PRICING SUPPLEMENT DATED March 7, 2006
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(To Prospectus Supplement and Prospectus dated February 25, 2005)
Pricing Supplement Number: 2511
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series C
Inflation-Linked Notes Linked to the Performance of the
Consumer Price Index due March 9, 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-4 of this pricing supplement and the accompanying
prospectus supplement.
Aggregate Principal Amount........................ $26,000,000
Stated Maturity Date.............................. March 9, 2011.
Issue Price....................................... See Plan of Distribution below.
Original Issue Date............................... March 9, 2006.
Interest Calculation Type......................... Fixed Rate/Floating Rate Note.
The Notes are a "Fixed Rate/Floating Rate Note" which
means the Notes will initially bear interest at the
Initial Interest Rate (as defined below) commencing on,
and including, the Original Issue Date to, but not
including, the first Interest Reset Date (as defined
below). Commencing on, and including, the first
Interest Reset Date, the Notes will bear interest at
the rate determined by reference to the Floating
Interest Rate Basis described below.
Day Count Convention.............................. Interest will be calculated by multiplying the
principal amount of the Notes by an interest factor.
The interest factor will be computed by dividing the
interest rate applicable to each day by the actual
number of days in the year.
Floating Interest Rate Basis...................... [(CPI(t) - CPI(t-12))/CPI(t-12)] x 1.5
but will not be less than 0.00%.
where:
CPI(t) equals the value of the Consumer Price Index (as
defined below) for the third calendar month prior to
but not including the month in which the applicable
Interest Reset Date occurs, and CPI(t-12) equals the
value of the Consumer Price Index for the fifteenth
calendar month prior to but not including the month in
which the applicable Interest Reset Date occurs.
Initial Interest Rate............................. 9.00% per annum.
Maximum Interest Rate............................. None.
Minimum Interest Rate............................. For any interest period, 0.00% per annum.
Interest Payment Dates............................ Monthly, on the 9th day of each month, commencing April
9, 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 9th day of each month, commencing on
September 9, 2006. If any Interest Reset Date is not a
Business Day, the applicable Interest Reset Date will
be postponed to the next succeeding day that is a
Business Day.
CUSIP Number...................................... 59018YWV9.
Form of Notes..................................... Book-entry.
Denominations..................................... We will issue and sell the Notes in denominations of
$1,000 and integral multiples of $1,000 in excess
thereof.
Trustee........................................... JPMorgan Chase Bank, N.A.
Calculation Agent................................. Merrill Lynch Capital Services, Inc.
All determinations made by the Calculation Agent,
absent manifest error, will be conclusive for all
purposes and binding on ML&Co. and beneficial owners of
the Notes.
All percentages resulting from any calculation on the
Notes will be rounded to the nearest one
hundred-thousandth of a percentage point, with five
one-millionths of a percentage point rounded upwards,
e.g., 9.876545% (or .09876545) would be rounded to
9.87655% (or .0987655). All dollar amounts used in or
resulting from this calculation will be rounded to the
nearest cent, with one-half cent being rounded upwards.
Proceeds to ML&Co................................. $26,000,000
PS-2
Underwriter....................................... Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Plan of Distribution.............................. The Underwriter will purchase the Notes for 100% of the
principal amount of the Notes and has advised us that
it proposes to offer all or part of the Notes in one or
more transactions at varying prices related to market
conditions at the time of sale.
Business Day...................................... "Business Day" means any day other than a Saturday or
Sunday that is not a day on which banking institutions
in The City of New York are authorized or obligated by
law, regulation or executive order to close.
PS-3
RISK FACTORS
Your investment in the Notes involves certain risks. In consultation with
your own financial and legal advisers, you should carefully consider, among
other matters, the following discussion of risks, as well as the risk
described in the accompanying prospectus supplement, before deciding whether
an investment in the Notes is suitable for you.
Structure risks of Notes indexed to the Consumer Price Index
The interest payable on the Notes, except for the first monthly interest
period, is indexed to the performance of the Consumer Price Index over
successive twelve month periods. As a result, the possibility exists that
during the time the Floating Interest Rate Basis is in effect you could
receive little or no interest on a given Interest Payment Date. The Consumer
Price Index is likely to increase only slightly or decrease during periods of
deflation or little or no inflation. We have no control over a number of
matters, including economic, financial and political events, that are
important in determining the existence, magnitude and longevity of such events
and their results.
Your yield may be lower than the yield on a standard debt security of
comparable maturity
The yield that you will receive on your Notes may be less than the return
you could earn on other investments. Your yield may be less than the yield you
would earn if you bought a traditional interest bearing debt security of
ML&Co. with the same maturity date. Your investment may not reflect the full
opportunity cost to you when you take into account factors that affect the
time value of money.
The initial interest rate may not be indicative of the rate you will receive
after the initial Interest Rate Date
The interest payable on the Notes until the first Interest Reset Date
will be 9.00%. This fixed rate is higher than the interest rate that would be
applicable if the Floating Interest Rate Basis was in effect on March 7, 2006
(see the calculation below).
