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
Merrill Lynch Long Short Notes/SM/
Linked to the Select Industries/Select Sectors Basket
Long Short Index--Series IX
due June , 2007
(the "Notes")
$10 original public offering price per unit
--------------------
The Notes:
o The Notes are designed for investors seeking o There will be no payments prior to the maturity
exposure to a leveraged long position in three date, unless the Notes are redeemed by Merrill
equity industry sector indices and a short Lynch & Co., Inc.
position in two equity sector indices, as
described below. o The Notes will not be listed on any securities
exchange.
o The Select Industries/Select Sectors Basket Long
Short Index--Series IX (the "Composite Index") o The Notes will be senior unsecured debt
will reflect a leveraged long position equal to securities of Merrill Lynch & Co., Inc. and part
150% of the initial level of the Composite Index, of a series entitled "Medium-Term Notes, Series
distributed initially on an equally weighted C". The Notes will have the CUSIP No. .
basis (i.e., 50% per index) over three equity
industry sector indices (collectively, the "Long o The settlement date for the Notes is expected to
Components"), and a short position equal to 50% be April , 2006.
of the initial level of the Composite Index,
distributed initially on an equally weighted Payment on the maturity date:
basis (i.e., 25% per index) over two equity
sector indices (collectively, the "Short o The amount you receive on the maturity date will
Components"). The indices comprising the Long be based upon the percentage change in the level
Components are the S&P 500(R) Diversified of the Composite Index, which reflects the
Telecommunications Services Index, the S&P 500(R) direction of and percentage change in the value
Media Index and the S&P 500(R) Pharmaceutical of the long position in the Long Components and
Index. The indices comprising the Short the short position in the Short Components. If
Components are the Consumer Discretionary Select the level of the Composite Index declines over
Sector Index and the Materials Select Sector the term of the Notes, you will receive less, and
Index. The Composite Index does not take into possibly significantly less, than the $10
account the dividends paid on any of the stocks original public offering price per unit.
included in either the Long Components or the
Short Components. Early redemption:
o Increases in the value of the Long Components o If on any date before the seventh scheduled index
will increase the level of the Composite Index business day before the maturity date the closing
while decreases in the value of the Long level of the Composite Index is equal to or less
Components will decrease the level of the than 50% of its initial level, the Notes will be
Composite Index. Conversely, increases in the redeemed on the fifth business day following that
value of the Short Components will decrease the date. If redeemed, we will pay you an amount
level of the Composite Index and decreases in the based on the percentage decrease in the level of
value of the Short Components will increase the the Composite Index as described in this pricing
level of the Composite Index. supplement.
Information included in this pricing supplement supersedes
information in the accompanying prospectus supplement and prospectus to the
extent that it is different from that information.
Investing in the Notes involves risks that are described in the "Risk
Factors" section beginning on page PS-8 of this pricing supplement and in the
accompanying prospectus supplement.
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Per Unit Total
-------- -----
Public offering price(1) ......................................... $10.00 $
Underwriting fee ................................................. $.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.
"Merrill Lynch Long Short Notes" is a service mark of Merrill Lynch & Co., Inc.
"Standard & Poor's(R)", "Standard & Poor's 500(R)", "S&P 500(R)" and
"S&P(R)" are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by Merrill Lynch, Pierce, Fenner & Smith Incorporated, and
Merrill Lynch & Co., Inc. is an authorized sublicensee.
TABLE OF CONTENTS
Pricing Supplement
Page
---
SUMMARY INFORMATION--Q&A ............................................................. PS-3
RISK FACTORS ......................................................................... PS-8
DESCRIPTION OF THE NOTES ............................................................. PS-11
THE COMPOSITE INDEX .................................................................. PS-15
UNITED STATES FEDERAL INCOME TAXATION ................................................ PS-24
ERISA CONSIDERATIONS ................................................................. PS-27
USE OF PROCEEDS AND HEDGING .......................................................... PS-28
SUPPLEMENTAL PLAN OF DISTRIBUTION .................................................... PS-28
EXPERTS .............................................................................. PS-28
INDEX OF CERTAIN DEFINED TERMS ....................................................... PS-29
Prospectus Supplement
Page
----
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
Page
----
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 Merrill Lynch Long Short
Notes Linked to the Select Industries/Select Sectors Basket Long Short
Index--Series IX 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 Select Industries/Select
Sectors Basket Long Short Index--Series IX (the "Composite Index") 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 in 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, unless redeemed by
us as described in this pricing supplement.
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 sections entitled "Risk Factors" in this
pricing supplement and the accompanying prospectus supplement.
What is the Composite Index?
The Composite Index is designed to provide exposure to a leveraged
long position equal to 150% of the initial level of the Composite Index,
distributed initially on an equally weighted basis (i.e., 50% per index) over
three equity industry sector indices (collectively, the "Long Components"),
and a short position equal to 50% of the initial level of the Composite Index,
distributed initially on an equally weighted basis (i.e., 25% per index) over
two equity sector indices (collectively, the "Short Components", and each Long
or Short Component, an "Index Component"). The Index Components are described
in the sections entitled "The Composite Index--Long Components" and "--Short
Components" in this pricing supplement. The Composite Index does not take into
account any dividends paid on any of the stocks included in any Index
Component (collectively, the "Component Stocks").
Each Index Component will be assigned a weighting and that weighting
reflects the relative contribution that Index Component initially makes to the
level of the Composite Index. The positive weighting of 150% of the initial
level of the Composite Index in the Long Components can be viewed as the
equivalent of a leveraged long position in the Long Components. The negative
weighting of -50% of the initial level of the Composite Index in the Short
Components can be viewed as the equivalent of a short position in the Short
Components. Changes in the level of Index Components that have a greater
absolute weighting will have a greater effect on the level of the Composite
Index than changes in the level of Index Components that have a lesser
absolute weighting.
The level of the Composite Index will be set to 100 on the date the
Notes are priced for initial sale to the public (the "Pricing Date") which
will be in March 2006.
A fixed factor (the "Multiplier") will be determined for each Index
Component on the Pricing Date. The Multipliers can be used to calculate the
level of the Composite Index on any given day by summing the products of the
level of each Index Component and its designated Multiplier, as described in
this pricing supplement. Hypothetical Multipliers for each Index Component are
listed in the section entitled "The Composite Index" 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 Component Stocks.
PS-3
How has the Composite Index performed historically?
The Composite Index will not exist until the Pricing Date. We have,
however, included a table and a graph showing hypothetical historical
month-end levels of the Composite Index from January 2001 through January 2006
based upon historical levels for each Index Component, the hypothetical
Multiplier for each Index Component calculated as of February 14, 2006 and a
Composite Index level of 100 on that date. In addition, we have included
tables and graphs showing the historical monthly levels of each of the Index
Components from January 2001 through January 2006. These tables are included
in the section entitled "The Composite Index" in this pricing supplement.
