Merrill LYNCH & Co. (MER) 10-Q 2011 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

X	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2011
OR
	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to

Commission file number:1-7182

MERRILL LYNCH & CO., INC.

(Exact name of Registrant as specified in its charter)

Delaware	13-2740599
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)
Bank of America Corporate Center 100 N. Tryon Street Charlotte, North Carolina	28255
(Address of principal executive offices)	(Zip Code)
(704) 386-5681
Registrant’s telephone number, including area code:

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

X     YES             NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

X     YES             NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act. (Check one):

Large accelerated filer    Accelerated filer    Non-accelerated filer X Smaller reporting company   

(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).

     YES      X     NO

As of the close of business on August 4, 2011, there were 1,000 shares of Common Stock outstanding, all of which were held by Bank of America Corporation.

The registrant is a wholly-owned subsidiary of Bank of America Corporation and meets the conditions set forth in General Instructions H(1)(a) and (b) ofForm 10-Q and is therefore filing this Form with the reduced disclosure format as permitted by Instruction H(2).

QUARTERLY REPORT ONFORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011
TABLE OF CONTENTS

Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings (Loss)	3
Condensed Consolidated Balance Sheets	5
Condensed Consolidated Statements of Cash Flows	7
Condensed Consolidated Statements of Comprehensive Income (Loss)	8
Notes to Condensed Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies	9
Note 2. Transactions with Bank of America	19
Note 3. Segment and Geographic Information	21
Note 4. Fair Value Disclosures	22
Note 5. Fair Value of Financial Instruments	40
Note 6. Derivatives	42
Note 7. Securities Financing Transactions	55
Note 8. Investment Securities	56
Note 9. Securitizations and Other Variable Interest Entities	59
Note 10. Loans, Notes, and Mortgages	66
Note 11. Goodwill and Intangible Assets	70
Note 12. Borrowings and Deposits	71
Note 13. Stockholder’s Equity and Earnings Per Share	74
Note 14. Commitments, Contingencies and Guarantees	75
Note 15. Employee Benefit Plans	86
Note 16. Regulatory Requirements	87
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction	90
Executive Overview	91
Results of Operations	96
Off-Balance Sheet Exposures	100
Funding and Liquidity	107
Item 3. Quantitative and Qualitative Disclosures About Market Risk	109
Item 4. Controls and Procedures	109
Part II. Other Information
Item 1. Legal Proceedings	110
Item 1A. Risk Factors	110
Item 6. Exhibits	113
Signatures	114
Exhibit Index	115
EX-12
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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PART I — Financial Information

Item 1.  Financial Statements (Unaudited)

Merrill Lynch & Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings (Loss) (Unaudited)

	Three Months Ended			Three Months Ended
(dollars in millions)	June 30, 2011			June 30, 2010
Revenues
Principal transactions	$	2,173		$	2,090
Commissions		1,447			1,477
Managed account and other fee-based revenues		1,331			1,162
Investment banking		1,614			1,265
Earnings from equity method investments		120			96
Other revenues		1,109			1,177
Other-than-temporary impairment losses onavailable-for-sale debt securities:
Totalother-than-temporary impairment losses		(10	)		(39	)
Less: Portion ofother-than-temporary impairment losses recognized in other comprehensive income		2			2
Subtotal		7,786			7,230
Interest and dividend revenues		1,506			1,984
Less interest expense		2,390			2,515
Net interest expense		(884	)		(531	)
Revenues, net of interest expense		6,902			6,699
Non-interest expenses
Compensation and benefits		3,898			3,757
Communications and technology		478			487
Occupancy and related depreciation		335			357
Brokerage, clearing, and exchange fees		303			268
Advertising and market development		115			103
Professional fees		225			217
Office supplies and postage		32			36
Provision for representations and warranties		2,741			(103	)
Other		1,238			722
Total non-interest expenses		9,365			5,844
Pre-tax (loss) earnings		(2,463	)		855
Income tax (benefit) expense		(1,021	)		42
Net (loss) earnings	$	(1,442	)	$	813
Preferred stock dividends		-			38
Net (loss) earnings applicable to common stockholder	$	(1,442	)	$	775

 See Notes to Condensed Consolidated Financial Statements.

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Merrill Lynch & Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings (Loss) (Unaudited)

	Six Months Ended			Six Months Ended
(dollars in millions)	June 30, 2011			June 30, 2010
Revenues
Principal transactions	$	3,344		$	6,138
Commissions		3,037			2,966
Managed account and other fee-based revenues		2,622			2,214
Investment banking		3,146			2,474
Earnings from equity method investments		258			377
Other revenues		3,236			2,280
Other-than-temporary impairment losses onavailable-for-sale debt securities:
Totalother-than-temporary impairment losses		(46	)		(125	)
Less: Portion ofother-than-temporary impairment losses recognized in other comprehensive income		2			2
Subtotal		15,599			16,326
Interest and dividend revenues		3,906			4,740
Less interest expense		4,743			4,976
Net interest expense		(837	)		(236	)
Revenues, net of interest expense		14,762			16,090
Non-interest expenses
Compensation and benefits		8,508			8,086
Communications and technology		906			972
Occupancy and related depreciation		671			702
Brokerage, clearing, and exchange fees		603			554
Advertising and market development		236			199
Professional fees		452			395
Office supplies and postage		64			80
Provision for representations and warranties		2,719			(179	)
Other		2,445			1,203
Total non-interest expenses		16,604			12,012
Pre-tax (loss) earnings		(1,842	)		4,078
Income tax (benefit) expense		(806	)		1,172
Net (loss) earnings	$	(1,036	)	$	2,906
Preferred stock dividends		-			76
Net (loss) earnings applicable to common stockholder	$	(1,036	)	$	2,830

 See Notes to Condensed Consolidated Financial Statements.

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Merrill Lynch & Co., Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(dollars in millions, except per share amounts)	June 30, 2011		December 31, 2010
ASSETS
Cash and cash equivalents	$	14,746	$	17,220
Cash and securities segregated for regulatory purposes or deposited with clearing organizations		9,800		12,424
Securities financing transactions
Receivables under resale agreements (includes $91,164 in 2011 and $74,255 in 2010 measured at fair value in accordance with the fair value option election)		154,723		138,219
Receivables under securities borrowed transactions (includes $2,175 in 2011 and $1,672 in 2010 measured at fair value in accordance with the fair value option election)		68,007		60,458
		222,730		198,677
Trading assets, at fair value (includes securities pledged as collateral that can be sold or repledged of $49,743 in 2011 and $33,933 in 2010):
Derivative contracts		34,988		39,371
Equities and convertible debentures		39,623		34,204
Non-U.S. governments and agencies		31,690		22,248
Corporate debt and preferred stock		25,304		27,703
Mortgages, mortgage-backed, and asset-backed		10,334		10,994
U.S. Government and agencies		43,187		41,378
Municipals, money markets, physical commodities and other		17,214		14,759
		202,340		190,657
Investment securities (includes $237 in 2011 and $310 in 2010 measured at fair value in accordance with the fair value option election)		12,587		17,769
Securities received as collateral, at fair value		24,527		20,363
Receivables from Bank of America		64,817		60,655
Other receivables
Customers (net of allowance for doubtful accounts of $15 in 2011 and $8 in 2010)		25,707		22,080
Brokers and dealers		11,474		16,483
Interest and other		9,712		10,633
		46,893		49,196
Loans, notes, and mortgages (net of allowances for loan losses of $64 in 2011 and $170 in 2010) (includes $2,621 in 2011 and $3,190 in 2010 measured at fair value in accordance with the fair value option election)		23,883		25,803
Equipment and facilities (net of accumulated depreciation and amortization of $1,543 in 2011 and $1,320 in 2010)		1,545		1,712
Goodwill and intangible assets		9,559		9,714
Other assets		19,477		17,436
Total Assets	$	652,904	$	621,626
Assets of Consolidated VIEs Included in Total Assets Above (pledged as collateral)
Trading assets, excluding derivative contracts	$	10,794	$	10,838
Derivative contracts		26		41
Investment securities		261		309
Receivables from Bank of America		4		-
Loans, notes, and mortgages (net)		111		221
Other assets		2,127		1,597
Total Assets of Consolidated VIEs	$	13,323	$	13,006

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Merrill Lynch & Co., Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(dollars in millions, except per share amounts)	June 30, 2011			December 31, 2010
LIABILITIES
Securities financing transactions
Payables under repurchase agreements (includes $42,453 in 2011 and $37,394 in 2010 measured at fair value in accordance with the fair value option election)	$	175,900		$	183,758
Payables under securities loaned transactions		19,004			15,251
		194,904			199,009
Short-term borrowings (includes $4,121 in 2011 and $6,472 in 2010 measured at fair value in accordance with the fair value option election)		14,523			15,248
Deposits		13,394			12,826
Trading liabilities, at fair value
Derivative contracts		31,679			32,197
Equities and convertible debentures		14,268			14,026
Non-U.S. governments and agencies		20,178			15,705
Corporate debt and preferred stock		10,125			9,500
U.S. Government and agencies		26,090			24,747
Municipals, money markets and other		362			571
		102,702			96,746
Obligation to return securities received as collateral, at fair value		24,527			20,363
Payables to Bank of America		40,716			23,021
Other payables
Customers		46,171			39,045
Brokers and dealers		13,666			12,895
Interest and other (includes $112 in 2011 and $165 in 2010 measured at fair value in accordance with the fair value option election)		20,150			19,900
		79,987			71,840
Long-term borrowings (includes $41,034 in 2011 and $39,214 in 2010 measured at fair value in accordance with the fair value option election)		128,759			128,851
Junior subordinated notes (related to trust preferred securities)		3,588			3,576
Total Liabilities		603,100			571,480
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER’S EQUITY
Common stock (par value $1.331/3 per share; authorized: 3,000,000,000 shares; issued: 1,000 shares)		-			-
Paid-in capital		41,099			40,416
Accumulated other comprehensive loss (net of tax)		(243	)		(254	)
Retained earnings		8,948			9,984
Total Stockholder’s Equity		49,804			50,146
Total Liabilities and Stockholder’s Equity	$	652,904		$	621,626
Liabilities of Consolidated VIEs Included in Total Liabilities Above
Short-term borrowings	$	4,405		$	4,642
Derivative contracts		2			1
Payables to Bank of America		3			2
Other payables		180			53
Long-term borrowings		7,461			6,674
Total Liabilities of Consolidated VIEs	$	12,051		$	11,372

 See Notes to Condensed Consolidated Financial Statements.

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Merrill Lynch & Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)

	Six Months Ended			Six Months Ended
(dollars in millions)	June 30, 2011			June 30, 2010
Cash flows from operating activities:
Net (loss) earnings	$	(1,036	)	$	2,906
Adjustments to reconcile net (loss) earnings to cash used for operating activities Provision for representations and warranties		2,719			(179	)
Depreciation and amortization		378			470
Share-based compensation expense		1,290			830
Deferred taxes		(740	)		551
Earnings from equity method investments		258			(214	)
Other		852			884
Changes in operating assets and liabilities:
Trading assets		(11,683	)		(14,599	)
Cash and securities segregated for regulatory purposes or deposited with clearing organizations		2,624			3,363
Receivables from Bank of America		(4,162	)		(14,244	)
Receivables under resale agreements		(16,504	)		(57,109	)
Receivables under securities borrowed transactions		(7,549	)		10,769
Customer receivables		(3,634	)		10,541
Brokers and dealers receivables		5,009			(1,918	)
Proceeds from loans, notes, and mortgages held for sale		3,164			3,571
Other changes in loans, notes, and mortgages held for sale		(1,722	)		(1,323	)
Trading liabilities		5,921			30,652
Payables under repurchase agreements		(7,858	)		46,785
Payables under securities loaned transactions		3,753			(11,414	)
Payables to Bank of America		17,695			(4,516	)
Customer payables		7,126			(4,309	)
Brokers and dealers payables		771			(1,638	)
Other, net		(763	)		(179	)
Cash used for operating activities		(4,091	)		(320	)
Cash flows from investing activities:
Proceeds from (payments for):
Maturities ofavailable-for-sale securities		689			854
Sales ofavailable-for-sale securities		3,453			14,827
Purchases ofavailable-for-sale securities		(1,116	)		(508	)
Maturities ofheld-to-maturity securities		250			-
Equipment and facilities, net		(56	)		(154	)
Loans, notes, and mortgages held for investment		1,412			1,394
Other investments		3,792			1,406
Cash provided by investing activities		8,424			17,819
Cash flows from financing activities:
Proceeds from (payments for):
Short-term borrowings		(725	)		(703	)
Issuance and resale of long-term borrowings		6,098			4,548
Settlement and repurchases of long-term borrowings		(12,783	)		(18,350	)
Deposits		568			(2,226	)
Derivative financing transactions		35			-
Dividends		-			(76	)
Cash used for financing activities		(6,807	)		(16,807	)
(Decrease) increase in cash and cash equivalents		(2,474	)		692
Cash and cash equivalents, beginning of period		17,220			15,142
Cash and cash equivalents, end of period	$	14,746		$	15,834
Supplemental Disclosure of Cash Flow Information:
Income taxes paid	$	107		$	1,685
Income taxes refunded		-			(288	)
Interest paid		3,725			3,916

Non-cash investing and financing activities:

During the six months ended June 30, 2010, Merrill Lynch received a non-cash capital contribution of approximately $1 billion from Bank of America associated with certain employee stock awards. In addition, as of January 1, 2010, Merrill Lynch assumed assets and liabilities in connection with the consolidation of certain variable interest entities.

 See Notes to Condensed Consolidated Financial Statements.

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Merrill Lynch & Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

	Three Months Ended			Six Months Ended			Three Months Ended			Six Months Ended
(dollars in millions)	June 30, 2011			June 30, 2011			June 30, 2010			June 30, 2010
Net (loss) earnings	$	(1,442	)	$	(1,036	)	$	813		$	2,906
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment		-			2			1			(58	)
Net unrealized gain (loss) on investment securitiesavailable-for-sale		11			12			41			(117	)
Net deferred (loss) gain on cash flow hedges		(2	)		(7	)		(9	)		8
Defined benefit pension and postretirement plans		-			4			2			3
Total other comprehensive income (loss), net of tax		9			11			35			(164	)
Comprehensive (loss) income	$	(1,433	)	$	(1,025	)	$	848		$	2,742

 See Notes to Condensed Consolidated Financial Statements.

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Merrill Lynch & Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

June 30, 2011

Note 1.  Summary of Significant Accounting Policies

Merrill Lynch & Co. Inc. (“ML & Co.”) and together with its subsidiaries (“Merrill Lynch”), provides investment, financing and other related services to individuals and institutions on a global basis through its broker, dealer, banking and other financial services subsidiaries. On January 1, 2009, ML & Co. was acquired by Bank of America Corporation (“Bank of America”) in exchange for common and preferred stock with a value of $29.1 billion. Merrill Lynch is a wholly-owned subsidiary of Bank of America.

Merger with Banc of America Securities Holdings Corporation (“BASH”)

On November 1, 2010, ML & Co. merged with BASH, a wholly-owned subsidiary of Bank of America, with ML & Co. as the surviving corporation in the merger. In addition, as a result of the BASH merger, Banc of America Securities LLC (“BAS”), a wholly-owned broker-dealer subsidiary of BASH, became a wholly-owned broker-dealer subsidiary of ML & Co. Subsequently, on November 1, 2010, BAS was merged into Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), a wholly-owned broker-dealer subsidiary of ML & Co. In accordance with Accounting Standards Codification (“ASC”)805-10,Business Combinations(“Business Combinations Accounting”), Merrill Lynch’s Condensed Consolidated Financial Statements for the three and six month periods ended June 30, 2011 and June 30, 2010 include the historical results of BASH and subsidiaries as if the BASH merger had occurred as of January 1, 2009, the date at which both entities were first under the common control of Bank of America. Merrill Lynch has recorded the assets and liabilities acquired in connection with the BASH merger at their historical carrying values.

Basis of Presentation

The Condensed Consolidated Financial Statements include the accounts of Merrill Lynch. The Condensed Consolidated Financial Statements are presented in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). Intercompany transactions and balances within Merrill Lynch have been eliminated. Transactions and balances with Bank of America have not been eliminated. The interim Condensed Consolidated Financial Statements are unaudited; however, all adjustments for a fair presentation of the Condensed Consolidated Financial Statements have been included.

These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in Merrill Lynch’s Annual Report onForm 10-K for the year ended December 31, 2010 (the “2010 Annual Report”). The nature of Merrill Lynch’s business is such that the results of any interim period are not necessarily indicative of results for a full year. Certain prior-period amounts have been reclassified to conform to the current period presentation.

Consolidation Accounting

Merrill Lynch determines whether it is required to consolidate an entity by first evaluating whether the entity qualifies as a voting rights entity (“VRE”) or as a variable interest entity (“VIE”).

The Condensed Consolidated Financial Statements include the accounts of Merrill Lynch, whose subsidiaries are generally controlled through a majority voting interest or a controlling financial interest. On January 1, 2010, Merrill Lynch adopted accounting guidance on consolidation of VIEs,

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which has been deferred indefinitely for certain investment funds managed on behalf of third parties if Merrill Lynch does not have an obligation to fund losses that could potentially be significant to these funds. Any funds meeting the deferral requirements will continue to be evaluated for consolidation in accordance with the prior guidance.

VREs — VREs are defined to include entities that have both equity at risk that is sufficient to fund future operations and have equity investors that have a controlling financial interest in the entity through their equity investments. In accordance with ASC 810,Consolidation, (“Consolidation Accounting”),Merrill Lynch generally consolidates those VREs where it has the majority of the voting rights. For investments in limited partnerships and certain limited liability corporations that Merrill Lynch does not control, Merrill Lynch applies ASC 323,Investments — Equity Method and Joint Ventures(“Equity Method Accounting”), which requires use of the equity method of accounting for investors that have more than a minor influence, which is typically defined as an investment of greater than 3% to 5% of the outstanding equity in the entity. For more traditional corporate structures, in accordance with Equity Method Accounting, Merrill Lynch applies the equity method of accounting where it has the ability to exercise significant influence over operating and financing decisions of the investee. Significant influence can be evidenced by a significant ownership interest (which is generally defined as a voting interest of 20% to 50%), significant board of director representation, or other contracts and arrangements.

VIEs — Those entities that do not meet the VRE criteria are generally analyzed for consolidation as VIEs. A VIE is an entity that lacks equity investors or whose equity investors do not have a controlling financial interest in the entity through their equity investments. Merrill Lynch consolidates those VIEs for which it is the primary beneficiary. In accordance with Consolidation Accounting guidance, Merrill Lynch is considered the primary beneficiary when it has a controlling financial interest in a VIE. Merrill Lynch has a controlling financial interest when it has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Merrill Lynch reassesses whether it is the primary beneficiary of a VIE on a quarterly basis. The quarterly reassessment process considers whether Merrill Lynch has acquired or divested the power to direct the activities of the VIE through changes in governing documents or other circumstances. The reassessment also considers whether Merrill Lynch has acquired or disposed of a financial interest that could be significant to the VIE, or whether an interest in the VIE has become significant or is no longer significant. The consolidation status of the VIEs with which Merrill Lynch is involved may change as a result of such reassessments.

Securitization Activities

In the normal course of business, Merrill Lynch has securitized commercial and residential mortgage loans; municipal, government, and corporate bonds; and other types of financial assets. Merrill Lynch may retain interests in the securitized financial assets by holding notes or other debt instruments issued by the securitization vehicle. In accordance with ASC 860,Transfers and Servicing(“Financial Transfers and Servicing Accounting”), Merrill Lynch recognizes transfers of financial assets where it relinquishes control as sales to the extent of cash and any other proceeds received.

Revenue Recognition

Principal transactions revenue includes both realized and unrealized gains and losses on trading assets and trading liabilities, investment securities classified as trading investments and fair value changes associated with certain structured debt. These instruments are recorded at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Gains and losses on sales are recognized on a trade date basis.

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Commissions revenues include commissions, mutual fund distribution fees and contingent deferred sales charge revenue, which are all accrued as earned. Commissions revenues also include mutual fund redemption fees, which are recognized at the time of redemption. Commissions revenues earned from certain customer equity transactions are recorded net of related brokerage, clearing and exchange fees.

Managed account and other fee-based revenues primarily consist of asset-priced portfolio service fees earned from the administration of separately managed accounts and other investment accounts for retail investors, annual account fees, and certain other account-related fees.

Investment banking revenues include underwriting revenues and fees for merger and acquisition and other advisory services, which are accrued when services for the transactions are substantially completed. Underwriting revenues are presented net of transaction-related expenses.

Earnings from equity method investments include Merrill Lynch’s pro rata share of income and losses associated with investments accounted for under the equity method of accounting.

Other revenues include gains (losses) on investment securities, including sales andother-than-temporary-impairment (“OTTI”) losses associated with certainavailable-for-sale securities, gains (losses) on private equity investments and other principal investments and gains (losses) on loans and other miscellaneous items.

Contractual interest received and paid, and dividends received on trading assets and trading liabilities, excluding derivatives, are recognized on an accrual basis as a component of interest and dividend revenues and interest expense. Interest and dividends on investment securities are recognized on an accrual basis as a component of interest and dividend revenues. Interest related to loans, notes, and mortgages, securities financing activities and certain short- and long-term borrowings are recorded on an accrual basis as interest revenue or interest expense, as applicable. Contractual interest, if any, on structured notes is recorded as a component of interest expense.

Use of Estimates

In presenting the Condensed Consolidated Financial Statements, management makes estimates including the following:

•  Valuations of assets and liabilities requiring fair value estimates;

•  The allowance for credit losses;

•  Determination ofother-than-temporary impairments foravailable-for-sale investment securities;

•  The outcome of litigation;

•  Determination of the liability for representations and warranties made in connection with the sales of residential mortgage and home equity loans;

•  Determination of whether VIEs should be consolidated;

•  The ability to realize deferred taxes and the recognition and measurement of uncertain tax positions;

•  The carrying amount of goodwill and intangible assets;

•  The amortization period of intangible assets with definite lives;

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•  Incentive-based compensation accruals and valuation of share-based payment compensation arrangements; and

•  Other matters that affect the reported amounts and disclosure of contingencies in the Condensed Consolidated Financial Statements.

Estimates, by their nature, are based on judgment and available information. Therefore, actual results could differ from those estimates and could have a material impact on the Condensed Consolidated Financial Statements, and it is possible that such changes could occur in the near term. A discussion of certain areas in which estimates are a significant component of the amounts reported in the Condensed Consolidated Financial Statements follows:

Fair Value Measurement

Merrill Lynch accounts for a significant portion of its financial instruments at fair value or considers fair value in their measurement. Merrill Lynch accounts for certain financial assets and liabilities at fair value under various accounting literature, including ASC 320,Investments — Debt and Equity Securities(“Investment Accounting”), ASC 815,Derivatives and Hedging(“Derivatives Accounting”), and the fair value option election in accordance withASC 825-10-25,Financial Instruments — Recognition(the “fair value option election”). Merrill Lynch also accounts for certain assets at fair value under applicable industry guidance, namely ASC 940,Financial Services — Broker and Dealers(“Broker-Dealer Guide”) and ASC 946,Financial Services — Investment Companies(“Investment Company Guide”).

ASC 820,Fair Value Measurements and Disclosures(“Fair Value Accounting”) defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements.

Fair values forover-the-counter (“OTC”) derivative financial instruments, principally forwards, options, and swaps, represent the present value of amounts estimated to be received from or paid to a marketplace participant in settlement of these instruments (i.e., the amount Merrill Lynch would expect to receive in a derivative asset assignment or would expect to pay to have a derivative liability assumed). These derivatives are valued using pricing models based on the net present value of estimated future cash flows and directly observed prices from exchange-traded derivatives, other OTC trades, or external pricing services, while taking into account the counterparty’s creditworthiness, or Merrill Lynch’s own creditworthiness, as appropriate. Determining the fair value for OTC derivative contracts can require a significant level of estimation and management judgment.

Newand/or complex instruments may have immature or limited markets. As a result, the pricing models used for valuation often incorporate significant estimates and assumptions that market participants would use in pricing the instrument, which may impact the results of operations reported in the Condensed Consolidated Financial Statements. For instance, on long-dated and illiquid contracts extrapolation methods are applied to observed market data in order to estimate inputs and assumptions that are not directly observable. This enables Merrill Lynch to mark to fair value all positions consistently when only a subset of prices are directly observable. Values for OTC derivatives are verified using observed information about the costs of hedging the risk and other trades in the market. As the markets for these products develop, Merrill Lynch continually refines its pricing models to correlate more closely to the market price of these instruments. The recognition of significant inception gains and losses that incorporate unobservable inputs is reviewed by management to ensure such gains and losses are derived from observable inputsand/or incorporate reasonable assumptions about the unobservable component, such as implied bid-offer adjustments.

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Certain financial instruments recorded at fair value are initially measured using mid-market prices which results in gross long and short positions valued at the same pricing level prior to the application of position netting. The resulting net positions are then adjusted to fair value representing the exit price as defined in Fair Value Accounting. The significant adjustments include liquidity and counterparty credit risk.

Liquidity

Merrill Lynch makes adjustments to bring a position from a mid-market to a bid or offer price, depending upon the net open position. Merrill Lynch values net long positions at bid prices and net short positions at offer prices. These adjustments are based upon either observable or implied bid-offer prices.

Counterparty Credit Risk

In determining fair value, Merrill Lynch considers both the credit risk of its counterparties, as well as its own creditworthiness. Merrill Lynch attempts to mitigate credit risk to third parties by entering into netting and collateral arrangements. Net counterparty exposure (counterparty positions netted by offsetting transactions and both cash and securities collateral) is then valued for counterparty creditworthiness and this resultant value is incorporated into the fair value of the respective instruments. Merrill Lynch generally calculates the credit risk adjustment for derivatives based on observable market credit spreads.

Fair Value Accounting also requires that Merrill Lynch consider its own creditworthiness when determining the fair value of certain instruments, including OTC derivative instruments and certain structured notes carried at fair value under the fair value option election (i.e., debt valuation adjustment or “DVA”). Merrill Lynch’s DVA is measured in the same manner as third party counterparty credit risk. The impact of Merrill Lynch’s DVA is incorporated into the fair value of instruments such as OTC derivative contracts even when credit risk is not readily observable. OTC derivative liabilities are valued based on the net counterparty exposure as described above.

Legal and Representation and Warranty Reserves

Merrill Lynch is a party in various actions, some of which involve claims for substantial amounts. Amounts are accrued for the financial resolution of claims that have either been asserted or are deemed probable of assertion if, in the opinion of management, it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In many cases, it is not possible to determine whether a liability has been incurred or to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case no accrual is made until that time. Accruals are subject to significant estimation by management, with input from any outside counsel handling the matter.

In addition, Merrill Lynch and certain of its subsidiaries made various representations and warranties in connection with the sale of residential mortgage and home equity loans. Breaches of these representations and warranties may result in the requirement to repurchase mortgage loans or to otherwise make whole or provide other remedies to a whole-loan buyer or securitization trust. Refer to Note 14 for further information.

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Income Taxes

Merrill Lynch provides for income taxes on all transactions that have been recognized in the Condensed Consolidated Financial Statements in accordance with ASC 740,Income Taxes(“Income Tax Accounting”). Accordingly, deferred taxes are adjusted to reflect the tax rates at which future taxable amounts will likely be settled or realized. The effects of tax rate changes on deferred tax liabilities and deferred tax assets, as well as other changes in income tax laws, are recognized in net earnings in the period during which such changes are enacted. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more-likely-than-not to be realized. Pursuant to Income Tax Accounting, Merrill Lynch may consider various sources of evidence in assessing the necessity of valuation allowances to reduce deferred tax assets to amounts more-likely-than-not to be realized, including the following: 1) past and projected earnings, including losses, of Merrill Lynch and Bank of America, as certain tax attributes such as U.S. net operating losses (“NOLs”), U.S. capital loss carryforwards and foreign tax credit carryforwards can be utilized by Bank of America in certain income tax returns, 2) tax carryforward periods, and 3) tax planning strategies and other factors of the legal entities, such as the intercompany tax-allocation policy. Included within Merrill Lynch’s net deferred tax assets are carryforward amounts generated in the U.S. and the U.K. that are deductible in the future as NOLs. Merrill Lynch has concluded that these deferred tax assets are more-likely-than-not to be fully utilized prior to expiration, based on the projected level of future taxable income of Merrill Lynch and Bank of America, which is relevant due to the intercompany tax-allocation policy. For this purpose, future taxable income was projected based on forecasts, historical earnings after adjusting for the past market disruptions and the anticipated impact of the differences between pre-tax earnings and taxable income.

Merrill Lynch recognizes and measures its unrecognized tax benefits in accordance with Income Tax Accounting. Merrill Lynch estimates the likelihood, based on their technical merits, that tax positions will be sustained upon examination considering the facts and circumstances and information available at the end of each period. Merrill Lynch adjusts the level of unrecognized tax benefits when there is more information available, or when an event occurs requiring a change. In accordance with Bank of America’s policy, any new or subsequent change in an unrecognized tax benefit related to a Bank of America state consolidated, combined or unitary return in which Merrill Lynch is a member will generally not be reflected in Merrill Lynch’s balance sheet. However, upon Bank of America’s resolution of the item, any material impact determined to be attributable to Merrill Lynch will be reflected in Merrill Lynch’s balance sheet. Merrill Lynch accrues income-tax-related interest and penalties, if applicable, within income tax expense.

Merrill Lynch’s results of operations are included in the U.S. federal income tax return and certain state income tax returns of Bank of America. The method of allocating income tax expense is determined under the intercompany tax allocation policy of Bank of America. This policy specifies that income tax expense will be computed for all Bank of America subsidiaries generally on a separate pro forma return basis, taking into account the tax position of the consolidated group and the pro forma Merrill Lynch group. Under this policy, tax benefits associated with NOLs (or other tax attributes) of Merrill Lynch are payable to Merrill Lynch upon the earlier of the utilization in Bank of America’s tax returns or the utilization in Merrill Lynch’s pro forma tax returns.

Securities Financing Transactions

Merrill Lynch enters into repurchase and resale agreements and securities borrowed and loaned transactions to accommodate customers and earn interest rate spreads (also referred to as “matched book transactions”), obtain securities for settlement and finance inventory positions. Resale and repurchase agreements are generally accounted for as collateralized financing transactions and may be recorded at their contractual amounts plus accrued interest or at fair value under the fair value option election. In resale and repurchase agreements, typically the termination date of the agreements is

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before the maturity date of the underlying security. However, in certain situations, Merrill Lynch may enter into agreements where the termination date of the transaction is the same as the maturity date of the underlying security. These transactions are referred to as“repo-to-maturity” transactions. Merrill Lynch enters intorepo-to-maturity sales only for high quality, very liquid securities such as U.S. Treasury securities or securities issued by the government-sponsored enterprises (“GSEs”). Merrill Lynch accounts forrepo-to-maturity transactions as sales and purchases in accordance with applicable accounting guidance, and accordingly, removes or recognizes the securities from the Condensed Consolidated Balance Sheet and recognizes a gain or loss, as appropriate, in the Condensed Consolidated Statement of Earnings.Repo-to-maturity transactions were not material for the periods presented.

Resale and repurchase agreements recorded at fair value are generally valued based on pricing models that use inputs with observable levels of price transparency. Where the fair value option election has been made, changes in the fair value of resale and repurchase agreements are reflected in principal transactions revenues and the contractual interest coupon is recorded as interest revenue or interest expense, respectively. For further information refer to Note 4.

Resale and repurchase agreements recorded at their contractual amounts plus accrued interest approximate fair value, as the fair value of these items is not materially sensitive to shifts in market interest rates because of the short-term nature of these instrumentsand/or variable interest rates or to credit risk because the resale and repurchase agreements are substantially collateralized.

Merrill Lynch may use securities received as collateral for resale agreements to satisfy regulatory requirements such asRule 15c3-3 of the Securities Exchange Act of 1934.

Securities borrowed and loaned transactions may be recorded at the amount of cash collateral advanced or received plus accrued interest or at fair value under the fair value option election. Securities borrowed transactions require Merrill Lynch to provide the counterparty with collateral in the form of cash, letters of credit, or other securities. Merrill Lynch receives collateral in the form of cash or other securities for securities loaned transactions. For these transactions, the fees received or paid by Merrill Lynch are recorded as interest revenue or expense. The carrying value of securities borrowed and loaned transactions, recorded at the amount of cash collateral advanced or received, approximates fair value as these items are not materially sensitive to shifts in market interest rates because of their short-term natureand/or variable interest rates or to credit risk because securities borrowed and loaned transactions are substantially collateralized.

For securities financing transactions, Merrill Lynch’s policy is to obtain possession of collateral with a market value equal to or in excess of the principal amount loaned under the agreements. To ensure that the market value of the underlying collateral remains sufficient, collateral is generally valued daily and Merrill Lynch may require counterparties to deposit additional collateral or may return collateral pledged when appropriate. Securities financing agreements give rise to negligible credit risk as a result of these collateral provisions, and no allowance for loan losses is considered necessary. These instruments therefore are managed based on market risk rather than credit risk.

Substantially all securities financing activities are transacted under master agreements that give Merrill Lynch the right, in the event of default, to liquidate collateral held and to offset receivables and payables with the same counterparty. Merrill Lynch offsets certain repurchase and resale transactions with the same counterparty on the Condensed Consolidated Balance Sheets where it has such a master agreement, that agreement is legally enforceable and the transactions have the same maturity date.

All Merrill Lynch-owned securities pledged to counterparties where the counterparty has the right, by contract or custom, to sell or repledge the securities are disclosed parenthetically in trading assets or in investment securities on the Condensed Consolidated Balance Sheets.

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In transactions where Merrill Lynch acts as the lender in a securities lending agreement and receives securities that can be pledged or sold as collateral, it recognizes an asset on the Condensed Consolidated Balance Sheets carried at fair value, representing the securities received (securities received as collateral), and a liability for the same amount, representing the obligation to return those securities (obligation to return securities received as collateral). The amounts on the Condensed Consolidated Balance Sheets result from such non-cash transactions.

At the end of certain quarterly periods during the year ended December 31, 2009, BAS, which was merged into MLPF&S (see “Merger with Banc of America Securities Holdings Corporation” in this Note for a description of the merger), had recorded certain sales of agency mortgage-backed securities (“MBS”) which, based on an ongoing internal review and interpretation, should have been recorded as secured financings. As a result of the merger with BASH, Merrill Lynch has included the effect of these transactions in its consolidated financial statements. Merrill Lynch is currently conducting a detailed review to determine whether there are additional sales of agency MBS which should have been recorded as secured financings. Upon completion of this detailed review, additional transactions will be identified. These transactions are not expected to have an impact on the current period Condensed Consolidated Statements of Earnings (Loss) or the Condensed Consolidated Balance Sheets.

Trading Assets and Liabilities

Merrill Lynch’s trading activities consist primarily of securities brokerage and trading; derivatives dealing and brokerage; commodities trading and futures brokerage; and securities financing transactions. Trading assets and trading liabilities consist of cash instruments (e.g., securities and loans) and derivative instruments. Trading assets also include commodities inventory. See Note 6 for additional information on derivative instruments.

Trading assets and liabilities are generally recorded on a trade date basis at fair value. Included in trading liabilities are securities that Merrill Lynch has sold but did not own and will therefore be obligated to purchase at a future date (“short sales”). Commodities inventory is recorded at the lower of cost or fair value. Changes in fair value of trading assets and liabilities (i.e., unrealized gains and losses) are recognized as principal transactions revenues in the current period. Realized gains and losses and any related interest amounts are included in principal transactions revenues and interest revenues and expenses, depending on the nature of the instrument.

Derivatives

A derivative is an instrument whose value is derived from an underlying instrument or index, such as interest rates, equity security prices, currencies, commodity prices or credit spreads. Derivatives include futures, forwards, swaps, option contracts and other financial instruments with similar characteristics.

Derivative contracts often involve future commitments to exchange interest payment streams or currencies based on a notional or contractual amount (e.g., interest rate swaps or currency forwards) or to purchase or sell other financial instruments at specified terms on a specified date (e.g., options to buy or sell securities or currencies). Refer to Note 6 for further information.

Investment Securities

Investment securities consist of marketable investment securities and non-qualifying investments. Refer to Note 8.

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Marketable Investment Securities

ML & Co. and certain of its non-broker-dealer subsidiaries follow the guidance within Investment Accounting for investments in debt and publicly traded equity securities. Merrill Lynch classifies those debt securities that it does not intend to sell asheld-to-maturity securities.Held-to-maturity securities are carried at cost unless a decline in value is deemedother-than-temporary, in which case the carrying value is reduced. For Merrill Lynch, the trading classification under Investment Accounting generally includes those securities that are bought and held principally for the purpose of selling them in the near term, securities that are economically hedged, or securities that may contain a bifurcatable embedded derivative as defined in Derivatives Accounting. Securities classified as trading assets are marked to fair value through earnings. All other qualifying securities are classified asavailable-for-sale and are held at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss) (“OCI”).

Realized gains and losses on investment securities are included in current period earnings. For purposes of computing realized gains and losses, the cost basis of each investment sold is based on the specific identification method.

