Filed Pursuant to Rule 424(b)(5)
Registration No. 333-83374
| PROSPECTUS SUPPLEMENT (To prospectus dated April 1,
2002) |
|
|
2,400,000 Units
Merrill Lynch & Co., Inc.
Market Index Target-Term Securities®
based upon the Dow Jones Industrial AverageSM
due August 7, 2009
“MITTS® Securities”
$10 principal amount per unit
| The MITTS Securities: |
|
Payment at maturity: |
| • 100% principal protection at maturity.
• No payments before the maturity date. • Senior unsecured debt securities of Merrill Lynch & Co., Inc. • Linked to the value of the Dow Jones Industrial Average. • The MITTS Securities have been approved for listing on the American Stock Exchange under the
symbol “MKO”, subject to official notice of issuance. • Expected
closing date: August 7, 2002.
|
|
• On the maturity date, for each unit of MITTS Securities
you own, we will pay you an amount equal to the sum of the principal amount of each unit and an additional amount based on the percentage increase, if any, in the value of the Dow Jones Industrial Average, reduced by an annual adjustment factor of
2.10%, as described in this prospectus supplement. • At maturity, you will
receive no less than the principal amount of your MITTS Securities. |
Investing in the MITTS Securities involves risks that are
described in the “Risk Factors” section beginning on page S-8 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 Unit
|
|
Total
|
| Public offering price |
|
$10.00 |
|
$24,000,000 |
| Underwriting discount |
|
$.30 |
|
$720,000 |
| Proceeds, before expenses, to Merrill Lynch & Co., Inc. |
|
$9.70 |
|
$23,280,000 |
Merrill Lynch & Co.
The date of this prospectus supplement is August 1, 2002.
“MITTS” and “Market Index Target-Term
Securities” are registered service marks and “Protected Growth” is a service mark of Merrill Lynch & Co., Inc.
“Dow Jones”, “Dow Jones
Industrial AverageSM” and “DJIASM” are service marks of Dow Jones & Company, Inc. and have been licensed for use for certain purposes by Merrill Lynch, Pierce, Fenner &
Smith Incorporated. The MITTS Securities are not sponsored, endorsed, sold or promoted by Dow Jones.
Prospectus Supplement
| |
|
Page
|
| |
|
S-4 |
| |
|
S-4 |
| |
|
S-4 |
| |
|
S-6 |
| |
|
S-6 |
| |
|
S-6 |
| |
|
S-7 |
| |
|
S-7 |
| |
|
S-7 |
| |
|
S-7 |
| |
|
S-7 |
| |
|
S-8 |
| |
|
S-8 |
| |
|
S-8 |
| |
|
S-8 |
| |
|
S-8 |
| |
|
S-8 |
| |
|
S-10 |
| |
|
S-10 |
| |
|
S-10 |
| |
|
S-10 |
| |
|
S-11 |
| |
|
S-11 |
| |
|
S-12 |
| |
|
S-14 |
| |
|
S-14 |
| |
|
S-15 |
| |
|
S-16 |
| |
|
S-18 |
| |
|
S-18 |
| |
|
S-20 |
| |
|
S-21 |
| |
|
S-22 |
| |
|
S-22 |
| |
|
S-23 |
| |
|
S-25 |
| |
|
S-26 |
| |
|
S-27 |
| |
|
S-28 |
| |
|
S-28 |
| |
|
S-28 |
| |
|
S-29 |
| |
|
S-29 |
| |
|
S-30 |
S-2
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
This summary includes questions and answers that highlight selected information
from this prospectus supplement and the accompanying prospectus to help you understand the Market Index Target-Term Securities® based upon the Dow Jones Industrial AverageSM due August 7, 2009. You should carefully read this prospectus supplement and the accompanying prospectus to fully
understand the terms of the MITTS Securities, the Dow Jones Industrial Average (the “Index”) and the tax and other considerations that are important to you in making a decision about whether to invest in the MITTS Securities. You should
carefully review the “Risk Factors” section, which highlights certain risks associated with an investment in the MITTS Securities, to determine whether an investment in the MITTS Securities 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.
The MITTS Securities will be a series of senior debt
securities issued by ML&Co. and will not be secured by collateral. The MITTS Securities will rank equally with all of our other unsecured and unsubordinated debt. The MITTS Securities will mature on August 7, 2009. We cannot redeem the MITTS
Securities at an earlier date. We will not make any payments on the MITTS Securities until maturity.
Each unit of
MITTS Securities represents $10 principal amount of MITTS Securities. You may transfer the MITTS Securities only in whole units. You will not have the right to receive physical certificates evidencing your ownership except under limited
circumstances. Instead, we will issue the MITTS Securities 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 MITTS Securities. You should refer to the section “Description of the MITTS Securities—Depositary” in this prospectus supplement.
We have
designed the MITTS Securities for investors who want to protect their investment by receiving at least the principal amount of their investment at maturity and who also want to participate in possible increases in the value of the Index as reduced
by the Adjustment Factor. On the stated maturity date, you will receive a cash payment on the MITTS Securities equal to the sum of two amounts: the “principal amount” and the “Supplemental Redemption
Amount”, if any.
Principal Amount
The “principal amount” per unit is $10.
Supplemental Redemption Amount
The “Supplemental Redemption Amount” per unit will equal:
| $10 x |
|
( |
|
Adjusted EndingValue – Starting Value
Starting Value |
|
) |
| |
|
|
but will not be less than zero.
The “Starting Value” equals 8,506.62, which was the closing value of the Index on August 1, 2002, the date the MITTS Securities were priced for initial
sale to the public (the “Pricing Date”).
The “Adjusted Ending Value” means the average
(i.e., arithmetic mean) of the values of the Index at the close of the market on five business days shortly before the maturity of the MITTS Securities as reduced on each day by the application of the Adjustment Factor. As described below, the
Adjustment Factor is applied each day over the entire term of the MITTS Securities to reduce the closing values of the Index used to calculate the Adjusted Ending Value. We may calculate the Adjusted Ending Value by reference to fewer than five or
even a single day’s closing value if, during the period
S-4
shortly before the stated maturity date of the MITTS Securities, there is a disruption in the trading of a sufficient number of stocks included in the Index or certain futures or option contracts
relating to the Index.
The “Adjustment Factor” is a fixed percentage equal to 2.10% per year and
will be pro-rated based on a 365-day year and applied over the entire term of the MITTS Securities on each calendar day to reduce the closing values of the Index used to calculate the Supplemental Redemption Amount during the Calculation Period. As
a result of the cumulative effect of this reduction, the values of the Index used to calculate the Supplemental Redemption Amount during the Calculation Period will be approximately 13.68% less than the actual closing value of the Index on each day
during the Calculation Period. For a detailed discussion of how the Adjustment Factor will affect the value of the Index used to calculate the Supplemental Redemption Amount, see “Description of the MITTS Securities—Payment at
Maturity” in this prospectus supplement.
For more specific information about the Supplemental Redemption
Amount, please see the section “Description of the MITTS Securities” in this prospectus supplement.
We
will pay you a Supplemental Redemption Amount only if the Adjusted Ending Value is greater than the Starting Value. If the Adjusted Ending Value is less than, or equal to, the Starting Value, the Supplemental Redemption Amount will be zero.
We will pay you the principal amount of your MITTS Securities regardless of whether any Supplemental Redemption Amount is payable.
Examples
Here are two examples of Supplemental Redemption Amount calculations assuming an investment
term equal to that of the MITTS Securities:
Example 1—At the stated maturity, the Index, as
adjusted, is below the Starting Value:
Starting Value: 8,506.62
Hypothetical average closing value of the Index for the calculation period: 8,931.95
Hypothetical Adjusted Ending Value: 7,709.97
| Supplemental Redemption (per unit) = $10 × |
|
( |
|
7,709.97–8,506.62
8,506.62 |
|
) |
|
= $0 |
|
(Supplemental
Redemption
Amount cannot
be less than zero) |
| |
|
|
|
|
Total
payment at maturity (per unit) = $10 + $0 = $10
Example 2—At the stated maturity, the
Index, as adjusted, is above the Starting Value:
Starting Value: 8,506.62
Hypothetical average closing value of the Index for the calculation period: 15,311.92
Hypothetical Adjusted Ending Value: 13,217.11
| Supplemental Redemption (per unit) = $10 × |
|
( |
|
13,217.11–8,506.62
|
|
) |
|
= $5.54 |
| |
|
8,506.62 |
|
|
Total payment at maturity (per unit) = $10 + $5.54 =
$15.54
S-5
The Dow Jones Industrial
AverageSM is a price-weighted index published by Dow Jones & Company, Inc. (“Dow Jones”)
which means a component stock’s weight in the Index is based on its price per share rather than the total market capitalization of the issuer of that component stock. The Index is designed to provide an indication of the composite price
performance of 30 common stocks of corporations representing a broad cross-section of U.S. industry. The component stocks of the Index are selected by the editors of The Wall Street Journal (the “WSJ”). The corporations represented
in the Index tend to be market leaders in their respective industries and their stocks are typically widely held by individuals and institutional investors. The corporations currently represented in the Index are incorporated in the U.S. and its
territories and their stocks are traded on the New York Stock Exchange and The Nasdaq National Market. As of August 1, 2002, the market capitalization of the stocks in the Index ranged from approximately $8.9 billion to $312.4 billion, with the
average market capitalization being $88.9 billion.
