Subject to Completion
Preliminary Pricing Supplement dated June 9, 2006
PRICING SUPPLEMENT
- ------------------
(To MTN prospectus supplement,
general prospectus Supplement
and prospectus dated March 31, 2006)
Pricing Supplement Number:
[LOGO OMITTED]
Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
97% Protected Currency Notes
Linked to the European Union Euro/Japanese Yen Exchange Rate
due July , 2008
(the "Notes")
$10 original public offering price per unit
----------------
The Notes:
o The Notes are designed for investors who believe that the value of the
European Union euro will depreciate relative to the value of the
Japanese yen over the term of the Notes. Investors must also be willing
to risk losing up to $.30 per unit of their investment if the value of
the European Union euro increases or does not decrease sufficiently
relative to the value of the Japanese yen over the term of the Notes.
o 97% principal protection on the maturity date, and we cannot redeem the
Notes prior to the maturity date.
o We will make one payment of interest on the Notes equal to 11% of the
principal amount if on the first anniversary of the settlement date the
European Union euro has depreciated by at least 9% relative to the
Japanese yen from their relative values on the date the Notes are priced
for initial sale to the public. If the European Union euro/Japanese yen
exchange rate has increased or has not decreased sufficiently on the
relevant observation date, you will not receive any interest payment on
the Notes.
o The Notes will not be listed on any securities exchange.
o The Notes will be senior unsecured debt securities of Merrill Lynch &
Co., Inc., denominated and payable in United States dollars, and part of
a series entitled "Medium-Term Notes, Series C". The Notes will have the
CUSIP No .
o The settlement date is expected to be July , 2006.
Payment on the maturity date:
o The amount you receive on the maturity date per unit will be based upon
the direction of and percentage change in the European Union
euro/Japanese yen exchange rate over the term of the Notes. If the
European Union euro/Japanese yen exchange rate:
o has decreased (meaning that the European Union euro has
depreciated relative to the Japanese yen), you will receive a
payment per unit equal to $9.70 plus a supplemental redemption
amount equal to between 110% to 130% of the percentage decrease
multiplied by $10; or
o has increased or has not decreased sufficiently (meaning that the
European Union euro has appreciated or has not depreciated
sufficiently relative to the Japanese yen), you will receive less
than the $10 original public offering price per unit, which
results in a loss of some of your investment; in no event,
however, will you receive less than $9.70 per unit.
o The European euro/Japanese yen exchange rate must decrease by at least
2.31% to 2.73% in order for you to receive at least the $10 original
public offering price per unit.
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.
----------------
Per Unit Total
-------- -----
Public offering price ..................................... $10.00 $
Underwriting discount...................................... $.175 $
Proceeds, before expenses, to Merrill Lynch & Co., Inc. ... $9.825 $
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.
TABLE OF CONTENTS
Pricing Supplement
Page
----------
SUMMARY INFORMATION--Q&A ........................................ PS-3
RISK FACTORS .................................................... PS-7
DESCRIPTION OF THE NOTES ........................................ PS-11
THE EUR/JPY EXCHANGE RATE ....................................... PS-15
UNITED STATES FEDERAL INCOME TAXATION ........................... PS-17
ERISA CONSIDERATIONS ............................................ PS-20
USE OF PROCEEDS AND HEDGING...................................... PS-21
SUPPLEMENTAL PLAN OF DISTRIBUTION ............................... PS-21
EXPERTS ......................................................... PS-21
INDEX OF CERTAIN DEFINED TERMS .................................. PS-22
Medium-Term Notes, Series C Prospectus Supplement
(the "MTN prospectus supplement")
Page
----------
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")
Page
----------
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
Page
----------
WHERE YOU CAN FIND MORE INFORMATION.............................. 2
INCORPORATION OF INFORMATION WE FILE WITH THE SEC................ 2
EXPERTS.......................................................... 2
PS-2
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 97% Protected Currency Notes Linked to the European Union
euro/Japanese yen Exchange Rate due July , 2008 (the "Notes"). You should
carefully read this pricing supplement and the accompanying MTN prospectus
supplement, general prospectus supplement and prospectus to fully understand
the terms of the Notes, the European Union euro/Japanese yen exchange rate
(the "EUR/JPY Exchange Rate") 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 July , 2008.
Depending on the date the Notes are priced for initial sale to the public (the
"Pricing Date"), which may be in June or July, the settlement date may occur
in June instead of July and the maturity date may occur in June instead of
July. Any reference in this pricing supplement to the month in which the
settlement date, observation date, interim coupon payment 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 the Debt Securities--Depositary" in the
accompanying prospectus.
Are there any risks associated with my investment?
Yes, an investment in the Notes is subject to risks, including the
risk of loss of principal. Please refer to the section entitled "Risk Factors"
in this pricing supplement and the accompanying MTN prospectus supplement.
Who determines the EUR/JPY Exchange Rate and what does the EUR/JPY Exchange
Rate reflect?
Merrill Lynch Capital Services, Inc., as calculation agent (the
"Calculation Agent"), will determine the EUR/JPY Exchange Rate as described in
the section entitled "The EUR/JPY Exchange Rate" in this pricing supplement.
The EUR/JPY Exchange Rate reflects the number of Japanese Yen for which one
European Union euro can be exchanged. The EUR/JPY Exchange Rate increases as
the value of the European Union euro increases relative to the Japanese yen
and decreases as the value of the European Union euro declines relative to the
Japanese yen.
