-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EI0dzzDw9Bqbkm8cqyX8bsy786VLoEYKEzQ2ydbuIgwfyJXpDVx7qQRHl3r0geOi d2pGMPcVBgkkg09TMmX3EQ== 0000950130-99-005162.txt : 19990909 0000950130-99-005162.hdr.sgml : 19990909 ACCESSION NUMBER: 0000950130-99-005162 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19990908 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERRILL LYNCH PIERCE FENNER & SMITH INC CENTRAL INDEX KEY: 0000728612 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: SEC FILE NUMBER: 333-78575 FILM NUMBER: 99708013 BUSINESS ADDRESS: STREET 1: NORTH TOWER WORLD FINANCIAL CENTER STREET 2: NORTH TOWER WORLD FINANCIAL CENTER 5TH F CITY: NEW YORK STATE: NY ZIP: 10281-1323 BUSINESS PHONE: 2124496202 MAIL ADDRESS: STREET 1: WORLD FINANCIAL CENTER STREET 2: NORTH TOWER 23RD FL CITY: NEW YORK STATE: NY ZIP: 10281-1323 POS AM 1 POST - EFFECTIVE AMENDMENT NO. 1 As filed with the Securities and Exchange Commission on September 8, 1999 Registration No. 333-78575 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- POST-EFFECTIVE AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 --------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated Initial Depositor (Exact name of registrant as specified in charter) --------------- Internet HOLDRs SM Trust yet-to-be formed [Issuer with respect to the receipts]
Delaware 6211 13-5674085 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or organization) Classification Code Number) Identification Number)
--------------- 250 Vesey Street New York, New York 10281 (212) 449-1000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) --------------- Andrea L. Dulberg, Esq. Copies to: Corporate Secretary Andrew B. Janszky Merrill Lynch, Pierce, Fenner & Smith Shearman & Sterling Incorporated 599 Lexington Avenue 250 Vesey Street New York, New York 10022 New York, New York 10281 (212) 848-4000 (212) 449-1000 (Name, address, including zip code, and telephone number, including area code, of agent for service) Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. [_] CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Title of Each Class of Proposed Maximum Proposed Maximum Securities to Be Amount to Be Offering Price Aggregate Offering Amount of Registered Registered Per Receipt(1) Price(1) Registration Fee(2)(3) - -------------------------------------------------------------------------------------------------- Internet HOLDRs......... 1,000,000,000 $100 $1,248,850,000 $347,181 - -------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------
(1)Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act. 11,500,000 Receipts are estimated to be offered in the initial offering at $100.00 per Receipt and 988,500,000 Receipts are estimated to be offered continuously after the initial offering at $0.10 per Receipt. (2)Previously paid (3) This Registration Statement also registers, where required, an indeterminate amount of securities to be sold by Merrill Lynch, Pierce, Fenner & Smith Incorporated in market-making transactions. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We + +have filed a registration statement relating to these receipts with the + +Securities and Exchange Commission. We cannot sell these receipts until the + +registration statement becomes effective. This prospectus is not an offer to + +sell these receipts and we are not soliciting offers to buy these receipts in + +any state where such offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED SEPTEMBER 3, 1999. [LOGO] PROSPECTUS 1,000,000,000 Depositary Receipts Internet HOLDRs SM Trust The Internet HOLDRs SM Trust will issue Depositary Receipts called Internet HOLDRs SM representing your undivided beneficial ownership in the common stock of a group of 20 specified companies that are involved in various segments of the Internet industry. The Bank of New York will be the trustee. You only may acquire, hold or transfer Internet HOLDRs in a round-lot amount of 100 Internet HOLDRs or round-lot multiples. Internet HOLDRs are separate from the underlying deposited common stocks that are represented by the Internet HOLDRs. For a list of the names and the number of shares of the companies that make up an Internet HOLDRs, see "Highlights of Internet HOLDRs--The Internet HOLDRs" starting on page 7. The trust will issue Internet HOLDRs in its initial distribution and will offer to issue the remaining Internet HOLDRs on a continuous basis after the initial distribution. Investing in Internet HOLDRs involves significant risks. See "Risk Factors" starting on page 4. The initial public offering price for a round-lot of 100 Internet HOLDRs will equal the sum of the closing market price on the date the Internet HOLDRs are priced for initial sale to the public for each deposited share multiplied by the share amount specified in this prospectus, plus an underwriting fee. Internet HOLDRs are neither interests in nor obligations of either the initial depositor, Merrill Lynch, Pierce, Fenner & Smith Incorporated, or The Bank of New York, as trustee. Prior to this issuance, there has been no public market for Internet HOLDRs. Application has been made to list the Internet HOLDRs on the American Stock Exchange under the symbol "HHH". ----------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Price to Underwriting Public Fee -------- ------------ Per Internet HOLDR............................ 2%
For purchases of Internet HOLDRs in excess of [ ] Internet HOLDRs, the underwriting fee will be [ ]%. ----------- Merrill Lynch & Co. ----------- The date of this prospectus is September , 1999. "HOLDRs" and "HOLding Company Depositary Receipts" are service marks of Merrill Lynch & Co., Inc. TABLE OF CONTENTS
Page ---- Summary.................................................................... 3 Risk factors............................................................... 4 Highlights of Internet HOLDRs.............................................. 7 The trust.................................................................. 13 Description of Internet HOLDRs............................................. 13 Description of the underlying securities................................... 14 Description of the depositary trust agreement.............................. 16 Federal income tax consequences............................................ 19 ERISA considerations....................................................... 20 Plan of distribution....................................................... 20 Year 2000.................................................................. 21 Legal matters.............................................................. 22 Where you can find more information........................................ 22
---------------- This prospectus contains information you should consider when making your investment decision. With respect to information about Internet HOLDRs, you should rely only on the information contained in this prospectus. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell Internet HOLDRs in any jurisdiction where the offer or sale is not permitted. 2 SUMMARY The Internet HOLDRs trust will be formed under the depositary trust agreement, dated as of September 2, 1999 among The Bank of New York, as trustee, Merrill Lynch, Pierce, Fenner & Smith Incorporated, other depositors and the owners of the Internet HOLDRs. The trust is not a registered investment company under the Investment Company Act of 1940. The trust will hold shares of common stock issued by 20 specified companies generally considered to be involved in various segments of the Internet industry. The number of shares of each common stock held by the trust with respect to each round lot of HOLDRs is specified under "Highlights of Internet HOLDRs--The Internet HOLDRs." This group of common stocks is referred to as the underlying securities. Except when a reconstitution event occurs, the underlying securities will not change. Under no circumstances will a new company be added to the group of issuers of underlying securities. The trust will issue Internet HOLDRs that represent your undivided beneficial ownership interest in the shares of common stock held by the trust on your behalf. The Internet HOLDRs are separate from the underlying common stocks that are represented by the Internet HOLDRs. 3 RISK FACTORS An investment in Internet HOLDRs involves risks similar to investing in each of the underlying securities outside of the Internet HOLDRs, including the risks associated with concentrated investments in the internet industry. General Risk Factors . Loss of investment. Because the value of Internet HOLDRs directly relates to the value of the underlying securities, you may lose all or a substantial portion of your investment in the Internet HOLDRs if the underlying securities decline in value. . Discount trading price. Internet HOLDRs may trade at a discount to the aggregate value of the underlying securities. . Not necessarily representative of the Internet industry. While the underlying securities are common stocks of companies generally considered to be involved in various segments of the Internet industry, the underlying securities and the Internet HOLDRs may not necessarily follow the price movements of the entire Internet industry generally. If the underlying securities decline in value, your investment in the Internet HOLDRs will decline in value even if common stock prices in the Internet industry generally increase in value. Furthermore, after the initial deposit, one or more of the issuers of the underlying securities may no longer be involved in the Internet industry. In this case, the Internet HOLDRs may no longer consist of securities issued only by companies involved in the Internet industry. . No investigation of underlying securities. The underlying securities included in the Internet HOLDRs were selected by Merrill Lynch, Pierce, Fenner & Smith Incorporated based on the market capitalization of issuers and the market liquidity of common stocks in the Internet industry, without regard for the value, price performance, volatility or investment merit of the underlying securities. Consequently, the Internet HOLDRs trust, the trustee, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and their affiliates, have not performed any investigation or review of the selected companies, including the public filings by the companies. Investors and market participants should not conclude that the inclusion of a company is any form of investment recommendation by the trust, the trustee, Merrill Lynch, Pierce, Fenner & Smith Incorporated, or their affiliates. . Loss of diversification. As a result of business developments, reorganizations, or market fluctuations affecting issuers of the underlying securities, Internet HOLDRs may not necessarily continue to be a diversified investment in the Internet industry. As a result of market fluctuation and/or reconstitution events, Internet HOLDRs may represent a concentrated investment in one or more of the underlying securities which would reduce investment diversification and increase your exposure to the risks of concentrated investments. . Conflicting investment choices. In order to sell one or more of the underlying securities individually or to participate in a tender offer relating to one or more of the underlying securities, you will be required to cancel your Internet HOLDRs and receive delivery of each of the underlying securities. The cancellation of your Internet HOLDRs will allow you to sell individual underlying securities or to deliver individual underlying securities in a tender offer. The cancellation of Internet HOLDRs will involve payment of a cancellation fee to the trustee. . Trading halts. Trading in Internet HOLDRs may be halted in the event trading in one or more of the underlying securities is halted. If so, you will not be able to trade Internet HOLDRs even though there is trading in some of the underlying securities, however, you will be able to cancel your HOLDRs to receive the underlying securities. 