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 26, 2003
MERRILL LYNCH PREFERRED CAPITAL TRUST III
(Exact name of Registrant as specified in its certificate of trust)
COMMISSION FILE NO.: 1-7182-06
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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
- ------------------------------ -----------------------------------------
7% Trust Originated Preferred New York Stock Exchange
Securities ("TOPrS")
(and the related guarantee)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
MERRILL LYNCH PREFERRED FUNDING III, L.P.
(Exact name of Registrant as specified in its certificate of
limited partnership)
COMMISSION FILE NO.: 1-7182-05
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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
7% Partnership Preferred Securities New York Stock Exchange
(and the related guarantee)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
The Registrants meet the conditions set forth in General Instruction I 1 (a) and
(b) of Form 10-K and are therefore filing this form with the reduced disclosure
format.
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|
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes [] No [x]
As of the close of business on June 27, 2003, no voting stock of the Registrants
was held by non-affiliates of the Registrants.
As of March 22, 2004, no voting stock of the Registrants was held by
non-affiliates of the Registrants.
DOCUMENTS INCORPORATED BY REFERENCE:
PROSPECTUS, DATED JANUARY 12, 1998, FILED PURSUANT TO RULE 424(b) IN CONNECTION
WITH REGISTRATION STATEMENT ON FORM S-3 (No. 333-42859) 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 III
Merrill Lynch Preferred Capital Trust III (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 December 19, 1997, which was subsequently
amended by an amended and restated declaration of trust dated as of January
12, 1998. Merrill Lynch & Co., Inc. (the "Company") is the sole owner of
the Trust common securities. The Trust exists for the exclusive purposes of
(i) issuing trust securities, consisting of 7% 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% Partnership Preferred Securities (the "Partnership
Preferred Securities") issued by Merrill Lynch Preferred Funding III, L.P.
(the "Partnership"), and (iii) engaging in only those other activities
necessary or incidental thereto.
MERRILL LYNCH PREFERRED FUNDING III, 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 of the State of Delware on December 19, 1997, which was
subsequently amended by an amended and restated agreement of limited partnership
dated January 16, 1998. 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 III", "Merrill Lynch Preferred Funding III, 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 January 12, 1998 of
the Trust and the Partnership is incorporated by reference herein.
ITEM 2. PROPERTIES
----------
The Registrants do not own or lease any real property.
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 disclosure is required for this Item pursuant to General Instruction I of
Form 10-K.
PART II
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ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
---------------------------------------------------------------------
There is no established public market for the Trust Common Securities or the
general partnership interest in the Partnership.
All of the Trust Common Securities and the entire general partnership
interest in the Partnership are owned of record and beneficially by the Company.
The Company, as holder of the Trust Common Securities, is entitled to
receive cumulative cash distributions accumulating from January 16, 1998 and
payable quarterly in arrears on each March 30, June 30, September 30 and
December 30, commencing March 30, 1998, at an annual rate of 7% 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%. 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
-----------------------
No disclosure is required for this Item pursuant to General Instruction I of
Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
No disclosure is required for this Item pursuant to General Instruction I of
Form 10-K. There are no material changes in the amount of revenue and expense
items between the most recent fiscal year presented and the fiscal year
immediately preceding it.
ITEM 7A. QUANTITATIVE and QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
On January 16, 1998, 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 the
Company 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-17 are
incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
ITEM 9A. 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 Form 10-K.
Based on this 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 are effective.
In addition, no change in the Trust's or 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 fourth fiscal quarter of
2003 that has materially affected, or is reasonably likely to materially affect,
the Trust's or the Partnership's internal control over financial reporting.
PART III
--------
ITEM 10. DIRECTORS and EXECUTIVE OFFICERS of the REGISTRANT
--------------------------------------------------
No disclosure is required for this Item pursuant to General Instruction
I of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
No disclosure is required for this Item pursuant to General Instruction I of
Form 10-K.
