485BPOS 1 adtmonarch_485bpos2007.txt MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES, SERIES F-H AND J-L 485BPOS FILING File Nos. 33-28038, 33-34403, 33-39606, 33-49519, 33-53085 and 333-76661 CIK #782708, 782709, 782711, 891766, 891767 and 891768 Securities and Exchange Commission Washington, D. C. 20549 Post-Effective Amendment No. 23 to Form S-6 For Registration under the Securities Act of 1933 of Securities of Unit Investment Trusts Registered on Form N-8B-2 The Merrill Lynch Fund of Stripped ("Zero") U.S. Treasurey Securities, Series F-H and J-L Name and executive office address of Depositor: Fixed Income Securities, Inc. 18925 Base Camp Road Monument, Colorado 80132 Name and complete address of agents for service: Fixed Income Securities, Inc. Attention: Scott Coyler 18925 Base Camp Road Monument, Colorado 80132 Chapman and Cutler LLP Attention Mark J. Kneedy 111 West Monroe Street Chicago, Illinois 60603 ( X ) Check box if it is proposed that this filing will become effective on April 24, 2008 pursuant to paragraph (b) of Rule 485. THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES, SERIES F-H AND J-L (UNIT INVESTMENT TRUSTS) * Portfolios of "Zero Coupon" U.S. Treasury Securities * Designed for Safety of Capital and High Yield to Maturity * Units sold to Separate Accounts to Fund Benefits under Variable Life Insurance Policies PROSPECTUS APRIL 24, 2008 SPONSOR: [LOGO] ADVISOR'S The Securities and Exchange Commission ASSET MANAGEMENT has not approved or disapproved these Securities or passed upon the adequacy A DIVISION OF FIXED of this Prospectus. Any representation INCOME SECURITIES, INC. to the contrary is a criminal offense. INVESTMENT SUMMARY 1. What is the Fund's Objective? Each Trust seeks safety of capital and high yield to maturity by investing in a portfolio primarily of Stripped U.S. Treasury securities. Units of interest in the Trusts ("Units") are offered only to certain separate accounts (the "Accounts") to fund the benefits under variable 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"). These Accounts invest in Units in accordance with allocation instructions received by policyowners. Accordingly, the interests of a policyowner in the Units are subject to the terms of the Policies. The rights of the Accounts as holders of Units should be distinguished from the rights of the policyowners. Please review the accompanying prospectus for the insurance policies, which describes the rights of and risks to policyowners. 2. What are Stripped U.S. Treasury Securities? These are debt obligations directly issued by the U.S. Treasury. They do not make any periodic payments of interest before maturity and are priced at a deep discount from face amount. They pay a fixed amount of principal at maturity. 3. What is the Fund's Investment Strategy? * Each Trust invests primarily in Stripped Treasury securities. Each Trust also contains an interest-bearing U.S. Treasury note to provide income to pay the Trust's expenses. * Each Trust is a unit investment trust. Unlike a mutual fund, the portfolios of these unit investment trusts are not managed. * For each 1,000 Units purchased, a Unitholder will receive a total distribution of approximately $1,000 for Units held until maturity of the underlying securities in the Trust. * The securities in a Trust, but not the Fund or the Units, are backed by the full faith and credit of the United States. 4. What are the Significant Risks? You can lose money. This can happen for various reasons, including: * Rising interest rates can reduce the value of the Units. * Since each security is priced at a deep discount from face amount, Unit prices may be subject to greater fluctuations in response to changing interest rates. This risk is greater than on debt securities that pay interest currently and decreases with the time to maturity. * If Units are sold before the underlying securities mature, the sales price may be less, because market prices of the securities before maturity will vary with changes in interest rates and other factors. The Sponsor has determined not to offer any new trusts and may seek to terminate outstanding Trusts. Such termination would result in sale of the securities before maturity and recognition of gains or losses. 5. Is a Trust Appropriate for You? Yes, if you want safety of capital with a locked-in yield to maturity. You benefit from a portfolio of U.S. government securities with fixed returns and a stated maturity. The Fund is not appropriate for you if you want current income or a speculative investment that changes to take advantage of market movements. Page 2 6. Are the Trusts Managed? Unlike a mutual fund, a Trust is not managed and securities are not sold because of market changes. To lock in the yield on the purchase date, a Trust holds securities to maturity unless sales are needed to raise cash for redemptions. 7. How do I Buy Units? Each Account buys Units from the Sponsor. There is no minimum investment. Unit price is based on the net asset value of the Trust plus the applicable transaction charge shown below. Any principal cash, and any net accrued but undistributed interest on the Unit is added to the Unit price. An independent evaluator prices the securities at their offer side values at 3:30 p.m. Eastern time each business day. Unit price varies daily with changes in the prices of the securities in the Trust. 8. How do I Sell Units? An Account may sell Units at any time to the Sponsor or the Trustee for the net asset value determined at the close of business on the date of sale. You will not pay any fee when you sell your Units. 9. How are Distributions Made and Taxed? Stripped Treasury securities do not pay interest until they mature; consequently, you should not expect any distributions of interest income. When the Stripped Treasury security matures, the proceeds will be distributed to the Accounts. A distribution will be made in cash following the maturity of the Stripped Treasury security. The Accounts (not the policyowners) have significant amounts of income attributed to them annually as original issue discount is accrued on the Stripped Treasury securities. 10. What are the fees and expenses? This table shows the costs and expenses the Accounts may pay, directly or indirectly, when they invest in a Trust. Transaction Charges The Insurer initially pays a transaction charge to the Sponsor on the Units sold to an Account. The Insurer intends to recover this amount through an asset charge. See the accompanying prospectus for the Policies for further information. The transaction charge is based on the remaining years to maturity of the Stripped Treasury security in a Trust: PERCENT OF REMAINING YEARS TO MATURITY OFFER PRICE ----------------------------------------------------------- Less than 2 years 0.25% At least 2 years but less than 3 years 0.50 At least 3 years but less than 5 years 0.75 At least 5 years but less than 8 years 1.00 At least 8 years but less than 13 year 1.50 At least 13 years 1.75 Page 3 UNIT PRICE PER 1,000 UNITS (AS OF DECEMBER 31, 2007) ----------------------------------------------------------- SERIES F SERIES G 2009 2010 TRUST TRUST ----------------------------------------------------------- Net asset value (based on offer side evaluation of underlying Securities) $970.99 $930.30 Plus transaction charge $2.43 $4.68 Unit price $973.42 $934.98 SERIES H SERIES J 2011 2013 TRUST TRUST ----------------------------------------------------------- Net asset value (based on offer side evaluation of underlying Securities) $904.46 $813.80 Plus transaction charge $6.84 $8.22 Unit price $911.30 $822.02 SERIES K SERIES L 2014 2019 TRUST TRUST ----------------------------------------------------------- Net asset value (based on offer side evaluation of underlying Securities) $790.81 $597.75 Plus transaction charge $7.99 $9.10 Unit price $798.80 $606.85 ESTIMATED TRUSTEE'S ANNUAL OPERATING FEE AND EXPENSES PER $1,000 FACE AMOUNT OF UNDERLYING SECURITIES ----------------------------------------------------------- SERIES F SERIES G SERIES H 2009 2010 2011 TRUST TRUST TRUST --------------------------------------------- $0.35 $0.35 $0.35 SERIES J SERIES K SERIES L 2013 2014 2019 TRUST TRUST TRUST --------------------------------------------- $0.35 $0.35 $0.35 Page 4 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES The Sponsor, Trustee and Holders of The Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury Securities, Series F (2009 Trust), Series G (2010 Trust), Series H (2011 Trust), Series J (2013 Trust), Series K (2014 Trust) and Series L (2019 Trust) (the "Funds"): We have audited the accompanying statements of assets and liabilities of the Funds, including the portfolios, as of December 31, 2007 and the related statements of operations, and of changes in net assets for the three years then ended, and financial highlights for the five years then ended. These financial statements and financial highlights are the responsibility of the Trustee's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Securities owned at December 31, 2007, as shown in such portfolios, were confirmed to us by The Bank of New York, the Trustee. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the Funds at December 31, 2007 and the results of their operations, the changes in their net assets and their financial highlights for the respective stated years in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Chicago, Illinois March 18, 2008 Page 5 THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") US TREASURY SECURITIES, SERIES F
STATEMENT OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 2007 2009 TRUST ------------ TRUST PROPERTY: Investment in marketable securities (cost $4,069,831).................................. $ 4,217,610 ----------- Total trust property..................... 4,217,610 LESS LIABILITIES: Advance from Trustee................................. 34,037 Accrued expenses..................................... 1,756 ----------- Total liabilities........................ 35,793 ----------- NET ASSETS ............................................ $ 4,181,817 =========== Net assets, applicable to 4,306,768 units outstanding Cost of securities $ 4,069,831 Unrealized appreciation on securities 147,779 Distributable funds (deficit) (35,793) ----------- Net Assets $ 4,181,817 =========== UNITS OUTSTANDING...................................... 4,306,768 =========== UNIT VALUE............................................. $ 0.97099 =========== See Notes to Financial Statements.
