Table of Contents

PRICING SUPPLEMENT

(To MTN prospectus supplement,

general prospectus supplement and

prospectus, each dated March 31, 2006)

Pricing Supplement Number: 2652

 

Filed Pursuant to Rule 424(b)(3)

Registration No. 333-132911

LOGO

3,500,000 Units

Merrill Lynch & Co., Inc.

Medium-Term Notes, Series C

Strategic Return Notes®

Linked to the Industrial 15 Index

due February 2, 2012

(the “Notes”)

$10 original public offering price per unit

 


 

The Notes:

 

  The Notes are designed for investors who are willing to forego interest payments on the Notes in exchange for the ability to participate in changes in the level of the Industrial 15 Index (the “Index”) (index symbol “IXD”) between the starting value and the ending value.

 

  There will be no payments on the Notes prior to the maturity date unless exchanged at your option for a cash payment during a specified period in February of each year from 2008 through 2011 as described in this pricing supplement.

 

  The Notes have been approved for listing on the American Stock Exchange under the trading symbol “MIF”. We make no representations, however, that the Notes will remain listed for the entire term of the Notes.

 

  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. 59022C483.

 

  The settlement date for the Notes is expected to be February 2, 2007.

Payment on the maturity date or upon exchange:

 

  The amount you receive on the maturity date or upon exchange will be based on the direction of and percentage change in the level of the Index, which includes a reduction by an annual index adjustment factor of 1.5%, between the starting value and the ending value of the Index.

 

    The level of the Index must increase by approximately 1% in order for you to receive at least the $10 original public offering price per unit on the maturity date or upon exchange. If the level of the Index has declined or has not increased sufficiently, you will receive less, and possibly significantly less, than the $10 original public offering price per unit.

 

Information included in this pricing supplement supersedes information in the accompanying MTN prospectus supplement, general prospectus supplement and prospectus to the extent that it is different from that information.

Investing in the Notes involves risks that are described in the “ Risk Factors” section of this pricing supplement beginning on page PS-7 and beginning on page S-3 in the accompanying MTN prospectus supplement.

 


 

     Per unit      Total

Public offering price(1)

   $10.00      $35,000,000

Underwriting fee(1)

   $    .20      $     700,000

Proceeds, before expenses, to Merrill Lynch & Co., Inc.

   $  9.90 (2)    $34,650,000
 
  (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 January 31, 2007.

“Strategic Return Notes” is a registered mark of Merrill Lynch & Co., Inc.


Table of Contents

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-16

UNITED STATES FEDERAL INCOME TAXATION

  

PS-20

ERISA CONSIDERATIONS

  

PS-23

USE OF PROCEEDS AND HEDGING

  

PS-24

SUPPLEMENTAL PLAN OF DISTRIBUTION

  

PS-24

EXPERTS

  

PS-24

INDEX OF CERTAIN DEFINED TERMS

  

PS-25

ANNEX A

  

A-1  

Medium-Term Notes, Series C Prospectus Supplement

(the “MTN prospectus supplement”)

RISK FACTORS

  

S-3  

DESCRIPTION OF THE NOTES

  

S-4  

UNITED STATES FEDERAL INCOME TAXATION

  

S-22

PLAN OF DISTRIBUTION

  

S-29

VALIDITY OF THE NOTES

  

S-30

Debt Securities, Warrants, Preferred Stock,

Depositary Shares and Common Stock Prospectus Supplement

(the “general prospectus supplement”)

MERRILL LYNCH & CO., INC.

  

S-3  

USE OF PROCEEDS

  

S-3  

RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

  

S-4  

THE SECURITIES

  

S-4  

DESCRIPTION OF DEBT SECURITIES

  

S-5  

DESCRIPTION OF DEBT WARRANTS

  

S-16

DESCRIPTION OF CURRENCY WARRANTS

  

S-18

DESCRIPTION OF INDEX WARRANTS

  

S-20

DESCRIPTION OF PREFERRED STOCK

  

S-25

DESCRIPTION OF DEPOSITARY SHARES

  

S-32

DESCRIPTION OF PREFERRED STOCK WARRANTS

  

S-36

DESCRIPTION OF COMMON STOCK

  

S-38

DESCRIPTION OF COMMON STOCK WARRANTS

  

S-42

PLAN OF DISTRIBUTION

  

S-44

WHERE YOU CAN FIND MORE INFORMATION

  

S-45

INCORPORATION OF INFORMATION WE FILE WITH THE SEC

  

S-46

EXPERTS

  

S-46

Prospectus   

WHERE YOU CAN FIND MORE INFORMATION

  

2  

INCORPORATION OF INFORMATION WE FILE WITH THE SEC

  

2  

EXPERTS

  

2  

 

PS-2


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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® Linked to the Industrial 15 Index due February 2, 2012 (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 Industrial 15 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 February 2, 2012, 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.

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 is calculated and disseminated by the American Stock Exchange (the “AMEX”) under the index symbol “IXD”. The Index is an index which reflects the price changes and dividends of the top fifteen dividend yielding stocks (the “Underlying Stocks”) from a group of certain stocks in the Standard & Poor’s Industrial Index (the “S&P Industrial Index”) less an annual index adjustment factor of 1.5% applied daily (the “Index Adjustment Factor”). The Index has been calculated and disseminated since June 26, 2001. The Index is reconstituted on June 26th of each year, the anniversary of the date the Index was first calculated and disseminated, or, under certain circumstances, on a day shortly after the anniversary date, as described in this pricing supplement. The Index was last reconstituted on June 27, 2006. For more specific information about the Index and 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 level of the Index was set to 100 on June 26, 2001, the date the Index was initially calculated. On January 31, 2007, the closing value of the Index was 151.47. We have included a table and a graph showing the month-end closing levels of the Index from June 2001 through January 2007 in the section entitled “The Index—Historical Data on the Index” in this pricing supplement.

We have provided this 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


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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” per unit to which you will be entitled will depend on the percentage change in the level of the Index and will equal:

 

 

$9.90 ×

 

(

 

  Ending Value  

)

 

   
      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” is 151.47, the closing value of the Index on January 31, 2007, the date the Notes were priced for initial sale to the public (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 instead receive the Exchange Amount per unit following the exercise of your exchange option or the Redemption Amount per unit 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 between the Starting Value and the Ending Value.

