PRICING SUPPLEMENT
- ------------------
(To MTN prospectus supplement,
general prospectus supplement
and prospectus, each dated March 31, 2006)
Pricing Supplement Number: 2531
[LOGO OMITTED]
11,500,000 Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
Dow Jones-AIG Commodity Index(SM) Market Index Target-Term Securities(R)
due November 9, 2009
(the "MITTS(R) Securities")
$10 principal amount per unit
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The MITTS Securities:
o The MITTS Securities are designed for investors who are willing to
forego interest payments on the MITTS Securities in exchange for the
ability to participate in increases in the level of the Dow Jones-AIG
Commodity Index (index symbol "DJAIG"), over the term of the MITTS
Securities.
o 100% principal protection on the maturity date.
o There will be no payments prior to the maturity date and we cannot
redeem the MITTS Securities prior to the maturity date.
o The MITTS Securities will not be listed on any securities exchange.
o The MITTS Securities will be senior unsecured debt securities of Merrill
Lynch & Co., Inc., denominated and payable in United States dollars, and
part of a series entitled "Medium-Term Notes, Series C". The MITTS
Securities will have the CUSIP No. 59021V417.
o The settlement date is expected to be May 9, 2006.
Payment on the maturity date:
o The amount you receive on the maturity date per unit will be based upon
the direction of and percentage change in the level of the Dow Jones-AIG
Commodity Index over the term of the MITTS Securities:
o If the level of the Dow Jones-AIG Commodity Index has increased,
you will receive the $10 principal amount per unit plus a
supplemental redemption amount equal to $10 multiplied by 111% of
the percentage increase; or
o If the level of the Dow Jones-AIG Commodity Index has decreased or
has not increased, you will receive the $10 principal amount per
unit.
Information included in this pricing supplement supersedes information
in the accompanying MTN prospectus supplement, general prospectus supplement
and prospectus to the extent that it is different from that information.
Investing in the MITTS Securities involves risks that are described in
the "Risk Factors" section beginning on page PS-7 of this pricing supplement
and on page S-3 in the accompanying MTN prospectus supplement.
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Per Unit Total
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Public offering price (1) .............................. $10.00 $115,000,000
Underwriting discount (1) .............................. $.20 $2,300,000
Proceeds, before expenses, to Merrill Lynch & Co., Inc. $ 9.80 $112,700,000
(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 MTN prospectus supplement, general
prospectus supplement and prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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Merrill Lynch & Co.
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The date of this pricing supplement is May 4, 2006.
"MITTS" and "Market Index Target-Term Securities" are registered service marks
of Merrill Lynch & Co., Inc.
"Dow Jones," "AIG(R)" and "Dow Jones-AIG Commodity Index(SM)" and "DJ-AIGCI(SM)"
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. Merrill Lynch & Co., Inc. is an
authorized sublicensee. The MITTS Securities based on the Dow Jones-AIG
Commodity Index(SM) 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 MITTS
Securities.
TABLE OF CONTENTS
Pricing Supplement
SUMMARY INFORMATION--Q&A.................................................PS-3
RISK FACTORS.............................................................PS-7
DESCRIPTION OF THE MITTS SECURITIES.....................................PS-11
THE INDEX...............................................................PS-16
UNITED STATES FEDERAL INCOME TAXATION...................................PS-25
ERISA CONSIDERATIONS....................................................PS-30
USE OF PROCEEDS AND HEDGING.............................................PS-31
SUPPLEMENTAL PLAN OF DISTRIBUTION.......................................PS-31
EXPERTS.................................................................PS-31
INDEX OF DEFINED TERMS..................................................PS-32
Medium-Term Notes, Series C Prospectus Supplement
(the "MTN prospectus supplement")
RISK FACTORS..............................................................S-3
DESCRIPTION OF THE NOTES..................................................S-4
UNITED STATES FEDERAL INCOME TAXATION....................................S-22
PLAN OF DISTRIBUTION.....................................................S-29
VALIDITY OF THE NOTES....................................................S-30
Debt Securities, Warrants, Preferred Stock,
Depositary Shares and Common Stock Prospectus Supplement
(the "general prospectus supplement")
MERRILL LYNCH & CO., INC..................................................S-3
USE OF PROCEEDS...........................................................S-3
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS......................S-4
THE SECURITIES............................................................S-4
DESCRIPTION OF DEBT SECURITIES............................................S-5
DESCRIPTION OF DEBT WARRANTS.............................................S-16
DESCRIPTION OF CURRENCY WARRANTS.........................................S-18
DESCRIPTION OF INDEX WARRANTS............................................S-20
DESCRIPTION OF PREFERRED STOCK...........................................S-25
DESCRIPTION OF DEPOSITARY SHARES.........................................S-32
DESCRIPTION OF PREFERRED STOCK WARRANTS..................................S-36
DESCRIPTION OF COMMON STOCK..............................................S-38
DESCRIPTION OF COMMON STOCK WARRANTS.....................................S-42
PLAN OF DISTRIBUTION.....................................................S-44
WHERE YOU CAN FIND MORE INFORMATION......................................S-45
INCORPORATION OF INFORMATION WE FILE WITH THE SEC........................S-46
EXPERTS..................................................................S-46
Prospectus
WHERE YOU CAN FIND MORE INFORMATION.........................................2
INCORPORATION OF INFORMATION WE FILE WITH THE SEC...........................2
EXPERTS.....................................................................2
PS-2
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this pricing supplement and the accompanying MTN prospectus
supplement, general prospectus supplement and prospectus to help you
understand the Dow Jones-AIG Commodity Index(SM) Market Index Target-Term
Securities(R) due November 9, 2009 (the "MITTS Securities"). You should
carefully read this pricing supplement and the accompanying MTN prospectus
supplement, general prospectus supplement and prospectus to fully understand
the terms of the MITTS Securities, 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 MITTS Securities. You should
carefully review the "Risk Factors" sections in this pricing supplement and
the accompanying MTN prospectus supplement, which highlight certain risks
associated with an investment in the MITTS Securities, to determine whether an
investment in the MITTS Securities 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 MITTS Securities?
The MITTS Securities are 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 MITTS Securities will rank equally with all of our
other unsecured and unsubordinated debt. The MITTS Securities will mature on
November 9, 2009. We cannot redeem the MITTS Securities at an earlier date. We
will not make any payments on the MITTS Securities until the maturity date.