4 . Delisting from the American Stock Exchange. If the number of companies whose common stock is held in the trust falls below nine, the American Stock Exchange may consider delisting the receipts. If the receipts are delisted by the American Stock Exchange, a termination event will result if the receipts are not listed for trading on another national securities exchange or through NASDAQ within five business days from the date the Internet HOLDRs are delisted. . Possible conflicts of interest. Merrill Lynch, Pierce, Fenner & Smith Incorporated, as initial depositor, will select the underlying securities and may face possible conflicts of interest in connection with its activities. For example, Merrill Lynch, Pierce, Fenner & Smith Incorporated and its affiliates, collectively referred to as Merrill Lynch, may engage in investment banking and other activities, may provide services to issuers of the underlying securities in connection with its business, or may trade in the underlying securities for its own account. All of these activities may result in conflicts of interest with respect to the financial interest of Merrill Lynch, on the one hand, and, on the other hand, the initial selection of the underlying securities to be included in the Internet HOLDRs, the selection of the Internet industry, Merrill Lynch's activity in the secondary market in the underlying securities, and the creation and cancellation of Internet HOLDRs by Merrill Lynch. . Temporary price increases in the underlying securities. Purchasing activity in the secondary trading market associated with acquiring the underlying securities for deposit into the trust may affect the market price of the deposited shares. Large volumes of purchasing activity, which may occur in connection with the issuance of Internet HOLDRs, particularly in connection with the initial issuance of Internet HOLDRs, could temporarily increase the market price of the underlying securities, resulting in a higher price on that date. This purchasing activity could create a temporary imbalance between the supply and demand of the underlying securities, thereby limiting the liquidity of the underlying securities due to a temporary increased demand for underlying securities. Consequently, prices for the underlying securities may decline subsequent to these purchases as the volume of purchases subsides. This in turn is likely to have an immediate, adverse effect on the trading price of Internet HOLDRs. Risk Factors Specific to the Internet Industry . Internet company stock prices have been and may continue to be extremely volatile. The trading prices of the common stocks of Internet companies have been and are likely to be extremely volatile. Internet companies' stock prices could be subject to wide fluctuations in response to a variety of factors, including the following: . actual or anticipated variations in companies' quarterly operating results; . announcements of technological innovations or new services by Internet companies or their competitors; . changes in financial estimates by securities analysts; . conditions or trends in the Internet and online commerce industries; . conditions or trends in online securities trading; . changes in the market valuations of Internet or online service companies; . developments in Internet regulations; . announcements by Internet companies or their competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; . unscheduled system downtime; . additions or departures of key personnel; and . sales of Internet companies' common stock or other securities in the open market. 5 In addition, the trading prices of Internet stocks in general have experienced extreme price and volume fluctuations in recent months. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. The valuations of many Internet stocks are extraordinarily high based on conventional valuation standards such as price to earnings and price to sales ratios. Some of the companies do not or in the future might not have earnings. As a result, these trading prices may decline substantially. These trading prices and valuations may not be sustained. Any negative change in the public's perception of the prospects of Internet or e-commerce companies could depress Internet stock prices regardless of Internet companies' results. Other broad market and industry factors may decrease the market price of Internet stocks, regardless of Internet companies' operating performance. Market fluctuations, as well as general political and economic conditions such as recession or interest rate or currency rate fluctuations, also may decrease the market price of Internet stocks. . Internet companies must keep pace with rapid technological change to remain competitive. The Internet market is characterized by rapidly changing technology, evolving industry standards and practices, frequent new product and service introductions and enhancements and changing customer demands. These market characteristics are worsened by the emerging nature of the Internet and the apparent need of companies from a multitude of industries to offer Web-based products and services. Internet companies' success therefore will depend on their ability to adapt to rapidly changing technologies, to adapt their services to evolving industry standards and to continually improve the performance, features and reliability of their service. Failure to adapt to such changes would harm their business. In addition, the widespread adoption of new Internet, networking or telecommunications technologies or other technological changes could require substantial expenditures to modify or adapt their services or infrastructure. The online commerce market, particularly over the Internet, is new, rapidly evolving and intensely competitive, which competition is expected to intensify in the future. Barriers to entry are minimal, and current and new competitors can launch new sites and services at a relatively low cost. . New laws and regulations with respect to the Internet could impede its commercial development. Due to the increasing popularity and use of the Internet and other online services, it is possible that a number of laws and regulations may be adopted with respect to the Internet or other online services covering issues such as user privacy, pricing, content, copyrights, distribution and characteristics and quality of products and services. Furthermore, the growth and development of the market for online interaction and commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on companies conducting business online. The adoption of any additional laws or regulations may impede the growth of the Internet or other online services. . Internet companies depend on continued growth of Internet use and online commerce. Future revenues and any future profits of Internet companies depend substantially upon the widespread acceptance and use of the Internet and other online services as an effective medium of communication and commerce by consumers. Rapid growth in the use of and interest in the Web, the Internet and other online services is a recent phenomenon. There is no assurance that acceptance and use will continue to develop or that a sufficiently broad base of consumers will adopt, and continue to use, the Internet and other online services as a medium of communication and commerce. Demand and market acceptance for recently introduced services and products over the Internet are subject to a high level of uncertainty and few proven services and products exist. Internet companies rely on consumers who have previously used traditional means of commerce to exchange information and to purchase goods and services. For Internet companies to be successful, consumers must accept and utilize novel ways of conducting business and exchanging information. 6 HIGHLIGHTS OF INTERNET HOLDRs This discussion highlights information regarding Internet HOLDRs; we present certain information more fully in the rest of this prospectus. You should read the entire prospectus carefully before you purchase Internet HOLDRs. Issuer....................... Internet HOLDRs Trust. The trust.................... The Internet HOLDRs Trust will be formed under the depositary trust agreement, dated as of September 2, 1999 among The Bank of New York, as trustee, Merrill Lynch, Pierce, Fenner & Smith Incorporated, other depositors and the owners of the Internet HOLDRs. The trust is not a registered investment company under the Investment Company Act of 1940. Initial depositor............ Merrill Lynch, Pierce, Fenner & Smith Incorporated. Trustee...................... The Bank of New York, a New York state- chartered banking organization, will be the trustee and receive compensation as set forth in the depositary trust agreement. Purpose of Internet HOLDRs... Internet HOLDRs are designed to achieve the following: Diversification. Internet HOLDRs are designed to allow you to diversify your investment in the Internet industry through a single, exchange-listed instrument representing your undivided beneficial ownership of the underlying securities. Flexibility. The beneficial owners of Internet HOLDRs have undivided beneficial ownership interests in each of the underlying securities represented by the Internet HOLDRs, and can cancel their Internet HOLDRs to receive each of the underlying securities represented by the Internet HOLDRs. Transaction costs. The expenses associated with trading Internet HOLDRs are expected to be less than trading each of the underlying securities separately. Trust assets................. The trust will hold shares of common stock issued by 20 specified companies in the Internet industry. Except when a reconstitution event occurs, the group of companies will not change. Reconstitution events are described in this prospectus under the heading "Description of the Depositary Trust Agreement-- Reconstitution Events." Under no circumstances will the common stock of a new company be added to the common stocks underlying the Internet HOLDRs. The trust's assets may increase or decrease as a result of in-kind deposits and withdrawals of the underlying securities during the life of the trust. The Internet HOLDRs.......... The trust will issue Internet HOLDRs that represent your undivided beneficial ownership interest in the shares of common stock held by the trust on your behalf. The Internet HOLDRs themselves are separate from the underlying securities that are represented by the Internet HOLDRs. The specific share amounts for each round-lot of 100 Internet HOLDRs are set forth in the chart below and were determined on 7 August 31, 1999 so that the initial weightings of each underlying security included in the Internet HOLDRs approximated the relative market capitalizations of the specified companies, subject to a maximum weight of 20%. Because these weightings are a function of market prices, it is expected that these weightings will change substantially over time, including during the period between the date of this prospectus and the date the Internet HOLDRs are first issued to the public. The share amounts set forth below will not change, except for changes due to corporate events such as stock splits or reverse stock splits on the underlying securities or reconstitution events. The following chart provides the . names of the 20 issuers of the underlying securities represented by an Internet HOLDRs, . stock ticker symbols, . share amounts represented by a round-lot of 100 Internet HOLDRs, . initial weightings, and . the principal market on which the shares of common stock of the selected companies are traded.
