Subject to Completion
Preliminary Pricing Supplement dated March 3, 2006
PRICING SUPPLEMENT
- ------------------
(To prospectus supplement and prospectus
dated February 25, 2005)
Pricing Supplement Number:
[LOGO OMITTED]
Merrill Lynch
1,000,000 Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
Accelerated Return Notes(R)
Linked to the Dow Jones-AIG Commodity Index(SM)
due June , 2007
(the "Notes")
$10 original public offering price per unit
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The Notes: Payment on the maturity date:
o The Notes are designed for investors who are o The amount you receive on the maturity date
seeking exposure to the Dow Jones-AIG will be based upon the direction of and
Commodity Index (index symbol "DJAIG"), percentage change in the level of the Dow
willing to forego interest payments on the Jones-AIG Commodity Index over the term of the
Notes and willing to accept a return that will Notes:
not exceed the limit described in this pricing
supplement. o If the level of the Dow Jones-AIG Commodity
Index has increased, on the maturity date
o There will be no payments prior to the you will receive a payment per unit equal
maturity date and we cannot redeem the Notes to $10 plus an amount equal to $10
prior to the maturity date. multiplied by triple the percentage
increase of the Dow Jones-AIG Commodity
o The Notes will not be listed on any securities Index, up to a maximum total payment which
exchange. will be between $11.90 and $12.40 per unit,
as described in this pricing supplement.
o The Notes will be senior unsecured debt
securities of Merrill Lynch & Co., Inc. and o If the level of the Dow Jones-AIG Commodity
part of a series entitled "Medium-Term Notes, Index has decreased, on the maturity date
Series C". The Notes will have the CUSIP No.: you will receive a payment per unit based
upon that percentage decrease and, as a
o The settlement date for the Notes is expected result, you may receive less, and possibly
to be April , 2006. significantly less, than the $10 original
public offering price per unit.
Information included in this pricing supplement supercedes
information in the accompanying prospectus supplement and prospectus to the
extent that it is different from that information.
Investing in the Notes involves risks that are described in the "Risk
Factors" section beginning on page PS-7 of this pricing supplement and the
accompanying prospectus supplement.
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Per Unit Total
Public offering price (1).............................................. $10.00 $
Underwriting discount (1).............................................. $.20 $
Proceeds, before expenses, to Merrill Lynch & Co., Inc................. $9.80 $
(1) The public offering price and the underwriting discount for
any single transaction to purchase between 100,000 to
299,999 units will be $9.95 per unit and $.15 per unit,
respectively, for any single transaction to purchase between
300,000 to 499,999 units will be $9.90 per unit and $.10 per
unit, respectively, and for any single transaction to
purchase 500,000 units or more will be $9.85 per unit and
$.05 per unit, respectively.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this pricing supplement or the accompanying prospectus
supplement and prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
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Merrill Lynch & Co.
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The date of this pricing supplement is March , 2006.
"Accelerated Return Notes(R)" is a registered mark of Merrill Lynch & Co., Inc.
"Dow Jones," "AIG(R)" and "Dow Jones-AIG Commodity Index" are service marks of
Dow Jones & Company, Inc. and American International Group, Inc. and have been
licensed for use for certain purposes by Merrill Lynch, Pierce, Fenner & Smith
Incorporated, and Merrill Lynch & Co. is an authorized sublicensee. The Notes
are not sponsored, endorsed, sold or promoted by Dow Jones, AIG International
Inc. or American International Group, Inc., and Dow Jones, AIG International
Inc. or American International Group, Inc. makes no representation regarding
the advisability of investing in the Notes.
TABLE OF CONTENTS
Pricing Supplement
SUMMARY INFORMATION--Q&A...................................................PS-3
RISK FACTORS...............................................................PS-7
DESCRIPTION OF THE NOTES..................................................PS-11
THE INDEX.................................................................PS-16
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
RISK FACTORS................................................................S-3
DESCRIPTION OF THE NOTES....................................................S-4
UNITED STATES FEDERAL INCOME TAXATION......................................S-21
PLAN OF DISTRIBUTION.......................................................S-28
VALIDITY OF THE NOTES......................................................S-29
Prospectus
Merrill Lynch & Co., Inc......................................................2
Use of Proceeds...............................................................2
Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends..........................3
The Securities................................................................3
Description of Debt Securities................................................4
Description of Debt Warrants.................................................15
Description of Currency Warrants.............................................17
Description of Index Warrants................................................18
Description of Preferred Stock...............................................24
Description of Depositary Shares.............................................29
Description of Preferred Stock Warrants......................................33
Description of Common Stock..................................................35
Description of Common Stock Warrants.........................................38
Plan of Distribution.........................................................41
Where You Can Find More Information..........................................42
Incorporation of Information We File With the SEC............................42
Experts ....................................................................43
PS-2
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this pricing supplement and the accompanying prospectus
supplement and prospectus to help you understand the Accelerated Return
Notes(R) Linked to the Dow Jones-AIG Commodity Index(SM) 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 Dow Jones-AIG Commodity Index (the "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 the accompanying prospectus
supplement, which highlights certain risks associated with an investment in
the Notes, to determine whether an investment in the Notes is appropriate for
you.
References in this pricing supplement to "ML&Co.", "we", "us" and
"our" are to Merrill Lynch & Co., Inc. and references to "MLPF&S" are to
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
What are the Notes?
The Notes will be part of a series of senior debt securities issued
by ML&Co. entitled "Medium-Term Notes, Series C" and will not be secured by
collateral. The Notes will rank equally with all of our other unsecured and
unsubordinated debt. The Notes will mature on June , 2007. We cannot redeem
the Notes at an earlier date. We will not make any payments on the Notes until
the maturity date.
Each unit will represent a single Note with a $10 original public
offering price. You may transfer the Notes only in whole units. You will not
have the right to receive physical certificates evidencing your ownership
except under limited circumstances. Instead, we will issue the Notes in the
form of a global certificate, which will be held by The Depository Trust
Company, also known as DTC, or its nominee. Direct and indirect participants
in DTC will record your ownership of the Notes. You should refer to the
section entitled "Description of Debt Securities--Depositary" in the
accompanying prospectus.
Are there any risks associated with my investment?
Yes, an investment in the Notes is subject to risks, including the
risk of loss. Please refer to the section entitled "Risk Factors" in this
pricing supplement and the accompanying prospectus supplement.
Who publishes the Index and what does the Index measure?
The Index was created by AIG International Inc. ("AIGI") in 1998
and is calculated by Dow Jones & Company, Inc. ("Dow Jones") in conjunction
with AIGI. The Index is designed to be a liquid and diversified benchmark for
commodities. The Index is comprised of futures contracts (each, an "Index
Component") on nineteen physical commodities traded on United States futures
exchanges, with the exception of aluminum, nickel and zinc, which trade on the
London Metal Exchange. The relative weightings of the commodities that
comprise the Index (the "Index Commodities") are determined annually.
Two-thirds of each weighting is based on five-year average trading volume and
one-third of each weighting is based on five-year average annual world
production. The component weightings are also subject to several rules
designed to insure diversified commodity exposure. For more information on the
Index, please see the section entitled "The Index" in this pricing supplement.
An investment in the Notes does not entitle you to any direct or
indirect ownership interest in the Index Components or the Index Commodities.
How has the Index performed historically?
The Index has only been calculated and published since July 1998.
However, we have included a graph showing the hypothetical and historical
year-end closing levels of the Index for each year from 1991 through 2005 and
a graph and table showing the historical month-end closing levels of the Index
from January 2001 to February 2006 based on the historical values of the
commodities futures included in the Index in the section entitled "The
Index--Hypothetical historical and historical data on the Index" in this
pricing supplement. We have provided this historical information to help you
evaluate the behavior of the Index in various economic environments; however,
past performance of the Index is not necessarily indicative of how the Index
will perform in the future.
PS-3
What will I receive on the maturity date of the Notes?
On the maturity date, you will receive a cash payment per unit
equal to the Redemption Amount.
The "Redemption Amount" to which you will be entitled will depend
on the direction of and percentage change in the level of the Index over the
term of the Notes and will equal:
(i) If the Ending Value is greater than the Starting Value:
( ( Ending Value-Starting Value ) )
$10 + ( $30 x ( --------------------------- ) )
( ( Starting Value ) )
provided, however, the Redemption Amount will not exceed an amount which will
be between $11.90 and $12.40 per unit (the "Capped Value"). The actual Capped
Value will be determined on the date the Notes are priced for initial sale to
the public (the "Pricing Date") and will be set forth in the final pricing
supplement made available in connection with sales of the Notes.
