<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ('ZERO')
U.S. TREASURY SECURITIES, SERIES A THROUGH K
- --------------------------------------------------------------------------------
Each Series (a 'Fund') was formed to provide safety of capital and a high yield
to maturity through investment in fixed portfolios consisting primarily of
stripped debt obligations of the United States of America ('Stripped Treasury
Securities'). See Risk Factors--Special Characteristics of Stripped Treasury
Securities for a brief description of the characteristics of the various types
of these Securities. Each Trust also contains an interest-bearing Treasury
Security (the 'Treasury Note') to provide income to pay the expenses of the
Trust. There is no assurance that these objectives will be realized if Units are
sold before the underlying Securities mature, because market prices of the
Securities before maturity and therefore the value of the Units will vary with
changes in interest rates and other factors. Each Series consists of a number of
separate unit investment trusts ('Trusts'), each designated by the year in which
its Stripped Treasury Securities mature. Series A consists of the 2003 Trust;
Series B, of the 2001 and 2005 Trusts; Series C, of the 2006 Trust; Series D, of
the 2007 Trust; Series E, of the 1998 and 2008 Trusts; Series F, of the 1999 and
2009 Trusts; Series G, of the 2000 and 2010 Trusts; Series H, of the 2011 Trust;
Series I, of the 2002 Trust; Series J, of the 2013 Trust; and Series K, of the
2004 and 2014 Trusts. Stripped Treasury Securities do not make any periodic
payments of interest prior to maturity; accordingly, each Trust's portfolio as a
whole is priced at a deep discount from face amount and Unit prices may be
subject to greater fluctuations in response to changing interest rates than in a
fund consisting of debt obligations of comparable maturities that pay interest
currently. This risk is greater when the period to maturity is longer. See Risk
Factors. The Sponsor may deposit additional Securities, with maturities
identical to those of the Securities initially deposited, in any or all of the
Trusts in connection with the creation and sale of additional Units (see Fund
Structure).
Units of interest ('Units') in the Trusts are sold only to certain separate
accounts (the 'Accounts') to fund the benefits under Variable Life Insurance
Policies (the 'Policies') issued by Monarch Life Insurance Company ('Monarch'),
Merrill Lynch Life Insurance Company and ML Life Insurance Company of New York
(collectively, the 'Insurers'). The Accounts invest in Units of the Trusts in
accordance with allocation instructions received from Policyowners. Accordingly,
the interest of a Policyowner in the Units is subject to the terms of the Policy
and is described in the accompanying Prospectus for the Policies, which should
be reviewed carefully by a person considering the purchase of a Policy. That
Prospectus describes the relationship between increases or decreases in the net
asset value of, and any distributions on, Units, and the benefits provided under
a Policy. The rights of the Accounts as Holders of Units should be distinguished
from the rights of a Policyowner which are described in the Policies. As long as
Units are sold only to the Accounts, the term 'Holder' in this Prospectus shall
refer to the Accounts (or the Sponsor if it holds Units acquired in the
secondary market--see Market for Units).
- --------------------------------------------------------------------------------
SPONSOR:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS
DATED MAY 1, 1997
INQUIRIES SHOULD BE DIRECTED READ AND RETAIN THIS PROSPECTUS
TO THE TRUSTEE 1-800-323-1508. FOR FUTURE REFERENCE
<PAGE>
INVESTMENT SUMMARY AS OF DECEMBER 31, 1996+, THE EVALUATION DATE
The following Trusts, each designated for the maturity of its underlying
Stripped Treasury Securities, are offered in Series A-K (see Portfolios).
1998
TRUST
--------------
FACE AMOUNT OF SECURITIES...............$ 57,916,928
NUMBER OF UNITS......................... 57,870,323
FACE AMOUNT OF SECURITIES PER 1,000
UNITS...................................$ 1,000.81
FRACTIONAL UNDIVIDED INTEREST IN TRUST
REPRESENTED BY EACH UNIT................ 1/57,870,323rd
OFFERING PRICE PER 1,000 UNITS***
Aggregate offer side evaluation of
Securities in Trust*....................$ 54,464,778
--------------
Net asset value (divided by number
of Units, times 1,000)..................$ 941.15
Plus the applicable transaction
charge**............................$ 2.36
--------------
Offering Price per 1,000
Units***++..........................$ 943.51
--------------
--------------
SPONSOR'S REPURCHASE PRICE PER 1,000
UNITS
(based on offer side evaluation of
underlying Securities)++..............$ 941.15
REDEMPTION PRICE PER 1,000 UNITS (based
on bid side evaluation of underlying
Securities)****++ $ 940.54
CALCULATION OF ESTIMATED NET ANNUAL CASH
INTEREST INCOME PER $1,000 FACE AMOUNT
Gross annual cash income............$ 0.35
Less estimated annual expenses......$ 0.35
--------------
Estimated net annual cash income....$ 0.00
--------------
--------------
TRUSTEE'S ANNUAL FEE AND EXPENSES
Per $1,000 face amount of underlying
Securities (see Expenses and
Charges)..............................$ 0.35
- ------------------
+ The Indentures were signed and the initial deposits were made as of
April 30, 1984 (Series A: 2003 Trust), December 27, 1984 (Series B: 2001 and
2005 Trusts), April 23, 1986 (Series C: 2006 Trust), April 28, 1987 (Series D:
2007 Trust), April 27, 1988 (Series E: 1998 and 2008 Trusts), April 25, 1989
(Series F: 1999 and 2009 Trusts), April 27, 1990 (Series G: 2000 and 2010
Trusts), April 30, 1991 (Series H: 2011 Trust), April 28, 1992 (Series I: 2002
Trust), April 20, 1993 (Series J: 2013 Trust ) and April 26, 1994 (Series K:
2004 and 2014 Trusts).
++ Plus any net cash.
* Includes amortization of discount, calculated using the 'interest'
method, to expected date of settlement (three business days after purchase) for
Securities purchased on the Investment Summary date.
** The transaction charge applicable as of the date above to the 1998
Trust is 0.25% of its Offering Price (0.251% of the net amount invested in
Securities). Transaction charges will decrease as the Trust approaches maturity,
as described under Sales of Units.
*** These figures are computed by dividing the aggregate offering side
evaluation of the underlying Securities in the Trust (the price at which they
could be purchased directly by the public if they were available) by the number
of Units of the Trust outstanding, multiplying the result tomes 1,000 and adding
the applicable transaction charge as described in the precdding footnote. These
figures assume a purchase of 1,000 Units. The price of a single Unit, or any
multiple thereof, is calculated by dividing the Offering Price per 1,000 Units
above by 1,000, and multiplying by the number of Units. As explained under Sale
of Units--Offering Price, as it is assumed that income on the Treasury Note will
equal Trust expenses, no accrued interest is added to the Offering or Redemption
Prices.
**** Figures shown are $2.97 less than the Offering Price and $0.61 less
than the Sponsor's Repurchase Price per 1,000 units, with respect to the 1998
Trust.
A-2
<PAGE>
INVESTMENT SUMMARY AS OF DECEMBER 31, 1996+, THE EVALUATION DATE (CONTINUED)
<TABLE><CAPTION>
1999 2000 2001 2002 2003
TRUST TRUST TRUST TRUST TRUST
- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
$ 26,868,469 $ 26,598,316 $ 63,150,363 $ 12,129,220 $ 73,525,183
26,866,164 26,560,105 62,925,765 12,118,903 73,448,689
$ 1,000.08 $ 1,001.43 $ 1,003.56 $ 1,000.85 $ 1,001.04
1/26,866,164th 1/26,560,105th 1/62,925,765th 1/12,118,903rd 1/73,448,689th
$ 23,790,493 $ 22,134,532 $ 49,350,224 $ 8,894,184 $ 48,761,845
- -------------- -------------- -------------- -------------- --------------
$ 885.51 $ 833.37 $ 784.26 $ 733.90 $ 663.88
$ 4.45 $ 6.30 $ 5.92 $ 7.41 $ 6.70
- -------------- -------------- -------------- -------------- --------------
$ 889.96 $ 839.67 $ 790.18 $ 741.31 $ 670.58
- -------------- -------------- -------------- -------------- --------------
- -------------- -------------- -------------- -------------- --------------
$ 885.51 $ 833.37 $ 784.26 $ 733.90 $ 663.88
$ 884.92 $ 832.75 $ 783.66 $ 733.32 $ 663.34
$ 0.35 $ 0.35 $ 0.35 $ 0.36 $ 0.36
$ 0.35 $ 0.35 $ 0.35 $ 0.36 $ 0.36
- -------------- -------------- -------------- -------------- --------------
$ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
- -------------- -------------- -------------- -------------- --------------
- -------------- -------------- -------------- -------------- --------------
$ 0.35 $ 0.35 $ 0.35 $ 0.36+++ $ 0.36
</TABLE>
2004 2005 2006 2007
TRUST TRUST TRUST TRUST
- ------------ ------------ ------------ ------------
$ 13,463,887 $ 35,317,476 $ 13,277,706 $ 19,902,426
13,477,969 34,996,785 12,925,437 19,441,293
$ 998.95 $ 1,009.16 $ 1,027.25 $ 1,023.71
1/13,477,969th 1/34,996,785th 1/12,925,437th 1/19,441,293rd
$ 8,625,967 $ 21,120,012 $ 7,413,832 $ 10,383,167
- ------------ ------------ ------------ ------------
$ 640.00 $ 603.48 $ 573.58 $ 534.07
$ 6.46 $ 9.19 $ 8.73 $ 8.13
- ------------ ------------ ------------ ------------
$ 646.46 $ 612.67 $ 582.31 $ 542.20
- ------------ ------------ ------------ ------------
- ------------ ------------ ------------ ------------
$ 640.00 $ 603.48 $ 573.58 $ 534.07
$ 639.43 $ 602.92 $ 572.91 $ 533.45
$ 0.35 $ 0.35 $ 0.32 $ 0.33
$ 0.35 $ 0.35 $ 0.32 $ 0.33
- ------------ ------------ ------------ ------------
$ 0.00 $ 0.00 $ 0.00 $ 0.00
- ------------ ------------ ------------ ------------
- ------------ ------------ ------------ ------------
$ 0.35 $ 0.35+++ $ 0.32 $ 0.33+++
- ------------------
**The transaction charges applicable as of the date above are .25% of the
Offering Price of the 1998 Trust (.251% of the net amount invested), .50% of the
Offering Price of the 1999 Trust (.503% of the net amount invested), .75% of the
Offering Price of the 2000 Trust (.756% of the net amount invested), .75% of the
Offering Price of the 2001 Trust (.756% of the net amount invested), 1.00% of
the Offering Price of the 2002 Trust (1.010% of the net amount invested), 1.00%
of the Offering Price of the 2003 Trust (1.010% of the net amount invested),
1.00% of the Offering Price of the 2004 Trust (1.010% of the net amount
invested), 1.50% of the Offering Price of the 2005 Trust (1.523% of the net
amount invested), 1.50% of the Offering Price of the 2006 Trust (1.523% of the
net amount invested), 1.50% of the Offering Price of the 2007 Trust (1.523% of
the net amount invested), and 1.50% of the Offering Price of the 2008 Trust
(1.523% of the net amount invested). Transaction charges will decrease as the
Trusts approach maturity, as described under Sale of Units.
*** These figures are computed by dividing the aggregate offer side
evaluation of the underlying Securities in the Trust (the price at which they
could be purchased directly by the public if they were available) by the number
of Units of the Trust outstanding, multiplying the result times 1,000 and adding
the applicable transaction charge as described in the preceding footnote. These
figures assume a purchase of 1,000 Units. The price of a single Unit, or any
multiple thereof, is calculated by dividing the Offering Price per 1,000 Units
above by 1,000, and multiplying by the number of Units. As explained under Sale
of Units--Offering Price, as it is assumed that income on the Treasury Note will
equal Trust expenses, no accrued interest is added to the Offering, Sponsor's
Repurchase or Redemption Prices.
**** Figures shown are $5.04, $6.92, $6.52, $7.99, $7.24, $7.03, $9.75,
$9.40 and $8.75 less than the Offering Price and $0.59, $0.62, $0.60, $0.58,
$0.54, $0.57, $0.56, $0.67 and $0.62 less than the Sponsor's Repurchase Price
per 1,000 Units, with respect to the 1999 through 2007 Trusts, respectively.
+++ During the last three months of the 2002 and 2005 Trusts and the
last twelve months of the 2007 Trust, the Trustee's Fee and therefore estimated
expenses will be eliminated, and the estimated net annual income will remain the
same (see Selection and Acquisition of Securities).
A-3
<PAGE>
INVESTMENT SUMMARY AS OF DECEMBER 31, 1996+, THE EVALUATION DATE
The following Trusts, each designated for the maturity of its underlying
Stripped Treasury Securities, are offered in Series A-K (see Portfolios).
2008
TRUST
--------------
FACE AMOUNT OF SECURITIES...............$ 45,037,904
NUMBER OF UNITS......................... 44,890,165
FACE AMOUNT OF SECURITIES PER UNIT......$ 1,003.29
FRACTIONAL UNDIVIDED INTEREST IN TRUST
REPRESENTED BY EACH UNIT................ 1/44,890,165th
OFFERING PRICE PER 1,000 UNITS***
Aggregate offer side evaluation of
Securities in Trust*....................$ 21,922,532
--------------
Net asset value (divided by number
of Units, times 1,000)..................$ 488.35
Plus the applicable transaction
charge**............................$ 7.43
--------------
Offering Price per 1,000
Units***++..........................$ 495.78
--------------
--------------
SPONSOR'S REPURCHASE PRICE PER 1,000
UNITS
(based on offer side evaluation of
underlying Securities)++..............$ 488.35
REDEMPTION PRICE PER 1,000 UNITS (based
on bid side evaluation of underlying
Securities)****++ $ 487.73
CALCULATION OF ESTIMATED NET ANNUAL CASH
INTEREST INCOME PER $1,000 FACE AMOUNT
Gross annual cash income............$ 0.36
Less estimated annual expenses......$ 0.36
--------------
Estimated net annual cash income....$ 0.00
--------------
--------------
TRUSTEE'S ANNUAL FEE AND EXPENSES
Per $1,000 face amount of underlying
Securities (see Expenses and
Charges)..............................$ 0.36+++
- ------------------
+ The Indentures were signed and the initial deposits were made as of
April 30, 1984 (Series A: 2003 Trust), December 27, 1984 (Series B: 2001 and
2005 Trusts), April 23, 1986 (Series C: 2006 Trust), April 28, 1987 (Series D:
2007 Trust), April 27, 1988 (Series E: 1998 and 2008 Trusts), April 25, 1989
(Series F: 1999 and 2009 Trusts), April 27, 1990 (Series G: 2000 and 2010
Trusts), April 30, 1991 (Series H: 2011 Trust), April 28, 1992 (Series I: 2002
Trust), April 20, 1993 (Series J: 2013 Trust ) and April 26, 1994 (Series K:
2004 and 2014 Trusts).
