PRICING SUPPLEMENT
- ------------------
(To MTN prospectus supplement,
general prospectus supplement
and prospectus each dated March 31, 2006)
Pricing Supplement Number: 2543
[LOGO OMITTED]
15,350,000 Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
Accelerated Return Notes(R)
Linked to the Nikkei 225(R) Index
due August 6, 2007
(the "Notes")
$10 original public offering price per unit
----------------
The Notes:
o The Notes are designed for investors who are seeking exposure to the
Nikkei 225 Index (index symbol "NKY"), willing to forego interest
payments on the Notes and willing to accept a payment that will not
exceed the limit described in this pricing supplement.
o There will be no payments prior to the maturity date and we cannot
redeem the Notes prior to the maturity date.
o The Notes have been approved for listing on the American Stock Exchange
under the trading symbol "NKN". We make no representations, however,
that the Notes will remain listed for the entire term of the Notes.
o The Notes will be senior unsecured debt securities of Merrill Lynch &
Co., Inc. and part of a series entitled "Medium-Term Notes, Series C".
o The Notes will have the CUSIP No.: 59021V359.
o The settlement date for the Notes is expected to be June 6, 2006.
Payment on the maturity date:
o The amount you receive on the maturity date will be based upon the
direction of and percentage change in the level of the Nikkei 225 Index
over the term of the Notes:
o If the value of the Nikkei 225 Index has increased, on the
maturity date you will receive a payment per unit equal to $10.00
plus an amount equal to $10.00 multiplied by triple the percentage
increase of the Nikkei 225 Index, up to a maximum total payment of
$12.90 per unit, as described in this pricing supplement.
o If the value of the Nikkei 225 Index has decreased, on the
maturity date you will receive a payment per unit based upon that
percentage decrease and, as a result, you may receive less, and
possibly significantly less, than the $10.00 original public
offering price 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 Notes involves risks that are described in the "Risk
Factors" section beginning on page PS-7 of this pricing supplement and page
S-3 of the accompanying MTN prospectus supplement.
-----------------------------
Per Unit Total
-------- -----
Public offering price (1)................................... $10.00 $153,500,000
Underwriting discount (1)................................... $.20 $3,070,000
Proceeds, before expenses, to Merrill Lynch & Co., Inc...... $9.80 $150,430,000
(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.
---------------
Merrill Lynch & Co.
---------------
The date of this pricing supplement is June 1, 2006.
"Accelerated Return Notes(R)" is a registered mark of Merrill Lynch & Co.,
Inc.
Nikkei 225(R) is a service mark of Nihon Keizai Shimbun, Inc., and has been
authorized for use by Merrill Lynch & Co., Inc.
TABLE OF CONTENTS
Pricing Supplement
SUMMARY INFORMATION--Q&A..................................................PS-3
RISK FACTORS..............................................................PS-7
DESCRIPTION OF THE NOTES.................................................PS-11
THE INDEX................................................................PS-16
UNITED STATES FEDERAL INCOME TAXATION....................................PS-20
ERISA CONSIDERATIONS.....................................................PS-23
USE OF PROCEEDS AND HEDGING..............................................PS-24
SUPPLEMENTAL PLAN OF DISTRIBUTION........................................PS-24
EXPERTS..................................................................PS-24
INDEX OF CERTAIN DEFINED TERMS...........................................PS-25
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 Accelerated Return Notes(R) Linked to the Nikkei 225 Index due
August 6, 2007 (the "Notes"). You should carefully read this pricing
supplement, the accompanying MTN prospectus supplement, general prospectus
supplement and prospectus to fully understand the terms of the Notes, the
Nikkei 225 Index (the "Index") and the tax and other considerations that are
important to you in making a decision about whether to invest in the Notes.
You should carefully review the "Risk Factors" section in this pricing
supplement and the accompanying MTN prospectus supplement, which highlights
certain risks associated with an investment in the Notes, to determine whether
an investment in the Notes is appropriate for you.
References in this pricing supplement to "ML&Co.", "we", "us" and "our"
are to Merrill Lynch & Co., Inc. and references to "MLPF&S" are to Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
What are the Notes?
The Notes will be part of a series of senior debt securities issued by
ML&Co. entitled "Medium-Term Notes, Series C" and will not be secured by
collateral. The Notes will rank equally with all of our other unsecured and
unsubordinated debt. The Notes will mature on August 6, 2007. We cannot redeem
the Notes at an earlier date. We will not make any payments on the Notes until
the maturity date.
Each unit will represent a single Note with a $10 original public
offering price. You may transfer the Notes only in whole units. You will not
have the right to receive physical certificates evidencing your ownership
except under limited circumstances. Instead, we will issue the Notes in the
form of a global certificate, which will be held by The Depository Trust
Company, also known as DTC, or its nominee. Direct and indirect participants
in DTC will record your ownership of the Notes. You should refer to the
section entitled "Description of Debt Securities--Depositary" in the
accompanying general prospectus supplement.
Are there any risks associated with my investment?
Yes, an investment in the Notes is subject to risks, including the risk
of loss. Please refer to the section entitled "Risk Factors" in this pricing
supplement and the accompanying MTN prospectus supplement.
Who publishes the Index and what does the Index measure?
The Index is a modified, price weighted stock index calculated,
published and disseminated by Nihon Keizai Shimbun, Inc. that measures the
composite price performance of selected Japanese stocks. The Index is
currently comprised of 225 stocks that trade on the Tokyo Stock Exchange (the
"TSE") and represents a broad cross-section of Japanese industry. All 225 of
the stocks underlying the Index (the "Underlying Stocks") are stocks listed in
the First Section of the TSE. Stocks listed in the First Section are among the
most actively traded stocks on the TSE. Futures and options contracts on the
Index are traded on the Singapore International Monetary Exchange, the Osaka
Securities Exchange and the Chicago Mercantile Exchange. For more information
on the Index, please see the section entitled "The Index" in this pricing
supplement.
An investment in the Notes does not entitle you to any dividends, voting
rights or any other ownership interest in the Underlying Stocks.
How has the Index performed historically?
We have included a graph showing the year-end closing levels of the
Index for each year from 1985 to 2005 and a table and a graph showing the
historical month-end closing levels of the Index from January 2001 through May
2006, in the section entitled "The Index--Historical Data on the Index" in
this pricing supplement. We have provided this historical information to help
you evaluate the behavior of the Index in various economic environments;
however, past performance of the Index is not necessarily indicative of how
the Index will perform in the future.
What will I receive on the maturity date of the Notes?
On the maturity date, you will receive a cash payment per unit equal to
the Redemption Amount.
PS-3
The "Redemption Amount" to which you will be entitled will depend on the
direction of and percentage change in the level of the Index over the term of
the Notes and will equal:
(i) If the Ending Value is greater than the Starting Value:
( (Ending Value - Starting Value))
$10+( $30 x (-----------------------------));
( ( Starting Value ))
provided, however, the Redemption Amount will not exceed $12.90 per unit (the
"Capped Value").
(ii) If the Ending Value is equal to or less than the Starting Value:
( Ending Value )
$10 x (--------------)
(Starting Value)
The "Starting Value" equals 15,503.74, the closing value of the Index on
the date the Notes 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 Notes. We may calculate the Ending Value by reference to fewer than five
or even a single day's closing level if, during the period shortly before the
maturity date of the Notes, there is a disruption in the trading of a
sufficient number of stocks included in the Index or certain futures or
options contracts relating to the Index.
