Subject to Completion
Preliminary Pricing supplement dated June 12, 2006
PRICING SUPPLEMENT
- ----------------------------------
(To MTN prospectus supplement,
general prospectus supplement and
prospectus, each dated March 31, 2006)
Pricing Supplement Number:
(Logo Omitted)
Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
Strategic Return Notes(R)
Linked to the Value 30 Index
due July , 2011
(the "Notes")
$10 original public offering price per unit
----------------------------
The Notes:
o The Notes are designed for o The settlement date for the Notes
investors who are willing to forego is expected to be July , 2006.
interest payments on the Notes in
exchange for the ability to Payment on the maturity date or
participate in changes in the level upon exchange:
of the Value 30 Index (the "Index")
over the term of the Notes. o The amount you receive on the
o There will be no payments prior to maturity date or upon exchange
the maturity date unless exchanged will be based on the direction of
at your option for a cash payment and percentage change in the level
during a specified period in June of the Index, which includes a
of each year from 2007 through 2010 reduction by an annual index
as described in this pricing adjustment factor of 1.5%, over
supplement. the term of the Notes.
o We have applied to have the Notes o The level of the Index must
listed on the American Stock increase by approximately 1% in
Exchange under the trading symbol order for you to receive at least
"MLV". If approval of this the $10 original public offering
application is granted, the Notes price per unit on the maturity
will be listed on the American date or upon exchange. If the level
Stock Exchange at the time of such of the Index has declined or has
approval. We make no nit increased sufficiently, you
representations, however, that the will receive less, and possibly
Notes will be listed, or, if significantly less, than the $10
listed, will remain listed for the original public offering price per
entire term of the Notes. unit.
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." The Notes will have the CUSIP
No. .
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 of this pricing supplement beginning on page PS-7 and page
S-3 in the accompanying MTN prospectus supplement.
-----------------------
Per unit Total
-------- -----
Public offering price(1)................................. $10.00 $
Underwriting fee(1)...................................... $.20 $
Proceeds, before expenses, to Merrill Lynch & Co., Inc... $9.90(2) $
(1) The public offering price and the underwriting fee for any single
transaction to purchase between 100,000 to 299,999 units will be
$9.95 per unit and $.15 per unit, respectively, and for any single
transaction to purchase 300,000 units or more will be $9.90 per unit
and $.10 per unit, respectively.
(2) $.10 per unit of the underwriting fee will be paid to the
underwriter by a subsidiary of Merrill Lynch & Co., Inc. For a
description of this payment, please see the section entitled
"Supplemental Plan of Distribution" in this pricing supplement.
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 , 2006.
"Strategic Return Notes" is a registered mark of Merrill Lynch & Co., Inc.
"Standard & Poor's(R)", "Standard & Poor's 500(R)", "S&P 500(R)" and "S&P(R)"
are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for
use by Merrill Lynch, Pierce, Fenner & Smith Incorporated. Merrill Lynch &
Co., Inc. is an authorized sublicensee. The Global Industry Classification
Standard (GICS(R)) was developed by and is the exclusive property and a
trademark of Standard & Poor's and Morgan Stanley Capital International Inc.
TABLE OF CONTENTS
Pricing Supplement
Page
----
SUMMARY INFORMATION--Q&A............................................... PS-3
RISK FACTORS........................................................... PS-7
DESCRIPTION OF THE NOTES............................................... PS-10
THE INDEX.............................................................. PS-15
UNITED STATES FEDERAL INCOME TAXATION.................................. PS-21
ERISA CONSIDERATIONS................................................... PS-24
USE OF PROCEEDS AND HEDGING............................................ PS-25
SUPPLEMENTAL PLAN OF DISTRIBUTION...................................... PS-25
EXPERTS................................................................ PS-25
INDEX OF CERTAIN DEFINED TERMS......................................... PS-26
Medium-Term Notes, Series C Prospectus Supplement
(the "MTN prospectus supplement")
Page
----
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")
Page
----
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
Page
----
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 Strategic Return Notes(R) Linked to the Value 30 Index due July
, 2011 (the "Notes"). 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 Notes, the Value 30 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" sections in this pricing supplement and the
accompanying MTN prospectus supplement, which highlight 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 July , 2011, unless exchanged by
you as described in this pricing supplement. We will not make any payments on
the Notes until the maturity date or upon exchange. Depending on the date the
Notes are priced for initial sale to the public (the "Pricing Date"), which
may be in June or July, the settlement date may occur in June instead of July
and the maturity date may occur in June instead of July. Any reference in this
pricing supplement to the month in which the settlement date or maturity date
will occur is subject to change as specified above.
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 of principal. 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 will be calculated and disseminated by the American Stock
Exchange (the "AMEX") under the index symbol "MVW". The Index is an index
which reflects the price changes and dividends of the 30 stocks having the
highest dividend yield (the "Underlying Stocks") from a group of the 300 most
liquid stocks in the S&P 500 Index (the "S&P 500"), less an annual index
adjustment factor of 1.5% applied daily (the "Index Adjustment Factor"). The
Index will be reconstituted on the third Friday of June of each year (each
date an "Anniversary Date"), or, under certain circumstances, on a day shortly
after the Anniversary Date, as described in this pricing supplement. The Index
will be set to 100 on the Pricing Date. For more specific information about
the Index, its reconstitution, and the Index Adjustment Factor, please see the
section entitled "The Index" in this pricing supplement.
The Notes are debt obligations of ML&Co. and an investment in the Notes
does not entitle you to any ownership interest in the Underlying Stocks.
How has the Index performed historically?
The Index will not exist prior to the Pricing Date. However, we have
included a table and a graph showing the hypothetical historical month-end
closing levels of the Index from June 2001 through May 2006 based on
historical levels of the Underlying Stocks, historical dividends on the
Underlying Stocks, an Index Adjustment Factor of 1.5% and an Index level of
100 on June 29, 2001. These hypothetical closing levels have been calculated
on the same basis that the Index will be calculated. For further details on
the calculation of these hypothetical levels, please refer to the section
entitled "The Index--Hypothetical Historical Data on the Index" in this
prospectus supplement.
We have provided this hypothetical historical information to help you
evaluate the behavior of the Index in various economic environments; however,
this information is not necessarily indicative of how the Index will perform
in the future.
PS-3
What will I receive on the maturity date of the Notes?
On the maturity date, if you have not previously exchanged your Notes,
you will receive a cash payment per unit equal to the Redemption Amount.
The "Redemption Amount" to which you will be entitled will depend on the
percentage change in the level of the Index over the term of the Notes and
will equal:
( Ending Value )
$9.90 X ( ----------------- )
( Starting Value )
Because the quotient of the Ending Value and the Starting Value will be
multiplied by $9.90, the level of the Index will need to increase by
approximately 1% in order for you to receive a Redemption Amount equal to or
greater than the $10 original public offering price per unit. If the Ending
Value does not exceed the Starting Value by more than approximately 1%, you
will receive less, and possibly significantly less, than the $10 original
public offering price per unit.
The "Starting Value" will be set to 100 on the Pricing Date.
For purposes of determining the Redemption Amount, the "Ending Value"
means the average of the levels of the Index at the close of the market on
five index 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 an Underlying Stock or
certain futures or options contracts relating to an Underlying Stock.
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 Exchange Amount following the exercise of your exchange option or
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, in exchange for the ability to participate in changes in the level
of the Index over the term of the Notes.
