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

                                    FORM 10-K

                      ANNUAL REPORT PURSUANT TO SECTION 13
                 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                 -----------------------------------------------
                   For the fiscal year ended December 26, 1997

                    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 of     (I.R.S. Employer Identification No.)
         incorporation or organization)
             World Financial Center
                  North Tower
               New York, New York                           10281
        (Address of principal executive                   (Zip Code)
                    offices)           

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 Preferred          New York Stock Exchange
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 of     (I.R.S. Employer Identification No.)
         incorporation or organization)
             World Financial Center
                  North Tower
               New York, New York                           10281
        (Address of principal executive                   (Zip Code)
                    offices)           

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 |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

As of March 20, 1998, no voting stock was held by non-affiliates of the
Registrants.

                      Documents Incorporated By Reference:

Prospectus, dated February 4, 1997, filed pursuant to Rule 424(b) in connection
with Registration Statement on Form S-3 (No. 333-20137) filed by the Registrants
and Merrill Lynch & Co., Inc. - Incorporated by reference in Part I

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

                                     PART I

ITEM 1. Business

      Merrill Lynch Preferred Capital Trust II

      Merrill Lynch Preferred Capital Trust II (the "Trust") is a statutory
business trust formed under the Delaware Business Trust Act, as amended,
pursuant to a declaration of trust and the filing of a certificate of trust with
the Secretary of State on January 16, 1997, which was subsequently amended by an
amended and restated declaration of trust dated as of February 4, 1997. The
Trust exists for the exclusive purposes of (i) issuing trust securities,
consisting of 8% Trust Originated Preferred Securities (the "TOPrS") and trust
common securities (the "Trust Common Securities"), representing undivided
beneficial ownership interests in the assets of the Trust, (ii) investing the
gross proceeds of the trust securities in 8% Partnership Preferred Securities
(the "Partnership Preferred Securities") issued by Merrill Lynch Preferred
Funding II, L.P. (the "Partnership"), and (iii) engaging in only those other
activities necessary or incidental thereto.

      Merrill Lynch Preferred Funding II, L.P.

      The Partnership is a limited partnership formed under the Delaware Revised
Uniform Limited Partnership Act, as amended, pursuant to an agreement of limited
partnership and the filing of a certificate of limited partnership with the
Secretary of State 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 information set forth under the headings "Merrill Lynch Preferred
Capital Trust II", "Merrill Lynch Preferred Funding II, L.P.", "Description of
the Trust Preferred Securities", "Description of the Trust Guarantee",
"Description of the Partnership Preferred Securities", "Description of the
Partnership Guarantee", and "Use of Proceeds" in the Prospectus dated February
4, 1997 of the Trust and the Partnership is incorporated by reference herein.

ITEM 2. Properties

      Not Applicable.

ITEM 3. Legal Proceedings

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

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

      No matter was submitted to a vote of holders of any securities of the
Trust or the Partnership during the fiscal year covered by this report.
<PAGE>

                                     PART II

ITEM 5. Market for Registrants' Common Equity and Related Stockholder Matters

      (a) There is no established public market for the Trust Common Securities
or the general partnership interest in the Partnership.

      (b) All of the Trust Common Securities and the entire general partnership
interest in the Partnership are owned of record and beneficially by the Company.

      (c) The Company, as holder of the Trust Common Securities, is entitled to
receive cumulative cash distributions accumulating from February 6, 1997 and
payable quarterly in arrears on each March 30, June 30, September 30 and
December 30, commencing March 30, 1997, at an annual rate of 8% of the
liquidation amount per annum. Distributions not paid on the scheduled payment
date will accumulate and compound quarterly at a rate per annum equal to 8%. The
certificate of limited partnership of the Partnership does not require any
regular periodic distributions to be made to the general partner; however, to
the extent that aggregate payments to the Partnership on the Affiliate
Investment Instruments and on certain eligible debt securities exceed
distributions accumulated or payable with respect to the Partnership Preferred
Securities, the Partnership may at times have excess funds which shall be
allocated to and may, in the general partner's sole discretion, be distributed
to the general partner.

ITEM 6. Selected Financial Data

      The Registrant's activities are limited to issuing securities and
investing the proceeds as described in ITEM 1. - Business above. Accordingly,
the financial statements included herein in response to ITEM 8. - Financial
Statements and Supplementary Data are incorporated by reference in response to
this item.

