Subject to Completion
Preliminary Pricing Supplement Dated September 10, 2002
PRICING SUPPLEMENT DATED: SEPTEMBER , 2002 Rule 424(b)(3)
- --------------------------------------------
(To Prospectus Supplement dated April 22, 2002 File No. 333-83374
and Prospectus dated April 1, 2002)
Pricing Supplement Number:
Merrill Lynch & Co., Inc.
Merrill Lynch Notes
Due Nine Months or More from Date of Issue
------------
Investing in the notes involves risks that are described in the "Risk
Factors" section of this pricing supplement and the accompanying Prospectus
Supplement.
Aggregate principal amount..... $
Stated Maturity Date........... September , 2007
Issue Price.................... $1,000 per note
Original Issue Date............ September , 2002
Interest Calculation........... Floating Rate Note
Day Count Convention........... Actual/Actual
Interest Rate Basis............ Treasury Rate
Index Maturity................. 3 months
Spread......................... + 1.00%
Initial Interest Rate..........
Maximum Interest Rate.......... 6.75% to 7.00% per annum (to be determined on the Pricing Date)
Minimum Interest Rate.......... N/A
Interest Payment Dates......... Quarterly, on the 15th of March, June, September and December
of each year commencing December 15, 2002
Interest Reset Dates........... Quarterly, on the 15th of March, June, September and December
of each year commencing December 15, 2002
Survivor's Option.............. Yes
CUSIP number................... 5901M0 BE 8
Form of notes.................. Book-entry
Denominations.................. We will issue and sell the notes in denominations of $1,000
and integral multiples of $1,000 in excess thereof.
Trustee........................ JPMorgan Chase Bank
Calculation Agent.............. Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S")
All determinations made by the calculation agent will be at the
sole discretion of the calculation agent and, absent manifest
error, will be conclusive for all purposes and binding on ML&Co.
and beneficial owners of the notes.
All percentages resulting from any calculation on the notes
will be rounded to the nearest one hundred-thousandth of a
percentage point, with five one-millionths of a percentage
point rounded upwards, e.g., 9.876545% (or .09876545) would be
rounded to 9.87655% (or .0987655). All dollar amounts used in
or resulting from this calculation will be rounded to the
nearest cent with one-half cent being rounded upwards.
Proceeds to ML&Co.............. $
Purchasing Agent............... MLPF&S
Purchasing Agent's Discount.... $
2
RISK FACTORS
Your investment in the notes involves certain risks. In consultation
with your own financial and legal advisers, you should carefully consider,
among other matters, the following discussion of risks, as well as the risks
described in the accompanying Prospectus Supplement, before deciding whether
an investment in the notes is suitable for you. The notes are not an
appropriate investment for you if you are unsophisticated with respect to
their significant components and interrelationships.
Structure Risks of Notes Indexed to Interest Rates
Because the notes are indexed to the Treasury Rate, there will be
significant risks not associated with a conventional fixed rate debt security.
These risks include fluctuation of the interest rates and the possibility that
you will receive a lower amount of interest. We have no control over a number
of matters, including economic, financial and political events, that are
important in determining the existence, magnitude and longevity of these risks
and their results. In recent years, values of certain interest rates have been
volatile, and volatility in those and other interest rates may be expected in
the future. However, past experience is not necessarily indicative of what may
occur in the future.
DESCRIPTION OF THE NOTES
Each $1,000 principal amount of notes will bear interest from the
Original Issue Date pursuant to the Interest Rate Basis specified in this
pricing supplement, until the principal of the note is paid or made available
for payment. Interest will be payable in arrears on each Interest Payment Date
on which an installment of interest is due and payable and at maturity. The
first payment of interest on any note originally issued between a regular
record date and the related Interest Payment Date will be made on the Interest
Payment Date immediately following the next succeeding regular record date to
the holder on the next succeeding regular record date. The regular record date
will be the fifteenth calendar day, whether or not a Business Day, immediately
preceding the related Interest Payment Date.
