Subject to Completion
Preliminary Pricing Supplement dated January 20, 2006
PRICING SUPPLEMENT DATED January , 2006 Rule 424(b)(3)
- ---------------------------------------- File No. 333-122639
(To Prospectus Supplement and Prospectus
dated February 25, 2005)
Pricing Supplement Number:
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
Inflation-Linked Notes Linked to the Performance of the
Consumer Price Index due February 10, 2011
(the "Notes")
------------
The Notes are part of a series of senior debt securities entitled
"Medium-Term Notes, Series C" as more fully described in the accompanying
prospectus (which term includes the accompanying prospectus supplement).
Information included in this pricing supplement supersedes information in the
prospectus to the extent it is different from the information included in the
prospectus.
References in this Pricing Supplement to "ML&Co.", "we", "us" and "our"
are to Merrill Lynch & Co., Inc., and references to "MLPF&S" are to Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
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......................... February 10, 2011.
Issue Price.................................. See Plan of Distribution below.
Original Issue Date.......................... February 10, 2006.
Interest Calculation Type.................... Fixed Rate/Floating Rate Note.
The Notes are a "Fixed Rate/Floating Rate Note" which means
the Notes will initially bear interest at the Initial
Interest Rate (as defined below) commencing on, and
including, the Original Issue Date to, but not including,
the first Interest Reset Date (as defined below). Commencing
on, and including, the first Interest Reset Date, the Notes
will bear interest at the rate determined by reference to
the Floating Interest Rate Basis described below.
Day Count Convention......................... Interest will be calculated by multiplying the principal
amount of the Notes by an interest factor. The interest
factor will be computed by dividing the interest rate
applicable to each day by the actual number of days in the
year.
Floating Interest Rate Basis................. [(CPI(t) - CPI(t-12))/CPI(t-12)] x 1.5
but will not be less than 0.00%.
where:
CPI(t) equals the value of the Consumer Price Index (as
defined below) for the third calendar month prior to but not
including the month in which the applicable Interest Reset
Date occurs, and CPI(t-12) equals the value of the Consumer
Price Index for the fifteenth calendar month prior to but
not including the month in which the applicable Interest
Reset Date occurs.
Initial Interest Rate........................ Expected to be between 7.00% to 8.00% per annum.
Maximum Interest Rate........................ None.
Minimum Interest Rate........................ For any interest period, 0.00% per annum.
Interest Payment Dates....................... Monthly, on the 10th day of each month, commencing March 10,
2006, and on the maturity date. If any Interest Payment Date
falls on a day that is not a Business Day, payment will be
made on the immediately succeeding Business Day and no
interest will accrue as a result of the delayed payment.
Interest Reset Dates......................... Monthly, on the 10th day of each month, regardless of
whether such day is a Business Day. The initial Interest
Reset Date is expected to be the 10th day of the month
between 6 months and one year from the Original Issue Date
of the Notes.
CUSIP Number................................. .
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, N.A.
Calculation Agent............................ Merrill Lynch Capital Services, Inc.
All determinations made by the Calculation Agent, 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............................ $
PS-2
Underwriter.................................. Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Underwriting Discount........................ 1.05%
Plan of Distribution......................... The Underwriter has advised us that it proposes to offer all
or part of the Notes in one or more transactions at varying
prices related to market conditions at the time of sale.
Business Day................................. "Business Day" means any day other than a Saturday or Sunday
that is not a day on which banking institutions in The City
of New York are authorized or obligated by law, regulation
or executive order to close.
PS-3
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 risk
described in the accompanying prospectus supplement, before deciding whether
an investment in the Notes is suitable for you.
Structure risks of Notes indexed to the Consumer Price Index
The interest payable on the Notes while the Floating Interest Rate Basis
is in effect is indexed to the performance of the Consumer Price Index over
twelve month periods. As a result, the possibility exists that during the time
the Floating Interest Rate Basis is in effect you could receive little or no
interest on a given Interest Payment Date. The Consumer Price Index is likely
to increase only slightly or decrease during periods of deflation or little or
no inflation. 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 such events and their results. In recent
years, values of certain indices such as the Consumer Price Index have been
volatile and such volatility may be expected in the future. However, past
experience is not necessarily indicative of what may occur in the future.
Your yield may be lower than the yield on a standard debt security of
comparable maturity
The yield that you will receive on your Notes may be less than the return
you could earn on other investments. Your yield may be less than the yield you
would earn if you bought a traditional interest bearing debt security of
ML&Co. with the same maturity date. Your investment may not reflect the full
opportunity cost to you when you take into account factors that affect the
time value of money.
CONSUMER PRICE INDEX
The amount of interest payable on the Notes will be linked to changes in
the Consumer Price Index. The "Consumer Price Index" for purposes of the Notes
is the nonseasonally adjusted U.S. City Average All Items Consumer Price Index
for All Urban Consumers, published monthly by the Bureau of Labor Statistics
of the U.S. Department of Labor. The Consumer Price Index is expressed in
relative terms in relation to the 1982-1984 time base reference period for
which the level of Consumer Price Index was set at 100. The Consumer Price
Index for any given month is published during the following month.