Merrill Lynch regularly (at least quarterly) evaluates eachheld-to-maturity andavailable-for-sale security whose fair value has declined below amortized cost to assess whether the decline in fair value isother-than-temporary. A decline in a debt security’s fair value is considered to beother-than-temporary if it is probable that all amounts contractually due will not be collected or Merrill Lynch either plans to sell the security or it is more likely than not that it will be required to sell the security before recovery of its amortized cost. For unrealized losses on debt securities that are deemedother-than-temporary, the credit component of another-than-temporary impairment is recognized in earnings and the non-credit component is recognized in OCI when Merrill Lynch does not intend to sell the security and it is more likely than not that Merrill Lynch will not be required to sell the security prior to recovery.

Non-Qualifying Investments

Non-qualifying investments are those investments that are not within the scope of Investment Accounting and primarily include private equity investments accounted for at fair value and other equity securities carried at cost or under the equity method of accounting.

Private equity investments that are held for capital appreciationand/or current income are accounted for under the Investment Company Guide and carried at fair value. Additionally, certain private equity investments that are not accounted for under the Investment Company Guide may be carried at fair value under the fair value option election. The fair value of private equity investments reflects expected exit values based upon market prices or other valuation methodologies, including market comparables of similar companies and discounted expected cash flows.

Merrill Lynch has non-controlling investments in the common shares of corporations and in partnerships that do not fall within the scope of Investment Accounting or the Investment Company Guide. Merrill Lynch accounts for these investments using either the cost or the equity method of accounting based on management’s ability to influence the investees or Merrill Lynch may elect the fair value option. See the Consolidation Accounting section of this Note for more information.

For investments accounted for using the equity method, income is recognized based on Merrill Lynch’s share of the earnings or losses of the investee. Dividend distributions are generally recorded as reductions in the investment balance. Impairment testing is based on the guidance provided in Equity

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Method Accounting, and the investment is reduced when an impairment is deemedother-than-temporary.

For investments accounted for at cost, income is recognized when dividends are received, or the investment is sold. Instruments are periodically tested for impairment based on the guidance provided in Investment Accounting, and the cost basis is reduced when impairment is deemedother-than-temporary.

Loans, Notes and Mortgages, Net

Merrill Lynch’s lending and related activities include loan originations, syndications and securitizations. Loan originations include corporate and institutional loans, residential and commercial mortgages, asset-backed loans, and other loans to individuals and businesses. Merrill Lynch also engages in secondary market loan trading (see the Trading Assets and Liabilities section of this Note) and margin lending. Loans included in loans, notes, and mortgages are classified for accounting purposes as loans held for investment and loans held for sale. Upon completion of the acquisition of Merrill Lynch by Bank of America, certain loans carried by Merrill Lynch were subject to the requirements ofASC 310-30,Loans and Debt Securities Acquired with Deteriorated Credit Quality(“Acquired Impaired Loan Accounting”).

Loans held for investment are generally carried at amortized cost, less an allowance for loan losses, which represents Merrill Lynch’s estimate of probable losses inherent in its lending activities. The fair value option election has been made for certainheld-for-investment loans, notes and mortgages. Merrill Lynch performs periodic and systematic detailed reviews of its lending portfolios to identify credit risks and to assess overall collectability. These reviews, which are updated on a quarterly basis, consider a variety of factors including, but not limited to, historical loss experience, estimated defaults, delinquencies, economic conditions, credit scores and the fair value of any underlying collateral. Provisions for loan losses are included in interest and dividend revenue in the Condensed Consolidated Statements of Earnings (Loss).

Merrill Lynch’s estimate of loan losses includes judgment about collectability based on available information at the balance sheet date, and the uncertainties inherent in those underlying assumptions. While management has based its estimates on the best information available, future adjustments to the allowance for loan losses may be necessary as a result of changes in the economic environment or variances between actual results and the original assumptions.

In general, loans that are past due 90 days or more as to principal or interest, or where reasonable doubt exists as to timely collection, including loans that are individually identified as being impaired, are classified as non-performing unless well-secured and in the process of collection. Loans, primarily commercial, whose contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties are considered troubled debt restructurings (“TDRs”) and are classified as non-performing until the loans have performed for an adequate period of time under the restructured agreement. Interest accrued but not collected is reversed when a commercial loan is considered non-performing. Interest collections on commercial loans for which the ultimate collectability of principal is uncertain are applied as principal reductions; otherwise, such collections are credited to income when received. Commercial loans may be restored to performing status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well-secured and is in the process of collection.

Loans held for sale are carried at lower of cost or fair value. The fair value option election has been made for certain held for sale loans, notes and mortgages. Estimation is required in determining these fair values. The fair value of loans made in connection with commercial lending activity, consisting mainly of senior debt, is primarily estimated using the market value of publicly issued debt instruments

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when available or discounted cash flows. Nonrefundable loan origination fees, loan commitment fees, and “draw down” fees received in conjunction with held for investment loans are generally deferred and recognized over the contractual life of the loan as an adjustment to the yield. If, at the outset, or any time during the term of the loan, it becomes probable that the repayment period will be extended, the amortization is recalculated using the expected remaining life of the loan. When the loan contract does not provide for a specific maturity date, management’s best estimate of the repayment period is used. At repayment of the loan, any unrecognized deferred fee is immediately recognized in earnings. If the loan is accounted for as held for sale, the fees received are deferred and recognized as part of the gain or loss on sale in other revenues. If the loan is accounted for under the fair value option election, the fees are included in the determination of the fair value and included in other revenues.

New Accounting Pronouncements

In April 2011, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance on TDRs, including how to determine whether a loan modification represents a concession and whether the debtor is experiencing financial difficulties. This new accounting guidance will be effective for Merrill Lynch’s interim period ending September 30, 2011 with retrospective application back to January 1, 2011. The new accounting guidance is primarily expected to affect disclosures.

In April, 2011, the FASB issued new accounting guidance that addresses effective control in repurchase agreements and eliminates the requirement for entities to consider whether the transferor has the ability to repurchase the financial assets in a repurchase agreement. This new accounting guidance will be effective, on a prospective basis for new transactions or modifications to existing transactions, on January 1, 2012. The adoption of this guidance is not expected to have a material impact on Merrill Lynch’s consolidated financial position or results of operations.

In May 2011, the FASB issued amendments to Fair Value Accounting. The amendments clarify the application of the highest and best use and valuation premise concepts, preclude the application of blockage factors in the valuation of all financial instruments and include criteria for applying the fair value measurement principles to portfolios of financial instruments. The amendments additionally prescribe enhanced financial statement disclosures for Level 3 fair value measurements. The new amendments will be effective for the three months ended March 31, 2012. Merrill Lynch is currently assessing the impact of this guidance on its consolidated financial position and results of operations.

In June 2011, the FASB issued new accounting guidance on the presentation of comprehensive income in financial statements. The new guidance removes current presentation options and requires entities to report components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. This new accounting guidance will be effective for Merrill Lynch for the three months ended March 31, 2012. The new accounting guidance is primarily expected to affect presentation, but will not impact Merrill Lynch’s consolidated financial position or results of operations.

Note 2.  Transactions with Bank of America

Merrill Lynch has entered into various transactions with Bank of America, primarily to integrate certain activities within either Bank of America or Merrill Lynch. Transactions with Bank of America also include various asset and liability transfers and transactions associated with intercompany sales and trading and financing activities.

Merger with BASH

See Note 1 — “Merger with Banc of America Securities Holdings Corporation (“BASH”)” for further information on this transaction.

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Other Related Party Transactions

Merrill Lynch has entered into various other transactions with Bank of America, primarily in connection with certain sales and trading and financing activities. Details on amounts receivable from and payable to Bank of America as of June 30, 2011 and December 31, 2010 are presented below:

Receivables from Bank of America are comprised of:

(dollars in millions)	June 30, 2011		December 31, 2010
Cash and cash equivalents	$	12,274	$	14,471
Cash and securities segregated for regulatory purposes		6,741		5,508
Receivables under resale agreements		28,441		31,053
Trading assets		680		643
Net intercompany funding receivable		13,791		7,305
Other receivables		2,890		1,460
Other assets		-		215
Total	$	64,817	$	60,655

Payables to Bank of America are comprised of:

(dollars in millions)	June 30, 2011		December 31, 2010
Payables under repurchase agreements	$	29,654	$	12,890
Payables under securities loaned transactions		2,520		2,352
Short-term borrowings		1,546		1,901
Deposits		34		33
Trading liabilities		596		520
Other payables		3,787		2,746
Long-term borrowings(1)		2,579		2,579
Total	$	40,716	$	23,021

(1) Amounts are subordinated borrowings from Bank of America (see Note 12).

Total net revenues and non-interest expenses related to transactions with Bank of America for the three months ended June 30, 2011 were $217 million and $677 million, respectively. Such revenues and expenses for the six months ended June 30, 2011 were $571 million and $1,229 million, respectively. Total net revenues and non-interest expenses related to transactions with Bank of America for the three months ended June 30, 2010 were net losses of $82 million and expenses of $203 million, respectively. Such revenues and expenses for the six months ended June 30, 2010 were net losses of $17 million and expenses of $451 million, respectively. Non-interest expenses for the three and six months ended June 30, 2011 reflect increased intercompany service fees resulting from the integration of Bank of America’s and Merrill Lynch’s methodologies for allocating expenses associated with shared services to their subsidiaries. The results for the six months ended June 30, 2011 and June 30, 2010 included gains of $39 million and $282 million, respectively, from the sale of approximately $3.3 billion and $11.2 billion, respectively, ofavailable-for-sale securities to Bank of America. These transfers were made to enable Bank of America or its non-Merrill Lynch subsidiaries to more efficiently manage the existing portfolio of similaravailable-for-sale securities.

Bank of America and Merrill Lynch have entered into certain intercompany lending and borrowing arrangements to facilitate centralized liquidity management. Included in these arrangements is a $50 billion one-year revolving line of credit that allows Bank of America to borrow funds from Merrill Lynch at a spread to LIBOR that is reset periodically and is consistent with other intercompany agreements. The line of credit matures on January 1, 2012 and will automatically be extended by one year to the succeeding January 1st unless Merrill Lynch provides written notice not to extend at least

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45 days prior to the maturity date. Approximately $12.1 billion and $6.1 billion were outstanding under this line of credit as of June 30, 2011 and December 31, 2010, respectively. In addition, on August 3, 2011, Merrill Lynch authorized a short-term (less than 365 days with no automatic renewal) credit facility that will allow Bank of America to borrow up to an additional $25 billion for general corporate and working capital purposes. For information on Merrill Lynch’s other borrowing arrangements with Bank of America, including Bank of America’s guarantees of certain debt securities, warrantsand/or other certificates and obligations of certain subsidiaries of ML & Co., refer to Note 12. Bank of America has also guaranteed the performance of Merrill Lynch on certain derivative transactions (see Note 6).

Note 3.  Segment and Geographic Information

Segment Information

Pursuant to ASC 280,Segment Reporting, operating segments represent components of an enterprise for which separate financial information is available that is regularly evaluated by the chief operating decision maker in determining how to allocate resources and in assessing performance. The business activities of Merrill Lynch are included within certain of the operating segments of Bank of America. Detailed financial information related to the stand-alone operations of Merrill Lynch, however, is not provided to Merrill Lynch’s chief operating decision maker. As a result, Merrill Lynch does not contain any identifiable operating segments under Segment Reporting, and the financial information of Merrill Lynch is presented as a single segment.

Geographic Information

Merrill Lynch conducts its business activities through offices in the following five regions:

•  United States;

•  Europe, Middle East, and Africa (“EMEA”);

•  Pacific Rim;

•  Latin America; and

•  Canada.

The principal methodologies used in preparing the geographic information below are as follows:

•  Revenues are generally recorded based on the location of the employee generating the revenue; and

•  Intercompany transfers are based primarily on service agreements.

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The information that follows, in management’s judgment, provides a reasonable representation of each region’s contribution to the consolidated net revenues:

	Three Months Ended		Six Months Ended		Three Months Ended		Six Months Ended
(dollars in millions)	June 30, 2011		June 30, 2011		June 30, 2010		June 30, 2010
Revenues, net of interest expense
Europe, Middle East, and Africa	$	1,331	$	2,649	$	611	$	2,732
Pacific Rim		565		1,336		322		1,100
Latin America		395		727		240		580
Canada		74		153		55		128
TotalNon-U.S.		2,365		4,865		1,228		4,540
United States(1)(2)		4,537		9,897		5,471		11,550
Total revenues, net of interest expense	$	6,902	$	14,762	$	6,699	$	16,090

(1)

U.S. results for the three and six months ended June 30, 2011 included gains of $0.1 billion and losses of $0.2 billion, respectively, due to the impact of changes in Merrill Lynch’s credit spreads on the carrying values of certain long-term borrowings, primarily structured notes. U.S. results for the three and six months ended June 30, 2010 included gains of $1.2 billion and $1.4 billion, respectively, due to the impact of changes in Merrill Lynch’s credit spreads on the carrying values of certain long-term borrowings, primarily structured notes.

(2)

Corporate net revenues and adjustments are reflected in the U.S. region.

Note 4.  Fair Value Disclosures

Fair Value Accounting

Fair Value Hierarchy

In accordance with Fair Value Accounting, Merrill Lynch has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy.

The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

Financial assets and liabilities recorded on the Condensed Consolidated Balance Sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1.	Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that Merrill Lynch has the ability to access (examples include active exchange-traded equity securities, exchange-traded derivatives, U.S. Government securities, and certain other sovereign government obligations).
Level 2.	Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:

a)  Quoted prices for similar assets or liabilities in active markets (examples include restricted stock and U.S. agency securities);

b)  Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which can trade infrequently);

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c)  Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include mostover-the-counter derivatives, including interest rate and currency swaps); and

d)  Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability (examples include certain residential and commercial mortgage-related assets, including loans, securities and derivatives).

Level 3.   Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s view about the assumptions a market participant would use in pricing the asset or liability (examples include certain private equity investments, certain residential and commercial mortgage-related assets and long-dated or complex derivatives).

As required by Fair Value Accounting, when the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore gains and losses for such assets and liabilities categorized within the Level 3 reconciliation below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). Further, the following reconciliations do not take into consideration the offsetting effect of Level 1 and 2 financial instruments entered into by Merrill Lynch that economically hedge certain exposures to the Level 3 positions.

A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Level 3 gains and losses represent amounts incurred during the period in which the instrument was classified as Level 3. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or transfers out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur. Refer to the recurring and non-recurring sections within this Note for further information on transfers in and out of Level 3.

Valuation Techniques

The following outlines the valuation methodologies for Merrill Lynch’s material categories of assets and liabilities:

U.S. Government and agencies

U.S. Treasury securities U.S. Treasury securities are valued using quoted market prices and are generally classified as Level 1 in the fair value hierarchy.

U.S. agency securities U.S. agency securities are comprised of two main categories consisting of agency issued debt and mortgage pass-throughs. The fair value of agency issued debt securities is derived using market prices and recent trade activity gathered from independent dealer pricing services or brokers. Mortgage pass-throughs include To-be-announced (“TBA”) securities and mortgage pass-through certificates. TBA securities are generally valued using quoted market prices. Generally, the fair value of mortgage pass-through certificates is based on market prices of comparable securities. Agency issued debt securities and mortgage pass-throughs are generally classified as Level 2 in the fair value hierarchy.

23

Non-U.S. governments and agencies

Sovereign government obligations Sovereign government obligations are valued using quoted prices in active markets when available. To the extent quoted prices are not available, fair value is determined based on reference to recent trading activity and quoted prices of similar securities. These securities are generally classified in Level 1 or Level 2 in the fair value hierarchy, primarily based on the issuing country.

Municipal debt

Municipal bonds The fair value of municipal bonds is calculated using recent trade activity, market price quotations and new issuance levels. In the absence of this information, fair value is calculated using comparable bond credit spreads. Current interest rates, credit events, and individual bond characteristics such as coupon, call features, maturity, and revenue purpose are considered in the valuation process. The majority of these bonds are classified as Level 2 in the fair value hierarchy.

Auction Rate Securities (“ARS”) Merrill Lynch holds investments in certain ARS, including student loan and municipal ARS. Student loan ARS are comprised of various pools of student loans. Municipal ARS are issued by states and municipalities for a wide variety of purposes, including but not limited to healthcare, industrial development, education and transportation infrastructure. The fair value of the student loan ARS is calculated using a pricing model that relies upon a number of assumptions including weighted average life, coupon, discount margin and liquidity discounts. The fair value of the municipal ARS is calculated based upon projected refinancing and spread assumptions. In both cases, recent trades and issuer tenders are considered in the valuations. Student loan ARS and municipal ARS are classified as Level 3 in the fair value hierarchy.

Corporate and other debt

Corporate bonds Corporate bonds are valued based on either the most recent observable tradeand/or external quotes, depending on availability. The most recent observable trade price is given highest priority as the valuation benchmark based on an evaluation of transaction date, size, frequency, and bid-offer. This price may be adjusted by bond or credit default swap spread movement. When credit default swap spreads are referenced,cash-to-synthetic basis magnitude and movement as well as maturity matching are incorporated into the value. When neither external quotes nor a recent trade is available, the bonds are valued using a discounted cash flow approach based on risk parameters of comparable securities. In such cases, the potential pricing difference in spreadand/or price terms with the traded comparable is considered. Corporate bonds are generally classified as Level 2 or Level 3 in the fair value hierarchy.

Corporate loans and commitments The fair values of corporate loans and loan commitments are based on market prices and most recent transactions when available. When not available, a discounted cash flow valuation approach is applied using market-based credit spreads of comparable debt instruments, recent new issuance activity or relevant credit derivatives with appropriatecash-to-synthetic basis adjustments. Corporate loans and commitments are generally classified as Level 2 in the fair value hierarchy. Certain corporate loans, particularly those related to emerging market, leveraged and distressed companies have limited price transparency. These loans are generally classified as Level 3 in the fair value hierarchy.

Mortgages, mortgage-backed and asset-backed

Residential Mortgage-Backed Securities (“RMBS”), Commercial Mortgage-Backed Securities (“CMBS”), and other Asset-Backed Securities (“ABS”) RMBS, CMBS and other ABS are valued based on observable price or credit spreads for the particular security, or when price or credit spreads

24

are not observable, the valuation is based on prices of comparable bonds or the present value of expected future cash flows. Valuation levels of RMBS and CMBS indices are used as an additional data point for benchmarking purposes or to price outright index positions.

When estimating the fair value based upon the present value of expected future cash flows, Merrill Lynch uses its best estimate of the key assumptions, including forecasted credit losses, prepayment rates, forward yield curves and discount rates commensurate with the risks involved, while also taking into account performance of the underlying collateral.

RMBS, CMBS and other ABS are classified as Level 3 in the fair value hierarchy if external prices or credit spreads are unobservable or if comparable trades/assets involve significant subjectivity related to property type differences, cash flows, performance and other inputs; otherwise, they are classified as Level 2 in the fair value hierarchy.

Equities

Exchange-Traded Equity Securities Exchange-traded equity securities are generally valued based on quoted prices from the exchange. To the extent these securities are actively traded, they are classified as Level 1 in the fair value hierarchy, otherwise they are classified as Level 2.

Derivative contracts

Listed Derivative Contracts Listed derivatives that are actively traded are generally valued based on quoted prices from the exchange and are classified as Level 1 in the fair value hierarchy. Listed derivatives that are not actively traded are valued using the same approaches as those applied to OTC derivatives; they are generally classified as Level 2 in the fair value hierarchy.

OTC Derivative Contracts OTC derivative contracts include forwards, swaps and options related to interest rate, foreign currency, credit, equity or commodity underlyings.

The fair value of OTC derivatives is derived using market prices and other market based pricing parameters such as interest rates, currency rates and volatilities that are observed directly in the market or gathered from independent sources such as dealer consensus pricing services or brokers. Where models are used, they are used consistently and reflect the contractual terms of and specific risks inherent in the contracts. Generally, the models do not require a high level of subjectivity since the valuation techniques used in the models do not require significant judgment and inputs to the models are readily observable in active markets. When appropriate, valuations are adjusted for various factors such as liquidity and credit considerations based on available market evidence. In addition, for most collateralized interest rate and currency derivatives the requirement to pay interest on the collateral may be considered in the valuation. The majority of OTC derivative contracts are classified as Level 2 in the fair value hierarchy.

OTC derivative contracts that do not have readily observable market based pricing parameters are classified as Level 3 in the fair value hierarchy. Examples of derivative contracts classified within Level 3 include contractual obligations that have tenures that extend beyond periods in which inputs to the model would be observable, exotic derivatives with significant inputs into a valuation model that are less transparent in the market and certain credit default swaps (“CDS”) referenced to mortgage-backed securities.

For example, derivative instruments, such as certain CDS referenced to RMBS, CMBS, ABS and collateralized debt obligations (“CDOs”), may be valued based on the underlying mortgage risk where these instruments are not actively quoted. Inputs to the valuation will include available information on similar underlying loans or securities in the cash market. The prepayments and loss assumptions on the

25

underlying loans or securities are estimated using a combination of historical data, prices on recent market transactions, relevant observable market indices such as the ABX or CMBX and prepayment and default scenarios and analyses.

CDOs The fair value of CDOs is derived from a referenced basket of CDS, the CDO’s capital structure, and the default correlation, which is an input to a proprietary CDO valuation model. The underlying CDO portfolios typically contain investment grade as well as non-investment grade obligors. After adjusting for differences in risk profile, the correlation parameter for an actual transaction is estimated by benchmarking against observable standardized index tranches and other comparable transactions. CDOs are classified as either Level 2 or Level 3 in the fair value hierarchy.

Investment securities non-qualifying

Investments in Private Equity, Real Estate and Hedge Funds Merrill Lynch has investments in numerous asset classes, including: direct private equity, private equity funds, hedge funds and real estate funds. Valuing these investments requires significant management judgment due to the nature of the assets and the lack of quoted market prices and liquidity in these assets. Initially, the transaction price of the investment is generally considered to be the best indicator of fair value. Thereafter, valuation of direct investments is based on an assessment of each individual investment using various methodologies, which include publicly traded comparables derived by multiplying a key performance metric (e.g., earnings before interest, taxes, depreciation and amortization) of the portfolio company by the relevant valuation multiple observed for comparable companies, acquisition comparables, entry level multiples and discounted cash flows. These valuations are subject to appropriate discounts for lack of liquidity or marketability. Certain factors which may influence changes to fair value include but are not limited to, recapitalizations, subsequent rounds of financing, and offerings in the equity or debt capital markets. For fund investments, Merrill Lynch generally records the fair value of its proportionate interest in the fund’s capital as reported by the fund’s respective managers.

Investment securities non-qualifying include equity securities that have recently gone through initial public offerings or secondary sales of public positions. These investments are primarily classified as either Level 1 or Level 2 in the fair value hierarchy. Level 2 classifications generally include those publicly traded equity investments that have a legal or contractual transfer restriction. All other investments in private equity, real estate and hedge funds are classified as Level 3 in the fair value hierarchy due to infrequent tradingand/or unobservable market prices.

Resale and repurchase agreements

Merrill Lynch elected the fair value option for certain resale and repurchase agreements. For such agreements, the fair value is estimated using a discounted cash flow model which incorporates inputs such as interest rate yield curves and option volatility. Resale and repurchase agreements for which the fair value option has been elected are generally classified as Level 2 in the fair value hierarchy.

Long-term and short-term borrowings

Merrill Lynch and its consolidated VIEs issue structured notes that have coupons or repayment terms linked to the performance of debt or equity securities, indices, currencies or commodities. The fair value of structured notes is estimated using valuation models for the combined derivative and debt portions of the notes when the fair value option has been elected. These models incorporate observable and in some instances unobservable inputs including security prices, interest rate yield curves, option volatility, currency, commodity or equity rates and correlations between these inputs. The impact of Merrill Lynch’s own credit spreads is also included based on Merrill Lynch’s observed secondary bond market spreads. Structured notes are classified as either Level 2 or Level 3 in the fair value hierarchy.

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Recurring Fair Value

The following tables present Merrill Lynch’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010, respectively.

	Fair Value Measurements on a Recurring Basis
	as of June 30, 2011
							Netting
(dollars in millions)	Level 1		Level 2		Level 3		Adj(1)			Total
Assets:
Securities segregated for regulatory purposes or deposited with clearing organizations:
Corporate debt	$	-	$	320	$	-	$	-		$	320
Non-U.S. governments and agencies		-		1,674		-		-			1,674
U.S. Government and agencies		1,073		615		-		-			1,688
Total securities segregated for regulatory purposes or deposited with clearing organizations		1,073		2,609		-		-			3,682
Receivables under resale agreements		-		91,164		-		-			91,164
Receivables under securities borrowed transactions		-		2,175		-		-			2,175
Trading assets, excluding derivative contracts:
Equities		24,576		8,777		163		-			33,516
Convertible debentures		-		5,955		152		-			6,107
Non-U.S. governments and agencies		28,848		2,451		391		-			31,690
Corporate debt		-		20,849		3,846		-			24,695
Preferred stock		-		302		307		-			609
Mortgages, mortgage-backed and asset-backed		-		5,486		4,848		-			10,334
U.S. Government and agencies		24,301		18,886		-		-			43,187
Municipals and money markets		1,165		12,789		2,486		-			16,440
Physical commodities and other		-		774		-		-			774
Total trading assets, excluding derivative contracts		78,890		76,269		12,193		-			167,352
Derivative contracts(2)		2,737		547,052		11,798		(526,599	)		34,988
Investment securitiesavailable-for-sale:
U.S. Treasury securities and agency debentures		398		-		-		-			398
Mortgage-backed securities — Residential MBS		-		397		-		-			397
— Agency CMOs		-		-		55		-			55
— Non-agency MBS		-		441		96		-			537
Non-U.S. securities		594		-		-		-			594
Corporate/Agency bonds		-		-		86		-			86
Total investment securitiesavailable-for-sale		992		838		237		-			2,067
Investment securities non-qualifying		3,124		2,870		1,571		-			7,565
Total investment securities		4,116		3,708		1,808		-			9,632
Securities received as collateral		23,067		1,460		-		-			24,527
Loans, notes and mortgages		-		681		1,940		-			2,621

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	Fair Value Measurements on a Recurring Basis
	as of June 30, 2011
							Netting
(dollars in millions)	Level 1		Level 2		Level 3		Adj(1)			Total
Liabilities:
Payables under repurchase agreements		-		42,453		-		-			42,453
Short-term borrowings		-		4,121		-		-			4,121
Trading liabilities, excluding derivative contracts:
Equities		10,504		3,317		-		-			13,821
Convertible debentures		-		447		-		-			447
Non-U.S. governments and agencies		19,424		754		-		-			20,178
Corporate debt		-		9,983		28		-			10,011
Preferred stock		-		91		23		-			114
U.S. Government and agencies		22,935		3,155		-		-			26,090
Municipals, money markets and other		277		82		3		-			362
Total trading liabilities, excluding derivative contracts		53,140		17,829		54		-			71,023
Derivative contracts(2)		1,565		551,290		6,697		(527,873	)		31,679
Obligation to return securities received as collateral		23,067		1,460		-		-			24,527
Other payables — interest and other		-		4		108		-			112
Long-term borrowings		-		38,502		2,532		-			41,034

(1)	Represents counterparty and cash collateral netting.
(2)	Refer to Note 6 for product level detail.

During the three months ended June 30, 2011, a private equity investment included within investment securities non-qualifying of approximately $400 million was transferred from Level 2 to Level 1 due the lapse of a contractual transfer restriction on the security.

Level 3 derivative contracts (assets) relate to derivative positions on U.S. ABS CDOs and other mortgage products of $4.6 billion, $2.7 billion of other credit derivatives that incorporate unobservable model valuation inputs, and $4.4 billion of equity, currency, interest rate and commodity derivatives that are long-datedand/or have unobservable model valuation inputs (e.g., unobservable correlation).

Level 3 non-qualifying investment securities primarily relate to certain private equity positions.

Level 3 loans, notes and mortgages primarily relate to residential mortgage and corporate loans.

Level 3 derivative contracts (liabilities) relate to derivative positions on U.S. ABS CDOs and other mortgage products of $1.9 billion, $0.8 billion of other credit derivatives that incorporate unobservable model valuation inputs, and $4.0 billion of equity, currency, interest rate and commodity derivatives that are long-datedand/or have unobservable model valuation inputs (e.g., unobservable correlation).

Level 3 long-term borrowings primarily relate to equity-linked structured notes of $2.0 billion and long-term borrowings of consolidated VIEs of $300 million, both of which have unobservable model valuation inputs (e.g., unobservable correlation).

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	Fair Value Measurements on a Recurring Basis
	as of December 31, 2010
							Netting
(dollars in millions)	Level 1		Level 2		Level 3		Adj(1)			Total
Assets:
Securities segregated for regulatory purposes or deposited with clearing organizations:
Corporate debt	$	-	$	306	$	-	$	-		$	306
Non-U.S. governments and agencies		1,652		1,402		-		-			3,054
U.S. Government and agencies		1,419		1,413		-		-			2,832
Total securities segregated for regulatory purposes or deposited with clearing organizations		3,071		3,121		-		-			6,192
Receivables under resale agreements(2)		-		74,255		-		-			74,255
Receivables under securities borrowed transactions		-		1,672		-		-			1,672
Trading assets, excluding derivative contracts:
Equities		20,458		7,673		170		-			28,301
Convertible debentures		-		5,903		-		-			5,903
Non-U.S. governments and agencies		18,393		3,612		243		-			22,248
Corporate debt		-		22,300		4,605		-			26,905
Preferred stock		-		511		287		-			798
Mortgages, mortgage-backed and asset-backed		-		5,247		5,747		-			10,994
U.S. Government and agencies(3)		17,742		23,636		-		-			41,378
Municipals and money markets		732		11,102		2,327		-			14,161
Physical commodities and other		-		598		-		-			598
Total trading assets, excluding derivative contracts		57,325		80,582		13,379		-			151,286
Derivative contracts(4)		1,622		590,020		14,359		(566,630	)		39,371
Investment securitiesavailable-for-sale:
U.S. Treasury securities and agency debentures		430		-		-		-			430
Mortgage-backed securities — residential MBS		-		3,869		-		-			3,869
Mortgage-backed securities — agency CMOs		-		61		-		-			61
Mortgage-backed securities — non-agency MBS		-		518		213		-			731
Total investment securitiesavailable-for-sale		430		4,448		213		-			5,091
Investment securities non-qualifying		2,792		690		3,394					6,876
Total investment securities		3,222		5,138		3,607		-			11,967
Securities received as collateral		19,471		892		-		-			20,363
Loans, notes and mortgages		-		1,423		1,891		-			3,314
Liabilities:
Payables under repurchase agreements		-		37,394		-		-			37,394
Short-term borrowings		-		6,472		-		-			6,472
Trading liabilities, excluding derivative contracts:
Equities		11,706		914		-		-			12,620
Convertible debentures		-		1,406		-		-			1,406
Non-U.S. governments and agencies		14,748		957		-		-			15,705
Corporate debt		-		9,500		-		-			9,500
U.S. Government and agencies		19,860		4,887		-		-			24,747
Municipals, money markets and other		224		347		-		-			571
Total trading liabilities, excluding derivative contracts		46,538		18,011		-		-			64,549
Derivatives contracts(4)		1,142		590,138		7,991		(567,074	)		32,197
Obligation to return securities received as collateral		19,471		892		-		-			20,363
Other payables — interest and other		-		39		126		-			165
Long-term borrowings		-		36,818		2,396		-			39,214

(1) Represents counterparty and cash collateral netting.

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(2)	Receivables under resale agreements have been revised from approximately $51 billion (as previously reported) to approximately $74 billion. A similar revision has been made on the balance sheet to the parenthetical disclosure of receivables under resale agreements measured at fair value in accordance with the fair value option election.
(3)	U.S. Government and agencies trading asset amounts shown in Level 1 and Level 2 have been revised from approximately $7 billion and $34 billion, respectively (as previously reported) to approximately $18 billion and $24 billion, respectively.
(4)	Refer to Note 6 for product level detail.

Level 3 derivative contracts (assets) relate to derivative positions on U.S. ABS CDOs and other mortgage products of $5.7 billion, $4.1 billion of other credit derivatives that incorporate unobservable model valuation inputs, and $4.5 billion of equity, currency, interest rate and commodity derivatives that are long-datedand/or have unobservable model valuation inputs (e.g., unobservable correlation).

Level 3 non-qualifying investment securities primarily relate to certain private equity positions.

Level 3 loans, notes and mortgages primarily relate to residential mortgage and corporate loans.

Level 3 derivative contracts (liabilities) relate to derivative positions on U.S. ABS CDOs and other mortgage products of $2.2 billion, $2.0 billion of other credit derivatives that incorporate unobservable model valuation inputs, and $3.8 billion of equity, currency, interest rate and commodity derivatives that are long-datedand/or have unobservable model valuation inputs (e.g., unobservable correlation).

Level 3 long-term borrowings primarily relate to equity-linked structured notes of $1.9 billion that are long-datedand/or have unobservable model valuation inputs (e.g., unobservable correlation).

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The following tables provide a summary of changes in Merrill Lynch’s Level 3 financial assets and liabilities for the three and six months ended June 30, 2011 and June 30, 2010.

(dollars in millions)
	Level 3 Financial Assets and Liabilities
	Three Months Ended June 30, 2011
											Total Realized
			Total Realized and Unrealized Gains or (Losses)								and Unrealized
			included in Income								Gains or (Losses)			Unrealized
	Beginning		Principal			Other					included in			Gains to														Transfers		Transfers			Ending
	Balance		Transactions			Revenue			Interest		Income			OCI			Sales			Purchases			Issuances		Settlements			In		Out			Balance
Assets:
Trading assets, excluding derivative contracts:
Equities	$	215	$	1		$	-		$	-	$	1		$	-		$	(38	)	$	48		$	-	$	(63	)	$	-	$	-		$	163
Convertible debentures		119		7			-			-		7			-			(84	)		110			-		-			-		-			152
Non-U.S. governments and agencies		252		80			-			-		80			-			(11	)		74			-		(3	)		3		(4	)		391
Corporate debt		3,998		42			-			-		42			-			(1,027	)		777			-		(69	)		151		(26	)		3,846
Preferred stock		325		19			-			-		19			-			(93	)		27			-		(52	)		81		-			307
Mortgages, mortgage-backed and asset-backed		5,433		55			-			-		55			-			(1,572	)		952			-		(20	)		-		-			4,848
Municipals and money markets		2,350		12			-			-		12			-			(743	)		948			-		(149	)		68		-			2,486
Total trading assets, excluding derivative contracts		12,692		216			-			-		216			-			(3,568	)		2,936			-		(356	)		303		(30	)		12,193
Derivative contracts, net		5,554		284			-			-		284			-			(250	)		296			-		(424	)		-		(359	)		5,101
Investment securitiesavailable-for-sale:
Mortgage-backed securities — agency CMOs		56		-			-			-		-			-			-			-			-		(1	)		-		-			55
Mortgage-backed securities — non-agency MBSs		103		-			(6	)		-		(6	)		(3	)		-			2			-		-			-		-			96
Corporate/agency bonds		-		-			-			-		-			-			-			86			-		-			-		-			86
Total investment securitiesavailable-for-sale		159		-			(6	)		-		(6	)		(3	)		-			88			-		(1	)		-		-			237
Investment securities non-qualifying		1,095		-			125					125						(48	)		24			-		-			375		-			1,571
Total investment securities		1,254		-			119			-		119			(3	)		(48	)		112			-		(1	)		375		-			1,808
Loans, notes and mortgages		1,993		-			54			9		63			-			(327	)		113			215		(113	)		22		(26	)		1,940
Liabilities:
Trading liabilities, excluding derivative contracts:
Corporate debt		52		(1	)		-			-		(1	)		-			20			(45	)		-		-			-		-			28
Preferred stock		23		-			-			-		-			-			-			-			-		-			-		-			23
Municipals, money markets and other		22		-			-			-		-			-			-			(19	)		-		-			-		-			3
Total trading liabilities, excluding derivative contracts		97		(1	)		-			-		(1	)		-			20			(64	)		-		-			-		-			54
Other payables — interest and other		100		-			1			-		1			-			-			-			9		-			-		-			108
Long-term borrowings		2,364		(10	)		20			-		10			-			55			(50	)		205		(95	)		229		(166	)		2,532

Sales of mortgages, mortgage-backed and asset-backed securities primarily relates to the sale of CDO positions in conjunction with the liquidation of a VIE and sales of collateralized loan obligation (“CLO”) positions due to the unwind of the proprietary trading business. Sales and purchases of municipal securities is primarily due to dealer activity in student loan ARS.

Transfers in for corporate debt are primarily due to corporate bond private placements with limited market activity. Transfers out for net derivative contracts primarily relates to increased price observability for certain equity derivative positions. Transfers in for investment securities non-qualifying are due to a change in the valuation methodology for a private equity fund. Transfers in and out related to long-term borrowings are primarily due to changes in the impact of unobservable inputs on the value of certain equity-linked structured notes.

