10-Q 1 toprs3_062708.txt TOPRS3 2Q08 62708 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 27, 2008 [ ] 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 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 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 the reduced disclosure format. Indicate by check mark if the Registrants are well-known seasoned issuers, as defined in Rule 405 of the Securities Act. Yes |_| No |X| Indicate by check mark if the Registrants are not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes |_| No |X| 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 whether the Registrants are large accelerated filers, accelerated filers, or non-accelerated filers. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one) Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer[X] Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act). Yes [] No [x] As of the close of business on June 27, 2008, no voting stock of the Registrants was held by non-affiliates of the Registrants. As of August 6, 2008, no voting stock of the Registrants was held by non-affiliates of the Registrants. ================================================================================ 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) ------------------------------------------------------------------------------------------------------------------------- ~~JUNE~~June 2827, ~~2002~~2008 ~~DECEMBER~~December 28, ~~2001~~2007 -------------- ----------------- ASSETS Investment in affiliate partnership preferred securities $ 773,196 $ 773,196 ~~Income~~Interest receivable from affiliate 13,531 13,531 ---------- ---------- Total Assets $ 786,727 $ 786,727 ========== ========== ~~LIABILITY~~Liabilities ~~AND~~and ~~STOCKHOLDERS~~Stockholders' ~~EQUITY~~Equity ~~Distributions~~Distribution payable $ 13,531 $ 13,531 ---------- ---------- STOCKHOLDERS' EQUITY 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~~Equity 773,196 773,196 ---------- ---------- Total Liability and Stockholders' Equity $ 786,727 $ 786,727 ========== ==========

See Note to Condensed Financial Statements 2

MERRILL LYNCH PREFERRED CAPITAL TRUST III CONDENSED STATEMENTS OF EARNINGS (unaudited) (dollars in thousands) ------------------------------------------------------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED ----------------------------------- ~~JUNE~~June 2827, ~~2002~~2008 ~~JUNE~~June 29, ~~2001~~2007 -------------- -------------- EARNINGS ~~Income~~Interest on affiliate partnership preferred securities $ 13,531 $ 13,531 ========= ========= FOR THE SIX MONTHS ENDED ----------------------------------- ~~JUNE~~June 2827, ~~2002~~2008 ~~JUNE~~June 29, ~~2001~~2007 -------------- -------------- EARNINGS ~~Income~~Interest on affiliate partnership preferred securities $ 27,062 $ 27,062 ========== =============

See Note to Condensed Financial Statements 3

MERRILL LYNCH PREFERRED CAPITAL TRUST III CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited) (dollars in thousands) ----------------------------------------------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED ----------------------------------- ~~JUNE~~June 2827, ~~2002~~2008 ~~JUNE~~June 29, ~~2001~~2007 -------------- -------------- 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 27,062 27,062 Distributions (13,531) (13,531) Distributions payable (13,531) (13,531) ---------- ---------- Balance, end of period - - ---------- ---------- Total Stockholders' Equity $ 773,196 $ 773,196 ========== ==========

See Note to Condensed Financial Statements 4

MERRILL LYNCH PREFERRED CAPITAL TRUST III CONDENSED STATEMENTS OF CASH FLOWS (unaudited) (dollars in thousands) ----------------------------------------------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED --------------------------------~~---~~ ~~JUNE~~June 2827, ~~2002~~2008 ~~JUNE~~June 29, ~~2001~~2007 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Earnings $ 27,062 $ 27,062 Interest receivable from affiliate (13,531) (13,531) --------- --------- Cash provided by operating activities 2713,~~062~~531 2713,~~062~~531 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions (2713,~~062~~531) (2713,~~062~~531) --------- --------- Cash used for financing activities (2713,~~062~~531) (2713,~~062~~531) --------- --------- NET CHANGE IN CASH - - CASH, BEGINNING OF PERIOD - - --------- --------- CASH, END OF PERIOD $ - $ - ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOWS: Preferred and common distributions of $13,125 and $406, ~~respectively,~~ were accrued at June 2827, ~~2002~~2008 and June 29, 2007, respectively.