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 February of each year from 2008 through 2011 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 from the Starting Value to the Ending Value of the Index:

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 three examples of Redemption Amount calculations:

Example 1—The hypothetical Ending Value is below the Starting Value:

 

Starting Value: 151.47             
Hypothetical Ending Value: 75.74             
Redemption Amount (per unit) = $9.90 ×  

(

 

  75.74  

)

 

  = $4.95     
    151.47         
            

        Total Payment at maturity (per unit) = $4.95

Example 2—The hypothetical Ending Value is above the Starting Value:

 

Starting Value: 151.47              
Hypothetical Ending Value: 152.68              
Redemption Amount (per unit) = $9.90 ×  

(

 

  152.68  

)

 

  = $9.98      
    151.47          
             

        Total Payment at maturity (per unit) = $9.98

Example 3—The hypothetical Ending Value is above the Starting Value:

 

Starting Value: 151.47              
Hypothetical Ending Value: 227.21              
Redemption Amount (per unit) = $9.90 ×  

(

 

  227.21  

)

 

  = $14.85      
    151.47          
             

        Total Payment at maturity (per unit) = $14.85

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?

The Notes have been approved for listing on the American Stock Exchange (the “AMEX”) under the trading symbol “MIF”. We make no representation, however, that the Notes will remain listed for the entire term of the Notes. In any event, you should be aware that the listing of the Notes on 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.

 

PS-5


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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, and 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 potential purchasers for your Notes in the secondary market are unlikely to consider these factors.

What is the role of MLPF&S?

MLPF&S, our subsidiary, 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 determining, among other things, the Starting Value and the Ending Value, and calculating 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” and “Incorporation of Information We File with the SEC” in the accompanying general prospectus supplement and prospectus.

 

PS-6


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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 between the Starting Value and the Ending Value, 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 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


Table of Contents

There may be an uncertain trading market for the Notes and the market price you may receive or be quoted for your Notes on a date prior to the stated maturity date will be affected by this and other important factors including our costs of developing, hedging and distributing the Notes

The Notes have been approved for listing on the AMEX under the trading symbol “MIF”. We make no representation, however, that the Notes will remain listed for the entire term of the Notes. In any event, you should be aware that the listing of the Notes on 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 or sales by us, our affiliates or others on our behalf on or before the Pricing Date may temporarily increase or decrease the prices of the Underlying Stocks. Temporary increases or decreases in the market prices of the Underlying Stocks may also occur as a result of the purchasing or selling 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

MLPF&S, our subsidiary, 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 in 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—Payment at Maturity,”—Adjustments to the Index” and “—Discontinuance of the Index” in this pricing supplement. MLPF&S is required to carry out its duties as calculation agent in good faith and using its reasonable judgment. However, because we control MLPF&S, potential conflicts of interest could arise. MLPF&S, the underwriter, will pay an additional amount on each anniversary of the Pricing Date in 2008 through 2011 to brokers whose clients purchased their units in the initial distribution and continue to hold the Notes. In addition, MLPF&S may from time

 

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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.

 

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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,” which is more fully described in the MTN prospectus supplement, under the 1983 Indenture, which is more fully described in the accompanying general prospectus supplement. The Bank of New York has succeeded JPMorgan Chase Bank, N.A. as the trustee under such indenture. Unless exchanged by you, the Notes will mature on February 2, 2012. 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 59022C483.

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 per unit of the Notes, as the case may be. There will be no other payment of interest, periodic or otherwise, on the Notes. 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:

 

 

$9.90 ×

 

(

 

  Ending Value  

)

 

   
      Starting Value      

The “Starting Value” is 151.47, the closing level of the Index on January 31, 2007, the date the Notes were priced for initial sale to the public (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 first five Calculation Days during the Calculation Period. If there are fewer than five Calculation Days during the Calculation Period, then the Ending Value will equal the average of the closing levels of the Index on those Calculation Days. If there is only one Calculation Day during the Calculation Period, then the Ending Value will equal the closing level of the Index on that Calculation Day. If no Calculation Days occur during the Calculation Period, then the Ending Value will equal the closing level of the Index determined (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) 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.

 

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An “Index Business Day” means a day on which the Index or any successor index is calculated and published.

“Market Disruption Event” means either of the following events as determined by the calculation agent:

 

  (A) the suspension of or material limitation on trading for more than two hours of trading, or during the one-half hour period preceding the close of trading, on the primary exchange on which the Underlying Stocks trade as determined by the calculation agent (without taking into account any extended or after-hours trading session), in 20% or more of the stocks which then comprise the Index or any successor index; or

 

  (B) the suspension of or material limitation on trading for more than two hours of trading, or during the one-half hour period preceding the close of trading, on any exchange (without taking into account any extended or after-hours trading session), whether by reason of movements in price otherwise exceeding levels permitted by the relevant exchange or otherwise, in option contracts or futures contracts related to the Index, or any successor index.

For the purpose of determining whether a Market Disruption Event has occurred:

 

  (1) a limitation on the hours in a trading day and/or number of days of trading will not constitute a Market Disruption Event if it results from an announced change in the regular business hours of the relevant exchange;

 

  (2) a decision to permanently discontinue trading in the relevant futures or options contracts related to the Index, or any successor index, will not constitute a Market Disruption Event;

 

  (3) a suspension in trading in a futures or options contract on the Index, or any successor index, by a major securities market by reason of (a) a price change violating limits set by that securities market, (b) an imbalance of orders relating to those contracts or (c) a disparity in bid and ask quotes relating to those contracts will constitute a suspension of or material limitation on trading in futures or options contracts related to the Index;

 

  (4) a suspension of or material limitation on trading on the relevant exchange will not include any time when that exchange is closed for trading under ordinary circumstances; and

 

  (5) for the purpose of clause (A) above, any limitations on trading during significant market fluctuations under New York Stock Exchange (the “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.

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, in whole denominations, 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 February to and including 12:00 noon in The City of New York on the fifteenth calendar day during the month of February in the years 2008, 2009, 2010 and 2011. If the fifteenth calendar day of the applicable month of February 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.

 

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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 The Bank of New York, as successor 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.

