Subject to Completion
Preliminary Pricing Supplement dated February 24, 2006
PRICING SUPPLEMENT
(To prospectus supplement and prospectus
dated February 25, 2005)
Pricing Supplement Number:
[GRAPHIC OMITTED]
1,000,000 Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
Accelerated Return Notes(R)
Linked to the International Equity Basket
due June , 2007
(the "Notes")
$10 original public offering price per unit
-------------------------------------------
The Notes: Payment on the maturity date:
o The Notes are designed for investors who o The amount you receive on the maturity
are seeking exposure to the value of the date will be based upon the direction of
International Equity Basket, an index and percentage change in the value of the
basket comprised of the Nikkei 225 Index, International Equity Basket over the term
the S&P/ASX 200 Index, the Hang Seng Index of the Notes:
and the Dow Jones EURO STOXX 50 Index
(each initially equally weighted), willing o If the value of the International
to forego interest payments on the Notes Equity Basket has increased, on the
and willing to accept a return that will maturity date you will receive a
not exceed the limit described in this payment per unit equal to $10 plus an
pricing supplement. amount equal to $10 multiplied by
triple the percentage increase of the
o There will be no payments prior to the International Equity Basket, up to a
maturity date and we cannot redeem the maximum total payment which will be
Notes prior to the maturity date. between $11.60 and $12.00 per unit, as
described in this pricing supplement.
o The Notes will not be listed on any
securities exchange. o If the value of the International
Equity Basket has decreased, on the
o The Notes will be senior unsecured debt maturity date you will receive a
securities of Merrill Lynch & Co., Inc. payment per unit based upon that
and part of a series entitled "Medium-Term percentage decrease and, as a result,
Notes, Series C". The Notes will have the you may receive less, and possibly
CUSIP No.: . significantly less, than the $10
original public offering price per unit.
o The settlement date for the Notes is
expected to be April , 2006.
Information included in this pricing supplement supercedes 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 $
Underwriting discount (1).............................. $.20 $
Proceeds, before expenses, to Merrill Lynch & Co., Inc. $9.80 $
(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 $.15 per unit, respectively, for any single
transaction to purchase between 300,000 to 499,999 units will be
$9.90 per unit and $.10 per unit, respectively, and for any single
transaction to purchase 500,000 units or more will be $9.85 per unit
and $.05 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.
-------------------
Merrill Lynch & Co.
-------------------
The date of this pricing supplement is March , 2006.
"Accelerated Return Notes(R)" is a registered mark of Merrill Lynch & Co., Inc.
TABLE OF CONTENTS
Pricing Supplement
SUMMARY INFORMATION--Q&A..................................................PS-3
RISK FACTORS..............................................................PS-7
DESCRIPTION OF THE NOTES.................................................PS-11
THE BASKET...............................................................PS-16
UNITED STATES FEDERAL INCOME TAXATION....................................PS-29
ERISA CONSIDERATIONS.....................................................PS-32
USE OF PROCEEDS AND HEDGING..............................................PS-33
SUPPLEMENTAL PLAN OF DISTRIBUTION........................................PS-33
EXPERTS..................................................................PS-33
INDEX OF CERTAIN DEFINED TERMS...........................................PS-34
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 Accelerated Return
Notes(R) Linked to the International Equity Basket due June , 2007 (the
"Notes"). You should carefully read this pricing supplement and the
accompanying prospectus supplement and prospectus to fully understand the
terms of the Notes, the International Equity Basket (the "Basket") 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 in 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. and references to "MLPF&S" are to Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
What are the Notes?
The Notes will be part of 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 , 2007. 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 original public
offering price. 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 Debt Securities--Depositary" in the
accompanying prospectus.
Are there any risks associated with my investment?
Yes, an investment in the Notes is subject to risks, including the risk
of loss. Please refer to the section entitled "Risk Factors" in this pricing
supplement and the accompanying prospectus supplement.
Who determines the value of the Basket and what does the Basket reflect?
MLPF&S, as calculation agent, will determine the value of the Basket as
described in the section entitled "The Basket" in this pricing supplement. The
Basket is designed to allow investors to participate in the movement of the
levels of four international equity indices, as reflected by changes in the
value of the Basket, over the term of the Notes. The indices that comprise the
Basket are the Nikkei 225 Index, S&P/ASX 200 Index, Hang Seng Index and the
Dow Jones EURO STOXX 50 (each a "Basket Index" and together the "Basket
Indices"). Each Basket Index will be assigned a weighting so that each Basket
Index represents an equal portion of the Basket on the date the Notes are
priced for initial sale to the public (the "Pricing Date").
A fixed factor (the "Multiplier") will be determined for each Basket
Index by taking the weighting for that Basket Index, multiplying that
weighting (as a percentage) by 100, and then dividing the result by the
closing level of that Basket Index on the Pricing Date. The Multipliers can be
used to calculate the value of the Basket on any given day by summing the
products of each Basket Index and its designated Multiplier, as described in
this pricing supplement. The Multipliers for each Basket Index will be listed
in the section entitled "The Basket" in this pricing supplement.
An investment in the Notes does not entitle you to any dividends, voting
rights or any other ownership interest in the stocks included in the Basket
Indices (the "Underlying Stocks").
How has the Basket performed historically?
The Basket will not exist until the Pricing Date. We have, however,
included a table and a graph showing hypothetical historical month-end values
of the Basket from January 2001 through January 2006 based upon the Multiplier
for each Basket Index calculated as of February 17, 2006 and historical levels
of each Basket Index. In addition, we have included tables and graphs showing
the
PS-3
historical month-end levels of each Basket Index from January 2001 through
January 2006. The tables and graphs referred to in this paragraph are included
in the section entitled "The Basket" in this pricing supplement.
We have provided the hypothetical and historical information to help you
evaluate the behavior of the Basket in various economic environments, however,
past performance of the Basket is not necessarily indicative of how the Basket
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 Redemption Amount.
The "Redemption Amount" to which you will be entitled will depend on the
direction of and percentage change in the value of the Basket over the term of
the Notes and will equal:
(i) If the Ending Value is greater than the Starting Value:
( (Ending Value-Starting Value))
$10 + ($30 x(---------------------------))
( ( Starting Value ))
provided, however, the Redemption Amount will not exceed an amount which will
be between $11.60 and $12.00 per unit (the "Capped Value"). The actual Capped
Value will be determined on the Pricing Date and will be set forth in the
final pricing supplement made available in connection with sales of the Notes.
(ii) If the Ending Value is equal to or less than the Starting Value:
( Ending Value )
$10 x (--------------)
(Starting Value)
The "Starting Value" will be set to 100 on the Pricing Date.
The "Ending Value" means the average of the values of the Basket at the
close of the market on five business days shortly before the maturity date of
the Notes. We may calculate the Ending Value by reference to fewer than five
or even a single day's closing value if, during the period shortly before the
maturity date of the Notes, there is a disruption in the trading of a
sufficient number of stocks included in any Basket Index or certain futures or
options contracts relating to a Basket Index.
The opportunity to participate in the possible increases in the value of
the Basket through an investment in the Notes is limited because the amount
that you receive on the maturity date will never exceed the Capped Value,
which will represent an appreciation of 16% to 20% over the $10 original
public offering price per unit of the Notes, depending on the Capped Value.
However, in the event that the value of the Basket declines over the term of
the Notes, the amount you receive on the maturity date will be proportionately
less than the $10 original public offering price of the Notes. As a result,
you may receive less, and possibly significantly less, than the $10 original
public offering price per unit.
For more specific information about the Redemption Amount, please see
the section entitled "Description of the Notes" in this pricing supplement.
Will I receive interest payments on the Notes?
You will not receive any interest payments on the Notes, but you will
receive the Redemption Amount on the maturity date. 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, and willing to accept a return that will not exceed the Capped
Value, in exchange for the ability to participate in changes in the value of
the Basket over the term of the Notes.
PS-4
Examples
Set forth below are three examples of Redemption Amount calculations, assuming
a Capped Value of $11.80, the midpoint of the range of $11.60 and $12.00.
Example 1--The hypothetical Ending Value is 50% of the Starting Value:
Starting Value: 100
Hypothetical Ending Value: 50
( 50 )
$10 x (-----) = $5.00
( 100 )
Redemption Amount (per unit) = $5.00
Example 2--The hypothetical Ending Value is 103% of the Starting Value:
Starting Value: 100
Hypothetical Ending Value: 103
(103-100))
$10 + ($30 x (-------)) = $10.90
( 100 ))
Redemption Amount (per unit) = $10.90
Example 3--The hypothetical Ending Value is 150% of the Starting Value:
Starting Value: 100
Hypothetical Ending Value: 150
(150-100))
$10 + ($30 x (-------)) = $25.00
( 100 ))
(Redemption
Amount cannot be
Redemption Amount (per unit) = $11.80 greater than the
Capped Value)
What about taxes?
The United States federal income tax consequences of an investment in
the Notes are complex and uncertain. By purchasing a Note, you and ML&Co.
agree, in the absence of an administrative determination, judicial ruling or
other authoritative guidance to the contrary, to characterize a Note for all
tax purposes as a pre-paid cash-settled forward contract linked to the value
of the Basket. Under this characterization of the Notes, you should be
required to recognize gain or loss to the extent that you receive cash on the
maturity date or upon a sale or exchange of a Note prior to the maturity date.
