================================================================================

                       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 25, 1998

                    Merrill Lynch Preferred Capital Trust II
       (Exact name of Registrant as specified in its certificate of trust)

                         Commission File No.: 1-7182-04

                    Delaware                            13-7108354
         (State or other jurisdiction       (I.R.S. Employer Identification No.)
       of 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
-------------------                    -----------------------------------------
8% 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 II, L.P.
      (Exact name of Registrant as specified in its certificate of limited
                                  partnership)

                         Commission File No.: 1-7182-03

                    Delaware                            13-3926165
         (State or other jurisdiction       (I.R.S. Employer Identification No.)
       of 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
-------------------                    -----------------------------------------
8% 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 September 25, 1998, no voting stock was held by non-affiliates of the
Registrants.

================================================================================
<PAGE>

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

ITEM 1.  FINANCIAL STATEMENTS
         --------------------

MERRILL LYNCH PREFERRED CAPITAL TRUST II
BALANCE SHEETS (UNAUDITED)
--------------------------------------------------------------------------------
                                          SEPTEMBER 25, 1998   DECEMBER 26, 1997
                                          ------------------   -----------------
ASSETS

Investment in partnership
  preferred securities                          $309,278,400        $309,278,400
                                                                  
Income receivable                                  6,185,568           6,185,568
                                                ------------        ------------
                                                                  
Total Assets                                    $315,463,968        $315,463,968
                                                ============        ============
                                                                  
LIABILITY AND STOCKHOLDERS' EQUITY                                
                                                                  
Distributions payable                           $  6,185,568        $  6,185,568
                                                ------------        ------------
                                                                  
Stockholders' equity:                                             
                                                                  
  Preferred securities (8% Trust                                  
    Originated Preferred Securities;                              
    12,000,000 authorized, issued,                                
    and outstanding; $25 liquidation                              
    amount per security)                         300,000,000         300,000,000
                                                                  
  Common securities (8% Trust Common                              
    Securities; 371,136 authorized,                               
    issued, and outstanding;                                      
    $25 liquidation amount per security)           9,278,400           9,278,400
                                                ------------        ------------
                                                                  
  Total stockholders' equity                     309,278,400         309,278,400
                                                ------------        ------------
                                                                  
Total Liability and Stockholders' Equity        $315,463,968        $315,463,968
                                                ============        ============
                                                               
See Note to Financial Statements


                                       2
<PAGE>

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

                                             FOR THE THREE MONTHS ENDED
                                     -------------------------------------------
                                     SEPTEMBER 25, 1998       SEPTEMBER 26, 1997
                                     ------------------       ------------------
                                                        
EARNINGS:                                               
                                                        
Income on partnership preferred                         
  securities                                $ 6,185,568              $ 6,185,568
                                            ===========              ===========
                                                        
                                                        
                                                        
                                                        
                                           FOR THE NINE           FOR THE PERIOD
                                           MONTHS ENDED         FEBRUARY 6, 1997
                                     SEPTEMBER 25, 1998    TO SEPTEMBER 26, 1997
                                     ------------------    ---------------------
                                                        
EARNINGS:                                               
                                                        
Income on partnership preferred                         
  securities                                $18,556,704              $16,082,477
                                            ===========              ===========
                                                       
See Note to Financial Statements


                                        3
<PAGE>

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

                                           FOR THE NINE          FOR THE PERIOD
                                           MONTHS ENDED        FEBRUARY 6, 1997
                                     SEPTEMBER 25, 1998   TO SEPTEMBER 26, 1997
                                     ------------------   ---------------------
                                                         
PREFERRED SECURITIES                                     
                                                         
Balance, beginning of period              $ 300,000,000           $          --
                                                             
Issuance of preferred securities                     --             300,000,000
                                          -------------           -------------
                                                             
Balance, end of period                      300,000,000             300,000,000
                                          -------------           -------------
                                                             