Primary Name of Share Initial Trading Company Ticker Amounts Weighting Market ------------------------ ------ ------- --------- ------- America Online Inc. AOL 21 19.60% NYSE Yahoo Inc. YHOO 13 19.60% NASDAQ Amazon.com Inc. AMZN 18 11.44% NASDAQ eBay Inc. EBAY 6 7.70% NASDAQ At Home Corp. ATHM 17 6.97% NASDAQ Priceline.Com Inc. PCLN 7 4.87% NASDAQ CMGI Inc. CMGI 5 4.29% NASDAQ Inktomi Corporation INKT 3 3.48% NASDAQ RealNetworks, Inc. RNWK 4 3.34% NASDAQ Exodus Communications, Inc. EXDS 4 3.29% NASDAQ E*TRADE Group Inc. EGRP 12 3.07% NASDAQ DoubleClick Inc. DCLK 2 2.04% NASDAQ Ameritrade Holding Corp. AMTD 9 1.87% NASDAQ Lycos, Inc. LCOS 4 1.66% NASDAQ CNET, Inc. CNET 4 1.54% NASDAQ PSINet Inc. PSIX 3 1.47% NASDAQ Network Associates, Inc. NETA 7 1.21% NASDAQ EarthLink Network, Inc. ELNK 2 1.00% NASDAQ MindSpring Enterprises, Inc. MSPG 3 0.90% NASDAQ Go2Net, Inc. GNET 1 0.66% NASDAQ
8 These companies generally are considered to be among the 20 largest and most liquid companies involved in the Internet industry as measured by market capitalization and trading volume on August 31, 1999. The market capitalization of a company is determined by multiplying the price of its common stock by the number of outstanding shares of its common stock. The trust only will issue and cancel, and you only may obtain, hold, trade or surrender, Internet HOLDRs in a round-lot of 100 Internet HOLDRs and round-lot multiples. The trust will only issue Internet HOLDRs upon the deposit of the whole shares represented by a round-lot of 100 Internet HOLDRs. In the event that a fractional share comes to be represented by a round-lot of Internet HOLDRs, the trust may require a minimum of more than one round-lot of 100 Internet HOLDRs for an issuance so that the trust will always receive whole share amounts for issuance of Internet HOLDRs. The number of outstanding Internet HOLDRs will increase and decrease as a result of in-kind deposits and withdrawals of the underlying securities. The trust will stand ready to issue additional Internet HOLDRs on a continuous basis when an investor deposits the required shares of common stock with the trustee. Public offering price........ The initial public offering price for 100 Internet HOLDRs will equal the sum of the closing market price on the pricing date for each underlying security multiplied by the share amount appearing in the above table, plus an underwriting fee. Purchases.................... After the initial offering, you may acquire Internet HOLDRs in two ways: . through an in-kind deposit of the required number of shares of common stock of the underlying issuers with the trustee, or . through a cash purchase in the secondary trading market. Underwriting fees............ If you wish to purchase Internet HOLDRs in the initial public offering, you will pay Merrill Lynch, Pierce, Fenner & Smith Incorporated, in its role as underwriter, an underwriting fee equal to: . For purchases of [ ] Internet HOLDRs or fewer, 2%. . For purchases in excess of [ ] Internet HOLDRs, [ ]%. You will not be charged any issuance fee or other sales commission in connection with purchases of Internet HOLDRs made in the initial public offering. Issuance and cancellation After the initial offering, if you wish to fees......................... create Internet HOLDRs by delivering to the trust the requisite shares of common stock evidencing an Internet HOLDRs, The Bank of New York as trustee will charge you an issuance fee of up to $10.00 for each round-lot of 100 Internet HOLDRs. If you wish to cancel your Internet HOLDRs and withdraw your underlying securities, The Bank of New York as trustee will charge you a cancellation fee of up to $10.00 for each round-lot of 100 Internet HOLDRs. 9 Commissions.................. If you choose to deposit underlying securities in order to receive Internet HOLDRs after the conclusion of the trust's initial public offering, you will not be charged the underwriting fee. However, in addition to the issuance fee charged by the trustee described above, you will be responsible for paying any sales commission associated with your purchase of the underlying securities that is charged by your broker, whether it be Merrill Lynch, Pierce, Fenner & Smith Incorporated or another broker. Custody fees................. The Bank of New York, as trustee and as custodian, will charge you a quarterly custody fee of $2.00 for each round-lot of 100 Internet HOLDRs to be deducted from any cash dividend or other cash distributions on underlying securities received by the trust. With respect to the aggregate custody fee payable in any calendar year for each Internet HOLDR, the Trustee will waive that portion of the fee which exceeds the total cash dividends and other cash distributions received, or to be received, and payable with respect to such calendar year. Rights relating to Internet You have the right to withdraw the underlying HOLDRs....................... securities upon request by delivering a round- lot or integral multiple of a round-lot of Internet HOLDRs to the trustee, during the trustee's business hours, and paying the cancellation fees, taxes, and other charges. You should receive the underlying securities no later than the business day after the trustee receives a proper notice of cancellation. The trustee will not deliver fractional shares of underlying securities. To the extent that any cancellation of Internet HOLDRs would otherwise require the delivery of a fractional share, the trustee will sell such share in the market and the trust, in turn, will deliver cash in lieu of such share. Except with respect to the right to vote for dissolution of the trust, the Internet HOLDRs themselves will not have voting rights. Rights relating to the underlying securities....... You have the right to: . Receive all shareholder disclosure materials, including annual and quarterly reports, distributed by the issuers of the underlying securities. . Receive all proxy materials distributed by the issuers of the underlying securities and will have the right to instruct the trustee to vote the underlying securities or may attend shareholder meetings yourself. . Receive dividends and other distributions on the underlying securities, if any are declared and paid to the trustee by an issuer of the underlying securities, net of any applicable taxes or fees. If you wish to participate in a tender offer for underlying securities, you must obtain the underlying securities by surrendering your Internet HOLDRs and receiving all of your underlying securities. For specific information about obtaining your underlying securities, you should read the discussion under the caption "Description of the Depositary Trust Agreement." 10 Reconstitution events........ A. If an issuer of underlying securities no longer has a class of common stock registered under section 12 of the Securities Exchange Act of 1934, then its securities will no longer be an underlying security and the trustee will distribute the shares of that company to the owners of the Internet HOLDRs. B. If the SEC finds that an issuer of underlying securities should be registered as an investment company under the Investment Company Act of 1940, and the trustee has actual knowledge of the SEC finding, then the trustee will distribute the shares of that company to the owners of the Internet HOLDRs. C. If the underlying securities of an issuer cease to be outstanding as a result of a merger, consolidation or other corporate combination, the trustee will distribute the consideration paid by and received from the acquiring company to the beneficial owners of Internet HOLDRs, unless the acquiring company already is included in the Internet HOLDRs and the consideration paid is additional underlying securities. In this case, the additional underlying securities will be deposited into the trust. D. If an issuer's underlying securities are delisted from trading on a national securities exchange or NASDAQ and are not listed for trading on another national securities exchange or through NASDAQ within 5 business days from the date such securities are delisted. If a reconstitution event occurs, the trustee will deliver the underlying security to you as promptly as practicable after the date that the trustee has knowledge of the occurrence of a reconstitution event. Termination events........... A. The Internet HOLDRs are delisted from the American Stock Exchange and are not listed for trading on another national securities exchange or through NASDAQ within 5 business days from the date the Internet HOLDRs are delisted. B. The trustee resigns and no successor trustee is appointed within 60 days from the date the trustee provides notice to the initial depositor of its intent to resign. C. 75% of beneficial owners of outstanding Internet HOLDRs vote to dissolve and liquidate the trust. If a termination event occurs, the trustee will distribute the underlying securities to you as promptly as practicable after the termination event. Federal income tax The federal income tax laws will treat a U.S. consequences................. holder of Internet HOLDRs as directly owning the underlying securities. The Internet HOLDRs themselves will not result in any federal tax consequences separate from the tax consequences associated with ownership of the underlying securities. 