We have provided this information to help you evaluate the behavior
of the Composite Index in various economic environments; this information,
however, is not necessarily indicative of how the Composite Index will perform
in the future.
What will I receive on the maturity date of the Notes?
On the maturity date, if we have not previously redeemed the Notes,
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 percentage change in the level of the Composite Index over the term of the
Notes and will equal:
-- --
$10 x | Ending Value |
| ------------- |
| Starting Value |
-- --
The "Starting Value" will be set to 100 on the Pricing Date.
For purposes of determining the Redemption Amount, the "Ending Value"
means the average of the levels of the Composite Index at the close of the
market on five Index Business Days (as defined herein) 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 level if, during the period
shortly before the maturity date of the Notes, there is a disruption in
trading of a sufficient number of the Component Stocks.
For more specific information about the Redemption Amount, please see
the section entitled "Description of the Notes" in this pricing supplement.
WM 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 based on the performance of
the Composite Index over the term of the Notes. We have designed the Notes for
investors who are willing to forego interest payments on the Notes, such as
fixed or floating interest rates paid on traditional interest bearing debt
securities, in exchange for receiving the Redemption Amount on the maturity
date or early redemption.
How does the early redemption feature work?
If on any date before the seventh scheduled Index Business Day before
the maturity date the closing level of the Composite Index is equal to or less
than 50, the Notes will be redeemed by us on the fifth Business Day following
that date (the "Early Redemption Date"). If this redemption event is
triggered, we will pay you on the Early Redemption Date a cash payment equal
to the Redemption Amount, as described above; provided, however, for purposes
of calculating the Redemption Amount to be paid on the Early Redemption Date,
the Ending Value will be equal to the average of the closing levels of the
Composite Index on the two scheduled Index Business Days immediately
succeeding the date the closing level of the Composite Index was equal to or
less than 50.
PS-4
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Examples
Set forth below are six examples of Redemption Amount calculations,
assuming:
o The Starting Value of the Composite Index is 100 and the starting
levels of the Index Components are the closing levels of the S&P
500 Diversified Telecommunications Services Index, the S&P 500
Media Index and the S&P 500 Pharmaceutical Index (collectively
comprising the Long Components) and the Consumer Discretionary
Select Sector Index and the Materials Select Sector Index
(collectively comprising the Short Components) as observed on
February 14, 2006 and set forth in the table below. The
hypothetical Multipliers were determined based upon these levels
and used for the calculation of the hypothetical Ending Value in
each example, as described in the section entitled "The Composite
Index" in this pricing supplement.
o We have assumed equal changes in the value of each of the Long
Components and and equal changes in the value of each of the Short
Components. There may, however, be no correlation among the levels
of those indices and an increase or decrease in any one of those
indices does not assure there will be an increase or decrease in
any other index included in the Long Components or Short
Components, respectively; and
o The closing level of the Composite Index is not equal to or less
than 50 on any date before the seventh scheduled Index Business
Day before the maturity date. Therefore, the Notes will not be
redeemed early.
For each Index Component, the following table sets forth the
hypothetical starting value, the hypothetical Multiplier and the hypothetical
closing level used to calculate the level of the Composite Index and the
Redemption Amount in each of the examples below.
Hypothetical Closing Levels
Starting Hypothetical ---------------------------------------------------------------
Index Values Multiplier Example 1 Example 2 Example 3 Example 4 Example 5 Example 6
- ----- ------- ------------ --------- --------- --------- --------- --------- ---------
S&P 500 Diversified
Telecommunications Services Index 117.80 0.42444822 123.69 123.69 123.69 97.77 111.91 111.91
S&P 500 Media Index .................... 187.85 0.26616982 197.24 197.24 197.24 155.92 178.46 178.46
S&P 500 Pharmaceutical Index ........... 308.01 0.16233239 323.41 323.41 323.41 255.65 292.61 292.61
Consumer Discretionary Select
Sector Index ........................... 336.10 -0.07438262 352.91 393.24 319.30 352.91 319.30 278.96
Materials Select Sector Index .......... 322.69 -0.07747374 338.82 377.55 306.56 338.82 306.56 267.83
------- ------------ --------- --------- --------- --------- --------- ---------
Composite Index ........................ 100.00 - 105.00 99.00 110.00 72.00 95.00 101.00
------- --------- --------- --------- --------- --------- ---------
Redemption Amount Per Unit ............. $ 10.50 $ 9.90 $ 11.00 $ 7.20 $ 9.50 $ 10.10
--------- --------- --------- --------- --------- ---------
Example 1-On the maturity date, the value of each of the Long Components
has increased by 5% and the value of each of the Short Components has
increased by 5%:
-- --
Redemption Amount (per unit) = $10 x | 105 | = $ 10.50
| ---- |
| 100 |
-- --
Example 2-On the maturity date, the value of each of the Long Components
has increased by 5% and the value of each of the Short Components has
increased by 17%:
-- --
Redemption Amount (per unit) = $10 x | 99 | = $ 9.90
| ---- |
| 100 |
-- --
Example 3-On the maturity date, the value of each of the Long Components
has increased by 5% and the value of each of the Short Components has
decreased by 5%:
-- --
Redemption Amount (per unit) = $10 x | 110 | = $ 11.00
| ---- |
| 100 |
-- --
- -------------------------------------------------------------------------------
PS-5
- -------------------------------------------------------------------------------
Example 4-On the maturity date, the value of each of the Long Components
has decreased by 17% and the value of each of the Short Components has
increased by 5%:
-- --
Redemption Amount (per unit) = $10 x | 72 | = $ 7.20
| ---- |
| 100 |
-- --
Example 5-On the maturity date, the value of each of the Long Components
has decreased by 5% and the value of each of the Short Components has
decreased by 5%:
-- --
Redemption Amount (per unit) = $10 x | 95 | = $ 9.50
| ---- |
| 100 |
-- --
Example 6-On the maturity date, the value of each of the Long Components
has decreased by 5% and the value of each of the Short Components has
decreased by 17%:
-- --
Redemption Amount (per unit) = $10 x | 101 | = $ 10.10
| ---- |
| 100 |
-- --
- -------------------------------------------------------------------------------
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 level
of the Composite Index. 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, exchange or early redemption 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 securities 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
you receive for your Notes upon any sale prior to the maturity date or
redemption. You should review the section entitled "Risk Factors--A trading
market for the Notes is not expected to develop and if trading does develop,
the market price you may receive or be quoted for your Notes on a date prior
to the stated maturity date will be affected by this and other important
factors including our costs of developing, hedging and distributing the Notes"
in this pricing supplement.