COMMON SECURITIES                                            
                                                             
Balance, beginning of period                  9,278,400                      --
                                                             
Issuance of preferred securities                     --               9,278,400
                                          -------------           -------------
                                                             
Balance, end of period                        9,278,400               9,278,400
                                          -------------           -------------
                                                             
UNDISTRIBUTED EARNINGS                                       
                                                             
Balance, beginning of period                         --                      --
                                                             
Earnings                                     18,556,704              16,082,477
                                                             
Distributions                               (12,371,136)             (9,896,909)
                                                         
Distributions payable                        (6,185,568)             (6,185,568)
                                          -------------           -------------
                                                             
Balance, end of period                               --                      --
                                          -------------           -------------
                                                             
Total Stockholders' Equity                $ 309,278,400           $ 309,278,400
                                          =============           =============
                                                             
See Note to Financial Statements       


                                       4
<PAGE>

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

                                           FOR THE NINE           FOR THE PERIOD
                                           MONTHS ENDED         FEBRUARY 6, 1997
                                     SEPTEMBER 25, 1998    TO SEPTEMBER 26, 1997
                                     ------------------    ---------------------
                                                          
CASH FLOWS FROM OPERATING ACTIVITIES:                     
                                                          
  Earnings                                $  18,556,704           $  16,082,477 
                                                            
  Increase in income receivable                      --              (6,185,568)
                                          -------------           -------------
                                                            
    Cash provided by operating activities    18,556,704               9,896,909
                                          -------------           -------------
                                                            
CASH FLOWS FROM INVESTING ACTIVITIES:                       
                                                            
  Purchase of partnership preferred                         
     securities                                      --            (309,278,400)
                                          -------------           -------------
                                                         
    Cash used for investing activities               --            (309,278,400)
                                          -------------           -------------
                                                            
CASH FLOWS FROM FINANCING ACTIVITIES:                       
                                                         
  Distributions                             (18,556,704)             (9,896,909)
                                                            
  Proceeds from issuance of                                 
     preferred securities                            --             300,000,000
                                                            
  Proceeds from issuance of common                          
     securities                                      --               9,278,400
                                          -------------           -------------
                                                            
    Cash (used for) provided by                          
     financing activities                   (18,556,704)            299,381,491
                                          -------------           -------------
                                                            
NET CHANGE IN CASH                                   --                      --
                                                            
CASH, BEGINNING OF PERIOD                            --                      --
                                          -------------           -------------
                                                            
CASH, END OF PERIOD                       $          --           $          --
                                          =============           =============
                                                               
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:                          
                                                           
Preferred and common distributions of $6,000,000 and $185,568, respectively,
were accrued at September 25, 1998 and September 26, 1997. 

See Note to Financial Statements


                                        5
<PAGE>

MERRILL LYNCH PREFERRED CAPITAL TRUST II
NOTE TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 25, 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 Capital Trust II (the "Trust") for the year ended
December 26, 1997. The December 26, 1997 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>

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

                                         SEPTEMBER 25, 1998    DECEMBER 26, 1997
                                         ------------------    -----------------
                                                               
ASSETS                                                         
                                                               
Investments:                                                     
  Affiliate debentures                         $360,218,400         $360,218,400
  U.S. Treasury bills                             3,721,575            3,815,078
                                               ------------         ------------
  Total investments                             363,939,975          364,033,478
                                                                    
Interest receivable                               7,204,368            7,204,368
                                               ------------         ------------
                                                                    
Total Assets                                   $371,144,343         $371,237,846
                                               ============         ============
                                                                    
LIABILITY AND PARTNERS' CAPITAL                                     
                                                                    
Distributions payable                          $  7,204,368         $  7,204,368
                                               ------------         ------------
                                                                    
Partners' capital:                                                  
  Limited partnership interest                  309,278,400          309,278,400
  General partnership interest                   54,661,575           54,755,078
                                               ------------         ------------
  Total partners' capital                       363,939,975          364,033,478
                                               ------------         ------------
                                                                    
