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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
-----------------------------------------------
For the fiscal year ended December 29, 2000
MERRILL LYNCH PREFERRED CAPITAL TRUST I
(Exact name of Registrant as specified in its certificate of trust)
COMMISSION FILE NO.: 1-7182-01
Delaware 13-7102991
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4 World Financial Center
New York, New York 10080
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 449-1000
SECURITIES REGISTERED PURSUANT TO SECTION12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
- ------------------- --------------------------------------------
7-3/4% Trust Originated New York Stock Exchange
Preferred Securities ("TOPrS")
(and the related guarantee)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
MERRILL LYNCH PREFERRED FUNDING I, L.P.
(Exact name of Registrant as specified in its
certificate of limited partnership)
COMMISSION FILE NO.: 1-7182-02
Delaware 13-3917686
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4 World Financial Center
New York, New York 10080
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 449-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
7-3/4% Partnership Preferred New York Stock Exchange
Securities (and the related
guarantee)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
As of March 28, 2001, no voting stock was held by non-affiliates of the
Registrants.
Documents Incorporated By Reference:
Prospectus, dated December 11, 1996, filed pursuant to Rule 424(b) in
connection with Registration Statement on Form S-3 (No. 333-16603) filed by the
Registrants and Merrill Lynch & Co., Inc.-- Incorporated by reference in Part I
================================================================================
PART I
------
ITEM 1. BUSINESS
--------
Merrill Lynch Preferred Capital Trust I
---------------------------------------
Merrill Lynch Preferred Capital Trust I (the "Trust") is a statutory
business trust formed under the Delaware Business Trust Act, as amended,
pursuant to a declaration of trust and the filing of a certificate of trust with
the Secretary of State on November 20, 1996, which was subsequently amended by
an amended and restated declaration of trust dated as of December 11, 1996. The
Trust exists for the exclusive purposes of (i) issuing trust securities,
consisting of 7-3/4% Trust Originated Preferred Securities (the "TOPrS") and
trust common securities (the "Trust Common Securities"), representing undivided
beneficial ownership interests in the assets of the Trust, (ii) investing the
gross proceeds of the trust securities in 7-3/4% Partnership Preferred
Securities (the "Partnership Preferred Securities") issued by Merrill Lynch
Preferred Funding I, L.P. (the "Partnership"), and (iii) engaging in only those
other activities necessary or incidental thereto.
Merrill Lynch Preferred Funding I, L.P.
---------------------------------------
The Partnership is a limited partnership formed under the Delaware
Revised Uniform Limited Partnership Act, as amended, pursuant to an agreement of
limited partnership and the filing of a certificate of limited partnership with
the Secretary of State on November 20, 1996, which was subsequently amended by
an amended and restated agreement of limited partnership dated December 17,
1996. Merrill Lynch & Co., Inc. (the "Company") is the sole general partner of
the Partnership. The Partnership is managed by the general partner and exists
for the exclusive purposes of (i) issuing its partnership interests, consisting
of the Company's general partner interest and the Partnership Preferred
Securities, (ii) investing the proceeds thereof in certain eligible securities
of the Company and wholly owned subsidiaries of the Company (the "Affiliate
Investment Instruments") and certain eligible debt securities, and (iii)
engaging in only those other activities necessary or incidental thereto.
The information set forth under the headings "Merrill Lynch Preferred
Capital Trust I", "Merrill Lynch Preferred Funding I, L.P.", "Description of the
Trust Preferred Securities", "Description of the Trust Guarantee", "Description
of the Partnership Preferred Securities", "Description of the Partnership
Guarantee", and "Use of Proceeds" in the Prospectus dated December 11, 1996, of
the Trust and the Partnership is incorporated by reference herein.
ITEM 2. PROPERTIES
----------
Not Applicable.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Registrants know of no material legal proceedings involving the
Trust, the Partnership or the assets of either of them.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matter was submitted to a vote of holders of any securities of the
Trust or the Partnership during the fiscal year covered by this report.
PART II
-------
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
(a) There is no established public market for the Trust Common
Securities or the general partnership interest in the Partnership.