(ii) If the Ending Value is equal to or less than the Starting Value:
( Ending Value )
$10 x ( ---------------- )
( Starting Value )
The "Starting Value" will equal the closing level of the Index on
the Pricing Date. The Starting Value will be set forth in the final pricing
supplement made available in connection with sales of the Notes.
The "Ending Value" means the average of the levels of the Index at
the close of the market on five business days shortly before the maturity date
of the Notes. We may calculate the Ending Value by reference to fewer than
five or even a single day's closing level if, during the period shortly before
the maturity date of the Notes, there is a disruption in the trading of a
sufficient number of commodity futures included in the Index or certain
futures or options contracts relating to the Index.
The opportunity to participate in the possible increases in the
level of the Index through an investment in the Notes is limited because the
amount that you receive on the maturity date will never exceed the Capped
Value, which will represent an appreciation of 19% to 24% over the $10
original public offering price per unit of the Notes, depending on the Capped
Value. However, in the event that the level of the Index declines over the
term of the Notes, the amount you receive on the maturity date will be
proportionately less than the $10 original public offering price of the Notes.
As a result, you may receive less, and possibly significantly less, than the
$10 original public offering price per unit.
For more specific information about the Redemption Amount, please
see the section entitled "Description of the Notes" in this pricing
supplement.
Will I receive interest payments on the Notes?
You will not receive any interest payments on the Notes, but you
will receive the Redemption Amount on the maturity date. We have designed the
Notes for investors who are willing to forego interest payments on the Notes,
such as fixed or floating interest rates paid on traditional interest bearing
debt securities, and willing to accept a return that will not exceed the
Capped Value, in exchange for the ability to participate in changes in the
level of the Index over the term of the Notes.
PS-4
Examples
Set forth below are three examples of Redemption Amount calculations,
assuming a Capped Value of $12.15, the midpoint of the range of $11.90 and
$12.40.
Example 1--The hypothetical Ending Value is 50% of the hypothetical Starting
Value:
Hypothetical Starting Value: 162.340
Hypothetical Ending Value: 81.170
( 81.170 )
$10 x (--------) = $5.00
(162.340 )
Redemption Amount (per unit) = $5.00
Example 2--The hypothetical Ending Value is 105% of the hypothetical Starting
Value:
Hypothetical Starting Value: 162.340
Hypothetical Ending Value: 170.457
( ( 170.457 - 162.340 ) )
$10 + ( $30 x ( ----------------- ) ) = $11.50
( ( 162.340 ) )
Redemption Amount (per unit) = $11.50
Example 3--The hypothetical Ending Value is 150% of the hypothetical Starting
Value:
Hypothetical Starting Value: 162.340
Hypothetical Ending Value: 243.510
( ( 243.510 - 162.340 ) )
$10 + ( $30 x ( ----------------- ) ) = $25.00
( ( 162.340 ) )
(Redemption
Amount cannot be
Redemption Amount (per unit) = $12.15 greater than the
Capped Value)
What about taxes?
The United States federal income tax consequences of an investment
in the Notes are complex and uncertain. By purchasing a Note, you and ML&Co.
agree, in the absence of an administrative determination, judicial ruling or
other authoritative guidance to the contrary, to characterize a Note for all
tax purposes as a pre-paid cash-settled forward contract linked to the level
of the 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 or exchange of a Note prior to the maturity date. You
should review the discussion under the section entitled "United States Federal
Income Taxation" in this pricing supplement.
Will the Notes be listed on a stock exchange?
The Notes will not be listed on any securities or futures exchange
and we do not expect a trading market for the Notes to develop, which may
affect the price that you receive for your Notes upon any sale prior to the
maturity date. You should review the section entitled "Risk Factors--A trading
market for the Notes is not expected to develop and if trading does develop,
the market price you may receive or be quoted for your Notes on a date prior
to the maturity date will be affected by this and other important factors
including our costs of developing, hedging and distributing the Notes" in this
pricing supplement.
PS-5
What price can I expect to receive if I sell the Notes prior to the stated
maturity date?
In determining the economic terms of the Notes, and consequently
the potential return on the Notes to you, a number of factors are taken into
account. Among these factors are certain costs associated with creating,
hedging and offering the Notes. In structuring the economic terms of the
Notes, we seek to provide investors with what we believe to be commercially
reasonable terms and to provide MLPF&S with compensation for its services in
developing the securities.
If you sell your Notes prior to the stated maturity date, you will
receive a price determined by market conditions for the security. This price
may be influenced by many factors, such as interest rates, volatility and the
current level of the Index. In addition, the price, if any, at which you could
sell your Notes in a secondary market transaction is expected to be affected
by the factors that we considered in setting the economic terms of the Notes,
namely the underwriting discount paid in respect of the Notes and compensation
for developing and hedging the product. Depending on the impact of these
factors, you may receive significantly less than the principal amount of your
Notes if sold before the stated maturity date.
In a situation where there had been no movement in the level of the
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
original issue price. This is due to, among other things, our costs of
developing, hedging and distributing the Notes. Any potential purchasers of
your Notes in the secondary market are unlikely to consider these factors.
What is the role of MLPF&S?
Our subsidiary MLPF&S is the underwriter for the offering and sale
of the Notes. After the initial offering, MLPF&S intends to buy and sell Notes
to create a secondary market for holders of the Notes, and may stabilize or
maintain the market price of the Notes during their initial distribution.
However, MLPF&S will not be obligated to engage in any of these market
activities or continue them once it has started.
MLPF&S will also be our agent for purposes of calculating, among
other things, the Ending Value and the Redemption Amount (in such capacity,
the "Calculation Agent"). Under certain circumstances, these duties could
result in a conflict of interest between MLPF&S as our subsidiary and its
responsibilities as Calculation Agent.
What is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various
subsidiaries and affiliated companies that provide investment, financing,
insurance and related services on a global basis.
For information about ML&Co., see the section entitled "Merrill
Lynch & Co., Inc." in the accompanying prospectus. You should also read other
documents ML&Co. has filed with the Securities and Exchange Commission, which
you can find by referring to the section entitled "Where You Can Find More
Information" in the accompanying prospectus.
PS-6
RISK FACTORS
Your investment in the Notes will involve risks. You should
carefully consider the following discussion of risks and the discussion of
risks included in the accompanying prospectus supplement before deciding
whether an investment in the Notes is suitable for you.
Your investment may result in a loss
We will not repay you a fixed amount of principal on the Notes on
the maturity date. The Redemption Amount will depend on the direction of and
percentage change in the level of the Index. Because the level of the Index is
subject to market fluctuations, the Redemption Amount you receive may be less
than the $10 original public offering price per unit of the Notes. If the
Ending Value is less than the Starting Value, the Redemption Amount will be
less than the $10 original public offering price per unit of the Notes. As a
result, you may receive less, and possibly significantly less, than the $10
original public offering price per unit.
Your yield may be lower than the yield on other debt securities of comparable
maturity
The yield that you will receive on your Notes, which could be
negative, may be less than the return you could earn on other investments.
Your yield may be less than the yield you would earn if you bought a
traditional interest bearing debt security of ML&Co. with the same stated
maturity date. Your investment may not reflect the full opportunity cost to
you when you take into account factors that affect the time value of money.
Unlike traditional interest bearing debt securities, the Notes do not
guarantee the return of a principal amount on the maturity date.
Your return is limited and will not reflect the return on a direct investment
in the Index Components or the Index Commodities
The opportunity to participate in the possible increases in the
level of the Index through an investment in the Notes is limited because the
Redemption Amount will never exceed the Capped Value, which will represent an
appreciation of between 19% and 24% over the $10 original public offering
price per unit of the Notes. However, in the event that the level of the Index
declines over the term of the Notes, you will realize the entire decline. As a
result, you may receive less, and possibly significantly less, than the $10
original public offering price per unit.
Ownership of the Notes does not entitle you to any rights with respect to the
commodities or commodity futures tracked by the Index
You will not own or have any beneficial or other legal interest in,
and will not be entitled to any rights with respect to any of the commodities
or commodity futures included in the Index.
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 futures or securities exchange
and we do not expect a trading market for the Notes to develop. Although our
affiliate MLPF&S has indicated that it currently expects to bid for Notes
offered for sale to it by holders of the Notes, it is not required to do so
and may cease making those bids at any time. The limited trading market for
your Notes may affect the price that you receive for your Notes if you do not
wish to hold your investment until the maturity date.