The value of the Index is the sum of the primary exchange
prices of each of the 30 common stocks included in the Index, divided by a divisor that is designed to provide a meaningful continuity in the value of the Index. Because the Index is price-weighted, stock splits or changes in the component stocks
could result in distortions in the Index value. In order to prevent these distortions related to extrinsic factors, the divisor may be changed in accordance with a mathematical formula that reflects adjusted proportions within the Index. The current
divisor of the Index is published daily in the WSJ and other publications. In addition, other statistics based on the Index may be found in a variety of publicly available sources.
Please note that an investment in the MITTS Securities does not entitle you to any ownership interest in the stocks of the companies included in the Index.
We have provided tables showing the closing
values of the Index on the last business day of each month from January 1997 to July 2002 and each year from 1946 to 2001, as published by Dow Jones. You can find these tables in the section “The Index—Historical data on the Index” in
this prospectus supplement. We have provided this historical information to help you evaluate the behavior of the Index in various economic environments; however, past performance of the Index is not necessarily indicative of how the Index will
perform in the future.
Each year, you will be required to pay taxes on ordinary income
from the MITTS Securities over their term based upon an estimated yield for the MITTS Securities, even though you will not receive any payments from us until maturity. We have determined this estimated yield, in accordance with regulations issued by
the U.S. Treasury Department, solely in order for you to figure the amount of taxes that you will owe each year as a result of owning a MITTS Security. This estimated yield is neither a prediction nor a guarantee of what the actual Supplemental
Redemption Amount will be, or that the actual Supplemental Redemption Amount will even exceed zero. We have determined that this estimated yield will equal 5.251% per annum, compounded semiannually.
Based upon this estimated yield, if you pay your taxes on a calendar year basis and if you buy a MITTS Security for $10 and hold the MITTS
Security until maturity, you will be required to pay taxes on the following amounts of ordinary income from the MITTS Security each year: $0.2103 in 2002, $0.5433 in 2003, $0.5721 in 2004, $0.6026 in 2005, $0.6345 in 2006, $0.6683 in 2007,
$0.7039 in 2008 and $ 0.4419 in 2009. However, in 2009, the amount of ordinary income that you will be required to pay taxes on from owning each MITTS Security may be greater or less than $0.4419, depending upon the Supplemental Redemption Amount,
if any, you
S-6
receive. Also, if the Supplemental Redemption Amount is less than $4.3769, you may have a loss which you could deduct against other income you may have in 2009, but under current tax regulations,
you would neither be required nor allowed to amend your tax returns for prior years. For further information, see “United States Federal Income Taxation” in this prospectus supplement.
You will not receive any
interest payments on the MITTS Securities, but will instead receive the principal amount plus the Supplemental Redemption Amount, if any, at maturity. We have designed the MITTS Securities for investors who are willing to forego market interest
payments on the MITTS Securities, such as floating interest rates paid on standard senior non-callable debt securities, in exchange for the ability to participate in possible increases in the Index.
The MITTS Securities have
been approved for listing on the American Stock Exchange (the “AMEX”) under the symbol “MKO”, subject to official notice of issuance. You should be aware that the listing of the MITTS Securities on the AMEX will not necessarily
ensure that a liquid trading market will be available for the MITTS Securities. You should review “Risk Factors—There may be an uncertain trading market for the MITTS Securities” in this prospectus supplement.
Our subsidiary, MLPF&S, is the underwriter for
the offering and sale of the MITTS Securities. After the initial offering, MLPF&S intends to buy and sell the MITTS Securities to create a secondary market for holders of the MITTS Securities, and may stabilize or maintain the market price of
the MITTS Securities during the initial distribution of the MITTS Securities. However, MLPF&S will not be obligated to engage in any of these market activities or continue them once it has started.
MLPF&S will also be our agent for purposes of calculating, among other things, the Adjusted Ending Value and the Supplemental
Redemption Amount. Under certain circumstances, these duties could, result in a conflict of interest between MLPF&S’ status as a subsidiary of ML&Co. and its responsibilities as calculation agent.
Merrill Lynch & Co., Inc. is a holding company with various
subsidiary and affiliated companies that provide investment, financing, insurance and related services on a global basis. For information about ML&Co. see the section “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 “Where You Can Find More Information” in this prospectus supplement.
Yes, an investment in the MITTS
Securities is subject to risks. Please refer to the section “Risk Factors” in this prospectus supplement.
S-7
Your investment in the MITTS Securities will involve risks. You should
carefully consider the following discussion of risks before deciding whether an investment in the MITTS Securities is suitable for you.
You should be aware that if the
Adjusted Ending Value does not exceed the Starting Value on the stated maturity date, the Supplemental Redemption Amount will be zero. This will be true even if the value of the Index, as reduced by the Adjustment Factor over the term of the MITTS
Securities, was higher than the Starting Value at some time during the life of the MITTS Securities but later falls below the Starting Value. If the Supplemental Redemption Amount is zero, we will pay you only the principal amount of your MITTS
Securities.
The amount we pay you at maturity 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 take into account factors that affect the time value of money.
The return on your MITTS Securities will not reflect the return you would realize if you actually owned the stocks included in the Index and received the dividends paid on those stocks because of the cumulative effect of the
reduction caused by the Adjustment Factor and because the value of the Index is calculated by reference to the prices of the stocks included in the Index without taking into consideration the value of dividends paid on those stocks.
The MITTS
Securities have been approved for listing on the AMEX under the symbol “MKO”, subject to official notice of issuance. While there have been a number of issuances of series of Market Index Target-Term Securities, trading volumes have varied
historically from one series to another and it is therefore impossible to predict how the MITTS Securities will trade. You cannot assume that a trading market will develop for the MITTS Securities. If a trading market does develop, there can be no
assurance that there will be liquidity in the trading market. The development of a trading market for the MITTS Securities will depend on our financial performance, and other factors such as the increase, if any, in the value of the Index.
If the trading market for the MITTS Securities is limited, there may be a limited number of buyers for your MITTS
Securities if you do not wish to hold your investment until maturity. This may affect the price you receive.
The trading value of the MITTS Securities 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 MITTS Securities caused by another factor and that the effect of one factor may exacerbate the decrease in the trading value of the MITTS Securities caused
by another factor. For example, an increase in U.S. interest rates may offset some or all of any increase in the trading value of the MITTS Securities attributable to another factor, such as an increase in the value of the Index. The following
paragraphs describe the expected impact on
S-8
the market value of the MITTS Securities given a change in a specific factor, assuming all other conditions remain constant.
The value of the Index is expected to affect the trading value of the MITTS Securities. We expect that the market value of the MITTS
Securities will depend substantially on the amount by which the Index, as reduced by the Adjustment Factor over the term of the MITTS Securities, exceeds the Starting Value. If you choose to sell your MITTS Securities when the value of the Index, as
reduced by the Adjustment Factor over the term of the MITTS Securities, exceeds the Starting Value, you may receive substantially less than the amount that would be payable at maturity based on that value because of the expectation that the Index
will continue to fluctuate until the Adjusted Ending Value is determined. If you choose to sell your MITTS Securities when the value of the Index is below, or not sufficiently above, the Starting Value, you may receive less than the $10 principal
amount per unit of MITTS Securities. In general, rising U.S. dividend rates or dividends per share may increase the value of the Index while falling U.S. dividend rates may decrease the value of the Index.
Changes in the levels of interest rates are expected to affect the trading value of the MITTS
Securities. Because we will pay, at a minimum, the principal amount per unit of MITTS Securities at maturity, we expect that changes in U.S. interest rates will affect the trading value of the MITTS Securities. In
general, if U.S. interest rates increase, we expect that the trading value of the MITTS Securities will decrease and, conversely, if U.S. interest rates decrease, we expect the trading value of the MITTS Securities will increase. Rising U.S.
interest rates may lower the value of the Index and, thus, the MITTS Securities. Falling U.S. interest rates may increase the value of the Index and, thus, may increase the value of the MITTS Securities.
Changes in the volatility of the Index are expected to affect the trading value of the MITTS
Securities. Volatility is the term used to describe the size and frequency of price and/or market fluctuations. If the volatility of the Index increases or decreases, the trading value of the MITTS Securities may be
adversely affected.
