Purpose of the Exchange Offer

We are making the exchange offer to (a) limit the dilutive effect of the Old LYONs as the result of a new guidance of the FASB Emerging Issues Task Force which was approved September 30, 2004 and (b) increase the likelihood the New LYONs remain part of our capital structure beyond the March 13, 2005 purchase date preserving the economic benefits of the LYONs for ML&Co. For further information regarding the effect of the new guidance, see Note 1 to our financial statements (“Summary of Significant Accounting Policies—New Accounting Pronouncements”) included in our Quarterly Report on Form 10-Q for the period ended September 24, 2004, which has been incorporated by reference into this exchange circular.

The Exchange Offer

We are offering to exchange each Old LYON accepted for exchange for a New LYON having an original principal amount equal to the contingent principal amount of the tendered Old LYONs as of the exchange date. As of the date of this exchange circular, each Old LYON has a contingent principal amount of $1,000.

Conditions to Exchange Offer

The exchange offer is not conditioned on any minimum number of Old LYONs being tendered but is subject to certain other conditions.

Expiration Date

The exchange offer will expire at 5:00 p.m., New York City time, on December 9, 2004 unless extended by us, which date we refer to as the expiration date.

We may extend the expiration date for any reason. If we decide to extend it, we will announce any extensions by press release or other permitted means no later than 9:00 a.m. on the business day after the scheduled expiration of the exchange offer.

Withdrawal of Tenders

Tenders of Old LYONs may be withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration date. In addition, if we do not accept the Old LYONs you have tendered to us, you may also withdraw your Old LYONs at any time after January 10, 2005.

Procedures for Tendering

In order to exchange Old LYONs, you must tender your Old LYONs in accordance with the procedures described in this exchange circular and the letter of transmittal. If your Old LYONs are held through a broker or other third party, or in “street name,” you will have to instruct the holder to tender the Old LYONs on your behalf. We will determine whether, in our reasonable judgment, Old LYONs have been validly tendered.

Old LYONs may be tendered by electronic transmission of acceptance through The Depository Trust Company’s, (“DTC’s”) Automated Tender Offer Program (“ATOP”) procedures for transfer, or by delivery of a signed letter of transmittal pursuant to the instructions described therein.

Any financial institution that is a participant in DTC may tender Old LYONs through DTC’s ATOP, by which the custodial entity and the beneficial owner on whose behalf the custodial entity is acting agree to be bound by the letter of transmittal. A letter of transmittal need not accompany tenders effected through ATOP. Please carefully follow the instructions contained in this exchange circular on how to tender your securities.

There are no guaranteed delivery provisions provided for by us in conjunction with the exchange offer. Holders must tender their Old LYONs in accordance with the procedures set forth under “The Exchange Offer—Procedures for Tendering.”

Acceptance of Old LYONs

We will accept all Old LYONs validly tendered and not validly withdrawn as of the expiration of the exchange offer and will issue the New LYONs promptly after expiration of the exchange offer, upon the terms and subject to the conditions in this exchange circular and the letter of transmittal. We refer to the date that we issue the New LYONs as the “exchange date.” Our oral or written notice of acceptance to the exchange agent will be considered our acceptance of the exchange offer.

If we decide for any reason not to accept any Old LYONs for exchange, they will be returned without expense promptly after the expiration or termination of the exchange offer.

Amendment of the Exchange Offer

We reserve the right not to accept any of the Old LYONs tendered, and to otherwise interpret or modify the terms of this exchange offer, provided that we will comply with applicable laws that require us to extend the period during which securities may be tendered or withdrawn as a result of changes in the terms of or information relating to the exchange offer.

Use of Proceeds

We will not receive any proceeds from this exchange offer. Old LYONs that are validly tendered and exchanged pursuant to the exchange offer will be canceled. Accordingly, our issuance of New LYONs will not result in any cash proceeds to us.

