================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
                     QUARTERLY REPORT PURSUANT TO SECTION 13
                 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended September 24, 1999

                     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 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                    New York Stock Exchange
Preferred 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 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               New York Stock Exchange
Securities (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 |_|

As of September 24, 1999, no voting stock was held by non-affiliates of the
Registrants.
================================================================================
<PAGE>

                         PART I - FINANCIAL INFORMATION
                         ------------------------------

ITEM 1.   FINANCIAL STATEMENTS
          --------------------
<TABLE>
<CAPTION>

MERRILL LYNCH PREFERRED CAPITAL TRUST III
BALANCE SHEETS  (unaudited)
(dollars in thousands, except per security amounts)
-----------------------------------------------------------------------------------------------------------------------



                                                                                  SEPTEMBER 24, 1999  DECEMBER 25, 1998
                                                                                  ------------------  -----------------
<S>                                                                                      <C>                <C>
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
                                                                                          ==========         ==========
</TABLE>

See Note to Financial Statements

                                       2
<PAGE>

<TABLE>
<CAPTION>

MERRILL LYNCH PREFERRED CAPITAL TRUST III
STATEMENTS OF EARNINGS  (unaudited)
(dollars in thousands)
--------------------------------------------------------------------------------------------------------------

                                                                           FOR THE THREE MONTHS ENDED
                                                                    ------------------------------------------

                                                                     SEPTEMBER 24, 1999      SEPTEMBER 25,1998
                                                                    -------------------      -----------------
<S>                                                                 <C>                    <C>
EARNINGS

Income on partnership preferred securities                                    $  13,531              $  13,531
                                                                              =========              =========




                                                                           FOR THE NINE         FOR THE PERIOD
                                                                           MONTHS ENDED       JANUARY 16, 1998
                                                                     SEPTEMBER 24, 1999  TO SEPTEMBER 25, 1998
                                                                     ------------------  ---------------------
EARNINGS

Income on partnership preferred securities                                    $  40,593              $  38,196
                                                                              =========              =========
</TABLE>

See Note to Financial Statements


                                       3
<PAGE>

<TABLE>
<CAPTION>

MERRILL LYNCH PREFERRED CAPITAL TRUST III
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY  (unaudited)
(dollars in thousands)
-------------------------------------------------------------------------------------------------------


                                                                   FOR THE NINE          FOR THE PERIOD
                                                                   MONTHS ENDED        JANUARY 16, 1998
                                                             SEPTEMBER 24, 1999   TO SEPTEMBER 25, 1998
                                                             ------------------   ---------------------
<S>                                                         <C>                  <C>
PREFERRED SECURITIES

Balance, beginning of period                                        $  750,000               $     -
Issuance of preferred securities                                          -                     750,000
                                                                    ----------               ----------
Balance, end of period                                                 750,000                  750,000
                                                                    ----------               ----------

COMMON SECURITIES

Balance, beginning of period                                            23,196                    -
Issuance of common securities                                             -                     23,196
                                                                    ----------              ----------
Balance, end of period                                                  23,196                  23,196
                                                                    ----------              ----------

UNDISTRIBUTED EARNINGS

Balance, beginning of period                                              -                       -
Earnings                                                                40,593                  38,196
Distributions                                                          (27,062)                (24,665)
Distributions payable                                                  (13,531)                (13,531)
                                                                    ----------              ----------
Balance, end of period                                                    -                       -
                                                                    ----------              ----------


Total Stockholders' Equity                                          $  773,196              $  773,196
                                                                    ==========              ==========
</TABLE>

See Note to Financial Statements

                                       4
<PAGE>

<TABLE>
<CAPTION>

MERRILL LYNCH PREFERRED CAPITAL TRUST III
STATEMENTS OF CASH FLOWS  (unaudited)
(dollars in thousands)
----------------------------------------------------------------------------------------------------------------------


                                                                                  FOR THE NINE         FOR THE PERIOD
                                                                                  MONTHS ENDED       JANUARY 16, 1998
                                                                            SEPTEMBER 24, 1999  TO SEPTEMBER 25, 1998
                                                                            ------------------  ---------------------
<S>                                                                        <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Earnings                                                                          $  40,593              $  38,196
   Increase in income receivable                                                          -                   (13,531)
                                                                                     ---------              ---------
      Cash provided by operating activities                                             40,593                 24,665
                                                                                     ---------              ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of partnership preferred securities                                           -                  (773,196)
                                                                                     ---------              ---------
      Cash used for investing activities                                                  -                  (773,196)
                                                                                     ---------              ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Distributions                                                                       (40,593)               (24,665)
   Proceeds from issuance of preferred securities                                         -                   750,000
   Proceeds from issuance of common securities                                            -                    23,196
                                                                                     ---------              ---------
      Cash (used for) provided by financing activities                                 (40,593)               748,531
                                                                                     ---------              ---------

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 September 24, 1999 and September 25, 1998.