What price can I expect to receive if I sell the Notes prior to the stated
maturity?
In determining the economic terms of the Notes, and consequently the
potential return on the Notes to you, a number of factors are taken into
account. Among these factors are certain costs associated with creating,
hedging and offering the Notes. In structuring the economic terms of the
Notes, we seek to provide investors with what we believe to be commercially
reasonable terms and to provide MLPF&S with compensation for its services in
developing the Notes.
If you sell your Notes prior to the stated maturity date, you will
receive a price determined by market conditions for the Notes. This price may
be influenced by many factors, such as interest rates, volatility and the
current level of the Composite Index. In addition, the price, if any, at which
you could sell your Notes in a secondary market transaction is expected to be
affected by the factors that we considered in setting the economic terms of
the Notes, namely the underwriting discount paid in respect of the Notes and
other costs associated with the Notes, including compensation for developing
and hedging the product. Depending on the impact of these factors, you may
receive significantly less than the $10 original public offering price per
unit of your Notes if sold before the stated maturity date.
In a situation where there had been no movement in the level of the
Composite Index 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 $10 original public offering price per unit. This is due to, among other
things, our costs of developing, hedging and distributing the Notes. Any
potential purchasers for your Notes in the secondary market are unlikely to
consider these factors.
What is the role of MLPF&S?
Our subsidiary MLPF&S is the underwriter for the offering and sale of
the Notes. After the initial offering, MLPF&S 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
PS-6
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. 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 fmd by referring to the section entitled "Where You Can Find More
Information" in the accompanying prospectus.
PS-7
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 or upon early redemption. The Redemption Amount will depend on
the change in the level of the Composite Index. Because the level of the
Composite Index is subject to market fluctuations, the Redemption Amount you
receive may be more or less than the $10 original public offering price per
unit. If the Ending Value on the maturity date is less than the Starting
Value, the Redemption Amount will be less, and possibly significantly less,
than the $10 original public offering price per unit.
In addition, if on any date the closing level of the Composite Index
is equal to or less than 50, the Notes will be redeemed early by us and you
will receive, for each Note then owned by you, a cash amount, based on the
percentage decrease in the level of the Composite Index. This amount will be
significantly less than the $10 original public offering price per unit.
Your yield, which could be negative, 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.
You must rely on your own evaluation of the merits of an investment linked to
the Composite Index
In the ordinary course of their businesses, affiliates of ML&Co. may
express views on expected movements in the S&P 500 Diversified
Telecommunications Services Index, the S&P 500 Media Index, the S&P 500
Pharmaceutical Index, the Consumer Discretionary Select Sector Index and the
Materials Select Sector Index and these views are sometimes communicated to
clients who participate in these equity industry sector indices and equity
sector indices. However, these views are subject to change from time to time.
For these reasons, you are encouraged to derive information concerning the
Composite Index from multiple sources and should not rely on the views
expressed by affiliates of ML&Co.
Your return will not reflect the return of owning the Component Stocks
The return on your Notes will not reflect the return you would
realize if you actually owned the stocks represented by the leveraged long
position in the Long Components and sold short the stocks represented by the
short position in the Short Components. The leveraged long position in the
Long Components will not reflect dividends paid on those stocks because the
level of the Composite Index is calculated by reference to the prices of those
stocks without taking into consideration the value of dividends paid on those
stocks. The trading value of the Notes and final return on the Notes may also
differ from the results of the Composite Index for the reasons discussed below
under "--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 long and short positions of the Index Components will have a substantial
effect on the level of the Composite Index, and in turn, the value of the
Notes
The Composite Index will reflect a leveraged long position in the
Long Components equal to 150% of the initial level of the Composite Index and
a short position in the Short Components equal to 50% of the initial level of
the Composite Index. The leveraged long position offers the potential for
significant increases in the level of the Composite Index due to increases in
the value of the Long Components, but also entails a high degree of risk,
including the risk of substantial decreases in the level of the Composite
Index if there is a decrease in the value of the Long Components. In addition,
as a result of the short position, any increases in the value of the Short
Components will adversely affect the level of the Composite Index, and may
offset any gains in the level of the Composite Index related to increases in
the value of the Long Components.
PS-8
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 level of the Composite Index from
publicly available information, we will not publish the level of the Composite
Index 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 original public offering
price. Furthermore, there is no assurance that MLPF&S or any other party will
be willing to buy the Notes. MLPF&S is not obligated to make a market in the
Notes.
Assuming there is no change in the level of the Composite Index and
no change in market conditions or any other relevant factors, the price, if
any, at which MLPF&S or another purchaser might be willing to purchase your
Notes in a secondary market transaction is expected to be lower than the $10
original public offering price. This is due to, among other things, the fact
that the $10 original public offering price included, and secondary market
prices are likely to exclude, underwriting discount paid with respect to, and
the developing and hedging costs associated with, the Notes.
Many factors affect the trading value of the Notes; these factors interrelate
in complex ways and the effect of any one factor may offset or magnify the
effect of another factor
The trading value of the Notes will be affected by factors that
interrelate in complex ways. The effect of one factor may offset the increase
in the trading value of the Notes caused by another factor and the effect of
one factor may exacerbate the decrease in the trading value of the Notes
caused by another factor. For example, an increase in dividend yields of the
stocks included in any of the Long Components 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 level of the Composite Index. The following
paragraphs describe the expected impact on the trading value of the Notes
given a change in a specific factor, assuming all other conditions remain
constant.
The level of the Composite Index is expected to affect the trading
value of the Notes. We expect that the trading value of the Notes will depend
substantially on the amount, if any, by which the level of the Composite Index
exceeds or does not exceed the Starting Value. However, if you choose to sell
your Notes when the level of the Composite Index exceeds the Starting Value,
you may receive substantially less than the amount that would be payable on
the maturity date based on this level because of the expectation that the
level of the Composite Index will continue to fluctuate until the Ending Value
is determined.
Changes in dividend yields of the Component Stocks are expected to
affect the trading value of the Notes. In general, if dividend yields on the
Component Stocks in which there is a long position increase, we expect that
the trading value of the Notes will decrease and, conversely, if dividend
yields on those stocks decrease, we expect that the trading value of the Notes
will increase. In general, if dividend yields on the Component Stocks in which
there is a short position decrease, we expect that the trading value of the
Notes will decrease and, conversely, if dividend yields on those stocks
increase, we expect that the trading value of the Notes will increase.