ITEM 12. SECURITY OWNERSHIP of CERTAIN BENEFICIAL OWNERS and MANAGEMENT and
RELATED STOCKHOLDER MATTERS
------------------------------------------------------------------
No disclosure is required for this Item pursuant to General Instruction I of
Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS and RELATED TRANSACTIONS
----------------------------------------------
No disclosure is required for this Item pursuant to General Instruction I of
Form 10-K.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
--------------------------------------
The following table sets forth the fees for professional services
rendered by Deloitte & Touche LLP for the audit of the Trust's and the
Partnership's financial statements, respectively, for the years ended December
26, 2003 and December 27, 2002. There were no other services rendered by
Deloitte & Touche LLP to the Trust and the Partnership in 2003 and 2002, and
accordingly the Audit Committee has not relied on the de-minimis exception to
the SEC pre-approval requirements applicable to the provision of audit-related,
tax and all other services provided by the independent auditor in 2003 and 2002.
2003 2002
------- ------
Audit Fee(1) $10,900 $9,600
The Audit Committee of the Board of Directors of the Company is responsible for
the approval of audit fees for its consolidated subsidiaries and affiliates,
which includes the Trust and the Partnership. The Company is the sole owner of
the Trust's common securities and the sole general partner of the Partnership.
Consistent with SEC rules regarding auditor independence, the Audit Committee
has established a policy governing the provision of audit and non-audit services
to the Company (Pre-Approval Policy). The description of the Pre-Approval Policy
found on page 25 of the Company's 2004 Proxy Statement filed on March 9, 2004 is
incorporated herein by reference. You may obtain a copy of the 2004 Proxy
Statement on the Company's Investor Relations website at www.ir.ml.com or by
written request to Judith A. Witterschein, Corporate Secretary, Merrill Lynch &
Co., Inc., 222 Broadway, 17th Floor, New York, New York 10038-2510.
- --------------
(1) Audit Fees consisted of audit work performed in the review and preparation
of the Trust's and the Partnership's financial statements, as well as work
generally only the independent auditor can reasonably be expected to provide,
such as comfort letters, statutory audits, attest services, consents and
assistance with and review of documents filed with the SEC.
PART IV
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ITEM 15. 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 auditor' reports appear on pages F-2 through F-17.
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 December 19, 1997, of the Trust
(incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-3 (No. 333-42859)(the
"Registration Statement")).
4.2 Form of Amended and Restated Declaration of Trust of the
Trust (incorporated by reference to Exhibit 4.2 to the
Registration Statement).
4.3 Certificate of Limited Partnership, dated as of December
19, 1997, of the Partnership (incorporated by reference to
Exhibit 4.3 to the the Registration Statement).
4.4 Form of Amended and Restated Agreement of Limited Partnership
of the Partnership (incorporated by reference to Exhibit 4.4
to the Registration Statement).
4.5 Form of Trust Preferred Securities Guarantee Agreement between
the Company and JPMorgan Chase Bank(1), 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 JPMorgan Chase 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 JPMorgan Chase 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 JPMorgan Chase 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.
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.
(b) Reports on Form 8-K.
None.
- ------------
(1) As used in Item 15 and the Exhibit Index of this Report, "JPMorgan Chase
Bank" shall mean the entity formerly known as The Chase Manhattan Bank.
* Filed herewith
INDEX TO FINANCIAL STATEMENTS
-----------------------------
ITEM 14(a)(1)
FINANCIAL STATEMENTS PAGE
- -------------------- ----
MERRILL LYNCH PREFERRED CAPITAL TRUST III
Balance Sheets, December 26, 2003 and December 27, 2002 F-2
Statements of Earnings, Year Ended December 26, 2003,
December 27, 2002 and December 28, 2001 F-3
Statements of Changes in Stockholders' Equity, Year Ended
December 26, 2003, December 27, 2002 and December 28, 2001. F-4
Statements of Cash Flows, Year Ended December 26, 2003,
December 27, 2002 and December 28, 2001 F-5
Notes to Financial Statements F-6
Independent Auditors' Report F-8
Supplemental Financial Information (Unaudited) F-9
MERRILL LYNCH PREFERRED FUNDING III, L.P.