How does the exchange feature work?
You may elect to exchange all or a portion of your Notes during a
specified period in the month of June of each year from 2007 through 2010 by
giving notice to the depositary or trustee of the Notes, as the case may be,
as described in this pricing supplement. Upon exchange, you will receive a
cash payment per unit (the "Exchange Amount") equal to the Redemption Amount,
calculated as if the exchange date were the stated maturity date, except that
the Ending Value will be equal to the closing level of the Index on the
exchange date. The Exchange Amount will be paid three banking business days
following the exchange date. If you elect to exchange your Notes, you will
receive only the Exchange Amount and you will not receive the Redemption
Amount on the maturity date. The Exchange Amount you receive may be greater
than or less than the Redemption Amount on the maturity date depending upon
the performance of the Index during the period from the exchange date until
the maturity date.
For more specific information about the exchange feature, please see the
section entitled "Description of the Notes--Exchange of the Notes Prior to the
Maturity Date" in this pricing supplement.
What are the costs associated with an investment in the Notes?
Your return will reflect the deduction of the following costs over the
term of the Notes:
Index Adjustment Factor. The level of the Index will reflect a 1.5%
annual reduction that will be applied and accrue daily on the basis of a
365-day year to the benefit of MLPF&S as calculation agent. As a result of the
cumulative effect on this deduction, the levels of the Index used to calculate
the Redemption Amount during the five index business days shortly before the
stated maturity date will be approximately 7.23% less than the level of the
Index had the Index Adjustment Factor not been applied.
Sales Charge. Because the quotient of the Ending Value and the Starting
Value will be multiplied by $9.90 in order to determine the Redemption Amount
or Exchange Amount, the level of the Index must increase by approximately 1%
or more from the Starting Value for you to receive an amount equal to or
greater than the $10 original offering price per unit. This is analogous to
paying a sales charge of approximately 1% per unit of the Notes.
PS-4
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Examples
Set forth below are two examples of Redemption Amount calculations:
Example 1 -- The hypothetical Ending Value is 40% below the Starting Value:
Starting Value: 100.00
Hypothetical Ending Value: 60.00
( 60.00 )
Redemption Amount (per Unit) = $9.90 X ( ----------- ) = $5.94
( 100.00 )
Example 2 -- The hypothetical Ending Value is 40% above the Starting Value:
Starting Value: 140.00
Hypothetical Ending Value: 100.00
( 140.00 )
Redemption Amount (per Unit) = $9.90 X ( ----------- ) = $13.86
( 100.00 )
- -------------------------------------------------------------------------------
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 securities exchange?
We have applied to have the Notes listed on the American Stock Exchange
(the "AMEX") under the trading symbol "MLV". If approval of this application
is granted, the Notes will be listed on the AMEX at the time of such approval.
We make no representation, however, that the Notes will be listed on the AMEX,
or, if listed, will remain listed for the entire term of the Notes. In any
event, you should be aware that the listing of the Notes on the 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.
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, a number of factors are taken into account.
Among these factors are certain costs associated with creating, hedging and
offering the Notes. In structuring the economic terms of the Notes, we seek to
provide investors with what we believe to be commercially reasonable terms and
to provide MLPF&S with compensation for its services in developing the Notes.
If you sell your Notes prior to the stated maturity date, you will
receive a price determined by market conditions for the Notes. This price may
be influenced by many factors, such as interest rates, volatility and the
current levels 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
other costs associated with the Notes, including compensation for developing
and hedging the product. Depending on the impact of these factors, you may
receive significantly less than the $10 original public offering price per
unit of your Notes if sold before the stated maturity date.
In a situation where there had been no movement in the level of the
Index and no changes in the market conditions from those existing on the date
of this pricing supplement, the price, if any, at which you could sell your
Notes in a secondary market transaction is expected to be lower than the $10
original public offering price per unit. This is due to, among other things,
our costs of developing, hedging and distributing the Notes. Any
PS-5
potential purchasers for your Notes in the secondary market are unlikely to
consider these factors.
What is the role of MLPF&S?
Our subsidiary MLPF&S is the underwriter for the offering and sale of
the Notes. After the initial offering, MLPF&S intends to buy and sell Notes to
create a secondary market for holders of the Notes, and may stabilize or
maintain the market price of the Notes during their initial distribution.
However, MLPF&S will 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, Redemption Amount and Exchange Amounts. 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 or upon exchange. The payment on the Notes you receive will
depend on the change in the level of the Index. Because the level of the Index
is subject to market fluctuations, the payment on the Notes you receive may be
more or less than the $10 original public offering price per unit of the
Notes. In addition, because the quotient of the Ending Value and the Starting
Value will be multiplied by $9.90, the level of the Index will need to
increase by more than approximately 1% in order for you to receive a
Redemption Amount equal to or greater than the $10 original public offering
price per unit. If the level of the Index declines or does not increase
sufficiently, you will receive less, and possibly significantly less than the
$10 original public offering price per unit. The level of the Index will also
reflect the deduction of the 1.5% per annum Index Adjustment Factor.
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
level because of the expectation that the level of the Index will continue to
fluctuate until the Ending Value is determined. Additionally, because the
trading value and perhaps final return on your Notes is dependent on factors
in addition to the level of the Index, such as our credit rating, an increase
in the level of the Index will not reduce the other investment risks related
to 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 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.
Your yield, which could be negative, may be lower than the yield on other debt
securities of comparable maturity
The yield that you will receive on your Notes, which could be negative,
may be less than the return you could earn on other investments. Your yield
may be less than the yield you would earn if you bought a traditional interest
bearing debt security of ML&Co. with the same stated maturity date. Your
investment may not reflect the full opportunity cost to you when you take into
account factors that affect the time value of money. Unlike traditional
interest bearing debt securities, the Notes do not guarantee the return of a
principal amount on the maturity date.
You must rely on your own evaluation of the merits of an investment linked to
the Value 30 Index
In the ordinary course of their businesses, affiliates of ML&Co. may
express views on expected movements in the Underlying Stocks and these views
are sometimes communicated to clients who participate in these shares.
However, these views are subject to change from time to time. For these
reasons, you are encouraged to derive information concerning the Underlying
Stocks from multiple sources and should not rely on the views expressed by
affiliates of ML&Co.
Your return will not reflect the return of owning the Underlying Stocks
While the Index reflects the payment of dividends on the Underlying
Stocks as described in more detail below, the yield to the maturity date of
the Notes will not produce the same yield as that of other investments with
the same term which are based solely on the performance of the Underlying
Stocks. At the end of each quarterly period, the dividends paid on the
Underlying Stocks will be incorporated into the Index and those amounts will
then be subject to the change in the level of the Index. The level of the
Index will also reflect the deductions and charges described above under
"--Your investment may result in a loss", which will result in the return on
an investment in the Notes being less than the return on a similar investment
in the Underlying Stocks. The trading value of the Notes and final return on
the Notes may also differ from the results of the Index for the reasons
described above under "--Changes in our credit ratings may affect the trading
value of the Notes".
PS-7
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
We have applied to have the Notes listed on the AMEX under the trading
symbol "MLV". If approval of this application is granted, the Notes will be
listed on the AMEX at the time of such approval. We make no representation,
however, that the Notes will be listed on the AMEX, or, if listed, will remain
listed for the entire term of the Notes. In any event, you should be aware
that the listing of the Notes on the AMEX does not ensure that a trading
market will develop for the Notes. While there have been a number of issuances
of series of Strategic Return Notes, trading volumes have varied historically
from one series to another and it is therefore impossible to predict how the
Notes will trade. 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 which may affect the price you receive if you
do not wish to hold your investment until the stated maturity date.
