PRICING SUPPLEMENT
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(To prospectus supplement and prospectus dated February 25, 2005)
Pricing Supplement Number: 2520
[LOGO]
1,120,000 Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
8% Callable STock Return Income DEbt Securities(SM)
due April 4, 2007
"Callable STRIDESSM"
Payable on the maturity date with Halliburton Company common stock
$25 original public offering price per unit
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The Callable STRIDES:
o The Callable STRIDES are o The Callable STRIDES will be
designed for investors seeking senior unsecured debt securities
interest payments on their of Merrill Lynch & Co., Inc. and
investment and who want to part of a series entitled
participate in the change in the "Medium-Term Notes, Series C".
price of Halliburton Company's The Callable STRIDES will have
common stock over the term of the CUSIP No.: 59021V441.
the Callable STRIDES, subject to
ML&Co.'s right to call the o Linked to the price of
Callable STRIDES. Halliburton Company common stock
(trading symbol "HAL").
o We may call the Callable STRIDES Halliburton Company has not
beginning October 5, 2006 authorized or approved the
through and including April 4, Callable STRIDES in any way and
2007. has no financial or legal
obligation with respect to the
o We will pay interest on the $25 Callable STRIDES.
original public offering price
per unit of the Callable STRIDES o The settlement date for the
quarterly, at the rate of 8% per Callable STRIDES is expected to
year, beginning July 4, 2006. be April 4, 2006.
o The initial share multiplier for Payment on the maturity date:
the Callable STRIDES is based
upon the volume weighted average o If the Callable STRIDES have not
price of one share of been redeemed or we have not
Halliburton Company common stock called the Callable STRIDES
on March 29, 2006. The initial prior to or on the stated
share multiplier was set so that maturity date, for each Callable
the product of the volume STRIDES you own on the maturity
weighted average price of one date, in addition to accrued and
share of Halliburton Company unpaid interest, we will deliver
common stock on March 29, 2006 to you a number of shares of
and the initial share multiplier Halliburton Company common stock
equals $25, the original public equal to the then current share
offering price of one unit of multiplier.
the Callable STRIDES. The share
multiplier will be subject to o On the maturity date, if the
adjustment for certain corporate price of Halliburton Company
events relating to Halliburton common stock has decreased, the
Company as described in this value of Halliburton Company
pricing supplement. common stock that you will
receive will be less than the
o If the closing market price of $25 original public offering
Halliburton Company common stock price per unit of your Callable
falls below $1.00, the Callable STRIDES.
STRIDES will be redeemed prior
to their stated maturity date. Payment if called by Merrill Lynch &
If redeemed, we will deliver for Co., Inc.:
each Callable STRIDES a number
of shares of Halliburton Company o If we call the Callable STRIDES
common stock equal to the then on or after October 5, 2006, we
current share multiplier, plus a will pay you a cash amount that,
redemption amount as described together with all other payments
in this pricing supplement. made on the Callable STRIDES
from the original issue date to
o The Callable STRIDES have been and including the call date,
approved for listing on the will provide a yield to call of
American Stock Exchange under 20% per year on the original
the trading symbol "MHR". We public offering price per unit
make no representations, of the Callable STRIDES from the
however, that the Callable original issue date until the
STRIDES will remain listed for call date.
the entire term of the Callable
STRIDES.
Information included in this pricing supplement supersedes
information in the accompanying prospectus supplement and prospectus to the
extent that it is different from that information.
Investing in the Callable STRIDES involves risks that are described
in the "Risk Factors" sections beginning on page PS-7 of this pricing
supplement and on page S-3 of the accompanying prospectus supplement.
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Per Unit Total
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Public offering price (1).............................. $25.00 $28,000,000
Underwriting discount.................................. $.25 $280,000
Proceeds, before expenses, to Merrill Lynch & Co., Inc. $24.75 $27,720,000
(1) Plus accrued interest from April 4, 2006, if settlement occurs
after that date
The public offering price and the underwriting discount for any
single transaction to purchase 100,000 units or more will be $24.875
per unit and $.125 per unit, respectively.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this pricing supplement or the accompanying prospectus
supplement and prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
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Merrill Lynch & Co.
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The date of this pricing supplement is March 29, 2006.
"STock Return Income DEbt Securities" and "STRIDES" are service marks of
Merrill Lynch & Co., Inc.
TABLE OF CONTENTS
Pricing Supplement
Page
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SUMMARY INFORMATION--Q&A.............................................. PS-3
RISK FACTORS.......................................................... PS-7
DESCRIPTION OF THE CALLABLE STRIDES................................... PS-11
THE DELIVERABLE SHARES................................................ PS-22
UNITED STATES FEDERAL INCOME TAXATION................................. PS-24
ERISA CONSIDERATIONS.................................................. PS-29
USE OF PROCEEDS AND HEDGING........................................... PS-30
SUPPLEMENTAL PLAN OF DISTRIBUTION..................................... PS-30
EXPERTS............................................................... PS-30
INDEX OF CERTAIN DEFINED TERMS........................................ PS-31
ANNEX A............................................................... A-1
Prospectus Supplement
Page
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RISK FACTORS.......................................................... S-3
DESCRIPTION OF THE NOTES.............................................. S-4
UNITED STATES FEDERAL INCOME TAXATION ................................ S-23
PLAN OF DISTRIBUTION.................................................. S-30
VALIDITY OF THE NOTES................................................. S-32
Prospectus
Page
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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.......................................... 13
DESCRIPTION OF CURRENCY WARRANTS...................................... 15
DESCRIPTION OF INDEX WARRANTS......................................... 16
DESCRIPTION OF PREFERRED STOCK........................................ 22
DESCRIPTION OF DEPOSITARY SHARES...................................... 27
DESCRIPTION OF PREFERRED STOCK WARRANTS............................... 31
DESCRIPTION OF COMMON STOCK........................................... 33
DESCRIPTION OF COMMON STOCK WARRANTS.................................. 36
PLAN OF DISTRIBUTION.................................................. 39
WHERE YOU CAN FIND MORE INFORMATION................................... 39
INCORPORATION OF INFORMATION WE FILE WITH THE SEC..................... 40
EXPERTS............................................................... 41
PS-2
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this pricing supplement and the accompanying prospectus
supplement and prospectus to help you understand the Callable STock Return
Income DEbt Securities(SM) due April 4, 2007 (the "Callable STRIDES(SM)")
payable on the maturity date with Halliburton Company (the "Underlying
Company") common stock (the "Deliverable Shares"). You should carefully read
this pricing supplement and the accompanying prospectus supplement and
prospectus to fully understand the terms of the Callable STRIDES and the tax
and other considerations that are important to you in making a decision about
whether to invest in the Callable STRIDES. You should carefully review the
"Risk Factors" sections of this pricing supplement and the accompanying
prospectus supplement, which highlight certain risks associated with an
investment in the Callable STRIDES, to determine whether an investment in the
Callable STRIDES is appropriate for you.
References in this pricing supplement to "ML&Co.", "we", "us" and
"our" are to Merrill Lynch & Co., Inc., and references to "MLPF&S" are to
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
What are the Callable STRIDES?
The Callable STRIDES will be a series of senior debt securities
issued by ML&Co. entitled "Medium-Term Notes, Series C" and will not be
secured by collateral. The Callable STRIDES will rank equally with all of our
other unsecured and unsubordinated debt. The Callable STRIDES will mature on
April 4, 2007, unless redeemed or called by us, as described in this pricing
supplement.
Each unit will represent a single Callable STRIDES with a $25
original public offering price per unit. You may transfer the Callable STRIDES
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 Callable STRIDES 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 Callable STRIDES. You should refer to the section entitled
"Description of the Debt Securities--Depositary" in the accompanying
prospectus.
Are there any risks associated with my investment?
Yes, an investment in the Callable STRIDES is subject to risks,
including the risk of loss. Please refer to the sections entitled "Risk
Factors" in this pricing supplement and the accompanying prospectus
supplement.
What is the Underlying Company?
The Underlying Company has disclosed that it provides a variety of
services, products, maintenance, engineering and construction to energy,
industrial and governmental customers. You should independently investigate
the Underlying Company and decide whether an investment in the Callable
STRIDES linked to the Deliverable Shares is appropriate for you.
Because the Deliverable Shares are registered under the Securities
Exchange Act of 1934, the Underlying Company is required to file periodically
certain financial and other information specified by the SEC. Information
provided to or filed with the SEC by the Underlying Company can be located by
reference to SEC file number 001-03492 and inspected at the SEC's public
reference facilities or accessed over the Internet through the SEC's web site.
In addition, information regarding the Underlying Company may be obtained from
other sources including, but not limited to, press releases, newspaper
articles and other publicly disseminated information. We make no
representation or warranty as to the accuracy or completeness of that
information. For further information, please see the sections entitled "The
Deliverable Shares--The Underlying Company" and "Where You Can Find More
Information" in this pricing supplement and the accompanying prospectus.
What is the Underlying Company's role in the Callable STRIDES?
The Underlying Company has not authorized or approved the Callable
STRIDES and has no financial or legal obligations relating to the Callable
STRIDES or to amounts to be paid to you, including any obligation to take the
needs of ML&Co. or of holders of the Callable STRIDES into consideration for
PS-3
any reason. The Underlying Company will not receive any of the proceeds of the
offering of the Callable STRIDES and is not responsible for, and has not
participated in, the offering of the Callable STRIDES and is not responsible
for, and will not participate in, the determination or calculation of the
amount receivable by holders of the Callable STRIDES. ML&Co. is not affiliated
with the Underlying Company.
How have the Deliverable Shares performed historically?
You can find a table with the high and low closing prices per share
of the Deliverable Shares during each quarter from the first quarter of 2001
to the present in the section entitled "The Deliverable Shares--Historical
Data" in this pricing supplement.
We have provided this information to help you evaluate the behavior
of the Deliverable Shares in various economic environments; however, this
information is not necessarily indicative of how the Deliverable Shares will
perform in the future.
What will I receive on the maturity date of the Callable STRIDES?
On the maturity date, if we have not previously redeemed or called
the Callable STRIDES, for each unit of the Callable STRIDES that you own, in
addition to accrued and unpaid interest, we will deliver to you a number of
Deliverable Shares equal to the then current share multiplier. The initial
"Share Multiplier" was determined on March 29, 2006, the date the Callable
STRIDES were priced for initial sale to the public (the "Pricing Date"), so
that the product of the volume weighted average price of the Deliverable
Shares on the Pricing Date and the initial Share Multiplier equals $25, the
original public offering price of one unit of the Callable STRIDES. The Share
Multiplier will be subject to adjustment to account for certain corporate
events relating to the Underlying Company as described in this pricing
supplement. The initial Share Multiplier equals 0.33990529 and the Volume
Weighted Average Price (as defined herein) equals $74.5499 on the Pricing
Date.
We will not distribute fractional Deliverable Shares. Instead, the
number of Deliverable Shares to be delivered on the maturity date will be
aggregated and the value of the fractional share will be paid in cash. Please
see the section entitled "Description of the Callable STRIDES--Fractional
Shares" in this pricing supplement.
For more specific information regarding the corporate events
referred to above, please see the section entitled "Description of the
Callable STRIDES--Share Multiplier Adjustment" and "--Reorganization Events"
in this pricing supplement.
The opportunity to participate in possible increases in the price of
the Deliverable Shares through an investment in the Callable STRIDES is
limited because if we call the Callable STRIDES the total yield on your
investment will never exceed 20% per year. However, in the event that the
price of the Deliverable Shares declines over the term of the Callable
STRIDES, you will realize the entire decline in the value of the Callable
STRIDES and may lose a part or all of your initial investment. For more
information about risks associated with the Callable STRIDES, please see the
section entitled "Risk Factors" in this pricing supplement and the
accompanying prospectus supplement.
When will I receive interest?
Interest on the Callable STRIDES will accrue at the rate of 8% per
year on the $25 original public offering price per unit from and including
April 4, 2006 or from the most recent interest payment date for which interest
has been paid or provided for to but excluding the maturity date, redemption
date or the date we call the Callable STRIDES. You will receive quarterly
interest payments on January 4, April 4, July 4 and October 4 of each year
during the term of the Callable STRIDES, beginning July 4, 2006. If any
interest payment date is not a Business Day, you will receive payment of any
accrued and unpaid interest on the following Business Day with no additional
interest as a result of the delay.
How does the call feature work?