As the time remaining to maturity of the MITTS Securities decreases, the “time
premium” associated with the MITTS Securities will decrease. We anticipate that before their maturity, the MITTS Securities may trade at a value above that which would be expected based on the level of interest
rates and the Index. This difference will reflect a “time premium” due to expectations concerning the value of the Index during the period before the stated maturity of the MITTS Securities. However, as the time remaining to the stated
maturity of the MITTS Securities decreases, we expect that this time premium will decrease, lowering the trading value of the MITTS Securities.
Changes in dividend yields of the stocks included in the Index are expected to affect the trading value of the MITTS Securities. In general, if dividend yields on
the stocks included in the Index increase, we expect that the value of the MITTS Securities will decrease and, conversely, if dividend yields on the stocks included in the Index decrease, we expect that the value of the MITTS Securities will
increase.
Changes in our credit ratings may affect the trading value of the MITTS
Securities. 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 MITTS Securities. However,
because your return on your MITTS Securities is dependent upon factors in addition to our ability to pay our obligations under the MITTS Securities, such as the percentage increase, if any, in the value of the Index at maturity, an improvement in
our credit ratings will not reduce the other investment risks related to the MITTS Securities.
In general,
assuming all relevant factors are held constant, we expect that the effect on the trading value of the MITTS Securities of a given change in most of the factors listed above will be less if it occurs later in the term of the MITTS Securities than if
it occurs earlier in the term of the MITTS Securities. However, we expect that the effect on the trading value of the MITTS Securities of a given increase in the value of the Index will be greater if it occurs later in the term of the MITTS
Securities than if it occurs earlier in the term of the MITTS Securities.
S-9
New York State
law governs the 1983 Indenture under which the MITTS Securities will be issued. New York has usury laws that limit the amount of interest that can be charged and paid on loans, which includes debt securities like the MITTS Securities. Under present
New York law, the maximum rate of interest is 25% per annum on a simple interest basis. This limit may not apply to debt securities in which $2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state or Federal court sitting outside of New York, many other states also have laws that regulate the amount
of interest that may be charged to and paid by a borrower. We will promise, for the benefit of the holders of the MITTS Securities, to the extent permitted by law, not to voluntarily claim the benefits of any laws concerning usurious rates of
interest.
We and our
affiliates may from time to time buy or sell the stocks included in the Index or futures or options contracts on the Index for our own accounts for business reasons or in connection with hedging our obligations under the MITTS Securities. These
transactions could affect the price of these stocks and, in turn, the value of the Index in a manner that would be adverse to your investment in the MITTS Securities.
Our subsidiary, MLPF&S, is our agent for the purposes of
calculating the Adjusted Ending Value and the Supplemental Redemption Amount payable to you at maturity. Under certain circumstances, MLPF&S’ role as our subsidiary and its responsibilities as calculation agent for the MITTS Securities
could give rise to conflicts of interests. These conflicts could occur, for instance, in connection with its determination as to whether a value of the Index can be calculated on a particular trading day, or in connection with judgments that it
would be required to make in the event of a discontinuance or unavailability of the Index. See “Description of the MITTS Securities—Adjustments to the Index; Market Disruption Events” and “—Discontinuance of the Index”
in this prospectus supplement. MLPF&S is required to carry out its duties as calculation agent in good faith and using its reasonable judgment. However, you should be aware that because we control MLPF&S, potential conflicts of interest
could arise.
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 at maturity on the MITTS Securities. This subsidiary expects to make a profit in connection with this arrangement. We did not seek competitive bids for this arrangement from unaffiliated parties.
You should consider the tax consequences of investing in the MITTS
Securities. See “United States Federal Income Taxation” in this prospectus supplement.
S-10
ML&Co. will issue the MITTS Securities as a
series of senior debt securities under the 1983 Indenture, which is more fully described in the accompanying prospectus. The MITTS Securities will mature on August 7, 2009.
While at maturity a beneficial owner of a MITTS Security will receive the sum of the principal amount of the MITTS Security plus the Supplemental Redemption Amount, if any,
there will be no other payment of interest, periodic or otherwise. See “—Payment at maturity”.
The
MITTS Securities will not be subject to redemption by ML&Co. or at the option of any beneficial owner before maturity. If an Event of Default occurs with respect to the MITTS Securities, holders of the MITTS Securities may accelerate the
maturity of the MITTS Securities, as described under “—Events of Default and Acceleration” in this prospectus supplement and “Description of Debt Securities—Events of Default” in the accompanying prospectus.
ML&Co. will issue the MITTS Securities in denominations of whole units each with a principal amount of $10.00
per unit.
The MITTS Securities will not have the benefit of any sinking fund.
At maturity, a beneficial owner of a MITTS Security will be
entitled to receive the principal amount of that MITTS Security plus a Supplemental Redemption Amount, if any, all as provided below. If the Adjusted Ending Value does not exceed the Starting Value, a beneficial owner will be entitled to receive
only the principal amount of the MITTS Security.
The “Supplemental Redemption Amount” for a
MITTS Security will be determined by the calculation agent and will equal:
| principal amount of each MITTS Security ($10 per unit) x |
|
( |
|
Adjusted Ending Value - Starting Value
Starting Value |
|
) |
provided, however, that in no event will the Supplemental Redemption Amount be less than zero.
The “Starting Value” equals 8,506.62, which was the closing value of the Index on the Pricing Date.
The “Adjusted Ending Value” will be determined by the calculation agent and will equal the average (i.e.,
arithmetic mean) of the closing values of the Index, as reduced by the application of the Adjustment Factor on each Calculation Day, determined on each of the first five Calculation Days during the Calculation Period. If there are fewer than five
Calculation Days during the Calculation Period, then the Adjusted Ending Value will equal the average, arithmetic mean, of the closing values of the Index on those Calculation Days, as reduced by the application of the Adjustment Factor on each
Calculation Day. If there is only one Calculation Day during the Calculation Period, then the Adjusted Ending Value will equal the closing value of the Index on that Calculation Day, as reduced by the application of the Adjustment Factor on that
Calculation Day. If no Calculation Days occur during the Calculation Period, then the Adjusted Ending Value will equal the closing value of the Index determined on the last scheduled Index Business Day in the Calculation Period, as reduced by the
application of the Adjustment Factor on that day, regardless of the occurrence of a Market Disruption Event on that Index Business Day. As described below, the Adjustment Factor is applied each day over the entire term of the MITTS Securities to
reduce the closing values of the Index used to calculate the Adjusted Ending Value.
S-11
The “Adjustment Factor” is a fixed percentage equal to 2.10% per year and will be applied over the
entire term of the MITTS Securities. For each calendar day during the term of the MITTS Securities, we will apply this percentage on a pro-rated basis based on a 365-day year to reduce the values of the Index used to calculate the Supplemental
Redemption Amount during the Calculation Period. As a result of the cumulative effect of this reduction, the values of the Index used to calculate your Supplemental Redemption Amount during the Calculation Period will be approximately 13.68% less
than the actual value of the Index on each day during the Calculation Period.
The “Calculation
Period” means the period from and including the seventh scheduled Index Business Day before the maturity date to and including the second scheduled Index Business Day before the maturity date.
A “Calculation Day” means any Index Business Day during the Calculation Period on which a Market Disruption Event has not
occurred.
An “Index Business Day” means any day on which the NYSE and the Nasdaq Stock Market
are open for trading and the Index or any successor index is calculated and published.
All determinations made by
the calculation agent shall be at the sole discretion of the calculation agent and, absent a determination by the calculation agent of a manifest error, shall be conclusive for all purposes and binding on ML&Co. and the holders and beneficial
owners of the MITTS Securities.
The following table illustrates, for the Starting Value and a
range of hypothetical average closing values of the Index:
| |
• |
the percentage change from the Starting Value to the hypothetical average closing value, |
| |
• |
the Adjusted Ending Values used to calculate the Supplemental Redemption Amount, |
| |
• |
the total amount payable at maturity for each unit of MITTS Securities, |
| |
• |
the total rate of return to beneficial owners of the MITTS Securities, |
| |
• |
the pretax annualized rate of return to beneficial owners of MITTS Securities, and |
| |
• |
the pretax annualized rate of return of an investment in the stocks included in the Index, which includes an assumed aggregate dividend yield of 2.18% per
annum, as more fully described below. |
For purposes of calculating this table, we have applied
the Adjustment Factor of 2.10%.