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
level of the Composite Index over the term of the Notes, an improvement in our
credit ratings will not reduce the other investment risks related to the
Notes.
In general, assuming all relevant factors are held constant, we
expect that the effect on the trading value of the Notes of a given change in
some of the factors listed above will be less if it occurs later in the term
of the Notes than if it occurs earlier in the term of the Notes. We expect,
however, that the effect on the trading value of the Notes of a given change
in the level of the Composite Index will be greater if it occurs later in the
term of the Notes than if it occurs earlier in the term of the Notes.
PS-9
Amounts payable on the Notes may be limited by state law
New York State law governs the 1983 Indenture under which the Notes
will be issued. New York has usury laws that limit the amount of interest that
can be charged and paid on loans, which includes debt securities like the
Notes. Under present New York law, the maximum rate of interest is 25% per
annum on a simple interest basis. This limit may not apply to debt securities
in which $2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state
or federal court sitting outside of New York, many other states also have laws
that regulate the amount of interest that may be charged to and paid by a
borrower. We will promise, for the benefit of the holders of the Notes, to the
extent permitted by law, not to voluntarily claim the benefits of any laws
concerning usurious rates of interest.
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 Component
Stocks or futures or options contracts on those stocks 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 those stocks and, in turn, the level of the Composite Index, in a
manner that would 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 Component Stocks.
Temporary increases or decreases in the market prices of the Component Stocks
may also occur as a result of the purchasing activities of other market
participants. Consequently, the prices of the Component Stocks may change
subsequent to the Pricing Date, affecting the level of the Composite Index and
therefore the trading value of the Notes.
Potential conflicts
Our subsidiary MLPF&S is our agent for the purposes of calculating,
among other things, the Ending Value and 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 level of the Composite Index 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 an
Index Component. See the sections entitled "Description of the
Notes--Adjustments to the Index Components; Market Disruption Events" and
"--Discontinuance of the Index Components" 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.
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 Composite Index
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 Composite Index. Any prospective purchaser of the
Notes should undertake an independent investigation of the companies included
in the Composite Index 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. Unless earlier
redeemed by us as provided below, the Notes will mature on June , 2007.
Information included in this pricing supplement supersedes information in the
accompanying prospectus supplement and prospectus to the extent that it is
different from that information. The CUSIP 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 may be redeemed by ML&Co. as described in this pricing
supplement, but are not subject to redemption at the option of ML&Co. or any
holder before the stated maturity date except as described below.
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, unless the Notes have been previously redeemed
by us, a holder of a Note will be entitled to receive the Redemption Amount of
that Note, as provided below.
Determination of the Redemption Amount
The "Redemption Amount" per unit will be determined by the
calculation agent and will equal:
-- --
$10 x | Ending Value |
| ------------- |
| Starting Value |
-- --
The "Starting Value" will be set to 100 on the date the Notes are
priced for initial sale to the public (the "Pricing Date").
For purposes of determining the Redemption Amount, the "Ending Value"
will be determined by the calculation agent and will equal the average of the
closing levels of the Select Industries/Select Sectors Basket Long Short
Index--Series IX (the "Composite Index") determined on each of the 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 levels of the Composite Index on those
Calculation Days. If there is only one Calculation Day during the Calculation
Period, then the Ending Value will equal the closing level of the Composite
Index on that Calculation Day. If no Calculation Days occur during the
Calculation Period, then the Ending Value will equal the closing level of the
Composite Index determined on the last scheduled Index Business Day in the
Calculation Period, regardless of the occurrence of a Market Disruption Event
(as described below under "--Adjustment to the Index Components; Market
Disruption Events") on that scheduled Index Business Day.
The "Calculation Period" means the period from and including the
seventh scheduled Index Business Day before the maturity date to and including
the second scheduled Index Business Day before the maturity date.
A "Calculation Day" means any Index Business Day during the
Calculation Period on which a Market Disruption Event has not occurred.
An "Index Business Day" means any day on which the New York Exchange
(the "NYSE"), the American Stock Exchange (the "AMEX") and The Nasdaq Stock
Market ("Nasdaq") are open for trading.
PS-11
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.
Hypothetical Returns
The following table illustrates, for the Starting Value of 100 and a
range of hypothetical Ending Values:
o the percentage change from the Starting Value to the
hypothetical Ending Value;
o the total amount payable on the maturity date for each Note;
o the pretax annualized rate of return to holders of the
Notes;
o the pretax annualized rate of return on an investment in the
applicable long and short positions in the Component Stocks,
which includes an assumed aggregate dividend yield for those
stocks, as more fully described in the notes to the table
below; and
o assumes that the closing level of the Composite Index is not
equal to or less than 50 on any date before the seventh
scheduled Index Business Day before the maturity date.
Therefore, the Notes will not be redeemed early.
Percentage Total amount Pretax Pretax
change from the payable on annualized annualized
Starting Value to the maturity rate of rate of return
Hypothetical the hypothetical date per return on of the Component
Ending Value Ending Value Note the Notes(1) Stocks(1)(2)
----------------------------------------------------------------------------
60.00 -40% $6.00 -39.39% -32.01%
70.00 -30% $7.00 -28.40% -23.29%
80.00 -20% $8.00 -18.27% -14.52%
90.00 -10% $9.00 -8.86% -5.69%
100.00(3) 0% $10.00 0.00% 3.21%
110.00 10% $11.00 8.36% 12.18%
120.00 20% $12.00 16.29% 21.23%
130.00 30% $13.00 23.85% 30.37%
140.00 40% $14.00 31.09% 39.60%
- ----------------------
(1) The annualized rates of return are calculated on a semiannual bond
equivalent basis.
(2) This yield assumes:
(a) a percentage change in the aggregate price of the long stock
positions and the short stock positions which results in an
aggregate percentage change that equals the percentage
change in the Composite Index from the Starting Value to the
relevant hypothetical Ending Value;
(b) a constant dividend yield of 4.5% for the stocks included in
the S&P 500 Diversified Telecommunications Services Index,
0.85% for the stocks included in the S&P 500 Media Index,
2.62% for the stocks included in the S&P 500 Pharmaceutical
Index, 1.04% for the stocks included in the Consumer
Discretionary Select Sector Index and 2.25% for the stocks
included in the Materials Select Sector Index, paid
quarterly from the date of initial delivery of the Notes,
applied to the value of the Index Components (dividends paid
on stocks included in the Short Components will decrease
this rate of return while dividends paid on stocks included
in the Long Components will increase this rate of return) at
the end of each quarter assuming the aggregate dividends
payable increases or decreases linearly from the value of
such Index Component on the Pricing Date to the percentage
change required to arrive at the applicable hypothetical
Ending Value;
(c) no transaction fees or expenses or margin charges; and
(d) an investment term from February 15, 2006 to April 16, 2007,
a term expected to be equal to the term of the Notes.