11 Listing...................... Application has been made to list Internet HOLDRs on the American Stock Exchange under the symbol "HHH". Trading will take place only in round-lots of 100 Internet HOLDRs and round-lot multiples. A minimum of 150,000 Internet HOLDRs will be required to be outstanding when trading begins. Trading...................... Investors only will be able to acquire, hold, transfer and surrender a round-lot of 100 Internet HOLDRs. Bid and ask prices, however, will be quoted per single Internet HOLDRs. Clearance and settlement..... The trust will issue Internet HOLDRs in book- entry form. Internet HOLDRs will be evidenced by one or more global certificates that the trustee will deposit with The Depositary Trust Company, referred to as DTC. Transfers within DTC will be in accordance with DTC's usual rules and operating procedures. For further information see "Description of Internet HOLDRs". 12 THE TRUST General. This discussion highlights information about the Internet HOLDRs trust. You should read this information, information about the depositary trust agreement as well as the depositary trust agreement before you purchase Internet HOLDRs. The material terms of the depositary trust agreement are described in this prospectus under the heading "Description of the Depositary Trust Agreement." The Internet HOLDRs Trust. The trust will be formed pursuant to the depositary trust agreement, dated as of September 2, 1999. The Bank of New York will be the trustee. The Internet HOLDRs Trust is not a registered investment company under the Investment Company Act of 1940. The Internet HOLDRs Trust is intended to hold deposited shares for the benefit of owners of Internet HOLDRs. The trustee will perform only administrative and ministerial acts. The property of the trust will consist of the underlying securities and all monies or other property, if any, received by the trustee. The trust will terminate on December 31, 2039, or earlier if a termination event occurs. DESCRIPTION OF INTERNET HOLDRs The trust will issue Internet HOLDRs under the depositary trust agreement described in this prospectus under the heading "Description of the depositary trust agreement." After the initial offering, the trust may issue additional Internet HOLDRs on a continuous basis when an investor deposits the requisite underlying securities with the trustee. You may only acquire, hold, trade and surrender Internet HOLDRs in a round-lot of 100 Internet HOLDRs and round-lot multiples. The trust will only issue Internet HOLDRs upon the deposit of the whole shares of underlying securities that are represented by a round-lot of 100 Internet HOLDRs. In the event of a stock split, reverse stock split, or other distribution by the issuer of an underlying security that results in a fractional share becoming represented by a round-lot of Internet HOLDRs, the trust may require a minimum of more than one round-lot of 100 Internet HOLDRs for an issuance so that the trust will always receive whole share amounts for issuance of Internet HOLDRs. Internet HOLDRs will represent your individual and undivided beneficial ownership interest in the common stock of the specified underlying securities. The 20 companies selected as part of this receipt program are listed above in the section entitled "Highlights of Internet HOLDRs--The Internet HOLDRs". Beneficial owners of Internet HOLDRs will have the same rights and privileges as they would have if they beneficially owned the underlying securities outside of the trust. These include the right of investors to instruct the trustee to vote the common stock, and to receive dividends and other distributions on the underlying securities, if any are declared and paid to the trustee by an issuer of an underlying security, as well as the right to cancel Internet HOLDRs to receive the underlying securities. See "Description of the depositary trust agreement". Internet HOLDRs are not intended to change your beneficial ownership in the underlying securities under federal securities laws, including Sections 13(d) and 16(a) of the Securities Exchange Act of 1934. The trust will not publish or otherwise calculate net asset value per receipt. Internet HOLDRs may trade in the secondary market at prices that are lower than the aggregate value of the corresponding underlying securities. If, in such case, an owner of Internet HOLDRs wishes to realize the dollar value of the underlying securities, that owner will have to cancel the Internet HOLDRs. Such cancellation will require payment of fees and expenses as described in "Withdrawal of underlying securities" below. 13 Internet HOLDRs will be evidenced by one or more global certificates that the trustee will deposit with DTC and register in the name of Cede & Co., as nominee for DTC. Internet HOLDRs will be available only in book-entry form. Owners of Internet HOLDRs may hold their Internet HOLDRs through DTC, if they are participants in DTC, or indirectly through entities that are participants in DTC. DESCRIPTION OF THE UNDERLYING SECURITIES Selection criteria. The underlying securities are the common stocks of a group of 20 specified companies involved in various segments of the Internet industry and whose common stock is registered under Section 12 of the Exchange Act. The issuers of the underlying securities are among the 20 largest capitalized, most liquid companies in the Internet industry as measured by market capitalization and trading volume. The following criteria were used in selecting the underlying securities on August 31, 1999: . Market capitalization equal to or greater than $1.0 billion; . Average daily trading volume of at least 1.2 million shares over the 60 trading days prior to August 31, 1999; . Average daily dollar volume (that is, the average daily trading volume multiplied by the closing price on August 31, 1999) of at least $60 million over the 60 trading days prior to August 31, 1999; and . A trading history of at least 90 calendar days. The market capitalization of a company is determined by multiplying the price of its common stock by the number of shares of its common stock that are held by stockholders. In determining whether a company was to be considered for inclusion in the Internet HOLDRs, Merrill Lynch, Pierce, Fenner & Smith Incorporated examined available public information about the company, including analysts' reports and other independent market sources. The ultimate determination of the inclusion of the 20 specified companies, however, rested solely within the discretion of Merrill Lynch, Pierce, Fenner & Smith Incorporated. After the initial deposit, one or more of the issuers of the underlying securities may no longer be substantially involved in the Internet industry. In this case, the Internet HOLDRs may no longer consist of securities issued by companies involved in the Internet industry. Merrill Lynch, Pierce, Fenner & Smith Incorporated will determine, in its sole discretion, whether the receipt with respect to that particular group of underlying securities remains in the Internet industry and will undertake to make adequate disclosure when necessary. Underlying securities. For a list of the underlying securities represented by Internet HOLDRs, please refer to "Highlights of Internet HOLDRs--The Internet HOLDRs." If the underlying securities change because of a reconstitution event, a revised list of underlying securities will be set forth in a prospectus supplement and will be available from the American Stock Exchange and through a widely-used electronic information dissemination system such as Bloomberg or Reuters. No investigation. In selecting the underlying securities, the trust, the trustee, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and any affiliate of these entities, have not performed any investigation or review of the selected companies, including the public filings by the companies, other than to the extent required to determine whether the companies satisfied the program's stated selection criteria. Accordingly, before you acquire Internet HOLDRs, you should consider publicly available financial and other information about the issuers of the underlying securities. See "Risk Factors" and "Available Information." Investors and market participants should not conclude that the inclusion of a company in the list is any form of investment recommendation of that company by the trust, the trustee, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and any of their affiliates. General background and historical information. For a brief description of the business of each of the issuers of the underlying securities and monthly pricing information showing the historical performance of each underlying issuer's securities see "Annex A." 14 The following table and graph set forth the composite performance of all of the underlying securities represented by a single Internet HOLDR, measured at the close of each business day from March 30, 1999, the first date when all of the underlying securities were publicly traded, to August 31, 1999. The performance table and graph data are adjusted for any splits that may have occurred over the measurement period. Past movements of the underlying securities are not necessarily indicative of future values.
