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 2008 Trust; 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, 1998
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, 1997+, 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).
1999
TRUST
--------------
FACE AMOUNT OF SECURITIES...............$ 25,381,657
NUMBER OF UNITS......................... 25,639,560
FACE AMOUNT OF SECURITIES PER 1,000
UNITS...................................$ 1,000.08
FRACTIONAL UNDIVIDED INTEREST IN TRUST
REPRESENTED BY EACH UNIT................ 1/25,369,560th
OFFERING PRICE PER 1,000 UNITS***
Aggregate offer side evaluation of
Securities in Trust*....................$ 23,854,877
--------------
Net asset value (divided by number
of Units, times 1,000)..................$ 940.29
Plus the applicable transaction
charge**............................$ 2.36
--------------
Offering Price per 1,000
Units***++..........................$ 942.65
--------------
--------------
SPONSOR'S REPURCHASE PRICE PER 1,000
UNITS
(based on offer side evaluation of
underlying Securities)++..............$ 940.29
REDEMPTION PRICE PER 1,000 UNITS (based
on bid side evaluation of underlying
Securities)****++ $ 939.67
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: 2008 Trust), 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 charges applicable as of the date above are 0.25% of
the Offering Price of the 1999 and 2000 Trusts (0.251% of the net amount
invested), 0.75% of the Offering Price of the 2001 and 2002 Trusts (0.756% of
the net amount invested), 1.00% of the Offering Price of the 2003, 2004 and 2005
Trusts (1.010% of the net amount invested), 1.50% of the Offering Price of the
2006 and 2007 Trusts (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 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 $2.98, $5.11, $7.00, $6.63, $7.99, $7.77, $7.43,
$10.47 and $9.86 less than the Offering Price and $0.62, $0.63, $0.63, $0.62,
$0.63, $0.63, $0.63, $0.64 and $0.64 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-2
<PAGE>
INVESTMENT SUMMARY AS OF DECEMBER 31, 1996+, THE EVALUATION DATE (CONTINUED)
2000 2001 2002 2003
TRUST TRUST TRUST TRUST
- -------------- -------------- -------------- --------------
$ 25,612,227 $ 57,638,868 $ 13,881,638 $ 65,743,100
25,575,784 57,433,435 13,869,363 65,677,466
$ 1,001.42 $ 1,003.57 $ 1,000.88 $ 1,000.99
1/25,575,784th 1/57,433,435th 1/13,869,363rd 1/65,677,466th
$ 22,769,484 $ 48,417,320 $ 11,017,104 $ 47,879,604
- -------------- -------------- -------------- --------------
$ 890.27 $ 843.01 $ 794.34 $ 729.01
$ 4.48 $ 6.37 $ 6.01 $ 7.36
- -------------- -------------- -------------- --------------
$ 894.75 $ 849.38 $ 800.35 $ 736.37
- -------------- -------------- -------------- --------------
- -------------- -------------- -------------- --------------
$ 890.27 $ 843.01 $ 794.34 $ 729.01
$ 889.64 $ 842.38 $ 793.72 $ 728.38
$ 0.35 $ 0.35 $ 0.36 $ 0.35
$ 0.35 $ 0.35 $ 0.36 $ 0.35
- -------------- -------------- -------------- --------------
$ 0.00 $ 0.00 $ 0.00 $ 0.00
- -------------- -------------- -------------- --------------
- -------------- -------------- -------------- --------------
$ 0.35 $ 0.35 $ 0.36 $ 0.35
2004 2005 2006 2007
TRUST TRUST TRUST TRUST
- -------------- -------------- -------------- --------------
$ 11,386,505 $ 33,545,177 $ 11,541,303 $ 22,301,307
11,401,318 33,242,884 11,228,372 21,784,452
$ 998.70 $ 1,009.09 $ 1,027.86 $ 1,023.72
1/11,401,318th 1/33,242,884th 1/11,228,372nd 1/21,784,452nd
$ 8,057,583 $ 22,365,685 $ 7,243,634 $ 13,187,493
- -------------- -------------- -------------- --------------
$ 706.72 $ 672.79 $ 645.11 $ 605.36
$ 7.14 $ 6.80 $ 9.83 $ 9.22
- -------------- -------------- -------------- --------------
$ 713.86 $ 679.59 $ 654.94 $ 614.58
- -------------- -------------- -------------- --------------
- -------------- -------------- -------------- --------------
$ 706.72 $ 672.79 $ 645.11 $ 605.36
$ 706.09 $ 672.16 $ 644.47 $ 604.72
$ 0.35 $ 0.35 $ 0.31 $ 0.33
$ 0.35 $ 0.35 $ 0.31 $ 0.33
- -------------- -------------- -------------- --------------
$ 0.00 $ 0.00 $ 0.00 $ 0.00
- -------------- -------------- -------------- --------------
- -------------- -------------- -------------- --------------
$ 0.35 $ 0.35 $ 0.31 $ 0.33
A-3
<PAGE>
INVESTMENT SUMMARY AS OF DECEMBER 31, 1997+, 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...............$ 40,971,904
NUMBER OF UNITS......................... 40,840,808
FACE AMOUNT OF SECURITIES PER UNIT......$ 1,003.20
FRACTIONAL UNDIVIDED INTEREST IN TRUST
REPRESENTED BY EACH UNIT................ 1/40,840,808th
OFFERING PRICE PER 1,000 UNITS***
Aggregate offer side evaluation of
Securities in Trust*....................$ 22,812,657
--------------
Net asset value (divided by number
of Units, times 1,000)..................$ 558.57
Plus the applicable transaction
charge**............................$ 8.51
--------------
Offering Price per 1,000
Units***++..........................$ 568.08
--------------
--------------
SPONSOR'S REPURCHASE PRICE PER 1,000
UNITS
(based on offer side evaluation of
underlying Securities)++..............$ 558.57
REDEMPTION PRICE PER 1,000 UNITS (based
on bid side evaluation of underlying
Securities)****++ $ 557.94
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: 2008 Trust), 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, 1997+, THE EVALUATION DATE (CONTINUED)
<TABLE>
<CAPTION>
2009 2010 2011 2013 2014
TRUST TRUST TRUST TRUST TRUST
- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
$ 18,333,525 $ 17,144,128 $ 3,854,092 $ 3,564,628 $ 52,646,428
18,236,148 17,212,004 3,824,917 3,548,349 53,023,893
$ 1,005.33 $ 996.05 $ 1,007.62 $ 1,004.58 $ 992.88
1/18,236,148th 1/17,212,004th 1/3,824,917th 1/3,548,349th 1/53,023,893rd
$ 9,583,666 $ 8,425,765 $ 1,781,816 $ 1,456,821 $ 20,307,177
- -------------- -------------- -------------- -------------- --------------
$ 525.53 $ 489.52 $ 465.84 $ 410.56 $ 382.98
$ 8.00 $ 7.46 $ 8.30 $ 7.31 $ 6.82
- -------------- -------------- -------------- -------------- --------------
$ 533.53 $ 496.98 $ 474.14 $ 417.87 $ 389.80
- -------------- -------------- -------------- -------------- --------------
- -------------- -------------- -------------- -------------- --------------
$ 525.53 $ 489.52 $ 465.84 $ 410.56 $ 382.98
$ 524.90 $ 488.90 $ 465.21 $ 409.93 $ 382.36
$ 0.36 $ 0.37 $ 0.36 $ 0.32 $ 0.35
$ 0.36 $ 0.37 $ 0.36 $ 0.32 $ 0.35
- -------------- -------------- -------------- -------------- --------------
$ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
- -------------- -------------- -------------- -------------- --------------
- -------------- -------------- -------------- -------------- --------------
$ 0.36 $ 0.37 $ 0.36 $ 0.32 $ 0.35
</TABLE>
- ------------------
**The transaction charges applicable as of the date above are 1.50% of
the Offering Price of the 2008, 2009 and 2010 Trusts (1.523% of the net amount
invested), 1.75% of the Offering Price of the 2011, 2013 and 2014 Trusts (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 $9.14, $8.63, $8.08, $8.93, $7.94 and $7.44 less
than the Offering Price and $0.63, $0.63, $0.62, $0.63, $0.63 and $0.62 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 (2008 Trust),
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, 1997 and the related statements of operations
and of changes in net assets for the years ended December 31, 1997, 1996 and
1995. 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, 1997, 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, 1997
and the results of their operations and changes in their net assets for the
above-stated years in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, N.Y.
