AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 1994
REGISTRATION NO. 33-53085
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-6
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FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
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A. EXACT NAME OF TRUST:
THE MERRILL LYNCH FUND OF STRIPPED ('ZERO')
U.S. TREASURY SECURITIES, SERIES K
B. NAMES OF DEPOSITOR:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
C. COMPLETE ADDRESSES OF DEPOSITORS' PRINCIPAL EXECUTIVE OFFICES:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
UNIT INVESTMENT TRUSTS
POST OFFICE BOX 9051
PRINCETON, N.J. 08543-9051
D. NAMES AND COMPLETE ADDRESSES OF AGENTS FOR SERVICE:
COPIES TO:
TERESA KONCICK, ESQ.
P.O. BOX 9051
PRINCETON, N.J.
08543-9051
PIERRE DE SAINT PHALLE,
ESQ.
450 LEXINGTON AVENUE
NEW YORK, N.Y. 10017
E. TITLE AND AMOUNT OF SECURITIES BEING REGISTERED:
An indefinite number of Units of Beneficial Interest pursuant to Rule 24f-2
promulgated under the Investment Company Act of 1940, as amended.
F. PROPOSED MAXIMUM OFFERING PRICE TO THE PUBLIC OF THE SECURITIES BEING
REGISTERED:
Indefinite
G. AMOUNT OF FILING FEE:
$500 (as required by Rule 24f-2)
/ x / Check box if it is proposed that this filing will become effective at 9:30
a.m. on May 2, 1994 pursuant to Rule 487.
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<PAGE>
THE MERRILL LYNCH FUND OF STRIPPED ('ZERO')
U.S. TREASURY SECURITIES, SERIES K
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This Series (the '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 and receipts and
certificates for such stripped debt obligations ('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. The Series consist of a number of
separate unit investment trusts ('Trusts'), each designated by the year in which
its Stripped Treasury Securities mature. Series K consists 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).
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SPONSOR:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
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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 2, 1994
INQUIRIES SHOULD BE DIRECTED READ AND RETAIN THIS PROSPECTUS
TO THE TRUSTEE 1-800-323-1508. FOR FUTURE REFERENCE
<PAGE>
INVESTMENT SUMMARY OF SERIES K AS OF APRIL 25, 1994+
Series K consists of two unit investment trusts, designated for the
maturity of their underlying Stripped Treasury Securities (see Portfolio of
Series K).
2004 2014
TRUST TRUST
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FACE AMOUNT OF SECURITIES...............$ 201,207.00 $ 441,368.00
NUMBER OF UNITS......................... 201,207 441,368
FACE AMOUNT OF SECURITIES PER UNIT......$ 1.00 $ 1.00
Fractional Undivided Interest in Trust
Represented by Each Unit................ 1/201,207th 1/441,368th
OFFERING PRICE PER 1,000 UNITS***
Aggregate offer side evaluation of
Securities in Trust*....................$ 101,568.02 $ 102,683.82
Net asset value (divided by number
of Units, times 1,000)..................$ 504.79 $ 232.64
Plus the applicable transaction
charge**...........................$ 7.69 $ 4.75
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Offering Price per 1,000
Units***++.........................$ 512.48 $ 237.39
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SPONSOR'S REPURCHASE PRICE PER 1,000
UNITS
(based on offer side evaluation of
underlying Securities)++..............$ 504.79 $ 232.64
REDEMPTION PRICE PER 1,000 UNITS (based
on bid side evaluation of underlying
Securities)****++.....................$ 503.37 $ 231.35
CALCULATION OF ESTIMATED NET ANNUAL CASH
INTEREST INCOME PER $1,000 FACE AMOUNT
Gross annual cash income...........$ 0.35 $ 0.35
Less estimated annual expenses.....$ 0.35 $ 0.35
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Estimated net annual cash income...$ 0.00 $ 0.00
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SPONSOR'S GAIN (LOSS) ON DEPOSIT........$ (187.74) $ 193.44
TRUSTEE'S ANNUAL FEE AND EXPENSES
Per $1,000 face amount of
underlying Securities (see
Expenses and Charges).............$ 0.35 $ 0.35
EVALUATOR'S FEE FOR EACH EVALUATION
Minimum of $5.00 plus 25 cents for
each issue of underlying Securities
in excess of 50 issues, treating
separate maturities as separate
issues (see Expenses and Charges).
