ITEM 1. BUSINESS --------
MERRILL LYNCH PREFERRED CAPITAL TRUST II
Merrill Lynch Preferred Capital Trust II (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 January 16, 1997, which was subsequently amended by an amended and restated declaration of trust dated as of February 4, 1997. Merrill Lynch & Co., Inc. (the "Company" or "Merrill Lynch") is the sole owner of the Trust common securities. The Trust exists for the exclusive purposes of (i) issuing trust securities, consisting of 8% 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 8% Partnership Preferred Securities (the "Partnership Preferred Securities") issued by Merrill Lynch Preferred Funding II, L.P. (the "Partnership"), and (iii) engaging in only those other activities necessary or incidental thereto.
MERRILL LYNCH PREFERRED FUNDING II, 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 Delaware on January 16, 1997, which was subsequently amended by an amended and restated agreement of limited partnership dated February 6, 1997. 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 II", "Merrill Lynch Preferred Funding II, 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 February 4, 1997 of the Trust and the Partnership is incorporated by reference herein.
Available Information - ---------------------
The Registrants and Merrill Lynch file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). You may read and copy any document we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for information on the Public Reference Room. The SEC maintains an internet site that contains annual, quarterly and current reports, proxy and information statements and other information that issuers (including the Registrants and Merrill Lynch & Co., Inc.) file electronically with the SEC. The SEC's internet site is www.sec.gov.
Merrill Lynch's internet address is www.ml.com. Merrill Lynch makes available, free of charge, its proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. In addition, the website includes information concerning beneficial ownership of Merrill Lynch's equity securities by its executive officers and directors. Investors can find this information under "SEC Reports" through the investor relations section of the website which can be accessed directly at www.ir.ml.com. These reports are available through the website as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. Additionally, Merrill Lynch's Guidelines for Business Conduct, Code of Ethics for Financial Professionals and charters for the committees of its Board of Directors have been filed as exhibits to SEC reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. These documents, along with Merrill Lynch's Corporate Governance Guidelines, are also available on the investor relations section of the website. The information on Merrill Lynch's websites is not incorporated by reference into this Report. Holders of the Registrants' securities may obtain copies of these reports and documents, free of charge, upon written request to Judith A. Witterschein, Corporate Secretary, by mail at Merrill Lynch & Co., Inc., 222 Broadway, 17th Floor, New York, NY 10038 or by email at corporate_secretary@ml.com.
ITEM 2.
ITEM 2. PROPERTIES ----------
The Registrants do not own or lease any real property.
ITEM 3.
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.
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 -------
ITEM 5.
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 February 6, 1997 and payable quarterly in arrears on each March 30, June 30, September 30 and December 30, commencing March 30, 1997, at an annual rate of 8% 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 8%. 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.
ITEM 6. SELECTED FINANCIAL DATA -----------------------
No disclosure is required for this Item pursuant to General Instruction I of Form 10-K.
ITEM 7.
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.
ITEM 7A. QUANTITATIVE and QUALITATIVE DISCLOSURES ABOUT MARKET RISK ----------------------------------------------------------
On February 6, 1997, 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.
ITEM 8. FINANCIAL STATEMENTS and SUPPLEMENTARY DATA -------------------------------------------
In response to this ITEM 8, the financial statements and notes thereto and the Reports of Independent Registered Public Accounting Firm set forth on pages through are incorporated by reference herein.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- None.
ITEM 9A.
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 as of the end of the period covered by this Report.
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 2004 that has materially affected, or is reasonably likely to materially affect, the Trust's or the Partnership's internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION -----------------
No information required to be disclosed under this item.
PART III --------
ITEM 10.
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.
ITEM 11. EXECUTIVE COMPENSATION ----------------------
No disclosure is required for this Item pursuant to General Instruction I of Form 10-K.
ITEM 12.
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.
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.
ITEM 14. PRINCIPAL ACCOUNTANT FEES and SERVICES --------------------------------------
The following table presents aggregate fees for audits of the Trust's and the Partnership's financial statements by Deloitte & Touche LLP for the fiscal years ended December 31, 2004 and December 26, 2003. There were no other services rendered by Deloitte & Touche LLP to the Trust and the Parnership in fiscal years ended December 31, 2004 and December 26, 2003.
2004 2003 ------- ------- Audit Fee(1) $12,200 $10,900
The Audit Committee of the Board of Directors of the Company is responsible for the approval of audit fees for its subsidiaries, 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 of the Company has established a policy governing the provision of audit and non-audit services to the Company and its subsidiaries (Pre-Approval Policy). The description of the Pre-Approval Policy found on page 33 of the Company's 2005 Proxy Statement filed on March 15, 2005 is incorporated herein by reference. You may obtain a copy of the 2005 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 fees for the audit of the Trust's and the Partnership's financial statements filed with the SEC on Forms 10-K and 10-Q, as well as work generally only the independent registered public accounting firm can be reasonably expected to provide, such as comfort letters, statutory audits, consents and review of documents filed with the SEC.