(b) All of the Trust Common Securities and the entire general
partnership interest in the Partnership are owned of record and beneficially by
the Company.
(c) The Company, as holder of the Trust Common Securities, is entitled
to receive cumulative cash distributions accumulating from December 17, 1996 and
payable quarterly in arrears on each March 30, June 30, September 30 and
December 30, commencing December 30, 1996, at an annual rate of 7-3/4% of the
liquidation amount per annum. Distributions not paid on the scheduled payment
date will accumulate and compound quarterly at a rate per annum equal to 7-3/4%.
The certificate of limited partnership of the Partnership does not require any
regular periodic distributions to be made to the general partner; however, to
the extent that aggregate payments to the Partnership on the Affiliate
Investment Instruments and on certain eligible debt securities exceed
distributions accumulated or payable with respect to the Partnership Preferred
Securities, the Partnership may at times have excess funds which shall be
allocated to and may, in the general partner's sole discretion, be distributed
to the general partner.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The Registrants' activities are limited to issuing securities and
investing the proceeds as described in ITEM 1. -- Business, above. Accordingly,
the financial statements included herein in response to ITEM 8. -- Financial
Statements and Supplementary Data are incorporated by reference in response to
this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
The Registrants' activities are limited to issuing securities and
investing the proceeds as described in ITEM 1. -- Business, above. Since the
Trust was organized on November 20, 1996, its activities, as specified in its
declaration of trust, have been limited to the issuance of the TOPrS and the
Trust Common Securities, the investing of the proceeds in the Partnership
Preferred Securities, and the payment of distributions on the TOPrS and the
Trust Common Securities in accordance with their terms. Since the Partnership
was organized on November 20, 1996, its activities, as specified in its
agreement of limited partnership, have been limited to the issuance of the
Partnership Preferred Securities, the receipt of a capital contribution from the
Company, as general partner, the investment of the proceeds in Affiliate
Investment Instruments and certain eligible debt securities, and the payment of
distributions on the Partnership Preferred Securities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
On December 17, 1996, the Trust invested the gross proceeds from the
sale of the Trust Common Securities and the TOPrS in the Partnership Preferred
Securities (the "Trust Assets"). The Partnership, in turn, invested the proceeds
from the sale of the Partnership Preferred Securities and a capital contribution
from ML & Co. in certain Affiliate Investment Instruments and eligible
securities (the "Partnership Assets"). To the extent the Partnership has funds
available from the Partnership Assets, the general partner of the Partnership
may declare distributions to the Trust, as holder of the Partnership Preferred
Securities. The Trust's ability to pay distributions to the holders of the TOPrS
is dependent on its receipt of distributions on the Trust Assets from the
Partnership. Therefore, upon the receipt by the Partnership of payments from the
Partnership Assets and the distribution thereof to the Trust, the Trust will
pass through such payments to the holders of the TOPrS.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
In response to this ITEM 8, the financial statements and notes thereto
and the independent auditors' reports set forth on pages F-1 through F-15 are
incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURES
----------------------
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The Trustees of the Trust are as follows:
Regular Trustees: John C. Stomber
Stanley Schaefer
Property Trustee: The Chase Manhattan Bank
Delaware Trustee: Chase Manhattan Bank Delaware
Stanley Schaefer is Senior Director of Corporate Tax for the Company
and has served in that capacity or another capacity with the Company for the
last five years. John C. Stomber is Senior Vice President and Treasurer of the
Company. Mr. Stomber joined the Company in March 1999. Mr. Stomber was an
employee of Deutsche Bank from 1991 to March 1999, serving as Deutsche Bank's
Treasurer for the Americas Region starting in 1996.
With the exception of Mr. Stomber, each Trustee has served since the
Trust was organized on November 20, 1996. Mr. Stomber has served since September
30, 1999. The Trustees serve at the pleasure of the Company, as the holder of
the Trust Common Securities.