31

(dollars in millions)
	Level 3 Financial Assets and Liabilities
	Six Months Ended June 30, 2011
			Total Realized and Unrealized								Total Realized
			Gains or (Losses)								and Unrealized
			included in Income								Gains or (Losses)			Unrealized
	Beginning		Principal			Other					included in			Gains to														Transfers		Transfers			Ending
	Balance		Transactions			Revenue			Interest		Income			OCI			Sales			Purchases			Issuances		Settlements			In		Out			Balance
Assets:
Trading assets, excluding derivative contracts:
Equities	$	170	$	35		$	-		$	-	$	35		$	-		$	(86	)	$	108		$	-	$	(63	)	$	-	$	(1	)	$	163
Convertible debentures		-		7			-			-		7			-			(84	)		229			-		-			-		-			152
Non-U.S. governments and agencies		243		85			-			-		85			-			(15	)		122			-		(3	)		3		(44	)		391
Corporate debt		4,605		327			-			-		327			-			(2,096	)		1,118			-		(108	)		247		(247	)		3,846
Preferred stock		287		28			-			-		28			-			(106	)		30			-		(52	)		120		-			307
Mortgages, mortgage-backed and asset-backed		5,747		384			-			-		384			-			(2,408	)		1,513			-		(39	)		1		(350	)		4,848
Municipals and money markets		2,327		31			-			-		31			-			(1,652	)		1,884			-		(172	)		72		(4	)		2,486
Total trading assets, excluding derivative contracts		13,379		897			-			-		897			-			(6,447	)		5,004			-		(437	)		443		(646	)		12,193
Derivative contracts, net		6,368		27			-			-		27			-			(682	)		633			-		(862	)		299		(682	)		5,101
Investment securitiesavailable-for-sale:
Mortgage-backed securities — agency CMOs		-		-			-			-		-			-			-			56			-		(1	)		-		-			55
Mortgage-backed securities — non-agency MBSs		213		-			(15	)		-		(15	)		(22	)		(82	)		2			-		-			-		-			96
Corporate/Agency bonds		-		-			-			-		-			-			-			86			-		-			-		-			86
Total investment securitiesavailable-for-sale		213		-			(15	)		-		(15	)		(22	)		(82	)		144			-		(1	)		-		-			237
Investment securities non-qualifying		3,394		-			345			-		345			-			(852	)		46			-		(189	)		375		(1,548	)		1,571
Total investment securities		3,607		-			330			-		330			(22	)		(934	)		190			-		(190	)		375		(1,548	)		1,808
Loans, notes and mortgages		1,891		-			229			17		246			-			(496	)		144			215		(155	)		135		(40	)		1,940
Liabilities:
Trading liabilities, excluding derivative contracts:
Corporate debt		-		(1	)		-			-		(1	)		-			72			(45	)		-		-			-		-			28
Preferred stock		-		-			-			-		-			-			23			-			-		-			-		-			23
Municipals, money markets and other		-		-			-			-		-			-			22			(19	)		-		-			-		-			3
Total trading liabilities, excluding derivative contracts		-		(1	)		-			-		(1	)		-			117			(64	)		-		-			-		-			54
Other payables — interest and other		126		-			25			-		25			-			4			(6	)		9		-			-		-			108
Long-term borrowings		2,396		(102	)		(15	)		-		(117	)		-			55			(112	)		248		(326	)		529		(375	)		2,532

Sales of corporate debt primarily relates to sales of corporate ARS and distressed loans during the first quarter of 2011. Sales of mortgages, mortgage-backed and asset-backed securities primarily relates to the sale of CDO positions in conjunction with the liquidation of a VIE and sales of CLO positions due to the unwind of the proprietary trading business. Sales and purchases of municipal securities is primarily due to dealer activity in student loan ARS. Sales of investment securities non-qualifying relates to the sale of a private equity investment during the first quarter of 2011.

Transfers in for corporate debt are primarily due to corporate bond private placements with limited market activity. Transfers out for corporate debt primarily relates to increased price observability (e.g., trading comparables) for certain corporate bond positions. Transfers out for mortgages, mortgage-backed and asset-backed securities primarily relates to increased price observability for certain RMBS and consumer ABS portfolios. Transfers in for net derivative contracts primarily relates to changes in the valuation methodology for certain CDO positions. Transfers out for net derivative contracts primarily relates to increased price observability for certain equity and credit derivative positions. Transfers in for investment securities non-qualifying are due to a change in the valuation methodology

32

for a private equity fund. Transfers out related to investment securities non-qualifying are due to a private equity investment that underwent an initial public offering during the first quarter of 2011. Transfers in and out related to long-term borrowings are primarily due to changes in the impact of unobservable inputs on the value of certain equity-linked structured notes.

(dollars in millions)
	Level 3 Financial Assets and Liabilities
	Three Months Ended June 30, 2010
			Total Realized and Unrealized Gains or (Losses)								Total Realized and						Purchases,
			included in Income								Unrealized Gains			Unrealized			Issuances
	Beginning		Principal			Other					or (Losses)			Gains to			and			Transfers			Transfers			Ending
	Balance		Transactions			Revenue			Interest		included in Income			OCI			Settlements			In			Out			Balance
Assets:
Trading assets, excluding derivative contracts:
Equities	$	323	$	(18	)	$	-		$	-	$	(18	)	$	-		$	(1	)	$	41		$	-		$	345
Non-U.S. governments and agencies		1,063		(73	)		-			-		(73	)		-			(51	)		4			(3	)		940
Corporate debt		6,280		(55	)		-			-		(55	)		-			(765	)		298			(178	)		5,580
Preferred stock		210		(23	)		-			-		(23	)		-			2			-			(1	)		188
Mortgages, mortgage-backed and asset-backed		7,298		131			-			-		131			-			(684	)		362			(233	)		6,874
Municipals and money markets		2,819		(1	)		-			-		(1	)		-			251			160			(113	)		3,116
Total trading assets, excluding derivative contracts		17,993		(39	)		-			-		(39	)		-			(1,248	)		865			(528	)		17,043
Derivative contracts, net		7,281		(217	)		-			-		(217	)		-			(18	)		(520	)		65			6,591
Investment securitiesavailable-for-sale:
Mortgage-backed securities — residential non-agency MBSs		585		-			(47	)		-		(47	)		(25	)		(152	)		3			(12	)		352
Total investment securitiesavailable-for-sale		585		-			(47	)		-		(47	)		(25	)		(152	)		3			(12	)		352
Investment securities non-qualifying		3,490		-			848			-		848			-			(210	)		-			-			4,128
Total investment securities		4,075		-			801			-		801			(25	)		(362	)		3			(12	)		4,480
Loans, notes and mortgages		3,532		-			10			45		55			-			(435	)		-			-			3,152
Liabilities:
Trading liabilities, excluding derivative contracts:
Non-U.S. governments and agencies		369		-			2			-		2			-			9			-			(369	)		7
Total trading liabilities, excluding derivative contracts		369		-			2			-		2			-			9			-			(369	)		7
Other liabilities — interest and other		148		-			(19	)		-		(19	)		-			(13	)		-			-			154
Long-term borrowings		4,519		472			113			-		585			-			(249	)		545			(224	)		4,006

Other revenue related to investment securities non-qualifying primarily represents net gains on certain private equity investments.

Transfers in for net derivative contracts are primarily due to a lack of price observability for certain credit default and total return swap liabilities related to CDO positions.

Transfers in and transfers out related to long-term borrowings are primarily due to changes in the impact of unobservable inputs on the value of certain equity-linked structured notes.

33

(dollars in millions)
	Level 3 Financial Assets and Liabilities
	Six Months Ended June 30, 2010
			Total Realized and Unrealized Gains or (Losses)								Total Realized and						Purchases,
			included in Income								Unrealized Gains			Unrealized			Issuances
	Beginning		Principal			Other					or (Losses)			Gains to			and			Transfers		Transfers			Ending
	Balance		Transactions			Revenue			Interest		included in Income			OCI			Settlements			In		Out			Balance
Assets:
Trading assets, excluding derivative contracts:
Equities	$	351	$	(11	)	$	-		$	-	$	(11	)	$	-		$	5		$	72	$	(72	)	$	345
Non-U.S. governments and agencies		1,142		(155	)		-			-		(155	)		-			(79	)		91		(59	)		940
Corporate debt		6,790		251			-			-		251			-			(1,516	)		652		(597	)		5,580
Preferred stock		562		(25	)		-			-		(25	)		-			(348	)		-		(1	)		188
Mortgages, mortgage-backed and asset-backed		7,294		76			-			-		76			-			(435	)		384		(445	)		6,874
Municipals and money markets		2,148		16			-			-		16			-			(169	)		1,234		(113	)		3,116
Total trading assets, excluding derivative contracts		18,287		152			-			-		152			-			(2,542	)		2,433		(1,287	)		17,043
Derivative contracts, net		6,866		(636	)		-			-		(636	)		-			(153	)		510		4			6,591
Investment securitiesavailable-for-sale:
Mortgage-backed securities - residential non-agency MBSs		473		-			(67	)		24		(43	)		(52	)		(69	)		55		(12	)		352
Total investment securitiesavailable-for-sale		473		-			(67	)		24		(43	)		(52	)		(69	)		55		(12	)		352
Investment securities non-qualifying		3,696		-			1,211			-		1,211			-			(644	)		-		(135	)		4,128
Total investment securities		4,169		-			1,144			24		1,168			(52	)		(713	)		55		(147	)		4,480
Loans, notes and mortgages		4,115		-			(141	)		91		(50	)		-			(913	)		-		-			3,152
Liabilities:
Trading liabilities, excluding derivative contracts:
Non-U.S. governments and
agencies		386		21			2			-		23			-			24			-		(380	)		7
Total trading liabilities, excluding derivative contracts		386		21			2			-		23			-			24			-		(380	)		7
Other liabilities — interest and other		186		-			11			-		11			-			(21	)		-		-			154
Long-term borrowings		4,683		595			192			-		787			-			203			816		(909	)		4,006

Other revenue related to investment securities non-qualifying primarily represents net gains on certain private equity investments.

Decreases in purchases, issuances and settlements related to corporate debt primarily relates to the sale of certain positions (e.g., ARS) during the first and second quarter of 2010.

Transfers in for municipals and money markets relate to reduced price transparency (e.g., lower trading activity) for municipal ARS. Transfers in and transfers out related to long-term borrowings are primarily due to changes in the impact of unobservable inputs on the value of certain equity-linked structured notes

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The following tables provide the portion of gains or losses included in income for the three and six months ended June 30, 2011 and June 30, 2010 attributable to unrealized gains or losses relating to those Level 3 assets and liabilities held at June 30, 2011 and June 30, 2010, respectively.

(dollars in millions)
	Unrealized Gains or (Losses) for Level 3 Assets and Liabilities Still Held
	Three Months Ended June 30, 2011											Six Months Ended June 30, 2011
	Principal			Other								Principal			Other
	Transactions			Revenue			Interest		Total			Transactions			Revenue			Interest		Total
Assets:
Trading assets, excluding derivative contracts:
Equities	$	(61	)	$	-		$	-	$	(61	)	$	(46	)	$	-		$	-	$	(46	)
Convertible debentures		3			-			-		3			3			-			-		3
Non-U.S. governments and agencies		67			-			-		67			70			-			-		70
Corporate debt		(44	)		-			-		(44	)		154			-			-		154
Preferred stock		17			-			-		17			23			-			-		23
Mortgages, mortgage-backed and asset-backed		(42	)		-			-		(42	)		201			-			-		201
Municipals and money markets		(3	)		-			-		(3	)		16			-			-		16
Total trading assets, excluding derivative contracts		(63	)		-			-		(63	)		421			-			-		421
Derivative contracts, net		344			-			-		344			269			-			-		269
Investment securitiesavailable-for-sale: Mortgage-backed securities - non-agency MBSs		-			(6	)		-		(6	)		-			(25	)		-		(25	)
Total investment securities available-for- sale		-			(6	)		-		(6	)		-			(25	)		-		(25	)
Investment securities non-qualifying		-			122			-		122			-			92			-		92
Total investment securities		-			116			-		116			-			67			-		67
Loans, notes and mortgages		-			17			-		17			-			185			-		185
Liabilities:
Trading liabilities, excluding derivative contracts:
Corporate debt		(1	)		-			-		(1	)		(1	)		-			-		(1	)
Total trading liabilities, excluding
derivative contracts		(1	)		-			-		(1	)		(1	)		-			-		(1	)
Other payables — interest and other		-			(20	)		-		(20	)		-			2			-		2
Long-term borrowings		(10	)		8			-		(2	)		(102	)		(27	)		-		(129	)

35

(dollars in millions)
	Unrealized Gains or (Losses) for Level 3 Assets and Liabilities Still Held
	Three Months Ended June 30, 2010											Six Months Ended June 30, 2010
	Principal			Other								Principal			Other
	Transactions			Revenue			Interest		Total			Transactions			Revenue			Interest		Total
Assets:
Trading assets, excluding derivative contracts:
Equities	$	(9	)	$	-		$	-	$	(9	)	$	(23	)	$	-		$	-	$	(23	)
Non-U.S. governments and agencies		(73	)		-			-		(73	)		(156	)		-			-		(156	)
Corporate debt		(105	)		-			-		(105	)		19			-			-		19
Preferred stock		(23	)		-			-		(23	)		(25	)		-			-		(25	)
Mortgages, mortgage-backed and asset-backed		120			-			-		120			56			-			-		56
Municipals and money markets		(1	)		-			-		(1	)		16			-			-		16
Total trading assets, excluding derivative contracts		(91	)		-			-		(91	)		(113	)		-			-		(113	)
Derivative contracts, net		(224	)		-			-		(224	)		(590	)		-			-		(590	)
Investment securitiesavailable-for-sale:
Mortgage-backed securities - non-agency MBSs		-			(2	)		-		(2	)		-			(22	)		24		2
Total investment securities available-for- sale		-			(2	)		-		(2	)		-			(22	)		24		2
Investment securities non-qualifying		-			688			-		688			-			482			-		482
Total investment securities		-			686			-		686			-			460			24		484
Loans, notes and mortgages		-			(61	)		-		(61	)		-			(39	)		-		(39	)
Liabilities:
Trading liabilities, excluding derivative contracts:
Non-U.S. governments and agencies		2			-			-		2			-			-			-		-
Mortgages, mortgage-backed and asset-backed		-			-			-		-			61			-			-		61
Total trading liabilities, excluding derivative contracts		2			-			-		2			61			-			-		61
Other payables — interest and other		-			(19	)		-		(19	)		-			11			-		11
Long-term borrowings		384			113			-		497			494			191			-		685

Non-recurring Fair Value

Certain assets and liabilities are measured at fair value on a non-recurring basis and are not included in the tables above. These assets and liabilities primarily include loans and loan commitments held for sale that are reported at lower of cost or fair value and loans held for investment that were initially measured at cost and have been written down to fair value as a result of an impairment. The following

36

tables show the fair value hierarchy for those assets and liabilities measured at fair value on a non-recurring basis as of June 30, 2011 and December 31, 2010, respectively.

(dollars in millions)
									Gains/(Losses)			Gains/(Losses)			Gains/(Losses)			Gains/(Losses)
									Three Months			Six Months			Three Months			Six Months
	Non-Recurring Basis								Ended			Ended			Ended			Ended
	as of June 30, 2011								June 30,			June 30,			June 30,			June 30,
	Level 1		Level 2		Level 3		Total		2011			2011			2010			2010
Assets:
Investment securities non-qualifying	$	-	$	-	$	83	$	83	$	(1	)	$	(5	)	$	(13	)	$	(13	)
Loans, notes and mortgages		-		53		426		479		9			44			(115	)		(192	)
Other assets		-		-		105		105		(7	)		(7	)		-			(5	)
Liabilities:
Other payables — interest and other		-		-		21		21		-			(1	)		9			7

(dollars in millions)
	Non-Recurring Basis
	as of December 31, 2010
	Level 1		Level 2		Level 3		Total
Assets:
Investment securities non-qualifying	$	-	$	-	$	85	$	85
Loans, notes and mortgages		-		25		1,280		1,305
Other assets		-		10		35		45
Liabilities:
Other payables — interest and other		-		-		31		31

Loans, notes, and mortgages includes held for sale loans that are carried at the lower of cost or fair value and for which the fair value was below the cost basis at June 30, 2011 and December 31, 2010. It also includes certain impaired held for investment loans where an allowance for loan losses has been calculated based upon the fair value of the loans or collateral. Level 3 assets as of June 30, 2011 and December 31, 2010 primarily relate to commercial real estate loans that are classified as held for sale where there continues to be significant illiquidity in the loan trading and securitization markets.

Other payables — interest and other includes amounts recorded for loan commitments at lower of cost or fair value where the funded loan will be held for sale.

Fair Value Option Election

The fair value option election allows companies to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities. Changes in fair value for assets and liabilities for which the election is made will be recognized in earnings as they occur. The fair value option election is permitted on an instrument by instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument. As discussed above, certain of Merrill Lynch’s financial instruments are required to be accounted for at fair value under Investment Accounting and Derivatives Accounting, as well as industry level guidance. For certain financial instruments that are not accounted for at fair value under other applicable accounting guidance, the fair value option election has been made.

37

The following tables provide information about the line items in the Condensed Consolidated Statements of Earnings where changes in fair values of assets and liabilities, for which the fair value option election has been made, are included for the three and six months ended June 30, 2011 and June 30, 2010.

(dollars in millions)
	Changes in Fair Value For the								Changes in Fair Value For the
	Three Months Ended June 30, 2011,								Six Months Ended June 30, 2011,
	for Items Measured								for Items Measured
	at Fair Value Pursuant								at Fair Value Pursuant
	to the Fair Value Option Election								to the Fair Value Option Election
	Gains/			Gains/		Total			Gains/			Gains/		Total
	(Losses)			(Losses)		Changes			(Losses)			(Losses)		Changes
	Principal			Other		in Fair			Principal			Other		in Fair
	Transactions			Revenues		Value			Transactions			Revenues		Value
Assets:
Receivables under resale agreements	$	87		$	-	$	87		$	28		$	-	$	28
Investment securities		-			1		1			-			30		30
Loans, notes and mortgages		-			1		1			-			139		139
Liabilities:
Payables under repurchase agreements		(8	)		-		(8	)		3			-		3
Short-term borrowings		37			-		37			93			-		93
Other payables — interest and other		-			3		3			-			16		16
Long-term borrowings		(145	)		-		(145	)		(506	)		-		(506	)

(dollars in millions)
	Changes in Fair Value For the									Changes in Fair Value For the
	Three Months Ended June 30, 2010									Six Months Ended June 30, 2010
	for Items Measured									for Items Measured
	at Fair Value Pursuant									at Fair Value Pursuant
	to the Fair Value Option Election									to the Fair Value Option Election
	Gains/			Gains/			Total			Gains/		Gains/			Total
	(Losses)			(Losses)			Changes			(Losses)		(Losses)			Changes
	Principal			Other			in Fair			Principal		Other			in Fair
	Transactions			Revenues			Value			Transactions		Revenues			Value
Assets:
Receivables under resale agreements	$	(6	)	$	-		$	(6	)	$	15	$	-		$	15
Investment securities		-			49			49			-		46			46
Loans, notes and mortgages		-			66			66			-		94			94
Liabilities:
Payables under repurchase agreements		6			-			6			20		-			20
Short-term borrowings		151			-			151			107		-			107
Other payables — interest and other		-			(29	)		(29	)		-		2			2
Long-term borrowings(1)		2,582			47			2,629			2,481		(20	)		2,461

(1) Other revenues primarily represent fair value changes on non-recourse long term borrowings issued by consolidated VIEs.

The following describes the rationale for electing to account for certain financial assets and liabilities at fair value, as well as the impact of instrument-specific credit risk on the fair value.

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Resale and repurchase agreements

Merrill Lynch elected the fair value option for certain resale and repurchase agreements. The fair value option election was made based on the tenor of the resale and repurchase agreements, which reflects the magnitude of the interest rate risk. The majority of resale and repurchase agreements collateralized by U.S. Government securities were excluded from the fair value option election as these contracts are generally short-dated and therefore the interest rate risk is not considered significant. Amounts loaned under resale agreements require collateral with a market value equal to or in excess of the principal amount loaned, resulting in minimal credit risk for such transactions.

Loans, notes and mortgages and loan commitments

Merrill Lynch made the fair value option election for certain corporate loans because the loans are risk managed on a fair value basis. Upon the acquisition of Merrill Lynch by Bank of America, Merrill Lynch also made the fair value option election for certain mortgage, corporate, and leveraged loans and loan commitments. The changes in the fair value of loans, notes and mortgages and loan commitments, for which the fair value option was elected, that were attributable to changes in borrower-specific credit risk were not material for the three and six months ended June 30, 2011 and June 30, 2010.

As of June 30, 2011 and December 31, 2010, the aggregate fair value of loans, notes and mortgages for which the fair value option election has been made that were 90 days or more past due was $35 million and $32 million, respectively, and the aggregate fair value of loans, notes, and mortgages that were in non-accrual status was $138 million and $32 million, respectively. As of both June 30, 2011 and December 31, 2010, the unpaid principal amount due exceeded the aggregate fair value of such loans, notes and mortgages that are 90 days or more past dueand/or in non-accrual status by $173 million.

Short-term and long-term borrowings

Merrill Lynch made the fair value option election for certain short-term and long-term borrowings that are risk managed on a fair value basis (e.g., structured notes)and/or for which hedge accounting under Derivatives Accounting had been difficult to obtain. The majority of the fair value changes on long-term borrowings are from structured notes with coupon or repayment terms that are linked to the performance of debt and equity securities, indices, currencies or commodities. Excluding (losses) gains for the three and six months ended June 30, 2011 and June 30, 2010 related to changes in Merrill Lynch’s credit spreads, the majority of the (losses) gains for the respective periods are offset by gains (losses) on derivatives that economically hedge these borrowings and that are accounted for at fair value under Derivatives Accounting. The changes in the fair value of liabilities for which the fair value option election was made that were attributable to changes in Merrill Lynch’s credit spreads were gains of approximately $0.1 billion and losses of approximately $0.2 billion for the three and six months ended June 30, 2011, and gains of approximately $1.2 billion and $1.4 billion for the three and six months ended June 30, 2010. Changes in Merrill Lynch specific credit risk are derived by isolating fair value changes due to changes in Merrill Lynch’s credit spreads as observed in the secondary cash market.

The fair value option election was also made for certain non-recourse long-term borrowings and secured borrowings issued by consolidated VIEs. The fair value of these borrowings is not materially affected by changes in Merrill Lynch’s creditworthiness.

The following tables present the difference between fair values and the aggregate contractual principal amounts of receivables under resale agreements, receivables under securities borrowed transactions,

39

loans, notes, and mortgages and long-term borrowings for which the fair value option election has been made as of June 30, 2011 and December 31, 2010.

(dollars in millions)
			Principal
	Fair Value		Amount
	at		Due Upon
	June 30, 2011		Maturity		Difference
Assets:
Receivables under resale agreements	$	91,164	$	90,859	$	305
Receivables under securities borrowed transactions		2,175		2,269		(94	)
Loans, notes and mortgages		2,621		3,962		(1,341	)
Liabilities:
Long-term borrowings(1)		41,034		43,224		(2,190	)

(1) The majority of the difference relates to the impact of the widening of Merrill Lynch’s credit spreads since issuance and the change in fair value of non-recourse debt issued by consolidated VIEs.

(dollars in millions)
			Principal
	Fair Value		Amount
	at		Due Upon
	December 31, 2010		Maturity		Difference
Assets:
Receivables under resale agreements(1)	$	74,255	$	73,941	$	314
Receivables under securities borrowed transactions		1,672		1,672		-
Loans, notes and mortgages		3,190		4,518		(1,328	)
Liabilities:
Long-term borrowings(2)		39,214		43,014		(3,800	)

(1)	The fair value and principal amount due upon maturity of receivables under resale agreements have been revised from approximately $51 billion for each (as previously reported) to approximately $74 billion.
(2)	The majority of the difference relates to the impact of the widening of Merrill Lynch’s credit spreads since issuance and the change in fair value of non-recourse debt issued by consolidated VIEs.

Note 5.  Fair Value of Financial Instruments

The fair values of financial instruments have been derived, in part, by management’s assumptions, the estimated amount and timing of future cash flows and estimated discount rates. Different assumptions could significantly affect these estimated fair values. Accordingly, the net realizable values could be materially different from the estimates presented below. In addition, the estimates are only indicative of the value of individual financial instruments and should not be considered an indication of the fair value of Merrill Lynch.

The following disclosures represent financial instruments for which the ending balances at June 30, 2011 and December 31, 2010 are not carried at fair value in their entirety on Merrill Lynch’s Condensed Consolidated Balance Sheets.

Short-term Financial Instruments

The carrying value of short-term financial instruments, including cash and cash equivalents, cash and securities segregated for regulatory purposes or deposited with clearing organizations, certain securities

40

financing transactions, customer and broker-dealer receivables and payables, and other short-term borrowings, approximates the fair value of these instruments. These financial instruments generally expose Merrill Lynch to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market interest rates.

Loans, Notes and Mortgages

Fair values were generally determined by discounting both principal and interest cash flows expected to be collected using an observable discount rate for similar instruments with adjustments that Merrill Lynch believes a market participant would consider in determining fair value. Merrill Lynch estimates the cash flows expected to be collected using internal credit risk, interest rate and prepayment risk models that incorporate its best estimate of current key assumptions, such as default rates, loss severity and prepayment speeds for the life of the loan. Merrill Lynch made the fair value option election for certain loans and loan commitments. See Note 4 for additional information.

Deposits

The fair value for certain deposits with stated maturities was calculated by discounting contractual cash flows using current market rates for instruments with similar maturities. For deposits with no stated maturities, the carrying amount was considered to approximate fair value and does not take into account the significant value of the cost advantage and stability of Merrill Lynch’s long-term relationships with depositors.

Long-term Borrowings

Merrill Lynch uses quoted market prices for its long-term borrowings when available. When quoted market prices are not available, fair value is estimated based on current market interest rates and credit spreads for Merrill Lynch debt with similar maturities. Merrill Lynch made the fair value option election for certain long-term borrowings, including structured notes. See Note 4 for additional information.

The book and fair values of certain financial instruments at June 30, 2011 and December 31, 2010 were as follows:

(dollars in millions)
	June 30, 2011				December 31, 2010
	Book Value		Fair Value		Book Value		Fair Value
Financial assets
Loans, notes and mortgages(1)	$	23,883	$	23,213	$	25,803	$	24,383
Financial liabilities
Deposits		13,394		13,394		12,826		12,826
Long-term borrowings(2)		132,347		133,717		132,427		131,694

(1)	Loans are presented net of the allowance for loan losses.
(2)	Includes junior subordinated notes (related to trust preferred securities).

41

Note 6.  Derivatives

A derivative is an instrument whose value is derived from an underlying instrument or index, such as interest rates, equity security prices, currencies, commodity prices or credit spreads. Derivatives include futures, forwards, swaps, option contracts, and other financial instruments with similar characteristics. Derivative contracts often involve future commitments to exchange interest payment streams or currencies based on a notional or contractual amount (e.g., interest rate swaps or currency forwards) or to purchase or sell other financial instruments at specified terms on a specified date (e.g., options to buy or sell securities or currencies).

Derivatives Accounting establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (“embedded derivatives”) and for hedging activities. Derivatives Accounting requires that an entity recognize all derivatives as either assets or liabilities and measure those instruments at fair value. The fair value of all derivatives is recorded on anet-by-counterparty basis on the Condensed Consolidated Balance Sheets where Merrill Lynch believes a legal right of setoff exists under an enforceable netting agreement. All derivatives, including bifurcated embedded derivatives within structured notes, are reported on the Condensed Consolidated Balance Sheets as trading assets and liabilities.

The accounting for changes in fair value of a derivative instrument depends on its intended use and if it is designated and qualifies as an accounting hedging instrument under Derivatives Accounting.

Trading derivatives

Merrill Lynch enters into derivatives to facilitate client transactions, for trading and financing purposes, and to manage risk exposures arising from trading assets and liabilities. Changes in fair value for these derivatives are reported in current period earnings as principal transactions revenues.

Derivatives that contain a significant financing element

In the ordinary course of trading activities, Merrill Lynch enters into certain transactions that are documented as derivatives where a significant cash investment is made by one party. Certain derivative instruments that contain a significant financing element at inception and where Merrill Lynch is deemed to be the borrower are included in financing activities in the Condensed Consolidated Statements of Cash Flows. The cash flows from all other derivative transactions that do not contain a significant financing element at inception are included in operating activities.

Non-trading derivatives

Merrill Lynch also enters into derivatives in order to manage risk exposures arising from assets and liabilities not carried at fair value as follows:

1.  Merrill Lynch’s debt was issued in a variety of maturities and currencies to achieve the lowest cost financing possible. Merrill Lynch enters into derivative transactions to hedge these liabilities. Derivatives used most frequently include swap agreements that:

•  Convert fixed-rate interest payments into variable-rate interest payments;

•  Change the underlying interest rate basis or reset frequency; and

•  Change the settlement currency of a debt instrument.

42

Changes in the fair value of interest rate and foreign currency derivatives are reported in interest expense when hedge accounting is applied; otherwise changes in fair value are reported in other revenue.

2.	Merrill Lynch uses foreign-exchange forward contracts, foreign-exchange options, and currency swaps to hedge its net investments in foreign operations, as well as other foreign currency exposures (e.g.,non-U.S. dollar denominated debt and expenses). These derivatives are used to mitigate the impact of changes in exchange rates. Changes in the fair value of these derivatives are reported in other revenue, unless net investment hedge accounting is applied.
3.	Merrill Lynch enters into futures, swaps, options and forward contracts to manage the price risk of certain commodity inventory and forecasted commodity purchases and sales. Changes in fair value of these derivatives are reported in principal transaction revenues, unless cash flow hedge accounting is applied.
4.	Merrill Lynch enters into CDS to manage the credit risk on certain loans that are not part of trading activities. Changes in the fair value of these derivatives are reported in other revenue.

Derivatives that qualify as accounting hedges under the guidance in Derivatives Accounting are designated as one of the following:

1.	A hedge of the fair value of a recognized asset or liability (“fair value hedge”). Changes in the fair value of derivatives that are designated and qualify as fair value hedges of interest rate risk, foreign exchange risk and commodity price risk, along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk, are recorded in current period earnings as interest expense or principal transactions.
2.	A hedge of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”). Changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recorded in OCI until earnings are affected by the variability of cash flows of the hedged asset or liability or when the forecasted purchase or sale occurs.
3.	A hedge of a net investment in a foreign operation (“net investment hedge”). Changes in the fair value of derivatives that are designated and qualify as hedges of a net investment in a foreign operation are recorded in the foreign currency translation adjustment account within OCI. Changes in the fair value of the hedging instruments that are associated with the difference between the spot rate and the contracted forward rate are recorded in current period earnings in interest expense.

Merrill Lynch formally assesses, both at the inception of the hedge and on an ongoing basis, whether the hedging derivatives are highly effective in offsetting changes in fair value or cash flows of hedged items. Merrill Lynch uses regression analysis at the hedge’s inception and for each reporting period thereafter to assess whether the derivative used in its hedging transaction is expected to be and has been highly effective in offsetting changes in the fair value or cash flows of the hedged item. When it is determined that a derivative is not highly effective as a hedge, Merrill Lynch discontinues hedge accounting.

43

Hedge accounting activity for 2011 and 2010 included the following:

Fair value hedges

(dollars in millions)
	2011								2010
			Hedged			Hedge						Hedged			Hedge
	Derivative(1)		Item(1)(2)			Ineffectiveness(1)			Derivative(1)			Item(1)(2)			Ineffectiveness(1)
For the three months ended June 30:
Interest rate risk on USD denominated long-term debt	$	487	$	(603	)	$	(116	)	$	1,114		$	(1,250	)	$	(136	)
Interest rate risk on foreign currency denominated long-term debt		407		(464	)		(57	)		(692	)		562			(130	)
Commodity price risk on commodity inventory		20		(20	)		-			(15	)		15			-
For the six months ended June 30:
Interest rate risk on USD denominated long-term debt		145		(356	)		(211	)		1,387			(1,626	)		(239	)
Interest rate risk on foreign currency denominated long-term debt		680		(786	)		(106	)		(1,252	)		1,014			(238	)
Commodity price risk on commodity inventory		16		(16	)		-			42			(46	)		(4	)

	2011				2010
	Trading		Trading		Trading		Trading
	Assets		Liabilities		Assets		Liabilities
As of June 30, 2011 and December 31, 2010:
Carrying value of hedging derivatives
Long-term debt	$	4,949	$	61	$	4,442	$	484
Commodity inventory		34		3		80		6
Notional amount of hedging derivatives
Long-term debt		57,090		3,174		43,924		13,967
Commodity inventory		155		12		232		14

(1)	Amounts are recorded in interest expense for long-term debt and principal transactions for commodity inventory.
(2)	Excludes the impact of purchase accounting adjustments made to certain long-term borrowings in connection with the acquisition of Merrill Lynch by Bank of America.

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Cash flow hedges

(dollars in millions)

2011

2010

Gains

Gains

Hedge

Gains

(losses) in

Hedge

Gains

(losses) in

Ineffectiveness

(losses)

Income

Ineffectiveness

(losses)

Income

and Amounts

Recognized in

Reclassified

and Amounts

Recognized in

Reclassified

Excluded

Accumulated

from

Excluded from

Accumulated

from

from

OCI on

Accumulated

Effectiveness

OCI on

Accumulated

Effectiveness

derivatives

OCI(1)

Testing(1)

derivatives

OCI(1)

Testing(1)

For the three months ended June 30:

Commodity price risk on forecasted purchases and sales(2)

$

(1

)

$

1

$

-

$

(5

)

$

10

$

14

For the six months ended June 30:

Commodity price risk on forecasted purchases and sales(2)

(9

)

3

(2

)

27

13

14

	2011				2010
	Trading		Trading		Trading		Trading
	Assets		Liabilities		Assets		Liabilities
As of June 30, 2011 and December 31, 2010:
Carrying value of hedging derivatives	$	89	$	14	$	109	$	5
Notional amount of hedging derivatives		247		178		255		134

(1)	Amounts are recorded in principal transactions.
(2)	Amount that is expected to be reclassified into earnings in the next 12 months included in principal transactions is $(4) million and $12 million at June 30, 2011 and June 30, 2010, respectively.

Net investment hedges of foreign operations

(dollars in millions)

2011

2010

Gains

Hedge

Gains

Hedge

(losses) in

Ineffectiveness

(losses) in

Ineffectiveness

Gains

Income

and Amounts

Gains

Income

and Amounts

(losses)

Reclassified

Excluded

(losses)

Reclassified

Excluded

Recognized in

from

from

Recognized in

from

from

Accumulated

Accumulated

Effectiveness

Accumulated

Accumulated

Effectiveness

OCI

OCI(1)

Testing(2)

OCI

OCI(1)

Testing(2)

For the three months ended June 30:

Foreign exchange risk

$

(494

)

$

-

$

(87

)

$

277

$

-

$

(52

)

For the six months ended June 30:

Foreign exchange risk

(961

)

(3

)

(157

)

847

-

(89

)

45

	2011		2010
As of June 30, 2011 and December 31, 2010:
Carrying value of hedging derivatives
Trading assets	$	349	$	468
Trading liabilities		896		930
Carrying value of non-derivative hedges
Long-term borrowings		358		536
Notional amount of hedging derivatives
in an asset position		10,011		6,639
in a liability position		18,364		19,180

(1)	Amounts are recorded in other revenue.
(2)	Amounts are recorded in interest expense.

Net gains (losses) on economic hedges

(dollars in millions)
	2011(1)			2010(1)
For the three months ended June 30:
Interest rate risk	$	77		$	413
Foreign currency risk		1,055			(3,036	)
Credit risk		(2	)		18
For the six months ended June 30:
Interest rate risk		(4	)		469
Foreign currency risk		3,146			(5,730	)
Credit risk		(17	)		6

(1) Amounts are recorded in other revenue.

The amounts in the “Net gains (losses) on economic hedges” table above represent net gains (losses) on derivatives that are not used for trading purposes and are not used in accounting hedging relationships. Interest rate risk primarily relates to derivatives used to economically hedge long-term borrowings. Foreign currency risk primarily relates to economic hedges of foreign currency denominated transactions that generate earnings upon remeasurement in accordance withASC 830-20,Foreign Currency Transactions(“Foreign Currency Transactions”). As both the remeasurement of the foreign currency risk on the transaction and the changes in fair value of the derivative are recorded in earnings, hedge accounting is not applied. Credit risk relates to credit default swaps used to economically manage the credit risk on certain loans not included in trading activities.

Derivative balances by primary risk

Derivative instruments contain numerous market risks. In particular, most derivatives have interest rate risk, as they contain an element of financing risk that is affected by changes in interest rates. Additionally, derivatives expose Merrill Lynch to counterparty credit risk, although this is generally mitigated by collateral margining and netting arrangements. For disclosure purposes below, the primary risk of a derivative is largely determined by the business that is engaging in the derivative activity. For instance, a derivative that is initiated by an equities derivative business will generally have equity price risk as its primary underlying market risk and is classified as such for the purposes of this disclosure, despite the fact that there may be other market risks that affect the value of the instrument.

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The following tables identify the primary risk for derivative instruments at June 30, 2011 and December 31, 2010. The primary risk is provided on a gross basis, prior to the application of the impact of counterparty and cash collateral netting.