How has the EUR/JPY Exchange Rate performed historically?
We have included a table and a graph showing historical month-end
values of the EUR/JPY Exchange Rate from January 2001 through May 2006. The
table and graph are included in the section entitled "The EUR/JPY Exchange
Rate" in this pricing supplement. We have provided this historical information
to help you evaluate the behavior of the European Union euro relative to the
Japanese yen in various economic environments; however, this past performance
is not necessarily indicative of how the EUR/JPY Exchange Rate will fluctuate
in the future.
What will I receive on the maturity date of the Notes?
On the maturity date, for each unit of the Notes that you own, you
will receive a cash payment equal to the sum of two amounts: the "Minimum
Redemption Amount" and the "Supplemental Redemption Amount", if any.
PS-3
The "Minimum Redemption Amount" per unit is $9.70.
The "Supplemental Redemption Amount" per unit will equal:
( Starting Value - Ending Value )
$10 x Participation Rate x ( ----------------------------- )
( Starting Value )
but will not be less than zero.
As a result of the foregoing, the EUR/JPY Exchange Rate will need
to decrease by at least 2.31% to 2.73% (depending on the actual Participation
Rate, as defined below) from the Starting Value in order for you to receive an
amount on the maturity date equal to the $10 original public offering price
per unit. If the EUR/JPY Exchange Rate increases or does not decrease
sufficiently, you will receive less than the $10 original public offering
price per unit. In no event, however, will you receive less than $9.70 per
unit.
The "Starting Value" will equal the EUR/JPY Exchange Rate 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 equal the EUR/JPY Exchange Rate as
determined by the Calculation Agent on the Valuation Date, as described in
this pricing supplement.
The "Valuation Date" will be the seventh scheduled business day
before the maturity date of the Notes.
The "Participation Rate" is a percentage between 110% and 130%.
The actual Participation Rate will be determined on the Pricing Date and set
forth in the final pricing supplement made available in connection with sales
of the Notes.
For more specific information about the redemption amount payable
on the maturity date, please see the section entitled "Description of the
Notes" in this pricing supplement.
Will I receive interest payments on the Notes?
If the EUR/JPY Exchange Rate is 91%, or less than 91%, of the
Starting Value on July , 2007, the first anniversary of the settlement date
(the "Observation Date"), you will receive a single interest payment on July ,
2007, the seventh Business Day after the scheduled Observation Date; provided,
however, that if such anniversary is not an Business Day, then the Observation
Date will be the next succeeding Business Day; and provided further, however,
that if a Business Day has not occurred by the third succeeding scheduled
Business Day, then such date will be the Observation Date and the Calculation
Agent will determine the EUR/JPY Exchange Rate on that date in a manner that,
in its judgment, is reasonable under the circumstances. If interest is payable
in 2007, as described above, you will receive an interest payment on each $10
principal amount of Notes held by you equal to 11% of such principal amount.
If the EUR/JPY Exchange Rate is greater than 91% of the Starting Value on the
Observation Date, you will not receive an interest payment on July , 2007. No
interest will be payable with respect to the Notes after July , 2007.
If the interest payment date is not a Business Day, payment will
be made on the immediately succeeding Business Day and no additional interest
will accrue as a result of the delayed payment.
PS-4
Examples
Set forth below are three examples of Supplemental Redemption
Amount calculations, assuming a hypothetical Starting Value of 144.85 and a
Participation Rate of 120%, the midpoint of the range of 110% and 130%.
Example 1--On the Valuation Date, the EUR/JPY Exchange Rate is 10% lower than
the hypothetical Starting Value:
Minimum Redemption Amount: $9.70
Hypothetical Starting Value: 144.85
Hypothetical Ending Value: 130.37
( 144.85 - 130.37 )
Supplemental Redemption Amount (per unit) = $10 x 120% x ( --------------- ) = $1.20
( 144.85 )
Total payment on the maturity date (per unit) = $9.70 + $1.20 = $10.90
Example 2--On the Valuation Date, the EUR/JPY Exchange Rate is 2% lower than
the hypothetical Starting Value:
Minimum Redemption Amount: $9.70
Hypothetical Starting Value: 144.85
Hypothetical Ending Value: 141.95
( 144.85 - 141.95 )
Supplemental Redemption Amount (per unit) = $10 x 120% x ( --------------- ) = $0.24
( 144.85 )
Total payment on the maturity date (per unit) = $9.70 + $0.24 = $9.94
Example 3--On the Valuation Date, the EUR/JPY Exchange Rate is 30% greater
than the hypothetical Starting Value:
Minimum Redemption Amount: $9.70
Hypothetical Starting Value: 144.85
Hypothetical Ending Value: 188.31
( 144.85 - 188.31 ) (Supplemental Redemption
Supplement Redemption Amount (per unit) = $10 x 120% x ( --------------- ) = $0.00 Amount cannot be less
( 144.85 ) than zero)
Total Payment on the maturity date (per unit) = $9.70 + $0.00 = $9.70
What about taxes?