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 the factors that
we considered in setting the economic terms of the Notes, namely the
underwriting discount paid in respect of the Notes and other costs associated
with the Notes, including compensation for developing and hedging the product.
This quoted price could be higher or lower than the original public offering
price. MLPF&S is not obligated to make a market in the Notes.
Assuming there is no change in the level of the Index and no change in
market conditions or any other relevant factors, the price 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 $10
original public offering price per unit. This is due to, among other things,
the fact that the $10 original public offering price 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 Notes.
Amounts payable on the Notes may be limited by state law
New York State law governs the 1983 Indenture under which the Notes will
be issued. New York has usury laws that limit the amount of interest that can
be charged and paid on loans, which includes debt securities like the Notes.
Under present New York law, the maximum rate of interest is 25% per annum on a
simple interest basis. This limit may not apply to debt securities in which
$2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state or
federal court sitting outside of New York, many other states also have laws
that regulate the amount of interest that may be charged to and paid by a
borrower. We will promise, for the benefit of the holders of the Notes, to the
extent permitted by law, not to voluntarily claim the benefits of any laws
concerning usurious rates of interest.
Purchases and sales by us and our affiliates may affect your return
We and our affiliates may from time to time buy or sell the Underlying
Stocks or futures or option contracts on the Underlying Stocks or 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 the Underlying Stocks and, in turn, the
level of the Index in a manner that would be adverse to your investment in the
Notes. Any purchases 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
the Underlying Stocks may also occur as a result of the purchasing activities
of other market participants. Consequently, the prices of the Underlying
Stocks may change subsequent to the Pricing Date, affecting the level of the
Index and therefore the trading value of the Notes.
Potential conflicts
Our subsidiary MLPF&S is our agent for the purposes of calculating the
Ending Value, Redemption Amount and Exchange Amounts. 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
PS-8
reasonable judgment. However, because we control MLPF&S, potential conflicts
of interest could arise. MLPF&S, the underwriter, will pay an additional
amount on each anniversary of the Pricing Date in 2007 through 2010 to brokers
whose clients purchased their units in the initial distribution and continue
to hold the Notes. In addition, MLPF&S may from time to time pay additional
amounts to brokers whose clients purchased Notes in the secondary market and
continue to hold the Notes. As a result of these payments, your broker will
receive a financial benefit each year you retain your investment in the Notes.
Please see the section entitled "Supplemental Plan of Distribution" in this
pricing supplement.
We expect to enter into arrangements to hedge the market risks
associated with our obligation to pay the Redemption Amount or Exchange
Amount, as applicable. 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
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 the Index 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-9
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. Unless exchanged by you, the Notes will mature on July , 2011.
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 .
While on the maturity date or upon exchange a holder of a Note will
receive an amount equal to the Redemption Amount or the Exchange Amount, as
the case may be, there will be no other payment of interest, periodic or
otherwise. See the section entitled "--Payment on the Maturity Date" and
"--Exchange of the Notes Prior to the Maturity Date" in this pricing
supplement.
The Notes may be exchanged by you prior to the maturity date on the
dates indicated below, but are not subject to repayment by ML&Co. prior to 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
Unless you have exchanged your Notes prior to 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:
( Ending Value )
$9.90 x ( ----------------- )
( Starting Value )
The "Starting Value" will be set to 100 on the Pricing Date.
For the purpose of determining the Redemption Amount, the "Ending Value"
will be determined by the calculation agent and will equal the average of the
closing levels of the Index determined on each of the five Calculation Days
during the Calculation Period. If there are fewer than five Calculation Days
during the Calculation Period, then the Ending Value will equal the average of
the closing levels of the 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 (or, if not determinable,
estimated by the Calculation Agent in a manner which it considers commercially
reasonable under the circumstances) on the last scheduled Index Business Day
in the Calculation Period, regardless of the occurrence of a Market Disruption
Event (as described below under "--Adjustments to the Index; Market Disruption
Events") on that scheduled Index Business Day.
The "Calculation Period" means the period from and including the seventh
scheduled Index Business Day before the maturity date to and including the
second scheduled Index Business Day before the maturity date.
A "Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
An "Index Business Day" means a day on which the 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 is calculated and published.
PS-10
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.
Exchange of the Notes Prior to the Maturity Date
You may elect to exchange all or a portion of the Notes you own during
any Banking Business Day that occurs in an Exchange Notice Period by giving
notice as described below. An "Exchange Notice Period" means the period from
and including the first calendar day of the month of June to and including
12:00 noon in The City of New York on the fifteenth calendar day during the
month of June in the years 2007, 2008, 2009 and 2010. If the fifteenth
calendar day of the applicable month of June is not a Banking Business Day,
then the Exchange Notice Period will be extended to 12:00 noon in The City of
New York on the next succeeding Banking Business Day. The amount of the cash
payment you receive upon exchange (the "Exchange Amount") will be equal to the
Redemption Amount, calculated as if the Exchange Date were the stated maturity
date, except that the Ending Value will be equal to the closing level of the
Index on the Exchange Date. An "Exchange Date" will be the third Index
Business Day following the end of the applicable Exchange Notice Period. If a
Market Disruption Event occurs on the third Index Business Day following an
Exchange Notice Period, the Exchange Date for that year will be the next
succeeding Index Business Day on which a Market Disruption Event does not
occur. The Exchange Amount will be paid three Banking Business Days after the
Exchange Date.
The Notes will be issued in registered global form and will remain on
deposit with the depositary as described in the section entitled "Description
of Debt Securities--Depositary" in the accompanying general prospectus
supplement. Therefore, you must exercise the option to exchange your Notes
through the depositary. To make your exchange election effective, you must
make certain that your notice is delivered to the depositary during the
applicable Exchange Notice Period. To ensure that the depositary will receive
timely notice of your election to exchange all or a portion of your Notes, you
must instruct the direct or indirect participant through which you hold an
interest in the Notes to notify the depositary of your election to exchange
your Notes prior to 12:00 noon in The City of New York on the last Index
Business Day of the applicable Exchange Notice Period, in accordance with the
then applicable operating procedures of the depositary. Different firms have
different deadlines for accepting instructions from their customers. You
should consult the direct or indirect participant through which you hold an
interest in the Notes to ascertain the deadline for ensuring that timely
notice will be delivered to the depositary.
If at any time the global securities are exchanged for Notes in
definitive form, from and after that time, notice of your election to exchange
must be delivered to JPMorgan Chase Bank, N.A., as trustee under the 1983
Indenture, through the procedures required by the trustee by 12:00 noon in The
City of New York on the last day of the applicable Exchange Notice Period.
A "Banking Business Day" means any day other than a Saturday or Sunday
that is not a day on which banking institutions in The City of New York are
authorized or required by law, regulation or executive order to close.
PS-11
Hypothetical Returns
The following tables illustrate for the hypothetical Starting Value and
a range of hypothetical Ending Values of the Index:
o the total amount payable on the maturity date of the Notes, and the
total amount payable on an investment in the Underlying Stocks;
o the total rate of return to holders of the Notes, and the total rate
of return on an investment in the Underlying Stocks; and
o the pretax annualized rate of return to holders of the Notes, and
the pretax annualized rate of return on an investment in the
Underlying Stocks.