</TABLE>

See Note to Financial Statements

                                       5
<PAGE>



MERRILL LYNCH PREFERRED CAPITAL TRUST III
NOTE TO FINANCIAL STATEMENTS  (unaudited)
SEPTEMBER 24, 1999
-------------------------------------------------------------------------------


BASIS OF PRESENTATION

These  unaudited  financial  statements  should be read in conjunction  with the
audited  financial  statements  included  in the  Annual  Report on Form 10-K of
Merrill  Lynch  Preferred  Capital  Trust III (the "Trust") for the  year  ended
December  25, 1998.  The  December  25, 1998 balance  sheet was derived from the
audited financial  statements.  The interim financial  statements for the three-
and  nine-month  periods are  unaudited; however,  in the opinion of the Regular
Trustees of the  Trust,  all  adjustments, consisting  only of normal  recurring
accruals necessary for a fair statement of the results of operations,  have been
included.

                                       6
<PAGE>

<TABLE>
<CAPTION>

MERRILL LYNCH PREFERRED FUNDING III, L.P.
BALANCE SHEETS  (unaudited)
(dollars in thousands)
-----------------------------------------------------------------------------------------------------------------



                                                                          SEPTEMBER 24, 1999    DECEMBER 25, 1998
                                                                          ------------------    -----------------
<S>                                                                      <C>                   <C>
ASSETS

Cash                                                                              $     -              $      421

Investments:
   Affiliate debentures                                                           $  900,547              900,547
   U.S. Treasury bills                                                                 9,272                9,110
                                                                                  ----------           ----------
   Total investments                                                                 909,819              909,657

Interest receivable                                                                   15,760               15,760
                                                                                  ----------           ----------
Total Assets                                                                      $  925,579           $  925,838
                                                                                  ==========           ==========

LIABILITY AND PARTNERS' CAPITAL

Distributions payable                                                             $   15,760           $   15,760
                                                                                  ----------           ----------
Partners' capital:
   Limited partnership interest                                                      773,196              773,196
   General partnership interest                                                      136,623              136,882
                                                                                  ----------           ----------
   Total partners' capital                                                           909,819              910,078
                                                                                  ----------           ----------

Total Liability and Partners' Capital                                             $  925,579           $  925,838
                                                                                  ==========           ==========
</TABLE>

See Note to Financial Statements

                                       7
<PAGE>

<TABLE>
<CAPTION>


MERRILL LYNCH PREFERRED FUNDING III, L.P.
STATEMENTS OF EARNINGS  (unaudited)
(dollars in thousands)
-------------------------------------------------------------------------------------------------


                                                               FOR THE THREE MONTHS ENDED
                                                        -----------------------------------------

                                                        SEPTEMBER 24, 1999     SEPTEMBER 25, 1998
                                                        ------------------     ------------------
<S>                                                     <C>                    <C>
EARNINGS

Interest income:
   Affiliate debentures                                         $   15,760             $   15,760
   U.S. Treasury bills                                                 110                    121
                                                                ----------             ----------
Earnings                                                        $   15,870             $   15,881
                                                                ==========             ==========






                                                              FOR THE NINE         FOR THE PERIOD
                                                              MONTHS ENDED       JANUARY 16, 1998
                                                        SEPTEMBER 24, 1999  TO SEPTEMBER 25, 1998
                                                        ------------------  ---------------------
EARNINGS

Interest income:
   Affiliate debentures                                         $   47,279             $   44,487
   U.S. Treasury bills                                                 315                    322
                                                                ----------             ----------
Earnings                                                        $   47,594             $   44,809
                                                                ==========             ==========

</TABLE>

See Note to Financial Statements


                                       8
<PAGE>

<TABLE>
<CAPTION>

MERRILL LYNCH PREFERRED FUNDING III, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL  (unaudited)
(dollars in thousands)
--------------------------------------------------------------------------------------------------



                                                                FOR THE NINE        FOR THE PERIOD
                                                                MONTHS ENDED      JANUARY 16, 1998
                                                          SEPTEMBER 24, 1999  TO SEPTEMBER 25,1999
                                                          ------------------  --------------------
<S>                                                             <C>           <C>
LIMITED PARTNER'S CAPITAL

Balance, beginning of period                                     $  773,196             $     -
Issuance of preferred securities                                       -                   773,196
Net income allocated to limited partner                              40,593                 38,196
Distributions                                                       (27,062)               (24,665)
Distributions payable                                               (13,531)               (13,531)
                                                                 ----------             ----------
Balance, end of period                                              773,196                773,196
                                                                 ----------             ----------