January 30, 1998
D-1
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES A
STATEMENT OF CONDITION
AS OF DECEMBER 31, 1997
2003 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $47,838,514
Other 81,532
Total trust property 47,920,046
LESS LIABILITY - Other 4,484
NET ASSETS (Note 2) $47,915,562
UNITS OUTSTANDING 65,677,446
UNIT VALUE $.72956
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,
1997 1996 1995
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 24,902 $ 27,183 $ 29,639
Accretion of original issue
discount 3,628,183 3,638,172 3,641,500
Trustee's fees and expenses (16,828) (18,146) (19,424)
Net investment income 3,636,257 3,647,209 3,651,715
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain on securities sold 818,013 828,620 892,759
Unrealized appreciation (depreciation) of
investments 31,844 (4,351,762) 7,537,583
Realized and unrealized gain (loss) on
investments 849,857 (3,523,142) 8,430,342
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $4,486,114 $ 124,067 $12,082,057
</TABLE>
See Notes to Financial Statements.
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,
1997 1996 1995
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 3,636,257 $ 3,647,209 $ 3,651,715
Realized gain on securities sold 818,013 828,620 892,759
Unrealized appreciation (depreciation) of
investments 31,844 (4,351,762) 7,537,583
Net increase (decrease) in net assets
resulting from operations 4,486,114 124,067 12,082,057
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional units 199,957 213,357 888,564
Redemptions of units (5,561,092) (4,579,226) (4,430,713)
Net capital share transactions (5,361,135) (4,365,869) (3,542,149)
NET INCREASE (DECREASE) IN NET ASSETS (875,021) (4,241,802) 8,539,908
NET ASSETS, BEGINNING OF YEAR 48,790,583 53,032,385 44,492,477
NET ASSETS, END OF YEAR $47,915,562 $48,790,583 $53,032,385
UNIT VALUE, END OF YEAR $.72956 $.66428 $.66107
UNITS OUTSTANDING, END OF YEAR 65,677,446 73,448,689 80,221,626
</TABLE>
See Notes to Financial Statements.
D-4
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES B
STATEMENTS OF CONDITION
AS OF DECEMBER 31, 1997
2001 TRUST 2005 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $48,381,296 $22,344,719
Other 68,218 22,001
Total trust property 48,449,514 22,366,720
LESS LIABILITY - Other 4,189 883
NET ASSETS (Note 2) $48,445,325 $22,365,837
UNITS OUTSTANDING 57,433,435 33,242,884
UNIT VALUE $.84350 $.67280
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,
1997 1996 1995
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 21,215 $ 23,315 $ 25,558
Accretion of original issue discount 3,964,020 4,052,834 4,070,813
Trustee's fees and expenses (15,315) (16,333) (17,357)
Net investment income 3,969,920 4,059,816 4,079,014
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold 444,680 729,602 720,572
Unrealized appreciation (depreciation) of
investments (876,128) (3,688,347) 5,161,047
Realized and unrealized gain (loss) on
investments (431,448) (2,958,745) 5,881,619
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $3,538,472 $1,101,071 $9,960,633
</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,
1997 1996 1995
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 12,069 $ 12,909 $ 12,677
Accretion of original issue discount 1,503,945 1,507,646 1,371,217
Trustee's fees and expenses (10,338) (10,945) (10,695)
Net investment income 1,505,676 1,509,610 1,373,199
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold 202,442 239,717 369,384
Unrealized appreciation (depreciation) of
investments 648,748 (1,944,792) 3,590,504
Realized and unrealized gain (loss) on
investments 851,190 (1,705,075) 3,959,888
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $2,356,866 $ (195,465) $5,333,087
</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,
1997 1996 1995
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 3,969,920 $ 4,059,816 $ 4,079,014
Realized gain on securities sold 444,680 729,602 720,572
Unrealized appreciation (depreciation)
of investments (876,128) (3,688,347) 5,161,047
Net increase (decrease)in net assets
resulting from operations 3,538,472 1,101,071 9,960,633
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional units 397,111 809,728 2,517,687
Redemptions of units (4,861,241) (6,094,730) (5,433,756)
Net capital share transactions (4,464,130) (5,285,002) (2,916,069)
NET INCREASE (DECREASE) IN NET ASSETS (925,658) (4,183,931) 7,044,564
NET ASSETS, BEGINNING OF YEAR 49,370,983 53,554,914 46,510,350
NET ASSETS, END OF YEAR $48,445,325 $49,370,983 $53,554,914
UNIT VALUE, END OF YEAR $.84350 $.78459 $.76655
UNITS OUTSTANDING, END OF YEAR 57,433,435 62,925,765 69,865,193
</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,
1997 1996 1995
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 1,505,676 $ 1,509,610 $ 1,373,199
Realized gain on securities sold 202,442 239,717 369,384
Unrealized appreciation (depreciation)
of investments 648,748 (1,944,792) 3,590,504
Net increase (decrease) in net assets
resulting from operations 2,356,866 (195,465) 5,333,087
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional units 743,426 1,171,904 2,186,036
Redemptions of units (1,854,199) (2,282,137) (1,986,425)
Net capital share transactions (1,110,773) (1,110,233) 199,611
NET INCREASE (DECREASE) IN NET ASSETS 1,246,093 (1,305,698) 5,532,698
NET ASSETS, BEGINNING OF YEAR 21,119,744 22,425,442 16,892,744
NET ASSETS, END OF YEAR $22,365,837 $21,119,744 $22,425,442
UNIT VALUE, END OF YEAR $.67280 $.60348 $.60745
UNITS OUTSTANDING, END OF YEAR 33,242,884 34,996,785 36,917,304
</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, 1997