The opportunity to participate in the possible increases in the level of
the Index through an investment in the Notes is limited because the amount
that you receive on the maturity date will never exceed the Capped Value,
which will represent an appreciation of 29.00% over the $10 original public
offering price per unit of the Notes, depending on the Capped Value. However,
in the event that the level of the Index declines over the term of the Notes,
the amount you receive on the maturity date will be proportionately less than
the $10 original public offering price of the Notes. As a result, you may
receive less, and possibly significantly less, than the $10 original public
offering price per unit.
For more specific information about the Redemption Amount, please see
the section entitled "Description of the Notes" in this pricing supplement.
Will I receive interest payments on the Notes?
You will not receive any interest payments on the Notes, but you will
receive the Redemption Amount on the maturity date. We have designed the Notes
for investors who are willing to forego interest payments on the Notes, such
as fixed or floating interest rates paid on traditional interest bearing debt
securities, and willing to accept a return that will not exceed the Capped
Value, in exchange for the ability to participate in changes in the level of
the Index over the term of the Notes.
PS-4
Examples
Set forth below are three examples of Redemption Amount calculations,
including a Capped Value of $12.90 per unit.
Example 1--The hypothetical Ending Value is 80% of the Starting Value:
Starting Value: 15,503.74
Hypothetical Ending Value: 12,402.99
( 12,402.99 )
$10 x ( --------- )= $8.00
( 15,503.74 )
Redemption Amount (per unit) = $8.00
Example 2--The hypothetical Ending Value is 105% of the Starting Value:
Starting Value: 15,503.74
Hypothetical Ending Value: 16,278.93
( (16,278.93 - 15,503.74))
$10+( $30 x (---------------------))
( ( 15,503.74 ))
Redemption Amount (per unit) = $ 11.50
Example 3--The hypothetical Ending Value is 120% of the Starting Value:
Starting Value: 15,503.74
Hypothetical Ending Value: 18,604.49
( (18,604.49 - 15,503.74))
$10+( $30 x (---------------------))= $16.00
( ( 15,503.74 )) (Redemption
Amount cannot be
Redemption Amount (per unit) = $12.90 greater than the
Capped Value)
What about taxes?
The United States federal income tax consequences of an investment in
the Notes are complex and uncertain. By purchasing a Note, you and ML&Co.
agree, in the absence of an administrative determination, judicial ruling or
other authoritative guidance to the contrary, to characterize and treat a Note
for all tax purposes as a pre-paid cash-settled forward contract linked to the
level of the Index. Under this characterization and tax treatment of the
Notes, you should be required to recognize gain or loss to the extent that you
receive cash on the maturity date or upon a sale or exchange of a Note prior
to the maturity date. You should review the discussion under the section
entitled "United States Federal Income Taxation" in this pricing supplement.
Will the Notes be listed on a stock exchange?
The Notes have been approved for listing on the American Stock Exchange
("AMEX") under the trading symbol "NKN". We make no representation however,
that the Notes will remain listed for the entire term of the Notes. In any
event, you should be aware that the listing of the Notes on AMEX will not
necessarily ensure that a liquid trading market will be available for the
Notes. You should review the section entitled "Risk Factors--There may be an
uncertain trading market for the Notes and the market price you may receive or
be quoted for your Notes on a date prior to the stated maturity date will be
affected by this and other important factors, including our costs of
developing, hedging and distributing the Notes" in this pricing supplement.
PS-5
What price can I expect to receive if I sell the Notes prior to the stated
maturity date?
In determining the economic terms of the Notes, and consequently the
potential return on the Notes to you, a number of factors are taken into
account. Among these factors are certain costs associated with creating,
hedging and offering the Notes. In structuring the economic terms of the
Notes, we seek to provide investors with what we believe to be commercially
reasonable terms and to provide MLPF&S with compensation for its services in
developing the securities.
If you sell your Notes prior to the stated maturity date, you will
receive a price determined by market conditions for the security. This price
may be influenced by many factors, such as interest rates, volatility and the
current level of the Index. In addition, the price, if any, at which you could
sell your Notes in a secondary market transaction is expected to be affected
by the factors that we considered in setting the economic terms of the Notes,
namely the underwriting discount paid in respect of the Notes, and
compensation for developing and hedging the product. Depending on the impact
of these factors, you may receive significantly less than the principal amount
of your Notes if sold before the stated maturity date.
In a situation where there had been no movement in the level of the
Index and no changes in the market conditions from those existing on the date
of this pricing supplement, the price, if any, at which you could sell your
Notes in a secondary market transaction is expected to be lower than the
original issue price. This is due to, among other things, our costs of
developing, hedging and distributing the Notes. Any potential purchasers of
your Notes in the secondary market are unlikely to consider these factors.
What is the role of MLPF&S?
Our subsidiary MLPF&S is the underwriter for the offering and sale of
the Notes. After the initial offering, MLPF&S intends to buy and sell Notes to
create a secondary market for holders of the Notes, and may stabilize or
maintain the market price of the Notes during their initial distribution.
However, MLPF&S will not be obligated to engage in any of these market
activities or continue them once it has started.
MLPF&S will also be our agent for purposes of calculating, among other
things, the Ending Value and the Redemption Amount (in such capacity, the
"Calculation Agent"). Under certain circumstances, these duties could result
in a conflict of interest between MLPF&S as our subsidiary and its
responsibilities as Calculation Agent.
What is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various subsidiaries
and affiliated companies that provide investment, financing, insurance and
related services on a global basis.
For information about ML&Co., see the section entitled "Merrill Lynch &
Co., Inc." in the accompanying 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 sections entitled "Where
You Can Find More Information" in the accompanying general prospectus
supplement and prospectus.
PS-6
RISK FACTORS
Your investment in the Notes will involve risks. You should carefully
consider the following discussion of risks and the discussion of risks
included in the accompanying MTN prospectus supplement before deciding whether
an investment in the Notes is suitable for you.
Your investment may result in a loss
We will not repay you a fixed amount of principal on the Notes on the
maturity date. The Redemption Amount will depend on the direction of and
percentage change in the level of the Index. Because the level of the Index is
subject to market fluctuations, the Redemption Amount you receive may be less
than the $10 original public offering price per unit of the Notes. If the
Ending Value is less than the Starting Value, the Redemption Amount will be
less than the $10 original public offering price per unit of the Notes. As a
result, you may receive less, and possibly significantly less, than the $10
original public offering price per unit.
Your yield may be lower than the yield on other debt securities of comparable
maturity
The yield that you will receive on your Notes, which could be negative,
may be less than the return you could earn on other investments. Your yield
may be less than the yield you would earn if you bought a traditional interest
bearing debt security of ML&Co. with the same stated maturity date. Your
investment may not reflect the full opportunity cost to you when you take into
account factors that affect the time value of money. Unlike traditional
interest bearing debt securities, the Notes do not guarantee the return of a
principal amount on the maturity date.
Your return is limited and will not reflect the return on a direct investment
in the Underlying Stocks
The opportunity to participate in the possible increases in the level of
the Index through an investment in the Notes is limited because the Redemption
Amount will never exceed the Capped Value, which will represent an
appreciation of 29% over the $10 original public offering price per unit of
the Notes. However, in the event that the level of the Index declines over the
term of the Notes, you will realize the entire decline. As a result, you may
receive less, and possibly significantly less, than the $10 original public
offering price per unit.
In addition, your return will not reflect the return you would realize
if you actually owned the Underlying Stocks included in the Index and received
the dividends paid on those stocks, if any, because the value of the Index is
calculated by reference to the prices of the Underlying Stocks without taking
into consideration the value of dividends paid on those stocks.