Each unit of MITTS Securities represents a single MITTS Security with a
$10 principal amount. You may transfer the MITTS Securities 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
MITTS Securities 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 MITTS
Securities. You should refer to the section entitled "Description of the Debt
Securities--Depositary" in the accompanying general prospectus supplement.
Are there any risks associated with my investment?
Yes, an investment in the MITTS Securities is subject to risks. Please
refer to the section entitled "Risk Factors" in this pricing supplement and
the accompanying MTN prospectus supplement.
Who publishes the Index and what does it 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 MITTS Securities 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 April 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
PS-3
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.
What will I receive on the maturity date of the MITTS Securities?
On the maturity date, you will receive a cash payment per unit equal to
the sum of the $10 principal amount per unit plus the "Supplemental Redemption
Amount", if any.
Supplemental Redemption Amount
The "Supplemental Redemption Amount" will equal:
( Ending Value - Starting Value )
$10 x ( ----------------------------- ) x Participation Rate
( Starting Value )
but will not be less than zero.
The "Starting Value" equals 177.634, the closing level of the Index on
May 4, 2006, the date the MITTS Securities were priced for initial sale to the
public (the "Pricing Date").
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 MITTS Securities. 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 MITTS Securities, 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 "Participation Rate" equals 111%.
We will pay you a Supplemental Redemption Amount only if the Ending
Value is greater than the Starting Value. If the Ending Value is less than, or
equal to, the Starting Value, the Supplemental Redemption Amount will be zero.
We will pay you the $10 principal amount per unit of your MITTS Securities
regardless of whether any Supplemental Redemption Amount is payable.
For more specific information about the Supplemental Redemption Amount,
please see the section entitled "Description of the MITTS Securities" in this
pricing supplement.
Will I receive interest payments on the MITTS Securities?
You will not receive any interest payments on the MITTS Securities, but
you will receive the $10 principal amount per unit plus the Supplemental
Redemption Amount, if any, on the maturity date. We have designed the MITTS
Securities for investors who are willing to forego interest payments on the
MITTS Securities, such as fixed or floating interest rates paid on traditional
interest bearing debt securities, in exchange for the ability to participate
in possible increases in the Index over the term of the MITTS Securities.
PS-4
Examples
Set forth below are two examples of Supplemental Redemption Amount
calculations assuming a Starting Value of 177.634, the closing level of the
Index on May 4, 2006, and a Participation Rate equal to 111%:
Example 1--The hypothetical Ending Value is 10% lower than the Starting Value:
Starting Value: 177.634
Hypothetical Ending Value: 159.871
( 159.871 - 177.634 ) (Supplemental Redemption
Supplemental Redemption Amount (per unit) = $10 x ( ----------------- ) x 111% = $0 Amount cannot be less
( 177.634 ) than zero)
Total payment on the maturity date (per unit) = $10 + $0 = $10
Example 2--The hypothetical Ending Value is 30% greater than the Starting
Value:
Starting Value: 177.634
Hypothetical Ending Value: 230.924
( 230.924 - 177.634 )
Supplemental Redemption Amount (per unit) = $10 x ( ----------------- ) x 111% = $3.33
( 177.634 )
Total payment on the maturity date (per unit) = $10 + $3.33 = $13.33
What about taxes?
Each year, you will be required to pay taxes on ordinary income from the
MITTS Securities over their term based upon an estimated yield for the MITTS
Securities, even though you will not receive any payments from us until the
maturity date. We have determined this estimated yield, in accordance with
regulations issued by the U.S. Treasury Department, solely in order for you to
calculate the amount of taxes that you will owe each year as a result of
owning a MITTS Security. This estimated yield is neither a prediction nor a
guarantee of what the actual Supplemental Redemption Amount will be, or that
the actual Supplemental Redemption Amount will even exceed zero. We have
determined that this estimated yield will equal 5.49% per annum, compounded
semi-annually.
Based upon this estimated yield, if you pay your taxes on a calendar
year basis and if you purchase a MITTS Security for $10 and hold the MITTS
Security until the maturity date, you will be required to pay taxes on the
following amounts of ordinary income from the MITTS Security each year: $.3578
in 2006, $.5759 in 2007, $.6090 in 2008 and $.5472 in 2009. However, in 2009,
the amount of ordinary income that you will be required to pay taxes on from
owning each MITTS Security may be greater or less than $.5472, depending upon
the Supplemental Redemption Amount, if any, you receive. Also, if the
Supplemental Redemption Amount is less than $2.0899, you may have a loss which
you could deduct against other income you may have in 2009, but under current
tax regulations, you would neither be required nor allowed to amend your tax
returns for prior years. For further information, see "United States Federal
Income Taxation" in this pricing supplement.
Will the MITTS Securities be listed on a stock exchange?
The MITTS Securities will not be listed on any securities exchange and
we do not expect a trading market for the MITTS Securities to develop, which
may affect the price that you receive for your MITTS Securities upon any sale
prior to the maturity date. You should review the section entitled "Risk
Factors--A trading market for the MITTS Securities is not expected to develop
and if trading does develop, the market price you may receive or be quoted for
your MITTS Securities 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 MITTS Securities" in this pricing
supplement.
PS-5
What price can I expect to receive if I sell the MITTS Securities prior to the
stated maturity date?
In determining the economic terms of the MITTS Securities, and
consequently the potential return on the MITTS Securities to you, a number of
factors are taken into account. Among these factors are certain costs
associated with creating, hedging and offering the MITTS Securities. In
structuring the economic terms of the MITTS Securities, 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 MITTS Securities 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 MITTS Securities in a secondary market transaction is
expected to be affected by the factors that we considered in setting the
economic terms of the MITTS Securities, namely the underwriting discount paid
in respect of the MITTS Securities, 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 MITTS Securities 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
MITTS Securities 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 MITTS Securities. Any potential
purchasers for your MITTS Securities 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 MITTS Securities. After the initial offering, MLPF&S currently intends to
buy and sell the MITTS Securities to create a secondary market for holders of
the MITTS Securities, and may stabilize or maintain the market price of the
MITTS Securities 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 (in such capacity, the "Calculation
Agent") for purposes of calculating, among other things, the Ending Value and
the Supplemental Redemption Amount. Under certain circumstances, these duties
could result in a conflict of interest between MLPF&S as our subsidiary and
its responsibilities as Calculation Agent.
