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                       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 March 26, 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 
(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 Securities    New York Stock Exchange
(and the related guarantee)

        Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such requirements for the past 90 days. Yes |X| No |_|

As of March 26, 1999, no voting stock was held by non-affiliates of the
Registrants.

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<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MERRILL LYNCH PREFERRED CAPITAL TRUST III
BALANCE SHEETS (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                       MARCH 26, 1999   DECEMBER 25, 1998
                                                       --------------   -----------------
ASSETS

<S>                                                      <C>                 <C>         
Investment in partnership preferred securities           $773,196,000        $773,196,000
                                                         
Income receivable                                          13,530,930          13,530,930
                                                         ------------        ------------
                                                         
Total Assets                                             $786,726,930        $786,726,930
                                                         ============        ============
                                                         
LIABILITY AND STOCKHOLDERS' EQUITY                       
                                                         
Distributions payable                                    $ 13,530,930        $ 13,530,930
                                                         ------------        ------------

Stockholders' equity:                                    
                                                         
  Preferred securities (7% Trust Originated              
    Preferred Securities; 30,000,000 authorized,         
    issued, and outstanding; $25 liquidation             
    amount per security)                                  750,000,000         750,000,000
                                                         
  Common securities (7% Trust Common Securities;         
    927,840 authorized, issued, and outstanding;         
    $25 liquidation amount per security)                   23,196,000          23,196,000
                                                         ------------        ------------
                                                         
  Total stockholders' equity                              773,196,000         773,196,000
                                                         ------------        ------------
                                                         
Total Liability and Stockholders' Equity                 $786,726,930        $786,726,930
                                                         ============        ============
</TABLE>                                                

See Note to Financial Statements


                                        2
<PAGE>

MERRILL LYNCH PREFERRED CAPITAL TRUST III
STATEMENTS OF EARNINGS (UNAUDITED)
--------------------------------------------------------------------------------

                                              FOR THE THREE       FOR THE PERIOD
                                               MONTHS ENDED     JANUARY 16, 1998
                                             MARCH 26, 1999    TO MARCH 27, 1998
                                             --------------    -----------------
EARNINGS

Income on partnership preferred securities      $13,530,930          $11,134,031
                                                ===========          ===========

See Note to Financial Statements


                                        3
<PAGE>

MERRILL LYNCH PREFERRED CAPITAL TRUST III
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
--------------------------------------------------------------------------------

                                           FOR THE THREE         FOR THE PERIOD
                                            MONTHS ENDED       JANUARY 16, 1998
                                          MARCH 26, 1999      TO MARCH 27, 1998
                                          --------------      -----------------

PREFERRED SECURITIES

Balance, beginning of period               $ 750,000,000          $          --
                                                              
Issuance of preferred securities                      --            750,000,000
                                           -------------          -------------
                                                              
Balance, end of period                       750,000,000            750,000,000
                                           -------------          -------------
                                                              
COMMON SECURITIES                                             
                                                              
Balance, beginning of period                  23,196,000                     --
                                                              
Issuance of preferred securities                      --             23,196,000
                                           -------------          -------------
                                                              
Balance, end of period                        23,196,000             23,196,000
                                           -------------          -------------
                                                              
UNDISTRIBUTED EARNINGS                                        
                                                              
Balance, beginning of period                          --                     --
                                                              
Earnings                                      13,530,930             11,134,031
                                                              
Distributions payable                        (13,530,930)           (11,134,031)
                                           -------------          -------------
                                                              
Balance, end of period                                --                     --
                                           -------------          -------------
                                                              
Total Stockholders' Equity                 $ 773,196,000          $ 773,196,000
                                           =============          =============

See Note to Financial Statements


                                        4
<PAGE>

MERRILL LYNCH PREFERRED CAPITAL TRUST III
STATEMENTS OF CASH FLOWS (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                            FOR THE THREE       FOR THE PERIOD
                                                             MONTHS ENDED     JANUARY 16, 1998
                                                           MARCH 26, 1999    TO MARCH 27, 1998
                                                           --------------    -----------------
<S>                                                         <C>                  <C>          
CASH FLOWS FROM OPERATING ACTIVITIES:

  Earnings                                                  $  13,530,930        $  11,134,031

  Increase in income receivable                                        --          (11,134,031)
                                                            -------------        -------------

    Cash provided by operating activities                      13,530,930                   --
                                                            -------------        -------------

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of partnership preferred securities                           --         (773,196,000)
                                                            -------------        -------------

    Cash used for investing activities                                 --         (773,196,000)
                                                            -------------        -------------

CASH FLOWS FROM FINANCING ACTIVITIES:

  Distributions                                               (13,530,930)                  --

  Proceeds from issuance of preferred securities                       --          750,000,000

  Proceeds from issuance of common securities                          --           23,196,000
                                                            -------------        -------------

    Cash (used for) provided by financing activities          (13,530,930)         773,196,000
                                                            -------------        -------------

NET CHANGE IN CASH                                                     --                   --

CASH, BEGINNING OF PERIOD                                              --                   --
                                                            -------------        -------------
CASH, END OF PERIOD                                         $          --        $          --
                                                            =============        =============
</TABLE>

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Preferred and common distributions of $13,125,000 and $405,930 and $10,800,000
and $334,031, respectively, were accrued at March 26, 1999 and March 27, 1998.