You should review the discussion under the section entitled "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.
PS-5
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 securities.
If you sell your Notes prior to the stated maturity date, you will
receive a price determined by market conditions for the security. This price
may be influenced by many factors, such as interest rates, volatility and the
current value of the Basket. 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
compensation for developing and hedging the product. Depending on the impact
of these factors, you may receive significantly less than the principal amount
of your Notes if sold before the stated maturity date.
In a situation where there had been no movement in the value of the
Basket 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
original issue price. This is due to, among other things, our costs of
developing, hedging and distributing the Notes. Any potential purchasers of
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 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.
MLPF&S will also be our agent for purposes of calculating, among other
things, the Ending Value and the Redemption Amount (in such capacity, the
"Calculation Agent"). Under certain circumstances, these duties could result
in a conflict of interest between MLPF&S as our subsidiary and its
responsibilities as Calculation Agent.
What is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various subsidiaries
and affiliated companies that provide investment, financing, insurance and
related services on a global basis.
For information about ML&Co., see the section entitled "Merrill Lynch &
Co., Inc." in the accompanying prospectus. You should also read other
documents ML&Co. has filed with the Securities and Exchange Commission, 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 risks. You should carefully
consider the following discussion of risks and the discussion of risks
included 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 of principal on the Notes on the
maturity date. The Redemption Amount will depend on the direction of and
percentage change in the value of the Basket. Because the value of the Basket
is subject to market fluctuations, the Redemption Amount you receive may be
less than the $10 original public offering price per unit of the Notes. If the
Ending Value is less than the Starting Value, the Redemption Amount will be
less than the $10 original public offering price per unit of the Notes. As a
result, you may receive less, and possibly significantly less, than the $10
original public offering price per unit.
Your yield may be lower than the yield on other debt securities 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 traditional interest
bearing debt security of ML&Co. with the same stated maturity date. Your
investment may not reflect the full opportunity cost to you when you take into
account factors that affect the time value of money. Unlike traditional
interest bearing debt securities, the Notes do not guarantee the return of a
principal amount on the maturity date.
Your return is limited and will not reflect the return on a direct investment
in the Underlying Stocks included in the Basket Indices
The opportunity to participate in the possible increases in the value of
the Basket through an investment in the Notes is limited because the
Redemption Amount will never exceed the Capped Value, which will represent an
appreciation of between 16% and 20% over the $10 original public offering
price per unit of the Notes. However, in the event that the value of the
Basket declines over the term of the Notes, you will realize the entire
decline. As a result, you may receive less, and possibly significantly less,
than the $10 original public offering price per unit.
In addition, your return will not reflect the return you would realize
if you actually owned the Underlying Stocks and received the dividends paid on
those stocks, if any, because the value of the Basket is calculated by
reference to the prices of the Underlying Stocks without taking into
consideration the value of dividends paid on those stocks.
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 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. In addition, while we describe in this pricing
supplement how you can calculate the value of the Basket from publicly
available information, we will not publish the value of the Basket over the
term of the Notes and this may limit the trading market for the Notes. 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 $10 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.
PS-7
Assuming there is no change in the value of the Basket 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 $10 principal
amount. This is due to, among other things, the fact that the $10 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.
Your return may be affected by factors affecting international securities
markets
The Basket Indices are computed by reference to the value of the equity
securities of companies listed on various Australian, European and Asian
exchanges. The return on the Notes will be affected by factors affecting the
value of securities in these markets. Foreign securities markets may be more
volatile than United States or other securities markets and may be affected by
market developments in different ways than United States or other securities
markets. Direct or indirect government intervention to stabilize a particular
securities market and cross-shareholdings in companies in these markets may
affect prices and the volume of trading in these foreign markets. Also, there
is generally less publicly available information about foreign companies than
about United States companies that are subject to the reporting requirements
of the Securities and Exchange Commission (the "SEC"). Additionally,
accounting, auditing and financial reporting standards and requirements in the
relevant foreign markets differ from those applicable to United States
reporting companies.
The prices and performance of securities of companies in the relevant
foreign markets may be affected by political, economic, financial and social
factors in those regions. In addition, recent or future changes in a country's
government, economic and fiscal policies, the possible imposition of, or
changes in, currency exchange laws or other laws or restrictions, and possible
fluctuations in the rate of exchange between currencies, are factors that
could negatively affect the international securities markets. Moreover, the
relevant foreign economies may differ favorably or unfavorably from the United
States economy in economic factors such as growth of gross national product,
rate of inflation, capital reinvestment, resources and self-sufficiency.
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 United States 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 value of the
Basket. 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 value of the Basket 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 value of the Basket exceeds or does not
exceed the Starting Value. However, if you choose to sell your Notes when the
value of the Basket exceeds the Starting Value, you may receive substantially
less than the amount that would be payable on the maturity date based on this
value because of the expectation that the value of the Basket will continue to
fluctuate until the Ending Value is determined. In addition, because the
payment on the maturity date on the Notes will not exceed the Capped Value, we
do not expect that the Notes will trade in the secondary market above the
Capped Value.
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 United States interest
rates increase, we expect the trading value of the Notes will decrease and,
conversely, if United States interest rates decrease, we expect the trading
value of the Notes will increase. If interest rates increase or decrease in
markets related to the Basket Indices, the trading value of the Notes may be
adversely affected. The level of interest rates in the United States,
Australia, Europe or Asia may also affect the applicable economies and in turn
the level of the related Basket Index and, thus, the trading value of the
Notes.
Changes in the volatility of the Basket Indices 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
any of the Basket Indices increases or decreases, the trading value of the
Notes may be adversely affected.
PS-8
Changes in dividend yields on the stocks included in the Basket Indices
are expected to affect the trading value of the Notes. In general, if dividend
yields on the stocks included in the Basket Indices increase, we expect that
the trading value of the Notes will decrease and, conversely, if dividend
yields on these stocks decrease, we expect that the trading value of the Notes
will increase.
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 value of the Basket. This difference will reflect a
"time premium" due to expectations concerning the value of the Basket 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 value of the Basket
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
value of the Basket will be greater if it occurs later in the term of the
Notes than if it occurs earlier in the term of the Notes.
Purchases and sales by us and our affiliates may affect your return
We and our affiliates may from time to time buy or sell the stocks
underlying the Basket Indices or futures or options contracts on the Basket
Indices for our own accounts for business reasons and expect to enter into
these transactions in connection with hedging our obligations under the Notes.
These transactions could affect the price of these stocks and, in turn, the
value of the Basket in a manner that could be adverse to your investment in
the Notes. Any purchases or sales by us, our affiliates or others on our
behalf on or before the Pricing Date may temporarily increase or decrease the
prices of the stocks included in the Basket. Temporary increases or decreases
in the market prices of these stocks may also occur as a result of the
purchasing activities of other market participants. Consequently, the prices
of these stocks may change subsequent to the Pricing Date, affecting the value
of the Basket and therefore the trading value of the Notes.
Potential conflicts of interest could arise
Our subsidiary MLPF&S is our agent for the purposes of calculating the
Ending Value and the Redemption Amount. Under certain circumstances, MLPF&S 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 its determination as to whether the value of the
Basket 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 any of the Basket Indices. See the sections entitled
"Description of the Notes--Adjustments to the Basket; Market Disruption
Events" and "--Discontinuance of the Basket Indices" in this pricing
supplement. MLPF&S is required to carry out its duties as Calculation Agent in
good faith and using its reasonable judgment. However, because we control
MLPF&S, potential conflicts of interest could arise.
We expect to enter into arrangements to hedge the market risks
associated with our obligation to pay the Redemption Amount 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
ML&Co. or its affiliates may presently or from time to time engage in
business with one or more of the companies included in the Basket Indices
including extending loans to, or making equity investments in, those companies
or providing advisory services to those companies, including merger and
acquisition advisory services. In the course of business, ML&Co. or its
affiliates may acquire non-public information relating to those companies and,
in addition, one or more affiliates of ML&Co. may publish research reports
about those companies. ML&Co. does not make any representation to any
purchasers of the Notes regarding any matters whatsoever relating to the
companies included in the Basket Indices. Any prospective purchaser of the
Notes should undertake an independent investigation of the companies included
in the Basket Indices as in its judgment is appropriate to make an informed
decision regarding an investment in the Notes. The composition of those
companies does not reflect any investment recommendations of ML&Co. or its
affiliates.
Tax consequences are uncertain
You should consider the tax consequences of investing in the Notes,
aspects of which are uncertain. See the section entitled "United States
Federal Income Taxation" in this pricing supplement.
PS-10
DESCRIPTION OF THE NOTES
ML&Co. will issue the Notes as part of 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 June , 2007. Information included in this pricing supplement
supercedes 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 .
While on the maturity date a holder of a Note will receive an amount
equal to the Redemption Amount, 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 repayment 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 original public offering price 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
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 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, you will be entitled to receive a cash payment per
unit equal to the Redemption Amount, as provided below.