++ Plus any net cash.
+++ During the last 24 months of the 2008 Trust, the last 36 months of
the 2009 Trust, the last 48 months of the 2010 Trust, the last 60 months of the
2011 Trust and the last three months (potentially up to 63 months if the
Treasury Note is called when it first becomes callable) of the 2013 Trust, the
Trustee's Fee and therefore estimated expenses will be eliminated, and the
estimated net annual income will remain the same (see Selection and Acquisition
of Securities).
* Includes amortization of discount, calculated using the 'interest'
method, to expected date of settlement (three business days after purchase) for
Securities purchased on the Investment Summary date.
A-4
<PAGE>
INVESTMENT SUMMARY AS OF DECEMBER 31, 1996+, THE EVALUATION DATE (CONTINUED)
<TABLE><CAPTION>
2009 2010 2011 2013 2014
TRUST TRUST TRUST TRUST TRUST
- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
$ 20,772,525 $ 19,760,917 $ 6,494,092 $ 3,564,328 $ 65,879,207
20,659,112 19,813,618 6,441,209 3,548,349 66,334,438
$ 1,005.48 $ 997.34 $ 1,008.21 $ 1,004.50 $ 993.13
1/20,659,112th 1/19,813,618th 1/6,441,209th 1/3,548,349th 1/66,334,438th
$ 9,422,821 $ 8,355,737 $ 2,559,844 $ 1,217,062 $ 20,970,797
- -------------- -------------- -------------- -------------- --------------
$ 456.10 $ 421.71 $ 397.41 $ 342.99 $ 316.13
$ 6.94 $ 7.51 $ 7.07 $ 6.10 $ 5.63
- -------------- -------------- -------------- -------------- --------------
$ 463.04 $ 429.22 $ 404.48 $ 349.09 $ 321.76
- -------------- -------------- -------------- -------------- --------------
- -------------- -------------- -------------- -------------- --------------
$ 456.10 $ 421.71 $ 397.41 $ 342.99 $ 316.13
$ 455.47 $ 421.13 $ 396.82 $ 342.36 $ 315.57
$ 0.36 $ 0.37 $ 0.36 $ 0.36 $ 0.35
$ 0.36 $ 0.37 $ 0.36 $ 0.36 $ 0.35
- -------------- -------------- -------------- -------------- --------------
$ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
- -------------- -------------- -------------- -------------- --------------
- -------------- -------------- -------------- -------------- --------------
$ 0.36+++ $ 0.37+++ $ 0.36+++ $ 0.36+++ $ 0.35
</TABLE>
- ------------------
**The transaction charges applicable as of the date above are 1.50% of
the Offering Price of the 2009 Trust (1.523% of the net amount invested), 1.75%
of the Offering Price of the 2010 Trust (1.781% of the net amount invested),
1.75% of the Offering Price of the 2011 Trust (1.781% of the net amount
invested), 1.75% of the Offering Price of the 2013 Trust (1.781% of the net
amount invested) and, 1.75% of the Offering Price of the 2014 Trust (1.781% of
the net amount invested). Transaction charges will decrease as the Trusts
approach maturity, as described under Sale of Units.
*** These figures are computed by dividing the aggregate offer side
evaluation of the underlying Securities in the Trust (the price at which they
could be purchased directly by the public if they were available) by the number
of Units of the Trust outstanding, multiplying the result times 1,000 and adding
the applicable transaction charge as described in the preceding footnote. These
figures assume a purchase of 1,000 Units. The price of a single Unit, or any
multiple thereof, is calculated by dividing the Offering Price per 1,000 Units
above by 1,000, and multiplying by the number of Units. As explained under Sale
of Units--Offering Price, as it is assumed that income on the Treasury Note will
equal Trust expenses, no accrued interest is added to the Offering, Sponsor's
Repurchase or Redemption Prices.
**** Figures shown are $8.05, $7.57, $8.09, $7.66, $6.73 and $6.19 less
than the Offering Price and $0.62, $0.63, $0.58, $0.59, $0.63 and $0.56 less
than the Sponsor's Repurchase Price per 1,000 Units, with respect to the 2008
through 2014 Trusts, respectively.
A-5
<PAGE>
INVESTMENT SUMMARY (CONTINUED)
TRUST PORTFOLIOS (see Portfolios)
SECURITIES--Each Trust consists primarily of issues of Stripped Treasury
Securities purchased at a deep discount. It is intended that Securities selected
for inclusion in the Trusts will comply with any investment limitations required
to assure favorable Federal income tax treatment for the Policies issued by the
Insurers. The Securities are not rated but, in the opinion of the Sponsor, have
credit characteristics comparable to those of Securities rated 'AAA' by
nationally recognized rating agencies. Each Trust also contains one
interest-bearing Treasury Security (the 'Treasury Note') deposited in order to
provide cash income with which to pay the expenses of the Trust.
RISK FACTORS--An investment in Units of a Trust should be made with an
understanding of the risks which an investment in debt obligations, most of
which were purchased at a deep discount, may entail, including the risk that the
value of a Trust and hence of the Units will decline with increases in interest
rates. The market value of Stripped Treasury Securities, and therefore the value
of the Units, may be subject to greater fluctuations in response to changing
interest rates than debt obligations of comparable maturities which pay interest
currently. The risk is greater when the period to maturity is longer. (See p.1.)
For each 1,000 Units of a Trust purchased, it is expected that a Holder will
receive total distributions of approximately $1,000 for Units held until
maturity of the underlying Securities of that Trust. The Offering Price will
vary in accordance with fluctuations in the values of the Securities and the
distributions could change if the Securities are paid or sold, or if the
expenses of the Trust change. For a discussion of the economic differences
between the Trusts and a fund consisting of customary securities, see
Description of the Fund--Income and Yield.
MARKET FOR UNITS--The Sponsor has committed to maintain a market for Units
based on the aggregate offer side evaluation of the underlying Securities in
each Trust. See p.7. If that market is not maintained, a Holder will be able to
dispose of Units through redemption at prices based on the lower, aggregate bid
side evaluation of the underlying Securities in the Trust. See Redemption.
Market conditions may cause the prices available in the market maintained by the
Sponsor or upon exercise of redemption rights to be more or less than the amount
paid for Units. The market prices of Stripped Treasury Securities, and hence of
the Units, are subject to greater fluctuations than the prices of securities
making current payments of interest.
DISTRIBUTIONS--Distributions normally will be made only on the first
business day following the maturity of the Stripped Treasury Securities in a
Trust to holders of record on the business day immediately preceding the date of
the distribution, and may include any amount received upon the sale of
Securities in order to meet redemptions of the Units which exceeds the amount
necessary to pay those redemptions and any accumulated net interest income.
Principal from maturity of the Treasury Note will not be distributed until
disposition of the Stripped Treasury Security in the Trust. There will be no
payments of interest on the Securities other than on the Treasury Note in each
Trust, which will be used to pay the expenses of the Trust. Consequently, no
distributions of interest income should be expected. However, the Sponsor may
direct the Trustee to distribute to Holders of a Trust as of the last Business
Day in any year any cash balance in the Income and Capital Accounts not
otherwise allocated. See Administration of the Fund--Accounts and Distributions.
Nevertheless, the gross interest income on all securities in the Trust is
taxable to Holders. Each Stripped Treasury Security will be treated for Federal
income tax purposes as having 'original issue discount,' which must be amortized
over the term of the Stripped Treasury Security and included in a Holder's
ordinary gross income before the Holder receives the cash attributable to that
income. See Taxes.
MINIMUM FACE AMOUNT OF FUND--A Trust may be terminated if the face amount is
less than 40% of the face amount of Securities deposited (of the face amount of
Securities on the Initial Date of Deposit for the 2001, 2003 and 2005 Trusts).
The 2004 and 2014 Trusts must be terminated no later than one year after the
maturity date of the Stripped Treasury Securities in the Trust.
A-6
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsor, Trustee and Holders
of The Merrill Lynch Fund of Stripped ("Zero")
U.S. Treasury Securities, Series A (2003 Trust),
Series B (2001 and 2005 Trusts), Series C (2006 Trust),
Series D (2007 Trust), Series E (1998 and
2008 Trusts), Series F (1999 and 2009 Trusts),
Series G (2000 and 2010 Trusts), Series H (2011 Trust),
Series I (2002 Trust), Series J (2013 Trust) and
Series K (2004 and 2014 Trusts) (the Funds):
We have audited the accompanying statements of condition of the Funds,
including the portfolios, as of December 31, 1996 and the related
statements of operations and of changes in net assets for the periods
ended December 31, 1996, 1995 and 1994. These financial statements
are the responsibility of the Trustee. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits 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. Securities owned at December 31, 1996, as shown
in such portfolios, were confirmed to us by The Chase Manhattan Bank,
the Trustee. An audit also includes assessing the accounting
principles used and significant estimates made by the Trustee, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Funds
at December 31, 1996 and the results of their operations and changes
in their net assets for the above-stated periods in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, N.Y.
January 31, 1997
D-1
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES A
STATEMENT OF CONDITION
AS OF DECEMBER 31, 1996
2003 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $48,721,627
Other 73,961
Total trust property 48,795,588
LESS LIABILITY - Other 5,005
NET ASSETS (Note 2) $48,790,583
UNITS OUTSTANDING 73,448,689
UNIT VALUE $.66428
See Notes to Financial Statements.
D-2
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES A
STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
2003 TRUST
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 27,183 $ 29,639 $ 31,322
Accretion of original issue
discount 3,638,172 3,641,500 3,575,917
Trustee's fees and expenses (18,146) (19,424) (20,811)
Net investment income 3,647,209 3,651,715 3,586,428
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain on securities sold 828,620 892,759 921,823
Unrealized appreciation (depreciation) of
investments (4,351,762) 7,537,583 (8,735,643)
Realized and unrealized gain (loss) on
investments (3,523,142) 8,430,342 (7,813,820)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 124,067 $12,082,057 $(4,227,392)
See Notes to Financial Statements.
</TABLE>
D-3
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES A
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
2003 TRUST
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 3,647,209 $ 3,651,715 $ 3,586,428
Realized gain on securities sold 828,620 892,759 921,823
Unrealized appreciation (depreciation) of
investments (4,351,762) 7,537,583 (8,735,643)
Net increase (decrease) in net assets
resulting from operations 124,067 12,082,057 (4,227,392)
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional units 213,357 888,564 826,575
Redemptions of units (4,579,226) (4,430,713) (4,969,574)
Net capital share transactions (4,365,869) (3,542,149) (4,142,999)
NET INCREASE (DECREASE) IN NET ASSETS (4,241,802) 8,539,908 (8,370,391)
NET ASSETS, BEGINNING OF YEAR 53,032,385 44,492,477 52,862,868
NET ASSETS, END OF YEAR $48,790,583 $53,032,385 $44,492,477
UNIT VALUE, END OF YEAR $.66428 $.66107 $.51703
UNITS OUTSTANDING, END OF YEAR 73,448,689 80,221,626 86,053,770
See Notes to Financial Statements.
</TABLE>
D-4
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES B
STATEMENTS OF CONDITION
AS OF DECEMBER 31, 1996
2001 TRUST 2005 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $49,312,863 $21,100,361
Other 62,677 20,307
Total trust property 49,375,540 21,120,668
LESS LIABILITY - Other 4,557 924
NET ASSETS (Note 2) $49,370,983 $21,119,744
UNITS OUTSTANDING 62,925,765 34,996,785
UNIT VALUE $.78459 $.60348
See Notes to Financial Statements.
D-5
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES B
STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
2001 TRUST
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 23,315 $ 25,558 $ 26,523
Accretion of original issue discount 4,052,834 4,070,813 4,112,256
Trustee's fees and expenses (16,333) (17,357) (23,626)
Net investment income 4,059,816 4,079,014 4,115,153
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold 729,602 720,572 1,017,673
Unrealized appreciation (depreciation) of
investments (3,688,347) 5,161,047 (8,491,267)
Realized and unrealized gain (loss) on
investments (2,958,745) 5,881,619 (7,473,594)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $1,101,071 $9,960,633 $(3,358,441)
</TABLE>
See Notes to Financial Statements.
D-6
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES B
STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
2005 TRUST
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 12,909 $ 12,677 $ 12,787
Accretion of original issue discount 1,507,646 1,371,217 1,297,432
Trustee's fees and expenses (10,945) (10,695) (10,828)
Net investment income 1,509,610 1,373,199 1,299,391
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold 239,717 369,384 368,832
Unrealized appreciation (depreciation) of
investments (1,944,792) 3,590,504 (3,305,168)
Realized and unrealized gain (loss) on
investments (1,705,075) 3,959,888 (2,936,336)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ (195,465) $5,333,087 $(1,636,945)
</TABLE>
See Notes to Financial Statements.
D-7
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES B
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
2001 TRUST
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 4,059,816 $ 4,079,014 $ 4,115,153
Realized gain on securities sold 729,602 720,572 1,017,673
Unrealized appreciation (depreciation)
of investments (3,688,347) 5,161,047 (8,491,267)
Net increase (decrease)in net assets
resulting from operations 1,101,071 9,960,633 (3,358,441)
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional units 809,728 2,517,687 1,230,864
Redemptions of units (6,094,730) (5,433,756) (6,500,507)
Net capital share transactions (5,285,002) (2,916,069) (5,269,643)
NET INCREASE (DECREASE) IN NET ASSETS (4,183,931) 7,044,564 (8,628,084)
NET ASSETS, BEGINNING OF YEAR 53,554,914 46,510,350 55,138,434
NET ASSETS, END OF YEAR $49,370,983 $53,554,914 $46,510,350
UNIT VALUE, END OF YEAR $.78459 $.76655 $.63070
UNITS OUTSTANDING, END OF YEAR 62,925,765 69,865,193 73,744,210
</TABLE>
See Notes to Financial Statements.
D-8
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES B
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
2005 TRUST
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 1,509,610 $ 1,373,199 $ 1,299,391
Realized gain on securities sold 239,717 369,384 368,832
Unrealized appreciation (depreciation)
of investments (1,944,792) 3,590,504 (3,305,168)
Net increase (decrease) in net assets
resulting from operations (195,465) 5,333,087 (1,636,945)
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional units 1,171,904 2,186,036 979,867
Redemptions of units (2,282,137) (1,986,425) (1,937,561)
Net capital share transactions (1,110,233) 199,611 (957,694)
NET INCREASE (DECREASE) IN NET ASSETS (1,305,698) 5,532,698 (2,594,639)
NET ASSETS, BEGINNING OF YEAR 22,425,442 16,892,744 19,487,383
NET ASSETS, END OF YEAR $21,119,744 $22,425,442 $16,892,744
UNIT VALUE, END OF YEAR $.60348 $.60745 $.46253
UNITS OUTSTANDING, END OF YEAR 34,996,785 36,917,304 36,522,329
</TABLE>
See Notes to Financial Statements.