(dollars in millions)
	As of June 30, 2011
	Contract/		Trading Assets-			Contract/		Trading Liabilities-
	Notional(1)		Derivative Contracts			Notional(1)		Derivative Contracts
Interest rate contracts
Swaps	$	9,818,779	$	427,697		$	9,477,591	$	431,509
Futures and forwards		2,077,210		1,120			2,223,339		1,061
Written options		-		-			1,742,318		44,294
Purchased options		1,793,824		46,578			-		-
Foreign exchange contracts
Swaps		88,770		10,237			96,106		11,052
Spot, futures and forwards		105,787		4,598			106,422		5,576
Written options		-		-			280,112		9,645
Purchased options		292,043		8,468			-		-
Equity contracts
Swaps		19,616		1,161			20,835		1,389
Futures and forwards		51,155		2,483			55,918		2,441
Written options		-		-			504,445		16,979
Purchased options		236,117		16,827			-		-
Commodity contracts
Swaps		43,624		5,877			42,690		6,402
Futures and forwards		269,794		4,195			264,696		2,991
Written options		-		-			119,438		7,986
Purchased options		119,231		7,689			-		-
Credit derivatives
Purchased protection:
Credit default swaps		154,457		20,550			111,481		3,152
Total return swaps		4,491		202			2,268		325
Other Credit Derivatives		2,175		16			40		-
Written protection:
Credit default swaps		109,879		3,609			153,347		14,244
Total return swaps		3,185		280			4,938		497
Other Credit Derivatives		-		-			861		9
Gross derivative assets/liabilities	$	15,190,137	$	561,587		$	15,206,845	$	559,552
Less: Legally enforceable master netting				(500,613	)				(500,613	)
Less: Cash collateral applied				(25,986	)				(27,260	)
Total derivative assets and liabilities			$	34,988				$	31,679

(1) These amounts include trading derivatives, non-trading derivatives and bifurcated embedded derivatives.

47

(dollars in millions)
	As of December 31, 2010
	Contract/		Trading Assets-			Contract/		Trading Liabilities-
	Notional(1)		Derivative Contracts			Notional(1)		Derivative Contracts
Interest rate contracts
Swaps	$	8,492,025	$	452,115		$	8,333,391	$	452,564
Futures and forwards		1,916,110		1,549			1,955,861		1,608
Written options		-		-			1,708,493		46,064
Purchased options		1,836,089		48,185			-		-
Foreign exchange contracts
Swaps		93,721		10,396			98,987		11,947
Spot, futures and forwards		118,363		5,637			105,671		5,702
Written options		-		-			280,290		10,673
Purchased options		273,375		10,501			-		-
Equity contracts
Swaps		17,411		1,622			20,764		1,871
Futures and forwards		35,483		2,897			43,257		2,122
Written options		-		-			221,791		15,677
Purchased options		174,313		15,338			-		-
Commodity contracts
Swaps		39,284		8,872			50,710		9,158
Futures and forwards		215,588		4,122			198,130		2,817
Written options		-		-			86,241		6,628
Other Credit Derivatives		84,554		6,565			-		-
Credit derivatives
Purchased protection:
Credit default swaps		322,230		29,670			251,679		8,001
Total return swaps		2,127		301			3,243		208
Other Credit Derivatives		440		8			47		-
Written protection:
Credit default swaps		248,509		7,978			326,448		23,755
Total return swaps		3,802		245			1,607		475
Other Credit Derivatives		-		-			214		1
Gross derivative assets/liabilities	$	13,873,424	$	606,001		$	13,686,824	$	599,271
Less: Legally enforceable master netting				(538,055	)				(538,055	)
Less: Cash collateral applied				(28,575	)				(29,019	)
Total derivative assets and liabilities			$	39,371				$	32,197

(1) These amounts include trading derivatives, non-trading derivatives and bifurcated embedded derivatives.

Trading revenues

Merrill Lynch enters into trading derivatives and non-derivative cash instruments to facilitate client transactions, for trading and financing purposes, and to manage risk exposures arising from trading assets and liabilities. The resulting risk from derivatives and non-derivative cash instruments is managed on a portfolio basis as part of Merrill Lynch’s sales and trading activities and the related revenue is recorded on different income statement line items, including principal transactions, commissions, other revenues and net interest income (expense).

Sales and trading revenue includes changes in fair value and realized gains and losses on the sales of trading and other assets, which are included in principal transactions and other revenues, net interest income, and commissions. Initial trading related revenue is generated by the difference in the client price for an instrument and the price at which the trading desk can execute the trade in the dealer market. That revenue is included within principal transactions on the Condensed Consolidated

48

Statement of Earnings (Loss). For equity securities, commissions related to purchases and sales are recorded in commissions on the Condensed Consolidated Statement of Earnings (Loss). Changes in the fair value of these equity securities are included in principal transactions. These amounts are reflected in equity risk in the tables below. For debt securities, revenue, with the exception of interest, is typically included in principal transactions. Unlike commissions for equity securities, the initial revenue related to broker/dealer services for debt securities is included in the pricing of the instrument rather than charged through separate fee agreements. Therefore, this revenue is recorded in principal transactions as part of the initial mark to fair value. In transactions where Merrill Lynch acts as an agent, fees are earned and recorded in commissions. In the tables below, most sovereign government debt securities are reflected in interest rate risk. All other government debt securities (including, for example, municipal bonds and emerging markets sovereign debt) and corporate debt securities are included in credit risk.

For derivatives, revenue is typically included in principal transactions. Similar to debt securities, the initial revenue related to dealer services is included in the initial pricing of the instrument rather than charged through separate fee agreements. Therefore, this revenue is recorded in principal transactions as part of the initial mark to fair value. In transactions where Merrill Lynch acts as agent, which includes exchange traded futures and options, fees are earned and recorded in commissions. Derivatives are included in the tables below based on their predominant risk (e.g., credit default swaps are included in credit risk.)

Certain instruments, primarilyavailable-for-sale securities and loans, are not considered trading assets or liabilities. Gains/losses on sales and changes in fair value of these instruments, where applicable (e.g., the fair value option has been elected), are recorded in other revenues. These instruments are typically reflected in credit risk.

Interest revenue for debt securities and loans is included in net interest income (expense).

The following tables identify the amounts in the income statement line items attributable to trading and non-trading activities, including both derivatives and non-derivative cash instruments categorized by primary risk for the three and six months ended June 30, 2011 and June 30, 2010.

Non-trading related amounts include activities in connection with principal investment, wealth management, and certain lending activities; economic hedging activity discussed in theNon-trading derivativessection above; and the impact of changes in Merrill Lynch’s own creditworthiness on borrowings accounted for at fair value.

Trading and Non-Trading Related Revenue for Derivative and Non-Derivative Cash Instruments

(dollars in millions)
For The Three Months	Principal				Other		Net Interest
Ended June 30, 2011	Transactions		Commissions		Revenues(1)		Income (Expense)			Total
Interest Rate Risk	$	230	$	21	$	6	$	197		$	454
Foreign Exchange Risk		44		-		-		4			48
Equity Risk		1,401		765		28		(905	)		1,289
Commodity Risk		174		-		-		(28	)		146
Credit Risk		165		14		147		717			1,043
Total trading — related		2,014		800		181		(15	)		2,980
Non-trading related		159		647		920		(869	)		857
Total	$	2,173	$	1,447	$	1,101	$	(884	)	$	3,837

49

Trading and Non-Trading Related Revenue for Derivative and Non-Derivative Cash Instruments

(dollars in millions)
For The Six Months	Principal					Other			Net Interest
Ended June 30, 2011	Transactions			Commissions		Revenues(1)			Income (Expense)			Total
Interest Rate Risk	$	350		$	43	$	19		$	380		$	792
Foreign Exchange Risk		48			-		-			5			53
Equity Risk		1,888			1,666		58			(819	)		2,793
Commodity Risk		307			-		(1	)		(57	)		249
Credit Risk		891			28		357			1,394			2,670
Total trading — related		3,484			1,737		433			903			6,557
Non-trading related		(140	)		1,300		2,759			(1,740	)		2,179
Total	$	3,344		$	3,037	$	3,192		$	(837	)	$	8,736

Trading and Non-Trading Related Revenue for Derivative and Non-Derivative Cash Instruments

(dollars in millions)
For The Three Months	Principal					Other		Net Interest
Ended June 30, 2010	Transactions			Commissions		Revenues(1)		Income (Expense)			Total
Interest Rate Risk	$	119		$	24	$	23	$	167		$	333
Foreign Exchange Risk		(15	)		-		-		-			(15	)
Equity Risk		784			828		133		(658	)		1,087
Commodity Risk		(87	)		-		2		(31	)		(116	)
Credit Risk		366			10		157		808			1,341
Total trading — related		1,167			862		315		286			2,630
Non-trading related		923			615		825		(817	)		1,546
Total	$	2,090		$	1,477	$	1,140	$	(531	)	$	4,176

Trading and Non-Trading Related Revenue for Derivative and Non-Derivative Cash Instruments

(dollars in millions)
For The Six Months	Principal				Other		Net Interest
Ended June 30, 2010	Transactions		Commissions		Revenues(1)		Income (Expense)			Total
Interest Rate Risk	$	930	$	42	$	41	$	350		$	1,363
Foreign Exchange Risk		72		-		-		(1	)		71
Equity Risk		1,277		1,607		169		(461	)		2,592
Commodity Risk		62		-		1		(63	)		-
Credit Risk		2,700		20		332		1,666			4,718
Total trading — related		5,041		1,669		543		1,491			8,744
Non-trading related		1,097		1,297		1,614		(1,727	)		2,281
Total	$	6,138	$	2,966	$	2,157	$	(236	)	$	11,025

(1) Includes other income andother-than-temporary impairment losses onavailable-for-sale debt securities.

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Derivatives as guarantees

Merrill Lynch enters into certain derivative contracts that meet the definition of a guarantee under ASC 460,Guarantees(“Guarantees Accounting”). Guarantees are defined to include derivative contracts that contingently require a guarantor to make payment to a guaranteed party based on changes in an underlying (such as changes in the value of interest rates, security prices, currency rates, commodity prices, indices, etc.) that relate to an asset, liability or equity security of a guaranteed party. Derivatives that meet the accounting definition of a guarantee include certain OTC written options (e.g., written interest rate and written currency options). Merrill Lynch does not track, for accounting purposes, whether its clients enter into these derivative contracts for speculative or hedging purposes. Accordingly, Merrill Lynch has disclosed information about all credit derivatives, credit-related notes and certain types of written options that can potentially be used by clients to protect against changes in an underlying, regardless of how the contracts are actually used by the client.

Merrill Lynch’s derivatives that act as guarantees at June 30, 2011 and December 31, 2010 are summarized below:

(dollars in millions)
	Maximum
	Payout/		Less than								Carrying
	Notional		1 year		1 - 3 years		3 - 5 years		Over 5 years		Value(1)
At June 30, 2011:
Derivative contracts:
Credit derivatives:
Investment grade(2)	$	119,603	$	12,204	$	46,115	$	24,125	$	37,159	$	2,764
Non-investment grade(2)		152,607		16,611		33,918		39,897		62,181		11,986
Total credit derivatives		272,210		28,815		80,033		64,022		99,340		14,750
Credit related notes:
Investment grade(2)		3,306		1		13		410		2,882		3,306
Non-investment grade(2)		1,177		9		13		106		1,049		1,177
Total credit related notes		4,483		10		26		516		3,931		4,483
Other derivatives		1,725,586		435,050		384,460		204,457		701,619		55,534
Total derivative contracts	$	2,002,279	$	463,875	$	464,519	$	268,995	$	804,890	$	74,767
At December 31, 2010:
Derivative contracts:
Credit derivatives:
Investment grade(2)	$	394,704	$	35,231	$	138,666	$	98,617	$	122,190	$	13,742
Non-investment grade(2)		185,876		23,272		61,365		49,556		51,683		10,489
Total credit derivatives		580,580		58,503		200,031		148,173		173,873		24,231
Credit related notes:
Investment grade(2)		3,580		-		132		-		3,448		3,580
Non-investment grade(2)		1,358		9		20		156		1,173		1,358
Total credit related notes(3)		4,938		9		152		156		4,621		4,938
Other derivatives		1,379,874		421,080		296,885		190,062		471,847		50,505
Total derivative contracts	$	1,965,392	$	479,592	$	497,068	$	338,391	$	650,341	$	79,674

(1)	Derivative contracts are shown on a gross basis prior to cash collateral or counterparty netting.
(2)	Refers to the creditworthiness of the underlying reference obligations.
(3)	Total credit related note amounts have been revised from approximately $2.4 billion (as previously reported) to approximately $4.9 billion to reflect CDOs and CLOs held by certain consolidated VIEs.

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Credit derivatives

Credit derivatives derive value based on an underlying third party referenced obligation or a portfolio of referenced obligations. Merrill Lynch is both a seller and a buyer of credit protection. A seller of credit protection is required to make payments to a buyer upon the occurrence of a predefined credit event. Such credit events generally include bankruptcy of the referenced credit entity and failure to pay under their credit obligations, as well as acceleration of indebtedness and payment repudiation or moratorium. Merrill Lynch considers credit derivatives to be guarantees where it is the seller of credit protection. For credit derivatives based on a portfolio of referenced credits or credit indices, Merrill Lynch as a seller of credit protection may not be required to make payment until a specified amount of loss has occurredand/or may only be required to make payment up to a specified amount.

For most credit derivatives, the notional value represents the maximum amount payable by Merrill Lynch as a seller of credit protection. However, Merrill Lynch does not exclusively monitor its exposure to credit derivatives based on notional value. Instead, a risk framework is used to define risk tolerances and establish limits to help to ensure that certain credit risk-related losses occur within acceptable, predefined limits. Merrill Lynch discloses internal categorizations (i.e., investment grade, non-investment grade) consistent with how risk is managed to evaluate the payment status of its freestanding credit derivative instruments.

Merrill Lynch economically hedges its exposure to credit derivatives by entering into a variety of offsetting derivative contracts and security positions. For example, in certain instances, Merrill Lynch purchases credit protection with identical underlying referenced names to offset its exposure. At June 30, 2011 and December 31, 2010, the notional value and carrying value of credit protection purchased and credit protection sold by Merrill Lynch with identical underlying referenced names was:

(dollars in millions)
	Maximum
	Payout/		Less than								Carrying
	Notional		1 year		1 - 3 years		3 - 5 years		Over 5 years		Value(1)
At June 30, 2011:
Credit derivatives purchased	$	239,766	$	27,004	$	71,672	$	62,144	$	78,946	$	13,068
Credit derivatives sold		247,381		28,056		75,975		62,870		80,480		12,719
At December 31, 2010:
Credit derivatives purchased	$	543,233	$	53,741	$	179,809	$	140,764	$	168,919	$	17,875
Credit derivatives sold		567,828		57,954		198,656		147,121		164,097		21,600

(1) Derivative contracts are shown on a gross basis prior to cash collateral or counterparty netting.

Credit related notes

Credit related notes in the guarantees above include investments in securities issued by CDO, CLO and credit linked note vehicles. These instruments are classified as trading securities. Most of the entities that issue these instruments have either the ability to enter into credit derivatives or have entered into credit derivatives that meet the definition of a guarantee (in this case, the sale of credit protection). Since most of these securities could potentially have embedded credit derivatives that would meet the definition of a guarantee, Merrill Lynch includes all of its investments in these securities above.

The carrying value of these instruments equals Merrill Lynch’s maximum exposure to loss. Merrill Lynch is not obligated to make any payments to the entities under the terms of the securities owned. Merrill Lynch discloses internal categorizations (i.e., investment grade, non-investment grade) consistent with how risk is managed for these instruments.

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Other derivative contracts

Other derivative contracts in the guarantees table above primarily include OTC written interest rate options and written currency options. For such contracts the maximum payout could theoretically be unlimited, because, for example, the rise in interest rates or changes in foreign exchange rates could theoretically be unlimited. Merrill Lynch does not monitor its exposure to derivatives based on the theoretical maximum payout because that measure does not take into consideration the probability of the occurrence. As such, rather than including the maximum payout, the notional value of these contracts has been included to provide information about the magnitude of involvement with these types of contracts. However, it should be noted that the notional value is not a reliable indicator of Merrill Lynch’s exposure to these contracts. Instead, as previously noted, a risk framework is used to define risk tolerances and establish limits to help ensure that certain risk-related losses occur within acceptable, predefined limits.

As the fair value and risk of payment under these derivative contracts are based upon market factors, such as changes in interest rates or foreign exchange rates, the carrying values in the table above reflect the best estimate of Merrill Lynch’s performance risk under these transactions at June 30, 2011 and December 31, 2010. Merrill Lynch economically hedges its exposure to these contracts by entering into a variety of offsetting derivative contracts and security positions.

Credit risk management of derivatives

Merrill Lynch defines counterparty credit risk as the potential for loss that can occur as a result of an individual, counterparty, or issuer being unable or unwilling to honor its contractual obligations. Merrill Lynch mitigates its credit risk to counterparties through a variety of techniques, including, where appropriate, the right to require initial collateral or margin, the right to terminate transactions or to obtain collateral should unfavorable events occur, the right to call for collateral when certain exposure thresholds are exceeded, the right to call for third party guarantees, and the purchase of credit default protection.

Merrill Lynch enters into International Swaps and Derivatives Association, Inc. (“ISDA”) master agreements or their equivalent (“master netting agreements”) with almost all derivative counterparties. Master netting agreements provide protection in bankruptcy in certain circumstances and, where legally enforceable, enable receivables and payables with the same counterparty to be offset for accounting and risk management purposes. Netting agreements are generally negotiated bilaterally and can require complex terms. While Merrill Lynch makes reasonable efforts to execute such agreements, it is possible that a counterparty may be unwilling to sign such an agreement and, as a result, would subject Merrill Lynch to additional credit risk.

Where Merrill Lynch has entered into legally enforceable netting agreements with counterparties, it reports derivative assets and liabilities, and any related cash collateral, net in the Condensed Consolidated Balance Sheets in accordance withASC 210-20,Balance Sheet-Offsetting. At June 30, 2011 and December 31, 2010, cash collateral received of $26.0 billion and $28.6 billion, respectively, and cash collateral paid of $27.3 billion and $29.0 billion, respectively, was netted against derivative assets and liabilities. The enforceability of master netting agreements under bankruptcy laws in certain countries or in certain industries is not free from doubt, and receivables and payables with counterparties in these countries or industries are accordingly reported on a gross basis.

Merrill Lynch considers the impact of counterparty credit risk on the valuation of derivative contracts. Factors used to determine the credit valuation adjustments on the derivatives portfolio include current exposure levels (i.e., fair value prior to credit valuation adjustments) and expected exposure levels profiled over the maturity of the contracts. CDS market information, including either quoted single

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name CDS or index or other proxy CDS, is also considered. In addition, the credit valuation adjustments also take into account the netting and credit provisions of relevant agreements including collateral margin agreements and master netting agreements. During the three and six months ended June 30, 2011 and June 30, 2010, valuation adjustments (net of hedges) of approximately $0.2 billion and $0.7 billion of losses and $0.2 billion and $0.1 billion of losses, respectively, were recognized in principal transactions for counterparty credit risk. At June 30, 2011 and December 31, 2010, the cumulative counterparty credit risk valuation adjustment that was reflected in derivative assets was $6.3 billion and $5.9 billion, respectively. In addition, the fair value of derivative liabilities is adjusted to reflect the impact of Merrill Lynch’s credit quality. During the three and six months ended June 30, 2011, valuation adjustments (net of hedges) of approximately $0.1 billion in gains and $0.1 billion in losses were recognized in principal transactions for changes in Merrill Lynch’s credit risk. For the three months ended June 30, 2010, valuation adjustments were not material. For the six months ended June 30, 2010, approximately $0.1 billion in gains were recognized in principal transactions for changes in Merrill Lynch’s credit risk. At June 30, 2011 and December 31, 2010, the cumulative credit risk valuation adjustment that was reflected in the derivative liabilities balance was $0.5 billion and $0.6 billion, respectively.

Monoline derivative credit exposure at June 30, 2011 had a notional value of $30.2 billion compared with $32.0 billion at December 31, 2010.Mark-to-market monoline derivative credit exposure was $8.6 billion at June 30, 2011 compared with $8.8 billion at December 31, 2010. This decrease was driven by positive valuation adjustments on legacy assets and terminated monoline contracts. At June 30, 2011, the counterparty credit valuation adjustment related to monoline derivative exposure was $5.6 billion compared with $5.0 billion at December 31, 2010, which reduced Merrill Lynch’s netmark-to-market exposure to $3.0 billion at June 30, 2011, of which 60% related to a single counterparty. Monoline relatedmark-to-market losses for the three and six months ended June 30, 2011 were $258 million and $685 million, respectively, which consist of changes in valuation adjustments driven by reductions in recovery expectations, as well as hedge losses due to a breakdown in correlations during the periods.

Bank of America has guaranteed the performance of Merrill Lynch on certain derivative transactions. The aggregate amount of such derivative liabilities was approximately $2.4 billion and $2.1 billion at June 30, 2011 and December 31, 2010, respectively.

Credit-risk related contingent features

The majority of Merrill Lynch’s derivative contracts contain credit-risk-related contingent features, primarily within the ISDA agreements, that help to reduce the credit risk of these instruments as compared to other obligations of the respective counterparty with whom Merrill Lynch has transacted (e.g., other senior debt). These contingent features, which include collateral requirements, may be for the benefit of Merrill Lynch or may benefit Merrill Lynch’s counterparties in respect of changes in Merrill Lynch’s creditworthiness. At June 30, 2011 and December 31, 2010, Merrill Lynch posted collateral of $32.8 billion and $33.8 billion, respectively, under derivative contracts that were in a liability position, of which $27.3 billion and $29.0 billion, respectively, represented cash collateral, as noted above.

In connection with certain OTC derivatives transactions and other trading agreements, Merrill Lynch could be required to provide additional collateral to or terminate transactions with certain counterparties in the event of a downgrade of the senior debt ratings of ML & Co. The amount of additional collateral required depends on the contract and is usually a fixed incremental amountand/or an amount related to the market value of the exposure. At June 30, 2011 and December 31, 2010, the amount of additional collateral and termination payments that would be required for such derivatives transactions and trading agreements was approximately $0.9 billion and $0.8 billion, respectively, in

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the event of a downgrade to low single-A by all credit agencies. A further downgrade of ML & Co.’s long-term senior debt credit rating to the BBB+ or equivalent level would require approximately $0.9 billion and $0.7 billion, respectively, of additional collateral at June 30, 2011 and December 31, 2010. Excluded from these amounts are potential additional collateral requirements due to contingent triggers applicable in certain derivative contracts, primarily with structured VIEs. Merrill Lynch is in the process of evaluating these requirements in the contracts.

Note 7.  Securities Financing Transactions

Merrill Lynch enters into secured borrowing and lending transactions in order to meet customers’ needs and earn residual interest rate spreads, obtain securities for settlement and finance trading inventory positions.

Under these transactions, Merrill Lynch either receives or provides collateral, including U.S. Government and agency, asset-backed, corporate debt, equity, andnon-U.S. government and agency securities. Merrill Lynch receives collateral in connection with resale agreements, securities borrowed transactions, customer margin loans and other loans. Under most agreements, Merrill Lynch is permitted to sell or repledge the securities received (e.g., use the securities to secure repurchase agreements, enter into securities lending transactions, or deliver to counterparties to cover short positions). At June 30, 2011 and December 31, 2010, the fair value of securities received as collateral where Merrill Lynch is permitted to sell or repledge the securities was $486 billion and $439 billion, respectively, and the fair value of the portion that had been sold or repledged was $367 billion and $332 billion, respectively. Merrill Lynch may use securities received as collateral for resale agreements to satisfy regulatory requirements such asRule 15c3-3 of the Securities Exchange Act of 1934.

Additionally, Merrill Lynch receives securities as collateral in connection with certain securities transactions in which Merrill Lynch is the lender. In instances where Merrill Lynch is permitted to sell or repledge securities received, Merrill Lynch reports the fair value of such securities received as collateral and the related obligation to return securities received as collateral in the Condensed Consolidated Balance Sheets.

Merrill Lynch pledges assets to collateralize repurchase agreements and other secured financings. Pledged securities that can be sold or repledged by the secured party are parenthetically disclosed in trading assets on the Condensed Consolidated Balance Sheets. The carrying value and classification of securities owned by Merrill Lynch that have been pledged to counterparties where those counterparties do not have the right to sell or repledge at June 30, 2011 and December 31, 2010 are as follows:

(dollars in millions)
	June 30, 2011		December 31, 2010
Trading asset category
Equities and convertible debentures	$	7,467	$	8,199
Corporate debt and preferred stock		11,093		14,320
U.S. Government and agencies		16,162		26,381
Non-U.S. governments and agencies		1,667		1,424
Mortgages, mortgage-backed, and asset-backed securities		2,301		3,480
Municipals and money markets		579		1,980
Total	$	39,269	$	55,784

In certain cases, Merrill Lynch has transferred assets to consolidated VIEs where those restricted assets serve as collateral for the interests issued by the VIEs. These assets are disclosed on the Condensed

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Consolidated Balance Sheet as Assets of Consolidated VIEs. These transactions are also described in Note 9.

Generally, when Merrill Lynch transfers financial instruments that are not recorded as sales (i.e., secured borrowing transactions), the liability is recorded as either payables under repurchase agreements or payables under securities loaned transactions; however, in instances where Merrill Lynch transfers financial assets to a consolidated VIE, the liabilities of the consolidated VIE will be reflected in long or short-term borrowings (see Note 9). In either case, at the time of transfer, the related liability is equal to the cash received in the transaction. In most cases the lenders in secured borrowing transactions have full recourse to Merrill Lynch (i.e., recourse beyond the assets pledged).

Note 8.  Investment Securities

Investment securities on the Condensed Consolidated Balance Sheets include:

•  Investments within the scope of Investment Accounting that are held by ML & Co. and certain of its non-broker-dealer subsidiaries consist of debt securitiesheld-for-investment and liquidity and collateral management purposes that are classified asavailable-for-sale, and debt securities that Merrill Lynch intends to hold until maturity.

•  Non-qualifying investments are those that are not within the scope of Investment Accounting and consist principally of equity investments, including investments in partnerships and joint ventures. Included in non-qualifying investments are investments accounted for under the equity method of accounting, which consist of investments in (i) partnerships and certain limited liability corporations where Merrill Lynch has more than a minor influence (generally defined as three to five percent interest) and (ii) corporate entities where Merrill Lynch has the ability to exercise significant influence over the investee (generally defined as ownership and voting interest of 20% to 50%). Also included in non-qualifying investments are private equity investments that Merrill Lynch holds for capital appreciationand/or current income and which are accounted for at fair value in accordance with the Investment Company Guide, as well as private equity investments accounted for at fair value under the fair value option election. The fair value of such private equity investments reflects expected exit values based upon market prices or other valuation methodologies, including market comparables of similar companies and discounted expected cash flows.

Investment securities reported on the Condensed Consolidated Balance Sheets at June 30, 2011 and December 31, 2010 are presented below.

(dollars in millions)
	June 30, 2011		December 31, 2010
Investment securities
Available-for-sale	$	2,067	$	5,091
Held-to-maturity		-		245
Non-qualifying(1)
Equity investments(2)		8,170		10,437
Other investments		2,350		1,996
Total	$	12,587	$	17,769

(1)	Investments that are non-qualifying for Investment Accounting purposes.
(2)	The December 31, 2010 balance includes Merrill Lynch’s investment in BlackRock, Inc., which consisted of approximately 13.6 million preferred shares. The carrying value and fair value of this investment was

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$2.2 billion and $2.6 billion, respectively, at December 31, 2010. During the second quarter of 2011, Merrill Lynch sold its remaining investment in BlackRock, Inc., resulting in a pre-tax gain of $377 million.

For the three and six months ended June 30, 2011, OTTI losses related to non-agency mortgage-backedavailable-for-sale securities were $10 million and $46 million, respectively. For the three and six months ended June 30, 2010, OTTI losses related to non-agency mortgage-backedavailable-for-sale securities were $39 million and $125 million, respectively. Net impairment losses recognized in earnings represent the credit component of OTTI losses on AFS debt securities and total OTTI losses for AFS debt securities that Merrill Lynch does not intend to hold to recovery. Those amounts were $8 million and $44 million for the three and six months ended June 30, 2011 and $37 million and $123 million for the three and six months ended June 30, 2010, respectively. Refer to Note 1 for Merrill Lynch’s accounting policy regardingother-than-temporary-impairment of investment securities.

Information regarding investment securities subject to Investment Accounting follows.

(dollars in millions)
	June 30, 2011
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available-for-Sale
Mortgage-backed securities:
Agency residential mortgage backed securities	$	407	$	-	$	(10	)	$	397
Agency collateralized mortgage obligations		55		-		-			55
Non-agency		560		34		(57	)		537
Subtotal		1,022		34		(67	)		989
Non-U.S. securities		594		-		-			594
U.S. Government and agencies		398		-		-			398
Corporate bonds		86		-		-			86
TotalAvailable-for-Sale Securities	$	2,100	$	34	$	(67	)	$	2,067

(dollars in millions)
	December 31, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available-for-Sale
Mortgage-backed securities:
Agency residential mortgage backed securities	$	3,918	$	-	$	(49	)	$	3,869
Agency collateralized mortgage obligations		61		-		-			61
Non-agency		739		68		(76	)		731
Subtotal		4,718		68		(125	)		4,661
U.S. Government and agencies		430		-		-			430
TotalAvailable-for-Sale Securities		5,148		68		(125	)		5,091
Held-to-Maturity
Corporate debt and municipal		245		-		-			245
Total	$	5,393	$	68	$	(125	)	$	5,336

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The following table presents fair value and unrealized losses, after hedges, foravailable-for-sale securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at June 30, 2011.

(dollars in millions)
	Less Than 1 Year					More than 1 Year					Total
			Unrealized					Unrealized					Unrealized
Asset Category	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Agency residential mortgage backed securities	$	397	$	(10	)	$	-	$	-		$	397	$	(10	)
Non-agency		92		(6	)		127		(51	)		219		(57	)
Total	$	489	$	(16	)	$	127	$	(51	)	$	616	$	(67	)

The following table presents fair value and unrealized losses, after hedges, foravailable-for-sale securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at December 31, 2010.

(dollars in millions)
	Less than 1 Year					More than 1 Year					Total
			Unrealized					Unrealized					Unrealized
Asset Category	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Agency residential mortgage backed securities	$	3,869	$	(49	)	$	-	$	-		$	3,869	$	(49	)
Non-agency		53		(3	)		230		(73	)		283		(76	)
Total	$	3,922	$	(52	)	$	230	$	(73	)	$	4,152	$	(125	)

The amortized cost and fair value ofavailable-for-sale debt securities by expected maturity for mortgage-backed securities and contractual maturity for other debt securities at June 30, 2011 are as follows:

(dollars in millions)
	Available-for-Sale
	Amortized		Fair
	Cost		Value
Due in one year or less	$	1,147	$	1,136
Due after one year through five years		308		308
Due after five years through ten years		78		65
Due after ten years		567		558
Total(1)	$	2,100	$	2,067

(1) Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay their obligations with or without prepayment penalties.

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The proceeds and gross realized gains (losses) from the sale ofavailable-for-sale securities during the three and six months ended June 30, 2011 and June 30, 2010 are as follows:

(dollars in millions)
	Three Months		Six Months		Three Months			Six Months
	Ended		Ended		Ended			Ended
	June 30, 2011		June 30, 2011		June 30, 2010			June 30, 2010
Proceeds	$	1,866	$	3,453	$	1,400		$	14,827
Gross realized gains		-		44		60			406
Gross realized losses		4		4		(253	)		(255	)

At June 30, 2011 and December 31, 2010, Merrill Lynch held certain investments that were accounted for under the equity method of accounting, none of which were individually material.

Note 9.  Securitizations and Other Variable Interest Entities

Merrill Lynch utilizes VIEs in the ordinary course of business to support its own and its customers’ financing and investing needs. Merrill Lynch securitizes loans and debt securities using VIEs as a source of funding and as a means of transferring the economic risk of the loans or debt securities to third parties. Merrill Lynch also administers, structures or invests in other VIEs including municipal bond trusts, CDOs and other entities as described in more detail below.

The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and consolidates the VIE. Merrill Lynch is deemed to have a controlling financial interest and is the primary beneficiary of a VIE if it has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

The tables below present the assets and liabilities of consolidated and unconsolidated VIEs if Merrill Lynch has continuing involvement with transferred assets or if Merrill Lynch otherwise has a variable interest in the VIE. For consolidated VIEs, these amounts are net of intercompany balances. The tables also present Merrill Lynch’s maximum exposure to loss resulting from its involvement with consolidated VIEs and unconsolidated VIEs in which Merrill Lynch holds a variable interest as of June 30, 2011 and December 31, 2010. Merrill Lynch’s maximum exposure to loss is based on the unlikely event that all of the assets in the VIEs become worthless and incorporates not only potential losses associated with assets recorded on Merrill Lynch’s Condensed Consolidated Balance Sheet but also potential losses associated with off-balance sheet commitments such as unfunded liquidity commitments and other contractual arrangements. Merrill Lynch’s maximum exposure to loss does not include losses previously recognized.

Merrill Lynch invests in ABS issued by third party VIEs with which it has no other form of involvement. These securities are described in more detail in Note 8. In addition, Merrill Lynch uses VIEs such as trust preferred securities trusts in connection with its funding activities (see Note 12).

Except as described below, Merrill Lynch has not provided financial support to consolidated or unconsolidated VIEs that it was not contractually required to provide, nor does it intend to do so.

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Loan VIEs

Merrill Lynch securitizes mortgage loans that it originates or purchases from third parties. In certain circumstances, Merrill Lynch has continuing involvement with the securitized loans as servicer of the loans. Merrill Lynch may also retain beneficial interests in the securitization vehicles including senior and subordinated securities, and the equity tranche. Except as described below, Merrill Lynch does not provide guarantees to the securitization vehicles and investors do not have recourse to Merrill Lynch other than through standard representations and warranties.

Securitization activity for residential and commercial mortgages during the three and six months ended June 30, 2011 included cash proceeds from new securitizations of $1.2 billion. There were no cash proceeds for the three and six months ended June 30, 2010. Cash flows received on residual interests were $3.6 million and $7.1 million for the three and six months ended June 30, 2011, respectively, compared to $6.8 million and $13.6 million for the three and six months ended June 30, 2010, respectively.

The following table summarizes certain information related to Loan VIEs in which Merrill Lynch is either the transferor, servicer or sponsor and holds a variable interest as of June 30, 2011 and December 31, 2010.

(dollars in millions)
					Non-Agency
	Agency				Prime				Subprime				Commercial Mortgage				Alt-A
	June 30,		December 31,		June 30,		December 31,		June 30,		December 31,		June 30,		December 31,		June 30,		December 31,
	2011		2010		2011		2010		2011		2010		2011		2010		2011		2010
Unconsolidated VIEs:
Maximum loss exposure(1)	$	2	$	-	$	25	$	28	$	150	$	168	$	193	$	187	$	15	$	-
Senior securities held(2)
Trading assets	$	2	$	-	$	2	$	6	$	11	$	23	$	54	$	74	$	15	$	-
Investment securities		-		-		6		6		17		22		-		-		-		-
Subordinated securities held(2)
Trading assets		-		-		-		-		6		11		-		-		-		-
Residual interests held		-		-		6		6		-		-		84		50		-		-
Total retained securities	$	2	$	-	$	14	$	18	$	34	$	56	$	138	$	124	$	15	$	-
Principal balance outstanding(3)	$	538	$	-	$	284	$	636	$	7,135	$	18,857	$	25,670	$	24,891	$	210	$	-
Consolidated VIEs:
Maximum loss exposure(1)	$	-	$	-	$	32	$	46	$	12	$	12	$	-	$	-	$	-	$	-
Derivative contracts	$	-	$	-	$	26	$	41	$	-	$	-	$	-	$	-	$	-	$	-
Loans, notes, and mortgages		-		-		-		-		-		-		-		-		-		-
Other assets		-		-		6		5		12		12		-		-		-		-
Total assets	$	-	$	-	$	32	$	46	$	12	$	12	$	-	$	-	$	-	$	-
Long-term borrowings	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Derivative contracts		-		-		-		-		-		-		-		-		-		-
Other liabilities		-		-		-		9		-		-		-		-		-		-
Total liabilities	$	-	$	-	$	-	$	9	$	-	$	-	$	-	$	-	$	-	$	-

(1)	Maximum loss exposure excludes liabilities for representations and warranties.
(2)	Substantially all of the securities were in Level 2 in the fair value hierarchy.
(3)	Principal balance outstanding includes those loans that Merrill Lynch transferred and with which it has continuing involvement.

In accordance with consolidation guidance, Merrill Lynch consolidates Loan VIEs in which it has a controlling financial interest. For loan securitizations, Merrill Lynch is considered to have a controlling financial interest (i.e., is the primary beneficiary) when it is the servicer of the loans and also holds a financial interest that could potentially be significant to the entity. If Merrill Lynch is not the servicer of an entity or does not hold a financial interest that could be significant to the entity, Merrill Lynch does not have a controlling financial interest and does not consolidate the entity. Merrill Lynch does

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not have a controlling financial interest in and does not consolidate agency trusts unless Merrill Lynch holds all of the issued securities and has the unilateral right to liquidate the trust.

