PRICING SUPPLEMENT DATED JULY 2, 2002 Rule 424(b)(3)
- ------------------------------------- File No. 333-83374
(To Prospectus Supplement and
Prospectus dated April 1, 2002)
Pricing Supplement Number: 2238
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series B
Due Nine Months or More from Date of Issue
USD/EUR Linked Notes due July 19, 2004
(the "Notes")
----------------
The Notes, as further described below, have a two year term and are a
U.S. Dollar denominated investment linked to movements in the U.S. Dollar/Euro
exchange rate. The Notes are 100% principal protected, meaning that at maturity
you will receive the Issue Price of $1,000 per $1,000 principal amount of
Notes. The Notes will pay interest for each sixth month interest period at a
rate of 7.0% per annum on a semi-annual basis, provided that the U.S.
Dollar/Euro exchange rate stays within a predetermined range, as described
below, during each such six month period. If the U.S. Dollar/Euro exchange rate
falls at or outside of the predetermined range during a six month period, the
Notes will not bear interest during such period. The ranges are set at the
beginning of each six month period at the then current U.S. Dollar/Euro
exchange rate minus 0.0400 to plus 0.0800. This results in an overall range of
$0.1200 per 1 Euro.
Investing in the Notes involves risks that are described in the "Risk
Factors" section of this pricing supplement and the accompanying Prospectus
Supplement.
Aggregate principal
amount.................... $4,860,000
Stated Maturity Date...... July 19, 2004.
Issue Price............... $1,000 per Note.
Original Issue Date....... July 5, 2002.
Denominations............. We will issue and sell the Notes in denominations
of $1,000 and integral multiples of $1,000 in
excess thereof.
Interest Calculation...... The Notes will bear interest at a Fixed Rate of
7.0% per annum, payable semiannually, provided
that the interest payable on any Interest Payment
Date will be payable only if the USD/EUR Rate (as
defined below) is not at or outside the applicable
Range on any Business Day during the Monitoring
Period (as defined below) immediately preceding
such Interest Payment Date. If the USD/EUR Rate is
at or outside the applicable Range during a
Monitoring Period, no interest will be paid on the
succeeding Interest Payment Date. Interest will be
computed on the basis of a 360-day year of twelve
30-day months.
Range..................... Low Value: USD/EUR Rate on the Range Determination
Date minus U.S.$0.04 (four cents). High Value:
USD/EUR Rate on the Range Determination Date plus
U.S.$0.08 (eight cents).
The USD/EUR Rate is expressed as a number of U.S.
Dollars that would purchase one Euro. Using the
USD/EUR Rate of 0.9851 as
obtained by the Calculation Agent, as described
below, on July 2, 2002, the date the Notes were
priced for initial sale to the public (the
"Pricing Date"), results in an initial Range of
0.9451 to 1.0651. Should the USD/EUR Rate be at or
outside this Range during the initial Monitoring
Period encompassing July 5, 2002 through and
including 10:00 a.m. New York City time on January
2, 2003, no interest payment will be made on
January 16, 2003.
USD/EUR Rate.............. The USD/EUR Rate will be equal to the bid rate of
U.S. Dollars per Euro in the interbank market as
reported by Reuters Group PLC ("Reuters") on page
1FED, or any substitute page thereto, at 10:00
a.m. New York City time on the relevant date. On
July 2, 2002, the USD/EUR Rate was equal to
0.9851. However, if the USD/EUR Rate is not so
quoted by Reuters on page 1FED, or any substitute
page thereto, then the USD/EUR Rate will be the
exchange rate between Euro and U.S. Dollars, based
upon the noon buying rate in New York for cable
transfers in foreign currencies as announced by
the Federal Reserve Bank of New York for customs
purposes (the "Noon Buying Rate"). If the Noon
Buying Rate is not announced on such date, then
the USD/EUR Rate will be calculated on the basis
of the arithmetic mean of the applicable spot
quotations received by the Calculation Agent at
approximately 10:00 a.m. New York City time on the
relevant date for the purchase or sale by the
Reference Dealers of the Reference Amount for
settlement two Business Days later. If fewer than
two Reference Dealers provide such spot
quotations, then the USD/EUR Rate will be
calculated on the basis of the arithmetic mean of
the applicable spot quotations received by the
Calculation Agent at approximately 10:00 a.m. New
York City time on the relevant date from three
leading commercial banks in New York (selected in
the sole discretion of the Calculation Agent), for
the sale by such banks of the Reference Amount for
settlement two Business Days later. If these spot
quotations are available from fewer than three
banks, then the Calculation Agent, in its sole
discretion, shall determine which spot rate is
available and reasonable to be used. If no such
spot quotation is available, then the USD/EUR Rate
will be the rate the Calculation Agent, in its
sole discretion, determines to be fair and
reasonable under the circumstances at
approximately 10:00 a.m. New York City time, on
the relevant date.
