Subject to Completion
Preliminary Pricing Supplement dated June 2, 2006
PRICING SUPPLEMENT
(To MTN prospectus supplement,
general prospectus supplement [LOGO OMITTED}
and prospectus each dated
March 31, 2006)
Pricing Supplement Number:
Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
Accelerated Return Bear Market Notes
Linked to the S&P 500(R) Index
due March , 2007
(the "Notes")
$10 original public offering price per unit
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The Notes: Payment on the maturity date:
o The Notes are designed for investors who believe that the level o The amount you receive on the maturity date will be based
of the S&P 500 Index (index symbol "SPX") will decrease over upon the direction of and percentage change in the level
the term of the Notes and who are willing to risk losing up to of the S&P 500 Index over the term of the Notes:
$2.00 per unit if the level of the Index increases over the
term of the Notes. Investors must be willing to forego interest o If the value of the S&P 500 Index has decreased, on the
payments on the Notes prior to the maturity date and accept a maturity date you will receive a payment per unit equal
return that will not exceed the limit described in this pricing to $10.00 plus an amount equal to $10.00 multiplied by
supplement. triple the percentage decrease of the S&P 500 Index, up
to a maximum total payment which will be between $13.00
o There will be no payments prior to the maturity date and we and $13.40 per unit, as described in this pricing
cannot redeem the Notes prior to the maturity date. supplement.
o The Notes will not be listed on any securities exchange. o If the value of the S&P 500 Index has increased, your
original investment will be reduced based upon that
o The Notes will be senior unsecured debt securities of Merrill percentage increase. In no event, however, will you
Lynch & Co., Inc. and part of a series entitled "Medium-Term receive less than $8.00 per unit.
Notes, Series C". The Notes will have the CUSIP
No.: .
o The settlement date for the Notes is expected to be June , 2006.
Information included in this pricing supplement supersedes information in
the accompanying MTN prospectus supplement, general prospectus supplement and
prospectus to the extent that it is different from that information.
Investing in the Notes involves risks that are described in the "Risk
Factors" section beginning on page PS-7 of this pricing supplement and page
S-3 of the accompanying MTN prospectus supplement.
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Per Unit Total
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Public offering price(1)......................................... $10.00 $
Underwriting discount............................................ $.15 $
Proceeds, before expenses, to Merrill Lynch & Co., Inc........... $9.85 $
(1) The public offering price and the selling concession for any single transaction to
purchase between 100,000 to 299,999 units will be $9.95 per unit and $.10 per unit,
respectively, for any single transaction to purchase 300,000 units or more will be $9.90
per unit and $.05 per unit, respectively.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this pricing supplement or the accompanying MTN prospectus supplement, general
prospectus supplement and prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
---------------
Merrill Lynch & Co.
---------------
The date of this pricing supplement is June , 2006.
"Standard and Poor's(R)", "Standard and Poor's 500", "S&P 500(R)" and S&P(R)
are trademarks of The McGraw Hill Companies, Inc. and have been licensed for
use by Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch
and Co., Inc. is an authorized sublicense.
TABLE OF CONTENTS
Pricing Supplement
SUMMARY INFORMATION--Q&A..................................................PS-3
RISK FACTORS..............................................................PS-7
DESCRIPTION OF THE NOTES.................................................PS-10
THE INDEX................................................................PS-16
UNITED STATES FEDERAL INCOME TAXATION....................................PS-20
ERISA CONSIDERATIONS.....................................................PS-24
USE OF PROCEEDS AND HEDGING..............................................PS-25
SUPPLEMENTAL PLAN OF DISTRIBUTION........................................PS-25
EXPERTS..................................................................PS-25
INDEX OF CERTAIN DEFINED TERMS...........................................PS-26
Medium-Term Notes, Series C Prospectus Supplement
(the "MTN prospectus supplement")
RISK FACTORS...............................................................S-3
DESCRIPTION OF THE NOTES...................................................S-4
UNITED STATES FEDERAL INCOME TAXATION.....................................S-22
PLAN OF DISTRIBUTION......................................................S-29
VALIDITY OF THE NOTES.....................................................S-30
Debt Securities, Warrants, Preferred Stock,
Depositary Shares and Common Stock Prospectus Supplement
(the "general prospectus supplement")
Merrill Lynch & Co., Inc..................................................S-3
Use of Proceeds...........................................................S-3
Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends......................S-4
The Securities............................................................S-4
Description of Debt Securities............................................S-5
Description of Debt Warrants.............................................S-16
Description of Currency Warrants.........................................S-18
Description of Index Warrants............................................S-20
Description of Preferred Stock...........................................S-25
Description of Depositary Shares.........................................S-32
Description of Preferred Stock Warrants..................................S-36
Description of Common Stock..............................................S-38
Description of Common Stock Warrants.....................................S-42
Plan of Distribution.....................................................S-44
Where You Can Find More Information......................................S-45
Incorporation of Information We File With the SEC........................S-46
Experts ................................................................S-46
Prospectus
Where You Can Find More Information.........................................2
Incorporation of Information We File With the SEC...........................2
Experts ...................................................................2
PS-2
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SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this pricing supplement and the accompanying MTN prospectus
supplement, general prospectus supplement and prospectus to help you
understand the Accelerated Return Bear Market Notes Linked to the S&P 500
Index due March , 2007 (the "Notes"). You should carefully read this pricing
supplement, the accompanying MTN prospectus supplement, general prospectus
supplement and prospectus to fully understand the terms of the Notes, the S&P
500 Index (the "Index") and the tax and other considerations that are
important to you in making a decision about whether to invest in the Notes.
You should carefully review the "Risk Factors" section in this pricing
supplement and the accompanying MTN prospectus supplement, which highlights
certain risks associated with an investment in the Notes, to determine whether
an investment in the Notes is appropriate for you.
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.
What are the Notes?
The Notes will be part of a series of senior debt securities issued by
ML&Co. entitled "Medium-Term Notes, Series C" and will not be secured by
collateral. The Notes will rank equally with all of our other unsecured and
unsubordinated debt. The Notes will mature on March , 2007. Depending on the
date the Notes are priced for initial sale to the public (the "Pricing Date"),
which may be any time in June, the settlement date may occur in July instead
of June and the maturity date may occur in April instead of March. Any
reference in this pricing supplement to the month in which the settlement date
or maturity date will occur is subject to change as specified above. We cannot
redeem the Notes at an earlier date. We will not make any payments on the
Notes until the maturity date.
Each unit will represent a single Note with a $10 original public
offering price. You may transfer the Notes only in whole units. You will not
have the right to receive physical certificates evidencing your ownership
except under limited circumstances. Instead, we will issue the Notes in the
form of a global certificate, which will be held by The Depository Trust
Company, also known as DTC, or its nominee. Direct and indirect participants
in DTC will record your ownership of the Notes. You should refer to the
section entitled "Description of Debt Securities--Depositary" in the
accompanying general prospectus supplement.
Are there any risks associated with my investment?
Yes, an investment in the Notes is subject to risks, including the risk
of loss of some amount of principal. Please refer to the section entitled
"Risk Factors" in this pricing supplement and the accompanying MTN prospectus
supplement.
Who publishes the Index and what does the Index measure?
The S&P 500 Index is published by Standard and Poor's, a division of The
McGraw-Hill Companies, Inc. ("Standard & Poor's" or "S&P") and is intended to
provide an indication of the pattern of common stock price movement. The value
of the Index is based on the relative value of the aggregate market value of
the common stocks of 500 companies as of a particular time compared to the
aggregate market value of the common stocks of 500 similar companies during
the base period of the years 1941 through 1943. As of April 28, 2006, 424
companies, or 85.8% of the market capitalization of the Index, traded on the
New York Stock Exchange ("NYSE"); 76 companies, or 14.2% of the market
capitalization of the Index traded on The Nasdaq National Market ("Nasdaq");
and no companies traded on the American Stock Exchange ("AMEX"). Standard and
Poor's chooses companies for inclusion in the Index with the aim of achieving
a distribution by broad industry groupings that approximates the distribution
of these groupings in the common stock population of the Standard & Poor's
Stock Guide Database, which Standard & Poor's uses as an assumed model for the
composition of the total market. For more information on the Index, please see
the section entitled "The Index" in this pricing supplement.
An investment in the Notes does not entitle you to any dividends, voting
rights, or any other ownership interest in the stocks of the companies
included in the Index.
How has the Index performed historically?