There may be an uncertain trading market for the Notes and the market price
you may receive or be quoted for your Notes on a date prior to the stated
maturity date will be affected by this and other important factors including
our costs of developing, hedging and distributing the Notes
The Notes have been approved for listing on AMEX under the trading
symbol "NKN". We make no representation, however, that the Notes will remain
listed for the entire term of the Notes. In any event, you should be aware
that the listing of the Notes on AMEX does not necessarily ensure that a
trading market will develop for the Notes. If a trading market does develop,
there can be no assurance that there will be liquidity in the trading market.
The development of a trading market for the Notes will depend on our financial
performance and other factors, including changes in the level of the Index.
If the trading market for the Notes is limited, there may be a limited
number of buyers for your Notes if you do not wish to hold your investment
until the stated maturity date. This may affect the price you receive.
If a market-maker (which may be MLPF&S) makes a market in the Notes, the
price it quotes would reflect any changes in market conditions and other
relevant factors. In addition, the price at which you could sell your Notes in
a secondary market transaction is expected to be affected by factors that we
considered in setting the economic terms of the Notes, namely the underwriting
discount paid in respect of the Notes and other costs associated with the
Notes, and compensation for developing and hedging the product. This listed
price could be higher or lower than the original issue price. MLPF&S is not
obligated to make a market in the Notes.
PS-7
Assuming there is no change in the level of the Index and no change in
market conditions or any other relevant factors, the price at which a
purchaser (which may include MLPF&S) might be willing to purchase your Notes
in a secondary market transaction is expected to be lower than the original
issue price. This is due to, among other things, the fact that the original
issue price included, and secondary market prices are likely to exclude,
underwriting discount paid with respect to, and the developing and hedging
costs associated with, the Notes.
Your return may be affected by factors affecting international securities
markets
The Index computed by reference to the value of the equity securities of
companies listed on a Japanese exchange. The return on the Notes will be
affected by factors affecting the value of securities in the Japanese market.
The Japanese securities market may be more volatile than United States or
other securities markets and may be affected by market developments in
different ways than United States or other securities markets. Direct or
indirect government intervention to stabilize a particular securities market
and cross-shareholdings in companies in the Japanese market may affect prices
and the volume of trading in the Japanese market. Also, there is generally
less publicly available information about Japanese companies than about United
States companies that are subject to the reporting requirements of the
Securities and Exchange Commission (the "SEC"). Additionally, accounting,
auditing and financial reporting standards and requirements in Japan differ
from those applicable to United States reporting companies.
The prices and performance of securities of companies in Japan may be
affected by political, economic, financial and social factors in Japan. In
addition, recent or future changes in Japan's government, economic and fiscal
policies, the possible imposition of, or changes in, currency exchange laws or
other laws or restrictions, and possible fluctuations in the rate of exchange
between currencies, are factors that could negatively affect the Japanese
securities markets. Moreover, the Japanese economy may differ favorably or
unfavorably from the United States economy in economic factors such as growth
of gross national product, rate of inflation, capital reinvestment, resources
and self-sufficiency.
Many factors affect the trading value of the Notes; these factors interrelate
in complex ways and the effect of any one factor may offset or magnify the
effect of another factor
The trading value of the Notes will be affected by factors that
interrelate in complex ways. The effect of one factor may offset the increase
in the trading value of the Notes caused by another factor and the effect of
one factor may exacerbate the decrease in the trading value of the Notes
caused by another factor. For example, an increase in United States interest
rates may offset some or all of any increase in the trading value of the Notes
attributable to another factor, such as an increase in the level of the Index.
The following paragraphs describe the expected impact on the trading value of
the Notes given a change in a specific factor, assuming all other conditions
remain constant.
The level of the Index is expected to affect the trading value of the
Notes. We expect that the trading value of the Notes will depend substantially
on the amount, if any, by which the level of the Index exceeds or does not
exceed the Starting Value. However, if you choose to sell your Notes when the
level of the Index exceeds the Starting Value, you may receive substantially
less than the amount that would be payable on the maturity date based on this
value because of the expectation that the level of the Index will continue to
fluctuate until the Ending Value is determined. In addition, because the
payment on the maturity date on the Notes will not exceed the Capped Value, we
do not expect that the Notes will trade in the secondary market above the
Capped Value.
Changes in the levels of interest rates are expected to affect the
trading value of the Notes. We expect that changes in interest rates will
affect the trading value of the Notes. Generally, if United States interest
rates increase, we expect the trading value of the Notes will decrease and,
conversely, if United States interest rates decrease, we expect the trading
value of the Notes will increase. The level of interest rates in Japan may
also affect the Japanese economy and in turn the level of the Index and, thus,
the trading value of the Notes.
Changes in the volatility of the Index is expected to affect the trading
value of the Notes. Volatility is the term used to describe the size and
frequency of price and/or market fluctuations. If the volatility of the Index
increases or decreases, the trading value of the Notes may be adversely
affected.
PS-8
Changes in dividend yields on the stocks included in the Index are
expected to affect the trading value of the Notes. In general, if dividend
yields on the stocks included in the Index increase, we expect that the
trading value of the Notes will decrease and, conversely, if dividend yields
on these stocks decrease, we expect that the trading value of the Notes will
increase.
As the time remaining to the stated maturity date of the Notes
decreases, the "time premium" associated with the Notes is expected to
decrease. We anticipate that before their stated maturity date, the Notes may
trade at a value above that which would be expected based on the level of
interest rates and the level of the Index. This difference will reflect a
"time premium" due to expectations concerning the level of the Index during
the period before the stated maturity date of the Notes. However, as the time
remaining to the stated maturity date of the Notes decreases, we expect that
this time premium will decrease, lowering the trading value of the Notes.
Changes in our credit ratings may affect the trading value of the Notes.
Our credit ratings are an assessment of our ability to pay our obligations.
Consequently, real or anticipated changes in our credit ratings may affect the
trading value of the Notes. However, because the return on your Notes is
dependent upon factors in addition to our ability to pay our obligations under
the Notes, such as the percentage increase, if any, in the level of the Index
over the term of the Notes, an improvement in our credit ratings will not
reduce the other investment risks related to the Notes.
In general, assuming all relevant factors are held constant, we expect
that the effect on the trading value of the Notes of a given change in some of
the factors listed above will be less if it occurs later in the term of the
Notes than if it occurs earlier in the term of the Notes. We expect, however,
that the effect on the trading value of the Notes of a given change in the
level of the Index will be greater if it occurs later in the term of the Notes
than if it occurs earlier in the term of the Notes.
Purchases and sales by us and our affiliates may affect your return
We and our affiliates may from time to time buy or sell the Underlying
Stocks or futures or options contracts on the Index for our own accounts for
business reasons and expect to enter into these transactions in connection
with hedging our obligations under the Notes. These transactions could affect
the price of these stocks and, in turn, the level of the Index in a manner
that could be adverse to your investment in the Notes. Any purchases or sales
by us, our affiliates or others on our behalf on or before the Pricing Date
may temporarily increase or decrease the prices of the Underlying Stocks.
Temporary increases or decreases in the market prices of these stocks may also
occur as a result of the purchasing activities of other market participants.
Consequently, the prices of these stocks may change subsequent to the Pricing
Date, affecting the level of the Index and therefore the trading value of the
Notes.
Potential conflicts of interest could arise
Our subsidiary MLPF&S is our agent for the purposes of calculating the
Ending Value and the Redemption Amount. Under certain circumstances, MLPF&S as
our subsidiary and its responsibilities as Calculation Agent for the Notes
could give rise to conflicts of interest. These conflicts could occur, for
instance, in connection with its determination as to whether the level of the
Index can be calculated on a particular trading day, or in connection with
judgments that it would be required to make in the event of a discontinuance
or unavailability of the Index. See the sections entitled "Description of the
Notes--Adjustments to the Index; Market Disruption Events" and
"--Discontinuance of the Index" in this pricing supplement. MLPF&S is required
to carry out its duties as Calculation Agent in good faith and using its
reasonable judgment. However, because we control MLPF&S, potential conflicts
of interest could arise.