EVALUATION TIME
3:30 P.M. New York Time
MANDATORY TERMINATION DATE
Each Trust must be terminated no
later than one year after the
maturity date of the Stripped
Treasury Securities in that Trust
(see Portfolio of Series K).
- ------------------
+ The business day prior to the date of deposit. The Indenture for
Series K was signed and the initial deposit was made as of April 26, 1994 (the
'Initial Date of Deposit').
++ Plus any net cash.
* Includes amortization of discount, calculated using the 'interest'
method, to expected date of settlement (the business day after purchase) for
Units purchased on the Initial Date of Deposit.
**The respective transaction charges currently applicable to the 2004 and
2014 Trusts are 1.50% and 2.00% of the Offering Price (1.523% and 2.041%,
respectively, of the net amount invested in Securities). Transaction charges
will decrease as the Trusts approach maturity, as described under Sale of Units.
*** This figure is computed by dividing the aggregate offer side
evaluation of the underlying Securities in the particular 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. It assumes a purchase of 1,000 Units. The price of a single Unit, or
any multiple thereof, is calculated simply 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 Fund expenses, no accrued interest is added to the
Offering or Redemption Prices.
**** Figures shown are $9.11 and $6.04 less than the Offering Price per
1,000 Units and $1.42 and $1.29 less than the Sponsor's Repurchase Price per
1,000 Units with respect to the 2004 and 2014 Trusts.
A-2
<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, a Holder will receive total
distributions of approximately $1,000 for Units held until maturity of the
underlying Securities of that Trust. Furthermore, 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 will normally 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
meet those redemptions and any accumulated net interest income. 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 distrbute 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. 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. See Administration of the Fund--Accounts
and Distributions.
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 1994, 1995, 2001, 2003 and
2005 Trusts).
A-3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsor, Trustee and Holders of The Merrill Lynch Fund of Stripped ('Zero')
U.S. Treasury Securities, Series K:
We have audited the accompanying statement of condition of the 2004 and 2014
Trusts of The Merrill Lynch Fund of Stripped ('Zero') U.S. Treasury Securities,
Series K, including the portfolio, as of April 26, 1994. This financial
statement is the responsibility of the Trustee. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. The deposit on April 26,
1994 of an irrevocable letter of credit for the purchase of securities, as
described in the statement of condition, was confirmed to us by The Chase
Manhattan Bank, N.A., 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of the above-mentioned Trusts of
The Merrill Lynch Fund of Stripped ('Zero') U.S. Treasury Securities, Series K
at April 26, 1994 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
New York, N.Y.
April 26, 1994
THE MERRILL LYNCH FUND OF STRIPPED ('ZERO')
U.S. TREASURY SECURITIES, SERIES K
STATEMENT OF CONDITION AS OF INITIAL DATE OF DEPOSIT, APRIL 26, 1994
2004 2014
TRUST TRUST
----------------------------------------
TRUST PROPERTY
Investment in Securities--
Contracts to purchase
Securities(1)..................$ 101,568.02$ 102,683.82
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Accrued interest to Initial Date of
Deposit on underlying
U.S. Treasury Note................. 13.71 29.76
----------------------------------------
Total.......................$ 101,581.73$ 102,713.58
LIABILITY AND INTEREST OF HOLDERS
Liability--Accrued interest to Initial
Date of Deposit on underlying U.S.