 

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Hypothetical Returns

The following tables illustrate for the Starting Value of 151.47 and a range of hypothetical Ending Values of the Index:

 

    the total amount payable on the maturity date of the Notes, and the total amount payable on an investment in the Underlying Stocks;

 

    the total rate of return to holders of the Notes, and the total rate of return on an investment in the Underlying Stocks; and

 

    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

Based on the Index

 

Hypothetical Returns Related to an Investment

in the Underlying Stocks

Hypothetical
Ending Value

of the Index(1)

 

Total amount
payable on the

maturity date

per unit(2)

 

Total rate of

return on

the Notes

 

Pretax annualized

rate of return

on the Notes(3)

 

Hypothetical
Ending

Value of an
Investment

in the

Underlying
Stocks(4)

 

Total amount
payable on the

maturity date

per unit

 

Total rate of
return on
the Underlying
Stocks

 

Pretax annualized
rate of return

on the

Underlying Stocks(3)

  30.29

  $  1.98   –80.20%   –29.89%     32.65   $  2.16   –78.44%   –28.44%

  60.59

  $  3.96   –60.40%   –17.69%     65.31   $  4.31   –56.88%   –16.13%

  90.88

  $  5.94   –40.60%   –10.15%     97.96   $  6.47   –35.32%     –8.52%

121.18

  $  7.92   –20.80%     –4.61%   130.62   $  8.62   –13.77%     –2.94%
151.47(5)   $  9.90     –1.00%     –0.20%   163.27   $10.78       7.79%       1.51%

153.00

  $10.00       0.00%       0.00%   164.92   $10.89       8.88%       1.71%

181.76

  $11.88     18.80%       3.47%   195.93   $12.94     29.35%       5.21%

212.06

  $13.86     38.60%       6.63%   228.58   $15.09     50.91%       8.40%

242.35

  $15.84     58.40%       9.41%   261.24   $17.25     72.47%     11.20%

272.65

  $17.82     78.20%     11.89%   293.89   $19.40     94.03%     13.70%

(1) The amounts specified in this column reflect the 1.5% Index Adjustment Factor
(2) The amounts specified in this column reflect the 1% sales charge that will be paid to MLPF&S.
(3) The annualized rates of return specified in this column are calculated on a semi-annual bond equivalent basis and assume an investment term from February 2, 2007 to February 2, 2012, a term expected to be equal to that of the Notes.
(4) 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.
(5) This is the Starting Value, the closing level of the Index on the Pricing Date.

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 the term of your investment.

 

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Adjustments to the Index

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.

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:

 

    the calculation agent does not select a successor index; or

 

    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:

 

    the determination of the Ending Value; or

 

    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 Index or any successor index is calculated and published.

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 on the stated maturity date or upon acceleration, from and after that date the Notes will bear interest, payable upon demand of their holders, at the then current Federal Funds Rate, reset daily, as determined by reference to Reuters page H15FED1, to the extent that payment of such interest shall be legally

 

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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. “Reuters page H15FED1” means such page or any successor page, or page on a successor service, displaying such rate. If the Federal Funds Rate cannot be determined by reference to Reuters page H15FED1, such rate will be determined in accordance with the procedures set forth in the accompanying MTN prospectus supplement relating to the determination of the Federal Funds Rate in the event of the unavailability of Moneyline Telerate page 120 (the predecessor of Reuters page H15FED1).

 

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THE INDEX

The level of the Index is calculated and disseminated by the AMEX under the symbol “IXD”. On any 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 “Industrial 15 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. As of January 31, 2007, the index divisor for the Index was 1.087675. The AMEX generally calculates and disseminates 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 Industrial 15 Portfolio

At any time the “Industrial 15 Portfolio” consists of the then current Underlying Stocks. The Underlying Stocks and their respective Dividend Yields (as defined below) are shown below. The Underlying Stocks have been determined by the AMEX to be the fifteen Qualifying Stocks in the S&P Industrial Index having the highest Dividend Yield on June 27, 2006. A “Qualifying Stock” is any stock from the S&P Industrial Index that is in the top 75% of the stocks, as measured by market capitalization, after the elimination of (i) stocks included in the Dow Jones Industrial Average and (ii) stocks that do not have an S&P Common Stock Ranking of A or A+. We have included a brief description of each of the companies included in the Index (the “Industrial 15 Companies”) and historical stock price information for the Underlying Stocks in Annex A to this pricing supplement. “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.

 

Company

  

Dividend

Yield(1)

 

Share

Multiplier(2)

Abbott Laboratories

   2.23%   0.22240

Anheuser-Busch Companies, Inc.

   2.32%   0.20636

Avery Dennison Corporation

   2.34%   0.16084

Avon Products, Inc.

   2.15%   0.31316

Bemis Company, Inc.

   2.48%   0.30851

Carnival Corporation

   2.13%   0.22760

Emerson Electric Co.

   2.33%   0.22688

Genuine Parts Company

   2.84%   0.22569

KB Home

   1.84%   0.19813

Kimberly-Clark Corporation

   2.82%   0.15294

McCormick & Company, Incorporated.

   2.05%   0.28465

Rohm and Haas Company

   2.54%   0.19294

Sysco Corporation

   2.20%   0.30750

The Sherwin-Williams Company

   1.45%   0.19788

WM. Wrigley Jr. Company

   1.99%   0.20517

(1) As of January 31, 2007 as obtained from Bloomberg Financial Markets.
(2) As of January 31, 2007 as obtained from the AMEX.

The Dividend Yield on the Underlying Stocks as of January 31, 2007 was 2.23%. The Share Multipliers are recalculated by the AMEX on June 26th of each year, or in certain circumstances on a day shortly thereafter as described below, which is the anniversary of the date the Index was originally calculated and disseminated. Each Share Multiplier is calculated to equate to the number of shares of that Underlying Stock, or portion thereof, based upon the closing market price of that stock on the Anniversary Date (as defined below), which would represent approximately an equal percentage of the Index as of the Anniversary Date. Each Share Multiplier remains constant until adjusted for certain corporate events, quarterly dividend adjustments and annual reconstitutions as described below. The last adjustment to the Share Multipliers took place on December 29, 2006.