The Partnership has no directors or executive officers.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Neither the Trust nor the Partnership has any executive officers. No
employee of the Company receives any compensation for serving as a Regular
Trustee or acting in any capacity for the Trust or the Partnership separate from
his or her compensation as an employee of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information in ITEM 1. -- Business and ITEM 5. -- Market for
Registrants' Common Equity and Related Stockholder Matters with respect to
ownership of the Trust Common Securities is incorporated by reference in
response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
None.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) Documents filed as part of this Report:
1. Financial Statements
The contents of the financial statements are listed on page
F-1 hereof, and the financial statements and accompanying independent
auditors' reports appear on pages F-2 through F-15.
2. Financial Statement Schedules
None.
3. Exhibits
Certain of the following exhibits were previously filed as
exhibits to other reports or registration statements filed by the
Registrants and are incorporated herein by reference to such reports or
registration statements as indicated parenthetically below by the
appropriate report reference date or registration statement number.
4.1 Certificate of Trust dated November 20, 1996, of the Trust
(incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-3 (No. 333-16603) (the "Registration
Statement"))
4.2 Amended and Restated Declaration of Trust of the Trust, dated
as of December 11, 1996 (incorporated by reference to Exhibit
4.2 to the Trust's Annual Report on Form 10-K for the fiscal
year ended December 27, 1996 (File No.
1-7182-01))
4.3 Certificate of Limited Partnership, dated as of November 20,
1996, of the Partnership (incorporated by reference to
Exhibit 4.3 to Registration Statement)
4.4 Amended and Restated Agreement of Limited Partnership of the
Partnership (incorporated by reference to Exhibit 4.4 to the
Partnership's Annual Report on Form 10-K for the fiscal year
ended December 27, 1996 (File No. 1-7182-02))
4.5 Form of Trust Preferred Securities Guarantee Agreement between
the Company and The Chase Manhattan Bank, as guarantee trustee
(incorporated by reference to Exhibit 4.5 to the Registration
Statement)
4.6 Form of Partnership Preferred Securities Guarantee Agreement
between the Company and The Chase Manhattan Bank, as guarantee
trustee (incorporated by reference to Exhibit 4.6 to the
Registration Statement)
4.7 Form of Subordinated Debenture Indenture between the Company
and The Chase Manhattan Bank, as trustee (incorporated by
reference to Exhibit 4.7 to the Registration Statement)
4.8 Form of Affiliate Debenture Guarantee Agreement between the
Company and The Chase Manhattan Bank, as guarantee trustee
(incorporated by reference to Exhibit 4.8 to the Registration
Statement)
4.9 Form of Trust Preferred Security (included in Exhibit 4.2
above)
4.10 Form of Partnership Preferred Security (included in Exhibit
4.4 above)
4.11 Form of Subordinated Debenture (incorporated by reference to
Exhibit 4.11 to the Registration Statement)
12* Computation of Ratios of Earnings to Combined Fixed Charges
and Preferred Securities Distributions
23* Consent of Deloitte & Touche LLP
24* Powers of Attorney
(b) Reports on Form 8-K
None.
- ---------------
* Filed herewith
INDEX TO FINANCIAL STATEMENTS
-----------------------------
ITEM 14(a)(1)
FINANCIAL STATEMENTS PAGE
- -------------------- ----
MERRILL LYNCH PREFERRED CAPITAL TRUST I
Balance Sheets, December 29, 2000 and December 31, 1999 F-2
Statements of Earnings, Years Ended December 29, 2000,
December 31, 1999, and December 25, 1998 F-3
Statements of Changes in Stockholders' Equity, Years
Ended December 29, 2000, December 31, 1999,
and December 25, 1998 F-4
Statements of Cash Flows, Years Ended December 29, 2000,
December 31, 1999, and December 25, 1998 F-5
Notes to Financial Statements F-6
Independent Auditors' Report F-8
MERRILL LYNCH PREFERRED FUNDING I, L.P.