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STATEMENTS OF OPERATIONS 2009 TRUST ...........YEARS ENDED DECEMBER 31,........... ---------------------------------------------- 2007 2006 2005 ------------ ------------ ------------ INVESTMENT INCOME: Interest income.............................. $ - $ 298 $ 2,759 Accretion of original issue discount......... 259,601 299,071 357,750 Trustee's fees and expenses.................. (5,090) (5,212) (7,819) ------------ ------------ ------------ Net investment income........................ 254,511 294,157 352,690 ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on securities sold or redeemed................................ 34,867 29,099 208,339 Net change in unrealized depreciation of investments............................. (5,619) (147,624) (529,940) ------------ ------------ ------------ Realized and unrealized gain (loss) on investments............................. 29,248 (118,525) (321,601) ------------ ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................. $ 283,759 $ 175,632 $ 31,089 ============ ============ ============ See Notes to Financial Statements.
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STATEMENTS OF CHANGES IN NET ASSETS 2009 TRUST ...........YEARS ENDED DECEMBER 31,........... ---------------------------------------------- 2007 2006 2005 ------------ ------------ ------------ OPERATIONS: Net investment income........................ $ 254,511 $ 294,157 $ 352,690 Net realized gain on securities sold or redeemed................................ 34,867 29,099 208,339 Net change in unrealized depreciation of investments............................. (5,619) (147,624) (529,940) ------------ ------------ ------------ Net increase in net assets resulting from operations............................ 283,759 175,632 31,089 ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS: (Note 3) Issuance of additional units................. 82,867 - 359,575 Redemptions of units......................... (868,539) (487,991) (1,644,697) ------------ ------------ ------------ Net capital share transactions............... (785,672) (487,991) (1,285,122) ------------ ------------ ------------ NET DECREASE IN NET ASSETS..................... (501,913) (312,359) (1,254,033) NET ASSETS AT BEGINNING OF YEAR................ 4,683,730 4,996,089 6,250,122 ------------ ------------ ------------ NET ASSETS AT END OF YEAR...................... $ 4,181,817 $ 4,683,730 $ 4,996,089 ============ ============ ============ UNIT VALUE, END OF YEAR........................ $ 0.97099 $ 0.91045 $ 0.87940 ============ ============ ============ TRUST UNITS OUTSTANDING AT END OF YEAR......... 4,306,768 5,144,422 5,681,243 ============ ============ ============ See Notes to Financial Statements.
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STATEMENT OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 2007 2010 TRUST ------------ TRUST PROPERTY: Investment in marketable securities (cost $6,856,333).................................. $ 7,005,253 ----------- Total trust property..................... 7,005,253 LESS LIABILITIES: Advance from Trustee................................. 29,576 Accrued expenses..................................... 1,963 ----------- Total liabilities........................ 31,539 ----------- NET ASSETS ............................................ $ 6,973,714 =========== Net assets, applicable to 7,496,173 units outstanding Cost of securities $ 6,856,333 Unrealized depreciation on securities 148,920 Distributable funds (deficit) (31,539) ----------- Net Assets $ 6,973,714 =========== UNITS OUTSTANDING...................................... 7,496,173 =========== UNIT VALUE............................................. $ 0.93030 =========== See Notes to Financial Statements.
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STATEMENTS OF OPERATIONS 2010 TRUST ...........YEARS ENDED DECEMBER 31,........... ---------------------------------------------- 2007 2006 2005 ------------ ------------ ------------ INVESTMENT INCOME: Interest income.............................. $ - $ 480 $ 4,053 Accretion of original issue discount......... 272,223 317,620 362,377 Trustee's fees and expenses.................. (6,219) (5,875) (7,604) ------------ ------------ ------------ Net investment income........................ 266,004 312,225 358,826 ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on securities sold or redeemed........................... 7,726 (2,577) 89,772 Net change in unrealized appreciation (depreciation) of investments.............. 268,776 (75,147) (360,637) ------------ ------------ ------------ Net realized and unrealized gain (loss) on investments............................. 276,502 (77,724) (270,865) ------------ ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................. $ 542,506 $ 234,501 $ 87,961 ============ ============ ============ See Notes to Financial Statements.
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STATEMENTS OF CHANGES IN NET ASSETS 2010 TRUST ...........YEARS ENDED DECEMBER 31,........... ---------------------------------------------- 2007 2006 2005 ------------ ------------ ------------ OPERATIONS: Net investment income........................ $ 266,004 $ 312,225 $ 358,826 Net realized gain (loss) on securities sold or redeemed........................... 7,726 (2,577) 89,772 Net change in unrealized appreciation (depreciation) of investments.............. 268,776 (75,147) (360,637) ------------ ------------ ------------ Net increase in net assets resulting from operations............................ 542,506 234,501 87,961 ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS: (Note 3) Issuance of additional units................. 618,528 - 834,187 Redemptions of units......................... (930,802) (1,789,139) (1,316,107) ------------ ------------ ------------ Net capital share transactions............... (312,274) (1,789,139) (481,920) ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS.......... 230,232 (1,554,638) (393,959) NET ASSETS AT BEGINNING OF YEAR................ 6,743,482 8,298,120 8,692,079 ------------ ------------ ------------ NET ASSETS AT END OF YEAR...................... $ 6,973,714 $ 6,743,482 $ 8,298,120 ============ ============ ============ UNIT VALUE, END OF YEAR........................ $ 0.93030 $ 0.86054 $ 0.83356 ============ ============ ============ TRUST UNITS OUTSTANDING AT END OF YEAR......... 7,496,173 7,836,342 9,955,048 ============ ============ ============ See Notes to Financial Statements.
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STATEMENT OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 2007 2011 TRUST ------------ TRUST PROPERTY: Investment in marketable securities (cost $1,890,360).................................. $ 2,033,382 ----------- Total trust property..................... 2,033,382 LESS LIABILITIES: Advance from Trustee................................. 28,458 Accrued expenses..................................... 1,577 ----------- Total liabilities........................ 30,035 ----------- NET ASSETS ............................................ $ 2,003,347 =========== Net assets, applicable to 2,214,967 units outstanding Cost of securities $ 1,890,360 Unrealized appreciation on securities 143,022 Distributable funds (deficit) (30,035) ----------- Net Assets $ 2,003,347 =========== UNITS OUTSTANDING...................................... 2,214,967 =========== UNIT VALUE............................................. $ 0.90446 =========== See Notes to Financial Statements.