D-9
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES C
STATEMENT OF CONDITION
AS OF DECEMBER 31, 1996
2006 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $7,406,130
Other 8,468
Total trust property 7,414,598
LESS LIABILITY - Other 6,416
NET ASSETS (Note 2) $7,408,182
UNITS OUTSTANDING 12,925,437
UNIT VALUE $.57315
See Notes to Financial Statements.
D-10
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES C
STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
2006 TRUST
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 4,065 $ 2,699 $ 2,744
Accretion of original issue discount 467,093 310,893 305,003
Trustee's fees and expenses (3,738) (2,697) (2,651)
Net investment income 467,420 310,895 305,096
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain on securities sold 78,989 205,530 187,066
Unrealized appreciation (depreciation)
of investments (488,521) 776,125 (906,211)
Realized and unrealized gain (loss) on
investments (409,532) 981,655 (719,145)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 57,888 $1,292,550 $(414,049)
</TABLE>
See Notes to Financial Statements.
D-11
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES C
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
2006 TRUST
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 467,420 $ 310,895 $ 305,096
Realized gain on securities sold 78,989 205,530 187,066
Unrealized appreciation (depreciation)
of investments (488,521) 776,125 (906,211)
Net increase (decrease) in net assets
resulting from operations 57,888 1,292,550 (414,049)
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional units 2,799,053 926,723 418,164
Redemptions of units (582,696) (1,012,052) (955,121)
Net capital share transactions 2,216,357 (85,329) (536,957)
NET INCREASE (DECREASE) IN NET ASSETS 2,274,245 1,207,221 (951,006)
NET ASSETS, BEGINNING OF YEAR 5,133,937 3,926,716 4,877,722
NET ASSETS, END OF YEAR $7,408,182 $5,133,937 $3,926,716
UNIT VALUE, END OF YEAR $.57315 $.58026 $.43332
UNITS OUTSTANDING, END OF YEAR 12,925,437 8,847,662 9,061,845
</TABLE>
See Notes to Financial Statements.
D-12
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES D
STATEMENT OF CONDITION
AS OF DECEMBER 31, 1996
2007 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $10,371,036
Other 2,782
Total trust property 10,373,818
LESS LIABILITY - Other 1,313
NET ASSETS (Note 2) $10,372,505
UNITS OUTSTANDING 19,441,293
UNIT VALUE $.53353
See Notes to Financial Statements.
D-13
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES D
STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
2007 TRUST
Years Ended December 31
1996 1995 1994
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 6,683 $ 7,248 $ 8,030
Accretion of original issue discount 701,298 720,342 705,967
Trustee's fees and expenses (6,675) (7,196) (8,899)
Net investment income 701,306 720,394 705,098
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain on securities sold 137,187 362,903 248,777
Unrealized appreciation (depreciation) of
investments (1,039,668) 1,999,314 (2,051,001)
Realized and unrealized gain (loss) on
investments (902,481) 2,362,217 (1,802,224)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ (201,175) $3,082,611 $(1,097,126)
</TABLE>
See Notes to Financial Statements.
D-14
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES D
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
2007 TRUST
Years Ended December 31
1996 1995 1994
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 701,306 $ 720,394 $ 705,098
Realized gain on securities sold 137,187 362,903 248,777
Unrealized appreciation (depreciation)
of investments (1,039,668) 1,999,314 (2,051,001)
Net increase (decrease)in net assets
resulting from operations (201,175) 3,082,611 (1,097,126)
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional units 198,530 686,393
Redemptions of units (557,763) (1,785,206) (1,193,225)
Net capital share transactions (359,233) (1,098,813) (1,193,225)
NET INCREASE (DECREASE) IN NET ASSETS (560,408) 1,983,798 (2,290,351)
NET ASSETS, BEGINNING OF YEAR 10,932,913 8,949,115 11,239,466
NET ASSETS, END OF YEAR $10,372,505 $10,932,913 $ 8,949,115
UNIT VALUE, END OF YEAR $.53353 $.54388 $.39904
UNITS OUTSTANDING, END OF YEAR 19,441,293 20,101,562 22,426,556
</TABLE>
See Notes to Financial Statements.
D-15
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES E
STATEMENTS OF CONDITION
AS OF DECEMBER 31, 1996
1998 TRUST 2008 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $54,429,444 $21,894,607
Other 47,469 28,760
Total trust property 54,476,913 21,923,367
LESS LIABILITY - Other 3,968 9,817
NET ASSETS (Note 2) $54,472,945 $21,913,550
UNITS OUTSTANDING 57,870,323 44,890,165
UNIT VALUE $.94129 $.48816
See Notes to Financial Statements.
D-16
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES E
STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
1998 TRUST
Years Ended December 31
1996 1995 1994
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 21,336 $ 22,690 $ 22,510
Accretion of original issue
discount 4,427,863 4,345,788 4,032,437
Trustee's fees and expenses (15,090) (15,955) (16,133)
Net investment income 4,434,109 4,352,523 4,038,814
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain on securities sold 503,344 173,871 332,571
Unrealized appreciation (deprecia-
tion) of investments (2,106,443) 2,540,891 (5,936,517)
Realized and unrealized gain (loss)
on investments (1,603,099) 2,714,762 (5,603,946)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 2,831,010 $ 7,067,285 $(1,565,132)
</TABLE>
See Notes to Financial Statements.
D-17
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES E
STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
2008 TRUST
Years Ended December 31
1996 1995 1994
<S> <C> <C> <C>
INVESTMENT INCOME
Interest income $ 17,094 $ 18,790 $ 21,497
Accretion of original issue
discount 1,566,068 1,565,747 1,656,763
Trustee's fees and expenses (12,920) (13,855) (16,170)
Net investment income 1,570,242 1,570,682 1,662,090
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain on securities sold 535,460 241,098 467,814
Unrealized appreciation (deprecia-
tion) of investments (2,866,638) 5,452,882 (4,738,832)
Realized and unrealized gain (loss)
on investments (2,331,178) 5,693,980 (4,271,018)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (760,936) $ 7,264,662 $(2,608,928)
</TABLE>
See Notes to Financial Statements.
D-18
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES E
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
1998 TRUST
Years Ended December 31
1996 1995 1994
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 4,434,109 $ 4,352,523 $ 4,038,814
Realized gain on securities sold 503,344 173,871 332,571
Unrealized appreciation (depreciation) of
investments (2,106,443) 2,540,891 (5,936,517)
Net increase (decrease) in net assets
resulting from operations 2,831,010 7,067,285 (1,565,132)
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional Units 824,672 2,497,100 3,891,991
Redemptions of Units (6,238,529) (3,371,785) (4,458,847)
Net capital share transactions (5,413,857) (874,685) (566,856)
NET INCREASE (DECREASE) IN NET ASSETS (2,582,847) 6,192,600 (2,131,988)
NET ASSETS, BEGINNING OF YEAR 57,055,792 50,863,192 52,995,180
NET ASSETS, END OF YEAR $54,472,945 $57,055,792 $50,863,192
UNIT VALUE, END OF YEAR $.94129 $.89873 $.78992
UNITS OUTSTANDING, END OF YEAR 57,870,323 63,485,140 64,390,067
</TABLE>
See Notes to Financial Statements.
D-19
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES E
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
2008 TRUST
Years Ended December 31
1996 1995 1994
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 1,570,242 $ 1,570,682 $ 1,662,090
Realized gain on securities sold 535,460 241,098 467,814
Unrealized appreciation (depreciation) of
investments (2,866,638) 5,452,882 (4,738,832)
Net increase (decrease) in net assets
resulting from operations (760,936) 7,264,662 (2,608,928)
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional Units 1,102,323 285,598
Redemptions of Units (3,669,808) (2,030,174) (3,749,194)
Net capital share transactions (2,567,485) (2,030,174) (3,463,596)
NET INCREASE (DECREASE) IN NET ASSETS (3,328,421) 5,234,488 (6,072,524)
NET ASSETS, BEGINNING OF YEAR 25,241,971 20,007,483 26,080,007
NET ASSETS, END OF YEAR $21,913,550 $25,241,971 $20,007,483
UNIT VALUE, END OF YEAR $.48816 $.50066 $.36191
UNITS OUTSTANDING, END OF YEAR 44,890,165 50,417,866 55,283,741
</TABLE>
See Notes to Financial Statements.
D-20
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES F
STATEMENTS OF CONDITION
AS OF DECEMBER 31, 1996
1999 TRUST 2009 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $23,774,638 $9,409,734
Other 4,296 15,324
Total trust property 23,778,934 9,425,058
LESS LIABILITY - Other 2,795 7,668
NET ASSETS (Note 2) $23,776,139 $9,417,390
UNITS OUTSTANDING 26,866,164 20,659,112
UNIT VALUE $.88498 $.45585
See Notes to Financial Statements.
D-21
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES F
STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
1999 TRUST
Years Ended December 31
1996 1995 1994
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 9,455 $ 9,808 $ 6,786
Accretion of original issue discount 1,585,052 1,573,856 1,039,555
Trustee's fees and expenses (8,928) (9,203) (6,414)
Net investment income 1,585,579 1,574,461 1,039,927
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold 102,339 229,711 30,735
Unrealized appreciation (depreciation)of
investments (767,906) 1,623,728 (1,649,501)
Realized and unrealized gain (loss) on
investments (665,567) 1,853,439 (1,618,766)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 920,012 $3,427,900 $ (578,839)
</TABLE>
See Notes to Financial Statements.
D-22
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES F
STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
2009 TRUST
Years Ended December 31
1996 1995 1994
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 7,951 $ 8,713 $ 9,446
Accretion of original issue discount 643,976 656,077 683,420
Trustee's fees and expenses (7,936) (8,426) (9,012)
Net investment income 643,991 656,364 683,854
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold 130,319 329,163 236,183
Unrealized appreciation (depreciation) of
investments (1,124,284) 2,261,855 (1,964,408)
Realized and unrealized gain (loss) on
investments (993,965) 2,591,018 (1,728,225)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ (349,974) $3,247,382 $(1,044,371)
</TABLE>
See Notes to Financial Statements.
D-23
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES F
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
1999 TRUST
Years Ended December 31
1996 1995 1994
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 1,585,579 $ 1,574,461 $ 1,039,927
Realized gain on securities sold 102,339 229,711 30,735
Unrealized appreciation (depreciation) of
investments (767,906) 1,623,728 (1,649,501)
Net increase (decrease) in net assets
resulting from operations 920,012 3,427,900 (578,839)
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional units 803,103 3,923,258 11,083,330
Redemptions of units (1,764,394) (3,494,807) (1,153,804)
Net capital share transactions (961,291) 428,451 9,929,526
NET INCREASE (DECREASE) IN NET ASSETS (41,279) 3,856,351 9,350,687
NET ASSETS, BEGINNING OF YEAR 23,817,418 19,961,067 10,610,380
NET ASSETS, END OF YEAR $23,776,139 $23,817,418 $19,961,067
UNIT VALUE, END OF YEAR $.88498 $.85071 $.73031
UNITS OUTSTANDING, END OF YEAR 26,866,164 27,997,201 27,332,137
</TABLE>
See Notes to Financial Statements.
D-24
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES F
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
2009 TRUST
Years Ended December 31
1996 1995 1994
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 643,991 $ 656,364 $ 683,854
Realized gain on securities sold 130,319 329,163 236,183
Unrealized appreciation (depreciation) of
investments (1,124,284) 2,261,855 (1,964,408)
Net increase (decrease) in net assets
resulting from operations (349,974) 3,247,382 (1,044,371)
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional units 182,231 452,445 409,149
Redemptions of units (716,485) (1,567,198) (1,771,941)
Net capital share transactions (534,254) (1,114,753) (1,362,792)
NET INCREASE (DECREASE) IN NET ASSETS (884,228) 2,132,629 (2,407,163)
NET ASSETS, BEGINNING OF YEAR 10,301,618 8,168,989 10,576,152
NET ASSETS, END OF YEAR $ 9,417,390 $10,301,618 $ 8,168,989
UNIT VALUE, END OF YEAR $.45585 $.47078 $.33542
UNITS OUTSTANDING, END OF YEAR 20,659,112 21,881,931 24,354,501
</TABLE>
See Notes to Financial Statements.
D-25
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES G
STATEMENTS OF CONDITION
AS OF DECEMBER 31, 1996
2000 TRUST 2010 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $22,118,042 $ 8,344,271
Other 4,277 7,167
Total trust property 22,122,319 8,351,438
LESS LIABILITY - Other 1,872 1,329
NET ASSETS (Note 2) $22,120,447 $8,350,109
UNITS OUTSTANDING 26,560,105 19,813,618
UNIT VALUE $.83284 $.42143
See Notes to Financial Statements.
D-26
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES G
STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
2000 TRUST
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 9,437 $ 9,467 $ 6,916
Accretion of original issue discount 1,521,693 1,427,959 991,190
Trustee's fees and expenses (9,004) (9,230) (6,728)
Net investment income 1,522,126 1,428,196 991,378
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (loss) on securities sold 54,447 (242,518) 47,190
Unrealized appreciation (depreciation)
of investments (907,562) 1,912,465 (1,847,249)
Realized and unrealized gain (loss) on
investments (853,115) 1,669,947 (1,800,059)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 669,011 $3,098,143 $ (808,681)
</TABLE>
See Notes to Financial Statements.
D-27
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES G
STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
2010 TRUST
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 7,681 $ 7,635 $ 7,302
Accretion of original issue discount 604,550 608,550 505,061
Trustee's fees and expenses (7,558) (7,603) (7,403)
Net investment income 604,673 608,582 504,960
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on securities sold 413,063 (140,604) 261,562
Unrealized appreciation (depreciation) of
investments (1,250,513) 2,097,508 (1,125,138)
Realized and unrealized gain (loss)on
investments (837,450) 1,956,904 (863,576)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ (232,777) $2,565,486 $ (358,616)
</TABLE>
See Notes to Financial Statements.