2006 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $7,236,421
Other 8,464
Total trust property 7,244,885
LESS LIABILITY - Other 6,302
NET ASSETS (Note 2) $7,238,583
UNITS OUTSTANDING 11,228,372
UNIT VALUE $.64467
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,
1997 1996 1995
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 3,792 $ 4,065 $ 2,699
Accretion of original issue discount 485,166 467,093 310,893
Trustee's fees and expenses (3,683) (3,738) (2,697)
Net investment income 485,275 467,420 310,895
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain on securities sold 406,791 78,989 205,530
Unrealized appreciation (depreciation)
of investments 152,479 (488,521) 776,125
Realized and unrealized gain (loss) on
investments 559,270 (409,532) 981,655
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $1,044,545 $ 57,888 $1,292,550
</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,
1997 1996 1995
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 485,275 $ 467,420 $ 310,895
Realized gain on securities sold 406,791 78,989 205,530
Unrealized appreciation (depreciation)
of investments 152,479 (488,521) 776,125
Net increase (decrease) in net assets
resulting from operations 1,044,545 57,888 1,292,550
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional units 245,845 2,799,053 926,723
Redemptions of units (1,459,989) (582,696) (1,012,052)
Net capital share transactions (1,214,144) 2,216,357 (85,329)
NET INCREASE (DECREASE) IN NET ASSETS (169,599) 2,274,245 1,207,221
NET ASSETS, BEGINNING OF YEAR 7,408,182 5,133,937 3,926,716
NET ASSETS, END OF YEAR $7,238,583 $7,408,182 $5,133,937
UNIT VALUE, END OF YEAR $.64467 $.57315 $.58026
UNITS OUTSTANDING, END OF YEAR 11,228,372 12,925,437 8,847,662
</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, 1997
2007 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $13,173,554
Other 2,926
Total trust property 13,176,480
LESS LIABILITY - Other 1,469
NET ASSETS (Note 2) $13,175,011
UNITS OUTSTANDING 21,784,452
UNIT VALUE $.60479
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
1997 1996 1995
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 7,314 $ 6,683 $ 7,248
Accretion of original issue discount 826,932 701,298 720,342
Trustee's fees and expenses (7,325) (6,675) (7,196)
Net investment income 826,921 701,306 720,394
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain on securities sold 59,353 137,187 362,903
Unrealized appreciation (depreciation) of
investments 674,748 (1,039,668) 1,999,314
Realized and unrealized gain (loss) on
investments 734,101 (902,481) 2,362,217
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $1,561,022 $ (201,175) $3,082,611
</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
1997 1996 1995
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 826,921 $ 701,306 $ 720,394
Realized gain on securities sold 59,353 137,187 362,903
Unrealized appreciation (depreciation)
of investments 674,748 (1,039,668) 1,999,314
Net increase (decrease)in net assets
resulting from operations 1,561,022 (201,175) 3,082,611
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional units 1,541,671 198,530 686,393
Redemptions of units (300,187) (557,763) (1,785,206)
Net capital share transactions 1,241,484 (359,233) (1,098,813)
NET INCREASE (DECREASE) IN NET ASSETS 2,802,506 (560,408) 1,983,798
NET ASSETS, BEGINNING OF YEAR 10,372,505 10,932,913 8,949,115
NET ASSETS, END OF YEAR $13,175,011 $10,372,505 $10,932,913
UNIT VALUE, END OF YEAR $.60479 $.53353 $.54388
UNITS OUTSTANDING, END OF YEAR 21,784,452 19,441,293 20,101,562
</TABLE>
See Notes to Financial Statements.
D-15
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES E
STATEMENT OF CONDITION
AS OF DECEMBER 31, 1997
2008 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $22,787,050
Other 31,953
Total trust property 22,819,003
LESS LIABILITY - Other 9,547
NET ASSETS (Note 2) $22,809,456
UNITS OUTSTANDING 40,840,808
UNIT VALUE $.55850
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>
2008 TRUST
Years Ended December 31
1997 1996 1995
<S> <C> <C> <C>
INVESTMENT INCOME
Interest income $ 15,421 $ 17,094 $ 18,790
Accretion of original issue
discount 1,504,333 1,566,068 1,565,747
Trustee's fees and expenses (11,957) (12,920) (13,855)
Net investment income 1,507,797 1,570,242 1,570,682
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain on securities sold 288,696 535,460 241,098
Unrealized appreciation (depreciation)
of investments 1,163,882 (2,866,638) 5,452,882
Realized and unrealized gain (loss)
on investments 1,452,578 (2,331,178) 5,693,980
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $2,960,375 $ (760,936) $7,264,662
</TABLE>
See Notes to Financial Statements.
D-17
<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
1997 1996 1995
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 1,507,797 $ 1,570,242 $ 1,570,682
Realized gain on securities sold 288,696 535,460 241,098
Unrealized appreciation (depreciation) of
investments 1,163,882 (2,866,638) 5,452,882
Net increase (decrease) in net assets
resulting from operations 2,960,375 (760,936) 7,264,662
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional Units 1,102,323
Redemptions of Units (2,064,469) (3,669,808) (2,030,174)
Net capital share transactions (2,064,469) (2,567,485) (2,030,174)
NET INCREASE (DECREASE) IN NET ASSETS 895,906 (3,328,421) 5,234,488
NET ASSETS, BEGINNING OF YEAR 21,913,550 25,241,971 20,007,483
NET ASSETS, END OF YEAR $22,809,456 $21,913,550 $25,241,971
UNIT VALUE, END OF YEAR $.55850 $.48816 $.50066
UNITS OUTSTANDING, END OF YEAR 40,840,808 44,890,165 50,417,866
</TABLE>
See Notes to Financial Statements.