Who 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 general prospectus supplement. 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 MITTS Securities will involve risks. You should
carefully consider the following discussion of risks and the discussion of
risks included in the accompanying MTN prospectus supplement before deciding
whether an investment in the MITTS Securities is suitable for you.
You may not earn a return on your investment
If the Ending Value does not exceed the Starting Value, the Supplemental
Redemption Amount will be $0. This will be true even if the level of the Index
was higher than the Starting Value at some time during the life of the MITTS
Securities but later falls below the Starting Value. If the Supplemental
Redemption Amount is $0, we will pay you only the $10 principal amount per
unit of your MITTS Securities.
Your yield may be lower than other debt securities of comparable maturity
The yield that you will receive on the MITTS Securities 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.
Ownership of the MITTS Securities does not entitle you to any rights with
respect to any futures contracts or commodities 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 MITTS Securities is not expected to develop and if
trading does develop, the market price you may receive or be quoted for your
MITTS Securities 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 MITTS Securities
The MITTS Securities will not be listed on any securities exchange and
we do not expect a trading market for the MITTS Securities to develop.
Although our affiliate MLPF&S has indicated that it expects to bid for MITTS
Securities offered for sale to it by holders of the MITTS Securities, it is
not required to do so and may cease making those bids at any time. The limited
trading market for your MITTS Securities may affect the price that you receive
for your MITTS Securities if you do not wish to hold your investment until the
maturity date.
If MLPF&S makes a market in the MITTS Securities, 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 MITTS Securities in
a secondary market transaction is expected to be affected by the factors that
we considered in setting the economic terms of the MITTS Securities, namely
the underwriting discount paid in respect of the MITTS Securities and other
costs associated with the MITTS Securities, including compensation for
developing and hedging the product. This quoted price could be higher or lower
than the $10 principal amount per unit. Furthermore, there is no assurance
that MLPF&S or any other party will be willing to buy the MITTS Securities.
MLPF&S is not obligated to make a market in the MITTS Securities.
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 MITTS Securities
in a secondary market transaction is expected to be lower than the $10
principal amount per unit. This is due to, among other things, the fact that
the $10 principal amount per unit included, and secondary market prices are
likely to exclude, underwriting discount paid with respect to, and the
developing and hedging costs associated with, the MITTS Securities.
Lack of Regulation by the CFTC
Unlike an investment in the MITTS Securities, 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
PS-7
"commodity pool operator" (a "CPO"). Because the MITTS Securities are not
interests in a commodity pool, the MITTS Securities 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 MITTS
Securities 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 MITTS Securities.
Trading in the Index Components can be volatile based on a number of factors
that we cannot control
Trading in the Index Components is speculative and can be extremely
volatile. Market prices of the Index Components may fluctuate rapidly based on
numerous factors, including: changes in supply and demand relationships;
weather; agriculture; trade; fiscal, monetary, and exchange control programs;
domestic and foreign political and economic events and policies; disease;
technological developments; and changes in interest rates. These factors may
affect the level of the Index and the value of the MITTS Securities in varying
ways, and different factors may cause the value of the Index Components, and
the volatilities of their prices, to move in inconsistent directions at
inconsistent rates.
Suspension or disruptions of market trading in the commodity and related
futures markets may adversely affect the value of the MITTS Securities
The commodity markets are subject to disruptions due to various factors,
including the lack of liquidity in the markets 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. There can be no
assurance that any such disruption or any other force majeure (such as an act
of God, fire, flood, severe weather conditions, act of governmental authority,
labor difficulty, etc.) will not have an adverse affect on the value of the
Index or the manner in which it is calculated and therefore, the value of the
MITTS Securities.
The MITTS Securities are linked to the Dow Jones-AIG Commodity Index and not
the Dow Jones-AIG Commodity Index Total Return(SM)
The MITTS Securities 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
PS-8
Commodity Index, also reflects interest that could be earned on cash
collateral invested in hypothetical three-month U.S. Treasury bills. Because
the MITTS Securities 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 MITTS Securities will not reflect this total return feature.
Many factors affect the trading value of the MITTS Securities; 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 MITTS Securities 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 MITTS Securities caused by another factor
and the effect of one factor may exacerbate the decrease in the trading value
of the MITTS Securities 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 MITTS Securities 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 MITTS Securities 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
MITTS Securities. We expect that the market value of the MITTS Securities 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 MITTS Securities 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 that value because of the expectation that the
Index will continue to fluctuate until the Ending Value is determined.
Changes in the levels of interest rates are expected to affect the
trading value of the MITTS Securities. We expect that changes in interest
rates will affect the trading value of the MITTS Securities. Generally, if
United States interest rates increase, we expect the trading value of the
MITTS Securities will decrease and, conversely, if United States interest
rates decrease, we expect the trading value of the MITTS Securities will
increase.
Changes in the volatility of the Index are expected to affect the
trading value of the MITTS Securities. 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 MITTS Securities
may be adversely affected.
As the time remaining to the stated maturity date of the MITTS
Securities decreases, the "time premium" associated with the MITTS Securities
is expected to decrease. We anticipate that before their stated maturity date,
the MITTS Securities 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
MITTS Securities. However, as the time remaining to the stated maturity date
of the MITTS Securities decreases, we expect that this time premium will
decrease, lowering the trading value of the MITTS Securities.
Changes in our credit ratings may affect the trading value of the MITTS
Securities. 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 MITTS Securities. However, because the
return on your MITTS Securities is dependent upon factors in addition to our
ability to pay our obligations under the MITTS Securities, such as the
percentage increase, if any, in the value of the Index over the term of the
MITTS Securities, an improvement in our credit ratings will not reduce the
other investment risks related to the MITTS Securities.
In general, assuming all relevant factors are held constant, we expect
that the effect on the trading value of the MITTS Securities of a given change
in some of the factors listed above will be less if it occurs later in the
term of the MITTS Securities than if it occurs earlier in the term of the
MITTS Securities. We expect, however that the effect on the trading value of
the MITTS Securities of a given change in the value of the Index will be
greater if it occurs later in the term of the MITTS Securities than if it
occurs earlier in the term of the MITTS Securities.
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 Commodities, 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
PS-9
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
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 MITTS
Securities. With respect to any such activities, neither Merrill Lynch
Commodities, Inc. nor any of our other affiliates has any obligation to take
the needs of any buyers, sellers or holders of the MITTS Securities into
consideration at any time.