(3) This is the Starting Value.
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 Multiplier, the actual Ending Value and the
actual term of your investment.
Redemption Event
If on any date before the first Calculation Day of the Calculation
Period the closing level of the Composite Index is equal to or less than 50,
the Notes will be redeemed by us on the fifth Business Day following that date
(the "Early Redemption Date"). If this redemption event is triggered, we will
pay you on the Early Redemption Date a cash payment equal to the Redemption
Amount, as described above under "--Payment on the Maturity Date"; provided,
however, for
PS-12
purposes of calculating the Redemption Amount to be paid on an Early
Redemption Date, the Ending Value will be equal to the average of the closing
levels of the Composite Index on the two scheduled Index Business Days
immediately succeeding the date the closing level of the Composite Index was
equal to or less than 50, provided that if a Market Disruption Event occurs on
either date and as a result there is only one Calculation Day, the Ending
Value will be determined on that Calculation Day, and if a Market Disruption
Event occurs on both dates, the Ending Value will be determined using the
closing level of the Composite Index on the second scheduled Index Business
Day following the date the closing level of the Composite Index was equal to
or less than 50, regardless of the occurrence of a Market Disruption Event on
that scheduled Index Business Day.
A "Business Day" means any day other than a Saturday or Sunday that
is neither a legal holiday nor a day on which banking institutions in The City
of New York are authorized or required by law, regulation or executive order
to close.
Adjustments to the Index Components; Market Disruption Events
If at any time Standard & Poor's (the "Index Publisher") makes a
material change in the formula for or the method of calculating the Index
Components, or in any other way materially modifies an Index Component so that
the Index Component does not, in the opinion of the calculation agent, fairly
represent the level of the Index Component had those changes or modifications
not been made, then, from and after that time, the calculation agent shall, at
the close of business in New York, New York, on each date that the closing
level of the Composite Index is to be calculated, make those 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
Index Component as if those changes or modifications had not been made, and
calculate the closing level with reference to the Index Component, as so
adjusted. Accordingly, if the method of calculating an Index Component is
modified so that the level of the Index Component 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 shall adjust the Index Component in order to arrive
at a level of that Index Component 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
included in any Index Component 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
applicable exchange or otherwise, in option or futures
contracts related to an Index Component or any successor
index, which are traded on any major United States exchange.
For the purpose of determining whether a Market Disruption Event has
occurred:
(1) a limitation on the hours in a trading day and/or number of
days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular
business hours of the applicable exchange;
(2) a suspension in trading in a futures or option contract on
an Index Component 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 option contracts related to that stock or index;
(3) a suspension of or material limitation on trading on the
applicable exchange will not include any time when that
exchange is closed for trading under ordinary circumstances;
and
(4) for the purpose of clause (A) above, any limitations on
trading during significant market fluctuations under NYSE
Rule 80B, or any applicable rule or regulation enacted or
promulgated by the NYSE or any
PS-13
other self regulatory organization or the Securities and
Exchange Commission of similar scope as determined by the
calculation agent, will be considered "material".
The occurrence of a Market Disruption Event could affect the
calculation of the Redemption Amount on the maturity date or Early Redemption
Date. See "--Payment on the Maturity Date" and "--Redemption Event" in this
pricing supplement.
Discontinuance of the Composite Index
If the Index Publisher discontinues publication of an Index Component
or Index Components 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 Index Component (a "successor
index"), then, upon the calculation agent's notification of any determination
to the trustee and ML&Co., the calculation agent will substitute the successor
index as calculated by the Index Publisher or any other entity for that Index
Component and calculate the closing value as described above under "--Payment
on the Maturity Date". Upon any selection by the calculation agent of a
successor index, ML&Co. shall cause notice to be given to holders of the
Notes.
In the event that the Index Publisher discontinues publication of an
Index Component or Index Components and:
o the calculation agent does not select a successor index, or
o the successor index is no longer published on any of the
Calculation Days,
the calculation agent will compute a substitute level for the Index Component
in accordance with the procedures last used to calculate the Index Component
before any discontinuance. If a successor index is selected or the calculation
agent calculates a level as a substitute for the Index Component as described
below, the successor index or level will be used as a substitute for the Index
Component for all purposes, including for purposes of determining whether a
Market Disruption Event exists.
If the Index Publisher discontinues publication of an Index Component
or Index Components before the period during which the Redemption Amount is to
be determined and the calculation agent determines that no successor index is
available at that time, then on each Index Business Day until the earlier to
occur of:
o the determination of the Ending Value, or
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
(the "WSJ') or another newspaper of general circulation, and arrange for
information with respect to these values to be made available by telephone.
Notwithstanding these alternative arrangements, discontinuance of the
publication of an Index Component 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, the Early Redemption 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 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-14
THE COMPOSITE INDEX
Composite Index
The Composite Index is designed to allow investors to participate in
the percentage change in the value of a leveraged long position in three
equity industry sector indices (collectively, the "Long Components") and a
short position in two equity sector indices (the "Short Components"), the five
indices comprising the Composite Index (each, an "Index Component"), over the
term of the Notes. Each of the Index Component is described in the sections
entitled "--The Long Components" and "--The Short Components" below. Each
Index Component will be assigned a weighting and that weighting will reflect
the relative contribution that Index Component will make to the level of the
Composite Index. The positive weighting of 150% of the initial level of the
Composite Index in the Long Components can be viewed as a leveraged long
position in the Long Components. The negative weighting of -50% of the initial
level of the Composite Index in the Short Components can be viewed as a short
position in the Short Components.
One of the Long Components, the S&P 500 Media Index, is an industry
index within one of the Short Components, the Consumer Discretionary Select
Sector Index. Changes in the value of the stocks included in the S&P 500 Media
Index would therefore affect the value of the Long Component as well as the
Short Component.
Determination of the Multiplier for each Index Component
A fixed factor (the "Multiplier") will be determined for each Index
Component on the Pricing Date based upon the initial weighting of each Index
Component and will equal:
o the initial weighting for the Index Component multiplied by
100, divided by
o the most recent available closing level of the Index
Component.
The Multipliers will be calculated in this way so that the level of
the Composite Index will equal 100 on the Pricing Date. The Multipliers will
remain fixed over the term of the Notes, except that the calculation agent may
in its good faith judgment adjust the Multiplier of either Index Component in
the event that Index Component is changed or modified in a manner that does
not, in the opinion of the calculation agent, fairly represent the level of
that Index Component had those material changes or modifications not been
made.
