Subject to Completion
Preliminary Pricing Supplement dated May 23, 2006
PRICING SUPPLEMENT DATED June , 2006
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(To the MTN prospectus supplement, general prospectus supplement and
prospectus each dated March 31, 2006)
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 June , 2011
(the "Notes")
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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 MTN prospectus supplement,
general prospectus supplement and prospectus). 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 on page PS-4 of this pricing supplement and PS-3 of the
accompanying MTN prospectus supplement.
Aggregate Principal Amount...................
Stated Maturity Date......................... June , 2011.
Issue Price.................................. See Plan of Distribution below.
Original Issue Date.......................... June , 2006. Depending on the date the Notes are priced for
initial sale to the public (the "Pricing Date"), which may be in
May or June, the settlement date may occur in May instead of June,
the initial Interest Reset Date (as defined below) may occur in
November instead of December and the maturity date may occur in
May instead of June.
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........................ Between 9.00% and 11.00% per annum until the Interest Reset Date
in December 2006. The actual rate will be determined on the
Pricing Date and set forth in the final pricing supplement related
to the Notes. See "Interest Reset Dates" below.
Maximum Interest Rate........................ None.
Minimum Interest Rate........................ For any interest period (other than the initial interest period),
0.00% per annum.
Interest Payment Dates....................... Monthly, on the day of each month, commencing July , 2006,
and on the Stated 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 day of each month, commencing on December ,
2006. The actual Interest Reset Dates will be set out in the final
pricing supplement relating to 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.
PS-2
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); provided that the
applicable Interest Rate will be rounded to one-hundredth of
a percentage point. 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............................
Underwriter.................................. Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Plan of Distribution......................... The Underwriter will purchase the Notes for 100% of the principal
amount of the Notes and 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 MTN 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, except for the period from the
Original Issue Date to but excluding the initial Interest Reset Date, is
indexed to the performance of the Consumer Price Index over successive 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.
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.
The initial interest rate may not be indicative of the rate you will receive
after the initial Interest Rate Date
The interest payable on the Notes until the first Interest Reset Date
will be at least 9.00%. The actual rate will be determined on the Pricing Date
and set forth in the final pricing supplement related to the Notes. This fixed
rate will be higher than the interest rate that would be applicable if the
Floating Interest Rate Basis was in effect on May 23, 2006. (See the
calculation below.)
A trading market for the Notes is not expected to develop and if trading does
develop, the market price you may receive or be quoted for your Notes on a
date prior to the stated maturity date will be affected by this and other
important factors including our costs of developing, hedging and distributing
the Notes
The Notes will not be listed on any securities exchange and we do
not expect a trading market for the Notes to develop. Although our affiliate
MLPF&S has indicated that it currently expects to bid for Notes offered for
sale to it by holders of the Notes, it is not required to do so and may cease
making those bids at any time. In addition, while we describe in this pricing
supplement how you can calculate the interest rate on the Notes after the
initial Interest Reset Date from publicly available information, we will not
publish such rate over the term of the Notes and this may limit the trading
market for the Notes. The limited trading market for your Notes may affect the
price that you receive for your Notes if you do not wish to hold your
investment until the maturity date.
If MLPF&S makes a market in the Notes, the price it quotes would
reflect any changes in market conditions and other relevant factors. In
addition, the price, if any, at which you could sell your Notes in a secondary
market transaction is expected to be affected by the factors that we
considered in setting the economic terms of the Notes, namely the underwriting
discount paid in respect of the Notes and other costs associated with the
Notes, including compensation for developing and hedging the product. This
quoted price could be higher or lower than the principal amount. Furthermore,
there is no assurance that MLPF&S or any other party will be willing to buy
the Notes. MLPF&S is not obligated to make a market in the Notes.
Assuming the rate of return on the Notes is constant over the term
of the Notes and there is no change in market conditions or any other relevant
factors, the price, if any, at which MLPF&S or another purchaser might be
willing to purchase your Notes in a secondary market transaction is expected
to be lower than the principal amount. This is due to, among other things, the
fact that the principal amount included, and secondary market prices are
PS-4
likely to exclude, underwriting discount paid with respect to, and the
developing and hedging costs associated with, the Notes.
Many factors affect the trading value of the Notes; these factors interrelate
in complex ways and the effect of any one factor may offset or magnify the
effect of another factor
The trading value of the Notes will be affected by factors that
interrelate in complex ways. The effect of one factor may offset the increase
in the trading value of the Notes caused by another factor and the effect of
one factor may exacerbate the decrease in the trading value of the Notes
caused by another factor. The following paragraphs describe the expected
impact on the trading value of the Notes given a change in a specific factor,
assuming all other conditions remain constant.