GENERAL PARTNER'S CAPITAL

Balance, beginning of period                                        136,882                   -
Capital contribution                                                   -                   136,447
Net income allocated to general partner                               7,001                  6,613
Distributions                                                        (5,031)                (4,065)
Distributions payable                                                (2,229)                (2,229)
                                                                 ----------             ----------
Balance, end of period                                              136,623                136,766
                                                                 ----------             ----------

TOTAL PARTNERS' CAPITAL                                          $  909,819             $  909,962
                                                                 ==========             ==========
</TABLE>

See Note to Financial Statements

                                       9
<PAGE>


<TABLE>
<CAPTION>

MERRILL LYNCH PREFERRED FUNDING III, L.P.
STATEMENTS OF CASH FLOWS  (unaudited)
(dollars in thousands)
------------------------------------------------------------------------------------------------------------------------



                                                                                    FOR THE NINE          FOR THE PERIOD
                                                                                    MONTHS ENDED        JANUARY 16, 1998
                                                                              SEPTEMBER 24, 1999   TO SEPTEMBER 25, 1998
                                                                              ------------------   ---------------------

<S>                                                                          <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Earnings                                                                           $  47,594                $  44,809
   Accretion of U.S. Treasury bills                                                        (315)                    (322)
   Increase in interest receivable                                                         -                     (15,760)
                                                                                      ---------                ---------
      Cash provided by operating activities                                              47,279                   28,727
                                                                                      ---------                ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of affiliate debentures                                                        -                    (900,547)
   Purchases of investment securities                                                    (9,096)                 (18,413)
   Maturities of investment securities                                                    9,250                    9,320
                                                                                      ---------                ---------
      Cash provided by (used for) investing activities                                      154                 (909,640)
                                                                                      ---------                ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Distributions to limited partner                                                     (40,593)                 (24,665)
   Distributions to general partner                                                      (7,261)                  (4,065)
   Proceeds from the issuances of preferred securities                                     -                     773,196
   Capital contribution - general partner                                                  -                     136,447
                                                                                      ---------                ---------
      Cash (used for) provided by financing activities                                  (47,854)                 880,913
                                                                                      ---------                ---------

NET CHANGE IN CASH                                                                         (421)                    -

CASH, BEGINNING OF PERIOD                                                                   421                     -
                                                                                      ---------                ---------
CASH, END OF PERIOD                                                                   $    -                $       -
                                                                                      =========                =========



SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:

Distributions of $15,760 were accrued at September 24, 1999 and
September 25, 1998

</TABLE>

See Note to Financial Statements

                                       10
<PAGE>


MERRILL LYNCH PREFERRED FUNDING III, L.P.
NOTE TO FINANCIAL STATEMENTS  (unaudited)
SEPTEMBER 24, 1999
--------------------------------------------------------------------------------



BASIS OF PRESENTATION

These  unaudited  financial  statements  should be read in conjunction  with the
audited  financial  statements  included  in the  Annual  Report on Form 10-K of
Merrill Lynch Preferred Funding III, L.P. (the "Partnership") for the year ended
December  25, 1998.  The  December  25, 1998 balance  sheet was derived from the
audited financial  statements.  The interim financial  statements for the three-
and  nine-month  periods are  unaudited; however,  in the opinion of the General
Partner of the Partnership, all adjustments, consisting only of normal recurring
accruals necessary for a fair statement of the results of operations,  have been
included.

                                       11
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

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. 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.

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.
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 Registrants'  activities are limited to issuing securities and investing the
proceeds as described 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,  the investing of the
proceeds  in  the  Partnership   Preferred   Securities,   and  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,  the investment of
the proceeds in  Affiliate  Investment  Instruments  and certain  eligible  debt
securities,  and the  payment  of  distributions  on the  Partnership  Preferred
Securities.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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.




                                       12
<PAGE>


                          PART II - OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         12   Computation  of Ratios of Earnings to Combined  Fixed Charges and
              Preferred Securities Distributions

         27   Financial Data Schedules*

(b)      Reports on Form 8-K

         None
-----------------

* 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-Q by means
of the EDGAR system.


                                       13
<PAGE>



                                   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  8th  day  of
November, 1999.


                               MERRILL LYNCH PREFERRED CAPITAL TRUST III*

                               By: /s/ JOHN C. STOMBER
                                   ---------------------------------------------
                               Name:   John C. Stomber
                               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/ JOHN C. STOMBER
                                   ---------------------------------------------
                               Name:   John C. Stomber
                               Title:  Senior Vice President and Treasurer



------------

* 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
<PAGE>



                                INDEX TO EXHIBITS

EXHIBITS

12       Computation  of  Ratios of  Earnings  to  Combined  Fixed  Charges  and
         Preferred Securities Distributions

27       Financial Data Schedules


                                       15
<PAGE>