Reference Amount.......... 1,000,000 Euros.
Reference Dealers......... As used herein, means Citibank, N.A., Deutsche
Bank A.G. and JPMorgan Chase Bank, or their
successors.
Range Determination Dates. July 2, 2002, January 2, 2003, July 3, 2003,
January 2, 2004 and July 2, 2004. If such day is
not a Business Day, then the determination will be
made on the immediately succeeding Business Day.
Interest Payment Dates.... January 16, 2003, July 17, 2003, January 16, 2004
and the Stated Maturity Date, provided that
interest shall be payable on such dates. If such
day is not a Business Day, any payment due on such
Interest
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Payment Date will be made on the immediately
succeeding Business Day and no additional interest
will accrue as a result of the delayed payment.
Monitoring Period......... A Monitoring Period means the period commencing on
and including the Original Issue Date through and
including 10:00 a.m. New York City time on the
next Range Determination Date, and thereafter the
period commencing at 10:00 a.m. New York City time
on and including the most recent Range
Determination Date through and including 10:00
a.m. New York City time on the immediately
succeeding Range Determination Date.
Amount payable at
maturity................ At maturity, for each Note that you own, you will
receive the Issue Price of $1,000 per Note plus
accrued and unpaid interest, if any.
Business Day.............. Any day other than a Saturday or Sunday that is
neither a legal holiday nor a day on which banking
institutions are authorized or required by law,
regulation or executive order to close in The City
of New York and such banks are open for dealing in
a foreign exchange and foreign currency deposits.
Calculation Agent......... Merrill Lynch Capital Services, Inc.
All determinations made by the Calculation Agent
shall be at the sole discretion of the Calculation
Agent and, absent manifest error, shall be
conclusive for all purposes and binding on Merrill
Lynch & Co., Inc. ("ML&Co.") and beneficial owners
of the Notes.
All percentages resulting from any calculation on
the Notes will be rounded to the nearest one
hundred-thousandth of a percentage point, with
five one-millionths of a percentage point rounded
upwards, e.g., 9.876545% (or .09876545) would be
rounded to 9.87655% (or .0987655). All dollar
amounts used in or resulting from this calculation
will be rounded to the nearest cent with one-half
cent being rounded upwards.
Trustee................... JPMorgan Chase Bank.
Form of Notes............. Book-entry.
CUSIP number.............. 59018Y NF 4
Proceeds to ML&Co......... $4,811,400
Underwriting Discount..... $48,600
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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, and the risks
described in the accompanying Prospectus Supplement, before you decide that an
investment in the Notes is suitable for you.
The value of the Notes is closely related to changes in the value of the
Euro relative to the U.S. Dollar
The value of any currency, including the Euro and the U.S. Dollar, may be
affected by complex political and economic factors. The spot exchange rate of
the Euro in terms of the U.S. Dollar is at any moment a result of the supply
and demand for the two currencies, and changes in the exchange rate result over
time from the interaction of many factors directly or indirectly affecting
economic and political conditions in the European Union and the United States,
including economic and political developments in other countries. Of particular
importance are the relative rates of inflation, interest rate levels, the
balance of payments and the extent of governmental surpluses or deficits in the
European Union and in the United States, all of which are in turn sensitive to
the monetary, fiscal and trade policies pursued by the European Union, the
governments of the European Union, the United States and other countries
important to international trade and finance.
Foreign exchange rates can either be fixed by sovereign governments or
floating. Exchange rates of most economically developed nations, including the
European Union, are permitted to fluctuate in value relative to the U.S.