PART IV -------
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES ---------------------------------------
Documents filed as part of this Report:
1. Financial Statements
The contents of the financial statements are listed on page hereof, and the financial statements and accompanying Reports of Independent Registered Public Accounting Firm appear on pages through.
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 January 16, 1997 of the Trust (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 (No. 333-20137) (the "Registration Statement")).
4.2 Amended and Restated Declaration of Trust of the Trust, dated as of February 4, 1997 (incorporated by reference to Exhibit 4.2 to the Trust's Quarterly Report on Form 10-Q for the quarter ended March 28, 1997 (File No. 1-7182-04)).
4.3 Certificate of Limited Partnership, dated as of January 16, 1997, of the Partnership (incorporated by reference to Exhibit 4.3 to the the Registration Statement).
4.4 Amended and Restated Agreement of Limited Partnership of the Partnership (incorporated by reference to Exhibit 4.4 to the Partnership's Quarterly Report on Form 10-Q for the quarter ended March 28, 1997 (File No. 1-7182-03)).
4.5 Form of Trust Preferred Securities Guarantee Agreement between the Company and JPMorgan Chase Bank, N.A.(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, N.A., 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, N.A., as trustee (incorporated by reference to Exhibit 4.7 to the Registration Statement on Form S-3 (No. 333-16603)).
4.8 Form of Affiliate Debenture Guarantee Agreement between the Company and JPMorgan Chase Bank, N.A., 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* Statement re: 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.
- ------------------- (1) As used in Item 15 and the Exhibit Index of this Report, "JPMorgan Chase Bank, N.A." shall mean the entity formerly known as JPMorgan Chase and The Chase Manhattan Bank.
* Filed herewith
----------------------------- ITEM 15(1)
FINANCIAL STATEMENTS PAGE - -------------------- ----
MERRILL LYNCH PREFERRED CAPITAL TRUST II
Balance Sheets, December 31, 2004 and December 26, 2003
Statements of Earnings, Years Ended December 31, 2004, December 26, 2003 and December 27, 2002
Statements of Changes in Stockholders' Equity, Years Ended December 31, 2004, December 26, 2003 and December 27, 2002
Statements of Cash Flows, Years Ended December 31, 2004, December 26, 2003 and December 27, 2002
Notes to Financial Statements
Report of Independent Registered Public Accounting Firm
Supplemental Financial Information (Unaudited)
MERRILL LYNCH PREFERRED FUNDING II, L.P.
Balance Sheets, December 31, 2004 and December 26, 2003
Statements of Earnings, Years Ended December 31, 2004, December 26, 2003 and December 27, 2002
Statements of Changes in Partners' Capital, Years Ended December 31, 2004, December 26, 2003 and December 27, 2002
Statements of Cash Flows, Years Ended December 31, 2004, December 26, 2003 and December 27, 2002
Notes to Financial Statements
Report of Independent Registered Public Accounting Firm
Supplemental Financial Information (Unaudited)
See Notes to Financial Statements
See Notes to Financial Statements
See Notes to Financial Statements
See Notes to Financial Statements
MERRILL LYNCH PREFERRED CAPITAL TRUST II NOTES TO FINANCIAL STATEMENTS December 31, 2004 - --------------------------------------------------------------------------------
1. ORGANIZATION AND PURPOSE
Merrill Lynch Preferred Capital Trust II (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 January 16, 1997, which was subsequently amended by an amended and restated declaration of trust dated as of February 4, 1997. 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 8% Trust Originated Preferred Securities (the "Trust Preferred Securites") 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 8% Partnership Preferred Securities (the "Partnership Preferred Securities") issued by Merrill Lynch Preferred Funding II, L.P. (the "Partnership"), and (iii) engaging in only those other activities necessary or incidental thereto.
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, audit fees, 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 Affiliate 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.
MERRILL LYNCH PREFERRED CAPITAL TRUST II NOTES TO FINANCIAL STATEMENTS December 31, 2004 - --------------------------------------------------------------------------------
3. INVESTMENT IN AFFILIATE PARTNERSHIP PREFERRED SECURITIES
The Trust holds 12,371,136 8% 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, 2007 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 12,000,000 8% Trust Preferred Securities, $25 liquidation amount per security in a public offering on February 6, 1997. The Trust Preferred Securities are redeemable on or after March 30, 2007 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 371,136 8% Trust Common Securities, $25 liquidation amount per security, to the Company on February 6, 1997. The Trust Common Securities are redeemable on or after March 30, 2007 at the option of the Trust, in whole or in part, at a redemption price equal to $25 per security.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of Merrill Lynch Preferred Capital Trust II
We have audited the accompanying balance sheets of Merrill Lynch Preferred Capital Trust II (the "Trust") as of December 31, 2004 and December 26, 2003, and the related statements of earnings, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal contol over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 31, 2004 and December 26, 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
New York, New York March 29, 2005
SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED) - ---------------------------------------------- Quarterly Information - --------------------- The unaudited quarterly results of operations of Merrill Lynch Preferred Capital Trust II for 2004 and 2003 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.