If MLPF&S makes a market in the Notes, the price it quotes would
reflect any changes in market conditions and other relevant factors. In
addition, the price, if any, at which you could sell your Notes in a secondary
market transaction is expected to be affected by the factors that we
considered in setting the economic terms of the Notes, namely the underwriting
discount paid in respect of the Notes and other costs associated with the
Notes, and compensation for developing and hedging the product. This quoted
price could be higher or lower than the principal amount. Furthermore, there
is no assurance that MLPF&S or any other party will be willing to buy the
Notes. MLPF&S is not obligated to make a market in the Notes.
Assuming there is no change in the level of the Index and no change
in market conditions or any other relevant factors, the price, if any, at
which MLPF&S or another purchaser might be willing to purchase your Notes
PS-7
in a secondary market transaction is expected to be lower than the principal
amount. This is due to, among other things, the fact that the principal amount
included, and secondary market prices are likely to exclude, underwriting
discount paid with respect to, and the developing and hedging costs associated
with, the Notes.
Lack of Regulation by the CFTC
Unlike an investment in the Notes, an investment in a collective
investment vehicle that invests in futures contracts on behalf of its
participants may be regulated as a commodity pool and its operator may be
required to be registered with and regulated by the Commodity Futures Trading
Commission (the "CFTC") as a "commodity pool operator" (a "CPO"). Because the
Notes are not interests in a commodity pool, the Notes will not be regulated
by the CFTC as a commodity pool, ML&Co. will not be registered with the CFTC
as a CPO and you will not benefit from the CFTC's or any non-United States
regulatory authority's regulatory protections afforded to persons who trade in
futures contracts or who invest in regulated commodity pools. The Notes do not
constitute investments by you in futures contracts traded on regulated futures
exchanges, which may only be transacted through a person registered with the
CFTC as a "futures commission merchant" ("FCM"). ML&Co. is not registered with
the CFTC as an FCM and you will not benefit from the CFTC's or any other
non-United States regulatory authority's regulatory protections afforded to
persons who trade in futures contracts on a regulated futures exchange through
a registered FCM.
The Index is a rolling index
The Index is composed of futures contracts on physical commodities.
Unlike equities, which typically entitle the holder to a continuing stake in a
corporation, commodity futures contracts have a set expiration date and
normally specify a certain date for delivery of the underlying physical
commodity. In the case of the Index, as the exchange-traded futures contracts
that comprise the Index approach the month before expiration, they are
replaced by contracts that have a later expiration. This process is referred
to as "rolling". If the market for these contracts is (putting aside other
considerations) in "backwardation", where the prices are lower in the distant
delivery months than in the nearer delivery months, the sale of the nearer
delivery month contract would take place at a price that is higher than the
price of the distant delivery month contract, thereby creating a positive
"roll yield". There is no indication that these markets will consistently be
in backwardation or that there will be roll yield in future performance.
Instead, these markets may trade in contango. Contango markets are those in
which the prices of contracts are higher in the distant delivery months than
in the nearer delivery months. Certain of the commodities included in the
Index have historically traded in contango markets. Contango (or the absence
of backwardation) in the commodity markets would result in negative "roll
yields" which would adversely affect the value of the Index and the value of
the Notes.
Suspension or disruptions of market trading in the commodity and related
futures markets may adversely affect the value of the Notes
The commodity markets are subject to temporary disruptions or other
disruptions due to various factors, including the lack of liquidity in the
markets, the participation of speculators and government regulation and
intervention. In addition, U.S. futures exchanges and some foreign exchanges
have regulations that limit the amount of fluctuation in futures contract
prices that may occur during a single business day. These limits are generally
referred to as "daily price fluctuation limits" and the maximum or minimum
price of a contract on any given day as a result of these limits is referred
to as a "limit price." Once the limit price has been reached in a particular
contract, no trades may be made at a different price. Limit prices have the
effect of precluding trading in a particular contract or forcing the
liquidation of contracts at disadvantageous times or prices. The circumstances
could adversely affect the level of the Index and, therefore, the value of the
Notes.
The Notes are linked to the Dow Jones-AIG Commodity Index and not the Dow
Jones-AIG Commodity Index Total Return(SM)
The Notes are linked to the Dow Jones-AIG Commodity Index, and not
the Dow Jones-AIG Commodity Index Total Return. The Dow Jones-AIG Commodity
Index reflects returns that are potentially available through an unleveraged
investment in the Index Components. The Dow Jones-AIG Commodity Index Total
Return is a total return index which, in addition to reflecting the same
returns of the Dow Jones-AIG Commodity Index, also reflects interest that
could be earned on cash collateral invested in hypothetical three-month U.S.
Treasury bills. Because the
PS-8
Notes are linked to the Dow Jones-AIG Commodity Index and not the Dow
Jones-AIG Commodity Index Total Return, the return from an investment in the
Notes will not reflect this total return feature.
Many factors affect the trading value of the Notes; these factors interrelate
in complex ways and the effect of any one factor may offset or magnify the
effect of another factor
The trading value of the Notes will be affected by factors that
interrelate in complex ways. The effect of one factor may offset the increase
in the trading value of the Notes caused by another factor and the effect of
one factor may exacerbate the decrease in the trading value of the Notes
caused by another factor. For example, an increase in United States interest
rates may offset some or all of any increase in the trading value of the Notes
attributable to another factor, such as an increase in the level of the 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 Index is expected to affect the trading value of
the Notes. We expect that the trading value of the Notes will depend
substantially on the amount, if any, by which the level of the Index exceeds
or does not exceed the Starting Value. However, if you choose to sell your
Notes when the level of the Index exceeds the Starting Value, you may receive
substantially less than the amount that would be payable on the maturity date
based on this value because of the expectation that the level of the Index
will continue to fluctuate until the Ending Value is determined. In addition,
because the payment on the maturity date on the Notes will not exceed the
Capped Value, we do not expect that the Notes will trade in the secondary
market above the Capped Value.
Changes in the levels of interest rates are expected to affect the
trading value of the Notes. We expect that changes in interest rates will
affect the trading value of the Notes. Generally, if United States interest
rates increase, we expect the trading value of the Notes will decrease and,
conversely, if United States interest rates decrease, we expect the trading
value of the Notes will increase.
Changes in the volatility of the Index is expected to affect the
trading value of the Notes. Volatility is the term used to describe the size
and frequency of price and/or market fluctuations. If the volatility of the
Index increases or decreases, the trading value of the Notes may be adversely
affected.
As the time remaining to the stated maturity date of the Notes
decreases, the "time premium" associated with the Notes is expected to
decrease. We anticipate that before their stated maturity date, the Notes may
trade at a value above that which would be expected based on the level of
interest rates and the level of the Index. This difference will reflect a
"time premium" due to expectations concerning the level of the Index during
the period before the stated maturity date of the Notes. However, as the time
remaining to the stated maturity date of the Notes decreases, we expect that
this time premium will decrease, lowering the trading value of the Notes.
Changes in our credit ratings may affect the trading value of the
Notes. Our credit ratings are an assessment of our ability to pay our
obligations. Consequently, real or anticipated changes in our credit ratings
may affect the trading value of the Notes. However, because the return on your
Notes is dependent upon factors in addition to our ability to pay our
obligations under the Notes, such as the percentage increase, if any, in the
level of the Index over the term of the Notes, an improvement in our credit
ratings will not reduce the other investment risks related to the Notes.
In general, assuming all relevant factors are held constant, we
expect that the effect on the trading value of the Notes of a given change in
some of the factors listed above will be less if it occurs later in the term
of the Notes than if it occurs earlier in the term of the Notes. We expect,
however, that the effect on the trading value of the Notes of a given change
in the level of the 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.
Trading in the Index Commodities, Index Components and options on Index
Commodities and Index Components by us and our affiliates may affect your
return
Merrill Lynch Commodity, Inc., an affiliate of ours, and certain of
our other affiliates may, from time to time, trade in some or all of the Index
Commodities on a spot and forward basis and other contracts and products in or
related to the Index Commodities (including futures contracts and options on
futures contracts traded on futures exchanges in the United States and other
countries, and commodity options and swaps). Also, we may issue or our
PS-9
affiliates may underwrite other financial instruments with returns indexed to
the prices of the Index Commodities or the Index Components and derivative
commodities. These trading and underwriting activities could affect the level
of the Index in a manner that would be adverse to your investment in the
Notes.