See Note to Financial Statements


                                        5
<PAGE>

MERRILL LYNCH PREFERRED CAPITAL TRUST III
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 26, 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-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>

MERRILL LYNCH PREFERRED FUNDING III, L.P.
BALANCE SHEETS (UNAUDITED)
--------------------------------------------------------------------------------

                                            MARCH 26, 1999    DECEMBER 25, 1998
                                            --------------    -----------------
ASSETS

Cash                                          $      2,560         $    421,119
                                                             
Investments:                                                 
  Affiliate debentures                         900,546,600          900,546,600
  U.S. Treasury bills                            9,212,044            9,110,566
                                              ------------         ------------
  Total investments                            909,758,644          909,657,166
                                                             
Interest receivable                             15,759,566           15,759,566
                                              ------------         ------------
                                                             
Total Assets                                  $925,520,770         $925,837,851
                                              ============         ============
                                                             
LIABILITY AND PARTNERS' CAPITAL                              
                                                             
Distributions payable                         $ 15,759,566         $ 15,759,566
                                              ------------         ------------
                                                             
Partners' capital:                                           
  Limited partnership interest                 773,196,000          773,196,000
  General partnership interest                 136,565,204          136,882,285
                                              ------------         ------------
  Total partners' capital                      909,761,204          910,078,285
                                              ------------         ------------
                                                             
Total Liability and Partners' Capital         $925,520,770         $925,837,851
                                              ============         ============

See Note to Financial Statements


                                        7
<PAGE>

MERRILL LYNCH PREFERRED FUNDING III, L.P.
STATEMENTS OF EARNINGS (UNAUDITED)
--------------------------------------------------------------------------------

                                            FOR THE THREE         FOR THE PERIOD
                                             MONTHS ENDED       JANUARY 16, 1998
                                           MARCH 26, 1999      TO MARCH 27, 1998
                                           --------------      -----------------

EARNINGS

Interest income:
  Affiliate debentures                        $15,759,566            $12,967,871
  U.S. Treasury bills                             101,478                 83,549
                                              -----------            -----------

Earnings                                      $15,861,044            $13,051,420
                                              ===========            ===========

See Note to Financial Statements


                                        8
<PAGE>

MERRILL LYNCH PREFERRED FUNDING III, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED)
--------------------------------------------------------------------------------

                                           FOR THE THREE         FOR THE PERIOD
                                            MONTHS ENDED       JANUARY 16, 1998
                                          MARCH 26, 1999      TO MARCH 27, 1998
                                          --------------      -----------------

LIMITED PARTNER'S CAPITAL

Balance, beginning of period               $ 773,196,000          $          --
                                                               
Issuance of preferred securities                      --            773,196,000
                                                               
Net income allocated to limited partner       13,530,930             11,134,031
                                                               
Distribution payable                         (13,530,930)           (11,134,031)
                                           -------------          -------------
                                                               
Balance, end of period                       773,196,000            773,196,000
                                           -------------          -------------
                                                               
GENERAL PARTNER'S CAPITAL                                      
                                                               
Balance, beginning of period                 136,882,285                     --
                                                               
Capital contribution                                  --            136,447,000
                                                               
Net income allocated to general partner        2,330,114              1,917,389
                                                               
Distributions                                   (418,559)                    --
                                                               
Distribution payable                          (2,228,636)            (1,836,467)
                                           -------------          -------------
                                                               
Balance, end of period                       136,565,204            136,527,922
                                           -------------          -------------
                                                               
TOTAL PARTNERS' CAPITAL                    $ 909,761,204          $ 909,723,922
                                           =============          =============

See Note to Financial Statements


                                        9
<PAGE>

MERRILL LYNCH PREFERRED FUNDING III, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                              FOR THE THREE        FOR THE PERIOD
                                                               MONTHS ENDED      JANUARY 16, 1998
                                                             MARCH 26, 1999     TO MARCH 27, 1998
                                                             --------------     -----------------
<S>                                                           <C>                   <C>          
CASH FLOWS FROM OPERATING ACTIVITIES:
  Earnings                                                    $  15,861,044         $  13,051,420
  Accretion of U.S. Treasury bills                                 (101,478)              (83,549)
  Increase in interest receivable                                        --           (12,967,871)
                                                              -------------         -------------
    Cash provided by operating activities                        15,759,566                    --
                                                              -------------         -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of affiliate debentures                                       --          (900,546,600)
  Purchases of investment securities                                     --            (9,093,773)
                                                              -------------         -------------
    Cash used for investing activities                                   --          (909,640,373)
                                                              -------------         -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Distributions to limited partner                              (13,530,930)                   --
  Distributions to general partner                               (2,647,195)                   --
  Proceeds from the issuance of preferred securities                     --           773,196,000
  Capital contribution - general partner                                 --           136,447,000
                                                              -------------         -------------
    Cash (used for) provided by financing activities            (16,178,125)          909,643,000
                                                              -------------         -------------

NET CHANGE IN CASH                                                 (418,559)                2,627

CASH, BEGINNING OF PERIOD                                           421,119                    --
                                                              -------------         -------------
CASH, END OF PERIOD                                           $       2,560         $       2,627
                                                              =============         =============
</TABLE>

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Distributions of $15,759,566 and $12,970,468 were accrued at March 26, 1999 and
March 27, 1998, respectively.

See Note to Financial Statements


                                       10
<PAGE>

MERRILL LYNCH PREFERRED FUNDING III, L.P.
NOTE TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 26, 1998
--------------------------------------------------------------------------------

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-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 6th day of May,
1999.

                                      MERRILL LYNCH PREFERRED CAPITAL TRUST III*

                                      By: /s/ RAYMOND M. DISCO
                                         ---------------------------------------
                                      Name:  Raymond M. Disco
                                      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