Treasury Note(2)...................$ 13.71$ 29.76
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Interest of Holders--
Cost to investors(3).............$ 103,115.30$ 104,780.32
Gross underwriting
commissions(4)................... (1,547.28) (2,096.50)
----------------------------------------
Net amount applicable to investors...... 101,568.02 102,683.82
----------------------------------------
Total.......................$ 101,581.73$ 102,713.58
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----------------------------------------
UNITS OUTSTANDING....................... 201,207 441,368
----------------------------------------
----------------------------------------
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(1) Aggregate cost to Trust of the Securities listed under its Portfolio is
based upon the offer side evaluation determined by the Evaluator at the
Evaluation Time on the business day prior to the Initial Date of Deposit as
set forth under Offering Price. See also the column headed Cost of
Securities to Trust under Portfolio. An irrevocable letter or letters of
credit in the amount of $204,289.61 has been deposited with the Trustee. The
amount of such letter or letters of credit includes $204,246.14 (equal to
the purchase price to the Sponsors) for the purchase of $642,575.00 face
amount of Securities pursuant to contracts to purchase Securities, plus
$43.47 covering accrued interest to the earlier of the date of settlement
for the purchase of Units or the date of delivery of the Securities. The
letter or letters of credit has been issued by The Development Bank of
Singapore Ltd., New York Branch.
(2) Representing, as set forth under Income and Yield, a special distribution by
the Trustee of an amount equal to accrued interest on the U.S. Treasury Note
as of the Initial Date of Deposit.
(3) Aggregate offering price (exclusive of interest) computed on the basis of
the offer side evaluation of the underlying Securities as of the Evaluation
Time on the Business Day prior to the Initial Date of Deposit.
(4) Transaction charge of 1.50% for the 2004 Trust and 2.00% for the 2014 Trust,
computed on the basis set forth under Sale of Units--Offering Price.
A-4
<PAGE>
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ON THE INITIAL DATE OF DEPOSIT, APRIL 26, 1994
PORTFOLIO OF SERIES K
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<TABLE>
<CAPTION>
COST OF
PORTFOLIO NO. AND TITLE OF FACE SECURITIES
SECURITIES CONTRACTED FOR (1) COUPON AMOUNT MATURITIES TO TRUST (2)
----------------------------------------------------- ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
2004 TRUST
1 Stripped Treasury Securities (3) 0% $ 200,000 2/15/04 $ 100,444.00
2 U.S. Treasury Note 5.875% 1,207 2/15/04 1,124.02
----------- --------------
$ 201,207 $ 101,568.02
----------- --------------
----------- --------------
2014 TRUST
1 Stripped Treasury Securities (3) 0% $ 440,000 2/15/14 $ 100,733.60
2 U.S. Treasury Bond 11.25% 1,368 2/15/15 1,950.22
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$ 441,368 $ 102,683.82
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----------- --------------
</TABLE>
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NOTES
(1) All Securities are represented by contracts to purchase such Securities,
which were entered into by the Sponsor on April 25, 1994. All contracts are
expected to be settled by the initial settlement date for Units.
(2) Evaluation of Securities by the Evaluator made on the basis of current offer
side evaluation. The following table sets forth the amount by which the
offer side evaluation is greater than the current bid side evaluation of the
Securities (the basis on which Redemption Price per Unit is determined--see
Redemption).
<TABLE>
<CAPTION>
AGGREGATE BID SIDE AMOUNT BY WHICH
EVALUATION OF AGGREGATE OFFER SIDE
SECURITIES EVALUATION IS GREATER THAN
ON THE INITIAL AGGREGATE BID SIDE % OF AGGREGATE
TRUST DATE OF DEPOSIT EVALUATION FACE AMOUNT
- --------- --------------------- --------------------------- -------------------
<S> <C> <C> <C>
2004 $ 101,283.26 $ 284.76 .14%
2014 $ 102,110.96 $ 572.86 .13%
</TABLE>
(3) See 'Risk Factors--Special Characteristics of Stripped Treasury Securities'.
A-5
<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 solely 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, (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'), and (c) receipts or certificates for stripped
U.S. Treasury debt obligations. 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. Receipts or certificates
evidence ownership of future interest or principal payments on U.S. Treasury
notes or bonds which are direct obligations of the United States of America. 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 (which may be held by it either in physical or in book entry
form). The terms of custody provide that the underlying debt obligations will be
held separate from the general assets of the custodian and will not be subject
to any right, charge, security interest, lien or claim of any kind in favor of
the custodian or any person claiming through the custodian, and the custodian
will be responsible for applying all payments received on those underlying debt
obligations to the related receipts or certificates without making any
deductions other than applicable tax withholding. The custodian is required to
maintain insurance for the protection of holders of receipts or certificates in
customary amounts against losses resulting from the custody arrangement due to
dishonest or fraudulent action by the custodian's employees. The holders of
receipts or certificates, as the real parties in interest, are entitled to the
rights and privileges of the underlying debt obligations including the right in
the event of default in payment of principal or interest thereon to proceed
individually against the United States without acting in concert with other
holders of those receipts or certificates or the custodian. Receipts and
certificates may not be as liquid as STRIPS or CUBES.