We expect to enter into arrangements to hedge the market risks
associated with our obligation to pay the Redemption Amount due on the
maturity date on the Notes. We may seek competitive terms in entering into the
hedging arrangements for the Notes, but are not required to do so, and we may
enter into such hedging arrangements with one of our subsidiaries or
affiliated companies. Such hedging activity is expected to result in a profit
to those engaging in the hedging activity, which could be more or less than
initially expected, but which could also result in a loss for the hedging
counterparty.
ML&Co. or its affiliates may presently or from time to time engage in
business with one or more of the companies included in the Index including
extending loans to, or making equity investments in, those companies or
PS-9
providing advisory services to those companies, including merger and
acquisition advisory services. In the course of business, ML&Co. or its
affiliates may acquire non-public information relating to those companies and,
in addition, one or more affiliates of ML&Co. may publish research reports
about those companies. ML&Co. does not make any representation to any
purchasers of the Notes regarding any matters whatsoever relating to the
companies included in the Index. Any prospective purchaser of the Notes should
undertake an independent investigation of the companies included in the Index
as in its judgment is appropriate to make an informed decision regarding an
investment in the Notes. The composition of those companies does not reflect
any investment recommendations of ML&Co. or its affiliates.
Tax consequences are uncertain
You should consider the tax consequences of investing in the Notes,
aspects of which are uncertain. See the section entitled "United States
Federal Income Taxation" in this pricing supplement.
PS-10
DESCRIPTION OF THE NOTES
ML&Co. will issue the Notes as part of a series of senior debt
securities entitled "Medium-Term Notes, Series C" under the 1983 Indenture,
which is more fully described in the accompanying general prospectus
supplement. The Notes will mature on August 6, 2007. 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
Notes is 59021V359.
While on the maturity date a holder of a Note will receive an amount
equal to the Redemption Amount, there will be no other payment of interest,
periodic or otherwise. See the section entitled "--Payment on the Maturity
Date" in this pricing supplement.
The Notes will not be subject to redemption by ML&Co. or repayment at
the option of any holder of the Notes before the maturity date.
ML&Co. will issue the Notes in denominations of whole units each with a
$10 original public offering price per unit. You may transfer the Notes only
in whole units. You will not have the right to receive physical certificates
evidencing your ownership except under limited circumstances. Instead, we will
issue the Notes in the form of a global certificate, which will be held by The
Depository Trust Company, also known as DTC, or its nominee. Direct and
indirect participants in DTC will record your ownership of the Notes. You
should refer to the section entitled "Description of Debt
Securities--Depositary" in the accompanying general prospectus supplement.
The Notes will not have the benefit of any sinking fund.
Payment on the Maturity Date
On the maturity date, you will be entitled to receive a cash payment per
unit equal to the Redemption Amount, as provided below.
Determination of the Redemption Amount
The "Redemption Amount" per unit will be determined by the Calculation
Agent and will equal:
(i) If the Ending Value is greater than the Starting Value:
( (Ending Value-Starting Value))
$10+( $30 x (---------------------------));
( ( Starting Value ))
provided, however, the Redemption Amount will not exceed $12.90 per unit (the
"Capped Value").
(ii) If the Ending Value is equal to or less than the Starting Value:
( Ending Value ))
$10x(--------------))
(Starting Value))
The "Starting Value" equals 15,503.74, the closing level of the Nikkei
225 Index (the "Index") on the day the Notes 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
PS-11
of a Market Disruption Event (as described below under "--Adjustments to the
Index; Market Disruption Events") on that scheduled Index Business Day.
The "Calculation Period" means the period from and including the seventh
scheduled Index Business Day before the maturity date to and including the
second scheduled Index Business Day before the maturity date.
A "Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
An "Index Business Day" means a day on which the Tokyo Stock Exchange
(the "TSE"), New York Stock Exchange (the "NYSE"), the AMEX and The Nasdaq
Stock Market (the "Nasdaq") are open for trading and the Index or any
successor index are calculated and published.
All determinations made by the Calculation Agent, absent a determination
of a manifest error, will be conclusive for all purposes and binding on ML&Co.
and the holders and beneficial owners of the Notes.
PS-12
Hypothetical Returns
The following table illustrates, for the Starting Value of 15,503.74 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 per unit;
o the total rate of return to holders of the Notes;
o the pretax annualized rate of return to holders of the Notes; and
o the pretax annualized rate of return of an investment in the
Underlying Stocks, which includes an assumed aggregate dividend
yield of 1.00% per annum, as more fully described below.
The table below includes a Capped Value of $12.90.
Percentage change Pretax Pretax
from the Total amount Total annualized annualized rate
Starting Value payable on the rate of rate of of return of the
Hypothetical to the hypothetical maturity date return on return on Underlying Stocks
Ending Value Ending Value per unit the Notes the Notes(1) (1)(2)
- ---------------------- --------------------- -------------------- -------------- ----------------- --------------------
7,751.87 -50% 5.0000 -50.00% -51.38% -50.19%
9,302.24 -40% 6.0000 -40.00% -39.31% -38.18%
10,852.62 -30% 7.0000 -30.00% -28.34% -27.26%
12,402.99 -20% 8.0000 -20.00% -18.23% -17.19%
13,953.37 -10% 9.0000 -10.00% -8.83% -7.81%
14,263.44 -8% 9.2000 -8.00% -7.02% -6.00%
14,573.52 -6% 9.4000 -6.00% -5.23% -4.22%
14,883.59 -4% 9.6000 -4.00% -3.47% -2.46%
15,193.67 -2% 9.8000 -2.00% -1.72% -0.72%
15,503.74(3) 0% 10.0000 0.00% 0.00% 1.00%
15,813.81 2% 10.6000 6.00% 5.06% 2.70%
16,123.89 4% 11.2000 12.00% 9.95% 4.38%
16,433.96 6% 11.8000 18.00% 14.70% 6.05%
16,744.04 8% 12.4000 24.00% 19.31% 7.69%
17,054.11 10% 12.9000(4) 29.00% 23.05% 9.32%
18,604.49 20% 12.9000 29.00% 23.05% 17.22%
20,154.86 30% 12.9000 29.00% 23.05% 24.76%
- ----------------------
(1) The annualized rates of return specified in this column are calculated
on a semiannual bond equivalent basis and assume an investment term from
June 6, 2006 to August 6, 2007, a term expected to be equal to that of
the Notes.
(2) This rate of return assumes:
(a) a percentage change in the aggregate price of the Underlying
Stocks that equals the percentage change in the Index from the
Starting Value to the relevant hypothetical Ending Value;
(b) a constant dividend yield of 1.00% per annum, paid quarterly from
the date of initial delivery of the Notes, applied to the level of
the Index at the end of each quarter assuming this value increases
or decreases linearly from the Starting Value to the applicable
hypothetical Ending Value; and
(c) no transaction fees or expenses.
(3) This is the Starting Value.
PS-13
(4) The total amount payable on the maturity date per unit of the Notes
cannot exceed the Capped Value of $12.90 per unit.
The above figures are for purposes of illustration only. The actual
amount received by you and the resulting total and pretax annualized rates of
return will depend on the Ending Value and term of your investment.
