PRICING SUPPLEMENT DATED April 3, 2006
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(To Prospectus Supplement and Prospectus dated February 25, 2005)
Pricing Supplement Number: 2518
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
Inflation-Linked Notes Linked to the Performance of the
Consumer Price Index due April 5, 2011
(the "Notes")
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The Notes are part of a series of senior debt securities entitled
"Medium-Term Notes, Series C" as more fully described in the accompanying
prospectus (which term includes the accompanying prospectus supplement).
Information included in this pricing supplement supersedes information in the
prospectus to the extent it is different from the information included in the
prospectus.
References in this Pricing Supplement to "ML&Co.", "we", "us" and "our"
are to Merrill Lynch & Co., Inc., and references to "MLPF&S" are to Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
Investing in the Notes involves risks that are described in the "Risk
Factors" section on page PS-3 of this pricing supplement and the accompanying
prospectus supplement.
Aggregate Principal Amount................... $11,800,000
Stated Maturity Date......................... April 5, 2011.
Issue Price.................................. See Plan of Distribution below.
Original Issue Date.......................... April 5, 2006.
Interest Calculation Type.................... Floating Rate Note
Day Count Convention......................... Interest will be calculated by multiplying the principal amount of
the Notes by an interest factor. The interest factor will be
computed by dividing the interest rate applicable to each day by
the actual number of days in the year.
Interest Rate Basis......................... [(CPI(t) - CPI(t-12))/CPI(t-12)] x 1.7
but will not be less than 0.00%.
where:
CPI(t) equals the value of the Consumer Price Index (as defined below)
for the third calendar month prior to but not including the month in
which the applicable Interest Reset Date occurs, and CPI(t-12) equals
the value of the Consumer Price Index for the fifteenth calendar month
prior to but not including the month in which the applicable Interest
Reset Date occurs.
Initial Interest Rate........................ 6.78%
Maximum Interest Rate........................ None.
Minimum Interest Rate........................ For any interest period, 0.00% per annum.
Interest Payment Dates....................... Monthly, on the 5th day of each month, commencing May 5, 2006, and on
the maturity date. If any Interest Payment Date falls on a day that is
not a Business Day, payment will be made on the immediately succeeding
Business Day and no interest will accrue as a result of the delayed
payment.
Interest Reset Dates......................... Monthly, on the 5th day of each month, commencing on May 5, 2006.
CUSIP Number................................. 59018YWZ0.
Form of Notes................................ Book-entry.
Denominations................................ We will issue and sell the Notes in denominations of $1,000 and
integral multiples of $1,000 in excess thereof.
Trustee...................................... JPMorgan Chase Bank, N.A.
Calculation Agent............................ Merrill Lynch Capital Services, Inc.
All determinations made by the Calculation Agent, absent manifest
error, will be conclusive for all purposes and binding on ML&Co. and
beneficial owners of the Notes.
All percentages resulting from any calculation on the Notes will be
rounded to the nearest one hundred-thousandth of a percentage point,
with five one-millionths of a percentage point rounded upwards, e.g.,
9.876545% (or .09876545) would be rounded to 9.87655% (or .0987655);
provided that the applicable Interest Rate will be rounded to
one-hundredth of a percentage point. All dollar amounts used in or
resulting from this calculation will be rounded to the nearest cent,
with one-half cent being rounded upwards.
Proceeds to ML&Co............................ $11,800,000
Underwriter.................................. Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Plan of Distribution......................... The Underwriter will purchase the Notes for 100% of the principal
amount of the Notes and has advised us that it proposes to offer all
or part of the Notes in one or more transactions at varying prices
related to market conditions at the time of sale.
Business Day................................. "Business Day" means any day other than a Saturday or Sunday that is
not a day on which banking institutions in The City of New York are
authorized or obligated by law, regulation or executive order to
close.
PS-2
RISK FACTORS
Your investment in the Notes involves certain risks. In consultation with
your own financial and legal advisers, you should carefully consider, among
other matters, the following discussion of risks, as well as the risk
described in the accompanying prospectus supplement, before deciding whether
an investment in the Notes is suitable for you.