The hypothetical Multipliers for each Index Component as of February
14, 2006 are listed under "--Computation of the Composite Index" below.
Computation of the Composite Index
The calculation agent will calculate the closing level of the
Composite Index by summing the products of the closing level for each Index
Component on a Calculation Day and the Multiplier applicable to each Index
Component. The level of the Composite Index will vary based on the
appreciation or depreciation of each Index Component and on whether there is a
long or short position in that Index Component. Any appreciation in the value
of the Long Components will result in an increase in the level of the
Composite Index because of the long position. Conversely, any depreciation in
the value of the Long Components will result in a decrease in the level of the
Composite Index because of the long position. Any depreciation in the value of
the Short Components will result in an increase in the level of the Composite
Index because of the short position. Conversely, any appreciation in the value
of the Short Components will result in a decrease in the level of the
Composite Index because of the short position. If February 14, 2006 was the
Pricing Date, for each Index Component, the weighting, closing level,
Multiplier and initial Composite Index contribution would be as follows:
Composite
Closing Hypothetical Index
Index Components Symbol(1) Weighting Level(2) Multiplier(3) Contribution
- ---------------- --------- --------- -------- ------------- ------------
S&P 500 Diversified Telecommunications
Services Index ................................ S5DIVT 50% 117.80 0.42444822 50
S&P 500 Media Index ........................... S5MEDAX 50% 187.85 0.26616982 50
S&P 500 Pharmaceutical Index .................. S5PHARX 50% 308.01 0.16233239 50
Consumer Discretionary Select Sector Index .... IXY -25%(4) 336.10 -0.07438262 -25
Materials Select Sector Index ................. IXB -25%(4) 322.69 -0.07747374 -25
Starting Value: 100
- ------------
(1) As reported on Bloomberg.
PS-15
(2) This was the closing level of the Index Component on February 14, 2006.
(3) The hypothetical Multiplier equals the applicable initial weighting
(as a percentage) multiplied by 100, and then divided by the
applicable closing level on February 14, 2006.
(4) This figure represents a short position in the Index Component.
Hypothetical Historical Data on the Composite Index
While historical information on the Composite Index will not exist
before the Pricing Date, the following table sets forth the hypothetical
historical month-end levels of the Composite Index from January 2001 through
January 2006 based upon historical levels for each Index Component, the
applicable hypothetical Multipliers indicated above for each Index Component
calculated as of February 14, 2006 and a Composite Index level of 100 on that
date. This hypothetical historical data on the Composite Index is not
necessarily indicative of the future performance of the Composite Index or
what the value of the Notes may be. Any historical upward or downward trend in
the level of the Composite Index during any period set forth below is not an
indication that the Composite 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 .............. 213.99 152.96 108.91 115.63 98.83 95.55
February ............. 199.41 152.10 102.60 113.28 98.81
March ................ 186.71 149.75 102.97 108.27 99.86
April ................ 199.53 129.33 111.94 111.23 102.89
May .................. 201.98 130.90 114.71 107.62 102.02
June ................. 192.05 111.04 118.28 105.95 100.17
July ................. 189.99 102.29 110.98 104.09 99.37
August ............... 172.07 103.68 107.65 105.01 99.15
September ............ 173.08 95.80 104.77 100.68 97.59
October .............. 160.64 113.17 106.85 101.70 92.72
November ............. 167.71 120.84 105.86 100.79 92.04
December ............. 164.30 111.99 114.03 105.59 92.23
The following graph sets forth the hypothetical historical
performance of the Composite Index presented in the preceding table. This
hypothetical historical information is not necessarily indicative of the
future performance of the Composite Index.
[GRAPHIC OMITTED]
PS-16
The Long Components
The indices comprising the Long Components are the S&P 500 Diversified
Telecommunications Services Index, an industry index within the Technology
Select Sector Index (the "Telecom Index"), the S&P 500 Media Index, an
industry index within the Consumer Discretionary Select Sector Index (the
"Media Index") and the S&P 500 Pharmaceutical Index, an industry index within
the Health Care Select Sector Index (the "Pharmaceutical Index"). Each stock
in the S&P 500 Index is allocated to only one Select Sector Index, and the
combined companies of the nine Select Sector Indexes represent all of the
companies in the S&P 500 Index. The industry indexes are sub-categories within
each Select Sector Index and represent a specific industry segment of the
overall Select Sector Index. The historical monthly levels of each of these
indices for each month from January 2001 to February 2006 are set forth in the
tables and graphs below. This historical data is not indicative of the future
performance of any of these indices or the Composite Index.
Description of the Telecom Index. The Telecom Index (S5DIVT) is an
industry index within the Technology Select Sector Index. Companies included
in the Telecom Index include providers of communications and high-density data
transmission services primarily through a high band/width/fiber-optic cable
network, operators of primarily fixed-line telecommunications networks and
companies providing both wireless and fixed-line telecommunications services.
Month-End Closing Levels of the Telecom Index. The following table
sets forth the closing level of the Telecom Index at the end of each month, in
the period from January 2001 through February 2006. This historical data on
the Telecom Index is not necessarily indicative of the future performance of
the Telecom Index or what the value of the Notes may be. Any historical upward
or downward trend in the closing level of the Telecom Index during any period
set forth below is not an indication that the Telecom Index is more or less
likely to decline at any time during the term of the Notes. The closing level
of the Telecom Index on February 14, 2006 was 117.80.
2001 2002 2003 2004 2005 2006
---- ---- ---- ---- ---- ----
January ......... 209.87 153.07 100.75 106.44 105.64 110.29
February ........ 193.42 146.34 90.95 106.24 106.11
March ........... 187.14 143.46 90.00 104.82 104.47
April ........... 192.36 118.28 99.14 104.13 104.79
May ............. 190.22 124.19 104.97 98.91 105.33
June ............ 180.44 111.43 107.24 101.09 106.02
July ............ 187.61 96.44 99.13 106.36 108.76
August .......... 171.69 93.97 99.02 107.49 105.11
September ....... 183.64 80.94 94.19 108.60 105.27
October ......... 157.56 104.81 98.94 108.40 103.36
November ........ 159.67 116.62 96.70 112.34 107.39
December ........ 162.49 109.73 105.00 114.72 104.53
The following graph sets forth the historical performance of the
Telecom Index presented in the preceding table. This historical information is
not necessarily indicative of the future performance of the Telecom Index.
PS-17
[GRAPHIC OMITTED]
Description of the Media Index. The Media Index (S5MEDAX) is an
industry index within the Consumer Discretionary Select Sector Index.