Closing 1999 Price - ---- ------- March 30........ 121.94 March 31........ 123.94 April 1......... 126.96 April 5......... 140.35 April 6......... 142.91 April 7......... 139.66 April 8......... 143.30 April 9......... 147.50 April 12........ 152.40 April 13........ 153.76 April 14........ 142.31 April 15........ 139.00 April 16........ 137.72 April 19........ 113.34 April 20........ 124.66 April 21........ 134.71 April 22........ 139.41 April 23........ 145.80 April 26........ 155.92 April 27........ 150.99 April 28........ 140.85 April 29........ 142.18 April 30........ 144.79
Closing 1999 Price - ---- ------- May 3........... 133.68 May 4........... 128.47 May 5........... 134.38 May 6........... 126.30 May 7........... 125.45 May 10.......... 132.94 May 11.......... 137.76 May 12.......... 136.68 May 13.......... 131.43 May 14.......... 128.50 May 17.......... 133.33 May 18.......... 131.40 May 19.......... 133.84 May 20.......... 127.44 May 21.......... 126.02 May 24.......... 116.07 May 25.......... 106.83 May 26.......... 114.77 May 27.......... 110.40 May 28.......... 116.04
Closing 1999 Price - ---- ------- June 1.......... 107.75 June 2.......... 107.05 June 3.......... 101.59 June 4.......... 107.61 June 7.......... 112.97 June 8.......... 109.10 June 9.......... 110.18 June 10......... 107.60 June 11......... 100.31 June 14......... 87.29 June 15......... 90.38 June 16......... 102.30 June 17......... 104.56 June 18......... 106.10 June 21......... 114.25 June 22......... 110.00 June 23......... 112.02 June 24......... 107.95 June 25......... 104.22 June 28......... 107.85 June 29......... 111.28 June 30......... 117.66
Closing 1999 Price - ---- ------- July 1.......... 118.35 July 2.......... 120.32 July 6.......... 122.77 July 7.......... 120.98 July 8.......... 122.52 July 9.......... 121.73 July 12......... 115.61 July 13......... 117.42 July 14......... 118.40 July 15......... 117.32 July 16......... 114.86 July 19......... 111.66 July 20......... 106.04 July 21......... 109.84 July 22......... 104.09 July 23......... 104.57 July 26......... 97.86 July 27......... 97.04 July 28......... 102.13 July 29......... 97.47 July 30......... 95.02
Closing 1999 Price - ---- ------- August 2........ 91.66 August 3........ 87.05 August 4........ 82.49 August 5........ 88.48 August 6........ 85.37 August 9........ 82.14 August 10....... 84.42 August 11....... 85.96 August 12....... 87.34 August 13....... 91.05 August 16....... 93.15 August 17....... 97.43 August 18....... 99.31 August 19....... 93.70 August 20....... 96.44 August 23....... 100.33 August 24....... 100.37 August 25....... 104.61 August 26....... 103.01 August 27....... 101.24 August 30....... 95.98 August 31....... 97.83
15 DESCRIPTION OF THE DEPOSITARY TRUST AGREEMENT General. The depositary trust agreement, dated as of September 2, 1999, among Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Bank of New York, as trustee, other depositors and the owners of the Internet HOLDRs, provides that Internet HOLDRs will represent the common stock of the underlying companies. The trustee. The Bank of New York serves as trustee. The Bank of New York, which was founded in 1784, was New York's first bank and is the oldest bank in the country still operating under its original name. The Bank is a state-chartered New York banking corporation and a member of the Federal Reserve System. The Bank conducts a national and international wholesale banking business and a retail banking business in the New York City, New Jersey and Connecticut areas, and provides a comprehensive range of corporate and personal trust, securities processing and investment services. Issuance, transfer and surrender of Internet HOLDRs. You may create and cancel Internet HOLDRs only in round-lots of 100 Internet HOLDRs. You may create Internet HOLDRs by delivering to the trustee the requisite underlying securities. The trust will only issue Internet HOLDRs upon the deposit of the whole shares represented by a round-lot of 100 Internet HOLDRs. In the event that an issuer of underlying securities distributes a fractional share that is represented in a round-lot of Internet HOLDRs, the trust may require a minimum of more than one round-lot of 100 Internet HOLDRs for an issuance so that the trust will always receive whole share amounts for issuance of Internet HOLDRs. Similarly, you must surrender Internet HOLDRs in integral multiples of 100 Internet HOLDRs to withdraw deposited shares from the trust. The trustee will not deliver fractional shares of underlying securities, to the extent that any cancellation of Internet HOLDRs would otherwise require the delivery of fractional shares, the trust will deliver cash in lieu of such shares. You may request withdrawal of your deposited shares during the trustee's normal business hours. The trustee expects that in most cases it will deliver your deposited shares within one business day of your withdrawal request. Voting rights. The trustee will deliver you proxy soliciting materials provided by issuers of the deposited shares so as to permit you to give the trustee instructions as to how to vote on matters to be considered at any annual or special meetings held by issuers of the underlying securities. Under the depositary trust agreement, the beneficial owners of Internet HOLDRs, other than Merrill Lynch, Pierce, Fenner & Smith Incorporated owning Internet HOLDRs for its own proprietary account as principal, will have the right to vote to dissolve and liquidate the trust. Distributions. You will be entitled to receive, net of trustee fees, distributions of cash, including dividends, securities or property, if any, made with respect to the underlying securities. The trustee will use its reasonable efforts to ensure that it distributes these distributions as promptly as practicable after the date on which it receives the distribution. Therefore, you may receive your distributions substantially later than you would have had you held the underlying securities directly. You will be obligated to pay any tax or other charge that may become due with respect to Internet HOLDRs. The trustee may deduct the amount of any tax or other governmental charge from a distribution before making payment to you. In addition, the trustee will deduct its quarterly custody fee of $2.00 for each round-lot of 100 Internet HOLDRs from quarterly dividends, if any, paid to the trustee by the issuers of the underlying securities. With respect to the aggregate custody fee payable in any calendar year for each Internet HOLDR, the Trustee will waive that portion of the fee which exceeds the total cash dividends and other cash distributions received, or to be received, and payable with respect to such calendar year. Record dates. With respect to dividend payments and voting instructions, the trustee expects to fix the trust's record dates as close as possible to the record date fixed by the issuer of the underlying securities. Shareholder communications. The trustee promptly will forward to you all shareholder communications that it receives from issuers of the underlying securities. 16 Withdrawal of underlying securities. You may surrender your Internet HOLDRs and receive underlying securities during the trustee's normal business hours and upon the payment of applicable fees, taxes or governmental charges, if any. You should receive your underlying securities no later than the business day after the trustee receives your request. If you surrender Internet HOLDRs in order to receive underlying securities, you will pay to the trustee a cancellation fee of up to $10.00 per round-lot of 100 Internet HOLDRs. Further issuances of Internet HOLDRs. The depositary trust agreement will provide for further issuances of Internet HOLDRs on a continuous basis without your consent. Reconstitution events. The depositary trust agreement provides for the automatic distribution of underlying securities to you in four circumstances. A. If an issuer of underlying securities no longer has a class of common stock registered under section 12 of the Securities Exchange Act of 1934, then its securities will no longer be an underlying security and the trustee will distribute the shares of that company to the owners of the Internet HOLDRs. B. If the SEC finds that an issuer of underlying securities should be registered as an investment company under the Investment Company Act of 1940, and the trustee has actual knowledge of the SEC finding, then the trustee will distribute the shares of that company to the owners of the Internet HOLDRs. C. If the underlying securities of an issuer cease to be outstanding as a result of a merger, consolidation or other corporate combination, the trustee will distribute the consideration paid by and received from the acquiring company to the beneficial owners of Internet HOLDRs, unless the acquiring company is already included in the Internet HOLDRs and the consideration paid is additional underlying securities. In this case, the additional underlying securities will be deposited into the trust. D. If an issuer's underlying securities are delisted from trading on a national securities exchange or NASDAQ and are not listed for trading on another national securities exchange or through NASDAQ within 5 business days from the date such securities are delisted. If a reconstitution event occurs, the trustee will deliver the underlying security to you as promptly as practicable after the date that the trustee has knowledge of the occurrence of a reconstitution event. Termination of the trust. The trust will terminate if the trustee resigns and no successor trustee is appointed by the initial depositor within 60 days from the date the trustee provides notice to the initial depositor of its intent to resign. Upon termination, the beneficial owners of Internet HOLDRs will surrender their Internet HOLDRs as provided in the depositary trust agreement, including payment of any fees of the trustee or applicable taxes or governmental charges due in connection with delivery to the owners of Internet HOLDRs. The trust also will terminate if Internet HOLDRs are delisted from the American Stock Exchange and are not listed for trading on another national securities exchange or through NASDAQ within 5 business days from the date the Internet HOLDRs are delisted. Finally, the trust will terminate if 75% of the owners of outstanding Internet HOLDRs other than Merrill Lynch, Pierce, Fenner & Smith Incorporated vote to dissolve and liquidate the trust. If a termination event occurs, the trustee will distribute the underlying securities to you as promptly as practicable after the termination event occurs. Amendment of depositary trust agreement. The trustee and the initial depositor may amend any provisions of the depositary trust agreement without the consent of any other depositor or any of the owners of the Internet HOLDRs. Promptly after the execution of any amendment to the agreement, the trustee must 17 furnish or cause to be furnished written notification of the substance of the amendment to each owner of Internet HOLDRs. Any amendment that imposes or increases any fees or charges, subject to exceptions, or that otherwise prejudices any substantial existing right of the owners of Internet HOLDRs will not become effective until 30 days after notice of the amendment is given to the owners of Internet HOLDRs. Issuance and cancellation fees. After the initial public offering, the trust expects to issue more Internet HOLDRs. If you wish to create Internet HOLDRs by delivering to the trust the requisite underlying securities, the trustee will charge you an issuance fee of up to $10.00 for each round-lot of 100 Internet HOLDRs. If you wish to cancel your Internet HOLDRs and withdraw your underlying securities, the trustee will charge you a cancellation fee of up to $10.00 for each round-lot of 100 Internet HOLDRs issued. The trustee may negotiate either of these fees depending on the volume, frequency and size of the issuance or cancellation transactions. Commissions. If you choose to create Internet HOLDRs after the conclusion of the trust's initial public offering, you will not be charged the underwriting fee. However, in addition to the issuance