Adjustments to the Index; Market Disruption Events
If at any time the Nihon Keizai Shimbun, Inc. ("NKS") makes a material
change in the formula for or the method of calculating the Index or in any
other way materially modifies the Index so that the Index does not, in the
opinion of the Calculation Agent, fairly represent the level of the Index had
those changes or modifications not been made, then, from and after that time,
the Calculation Agent will, at the close of business in New York, New York, on
each date that the closing level of the Index is to be calculated, make any
adjustments as, in the good faith judgment of the Calculation Agent, may be
necessary in order to arrive at a calculation of a level of a stock index
comparable to the Index as if those changes or modifications had not been
made, and calculate the closing level with reference to the Index, as so
adjusted. Accordingly, if the method of calculating the Index is modified so
that the level of the Index is a fraction or a multiple of what it would have
been if it had not been modified, e.g., due to a split, then the Calculation
Agent will adjust the Index in order to arrive at a level of the Index as if
it had not been modified, e.g., as if a split had not occurred.
"Market Disruption Event" means either of the following events as
determined by the Calculation Agent:
(A) the suspension of or material limitation on trading for more than
two hours of trading, or during the one-half hour period preceding
the close of trading, on the primary exchange on which the
Underlying Stocks trade as determined by the Calculation Agent
(without taking into account any extended or after-hours trading
session), in 20% or more of the stocks which then comprise the
Index or any successor index; or
(B) the suspension of or material limitation on trading for more than
two hours of trading, or during the one-half hour period preceding
the close of trading, on any 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.
For the purpose of determining whether a Market Disruption Event has
occurred:
(1) a limitation on the hours in a trading day and/or number of days
of trading will not constitute a Market Disruption Event if it
results from an announced change in the regular business hours of
the relevant exchange;
(2) a decision to permanently discontinue trading in the relevant
futures or options contracts related to the Index, or any
successor index, will not constitute a Market Disruption Event;
(3) a suspension in trading in a futures or options contract on the
Index, or any successor index, by a major securities market by
reason of (a) a price change violating limits set by that
securities market, (b) an imbalance of orders relating to those
contracts or (c) a disparity in bid and ask quotes relating to
those contracts will constitute a suspension of or material
limitation on trading in futures or options contracts related to
the Index; and
(4) a suspension of or material limitation on trading on the relevant
exchange will not include any time when that exchange is closed
for trading under ordinary circumstances.
The occurrence of a Market Disruption Event could affect the calculation
of the payment you may receive on the maturity date. See the section entitled
"--Payment on the Maturity Date" in this pricing supplement.
PS-14
Discontinuance of the Index
If NKS discontinues publication of the Index and NKS 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 NKS or any other entity for the Index and
calculate the Ending Value as described above under "--Payment on the Maturity
Date". Upon any selection by the Calculation Agent of a successor index,
ML&Co. will cause notice to be given to holders of the Notes.
In the event that NKS discontinues publication of the Index and:
o the Calculation Agent does not select a successor index; or
o the successor index is not published on any of the Calculation
Days,
the Calculation Agent will compute a substitute level for the Index in
accordance with the procedures last used to calculate the Index before any
discontinuance. If a successor index is selected or the Calculation Agent
calculates a level as a substitute for the Index as described below, the
successor index or level will be used as a substitute for the Index for all
purposes, including the purpose of determining whether a Market Disruption
Event exists.
If NKS discontinues publication of the Index before the Calculation
Period and the Calculation Agent determines that no successor index is
available at that time, then on each Business Day until the earlier to occur
of:
o the determination of the Ending Value; and
o a determination by the Calculation Agent that a successor index is
available,
the Calculation Agent will determine the value that would be used in computing
the Redemption Amount as described in the preceding paragraph as if that day
were a Calculation Day. The Calculation Agent will cause notice of each value
to be published not less often than once each month in The Wall Street Journal
or another newspaper of general circulation and arrange for information with
respect to these values to be made available by telephone.
A "Business Day" is any day on which the TSE, the NYSE, the AMEX and the
Nasdaq are open for trading.
Notwithstanding these alternative arrangements, discontinuance of the
publication of the Index may adversely affect trading in the Notes.
Events of Default and Acceleration
In case an Event of Default with respect to any Notes has occurred and
is continuing, the amount payable to a holder of a Note upon any acceleration
permitted by the Notes, with respect to each $10 original public offering
price per unit, will be equal to the Redemption Amount, calculated as though
the date of acceleration were the stated maturity date of the Notes.
In case of default in payment of the Notes, whether on the stated
maturity date or upon acceleration, from and after that date the Notes will
bear interest, payable upon demand of their holders, at the then current
Federal Funds Rate, reset daily, 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 Notes to the date payment of that amount has
been made or duly provided for.
PS-15
THE INDEX
All disclosure contained in this pricing supplement regarding the Index,
including, without limitation, its make-up, method of calculation and changes
in its components has been derived from publicly available sources. The
information reflects the policies of NKS as stated in these sources and these
policies are subject to change at the discretion of NKS. ML&Co. and MLPF&S
have not independently verified the accuracy or completeness of that
information.
The Index is a stock index calculated, published and disseminated by NKS
that measures the composite price performance of selected Japanese stocks. The
Index is currently comprised of 225 stocks that trade on the TSE and
represents a broad cross-section of Japanese industry. All 225 of the stocks
underlying the Index (the "Underlying Stocks") are stocks listed in the First
Section of the TSE. Stocks listed in the First Section are among the most
actively traded stocks on the TSE. Futures and options contracts on the Index
are traded on the Singapore International Monetary Exchange, the Osaka
Securities Exchange and the Chicago Mercantile Exchange.
The Index is a modified, price-weighted index. Each stock's weight in
the Index is based on its price per share rather than the total market
capitalization of the issuer. NKS calculates the Index by multiplying the per
share price of each Underlying Stock by the corresponding weighting factor for
that Underlying Stock (a "Weight Factor"), calculating the sum of all these
products and dividing that sum by a divisor. The divisor, initially set on May
16, 1949 at 225, was 24.290 as of June 1, 2006, and is subject to periodic
adjustments as set forth below. Each Weight Factor is computed by dividing
(Y)50 by the par value of the relevant Underlying Stock, so that the share
price of each Underlying Stock when multiplied by its Weight Factor
corresponds to a share price based on a uniform par value of (Y)50. Each
Weight Factor represents the number of shares of the related Underlying Stock
which are included in one trading unit of the Index. The stock prices used in
the calculation of the Index are those reported by a primary market for the
Underlying Stocks, which is currently the TSE. The level of the Index is
calculated once per minute during TSE trading hours.
In order to maintain continuity in the level of the Index in the event
of certain changes due to non-market factors affecting the Underlying Stocks,
such as the addition or deletion of stocks, substitution of stocks, stock
dividends, stock splits or distributions of assets to stockholders, the
divisor used in calculating the Index is adjusted in a manner designed to
prevent any instantaneous change or discontinuity in the level of the Index.
The divisor remains at the new value until a further adjustment is necessary
as the result of another change. As a result of each change affecting any
Underlying Stock, the divisor is adjusted in such a way that the sum of all
share prices immediately after the change multiplied by the applicable Weight
Factor and divided by the new divisor, i.e., the level of the Index
immediately after the change, will equal the level of the Index immediately
prior to the change.
Underlying Stocks may be deleted or added by NKS. However, to maintain
continuity in the Index, the policy of NKS is generally not to alter the
composition of the Underlying Stocks except when an Underlying Stock is
deleted in accordance with the following criteria. Any stock becoming
ineligible for listing in the First Section of the TSE due to any of the
following reasons will be deleted from the Underlying Stocks: bankruptcy of
the issuer; merger of the issuer into, or acquisition of the issuer by,
another company; delisting of the stock or transfer of the stock to the
"Seiri-Post" because of excess debt of the issuer or because of any other
reason; or transfer of the stock to the Second Section of the TSE. Upon
deletion of a stock from the Index, NKS will select, in accordance with
certain criteria established by it, a replacement for the deleted Underlying
Stock. In an exceptional case, a newly listed stock in the First Section of
the TSE that is recognized by NKS to be representative of a market may be
added to the Underlying Stocks. As a result, an existing Underlying Stock with
low trading volume and not representative of a market will be deleted.