Balance Sheets, December 26, 2003 and December 27, 2002 F-10
Statements of Earnings, Year Ended December 26, 2003,
December 27, 2002 and December 28, 2001 F-11
Statements of Changes in Partners' Capital, Year Ended
December 26, 2003, December 27, 2002 and December 28, 2001 F-12
Statements of Cash Flows, Year Ended December 26, 2003,
December 27, 2002 December 28, 2001 F-13
Notes to Financial Statements F-14
Independent Auditors' Report F-16
Supplemental Financial Information (Unaudited) F-17
F-1
MERRILL LYNCH PREFERRED CAPITAL TRUST III
BALANCE SHEETS
(dollars in thousands, except per security amounts)
- -------------------------------------------------------------------------------------------------------
December 26, 2003 December 27, 2002
----------------- -----------------
ASSETS
Investment in partnership preferred securities $ 773,196 $ 773,196
Income receivable 13,531 13,531
---------- ----------
Total Assets $ 786,727 $ 786,727
========== ==========
LIABILITY AND STOCKHOLDERS' EQUITY
Distributions payable $ 13,531 $ 13,531
---------- ----------
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
---------- ----------
Total Liability and Stockholders' Equity $ 786,727 $ 786,727
========== ==========
See Notes to Financial Statements
F-2
MERRILL LYNCH PREFERRED CAPITAL TRUST III
STATEMENTS OF EARNINGS
(dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED
---------------------------------------------------------------------
December 26, 2003 December 27, 2002 December 28, 2001
----------------- ----------------- -----------------
EARNINGS
Income on partnership preferred securities $ 54,124 $ 54,124 $ 54,124
========= ========= ========
See Notes to Financial Statements
F-3
MERRILL LYNCH PREFERRED CAPITAL TRUST III
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED
--------------------------------------------------------------------
December 26, 2003 December 27, 2002 December 28, 2001
----------------- ----------------- -----------------
PREFERRED SECURITIES
Balance, beginning and end of period $ 750,000 $ 750,000 $ 750,000
--------- --------- ---------
COMMON SECURITIES
Balance, beginning and end of period 23,196 23,196 23,196
--------- --------- ---------
UNDISTRIBUTED EARNINGS
Balance, beginning of period - - -
Earnings 54,124 54,124 54,124
Distributions (40,593) (40,593) (40,593)
Distributions payable (13,531) (13,531) (13,531)
--------- --------- ---------
Balance, end of period - - -
--------- --------- ---------
Total Stockholders' Equity $ 773,196 $ 773,196 $ 773,196
========= ========= =========
See Notes to Financial Statements
F-4
MERRILL LYNCH PREFERRED CAPITAL TRUST III
STATEMENTS OF CASH FLOWS
(dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED
--------------------------------------------------------------------
December 26, 2003 December 27, 2002 December 28, 2001
----------------- ----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings $ 54,124 $ 54,124 $ 54,124
-------- -------- --------
Cash provided by operating activities 54,124 54,124 54,124
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (54,124) (54,124) (54,124)
-------- -------- --------
Cash used for financing activities (54,124) (54,124) (54,124)
-------- -------- --------
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 December 26, 2003 and December 27, 2002 and distributed in the
following fiscal years.
See Notes to Financial Statements
F-5
MERRILL LYNCH PREFERRED CAPITAL TRUST III
NOTES TO FINANCIAL STATEMENTS
December 26, 2003
- --------------------------------------------------------------------------------
1. ORGANIZATION AND PURPOSE
Merrill Lynch Preferred Capital Trust III (the "Trust") is a statutory business
trust formed under the laws of the State of Delaware on December 19, 1997 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 III, L.P. (the "Partnership"), with the proceeds from the sale
of the Trust Preferred Securities and the Trust 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 of America 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 Securities and the Trust 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.