D-28
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES G
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
2000 TRUST
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATIONS:
Net investment income $1,522,126 $ 1,428,196 $ 991,378
Realized gain (loss) on securities sold 54,447 (242,518) 47,190
Unrealized appreciation (depreciation)
of investments (907,562) 1,912,465 (1,847,249)
Net increase (decrease) in net assets
resulting from operations 669,011 3,098,143 (808,681)
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional units 487,979 5,018,288 3,985,324
Redemptions of units (1,346,695) (1,639,913) (836,261)
Net capital share transactions (858,716) 3,378,375 3,149,063
NET INCREASE (DECREASE) IN NET ASSETS (189,705) 6,476,518 2,340,382
NET ASSETS, BEGINNING OF YEAR 22,310,152 15,833,634 13,493,252
NET ASSETS, END OF YEAR $22,120,447 $22,310,152 $15,833,634
UNIT VALUE, END OF YEAR $.83284 $.80726 $.67823
UNITS OUTSTANDING, END OF YEAR 26,560,105 27,637,020 23,345,619
</TABLE>
See Notes to Financial Statements.
D-29
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES G
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
2010 TRUST
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 604,673 $ 608,582 $ 504,960
Realized gain (loss) on securities sold 413,063 (140,604) 261,562
Unrealized appreciation (depreciation) of
investments (1,250,513) 2,097,508 (1,125,138)
Net increase (decrease) in net assets
resulting from operations (232,777) 2,565,486 (358,616)
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional units 2,997,567 4,594,434 3,725,175
Redemptions of units (2,968,890) (5,495,933) (3,356,388)
Net capital share transactions 28,677 (901,499) 368,787
NET INCREASE (DECREASE) IN NET ASSETS (204,100) 1,663,987 10,171
NET ASSETS, BEGINNING OF YEAR 8,554,209 6,890,222 6,880,051
NET ASSETS, END OF YEAR $8,350,109 $8,554,209 $6,890,222
UNIT VALUE, END OF YEAR $.42143 $.43729 $.30742
UNITS OUTSTANDING, END OF YEAR 19,813,618 19,561,835 22,412,755
</TABLE>
See Notes to Financial Statements.
D-30
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES H
STATEMENT OF CONDITION
AS OF DECEMBER 31, 1996
2011 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $2,556,011
Other 2,211
Total trust property 2,558,222
LESS LIABILITY - Other 458
NET ASSETS (Note 2) $2,557,764
UNITS OUTSTANDING 6,441,209
UNIT VALUE $.39709
See Notes to Financial Statements.
D-31
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES H
STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
2011 TRUST
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 2,130 $ 2,432 $ 3,618
Accretion of original issue discount 146,632 172,906 245,966
Trustee's fees and expenses (2,103) (2,339) (3,441)
Net investment income 146,659 172,999 246,143
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold or redeemed 136,243 115,674
Unrealized appreciation (depreciation) of investments (195,003) 534,185 (755,936)
Realized and unrealized gain (loss) on investments (195,003) 670,428 (640,262)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ (48,344) $843,427 $(394,119)
</TABLE>
See Notes to Financial Statements.
D-32
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES H
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
2011 TRUST
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 146,659 $ 172,999 $ 246,143
Realized gain on securities sold 136,243 115,674
Unrealized appreciation (depreciation)
eciation)
of investments (195,003) 534,185 (755,936)
Net increase (decrease) in net assets
resulting from operations (48,344) 843,427 (394,119)
CAPITAL SHARE TRANSACTIONS (NOTE 3):
Issuance of additional units 404,419 229,724 472,768
Redemption of units (1,381,820) (1,424,735)
Net capital share transactions 404,419 (1,152,096) (951,967)
NET INCREASE (DECREASE) IN NET ASSETS 356,075 (308,669) (1,346,086)
NET ASSETS, BEGINNING OF YEAR 2,201,689 2,510,358 3,856,444
NET ASSETS, END OF YEAR $2,557,764 $2,201,689 $2,510,358
UNIT VALUE, END OF YEAR $.39709 $.41261 $.28462
UNITS OUTSTANDING, END OF YEAR 6,441,209 5,336,049 8,820,153
</TABLE>
See Notes to Financial Statements.
D-33
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES I
STATEMENT OF CONDITION
AS OF DECEMBER 31, 1996
2002 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $ 8,887,146
Other 652
Total trust property 8,887,798
LESS LIABILITY - Other 483
NET ASSETS (Note 2) $ 8,887,315
UNITS OUTSTANDING 12,118,903
UNIT VALUE $.73334
See Notes to Financial Statements.
D-34
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES I
STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
2002 TRUST
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 4,486 $ 3,416 $ 2,064
Accretion of original issue discount 587,737 422,658 245,717
Trustee's fees and expenses (4,567) (3,076) (389)
Net investment income 587,656 422,998 247,392
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold or redeemed 26,301 8,260
Unrealized appreciation (depreciation) of
investments (479,823) 917,851 (491,502)
Realized and unrealized gain (loss) on
investments (453,522) 917,851 (483,242)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $134,134 $1,340,849 $(235,850)
</TABLE>
See Notes to Financial Statements.
D-35
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES I
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
2002 TRUST
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 587,656 $ 422,998 $ 247,392
Realized gain on securities sold 26,301 8,260
Unrealized appreciation (depreciation) of
investments (479,823) 917,851 (491,502)
Net increase (decrease) in net assets resulting
from operations 134,134 1,340,849 (235,850)
CAPITAL SHARE TRANSACTIONS (NOTE 3):
Issuance of additional units 999,668 3,151,933 1,337,796
Redemptions of units (593,312) (368,756)
Net capital share transactions 406,356 3,151,933 969,040
NET INCREASE IN NET ASSETS 540,490 4,492,782 733,190
NET ASSETS, BEGINNING OF YEAR 8,346,825 3,854,043 3,120,853
NET ASSETS, END OF YEAR $8,887,315 $8,346,825 $3,854,043
UNIT VALUE, END OF YEAR $.73334 $.72184 $.58210
UNITS OUTSTANDING, END OF YEAR 12,118,903 11,563,316 6,620,929
</TABLE>
See Notes to Financial Statements.
D-36
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES J
STATEMENT OF CONDITION
AS OF DECEMBER 31, 1996
2013 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $1,214,816
Other 1,265
Total trust property 1,216,081
LESS LIABILITY - Other 80
NET ASSETS (Note 2) $1,216,001
UNITS OUTSTANDING 3,548,349
UNIT VALUE $.34269
See Notes to Financial Statements.
D-37
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES J
STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
2013 TRUST
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 1,409 $ 2,715 $ 3,103
Accretion of original issue discount 89,578 177,770 180,168
Trustee's fees and expenses (1,266) (2,236) (2,451)
Net investment income 89,721 178,249 180,820
REALIZED AND UNREALIZED GAIN (LOSS)ON INVESTMENTS:
Realized gain (loss) on securities sold
or redeemed 56,841 196,847 (312,022)
Unrealized appreciation (depreciation) of
investments (241,371) 526,105 (114,971)
Realized and unrealized gain (loss) on
investments (184,530) 722,952 (426,993)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (94,809) $901,201 $(246,173)
</TABLE>
See Notes to Financial Statements.
D-38
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES J
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
2013 TRUST
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 89,721 $ 178,249 $ 180,820
Realized gain (loss) on securities sold 56,841 196,847 (312,022)
Unrealized appreciation (depreciation) of
investments (241,371) 526,105 (114,971)
Net increase (decrease) in net assets resulting
from operations (94,809) 901,201 (246,173)
CAPITAL SHARE TRANSACTIONS (NOTE 3):
Issuance of additional units 277,784 1,141,322 3,211,198
Redemption of units (475,164) (2,823,552) (1,552,323)
Net capital share transactions (197,380) (1,682,230) 1,658,875
NET INCREASE (DECREASE) IN NET ASSETS (292,189) (781,029) 1,412,702
NET ASSETS, BEGINNING OF YEAR 1,508,190 2,289,219 876,517
NET ASSETS, END OF YEAR $1,216,001 $1,508,190 $2,289,219
UNIT VALUE, END OF YEAR $.34269 $.35977 $.24129
UNITS OUTSTANDING, END OF YEAR 3,548,349 4,192,101 9,487,523
</TABLE>
See Notes to Financial Statements.
D-39
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES K
STATEMENTS OF CONDITION
AS OF DECEMBER 31, 1996
2004 TRUST 2014 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $8,618,287 $20,933,236
Other 1,798 12,872
Total trust property 8,620,085 20,946,108
LESS LIABILITY - Other 1,020 4,501
NET ASSETS (Note 2) $8,619,065 $20,941,607
UNITS OUTSTANDING 13,477,969 66,334,438
UNIT VALUE $.63949 $.31570
See Notes to Financial Statements.
D-40
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES K
STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
2004 TRUST
April 27
Years Ended to
December 31, December 31,
1996 1995 1994
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 4,441 $ 3,399 $ 941
Accretion of original issue discount 543,331 382,113 92,946
Trustee's fees and expenses (4,777) (2,324) (903)
Net investment income 542,995 383,188 92,984
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold 83,953 9,233
Unrealized appreciation (depreciation)
of investments (586,245) 1,024,439 (124,406)
Realized and unrealized gain (loss) on
investments (502,292) 1,033,672 (124,406)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 40,703 $1,416,860 $(31,422)
</TABLE>
See Notes to Financial Statements.
D-41
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES K
STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
2014 TRUST
April 27
Years Ended to
December 31, December 31,
1996 1995 1994
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 23,635 $ 10,839 $ 1,979
Accretion of original issue discount 1,600,126 790,915 111,279
Trustee's fees and expenses (17,481) (8,616) (1,990)
Net investment income 1,606,280 793,138 111,268
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on securities sold (688,528) 2,112,868 (208,605)
Unrealized appreciation (depreciation)
of investments (1,102,292) 980,160 175,148
Realized and unrealized gain (loss)
on investments (1,790,820) 3,093,028 (33,457)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (184,540) $3,886,166 $ 77,811
</TABLE>
See Notes to Financial Statements.
D-42
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES K
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
2004 TRUST
April 27
Years Ended to
December 31, December 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 542,995 $ 383,188 $ 92,984
Realized gain on securities sold 83,953 9,233
Unrealized appreciation (depreciation)
of investments (586,245) 1,024,439 (124,406)
Net increase (decrease) in net assets
resulting from operations 40,703 1,416,860 (31,422)
CAPITAL SHARE TRANSACTIONS (NOTE 3):
Issuance of additional units 2,528,106 2,339,663 4,127,042
Redemptions of units (1,342,267) (561,188)
Net capital share transactions 1,185,839 1,778,475 4,127,042
NET INCREASE IN NET ASSETS 1,226,542 3,195,335 4,095,620
NET ASSETS, BEGINNING OF PERIOD 7,392,523 4,197,188 101,568
NET ASSETS, END OF PERIOD $8,619,065 $7,392,523 $4,197,188
UNIT VALUE, END OF PERIOD $.63949 $.63931 $.49590
UNITS OUTSTANDING, END OF PERIOD 13,477,969 11,563,330 8,463,782
</TABLE>
See Notes to Financial Statements.
D-43
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES K
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
2014 TRUST
April 27
Years Ended to
December 31, December 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 1,606,280 $ 793,138 $ 111,268
Realized gain (loss) on securities sold (688,528) 2,112,868 (208,605)
Unrealized appreciation (depreciation)
of investments (1,102,292) 980,160 175,148
Net increase (decrease) in net assets
resulting from operations (184,540) 3,886,166 77,811
CAPITAL SHARE TRANSACTIONS (NOTE 3):
Issuance of additional units 20,777,671 22,696,883 5,732,846
Redemptions of units (12,608,859) (17,927,869) (1,611,186)
Net capital share transactions 8,168,812 4,769,014 4,121,660
NET INCREASE IN NET ASSETS 7,984,272 8,655,180 4,199,471
NET ASSETS, BEGINNING OF PERIOD 12,957,335 4,302,155 102,684
NET ASSETS, END OF PERIOD $20,941,607 $12,957,335 $4,302,155
UNIT VALUE, END OF PERIOD $.31570 $.33349 $.22335
UNITS OUTSTANDING, END OF PERIOD 66,334,438 38,853,887 19,262,056
</TABLE>
See Notes to Financial Statements.
D-44
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Funds are registered under the Investment Company Act of 1940 as a Unit
Investment Trust. The following is a summary of significant accounting
policies consistently followed by the Funds in the preparation of their
financial statements. The policies are in conformity with generally
accepted accounting principles.
(a) Securities are stated at value as determined by an independent
evaluator based on bid side evaluations for the securities.
(b) Cost of securities is based on offering side evaluations for the
securities at Dates of Deposit. Cost of securities subsequent to such
dates has been adjusted to include the accretion of original issue
discount on the Stripped Treasury Securities. Realized gain and loss
on sales of securities are determined using the first-in, first-out
cost basis.
(c) The Funds are not subject to income taxes. Accordingly, no provision
for such taxes is required.