The Consumer Price Index is a measure of the average change in consumer
prices over time for a fixed market basket of goods and services, including
food, clothing, shelter, fuels, transportation, charges for doctors and
dentists services, and drugs. In calculating the Consumer Price Index, price
changes for the various items are averaged together with weights that
represent their importance in the spending of urban households in the United
States. The contents of the market basket of goods and services and the
weights assigned to the various items are updated periodically by the Bureau
of Labor Statistics to take into account changes in consumer expenditure
patterns.
The value of the Consumer Price Index for any given month will be the
value reported on Bloomberg page CPURNSA or any successor service or successor
page thereto. If the relevant values for the Consumer Price Index are not
available on Bloomberg page CPURNSA or on a successor page or successor
service on or before any Interest Reset Date, such value will be determined in
the sole discretion of the Calculation Agent.
PS-4
The following table sets forth the value of the Consumer Price Index from
January 2000 to December 2005, as reported by the Bureau of Labor Statistics
and reported on Bloomberg page CPURNSA. This historical data is presented for
informational purposes only. Past movements of the Consumer Price Index is not
necessarily indicative of future values.
- -------------------- ------------- ------------- ------------- ------------- ------------- -------------
2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ----
- -------------------- ------------- ------------- ------------- ------------- ------------- -------------
January 168.8 175.1 177.1 181.7 185.2 190.7
- -------------------- ------------- ------------- ------------- ------------- ------------- -------------
February 169.8 175.8 177.8 183.1 186.2 191.8
- -------------------- ------------- ------------- ------------- ------------- ------------- -------------
March 171.2 176.2 178.8 184.2 187.4 193.3
- -------------------- ------------- ------------- ------------- ------------- ------------- -------------
April 171.3 176.9 179.8 183.8 188.0 194.6
- -------------------- ------------- ------------- ------------- ------------- ------------- -------------
May 171.5 177.7 179.8 183.5 189.1 194.4
- -------------------- ------------- ------------- ------------- ------------- ------------- -------------
June 172.4 178.0 179.9 183.7 189.7 194.5
- -------------------- ------------- ------------- ------------- ------------- ------------- -------------
July 172.8 177.5 180.1 183.9 189.4 195.4
- -------------------- ------------- ------------- ------------- ------------- ------------- -------------
August 172.8 177.5 180.7 184.6 189.5 196.4
- -------------------- ------------- ------------- ------------- ------------- ------------- -------------
September 173.7 178.3 181.0 185.2 189.9 198.8
- -------------------- ------------- ------------- ------------- ------------- ------------- -------------
October 174.0 177.7 181.3 185.0 190.9 199.2
- -------------------- ------------- ------------- ------------- ------------- ------------- -------------
November 174.1 177.4 181.3 184.5 191.0 197.6
- -------------------- ------------- ------------- ------------- ------------- ------------- -------------
December 174.0 176.7 180.9 184.3 190.3 196.8
- -------------------- ------------- ------------- ------------- ------------- ------------- -------------
To illustrate the Floating Interest Rate Basis applicable to the Notes,
assuming January 1, 2006 were an Interest Reset Date, based on the historical
information presented in the table above, the per annum interest rate
applicable to the Notes until the next Interest Reset Date would have been
6.52%, calculated as follows:
199.2 minus 190.9 = 8.3
8.3 divided by 190.9 = .0434783
4.34783% multiplied by 1.5 =6.52%
In accordance with the formula used in determining the Floating Interest
Rate Basis, the October 2005 and October 2004 values of the Consumer Price
Index were used in the calculating the above example.
PS-5
UNITED STATES FEDERAL INCOME TAXATION
The following discussion supplements and, to the extent that it is
inconsistent with, replaces the discussion contained in the accompanying
Prospectus Supplement in the section entitled "United States Federal Income
Taxation".
Classification of the Notes
We have received an opinion from our counsel, Sidley Austin LLP, that the
Notes will be treated as indebtedness for United States federal income tax
purposes and that the Notes will be subject to the special regulations issued
by the U.S. Treasury Department governing contingent payment debt instruments
(the "CPDI Regulations").
Accrual of Interest on the Notes
Pursuant to the CPDI Regulations, U.S. Holders of the Notes will be
required to accrue interest income on the Notes, in the amounts described
below, regardless of whether the U.S. Holder uses the cash or accrual method
of tax accounting.