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STATEMENTS OF OPERATIONS 2011 TRUST ...........YEARS ENDED DECEMBER 31,........... ---------------------------------------------- 2007 2006 2005 ------------ ------------ ------------ INVESTMENT INCOME: Interest income.............................. $ - $ 126 $ 1,019 Accretion of original issue discount......... 96,296 109,139 116,057 Trustee's fees and expenses.................. (4,032) (4,583) (6,710) ------------ ------------ ------------ Net investment income........................ 92,264 104,682 110,366 ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on securities sold or redeemed................................ 21,853 33,599 56,956 Net change in unrealized appreciation (depreciation) of investments.............. 46,645 (85,931) (137,839) ------------ ------------ ------------ Net realized and unrealized gain (loss) on investments............................. 68,498 (52,332) (80,883) ------------ ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................. $ 160,762 $ 52,350 $ 29,483 ============ ============ ============ See Notes to Financial Statements.
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STATEMENTS OF CHANGES IN NET ASSETS 2011 TRUST ...........YEARS ENDED DECEMBER 31,........... ---------------------------------------------- 2007 2006 2005 ------------ ------------ ------------ OPERATIONS: Net investment income........................ $ 92,264 $ 104,682 $ 110,366 Net realized gain on securities sold or redeemed................................ 21,853 33,599 56,956 Net change in unrealized appreciation (depreciation) of investments.............. 46,645 (85,931) (137,839) ------------ ------------ ------------ Net increase in net assets resulting from operations............................ 160,762 52,350 29,483 ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS: (Note 3) Issuance of additional units................. 447,876 - - Redemptions of units......................... (351,420) (424,855) (413,435) ------------ ------------ ------------ Net capital share transactions............... 96,456 (424,855) (413,435) ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS.......... 257,218 (372,505) (383,952) NET ASSETS AT BEGINNING OF YEAR................ 1,746,129 2,118,634 2,502,586 ------------ ------------ ------------ NET ASSETS AT END OF YEAR...................... $ 2,003,347 $ 1,746,129 $ 2,118,634 ============ ============ ============ UNIT VALUE, END OF YEAR........................ $ 0.90446 $ 0.82831 $ 0.80511 ============ ============ ============ TRUST UNITS OUTSTANDING AT END OF YEAR......... 2,214,967 2,108,055 2,631,495 ============ ============ ============ See Notes to Financial Statements.
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STATEMENT OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 2007 2013 TRUST ------------ TRUST PROPERTY: Investment in marketable securities (cost $1,021,108).................................. $ 1,158,069 Other................................................ 21,196 ----------- Total trust property..................... 1,179,265 LESS LIABILITY - Other................................. 1,017 ----------- NET ASSETS ............................................ $ 1,178,248 =========== Net assets, applicable to 1,447,835 units outstanding Cost of securities $ 1,021,108 Unrealized appreciation on securities 136,961 Distributable funds 20,179 ----------- Net Assets $ 1,178,248 =========== UNITS OUTSTANDING...................................... 1,447,835 =========== UNIT VALUE............................................. $ 0.81380 =========== See Notes to Financial Statements.
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STATEMENTS OF OPERATIONS 2013 TRUST ...........YEARS ENDED DECEMBER 31,........... ---------------------------------------------- 2007 2006 2005 ------------ ------------ ------------ INVESTMENT INCOME: Interest income.............................. $ 490 $ 560 $ 560 Accretion of original issue discount......... 58,946 60,779 57,187 Trustee's fees and expenses.................. (3,193) (5,171) (15,848) ------------ ------------ ------------ Net investment income........................ 56,243 56,168 41,899 ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on securities sold or redeemed........................... 10,640 - - Net change in unrealized appreciation (depreciation) of investments.............. 41,893 (26,689) (26,346) ------------ ------------ ------------ Net realized and unrealized gain (loss) on investments............................. 52,533 (26,689) (26,346) ------------ ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................. $ 108,776 $ 29,479 $ 15,553 ============ ============ ============ See Notes to Financial Statements.
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STATEMENTS OF CHANGES IN NET ASSETS 2013 TRUST ...........YEARS ENDED DECEMBER 31,........... ---------------------------------------------- 2007 2006 2005 ------------ ------------ ------------ OPERATIONS: Net investment income........................ $ 56,243 $ 56,168 $ 41,899 Net realized gain on securities sold or redeemed........................... 10,640 - - Net change in unrealized appreciation (depreciation) of investments.............. 41,893 (26,689) (26,346) ------------ ------------ ------------ Net increase in net assets resulting from operations............................ 108,776 29,479 15,553 ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS: (Note 3) Issuance of additional units................. 153,248 - - Redemptions of units......................... (209,647) - - ------------ ------------ ------------ Net capital share transactions............... (56,399) - - ------------ ------------ ------------ NET INCREASE IN NET ASSETS..................... 52,377 29,479 15,553 NET ASSETS AT BEGINNING OF YEAR................ 1,125,871 1,096,392 1,080,839 ------------ ------------ ------------ NET ASSETS AT END OF YEAR...................... $ 1,178,248 $ 1,125,871 $ 1,096,392 ============ ============ ============ UNIT VALUE, END OF YEAR........................ $ 0.81380 $ 0.74039 $ 0.72100 ============ ============ ============ TRUST UNITS OUTSTANDING AT END OF YEAR......... 1,447,835 1,520,648 1,520,648 ============ ============ ============ See Notes to Financial Statements.
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STATEMENT OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 2007 2014 TRUST ------------ TRUST PROPERTY: Investment in marketable securities (cost $6,995,978).................................. $ 8,064,082 Accrued interest receivable.......................... 1,464 Other................................................ 729 ----------- Total trust property..................... 8,066,275 LESS LIABILITY - Accrued expenses...................... 2,138 ----------- NET ASSETS ............................................ $ 8,064,137 =========== Net assets, applicable to 10,197,264 units outstanding Cost of securities $ 6,995,978 Unrealized appreciation on securities 1,068,104 Distributable funds 55 ----------- Net Assets $ 8,064,137 =========== UNITS OUTSTANDING...................................... 10,197,264 =========== UNIT VALUE............................................. $ 0.79081 =========== See Notes to Financial Statements.
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STATEMENTS OF OPERATIONS 2014 TRUST ...........YEARS ENDED DECEMBER 31,........... ---------------------------------------------- 2007 2006 2005 ------------ ------------ ------------ INVESTMENT INCOME: Interest income.............................. $ 4,013 $ 4,235 $ 5,000 Accretion of original issue discount......... 416,787 446,704 481,875 Trustee's fees and expenses.................. (7,198) (6,392) (3,875) ------------ ------------ ------------ Net investment income........................ 413,602 444,547 483,000 ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on securities sold or redeemed................................ 26,140 76,400 281,586 Net change in unrealized appreciation (depreciation) of investments.............. 340,943 (301,380) (446,194) ------------ ------------ ------------ Net realized and unrealized gain (loss) on investments............................. 367,083 (224,980) (164,608) ------------ ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................. $ 780,685 $ 219,567 $ 318,392 ============ ============ ============ See Notes to Financial Statements.
