PRICING SUPPLEMENT
- ------------------
(To prospectus supplement and prospectus dated February 25, 2005) Pricing
Supplement Number:
[LOGO OMITTED]
528,800 Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
95% Principal Protected Crude Oil Notes
due February 7, 2011
(the "Notes")
$10 principal amount per unit
The Notes: Payment on the maturity date:
o The Notes are designed for investors who are willing to forego o The amount you receive on the maturity date per unit
interest payments on the Notes in exchange for the ability to will be based upon the direction of and percentage
participate in possible increases in the price of the then change in the price of the front-month light, sweet
current front-month light, sweet crude oil futures contract crude oil futures contract over the term of the Notes.
traded on the New York Mercantile Exchange ("NYMEX"). Investors If this price:
must also be willing to risk losing up to $.50 per unit of
their investment if the price of the front-month light, sweet o has increased, you will receive a payment per unit
crude oil futures contract decreases or does not increase equal to $9.50 plus a supplemental redemption amount
sufficiently over the term of the Notes. equal to 142.4239% of the percentage increase
multiplied by $10; or
o 95% principal protection on the maturity date.
o has decreased or has not increased sufficiently,
o There will be no payments prior to the maturity date and we you will receive less than the $10 original
cannot redeem the Notes prior to the maturity date. offering price per unit, which results in a loss
of some of your investment; in no event, however,
o The Notes will not be listed on any securities exchange. will you receive less than $9.50 per unit.
o The Notes will be senior unsecured debt securities of Merrill o The price of the front-month light, sweet crude
Lynch & Co., Inc. and part of a series entitled "Medium-Term oil futures contract must increase by approximately
Notes, Series C" and will have the CUSIP No. 59021V623. 3.51% in order for you to receive at least the
$10 original public offering price per unit.
o The settlement date is expected to be February 6, 2006.
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 Notes involves risks that are described in the "Risk
Factors" section beginning on page PS-7 of this pricing supplement and the
accompanying prospectus supplement.
-----------------------
Per Unit Total
-------- -----
Public offering price (1)........................................................ $10.00 $5,288,000
Underwriting discount (1)........................................................ $.25 $132,200
Proceeds, before expenses, to Merrill Lynch & Co., Inc........................... $9.75 $5,155,800
(1) The public offering price and the underwriting discount for any single transaction to purchase between 100,000 to
299,999 units will be $9.95 per unit and $.20 per unit, respectively, for any single transaction to purchase between
300,000 to 499,999 units will be $9.90 per unit and $.15 per unit, respectively, and for any single transaction to
purchase 500,000 units or more will be $9.85 per unit and $.10 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 February 1, 2006.
TABLE OF CONTENTS
Pricing Supplement
SUMMARY INFORMATION--Q&A...................................................PS-3
RISK FACTORS...............................................................PS-7
DESCRIPTION OF THE NOTES..................................................PS-11
THE FUTURES MARKETS.......................................................PS-14
THE CRUDE OIL CONTRACT....................................................PS-14
UNITED STATES FEDERAL INCOME TAXATION.....................................PS-17
ERISA CONSIDERATIONS......................................................PS-21
USE OF PROCEEDS AND HEDGING...............................................PS-22
SUPPLEMENTAL PLAN OF DISTRIBUTION.........................................PS-22
EXPERTS...................................................................PS-22
INDEX OF CERTAIN DEFINED TERMS............................................PS-23
Prospectus Supplement
RISK FACTORS................................................................S-3
DESCRIPTION OF THE NOTES....................................................S-4
UNITED STATES FEDERAL INCOME TAXATION......................................S-21
PLAN OF DISTRIBUTION.......................................................S-28
VALIDITY OF THE NOTES......................................................S-29
Prospectus
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.................................................15
DESCRIPTION OF CURRENCY WARRANTS.............................................17
DESCRIPTION OF INDEX WARRANTS................................................18
DESCRIPTION OF PREFERRED STOCK...............................................24
DESCRIPTION OF DEPOSITARY SHARES.............................................29
DESCRIPTION OF PREFERRED STOCK WARRANTS......................................33
DESCRIPTION OF COMMON STOCK..................................................35
DESCRIPTION OF COMMON STOCK WARRANTS.........................................38
PLAN OF DISTRIBUTION.........................................................41
WHERE YOU CAN FIND MORE INFORMATION..........................................42
INCORPORATION OF INFORMATION WE FILE WITH THE SEC............................42
EXPERTS......................................................................43
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 95% Principal Protected
Crude Oil Notes due February 7, 2011 (the "Notes"). You should carefully read
this pricing supplement and the accompanying prospectus supplement and
prospectus to fully understand the terms of the Notes, certain matters related
to the front-month light, sweet crude oil futures contract traded on the
NYMEX, and the tax and other considerations that are important to you in
making a decision about whether to invest in the Notes. The then-current
front-month light, sweet crude oil futures contract traded on the NYMEX as of
any date is referred to as the "Crude Oil Contract". You should carefully
review the "Risk Factors" section of this pricing supplement and the
accompanying 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., references to "MLPF&S" are to Merrill
Lynch, Pierce, Fenner & Smith Incorporated and references to "MLCI" are to
Merrill Lynch Commodities Inc.
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 February 7, 2011. We cannot redeem the Notes at
an earlier date. We will not make any payments on the Notes until the maturity
date.
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 prospectus.
Are there any risks associated with my investment?