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

      The Registrant's activities are limited to issuing securities and
investing the proceeds as described in Item 1. - Business 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 7A. 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 ML & Co. 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.


                                       2
<PAGE>

ITEM 8. Financial Statements and Supplementary Data

      In response to this ITEM 8, the financial statements and notes thereto and
the independent auditors' reports set forth on pages F-1 through F-15 are
incorporated by reference herein.

ITEM 9. Changes in and Disagreements With Accountants on Accounting and 
        Financial Disclosures

      None.

                                    PART III

ITEM 10. Directors and Executive Officers of the Registrant

      The Trustees of the Trust are as follows:

            Regular Trustees: Theresa Lang
                              Stanley Schaefer

            Property Trustee: The Chase Manhattan Bank

            Delaware Trustee: Chase Manhattan Bank Delaware

      Theresa Lang is Senior Vice President and Treasurer of the Company.
Stanley Schaefer is the Company's Director of Corporate Taxation. Each of them
has served in that or another capacity with the Company for the last five years.

      Each Trustee has served since the Trust was organized on January 16, 1997.
The Trustees serve at the pleasure of the Company, as the holder of the Trust
Common Securities.

      The Partnership has no directors or executive officers.

ITEM 11. Executive Compensation

      Neither the Trust nor the Partnership has any executive officers. No
employee of the Company receives any compensation for serving as a Regular
Trustee or acting in any capacity for the Trust or the Partnership separate from
his or her compensation as an employee of the Company.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management


                                       3
<PAGE>

      The information in ITEM 1. - Business and ITEM 5. - Market for
Registrants' Common Equity and Related Stockholder Matters with respect to
ownership of the Trust Common Securities is incorporated by reference in
response to this item.

ITEM 13. Certain Relationships and Related Transactions

      None.

                                     PART IV

ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)   Documents filed as part of this Report:

      1.    Financial Statements

            The contents of the financial statements are listed on page F-1
      hereof, and the financial statements and accompanying independent
      auditors' reports appear on pages F-2 through F-15.

      2.    Financial Statement Schedules

            None.

      3.    Exhibits

            Certain of the following exhibits were previously filed as exhibits
      to other reports or registration statements filed by the Registrants and
      are incorporated herein by reference to such reports or registration
      statements as indicated parenthetically below by the appropriate report
      reference date or registration statement number.

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

      4.2   Amended and Restated Declaration of Trust of the Trust, dated as of
            February 4, 1997 (incorporated by reference to Exhibit 4.2 to the
            Trust's Quarterly Report on Form 10-Q for the quarter ended March
            28, 1997 (File No. 1-7182-04))

      4.3   Certificate of Limited Partnership, dated as of January 16, 1997, of
            the Partnership (incorporated by reference to Exhibit 4.3 to the
            Registration Statement)

      4.4   Amended and Restated Agreement of Limited Partnership of the
            Partnership (incorporated by reference to Exhibit 4.4 to the
            Partnership's Quarterly Report on Form 10-Q for the quarter ended
            March 28, 1997 (File No. 1-7182-03))

      4.5   Form of Trust Preferred Securities Guarantee Agreement between the
            Company and The Chase Manhattan Bank, as guarantee trustee


                                       4
<PAGE>

            (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)

      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

      23    Consent of Deloitte & Touche LLP

      24    Powers of Attorney

      27    Financial Data Schedules. 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-K by means of the
            EDGAR system.

(b)   Reports on Form 8-K

      None.


                                       5
<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 23rd day of March,
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,
                                            and as Attorney-in-Fact for a 
                                            majority of the Board of Directors**

----------
*     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.