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STATEMENTS OF CHANGES IN NET ASSETS 2014 TRUST ...........YEARS ENDED DECEMBER 31,........... ---------------------------------------------- 2007 2006 2005 ------------ ------------ ------------ OPERATIONS: Net investment income........................ $ 413,602 $ 444,547 $ 483,000 Net realized gain on securities sold or redeemed................................ 26,140 76,400 281,586 Net change in unrealized appreciation (depreciation) of investments.............. 340,943 (301,380) (446,194) ------------ ------------ ------------ Net increase in net assets resulting from operations............................ 780,685 219,567 318,392 ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS: (Note 3) Issuance of additional units................. 60,976 - - Redemptions of units......................... (543,232) (1,127,162) (2,449,280) ------------ ------------ ------------ Net capital share transactions............... (482,256) (1,127,162) (2,449,280) ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS.......... 298,429 (907,595) (2,130,888) NET ASSETS AT BEGINNING OF YEAR................ 7,765,708 8,673,303 10,804,191 ------------ ------------ ------------ NET ASSETS AT END OF YEAR...................... $ 8,064,137 $ 7,765,708 $ 8,673,303 ============ ============ ============ UNIT VALUE, END OF YEAR........................ $ 0.79081 $ 0.71531 $ 0.70631 ============ ============ ============ TRUST UNITS OUTSTANDING AT END OF YEAR......... 10,197,264 10,856,487 12,484,690 ============ ============ ============ See Notes to Financial Statements.
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STATEMENT OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 2007 2019 TRUST ------------ TRUST PROPERTY: Investment in marketable securities (cost $4,193,711).................................. $ 4,501,559 Accrued interest receivable.......................... 807 ----------- Total trust property..................... 4,502,366 LESS LIABILITIES: Advance from Trustee................................. 122,420 Accrued expenses..................................... 1,974 ----------- Total liabilities........................ 124,394 ----------- NET ASSETS ............................................ $ 4,377,972 =========== Net assets, applicable to 7,324,038 units outstanding Cost of securities $ 4,193,711 Unrealized appreciation on securities 307,848 Distributable funds (deficit) (123,587) ----------- Net Assets $ 4,377,972 =========== UNITS OUTSTANDING...................................... 7,324,038 =========== UNIT VALUE............................................. $ 0.59775 =========== See Notes to Financial Statements.
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STATEMENTS OF OPERATIONS 2019 TRUST ...........YEARS ENDED DECEMBER 31,........... ---------------------------------------------- 2007 2006 2005 ------------ ------------ ------------ INVESTMENT INCOME: Interest income.............................. $ 2,615 $ 2,712 $ 2,207 Accretion of original issue discount......... 211,077 203,717 163,199 Trustee's fees and expenses.................. (5,904) (5,456) (12,879) ------------ ------------ ------------ Net investment income........................ 207,788 200,973 152,527 ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on securities sold or redeemed........................... 33,960 10,523 - Net change in unrealized appreciation (depreciation) of investments.............. 190,303 (172,801) 105,430 ------------ ------------ ------------ Net realized and unrealized gain (loss) on investments............................. 224,263 (162,278) 105,430 ------------ ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................. $ 432,051 $ 38,695 $ 257,957 ============ ============ ============ See Notes to Financial Statements.
Page 22 THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") US TREASURY SECURITIES, SERIES L
STATEMENTS OF CHANGES IN NET ASSETS 2019 TRUST ...........YEARS ENDED DECEMBER 31,........... ---------------------------------------------- 2007 2006 2005 ------------ ------------ ------------ OPERATIONS: Net investment income........................ $ 207,788 $ 200,973 $ 152,527 Net realized gain on securities sold or redeemed........................... 33,960 10,523 - Net change in unrealized appreciation (depreciation) of investments.............. 190,303 (172,801) 105,430 ------------ ------------ ------------ Net increase in net assets resulting from operations............................ 432,051 38,695 257,957 ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS: (Note 3) Issuance of additional units................. 410,015 - 1,208,792 Redemptions of units......................... (633,475) (264,500) - ------------ ------------ ------------ Net capital share transactions............... (223,460) (264,500) 1,208,792 ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS.......... 208,591 (225,805) 1,466,749 NET ASSETS AT BEGINNING OF YEAR................ 4,169,381 4,395,186 2,928,437 ------------ ------------ ------------ NET ASSETS AT END OF YEAR...................... $ 4,377,972 $ 4,169,381 $ 4,395,186 ============ ============ ============ UNIT VALUE, END OF YEAR........................ $ 0.59775 $ 0.54293 $ 0.53556 ============ ============ ============ TRUST UNITS OUTSTANDING AT END OF YEAR......... 7,324,038 7,679,410 8,206,723 ============ ============ ============ See Notes to Financial Statements.
Page 23 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 accounting principles generally accepted in the United States of America. (a) Basis of presentation - The financial statements are presented on the accrual basis of accounting. (b) Security valuation - Securities are stated at value as determined by the independent Evaluator based on bid side evaluations for the securities. (c) Investment Income - Interest income is recorded on an accrual basis. Investment income also includes accretion of original issue discount on the Stripped Treasury Securities. Such amortization is included in the cost of the Stripped Treasury Securities and not in distributable funds because it is not currently available for distribution to unit holders. Expenses include a fee for Trustee services paid to the Bank of New York, the Trustee. In addition, the Evaluator will receive a monthly fee based on units outstanding. The Trust also pays recurring financial reporting costs. (d) Security cost - Cost of the Trust's Stripped Treasury Securities is based on the offering price of the Stripped Treasury Securities on the dates the Stripped Treasury Securities were deposited in the Trust, plus accretion of original issue discount. The cost of securities sold is determined using the first-in, first out cost basis. Sales of securities are recorded on the trade date. (e) Federal income taxes - The Funds are not subject to income taxes. Accordingly, no provision for such taxes is required. (f) Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. (g) Recently issued accounting pronouncements - In September 2006, Financial Accounting Standards Board ("FASB") issued Statement of Accounting Standards No. 157, Fair Value Measurements ("SFAS No. 157"). This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. The new standard will focus on the inputs used to measure fair value and the effect, if any, on the changes in net assets for the period. SFAS 157 is effective for the Partnership for the year ending December 31, 2008. The Trustee of the Funds is currently evaluating the impact, if any, on the Funds' financial statements of adopting SFAS 157. Page 24 THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES NOTES TO FINANCIAL STATEMENTS 2. CAPITAL SHARE TRANSACTIONS
Additional units were issued as follows: SERIES TRUST 2007 2006 2005 ------------ ----------- ---------- ---------- ---------- F 2009 89,989 - 414,567 G 2010 718,610 - 1,013,596 H 2011 511,135 - - J 2013 201,629 - - K 2014 85,782 - - L 2019 741,519 - 2,284,811
Units were redeemed as follows: SERIES TRUST 2007 2006 2005 ------------ ----------- ---------- ---------- ---------- F 2009 927,643 536,821 1,886,635 G 2010 1,058,779 2,118,706 1,593,355 H 2011 404,223 523,440 525,397 J 2013 274,443 - - K 2014 745,006 1,628,203 3,582,048 L 2019 1,096,891 527,313 -
