PRICING SUPPLEMENT
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(To MTN prospectus supplement,
general prospectus supplement
and prospectus each dated March 31, 2006)
Pricing Supplement Number: 2544
[LOGO OMITTED]
11,000,000 Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
100% Minimum Return Protected Bear USDX(R) Notes
due June 17, 2008
(the "Notes")
$10 principal amount per unit
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The Notes:
o The Notes are designed for investors who believe that o The Notes will be senior unsecured debt securities of
the level of the U.S. Dollar Index(R) (Bloomberg symbol Merrill Lynch & Co., Inc. and be part of a series
"DXY") will decrease over the term of the Notes and are entitled "Medium-Term Notes, Series C". The Notes will
willing to risk receiving a fixed, limited return on the have the CUSIP No. 59021V375.
Notes on the maturity date if the U.S. Dollar Index does
not depreciate. o The settlement date for the Notes is expected to be June
8, 2006.
o 100% principal protection on the maturity date and we
cannot redeem the Notes prior to the maturity date. Payment on the maturity date:
o We will pay interest on the $10 principal amount per o The amount you receive on the maturity date will be
unit of the Notes annually, equal to 2.85% of the based upon the direction of and (if the level has
principal amount, if on the relevant observation date declined) percentage change in the level of the U.S.
the U.S. Dollar Index is equal to or above the level of Dollar Index over the term of the Notes:
the U.S. Dollar Index on the date the Notes were priced
for initial sale to the public. If the U.S. Dollar Index o If the level of the U.S. Dollar Index has
has decreased on the relevant observation date, you will decreased, you will receive a payment per unit
not receive any interest payment on the corresponding equal to $10 per unit plus a supplemental
interest payment date. redemption amount equal to $10 multiplied by the
percentage decrease.
o The Notes will not be listed on any securities exchange.
o If the level of the U.S. Dollar Index has
increased or has not changed, you will receive the
$10 principal amount per unit plus an interest
payment equal to 2.85% of the principal amount,
as described above.
Information included in this pricing supplement supersedes information
in the accompanying MTN prospectus supplement, general prospectus supplement
and prospectus to the extent that it is different from that information.
Investing in the Notes involves risks that are described in the "Risk
Factors" section beginning on page PS-8 of this pricing supplement and page
S-3 of the accompanying MTN prospectus supplement.
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Per Unit Total
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Public offering price................................................ $10.00 $110,000,000
Underwriting discount................................................ $.175 $1,925,000
Proceeds, before expenses, to Merrill Lynch & Co., Inc............... $9.825 $108,075,000
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 MTN prospectus supplement, general
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 June 1, 2006.
U.S. Dollar Index and USDX are trademarks and service marks of the New York
Board of Trade(R), used under license.
TABLE OF CONTENTS
Pricing Supplement
SUMMARY INFORMATION--Q&A.................................................PS-3
RISK FACTORS.............................................................PS-8
DESCRIPTION OF THE NOTES................................................PS-12
THE INDEX...............................................................PS-17
UNITED STATES FEDERAL INCOME TAXATION...................................PS-20
ERISA CONSIDERATIONS....................................................PS-24
USE OF PROCEEDS AND HEDGING.............................................PS-25
SUPPLEMENTAL PLAN OF DISTRIBUTION.......................................PS-25
EXPERTS.................................................................PS-25
INDEX OF CERTAIN DEFINED TERMS..........................................PS-26
Medium-Term Notes, Series C Prospectus Supplement
(the "MTN prospectus supplement")
RISK FACTORS..............................................................S-3
DESCRIPTION OF THE NOTES..................................................S-4
UNITED STATES FEDERAL INCOME TAXATION....................................S-22
PLAN OF DISTRIBUTION.....................................................S-29
VALIDITY OF THE NOTES....................................................S-30
Debt Securities, Warrants, Preferred Stock,
Depositary Shares and Common Stock Prospectus Supplement
(the "general prospectus supplement")
Merrill Lynch & Co., Inc..................................................S-3
Use of Proceeds...........................................................S-3
Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends......................S-4
The Securities............................................................S-4
Description of Debt Securities............................................S-5
Description of Debt Warrants.............................................S-16
Description of Currency Warrants.........................................S-18
Description of Index Warrants............................................S-20
Description of Preferred Stock...........................................S-25
Description of Depositary Shares.........................................S-32
Description of Preferred Stock Warrants..................................S-36
Description of Common Stock..............................................S-38
Description of Common Stock Warrants.....................................S-42
Plan of Distribution.....................................................S-44
Where You Can Find More Information......................................S-45
Incorporation of Information We File With the SEC........................S-46
Experts..................................................................S-46
Prospectus
Where You Can Find More Information.........................................2
Incorporation of Information We File With the SEC...........................2
Experts.....................................................................2
PS-2
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SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this pricing supplement and the accompanying MTN prospectus
supplement, general prospectus supplement and prospectus to help you
understand the 100% Minimum Return Protected Bear USDX(R) Notes due June 17,
2008 (the "Notes"). You should carefully read this pricing supplement and the
accompanying MTN prospectus supplement, general prospectus supplement and
prospectus to fully understand the terms of the Notes and the tax and other
considerations that are important to you in making a decision about whether to
invest in the Notes. You should carefully review the "Risk Factors" section of
this pricing supplement and the accompanying MTN prospectus supplement, which
highlights certain risks associated with an investment in the Notes, to
determine whether an investment in the Notes 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 Notes?
The Notes 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 Notes will rank equally with all of our other unsecured and unsubordinated
debt. The Notes will mature on June 17, 2008.
Each unit will represent a single Note with a $10 principal amount. You
may transfer the Notes 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 Notes in the form of a global
certificate, which will be held by The Depository Trust Company, also known as
DTC, or its nominee. Direct and indirect participants in DTC will record your
ownership of the Notes. You should refer to the section entitled "Description
of the Debt Securities--Depositary" in the accompanying general prospectus
supplement.
Are there any risks associated with my investment?
Yes, an investment in the Notes is subject to certain risks. Please
refer to the section entitled "Risk Factors" in this pricing supplement and
the accompanying MTN prospectus supplement.
What is the Index?
The U.S. Dollar Index (Bloomberg symbol "DXY") (the "Index") is
published by the New York Board of Trade(R) also known as NYBOT(R) ("NYBOT")
and was first published in 1985. The Index provides an indication of the value
of the U.S. dollar relative to six major currencies, currently the Canadian
dollar, Swiss franc, European Union euro, British pound, Japanese yen and
Swedish krona (the "Index Components"). The Index measures changes in the
Index Components' currency exchange rates against the U.S. dollar relative to
a base period of March 1973 and a base value of 100.00. For more specific
information about the Index, see the section entitled "The Index" in this
pricing supplement.
The Notes are debt obligations of ML&Co. An investment in the Notes does
not entitle you to any ownership interest in the Index Components.
How has the Index performed historically?
We have included a graph showing the year-end level of the Index shortly
after 4:00 p.m. EST on the last Business Day (as defined herein) of each year
from 1986 to 2005 and a table and a graph showing the level of the Index
shortly after 4:00 p.m. EST on the last Business Day of the month from January
2001 through May 2006 in the section entitled "The Index--Historical Data on
the Index" in this pricing supplement.
We have provided this information to help you evaluate the behavior of
the Index in various economic environments; however, this information is not
necessarily indicative of how the Index will perform in the future.
What will I receive on the maturity date of the Notes?
On the maturity date, you will receive a cash payment per unit equal to
the sum of the $10 principal amount per unit plus either the Supplemental
Redemption Amount (as defined below) or a payment of interest as described
below.
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PS-3
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Supplemental Redemption Amount
The "Supplemental Redemption Amount" will equal:
( Starting Value - Ending Value)
$10 X (------------------------------)
( Starting Value )
but will not be less than zero.