Yes, an investment in the Notes is subject to certain risks,
including the risk of loss. Please refer to the section entitled "Risk
Factors" in this pricing supplement and the accompanying prospectus
supplement.
What is the Crude Oil Contract?
An exchange-traded futures contract, such as the Crude Oil Contract,
provides for the future purchase and sale of a specified type and quantity of
a commodity. The contract provides for a specified settlement month in which
the commodity is to be delivered by the seller. Rather than settlement by
physical delivery of the commodity, futures contracts may be settled for the
cash value of the right to receive or sell the specified commodity on the
specified date.
The Crude Oil Contract trades in units of 1,000 barrels and the
delivery point is Cushing, Oklahoma. The Crude Oil Contract provides for
delivery of several grades of domestic and internationally traded foreign
crude oils. It may be settled by delivery of West Texas Intermediate, Low
Sweet Mix, New Mexican Sweet, North Texas Sweet, Oklahoma Sweet or South Texas
Sweet. A "front-month" contract is the contract next scheduled for settlement.
For example, as of February 1, 2006, the front-month light, sweet crude oil
futures contract is a contract for delivery of light, sweet crude oil in March
2006.
The Notes are debt obligations of ML&Co. An investment in the Notes
does not entitle you to any ownership interest in a Crude Oil Contract and do
not constitute exchange-traded futures contracts.
How have Crude Oil Contracts performed historically?
We have included a graph showing the year-end closing prices of the
Crude Oil Contract for each year from 1986 through 2005 and a graph and table
showing the month-end closing prices of the Crude Oil Contract from January
2001 to January 2006 in the section entitled "The Crude Oil
Contract--Historical Data" in this pricing supplement. We have provided this
historical information to help you evaluate the behavior of the Crude Oil
Contract in various economic environments; however, past
PS-3
performance of the Crude Oil Contract is not necessarily indicative of how the
Crude Oil Contract will perform in the future.
What will I receive on the maturity date of the Notes?
On the maturity date, for each unit of the Notes that you own, you
will receive a cash payment equal to the sum of two amounts: the "Minimum
Redemption Amount" and the "Supplemental Redemption Amount", if any.
The principal amount per unit is $10.
The "Minimum Redemption Amount" per unit is $9.50.
The "Supplemental Redemption Amount" per unit will equal:
(Ending Value - Starting Value)
$10 x Participation Rate x(-----------------------------)
( Starting Value )
but will not be less than zero.
As a result of the foregoing, the Ending Value of the Crude Oil
Contract will need to increase by approximately 3.51% over the Starting Value
in order for you to receive an amount on the maturity date equal to the $10
original public offering price per unit. If the price of the Crude Oil
Contract decreases or does not increase sufficiently, you will receive less
than the $10 original public offering price per unit. In no event, however,
will you receive less than $9.50 per unit.
The "Starting Value" equals 66.56, the settlement price of the Crude
Oil Contract at the close of the market on February 1, 2006, the date the
Notes were priced for initial sale to the public (the "Pricing Date") as
reported in the Wall Street Journal (the "WSJ").
The "Ending Value" means the settlement price of the Crude Oil
Contract at the close of the market on the seventh Business Day (as defined
herein) prior to the maturity date as reported in the WSJ.
The "Participation Rate" equals 142.4239%.
For more specific information about the redemption amount payable on
the maturity date, please see the section entitled "Description of the Notes"
in this pricing supplement.
PS-4
Examples
Set forth below are three examples of Supplemental Redemption Amount
calculations, including the Starting Value of 66.56 and the Participation Rate
of 142.4239%.
Example 1--On the maturity date, the price of the Crude Oil Contract is 10%
lower than the Starting Value:
Minimum Redemption Amount: $9.50
Starting Value: 66.56
Hypothetical Ending Value: 59.904
(Supplemental
(59.904-66.56) Redemption
Supplemental Redemption Amount (per unit) = $10 x 142.4239% x (------------)= $0.00 Amount cannot
( 66.56 ) be less than zero)
Total payment on the maturity date (per unit) = $9.50 +$0.00 = $9.50
Example 2--On the maturity date, the price of the Crude Oil Contract is 2.5%
greater than the Starting Value:
Minimum Redemption Amount: $9.50
Starting Value: 66.56
Hypothetical Ending Value: 68.224
(68.224-66.56)
Supplemental Redemption Amount (per unit) = $10 x 142.4239% x (------------)= $0.3561
( 66.56 )
Total payment on the maturity date (per unit) = $9.50 + $0.3561 = $9.8561
Example 3--On the maturity date, the price of the Crude Oil Contract is 50%
greater than the Starting Value:
Minimum Redemption Amount: $9.50
Starting Value: 66.56
Hypothetical Ending Value: 99.84
(99.84-66.56)
Supplement Redemption Amount (per unit) = $10 x 142.4239% x (-----------)= $7.12
( 66.56 )
Total Payment on the maturity date (per unit) = $9.50 + $7.12 = $16.62
Will I receive interest payments on the Notes?
You will not receive any interest payments on the Notes, but you will
receive the Minimum Redemption Amount and Supplemental Redemption Amount, if
any, on the maturity date based on the performance of the Crude Oil Contract
over the term of the Notes. We have designed the Notes for investors who are
willing to forego interest payments on the Notes, such as fixed or floating
interest rates paid on traditional interest bearing debt securities, in
exchange for receiving the Minimum Redemption Amount and Supplemental
Redemption Amount, if any, on the maturity date.
