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Table of Contents

 
 
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
For the quarterly period ended September 30, 2011
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
COMMISSION FILE NO.: 1-7182-06
MERRILL LYNCH PREFERRED CAPITAL TRUST III
(Exact name of Registrant as specified in its certificate of trust)
     
Delaware
(State or other jurisdiction of
incorporation or organization)
  13-7139561
(I.R.S. Employer Identification No.)
     
4 World Financial Center
New York, New York
(Address of principal executive offices)
  10080
(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
(State or other jurisdiction of
incorporation or organization)
  13-3982448
(I.R.S. Employer Identification No.)
     
4 World Financial Center
New York, New York
(Address of principal executive offices)
  10080
(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 þ 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 (Do not check if a smaller reporting company)   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 Quarterly Report on Form 10-Q (the “Report”) with a reduced disclosure format.
 
 

 

 


 

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 Exhibit 12
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1
 Exhibit 32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

 

 


Table of Contents

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)
                 
    September 30, 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

 

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MERRILL LYNCH PREFERRED CAPITAL TRUST III
CONDENSED STATEMENTS OF EARNINGS (unaudited)
(dollars in thousands)
                 
    FOR THE THREE MONTHS ENDED  
    September 30, 2011     September 30, 2010  
 
               
EARNINGS
               
Interest on affiliate partnership preferred securities
  $ 13,531     $ 13,531  
 
           
CONDENSED STATEMENTS OF EARNINGS
                 
    FOR THE NINE MONTHS ENDED  
    September 30, 2011     September 30, 2010  
 
               
EARNINGS
               
Interest on affiliate partnership preferred securities
  $ 40,593     $ 40,593  
 
           
See Note to Condensed Financial Statements

 

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MERRILL LYNCH PREFERRED CAPITAL TRUST III
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)
(dollars in thousands)
                 
    FOR THE NINE MONTHS ENDED  
    September 30, 2011     September 30, 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
    40,593       40,593  
Distributions
    (40,593 )     (40,593 )
 
           
Balance, end of period
           
 
           
 
               
Total Stockholders’ Equity
  $ 773,196     $ 773,196  
 
           
See Note to Condensed Financial Statements

 

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MERRILL LYNCH PREFERRED CAPITAL TRUST III
CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
(dollars in thousands)
                 
    FOR THE NINE MONTHS ENDED  
    September 30, 2011     September 30, 2010  
 
               
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Earnings
  $ 40,593     $ 40,593  
 
           
Cash provided by operating activities
    40,593       40,593  
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Distributions
    (40,593 )     (40,593 )
 
           
Cash used for financing activities
    (40,593 )     (40,593 )
 
           
 
               
NET CHANGE IN CASH
           
 
               
CASH, BEGINNING OF PERIOD
           
 
           
 
               
CASH, END OF PERIOD
  $     $  
 
           
 
               
See Note to Condensed Financial Statements

 

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Table of Contents

MERRILL LYNCH PREFERRED CAPITAL TRUST III
NOTE TO CONDENSED FINANCIAL STATEMENTS (unaudited)
September 30, 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- and nine-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.

 

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MERRILL LYNCH PREFERRED FUNDING III, L.P.
CONDENSED BALANCE SHEETS (unaudited)
(dollars in thousands)
                 
    September 30, 2011     December 31, 2010  
 
ASSETS
               
Investments:
               
Affiliate debentures
  $ 900,547     $ 900,547  
U.S. Government and agencies
    9,096       9,101  
 
           
Total investments
    909,643       909,648  
 
           
Total Assets
  $ 909,643     $ 909,648  
 
           
 
               
PARTNERS’ CAPITAL
               
Limited partnership interest
  $ 773,196     $ 773,196  
General partnership interest
    136,447       136,452  
 
           
Total Partners’ Capital
  $ 909,643     $ 909,648  
 
           
See Note to Condensed Financial Statements

 

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MERRILL LYNCH PREFERRED FUNDING III, L.P.
CONDENSED STATEMENTS OF EARNINGS (unaudited)
(dollars in thousands)
                 
    FOR THE THREE MONTHS ENDED  
    September 30, 2011     September 30, 2010  
 
               
EARNINGS
               
 
               
Interest income:
               
 
               
Affiliate debentures
  $ 15,760     $ 15,760  
 
               
U.S. Government and agencies
    6       3  
 
           
 
               
Earnings
  $ 15,766     $ 15,763  
 
           
                 