The "Starting Value" equals 85.15, the level of the Index at
approximately 10 a.m. EST on the day the Notes were priced for initial sale to
the public (the "Pricing Date"), as determined by the Calculation Agent.
The "Ending Value" will equal the level of the Index at approximately 10
a.m. EST on the Valuation Date, as determined by the Calculation Agent.
The "Valuation Date" will be the seventh scheduled Index Business Day
(as defined below) prior to the maturity date of the Notes or, if such day is
not an Index Business Day, the next succeeding Index Business Day; provided,
however, that if an Index Business Day does not occur by the third succeeding
scheduled Index Business Day, the Calculation Agent will determine the Ending
Value on that date in a manner that, in its judgment, is reasonable under the
circumstances.
An "Index Business Day" means a day on which the New York Stock Exchange
(the "NYSE"), the American Stock Exchange (the "AMEX") and The Nasdaq Stock
Market (the "Nasdaq") are open for trading and the Index or any successor
index is calculated and published (as of approximately 10 a.m. EST).
We will pay you a Supplemental Redemption Amount only if the Ending
Value is less than the Starting Value. If the Ending Value is greater than, or
equal to, the Starting Value, the Supplemental Redemption Amount will be zero;
however, in such case, you will receive interest on the Notes as described
below. We will pay you the $10 principal amount per unit of your Notes
regardless of whether any Supplemental Redemption Amount is payable.
For more specific information about the Supplemental Redemption Amount,
please see the section entitled "Description of the Notes" in this pricing
supplement.
Will I receive interest payments on the Notes?
If the level of the Index is equal to or above the Starting Value on
June 8, 2007, the first anniversary of the issuance of the Notes (the
"Observation Date"), you will receive an interest payment on June 19, 2007,
the seventh Index Business Day after the scheduled Observation Date; provided,
however, that if such anniversary is not an Index Business Day, then the
Observation Date will be the next succeeding Index Business Day; and provided
further, however, that if an Index Business Day has not occurred by the third
succeeding scheduled Index Business Day, then such date will be the
Observation Date and the Calculation Agent will determine the level of the
Index on that date in a manner that, in its judgment, is reasonable under the
circumstances. In addition, if the level of the Index is equal to or above the
Starting Value on the Valuation Date, you will receive an interest payment on
the maturity date of the Notes. If interest is payable in either 2007 or 2008,
as described above, you will receive an interest payment on each $10 principal
amount of Notes held by you equal to 2.85% of such principal amount. As
described above, you may receive no payment in 2007. In 2008, you will receive
(in addition to the repayment of the principal amount of your Notes) either
the above-described interest payment or the Supplemental Redemption Amount,
but not both.
If an interest payment date is not a Business Day (as defined herein),
payment will be made on the immediately succeeding Business Day and no
additional interest will accrue as a result of the delayed payment.
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PS-4
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Examples
Set forth below are four examples of calculations of the stated payment
due at maturity including a Starting Value of 85.15, the level of the Index at
approximately 10:00 a.m. EST on the Pricing Date. These examples do not
include interest that may be payable following the Observation Date that will
occur in 2007.
Example 1--The hypothetical Ending Value is 10% lower than the Starting Value:
Starting Value: 85.15
Hypothetical Ending Value: 76.64
Interest Payment: $0.00t
( 85.15 - 76.64 )
Supplemental Redemption Amount (per unit)=$10x(------------------)=$1
( 85.15 )
Total payment on the maturity date (per unit) = $10 + $1 + $0(t) = $11.00
Example 2--The hypothetical Ending Value is 2% lower than the Starting Value:
Starting Value: 85.15
Hypothetical Ending Value: 83.45
Interest Payment: $0.00(t)
( 85.15 - 83.45 )
Supplemental Redemption Amount (per unit)=$10x(------------------)=$0.20
( 85.15 )
Total payment on the maturity date (per unit) = $10 + $0.20 + $0(t) = $10.20
Example 3--The hypothetical Ending Value equals the Starting Value:
Starting Value: 85.15
Hypothetical Ending Value: 85.15
Interest Payment: $0.285*
( 85.15 - 85.15 )
Supplemental Redemption Amount (per unit)=$10x(------------------)=$0
( 85.15 )
Total payment on the maturity date (per unit) = $10 + $0 + $0.285* =
$10.285
Example 4--The hypothetical Ending Value is 30% higher than the Starting
Value:
Starting Value: 85.15
Hypothetical Ending Value: 110.70
Interest Payment: $0.285*
( 85.15 - 110.70 ) (The Supplemental Redemption
Supplemental Redemption Amount (per unit)=$10x(------------------)=$0 Amount cannot be less than zero)
( 85.15 )
Total payment on the maturity date (per unit) = $10 + $0 + $0.285* =
$10.285
(t) Holders would not receive interest in Examples 1 and 2 because the
Ending Value is lower than the Starting Value.
* Examples 3 and 4 include an interest payment of 2.85%, payable if the level
of the Index is equal to or above the Starting Value on the Valuation Date.
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PS-5
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What about taxes?
Each year, you will be required to pay taxes on ordinary income from the
Notes over their term based upon an estimated yield for the Notes. We have
determined this estimated yield, in accordance with regulations issued by the
U.S. Treasury Department, solely in order for you to calculate the amount of
taxes that you will owe each year as a result of owning a Note. This estimated
yield is neither a prediction nor a guarantee of what the actual yield on the
Notes will be. We have determined that this estimated yield will equal 5.39%
per annum, compounded semi-annually. For further information, see "United
States Federal Income Taxation" in this pricing supplement.
Will the Notes be listed on a stock exchange?
The Notes will not be listed on any securities exchange and we do not
expect a trading market for the Notes to develop, which may affect the price
that you receive for your Notes upon any sale prior to the maturity date. You
should review the section entitled "Risk Factors--A trading market for the
Notes is not expected to develop and if trading does develop, the market price
you may receive or be quoted for your Notes 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 Notes" in this pricing
supplement.
What price can I expect to receive if I sell the Notes prior to the stated
maturity date?
In determining the economic terms of the Notes, and consequently the
potential return on the Notes to you, a number of factors are taken into
account. Among these factors are certain costs associated with creating,
hedging and offering the Notes. In structuring the economic terms of the
Notes, 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 Notes.
If you sell your Notes prior to the stated maturity date, you will
receive a price determined by market conditions for the Notes. This price may
be influenced by many factors, such as interest rates, volatility of the Index
and the current level of the Index. In addition, the price, if any, at which
you could sell your Notes in a secondary market transaction is expected to be
affected by the factors that we considered in setting the economic terms of
the Notes, namely the underwriting discount paid in respect of the Notes and
other costs associated with the Notes, and compensation for developing and
hedging the product. Depending on the impact of these factors, you may receive
significantly less than the principal amount per unit of your Notes if sold
before the stated maturity date.
In a situation where there had been no change in the level of the Index
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 Notes in a secondary market transaction may be lower
than the principal amount per unit. This is due to, among other things, our
costs of developing, hedging and distributing the Notes. Any potential
purchasers for your Notes 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 Notes. After the initial offering, MLPF&S currently intends to buy and
sell Notes to create a secondary market for holders of the Notes, and may
stabilize or maintain the market price of the Notes during their initial
distribution. However, MLPF&S will not be obligated to engage in any of these
market activities or continue them once it has started.
What is the role of the Merrill Lynch Capital Services, Inc.?
Merrill Lynch Capital Services, Inc. (the "Calculation Agent") will
serve as Calculation Agent for purposes of determining, among other things,
the Starting Value, the Ending Value and whether interest will be payable on
the Notes. Under certain circumstances, these duties could result in a
conflict of interest between Merrill Lynch Capital Services, Inc. as our
subsidiary and its responsibilities as Calculation Agent. Merrill Lynch
Capital Services, Inc. is required to carry out its duties as Calculation
Agent in good faith and using its reasonable judgment.
