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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 26, 1997
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)
World Financial Center
North Tower
New York, New York 10281
(Address of principal executive (Zip Code)
offices)
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
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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)
World Financial Center
North Tower
New York, New York 10281
(Address of principal executive (Zip Code)
offices)
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
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|
As of March 20, 1998, no voting stock 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
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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. As of
December 26, 1997, the Trust had no assets or operations. 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, which TOPrS and Trust Common Securities
were issued on January 16, 1998, (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"), which investment was made on January 16, 1998, 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 on December 19, 1997, which was subsequently amended by an
amended and restated agreement of limited partnership dated January 16, 1998. As
of December 26, 1997, the Partnership had no assets or operations. Merrill Lynch
& Co., Inc. (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, which were
issued on January 16, 1998, (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,
which investments were originally made on January 16, 1998, 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
Not Applicable.
ITEM 3. Legal Proceedings
The Registrants know of no material legal proceedings involving the Trust,
the Partnership or the assets of either of them.
1
ITEM 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of holders of any securities of the
Trust or the Partnership during the fiscal year covered by this report.
PART II
ITEM 5. Market for Registrants' Common Equity and Related Stockholder
Matters
(a) There is no established public market for the Trust Common Securities
or the general partnership interest in the Partnership.
(b) All of the Trust Common Securities and the entire general partnership
interest in the Partnership are owned of record and beneficially by the Company.
(c) 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
The Registrant's activities are limited to issuing securities and
investing the proceeds as described in ITEM 1. - Business above. Accordingly,
the financial statements included herein in response to ITEM 8. - Financial
Statements and Supplementary Data are incorporated by reference in response to
this item.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Registrant's activities are limited to issuing securities and
investing the proceeds as described in Item 1. - Business above. Since the Trust
was organized on December 19, 1997, its activities, as specified in its
declaration of trust, have been limited to the issuance of the TOPrS and the
Trust Common Securities, and the investing of the proceeds in the Partnership
Preferred Securities, and are anticipated to include the payment of
distributions on the TOPrS and the Trust Common Securities in accordance with
their terms. Since the Partnership was organized on December 19, 1997, its
activities, as specified in its agreement of limited partnership, have been
limited to the issuance of the Partnership Preferred Securities, the receipt of
a capital contribution from the Company, as general partner, and the investment
of the proceeds in Affiliate Investment Instruments and certain eligible debt
securities, and are anticipated to include the payment of distributions on the
Partnership Preferred Securities.
2
ITEM 7A. Quantitative and Qualitative Disclosure about Market Risk
As of December 26, 1997, neither the Trust nor the Partnership had any
assets or operations. 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 ML & Co. 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-7 are
incorporated by reference herein.
ITEM 9. Changes in and Disagreements With
Accountants on Accounting and Financial Disclosures
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The Trustees of the Trust are as follows:
Regular Trustees: Theresa Lang
Stanley Schaefer
Property Trustee: The Chase Manhattan Bank
Delaware Trustee: Chase Manhattan Bank Delaware
Theresa Lang is Senior Vice President and Treasurer of the Company.
Stanley Schaefer is the Company's Director of Corporate Taxation. Each of them
has served in that or another capacity with the Company for the last five years.
Each Trustee has served since the Trust was organized on December 19,
1997. The Trustees serve at the pleasure of the Company, as the holder of the
Trust Common Securities.
3
The Partnership has no directors or executive officers.
ITEM 11. Executive Compensation
Neither the Trust nor the Partnership has any executive officers. No
employee of the Company receives any compensation for serving as a Regular
Trustee or acting in any capacity for the Trust or the Partnership separate from
his or her compensation as an employee of the Company.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information in ITEM 1. - Business and ITEM 5. - Market for
Registrants' Common Equity and Related Stockholder Matters with respect to
ownership of the Trust Common Securities is incorporated by reference in
response to this item.
ITEM 13. Certain Relationships and Related Transactions
None.
PART IV
ITEM 14. 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
auditors' reports appear on pages F-2 through F-7.