We have included a graph showing the year-end closing levels of the Index
for each year from 1946 to 2005 and a table and a graph showing the historical
month-end closing levels of the Index from January 2001 through May 2006, in
the section
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PS-3
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entitled "The Index--Historical Data on the Index" in this pricing supplement.
We have provided this historical information to help you evaluate the behavior
of the Index in various economic environments; however, past performance of
the Index is not necessarily indicative of how the Index will perform in the
future.
What will I receive on the maturity date of the Notes?
On the maturity date, you will receive a cash payment per unit equal to
the Redemption Amount.
The "Redemption Amount" to which you will be entitled will depend on the
direction of and percentage change in the level of the Index over the term of
the Notes and will equal: (i) If the Ending Value is greater than the Starting
Value, the greater of:
(a) $8.00 per unit; or
( ( Ending Value-Starting Value ) )
(b) $10 - ( $10 x ( --------------------------- ) );
( ( Starting Value ) )
(ii) If the Ending Value is equal to or less than the Starting Value:
( ( Starting Value-Ending Value ) )
$10 + ( $30 x ( --------------------------- ) );
( ( Starting Value ) )
provided, however, the Redemption Amount will not exceed an amount which will
be between $13.00 and $13.40 per unit (the "Capped Value"). The actual Capped
Value will be determined on the Pricing Date and will be set forth in the
final pricing supplement made available in connection with sales of the Notes.
The "Starting Value" will equal the closing level of the Index on the
Pricing Date. The actual Starting Value will be set forth in the final pricing
supplement made available in connection with sales of the Notes.
The "Ending Value" means the average of the levels of the Index at the
close of the market on five business days shortly before the maturity date of
the Notes. We may calculate the Ending Value by reference to fewer than five
or even a single day's closing level if, during the period shortly before the
maturity date of the Notes, there is a disruption in the trading of a
sufficient number of stocks included in the Index or certain futures or
options contracts relating to the Index.
The opportunity to participate in the possible decreases in the level of
the Index through an investment in the Notes is limited because the amount
that you receive on the maturity date will never exceed the Capped Value,
which will represent an appreciation of 30.00% to 34.00% over the $10 original
public offering price per unit of the Notes, depending on the Capped Value.
However, in the event that the level of the Index increases over the term of
the Notes, the amount you receive on the maturity date will be proportionately
less than the $10 original public offering price of the Notes. As a result,
you may receive less than the $10 original public offering price per unit. In
no event, however, will you receive less than $8.00 per unit.
For more specific information about the Redemption Amount, please see the
section entitled "Description of the Notes" in this pricing supplement.
Will I receive interest payments on the Notes?
You will not receive any interest payments on the Notes, but you will
receive the Redemption Amount on the maturity date. We have designed the Notes
for investors who are willing to forego interest payments on the Notes, such
as fixed or floating interest rates paid on traditional interest bearing debt
securities, and willing to accept a return that will not exceed the Capped
Value, in exchange for the ability to participate in changes in the level of
the Index over the term of the Notes.
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PS-4
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Examples
Set forth below are three examples of Redemption Amount calculations,
assuming a Capped Value of $13.20, the midpoint of the range of $13.00 and
$13.40.
Example 1--The hypothetical Ending Value is 170% of the hypothetical
Starting Value:
Hypothetical Starting Value: 1258.57
Hypothetical Ending Value: 2139.57
( ( 2139.57 - 1258.57 ) )
$10 - ( $10 x ( ----------------- ) ) = $3
( ( 1258.57 ) )
(Redemption
Amount cannot be
Redemption Amount (per unit) = $8 less than $8.00)
Example 2--The hypothetical Ending Value is 110% of the hypothetical
Starting Value:
Hypothetical Starting Value: 1258.57
Hypothetical Ending Value: 1384.43
( ( 1384.43 - 1258.57 ) )
$10 - ( $10 x ( ----------------- ) ) = $9
( ( 1258.57 ) )
Redemption Amount (per unit) = $9
Example 3--The hypothetical Ending Value is 95% of the hypothetical Starting
Value:
Hypothetical Starting Value: 1258.57
Hypothetical Ending Value: 1195.64
( ( 1258.57 - 1195.64 ) )
$10 + ( $30 x ( ----------------- ) ) = $11.50
( ( 1258.57 ) )
Redemption Amount (per unit) = $11.50
Example 4--The hypothetical Ending Value is 70% of the hypothetical Starting
Value:
Hypothetical Starting Value: 1258.57
Hypothetical Ending Value: 881.00
( ( 1258.57 - 881.00 ) )
$10 + ( $30 x ( ---------------- ) ) = $19
( ( 1258.57 ) )
(Redemption Amount
Redemption Amount (per unit) = $13.20 cannot be greater
than Capped Value)
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What about taxes?
You will generally be required to pay taxes on income or gain from the
Notes based upon your regular method of tax accounting. If you are a cash
method taxpayer, you generally should be required to include in income any
amount payable in excess of the principal amount of the Notes as ordinary
interest on the date such payment is received. If you are an accrual method
taxpayer, you generally should be required to accrue income over the term of
the Notes even though you will not receive any payments until the maturity
date of the Notes. For further information, see "United States Federal Income
Taxation" in this pricing supplement.
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PS-5
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Will the Notes be listed on a stock exchange?
The Notes will not be listed on any securities or futures exchange and we
do not expect a trading market for the Notes to develop, which may affect the
price that you receive for your Notes upon any sale prior to the maturity
date. You should review the section entitled "Risk Factors--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 maturity date will be affected by this and other important factors
including our costs of developing, hedging and distributing the Notes" in this
pricing supplement.
What price can I expect to receive if I sell the Notes prior to the stated
maturity date?
In determining the economic terms of the Notes, and consequently the
potential return on the Notes to you, a number of factors are taken into
account. Among these factors are certain costs associated with creating,
hedging and offering the Notes. In structuring the economic terms of the
Notes, we seek to provide investors with what we believe to be commercially
reasonable terms and to provide MLPF&S with compensation for its services in
developing the securities.
If you sell your Notes prior to the stated maturity date, you will
receive a price determined by market conditions for the security. This price
may be influenced by many factors, such as interest rates, volatility and the
current level of the Index. 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
compensation for developing and hedging the product. Depending on the impact
of these factors, you may receive significantly less than the principal amount
of your Notes if sold before the stated maturity date.
In a situation where there had been no movement in the level of the Index
and no changes in the market conditions from those existing on the date of
this pricing supplement, the price, if any, at which you could sell your Notes
in a secondary market transaction is expected to be lower than the original
issue price. This is due to, among other things, our costs of developing,
hedging and distributing the Notes. Any potential purchasers of your Notes in
the secondary market are unlikely to consider these factors.
What is the role of MLPF&S?
Our subsidiary MLPF&S is the underwriter for the offering and sale of the
Notes. After the initial offering, MLPF&S intends to buy and sell Notes to
create a secondary market for holders of the Notes, and may stabilize or
maintain the market price of the Notes during their initial distribution.
However, MLPF&S will not be obligated to engage in any of these market
activities or continue them once it has started.
MLPF&S will also be our agent for purposes of calculating, among other
things, the Ending Value and the Redemption Amount (in such capacity, the
"Calculation Agent"). Under certain circumstances, these duties could result
in a conflict of interest between MLPF&S as our subsidiary and its
responsibilities as Calculation Agent.
What is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various subsidiaries
and affiliated companies that provide investment, financing, insurance and
related services on a global basis.
For information about ML&Co., see the section entitled "Merrill Lynch &
Co., Inc." in the accompanying general prospectus supplement. You should also
read other documents ML&Co. has filed with the Securities and Exchange
Commission, which you can find by referring to the sections entitled "Where
You Can Find More Information" in the accompanying general prospectus
supplement and prospectus.
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PS-6
RISK FACTORS
Your investment in the Notes will involve risks. You should carefully
consider the following discussion of risks and the discussion of risks
included in the accompanying MTN prospectus supplement before deciding whether
an investment in the Notes is suitable for you.
Your investment may result in a loss
We will not repay you a fixed amount of principal on the Notes on the
maturity date. The Redemption Amount will depend on the direction of and
percentage change in the level of the Index. Because the level of the Index is
subject to market fluctuations, the Redemption Amount you receive may be less
than the $10 original public offering price per unit of the Notes. If the
Ending Value is greater than the Starting Value, the Redemption Amount will be
less than the $10 original public offering price per unit of the Notes. As a
result, you may receive less than the $10 original public offering price per
unit. The amount you receive on the maturity date will, however, never be less
than $8.00 per unit.