Potential conflicts of interest could arise
Our subsidiary MLPF&S is our agent for the purposes of calculating
the Ending Value and the Redemption Amount. Under certain circumstances,
MLPF&S as our subsidiary and its responsibilities as Calculation Agent for the
Notes could give rise to conflicts of interest. These conflicts could occur,
for instance, in connection with its determination as to whether the level of
the 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 the Index. See the sections entitled "Description of the
Notes--Adjustments to the Index; Market Disruption Events" and
"--Discontinuance of the Index" 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.
Tax consequences are uncertain
You should consider the tax consequences of investing in the Notes,
aspects of which are uncertain. See the section entitled "United States
Federal Income Taxation" in this pricing supplement.
PS-10
DESCRIPTION OF THE NOTES
ML&Co. will issue the Notes as part of a series of senior debt
securities entitled "Medium-Term Notes, Series C" under the 1983 Indenture,
which is more fully described in the accompanying prospectus. The Notes will
mature on June , 2007. Information included in this pricing supplement
supercedes information in the accompanying prospectus supplement and
prospectus to the extent that it is different from that information. The CUSIP
number for the Notes is .
While on the maturity date a holder of a Note will receive an
amount equal to the Redemption Amount, there will be no other payment of
interest, periodic or otherwise. See the section entitled "--Payment on the
Maturity Date" in this pricing supplement.
The Notes will not be subject to redemption by ML&Co. or repayment
at the option of any holder of the Notes before the maturity date.
ML&Co. will issue the Notes in denominations of whole units each
with a $10 original public offering price per unit. You may transfer the Notes
only in whole units. You will not have the right to receive physical
certificates evidencing your ownership except under limited circumstances.
Instead, we will issue the Notes in the form of a global certificate, which
will be held by The Depository Trust Company, also known as DTC, or its
nominee. Direct and indirect participants in DTC will record your ownership of
the Notes. You should refer to the section entitled "Description of Debt
Securities--Depositary" in the accompanying prospectus.
The Notes will not have the benefit of any sinking fund.
Payment on the Maturity Date
On the maturity date, you will be entitled to receive a cash
payment per unit equal to the Redemption Amount, as provided below.
Determination of the Redemption Amount
The "Redemption Amount" per unit will be determined by the
Calculation Agent and will equal:
(i) If the Ending Value is greater than the Starting Value:
( ( Ending Value-Starting Value ) )
$10 + ( $30 x ( --------------------------- ) )
( ( Starting Value ) )
provided, however, the Redemption Amount will not exceed an amount which will
be between $11.90 and $12.40 per unit (the "Capped Value"). The actual Capped
Value will be determined on the date the Notes are priced for initial sale to
the public (the "Pricing Date") and will be set forth in the final pricing
supplement made available in connection with sales of the Notes.
(ii) If the Ending Value is equal to or less than the Starting
Value:
( Ending Value )
$10 x ( ---------------- )
( Starting Value )
The "Starting Value" will equal the closing level of the Dow
Jones-AIG Commodity Index (the "Index") on the Pricing Date and will be set
forth in the final pricing supplement made available in connection with sales
of the Notes.
The "Ending Value" will be determined by the Calculation Agent and
will equal the average of the closing levels of the Index determined on each
of the first five Calculation Days during the Calculation Period. If there are
fewer than five Calculation Days during the Calculation Period, then the
Ending Value will equal the
PS-11
average of the closing levels of the 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 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 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 "--Adjustments to the
Index; 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 Index or any
successor indices are calculated and published.
All determinations made by the Calculation Agent, absent a
determination of a manifest error, will be conclusive for all purposes and
binding on ML&Co. and the holders and beneficial owners of the Notes.
PS-12
Hypothetical Returns
The following table illustrates, for the hypothetical Starting
Value of 162.340 and a range of hypothetical Ending Values of the Index:
o the percentage change from the hypothetical Starting
Value to the hypothetical Ending Value;
o the total amount payable on the maturity date per unit;
o the total rate of return to holders of the Notes;
o the pretax annualized rate of return to holders of the
Notes; and
o the pretax annualized rate of return of an investment in
the commodities included in the Index.
Pretax
Percentage change Pretax annualized
from the hypothetical Total amount Total annualized rate
Starting Value payable on the rate of rate of of return on
Hypothetical to the hypothetical maturity date return on return on the Index
Ending Value Ending Value per unit the Notes the Notes(1) Commodities (1)(2)
------------ ------------ -------- --------- ------------ ------------------
81.170 -50% 5.00 -50.00% -51.38% -51.38%
97.404 -40% 6.00 -40.00% -39.31% -39.31%
113.638 -30% 7.00 -30.00% -28.34% -28.34%
129.872 -20% 8.00 -20.00% -18.32% -18.32%
146.106 -10% 9.00 -10.00% -8.83% -8.83%
149.353 -8% 9.20 -8.00% -7.02% -7.02%
152.600 -6% 9.40 -6.00% -5.23% -5.23%
155.846 -4% 9.60 -4.00% -3.47% -3.47%
159.093 -2% 9.80 -2.00% -1.72% -1.72%
162.340(3) 0% 10.00 0.00% 0.00% 0.00%
165.587 2% 10.60 6.00% 5.06% 1.70%
168.834 4% 11.20 12.00% 9.95% 3.39%
172.080 6% 11.80 18.00% 14.70% 5.06%
175.327 8% 12.15(4) 21.50% 17.40% 6.70%
178.574 10% 12.15 21.50% 17.40% 8.34%
194.808 20% 12.15 21.50% 17.40% 16.25%
211.042 30% 12.15 21.50% 17.40% 23.79%
- -----------------------------------------------
(1) The annualized rates of return specified in this column are calculated
on a semiannual bond equivalent basis and assume an investment term from
March 2, 2006 to May 2, 2007, a term expected to be equal to that of the
Notes.
(2) This rate of return assumes:
(a) a percentage change in the aggregate price of the commodity
futures included in the Index that equals the percentage
change in the Index from the hypothetical Starting Value to
the relevant hypothetical Ending Value;
(b) no transaction fees or expenses.
(3) This is the hypothetical Starting Value. The actual Starting Value will
be determined on the Pricing Date and will be set forth in the final
pricing supplement made available in connection with sales of the Notes.
(4) The total amount payable on the maturity date per unit of the Notes
cannot exceed the Capped Value, which for purposes of calculating these
hypothetical returns has been assumed to equal $12.15 (the midpoint of
the range of $11.90 and $12.40).
PS-13
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 Starting Value, Ending Value, Capped Value
and term of your investment.
Adjustments to the Index; Market Disruption Events
If at any time Dow Jones or AIGI makes a material change in the
formula for or the method of calculating the Index or in any other way
materially modifies the Index so that the Index does not, in the opinion of
the Calculation Agent, fairly represent the level of the Index had those
changes or modifications not been made, then, from and after that time, the
Calculation Agent will, at the close of business in New York, New York, on
each date that the closing level of the Index is to be calculated, make any
adjustments as, in the good faith judgment of the Calculation Agent, may be
necessary in order to arrive at a calculation of a level of a stock index
comparable to the Index as if those changes or modifications had not been
made, and calculate the closing level with reference to the Index, as so
adjusted. Accordingly, if the method of calculating the Index is modified so
that the level of the Index is a fraction or a multiple of what it would have
been if it had not been modified, e.g., due to a split, then the Calculation
Agent will adjust the Index in order to arrive at a level of the Index as if
it had not been modified, e.g., as if a split had not occurred.
"Market Disruption Event" means any of the following events as determined by
the Calculation Agent:
(A) the suspension of or material limitation on trading
for more than two hours of trading, or during the
one-half hour period preceding the close of
trading, on the applicable exchange (without taking
into account any extended or after-hours trading
session), in any futures contract used in the
calculation of the Index or any successor index;
(B) the suspension of or material limitation on
trading, in each case, for more than two hours of
trading, or during the one-half hour period
preceding the close of trading, on the applicable
exchange (without taking into account any extended
or after-hours trading session), whether by reason
of movements in price otherwise exceeding levels
permitted by the relevant exchange or otherwise, in
option contracts or futures contracts related to
the Index, or any successor index, which are traded
on any major U.S. exchange; or
(C) the failure on any day of the applicable exchange
to publish the official daily settlement prices for
that day for any futures contract used in the
calculation of the Index.
For the purpose of determining whether a Market Disruption
Event has occurred:
(1) a limitation on the hours in a trading day and/or
number of days of trading will not constitute a
Market Disruption Event if it results from an
announced change in the regular business hours of
the applicable exchange;
(2) a suspension in trading on the applicable exchange
(without taking into account any extended or
after-hours trading session), in any futures
contract used in the calculation of the Index or
any successor index, by reason of a price change
reflecting the maximum permitted price change from
the previous trading day's settlement price will
constitute a Market Disruption Event; and
(3) a suspension of or material limitation on trading
on the applicable exchange will not include any
time when that exchange is closed for trading under
ordinary circumstances.