We may call the Callable STRIDES on any scheduled Business Day
beginning on October 5, 2006, through and including the maturity date (the day
on which the call occurs, if any, being the "Call Date") by giving notice to
the trustee of the Callable STRIDES at least ten Business Days prior to the
Call Date as described in this pricing supplement and specifying the Call
Date, Call Price (as described below) and amount of accrued and unpaid
interest payable on the Call Date. The Call Price will be
PS-4
determined based upon the applicable Call Date. The Call Price will equal
$26.3706 if we call the Callable STRIDES on October 5, 2006, the first date
the Callable STRIDES may be called, and $27.8557 if we call the Callable
STRIDES on April 4, 2007, the last date the Callable STRIDES may be called.
For a list of month-end, midmonth, first and last Call Prices from October 5,
2006 through April 4, 2007, please see the section entitled "Description of
the Callable STRIDES--Call Prices" in this pricing supplement; and for an
example of the Call Price calculation, please see Annex A to this pricing
supplement. If we elect to exercise our call option, the Call Price will be
disclosed to DTC, or its nominee, while the Callable STRIDES are held by DTC
as depositary. So long as DTC, or its nominee, is the registered holder of the
Callable STRIDES, notice of our election to exercise the call option will be
forwarded as described in the section entitled "Description of Debt
Securities--Depositary" in the accompanying prospectus. The Call Price does
not include the amount of unpaid interest accrued to but excluding the Call
Date; however, on the Call Date you will receive an amount equal to the Call
Price plus any accrued and unpaid interest to but excluding the Call Date (the
"Final Amount").
The "Call Price" on any Call Date is the amount of cash, per
Callable STRIDES, that when discounted from the Call Date to the original
issue date by a discount factor based on an annual yield to call of 20% and
when added to the present value of all interest payments made through and
including the applicable Call Date discounted to the original issue date by
that same discount factor, will equal the original public offering price. The
yield to call represents the annual interest rate used in determining the
present values, discounted to the original issue date, of all payments made or
to be made on the Callable STRIDES, including the Call Price and all interest
payments, such that the sum of these present values is equal to the original
public offering price. The present values of the interest payments made on the
Callable STRIDES will be calculated assuming each payment is made on the
calendar day scheduled for that payment, without regard to whether that day is
a Business Day.
When will I receive cash instead of the Deliverable Shares?
If we call the Callable STRIDES, you will receive the Call Price in
cash. Please see the section entitled "Description of the Callable
STRIDES--Call at the Option of ML&Co." in this pricing supplement.
Also, we will not distribute fractional Deliverable Shares. If the
number of Deliverable Shares to be delivered on the maturity date is not
divisible by a whole number, we will aggregate all share amounts due on the
maturity date, and in lieu of delivering a fractional Deliverable Share, we
will pay the cash value of the fractional share as more fully described in the
section entitled "Description of the Callable STRIDES--Fractional Shares" in
this pricing supplement.
What about taxes?
The United States federal income tax consequences of an investment
in the Callable STRIDES are complex and uncertain. By purchasing a Callable
STRIDES, you and ML&Co. agree, in the absence of an administrative
determination, judicial ruling or other authoritative guidance to the
contrary, to characterize and treat a Callable STRIDES for all tax purposes as
an investment unit consisting of a debt instrument of ML&Co. and a forward
contract to acquire the Deliverable Shares (subject to early cancellation).
Under this characterization and treatment of the Callable STRIDES, for United
States federal income tax purposes, you will generally include payments of
interest on the Callable STRIDES in income in accordance with your regular
method of tax accounting. You should review the discussion under the section
entitled "United States Federal Income Taxation" in this pricing supplement.
Will the Callable STRIDES be listed on a stock exchange?
The Callable STRIDES have been approved for listing on the American
Stock Exchange ("AMEX") under the trading symbol "MHR". We make no
representation however, that the Callable STRIDES will remain listed for the
entire term of the Callable STRIDES. In any event, you should be aware that
the listing of the Callable STRIDES on AMEX will not necessarily ensure that a
liquid trading market will be available for the Callable STRIDES. You should
review the section entitled "Risk Factors--There may be an uncertain trading
market for the Callable STRIDES and the market price you may receive or be
quoted for your Callable STRIDES on a date prior to the stated maturity date
will be affected by this and
PS-5
other important factors, including our costs of developing, hedging and
distributing the Callable STRIDES" in this pricing supplement.
What price can I expect to receive if I sell the Callable STRIDES prior to the
stated maturity date?
In determining the economic terms of the Callable STRIDES, and
consequently the potential return on the Callable STRIDES to you, a number of
factors are taken into account. Among these factors are certain costs
associated with creating, hedging and offering the Callable STRIDES. In
structuring the economic terms of the Callable STRIDES, we seek to provide
investors with what we believe to be commercially reasonable terms and to
provide MLPF&S with compensation for its services in developing the Callable
STRIDES.
If you sell your Callable STRIDES prior to the stated maturity date,
you will receive a price determined by market conditions for the Callable
STRIDES. This price may be influenced by many factors, such as interest rates,
volatility and the current price of the Deliverable Shares, and the
expectations of the amount, if any, by which the price of the Deliverable
Shares, will change. In addition, the price, if any, at which you could sell
your Callable STRIDES in a secondary market transaction is expected to be
affected by the factors that we considered in setting the economic terms of
the Callable STRIDES, namely the underwriting discount paid in respect of the
Callable STRIDES and other costs associated with the Callable STRIDES, and
compensation for developing and hedging the product. Depending on the impact
of these factors, you may receive significantly less than the $25 original
public offering price per unit of your Callable STRIDES if sold before the
stated maturity date.
In a situation where there has been no movement in the price of the
Deliverable Shares and no changes in the market conditions or any other
relevant factors from those existing on the date of this pricing supplement,
the price, if any, at which you could sell your Callable STRIDES in a
secondary market transaction is expected to be lower than the $25 original
public offering price per unit. This is due to, among other things, our costs
of developing, hedging and distributing the Callable STRIDES. Any potential
purchasers for your Callable STRIDES in the secondary market are unlikely to
consider these factors.
What is the role of MLPF&S?
Our subsidiary MLPF&S is the underwriter for the offering and sale
of the Callable STRIDES. After the initial offering, MLPF&S currently intends
to buy and sell Callable STRIDES to create a secondary market for holders of
the Callable STRIDES, and may stabilize or maintain the Closing Market Price
of the Callable STRIDES during the initial distribution. However, MLPF&S will
not be obligated to engage in any of these market activities or to continue
them once it has started.
MLPF&S also will be our agent for purposes of calculating, among
other things, the Call Price and the number of Deliverable Shares deliverable
to you on the maturity date. Under certain circumstances, these duties could
result in a conflict of interest between MLPF&S as our subsidiary and its
responsibilities as calculation agent.
What is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various
subsidiaries and affiliated companies that provide investment, financing,
insurance and related services on a global basis.
For information about ML&Co., see the section entitled "Merrill
Lynch & Co., Inc." in the accompanying prospectus. You should also read the
other documents we have filed with the SEC, which you can find by referring to
the section entitled "Where You Can Find More Information" in the accompanying
prospectus.
PS-6
RISK FACTORS
Your investment in the Callable STRIDES will involve certain risks.
You should consider carefully the following discussion of risks and the
discussion of risks included in the accompanying prospectus supplement before
you decide that an investment in the Callable STRIDES is suitable for you.
Your investment may result in a loss
We will not repay you a fixed amount of principal on the maturity
date or upon early redemption. If the Callable STRIDES have not been redeemed
and we do not elect to exercise our call option on or prior to the maturity
date, for each Callable STRIDES you own on the maturity date you will receive
a number of Deliverable Shares equal to the then current Share Multiplier.
Because the price of the Deliverable Shares is subject to market fluctuations,
the value of the Deliverable Shares that we will deliver to you on the
maturity date may be more or less than the original public offering price of
the Callable STRIDES. The value of the Callable STRIDES may decline, and that
decline could be substantial. If you purchase your Callable STRIDES in the
initial distribution, and if, on the maturity date, the value of the
Deliverable Shares has declined from its volume weighted average price on the
Pricing Date, as adjusted by the application of the Share Multiplier, your
investment in the Callable STRIDES will result in a loss to you of part or all
of your initial investment.
In addition, if on any date the Closing Market Price of one
Deliverable Share declines to less than $1.00, the Callable STRIDES will be
redeemed early and you will receive for each Callable STRIDES you own (1) a
number of Deliverable Shares equal to the then current Share Multiplier, (2)
accrued and unpaid interest to but excluding the Redemption Date, as defined
in this pricing supplement, and (3) a cash amount equal to the present value
of the additional interest that would have been paid through the stated
maturity but for the early redemption.
The Callable STRIDES are subject to being called at our option
We may call all of the Callable STRIDES on any scheduled Business
Day beginning October 5, 2006 to and including the maturity date. In the event
that we elect to call the Callable STRIDES, you will receive only the Call
Price and any accrued and unpaid interest to but excluding the Call Date, and
you will not be entitled to receive Deliverable Shares on the maturity date.
Due to our ability to call the Callable STRIDES, your total annualized yield
will be capped by an amount equal to 20% of the original public offering
price.
Your yield may be lower than the yield on other standard debt securities of
comparable maturity
The yield that you will receive on your Callable STRIDES, which
could be negative, in addition to the interest payments you receive, 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 traditional interest
bearing 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. Unlike traditional
interest bearing debt securities, the Callable STRIDES do not guarantee the
return of a principal amount on the maturity date.
Your return may be limited and will not be identical to the return of owning
the Deliverable Shares
The opportunity to participate in the possible increases in the
price of the Deliverable Shares through an investment in the Callable STRIDES
is limited because the amount you receive if we call the Callable STRIDES will
never exceed a total annualized yield of 20% of the original public offering
price. However, if we choose not to exercise our call option and the value of
the Deliverable Shares declines over the term of the Callable STRIDES, you
will realize a decline in value of the Callable STRIDES and will lose a part
or all of your initial investment.
PS-7
In addition, your return on the Callable STRIDES will not reflect
the return you would realize if you actually owned the Deliverable Shares and
received the dividends, if any, paid on the Deliverable Shares. You will not
be entitled to receive dividends, if any, paid on the Deliverable Shares
unless and until you actually hold the Deliverable Shares on the applicable
record date for the payment of a dividend.
There may be an uncertain trading market for the Callable STRIDES and the
market price you may receive or be quoted for your Callable STRIDES on a date
prior to the stated maturity date will be affected by this and other important
factors including our costs of developing, hedging and distributing the
Callable STRIDES
The Callable STRIDES have been approved for listing on AMEX under
the trading symbol "MHR". We make no representation, however, that the
Callable STRIDES will remain listed for the entire term of the Callable
STRIDES. In any event, you should be aware that the listing of the Callable
STRIDES on AMEX does not necessarily ensure that a trading market will develop
for the Callable STRIDES. 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 Callable STRIDES will depend on our financial
performance and other factors, such as the appreciation, if any, in the price
of the Deliverable Shares. In addition, it is unlikely that increases or
decreases in the secondary market price of the Callable STRIDES will correlate
exactly with increases or decreases in the price of the Deliverable Shares.
If the trading market for the Callable STRIDES is limited, there may
be a limited number of buyers for your Callable STRIDES if you do not wish to
hold your investment until the stated maturity date. This may affect the price
you receive.
If a market-maker (which may be MLPF&S) makes a market in the
Callable STRIDES, the price it quotes would reflect any changes in market
conditions and other relevant factors. In addition, the price at which you
could sell your Callable STRIDES in a secondary market transaction is expected
to be affected by factors that we considered in setting the economic terms of
the Callable STRIDES, namely the underwriting discount paid in respect of the
Callable STRIDES and other costs associated with the Callable STRIDES, and
compensation for developing and hedging the product. This listed price could
be higher or lower than the original issue price. MLPF&S is not obligated to
make a market in the Callable STRIDES.
Assuming there is no change in the price of the Deliverable Shares
and no change in market conditions or any other relevant factors, the price at
which a purchaser (which may include MLPF&S) might be willing to purchase your
Callable STRIDES in a secondary market transaction is expected to be lower
than the original issue price. This is due to, among other things, the fact
that the original issue price included, and secondary market prices are likely
to exclude, underwriting discount paid with respect to, and the developing and
hedging costs associated with, the Callable STRIDES.
Many factors affect the trading value of the Callable STRIDES; these factors
interrelate in complex ways and the effect of any one factor may offset or
magnify the effect of another factor
The trading value of the Callable STRIDES will be affected by
factors that interrelate in complex ways. The effect of one factor may offset
the increase in the trading value of the Callable STRIDES caused by another
factor and that the effect of one factor may exacerbate the decrease in the
trading value of the Callable STRIDES caused by another factor. For example,
an increase in United States interest rates may offset some or all of any
increase in the trading value of the Callable STRIDES attributable to another
factor, such as an increase in the price of the Deliverable Shares. The
following paragraphs describe the expected impact on the market value of the
Callable STRIDES given a change in a specific factor, assuming all other
conditions remain constant.