2. NET ASSETS, DECEMBER 31, 1996
Series A (2003 Trust)
Cost of 73,448,689 units at Dates of Deposit $17,832,609
Less sales charge 312,071
Net amount applicable to Holders 17,520,538
Realized gain on securities sold 11,747,995
Unrealized appreciation of investments 6,987,401
Redemptions of units - net cost of units redeemed less
redemption amounts (5,969,235)
Undistributed net investment income 18,503,884
Net assets $48,790,583
Series B (2001 Trust)
Cost of 62,925,765 units at Dates of Deposit $19,650,333
Less sales charge 294,755
Net amount applicable to Holders 19,355,578
Realized gain on securities sold 13,659,805
Unrealized appreciation of investments 3,219,798
Redemptions of units - net cost of units redeemed less
redemption amounts (4,122,444)
Undistributed net investment income 17,258,246
Net assets $49,370,983
Series B (2005 Trust)
Cost of 34,996,785 units at Dates of Deposit $ 8,361,274
Less sales charge 146,322
Net amount applicable to Holders 8,214,952
Realized gain on securities sold 5,717,294
Unrealized appreciation of investments 2,106,556
Redemptions of units - redemption amounts less net cost
of units redeemed (288,330)
Undistributed net investment income 5,369,272
Net assets $21,119,744
D-45
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES
NOTES TO FINANCIAL STATEMENTS
2. NET ASSETS, DECEMBER 31, 1996 (Continued)
Series C (2006 Trust)
Cost of 12,925,437 units at Dates of Deposit $ 3,504,269
Less sales charge 61,324
Net amount applicable to Holders 3,442,945
Realized gain on securities sold 1,145,029
Unrealized appreciation of investments 391,932
Redemptions of units - net cost of units redeemed less
redemption amounts 1,319,386
Undistributed net investment income 1,108,890
Net assets $ 7,408,182
Series D (2007 Trust)
Cost of 19,441,293 units at Dates of Deposit $ 3,678,571
Less sales charge 73,571
Net amount applicable to Holders 3,605,000
Realized gain on securities sold 4,239,117
Unrealized appreciation of investments 1,992,977
Redemptions of units - net cost of units redeemed less
redemption amounts (2,929,757)
Undistributed net investment income 3,465,168
Net assets $10,372,505
Series E (1998 Trust)
Cost of 57,870,323 units at Dates of Deposit $27,783,215
Less sales charge 416,748
Net amount applicable to Holders 27,366,467
Realized gain on securities sold 5,430,327
Unrealized appreciation of investments 1,676,044
Redemptions of units - net cost of units redeemed less
redemption amounts (1,002,233)
Undistributed net investment income 21,002,340
Net assets $54,472,945
Series E (2008 Trust)
Cost of 44,890,165 units at Dates of Deposit $ 8,889,410
Less sales charge 177,788
Net amount applicable to Holders 8,711,622
Realized gain on securities sold 9,230,314
Unrealized appreciation of investments 3,588,465
Redemptions of units - net cost of units redeemed less
redemption amounts (5,860,057)
Undistributed net investment income 6,243,206
Net assets $21,913,550
D-46
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES
NOTES TO FINANCIAL STATEMENTS
2. NET ASSETS, DECEMBER 31, 1996 (Continued)
Series F (1999 Trust)
Cost of 26,866,164 units at Dates of Deposit $17,235,833
Less sales charge 301,627
Net amount applicable to Holders 16,934,206
Realized gain on securities sold 511,848
Unrealized appreciation of investments 508,045
Redemptions of units - net cost of units redeemed less
redemption amounts 1,846,852
Undistributed net investment income 3,975,188
Net assets $23,776,139
Series F (2009 Trust)
Cost of 20,659,112 units at Dates of Deposit $ 4,532,397
Less sales charge 79,317
Net amount applicable to Holders 4,453,080
Realized loss on securities sold (454,094)
Unrealized appreciation of investments 1,538,916
Redemptions of units - net cost of units redeemed less
redemption amounts 1,389,992
Undistributed net investment income 2,489,496
Net assets $ 9,417,390
Series G (2000 Trust)
Cost of 26,560,105 units at Dates of Deposit $15,328,326
Less sales charge 229,925
Net amount applicable to Holders 15,098,401
Realized gain on securities sold 357,991
Unrealized appreciation of investments 742,100
Redemptions of units - net cost of units redeemed less
redemption amounts 1,415,020
Undistributed net investment income 4,506,935
Net assets $22,120,447
Series G (2010 Trust)
Cost of 19,813,618 units at Dates of Deposit $ 4,780,329
Less sales charge 95,607
Net amount applicable to Holders 4,684,722
Realized gain on securities sold 2,534,822
Unrealized appreciation of investments 252,540
Redemptions of units - net cost of units redeemed less
redemption amounts 272,505
Undistributed net investment income 605,520
Net assets $ 8,350,109
D-47
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES
NOTES TO FINANCIAL STATEMENTS
2. NET ASSETS, DECEMBER 31, 1996 (Continued)
Series H (2011 Trust)
Cost of 6,441,209 units at Dates of Deposit $1,671,908
Less sales charge 33,438
Net amount applicable to Holders 1,638,470
Realized gain on securities sold 554,134
Unrealized appreciation of investments 177,124
Redemptions of units - net cost of units redeemed less
redemption amounts (222,165)
Undistributed net investment income 410,201
Net assets $2,557,764
Series I (2002 Trust)
Cost of 12,118,903 units at Dates of Deposit $7,292,706
Less sales charge 109,391
Net amount applicable to Holders 7,183,315
Realized gain on securities sold 59,955
Unrealized appreciation of investments 313,260
Redemptions of units - net cost of units redeemed less
redemption amounts 33,435
Undistributed net investment income 1,299,350
Net assets $8,887,315
Series J (2013 Trust)
Cost of 3,548,349 units at Dates of Deposit $ 936,698
Less sales charge 18,734
Net amount applicable to Holders 917,964
Realized loss on securities sold (15,477)
Unrealized appreciation of investments 120,888
Redemptions of units - net cost of units redeemed less
redemption amounts 72,036
Undistributed net investment income 120,590
Net assets $1,216,001
Series K (2004 Trust)
Cost of 13,477,969 units at Dates of Deposit $ 7,474,297
Less sales charge 112,114
Net amount applicable to Holders 7,362,183
Realized gain on securities sold 93,186
Unrealized appreciation of investments 313,788
Redemption of units - net cost of units redeemed less
redemption amounts 33,650
Undistributed net investment income 816,258
Net assets $ 8,619,065
D-48
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES
NOTES TO FINANCIAL STATEMENTS
2. NET ASSETS, DECEMBER 31, 1996 (Concluded)
Series K (2014 Trust)
Cost of 66,334,438 units at Dates of Deposit $18,777,471
Less sales charge 375,549
Net amount applicable to Holders 18,401,922
Realized gain on securities sold 1,215,735
Unrealized appreciation of investments 53,016
Redemptions of units - net cost of units redeemed less
redemption amounts 353,441
Undistributed net investment income 917,493
Net assets $20,941,607
3. CAPITAL SHARE TRANSACTIONS
Additional units were issued as follows:
Series Trust 1996 1995 1994
A 2003 335,709 1,593,397 1,583,219
B 2001 1,049,370 3,772,845 1,928,908
B 2005 2,047,138 4,044,894 2,087,385
C 2006 5,142,683 1,643,266 983,437
D 2007 397,026 1,647,168 0
E 1998 908,181 3,055,836 4,892,359
E 2008 2,285,094 0 804,899
F 1999 923,519 5,041,514 14,996,491
F 2009 389,225 1,297,277 1,138,211
G 2000 596,716 6,914,376 5,786,280
G 2010 7,645,028 12,489,075 12,472,504
H 2011 1,105,160 739,495 1,508,368
I 2002 1,390,455 4,942,387 2,265,189
J 2013 829,985 4,474,457 12,770,407
K 2004 4,088,054 4,100,931 8,262,575
K 2014 68,769,448 81,964,087 26,575,919
Units were redeemed as follows:
Series Trust 1996 1995 1994
A 2003 7,108,646 7,425,541 9,361,867
B 2001 7,988,798 7,651,862 9,985,898
B 2005 3,967,657 3,649,919 3,984,193
C 2006 1,604,908 1,857,449 2,128,952
D 2007 1,057,295 3,972,162 2,921,902
E 1998 6,522,998 3,960,763 5,594,683
E 2008 7,812,795 4,865,875 10,271,400
F 1999 2,054,556 4,376,450 1,542,670
F 2009 1,612,044 3,769,847 5,134,685
G 2000 1,673,631 2,622,975 1,193,814
G 2010 7,393,245 15,339,995 10,038,884
H 2011 0 4,223,599 4,712,213
I 2002 834,868 0 632,592
J 2013 1,473,737 9,769,879 6,484,002
K 2004 2,173,415 1,001,383 0
K 2014 4,288,897 62,372,256 7,755,231
D-49
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES
NOTES TO FINANCIAL STATEMENTS
3. CAPITAL SHARE TRANSACTIONS (Continued)
Units may be redeemed at the office of the Trustee upon tender thereof
generally on any business day or, in the case of uncertificated units, upon
delivery of a request for redemption and payment of any relevant tax. The
Trustee will redeem units either in cash or in kind at the option of the
Holder as specified in writing to the Trustee.
4. INCOME TAXES
All items of income received, accretion of original issue discount,
expenses paid, and realized gains and losses on securities sold are
attributable to the Holders, on a pro rata basis, for Federal income tax
purposes in accordance with the grantor trust rules of the United States
Internal Revenue Code.
At December 31, 1996, the cost of investment securities for Federal income
tax purposes was approximately equivalent to the adjusted cost as shown in
each Trust's portfolio.
5. DISTRIBUTIONS
It is anticipated that each Trust will not make any distributions until the
first business day following the maturity of its holdings in the Stripped
Treasury Securities which are noninterest-bearing.
D-50
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES
PORTFOLIOS
AS OF DECEMBER 31, 1996
<TABLE><CAPTION>
Portfolio No. Adjusted
and Title of Interest Face Cost Value
Securities Rate Maturities Amount (Note A) (Note A)
Series A (2003 Trust)
<S> <C> <C> <C> <C> <C>
1 Stripped Treasury
Securities (Note B) 0% 8/15/03 $73,290,625 $41,458,247 $48,427,107
2 U.S. Treasury Bonds 11.125 8/15/03 234,558 275,979 294,520
Total $73,525,183 $41,734,226 $48,721,627
Series B (2001 Trust)
1 Stripped Treasury
Securities (Note B) 0% 2/15/01 $62,963,325 $45,863,607 $49,088,070
2 U.S. Treasury Bonds 11.750 2/15/01 187,038 229,458 224,793
Total $63,150,363 $46,093,065 $49,312,863
Series B (2005 Trust)
1 Stripped Treasury
Securities (Note B) 0% 2/15/05 $35,211,940 $18,854,842 $20,961,171
2 U.S. Treasury Bonds 11.625 11/15/04 105,536 138,963 139,190
Total $35,317,476 $18,993,805 $21,100,361
Series C (2006 Trust)
1 Stripped Treasury
Securities (Note B) 0% 2/15/06 $13,233,000 $ 6,960,314 $ 7,352,341
2 U.S. Treasury Bonds 9.375 2/15/06 44,706 53,885 53,789
Total $13,277,706 $ 7,014,199 $ 7,406,130
Series D (2007 Trust)
1 Stripped Treasury
Securities (Note B) 0% 2/15/07 $19,832,000 $ 8,303,154 $10,286,301
2 U.S. Treasury Bonds 9.375 2/15/06 72,426 74,905 84,735
Total $19,902,426 $ 8,378,059 $10,371,036
</TABLE>
D-51
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES
PORTFOLIOS
AS OF DECEMBER 31, 1996
<TABLE><CAPTION>
Portfolio No. Adjusted
and Title of Interest Face Cost Value
Securities Rate Maturities Amount (Note A) (Note A)
Series E (1998 Trust)
<S> <C><C> <C><C> <C>
1 Stripped Treasury
Securities (Note B) 0% 2/15/98 $57,666,000 $52,504,925 $54,172,017
2 U.S. Treasury Notes 8.125 2/15/98 250,928 248,475 257,427
Total $57,916,928 $52,753,400 $54,429,444
Series E (2008 Trust)
1 Stripped Treasury
Securities (Note B) 0% 2/15/08 $44,866,000 $18,121,587 $21,687,776
2 U.S. Treasury Bonds 9.375 2/15/06 171,904 184,555 206,831
Total $45,037,904 $18,306,142 $21,894,607
Series F (1999 Trusts)
1 Stripped Treasury
Securities (Note B) 0% 2/15/99 $26,763,000 $23,152,575 $23,663,041
2 U.S. Treasury Notes 8.875 2/15/99 105,469 114,018 111,597
Total $26,868,469 $23,266,593 $23,774,638
Series F (2009 Trust)
1 Stripped Treasury
Securities (Note B) 0% 2/15/09 $20,692,000 $ 7,780,043 $ 9,312,848
2 U.S. Treasury Bonds 9.375 2/15/06 80,525 90,775 96,886
Total $20,772,525 $ 7,870,818 $ 9,409,734
</TABLE>
D-52
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES
PORTFOLIOS
AS OF DECEMBER 31, 1996
<TABLE><CAPTION>
Portfolio No. Adjusted
and Title of Interest Face Cost Value
Securities Rate Maturities Amount (Note A) (Note A)
Series G (2000 Trust)
<S> <C><C> <C><C> <C>
1 Stripped Treasury
Securities (Note B) 0% 2/15/00 $26,490,000 $21,259,677 $22,002,329
2 U.S. Treasury Notes 8.500 2/15/00 108,316 116,265 115,713
Total $26,598,316 $21,375,942 $22,118,042
Series G (2010 Trust)
1 Stripped Treasury
Securities (Note B) 0% 2/15/10 $19,683,000 $ 7,999,220 $ 8,250,523
2 U.S. Treasury Bonds 9.375 2/15/06 77,917 92,511 93,748
Total $19,760,917 $ 8,091,731 $ 8,344,271
Series H (2011 Trust)
1 Stripped Treasury
Securities (Note B) 0% 2/15/11 $6,469,000 $2,347,970 $2,525,821
2 U.S. Treasury Bonds 9.375 2/15/06 25,092 30,917 30,190
Total $6,494,092 $2,378,887 $2,556,011
Series I (2002 Trust)
1 Stripped Treasury
Securities (Note B) 0% 02/15/02 $12,071,000 $8,513,029 $8,825,832
2 U.S. Treasury Notes 7.500 11/15/01 58,220 60,857 61,314
Total $12,129,220 $8,573,886 $8,887,146
Series J (2013 Trust)
1 Stripped Treasury
Securities (Note B) 0% 02/15/13 $3,552,000 $1,078,555 $1,198,942
2 U.S. Treasury Bonds 10.375 11/15/12(C) 12,328 15,373 15,874
Total $3,564,328 $1,093,928 $1,214,816
</TABLE>
D-53
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES
PORTFOLIOS
AS OF DECEMBER 31, 1996
<TABLE><CAPTION>
Portfolio No. Adjusted
and Title of Interest Face Cost Value
Securities Rate Maturities Amount (Note A) (Note A)
Series K (2004 Trust)
<S> <C> <C> <C> <C> <C>
1 Stripped Treasury
Securities (Note B) 0% 2/15/04 $13,383,000 $ 8,228,574 $ 8,539,559
2 U.S. Treasury Notes 5.875 2/15/04 80,887 75,925 78,728
Total $13,463,887 $ 8,304,499 $ 8,618,287
Series K (2014 Trust)
1 Stripped Treasury
Securities (Note B) 0% 2/15/14 $65,674,000 $20,574,476 $20,630,174
2 U.S. Treasury Bonds 11.250 2/15/15 205,207 305,744 303,062
Total $65,879,207 $20,880,220 $20,933,236
Note A - See Note 1 to Financial Statements.
Note B - Stripped Treasury Securities consist of one or more of the following types
of securities: (a) U.S. Treasury debt obligations which have been stripped
of their remaining interest coupons, (b) interest coupons which have been
stripped from U.S. Treasury debt obligations, and (c) receipts or
certificates for underlying stripped U.S. Treasury debt obligations. The
receipts or certificates evidence ownership of future interest or principal
payments on U.S. Treasury notes or bonds. The receipts or certificates are
issued in registered form by a major bank which acts as custodian and
nominal holder of the underlying stripped U.S. Treasury debt obligation.
The Stripped Treasury Securities are payable in full at maturity at their
stated maturity amount and are not subject to redemption prior to maturity.