Dollar. However, governments sometimes do not allow their currencies to float
freely in response to economic forces. Governments, including the European
Union, use a variety of techniques, such as intervention by their central bank
or imposition of regulatory controls or taxes, to affect the exchange rates of
their respective currencies. They may also issue a new currency to replace an
existing currency or alter the exchange rate or relative exchange
characteristics by devaluation or revaluation of a currency. Thus, a special
risk in purchasing the Notes is that their liquidity, trading value and amounts
payable could be affected by the actions of sovereign governments or the
European Union which could change or interfere with theretofore freely
determined currency valuation, fluctuations in response to other market forces
and the movement of currencies across borders. There will be no adjustment or
change in the terms of the Notes in the event that exchange rates should become
fixed, or in the event of any devaluation or revaluation or imposition of
exchange or other regulatory controls or taxes, or in the event of the issuance
of a replacement currency or in the event of other developments affecting the
Euro, the U.S. Dollar or any other currency.
You may not earn a return on your investment
You should be aware that if the USD/EUR Rate is at or outside of the
applicable Range during the applicable Monitoring Period, you will not receive
any interest payments on your Notes on the succeeding Interest Payment Date.
The possibility exists that the USD/EUR Rate will be at or outside of the
applicable Range during each and every Monitoring Period, in which case you
would not receive any interest payments on your Notes and will only receive the
Issue Price of $1,000 per Note at maturity. Therefore, although the investor
has the opportunity to receive a return, the investor risks a lower return than
comparable instruments, or no return at all. As such, the investment may not be
suitable for persons unfamiliar with the foreign currency markets, or unwilling
or unable to bear the risks associated with an investment in the Notes.
Investors should consult their advisers if in any doubt as to the nature of the
investment and its suitability for them in the light of their particular
circumstances.
There may be an uncertain trading market for the Notes
While there have been several issuances of ML&Co.'s Medium-Term Notes,
Series B, upon issuance, your Notes will not have an established trading
market. We cannot assure you that a trading market for your
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Notes will ever develop or be maintained if developed. The development of a
trading market for the Notes will depend on our financial performance and other
factors such as the change in the value of the USD/EUR Rate. If the trading
market for the Notes is limited, there may be a limited number of buyers for
your Notes if you do not wish to hold your investment until maturity. This may
affect the price you receive.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Notes has occurred and is
continuing, the amount payable to a beneficial owner of a Note upon any
acceleration permitted by the Notes, with respect to each Note, will be equal
to the amount payable on the Stated Maturity Date, calculated as though the
date of early repayment was the Stated Maturity Date and the tenth scheduled
Business Day prior to such day was a Range Determination Date. If such tenth
scheduled Business Day is not a Business Day, then the determination will be
made on the immediately succeeding Business Day. If a bankruptcy proceeding is
commenced in respect of ML&Co., the claim of the beneficial owner of a Note may
be limited, under Section 502(b)(2) of Title 11 of the United States Code, to
the Issue Price of the Note plus an additional amount of contingent interest
calculated as though the date of the commencement of the proceeding was the
maturity date of the Notes.
In case of default in payment of the Notes, whether at their stated
maturity, an Interest Payment 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 2.06% per annum to the extent that payment of any
interest is legally enforceable on the unpaid amount due and payable on that
date in accordance with the terms of the Notes to the date payment of that
amount has been made or duly provided for.
HYPOTHETICAL RETURNS
The following table illustrates, for a range of hypothetical USD/EUR
Rates:
. the resulting Range applicable to the relevant Monitoring Period, and
. the Interest Payment that would be due on the Interest Payment Date
for the relevant Monitoring Period, given differing USD/EUR Rates.
Resulting
Interest
Hypothetical Resulting Payment in
USD/EUR Level of USD/ Interest Dollars per
Rate on Resulting Range EUR Rate Payment $1000 Note for
the Range applicable to during for relevant relevant
Determination Monitoring Monitoring Monitoring Monitoring
Date Period Period Period(1) Period
- ------------- --------------- ------------- ------------ --------------
0.9851(2) 0.9451-1.0651 0.9400-0.9900 0.00% $ 0.00
0.9400 0.9000-1.0200 0.9250-0.9580 7.00% $35.00
0.9250 0.8850-1.0050 0.9035-0.9720 7.00% $35.00
0.9600 0.9200-1.0400 0.9400-0.9890 7.00% $35.00
- --------
(1)These rates represent the annualized rate of return for the relevant
Monitoring Period.
(2)This was the USD/EUR Rate on July 2, 2002, the date the Notes were priced
for initial sale to the public.