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 Registration Statement
on Form S-3 (No. 333-42859) (the "Registration Statement"))
4.2 Amended and Restated Declaration of Trust of the Trust, dated as of
January 12, 1998 (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
4
Statement)
4.4 Amended and Restated Agreement of Limited Partnership of the
Partnership dated January 16, 1998 (incorporated by reference to
Exhibit 4.4 to the Registration Statement)
4.5 Form of Trust Preferred Securities Guarantee Agreement between the
Company and The Chase Manhattan 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 The Chase Manhattan 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 The
Chase Manhattan 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 The Chase Manhattan 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)
23 Consent of Deloitte & Touche LLP
24 Powers of Attorney
27 Financial Data Schedules. The Financial Data Schedules to be
contained in Exhibit 27 are required to be submitted only in the
Registrants' electronic filing of this Form 10-K by means of the
EDGAR system.
(b) Reports on Form 8-K
None.
5
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 23rd day of March,
1998.
MERRILL LYNCH PREFERRED CAPITAL TRUST III*
By: /s/ Theresa Lang
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Name: Theresa Lang
Title: Regular Trustee
By: /s/ Stanley Schaefer
-----------------------------------
Name: Stanley Schaefer
Title: Regular Trustee
MERRILL LYNCH PREFERRED FUNDING III, L.P.*
By: MERRILL LYNCH & CO., INC., as General Partner
By: /s/ Theresa Lang
-----------------------------------------
Name: Theresa Lang
Title: Senior Vice President and Treasurer,
and as Attorney-in-Fact for a majority
of the Board of Directors**
- --------
* There is no principal executive officer(s), principal financial officer,
controller, principal accounting officer or board of directors of the
Registrant. The Trustees of the Registrant (which include the Regular
Trustees, the Property Trustee and the Delaware Trustee) together exercise
all powers and perform all functions with respect to the Registrant.
** Pursuant to Powers of Attorney filed as Exhibits hereto, for Herbert M.
Allison, Jr., William O. Bourke, W.H. Clark, Jill K. Conway, Stephen L.
Hammerman, Earle H. Harbison, Jr., George B. Harvey, William R. Hoover,
David H. Komansky, Robert P. Luciano, David K. Newbigging, Aulana L.
Peters, John J. Phelan, Jr., John L. Steffens, and William L. Weiss,
directors of Merrill Lynch & Co., Inc.
INDEX TO FINANCIAL STATEMENTS
ITEM 14(a)(1)
FINANCIAL STATEMENTS PAGE
- -------------------- ----
MERRILL LYNCH PREFERRED CAPITAL TRUST III
Balance Sheet, December 26, 1997 F-2
Note to Balance Sheet F-3
Independent Auditors' Report F-4
MERRILL LYNCH PREFERRED FUNDING III, L.P.
Balance Sheet, December 26, 1997 F-5
Note to Balance Sheet F-6
Independent Auditors' Report F-7
F-1
MERRILL LYNCH PREFERRED CAPITAL TRUST III
BALANCE SHEET
- --------------------------------------------------------------------------------
DECEMBER 26, 1997
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Assets $ --
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Trust Securities $ --
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See Note to Balance Sheet
F-2
MERRILL LYNCH PREFERRED CAPITAL TRUST III
NOTE TO BALANCE SHEET
DECEMBER 26, 1997
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ORGANIZATION AND PURPOSE
Merrill Lynch Preferred Capital Trust III (the "Trust") is a statutory business
trust formed on December 19, 1997 under the laws of the State of Delaware for
the exclusive purposes of (i) issuing the Trust Originated Preferred Securities
(the "Trust Preferred Securities") and the Trust Common Securities (together
with the Trust Preferred Securities, the "Trust Securities") representing
undivided beneficial ownership interests in the assets of the Trust, (ii)
purchasing Partnership Preferred Securities (the "Partnership Preferred
Securities") representing the limited partnership interests of Merrill Lynch
Preferred Funding III, L.P. (the "Partnership") with the proceeds from the sale
of the Trust Securities, and (iii) engaging in only those other activities
necessary or incidental thereto. The Trust has a perpetual existence, subject to
certain termination events as provided in the Declaration of Trust under which
it was formed.