Structure risks of Notes indexed to the Consumer Price Index
The interest payable on the Notes is indexed to the performance of the
Consumer Price Index over successive twelve month periods. As a result, the
possibility exists that you could receive little or no interest on a given
Interest Payment Date. The Consumer Price Index is likely to increase only
slightly or decrease during periods of deflation or little or no inflation. We
have no control over a number of matters, including economic, financial and
political events that are important in determining the existence, magnitude
and longevity of such events and their results.
Your yield may be lower than the yield on a standard debt security of
comparable maturity
The yield that you will receive on your Notes may be less than the return
you could earn on other investments. Your yield may be less than the yield you
would earn if you bought a traditional interest bearing debt security of
ML&Co. with the same maturity date. Your investment may not reflect the full
opportunity cost to you when you take into account factors that affect the
time value of money.
A trading market for the Notes is not expected to develop and if trading does
develop, the market price you may receive or be quoted for your Notes on a
date prior to the stated maturity date will be affected by this and other
important factors including our costs of developing, hedging and distributing
the Notes
The Notes will not be listed on any securities exchange and we do not
expect a trading market for the Notes to develop. Although our affiliate
MLPF&S has indicated that it currently expects to bid for Notes offered for
sale to it by holders of the Notes, it is not required to do so and may cease
making those bids at any time. In addition, while we describe in this pricing
supplement how you can calculate the interest rate on the Notes after the
initial Interest Reset Date from publicly available information, we will not
publish such rate over the term of the Notes and this may limit the trading
market for the Notes. The limited trading market for your Notes may affect the
price that you receive for your Notes if you do not wish to hold your
investment until the maturity date.
If MLPF&S makes a market in the Notes, the price it quotes would reflect
any changes in market conditions and other relevant factors. In addition, the
price, if any, at which you could sell your Notes in a secondary market
transaction is expected to be affected by the factors that we considered in
setting the economic terms of the Notes, namely the underwriting discount paid
in respect of the Notes and other costs associated with the Notes, including
compensation for developing and hedging the product. This quoted price could
be higher or lower than the $1,000 principal amount. Furthermore, there is no
assurance that MLPF&S or any other party will be willing to buy the Notes.
MLPF&S is not obligated to make a market in the Notes.
Assuming the rate of return on the Notes is constant over the term of the
Notes and there is no change in market conditions or any other relevant
factors, the price, if any, at which MLPF&S or another purchaser might be
willing to purchase your Notes in a secondary market transaction is expected
to be lower than the $1,000 principal amount. This is due to, among other
things, the fact that the $1,000 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. The following
PS-3
paragraphs describe the expected impact on the trading value of the Notes
given a change in a specific factor, assuming all other conditions remain
constant.
Changes in the volatility of interest rates 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
interest rates increases or decreases, the trading value of the Notes may be
adversely affected.
As the time remaining to the stated maturity date of the Notes decreases,
the "time premium" associated with the Notes is expected to decrease. We
anticipate that before their stated maturity date, the Notes may trade at a
value above that which would be expected based on the level of interest rates.
This difference will reflect a "time premium" due to expectations concerning
the level of in interest rates during the period before the stated maturity
date of the Notes. However, as the time remaining to the stated maturity date
of the Notes decreases, we expect that this time premium will decrease,
lowering the trading value of the Notes.
Changes in our credit ratings may affect the trading value of the Notes.
Our credit ratings are an assessment of our ability to pay our obligations.
Consequently, real or anticipated changes in our credit ratings may affect the
trading value of the Notes. However, because the return on your Notes is
dependent upon factors in addition to our ability to pay our obligations under
the Notes, such as the percentage increase, if any, in the level of the
Consumer Price Index over the term of the Notes, an improvement in our credit
ratings will not reduce the other investment risks related to the Notes.
In general, assuming all relevant factors are held constant, we expect
that the effect on the trading value of the Notes of a given change in some of
the factors listed above will be less if it occurs later in the term of the
Notes than if it occurs earlier in the term of the Notes. We expect, however,
that the effect on the trading value of the Notes of a given change in the
level of the Consumer Price Index will be greater if it occurs later in the
term of the Notes than if it occurs earlier in the term of the Notes.