Each year, you will be required to pay taxes on ordinary income
from the Notes over their term based upon an estimated yield for the Notes. We
have determined this estimated yield, in accordance with regulations issued by
the U.S. Treasury Department, solely in order for you to calculate the amount
of taxes that you will owe each year as a result of owning a Note. This
estimated yield is neither a prediction nor a guarantee of what the actual
yield on the Notes will be. We have determined that this estimated yield will
equal % per annum, compounded semi-annually. For further information, see
"United States Federal Income Taxation" in this pricing supplement.
Will the Notes be listed on a securities exchange?
The Notes will not be listed on any securities 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 stated 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 Notes.
If you sell your Notes prior to the stated maturity date, you will
receive a price determined by market conditions for the Notes. This price may
be
PS-5
influenced by many factors, such as interest rates, volatility of the EUR/JPY
Exchange Rate and the current EUR/JPY Exchange Rate. In addition, the price,
if any, at which you could sell your Notes in a secondary market transaction
is expected to be affected by the factors that we considered in setting the
economic terms of the Notes, namely the underwriting discount paid in respect
of the Notes and other costs associated with the Notes, including compensation
for developing and hedging the product. Depending on the impact of these
factors, you may receive significantly less than the $10 original public
offering price per unit of your Notes if sold before the stated maturity date.
In a situation where there had been no movement in the EUR/JPY
Exchange Rate 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 $10 original public offering price per unit. This is due to, among other
things, our costs of developing, hedging and distributing the Notes. Any
potential purchasers for 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 currently 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.
What is the role of the Merrill Lynch Capital Services, Inc.?
Merrill Lynch Capital Services, Inc. will serve as Calculation
Agent for purposes of determining, among other things, the EUR/JPY Exchange
Rate on the Observation Date, the Ending Value and the Redemption Amount.
Under certain circumstances, these duties could result in a conflict of
interest between Merrill Lynch Capital Services, Inc. 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 prospectus. You should also read other
documents ML&Co. has filed with the Securities and Exchange Commission, which
you can find by referring to the section entitled "Where You Can Find More
Information" in the accompanying prospectus.
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 on the Notes at maturity. The
payment you receive on the maturity date on the Notes will depend on the
change in the EUR/JPY Exchange Rate. Because the EUR/JPY Exchange Rate is
subject to market fluctuations, the amount of cash you receive on the maturity
date may be more or less than the $10 original public offering price per unit.
If the EUR/JPY Exchange Rate has not decreased by at least 2.31% to 2.73%
(depending on the actual Participation Rate) below the Starting Value, the
amount you receive on the maturity date will be less than the $10 original
public offering price per unit. As a result, you will lose some of your
investment in the Notes. Even if the Ending Value is less than the Starting
Value, the decrease in the EUR/JPY Exchange Rate may not be sufficient for the
amount that you will receive on the maturity date to exceed the $10 original
public offering price per unit. The amount you receive on the maturity date
will, however, never be less than $9.70 per unit.
If the EUR/JPY Exchange Rate is not 91% or less of the Starting
Value on the Observation Date, you will not receive any interest on your Notes
on the interest payment date in July 2007. This will be true even if the
EUR/JPY Exchange Rate was 91% or less of the Starting Value at some time over
the term of the Notes but not on the Observation Date. Whether interest is or
is not payable on the Notes on the July 2007 interest payment date, no
interest will be payable on the Notes after such date.
Your yield may be lower than the yield on other debt securities of comparable
maturity
The yield that you will receive on your Notes may be less than the
return you could earn on other investments. Your yield may be less than the
yield you would earn if you bought a traditional interest bearing United
States dollar-denominated 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.
You must rely on your own evaluation of the merits of an investment linked to
the EUR/JPY Exchange Rate
In the ordinary course of their businesses, affiliates of ML&Co.
from time to time express views on expected movements in foreign currency
exchange rates. These views are sometimes communicated to clients who
participate in foreign exchange markets. However, these views, depending upon
world-wide economic, political and other developments, may vary over differing
time-horizons and are subject to change. Moreover, other professionals who
deal in foreign currencies may at any time have significantly different views
from those of our affiliates. For reasons such as these, we believe that most
investors in foreign exchange markets derive information concerning those
markets from multiple sources. In connection with your purchase of the Notes,
you should investigate the foreign exchange markets and not rely on views
which may be expressed by our affiliates in the ordinary course of their
businesses with respect to future exchange rate movements.
You should make such investigation as you deem appropriate as to
the merits of an investment linked to the EUR/JPY Exchange Rate. Neither the
offering of the Notes nor any views which may from time to time be expressed
by our affiliates in the ordinary course of their businesses with respect to
future exchange rate movements constitutes a recommendation as to the merits
of an investment in the Notes.
The value of the EUR/JPY Exchange Rate is affected by many complex factors
The value of any currency, including the European Union euro and
the Japanese yen, may be affected by complex political and economic factors.
The EUR/JPY Exchange Rate is at any moment a result of the supply and demand
for the European Union euro and the Japanese yen, and changes in the exchange
rate result over time from the interaction of many factors directly or
indirectly affecting economic and political conditions in Europe and Japan,
including economic and political developments in other countries. Of
particular importance are the relative rates of inflation, interest rate
levels, balance of payments and extent of governmental surpluses or deficits
in those countries, all of which are in turn sensitive to the monetary, fiscal
and trade policies pursued by the governments of those countries, and other
countries important to international trade and finance.