D-18
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES F
STATEMENTS OF CONDITION
AS OF DECEMBER 31, 1997
1999 TRUST 2009 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $23,839,019 $9,572,208
Other 4,627 15,249
Total trust property 23,843,646 9,587,457
LESS LIABILITY - Other 2,693 7,505
NET ASSETS (Note 2) $23,840,953 $9,579,952
UNITS OUTSTANDING 25,369,560 18,236,148
UNIT VALUE $.93975 $.52533
See Notes to Financial Statements.
D-19
<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
1997 1996 1995
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 9,282 $ 9,455 $ 9,808
Accretion of original issue discount 1,645,711 1,585,052 1,573,856
Trustee's fees and expenses (8,856) (8,928) (9,203)
Net investment income 1,646,137 1,585,579 1,574,461
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold 33,432 102,339 229,711
Unrealized appreciation (depreciation) of
investments (233,179) (767,906) 1,623,728
Realized and unrealized gain (loss) on
investments (199,747) (665,567) 1,853,439
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $1,446,390 $ 920,012 $3,427,900
</TABLE>
See Notes to Financial Statements.
D-20
<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
1997 1996 1995
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 7,191 $ 7,951 $ 8,713
Accretion of original issue discount 639,710 643,976 656,077
Trustee's fees and expenses (7,105) (7,936) (8,426)
Net investment income 639,796 643,991 656,364
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold 220,815 130,319 329,163
Unrealized appreciation (depreciation) of
investments 471,994 (1,124,284) 2,261,855
Realized and unrealized gain (loss) on
investments 692,809 (993,965) 2,591,018
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $1,332,605 $ (349,974) $3,247,382
</TABLE>
See Notes to Financial Statements.
D-21
<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
1997 1996 1995
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 1,646,137 $ 1,585,579 $ 1,574,461
Realized gain on securities sold 33,432 102,339 229,711
Unrealized appreciation (depreciation) of
investments (233,179) (767,906) 1,623,728
Net increase (decrease) in net assets
resulting from operations 1,446,390 920,012 3,427,900
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional units 1,189,918 803,103 3,923,258
Redemptions of units (2,571,494) (1,764,394) (3,494,807)
Net capital share transactions (1,381,576) (961,291) 428,451
NET INCREASE (DECREASE) IN NET ASSETS 64,814 (41,279) 3,856,351
NET ASSETS, BEGINNING OF YEAR 23,776,139 23,817,418 19,961,067
NET ASSETS, END OF YEAR $23,840,953 $23,776,139 $23,817,418
UNIT VALUE, END OF YEAR $.93975 $.88498 $.85071
UNITS OUTSTANDING, END OF YEAR 25,369,560 26,866,164 27,997,201
</TABLE>
See Notes to Financial Statements.
D-22
<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
1997 1996 1995
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 639,796 $ 643,991 $ 656,364
Realized gain on securities sold 220,815 130,319 329,163
Unrealized appreciation (depreciation) of
investments 471,994 (1,124,284) 2,261,855
Net increase (decrease) in net assets
resulting from operations 1,332,605 (349,974) 3,247,382
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional units 182,231 452,445
Redemptions of units (1,170,043) (716,485) (1,567,198)
Net capital share transactions (1,170,043) (534,254) (1,114,753)
NET INCREASE (DECREASE) IN NET ASSETS 162,562 (884,228) 2,132,629
NET ASSETS, BEGINNING OF YEAR 9,417,390 10,301,618 8,168,989
NET ASSETS, END OF YEAR $ 9,579,952 $ 9,417,390 $10,301,618
UNIT VALUE, END OF YEAR $.52533 $.45585 $.47078
UNITS OUTSTANDING, END OF YEAR 18,236,148 20,659,112 21,881,931
</TABLE>
See Notes to Financial Statements.
D-23
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES G
STATEMENTS OF CONDITION
AS OF DECEMBER 31, 1997
2000 TRUST 2010 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $22,753,476 $ 8,415,050
Other 4,652 7,780
Total trust property 22,758,128 8,422,830
LESS LIABILITY - Other 1,807 1,804
NET ASSETS (Note 2) $22,756,321 $8,421,026
UNITS OUTSTANDING 25,575,784 17,212,004
UNIT VALUE $.88976 $.48925
See Notes to Financial Statements.
D-24
<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,
1997 1996 1995
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 9,454 $ 9,437 $ 9,467
Accretion of original issue discount 1,610,298 1,521,693 1,427,959
Trustee's fees and expenses (9,020) (9,004) (9,230)
Net investment income 1,610,732 1,522,126 1,428,196
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (loss) on securities sold 97,827 54,447 (242,518)
Unrealized appreciation (depreciation)
of investments (181,107) (907,562) 1,912,465
Realized and unrealized gain (loss) on
investments (83,280) (853,115) 1,669,947
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $1,527,452 $ 669,011 $3,098,143
</TABLE>
See Notes to Financial Statements.
D-25
<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,
1997 1996 1995
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 7,100 $ 7,681 $ 7,635
Accretion of original issue discount 634,768 604,550 608,550
Trustee's fees and expenses (6,969) (7,558) (7,603)
Net investment income 634,899 604,673 608,582
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on securities sold 192,086 413,063 (140,604)
Unrealized appreciation (depreciation) of
investments 410,774 (1,250,513) 2,097,508
Realized and unrealized gain (loss)on
investments 602,860 (837,450) 1,956,904
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $1,237,759 $ (232,777) $2,565,486
</TABLE>
See Notes to Financial Statements.
D-26
<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,
1997 1996 1995
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 1,610,732 $1,522,126 $ 1,428,196
Realized gain (loss) on securities sold 97,827 54,447 (242,518)
Unrealized appreciation (depreciation)
of investments (181,107) (907,562) 1,912,465
Net increase (decrease) in net assets
resulting from operations 1,527,452 669,011 3,098,143
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional units 1,984,343 487,979 5,018,288
Redemptions of units (2,875,921) (1,346,695) (1,639,913)
Net capital share transactions (891,578) (858,716) 3,378,375
NET INCREASE (DECREASE) IN NET ASSETS 635,874 (189,705) 6,476,518
NET ASSETS, BEGINNING OF YEAR 22,120,447 22,310,152 15,833,634
NET ASSETS, END OF YEAR $22,756,321 $22,120,447 $22,310,152
UNIT VALUE, END OF YEAR $.88976 $.83284 $.80726
UNITS OUTSTANDING, END OF YEAR 25,575,784 26,560,105 27,637,020
</TABLE>
See Notes to Financial Statements.