The tables assume an initial investment of $10 in the Notes and an
initial investment of $10 in the Underlying Stocks.
Hypothetical Returns Related to Strategic Return Notes Hypothetical Returns Related to an Investment
Based on the Index in the Underlying Stocks
- --------------------------------------------------------------- ------------------------------------------------------------------
Hypothetical
Ending Pretax
Pretax Value of an Total Annualized
Hypothetical Total amount annualized Investment Total amount rate of rate of
Ending payable on Total rate of rate of in the payable on return on return on
Value of the maturity return on return on Underlying the maturity the Underlying the Underlying
the Index date per unit(1) the Notes the Notes(2) Stocks(3) date per unit Stocks Stocks
- ------------ ---------------- ------------- ------------ ------------- -------------- -------------- --------------
20.00 1.98 -80.20% -29.89% 21.56 2.16 -78.44% -28.44%
40.00 3.96 -60.40% -17.69% 43.12 4.31 -56.88% -16.13%
60.00 5.94 -40.60% -10.15% 64.68 6.47 -35.32% -8.52%
80.00 7.92 -20.80% -4.61% 86.23 8.62 -13.77% -2.94%
90.00 8.91 -10.90% -2.29% 97.01 9.70 -2.99% -0.61%
100.00(4) 9.90 -1.00% -0.20% 107.79 10.78 7.79% 1.51%
120.00 11.88 18.80% 3.47% 129.35 12.94 29.35% 5.21%
140.00 13.86 38.60% 6.63% 150.91 15.09 50.91% 8.40%
160.00 15.84 58.40% 9.41% 172.47 17.25 72.47% 11.20%
180.00 17.82 78.20% 11.89% 194.03 19.40 94.03% 13.70%
200.00 19.80 98.00% 14.13% 215.59 21.56 115.59% 15.96%
- ------------------
(1) The amounts specified in this column reflect the 1% sales charge that
will be paid to MLPF&S.
(2) The annualized rates of return specified in this column are calculated on
a semi-annual bond equivalent basis and assume an investment term from
June 7, 2006 to June 7, 2011, a term expected to be equal to that of the
Notes.
(3) An investment in the Underlying Stocks is assumed to be equivalent to an
investment in the Index, including the method and timing of reinvesting
dividends, except that the Index will be reduced daily by the pro rata
portion of the annual Index Adjustment Factor of 1.5%. The hypothetical
investment in the Underlying Stocks presented in this column does not
take into account transaction costs and taxes.
(4) This will be the Starting Value.
The above figures are for purposes of illustration only. The actual
amount received by you and the resulting total and pretax annualized rates of
return will depend on the actual Ending Value and term of your investment.
PS-12
Adjustments to the Index; Market Disruption Events
If at any time the AMEX 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 those adjustments as, in the good faith
judgment of the calculation agent, may be necessary in order to arrive at a
calculation of a level of an 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, 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.
"Market Disruption Event" means either of the following events as
determined by the calculation agent:
(A) the suspension of or material limitation on trading for more
than two hours of trading, or during the one-half hour
period preceding the close of trading, on the applicable
exchange (without taking into account any extended or
after-hours trading session), in 20% or more of the
Underlying Stocks; or
(B) the suspension of or material limitation on trading for more
than two hours of trading, or during the one-half hour
period preceding the close of trading, on the applicable
exchange (without taking into account any extended or
after-hours trading session), whether by reason of movements
in price otherwise exceeding levels permitted by the
applicable exchange or otherwise, in option contracts or
futures contracts related to one or more of the Underlying
Stocks, the Index, or any successor index to the Index,
which are traded on any major United States exchange.
For the purpose of determining whether a Market Disruption Event has
occurred:
(1) a limitation on the hours in a trading day and/or number of
days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular
business hours of the applicable exchange;
(2) a suspension in trading in a futures or option contract on a
stock which is then included in the Index by a major
securities market by reason of (a) a price change violating
limits set by that securities market, (b) an imbalance of
orders relating to those contracts or (c) a disparity in bid
and ask quotes relating to those contracts, will constitute
a suspension of or material limitation on trading in futures
or option contracts related to that stock;
(3) a suspension of or material limitation on trading on the
applicable exchange will not include any time when that
exchange is closed for trading under ordinary circumstances;
and
(4) for the purpose of clause (A) above, any limitations on
trading during significant market fluctuations under NYSE
Rule 80B, or any applicable rule or regulation enacted or
promulgated by the NYSE or any other self regulatory
organization or the Securities and Exchange Commission of
similar scope as determined by the calculation agent, will
be considered "material".
The occurrence of a Market Disruption Event could affect the
calculation of the payment on the maturity date or upon exchange you will
receive. See "--Payment on the Maturity Date" and "--Exchange of the Notes
Prior to the Maturity Date" in this pricing supplement.
PS-13
Discontinuance of the Index
If the AMEX discontinues publication of the Index and the AMEX 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 the AMEX or any other entity for the
Index and calculate the Ending Value as described above under "--Payment at
Maturity" or "--Exchange of the Notes Prior to the Maturity Date", as
applicable. 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 the AMEX 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 the AMEX 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; or
o a determination by the calculation agent that a successor index is
available,
the calculation agent will determine the value that would be used in computing
the Redemption Amount as described in the preceding paragraph as if that day
were a Calculation Day. The calculation agent will cause notice of each value
to be published not less often than once each month in The Wall Street Journal
or another newspaper of general circulation and arrange for information with
respect to these values to be made available by telephone.
Notwithstanding these alternative arrangements, discontinuance of the
publication of the Index may adversely affect trading in the Notes.
A "Business Day" means any day on which the NYSE, the AMEX and the
Nasdaq are open for trading.
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, if any, 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 at their stated
maturity date or upon exchange or 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 interest
is legally enforceable on the unpaid amount due and payable on that date in
accordance with the terms of the Notes to the date payment of that amount has
been made or duly provided for.
PS-14
THE INDEX
The level of the Index will be calculated and disseminated by the AMEX
under the symbol "MVW". On any Index Business Day, the level of the Index
equals (i) the sum of the products of the current market price for each of the
Underlying Stocks and the applicable share multiplier (the sum equals the "30
Portfolio Value"), plus (ii) an amount reflecting Current Quarter Dividends
(as defined below), and less (iii) a pro rata portion of the annual Index
Adjustment Factor. The Index Adjustment Factor is 1.5% per annum and reduces
the level of the Index each day by the pro rata amount. The AMEX will
generally calculate and disseminate the level of the Index based on the most
recently reported prices of the Underlying Stocks (as reported by the exchange
or trading system on which the Underlying Stocks are listed or traded), at
approximately 15-second intervals during the AMEX's business hours and at the
end of each Index Business Day via the Consolidated Tape Association's Network
B.
Initial Determination of Value 30 Portfolio
At any time the "Value 30 Portfolio" will consist of the then current
Underlying Stocks. The initial Underlying Stocks in the Value 30 Portfolio
will be determined by the AMEX to be the Value 30 Stocks having the highest
Dividend Yield on June 16, 2006 of the 300 most liquid stocks in the S&P 500
Index. A "Value 30 Stock" is any stock determined as set forth below:
First, the AMEX will identify the stocks which comprise the S&P 500 on
the applicable constitution or reconstitution date by inquiry to Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P") or through other
publicly available sources. Even if included in the S&P 500, ML&Co.'s common
stock will be ineligible for inclusion in the Value 30 Stocks.