 

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Annual Industrial 15 Portfolio Reconstitution

As of the close of business on each Anniversary Date through the Anniversary Date in 2011, the Industrial 15 Portfolio shall be reconstituted to include the fifteen Qualifying Stocks in the S&P Industrial Index having the highest Dividend Yield (the “New Stocks”) on the second scheduled Index Business Day prior to the applicable Anniversary Date (the “Annual Determination Date”). The Index was last reconstituted on June 27, 2006. “Anniversary Date” shall mean June 26th of each year, which is the anniversary of the date the Index was originally calculated and disseminated; 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 Qualifying 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 “Share Multiplier” for each New Stock will be determined by the AMEX and will equal the number of shares of each New Stock, based upon the closing market price of that New Stock on the Anniversary Date, so that each New Stock represents approximately an equal percentage of a value equal to the Index in effect at the close of business on the applicable 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 fifteen New Stocks would be allocated a portion of the value of the Index equal to 10 and if, the closing market price of a New Stock on the Anniversary Date was 20, the applicable Share Multiplier would be 0.5. If the Index equaled 60, then each of the fifteen New Stocks would be allocated a portion of the value of the Index equal to 4 and if the closing market price of a New Stock on the Anniversary Date was 20, the applicable Share Multiplier would be 0.2.

S&P Industrial Index

The S&P Industrial Index is a subset of the S&P 500 Index made up of the companies in the S&P 500 Index that are considered industrial companies. The S&P 500 Index is published by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. and is intended to provide an indication of the pattern of common stock price movement. The level of the S&P 500 Index is based on the relative value of the aggregate market value of the common stocks of 500 companies as of a particular time compared to the aggregate average market value of the common stocks of 500 similar companies during the base period of the years 1941 through 1943. Companies included in the S&P 500 Index are assigned to differing sectors based upon the company’s principal business activities.

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 calendar quarter containing the day for which the applicable Current Quarter Dividends are being determined. As of January 31, 2007, Current Quarter Dividends, as obtained from the AMEX, amounted to $0.17655652. This amount, along with any other Current Quarter Dividends accumulated through and including March 30, 2007, will be allocated to the Underlying Stocks prior to the opening of trading on April 2, 2007.

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 Industrial 15 Portfolio relative to the value of the entire Industrial 15 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

 

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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.

Adjustments to the Share Multiplier and Industrial 15 Portfolio

The Share Multiplier for any Underlying Stock and the Industrial 15 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 an Industrial 15 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 Industrial 15 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 Industrial 15 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 Industrial 15 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 Industrial 15 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 Industrial 15 Portfolio until the annual reconstitution of the Industrial 15 Portfolio. As a result, there may be periods during which the Industrial 15 Portfolio contains fewer than fifteen Underlying Stocks.

4. If an Industrial 15 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 Industrial 15 Portfolio is reconstituted. At that time, no adjustment will be made to the Share Multiplier of the relevant Underlying Stock.

5. If an Industrial 15 Company issues to all of its shareholders equity securities that are publicly traded of an issuer other than the Industrial 15 Company, or a tracking stock is issued by an Industrial 15 Company to all of its shareholders, then the new equity securities will be added to the Industrial 15 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 Industrial 15 Stock”) and the number of shares of the new Underlying Stock issued with respect to one share of the Original Industrial 15 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 Industrial 15 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 IXD and AMEX from publicly available sources. Such information reflects the policies of, and is subject to change without notice by, AMEX. We make no representation or warranty as to the accuracy or completeness or such information.

 

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Historical Data on the Index

The Index was originally calculated and disseminated on June 26, 2001 with an initial value of 100. The following chart sets forth the actual month-end closing levels of the Index from June 2001 through January 2007. 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. All historical data presented in the following chart were calculated by the AMEX.

 

     2001      2002      2003      2004      2005      2006      2007

January

        107.83      95.54      116.26      122.06      122.46      151.47

February

        111.40      92.21      116.70      122.69      125.32     

March

        112.00      92.69      114.33      122.62      128.20     

April

        108.60      99.17      116.70      120.82      130.60     

May

        111.24      103.88      116.88      121.31      130.70     

June

   100.67      105.76      102.31      118.56      119.35      129.88     

July

   102.48      102.32      103.94      113.20      120.06      128.51     

August

   104.12      103.32      105.33      115.83      118.96      132.75     

September

   96.35      94.44      103.15      115.60      118.08      137.21     

October

   98.19      99.71      108.99      115.93      119.68      141.69     

November

   105.85      105.97      112.22      119.80      122.08      146.33     

December

   106.46      100.95      117.29      124.26      122.39      147.76     

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.

LOGO

 

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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.

 

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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 short-term or long-term capital gain or loss, depending upon the U.S. Holder’s holding period for the Notes. 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 short-term or long-term capital gain or loss, depending upon the U.S. Holder’s holding period for the Notes. 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.

 

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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 tax treatment of the Notes, by reason of a change or clarification of the law, by regulation or otherwise, cause payments with respect to the Notes to become subject to withholding tax, ML&Co. will withhold tax at the applicable statutory rate. Prospective non-U.S. Holders of the Notes should consult their own tax advisors in this regard.

Backup Withholding

A beneficial owner of a Note may be subject to backup withholding at the applicable statutory rate of 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.

 

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ERISA CONSIDERATIONS

Each fiduciary of a pension, profit-sharing or other employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (a “Plan”), 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.

In addition, we and certain of our subsidiaries and affiliates, including MLPF&S, may be each considered a party in interest within the meaning of ERISA, or a disqualified person within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to many Plans, as well as many individual retirement accounts and Keogh plans (also “Plans”). Prohibited transactions within the meaning of ERISA or the Code would likely arise, for example, if the securities are acquired by or with the assets of a Plan with respect to which MLPF&S or any of its affiliates is a party in interest, unless the securities are acquired pursuant to an exemption from the prohibited transaction rules. A violation of these prohibited transaction rules could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for such persons, unless exemptive relief is available under an applicable statutory or administrative exemption.

Under ERISA and various prohibited transaction class exemptions (“PTCEs”) issued by the U.S. Department of Labor, exemptive relief may be available for direct or indirect prohibited transactions resulting from the purchase, holding or disposition of the securities. Those exemptions are PTCE 96-23 (for certain transactions determined by in-house asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for certain transactions involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts), PTCE 84-14 (for certain transactions determined by independent qualified asset managers), and the exemption under new Section 408(b)(17) of ERISA and new Section 4975(d)(20) of the Code for certain arm’s-length transactions with a person that is a party in interest solely by reason of providing services to Plans or being an affiliate of such a service provider (the “Service Provider Exemption”).