Determination of the Redemption Amount
The "Redemption Amount" per unit will be determined by the Calculation
Agent and will equal:
(i) If the Ending Value is greater than the Starting Value:
( (Ending Value-Starting Value))
$10 + ($30 x (---------------------------));
( ( Starting Value ))
provided, however, the Redemption Amount will not exceed an amount which will
be between $11.60 and $12.00 per unit (the "Capped Value"). The actual Capped
Value will be determined on the date the Notes are priced for initial sale to
the public (the "Pricing Date") and will be set forth in the final pricing
supplement made available in connection with sales of the Notes.
(ii) If the Ending Value is equal to or less than the Starting Value:
( Ending Value )
$10 X (---------------)
(Starting Value )
The "Starting Value" will be set to 100 on the Pricing Date.
The "Ending Value" will be determined by the Calculation Agent and will
equal the average of the closing values of the Basket determined on each of
the first five Calculation Days during the Calculation Period. If there are
fewer than five Calculation Days during the Calculation Period, then the
Ending Value will equal the average of the closing values of the Basket on
those Calculation Days. If there is only one Calculation Day during the
Calculation Period, then the Ending Value will equal the closing value of the
Basket on that Calculation Day. If
PS-11
no Calculation Days occur during the Calculation Period, then the Ending Value
will equal the closing value of the Basket determined on the last scheduled
Basket Business Day in the Calculation Period, regardless of the occurrence of
a Market Disruption Event (as described below under "--Adjustments to the
Basket; Market Disruption Events") on that scheduled Basket Business Day.
The "Calculation Period" means the period from and including the seventh
scheduled Basket Business Day before the maturity date to and including the
second scheduled Basket Business Day before the maturity date.
A "Calculation Day" means any Basket Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
A "Basket Business Day" means a day on which the Basket Indices or any
successor indices are 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-12
Hypothetical Returns
The following table illustrates, for the Starting Value and a range of
hypothetical Ending Values of the Basket:
o the percentage change from the Starting Value to the hypothetical
Ending Value;
o the total amount payable on the maturity date per unit;
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
Underlying Stocks, which includes an assumed aggregate dividend
yield of 2.65% per annum, as more fully described below.
The table below assumes a Capped Vale of $11.80, the midpoint of the
expected range of $11.60 and $12.00.
Percentage Change Pretax
from the Total amount Total annualized Pretax
Starting Value payable on the rate of rate of annualized rate
Hypothetical to the hypothetical maturity date return on return on of return on the
Ending Value Ending Value per unit the Notes the Notes(1) Underlying Stocks(1)(2)
- ------------ ------------------- -------------- --------- ------------ -----------------------
50.00 -50% 5.00 -50.00% -51.38% -48.23%
60.00 -40% 6.00 -40.00% -39.31% -36.32%
70.00 -30% 7.00 -30.00% -28.34% -25.47%
80.00 -20% 8.00 -20.00% -18.23% -15.45%
90.00 -10% 9.00 -10.00% -8.83% -6.11%
92.00 -8% 9.20 -8.00% -7.02% -4.32%
94.00 -6% 9.40 -6.00% -5.23% -2.54%
96.00 -4% 9.60 -4.00% -3.47% -0.79%
98.00 -2% 9.80 -2.00% -1.72% 0.95%
100.00(3) 0% 10.00 0.00% 0.00% 2.66%
102.00 2% 10.60 6.00% 5.06% 4.36%
104.00 4% 11.20 12.00% 9.95% 6.03%
106.00 6% 11.80(4) 18.00% 14.70% 7.69%
108.00 8% 11.80 18.00% 14.70% 9.33%
110.00 10% 11.80 18.00% 14.70% 10.96%
120.00 20% 11.80 18.00% 14.70% 18.84%
130.00 30% 11.80 18.00% 14.70% 26.36%
- ------------------------------
(1) The annualized rates of return specified in this column are calculated
on a semiannual bond equivalent basis and assume an investment term from
February 21, 2006 to April 23, 2007, 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 Underlying
Stocks that equals the percentage change of each Basket Index,
that equals the percentage change in the Basket from the Starting
Value to the relevant hypothetical Ending Value;
(b) a constant dividend yield of 2.65% per annum (which equals the
average of a dividend yield of 0.86% for the Nikkei 225 Index,
3.66% for the S&P/ASX 200 Index, 3.35% for the Hang Seng Index and
2.74% for the Dow Jones EURO STOXX 50 Index), paid quarterly from
the date of initial delivery of the Notes, applied to the value of
the Basket at the end of each quarter assuming this value
increases or decreases linearly from the Starting Value to the
applicable hypothetical Ending Value; and
(c) no transaction fees or expenses.
PS-13
(3) This is the Startng Value.
(4) The total amount payable on the maturity date per unit of the
Notes cannot exceed the Capped Value, which for purposes of
calculating these hypothetical returns has been assumed to equal
$11.80 (the midpoint of the range of $11.60 and $12.00).
The above figures are for purposes of illustration only. The actual
amount received by you and the resulting total and pretax annualized rates of
return will depend on the actual Ending Value, Capped Value and term of your
investment.
Adjustments to the Basket; Market Disruption Events
If at any time Nikon Keizai Shimbun, Inc. ("NKS"), Standard & Poor's, a
division of The McGraw-Hill Companies, Inc. ("Standard & Poor's" or "S&P" ),
HSI Services Limited ("HSI") or STOXX Limited ("STOXX") (each an "Index
Publisher") makes a material change in the formula for or the method of
calculating its respective Basket Index or in any other way materially
modifies that Basket Index so that the Basket Index does not, in the opinion
of the Calculation Agent, fairly represent the level of that Basket 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 closing value of the Basket 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 a stock index
comparable to that Basket Index as if those changes or modifications had not
been made, and calculate the closing level with reference to the Basket Index,
as so adjusted. Accordingly, if the method of calculating a Basket Index is
modified so that the level of the Basket Index is a fraction or a multiple of
what it would have been if it had not been modified, e.g., due to a split,
then the Calculation Agent will adjust the Basket Index in order to arrive at
a level of the Basket Index as if it had not been modified, e.g., as if a
split had not occurred.
"Market Disruption Event" means either of the following events as
determined by the Calculation Agent:
(A) the suspension of or material limitation on trading for more than
two hours of trading, or during the one-half hour period preceding
the close of trading, on the applicable exchange (without taking
into account any extended or after-hours trading session), in 20%
or more of the stocks which then comprise a Basket Index or any
successor index; or
(B) the suspension of or material limitation on trading for more than
two hours of trading, or during the one-half hour period preceding
the close of trading, on the applicable exchange (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 a Basket Index, or any
successor index.
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 relevant exchange;
(2) a decision to permanently discontinue trading in the relevant
futures or options contracts related to the applicable Basket
Index, or any successor index, will not constitute a Market
Disruption Event;
(3) a suspension in trading in a futures or options contract on the
applicable Basket Index, or any successor index, by a major
securities market by reason of (a) a price change violating limits
set by that securities market, (b) an imbalance of orders relating
to those contracts or (c) a disparity in bid and ask quotes
relating to those contracts will constitute a suspension of or
material limitation on trading in futures or options contracts
related to that Basket Index; and
PS-14
(4) a suspension of or material limitation on trading on the relevant
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" in this pricing supplement.
Discontinuance of the Basket Indices
If an Index Publisher discontinues publication of its respective Basket
Index and the Index Publisher or another entity publishes a successor or
substitute index that the Calculation Agent determines, in its sole
discretion, to be comparable to that Basket 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 the relevant Index Publisher or any other entity for the Basket
Index and calculate the Ending Value as described above under "--Payment on
the Maturity Date". 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 an Index Publisher discontinues publication of its
respective Basket Index and:
o the Calculation Agent does not select a successor index; or
o the successor index is not published on any of the Calculation
Days,
the Calculation Agent will compute a substitute level for that Basket Index in
accordance with the procedures last used to calculate that Basket Index before
any discontinuance. If a successor index is selected or the Calculation Agent
calculates a level as a substitute for a Basket Index as described below, the
successor index or level will be used as a substitute for that Basket Index
for all purposes, including the purpose of determining whether a Market
Disruption Event exists.
If an Index Publisher discontinues publication of its respective Basket
Index before the Calculation Period and the Calculation Agent determines that
no successor index is available at that time, then on each Business Day until
the earlier to occur of:
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 Redemption Amount as described in the preceding paragraph as if that day
were a Calculation Day. The Calculation Agent will cause notice of each value
to be published not less often than once each month in The Wall Street Journal
or another newspaper of general circulation and arrange for information with
respect to these values to be made available by telephone.
A "Business Day" is any day that is either (i) a Basket Business Day or
(ii) a day on which the applicable exchanges listing the stocks of companies
used to calculate a substitute level for a Basket Index following a
discontinuance, as discussed above, are open for trading.
Notwithstanding these alternative arrangements, discontinuance of the
publication of a Basket Index may adversely affect trading in the Notes.
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 Redemption Amount, 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 % 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-15
THE BASKET
The Basket is designed to allow investors to participate in the
percentage change in the level of the Nikkei 225 Index, the S&P/ASX 200 Index,
the Hang Seng Index and the Dow Jones EURO STOXX 50 Index over the term of the
Notes. The Basket Indices are described in the sections below. Each Basket
Index will be assigned an equal weighting so that each Basket Index will
represent an equal portion of the value of the Basket on the Pricing Date.