THE USD/EUR RATE
The USD/EUR Rate is a foreign exchange spot rate that measures the
relative values of two currencies, the Euro and the U.S. Dollar. The USD/EUR
Rate increases when the Euro appreciates relative to the U.S. Dollar and
decreases when the Euro depreciates relative to the U.S. Dollar. The USD/EUR
Rate is expressed as a rate that reflects the amount of U.S. Dollars that can
be purchased for one Euro. The July 2, 2002 USD/EUR Rate of 0.9851 thus
indicates that 1 Euro can be purchased for $0.9851.
The following table sets forth the monthly high and low; and month-end
mid-market levels in the interbank market for U.S. Dollars per Euro from the
inception of the Euro in January 1999 through June 2002. The historical
experience of USD/EUR Rates should not be taken as an indication of future
performance. Any
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historical upward or downward trend in the USD/EUR Rate during any period set
forth below is not any indication that the USD/EUR Rate is more or less likely
to increase or decrease at any time during the term of the Notes.
Month
Year High Low End
- ---- ------ ------ ------
1999:
January............................ 1.1888 1.1343 1.1357
February........................... 1.1395 1.0930 1.1026
March.............................. 1.1065 1.0685 1.0766
April.............................. 1.0881 1.0550 1.0580
May................................ 1.0827 1.0403 1.0413
June............................... 1.0557 1.0266 1.0338
July............................... 1.0743 1.0112 1.0697
August............................. 1.0825 1.0410 1.0573
September.......................... 1.0727 1.0290 1.0695
October............................ 1.0909 1.0437 1.0541
November........................... 1.0591 1.0040 1.0089
December........................... 1.0293 0.9992 1.0088
2000:
January............................ 1.0413 0.9675 0.9688
February........................... 1.0085 0.9406 0.9645
March.............................. 0.9790 0.9481 0.9554
April.............................. 0.9751 0.9034 0.9113
May................................ 0.9410 0.8847 0.9373
June............................... 0.9696 0.9285 0.9525
July............................... 0.9595 0.9196 0.9260
August............................. 0.9289 0.8843 0.8877
September.......................... 0.9037 0.8443 0.8831
October............................ 0.8856 0.8230 0.8485
November........................... 0.8793 0.8375 0.8726
December........................... 0.9425 0.8705 0.9422
2001:
January............................ 0.9592 0.9117 0.9368
February........................... 0.9444 0.9020 0.9232
March.............................. 0.9380 0.8759 0.8759
April.............................. 0.9087 0.8704 0.8868
May................................ 0.9005 0.8992 0.8458
June............................... 0.8669 0.8414 0.8493
July............................... 0.8821 0.8352 0.8756
August............................. 0.9237 0.8740 0.9125
September.......................... 0.9330 0.8827 0.9112
October............................ 0.9244 0.8871 0.8996
November........................... 0.9119 0.8739 0.8964
December........................... 0.9080 0.8745 0.8898
2002:
January............................ 0.9063 0.8575 0.8582
February........................... 0.8800 0.8568 0.8688
March.............................. 0.8867 0.8635 0.8715
April.............................. 0.9050 0.8711 0.8999
May................................ 0.9416 0.8993 0.9338
June............................... 0.9990 0.9306 0.9916
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UNITED STATES FEDERAL INCOME TAXATION
Set forth in full below is the opinion of Sidley Austin Brown & Wood LLP,
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) or with holders that have a
functional currency other than the U.S. dollar. 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 pricing 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.
General
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization, for United
States Federal income tax purposes, of the Notes or securities with terms
substantially the same as the Notes. However, although the matter is not free
from doubt, under current law, each Note should be treated as a debt instrument
of ML&Co. for United States Federal income tax purposes. ML&Co. currently
intends to treat each Note as a debt instrument of ML&Co. for United States
Federal income tax purposes and, where required, intends to file information
returns with the Internal Revenue Service (the "IRS") in accordance with this
treatment, in the absence of any change or clarification in the law, by
regulation or otherwise, requiring a different characterization of the Notes.