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, an insurance company separate account such
as the Account can avoid being taxed on such income 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).
2
<PAGE>
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.
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 if stripped make no periodic payments of interest, or if
interest-bearing 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
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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 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 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. If an Account is the Holder, any taxable income
will in effect be offset by a deduction for an increase in reserves. 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 his 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 his Units, including the transaction charge, is allocated
among his pro rata portion of each Security in his Trust (in proportion to
the fair market values thereof on the date the Holder purchases his Units)
in order to determine his tax cost for his pro rata portion of each
Security.
Each Trust consists primarily of Stripped Treasury Securities. A Holder
is required to treat his pro rata portion of each Stripped Treasury
Security in his Trust as a bond that was originally issued on the date the
Holder purchased his 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.
Each Holder will be considered to have received the income on his pro
rata portion of the Treasury Note in his Trust when interest on the Note is
received by his Trust. An individual Holder who itemizes deductions may
deduct his pro rata share of the fees and expenses of his Trust, but only
to the extent that this amount together with the Holder's other
miscellaneous deductions exceeds 2% of his adjusted gross income.
A Holder will recognize taxable gain or loss when all or part of his pro
rata portion of a Security is disposed of by the Fund for an amount greater
or less than his adjusted tax basis. Any such taxable gain or loss will be
capital gain or loss except that any gain from the disposition of a
Holder's pro rata portion of a
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Security acquired by the Holder at a 'market discount' (i.e., if the
Holder's original cost for his pro rata portion of the Security (plus any
original issue discount which will accrue thereon) is less than its stated
redemption price at maturity) will be treated as ordinary income to the
extent the gain does not exceed the accrued market discount. Capital gains
are generally taxed at the same rate as ordinary income. However, the
excess of net long-term capital gains over net short-term capital losses
may be taxed at a lower rate than ordinary income for certain noncorporate
taxpayers. A capital gain or loss is long-term if the asset is held for
more than one year and short-term if held for one year or less. The
deduction of capital losses is subject to limitations. A Holder will also
be considered to have disposed of all or part of his pro rata portion of
each Security when he sells or redeems all or some of his Units.
A distribution to a Holder of Securities upon redemption of Units will
not be a taxable event to the Holder or to nonredeeming Holders. The
redeeming Holder's basis for such Securities will be equal to his basis for
the Securities (previously represented by his Units) prior to such
redemption, and his holding period for such Securities will include the
period during which he held his Units. However, a Holder may recognize
taxable gain or loss when the Holder sells the Securities so distributed
for cash.
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 in the same
manner as for Federal income tax purposes.
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 a report from which the Holder may determine the income received by his
Trust on his pro rata portion of the Treasury Note, the gross proceeds received
by the Fund from the disposition of any Security and the Holder's pro rata
portion of the fees and expenses paid by his 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 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:
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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
exactly 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
offer side evaluation of the underlying Securities in the Trust. Amortization of
discount will have the effect of increasing at any particular time the offer
side evaluation of the underlying Securities.
The aggregate bid or offer side evaluation of the Securities is determined
by the Evaluator in the following manner: (a) on the basis of current bid or
offer prices for the Securities, (b) if bid or offer prices are not available
for any Securities, on the basis of current bid or offer prices for comparable
securities, (c) by appraising the value of the Securities on the bid or offer
side of the market, or (d) by any combination of the above. The Evaluator may
obtain current price information as to the Securities from investment dealers or
brokers (including the Sponsor) which customarily deal in that type of
securities.
