Capital Profile

Merrill Lynch & Co., Inc. and Subsidiaries (Unaudited)

Equity Capital

At December 28, 2007, equity capital, as defined by Merrill Lynch, was $36.7 billion and comprised of $27.5 billion of common equity, $4.4 billion of preferred stock, and $4.7 billion of trust preferred securities. We define equity capital more broadly than stockholders' equity under U.S. generally accepted accounting principles, as we include other capital instruments with equity-like characteristics such as trust preferred securities. We view trust preferred securities as equity capital because they are either perpetual or have maturities of at least 50 years at issuance. These trust preferred securities represent junior subordinated notes, net of related investments. Junior subordinated notes (related to trust preferred securities) are reported on the Consolidated Balance Sheets as liabilities for accounting purposes. The related investments are reported as investment securities on the Consolidated Balance Sheets.

Major components of the changes in our equity capital for 2007 and 2006 are as follows:

(1) Includes effect of accumulated other comprehensive loss and other items.
(2) 2006 amount includes the impact of our adoption of SFAS No. 123R and related policy modifications to previous stock awards, as well as accumulated other comprehensive loss and other items.

Our equity capital of $36.7 billion at December 28, 2007 decreased $5.7 billion, or 13%, from December 29, 2006. Equity capital decreased in 2007 primarily as a result of net losses, common stock repurchases and dividends. The equity capital decrease was partially offset by the issuance of common stock, the net issuance of preferred stock and trust preferred securities and the net effect of employee stock transactions. On a pro forma basis for equity issuances completed subsequent to year-end and described below, we had $45.6 billion of pro forma equity capital which was comprised of $29.9 billion in common equity, $11.0 billion in preferred stock and $4.7 billion in trust preferred securities.

Common Stock

On December 24, 2007, we reached agreements with each of Temasek and Davis, on behalf of various investors, to sell an aggregate of 116.7 million shares of newly issued common stock at a price of $48.00 per share, for aggregate proceeds of approximately $5.6 billion. Temasek purchased 55 million shares in December 2007 and the remaining 36.7 million shares in January 2008. In addition, Temasek and its assignees exercised options to purchase an additional 12.5 million shares of our common stock at a purchase price of $48.00 per share in February 2008. Davis purchased 25 million shares in December 2007. See "Other Information (Unaudited) - Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities" for additional detail on these transactions.

Upon closing the First Republic acquisition on September 21, 2007, we issued 11.6 million shares of common stock as a portion of the consideration.

On January 18, 2007, the Board of Directors declared a 40% increase in the regular quarterly dividend to 35 cents per common share.

During 2007, we repurchased 62.1 million common shares at an average repurchase price of $84.88 per share. On April 30, 2007 the Board of Directors authorized the repurchase of an additional $6 billion of our outstanding common shares. During 2007, we had completed the $5 billion repurchase program authorized in October 2006 and had $4.0 billion of authorized repurchase capacity remaining under the repurchase program authorized in April 2007. We did not repurchase any common stock during the fourth quarter of 2007 and do not anticipate additional repurchases of common shares.

Preferred Stock

On January 15, 2008, we reached agreements with several long-term investors to sell an aggregate of 66,000 shares of newly issued 9.00% Non-Voting Mandatory Convertible Non-Cumulative Preferred Stock, Series 1, par value $1.00 per share and liquidation preference $100,000 per share (the "Mandatory Convertible Preferred Stock"), at a price of $100,000 per share, for an aggregate purchase price of approximately $6.6 billion. We issued the Mandatory Convertible Preferred Stock on various dates in January and February 2008. See "Other Information (Unaudited) - Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities" for additional detail on these transactions.

In conjunction with the acquisition of First Republic on September 21, 2007 we issued $65 million of 6.70% non-cumulative perpetual preferred stock and $50 million of 6.25% non-cumulative preferred stock in exchange for First Republic's preferred stock Series A and B, respectively.

On March 20, 2007, Merrill Lynch issued $1.5 billion of floating rate, non-cumulative, perpetual preferred stock.