Total Liability and Partners' Capital          $371,144,343         $371,237,846
                                               ============         ============
                                                               
See Note to Financial Statements            


                                        7
<PAGE>

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

                                             FOR THE THREE MONTHS ENDED
                                     -------------------------------------------
                                     SEPTEMBER 25, 1998       SEPTEMBER 26, 1997
                                     ------------------       ------------------
                                                         
Interest income:                                         
  Affiliate debentures                      $ 7,204,368              $ 7,204,368
  U.S. Treasury bills                            49,893                   50,387
                                            -----------              -----------
                                                         
Earnings                                    $ 7,254,261              $ 7,254,755
                                            ===========              ===========
                                                         
                                                         
                                                         
                                                         
                                           FOR THE NINE           FOR THE PERIOD
                                           MONTHS ENDED         FEBRUARY 6, 1997
                                     SEPTEMBER 25, 1998    TO SEPTEMBER 26, 1997
                                     ------------------    ---------------------
                                                         
Interest income:                                         
  Affiliate debentures                      $21,613,104              $18,731,357
  U.S. Treasury bills                           149,561                  125,691
                                            -----------              -----------
                                                         
Earnings                                    $21,762,665              $18,857,048
                                            ===========              ===========
                                                        
See Note to Financial Statements


                                        8
<PAGE>

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

                                           FOR THE NINE           FOR THE PERIOD
                                           MONTHS ENDED         FEBRUARY 6, 1997
                                     SEPTEMBER 25, 1998    TO SEPTEMBER 26, 1997
                                     ------------------    ---------------------
                                                          
LIMITED PARTNER'S CAPITAL                                 
                                                          
Balance, beginning of period              $ 309,278,400           $          --
                                                            
Issuance of preferred securities                     --             309,278,400
                                                            
Net income allocated to limited partner      18,556,704              16,082,477
                                                                
Distributions                               (12,371,136)             (9,896,909)
                                                         
Distribution payable                         (6,185,568)             (6,185,568)
                                          -------------           -------------
                                                            
Balance, end of period                      309,278,400             309,278,400
                                          -------------           -------------
                                                            
GENERAL PARTNER'S CAPITAL                                   
                                                            
Balance, beginning of period                 54,755,078                      --
                                                            
Capital contribution                                 --              54,579,000
                                                         
Net income allocated to general partner       3,205,961               2,774,571
                                                            
Distributions                                (2,280,664)             (1,630,080)
                                                         
Distribution payable                         (1,018,800)             (1,018,800)
                                          -------------           -------------
                                                            
Balance, end of period                       54,661,575              54,704,691
                                          -------------           -------------
                                                            
TOTAL PARTNERS' CAPITAL                   $ 363,939,975           $ 363,983,091
                                          =============           =============
                                                               
See Note to Financial Statements           


                                        9
<PAGE>

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

                                           FOR THE NINE           FOR THE PERIOD
                                           MONTHS ENDED         FEBRUARY 6, 1997
                                     SEPTEMBER 25, 1998    TO SEPTEMBER 26, 1997
                                     ------------------    ---------------------

CASH FLOWS FROM OPERATING ACTIVITIES:

  Earnings                                $  21,762,665           $  18,857,048
                                                               
  Accretion of U.S. Treasury bills             (149,561)               (125,691)
                                                               
  Increase in interest receivable                    --              (7,204,368)
                                          -------------           -------------
                                                               
    Cash provided by operating activities    21,613,104              11,526,989
                                          -------------           -------------
                                                               
CASH FLOWS FROM INVESTING ACTIVITIES:                          
                                                               
  Purchase of affiliate debentures                   --            (360,218,400)
                                                               
  Purchases of investment securities         (7,473,556)             (3,639,000)
                                                               
  Maturities of investment securtities        7,716,620                      --
                                          -------------           -------------
                                                               
    Cash provided by (used for)                                
      investing activities                      243,064            (363,857,400)
                                          -------------           -------------
                                                               
