##### Table of Contents



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 March 31, 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
  Delaware
    
    13-7139561(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)4 World Financial CenterNew York, New York
    
    10080(Address of principal executive offices)
    
    (Zip Code)
   MERRILL LYNCH PREFERRED FUNDING III, L.P.
  Delaware
    
    13-3982448(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)4 World Financial CenterNew York, New York
    
    10080(Address of principal executive offices)
    
    (Zip Code)
  þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 o þ




---



##### 



TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS (Unaudited)
    
    
    2CONDENSED BALANCE SHEETS (Unaudited)
    
    
    2CONDENSED STATEMENTS OF EARNINGS (Unaudited)
    
    
    3CONDENSED STATEMENTS OF CHANGES in STOCKHOLDERS EQUITY (Unaudited)
    
    
    4CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
    
    
    5NOTE TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
    
    
    6CONDENSED BALANCE SHEETS (Unaudited)
    
    
    7CONDENSED STATEMENTS OF EARNINGS (Unaudited)
    
    
    8CONDENSED STATEMENTS OF CHANGES in PARTNERS CAPITAL (Unaudited)
    
    
    9CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
    
    
    10NOTE TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
    
    
    11ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    12ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    12ITEM 4. CONTROLS AND PROCEDURES
    
    
    12PART II. OTHER INFORMATIONITEM 1A. RISK FACTORS
    
    
    13ITEM 6. EXHIBITS
    
    
    13SIGNATURES
    
    
    14INDEX TO EXHIBITS
    
    
    15Exhibit 12Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS (Unaudited)
  
   March 31, 2011
    
    
    December 31, 2010ASSETSInvestment 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




---



##### Table of Contents



FOR THE THREE MONTHS ENDEDMarch 31, 2011
    
    
    March 31, 2010EARNINGSInterest on affiliate partnership preferred securities
    
    $
    13,531
    
    
    $
    13,531
   3




---



##### Table of Contents



FOR THE THREE MONTHS ENDEDMarch 31, 2011
    
    
    March 31, 2010PREFERRED 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
    
    
    13,531
    
    
    
    13,531Distributions
    
    
    (13,531
    )
    
    
    (13,531
    )Balance, end of period
    
    
    
    
    
    
    Total Stockholders Equity
    
    $
    773,196
    
    
    $
    773,196
   4




---



##### Table of Contents



FOR THE THREE MONTHS ENDEDMarch 31, 2011
    
    
    March 31, 2010CASH FLOWS FROM OPERATING ACTIVITIES:Earnings
    
    $
    13,531
    
    
    $
    13,531Cash provided by operating activities
    
    
    13,531
    
    
    
    13,531CASH FLOWS FROM FINANCING ACTIVITIES:Distributions
    
    
    (13,531
    )
    
    
    (13,531
    )Cash used for financing activities
    
    
    (13,531
    )
    
    
    (13,531
    )NET CHANGE IN CASH
    
    
    
    
    
    
    CASH, BEGINNING OF PERIOD
    
    
    
    
    
    
    CASH, END OF PERIOD
    
    $
    
    
    
    $
    
   5




---



##### Table of Contents



6




---



##### Table of Contents



March 31, 2011
    
    
    December 31, 2010ASSETSInvestments:Affiliate debentures
    
    $
    900,547
    
    
    $
    900,547U.S. Government and agencies
    
    
    9,107
    
    
    
    9,101Total investments
    
    
    909,654
    
    
    
    909,648Total Assets
    
    $
    909,654
    
    
    $
    909,648PARTNERS CAPITALLimited partnership interest
    
    $
    773,196
    
    
    $
    773,196General partnership interest
    
    
    136,458
    
    
    
    136,452Total Partners Capital
    
    $
    909,654
    
    
    $
    909,648
   7




---



##### Table of Contents



FOR THE THREE MONTHS ENDEDMarch 31, 2011
    
    
    March 31, 2010EARNINGSInterest income:Affiliate debentures
    
    $
    15,760
    
    
    $
    15,760U.S. Government and agencies
    
    
    6
    
    
    
    5Earnings
    
    $
    15,766
    
    
    $
    15,765
   8




---



##### Table of Contents



FOR THE THREE MONTHS ENDEDMarch 31, 2011
    
    
    March 31, 2010LIMITED PARTNERS CAPITALBalance, beginning of period
    
    $
    773,196
    
    
    $
    773,196Earnings allocated to limited partner
    
    
    13,531
    
    
    
    13,531Distributions
    
    
    (13,531
    )
    
    
    (13,531
    )Balance, end of period
    
    
    773,196
    
    
    
    773,196GENERAL PARTNERS CAPITALBalance, beginning of period
    
    
    136,452
    
    
    
    136,456Earnings allocated to general partner
    
    
    2,235
    
    
    
    2,234Distributions
    
    
    (2,229
    )
    
    
    (2,242
    )Balance, end of period
    
    
    136,458
    
    
    
    136,448TOTAL PARTNERS CAPITAL
    
    $
    909,654
    
    
    $
    909,644
   9




---



##### Table of Contents



FOR THE THREE MONTHS ENDEDMarch 31, 2011
    
    
    March 31, 2010CASH FLOWS FROM OPERATING ACTIVITIES:Earnings
    
    $
    15,766
    
    
    $
    15,765Accretion of interest on securities issued by
U.S. Government and agencies
    
    
    (6
    )
    
    
    (5
    )Cash provided by operating activities
    
    
    15,760
    
    
    
    15,760CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of investment securities
    
    
    
    
    
    
    (9,095
    )Maturities of investment securities
    
    
    
    
    
    
    9,108Cash provided by investing activities
    
    
    
    
    
    
    13CASH FLOWS FROM FINANCING ACTIVITIES:Distributions to limited partner
    
    
    (13,531
    )
    
    
    (13,531
    )Distributions to general partner
    
    
    (2,229
    )
    
    
    (2,242
    )Cash used for financing activities
    
    
    (15,760
    )
    
    
    (15,773
    )NET CHANGE IN CASH
    
    
    
    
    
    
    CASH, BEGINNING OF PERIOD
    
    
    
    
    
    
    CASH, END OF PERIOD
    
    $
    
    
    
    $
    
   10




---



##### Table of Contents



11




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
  
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
        12




---



##### Table of Contents



ITEM 1A.
    
    RISK FACTORS
  
 ITEM 6.
    
    EXHIBITS
 12
    
    
    Computation of Ratios of Earnings to Combined Fixed Charges and
Preferred Securities Distributions.31.1
    
    
    Rule 13a-14(a) Certification.31.2
    
    
    Rule 13a-14(a) Certification.32.1
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  13




---



##### Table of Contents



MERRILL LYNCH PREFERRED CAPITAL TRUST III*By:
    /s/ ANGELA C. JONESName:
    Angela C. JonesTitle:
    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




---



##### Table of Contents



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.
 
 *
    
    Filed herewith  15