None of ML&Co., MLPF&S and NKS accepts any responsibility for the
calculation, maintenance or publication of the Index or any successor index.
NKS disclaims all responsibility for any errors or omissions in the
calculation and dissemination of the Index or the manner in which the Index is
applied in determining any Starting Value or Ending Value or any Redemption
Amount payable to you on the maturity date of the Notes.
PS-16
The Tokyo Stock Exchange
The TSE is one of the world's largest securities exchanges in terms of
market capitalization. Trading hours are currently from 9:00 A.M. to 11:00
A.M. and from 1:00 P.M. to 3:00 P.M., Tokyo time, Monday through Friday.
Due to the time zone difference, on any normal trading day the TSE will
close prior to the opening of business in New York City on the same calendar
day. Therefore, the closing level of the Index on a trading day will generally
be available in the United States by the opening of business on the same
calendar day.
The TSE has adopted certain measures, including daily price floors and
ceilings on individual stocks, intended to prevent any extreme short-term
price fluctuations resulting from order imbalances. In general, any stock
listed on the TSE cannot be traded at a price lower than the applicable price
floor or higher than the applicable price ceiling. These price floors and
ceilings are expressed in absolute Japanese yen, rather than percentage limits
based on the closing price of the stock on the previous trading day. In
addition, when there is a major order imbalance in a listed stock, the TSE
posts a "special bid quote" or a "special asked quote" for that stock at a
specified higher or lower price level than the stock's last sale price in
order to solicit counter-orders and balance supply and demand for the stock.
Prospective investors should also be aware that the TSE may suspend the
trading of individual stocks in certain limited and extraordinary
circumstances, including, for example, unusual trading activity in that stock.
As a result, changes in the Index may be limited by price limitations or
special quotes, or by suspension of trading, on individual stocks which
comprise the Index, and these limitations may, in turn, adversely affect the
value of the Notes.
PS-17
Historical data on the Index
The following graph sets forth the closing levels of the Index on the
last business day of each year from 1985 through 2005, as published by NKS.
The 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 on the maturity date.
[GRAPHIC OMITTED - Graph shows year end values
of the Nikkei 225 Index of:
December 31, 1985.....13083.18
December 31, 1986.....18820.65
December 31, 1987.....21564.00
December 30, 1988.....30159.00
December 29, 1989.....38915.87
December 31, 1990.....23848.71
December 31, 1991.....22983.77
December 31, 1992.....16924.95
December 31, 1993.....17417.24
December 30, 1994.....19723.06
December 29, 1995.....19868.15
December 31, 1996.....19361.35
December 31, 1997.....15258.74
December 31, 1998.....13842.17
December 31, 1999.....18934.34
December 29, 2000.....13785.69
December 31, 2001.....10542.62
December 31, 2002......8578.95
December 31, 2003.....10676.64
December 31, 2004.....11488.76
December 30, 2005.....16111.43]
The following table sets forth the closing levels of the Index at the
end of each month in the period from January 2001 through May 2006. This
historical data on the Index is not necessarily indicative of the future
performance of the Index or what the value of the Notes may be. Any historical
upward or downward trend in the level of the Index during any period set forth
below is not an indication that the Index is more or less likely to increase
or decrease at any time during the term of the Notes.
2001 2002 2003 2004 2005 2006
-------- -------- -------- -------- --------- --------
January.......... 13843.55 9997.80 8339.94 10783.61 11387.59 16649.82
February......... 12883.54 10587.83 8363.04 11041.92 11740.60 16205.43
March............ 12999.70 11024.94 7972.71 11715.39 11668.95 17059.66
April............ 13934.32 11492.54 7831.42 11761.79 11008.90 16906.23
May.............. 13262.14 11763.70 8424.51 11236.37 11276.59 15467.33
June............. 12969.05 10621.84 9083.11 11858.87 11584.01
July............. 11860.77 9877.94 9563.21 11325.78 11899.60
August........... 10713.51 9619.30 10343.55 11081.79 12413.60
September........ 9774.68 9383.29 10219.05 10823.57 13574.30
October.......... 10366.34 8640.48 10559.59 10771.42 13606.50
November......... 10697.44 9215.56 10100.57 10899.25 14872.15
December......... 10542.62 8578.95 10676.64 11488.76 16111.43
PS-18
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.
[LINE CHART OMITTED]
License Agreement
NKS and ML&Co. have entered into a non-exclusive license agreement
providing for the license to ML&Co., in exchange for a fee, of a right to use
indices owned and published by NKS in connection with some securities,
including the Notes.
NKS is under no obligation to continue the calculation and dissemination
of the Index. The Notes are not sponsored, endorsed, sold or promoted by NKS.
No inference should be drawn from the information contained in this pricing
supplement that NKS makes any representation or warranty, implied or express,
to ML&Co., the holder of the Notes or any member of the public regarding the
advisability of investing in securities generally or in the Notes in
particular or the ability of the Notes to track general stock market
performance. NKS has no obligation to take the needs of ML&Co. or the holders
of the Notes into consideration in determining, composing or calculating the
Index. NKS is not responsible for, and has not participated in the
determination of the timing of, prices for, or quantities of, the Notes to be
issued or in the determination or calculation of the equation by which the
Notes are to be settled in cash. NKS has no obligation or liability in
connection with the administration or marketing of the Notes.
The use of and reference to the Index in connection with the Notes have
been consented to by NKS, the publisher of the Index. The copyright relating
to the Nikkei 225 Index and intellectual property rights as to the indications
for "Nikkei" and the Nikkei 225 Index and any other rights belong to NKS.
PS-19
UNITED STATES FEDERAL INCOME TAXATION
Set forth in full below is the opinion of Sidley Austin LLP, counsel to
ML&Co. ("Tax Counsel"). As the law applicable to the U.S. federal income
taxation of instruments such as the Notes is technical and complex, the
discussion below necessarily represents only a general summary. The following
discussion is based upon laws, regulations, rulings and decisions now in
effect, all of which are subject to change (including changes in effective
dates) or possible differing interpretations. The discussion below supplements
the discussion set forth under the section entitled "United States Federal
Income Taxation" that is contained in the accompanying MTN prospectus
supplement and supersedes that discussion to the extent that it contains
information that is inconsistent with that contained in the accompanying MTN
prospectus supplement. The discussion below deals only with Notes held as
capital assets and does not purport to deal with persons in special tax
situations, such as financial institutions, insurance companies, regulated
investment companies, real estate investment trusts, tax-exempt entities or
persons holding Notes in a tax-deferred or tax-advantaged account (except to
the extent specifically discussed below), dealers in securities or currencies,
traders in securities that elect to mark to market, persons subject to the
alternative minimum tax, persons holding Notes as a hedge against currency
risks, as a position in a "straddle" or as part of a "hedging", "conversion"
or "integrated" transaction for tax purposes, or persons whose functional
currency is not the United States dollar. It also does not deal with holders
other than original purchasers. If a partnership holds the Notes, the tax
treatment of a partner in the partnership will generally depend upon the
status of the partner and the activities of the partnership. Thus, persons who
are partners in a partnership holding the Notes should consult their own tax
advisors. Moreover, all persons considering the purchase of the Notes should
consult their own tax advisors concerning the application of United States
federal income tax laws to their particular situations as well as any
consequences of the purchase, ownership and disposition of the Notes arising
under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a
Note that is for United States federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation or a partnership (including
an entity treated as a corporation or a partnership for United States federal
income tax purposes) that is created or organized in or under the laws of the
United States, any state thereof or the District of Columbia (unless, in the
case of a partnership, Treasury regulations are adopted that provide
otherwise), (iii) an estate the income of which is subject to United States
federal income tax regardless of its source, (iv) a trust if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust or (v) any other
person whose income or gain in respect of a Note is effectively connected with
the conduct of a United States trade or business. Certain trusts not described
in clause (iv) above in existence on August 20, 1996, that elect to be treated
as United States persons will also be U.S. Holders for purposes of the
following discussion. As used herein, the term "non-U.S. Holder" means a
beneficial owner of a Note that is not a U.S. Holder.