PS-7
Even though currency trades around-the-clock, your Notes will not
The interbank market in foreign currencies is a global,
around-the-clock market. Therefore, the hours of trading for the Notes will
not conform to the hours during which the European Union euro or Japanese yen
are traded. Significant price and rate movements may take place in the
underlying foreign exchange markets that will not be reflected immediately in
the price of the Notes. The possibility of these movements should be taken
into account in relating the value of the Notes to those in the underlying
foreign exchange markets.
There is no systematic reporting of last-sale information for
foreign currencies. Reasonably current bid and offer information is available
in certain brokers' offices, in bank foreign currency trading offices and to
others who wish to subscribe for this information, but this information will
not necessarily be reflected in the EUR/JPY Exchange Rate used to calculate
the Supplemental Redemption Amount or the interest payment, if any. There is
no regulatory requirement that those quotations be firm or revised on a timely
basis. The absence of last-sale information and the limited availability of
quotations to individual investors may make it difficult for many investors to
obtain timely, accurate data about the state of the underlying foreign
exchange markets.
A trading market for the Notes is not expected to develop and if trading does
develop, the market price you may receive or be quoted for your Notes on a
date prior to the stated maturity date will be affected by this and other
important factors including our costs of developing, hedging and distributing
the Notes
The Notes will not be listed on any securities exchange and we do
not expect a trading market for the Notes to develop. Although our affiliate
MLPF&S has indicated that it currently expects to bid for Notes offered for
sale to it by holders of the Notes, it is not required to do so and may cease
making those bids at any time. In addition, while we describe in this pricing
supplement how you can determine the EUR/JPY Exchange Rate from publicly
available information, we will not publish the EUR/JPY Exchange Rate over the
term of the Notes and this may limit the trading market for the Notes. The
limited trading market for your Notes may affect the price that you receive
for your Notes if you do not wish to hold your investment until the maturity
date.
If MLPF&S makes a market in the Notes, the price it quotes would
reflect any changes in market conditions and other relevant factors. In
addition, the price, if any, at which you could sell your Notes in a secondary
market transaction is expected to be affected by the factors that we
considered in setting the economic terms of the Notes, namely the underwriting
discount paid in respect of the Notes and other costs associated with the
Notes, including compensation for developing and hedging the product. This
quoted price could be higher or lower than the $10 original public offering
price. 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 EUR/JPY Exchange Rate 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 $10
original public offering price. This is due to, among other things, the fact
that the $10 original public offering price 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, a change in the volatility of the
EUR/JPY Exchange Rate may offset some or all of any increase in the trading
value of the Notes attributable to another factor, such as a depreciation in
value of the European Union euro relative to the Japanese yen. 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 EUR/JPY Exchange Rate 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 EUR/JPY Exchange Rate
exceeds or does not exceed the Starting Value. However, if you choose to sell
your Notes when the EUR/JPY Exchange Rate is less of 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 EUR/JPY
Exchange Rate will continue to fluctuate until the Ending Value is determined.
PS-8
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. In general, if U.S. interest rates
increase, we expect that the trading value of the Notes will decrease and,
conversely, if U.S. interest rates decrease, we expect that the trading value
of the Notes will increase. If interest rates increase or decrease in markets
based on the European Union euro or Japanese yen, the trading value of the
Notes may be adversely affected. Interest rates may also affect the economies
of the member nations of the European Union and Japan and, in turn, the
respective exchange rates, which will affect the EUR/JPY Exchange Rate and
therefore, the trading value of the Notes.
Changes in the volatility of the EUR/JPY Exchange Rate are
expected to affect the trading value of the Notes. Volatility is the term used
to describe the size and frequency of price and/or market fluctuations. If the
volatility of the EUR/JPY Exchange Rate increases or decreases, the trading
value of the Notes may be adversely affected.
As the time remaining to the stated maturity date of the Notes
decreases, the "time premium" associated with the Notes is expected to
decrease. We anticipate that before their stated maturity date, the Notes may
trade at a value above that which would be expected based on the EUR/JPY
Exchange Rate. This difference will reflect a "time premium" due to
expectations concerning the EUR/JPY Exchange Rate prior to the stated maturity
date of the Notes. However, as the time remaining to the stated maturity date
of the Notes decreases, we expect that this time premium will decrease,
lowering the trading value of the Notes.
Changes in our credit ratings may affect the trading value of the
Notes. Our credit ratings are an assessment of our ability to pay our
obligations. Consequently, real or anticipated changes in our credit ratings
may affect the trading value of the Notes. However, because the return on your
Notes is dependent upon factors in addition to our ability to pay our
obligations under the Notes, such as the percentage increase, if any, in the
EUR/JPY Exchange Rate 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 EUR/JPY Exchange Rate will be greater if it occurs later in the term of
the Notes than if it occurs earlier in the term of the Notes.
Amounts payable on the Notes may be limited by state law
New York State law governs the 1983 Indenture under which the
Notes will be issued. New York has usury laws that limit the amount of
interest that can be charged and paid on loans, which includes debt securities
like the Notes. Under present New York law, the maximum rate of interest is
25% per annum on a simple interest basis. This limit may not apply to debt
securities in which $2,500,000 or more has been invested.
While we believe that New York law would be given effect by a
state or federal court sitting outside of New York, many other states also
have laws that regulate the amount of interest that may be charged to and paid
by a borrower. We will promise, for the benefit of the holders of the Notes,
to the extent permitted by law, not to voluntarily claim the benefits of any
laws concerning usurious rates of interest.