Your yield may be lower than the yield on other debt securities of comparable
maturity
The yield that you will receive on your Notes, which could be negative,
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 stated 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. Unlike traditional
interest bearing debt securities, the Notes do not guarantee the return of a
principal amount on the maturity date.
You must rely on your own views of the prospect of the U.S. equity market as
represented by the Index
In the ordinary course of their businesses, affiliates of ML&Co. from
time to time express views on expected movements in the U.S. equity market.
These views are sometimes communicated to clients who participate in the
equity markets. Our affiliates are not currently predicting a decline in the
Index over the term of the Notes, and therefore shorting the Index is not an
investment strategy that is generally encouraged by our affiliates. However,
the future direction of the U.S. stock market, including the Index, will
depend upon complex economic, political and other developments as to which
investment professionals may take widely varying views. Consequently, other
investment professionals may have different views from those of our affiliates
regarding the expected movement of the Index over the term of the Notes. In
connection with your purchase of the Notes, you should rely on your own views
of the prospect of the U.S. equity market as represented by the Index. The
Notes are being offered for investors who believe that the Index will decline
over the term of the Notes. Our offer of the Notes does not represent an
investment recommendation by Merrill Lynch or any of its affiliates.
Your return on the Notes is limited and will not reflect the return on an
investment in the stocks included the Index
The opportunity to participate in the possible decreases in the level of
the Index through an investment in the Notes is limited because the Redemption
Amount will never exceed the Capped Value, which will represent an
appreciation of between 30% and 34% over the $10 original public offering
price per unit of the Notes.
If the value of the stocks included in the Index increases, this will
result in a decrease in the value of the Notes, subject to the minimum payment
that you are entitled to receive at maturity. If the value of the stocks
included in the Index decreases, this will result in an increase in the value
of the Notes, subject to the Capped Value of the Notes at maturity.
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 futures or 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. The
PS-7
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, and
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 there is no change in the level of the Index and 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 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. For example, an increase in United States interest
rates may offset some or all of any increase in the trading value of the Notes
attributable to another factor, such as a decrease in the level of the Index.
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.
The level of the Index is expected to affect the trading value of the
Notes. We expect that the trading value of the Notes will depend substantially
on the amount, if any, by which the level of the Index is below or is not
below the Starting Value. However, if you choose to sell your Notes when the
level of the Index is below the Starting Value, you may receive substantially
less than the amount that would be payable on the maturity date based on this
value because of the expectation that the level of the Index will continue to
fluctuate until the Ending Value is determined. In addition, because the
payment on the maturity date on the Notes will not exceed the Capped Value, we
do not expect that the Notes will trade in the secondary market above the
Capped Value.
Changes in the levels of interest rates are expected to affect the
trading value of the Notes. We expect that changes in interest rates will
affect the trading value of the Notes. Generally, if United States interest
rates increase, we expect the trading value of the Notes will decrease and,
conversely, if United States interest rates decrease, we expect the trading
value of the Notes will increase.
Changes in the volatility of the Index is 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 the Index
increases or decreases, the trading value of the Notes may be adversely
affected.
Changes in dividend yields on the stocks included in the Index are
expected to affect the trading value of the Notes. In general, if dividend
yields on the stocks included in the Index increase, we expect that the
trading value of the Notes will increase and, conversely, if dividend yields
on these stocks decrease, we expect that the trading value of the Notes will
decrease.
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
and the level of the Index. This difference will reflect a "time premium" due
to expectations concerning the level of the Index 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
PS-8
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 decrease, if any, in the
level of the 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 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.
Purchases and sales by us and our affiliates may affect your return
We and our affiliates may from time to time buy or sell the stocks
included in the Index or futures or options contracts on the Index for our own
accounts for business reasons and expect to enter into these transactions in
connection with hedging our obligations under the Notes. These transactions
could affect the price of these stocks and, in turn, the level of the Index in
a manner that could be adverse to your investment in the Notes. Any purchases
or sales by us, our affiliates or others on our behalf on or before the
Pricing Date may temporarily increase or decrease the prices of the stocks
included in the Index. Temporary increases or decreases in the market prices
of these stocks may also occur as a result of the purchasing activities of
other market participants. Consequently, the prices of these stocks may change
subsequent to the Pricing Date, affecting the level of the Index and therefore
the trading value of the Notes.
Potential conflicts of interest could arise
Our subsidiary MLPF&S is our agent for the purposes of calculating the
Ending Value and the Redemption Amount. Under certain circumstances, MLPF&S 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 its determination as to whether the level of the
Index can be calculated on a particular trading day, or in connection with
judgments that it would be required to make in the event of a discontinuance
or unavailability of the Index. See the sections entitled "Description of the
Notes--Adjustments to the Index; Market Disruption Events" and
"--Discontinuance of the Index" in this pricing supplement. MLPF&S is required
to carry out its duties as Calculation Agent in good faith and using its
reasonable judgment. However, because we control MLPF&S, potential conflicts
of interest could arise.
We expect to enter into arrangements to hedge the market risks associated
with our obligation to pay the Redemption Amount 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.
ML&Co. or its affiliates may presently or from time to time engage in
business with one or more of the companies included in the Index including
extending loans to, or making equity investments in, those companies or
providing advisory services to those companies, including merger and
acquisition advisory services. In the course of business, ML&Co. or its
affiliates may acquire non-public information relating to those companies and,
in addition, one or more affiliates of ML&Co. may publish research reports
about those companies. ML&Co. does not make any representation to any
purchasers of the Notes regarding any matters whatsoever relating to the
companies included in the Index. Any prospective purchaser of the Notes should
undertake an independent investigation of the companies included in the Index
as in its judgment is appropriate to make an informed decision regarding an
investment in the Notes. The composition of those companies does not reflect
any investment recommendations of ML&Co. or its affiliates.
Tax consequences are uncertain
You should consider the tax consequences of investing in the Notes,
aspects of which are uncertain. See the section entitled "United States
Federal Income Taxation" in this pricing supplement.
PS-9
DESCRIPTION OF THE NOTES
ML&Co. will issue the Notes as part of a series of senior debt securities
entitled "Medium-Term Notes, Series C" under the 1983 Indenture, which is more
fully described in the accompanying general prospectus supplement. The Notes
will mature on March , 2007. Information included in this pricing supplement
supersedes information in the accompanying MTN prospectus supplement, general
prospectus supplement and prospectus to the extent that it is different from
that information. The CUSIP number for the Notes is .
While on the maturity date a holder of a Note will receive an amount
equal to the Redemption Amount, there will be no other payment of interest,
periodic or otherwise. See the section entitled "--Payment on the Maturity
Date" in this pricing supplement.
The Notes will not be subject to redemption by ML&Co. or repayment at the
option of any holder of the Notes before the maturity date.
ML&Co. will issue the Notes in denominations of whole units each with a
$10 original public offering price per unit. You may transfer the Notes only
in whole units. You will not have the right to receive physical certificates
evidencing your ownership except under limited circumstances. Instead, we will
issue the Notes in the form of a global certificate, which will be held by The
Depository Trust Company, also known as DTC, or its nominee. Direct and
indirect participants in DTC will record your ownership of the Notes. You
should refer to the section entitled "Description of Debt
Securities--Depositary" in the accompanying general prospectus supplement.
The Notes will not have the benefit of any sinking fund.
Payment on the Maturity Date
On the maturity date, you will be entitled to receive a cash payment per
unit equal to the Redemption Amount, as provided below.
Determination of the Redemption Amount
The "Redemption Amount" per unit will be determined by the Calculation
Agent and will equal:
(i) If the Ending Value is greater than the Starting Value, the greater
of:
(a) $8.00 per unit; or
(b) ( ( Ending Value-Starting Value ) )
$10 - ( $10 x ( --------------------------- ) );
( ( Starting Value ) )
(ii) If the Ending Value is equal to or less than the Starting Value:
( ( Starting Value-Ending Value ) )
$10 + ( $30 x ( --------------------------- ) );
( ( Starting Value ) )
provided, however, the Redemption Amount will not exceed an amount which will
be between $13.00 and $13.40 per unit (the "Capped Value"). The actual Capped
Value will be determined on the date the Notes are priced for initial sale to
the public (the "Pricing Date") and will be set forth in the final pricing
supplement made available in connection with sales of the Notes.
The "Starting Value" will equal the closing level of the S&P 500 Index
(the "Index") on the Pricing Date and will be set forth in the final pricing
supplement made available in connection with sales of the Notes.