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, even
though you will not receive any payments from us until the maturity date. 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
amount payable on the maturity date will be, or that the actual amount payable
on the maturity date will even exceed the Minimum Redemption Amount. We have
determined that this estimated yield will equal 4.73% per annum, compounded
semi-annually.
PS-5
Based upon this estimated yield, if you pay your taxes on a calendar
year basis and if you purchase a Note for $10.00 per unit and hold the Note
until the maturity date, you will be required to pay taxes on the following
amounts of ordinary income from the Note each year: $0.4279 in 2006, $0.4991
in 2007, $0.5230 in 2008, $0.5480 in 2009, $0.5742 in 2010 and $0.0602 in
2011. However, in 2011, the amount of ordinary income that you will be
required to pay taxes on from owning each Note may be greater or less than
$0.0602, depending upon the actual amount you receive on the maturity date.
Also, if the actual amount payable on the maturity date is less than $12.6324,
you may have a loss which you could deduct against other income you may have
in 2011, but under current tax regulations, you would neither be required nor
allowed to amend your tax returns for prior years. For further information,
see "United States Federal Income Taxation" in this 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 and the
current price of the Crude Oil Contract. 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 movement in the price of the
Crude Oil Contract and no changes in the market conditions 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 is expected to 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 are the roles of MLPF&S and MLCI?
Our subsidiary MLPF&S is the underwriter for the offering and sale of
the Notes. After the initial offering, MLPF&S 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.
Merrill Lynch Commodities Inc. ("MLCI") will be our agent for
purposes of calculating, among other things, the Ending Value and the
Supplemental Redemption Amount, if applicable (as such, the "Calculation
Agent"). Under certain circumstances, these duties could result in a conflict
of interest between MLCI 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 Notes will involve certain risks. You should
carefully consider the following discussion of risks and the discussion of
risks in the accompanying prospectus supplement before deciding whether an
investment in the Notes is suitable for you.
Your investment may result in a loss
We will not repay you a fixed amount on the Notes at maturity. The
payment you receive on the maturity date on the Notes will depend on the
change in the price of the Crude Oil Contract. Because the price of the Crude
Oil Contract is subject to market fluctuations, the amount of cash you receive
on the maturity date may be more or less than the $10 original public offering
price per unit. If the Ending Value is not at least approximately 3.51% above
the Starting Value, the amount you receive on the maturity date will be less
than the $10 original public offering price per unit. As a result, you will
lose some of your investment in the Notes. Even if the Ending Value is greater
than the Starting Value, the increase in the price of the Crude Oil Contract
may not be sufficient for the amount you will receive on the maturity date to
exceed the $10 original public offering price per unit. The amount you receive
on the maturity date will, however, never be less than $9.50 per unit.
Your yield may be lower than the yield on a standard debt security of
comparable maturity
The yield that you will receive on your Notes, which could be
negative, may be less than the return you could earn on other investments.
Your yield may be less than the yield you would earn if you bought a standard
senior non-callable debt security of ML&Co. with the same stated maturity
date. Your investment may not reflect the full opportunity cost to you when
you take into account factors that affect the time value of money.
You must rely on your own evaluation of the merits of an investment linked to
the Crude Oil Contract
In the ordinary course of their businesses, affiliates of ML&Co.
express views on expected movements in commodities futures contracts and these
views are sometimes communicated to clients who participate in commodities
futures exchanges. However, these views may vary and are subject to change.
For these reasons, you are encouraged to derive information concerning those
commodities futures exchanges from multiple sources and should not rely on the
views expressed by affiliates of ML&Co.
Ownership of the Notes does not entitle you to any rights with respect to the
Crude Oil Contract
You will not own or have any beneficial or other legal interest in,
and will not be entitled to any rights with respect to the Crude Oil Contract.
The Notes are not Crude Oil Contracts and are not regulated as exchange-traded
futures contracts.
Your yield may be lower than the potential return on an investment in the
Crude Oil Contract or on a direct investment in crude oil
The amount we pay you at maturity may be lower than the potential
return you could earn by investing in the Crude Oil Contract through a
registered futures commission merchant and also may be lower than an
investment in crude oil.
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
PS-7
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. 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 price of the Crude Oil Contract
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.
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. For example, an increase in U.S. interest rates may
offset some or all of any increase in the trading value of the Notes
attributable to another factor, such as an increase in the price of the Crude
Oil Contract. 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.
Active trading in crude oil options, futures contracts, options on
futures contracts and underlying commodities may adversely affect the value of
the Notes. Merrill Lynch Commodities Inc., an affiliate of ML&Co., and its
affiliates actively trade the Crude Oil Contract, crude oil and various
commodities derived from crude oil on a spot and forward basis and other
contracts and products in or related to crude oil (including the Crude Oil
Contract) and such related commodities (including futures contracts, options
on futures contracts and options and swaps on the underlying commodities).
ML&Co., Merrill Lynch Commodities Inc. or their related entities may also
issue or underwrite other financial instruments with returns indexed to the
prices of crude oil or futures contracts on crude oil and derivative
commodities. These trading and underwriting activities my ML&Co., Merrill
Lynch Commodities Inc., their affiliated and unaffiliated third parties could
adversely affect the value of the Crude Oil Contract, which could in turn
affect the return on and the value of the Notes.
The price of the Crude Oil Contract is expected to affect the trading
value of the Notes. We expect that the market value of the Notes will depend
substantially on the amount, if any, by which the price of the Crude Oil
Contract exceeds or does not exceed the Starting Value. However, if you choose
to sell your Notes when the value of the Crude Oil Contract exceeds the
Starting Value, you may receive substantially less than the amount that would
be payable on the maturity date based on that value because of the expectation
that the Crude Oil Contract will continue to fluctuate until the Ending Value
is determined.