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.
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PS-6
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For information about ML&Co., see the section entitled "Merrill Lynch &
Co., Inc." in the accompanying general prospectus supplement. You should also
read the other documents we have filed with the SEC, which you can find by
referring to the sections entitled "Where You Can Find More Information" in
the accompanying general prospectus supplement and prospectus.
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PS-7
RISK FACTORS
Your investment in the Notes will involve certain risks. You should
consider carefully the following discussion of risks and the discussion of
risks included in the accompanying MTN prospectus supplement before you decide
that an investment in the Notes is suitable for you.
Your return on the investment may be limited
If the level of the Index is below the Starting Value on the Observation
Date, you will not receive any interest on your Notes on the interest payment
date in June 2007. This will be true even if the level of the Index was equal
to or above the Starting Value at some time over the term of the Notes but not
on the Observation Date. Furthermore, if the level of the Index is below the
Starting Value on the Valuation Date, you will not receive any interest on
your Notes on the maturity date, but you will receive the Supplemental
Redemption Amount. This will be true even if the level of the Index was equal
to or above the Starting Value at some time over the term of the Notes but not
on the Valuation Date. If the Ending Value is below the Starting Value, but
not significantly below, it is possible that you would have benefited from
receiving the final interest payment rather than the Supplemental Redemption
Amount. For instance, an Ending Value which represented a 1% decline in the
Index would result in your receiving a Supplemental Redemption Amount equal to
the 1% of the principal amount of the Notes rather than the final interest
payment.
On the Valuation Date, if the Ending Value is equal to or greater than
the Starting Value, on the maturity date we will pay you only the $10
principal amount per unit plus an interest payment equal to a rate of 2.85% of
such principal amount. This will be true even if the level of the Index was
below the Starting Value at some time over the term of the Notes but increases
to or above the Starting Value as of the Valuation Date.
As a result of the above, if on the Observation Date the level of the
Index is below the Starting Value, and on the Valuation Date the level of the
Index is equal to or greater than the Starting Value, your total return on
your Notes (in additional to the repayment of your principal amount) will
consist of one final interest payment equal to 2.85% of the principal amount
of such Notes.
On the maturity date, you will receive in addition to your principal
amount per unit either a Supplemental Redemption Amount, because the Index
decreased, or an interest payment, because the Index has not decreased, but
not both.
Your yield may be lower than the yield on other debt securities of comparable
maturity
The yield that you receive on your Notes 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.
You must rely on your own evaluation of the merits of an investment linked to
the Index
In the ordinary course of their businesses, affiliates of ML&Co. from
time to time express views on expected movements in foreign currency exchange
rates. These views are sometimes communicated to clients who participate in
the foreign exchange markets. However, these views, depending upon world-wide
economic, political and other developments, may vary over differing
time-horizons and are subject to change. Moreover, other professionals who
deal in foreign currencies may at any time have significantly different views
from those of our affiliates. For reasons such as these, we believe that most
investors in foreign exchange markets derive information concerning those
markets from multiple sources. In connection with your purchase of the Notes,
you should investigate the foreign exchange markets and not rely on views
which may be expressed by our affiliates in the ordinary course of their
businesses with respect to future exchange rate movements.
You should make such investigation as you deem appropriate as to the
merits of an investment linked to the Index. Neither the offering of the Notes
nor any views which may from time to time be expressed by our affiliates in
PS-8
the ordinary course of their businesses with respect to future exchange rate
movements constitutes a recommendation as to the merits of an investment in
the Notes.
The value of the Index Components are affected by many complex factors
The value of any currency, including the Index Components, may be
affected by complex political and economic factors. The exchange rate of each
Index Component is at any moment a result of the supply and demand for that
currency relative to other currencies, and changes in the exchange rate result
over time from the interaction of many factors directly or indirectly
affecting economic and political conditions in the originating country of each
Index Component, including economic and political developments in other
countries. Of particular importance are the relative rates of inflation,
interest rate levels, balance of payments and extent of governmental surpluses
or deficits in those countries, all of which are in turn sensitive to the
monetary, fiscal and trade policies pursued by the governments of those
countries, and other countries important to international trade and finance.
Even though currency trades around-the-clock, your Notes will not
The interbank market in foreign currencies is a global, around-the-clock
market. Therefore, the hours of trading for the Notes will not conform to the
hours during which the Index Components are traded. Significant price and rate
movements may take place in the underlying foreign exchange markets that will
not be reflected immediately in the price of the Notes. The possibility of
these movements should be taken into account in relating the value of the
Notes to those in the underlying foreign exchange markets.
There is no systemic reporting of the last-sale information for foreign
currencies. Reasonably current bid and offer information is available in
certain brokers' offices, in bank foreign currency trading offices and to
others who wish to subscribe for this information, but this information will
not necessarily be reflected in the level of the Index. There is no regulatory
requirement that those quotations be firm or revised on a timely basis. The
absence of last-sale information and the limited availability of quotations to
individual investors may make it difficult for many investors to obtain
timely, accurate data about the state of the underlying foreign exchange
markets.
A trading market for the Notes is not expected to develop and, if trading does
develop, the market price you may receive or be quoted for your Notes 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 Notes
The Notes will not be listed on any securities exchange and we do not
expect a trading market for the Notes to develop. Although our affiliate
MLPF&S has indicated that it currently expects to bid for Notes offered for
sale to it by holders of the Notes, it is not required to do so and may cease
making those bids at any time. The limited trading market for your Notes may
affect the price that you receive for your Notes if you do not wish to hold
your investment until the maturity date.
If MLPF&S makes a market in the Notes, the price it quotes would reflect
any changes in market conditions and other relevant factors. In addition, the
price, if any, at which you could sell your Notes in a secondary market
transaction is expected to be affected by the factors that we considered in
setting the economic terms of the Notes, namely the underwriting discount paid
in respect of the Notes and other costs associated with the Notes, including
compensation for developing and hedging the product. This quoted price could
be higher or lower than the principal amount. Furthermore, there is no
assurance that MLPF&S or any other party will be willing to buy the Notes.
MLPF&S is not obligated to make a market in the Notes.
Assuming there is no change in the level of the Index and no change in
market conditions or any other relevant factors, the price, if any, at which
MLPF&S or another purchaser might be willing to purchase your Notes in a
secondary market transaction is expected to be lower than the principal
amount. This is due to, among other things, the fact that the principal amount
included, and secondary market prices are likely to exclude, underwriting
discount paid with respect to, and the developing and hedging costs associated
with, the Notes.
PS-9
Many factors affect the trading value of the Notes; these factors interrelate
in complex ways and the effect of any one factor may offset or magnify the
effect of another factor
The trading value of the Notes will be affected by factors that
interrelate in complex ways. The effect of one factor may offset the increase
in the trading value of the Notes caused by another factor and the effect of
one factor may exacerbate the decrease in the trading value of the Notes
caused by another factor. The following paragraphs describe the expected
impact on the trading value of the Notes given a change in a specific factor,
assuming all other conditions remain constant.
The level of the Index is expected to affect the trading value of the
Notes. We expect that the trading value of the Notes will depend substantially
on the amount, if any, by which the level of the Index exceeds or does not
exceed the Starting Value. However, if you choose to sell your Notes when the
level of the Index is lower than the Starting Value, you may receive
substantially less than the amount that would be payable on the maturity date
based on this level because of the expectation that the level of the Index
will continue to fluctuate until the Ending Value is determined.