and cancellation fees described above, you will be responsible for paying any sales commissions associated with your purchase of the underlying securities that is charged by your broker, whether it be Merrill Lynch, Pierce, Fenner & Smith Incorporated or another broker. Custody fees. The Bank of New York, as trustee and as custodian, will charge you quarterly custody fee of $2.00 for each round-lot of 100 Internet HOLDRs to be deducted from any dividend payments or other cash distributions on underlying securities received by the trustee. With respect to the aggregate custody fee payable in any calendar year for each Internet HOLDR, the Trustee will waive that portion of the fee which exceeds the total cash dividends and other cash distributions received, or to be received, and payable with respect to such calendar year. The trustee cannot recapture unpaid custody fees from prior years. Address of the trustee. The Bank of New York, ADR Department, 101 Barclay Street, New York, New York 10286. Governing law. The depositary trust agreement and Internet HOLDRs will be governed by the laws of the State of New York. The trustee will provide the depositary trust agreement to any owner of the underlying securities free of charge upon written request. Duties and immunities of the trustee. The trustee will assume no responsibility or liability for, and makes no representations as to, the validity or sufficiency, or as to the accuracy of the recitals, if any, set forth in the Internet HOLDRs. The trustee undertakes to perform only those duties as are specifically set forth in the depositary trust agreement. Subject to the preceding sentence, the trustee will be liable for its own negligence or misconduct except for good faith errors in judgment so long as the trustee was not negligent in ascertaining the relevant facts. 18 FEDERAL INCOME TAX CONSEQUENCES General The following is a summary of the U.S. federal income tax consequences relating to the Internet HOLDRs for: . a citizen or resident of the United States, a corporation or partnership created or organized in the United States or under the laws of the United States, an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source, or a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust (a "U.S. receipt holder"), and . any person other than a U.S. receipt holder (a "Non-U.S. receipt holder"). This summary is based upon laws, regulations, rulings and decisions currently in effect, all of which are subject to change, possibly on a retroactive basis. The discussion does not deal with all U.S. federal income tax consequences applicable to all categories of investors, some of which may be subject to special rules. In addition, this summary generally is limited to investors who will hold the Internet HOLDRs as "capital assets" (generally, property held for investment) within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended. We suggest that you consult with your own tax advisor. Taxation of the trust The trust will provide for flow through tax consequences as it will be treated as a grantor trust or custodial arrangement for United States federal income tax purposes. Taxation of Internet HOLDRs A receipt holder purchasing and owning Internet HOLDRs will be treated, for U.S. federal income tax purposes, as directly owning a proportionate share of the underlying securities represented by Internet HOLDRs. Consequently, if there is a taxable cash distribution on an underlying security, a holder will recognize income with respect to the distribution at the time the distribution is received by the trustee, not at the time that the holder receives the cash distribution from the trustee. A receipt holder will determine its initial tax basis in each of the underlying securities by allocating the purchase price for the Internet HOLDRs among the underlying securities based on their relative fair market values at the time of purchase. Similarly, when a holder sells a receipt, it will determine the amount realized with respect to each security by allocating the sales price among the underlying securities based on their relative fair market values at the time of sale. A holder's gain or loss with respect to each security will be computed by subtracting its basis in the security from the amount realized on the security. With respect to purchases of Internet HOLDRs for cash in the secondary market, a receipt holder's aggregate tax basis in each of the underlying securities will be equal to the purchase price of the Internet HOLDRs. Similarly, with respect to sales of Internet HOLDRs for cash in the secondary market, the amount realized with respect to a sale of Internet HOLDRs will be equal to the aggregate amount realized with respect to each of the underlying securities. The distribution of any securities by the trust upon the surrender of Internet HOLDRs, the occurrence of a reconstitution event, or a termination event will not be a taxable event. The receipt holders holding period with respect to the distributed securities will include the period that the holder held the securities through the trust. 19 Brokerage fees and custodian fees The brokerage fee incurred in purchasing a receipt will be treated as part of the cost of the underlying securities. Accordingly, a holder includes this fee in its tax basis in the underlying securities. A holder will allocate the brokerage fee among the underlying securities using either a fair market value allocation or pro rata based on the number of shares of each underlying security. Similarly, the brokerage fee incurred in selling Internet HOLDRs will reduce the amount realized with respect to the underlying securities. A holder will be required to include in its income the full amount of dividends paid on the underlying securities, even though the depositary trust agreement provides that the custodian fees will be deducted directly from any dividends paid. These custodian fees will be treated as an expense incurred in connection with a holder's investment in the underlying securities and may be deductible. If a holder is an individual, estate or trust, however, the deduction of its share of custodian fees will be a miscellaneous itemized deduction that may be disallowed in whole or in part. Non-U.S. receipt holders Non-U.S. receipt holders should consult their tax advisors regarding U.S. withholding and other taxes which may apply to an investment in the underlying securities. ERISA CONSIDERATIONS Any plan fiduciary which proposes to have a plan acquire Internet HOLDRs should consult with its counsel with respect to the potential applicability of ERISA and the Code to this investment and whether any exemption would be applicable and determine on its own whether all conditions have been satisfied. Moreover, each plan fiduciary should determine whether, under the general fiduciary standards of investment prudence and diversification, an acquisition of Internet HOLDRs is appropriate for the plan, taking into account the overall investment policy of the plan and the composition of the plan's investment portfolio. PLAN OF DISTRIBUTION In accordance with the depository trust agreement, the trust will issue to Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Merrill Lynch, Pierce, Fenner & Smith Incorporated will deposit the underlying securities to receive Internet HOLDRs. Merrill Lynch & Co., as underwriter, proposes to offer the Internet HOLDRs to the public at the offering price set forth on the cover page of this prospectus. After the initial offering, the public offering price, concession and discount may be changed. The trust will continue to issue Internet HOLDRs, in connection with deposits of underlying securities. Merrill Lynch has from time to time provided investment banking and other financial services to certain of the issuers of the underlying securities and expects in the future to provide these services, for which it has received and will receive customary fees and commissions. It also may have served as counterparty in other transactions with certain of the issuers of the underlying securities. Merrill Lynch, Pierce, Fenner & Smith Incorporated may use this prospectus, as updated from time to time, in connection with offers and sales related to market-making transactions in the Internet HOLDRs. Merrill Lynch, Pierce, Fenner & Smith Incorporated may act as principal or agent in such transactions. Market-making sales will be made at prices related to prevailing market prices at the time of sale. Merrill Lynch, Pierce, Fenner & Smith Incorporated has agreed to indemnify the trustee against civil liabilities related to acts performed or not performed by the trustee in accordance with the depositary trust agreement or periodic reports filed or not filed with the SEC with respect to the Internet HOLDRs. This indemnification does not cover enumerated amounts, including amounts that result from or are attributable to the negligence or bad faith of, or material breach of the terms of the agreement by the trustee. Should a court determine not to enforce the indemnification provision, Merrill Lynch, Pierce, Fenner & Smith Incorporated also has agreed to contribute to payments the trustee may be required to make with respect to such liabilities. 20 YEAR 2000 The trustee's Year 2000 compliance program consists of updating major trustee-owned application systems, business-area supported systems, and the trustee's proprietary customer software and evaluating the Year 2000 compliance efforts of vendors of major vendor-supplied systems. The trustee's compliance efforts have also considered the Year 2000 readiness of its global sub- custodians, major service providers, correspondents, business partners, and borrowers. The current focus is to monitor continued preparedness and contingency planning. While contingency planning has been defined as part of the Year 2000 compliance program, all new measures have been incorporated into the trustee's existing Business Continuity Plans. The trustee divided its major proprietary applications systems into three business line groups. The applications in each group were subjected to a phased process of assessment, renovation, certification testing, and implementation. All critical systems have completed all phases. A program is in place to continue to monitor critical systems to prevent Y2K problems from being reintroduced. Major business-line products have been made available in isolated future-dated environments for selected customers to test their interfaces and to assure themselves of the trustee's compliance. The trustee is satisfied with the results of testing with customers and agencies. Continued participation at the request of the agencies and customers will continue as required. Remediation of the trustee's proprietary customer software has been completed. Installation on client desktop computers is substantially complete. Customers have been advised of their obligation to assure that their environments are compliant in order for the trustees's software to function correctly during and after the century date change. The trustee has substantially completed an evaluation of its significant business partners, including other financials service providers, correspondents, counterparties, sub-custodians, vendors and settlement agencies, for the purpose of assessing their Year 2000 compliance. The trustee is currently satisfied with the information it has received concerning the progress and Year 2000 readiness programs of each significant third party. The trustee will continue to monitor the readiness and progress of these parties throughout 1999. The trustee intends to replace service providers that are seen as not managing the Year 2000 issue adequately. The trustee considers Year 2000 readiness in its credit decisions and factors this into borrower ratings. Based on a review of significant obligors, the trustee believes that exposure to obligor Year 2000 problems does not present a material risk to the trustee. The trustee's personal computers considered to be critical to the trustee's operations have been upgraded. Upgrading of physical facilities that is considered critical to the trustee's operations to Year 2000 readiness are expected