Potential conflicts
Our subsidiary MLPF&S is our agent for the purposes of calculating,
among other things, the Ending Value, and the Supplemental Redemption Amount.
Under certain circumstances, MLPF&S as our subsidiary and its responsibilities
as Calculation Agent for the MITTS Securities could give rise to conflicts of
interests. These conflicts could occur, for instance, in connection with its
determination as to whether a level of the Index can be calculated on a
particular Business Day, or in connection with judgments that it would be
required to make in the event of a discontinuance or unavailability of the
Index. 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 amounts due on the maturity date on
the MITTS Securities. We may seek competitive terms in entering into the
hedging arrangements for the MITTS Securities, but are not required to do so,
and we may enter into such hedging arrangements with one of our subsidiaries
or affiliated companies. Such hedging activity is expected to result in a
profit to those engaging in the hedging activity, which could be more or less
than initially expected, but which could also result in a loss for the hedging
counterparty.
Tax consequences
You should consider the tax consequences of investing in the MITTS
Securities. See "United States Federal Income Taxation" in this pricing
supplement.
PS-10
DESCRIPTION OF THE MITTS SECURITIES
ML&Co. will issue the MITTS Securities 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 general
prospectus supplement. The MITTS Securities will mature on November 9, 2009.
Information included in this pricing supplement supersedes information in the
accompanying MTN prospectus supplement, general prospectus supplement and
prospectus to the extent that it is different from that information. The CUSIP
number for the MITTS Securities is 59021V417.
While on the maturity date a holder of a MITTS Security will receive an
amount equal to the sum of the $10 principal amount per unit plus the
Supplemental Redemption Amount, if any, there will be no other payment of
interest, periodic or otherwise. See the section entitled "--Payment on the
Maturity Date" in this pricing supplement.
The MITTS Securities will not be subject to redemption by ML&Co. or at
the option of any holder of the MITTS Securities before the maturity date.
ML&Co. will issue the MITTS Securities in denominations of whole units
each with a $10 principal amount per unit. You may transfer the MITTS
Securities 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 MITTS Securities 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 MITTS Securities. You should refer to the section
entitled "Description of the Debt Securities--Depositary" in the accompanying
general prospectus supplement.
The MITTS Securities will not have the benefit of any sinking fund.
Payment on the Maturity Date
On the maturity date, you will be entitled to receive the sum of the $10
principal amount per unit plus a Supplemental Redemption Amount, as provided
below. If the Ending Value does not exceed the Starting Value, you will be
entitled to receive only the $10 principal amount per unit of the MITTS
Securities.
Determination of the Supplemental Redemption Amount
The "Supplemental Redemption Amount" per unit will be determined by the
Calculation Agent and will equal:
( Ending Value - Starting Value )
$10 x ( ----------------------------- ) x Participation Rate
( Starting Value )
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Starting Value" equals 177.634, the closing level of the Index on
May 4, 2006, the date the MITTS Securities were priced for initial sale to the
public (the "Pricing Date").
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 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.
PS-11
The "Participation Rate" equals 111%.
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 MITTS Securities.
PS-12
Hypothetical returns
The following table illustrates, for the Starting Value of 177.634, and
a range of hypothetical Ending Values of the Index:
o the percentage change from the Starting Value to the hypothetical
Ending Value;
o the total amount payable on the maturity date for each unit of
MITTS Securities;
o the total rate of return to holders of the MITTS Securities;
o the pretax annualized rate of return to holders of MITTS
Securities; and
o the pretax annualized rate of return of an investment in the
commodities included in the Index.
This table includes a Participation Rate of 111%
Hypothetical Total amount Total Pretax
Ending Percentage payable on the rate annualized Pretax
Value change from the maturity date per of return rate of annualized
during the Starting Value to unit of the on the return on rate of return
Calculation the hypothetical MITTS MITTS the MITTS of Index
Period Ending Value Securities Securities Securities Components (1)(2)
-------------- ------------------- ------------------- ------------ ------------ -------------------
88.817 -50.00% $10.000 0.00% 0.00% -18.82%
106.580 -40.00% $10.000 0.00% 0.00% -14.05%
124.344 -30.00% $10.000 0.00% 0.00% -9.92%
142.107 -20.00% $10.000 0.00% 0.00% -6.26%
159.871 -10.00% $10.000 0.00% 0.00% -2.98%
177.634(3) 0.00% $10.000 (4) 0.00% 0.00% 0.00%
181.187 2.00% $10.222 2.22% 0.63% 0.57%
186.516 5.00% $10.555 5.55% 1.55% 1.40%
195.397 10.00% $11.110 11.10% 3.02% 2.74%
213.161 20.00% $12.220 22.20% 5.80% 5.27%
230.924 30.00% $13.330 33.30% 8.37% 7.62%
248.688 40.00% $14.440 44.40% 10.76% 9.83%
266.451 50.00% $15.550 55.50% 12.99% 11.90%
- ---------------------------
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis and assume an
investment term from May 9, 2006 to November 9, 2009, a term expected to
be equal to that of the MITTS Securities.
(2) This rate of return assumes:
(a) a percentage change in the aggregate price of the Index Components
that equals the percentage change in the Index from the Starting
Value to the relevant hypothetical Ending Value; and
(b) no transaction fees or expenses.
(3) This is the Starting Value.
(4) The amount you receive on the maturity date will not be less than $10
per unit.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by you, if any, and the resulting
total and pretax annualized rate of return will depend on the Ending Value and
the 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
PS-13
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 discontinue 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 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 MITTS Securities.
In the event that Dow Jones and AIGI discontinue 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,
PS-14
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 discontinue 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 MITTS Securities.
Events of Default and Acceleration
In case an Event of Default with respect to any MITTS Securities has
occurred and is continuing, the amount payable to a holder of a MITTS Security
upon any acceleration permitted by the MITTS Securities, with respect to each
$10 principal amount per unit, will be equal to the sum of the $10 principal
amount per unit plus the Supplemental Redemption Amount, if any, calculated as
though the date of acceleration were the stated maturity date of the MITTS
Securities.