The CPDI Regulations provide that a U.S. Holder must accrue an amount of
ordinary interest income, as original issue discount for United States federal
income tax purposes, for each accrual period occurring prior to and including
the Stated Maturity Date of the Notes that equals:
(1) the product of (i) the adjusted issue price (as defined below) of
the Notes as of the beginning of the accrual period; and (ii) the
comparable yield to maturity (as defined below) of the Notes,
adjusted for the length of the accrual period;
(2) divided by the number of days in the accrual period; and
(3) multiplied by the number of days during the accrual period that the
U.S. Holder held the Notes.
A Note's issue price is the first price to the public at which a
substantial amount of the Notes are sold, excluding sales to bond houses,
brokers or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers. The adjusted issue price of a
Note is its issue price increased by any interest income previously accrued,
determined without regard to any adjustments to interest accruals described
below, and decreased by the amount of any projected payments, as defined
below, previously scheduled to have been made with respect to the Notes.
The CPDI Regulations require that we provide to U.S. Holders, solely for
United States federal income tax purposes, a schedule of the projected amounts
of payments, which we refer to as projected payments, on the Notes. This
schedule must produce the comparable yield. Solely for purposes of applying
the CPDI Regulations to the Notes, ML&Co. has determined that the projected
payments for the Notes consist of (i) monthly fixed payments of interest
calculated by reference to the Initial Interest Rate on each Interest Payment
Date up to, and including July 10, 2006, (ii) estimates of the monthly
floating payments of interest calculated by reference to the Floating Interest
Rate Basis on each Interest Payment Date occurring after July 10, 2006, and
(iii) a payment on the Stated Maturity Date of the principal amount thereof.
In addition, ML&Co. has determined that the comparable yield for the Notes is
4.49%, compounded monthly. U.S. Holders may obtain the projected payment
schedule by submitting a written request for such information to Merrill Lynch
& Co., Inc., Corporate Secretary's Office, 222 Broadway, 17th Floor, New York,
New York 10038 or to corporatesecretary@exchange.ml.com.
For United States federal income tax purposes, a U.S. Holder must use the
comparable yield and the schedule of projected payments in determining its
interest accruals, and the adjustments thereto described below, in respect of
the Notes, unless a U.S. Holder timely discloses and justifies the use of
other estimates to the Internal Revenue Service (the "IRS"). A U.S. Holder
that determines its own comparable yield or schedule of projected payments
must also establish that our comparable yield or schedule of projected
payments is unreasonable.
PS-6
The comparable yield and the schedule of projected payments are not
determined for any purpose other than for the determination of a U.S. Holder's
interest accruals and adjustments thereof in respect of the Notes for United
States federal income tax purposes and do not constitute a projection or
representation regarding the actual amounts payable on the Notes.
Amounts treated as interest under the CPDI Regulations are treated as
original issue discount for all purposes of the Code.
Adjustments to Interest Accruals on the Notes
If, during any taxable year, a U.S. Holder receives actual payments with
respect to the Notes for that taxable year that in the aggregate exceed the
total amount of projected payments for that taxable year, the U.S. Holder will
incur a "net positive adjustment" under the CPDI Regulations equal to the
amount of that excess. The U.S. Holder will treat a "net positive adjustment"
as additional interest income for the taxable year.
If a U.S. Holder receives in a taxable year actual payments with respect
to the Notes for that taxable year that in the aggregate were less than the
amount of projected payments for that taxable year, the U.S. Holder will incur
a "net negative adjustment" under the CPDI Regulations equal to the amount of
such deficit. This adjustment will (a) reduce the U.S. Holder's interest
income on the Notes for that taxable year, and (b) to the extent of any excess
after the application of (a), give rise to an ordinary loss to the extent of
the U.S. Holder's interest income on the Notes during prior taxable years,
reduced to the extent that interest was offset by prior net negative
adjustments.
Sale, Exchange or Redemption of the Notes
Generally, the sale, exchange or redemption of a Note will result in
taxable gain or loss to a U.S. Holder. The amount of gain or loss on a taxable
sale, exchange or redemption will be equal to the difference between (a) the
amount realized by the U.S. Holder on that sale, exchange or redemption and
(b) the U.S. Holder's adjusted tax basis in the Notes. A U.S. Holder's
adjusted tax basis in a Note on any date will generally be equal to the U.S.
Holder's original purchase price for the Note, increased by any interest
income previously accrued by the U.S. Holder (determined without regard to any
adjustments to interest accruals described above), and decreased by the amount
of any projected payments (as defined above) previously made to the U.S.
Holder through that date. Gain recognized upon a sale, exchange or redemption
of a Note will generally be treated as ordinary interest income; any loss will
be ordinary loss to the extent of interest previously included in income, and
thereafter, capital loss (which will be long-term if the Note is held for more
than one year as of the date of the disposition). The deductibility of net
capital losses by individuals and corporations is subject to limitations.
Prospective investors should also consult the summary describing the
principal U.S. federal income tax consequences of the ownership and
disposition of the Notes contained in the section entitled "United States
Federal Income Taxation" in the accompanying Prospectus Supplement.
PS-7