The "Ending Value" will be determined by the Calculation Agent and will
equal the average of the closing levels of the Index determined on the five
Calculation Days during the Calculation Period. If there are fewer than five
Calculation Days during the Calculation Period, then the Ending Value will
equal the average of the closing levels of the Index on those Calculation
Days. If there is only one Calculation Day during the Calculation Period,
PS-10
then the Ending Value will equal the closing level of the Index on that
Calculation Day. If no Calculation Days occur during the Calculation Period,
then the Ending Value will equal the closing level of the Index (determined
or, if not determinable, estimated by the Calculation Agent in a manner which
it considers commercially reasonable under the circumstances) on the last
scheduled Index Business Day in the Calculation Period, regardless of the
occurrence of a Market Disruption Event (as described below under
"--Adjustments to the Index; Market Disruption Events") on that scheduled
Index Business Day.
The "Calculation Period" means the period from and including the seventh
scheduled Index Business Day before the maturity date to and including the
second scheduled Index Business Day before the maturity date.
A "Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
An "Index Business Day" means a day on which the New York Stock Exchange
(the "NYSE"), the American Stock Exchange (the "AMEX") and The Nasdaq Stock
Market (the "Nasdaq") are open for trading and the Index or any successor
index is calculated and published.
All determinations made by the Calculation Agent, absent a determination
of a manifest error, will be conclusive for all purposes and binding on ML&Co.
and the holders and beneficial owners of the Notes.
PS-11
Hypothetical Returns
The following table illustrates, for the hypothetical Starting Value of
1,258.57 and a range of hypothetical Ending Values of the Index:
o the percentage change from the hypothetical Starting Value to
the hypothetical Ending Value;
o the total amount payable on the maturity date per unit;
o the total rate of return to holders of the Notes;
o the pretax annualized rate of return to holders of the Notes;
and
o the pretax annualized rate of return of an investment in the
stocks included in the Index, which includes an assumed
aggregate dividend yield of 1.85% per annum, as more fully
described below.
The table below assumes a Capped Value of $13.20, the midpoint of the
expected range of $13.00 and $13.40.
Percentage change Pretax Pretax
from the hypothetical Total amount Total annualized annualized rate
Starting Value payable on the rate of rate of of return of the
Hypothetical to the hypothetical maturity date return on return on stocks included in
Ending Value Ending Value per unit the Notes the Notes(1) the Index (1)(2)
- -------------------- ----------------------- ---------------- ---------------- --------------- --------------------
629.29 -50.00% 13.20 32.00% 40.14% -71.37%
755.14 -40.00% 13.20 32.00% 40.14% -55.24%
881.00 -30.00% 13.20 32.00% 40.14% -40.00%
1,006.86 -20.00% 13.20(4) 32.00% 40.14% -25.48%
1,132.71 -10.00% 13.00 30.00% 37.74% -11.55%
1,164.18 -7.50% 12.25 22.50% 28.61% -8.16%
1,195.64 -5.00% 11.50 15.00% 19.29% -4.79%
1,227.11 -2.50% 10.75 7.50% 9.76% -1.45%
1,258.57(3) 0.00% 10.00 0.00% 0.00% 1.85%
1,321.50 5.00% 9.50 -5.00% -6.65% 8.39%
1,384.43 10.00% 9.00 -10.00% -13.41% 14.82%
1,510.28 20.00% 8.00(5) -20.00% -27.34% 27.39%
1,636.14 30.00% 8.00 -20.00% -27.34% 39.60%
1,762.00 40.00% 8.00 -20.00% -27.34% 51.51%
1,887.86 50.00% 8.00 -20.00% -27.34% 63.13%
- -------------------------------
(1) The annualized rates of return specified in this column are calculated on
a semiannual bond equivalent basis and assume an investment term from May
25, 2006 to February 26, 2007, a term expected to be equal to that of the
Notes.
(2) This rate of return assumes:
(a) a percentage change in the aggregate price of the underlying stocks
that equals the percentage change in the Index from the hypothetical
Starting Value to the relevant hypothetical Ending Value;
(b) a constant dividend yield of 1.85% per annum, paid quarterly from
the date of initial delivery of the Notes, applied to the level of
the Index at the end of each quarter assuming this value increases
or decreases linearly from the hypothetical Starting Value to the
applicable hypothetical Ending Value; and
(c) no transaction fees or expenses.
PS-12
(3) This is also the hypothetical Starting Value. The actual Starting Value
will be determined on the Pricing Date and will be set forth in the final
pricing supplement made available in connection with sales of the Notes.
(4) The total amount payable on the maturity date per unit of the Notes
cannot exceed the Capped Value, which for purposes of calculating these
hypothetical returns has been assumed to equal $13.20 (the midpoint of
the range of $13.00 and $13.40).
(5) The Redemption Amount cannot be less than $8.00
The above figures are for purposes of illustration only. The actual
amount received by you and the resulting total and pretax annualized rates of
return will depend on the actual Starting Value, Ending Value, Capped Value
and term of your investment.
Adjustments to the Index; Market Disruption Events
If at any time Standard and Poor's makes a material change in the formula
for or the method of calculating the Index or in any other way materially
modifies the Index so that the Index does not, in the opinion of the
Calculation Agent, fairly represent the level of the Index had those changes
or modifications not been made, then, from and after that time, the
Calculation Agent will, at the close of business in New York, New York, on
each date that the closing level of the Index is to be calculated, make any
adjustments as, in the good faith judgment of the Calculation Agent, may be
necessary in order to arrive at a calculation of a level of a stock index
comparable to the Index as if those changes or modifications had not been
made, and calculate the closing level with reference to the Index, as so
adjusted. For example, if the method of calculating the Index is modified so
that the level of the Index is a fraction or a multiple of what it would have
been if it had not been modified, then the Calculation Agent will adjust the
Index in order to arrive at a level of the Index as if it had not been
modified.
"Market Disruption Event" means either of the following events as
determined by the Calculation Agent:
(A) the suspension of or material limitation on trading for more than
two hours of trading, or during the one-half hour period preceding
the close of trading, on the primary exchange on which the stock
included in the Index trade as determined by the Calculation Agent
(without taking into account any extended or after-hours trading
session), in 20% or more of the stocks which then comprise the Index
or any successor index; or
(B) the suspension of or material limitation on trading for more than
two hours of trading, or during the one-half hour period preceding
the close of trading, on the primary exchange that trade options
contracts or futures contracts related to the stocks included in the
Index as determined by the Calculation Agent (without taking into
account any extended or after-hours trading session), whether by
reason of movements in price otherwise exceeding levels permitted by
the relevant exchange or otherwise, in option contracts or futures
contracts related to the Index, or any successor index.
For the purpose of determining whether a Market Disruption Event has
occurred:
(1) a limitation on the hours in a trading day and/or number of days of
trading will not constitute a Market Disruption Event if it results
from an announced change in the regular business hours of the
relevant exchange;
(2) a decision to permanently discontinue trading in the relevant
futures or options contracts related to the Index, or any successor
index, will not constitute a Market Disruption Event;
(3) a suspension in trading in a futures or options contract on the
Index, or any successor index, by a major securities market by
reason of (a) a price change violating limits set by that securities
market, (b) an imbalance of orders relating to those contracts or
(c) a disparity in bid and ask quotes relating to those contracts
will constitute a suspension of or material limitation on trading in
futures or options contracts related to the Index; and
PS-13
(4) a suspension of or material limitation on trading on the relevant
exchange will not include any time when that exchange is closed for
trading under ordinary circumstances.
(5) for the purpose of clause (A) above, any limitations on trading
during significant market fluctuations under NYSE Rule 80B, or any
applicable rule or regulation enacted or promulgated by the NYSE or
any other self regulatory organization or the Securities and
Exchange Commission of similar scope as determined by the
calculation agent, will be considered "material".
The occurrence of a Market Disruption Event could affect the calculation
of the payment you may receive on the maturity date. See the section entitled
"--Payment on the Maturity Date" in this pricing supplement.
Discontinuance of the Index
If Standard and Poor's discontinues publication of the Index and Standard
and Poor's or another entity publishes a successor or substitute index that
the Calculation Agent determines, in its sole discretion, to be comparable to
the Index (a "successor index"), then, upon the Calculation Agent's
notification of that determination to the trustee and ML&Co., the Calculation
Agent will substitute the successor index as calculated by Standard and Poor's
or any other entity for the Index and calculate the Ending Value as described
above under "--Payment on the Maturity Date". Upon any selection by the
Calculation Agent of a successor index, ML&Co. will cause notice to be given
to holders of the Notes.