Suspensions or disruptions of futures trading may adversely affect
the value of the Notes. The futures markets are subject to temporary
distortions or other disruptions due to various factors, including the lack of
liquidity in the markets, the participation of speculators and government
regulation and intervention. These circumstances could adversely affect the
value of the Notes.
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 value of the Notes. Generally, if U.S. interest rates
increase, we expect the trading value of the Notes will decrease and,
conversely, if U.S. interest rates decrease, we expect the trading value of
the Notes will increase.
Changes in the volatility of crude oil and Crude Oil Contracts 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 crude oil or the Crude Oil Contract increases or decreases, the
trading value of the Notes may be adversely affected. The volatility of crude
oil or the Crude Oil Contract is affected by a variety of factors, including
weather, governmental programs and policies, national and international
political and economic events (including terrorist attacks and wars), changes
in interest and exchange rates and trading activity in primary crude oil and
futures contracts.
PS-8
Membership on NYMEX. MLPF&S is a member of NYMEX and, from time to
time, employees of MLPF&S may serve on the NYMEX settlement committee and
other committees. These activities could affect the settlement price of the
Crude Oil Contract.
As the time remaining to the stated maturity date of the Notes
decreases, the "time premium" associated with the Notes is expected to
decrease. We anticipate that before their stated maturity date, the Notes may
trade at a value above that which would be expected based on the level of
interest rates and the price of the Crude Oil Contract. This difference will
reflect a "time premium" due to expectations concerning the price of the Crude
Oil Contract during the period before the stated maturity date of the Notes.
However, as the time remaining to the stated maturity date of the Notes
decreases, we expect that this time premium will decrease, lowering the
trading value of the Notes.
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 percentage increase, if any, in the
price of the Crude Oil Contract 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. We expect,
however that the effect on the trading value of the Notes of a given change in
the price of the Crude Oil Contract will be greater 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 will 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
Our subsidiary MLCI is our agent for the purposes of calculating,
among other things, the Ending Value and the Supplemental Redemption Amount,
if any. Under certain circumstances, MLCI as our subsidiary and its
responsibilities as Calculation Agent for the Notes could give rise to
conflicts of interests. These conflicts could occur, for instance, in
connection with its determination as to whether a price of the Crude Oil
Contract can be calculated on a particular trading day, or in connection with
judgments that it would be required to make in the event of a discontinuance
or unavailability of the Crude Oil Contract. MLCI is required to carry out its
duties as Calculation Agent in good faith and using its reasonable judgment.
However, because we control MLCI, 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 maturity date 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.
PS-9
Tax consequences
You should consider the tax consequences of investing in the Notes.
See "United States Federal Income Taxation" in this pricing supplement.
Lack of regulation by the CFTC
The Notes are debt securities that are direct obligations of ML&Co.
The net proceeds to be received by ML&Co. from the sale of the Notes will not
be used to purchase or sell Crude Oil Contracts on the NYMEX for the benefit
of Noteholders. An investment in the Notes does not constitute ether an
investment in Crude Oil Contracts or in a collective investment vehicle that
trades in Crude Oil Contracts and the Notes themselves are not Crude Oil
Contracts.
Unlike an investment in the Notes, an investment in a collective
investment vehicle that invests in futures contracts on behalf of its
participants may be regulated as a commodity pool and its operator may be
required to be registered with and regulated by the Commodity Futures Trading
Commission (the "CFTC") as a "commodity pool operator" (a "CPO"). Because the
Notes are not interests in a commodity pool, the Notes will not be regulated
by the CFTC as a commodity pool, ML&Co. will not be registered with the CFTC
and you will not benefit from the CFTC's or any other regulatory authority's
regulatory protections afforded to persons who trade in futures contracts or
who invest in regulated commodity pools.
The Notes do not constitute investments by you in futures contracts
traded on regulated futures exchanges, which may only be transacted through a
person registered with the CFTC as a "futures commission merchant" ("FCM").
ML&Co. is not registered with the CFTC as an FCM and you will not benefit from
the CFTC's or any other regulatory authority's regulatory protections afforded
to persons who trade in futures contracts on a regulated futures exchange
through a registered FCM.
PS-10
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 prospectus. The Notes will mature on
February 7, 2011. 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 number for the
Notes is 59021V623.
While on the maturity date a holder of a Note will receive an amount
equal to the Minimum Redemption Amount and Supplemental Redemption Amount, if
any, there will be no other payment of interest, periodic or otherwise. See
the section entitled "--Payment on the Maturity Date" in this pricing
supplement. 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 prospectus.
The Notes will not have the benefit of any sinking fund.
Payment on the Maturity Date
On the maturity date, a holder of a Note will be entitled to receive the
Minimum Redemption Amount of that Note plus a Supplemental Redemption Amount,
if any, all as provided below.
If the Ending Value is not higher than the Starting Value, a holder of a
Note will be entitled to receive only the Minimum Redemption Amount of the
Note. The price of the Crude Oil Contract must increase by approximately 3.51%
in order for you to receive at least the $10 original public offering price
per unit.
Determination of the Redemption Amount
The "Minimum Redemption Amount" for a Note is $9.50.