Potential conflicts of interest could arise
Our subsidiary Merrill Lynch Capital Services, Inc. is our agent for the
purposes of calculating the interest payable on each Interest Payment Date.
Under certain circumstances, Merrill Lynch Capital Services, Inc. as our
subsidiary and its responsibilities as Calculation Agent for the Notes could
give rise to conflicts of interest. These conflicts could occur, for instance,
in connection with judgments that it would be required to make in the event of
a discontinuance or unavailability of the Consumer Price Index. Merrill Lynch
Capital Services, Inc. is required to carry out its duties as Calculation
Agent in good faith and using its reasonable judgment. However, because we
control Merrill Lynch Capital Services, Inc., potential conflicts of interest
could arise.
We expect to enter into arrangements to hedge the market risks associated
with our obligation to pay the interest on each Interest Payment Date and
principal due on the maturity date on the Notes. We may seek competitive terms
in entering into the hedging arrangements for the Notes, but are not required
to do so, and we may enter into such hedging arrangements with one of our
subsidiaries or affiliated companies. Such hedging activity is expected to
result in a profit to those engaging in the hedging activity, which could be
more or less than initially expected, but which could also result in a loss
for the hedging counterparty.
Tax consequences
You should consider the tax consequences of investing in the Notes. See
the section entitled "United States Federal Income Taxation" in this pricing
supplement.
PS-4
CONSUMER PRICE INDEX
The amount of interest payable on the Notes will be linked to changes in
the Consumer Price Index. The "Consumer Price Index" for purposes of the Notes
is the nonseasonally adjusted U.S. City Average All Items Consumer Price Index
for All Urban Consumers, published monthly by the Bureau of Labor Statistics
of the U.S. Department of Labor. The Consumer Price Index is expressed in
relative terms in relation to the 1982-1984 time base reference period for
which the level of Consumer Price Index was set at 100. The Consumer Price
Index for any given month is published during the following month.
The Consumer Price Index is a measure of the average change in consumer
prices over time for a fixed market basket of goods and services, including
food, clothing, shelter, fuels, transportation, charges for doctors and
dentists services, and drugs. In calculating the Consumer Price Index, price
changes for the various items are averaged together with weights that
represent their importance in the spending of urban households in the United
States. The contents of the market basket of goods and services and the
weights assigned to the various items are updated periodically by the Bureau
of Labor Statistics to take into account changes in consumer expenditure
patterns.
The value of the Consumer Price Index for any given month will be the
value reported on Bloomberg page CPURNSA or any successor service or successor
page thereto. If the relevant values for the Consumer Price Index are not
available on Bloomberg page CPURNSA or on a successor page or successor
service on or before any Interest Reset Date, such value will be determined in
the sole discretion of the Calculation Agent.
The following table sets forth the value of the Consumer Price Index from
January 2001 to February 2006, as reported by the Bureau of Labor Statistics
and reported on Bloomberg page CPURNSA. This historical data is presented for
informational purposes only. Past movements of the Consumer Price Index is not
necessarily indicative of future values.
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2001 2002 2003 2004 2005 2006
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January 175.1 177.1 181.7 185.2 190.7 198.3
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February 175.8 177.8 183.1 186.2 191.8 198.7
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March 176.2 178.8 184.2 187.4 193.3
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April 176.9 179.8 183.8 188.0 194.6
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May 177.7 179.8 183.5 189.1 194.4
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June 178.0 179.9 183.7 189.7 194.5
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July 177.5 180.1 183.9 189.4 195.4
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August 177.5 180.7 184.6 189.5 196.4
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September 178.3 181.0 185.2 189.9 198.8
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October 177.7 181.3 185.0 190.9 199.2
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November 177.4 181.3 184.5 191.0 197.6
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December 176.7 180.9 184.3 190.3 196.8
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To illustrate the Interest Rate Basis applicable to the Notes, the
initial Interest Rate, with April 5, 2006 as a deemed Interest Reset Date,
calculated as follows:
198.3 minus 190.7 = 7.6
7.6 divided by 190.7 = .0398532
3.98532% multiplied by 1.7 = 6.78%
In accordance with the formula used in determining the Interest Rate
Basis, the January 2005 and January 2004 values of the Consumer Price Index
were used in calculating the above example.