D-27
<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,
1997 1996 1995
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 634,899 $ 604,673 $ 608,582
Realized gain (loss) on securities sold 192,086 413,063 (140,604)
Unrealized appreciation (depreciation) of
investments 410,774 (1,250,513) 2,097,508
Net increase (decrease) in net assets
resulting from operations 1,237,759 (232,777) 2,565,486
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional units 5,760,544 2,997,567 4,594,434
Redemptions of units (6,927,386) (2,968,890) (5,495,933)
Net capital share transactions (1,166,842) 28,677 (901,499)
NET INCREASE (DECREASE) IN NET ASSETS 70,917 (204,100) 1,663,987
NET ASSETS, BEGINNING OF YEAR 8,350,109 8,554,209 6,890,222
NET ASSETS, END OF YEAR $8,421,026 $8,350,109 $8,554,209
UNIT VALUE, END OF YEAR $.48925 $.42143 $.43729
UNITS OUTSTANDING, END OF YEAR 17,212,004 19,813,618 19,561,835
</TABLE>
See Notes to Financial Statements.
D-28
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES H
STATEMENT OF CONDITION
AS OF DECEMBER 31, 1997
2011 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $1,779,407
Other 2,114
Total trust property 1,781,521
LESS LIABILITY - Other 283
NET ASSETS (Note 2) $1,781,238
UNITS OUTSTANDING 3,824,917
UNIT VALUE $.46569
See Notes to Financial Statements.
D-29
<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,
1997 1996 1995
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 2,020 $ 2,130 $ 2,432
Accretion of original issue discount 164,042 146,632 172,906
Trustee's fees and expenses (1,943) (2,103) (2,339)
Net investment income 164,119 146,659 172,999
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold or redeemed 104,640 136,243
Unrealized appreciation (depreciation) of investments 71,464 (195,003) 534,185
Realized and unrealized gain (loss) on investments 176,104 (195,003) 670,428
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 340,223 $ (48,344) $843,427
</TABLE>
See Notes to Financial Statements.
D-30
<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,
1997 1996 1995
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 164,119 $ 146,659 $ 172,999
Realized gain on securities sold 104,640 136,243
Unrealized appreciation (depreciation)
of investments 71,464 (195,003) 534,185
Net increase (decrease) in net assets
resulting from operations 340,223 (48,344) 843,427
CAPITAL SHARE TRANSACTIONS (NOTE 3):
Issuance of additional units 404,419 229,724
Redemption of units (1,116,749) (1,381,820)
Net capital share transactions (1,116,749) 404,419 (1,152,096)
NET INCREASE (DECREASE) IN NET ASSETS (776,526) 356,075 (308,669)
NET ASSETS, BEGINNING OF YEAR 2,557,764 2,201,689 2,510,358
NET ASSETS, END OF YEAR $1,781,238 $2,557,764 $2,201,689
UNIT VALUE, END OF YEAR $.46569 $.39709 $.41261
UNITS OUTSTANDING, END OF YEAR 3,824,917 6,441,209 5,336,049
</TABLE>
See Notes to Financial Statements.
D-31
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES I
STATEMENT OF CONDITION
AS OF DECEMBER 31, 1997
2002 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $11,008,428
Receivable from securities sold 164,465
Other 1,771
Total trust property 11,174,664
LESS LIABILITIES:
Redemptions payable 165,696
Other 422
Total liabilities 166,118
NET ASSETS (Note 2) $11,008,546
UNITS OUTSTANDING 13,869,363
UNIT VALUE $.79373
See Notes to Financial Statements.
D-32
<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,
1997 1996 1995
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 4,996 $ 4,486 $ 3,416
Accretion of original issue discount 677,645 587,737 422,658
Trustee's fees and expenses (4,866) (4,567) (3,076)
Net investment income 677,775 587,656 422,998
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold or redeemed 24,811 26,301
Unrealized appreciation (depreciation) of
investments 144,877 (479,823) 917,851
Realized and unrealized gain (loss) on
investments 169,688 (453,522) 917,851
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $847,463 $134,134 $1,340,849
</TABLE>
See Notes to Financial Statements.
D-33
<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,
1997 1996 1995
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 677,775 $ 587,656 $ 422,998
Realized gain on securities sold 24,811 26,301
Unrealized appreciation (depreciation) of
investments 144,877 (479,823) 917,851
Net increase in net assets resulting
from operations 847,463 134,134 1,340,849
CAPITAL SHARE TRANSACTIONS (NOTE 3):
Issuance of additional units 1,602,921 999,668 3,151,933
Redemptions of units (329,153) (593,312) __________
Net capital share transactions 1,273,768 406,356 3,151,933
NET INCREASE IN NET ASSETS 2,121,231 540,490 4,492,782
NET ASSETS, BEGINNING OF YEAR 8,887,315 8,346,825 3,854,043
NET ASSETS, END OF YEAR $11,008,546 $8,887,315 $8,346,825
UNIT VALUE, END OF YEAR $.79373 $.73334 $.72184
UNITS OUTSTANDING, END OF YEAR 13,869,363 12,118,903 11,563,316
</TABLE>
See Notes to Financial Statements.
D-34
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES J
STATEMENT OF CONDITION
AS OF DECEMBER 31, 1997
2013 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $1,454,593
Other 1,265
Total trust property 1,455,858
LESS LIABILITY - Other 80
NET ASSETS (Note 2) $1,455,778
UNITS OUTSTANDING 3,548,349
UNIT VALUE $.41027
See Notes to Financial Statements.
D-35
<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,
1997 1996 1995
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 1,279 $ 1,409 $ 2,715
Accretion of original issue discount 82,526 89,578 177,770
Trustee's fees and expenses (1,280) (1,266) (2,236)
Net investment income 82,525 89,721 178,249
REALIZED AND UNREALIZED GAIN (LOSS)ON INVESTMENTS:
Realized gain on securities sold
or redeemed 56,841 196,847
Unrealized appreciation (depreciation) of
investments 157,252 (241,371) 526,105
Realized and unrealized gain (loss) on
investments 157,252 (184,530) 722,952
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $239,777 $(94,809) $901,201
</TABLE>
See Notes to Financial Statements.