**    Pursuant to Powers of Attorney filed as Exhibits hereto, for Herbert M.
      Allison, Jr., William O. Bourke, W.H. Clark, Jill K. Conway, Stephen L.
      Hammerman, Earle H. Harbison, Jr., George B. Harvey, William R. Hoover,
      David H. Komansky, Robert P. Luciano, David K. Newbigging, Aulana L.
      Peters, John J. Phelan, Jr., John L. Steffens, and William L. Weiss,
      directors of Merrill Lynch & Co., Inc.
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS
                                  ITEM 14(a)(1)

FINANCIAL STATEMENTS                                                PAGE
--------------------                                                ----

MERRILL LYNCH PREFERRED CAPITAL TRUST II

      Balance Sheet, December 26, 1997                              F-2

      Statement of Earnings, for the Period February 6, 1997
         to December 26, 1997                                       F-3

      Statement of Changes in Stockholders' Equity, for the 
         Period February 6, 1997 to December 26, 1997               F-4

      Statement of Cash Flows, for the Period February 6, 1997
         to December 26, 1997                                       F-5

      Notes to Financial Statements                                 F-6

      Independent Auditors' Report                                  F-8


MERRILL LYNCH PREFERRED FUNDING II, L.P.

      Balance Sheet, December 26, 1997                              F-9

      Statement of Earnings, for the Period February 6, 1997
         to December 26, 1997                                       F-10

      Statement of Changes in Partners' Capital, for the 
         Period February 6, 1997 to December 26, 1997               F-11

      Statement of Cash Flows, for the Period February 6, 1997
         to December 26, 1997                                       F-12

      Notes to Financial Statements                                 F-13

      Independent Auditors' Report                                  F-15


                                      F-1
<PAGE>

MERRILL LYNCH PREFERRED CAPITAL TRUST II
BALANCE SHEET
--------------------------------------------------------------------------------

                                                               DECEMBER 26, 1997
                                                               -----------------
ASSETS

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


                                      F-2
<PAGE>

MERRILL LYNCH PREFERRED CAPITAL TRUST II
STATEMENT OF EARNINGS
--------------------------------------------------------------------------------

                                                                  FOR THE PERIOD
                                                                FEBRUARY 6, 1997
                                                            TO DECEMBER 26, 1997
                                                            --------------------
EARNINGS:

Income on partnership preferred securities                           $22,268,045
                                                                     ===========

See Notes to Financial Statements


                                      F-3
<PAGE>

MERRILL LYNCH PREFERRED CAPITAL TRUST II
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------

                                                                 FOR THE PERIOD
                                                               FEBRUARY 6, 1997
                                                           TO DECEMBER 26, 1997
                                                           --------------------

PREFERRED SECURITIES

Issuance of preferred securities                                   $300,000,000
                                                                   ------------
Balance at December 26, 1997                                        300,000,000
                                                                   ------------
                                                                   
COMMON SECURITIES                                                  
                                                                   
Issuance of common securities                                         9,278,400
                                                                   ------------
Balance at December 26, 1997                                          9,278,400
                                                                   ------------
                                                                   
UNDISTRIBUTED EARNINGS                                             
                                                                   
Earnings                                                             22,268,045
                                                                   
Distributions                                                       (16,082,477)
                                                                   
Distributions payable                                                (6,185,568)
                                                                   ------------
Balance at December 26, 1997                                             --
                                                                   ------------
                                                                   
Total Stockholders' Equity                                         $309,278,400
                                                                   ============
                                                                   
See Notes to Financial Statements


                                      F-4
<PAGE>

MERRILL LYNCH PREFERRED CAPITAL TRUST II
STATEMENT OF CASH FLOWS
-------------------------------------------------------------------------------

                                                                 FOR THE PERIOD
                                                               FEBRUARY 6, 1997
                                                           TO DECEMBER 26, 1997
                                                           --------------------

EARNINGS                                                          $  22,268,045

CASH FLOWS FROM OPERATING ACTIVITIES:

  Increase in income receivable                                      (6,185,568)
                                                                  -------------
    Cash provided by operating activities                            16,082,477
                                                                  -------------
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:

  Proceeds from issuance of preferred securities                    300,000,000

  Proceeds from issuance of common securities                         9,278,400

  Distributions                                                     (16,082,477)
                                                                  -------------
    Cash provided by financing activities                           293,195,923
                                                                  -------------

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 December 26, 1997.

See Notes to Financial Statements


                                      F-5
<PAGE>

MERRILL LYNCH PREFERRED CAPITAL TRUST II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 26, 1997
--------------------------------------------------------------------------------


1.    ORGANIZATION AND PURPOSE

      Merrill Lynch Preferred Capital Trust II (the "Trust") is a statutory
      business trust formed under the laws of the State of Delaware on January
      16, 1997 for the exclusive purposes of (i) issuing its preferred and
      common securities (the "Trust Preferred Securities" and the "Trust Common
      Securities", respectively), (ii) purchasing partnership preferred
      securities (the "Partnership Preferred Securities"), representing the
      limited partnership interest of Merrill Lynch Preferred Funding II, L.P.
      (the "Partnership"), with the proceeds from the sale of Trust Preferred
      and Common Securities, and (iii) engaging in only those other activities
      necessary or incidental thereto.