Changes in the levels of interest rates are expected to affect the
trading value of the Notes. We expect that changes in interest rates will
affect the trading of the Notes. In general, if U.S. interest rates increase,
we expect that the trading value of the Notes will decrease and, conversely,
if U.S. interest rates decrease, we expect that the trading value of the Notes
will increase. If interest rates increase or decrease in markets based on any
Index Component, the trading value of the Notes may be adversely affected.
Interest rates may also affect the economies of the countries issuing the
Index Components and, in turn, the respective exchange rates, which may affect
the level of the Index and therefore, the trading value of the Notes.
Changes in the volatility of the Index are expected to affect the
trading value of the Notes. Volatility is the term used to describe the size
and frequency of price and/or market fluctuations. If the volatility of the
Index increases or decreases, the trading value of the Notes may adversely be
affected.
Changes in our credit ratings may affect the trading value of the Notes.
Our credit ratings are an assessment of our ability to pay our obligations.
Consequently, real or anticipated changes in our credit ratings may affect the
trading value of the Notes. However, because the return on your Notes is
dependent upon factors in addition to our ability to pay our obligations under
the Notes, such as the average percentage decrease, if any, in the level of
the Index over the term of the Notes, an improvement in our credit ratings
will not reduce the other investment risks related to the Notes.
In general, assuming all relevant factors are held constant, we expect
that the effect on the trading value of the Notes of a given change in some of
the factors listed above will be less if it occurs later in the term of the
Notes than if it occurs earlier in the term of the Notes.
Amounts payable on the Notes may be limited by state law
New York State law governs the 1983 Indenture under which the Notes 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 Notes.
Under present New York law, the maximum rate of interest is 25% per annum on a
simple interest basis. This limit may not apply to 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 Notes, to the
extent permitted by law, not to voluntarily claim the benefits of any laws
concerning usurious rates of interest.
Potential conflicts of interest could arise
Our subsidiary Merrill Lynch Capital Services, Inc. is our agent for the
purposes of determining, among other things, the Starting Value, the Ending
Value and whether interest will be payable on the Notes. Under
PS-10
certain circumstances, Merrill Lynch Capital Services, Inc. as our subsidiary
and its responsibilities as Calculation Agent for the Notes could give rise to
conflicts of interest. These conflicts could occur, for instance, in
connection with judgments that it would be required to make in the event of a
discontinuance or unavailability of the Index. See the sections entitled
"Description of the Notes--Adjustments to the Index" and "--Discontinuance of
the Index" in this pricing supplement. Merrill Lynch Capital Services, Inc. is
required to carry out its duties as Calculation Agent in good faith and using
its reasonable judgment. However, because we control Merrill Lynch Capital
Services, Inc., potential conflicts of interest could arise.
We expect to enter into arrangements to hedge the market risks
associated with our obligation to pay the amounts due on the Notes. We may
seek competitive terms in entering into the hedging arrangements for the
Notes, 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
You should consider the tax consequences of investing in the Notes. See
"United States Federal Income Taxation" in this pricing supplement.
PS-11
DESCRIPTION OF THE NOTES
ML&Co. will issue the Notes 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 general prospectus supplement. The Notes
will mature on June 17, 2008. Information included in this pricing supplement
supersedes information in the accompanying MTN prospectus supplement, general
prospectus supplement and prospectus to the extent that it is different from
that information. The CUSIP number for the Notes is 59021V375.
The Notes will not be subject to redemption by ML&Co. or at the option
of any holder of the Notes before the maturity date.
ML&Co. will issue the Notes in denominations of whole units each with a
$10 principal amount per unit. You may transfer the Notes 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 Notes
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 Notes. You should refer
to the section entitled "Description of Debt Securities--Depositary" in the
accompanying general prospectus supplement.
The Notes will not have the benefit of any sinking fund.
Payment on the Maturity Date
On the maturity date, you will be entitled to receive the sum of the $10
principal amount per unit plus either a Supplemental Redemption Amount or a
payment of interest. If the Ending Value is less than the Starting Value, you
will receive the $10 principal amount per unit of the Notes plus the
Supplemental Redemption Amount, calculated as described below. If the Ending
Value equals or exceeds the Starting Value, you will receive the $10 principal
amount per unit of the Notes plus an interest payment equal to 2.85% of such
principal amount, as described below under "--Interest."
Determination of the Supplemental Redemption Amount
The "Supplemental Redemption Amount" per unit will be determined by the
Calculation Agent and will equal:
( Starting Value - Ending Value)
$10 X (------------------------------)
( Starting Value )
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Starting Value" equals 85.15, the level of the U.S. Dollar Index
(the "Index") at approximately 10 a.m. EST on the date the Notes were priced
for initial sale to the public (the "Pricing Date") , as determined by the
Calculation Agent.
The "Ending Value" will be determined by the Calculation Agent and will
equal the level of the Index at approximately 10 a.m. EST on the Valuation
Date, as determined by the Calculation Agent.
The "Valuation Date" will be the seventh scheduled Index Business Day
(as defined below) prior to the maturity date of the Notes or, if such day is
not an Index Business Day, the next succeeding Index Business Day; provided,
however, that if an Index Business Day does not occur by the third succeeding
scheduled Index Business Day, the Calculation Agent will determine the Ending
Value on that date in a manner that, in its judgment, is reasonable under the
circumstances.
An "Index Business Day" means a day on which the New York Stock Exchange
(the "NYSE"), the American Stock Exchange (the "AMEX") and The Nasdaq Stock
Market (the "Nasdaq") are open for trading and the Index or any successor
index is calculated and published (as of approximately 10 a.m. EST).
PS-12
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 Notes.
Interest
If the level of the Index is equal to or above the Starting Value on
June 8, 2007, the first anniversary of the issuance of the Notes (the
"Observation Date"), you will receive an interest payment on June 19, 2007,
the seventh Index Business Day after the scheduled Observation Date; provided,
however, that if such anniversary day is not an Index Business Day, then the
Observation Date will be the next succeeding Index Business Day; and provided
further, however that if an Index Business Day has not occurred by the third
succeeding scheduled Index Business Day, then such date will be the
Observation Date and the Calculation Agent will determine the level of the
Index on that date in a manner that, in its judgment, is reasonable under the
circumstances. In addition, if the level of the U.S. Dollar Index is equal to
or above the Starting Value on the Valuation Date, you will receive an
interest payment on the maturity date of the Notes. If interest is payable in
either 2007 or 2008, as described above, you will receive an interest payment
on each $10 principal amount of Notes held by you equal to 2.85% of such
principal amount. As described above, you may receive no payment in 2007. In
2008, you will receive (in addition to the repayment of the principal amount
of your Notes) either the above-described interest payment or the Supplemental
Redemption Amount, but not both.
If on the Observation Date the level of the Index is below the Starting
Value, you will not receive an interest payment on the interest payment date
in June 2007.
We will pay interest on each interest payment date to the persons in
whose names the Notes are registered at the close of business on the scheduled
Observation Date or Valuation Date preceding the relevant interest payment
date, whether or not it is a Business Day. 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.
A "Business Day" means any day other than a Saturday or Sunday that is
neither a legal holiday nor a day on which banking institutions in the City of
New York are authorizes or required by law, regulation or executive order to
close and those banks are open for dealing in a foreign exchange and foreign
currency deposits.
PS-13
Hypothetical returns
The following table illustrates, for the Starting Value of 85.15 (the
level of the Index at approximately 10 a.m. EST on the Pricing Date), an
interest rate of 2.85% and a range of hypothetical Ending Values of the Index:
o the percentage change from the Starting Value to the hypothetical
Ending Value;
o the total amount payable on the maturity date for each unit of
Notes;
o the total rate of return to holders of the Notes;
o the pretax annualized rate of return to holders of the Notes; and
o the pretax annualized rate of return of an investment in the
currencies included as Index Components.