Taxation

The U.S. federal income tax consequences of the exchange offer and of the ownership and disposition of the New LYONs are unclear. We intend to take the position that the modifications to the Old LYONs resulting from the exchange offer will not result in an exchange for U.S. federal income tax purposes. Accordingly, we intend to take the

position that the New LYONs are a continuation of the Old LYONs and, consequently, that there will be no U.S. federal income tax consequences to a holder that exchanges Old LYONs for New LYONs pursuant to the exchange offer. This position, however, is subject to uncertainty and may be challenged by the IRS. If, contrary to our position, the exchange offer were treated as resulting in an exchange for U.S. federal income tax purposes, the consequences to you may be materially different. Please see the section of this exchange circular titled “Certain United States Federal Income Tax Considerations.”

Old LYONs Not Tendered or Accepted for Exchange

Any Old LYONs not accepted for exchange for any reason will be returned without expense to you promptly after the expiration or termination of this exchange offer. If you do not exchange your Old LYONs in this exchange offer, or if your Old LYONs are not accepted for exchange, you will continue to hold your Old LYONs and will be entitled to all the rights and subject to all the limitations applicable to the Old LYONs.

Exchange Agent

Global Bondholder Services Corporation is the exchange agent for this exchange offer. Its address and telephone numbers are located on the back cover of this exchange circular.

Information Agent

Global Bondholder Services Corporation is the information agent for this exchange offer. Its address and telephone numbers are located on the back cover of this exchange circular.

Financial Advisor

MLPF&S is the financial advisor for this exchange offer. Its address and telephone numbers are located on the back cover of this exchange circular.

New LYONs

An aggregate original principal amount of New LYONs will be issued that is equal to the contingent principal amount of Old LYONs tendered and accepted in this exchange offer. If all of the Old LYONs are tendered and accepted, and if the contingent principal amount of the Old LYONs is unchanged as of the exchange date, $2,300,000,000 aggregate original principal amount of New LYONs will be issued and outstanding.

Maturity of New LYONs

March 13, 2032.

Yield of New LYONs

We will not pay interest on the New LYONs unless contingent interest becomes payable. On the maturity date of the New LYONs, a holder will receive the contingent principal amount of a New LYON, which will be equal to the original principal amount of each New LYON subject to increase daily by a variable yield. That yield is currently 0% per annum, and will be reset on December 13, 2004 and on each subsequent quarterly yield reset date to a rate of 3-month LIBOR minus 2.0% per annum. Regardless of the level of 3-month LIBOR, however, this yield will never be less than zero and, after March 13, 2008, the yield will not exceed 5.5% per annum.

The contingent principal amount will accrue daily at the applicable yield. The rate of accrual will be applied to the contingent principal amount per New LYON as of the day preceding the most recent yield reset date. Yield reset dates will be each March 13, June 13, September 13 and December 13 of each year. The yield will be calculated using the actual number of days elapsed between the yield reset dates divided by 360. Contingent interest, if any, which is described below will be in addition to the yield.

Ranking

The New LYONs will be unsecured and unsubordinated indebtedness of ML&Co. and will rank equally with ML&Co.’s other existing and future unsecured and unsubordinated indebtedness.

Conversion Rights

Upon conversion, we will deliver, for each New LYON, consideration having a value equal to the product of the conversion rate (13.8213, subject to adjustment) multiplied by the average of the sale price of our common stock on the New York Stock Exchange on each of the 5 consecutive trading days beginning on the third business day following the conversion date of the New LYONs (the “applicable stock price”). This consideration will be paid in cash (the “required cash amount”) in an amount equal to the contingent principal amount of the New LYON on the conversion date, and the remainder, at our election, will be paid in cash, common stock or a combination thereof. We will give notice no later than two business days after the conversion date to holders who convert at their addresses shown in the register of the registrar, and to beneficial owners as required by applicable law stating whether we will pay the consideration in excess

If, as of the last day of any calendar quarter beginning with the quarter ending December 31, 2004, the sale price of our common stock for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of such quarter is more than 120% of the accreted conversion price per share of common stock on the last day of such quarter, then on and after the first day of the following quarter holders may surrender New LYONs for conversion. The accreted conversion price per share as of any day will equal the contingent principal amount on that day, with that sum divided by the conversion rate.