D-36
<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,
1997 1996 1995
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 82,525 $ 89,721 $ 178,249
Realized gain on securities sold 56,841 196,847
Unrealized appreciation (depreciation) of
investments 157,252 (241,371) 526,105
Net increase (decrease) in net assets resulting
from operations 239,777 (94,809) 901,201
CAPITAL SHARE TRANSACTIONS (NOTE 3):
Issuance of additional units 277,784 1,141,322
Redemption of units (475,164) (2,823,552)
Net capital share transactions (197,380) (1,682,230)
NET INCREASE (DECREASE) IN NET ASSETS 239,777 (292,189) (781,029)
NET ASSETS, BEGINNING OF YEAR 1,216,001 1,508,190 2,289,219
NET ASSETS, END OF YEAR $1,455,778 $1,216,001 $1,508,190
UNIT VALUE, END OF YEAR $.41027 $.34269 $.35977
UNITS OUTSTANDING, END OF YEAR 3,548,349 3,548,349 4,192,101
</TABLE>
See Notes to Financial Statements.
D-37
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES K
STATEMENTS OF CONDITION
AS OF DECEMBER 31, 1997
2004 TRUST 2014 TRUST
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $8,050,466 $20,274,273
Other 1,776 17,468
Total trust property 8,052,242 20,291,741
LESS LIABILITY - Other 848 3,454
NET ASSETS (Note 2) $8,051,394 $20,288,287
UNITS OUTSTANDING 11,401,318 53,023,893
UNIT VALUE $.70618 $.38263
See Notes to Financial Statements.
D-38
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES K
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
2004 TRUST
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 4,366 $ 4,441 $ 3,399
Accretion of original issue discount 556,688 543,331 382,113
Trustee's fees and expenses (4,217) (4,777) (2,324)
Net investment income 556,837 542,995 383,188
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold 429,318 83,953 9,233
Unrealized appreciation (depreciation)
of investments 152,350 (586,245) 1,024,439
Realized and unrealized gain (loss) on
investments 581,668 (502,292) 1,033,672
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $1,138,505 $ 40,703 $1,416,860
</TABLE>
See Notes to Financial Statements.
D-39
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES K
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
2014 TRUST
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 21,572 $ 23,635 $ 10,839
Accretion of original issue discount 1,515,782 1,600,126 790,915
Trustee's fees and expenses (15,987) (17,481) (8,616)
Net investment income 1,521,367 1,606,280 793,138
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on securities sold 2,627 (688,528) 2,112,868
Unrealized appreciation (depreciation)
of investments 2,654,490 (1,102,292) 980,160
Realized and unrealized gain (loss)
on investments 2,657,117 (1,790,820) 3,093,028
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $4,178,484 $ (184,540) $3,886,166
</TABLE>
See Notes to Financial Statements.
D-40
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES K
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
2004 TRUST
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 556,837 $ 542,995 $ 383,188
Realized gain on securities sold 429,318 83,953 9,233
Unrealized appreciation (depreciation)
of investments 152,350 (586,245) 1,024,439
Net increase (decrease) in net assets
resulting from operations 1,138,505 40,703 1,416,860
CAPITAL SHARE TRANSACTIONS (NOTE 3):
Issuance of additional units 513,283 2,528,106 2,339,663
Redemptions of units (2,219,459) (1,342,267) (561,188)
Net capital share transactions (1,706,176) 1,185,839 1,778,475
NET INCREASE (DECREASE) IN NET ASSETS (567,671) 1,226,542 3,195,335
NET ASSETS, BEGINNING OF YEAR 8,619,065 7,392,523 4,197,188
NET ASSETS, END OF YEAR $8,051,394 $8,619,065 $7,392,523
UNIT VALUE, END OF YEAR $.70618 $.63949 $.63931
UNITS OUTSTANDING, END OF YEAR 11,401,318 13,477,969 11,563,330
</TABLE>
See Notes to Financial Statements.
D-41
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES K
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
2014 TRUST
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
OPERATIONS:
Net investment income $1,521,367 $ 1,606,280 $ 793,138
Realized gain (loss) on securities sold 2,627 (688,528) 2,112,868
Unrealized appreciation (depreciation)
of investments 2,654,490 (1,102,292) 980,160
Net increase (decrease) in net assets
resulting from operations 4,178,484 (184,540) 3,886,166
CAPITAL SHARE TRANSACTIONS (NOTE 3):
Issuance of additional units 5,440,489 20,777,671 22,696,883
Redemptions of units (10,272,293) (12,608,859) (17,927,869)
Net capital share transactions (4,831,804) 8,168,812 4,769,014
NET INCREASE (DECREASE) IN NET ASSETS (653,320) 7,984,272 8,655,180
NET ASSETS, BEGINNING OF YEAR 20,941,607 12,957,335 4,302,155
NET ASSETS, END OF YEAR $20,288,287 $20,941,607 $12,957,335
UNIT VALUE, END OF YEAR $.38263 $.31570 $.33349
UNITS OUTSTANDING, END OF YEAR 53,023,893 66,334,438 38,853,887
</TABLE>
See Notes to Financial Statements.