S-12
| Hypothetical average closing value during the calculation period
|
|
|
Percentage change from the Starting Value to the hypothetical average closing value
|
|
Adjusted Ending Value(1)
|
|
Total amount payable
at maturity per unit of the MITTS Securities
|
|
Total rate of return on the MITTS Securities
|
|
Pretax annualized rate of return on the MITTS Securities(2)
|
|
Pretax annualized rate of return of stocks included in the Index (2)(3)
|
| 1,701.32 |
|
|
– 80% |
|
1,468.57 |
|
$10.00 |
|
0.00% |
|
0.00% |
|
– 19.30% |
| 3,402.65 |
|
|
– 60% |
|
2,937.14 |
|
$10.00 |
|
0.00% |
|
0.00% |
|
– 10.47% |
| 5,103.97 |
|
|
– 40% |
|
4,405.70 |
|
$10.00 |
|
0.00% |
|
0.00% |
|
– 5.01% |
| 6,805.30 |
|
|
– 20% |
|
5,874.27 |
|
$10.00 |
|
0.00% |
|
0.00% |
|
– 1.00% |
| 8,506.62 |
(4) |
|
0% |
|
7,342.84 |
|
$10.00 |
|
0.00% |
|
0.00% |
|
2.18% |
| 10,207.94 |
|
|
20% |
|
8,811.41 |
|
$10.36 |
|
3.58% |
|
0.50% |
|
4.84% |
| 11,909.27 |
|
|
40% |
|
10,279.97 |
|
$12.08 |
|
20.85% |
|
2.72% |
|
7.12% |
| 13,610.59 |
|
|
60% |
|
11,748.54 |
|
$13.81 |
|
38.11% |
|
4.66% |
|
9.12% |
| 15,311.92 |
|
|
80% |
|
13,217.11 |
|
$15.54 |
|
55.37% |
|
6.39% |
|
10.91% |
| 17,013.24 |
|
|
100% |
|
14,685.68 |
|
$17.26 |
|
72.64% |
|
7.95% |
|
12.53% |
| 18,714.56 |
|
|
120% |
|
16,154.24 |
|
$18.99 |
|
89.90% |
|
9.37% |
|
14.01% |
| 20,415.89 |
|
|
140% |
|
17,622.81 |
|
$20.72 |
|
107.17% |
|
10.67% |
|
15.37% |
| 22,117.21 |
|
|
160% |
|
19,091.38 |
|
$22.44 |
|
124.43% |
|
11.88% |
|
16.64% |
| 23,818.54 |
|
|
180% |
|
20,559.95 |
|
$24.17 |
|
141.69% |
|
13.00% |
|
17.82% |
| 25,519.86 |
|
|
200% |
|
22,028.51 |
|
$25.90 |
|
158.96% |
|
14.05% |
|
18.93% |
(1) |
The Adjusted Ending Values specified in this column are approximately 13.68% less than the hypothetical average closing values of the Index as a result of the
application of the Adjustment Factor of 2.10% per annum over the term of the MITTS Securities. |
(2) |
The annualized rates of return specified in the preceding table are calculated on a semiannual bond equivalent basis. |
(3) |
This rate of return assumes: |
| |
(a) |
a percentage change in the aggregate price of the stocks that equals the percentage change in the Index from the Starting Value to the relevant hypothetical
average closing value; |
| |
(b) |
a constant dividend yield of 2.18% per annum, paid quarterly from the date of initial delivery of the MITTS Securities, applied to the value of the Index at the
end of each quarter assuming this value increases or decreases linearly from the Starting Value to the applicable hypothetical average closing value; |
| |
(c) |
no transaction fees or expenses; and |
| |
(d) |
an investment term from August 7, 2002 to August 7, 2009. |
(4) |
This was the closing value of the Index on the Pricing Date and is the Starting Value for this series of the MITTS Securities. |
The above figures are for purposes of illustration only. The actual Supplemental Redemption Amount, received by you, if any,
and the resulting total and pretax annualized rate of return will depend on the actual Adjusted Ending Value determined by the calculation agent as described in this prospectus supplement.
S-13
If at any time Dow Jones changes
its method of calculating the Index, or the value of the Index changes, in any material respect, or if the Index is in any other way modified so that the Index does not, in the opinion of the calculation agent, fairly represent the value of the
Index had those changes or modifications not been made, then, from and after that time, the calculation agent shall, at the close of business in New York, New York, on each date that the closing value of the Index is to be calculated, make those
adjustments as, in the good faith judgment of the calculation agent, may be necessary in order to arrive at a calculation of a value of a stock index comparable to the Index as if those changes or modifications had not been made, and calculate the
closing value with reference to the Index, as so adjusted. Accordingly, if the method of calculating the Index is modified so that the value of the Index is a fraction or a multiple of what it would have been if it had not been modified, e.g., due
to a split, then the calculation agent shall adjust the Index in order to arrive at a value of the Index as if it had not been modified, e.g., as if a split had not occurred.
“Market Disruption Event” means either of the following events as determined by the calculation agent:
| |
(A) |
the suspension of or material limitation on trading for more than two hours of trading, or during the one-half hour period preceding the close of trading, on
the applicable exchange, in 20% or more of the stocks which then comprise the Index or any successor index; or |
| |
(B) |
the suspension of or material limitation on, in each case, for more than two hours of trading, or during the one-half hour period preceding the close of
trading, on the applicable exchange, whether by reason of movements in price otherwise exceeding levels permitted by the relevant exchange or otherwise, option contracts or futures contracts related to the Index, or any successor index, which are
traded on any major U.S. exchange. |
For the purpose of the above definition:
| |
(1) |
a limitation on the hours in a trading day and/or number of days of trading will not constitute a Market Disruption Event if it results from an announced change
in the regular business hours of the relevant exchange, and |
| |
(2) |
for the purpose of clause (A) above, any limitations on trading during significant market fluctuations under NYSE Rule 80A, or any applicable rule or regulation
enacted or promulgated by the NYSE or any other self regulatory organization or the SEC of similar scope as determined by the calculation agent, will be considered “material”. |
As a result of the terrorist attacks the financial markets were closed from September 11, 2001 through September 14, 2001 and values of
the Index are not available for such dates. Such market closures would have constituted Market Disruption Events.
If Dow Jones discontinues publication of the Index and
Dow Jones or another entity publishes a successor or substitute index that the calculation agent determines, in its sole discretion, to be comparable to the Index (a “successor index”), then, upon the calculation agent’s notification
of its determination to the trustee and ML&Co., the calculation agent will substitute the successor index as calculated by Dow Jones or any other entity for the Index and calculate the Adjusted Ending Value as described above under
“—Payment at maturity”. Upon any selection by the calculation agent of a successor index, ML&Co. shall cause notice to be given to holders of the MITTS Securities.
S-14
In the event that Dow Jones discontinues publication of the Index and:
| |
• |
the calculation agent does not select a successor index, or |
| |
• |
the successor index is no longer published on any of the Calculation Days, |
the calculation agent will compute a substitute value for the Index in accordance with the procedures last used to calculate the Index before any discontinuance. If a successor index is selected or the
calculation agent calculates a value as a substitute for the Index as described below, the successor index or value will be used as a substitute for the Index for all purposes, including for purposes of determining whether a Market Disruption Event
exists.
If Dow Jones discontinues publication of the Index before the Calculation Period and the calculation
agent determines that no successor index is available at that time, then on each Business Day until the earlier to occur of:
| |
• |
the determination of the Adjusted Ending Value, and |
| |
• |
a determination by the calculation agent that a successor index is available, |
the calculation agent will determine the value that would be used in computing the Supplemental Redemption Amount as described in the preceding paragraph as if that day were a Calculation
Day. The calculation agent will cause notice of each value to be published not less often than once each month in The Wall Street Journal or another newspaper of general circulation, and arrange for information with respect to these values to
be made available by telephone.
A “Business Day” is any day on which the NYSE, the AMEX and the
Nasdaq Stock Market are open for trading.
Notwithstanding these alternative arrangements, discontinuance of the
publication of the Index may adversely affect trading in the MITTS Securities.
In case an Event of Default with respect to any
MITTS Securities has occurred and is continuing, the amount payable to a beneficial owner of a MITTS Security upon any acceleration permitted by the MITTS Securities, with respect to each MITTS Security, will be equal to the principal amount and the
Supplemental Redemption Amount, if any, calculated as though the date of early repayment were the stated maturity date of the MITTS Securities, provided, however, the Adjustment Factor will be applied to the values used to calculate
the Supplemental Redemption Amount as if the MITTS Securities had not been accelerated and had remained outstanding to the stated maturity date. See “—Payment at maturity” in this prospectus supplement. If a bankruptcy proceeding is
commenced in respect of ML&Co., the claim of the holder of a MITTS Security may be limited, under Section 502(b)(2) of Title 11 of the United States Code, to the principal amount of the MITTS Security plus an additional amount of contingent
interest calculated as though the date of the commencement of the proceeding were the maturity date of the MITTS Securities.