A trading market for the Notes is not expected to develop and if trading does
develop, the market price you may receive or be quoted for your Notes on a
date prior to the stated maturity date will be affected by this and other
important factors including our costs of developing, hedging and distributing
the Notes
The Notes will not be listed on any securities exchange and we do not
expect a trading market for the Notes to develop. Although our affiliate
MLPF&S has indicated that it 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.
PS-4
Many factors affect the trading value of the Notes; these factors interrelate
in complex ways and the effect of any one factor may offset or magnify the
effect of another factor
The trading value of the Notes will be affected by factors that
interrelate in complex ways. The effect of one factor may offset the increase
in the trading value of the Notes caused by another factor and the effect of
one factor may exacerbate the decrease in the trading value of the Notes
caused by another factor. The following paragraphs describe the expected
impact on the trading value of the Notes given a change in a specific factor,
assuming all other conditions remain constant.
Changes in the volatility of interest rates 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-5
CONSUMER PRICE INDEX
The amount of interest payable on the Notes will be linked to changes in
the Consumer Price Index. The "Consumer Price Index" for purposes of the Notes
is the nonseasonally adjusted U.S. City Average All Items Consumer Price Index
for All Urban Consumers, published monthly by the Bureau of Labor Statistics
of the U.S. Department of Labor. The Consumer Price Index is expressed in
relative terms in relation to the 1982-1984 time base reference period for
which the level of Consumer Price Index was set at 100. The Consumer Price
Index for any given month is published during the following month.
The Consumer Price Index is a measure of the average change in consumer
prices over time for a fixed market basket of goods and services, including
food, clothing, shelter, fuels, transportation, charges for doctors and
dentists services, and drugs. In calculating the Consumer Price Index, price
changes for the various items are averaged together with weights that
represent their importance in the spending of urban households in the United
States. The contents of the market basket of goods and services and the
weights assigned to the various items are updated periodically by the Bureau
of Labor Statistics to take into account changes in consumer expenditure
patterns.
The value of the Consumer Price Index for any given month will be the
value reported on Bloomberg page CPURNSA or any successor service or successor
page thereto. If the relevant values for the Consumer Price Index are not
available on Bloomberg page CPURNSA or on a successor page or successor
service on or before any Interest Reset Date, such value will be determined in
the sole discretion of the Calculation Agent.
The following table sets forth the value of the Consumer Price Index from
January 2000 to January 2006, as reported by the Bureau of Labor Statistics
and reported on Bloomberg page CPURNSA. This historical data is presented for
informational purposes only. Past movements of the Consumer Price Index are
not necessarily indicative of future values.
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2000 2001 2002 2003 2004 2005 2006
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January 168.8 175.1 177.1 181.7 185.2 190.7 198.3
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February 169.8 175.8 177.8 183.1 186.2 191.8
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March 171.2 176.2 178.8 184.2 187.4 193.3
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April 171.3 176.9 179.8 183.8 188.0 194.6
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May 171.5 177.7 179.8 183.5 189.1 194.4
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June 172.4 178.0 179.9 183.7 189.7 194.5
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July 172.8 177.5 180.1 183.9 189.4 195.4
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August 172.8 177.5 180.7 184.6 189.5 196.4
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September 173.7 178.3 181.0 185.2 189.9 198.8
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October 174.0 177.7 181.3 185.0 190.9 199.2
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November 174.1 177.4 181.3 184.5 191.0 197.6
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December 174.0 176.7 180.9 184.3 190.3 196.8
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To illustrate the Floating Interest Rate Basis applicable to the Notes,
assuming March 7, 2006 were an Interest Reset Date, based on the historical
information presented in the table above, the per annum interest rate
applicable to the Notes until the next Interest Reset Date would have been
5.12%, calculated as follows:
196.8 minus 190.3 = 6.5
6.5 divided by 190.3 = .034156594
3.4156594% multiplied by 1.5 =5.12%
In accordance with the formula used in determining the Floating Interest
Rate Basis, the December 2005 and December 2004 values of the Consumer Price
Index were used in calculating the above example.
PS-6
UNITED STATES FEDERAL INCOME TAXATION
The following discussion supplements and, to the extent that it is
inconsistent with, replaces the discussion contained in the accompanying
Prospectus Supplement in the section entitled "United States Federal Income
Taxation".
Classification of the Notes
We have received an opinion from our counsel, Sidley Austin LLP, that the
Notes will be treated as indebtedness for United States federal income tax
purposes and that the Notes will be subject to the special regulations issued
by the U.S. Treasury Department governing contingent payment debt instruments
(the "CPDI Regulations").
Accrual of Interest on the Notes
Pursuant to the CPDI Regulations, a U.S. Holder of the Notes will be
required to accrue interest income on the Notes, in the amounts described
below, regardless of whether the U.S. Holder uses the cash or accrual method
of tax accounting.