INVESTMENTS
The investment in the 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 III
NOTES TO FINANCIAL STATEMENTS
December 26, 2003
- --------------------------------------------------------------------------------
3. INVESTMENT IN PARTNERSHIP PREFERRED SECURITIES
The Trust holds 30,927,840 7% Partnership Preferred Securities, $25 liquidation
preference per security. The interest payment dates and redemption provisions of
the Partnership Preferred Securities, which are redeemable on or after March 30,
2008 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 30,000,000 7% Trust Preferred Securities, $25 liquidation
amount per security in a public offering on January 16, 1998. The Trust
Preferred Securities are redeemable on or after March 30, 2008 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 927,840 7% Trust Common Securities, $25 liquidation amount per
security, to the Company on January 16, 1998. The Trust Common Securities are
redeemable on or after March 30, 2008 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 III
We have audited the accompanying balance sheets of Merrill Lynch Preferred
Capital Trust III (the "Trust") as of December 26, 2003 and December 27,
2002, and the related statements of earnings, changes in stockholders'
equity and cash flows for each of the three years in the period ended
December 26, 2003. 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 26, 2003 and December
27, 2002, and the results of its operations and its cash flows for each of the
three years in the period ended December 26, 2003 in conformity with accounting
principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
New York, New York
March 22, 2004
F-8
SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED)
- ----------------------------------------------
Quarterly Information
- ---------------------
The unaudited quarterly results of operations of Merrill Lynch Preferred Capital
Trust III for 2003 and 2002 are prepared in conformity with U.S. generally
accepted accounting principles, which include industry practices, and reflect
all adjustments that are, in the opinion of management, necessary for a fair
presentation of the results of operations for the periods presented. Results of
any interim period are not necessarily indicative of results for a full year.
(dollars in thousands)
- ------------------------------------------------------------------------------------------------------------
For the Quarter Ended
------------------------------------------------------------------------------------
Dec. 26, Sept. 26, June 27, Mar.28, Dec. 27, Sept. 27, June 28, Mar.29,
2003 2003 2003 2003 2002 2002 2002 2002
------------------------------------------------------------------------------------
Total Revenues $13,531 $13,531 $13,531 $13,531 $13,531 $13,531 $13,531 $13,531
Net Earnings $13,531 $13,531 $13,531 $13,531 $13,531 $13,531 $13,531 $13,531
F-9
MERRILL LYNCH PREFERRED FUNDING III, L.P.
BALANCE SHEETS
(dollars in thousands)
- --------------------------------------------------------------------------------------------------------
December 26, 2003 December 27, 2002
----------------- -----------------
ASSETS
Cash $ - $ -
Investments:
Affiliate debentures 900,546 900,546
U.S. Government and agencies 9,105 9,147
---------- ----------
Total investments 909,651 909,693
Income receivable 15,760 15,760
---------- ----------
Total Assets $ 925,411 $ 925,453
========== ==========
LIABILITY AND PARTNERS' CAPITAL
Distributions payable $ 15,760 $ 15,760
---------- ----------
Partners' capital:
Limited partnership interest 773,196 773,196
General partnership interest 136,455 136,497
---------- ----------
Total partners' capital 909,651 909,693
---------- ----------
Total Liability and Partners' Capital $ 925,411 $ 925,453
========== ==========
See Notes to Financial Statements
F-10
MERRILL LYNCH PREFERRED FUNDING III, L.P.
STATEMENTS OF EARNINGS
(dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED
--------------------------------------------------------------------
December 26, 2003 December 27, 2002 December 28, 2001
----------------- ----------------- -----------------
EARNINGS
Interest income:
Affiliate debentures $ 63,038 $ 63,038 $ 63,038
U.S. Government and agencies 112 200 434
--------- --------- ---------
Earnings $ 63,150 $ 63,238 $ 63,472
========= ========= =========
See Notes to Financial Statements
F-11
MERRILL LYNCH PREFERRED FUNDING III, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED
--------------------------------------------------------------------
December 26, 2003 December 27, 2002 December 28, 2001
----------------- ----------------- -----------------
LIMITED PARTNER'S CAPITAL
Balance, beginning of period $ 773,196 $ 773,196 $ 773,196
Net income allocated to limited partner 54,124 54,124 54,124
Distributions (40,593) (40,593) (40,593)
Distributions payable (13,531) (13,531) (13,531)
--------- --------- ---------
Balance, end of period 773,196 773,196 773,196
--------- --------- ---------
GENERAL PARTNER'S CAPITAL
Balance, beginning of period 136,497 136,710 136,558
Net income allocated to general partner 9,027 9,114 9,348
Distributions (6,840) (7,098) (6,968)
Distributions payable (2,229) (2,229) (2,228)
--------- --------- ---------
Balance, end of period 136,455 136,497 136,710
--------- --------- ---------
TOTAL PARTNERS' CAPITAL $ 909,651 $ 909,693 $ 909,906
========= ========= =========
See Notes to Financial Statements
F-12
MERRILL LYNCH PREFERRED FUNDING III, L.P.