to be completed by the end of September 1999. The trustee's contingency plans relating to Year 2000 issues include the identification and assessment of the impact of various worst case scenarios on the critical operational components for each of the trustee's business units. The trustee has reviewed the applicability of its current contingency plans, which include creation of an information center, establishment of special rapid response technology teams, scheduling availability of key personnel, testing and simulation activities, offsite data center facilities, and emergency backup power. These plans, with minor modification have been determined to be adequate to mitigate Year 2000 related risks. The information center, which has been established as a repository and focus for analysis of information, will publish the status of the organization internally and externally during critical periods. It is also authorized to requisition and deploy resources as needed to address unanticipated situations. Overall the trustee's Year 2000 compliance program is on or ahead of schedule to meet the needs of its customers and compliance deadlines defined by its requlators. The estimated cost of the Year 2000 project is approximately $82 million. In the first half of 1999 the trustee spent $11 million on making computer systems Year 2000 compliant. Total expenses since 1997 have been $62 million. A material Year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations. Such problems could materially and adversely affect the trustee's results of operations, liquidity and financial condition. Due to the general uncertainty inherent in thee year 2000 problem, 21 resulting in part from the uncertainty of the Year 2000 readiness of suppliers, customers and other business partners, as well as entities with which the trustee does not have direct business relations, the trustee is unable to determine at this time whether the consequences of the Year 2000 failures will have a material impact on the trustee's results of operations, liquidity or financial condition. The Year 2000 compliance program is intended to significantly reduce the trustee's level of uncertainty about the Year 2000 problem and, in particular, about the Year 2000 compliance and readiness of its material business partners. The trustee believes that, with completion of its Year 2000-compliance program as scheduled, the possibility of significant interruptions of normal operations should be reduced. However, because of the unprecedented nature of this issue, there an be no certainty as to its impact. LEGAL MATTERS Legal matters, including the validity of the Internet HOLDRs will be passed upon for Merrill Lynch, Pierce, Fenner & Smith Incorporated, the initial depositor and the underwriter, by Shearman & Sterling, New York, New York, by the time the registration statement is effective. Shearman & Sterling, as special U.S. tax counsel to the trust, also will render an opinion regarding the material federal income tax consequences relating to the Internet HOLDRs by the time the registration statement is effective. WHERE YOU CAN FIND MORE INFORMATION Merrill Lynch, Pierce, Fenner & Smith Incorporated has filed a registration statement on Form S-1 with the SEC covering the Internet HOLDRs. While this prospectus is a part of the registration statement, it does not contain all the exhibits filed as part of the registration statement. You should consider reviewing the full text of those exhibits. The registration statement is available over the Internet at the SEC's web site at http://www.sec.gov. You also may read and copy the registration statement at the SEC's public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for more information on the public reference rooms and their copy charges. Merrill Lynch, Pierce, Fenner & Smith Incorporated will not and the trust may not be subject to the requirements of the Exchange Act and accordingly may not file periodic reports. Because the common stock of the issuers of the underlying securities is registered under the Exchange Act, the issuers of the underlying securities are required to file periodically financial and other information specified by the SEC. For more information about the issuers of the underlying securities, information provided to or filed with the SEC by the issuers of the underlying securities with respect to their registered securities can be inspected at the SEC's public reference facilities or accessed through the SEC's web site referenced above. In addition, information regarding the issuers of the underlying securities may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated information. The trust and Merrill Lynch, Pierce, Fenner & Smith Incorporated and its affiliates are not affiliated with the issuers of the underlying securities, and the issuers of the underlying securities have no obligations with respect to Internet HOLDRs. This prospectus relates only to Internet HOLDRs and does not relate to the common stock or other securities of the issuers of the underlying securities. The information in this prospectus regarding the issuers of the underlying securities has been derived from the publicly available documents described in the preceding paragraph. We have not participated in the preparation of these documents or made any due diligence inquiries with respect to the issuers of the underlying securities in connection with Internet HOLDRs. We make no representation that these publicly available documents or any other publicly available information regarding the issuers of the underlying securities are accurate or complete. Furthermore, we cannot assure you that all events occurring prior to the date of this prospectus, including events that would affect the accuracy or completeness of the publicly available documents described in the preceding paragraph, that would affect the trading price of the common stock of the issuers of the underlying securities, and therefore the offering and trading prices of the Internet HOLDRs, have been publicly disclosed. 22 ANNEX A This annex forms an integral part of the prospectus. The following tables provide a brief description of the business of each of the issuers of the underlying securities and set forth the split-adjusted closing market prices, as reported on the applicable primary trading market, of each of the underlying securities in each month during 1994, 1995, 1996, 1997, 1998 and 1999 through August 1999. All market prices in excess of one dollar are rounded to the nearest one-sixtyfourth dollar. An asterisk (*) denotes that no shares of the issuer were publicly traded during that month. The historical prices of the underlying securities should not be taken as an indication of future performance. AMAZON.COM Amazon.com, Inc., an online retailer, sells books, music, videotapes, audiotapes, and other products. Amazon.com offers a catalog of approximately three million titles, search and browse features, e-mail services, personalized shopping services, Web-based credit card payment, and direct shipping to customers.
Closing Closing Closing Closing Closing Closing 1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price - ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- January * January * January * January * January 4 59/64 January 58 15/32 February * February * February * February * February 6 27/64 February 64 1/16 March * March * March * March * March 7 1/8 March 86 3/32 April * April * April * April * April 7 41/64 April 86 1/32 May * May * May * May 1 1/2 May 7 11/32 May 59 3/8 June * June * June * June 1 35/64 June 16 5/8 June 62 9/16 July * July * July * July 2 25/64 July 18 31/64 July 50 1/32 August * August * August * August 2 11/32 August 13 61/64 August 62 3/16 September * September * September * September 4 11/32 September 18 39/64 October * October * October * October 5 5/64 October 21 5/64 November * November * November * November 4 1/8 November 32 December * December * December * December 5 1/64 December 53 35/64
AMERICA ONLINE America Online, Inc. provides interactive communications and services through its America Online and CompuServe worldwide Internet online services. America Online's Web sites offer such features as a personalized news service, electronic mail via the Web, an online community center, public and private meeting rooms and interactive conversations, and guest interviews.
Closing Closing Closing Closing Closing Closing 1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price - ---- ------- ---- ------- --------- ------- --------- -------- --------- -------- -------- --------- January 0.99609 January 1 45/64 January 5 19/32 January 4 5/8 January 11 61/64 January 87 7/8 February 1 5/16 February 2 7/32 February 6 9/64 February 4 11/16 February 15 11/64 February 88 15/16 March 1 1/8 March 2 21/64 March 7 March 5 5/16 March 17 5/64 March 147 April 1 7/64 April 2 29/32 April 8 April 5 41/64 April 19 63/64 April 142 3/4 May 1 3/32 May 2 15/64 May 7 1/16 May 6 57/64 May 20 53/64 May 119 1/4 June 57/64 June 2 3/4 June 5 15/32 June 6 61/64 June 26 9/32 June 110 July 0.86914 July 3 29/64 July 3 13/16 July 8 7/16 July 29 9/32 July 95 1/8 August 1 11/64 August 4 1/8 August 3 25/32 August 8 1/16 August 20 31/64 August 91 5/16 September 1 1/16 September 4 19/64 September 4 7/16 September 9 7/16 September 27 29/32 October 1 7/64 October 5 October 3 25/64 October 9 5/8 October 31 27/32 November 1 5/16 November 5 7/64 November 4 13/32 November 9 3/8 November 43 25/32 December 1 3/4 December 4 11/16 December 4 5/32 December 11 11/16 December 77 9/16
A-1 AMERITRADE Ameritrade Holding Corporation provides on-line discount securities brokerage and clearing execution services to its retail customers. Ameritrade provides on-line investment news and information as well as educational services. Ameritrade also offers clearing and execution services for both its own brokerage operations as well as for unaffiliated broker-dealers.
Closing Closing Closing Closing Closing Closing 1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price - ---- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------- January * January * January * January * January 2 1/64 January 13 3/8 February * February * February * February * February 2 19/64 February 16 1/4 March * March * March * March 1 19/64 March 2 5/16 March 20 31/64 April * April * April * April 1 3/64 April 2 23/64 April 44 33/64 May * May * May * May 1 11/64 May 2 13/32 May 29 57/64 June * June * June * June 1 5/16 June 2 1/4 June 35 21/64 July * July * July * July 1 9/32 July 3 13/64 July 24 15/16 August * August * August * August 1 9/16 August 2 3/8 August 20 3/8 September * September * September * September 2 1/16 September 3 October * October * October * October 2 11/64 October 2 35/64 November * November * November * November 2 51/64 November 4 1/8 December * December * December * December 2 7/16 December 5 1/4
AT HOME At Home Corporation provides broadband Internet services through the cable television infrastructure. At Home's service allows residential subscribers to connect their personal computers via cable modems to a high- speed network.
Closing Closing Closing Closing Closing Closing 1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price - ---- ------- --------- ------- --------- ------- --------- ------- --------- -------- -------- -------- January * January * January * January * January 11 9/16 January 62 1/2 February * February * February * February * February 17 1/16 February 53 1/16 March * March * March * March * March 16 29/32 March 78 3/4 April * April * April * April * April 16 21/32 April 71 31/32 May * May * May * May * May 17 3/8 May 63 3/8 June * June * June * June * June 23 21/32 June 53 15/16 July * July * July * July 9 3/4 July 21 1/16 July 45 11/16 August * August * August * August 9 9/16 August 14 1/4 August 40 1/8 September * September * September * September 11 9/16 September 23 15/16 October * October * October * October 12 1/16 October 22 1/8 November * November * November * November 10 5/16 November 29 1/8 December * December * December * December 12 9/16 December 37 1/8
A-2 CMGI CMGI Inc. invests in, develops, and operates advanced Internet, interactive, and database management technologies.