Potential conflicts of interest could arise
Our subsidiary Merrill Lynch Capital Services, Inc. is our agent
for the purposes of determining, among other things, the Ending Value and
Supplemental Redemption Amount. Under certain circumstances, Merrill Lynch
Capital Services, Inc. as our subsidiary and its responsibilities as
Calculation Agent for the Notes could give rise to conflicts of interest.
These conflicts could occur, for instance, in connection with its
determination as to whether the EUR/JPY Exchange Rate can be obtained on a
particular trading day, or in connection with judgments that it would be
required to make in the event the EUR/JPY Exchange Rate is unavailable. See
the section entitled "The EUR/JPY Exchange Rate" in this pricing supplement.
Merrill Lynch Capital Services, Inc. is required to carry out its duties as
Calculation Agent in good faith and using its reasonable judgment. However,
because we control Merrill Lynch Capital Services, Inc., potential conflicts
of interest could arise.
We expect to enter into arrangements to hedge the market risks
associated with our obligation to pay the 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.
PS-9
Tax consequences
You should consider the tax consequences of investing in the Notes.
See the section entitled "United States Federal Income Taxation" in this
pricing supplement.
PS-10
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 prospectus. The Notes will
mature on July , 2008. 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 .
The Notes will not be subject to redemption by ML&Co. or 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 Minimum Redemption Amount plus a Supplemental
Redemption Amount, if any, as provided below.
Determination of the Redemption Amount
The "Minimum Redemption Amount" for a Note is $9.70.
The "Supplement Redemption Amount" for a Note will be determined
by the Calculation Agent and will equal:
( Starting Value - Ending Value )
$10 x Participation Rate x ( ----------------------------- )
( Starting Value )
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Starting Value" will equal the EUR/JPY Exchange Rate on the
date the Notes are the 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 "Ending Value" will equal the EUR/JPY Exchange Rate as
determined by the Calculation Agent on the Valuation Date, as described in the
section entitled "The EUR/JPY Exchange Date" in this pricing supplement.
The "Valuation Date" will be the seventh scheduled Business Day
before the maturity date of the Notes.
The "Participation Rate" is a percentage between 110% and 130%.
The actual Participation Rate 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.
A "Business Day" means any day other than a Saturday or Sunday
that is neither a legal holiday nor a day on which banking institutions in The
City of New York are authorized or required by law, regulation or executive
order to close and those banks are open for dealing in a foreign exchange and
foreign currency deposits.
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.
Interest
If the EUR/JPY Exchange Rate is 91%, or less than 91%, of the
Starting Value on July , 2007, the first anniversary of the settlement date
(the "Observation Date"), you will receive a single interest payment on July ,
2007, the seventh Business Day after the scheduled Observation Date; provided,
however, that if such anniversary day is not a Business Day, then the
Observation Date will be the next succeeding Business Day; and provided
further, that if a Business Day has not occurred by the third succeeding
scheduled Business Day, then such date will be the Observation Date and the
Calculation Agent will determine the EUR/JPY Exchange Rate on that date in a
manner that, in its judgment, is reasonable under the circumstances. If
interest is payable on July , 2007, as described above, you will receive a
single interest payment on each
PS-11
$10 principal amount of Notes held by you equal to 11% of such principal
amount. As described below, you may receive no payment on July , 2007.
If on the Observation Date the EUR/JPY Exchange Rate is greater
than 91% of the Starting Value, you will not receive an interest payment on
July , 2007. Whether interest is or is not payable on the Notes on July ,
2007, no interest will be payable with respect to the Notes after July , 2007.
If interest on the Notes becomes payable as described above, we
will make the interest payment on July , 2007 to the persons in whose names
the Notes are registered at the close of business on the scheduled Observation
Date preceding July , 2007 whether or not the scheduled Observation Date is a
Business Day. If the interest payment date falls on a day that is not a
Business Day, that interest payment will be made on the next Business Day and
no additional interest will accrue as a result of the delayed payment. The
interest payment, if any, will be paid on the basis of a 360 day year
consisting of twelve 30-day months.
PS-12
Hypothetical Returns
The following table illustrates, for the hypothetical Starting
Value of 144.85 and a range of hypothetical Ending Values of the EUR/JPY
Exchange Rate:
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 in United States
dollars on an investment in the Japanese Yen relative to the
European Union euro.
The table below includes a Participation Rate of 120%, the
midpoint of the range of 110% to 130%. The actual Participation Rate 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 rates of return on the Notes included in the table do not
reflect the interest payment that may be payable following the Observation
Date that will occur in 2007.