Trust Preferred Securities

On March 30, 2007, Merrill Lynch Preferred Capital Trust II redeemed all of the outstanding $300 million of 8.00% trust preferred securities.

On May 2, 2007, Merrill Lynch Capital Trust II issued $950 million of 6.45% trust preferred securities and invested the proceeds in junior subordinated notes issued by ML & Co.

On August 22, 2007, Merrill Lynch Capital Trust III issued $750 million of 7.375% trust preferred securities and invested the proceeds in junior subordinated notes issued by ML & Co.

The above is excerpted from the Merrill Lynch Form 10-K for the fiscal year ended December 28, 2007.

Balance Sheet Leverage

Assets-to-equity leverage ratios are commonly used to assess a company's capital adequacy. We believe that a leverage ratio adjusted to exclude certain assets considered to have low risk profiles and assets in customer accounts financed primarily by customer liabilities provides a more meaningful measure of balance sheet leverage in the securities industry than an unadjusted ratio. We calculate adjusted assets by reducing total assets by (1) securities financing transactions and securities received as collateral less trading liabilities net of contractual agreements and (2) segregated cash and securities and separate accounts assets.

As leverage ratios are not risk sensitive, we do not rely on them to measure capital adequacy. When we assess our capital adequacy, we consider more sophisticated measures that capture the risk profiles of the assets, the impact of hedging, off-balance sheet exposures, operational risk and other considerations.

The following table provides calculations of our leverage ratios at December 28, 2007 and December 29, 2006:

(1) Represents junior subordinated notes (related to trust preferred securities), net of related investments. The related investments are reported as investment securities and were $429 million and $490 million at December 28, 2007 and December 29, 2006, respectively.
(2) Equity capital less goodwill and other intangible assets.
(3) Total assets divided by equity capital.
(4) Adjusted assets divided by equity capital.
(5) Tangible adjusted assets divided by tangible equity capital.

The table above does not reflect the impact of the following transactions that occurred subsequent to our 2007 year end:

• Issuance of 49.2 million shares of common stock for $2.4 billion during the first quarter of 2008 in connection with our agreement with Temasek;



• Issuance of 66,000 shares of our 9.00% Non-Voting Mandatory Convertible Non-Cumulative Preferred Stock, Series 1 (convertible into a maximum of 126 million shares of common stock) for approximately $6.6 billion during the first quarter of 2008 to long-term investors, including the Korea Investment Corporation, Kuwait Investment Authority and Mizuho Corporate Bank; and



• On a pro forma basis for equity issuances completed subsequent to year-end and described above, our pro forma leverage ratio, adjusted leverage ratio and tangible adjusted leverage ratio would have been 22.6x, 14.4x, and 16.1x, respectively.

The above is excerpted from the Merrill Lynch Form 10-K for the fiscal year ended December 28, 2007.

Share Repurchases

The table below sets forth the information with respect to purchases made by or on behalf of us or any "affiliated purchaser" of our common stock during the year ended December 28, 2007.

(1) Share repurchases under the program were made pursuant to open-market purchases, Rule 10b5-1 plans or privately negotiated transactions as market conditions warranted and at prices that we deemed appropriate.

(2) Included in the total number of shares purchased are: (1) shares purchased during the period by participants in the Merrill Lynch 401(k) Savings and Investment Plan ("401(k)") and the Merrill Lynch Retirement Accumulation Plan ("RAP"), (2) shares delivered or attested to in satisfaction of the exercise price by holders of ML & Co. employee stock options (granted under employee stock compensation plans) and (3) Restricted Shares withheld (under the terms of grants under employee stock compensation plans) to offset tax withholding obligations that occur upon vesting and release of Restricted Shares. ML & Co.'s employee stock compensation plans provide that the value of the shares delivered, attested, or withheld, shall be the average of the high and low price of ML & Co.'s common stock (Fair Market Value) on the date the relevant transaction occurs. See Notes 12 and 13 to the Consolidated Financial Statements for additional information on these plans.

The above is excerpted from the Merrill Lynch Form 10-K for the fiscal year ended December 28, 2007.

Long-term Capital

Our long-term capital sources include equity capital, long-term borrowings and certain deposits in bank subsidiaries that we consider to be long-term or stable in nature.