Balance Sheets, December 29, 2000 and December 31, 1999 F-9
Statements of Earnings, Years Ended December 29, 2000,
December 31, 1999, and December 25, 1998 F-10
Statements of Changes in Partners' Capital, Years Ended
December 29, 2000, December 31, 1999,
and December 25, 1998 F-11
Statements of Cash Flows, Years Ended December 29, 2000,
December 31, 1999, and December 25, 1998 F-12
Notes to Financial Statements F-13
Independent Auditors' Report F-15
F-1
MERRILL LYNCH PREFERRED CAPITAL TRUST I
BALANCE SHEETS
(dollars in thousands, except per security amounts)
- -----------------------------------------------------------------------------------------------------------------------
December 29, 2000 DECEMBER 31, 1999
----------------- -----------------
ASSETS
Investment in partnership preferred securities $ 283,505 $ 283,505
Income receivable 5,493 -
---------- ----------
Total Assets $ 288,998 $ 283,505
========== ==========
LIABILITY AND STOCKHOLDERS' EQUITY
Distributions payable $ 5,493 $ -
---------- ----------
Stockholders' equity:
Preferred securities (7 3/4% Trust Originated Preferred Securities;
11,000,000 authorized, issued, and outstanding; $25 liquidation
amount per security) 275,000 275,000
Common securities (7 3/4% Trust Common Securities;
340,208 authorized, issued, and outstanding;
$25 liquidation amount per security) 8,505 8,505
---------- ----------
Total Stockholders' equity 283,505 283,505
---------- ----------
Total Liability and Stockholders' Equity $ 288,998 $ 283,505
========== ==========
See Notes to Financial Statements
F-2
MERRILL LYNCH PREFERRED CAPITAL TRUST I
STATEMENTS OF EARNINGS
(dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED
----------------------------------------------------------
DECEMBER 29, 2000 DECEMBER 31, 1999 DECEMBER 25, 1998
----------------- ----------------- -----------------
EARNINGS
Income on partnership preferred securities $ 21,972 $ 21,972 $ 21,972
======== ======== ========
See Notes to Financial Statements
F-3
MERRILL LYNCH PREFERRED CAPITAL TRUST I
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands)
- -----------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED
------------------------------------------------------------
DECEMBER 29, 2000 DECEMBER 31, 1999 DECEMBER 25, 1998
----------------- ----------------- -----------------
PREFERRED SECURITIES
Balance, beginning and end of period $ 275,000 $ 275,000 $ 275,000
---------- ---------- ----------
COMMON SECURITIES
Balance, beginning and end of period 8,505 8,505 8,505
---------- ---------- ----------
UNDISTRIBUTED EARNINGS
Balance, beginning of period - - -
Earnings 21,972 21,972 21,972
Distributions (16,479) (21,972) (16,479)
Distributions payable (5,493) - (5,493)
---------- ---------- ----------
Balance, end of period - - -
---------- ---------- ----------
Total Stockholders' Equity $ 283,505 $ 283,505 $ 283,505
========== ========== ==========
See Notes to Financial Statements
F-4
MERRILL LYNCH PREFERRED CAPITAL TRUST I
STATEMENTS OF CASH FLOWS
(dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED
--------------------------------------------------------------
DECEMBER 29, 2000 DECEMBER 31, 1999 DECEMBER 25, 1998
------------------ ----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings $ 21,972 $ 21,972 $ 21,972
(Increase) decrease in income receivable (5,493) 5,493 -
--------- --------- ---------
Cash provided by operating activities 16,479 27,465 21,972
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (16,479) (27,465) (21,972)
--------- --------- ---------
Cash used for financing activities (16,479) (27,465) (21,972)
--------- --------- ---------
NET CHANGE IN CASH - - -
CASH, BEGINNING OF PERIOD - - -
--------- --------- ---------
CASH, END OF PERIOD $ - $ - $ -
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Preferred and common distributions of $5,328 and $165, respectively, were
accrued at December 29, 2000 and December 25, 1998 and distributed in the
following fiscal years.
