur
a "net negative adjustment" under the CPDI regulations equal to the amount of
such deficit. This adjustment will (a) reduce the U.S. Holder's interest income
on the Notes for that taxable year, and (b) to the extent of any excess after
the application of (a), give rise to an ordinary loss to the extent of the U.S.
Holder's interest income on the Notes during prior taxable years, reduced to
the extent such interest was offset by prior net negative adjustments.
If a U.S. Holder purchases Notes at a discount or premium to the adjusted
issue price, the discount will be treated as a positive adjustment and the
premium will be treated as a negative adjustment. The U.S. Holder must
reasonably allocate the adjustment over the remaining term of the Notes by
reference to the accruals of original issue discount at the comparable yield or
to the projected payments. It may be reasonable to allocate the adjustment over
the remaining term of the Notes pro rata with the accruals of original issue
discount at the comparable yield. You should consult your tax advisors
regarding these allocations.
Maturity, sale, exchange, or redemption
Generally, the sale or exchange of a Note, or the redemption of a Note
for cash (including on the stated maturity date), will result in taxable gain
or loss to a U.S. Holder. As described above, our calculation of the comparable
yield and the schedule of projected payments for the Notes includes an estimate
for a payment at maturity taking into account a calculation of the amount
payable at maturity as if we had called the Notes immediately preceding the
maturity date as a contingent payment with respect to the Notes. Similarly, we
intend to treat the receipt of a payment of shares of McDonald's common stock
by a U.S. Holder upon exercise of the early exchange election as a contingent
payment under the CPDI regulations. As described above, holders are generally
bound by our determination of the comparable yield and the schedule of
projected payments. Under this treatment, such an early exchange will also
result in taxable gain or loss to a U.S. Holder. The amount of gain or loss on
a taxable sale, exchange, or redemption (including on the stated maturity date)
will be equal to the difference between (a) the amount of cash and the fair
market value of any other property (including shares of McDonald's common
stock) received by the U.S. Holder and (b) the U.S. Holder's adjusted tax basis
in the Notes. A U.S. Holder's adjusted tax basis in a Note on any date will
generally be equal to the U.S. Holder's original purchase price for the Notes,
increased by any interest income previously accrued by the U.S. Holder
(determined without regard to any adjustments to interest accruals described
above), and decreased by the amount of any projected payments, as defined
above, projected to have been made through such date. Gain recognized upon a
sale, exchange, or redemption (including on the stated maturity date) of a Note
will generally be treated as ordinary interest income; any loss will be
ordinary loss to the extent of interest previously included in income, and
thereafter, capital loss (which will be long-term if the Notes is held for more
than one year). The deductibility of net capital losses by individuals and
corporations is subject to limitations.
Non-U.S. Holders
A non-U.S. Holder will not be subject to United States federal income
taxes on payments of principal, premium (if any) or interest (including
original issue discount, if any) on a Note, unless such non-U.S. Holder is a
direct or indirect 10% or greater shareholder of ML&Co., a controlled foreign
corporation related to ML&Co. or a bank receiving interest described in section
881(c)(3)(A) of the Internal Revenue Code of 1986, as amended. However, income
allocable to non-U.S. Holders will generally be subject to annual tax reporting
on
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IRS Form 1042-S. For a non-U.S. Holder to qualify for the exemption from
taxation, any person, U.S. or foreign, that has control, receipt, or custody of
an amount subject to withholding, or who can disburse or make payments of an
amount subject to withholding (the "Withholding Agent") must have received a
statement that (a) is signed by the beneficial owner of the Notes under
penalties of perjury, (b) certifies that such owner is a non-U.S. Holder and
(c) provides the name and address of the beneficial owner. The statement may
generally be made on IRS Form W-8BEN (or other applicable form) or a
substantially similar form, and the beneficial owner must inform the
Withholding Agent of any change in the information on the statement within 30
days of that change by filing a new IRS Form W-8BEN (or other applicable form).
Generally, a Form W-8BEN provided without a U.S. taxpayer identification number
will remain in effect for a period starting on the date the form is signed and
ending on the last day of the third succeeding calendar year, unless a change
in circumstances makes any information on the form incorrect. If a Note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. Under certain circumstances, the signed statement must
be accompanied by a copy of the applicable IRS Form W-8BEN (or other applicable
form) or the substitute form provided by the beneficial owner to the
organization or institution.
Under current law, a Note will not be includible in the estate of a
non-U.S. Holder unless the individual is a direct or indirect 10% or greater
shareholder of ML&Co. or, at the time of such individual's death, payments in
respect of such Notes would have been effectively connected with the conduct by
such individual of a trade or business in the United States.
Backup withholding
Backup withholding at the applicable statutory rate of United States
federal income tax may apply to payments made in respect of the Notes to
registered owners who are not "exempt recipients" and who fail to provide
certain identifying information (such as the registered owner's taxpayer
identification number) in the required manner. Generally, individuals are not
exempt recipients, whereas corporations and certain other entities generally
are exempt recipients. Payments made in respect of the Notes to a U.S. Holder
must be reported to the IRS, unless the U.S. Holder is an exempt recipient or
establishes an exemption. Compliance with the identification procedures
described in the preceding section would establish an exemption from backup
withholding for those non-U.S. Holders who are not exempt recipients.