The Offering Price is determined on each business day during any initial
offering as of the Evaluation Time, effective for all sales of Units made since
the last of these evaluations and as of the Evaluation Time on the last business
day of each week during any period when there is no initial offering (i.e., when
no additional Units are being created), effective for all sales made during the
following week (Section 4.01). The term 'business day', as used herein and under
'Redemption', shall exclude Saturdays, Sundays; the following holidays as
observed by the New York Stock Exchange: New Year's Day, Washington's birthday,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas; and the following Federal holidays: Martin Luther King's birthday,
Columbus Day and Veterans' Day.
COMPARISON OF OFFERING PRICE, SPONSOR'S REPURCHASE PRICE AND REDEMPTION PRICE
On the date of the Investment Summary the Offering Price per Unit of each
Trust (which includes the transaction charge) and the Sponsor's Repurchase Price
per Unit (each based on the offer side evaluation of Securities in the
Trust--see above) exceeded the Redemption Price per Unit (based on the bid side
evaluation thereof--see Redemption) by the amounts set forth in the Investment
Summary.
Because the bid side evaluations of the Units are lower than the offer side
evaluations thereof by the amounts set forth under Investment Summary and other
reasons (including fluctuations in the market prices of these Securities and the
fact that the Offering Price includes a transaction charge), the amount realized
by a Holder upon any sale or redemption of Units may be less than the price paid
for these Units.
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
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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. The profit or loss on the Initial Date of
Deposit for the Trusts of Series K are set forth in the Investment Summary. 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, of course, does not in any way guarantee the
enforceability, marketability or price of any Securities in the Trust or of the
Units.
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 applicable Trust of the Units tendered for redemption (based
upon the Redemption Price per Unit) (Section
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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 offer 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, 8.01e]
and 8.05), (c) various governmental charges (Sections 3.03 and 8.01h]), (d)
expenses and costs of any action taken to protect any Trust (Section 8.01d]),
(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 7.02b]). 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 8.01e]).
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
10
<PAGE>
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 8.01g] 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 8.01f]). 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 shall not be liable or responsible in
any way for depreciation or loss incurred by reason of the sale of any Security.
11
<PAGE>
This provision, however, shall not protect the Sponsor in cases of wilful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties (Section 7.02). The Sponsor may transfer all or
substantially all of its assets to a corporation or partnership which carries on
its business and duly assumes all of its obligations under the Indenture and in
such event shall be relieved of all further liability under the Indenture
(Section 7.01).
MISCELLANEOUS
TRUSTEE
The Trustee is The Chase Manhattan Bank, N.A., a national banking
association with its corporate trust office at 1 Chase Manhattan Plaza--3B, New
York, New York 10081, which is subject to supervision by the Comptroller of the
Currency, the Federal Deposit Insurance Corporation and the Board of Governors
of the Federal Reserve System.
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, 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.
12
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
THIS PROSPECTUS DOES NOT CONTAIN ALL OF THE INFORMATION WITH RESPECT TO THE
INVESTMENT COMPANY SET FORTH IN ITS REGISTRATION STATEMENT AND EXHIBITS RELATING
THERETO WHICH HAVE BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
WASHINGTON, D.C. UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT
OF 1940, AND TO WHICH REFERENCE IS HEREBY MADE.
- --------------------------------------------------------------------------------
THE MERRILL LYNCH FUND OF STRIPPED ('ZERO')
U.S. TREASURY SECURITIES, SERIES K
SPONSOR: EVALUATOR:
Merrill Lynch, Pierce, Kenny S & P Evaluation
Fenner & Smith Inc. Services
Unit Investment Trusts 65 Broadway
Post Office Box 9051 New York, N.Y. 10006
Princeton, N.J. 08543-9051
(609) 282-8500
TRUSTEE: INDEPENDENT ACCOUNTANTS:
The Chase Manhattan Bank, N. A. Deloitte & Touche
Unit Trust Department 1633 Broadway
Box 2051 New York, N.Y. 10019
New York, N.Y. 10081
1-800-323-1508
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
16116-4/94
<PAGE>
PART II
ADDITIONAL INFORMATION NOT INCLUDED IN THE PROSPECTUS
A. The following information relating to the Depositor is incorporated by
reference to the SEC filings
indicated and made a part of this Registration Statement.