In the event that Standard and Poor's discontinues publication of the
Index and:
o the Calculation Agent does not select a successor index; or
o the successor index is not published on any of the Calculation
Days,
the Calculation Agent will compute a substitute level for the Index in
accordance with the procedures last used to calculate the Index before any
discontinuance. If a successor index is selected or the Calculation Agent
calculates a level as a substitute for the Index as described below, the
successor index or level will be used as a substitute for the Index for all
purposes, including the purpose of determining whether a Market Disruption
Event exists.
If Standard and Poor's discontinues publication of the Index before the
Calculation Period and the Calculation Agent determines that no successor
index is available at that time, then on each Business Day until the earlier
to occur of:
o the determination of the Ending Value; and
o a determination by the Calculation Agent that a successor index
is available,
the Calculation Agent will determine the value that would be used in computing
the Redemption Amount as described in the preceding paragraph as if that day
were a Calculation Day. The Calculation Agent will cause notice of each value
to be published not less often than once each month in The Wall Street Journal
or another newspaper of general circulation and arrange for information with
respect to these values to be made available by telephone.
A "Business Day" is any day on which the NYSE, the AMEX and the Nasdaq
are open for trading.
Notwithstanding these alternative arrangements, discontinuance of the
publication of the Index may adversely affect trading in the Notes.
Events of Default and Acceleration
In case an Event of Default with respect to any Notes has occurred and is
continuing, the amount payable to a holder of a Note upon any acceleration
permitted by the Notes, with respect to each $10 original public offering
price per unit, will be equal to the Redemption Amount, calculated as though
the date of acceleration were the stated maturity date of the Notes.
PS-14
In case of default in payment of the Notes, whether on the stated
maturity date or upon acceleration, from and after that date the Notes will
bear interest, payable upon demand of their holders, at the then current
Federal Funds Rate, reset daily, determined as described in the accompanying
MTN prospectus supplement, to the extent that payment of such interest shall
be legally enforceable, on the unpaid amount due and payable on that date in
accordance with the terms of the Notes to the date payment of that amount has
been made or duly provided for.
PS-15
THE INDEX
All disclosure contained in this pricing supplement regarding the Index,
including, without limitation, its make-up, method of calculation and changes
in its components has been derived from publicly available information
prepared by Standard and Poor's. ML&Co. and MLPF&S have not independently
verified the accuracy or completeness of that information.
The Index is published by Standard & Poor's, a division of The McGraw
Hill Companies, Inc. ("Standard & Poor's" or "S&P"). The Index is intended to
provide an indication of the pattern of common stock price movement in the
United States. The calculation of the level of the Index, discussed below in
further detail, is based on the relative value of the aggregate market value
of the common stocks of 500 companies as of a particular time compared to the
aggregate average market value of the common stocks of 500 similar companies
during the base period of the years 1941 through 1943. As of April 28, 2006,
424 companies or 85.8% of the market capitalization of the Index traded on the
NYSE; 76 companies or 14.2% of the market capitalization of the Index traded
on The Nasdaq Stock Market; and no companies traded on the AMEX. As of April
28, 2006, the aggregate market value of the 500 companies included in the
Index represented approximately 73% of the aggregate market value of stocks
included in the Standard & Poor's Stock Guide Database of domestic common
stocks traded in the U.S., excluding American depositary receipts, limited
partnerships and mutual funds. Standard & Poor's chooses companies for
inclusion in the Index with the aim of achieving a distribution by broad
industry groupings that approximates the distribution of these groupings in
the common stock population of the Standard & Poor's Stock Guide Database,
which Standard & Poor's uses as an assumed model for the composition of the
total market. Relevant criteria employed by Standard & Poor's include the
viability of the particular company, the extent to which that company
represents the industry group to which it is assigned, the extent to which the
market price of that company's common stock is generally responsive to changes
in the affairs of the respective industry and the market value and trading
activity of the common stock of that company. Ten main groups of companies
comprise the Index, with the approximate percentage of the market
capitalization of the Index included in each group as of April 28, 2006
indicated in parentheses: Consumer Discretionary (10.1%); Consumer Staples
(9.2%); Energy (10.0%); Financials (21.7%); Health Care (12.2%); Industrials
(11.6%); Information Technology (15.7%); Materials (3.1%); Telecommunication
Services (3.2%); and Utilities (3.2%). Standard & Poor's may from time to
time, in its sole discretion, add companies to, or delete companies from, the
Index to achieve the objectives stated above.
The Index does not reflect the payment of dividends on the stocks
included in the Index. Because of this, the calculation of the Ending Value
will not reflect the payment of dividends on these stocks that investors would
receive if they were to purchase these stocks and hold them for a period equal
to the term of the Notes.
Computation of the Index
While S&P currently employs the following methodology to calculate the
Index, no assurance can be given that S&P will not modify or change this
methodology in a manner that may affect the Supplemental Redemption Amount.
Historically, the market value of any underlying stocks included in the
Index was calculated as the product of the market price per share and the
number of the then outstanding shares of that underlying stock. In March 2005,
S&P began shifting the Index half way from a market capitalization weighted
formula to a float-adjusted formula, before moving the Index to full float
adjustment on September 16, 2005. S&P's criteria for selecting stocks for the
Index did not change by the shift to float adjustment. However, the adjustment
affects each company's weight in the Index (i.e., its market value).
Under float adjustment, the share counts used in calculating the Index
reflect only those shares that are available to investors, not all of a
company's outstanding shares. Standard and Poor's defines three groups of
shareholders whose holdings are subject to float adjustment:
o holdings by other publicly traded corporations, venture capital
firms, private equity firms, strategic partners, or leveraged buyout
groups;
o holdings by government entities, including all levels of government
in the United States or foreign countries; and
PS-16
o holdings by current or former officers and directors of the company,
founders of the company, or family trusts of officers, directors, or
founders, as well as holdings of trusts, foundations, pension funds,
employee stock ownership plans, or other investment vehicles
associated with and controlled by the company.
However, treasury stock, stock options, restricted shares, equity
participation units, warrants, preferred stock, convertible stock, and rights
are not part of the float. In cases where holdings in a group exceed 10% of
the outstanding shares of a company, the holdings of that group are excluded
from the float-adjusted count of shares to be used in the index calculation.
Shares held by mutual funds, investment advisory firms, pension funds, or
foundations not associated with the company and investment funds in insurance
companies, shares of a United States company traded in Canada as "exchangeable
shares," shares that trust beneficiaries may buy or sell without difficulty or
significant additional expense beyond typical brokerage fees, and, if a
company has multiple classes of stock outstanding, shares in an unlisted or
non-traded class if such shares are convertible by shareholders without undue
delay and cost, are also part of the float.
For each stock, an investable weight factor ("IWF") is calculated by
dividing the available float shares, defined as the total shares outstanding
less shares held in one or more of the three groups listed above where the
group holdings exceed 10% of the outstanding shares, by the total shares
outstanding. The float-adjusted index is then calculated by dividing the sum
of the IWF multiplied by both the price and the total shares outstanding for
each stock by the index divisor. For companies with multiple classes of stock,
Standard and Poor's calculates the weighted average IWF for each stock using
the proportion of the total company market capitalization of each share class
as weights.
The Index is calculated using a base-weighted aggregate methodology: the
level of the Index reflects the total market value of all 500 component stocks
relative to the base period of the years 1941 through 1943 (the "base
period"). An indexed number is used to represent the results of this
calculation in order to make the value easier to work with and track over
time. The actual total market value of the component stocks during the base
period of the years 1941 through 1943 has been set to an indexed value of 10.
This is often indicated by the notation 1941-43 = 10. In practice, the daily
calculation of the Index is computed by dividing the total market value of the
component stocks by the "index divisor." By itself, the index divisor is an
arbitrary number. However, in the context of the calculation of the Index, it
serves as a link to the original base period level of the Index. The index
divisor keeps the Index comparable over time and is the manipulation point for
all adjustments to the Index.
Index Maintenance
Index maintenance includes monitoring and completing the adjustments for
company additions and deletions, share changes, stock splits, stock dividends,
and stock price adjustments due to company restructuring or spinoffs.
To prevent the level of the Index from changing due to these corporate
actions, all corporate actions which affect the level of the Index require an
index divisor adjustment. By adjusting the index divisor for the change in
total market value of an individual company, the level of the Index remains
constant. This helps maintain the level of the Index as an accurate barometer
of stock market performance and ensures that the movement of the Index is not
caused by the corporate action an individual company. All index divisor
adjustments are made after the close of trading and after the calculation of
the Index closing level.