    FOR THE NINE MONTHS ENDED  
    September 30, 2011     September 30, 2010  
 
               
EARNINGS
               
 
               
Interest income:
               
 
               
Affiliate debentures
  $ 47,279     $ 47,279  
 
               
U.S. Government and agencies
    17       12  
 
           
 
               
Earnings
  $ 47,296     $ 47,291  
 
           
See Note to Condensed Financial Statements

 

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Table of Contents

MERRILL LYNCH PREFERRED FUNDING III, L.P.
CONDENSED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL (unaudited)
(dollars in thousands)
                 
    FOR THE NINE MONTHS ENDED  
    September 30, 2011     September 30, 2010  
LIMITED PARTNER’S CAPITAL
               
Balance, beginning of period
  $ 773,196     $ 773,196  
Earnings allocated to limited partner
    40,593       40,593  
Distributions
    (40,593 )     (40,593 )
 
           
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
    6,703       6,698  
Distributions
    (6,708 )     (6,707 )
 
           
Balance, end of period
    136,447       136,447  
 
           
TOTAL PARTNERS’ CAPITAL
  $ 909,643     $ 909,643  
 
           
See Note to Condensed Financial Statements

 

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MERRILL LYNCH PREFERRED FUNDING III, L.P.
CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
(dollars in thousands)
                 
    FOR THE NINE MONTHS ENDED  
    September 30, 2011     September 30, 2010  
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Earnings
  $ 47,296     $ 47,291  
Accretion of interest on securities issued by U.S. Government and agencies
    (17 )     (12 )
 
           
Cash provided by operating activities
    47,279       47,279  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of investment securities
    (9,096 )     (18,190 )
Maturities of investment securities
    9,118       18,211  
 
           
 
Cash provided by investing activities
    22       21  
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Distributions to limited partner
    (40,593 )     (40,593 )
Distributions to general partner
    (6,708 )     (6,707 )
 
           
 
Cash used for financing activities
    (47,301 )     (47,300 )
 
           
 
               
NET CHANGE IN CASH
           
 
               
CASH, BEGINNING OF PERIOD
           
 
           
 
               
CASH, END OF PERIOD
  $     $  
 
           
See Note to Condensed Financial Statements

 

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MERRILL LYNCH PREFERRED FUNDING III, L.P.
NOTE TO CONDENSED FINANCIAL STATEMENTS (unaudited)
September 30, 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- and nine-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 September 30, 2011, the estimated fair value of the investment in affiliate debentures was approximately $710 million. The fair value of the investment in U.S. Government and agency securities approximated its carrying value.

 

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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 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 September 30, 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 September 30, 2011 that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

 

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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 and in Part II, Item 1A. “Risk Factors” in the Trust’s and the Partnership’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011.
ITEM 6.   EXHIBITS
An exhibit index has been filed as part of this Report and is incorporated herein by reference.

 

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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.
             
    MERRILL LYNCH PREFERRED CAPITAL TRUST III*    
 
           
 
  By:   /s/ ANGELA C. JONES
 
Name: Angela C. Jones
   
 
      Title: Regular Trustee    
 
           
    MERRILL LYNCH PREFERRED FUNDING III, L.P.*    
 
           
 
  By:   MERRILL LYNCH & CO., INC., as General Partner    
 
           
 
  By:   /s/ PETER D. TAUBE
 
Name: Peter D. Taube
   
 
      Title:  Chief Accounting Officer and Controller    
 
                 Merrill Lynch & Co., Inc.    
Date: November 10, 2011
     
*   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.

 

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INDEX TO EXHIBITS
EXHIBITS
         
  12    
Statement re: Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Securities Distributions.(1)
       
 
  31.1    
Rule 13a-14(a) Certification(1)
       
 
  31.2    
Rule 13a-14(a) Certification(1)
       
 
  32.1    
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(1)
       
 
  32.2    
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(1)
       
 
  101    
The following materials from Merrill Lynch Preferred Capital Trust III and Merrill Lynch Preferred Funding III, L.P. Quarterly Reports on Form 10-Q for the three- and nine-month periods ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language):(i) the Condensed Balance Sheets, (ii) the Condensed Statements of Earnings, (iii) the Condensed Statements of Changes in Stockholders’ Equity, (iv) the Condensed Statements of Cash Flows, and (v) the Note to Condensed Financial Statements, tagged as blocks of text.(1,2)
 
     
(1)   Included herewith.
 
(2)   These interactive data files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.

 

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