In addition, upon the sale of a Note to (or through) a broker, the broker
must withhold on the entire purchase price, unless either (a) the broker
determines that the seller is a corporation or other exempt recipient or (b)
the seller provides, in the required manner, certain identifying information
(e.g., an IRS Form W-9) and, in the case of a non-U.S. Holder, certifies that
such seller is a non-U.S. Holder (and certain other conditions are met). Such a
sale must also be reported by the broker to the IRS, unless either (a) the
broker determines that the seller is an exempt recipient or (b) the seller
certifies its non-U.S. status (and certain other conditions are met).
Certification of the registered owner's non-U.S. status would be made normally
on an IRS Form W-8BEN (or other applicable form) under penalties of perjury,
although in certain cases it may be possible to submit other documentary
evidence.
Any amounts withheld under the backup withholding rules from a payment to
a beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States federal income tax provided the required
information is furnished to the IRS.
ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit
plan (a "plan") subject to the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), should consider the fiduciary standards of ERISA in the
context of the plan's particular circumstances before authorizing an investment
in the
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Notes. Accordingly, among other factors, the fiduciary should consider whether
the investment would satisfy the prudence and diversification requirements of
ERISA and would be consistent with the documents and instruments governing the
plan, and whether the investment would involve a prohibited transaction under
Section 406 of ERISA or Section 4975 of the Internal Revenue Code (the "Code").
Section 406 of ERISA and Section 4975 of the Code prohibit plans, as well
as individual retirement accounts and Keogh plans subject to Section 4975 of
the Internal Revenue Code (also "plans") from engaging in certain transactions
involving "plan assets" with persons who are "parties in interest" under ERISA
or "disqualified persons" under the Code ("parties in interest") with respect
to the plan or account. A violation of these prohibited transaction rules may
result in civil penalties or other liabilities under ERISA and/or an excise tax
under Section 4975 of the Code for those persons, unless exemptive relief is
available under an applicable statutory, regulatory or administrative
exemption. Certain employee benefit plans and arrangements including those that
are governmental plans (as defined in section 3(32) of ERISA), certain church
plans (as defined in Section 3(33) of ERISA) and foreign plans (as described in
Section 4(b)(4) of ERISA) ("non-ERISA arrangements") are not subject to the
requirements of ERISA or Section 4975 of the Code but may be subject to similar
provisions under applicable federal, state, local, foreign or other
regulations, rules or laws ("similar laws").
The acquisition of the Notes by a plan with respect to which we, MLPF&S,
or certain of our affiliates is or becomes a party in interest may constitute
or result in prohibited transaction under ERISA or Section 4975 of the Code,
unless those Notes are acquired pursuant to and in accordance with an
applicable exemption. The U.S. Department of Labor has issued five prohibited
transaction class exemptions, or "PTCEs", that may provide exemptive relief if
required for direct or indirect prohibited transactions that may arise from the
purchase or holding of the Notes. These exemptions are:
(1)PTCE 84-14, an exemption for certain transactions determined by
independent qualified professional asset managers;
(2)PTCE 90-1, an exemption for certain transactions involving insurance
company pooled separate accounts;
(3)PTCE 91-38, an exemption for certain transactions involving bank
collective investment funds;
(4)PTCE 95-60, an exemption for transactions involving certain insurance
company general accounts; or
(5)PTCE 96-23, an exemption for plan asset transactions managed by
in-house asset managers.
The Notes may not be purchased or held by (1) any plan, (2) any entity
whose underlying assets include "plan assets" by reason of any plan's
investment in the entity (a "plan asset entity") or (3) any person investing
"plan assets" of any plan, unless in each case the purchaser or holder is
eligible for the exemptive relief available under any of the PTCEs listed above
or another applicable similar exemption. Any purchaser or holder of the Notes
or any interest in the Notes will be deemed to have represented by its purchase
and holding of the Notes that it either (1) is not a plan or a plan asset
entity and is not purchasing those Notes on behalf of or with "plan assets" of
any plan or plan asset entity or (2) with respect to the purchase or holding,
is eligible for the exemptive relief available under any of the PTCEs listed
above or another applicable exemption. In addition, any purchaser or holder of
the Notes or any interest in the Notes which is a non-ERISA arrangement will be
deemed to have represented by its purchase and holding of the Notes that its
purchase and holding will not violate the provisions of any similar law.
Due to the complexity of these rules and the penalties that may be
imposed upon persons involved in non-exempt prohibited transactions, it is
important that fiduciaries or other persons considering purchasing the Notes on
behalf of or with "plan assets" of any plan, plan asset entity or non-ERISA
arrangement consult with their counsel regarding the availability of exemptive
relief under any of the PTCEs listed above or any other applicable exemption,
or the potential consequences of any purchase or holding under similar laws, as
applicable.
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The sale of the Notes to a plan, plan asset entity or non-ERISA
arrangement is not representation by us, each purchasers or any other person
associated with the sale of the Notes that those securities meet relevant legal
requirements with respect to investments by such entities generally or any
particular entities.