Second, the AMEX will determine the 300 most liquid stocks from the
stocks identified above based on the one year Average Daily Traded Value in
the year prior to the applicable constitution or reconstitution date. The
"Average Daily Traded Value" is the product of the average volume of a stock
traded in the prior year and the average price of that stock in the prior
year.
Third, the AMEX will identify at least 75 of the highest ranked stocks
from the stocks identified above based upon the S&P Common Stock Rankings for
each of those stocks. The AMEX will include those stocks which have an S&P
Common Stock Ranking of "A+", "A" or "A-". If there are less than 75 of those
stocks with a ranking of "A+", "A" or "A-", then the AMEX will include those
stocks which have an S&P Common Stock Ranking of "B+". This process will be
repeated for each ranking in descending order through the ranking of "C" until
the AMEX has identified at least 75 or more of those stocks. If there are less
than 75 of those stocks with a ranking of "C" or higher, the AMEX will
determine the highest Dividend Yield for all 300 most liquid stocks and select
the Value 30 Stocks according to their classification in the Global Industry
Classification Standard ("GICS"), all as described below, without regard to
their S&P Common Stock Ranking.
The "S&P Common Stock Ranking" is determined by a computerized scoring
system that measures growth and stability of earnings and dividends over the
most recent ten-year period. Those companies with high growth in earnings and
dividends rank higher than companies whose earnings and dividends grow more
slowly or not at all. The system has seven ranks: A+, A and A- are above
average; B+ is average; and B, B- and C are below average. An NR designation
(no ranking) is given to stocks with insufficient historical data or because
the stock is not amenable to the ranking process. In addition, as a matter of
policy, S&P does not rank the stock of foreign companies, investment companies
and certain finance-oriented companies. A designation of D signifies a company
in reorganization. An S&P Common Stock Ranking is not a recommendation to buy
or sell the stock of any company and should not be confused with credit
ratings.
Fourth, the AMEX will then sort each of those stocks identified above by
its GICS classification. Any stock that is not assigned to a GICS
classification will be ineligible for inclusion in the Value 30 Stocks. Once
those stocks have been sorted by its GICS classification, those stocks will be
ordered based upon their Dividend Yield, from highest to lowest within each
GICS classification.
Finally, the AMEX will then determine the Value 30 Stocks by identifying
the stock with the highest Dividend Yield from each GICS classification in the
following order: Energy; Materials; Industrials; Consumer Discretionary;
Consumer Staples; Health Care; Financials; Information Technology;
Telecommunication Services; and Utilities. Once the AMEX has identified a
stock from a GICS classification, the AMEX will identify another stock from
the next GICS classification in the order above, beginning again at the top of
the order when necessary. If there are no stocks in a GICS classification from
which the next Value 30 Stock is to be identified, the AMEX will identify from
the next GICS classification in the order in
PS-15
which a stock is available, beginning again at the top of order when
necessary. The AMEX will repeat this identification process until 30 stocks
are identified for inclusion in the Value 30 Stocks.
"Dividend Yield" for each common stock is determined by annualizing the
last quarterly or semi-annual ordinary cash dividend for which the ex-dividend
date has occurred, excluding any extraordinary dividend, and dividing the
result by the last available sale price for each stock on its primary exchange
on the date that Dividend Yield is to be determined.
The AMEX may at its discretion make adjustments to the identification
criteria above for the purpose of maintaining the Value 30 Stocks if certain
actions by or affecting S&P, such as the discontinuance of the publication of
the S&P 500, the S&P Common Stock Ranking System or the GICS, occurs. These
adjustments may include the selection of a successor or substitute compilation
of common stocks intended to be a model for the composition of the total
market, a successor or substitute ranking system or successor or substitute
industry classification system for the S&P 500, the S&P Common Stock Ranking
System and the GICS, respectively.
The table below lists the stocks which would be included in the Index
based on a hypothetical constitution date of June 17, 2005, the third Friday
in June of 2005.
- -----------------------------------------------------------------------------------------------
Hypothetical
Company Ticker Dividend Yield(1) Share Multiplier(2)
- -----------------------------------------------------------------------------------------------
Albertson's Inc ABS 2.961 0.203699203
Abbott Laboratories ABT 2.730 0.086490701
Automatic Data Processing Inc ADP 1.607 0.100502046
Bank of America Corp BAC 4.107 0.092638510
BellSouth Corp BLS 3.331 0.158710472
Bristol-Myers Squibb Co BMY 4.453 0.169235242
Burlington Northern Santa Fe Corp BNI 1.028 0.089131795
Citigroup Inc C 3.933 0.091322723
ConAgra Foods Inc CAG 3.168 0.182569991
Carnival Corp CCL 2.493 0.077550997
FPL Group Inc FPL 3.727 0.100385166
General Electric Co GE 2.894 0.121897636
Home Depot Inc HD 1.556 0.108499779
Harley-Davidson Inc HDI 1.663 0.085116551
Hewlett-Packard Co HPQ 0.987 0.178882887
H&R Block Inc HRB 2.206 0.145463567
Intel Corp INTC 2.217 0.162764025
Masco Corp MAS 2.795 0.133040020
McDonald's Corp MCD 1.989 0.151663063
3M Co MMM 2.177 0.058366067
Altria Group Inc MO 4.419 0.065170923
Merck & Co Inc MRK 4.497 0.137092940
National City Corp NCC 3.950 0.123795158
Paychex Inc PAYX 1.699 0.129460687
Pfizer Inc PFE 4.017 0.153535952
Sara Lee Corp SLE 4.522 0.213475604
Southern Co/The SO 4.845 0.121845258
United Technologies Corp UTX 1.677 0.082136415
Washington Mutual Inc WM 4.389 0.103741204
Exxon Mobil Corp XOM 2.095 0.073435050
- -----------------------------------------------------------------------------------------------
- --------------------------
(1) Determined as of June 6, 2006, the hypothetical Pricing Date.
(2) As of March 31, 2006.
The "Share Multipliers" will be determined by the AMEX on the Pricing
Date. Each Share Multiplier will be calculated to equal the number of shares
of that Underlying Stock, or portion thereof, based upon the closing market
price of that stock on the Pricing Date, so that each Underlying Stock
represents approximately an equal percentage of the Index at the close of
business on the Pricing Date. Each Share Multiplier will remain constant until
adjusted for certain corporate events, quarterly dividend adjustments or the
annual reconstitutions as described below.
PS-16
Annual Value 30 Portfolio Reconstitutions
As of the close of business on the last Business Day in June of each
year through 2011, the Value 30 Portfolio shall be reconstituted to include
the Value 30 Stocks in the S&P Industrial Index having the highest Dividend
Yield (the "New Stocks") on each Anniversary Date (the "Annual Determination
Date"). "Anniversary Date" shall mean the third Friday in June of each year;
provided, however, that if the date is not an Index Business Day or a Market
Disruption Event occurs on that date, then the Anniversary Date for that year
shall mean the immediately succeeding Index Business Day on which a Market
Disruption Event does not occur. The AMEX will only add a stock having
characteristics as of the applicable Annual Determination Date that will
permit the Index to remain within the criteria specified in the rules of the
AMEX and within the applicable rules of the SEC. The criteria and rules will
apply only on an Annual Determination Date to exclude a proposed New Stock. If
a proposed New Stock does not meet these criteria or rules, the AMEX will
replace it with the Value 30 Stock with the next highest Dividend Yield which
meets the rules and criteria. These criteria currently provide, among other
things, (1) that each component stock must have a minimum market value of at
least $75 million, except that up to 10% of the component securities in the
Index may have a market value of $50 million; (2) that each component stock
must have an average monthly trading volume in the preceding six months of not
less than 1,000,000 shares, except that up to 10% of the Underlying Stocks may
have an average monthly trading volume of 500,000 shares or more in the last
six months; (3) 90% of the Index's numerical index value and at least 80% of
the total number of component stocks will meet the then current criteria for
standardized option trading set forth in the rules of the AMEX and (4) all
component stocks will either be listed on the AMEX, the NYSE, or traded
through the facilities of the National Association of Securities Dealers
Automated Quotation System and reported as National Market System Securities.