Some corporate actions, such as stock splits and stock dividends, require
simple changes in the common shares outstanding and the stock prices of the
companies in the Index and do not require index divisor adjustments.
Changes in a company's shares outstanding of 5.00% or more due to
mergers, acquisitions, public offerings, private placements, tender offers,
Dutch auctions, or exchange offers are made as soon as reasonably possible.
All other changes of 5.00% or more (due to, for example, company stock
repurchases, redemptions, exercise of options, warrants, subscription rights,
conversion of preferred stock, notes, debt, equity participation units, or
other recapitalizations) are made weekly and are announced on Tuesday for
implementation after the close of trading on Wednesday. Changes of less than
5.00% are accumulated and made quarterly on the third Friday of March, June,
September, and December, and are usually announced two days prior.
PS-17
Also, changes in IWFs of more than ten percentage points caused by
corporate actions (such as merger and acquisition activity, restructurings, or
spinoffs) will be made as soon as reasonably possible. Other changes in IWFs
will be made annually, in September when IWFs are reviewed.
Historical data on the Index
The following graph sets forth the closing levels of the Index on the
last business day of each year from 1946 through 2005, as published by
Standard and Poor's. The historical performance of the Index should not be
taken as an indication of future performance, and no assurance can be given
that the level of the Index will not decline and thereby reduce the Redemption
Amount which may be payable to you on the maturity date.
[GRAPHIC OMITTED - Graph shows year end values of the S&P 500 Index of:
December 31, 1946.........15.30
December 31, 1947.........15.30
December 31, 1948.........15.20
December 30, 1949.........16.79
December 29, 1950.........20.43
December 31, 1951.........23.77
December 31, 1952.........26.57
December 31, 1953.........24.81
December 31, 1954.........35.98
December 30, 1955.........45.48
December 31, 1956.........46.67
December 31, 1957.........39.99
December 31, 1958.........55.21
December 31, 1959.........59.89
December 30, 1960.........58.11
December 29, 1961.........71.55
December 31, 1962.........63.10
December 31, 1963.........75.02
December 31, 1964.........84.75
December 31, 1965.........92.43
December 30, 1966.........80.33
December 29, 1967.........96.47
December 31, 1968........103.86
December 31, 1969.........92.06
December 31, 1970.........92.15
December 31, 1971........102.09
December 29, 1972........118.05
December 31, 1973.........97.55
December 31, 1974.........68.56
December 31, 1975.........90.19
December 31, 1976........107.46
December 30, 1977.........95.10
December 29, 1978.........96.11
December 31, 1979........107.94
December 31, 1980........135.76
December 31, 1981........122.55
December 31, 1982........140.64
December 30, 1983........164.93
December 31, 1984........167.24
December 31, 1985........211.28
December 31, 1986........242.17
December 31, 1987........247.08
December 30, 1988........277.72
December 29, 1989........353.40
December 31, 1990........330.22
December 31, 1991........417.09
December 31, 1992........435.71
December 31, 1993........466.45
December 30, 1994........459.27
December 29, 1995........615.93
December 31, 1996........740.74
December 31, 1997........970.43
December 31, 1998.......1229.23
December 31, 1999.......1469.25
December 29, 2000.......1320.28
December 31, 2001.......1148.08
December 31, 2002........879.82
December 31, 2003.......1111.92
December 31, 2004.......1211.92
December 30, 2005.......1248.29]
The following table sets forth the closing levels of the Index at the end
of each month in the period from January 2001 through May 2006. This
historical data on the Index is not necessarily indicative of the future
performance of the Index or what the value of the Notes may be. Any historical
upward or downward trend in the level of the Index during any period set forth
below is not an indication that the Index is more or less likely to increase
or decrease at any time during the term of the Notes.
2001 2002 2003 2004 2005 2006
------------ ------------- ------------- ------------ ------------ -----------
January.......... 1,366.01 1,130.20 855.70 1,131.13 1,181.27 1,280.08
February......... 1,239.94 1,106.73 841.15 1,144.94 1,203.60 1,280.66
March............ 1,160.33 1,147.39 848.18 1,126.21 1,180.59 1,294.83
April............ 1,249.46 1,076.92 916.92 1,107.30 1,156.85 1,310.61
May.............. 1,255.82 1,067.14 963.59 1,120.68 1,191.50 1,270.09
June............. 1,224.42 989.82 974.50 1,140.84 1,191.33
July............. 1,211.23 911.62 990.31 1,101.72 1,234.18
August........... 1,133.58 916.07 1,008.01 1,104.24 1,220.33
September........ 1,040.94 815.28 995.97 1,114.58 1,228.81
October.......... 1,059.78 885.76 1,050.71 1,130.20 1,207.01
November......... 1,139.45 936.31 1,058.20 1,173.82 1,249.48
December......... 1,148.08 879.82 1,111.92 1,211.92 1,248.29
PS-18
The following graph sets forth the historical performance of the Index
presented in the preceding table. Past movements of the Index are not
necessarily indicative of the future performance of the Index.
[GRAPHIC OMITTED]
License Agreement
Standard & Poor's does not guarantee the accuracy and/or the completeness
of the Index or any data included in the Index. Standard & Poor's makes no
warranty, express or implied, as to results to be obtained by the Calculation
Agent, the holders of the Notes or any other person or entity from the use of
the Index or any data included in the Index in connection with the rights
licensed under the license agreement described in this pricing supplement or
for any other use. Standard & Poor's makes no express or implied warranties,
and hereby expressly disclaims all warranties of merchantability or fitness
for a particular purpose with respect to the Index or any data included in the
Index. Without limiting any of the above information, in no event shall
Standard & Poor's have any liability for any special, punitive, indirect or
consequential damage; including lost profits, even if notified of the
possibility of these damages.
Standard & Poor's and MLPF&S have entered into a non-exclusive license
agreement providing for the license to MLPF&S, in exchange for a fee, of the
right to use indices owned and published by Standard & Poor's in connection
with some securities, including the Notes, and ML&Co. is an authorized
sublicensee of MLPF&S. The license agreement between Standard & Poor's and
MLPF&S provides that the following language must be stated in this pricing
supplement:
"The Notes are not sponsored, endorsed, sold or promoted by S&P. S&P
makes no representation or warranty, express or implied, to the holders of the
Notes or any member of the public regarding the advisability of investing in
securities generally or in the Notes particularly or the ability of the Index
to track general stock market performance. S&P's only relationship to MLPF&S
(other than transactions entered into in the ordinary course of business) is
the licensing of certain service marks and trade names of S&P and of the Index
which is determined, composed and calculated by S&P without regard to ML&Co.
or the Notes. S&P has no obligation to take the needs of ML&Co. or the holders
of the Notes into consideration in determining, composing or calculating the
Index. S&P is not responsible for and has not participated in the
determination of the timing of the sale of the Notes, prices at which the
Notes are to initially be sold, or quantities of the Notes to be issued or in
the determination or calculation of the equation by which the Notes are to be
converted into cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Notes."
PS-19
UNITED STATES FEDERAL INCOME TAXATION
Set forth in full below is the opinion of Sidley Austin LLP, counsel to
ML&Co. ("Tax Counsel"). As the law applicable to the U.S. federal income
taxation of instruments such as the Notes is technical and complex, the
discussion below necessarily represents only a general summary. The following
discussion is based upon laws, regulations, rulings and decisions now in
effect, all of which are subject to change (including changes in effective
dates) or possible differing interpretations. The discussion below supplements
the discussion set forth under the section entitled "United States Federal
Income Taxation" that is contained in the accompanying MTN prospectus
supplement and supersedes that discussion to the extent that it contains
information that is inconsistent with that contained in the accompanying MTN
prospectus supplement. The discussion below deals only with Notes held as
capital assets and does not purport to deal with persons in special tax
situations, such as financial institutions, insurance companies, regulated
investment companies, real estate investment trusts, tax-exempt entities or
persons holding Notes in a tax-deferred or tax-advantaged account (except to
the extent specifically discussed below), dealers in securities or currencies,
traders in securities that elect to mark to market, persons subject to the
alternative minimum tax, persons holding Notes as a hedge against currency
risks, as a position in a "straddle" or as part of a "hedging", "conversion"
or "integrated" transaction for tax purposes, or persons whose functional
currency is not the United States dollar. It also does not deal with holders
other than original purchasers. If a partnership holds the Notes, the tax
treatment of a partner in the partnership will generally depend upon the
status of the partner and the activities of the partnership. Thus, persons who
are partners in a partnership holding the Notes should consult their own tax
advisors. Moreover, all persons considering the purchase of the Notes should
consult their own tax advisors concerning the application of United States
federal income tax laws to their particular situations as well as any
consequences of the purchase, ownership and disposition of the Notes arising
under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation or a partnership (including
an entity treated as a corporation or a partnership for United States federal
income tax purposes) that is created or organized in or under the laws of the
United States, any state thereof or the District of Columbia (unless, in the
case of a partnership, Treasury regulations are adopted that provide
otherwise), (iii) an estate the income of which is subject to United States
federal income tax regardless of its source, (iv) a trust if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust or (v) any other
person whose income or gain in respect of a Note is effectively connected with
the conduct of a United States trade or business. Certain trusts not described
in clause (iv) above in existence on August 20, 1996, that elect to be treated
as United States persons will also be U.S. Holders for purposes of the
following discussion. As used herein, the term "non-U.S. Holder" means a
beneficial owner of a Note that is not a U.S. Holder.