In case of default in payment of the MITTS Securities, whether on the
stated maturity date or upon acceleration, from and after that date the MITTS
Securities will bear interest, payable upon demand of their holders, at the
then current Federal Funds Rate, determined as described in the accompanying
MTN prospectus supplement, to the extent that payment of such interest shall
be legally enforceable, on the unpaid amount due and payable on that date in
accordance with the terms of the MITTS Securities 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...................... 12.80% NYMEX 1,000 barrels
$/barrel
Henry Hub Natural Gas....................... 8.20% NYMEX 10,000 mmbtu
$/mmbtu
Soybeans.................................... 6.97% CBOT 5,000 bushels
cents/bushel
High Grade Primary Aluminum................. 7.74% LME 25 metric tons
$/metric ton
Live Cattle................................. 4.28% CME 40,000 lbs
cents/pound
High Grade Copper(2)........................ 8.91% COMEX 25,000 lbs
cents/pound
Gold........................................ 7.06% COMEX 100 troy oz.
$/troy oz.
Corn........................................ 5.96% CBOT 5,000 bushels
cents/bushel
Wheat....................................... 4.75% CBOT 5,000 bushels
cents/bushel
Lean Hogs................................... 4.01% CME 40,000 lbs
cents/pound
Reformulated Gasoline Blendstock for Oxygen
Blending (3)............................. 4.29% NYMEX 42,000 gallons
cents/gallon
Heating Oil................................. 3.75% NYMEX 42,000 gallons
cents/gallon
Coffee "C".................................. 2.44% CSCE 37,500 lbs
cents/pound
Cotton...................................... 2.62% NYCE 50,000 lbs
cents/pound
World Sugar No. 11.......................... 3.09% CSCE 112,000 lbs
cents/pound
Special High Grade Zinc..................... 4.30% LME 25 metric tons
$/metric ton
Primary Nickel.............................. 3.32% LME 6 metric tons
$/metric ton
Soybean Oil................................. 2.77% CBOT 60,000 lbs
cents/pound
Silver...................................... 2.74% 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 May 4, 2006 of the
nineteen commodities currently included in the Index.
PS-18
(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.
(3) This contract replaced the New York Harbor Unleaded Gasoline contract in
the April 2006 roll period.
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 of each that are currently part of the
Index, are as follows:
Index Weighting by Commodity Group as of May 4, 2006
Energy...................................................... 29.04%
Industrial Metals .......................................... 24.27%
Grains ..................................................... 17.68%
Livestock................................................... 8.29%
Softs....................................................... 8.15%
Precious Metals............................................. 9.80%
Vegetable Oil .............................................. 2.77%
Commodity Group: Commodities: Commodity Group: Commodities:
- ------------------------- -------------------- ------------------------- ------------
Energy................... Crude Oil Softs.................... Coffee
Heating Oil Cotton
Natural Gas Sugar
Unleaded Gasoline
Industrial Metals........ Aluminum Precious Metals.......... Gold
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 Index is reweighted and rebalanced each year in January on a
price-percentage basis. The annual weightings for the 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 Index. The annual weightings are announced in
July and implemented the following January. The composition of the 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
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 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 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 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
PS-19
is then adjusted in accordance with the diversification rules described below
in order to determine the commodities which will be included in the Index and
their respective percentage weights.
To ensure that no single commodity or commodity sector dominates the
Index, the following diversification rules are applied to the annual
reweighting and rebalancing of the 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 Index;
o No single commodity may constitute more than 15% of the 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 Index; and
o No single commodity in the Index may constitute less than 2% of
the Index.
Following the annual reweighting and rebalancing of the 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 31.90522155
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 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 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--Graph shows the hypothetical closing levels of the Index on
the last business day of each year from 1991 through 2005.
The following table lists the year end levels reflected in the omitted graph:
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Dec. 89.21 89.32 85.72 95.77 104.32 122.04 111.98 77.80 92.27 114.61 89.03 110.28 135.27 145.60 171.15
PS-21
The following table sets forth the level of the Index at the end of each
month in the period from January 2001 through April 2006. This historical data
on the Index is not necessarily indicative of the future performance of the
Index or what the value of the MITTS Securities 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 MITTS Securities.
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 99.588 113.171 150.837 162.094 165.194
April......................... 108.708 99.431 112.360 148.046 152.294 175.767
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
The following graph sets forth the historical performance of the Index
presented in the preceding table. Past movements of the Index are not
necessarily indicative of the future performance of the Index.
[GRAPHIC OMITTED]
PS-22
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 MITTS Securities. 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(R)," "Dow Jones-AIG Commodity Index(SM)" and
"DJ-AIGCI(SM)" 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
MITTS Securities based on the Dow Jones-AIG Commodity Index(SM) 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 MITTS
Securities.
The MITTS Securities 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 MITTS Securities or any
member of the public regarding the advisability of investing in securities or
commodities generally or in the MITTS Securities particularly. The only
relationship of Dow Jones, American International 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 MITTS Securities. Dow
Jones and AIGI have no obligation to take the needs of ML&Co. or the owners of
the MITTS Securities 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 MITTS Securities to be issued or in
the determination or calculation of the equation by which the MITTS Securities
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
MITTS Securities, in connection with the administration, marketing or trading
of the MITTS Securities. Notwithstanding the foregoing, AIGI, American
International Group and their respective subsidiaries and affiliates may
independently issue and/or sponsor financial products unrelated to the MITTS
Securities currently being issued by ML&Co., but which may be similar to and
competitive with the MITTS Securities. 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 MITTS Securities.
This pricing supplement relates only to the MITTS Securities and does
not relate to the exchange-traded physical commodities underlying any of the
Dow Jones-AIG Commodity Index components. Investors in the MITTS Securities
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 MITTS Securities. 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
PS-23
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 MITTS
SECURITIES, 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
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 have not independently verified the accuracy
or completeness of that information.