In case of default in payment of the MITTS Securities, whether at the stated maturity date or upon acceleration, from and after that date the MITTS Securities will bear interest, payable upon demand of their holders, at the rate of
2.01% per annum, to the extent that payment of any interest is legally enforceable on the unpaid amount due and payable on that date in accordance with the terms of the MITTS Securities to the date payment of that amount has been made or duly
provided for.
S-15
Description of the Global Securities
Upon issuance, all MITTS Securities will be represented by one or more fully registered global securities. Each global security
will be deposited with, or on behalf of, DTC (DTC, together with any successor, being a “depositary”), as depositary, registered in the name of Cede & Co., DTC’s partnership nominee. Unless and until it is exchanged in whole or in
part for MITTS Securities in definitive form, no global security may be transferred except as a whole by the depositary to a nominee of the depositary or by a nominee of the depositary to the depositary or another nominee of the depositary or by the
depositary or any nominee to a successor of the depositary or a nominee of that successor.
So long as DTC, or its
nominee, is a registered owner of a global security, DTC or its nominee, as the case may be, will be considered the sole owner or holder of the MITTS Securities represented by the global security for all purposes under the 1983 Indenture. Except as
provided below, the beneficial owners of the MITTS Securities represented by a global security will not be entitled to have the MITTS Securities represented by a global security registered in their names, will not receive or be entitled to receive
physical delivery of the MITTS Securities in definitive form and will not be considered the owners or holders of the MITTS Securities 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 MITTS Securities. The MITTS Securities 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 MITTS Securities 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 Securities Exchange Act of 1934, as amended. DTC holds securities that its
participants deposit with DTC. DTC also facilitates the settlement among participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in participants’
accounts, thereby eliminating the need for physical movement of securities certificates. Direct participants of DTC include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is owned
by a number of its direct participants and by the NYSE, the AMEX, and the National Association of Securities Dealers, Inc. Access to DTC’s system is also available to others such as securities brokers and dealers, banks and trust companies that
clear through or
S-16
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 MITTS Securities under DTC’s system must be made by or through direct participants, which will receive a credit for
the MITTS Securities 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 MITTS Securities are to be made by entries on the books of participants acting on behalf of beneficial owners.
To facilitate subsequent transfers, all MITTS Securities deposited with DTC are registered in the name of DTC’s partnership nominee, Cede & Co. The deposit of
MITTS Securities with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual beneficial owners of the MITTS Securities; DTC’s records reflect only the identity of
the direct participants to whose accounts the MITTS Securities 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 MITTS Securities. 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 MITTS Securities are credited on the record date.
Principal, premium, if any, and/or interest, if
any, payments made in cash on the MITTS Securities 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 payment 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 MITTS Securities, |
S-17
the global securities will be exchangeable for MITTS Securities in definitive form of like tenor and of
an equal aggregate principal amount, in denominations of $10 and integral multiples of $10. The definitive MITTS Securities 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 MITTS Securities 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, MITTS Security 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, MITTS Security certificates will be printed and delivered.
The information in this section concerning DTC and DTC’s system has been obtained from sources that ML&Co. believes to
be reliable, but ML&Co. takes no responsibility for its accuracy.
Settlement for the MITTS Securities will be made by
the underwriter in immediately available funds. ML&Co. will make all payments of principal and the Supplemental Redemption Amount, if any, in immediately available funds so long as the MITTS Securities are maintained in book-entry form.
Unless otherwise stated, all information herein on the Index is derived
from Dow Jones or other publicly available sources. This information reflects the policies of Dow Jones as stated in the publicly available sources and the policies are subject to change by Dow Jones. Dow Jones is under no obligation to continue to
publish the Index and may discontinue publication of the Index at any time.
The Index is a price-weighted index,
i.e., the weight of a component stock in the Index is based on its price per share rather than the total market capitalization of the issuer of the component stock, comprised of 30 common stocks chosen by the editors of the WSJ as
representative of the broad market of U.S. industry. The corporations represented in the Index tend to be leaders within their respective industries and their stocks are typically widely held by individuals and institutional investors. Changes in
the composition of the Index are made entirely by the editors of the WSJ without consultation with the corporations represented in the Index, any stock exchange, any official agency or ML&Co. Changes to the common stocks included in the Index
tend to be made infrequently. Historically, most substitutions have been the result of mergers, but from time to time, changes may be made to achieve what the editors of the WSJ deem to be a more accurate representation of the broad market of U.S.
industry. In choosing a new corporation for the Index, the editors of the WSJ look for leading industrial companies with a successful history of growth and wide interest among investors. The component stocks of the Index may be changed at any time
for any reason. Dow Jones, publisher of the WSJ, is not affiliated with ML&Co. and has not participated in any way in the creation of the MITTS Securities.
The Index initially consisted of 12 common stocks and was first published in the WSJ in 1896. The Index was increased to include 20 common stocks in 1916 and to 30 common stocks in 1928. The number of
common stocks in the Index has remained at 30 since 1928, and, in an effort to maintain continuity, the constituent corporations represented in the Index have been changed on a relatively infrequent basis.
The value of the Index is the sum of the primary exchange prices of each of the 30 common stocks included in the Index, divided by a
divisor that is designed to provide a meaningful continuity in the value of the
S-18
Index. Because the Index is price-weighted, stock splits or changes in the component stocks could result in distortions in the Index value. In order to prevent these distortions related to
extrinsic factors, the divisor is changed in accordance with a mathematical formula that reflects adjusted proportions within the Index. The current divisor of the Index is published daily in the WSJ and other publications. In addition, other
statistics based on the Index may be found in a variety of publicly available sources.
ML&Co. or its
affiliates may presently or from time to time engage in business with one or more of the issuers of the component stocks of the Index, including extending loans to, or making equity investments in, the issuers or providing advisory services to the
issuers, including merger and acquisition advisory services. In the course of its business, ML&Co. or its affiliates may acquire non-public information with respect to the issuers. ML&Co. does not make any representation to any purchaser of
the MITTS Securities with respect to any matters whatsoever relating to the issuers. Any prospective purchaser of the MITTS Securities should undertake an independent investigation of the issuers of the component stocks of the Index as in its
judgment is appropriate to make an informed decision about an investment in the MITTS Securities. The composition of the Index does not reflect any investment or sell recommendations of ML&Co. or its affiliates.
The following table presents the listing symbol, industry group, price per share, total number of shares outstanding and market
capitalization for each of the component stocks in the Index based on publicly available information as of August 1, 2002.