General
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization and treatment,
for United States federal income tax purposes, of the Notes or securities with
terms substantially the same as the Notes. Accordingly, the proper United
States federal income tax characterization and treatment of the Notes is
uncertain. Pursuant to the terms of the Notes, ML&Co. and every holder of a
Note agree (in the absence of an administrative determination, judicial ruling
or other authoritative guidance to the contrary) to characterize and treat a
Note for all tax purposes as a pre-paid cash-settled forward contract linked
to the level of the Index. In the opinion of Tax Counsel, this
characterization and tax treatment of the Notes, although not the only
reasonable characterization and tax treatment, is based on reasonable
interpretations of law currently in effect and, even if successfully
challenged by the Internal Revenue Service (the "IRS"), will not result in the
imposition of penalties. The characterization and tax treatment of the Notes
described above is not, however, binding on the IRS or the courts. No
statutory, judicial or administrative authority directly addresses the
characterization and treatment of the Notes or instruments similar to the
Notes for United States federal income tax purposes, and no ruling is being
requested from the IRS with respect to the Notes.
Due to the absence of authorities that directly address instruments that
are similar to the Notes, significant aspects of the United States federal
income tax consequences of an investment in the Notes are not certain, and no
assurance can be given that the IRS or the courts will agree with the
characterization and tax treatment described above. Accordingly, prospective
purchasers are urged to consult their own tax advisors regarding the United
States
PS-20
federal income tax consequences of an investment in the Notes (including
alternative characterizations and tax treatments of the Notes) and with
respect to any tax consequences arising under the laws of any state, local or
foreign taxing jurisdiction. Unless otherwise stated, the following discussion
is based on the assumption that the characterization and treatment described
above is accepted for United States federal income tax purposes.
Tax Treatment of the Notes
Assuming the characterization and tax treatment of the Notes as set
forth above, Tax Counsel believes that the following United States federal
income tax consequences should result.
Tax Basis. A U.S. Holder's tax basis in a Note will equal the amount
paid by the U.S. Holder to acquire the Note.
Payment on the Maturity Date. Upon the receipt of cash on the maturity
date of the Notes, a U.S. Holder will recognize gain or loss. The amount of
that gain or loss will be the extent to which the amount of the cash received
differs from the U.S. Holder's tax basis in the Note. It is uncertain whether
any such gain or loss would be treated as ordinary income or loss or capital
gain or loss. Absent a future clarification in current law (by an
administrative determination, judicial ruling or otherwise), where required,
ML&Co. intends to report any such gain or loss to the IRS in a manner
consistent with the treatment of that gain or loss as capital gain or loss. If
any gain or loss is treated as capital gain or loss, then that gain or loss
will generally be short-term or long-term capital gain or loss, as the case
may be, depending upon the U.S. Holder's holding period for the Note as of the
maturity date. The deductibility of capital losses is subject to certain
limitations.
Sale or Exchange of the Notes. Upon a sale or exchange of a Note prior
to the maturity date of the Notes, a U.S. Holder will generally recognize
capital gain or loss in an amount equal to the difference between the amount
realized on the sale or exchange and the U.S. Holder's tax basis in the Note
so sold or exchanged. Any such capital gain or loss will generally be
short-term or long-term capital gain or loss, depending upon the U.S. Holder's
holding period for the Note at the time of disposition. As discussed above,
the deductibility of capital losses is subject to certain limitations.
Possible Alternative Tax Treatments of an Investment in the Notes
Due to the absence of authorities that directly address the proper
characterization and tax treatment of the Notes, no assurance can be given
that the IRS will accept, or that a court will uphold, the characterization
and tax treatment of the Notes described above. In particular, the IRS could
seek to analyze the United States federal income tax consequences of owning
the Notes under Treasury regulations governing contingent payment debt
instruments (the "CPDI Regulations").
If the IRS were successful in asserting that the CPDI Regulations
applied to the Notes, the timing and character of income thereon would be
significantly affected. Among other things, a U.S. Holder would be required to
accrue original issue discount on the Notes every year at a "comparable yield"
for us, determined at the time of issuance of the Notes. Furthermore, any gain
realized on the maturity date or upon a sale or other disposition of the Notes
would generally be treated as ordinary income, and any loss realized on the
maturity date or upon a sale or other disposition of the Notes would be
treated as ordinary loss to the extent of the U.S. Holder's prior accruals of
original issue discount and capital loss thereafter.
Even if the CPDI Regulations do not apply to the Notes, other
alternative United States federal income tax characterizations or treatments
of the Notes may also be possible, and if applied could also affect the timing
and the character of the income or loss with respect to the Notes.
Accordingly, prospective purchasers are urged to consult their tax advisors
regarding the United States federal income tax consequences of an investment
in the Notes.
Constructive Ownership Law
Section 1260 of the Internal Revenue Code of 1986, as amended (the
"Code"), treats a taxpayer owning certain types of derivative positions in
property as having "constructive ownership" of that property, with the result
that all or a portion of any long-term capital gain recognized by that
taxpayer with respect to the derivative position will be recharacterized as
ordinary income. In its current form, Section 1260 of the Code does not apply
to the Notes. If Section 1260 of the Code were to apply to the Notes in the
future, however, the effect on a U.S. Holder of a
PS-21
Note would be to treat all or a portion of any long-term capital gain
recognized by the U.S. Holder on the sale, exchange or maturity of a Note as
ordinary income. In addition, Section 1260 of the Code would impose an
interest charge on any gain that was recharacterized. U.S. Holders should
consult their tax advisors regarding the potential application of Section 1260
of the Code, if any, to the purchase, ownership and disposition of a Note.
Unrelated Business Taxable Income
Section 511 of the Code generally imposes a tax, at regular corporate or
trust income tax rates, on the "unrelated business taxable income" of certain
tax-exempt organizations, including qualified pension and profit sharing plan
trusts and individual retirement accounts. As discussed above, the U.S.
federal income tax characterization and treatment of the Notes is uncertain.
Nevertheless, in general, if the Notes are held for investment purposes, the
amount of income or gain, if any, realized on the maturity date or upon a sale
or exchange of a Note prior to the maturity date, or any income that would
accrue to a holder of a Note if the Notes were characterized as contingent
payment debt instruments (as discussed above), will not constitute unrelated
business taxable income. However, if a Note constitutes debt-financed property
(as defined in Section 514(b) of the Code) by reason of indebtedness incurred
by a holder of a Note to purchase the Note, all or a portion of any income or
gain realized with respect to such Note may be classified as unrelated
business taxable income pursuant to Section 514 of the Code. Moreover,
prospective investors in the Notes should be aware that whether or not any
income or gain realized with respect to a Note which is owned by an
organization that is generally exempt from U.S. federal income taxation
pursuant to Section 501(a) of the Code constitutes unrelated business taxable
income will depend upon the specific facts and circumstances applicable to
such organization. Accordingly, any potential investors in the Notes that are
generally exempt from U.S. federal income taxation pursuant to Section 501(a)
of the Code are urged to consult with their own tax advisors concerning the
U.S. federal income tax consequences to them of investing in the Notes.