STATEMENTS OF CASH FLOWS
(dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED
--------------------------------------------------------------------
December 26, 2003 December 27, 2002 December 28, 2001
----------------- ----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings $ 63,150 $ 63,238 $ 63,472
Accretion of U.S. Government and agencies (112) (200) (434)
(Increase) decrease in interest receivable - - (1)
-------- -------- --------
Cash provided by operating activities 63,038 63,038 63,037
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities (27,288) (18,191) (9,096)
Maturities of investment securities 27,442 18,604 9,378
-------- -------- --------
Cash provided by investing activities 154 413 282
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to limited partner (54,124) (54,124) (54,124)
Distributions to general partner (9,068) (9,327) (9,196)
-------- -------- --------
Cash used for financing activities (63,192) (63,451) (63,320)
-------- -------- --------
NET CHANGE IN CASH - - (1)
CASH, BEGINNING OF PERIOD - - 1
-------- -------- --------
CASH, END OF PERIOD $ - $ - $ -
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Distributions of $15,760 were accrued at December 26, 2003 and December 27, 2002
and distributed in the following fiscal years.
See Notes to Financial Statements
F-13
MERRILL LYNCH PREFERRED FUNDING III, L.P.
NOTES TO FINANCIAL STATEMENTS
December 26, 2003
- --------------------------------------------------------------------------------
1. ORGANIZATION AND PURPOSE
Merrill Lynch Preferred Funding III, L.P. (the "Partnership") is a limited
partnership that was formed under the Delaware Revised Uniform Limited
Partnership Act on December 19, 1997 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 partnership interest, to Merrill Lynch Preferred Capital
Trust III (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. Government and agencies 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-14
MERRILL LYNCH PREFERRED FUNDING III, L.P.
NOTES TO FINANCIAL STATEMENTS
December 26, 2003
- --------------------------------------------------------------------------------
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% 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 March 30, 2008, 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 30,927,840 7% Partnership Preferred Securities, $25
liquidation preference per security, to the Trust on January 16, 1998.
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 March 30, 2008 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.
Contemporaneously with the issuance of the Partnership Preferred Securities,
the Company, as general partner, contributed capital to the Partnership in the
amount of approximately $137.0 million. The Partnership may at times have
excess funds which are allocated to the Company and may, in the Company's sole
discretion, be distributed to the Company to the extent that aggregate payments
by the Company to the Partnership exceed distributions accumulated or payable
with respect to the Partnership Preferred Securities.
F-15
INDEPENDENT AUDITORS' REPORT
To the General Partner and Limited Partner of Merrill Lynch Preferred Funding
III, L.P.
We have audited the accompanying balance sheets of Merrill Lynch Preferred
Funding III, L.P. (the "Partnership") as of December 26, 2003 and December 27,
2002, and the related statement of earnings, changes in partners' capital and
cash flows for each of the three years in the period ended December 26, 2003.
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 26, 2003 and
December 27, 2002, and the results of its operations and its cash flows for each
of the three years in the period ended December 26, 2003 in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
New York, New York
March 22, 2004
F-16
SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED)
- ----------------------------------------------
Quarterly Information
- ---------------------
The unaudited quarterly results of operations of Merrill Lynch Preferred
Funding III, L.P. for 2003 and 2002 are prepared in conformity with U.S.
generally accepted accounting principles, which include industry practices,
and reflect all adjustments that are, in the opinion of management,
necessary for a fair presentation of the results of operations for the
periods presented. Results of any interim period are not necessarily
indicative of results for a full year.