| Issuer of Component Stock(1)
|
|
Symbol
|
|
Industry
|
|
Price Per Share(2)
|
|
Total Shares
Outstanding(2)
|
|
Market Capitalization(2)
|
| Alcoa Inc. |
|
AA |
|
Basic Resources |
|
$ 26.29 |
|
844,427,100 |
|
$ |
22,199,988,459 |
| American Express Company |
|
AXP |
|
Financial Services |
|
$ 34.36 |
|
1,329,924,000 |
|
$ |
45,696,188,640 |
| AT&T Corp |
|
T |
|
Telecommunications |
|
$ 9.67 |
|
3,845,223,000 |
|
$ |
37,183,306,410 |
| The Boeing Company |
|
BA |
|
Industrial Goods & Services |
|
$ 40.63 |
|
799,017,200 |
|
$ |
32,464,068,836 |
| Caterpillar Inc. |
|
CAT |
|
Industrial Goods & Services |
|
$ 43.26 |
|
343,891,300 |
|
$ |
14,876,737,638 |
| Citigroup Inc. |
|
C |
|
Financial Services |
|
$ 32.30 |
|
5,118,100,000 |
|
$ |
165,314,630,000 |
| The Coca-Cola Company |
|
KO |
|
Food & Beverage |
|
$ 49.93 |
|
2,483,008,000 |
|
$ |
123,976,589,440 |
| E.I. du Pont de Nemours and Company |
|
DD |
|
Chemicals |
|
$ 41.53 |
|
993,193,800 |
|
$ |
41,247,338,514 |
| Eastman Kodak Company |
|
EK |
|
Cyclical Goods & Services |
|
$ 30.56 |
|
291,741,000 |
|
$ |
8,915,604,960 |
| Exxon Mobil Corporation |
|
XOM |
|
Energy |
|
$ 33.65 |
|
6,782,000,000 |
|
$ |
228,214,300,000 |
| General Electric Company |
|
GE |
|
Industrial Goods & Services |
|
$ 31.40 |
|
9,949,471,000 |
|
$ |
312,413,389,400 |
| General Motors Corporation |
|
GM |
|
Automobiles |
|
$ 45.84 |
|
561,337,300 |
|
$ |
25,731,701,832 |
| Hewlett-Packard Company |
|
HPQ |
|
Technology |
|
$ 13.69 |
|
3,065,744,000 |
|
$ |
41,970,035,360 |
| The Home Depot, Inc. |
|
HD |
|
Retail |
|
$ 29.63 |
|
2,354,903,000 |
|
$ |
69,775,775,890 |
| Honeywell International Inc. |
|
HON |
|
Industrial Goods & Services |
|
$ 31.50 |
|
817,610,000 |
|
$ |
25,754,715,000 |
| Intel Corporation |
|
INTC |
|
Technology |
|
$ 17.56 |
|
6,686,000,000 |
|
$ |
117,406,160,000 |
| International Business Machines Corp. |
|
IBM |
|
Technology |
|
$ 68.25 |
|
1,711,889,000 |
|
$ |
116,836,424,250 |
| International Paper Co. |
|
IP |
|
Basic Resources |
|
$ 39.52 |
|
482,903,700 |
|
$ |
19,084,354,224 |
| J.P. Morgan Chase & Co. |
|
JPM |
|
Banks |
|
$ 25.02 |
|
1,993,400,000 |
|
$ |
49,874,868,000 |
| Johnson & Johnson |
|
JNJ |
|
Healthcare |
|
$ 51.42 |
|
3,011,205,000 |
|
$ |
154,836,161,100 |
| McDonald’s Corporation |
|
MCD |
|
Cyclical Goods & Services |
|
$ 24.34 |
|
1,272,000,000 |
|
$ |
30,960,480,000 |
| Merck & Co., Inc. |
|
MRK |
|
Healthcare |
|
$ 47.95 |
|
2,265,172,000 |
|
$ |
108,614,997,400 |
| Microsoft Corporation |
|
MSFT |
|
Technology |
|
$ 45.75 |
|
5,415,463,000 |
|
$ |
247,757,432,250 |
| 3M Company |
|
MMM |
|
Industrial Goods & Services |
|
$122.13 |
|
390,014,800 |
|
$ |
47,632,507,524 |
| Philip Morris Companies Inc. |
|
MO |
|
Noncyclical Goods & Services |
|
$ 45.12 |
|
2,139,554,000 |
|
$ |
96,536,676,480 |
| The Procter & Gamble Company |
|
PG |
|
Noncyclical Goods & Services |
|
$ 87.87 |
|
1,299,610,000 |
|
$ |
114,196,730,700 |
| SBC Communications Inc. |
|
SBC |
|
Telecommunications |
|
$ 27.45 |
|
3,340,171,000 |
|
$ |
91,687,693,950 |
| United Technologies Corporation |
|
UTX |
|
Industrial Goods & Services |
|
$ 67.95 |
|
471,723,000 |
|
$ |
32,053,577,850 |
| Wal-Mart Stores, Inc. |
|
WMT |
|
Retail |
|
$ 47.40 |
|
4,448,040,000 |
|
$ |
210,837,096,000 |
| The Walt Disney Company |
|
DIS |
|
Media |
|
$ 16.83 |
|
2,040,819,000 |
|
$ |
34,346,983,770 |
Total Market Capitalization: $2,668,396,513,877
Average Market Capitalization: $88,946,550,463
(1) |
The inclusion of a component stock in the portfolio should not be considered a recommendation to buy or sell that stock, and neither ML&Co. nor any of its
affiliates make any representation to any purchaser of the MITTS Securities as to the performance of the portfolio or any component stock. Beneficial owners of the MITTS Securities will not have any right to the component stocks or any dividends
paid on the component stocks. |
(2) |
Information obtained from Bloomberg Financial Markets. |
S-19
The following table sets forth the closing values of
the Index on the last business day of each year from 1946 through 2001. The historical experience of the Index should not be taken as an indication of future performance and no assurance can be given that the value of the Index will not decline and
thereby reduce the Supplemental Redemption Amount, if any, which may be payable to beneficial owners of MITTS Securities at maturity or otherwise.
Year-End Value of the Index
| Year
|
|
Closing Value
|
|
Year
|
|
Closing Value
|
|
Year
|
|
Closing Value
|
|
Year
|
|
Closing Value
|
| 1946 |
|
177.20 |
|
1960 |
|
615.89 |
|
1974 |
|
616.24 |
|
1988 |
|
2,168.57 |
| 1947 |
|
181.16 |
|
1961 |
|
731.14 |
|
1975 |
|
852.41 |
|
1989 |
|
2,753.20 |
| 1948 |
|
177.30 |
|
1962 |
|
652.10 |
|
1976 |
|
1,004.65 |
|
1990 |
|
2,633.66 |
| 1949 |
|
200.13 |
|
1963 |
|
762.95 |
|
1977 |
|
831.17 |
|
1991 |
|
3,168.83 |
| 1950 |
|
235.41 |
|
1964 |
|
874.13 |
|
1978 |
|
805.01 |
|
1992 |
|
3,301.11 |
| 1951 |
|
269.23 |
|
1965 |
|
969.26 |
|
1979 |
|
838.74 |
|
1993 |
|
3,754.09 |
| 1952 |
|
291.90 |
|
1966 |
|
785.69 |
|
1980 |
|
963.99 |
|
1994 |
|
3,834.44 |
| 1953 |
|
280.90 |
|
1967 |
|
905.11 |
|
1981 |
|
875.00 |
|
1995 |
|
5,117.12 |
| 1954 |
|
404.39 |
|
1968 |
|
943.75 |
|
1982 |
|
1,046.54 |
|
1996 |
|
6,448.27 |
| 1955 |
|
488.40 |
|
1969 |
|
800.36 |
|
1983 |
|
1,258.64 |
|
1997 |
|
7,908.25 |
| 1956 |
|
499.47 |
|
1970 |
|
838.92 |
|
1984 |
|
1,211.57 |
|
1998 |
|
9,181.43 |
| 1957 |
|
435.69 |
|
1971 |
|
890.20 |
|
1985 |
|
1,546.67 |
|
1999 |
|
11,497.12 |
| 1958 |
|
583.65 |
|
1972 |
|
1,020.02 |
|
1986 |
|
1,895.95 |
|
2000 |
|
10,786.85 |
| 1959 |
|
679.36 |
|
1973 |
|
850.86 |
|
1987 |
|
1,938.83 |
|
2001 |
|
10,021.50 |
Month-End Closing Values of the Index
The following table sets forth the closing level of the Index at the end of each month, in the period from January 1997 through July 2002.
This historical data on the Index is not necessarily indicative of the future performance of the Index or what the value of the MITTS Securities may be. Any historical upward or downward trend in the closing level of the Index during any period set
forth below is not any indication that the Index is more or less likely to decline at any time during the term of the MITTS Securities.
| |
|
1997
|
|
1998
|
|
1999
|
|
2000
|
|
2001
|
|
2002
|
| January |
|
6,813.1 |
|
7,906.5 |
|
9,358.8 |
|
10,940.5 |
|
10,887.4 |
|
9,920.0 |
| February |
|
6,877.7 |
|
8,545.7 |
|
9,306.6 |
|
10,128.3 |
|
10,495.3 |
|
10,106.1 |
| March |
|
6,583.5 |
|
8,799.8 |
|
9,786.2 |
|
10,921.9 |
|
9,878.8 |
|
10,403.9 |
| April |
|
7,009.0 |
|
9,063.4 |
|
10,789.0 |
|
10,733.9 |
|
10,735.0 |
|
9,946.2 |
| May |
|
7,331.0 |
|
8,900.0 |
|
10,559.7 |
|
10,522.3 |
|
10,911.9 |
|
9,925.3 |
| June |
|
7,672.8 |
|
8,952.0 |
|
10,970.8 |
|
10,447.9 |
|
10,502.4 |
|
9,243.3 |
| July |
|
8,222.6 |
|
8,883.3 |
|
10,655.2 |
|
10,522.0 |
|
10,522.8 |
|
8,736.6 |
| August |
|
7,622.4 |
|
7,539.1 |
|
10,829.3 |
|
11,215.1 |
|
9,949.8 |
|
|
| September |
|
7,945.3 |
|
7,842.6 |
|
10,337.0 |
|
10,650.9 |
|
8,847.6 |
|
|
| October |
|
7,442.1 |
|
8,592.1 |
|
10,729.9 |
|
10,971.1 |
|
9,075.1 |
|
|
| November |
|
7,823.1 |
|
9,116.6 |
|
10,877.8 |
|
10,414.5 |
|
9,851.6 |
|
|
| December |
|
7,908.3 |
|
9,181.4 |
|
11,497.1 |
|
10,786.9 |
|
10,021.5 |
|
|
The closing value of the Index on August 1, 2002 was 8,506.62.
S-20
The following graph plots the historical month-end performance of the Index from January 1997 through July 2002. Past
movements of the Index are not necessarily indicative of future Index values.