PS-5
UNITED STATES FEDERAL INCOME TAXATION
The following discussion supplements and, to the extent that it is
inconsistent with, replaces the discussion contained in the accompanying
prospectus supplement in the section entitled "United States Federal Income
Taxation".
U.S. Holders
Payments of Interest. For the reasons discussed below, payments of
interest on a Note generally should be taxable to a U.S. Holder as ordinary
interest income at the time such payments are accrued or are received (in
accordance with the U.S. Holder's regular method of tax accounting).
The following summary is based upon final Treasury regulations (the "OID
Regulations") released by the Internal Revenue Service ("IRS") under the
original issue discount provisions of the Internal Revenue Code of 1986, as
amended (the "Code"). Under the OID Regulations, debt instruments having terms
similar to the Notes (hereinafter "Variable Notes") are subject to special
rules whereby a Variable Note will qualify as a "variable rate debt
instrument" if:
o its issue price does not exceed the total noncontingent principal
payments due under the Variable Note by more than a specified de minimis
amount and
o it provides for stated interest, paid or compounded at least annually,
at current values of:
o one or more qualified floating rates,
o a single fixed rate and one or more qualified floating rates,
o a single objective rate, or
o a single fixed rate and a single objective rate that is a qualified
inverse floating rate.
An "objective rate" is a rate that is not itself a qualified floating
rate but which is determined using a single fixed formula that is based on
objective financial or economic information. A rate will not qualify as an
objective rate if it is based on information that is within the control of the
issuer (or a related party) or that is unique to the circumstances of the
issuer (or a related party), such as dividends, profits, or the value of the
issuer's stock (although a rate does not fail to be an objective rate merely
because it is based on the credit quality of the issuer). A "current value" of
an objective rate is the value of the objective rate on any day that is no
earlier than 3 months prior to the first day on which the value is in effect
and no later than one year following that first day. Based upon the foregoing,
the Notes should qualify as variable rate debt instruments which provide for
stated interest at current values of a single objective rate.
If a Variable Note that provides for stated interest at a single
objective rate throughout the term thereof qualifies as a "variable rate debt
instrument" under the OID Regulations, and if the interest on a Variable Note
is unconditionally payable in cash or property (other than debt instruments of
the issuer) at least annually, then all stated interest on the Variable Note
will constitute qualified stated interest and will be taxed accordingly. In
general, payments of qualified stated interest are includible in a U.S.
Holder's income as interest at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). Thus, a Variable Note that provides for stated interest at a
single objective rate throughout the term thereof and that qualifies as a
"variable rate debt instrument" under the OID Regulations, such as the Notes,
will generally not be treated as having been issued with original issue
discount unless the Variable Note is issued at a "true" discount (i.e., at a
price below the Variable Note's stated principal amount) in excess of a
specified de minimis amount. Since the Notes will be originally issued at a
price equal to $1,000 per Note, the Notes will be treated as providing only
for qualified stated interest and not as having been issued with original
issue discount. In the case of a Variable Note that provides for a single
objective rate, the specific amount of qualified stated interest that accrues
during an accrual period on such a Variable Note is determined under the rules
applicable to fixed rate debt instruments by assuming that the objective rate
is a fixed rate equal to a fixed rate that reflects the yield that is
reasonably expected for the Variable Note. The qualified stated interest
allocable to an accrual period is increased (or decreased) if the interest
actually paid during an accrual period exceeds (or is less than) the interest
assumed to be paid during the accrual period pursuant to the foregoing rules.
PS-6
Prospective investors should also consult the summary describing the
principal U.S. federal income tax consequences of the purchase, ownership and
disposition of the Notes contained in the section entitled "United States
Federal Income Taxation" in the accompanying prospectus supplement.
PS-7