Percentage
change
from the
hypothetical Total amount Pretax Annualized rate
Starting Value payable on Total rate Pretax Annualized of return on Japanese yen
Hypothetical to the hypothetical the maturity of return Rate of return on relative to European Union
Ending Value Ending Value date per unit on the Notes the Notes(1) euro (1)(2)
- --------------- ------------------- ------------- ------------ ----------------- --------------------------
101.40 -30.00% 13.3000 33.00% 14.76% 13.54%
115.88 -20.00% 12.1000 21.00% 9.75% 9.31%
130.37 -10.00% 10.9000 9.00% 4.35% 4.82%
137.61 -5.00% 10.3000 3.00% 1.48% 2.45%
141.23 -2.50% 10.0000 0.00% 0.00% 1.24%
141.95 -2.00% 9.9400 -0.60% -0.30% 0.99%
143.40 -1.00% 9.8200 -1.80% -0.90% 0.50%
144.85(3) 0.00% 9.7000 -3.00% -1.52% 0.00%
148.47 2.50% 9.7000 -3.00% -1.52% -1.26%
152.09 5.00% 9.7000 -3.00% -1.52% -2.54%
159.34 10.00% 9.7000 -3.00% -1.52% -5.19%
173.82 20.00% 9.7000 -3.00% -1.52% -10.84%
188.31 30.00% 9.7000 -3.00% -1.52% -17.04%
- ----------------------------------
(1) The annualized rates of return specified in this column are calculated
on a semiannual bond equivalent basis and assume an investment term from
June 5, 2006 to June 6, 2008, a term expected to be equal to that of the
Notes.
(2) The pretax annualized rates of return specified in this column assume
that the underlying currency position would be converted into United
States dollars at the same time that the EUR/JPY Exchange Rate would be
determined.
(3) This is the hypothetical Starting Value. The actual Starting Value will
be the EUR/JPY Exchange Rate on the Pricing Date and will be set forth
in the final pricing supplement made available in connection with sales
of the Notes.
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,
Participation Rate and term of your investment.
PS-13
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 the Notes upon any
acceleration permitted by the Notes, with respect to each unit of the Notes,
will be equal to the Minimum Redemption Amount and Supplemental Redemption
Amount, if any, calculated as though the date of acceleration were the stated
maturity date of the Notes.
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-14
THE EUR/JPY EXCHANGE RATE
The EUR/JPY Exchange Rate is a foreign exchange spot rate that
measures the relative values of two currencies, the European Union euro and
the Japanese yen. The EUR/JPY Exchange Rate increases when the European Union
euro appreciates relative to the Japanese yen and declines when the European
Union euro depreciates relative to the Japanese yen. The EUR/JPY Exchange Rate
is expressed as a rate that reflects the amount of Japanese yen that can be
exchanged for one European Union euro.
The "EUR/JPY Exchange Rate" will be the currency exchange rate in
the interbank market quoted as the Japanese yen value of one European Union
euro as reported by Bloomberg L.P. ("Bloomberg") on page FXC, or any
substitute page thereto. For purposes of determining the Starting Value and
Ending Value, and the EUR/JPY Exchange Rate on the Observation Date, such
currency exchange rate was and will be, as the case might be, that reported by
Bloomberg on page FXC, or any substitute page thereto, or calculated in
accordance with any substitute procedure, as described below, at approximately
10:00 a.m. in New York, New York on the relevant date. If the EUR/JPY Exchange
Rate is not so quoted on Bloomberg page FXC, or any substitute page thereto,
then the EUR/JPY Exchange Rate will equal the noon buying rate in New York for
cable transfers in foreign currencies as announced by the Federal Reserve Bank
of New York for customs purposes (the "Noon Buying Rate"). If the Noon Buying
Rate is not announced on such date, then the EUR/JPY Exchange Rate will be
calculated on the basis of the arithmetic mean of the applicable spot
quotations received by the Calculation Agent on the relevant date for the
purchase or sale for deposits in the relevant currencies by the New York
offices of three leading banks engaged in the interbank market (selected in
the sole discretion of the Calculation Agent) (the "Reference Banks"). If
fewer than three Reference Banks provide such spot quotations, then the
EUR/JPY Exchange Rate will be calculated on the basis of the arithmetic mean
of the applicable spot quotations received by the Calculation Agent from two
leading commercial banks in New York (selected in the sole discretion of the
Calculation Agent), for the purchase or sale for deposits in the relevant
currencies. If these spot quotations are available from fewer than two banks,
then the Calculation Agent, in its sole discretion, shall determine which
quotation is available and reasonable to be used. If no such spot quotation is
available, then the EUR/JPY Exchange Rate will be the rate the Calculation
Agent, in its sole discretion, determines to be fair and reasonable under the
circumstances at 10:00 a.m., New York City time, on the relevant date.
The following table sets forth the historical month-end values of
the EUR/JPY Exchange Rate from January 2001 through May 2006. This historical
data is not necessarily indicative of the future performance of the EUR/JPY
Exchange Rate or what the value of the Notes may be. Any upward or downward
trend in the historical value of the EUR/JPY Exchange Rate during any period
set forth below is not an indication that the EUR/JPY Exchange Rate is more or
less likely to increase or decrease at any time over the term of the Notes.
2001 2002 2003 2004 2005 2006
-----------------------------------------------------------------------------------
January............... 109.13 115.75 129.19 131.89 135.18 142.46
February.............. 108.44 115.96 127.62 136.29 138.38 138.01
March................. 110.80 115.67 128.87 128.36 138.90 142.71
April................. 109.71 115.68 132.94 132.35 134.84 143.78
May................... 100.81 116.03 140.64 133.44 133.57 144.27
June.................. 105.93 118.58 137.91 132.67 134.28
July.................. 109.52 117.18 135.38 133.84 136.37
August................ 108.36 116.34 128.42 133.01 136.57
September............. 108.85 120.18 129.98 136.85 136.51
October............... 110.24 121.28 127.46 135.38 139.58
November.............. 110.68 121.87 131.50 136.84 141.23
December.............. 117.14 124.62 135.00 139.10 139.48
PS-15
The following graph sets forth the historical performance of the
EUR/JPY Exchange Rate presented in the preceding table. This historical
information is not necessarily indicative of the future performance of the
EUR/JPY Exchange Rate. On June 5, 2006, the hypothetical Pricing Date, the
EUR/JPY Exchange Rate was 144.85.