The rates of return on the Notes included in the table do not reflect
interest that may be payable following the Observation Date that will occur in
2007.
Pretax
Percentage ` Total Pretax annualized
change from the Total amount rate annualized rate of return
Hypothetical Starting Value to payable on the of return rate of of the U.S. dollar
Ending the hypothetical maturity date per on the return on versus the Index
Value Ending Value unit Notes the Notes(1) Components
- -------------------------------------------------------------------------------------------------------------
59.61 -30.00% 13.000 30.00% 13.37% -16.84%
68.12 -20.00% 12.000 20.00% 9.20% -10.71%
76.64 -10.00% 11.000 10.00% 4.76% -5.13%
80.89 -5.00% 10.500 5.00% 2.42% -2.51%
83.02 -2.50% 10.250 2.50% 1.22% -1.24%
83.45 -2.00% 10.200 2.00% 0.98% -0.99%
84.30 -1.00% 10.100 1.00% 0.49% -0.50%
85.15(3) 0.00% 10.285(4) 2.85% 1.39% 0.00%
87.28 2.50% 10.285 2.85% 1.39% 1.22%
89.41 5.00% 10.285 2.85% 1.39% 2.42%
93.67 10.00% 10.285 2.85% 1.39% 4.76%
102.18 20.00% 10.285 2.85% 1.39% 9.20%
110.70 30.00% 10.285 2.85% 1.39% 13.37%
- ---------
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis and assume an
investment term from June 8, 2006 to June 17, 2008, a term expected to
be equal to that of the Notes.
(2) This rate of return assumes:
(a) a percentage change in the aggregate price of the U.S. dollar
versus the Index Components that equals the percentage change in
the Index from the Starting Value to the relevant hypothetical
Ending Value; and
(b) no transaction fees or expenses.
(3) This is the Starting Value.
(4) The total amount you receive on the maturity date will not be less than
$10.285 per unit if the Ending Value is equal to or greater than the
Starting Value.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by you, if any, and the resulting
total and pretax annualized rate of return will depend on the Ending Value and
whether or not interest becomes payable on your Notes.
PS-14
Adjustments to the Index
If at any time NYBOT makes a material change in the formula for or the
method of calculating the Index or in any other way materially modifies the
Index so that the Index does not, in the opinion of the Calculation Agent,
fairly represent the level of the Index had those changes or modifications not
been made, then, from and after that time, the Calculation Agent will, at the
close of business in New York, New York, on each date that the level of the
Index is to be calculated, make any adjustments as, in the good faith judgment
of the Calculation Agent, may be necessary in order to arrive at a calculation
of a level of an index comparable to the Index as if those changes or
modifications had not been made, and calculate the level with reference to the
Index, as so adjusted.
Discontinuance of the Index
If NYBOT discontinues publication of the Index and NYBOT or another
entity publishes a successor or substitute index that the Calculation Agent
determines, in its sole discretion, to be comparable to the Index (a
"successor index"), then, upon the Calculation Agent's notification of that
determination to the trustee and ML&Co., the Calculation Agent will substitute
the successor index as calculated by NYBOT or any other entity for the Index
and calculate the value of the Index as described above under "--Payment on
the Maturity Date" and "--Interest". Upon any selection by the Calculation
Agent of a successor index, ML&Co. will cause notice to be given to holders of
the Notes.
In the event that NYBOT discontinues publication of the Index and:
o the Calculation Agent does not select a successor index; or
o the successor index is not published on the Observation Date or
the Valuation Date,
the Calculation Agent will compute a substitute level for the Index in
accordance with the procedures last used to calculate the Index before any
discontinuance. If a successor index is selected or the Calculation Agent
calculates a level as a substitute for the Index as described below, the
successor index or level will be used as a substitute for the Index for all
purposes. If the Calculation Agent calculates a level as a substitute for the
Index, the Index level will be computed by the Calculation Agent using the
foreign exchange rates for each currency most recently included in the Index
based on the values displayed on Bloomberg page FXC at approximately 10:00
a.m. EST, on the relevant date. If this page is not available, then each
exchange rate will be the rate the Calculation Agent, in its sole discretion,
determines to be fair and reasonable under the circumstances at approximately
10:00 a.m. EST, on the relevant date.
If NYBOT discontinues publication of the Index and the Calculation Agent
determines that no successor index is available at that time, then on each
Business Day until the earlier to occur of:
o the determination of the Ending Value; and
o a determination by the Calculation Agent that a successor index is
available,
the Calculation Agent will determine the value that would be used in computing
the Supplemental Redemption Amount as described in the preceding paragraph as
if that day were the Observation Date or the Valuation Date. The Calculation
Agent will cause notice of each value to be published not less often than once
each month in The Wall Street Journal or another newspaper of general
circulation and arrange for information with respect to these values to be
made available by telephone.
Notwithstanding these alternative arrangements, discontinuance of the
publication of the Index may adversely affect trading in the Notes.
PS-15
Events of Default and Acceleration
In case an Event of Default with respect to any Notes has occurred and
is continuing, the amount payable to a holder of a Note upon any acceleration
permitted by the Notes, with respect to each $10 original public offering
price per unit, will be equal to the $10 original public offering price plus
an amount calculated as though the date of acceleration were the Valuation
Date. If the level of the Ending Value calculated as of the date of
acceleration would be less than the Starting Value, the amount so payable
would equal the Supplemental Redemption Amount calculated as described above.
If the level of the Ending Value calculated as of the date of acceleration
would be equal to or greater than the Starting Value, the amount so payable
would equal an interest payment calculated using the interest rate applicable
to the Notes calculated using the actual of days from and including the issue
date of the Notes or, if later, the 2007 interest payment date, to but
excluding the date of acceleration.
In case of default in payment of the Notes, whether on the stated
maturity date or upon acceleration, from and after that date the Notes will
bear interest, payable upon demand of their holders, at the then current
Federal Funds Rate, reset daily, determined as described in the accompanying
MTN prospectus supplement, to the extent that payment of such interest shall
be legally enforceable, on the unpaid amount due and payable on that date in
accordance with the terms of the Notes to the date payment of that amount has
been made or duly provided for.
PS-16
THE INDEX
All disclosures contained in this pricing supplement regarding the
Index, including its make-up, method of calculation and changes in its
components, are derived from publicly available information prepared by NYBOT.
ML&Co. and MLPF&S have not independently verified the accuracy or completeness
of that information.
The Index measures the exchange rates between the U.S. dollar and six
major world currencies to provide a general indication of the international
value of the U.S. dollar. As of the date of this pricing supplement, the 17
countries (the 12 countries of the Eurozone, Japan, the United Kingdom,
Canada, Sweden and Switzerland) whose currencies are used to calculate the
level of the Index are the markets for the bulk of the United States'
international trade and have well-developed foreign exchange markets with
exchange rates freely determined by the market participants.
The Index measures the change in the following six currency exchange
rates, weighted as indicated, against the U.S. dollar relative to a base
period of March 1973 and a base value of 100.00:
---------------------------------------------------------------
Currency Iso Code Weighting
-------- -------- ---------
Canadian Dollar CAD 9.1%
Swiss Franc CHF 3.6%
European Union Euro EUR 57.6%
British Pound GBP 11.9%
Japanese Yen JPY 13.6%
Swedish Krona SEK 4.2%
---------------------------------------------------------------
Currencies and weights used in the calculation of the Index are based on
those used in the original Federal Reserve Board's trade-weighted U.S. Dollar
Index. The spot Index value is disseminated by NYBOT to all leading market
data services. Since the Index is based only on indications of foreign
exchange rate values, it may occasionally differ from a value calculated using
other data sources.