Changes in the volatility of interest rates are expected to affect
the trading value of the Notes. Volatility is the term used to describe the
size and frequency of price and/or market fluctuations. If the volatility of
interest rates increases or decreases, the trading value of the Notes may be
adversely affected.
As the time remaining to the stated maturity date of the Notes
decreases, the "time premium" associated with the Notes is expected to
decrease. We anticipate that before their stated maturity date, the Notes may
trade at a value above that which would be expected based on the level of
interest rates. This difference will reflect a "time premium" due to
expectations concerning the level of in interest rates during the period
before the stated maturity date of the Notes. However, as the time remaining
to the stated maturity date of the Notes decreases, we expect that this time
premium will decrease, lowering the trading value of the Notes.
Changes in our credit ratings may affect the trading value of the
Notes. Our credit ratings are an assessment of our ability to pay our
obligations. Consequently, real or anticipated changes in our credit ratings
may affect the trading value of the Notes. However, because the return on your
Notes is dependent upon factors in addition to our ability to pay our
obligations under the Notes, such as the percentage increase, if any, in the
level of the Consumer Price Index over the term of the Notes, an improvement
in our credit ratings will not reduce the other investment risks related to
the Notes.
In general, assuming all relevant factors are held constant, we
expect that the effect on the trading value of the Notes of a given change in
some of the factors listed above will be less if it occurs later in the term
of the Notes than if it occurs earlier in the term of the Notes. We expect,
however, that the effect on the trading value of the Notes of a given change
in the level of the Consumer Price Index will be greater if it occurs later in
the term of the Notes than if it occurs earlier in the term of the Notes.
Potential conflicts of interest could arise
Our subsidiary Merrill Lynch Capital Services, Inc. is our agent for
the purposes of calculating the interest payable on each Interest Payment
Date. Under certain circumstances, Merrill Lynch Capital Services, Inc. as our
subsidiary and its responsibilities as Calculation Agent for the Notes could
give rise to conflicts of interest. These conflicts could occur, for instance,
in connection with judgments that it would be required to make in the event of
a discontinuance or unavailability of the Consumer Price Index. Merrill Lynch
Capital Services, Inc. is required to carry out its duties as Calculation
Agent in good faith and using its reasonable judgment. However, because we
control Merrill Lynch Capital Services, Inc., potential conflicts of interest
could arise.
We expect to enter into arrangements to hedge the market risks
associated with our obligation to pay the interest on each Interest Payment
Date and principal due on the maturity date on the Notes. We may seek
competitive terms in entering into the hedging arrangements for the Notes, but
are not required to do so, and we may enter into such hedging arrangements
with one of our subsidiaries or affiliated companies. Such hedging activity is
expected to result in a profit to those engaging in the hedging activity,
which could be more or less than initially expected, but which could also
result in a loss for the hedging counterparty.
Tax consequences
You should consider the tax consequences of investing in the Notes.
See the section entitled "United States Federal Income Taxation" in this
pricing supplement.
PS-5
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.
The following table sets forth the value of the Consumer Price Index
from January 2001 to April 2006, 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 are
not necessarily indicative of future values.
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2001 2002 2003 2004 2005 2006
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January 175.1 177.1 181.7 185.2 190.7 198.3
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February 175.8 177.8 183.1 186.2 191.8 198.7
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March 176.2 178.8 184.2 187.4 193.3 199.8
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April 176.9 179.8 183.8 188.0 194.6 201.5
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May 177.7 179.8 183.5 189.1 194.4
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June 178.0 179.9 183.7 189.7 194.5
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July 177.5 180.1 183.9 189.4 195.4
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August 177.5 180.7 184.6 189.5 196.4
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September 178.3 181.0 185.2 189.9 198.8
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October 177.7 181.3 185.0 190.9 199.2
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November 177.4 181.3 184.5 191.0 197.6
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December 176.7 180.9 184.3 190.3 196.8
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To illustrate the Floating Interest Rate Basis applicable to the
Notes, assuming May 23, 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 5.40%, calculated as follows:
198.7 minus 191.8 = 6.9
6.9 divided by 191.8 = .0359750
3.59750% multiplied by 1.5 = 5.40%
In accordance with the formula used in determining the Floating
Interest Rate Basis, the February 2006 and February 2005 values of the
Consumer Price Index were used in calculating the above example.
PS-6
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 MTN
prospectus supplement contained under 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, a U.S. Holder 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 December , 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 December ,
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 %, 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-7
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 or Exchange of the Notes
Generally, the sale or exchange 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 or
exchange will be equal to the difference between (a) the amount realized by
the U.S. Holder on that sale or exchange and (b) the U.S. Holder's adjusted
tax basis in the Note. 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 or exchange 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 purchase, ownership and
disposition of the Notes contained in the section entitled "United States
Federal Income Taxation" in the accompanying MTN prospectus supplement.
PS-8