The Index Publishers have no obligations relating to the Notes or
amounts to be paid to you, including any obligation to take the needs of
ML&Co. or of holders of the Notes into consideration for any reason. The Index
Publishers will not receive any of the proceeds of the offering of the Notes
and are not responsible for, and have not participated in, the offering of the
Notes and are not responsible for, and will not participate in, the
determination or calculation of the amount receivable by holders of the Notes.
Determination of the Multiplier for each Basket Index
A fixed factor (the "Multiplier") will be determined for each Basket
Index, based upon the weighting of that Basket Index. The Multiplier for each
Basket Index will be calculated on the Pricing Date and will equal:
o the weighting (as a percentage) for that Basket Index, multiplied
by 100; and
o divided by the closing level of that Basket Index on the Pricing
Date.
The Multipliers will be calculated in this way so that the value of the
Basket will equal 100 on the Pricing Date. The Multipliers will not be revised
subsequent to their determination on the Pricing Date except that the
Calculation Agent may in its good faith judgment adjust the Multiplier of any
Basket Index in the event that Basket Index is materially changed or modified
in a manner that does not, in the opinion of the Calculation Agent, fairly
represent the level of that Basket Index had those material changes or
modifications not been made.
The hypothetical Multipliers for each Basket Index are listed under
"--Computation of the Basket" below.
Computation of the Basket
The Calculation Agent will calculate the value of the Basket by summing
the products of the closing level for each Basket Index on a Calculation Day
and the Multiplier applicable to each Basket Index. The value of the Basket
will vary based on the increase or decrease in the level of each Basket Index.
Any increase in the level of a Basket Index (assuming no change in the levels
of the other Basket Indices) will result in an increase in the value of the
Basket. Conversely, any decrease in the level of a Basket Index (assuming no
change in the levels of the other Basket Indices) will result in a decrease in
the value of the Basket. If February 17, 2006 were the Pricing Date, for each
Basket Index, the weighting, the initial closing level, the Multiplier and the
initial contribution to the Basket value would be as follows:
Country Closing Basket
Basket Indices Exposure Symbol Weighting Level(1) Multiplier Points
- ---------------------------- --------- ------ --------- -------- ---------- -------
Nikkei 225 Index Japan NKY 25% 15,713.45 0.001591 25.00
S&P/ASX 200 Index Australia AS51 25% 4,799.90 0.005208 25.00
Hang Seng Index Hong Kong HS1 25% 15,475.69 0.001615 25.00
Dow Jones EURO STOXX 50 Index Europe SX5E 25% 3,767.70 0.006635 25.00
- ----------------------------------
(1) This is the closing level of each Basket Index on February 17, 2006.
(2) The hypothetical Multiplier equals the weighting of the Basket Index (as
a percentage) multiplied by 100, and then divided by the closing level
of that Basket Index on February 17, 2006. The actual Multiplier will be
determined on the Pricing Date and set forth in the final pricing
supplement made available in connection with sales of the Notes.
PS-16
Hypothetical Historical Data on the Basket
While historical information on the Basket will not exist before the
Pricing Date, the following table sets forth the hypothetical historical
month-end values of the Basket from January 2001 through January 2006 based
upon historical levels of each Basket Index, the hypothetical Multipliers and
a Basket value of 100 on February 17, 2006. This hypothetical historical data
on the Basket is not necessarily indicative of the future performance of the
Basket or what the value of the Notes may be. Any historical upward or
downward trend in the value of the Basket during any period set forth below is
not an indication that the Basket is more or less likely to increase or
decrease in value at any time over the term of the notes.
2001 2002 2003 2004 2005 2006
----- ----- ----- ----- ----- ------
January.................... 97.16 75.63 58.54 74.51 81.48 102.11
February................... 90.37 75.61 56.84 76.73 83.64
March...................... 85.46 78.26 55.18 75.41 82.08
April...................... 91.16 78.02 57.63 74.21 80.17
May........................ 89.35 77.28 59.87 73.76 82.15
June....................... 88.04 71.56 61.74 75.77 84.76
July....................... 83.23 66.20 64.57 74.26 87.90
August..................... 76.86 65.76 67.71 74.62 88.64
September.................. 69.38 59.68 66.81 75.59 93.44
October.................... 72.77 61.56 70.62 76.56 90.15
November................... 76.90 64.50 70.02 79.62 94.80
December................... 78.26 60.20 72.81 81.95 98.22
The following graph sets forth the hypothetical historical performance
of the Basket presented in the preceding table. This hypothetical historical
information is not necessarily indicative of the future performance of the
Basket, and no assurance can be given that the value of the Basket will not
decline and thereby reduce the Redemption Amount which may be payable to you
on the maturity date.
[GRAPHIC OMITTED]
PS-17
The Basket Indices
The Nikkei 225 Index
The Nikkei 225 Index is a stock index calculated, published and
disseminated by NKS that measures the composite price performance of selected
Japanese stocks. The Nikkei 225 Index is currently comprised of 225 stocks
that trade on the Tokyo Stock Exchange (the "TSE") and represents a broad
cross-section of Japanese industry. All 225 of the stocks underlying the
Nikkei 225 Index are stocks listed in the First Section of the TSE. Stocks
listed in the First Section are among the most actively traded stocks on the
TSE. Futures and options contracts on the Nikkei 225 Index are traded on the
Singapore International Monetary Exchange, the Osaka Securities Exchange and
the Chicago Mercantile Exchange.
The Nikkei 225 Index is a modified, price-weighted index. Each stock's
weight in the Nikkei 225 Index is based on its price per share rather than the
total market capitalization of the issuer. NKS calculates the Nikkei 225 Index
by multiplying the per share price of each stock by the corresponding
weighting factor for that Underlying Stock (a "Weight Factor"), calculating
the sum of all these products and dividing that sum by a divisor. The divisor,
initially set on May 16, 1949 at 225, was 24.14 as of February 17, 2006, and
is subject to periodic adjustments as set forth below. Each Weight Factor is
computed by dividing (Y)50 by the par value of the relevant stock, so that the
share price of each stock when multiplied by its Weight Factor corresponds to
a share price based on a uniform par value of (Y)50. Each Weight Factor
represents the number of shares of the related stock which are included in one
trading unit of the Nikkei 225 Index. The stock prices used in the calculation
of the Nikkei 225 Index are those reported by a primary market for the stocks,
which is currently the TSE. The level of the Index is calculated once per
minute during TSE trading hours.
In order to maintain continuity in the level of the Nikkei 225 Index in
the event of certain changes due to non-market factors affecting the stocks,
such as the addition or deletion of stocks, substitution of stocks, stock
dividends, stock splits or distributions of assets to stockholders, the
divisor used in calculating the Nikkei 225 Index is adjusted in a manner
designed to prevent any instantaneous change or discontinuity in the level of
the Nikkei 225 Index. The divisor remains at the new value until a further
adjustment is necessary as the result of another change. As a result of each
change affecting any stock, the divisor is adjusted in such a way that the sum
of all share prices immediately after the change multiplied by the applicable
Weight Factor and divided by the new divisor, i.e., the level of the Nikkei
225 Index immediately after the change, will equal the level of the Nikkei 225
Index immediately prior to the change.
Stocks may be deleted or added by NKS. However, to maintain continuity
in the Nikkei 225 Index, the policy of NKS is generally not to alter the
composition of the stocks except when a stock is deleted in accordance with
the following criteria. Any stock becoming ineligible for listing in the First
Section of the TSE due to any of the following reasons will be deleted from
the Nikkei 225 Index: bankruptcy of the issuer; merger of the issuer into, or
acquisition of the issuer by, another company; delisting of the stock or
transfer of the stock to the "Seiri-Post" because of excess debt of the issuer
or because of any other reason; or transfer of the stock to the Second Section
of the TSE. Upon deletion of a stock from the Nikkei 225 Index, NKS will
select, in accordance with certain criteria established by it, a replacement
for the deleted stock. In an exceptional case, a newly listed stock in the
First Section of the TSE that is recognized by NKS to be representative of a
market may be added to the Nikkei 225 Index. As a result, an existing stock
with low trading volume and not representative of a market will be deleted.
None of ML&Co., MLPF&S and NKS accepts any responsibility for the
calculation, maintenance or publication of the Index or any successor index.
NKS disclaims all responsibility for any errors or omissions in the
calculation and dissemination of the Nikkei 225 Index or the manner in which
the Nikkei 225 Index is applied in determining any Starting Value or Ending
Value or any Redemption Amount payable to you on the maturity date of the
Notes.
All disclosure contained in this pricing supplement regarding the Nikkei
225 Index, including, without limitation, its make-up, method of calculation
and changes in its components, is derived from publicly available information.
The information reflects the policies of, and is subject to change by NKS.
ML&Co. and MLPF&S do not assume any responsibility for the accuracy or
completeness of that information.
PS-18
The Tokyo Stock Exchange
The TSE is one of the world's largest securities exchanges in terms of
market capitalization. Trading hours are currently from 9:00 A.M. to 11:00
A.M. and from 1:00 P.M. to 3:00 P.M., Tokyo time, Monday through Friday.