Units may be redeemed at the office of the Trustee upon tender thereof, generally on any business day or, in the case of un-certificated 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. 3. 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, 2007, the cost of investment securities for Federal income tax purposes was approximately equivalent to the adjusted cost as shown in each Fund's portfolio. In July 2006, the Financial Accounting Standards Board issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"), which is effective for fiscal years beginning after December 15, 2006 Page 25 THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES NOTES TO FINANCIAL STATEMENTS FIN 48 clarifies the accounting for income taxes recognized in the financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This interpretation provides guidance on how the Trusts should recognize, measure, present, and disclose in their financial statements any uncertain tax positions that the Trusts have taken or expect to take on a tax return. Based on its analysis, the Sponsor and the Trustee do not believe that the adoption of FIN 48 has a material impact on the financial statements. 4. DISTRIBUTIONS It is anticipated that each Fund will not make any distributions until the first business day following the maturity of its holdings in the Stripped Treasury Securities which are non-interest-bearing. 5. CHANGE IN SPONSOR Effective January 12, 2007, the sponsor of the Funds, Merrill Lynch, Pierce, Fenner & Smith, Incorporated (a wholly owned subsidiary of Merrill Lynch & Co., Inc.), transferred sponsorship of the Funds to Advisor's Asset Management, a division of Fixed Income Securities, Inc. The transfer of sponsorship did not have an effect on the net asset value or financial statements of the Funds. 6. FINANCIAL HIGHLIGHTS Net investment income per unit has been calculated based on the monthly weighted-average number of units outstanding during the period. The net increase (decrease) in net assets resulting from operations per unit includes the effects of changes arising from the issuance and/or redemption of units during the period at net asset values which differed from the net asset value per unit at the beginning of the period. Total return does not include reinvestment of distributions. The net investment income (loss) and total expense ratios are computed based upon the monthly weighted average net assets for the Funds. Page 26 THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES, SERIES F-H and J-L FINANCIAL HIGHLIGHTS December 31, 2007
2009 2010 TRUST TRUST --------- --------- Per Unit Operating Performance: Net asset value, Beginning of period $ 0.91045 $ 0.86054 --------- --------- Operating profit 0.05457 0.03471 Expense (0.00107) (0.00079) --------- --------- Net investment income 0.05350 0.03392 Realized and unrealized gain (loss) on investments 0.00705 0.03585 --------- --------- Net increase in net assets resulting from operations 0.06054 0.06977 --------- --------- Net asset value, end of period $ 0.97099 $ 0.93030 ========= ========= Total Return 6.65% 8.11% Ratio to average net assets: Expense -0.11% -0.09% Net investment income 5.72% 3.82%
Page 27 THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES, SERIES F-H and J-L FINANCIAL HIGHLIGHTS December 31, 2007
2011 2013 2014 2019 TRUST TRUST TRUST TRUST --------- --------- --------- --------- Per Unit Operating Performance: Net asset value, Beginning of period $ 0.82831 $ 0.74039 $ 0.71531 $ 0.54293 --------- --------- --------- --------- Operating profit 0.04672 0.03971 0.04008 0.02728 Expense (0.00195) (0.00213) (0.00069) (0.00075) --------- --------- --------- --------- Net investment income 0.04476 0.03758 0.03939 0.02653 Realized and unrealized gain on investments 0.03139 0.03584 0.03611 0.02830 --------- --------- --------- --------- Net increase in net assets resulting from operations 0.07615 0.07341 0.07550 0.05483 --------- --------- --------- --------- Net asset value, end of period $ 0.90446 $ 0.81380 $ 0.79081 $ 0.59775 ========= ========= ========= ========= Total Return 9.19% 9.92% 10.56% 10.10% Ratio to average net assets: Expense -0.23% -0.27% -0.09% -0.13% Net investment income 5.18% 4.82% 5.34% 4.72%
Page 28 THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES, SERIES F-H and J-L FINANCIAL HIGHLIGHTS December 31, 2006
2009 2010 TRUST TRUST --------- --------- Per Unit Operating Performance: Net asset value, Beginning of period $ 0.87940 $ 0.83356 --------- --------- Operating profit 0.05347 0.03488 Expense (0.00093) (0.00064) --------- --------- Net investment income 0.05254 0.03424 Realized and unrealized gain (loss) on investments (0.02149) (0.00726) --------- --------- Net increase (decrease) in net assets resulting from operations 0.03105 0.02698 --------- --------- Net asset value, end of period $ 0.91045 $ 0.86054 ========= ========= Total Return 3.53% 3.24% Ratio to average net assets: Expense -0.10% -0.08% Net investment income 5.91% 4.08%
Page 29 THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES, SERIES F-H and J-L FINANCIAL HIGHLIGHTS December 31, 2006
2011 2013 2014 2019 TRUST TRUST TRUST TRUST --------- --------- --------- --------- Per Unit Operating Performance: Net asset value, Beginning of period $ 0.80511 $ 0.72100 $ 0.69472 $ 0.53556 --------- --------- --------- --------- Operating profit 0.04496 0.04034 0.03771 0.02619 Expense (0.00188) (0.00340) (0.00053) (0.00069) --------- --------- --------- --------- Net investment income 0.04308 0.03694 0.03718 0.02550 Realized and unrealized gain (loss) on investments (0.01988) (0.01755) (0.01659) (0.01813) --------- --------- --------- --------- Net increase (decrease) in net assets resulting from operations 0.02320 0.01939 0.02059 0.00737 --------- --------- --------- --------- Net asset value, end of period $ 0.82831 $ 0.74039 $ 0.71531 $ 0.54293 ========= ========= ========= ========= Total Return 2.88% 2.69% 2.96% 1.38% Ratio to average net assets: Expense -0.23% -0.46% -0.08% -0.13% Net investment income 5.31% 5.03% 5.38% 4.84%
Page 30 THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES, SERIES F-H and J-L FINANCIAL HIGHLIGHTS December 31, 2005
2009 2010 TRUST TRUST --------- --------- Per Unit Operating Performance: Net asset value, Beginning of period $ 0.87374 $ 0.82508 --------- --------- Operating profit 0.05238 0.03458 Expense (0.00114) (0.00072) --------- --------- Net investment income 0.05124 0.03386 Realized and unrealized gain (loss) on investments (0.04558) (0.02538) --------- --------- Net increase (decrease) in net assets resulting from operations 0.00566 0.00848 --------- --------- Net asset value, end of period $ 0.87940 $ 0.83356 ========= ========= Total Return 0.65% 1.03% Ratio to average net assets: Expense -0.13% -0.09% Net investment income 5.87% 4.09%
Page 31 THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES, SERIES F-H and J-L FINANCIAL HIGHLIGHTS December 31, 2005
2011 2013 2014 2019 TRUST TRUST TRUST TRUST --------- --------- --------- --------- Per Unit Operating Performance: Net asset value, Beginning of period $ 0.79274 $ 0.71078 $ 0.67246 $ 0.49451 --------- --------- --------- --------- Operating profit 0.04253 0.03798 0.03537 0.02503 Expense (0.00243) (0.01042) (0.00028) (0.00195) --------- --------- --------- --------- Net investment income 0.04010 0.02756 0.03509 0.02308 Realized and unrealized gain (loss) on investments (0.02773) (0.01734) (0.01283) 0.01797 --------- --------- --------- --------- Net increase (decrease) in net assets resulting from operations 0.01237 0.01022 0.02226 0.04105 --------- --------- --------- --------- Net asset value, end of period $ 0.80511 $ 0.72100 $ 0.69472 $ 0.53556 ========= ========= ========= ========= Total Return 1.56% 1.44% 3.31% 8.30% Ratio to average net assets: Expense -0.30% -1.44% -0.04% -0.37% Net investment income 5.01% 3.80% 5.14% 4.41%
Page 32 THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES, SERIES F-H and J-L FINANCIAL HIGHLIGHTS December 31, 2004
2009 2010 TRUST TRUST --------- --------- Per Unit Operating Performance: Net asset value, Beginning of period $ 0.84879 $ 0.79357 --------- --------- Operating profit 0.05021 0.03407 Expense (0.00062) (0.00049) --------- --------- Net investment income 0.04959 0.03358 Realized and unrealized gain (loss) on investments (0.02464) (0.00207) --------- --------- Net increase (decrease) in net assets resulting from operations 0.02495 0.03151 --------- --------- Net asset value, end of period $ 0.87374 $ 0.82508 ========= ========= Total Return 2.94% 3.97% Ratio to average net assets: Expense -0.07% -0.06% Net investment income 5.76% 4.15%
Page 33 THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES, SERIES F-H and J-L FINANCIAL HIGHLIGHTS December 31, 2004
2011 2013 2014 2019 TRUST TRUST TRUST TRUST --------- --------- --------- --------- Per Unit Operating Performance: Net asset value, Beginning of period $ 0.75842 $ 0.67178 $ 0.62812 $ 0.44463 --------- --------- --------- --------- Operating profit 0.04068 0.03576 0.03317 0.02382 Expense (0.00120) (0.00236) (0.00037) (0.00080) --------- --------- --------- --------- Net investment income 0.03948 0.03340 0.03280 0.02302 Realized and unrealized gain (loss) on investments (0.00516) 0.00560 0.01154 0.02686 --------- --------- --------- --------- Net increase (decrease) in net assets resulting from operations 0.03432 0.03900 0.04434 0.04988 --------- --------- --------- --------- Net asset value, end of period $ 0.79274 $ 0.71078 $ 0.67246 $ 0.49451 ========= ========= ========= ========= Total Return 4.53% 5.81% 7.06% 11.22% Ratio to average net assets: Expense -0.16% -0.34% -0.06% -0.17% Net investment income 5.08% 4.84% 5.08% 4.94%
Page 34 THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES, SERIES F-H and J-L FINANCIAL HIGHLIGHTS December 31, 2003