See Notes to Financial Statements
F-5
MERRILL LYNCH PREFERRED CAPITAL TRUST I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 29, 2000
- -------------------------------------------------------------------------------
1. ORGANIZATION AND PURPOSE
Merrill Lynch Preferred Capital Trust I (the "Trust") is a statutory business
trust formed under the laws of the State of Delaware on November 20, 1996 for
the exclusive purposes of (i) issuing its preferred and common securities (the
"Trust Preferred Securities" and the "Trust Common Securities", respectively),
(ii) purchasing partnership preferred securities (the "Partnership Preferred
Securities"), representing the limited partnership interest of Merrill Lynch
Preferred Funding I, L.P. (the "Partnership"), with the proceeds from the sale
of Trust Preferred and Common Securities, and (iii) engaging in only those other
activities necessary or incidental thereto.
Merrill Lynch & Co., Inc. (the "Company") has paid compensation to the
underwriters of the offering of the Trust Preferred Securities. The Company also
has agreed to (i) pay all fees and expenses related to the organization and
operations of the Trust (including taxes, duties, assessments, or government
charges of whatever nature (other than withholding taxes) imposed by the United
States or any other domestic taxing authority upon the Trust) and the offering
of the Trust Preferred Securities and (ii) be responsible for all debts and
other obligations of the Trust (other than with respect to the Trust Preferred
and Common Securities). The Company has agreed to indemnify the trustees and
certain other persons.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements are presented in accordance with accounting principles
generally accepted in the United States of America, which require management to
make estimates that affect reported amounts and disclosure of contingencies in
the financial statements. As such, actual results could differ from those
estimates.
INVESTMENT
The investment in Partnership Preferred Securities represents a limited
partnership interest in the Partnership and is recorded at cost. At year end,
the fair value of the investment approximates its carrying value. Income on the
Partnership Preferred Securities is accrued when earned.
INCOME TAXES
The Trust does not incur any income tax liabilities. Such liabilities are
incurred directly by the security holders.
F-6
MERRILL LYNCH PREFERRED CAPITAL TRUST I
NOTES TO FINANCIAL STATEMENTS
December 29, 2000
- --------------------------------------------------------------------------------
3. INVESTMENT IN PARTNERSHIP PREFERRED SECURITIES
The Trust holds 11,340,208 7 3/4% Partnership Preferred Securities, $25
liquidation preference per security. The interest payment dates and redemption
provisions of the Partnership Preferred Securities, which are redeemable after
December 30, 2006 at the option of the Partnership, correspond to the
distribution payment dates and redemption provisions of the Trust Preferred
Securities. Upon any redemption of the Partnership Preferred Securities, the
Trust Preferred Securities will be redeemed. The Company has guaranteed, on a
subordinated basis, the payment of distributions by the Partnership on the
Partnership Preferred Securities if, as, and when declared out of funds legally
available and payments upon liquidation of the Partnership or the redemption of
the Partnership Preferred Securities to the extent of funds legally available.
4. STOCKHOLDERS' EQUITY
TRUST PREFERRED SECURITIES
The Trust issued 11,000,000 7 3/4% Trust Preferred Securities, $25 liquidation
amount per security in a public offering on December 17, 1996. The Trust
Preferred Securities are redeemable on or after December 30, 2006 at the option
of the Trust, in whole or in part, at a redemption price equal to $25 per
security. Distributions on the Trust Preferred Securities are cumulative from
the date of original issue and are payable quarterly if, as, and when the Trust
has funds available for payment. Holders of the Trust Preferred Securities have
limited voting rights and are not entitled to vote to appoint, remove, or
replace, or to increase or decrease the number of, trustees, which voting rights
are vested exclusively in the holder of the Trust Common Securities. Under
certain circumstances, the Trust Preferred Securities have preferential rights
to payment relative to the Trust Common Securities.
The Company has guaranteed, on a subordinated basis, the payment in full of all
distributions and other payments on the Trust Preferred Securities to the extent
that the Trust has funds legally available. This guarantee and the partnership
distribution guarantee are subordinated to all other liabilities of the Company
and rank equally with the most senior preferred stock of the Company.