Due to the time zone difference, on any normal trading day the TSE will
close prior to the opening of business in New York City on the same calendar
day. Therefore, the closing level of the Index on a trading day will generally
be available in the United States by the opening of business on the same
calendar day.
The TSE has adopted certain measures, including daily price floors and
ceilings on individual stocks, intended to prevent any extreme short-term
price fluctuations resulting from order imbalances. In general, any stock
listed on the TSE cannot be traded at a price lower than the applicable price
floor or higher than the applicable price ceiling. These price floors and
ceilings are expressed in absolute Japanese yen, rather than percentage limits
based on the closing price of the stock on the previous trading day. In
addition, when there is a major order imbalance in a listed stock, the TSE
posts a "special bid quote" or a "special asked quote" for that stock at a
specified higher or lower price level than the stock's last sale price in
order to solicit counter-orders and balance supply and demand for the stock.
Prospective investors should also be aware that the TSE may suspend the
trading of individual stocks in certain limited and extraordinary
circumstances, including, for example, unusual trading activity in that stock.
As a result, changes in the Index may be limited by price limitations or
special quotes, or by suspension of trading, on individual stocks which
comprise the Nikkei 225 Index, and these limitations may, in turn, adversely
affect the value of the Notes.
Historical data on the Nikkei 225 Index
The following table sets forth the closing level of the Nikkei 225 Index
at the end of each month in the period from January 2001 through January 2006.
This historical data on the Nikkei 225 Index is not necessarily indicative of
the future performance of the Nikkei 225 Index or what the value of the Notes
may be. Any historical upward or downward trend in the level of the Nikkei 225
Index during any period set forth below is not an indication that the Nikkei
225 Index 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.............13843.55 9997.80 8339.94 10783.61 11387.59 16649.82
February............12883.54 10587.83 8363.04 11041.92 11740.60
March...............12999.70 11024.94 7972.71 11715.39 11668.95
April...............13934.32 11492.54 7831.42 11761.79 11008.90
May.................13262.14 11763.70 8424.51 11236.37 11276.59
June................12969.05 10621.84 9083.11 11858.87 11584.01
July................11860.77 9877.94 9563.21 11325.78 11899.60
August..............10713.51 9619.30 10343.55 11081.79 12413.60
September........... 9774.68 9383.29 10219.05 10823.57 13574.30
October.............10366.34 8640.48 10559.59 10771.42 13606.50
November............10697.44 9215.56 10100.57 10899.25 14872.15
December............10542.62 8578.95 10676.64 11488.76 16111.43
PS-19
The following graph sets forth the historical performance of the Nikkei
225 Index presented in the preceding table. Past movements of the Index are
not necessarily indicative of the future performance of the Nikkei 225 Index.
On February 17, 2006, the closing level of the Nikkei 225 Index was 15,713.45.
[GRAPHIC OMITTED]
License Agreement
NKS and ML&Co. have entered into a non-exclusive license agreement
providing for the license to ML&Co., in exchange for a fee, of a right to use
indices owned and published by NKS in connection with some securities,
including the Notes.
NKS is under no obligation to continue the calculation and dissemination
of the Nikkei 225 Index. The Notes are not sponsored, endorsed, sold or
promoted by NKS. No inference should be drawn from the information contained
in this pricing supplement that NKS makes any representation or warranty,
implied or express, to ML&Co., the holder of the Notes or any member of the
public regarding the advisability of investing in securities generally or in
the Notes in particular or the ability of the Notes to track general stock
market performance. NKS has no obligation to take the needs of ML&Co. or the
holders of the Notes into consideration in determining, composing or
calculating the Index. NKS is not responsible for, and has not participated in
the determination of the timing of, prices for, or quantities of, the Notes to
be issued or in the determination or calculation of the equation by which the
Notes are to be settled in cash. NKS has no obligation or liability in
connection with the administration or marketing of the Notes.
The use of and reference to the Index in connection with the Notes have
been consented to by NKS, the publisher of the Index. The copyright relating
to the Nikkei 225 Index and intellectual property rights as to the indications
for "Nikkei" and the Nikkei 225 Index and any other rights belong to NKS.
S&P/ASX 200 Index
The S&P/ASX 200 Index was introduced in April 2000 with a base value of
3000 to replace the All Ordinaries as an institutional benchmark index for the
Australian equity market. As of December 31, 2005 the S&P/ASX 200 Index
covered approximately 78% of the Australian equities market. The S&P/ASX 200
Index is composed of the S&P/ASX 100 plus an additional 100 stocks selected by
the Standard and Poor's Australian Index Committee. To be eligible for
inclusion, the stocks must be listed on the Australian Stock Exchange (the
"ASX"),
PS-20
actively and regularly traded and have a minimum free float threshold of 30%.
Calculation for the S&P/ASX 200 Index is based on stock prices taken from the
ASX. The official daily index closing values for price and accumulation
indices, are calculated after the market closes and are based on the last
traded price for each constituent.
The S&P/ASX 200 Index is governed by the Standard and Poor's Australian
Index Committee, made up of members of Standard and Poor's and the ASX. The
Committee reviews constituents quarterly to ensure adequate market
capitalization and liquidity. The weighting of constituents in the S&P/ASX 200
is determined by the free float assigned to each stock by the Committee. Each
stock's free float is reviewed as part of the March quarterly review.
All disclosure in this pricing supplement regarding the S&P/ASX 200
Index, including, without limitation, its make-up, method of calculation and
changes in its components, unless otherwise stated is derived from publicly
available information. The information reflects the policies of, and is
subject to change by Standard and Poor's. ML&Co. and MLPF&S do not assume any
responsibility for the accuracy or completeness of that information.
Historical data on the S&P/ASX 200 Index
The following table sets forth the closing level of the S&P/ASX 200
Index at the end of each month in the period from January 2001 through January
2006. This historical data on the S&P/ASX 200 Index is not necessarily
indicative of the future performance of the S&P/ASX 200 Index or what the
value of the Notes may be. Any historical upward or downward trend in the
level of the S&P/ASX 200 Index during any period set forth below is not an
indication that the S&P/ASX 200 Index 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.............. 3341.70 3464.20 2956.90 3272.00 4107.30 4929.60
February............. 3326.50 3414.30 2800.90 3360.60 4172.80
March................ 3147.20 3414.80 2885.20 3415.30 4109.90
April................ 3329.40 3350.00 3007.50 3400.80 3983.20
May.................. 3379.10 3373.60 3011.00 3460.20 4106.40
June................. 3490.30 3216.00 3025.80 3532.90 4277.50
July................. 3324.50 3086.20 3122.30 3536.10 4388.80
August............... 3275.60 3120.10 3199.70 3553.70 4446.80
September............ 3049.50 2970.90 3169.50 3665.00 4641.20
October.............. 3249.60 3042.90 3272.00 3778.60 4459.70
November............. 3337.50 3061.40 3186.40 3931.30 4634.80
December............. 3422.30 3007.10 3299.80 4050.60 4763.40
PS-21
The following graph sets forth the historical performance of the S&P/ASX
200 Index presented in the preceding table. Past movements of the Index are
not necessarily indicative of the future performance of the S&P/ASX 200 Index.
On February 17, 2006, the closing level of the S&P/ASX 200 Index was 4,799.90.
[GRAPHIC OMITTED]
License Agreement
S&P 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 indices owned and published by S&P in connection with some securities,
including the Notes, and ML&Co. is an authorized sublicensee of MLPF&S.
The license agreement between S&P and MLPF&S provides that the following
language must be stated in this pricing supplement:
"S&P and S&P/ASX are trademarks of The McGraw-Hill Companies, Inc. and
have been licensed for use by MLPF&S and ML&Co.
The Notes are not sponsored, endorsed, sold or promoted by Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). Neither S&P nor
the Australian Stock Exchange ("ASX") makes any representation or warranty,
express or implied, to the holders of the Notes or any member of the public
regarding the advisability of investing in securities generally or in the
Notes particularly or the ability of the S&P/ASX 200 Index to track general
stock market performance. S&P's and ASX's only relationship to MLPF&S and
ML&Co. (other than transactions entered into in the ordinary course of
business) is the licensing of certain trademarks and trade names of S&P and
ASX and of the S&P/ASX 200 Index which is determined, composed and calculated
by S&P without regard to ML&Co. or the Notes. S&P and ASX have no obligation
to take the needs of ML&Co. or the holders of the Notes into consideration in
determining, composing or calculating the S&P/ASX 200 Index. S&P and ASX are
not responsible for and have not participated in the determination of the
timing of the sale of the Notes, prices at which the Notes are to initially be
sold, or quantities of the Notes to be issued or in the determination or
calculation of the equation by which the Notes are to be converted into cash.
S&P and ASX have no obligation or liability in connection with the
administration, marketing or trading of the Notes.