Merrill Lynch sells mortgage loans to VIEs with various representations and warranties related to, among other things, the ownership of the loan, validity of the lien securing the loan, absence of delinquent taxes or liens against the property securing the loan, the process used in selecting the loans for inclusion in a transaction, the loan’s compliance with any applicable loan criteria established by the buyer, and the loan’s compliance with applicable local, state and federal laws. Under these representations and warranties, Merrill Lynch may be required to repurchase mortgage loans with the identified defects or indemnify or provide other recourse to the investor or insurer. In such cases, Merrill Lynch bears any subsequent credit loss on the mortgage loans. Merrill Lynch’s representations and warranties are generally not subject to stated limits and extend over the life of the loans. See Note 14.

Municipal Bond Securitizations

Merrill Lynch sponsors municipal bond trusts that hold highly-rated, long-term, fixed-rate municipal bonds, some of which are callable prior to maturity. A majority of the bonds are rated AAA or AA and some benefit from insurance provided by third parties. The trusts obtain financing by issuing floating-rate trust certificates that reprice on a frequent basis to third party investors. Merrill Lynch may serve as remarketing agentand/or liquidity provider for the trusts. The floating-rate investors have the right to tender the certificates at specified dates, often with as little as seven days’ notice. Should Merrill Lynch be unable to remarket the tendered certificates, it is generally obligated to purchase them at par under standby liquidity facilities unless the bond’s credit rating has declined below investment grade or there has been an event of default or bankruptcy of the issuer and insurer.

Merrill Lynch also provides default protection or credit enhancement to investors in certain municipal bond trusts whereby Merrill Lynch guarantees the payment of interest and principal on floating-rate certificates issued by these trusts. If an investor holds the residual interest, that investor typically has the unilateral ability to liquidate the trust at any time, while Merrill Lynch typically has the ability to trigger the liquidation of that trust only if the market value of the bonds held in the trust declines below a specified threshold. The weighted average remaining life of bonds held in the trusts at June 30, 2011 was 11.70 years.

The following table summarizes certain information related to municipal bond trusts in which Merrill Lynch holds a variable interest as of June 30, 2011 and December 31, 2010.

(dollars in millions)
	June 30, 2011						December 31, 2010
	Consolidated		Unconsolidated		Total		Consolidated		Unconsolidated		Total
Maximum Loss Exposure	$	4,230	$	1,302	$	5,532	$	4,451	$	1,543	$	5,994
On-balance sheet assets
Trading assets	$	4,230	$	182	$	4,412	$	4,451	$	255	$	4,706
Total	$	4,230	$	182	$	4,412	$	4,451	$	255	$	4,706
On-balance sheet liabilities
Short-term borrowings	$	4,175	$	-	$	4,175	$	4,642	$	-	$	4,642
Payables to Bank of America		3		-		3		2		-		2
Total	$	4,178	$	-	$	4,178	$	4,644	$	-	$	4,644
Total assets of VIEs	$	4,230	$	1,526	$	5,756	$	4,451	$	1,706	$	6,157

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Merrill Lynch consolidates municipal bond trusts when it has a controlling financial interest. As transferor of assets into a trust, Merrill Lynch has the power to determine which assets would be held in the trust and to structure the liquidity facilities, default protection and credit enhancement, if applicable. In some instances, Merrill Lynch retains a residual interest in such trusts and has loss exposure that could potentially be significant to the trust through the residual interest, liquidity facilities and other arrangements. Merrill Lynch is also the remarketing agent, through which it has the power to direct the activities that most significantly impact economic performance. Accordingly, Merrill Lynch is the primary beneficiary of and consolidates these trusts. In other instances, one or more third party investor(s) hold(s) the residual interest and, through that interest, has the unilateral right to liquidate the trust. Merrill Lynch does not consolidate these trusts.

In the three and six months ended June 30, 2011, Merrill Lynch was the transferor of assets into unconsolidated municipal bond trusts and received cash proceeds from new securitizations of $260 million and $327 million, respectively, as compared with $370 million and $783 million, respectively, in the three and six months ended June 30, 2010. At June 30, 2011 and December 31, 2010, the principal balance outstanding for unconsolidated municipal bond securitization trusts for which Merrill Lynch was the transferor was $1.5 billion and $1.7 billion, respectively.

Merrill Lynch’s liquidity commitments to unconsolidated municipal bond trusts totaled $1.1 billion and $1.3 billion at June 30, 2011 and December 31, 2010, respectively.

CDOs

CDO vehicles hold diversified pools of fixed income securities, typically corporate debt or asset-backed securities, which they fund by issuing multiple tranches of debt and equity securities. Synthetic CDOs enter into a portfolio of credit default swaps to synthetically create exposure to fixed income securities. CLOs are a subset of CDOs that hold pools of loans, typically corporate loans or commercial mortgages. CDOs are typically managed by third party portfolio managers. Merrill Lynch transfers assets to these CDOs, holds securities issued by the CDOs, and may be a derivative counterparty to the CDOs, including credit default swap counterparty for synthetic CDOs. Merrill Lynch has also entered into total return swaps with certain CDOs whereby Merrill Lynch will absorb the economic returns generated by specified assets held by the CDO. Merrill Lynch receives fees for structuring CDOs and providing liquidity support for super senior tranches of securities issued by certain CDOs.

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The following table summarizes certain information related to CDO vehicles in which Merrill Lynch holds a variable interest as of June 30, 2011 and December 31, 2010.

(dollars in millions)
	June 30, 2011						December 31, 2010
	Consolidated		Unconsolidated		Total		Consolidated		Unconsolidated		Total
Maximum Loss Exposure	$	2,422	$	2,530	$	4,952	$	2,216	$	2,987	$	5,203
On-balance sheet assets
Trading assets	$	2,613	$	442	$	3,055	$	2,727	$	569	$	3,296
Derivative contracts		-		735		735		-		890		890
Receivables from Bank of America		4		-		4		-		-		-
Other assets		62		121		183		3		123		126
Total	$	2,679	$	1,298	$	3,977	$	2,730	$	1,582	$	4,312
On-balance sheet liabilities
Derivative contracts	$	-	$	17	$	17	$	-	$	8	$	8
Long-term borrowings		3,169		-		3,169		3,161		-		3,161
Total	$	3,169	$	17	$	3,186	$	3,161	$	8	$	3,169
Total assets of VIEs	$	2,679	$	36,314	$	38,993	$	2,730	$	42,782	$	45,512

Merrill Lynch consolidates CDOs in which it has a controlling financial interest. Merrill Lynch does not routinely serve as collateral manager for CDOs and therefore does not typically have the power to direct the activities that most significantly impact the economic performance of a CDO. However, following an event of default, if Merrill Lynch is a majority holder of senior securities issued by a CDO and acquires the power to manage the assets of the CDO, Merrill Lynch consolidates the CDO. Generally, the creditors of the consolidated CDOs have no recourse to the general credit of Merrill Lynch. Merrill Lynch’s maximum exposure to loss is significantly less than the total assets of the CDO vehicles in the table above because Merrill Lynch typically has exposure to only a portion of the total assets.

At June 30, 2011, Merrill Lynch had $948 million notional amount of super senior CDO liquidity exposure including derivatives and other exposures with third parties that hold super senior cash positions on Merrill Lynch’s behalf and to certain synthetic CDOs through which Merrill Lynch is obligated to purchase super senior CDO securities at par value if the CDO vehicles need cash to make payments due under CDS written by the CDO vehicles.

Liquidity-related commitments also include $2.0 billion notional amount of derivative contracts with unconsolidated VIEs, principally CDO vehicles, which hold non-super senior CDO debt securities. These derivatives are included in the $2.0 billion notional amount of derivative contracts through which Merrill Lynch obtains funding from third party VIEs, discussed in Note 6.

Merrill Lynch’s $2.9 billion of aggregate liquidity exposure to CDOs at June 30, 2011 is included in the above table to the extent that Merrill Lynch sponsored the CDO vehicle or the liquidity exposure to the CDO vehicle is more than insignificant as compared to total assets of the CDO vehicle. Liquidity exposure included in the table is reported net of previously recorded losses.

Customer Vehicles

Customer vehicles include credit-linked and equity-linked note vehicles and repackaging vehicles, which are typically created on behalf of customers who wish to obtain exposure to a specific company

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or financial instrument. Credit-linked and equity-linked note vehicles issue notes which pay a return that is linked to the specific credit or equity risk. The vehicles purchase high-grade assets as collateral and enter into CDS or equity derivatives to synthetically create the credit or equity risk required to pay the specified return on the notes issued by the vehicles. Repackaging vehicles issue notes that are designed to incorporate risk characteristics desired by customers of Merrill Lynch. The vehicles hold debt instruments such as corporate bonds, convertible bonds or ABS with the desired credit risk profile. Merrill Lynch enters into derivatives with the vehicles to change the interest rate or currency profile of the debt instruments. If a vehicle holds convertible bonds and Merrill Lynch retains the conversion option, Merrill Lynch is deemed to have a controlling financial interest and consolidates the vehicle.

The following table summarizes certain information related to customer vehicles in which Merrill Lynch holds a variable interest as of June 30, 2011 and December 31, 2010.

(dollars in millions)
	June 30, 2011						December 31, 2010
	Consolidated		Unconsolidated		Total		Consolidated		Unconsolidated(1)		Total
Maximum Loss Exposure	$	3,930	$	2,113	$	6,043	$	3,457	$	2,083	$	5,540
On-balance sheet assets
Trading assets	$	3,838	$	224	$	4,062	$	3,397	$	217	$	3,614
Derivative contracts		-		746		746		-		728		728
Other assets		1,980		-		1,980		1,430		-		1,430
Total	$	5,818	$	970	$	6,788	$	4,827	$	945	$	5,772
On-balance sheet liabilities
Derivative contracts	$	2	$	59	$	61	$	1	$	24	$	25
Short-term borrowings		230		-		230		-		-		-
Long-term borrowings		4,268		-		4,268		3,430		-		3,430
Other liabilities		2		476		478		-		750		750
Total	$	4,502	$	535	$	5,037	$	3,431	$	774	$	4,205
Total assets of VIEs	$	5,818	$	5,878	$	11,696	$	4,827	$	5,952	$	10,779

(1) Maximum loss exposure, trading assets and other liabilities have been revised from $2,603 million, $737 million and $140 million, respectively (as previously reported) to $2,083 million, $217 million and $750 million, respectively.

Merrill Lynch consolidates customer vehicles in which it has a controlling financial interest. Merrill Lynch typically has control over the initial design of the vehicle and may also have the ability to replace the collateral assets. Merrill Lynch consolidates these vehicles if it also absorbs potentially significant gains or losses through derivative contracts or investments. Merrill Lynch does not consolidate a vehicle if a single investor controlled the initial design of the vehicle or if Merrill Lynch does not have a variable interest that could potentially be significant to the vehicle.

Merrill Lynch is typically the counterparty for the credit and equity derivatives, and it may invest in securities issued by the vehicles. Merrill Lynch may also enter into interest rate and foreign currency derivatives with the vehicles. Merrill Lynch had approximately $859 million of other liquidity commitments, including written put options and collateral value guarantees, with unconsolidated credit-linked and equity-linked note vehicles at June 30, 2011.

Merrill Lynch’s maximum exposure to loss from customer vehicles includes the notional amount of the credit or equity derivatives to which it is counterparty, net of losses previously recorded, and Merrill Lynch’s investment, if any, in securities issued by the vehicles. It has not been reduced to reflect the benefit of offsetting swaps with the customers or collateral arrangements.

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Real Estate and other VIEs

Real Estate and other VIEs primarily includes a real estate investment fund that is a VIE, investments in VIEs that hold investment property, certain hedge fund investment entities, and residential agency resecuritizations.

The following table summarizes certain information related to Real Estate and other VIEs in which Merrill Lynch holds a variable interest as of June 30, 2011 and December 31, 2010.

(dollars in millions)
	June 30, 2011						December 31, 2010
	Consolidated		Unconsolidated		Total		Consolidated		Unconsolidated(1)		Total
Maximum Loss Exposure	$	527	$	2,643	$	3,170	$	857	$	3,389	$	4,246
On-balance sheet assets
Trading assets	$	113	$	749	$	862	$	263	$	1,326	$	1,589
Derivative contracts		-		196		196		-		227		227
Investment securities		261		61		322		309		73		382
Loans, notes, and mortgages		111		1,254		1,365		221		1,368		1,589
Other assets		67		383		450		147		395		542
Total	$	552	$	2,643	$	3,195	$	940	$	3,389	$	4,329
On-balance sheet liabilities
Long-term borrowings	$	24	$	-	$	24	$	83	$	-	$	83
Other liabilities		178		-		178		44		-		44
Total	$	202	$	-	$	202	$	127	$	-	$	127
Total assets of VIEs	$	552	$	18,570	$	19,122	$	940	$	20,614	$	21,554

(1) Maximum loss exposure, trading assets and total assets of VIEs have been revised from $2,150 million, $86 million and $6,391 million, respectively (as previously reported), to $3,389 million, $1,326 million and $20,614 million, respectively.

Merrill Lynch consolidates real estate and other VIEs in which it has a controlling financial interest. Merrill Lynch has established real estate investment funds designed to provide returns to clients through limited partnership holdings. Merrill Lynch was originally the general partner and the investment advisor, making management decisions. In 2010, Merrill Lynch transferred its management responsibilities to third parties but retained a limited partnership interest in these funds.

Merrill Lynch invests in real estate lending vehicles and establishes vehicles to hold real estate investments. In certain instances these entities do not have sufficient equity to finance operations and are therefore considered VIEs. Merrill Lynch consolidates these vehicles when it has decision-making power over the property held by the vehicle and absorbs potentially significant gains or losses through its equity or loan investment.

Other Asset-backed Financing Arrangements

Prior to 2011, Merrill Lynch transferred pools of securities to certain independent third parties and provided financing for approximately 75 percent of the purchase price under asset-backed financing arrangements. At June 30, 2011 and December 31, 2010, Merrill Lynch’s maximum loss exposure under these financing arrangements was $6.0 billion and $6.5 billion, respectively, substantially all of which was recorded as loans, notes and mortgages on Merrill Lynch’s Condensed Consolidated Balance Sheet. All principal and interest payments have been received when due in accordance with their contractual terms. These arrangements are not included in the tables above because the purchasers are not VIEs.

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Note 10.  Loans, Notes and Mortgages

Loans, notes, mortgages and related commitments to extend credit include:

•  Consumer loans, which are substantially secured, including residential mortgages, home equity loans, and other loans to individuals for household, family, or other personal expenditures; and

•  Commercial loans, including corporate and institutional loans (including corporate and financial sponsor, non-investment grade lending commitments), commercial mortgages, asset-backed loans, small- and middle-market business loans, and other loans to businesses.

The table below presents information on Merrill Lynch’s loans outstanding at June 30, 2011 and December 31, 2010.

Age Analysis of Outstanding Loans
(dollars in millions)
	June 30, 2011
									Total Current				Loans
	30-59 Days		60-89 Days		90 Days or more		Total Past		or Less Than		Nonperforming		Measured at		Total
	Past Due		Past Due		Past Due		Due		30 Days Past Due		Loans(1)		Fair Value		Outstanding
Consumer loans
Residential mortgage	$	10	$	5	$	-	$	15	$	436	$	30	$	-	$	481
Home equity		1		-		-		1		120		4		-		125
Total consumer		11		5		-		16		556		34		-		606
Commercial
Commercial — U.S.		-		-		1		1		4,747		139		-		4,887
Commercial real estate		-		-		-		-		1,278		206		-		1,484
Commercial —non-U.S.		-		-		1		1		3,014		74		-		3,089
Total commercial loans		-		-		2		2		9,039		419		-		9,460
Commercial loans measured at fair value		-		-		-		-		-		-		422		422
Total commercial		-		-		2		2		9,039		419		422		9,882
Other(2)		-		-		-		-		13,459		-		-		13,459
Total loans	$	11	$	5	$	2	$	18	$	23,054	$	453	$	422	$	23,947
Allowance for loan losses																(64	)
Total loans, net															$	23,883

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Age Analysis of Outstanding Loans
(dollars in millions)
	December 31, 2010
									Total Current				Loans
	30-59 Days		60-89 Days		90 Days or more		Total Past		or Less Than		Nonperforming		Measured at		Total
	Past Due		Past Due		Past Due		Due		30 Days Past Due		Loans(1)		Fair Value		Outstanding
Consumer loans
Residential mortgage	$	15	$	8	$	-	$	23	$	451	$	30	$	-	$	504
Home equity		1				-		1		126		5		-		132
Total consumer		16		8		-		24		577		35		-		636
Commercial
Commercial — U.S.		1		1		19		21		5,591		210		-		5,822
Commercial real estate		-		-		-		-		1,632		212		-		1,844
Commercial —non-U.S.		-		-		-		-		2,824		161		-		2,985
Total commercial loans		1		1		19		21		10,047		583		-		10,651
Commercial loans measured at fair value		-		-		-		-		-		-		318		318
Total commercial		1		1		19		21		10,047		583		318		10,969
Other(3)		-		-		-		-		14,368		-		-		14,368
Total loans	$	17	$	9	$	19	$	45	$	24,992	$	618	$	318	$	25,973
Allowance for loan losses																(170	)
Total loans, net															$	25,803

(1)	Excludes loans measured at fair value.
(2)	Includes asset-backed loans and loansheld-for-sale of $9.7 billion and $3.6 billion, respectively, as of June 30, 2011.
(3)	Includes asset-backed loans and loansheld-for-sale of $9.2 billion and $5.2 billion, respectively, as of December 31, 2010.

Merrill Lynch monitors the credit quality of its loans on an ongoing basis. Merrill Lynch’s commercial loans are evaluated using pass rated or reservable criticized as the primary credit quality indicator. The term reservable criticized refers to those commercial loans that are internally classified or listed by Merrill Lynch as special mention, substandard or doubtful. These assets pose an elevated risk and may have a high probability of default or total loss. Pass rated refers to all loans not considered reservable criticized. The table below presents credit quality indicators on Merrill Lynch’s commercial loan portfolio, excluding loans accounted for under the fair value option, at June 30, 2011 and December 31, 2010.

(dollars in millions)
	June 30, 2011
	Commercial —		Commercial		Commercial —
	U.S.		Real Estate		non-U.S.
Risk Ratings
Pass rated	$	4,565	$	1,341	$	2,812
Reservable criticized		322		143		277
Total Commercial Credit	$	4,887	$	1,484	$	3,089

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(dollars in millions)
	December 31, 2010
	Commercial —		Commercial		Commercial —
	U.S.		Real Estate		non-U.S.
Risk Ratings
Pass rated	$	5,192	$	1,582	$	2,581
Reservable criticized		630		262		404
Total Commercial Credit	$	5,822	$	1,844	$	2,985

Activity in the allowance for loan losses, which is primarily associated with commercial loans, is presented below:

(dollars in millions)
	Six Months Ended			Six Months Ended
	June 30, 2011			June 30, 2010
Allowance for loan losses, at beginning of period	$	170		$	33
Provision for loan losses		(28	)		81
Charge-offs		(80	)		(62	)
Recoveries		1			-
Net charge-offs		(79	)		(62	)
Other		1			2
Allowance for loan losses, at end of period	$	64		$	54

Consumer loans, substantially all of which are collateralized, consisted of approximately 25,000 individual loans at June 30, 2011. Commercial loans consisted of approximately 6,000 separate loans.

Merrill Lynch’s outstanding loans include $3.6 billion and $5.2 billion of loans held for sale at June 30, 2011 and December 31, 2010, respectively. Loans held for sale are loans that Merrill Lynch expects to sell prior to maturity. At June 30, 2011, such loans consisted of $0.9 billion of consumer loans, primarily residential mortgages, and $2.7 billion of commercial loans. At December 31, 2010, such loans consisted of $1.7 billion of consumer loans, primarily residential mortgages, and $3.5 billion of commercial loans.

Merrill Lynch generally maintains collateral on secured loans in the form of securities, liens on real estate, perfected security interests in other assets of the borrower, and guarantees. Consumer loans are typically collateralized by liens on real estate and other property. Commercial secured loans primarily include asset-based loans secured by financial assets such as loan receivables and trade receivables where the amount of the loan is based on the level of available collateral (i.e., the borrowing base) and commercial mortgages secured by real property. In addition, for secured commercial loans related to the corporate and institutional lending business, Merrill Lynch typically receives collateral in the form of either a first or second lien on the assets of the borrower or the stock of a subsidiary, which gives Merrill Lynch a priority claim in the case of a bankruptcy filing by the borrower. In many cases, where a security interest in the assets of the borrower is granted, no restrictions are placed on the use of assets by the borrower and asset levels are not typically subject to periodic review; however, the borrowers are typically subject to stringent debt covenants. Where the borrower grants a security interest in the stock of its subsidiary, the subsidiary’s ability to issue additional debt is typically restricted.

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In some cases, Merrill Lynch enters into single name and index credit default swaps to mitigate credit exposure related to funded and unfunded commercial loans. The notional value of these swaps totaled $2.7 billion and $2.9 billion at June 30, 2011 and December 31, 2010, respectively.

The following tables provide information regarding Merrill Lynch’s net credit default protection associated with its funded and unfunded commercial loans as of June 30, 2011 and December 31, 2010:

Net Credit Default Protection by Maturity Profile
	June 30,			December 31,
	2011			2010
Less than or equal to one year		23	%		23	%
Greater than one year and less than or equal to five years		76			67
Greater than five years		1			10
Total net credit default protection		100	%		100	%

Net Credit Default Protection by Credit Exposure Debt Rating
(dollars in millions)
	June 30, 2011						December 31, 2010
	Net						Net
Ratings(1)	Notional			Percent			Notional			Percent
AA	$	(285	)		10.6	%	$	(450	)		15.5	%
A		(1,071	)		39.9			(1,029	)		35.3
BBB		(688	)		25.6			(655	)		22.5
BB		(262	)		9.8			(359	)		12.3
B		(194	)		7.2			(224	)		7.7
CCC and below		(187	)		6.9			(194	)		6.7
Total net credit default protection	$	(2,687	)		100.0	%	$	(2,911	)		100.0	%

(1) Merrill Lynch considers ratings of BBB- or higher to meet the definition of investment grade.

Accounting for Acquired Impaired Loans

Upon completion of the acquisition of Merrill Lynch by Bank of America, Merrill Lynch adjusted the carrying value of its loans to fair value. Certain of these loans were subject to the requirements of Acquired Impaired Loan Accounting, which addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans if those differences are attributable, at least in part, to credit quality. Acquired Impaired Loan Accounting requires impaired loans to be recorded at estimated fair value and prohibits “carrying over” or the creation of valuation allowances in the initial accounting for loans acquired in a transfer that are within the scope of Acquired Impaired Loan Accounting.

The estimated fair values for loans within the scope of Acquired Impaired Loan Accounting are determined by discounting cash flows expected to be collected using a discount rate for similar instruments with adjustments that management believes a market participant would consider in determining fair value. Cash flows expected to be collected at acquisition are estimated using internal prepayment, interest rate and credit risk models that incorporate management’s best estimate of certain key assumptions, such as default rates, loss severity and prepayment speeds. All other loans were remeasured at the present value of contractual payments discounted to the prevailing interest rates on the date of acquisition.

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Under Acquired Impaired Loan Accounting, the excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loans. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference. Changes in the expected cash flows from the date of acquisition will either impact the accretable yield or result in a charge to the provision for credit losses. Subsequent decreases to expected principal cash flows will result in a charge to provision for credit losses and a corresponding increase to allowance for loan losses. Subsequent increases in expected principal cash flows will result in recovery of any previously recorded allowance for loan losses, to the extent applicable, and an increase from expected cash flows to accretable yield for any remaining increase. All changes in expected interest cash flows will result in an increase or decrease of accretable yield.

In connection with Merrill Lynch’s acquisition by Bank of America, loans within the scope of Acquired Impaired Loan Accounting had an unpaid principal balance of $5.6 billion ($2.7 billion consumer and $2.9 billion commercial) and a carrying value of $4.2 billion ($2.3 billion consumer and $1.9 billion commercial) as of January 1, 2009. The loans within the scope of Acquired Impaired Loan Accounting, which are primarily commercial real estate loans, had an unpaid principal balance of $0.6 billion and $0.7 billion as of June 30, 2011 and December 31, 2010, respectively, and a carrying value of $0.2 billion as of June 30, 2011 and December 31, 2010.

Note 11.  Goodwill and Intangible Assets

Goodwill

Goodwill is the cost of an acquired company in excess of the fair value of identifiable net assets at the acquisition date. Goodwill is tested annually (or more frequently under certain conditions) for impairment at the reporting unit level in accordance with ASC 350,Intangibles — Goodwill and Other(“Goodwill and Intangible Assets Accounting”). If the fair value of the reporting unit exceeds its carrying value, its goodwill is not deemed to be impaired. If the fair value is less than the carrying value, a further analysis is required to determine the amount of impairment, if any. Merrill Lynch’s next annual impairment test will be performed during the third quarter of 2011, based on financial information as of June 30, 2011.

The carrying amount of goodwill was $5.7 billion at June 30, 2011 and December 31, 2010.

Intangible Assets

Intangible assets with definite lives at June 30, 2011 and December 31, 2010 consisted primarily of value assigned to customer relationships. Intangible assets with definite lives are tested for impairment in accordance with ASC 360,Property, Plant and Equipmentwhenever certain conditions exist which would indicate the carrying amounts of such assets may not be recoverable. Intangible assets with definite lives are amortized over their respective estimated useful lives. Intangible assets with indefinite lives consist of value assigned to the Merrill Lynch brand and are tested for impairment in accordance with Goodwill and Intangible Assets Accounting. Intangible assets with indefinite lives are not amortized. Merrill Lynch’s next annual impairment test will be performed during the third quarter of 2011, based on financial information as of June 30, 2011.

The gross carrying amount of intangible assets with definite lives was $3.1 billion at June 30, 2011 and December 31, 2010. Accumulated amortization of intangible assets was $772 million and $618 million at June 30, 2011 and December 31, 2010, respectively. The carrying amount of intangible assets with indefinite lives was $1.5 billion as of June 30, 2011 and December 31, 2010.

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Amortization expense for the three and six months ended June 30, 2011 and June 30, 2010 was $77 million and $154 million, respectively.

Note 12.  Borrowings and Deposits

Prior to Merrill Lynch’s acquisition by Bank of America, ML & Co. was the primary issuer of Merrill Lynch’s unsecured debt instruments. Debt instruments were also issued by certain subsidiaries. Bank of America has not assumed or guaranteed the long-term debt that was issued or guaranteed by ML & Co. or its subsidiaries prior to the acquisition of Merrill Lynch by Bank of America.

Beginning late in the third quarter of 2009, in connection with the update or renewal of certain Merrill Lynch international securities offering programs, Bank of America agreed to guarantee debt securities, warrantsand/or certificates issued by certain subsidiaries of ML & Co. on a going forward basis. All existing ML & Co. guarantees of securities issued by those same Merrill Lynch subsidiaries under various international securities offering programs will remain in full force and effect as long as those securities are outstanding, and Bank of America has not assumed any of those prior ML & Co. guarantees or otherwise guaranteed such securities. There were approximately $6.4 billion of securities guaranteed by Bank of America at June 30, 2011.

Following the completion of Bank of America’s acquisition of Merrill Lynch, ML & Co. became a subsidiary of Bank of America and established intercompany lending and borrowing arrangements to facilitate centralized liquidity management. Included in these intercompany agreements is a $75 billion one-year revolving unsecured line of credit that allows ML & Co. to borrow funds from Bank of America at a spread to LIBOR that is reset periodically and is consistent with other intercompany agreements. This credit line was renewed effective January 1, 2011 with a maturity date of January 1, 2012. The credit line will automatically be extended by one year to the succeeding January 1st unless Bank of America provides written notice not to extend at least 45 days prior to the maturity date. The agreement does not contain any financial or other covenants. There were no outstanding borrowings against the line of credit at June 30, 2011.

In addition to the $75 billion unsecured line of credit, a $25 billion364-day revolving unsecured line of credit that allows ML & Co. to borrow funds from Bank of America was established on February 15, 2011. Interest on the line of credit is based on prevailing short-term market rates. The agreement does not contain any financial or other covenants. The line of credit matures on February 14, 2012. There were no outstanding borrowings against the line of credit at June 30, 2011.

Following the merger of BAS into MLPF&S, Bank of America agreed to guarantee the short-term, senior unsecured obligations issued by MLPF&S under its short-term master note program on a going forward basis. This issuance program was previously maintained by BAS to provide short-term funding for its broker-dealer operations. At June 30, 2011, approximately $8.6 billion of borrowings under the program were outstanding and guaranteed by Bank of America.

Also in connection with the merger of BAS into MLPF&S, MLPF&S either assumed or established the following agreements:

•  MLPF&S assumed an approximately $1.5 billion subordinated loan agreement with Bank of America, which bears interest based on a spread to LIBOR, and has a scheduled maturity date of December 31, 2012. The loan agreement contains a provision that automatically extends the loan’s maturity by one year unless Bank of America provides 13 months written notice not to extend prior to the scheduled maturity date.

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•  MLPF&S assumed a $7 billion revolving subordinated line of credit with Bank of America. The subordinated line of credit bears interest based on a spread to LIBOR, and has a scheduled maturity date of October 1, 2012. The revolving subordinated line of credit contains a provision that automatically extends the maturity by one year unless Bank of America provides 13 months written notice not to extend prior to the scheduled maturity date. At June 30, 2011, $1.1 billion was outstanding on the subordinated line of credit.

•  On November 1, 2010, a $4 billion one-year revolving unsecured line of credit that allows MLPF&S to borrow funds from Bank of America was established. Interest on the line of credit is based on prevailing short-term market rates. The credit line will automatically be extended by one year to the succeeding November 1st unless Bank of America provides written notice not to extend at least 45 days prior to the maturity date. At June 30, 2011, there were no borrowings outstanding on the line of credit.

•  On February 22, 2011, a $15 billion364-day revolving unsecured line of credit that allows MLPF&S to borrow funds from Bank of America was established. Interest on the line of credit is based on prevailing short-term market rates. The line of credit matures on February 21, 2012. At June 30, 2011, approximately $1.5 billion was outstanding on the line of credit.

The value of Merrill Lynch’s debt instruments as recorded on the Condensed Consolidated Balance Sheets does not necessarily represent the amount that will be repaid at maturity. This is due to the following:

•  As a result of the acquisition by Bank of America, all debt instruments were adjusted to fair value on January 1, 2009;

•  Certain debt issuances are accounted for at fair value and incorporate changes in Merrill Lynch’s creditworthiness as well as other underlying risks (see Note 4);

•  Certain structured notes whose coupon or repayment terms are linked to the performance of debt and equity securities, indices, currencies or commodities reflect the fair value of those risks; and

•  Certain debt issuances are adjusted for the impact of fair value hedge accounting (see Note 6).

The tables below exclude Merrill Lynch’s intercompany transactions with Bank of America; see Note 2 for further information. Total borrowings at June 30, 2011 and December 31, 2010, which are comprised of short-term borrowings, long-term borrowings and junior subordinated notes (related to trust preferred securities), consisted of the following:

(dollars in millions)
	June 30,		December 31,
	2011		2010
Senior debt	$	78,692	$	80,130
Senior structured notes		40,231		40,678
Subordinated debt		11,687		11,358
Junior subordinated notes (related to trust preferred securities)		3,588		3,576
Other subsidiary financing		806		617
Debt issued by consolidated VIEs		11,866		11,316
Total	$	146,870	$	147,675

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Borrowings and deposits at June 30, 2011 and December 31, 2010, are presented below:

(dollars in millions)
	June 30,		December 31,
	2011		2010
Short-term borrowings
Other unsecured short-term borrowings	$	10,118	$	10,606
Short-term debt issued by consolidated VIEs(1)		4,405		4,642
Total	$	14,523	$	15,248
Long-term borrowings(2)
Fixed-rate obligations(3)	$	64,954	$	64,611
Variable-rate obligations(4)(5)		56,344		57,566
Long-term debt issued by consolidated VIEs(1)		7,461		6,674
Total	$	128,759	$	128,851
Deposits
Non-U.S.	$	13,394	$	12,826

(1)	See Note 9 for additional information on debt issued by consolidated VIEs.
(2)	Excludes junior subordinated notes (related to trust preferred securities).
(3)	Fixed-rate obligations are generally swapped to variable rates.
(4)	Variable interest rates are generally based on rates such as LIBOR, the U.S. Treasury Bill Rate, or the Federal Funds Rate.
(5)	Includes structured notes.

See Note 5 for additional information on the fair value of long-term borrowings.

The weighted-average interest rates for borrowings at June 30, 2011 and December 31, 2010 (excluding structured products) were as follows:

	June 30,			December 31,
	2011			2010
Short-term borrowings		0.2	%		0.3	%
Long-term borrowings		3.8			3.8
Junior subordinated notes (related to trust preferred securities)		6.9			6.9

Merrill Lynch also obtains standby letters of credit from issuing banks to satisfy various counterparty collateral requirements, in lieu of depositing cash or securities collateral. Such standby letters of credit aggregated $2.3 billion and $1.4 billion at June 30, 2011 and December 31, 2010, respectively.

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Long-Term Borrowings

At June 30, 2011, long-term borrowings mature as follows:

(dollars in millions)
	Amount		Percentage of Total
Less than 1 year	$	32,364		25	%
1 – 2 years		18,500		14
2 – 3 years		23,829		19
3 – 4 years		10,922		8
4 – 5 years		4,976		4
Greater than 5 years		38,168		30
Total	$	128,759		100	%

Certain long-term borrowing agreements contain provisions whereby the borrowings are redeemable at the option of the holder (“put” options) at specified dates prior to maturity. These borrowings are reflected in the above table as maturing at their put dates, rather than their contractual maturities. However, Merrill Lynch believes that a portion of such borrowings will remain outstanding beyond their earliest redemption date.

The maturity of certain structured notes whose coupon or repayment terms are linked to the performance of debt and equity securities, indices, currencies or commodities may be accelerated based on the value of a referenced index or security, in which case Merrill Lynch may be required to immediately settle the obligation for cash or other securities. These notes are included in the portion of long-term debt maturing in less than a year.

Senior and subordinated debt obligations do not contain provisions that could, upon an adverse change in ML & Co.’s credit rating, financial ratios, earnings or cash flows, trigger a requirement for an early payment, additional collateral support, changes in terms, acceleration of maturity, or the creation of an additional financial obligation.

See Note 12 to the Consolidated Financial Statements contained in the 2010 Annual Report for additional information on Borrowings.

Note 13.  Stockholder’s Equity and Earnings Per Share

Common Stock

As of the completion of the acquisition of Merrill Lynch by Bank of America on January 1, 2009, there have been 1,000 shares of ML & Co. common stock outstanding, all of which are held by Bank of America.

Earnings Per Share

Earnings per share data is not provided for the three and six months ended June 30, 2011 and June 30, 2010 as Merrill Lynch was a wholly-owned subsidiary of Bank of America during those periods.

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Note 14. Commitments, Contingencies and Guarantees

Litigation

The following supplements the disclosure in Note 14 to the Consolidated Financial Statements of Merrill Lynch’s 2010 Annual Report and in Note 14 to the Condensed Consolidated Financial Statements of Merrill Lynch’s Quarterly Report onForm 10-Q for the quarterly period ended March 31, 2011 (collectively, “the prior commitments, contingencies and guarantees disclosures”).

Merrill Lynch has been named as a defendant in various legal actions, including arbitrations, class actions, and other litigation arising in connection with its activities as a global diversified financial services institution.

Some of the legal actions include claims for substantial compensatoryand/or punitive damages or claims for indeterminate amounts of damages. In some cases, the issuers that would otherwise be the primary defendants in such cases are bankrupt or otherwise in financial distress. Merrill Lynch is also involved in investigationsand/or proceedings by governmental and self-regulatory agencies.

In view of the inherent difficulty of predicting the outcome of such litigation and regulatory matters, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties, Merrill Lynch generally cannot predict what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related to each pending matter may be.

In accordance with applicable accounting guidance, Merrill Lynch establishes an accrued liability for litigation and regulatory matters when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. When a loss contingency is not both probable and estimable, Merrill Lynch does not establish an accrued liability. As a litigation or regulatory matter develops, Merrill Lynch, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. If, at the time of evaluation, the loss contingency related to a litigation or regulatory matter is not both probable and estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and estimable. Once the loss contingency related to a litigation or regulatory matter is deemed to be both probable and estimable, Merrill Lynch will establish an accrued liability with respect to such loss contingency and record a corresponding amount of litigation-related expense. Merrill Lynch will continue to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. Excluding fees paid to external legal service providers, litigation-related expenses of approximately $216 million and $279 million were recognized for the three and six months ended June 30, 2011 as compared with approximately $158 million and $174 million for the three and six months ended June 30, 2010.

For a limited number of the matters disclosed in this Note and in the prior commitments, contingencies and guarantees disclosures, for which a loss is probable or reasonably possible in future periods, whether in excess of a related accrued liability or where there is no accrued liability, Merrill Lynch is able to estimate a range of possible loss. In determining whether it is possible to provide an estimate of loss or range of possible loss, Merrill Lynch reviews and evaluates its material litigation and regulatory matters on an ongoing basis, in conjunction with any outside counsel handling the matter, in light of potentially relevant factual and legal developments. These may include information learned through the discovery process, rulings on dispositive motions, settlement discussions, and other rulings by courts, arbitrators or others. In cases in which Merrill Lynch possesses sufficient appropriate information to develop an estimate of loss or range of possible loss, that estimate is aggregated and disclosed below.