The level of the Index reflects the average value of the U.S. dollar
relative to the 1973 base period. For example, an Index level of 105.50 means
that the U.S. dollar's value has risen 5.50% against the other currencies in
the Index relative to the value of the U.S. dollar against those currencies,
or their predecessor currencies in the Index, in March 1973. March 1973 was
chosen as the base period because the world's major trading nations replaced
the previous fixed-rate Bretton Woods regime and allowed their currencies to
float freely against each other in March 1973.
PS-17
Historical data on the Index
The following graph sets forth the levels of the Index, as published by
Bloomberg, shortly after 4:00 p.m. EST on the last Business Day of each year
from 1986 through 2005. The historical performance of the Index should not be
taken as an indication of future performance, and no assurance can be given
that the level of the Index will not increase and thereby reduce the
Supplemental Redemption Amount, if any, which may be payable to you at
maturity.
[GRAPHIC OMITTED - Graph shows year end values of the U.S. Dollar Index of:
December 31, 1986.......103.59
December 31, 1987........85.40
December 30, 1988........92.53
December 29, 1989........93.16
December 31, 1990........83.12
December 31, 1991........83.53
December 31, 1992........92.36
December 31, 1993........96.84
December 30, 1994........88.72
December 29, 1995........84.76
December 31, 1996........88.12
December 31, 1997........99.65
December 31, 1998........94.17
December 31, 1999.......101.87
December 29, 2000.......109.56
December 31, 2001.......116.75
December 31, 2002.......101.85
December 31, 2003........86.92
December 31, 2004........80.85
December 30, 2005.......91.17]
The following table sets forth the level of the Index, as published by
Bloomberg, shortly after 4:00 p.m. on the last Business Day of each month for
the period from January 2001 through May 2006. This historical data on the
Index is not necessarily indicative of the future performance of the Index or
what the value of the Notes may be. Any historical upward or downward trend in
the level of the Index during any period set forth below is not an indication
that the Index is more or less likely to increase or decrease at any time
during the term of the Notes.
2001 2002 2003 2004 2005 2006
------ ------ ------- ------ ------- --------
January..................... 110.52 120.21 99.91 87.20 83.57 88.96
February.................... 112.01 119.16 99.71 87.31 82.51 90.11
March....................... 117.37 118.62 98.88 87.61 84.06 89.73
April....................... 115.76 115.19 97.19 90.48 84.43 86.11
May......................... 119.07 111.81 93.29 88.90 87.76 84.72
June........................ 119.47 106.11 94.73 88.80 89.09
July........................ 117.18 107.41 96.89 89.96 89.35
August...................... 113.42 106.98 98.10 88.94 87.58
September................... 113.41 106.87 92.85 87.37 89.52
October..................... 114.86 106.64 92.73 84.91 90.07
November.................... 116.13 106.38 90.23 81.82 91.57
December.................... 116.75 101.85 86.92 80.85 91.17
PS-18
The following graph sets forth the historical performance of the Index
presented in the preceding table. Past movements of the Index are not
necessarily indicative of the future performance of the Index.
[GRAPHIC OMITTED]
License Agreement
NYBOT and MLPF&S have entered into a non-exclusive license agreement
providing for the license to MLPF&S, in exchange for a fee, of the right to
use the U.S. Dollar Index, which is owned and published by the NYBOT, in
connection with certain securities, including the Notes. ML&Co. is an
authorized sublicensee.
The license agreement between NYBOT and MLPF&S provides that the
following language must be set forth in this pricing supplement:
NEITHER THE PUBLICATION OF THE USDX NOR THE LICENSING OF THE USDX TRADEMARKS
BY NYBOT OR ITS AFFILIATES FOR USE IN CONNECTION WITH SECURITIES OR OTHER
FINANCIAL PRODUCTS DERIVED FROM SUCH INDEX IN ANY WAY SUGGESTS OR IMPLIES A
REPRESENTATION OR OPINION BY NYBOT OR ANY SUCH AFFILIATES AS TO THE
ATTRACTIVENESS OF INVESTMENT IN ANY SECURITIES OR OTHER FINANCIAL PRODUCTS
BASED UPON OR DERIVED FROM SUCH INDEX. NYBOT IS NOT THE ISSUER OF ANY SUCH
SECURITIES OR OTHER FINANCIAL PRODUCTS AND MAKES NO EXPRESS OR IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH
RESPECT TO SUCH INDEX OR ANY DATA INCLUDED OR REFLECTED THEREIN, NOR AS TO
RESULTS TO BE OBTAINED BY ANY PERSON OR ANY ENTITY FROM THE USE OF THE INDEX
OR ANY DATA INCLUDED OR REFLECTED THEREIN.
PS-19
UNITED STATES FEDERAL INCOME TAXATION
Set forth in full below is the opinion of Sidley Austin LLP, tax counsel
to ML&Co., as to certain United States federal income tax consequences of the
purchase, ownership and disposition of the Notes. This opinion is based upon
laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including retroactive changes in effective dates) or
possible differing interpretations. The discussion below supplements the
discussion set forth under the section entitled "United States Federal Income
Taxation" that is contained in the accompanying MTN prospectus supplement and
supersedes that discussion to the extent that it contains information that is
inconsistent with that which is contained in the accompanying MTN prospectus
supplement. The discussion below deals only with Notes held as capital assets
and does not purport to deal with persons in special tax situations, such as
financial institutions, insurance companies, regulated investment companies,
real estate investment trusts, dealers in securities or currencies, traders in
securities that elect to mark to market, tax-exempt entities or persons
holding Notes in a tax-deferred or tax-advantaged account (except to the
extent specifically discussed below), persons whose functional currency is not
the United States dollar, persons subject to the alternative minimum tax or
persons holding Notes 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. It also does not deal with holders other than original
purchasers (except where otherwise specifically noted in this pricing
supplement). The following discussion also assumes that the issue price of the
Notes, as determined for United States federal income tax purposes, equals the
principal amount thereof. If a partnership holds the Notes, 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 Notes should consult their own tax advisors.
Moreover, all persons considering the purchase of the Notes should consult
their own tax advisors concerning the application of the United States federal
income tax laws to their particular situations as well as any consequences of
the purchase, ownership and disposition of the Notes arising under the laws of
any other taxing jurisdiction.
As used in this pricing supplement, the term "U.S. Holder" means a
beneficial owner of a Note that is for United States federal income tax
purposes (a) a citizen or resident of the United States, (b) a corporation,
partnership or other entity treated as a corporation or a partnership that is
created or organized in or under the laws of the United States, any state
thereof or the District of Columbia (other than a partnership that is not
treated as a United States person under any applicable Treasury regulations),
(c) an estate the income of which is subject to United States federal income
taxation regardless of its source, (d) a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust or (e) any other person whose income or
gain in respect of a Note is effectively connected with the conduct of a
United States trade or business. Notwithstanding clause (d) of the preceding
sentence, to the extent provided in Treasury regulations, certain trusts in
existence on August 20, 1996, and treated as United States persons prior to
that date that elect to continue to be treated as United States persons also
will be U.S. Holders. As used herein, the term "non-U.S. Holder" means a
beneficial owner of a Note that is not a U.S. Holder.