Prospective investors in the Notes should be aware, however, that the IRS is
not bound by ML&Co.'s characterization of the Notes as indebtedness, and the
IRS could possibly take a different position as to the proper characterization
of the Notes for United States Federal income tax purposes. The following
discussion of the principal United States Federal income tax consequences of
the purchase, ownership and disposition of the Notes is based upon the
assumption that each Note will be treated as a debt instrument of ML&Co. for
United States Federal income tax purposes. If the Notes are not in fact treated
as debt instruments of ML&Co. for United States Federal income tax purposes,
then the United States Federal income tax treatment of the purchase, ownership
and disposition of the Notes could differ from the treatment discussed below
with the result that the timing and character of income, gain or loss
recognized in respect of a Note could differ from the timing and character of
income, gain or loss recognized in
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respect of a Note had the Notes in fact been treated as debt instruments of
ML&Co. for United States Federal income tax purposes.
U.S. Holders
On June 11, 1996, the Treasury Department issued final regulations (the
"CPDI Regulations") concerning the proper United States Federal income tax
treatment of contingent payment debt instruments, which apply to debt
instruments issued on or after August 13, 1996. In general, the CPDI
Regulations cause the timing and character of income, gain or loss reported on
a contingent payment debt instrument to substantially differ from the timing
and character of income, gain or loss reported on a contingent payment debt
instrument under general principles of prior United States Federal income tax
law. However, debt instruments that are subject to the rules regarding foreign
currency gain or loss (the "Foreign Currency Rules") are generally exempt from
the timing and character rules provided by the CPDI Regulations. Since whether
or not interest will be paid on the Notes on any Interest Payment Date will be
determined by reference to the value of the USD/EUR Rate during the applicable
Monitoring Period, the Notes generally should be subject to the Foreign
Currency Rules and should not be subject to the CPDI Regulations. However, the
Foreign Currency Rules do not set forth specific rules for determining the
amount of income, gain or loss realized by a taxpayer from holding a debt
instrument that provides for one or more contingent payments, similar to the
Notes. In the absence of any specific provision in the Foreign Currency Rules,
the United States Federal income tax consequences of the purchase, ownership
and disposition of the Notes should be governed by a combination of both the
general principles contained in the Foreign Currency Rules and general
principles of United States Federal income tax law.
Under general principles of United States Federal income tax law,
payments of interest on a debt instrument generally will be taxable to a U.S.
Holder as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). Under these principles, the amount of interest, if any, payable on
each Interest Payment Date (including the Stated Maturity Date), would be
treated as contingent interest and generally would be includible in income by a
U.S. Holder as ordinary interest on the date that the interest is accrued
(i.e., generally when the payment of interest becomes fixed in amount and
becomes unconditionally payable) or when such amount is received, in accordance
with the U.S. Holder's regular method of tax accounting.
Upon the sale or exchange of a Note prior to maturity, a U.S. Holder
generally would recognize taxable gain or loss in an amount equal to the
difference, if any, between the amount realized on the sale or exchange and
such U.S. Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax
basis in a Note generally will equal such U.S. Holder's initial investment in
the Note. Such gain or loss generally should be capital gain or loss and should
be long-term capital gain or loss if the Note has been held by the U.S. Holder
for more than one year. However, any portion of such gain or loss that is
attributable to changes in the value of the USD/EUR Rate should constitute
exchange gain or loss which will be characterized as ordinary income or loss.
It is possible, however, that the IRS could assert that all or any portion of
the amounts realized upon the sale or exchange of a Note prior to its maturity
in excess of the principal amount thereof constitutes ordinary interest income.
In addition, U.S. Holders purchasing a Note at a price that differs from the
adjusted issue price of the Note as of the purchase date (e.g., subsequent
purchases) may be subject to rules providing for certain adjustments to the
foregoing rules and these U.S. Holders should consult their own tax advisors
concerning these rules.
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 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
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the beneficial owner of the Note 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 Note 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
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and Section 4975 of the Internal Revenue Code, as amended (the
"Code") prohibit various transactions between certain parties and the assets of
employee benefit plans, unless an exemption is available; governmental plans
may be subject to similar prohibitions. Because transactions between a plan and
ML&Co. may be prohibited absent an exemption, and it is not clear that any
existing exemption will apply to all transactions occurring in connection with
an investment in a Note, the Notes may not be purchased by, on behalf of, or
with plan assets of an employee benefit plan or other plan or arrangement that
is subject to Title 1 of ERISA, or to Section 4975 of the Code. Each investor,
by its purchase of a Note, represents and warrants that it is not, and is not
investing on behalf of or with plan assets of an employee benefit plan or other
plan or arrangement subject to Title 1 of ERISA or Section 4975 of the Code.
S-9