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There may be other disclosed matters for which a loss is probable or reasonably possible but such an estimate may not be possible. For those matters where an estimate is possible, management currently estimates the aggregate range of possible loss is $0 to $875 million in excess of the accrued liability (if any) related to those matters. This estimated range of possible loss is based upon currently available information and is subject to significant judgment and a variety of assumptions, and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate. Those matters for which an estimate is not possible are not included within this estimated range. Therefore, this estimated range of possible loss represents what Merrill Lynch believes to be an estimate of possible loss only for certain matters meeting these criteria. It does not represent Merrill Lynch’s maximum loss exposure. Information is provided below, or in the prior commitments, contingencies and guarantees disclosures, regarding the nature of all of these contingencies and, where specified, the amount of the claim associated with these loss contingencies. Based on current knowledge, management does not believe that loss contingencies arising from pending matters, including the matters described herein or in the prior commitments, contingencies and guarantees disclosures, will have a material adverse effect on the consolidated financial position or liquidity of Merrill Lynch. However, in light of the inherent uncertainties involved in these matters, some of which are beyond Merrill Lynch’s control, and the very large or indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to Merrill Lynch’s results of operations or cash flows for any particular reporting period.

Bank of America Merger Matters

On July 29, 2011, the court in the securities class actions inIn re Banc of America Securities, Derivative and Employment Retirement Income Security Act (ERISA) Litigationgranted in part and denied in part Bank of America, ML & Co. and their co-defendants’ motion to dismiss the second amended complaint. Among other rulings, the court (i) dismissed plaintiffs’ claim under Section 10(b) of the Securities Exchange Act of 1934 alleging that Bank of America and individual defendants committed securities fraud in connection with the failure to disclose Bank of America’s discussions with government officials in December 2008 regarding the possibility of obtaining government assistance in completing the Merrill Lynch acquisition; (ii) dismissed the claims of certain holders of Bank of America’s preferred shares, purchasers of Bank of America’s bonds, and owners of call options on the ground that such securities holders lacked standing to pursue a claim against Bank of America and the individual defendants; and (iii) sustained plaintiffs’ Section 10(b) claim alleging Bank of America failed to disclose the financial condition and 2008 fourth-quarter losses experienced by Merrill Lynch. On August 2, 2011, the court dismissed plaintiffs’ 10(b) claim alleging that Bank of America failed to make interim disclosure of its 2008 fourth quarter losses.

Benistar Litigation

The plaintiffs and MLPF&S have appealed the court’s January 11, 2011 rulings on damages and sanctions.

Illinois Funeral Directors Association Matters

MLPF&S filed a motion to dismiss in theDavid Tipsword as Trustee of Mildred E. Tipsword Trust, individually and on behalf of all others similarly situated v. I.F.D.A. Services Inc., et al. action, which was denied on July 1, 2011.

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All defendants in theClancy-Gernon Funeral Home, Inc., et al. v. MLPF&S, et al. matter filed motions to dismiss the complaint. The court denied MLBT-FSB’s motion to dismiss on June 21, 2011.

On March 14, 2011, thePettett Funeral Home, Ltd., et al. v. MLPF&S, et al. action was ordered consolidated with the Tipsword and Clancy-Gernon matters. On April 5, 2011, the pending motion to dismiss the Pettett third amended complaint was denied without prejudice and ordered to be refiled in the consolidated action, which was done on June 21, 2011.

Lehman Brothers Holdings, Inc. Litigation

On June 4, 2010, defendants filed a motion to dismiss the class action complaint, and on July 27, 2011, the court granted in part and denied in part the motion. Certain of the allegations in the complaint that purported to support the Section 11 claim against the underwriter defendants were dismissed; others were not dismissed relating to alleged misstatements regarding Lehman Brothers Holding Inc.’s leverage and financial condition, risk management and risk concentrations.

MBIA Insurance Corporation CDO Litigation

On July 11, 2011, the parties reached an agreement to settle the litigation. The settlement did not require any payment by Merrill Lynch.

Mortgage-Backed Securities Litigation

Bank of America Corporation and its affiliates and Merrill Lynch entities and their affiliates have been named as defendants in several cases relating to their various roles as issuer, originator, seller, depositor, sponsor, underwriterand/or controlling entity in MBS offerings, pursuant to which the MBS investors were entitled to a portion of the cash flow from the underlying pools of mortgages. These cases generally include purported class action suits and actions by individual MBS purchasers. Although the allegations vary by lawsuit, these cases generally allege that the registration statements, prospectuses and prospectus supplements for securities issued by securitization trusts contained material misrepresentations and omissions, in violation of Sections 11, 12 and 15 of the Securities Act of 1933and/or state securities laws and other state statutory and common laws.

These cases generally involve allegations of false and misleading statements regarding: (i) the process by which the properties that served as collateral for the mortgage loans underlying the MBS were appraised; (ii)��the percentage of equity that mortgage borrowers had in their homes; (iii) the borrowers’ ability to repay their mortgage loans; and (iv) the underwriting practices by which those mortgage loans were originated (collectively “MBS Claims”). In addition, several of the cases discussed below assert claims related to the ratings given to the different tranches of MBS by rating agencies. Plaintiffs in these cases generally seek unspecified compensatory damages, unspecified costs and legal fees and, in some instances, seek rescission.

IndyMac Litigation

On June 21, 2011, the court denied plaintiffs’ motion to amend to add MLPF&S as a defendant.

Merrill Lynch MBS Litigation

On June 15, 2011, the court granted plaintiffs’ motion for class certification.

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Federal Home Loan Bank Litigations

In theFederal Home Loan Bank of Chicago v. Banc of America Funding Corp., et al action, the plaintiff filed an amended complaint that adds Merrill Lynch Mortgage Investors as a defendant. Defendants filed a motion to dismiss the amended complaint on May 27, 2011.

The Federal Home Loan Bank of Indianapolis filed a complaint against BAS and others in the Superior Court of Indiana, Marion County, entitledFederal Home Loan Bank of Indianapolis v. Banc of America Mortgage Securities, Inc., et al.Plaintiffs allege that they purchased MBS issued by or underwritten by certain of the defendants from April 2006 to April 2007.

On June 23, 2011 and July 18, 2011, the court denied in part defendants’ motions to dismiss in theFederal Home Loan Bank of Seattle v. Banc of America Securities LLC, et al, andFederal Home Loan Bank of Seattle v. Merrill Lynch, Pierce, Fenner & Smith, Inc., et al. actions.

Regulatory Investigations

Merrill Lynch has received a number of subpoenas and other requests for information from regulators and governmental authorities regarding MBS and other mortgage-related matters, including inquiries and investigations related to a number of transactions involving Merrill Lynch’s underwriting and issuance of MBS and its participation in certain CDO offerings. These inquiries and investigations include, among others: an investigation by the Securities and Exchange Commission (“SEC”) related to Merrill Lynch’s risk control, valuation, structuring, marketing and purchase of CDOs. Merrill Lynch has provided documents and testimony in and continues to cooperate fully with these inquiries and investigations.

Rosen Capital Partners LP & Rosen Capital Institutional LP’s FINRA Arbitration

On May 28, 2008, two former hedge fund clients of Merrill Lynch Professional Clearing Corporation, Rosen Capital Partners LP and Rosen Capital Institutional LP (collectively, the “Rosen Funds”), filed a statement of claim asserting claims for breach of contract, fraud, and negligence against Merrill Lynch Professional Clearing Corporation in connection with alleged losses in the fall of 2008. On July 5, 2011, a FINRA panel awarded the Rosen Funds $64 million plus interest at the rate of 9% per year, accruing from October 7, 2008 until the award is paid in full. The Rosen Funds have moved to confirm the award in the Superior Court of California.

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Commitments

At June 30, 2011, Merrill Lynch’s commitments had the following expirations:

(dollars in millions)
			Commitment expiration
			Less than 1		1 - 3		3 - 5		Over 5
	Total		year		years		years		years
Lending commitments	$	8,388	$	2,522	$	2,591	$	2,269	$	1,006
Purchasing and other commitments		6,818		4,539		1,019		694		566
Operating leases		3,353		787		1,245		613		708
Commitments to enter into forward dated resale and securities borrowing agreements		86,144		86,144		-		-		-
Commitments to enter into forward dated repurchase and securities lending agreements		72,902		72,902		-		-		-
Total	$	177,605	$	166,894	$	4,855	$	3,576	$	2,280

Lending Commitments

Merrill Lynch enters into commitments to extend credit, predominantly at variable interest rates, in connection with corporate finance, corporate and institutional transactions and asset-based lending transactions. Clients may also be extended loans or lines of credit collateralized by first and second mortgages on real estate, certain liquid assets of small businesses, or securities. These commitments usually have a fixed expiration date and are contingent on certain contractual conditions that may require payment of a fee by the counterparty. Once commitments are drawn upon, Merrill Lynch may require the counterparty to post collateral depending upon creditworthiness and general market conditions. See Note 10 for additional information.

Commitments to extend credit are outstanding as of the date the commitment letter is issued and are comprised of closed and contingent commitments. Closed commitments represent the unfunded portion of existing commitments available for draw down. Contingent commitments are contingent on the borrower fulfilling certain conditions or upon a particular event, such as an acquisition. A portion of these contingent commitments may be syndicated among other lenders or the counterparty may replace the commitment with capital markets funding.

The contractual amounts of these commitments represent the amounts at risk should the contract be fully drawn upon, the client defaults, and the value of the existing collateral becomes worthless. The total amount of outstanding commitments may not represent future cash requirements, as commitments may expire without being drawn.

For lending commitments where the loan will be classified as held for sale upon funding, liabilities associated with unfunded commitments are calculated at the lower of cost or fair value, capturing declines in the fair value of the respective credit risk. For loan commitments where the loan will be classified as held for investment upon funding, liabilities are calculated considering both market and historical loss rates. Loan commitments either held by entities that apply the Broker-Dealer Guide or for which the fair value option was elected are accounted for at fair value.

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Purchasing and Other Commitments

Merrill Lynch had commitments to purchase partnership interests, primarily related to private equity and principal investing activities, of $0.5 billion and $0.6 billion at June 30, 2011 and December 31, 2010, respectively. Merrill Lynch also has entered into agreements with providers of market data, communications, systems consulting, and other office-related services. At June 30, 2011 and December 31, 2010, minimum fee commitments over the remaining life of these agreements totaled $1.6 billion and $1.7 billion, respectively. Merrill Lynch entered into commitments to purchase loans of $3.5 billion, which, upon settlement of the commitment, will be included in trading assets, loans held for investment or loans held for sale at June 30, 2011. Such commitments totaled $2.6 billion at December 31, 2010. Other purchasing commitments amounted to $1.2 billion and $0.8 billion at June 30, 2011 and December 31, 2010, respectively.

In the normal course of business, Merrill Lynch enters into commitments for underwriting transactions. Settlement of these transactions as of June 30, 2011 would not have a material effect on the Condensed Consolidated Balance Sheet of Merrill Lynch.

In connection with trading activities, Merrill Lynch enters into commitments to enter into resale and securities borrowing and also repurchase and securities lending agreements.

Operating Leases

Merrill Lynch has entered into various non-cancelable long-term lease agreements for premises that expire through 2028. Merrill Lynch has also entered into various non-cancelable short-term lease agreements, which are primarily commitments of less than one year under equipment leases.

Guarantees

Merrill Lynch issues various guarantees to counterparties in connection with certain transactions. Merrill Lynch’s guarantee arrangements and their expiration at June 30, 2011 are summarized as follows (see Note 6 for information related to derivative financial instruments within the scope of Guarantees Accounting):

(dollars in millions)
	Expiration
	Maximum		Less than 1								Carrying
	Payout		year		1 - 3 years		3 - 5 years		Over 5 years		Value
Standby liquidity facilities	$	1,139	$	585	$	535	$	-	$	19	$	-
Residual value guarantees		415		95		320		-		-		1
Standby letters of credit and other guarantees		582		387		173		3		19		-

Standby Liquidity Facilities

Standby liquidity facilities are primarily comprised of liquidity facilities provided to certain unconsolidated municipal bond securitization VIEs. In these arrangements, Merrill Lynch is required to fund these standby liquidity facilities if certain contingent events take place (e.g., a failed remarketing) and in certain cases if the fair value of the assets held by the VIE declines below the stated amount of the liquidity obligation. The potential exposure under the facilities is mitigated by economic hedges

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and/or other contractual arrangements entered into by Merrill Lynch. Based upon historical activity, it is considered remote that future payments would need to be made under these guarantees.

Refer to Note 9 for further information.

Residual Value Guarantees

At June 30, 2011, residual value guarantees of $415 million consist of amounts associated with certain power plant facilities. Payments under these guarantees would only be required if the fair value of such assets declined below their guaranteed value. As of June 30, 2011, no payments have been made under these guarantees and the carrying value of the associated liabilities was not material, as Merrill Lynch believes that the estimated fair value of such assets was in excess of their guaranteed value.

Standby Letters of Credit and Other Guarantees

Merrill Lynch provides guarantees to certain counterparties in the form of standby letters of credit in the amount of $0.6 billion. Payment risk is evaluated based upon historical payment activity.

Representations and Warranties

In prior years, Merrill Lynch and certain of its subsidiaries, including First Franklin Financial Corporation (“First Franklin”) sold pools of first-lien residential mortgage loans and home equity loans as private-label securitizations (in a limited number of these securitizations, monolines insured all or some of the securities), or in the form of whole loans. Most of the loans sold in the form of whole loans were subsequently pooled into private-label securitizations sponsored by the third-party buyer of the whole loans. In addition, Merrill Lynch and First Franklin securitized first-lien residential mortgage loans generally in the form of mortgage-backed securities guaranteed by the GSEs. In connection with these transactions, Merrill Lynch made various representations and warranties. These representations and warranties, as governed by the agreements, related to, among other things, the ownership of the loan, the validity of the lien securing the loan, the absence of delinquent taxes or liens against the property securing the loan, the process used to select the loan for inclusion in a transaction, the loan’s compliance with any applicable loan criteria, including underwriting standards, and the loan’s compliance with applicable federal, state and local laws. Breaches of these representations and warranties may result in the requirement to repurchase mortgage loans or to otherwise make whole or provide other remedies to the GSEs, whole-loan buyers, securitization trusts or monoline insurers (collectively, “repurchases”). In such cases, Merrill Lynch would be exposed to any credit loss on the repurchased mortgage loans.

Subject to the requirements and limitations of the applicable sales and securitization agreements, these representations and warranties can be enforced by the GSEs, the whole-loan buyer, the securitization trustee, or others as governed by the applicable agreement or, in a limited number of first-lien and home equity securitizations where monoline insurers have insured all or some of the securities issued, by the monoline insurer at any time. In the case of loans sold to parties other than the GSEs, the contractual liability to repurchase typically arises only if there is a breach of the representations and warranties that materially and adversely affects the interest of the investor or investors in the loan or of the monoline insurer (as applicable). Contracts with the GSEs do not contain an equivalent requirement. Merrill Lynch believes that the longer a loan performs prior to default, the less likely it is that an alleged breach of representations and warranties had a material impact on the loan’s performance. Historically, most demands for repurchase have occurred within the first several years

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after origination, generally after a loan has defaulted. However, the time horizon has lengthened due to increased repurchase claim activity across all vintages.

Merrill Lynch’s credit loss would be reduced by any recourse it may have to organizations (e.g., correspondents) that, in turn, had sold such loans to Merrill Lynch based upon its agreements with these organizations. When a loan is originated by a correspondent or other third party, Merrill Lynch typically has the right to seek a recovery of related repurchase losses from that originator. Many of the correspondent originators of loans in 2004 through 2008 are no longer in business and Merrill Lynch is unable to recover valid claims.

The fair value of the obligations to be absorbed under the representations and warranties provided is recorded as an accrued liability when the loans are sold. This liability for probable losses is updated by accruing a representations and warranties provision in non-interest expenses on the Condensed Consolidated Statement of Earnings (Loss). This is done throughout the life of the loan, as necessary when additional relevant information becomes available. The methodology used to estimate the liability for representations and warranties is a function of the representations and warranties given and considers a variety of factors, which include, depending on the counterparty, actual defaults, estimated future defaults, historical loss experience, estimated home prices, other economic conditions, estimated probability that a repurchase claim will be received, consideration of whether presentation thresholds will be met, number of payments made by the borrower prior to default and estimated probability that a loan will be required to be repurchased. Merrill Lynch also considers bulk settlements, including those of its affiliates, when determining its estimated liability for representations and warranties. The estimate of the liability for representations and warranties is based upon currently available information, significant judgment, and a number of factors, including those set forth above, that are subject to change. Changes to any one of these factors could significantly impact the estimate of the liability and could have a material adverse impact on Merrill Lynch’s results of operations for any particular period. Given that these factors vary by counterparty, Merrill Lynch analyzes representations and warranties obligations based on the specific counterparty, or type of counterparty, with whom the sale was made.

Merrill Lynch has vigorously contested any request for repurchase when it concludes that a valid basis for such repurchase claim did not exist and will continue to do so in the future. Merrill Lynch may reach settlements in the future if opportunities arise on terms determined to be advantageous to Merrill Lynch.

Bank of America BNY Mellon Settlement

On June 28, 2011, Bank of America, and certain of its non-Merrill Lynch subsidiaries entered into a settlement agreement (subject to final court approval and other conditions) with The Bank of New York Mellon (“BNY Mellon”), as trustee, to resolve, among other claims, all outstanding and potential claims related to alleged representations and warranties breaches (including repurchase claims) with respect to the 525 legacy first-lien and five second-lien mortgage-backed securitizations containing loans principally originated between 2004 and 2008 and for which BNY Mellon acts as trustee or indenture trustee (the “BNY Mellon Settlement”). As a result of the experience gained by Bank of America and certain of its non-Merrill Lynch affiliates in the BNY Mellon Settlement, Merrill Lynch determined that is has sufficient experience to record a $2.7 billion liability for representations and warranties related to its repurchase exposure on private-label securitizations in the three months ended June 30, 2011.

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Outstanding Claims

The table below presents outstanding representations and warranties claims by counterparty at June 30, 2011 and December 31, 2010.

Outstanding Claims by Counterparty
(dollars in millions)
	June 30,		December 31,
	2011		2010
GSEs	$	82	$	59
Monoline		119		48
Others(1)		456		517
Total	$	657	$	624

(1) The majority of these repurchase claims are from whole loan buyers on subprime loans.

During the three and six months ended June 30, 2011, Merrill Lynch paid $23 million and $25 million, respectively, in indemnification payments to whole loan investors to resolve $25 million of indemnification claims for losses that they incurred. There were no indemnification payments or claims resolved for the three and six months ended June 30, 2010. There were no repurchases for the six months ended June 30, 2011 and June 30, 2010.

Liability for Representations and Warranties

The liability for representations and warranties is included in Interest and other payables on the Condensed Consolidated Balance Sheets and the related provision is included in Non-interest expenses on the Condensed Consolidated Statements of Earnings (Loss). The table below presents a rollforward of the liability for representations and warranties and includes the provisions for non-GSE representation and warranties exposure recorded in the three and six months ended June 30, 2011.

(dollars in millions)
	Three Months Ended June 30						Six Months Ended June 30
	2011			2010			2011			2010
Balance, beginning of period	$	130		$	303		$	213		$	378
Charge-offs		(24	)		(3	)		(85	)		(2	)
Provision		2,741			(103	)		2,719			(179	)
Balance, end of period	$	2,847		$	197		$	2,847		$	197

The liability for representations and warranties is established when those obligations are both probable and reasonably estimable. As noted above, in the three months ended June 30, 2011, Merrill Lynch recorded a provision for representations and warranties related to its repurchase exposure on private-label securitizations of $2.7 billion. The representations and warranties provision may vary significantly each period as the methodology used to estimate the expense continues to be refined based on the level and type of repurchase requests presented, defects identified, the latest experience gained on repurchase requests and other relevant facts and circumstances.

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Range of Possible Loss Estimate

Non-GSE Counterparties

Although Merrill Lynch believes it is probable that additional claimants may come forward with credible claims that meet the requirements of the terms of the securitizations, it has experienced limited activity that has met the standards required. Merrill Lynch believes that with the additional $2.7 billion non-GSE representations and warranties provision recorded in the three months ended June 30, 2011, it has provided for a substantial portion of its non-GSE representations and warranties exposures. However, it is reasonably possible that future representations and warranties losses may occur in excess of the amounts recorded for these exposures. In addition, Merrill Lynch has not recorded any representations and warranties liability for potential monoline exposures and certain potential whole loan exposures. Merrill Lynch currently estimates that the range of possible loss related to non-GSE representations and warranties exposure as of June 30, 2011 could be up to $0.5 billion over existing accruals. This estimate of the range of possible loss for representations and warranties does not represent a probable loss, is based on currently available information, significant judgment, and a number of assumptions, including those set forth below, that are subject to change.

The methodology used to estimate the non-GSE representations and warranties liability and the corresponding range of possible loss considers a variety of factors including our experience related to actual defaults, estimated future defaults and historical loss experience and the experience of Merrill Lynch’s affiliates. Among the factors that impact the non-GSE representations and warranties liability and the corresponding range of possible loss are: (1) contractual loss causation requirements, (2) the representations and warranties provided, and (3) the requirement to meet certain presentation thresholds. The first factor is based on Merrill Lynch’s belief that a non-GSE contractual liability to repurchase a loan generally arises only if the counterparties prove there is a breach of representations and warranties that materially and adversely affects the interest of the investor or all investors, or the monoline insurer (as applicable), in a securitization trust and, accordingly, Merrill Lynch believes that the repurchase claimants must prove that the alleged representations and warranties breach was the cause of the loss. The second factor is related to the fact that non-GSE securitizations include different types of representations and warranties than those provided to the GSEs. Merrill Lynch believes the non-GSE securitizations’ representations and warranties are less rigorous and actionable than the comparable agreements with the GSEs. The third factor is related to the fact that certain presentation thresholds need to be met in order for any repurchase claim to be asserted under the non-GSE agreements. A securitization trustee may investigate or demand repurchase on its own action, and most agreements contain a threshold, for example 25% of the voting rights per trust, that allows investors to declare a servicing event of default under certain circumstances or to request certain action, such as requesting loan files, that the trustee may choose to accept and follow, exempt from liability, provided the trustee is acting in good faith. If there is an uncured servicing event of default, and the trustee fails to bring suit during a60-day period, then, under most agreements, investors may file suit. In addition to this, most agreements also allow investors to direct the securitization trustee to investigate loan files or demand the repurchase of loans, if security holders hold a specified percentage, for example, 25%, of the voting rights of each tranche of the outstanding securities.

The methodology used to estimate the non-GSE representations and warranties liability and the corresponding range of possible loss was updated in the second quarter of 2011 to consider the experience resulting from the BNY Mellon Settlement and assumes that the conditions to the BNY Mellon Settlement are satisfied. It also considers Merrill Lynch’s assumptions regarding economic conditions, including estimated second quarter 2011 home prices. Since the non-GSE transactions that were included in the BNY Mellon Settlement differ from those that were not included in the BNY Mellon Settlement, Merrill Lynch adjusted the experience implied in the settlement in order to determine the estimated non-GSE representations and warranties liability and corresponding range of possible loss. The judgmental adjustments made include consideration of the differences in the mix of

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products in the securitizations, loan originator, likelihood of claims differences, the differences in the number of payments that the borrower has made prior to default, and the sponsor of the securitization. Although Merrill Lynch continues to believe that presentation thresholds as described above are a factor in the determination of probable loss, given the BNY Mellon Settlement, the upper end of the estimated range of possible loss assumes that the presentation threshold can be met for all of the non-GSE securitization transactions.

Future provisionsand/or ranges of possible loss for non-GSE representations and warranties may be significantly impacted if actual results are different from Merrill Lynch’s assumptions in its predictive models, including, without limitation, those regarding the ultimate resolution of the BNY Mellon Settlement, estimated repurchase rates, economic conditions, home prices, consumer and counterparty behavior, and a variety of judgmental factors. Adverse developments with respect to one or more of the assumptions underlying the liability for representations and warranties and the corresponding estimated range of possible loss could result in significant increases to future provisionsand/or this range of possible loss estimate. For example, if courts were to disagree with Merrill Lynch’s interpretation that the underlying agreements require a claimant to prove that the representations and warranties breach was the cause of the loss, it could significantly impact this estimated range of possible loss. Additionally, if recent court rulings related to monoline litigation, including one related to an affiliate of Merrill Lynch, that have allowed sampling of loan files instead of aloan-by-loan review to determine if a representations and warranties breach has occurred are followed generally by the courts, private-label counterparties may view litigation as a more attractive alternative as compared to aloan-by-loan review. Finally, although Merrill Lynch believes that the representations and warranties typically given in non-GSE transactions are less rigorous and actionable than those given in GSE transactions, Merrill Lynch does not have significant loan-level experience to measure the impact of these differences on the probability that a loan will be repurchased.

There can be no assurance that final court approval of the BNY Mellon Settlement will be obtained, that all conditions will be satisfied or, if certain conditions into the BNY Mellon Settlement permitting withdrawal are met, that Bank of America and certain of its non-Merrill Lynch subsidiaries will not determine to withdraw from the settlement. If final court approval is not obtained or if Bank of America and such subsidiaries determine to withdraw from the BNY Mellon Settlement in accordance with its terms, Merrill Lynch’s future representations and warranties losses could be substantially greater than existing accruals and the estimated range of possible losses over existing accruals described above.

The liability for obligations under representations and warranties with respect to GSE and non-GSE exposures and the corresponding estimate of the range of possible loss for non-GSE representations and warranties exposures do not include any losses related to litigation matters disclosed in Note 14, nor do they include any potential securities law or fraud claims or potential indemnity or other claims against us. Merrill Lynch is not able to reasonably estimate the amount of any possible loss with respect to any such securities law (except to the extent reflected in the aggregate range of possible loss for litigation and regulatory matters disclosed in Note 14), fraud or other claims against Merrill Lynch; however, such loss could be material.

Whole Loan Sales and Private-label Securitizations Experience

The majority of repurchase claims that Merrill Lynch has received are from third party whole loan investors. In connection with those transactions, Merrill Lynch provided representations and warranties, and the whole loan investors may retain those rights even when the loans were aggregated with other collateral into private-label securitizations sponsored by the whole-loan investors. Properly presented repurchase claims for these whole loans are reviewed on aloan-by-loan basis. If, after Merrill Lynch’s review, it does not believe a claim is valid, it will deny the claim and generally indicate a reason for

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the denial. When the counterparty agrees with Merrill Lynch’s denial of the claim, the counterparty may rescind the claim. When there is disagreement as to the resolution of the claim, meaningful dialogue and negotiation between the parties is generally necessary to reach conclusion on an individual claim. Generally, a whole loan sale claimant is engaged in the repurchase process and Merrill Lynch and the claimant reach resolution, either throughloan-by-loan negotiation or at times, through a bulk settlement. Although the timeline for resolution varies, once an actionable breach is identified on a given loan, settlement is generally reached as to that loan within 60 to 90 days. When a claim has been denied and Merrill Lynch does not have communication with the counterparty for six months, Merrill Lynch views these claims as inactive; however, they remain in the outstanding claims balance until resolution.

Merrill Lynch and its affiliates have limited experience with loan-level private-label securitization repurchases as the number of valid repurchase claims received has been limited. In private-label securitizations certain presentation thresholds need to be met in order for any repurchase claim to be asserted by investors. The representations and warranties, as governed by the private-label securitization agreements, generally require that counterparties have the ability to both assert a claim and actually prove that a loan has an actionable defect under the applicable contracts. While Merrill Lynch believes the agreements for private-label securitizations generally contain less rigorous representations and warranties and place higher burdens on investors seeking repurchases than the comparable agreements with the GSEs, the agreements generally include a representation that underwriting practices were prudent and customary.

See Note 14 to the Consolidated Financial Statements contained in the 2010 Annual Report for additional information on guarantees.

Note 15. Employee Benefit Plans

Merrill Lynch provides pension and other postretirement benefits to its employees worldwide through defined contribution pension, defined benefit pension and other postretirement plans. These plans vary based on the country and local practices. Effective January 1, 2009, the Bank of America Corporation Corporate Benefits Committee assumed overall responsibility for the administration of all of Merrill Lynch’s employee benefit plans. Merrill Lynch continues as the plan sponsor. Refer to Note 15 to the Consolidated Financial Statements contained in the 2010 Annual Report for a complete discussion of employee benefit plans.

Defined Benefit Pension Plans

In 1988, Merrill Lynch purchased a group annuity contract that guarantees the payment of benefits vested under the terminated U.S. pension plan. Merrill Lynch, under a supplemental agreement, may be responsible for, or benefit from, actual experience and investment performance of the annuity assets. Merrill Lynch made no contribution under this agreement for the three and six months ended June 30, 2011 and 2010. Additional contributions may be required in the future under this agreement.

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The net periodic benefit cost of Merrill Lynch’s plans for the three and six months ended June 30, 2011 and 2010 included the following components:

(dollars in millions)
	Three Months Ended June 30, 2011								Six Months Ended June 30, 2011
				Non-U.S.								Non-U.S.
	U.S. Defined			Defined					U.S. Defined			Defined
	Benefit			Benefit					Benefit			Benefit
	Pension			Pension			Postretirement		Pension			Pension			Postretirement
	Plans			Plans			Plans(1)		Plans			Plans			Plans(1)
Service cost	$	-		$	10		$	1	$	-		$	20		$	2
Interest cost		23			19			3		48			40			7
Expected return on plan assets		(36	)		(25	)		-		(71	)		(50	)		-
Amortization of prior service cost (gains) losses		-			-			-		-			-			2
Amortization of net actuarial (gains) losses		1			-			-		3			-			2
Net periodic benefit cost	$	(12	)	$	4		$	4	$	(20	)	$	10		$	13

(1) Approximately 95% of the postretirement benefit obligation at June 30, 2011 relates to the U.S. postretirement plan.

(dollars in millions)
	Three Months Ended June 30, 2010									Six Months Ended June 30, 2010
				Non-U.S.									Non-U.S.
	U.S. Defined			Defined						U.S. Defined			Defined
	Benefit			Benefit						Benefit			Benefit
	Pension			Pension			Postretirement			Pension			Pension			Postretirement
	Plans			Plans			Plans(1)			Plans			Plans			Plans(1)
Service cost	$	-		$	7		$	1		$	-		$	14		$	2
Interest cost		28			20			5			53			40			9
Expected return on plan assets		(34	)		(22	)		-			(69	)		(44	)		-
Amortization of prior service cost (gains) losses		-			-			3			-			-			3
Amortization of net actuarial (gains) losses		1			-			(1	)		1			-			1
Net periodic benefit cost	$	(5	)	$	5		$	8		$	(15	)	$	10		$	15

(1) Approximately 96% of the postretirement benefit obligation at June 30, 2010 relates to the U.S. postretirement plan.

For the full year 2011, Merrill Lynch expects to contribute approximately $1 million to its nonqualified pension plans, $84 million to itsnon-U.S. pension plans, and $22 million to its postretirement health and life plans. Through the second quarter of 2011, Merrill Lynch has contributed $69 million to thenon-U.S. pension plans and $11 million to its postretirement health and life plans.

Note 16. Regulatory Requirements

As a wholly-owned subsidiary of Bank of America, a bank holding company that is also a financial holding company, Merrill Lynch is subject to the oversight of, and inspection by, the Board of Governors of the Federal Reserve System.

Certain U.S. andnon-U.S. subsidiaries are subject to various securities and banking regulations and capital adequacy requirements promulgated by the regulatory and exchange authorities of the countries

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in which they operate. These regulatory restrictions may impose regulatory capital requirements and limit the amounts that these subsidiaries can pay in dividends or advance to ML & Co. The principal regulated subsidiaries of ML & Co. are discussed below.

Securities Regulation

As a registered broker-dealer and futures commission merchant, MLPF&S is subject to the uniform net capital requirements of SECRule 15c3-1, and the Commodity Futures Trading Commission’s (“CFTC”) Regulation 1.17. MLPF&S has elected to compute the minimum capital requirement in accordance with the “Alternative Net Capital Requirement” as permitted by SECRule 15c3-1. At June 30, 2011, MLPF&S’s regulatory net capital as defined byRule 15c3-1 was $10.1 billion and exceeded the minimum requirement of $807 million by $9.3 billion.

In accordance with the Alternative Net Capital Requirement, MLPF&S is required to maintain tentative net capital in excess of $1 billion, net capital in excess of $500 million, and notify the SEC in the event its tentative net capital is less than $5 billion. As of June 30, 2011, MLPF&S had tentative net capital and net capital in excess of the minimum and notification requirements.

Merrill Lynch International (“MLI”), a U.K. regulated investment firm, is subject to capital requirements of the U.K.’s Financial Services Authority (“FSA”). Financial resources, as defined, must exceed the total financial resources requirement set by the FSA. At June 30, 2011, MLI’s financial resources were $20.1 billion, exceeding the minimum requirement by $3.5 billion.

Merrill Lynch Japan Securities Co., Ltd. (“MLJS”), a Japan-based regulated broker-dealer, is subject to capital requirements of the Japanese Financial Services Agency (“JFSA”). Net capital, as defined, must exceed 120% of the total risk equivalents requirement of the JFSA. At June 30, 2011, MLJS’s net capital was $1.7 billion, exceeding the minimum requirement by $1.0 billion.

Banking Regulation

Merrill Lynch International Bank Limited (“MLIB”), an Ireland-based regulated bank, is subject to the capital requirements of the Central Bank of Ireland. MLIB is required to meet minimum regulatory capital requirements under the European Union (“EU”) banking law as implemented in Ireland by the Central Bank of Ireland. At June 30, 2011, MLIB’s financial resources were $14.2 billion, exceeding the minimum requirement by $3.0 billion.

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report onForm 10-Q, the documents that it incorporates by reference and the documents into which it may be incorporated by reference may contain, and from time to time Merrill Lynch & Co., Inc. (“ML & Co. and, together with its subsidiaries, “Merrill Lynch,” the “Company,” the “Corporation,” “we,” “our” or “us”) and its management may make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this report, “we,” “us” and “our” may refer to ML & Co. individually, ML & Co. and its subsidiaries, or certain of ML & Co.’s subsidiaries or affiliates. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “expects,” “anticipates,” “believes,” “estimates,” “targets,” “intends,” “plans,” “goal” and other similar expressions or future or conditional verbs such as “will,” “may,” “might,” “should,” “would” and “could.” The forward-looking statements made represent the current expectations, plans or forecasts of Merrill Lynch regarding its future results and revenues and future business and economic conditions more generally, including statements concerning: home price assumptions,the expected repurchase claims on the2004-2008 loan vintages; Merrill Lynch’s belief that with the $2.7 billion representations and warranties provision recorded in the three months ended June 30, 2011 for non government-sponsored enterprises (“GSEs”) representations and warranties exposures, it will provide for a substantial portion of these non-GSE representations and warranties exposures; representations and warranties liabilities (also commonly referred to as reserves) and range of possible loss estimates, expenses and repurchase claims and resolution of those claims and any related securities, fraud indemnity or other claims; Merrill Lynch’s intention to vigorously contest any requests for repurchase for which it concludes that a valid basis does not exist; the impact on economic conditions and Merrill Lynch arising from any changes to the credit rating or perceived creditworthiness of instruments issued, insured or guaranteed by the U.S. Government, or of institutions, agencies or instrumentalities directly linked to the U.S. Government; charges to income tax expense resulting from reductions in the United Kingdom (“U.K.”) corporate income tax rate; credit trends and conditions, including credit losses, credit reserves, charge-offs, delinquency trends and nonperforming asset levels; the higher level of intercompany service fees from Bank of America in 2011; liquidity; the revenue impact resulting from, and any mitigation actions taken in response to, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Financial Reform Act”), including the impact of the Volcker Rule, the risk retention rules and derivatives regulations; that it is our objective to maintain high quality credit ratings; the range of possible loss estimates , and the impact on Merrill Lynch, of various legal proceedings discussed in Note 14 to the Condensed Consolidated Financial Statement; and other matters relating to Merrill Lynch. The foregoing is not an exclusive list of all forward-looking statements we make. These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and often are beyond control. Actual outcomes and results may differ materially from those expressed in, or implied by, our forward-looking statements.