D-42
<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, 1997
Series A (2003 Trust)
Cost of 65,677,446 units at Dates of Deposit $15,978,478
Less sales charge 279,623
Net amount applicable to Holders 15,698,855
Realized gain on securities sold 12,566,008
Unrealized appreciation of investments 7,019,245
Redemptions of units - net cost of units redeemed less
redemption amounts (6,854,946)
Undistributed net investment income 19,486,400
Net assets $47,915,562
Series B (2001 Trust)
Cost of 57,433,435 units at Dates of Deposit $17,997,077
Less sales charge 269,956
Net amount applicable to Holders 17,727,121
Realized gain on securities sold 14,104,485
Unrealized appreciation of investments 2,343,670
Redemptions of units - net cost of units redeemed less
redemption amounts (4,407,572)
Undistributed net investment income 18,677,621
Net assets $48,445,325
D-43
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES
NOTES TO FINANCIAL STATEMENTS
2. NET ASSETS, DECEMBER 31, 1997 (Continued)
Series B (2005 Trust)
Cost of 33,242,884 units at Dates of Deposit $ 8,059,009
Less sales charge 141,033
Net amount applicable to Holders 7,917,976
Realized gain on securities sold 5,919,736
Unrealized appreciation of investments 2,755,304
Redemptions of units - redemption amounts less net cost
of units redeemed (320,836)
Undistributed net investment income 6,093,657
Net assets $22,365,837
Series C (2006 Trust)
Cost of 11,228,372 units at Dates of Deposit $ 3,072,975
Less sales charge 53,777
Net amount applicable to Holders 3,019,198
Realized gain on securities sold 1,551,821
Unrealized appreciation of investments 544,411
Redemptions of units - net cost of units redeemed less
redemption amounts 982,813
Undistributed net investment income 1,140,340
Net assets $ 7,238,583
Series D (2007 Trust)
Cost of 21,784,452 units at Dates of Deposit $ 4,251,908
Less sales charge 85,038
Net amount applicable to Holders 4,166,870
Realized gain on securities sold 4,298,472
Unrealized appreciation of investments 2,667,726
Redemptions of units - net cost of units redeemed less
redemption amounts (2,116,954)
Undistributed net investment income 4,158,897
Net assets $13,175,011
Series E (2008 Trust)
Cost of 40,840,808 units at Dates of Deposit $ 8,087,533
Less sales charge 161,751
Net amount applicable to Holders 7,925,782
Realized gain on securities sold 9,519,014
Unrealized appreciation of investments 4,752,347
Redemptions of units - net cost of units redeemed less
redemption amounts (6,318,977)
Undistributed net investment income 6,931,290
Net assets $22,809,456
D-44
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES
NOTES TO FINANCIAL STATEMENTS
2. NET ASSETS, DECEMBER 31, 1997 (Continued)
Series F (1999 Trust)
Cost of 25,369,560 units at Dates of Deposit $16,357,696
Less sales charge 163,577
Net amount applicable to Holders 16,194,119
Realized gain on securities sold 545,279
Unrealized appreciation of investments 274,866
Redemptions of units - net cost of units redeemed less
redemption amounts 2,229,215
Undistributed net investment income 4,597,474
Net assets $23,840,953
Series F (2009 Trust)
Cost of 18,236,148 units at Dates of Deposit $ 3,970,514
Less sales charge 39,705
Net amount applicable to Holders 3,930,809
Realized loss on securities sold (233,281)
Unrealized appreciation of investments 2,010,911
Redemptions of units - net cost of units redeemed less
redemption amounts 1,144,636
Undistributed net investment income 2,726,877
Net assets $ 9,579,952
Series G (2000 Trust)
Cost of 25,575,784 units at Dates of Deposit $15,132,870
Less sales charge 226,993
Net amount applicable to Holders 14,905,877
Realized gain on securities sold 455,815
Unrealized appreciation of investments 560,993
Redemptions of units - net cost of units redeemed less
redemption amounts 1,889,491
Undistributed net investment income 4,944,145
Net assets $22,756,321
Series G (2010 Trust)
Cost of 17,212,004 units at Dates of Deposit $ 4,394,701
Less sales charge 87,894
Net amount applicable to Holders 4,306,807
Realized gain on securities sold 2,726,906
Unrealized appreciation of investments 663,314
Redemptions of units - net cost of units redeemed less
redemption amounts 392,784
Undistributed net investment income 331,215
Net assets $ 8,421,026
D-45
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES
NOTES TO FINANCIAL STATEMENTS
2. NET ASSETS, DECEMBER 31, 1997 (Continued)
Series H (2011 Trust)
Cost of 3,824,917 units at Dates of Deposit $ 1,054,499
Less sales charge 21,090
Net amount applicable to Holders 1,033,409
Realized gain on securities sold 658,774
Unrealized appreciation of investments 248,588
Redemptions of units - net cost of units redeemed less
redemption amounts (449,955)
Undistributed net investment income 290,422
Net assets $ 1,781,238
Series I (2002 Trust)
Cost of 13,869,363 units at Dates of Deposit $ 8,697,624
Less sales charge 130,464
Net amount applicable to Holders 8,567,160
Realized gain on securities sold 84,766
Unrealized appreciation of investments 458,137
Redemptions of units - net cost of units redeemed less
redemption amounts 29,346
Undistributed net investment income 1,869,137
Net assets $11,008,546
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 (15,485)
Unrealized appreciation of investments 278,140
Redemptions of units - net cost of units redeemed less
redemption amounts 72,037
Undistributed net investment income 203,122
Net assets $ 1,455,778
Series K (2004 Trust)
Cost of 11,401,318 units at Dates of Deposit $ 6,384,046
Less sales charge 95,761
Net amount applicable to Holders 6,288,285
Realized gain on securities sold 522,504
Unrealized appreciation of investments 466,139
Redemption of units - net cost of units redeemed less
redemption amounts (246,509)
Undistributed net investment income 1,020,975
Net assets $ 8,051,394
D-46
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES
NOTES TO FINANCIAL STATEMENTS
2. NET ASSETS, DECEMBER 31, 1997 (Concluded)
Series K (2014 Trust)
Cost of 53,023,893 units at Dates of Deposit $15,264,615
Less sales charge 305,292
Net amount applicable to Holders 14,959,323
Realized gain on securities sold 1,218,362
Unrealized appreciation of investments 2,707,506
Redemptions of units - net cost of units redeemed less
redemption amounts 27,025
Undistributed net investment income 1,376,071
Net assets $20,288,287
3. CAPITAL SHARE TRANSACTIONS
Additional units were issued as follows:
Series Trust 1997 1996 1995
A 2003 295,618 335,709 1,593,397
B 2001 499,725 1,049,370 3,772,845
B 2005 1,222,534 2,047,138 4,044,894
C 2006 420,107 5,142,683 1,643,266