The price of the Deliverable Shares is expected to affect the
trading value of the Callable STRIDES. We expect that the market value of the
Callable STRIDES will depend substantially on the price of the Deliverable
Shares. However, you generally should not expect the increase or decrease in
the market value of your Callable STRIDES to be identical to the increase or
decrease in the market value of the Deliverable Shares. For example, if you
choose to sell your Callable STRIDES when the price of the Deliverable Shares,
as adjusted for the Share Multiplier, exceeds the original public offering
price, you may receive substantially less than the current market value of the
Deliverable Shares because of the expectation that the price of the
Deliverable Shares will continue to fluctuate until the maturity date and the
fact that the Callable STRIDES are callable at the option of ML&Co.
PS-8
Changes in the levels of interest rates are expected to affect the
trading value of the Callable STRIDES. We expect that changes in interest
rates will affect the trading value of the Callable STRIDES. Generally, if
United States interest rates increase, we expect that the trading value of the
Callable STRIDES will decrease and, conversely, if United States interest
rates decrease, we expect that the trading value of the Callable STRIDES will
increase.
Changes in the volatility of the Deliverable Shares are expected to
affect the trading value of the Callable STRIDES. Volatility is the term used
to describe the size and frequency of price and/or market fluctuations. If the
volatility of the Deliverable Shares increases or decreases, the trading value
of the Callable STRIDES may be adversely affected.
As the time remaining to maturity of the Callable STRIDES decreases,
the "time premium" associated with the Callable STRIDES is expected to
decrease. We anticipate that before their maturity, the Callable STRIDES may
trade at a value above that which would be expected based on the level of
interest rates and the price of the Deliverable Shares. This difference will
reflect a "time premium" due to expectations concerning the price of the
Deliverable Shares during the period before the stated maturity of the
Callable STRIDES. However, as the time remaining to maturity decreases, we
expect that this premium will decrease, lowering the trading value of the
Callable STRIDES.
Changes in dividend yields of the Deliverable Shares are expected to
affect the trading value of the Callable STRIDES. In general, if the dividend
yield on the Deliverable Shares increase, we expect the trading value of the
Callable STRIDES to decrease and, conversely, if the dividend yield on the
Deliverable Shares decrease, we expect the trading value of the Callable
STRIDES will increase.
Changes in our credit ratings may affect the trading value of the
Callable STRIDES. 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 Callable STRIDES. However, because
your return on your Callable STRIDES is dependent upon factors in addition to
our ability to pay our obligations under the Callable STRIDES, such as the
percentage change, if any, in the price of the Deliverable Shares on the
maturity date, an improvement in our credit ratings will not reduce the other
investment risks related to the Callable STRIDES.
In general, assuming all relevant factors are held constant, we
expect that the effect on the trading value of the Callable STRIDES of a given
change in some of the factors listed above will be less if it occurs later in
the term of the Callable STRIDES than if it occurs earlier in the term of the
Callable STRIDES. We expect, however, that the effect on the trading value of
the Callable STRIDES of a given change in the price of the Deliverable Shares
will be greater if it occurs later in the term of the Callable STRIDES than if
it occurs earlier in the term of the Callable STRIDES.
Amounts payable on the Callable STRIDES may be limited by state law
New York State law governs the 1983 Indenture under which the
Callable STRIDES 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 Callable STRIDES. 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 promise, for the benefit of the holders of the Callable STRIDES,
to the extent permitted by law, not to voluntarily claim the benefits of any
laws concerning usurious rates of interest.
The Underlying Company has no obligations relating to the Callable STRIDES and
no diligence has been performed with respect to the Underlying Company
We are not affiliated with the Underlying Company, and the
Underlying Company has not authorized or approved the Callable STRIDES in any
way. Further, the Underlying Company has no financial or legal obligation with
respect to the Callable STRIDES or amounts to be paid to you, including any
obligation to take the needs of ML&Co. or of beneficial owners of the Callable
STRIDES into consideration for any reason. The Underlying Company will not
receive any of the proceeds of the offering of the Callable STRIDES and is not
PS-9
responsible for, and has not participated in, the offering of the Callable
STRIDES and is not responsible for, and will not participate in, the
determination or calculation of the amount receivable by beneficial owners of
the Callable STRIDES.
Neither ML&Co. nor MLPF&S have conducted any due diligence inquiry
with respect to the Underlying Company in connection with the offering of the
Callable STRIDES; and they make no representation as to the completeness or
accuracy of publicly available information regarding the Underlying Company or
as to the future performance of the Deliverable Shares. Any prospective
purchaser of the Callable STRIDES should undertake such independent
investigation of the Underlying Company as in its judgment is appropriate to
make an informed decision with respect to an investment in the Callable
STRIDES.
Callable STRIDES holders are not entitled to stockholder's rights
Holders of the Callable STRIDES will not be entitled to any rights
in the Deliverable Shares including, for example, the right to receive
dividends or other distributions, voting rights and the right to tender or
exchange common stock in any tender or exchange offer by the Underlying
Company or any third party.
Purchases and sales of the Deliverable Shares by us and our affiliates may
affect your return
We and our affiliates may from time to time buy or sell the
Deliverable Shares or futures or options contracts on the Deliverable Shares
for our own accounts for business reasons and expect to enter into these
transactions in connection with hedging our obligations under the Callable
STRIDES. These transactions could affect the price of the Deliverable Shares
and, in turn, the value of the Callable STRIDES in a manner that would be
adverse to your investment in the Callable STRIDES. Any purchases or sales by
us, our affiliates or others on our behalf on or before the Pricing Date may
temporarily increase the price of the Deliverable Shares. Temporary increases
or decreases in the market price of the Deliverable Shares may also occur as a
result of the purchasing activities of other market participants.
Consequently, the price of the Deliverable Shares may change subsequent to the
Pricing Date, affecting the market value of the Callable STRIDES and therefore
the trading value of the Callable STRIDES.
Potential conflicts of interest could arise
Our subsidiary MLPF&S is our agent for purposes of calculating,
among other things, the Call Price and the number of Deliverable Shares
deliverable to you on the maturity date. Under certain circumstances, MLPF&S
as our subsidiary and its responsibilities as calculation agent for the
Callable STRIDES could give rise to conflicts of interest. These conflicts
could occur, for instance, in connection with its determination of whether the
Share Multiplier shall be adjusted, or in connection with judgments that it
would be required to make with regard to such adjustments. 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 expect to enter into arrangements to hedge the market risks
associated with our obligations in connection with the Callable STRIDES. We
may seek competitive terms in entering into the hedging arrangements for the
Callable STRIDES, but are not required to do so, and we may enter into such
hedging arrangements with one of our subsidiaries or affiliated companies.
Such hedging activity is expected to result in a profit to those engaging in
the hedging activity, which could be more or less than initially expected, but
which could also result in a loss for the hedging counterparty.
Tax consequences are uncertain
You should consider the tax consequences of investing in the
Callable STRIDES, aspects of which are uncertain. See the section entitled
"United States Federal Income Taxation" in this pricing supplement.
PS-10
DESCRIPTION OF THE CALLABLE STRIDES
ML&Co. will issue the Callable STRIDES as a series of senior debt
securities entitled "Medium-Term Notes, Series C" under the 1983 Indenture,
which is more fully described in the accompanying prospectus. Unless redeemed
or called by us, the Callable STRIDES will mature on April 4, 2007.
Information included in this pricing supplement supersedes information in the
accompanying prospectus supplement and prospectus to the extent that it is
different from that information. The CUSIP for the Callable STRIDES is
59021V441.
The Callable STRIDES may be called by ML&Co. as described below, but
are not otherwise subject to redemption by us at our option or by any holder
at its option before the stated maturity except as described below.
The initial Share Multiplier for the Callable STRIDES, when
multiplied by the volume weighted average price of the Deliverable Shares on
the Pricing Date, will equal $25, the original public offering price of one
unit of the Callable STRIDES. The volume weighted average price ("Volume
Weighted Average Price") will, absent a determination of a manifest error, be
the price as shown on page "AQR" on Bloomberg L.P. for trading in the
Deliverable Shares taking place on all U.S. exchanges from 9:30 a.m. to 4:01
p.m., New York City time. The Share Multiplier will be subject to adjustment
for certain corporate events relating to the Underlying Company as described
in this pricing supplement.
ML&Co. will issue the Callable STRIDES in denominations of whole
units each with a $25 original public offering price per unit. You may
transfer the Callable STRIDES 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 Callable STRIDES in the form
of a global certificate, which will be held by The Depositary Trust Company,
also known as DTC, or its nominee. Direct and indirect participants in DTC
will record your ownership of the Callable STRIDES. You should refer to the
section entitled "Description of Debt Securities-- Depositary" in the
accompanying prospectus.
The Callable STRIDES will not have the benefit of any sinking fund.
Payment on the Maturity Date
Unless the Callable STRIDES have been previously redeemed or called
by us, a holder of a Callable STRIDES will be entitled to receive a cash
payment of accrued and unpaid interest and a number of Deliverable Shares
equal to the then current Share Multiplier. The initial Share Multiplier
equals 0.33990529 and was determined on the Pricing Date so that the product
of the Volume Weighted Average Price of the Deliverable Shares on the Pricing
Date and the initial Share Multiplier equaled $25, the original public
offering price of one unit of the Callable STRIDES. The Share Multiplier will
be subject to adjustment for certain events described under "--Share
Multiplier Adjustments", "--Reorganization Events" and "--Alternative Dilution
and Reorganization Adjustments" in this pricing supplement.
If the maturity date is not a Business Day, we will deliver the
Deliverable Shares and make all accrued and unpaid interest payments on the
first Business Day following the maturity date and no additional interest will
accrue as a result of the delay.
All determinations made by the calculation agent, absent a
determination of a manifest error, will be conclusive for all purposes and
binding on ML&Co. and the holders and beneficial owners of the Callable
STRIDES.
Interest
The Callable STRIDES will bear interest at a rate of 8% per year on
the $25 original public offering price per unit from and including April 4,
2006 or from the most recent interest payment date for which interest has been
paid or provided for, to but excluding the stated maturity date, the Call Date
or Redemption Date, as applicable. We will pay interest on the Callable
STRIDES in cash quarterly in arrears on January 4, April 4, July 4 and October
4 of each year during the term of the Callable STRIDES, beginning July 4,
2006, and on the maturity date, the Call Date or Redemption Date, as
applicable. We will pay this interest to the persons in whose names the
Callable STRIDES are registered at the close of business on the fifteenth
calendar day preceding each interest payment date, whether or not a Business
Day. Notwithstanding the foregoing, upon redemption or if called by ML&Co.,
the final payment of interest will be paid to the person to whom ML&Co.
delivers the Deliverable Shares or the Call Price, as the case may be, subject
to the conditions described under "Redemption
PS-11
Event" in this pricing supplement. Interest on the Callable STRIDES will be
computed on the basis of a 360-day year of twelve 30-day months. If an
interest payment date falls on a day that is not a Business Day, that interest
payment will be made on the next Business Day and no additional interest will
accrue as a result of the delayed payment.
"Business Day" means any day other than a Saturday or a Sunday that
is not a day on which banking institutions in The City of New York are
authorized or obligated by law, regulation or executive order to close and
with respect to any day on which securities are to be delivered is also a day
that is a Trading Day.
"Trading Day" means a day on which the the New York Stock Exchange
(the "NYSE"), AMEX and The Nasdaq Stock Market are open for trading as
determined by the calculation agent.
Fractional Shares
We will not distribute fractional Deliverable Shares. If the number
of Deliverable Shares to be delivered on the maturity date is not divisible by
a whole number, we will aggregate all share amounts due to a registered holder
on the maturity date, and, in lieu of delivering a fractional Deliverable
Share, we will pay to the registered holder the cash value of the fractional
share based on the Closing Market Price of the Deliverable Shares. While the
Callable STRIDES are held at the depositary, the sole registered holder will
be the depositary. Depositary participants have different policies pertaining
to fractional shares. You should consult the participant through which you
hold the Callable STRIDES to ascertain the participant's specific policy.
Call at the Option of ML&Co.