Because we may be considered a party in interest with respect to many Plans, the securities may not be purchased, held or disposed of by any Plan, any entity whose underlying assets include plan assets by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or any person investing plan assets of any Plan, unless such purchase, holding or disposition is eligible for exemptive relief, including relief available under PTCE 96-23, 95-60, 91-38, 90-1, or 84-14 or the Service Provider Exemption, or such purchase, holding or disposition is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee or holder of the securities will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding of the securities that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such securities on behalf of or with plan assets of any Plan or with any assets of a governmental, church or foreign plan that is subject to any federal, state, local or foreign law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code or (b) its purchase, holding and disposition are eligible for exemptive relief or such purchase, holding and disposition are not prohibited by ERISA or Section 4975 of the Code (or in the case of a governmental, church or foreign plan, any substantially similar federal, state, local or foreign law).

Under ERISA, assets of a Plan may include assets held in the general account of an insurance company which has issued an insurance policy to such plan or assets of an entity in which the Plan has invested. Accordingly, insurance company general accounts that include assets of a Plan must ensure that one of the foregoing exemptions is available. Due to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other persons considering purchasing the securities on behalf of or with “plan assets” of any Plan consult with their counsel regarding the availability of exemptive relief under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or the Service Provider Exemption.

Purchasers of the securities have exclusive responsibility for ensuring that their purchase, holding and disposition of the securities do not violate the prohibited transaction rules of ERISA or the Code or any similar regulations applicable to governmental or church plans, as described above.

 

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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 2008 through 2012 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 three-month periods ended March 31, 2006 and April 1, 2005, the three-month and six-month periods ended June 30, 2006 and July 1, 2005 and the three-month and nine-month periods ended September 29, 2006 and September 30, 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 reviews of such information. However, as stated in their reports included in Merrill Lynch & Co., Inc.’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2006, June 30, 2006 and September 29, 2006 and incorporated by reference herein, they did not audit and they do not express opinions on that interim financial information. Accordingly, the degree of reliance on their reports on such information should be restricted in light of the limited nature of the review procedures applied. Deloitte & Touche LLP are not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their reports on the unaudited interim condensed consolidated financial information because those reports are not “reports” or a “part” of the registration statement prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act.

 

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INDEX OF CERTAIN DEFINED TERMS

 

     Page

Anniversary Date

   PS-17

Annual Determination Date

   PS-17

Banking Business Day

   PS-12

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-3  

Index Business Day

   PS-11

Industrial 15 Companies

   PS-16

Industrial 15 Portfolio

   PS-16

Industrial 15 Portfolio Value

   PS-16

Market Disruption Event

   PS-11

New Stocks

   PS-17

Notes

   PS-1  

Original Industrial 15 Stock

   PS-18

Pricing Date

   PS-4  

Qualifying Stock

   PS-16

Redemption Amount

   PS-4  

Share Multiplier

   PS-17

Starting Value

   PS-4  

successor index

   PS-14

Underlying Stocks

   PS-3  

 

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ANNEX A

This annex contains tables which provide a brief synopsis of the business of each of the Underlying Stocks as well as the split-adjusted month-end closing market prices for each Underlying Stock in each month from January 2002 through January 2007 (or from the first month-end for which that data is available). The historical prices of the Underlying Stocks are not indicative of the future performance of the Underlying Stocks or the Index. The following information, with respect to the business of each company issuing an Underlying Stock, has been derived from publicly available documents published by that company. We make no representation or warranty as to the accuracy or completeness of the following information. Because the common stock of each of those companies is registered under the Securities Exchange Act of 1934, those companies are required to file periodically financial and other information specified by the Securities and Exchange Commission (the “SEC”). For more information about those companies, information provided to or filed with the SEC by those companies can be inspected at the SEC’s public reference facilities or accessed through the SEC’s website at http://www.sec.gov.

ABBOTT LABORATORIES

Abbott Laboratories is a health care company that discovers, develops, manufactures and sells health care products. Abbott’s principal businesses are pharmaceutical products, nutritional, and medical products, including diagnostics and cardiovascular devices.

 

2002

   Closing
Price
  

2003

   Closing
Price
  

2004

   Closing
Price
  

2005

   Closing
Price
  

2006

   Closing
Price
  

2007

   Closing
Price

January

   53.97    January    35.66    January    40.29    January    45.02    January    43.15    January    53.00

February

   52.89    February    33.32    February    40.03    February    45.99    February    44.18    February   

March

   49.20    March    35.18    March    38.44    March    46.62    March    42.47    March   

April

   50.46    April    38.00    April    41.17    April    49.16    April    42.74    April   

May

   44.43    May    41.67    May    41.21    May    48.24    May    42.70    May   

June

   35.22    June    40.93    June    40.76    June    49.01    June    43.61    June   

July

   38.73    July    36.71    July    39.35    July    46.63    July    47.77    July   

August

   37.44    August    37.69    August    41.69    August    45.13    August    48.70    August   

September

   37.79    September    39.80    September    42.36    September    42.40    September    48.56    September   

October

   39.16    October    39.86    October    42.63    October    43.05    October    47.51    October   

November

   40.95    November    41.34    November    41.96    November    37.71    November    46.66    November   

December

   37.41    December    43.59    December    46.65    December    39.43    December    48.71    December   

ANHEUSER-BUSCH COMPANIES, INC.

Anheuser-Busch Companies, Inc. (“Anheuser Companies”) is the holding company parent of Anheuser-Busch, Incorporated (“ABI”). In addition to ABI, a large brewer of beer, Anheuser Companies is also the parent corporation to a number of subsidiaries that conduct various other business operations. Anheuser Companies’ operations include the following principle business segments: domestic beer, international beer, packaging and entertainment.

 

2002

   Closing
Price
  

2003

  

Closing

Price

  

2004

   Closing
Price
  

2005

   Closing
Price
  

2006

   Closing
Price
  

2007

   Closing
Price

January

   47.27    January    47.47    January    50.72    January    49.18    January    41.44    January    50.97

February

   50.85    February    46.50    February    53.22    February    47.45    February    41.54    February   

March

   52.20    March    46.61    March    51.00    March    47.39    March    42.77    March   

April

   53.00    April    49.88    April    51.24    April    46.87    April    44.58    April   

May

   51.61    May    52.63    May    53.27    May    46.85    May    45.64    May   

June

   50.00    June    51.05    June    54.00    June    45.75    June    45.59    June   

July

   51.71    July    51.82    July    51.90    July    44.35    July    48.15    July   

August

   53.16    August    51.54    August    52.80    August    44.31    August    49.38    August   

September

   50.60    September    49.34    September    49.95    September    43.04    September    47.51    September   

October

   52.76    October    49.26    October    49.95    October    41.26    October    47.42    October   

November

   49.12    November    51.82    November    50.09    November    43.74    November    47.51    November   

December

   48.40    December    52.68    December    50.73    December    42.96    December    49.20    December   

 

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AVERY DENNISON CORP

Avery Dennison Corporation is principally involved in the production of pressure-sensitive materials, office products, tickets, tags, labels, and other converted products. Avery operates through three segments: Pressure-sensitive Materials, Office and Consumer Products, and Retail Information Services.