2009 2010 TRUST TRUST --------- --------- Per Unit Operating Performance: Net asset value, Beginning of period $ 0.82383 $ 0.76695 --------- --------- Operating profit 0.05083 0.03677 Expense (0.00072) (0.00059) --------- --------- Net investment income 0.05011 0.03618 Realized and unrealized gain (loss) on investments (0.02515) (0.00956) --------- --------- Net increase (decrease) in net assets resulting from operations 0.02496 0.02662 --------- --------- Net asset value, end of period $ 0.84879 $ 0.79357 ========= ========= Total Return 3.03% 3.47% Ratio to average net assets: Expense -0.09% -0.07% Net investment income 5.97% 4.58%
Page 35 THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES, SERIES F-H and J-L FINANCIAL HIGHLIGHTS December 31, 2003
2011 2013 2014 2019 TRUST TRUST TRUST TRUST --------- --------- --------- --------- Per Unit Operating Performance: Net asset value, Beginning of period $ 0.73329 $ 0.65262 $ 0.60458 $ 0.43108 --------- --------- --------- --------- Operating profit 0.03906 0.04257 0.03395 0.02438 Expense (0.00130) (0.00195) (0.00047) (0.00107) --------- --------- --------- --------- Net investment income 0.03776 0.04062 0.03348 0.02331 Realized and unrealized gain (loss) on investments (0.01263) (0.02146) (0.00994) (0.00976) --------- --------- --------- --------- Net increase (decrease) in net assets resulting from operations 0.02513 0.01916 0.02354 0.01355 --------- --------- --------- --------- Net asset value, end of period $ 0.75842 $ 0.67178 $ 0.62812 $ 0.44463 ========= ========= ========= ========= Total Return 3.43% 2.94% 3.89% 3.14% Ratio to average net assets: Expense -0.17% -0.29% -0.07% -0.24% Net investment income 5.03% 6.07% 5.38% 5.30%
Page 36 THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES
PORTFOLIOS AS OF DECEMBER 31, 2007 INTEREST ADJUSTED COST VALUE PORTFOLIO NO. AND TITLE OF SECURITIES RATE MATURITIES FACE AMOUNT (NOTE A) (NOTE A) ------------------------------------- -------- ---------- ----------- ------------- ---------- Series F (2009 Trust) 1 Stripped Treasury Securities (Note B) 0.00% 02/15/09 $ 4,352,000 $ 4,069,831 $ 4,217,610 ----------- ----------- ----------- Total $ 4,352,000 $ 4,069,831 $ 4,217,610 =========== =========== =========== Series G (2010 Trust) 1 Stripped Treasury Securities (Note B) 0.00% 02/15/10 $ 7,452,000 $ 6,856,333 $ 7,005,253 ----------- ----------- ----------- Total $ 7,452,000 $ 6,856,333 $ 7,005,253 =========== =========== =========== See Notes to Portfolios
Page 37 THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES
PORTFOLIOS AS OF DECEMBER 31, 2007 INTEREST ADJUSTED COST VALUE PORTFOLIO NO. AND TITLE OF SECURITIES RATE MATURITIES FACE AMOUNT (NOTE A) (NOTE A) ------------------------------------- -------- ---------- ----------- ------------- ---------- Series H (2011 Trust) 1 Stripped Treasury Securities (Note B) 0.00% 02/15/11 $ 2,242,000 $ 1,890,360 $ 2,033,382 ----------- ----------- ----------- Total $ 2,242,000 $ 1,890,360 $ 2,033,382 =========== =========== =========== Series J (2013 Trust) 1 Stripped Treasury Securities (Note B) 0.00% 02/15/13 $ 1,383,000 $ 1,021,108 $ 1,158,069 ----------- ----------- ----------- Total $ 1,383,000 $ 1,021,108 $ 1,158,069 =========== =========== =========== Series K (2014 Trust) 1 Stripped Treasury Securities (Note B) 0.00% 02/15/14 $10,048,000 $ 6,941,991 $ 8,012,979 2 U.S. Treasury Bonds 11.25 02/15/15 34,931 53,987 51,103 ----------- ----------- ----------- Total $10,082,931 $ 6,995,978 $ 8,064,082 =========== =========== =========== Series L (2019 Trust) 1 Stripped Treasury Securities (Note B) 0.00% 02/15/19 $ 7,289,000 $ 4,158,822 $ 4,466,699 2 U.S. Treasury Bonds 8.875 02/15/19 24,755 34,889 34,860 ----------- ----------- ----------- Total $ 7,313,755 $ 4,193,711 $ 4,501,559 =========== =========== =========== See Notes to Portfolios
Page 38 THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES NOTES TO PORTFOLIOS AS OF DECEMBER 31, 2007 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. Page 39 THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES, SERIES F THROUGH H AND J THROUGH L Each Series (a "Trust") 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 initially contained an interest-bearing Treasury Security (the "Treasury Note") to provide income to pay the expenses of the Trust (certain Trusts no longer include a Treasury Note due to maturity). 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 is designated by the year in which its Stripped Treasury Securities mature. Series F is sometimes referred to herein as the "2009 Trust"; Series G is sometimes referred to herein as the "2010 Trust"; Series H is sometimes referred to herein as the "2011 Trust"; Series J is sometimes referred to herein as the "2013 Trust"; Series K is sometimes referred to herein as the "2014 Trust"; and Series L is sometimes referred to herein as the "2019 Trust." 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). The original sponsor of the Trusts was Merrill Lynch, Pierce, Fenner & Smith Incorporated. On January 12, 2007, Merrill Lynch, Pierce, Fenner & Smith Incorporated transferred sponsorship to Advisor's Asset Management, a division of Fixed Income Securities, Inc. (the "Sponsor"). Units in the Trusts are sold only to the Accounts to fund the benefits under issued by 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). FUND STRUCTURE Each Trust is a unit investment trust created under New York law by a trust indenture (the "Indenture") among the Sponsor, the Trustee and the Evaluator, or their predecessors. The Indenture hereby incorporated by reference and 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 underlying Securities were deposited 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 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 offer Page 40 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. 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 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. Page 41 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 accounting principles generally accepted in the United States, a holder of a security purchased at a discount normally must report as an item of income for financial accounting purposes the amortization of the discount attributable to the applicable reporting period. The calculation of this attributable income would be made on the "effective 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 "effective interest" method described above, the "effective interest" method may differ to the extent that accounting principles generally accepted in the United States 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 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 for certain Trusts of a 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, the original sponsor of the Trusts: (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 Page 42 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. 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 Each Unit represents a fractional undivided interest in the Securities held in the related Trust and net income of the Trust. 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 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. 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 Page 43 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; 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 OFFERING AMOUNTS 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 13 years or more 1.75 1.781 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 any Treasury Note was designed to equal the Trust expenses, accrued interest on a Treasury 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 offer side evaluation of the Securities is determined by the Evaluator in the following manner: (a) on the basis of offer prices for the Securities, (b) if offer prices are not available for any Securities, on the basis of current offer prices for comparable securities, (c) by appraising the value of the Securities on the 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. 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. 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 Page 44 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). 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) 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 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, 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 offer 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 Trusts 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. 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 Page 45 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). 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. 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. 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 offer 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. 