ML&Co., in its sole discretion, may call the Callable STRIDES, in
whole but not in part, on any scheduled Business Day beginning on October 5,
2006 to and including April 4, 2007 (the date on which the call, if any,
occurs being the "Call Date") by giving notice to the trustee on any Business
Day at least ten Business Days prior to the Call Date. The notice to the
trustee will specify the Call Date, Call Price and amount of interest payable
on the Call Date. The trustee will provide notice of the call election to the
registered holders of the Callable STRIDES, specifying the Call Date, Call
Price and amount of interest payable on the Call Date. The depositary, as the
registered holder, will receive the notice of the call. So long as the
depositary is the registered holder of the Callable STRIDES, notice of our
election to exercise the call option will be forwarded as more fully described
under "Description of Debt Securities--Depositary" in the accompanying
prospectus.
The Call Price on any Call Date will be the amount of cash, per
Callable STRIDES, that when discounted from the Call Date to the original
issue date by a discount factor based on an annual yield to call of 20% and
when added to the present value of all interest payments made through and
including the applicable Call Date discounted to the original issue date by
that same discount factor, will equal the original public offering price. The
present value of each interest payment on the Callable STRIDES used to
determine the Call Price will be calculated assuming each payment is made on
the calendar day scheduled for that payment. A delay in payment may arise for
reasons such as a scheduled interest payment date falling on a day that is not
a Business Day and, as a result, the payment being delayed until the next
succeeding Business Day. Any delay will not be taken into account when
calculating the applicable Call Price. The Call Price will not include the
amount of unpaid interest accrued to but excluding the Call Date; however, on
the Call Date you will receive the Call Price plus an amount equal to the
accrued and unpaid interest (the "Final Amount"). The yield to call represents
the annual interest rate used in determining the present values, discounted to
the original issue date, of all payments made or to be made on the Callable
STRIDES, including the Call Price and all interest payments, such that the sum
of these present values is equal to the original public offering price.
PS-12
Call Prices
Based on the original issue date, stated maturity date and yield to
call, the following table sets forth the month-end, midmonth, first and last
Call Prices from October 5, 2006 through April 4, 2007, the first Call Date
and the stated maturity date, respectively. For an example of the Call Price
calculation, see Annex A to this pricing supplement. If we elect to exercise
our call option, the Call Price will be disclosed in the notice we deliver to
DTC in connection with our call of the Callable STRIDES.
The table assumes:
o original issue date: April 4, 2006
o initial Share Multiplier: 0.33990529 (based upon the Volume
Weighted Average Price of the
Deliverable Shares of $73.5499 on the
Pricing Date)
o interest rate: 8% per year
o interest payment dates: On the 4th day of January, April, July
and October of each year, beginning
July 4, 2006 (computed on the basis of
a 360-day year of twelve 30-day months,
compounded annually)
o yield to call: 20% (computed on the basis of a 360-day
year of twelve 30-day months,
compounded annually)
o stated maturity date: April 4, 2007
Interest Payable
on Call Date
Call Price per per Callable Final Amount per
Call Date Callable STRIDES STRIDES Callable STRIDES
- --------- ---------------- ---------------- ----------------
October 5, 2006 (the first Call Date)........... $26.3706 $0.0056 $26.3762
October 16, 2006................................ $26.4568 $0.0667 $26.5235
October 31, 2006................................ $26.5758 $0.1500 $26.7258
November 15, 2006............................... $26.6882 $0.2278 $26.9159
November 30, 2006............................... $26.8101 $0.3111 $27.1212
December 15, 2006............................... $26.9336 $0.3944 $27.3280
December 29, 2006............................... $27.0502 $0.4722 $27.5225
January 16, 2007................................ $27.1907 $0.0667 $27.2574
January 31, 2007................................ $27.3153 $0.1500 $27.4653
February 15, 2007............................... $27.4329 $0.2278 $27.6607
February 28, 2007............................... $27.5434 $0.3000 $27.8434
March 15, 2007.................................. $27.6897 $0.3944 $28.0841
March 30, 2007.................................. $27.8205 $0.4778 $28.2983
April 4, 2007 (the last Call Date).............. $27.8557 $0.5000 $28.3557
The following graph shows the relationship between the Call Price
and the Call Price plus accrued but unpaid interest from October 5, 2006
through April 4, 2007, the first Call Date and the stated maturity date,
respectively.
[GRAPH OMITTED]
PS-13
Hypothetical Returns on the Maturity Date
The following table illustrates, for a range of hypothetical Closing
Market Prices of the Deliverable Shares on the maturity date:
o the product of the hypothetical Closing Market Price of the
Deliverable Shares on the maturity date and the initial Share
Multiplier,
o the percentage change in the price of the Deliverable Shares
from the Pricing Date to the maturity date,
o the value of Deliverable Shares due or amount payable on the
Callable STRIDES, including the payment of accrued and unpaid
interest on the maturity date,
o the total annualized yield on the Callable STRIDES on the
maturity date, and
o the total annualized yield from direct ownership of the
Deliverable Shares.
The table assumes that the Callable STRIDES have not been called or
redeemed prior to the maturity date and will be called by ML&Co. on the
maturity date if the total annualized yield on the Callable STRIDES would
otherwise be greater than 20% on the maturity date.
Hypothetical Product
Closing of the hypothetical Percentage
Market Price Closing change in the Value of Total Total
of the Market Price price of the Deliverable Shares due annualized yield annualized yield
Deliverable on the maturity Deliverable Shares or amount payable on the from
Shares date and from the on the Callable STRIDES direct ownership
on the the initial Share Pricing Date to the Callable STRIDES on the of the
maturity date Multiplier maturity date on the maturity date(1) maturity date(2) Deliverable Shares(3)
- -------------- ------------------- ------------------- ----------------------- ---------------- ---------------------
14.7100 $5.00 -80% $5.5000 -74.87% -79.83%
22.0650 $7.50 -70% $8.0000 -64.34% -69.81%
29.4200 $10.00 -60% $10.5000 -53.87% -59.80%
36.7749 $12.50 -50% $13.0000 -43.46% -49.78%
44.1299 $15.00 -40% $15.5000 -33.08% -39.77%
51.4849 $17.50 -30% $18.0000 -22.72% -29.76%
58.8399 $20.00 -20% $20.5000 -12.38% -19.74%
66.1949 $22.50 -10% $23.0000 -2.06% -9.73%
73.5499(4) $25.00(5) 0% $25.5000 8.24% 0.28%
75.0209 $25.50 2% $26.0000 10.30% 2.28%
76.4919 $26.00 4% $26.5000 12.36% 4.28%
77.9629 $26.50 6% $27.0000 14.42% 6.28%
79.4339 $27.00 8% $27.5000 16.48% 8.29%
80.9049 $27.50 10% $28.0000 18.54% 10.29%
88.2599 $30.00 20% $28.3557(6) 20.00% 20.30%
95.6149 $32.50 30% $28.3557 20.00% 30.31%
102.9699 $35.00 40% $28.3557 20.00% 40.32%
- -------------------------------------
(1) The amounts specified in this column include payment of accrued and
unpaid interest payable on the maturity date.
(2) The total annualized yield on the maturity date represents the annual
interest rate used in determining the present values, discounted to the
original issue date, of all payments made or to be made on the Callable
STRIDES, including the Call Price and all interest payments made through
and including the applicable Call Date, the sum of these present values
being equal to the original public offering price. This annualized yield:
(a) assumes coupon payments are (i) made quarterly on the 4th day of
January, April, July and October of each year, beginning July 4,
2006, and (ii) reinvested for the remainder of the term of the
Callable STRIDES at the applicable yield listed in this column;
PS-14
(b) assumes an investment term from April 4, 2006 to April 4, 2007, a
term expected to be equal to that of the Callable STRIDES; and
(c) is computed on the basis of a 360-day year of twelve 30-day months
compounded annually.
(3) This annualized yield assumes:
(a) a percentage change in the value of the Callable STRIDES that equals
the percentage change in the product of the Share Multiplier and the
Volume Weighted Average Price of a Deliverable Share on the Pricing
Date to the relevant Closing Market Price of the Deliverable Shares
on the maturity date multiplied by the Share Multiplier;
(b) a dividend payment of $0.05099 per quarter per share (which
represents the current quarterly dividend payable on one Deliverable
Share of $.15 multiplied by the Share Multiplier) paid on the 4th of
January, April, July and October of each year beginning July 4, 2006
(these hypothetical dividend payment dates are for purposes of this
table only and are not dates on which the Underlying Company has
traditionally distributed dividends to its shareholders);
(c) no transaction fees or expenses; and
(d) an investment term from April 4, 2006 to April 4, 2007, a term
expected to be equal to that of the Callable STRIDES.
(4) This was the Volume Weighted Average Price of the Deliverable Shares on
March 29, 2006, the Pricing Date.
(5) This is the original offering price of one unit of the Callable STRIDES.
This value represents the product of the Volume Weighted Average Price of
the Deliverable Shares on the Pricing Date of $73.5499 and the initial
Share Multiplier of 0.33990529.
(6) The amount representing a yield to call of 20% shall be paid in cash.
Redemption Event
If on any date the Closing Market Price of one Deliverable Share is
less than $1.00, the Callable STRIDES will be redeemed by us on the third
Business Day following that date (the "Redemption Date"). If this redemption
event is triggered, then on the Redemption Date for each unit of Callable
STRIDES, ML&Co. will deliver, in addition to such number of Deliverable Shares
equal to the then current Share Multiplier and accrued and unpaid interest to
the Redemption Date (the "accrued interest amount"), a cash amount equal to
the present value of the additional interest that would have been paid through
the stated maturity but for the early redemption of the Callable STRIDES (the
"present value amount"). The number of Deliverable Shares, plus the accrued
interest amount and present value amount payable, in connection with one
Callable STRIDES are together referred to as the "Redemption Price" of the
Callable STRIDES. The present value amount will be calculated by the
calculation agent, whose determination will be conclusive for all purposes and
binding on ML&Co. and the holders and beneficial owners of the Callable
STRIDES.
The Redemption Price will be delivered and paid to the holder of a
Callable STRIDES on the Redemption Date; provided, however, that in the event
that the Redemption Date falls after a record date for the payment of interest
on the Callable STRIDES but prior to the next succeeding scheduled interest
payment date, the portion of the Redemption Price equal to the accrued
interest amount will be paid to the persons who were the holders of the
Callable STRIDES as of that record date.
Events of Default and Acceleration
In case an Event of Default with respect to any Callable STRIDES has
occurred and is continuing, the amount payable to a holder of a Callable
STRIDES upon any acceleration permitted by the Callable STRIDES, with respect
to each $25 original public offering price per unit, will be equal to the
amount payable on the maturity date, calculated as though the date of
acceleration were the maturity date. The value of the amount payable upon
acceleration will not, however, be greater than an amount equal to the Final
Amount, calculated as though the date of acceleration were the Call Date
(whether or not that date is before or after October 5, 2006). If a bankruptcy
proceeding is commenced in respect of ML&Co., the claim of the holder of a
Callable STRIDES may be limited, under Section 502(b)(2) of Title 11 of the
United States Code, to the $25 original public offering price per unit of the
Callable STRIDES plus an additional amount of contingent interest calculated
as though the date of the commencement of the proceeding were the stated
maturity date of the Callable STRIDES.
PS-15
In case of default in payment of the Callable STRIDES, whether at
any interest payment date, the stated maturity date, the Call Date, the
Redemption Date, the date of early redemption due to a Reorganization Event or
upon acceleration, from and after that date the Callable STRIDES will bear
interest, payable upon demand of their holders, at the rate of 2.25% per
annum, to the extent that payment of interest is legally enforceable on the
unpaid amount due and payable on that date in accordance with the terms of the
Callable STRIDES to the date payment of that amount has been made or duly
provided for.
Share Multiplier Adjustments
The Share Multiplier used to determine the number of Deliverable
Shares to be delivered on the maturity date is subject to adjustment by the
calculation agent as described in this section. However, if we elect to call
the Callable STRIDES, you will receive only the Final Amount, and you will not
be entitled to receive the Deliverable Shares.
No adjustments to the Share Multiplier will be required unless the
Share Multiplier adjustment would require a change of at least 0.1% in the
Share Multiplier then in effect. The Share Multiplier resulting from any of
the adjustments specified below will be rounded to the eighth decimal place
with five one-billionths being rounded upward. The calculation agent will not
be required to make any adjustments to the Share Multiplier after the close of
business on the fourth Business Day immediately prior to the maturity date or
early redemption date, as applicable.
No adjustments to the Share Multiplier will be required other than
those specified below. However, the calculation agent may, at its sole
discretion, make additional adjustments to the Share Multiplier to reflect
changes occurring in relation to the Deliverable Shares or any other security
received in a reorganization event in other circumstances where the
calculation agent determines that it is appropriate to reflect those changes
to ensure an equitable result. The required adjustments specified below do not
cover all events that could affect the Closing Market Price of the Deliverable
Shares, including, without limitation, a partial tender or exchange offer for
the Deliverable Shares.