The occurrence of a Market Disruption Event could affect the
calculation of the payment you may receive on the maturity date. See the
section entitled "--Payment on the Maturity Date" in this pricing supplement.
Discontinuance of the Index
If Dow Jones and AIGI discontinues publication of the Index and Dow
Jones, AIGI or another entity publishes a successor or substitute index that
the Calculation Agent determines, in its sole discretion, to be
PS-14
comparable to the Index (a "successor index"), then, upon the Calculation
Agent's notification of that determination to the trustee and ML&Co., the
Calculation Agent will substitute the successor index as calculated by Dow
Jones, AIGI or any other entity for the Index and calculate the Ending Value
as described above under "--Payment on the Maturity Date". Upon any selection
by the Calculation Agent of a successor index, ML&Co. will cause notice to be
given to holders of the Notes.
In the event that Dow Jones and AIGI discontinues publication of
the Index and:
o the Calculation Agent does not select a successor index;
or
o the successor index is not published on any of the
Calculation Days,
the Calculation Agent will compute a substitute level for the Index in
accordance with the procedures last used to calculate the Index before any
discontinuance. If a successor index is selected or the Calculation Agent
calculates a level as a substitute for the Index as described below, the
successor index or level will be used as a substitute for the Index for all
purposes, including the purpose of determining whether a Market Disruption
Event exists.
If Dow Jones and AIGI discontinues publication of the Index before
the Calculation Period and the Calculation Agent determines that no successor
index is available at that time, then on each Business Day until the earlier
to occur of:
o the determination of the Ending Value; and
o a determination by the Calculation Agent that a
successor index is available,
the Calculation Agent will determine the value that would be used in computing
the Redemption Amount as described in the preceding paragraph as if that day
were a Calculation Day. The Calculation Agent will cause notice of each value
to be published not less often than once each month in The Wall Street Journal
or another newspaper of general circulation and arrange for information with
respect to these values to be made available by telephone.
A "Business Day" is any day that is either (i) an Index Business
Day or (ii) a day on which the applicable exchanges quoting the commodities
futures contracts used to calculate a substitute level for the Index following
a discontinuance, as discussed above, are open for trading.
Notwithstanding these alternative arrangements, discontinuance of
the publication of the Index may adversely affect trading in the Notes.
Events of Default and Acceleration
In case an Event of Default with respect to any Notes has occurred
and is continuing, the amount payable to a holder of a Note upon any
acceleration permitted by the Notes, with respect to each $10 original public
offering price per unit, will be equal to the Redemption Amount, calculated as
though the date of acceleration were the stated maturity date of the Notes.
In case of default in payment of the Notes, whether on the stated
maturity date or upon acceleration, from and after that date the Notes will
bear interest, payable upon demand of their holders, at the rate of % per
annum, to the extent that payment of interest is legally enforceable on the
unpaid amount due and payable on that date in accordance with the terms of the
Notes to the date payment of that amount has been made or duly provided for.
PS-15
THE INDEX
The Index is a proprietary index that was created by Dow Jones and AIGI
to provide a liquid and diversified benchmark for commodities. The Index was
established on July 14, 1998 and is currently comprised of futures contracts
(each, an "Index Component") on nineteen physical commodities. A commodity
futures contract is an agreement that provides for the purchase and sale of a
specified type and quantity of a commodity during a stated delivery month for
a fixed price. The nineteen commodities that currently comprise the Index (the
"Index Commodities") are: aluminum; coffee; copper; corn; cotton; crude oil;
gold; heating oil; lean hogs; live cattle; natural gas; nickel; silver;
soybeans; soybean oil; sugar; unleaded gasoline; wheat; and zinc. Futures
contracts on the Index are currently listed for trading on the Chicago Board
of Trade (the "CBOT"). The Index Commodities currently trade on United States
exchanges, with the exception of aluminum, nickel and zinc, which trade on the
London Metal Exchange (the "LME").
The Index tracks what is known as a rolling futures position, which is a
position where, on a periodic basis, futures contracts on physical commodities
specifying delivery on a nearby date must be sold and futures contracts on
physical commodities that have not yet reached the delivery period must be
purchased. An investor with a rolling futures position is able to avoid
delivering underlying physical commodities while maintaining exposure to those
commodities. The rollover for each Index Component occurs over a period of
five DJ-AIG Business Days each month according to a pre-determined schedule.
The methodology for determining the composition and weighting of the
Index and for calculating its level is subject to modification by Dow Jones
and AIGI at any time. Currently, Dow Jones disseminates the Index level at
approximately 15 second intervals from 8:00 a.m. to 3:00 p.m., New York time,
and publishes a daily settlement price for the Index at approximately 5:00
p.m., New York time, on each DJ-AIG Business Day on Bloomberg page DJAIG.
A "DJ-AIG Business Day" means a day on which the sum of the Commodity
Index Percentages (as described below under "--Annual Reweighting and
Rebalancing of the Index") for the Index Commodities that are open for trading
is greater than 50%.
The Index was created using the following four main principles:
Economic Significance: To achieve a fair representation of a diversified
group of commodities to the world economy, the Index uses both liquidity data
and dollar-weighted production data in determining the relative quantities of
included commodities. The Index primarily relies on liquidity data, or the
relative amount of trading activity of a particular commodity, as an important
indicator of the value placed on that commodity by financial and physical
market participants. The Index also relies on production data as a useful
measure of the importance of a commodity to the world economy.
Diversification: In order to avoid the Index being subjected to
micro-economic shocks in one commodity or sector, diversification rules have
been established and are applied annually on a price-percentage basis in order
to maintain diversified commodities exposure over time.
Continuity: The Index is intended to provide a stable benchmark so that
there is confidence that historical performance data is based on a structure
that bears some resemblance to both the current and future composition of the
Index.
Liquidity: The inclusion of liquidity as a weighting factor helps to
ensure that the Index can accommodate substantial investment flows.
PS-16
Designated Contracts for each Index Commodity
A futures contract known as a Designated Contract is selected by the Dow
Jones-AIG Oversight Committee (the "Oversight Committee") for each Index
Commodity. With the exception of several LME contracts, where the Oversight
Committee believes that there exists more than one futures contract with
sufficient liquidity to be chosen as a Designated Contract for an Index
Commodity, the Oversight Committee selects the futures contract that is traded
in North America and denominated in United States dollars. If more than one of
those contracts exists, the Oversight Committee will select the most actively
traded contract. Data concerning this Designated Contract will be used to
calculate the Index. The termination or replacement of a futures contract on
an established exchange occurs infrequently. If a Designated Contract were to
be terminated or replaced, a comparable futures contract would be selected, if
available, to replace that Designated Contract. The Designated Contracts for
the Index Commodities included in the Index are traded on the CBOT, the LME,
the Coffee, Sugar & Cocoa Exchange (the "CSCE"), the Commodities Exchange (the
"COMEX"), the New York Cotton Exchange (the "NYCE") and the New York
Mercantile Exchange (the "NYMEX") and are as follows:
PS-17
Current Weighting of
Commodity Price Quote Designated Contract(1) Exchange Units
- -------------------------------------------- ---------------------- ------------- --------------------
Light, Sweet Crude Oil...................... 12.78% NYMEX 1,000 barrels
$/barrel
Henry Hub Natural Gas....................... 8.96% NYMEX 10,000 mmbtu
$/mmbtu
Soybeans.................................... 7.67% CBOT 5,000 bushels
cents/bushel
High Grade Primary Aluminum................. 7.17% LME 25 metric tons
$/metric ton
Live Cattle................................. 5.64% CME 40,000 lbs
cents/pound
High Grade Copper(2)........................ 6.43% COMEX 25,000 lbs
cents/pound
Gold........................................ 6.64% COMEX 100 troy oz.
$/troy oz.