See Note to Condensed Financial Statements 5 MERRILL LYNCH PREFERRED CAPITAL TRUST III NOTE TO CONDENSED FINANCIAL STATEMENTS (unaudited) June 27, 2008 ------------------------------------------------------------------------------- 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 Merrill Lynch Preferred Capital Trust III (the "Trust") for the year ended December 28, 2007. The December 28, 2007 balance sheet information was derived from the audited financial statements. The interim condensed financial statements for the three- and six- month periods are unaudited; however, in the opinion of the Regular Trustee of the Trust, all adjustments, consisting only of normal recurring accruals necessary for a fair statement 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. At quarter end, the fair value of the investment approximates its carrying value. Income on the Partnership Preferred Securities is accrued when earned. 6

MERRILL LYNCH PREFERRED FUNDING III, L.P. CONDENSED BALANCE SHEETS (unaudited) (dollars in thousands) --------------------------------------------------------------------------------------------------------------------- ~~JUNE~~June 2827, ~~2002~~2008 ~~DECEMBER~~December 28, ~~2001~~2007 -------------- ----------------- ASSETS ~~Cash $ - $ - ----------- ----------~~ Investments: Affiliate debentures $ 900,~~546~~547 $ 900,547 U.S. ~~Treasury~~Government ~~bills~~and agencies 9,~~152~~113 9,~~359~~125 ---------- ---------- Total investments 909,~~698~~660 909,~~906~~672 ~~Income~~Interest receivable from affiliate 15,~~761~~760 15,~~761~~759 ---------- ---------- Total Assets $ 925,~~459~~420 $ 925,~~667~~431 ========== ========== ~~LIABILITY~~Liability ~~AND~~and ~~PARTNERS~~Partners' ~~CAPITAL~~Capital ~~Distributions~~Distribution ~~payable~~Payable $ 15,~~761~~760 $ 15,~~761~~760 ~~----------~~PARTNERS' ~~----------~~CAPITAL Partners' capital: Limited partnership interest 773,196 773,196 General partnership interest 136,~~502~~464 136,~~710~~475 ---------- ---------- Total ~~partners~~Partners' ~~capital~~Capital 909,~~698~~660 909,~~906~~671 ---------- ---------- Total Liability and Partners' Capital $ 925,~~459~~420 $ 925,~~667~~431 ========== ==========

See Note to Condensed Financial Statements 7

MERRILL LYNCH PREFERRED FUNDING III, L.P. CONDENSED STATEMENTS OF EARNINGS (unaudited) (dollars in thousands) ------------------------------------------------------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED ----------------------------------- ~~JUNE~~June 2827, ~~2002~~2008 ~~JUNE~~June 29, ~~2001~~2007 -------------- -------------- EARNINGS Interest income: Affiliate debentures $ 15,760 $ 15,759 U.S. ~~Treasury~~Government ~~bills~~and 42agencies ~~103~~59 114 ---------- ---------- Earnings $ 15,~~802~~819 $ 15,~~862~~873 ========== ========== FOR THE SIX MONTHS ENDED ----------------------------------- ~~JUNE~~June 2827, ~~2002~~2008 ~~JUNE~~June 29, ~~2001~~2007 -------------- -------------- EARNINGS Interest income: Affiliate debentures $ 31,~~520~~519 $ 31,~~519~~518 U.S. ~~Treasury~~Government ~~bills~~and ~~120~~agencies ~~244~~131 231 ---------- ---------- Earnings $ 31,~~640~~650 $ 31,~~763~~749 ========== ========== ~~----------~~

See Note to Condensed Financial Statements 8 MERRILL LYNCH PREFERRED FUNDING III, L.P. CONDENSED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (unaudited) (dollars in thousands) ------------------------------------------------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED ----------------------------------- June 27, 2008 June 29, 2007 -------------- -------------- LIMITED PARTNER'S CAPITAL Balance, beginning of period $ 773,196 $ 773,196 Net income allocated to limited partner 27,062 27,062 Distributions (13,531) (13,531) Distributions payable (13,531) (13,531) ---------- ----------- Balance, end of period 773,196 773,196 ---------- ---------- GENERAL PARTNER'S CAPITAL Balance, beginning of period 136,475 136,492 Net income allocated to general partner 4,588 4,687 Distributions (2,370) (2,461) Distributions payable (2,229) (2,228) ---------- ---------- Balance, end of period 136,464 136,490 ---------- ---------- TOTAL PARTNERS' CAPITAL $ 909,660 $ 909,686 ========== ==========