MLPF&S as calculation agent will be solely responsible for the
determination and calculation of any adjustments to the Share Multiplier and
of any related determinations and calculations with respect to any
distributions of stock, other securities or other property or assets,
including cash, in connection with any corporate event described below; and
its determinations and calculations will be conclusive absent a determination
of a manifest error.
No adjustments will be made for certain other events, such as
offerings of common stock by the Underlying Company for cash or in connection
with the occurrence of a partial tender or exchange offer for the Deliverable
Shares by the Underlying Company.
ML&Co. will, within ten Business Days following the occurrence of an
event that requires an adjustment to the Share Multiplier, or, if later,
within ten Business Days following the date on which ML&Co. becomes aware of
this occurrence, provide written notice to the trustee, which will provide
notice to the holders of the Callable STRIDES of the occurrence of this event
and a statement in reasonable detail setting forth the adjusted Share
Multiplier.
Stock splits and reverse stock splits
If the Deliverable Shares are subject to a stock split or reverse
stock split, then once any split has become effective, the Share Multiplier
relating to the Deliverable Shares will be adjusted to equal the product of
the prior Share Multiplier and the number of shares which a holder of record
of one Deliverable Share before the effective date of that stock split or
reverse stock split would have owned or been entitled to receive immediately
following the applicable effective date.
Stock dividends
If the Deliverable Shares are subject to a (i) stock dividend, i.e.,
issuance of additional Deliverable Shares, that is given ratably to all
holders of record of the Deliverable Shares or (ii) distribution of
Deliverable Shares as a result of the triggering of any provision of the
corporate charter of the Underlying Company, then, once the dividend has
become effective and the Deliverable Shares are trading ex-dividend, the Share
Multiplier will be adjusted so that the new Share Multiplier will equal the
prior Share Multiplier plus the product of:
PS-16
o the prior Share Multiplier; and
o the number of the Deliverable Shares which a holder of one
Deliverable Share before the date the dividend became effective
and the Deliverable Shares traded ex-dividend would have owned
or been entitled to receive immediately following that date.
Extraordinary Dividends
There will be no adjustments to the Share Multiplier to reflect any
cash dividends or cash distributions paid with respect to the Deliverable
Shares other than Extraordinary Dividends, as described below, and
distributions described under the section entitled "--Reorganization Events"
below.
An "Extraordinary Dividend" means, with respect to a cash dividend
or other distribution with respect to the Deliverable Shares, a dividend or
other distribution which exceeds the immediately preceding non-Extraordinary
Dividend on the Deliverable Shares (as adjusted for any subsequent corporate
event requiring an adjustment hereunder, such as a stock split or reverse
stock split) by an amount equal to at least 10% of the Closing Market Price of
the Deliverable Shares on the Trading Day preceding the ex-dividend date with
respect to the Extraordinary Dividend (the "ex-dividend date"). If an
Extraordinary Dividend occurs with respect to the Deliverable Shares, the
Share Multiplier will be adjusted on the ex-dividend date with respect to the
Extraordinary Dividend so that the new Share Multiplier will equal the product
of:
o the prior Share Multiplier; and
o a fraction, the numerator of which is the Closing Market Price
per Deliverable Share on the Trading Day preceding the
ex-dividend date, and the denominator of which is the amount by
which the Closing Market Price per Deliverable Share on the
Trading Day preceding the ex-dividend date exceeds the
Extraordinary Dividend Amount.
The "Extraordinary Dividend Amount" with respect to an Extraordinary
Dividend for the Deliverable Shares will equal:
o in the case of cash dividends or other distributions that
constitute quarterly dividends, the amount per Deliverable
Share of that Extraordinary Dividend minus the amount per share
of the immediately preceding non-Extraordinary Dividend for
that Deliverable Share; or
o in the case of cash dividends or other distributions that do
not constitute quarterly dividends, the amount per Deliverable
Share of that Extraordinary Dividend.
To the extent an Extraordinary Dividend is not paid in cash, the
value of the non-cash component will be determined by the calculation agent,
whose determination will be conclusive. A distribution on the Deliverable
Shares described in clause (a), (d) or (e) of the section entitled
"--Reorganization Events" below that also constitutes an Extraordinary
Dividend will only cause an adjustment pursuant to clause (a), (d) or (e)
under the section entitled "--Reorganization Events". A distribution on the
Deliverable Shares described in the section entitled "--Issuance of
transferable rights or warrants" that also constitutes an Extraordinary
Dividend will only cause an adjustment pursuant to that section.
"Closing Market Price" means:
If the Deliverable Shares (or any other security for which
a Closing Market Price must be determined for purposes of the
Callable STRIDES) are listed on a national securities exchange in
the United States, are a Nasdaq Global Market System ("Nasdaq GMS")
security or are included in the OTC Bulletin Board Service ("OTC
Bulletin Board") operated by the National Association of Securities
Dealers, Inc. (the "NASD"), then the Closing Market Price for any
date of determination on any Trading Day means for one Deliverable
Share (or any other security for which a Closing Market Price must
be determined for purposes of the Callable STRIDES):
o the last reported sale price, regular way, on that
day on the principal United States securities
exchange registered under the Exchange Act on which
that security is listed or admitted to trading
(without taking into account any extended or
after-hours trading session);
PS-17
o if not listed or admitted to trading on any such
securities exchange or if the last reported sale
price is not obtainable, the last reported sale price
on the over-the-counter market as reported on the
Nasdaq GMS or OTC Bulletin Board on that day (without
taking into account any extended or after-hours
trading session); or
o if the last reported sale price is not available for
any reason, including, without limitation, the
occurrence of a Market Disruption Event, as described
below, the mean of the last reported bid and offer
price of the principal trading session on the
over-the-counter market as reported on the Nasdaq GMS
or OTC Bulletin Board on that day as determined by
the calculation agent or from as many dealers in that
security, but not exceeding three, as have made the
bid prices available to the calculation agent after
3:00 p.m., local time in the principal market, on
that date (without taking into account any extended
or after-hours trading session).
If the Deliverable Shares (or any other security for which a Closing
Market Price must be determined for purposes of the Callable STRIDES) are not
listed on a national securities exchange in the United States, is not a Nasdaq
GMS security or included in the OTC Bulletin Board, then the Closing Market
Price for any date of determination on any Trading Day means for one
Deliverable Share (or any other security for which a Closing Market Price must
be determined for purposes of the Callable STRIDES) the last reported sale
price on that day on the securities exchange on which that security is listed
or admitted to trading with the greatest volume of trading for the calendar
month preceding that Trading Day as determined by the calculation agent;
provided that if the last reported sale price is for a transaction which
occurred more than four hours prior to the close of that exchange, then the
Closing Market Price will mean the average of the last available bid and offer
price on that exchange.
If the Deliverable Shares (or any other security for which a Closing
Market Price must be determined for purposes of the Callable STRIDES) are not
listed or admitted to trading on any of those securities exchanges or if the
last reported sale price or bid and offer are not obtainable, then the Closing
Market Price will mean the average of the last available bid and offer prices
in the market of the three dealers which have the highest volume of
transactions in that security in the immediately preceding calendar month as
determined by the calculation agent based on information that is reasonably
available to it.
"Market Disruption Event" means either of the following events as
determined by the calculation agent:
(A) a suspension of, absence of, including the absence of an
official closing price, or material limitation on, trading of
the Deliverable Shares on the primary market for the
Deliverable Shares for more than two hours of trading or during
the one-half hour period preceding the close of trading, as
determined by the calculation agent in its sole discretion; or
the suspension or material limitation on the primary market for
trading in options contracts related to the Deliverable Shares,
if available, during the one-half hour period preceding the
close of trading in the applicable market, in each case as
determined by the calculation agent in its sole discretion; and
(B) a determination by the calculation agent in its sole discretion
that the event described in clause (A) above materially
interfered with the ability of ML&Co., MLPF&S or any of their
affiliates to unwind all or a material portion of the hedge
with respect to the Callable STRIDES.
For purposes of determining whether a Market Disruption Event has
occurred:
(1) a limitation on the hours or number of days of trading will not
constitute a Market Disruption Event if it results from an
announced change in the regular business hours of the relevant
exchange;
(2) a decision to permanently discontinue trading in the relevant
options contracts related to the Deliverable Shares will not
constitute a Market Disruption Event;
(3) limitations pursuant to any rule or regulation enacted or
promulgated by the NYSE or The Nasdaq Stock Market or other
regulatory organization with jurisdiction over the NYSE or The
Nasdaq Stock Market on trading during significant market
fluctuations will constitute a suspension or material
limitation of trading in the Deliverable Shares;
PS-18
(4) a suspension of trading in an options contract on the
Deliverable Shares by the primary securities market trading in
the options contracts related to the Deliverable Shares, if
available, by reason of:
o a price change exceeding limits set by the securities
exchange or market;
o an imbalance of orders relating to options contracts on
the Deliverable Shares; or
o a disparity in bid and ask quotes relating to options
contracts on the Deliverable Shares
will constitute a suspension or material limitation of trading
in options contracts related to the Deliverable Shares; and
(5) a suspension of, absence of or material limitation on trading
on the primary securities market on which options contracts
related to the Deliverable Shares are traded will not include
any time when that securities market is itself closed for
trading under ordinary circumstances.
If the Exchange Property, as defined below under "--Reorganization
Events" in this pricing supplement, includes securities other than the
Deliverable Shares, then the above definition will be revised to include each
of those securities in the same manner as the Deliverable Shares are
considered in determining whether a Market Disruption Event exists.
The occurrence of a Market Disruption Event could affect the
calculation of the payment on the maturity date or the redemption date you
will receive. See "--Payment on the Maturity Date" and "--Redemption Event" in
this pricing supplement.
Issuance of transferable rights or warrants
If the Underlying Company issues transferable rights or warrants to
all holders of record of the Deliverable Shares to subscribe for or purchase
the Deliverable Shares, including new or existing rights to purchase the
Deliverable Shares pursuant to a shareholder's rights plan or arrangement,
then the Share Multiplier will be adjusted on the Business Day immediately
following the issuance of those transferable rights or warrants so that the
new Share Multiplier will equal the prior Share Multiplier plus the product
of:
o the prior Share Multiplier; and
o the number of Deliverable Shares that can be purchased with the
cash value of those warrants or rights distributed on one
Deliverable Share.
The number of shares that can be purchased will be based on the
Closing Market Price of the Deliverable Shares on the date the new Share
Multiplier is determined. The cash value of those warrants or rights, if the
warrants or rights are traded on a national securities exchange, will equal
the closing price of that warrant or right, or, if the warrants or rights are
not traded on a national securities exchange, will be determined by the
calculation agent and will equal the average of the bid prices obtained from
three dealers at 3 p.m. on the date the new Share Multiplier is determined,
provided that if only two of those bid prices are available, then the cash
value of those warrants or rights will equal the average of those bids and if
only one of those bids is available, then the cash value of those warrants or
rights will equal that bid.
Reorganization Events
If prior to the maturity date of the Callable STRIDES:
(a) there occurs any reclassification or change of the Deliverable
Shares, including, without limitation, as a result of the
issuance of tracking stock by the Underlying Company;
(b) the Underlying Company, or any surviving entity or subsequent
surviving entity of the Underlying Company (a "Successor
Entity"), has been subject to a merger, combination or
consolidation and is not the surviving entity;
(c) any statutory exchange of securities of the Underlying Company
or any Successor Entity with another corporation occurs, other
than pursuant to clause (b) above;
(d) the Underlying Company is liquidated or is subject to a
proceeding under any applicable bankruptcy, insolvency or other
similar law;
(e) the Underlying Company issues to all of its shareholders equity
securities of an issuer other than the Underlying Company,
other than in a transaction described in clauses (b), (c) or
(d) above;
(f) a tender or exchange offer or going-private transaction is
consummated for all the outstanding shares of the Underlying
Company; or
PS-19
(g) the Underlying Company ceases to file the financial and other
information with the SEC in accordance with Section 13(a) of
the Securities Exchange Act of 1934 (an event in clauses (a)
through (g) a "Reorganization Event"),
then the method of determining the amount payable on each Callable STRIDES
will be adjusted as set forth below.
"Exchange Property" will consist of the securities, cash or any other assets
distributed to holders of record of the Deliverable Shares in or as a result
of the Reorganization Event, and where the Deliverable Shares continue to be
held by the holders of the Deliverable Shares receiving that distribution, the
Deliverable Shares. The Exchange Property will either:
A. be delivered on the maturity date to the holders of the
Callable STRIDES in an amount per unit equal to the amount of
Exchange Property delivered with respect to the number of
Deliverable Shares equal to the Share Multiplier at the time of
the Reorganization Event; or
B. at the option of the calculation agent, be liquidated and the
cash proceeds will be paid to the holders of the Callable
STRIDES as described below.