Corn........................................ 6.57% CBOT 5,000 bushels
cents/bushel
Wheat....................................... 5.51% CBOT 5,000 bushels
cents/bushel
Lean Hogs................................... 4.32% CME 40,000 lbs
cents/pound
New York Harbor Unleaded Gasoline........... 3.75% NYMEX 42,000 gallons
cents/gallon
Heating Oil................................. 3.79% NYMEX 42,000 gallons
cents/gallon
Coffee "C".................................. 2.85% CSCE 37,500 lbs
cents/pound
Cotton...................................... 3.25% NYCE 50,000 lbs
cents/pound
World Sugar No. 11.......................... 3.42% CSCE 112,000 lbs
cents/pound
Special High Grade Zinc..................... 3.30% LME 25 metric tons
$/metric ton
Primary Nickel.............................. 2.81% LME 6 metric tons
$/metric ton
Soybean Oil................................. 2.97% CBOT 60,000 lbs
cents/pound
Silver...................................... 2.18% COMEX 5,000 troy oz.
cents/troy oz.
- -----------------------------------------------
(1) The column in the above table titled "Current Designated Contract
Weighting" reflects the approximate weightings as of March 1, 2006 of
the nineteen commodities currently included in the Index.
(2) The Index uses the high grade copper contract traded on the COMEX
Division of the NYMEX for Copper contract prices and LME volume data in
determining the weighting for the Index.
PS-18
Commodity Groups
For purposes of applying the diversification rules discussed above and
below, the commodities in the Index are assigned to "Commodity Groups". The
Commodity Groups, and the commodities currently included in each Commodity
Group that are part of the Index, are as follows:
Index Weighting by Commodity Group as of March 1, 2006
Energy...................................................... 29.28%
Industrial Metals .......................................... 19.71%
Grains ..................................................... 19.75%
Livestock................................................... 9.96%
Softs....................................................... 9.52%
Precious Metals............................................. 8.82%
Vegetable Oil .............................................. 2.97%
Commodity Group: Commodities: Commodity Group: Commodities:
- ------------------------- ------------------------- --------------------------- -----------------
Energy...................... Crude Oil Softs....................... Coffee
Heating Oil Cotton
Natural Gas Sugar
Unleaded Gasoline
Aluminum Precious Metals............. Gold
Industrial Metals........... Copper Silver
Nickel
Zinc
Grains...................... Corn Vegetable Oil............... Soybean Oil
Soybeans
Wheat
Livestock................... Lean Hogs
Live Cattle
Annual Reweighting and Rebalancing of the Dow Jones-AIG Commodity Index
The Dow Jones-AIG Commodity Index is reweighted and rebalanced each year
in January on a price-percentage basis. The annual weightings for the Dow
Jones-AIG Commodity Index are determined each year in June or July by AIGI
under the supervision of the Oversight Committee. The Oversight Committee was
established by Dow Jones and AIGI to assist with the operation of the Dow
Jones-AIG Commodity Index. The annual weightings are announced in July and
implemented the following January. The composition of the Dow Jones-AIG
Commodity Index for 2006 was approved by the Oversight Committee at a meeting
held in July 2005 and became effective in January 2006.
The relative weightings of the component commodities included in the Dow
Jones-AIG Commodity Index are determined annually according to both liquidity
and dollar-adjusted production data in two-thirds and one-third shares,
respectively. Each June, for each commodity designated for potential inclusion
in the Dow Jones-AIG Commodity Index, liquidity is measured by the commodity
liquidity percentage (the "CLP") and production by the commodity production
percentage (the "CPP"). The CLP for each commodity is determined by taking a
five-year average of the product of the trading volume and the historic dollar
value of the Designated Contract for that commodity, and dividing the result
by the sum of the products for all commodities which were designated for
potential inclusion in the Dow Jones-AIG Commodity Index. The CPP is
determined for each commodity by taking a five-year average of annual world
production figures, adjusted by the historic dollar value of the Designated
Contract, and dividing the result by the sum of the production figures for all
the commodities which were designated for potential inclusion in the Dow
Jones-AIG Commodity Index. The CLP and CPP are then combined (using a ratio of
2:1) to establish the Commodity Dow Jones-AIG Commodity Index Percentage (the
"CIP") for each commodity. The CIP is then adjusted in accordance with the
diversification rules described below in order to determine the commodities
which will be included in the Dow Jones-AIG Commodity Index and their
respective percentage weights.
PS-19
To ensure that no single commodity or commodity sector dominates the Dow
Jones-AIG Commodity Index, the following diversification rules are applied to
the annual reweighting and rebalancing of the Dow Jones-AIG Commodity Index as
of January of the applicable year:
o No related group of commodities designated as a Commodity Group
(e.g., energy, precious metals, livestock or grains) may
constitute more than 33% of the Dow Jones-AIG Commodity Index;
o No single commodity may constitute more than 15% of the Dow
Jones-AIG Commodity Index;
o No single commodity, together with its derivatives (e.g., crude
oil, together with heating oil and unleaded gasoline), may
constitute more than 25% of the Dow Jones-AIG Commodity Index; and
o No single commodity in the Dow Jones-AIG Commodity Index may
constitute less than 2% of the Dow Jones-AIG Commodity Index.
Following the annual reweighting and rebalancing of the Dow Jones-AIG
Commodity Index in January, the percentage of any single commodity or group of
commodities at any time prior to the next reweighting or rebalancing will
fluctuate and may exceed or be less than the percentage set forth above.
Following application of the diversification rules discussed above, the
CIPs are incorporated into the Index by calculating the new unit weights for
each Index Commodity. Near the beginning of each new calendar year, the CIPs,
along with the settlement prices on that date for the Index Components, are
used to determine the commodity index multiplier (the "CIM") for each Index
Commodity. The CIM is used to achieve the percentage weightings of the Index
Commodities, in dollar terms, indicated by their respective CIPs. After the
CIMs are calculated, they remain fixed throughout the year. As a result, the
observed price percentage of each Index Commodity will float throughout the
year, until the CIMs are reset the following year based on new CIPs. The CIM
for each of the Index Commodities included in the Index for 2006 are as
follows:
The Dow Jones-AIG Commodity Index 2006 Commodity Index Multiplier
Commodity ("CIM")
- ---------------------------------- ---------------------------
Crude Oil 4.93856183
Natural Gas 31.72822578
Soybeans 31.90522150
Aluminum 0.07446482
Live Cattle 159.23683836
Gold 0.28847002
Corn 68.80808715
Copper 70.75783006
Wheat 36.21276431
Lean Hogs 169.39052752
Unleaded Gasoline 55.10798094
Heating Oil 52.84558816
Cotton 144.21008763
Coffee 61.54624057
Sugar 500.51759594
Zinc 0.03449535
Soybean Oil 301.94615830
Nickel 0.00466073
Silver 5.47232601
Computation of the Dow Jones-AIG Commodity Index
The Dow Jones-AIG Commodity Index is calculated by Dow Jones, in
conjunction with AIGI by applying the impact of the changes to the prices of
the Dow Jones-AIG Commodity Index Components (based on their relative
weightings). Once the CIMs are determined as discussed above, the calculation
of the Dow Jones-AIG Commodity Index is a mathematical process whereby the
CIMs for the Dow Jones-AIG Commodity Index Components are multiplied by the
prices for the Dow Jones-AIG Commodity Index Components. These products are
then summed. The percentage change in this sum is then applied to the prior
Dow Jones-AIG Commodity Index level to calculate the current Dow Jones-AIG
Commodity Index level.
PS-20
Hypothetical historical and historical data on the Index
The Index has only been calculated and published since July 1998,
however we have included the following graph setting forth the hypothetical
closing levels of the Index on the last business day of each year from 1991
through 2005, based on the historical values of the commodities futures
included in the Index. The hypothetical historical performance of the Index
should not be taken as an indication of future performance, and no assurance
can be given that the level of the Index will not decline and thereby reduce
the Redemption Amount which may be payable to you at maturity.
[GRAPHIC OMITTED]
Graphic shows closing levels:
89.210 for December 31, 1991
89.324 for December 31, 1992
85.716 for December 31, 1993
95.772 for December 30, 1994
104.323 for December 29, 1995
122.044 for December 31, 1996
111.984 for December 31, 1997
77.803 for December 31, 1998
92.273 for December 31, 1999
114.613 for December 29, 2000
89.033 for December 31, 2001
110.276 for December 31, 2002
135.269 for December 31, 2003
145.600 for December 31, 2004
171.149 for December 30, 2005
The following table sets forth the level of the Index at the end of
each month in the period from January 2001 through February 2006. This
historical data on the Index is not necessarily indicative of the future
performance of the Index or what the value of the Notes may be. Any historical
upward or downward trend in the level of the Index during any period set forth
below is not an indication that the Index is more or less likely to increase
or decrease at any time during the term of the Notes.