See Notes to Financial Statements
See Notes to Financial Statements
See Notes to Financial Statements
See Notes to Financial Statements
MERRILL LYNCH PREFERRED FUNDING II, L.P. NOTES TO FINANCIAL STATEMENTS December 31, 2004 - --------------------------------------------------------------------------------
1. ORGANIZATION AND PURPOSE
Merrill Lynch Preferred Funding II, 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 Delaware on January 16, 1997, which was subsequently amended by an amended and restated agreement of limited partnership dated February 6, 1997. 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, (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 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, audit fees, 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, which are recorded at accreted cost and which mature within one year, are classified as available-for-sale, which both approximate fair value.
INCOME TAXES
The Partnership does not incur any income tax liabilities. Such liabilities are incurred directly by the partners.
MERRILL LYNCH PREFERRED FUNDING II, L.P. NOTES TO FINANCIAL STATEMENTS December 31, 2004 - --------------------------------------------------------------------------------
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 8% 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, 2007, 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 12,371,136 8% Partnership Preferred Securities, $25 liquidation preference per security, to the Trust on February 6, 1997. 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, 2007 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 $55.0 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.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the General Partner and Limited Partner of Merrill Lynch Preferred Funding II, L.P.
We have audited the accompanying balance sheets of Merrill Lynch Preferred Funding II, L.P. (the "Partnership") as of December 31, 2004 and December 26, 2003, and the related statements of earnings, changes in partners' capital and cash flows for each of the three years in the period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal contol over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 31, 2004 and December 26, 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
New York, New York March 29, 2005
SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED) - ---------------------------------------------- Quarterly Information - --------------------- The unaudited quarterly results of operations of Merrill Lynch Preferred Funding II, L.P. for 2004 and 2003 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.
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 29th day of March, 2005.
MERRILL LYNCH PREFERRED CAPITAL TRUST II*
By: /s/ HAIG NARGESIAN --------------------------------------------- Name: Haig Nargesian 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 Trustee, 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 29th day of March, 2005.
Merrill Lynch Preferred Funding II, L.P. 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 29th day of March, 2005.
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/ LAURENCE A. TOSI Vice President and Finance Director - ----------------------------------------- (Principal Accounting Officer) (Laurence A. Tosi)
/s/ W. H. CLARK Director - ----------------------------------------- (W. H. Clark)
/s/ JILL K. CONWAY Director - ----------------------------------------- (Jill K. Conway)
/s/ ALBERTO CRIBIORE Director ---------------------------------------- (Alberto Cribiore)
/s/ JOHN D. FINNEGAN Director - ----------------------------------------- (John D. Finnegan)
/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/ JOSEPH W. PRUEHER Director - ----------------------------------------- (Joseph W. Prueher)
/s/ ANN N. REESE Director - ----------------------------------------- (Ann N. Reese)
/s/ CHARLES O. ROSSOTTI Director - ----------------------------------------- (Charles O. Rossotti)
EXHIBIT INDEX
4.1 Certificate of Trust dated January 16, 1997, of the Trust (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 (No. 333-20137) (the "Registration Statement")).
4.2 Amended and Restated Declaration of Trust of the Trust, dated as of February 4, 1997 (incorporated by reference to Exhibit 4.2 to the Trust's Quarterly Report on Form 10-Q for the quarter ended March 28, 1997 (File No. 1-7182-04)).
4.3 Certificate of Limited Partnership, dated as of January 16, 1997 of the Partnership (incorporated by reference to Exhibit 4.3 to the Registration Statement).
4.4 Amended and Restated Agreement of Limited Partnership of the Partnership (incorporated by reference to Exhibit 4.4 to the Partnership's Quarterly Report on Form 10-Q for the quarter ended March 28, 1997 (File No. 1-7182-03)).
4.5 Form of Trust Preferred Securities Guarantee Agreement between the Company and JPMorgan Chase Bank, N.A., 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, N.A., 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, N.A., as trustee (incorporated by reference to Exhibit 4.7 to the Registration Statement on Form S-3 (No. 333-16603)).
4.8 Form of Affiliate Debenture Guarantee Agreement between the Company and JPMorgan Chase Bank, N.A., 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* Statement re: 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) Certifiction.
31.2* Rule 13a-14(a) Certifiction.
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