S&P AND ASX DO NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
S&P/ASX 200 INDEX OR ANY DATA INCLUDED THEREIN AND S&P AND ASX SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. S&P AND ASX MAKE
NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY ML&CO.,
MLPF&S, HOLDERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF
THE S&P/ASX 200
PS-22
INDEX OR ANY DATA INCLUDED IN THE S&P/ASX 200 INDEX IN CONNECTION WITH THE
RIGHTS LICENSED UNDER THE LICENSE AGREEMENT DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR FOR ANY OTHER USE. S&P AND ASX MAKE NO EXPRESS OR IMPLIED
WARRANTIES, AND HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE S&P/ASX 200 INDEX OR ANY
DATA INCLUDED IN THE S&P/ASX 200 INDEX. WITHOUT LIMITING ANY OF THE ABOVE
INFORMATION, IN NO EVENT SHALL S&P AND ASX HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGE (INCLUDING LOST PROFITS) EVEN IF
NOTIFIED OF THE POSSIBILITY OF THESE DAMAGES."
Hang Seng Index
The Hang Seng Index is compiled, published and managed by HSI and was
first calculated and published on November 24, 1969. The Hang Seng Index is a
market-capitalization weighted index consisting of 33 constituent stocks that,
as of February 17, 2006, accounted for about 70% of the total market
capitalization of all eligible stocks listed on the Stock Exchange of Hong
Kong Ltd. (the "SEHK"). To be eligible for selection, a company: (1) must be
among those that constitute the top 90% of the total market capitalization of
all ordinary shares listed on the SEHK (market capitalization is expressed as
an average of the past 12 months); (2) must be among those that constitute the
top 90% of the total turnover on the SEHK (turnover is aggregated and
individually assessed for eight quarterly subperiods for the past 24 months);
(3) should normally have a listing history of at least 24 months; and (4)
should not be a secondary listed company. From the many eligible candidates,
final selections are based on the following: (1) the market capitalization and
turnover rankings of the companies; (2) the representation of the subsectors
within the Hang Seng Index directly reflecting that of the market; and (3) the
financial performance of the companies.
All disclosure in this pricing supplement regarding the Hang Seng Index,
including, without limitation, its make-up, method of calculation and changes
in its components, is derived from publicly available information. This
information reflects the policies of, and is subject to change by HSI and Hang
Seng Data Services Limited. ML&Co. and MLPF&S do not assume any responsibility
for the accuracy or completeness of that information.
Historical data on the Hang Seng Index
The following table sets forth the closing level of the Hang Seng Index
at the end of each month in the period from January 2001 through January 2006.
This historical data on the Hang Seng Index is not necessarily indicative of
the future performance of the Hang Seng Index or what the value of the Notes
may be. Any historical upward or downward trend in the level of the Hang Seng
Index during any period set forth below is not an indication that the Hang
Seng Index 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..............16102.35 10725.30 9258.95 13289.37 13721.69 15753.14
February.............14787.87 10482.55 9122.66 13907.03 14195.35
March................12760.64 11032.92 8634.45 12681.67 13516.88
April................13386.04 11497.58 8717.22 11942.96 13908.97
May..................13174.41 11301.94 9487.38 12198.24 13867.07
June.................13042.53 10598.55 9577.12 12285.75 14201.06
July.................12316.69 10267.36 10134.83 12238.03 14880.98
August...............11090.48 10043.87 10908.99 12850.28 14903.55
September............ 9950.70 9072.21 11229.87 13120.03 15428.52
October..............10073.97 9441.25 12190.10 13054.66 14386.37
November.............11279.25 10069.87 12317.47 14060.05 14937.14
December.............11397.21 9321.29 12575.94 14230.14 14876.43
PS-23
The following graph sets forth the historical performance of the Hang
Seng Index presented in the preceding table. Past movements of the Hang Seng
Index are not necessarily indicative of the future performance of the Hang
Seng Index. On February 17, 2006, the closing level of the Hang Seng Index was
15,474.69.
[GRAPHIC OMITTED]
License Agreement
ML&Co. will enter into a non-exclusive license agreement with HSI and
Hang Seng Data Services Limited providing for the license to ML&Co., in
exchange for a fee, of the right to use certain indices calculated by HSI in
connection with the issuance and marketing of securities, including the Notes.
The license agreement will provide that the following information must
be set forth in this pricing supplement:
"The Hang Seng Index (the "Index") is published and compiled by HSI
Services Limited pursuant to a licence from Hang Seng Data Services Limited.
The mark and name Hang Seng Index is proprietary to Hang Seng Data Services
Limited. HSI Services Limited and Hang Seng Data Services Limited have agreed
to the use of, and reference to, the Index by ML&Co. in connection with the
Notes (the "Product"), BUT NEITHER HSI SERVICES LIMITED NOR HANG SENG DATA
SERVICES LIMITED WARRANTS OR REPRESENTS OR GUARANTEES TO ANY BROKER OR HOLDER
OF THE PRODUCT OR ANY OTHER PERSON (i) THE ACCURACY OR COMPLETENESS OF THE
INDEX AND ITS COMPUTATION OR ANY INFORMATION RELATED THERETO; OR (ii) THE
FITNESS OR SUITABILITY FOR ANY PURPOSE OF THE INDEX OR ANY COMPONENT OR DATA
COMPRISED IN IT; OR (iii) THE RESULTS WHICH MAY BE OBTAINED BY ANY PERSON FROM
THE USE OF THE INDEX OR ANY COMPONENT OR DATA COMPRISED IN IT FOR ANY PURPOSE,
AND NO WARRANTY OR REPRESENTATION OR GUARANTEE OF ANY KIND WHATSOEVER RELATING
TO THE INDEX IS GIVEN OR MAY BE IMPLIED. The process and basis of computation
and compilation of the Index and any of the related formula or formulae,
constituent stocks and factors may at any time be changed or altered by HSI
Services Limited without notice. TO THE EXTENT PERMITTED BY APPLICABLE LAW, NO
RESPONSIBILITY OR LIABILITY IS ACCEPTED BY HSI SERVICES LIMITED OR HANG SENG
DATA SERVICES LIMITED (i) IN RESPECT OF THE USE OF AND/OR REFERENCE TO THE
INDEX BY ML&CO. IN CONNECTION WITH THE PRODUCT; OR (ii) FOR ANY INACCURACIES,
OMISSIONS, MISTAKES OR ERRORS OF HSI SERVICES LIMITED IN THE COMPUTATION OF
THE
PS-24
INDEX; OR (iii) FOR ANY INACCURACIES, OMISSIONS, MISTAKES, ERRORS OR
INCOMPLETENESS OF ANY INFORMATION USED IN CONNECTION WITH THE COMPUTATION OF
THE INDEX WHICH IS SUPPLIED BY ANY OTHER PERSON; OR (iv) FOR ANY ECONOMIC OR
OTHER LOSS WHICH MAY BE DIRECTLY OR INDIRECTLY SUSTAINED BY ANY BROKER OR
HOLDER OF THE PRODUCT OR ANY OTHER PERSON DEALING WITH THE PRODUCT AS A RESULT
OF ANY OF THE AFORESAID, AND NO CLAIMS, ACTIONS OR LEGAL PROCEEDINGS MAY BE
BROUGHT AGAINST HSI SERVICES LIMITED AND/OR HANG SENG DATA SERVICES LIMITED in
connection with the Product in any manner whatsoever by any broker, holder or
other person dealing with the Product. Any broker, holder or other person
dealing with the Product does so therefore in full knowledge of this
disclaimer and can place no reliance whatsoever on HSI Services Limited and
Hang Seng Data Services Limited. For the avoidance of doubt, this disclaimer
does not create any contractual or quasi-contractual relationship between any
broker, holder or other person and HSI Services Limited and/or Hang Seng Data
Services Limited and must not be construed to have created such relationship."
Dow Jones EURO STOXX 50 Index
The Dow Jones EURO STOXX 50 Index (the "EURO STOXX 50 Index") was
created by STOXX, a joint venture founded by SWX Group, Deutsche Borse AG and
Dow Jones & Company, Inc. ("Dow Jones"). Publication of the Index began on
February 26, 1998, based on an initial level of the Index of 1,000 at December
31, 1991.
The EURO STOXX 50 Index was created by STOXX Limited to reflect the
market-capitalization weighted performance of large companies from the major
industry groupings in Austria, Belgium, Finland, France, Germany, Greece,
Ireland, Italy, the Netherlands, Portugal and Spain. The companies included in
the Index account for approximately 60% of the free-float market
capitalization of the Dow Jones EURO STOXX Total Market Index, which in turn
accounts for approximately 95% of the free-float market capitalization of the
countries with companies eligible for inclusion in the EURO STOXX 50 Index.
The EURO STOXX 50 Index is currently calculated by: (i) multiplying the
per share price of each underlying security by the number of free-float
adjusted outstanding shares (and, if the stock is not quoted in euros, then
multiplying by the related country currency and an exchange factor which
reflects the exchange rate between the related country currency and the euro);
(ii) calculating the sum of all these products (the "Index Aggregate Market
Capitalization"); and (iii) dividing the Index Aggregate Market Capitalization
by a divisor which represents the Index Aggregate Market Capitalization on the
base date of the EURO STOXX 50 Index and which can be adjusted to allow
changes in the issued share capital of individual underlying securities,
including the deletion and addition of stocks, the substitution of stocks,
stock dividends and stock splits, to be made without distorting the EURO STOXX
50 Index. Because of this capitalization weighting, movements in share prices
of the underlying securities of companies with relatively greater market
capitalization will have a greater effect on the level of the entire EURO
STOXX 50 Index than will movements in share prices of the underlying
securities of companies with relatively smaller market capitalization.