On January 16, 1998, the Trust issued and sold its Trust Preferred Securities in
a public offering and issued and sold its Trust Common Securities to Merrill
Lynch & Co., Inc. (the "Company"). No Trust Securities have been issued as of
December 26, 1997. The proceeds from the Trust's sale of the Trust Securities
were used to purchase the Partnership Preferred Securities from the Partnership.
The Partnership Preferred Securities are redeemable for cash, at the option
of the Partnership, in whole or in part, from time to time, after March 30,
2008. Upon any redemption of the Partnership Preferred Securities, the Trust
Preferred Securities will be redeemed, in whole or in part, as applicable.
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.
The Company has paid compensation to the underwriters of the offering of the
Trust Preferred Securities. The Company also has agreed to pay all fees and
expenses related to the organization and operations of the Trust (including any
taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes) imposed by the United States or any other domestic
taxing authority upon the Trust) and the offering of the Trust Preferred
Securities and be responsible for all debts and other obligations of the Trust
(other than the Trust Securities). The Company has agreed to indemnify the
trustees and certain other persons.
F-3
INDEPENDENT AUDITORS' REPORT
To the Trustees of
Merrill Lynch Preferred Capital Trust III
We have audited the accompanying balance sheet of Merrill Lynch Preferred
Capital Trust III (the "Trust"), as of December 26, 1997. This balance sheet is
the responsibility of the Trust's management. Our responsibility is to express
an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of the Trust at December 26, 1997,
in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
New York, New York
March 20, 1998
F-4
MERRILL LYNCH PREFERRED FUNDING III, L.P.
BALANCE SHEET
- -------------------------------------------------------------------------------
DECEMBER 26, 1997
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Assets $ --
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Partnership securities:
Limited partner interest $ 85
General partner interest 15
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$ 100
Less: Receivables from partners for subscribed
partnership interests (100)
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$ --
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See Note to Balance Sheet
F-5
MERRILL LYNCH PREFERRED FUNDING III, L.P.
NOTE TO BALANCE SHEET
DECEMBER 26, 1997
- --------------------------------------------------------------------------------
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 purposes of purchasing
certain eligible debt instruments of Merrill Lynch & Co., Inc. (the "Company")
and wholly owned subsidiaries of the Company (the "Affiliate Investment
Instruments") with the proceeds from the sale of Partnership Preferred
Securities (the "Partnership Preferred Securities") to Merrill Lynch Preferred
Capital Trust III (the "Trust") and a capital contribution from the Company in
exchange for the general partnership interest in the Partnership (collectively,
the "Partnership Proceeds").
On January 16, 1998, the Partnership sold its Partnership Preferred Securities
to the Trust and received a capital contribution from the Company in exchange
for the general partnership interest. The Partnership Proceeds were used to
purchase debt instruments from the Company and a domestic wholly owned
subsidiary of the Company, retaining 1% in unaffiliated debt securities. The
Partnership shall have a perpetual existence subject to certain termination
events. The Partnership Preferred Securities are redeemable for cash, at the
option of the Partnership, in whole or in part, from time to time, after March
30, 2008. 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 serves as the sole general partner of the Partnership. The Company,
in its capacity as General Partner of the Partnership, has agreed to pay all
fees and expenses related to the organization and operations of the Partnership
(including any taxes, duties, assessments or government charges of whatever
nature (other than withholding taxes) imposed by the United States or any other
domestic taxing authority upon the Partnership) and the offering of the
Partnership Preferred Securities and be responsible for all debts and other
obligations of the Partnership (other than with respect to the Partnership
Preferred Securities). The General Partner has agreed to indemnify certain
officers and agents of the Partnership.
F-6
INDEPENDENT AUDITORS' REPORT
To the General Partner and Limited Partner of
Merrill Lynch Preferred Funding III, L.P.
We have audited the accompanying balance sheet of Merrill Lynch Preferred
Funding III, L.P. (the "Partnership") as of December 26, 1997. This balance
sheet is the responsibility of the Partnership's management. Our responsibility
is to express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of the Partnership at December 26,
1997, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
New York, New York
March 20, 1998
F-7