Non-U.S. Holders
Based on the characterization and tax treatment of each Note as a
pre-paid cash-settled forward contract linked to the level of the Index, in
the case of a non-U.S. Holder, a payment made with respect to a Note on the
maturity date will not be subject to United States withholding tax, provided
that the non-U.S. Holder complies with applicable certification requirements
and that the payment is not effectively connected with a United States trade
or business of the non-U.S. Holder. Any capital gain realized upon the sale or
other disposition of a Note by a non-U.S. Holder will generally not be subject
to United States federal income tax if (i) that gain is not effectively
connected with a United States trade or business of the non-U.S. Holder and
(ii) in the case of an individual non-U.S. Holder, the individual is not
present in the United States for 183 days or more in the taxable year of the
sale or other disposition, or the gain is not attributable to a fixed place of
business maintained by the individual in the United States, and the individual
does not have a "tax home" (as defined for United States federal income tax
purposes) in the United States.
As discussed above, alternative characterizations and treatments of the
Notes for United States federal income tax purposes are possible. Should an
alternative characterization and tax treatment of the Notes, by reason of a
change or clarification of the law, by regulation or otherwise, cause payments
with respect to the Notes to become subject to withholding tax, ML&Co. will
withhold tax at the applicable statutory rate. Prospective non-U.S. Holders of
the Notes should consult their own tax advisors in this regard.
Backup Withholding
A beneficial owner of a Note may be subject to backup withholding at the
applicable statutory rate of United States federal income tax on certain
amounts paid to the beneficial owner unless the beneficial owner provides
proof of an applicable exemption or a correct taxpayer identification number,
and otherwise complies with applicable requirements of the backup withholding
rules.
Any amounts withheld under the backup withholding rules from a payment
to a beneficial owner would be allowed as a refund or a credit against the
beneficial owner's United States federal income tax provided the required
information is furnished to the IRS.
PS-22
ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit
plan (a "plan") subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), should consider the fiduciary standards of ERISA
in the context of the plan's particular circumstances before authorizing an
investment in the Notes. Accordingly, among other factors, the fiduciary
should consider whether the investment would satisfy the prudence and
diversification requirements of ERISA and would be consistent with the
documents and instruments governing the plan, and whether the investment would
involve a prohibited transaction under Section 406 of ERISA or Section 4975 of
the Code.
Section 406 of ERISA and Section 4975 of the Code prohibit plans, as
well as individual retirement accounts and Keogh plans subject to Section 4975
of the Code (also "plans") from engaging in certain transactions involving
"plan assets" with persons who are "parties in interest" under ERISA or
"disqualified persons" under the Code ("parties in interest") with respect to
the plan or account. A violation of these prohibited transaction rules may
result in civil penalties or other liabilities under ERISA and/or an excise
tax under Section 4975 of the Code for those persons, unless exemptive relief
is available under an applicable statutory, regulatory or administrative
exemption. Certain employee benefit plans and arrangements including those
that are governmental plans (as defined in Section 3(32) of ERISA), certain
church plans (as defined in Section 3(33) of ERISA) and foreign plans (as
described in Section 4(b)(4) of ERISA) ("non-ERISA arrangements") are not
subject to the requirements of ERISA or Section 4975 of the Code but may be
subject to similar provisions under applicable federal, state, local, foreign
or other regulations, rules or laws ("similar laws").
The acquisition of the Notes by a plan with respect to which we, MLPF&S
or certain of our affiliates is or becomes a party in interest may constitute
or result in a prohibited transaction under ERISA or Section 4975 of the Code,
unless those Notes are acquired pursuant to and in accordance with an
applicable exemption. The U.S. Department of Labor has issued five prohibited
transaction class exemptions, or "PTCEs", that may provide exemptive relief if
required for direct or indirect prohibited transactions that may arise from
the purchase or holding of the Notes. These exemptions are:
(1) PTCE 84-14, an exemption for certain transactions determined or
effected by independent qualified professional asset managers;
(2) PTCE 90-1, an exemption for certain transactions involving
insurance company pooled separate accounts;
(3) PTCE 91-38, an exemption for certain transactions involving bank
collective investment funds;
(4) PTCE 95-60, an exemption for transactions involving certain
insurance company general accounts; and
(5) PTCE 96-23, an exemption for plan asset transactions managed by
in-house asset managers.
The Notes may not be purchased or held by (1) any plan, (2) any entity
whose underlying assets include "plan assets" by reason of any plan's
investment in the entity (a "plan asset entity") or (3) any person investing
"plan assets" of any plan, unless in each case the purchaser or holder is
eligible for the exemptive relief available under one or more of the PTCEs
listed above or another applicable similar exemption. Any purchaser or holder
of the Notes or any interest in the Notes will be deemed to have represented
by its purchase and holding of the Notes that it either (1) is not a plan or a
plan asset entity and is not purchasing those Notes on behalf of or with "plan
assets" of any plan or plan asset entity or (2) with respect to the purchase
or holding, is eligible for the exemptive relief available under any of the
PTCEs listed above or another applicable exemption. In addition, any purchaser
or holder of the Notes or any interest in the Notes which is a non-ERISA
arrangement will be deemed to have represented by its purchase and holding of
the Notes that its purchase and holding will not violate the provisions of any
similar law.
Due to the complexity of these rules and the penalties that may be
imposed upon persons involved in non-exempt prohibited transactions, it is
important that fiduciaries or other persons considering purchasing the Notes
on behalf of or with "plan assets" of any plan, plan asset entity or non-ERISA
arrangement consult with their counsel
PS-23
regarding the availability of exemptive relief under any of the PTCEs listed
above or any other applicable exemption, or the potential consequences of any
purchase or holding under similar laws, as applicable.
USE OF PROCEEDS AND HEDGING
The net proceeds from the sale of the Notes will be used as described
under "Use of Proceeds" in the accompanying general prospectus supplement and
to hedge market risks of ML&Co. associated with its obligation to pay the
Redemption Amount.
SUPPLEMENTAL PLAN OF DISTRIBUTION
MLPF&S has advised ML&Co. that it proposes initially to offer all or
part of the Notes directly to the public on a fixed price basis at the
offering prices set forth on the cover of this pricing supplement. After the
initial public offering, the public offering prices may be changed. The
obligations of MLPF&S are subject to certain conditions and it is committed to
take and pay for all of the Notes if any are taken.
EXPERTS
The consolidated financial statements, the related financial statement
schedule, and management's report on the effectiveness of internal control
over financial reporting incorporated in this pricing supplement by reference
from Merrill Lynch & Co., Inc.'s Annual Report on Form 10-K for the year ended
December 30, 2005 have been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
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-24
INDEX OF CERTAIN DEFINED TERMS
Business Day..............................................................PS-15
Calculation Agent..........................................................PS-6
Calculation Day...........................................................PS-12
Calculation Period........................................................PS-12
Capped Value...............................................................PS-4
Ending Value...............................................................PS-4
Index......................................................................PS-3
Index Business Day........................................................PS-12
Market Disruption Event...................................................PS-14
Notes......................................................................PS-1
Pricing Date...............................................................PS-3
Redemption Amount..........................................................PS-4
Starting Value.............................................................PS-4
successor index...........................................................PS-15
Underlying Stocks..........................................................PS-3
PS-25
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[LOGO OMITTED]]
15,350,000 Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
Accelerated Return Notes(R)
Linked to the Nikkei 225(R) Index
due August 6, 2007
(the "Notes")
$10 original public offering price per unit
-----------------------
PRICING SUPPLEMENT
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Merrill Lynch & Co.
June 1, 2006
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