You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties more fully discussed elsewhere in this report, in Item 1A. “Risk Factors” in our 2010 Annual Report, and in any of ML & Co.’s subsequent Securities and Exchange Commission (“SEC”) filings: the accuracy and variability of estimates and assumptions in determining the estimated liabilityand/or estimated range of possible loss for representations and warranties exposures to the GSEs, monolines and private-label and other investors; the adequacy of the liabilityand/or range of possible loss estimates for the representations and warranties exposures to the GSEs, monolines, and private-label securitization and other investors; the ability to resolve any representations and warranties obligations and any related securities, fraud indemnity or other claims with monolines, and private-label investors and other investors, including

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those monolines and investors from whom we have not yet received claims or with whom we have not yet reached any resolutions; the satisfaction of the conditions to the BNY Mellon Settlement; the risk of a credit rating downgrade of the U.S. Government; negative economic conditions generally, including continued weakness in the U.S. housing market, high unemployment in the U.S., as well as economic challenges in manynon-U.S. countries in which we operate and sovereign debt challenges; the level and volatility of the capital markets, interest rates, currency values and other market indices; changes in consumer, investor and counterparty confidence in, and the related impact on, financial markets and institutions, including Merrill Lynch as well as its business partners; Merrill Lynch’s credit ratings; estimates of the fair value of certain of our assets and liabilities; legislative and regulatory actions in the U.S. (including the impact of the Financial Reform Act and related regulations and interpretations) and internationally; the identification and effectiveness of any initiatives to mitigate the negative impact of the Financial Reform Act; the impact of litigation and regulatory investigations, including costs, expenses, settlements and judgments as well as any collateral effects on Merrill Lynch’s ability to do business and access the capital markets; various monetary, tax and fiscal policies and regulations of the U.S. andnon-U.S. governments; changes in accounting standards, rules and interpretations, inaccurate estimates or assumptions in the application of accounting policies, including in determining reserves, applicable guidance regarding goodwill accounting and the impact on Merrill Lynch’s financial statements; increased globalization of the financial services industry and competition with other U.S. and international financial institutions; the adequacy of Merrill Lynch’s risk management framework; Merrill Lynch’s ability to attract new employees and retain and motivate existing employees; technology changes instituted by Merrill Lynch, its counterparties or competitors; Merrill Lynch’s ability to integrate with Bank of America; Merrill Lynch’s reputation, including the effects of continuing intense public and regulatory scrutiny of Merrill Lynch and the financial services industry; the effects of any unauthorized disclosures of our or our customers’ private or confidential information and any negative publicity directed toward Merrill Lynch; and decisions to downsize, sell or close units or otherwise change the business mix of Merrill Lynch.

Forward-looking statements speak only as of the date they are made, and Merrill Lynch undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.

Introduction

Merrill Lynch was formed in 1914 and became a publicly traded company on June 23, 1971. In 1973, we created the holding company, ML & Co., a Delaware corporation that, through its subsidiaries, is one of the world’s leading capital markets, advisory and wealth management companies. We are a leading global trader and underwriter of securities and derivatives across a broad range of asset classes, and we serve as a strategic advisor to corporations, governments, institutions and individuals worldwide.

Bank of America Acquisition and Basis of Presentation

On January 1, 2009, Merrill Lynch was acquired by Bank of America Corporation (“Bank of America”) through the merger of a wholly-owned subsidiary of Bank of America with and into ML & Co. with ML & Co. continuing as the surviving corporation and a wholly-owned subsidiary of Bank of America. Upon completion of the acquisition, each outstanding share of ML & Co. common stock was converted into 0.8595 shares of Bank of America common stock. As of the completion of the acquisition, ML & Co. Series 1 through Series 8 preferred stock were converted into Bank of America preferred stock with substantially identical terms to the corresponding series of Merrill Lynch preferred stock (except for additional voting rights provided to the Bank of America securities). The Merrill Lynch 9.00% Mandatory Convertible Non-Cumulative Preferred Stock, Series 2, and 9.00% Mandatory

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Convertible Non-Cumulative Preferred Stock, Series 3 that remained issued and outstanding subsequent to the completion of the acquisition were automatically converted into Bank of America common stock on October 15, 2010 in accordance with the terms of these securities.

As discussed below, on November 1, 2010, Banc of America Securities Holdings Corporation (“BASH”), a wholly-owned subsidiary of Bank of America, merged into ML & Co., with ML & Co. as the surviving corporation (the “BASH Merger”). In accordance with Accounting Standards Codification (“ASC”)805-10,Business Combinations, Merrill Lynch’s Condensed Consolidated Financial Statements appearing in Part I, Item 1 of thisForm 10-Q include the historical results of BASH and subsidiaries as if the BASH Merger had occurred as of January 1, 2009, the date at which both entities were first under common control of Bank of America. Merrill Lynch has recorded the assets and liabilities acquired in connection with the BASH Merger at their historical carrying values.

Merger With BASH

On November 1, 2010, ML & Co. merged with BASH. In addition, as a result of the BASH Merger, Banc of America Securities LLC (“BAS”), a wholly-owned broker-dealer subsidiary of BASH, became a wholly-owned broker-dealer subsidiary of ML & Co. Subsequently, on November 1, 2010, BAS was merged into Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), a wholly-owned broker-dealer subsidiary of ML & Co., with MLPF&S as the surviving corporation in this merger (the “MLPF&S Merger”). As a result of the MLPF&S Merger, MLPF&S remained a direct wholly-owned broker-dealer subsidiary of ML & Co. and an indirect wholly-owned broker-dealer subsidiary of Bank of America.

Business Segments

Pursuant to ASC 280,Segment Reporting, operating segments represent components of an enterprise for which separate financial information is available that is regularly evaluated by the chief operating decision maker in determining how to allocate resources and in assessing performance. The business activities of Merrill Lynch are included within certain of the operating segments of Bank of America. Detailed financial information related to the stand-alone operations of Merrill Lynch, however, is not provided to Merrill Lynch’s chief operating decision maker. As a result, Merrill Lynch does not contain any identifiable operating segments under Segment Reporting, and the financial information of Merrill Lynch is presented as a single segment.

Form 10-Q Presentation

As a result of the acquisition of Merrill Lynch by Bank of America, certain information is not required in thisForm 10-Q as permitted by general Instruction H ofForm 10-Q. We have also abbreviated Management’s Discussion and Analysis of Financial Condition and Results of Operations as permitted by general Instruction H.

Executive Overview

Company Results

We reported a net loss of $1.4 billion and $1.0 billion for three and six months ended June 30, 2011 as compared with net earnings of $813 million and $2.9 billion for the three and six months ended June 30, 2010. Revenues, net of interest expense (“net revenues”) for the three and six months ended

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June 30, 2011 were $6.9 billion and $14.8 billion compared with $6.7 billion and $16.1 billion for the three and six months ended June 30, 2010, respectively. Our pre-tax loss was $2.5 billion and $1.8 billion for the three and six months ended June 30, 2011 compared with pre-tax income of $855 million and $4.1 billion for the three and six months ended June 30, 2010, respectively.

Our results for the three months ended June 30, 2011 were adversely affected by a $2.7 billion provision for representations and warranties related to our repurchase exposure on private-label securitizations. On June 28, 2011, Bank of America and certain of its non-Merrill Lynch subsidiaries entered into a settlement agreement (that is subject to court approval and other conditions) to resolve, among other things, certain claims relating to alleged representations and warranties breaches (including repurchase claims) with respect a number ofprivate-label securitizations of such affiliates. As a result of the experience gained by Bank of America and certain of its non-Merrill Lynch affiliates in this settlement, Merrill Lynch determined that is has sufficient experience to record the $2.7 billion liability for representations and warranties related to its repurchase exposure on private-label securitizations in the three months ended June 30, 2011. See “Off-Balance Sheet Exposures — Representations and Warranties” for further information. In addition, revenues associated with the valuation of certain of our long-term debt liabilities declined by $1.1 billion as compared with the prior year period. During the quarter ended June 30, 2011, we recorded net gains of $0.1 billion due to the impact of the widening of Merrill Lynch’s credit spreads on the carrying value of certain of our long-term debt liabilities, primarily structured notes, while in the quarter ended June 30, 2010, we recorded net gains of $1.2 billion due to the widening of our credit spreads. Higher compensation and benefits and other non-interest expenses also contributed to the results for the quarter ended June 30, 2011. The quarter’s results also reflect higher principal transactions revenues associated with our trading activities, higher investment banking revenues, and a pre-tax gain of $377 million from the sale of our remaining investment in BlackRock, Inc. (“BlackRock”).

Our results for the six months ended June 30, 2011 also included the $2.7 billion provision for representations and warranties. In addition, in the six months ended June 30, 2011, we recorded net losses of $0.2 billion due to the impact of the narrowing of Merrill Lynch’s credit spreads on the carrying value of certain of our long-term debt liabilities, while in the six months ended June 30, 2010 we recorded net gains of $1.4 billion due to the widening of our credit spreads. Lower principal transaction revenues associated with our trading activities and higher compensation and benefits and other non-interest expenses also contributed to the results for the six months ended June 30, 2011.

Our net loss applicable to our common shareholder was $1.4 billion and $1.0 billion for the three and six months ended June 30, 2011, respectively, as compared with net earnings of $775 million and $2.8 billion for the three and six month periods of 2010, respectively. There were no preferred stock dividends recorded during the three and six months ended June 30, 2011 as a result of the conversion of ML & Co.’s Series 2 and Series 3 Mandatory Convertible Preferred Stock into shares of Bank of America common stock in October 2010. Preferred stock dividends of $38 million and $76 million were recorded in the three and six months ended June 30, 2010.

Transactions with Bank of America

Merrill Lynch has entered into various transactions with Bank of America, primarily in connection with certain sales and trading and financing activities. Total net revenues and non-interest expenses related to transactions with Bank of America for the three months ended June 30, 2011 were $217 million and $677 million, respectively. Such revenues and expenses for the six months ended June 30, 2011 were $571 million and $1,229 million, respectively. Total net revenues and non-interest expenses related to transactions with Bank of America for the three months ended June 30, 2010 were net losses of $82 million and expenses of $203 million, respectively. Such revenues and expenses for the six months ended June 30, 2010 were net losses of $17 million and expenses of $451 million, respectively. Non-

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interest expenses for the three and six months ended June 30, 2011 reflect increased intercompany service fees resulting from the integration of Bank of America’s and Merrill Lynch’s methodologies for allocating expenses associated with shared services to their subsidiaries. The results for the six months ended June 30, 2011 and June 30, 2010 included gains of $39 million and $282 million, respectively, from the sale of approximately $3.3 billion and $11.2 billion, respectively, ofavailable-for-sale securities to Bank of America. These transfers were made to enable Bank of America or its non-Merrill Lynch subsidiaries to more efficiently manage the existing portfolio of similaravailable-for-sale securities. See Note 2 to the Condensed Consolidated Financial Statements for further information.

Merger with BASH

See “Introduction — Merger With BASH” for further information on this transaction.

U.S. Debt Ceiling and the Risk of U.S. Downgrade; EU Sovereign Risks

The U.S. Government recently increased its borrowing capacity under the federal debt ceiling. However, there continues to be a perceived risk of a sovereign credit ratings downgrade of the U.S. Government, including the ratings of U.S. Treasury securities. In July 2011, Moody’s Investors Services, Inc. (“Moody’s”) placed the U.S. Government under review for a possible credit rating downgrade and on August 2, 2011 it confirmed the U.S. Government’s existing sovereign rating, but stated that the U.S. Government’s rating outlook is negative. Also in July 2011, Standard and Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. (“S&P”), placed its sovereign credit ratings of the U.S. Government on CreditWatch with negative implications. On August 2, 2011 Fitch Inc. affirmed its existing sovereign rating of the U.S. Government, but stated that the rating is under review. A downgrade of U.S. sovereign credit ratings could correspondingly impact the credit ratings of instruments issued, insured or guaranteed by institutions, agencies or instrumentalities directly linked to the U.S. Government. We cannot predict if, when or how any changes to the credit ratings of these organizations will affect economic conditions or the resulting impact on Merrill Lynch. Such ratings actions could result in a significant adverse impact to Merrill Lynch. For additional information about the risks associated with the statutory debt limit and any resulting downgrade of the U.S. Government, see “Risk Factors” in Part II, Item 1A.

In addition, certain European nations continue to experience varying degrees of financial stress, and yields on government-issued bonds in Greece, Ireland, Italy, Portugal and Spain have risen and remain volatile. Despite assistance packages to Greece, Ireland and Portugal, the creation of a joint EU-IMF European Financial Stability Facility in May 2010, and a recently announced plan to expand financial assistance to Greece, uncertainty over the outcome of the European Union (“EU”) governments’ financial support programs and worries about sovereign finances persist. Market concerns over the direct and indirect exposure of European banks and insurers to these EU peripheral nations has resulted in a widening of credit spreads and increased costs of funding for some European financial institutions. For additional information about the risks associated with the financial stability of certain EU sovereigns, see “Risk Factors” in Part II, Item 1A.

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U.K. Corporate Income Tax Rate Change

On July 19, 2011, the U.K. 2011 Finance Bill was enacted, which reduced the corporate income tax rate. For additional information, see “Results of Operations — Quarter Ended June 30, 2011 Compared With Quarter Ended June 30, 2010.”

U.K. Bank Levy

The U.K. government bank levy legislation was enacted on July 19, 2011. The rate on banks operating in the U.K. has been set at 7.5 basis points (“bps”) for short-term liabilities and 3.75 bps for long-term liabilities for 2011 and will increase to 7.8 bps for short-term liabilities and 3.9 bps for long-term liabilities beginning in 2012. Based on current estimates, the cost of the bank levy is expected to be approximately $80 million annually, beginning this year, and is non-deductible for U.K. tax purposes.

Sale of Remaining Investment in BlackRock

In June 2011, we sold all of our remaining investment in BlackRock. We received proceeds of approximately $2.5 billion from the sale and recorded a pre-tax gain of $377 million.

Financial Reform Act

The Financial Reform Act, which was signed into law on July 21, 2010, enacts sweeping financial regulatory reform and has altered and will continue to alter the way in which we conduct certain businesses, increase our costs and reduce our revenues.

Background

Provisions in the Financial Reform Act limit banking organizations from engaging in proprietary trading and certain investment activity regarding hedge funds and private equity funds. The Financial Reform Act increases regulation of the derivative markets. The Financial Reform Act also provides for resolution authority to establish a process to unwind large systemically important financial companies; creates a new regulatory body to set requirements regarding the terms and conditions of consumer financial products and expands the role of state regulators in enforcing consumer protection requirements over banks; includes new minimum leverage and risk-based capital requirements for large financial institutions; and requires securitizers to retain a portion of the risk that would otherwise be transferred to investors in certain securitization transactions. Many of these provisions have begun to be phased-in or will be phased-in over the next several months or years and will be subject both to further rulemaking and the discretion of applicable regulatory bodies. The Financial Reform Act may have a significant and negative impact on our earnings through reduced revenues, higher costs and new restrictions, as well as a reduction in available capital. The ultimate impact of the Financial Reform Act on our businesses and results of operations will depend on regulatory interpretation and rulemaking, as well as the success of any of our actions to mitigate the negative earnings impact of certain provisions.

Limitations on Certain Activities

We anticipate that the final regulations associated with the Financial Reform Act will include limitations on proprietary trading, as well as the sponsorship or investment in hedge funds and private equity funds (the “Volcker Rule”), as will be defined by various regulators. The implementing

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regulations for the Volcker Rule will include clarifications to the definition of “proprietary trading,” and distinctions between permitted and prohibited activities which have not yet been finalized. The final regulations are required to be in place by October 21, 2011, and the Volcker Rule becomes effective twelve months after such rules are final or on July 21, 2012, whichever is earlier. The Volcker Rule then gives certain financial institutions two years from the effective date, with opportunities for additional extensions, to bring activities and investments into conformance. In response to these developments, we have exited our proprietary trading business as of June 30, 2011.

The ultimate impact of the Volcker Rule’s prohibition on proprietary trading and the sponsorship or investment in hedge funds and private equity funds continues to remain uncertain, including any additional significant operational and compliance costs we may incur. For additional information about our proprietary trading business, see “Results of Operations — Quarter Ended June 30, 2011 Compared With Quarter Ended June 30, 2010.”

Derivatives

The Financial Reform Act includes measures to broaden the scope of derivative instruments subject to regulation by requiring clearing and exchange trading of certain derivatives, imposing new capital margins, reporting, registration and business conduct requirements for certain market participants and imposing position limits on certainover-the-counter (“OTC”) derivatives. Although the Financial Reform Act required regulators to promulgate the rulemakings necessary to implement these regulations by July 16, 2011, the regulators have indicated that the rulemaking process will continue through at least the end of 2011. Further, the regulators have granted temporary relief from certain requirements that would have taken effect on July 16, 2011 absent any rulemaking. This temporary relief is effective until final rules relevant to each requirement become effective, or in the case of the Commodity Futures Trading Commission, until the earlier of effectiveness of relevant final rules or December 31, 2011. The ultimate impact of these derivatives regulations, and the time it will take to comply, continues to remain uncertain. The final regulations will impose additional operational and compliance costs on us and may require us to restructure certain businesses, thereby negatively impacting our revenues and results of operations.

Credit Risk Retention

On March 29, 2011, numerous federal regulators jointly issued a proposed rule regarding credit risk retention that would, among other things, require retention by sponsors of at least five percent of the credit risk of the assets underlying certain asset backed securities (“ABS”) and mortgage-backed securities (“MBS”) securitizations and would limit the ability to transfer or hedge that credit risk. The proposed rule as currently written would likely have an adverse impact on our ability to engage in many types of the MBS and ABS securitization transactions, impose additional operational and compliance costs on us, and negatively influence the value, liquidity and transferability of ABS or MBS, loans and other assets. However, it remains unclear what requirements will be included in the final rule and what the ultimate impact of the final rule will be on our businesses or our consolidated results of operations.

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Results of Operations

(dollars in millions)
													% Change between the			% Change between the
													Three Months Ended			Six Months Ended
	Three Months			Six Months			Three Months			Six Months			Jun. 30, 2011 and			Jun. 30, 2011 and
	Ended			Ended			Ended			Ended			the Three Months			the Six Months
	June 30,			June 30,			June 30,			June 30,			Ended Jun. 30,			Ended Jun. 30,
	2011			2011			2010			2010			2010			2010
Revenues
Principal transactions	$	2,173		$	3,344		$	2,090		$	6,138			4	%		(46	) %
Commissions		1,447			3,037			1,477			2,966			(2	)		2
Managed account and other fee-based revenues		1,331			2,622			1,162			2,214			15			18
Investment banking		1,614			3,146			1,265			2,474			28			27
Earnings from equity method investments		120			258			96			377			25			(32	)
Other revenues(1)		1,101			3,192			1,140			2,157			(3	)		48
Subtotal		7,786			15,599			7,230			16,326			8			(4	)
Interest and dividend revenues		1,506			3,906			1,984			4,740			(24	)		(18	)
Less interest expense		2,390			4,743			2,515			4,976			(5	)		(5	)
Net interest expense		(884	)		(837	)		(531	)		(236	)		66			255
Revenues, net of interest expense		6,902			14,762			6,699			16,090			3			(8	)
Non-interest expenses:
Compensation and benefits		3,898			8,508			3,757			8,086			4			5
Communications and technology		478			906			487			972			(2	)		(7	)
Occupancy and related depreciation		335			671			357			702			(6	)		(4	)
Brokerage, clearing, and exchange fees		303			603			268			554			13			9
Advertising and market development		115			236			103			199			12			19
Professional fees		225			452			217			395			4			14
Office supplies and postage		32			64			36			80			(11	)		(20	)
Provision for representations and warranties		2,741			2,719			(103	)		(179	)		N/M			N/M
Other		1,238			2,445			722			1,203			71			103
Total non-interest expenses		9,365			16,604			5,844			12,012			60			38
Pre-tax (loss) earnings		(2,463	)		(1,842	)		855			4,078			N/M			N/M
Income tax (benefit) expense		(1,021	)		(806	)		42			1,172			N/M			N/M
Net (loss) earnings	$	(1,442	)	$	(1,036	)	$	813		$	2,906			N/M			N/M
Preferred stock dividends		-			-			38			76			N/M			(100	)
Net (loss) earnings applicable to common stockholder	$	(1,442	)	$	(1,036	)	$	775		$	2,830			N/M			N/M

(1) 2011 and 2010 amounts include other income andother-than-temporary impairment losses onavailable-for-sale debt securities. Theother-than-temporary impairment losses were $8 million and $44 million for the three and six months ended June 30, 2011, respectively, and were $37 million and $123 million for the three and six months ended June 30, 2010, respectively.

N/M = Not meaningful.

Quarterly Consolidated Results of Operations

Our net loss for the quarter ended June 30, 2011 was $1.4 billion compared with net earnings of $813 million for the quarter ended June 30, 2010. Net revenues for the second quarter of 2011 were $6.9 billion compared with $6.7 billion in the prior year period.

Quarter Ended June 30, 2011 Compared With Quarter Ended June 30, 2010

Principal transactions revenues include both realized and unrealized gains and losses on trading assets and trading liabilities and investment securities classified as trading. Principal transactions revenues were $2.2 billion for the quarter ended June 30, 2011 compared with $2.1 billion for the quarter ended June 30, 2010. The increase reflected higher trading revenues as compared with the prior year period,

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primarily in our equity, credit and commodity products businesses. Revenues from equity products increased, primarily driven by certain structured equity financing activities within our global markets financing and servicing business. The effect of the higher principal transaction revenues associated with these structured equity financing activities is offset by higher financing costs, which are included within net interest income (expense). Revenues from equity derivative products also increased and benefited from improved market conditions as compared with the prior year period. Revenues from commodity products increased, primarily reflecting higher revenues from energy products as compared with the prior year. Revenues from credit products increased and reflected more favorable market conditions as compared with the prior year, which included concerns over pending regulatory reform in the U.S. and widening credit spreads as a result of concerns over European sovereign debt. These increases in principal transaction revenues were partially offset by a $1.1 billion decline in revenues associated with the valuation of certain of our long-term debt liabilities. In the quarter ended June 30, 2011, we recorded net gains of $0.1 billion due to the impact of the widening of Merrill Lynch’s credit spreads on the carrying value of certain of our long-term debt liabilities, primarily structured notes, as compared with net gains of $1.2 billion from such long-term debt liabilities recorded in the quarter ended June 30, 2010. In addition, revenues from mortgage products decreased due to the impact of credit valuation adjustments related to financial guarantors. Revenues from our proprietary trading activities also declined and reflected the wind-down of that business.

Included in principal transactions revenues are net revenues associated with activities we have identified as “proprietary trading,” which is conducted separately from our customer trading activities. Our proprietary trading operations have engaged in trading activities in a variety of products, including stocks, bonds, currencies and commodities. In response to developments relating to the Volcker Rule discussed above, we have exited our proprietary trading business as of June 30, 2011. The revenues from these operations for the quarters ended June 30, 2011 and June 30, 2010 were $234 million and $432 million, respectively, of which $226 million and $384 million, respectively, were included within principal transactions revenues. The remainder of the revenues for these operations were primarily recorded within net interest revenues. See also “Executive Overview — Financial Reform Act — Limitations on Certain Activities.”

Net interest income (expense) is a function of (i) the level and mix of total assets and liabilities, including trading assets, deposits, financing and lending transactions, and trading strategies associated with our businesses, and (ii) the prevailing level, term structure and volatility of interest rates. Net interest income (expense) is an integral component of trading activity. In assessing the profitability of our client facilitation and trading activities, we view principal transactions and net interest income (expense) in the aggregate as net trading revenues. Changes in the composition of trading inventories and hedge positions can cause the mix of principal transactions and net interest income (expense) to fluctuate from period to period. Net interest expense was $884 million for the quarter ended June 30, 2011 as compared with $531 million in the quarter ended June 30, 2010. The decline was primarily due to lower net interest revenues generated from our trading activities. In both periods, the results were affected by financing costs associated with certain structured equity financing activities within our global markets financing and servicing business. The effect of the higher financing costs associated with the structured equity financing activities is offset in Principal transactions revenues.

Commissions revenues primarily arise from agency transactions in listed and OTC equity securities and commodities and options. Commissions revenues also include distribution fees for promoting and distributing mutual funds. Commissions revenues were $1.4 billion for the quarter ended June 30, 2011, a decrease of 2% from the prior year period. The majority of the decrease was attributable to our global equity products business, primarily reflecting lower single-stock trading volumes in the U.S. and the Europe, Middle East and Africa (“EMEA”) region, which declined 15% and 12%, respectively.

Managed account and other fee-based revenues primarily consist of asset-priced portfolio service fees earned from the administration of separately managed and other investment accounts for retail

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investors, annual account fees, and certain other account-related fees. Managed account and other fee-based revenues were $1.3 billion for the quarter ended June 30, 2011, an increase of 15% from the prior year period. The increase was driven by higher fee-based revenues from our global wealth management activities, reflecting higher levels of fee-based assets from which such revenues are generated as well as increased revenues from fees on new accounts and asset management fees. The increase in fee-based assets was due to both strong client flows into long-term products and market appreciation.

Investment banking revenues include (i) origination revenues representing fees earned from the underwriting of debt, equity and equity-linked securities, as well as loan syndication and commitment fees and (ii) advisory services revenues including merger and acquisition and other investment banking advisory fees. Total investment banking revenues were $1.6 billion for the quarter ended June 30, 2011, an increase of 28% from the prior year period. Underwriting revenues increased 20% to $1.2 billion, which reflected higher revenues from both equity and fixed income underwriting transactions. Revenues from advisory services increased 59% to $381 million, reflecting increased merger and acquisition transaction activity.

Earnings from equity method investments include our pro rata share of income and losses associated with investments accounted for under the equity method of accounting. Earnings from equity method investments were $120 million for the quarter ended June 30, 2011 compared with $96 million for the quarter ended June 30, 2010. The increase reflected higher revenues from certain equity method investments. Refer to Note 8 to the Consolidated Financial Statements included in the 2010 Annual Report for further information on equity method investments.

Other revenues include gains and losses on investment securities, including certainavailable-for-sale securities, gains and losses on private equity investments, and gains and losses on loans and other miscellaneous items. Other revenues were $1.1 billion in both the quarters ended June 30, 2011 and June 30, 2010, as lower revenues from certain private equity investments were partially offset by a gain associated with the sale of our remaining investment in BlackRock. In November 2010, we sold a substantial portion of our investment in BlackRock, which resulted in a reduction of our economic interest in BlackRock from approximately 34% to approximately 7%. In June 2011, we sold all of our remaining shares of BlackRock’s Series B preferred stock, which resulted in a pre-tax gain of $377 million.

Compensation and benefits expenses were $3.9 billion for the quarter ended June 30, 2011, an increase of 4% from the prior year period. The increase was due to higher incentive based compensation accruals as compared with the prior year, reflecting increased net revenues (after giving effect to the impact of the revenues associated with the valuation of certain of our long-term debt liabilities). There was also an increase in salary and other employee compensation costs as compared with the prior year period related to increased headcount levels from investments in infrastructure and personnel associated with further development of the business, as well as higher amortization expense associated with stock-based compensation awards. These increases were partially offset by an incremental payroll tax in the U.K. that was recorded in the prior year. In April 2010, the U.K. enacted a one-time employer payroll tax on bonuses awarded to employees of applicable banking entities between December 9, 2009 and April 5, 2010. The impact of this tax was approximately $330 million and was included in our compensation and benefits expense for the quarter ended June 30, 2010.

Non-compensation expenses were $5.5 billion for the quarter ended June 30, 2011 and $2.1 billion in the prior year period. Non-compensation expenses in 2011 included a charge of $2.7 billion associated with representations and warranties made in connection with certain mortgage and home equity loan transactions. See “Off-Balance Sheet Exposures — Representations and Warranties” for further information. Advertising and market development costs were $115 million, an increase of 12% primarily due to higher travel and entertainment and promotion expenses. Brokerage, clearing and

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exchange fees were $303 million, an increase of 13%, primarily due to higher brokerage and other fees. Other expenses were $1.2 billion for the quarter ended June 30, 2011 as compared with $0.7 billion in the prior year period. The increase was primarily driven by higher net intercompany service fees from Bank of America. Such net intercompany service fees were approximately $680 million in the quarter ended June 30, 2011, an increase of approximately $520 million from the prior year period. This increase was partially offset by lower expense associated with non-controlling interests of certain principal investments.

As discussed above, included within Merrill Lynch’s non-interest expenses are intercompany service fees from Bank of America. Beginning in 2011, Bank of America and Merrill Lynch integrated their methodologies for allocating expenses associated with shared services to their subsidiaries. As a result of this integration, during 2011 Merrill Lynch will incur a higher level of intercompany service fees from Bank of America as compared with the prior year.

The income tax benefit for the three months ended June 30, 2011 was $1.0 billion compared with an income tax expense of $42 million for the three months ended June 30, 2010. The effective tax rate was 41.4% for the second quarter of 2011 compared with 5.0% in the prior year. The 5.0% effective tax rate for the 2010 quarterly period was driven primarily by the size of net tax preference items (such as tax-exempt income and release of a valuation allowance provided for capital loss carryforward tax benefits) relative to the level of pre-tax income. For the comparable 2011 quarterly period, net tax benefit preference items increased the effective tax rate, but had a smaller relative impact. In addition, the income tax benefit for the quarter ended June 30, 2011 included a $244 million charge to establish a valuation allowance for a portion of certainnon-U.S. deferred tax assets.

On July 19, 2011, the U.K. 2011 Finance Bill was enacted, which reduced the corporate income tax rate to 26% beginning on April 1, 2011, and then to 25% effective April 1, 2012. These reductions will favorably affect income tax expense on future U.K. earnings, but also will require us to remeasure our U.K. net deferred tax assets using the lower tax rates. We will record a charge to income tax expense of approximately $800 million for this revaluation in the three months ending September 30, 2011. If corporate income tax rates were to be reduced to 23% by 2014, as suggested in U.K. Treasury announcements and assuming no change in the deferred tax asset balance, a charge to income tax expense of approximately $400 million for each one percent reduction in the rate would result in each period of enactment.

In addition, it is possible that valuation allowance releases may affect the effective income tax rate later this year.

Year-to-Date Consolidated Results of Operations

For the six months ended June 30, 2011, our net loss was $1.0 billion compared with net earnings of $2.9 billion in the prior year period. Our pre-tax loss was $1.8 billion for the six months ended June 30, 2011 compared with pre-tax income of $4.1 billion for the six months ended June 30, 2010.

Six Months Ended June 30, 2011 Compared With Six Months Ended June 30, 2010

Net revenues for the six months ended June 30, 2011 were $14.8 billion compared with $16.1 billion in the prior year period. The decrease primarily reflected lower principal transaction revenues, partially offset by higher investment banking and other revenues. Principal transaction revenues were $3.3 billion for the six months ended June 30, 2011, a decrease of $2.8 billion from the prior year period, which included a $1.6 billion decline in revenues associated with the valuation of certain of our long-term debt liabilities. In the six months ended June 30, 2011, we recorded net losses of $0.2 billion

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due to the impact of the narrowing of Merrill Lynch’s credit spreads on the carrying value of certain of our long-term debt liabilities, primarily structured notes, as compared with net gains of $1.4 billion from such long-term debt liabilities in the six months ended June 30, 2010 due to the widening of our credit spreads. Lower revenues associated with our trading activities, primarily due to mortgage products as a result of credit valuation adjustments related to financial guarantors, also contributed to the decrease in principal transaction revenues. Investment banking revenues were $3.1 billion, an increase of 27%, reflecting higher revenues from both underwriting and advisory transactions. Other revenues were $3.2 billion, an increase of $1.0 billion from the prior year period. The increase in other revenues was primarily associated with a $1.1 billion gain associated with a private equity investment that underwent an initial public offering during the quarter ended March 31, 2011, as well as the pre-tax gain of $377 million from the sale of our remaining investment in BlackRock, partially offset by lower revenues from certain other private equity investments.

Compensation and benefits expenses were $8.5 billion for the six months ended June 30, 2011, an increase of 5% from the prior year period. The increase included higher amortization expense associated with stock-based compensation awards, including awards granted to retirement-eligible employees, as compared with the prior year. In addition, salary and other employee compensation costs were higher as compared with the prior year period related to increased headcount levels from investments in infrastructure and personnel associated with further development of the business. These increases were partially offset by lower incentive-based compensation accruals and the $330 million charge for the incremental U.K. payroll tax that was recorded in the six months ended June 30, 2010.

Non-compensation expenses were $8.1 billion for the six months ended June 30, 2011 and $3.9 billion in the prior year period. Non-compensation expenses in 2011 included a charge of $2.7 billion associated with representations and warranties made in connection with certain mortgage and home equity loan transactions. See “Off-Balance Sheet Exposures — Representations and Warranties” for further information. Advertising and market development costs were $236 million, an increase of 19% primarily due to higher travel and entertainment and promotion expenses. Professional fees were $452 million, which increased 14% primarily due to higher legal and other professional fees. Other expenses were $2.4 billion compared with $1.2 billion in the prior year period. The increase was primarily driven by higher net intercompany service fees from Bank of America.

The income tax benefit was $806 million for the six months ended June 30, 2011 compared with income tax expense of $1.2 billion for the six months ended June 30, 2010. The effective tax rate for the first half of 2011 was 43.8% compared with 28.7% in the prior year period. The 2011 effective tax rate was higher than for 2010 as the benefits for net tax preference items (such as tax-exempt income and release of a valuation allowance provided for capital loss carryforward tax benefits) increased the income tax benefit recorded on the 2011 pre-tax loss while the impact of such benefits was a decrease in tax expense recorded on pre-tax income for the comparable period in 2010. The $244 million charge referred to above decreased the 2011 effective tax rate compared to what it otherwise would have been.

Off-Balance Sheet Exposures

As a part of our normal operations, we enter into various off-balance sheet arrangements that may require future payments. The table and discussion below outline our significant off-balance sheet arrangements, as well as their future expirations, as of June 30, 2011. Refer to Note 14 to the Condensed Consolidated Financial Statements for further information.

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	Expiration
	Maximum		Less than 1		1-3		3-5		Over 5
(dollars in millions)	Payout		Year		Years		Years		Years
Standby liquidity facilities	$	1,139	$	585	$	535	$	-	$	19
Residual value guarantees		415		95		320		-		-
Standby letters of credit and other guarantees		582		387		173		3		19

Standby Liquidity Facilities

We provide standby liquidity facilities primarily to certain unconsolidated municipal bond securitization variable interest entities (“VIEs”). In these arrangements, we are required to fund these standby liquidity facilities if certain contingent events take place (e.g., a failed remarketing) and in certain cases if the fair value of the assets held by the VIE declines below the stated amount of the liquidity obligation. The potential exposure under the facilities is mitigated by economic hedgesand/or other contractual arrangements entered into by Merrill Lynch. Refer to Note 9 to the Condensed Consolidated Financial Statements for further information.

Residual Value Guarantees

At June 30, 2011, residual value guarantees of $415 million consisted of amounts associated with certain power plant facilities.

Standby Letters of Credit and Other Guarantees

At June 30, 2011, we provided guarantees to certain counterparties in the form of standby letters of credit in the amount of $0.6 billion.

Representations and Warranties

In prior years, Merrill Lynch and certain of its subsidiaries, including First Franklin Financial Corporation (“First Franklin”) sold pools of first-lien residential mortgage loans and home equity loans as private-label securitizations (in a limited number of these securitizations, monolines insured all or some of the securities), or in the form of whole loans. Most of the loans sold in the form of whole loans were subsequently pooled into private-label securitizations sponsored by the third-party buyer of the whole loans. In addition, Merrill Lynch and First Franklin securitized first-lien residential mortgage loans generally in the form of mortgage-backed securities guaranteed by the GSEs. In connection with these transactions, Merrill Lynch made various representations and warranties. Breaches of these representations and warranties may result in the requirement to repurchase mortgage loans or to otherwise make whole or provide other remedies to the GSEs, whole-loan buyers, securitization trusts or monoline insurers (collectively, “repurchases”). In such cases, Merrill Lynch would be exposed to any credit loss on the repurchased mortgage loans.

Subject to the requirements and limitations of the applicable sales and securitization agreements, these representations and warranties can be enforced by the GSEs, the whole-loan buyer, the securitization trustee, or others as governed by the applicable agreement or, in a limited number of first-lien and home equity securitizations where monoline insurers have insured all or some of the securities issued, by the monoline insurer at any time. In the case of loans sold to parties other than the GSEs, the contractual liability to repurchase typically arises only if there is a breach of the representations and warranties that

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materially and adversely affects the interest of the investor or investors in the loan or of the monoline insurer (as applicable). Contracts with the GSEs do not contain an equivalent requirement.

For additional information about accounting for representations and warranties and our representations and warranties claims and exposures, see Note 14 to the Condensed Consolidated Financial Statements and Item 1A. Risk Factors as well as Item 1A. Risk Factors of Merrill Lynch’s 2010 Annual Report onForm 10-K.

Merrill Lynch has vigorously contested any request for repurchase when it concludes that a valid basis for such repurchase claim did not exist and will continue to do so in the future. Merrill Lynch may reach settlements in the future if opportunities arise on terms determined to be advantageous to Merrill Lynch.

Bank of America BNY Mellon Settlement

On June 28, 2011, Bank of America, and certain of its non-Merrill Lynch subsidiaries entered into a settlement agreement (subject to final court approval and other conditions) with The Bank of New York Mellon (“BNY Mellon”), as trustee, to resolve, among other claims, all outstanding and potential claims related to alleged representations and warranties breaches (including repurchase claims) with respect to the 525 legacy first-lien and five second-lien mortgage-backed securitizations containing loans principally originated between 2004 and 2008 and for which BNY Mellon acts as trustee or indenture trustee (the “BNY Mellon Settlement”). As a result of the experience gained by Bank of America and certain of its non-Merrill Lynch affiliates in the BNY Mellon Settlement, Merrill Lynch determined that is has sufficient experience to record a $2.7 billion liability for representations and warranties related to its repurchase exposure on private-label securitizations in the three months ended June 30, 2011.

Unresolved Claims

At June 30, 2011, our total unresolved repurchase claims were approximately $657 million compared with $624 million at December 31, 2010.