      Merrill Lynch & Co., Inc. (the "Company") has paid compensation to the
      underwriters of the offering of the Trust Preferred Securities. The
      Company also has agreed to (i) pay all fees and expenses related to the
      organization and operations of the Trust (including taxes, duties,
      assessments, or government charges of whatever nature (other than
      withholding taxes) imposed by the United States or any other domestic
      taxing authority upon the Trust) and the offering of the Trust Preferred
      Securities and (ii) be responsible for all debts and other obligations of
      the Trust (other than with respect to the Trust Preferred and Common
      Securities). The Company has agreed to indemnify the trustees and certain
      other persons.


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      BASIS OF PRESENTATION
      The financial statements are presented in accordance with generally
      accepted accounting principles, which require management to make estimates
      that affect reported amounts and disclosure of contingencies in the
      financial statements. Actual results could differ from those estimates.

      INVESTMENT
      The investment in Partnership Preferred Securities represents a limited
      partnership interest in the Partnership and is recorded at cost. As of
      year end, the carrying value of the investment approximates its fair
      value. Income on the Partnership Preferred Securities is accrued when
      earned.

      INCOME TAXES
      The Trust does not incur any income tax liabilities. Such liabilities are
      incurred directly by the security holders.


                                      F-6
<PAGE>

MERRILL LYNCH PREFERRED CAPITAL TRUST II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 26, 1997
--------------------------------------------------------------------------------


3.    INVESTMENT IN PARTNERSHIP PREFERRED SECURITIES

      The Trust holds 12,371,136 8% Partnership Preferred Securities, $25
      liquidation preference per security. The interest payment dates and
      redemption provisions of the Partnership Preferred Securities, which are
      redeemable on or after March 30, 2007 at the option of the Partnership,
      correspond to the distribution payment dates and redemption provisions of
      the Trust Preferred Securities. Upon any redemption of the Partnership
      Preferred Securities, the Trust Preferred Securities will be redeemed. The
      Company has guaranteed, on a subordinated basis, the payment of
      distributions by the Partnership on the Partnership Preferred Securities
      if, as, and when declared out of funds legally available and payments upon
      liquidation of the Partnership or the redemption of the Partnership
      Preferred Securities to the extent of funds legally available.


4.    STOCKHOLDERS' EQUITY

      TRUST PREFERRED SECURITIES
      The Trust issued 12,000,000 8% Trust Preferred Securities, $25 liquidation
      amount per security in a public offering on February 6, 1997. The Trust
      Preferred Securities are redeemable on or after March 30, 2007 at the
      option of the Trust, in whole or in part, at a redemption price equal to
      $25 per security. Distributions on the Trust Preferred Securities are
      cumulative from the date of original issue and are payable quarterly if,
      as, and when the Trust has funds available for payment. Holders of the
      Trust Preferred Securities have limited voting rights and are not entitled
      to vote to appoint, remove or replace, or to increase or decrease the
      number of, trustees, which voting rights are vested exclusively in the
      holder of the Trust Common Securities. Under certain circumstances, the
      Trust Preferred Securities have preferential rights to payment relative to
      the Trust Common Securities.

      The Company has guaranteed, on a subordinated basis, the payment in full
      of all distributions and other payments on the Trust Preferred Securities
      to the extent that the Trust has funds legally available. This guarantee
      and the partnership distribution guarantee are subordinated to all other
      liabilities of the Company and rank pari passu with the most senior
      preferred stock of the Company.

      TRUST COMMON SECURITIES
      The Trust issued 371,136 8% Trust Common Securities, $25 liquidation
      amount per security, to the Company on February 6, 1997. The Trust Common
      Securities are redeemable on or after March 30, 2007 at the option of the
      Trust, in whole or in part, at a redemption price equal to $25 per
      security.