“Dow Jones”, “Dow Jones Industrial
AverageSM”, and “DJIASM” are service marks of Dow Jones & Company, Inc. Dow Jones has no relationship to MLPF&S or ML&Co., other than the licensing of the
Dow Jones Industrial AverageSM and its service marks for use in connection with the MITTS Securities.
Dow Jones does not:
| |
• |
Sponsor, endorse, sell or promote the MITTS Securities. |
| |
• |
Recommend that any person invest in the MITTS Securities or any other securities. |
| |
• |
Have any responsibility or liability for or make any decisions about the timing, amount or pricing of MITTS Securities. |
| |
• |
Have any responsibility or liability for the administration, management or marketing of the MITTS Securities. |
| |
• |
Consider the needs of the MITTS Securities or the owners of the MITTS Securities in determining, composing or calculating the Dow Jones Industrial
AverageSM or have any obligation to do so. |
Dow Jones will not have any liability in connection with the MITTS Securities. Specifically,
| |
• |
Dow Jones does not make any warranty, express or implied, and Dow Jones disclaims any warranty about: |
| |
• |
The results to be obtained by the MITTS Securities, the owner of the MITTS Securities or any other person in connection with the use of the Dow Jones Industrial
AverageSM and the data included in the Dow Jones Industrial AverageSM; |
S-21
| |
• |
The accuracy or completeness of the Dow Jones Industrial AverageSM and its data; |
| |
• |
The merchantability and the fitness for a particular purpose or use of the Dow Jones Industrial AverageSM and its data; |
| |
• |
Dow Jones will have no liability for any errors, omissions or interruptions in the Dow Jones Industrial AverageSM or its data; |
| |
• |
Under no circumstances will Dow Jones be liable for any lost profits or indirect, punitive, special or consequential damages or losses, even if Dow Jones knows
that they might occur. |
The licensing agreement between MLPF&S and Dow Jones is solely for
their benefit and not for the benefit of the owners of the MITTS Securities or any other third parties.
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 MITTS Securities. 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 MITTS Securities 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 MITTS Securities in a tax-deferred or tax-advantaged account, or persons holding MITTS Securities 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 MITTS Securities, as determined for United States Federal income tax purposes, equals the principal amount thereof. Persons considering the purchase of the MITTS Securities 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 MITTS Securities 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 MITTS
Security 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 MITTS Security 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 MITTS Security that is not a U.S. Holder.
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 MITTS Securities or securities with terms substantially the same as the MITTS Securities. However, although the matter is not free
S-22
from doubt, under current law, each MITTS Security should be treated as a debt instrument of ML&Co. for United States Federal income tax purposes. ML&Co. currently intends to treat each
MITTS Security 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 MITTS Securities. Prospective investors in the MITTS Securities should be aware, however, that the IRS is not bound by
ML&Co.’s characterization of the MITTS Securities as indebtedness, and the IRS could possibly take a different position as to the proper characterization of the MITTS Securities 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 MITTS Securities is based upon the assumption that each MITTS Security will be treated as a debt instrument of ML&Co. for
United States Federal income tax purposes. If the MITTS Securities 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 MITTS Securities 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 MITTS Security could differ from the timing and
character of income, gain or loss recognized in respect of a MITTS Security had the MITTS Securities in fact been treated as debt instruments of ML&Co. for United States Federal income tax purposes.
On June 11, 1996, the Treasury Department issued final regulations (the
“Final Regulations”) concerning the proper United States Federal income tax treatment of contingent payment debt instruments such as the MITTS Securities, which apply to debt instruments issued on or after August 13, 1996 and, accordingly,
will apply to the MITTS Securities. In general, the Final 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. Specifically, the Final Regulations generally require a U.S. Holder of such an instrument to include future contingent and
noncontingent interest payments in income as that interest accrues based upon a projected payment schedule. Moreover, in general, under the Final Regulations, any gain recognized by a U.S. Holder on the sale, exchange, or retirement of a contingent
payment debt instrument is treated as ordinary income, and all or a portion of any loss realized could be treated as ordinary loss as opposed to capital loss (depending upon the circumstances). The Final Regulations provide no definitive guidance as
to whether or not an instrument is properly characterized as a debt instrument for United States Federal income tax purposes.
In particular, solely for purposes of applying the Final Regulations to the MITTS Securities, ML&Co. has determined that the projected payment schedule for the MITTS Securities will consist of payment on the maturity date of the
principal amount thereof and a projected Supplemental Redemption Amount equal to $4.3769 per unit (the “Projected Supplemental Redemption Amount”). This represents an estimated yield on the MITTS Securities equal to 5.251% per annum,
compounded semiannually. Accordingly, during the term of the MITTS Securities, a U.S. Holder of a MITTS Security will be required to include in income as ordinary interest an amount equal to the sum of the daily portions of interest on the MITTS
Security that are deemed to accrue at this estimated yield for each day during the taxable year (or portion of the taxable year) on which the U.S. Holder holds the MITTS Security. The amount of interest that will be deemed to accrue in any accrual
period (i.e., generally each six-month period during which the MITTS Securities are outstanding) will equal the product of this estimated yield (properly adjusted for the length of the accrual period) and the MITTS Security’s adjusted issue
price (as defined below) at the beginning of the accrual period. The daily portions of interest will be determined by allocating to each day in the accrual period the ratable portion of the interest that is deemed to accrue during the accrual
period. In general, for these purposes a MITTS Security’s adjusted issue price will equal the MITTS Security’s issue price (i.e., $10), increased by the interest previously accrued on the MITTS Security. At maturity of a MITTS Security, in
the event that the actual Supplemental Redemption Amount, if
S-23
any, exceeds $4.3769 per unit (i.e., the Projected Supplemental Redemption Amount), a U.S. Holder will be required to include the excess of the actual Supplemental Redemption Amount over $4.3769
per unit (i.e., the Projected Supplemental Redemption Amount) in income as ordinary interest on the stated maturity date. Alternatively, in the event that the actual Supplemental Redemption Amount, if any, is less than $4.3769 per unit (i.e., the
Projected Supplemental Redemption Amount), the amount by which the Projected Supplemental Redemption Amount (i.e., $4.3769 per unit) exceeds the actual Supplemental Redemption Amount will be treated first as an offset to any interest otherwise
includible in income by the U.S. Holder with respect to the MITTS Security for the taxable year in which the stated maturity date occurs to the extent of the amount of that includible interest. Further, a U.S. Holder will be permitted to recognize
and deduct, as an ordinary loss that is not subject to the limitations applicable to miscellaneous itemized deductions, any remaining portion of the Projected Supplemental Redemption Amount (i.e., $4.3769 per unit) in excess of the actual
Supplemental Redemption Amount that is not treated as an interest offset pursuant to the foregoing rules. In addition, U.S. Holders purchasing a MITTS Security at a price that differs from the adjusted issue price of the MITTS Security as of the
purchase date (e.g., subsequent purchases) will 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.
Upon the sale or exchange of a MITTS Security prior to the stated maturity date, a U.S. Holder will be required to recognize taxable gain
or loss in an amount equal to the difference, if any, between the amount realized by the U.S. Holder upon such sale or exchange and the U.S. Holder’s adjusted tax basis in the MITTS Security as of the date of disposition. A U.S. Holder’s
adjusted tax basis in a MITTS Security generally will equal such U.S. Holder’s initial investment in the MITTS Security increased by any interest previously included in income with respect to the MITTS Security by the U.S. Holder. Any taxable
gain will be treated as ordinary income. Any taxable loss will be treated as ordinary loss to the extent of the U.S. Holder’s total interest inclusions on the MITTS Security. Any remaining loss generally will be treated as long-term or
short-term capital loss (depending upon the U.S. Holder’s holding period for the MITTS Security). All amounts includible in income by a U.S. Holder as ordinary interest pursuant to the Final Regulations will be treated as original issue
discount.
All prospective investors in the MITTS Securities should consult their own tax advisors concerning the
application of the Final Regulations to their investment in the MITTS Securities. Investors in the MITTS Securities may also obtain the projected payment schedule, as determined by ML&Co. for purposes of applying the Final Regulations to the
MITTS Securities, 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, (212) 670-0432, corporatesecretary@exchange.ml.com.
The projected payment schedule (including both the Projected Supplemental Redemption Amount and the estimated
yield on the MITTS Securities) has been determined solely for United States Federal income tax purposes (i.e., for purposes of applying the Final Regulations to the MITTS Securities), and is neither a prediction nor a guarantee of what the actual
Supplemental Redemption Amount will be, or that the actual Supplemental Redemption Amount will even exceed zero.