[OBJECT OMITTED]
PS-16
UNITED STATES FEDERAL INCOME TAXATION
Set forth in full below is the opinion of Sidley Austin LLP, tax
counsel to ML&Co., as to certain United States federal income tax consequences
of the purchase, ownership and disposition of the Notes. This opinion is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including retroactive changes in effective dates) or
possible differing interpretations. 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, tax-exempt entities, real estate investment trusts,
dealers in securities or currencies, traders in securities that elect to mark
to market, tax-exempt entities (except to the extent specifically discussed
below), persons holding Notes in a tax-deferred or tax-advantaged account,
persons whose functional currency is not the United States dollar, persons
subject to the alternative minimum tax, or 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. 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 on 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 the 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 in this pricing supplement, the term "U.S. Holder" means a
beneficial owner of a Note that is for United States federal income tax
purposes (a) a citizen or resident of the United States, (b) a corporation,
partnership or other entity treated as a corporation or a partnership that is
created or organized in or under the laws of the United States, any state
thereof or the District of Columbia (other than a partnership that is not
treated as a United States person under any applicable Treasury regulations),
(c) an estate the income of which is subject to United States federal income
taxation regardless of its source, (d) 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 (e) 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. Notwithstanding clause (d) of the preceding
sentence, to the extent provided in Treasury regulations, certain trusts in
existence on August 20, 1996, and treated as United States persons prior to
that date that elect to continue to be treated as United States persons also
will be U.S. Holders. 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, for United
States federal income tax purposes, of the Notes or securities with terms
substantially the same as the Notes. However, although the matter is not free
from doubt, under current law, each Note should be characterized and treated
as a debt instrument of ML&Co. for United States federal income tax purposes.
ML&Co. currently intends to characterize and treat each Note as a debt
instrument of ML&Co. for United States federal income tax purposes and, where
required, intends to file information returns with the Internal Revenue
Service (the "IRS") in accordance with this characterization and tax
treatment, in the absence of any change or clarification in the law, by
regulation or otherwise, requiring a different characterization and tax
treatment of the Notes. Prospective investors in the Notes should be aware,
however, that the IRS is not bound by ML&Co.'s characterization and tax
treatment of the Notes as indebtedness, and the IRS could possibly take a
different position as to the proper characterization and treatment of the
Notes for United States federal income tax purposes. The following discussion
of the principal United States federal income tax consequences of the
purchase, ownership and disposition of the Notes is based upon the assumption
that each Note will be characterized and treated as a debt instrument of
ML&Co. for United States federal income tax purposes. If the Notes are not in
fact characterized and treated as debt instruments of ML&Co. for United States
federal income tax purposes, then the United States federal income tax
treatment of the purchase, ownership and disposition of the Notes could differ
from the treatment discussed below with the result that the timing and
character of income, gain or loss recognized in respect of a Note could differ
from the timing and character of income, gain or loss recognized in respect of
a Note had the Notes in fact been characterized and treated as debt
instruments of ML&Co. for United States federal income tax purposes.
U.S. Holders
On August 30, 2004, the Treasury Department issued final
regulations (the "Foreign Currency Regulations") under section 988 of the
Internal Revenue Code of 1986, as amended (the "Code"), addressing the United
States federal income tax treatment of debt instruments having terms similar
to the Notes. The Foreign Currency Regulations apply to debt instruments
issued on or after October 29, 2004, and accordingly, will apply to the Notes.
In general, under the Foreign Currency Regulations, since the annual interest
payment, if any, will be determined by reference to the EUR/JPY Exchange Rate
and
PS-17
since the amount payable on the maturity date with respect to a Note will be
determined by reference to the EUR/JPY Exchange Rate while repayment of 97% of
the principal amount of each Note will not be affected by changes in the
EUR/JPY Exchange Rate, the Notes will be taxed pursuant to the rules contained
in certain final Treasury regulations (the "CPDI Regulations") addressing the
proper United States federal income tax treatment of contingent payment debt
instruments. The CPDI Regulations generally require a U.S. Holder of this type
of an instrument to include future contingent and noncontingent interest
payments in income as that interest accrues based upon a projected payment
schedule. Moreover, in general, under the CPDI Regulations, any gain
recognized by a U.S. Holder on the sale, exchange, or retirement of a
contingent payment debt instrument is treated as ordinary income, and all or a
portion of any loss realized could be treated as ordinary loss as opposed to
capital loss (depending upon the circumstances).
The CPDI Regulations provide that a U.S. Holder must accrue an
amount of ordinary interest income, as original issue discount for United
States federal income tax purposes, for each accrual period prior to and
including the maturity date of the Notes that equals:
(1) the product of (i) the adjusted issue price (as defined below) of
the Notes as of the beginning of the accrual period; and (ii) the
comparable yield to maturity (as defined below) of the Notes,
adjusted for the length of the accrual period;
(2) divided by the number of days in the accrual period; and
(3) multiplied by the number of days during the accrual period that
the U.S. Holder held the Notes.