 

2002

   Closing
Price
  

2003

  

Closing

Price

  

2004

   Closing
Price
  

2005

   Closing
Price
  

2006

   Closing
Price
  

2007

   Closing
Price

January

   59.50    January    59.59    January    62.16    January    60.09    January    59.74    January    68.36

February

   64.00    February    57.40    February    63.37    February    60.70    February    60.00    February   

March

   61.03    March    58.67    March    62.21    March    61.93    March    58.48    March   

April

   64.05    April    53.01    April    64.23    April    52.35    April    62.50    April   

May

   65.37    May    55.48    May    59.04    May    52.45    May    59.39    May   

June

   62.75    June    50.20    June    64.01    June    52.96    June    58.06    June   

July

   62.21    July    53.96    July    60.57    July    56.67    July    58.63    July   

August

   63.12    August    54.75    August    62.15    August    53.44    August    61.94    August   

September

   56.98    September    50.52    September    65.78    September    52.39    September    60.17    September   

October

   62.24    October    52.58    October    60.84    October    56.65    October    63.14    October   

November

   64.44    November    55.08    November    58.66    November    58.79    November    67.47    November   

December

   61.08    December    56.02    December    59.97    December    55.27    December    67.93    December   

AVON PRODUCTS, INC.

Avon Products, Inc. is a global manufacturer and marketer of beauty and related products. Avon’s products fall into three product categories: Beauty, which consists of cosmetics, fragrances, skin care and toiletries; Beauty Plus, which consists of fashion jewelry, watches, apparel and accessories; and Beyond Beauty, which consists of home products, gift and decorative products, candles and toys.

 

2002

  

Closing

Price

  

2003

   Closing
Price
  

2004

   Closing
Price
  

2005

   Closing
Price
  

2006

   Closing
Price
  

2007

   Closing
Price

January

   24.60    January    25.00    January    31.66    January    42.22    January    28.32    January    34.39

February

   25.85    February    26.00    February    35.30    February    42.77    February    28.85    February   

March

   27.16    March    28.53    March    37.94    March    42.94    March    31.17    March   

April

   27.93    April    29.09    April    42.00    April    40.08    April    32.61    April   

May

   26.48    May    30.47    May    44.33    May    39.74    May    31.70    May   

June

   26.12    June    31.10    June    46.14    June    37.85    June    31.00    June   

July

   23.13    July    31.20    July    43.01    July    32.71    July    28.99    July   

August

   24.37    August    32.05    August    44.18    August    32.82    August    28.71    August   

September

   23.05    September    32.28    September    43.68    September    27.00    September    30.66    September   

October

   24.25    October    33.98    October    39.55    October    26.99    October    30.41    October   

November

   25.68    November    34.25    November    37.54    November    27.35    November    32.64    November   

December

   26.94    December    33.75    December    38.70    December    28.55    December    33.04    December   

BEMIS COMPANY, INC.

Bemis Company, Inc. is a principal manufacturer of flexible packaging products and pressure sensitive materials selling to customers throughout the United States, Canada, South America and Europe, primarily in the food industry. Bemis operates through two segments: Flexible Packaging, which manufactures a broad range of consumer and industrial packaging, and Pressure Sensitive Materials, which manufactures pressure sensitive materials that are sold into label markets, graphic markets and technical markets.

 

2002

   Closing
Price
  

2003

  

Closing

Price

  

2004

   Closing
Price
  

2005

   Closing
Price
  

2006

   Closing
Price
  

2007

   Closing
Price

January

   25.22    January    21.81    January    24.24    January    29.00    January    30.52    January    33.91

February

   28.48    February    20.93    February    25.54    February    29.84    February    29.98    February   

March

   27.18    March    21.03    March    26.00    March    31.12    March    31.58    March   

April

   26.62    April    22.83    April    27.01    April    27.56    April    31.46    April   

May

   24.95    May    22.89    May    27.55    May    27.16    May    30.40    May   

June

   23.75    June    23.40    June    28.25    June    26.54    June    30.62    June   

July

   24.03    July    22.35    July    26.48    July    27.00    July    30.70    July   

August

   26.49    August    22.64    August    26.43    August    26.15    August    32.30    August   

September

   24.70    September    22.15    September    26.58    September    24.70    September    32.86    September   

October

   26.05    October    23.12    October    26.47    October    26.42    October    33.62    October   

November

   25.86    November    22.75    November    27.84    November    27.55    November    34.13    November   

December

   24.82    December    25.00    December    29.09    December    27.87    December    33.98    December   

 

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CARNIVAL CORPORATION

Carnival Corporation is the largest cruise company and one of the largest vacation companies in the world. Carnival is a leading provider of cruise to major vacation destinations throughout the world and also owns a number of large cruise and tour operators.

 

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January

   27.04    January    24.10    January    44.42    January    57.60    January    51.76    January    51.56

February

   27.29    February    22.97    February    44.37    February    54.38    February    51.65    February   

March

   32.65    March    24.11    March    44.91    March    51.81    March    47.37    March   

April

   33.31    April    27.59    April    42.67    April    48.88    April    46.82    April   

May

   30.40    May    30.60    May    42.61    May    52.90    May    39.91    May   

June

   27.69    June    32.51    June    47.00    June    54.55    June    41.74    June   

July

   26.50    July    34.31    July    46.61    July    52.40    July    38.96    July   

August

   24.47    August    34.59    August    45.79    August    49.34    August    41.90    August   

September

   25.10    September    32.89    September    47.29    September    49.98    September    47.03    September   

October

   26.12    October    34.91    October    50.56    October    49.67    October    48.82    October   

November

   28.05    November    35.19    November    53.01    November    54.49    November    48.99    November   

December

   24.95    December    39.73    December    57.63    December    53.47    December    49.05    December   

EMERSON ELECTRIC CO.