TRUST COMMON SECURITIES
The Trust issued 340,208 7 3/4% Trust Common Securities, $25 liquidation amount
per security, to the Company on December 17, 1996. The Trust Common Securities
are redeemable on or after December 30, 2006 at the option of the Trust, in
whole or in part, at a redemption price equal to $25 per security.
F-7
INDEPENDENT AUDITORS' REPORT
To the Trustees of
Merrill Lynch Preferred Capital Trust I
We have audited the accompanying balance sheets of Merrill Lynch Preferred
Capital Trust I (the "Trust") as of December 29, 2000 and December 31, 1999, and
the related statements of earnings, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 29, 2000. These
financial statements are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Trust at December 29, 2000 and December
31, 1999, and the results of its operations and its cash flows for each of the
three years in the period ended December 29, 2000 in conformity with accounting
principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
New York, New York
March 28, 2001
F-8
MERRILL LYNCH PREFERRED FUNDING I, L.P.
BALANCE SHEETS
(dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------
DECEMBER 29, 2000 DECEMBER 31, 1999
----------------- -----------------
ASSETS
Cash $ - $ 1
Investments:
Affiliate debentures 330,055 330,055
U.S. Treasury bills 3,523 3,512
-------- --------
Total investments 333,578 333,567
Interest receivable 6,395 -
-------- --------
Total Assets $339,973 $333,568
======== ========
LIABILITY AND PARTNERS' CAPITAL
Distributions payable $ 6,395 $ -
-------- --------
Partners' capital:
Limited partnership interest 283,505 283,505
General partnership interest 50,073 50,063
-------- --------
Total partners' capital 333,578 333,568
-------- --------
Total Liability and Partners' Capital $339,973 $333,568
======== ========
See Notes to Financial Statements
F-9
MERRILL LYNCH PREFERRED FUNDING I, L.P.
STATEMENTS OF EARNINGS
(dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED
----------------------------------------------------------------------
DECEMBER 29, 2000 DECEMBER 31, 1999 DECEMBER 25, 1998
----------------- ----------------- -----------------
EARNINGS
Interest income:
Affiliate debentures $25,579 $25,579 $25,579
U.S. Treasury bills 202 166 203
------- ------- -------
Earnings $25,781 $25,745 $25,782
======= ======= =======
See Notes to Financial Statements
F-10
MERRILL LYNCH PREFERRED FUNDING I, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED
-----------------------------------------------------------------
DECEMBER 29, 2000 DECEMBER 31, 1999 DECEMBER 25, 1998
----------------- ----------------- -----------------
LIMITED PARTNER'S CAPITAL
Balance, beginning of period $ 283,505 $ 283,505 $ 283,505
Net income allocated to limited partner 21,972 21,972 21,972
Distributions (16,479) (21,972) (16,479)
Distributions payable ( 5,493) - (5,493)
--------- --------- ---------
Balance, end of period 283,505 283,505 283,505
--------- --------- ---------
GENERAL PARTNER'S CAPITAL
Balance, beginning of period 50,063 50,416 50,228
Net income allocated to general partner 3,809 3,773 3,810
Distributions (2,897) (4,126) (2,720)
Distributions payable (902) - (902)
--------- --------- ---------
Balance, end of period 50,073 50,063 50,416
--------- --------- ---------
TOTAL PARTNERS' CAPITAL $ 333,578 $ 333,568 $ 333,921
========= ========= =========
See Notes to Financial Statements
F-11
MERRILL LYNCH PREFERRED FUNDING I, L.P.
STATEMENTS OF CASH FLOWS
(dollars in thousands)
- -----------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED
---------------------------------------------------------------
DECEMBER 29, 2000 DECEMBER 31, 1999 DECEMBER 25, 1998
----------------- ----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings $ 25,781 $ 25,745 $ 25,782
Accretion of U.S. Treasury bills (202) (166) (203)
(Increase) decrease in interest receivable (6,395) 6,395 -
-------- -------- --------
Cash provided by operating activities 19,184 31,974 25,579
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities (6,959) (6,959) (3,480)
Maturities of investment securities 7,150 7,099 3,875
-------- -------- --------
Cash provided by investing activities 191 140 395
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to limited partner (16,479) (27,465) (21,972)
Distributions to general partner (2,897) (5,028) (3,622)
-------- -------- --------
Cash used for financing activities (19,376) (32,493) (25,594)
-------- -------- --------
NET CHANGE IN CASH (1) (379) 380
CASH, BEGINNING OF PERIOD 1 380 -
-------- -------- --------
CASH, END OF PERIOD $ - $ 1 $ 380
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Distributions of $6,395 were accrued at December 29, 2000 and December 25, 1998
and distributed in the following fiscal years.