General
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization, for United
States federal income tax purposes, of the Notes or securities with terms
substantially the same as the Notes. However, although the matter is not free
from doubt, under current law, each Note should be treated as a debt
instrument of ML&Co. for United States federal income tax purposes. ML&Co.
currently intends to treat each Note as a debt instrument of ML&Co. for United
States federal income tax purposes and, where required, intends to file
information returns with the Internal Revenue Service (the "IRS") in
accordance with this treatment, in the absence of any change or clarification
in the law, by regulation or otherwise, requiring a different characterization
of the Notes. Prospective investors in the Notes should be aware, however,
that the IRS is not bound by ML&Co.'s characterization of the Notes as
indebtedness, and the IRS could possibly take a different position as to the
proper characterization of the Notes for United States federal income tax
purposes. The following discussion of the principal United States federal
income tax consequences of the purchase, ownership and disposition of the
Notes is based upon the assumption that each Note will be treated as a debt
instrument of ML&Co. for United States federal income tax purposes. If the
Notes are not in fact treated as debt instruments of ML&Co. for United States
federal income tax purposes, then the United States federal income tax
treatment of the purchase, ownership and disposition of the Notes could
significantly differ from the treatment discussed below with the result
PS-20
that the timing and character of income, gain or loss recognized in respect of
a Note could significantly differ from the timing and character of income,
gain or loss recognized in respect of a Note had the Notes in fact been
treated as debt instruments of ML&Co. for United States federal income tax
purposes.
U.S. Holders
On August 30, 2004, the Treasury Department issued final regulations
(the "Foreign Currency Regulations") under section 988 of the Internal Revenue
Code of 1986, as amended (the "Code"), addressing the United States federal
income tax treatment of debt instruments having terms similar to the Notes.
The Foreign Currency Regulations apply to debt instruments issued on or after
October 29, 2004, and accordingly, will apply to the Notes. In general, under
the Foreign Currency Regulations, since the yearly interest payments, if any,
will be determined by reference to the level of the Index and since the amount
payable on the maturity date with respect to a Note in excess of the principal
amount of the Note, if any, will be determined by reference to the level of
the Index while repayment of the principal amount of each Note will not be
affected by changes in the level of the Index, the Notes will be taxed
pursuant to the rules contained in certain final Treasury regulations (the
"CPDI Regulations") addressing the proper United States federal income tax
treatment of contingent payment debt instruments. The CPDI Regulations
generally require a U.S. Holder of this type of an instrument to include
future contingent and noncontingent interest payments in income as that
interest accrues based upon a projected payment schedule. Moreover, in
general, under the CPDI Regulations, any gain recognized by a U.S. Holder on
the sale, exchange, or retirement of a contingent payment debt instrument is
treated as ordinary income, and all or a portion of any loss realized could be
treated as ordinary loss as opposed to capital loss (depending upon the
circumstances).
The CPDI Regulations provide that a U.S. Holder must accrue an amount of
ordinary interest income, as original issue discount for United States federal
income tax purposes, for each accrual period prior to and including the
maturity date of the Notes that equals:
(1) the product of (i) the adjusted issue price (as defined below) of
the Notes as of the beginning of the accrual period; and (ii) the
comparable yield to maturity (as defined below) of the Notes,
adjusted for the length of the accrual period;
(2) divided by the number of days in the accrual period; and
(3) multiplied by the number of days during the accrual period that
the U.S. Holder held the Notes.
A Note's issue price is the first price to the public at which a
substantial amount of the Notes are sold, excluding sales to bond houses,
brokers or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers. The adjusted issue price of a
Note is its issue price increased by any interest income previously accrued,
determined without regard to any adjustments to interest accruals described
below, and decreased by the amount of any projected payments, as defined
below, previously made with respect to the Note.
The CPDI Regulations require that we provide to U.S. Holders, solely for
United States federal income tax purposes, a schedule of the projected amounts
of payments, which we refer to as projected payments, on the Notes. This
schedule must produce the comparable yield. Solely for purposes of applying
the CPDI Regulations to the Notes, ML&Co. has determined that the projected
payments for the Notes will consist of an estimate of a yearly interest
payment on June 19, 2007 equal to .2945 and a projected cash payment on the
maturity date (i.e., the principal amount of the Notes plus a projected
Supplemental Redemption Amount) of an amount equal to $11.1233. This
represents a comparable yield for the Notes, as determined by ML&Co., equal to
5.39% per annum, compounded semi-annually. The comparable yield is not an
estimate of what the actual yield will be on the Notes. U.S. Holders may also
obtain the projected payment schedule by submitting a written request for such
information to Merrill Lynch & Co., Inc., Corporate Secretary's Office, 222
Broadway, 17th Floor, New York, New York 10038 or to
corporatesecretary@exchange.ml.com.
For United States federal income tax purposes, a U.S. Holder must use
the comparable yield and the schedule of projected payments in determining its
interest accruals, and the adjustments thereto described below, in respect of
the Notes, unless the U.S. Holder timely discloses and justifies the use of
other estimates to the IRS. A
PS-21
U.S. Holder that determines its own comparable yield or schedule of projected
payments must also establish that our comparable yield or schedule of
projected payments is unreasonable.
The comparable yield and the schedule of projected payments are not
determined for any purpose other than for the determination of a U.S. Holder's
interest accruals and adjustments thereof in respect of the Notes for United
States federal income tax purposes and do not constitute a projection or
representation regarding the actual amounts payable on the Notes.
Amounts treated as interest under the CPDI Regulations are treated as
original issue discount for all purposes of the Code.
Adjustments to Interest Accruals on the Notes
If, during any taxable year, a U.S. Holder receives actual payments with
respect to the Notes for that taxable year that in the aggregate exceed the
total amount of projected payments for that taxable year, the U.S. Holder will
incur a "net positive adjustment" under the CPDI Regulations equal to the
amount of that excess. The U.S. Holder will treat a "net positive adjustment"
as additional interest income for the taxable year.
If a U.S. Holder receives in a taxable year actual payments with respect
to the Notes for that taxable year that in the aggregate were less than the
amount of projected payments for that taxable year, the U.S. Holder will incur
a "net negative adjustment" under the CPDI Regulations equal to the amount of
such deficit. This adjustment will (a) reduce the U.S. Holder's interest
income on the Notes for that taxable year, and (b) to the extent of any excess
after the application of (a), give rise to an ordinary loss to the extent of
the U.S. Holder's interest income on the Notes during prior taxable years,
reduced to the extent that interest was offset by prior net negative
adjustments.
Sale, Exchange or Retirement of the Notes
Generally, the sale, exchange or retirement of a Note will result in
taxable gain or loss to a U.S. Holder. The amount of gain or loss on a taxable
sale, exchange or retirement will be equal to the difference between (a) the
amount realized by the U.S. Holder on that sale, exchange or retirement and
(b) the U.S. Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted
tax basis in a Note on any date will generally be equal to the U.S. Holder's
original purchase price for the Note, increased by any interest income
previously accrued by the U.S. Holder (determined without regard to any
adjustments to interest accruals described above), and decreased by the amount
of any projected payments, as defined above, previously made to the U.S.
Holder through that date. Gain recognized upon a sale, exchange or retirement
of a Note will generally be treated as ordinary interest income; any loss will
be ordinary loss to the extent of interest previously included in income, and
thereafter, capital loss (which will be long-term if the Note is held for more
than one year). The deductibility of net capital losses by individuals and
corporations is subject to limitations.
Unrelated Business Taxable Income
Section 511 of the Internal Revenue Code of 1986, as amended (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. In general, if the Notes are held for
investment purposes, the amount of income or gain realized with respect to the
Notes will not constitute unrelated business taxable income. However, if a
Note constitutes debt-financed property (as defined in Section 514(b) of the
Code) by reason of indebtedness incurred by a holder of a Note to purchase the
Note, all or a portion of any income or gain realized with respect to such
Note may be classified as unrelated business taxable income pursuant to
Section 514 of the Code. Moreover, prospective investors in the Notes should
be aware that whether or not any income or gain realized with respect to a
Note 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 Notes 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 Notes.
PS-22
Non-U.S. Holders
A non-U.S. Holder will not be subject to United States federal income
taxes on payments of principal, premium (if any) or interest (including
original issue discount) on a Note, unless the non-U.S. Holder is a direct or
indirect 10% or greater shareholder of ML&Co., a controlled foreign
corporation related to ML&Co. or a bank receiving interest described in
Section 881(c)(3)(A) of the Code. However, income allocable to non-U.S.