The AMEX will recalculate the Share Multipliers on the last Business Day
of June of each year beginning 2007. Each Share Multiplier will be calculated
to equal the number of shares of the New Stock, or portion thereof, based upon
the closing market price of that stock on the Anniversary Date, so that each
New Stock represents approximately an equal percentage of the Index at the
close of business on the Anniversary Date. As an example, if the Index in
effect at the close of business on an Anniversary Date equaled 150, then each
of the thirty New Stocks would be allocated a portion of the value of the
Index equal to 5 and if, the closing market price of a New Stock on the
Anniversary Date was 20, the applicable Share Multiplier would be 0.25. If the
Index equaled 60, then each of the thirty New Stocks would be allocated a
portion of the value of the Index equal to 2 and if the closing market price
of a New Stock on the Anniversary Date was 20, the applicable Share Multiplier
would be 0.1.
Dividends
As described above, the level of the Index will include an amount
reflecting Current Quarter Dividends. "Current Quarter Dividends" for any day
will be determined by the AMEX and will equal the sum of the products for each
Underlying Stock of the cash dividend paid by an issuer on one share of stock
during the Current Quarter multiplied by the Share Multiplier applicable to
that stock on the ex-dividend date. "Current Quarter" shall mean the period
from and including the Pricing Date, to and including September 30, 2006, for
the initial period and thereafter, the calendar quarter containing the day for
which the applicable Current Quarter Dividends are being determined.
As of the first day of the start of each calendar quarter, the AMEX will
allocate the Current Quarter Dividends as of the end of the immediately
preceding calendar quarter to each then outstanding Underlying Stock. The
amount of the Current Quarter Dividends allocated to each Underlying Stock
will equal the percentage of the value of each Underlying Stock contained in
the Value 30 Portfolio relative to the value of the entire Value 30 Portfolio
based on the closing market price on the last Index Business Day in the
immediately preceding calendar quarter. The Share Multiplier of each
outstanding Underlying Stock will be increased to reflect the number of
shares, or portion of a share, that the amount of the Current Quarter Dividend
allocated to such Underlying Stock can purchase of each such Underlying Stock
based on the closing market price on the last Index Business Day in the
immediately preceding calendar quarter.
PS-17
Adjustments to the Share Multiplier and Value 30 Portfolio
The Share Multiplier for any Underlying Stock and the Value 30
Portfolio will be adjusted as follows:
1. If an Underlying Stock is subject to a stock split or reverse stock
split, then once the split has become effective, the Share Multiplier for that
Underlying Stock will be adjusted to equal the product of the number of shares
of that Underlying Stock issued in the split and the prior multiplier.
2. If an Underlying Stock is subject to a stock dividend, issuance of
additional shares of the Underlying Stock , that is given equally to all
holders of shares of the issuer of that Underlying Stock, then once the
dividend has become effective and that Underlying Stock is trading
ex-dividend, the Share Multiplier will be adjusted so that the new Share
Multiplier shall equal the former Share Multiplier plus the product of the
number of shares of that Underlying Stock issued with respect to one such
share of that Underlying Stock and the prior multiplier.
3. If a Value 30 Company is being liquidated or is subject to a
proceeding under any applicable bankruptcy, insolvency or other similar law,
that Underlying Stock will continue to be included in the Value 30 Portfolio
so long as a market price for that Underlying Stock is available. If a market
price is no longer available for an Underlying Stock for whatever reason,
including the liquidation of the issuer of the Underlying Stock or the
subjection of the issuer of the Underlying Stock to a proceeding under any
applicable bankruptcy, insolvency or other similar law, then the value of that
Underlying Stock will equal zero in connection with calculating the 30
Portfolio Value for so long as no market price is available, and no attempt
will be made to immediately find a replacement stock or increase the value of
the Value 30 Portfolio to compensate for the deletion of that Underlying
Stock. If a market price is no longer available for an Underlying Stock as
described above, the 30 Portfolio Value will be computed based on the
remaining Underlying Stocks for which market prices are available and no new
stock will be added to the Value 30 Portfolio until the annual reconstitution
of the Value 30 Portfolio. As a result, there may be periods during which the
Value 30 Portfolio contains fewer than thirty Underlying Stocks.
4. If a Value 30 Company has been subject to a merger or consolidation
and is not the surviving entity or is nationalized, then a value for that
Underlying Stock will be determined at the time the issuer is merged or
consolidated or nationalized and will equal the last available market price
for that Underlying Stock and that value will be constant until the Value 30
Portfolio is reconstituted. At that time, no adjustment will be made to the
Share Multiplier of the relevant Underlying Stock.
5. If a Value 30 Company issues to all of its shareholders equity
securities that are publicly traded of an issuer other than the Value 30
Company, or a tracking stock is issued by an Value 30 Company to all of its
shareholders, then the new equity securities will be added to the Value 30
Portfolio as a new Underlying Stock. The Share Multiplier for the new
Underlying Stock will equal the product of the original Share Multiplier with
respect to the Underlying Stock for which the new Underlying Stock is being
issued (the "Original 30 Stock") and the number of shares of the new
Underlying Stock issued with respect to one share of the Original 30 Stock.
No adjustments of any Share Multiplier of an Underlying Stock will be
required unless the adjustment would require a change of at least 1% in the
Share Multiplier then in effect. The Share Multiplier resulting from any of
the adjustments specified above will be rounded to the nearest ten-thousandth
with five hundred-thousandths being rounded upward.
The AMEX expects that no adjustments to the Share Multiplier of any
Underlying Stock or to the Value 30 Portfolio will be made other than those
specified above; however, the AMEX may at its discretion make adjustments to
maintain the value of the Index if certain events would otherwise alter the
value of the Index despite no change in the market prices of the Underlying
Stocks.
We have derived all information regarding the AMEX from publicly
available sources. Such information reflects the policies of, and is subject
to change without notice by, the AMEX. We make no representation or warranty
as to the accuracy or completeness or such information.
