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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 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
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    13-7139561
(I.R.S. Employer Identification No.)4 World Financial Center 
New York, New York
(Address of principal executive offices)
    
    10080
(Zip Code)
  COMMISSION FILE NO.: 1-7182-05
 MERRILL LYNCH PREFERRED FUNDING III, L.P.
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    13-3982448
(I.R.S. Employer Identification No.)4 World Financial Center 
New York, New York
(Address of principal executive offices)
    
    10080
(Zip Code)
  Yes þ No o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 Yes o No þ




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS (Unaudited)CONDENSED BALANCE SHEETS (unaudited)CONDENSED STATEMENTS OF EARNINGS (unaudited)CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (unaudited)CONDENSED STATEMENTS OF CASH FLOWS (unaudited)NOTE TO CONDENSED FINANCIAL STATEMENTS (unaudited)CONDENSED BALANCE SHEETS (unaudited)CONDENSED STATEMENTS OF EARNINGS (unaudited)CONDENSED STATEMENTS OF CHANGES IN PARTNERS CAPITAL (unaudited)CONDENSED STATEMENTS OF CASH FLOWS (unaudited)NOTE TO CONDENSED FINANCIAL STATEMENTS (unaudited)ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II  OTHER INFORMATIONItem 1A. Risk FactorsITEM 6. EXHIBITSSIGNATURESINDEX TO EXHIBITSExhibit 12Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2    Table of Contents  
 PART I  FINANCIAL INFORMATION
 
 FINANCIAL STATEMENTS
  
   September 30, 2010
    
    
    December 31, 2009ASSETSInvestment in affiliate partnership preferred securities
    
    $
    773,196
    
    
    $
    773,196Total Assets
    
    $
    773,196
    
    
    $
    773,196STOCKHOLDERS EQUITYPreferred securities (7% Trust Originated Preferred
Securities; 30,000,000 authorized, issued, and
outstanding; $25 liquidation amount per security)
    
    $
    750,000
    
    
    $
    750,000Common securities (7% Trust Common Securities;
927,840 authorized, issued, and outstanding;
$25 liquidation amount per security)
    
    
    23,196
    
    
    
    23,196Total Stockholders Equity
    
    $
    773,196
    
    
    $
    773,196
   2




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FOR THE THREE MONTHS ENDEDSeptember 30, 2010
    
    
    September 30, 2009EARNINGSInterest on affiliate partnership preferred securities
    
    $
    13,531
    
    
    $
    13,531
 FOR THE NINE MONTHS ENDEDSeptember 30, 2010
    
    
    September 30, 2009EARNINGSInterest on affiliate partnership preferred securities
    
    $
    40,593
    
    
    $
    40,593
   3




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FOR THE NINE MONTHS ENDEDSeptember 30, 2010
    
    
    September 30, 2009PREFERRED SECURITIESBalance, beginning and end of period
    
    $
    750,000
    
    
    $
    750,000COMMON SECURITIESBalance, beginning and end of period
    
    
    23,196
    
    
    
    23,196UNDISTRIBUTED EARNINGSBalance, beginning of period
    
    
    
    
    
    
    Earnings
    
    
    40,593
    
    
    
    40,593Distributions
    
    
    (40,593
    )
    
    
    (40,593
    )Balance, end of period
    
    
    
    
    
    
    Total Stockholders Equity
    
    $
    773,196
    
    
    $
    773,196
   4




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FOR THE NINE MONTHS ENDEDSeptember 30, 2010
    
    
    September 30, 2009CASH FLOWS FROM OPERATING ACTIVITIES:Earnings
    
    $
    40,593
    
    
    $
    40,593Cash provided by operating activities
    
    
    40,593
    
    
    
    40,593CASH FLOWS FROM FINANCING ACTIVITIES:Distributions
    
    
    (40,593
    )
    
    
    (40,593
    )Cash used for financing activities
    
    
    (40,593
    )
    
    
    (40,593
    )NET CHANGE IN CASH
    
    
    
    
    
    
    CASH, BEGINNING OF PERIOD
    
    
    
    
    
    
    CASH, END OF PERIOD
    
    $
    
    
    