The weight of each Underlying Stock that comprises the EURO STOXX 50
Index is capped at 10% of the EURO STOXX 50 Index's total free-float market
capitalization. The free-float weights are reviewed quarterly.
The composition of the EURO STOXX 50 Index is reviewed annually, and
changes are implemented on the third Friday in September, using market data
from the end of August as the basis for the review process. Changes in the
composition of the EURO STOXX 50 Index are made to ensure that the EURO STOXX
50 Index includes those companies which, within the eligible countries and
within each industry sector, have the greatest market capitalization. Changes
in the composition of the EURO STOXX 50 Index are made entirely by STOXX
without consultation with the companies represented in the EURO STOXX 50 Index
or ML&Co. The Index is also reviewed on an ongoing basis, and a change in the
composition of the EURO STOXX 50 Index may be necessary if there have been
extraordinary events for one of the issuers of the underlying securities,
e.g., delisting, bankruptcy, merger or takeover. In these cases, the event is
taken into account as soon as it is effective. The underlying securities may
be changed at any time for any reason. Neither STOXX nor any of its founders
is affiliated with ML&Co. nor have they participated in any way in the
creation of the Notes.
ML&Co. or its affiliates may presently or from time to time engage in
business with the publishers,
PS-25
owners, founders or creators of the Index or any of its successors or one or
more of the issuers of the underlying securities, including extending loans
to, making equity investments in or providing advisory services, including
merger and acquisition advisory services, to the publishers, their successors,
founders or creators or to any of the issuers. In the course of business with
the issuers, ML&Co. or its affiliates may acquire non-public information with
respect to the issuers. ML&Co. may also act as market maker for the common
stocks of the issuers. ML&Co. does not make any representation to any
purchaser of the Notes with respect to any matters whatsoever relating to any
of the publishers, their successors, founders or creators or to any of the
issuers. Any prospective purchaser of the Notes should undertake an
independent investigation of the issuers of the underlying securities and with
respect to the competency of its publisher to formulate and calculate the
Index as in its judgment is appropriate to make an informed decision with
respect to an investment in the Notes. The composition of the Index does not
reflect any investment or sell recommendations of ML&Co. or its affiliates.
A representative of an affiliate of ML&Co. may from time to time be a
member of the STOXX Limited Advisory Committee. STOXX states in its Guide to
the Dow Jones STOXX Indexes that STOXX's Advisory Committee advises the
Supervisory Board on matters relating to the EURO STOXX 50 Index. This
advisory committee proposes changes in the composition of the EURO STOXX 50
Index to the Supervisory Board and makes recommendations with respect to the
accuracy and transparency of the EURO STOXX 50 Index computation. Decisions on
the composition and changes in the EURO STOXX 50 Index are reserved to the
Supervisory Board.
All disclosure contained in this pricing supplement regarding the EURO
STOXX 50 Index, including, without limitation, its make-up, method of
calculation and changes in its components, is derived from publicly available
information. This information reflects the policies of, and is subject to
change by STOXX or Dow Jones. ML&Co. and MLPF&S do not assume any
responsibility for the accuracy or completeness of that information.
Historical data on the EURO STOXX 50 Index
The following table sets forth the level of the EURO STOXX 50 Index at
the end of each month in the period from January 2001 through January 2006.
This historical data on the Index is not necessarily indicative of the future
performance of the EURO STOXX 50 Index or what the value of the Notes may be.
Any historical upward or downward trend in the level of the EURO STOXX 50
Index during any period set forth below is not an indication that the EURO
STOXX 50 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........... 4779.90 3670.26 2248.17 2839.13 2984.59 3691.41
February.......... 4318.88 3624.74 2140.73 2893.18 3058.32
March............. 4185.00 3784.05 2036.86 2787.49 3055.73
April............. 4525.01 3574.23 2324.23 2787.48 2930.10
May............... 4426.24 3425.79 2330.06 2736.83 3076.70
June.............. 4243.91 3133.39 2419.51 2811.08 3181.54
July.............. 4091.38 2685.79 2519.79 2720.05 3326.51
August............ 3743.97 2709.29 2556.71 2670.79 3263.78
September......... 3296.66 2204.39 2395.87 2726.30 3428.51
October........... 3478.63 2518.99 2575.04 2811.72 3320.15
November.......... 3658.27 2656.85 2630.47 2876.39 3447.07
December.......... 3806.13 2386.41 2760.66 2951.24 3578.93
PS-26
The following graph sets forth the historical performance of the EURO
STOXX 50 Index presented in the preceding table. Past movements of the EURO
STOXX 50 Index are not necessarily indicative of the future performance of the
EURO STOXX 50 Index. On February 17, 2006, the closing level of the EURO STOXX
50 Index was 3,767.70.
[GRAPHIC OMITTED]
License Agreement
STOXX and Merrill Lynch & Co., Inc. have entered into a non-exclusive
license agreement providing for the license to Merrill Lynch & Co. and its
wholly-owned subsidiaries, in exchange for a fee, of the right to use the EURO
STOXX 50 Index, which is owned and published by STOXX, in connection with
certain securities and other products, including the Notes.
The license agreement between STOXX and Merrill Lynch & Co., Inc.
provides that the following language must be set forth in this pricing
supplement:
"The Dow Jones EURO STOXX 50 Index is proprietary and copyrighted
material. The Dow Jones EURO STOXX 50 Index and the related trademarks have
been licensed for certain purposes by Merrill Lynch & Co., Inc. STOXX, Dow
Jones and Dow Jones EURO STOXX 50 Index are trademarks of Dow Jones & Company,
Inc. and have been licensed for use. STOXX and Dow Jones have no relationship
to Merrill Lynch & Co., Inc., other than the licensing of the Dow Jones EURO
STOXX 50 Index and the related trademarks for use in connection with the
Notes. STOXX and Dow Jones do not:
o Sponsor, endorse, sell or promote the Notes.
o Recommend that any person invest in the Deposits or any
other securities.
o Have any responsibility or liability for or make any
decisions about the timing, amount or pricing of the Notes.
o Have any responsibility or liability for the administration,
management or marketing of the Notes.
o Consider the needs of the owners of the Notes in
determining, composing or calculating the Dow Jones EURO
STOXX 50 Index or have any obligation to do so.
PS-27
STOXX and Dow Jones will not have any liability in connection with the Notes.
Specifically,
o STOXX and Dow Jones do not make any warranty, express or implied
and disclaim any and all warranty about:
o The results to be obtained by the Deposits, the owner of the Notes
or any other person in connection with the use of the Dow Jones
EURO STOXX 50 Index and the data included in the Dow Jones EURO
STOXX 50 Index;
o The accuracy or completeness of the Dow Jones
EURO STOXX 50 Index and its data;
o The merchantability and the fitness for a particular purpose or
use of the Dow Jones EURO STOXX 50 Index and its data;
o STOXX and Dow Jones will have not liability for any errors,
omissions or interruptions in the Dow Jones EURO STOXX 50 Index or
its data;
o Under no circumstances will STOXX or Dow Jones be liable for any
lost profits or indirect, punitive, special or consequential
damages or losses, even if STOXX or Dow Jones knows that they
might occur.
The licensing agreement between the Merrill Lynch and Co., Inc. and
STOXX is solely for their benefit and not for the benefit of the owners of the
Notes or any other third parties."
PS-28
UNITED STATES FEDERAL INCOME TAXATION
Set forth in full below is the opinion of Sidley Austin LLP, counsel to
ML&Co. ("Tax Counsel"). As the law applicable to the U.S. federal income
taxation of instruments such as the Notes is technical and complex, the
discussion below necessarily represents only a general summary. The following
discussion is based upon laws, regulations, rulings and decisions now in
effect, all of which are subject to change (including changes in effective
dates) or possible differing interpretations. 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 supercedes that discussion to the extent that it contains information that
is inconsistent with that 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, tax-exempt entities or persons holding Notes in a
tax-deferred or tax-advantaged account (except to the extent specifically
discussed below), dealers in securities or currencies, traders in securities
that elect to mark to market, persons subject to the alternative minimum tax,
persons holding 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 United
States dollar. It also does not deal with holders other than original
purchasers. 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 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 herein, the term "U.S. Holder" means a beneficial owner of a
Note that is for United States federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation or a partnership (including
an entity treated as a corporation or a partnership for United States federal
income tax purposes) that is created or organized in or under the laws of the
United States, any state thereof or the District of Columbia (unless, in the
case of a partnership, Treasury regulations are adopted that provide
otherwise), (iii) an estate the income of which is subject to United States
federal income tax regardless of its source, (iv) a trust if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust or (v) any other
person whose income or gain in respect of a Note is effectively connected with
the conduct of a United States trade or business. Certain trusts not described
in clause (iv) above in existence on August 20, 1996, that elect to be treated
as United States persons will also be U.S. Holders for purposes of the
following discussion. As used herein, the term "non-U.S. Holder" means a
beneficial owner of a 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 and treatment,
for United States federal income tax purposes, of the Notes or securities with
terms substantially the same as the Notes. Accordingly, the proper United
States federal income tax characterization and treatment of the Notes is
uncertain. Pursuant to the terms of the Notes, ML&Co. and every holder of a
Note agree (in the absence of an administrative determination, judicial ruling
or other authoritative guidance to the contrary) to characterize a Note for
all tax purposes as a pre-paid cash-settled forward contract linked to the
value of the Basket. In the opinion of Tax Counsel, this characterization and
tax treatment of the Notes, although not the only reasonable characterization
and tax treatment, is based on reasonable interpretations of law currently in
effect and, even if successfully challenged by the Internal Revenue Service
(the "IRS"), will not result in the imposition of penalties. The treatment of
the Notes described above is not, however, binding on the IRS or the courts.