Companies included in the Media Index include those involved in advertising,
marketing and public relations; broadcast and cable TV providers; companies
engaged in producing movies and television shows, distributing music and
publishers of print and electronic media.
Month-End Closing Levels of the Media Index. The following table sets
forth the closing level of the Media Index at the end of each month, in the
period from January 2001 through February 2006. This historical data on the
Media Index is not necessarily indicative of the future performance of the
Media Index or what the value of the Notes may be. Any historical upward or
downward trend in the closing level of the Media Index during any period set
forth below is not an indication that the Media Index is more or less likely
to decline at any time during the term of the Notes. The closing level of the
Media Index on February 14, 2006 was 187.85.
2001 2002 2003 2004 2005 2006
---- ---- ---- ---- ---- ----
January ........ 336.67 226.01 170.50 211.97 202.21 184.30
February ....... 304.66 233.83 166.72 206.79 198.42
March .......... 281.35 236.86 162.78 202.24 200.97
April .......... 322.73 215.92 187.33 200.98 191.08
May ............ 336.47 220.05 195.16 198.14 192.80
June ........... 328.90 182.36 195.38 196.63 185.79
July ........... 298.84 160.70 195.74 186.17 190.16
August ......... 261.34 168.08 199.97 184.52 192.08
September ...... 222.58 160.92 188.10 183.98 187.13
October ........ 221.11 179.28 200.89 194.76 179.61
November ....... 252.05 190.11 201.02 198.45 183.39
December ....... 247.81 169.71 216.03 208.60 180.70
The following graph sets forth the historical performance of the
Media Index presented in the preceding table. This historical information is
not necessarily indicative of the future performance of the Media Index.
PS-18
[GRAPHIC OMITTED]
Description of the Pharmaceutical Index. The Pharmaceutical Index
(S5PHARX) is an industry index within the Health Care Select Sector Index. The
Pharmaceutical Index includes companies engaged in the research, development
or production of pharmaceuticals, including veterinary drugs.
Month-End Closing Levels of the Pharmaceutical Index. The following
table sets forth the closing level of the Pharmaceutical Index at the end of
each month, in the period from January 2001 through February 2006. This
historical data on the Pharmaceutical Index is not necessarily indicative of
the future performance of the Pharmaceutical Index or what the value of the
Notes may be. Any historical upward or downward trend in the closing level of
the Pharmaceutical Index during any period set forth below is not an
indication that the Pharmaceutical Index is more or less likely to decline at
any time during the term of the Notes. The closing level of the Pharmaceutical
Index on February 14, 2006 was 308.01.
2001 2002 2003 2004 2005 2006
---- ---- ---- ---- ---- ----
January ....... 450.37 414.34 322.99 354.69 297.58 306.75
February ...... 448.28 419.47 312.33 358.22 312.33
March ......... 417.59 412.58 326.23 335.46 312.64
April ......... 431.21 378.03 337.65 349.26 326.39
May ........... 435.30 369.38 335.27 348.84 323.51
June .......... 406.15 333.16 353.41 342.28 318.68
July .......... 430.93 326.38 339.58 325.42 315.30
August ........ 409.80 331.41 321.78 332.53 308.57
September ..... 421.53 305.75 324.39 312.62 302.73
October ....... 422.34 331.37 324.84 306.39 287.66
November ...... 436.63 346.13 327.92 300.55 281.87
December ...... 418.38 328.18 349.32 316.27 297.58
The following graph sets forth the historical performance of the
Pharmaceutical Index presented in the preceding table. This historical
information is not necessarily indicative of the future performance of the
Pharmaceutical Index.
PS-19
[GRAPHIC OMITTED]
The Short Components
The indices comprising the Short Components are the Consumer
Discretionary Select Sector Index (the "Consumer Discretionary Index") and the
Materials Select Sector Index (the "Materials Index") published by S&P. The
historical monthly levels of each of these indices for each month from January
2001 to January 2006 are set forth in the tables below. This historical data
is not indicative of the future performance of either of these indices or the
Composite Index.
Description of the Consumer Discretionary Index. The Consumer
Discretionary Index (IXY) is a modified market capitalization-based index
intended to track the movements of companies that are components of the S&P
500 Index and are involved in the development or production of consumer
discretionary products. Consumer discretionary products include automobiles
and automobile components, consumer durables, apparel, hotels, restaurants,
leisure, media and retailing. The Consumer Discretionary Index, which serves
as the benchmark for the Consumer Discretionary Select Sector SPDR Fund (XLY),
was established with a value of 250.00 on June 30, 1998.
Month-End Closing Levels of the Consumer Discretionary Index. The
following table sets forth the closing level of the Consumer Discretionary
Index at the end of each month in the period from January 2001 through January
2006. This historical data on the Consumer Discretionary Index is not
necessarily indicative of the future performance of the Consumer Discretionary
Index or what the future value of the Notes may be. Any historical upward or
downward trend in the closing level of the Consumer Discretionary Index during
any period set forth below is not an indication that the Consumer
Discretionary Index is more or less likely to increase or decrease at any time
during the term of the Notes. The closing level of the Consumer Discretionary
Index on February 14, 2006 was 336.10.
2001 2002 2003 2004 2005 2006
---- ---- ---- ---- ---- ----
January ......... 285.35 295.67 224.04 312.70 338.78 333.17
February ........ 266.41 296.56 222.04 319.02 337.05
March ........... 261.04 300.20 227.98 318.53 332.72
April ........... 273.43 292.02 254.33 313.45 311.12
May ............. 277.66 289.72 267.06 315.52 329.20
June ............ 275.63 275.35 270.92 316.98 328.37
July ............ 290.80 242.95 276.73 304.31 347.03
August .......... 263.32 249.19 290.43 303.81 334.84
September ....... 231.10 227.61 276.49 312.58 325.03
October ......... 241.26 242.28 301.08 325.23 318.48
November ........ 275.38 253.96 303.63 338.05 330.57
December ........ 287.84 231.68 315.28 353.57 327.54
PS-20
The following graph sets forth the historical performance of the
Consumer Discretionary Index presented in the preceding table. This historical
information is not necessarily indicative of the future performance of the
Consumer
[GRAPHIC OMITTED]
Description of the Materials Index. The Materials Index (IXB) is a
modified market capitalization based index intended to track the movements of
companies that are components of the S&P 500 and are involved in the materials
industry. Companies in the Materials Index include those involved in
chemicals, construction materials, containers and packaging, metals and mining
and paper and forest products. The Materials Index, which serves as the
benchmark for the Materials Sector SPDR Fund (XLB), was established with a
value of 250.00 on June 30, 1998.