                                      F-7
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Trustees of
  Merrill Lynch Preferred Capital Trust II

We have audited the accompanying balance sheet of Merrill Lynch Preferred
Capital Trust II (the "Trust") as of December 26, 1997, and the related
statements of earnings, changes in stockholders' equity and cash flows for the
period then ended. These financial statements are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Trust at December 26, 1997, and the
results of its operations and its cash flows for the period then ended in
conformity with generally accepted accounting principles.


/s/ Deloitte & Touche LLP

New York, New York
March 20, 1998


                                      F-8
<PAGE>

MERRILL LYNCH PREFERRED FUNDING II, L.P.
BALANCE SHEET
--------------------------------------------------------------------------------

                                                               DECEMBER 26, 1997
                                                               -----------------
ASSETS

Investments:
  Affiliate debentures                                              $360,218,400
  U.S. Treasury bills                                                  3,815,078
                                                                    ------------
  Total investments                                                  364,033,478

Interest receivable                                                    7,204,368
                                                                    ------------

Total Assets                                                        $371,237,846
                                                                    ============

LIABILITY AND PARTNERS' CAPITAL

Distributions payable                                               $  7,204,368
                                                                    ------------

Partners' capital:
  Limited partnership interest                                       309,278,400
  General partnership interest                                        54,755,078
                                                                    ------------
  Total partners' capital                                            364,033,478
                                                                    ------------

Total Liability and Partners' Capital                               $371,237,846
                                                                    ============

See Notes to Financial Statements


                                      F-9
<PAGE>

MERRILL LYNCH PREFERRED FUNDING II, L.P.
STATEMENT OF EARNINGS
--------------------------------------------------------------------------------

                                                                  FOR THE PERIOD
                                                                FEBRUARY 6, 1997
                                                            TO DECEMBER 26, 1997
                                                            --------------------
Interest income:

  Affiliate debentures                                               $25,935,725
  U.S. Treasury bills                                                    176,078
                                                                     -----------

Earnings                                                             $26,111,803
                                                                     ===========

See Notes to Financial Statements


                                      F-10
<PAGE>

MERRILL LYNCH PREFERRED FUNDING II, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
--------------------------------------------------------------------------------

                                                                 FOR THE PERIOD
                                                               FEBRUARY 6, 1997
                                                           TO DECEMBER 26, 1997
                                                           --------------------
LIMITED PARTNER'S CAPITAL

Issuance of preferred securities                                  $ 309,278,400

Net income allocated to limited partner                              22,268,045

Distributions                                                       (16,082,477)

Distribution payable                                                 (6,185,568)
                                                                  -------------
Balance at December 26, 1997                                        309,278,400
                                                                  -------------

GENERAL PARTNER'S CAPITAL

Capital contribution                                                 54,579,000

Net income allocated to general partner                               3,843,758

Distributions                                                        (2,648,880)

Distribution payable                                                 (1,018,800)
                                                                  -------------
Balance at December 26, 1997                                         54,755,078
                                                                  -------------

TOTAL PARTNERS' CAPITAL                                           $ 364,033,478
                                                                  =============

See Notes to Financial Statements


                                      F-11
<PAGE>

MERRILL LYNCH PREFERRED FUNDING II, L.P.
STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------

                                                                 FOR THE PERIOD
                                                               FEBRUARY 6, 1997
                                                           TO DECEMBER 26, 1997
                                                           --------------------

EARNINGS                                                          $  26,111,803

CASH FLOWS FROM OPERATING ACTIVITIES:

  Accretion of U.S. Treasury bills                                     (176,078)

  Increase in interest receivable                                    (7,204,368)
                                                                  -------------
    Cash provided by operating activities                            18,731,357
                                                                  -------------
CASH FLOWS FROM INVESTING ACTIVITIES:

  Purchase of affiliate debentures                                 (360,218,400)

  Purchase of U.S. Treasury bills                                    (3,639,000)
                                                                  -------------
    Cash used for investing activities                             (363,857,400)
                                                                  -------------
CASH FLOWS FROM FINANCING ACTIVITIES:

  Distributions                                                     (18,731,357)

  Proceeds from the issuance of preferred securities                309,278,400

  Capital contribution - general partner                             54,579,000
                                                                  -------------
    Cash provided by financing activities                           345,126,043
                                                                  -------------
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 December 26, 1997.