If the Exchange Property received in a Reorganization Event:
o consists only of cash or if the calculation agent
exercises its option to liquidate the Exchange Property
following its distribution, then, unless we exercise our
right to call the Callable STRIDES, the Callable STRIDES
will be redeemed: (i) in the case where the Exchange
Property delivered to the holders of record of the
Deliverable Shares consists of cash only, on the third
Business Day succeeding the day on which that cash is
distributed to holders of record of the Deliverable
Shares, or (ii) in the case where the Exchange Property is
liquidated, on the date specified by ML&Co. as described
below, and holders of the Callable STRIDES will receive,
in lieu of any Deliverable Shares and in full satisfaction
of our obligations under the Callable STRIDES, the lesser
of:
(i) the product of (a) the amount of cash received with
respect to one Deliverable Share and the then current
Share Multiplier or (b) the value of the Exchange
Property liquidated with respect to one Deliverable
Share and the then current Share Multiplier, as
applicable, plus in either case accrued and unpaid
interest to the early redemption date; and
(ii) the Call Price calculated as though the early
redemption date were the Call Date (regardless of
whether the early redemption date is a day which
occurs prior to October 5, 2006) plus accrued and
unpaid interest to the early redemption date,
in each case, with no interest accruing on the Callable
STRIDES following the early redemption date. If the
calculation agent exercises the option to liquidate the
Exchange Property, ML&Co. will give notice to the trustee
as to the election to liquidate the Exchange Property,
which notice will specify the method by which the Exchange
Property will be sold. The date of early redemption of the
Callable STRIDES will be the fifth Business Day following
the last date on which the Exchange Property is sold;
o consists of more than one type of property and the
calculation agent has not exercised its option to
liquidate the Exchange Property, then holders of Callable
STRIDES will receive on the maturity date a pro rata share
of each such type of Exchange Property; and
o includes a cash component and the calculation agent has
not exercised its option to liquidate the Exchange
Property, then holders will not receive any interest
accrued on that cash component.
In the event Exchange Property consists of securities, those securities will,
in turn, be subject to the antidilution adjustments set forth in this pricing
supplement.
In the case of a consummated tender or exchange offer or
going-private transaction involving Exchange Property of a particular type,
Exchange Property will be deemed to include the amount of cash or other
property paid by the offeror in the tender or exchange offer with respect to
that Exchange Property (in an amount determined on the basis of the rate of
exchange in that tender or exchange offer or going-private transaction). In
the event of a tender or exchange offer or a going-private transaction with
respect to Exchange
PS-20
Property in which an offeree may elect to receive cash or other property,
Exchange Property will be deemed to include the kind and amount of cash and
other property received by offerees who elect to receive cash.
If we elect to call the Callable STRIDES you will receive only the
Final Amount, and you will not be entitled to receive the Deliverable Shares,
any Exchange Property or any other consideration on the maturity date.
MLPF&S as calculation agent will be solely responsible for
determination and calculation of the Exchange Property if a Reorganization
Event occurs and the amount due upon early redemption, including the
determination of the cash value of any Exchange Property, if necessary, and
its determinations and calculations will be conclusive absent a determination
of a manifest error.
If the Underlying Company ceases to file the financial and other
information with the SEC in accordance with Section 13(a) of the Securities
Exchange Act of 1934 and the calculation agent determines in its sole
discretion that sufficiently similar information is not otherwise available to
you, the maturity date of the Callable STRIDES will be accelerated to the
fifth Business Day following the date of that determination and the amount
payable to you will be calculated as though the date of early repayment were
the stated maturity date of the Callable STRIDES. If the calculation agent
determines that sufficiently similar information is available to you, the
Reorganization Event will be deemed to have not occurred.
Alternative Dilution and Reorganization Adjustments
The calculation agent may elect at its discretion to not make any of
the adjustments to the Share Multiplier or to the method of determining the
amount payable on each Callable STRIDES described above under "--Share
Multiplier Adjustments" and "--Reorganization Events", but may instead make
adjustments in its discretion to the Share Multiplier or the method of
determining the amount payable on each Callable STRIDES that will reflect the
adjustments to the extent practicable made by the Options Clearing Corporation
on options contracts on the Deliverable Shares or any successor common stock.
ML&Co. will provide notice of that election to the trustee not more than two
Business Days following the date that the Options Clearing Corporation
publishes notice of its adjustments relating to the Deliverable Shares and
will detail in that notice the actual adjustment made to the Share Multiplier
or to the method of determining the amount payable on each Callable STRIDES.
PS-21
THE DELIVERABLE SHARES
The Underlying Company
The following information has been derived from publicly available
documents published by the Underlying Company. We make no representation or
warranty as to the accuracy or completeness of the following information. The
Underlying Company has disclosed that provides a variety of services,
products, maintenance, engineering and construction to energy, industrial and
governmental customers. Because the Deliverable Shares are registered under
the Securities Exchange Act of 1934 the Underlying Company is required to file
periodically certain financial and other information specified by the SEC.
Information provided to or filed with the SEC by the Underlying Company can be
located at the SEC's facilities or through the SEC's web site by reference to
SEC file number 001-03492. See "Where You Can Find More Information" in the
accompanying prospectus. ML&Co. makes no representation or warranty as to the
accuracy or completeness of the information or reports.
The selection of the Deliverable Shares is not a recommendation to
buy or sell the Deliverable Shares. Neither ML&Co. nor any of its affiliates
make any representation to any purchaser of the Callable STRIDES as to the
performance of the Deliverable Shares.
The Deliverable Shares trade on the NYSE under the symbol "HAL".
ML&Co. is not affiliated with the Underlying Company. The Underlying
Company has no obligations with respect to the Callable STRIDES. This pricing
supplement relates only to the Callable STRIDES and does not relate to the
Deliverable Shares or other securities of the Underlying Company. All
disclosures contained in this pricing supplement regarding the Underlying
Company are derived from the publicly available documents described above.
Neither ML&Co. nor MLPF&S has participated in the preparation of these
documents or made any due diligence inquiry with respect to the Underlying
Company in connection with the offering of the Callable STRIDES. Neither
ML&Co. nor MLPF&S makes any representation that the publicly available
documents or any other publicly available information regarding the Underlying
Company are accurate or complete. Furthermore, there can be no assurance that
all events occurring prior to the date hereof, including events that would
affect the accuracy or completeness of the publicly available documents
described above, that would affect the trading price of the Deliverable Shares
have been publicly disclosed. Subsequent disclosure of any events or the
disclosure of or failure to disclose material future events concerning the
Underlying Company could affect the value of the Deliverable Shares to be
received on the maturity date of the Callable STRIDES and therefore the
trading prices of the Callable STRIDES. Neither ML&Co. nor any of its
affiliates make any representation to any purchaser of the Callable STRIDES as
to the performance of the Deliverable Shares.
ML&Co. or its affiliates may presently or from time to time engage
in business, directly or indirectly, with the Underlying Company including
extending loans to, or making equity investments in, the Underlying Company or
providing investment banking or advisory services to the Underlying Company,
including merger and acquisition advisory services. In the course of that
business, ML&Co. or its affiliates may acquire non-public information with
respect to the Underlying Company and, in addition, one or more affiliates of
ML&Co. may publish research reports with respect to the Underlying Company.
Any prospective purchaser of the Callable STRIDES should undertake
an independent investigation of the Underlying Company as in its judgment is
appropriate to make an informed decision with respect to an investment in the
Callable STRIDES.
PS-22
Historical Data
The Deliverable Shares are principally traded on the NYSE. The
following table sets forth the high and low closing prices for the calendar
quarters during calendar years 2001 through March 29, 2006. On March 29, 2006,
the Volume Weighted Average Price for the Deliverable Shares was $73.5499 per
share and the closing price of the Deliverable Shares was $74.26. The closing
prices listed below were obtained from publicly available information at
Bloomberg Financial Markets. The historical closing prices of the Deliverable
Shares should not be taken as an indication of future performance, and no
assurance can be given that the price of the Deliverable Shares will not
decrease. In addition, no assurance can be given that the price of the
Deliverable Shares will increase so that the value of the Deliverable Shares
that the holders of the Callable STRIDES may receive on the maturity date, if
not previously called by us, or redeemed, will exceed the original public
offering price of the Callable STRIDES.
High Low
--------- ------------
2001
First Quarter................................... 45.16 35.13
Second Quarter.................................. 49.20 32.41
Third Quarter................................... 36.45 19.70
Fourth Quarter.................................. 27.92 12.00
2002
First Quarter................................... 17.38 10.06
Second Quarter.................................. 19.40 15.52
Third Quarter................................... 15.30 9.10
Fourth Quarter.................................. 21.37 12.78
2003
First Quarter................................... 21.50 17.78
Second Quarter.................................. 24.87 20.27
Third Quarter................................... 25.02 20.94
Fourth Quarter.................................. 27.12 23.15
2004
First Quarter................................... 32.51 26.03
Second Quarter.................................. 31.67 27.94
Third Quarter................................... 33.73 27.30
Fourth Quarter.................................. 41.35 33.54
2005
First Quarter................................... 44.80 37.58
Second Quarter.................................. 49.00 40.60
Third Quarter................................... 69.40 46.42
Fourth Quarter.................................. 68.92 55.10
2006 (through 3/29)
First Quarter................................... 80.86 64.59
PS-23
UNITED STATES FEDERAL INCOME TAXATION
The discussion below supplements the discussion set forth under the
section entitled "United States Federal Income Taxation" that is contained in
the accompanying prospectus supplement and supersedes that discussion to the
extent that it contains information that is inconsistent with that which is
contained in the accompanying prospectus supplement.
Set forth in full below is the opinion of Sidley Austin LLP, counsel
to ML&Co. ("Tax Counsel"). As the law applicable to the U.S. federal income
taxation of instruments such as the Callable STRIDES is technical and complex,
the discussion below necessarily represents only a general summary. The
following discussion is based upon laws, regulations, rulings and decisions
now in effect, all of which are subject to change (including changes in
effective dates) or possible differing interpretations. It deals only with
Callable STRIDES held as capital assets and does not purport to deal with
persons in special tax situations, such as financial institutions, insurance
companies, real estate investment trusts, regulated investment companies,
tax-exempt entities or persons holding Callable STRIDES in a tax-deferred or
tax-advantaged account (except to the extent specifically discussed below),
dealers in securities or currencies, traders in securities that elect to mark
to market, persons subject to the alternative minimum tax, persons holding
Callable STRIDES as a hedge against currency risks, as a position in a
"straddle" or as part of a "hedging", "conversion" or "integrated" transaction
for tax purposes, or persons whose functional currency is not the United
States dollar. It also does not deal with holders other than original
purchasers (except where otherwise specifically noted). If a partnership holds
the Callable STRIDES, the tax treatment of a partner in the partnership will
generally depend upon the status of the partner and the activities of the
partnership. Thus, persons who are partners in a partnership holding the
Callable STRIDES should consult their tax advisors. Moreover, all persons
considering the purchase of the Callable STRIDES should consult their own tax
advisors concerning the application of U.S. federal income tax laws to their
particular situations as well as any consequences of the purchase, ownership
and disposition of the Callable STRIDES arising under the laws of any other
taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a
Callable STRIDES that is for U.S. federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation or a partnership (including
an entity treated as a corporation or a partnership for U.S. federal income
tax purposes) created or organized in or under the laws of the United States,
any state thereof or the District of Columbia (unless, in the case of a
partnership, Treasury regulations are adopted that provide otherwise), (iii)
an estate the income of which is subject to U.S. federal income tax regardless
of its source, (iv) a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust or (v) any other person whose income or gain in respect
of a Callable STRIDES is effectively connected with the conduct of a United
States trade or business. Certain trusts not described in clause (iv) above in
existence on August 20, 1996, that elect to be treated as United States
persons will also be U.S. Holders for purposes of the following discussion. As
used herein, the term "non-U.S. Holder" means a beneficial owner of a Callable
STRIDES that is not a U.S. Holder.