The Stripped Treasury Securities do not make any periodic payments of
interest.
Note C - Callable at par commencing 11/15/07.
</TABLE>
D-54
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ('ZERO')
U.S. TREASURY SECURITIES
FUND STRUCTURE
Each Series (a 'Fund') consists of a number of separate unit investment
trusts (each a 'Trust') created under New York law by one Trust indenture (the
'Indenture') among the Sponsor, the Trustee and the Evaluator. To the extent
that references in the Prospectus are to articles and sections of the Indenture,
which are hereby incorporated by reference, the statements made herein are
qualified in their entirety by this reference. On the initial date of deposit
for each Trust (the 'Initial Date of Deposit') the Sponsor deposited the
underlying Securities with the Trustee at prices equal to the valuation of those
Securities on the offer side of the market as determined by the Evaluator, and
the Trustee delivered to the Sponsor units of interest ('Units') representing
the entire ownership of that Trust in the Fund. Most if not all of the
Securities so deposited were represented by purchase contracts assigned to the
Trustee together with an irrevocable letter or letters of credit issued by a
commercial bank or banks in the amount necessary to complete their purchase. The
record holders ('Holders') of Units will have the right to have their Units
redeemed (see Redemption) at a price based on the aggregate bid side evaluation
of the Securities ('Redemption Price per Unit') if the Units cannot be sold in
the market which the Sponsor has committed to maintain (see Market for Units).
Redemption will be made in securities ('in kind') or in cash at the option of
the Holder.
The Sponsor may deposit additional Securities, with an identical maturity
to that of the Securities initially deposited, in any of the Trusts, and Units
in the Trusts may be continuously offered for sale by means of this Prospectus
(see Sale of Units--Distribution), resulting in a potential increase in the
number of outstanding Units of each Trust (see Selection and Acquisition of
Securities). However, each Unit will continue to represent the identical face
amount of Securities with identical maturity dates.
As used herein, 'Securities' includes the Stripped Treasury Securities and
interest-bearing Treasury Note deposited in the Trusts and described under
Portfolios and any additional Treasury Securities deposited thereafter or
contracts for the purchase thereof together with an irrevocable letter or
letters of credit sufficient to perform such contracts. As used herein, the term
'Units,' unless the context otherwise indicates, means the units of interest in
all Trusts.
RISK FACTORS
An investment in Units of a Trust should be made with an understanding of
the risks which an investment in deep discount debt obligations may entail,
including the risk that the value of the Trust's portfolio (the 'Portfolio') and
hence of the Units will decline with increases in interest rates. High inflation
and recession, together with the fiscal and monetary measures adopted to attempt
to deal with those and other economic problems, have contributed to recent wide
fluctuations in interest rates and thus in the value of fixed-rate debt
obligations generally. The Sponsor cannot predict future economic policies or
their consequences or, therefore, the course or extent of any similar
fluctuations in the future. Furthermore, a direct Holder (but not necessarily
Policyowners--see Taxes) will have significant amounts of taxable income
attributable to it before receipt of the cash attributable to that income.
Because interest on 'zero coupon' debt obligations is not distributed on a
current basis but in effect compounded, the value of securities of this type,
including the value of accrued and reinvested interest (and of a fund comprised
of these obligations), is subject to greater fluctuations than on obligations
that distribute income regularly. Accordingly, while the full faith and credit
of the U.S. government provides a high level of protection against credit risks
on the Securities, sale of Units before maturity of the Securities at a time
when interest rates have increased would involve greater market risk than in a
fund invested in debt obligations of comparable maturity that pay interest
currently. This risk is greater when the period to maturity is longer.
SPECIAL CHARACTERISTICS OF STRIPPED TREASURY SECURITIES
Bearer bonds are transferable by delivery; payments are made to the holder
of the bonds. Stripped bonds have been stripped of their unmatured interest
coupons; stripped coupons are coupons that have been stripped from an issuer's
bonds. Stripped Treasury Securities are sold at a deep discount because the
buyer of those securities receives only the right to receive a future fixed
payment on the security and not any rights to periodic
1
<PAGE>
interest payments thereon. Purchasers of these securities acquire, in effect,
discount obligations that are economically identical to the 'zero-coupon bonds'
that have been issued by corporations. Zero coupon bonds are debt obligations
that do not make any periodic payments of interest prior to maturity and
accordingly are issued at a deep discount.
Stripped Treasury Securities held by any Trust shall consist of one or more
of the following types of securities: (a) U.S. Treasury debt obligations which
have been stripped of their unmatured interest coupons and (b) coupons which
have been stripped from U.S. Treasury bearer bonds, either of which may be held
through the Federal Reserve Bank's book entry systems called 'Separate Trading
of Registered Interest and Principal of Securities' ('STRIPS') and 'Coupon Under
Book-Entry Safekeeping' ('CUBES'). STRIPS and CUBES, while direct obligations of
the United States and issued under programs introduced by the U.S. Treasury, are
not issued directly by the U.S. government. The STRIPS program facilitates
secondary market stripping of selected Treasury notes and bonds into individual
principal and interest components by purchasers with access to a book-entry
account at a Federal Reserve bank. Those obligations may be maintained in the
book-entry system operated by the Federal Reserve in a manner that permits
separate trading and ownership of interest and principal payments. The Federal
Reserve does not charge a fee for this service, but book-entry transfers of
interest and principal components are subject to the same fee schedule generally
applicable to transfers of Treasury securities.
The Stripped Treasury Securities in each Trust are payable in full at
maturity at their stated maturity amount and are not subject to redemption prior
to maturity. In addition, the Stripped Treasury Securities do not make any
periodic payments of interest. The Securities are sold at a substantial discount
from their face amounts payable at maturity. A holder of Stripped Treasury
Securities will be required to include annually in gross income an allocable
portion of the deemed original issue discount, prior to receipt of the cash
attributable to that income. However, when an insurance company separate account
such as the Account is the Holder, any taxable income will in effect be offset
by deducting an equal amount for an increase in reserves. Stripped Treasury
Securities are marketable in substantially the same manner as other discount
Treasury securities.
Under generally accepted accounting principles, a holder of a security
purchased at a discount normally must report as an item of income for financial
accounting purposes the portion of the discount attributable to the applicable
reporting period. The calculation of this attributable income would be made on
the 'interest' method which generally will result in a lesser amount of
includible income in earlier periods and a correspondingly larger amount in
later periods. For Federal income tax purposes, the inclusion will be on a basis
that reflects the effective semi-annual compounding of accrued but unpaid
interest effectively represented by the discount. Although this treatment is
similar to the 'interest' method described above, the 'interest' method may
differ to the extent that generally accepted accounting principles permit or
require the inclusion of interest on the basis of a compounding period other
than the semi-annual period (see Taxes below).
DESCRIPTION OF THE FUND
THE PORTFOLIO
The Portfolio of each Trust consists of different issues of Stripped
Treasury Securities, with fixed maturity dates and not having any equity or
conversion features, that do not pay interest before maturity and as such were
purchased at a deep discount (see above) and of the Treasury Note deposited in
order to provide cash income with which to pay the expenses of the Trust. It is
intended that the Portfolio for each Trust will comply with any investment
limitations required to assure favorable Federal income tax treatment for the
Policies issued by the Insurers.
SELECTION AND ACQUISITION OF SECURITIES
In selecting Securities for deposit in a Trust, the following factors,
among others, were considered by the Unit Investment Trusts division of Merrill
Lynch, Pierce, Fenner & Smith Incorporated: (i) the types of securities
available; (ii) the prices of those securities relative to other comparable
securities; (iii) the extent to which those securities trade at a discount from
par once the interest coupons are stripped; (iv) the yield to maturity of those
securities; and (v) the maturities of those securities.
The yield to maturity and discount from par on securities of the type
deposited in the Trusts depend on a variety of factors, including general money
market conditions, general conditions of the bond market, prevailing interest
rates and the maturities of the securities.
2
<PAGE>
Each Trust consists of the Securities (or contracts to purchase the
Securities) listed under Portfolios and any additional Securities deposited in
the Trust pursuant to the terms of the Indenture (including provisions with
respect to deposit of Securities in connection with the sale of additional
Units) as long as they may continue to be held from time to time in the Trust,
together with accrued and undistributed interest on any interest-bearing
securities deposited in order to pay the expenses of the Trust, undistributed
cash representing payments of principal and cash realized from the disposition
of Securities.
Neither the Sponsor nor the Trustee shall be liable in any way for any
default, failure or defect in any Security. In the event of a failure to deliver
any Security that has been purchased for a Trust under a contract ('Failed
Security'), the Sponsor is authorized under the Indenture to direct the Trustee
to acquire substitute securities ('Replacement Securities') to make up the
portfolio of the Trust. Replacement Securities for Securities initially
deposited must be deposited into the Trust within 110 days after the Initial
Date of Deposit; Replacement Securities for Securities deposited thereafter must
be deposited within 20 days after delivery of notice of the failed contract; the
purchase price may not exceed the amount of funds reserved for the purchase of
the Failed Security. The Replacement Securities must be Securities issued by the
U.S. Treasury (i) that make no periodic payments of interest (or, in the case of
an interest-bearing Treasury Note used to pay expenses, are of the same issue),
(ii) that have a fixed maturity identical to that of the Failed Security, (iii)
that are purchased at a price that results in a yield to maturity as of the date
of deposit of the Failed Security which is equivalent (taking into consideration
then-current market conditions) to the yield to maturity of the Failed Security
and (iv) that are not when, as and if issued obligations. If this right of
substitution is not utilized to acquire Replacement Securities in the event of a
failed contract, the Sponsor will cause to be refunded the attributable
transaction charge plus the attributable Cost of Securities to Trust, plus
accrued interest and amortization attributable to the relevant Security to the
date the Sponsor is notified of the failure.
Because certain of the Securities from time to time may be sold under
certain circumstances described herein, each Trust is not expected to retain its
present size and composition (see Redemption). The Indenture also authorizes the
Sponsor to increase the size and number of Units of any Trust by the deposit of
additional Securities and the issue of a corresponding number of additional
Units, provided that the maturity of any additional Securities deposited in the
Trust is identical to the maturity of the Securities initially deposited in the
Trust.
THE UNITS
On the date of the Investment Summary of each Trust each Unit represented
the fractional undivided interest in the Securities held in the Trust and net
income of the Trust set forth in the Investment Summary. Thereafter, if Units of
any Trust are redeemed the face amount of Securities in that Trust will be
reduced by amounts allocable to redeemed Units, and the fractional undivided
interest represented by each remaining Unit in the balance will be increased.
However, if additional Units are issued by any Trust (through deposit of
Securities by the Sponsor in connection with the sale of additional Units), the
aggregate face amount of Securities in the Trust will be increased by amounts
allocable to the additional Units, and the fractional undivided interest
represented by each Unit in the balance of the Trust will be decreased. Units
will remain outstanding until redeemed upon tender to the Trustee by a Holder
(which may include the Sponsor) or until the termination of the Indenture (see
Redemption and Administration of the Fund--Amendment and Termination).
INCOME AND YIELD
The economic effect of purchasing Units of a Trust is that the investor who
holds his Units until maturity of the underlying Securities should receive
approximately a fixed yield, not only on his original investment but on all
earned discount during the life of the Securities. The assumed or implicit
automatic reinvestment at market rates at the time of purchase of the portion of
the yield represented by earned discount differentiates the Trusts from funds
consisting of customary securities on which current periodic interest is paid at
market rates at the time of issue. Accordingly, an investor in the Units, unlike
an investor in a fund comprised of customary securities, virtually eliminates
his risk of being unable to invest distributions at a rate as high as the yield
on his Trust, but will forego the ability to reinvest at higher rates in the
future.
The Treasury Note deposited in each Trust in order to pay the expenses of
the Trust includes an item of accrued but unpaid interest up to its date of
deposit. To avoid having Holders pay for this accrued interest (which earns no
return) when Units are purchased, the Trustee pays this amount of accrued
interest to the Sponsor as a special distribution. The Trustee will recover the
amount of this distribution from interest received on the
3
<PAGE>
Treasury Note deposited in the Trust. Although the Treasury Note will also
accrue interest during the period between the date of deposit and the date of
settlement for Units, the Sponsor anticipates that any such amount of accrued
interest will be minimal and, therefore, will not be added to the Offering Price
of the Units.
The price per Unit will vary in accordance with fluctuations in the prices
of the Securities held by the Trust. Changes in the Offering Prices or in a
Trust's expenses will result in changes in the yields to maturity.
TAXES
The following discussion relates only to direct holders of Units of the
Trusts, and not to Policyowners. For information on tax consequences to
Policyowners, see the attached Prospectus for the Policies.
In the opinion of Davis Polk & Wardwell, special counsel for the Sponsor,
under existing law:
Each Trust is not an association taxable as a corporation for Federal
income tax purposes, and income received by the Trust will be treated as
the income of the Holders of the Trust in the manner set forth below.
Each Holder will be considered the owner of a pro rata portion of each
Security in its Trust under the grantor trust rules of Sections 671-679 of
the Internal Revenue Code of 1986, as amended (the 'Code'). The total cost
to a Holder for its Units, including the transaction charge, is allocated
among its pro rata portion of each Security in its Trust (in proportion to
the fair market values thereof on the date the Holder purchases its Units)
in order to determine its tax cost for its pro rata portion of each
Security.
Each Trust consists primarily of Stripped Treasury Securities. A Holder
is required to treat its pro rata portion of each Stripped Treasury
Security in its Trust as a bond that was originally issued on the date the
Holder purchased its Units at an original issue discount equal to the
excess of the stated redemption price at maturity over the Holder's tax
cost therefor as discussed above, and to include annually in income a
portion of such original issue discount determined under a formula which
takes into account the compounding of interest.
Upon a disposition of all or part of a Holder's pro rata portion of a
Security (by sale, exchange or redemption of the Security or by the sale or
redemption of all or some of its Units) a Holder will generally recognize
taxable gain or loss, which will generally be capital gain or loss.
Under the income tax laws of the State and City of New York, each Trust
is not an association taxable as a corporation and income received by the
Trust will be treated as the income of the Holders of the Trust.
Holders will be required for Federal income tax purposes to include
amounts in ordinary gross income in advance of the receipt of the cash
attributable to such income. Therefore, direct holding of Units may be
appropriate only for a tax-deferred account which can have taxable income
attributed in advance of the receipt of the cash attributable to such
income.
The foregoing discussion relates only to Federal and certain aspects of
New York income taxes. Depending on their state of residence, Holders may
be subject to state and local taxation and should consult their own tax
advisers in this regard.