PS-18
Hypothetical Historical Data on the Index
The following chart sets forth the hypothetical month-end closing
levels of the Index from June 2001 through May 2006 based on historical levels
of the Underlying Stocks, historical dividends on the Underlying Stocks, an
Index Adjustment Factor of 1.5% and assuming an Index level of 100 on June 29,
2001. All hypothetical historical data presented in the following chart were
calculated by the AMEX. These hypothetical closing levels have been calculated
on the same basis that the Index will be calculated in the future. Any
historical upward or downward trend in the level of the Index during this
period 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....................................... 99.62 83.50 107.76 114.56 123.26
February...................................... 102.22 80.67 108.09 117.41 124.64
March......................................... 103.32 79.95 105.28 116.92 125.38
April......................................... 101.24 86.01 104.47 116.10 126.98
May........................................... 103.81 91.99 104.98 117.34 124.03
June.......................................... 100.00 97.31 94.05 107.31 117.04
July.......................................... 102.17 90.64 92.84 106.58 120.35
August........................................ 99.83 90.14 94.14 107.24 117.58
September..................................... 95.14 78.75 92.43 107.40 119.73
October....................................... 94.05 85.25 97.76 109.09 118.07
November...................................... 97.28 90.93 99.48 113.16 121.62
December...................................... 99.24 87.59 106.79 116.81 121.24
The following graph sets forth the historical performance of the Index
presented in the table above. Past movements of the Index are not necessarily
indicative of the future Index levels.
[GRAPHIC OMITTED]
PS-19
The S&P 500
S&P compiles the S&P 500, which is composed of common stocks of 500
companies as of a particular time. As of May 31, 2006, 425 companies or 86.3%
of the market capitalization of the S&P 500 traded on the NYSE and 75
companies or 13.7% of the market capitalization of the S&P 500 Index traded on
The Nasdaq Stock Market (the "Nasdaq"). S&P chooses these companies for
inclusion in the S&P 500 Index with the aim of achieving a distribution by
broad industry groupings that approximates the distribution of these groupings
in the common stock population of the Standard & Poor's Stock Guide Database,
which S&P uses as an assumed model for the composition of the total market.
Relevant criteria employed by S&P include the viability of the particular
company, the extent to which that company represents the industry group to
which it is assigned, the extent to which the market price of that company's
common stock is generally responsive to changes in the affairs of the
respective industry and the market value and trading activity of the common
stock of that company. Ten main groups of companies comprise the S&P 500 Index
with the percentage weight of the companies currently included in each group
indicated in parentheses: Consumer Discretionary (10.4%); Consumer Staples
(9.6%); Energy (9.9%); Financials (21.5%); Health Care (12.3%); Industrials
(11.8%); Information Technology (15.0%); Materials (3.1%); Telecommunication
Services (3.2%); and Utilities (3.3%). S&P may from time to time, in its sole
discretion, add companies to, or delete companies from, the S&P 500 and the
S&P 500 Index to achieve the objectives stated above.
License Agreement
S&P and MLPF&S have entered into a non-exclusive license agreement
providing for the license to MLPF&S, in exchange for a fee, of the right to
use certain intellectual property as well as trademarks and indices owned and
published by S&P in connection with some securities, including the Notes and
ML&Co. is an authorized sublicensee of MLPF&S.
The license agreement between S&P and MLPF&S provides that the
following language must be stated in this prospectus supplement:
"S&P, S&P 500 and Standard & Poor's are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by MLPF&S and ML&Co.
The Notes are not sponsored, endorsed, sold or promoted by Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). S&P makes no
representation or warranty, express or implied, to the holders of the Notes or
any member of the public regarding the advisability of investing in securities
generally or in the Notes particularly or the ability of the S&P 500 Index to
track general stock market performance. S&P's only relationship to MLPF&S and
ML&Co. (other than transactions entered into in the ordinary course of
business) is the licensing of certain trademarks and trade names of S&P and of
the S&P 500 Index which is determined, composed and calculated by S&P without
regard to ML&Co. or the Notes. S&P has no obligation to take the needs of
ML&Co. or the holders of the Notes into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for and has
not participated in the determination of the timing of the sale of the Notes,
prices at which the Notes are to initially be sold, or quantities of the Notes
to be issued or in the determination or calculation of the equation by which
the Notes are to be converted into cash. S&P has no obligation or liability in
connection with the administration, marketing or trading of the Notes.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
S&P 500 INDEX OR ANY DATA INCLUDED IN THE S&P 500 INDEX AND S&P SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY ML&CO., MLPF&S,
HOLDERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P
500 INDEX OR ANY DATA INCLUDED IN THE S&P 500 INDEX IN CONNECTION WITH THE
RIGHTS LICENSED UNDER THE LICENSE AGREEMENT DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR FOR ANY OTHER USE. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES,
AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA
INCLUDED IN THE S&P 500 INDEX. WITHOUT LIMITING ANY OF THE ABOVE INFORMATION,
IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT
OR CONSEQUENTIAL DAMAGE (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE
POSSIBILITY OF THESE DAMAGES."
All disclosures contained in this pricing supplement regarding the
S&P 500 Index, including its make-up, method of calculation and changes in its
components, are derived from publicly available information prepared by S&P.
ML&Co. and MLPF&S have not independently verified the accuracy or completeness
of that information.
PS-20
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 which is 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 U.S. federal income tax laws to their particular situations as
well as any consequences of the purchase, ownership and disposition of the
Notes arising under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a
Note that is for U.S. federal income tax purposes (i) a citizen or resident of
the United States, (ii) a corporation or a partnership (including an entity
treated as a corporation or a partnership for U.S. federal income tax
purposes) that is created or organized in or under the laws of the United
States, any state thereof or the District of Columbia (unless, in the case of
a partnership, Treasury regulations are adopted that provide otherwise), (iii)
an estate the income of which is subject to U.S. federal income tax regardless
of its source, (iv) a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust or (v) any other person whose income or gain in respect
of a Note is effectively connected with the conduct of a United States trade
or business. Certain trusts not described in clause (iv) above in existence on
August 20, 1996, that elect to be treated as United States persons will also
be U.S. Holders for purposes of the following discussion. As used herein, the
term "non-U.S. Holder" means a beneficial owner of a Note that is not a U.S.
Holder.
General
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization and treatment,
for U.S. federal income tax purposes, of the Notes or securities with terms
substantially the same as the Notes. Accordingly, the proper U.S. 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 each 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 U.S. 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 U.S. 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 U.S. 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 U.S. federal income tax purposes.
PS-21
Tax Treatment of the Notes
Assuming the characterization and tax treatment of the Notes as set
forth above, Tax Counsel believes that the following U.S. 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
that gain or loss is treated as capital gain or loss, then any gain or loss
will generally be long-term capital gain or loss if the U.S. Holder has held
the Note for more than one year as of the maturity date. The deductibility of
capital losses is subject to certain limitations.
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 that sale or exchange and that U.S. Holder's tax basis in the Note
so sold or exchanged. Capital gain or loss will generally be long-term capital
gain or loss if the U.S. Holder has held the Note for more than one year at
the time of the sale or exchange. 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 U.S. 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, gain or loss
recognized with respect to the Notes would significantly differ from the
timing and character of income, gain or loss described above. 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 exchange of the Notes prior to the maturity date would
generally be treated as ordinary income, and any loss would be generally
treated as ordinary loss to the extent of the U.S. Holder's prior accruals of
original issue discount and capital loss thereafter.
In addition to the potential applicability of the CPDI Regulations to
the Notes, other alternative U.S. 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 U.S. federal income tax consequences of an investment in the
Notes.
Constructive Ownership Law
Section 1260 of the Internal Revenue Code of 1986, as amended (the
"Code"), treats a taxpayer owning certain types of derivative positions in
property as having "constructive ownership" of that property, with the result
that all or a portion of any long-term capital gain recognized by that
taxpayer with respect to the derivative position will be recharacterized as
ordinary income. In its current form, Section 1260 of the Code does not apply
to the Notes. If Section 1260 of the Code were to apply to the Notes in the
future, however, the effect on a U.S. Holder of a Note would be to treat all
or a portion of any long-term capital gain recognized by that 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.