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. This section summarizes some of the main U.S. federal income tax consequences of owning Units of Page 46 the Trust. This section is current as of the date of this prospectus. Tax laws and interpretations change frequently, and these summaries do not describe all of the tax consequences to all taxpayers. For example, these summaries generally do not describe your situation if you are a corporation, a non-U.S. person, a broker-dealer, or other investor with special circumstances. In addition, this section does not describe your state, local or foreign tax consequences. This federal income tax summary is based in part on the advice and opinion of counsel to the sponsor. The Internal Revenue Service could disagree with any conclusions set forth in this section. In addition, our counsel was not asked to review, and has not reached a conclusion with respect to the federal income tax treatment of the assets to be deposited in the Trust. This may not be sufficient for you to use for the purpose of avoiding penalties under federal tax law. As with any investment, you should seek advice based on your individual circumstances from your own tax advisor. ASSETS OF THE TRUST The Trust is expected to hold United States Treasury obligations (the "Debt Obligations"). It is possible that the Trust will also hold other assets, including assets that are treated differently for federal income tax purposes from those described above, in which case you will have federal income tax consequences different from or in addition to those described in this section. All of the assets held by the Trust constitute the "Trust Assets." Neither our counsel nor we have analyzed the proper federal income tax treatment of the Trust Assets and thus neither our counsel nor we have reached a conclusion regarding the federal income tax treatment of the Trust Assets. TRUST STATUS If the Trust is at all times operated in accordance with the documents establishing the Trust and certain requirements of federal income tax law are met, the Trust will not be taxed as a corporation for federal income tax purposes. As a unit owner, you will be treated as the owner of a pro rata portion of each of the Trust Assets, and as such you will be considered to have received a pro rata share of income (e.g., interest, accruals of original issue discount and capital gains, if any) from each Trust Asset when such income would be considered to be received by you if you directly owned the Trust Assets. This is true even if you elect to have your distributions reinvested into additional Units. In addition, the income from Trust Assets that you must take into account for federal income tax purposes is not reduced by amounts used to pay sales charges or trust expenses. YOUR TAX BASIS AND INCOME OR LOSS UPON DISPOSITION If your Trust disposes of Trust Assets, you will generally recognize gain or loss. If you dispose of your Units or redeem your Units for cash, you will also generally recognize gain or loss. To determine the amount of this gain or loss, you must subtract your tax basis in the related Trust Assets from your share of the total amount received in the transaction. You can generally determine your initial tax basis in each Trust Asset by apportioning the cost of your Units, including sales charges, among the Trust Assets ratably according to their values on the date you acquire your Units. In certain circumstances, however, you may have to adjust your tax basis after you acquire your Units (for example, in the case of accruals of original issue discount, market discount, premium and accrued interest, as discussed below). If you are an individual, the maximum marginal federal tax rate for net capital gain is generally 15% (generally 5% for certain taxpayers in the 10% and 15% tax brackets). These capital gains rates are generally effective for taxable years beginning before January 1, 2011. For later periods, if you are an individual, the maximum marginal federal tax rate for net capital gain is generally 20% (10% for certain taxpayers in the 10% and 15% tax brackets). The 20% rate is reduced to 18% and the 10% rate is reduced to 8% for long-term capital gains from most property acquired after December 31, 2000 with a holding period of more than five years. Page 47 Net capital gain equals net long-term capital gain minus net short-term capital loss for the taxable year. Capital gain or loss is long-term if the holding period for the asset is more than one year and is short-term if the holding period for the asset is one year or less. You must exclude the date you purchase your Units to determine your holding period. The tax rates for capital gains realized from assets held for one year or less are generally the same as for ordinary income. The Internal Revenue Code, however, treats certain capital gains as ordinary income in special situations. DIVIDENDS RECEIVED DEDUCTION Because the Debt Obligations are treated as debt (not equity) for federal income tax purposes, distributions from the Debt Obligations are not eligible for the dividends received deduction. DISCOUNT Accrued Interest and Premium on Debt Obligations. Stripped U.S. Treasury Obligations are subject to the original discount rules for federal income tax purposes. Original issue discount accrues on a daily basis and generally is treated as interest income for federal income tax purposes. Your basis of each Debt Obligation that was issued with original issue discount must be increased as original issue discount accrues. Some Debt Obligations may have been purchased by you or your Trust at a market discount. Market discount is generally the excess of the stated redemption price at maturity for the Debt Obligation over the purchase price of the Debt Obligation. Market discount can arise based on the price your Trust pays for a Debt Obligation or based on the price you pay for your Units. Market discount is taxed as ordinary income. You will recognize this income when your Trust receives principal payments on the Debt Obligation, when the Debt Obligation is disposed of or redeemed, or when you sell or redeem your Units. Alternatively, you may elect to include market discount in taxable income as it accrues. Whether or not you make this election will affect how you calculate your basis and the timing of certain interest expense deductions. Stripped U.S. Treasury obligations are subject to the original issue discount rules rather than being treated as having market discount. Some Debt Obligations may have been purchased by you or your Trust at a premium. Generally, if the tax basis of your pro rata portion of any Debt Obligation, generally including sales charges, exceeds the amount payable at maturity, such excess is considered premium. You may elect to amortize premium. If you make this election, you may reduce your interest income received on the Debt Obligation by the amount of the premium that is amortized and your tax basis will be reduced. If the price of your Units includes accrued interest on a Debt Obligation, you must include the accrued interest in your tax basis in that Debt Obligation. When your Trust receives this accrued interest, you must treat it as a return of capital and reduce your tax basis in the Debt Obligation. This discussion provides only the general rules with respect to the tax treatment of original issue discount, market discount and premium. The rules, however, are complex and special rules apply in certain circumstances. For example, the accrual of market discount or premium may differ from the discussion set forth above in the case of Debt Obligations that were issued with original issue discount. EXCHANGES If you elect to have your proceeds from your Trust rolled over into a future Trust, it is considered a sale for federal income tax purposes and any gain on the sale will be treated as a capital gain, and any loss will be treated as a capital loss. However, any loss you incur in connection with the exchange of your Units of your Trust for Units of the next series will generally be disallowed with respect to this deemed sale and subsequent deemed repurchase, to the extent the two trusts have substantially identical Trust Assets under the wash sale provisions of the Internal Revenue Code. Page 48 LIMITATIONS ON THE DEDUCTIBILITY OF TRUST EXPENSES Generally, for federal income tax purposes, you must take into account your full pro rata share of your Trust's income, even if some of that income is used to pay trust expenses. You may deduct your pro rata share of each expense paid by your Trust to the same extent as if you directly paid the expense. You may be required to treat some or all of the expenses of your Trust as miscellaneous itemized deductions. Individuals may only deduct certain miscellaneous itemized deductions to the extent they exceed 2% of adjusted gross income. FOREIGN TAXES If you are a foreign investor (i.e., an investor other than a U.S. citizen or resident or a U.S. corporation, partnership, estate or trust), you may not be subject to U.S. federal income taxes, including withholding taxes, on some of the income from your Trust or on any gain from the sale or redemption of your Units, provided that certain conditions are met. You should consult your tax advisor with respect to the conditions you must meet in order to be exempt for U.S. tax purposes. You should also consult your tax advisor with respect to other U.S. tax withholding and reporting requirements. NEW YORK TAX STATUS Based on the advice of Chapman and Cutler LLP, special counsel to the Trust, under the existing income tax laws of the State and City of New York, your Trust will not be taxed as a corporation subject to the New York State franchise tax or the New York City general corporation tax. You should consult your tax advisor regarding potential foreign, state or local taxation with respect to your Units. 