See Notes to Financial Statements
F-12
MERRILL LYNCH PREFERRED FUNDING I, L.P.
NOTES TO FINANCIAL STATEMENTS
December 29, 2000
- --------------------------------------------------------------------------------
1. ORGANIZATION AND PURPOSE
Merrill Lynch Preferred Funding I, L.P. (the "Partnership") is a limited
partnership that was formed under the Delaware Revised Uniform Limited
Partnership Act on November 20, 1996 for the exclusive purpose of purchasing
certain eligible debt instruments of Merrill Lynch & Co., Inc. (the "Company")
and wholly owned subsidiaries of the Company with (i) the proceeds from the sale
of its preferred securities (the "Partnership Preferred Securities"),
representing a limited partner interest, to Merrill Lynch Preferred Capital
Trust I (the "Trust") and (ii) a capital contribution from the Company in
exchange for the general partnership interest in the Partnership.
The Company, in its capacity as sole general partner of the Partnership, has
agreed to (i) pay all fees and expenses related to the organization and
operations of the Partnership (including taxes, duties, assessments, or
government charges (other than withholding taxes) imposed by the United States
or any other domestic taxing authority upon the Partnership) and (ii) be
responsible for all debts and other obligations of the Partnership (other than
with respect to the Partnership Preferred Securities). The Company has also
agreed to indemnify certain officers and agents of the Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements are presented in accordance with accounting principles
generally accepted in the United States of America, which require management to
make estimates that affect reported amounts and disclosure of contingencies in
the financial statements. As such, actual results could differ from those
estimates.
INVESTMENTS
The Partnership's investment in affiliate debentures is recorded at cost, and
its investment in U.S. Treasury bills is classified as available-for-sale and
recorded at accreted cost, which approximates fair value.
INCOME TAXES
The Partnership does not incur any income tax liabilities. Such liabilities are
incurred directly by the partners.
F-13
MERRILL LYNCH PREFERRED FUNDING I, L.P.
NOTES TO FINANCIAL STATEMENTS
December 29, 2000
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3. INVESTMENT IN AFFILIATE DEBENTURES
The Partnership holds debentures of the Company and a wholly owned subsidiary of
the Company. The debentures have a term of approximately 20 years and bear
interest at 7 3/4% per annum. The interest payment dates and redemption
provisions of the debentures, which are redeemable at the option of the Company
and its subsidiary on or after December 30, 2006, correspond to the distribution
payment dates and redemption provisions of the Partnership Preferred Securities.
Interest and redemption payments on the subsidiary debenture are guaranteed by
the Company on a subordinated basis.
4. PARTNERS' CAPITAL
The Partnership issued 11,340,208 7 3/4% Partnership Preferred Securities, $25
liquidation preference per security, to the Trust on December 17, 1996.
Distributions on the Partnership Preferred Securities are cumulative from the
date of original issue and are payable quarterly if, as, and when declared by
the general partner. The Partnership Preferred Securities are redeemable on or
after December 30, 2006 at the option of the Partnership, at a redemption price
equal to $25 per security. Except as provided in the Limited Partnership
Agreement and Partnership Preferred Securities Guarantee Agreement, and as
otherwise provided by law, the holders of the Partnership Preferred Securities
have no voting rights.
The Company has guaranteed the payment of distributions by the Partnership on
the Partnership Preferred Securities if, as, and when declared out of funds
legally available and payments upon liquidation of the Partnership or the
redemption of the Partnership Preferred Securities to the extent of funds
legally available. This guarantee is subordinated to all other liabilities of
the Company and ranks equally with the most senior preferred stock of the
Company.