See Notes to Financial Statements


                                      F-12
<PAGE>

MERRILL LYNCH PREFERRED FUNDING II, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 26, 1997
--------------------------------------------------------------------------------


1.    ORGANIZATION AND PURPOSE

      Merrill Lynch Preferred Funding II, L.P. (the "Partnership") is a limited
      partnership that was formed under the Delaware Revised Uniform Limited
      Partnership Act on January 16, 1997 for the exclusive purpose of
      purchasing certain eligible debt instruments of Merrill Lynch & Co., Inc.
      (the "Company") and wholly owned subsidiaries of the Company with the
      proceeds from the sale of (i) its preferred securities (the "Partnership
      Preferred Securities"), representing a limited partner interest, to
      Merrill Lynch Preferred Capital Trust II (the "Trust") and (ii) a capital
      contribution from the Company in exchange for the general partnership
      interest in the Partnership.

      The Company, in its capacity as sole general partner of the Partnership,
      has agreed to (i) pay all fees and expenses related to the organization
      and operations of the Partnership (including taxes, duties, assessments,
      or government charges (other than withholding taxes) imposed by the United
      States or any other domestic taxing authority upon the Partnership) and
      (ii) be responsible for all debts and other obligations of the Partnership
      (other than with respect to the Partnership Preferred Securities). The
      Company has also agreed to indemnify certain officers and agents of the
      Partnership.


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      BASIS OF PRESENTATION
      The financial statements are presented in accordance with generally
      accepted accounting principles, which require management to make estimates
      that affect reported amounts and disclosure of contingencies in the
      financial statements. Actual results could differ from those estimates.

      INVESTMENTS
      The Partnership's investments in affiliate debentures and U.S. Treasury
      bills are classified as held-to-maturity and are recorded at accreted
      cost. As of year end, the carrying value of these investments approximates
      their fair value.

      INCOME TAXES
      The Partnership does not incur any income tax liabilities. Such
      liabilities are incurred directly by the partners.


                                      F-13
<PAGE>

MERRILL LYNCH PREFERRED FUNDING II, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 26, 1997
--------------------------------------------------------------------------------


3.    INVESTMENT IN AFFILIATE DEBENTURES

      The Partnership holds debentures of the Company and a wholly owned
      subsidiary of the Company. The debentures have a term of approximately 20
      years and bear interest at 8% per annum. The interest payment dates and
      redemption provisions of the debentures, which are redeemable at the
      option of the Company and its subsidiary on or after March 30, 2007,
      correspond to the distribution payment dates and redemption provisions of
      the Partnership Preferred Securities. Interest and redemption payments on
      the subsidiary debenture are guaranteed by the Company on a subordinated
      basis.


4.    PARTNERS' CAPITAL

      The Partnership issued 12,371,136 8% Partnership Preferred Securities, $25
      liquidation preference per security, to the Trust on February 6, 1997.
      Distributions on the Partnership Preferred Securities are cumulative from
      the date of original issue and are payable quarterly if, as, and when
      declared by the general partner. The Partnership Preferred Securities are
      redeemable on or after March 30, 2007 at the option of the Partnership, at
      a redemption price equal to $25 per security. Except as provided in the
      Limited Partnership Agreement and Partnership Preferred Securities
      Guarantee Agreement, and as otherwise provided by law, the holders of the
      Partnership Preferred Securities have no voting rights.

      The Company has guaranteed the payment of distributions by the Partnership
      on the Partnership Preferred Securities if, as, and when declared out of
      funds legally available and payments upon liquidation of the Partnership
      or the redemption of the Partnership Preferred Securities to the extent of
      funds legally available. This guarantee is subordinated to all other
      liabilities of the Company and ranks pari passu with the most senior
      preferred stock of the Company.


                                      F-14
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the General Partner and Limited Partner of 
  Merrill Lynch Preferred Funding II, L.P.

We have audited the accompanying balance sheet of Merrill Lynch Preferred
Funding II, L.P. (the "Partnership") as of December 26, 1997, and the related
statements of earnings, changes in partners' capital, and cash flows for the
period then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership at December 26, 1997, and
the results of its operations and its cash flows for the period then ended in
conformity with generally accepted accounting principles.


/s/ Deloitte & Touche LLP

New York, New York
March 20, 1998


                                      F-15