General
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization and treatment,
for United States federal income tax purposes, of the Notes or securities with
terms substantially the same as the Notes. Accordingly, the proper United
States federal income tax characterization and treatment of the Notes is
uncertain. Pursuant to the terms of the Notes, ML&Co. and every holder of a
Note agree (in the absence of an administrative determination, judicial ruling
or other authoritative guidance to the contrary) to characterize and treat
each Note for all tax purposes as a debt instrument of ML&Co. In the opinion
of Tax Counsel, this characterization and tax treatment of the Notes, although
not the only reasonable characterization and tax treatment, is based on
reasonable interpretations of law currently in effect and, even if
successfully challenged by the Internal Revenue Service (the "IRS"), will not
result in the imposition of penalties. The characterization and tax treatment
of the Notes described above is not, however, binding on the IRS or the
courts. No statutory, judicial or administrative authority directly addresses
the characterization and treatment of the Notes or instruments similar to the
Notes for United States federal income tax purposes, and no ruling is being
requested from the IRS with respect to the Notes.
Due to the absence of authorities that directly address instruments that
are similar to the Notes, significant aspects of the United States federal
income tax consequences of an investment in the Notes are not certain, and no
assurance can be given that the IRS or the courts will agree with the
characterization and tax treatment described above. Accordingly, prospective
purchasers are urged to consult their own tax advisors regarding the United
States
PS-20
federal income tax consequences of an investment in the Notes (including
alternative characterizations and tax treatments of the Notes) and with
respect to any tax consequences arising under the laws of any state, local or
foreign taxing jurisdiction. Unless otherwise stated, the following discussion
is based on the assumption that the characterization and treatment described
above is accepted for United States federal income tax purposes.
U.S. Holders
General. Debt instruments that have a fixed maturity of one year or less,
such as the Notes, will be treated as having been issued with original issue
discount. Accordingly, in general, each Note will be treated as having been
issued with original issue discount.
Cash Method U.S. Holders. The amount payable on the maturity date with
respect to a Note in excess of the principal amount thereof, if any, generally
should be includible in income by a U.S. Holder who uses the cash method of
tax accounting as ordinary interest on the date the amount payable on the
maturity date is received. In the event that the amount payable on the
maturity date with respect to a Note is less than the principal amount
thereof, the excess of the principal amount of the Note over the amount
payable on the maturity date with respect to the Note should generally be
treated as a short-term capital loss. Upon the sale or exchange of a Note
prior to the maturity date, a U.S. Holder who uses the cash method of tax
accounting generally should be required to recognize taxable gain or loss in
an amount equal to the difference, if any, between the amount realized on the
sale or exchange and such U.S. Holder's tax basis in the Note. Such a U.S.
Holder's tax basis in a Note generally should equal such U.S. Holder's initial
investment in the Note. All or a portion of any gain should be treated as
ordinary income to the extent of the amount of original issue discount (as
described below under "Accrual Method U.S. Holders") that has accrued on a
straight-line basis, or upon election under a constant yield method (based on
daily compounding), through the date of sale.
Accrual Method U.S. Holders. U.S. Holders who use the accrual method of
tax accounting, and certain other holders including banks and dealers in
securities, should be required to accrue original issue discount on a Note on
a straight-line basis unless an election is made to accrue the original issue
discount under a constant yield method (based on daily compounding). Such
original issue discount should accrue based upon an estimated yield for the
Note. Upon maturity of a Note, to the extent that the actual yield on the Note
(i.e., the actual Redemption Amount) differs from this estimated yield, such
difference should be treated as additional original issue discount or (i)
first as an offset to previously accrued original issue discount and (ii)
thereafter as short-term capital loss. Upon the sale or exchange of a Note
prior to the maturity date, a U.S. Holder who uses the accrual method of tax
accounting generally should recognize short-term capital gain or loss (or, in
some cases, possibly an offset to previously accrued original issue discount)
in an amount equal to the difference between the amount realized on the sale
or exchange and such U.S. Holder's adjusted tax basis in the Note. Such a U.S.
Holder's adjusted tax basis generally should equal such U.S. Holder's initial
investment in the Note increased by any original issue discount previously
included in income by the U.S. Holder.
Due to the uncertainty regarding the precise application of the original
issue discount rules to the Notes, prospective investors in the Notes are
urged to consult their own tax advisors concerning the proper application of
the original issue discount rules to the Notes.
Possible Alternative Tax Treatments of an Investment in the Notes
Due to the absence of authorities that directly address the proper
characterization and tax treatment of the Notes, no assurance can be given
that the IRS will accept, or that a court will uphold, the characterization
and tax treatment of the Notes described above. In particular, the IRS could
assert that other alternative United States federal income tax
characterizations or treatments of the Notes should apply to the Notes, which,
if applied could significantly affect the timing and the character of the
income or loss realized with respect to the Notes. Accordingly, prospective
purchasers are urged to consult their tax advisors regarding the United States
federal income tax consequences of an investment in the Notes.
Unrelated Business Taxable Income
Section 511 of the Internal Revenue Code of 1986, as amended (the
"Code"), generally imposes a tax, at regular corporate or trust income tax
rates, on the "unrelated business taxable income" of certain tax-exempt
organizations, including qualified pension and profit sharing plan trusts and
individual retirement accounts. In
PS-21
general, if the Notes are held for investment purposes, the amount of income
or gain realized with respect to the Notes will not constitute unrelated
business taxable income. However, if a Note constitutes debt-financed property
(as defined in Section 514(b) of the Code) by reason of indebtedness incurred
by a holder of a Note to purchase the Note, all or a portion of any income or
gain realized with respect to such Note may be classified as unrelated
business taxable income pursuant to Section 514 of the Code. Moreover,
prospective investors in the Notes should be aware that whether or not any
income or gain realized with respect to a Note which is owned by an
organization that is generally exempt from U.S. federal income taxation
pursuant to Section 501(a) of the Code constitutes unrelated business taxable
income will depend upon the specific facts and circumstances applicable to
such organization. Accordingly, any potential investors in the Notes that are
generally exempt from U.S. federal income taxation pursuant to Section 501(a)
of the Code are urged to consult with their own tax advisors concerning the
U.S. federal income tax consequences to them of investing in the Notes.
Non-U.S. Holders
A non-U.S. Holder will not be subject to United States federal income
taxes on payments of principal, premium (if any) or interest (including
original issue discount) on a Note, unless the non-U.S. Holder is a direct or
indirect 10% or greater shareholder of ML&Co., a controlled foreign
corporation related to ML&Co. or a bank receiving interest described in
Section 881(c)(3)(A) of the Code. However, income allocable to non-U.S.
Holders will generally be subject to annual tax reporting on IRS Form 1042-S.
For a non-U.S. Holder to qualify for the exemption from taxation, any person,
U.S. or foreign, that has control, receipt or custody of an amount subject to
withholding, or who can disburse or make payments of an amount subject to
withholding (the "Withholding Agent") must have received a statement that (a)
is signed by the beneficial owner of the Note under penalties of perjury, (b)
certifies that the owner is a non-U.S. Holder and (c) provides the name and
address of the beneficial owner. The statement may generally be made on IRS
Form W-8BEN (or other applicable form) or a substantially similar form, and
the beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of that change by filing a new IRS
Form W-8BEN (or other applicable form). Generally, an IRS Form W-8BEN provided
without a U.S. taxpayer identification number will remain in effect for a
period starting on the date the form is signed and ending on the last day of
the third succeeding calendar year, unless a change in circumstances makes any
information on the form incorrect. If a Note is held through a securities
clearing organization or certain other financial institutions, the
organization or institution may provide a signed statement to the Withholding
Agent. Under certain circumstances, the signed statement must be accompanied
by a copy of the applicable IRS Form W-8BEN (or other applicable form) or the
substitute form provided by the beneficial owner to the organization or
institution.