See Note to Condensed Financial Statements 9

MERRILL LYNCH PREFERRED FUNDING III, L.P. CONDENSED STATEMENTS OF ~~CHANGES~~CASH INFLOWS ~~PARTNERS' CAPITAL~~ (unaudited) (dollars in thousands) ------------------------------------------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED ----------------------------------- ~~JUNE~~June 2827, ~~2002~~2008 ~~JUNE~~June 29, ~~2001~~2007 -------------- -------------- ~~LIMITED~~CASH ~~PARTNER'S~~FLOWS ~~CAPITAL~~FROM ~~Balance,~~OPERATING ~~beginning~~ACTIVITIES: ofEarnings ~~period~~ $ ~~773~~31,~~196~~650 $ ~~773~~31,~~196~~749 ~~Net~~Accretion ~~income~~of ~~allocated~~U.S. toGovernment ~~limited~~and ~~partner~~agencies ~~27,062 27,062 Distributions~~ (~~13,531~~131) (~~13,531~~231) ~~Distributions~~Interest ~~payable~~receivable from affiliates (1315,~~531~~760) (1315,~~531~~759) -------- --------- Cash provided by operating activities 15,759 15,759 -------- --------- ~~Balance~~CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investment Securities (9,096) ~~end~~(9,094) Maturities of ~~period~~Investment ~~773~~Securities 9,~~196~~238 ~~773~~9,~~196~~327 ---------- ---------- ~~GENERAL~~Cash ~~PARTNER'S~~provided ~~CAPITAL~~by ~~Balance,~~investing ~~beginning~~activities of142 ~~period~~233 ~~136,710~~======== ~~136,558~~========= ~~Net~~CASH ~~income~~FLOWS ~~allocated~~FROM FINANCING ACTIVITIES: Distributions to ~~general~~limited partner 4(13,~~577~~531) 4(13,~~701~~531) Distributions to general partner (2,~~556~~370) (2,~~509~~461) ~~Distributions~~--------- ~~payable~~--------- Cash used for financing activities (215,~~229~~901) (215,~~230~~992) ---------- ---------- ~~Balance,~~NET ~~end~~CHANGE ofIN ~~period~~CASH ~~136,502~~- ~~136~~- CASH,~~520~~ BEGINNING OF PERIOD - - --------- ---------- ~~TOTAL~~CASH, ~~PARTNERS'~~END ~~CAPITAL~~OF PERIOD $ ~~909,698~~- $ ~~909,716~~- ========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOWS: Distributions of $15,760 and $15,759 were accrued at June 27, 2008 and June 29, 2007, respectively.

See Note to Condensed Financial Statements 10 MERRILL LYNCH PREFERRED FUNDING III, L.P. NOTE TO CONDENSED FINANCIAL STATEMENTS (unaudited) June 27, 2008 -------------------------------------------------------------------------------- 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 Merrill Lynch Preferred Funding III, L.P. (the "Partnership") for the year ended December 28, 2007. The December 28, 2007 balance sheet information was derived from the audited financial statements. The interim condensed financial statements for the three- and six- month periods are unaudited; however, in the opinion of the General Partner of the Partnership, all adjustments, consisting only of normal recurring accruals necessary for a fair statement of the condensed financial statements have been included. INVESTMENTS The Partnership's investment in affiliate debentures, which is recorded at cost, and its investment in U.S. Government and agencies, which are recorded at accreted cost and which mature within one year, are classified as available-for-sale, which both approximate fair value. 11 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 are no material changes in the amount of revenue and expense items between the most recent fiscal year-to-date period presented and the corresponding year-to-date period in the preceding fiscal year. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 persons who function as the equivalent of the chief executive officer and chief financial officer of the Trust and the Partnership have evaluated the effectiveness of the Trust's and 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 that evaluation, the persons who function as the equivalent of the chief executive officer and chief financial officer of the Trust and the Partnership have concluded that the Trust's and the Partnership's disclosure controls and procedures were effective as of the end of the period covered by this Report. In addition, no change in the Trust's and 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 second fiscal quarter of 2008 that has materially affected, or is reasonably likely to materially affect, the Trust's or the Partnership's internal control over financial reporting. 12 PART II - OTHER INFORMATION 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. 13 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/ Marlene Debel --------------------------------------------- Name: Marlene Debel Title: Regular Trustee MERRILL LYNCH PREFERRED FUNDING III, L.P.* By: MERRILL LYNCH & CO., INC., as General Partner By: /s/ GARY CARLIN --------------------------------------------- Name: Gary Carlin Title: Controller, Merrill Lynch & Co., Inc. August 6, 2008 -------------- * 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. 14 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. 15

MERRILL LYNCH PREFERRED FUNDING III, L.P. STATEMENTS OF CASH FLOWS (unaudited) (dollars in thousands) ------------------------------------------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED --------------------------------------- JUNE 28, 2002 JUNE 29, 2001 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Earnings $ 31,640 $ 31,763 Accretion of U.S. Treasury bills (120) (244) Increase in income receivable - (1) --------- --------- Cash provided by operating activities 31,520 31,518 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchases of investment securities (9,096) (9,096) Maturities of investment securities 9,424 9,378 --------- --------- Cash provided by financing activities 328 282 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to limited partner (27,062) (27,062) Distributions to general partner (4,785) (4,739) --------- --------- Cash used for financing activities (31,847) (31,801) --------- --------- NET CHANGE IN CASH - (1) CASH, BEGINNING OF PERIOD - 1 --------- --------- CASH, END OF PERIOD $ - $ - ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOWS: Distributions of $15,761 were accrued at June 28, 2002.

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