PS-22
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 and treated 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 or upon a sale or exchange 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 on the maturity date or upon the sale or exchange of a Note by a
non-U.S. Holder will generally not be subject to U.S. 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 maturity date, sale or exchange, 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 U.S. federal income tax purposes) in the United States.
As discussed above, alternative characterizations and tax treatments of
the Notes for U.S. federal income tax purposes are possible. Should an
alternative characterization and 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 U.S. 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 U.S. federal income tax provided the required information
is furnished to the IRS.
PS-23
ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit
plan (a "plan") subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), should consider the fiduciary standards of ERISA
in the context of the plan's particular circumstances before authorizing an
investment in the Notes. Accordingly, among other factors, the fiduciary
should consider whether the investment would satisfy the prudence and
diversification requirements of ERISA and would be consistent with the
documents and instruments governing the plan, and whether the investment would
involve a prohibited transaction under Section 406 of ERISA or Section 4975 of
the Code.
Section 406 of ERISA and Section 4975 of the Code prohibit plans, as
well as individual retirement accounts and Keogh plans subject to Section 4975
of the Code (also "plans") from engaging in certain transactions involving
"plan assets" with persons who are "parties in interest" under ERISA or
"disqualified persons" under the Code ("parties in interest") with respect to
the plan or account. A violation of these prohibited transaction rules may
result in civil penalties or other liabilities under ERISA and/or an excise
tax under Section 4975 of the Code for those persons, unless exemptive relief
is available under an applicable statutory, regulatory or administrative
exemption. Certain employee benefit plans and arrangements including those
that are governmental plans (as defined in Section 3(32) of ERISA), certain
church plans (as defined in Section 3(33) of ERISA) and foreign plans (as
described in Section 4(b)(4) of ERISA) ("non-ERISA arrangements") are not
subject to the requirements of ERISA or Section 4975 of the Code but may be
subject to similar provisions under applicable federal, state, local, foreign
or other regulations, rules or laws ("similar laws").
The acquisition of the Notes by a plan with respect to which we,
MLPF&S or certain of our affiliates is or becomes a party in interest may
constitute or result in a prohibited transaction under ERISA or Section 4975
of the Code, unless those Notes are acquired pursuant to and in accordance
with an applicable exemption. The U.S. Department of Labor has issued five
prohibited transaction class exemptions, or "PTCEs", that may provide
exemptive relief if required for direct or indirect prohibited transactions
that may arise from the purchase or holding of the Notes. These exemptions
are:
(1) PTCE 84-14, an exemption for certain transactions determined or
effected by independent qualified professional asset managers;
(2) PTCE 90-1, an exemption for certain transactions involving insurance
company pooled separate accounts;
(3) PTCE 91-38, an exemption for certain transactions involving bank
collective investment funds;
(4) PTCE 95-60, an exemption for transactions involving certain
insurance company general accounts; and
(5) PTCE 96-23, an exemption for plan asset transactions managed by
in-house asset managers.
The Notes may not be purchased or held by (1) any plan, (2) any entity
whose underlying assets include "plan assets" by reason of any plan's
investment in the entity (a "plan asset entity") or (3) any person investing
"plan assets" of any plan, unless in each case the purchaser or holder is
eligible for the exemptive relief available under one or more of the PTCEs
listed above or another applicable similar exemption. Any purchaser or holder
of the Notes or any interest in the Notes will be deemed to have represented
by its purchase and holding of the Notes that it either (1) is not a plan or a
plan asset entity and is not purchasing those Notes on behalf of or with "plan
assets" of any plan or plan asset entity or (2) with respect to the purchase
or holding, is eligible for the exemptive relief available under any of the
PTCEs listed above or another applicable exemption. In addition, any purchaser
or holder of the Notes or any interest in the Notes which is a non-ERISA
arrangement will be deemed to have represented by its purchase and holding of
the Notes that its purchase and holding will not violate the provisions of any
similar law.
Due to the complexity of these rules and the penalties that may be
imposed upon persons involved in non-exempt prohibited transactions, it is
important that fiduciaries or other persons considering purchasing the Notes
on behalf of or with "plan assets" of any plan, plan asset entity or non-ERISA
arrangement consult with their counsel regarding the availability of exemptive
relief under any of the PTCEs listed above or any other applicable exemption,
or the potential consequences of any purchase or holding under similar laws,
as applicable.
PS-24
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 or Exchange 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 prices basis at the
offering price 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.
ML&Co. has entered into an arrangement with one of its subsidiaries to
hedge the market risks associated with ML&Co.'s obligation to pay the
Redemption Amount or Exchange Amount, as applicable. In connection with this
arrangement, this subsidiary will pay MLPF&S $.10 per unit as part of its
underwriting fee.
The Notes are ineligible assets in MLPF&S' asset-based brokerage service
Unlimited Advantage, which means that purchasers will not pay Unlimited
Advantage annual asset-based fees on the Notes but will pay commissions on any
secondary market purchases and sales of the Notes.
In addition to the compensation paid at the time of the original sale of
the Notes, MLPF&S will pay an additional amount on each anniversary of the
Pricing Date from 2007 through 2010 to brokers whose clients purchased the
units in the initial distribution and who continue to hold their Notes. This
additional amount will equal 1% per unit based on the Redemption Amount of the
Notes calculated as if the applicable anniversary of the Pricing Date was the
stated maturity date. Also, MLPF&S may from time to time pay additional
amounts to brokers whose clients purchased Notes in the secondary market and
continue to hold those Notes.
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-25
INDEX OF CERTAIN DEFINED TERMS
Page
--------
AMEX............................................................ PS-3
Anniversary Date................................................ PS-13
Annual Determination Date....................................... PS-17
Average Daily Traded Value...................................... PS-15
Banking Business Day............................................ PS-11
Business Day.................................................... PS-14
Calculation Day................................................. PS-10
Calculation Period.............................................. PS-10
Current Quarter................................................. PS-17
Current Quarter Dividends....................................... PS-17
Dividend Yield.................................................. PS-16
Ending Value.................................................... PS-4
Exchange Amount................................................. PS-4
Exchange Date................................................... PS-11
Exchange Notice Period.......................................... PS-11
Index........................................................... PS-1
Index Adjustment Factor......................................... PS-4
Index Business Day.............................................. PS-10
Market Disruption Event......................................... PS-13
New Stocks...................................................... PS-17
Notes........................................................... PS-1
Original 30 Stock............................................... PS-18
Pricing Date.................................................... PS-3
Redemption Amount............................................... PS-4
Share Multiplier................................................ PS-16
Starting Value.................................................. PS-4
successor index................................................. PS-14
30 Portfolio Value.............................................. PS-15
Underlying Stocks............................................... PS-3
Value 30 Portfolio.............................................. PS-15
Value 30 Stock.................................................. PS-15
PS-26
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[LOGO OMITTED]
Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
Strategic Return Notes(R)
Linked to the Value 30 Index
due July , 2011
(the "Notes")
$10 original public offering price per unit
---------------------------------------
P R I C I N G S U P P L E M E N T
---------------------------------------
Merrill Lynch & Co.
June , 2006
"Strategic Return Notes" is a registered mark of Merrill Lynch & Co., Inc.
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