SEC FILE OR
IDENTIFICATION
NUMBER
--------------------
I. Bonding Arrangements and Date of Organization of the
Depositor filed pursuant to Items A and B of
Part II of the Registration Statement on Form
S-6 under the Securities Act of 1933:
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................... 2-52691
II. Information as to Officers and Directors of the
Depositor filed pursuant to Schedules A and D of
Form BD under Rules 15b1-1 and 15b3-1 of the
Securities Exchange Act of 1934:
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................... 8-7721
III. Charter documents of the Depositor filed as
Exhibits to the Registration Statement on Form
S-6 under the Securities Act of 1933 (Charter,
By-Laws):
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................... 2-73866, 2-77549
B. The Internal Revenue Service Employer Identification
Numbers of the Sponsor and Trustee are as
follows:
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................... 13-5674085
The Chase Manhattan Bank, N.A., Trustee......... 13-2633612
II-1
<PAGE>
SERIES OF THE MERRILL LYNCH FUND
OF STRIPPED ('ZERO') U.S. TREASURY SECURITIES
DESIGNATED PURSUANT TO RULE 487 UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
SEC
SERIES NUMBER FILE NUMBER
- ---------------------------------------------------------------------------------------------------------------- ------------
<S> <C>
Series A........................................................................................................ 2-89536
</TABLE>
CONTENTS OF REGISTRATION STATEMENT
The Registration Statement on Form S-6 comprises the following papers and
documents:
The facing sheet of Form S-6.
The Cross-Reference Sheet (incorporated by reference to the Cross-Reference
Sheet to the Registration Statement of The Merrill Lynch Fund of Stripped
('Zero') U.S. Treasury Securities, Series A, 1933 Act File No. 2-89536).
The Prospectus.
Additional Information not included in the Prospectus (Part II).
Consent of independent public accountants.
The following exhibits:
1.1 --Form of Trust Indenture (incorporated by reference to Exhibit 1.1 to
the Registration Statement of The Merrill Lynch Fund of Stripped
('Zero') U.S. Treasury Securities, Series A, Reg. No. 2-89536).
1.1.1 --Form of Standard Terms and Conditions of Trust Effective April 30,
1984 (incorporated by reference to Exhibit 1.1.1 to the Registration
Statement 2-89536).
2.1 --Form of Certificate of Beneficial Interest (included in Exhibit
1.1.1).
3.1 --Opinion of counsel as to the legality of the securities being issued
including their consent to the use of their names under the heading
'Legal Opinion' in Part B of the Prospectus.
4.1 --Consent of the Evaluator.
R-1
<PAGE>
THE MERRILL LYNCH FUND OF
STRIPPED ('ZERO') U.S. TREASURY SECURITIES, SERIES K
SIGNATURES
The registrant hereby identifies the series numbers of The Merrill Lynch
Fund of Stripped ('Zero') U.S. Treasury Securities listed on page R-1 for the
purposes of the representations required by Rule 487 and represents the
following:
1) That the portfolio securities deposited in the series as to which this
registration statement is being filed do not differ materially in type
or quality from those deposited in such previous series;
2) That, except to the extent necessary to identify the specific portfolio
securities deposited in, and to provide essential information for, the
series with respect to which this registration statement is being filed,
this registration statement does not contain disclosures that differ in
any material respect from those contained in the registration statements
for such previous series as to which the effective date was determined
by the Commission or the staff; and
3) That it has complied with Rule 460 under the Securities Act of 1933.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENT TO THE REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY
AUTHORIZED IN THE CITY OF NEW YORK AND STATE OF NEW YORK ON THE 26TH DAY OF
APRIL, 1994.
SIGNATURES APPEAR ON PAGE R-3.
A majority of the members of the Board of Directors of Merrill Lynch,
Pierce, Fenner & Smith Incorporated has signed this Registration Statement or
Amendment to the Registration Statement pursuant to Powers of Attorney
authorizing the person signing this Registration Statement or Amendment to the
Registration Statement to do so on behalf of such members.