A Note's issue price is the first price to the public at which a
substantial amount of the Notes are sold, excluding sales to bond houses,
brokers or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers. The adjusted issue price of a
Note is its issue price increased by any interest income previously accrued,
determined without regard to any adjustments to interest accruals described
below, and decreased by the amount of any projected payments, as defined
below, previously made with respect to the Note.
The CPDI Regulations require that we provide to U.S. Holders,
solely for United States federal income tax purposes, a schedule of the
projected amounts of payments, which we refer to as projected payments, on the
Notes. This schedule must produce the comparable yield. Solely for purposes of
applying the CPDI Regulations to the Notes, ML&Co. has determined that the
projected payments for the Notes will consist of an estimate of a yearly
interest payment on July , 2007 equal to $ and a projected cash payment on the
maturity date of an amount equal to $ . This represents a comparable yield for
the Notes, as determined by ML&Co., equal to % per annum, compounded
semi-annually. The comparable yield is not an estimate of what the actual
yield will be on the Notes. U.S. Holders may also obtain the projected payment
schedule by submitting a written request for such information to Merrill Lynch
& Co., Inc., Corporate Secretary's Office, 222 Broadway, 17th Floor, New York,
New York 10038 or to corporatesecretary@exchange.ml.com.
For United States federal income tax purposes, a U.S. Holder must
use the comparable yield and the schedule of projected payments in determining
its interest accruals, and the adjustments thereto described below, in respect
of the Notes, unless the U.S. Holder timely discloses and justifies the use of
other estimates to the IRS. A U.S. Holder that determines its own comparable
yield or schedule of projected payments must also establish that our
comparable yield or schedule of projected payments is unreasonable.
The comparable yield and the schedule of projected payments are
not determined for any purpose other than for the determination of a U.S.
Holder's interest accruals and adjustments thereof in respect of the Notes for
United States federal income tax purposes and do not constitute a projection
or representation regarding the actual amounts payable on the Notes.
Amounts treated as interest under the CPDI Regulations are treated
as original issue discount for all purposes of Internal Revenue Code of 1986,
as amended ("The Code").
Adjustments to Interest Accruals on the Notes
If, during any taxable year, a U.S. Holder receives actual
payments with respect to the Notes for that taxable year that in the aggregate
exceed the total amount of projected payments for that taxable year, the U.S.
Holder will incur a "net positive adjustment" under the CPDI Regulations equal
to the amount of that excess. The U.S. Holder will treat a "net positive
adjustment" as additional interest income for the taxable year.
PS-18
If a U.S. Holder receives in a taxable year actual payments with
respect to the Notes for that taxable year that in the aggregate were less
than the amount of projected payments for that taxable year, the U.S. Holder
will incur a "net negative adjustment" under the CPDI Regulations equal to the
amount of such deficit. This adjustment will (a) reduce the U.S. Holder's
interest income on the Notes for that taxable year, and (b) to the extent of
any excess after the application of (a), give rise to an ordinary loss to the
extent of the U.S. Holder's interest income on the Notes during prior taxable
years, reduced to the extent that interest was offset by prior net negative
adjustments.
Sale, Exchange or Retirement of the Notes
Generally, the sale, exchange or retirement of a Note will result
in taxable gain or loss to a U.S. Holder. The amount of gain or loss on a
taxable sale, exchange or retirement will be equal to the difference between
(a) the amount realized by the U.S. Holder on that sale, exchange or
retirement and (b) the U.S. Holder's adjusted tax basis in the Note. A U.S.
Holder's adjusted tax basis in a Note on any date will generally be equal to
the U.S. Holder's original purchase price for the Note, increased by any
interest income previously accrued by the U.S. Holder (determined without
regard to any adjustments to interest accruals described above), and decreased
by the amount of any projected payments, as defined above, previously made to
the U.S. Holder through that date. Gain recognized upon a sale, exchange or
retirement of a Note will generally be treated as ordinary interest income;
any loss will be ordinary loss to the extent of interest previously included
in income, and thereafter, capital loss (which will be long-term if the Note
is held for more than one year). The deductibility of net capital losses by
individuals and corporations is subject to limitations.
Unrelated Business Taxable Income
Section 511 of 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 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.
PS-19
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 a 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 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.
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
PS-20
(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 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 accompany prospectus and to hedge
market risks of ML&Co. associated with its obligation to pay the Minimum
Redemption Amount and Supplemental Redemption Amount, if any.
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-21
INDEX OF CERTAIN DEFINED TERMS
Page
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Business Day.............................................. PS-11
Calculation Agent......................................... PS-3
Ending Value.............................................. PS-4
EUR/JPY Exchange Rate..................................... PS-3
Minimum Redemption Amount................................. PS-4
Notes..................................................... PS-1
Observation Date.......................................... PS-4
Participation Rate........................................ PS-4
Pricing Date.............................................. PS-3
Starting Value............................................ PS-4
Supplemental Redemption Amount............................ PS-4
Valuation Date............................................ PS-4
PS-22
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Units
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
97% Protected Currency Notes
Linked to the European Union Euro/Japanese Yen Exchange Rate
due July , 2008
(the "Notes")
$10 original public offering price per unit
---------------------------------
PRICING SUPPLEMENT
---------------------------------
Merrill Lynch & Co.
June , 2006
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