The "Supplement Redemption Amount" for a Note will be determined by the
Calculation Agent and will equal:
$10 x Participation Rate x | Ending Value - Starting Value |
|----------------------------- |
| Starting Value |
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Starting Value" equals 66.56, the settlement price of the Crude Oil
Contract at the close of the market on February 1, 2006, the date the Notes
were the priced for initial sale to the public (the "Pricing Date") as
reported in the Wall Street Journal (the "WSJ").
The "Ending Value" will be determined by the Calculation Agent and is
the settlement price of the Crude Oil Contract at the close of the market on
the seventh Business Day prior to the Maturity Date as reported in the WSJ. If
the Calculation Agent reasonably believes that such price was incorrectly
reported in the WSJ, the Calculation Agent in its discretion may select
another publicly available source to determine the settlement price of the
Crude Oil Contract. If no such price is reported by the WSJ or another
publicly available source selected by the Calculation Agent in its reasonable
judgment or, if no such other source is available, the Ending Value will be
calculated by the Calculation Agent in its sole discretion and in good faith.
The "Participation Rate" equals 142.4239%.
"Business Day" means any day on which NYMEX is open for trading and the
price of the Crude Oil Contract is calculated and published.
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.
PS-11
Hypothetical returns
The following table illustrates, for the Starting Value of 66.56 and a
range of hypothetical average settlement prices of the Crude Oil Contract:
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 Notes; and
o the pretax annualized rate of return of the Crude Oil Contract.
This table includes the Participation Rate of 142.4239%.
Percentage Total amount Total Pretax Pretax
change from the payable on the rate annualized annualized
Hypothetical Starting Value to maturity date per of return rate of rate of return
Ending the hypothetical unit of the on the return on of the Crude Oil
Value Ending Value Notes Notes the Notes (1) Contract (1)(2)
- ------------------- ------------------- ------------------ ---------------- ------------------ -----------------
26.624 -60.00% $9.5000 -5.00% -1.02% -17.49%
33.280 -50.00% $9.5000 -5.00% -1.02% -13.38%
39.936 -40.00% $9.5000 -5.00% -1.02% -9.95%
46.592 -30.00% $9.5000 -5.00% -1.02% -7.00%
53.248 -20.00% $9.5000 -5.00% -1.02% -4.41%
59.904 -10.00% $9.5000 -5.00% -1.02% -2.09%
66.560(3) 0.00% $9.5000(4) -5.00% -1.02% 0.00%
68.224 2.50% $9.8561 -1.44% -0.29% 0.49%
68.897 3.51% $10.0000 0.00% 0.00% 0.69%
73.216 10.00% $10.9242 9.24% 1.77% 1.91%
79.872 20.00% $12.3485 23.49% 4.26% 3.68%
86.528 30.00% $13.7727 37.73% 6.50% 5.31%
93.184 40.00% $15.1970 51.97% 8.54% 6.84%
99.840 50.00% $16.6212 66.21% 10.41% 8.27%
106.496 60.00% $18.0454 80.45% 12.15% 9.61%
113.152 70.00% $19.4697 94.70% 13.76% 10.89%
119.808 80.00% $20.8939 108.94% 15.28% 12.09%
- -----------------
(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 February 6, 2006 to February 7, 2011, 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 Crude Oil
Contract that equals the percentage change in the Crude Oil
Contract 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 amount you receive on the maturity date will not be less than the
Minimum Redemption Amount.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by you, if any, and the resulting
total and pretax annualized rate of return will depend on the actual Ending
Value and the term of your investment.
PS-12
Market Disruption Events
"Market Disruption Event" means any of the following events as
determined by the Calculation Agent:
(A) the suspension of or material limitation on trading for more
than two hours of trading, or during the one-half hour
period preceding the close of trading, on NYMEX (without
taking into account any extended or after-hours trading
session), in the Crude Oil Contract;
(B) the suspension of or material limitation on trading, in each
case, for more than two hours of trading, or during the
one-half hour period preceding the close of trading, on the
applicable exchange (without taking into account any
extended or after-hours trading session), whether by reason
of movements in price otherwise exceeding levels permitted
by the relevant exchange or otherwise, in option contracts
or futures contracts related to the Crude Oil Contract,
which are traded on any major U.S. exchange; or
(C) the failure on any day of NYMEX to publish the official
daily settlement price for that day for the Crude Oil
Contract.
For the purpose of determining whether a Market Disruption Event
has occurred:
(1) a limitation on the hours in a trading day and/or number of
days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular
business hours of the applicable exchange;
(2) a suspension in trading on NYMEX (without taking into
account any extended or after-hours trading session), in the
Crude Oil Contract, by reason of a price change reflecting
the maximum permitted price change from the previous trading
day's settlement price will constitute a Market Disruption
Event; and
(3) a suspension of or material limitation on trading on the
applicable exchange will not include any time when that
exchange is closed for trading under ordinary circumstances.
The occurrence of a Market Disruption Event could affect the calculation
of the payment you may receive on the maturity date. See the section entitled
"--Payment on the Maturity Date" above.
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 Notes upon any acceleration
permitted by the Notes, with respect to each $10 principal amount per unit,
will be equal to the sum of the Minimum Redemption Amount per unit plus the
Supplemental Redemption Amount, if any, calculated as though the date of
acceleration were the stated maturity date of the Notes.
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 rate of 2.25% per
annum, to the extent that payment of any interest is legally enforceable on
the unpaid amount due and payable on that date in accordance with the terms of
the Notes to the date payment of that amount has been made or duly provided
for.