At December 28, 2007 and December 29, 2006 total long-term capital consisted of the following:

(1) Includes $3.8 billion of equity in connection with common stock issuances to Temasek and Davis.
(2) Represents junior subordinated notes (related to trust preferred securities), net of related investments. The related investments are reported as investment securities and were $429 million at December 28, 2007 and $490 million at December 29, 2006.
(3) Excludes junior subordinated notes (related to trust preferred securities), the current portion of long-term borrowings and the long-term portion of other subsidiary financing that is non-recourse to or not guaranteed by ML & Co. Borrowings that mature in more than one year, but contain provisions whereby the holder has the option to redeem the obligations within one year, are reflected as the current portion of long-term borrowings and are not included in long-term capital.
(4) Includes $70,246 million and $14,789 million of deposits in U.S. and non-U.S. banking subsidiaries, respectively, at December 28, 2007, and $59,341 million and $11,863 million of deposits in U.S. and non-U.S. banking subsidiaries, respectively, at December 29, 2006 that we consider to be long-term based on our liquidity models.

At December 28, 2007, our long-term capital sources of $288.9 billion exceeded our estimated long-term capital requirements. In addition, on a pro forma basis for equity issuances completed subsequent to year-end and described on page 54, our pro forma long-term capital was $297.9 billion. See Liquidity Risk in the Risk Management Section for additional information.

The above is excerpted from the Merrill Lynch Form 10-K for the fiscal year ended December 28, 2007.

Liquidity Risk Management

We define liquidity risk as the potential inability to meet financial obligations, on- or off-balance sheet, as they come due.

Our primary liquidity objectives are to ensure liquidity through market cycles and periods of financial stress and to ensure that all funding requirements and unsecured debt obligations that mature within one year can be met without issuing new unsecured debt or requiring liquidation of business assets. In managing liquidity, we place significant emphasis on monitoring the near term cash flow profiles and exposures through extensive scenario analysis and stress testing. To achieve our objectives, we have established a set of liquidity management practices that are outlined below:

• Maintain excess liquidity in the form of unencumbered liquid assets and committed credit facilities;
• Match asset and liability profiles appropriately;
• Perform scenario analysis and stress testing; and
• Maintain a well formulated and documented contingency funding plan, including access to lenders of last resort.

Consistent with our objectives, we maintain excess liquidity at ML & Co. and selected subsidiaries in the form of cash and high quality unencumbered liquid assets, which represent our "Global Liquidity Sources" and serve as our primary source of liquidity risk protection. As of December 28, 2007 and December 29, 2006, the aggregate Global Liquidity Sources were $200 billion and $178 billion, respectively, consisting of the following:

The excess liquidity pool is maintained at, or readily available to, ML & Co. and can be deployed to meet cash outflow obligations under stressed liquidity conditions. The excess liquidity pool includes cash and cash equivalents, investments in short-term money market mutual funds, U.S. government and agency obligations and other liquid securities. In the first quarter of 2007, we changed our investment strategy and eliminated our exposure to long-term fixed rate assets. At December 28, 2007 and December 29, 2006, the total carrying value of the excess liquidity pool, net of related hedges, was $79 billion and $63 billion, respectively, which included liquidity sources at subsidiaries that we believe are available to ML & Co. without restrictions.

At December 28, 2007 and December 29, 2006, unencumbered liquid assets of $57 billion in the form of unencumbered investment grade asset-backed securities and prime residential mortgages were available at our regulated bank subsidiaries to meet potential deposit obligations, business activity demands and stressed liquidity needs of the bank subsidiaries. At December 28, 2007 and December 29, 2006, our non-bank subsidiaries, including broker-dealer subsidiaries, maintained $64 billion and $58 billion, respectively, of unencumbered securities, including $10 billion of customer margin securities at December 28, 2007 and $12 billion at December 29, 2006.

In addition to the Global Liquidity Sources, we maintain credit facilities that are available to cover regular and contingent funding needs.

The above is excerpted from the Merrill Lynch Form 10-K for the fiscal year ended December 28, 2007.