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 in connection with the Notes.
WHERE YOU CAN FIND MORE INFORMATION
ML&Co.
We file reports, proxy statements and other information with the SEC. Our
SEC filings are also available over the Internet at the SEC's web site at
http://www.sec.gov. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an
active link. You may also read and copy any document we file by visiting the
SEC's public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information about the public reference rooms and their copy charges. You may
also inspect our SEC reports and other information at The New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the 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.
McDonald's Corporation
McDonald's files reports, proxy statements and other information with the
SEC. Information provided to or filed with the SEC by McDonald's pursuant to
the Securities Exchange Act of 1934 can be located at the SEC's facilities or
accessed through the SEC's web site by reference to SEC file number 1-5231. You
may also inspect McDonald's SEC reports and other information at The New York
Stock Exchange. In addition, information regarding McDonald's may be obtained
from other sources including, but not limited to, press releases, newspaper
articles and other publicly disseminated documents. We make no representation
or warranty as to the accuracy or completeness of the information or reports.
S-33
UNDERWRITING
MLPF&S has agreed, subject to the terms and conditions of the
underwriting agreement and a terms agreement, to purchase from ML&Co. $
aggregate principal amount 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.
The underwriter has advised ML&Co. that it proposes initially to offer
all or part of the Notes directly to the public at the offering prices set
forth on the cover page of this prospectus supplement. After the initial public
offering, the public offering prices 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 discount and expenses
payable by ML&Co.
MLPF&S, a broker-dealer subsidiary of ML&Co., is a member of the National
Association of Securities Dealers, Inc. and will participate in distributions
of the Notes. Accordingly, offerings of the Notes will conform to the
requirements of Rule 2720 of the Conduct Rules of the NASD.
The underwriter is permitted to engage in certain transactions that
stabilize the price of the Notes. These transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Notes.
If the underwriter creates a short position in the Notes in connection
with the offering, i.e., if it sells an aggregate principal amount of Notes
that exceeds the amount set forth on the cover page of this prospectus
supplement, the underwriter may reduce that short position by purchasing units
of the 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 over-allotment
option or, where no over-allotment exists, sales in excess of the number of
units the underwriter has agreed to purchase from the issuer. Because MLPF&S,
as underwriter for the Notes, has no over-allotment option, it would be
required to closeout 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.
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EXPERTS
With respect to the unaudited interim financial information for the
periods included in the Quarterly Report on Form 10-Q which is incorporated
herein by reference, Deloitte & Touche LLP have applied limited procedures in
accordance with professional standards for a review of such information.
However, as stated in their report included in ML&Co.'s Quarterly Report on
Form 10-Q and incorporated by reference herein, they did not audit and they do
not express an opinion on that interim financial information. Accordingly, the
degree of reliance on their report on such information should be restricted in
light of the limited nature of the review procedures applied. Deloitte & Touche
LLP are not subject to the liability provisions of Section 11 of the Securities
Act of 1933, as amended, for their report on unaudited interim financial
information because that report is not a "report" or a "part" of the
Registration Statement prepared or certified by an accountant within the
meaning of Sections 7 and 11 of the Securities Act of 1933, as amended.
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INDEX OF DEFINED TERMS
Page
----
Business Day.............................................................. S-13
Calculation Day........................................................... S-14
Calculation Period........................................................ S-14
Call Amount............................................................... S-16
Call Calculation Period................................................... S-16
Call Date................................................................. S-16
Call Notice Date.......................................................... S-16
Closing market price...................................................... S-14
Code...................................................................... S-32
comparable yield.......................................................... S-29
depositary................................................................ S-23
DTC....................................................................... S-24
ERISA..................................................................... S-31
Exchange Date............................................................. S-17
Exchange Notice Date...................................................... S-17
Exchange Property......................................................... S-22
Exchange Ratio............................................................ S-14
Exchange Traded Securities................................................ S-22
ex-dividend date.......................................................... S-21
Extraordinary Dividend.................................................... S-21
Extraordinary Dividend Amount............................................. S-21
Notes..................................................................... S-1
Market Disruption Event................................................... S-15
McDonald's................................................................ S-4
ML&Co..................................................................... S-4
MLPF&S.................................................................... S-4
NASD...................................................................... S-14
Nasdaq NMS................................................................ S-14
non-ERISA arrangements.................................................... S-32
non-U.S. Holder........................................................... S-28
OTC Bulletin Board........................................................ S-14
parties in interest....................................................... S-32
plans..................................................................... S-31
plan asset entity......................................................... S-32
Reorganization Event...................................................... S-22
similar laws.............................................................. S-32
Spin-off Event............................................................ S-22
Successor Entity.......................................................... S-22
Trading Day............................................................... S-14
U.S. Holder............................................................... S-28
Withholding Agent......................................................... S-31
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[LOGO]
$25,000,000
Merrill Lynch & Co., Inc.
1% Convertible Securities Exchangeable into
McDonald's Corporation common stock
due May , 2009
(the "Notes")
$1,000 principal amount per Note
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PROSPECTUS SUPPLEMENT
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Merrill Lynch & Co.
May , 2002
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