General
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization and treatment,
for U.S. federal income tax purposes, of the Callable STRIDES or securities
with terms substantially the same as the Callable STRIDES. Accordingly, the
proper U.S. federal income tax characterization and treatment of the Callable
STRIDES is uncertain. Pursuant to the terms of the Callable STRIDES, ML&Co.
and every holder of a Callable STRIDES agree (in the absence of an
administrative determination, judicial ruling or other authoritative guidance
to the contrary) to characterize and treat a Callable STRIDES for all tax
purposes as an investment unit consisting of the following components (the
"Components"): (i) a debt instrument of ML&Co. (the "Debt Instrument") with a
fixed principal amount unconditionally payable on the maturity date equal to
the principal amount of the Callable STRIDES and bearing stated interest at
the stated interest rate for the Callable STRIDES (the "Interest Rate") and
(ii) a contract (the "Forward Contract") pursuant to which the holder agrees
to use the principal payment due on the Debt Instrument to make a payment to
ML&Co. in exchange for the right to receive on the maturity date a number of
Deliverable Shares equal to the then current Share Multiplier (subject to our
right to cancel the Forward Contract in the event that we exercise our right
to call the Callable STRIDES prior to the maturity date). In the opinion of
Tax Counsel, such characterization and tax treatment of the Callable STRIDES,
although not the only reasonable characterization and tax treatment, is based
on reasonable interpretations of law currently in effect
PS-24
and, even if successfully challenged by the Internal Revenue Service (the
"IRS"), will not result in the imposition of penalties. Furthermore, based on
ML&Co.'s determination of the relative fair market values of the Components at
the time of issuance of the Callable STRIDES, ML&Co. will assign $26.27 of the
original issue price of the Callable STRIDES to the Debt Instrument and will
assign $1.27 of the original issue price of the Callable STRIDES to the
Forward Contract. Based upon the foregoing, a U.S. Holder who acquires a
Callable STRIDES in connection with the original issuance thereof will be
treated as having purchased the Debt Instrument for $26.27 and as having
received an initial payment (the "Initial Forward Contract Payment") with
respect to the Forward Contract in an amount equal to $1.27. The initial
payment deemed to have been received by a U.S. Holder with respect to the
Forward Contract (i.e., the Initial Forward Contract Payment) should only be
taken into account by the U.S. Holder as an additional amount realized with
respect to the Forward Contract on the earlier of the sale or other
disposition of the Callable STRIDES by the U.S. Holder (including a redemption
of the Callable STRIDES if we call the Callable STRIDES prior to the maturity
date) or on the maturity date (which would reduce the U.S. Holder's tax basis
in any Deliverable Shares received thereby on the maturity date). ML&Co.'s
allocation of the original issue price will be binding on a U.S. Holder of a
Callable STRIDES, unless the U.S. Holder timely and explicitly discloses to
the IRS that its allocation is different from ML&Co.'s. The characterization
and tax treatment of the Callable STRIDES described above and ML&Co.'s
allocation are not, however, binding on the IRS or the courts. No statutory,
judicial or administrative authority directly addresses the characterization
and tax treatment of the Callable STRIDES or instruments similar to the
Callable STRIDES for U.S. federal income tax purposes, and no ruling is being
requested from the IRS with respect to the Callable STRIDES.
Due to the absence of authorities that directly address instruments
that are similar to the Callable STRIDES, significant aspects of the U.S.
federal income tax consequences of an investment in the Callable STRIDES are
not certain, and no assurance can be given that the IRS or the courts will
agree with the characterization and tax treatment described above.
Accordingly, prospective purchasers are urged to consult their tax advisors
regarding the U.S. federal income tax consequences of an investment in a
Callable STRIDES (including alternative characterizations and tax treatments
of a Callable STRIDES) and with respect to any tax consequences arising under
the laws of any state, local or foreign taxing jurisdiction. Unless otherwise
stated, the following discussions are based on the assumption that the
characterization and tax treatment and the allocation described above are
accepted for U.S. federal income tax purposes.
Tax Treatment of a Callable STRIDES
Interest on the Debt Instrument. Debt instruments that have a fixed
maturity of one year or less, such as the Debt Instrument, are treated as
having been issued with original issue discount. Accordingly, in general, the
Debt Instrument will be treated as having been issued with original issue
discount in an amount equal to the excess of (a) the sum of (i) the principal
amount of the Debt Instrument (i.e., the Principal Amount of a Callable
STRIDES) and (ii) all interest payable on the Debt Instrument at the Interest
Rate throughout the term of the Debt Instrument (the "Interest Payments") over
(b) the Debt Instrument's issue price. For these purposes, the Debt
Instrument's issue price will equal $26.27 of the original issue price. In
general, an individual or other cash method U.S. Holder is not required to
accrue such original issue discount, unless the U.S. Holder elects to do so.
If such an election is not made, any gain recognized by the U.S. Holder on the
sale, exchange, redemption or maturity of the Debt Instrument will be ordinary
income to the extent of the original issue discount accrued on a straight-line
basis, or upon election under the constant yield method (based on daily
compounding), through the date of sale, exchange, redemption or maturity, and
a portion of the deductions otherwise allowable to the U.S. Holder for
interest on borrowings allocable to the Debt Instrument will be deferred until
a corresponding amount of income is realized. U.S. Holders who report income
for United States federal income tax purposes under the accrual method, and
certain other holders including banks and dealers in securities, will be
required to accrue original issue discount on the Debt Instrument on a
straight-line basis unless an election is made to accrue the original issue
discount under a constant yield method (based on daily compounding). Under the
foregoing rules, a U.S. Holder will not be required to separately include the
Interest Payments in such U.S. Holder's income, regardless of the U.S.
Holder's regular method of tax accounting. Based on ML&Co.'s determination set
forth above, the U.S. Holder's tax basis in the Debt Instrument will initially
be $26.27. A U.S. Holder's tax basis in the Debt Instrument will be increased
by any original issue discount previously included in income by the U.S.
Holder with respect to the Debt Instrument, and decreased by the amount of any
payments of stated interest (i.e., the Interest Payments) previously received
by the U.S. Holder with respect to the Debt Instrument.
Settlement of the Forward Contract. Upon the final settlement of the
Forward Contract on the maturity date, a U.S. Holder would be deemed to have
applied an amount (the "Forward Contract Payment
PS-25
Amount") equal to the principal amount of the Debt Instrument less the Initial
Forward Contract Payment toward the purchase of the Deliverable Shares, and a
U.S. Holder should not recognize any gain or loss with respect to the
Deliverable Shares received upon the final settlement of the Forward Contract.
However, a U.S. Holder would be required to recognize gain or loss with
respect to any cash received in lieu of fractional Deliverable Shares. The
amount of that gain or loss would be equal to the difference, if any, between
the amount of cash received and the portion of the Forward Contract Payment
Amount that is allocable to those fractional Deliverable Shares. Any such gain
or loss would be treated as short-term capital gain or loss. A U.S. Holder's
tax basis in the Deliverable Shares so received would be equal to the Forward
Contract Payment Amount less the portion of the Forward Contract Payment
Amount that is allocable to any fractional Deliverable Shares. A U.S. Holder's
holding period for the Deliverable Shares would begin on the day immediately
following the maturity date. Notwithstanding the foregoing, any cash received
on the maturity date that is attributable to accrued interest on the Debt
Instrument would be taxed as described under "Tax Treatment of a Callable
STRIDES--Interest on the Debt Instrument" above.
Sale, Exchange or Redemption of the Callable STRIDES
Upon a sale, exchange or redemption of a Callable STRIDES prior to
the maturity date of the Callable STRIDES, a U.S. Holder would recognize
taxable gain or loss equal to the difference between the amount realized on
that sale, exchange or redemption (as allocated among the Components in
accordance with their relative fair market values) and a U.S. Holder's tax
basis in the Components deemed so sold, exchanged or redeemed. Any such gain
or loss would be short-term capital gain or loss (except, as described above,
to the extent of any accrued original issue discount on the Debt Instrument
not previously included in income by the U.S. Holder). For these purposes, the
amount realized does not include any amount attributable to accrued interest
on the Debt Instrument, which would be taxed as described under "Tax Treatment
of a Callable STRIDES--Interest on the Debt Instrument" above. If on any date
the Closing Market Price of one Deliverable Share is less than $1.00 and, as a
result, the Callable STRIDES are redeemed by us on the third Business Day
following that date, for these purposes, the Debt Instrument should be treated
as having been redeemed for an amount of cash equal to the sum of the
principal amount of the Debt Instrument and the present value amount. In
addition, in that event, the amount realized should not include any
Deliverable Shares received by a U.S. Holder, which would be treated as a
purchase of those Deliverable Shares in settlement of the Forward Contract for
an amount equal to the Forward Contract Payment Amount.
Premium
If a U.S. Holder purchases the Debt Instrument for an amount that is
greater than the sum of all amounts payable on the Debt Instrument after the
purchase date other than payments of qualified stated interest (i.e., the
principal amount), a U.S. Holder will be considered to have purchased the Debt
Instrument with "amortizable bond premium" equal in amount to that excess. A
U.S. Holder may elect to amortize that premium using a constant yield method
over the remaining term of the Debt Instrument and may offset interest
otherwise required to be included in respect of the Debt Instrument during any
taxable year by the amortized amount of that excess for the taxable year.
However, because the Callable STRIDES may be optionally called by ML&Co. on or
after October 5, 2006, special rules would apply which could possibly result
in a deferral of the amortization of some bond premium until later in the term
of the Debt Instrument. U.S. Holders are urged to consult their own tax
advisors regarding the application of these special rules. Any election to
amortize bond premium applies to all taxable debt instruments acquired by the
U.S. Holder on or after the first day of the first taxable year to which that
election applies and may be revoked only with the consent of the IRS.
Possible Alternative Tax Treatments of an Investment in a Callable STRIDES
Due to the absence of authorities that directly address the proper
characterization and treatment of the Callable STRIDES, no assurance can be
given that the IRS will accept, or that a court will uphold, the
characterization and tax treatment described above. In particular, the IRS
could seek to analyze the U.S. federal income tax consequences of owning a
Callable STRIDES under Treasury regulations governing contingent payment debt
instruments (the "CPDI Regulations").
ML&Co. will take the position that the CPDI Regulations do not apply
to the Callable STRIDES. If the IRS were successful in asserting that the CPDI
Regulations applied to the Callable STRIDES, the timing and character of
income thereon would be significantly affected. Among other things, a U.S.
Holder would be required to accrue as original issue discount, subject to the
adjustments described below, income at a
PS-26
"comparable yield" on the issue price, regardless of the U.S. Holder's usual
method of accounting for U.S. federal income tax purposes. In addition, the
CPDI Regulations require that a projected payment schedule, which results in
such a "comparable yield," be determined, and that adjustments to income
accruals be made to account for differences between actual payments and
projected amounts (including upon receipt of the Deliverable Shares on the
maturity date). Furthermore, any gain realized with respect to a Callable
STRIDES would generally be treated as ordinary income, and any loss realized
would generally be treated as ordinary loss to the extent of the U.S. Holder's
prior ordinary income inclusions (which were not previously reversed) with
respect to the Callable STRIDES.
Even if the CPDI Regulations do not apply to the Callable STRIDES,
other alternative U.S. federal income tax characterizations or treatments of
the Callable STRIDES are also possible, which may also affect the timing and
the character of the income or loss with respect to the Callable STRIDES.
Accordingly, prospective purchasers are urged to consult their tax advisors
regarding the U.S. federal income tax consequences of an investment in a
Callable STRIDES.
Constructive Ownership Law
Section 1260 of the Internal Revenue Code of 1986, as amended (the
"Code") treats a taxpayer owning certain types of derivative positions in
property as having "constructive ownership" of that property, with the result
that all or a portion of any long-term capital gain recognized by such
taxpayer with respect to the derivative position will be recharacterized as
ordinary income. In its current form, Section 1260 of the Code does not apply
to a Callable STRIDES. If Section 1260 of the Code were to apply to a Callable
STRIDES in the future, however, the effect on a U.S. Holder of a Callable
STRIDES would be to treat all or a portion of any long-term capital gain
recognized by such U.S. Holder on the sale, exchange, redemption or maturity
of a Callable STRIDES (or upon the sale of any Deliverable Shares received
thereon) as ordinary income. In addition, Section 1260 of the Code would
impose an interest charge on any such gain that was recharacterized. U.S.
Holders should consult their tax advisors regarding the potential application
of Section 1260 of the Code, if any, to the purchase, ownership and
disposition of a Callable STRIDES.