The following table sets forth the amount of interest that will be deemed to have accrued with respect to each unit of the MITTS Securities during each accrual period over the term of the MITTS Securities based upon the projected
payment schedule for the MITTS Securities (including both the Projected Supplemental Redemption Amount and an estimated yield equal to 5.251% per annum (compounded semiannually)) as determined by ML&Co. for purposes of applying the Final
Regulations to the MITTS Securities:
S-24
| Accrual Period
|
|
Interest deemed to accrue
during accrual period (per unit)
|
|
Total interest deemed to have
accrued on MITTS Securities as of end of
accrual period (per unit)
|
| August 7, 2002 through February 7, 2003 |
|
$0.2647 |
|
$0.2647 |
| February 8, 2003 through August 7, 2003 |
|
$0.2695 |
|
$0.5342 |
| August 8, 2003 through February 7, 2004 |
|
$0.2766 |
|
$0.8108 |
| February 8, 2004 through August 7, 2004 |
|
$0.2839 |
|
$1.0947 |
| August 8, 2004 through February 7, 2005 |
|
$0.2912 |
|
$1.3859 |
| February 8, 2005 through August 7, 2005 |
|
$0.2990 |
|
$1.6849 |
| August 8, 2005 through February 7, 2006 |
|
$0.3068 |
|
$1.9917 |
| February 8, 2006 through August 7, 2006 |
|
$0.3148 |
|
$2.3065 |
| August 8, 2006 through February 7, 2007 |
|
$0.3231 |
|
$2.6296 |
| February 8, 2007 through August 7, 2007 |
|
$0.3316 |
|
$2.9612 |
| August 8, 2007 through February 7, 2008 |
|
$0.3403 |
|
$3.3015 |
| February 8, 2008 through August 7, 2008 |
|
$0.3492 |
|
$3.6507 |
| August 8, 2008 through February 7, 2009 |
|
$0.3584 |
|
$4.0091 |
| February 8, 2009 through August 7, 2009 |
|
$0.3678 |
|
$4.3769 |
Projected Supplemental Redemption Amount = $4.3769 per unit.
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 MITTS Security, 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 the beneficial owner of the MITTS Security 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 MITTS Security 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 MITTS Security 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 MITTS
Security would have been effectively connected with the conduct by such individual of a trade or business in the United States.
S-25
Backup withholding at the applicable statutory rate of United
States Federal income tax may apply to payments made in respect of the MITTS Securities 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 MITTS Securities 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 MITTS Security 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.
S-26
The Employee Retirement Income Security Act of 1974, as amended
(“ERISA”), and Section 4975 of the Internal Revenue Code (the “Code”) prohibit various transactions between certain parties and the assets of employee benefit plans, unless an exemption is available; governmental plans may be
subject to similar prohibitions.
The U.S. Department of Labor has granted ML&Co. an administrative exemption
(Prohibited Transaction Exemption 2000-63, 65 F.R. 76306 (December 6, 2000)) from some of the prohibited transaction rules under ERISA and the related excise tax provisions under Section 4975 of the Code. The exemption applies with respect to (1)
the purchase or sale by employee benefit plans (“Plans”), other than Plans sponsored by ML&Co. or its affiliates, of MITTS Securities, and (2) the extension of credit by the Plans to ML&Co. and its affiliates in connection with the
holding of the MITTS Securities.
In order to qualify for the exemption, certain conditions, including but not
limited to the following, must be met:
• The decision to invest in the MITTS
Securities is made by a Plan fiduciary (or a participant in a Plan that provides for participant-directed investments) which is independent of ML&Co.
• ML&Co. does not have any discretionary authority or control or provide any investment advice with respect to the Plan assets involved
in the MITTS Securities transactions.
• The Plans pay no fees or commissions to
us or our affiliates in connection with the MITTS Securities transactions, other than certain principal mark-ups.
• A Plan generally should not invest more than 15 percent of the Plan’s assets (at the time of the acquisition) in any of the MITTS Securities.
• The terms of a Plan’s investment in the MITTS Securities are at least as favorable to the Plan as those available to an unrelated
non-Plan investor in a comparable arm’s length transaction at the time of such acquisition.
If either of the
following events occur, the investment will cease to qualify for the exemption.
• The MITTS Securities are no longer quoted on the National Association of Securities Dealers Automated Quotations Systems and are not listed on the NYSE or the AMEX.
• The MITTS Securities are no longer rated in one of the three highest generic rating categories by at
least one nationally-recognized statistical rating service at the time of their acquisition.
For a complete
description of conditions, please review the full text of the exemption granted to ML&Co. You may obtain a copy of the exemption 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, corporatesecretary@exchange.ml.com. Prospective Plan investors are encouraged to consult with their legal advisors regarding the impact of ERISA and the Code, the applicability of the
exemption, and the potential consequences in their specific circumstances of an investment in MITTS Securities.
Each Plan investor by its purchase of any MITTS Security on behalf of any Plan, represents on behalf of itself and the Plan, that the acquisition, holding and any subsequent disposition of the MITTS Security will not result in a
violation of ERISA, the Code or any other applicable law or regulation.
S-27
The net proceeds from the sale of the MITTS Securities
will be used as described under “Use of Proceeds” in the accompanying prospectus and to hedge market risks of ML&Co. associated with its obligation to pay the principal amount and the Supplemental Redemption Amount, if any.
We file reports, proxy statements and other
information with the SEC. Our SEC filings are also available over the Internet at the SEC’s web site at http://www.sec.gov. The address of the SEC’s Internet site is provided solely for the information of prospective investors and is not
intended to be an active link. You may also read and copy any document we file at the SEC’s public reference rooms in Washington, D.C. and New York, New York. Please call the SEC at 1-800-SEC-0330 for more information on the public
reference rooms and their copy charges. You may also inspect our SEC reports and other information at the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering the MITTS Securities and other securities. For further information on ML&Co. and the MITTS
Securities, 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.
MLPF&S has agreed, subject to the terms and conditions of the
underwriting agreement and a terms agreement, to purchase from ML&Co. $24,000,000 aggregate principal amount of MITTS Securities. 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 MITTS Securities if any are purchased.
The
underwriter has advised ML&Co. that it proposes initially to offer all or part of the MITTS Securities directly to the public at the offering price set forth on the cover page of this prospectus supplement. After the initial public offering, the
public offering price may be changed. The underwriter is offering the MITTS Securities 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.
S-28
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 MITTS Securities. Accordingly, offerings of the MITTS Securities 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 MITTS Securities. These
transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the MITTS Securities.
If the underwriter creates a short position in the MITTS Securities in connection with the offering, i.e., if it sells more units of the MITTS Securities than are set forth on the cover page of this prospectus supplement, the
underwriter may reduce that short position by purchasing units of the MITTS Securities in the open market. In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be
higher than it might be in the absence of these purchases. “Naked” short sales are sales in excess of the underwriter’s overallotment option or, where no overallotment options exists, sales in excess of the number of units an
underwriter has agreed to purchase from the issuer. Because MLPF&S, as underwriter for the MITTS Securities, has no overallotment option, it would be required to closeout a short position in the MITTS Securities by purchasing MITTS Securities 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 MITTS Securities. 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 MITTS Securities.
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.
The validity of the MITTS Securities will be passed
upon for ML&Co. and for the underwriter by Sidley Austin Brown & Wood LLP, New York, New York.
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 the 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.
S-29
| |
|
Page
|
| Adjusted Ending Value |
|
S-4 |
| Adjustment Factor |
|
S-5 |
| Business Day |
|
S-15 |
| Calculation Day |
|
S-12 |
| Calculation Period |
|
S-12 |
| Code |
|
S-27 |
| depositary |
|
S-16 |
| Dow Jones |
|
S-6 |
| DTC |
|
S-4 |
| ERISA |
|
S-27 |
| Final Regulations |
|
S-23 |
| Index |
|
S-4 |
| Index Business Day |
|
S-12 |
| IRS |
|
S-23 |
| Market Disruption Event |
|
S-14 |
| MITTS Securities |
|
S-1 |
| ML&Co. |
|
S-4 |
| MLPF&S |
|
S-4 |
| non-U.S. Holder |
|
S-22 |
| Plans |
|
S-27 |
| Pricing Date |
|
S-4 |
| principal amount |
|
S-4 |
| Projected Supplemental Redemption Amount |
|
S-23 |
| Starting Value |
|
S-4 |
| successor index |
|
S-14 |
| Supplemental Redemption Amount |
|
S-4 |
| U.S. Holder |
|
S-22 |
| Withholding Agent |
|
S-25 |
| WSJ |
|
S-6 |
S-30
2,400,000 Units
Merrill Lynch & Co., Inc.
Market Index Target-Term Securities®
based upon the Dow Jones Industrial AverageSM
due August 7,
2009
“MITTS® Securities”
$10 principal amount per unit
PROSPECTUS SUPPLEMENT
Merrill Lynch & Co.
August 1, 2002
“MITTS” and “Market Index Target-Term Securities” are registered
service marks of Merrill Lynch & Co., Inc.
