UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NO.: 1-7182-06

MERRILL LYNCH PREFERRED CAPITAL TRUST III

(Exact name of Registrant as specified in its certificate of trust)

Delaware		13-7139561
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
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

COMMISSION FILE NO.: 1-7182-05

MERRILL LYNCH PREFERRED FUNDING III, L.P.

(Exact name of Registrant as specified in its certificate of limited partnership)

Delaware		13-3982448
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
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

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 þ No o

Indicate by check mark whether the Registrants have submitted electronically and posted on their corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrants were required to submit and post such files). Yes o No o

Indicate by check mark whether the Registrants are large accelerated filers, accelerated filers, non-accelerated filers, or smaller reporting companies. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o

Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The Registrants meet the conditions set forth in General Instruction H 1 (a) and (b) of Form 10-Q and are therefore filing this form with a reduced disclosure format.

 

 

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)			2
CONDENSED BALANCE SHEETS (Unaudited)			2
CONDENSED STATEMENTS OF EARNINGS (Unaudited)			3
CONDENSED STATEMENTS OF CHANGES in STOCKHOLDERS’ EQUITY (Unaudited)			4
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)			5
NOTE TO CONDENSED FINANCIAL STATEMENTS (Unaudited)			6
CONDENSED BALANCE SHEETS (Unaudited)			7
CONDENSED STATEMENTS OF EARNINGS (Unaudited)			8
CONDENSED STATEMENTS OF CHANGES in PARTNERS’ CAPITAL (Unaudited)			9
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)			10
NOTE TO CONDENSED FINANCIAL STATEMENTS (Unaudited)			11
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			12
ITEM 4. CONTROLS AND PROCEDURES			12
PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS			13
ITEM 6. EXHIBITS			13
SIGNATURES			14
INDEX TO EXHIBITS			15
Exhibit 12
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I — FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS (Unaudited)

MERRILL LYNCH PREFERRED CAPITAL TRUST III

CONDENSED BALANCE SHEETS (unaudited)

(dollars in thousands, except per security amounts)

		March 31, 2011				December 31, 2010
ASSETS
Investment in affiliate partnership preferred securities		$	773,196			$	773,196
Total Assets		$	773,196			$	773,196
STOCKHOLDERS’ EQUITY
Preferred securities (7% Trust Originated Preferred Securities; 30,000,000 authorized, issued, and outstanding; $25 liquidation amount per security)		$	750,000			$	750,000
Common securities (7% Trust Common Securities; 927,840 authorized, issued, and outstanding; $25 liquidation amount per security)			23,196				23,196
Total Stockholders’ Equity		$	773,196			$	773,196

See Note to Condensed Financial Statements

MERRILL LYNCH PREFERRED CAPITAL TRUST III

CONDENSED STATEMENTS OF EARNINGS (unaudited)

(dollars in thousands)

		FOR THE THREE MONTHS ENDED
		March 31, 2011				March 31, 2010
EARNINGS
Interest on affiliate partnership preferred securities		$	13,531			$	13,531

See Note to Condensed Financial Statements

MERRILL LYNCH PREFERRED CAPITAL TRUST III

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

(dollars in thousands)

		FOR THE THREE MONTHS ENDED
		March 31, 2011				March 31, 2010
PREFERRED SECURITIES
Balance, beginning and end of period		$	750,000			$	750,000
COMMON SECURITIES
Balance, beginning and end of period			23,196				23,196
UNDISTRIBUTED EARNINGS
Balance, beginning of period			—				—
Earnings			13,531				13,531
Distributions			(13,531	)			(13,531	)
Balance, end of period			—				—
Total Stockholders’ Equity		$	773,196			$	773,196

See Note to Condensed Financial Statements

MERRILL LYNCH PREFERRED CAPITAL TRUST III

CONDENSED STATEMENTS OF CASH FLOWS (unaudited)

(dollars in thousands)

		FOR THE THREE MONTHS ENDED
		March 31, 2011				March 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings		$	13,531			$	13,531
Cash provided by operating activities			13,531				13,531
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions			(13,531	)			(13,531	)
Cash used for financing activities			(13,531	)			(13,531	)
NET CHANGE IN CASH			—				—
CASH, BEGINNING OF PERIOD			—				—
CASH, END OF PERIOD		$	—			$	—

See Note to Condensed Financial Statements

MERRILL LYNCH PREFERRED CAPITAL TRUST III

NOTE TO CONDENSED FINANCIAL STATEMENTS (unaudited)

March 31, 2011

Merrill Lynch Preferred Capital Trust III (the “Trust”) is a statutory business trust formed under the Delaware Business Trust Act, as amended. Merrill Lynch & Co., Inc. (“ML&Co.”) is the sole owner of the Trust common securities.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

For a complete discussion of significant accounting policies, refer to the audited financial statements included in the Trust’s Annual Report on Form 10-K for the year ended December 31, 2010.

BASIS OF PRESENTATION

These unaudited condensed financial statements should be read in conjunction with the audited financial statements included in the Annual Report on Form 10-K of the Trust for the year ended December 31, 2010. The interim condensed financial statements for the three month periods are unaudited; however, all adjustments necessary for a fair presentation of the condensed financial statements have been included.

INVESTMENTS

The Trust’s investment in Merrill Lynch Preferred Funding III, L.P. (the “Partnership”) Preferred Securities represents a limited partnership interest in the Partnership and is recorded at cost. Income on the Partnership Preferred Securities is accrued when earned.

MERRILL LYNCH PREFERRED FUNDING III, L.P.