2001 2002 2003 2004 2005 2006
---- ---- ---- ---- ---- ----
January.................... 111.374 88.309 118.644 137.620 146.821 173.669
February................... 110.479 90.476 122.526 146.445 156.886 162.234
March...................... 105.372 99.588 113.171 150.837 162.094
April...................... 108.708 99.431 112.360 148.046 152.294
May........................ 106.091 97.755 118.821 150.436 150.727
June....................... 101.571 99.518 115.788 144.034 152.885
July....................... 102.570 98.826 116.395 146.414 159.330
August..................... 102.225 102.581 120.898 143.556 170.816
September.................. 95.107 106.294 120.898 153.175 178.249
October.................... 90.407 105.053 126.571 155.549 166.516
November................... 90.959 105.247 126.087 153.406 166.402
December................... 89.033 110.276 135.269 145.600 171.149
PS-21
The following graph sets forth the historical performance of the Index
presented in the preceding table. Past movements of the Index are not
necessarily indicative of the future performance of the Index. On March 1,
2006, the closing level of the Index was 162.304.
[GRAPHIC OMITTED]
License Agreement
Dow Jones, AIGI and MLPF&S have entered into a non-exclusive license
agreement providing for the license to MLPF&S, in exchange for a fee, of the
right to use the Dow Jones in connection with certain securities, including
the Notes. ML&Co. is an authorized sub-licensee under the license agreement.
The license agreement among Dow Jones, AIGI and MLPF&S provides that the
following language must be set forth in this pricing supplement:
""Dow Jones," "AIG," and "Dow Jones-AIG Commodity Index," are service
marks of Dow Jones & Company, Inc. ("Dow Jones") and American International
Group, Inc. ("American International Group"), as the case may be, and have
been licensed for use for certain purposes by ML&Co. The Notes are not
sponsored, endorsed, sold or promoted by Dow Jones, AIG International Inc.
("AIGI"), American International Group, or any of their respective
subsidiaries or affiliates, and none of Dow Jones, AIGI, American
International Group, or any of their respective subsidiaries or affiliates,
makes any representation regarding the advisability of investing in the Notes.
The Notes are not sponsored, endorsed, sold or promoted by Dow Jones,
American International Group, AIGI or any of their subsidiaries or affiliates.
None of Dow Jones, American International Group, AIGI or any of their
subsidiaries or affiliates makes any representation or warranty, express or
implied, to the owners of or counterparts to the Notes or any member of the
public regarding the advisability of investing in securities or commodities
generally or in the Notes particularly. The only relationship of Dow Jones,
American International
PS-22
Group, AIGI or any of their respective subsidiaries or affiliates to ML&Co. is
the licensing of certain trademarks, trade names and service marks and of the
Dow Jones-AIG Commodity Index, which are determined, composed and calculated
by Dow Jones in conjunction with AIGI without regard to ML&Co. or the Notes.
Dow Jones and AIGI have no obligation to take the needs of ML&Co. or the
owners of the Notes into consideration in determining, composing or
calculating the Dow Jones-AIG Commodity Index. None of Dow Jones, American
International Group, AIGI or any of their respective subsidiaries or
affiliates is responsible for or has participated in the determination of the
timing of, prices at, 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. None of Dow Jones, American International Group, AIGI or
any of their subsidiaries or affiliates shall have any obligation or
liability, including, without limitation, to holders of the Notes, in
connection with the administration, marketing or trading of the Notes.
Notwithstanding the foregoing, AIGI, American International Group and their
respective subsidiaries and affiliates may independently issue and/or sponsor
financial products unrelated to the Notes currently being issued by ML&Co.,
but which may be similar to and competitive with the Notes. In addition,
American International Group, AIGI and their subsidiaries and affiliates
actively trade commodities, commodity indexes and commodity futures (including
the Dow Jones-AIG Commodity Index), as well as swaps, options and derivatives
which are linked to the performance of such commodities, commodity indexes and
commodity futures. It is possible that this trading activity will affect the
value of the Dow Jones-AIG Commodity Index and the Notes.
This pricing supplement relates only to the Notes and does not relate to
the exchange-traded physical commodities underlying any of the Dow Jones-AIG
Commodity Index components. Investors in the Notes should not conclude that
the inclusion of a futures contract in the Dow Jones-AIG Commodity Index is
any form of investment recommendation of the futures contract or the
underlying exchange-traded physical commodity by Dow Jones, American
International Group, AIGI or any of their subsidiaries or affiliates. The
information in this pricing supplement regarding the Dow Jones-AIG Commodity
Index components has been derived solely from publicly available documents.
None of Dow Jones, American International Group, AIGI or any of their
subsidiaries or affiliates has made any due diligence inquiries with respect
to the Dow Jones-AIG Commodity Index components in connection with the Notes.
None of Dow Jones, American International Group, AIGI or any of their
subsidiaries or affiliates makes any representation that these publicly
available documents or any other publicly available information regarding the
Dow Jones-AIG Commodity Index components, including without limitation a
description of factors that affect the prices of such components, are accurate
or complete.
NONE OF DOW JONES, AMERICAN INTERNATIONAL GROUP, AIGI OR ANY OF THEIR
SUBSIDIARIES OR AFFILIATES GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF
THE DOW JONES-AIG COMMODITY INDEX OR ANY DATA INCLUDED THEREIN AND NONE OF DOW
JONES, AMERICAN INTERNATIONAL GROUP, AIGI OR ANY OF THEIR SUBSIDIARIES OR
AFFILIATES SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS, OR
INTERRUPTIONS THEREIN. NONE OF DOW JONES, AMERICAN INTERNATIONAL GROUP, AIGI
OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES MAKES ANY WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY ML&CO., OWNERS OF THE NOTES, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE DOW JONES-AIG COMMODITY INDEX OR
ANY DATA INCLUDED THEREIN. NONE OF DOW JONES, AMERICAN INTERNATIONAL GROUP,
AIGI OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES MAKES ANY EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE DOW JONES-AIG
COMMODITY INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL DOW JONES, AMERICAN INTERNATIONAL GROUP, AIGI OR
ANY OF THEIR SUBSIDIARIES OR AFFILIATES HAVE ANY LIABILITY FOR ANY LOST
PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES OR LOSSES,
EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY
BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS AMONG DOW JONES, AIGI AND
ML&CO., OTHER THAN AMERICAN INTERNATIONAL GROUP."
All disclosures contained in this pricing supplement regarding the Dow
Jones-AIG Commodity Index, including its make-up, method of calculation and
changes in its components, are derived from publicly available information
prepared by Dow Jones and AIGI. 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. The discussion below supplements
the discussion set forth under the section entitled "United States Federal
Income Taxation" that is contained in the accompanying prospectus supplement
and supercedes that discussion to the extent that it contains information that
is inconsistent with that contained in the accompanying prospectus supplement.
The discussion below deals only with Notes held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, real estate
investment trusts, tax-exempt entities or persons holding Notes in a
tax-deferred or tax-advantaged account (except to the extent specifically
discussed below), dealers in securities or currencies, traders in securities
that elect to mark to market, persons subject to the alternative minimum tax,
persons holding Notes as a hedge against currency risks, as a position in a
"straddle" or as part of a "hedging", "conversion" or "integrated" transaction
for tax purposes, or persons whose functional currency is not the United
States dollar. It also does not deal with holders other than original
purchasers. If a partnership holds the Notes, the tax treatment of a partner
in the partnership will generally depend upon the status of the partner and
the activities of the partnership. Thus, persons who are partners in a
partnership holding the Notes should consult their own tax advisors. Moreover,
all persons considering the purchase of the Notes should consult their own tax
advisors concerning the application of United States federal income tax laws
to their particular situations as well as any consequences of the purchase,
ownership and disposition of the Notes arising under the laws of any other
taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of
a Note that is for United States federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation or a partnership (including
an entity treated as a corporation or a partnership for United States federal
income tax purposes) that is created or organized in or under the laws of the
United States, any state thereof or the District of Columbia (unless, in the
case of a partnership, Treasury regulations are adopted that provide
otherwise), (iii) an estate the income of which is subject to United States
federal income tax regardless of its source, (iv) a trust if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust or (v) any other
person whose income or gain in respect of a Note is effectively connected with
the conduct of a United States trade or business. Certain trusts not described
in clause (iv) above in existence on August 20, 1996, that elect to be treated
as United States persons will also be U.S. Holders for purposes of the
following discussion. As used herein, the term "non-U.S. Holder" means a
beneficial owner of a Note that is not a U.S. Holder.