* * *
After the end of each calendar year, the Trustee will furnish to each
Holder an income report, including the Holder's pro rata portion of the fees and
expenses paid by its Trust. In order to enable them to comply with Federal and
state tax reporting requirements, upon request to the Trustee Holders will be
furnished with evaluations of Securities furnished to it by the Evaluator.
SALE OF UNITS
OFFERING PRICE
The Offering Price per Unit of a Trust is computed as of the Evaluation
Time by adding (a) the aggregate offer side evaluation of the Securities in the
Trust (as determined by the Evaluator), (b) cash on hand in the Trust (other
than cash covering contracts to purchase Securities), (c) accrued and unpaid
interest as of the date of computation and (d) all other assets of the Trust;
deducting therefrom the sum of (x) taxes or other governmental charges against
the Trust not previously deducted, (y) accrued fees and expenses of the Trustee
(including legal and auditing expenses), the Evaluator and counsel, and certain
other expenses and (z) any cash held for
4
<PAGE>
distribution to Holders of record as of a date prior to the evaluation; dividing
the result by the number of Units of the Trust outstanding as of the date of
computation (Sections 4.01 and 5.01); and adding the applicable transaction
charge depending on the remaining years to maturity of the Stripped Treasury
Security in the Trust:
PERCENT
PERCENT OF
OF NET
AMOUNT
OFFERING
REMAINING YEARS TO MATURITY PRICE INVESTED
- --------------------------------------------------------------- ------
Less than 2 years........................................ 0.25% 0.251%
At least 2 years but less than 3 years................... 0.50 0.503
At least 3 years but less than 5 years................... 0.75 0.756
At least 5 years but less than 8 years................... 1.00 1.010
At least 8 years but less than 13 years.................. 1.50 1.523
At least 13 years but less than 18 years................. 1.75 1.781
18 years or more......................................... 2.00 2.041
On Units sold to an Account, the Insurer initially pays the transaction
charge, which it intends to recover through an asset charge. See the
accompanying Prospectus for the Policies for further information. These
transaction charges are less than sales charges on comparable funds offered by
the Sponsor reflecting elimination of distribution expenses because all sales
are made to the Accounts. Because the income on the Treasury Note is designed to
equal the Trust expenses, accrued interest on the Note is not reflected in the
offering, repurchase or redemption prices of Units. In practice, as determined
on an accrual basis by the auditors, accumulated expenses have been slightly
higher or lower than the interest on the Treasury Notes. These differences are
immaterial and may change over time. If there is an expense deficit at
termination of a Trust, either the Trustee will waive a part of its fees or the
Sponsor will bear sufficient expenses to eliminate the deficit. If a surplus
remains at termination, the amount will be distributed to Holders; alternately,
the Sponsor from time to time may direct the Trustee to distribute part or all
of any accumulated surplus. The Offering Price on the date of this Prospectus or
on any subsequent date will vary from the Offering Price on the date of the
Investment Summary in accordance with fluctuations in the aggregate offering
side evaluation of the underlying Securities in the Trust. Amortization of
discount will have the effect of increasing at any particular time the offering
side evaluation of the underlying Securities.
The aggregate bid or offer side evaluation of the Securities is determined
by the Evaluator in the following manner: (a) on the basis of current bid or
offer prices for the Securities, (b) if bid or offer prices are not available
for any Securities, on the basis of current bid or offer prices for comparable
securities, (c) by appraising the value of the Securities on the bid or offer
side of the market, or (d) by any combination of the above. The Evaluator may
obtain current price information as to the Securities from investment dealers or
brokers (including the Sponsor) which customarily deal in that type of
securities.
The Offering Price is determined on each business day during any initial
offering as of the Evaluation Time, effective for all sales of Units made since
the last of these evaluations and as of the Evaluation Time on the last business
day of each week during any period when there is no initial offering (i.e., when
no additional Units are being created), effective for all sales made during the
following week (Section 4.01). The term 'business day', as used herein and under
'Redemption', shall exclude Saturdays, Sundays; the following holidays as
observed by the New York Stock Exchange: New Year's Day, Washington's birthday,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas; and the following Federal holidays: Martin Luther King's birthday,
Columbus Day and Veterans' Day.
COMPARISON OF OFFERING PRICE, SPONSOR'S REPURCHASE PRICE AND REDEMPTION PRICE
On the date of the Investment Summary the Offering Price per Unit of each
Trust (which includes the transaction charge) and the Sponsor's Repurchase Price
per Unit (each based on the offer side evaluation of Securities in the
Trust--see above) exceeded the Redemption Price per Unit (based on the bid side
evaluation thereof--see Redemption) by the amounts set forth in the Investment
Summary.
Because the bid side evaluations of the Units are lower than the offer side
evaluations thereof by the amounts set forth under Investment Summary and other
reasons (including fluctuations in the market prices of these Securities and the
fact that the Offering Price includes a transaction charge), the amount realized
by a Holder upon any sale or redemption of Units may be less than the price paid
for these Units.
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DISTRIBUTION
During the initial offering period (i) for Units issued on the Initial Date
of Deposit and (ii) for additional Units issued after that date in respect of
additional Securities deposited by the Sponsor, Units may be purchased by an
Account at the Offering Price by means of this Prospectus (except that, as
explained above, the transaction charge is initially paid by the Insurer). The
initial offering period in each case will terminate on the date all newly issued
Units are sold. Upon the completion of any initial offering, Units acquired in
the secondary market may be offered by this Prospectus at the secondary market
Offering Price determined in the manner provided above as of the close of
business on the last business day of each week (see Market for Units), also less
the transaction charge paid by the Insurer.
SPONSOR'S PROFITS
Upon the sale of the Units, the Sponsor receives the transaction charge at
the rates set forth above. The Sponsor may also realize a profit or loss on each
deposit of Securities in a Trust. This is the difference between the cost of the
Securities to the Trust (which is based on the offer side evaluation of the
Securities on the Initial Date of Deposit) and the purchase price of those
Securities to the Sponsor. During the initial offering period, and thereafter to
the extent additional Units continue to be offered for sale, the Sponsor also
may realize profits or sustain losses as a result of fluctuations after the date
of deposit in the Offering Price of the Units. Cash, if any, made available by
buyers of Units to the Sponsor prior to the settlement dates for purchase of
Units may be used in the Sponsor's business, subject to the limitations of Rule
15c3-3 under the Securities Exchange Act of 1934, and may be of benefit to the
Sponsor.
In maintaining a market for the Units the Sponsor will also realize profits
or sustain losses in the amount of any difference between the prices at which it
buys Units (based on the offer side evaluation of the Securities) and the prices
at which it resells those Units (which include the relevant transaction charge)
or the prices at which it may redeem those Units (based on the bid side
evaluation of the Securities), as the case may be.
MARKET FOR UNITS
The Sponsor has committed to maintain a secondary market for Units of each
Trust at its own expense and continuously to offer to purchase Units of each
Trust at prices, subject to change at any time, that will be computed on the
basis of the offer side evaluation of the Securities, taking into account the
same factors referred to in determining the offer side evaluation of the
Securities for purposes of sale of Units (see Sale of Units-- Offering Price).
During the initial offering period or thereafter, on a given day, the price
offered by the Sponsor for the purchase of Units shall be an amount not less
than the Redemption Price per Unit, based on the aggregate bid side evaluation
of Securities in the relevant Trust on the date on which the Units are tendered
for redemption.
The Sponsor may redeem any Units it has purchased in the secondary market
if it determines it is undesirable to continue to hold those Units in its
inventory, provided that it has committed to redeem Units only in an amount to
substantially equal the value of one or more Securities, so that uninvested cash
generated by a redemption is de minimis. Factors which the Sponsor will consider
in making this determination will include the number of units of all series of
all funds which it has in its inventory, the saleability of the units and its
estimate of the time required to sell the units and general market conditions.
REDEMPTION
While it is anticipated that Units in most cases can be sold for amounts
exceeding the Redemption Price per Unit (see Market for Units), Units may be
redeemed at the office of the Trustee, upon tender on any business day, as
defined under Sale of Units--Offering Price, of Certificates or, in the case of
uncertificated Units, delivery of a request for redemption, and payment of any
relevant tax, without any other fee (Section 5.02). Certificates to be redeemed
must be properly endorsed or accompanied by a written instrument or instruments
of transfer.
The Trustee will redeem Units either in cash or in kind at the option of
the Holder as specified in writing to the Trustee. Unless otherwise specified,
redemptions will be made in cash. Not later than the seventh calendar day
following the tender (or if the seventh calendar day is not a business day on
the first business day prior thereto), the Holder will be entitled to receive
the proceeds of the redemption in an amount and value of Securities per Unit
equal to the Redemption Price per Unit (see below) as determined as of the
Evaluation Time next following the tender. The Redemption Price per Unit for in
kind distributions (the 'In Kind Distribution') will take the form of the
distribution of whole Securities represented by the fractional undivided
interest in the
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applicable Trust of the Units tendered for redemption (based upon the Redemption
Price per Unit) (Section 5.02). Because the Sponsor is committed to maintain a
market at prices in excess of the Redemption Price per Unit, the Sponsor expects
to repurchase any Units tendered for redemption in cash no later than the close
of business on the business day following the tender.
If the tendering Holder requests distribution in kind, the Trustee as
Distribution Agent for the account of the tendering Holder shall sell any
portion of the In Kind Distribution represented by fractional interests in
accordance with the instructions of the tendering Holder and distribute net cash
proceeds to the tendering Holder together with certificates representing whole
Securities received as the In Kind Distribution. In implementing these
redemption procedures, the Trustee shall make any adjustments necessary to
reflect differences between the Redemption Price of the Units and the value of
the In Kind Distribution as of the date of tender.
The Trustee is empowered to sell Securities from a Trust in order to make
funds available for cash redemptions (Section 5.02). The Securities will be sold
so as to maintain, as closely as practicable, the percentage relationship
between the face amounts of Stripped Treasury Securities and the Treasury Note
in the Trust at the time of sale. Provision is made under the Indenture for the
Sponsor to specify minimum face amounts in which blocks of Securities are to be
sold in order to obtain the best price for the Trust. While these minimum
amounts may vary from time to time in accordance with market conditions, the
Sponsor believes that the minimum face amounts which would be specified would
range from $25,000 to $100,000.
To the extent that Securities are redeemed in kind or sold, the size of the
relevant Trust will be reduced. Sales will usually be required at a time when
Securities would not otherwise be sold and may result in lower prices than might
otherwise be realized. In addition, because of the minimum face amounts in which
Securities are required to be sold, the proceeds of sale may, if the Sponsor
fails to adhere to its commitment described above, exceed the amount required at
the time to redeem Units; any excess proceeds will be deposited in the Capital
Account. The price received upon redemption may be more than or less than the
amount paid by the Holder depending on the value of the Securities in the Trust
at the time of redemption.
The right of redemption may be suspended and payment postponed (1) for any
period during which the New York Stock Exchange, Inc. is closed other than for
customary weekend and holiday closings or (2) for any period during which, as
determined by the Securities and Exchange Commission, (i) trading on that
Exchange is restricted or (ii) an emergency exists as a result of which disposal
or evaluation of the Securities is not reasonably practicable, or (3) for any
other periods which the Commission may by order permit (Section 5.02).
Redemption Price per Unit of a Trust is computed by the Trustee as of the
Evaluation Time on each June 30 and December 31 (or the last business day prior
thereto), on any business day, as of the Evaluation Time next following the
tender of any Unit for redemption, and on any other business day desired by the
Trustee or the Sponsor, on the bid side of the market, taking into account the
same factors referred to in determining the offering side evaluation for
purposes of sale of Units (see Sale of Units--Offering Price).
While Securities of the type included in the Trusts' Portfolios involve
minimal risk of loss of principal when held to maturity, due to variations in
interest rates the market value of the Securities and Redemption Price per Unit
can be expected to fluctuate during the period of an investment in a Trust.
EXPENSES AND CHARGES
INITIAL EXPENSES
All expenses incurred in establishing the Trusts and the initial offering
of Units and any additional Units, including the cost of the initial preparation
and printing of documents related to the Fund, cost of the initial evaluation,
the initial fees and expenses of the Trustee, legal expenses, advertising and
selling expenses and any other out-of-pocket expenses, will be paid by the
Sponsor at no charge to the Trusts.
NO SPONSOR'S FEES
The Sponsor receives no fee from the Trusts for its services as such.
However, while the transaction charges paid by the Insurers to the Sponsor are
not directly charged to the Accounts, because of the asset charge by the
Insurers, Policyowners will indirectly bear these charges (see the accompanying
Prospectus).
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FEES
The Trustee's and Evaluator's fees are set forth in the Investment Summary.
The Trustee's fees, payable in semi-annual installments, are based on the
largest face amount of Securities in a Trust during the preceding semi-annual
period. For its services as Trustee, the Trustee receives annually $0.18 per
$1,000 face amount of Treasury Securities. When a Treasury Note matures before
termination of a Trust, the Trustee will waive its fee thereafter. Certain
regular and recurring expenses of each Trust, including the Evaluator's fee and
certain mailing and printing expenses, are borne by the Trustee. Expenses in
excess of the amount included for those expenses in the Trustee's Annual Fee and
Expenses under the Investment Summary are borne by the Trust (Section 3.14). The
Trustee also receives benefits to the extent that it holds funds on deposit in
the various non-interest bearing accounts created under the Indenture.
The interest bearing Securities in certain Trusts mature several months or
years before the Stripped Treasury Securities therein (see Portfolios). The
Trustee will reduce its fees and expenses for these Trusts in the amount of
interest that would have accrued on these Securities between their maturity date
and the maturity date of the Stripped Treasury Securities in the Trust. This
reduction will eliminate the necessity of charging the Capital Account for the
Trust expenses during this period.
OTHER CHARGES
These include: (a) fees of the Trustee for extraordinary services (Section
8.05), (b) certain expenses of the Trustee (including legal and auditing
expenses) and of counsel designated by the Sponsor (Sections 3.04, 3.09, 8.01[e]
and 8.05), (c) various governmental charges (Sections 3.03 and 8.01[h]), (d)
expenses and costs of any action taken to protect any Trust (Section 8.01[d]),
(e) indemnification of the Trustee for any loss, liabilities and expenses
incurred without gross negligence, bad faith or wilful misconduct on its part
(Section 8.05) and (f) indemnification of the Sponsor for any losses,
liabilities and expenses incurred without gross negligence, bad faith, wilful
misconduct or reckless disregard of its duties (Section 7.02[b]). The amounts of
these charges and fees are secured by a lien on the relevant Trust and, if the
balances in the Income and Capital Accounts (see below) are insufficient, the
Trustee has the power to sell Securities to pay these amounts (Section 8.05).
ADMINISTRATION OF THE FUND
RECORDS
The Trustee keeps records of transactions of each Trust, including a
current list of the Securities and a copy of the Indenture, which are available
to record Holders for inspection at the office of the Trustee at reasonable
times during business hours (Sections 8.02 and 8.04).