Representations and Warranties Liability

The liability for representations and warranties is included in Interest and other payables on the Condensed Consolidated Balance Sheets and the related provision is included in Non-interest expenses on the Condensed Consolidated Statements of Earnings (Loss). The methodology used to estimate the liability for representations and warranties is a function of the representations and warranties given and considers a variety of factors, which include, depending on the counterparty, actual defaults, estimated future defaults, historical loss experience, estimated home prices, other economic conditions, estimated probability that a repurchase claim will be received, consideration of whether presentation thresholds will be met, number of payments made by the borrower prior to default and estimated probability that a loan will be required to be repurchased as well as other relevant facts and circumstances, such as bulk settlements and identity of the counterparty or type of counterparty, as we believe appropriate. The estimate of the liability for representations and warranties is based on currently available information, significant judgment and a number of factors, including those set forth above, that are subject to change. Changes to any one of these factors could significantly impact the estimate of the liability and could have a material adverse impact on our results of operations for any particular period.

At June 30, 2011 and December 31, 2010, the liability for representations and warranties was $2.8 billion and $213 million, respectively. As noted above, in the three months ended June 30, 2011,

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we recorded a provision for representations and warranties related to our repurchase exposure on private-label securitizations of $2.7 billion.

Range of Possible Loss Estimate for Non-GSEs

Although Merrill Lynch believes it is probable that additional claimants may come forward with credible claims that meet the requirements of the terms of the securitizations, Merrill Lynch has experienced limited activity that has met the standards required. Merrill Lynch believes that with the additional $2.7 billion non-GSE representations and warranties provision recorded in the three months ended June 30, 2011, it has provided for a substantial portion of its non-GSE representations and warranties exposures. However, it is reasonably possible that future representations and warranties losses may occur in excess of the amounts recorded for these exposures. In addition, Merrill Lynch has not recorded any representations and warranties liability for potential monoline exposures and certain potential whole loan exposures. Merrill Lynch currently estimates that the range of possible loss related to non-GSE representations and warranties exposure as of June 30, 2011 could be up to $0.5 billion over existing accruals. This estimate of the range of possible loss for non-GSE representations and warranties does not represent a probable loss, is based on currently available information, significant judgment, and a number of assumptions, including the assumption that conditions to the BNY Mellon Settlement are satisfied and those set forth below, that are subject to change.

The methodology used to estimate thenon-GSE representations and warranties liability and the corresponding range of possible loss considers a variety of factors including Merrill Lynch’s experience related to actual defaults, estimated future defaults and historical loss experience and the experience of Merrill Lynch’s affiliates. Among the factors that impact the non-GSE representations and warranties liability and the corresponding range of possible loss are: (1) contractual loss causation requirements, (2) the representations and warranties provided, and (3) the requirement to meet certain presentation thresholds. The first factor is based on our belief that a non-GSE contractual liability to repurchase a loan generally arises only if the counterparties prove there is a breach of representations and warranties that materially and adversely affects the interest of the investor or all investors, or the monoline insurer (as applicable), in a securitization trust and, accordingly, we believe that the repurchase claimants must prove that the alleged representations and warranties breach was the cause of the loss. The second factor is related to the fact that non-GSE securitizations include different types of representations and warranties than those provided to the GSEs. We believe the non-GSE securitizations’ representations and warranties are less rigorous and actionable than those in the comparable agreements with the GSEs. The third factor is related to the fact that certain presentation thresholds need to be met in order for any repurchase claim to be asserted under the non-GSE agreements. A securitization trustee may investigate or demand repurchase on its own action, and most agreements contain a threshold, for example 25% of the voting rights per trust, that allows investors to declare a servicing event of default under certain circumstances or to request certain action, such as requesting loan files, that the trustee may choose to accept and follow, exempt from liability, provided the trustee is acting in good faith. If there is an uncured servicing event of default, and the trustee fails to bring suit during a60-day period, then, under most agreements, investors may file suit. In addition to this, most agreements also allow investors to direct the securitization trustee to investigate loan files or demand the repurchase of loans, if security holders hold a specified percentage, for example, 25%, of the voting rights of each tranche of the outstanding securities.

The methodology used to estimate the non-GSE representations and warranties liability and the corresponding range of possible loss was updated in the second quarter of 2011 to consider the experience resulting from the BNY Mellon Settlement and assumes that the conditions to the BNY Mellon Settlement are satisfied. It also considers assumptions regarding economic conditions, including estimated second quarter 2011 home prices. Since the non-GSE transactions that were included in the BNY Mellon Settlement differ from those that were not included in the BNY Mellon Settlement,

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Merrill Lynch adjusted the experience implied in the settlement in order to determine the estimatednon-GSE representations and warranties liability and corresponding range of possible loss. The judgmental adjustments made include consideration of the differences in the mix of products in the securitizations, loan originator, likelihood of claims differences, the differences in the number of payments that the borrower has made prior to default, and the sponsor of the securitization. Although Merrill Lynch continues to believe that presentation thresholds as described above are a factor in the determination of probable loss, given the BNY Mellon Settlement, the upper end of the estimated range of possible loss assumes that the presentation threshold can be met for all of the non-GSE securitization transactions.

Future provisionsand/or ranges of possible loss for non-GSE representations and warranties may be significantly impacted if actual results are different from our assumptions in our predictive models, including, without limitation, those regarding the ultimate resolution of the BNY Mellon Settlement, estimated repurchase rates, economic conditions, home prices, consumer and counterparty behavior, and a variety of judgmental factors. Adverse developments with respect to one or more of the assumptions underlying the liability for representations and warranties and the corresponding estimated range of possible loss could result in significant increases to future provisions and/or this range of possible loss estimate. For example, if courts were to disagree with our interpretation that the underlying agreements require a claimant to prove that the representations and warranties breach was the cause of the loss, it could significantly impact this estimated range of possible loss. Additionally, if recent court rulings related to monoline litigation, including one related to an affiliate of ours, that have allowed sampling of loan files instead of aloan-by-loan review to determine if a representations and warranties breach has occurred are followed generally by the courts, private-label counterparties may view litigation as a more attractive alternative as compared to aloan-by-loan review. Finally, although Merrill Lynch believes that the representations and warranties typically given in non-GSE transactions are less rigorous and actionable than those given in GSE transactions, Merrill Lynch does not have significant loan-level experience to measure the impact of these differences on the probability that a loan will be required to be repurchased.

There can be no assurance that final court approval of the BNY Mellon Settlement will be obtained, that all conditions will be satisfied or, if certain conditions into the BNY Mellon Settlement permitting withdrawal are met, that Bank of America and certain of its non-Merrill Lynch subsidiaries will not determine to withdraw from the settlement. If final court approval is not obtained or if Bank of America and such subsidiaries determine to withdraw from the BNY Mellon Settlement in accordance with its terms, Merrill Lynch’s future representations and warranties losses could be substantially greater than existing accruals and the estimated range of possible losses over existing accruals described above.

The liability for obligations under representations and warranties with respect to GSE and non-GSE exposures and the corresponding estimate of the range of possible loss for non-GSE representations and warranties exposures do not include any losses related to litigation matters disclosed in Note 14 to the Condensed Consolidated Financial Statements, nor do they include any potential securities law or fraud claims or potential indemnity or other claims against us. Merrill Lynch is not able to reasonably estimate the amount of any possible loss with respect to any such securities law (except to the extent reflected in the aggregate range of possible loss for litigation and regulatory matters disclosed in Note 14 to the Condensed Consolidated Financial Statements), fraud or other claims against us; however, such loss could be material.

Experience with Non-GSE Investors

As presented in the table below, Merrill Lynch, including First Franklin, sold loans originated from 2004 to 2008 (primarily subprime and alt-A) with an original principal balance of $132 billion through

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private-label securitizations or in the form of whole loan sales that were subject to representations and warranties liabilities, of which approximately $62 billion in principal has been paid off, $45 billion has defaulted or are severely delinquent (i.e., 180 days or more past due) and $39 billion remains outstanding as of June 30, 2011.

As it relates to private-label securitizations, a contractual liability to repurchase loans generally arises only if counterparties prove there is a breach of the representations and warranties that materially and adversely affects the interest of the investor or all investors in a securitization trust or of the monoline insurer (as applicable). Merrill Lynch believes that the longer a loan performs, the less likely it is that an alleged representations and warranties breach had a material impact on the loan’s performance or that a breach even exists. Because the majority of the borrowers in this population would have made a significant number of payments if they are not yet 180 days or more past due, we believe that the principal balance at the greatest risk for repurchase claims in this population of private-label securitization investors is a combination of loans that have already defaulted and those that are currently severely delinquent. Additionally, the obligation to repurchase loans also requires that counterparties have the contractual right to demand repurchase of the loans (presentation thresholds). While Merrill Lynch believes the agreements for private-label securitizations generally contain less rigorous representations and warranties and place higher burdens on investors seeking repurchases than the comparable agreements with the GSEs, the agreements generally include a representation that underwriting practices were prudent and customary.

The following table details the population of loans originated between 2004 and 2008 and the population of loans sold as whole loans or in non-GSE private-label securitizations by entity together with the defaulted and severely delinquent loans stratified by the number of payments the borrower made prior to default or becoming severely delinquent at June 30, 2011. In connection with these transactions, we provided representations and warranties, and the whole loan investors may retain those rights even when the whole loans were aggregated with other collateral into private-label securitizations sponsored by the whole loan investors. As shown in the table, at least 25 payments have been made on approximately 60% of the defaulted and severely delinquent loans. Merrill Lynch believes many of the defaults observed in these securitizations have been, and continue to be, driven by external factors, such as the substantial depreciation in home prices, persistently high unemployment and other negative economic trends, diminishing the likelihood that any loan defect (assuming one exists at all) was the cause of a loan’s default. As of June 30, 2011, approximately 34% of the loans sold to non-GSEs that were originated between 2004 and 2008 have defaulted or are severely delinquent.

	Principal Balance										Defaulted or Severely Delinquent
			Outstanding		Outstanding						Borrower						Borrower
	Original		Principal		Principal		Defaulted		Defaulted		Made Less		Borrower		Borrower		Made More
(dollars in billions)	Principal		Balance		Balance		Principal		or Severely		than 13		Made 13 to		Made 25 to		Than 36
Entity	Balance		June 30, 2011		Over 180 Days		Balance		Delinquent		Payments		24 Payments		36 Payments		Payments
Merrill Lynch (excluding First Franklin)	$	50	$	17	$	7	$	11	$	18	$	4	$	4	$	2	$	8
First Franklin		82		22		7		20		27		4		6		5		12
Total	$	132	$	39	$	14	$	31	$	45	$	8	$	10	$	7	$	20

Private-label securitization investors generally do not have the contractual right to demand repurchase of loans directly or the right to access loan files. The majority of the claims that we have received are from third-party whole-loan investors.

Legal Matters

Merrill Lynch has been named as a defendant in various legal actions, including arbitrations, class actions, and other litigation arising in connection with its activities as a global diversified financial services institution. Refer to Note 14 to the Condensed Consolidated Financial Statements for further information, including the estimated aggregate range of possible loss.

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Derivatives

We record all derivative transactions at fair value on our Condensed Consolidated Balance Sheets. We do not monitor our exposure to derivatives based on the notional amount because that amount is not a relevant indicator of our exposure to these contracts, as it is generally not indicative of the amount that we would owe on the contract. Instead, a risk framework is used to define risk tolerances and establish limits to help to ensure that certain risk-related losses occur within acceptable, predefined limits. Since derivatives are recorded on the Condensed Consolidated Balance Sheets at fair value the disclosure of the notional amounts is not a relevant indicator of risk. Derivatives that meet the accounting definition of a guarantee and credit derivatives are included in Note 6 to the Condensed Consolidated Financial Statements.

Involvement with VIEs

We transact with VIEs in a variety of capacities, including those that we help establish as well as those initially established by third parties. We utilize VIEs in the ordinary course of business to support our own and our customers’ financing and investing needs. Merrill Lynch securitizes loans and debt securities using VIEs as a source of funding and a means of transferring the economic risk of the loans or debt securities to third parties. We also administer, structure or invest in or enter into derivatives with other VIEs, including multi-seller conduits, municipal bond trusts, CDOs and other entities, as described in more detail below. Our involvement with VIEs can vary and we are required to continuously reassess prior consolidation and disclosure conclusions. Refer to Note 1 to the Condensed Consolidated Financial Statements for a discussion of our consolidation accounting policy and for information regarding new VIE accounting rules that became effective on January 1, 2010. Types of VIEs with which we have historically transacted include:

•  Municipal bond securitization VIEs:  VIEs that issue medium-term paper, purchase municipal bonds as collateral and purchase a guarantee to enhance the creditworthiness of the collateral.

•  Asset-backed securities VIEs:  VIEs that issue different classes of debt, from super senior to subordinated, and equity and purchase assets as collateral, including residential mortgages, commercial mortgages, auto leases and credit card receivables.

•  CDOs:  VIEs that issue different classes of debt, from super senior to subordinated, and equity and purchase securities, including asset-backed securities collateralized by residential mortgages, commercial mortgages, auto leases and credit card receivables as well as corporate bonds.

•  Synthetic CDOs:  VIEs that issue different classes of debt, from super senior to subordinated, and equity, purchase high-grade assets as collateral and enter into a portfolio of credit default swaps to synthetically create the credit risk of the issued debt.

•  Credit-linked note VIEs:  VIEs that issue notes linked to the credit risk of a company, purchase high-grade assets as collateral and enter into credit default swaps to synthetically create the credit risk to pay the return on the notes.

•  Trust preferred security VIEs:  These VIEs hold junior subordinated debt issued by ML & Co. or our subsidiaries, and issue preferred stock on substantially the same terms as the junior subordinated debt to third party investors. We also provide a parent guarantee, on a junior subordinated basis, of the distributions and other payments on the preferred stock to the extent that the VIEs have funds legally available. The debt we issue into the VIE is classified as long-term borrowings on our Condensed Consolidated Balance Sheets. The ML & Co. parent guarantees of its own subsidiaries are not required to be recorded in the Condensed Consolidated Financial Statements.

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Funding and Liquidity

Funding

We fund our assets primarily with a mix of secured and unsecured liabilities through a globally coordinated funding strategy with Bank of America. We fund a portion of our trading assets with secured liabilities, including repurchase agreements, securities loaned and other short-term secured borrowings, which are less sensitive to our credit ratings due to the underlying collateral. Refer to Note 12 to the Condensed Consolidated Financial Statements for additional information regarding our borrowings.

Beginning late in the third quarter of 2009, in connection with the update or renewal of certain Merrill Lynch international securities offering programs, Bank of America agreed to guarantee debt securities, warrantsand/or certificates issued by certain subsidiaries of ML & Co. on a going forward basis. All existing ML & Co. guarantees of securities issued by those same Merrill Lynch subsidiaries under various international securities offering programs will remain in full force and effect as long as those securities are outstanding, and Bank of America has not assumed any of those prior ML & Co. guarantees or otherwise guaranteed such securities. There were approximately $6.4 billion of securities guaranteed by Bank of America at June 30, 2011. In addition, Bank of America has guaranteed the performance of Merrill Lynch on certain derivative transactions. The aggregate amount of such derivative liabilities was approximately $2.4 billion at June 30, 2011.

Following the completion of Bank of America’s acquisition of Merrill Lynch, ML & Co. became a subsidiary of Bank of America and established intercompany lending and borrowing arrangements to facilitate centralized liquidity management. Included in these intercompany agreements is a $75 billion one-year revolving unsecured line of credit that allows ML & Co. to borrow funds from Bank of America at a spread to LIBOR that is reset periodically and is consistent with other intercompany agreements. This credit line was renewed effective January 1, 2011 with a maturity date of January 1, 2012. The credit line will automatically be extended by one year to the succeeding January 1st unless Bank of America provides written notice not to extend at least 45 days prior to the maturity date. The agreement does not contain any financial or other covenants. There were no outstanding borrowings against the line of credit at June 30, 2011.

In addition to the $75 billion unsecured line of credit, a $25 billion364-day revolving unsecured line of credit that allows ML & Co. to borrow funds from Bank of America was established on February 15, 2011. Interest on the line of credit is based on prevailing short-term market rates. The agreement does not contain any financial or other covenants. The line of credit matures on February 14, 2012. There were no outstanding borrowings against the line of credit at June 30, 2011.

Following the merger of BAS into MLPF&S, Bank of America agreed to guarantee the short-term, senior unsecured obligations issued by MLPF&S under its short-term master note program on a going forward basis. This issuance program was previously maintained by BAS to provide short-term funding for its broker-dealer operations. At June 30, 2011, approximately $8.6 billion of borrowings under the program were outstanding and guaranteed by Bank of America.

Also in connection with the merger of BAS into MLPF&S, MLPF&S either assumed or established the following agreements:

•  MLPF&S assumed an approximately $1.5 billion subordinated loan agreement with Bank of America, which bears interest based on a spread to LIBOR, and has a scheduled maturity date of December 31, 2012. The loan agreement contains a provision that automatically extends the loan’s maturity by one year unless Bank of America provides 13 months written notice not to extend prior to the scheduled maturity date.

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•  MLPF&S assumed a $7 billion revolving subordinated line of credit with Bank of America. The subordinated line of credit bears interest based on a spread to LIBOR, and has a scheduled maturity date of October 1, 2012. The revolving subordinated line of credit contains a provision that automatically extends the maturity by one year unless Bank of America provides 13 months written notice not to extend prior to the scheduled maturity date. At June 30, 2011, $1.1 billion was outstanding on the subordinated line of credit.

•  On November 1, 2010, a $4 billion one-year revolving unsecured line of credit that allows MLPF&S to borrow funds from Bank of America was established. Interest on the line of credit is based on prevailing short-term market rates. The credit line will automatically be extended by one year to the succeeding November 1st unless Bank of America provides written notice not to extend at least 45 days prior to the maturity date. At June 30, 2011, there were no borrowings outstanding on the line of credit.

•  On February 22, 2011, a $15 billion364-day revolving unsecured line of credit that allows MLPF&S to borrow funds from Bank of America was established. Interest on the line of credit is based on prevailing short-term market rates. The line of credit matures on February 21, 2012. At June 30, 2011, approximately $1.5 billion was outstanding on the line of credit.

In addition to the funding agreements described above, Merrill Lynch has entered into certain lending arrangements with Bank of America. Included in these arrangements is a $50 billion one-year revolving line of credit that allows Bank of America to borrow funds from Merrill Lynch at a spread to LIBOR that is reset periodically and is consistent with other intercompany agreements. The line of credit matures on January 1, 2012 and will automatically be extended by one year to the succeeding January 1st unless Merrill Lynch provides written notice not to extend at least 45 days prior to the maturity date. Approximately $12.1 billion and $6.1 billion were outstanding under this line of credit as of June 30, 2011 and December 31, 2010, respectively. In addition, on August 3, 2011, Merrill Lynch authorized a short-term (less than 365 days with no automatic renewal) credit facility that will allow Bank of America to borrow up to an additional $25 billion for general corporate and working capital purposes.

Credit Ratings

Our borrowing costs and ability to raise funds are directly impacted by our credit ratings. In addition, credit ratings may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions, including OTC derivatives. Thus, it is our objective to maintain high-quality credit ratings. Credit ratings and outlooks are opinions on our creditworthiness and that of our obligations or securities, including long-term debt, short-term borrowings and other securities.

Following the acquisition of Merrill Lynch by Bank of America, the major credit ratings agencies have indicated that the primary drivers of Merrill Lynch’s credit ratings are Bank of America’s credit ratings. Bank of America’s credit ratings are subject to ongoing review by the ratings agencies and thus may change from time to time based on a number of factors, including Bank of America’s financial strength, performance, prospects and operations as well as factors not under Bank of America’s control. In light of the recent difficulties in the financial services industry and financial markets, there can be no assurance that Bank of America will maintain its current ratings.

During 2010, the three major ratings agencies made negative adjustments to the outlooks for Bank of America’s and Merrill Lynch’s long-term credit ratings. For further information on these rating adjustments, refer to our 2010 Annual Report. Currently, the long-term senior debt ratings and ratings outlooks expressed by the ratings agencies for both Bank of America and ML & Co. are as follows: A2 (review for possible downgrade) by Moody’s; A (negative) by S&P; and A+ (Rating Watch Negative) by Fitch, Inc. (“Fitch”). MLPF&S’s long-term senior debt ratings and outlooks are A+ (negative) by S&P and A+ (Rating Watch Negative) by Fitch. Merrill Lynch International (“MLI”) aU.K.-based broker-dealer subsidiary of ML & Co., Inc., has a long-term senior debt rating and

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outlook of A+ (negative) by S&P. These ratings agencies have indicated that, as a systemically important financial institution, our credit ratings currently reflect their expectation that, if necessary, we would receive significant support from the U.S. Government. All three ratings agencies, however, have indicated they will reevaluate, and could reduce the uplift they include in our ratings for government support, for reasons arising from financial services regulatory reform proposals or legislation. On June 2, 2011, Moody’s placed Bank of America’s and ML & Co.’s ratings on review for possible downgrade from negative outlook due to its view that the current level of U.S. Government support incorporated into its ratings may no longer be appropriate. In addition to Bank of America’s credit ratings, other factors that influence our credit ratings (as well as those for Bank of America) include changes to the ratings agencies’ methodologies for our industry or certain security types, the ratings agencies’ assessment of the general operating environment for financial services companies, our relative positions in the markets in which we compete, reputation, liquidity position, diversity of funding sources, the level and volatility of earnings, corporate governance and risk management policies, capital position, capital management practices and current or future regulatory and legislative initiatives.

A reduction in certain of our credit ratings would likely have a material adverse effect on our liquidity, access to credit markets, the related cost of funds, our businesses and on certain trading revenues, particularly in those businesses where counterparty creditworthiness is critical. Under the terms of certain OTC derivatives contracts and other trading agreements, in the event of a credit ratings downgrade of Bank of America, and consequently ML & Co. or our bank or broker-dealer subsidiaries, the counterparties to those agreements may require us to provide additional collateral or to terminate these contracts or agreements. Such collateral calls or terminations could cause us to sustain losses, impair our liquidity, or both, by requiring us to provide the counterparties with additional collateral in the form of cash or highly liquid securities. If Bank of America’s or ML & Co’s commercial paper or short-term credit ratings (which currently have the following ratings:P-1 by Moody’s,A-1 by S&P and F1+ by Fitch), or those of our bank or broker-dealer subsidiaries, were downgraded by one or more levels, the potential loss of short-term funding sources such as commercial paper or repo financing, and the effect on our incremental cost of funds would be material. The amount of additional collateral required depends on the contract and is usually a fixed incremental amountand/or an amount related to the market value of the exposure. For information regarding the additional collateral and termination payments that would be required in connection with certain OTC derivative contracts and other trading agreements as a result of such a credit ratings downgrade, see Note 6 to the Condensed Consolidated Financial Statements.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

Not required pursuant to General Instruction H(2).

Item 4.   Controls and Procedures

As of the end of the period covered by this report and pursuant toRule 13a-15(b) of the Securities Exchange Act of 1934 (“Exchange Act”), Merrill Lynch’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness and design of Merrill Lynch’s disclosure controls and procedures (as that term is defined inRule 13a-15(e) of the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Merrill Lynch’s disclosure controls and procedures were effective, as of the end of the period covered by this report, in recording, processing, summarizing and reporting information required to be disclosed by Merrill Lynch in reports that it files or submits under the Exchange Act, within the time periods specified in the SEC’s rules and forms.

In addition, no change in Merrill Lynch’s internal control over financial reporting (as defined inRule 13a-15(f) of the Exchange Act) occurred during the quarter ended June 30, 2011 that has materially affected, or is reasonably likely to materially affect, Merrill Lynch’s internal control over financial reporting.

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PART II — Other Information

Item 1.   Legal Proceedings

Legal and Regulatory Matters

See Note 14 to the Condensed Consolidated Financial Statements, which is incorporated by reference in this Item 1, for litigation and regulatory matters that supplement the disclosure in Note 14 to the Consolidated Financial Statements included in Merrill Lynch’s 2010 Annual Report and in Note 14 to the Condensed Consolidated Financial Statements included in Merrill Lynch’s Quarterly Report onForm 10-Q for the quarterly period ended March 31, 2011.

Item 1A.   Risk Factors

There are no material changes from the risk factors set forth under Part I, Item 1A. “Risk Factors” in Merrill Lynch’s 2010 Annual Report, other than the addition of the following risk factors.

Mortgage and Housing Related Risk

We have been, and expect to continue to be, required to repurchase mortgage loansand/or reimburse monolines from whole loan purchasers, private-label securitization investors and private-label securitization trustees, monolines and others for losses due to claims related to representations and warranties made in connection with sales of RMBS and mortgage loans. We have recorded provisions for certain of these exposures. However, the ultimate resolution of these exposures could have a material adverse effect on our cash flows, financial condition, and results of operations.

In connection with loans sold to investors other than the GSEs as well as to the GSEs, Merrill Lynch and certain of its subsidiaries made various representations and warranties. Breaches of these representations and warranties may result in a requirement that we repurchase mortgage loans, or to otherwise make whole or provide other remedies to counterparties. Merrill Lynch, including First Franklin, sold loans originated from 2004 to 2008 (primarily subprime and alt-A) with an original principal balance of $132 billion through private-label securitizations or whole loan sales that were subject to representations and warranties liabilities. Most of the loans sold in the form of whole loans were subsequently pooled into private-label securitizations sponsored by the third-party buyer of the whole loans. In addition, Merrill Lynch and First Franklin securitized first-lien residential mortgage loans generally in the form of MBS guaranteed by the GSEs.

The amount of our total unresolved repurchase claims from all sources totaled approximately $657 million at June 30, 2011. The total amount of our recorded liability related to representations and warranties exposure was $2.8 billion at June 30, 2011. As a result of the experience gained by Bank of America and certain of its non-Merrill Lynch affiliates in the BNY Mellon Settlement, Merrill Lynch determined that is has sufficient experience to record a $2.7 billion liability for representations and warranties related to its repurchase exposure on private-label securitizations in the three months ended June 30, 2011.

It is reasonably possible that future representations and warranties losses may occur in excess of the amounts recorded for non-GSE exposures. Our estimated liability and range of possible loss with respect to non-GSE transactions is necessarily dependent on, and limited by, our historical claims experience with non-GSE investors and that of certain of our affiliates and may materially change in the future based on factors beyond our control. We also consider bulk settlements by our affiliates when determining our estimated liability for representations and warranties. Future provisionsand/or estimated ranges of possible loss associated with representations and warranties made in non-GSE transactions may be materially impacted if actual results are different from our assumptions in our predictive models, including without limitation, those regarding the ultimate resolution of the BNY Mellon Settlement, estimated repurchase rates, economic conditions, home prices, consumer and counterparty behavior, and a variety of judgemental factors. In addition, we have not recorded any

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representations and warranties liability for potential monoline exposures and certain potential whole loan exposures. After giving effect to the $2.7 billion provision for representations and warranties in the three months ended June 30, 2011, we currently estimate that the range of possible loss related to non-GSE representations and warranties exposure could be up to $0.5 billion over existing accruals at June 30, 2011. This estimate of the range of possible loss for non-GSE representations and warranties does not represent a probable loss, is based on currently available information, significant judgment and a number of other assumptions that are subject to change, including the assumption that the conditions to the BNY Mellon Settlement are satisfied. Adverse developments with respect to one or more of the assumptions underlying the liability for non-GSE representations and warranties and the corresponding range of possible loss could result in significant increases to future provisionsand/or this range of possible loss estimate. For example, if courts were to disagree with our interpretation that the underlying agreements require a claimant to prove that the representations and warranties breach was the cause of the loss, it could significantly impact this estimated range of possible loss. Additionally, if recent court rulings related to monoline litigation, including one related to an affiliate of ours, that have allowed sampling of loan files instead of aloan-by-loan review to determine if a representations and warranties breach has occurred are followed generally by the courts, private-label securitization investors may view litigation as a more attractive alternative as compared to aloan-by-loan review. If these or other developments cause our actual future experience to differ materially from the assumptions underlying this estimated range of possible loss, the resolution of our non-GSE representations and warranties exposure could have a material adverse effect on our cash flows, financial condition, and results of operations.

The liability for obligations under representations and warranties with respect to GSE and non-GSE exposures and the corresponding estimate of the range of possible loss for non-GSE representations and warranties exposures do not include any losses related to litigation matters disclosed in Note 14 to the Condensed Consolidated Financial Statements, nor do they include any potential securities law or fraud claims or potential indemnity or other claims against us. We are not able to reasonably estimate the amount of any possible losses with respect to any such securities law (except to the extent reflected in the aggregate range of possible losses for litigation and regulatory matters disclosed in Note 14 to the Condensed Consolidated Financial Statements), fraud or other claims against us; however, such loss could have a material adverse effect on our cash flows, financial condition, and results of operations.

For additional information about our representations and warranties exposure and past activities, including the outstanding principal balance of loans originated between 2004 to 2008 at June 30, 2011, see “Off-Balance Sheet Exposures — Representations and Warranties” and Note 14 to the Condensed Consolidated Financial Statements.

Credit Risk and Market Risk

A downgrade in the U.S. Government’s sovereign credit rating, or in the credit ratings of instruments issued, insured or guaranteed by related institutions, agencies or instrumentalities, could result in risks to Merrill Lynch and general economic conditions that we are not able to predict. In addition, uncertainty about the financial stability of several countries in the EU, the increasing risk that those countries may default on their sovereign debt and related stresses on financial markets could have a significant adverse effect on our business, results of operations and financial condition.

On July 13, 2011, Moody’s placed the U.S. Government under review for a possible credit ratings downgrade, and on August 2, 2011 Moody’s confirmed the U.S. Government’s existing sovereign rating, but stated that the rating outlook is negative. On July 14, 2011, S&P placed its sovereign credit ratings of the U.S. Government on CreditWatch with negative implications. On August 2, 2011 Fitch Inc. affirmed its existing sovereign rating of the U.S. Government, but stated that the rating is under review. There continues to be perceived risk of a sovereign credit ratings downgrade of the U.S. Government, including the ratings of U.S. Treasury Securities. It is foreseeable that the ratings and perceived creditworthiness of instruments issued, insured or guaranteed by institutions, agencies or instrumentalities directly linked to the U.S. Government could also be correspondingly affected by any

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such downgrade. Instruments of this nature are key assets on the balance sheets of financial institutions, including Merrill Lynch, and are widely used as collateral by financial institutions to meet theirday-to-day cash flows in the short-term debt market. A downgrade of the sovereign credit ratings of the U.S. Government and perceived creditworthiness of U.S. Government-related obligations could impact our ability to obtain funding that is collateralized by affected instruments, as well as affecting the pricing of that funding when it is available. A downgrade may also adversely affect the market value of such instruments. We cannot predict if, when or how any changes to the credit ratings or perceived creditworthiness of these organizations will affect economic conditions. Such ratings actions could result in a significant adverse impact to Merrill Lynch.

A downgrade of the sovereign credit ratings of the U.S. Government or the credit ratings of related institutions, agencies and instrumentalities would significantly exacerbate the other risks to which Merrill Lynch is subject and any related adverse effects on our business, financial condition and results of operations, including those described underRisk Factors — Credit Risk — We could suffer losses as a result of the actions of or deterioration in the commercial soundness of our counterparties and other financial services institutions, Risk Factors — Market Risk — Our businesses and results of operations have been, and may continue to be, significantly adversely affected by changes in the levels of market volatility and by other financial or capital market conditions and Risk Factors — Liquidity Risk — Our liquidity, cash flows, financial condition and results of operations, and competitive position could be significantly adversely affected by the inability of ML & Co. or Bank of America to access capital markets or if there is an increase in our borrowing costsin Merrill Lynch’s 2010 Annual Report.

In 2010, a financial crisis emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt in Greece, Ireland, Italy, Portugal and Spain, which created concerns about the ability of these EU “peripheral nations” to continue to service their sovereign debt obligations. These conditions impacted financial markets and resulted in high and volatile bond yields on the sovereign debt of many EU nations. Certain European nations continue to experience varying degrees of financial stress, and yields on government-issued bonds in Greece, Ireland, Italy, Portugal and Spain have risen and remain volatile. Despite assistance packages to Greece, Ireland and Portugal, the creation of a joint EU-IMF European Financial Stability Facility in May 2010, and a recently announced plan to expand financial assistance to Greece, uncertainty over the outcome of the EU governments’ financial support programs and worries about sovereign finances persist. Market concerns over the direct and indirect exposure of European banks and insurers to the EU peripheral nations has resulted in a widening of credit spreads and increased costs of funding for some European financial institutions.

Risks and ongoing concerns about the debt crisis in Europe could have a detrimental impact on the global economic recovery, sovereign and non-sovereign debt in these countries and the financial condition of European financial institutions. Market and economic disruptions have affected, and may continue to affect, consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence and default on consumer debt and home prices, among other factors. There can be no assurance that the market disruptions in Europe, including the increased cost of funding for certain governments and financial institutions, will not spread, nor can there be any assurance that future assistance packages will be available or, even if provided, will be sufficient to stabilize the affected countries and markets in Europe or elsewhere. To the extent uncertainty regarding the economic recovery continues to negatively impact consumer confidence and consumer credit factors, our business and results of operations could be significantly and adversely affected. For example, global economic uncertainty, regulatory initiatives and reform have impacted, and will likely continue to impact,non-U.S. credit and trading portfolios. We will continue to monitor and manage this risk but there can be no assurance our efforts in this respect will be sufficient or successful.

Liquidity Risk

Adverse changes to Bank of America’s or our credit ratings from the major credit ratings agencies could have a material adverse effect on our liquidity, cash flows, competitive position, financial

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condition and results of operations by significantly limiting our access to the funding or capital markets, increasing our borrowing costs, or triggering additional collateral or funding requirements.

Our borrowing costs and ability to obtain funding are directly impacted by our credit ratings. In addition, credit ratings may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions, including OTC derivatives. Credit ratings and outlooks are opinions on our creditworthiness and that of our obligations or securities, including long-term debt, short-term borrowings and other securities.

Following the acquisition of Merrill Lynch by Bank of America, the major credit ratings agencies have indicated that the primary drivers of Merrill Lynch’s credit ratings are Bank of America’s credit ratings. Bank of America’s credit ratings are subject to ongoing review by the ratings agencies and thus may change from time to time based on a number of factors, including Bank of America’s financial strength, performance, prospects and operations as well as factors not under Bank of America’s control, such as rating agency specific criteria or frameworks for the financial services industry or certain security types, which are subject to revision from time to time, and conditions affecting the financial services industry generally. There can be no assurance that Bank of America will maintain its current ratings.

On June 2, 2011, Moody’s placed Bank of America’s and ML & Co.’s ratings on review for possible downgrade from negative outlook due to its view that the current level of U.S. Government support incorporated into our ratings may no longer be appropriate. Moody’s, S&P and Fitch have indicated that, as a systemically important financial institution, our credit ratings currently reflect their expectation that, if necessary, we would receive significant support from the U.S. Government. All three ratings agencies have indicated they will reevaluate, and could reduce the uplift they include in our ratings for government support, for reasons arising from financial services regulatory reform proposals or legislation.

Currently, the long-term senior debt ratings and outlooks expressed by the ratings agencies for both Bank of America and ML & Co. are as follows: A2 (review for possible downgrade) by Moody’s; A (negative) by S&P; and A+ (Rating Watch Negative) by Fitch. A reduction in certain of our credit ratings would likely have a material adverse effect on our liquidity, access to credit markets, the related cost of funds, our businesses and on certain trading revenues, particularly in those businesses where counterparty creditworthiness is critical. If Bank of America’s or ML & Co.’s short-term credit ratings, or those of our bank or broker-dealer subsidiaries, were downgraded by one or more levels, the potential loss of short-term funding sources such as commercial paper or repo financing, and the effect on our incremental cost of funds would be material. While certain potential impacts of a downgrade are contractual and quantifiable, the full scope of consequences to a credit rating downgrade is inherently uncertain, as it depends upon numerous dynamic, complex and inter-related factors and assumptions, including whether any downgrade of our long-term credit ratings precipitates downgrades to our short-term credit ratings, and assumptions about the behavior of various customers, investors and counterparties, whose responses to a downgrade are unknown and not reasonably knowable in advance.

For additional information about our credit ratings and their potential effects to our liquidity, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Funding and Liquidity” and Note 6 to the Condensed Consolidated Financial Statements.

Item 6.   Exhibits

An exhibit index has been filed as part of this report and is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Merrill Lynch & Co., Inc.

(Registrant)

By:  /s/  ROBERT QUTUB

Robert Qutub

Chief Financial Officer

By:  /s/  PETER D. TAUBE

Peter D. Taube

Chief Accounting Officer

and Controller

Date: August 4, 2011

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EXHIBIT INDEX

Exhibit		Description
	12	Statement re: computation of ratios.(1)
	31.1	Rule 13a-14(a) Certification of the Chief Executive Officer.(1)
	31.2	Rule 13a-14(a) Certification of the Chief Financial Officer.(1)
	32.1	Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(1)
	32.2	Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(1)
	101	The following materials from Merrill Lynch & Co., Inc.’s Quarterly Report onForm 10-Q for the three and six month periods ended June 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Earnings (Loss), (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed Consolidated Statements of Comprehensive Income (Loss), and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.(1, 2)

(1)	Included herewith.
(2)	These interactive data files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.

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