CONDENSED BALANCE SHEETS (unaudited)

(dollars in thousands)

		March 31, 2011				December 31, 2010
ASSETS
Investments:
Affiliate debentures		$	900,547			$	900,547
U.S. Government and agencies			9,107				9,101
Total investments			909,654				909,648
Total Assets		$	909,654			$	909,648
PARTNERS’ CAPITAL
Limited partnership interest		$	773,196			$	773,196
General partnership interest			136,458				136,452
Total Partners’ Capital		$	909,654			$	909,648

See Note to Condensed Financial Statements

MERRILL LYNCH PREFERRED FUNDING III, L.P.

CONDENSED STATEMENTS OF EARNINGS (unaudited)

(dollars in thousands)

		FOR THE THREE MONTHS ENDED
		March 31, 2011				March 31, 2010
EARNINGS
Interest income:
Affiliate debentures		$	15,760			$	15,760
U.S. Government and agencies			6				5
Earnings		$	15,766			$	15,765

See Note to Condensed Financial Statements

MERRILL LYNCH PREFERRED FUNDING III, L.P.

CONDENSED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL (unaudited)

(dollars in thousands)

		FOR THE THREE MONTHS ENDED
		March 31, 2011				March 31, 2010
LIMITED PARTNER’S CAPITAL
Balance, beginning of period		$	773,196			$	773,196
Earnings allocated to limited partner			13,531				13,531
Distributions			(13,531	)			(13,531	)
Balance, end of period			773,196				773,196
GENERAL PARTNER’S CAPITAL
Balance, beginning of period			136,452				136,456
Earnings allocated to general partner			2,235				2,234
Distributions			(2,229	)			(2,242	)
Balance, end of period			136,458				136,448
TOTAL PARTNERS’ CAPITAL		$	909,654			$	909,644

See Note to Condensed Financial Statements

MERRILL LYNCH PREFERRED FUNDING III, L.P.

CONDENSED STATEMENTS OF CASH FLOWS (unaudited)

(dollars in thousands)

		FOR THE THREE MONTHS ENDED
		March 31, 2011				March 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings		$	15,766			$	15,765
Accretion of interest on securities issued by U.S. Government and agencies			(6	)			(5	)
Cash provided by operating activities			15,760				15,760
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities			—				(9,095	)
Maturities of investment securities			—				9,108
Cash provided by investing activities			—				13
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to limited partner			(13,531	)			(13,531	)
Distributions to general partner			(2,229	)			(2,242	)
Cash used for financing activities			(15,760	)			(15,773	)
NET CHANGE IN CASH			—				—
CASH, BEGINNING OF PERIOD			—				—
CASH, END OF PERIOD		$	—			$	—

See Note to Condensed Financial Statements

MERRILL LYNCH PREFERRED FUNDING III, L.P.

NOTE TO CONDENSED FINANCIAL STATEMENTS (unaudited)

March 31, 2011

Merrill Lynch Preferred Funding III, L.P. (the “Partnership”) is a limited partnership formed under the Delaware Revised Uniform Limited Partnership Act, as amended. Merrill Lynch & Co., Inc. (“ML&Co.”) is the sole general partner of the Partnership.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

For a complete discussion of significant accounting policies, refer to the audited financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2010.

BASIS OF PRESENTATION

These unaudited condensed financial statements should be read in conjunction with the audited financial statements included in the Annual Report on Form 10-K of the Partnership for the year ended December 31, 2010. The interim condensed financial statements for the three month periods are unaudited; however, all adjustments necessary for a fair presentation of the condensed financial statements have been included.

INVESTMENTS

The Partnership’s investment in affiliate debentures is recorded at cost. Its investment in U.S. Government and agency securities is recorded at accreted cost and matures within one year. At March 31, 2011, the estimated fair value of the investment in affiliate debentures was approximately $882 million. The fair value of the investment in U.S. Government and agency securities approximated its carrying value.

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

No disclosure is required for this Item pursuant to General Instruction H of Form 10-Q. There were no material changes in the amount of revenue and expense items between the most recent calendar year-to-date period presented and the corresponding year-to-date period in the preceding year.

ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

No disclosure is required for this Item pursuant to General Instruction H of Form 10-Q.

ITEM 4.		CONTROLS AND PROCEDURES

The Trust

The person who functions as the equivalent of the Chief Executive Officer and the Chief Financial Officer of the Trust has evaluated the effectiveness of the Trust’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Report. Based on this evaluation, the person who functions as the equivalent of the Chief Executive Officer and the Chief Financial Officer of the Trust has concluded that the Trust’s disclosure controls and procedures are effective as of the end of the period covered by this Report.

In addition, no change in the Trust’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the three months ended March 31, 2011 that has materially affected, or is reasonably likely to materially affect, the Trust’s internal control over financial reporting.

The Partnership

The person who functions as the equivalent of the Chief Executive Officer and the Chief Financial Officer of the Partnership has evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Report. Based on this evaluation, the person who functions as the equivalent of the Chief Executive Officer and the Chief Financial Officer of the Partnership has concluded that the Partnership’s disclosure controls and procedures are effective as of the end of the period covered by this Report.

In addition, no change in the Partnership’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the three months ended March 31, 2011 that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1A.		RISK FACTORS

There are no material changes from the risk factors set forth under Part I, Item 1A. Risk Factors in the Trust’s and the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2010.

ITEM 6.		EXHIBITS

	12			Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Securities Distributions.
	31.1			Rule 13a-14(a) Certification.
	31.2			Rule 13a-14(a) Certification.
	32.1			Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2			Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements 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.

Date: May 13, 2011

INDEX TO EXHIBITS

EXHIBITS
	12	*		Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Securities Distributions.
	31.1	*		Rule 13a-14(a) Certification.
	31.2	*		Rule 13a-14(a) Certification.
	32.1	*		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	*		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.