Emerson Electric Co. is principally engaged in the design, manufacture and sale of a range of electrical, electromechanical and electronic products and systems. Emerson offers product lines that include various products and systems involving industrial automation, electronics and telecommunications, heating, ventilating and air conditioning systems, appliances and tools.

 

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January

   28.97    January    23.47    January    31.95    January    33.62    January    38.73    January    44.97

February

   28.80    February    23.54    February    31.24    February    33.16    February    40.91    February   

March

   28.70    March    22.68    March    29.96    March    32.47    March    41.82    March   

April

   26.70    April    25.35    April    30.11    April    31.34    April    42.48    April   

May

   28.93    May    26.15    May    29.85    May    33.24    May    41.26    May   

June

   26.76    June    25.55    June    31.78    June    31.32    June    41.91    June   

July

   25.48    July    26.85    July    30.35    July    32.90    July    39.46    July   

August

   24.39    August    27.88    August    31.13    August    33.64    August    41.08    August   

September

   21.97    September    26.33    September    30.95    September    35.90    September    41.93    September   

October

   24.09    October    28.38    October    32.03    October    34.78    October    42.20    October   

November

   26.08    November    30.52    November    33.41    November    37.81    November    43.35    November   

December

   25.43    December    32.38    December    35.05    December    37.35    December    44.09    December   

GENUINE PARTS COMPANY

Genuine Parts Company is a service organization engaged in the distribution of automotive replacement parts, industrial replacement parts, office products and electrical/electronic materials, and conducts its business throughout the United States, in Canada and in Mexico from approximately 1,800 locations.

 

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January

   35.52    January    29.50    January    32.96    January    42.33    January    42.53    January    47.52

February

   36.53    February    28.80    February    34.73    February    43.28    February    44.52    February   

March

   36.77    March    30.51    March    32.72    March    43.49    March    43.83    March   

April

   34.51    April    31.97    April    35.80    April    42.90    April    43.65    April   

May

   36.55    May    32.87    May    37.64    May    42.96    May    43.06    May   

June

   34.87    June    32.01    June    39.68    June    41.09    June    41.66    June   

July

   30.71    July    30.94    July    37.73    July    45.79    July    41.64    July   

August

   33.25    August    32.02    August    37.91    August    45.82    August    41.33    August   

September

   30.64    September    31.98    September    38.38    September    42.90    September    43.13    September   

October

   29.54    October    31.82    October    39.89    October    44.37    October    45.52    October   

November

   31.79    November    31.48    November    43.41    November    44.31    November    46.89    November   

December

   30.80    December    33.20    December    44.06    December    43.92    December    47.43    December   

 

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KB HOME

KB Home operates as a builder of single-family homes in the United States and France, through its subsidiary Kaufman & Broad S.A. KB Home operates in two segments, Construction and Financial Services. The Construction segment’s activities include acquisition and development of land for residential purposes and building commercial projects and high-density residential properties, such as condominium complexes. The Financial Services segment provides mortgage banking services to domestic homebuyers.

 

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January

   21.53    January    22.36    January    33.77    January    54.33    January    76.20    January    54.22

February

   21.83    February    23.45    February    36.18    February    62.40    February    67.03    February   

March

   21.70    March    22.73    March    40.40    March    58.73    March    64.98    March   

April

   24.93    April    24.64    April    34.47    April    57.00    April    61.57    April   

May

   25.77    May    31.25    May    32.94    May    67.54    May    51.20    May   

June

   25.76    June    30.99    June    34.32    June    76.23    June    45.85    June   

July

   23.11    July    28.31    July    32.03    July    81.91    July    42.52    July   

August

   23.98    August    28.61    August    34.39    August    74.16    August    42.76    August   

September

   24.42    September    29.83    September    42.25    September    73.20    September    43.80    September   

October

   23.60    October    34.25    October    41.13    October    65.35    October    44.94    October   

November

   22.35    November    34.44    November    43.95    November    69.77    November    51.69    November   

December

   21.43    December    36.26    December    52.20    December    72.66    December    51.28    December   

KIMBERLY-CLARK CORPORATION

Kimberly-Clark Corporation is a global health and hygiene company focused on building its personal care, consumer tissue and business-to-business operations. The corporation is principally engaged in the manufacturing and marketing of a wide range of health and hygiene products around the world. Most of these products are made from natural or synthetic fibers using advanced technologies in fibers, nonfibers and absorbency.

 

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January

   59.29    January    45.54    January    58.07    January    65.51    January    57.12    January    69.40

February

   61.55    February    45.06    February    63.59    February    65.98    February    59.18    February   

March

   63.56    March    44.70    March    62.04    March    65.73    March    57.80    March   

April

   64.02    April    48.93    April    64.35    April    62.45    April    58.53    April   

May

   63.83    May    51.06    May    64.79    May    64.33    May    60.67    May   

June

   60.96    June    51.26    June    64.77    June    62.59    June    61.70    June   

July

   60.02    July    47.59    July    62.99    July    63.76    July    61.05    July   

August

   58.83    August    50.25    August    65.58    August    62.32    August    63.50    August   

September

   55.69    September    50.46    September    63.50    September    59.53    September    65.36    September   

October

   50.63    October    51.92    October    58.67    October    56.84    October    66.52    October   

November

   49.47    November    53.31    November    62.54    November    58.98    November    66.47    November   

December

   46.67    December    58.10    December    65.81    December    59.65    December    67.95    December   

MCCORMICK & COMPANY, INCORPORATED

McCormick & Company, Incorporated is a diversified specialty food company, involved in the manufacture, marketing and distribution of spices, herbs, seasonings and other flavors to the food industry. McCormick operates in two business segments: Consumer and Industrial. The Consumer segment sells spices, herbs, extracts, seasoning blends, sauces, marinades and specialty foods to the consumer food market under a variety of brands. The Industrial segment sells seasoning blends, spices, herbs, wet flavors, compound flavors and coating systems to food manufacturers and the food service industry.