Month-End Closing Levels of the Materials Index. The following table
sets forth the closing level of the Materials Index at the end of each month
in the period from January 2001 through January 2006. This historical data on
the Materials Index is not necessarily indicative of the future performance of
the Materials Index or what the future value of the Notes may be. Any
historical upward or downward trend in the closing level of the Materials
Index during any period set forth below is not an indication that the
Materials Index is more or less likely to increase or decrease at any time
during the term of the Notes. The closing level of the Materials Index on
February 14, 2006 was 322.69.
2001 2002 2003 2004 2005 2006
---- ---- ---- ---- ---- ----
January ......... 214.09 225.02 193.69 261.81 296.08 326.94
February ........ 215.96 236.03 187.97 274.60 318.48
March ........... 206.29 243.07 187.92 268.68 309.53
April ........... 228.19 232.25 205.21 256.09 287.74
May ............. 236.62 242.59 211.04 261.52 284.45
June ............ 226.02 237.50 212.40 274.63 278.67
July ............ 225.91 210.73 228.99 268.45 293.97
August .......... 223.26 209.23 235.45 272.45 281.02
September ....... 198.16 181.87 224.24 282.49 282.23
October ......... 202.66 191.14 244.68 280.05 283.57
November ........ 226.48 213.74 249.58 301.52 303.65
December ........ 221.15 203.93 274.77 305.45 312.05
PS-21
The following graph sets forth the historical performance of the
Materials Index presented in the preceding table. This historical information
is not necessarily indicative of the future performance of the Materials
Index.
[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, S&P 500 and Standard & Poor's 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 S&P. S&P
makes no 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
500 Index to track general stock market performance. S&P's only relationship
to ML&Co. (other than transactions entered into in the ordinary course of
business) is the licensing of certain servicemarks and trade names of S&P and
of the S&P 500 Index which is determined, composed and calculated by S&P
without regard to ML&Co. or the Notes. S&P has 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 500 Index. S&P is not responsible for and has
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 has no obligation or liability in
connection with the administration, marketing or trading of the Notes. The
stocks included in each select sector index were selected by the index
compilation agent in consultation with S&P from the universe of companies
represented by the S&P 500 Index. The composition and weighting of the stocks
included in each select sector index can be expected to differ from the
composition and weighting of stocks included in any similar S&P 500 sector
index that is published and disseminated by S&P.
"S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
S&P INDUSTRIES OR SELECT SECTORS OR ANY DATA INCLUDED IN THE S&P INDUSTRIES OR
SELECT SECTORS AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS OR
INTERRUPTIONS THEREIN. S&P MAKES 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 INDUSTRIES OR SELECT SECTORS OR ANY
DATA INCLUDED IN THE S&P INDUSTRIES OR SELECT SECTORS IN CONNECTION WITH THE
RIGHTS LICENSED UNDER THE LICENSE AGREEMENT DESCRIBED IN THIS PRICING
SUPPLEMENT OR FOR ANY OTHER USE. S&P MAKES NO EXPRESS OR IMPLIED
PS-22
WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE S&P INDUSTRIES OR
SELECT SECTORS OR ANY DATA INCLUDED IN THE S&P INDUSTRIES OR SELECT SECTORS.
WITHOUT LIMITING ANY OF THE ABOVE INFORMATION, IN NO EVENT SHALL S&P HAVE ANY
LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGE
(INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF THESE
DAMAGES."
All disclosures contained in this pricing supplement regarding the
S&P Select Sectors, including their make-up, method of calculation and changes
in their components are derived from publicly available information prepared
by S&P. ML&Co. and MLPF&S do not assume any responsibility for the accuracy or
completeness of that information.
PS-23
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. It deals only with Notes held as
capital assets and does not purport to deal with persons in special tax
situations, such as fmancial 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 (except where otherwise specifically noted). 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 U.S. federal income tax laws to their particular
situations as well as any consequences of the purchase, ownership and
disposition of the Notes arising under the laws of any other taxing
jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a
Note that is for U.S. federal income tax purposes (i) a citizen or resident of
the United States, (ii) a corporation or a partnership (including an entity
treated as a corporation or a partnership for U.S. federal income tax
purposes) 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 U.S. federal income tax regardless
of its source, (iv) a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust or (v) any other person whose income or gain in respect
of a 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
level of the Composite Index. 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 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
PS-24
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 long-term capital gain or loss if the U.S. Holder has held
the Note for more than one year as of the maturity date. The deductibility of
capital losses is subject to certain limitations.
Early Redemption of the Notes. Upon an early redemption 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. Any such gain or loss will be treated as
capital gain or loss. Any such capital gain or loss will generally be
long-term capital gain or loss if the U.S. Holder has held the Note for more
than one year as of the Early Redemption Date. As discussed above, 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 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
long-term capital gain or loss if the U.S. Holder has held the Note for more
than one year 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
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, early redemption 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, early redemption 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 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, early redemption 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.
PS-25
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 with respect to a Note, 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 level of the Composite Index, 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-26
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 regarding the availability of exemptive
relief under any of the PTCEs listed above or any other applicable exemption,
or the potential consequences of any purchase or holding under similar laws,
as applicable.
PS-27
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 price set forth on the cover of this pricing supplement. After the
initial public offering, the public offering price may be changed. The
obligations of MLPF&S are subject to certain conditions and it is committed to
take and pay for all of the Notes if any are taken.
EXPERTS
The consolidated fmancial statements, the related fmancial statement
schedule, and management's report on the effectiveness of internal control
over fmancial 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 fmancial
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 fmancial 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-28
INDEX OF CERTAIN DEFINED TERMS
Page
----
Business Day ...................................................... PS-13
Calculation Day ................................................... PS-11
Calculation Period ................................................ PS-11
Component Stocks .................................................. PS-3
Composite Index ................................................... PS-1
Early Redemption Date ............................................. PS-4
Ending Value ...................................................... PS-4
Index Business Day ................................................ PS-11
Index Component ................................................... PS-3
Index Publisher ................................................... PS-13
Long Components ................................................... PS-1
Market Disruption Event ........................................... PS-13
Multiplier ........................................................ PS-3
Notes ............................................................. PS-1
Pricing Date ...................................................... PS-3
Redemption Amount ................................................. PS-4
Short Components .................................................. PS-1
Starting Value .................................................... PS-4
successor index ................................................... PS-14
PS-29
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[GRAPHIC OMITTED]
1,000,000 Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
Merrill Lynch Long Short Notes/SM/
Linked to the Select Industries/Select Sectors Basket
Long Short Index -- Series IX
due June , 2007
(the "Notes")
$10 original public offering price per unit
---------------------------
PRICING SUPPLEMENT
---------------------------
Merrill Lynch & Co.
March , 2006
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