ACCOUNTS AND DISTRIBUTIONS
The terms of the Securities provide for payment to the holders thereof
(including the Trusts) upon their maturities. Interest received on any
Securities in a Trust which bear current interest, including that part of the
proceeds of any disposition of any such Security which represents accrued
interest and any late payment penalties, is credited to an Income Account for
the applicable Trust and all other receipts to a Capital Account for the Trust
(Sections 3.01 and 3.02). Distributions to Holders as of the Record Day normally
will be made by mail on the following Distribution Day and shall consist of an
amount substantially equal to each Holder's pro rata share of the distributable
cash balance in the Income and Capital Accounts of the Trust computed as of the
close of business on the Record Day. The Distribution Day normally shall be the
next business day following the maturity of the Stripped Treasury Securities in
the Trust Portfolio; the Record Day shall be the business day immediately
preceding the Distribution Day. However, the Sponsor may direct distribution of
any cash balance in the Income and Capital Accounts not otherwise allocated on
the last Business Day of any year.
The amount to be distributed may change as Securities are exchanged, paid
or sold. Proceeds received from the disposition or payment of any of the
Securities which are not used for redemption will be held in the Capital Account
(Section 3.04). However, the Sponsor is committed to maintain a secondary market
and to redeem Units only when the value of Units redeemed substantially equals
the value of one or more portfolio Securities. Amounts, if any, in the Income
Account will be distributed to Holders pro rata upon termination of the Trust. A
Reserve Account may be created by the Trustee by withdrawing from the Income or
Capital Accounts, from time to time, amounts which it deems requisite to
establish a reserve for any taxes or other governmental charges that
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may be payable out of the Trust (Section 3.03). Funds held by the Trustee in the
various accounts created under the Indenture do not bear interest (Section
8.01).
PORTFOLIO SUPERVISION
Each Trust is part of a unit investment trust and not an actively managed
fund. Traditional methods of investment management for a managed fund typically
involve frequent changes in a portfolio of securities on the basis of economic,
financial and market analyses. The Portfolios of the Trusts, however, will not
be actively managed and therefore adverse conditions will not necessarily
require the sale of securities from a Trust. However, the Sponsor may direct the
disposition of Securities upon default in payment of amounts due on any of the
Securities which is not promptly cured, institution of certain legal
proceedings, default in payment of amounts due on other Treasury Securities, or
decline in price or the occurrence of other market or credit factors that in the
opinion of the Sponsor would make the retention of these Securities in any Trust
detrimental to the interest of the Holders of that Trust. If a default in
payment of amounts due on any Security occurs and if the Sponsor fails to give
instructions to sell or hold the Security the Indenture provides that the
Trustee, within 30 days of that failure by the Sponsor, may sell the Security
(Sections 3.07 and 3.10).
REPORTS TO HOLDERS
The Trustee will furnish Holders of record with each distribution a
statement of the amounts of interest and of other receipts which are being
distributed, expressed in each case as a dollar amount per Unit. After the end
of each calendar year, the Trustee will furnish to Holders of record a statement
(i) summarizing transactions for the year in the Income, Capital and Reserve
Accounts of each Trust, (ii) identifying Securities sold and purchased during
the year and listing Securities held and the number of Units outstanding at the
end of the year by the Trust, (iii) stating the Trust's Redemption Price per
Unit based upon the computation thereof made at the end of the year and (iv)
specifying any amounts distributed during the year from the Trust's Income and
Capital Accounts (Section 3.06). The accounts of each Trust shall be audited at
least annually by independent certified public accountants designated by the
Sponsor, and the report of the accountants shall be furnished by the Trustee to
Holders upon request (Section 8.01[e]).
In order to enable them to comply with Federal and state tax reporting
requirements, Holders will be furnished upon request to the Trustee with
evaluations of Securities furnished to it by the Evaluator (Section 4.02).
CERTIFICATES
The Sponsor may collect additional charges for registering and shipping
Certificates to purchasers. These Certificates are transferable or
interchangeable upon presentation at the office of the Trustee, with a payment
of $2.00 if required by the Trustee (or other amounts specified by the Trustee
and approved by the Sponsor) for each new Certificate and any sums payable for
taxes or other governmental charges imposed upon this transaction (Section 6.01)
and compliance with the formalities necessary to redeem Certificates (see
Redemption). Mutilated, destroyed, stolen or lost Certificates will be replaced
upon delivery of satisfactory indemnity and payment of expenses incurred
(Section 6.02).
Alternatively, Holders may elect to hold their Units in uncertificated
form. The Trustee will credit each such Holder's account with the number of
Units purchased by that Holder. This relieves the Holder of the responsibility
for safekeeping of Certificates and of the need to deliver Certificates upon
sale of Units. Uncertificated Units are transferable through the same procedures
applicable to Units evidenced by Certificates (see above), except that no
Certificate need be presented to the Trustee and none will be issued upon
transfer unless requested by the Holder. A Holder may at any time request the
Trustee (at the Trust's cost) to issue Certificates for Units.
AMENDMENT AND TERMINATION
The Sponsor and Trustee may amend the Indenture without the consent of
Holders (a) to cure any ambiguity or to correct or supplement any provision
thereof which may be defective or inconsistent, (b) to change any provision
thereof as may be required by the Securities and Exchange Commission or any
successor governmental agency, or (c) to make any other provisions which do not
materially adversely affect the interest of the Holders (as determined in good
faith by the Sponsor). The Indenture may also be amended in any respect by the
Sponsor and Trustee, or any of the provisions thereof may be waived, with the
consent of the Holders of 51% of the Units then
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outstanding, provided that none of these amendments or waivers will reduce the
interest in any Trust of any Holder without the consent of the Holder or reduce
the percentage of Units required to consent to any of these amendments or
waivers without the consent of all Holders (Section 10.01).
The Indenture will terminate upon the earlier of the disposition of the
last Security held thereunder or the mandatory termination date. The Indenture
as to any Trust may be terminated by the Sponsor if the face amount of the Trust
is less than the minimum set forth under Investment Summary and may be
terminated at any time by written instruments executed by the Sponsor and
consented to by Holders of 51% of the Units (Sections 8.01[g] and 9.01). The
Trustee will deliver written notice of any termination to each Holder within a
reasonable period of time prior to the termination, specifying the times at
which the Holders may surrender their Certificates for cancellation. Within a
reasonable period of time after the termination, the Trustee must sell all of
the Securities then held and distribute to each Holder, upon surrender for
cancellation of his Certificates, and after deductions for accrued but unpaid
fees, taxes and governmental and other charges, the Holder's interest in the
Income and Capital Accounts (Section 9.01). This distribution will normally be
made by mailing a check in the amount of each Holder's interest in these
accounts to the address of the Holder appearing on the record books of the
Trustee.
RESIGNATION, REMOVAL AND LIMITATIONS ON LIABILITY
THE TRUSTEE
The Trustee or any successor may resign upon notice to the Sponsor. The
Trustee may be removed upon the direction of the Holders of 51% of the Units at
any time or by the Sponsor without the consent of any of the Holders if the
Trustee becomes incapable of acting or becomes bankrupt or its affairs are taken
over by public authorities. The resignation or removal shall become effective
upon the acceptance of appointment by the successor. In case of resignation or
removal the Sponsor is to use its best efforts to appoint a successor promptly
and if upon resignation of the Trustee no successor has accepted appointment
within thirty days after notification, the Trustee may apply to a court of
competent jurisdiction for the appointment of a successor (Section 8.06). The
Trustee shall be under no liability for any action taken in good faith in
reliance on prima facie properly executed documents or for the disposition of
monies or Securities, nor shall it be liable or responsible in any way for
depreciation or loss incurred by reason of the sale of any Security. This
provision, however, shall not protect the Trustee in cases of wilful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties. In the event of the failure of the Sponsor to act, the
Trustee may act under the Indenture and shall not be liable for any of these
actions taken in good faith. The Trustee shall not be personally liable for any
taxes or other governmental charges imposed upon or in respect of the Securities
or upon the interest thereon. In addition, the Indenture contains other
customary provisions limiting the liability of the Trustee (Sections 3.07, 3.10,
8.01 and 8.05).
THE EVALUATOR
The Evaluator may resign or may be removed, effective upon the acceptance
of appointment by its successor, by the Sponsor, who is to use its best efforts
to appoint a successor promptly. If upon resignation of the Evaluator no
successor has accepted appointment within thirty days after notification, the
Evaluator may apply to a court of competent jurisdiction for the appointment of
a successor (Section 4.04). Determinations by the Evaluator under the Indenture
shall be made in good faith upon the basis of the best information available to
it; provided, however, that the Evaluator shall be under no liability to the
Trustee, the Sponsor or the Holders for errors in judgment. This provision,
however, shall not protect the Evaluator in cases of wilful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties
(Section 4.03). The Trustee, the Sponsor and the Holders may rely on any
evaluation furnished by the Evaluator and shall have no responsibility for the
accuracy thereof.
THE SPONSOR
If the Sponsor fails to perform its duties or becomes incapable of acting
or becomes bankrupt or its affairs are taken over by public authorities, then
the Trustee may (a) appoint a successor Sponsor at rates of compensation deemed
by the Trustee to be reasonable and as may not exceed amounts prescribed by the
Securities and Exchange Commission, or (b) terminate the Indenture and liquidate
the Trusts or (c) continue to act as Trustee without terminating the Indenture
(Section 8.01[f]). The Sponsor shall be under no liability to the Trusts or to
the Holders for taking any action or for refraining from taking any action in
good faith or for errors in judgment and
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shall not be liable or responsible in any way for depreciation or loss incurred
by reason of the sale of any Security. This provision, however, shall not
protect the Sponsor in cases of wilful misfeasance, bad faith, gross negligence
or reckless disregard of its obligations and duties (Section 7.02). The Sponsor
may transfer all or substantially all of its assets to a corporation or
partnership which carries on its business and duly assumes all of its
obligations under the Indenture and in such event shall be relieved of all
further liability under the Indenture (Section 7.01).
MISCELLANEOUS
TRUSTEE
The Trustee and its address are stated on the back cover of the Prospectus.
The Trustee is subject to supervision by the Federal Deposit Insurance
Corporation, the Board of Governors of the Federal Reserve System and either the
Comptroller of the Currency or state banking authorities.
LEGAL OPINION
The legality of the Units has been passed upon by Davis Polk & Wardwell,
450 Lexington Avenue, New York, New York 10017, as special counsel for the
Sponsor.
AUDITORS
The financial statements, including the Portfolios of the Trusts, included
herein have been examined by Deloitte & Touche LLP, independent accountants, as
stated in their opinions appearing herein and have been included in reliance
upon those opinions given on the authority of that firm as experts in accounting
and auditing.
SPONSOR
The Sponsor is a Delaware corporation and is engaged in the underwriting,
securities and commodities brokerage business, and is a member of the New York
Stock Exchange, Inc., other major securities exchanges and commodity exchanges,
and the National Association of Securities Dealers, Inc. The Sponsor and Merrill
Lynch Asset Management, Inc., a Delaware corporation, each of which is a
subsidiary of Merrill Lynch & Co., Inc., are engaged in the investment advisory
business. The Sponsor has acted as principal underwriter and managing
underwriter of other investment companies. The Sponsor, in addition to
participating as a member of various selling groups or as an agent of other
investment companies, executes orders on behalf of investment companies for the
purchase and sale of securities of these companies and sells securities to these
companies in its capacity as a broker or dealer in securities.
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PROSPECTUS
- --------------------------------------------------------------------------------
THIS PROSPECTUS DOES NOT CONTAIN ALL OF THE INFORMATION WITH RESPECT TO THE
INVESTMENT COMPANY SET FORTH IN ITS REGISTRATION STATEMENT AND EXHIBITS RELATING
THERETO WHICH HAVE BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
WASHINGTON, D.C. UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT
OF 1940, AND TO WHICH REFERENCE IS HEREBY MADE.
- --------------------------------------------------------------------------------
THE MERRILL LYNCH FUND OF STRIPPED ('ZERO')
U.S. TREASURY SECURITIES, SERIES A THROUGH K
INDEX
- --------------------------------------------------------------------------------
PAGE
--------------------
Investment Summary.......................................... A-2
Accountants' Opinion Relating to All Series................. D-1
Statement of Condition of Series A.......................... D-2
Portfolio of Series A....................................... D-51
Statements of Condition of Series B......................... D-5
Portfolios of Series B...................................... D-51
Statement of Condition of Series C.......................... D-10
Portfolio of Series C....................................... D-51
Statement of Condition of Series D.......................... D-13
Portfolio of Series D....................................... D-51
Statements of Condition of Series E......................... D-16
Portfolios of Series E...................................... D-52
Statements of Condition of Series F......................... D-21
Portfolios of Series F...................................... D-52
Statements of Condition of Series G......................... D-26
Portfolios of Series G...................................... D-53
Statement of Condition of Series H.......................... D-31
Portfolio of Series H....................................... D-53
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INDEX
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PAGE
--------------------
Statement of Condition of Series I.......................... D-34
Portfolio of Series I....................................... D-53
Statement of Condition of Series J.......................... D-37
Portfolio of Series J....................................... D-53
Statements of Condition of Series K......................... D-40
Portfolios of Series K...................................... D-54
Fund Structure.............................................. 1
Risk Factors................................................ 1
Description of the Fund..................................... 2
Taxes....................................................... 4
Sale of Units............................................... 4
Market for Units............................................ 6
Redemption.................................................. 6
Expenses and Charges........................................ 7
Administration of the Fund.................................. 8
Resignation, Removal and Limitations on Liability 10
Miscellaneous............................................... 11
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SPONSOR: EVALUATOR:
Merrill Lynch, Pierce, Kenny S&P Evaluation
Fenner & Smith Incorporated Services, a division of
Defined Asset Funds J. J. Kenny Co., Inc.
Post Office Box 9051 65 Broadway
Princeton, N.J. 08543-9051 New York, N.Y. 10006
(609) 282-8500
TRUSTEE: INDEPENDENT ACCOUNTANTS:
The Chase Manhattan Bank Deloitte & Touche, LLP
Customer Service Retail Department 2 World Financial Center
Bowling Green Station 9th Floor
P.O. Box 5187 New York, N.Y. 10281-1414
New York, N.Y. 10274-5187
1-800-323-1508
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
WITH RESPECT TO THIS INVESTMENT COMPANY NOT CONTAINED IN PARTS A AND B OF THIS
PROSPECTUS; AND ANY INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. PARTS A AND B OF THIS PROSPECTUS DO
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY,
SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH
OFFER IN SUCH STATE.
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14850-5/97