Unrelated Business Taxable Income
Section 511 of the Code generally imposes a tax, at regular
corporate or trust income tax rates, on the "unrelated business taxable
income" of certain tax-exempt organizations, including qualified pension and
profit sharing plan trusts and individual retirement accounts. As discussed
above, the U.S. federal income tax characterization and treatment of the
Callable STRIDES is uncertain. Nevertheless, in general, if the Callable
STRIDES are held for investment purposes, the amount of income or gain, if
any, realized over the term of the Callable STRIDES, on the maturity date or
upon a sale, exchange or redemption of a Callable STRIDES prior to the
maturity date, or any income that would accrue to a holder of a Callable
STRIDES if the Callable STRIDES were characterized as contingent payment debt
instruments (as discussed above), will not constitute unrelated business
taxable income. However, if a Callable STRIDES constitutes debt-financed
property (as defined in Section 514(b) of the Code) by reason of indebtedness
incurred by a holder of a Callable STRIDES to purchase the Callable STRIDES,
all or a portion of any income or gain realized with respect to such Callable
STRIDES may be classified as unrelated business taxable income pursuant to
Section 514 of the Code. Moreover, prospective investors in the Callable
STRIDES should be aware that whether or not any income or gain realized with
respect to a Callable STRIDES which is owned by an organization that is
generally exempt from U.S. federal income taxation pursuant to Section 501(a)
of the Code constitutes unrelated business taxable income will depend upon the
specific facts and circumstances applicable to such organization. Accordingly,
any potential investors in the Callable STRIDES that are generally exempt from
U.S. federal income taxation pursuant to Section 501(a) of the Code are urged
to consult with their own tax advisors concerning the U.S. federal income tax
consequences to them of investing in the Callable STRIDES.
Non-U.S. Holders
In the case of a non-U.S. Holder, ML&Co. intends to withhold
applicable United States withholding taxes at a rate of 30% on payments of
interest made with respect to the Callable STRIDES subject to reduction by
applicable treaty or upon the receipt of a Form W-8ECI from a non-U.S. Holder
claiming that the payments are effectively connected with the conduct of a
United States trade or business. Any capital gain realized upon the sale or
other disposition of a Callable STRIDES by a non-U.S. Holder will generally
not be subject to U.S. federal income tax if (i) that gain is not effectively
connected with a United States trade or business of that
PS-27
non-U.S. Holder and (ii) in the case of an individual non-U.S. Holder, that
individual is not present in the United States for 183 days or more in the
taxable year of the sale or other disposition and that individual does not
have a "tax home" (as defined for U.S. federal income tax purposes) in the
United States.
Backup Withholding and Information Reporting
A beneficial owner of a Callable STRIDES may be subject to
information reporting with respect to certain amounts paid to the beneficial
owner. A beneficial owner of a Callable STRIDES may also be subject to backup
withholding at the applicable statutory rate of U.S. federal income tax on
certain amounts paid to the beneficial owner unless such beneficial owner
provides proof of an applicable exemption or a correct taxpayer identification
number, and otherwise complies with applicable requirements of the backup
withholding rules.
Any amounts withheld under the backup withholding rules from a
payment to a beneficial owner would be allowed as a refund or a credit against
such beneficial owner's U.S. federal income tax provided the required
information is furnished to the IRS.
PS-28
ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee
benefit plan (a "plan") subject to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), should consider the fiduciary standards of
ERISA in the context of the plan's particular circumstances before authorizing
an investment in the Callable STRIDES. Accordingly, among other factors, the
fiduciary should consider whether the investment would satisfy the prudence
and diversification requirements of ERISA and would be consistent with the
documents and instruments governing the plan, and whether the investment would
involve a prohibited transaction under Section 406 of ERISA or Section 4975 of
the Code.
Section 406 of ERISA and Section 4975 of the Code prohibit plans, as
well as individual retirement accounts and Keogh plans subject to Section 4975
of the Code (also "plans") from engaging in certain transactions involving
"plan assets" with persons who are "parties in interest" under ERISA or
"disqualified persons" under the Code ("parties in interest") with respect to
the plan or account. A violation of these prohibited transaction rules may
result in civil penalties or other liabilities under ERISA and/or an excise
tax under Section 4975 of the Code for those persons, unless exemptive relief
is available under an applicable statutory, regulatory or administrative
exemption. Certain employee benefit plans and arrangements including those
that are governmental plans (as defined in Section 3(32) of ERISA), certain
church plans (as defined in Section 3(33) of ERISA) and foreign plans (as
described in Section 4(b)(4) of ERISA) ("non-ERISA arrangements") are not
subject to the requirements of ERISA or Section 4975 of the Code but may be
subject to similar provisions under applicable federal, state, local, foreign
or other regulations, rules or laws ("similar laws").
The acquisition of the Callable STRIDES by a plan with respect to
which we, MLPF&S or certain of our affiliates is or becomes a party in
interest may constitute or result in a prohibited transaction under ERISA or
Section 4975 of the Code, unless those Callable STRIDES are acquired pursuant
to and in accordance with an applicable exemption. The U.S. Department of
Labor has issued five prohibited transaction class exemptions, or "PTCEs",
that may provide exemptive relief if required for direct or indirect
prohibited transactions that may arise from the purchase or holding of the
Callable STRIDES. These exemptions are:
(1) PTCE 84-14, an exemption for certain transactions determined by
independent qualified professional asset managers;
(2) PTCE 90-1, an exemption for certain transactions involving insurance
company pooled separate accounts;
(3) PTCE 91-38, an exemption for certain transactions involving bank
collective investment funds;
(4) PTCE 95-60, an exemption for transactions involving certain
insurance company general accounts; or
(5) PTCE 96-23, an exemption for plan asset transactions managed by
in-house asset managers.
The Callable STRIDES may not be purchased or held by (1) any plan,
(2) any entity whose underlying assets include "plan assets" by reason of any
plan's investment in the entity (a "plan asset entity") or (3) any person
investing "plan assets" of any plan, unless in each case the purchaser or
holder is eligible for the exemptive relief available under any of the PTCEs
listed above or another applicable similar exemption. Any purchaser or holder
of the Callable STRIDES or any interest in the Callable STRIDES will be deemed
to have represented by its purchase and holding of the Callable STRIDES that
it either (1) is not a plan or a plan asset entity and is not purchasing those
Callable STRIDES on behalf of or with "plan assets" of any plan or plan asset
entity or (2) with respect to the purchase or holding, is eligible for the
exemptive relief available under any of the PTCEs listed above or another
applicable exemption. In addition, any purchaser or holder of the Callable
STRIDES or any interest in the Callable STRIDES which is a non-ERISA
arrangement will be deemed to have represented by its purchase and holding of
the Callable STRIDES that its purchase and holding will not violate the
provisions of any similar law.
Due to the complexity of these rules and the penalties that may be
imposed upon persons involved in non-exempt prohibited transactions, it is
important that fiduciaries or other persons considering purchasing the
Callable STRIDES on behalf of or with "plan assets" of any plan, plan asset
entity or non-ERISA arrangement consult with their counsel regarding the
availability of exemptive relief under any of the PTCEs listed above or any
other applicable exemption, or the potential consequences of any purchase or
holding under similar laws, as applicable.
PS-29
USE OF PROCEEDS AND HEDGING
The net proceeds from the sale of the Callable STRIDES will be used
as described under "Use of Proceeds" in the accompanying prospectus and to
hedge market risks of ML&Co. associated with its obligations in connection
with the Callable STRIDES.
SUPPLEMENTAL PLAN OF DISTRIBUTION
MLPF&S has advised ML&Co. that it proposes initially to offer all or
part of the Callable STRIDES directly to the public on a fixed price basis at
the offering prices set forth on the cover of this pricing supplement. After
the initial public offering, the public offering prices may be changed. The
obligations of MLPF&S are subject to certain conditions and it is committed to
take and pay for all of the Callable STRIDES if any are taken.
EXPERTS
The consolidated financial statements, the related financial
statement schedule, and management's report on the effectiveness of internal
control over financial reporting incorporated in this pricing supplement by
reference from Merrill Lynch & Co., Inc.'s Annual Report on Form 10-K for the
year ended December 30, 2005 have been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their reports,
which are incorporated herein by reference, and have been so incorporated in
reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
PS-30
INDEX OF CERTAIN DEFINED TERMS
Page
----
accrued interest amount.............................................. PS-15
Business Day......................................................... PS-12
Call Date............................................................ PS-4
Call Price........................................................... PS-5
Closing Market Price................................................. PS-17
Deliverable Shares................................................... PS-3
ex-dividend date..................................................... PS-17
Exchange Property.................................................... PS-20
Extraordinary Dividend............................................... PS-17
Extraordinary Dividend Amount........................................ PS-17
Final Amount......................................................... PS-5
Market Disruption Event.............................................. PS-18
present value amount................................................. PS-15
Pricing Date......................................................... PS-4
Redemption Date...................................................... PS-15
Redemption Price..................................................... PS-15
Reorganization Event................................................. PS-20
Share Multiplier..................................................... PS-4
Trading Day.......................................................... PS-12
Underlying Company................................................... PS-3
Volume Weighted Average Price........................................ PS-11
PS-31
ANNEX A
Call Price Calculation Methodology
The Call Price is the amount of cash, per Callable STRIDES, that
when discounted from the Call Date to the original issue date by a discount
factor based on an annual yield to call of 20% and when added to the present
value of all interest payments made through and including the applicable Call
Date discounted to the original issue date by that same discount factor, will
equal the original issue price.
As an example, the following steps describe the calculation of the
Call Price for January 31, 2007:
o First, the sum of the present values on the original issue date
of all interest payments made on the Callable STRIDES through
and including the applicable Call Date is calculated. For a
more detailed description of this calculation, please see the
following table below.
The table illustrates, for the scheduled interest payment dates and
the scheduled Call Date listed, the:
(a) amount of interest payable (computed on the basis of a
360-day year of twelve 30-day months) on the applicable
date;
(b) years from the original issue date to the applicable
interest payment date (computed on the basis of a 360-day
year of twelve 30-day months);
(c) discount factor(1) based upon an annual yield to call of
20%;
(d) present value at the original issue date of the interest
payments; and
(e) the sum of the present values of all interest payments
discounted to the original issue date.
The table assumes:
o original issue date: April 4, 2006
o initial Share Multiplier: 0.33990529 (based upon the Volume
Weighted Average Price of the
Deliverable Shares of $73.5499 on the
Pricing Date of March 29, 2006)
o interest rate: 8% per year
o interest payment dates: On the 4th day of January, April, July
and October of each year, beginning
July 4, 2006 (computed on the basis of
a 360-day year of twelve 30-day months,
compounded annually)
o yield to call: 20%, (computed on the basis of a
360-day year of twelve 30-day months,
compounded annually)
o stated maturity date: April 4, 2007
Discount
Years Factor(1)
From Based Present Value at
Interest Original on the Original Issue
Amount Issue Yield to Date of Interest
Date(2) Payable Date Call Payments(3)
------- -------- -------- --------- ----------------
April 4, 2006 0.000000 1.000000
July 4, 2006 0.500000 0.250000 0.955443 0.477721
October 4, 2006 0.500000 0.500000 0.912871 0.456435
January 4, 2007 0.500000 0.750000 0.872196 0.436098
January 31, 2007 0.150000 0.825000 0.860351 0.129053
----------------
Sum of the present values of all interest payments: 1.499307
================
A-1
o Next, the sum of the present values of the interest payments is
subtracted from the original issue price to produce the present
value of the Call Price on the original issue date:
$25.00 - $1.499307 = $23.500693 (the present value of the
Call Price)
o Finally, the present value of the Call Price is divided by the
applicable discount factor(1) and rounded to the fourth decimal
place, the quotient being the present value of the Call Price
payable on the applicable Call Date:
$23.500693
---------------- = $27.3153 (the Call Price)
0.860351
- ---------------------------------
X
(1) The discount factor is equal to ( 1 ) , where X is the
number of years from the (--------) original issue
date ( 1.20 )
(computed on the basis of a 360-day year of twelve 30-day
months compounded annually).
(2) The dates in this column reflect the original issue date, the
scheduled interest payment dates and January 31, 2007, the Call
Date used in calculating this example. If a scheduled interest
payment date falls on a day that is not a Business Day, payment
will be made on the following Business Day, however, the
present values of the interest payments will be calculated
assuming each payment is made on the calendar day scheduled for
that payment.
(3) The present values in this column represent the product of the
applicable interest payment amount and the corresponding
discount factor. Due to rounding, the numbers in this column
may not equal the sum of the present values of all interest
payments.
A-2
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[LOGO]
1,120,000 Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
8% Callable STock Return Income DEbt Securities(SM)
due April 4, 2007
"Callable STRIDES(SM)"
Payable on the maturity date with Halliburton Company common stock
$25 original public offering price per unit
-------------------------------------
PRICING SUPPLEMENT
-------------------------------------
Merrill Lynch & Co.
March 29, 2006
"STock Return Income DEbt Securities" and "STRIDES" are service marks of
Merrill Lynch & Co., Inc.
==============================================================================