PS-24
UNITED STATES FEDERAL INCOME TAXATION
Set forth in full below is the opinion of Sidley Austin LLP, tax counsel
to ML&Co., as to certain United States federal income tax consequences of the
purchase, ownership and disposition of the MITTS Securities. This opinion is
based upon laws, regulations, rulings and decisions now in effect, all of
which are subject to change (including retroactive changes in effective dates)
or possible differing interpretations. The discussion below supplements the
discussion set forth under the section entitled "United States Federal Income
Taxation" that is contained in the accompanying MTN prospectus supplement and
supersedes that discussion to the extent that it contains information that is
inconsistent with that which is contained in the accompanying MTN prospectus
supplement. The discussion below deals only with MITTS Securities held as
capital assets and does not purport to deal with persons in special tax
situations, such as financial institutions, insurance companies, regulated
investment companies, real estate investment trusts, dealers in securities or
currencies, traders in securities that elect to mark to market, tax-exempt
entities or persons holding MITTS Securities in a tax-deferred or
tax-advantaged account (except to the extent specifically discussed below),
persons whose functional currency is not the United States dollar, persons
subject to the alternative minimum tax or persons holding MITTS Securities as
a hedge against currency risks, as a position in a "straddle" or as part of a
"hedging", "conversion" or "integrated" transaction for tax purposes. It also
does not deal with holders other than original purchasers (except where
otherwise specifically noted in this pricing supplement). The following
discussion also assumes that the issue price of the MITTS Securities, as
determined for United States federal income tax purposes, equals the principal
amount thereof. If a partnership holds the MITTS Securities, 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 MITTS Securities should consult their own tax
advisors. Moreover, all persons considering the purchase of the MITTS
Securities should consult their own tax advisors concerning the application of
the United States federal income tax laws to their particular situations as
well as any consequences of the purchase, ownership and disposition of the
MITTS Securities arising under the laws of any other taxing jurisdiction.
As used in this pricing supplement, the term "U.S. Holder" means a
beneficial owner of a MITTS Security that is for United States federal income
tax purposes (a) a citizen or resident of the United States, (b) a
corporation, partnership or other entity treated as a corporation or a
partnership that is created or organized in or under the laws of the United
States, any state thereof or the District of Columbia (other than a
partnership that is not treated as a United States person under any applicable
Treasury regulations), (c) an estate the income of which is subject to United
States federal income taxation regardless of its source, (d) a trust if a
court within the United States is able to exercise primary supervision over
the administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust or (e) any other
person whose income or gain in respect of a MITTS Security is effectively
connected with the conduct of a United States trade or business.
Notwithstanding clause (d) of the preceding sentence, to the extent provided
in Treasury regulations, certain trusts in existence on August 20, 1996, and
treated as United States persons prior to that date that elect to continue to
be treated as United States persons also will be U.S. Holders. As used herein,
the term "non-U.S. Holder" means a beneficial owner of a MITTS Security that
is not a U.S. Holder.
General
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization, for United
States federal income tax purposes, of the MITTS Securities or securities with
terms substantially the same as the MITTS Securities. However, although the
matter is not free from doubt, under current law, each MITTS Security should
be treated as a debt instrument of ML&Co. for United States federal income tax
purposes. ML&Co. currently intends to treat each MITTS Security as a debt
instrument of ML&Co. for United States federal income tax purposes and, where
required, intends to file information returns with the Internal Revenue
Service (the "IRS") in accordance with this treatment, in the absence of any
change or clarification in the law, by regulation or otherwise, requiring a
different characterization of the MITTS Securities. Prospective investors in
the MITTS Securities should be aware, however, that the IRS is not bound by
ML&Co.'s characterization of the MITTS Securities as indebtedness, and the IRS
could possibly take a different position as to the proper characterization of
the MITTS Securities for United States federal income tax purposes. The
following discussion of the principal United States federal income tax
consequences of the purchase, ownership and disposition of the MITTS
Securities is based upon the assumption that each MITTS Security will be
treated as a debt instrument of ML&Co. for United States federal income tax
purposes. If the MITTS Securities are not in fact treated as debt
PS-25
instruments of ML&Co. for United States federal income tax purposes, then the
United States federal income tax treatment of the purchase, ownership and
disposition of the MITTS Securities could differ from the treatment discussed
below with the result that the timing and character of income, gain or loss
recognized in respect of a MITTS Security could differ from the timing and
character of income, gain or loss recognized in respect of a MITTS Security
had the MITTS Securities in fact been treated as debt instruments of ML&Co.
for United States federal income tax purposes.
U.S. Holders
On June 11, 1996, the Treasury Department issued final regulations (the
"CPDI Regulations") concerning the proper United States federal income tax
treatment of contingent payment debt instruments such as the MITTS Securities,
which apply to debt instruments issued on or after August 13, 1996 and,
accordingly, will apply to the MITTS Securities. In general, the CPDI
Regulations cause the timing and character of income, gain or loss reported on
a contingent payment debt instrument to substantially differ from the timing
and character of income, gain or loss reported on a conventional noncontingent
payment debt instrument. Specifically, the CPDI Regulations generally require
a U.S. Holder of such an instrument to include future contingent and
noncontingent interest payments in income as that interest accrues based upon
a projected payment schedule. Moreover, in general, under the CPDI
Regulations, any gain recognized by a U.S. Holder on the sale, exchange, or
retirement of a contingent payment debt instrument is treated as ordinary
income, and all or a portion of any loss realized could be treated as ordinary
loss as opposed to capital loss (depending upon the circumstances). The CPDI
Regulations provide no definitive guidance as to whether or not an instrument
is properly characterized as a debt instrument for United States federal
income tax purposes.
In particular, solely for purposes of applying the CPDI Regulations to
the MITTS Securities, ML&Co. has determined that the projected payment
schedule for the MITTS Securities will consist of a payment on the maturity
date of the principal amount thereof and a projected Supplemental Redemption
Amount equal to $2.0899 per unit (the "Projected Supplemental Redemption
Amount"). This represents an estimated yield on the MITTS Securities equal to
5.49% per annum, compounded semi-annually. Accordingly, during the term of the
MITTS Securities, a U.S. Holder of a MITTS Security will be required to
include in income as ordinary interest an amount equal to the sum of the daily
portions of interest on the MITTS Security that are deemed to accrue at this
estimated yield for each day during the taxable year (or portion of the
taxable year) on which the U.S. Holder holds the MITTS Security. The amount of
interest that will be deemed to accrue in any accrual period (i.e., generally
each six-month period during which the MITTS Securities are outstanding) will
equal the product of this estimated yield (properly adjusted for the length of
the accrual period) and the MITTS Security's adjusted issue price (as defined
below) at the beginning of the accrual period. The daily portions of interest
will be determined by allocating to each day in the accrual period the ratable
portion of the interest that is deemed to accrue during the accrual period. In
general, for these purposes a MITTS Security's adjusted issue price will equal
the MITTS Security's issue price (i.e., $10), increased by the interest
previously accrued on the MITTS Security. At maturity of a MITTS Security, in
the event that the actual Supplemental Redemption Amount, if any, exceeds
$2.0899 per unit (i.e., the Projected Supplemental Redemption Amount), a U.S.