Holders may also surrender a New LYON for conversion when the credit rating assigned to the New LYONs is Baa1 or lower by Moody’s Investors Service, Inc. (“Moody’s”), BBB+ or lower by Standard & Poor’s Credit Market Services, a division of The McGraw-Hill Companies (“Standard & Poor’s”) or BBB+ or lower by Fitch, Inc. (“Fitch”).

New LYONs or portions of New LYONs called for redemption may be surrendered for conversion until the close of business on the second business day prior to the redemption date. In addition, if we make a significant distribution to our shareholders or if we are a party to certain consolidations, mergers or binding share exchanges, New LYONs may be surrendered for conversion as provided in “Description of New LYONs—Conversion Rights.” See “Certain United States Federal Income Tax Considerations” and “Description of New LYONs—Conversion Rights—Conversion Rights Upon Notice of Redemption.”

Contingent Interest

We will pay contingent interest to the holders of New LYONs during any six-month period from June 1 to November 30, and from December 1 to May 31, with the initial six-month period commencing June 1, 2008, if the average market price of a New LYON for the five trading days ending on the third trading day immediately preceding the first day of the applicable six-month period equals 120% or more of the contingent principal amount of such New LYON.

During any period when contingent interest is payable, the contingent interest payable per New LYON each quarter will equal an annualized rate of 0.88% of the contingent principal amount (the per bond equivalent of our quarterly current annualized dividend rate of $0.16 per share of common stock multiplied by the conversion rate of

13.8213) of a New LYON on the immediately preceding quarterly yield reset date. This rate will not change in the event we vary our dividend rate or the conversion rate is adjusted.

Contingent interest, if any, will be payable to holders of New LYONs as of the 15th day preceding the last day of the relevant six-month period. We will make contingent interest payments on the last day of the relevant six-month period. The contingent principal amount will continue to increase at the applicable yield whether or not contingent interest is paid.

Tax Original Issue Discount

Consistent with our position that the exchange offer will not result in an exchange for U.S. federal income tax purposes, the New LYONs will be debt instruments subject to the contingent payment debt regulations. You should be aware that, even if we do not pay any contingent interest on the New LYONs, you will be required to include interest in your gross income for U.S. federal income tax purposes. We intend to take the position that the New LYONs are a continuation of the Old LYONs for U.S. federal income tax purposes and, accordingly, that this imputed interest, also referred to as tax original issue discount, will continue to accrue at a rate equal to 5.714% per year, computed on a semi-annual bond equivalent basis, which represents the “comparable yield” of the Old LYONs. We anticipate that the rate at which the tax original issue discount will accrue for U.S. federal income tax purposes will exceed the stated yield based upon 3-month LIBOR minus 2.0% per annum.

You will also recognize gain or loss on the sale, exchange, conversion or redemption of a New LYON in an amount equal to the difference between the amount realized on the sale, exchange, conversion or redemption, and your adjusted tax basis in the New LYON. Any gain recognized by you on the sale, exchange, conversion or redemption of a New LYON generally will be ordinary interest income; any loss will be ordinary loss to the extent of the interest previously included in income, and thereafter, capital loss. See “Certain United States Federal Income Tax Considerations.”

Purchase of New LYONs by ML&Co. at the Option of the Holder

Holders may require us to purchase all or a portion of their New LYONs on March 13, 2005, 2006, 2007, 2008, 2012, 2017, 2022 and 2027 at a price equal to the contingent principal amount of the New LYONs on the purchase date. We will pay the purchase price in cash. See “Description of New LYONs—Purchase of New LYONs at the Option of the Holder.”

Change in Control

Upon a change in control of ML&Co. occurring on or before March 13, 2007, each holder may require us to repurchase all or a portion of such holder’s New LYONs for cash at a price equal to 100% of the contingent principal amount of such New LYONs on the date of repurchase. See “Description of New LYONs—Change in Control Permits Purchase of New LYONs at the Option of the Holder.”

Redemption of New LYONs at the Option of ML&Co.

We may redeem all or a portion of the New LYONs for cash at any time on or after March 13, 2008 at a redemption price equal to the contingent principal amount of the New LYONs on the redemption date. See “Description of New LYONs—Redemption of New LYONs at the Option of ML&Co.”