General
There are no statutory provisions, regulations, published rulings
or judicial decisions addressing or involving the characterization and
treatment, for United States federal income tax purposes, of the Notes or
securities with terms substantially the same as the Notes. Accordingly, the
proper United States federal income tax characterization and treatment of the
Notes is uncertain. Pursuant to the terms of the Notes, ML&Co. and every
holder of a Note agree (in the absence of an administrative determination,
judicial ruling or other authoritative guidance to the contrary) to
characterize a Note for all tax purposes as a pre-paid cash-settled forward
contract linked to the level of the 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
PS-24
consequences of an investment in the Notes (including alternative
characterizations of the Notes) and with respect to any tax consequences
arising under the laws of any state, local or foreign taxing jurisdiction.
Unless otherwise stated, the following discussion is based on the assumption
that the treatment described above is accepted for United States federal
income tax purposes.
Tax Treatment of the Notes
Assuming the characterization of the Notes as set forth above, Tax
Counsel believes that the following United States federal income tax
consequences should result.
Tax Basis. A U.S. Holder's tax basis in a Note will equal the
amount paid by the U.S. Holder to acquire the Note.
Payment on the Maturity Date. Upon the receipt of cash on the
maturity date of the Notes, a U.S. Holder will recognize gain or loss. The
amount of that gain or loss will be the extent to which the amount of the cash
received differs from the U.S. Holder's tax basis in the Note. It is uncertain
whether any such gain or loss would be treated as ordinary income or loss or
capital gain or loss. Absent a future clarification in current law (by an
administrative determination, judicial ruling or otherwise), where required,
ML&Co. intends to report any such gain or loss to the IRS in a manner
consistent with the treatment of that gain or loss as capital gain or loss. If
any gain or loss is treated as capital gain or loss, then that gain or loss
will generally be short-term or long-term capital gain or loss, as the case
may be, depending upon the U.S. Holder's holding period for the Note as of the
maturity date. The deductibility of capital losses is subject to certain
limitations.
Sale or Exchange of the Notes. Upon a sale or exchange of a Note
prior to the maturity date of the Notes, a U.S. Holder will generally
recognize capital gain or loss in an amount equal to the difference between
the amount realized on the sale or exchange and the U.S. Holder's tax basis in
the Note so sold or exchanged. Any such capital gain or loss will generally be
short-term or long-term capital gain or loss, depending upon the U.S. Holder's
holding period for the Note at the time of disposition. As discussed above,
the deductibility of capital losses is subject to certain limitations.
Possible Alternative Tax Treatments of an Investment in the Notes
Due to the absence of authorities that directly address the proper
characterization of the Notes, no assurance can be given that the IRS will
accept, or that a court will uphold, the characterization and tax treatment of
the Notes described above. In particular, the IRS could seek to analyze the
United States federal income tax consequences of owning the Notes under
Treasury regulations governing contingent payment debt instruments (the "CPDI
Regulations").
If the IRS were successful in asserting that the CPDI Regulations
applied to the Notes, the timing and character of income thereon would be
significantly affected. Among other things, a U.S. Holder would be required to
accrue original issue discount on the Notes every year at a "comparable yield"
for us, determined at the time of issuance of the Notes. Furthermore, any gain
realized on the maturity date or upon a sale or other disposition of the Notes
would generally be treated as ordinary income, and any loss realized on the
maturity date or upon a sale or other disposition of the Notes would be
treated as ordinary loss to the extent of the U.S. Holder's prior accruals of
original issue discount and capital loss thereafter.
Even if the CPDI Regulations do not apply to the Notes, other
alternative United States federal income tax characterizations or treatments
of the Notes may also be possible, and if applied could also affect the timing
and the character of the income or loss with respect to the Notes.
Accordingly, prospective purchasers are urged to consult their tax advisors
regarding the United States federal income tax consequences of an investment
in the Notes.
Constructive Ownership Law
Section 1260 of the Internal Revenue Code of 1986, as amended (the
"Code"), treats a taxpayer owning certain types of derivative positions in
property as having "constructive ownership" of that property, with the result
that all or a portion of any long-term capital gain recognized by that
taxpayer with respect to the derivative position will be recharacterized as
ordinary income. In its current form, Section 1260 of the Code does not apply
to the Notes. If Section 1260 of the Code were to apply to the Notes in the
future, however, the effect on a U.S. Holder of a
PS-25
Note would be to treat all or a portion of any long-term capital gain
recognized by the U.S. Holder on the sale, exchange or maturity of a Note as
ordinary income. In addition, Section 1260 of the Code would impose an
interest charge on any gain that was recharacterized. U.S. Holders should
consult their tax advisors regarding the potential application of Section 1260
of the Code, if any, to the purchase, ownership and disposition of a Note.
Unrelated Business Taxable Income
Section 511 of the Code generally imposes a tax, at regular
corporate or trust income tax rates, on the "unrelated business taxable
income" of certain tax-exempt organizations, including qualified pension and
profit sharing plan trusts and individual retirement accounts. As discussed
above, the U.S. federal income tax characterization of the Notes is uncertain.
Nevertheless, in general, if the Notes are held for investment purposes, the
amount of income or gain, if any, realized on the maturity date or upon a sale
or exchange of a Note prior to the maturity date, or any income that would
accrue to a holder of a Note if the Notes were characterized as contingent
payment debt instruments (as discussed above), will not constitute unrelated
business taxable income. However, if a Note constitutes debt-financed property
(as defined in Section 514(b) of the Code) by reason of indebtedness incurred
by a holder of a Note to purchase the Note, all or a portion of any income or
gain realized with respect to such Note may be classified as unrelated
business taxable income pursuant to Section 514 of the Code. Moreover,
prospective investors in the Notes should be aware that whether or not any
income or gain realized with respect to a Note which is owned by an
organization that is generally exempt from U.S. federal income taxation
pursuant to Section 501(a) of the Code constitutes unrelated business taxable
income will depend upon the specific facts and circumstances applicable to
such organization. Accordingly, any potential investors in the Notes that are
generally exempt from U.S. federal income taxation pursuant to Section 501(a)
of the Code are urged to consult with their own tax advisors concerning the
U.S. federal income tax consequences to them of investing in the Notes.
Non-U.S. Holders
Based on the treatment of each Note as a pre-paid cash-settled
forward contract linked to the level of the 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
PS-27
regarding the availability of exemptive relief under any of the PTCEs listed
above or any other applicable exemption, or the potential consequences of any
purchase or holding under similar laws, as applicable.
USE OF PROCEEDS AND HEDGING
The net proceeds from the sale of the Notes will be used as
described under "Use of Proceeds" in the accompanying prospectus and to hedge
market risks of ML&Co. associated with its obligation to pay the Redemption
Amount.
SUPPLEMENTAL PLAN OF DISTRIBUTION
MLPF&S has advised ML&Co. that it proposes initially to offer all
or part of the Notes directly to the public on a fixed price basis at the
offering prices set forth on the cover of this pricing supplement. After the
initial public offering, the public offering prices may be changed. The
obligations of MLPF&S are subject to certain conditions and it is committed to
take and pay for all of the Notes if any are taken.
EXPERTS
The consolidated financial statements, the related financial
statement schedule, and management's report on the effectiveness of internal
control over financial reporting incorporated in this pricing supplement by
reference from Merrill Lynch & Co., Inc.'s Annual Report on Form 10-K for the
year ended December 30, 2005 have been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their reports,
which are incorporated herein by reference, and have been so incorporated in
reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
PS-28
INDEX OF CERTAIN DEFINED TERMS
Business Day...............................................................PS-15
Calculation Agent...........................................................PS-6
Calculation Day............................................................PS-12
Calculation Period.........................................................PS-12
Capped Value................................................................PS-4
DJ-AIG Business Day........................................................PS-16
Ending Value................................................................PS-4
Index.......................................................................PS-3
Index Business Day.........................................................PS-12
Index Commodities...........................................................PS-3
Index Component.............................................................PS-3
Market Disruption Event....................................................PS-14
Notes.......................................................................PS-1
Pricing Date................................................................PS-4
Redemption Amount...........................................................PS-4
Starting Value..............................................................PS-4
Successor index............................................................PS-15
PS-29
===============================================================================
1,000,000 Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
Accelerated Return Notes(R)
Linked to the Dow Jones-AIG Commodity Index(SM)
due June , 2007
$10 original public offering price per unit
-----------------------
PRICING SUPPLEMENT
-----------------------
Merrill Lynch & Co.
March , 2006
"Accelerated Return Notes" is a registered mark of Merrill Lynch & Co., Inc.
===============================================================================