Holder will be required to include the excess of the actual Supplemental
Redemption Amount over $2.0899 per unit (i.e., the Projected Supplemental
Redemption Amount) in income as ordinary interest on the stated maturity date.
Alternatively, in the event that the actual Supplemental Redemption Amount, if
any, is less than $2.0899 per unit (i.e., the Projected Supplemental
Redemption Amount), the amount by which the Projected Supplemental Redemption
Amount (i.e., $2.0899 per unit) exceeds the actual Supplemental Redemption
Amount will be treated first as an offset to any interest otherwise includible
in income by the U.S. Holder with respect to the MITTS Security for the
taxable year in which the stated maturity date occurs to the extent of the
amount of that includible interest. Further, a U.S. Holder will be permitted
to recognize and deduct, as an ordinary loss that is not subject to the
limitations applicable to miscellaneous itemized deductions, any remaining
portion of the Projected Supplemental Redemption Amount (i.e., $2.0899 per
unit) in excess of the actual Supplemental Redemption Amount that is not
treated as an interest offset pursuant to the foregoing rules. In addition,
U.S. Holders purchasing a MITTS Security at a price that differs from the
adjusted issue price of the MITTS Security as of the purchase date (e.g.,
subsequent purchases) will be subject to rules providing for certain
adjustments to the foregoing rules and these U.S. Holders should consult their
own tax advisors concerning these rules.
Upon the sale or exchange of a MITTS Security prior to the stated
maturity date, a U.S. Holder will be required to recognize taxable gain or
loss in an amount equal to the difference, if any, between the amount realized
by the U.S. Holder upon that sale or exchange and the U.S. Holder's adjusted
tax basis in the MITTS Security as of
PS-26
the date of disposition. A U.S. Holder's adjusted tax basis in a MITTS
Security generally will equal the U.S. Holder's initial investment in the
MITTS Security increased by any interest previously included in income with
respect to the MITTS Security by the U.S. Holder. Any taxable gain will be
treated as ordinary income. Any taxable loss will be treated as ordinary loss
to the extent of the U.S. Holder's total interest inclusions on the MITTS
Security. Any remaining loss generally will be treated as long-term or
short-term capital loss (depending upon the U.S. Holder's holding period for
the MITTS Security). All amounts includible in income by a U.S. Holder as
ordinary interest pursuant to the CPDI Regulations will be treated as original
issue discount.
All prospective investors in the MITTS Securities should consult their
own tax advisors concerning the application of the CPDI Regulations to their
investment in the MITTS Securities. Investors in the MITTS Securities may
obtain the projected payment schedule, as determined by ML&Co. for purposes of
applying the CPDI Regulations to the MITTS Securities, by submitting a written
request for that information to Merrill Lynch & Co., Inc., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, corporatesecretary@exchange.ml.com.
The projected payment schedule (including both the Projected
Supplemental Redemption Amount and the estimated yield on the MITTS
Securities) has been determined solely for United States federal income tax
purposes (i.e., for purposes of applying the CPDI Regulations to the MITTS
Securities), and is neither a prediction nor a guarantee of what the actual
Supplemental Redemption Amount will be, or that the actual Supplemental
Redemption Amount will even exceed zero.
The following table sets forth the amount of interest that will be
deemed to accrue with respect to each MITTS Security during each accrual
period over the term of the MITTS Securities based upon the projected payment
schedule for the MITTS Securities (including both the Projected Supplemental
Redemption Amount and an estimated yield equal to 5.49% per annum (compounded
semi-annually)) as determined by ML&Co. for purposes of applying the
application of the CPDI Regulations to the MITTS Securities.
Total interest
Interest deemed deemed to have
to accrue on accrued on MITTS
MITTS Securities Securities
during accrual as of end of
period accrual period
(per MITTS (per MITTS
Accrual Period Security) Security)
- --------------------------------------- ------------------ ------------------
May 9, 2006 through November 9, 2006........... $0.2768 $0.2768
November 10, 2006 through June 9, 2007......... $0.2821 $0.5589
June 10, 2007 through November 9, 2007......... $0.2898 $0.8487
November 10, 2007 through June 9, 2008......... $0.2978 $1.1465
June 10, 2008 through November 9, 2008......... $0.3060 $1.4525
November 10, 2008 through June 9, 2009......... $0.3144 $1.7669
June 10, 2009 through November 9, 2009......... $0.3230 $2.0899
- -----------------------
Projected Supplemental Redemption Amount = $2.0899 per MITTS Security.
Unrelated Business Taxable Income
Section 511 of the Internal Revenue Code of 1986, as amended (the
"Code"), generally imposes a tax, at regular corporate or trust income tax
rates, on the "unrelated business taxable income" of certain tax-exempt
organizations, including qualified pension and profit sharing plan trusts and
individual retirement accounts. In general, if the MITTS Securities are held
for investment purposes, the amount of income or gain realized with respect to
the MITTS Securities will not constitute unrelated business taxable income.
However, if a MITTS Security constitutes debt-financed property (as defined in
Section 514(b) of the Code) by reason of indebtedness incurred by a holder of
a MITTS Security to purchase the MITTS Security, all or a portion of any
income or gain realized with respect to such MITTS Security may be classified
as unrelated business taxable income pursuant to Section 514 of the Code.
Moreover, prospective investors in the MITTS Securities should be aware that
whether or not any income or gain realized with respect to a MITTS Security
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
MITTS Securities that are generally exempt from U.S. federal income
PS-27
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 MITTS Securities.
Non-U.S. Holders
A non-U.S. Holder will not be subject to United States federal income
taxes on payments of principal, premium (if any) or interest (including
original issue discount) on a MITTS Security, unless the non-U.S. Holder is a
direct or indirect 10% or greater shareholder of ML&Co., a controlled foreign
corporation related to ML&Co. or a bank receiving interest described in
Section 881(c)(3)(A) of the Code. However, income allocable to non-U.S.
Holders will generally be subject to annual tax reporting on IRS Form 1042-S.