PS-13
THE FUTURES MARKETS
An exchange-traded futures contract such as the Crude Oil Contract
provides for the future purchase and sale of a specified type and quantity of
a commodity. The contract provides for a specified settlement month in which
the commodity is to be delivered by the seller. Rather than settlement by
physical delivery of the commodity, futures contracts may be settled for the
cash value of the right to receive or sell the specified commodity on the
specified date.
Futures contracts are traded on organized exchanges such as NYMEX, known
as "contract markets", through the facilities of a centralized clearing house
and a brokerage firm which is a member of the clearing house. The clearing
house guarantees the performance of each clearing member which is a party to a
futures contract by, in effect, taking the opposite side of the transaction.
At any time prior to the expiration of a futures contract, subject to the
availability of a liquid secondary market, a contract holder, either long or
short, may elect to close out its position by taking an opposite position on
the exchange on which the position is held. This operates to terminate the
position and fix the contract holder's profit or loss.
U.S. futures markets, as well as brokers and market participants, are
subject to regulation by the CFTC. Because the Notes do not constitute
regulated futures contracts or investments in regulated futures contracts,
Noteholders will not benefit from the aforementioned clearing house guarantees
or the regulatory protections of the CFTC.
THE CRUDE OIL CONTRACT
The Supplemental Redemption Amount, if any, will be determined by
reference to the Crude Oil Contract traded on NYMEX. We have derived all
information regarding the Crude Oil Contract and NYMEX from publicly available
sources. Such information reflects the policies of, and is subject to change
without notice by, NYMEX. We make no representation or warranty as to the
accuracy or completeness or such information.
The Crude Oil Contract trades in units of 1,000 barrels and the delivery
point is Cushing, Oklahoma. The Crude Oil Contract provides for delivery of
several grades of domestic and internationally traded foreign crude oils. It
may be settled by delivery of West Texas Intermediate, Low Sweet Mix, New
Mexican Sweet, North Texas Sweet, Oklahoma Sweet or South Texas Sweet.
A "front-month" contract is the contract next scheduled for settlement.
For example, as of February 1, 2006, the front-month light, sweet crude oil
futures contract is the March 2006 futures contract, which is a contract for
delivery of light, sweet crude oil in March 2006.
The following summarizes selected specifications relating to light,
sweet crude oil futures contracts as traded on the NYMEX:
Trading Unit: 1,000 U.S. barrels (42,000 gallons).
Price Quotation: U.S. dollars and cents per barrel.
Minimum Price Fluctuation: $.01 per barrel ($10.00 per contract).
Maximum Daily Price Fluctuation: $10.00 per barrel ($10,000 per
contract). If any contract is traded, bid, or offered at the limit for
five minutes, trading is halted for five minutes. When trading resumes,
the limit is expanded by $10.00 per barrel in either direction. If
another halt were triggered, the market would continue to be expanded by
$10.00 per barrel in either direction after each successive five-minute
trading halt. There is no maximum price fluctuation limit during any one
trading session.
Last Trading Day: Trading terminates at the close of business on the
third business day prior to the 25th calendar day of the month preceding
the delivery month. If the 25th calendar day of the month is a
non-business day, trading shall cease on the third business day prior to
the business day preceding the 25th calendar day. For example, trading
for the February 2006 futures contract, which is a contract for delivery
of light, sweet crude oil in February 2006, ended on January 20, 2006.
PS-14
Deliverable Grades: Specific domestic crudes with 0.42% sulfur by weight
or less, not less than 37(degree) API gravity nor more than 42(degree)
API gravity. The following domestic crude streams are deliverable: West
Texas Intermediate, Low Sweet Mix, New Mexican Sweet, North Texas Sweet,
Oklahoma Sweet, South Texas Sweet. Specific foreign crudes of not less
than 34(degree) API nor more than 42(degree) API. The following foreign
streams are deliverable: U.K. Brent and Forties, for which the seller
shall receive a $.30 per barrel discount below the final settlement
price; Norwegian Oseberg Blend is delivered at a $.55-per-barrel
discount; Nigerian Bonny Light, Qua Iboe, and Colombian Cusiana are
delivered at $.15 premiums.
Historical Data
The following graph sets forth the closing levels of the Crude Oil
Contract on the last business day of each year from 1986 through 2005. The
historical performance of the Crude Oil Contract should not be taken as an
indication of future performance, and no assurance can be given that the price
of the Crude Oil Contract will not decline or that you will receive a
Supplemental Redemption Amount on the maturity date.
[GRAPHIC OMITTED][GRAPHIC OMITTED]
PS-15
The following table sets forth the settlement prices of the Crude Oil
Contract at the end of each month in the period from January 2001 through
January 2006. This historical data on the Crude Oil Contract is not
necessarily indicative of the future performance of the Index or what the
value of the Notes may be. Any upward or downward trend in the price of the
Crude Oil Contract during any period set forth below is not an indication that
the Crude Oil Contract is more or less likely to increase or decrease at any
time over the term of the Notes.
