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 June 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		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 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	Smaller reporting company o
		(Do not check if a smaller reporting company)

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.

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
Exhibit 99.1
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

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 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

MERRILL LYNCH PREFERRED CAPITAL TRUST III

CONDENSED STATEMENTS OF EARNINGS (unaudited)

(dollars in thousands)


	FOR THE THREE MONTHS ENDED
	June 30, 2011		June 30, 2010

EARNINGS

Interest on affiliate partnership preferred securities	$	13,531	$	13,531


	FOR THE SIX MONTHS ENDED
	June 30, 2011		June 30, 2010

EARNINGS

Interest on affiliate partnership preferred securities	$	27,062	$	27,062

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 SIX MONTHS ENDED
	June 30, 2011			June 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		27,062			27,062

Distributions		(27,062	)		(27,062	)

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 SIX MONTHS ENDED
	June 30, 2011			June 30, 2010

CASH FLOWS FROM OPERATING ACTIVITIES:

Earnings	$	27,062		$	27,062

Cash provided by operating activities		27,062			27,062


CASH FLOWS FROM FINANCING ACTIVITIES:

Distributions		(27,062	)		(27,062	)

Cash used for financing activities		(27,062	)		(27,062	)


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)

June 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 six-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)


	June 30, 2011		December 31, 2010

ASSETS

Investments:

Affiliate debentures	$	900,547	$	900,547
U.S. Government and agencies		9,112		9,101

Total investments		909,659		909,648

Total Assets	$	909,659	$	909,648


PARTNERS’ CAPITAL

Limited partnership interest	$	773,196	$	773,196
General partnership interest		136,463		136,452

Total Partners’ Capital	$	909,659	$	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
	June 30, 2011		June 30, 2010

EARNINGS

Interest income:

Affiliate debentures	$	15,759	$	15,759

U.S. Government and agencies		5		4

Earnings	$	15,764	$	15,763


	FOR THE SIX MONTHS ENDED
	June 30, 2011		June 30, 2010

EARNINGS

Interest income:

Affiliate debentures	$	31,519	$	31,519

U.S. Government and agencies		11		9

Earnings	$	31,530	$	31,528

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 SIX MONTHS ENDED
	June 30, 2011			June 30, 2010

LIMITED PARTNER’S CAPITAL

Balance, beginning of period	$	773,196		$	773,196

Earnings allocated to limited partner		27,062			27,062

Distributions		(27,062	)		(27,062	)

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		4,468			4,466

Distributions		(4,457	)		(4,470	)

Balance, end of period		136,463			136,452

TOTAL PARTNERS’ CAPITAL	$	909,659		$	909,648

See Note to Condensed Financial Statements

MERRILL LYNCH PREFERRED FUNDING III, L.P.

CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
(dollars in thousands)


	FOR THE SIX MONTHS ENDED
	June 30, 2011			June 30, 2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings	$	31,530		$	31,528
Accretion of interest on securities issued by U.S. Government and agencies		(11	)		(9	)

Cash provided by operating activities		31,519			31,519


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		(27,062	)		(27,062	)

Distributions to general partner		(4,457	)		(4,470	)


Cash used for financing activities		(31,519	)		(31,532	)


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)
June 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 six-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 June 30, 2011, the estimated fair value of the investment in affiliate debentures was approximately $884 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 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 June 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 June 30, 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 2010 Annual Report on Form 10-K, other than the addition of the risk factors included in ML&Co.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011, which are incorporated by reference from Exhibit 99.1 to this Report.


ITEM 6.		EXHIBITS

An exhibit index has been filed as part of this Report and is incorporated herein by reference.

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: August 12, 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.

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⁾

	99.1	Excerpt of Merrill Lynch & Co., Inc. Quarterly Report on Form 10-Q for the period ended June 30, 2011.⁽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 six month periods ended June 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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MERRILL LYNCH PREFERRED FUNDING III LP 10-Q