 

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January

   22.10    January    22.40    January    29.68    January    37.17    January    30.21    January    38.90

February

   24.50    February    23.13    February    31.27    February    37.99    February    32.83    February   

March

   25.57    March    24.14    March    33.52    March    34.43    March    33.86    March   

April

   25.64    April    24.79    April    34.16    April    34.59    April    34.83    April   

May

   26.26    May    26.90    May    35.45    May    33.84    May    34.45    May   

June

   25.75    June    27.20    June    34.00    June    32.68    June    33.55    June   

July

   22.75    July    25.56    July    35.77    July    34.78    July    35.06    July   

August

   23.15    August    26.70    August    33.55    August    33.91    August    36.42    August   

September

   22.80    September    27.42    September    34.34    September    32.63    September    37.98    September   

October

   22.24    October    29.64    October    35.43    October    30.29    October    37.40    October   

November

   23.79    November    28.69    November    36.45    November    31.22    November    38.72    November   

December

   23.20    December    30.10    December    38.60    December    30.92    December    38.56    December   

 

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ROHM AND HAAS COMPANY

Rohm and Haas Company manufactures and markets a variety of specialty chemicals and materials. These chemicals are used in paint and coatings, electronic materials, household products, adhesives, plastics and salt. Rohm and Haas and its subsidiaries operate manufacturing facilities worldwide.

 

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January

   36.78    January    30.85    January    39.27    January    44.24    January    50.90    January    52.06

February

   38.41    February    28.54    February    39.75    February    48.17    February    49.75    February   

March

   42.27    March    29.78    March    39.84    March    48.00    March    48.87    March   

April

   37.11    April    33.11    April    38.78    April    43.66    April    50.60    April   

May

   37.68    May    32.43    May    38.54    May    46.65    May    50.41    May   

June

   40.49    June    31.03    June    41.58    June    46.34    June    50.12    June   

July

   37.50    July    35.37    July    39.20    July    46.06    July    46.12    July   

August

   36.39    August    36.33    August    40.53    August    43.41    August    44.10    August   

September

   31.00    September    33.45    September    42.97    September    41.13    September    47.35    September   

October

   33.27    October    39.30    October    42.39    October    43.53    October    51.82    October   

November

   35.39    November    40.15    November    44.09    November    43.80    November    52.22    November   

December

   32.48    December    42.71    December    44.23    December    48.42    December    51.12    December   

SYSCO CORPORATION

Sysco Corporation, acting through its subsidiaries and divisions, is the largest North American distributor of food and related products primarily to the foodservice or “food-prepared-away-from-home” industry. The corporation provides its products and services to approximately 400,000 customers, including restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers.

 

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January

   29.62    January    29.37    January    37.93    January    34.97    January    30.68    January    34.55

February

   29.57    February    27.12    February    39.65    February    34.42    February    30.09    February   

March

   29.82    March    25.44    March    39.05    March    35.80    March    32.05    March   

April

   29.01    April    28.73    April    38.25    April    34.60    April    29.89    April   

May

   27.85    May    30.94    May    37.50    May    37.16    May    30.58    May   

June

   27.22    June    30.04    June    35.87    June    36.19    June    30.56    June   

July

   26.05    July    30.13    July    34.45    July    36.06    July    27.60    July   

August

   28.36    August    31.46    August    32.14    August    33.38    August    31.39    August   

September

   28.39    September    32.71    September    29.92    September    31.37    September    33.45    September   

October

   31.68    October    33.66    October    32.27    October    31.91    October    34.98    October   

November

   29.42    November    36.32    November    34.75    November    32.32    November    35.85    November   

December

   29.79    December    37.23    December    38.17    December    31.05    December    36.76    December   

THE SHERWIN-WILLIAMS COMPANY

The Sherwin-Williams Company is engaged in the manufacture, distribution and sale of paint, coatings and related products to professional, industrial, commercial and retail customers. Sherwin-Williams operates primarily through four operating segments: Paint Stores, Consumer, Automotive Finishes and International Coatings.

 

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January

   27.72    January    26.64    January    33.74    January    43.20    January    52.90    January    69.10

February

   26.42    February    26.70    February    35.00    February    44.30    February    45.55    February   

March

   28.48    March    26.43    March    38.43    March    43.99    March    49.44    March   

April

   30.73    April    27.88    April    38.05    April    44.57    April    50.94    April   

May

   31.60    May    27.38    May    39.30    May    44.45    May    48.37    May   

June

   29.93    June    26.88    June    41.55    June    47.09    June    47.48    June   

July

   28.73    July    30.00    July    40.38    July    47.61    July    50.60    July   

August

   27.00    August    30.08    August    41.30    August    46.36    August    51.64    August   

September

   23.68    September    29.41    September    43.96    September    44.07    September    55.78    September   

October

   27.35    October    33.54    October    42.72    October    42.55    October    59.23    October   

November

   28.83    November    32.43    November    44.60    November    43.84    November    62.55    November   

December

   28.25    December    34.74    December    44.63    December    45.42    December    63.58    December   

 

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WM. WRIGLEY JR. COMPANY

Wm. Wrigley Jr. Company concentrates on one principal line of business: manufacturing and marketing chewing gum and other confectionery products worldwide.

 

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January

   43.71    January    44.42    January    45.02    January    56.31    January    51.17    January    51.52

February

   44.83    February    42.90    February    44.99    February    53.25    February    50.83    February   

March

   42.65    March    45.20    March    47.30    March    52.46    March    51.20    March   

April

   44.00    April    45.37    April    49.36    April    55.30    April    47.07    April   

May

   45.85    May    45.20    May    50.24    May    54.62    May    45.72    May   

June

   44.28    June    44.98    June    50.44    June    55.07    June    45.36    June   

July

   40.92    July    43.43    July    48.32    July    56.91    July    45.86    July   

August

   40.73    August    42.44    August    49.62    August    56.84    August    46.42    August   

September

   39.59    September    44.24    September    50.65    September    57.50    September    46.06    September   

October

   42.22    October    45.12    October    52.32    October    55.60    October    51.95    October   

November

   43.03    November    44.10    November    55.04    November    54.87    November    52.44    November   

December

   43.90    December    44.97    December    55.35    December    53.19    December    51.72    December   

 

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LOGO

3,500,000 Units

Merrill Lynch & Co., Inc.

Medium-Term Notes, Series C

Strategic Return Notes®

Linked to the Industrial 15 Index

due February 2, 2012

(the “Notes”)

$10 original public offering price per unit

 

 

PRICING SUPPLEMENT

 

Merrill Lynch & Co.

January 31, 2007

“Strategic Return Notes” is a registered mark of Merrill Lynch & Co., Inc.