The interest rate borne by each $1,000 principal amount of notes shall
be determined by reference to the applicable Interest Rate Basis specified
herein, plus or minus the applicable Spread, if any. As used in this pricing
supplement, the "Spread" means the number of basis points to be added to or
subtracted from the Interest Rate Basis. Commencing on the first Interest
Reset Date, the rate at which interest on the notes will be payable will be
reset as of each Interest Reset Date; provided, however, that the interest
rate in effect for the period from the Original Issue Date to the first
Interest Reset Date will be the Initial Interest Rate.
The interest rate derived from an Interest Rate Basis will be determined
in accordance with the applicable provisions below. The interest rate in
effect on each day will be based on:
o if the day is an Interest Reset Date, the interest rate
determined as of the Interest Determination Date, as defined
below, immediately preceding the applicable Interest Reset
Date, or
o if the day is not an Interest Reset Date, the interest rate
determined as of the Interest Determination Date immediately
preceding the most recent Interest Reset Date.
Interest Reset Dates. The dates specified above under the heading
"Interest Reset Dates" are the dates on which the interest rate will be reset,
and each is referred to as an "Interest Reset Date". If any Interest Reset
Date for the notes would otherwise be a day that is not a Business Day, the
applicable Interest Reset Date will be postponed to the next succeeding day
that is a Business Day.
3
Interest Payments. The dates specified above under the heading "Interest
Payment Dates" are the dates on which interest will be payable. Each $1,000
principal amount of notes will bear interest from the Original Issue Date at
the rates specified in herein until the principal amount is paid or otherwise
made available for payment. If any Interest Payment Date, other than an
Interest Payment Date at maturity, would otherwise be a day that is not a
Business Day, the Interest Payment Date will be postponed to the next
succeeding day that is a Business Day. If the maturity of a note falls on a
day that is not a Business Day, we will make the required payment of
principal, premium, if any, and interest on the next succeeding Business Day,
and no additional interest on such payment will accrue for the period from and
after the maturity.
Interest payments on each $1,000 principal amount of notes will equal
the amount of interest accrued from and including the immediately preceding
Interest Payment Date in respect of which interest has been paid or from and
including the Original Issue Date, if no interest has been paid, to but
excluding the related Interest Payment Date or maturity.
With respect to each $1,000 principal amount of notes, accrued interest
is calculated by multiplying the principal amount by an accrued interest
factor. The accrued interest factor is computed by adding the interest factor
calculated for each day in the period for which accrued interest is being
calculated. The interest factor for each day will be computed by dividing the
interest rate applicable to each day by the actual number of days in the year,
as indicated above.
Interest Determination Dates. The interest rate applicable to each
interest reset period commencing on the Interest Reset Date with respect to
that interest reset period will be the rate determined as of the applicable
"Interest Determination Date". The Interest Determination Date with respect to
the notes will be the day in the week in which the related Interest Reset Date
falls on which day Treasury Bills, as defined below, are normally auctioned.
Treasury Bills are normally sold at auction on Monday of each week, unless
that day is a legal holiday, in which case the auction is normally held on the
following Tuesday, except that the auction may be held on the preceding
Friday; provided, however, that if an auction is held on the Friday of the
week preceding the Interest Reset Date, the related Interest Determination
Date will be the preceding Friday.
Maximum and Minimum Interest Rates. If specified above, each $1,000
principal amount of notes may also have either or both of the following:
o a maximum numerical limitation, or ceiling, on the rate at
which interest may accrue during any interest period (a
"Maximum Interest Rate"), and
o a minimum numerical limitation, or floor, on the rate at which
interest may accrue during any period (a "Minimum Interest
Rate").
The notes are issued as a series of debt securities under a senior
indenture, dated as of October 1, 1993, as amended (the "1993 Indenture"),
between ML&Co. and JPMorgan Chase Bank, as trustee. The 1993 Indenture is, and
any notes issued under the 1993 Indenture will be, governed by and construed
in accordance with the laws of the State of New York.