2001 2002 2003 2004 2005 2006
----------- ---------- ----------- --------- --------- --------
January.................................... 28.66 19.48 33.51 33.05 48.20 67.92
February................................... 27.39 21.74 36.60 36.16 51.75
March...................................... 26.29 26.31 31.04 35.76 55.40
April...................................... 28.46 27.29 25.80 37.38 49.72
May........................................ 28.37 25.31 29.56 39.88 51.97
June....................................... 26.25 26.86 30.19 37.05 56.50
July....................................... 26.35 27.02 30.54 43.80 60.57
August..................................... 27.20 28.98 31.57 42.12 68.94
September.................................. 23.43 30.45 29.20 49.64 66.24
October.................................... 21.18 27.22 29.11 51.76 59.76
November................................... 19.44 26.89 30.41 49.13 57.32
December................................... 19.84 31.20 32.52 43.45 61.04
The following graph sets forth the historical performance of the Crude
Oil Contract presented in the preceding table. PAST MOVEMENTS OF THE CRUDE OIL
CONTRACT ARE NOT NECESSARILY INDICATIVE OF THE FUTURE PERFORMANCE OF THE CRUDE
OIL CONTRACT. On February 1, 2006, the settlement price of the Crude Oil
Contract was 66.56.
[GRAPHIC OMITTED][GRAPHIC OMITTED]
PS-16
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 U.S. 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 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. 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), 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, or persons whose functional
currency is not the U.S. dollar. It also does not deal with holders other than
original purchasers. The following discussion also assumes that the issue
price of the Notes, as determined for U.S. 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 U.S. 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 U.S. federal income tax purposes (a) a
citizen or resident of the U.S., (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 U.S., any state thereof or the District of
Columbia (other than a partnership that is not treated as a U.S. person under
any applicable Treasury regulations), (c) an estate the income of which is
subject to U.S. federal income taxation regardless of its source, (d) a trust
if a court within the U.S. is able to exercise primary supervision over the
administration of the trust and one or more U.S. 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 U.S. 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 U.S. persons prior to that date
that elect to continue to be treated as U.S. 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 U.S.
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 U.S. federal income tax purposes. ML&Co. currently
intends to treat each Note as a debt instrument of ML&Co. for U.S. 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 U.S. federal income tax purposes. The following discussion of
the principal U.S. 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 U.S. federal income tax
purposes. If the Notes are not in fact treated as debt instruments of ML&Co.
for U.S. federal income tax purposes, then the U.S. federal income tax
treatment of the purchase, ownership and disposition of the Notes could differ
from the treatment discussed below with the result that the timing and
character of income, gain or loss recognized in respect of a Note could differ
from the timing and character of income, gain or loss recognized in respect of
a Note had the Notes in fact been treated as debt instruments of ML&Co. for
U.S. federal income tax purposes.
PS-17
U.S. Holders
On June 11, 1996, the Treasury Department issued final regulations (the
"CPDI Regulations") concerning the proper U.S. federal income tax treatment of
contingent payment debt instruments such as the Notes, which apply to debt
instruments issued on or after August 13, 1996 and, accordingly, will apply to
the Notes. In general, the CPDI Regulations cause the timing and character of
income, gain or loss reported on a contingent payment debt instrument to
substantially differ from the timing and character of income, gain or loss
reported on a conventional non-contingent payment debt instrument.
Specifically, the CPDI Regulations generally require a U.S. Holder of this
kind of 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
no definitive guidance as to whether or not an instrument is properly
characterized as a debt instrument for U.S. federal income tax purposes.
In particular, solely for purposes of applying the CPDI Regulations to
the Notes, ML&Co. has determined that the projected payment schedule for the
Notes will consist of payment on the maturity date of a projected amount (the
"Projected Redemption Amount") equal to $12.6324 per unit of the Notes. This
represents an estimated yield on the Notes equal to 4.73% per annum,
compounded semi-annually. Accordingly, during the term of the Notes, a U.S.
Holder of a Note will be required to include in income as ordinary interest an
amount equal to the sum of the daily portions of interest on the Note that are
deemed to accrue at this estimated yield for each day during the taxable year
(or portion of the taxable year) on which the U.S. Holder holds the Note. The
amount of interest that will be deemed to accrue in any accrual period (i.e.
generally each six-month period during which the Notes are outstanding) will
equal the product of this estimated yield (properly adjusted for the length of
the accrual period) and the Note's adjusted issue price (as defined below) at
the beginning of the accrual period. The daily portions of interest will be
determined by allocating to each day in the accrual period the ratable portion
of the interest that is deemed to accrue during the accrual period. In
general, for these purposes, a Note's adjusted issue price will equal the
Note's issue price (i.e. $10 per unit of the Notes), increased by the interest
previously accrued on the Note. At maturity of a Note, in the event that the
actual amount payable on the maturity date (the "Actual Redemption Amount")
exceeds $12.6324 per unit of the Notes (i.e. the Projected Redemption Amount),
a U.S. Holder will be required to include the excess of the Actual Redemption
Amount over $12.6324 per unit of the Notes (i.e. the Projected Redemption
Amount) in income as ordinary interest on the maturity date. Alternatively, in
the event that the Actual Redemption Amount is less than $12.6324 per unit of
the Notes (i.e. the Projected Redemption Amount), the amount by which the
Projected Redemption Amount (i.e. $12.6324 per unit of the Notes) exceeds the
Actual Redemption Amount will be treated first as an offset to any interest
otherwise includible in income by the U.S. Holder with respect to the Note for
the taxable year in which the maturity date occurs to the extent of the amount
of that includible interest. Any remaining portion of the Projected Redemption
Amount (i.e. $12.6324 per unit of the Notes) in excess of the Actual
Redemption Amount that is not treated as an interest offset pursuant to the
foregoing rules generally will be treated as ordinary loss, that is not
subject to the limitations applicable to miscellaneous itemized deductions, to
the extent of interest previously included in income and thereafter, capital
loss. Any such capital loss generally will be treated as long-term or
short-term capital loss (depending upon the U.S. Holder's holding period for
the Notes). In addition, U.S. Holders purchasing a Note at a price that
differs from the adjusted issue price of the Note as of the purchase date
(e.g., subsequent purchases) will be subject to rules providing for certain
adjustments to the foregoing rules and these U.S. Holders should consult their
own tax advisors concerning these rules.