R-2
<PAGE>
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
DEPOSITOR
By the following persons, who constitute a majority of Powers of Attorney
the Board of Directors of Merrill Lynch, Pierce, have been filed
Fenner & Smith Incorporated: under
Form SE and the
following 1933 Act
File
Number: 33-43466
HERBERT M. ALLISON, JR.
BARRY S. FREIDBERG
EDWARD L. GOLDBERG
STEPHEN L. HAMMERMAN
JEROME P. KENNEY
DAVID H. KAMANSKY
DANIEL T. NAPOLI
THOMAS H. PATRICK
JOHN L. STEFFENS
DANIEL P. TULLY
ROGER M. VASEY
ARTHUR H. ZEIKEL
By
ERNEST V. FABIO
(As authorized signatory for Merrill Lynch, Pierce,
Fenner & Smith Incorporated and
Attorney-in-fact for the persons listed above)
R-3
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
The Sponsors and Trustee
of The Merrill Lynch Fund of Stripped ('Zero')
U.S. Treasury Securities, Series K
We hereby consent to the use in this Registration Statement No. 33-53085 of our
opinion dated April 26, 1994 relating to the Statement of Condition of the 2004
and 2014 Trusts of The Merrill Lynch Fund of Stripped ('Zero') U.S. Treasury
Securities, Series K and to the reference to us under the heading 'Auditors' in
the Prospectus which is a part of this Registration Statement.
DELOITTE & TOUCHE
New York, N.Y.
April 26, 1994
EXHIBIT 3.1
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
APRIL 26, 1994
THE MERRILL LYNCH FUND OF STRIPPED ('ZERO')
U.S. TREASURY SECURITIES, SERIES K
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
UNIT INVESTMENT TRUSTS
P.O. BOX 9051
PRINCETON, N.J. 08543-9051
Dear Sirs:
We have acted as special counsel for you, as sponsor (the 'Sponsor') of The
Merrill Lynch Fund of Stripped ('Zero') U.S. Treasury Securities, Series K (the
'Fund'), in connection with the issuance of units of fractional undivided
interest in the Fund (the 'Units') in accordance with the Trust Indenture
relating to the Fund (the 'Indenture').
We have examined and are familiar with originals or copies, certified or
otherwise identified to our satisfaction, of such documents and instruments as
we have deemed necessary or advisable for the purpose of this opinion.
Based upon the foregoing, we are of the opinion that (i) the execution and
delivery of the Indenture and the issuance of the Units have been duly
authorized by the Sponsor and (ii) the Units, when duly issued and delivered by
the Sponsor and the Trustee in accordance with the Indenture, will be legally
issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as Exhibit 3.1 of the
Registration Statement relating to the Units filed under the Securities Act of
1933 and to the use of our name in such Registration Statement and in the
related prospectus under the headings 'Taxes' and 'Miscellaneous--Legal
Opinion.'
Very truly yours,
DAVIS POLK & WARDWELL
EXHIBIT 4.1
KENNY S&P EVALUATION SERVICES
A Division of Kenny Information System, Inc.
65 Broadway
New York, New York 10006
Telephone (212) 770-4405
Fax 212/797-8681
APRIL 26, 1994
Merrill Lynch, Pierce, Fenner & Smith
Inc.
Unit Investment Trust Division
P.O. Box 9051
Princeton, N.J. 08543-9051
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Bank--3B
New York, N.Y. 10081
Re: The Merrill Lynch Fund of Stripped ('Zero')
U.S. Treasury Securities, Series K
Gentlemen:
We have examined the Registration Statement Number 33-53085, for the
above-captioned fund. We hereby acknowledge that Kenny S&P Evaluation Services,
a division of Kenny Information Systems, Inc. is currently acting as the
evaluator for the trusts. We hereby consent to the use in the Registration
Statement of the references to Kenny S&P Evaluation Services, a division of
Kenny Information Systems, Inc. as evaluator.
You are hereby authorized to file a copy of this letter with the Securities
and Exchange Commission.
Sincerely,
By
DAVID FRANCESCANI
Executive Vice President