No statutory, judicial or administrative authority directly addresses the
characterization of the Notes or instruments similar to the Notes for United
States federal income tax purposes, and no ruling is being requested from the
IRS with respect to the Notes.
Due to the absence of authorities that directly address instruments that
are similar to the Notes, significant aspects of the United States federal
income tax consequences of an investment in the Notes are not certain, and no
assurance can be given that the IRS or the courts will agree with the
characterization described above. Accordingly, prospective purchasers are
urged to consult their own tax advisors regarding the United States federal
income tax
PS-29
consequences of an investment in the Notes (including alternative
characterizations of the Notes) and with respect to any tax consequences
arising under the laws of any state, local or foreign taxing jurisdiction.
Unless otherwise stated, the following discussion is based on the assumption
that the treatment described above is accepted for United States federal
income tax purposes.
Tax Treatment of the Notes
Assuming the characterization of the Notes as set forth above, Tax
Counsel believes that the following United States federal income tax
consequences should result.
Tax Basis. A U.S. Holder's tax basis in a Note will equal the amount
paid by the U.S. Holder to acquire the Note.
Payment on the Maturity Date. Upon the receipt of cash on the maturity
date of the Notes, a U.S. Holder will recognize gain or loss. The amount of
that gain or loss will be the extent to which the amount of the cash received
differs from the U.S. Holder's tax basis in the Note. It is uncertain whether
any such gain or loss would be treated as ordinary income or loss or capital
gain or loss. Absent a future clarification in current law (by an
administrative determination, judicial ruling or otherwise), where required,
ML&Co. intends to report any such gain or loss to the IRS in a manner
consistent with the treatment of that gain or loss as capital gain or loss. If
any gain or loss is treated as capital gain or loss, then that gain or loss
will generally be short-term or long-term capital gain or loss, as the case
may be, depending upon the U.S. Holder's holding period for the Note as of the
maturity date. The deductibility of capital losses is subject to certain
limitations.
Sale or Exchange of the Notes. Upon a sale or exchange of a Note prior
to the maturity date of the Notes, a U.S. Holder will generally recognize
capital gain or loss in an amount equal to the difference between the amount
realized on the sale or exchange and the U.S. Holder's tax basis in the Note
so sold or exchanged. Any such capital gain or loss will generally be
short-term or long-term capital gain or loss, depending upon the U.S. Holder's
holding period for the Note at the time of disposition. As discussed above,
the deductibility of capital losses is subject to certain limitations.
Possible Alternative Tax Treatments of an Investment in the Notes
Due to the absence of authorities that directly address the proper
characterization of the Notes, no assurance can be given that the IRS will
accept, or that a court will uphold, the characterization and tax treatment of
the Notes described above. In particular, the IRS could seek to analyze the
United States federal income tax consequences of owning the Notes under
Treasury regulations governing contingent payment debt instruments (the "CPDI
Regulations").
If the IRS were successful in asserting that the CPDI Regulations
applied to the Notes, the timing and character of income thereon would be
significantly affected. Among other things, a U.S. Holder would be required to
accrue original issue discount on the Notes every year at a "comparable yield"
for us, determined at the time of issuance of the Notes. Furthermore, any gain
realized on the maturity date or upon a sale or other disposition of the Notes
would generally be treated as ordinary income, and any loss realized on the
maturity date or upon a sale or other disposition of the Notes would be
treated as ordinary loss to the extent of the U.S. Holder's prior accruals of
original issue discount and capital loss thereafter.
Even if the CPDI Regulations do not apply to the Notes, other
alternative United States federal income tax characterizations or treatments
of the Notes may also be possible, and if applied could also affect the timing
and the character of the income or loss with respect to the Notes.
Accordingly, prospective purchasers are urged to consult their tax advisors
regarding the United States federal income tax consequences of an investment
in the Notes.
Constructive Ownership Law
Section 1260 of the Internal Revenue Code of 1986, as amended (the
"Code"), treats a taxpayer owning certain types of derivative positions in
property as having "constructive ownership" of that property, with the result
that all or a portion of any long-term capital gain recognized by that
taxpayer with respect to the derivative position will be recharacterized as
ordinary income. In its current form, Section 1260 of the Code does not apply
to the Notes. If Section 1260 of the Code were to apply to the Notes in the
future, however, the effect on a U.S. Holder of a
PS-30
Note would be to treat all or a portion of any long-term capital gain
recognized by the U.S. Holder on the sale, exchange or maturity of a Note as
ordinary income. In addition, Section 1260 of the Code would impose an
interest charge on any gain that was recharacterized. U.S. Holders should
consult their tax advisors regarding the potential application of Section 1260
of the Code, if any, to the purchase, ownership and disposition of a Note.
Unrelated Business Taxable Income
Section 511 of the Code generally imposes a tax, at regular corporate or
trust income tax rates, on the "unrelated business taxable income" of certain
tax-exempt organizations, including qualified pension and profit sharing plan
trusts and individual retirement accounts. As discussed above, the U.S.
federal income tax characterization of the Notes is uncertain. Nevertheless,
in general, if the Notes are held for investment purposes, the amount of
income or gain, if any, realized on the maturity date or upon a sale or
exchange of a Note prior to the maturity date, or any income that would accrue
to a holder of a Note if the Notes were characterized as contingent payment
debt instruments (as discussed above), 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
Based on the treatment of each Note as a pre-paid cash-settled forward
contract linked to the value of the Basket, in the case of a non-U.S. Holder,
a payment made with respect to a Note on the maturity date will not be subject
to United States withholding tax, provided that the non-U.S. Holder complies
with applicable certification requirements and that the payment is not
effectively connected with a United States trade or business of the non-U.S.
Holder. Any capital gain realized upon the sale or other disposition of a Note
by a non-U.S. Holder will generally not be subject to United States federal
income tax if (i) that gain is not effectively connected with a United States
trade or business of the non-U.S. Holder and (ii) in the case of an individual
non-U.S. Holder, the individual is not present in the United States for 183
days or more in the taxable year of the sale or other disposition, or the gain
is not attributable to a fixed place of business maintained by the individual
in the United States, and the individual does not have a "tax home" (as
defined for United States federal income tax purposes) in the United States.
As discussed above, alternative characterizations of the Notes for
United States federal income tax purposes are possible. Should an alternative
characterization of the Notes, by reason of a change or clarification of the
law, by regulation or otherwise, cause payments with respect to the Notes to
become subject to withholding tax, ML&Co. will withhold tax at the applicable
statutory rate. Prospective non-U.S. Holders of the Notes should consult their
own tax advisors in this regard.
Backup Withholding
A beneficial owner of a Note may be subject to backup withholding at the
applicable statutory rate of United States federal income tax on certain
amounts paid to the beneficial owner unless the beneficial owner provides
proof of an applicable exemption or a correct taxpayer identification number,
and otherwise complies with applicable requirements of the backup withholding
rules.
Any amounts withheld under the backup withholding rules from a payment
to a beneficial owner would be allowed as a refund or a credit against the
beneficial owner's United States federal income tax provided the required
information is furnished to the IRS.
PS-31
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.
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
PS-32
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 prospectus and to hedge market
risks of ML&Co. associated with its obligation to pay the Redemption Amount.
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 of this pricing supplement. After the
initial public offering, the public offering prices may be changed. The
obligations of MLPF&S are subject to certain conditions and it is committed to
take and pay for all of the 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-33
INDEX OF CERTAIN DEFINED TERMS
Basket....................................................................PS-3
Basket Business Day......................................................PS-12
Basket Index..............................................................PS-3
Business Day.............................................................PS-15
Calculation Agent.........................................................PS-6
Calculation Day..........................................................PS-12
Calculation Period.......................................................PS-12
Capped Value..............................................................PS-4
Ending Value..............................................................PS-4
Index Publisher .........................................................PS-14
Market Disruption Event..................................................PS-14
Multiplier ...............................................................PS-3
Notes.....................................................................PS-1
Pricing Date..............................................................PS-3
Redemption Amount.........................................................PS-4
Starting Value............................................................PS-4
Successor index..........................................................PS-15
Underlying Stocks.........................................................PS-3
PS-34
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[GRAPHIC OMITTED]]
1,000,000 Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
Accelerated Return Notes(R)
Linked to the International Equity Basket
due June , 2007
(the "Notes")
$10 original public offering price per unit
---------------------
PRICING SUPPLEMENT
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Merrill Lynch & Co.
March , 2006
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