Upon the sale or exchange of a Note prior to the maturity date, a U.S.
Holder will be required to recognize taxable gain or loss in an amount equal
to the difference, if any, between the amount realized by the U.S. Holder upon
that sale or exchange and the U.S. Holder's adjusted tax basis in the Note as
of the date of disposition. A U.S. Holder's adjusted tax basis in a Note
generally will equal the U.S. Holder's initial investment in the Note
increased by any interest previously included in income with respect to the
Note by the U.S. Holder. Any taxable gain will be treated as ordinary income.
Any taxable loss will be treated as ordinary loss to the extent of the U.S.
Holder's total interest inclusions on the Note. Any remaining loss generally
will be treated as long-term or short-term capital loss (depending upon the
U.S. Holder's holding period for the Note). All amounts includible in income
by a U.S. Holder as ordinary interest pursuant to the CPDI Regulations will be
treated as original issue discount.
PS-18
The projected payment schedule (including both the Projected Redemption
Amount and the estimated yield on the Notes) has been determined solely for
U.S. federal income tax purposes (i.e. for purposes of applying the CPDI
Regulations to the Notes), and is neither a prediction nor a guarantee of what
the Actual Redemption Amount will be, or that the Actual Redemption Amount
will even exceed the Minimum Redemption Amount.
All prospective investors in the Notes should consult their own tax
advisors concerning the application of the CPDI Regulations to their
investment in the Notes. Investors in the Notes may also obtain the projected
payment schedule, as determined by ML&Co. for purposes of applying the CPDI
Regulations to the Notes, by submitting a written request for that information
to Merrill Lynch & Co., Inc., Corporate Secretary's Office, 222 Broadway, 17th
Floor, New York, New York 10038, (212) 670-0432,
corporatesecretary@exchange.ml.com.
The following table sets forth the amount of interest that will be
deemed to accrue with respect to each $10.00 principal amount per unit of the
Notes during each accrual period over the term of the Notes based upon the
projected payment schedule for the Notes (including both the Projected
Redemption Amount and an estimated yield equal to 4.73% per annum (compounded
semi-annually)) as determined by ML&Co. for purposes of applying the CPDI
Regulations to the Notes.
Total interest
Interest deemed deemed to have
to accrue on accrued on Notes
Notes during as of end of
accrual period accrual period
Accrual Period (per Note) (per Note)
- ----------------------------- ---------------- ----------------
February 6, 2006 through August 7, 2006.............................. $0.2358 $0.2358
August 8, 2006 through February 7, 2007.............................. $0.2421 $0.4779
February 8, 2007 through August 7, 2007.............................. $0.2478 $0.7257
August 8, 2007 through February 7, 2008.............................. $0.2537 $0.9794
February 8, 2008 through August 7, 2008.............................. $0.2597 $1.2391
August 8, 2008 through February 7, 2009.............................. $0.2658 $1.5049
February 8, 2009 through August 7, 2009.............................. $0.2720 $1.7769
August 8, 2009 through February 7, 2010.............................. $0.2786 $2.0555
February 8, 2010 through August 7, 2010.............................. $0.2851 $2.3406
August 8, 2010 through February 7, 2011.............................. $0.2918 $2.6324
- ---------
Projected Redemption Amount = $12.6324 per Note.
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.
Non-U.S. Holders
A non-U.S. Holder will not be subject to U.S. 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
PS-19
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 U.S.
Backup withholding
Backup withholding at the applicable statutory rate of U.S. 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 U.S. federal income tax provided the required information
is furnished to the IRS.
PS-20
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-21
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 under "Use
of Proceeds" in the accompanying prospectus and to hedge market risks of
ML&Co. associated with its obligation to pay the Redemption Amount 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 prices set forth on the cover page 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 31, 2004 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 three-month periods ended April 1, 2005 and March 26,
2004, the three-month and six-month periods ended July 1, 2005 and June 25,
2004 and the three-month and nine-month periods ended September 30, 2005 and
September 24, 2004 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 reviews of such information.
However, as stated in their reports included in Merrill Lynch & Co., Inc.'s
Quarterly Reports on Form 10-Q for the quarters ended April 1, 2005, July 1,
2005 and September 30, 2005 and incorporated by reference herein, they did not
audit and they do not express opinions on that interim financial information.
Accordingly, the degree of reliance on their reports 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 reports on the unaudited
interim condensed consolidated financial information because those reports are
not "reports" 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-22
INDEX OF CERTAIN DEFINED TERMS
Business Day..............................................................PS-11
Calculation Agent..........................................................PS-6
Ending Value...............................................................PS-4
Market Disruption Event...................................................PS-13
Minimum Redemption Amount..................................................PS-4
Notes......................................................................PS-3
Participation Rate.........................................................PS-4
Pricing Date...............................................................PS-4
Starting Value.............................................................PS-4
Supplemental Redemption Amount.............................................PS-4
Crude Oil Contract.........................................................PS-3
PS-23
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[OBJECT OMITTED]][Logo]
528,800 Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
95% Principal Protected Crude Oil Notes
due February 7, 2011
$10 principal amount per unit
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PRICING SUPPLEMENT
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Merrill Lynch & Co.
February 1, 2006
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