The fund had opted out of a similar class-action suit and negotiated the settlement with Bank of America, which bought Merrill Lynch.
The suit claimed the now $133 billion fund was misled about Merrill Lynch's role in the mortgage-backed securities market that artificially inflated the company's stock value, which plummeted when the exposure became known publicly.
Fund lawyers have filed a separate suit claiming investor losses from the merger between Bank of America and Merrill Lynch.
Bank of America spokesman Bill Halldin confirmed the settlement Thursday. He declined further comment.