    $
    
   5




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September 30, 2010
    
    
    December 31, 2009ASSETSInvestments:Affiliate debentures
    
    $
    900,547
    
    
    $
    900,547U.S. Government and agencies
    
    
    9,096
    
    
    
    9,105Total investments
    
    
    909,643
    
    
    
    909,652Total Assets
    
    $
    909,643
    
    
    $
    909,652PARTNERS CAPITALLimited partnership interest
    
    $
    773,196
    
    
    $
    773,196General partnership interest
    
    
    136,447
    
    
    
    136,456Total Partners Capital
    
    $
    909,643
    
    
    $
    909,652
   7




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FOR THE THREE MONTHS ENDEDSeptember 30, 2010
    
    
    September 30, 2009EARNINGSInterest income:Affiliate debentures
    
    $
    15,760
    
    
    $
    15,760U.S. Government and agencies
    
    
    3
    
    
    
    5Earnings
    
    $
    15,763
    
    
    $
    15,765
 FOR THE NINE MONTHS ENDEDSeptember 30, 2010
    
    
    September 30, 2009EARNINGSInterest income:Affiliate debentures
    
    $
    47,279
    
    
    $
    47,279U.S. Government and agencies
    
    
    12
    
    
    
    24Earnings
    
    $
    47,291
    
    
    $
    47,303
   8




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FOR THE NINE MONTHS ENDEDSeptember 30, 2010
    
    
    September 30, 2009LIMITED PARTNERS CAPITALBalance, beginning of period
    
    $
    773,196
    
    
    $
    773,196Earnings allocated to limited partner
    
    
    40,593
    
    
    
    40,593Distributions
    
    
    (40,593
    )
    
    
    (40,593
    )Balance, end of period
    
    
    773,196
    
    
    
    773,196GENERAL PARTNERS CAPITALBalance, beginning of period
    
    
    136,456
    
    
    
    136,452Earnings allocated to general partner
    
    
    6,698
    
    
    
    6,710Distributions
    
    
    (6,707
    )
    
    
    (6,712
    )Balance, end of period
    
    
    136,447
    
    
    
    136,450TOTAL PARTNERS CAPITAL
    
    $
    909,643
    
    
    $
    909,646
   9




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FOR THE NINE MONTHS ENDEDSeptember 30, 2010
    
    
    September 30, 2009CASH FLOWS FROM OPERATING ACTIVITIES:Earnings
    
    $
    47,291
    
    
    $
    47,303Accretion of interest on securities issued by
U.S. Government and agencies
    
    
    (12
    )
    
    
    (24
    )Cash provided by operating activities
    
    
    47,279
    
    
    
    47,279CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of investment securities
    
    
    (18,190
    )
    
    
    (18,192
    )Maturities of investment securities
    
    
    18,211
    
    
    
    18,218Cash provided by investing activities
    
    
    21
    
    
    
    26CASH FLOWS FROM FINANCING ACTIVITIES:Distributions to limited partner
    
    
    (40,593
    )
    
    
    (40,593
    )Distributions to general partner
    
    
    (6,707
    )
    
    
    (6,712
    )Cash used for financing activities
    
    
    (47,300
    )
    
    
    (47,305
    )NET CHANGE IN CASH
    
    
    
    
    
    
    CASH, BEGINNING OF PERIOD
    
    
    
    
    
    
    CASH, END OF PERIOD
    
    $
    
    
    
    $
    
   10




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11




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12




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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




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MERRILL LYNCH PREFERRED CAPITAL TRUST III*By:
    
    /s/ MARLENE DEBELName:
    
    Marlene DebelTitle:
    
    Regular TrusteeMERRILL LYNCH PREFERRED FUNDING III, L.P.*By:
    
    MERRILL LYNCH & CO., INC., as General PartnerBy:
    
    /s/ PETER D. TAUBEName:
    
    Peter D. TaubeTitle:
    
    Chief Accounting Officer and Controller 
Merrill Lynch & Co., Inc.
  *
    
    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




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EXHIBITS12
    *
    
    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.
 
 *
    
    Included herewith  15