Holders will generally be subject to annual tax reporting on IRS Form 1042-S.
For a non-U.S. Holder to qualify for the exemption from taxation, any person,
U.S. or foreign, that has control, receipt or custody of an amount subject to
withholding, or who can disburse or make payments of an amount subject to
withholding (the "Withholding Agent") must have received a statement that (a)
is signed by the beneficial owner of the Note under penalties of perjury, (b)
certifies that the owner is a non-U.S. Holder and (c) provides the name and
address of the beneficial owner. The statement may generally be made on IRS
Form W-8BEN (or other applicable form) or a substantially similar form, and
the beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of that change by filing a new IRS
Form W-8BEN (or other applicable form). Generally, an IRS Form W-8BEN provided
without a U.S. taxpayer identification number will remain in effect for a
period starting on the date the form is signed and ending on the last day of
the third succeeding calendar year, unless a change in circumstances makes any
information on the form incorrect. If a Note is held through a securities
clearing organization or certain other financial institutions, the
organization or institution may provide a signed statement to the Withholding
Agent. Under certain circumstances, the signed statement must be accompanied
by a copy of the applicable IRS Form W-8BEN (or other applicable form) or the
substitute form provided by the beneficial owner to the organization or
institution.
Under current law, a Note will not be includible in the estate of a
non-U.S. Holder unless the individual is a direct or indirect 10% or greater
shareholder of ML&Co. or, at the time of the individual's death, payments in
respect of that Note would have been effectively connected with the conduct by
the individual of a trade or business in the United States.
Backup withholding
Backup withholding at the applicable statutory rate of United States
federal income tax may apply to payments made in respect of the Notes to
registered owners who are not "exempt recipients" and who fail to provide
certain identifying information (such as the registered owner's taxpayer
identification number) in the required manner. Generally, individuals are not
exempt recipients, whereas corporations and certain other entities generally
are exempt recipients. Payments made in respect of the Notes to a U.S. Holder
must be reported to the IRS, unless the U.S. Holder is an exempt recipient or
establishes an exemption. Compliance with the identification procedures
described in the preceding section would establish an exemption from backup
withholding for those non-U.S. Holders who are not exempt recipients.
In addition, upon the sale of a Note to (or through) a broker, the
broker must withhold on the entire purchase price, unless either (a) the
broker determines that the seller is a corporation or other exempt recipient
or (b) the seller provides, in the required manner, certain identifying
information (e.g., an IRS Form W-9) and, in the case of a non-U.S. Holder,
certifies that the seller is a non-U.S. Holder (and certain other conditions
are met). This type of sale must also be reported by the broker to the IRS,
unless either (a) the broker determines that the seller is an exempt recipient
or (b) the seller certifies its non-U.S. status (and certain other conditions
are met). Certification of the registered owner's non-U.S. status would be
made normally on an IRS Form W-8BEN (or other applicable form) under penalties
of perjury, although in certain cases it may be possible to submit other
documentary evidence.
Any amounts withheld under the backup withholding rules from a payment
to a beneficial owner would be allowed as a refund or a credit against the
beneficial owner's United States federal income tax provided the required
information is furnished to the IRS.
PS-23
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 Notes. Accordingly, among other factors, the fiduciary
should consider whether the investment would satisfy the prudence and
diversification requirements of ERISA and would be consistent with the
documents and instruments governing the plan, and whether the investment would
involve a prohibited transaction under Section 406 of ERISA or Section 4975 of
the 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 Notes by a plan with respect to which we, MLPF&S
or certain of our affiliates is or becomes a party in interest may constitute
or result in a prohibited transaction under ERISA or Section 4975 of the Code,
unless those Notes are acquired pursuant to and in accordance with an
applicable exemption. The U.S. Department of Labor has issued five prohibited
transaction class exemptions, or "PTCEs", that may provide exemptive relief if
required for direct or indirect prohibited transactions that may arise from
the purchase or holding of the Notes. These exemptions are:
(1) PTCE 84-14, an exemption for certain transactions determined or
effected 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; and
(5) PTCE 96-23, an exemption for plan asset transactions managed by
in-house asset managers.
The Notes may not be purchased or held by (1) any plan, (2) any entity
whose underlying assets include "plan assets" by reason of any plan's
investment in the entity (a "plan asset entity") or (3) any person investing
"plan assets" of any plan, unless in each case the purchaser or holder is
eligible for the exemptive relief available under one or more of the PTCEs
listed above or another applicable similar exemption. Any purchaser or holder
of the Notes or any interest in the Notes will be deemed to have represented
by its purchase and holding of the Notes that it either (1) is not a plan or a
plan asset entity and is not purchasing those Notes on behalf of or with "plan
assets" of any plan or plan asset entity or (2) with respect to the purchase
or holding, is eligible for the exemptive relief available under any of the
PTCEs listed above or another applicable exemption. In addition, any purchaser
or holder of the Notes or any interest in the Notes which is a non-ERISA
arrangement will be deemed to have represented by its purchase and holding of
the Notes that its purchase and holding will not violate the provisions of any
similar law.
PS-24
Due to the complexity of these rules and the penalties that may be
imposed upon persons involved in non-exempt prohibited transactions, it is
important that fiduciaries or other persons considering purchasing the Notes
on behalf of or with "plan assets" of any plan, plan asset entity or non-ERISA
arrangement consult with their counsel regarding the availability of exemptive
relief under any of the PTCEs listed above or any other applicable exemption,
or the potential consequences of any purchase or holding under similar laws,
as applicable.
USE OF PROCEEDS AND HEDGING
The net proceeds from the sale of the Notes will be used as described
under "Use of Proceeds" in the accompanying general prospectus supplement and
to hedge market risks of ML&Co. associated with its obligations in connection
with the Notes.
SUPPLEMENTAL PLAN OF DISTRIBUTION
MLPF&S has advised ML&Co. that it proposes initially to offer all or
part of the Notes directly to the public on a fixed price basis at the
offering price set forth on the cover of this pricing supplement. After the
initial public offering, the public offering price 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 Notes 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.
With respect to the unaudited interim condensed consolidated financial
information for the periods ended March 31, 2006 and April 1, 2005, which is
incorporated herein by reference, Deloitte & Touche LLP, an independent
registered public accounting firm, have applied limited procedures in
accordance with the standards of the Public Company Accounting Oversight Board
(United States) for a review of such information. However, as stated in their
report dated May 5, 2006 included in Merrill Lynch & Co., Inc.'s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2006 and incorporated by
reference herein, they did not audit and they do not express an opinion on
that unaudited interim condensed consolidated financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
Deloitte & Touche LLP are not subject to the liability provisions of Section
11 of the Securities Act of 1933 for their report on the unaudited interim
condensed consolidated financial information because that report is not a
"report" or a "part" of the registration statement prepared or certified by an
accountant within the meaning of Sections 7 and 11 of the Act.
PS-25
INDEX OF CERTAIN DEFINED TERMS
Business Day.............................................................PS-13
Calculation Agent.........................................................PS-6
Ending Value..............................................................PS-4
Index.....................................................................PS-3
Index Business Day .......................................................PS-4
Index Components..........................................................PS-3
Notes.....................................................................PS-1
Observation Date..........................................................PS-4
Pricing Date..............................................................PS-3
Starting Value............................................................PS-4
successor index..........................................................PS-15
Supplemental Redemption Amount............................................PS-4
Valuation Date............................................................PS-4
PS-26
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[OBJECT OMITTED]]
11,000,000 Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
100% Minimum Return Protected Bear USDX(R) Notes
due June 17, 2008
$10 principal amount per unit
-----------------------
PRICING SUPPLEMENT
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Merrill Lynch & Co.
June 1, 2006
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