Under current law, a Note will not be includible in the estate of a
non-U.S. Holder unless the individual is a direct or indirect 10% or greater
shareholder of ML&Co. or, at the time of the individual's death, payments in
respect of that Note would have been effectively connected with the conduct by
the individual of a trade or business in the United States.
Backup withholding
Backup withholding at the applicable statutory rate of United States
federal income tax may apply to payments made in respect of the Notes to
registered owners who are not "exempt recipients" and who fail to provide
certain identifying information (such as the registered owner's taxpayer
identification number) in the required manner. Generally, individuals are not
exempt recipients, whereas corporations and certain other entities generally
are exempt recipients. Payments made in respect of the Notes to a U.S. Holder
must be reported to the IRS, unless the U.S. Holder is an exempt recipient or
establishes an exemption. Compliance with the identification procedures
described in the preceding section would establish an exemption from backup
withholding for those non-U.S. Holders who are not exempt recipients.
In addition, upon the sale of a Note to (or through) a broker, the broker
must withhold on the entire purchase price, unless either (a) the broker
determines that the seller is a corporation or other exempt recipient or (b)
the seller provides, in the required manner, certain identifying information
(e.g., an IRS Form W-9) and, in the case of a non-U.S. Holder, certifies that
the seller is a non-U.S. Holder (and certain other conditions are met). This
type of sale must also be reported by the broker to the IRS, unless either (a)
the broker determines that the seller is an exempt recipient or (b) the seller
certifies its non-U.S. status (and certain other conditions are met).
Certification of
PS-22
the registered owner's non-U.S. status would be made normally on an IRS Form
W-8BEN (or other applicable form) under penalties of perjury, although in
certain cases it may be possible to submit other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to
a beneficial owner would be allowed as a refund or a credit against the
beneficial owner's United States federal income tax provided the required
information is furnished to the IRS.
PS-23
ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit
plan (a "plan") subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), should consider the fiduciary standards of ERISA
in the context of the plan's particular circumstances before authorizing an
investment in the Notes. Accordingly, among other factors, the fiduciary
should consider whether the investment would satisfy the prudence and
diversification requirements of ERISA and would be consistent with the
documents and instruments governing the plan, and whether the investment would
involve a prohibited transaction under Section 406 of ERISA or Section 4975 of
the Code.
Section 406 of ERISA and Section 4975 of the Code prohibit plans, as well
as individual retirement accounts and Keogh plans subject to Section 4975 of
the Code (also "plans") from engaging in certain transactions involving "plan
assets" with persons who are "parties in interest" under ERISA or
"disqualified persons" under the Code ("parties in interest") with respect to
the plan or account. A violation of these prohibited transaction rules may
result in civil penalties or other liabilities under ERISA and/or an excise
tax under Section 4975 of the Code for those persons, unless exemptive relief
is available under an applicable statutory, regulatory or administrative
exemption. Certain employee benefit plans and arrangements including those
that are governmental plans (as defined in Section 3(32) of ERISA), certain
church plans (as defined in Section 3(33) of ERISA) and foreign plans (as
described in Section 4(b)(4) of ERISA) ("non-ERISA arrangements") are not
subject to the requirements of ERISA or Section 4975 of the Code but may be
subject to similar provisions under applicable federal, state, local, foreign
or other regulations, rules or laws ("similar laws").
The acquisition of the Notes by a plan with respect to which we, MLPF&S
or certain of our affiliates is or becomes a party in interest may constitute
or result in a prohibited transaction under ERISA or Section 4975 of the Code,
unless those Notes are acquired pursuant to and in accordance with an
applicable exemption. The U.S. Department of Labor has issued five prohibited
transaction class exemptions, or "PTCEs", that may provide exemptive relief if
required for direct or indirect prohibited transactions that may arise from
the purchase or holding of the Notes. These exemptions are:
(1) PTCE 84-14, an exemption for certain transactions determined or
effected by independent qualified professional asset managers;
(2) PTCE 90-1, an exemption for certain transactions involving
insurance company pooled separate accounts;
(3) PTCE 91-38, an exemption for certain transactions involving
bank collective investment funds;
(4) PTCE 95-60, an exemption for transactions involving certain
insurance company general accounts; and
(5) PTCE 96-23, an exemption for plan asset transactions managed by
in-house asset managers.
The Notes may not be purchased or held by (1) any plan, (2) any entity
whose underlying assets include "plan assets" by reason of any plan's
investment in the entity (a "plan asset entity") or (3) any person investing
"plan assets" of any plan, unless in each case the purchaser or holder is
eligible for the exemptive relief available under one or more of the PTCEs
listed above or another applicable similar exemption. Any purchaser or holder
of the Notes or any interest in the Notes will be deemed to have represented
by its purchase and holding of the Notes that it either (1) is not a plan or a
plan asset entity and is not purchasing those Notes on behalf of or with "plan
assets" of any plan or plan asset entity or (2) with respect to the purchase
or holding, is eligible for the exemptive relief available under any of the
PTCEs listed above or another applicable exemption. In addition, any purchaser
or holder of the Notes or any interest in the Notes which is a non-ERISA
arrangement will be deemed to have represented by its purchase and holding of
the Notes that its purchase and holding will not violate the provisions of any
similar law.
Due to the complexity of these rules and the penalties that may be
imposed upon persons involved in non-exempt prohibited transactions, it is
important that fiduciaries or other persons considering purchasing the Notes
on behalf of or with "plan assets" of any plan, plan asset entity or non-ERISA
arrangement consult with their counsel
PS-24
regarding the availability of exemptive relief under any of the PTCEs listed
above or any other applicable exemption, or the potential consequences of any
purchase or holding under similar laws, as applicable.
USE OF PROCEEDS AND HEDGING
The net proceeds from the sale of the Notes will be used as described
under "Use of Proceeds" in the accompanying general prospectus supplement and
to hedge market risks of ML&Co. associated with its obligation to pay the
Redemption Amount.
SUPPLEMENTAL PLAN OF DISTRIBUTION
MLPF&S has advised ML&Co. that it proposes initially to offer all or part
of the Notes directly to the public on a fixed price basis at the offering
prices set forth on the cover of this pricing supplement. After the initial
public offering, the public offering prices may be changed. The obligations of
MLPF&S are subject to certain conditions and it is committed to take and pay
for all of the Notes if any are taken.
EXPERTS
The consolidated financial statements, the related financial statement
schedule, and management's report on the effectiveness of internal control
over financial reporting incorporated in this pricing supplement by reference
from Merrill Lynch & Co., Inc.'s Annual Report on Form 10-K for the year ended
December 30, 2005 have been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
With respect to the unaudited interim condensed consolidated financial
information for the periods ended March 31, 2006 and April 1, 2005, which is
incorporated herein by reference, Deloitte & Touche LLP, an independent
registered public accounting firm, have applied limited procedures in
accordance with the standards of the Public Company Accounting Oversight Board
(United States) for a review of such information. However, as stated in their
report dated May 5, 2006 included in Merrill Lynch & Co., Inc.'s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2006 and incorporated by
reference herein, they did not audit and they do not express an opinion on
that unaudited interim condensed consolidated financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
Deloitte & Touche LLP are not subject to the liability provisions of Section
11 of the Securities Act of 1933 for their report on the unaudited interim
condensed consolidated financial information because that report is not a
"report" or a "part" of the registration statement prepared or certified by an
accountant within the meaning of Sections 7 and 11 of the Act.
PS-25
INDEX OF CERTAIN DEFINED TERMS
Business Day............................................................PS-14
Calculation Agent........................................................PS-6
Calculation Day.........................................................PS-11
Calculation Period......................................................PS-11
Capped Value.............................................................PS-4
Ending Value.............................................................PS-4
Index....................................................................PS-3
Index Business Day......................................................PS-11
Market Disruption Event.................................................PS-13
Notes....................................................................PS-1
Pricing Date.............................................................PS-3
Redemption Amount........................................................PS-4
Starting Value...........................................................PS-4
successor index.........................................................PS-14
PS-26
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Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
Accelerated Return Bear Market Notes
Linked to the S&P 500(R) Index
due March , 2007
(the "Notes")
$10 original public offering price per unit
-----------------------
PRICING SUPPLEMENT
-----------------------
Merrill Lynch & Co.
June , 2006
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