F-14
INDEPENDENT AUDITORS' REPORT
To the General Partner and Limited Partner of
Merrill Lynch Preferred Funding I, L.P.
We have audited the accompanying balance sheets of Merrill Lynch Preferred
Funding I, L.P. (the "Partnership") as of December 29, 2000 and December 31,
1999, and the related statements of earnings, changes in partners' capital, and
cash flows for each of the three years in the period ended December 29, 2000.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership at December 29, 2000 and
December 31, 1999, and the results of its operations and its cash flows for each
of the three years in the period ended December 29, 2000 in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
New York, New York
March 28, 2001
F-15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrants have duly caused this report to be signed on their
behalf by the undersigned, thereunto duly authorized on the 28th day of March,
2001.
MERRILL LYNCH PREFERRED CAPITAL TRUST I*
By: /s/ John C. Stomber
--------------------------------------
Name: John C. Stomber
Title: Regular Trustee
By: /s/ Stanley Schaefer
--------------------------------------
Name: Stanley Schaefer
Title: Regular Trustee
MERRILL LYNCH PREFERRED FUNDING I, L.P.*
By: MERRILL LYNCH & CO., INC., as General Partner
By: /s/ John C. Stomber
----------------------------------
Name: John C. Stomber
Title: Senior Vice President and Treasurer, and
as Attorney-in-Fact for a majority of
the Board of Directors**
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* There is no principal executive officer(s), principal financial officer,
controller, principal accounting officer or board of directors of the
Registrants. The Trustees of the Trust (which include the Regular
Trustees, the Property Trustee and the Delaware Trustee) together exercise
all powers and perform all functions with respect to the Trust.
** Pursuant to Powers of Attorney filed as Exhibit 24 hereto.
EXHIBIT INDEX
4.1 Certificate of Trust dated November 20, 1996, of the Trust
(incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-3 (No. 333-16603) (the "Registration Statement"))
4.2 Amended and Restated Declaration of Trust of the Trust, dated as of
December 11, 1996 (incorporated by reference to Exhibit 4.2 to the
Trust's Annual Report on Form 10-K for the fiscal year ended December
27, 1996 (File No.
1-7182-01))
4.3 Certificate of Limited Partnership, dated as of November 20, 1996, of
the Partnership (incorporated by reference to Exhibit 4.3 to
Registration Statement)
4.4 Amended and Restated Agreement of Limited Partnership of the
Partnership (incorporated by reference to Exhibit 4.4 to the
Partnership's Annual Report on Form 10-K for the fiscal year ended
December 27, 1996 (File No. 1-7182-02))
4.5 Form of Trust Preferred Securities Guarantee Agreement between the
Company and The Chase Manhattan Bank, as guarantee trustee
(incorporated by reference to Exhibit 4.5 to the Registration
Statement)
4.6 Form of Partnership Preferred Securities Guarantee Agreement between
the Company and The Chase Manhattan Bank, as guarantee trustee
(incorporated by reference to Exhibit 4.6 to the Registration
Statement)
4.7 Form of Subordinated Debenture Indenture between the Company and The
Chase Manhattan Bank, as trustee (incorporated by reference to Exhibit
4.7 to the Registration Statement)
4.8 Form of Affiliate Debenture Guarantee Agreement between the Company and
The Chase Manhattan Bank, as guarantee trustee (incorporated by
reference to Exhibit 4.8 to the Registration Statement)
4.9 Form of Trust Preferred Security (included in Exhibit 4.2 above)
4.10 Form of Partnership Preferred Security (included in Exhibit 4.4 above)
4.11 Form of Subordinated Debenture (incorporated by reference to Exhibit
4.11 to the Registration Statement)
12* Computation of Ratios of Earnings to Combined Fixed Charges and
Preferred Securities Distributions
23* Consent of Deloitte & Touche LLP
24* Powers of Attorney
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* Filed herewith