The CPDI Regulations provide that a U.S. Holder must accrue an amount of
ordinary interest income, as original issue discount for United States federal
income tax purposes, for each accrual period occurring prior to and including
the Stated Maturity Date of the Notes that equals:
(1) the product of (i) the adjusted issue price (as defined below) of
the Notes as of the beginning of the accrual period; and (ii) the
comparable yield to maturity (as defined below) of the Notes,
adjusted for the length of the accrual period;
(2) divided by the number of days in the accrual period; and
(3) multiplied by the number of days during the accrual period that the
U.S. Holder held the Notes.
A Note's issue price is the first price to the public at which a
substantial amount of the Notes are sold, excluding sales to bond houses,
brokers or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers. The adjusted issue price of a
Note is its issue price increased by any interest income previously accrued,
determined without regard to any adjustments to interest accruals described
below, and decreased by the amount of any projected payments, as defined
below, previously scheduled to have been made with respect to the Notes.
The CPDI Regulations require that we provide to U.S. Holders, solely for
United States federal income tax purposes, a schedule of the projected amounts
of payments, which we refer to as projected payments, on the Notes. This
schedule must produce the comparable yield. Solely for purposes of applying
the CPDI Regulations to the Notes, ML&Co. has determined that the projected
payments for the Notes consist of (i) monthly fixed payments of interest
calculated by reference to the Initial Interest Rate on each Interest Payment
Date up to, and including September 9, 2006, (ii) estimates of the monthly
floating payments of interest calculated by reference to the Floating Interest
Rate Basis on each Interest Payment Date occurring after September 9, 2006,
and (iii) a payment on the Stated Maturity Date of the principal amount
thereof. In addition, ML&Co. has determined that the comparable yield for the
Notes is 5.23%, compounded monthly. U.S. Holders may obtain the projected
payment schedule by submitting a written request for such information to
Merrill Lynch & Co., Inc., Corporate Secretary's Office, 222 Broadway, 17th
Floor, New York, New York 10038 or to corporatesecretary@exchange.ml.com.
For United States federal income tax purposes, a U.S. Holder must use the
comparable yield and the schedule of projected payments in determining its
interest accruals, and the adjustments thereto described below, in respect of
the Notes, unless a U.S. Holder timely discloses and justifies the use of
other estimates to the Internal Revenue Service (the "IRS"). A U.S. Holder
that determines its own comparable yield or schedule of projected payments
must also establish that our comparable yield or schedule of projected
payments is unreasonable.
PS-7
The comparable yield and the schedule of projected payments are not
determined for any purpose other than for the determination of a U.S. Holder's
interest accruals and adjustments thereof in respect of the Notes for United
States federal income tax purposes and do not constitute a projection or
representation regarding the actual amounts payable on the Notes.
Amounts treated as interest under the CPDI Regulations are treated as
original issue discount for all purposes of the Code.
Adjustments to Interest Accruals on the Notes
If, during any taxable year, a U.S. Holder receives actual payments with
respect to the Notes for that taxable year that in the aggregate exceed the
total amount of projected payments for that taxable year, the U.S. Holder will
incur a "net positive adjustment" under the CPDI Regulations equal to the
amount of that excess. The U.S. Holder will treat a "net positive adjustment"
as additional interest income for the taxable year.
If a U.S. Holder receives in a taxable year actual payments with respect
to the Notes for that taxable year that in the aggregate were less than the
amount of projected payments for that taxable year, the U.S. Holder will incur
a "net negative adjustment" under the CPDI Regulations equal to the amount of
such deficit. This adjustment will (a) reduce the U.S. Holder's interest
income on the Notes for that taxable year, and (b) to the extent of any excess
after the application of (a), give rise to an ordinary loss to the extent of
the U.S. Holder's interest income on the Notes during prior taxable years,
reduced to the extent that interest was offset by prior net negative
adjustments.
Sale or Exchange of the Notes
Generally, the sale or exchange of a Note will result in taxable gain or
loss to a U.S. Holder. The amount of gain or loss on a taxable sale or
exchange will be equal to the difference between (a) the amount realized by
the U.S. Holder on that sale or exchange and (b) the U.S. Holder's adjusted
tax basis in the Note. A U.S. Holder's adjusted tax basis in a Note on any
date will generally be equal to the U.S. Holder's original purchase price for
the Note, increased by any interest income previously accrued by the U.S.
Holder (determined without regard to any adjustments to interest accruals
described above), and decreased by the amount of any projected payments (as
defined above) previously made to the U.S. Holder through that date. Gain
recognized upon a sale or exchange of a Note will generally be treated as
ordinary interest income; any loss will be ordinary loss to the extent of
interest previously included in income, and thereafter, capital loss (which
will be long-term if the Note is held for more than one year as of the date of
the disposition). The deductibility of net capital losses by individuals and
corporations is subject to limitations.
Prospective investors should also consult the summary describing the
principal U.S. federal income tax consequences of the purchase, ownership and
disposition of the Notes contained in the section entitled "United States
Federal Income Taxation" in the accompanying Prospectus Supplement.
PS-8