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 for the policy). FEES The Trustee's Estimated Annual Operating Fee and Expenses 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 Operating Fee and Expenses under the Investment Summary are borne by the Trust. 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 Page 49 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, (b) certain expenses of the Trustee (including legal and auditing expenses) and of counsel designated by the Sponsor, (c) various governmental charges, (d) expenses and costs of any action taken to protect any Trust, (e) indemnification of the Trustee for any loss, liabilities and expenses incurred without gross negligence, bad faith or willful misconduct on its part and (f) indemnification of the Sponsor for any losses, liabilities and expenses incurred without gross negligence, bad faith, willful misconduct or reckless disregard of its duties. 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. 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. 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. 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. 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 may be payable out of the Trust. Funds held by the Trustee in the various accounts created under the Indenture do not bear interest. PORTFOLIO SUPERVISION Each Trust is 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 Page 50 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. 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. 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. 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. 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 that may be required by the Trustee for each new Certificate and any sums payable for taxes or other governmental charges imposed upon this transaction 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. 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 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. 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 specified in the indenture and may be terminated at any time by written instruments executed by the Sponsor and consented to by Holders of 51% of the Units. The Trustee will deliver written notice of any termination to each Holder within a reasonable period of time Page 51 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. 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. 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 willful 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. THE EVALUATOR Interactive Data Services, Inc. (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. 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 willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations and duties. 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. 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. This provision, however, shall not protect the Sponsor in cases of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations Page 52 and duties. 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. CODE OF ETHICS The Sponsor and your trust have adopted a code of ethics requiring their employees who have access to information on trust transactions to report personal securities transactions. The purpose of the code is to avoid potential conflicts of interest and to prevent fraud, deception or misconduct with respect to your Trust. MISCELLANEOUS TRUSTEE The Bank of New York is the Trustee of your Trust with its principal unit investment trust division offices located at 2 Hanson Place, 12th Floor, Brooklyn, New York 11217. You can contact the Trustee by calling the telephone number on the back cover of this Prospectus or by writing to its unit investment trust office. The Sponsor may remove and replace the Trustee in some cases without your consent. The Trustee may also resign by notifying the Sponsor and investors. LEGAL OPINION Chapman and Cutler LLP acts as special counsel for the Sponsor. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The financial statements, including the Portfolios of the Trusts, included herein have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, 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 of the Trusts is Fixed Income Securities, Inc. acting through its Advisor's Asset Management division. The Sponsor is a broker-dealer specializing in providing trading and support services to broker-dealers, registered representatives, investment advisers and other financial professionals. The Sponsor's headquarters are located at 18925 Base Camp Road, Monument, Colorado 80132. You can contact the Advisor's Asset Management division at 8100 East 22nd Street North, Suite 900B, Wichita, Kansas 67226-2309 or by using the contacts listed on the back cover of this prospectus. The Sponsor is a registered broker-dealer and investment adviser, a member of the Financial Industry Regulatory Authority, Inc. (FINRA) and Securities Investor Protection Corporation (SIPC) and a registrant of the Municipal Securities Rulemaking Board (MSRB). If the Sponsor fails to or cannot perform the duties as sponsor or become bankrupt, the Trustee may replace the Sponsor, continue to operate your Trust without a sponsor, or terminate the Trust. Page 53 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. INDEX Investment Summary 2 Report of Independent Registered Public Accounting Firm 5 Financial Statements 6 Fund Structure 40 Risk Factors 41 Description of the Fund 42 Sale of Units 43 Market for Units 45 Redemption 45 Taxes 46 Expenses and Charges 49 Administration of the Fund 50 Resignation, Removal and Limitations on Liability 52 Miscellaneous 53 SPONSOR: Advisor's Asset Management Division of Fixed Income Securities, Inc. 18925 Base Camp Road Monument, Colorado 80132 EVALUATOR: Interactive Data Services, Inc. Financial Times Information 498 7th Avenue, 19th Floor New York, N.Y. 10018 TRUSTEE: Bank of New York 2 Hanson Place, 12th Floor Brooklyn, New York 11217 1-800-848-6468 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM: Deloitte & Touche, LLP 111 S. Wacker Drive Chicago, IL 60606 SPONSOR: [LOGO] ADVISOR'S ASSET MANAGEMENT A DIVISION OF FIXED INCOME SECURITIES, INC. Contents of Post-Effective Amendment To Registration Statement This Post-Effective Amendment to the Registration Statement comprises the following papers and documents: The facing sheet The prospectus The signatures Consent of Independent Registered Public Accounting Firm S-1 Signatures Pursuant to the requirements of the Securities Act of 1933, the Registrant, The Merrill Lynch Fund of Stripped ("Zero") U.S. Treasurey Securities, Series F-H and J-L, certifies that it meets all of the requirements for effectiveness of this registration statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post Effective Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Wichita, and State of Kansas, on the 24th day of April, 2008. The Merrill Lynch Fund of Stripped ("Zero") U.S. Treasurey Securities, Series F-H and J-L Registrant By: Fixed Income Securities, Inc. Depositor By /s/ ALEX R MEITZNER ----------------------------- Alex R. Meitzner Senior Vice President S-2 Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below on April 24, 2008 by the following persons in the capacities indicated: SIGNATURE TITLE DATE Scott I. Colyer Director of Fixed ) /s/ Alex Meitzner Income Securities, Inc. ) --------------------- Alex Meitzner Lisa Colyer Director of Fixed ) Attorney-in-Fact* Income Securities, Inc. ) April 24, 2008 James R. Costas Director of Fixed ) Income Securities, Inc. ) Christopher T. Genovese Director of Fixed ) Income Securities, Inc. ) Randy J. Pegg Director of Fixed ) Income Securities, Inc. ) R. Scott Roberg Director of Fixed ) Income Securities, Inc. ) Jack Simkin Director of Fixed ) Income Securities, Inc. ) Andrew Williams Director of Fixed ) Income Securities, Inc. ) * An executed copy of the related power of attorney was filed with the Securities and Exchange Commission as Exhibit 7.1 to the Registration Statement on Form S-6 for Advisor's Disciplined Trust 213 (File No. 333-148484) as filed on January 4, 2008 and the same is hereby incorporated herein by reference. S-3