CASH FLOWS FROM FINANCING ACTIVITIES:                          
                                                               
  Distributions to limited partner          (18,556,704)             (9,896,909)
                                                               
  Distributions to general partner           (3,299,464)             (1,630,080)
                                                               
  Proceeds from the issuance                                   
     of preferred securities                         --             309,278,400
                                                               
  Capital contribution - general partner             --              54,579,000
                                          -------------           -------------
                                                               
    Cash (used for) provided by                                
     financing activities                   (21,856,168)            352,330,411
                                          -------------           -------------
                                                               
NET CHANGE IN CASH                                   --                      --
                                                               
CASH, BEGINNING OF PERIOD                            --                      --
                                          -------------           -------------
                                                               
CASH, END OF PERIOD                       $          --           $          --
                                          =============           =============
                                                              
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:                     

Distributions of $7,204,368 were accrued at September 25, 1998 and September 26,
1997.

See Note to Financial Statements

        
                                       10
<PAGE>

MERRILL LYNCH PREFERRED FUNDING II, L.P.
NOTE TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 25, 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 II, L.P. (the "Partnership") for the year ended
December 26, 1997. The December 26, 1997 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 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. 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.

      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 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 Registrants' activities are limited to issuing securities and
investing the proceeds as described above. Since the Trust was organized on
January 16, 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 January 16,
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 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.


                                       12
<PAGE>

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings

      The Registrants know of no material legal proceedings involving the Trust,
the Partnership, or the assets of either of them.

Item 2. Changes in Securities

      Not applicable.

Item 3. Defaults upon Senior Securities

      Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

      Not applicable.

Item 5. Other Information

      Not applicable.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

      4.1   Certificate of Trust, dated January 16, 1997, of the Trust
            (incorporated by reference to Exhibit 4.1 to Registration Statement
            on Form S-3 (No. 333-20137) (the "Registration Statement"))

      4.2   Amended and Restated Declaration of Trust, dated as of February 4,
            1997, of the Trust (incorporated by reference to Exhibit 4.2 to the
            Trust's Quarterly Report on Form 10-Q for the period 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, dated as of
            February 6, 1997, of the Partnership (incorporated by reference to
            Exhibit 4.4 to the Partnership's Quarterly Report on Form 10-Q for
            the period ended March 28, 1997 (File No. 1-7182-03))

      4.5   Form of Trust Preferred Securities Guarantee Agreement between the
            Company and The Chase Manhattan Bank, 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 The Chase Manhattan Bank, as guarantee trustee
            (incorporated by reference to Exhibit 4.6 to the Registration
            Statement)


                                       13
<PAGE>

      4.7   Form of Subordinated Debenture Indenture between the Company and The
            Chase Manhattan Bank, as trustee (incorporated by reference to
            Exhibit 4.7 to the Registration Statement)

      4.8   Form of Affiliate Debenture Guarantee Agreement between the Company
            and The Chase Manhattan Bank, 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    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.


                                       14
<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 30th day of October,
1998.

                                MERRILL LYNCH PREFERRED CAPITAL TRUST II*

                                By: /s/ THERESA LANG
                                    ---------------------------------------
                                    Name: Theresa Lang
                                    Title: Regular Trustee

                                By: /s/ STANLEY SCHAEFER
                                    ---------------------------------------
                                    Name: Stanley Schaefer
                                    Title: Regular Trustee


                                MERRILL LYNCH PREFERRED FUNDING II, L.P.*

                                By: MERRILL LYNCH & CO., INC., as General
                                    Partner

                                By: /s/ THERESA LANG
                                    ---------------------------------------
                                    Name: Theresa Lang
                                    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
Registrant. The Trustees of the Registrant (which include the Regular Trustees,
the Property Trustee and the Delaware Trustee) together exercise all powers and
perform all functions with respect to the Registrant.


                                       15
<PAGE>

                                INDEX TO EXHIBITS

Exhibits

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

27    Financial Data Schedules