(dollars in thousands)
- -------------------------------------------------------------------------------------------------------------
For the Quarter Ended
-------------------------------------------------------------------------------------
Dec. 26, Sept. 26, June 27, Mar.28, Dec. 27, Sept. 27, June 28, Mar.29,
2003 2003 2003 2003 2002 2002 2002 2002
-------------------------------------------------------------------------------------
Total Revenues $15,784 $15,786 $15,786 $15,794 $15,797 $15,801 $15,802 $15,838
Net Earnings $15,784 $15,786 $15,786 $15,794 $15,797 $15,801 $15,802 $15,838
F-17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 22nd day of March,
2004.
MERRILL LYNCH PREFERRED CAPITAL TRUST III*
By: /s/ LINDA L. LOWRY
---------------------------------------------
Name: Linda L. Lowry
Title: Regular Trustee
- ---------------------
* 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.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant, by Merrill Lynch & Co., Inc. as General Partner,
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized on the 22nd day of March, 2004.
By: Merrill Lynch & Co., Inc. as General Partner
SIGNATURE TITLE
--------- -----
/s/ JUDITH A. WITTERSCHEIN Secretary
- -----------------------------------------
(Judith A. Witterschein)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following directors and officers of Merrill Lynch
& Co., Inc., General Partner of the Registrant, in the capacities indicated
on the 22nd day of March, 2004.
SIGNATURE TITLE
--------- -----
/s/ E. STANLEY O'NEAL Director, Chairman of the Board and
- ----------------------------------------- Chief Executive Officer
(E. Stanley O'Neal) (Principal Executive Officer)
/s/ AHMASS L. FAKAHANY Executive Vice President and Chief
- ----------------------------------------- Financial Officer
(Ahmass L. Fakahany) (Principal Financial Officer)
/s/ JOHN J. FOSINA Controller
- ----------------------------------------- (Principal Accounting Officer)
(John J. Fosina)
/s/ W. H. CLARK Director
- -----------------------------------------
(W. H. Clark)
/s/ JILL K. CONWAY Director
- -----------------------------------------
(Jill K. Conway)
/s/ ALBERTO CRIBIORE Director
----------------------------------------
(Alberto Cribiore)
/s/ GEORGE B. HARVEY Director
- -----------------------------------------
(George B. Harvey)
..
/s/ HEINZ-JOACHIM NEUBURGER Director
- -----------------------------------------
..
(Heinz-Joachim Neuburger)
/s/ DAVID K. NEWBIGGING Director
- -----------------------------------------
(David K. Newbigging)
/s/ AULANA L. PETERS Director
- -----------------------------------------
(Aulana L. Peters)
/s/ JOHN J. PHELAN, JR. Director
- -----------------------------------------
(John J. Phelan, Jr.)
/s/ JOSEPH W. PRUEHER Director
- -----------------------------------------
(Joseph W. Prueher)
EXHIBIT INDEX
4.1 Certificate of Trust dated December 19, 1997, of the Trust
(incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-3 (No. 333-42859) (the "Registration Statement")).
4.2 Form of Amended and Restated Declaration of Trust of the Trust
(incorporated by reference to Exhibit 4.2 to the Registration
Statement).
4.3 Certificate of Limited Partnership, dated as of December 19,
1997, of the Partnership (incorporated by reference to Exhibit 4.3
to the Registration Statement).
4.4 Form of Amended and Restated Agreement of Limited Partnership
of the Partnership (incorporated by reference to Exhibit 4.4 to
the Registration Statement).
4.5 Form of Trust Preferred Securities Guarantee Agreement between
the Company and JPMorgan Chase 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 JPMorgan Chase 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 JPMorgan Chase 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 JPMorgan Chase 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.
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.
- ------------------
* Filed herewith