For a non-U.S. Holder to qualify for the exemption from taxation, any person,
U.S. or foreign, that has control, receipt or custody of an amount subject to
withholding, or who can disburse or make payments of an amount subject to
withholding (the "Withholding Agent") must have received a statement that (a)
is signed by the beneficial owner of the MITTS Security under penalties of
perjury, (b) certifies that the owner is a non-U.S. Holder and (c) provides
the name and address of the beneficial owner. The statement may generally be
made on IRS Form W-8BEN (or other applicable form) or a substantially similar
form, and the beneficial owner must inform the Withholding Agent of any change
in the information on the statement within 30 days of that change by filing a
new IRS Form W-8BEN (or other applicable form). Generally, an IRS Form W-8BEN
provided without a U.S. taxpayer identification number will remain in effect
for a period starting on the date the form is signed and ending on the last
day of the third succeeding calendar year, unless a change in circumstances
makes any information on the form incorrect. If a MITTS Security is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement
to the Withholding Agent. Under certain circumstances, the signed statement
must be accompanied by a copy of the applicable IRS Form W-8BEN (or other
applicable form) or the substitute form provided by the beneficial owner to
the organization or institution.
Under current law, a MITTS Security will not be includible in the estate
of a non-U.S. Holder unless the individual is a direct or indirect 10% or
greater shareholder of ML&Co. or, at the time of the individual's death,
payments in respect of that MITTS Security would have been effectively
connected with the conduct by the individual of a trade or business in the
United States.
Backup withholding
Backup withholding at the applicable statutory rate of United States
federal income tax may apply to payments made in respect of the MITTS
Securities to registered owners who are not "exempt recipients" and who fail
to provide certain identifying information (such as the registered owner's
taxpayer identification number) in the required manner. Generally, individuals
are not exempt recipients, whereas corporations and certain other entities
generally are exempt recipients. Payments made in respect of the MITTS
Securities to a U.S. Holder must be reported to the IRS, unless the U.S.
Holder is an exempt recipient or establishes an exemption. Compliance with the
identification procedures described in the preceding section would establish
an exemption from backup withholding for those non-U.S. Holders who are not
exempt recipients.
In addition, upon the sale of a MITTS Security to (or through) a broker,
the broker must withhold on the entire purchase price, unless either (a) the
broker determines that the seller is a corporation or other exempt recipient
or (b) the seller provides, in the required manner, certain identifying
information (e.g., an IRS Form W-9) and, in the case of a non-U.S. Holder,
certifies that the seller is a non-U.S. Holder (and certain other conditions
are met). This type of sale must also be reported by the broker to the IRS,
unless either (a) the broker determines that the seller is an exempt recipient
or (b) the seller certifies its non-U.S. status (and certain other conditions
are met). Certification of the registered owner's non-U.S. status would be
made normally on an IRS Form W-8BEN (or other applicable form) under penalties
of perjury, although in certain cases it may be possible to submit other
documentary evidence.
Any amounts withheld under the backup withholding rules from a payment
to a beneficial owner would be allowed as a refund or a credit against the
beneficial owner's United States federal income tax provided the required
information is furnished to the IRS.
PS-28
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 MITTS Securities. 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 MITTS Securities 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 MITTS Securities 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 MITTS
Securities. 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 MITTS Securities 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 MITTS Securities or any interest in the MITTS Securities will be
deemed to have represented by its purchase and holding of the MITTS Securities
that it either (1) is not a plan or a plan asset entity and is not purchasing
those MITTS Securities 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 MITTS
Securities or any interest in the MITTS Securities which is a non-ERISA
arrangement will be deemed to have represented by its purchase and holding of
the MITTS Securities 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
PS-29
MITTS Securities on behalf of or with "plan assets" of any plan, plan asset
entity or non-ERISA arrangement consult with their counsel regarding the
availability of exemptive relief under any of the PTCEs listed above or any
other applicable exemption, or the potential consequences of any purchase or
holding under similar laws, as applicable.
USE OF PROCEEDS AND HEDGING
The net proceeds from the sale of the MITTS Securities will be used as
described under "Use of Proceeds" in the accompanying general prospectus
supplement and to hedge market risks of ML&Co. associated with its obligation
to pay the Supplemental Redemption Amount.
SUPPLEMENTAL PLAN OF DISTRIBUTION
MLPF&S has advised ML&Co. that it proposes initially to offer all or
part of the MITTS Securities directly to the public on a fixed price basis at
the offering price set forth on the cover of this pricing supplement. After
the initial public offering, the public offering price may be changed. The
obligations of MLPF&S are subject to certain conditions and it is committed to
take and pay for all of the MITTS Securities if any are taken.
EXPERTS
The consolidated financial statements, the related financial statement
schedule, and management's report on the effectiveness of internal control
over financial reporting incorporated in this pricing supplement by reference
from Merrill Lynch & Co., Inc.'s Annual Report on Form 10-K for the year ended
December 30, 2005 have been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
With respect to the unaudited interim condensed consolidated financial
information for the periods ended March 31, 2006 and April 1, 2005, which is
incorporated herein by reference, Deloitte & Touche LLP, an independent
registered public accounting firm, have applied limited procedures in
accordance with the standards of the Public Company Accounting Oversight Board
(United States) for a review of such information. However, as stated in their
report dated May 5, 2006 included in Merrill Lynch & Co., Inc.'s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2006 and incorporated by
reference herein, they did not audit and they do not express an opinion on
that unaudited interim condensed consolidated financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
Deloitte & Touche LLP are not subject to the liability provisions of Section
11 of the Securities Act of 1933 for their report on the unaudited interim
condensed consolidated financial information because that report is not a
"report" or a "part" of the registration statement prepared or certified by an
accountant within the meaning of Sections 7 and 11 of the Act.
PS-30
INDEX OF CERTAIN DEFINED TERMS
Business Day..............................................................PS-15
Calculation Agent..........................................................PS-6
Calculation Day...........................................................PS-12
Calculation Period........................................................PS-12
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
MITTS Securities...........................................................PS-1
Participation Rate.........................................................PS-4
Pricing Date...............................................................PS-4
Starting Value.............................................................PS-4
successor index...........................................................PS-14
Supplemental Redemption Amount.............................................PS-4
PS-31
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11,500,000 Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
Dow Jones-AIG Commodity Index(SM) Market Index Target-Term Securities(R)
due November 9, 2009
(the "MITTS(R) Securities")
$10 principal amount per unit
-----------------------
PRICING SUPPLEMENT
-----------------------
Merrill Lynch & Co.
May 4, 2006
"MITTS" and "Market Index Target-Term Securities" are registered service marks
of Merrill Lynch & Co., Inc.
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