D 2007 2,872,766 397,026 1,647,168
E 2008 0 2,285,094 0
F 1999 1,330,068 923,519 5,041,514
F 2009 0 389,225 1,297,277
G 2000 2,356,540 596,716 6,914,376
G 2010 13,001,876 7,645,028 12,489,075
H 2011 0 1,105,160 739,495
I 2002 2,168,572 1,390,455 4,942,387
J 2013 0 829,985 4,474,457
K 2004 770,557 4,088,054 4,100,931
K 2014 16,314,688 68,769,448 81,964,087
D-47
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES
NOTES TO FINANCIAL STATEMENTS
3. CAPITAL SHARE TRANSACTIONS (Continued)
Units were redeemed as follows:
Series Trust 1997 1996 1995
A 2003 8,066,861 7,108,646 7,425,541
B 2001 5,992,055 7,988,798 7,651,862
B 2005 2,976,435 3,967,657 3,649,919
C 2006 2,117,172 1,604,908 1,857,449
D 2007 529,607 1,057,295 3,972,162
E 2008 4,049,357 7,812,795 4,865,875
F 1999 2,826,672 2,054,556 4,376,450
F 2009 2,422,964 1,612,044 3,769,847
G 2000 3,340,861 1,673,631 2,622,975
G 2010 15,603,490 7,393,245 15,339,995
H 2011 2,616,292 0 4,223,599
I 2002 418,112 834,868 0
J 2013 0 1,473,737 9,769,879
K 2004 2,847,208 2,173,415 1,001,383
K 2014 29,625,233 4,288,897 62,372,256
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, 1997, 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-48
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES
PORTFOLIOS
AS OF DECEMBER 31, 1997
<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 $65,532,625 $40,570,381 $47,574,368
2 U.S. Treasury Bonds 11.125 8/15/03 210,475 248,888 264,146
Total $65,743,100 $40,819,269 $47,838,514
Series B (2001 Trust)
1 Stripped Treasury
Securities (Note B) 0% 2/15/01 $57,468,325 $45,828,083 $48,181,281
2 U.S. Treasury Bonds 11.750 2/15/01 170,543 209,543 200,015
Total $57,638,868 $46,037,626 $48,381,296
Series B (2005 Trust)
1 Stripped Treasury
Securities (Note B) 0% 2/15/05 $33,444,940 $19,456,757 $22,211,748
2 U.S. Treasury Bonds 11.625 11/15/04 100,237 132,658 132,971
Total $33,545,177 $19,589,415 $22,344,719
Series C (2006 Trust)
1 Stripped Treasury
Securities (Note B) 0% 2/15/06 $11,503,000 $ 6,645,333 $ 7,189,284
2 U.S. Treasury Bonds 9.375 2/15/06 38,303 46,677 47,137
Total $11,541,303 $ 6,692,010 $ 7,236,421
Series D (2007 Trust)
1 Stripped Treasury
Securities (Note B) 0% 2/15/07 $22,222,000 $10,419,950 $13,075,957
2 U.S. Treasury Bonds 9.375 2/15/06 79,307 85,878 97,597
Total $22,301,307 $10,505,828 $13,173,554
</TABLE>
D-49
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES
PORTFOLIOS
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Portfolio No. Adjusted
and Title of Interest Face Cost Value
Securities Rate Maturities Amount (Note A) (Note A)
Series E (2008 Trust)
<S> <C><C> <C><C> <C>
1 Stripped Treasury
Securities (Note B) 0% 2/15/08 $40,815,000 $17,865,689 $22,593,960
2 U.S. Treasury Bonds 9.375 2/15/06 156,904 169,014 193,090
Total $40,971,904 $18,034,703 $22,787,050
Series F (1999 Trusts)
1 Stripped Treasury
Securities (Note B) 0% 2/15/99 $25,272,000 $23,456,395 $23,735,967
2 U.S. Treasury Notes 8.875 2/15/99 99,657 107,758 103,052
Total $25,371,657 $23,564,153 $23,839,019
Series F (2009 Trust)
1 Stripped Treasury
Securities (Note B) 0% 2/15/09 $18,262,000 $ 7,480,454 $ 9,484,188
2 U.S. Treasury Bonds 9.375 2/15/06 71,525 80,843 88,020
Total $18,333,525 $ 7,561,297 $ 9,572,208
Series G (2000 Trust)
1 Stripped Treasury
Securities (Note B) 0% 2/15/00 $25,508,000 $22,080,035 $22,643,452
2 U.S. Treasury Notes 8.500 2/15/00 104,227 112,448 110,024
Total $25,612,227 $22,192,483 $22,753,476
Series G (2010 Trust)
1 Stripped Treasury
Securities (Note B) 0% 2/15/10 $17,076,000 $ 7,670,078 $ 8,331,210
2 U.S. Treasury Bonds 9.375 2/15/06 68,128 81,658 83,840
Total $17,144,128 $ 7,751,736 $ 8,415,050
</TABLE>
D-50
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES
PORTFOLIOS
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Portfolio No. Adjusted
and Title of Interest Face Cost Value
Securities Rate Maturities Amount (Note A) (Note A)
Series H (2011 Trust)
<S> <C> <C> <C> <C> <C>
1 Stripped Treasury
Securities (Note B) 0% 2/15/11 $ 3,839,000 $ 1,512,434 $ 1,760,834
2 U.S. Treasury Bonds 9.375 2/15/06 15,092 18,385 18,573
Total $ 3,854,092 $ 1,530,819 $ 1,779,407
Series I (2002 Trust)
1 Stripped Treasury
Securities (Note B) 0% 02/15/02 $13,815,000 $10,480,513 $10,937,750
2 U.S. Treasury Notes 7.500 11/15/01 66,638 69,778 70,678
Total $13,881,638 $10,550,291 $11,008,428
Series J (2013 Trust)
1 Stripped Treasury
Securities (Note B) 0% 02/15/13 $ 3,552,000 $ 1,161,081 $ 1,438,205
2 U.S. Treasury Bonds 10.375 11/15/12(C) 12,328 15,373 16,388
Total $ 3,564,328 $ 1,176,454 $ 1,454,593
Series K (2004 Trust)
1 Stripped Treasury
Securities (Note B) 0% 2/15/04 $11,318,000 $ 7,519,336 $ 7,981,340
2 U.S. Treasury Notes 5.875 2/15/04 68,505 64,992 69,126
Total $11,386,505 $ 7,584,328 $ 8,050,466
Series K (2014 Trust)
1 Stripped Treasury
Securities (Note B) 0% 2/15/14 $52,482,000 $17,326,607 $20,016,635
2 U.S. Treasury Bonds 11.250 2/15/15 164,428 240,160 257,638
Total $52,646,428 $17,566,767 $20,274,273
</TABLE>
D-51
<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES
NOTES TO PORTFOLIOS
AS OF DECEMBER 31, 1997
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.
D-52
<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, Martin Luther King, Jr.
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas; and the following Federal holidays: 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.
5
<PAGE>
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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<PAGE>
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).
CODE OF ETHICS
The Sponsor had adopted a code of ethics requiring preclearance and
reporting of personal securities transactions by its personnel who have access
to information on Defined Asset Funds portfolio transactions. The code is
intended to prevent any act, practice or course of conduct which would operate
as a fraud or deceit on any Fund and to provide guidance to these persons
regarding standards of conduct consistent with the Sponsor's responsibilities to
the Funds at a concession not in excess of the maximum sales charge.
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 New York
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.
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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, Interactive Data Corporation
Fenner & Smith Incorporated 14 Wall Street
Defined Asset Funds New York, N.Y. 10005
Post Office Box 9051
Princeton, N.J. 08543-9051
(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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14850-5/98