4
Calculation Date. MLPF&S will be the calculation agent. Upon the request
of the holder of the notes, the calculation agent will provide the interest
rate then in effect and, if determined, the interest rate that will become
effective as a result of a determination made for the next Interest Reset Date
with respect to the note. Unless otherwise specified herein, the calculation
date, if applicable, pertaining to any Interest Determination Date will be the
earlier of:
o the tenth calendar day after the applicable Interest
Determination Date, or, if the tenth calendar day is not a
Business Day, the next succeeding Business Day, or
o the Business Day immediately preceding the applicable Interest
Payment Date or maturity, as the case may be.
Treasury Rate. "Treasury Rate" means:
(1) the rate from the auction held on the particular Interest
Determination Date (the "Auction") of direct obligations of the
United States ("Treasury Bills") having the Index Maturity
specified above, under the caption "INVESTMENT RATE" on the
display on Moneyline Telerate or any successor service on page
56 or any other page as may replace page 56 on that service or
page 57 or any other page as may replace page 57 on that
service, or
(2) if the rate referred to in clause (1) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate of Treasury Bills as published in H.15 Daily Update, or
other recognized electronic source used for the purpose of
displaying the applicable rate, under the caption "T- Bill
Auction Average Investment 3 Month", or
(3) if the rate referred to in clause (2) is not published by 3:00
P.M., New York City time, on the related calculation date, the
Bond Equivalent Yield, as defined below, of the auction rate of
the applicable Treasury Bills as announced by the United States
Department of the Treasury, or
(4) if the rate referred to in clause (3) is not announced by the
United States Department of the Treasury, or if the Auction is
not held, the Bond Equivalent Yield of the rate on the
particular Interest Determination Date of the applicable
Treasury Bills as published in H.15(519) under the caption
"U.S. Government Securities/Treasury Bills/Secondary Market",
or
(5) if the rate referred to in clause (4) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the particular Interest Determination Date of the
applicable Treasury Bills as published in H.15 Daily Update, or
other recognized electronic source used for the purpose of
displaying the applicable rate, under the caption "U.S.
Government Securities/Treasury Bills/Secondary Market", or
(6) if the rate referred to in clause (5) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the particular Interest Determination Date calculated
by the calculation agent as the Bond Equivalent Yield of the
arithmetic mean of the secondary market bid rates, as of
approximately 3:30 P.M., New York City time, on that Interest
Determination Date, of three primary United States government
securities dealers, which may include the agent or its
affiliates, selected by the calculation agent, for the issue of
Treasury Bills with a remaining maturity closest to the
particular Index Maturity, or
(7) if the dealers selected by the calculation agent are not
quoting as mentioned in clause (6), the Treasury Rate already
in effect on the particular Interest Determination Date.
5
"Bond Equivalent Yield" means a yield calculated in accordance with the
following formula and expressed as a percentage:
D X N
Bond Equivalent Yield = ---------------- X 100
360-(D x M)
where "D" refers to the applicable per annum rate for Treasury Bills
quoted on a bank discount basis and expressed as a decimal, "N" refers to 365
or 366, as the case may be, and "M" refers to the actual number of days in the
applicable interest period.
UNITED STATES FEDERAL INCOME TAXATION
Under the OID Regulations (as defined in the Prospectus Supplement), the
notes will be treated as providing for stated interest at a single qualified
floating rate. As a result, the notes will constitute variable rate debt
instruments, within the meaning of the OID Regulations. In general, under the
OID Regulations, all stated interest on the notes will constitute qualified
stated interest. In particular, the amount of qualified stated interest that
accrues with respect to a note during any accrual period will be determined
under the rules applicable to fixed rate debt instruments by assuming that the
qualified floating rate (i.e., the Interest Rate Basis plus the Spread) is a
fixed rate equal to the value of the qualified floating rate (i.e., the
Interest Rate Basis plus the Spread) as of the issue date. The qualified
stated interest allocable to an accrual period will be increased (or
decreased) if the interest actually paid during an accrual period exceeds (or
is less than) the interest assumed to be paid during the accrual period
pursuant to the foregoing rules.
Prospective investors should consult the summary describing the
principal U.S. federal income tax consequences of the ownership and
disposition of the notes contained in the section called "United States
Federal Income Taxation" in the accompanying Prospectus Supplement.
6