Closing Closing Closing Closing Closing Closing 1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price - ---- ------- --------- ------- --------- ------- --------- ------- --------- -------- -------- --------- January 0.31664 January 0.86086 January 3 33/64 January 2 January 4 17/32 January 61 February 0.31664 February 0.94991 February 4 19/32 February 1 37/64 February 5 63/64 February 61 5/16 March 0.30674 March 0.7718 March 4 11/16 March 1 7/16 March 7 1/4 March 91 7/32 April 0.26716 April 0.84601 April 3 17/32 April 1 33/64 April 12 5/64 April 127 9/32 May 0.35622 May 0.72727 May 2 49/64 May 2 3/64 May 11 3/32 May 103 5/8 June 0.35622 June 1 9/16 June 3 13/64 June 1 41/64 June 17 11/16 June 114 1/16 July 0.35127 July 1 19/32 July 1 29/32 July 2 3/64 July 17 1/32 July 92 3/16 August 0.3859 August 1 43/64 August 1 31/32 August 2 51/64 August 9 17/32 August 83 15/16 September 0.43538 September 1 11/16 September 1 23/32 September 3 5/64 September 13 5/16 October 0.63327 October 2 1/16 October 1 3/16 October 2 49/64 October 14 7/32 November 0.6877 November 4 29/64 November 1 57/64 November 2 5/8 November 19 3/8 December 0.92023 December 5 33/64 December 1 63/64 December 3 25/32 December 26 5/8
CNET CNET, Inc. provides original Internet content and television programming related to computers, the Internet, and digital technologies. CNET produces a network of information and services offered under the "CNET" brand name.
Closing Closing Closing Closing Closing Closing 1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price - ---- ------- --------- ------- --------- ------- --------- ------- --------- -------- -------- -------- January * January * January * January 7 1/4 January 6 31/32 January 26 1/4 February * February * February * February 6 7/32 February 9 1/16 February 28 21/32 March * March * March * March 6 1/8 March 6 23/32 March 46 1/16 April * April * April * April 5 1/16 April 8 5/16 April 64 1/4 May * May * May * May 5 25/32 May 9 1/16 May 54 1/8 June * June * June * June 7 5/16 June 17 1/16 June 57 5/8 July * July * July 3 1/4 July 6 21/32 July 12 7/8 July 40 August * August * August 3 5/16 August 8 7/32 August 9 3/4 August 37 9/16 September * September * September 4 11/16 September 9 57/64 September 11 7/16 October * October * October 4 October 6 1/32 October 9 33/64 November * November * November 4 9/32 November 5 3/16 November 13 17/64 December * December * December 7 1/4 December 7 3/8 December 13 5/16
A-3 DOUBLECLICK DoubleClick Inc. provides Internet advertising solutions for advertisers and publishers of Web sites. Doubleclick's DoubleClick Network provides ad sales, targeted ad delivery, and related services to publishers of Web site and advertisers. DoubleClick's DART Service provides Web site publishers and advertisers with the ability to control the delivery, measurement, and analysis of their marketing campaigns.
Closing Closing Closing Closing Closing Closing 1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price - ---- ------- --------- ------- --------- ------- --------- ------- --------- -------- -------- --------- January * January * January * January * January * January 48 1/4 February * February * February * February * February 15 31/32 February 44 15/16 March * March * March * March * March 17 9/16 March 91 1/32 April * April * April * April * April 20 27/32 April 139 13/16 May * May * May * May * May 17 5/16 May 97 7/16 June * June * June * June * June 24 27/32 June 91 3/4 July * July * July * July * July 22 July 81 August * August * August * August * August 11 15/16 August 99 7/8 September * September * September * September * September 11 15/16 October * October * October * October * October 16 1/2 November * November * November * November * November 20 1/4 December * December * December * December * December 22 1/4
EARTHLINK NETWORK EarthLink Network, Inc. provides Internet access and hosting services. Earthlink provides access, information, assistance, and services to its members. Earthlink operates through a nationwide telecommunications network of high-speed, dedicated data lines and dial-up access sites.
Closing Closing Closing Closing Closing Closing 1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price - ---- ------- --------- ------- --------- ------- --------- ------- --------- -------- -------- -------- January * January * January * January 8 3/4 January 15 9/16 January 79 7/8 February * February * February * February 8 February 24 1/2 February 60 3/16 March * March * March * March 6 1/4 March 28 7/32 March 60 April * April * April * April 4 1/4 April 35 15/32 April 68 15/16 May * May * May * May 6 1/8 May 27 1/4 May 53 1/2 June * June * June * June 6 1/2 June 38 3/8 June 61 7/16 July * July * July * July 5 3/8 July 35 1/4 July 48 5/16 August * August * August * August 7 1/4 August 26 1/2 August 49 September * September * September * September 9 3/8 September 41 1/4 October * October * October * October 9 October 38 1/2 November * November * November * November 9 9/16 November 60 13/16 December * December * December * December 12 7/8 December 57
A-4 eBAY eBay Inc. is a person-to-person trading community on the Internet. eBay's service is used by buyers and sellers for the exchange of personal items such as coins, collectibles, computers, memorabilia, stamps, and toys. eBay is a fully automated, topically arranged 24-hour service on which sellers can list items for sale and buyers can bid on the prices.
Closing Closing Closing Closing Closing Closing 1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price - ---- ------- --------- ------- --------- ------- --------- ------- --------- -------- -------- --------- January * January * January * January * January * January 92 35/64 February * February * February * February * February * February 111 21/64 March * March * March * March * March * March 137 5/16 April * April * April * April * April * April 208 1/8 May * May * May * May * May * May 177 3/16 June * June * June * June * June * June 151 3/8 July * July * July * July * July * July 97 11/16 August * August * August * August * August * August 125 9/16 September * September * September * September * September 15 1/64 October * October * October * October * October 27 45/64 November * November * November * November * November 65 7/8 December * December * December * December * December 80 27/64
E*TRADE E*TRADE Group, Inc. provides online investing services for self-directed investors through its website. E*TRADE provides automated order placement and execution, personalized portfolio tracking, and real-time market analysis 24 hours per day, seven days a week. E*TRADE can also be accessed through touch- tone telephone, interactive television, and direct modem access.
Closing Closing Closing Closing Closing Closing 1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price - ---- ------- --------- ------- --------- ------- --------- -------- --------- -------- -------- -------- January * January * January * January 4 13/32 January 5 29/64 January 27 19/32 February * February * February * February 6 February 6 11/16 February 23 March * March * March * March 4 1/2 March 6 15/64 March 29 5/32 April * April * April * April 3 3/4 April 6 15/64 April 57 3/4 May * May * May * May 4 13/32 May 5 31/32 May 45 1/2 June * June * June * June 4 29/32 June 5 47/64 June 39 15/16 July * July * July * July 7 5/8 July 6 13/16 July 30 1/8 August * August * August 2 5/8 August 8 1/32 August 4 5/32 August 25 September * September * September 3 19/64 September 11 3/4 September 4 43/64 October * October * October 2 25/32 October 7 23/32 October 4 1/2 November * November * November 2 47/64 November 6 17/64 November 6 49/64 December * December * December 2 7/8 December 5 3/4 December 11 45/64
A-5 EXODUS COMMUNICATIONS Exodus Communications, Inc. provides solutions for Internet system problems and computer network problems for enterprises with critical Internet operations. Exodus manages its operations through Internet data centers located throughout the United States and a server hosting facility in England. Exodus also provides, through a subsidiary, network and system security consulting services.
Closing Closing Closing Closing Closing Closing 1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price - ---- ------- --------- ------- --------- ------- --------- ------- --------- -------- -------- -------- January * January * January * January * January * January 26 1/8 February * February * February * February * February * February 18 11/32 March * March * March * March * March 7 March 33 5/8 April * April * April * April * April 9 1/2 April 45 1/16 May * May * May * May * May 8 35/64 May 37 1/2 June * June * June * June * June 11 3/16 June 59 31/32 July * July * July * July * July 8 11/32 July 60 1/32 August * August * August * August * August 7 3/16 August 80 3/8 September * September * September * September * September 6 3/32 October * October * October * October * October 7 15/16 November * November * November * November * November 8 7/16 December * December * December * December * December 16 1/16
GO2NET Go2Net, Inc. is a network of technology, community and name-brand driven Web sites focused on personal finance, information search, commerce and games. Go2Net Web sites include Silicon Investor, a financial discussion site; MetaCrawler, a search/index guide; and HyperMart, a Web hosting service. Other sites include 100hot, StockSite, PlaySite, and WebMarket.
Closing Closing Closing Closing Closing Closing 1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price - ---- ------- --------- ------- --------- ------- ---- ------- --------- ------- -------- -------- January * January * January * January * January 2 7/16 January 27 3/4 February * February * February * February * February 4 5/64 February 29 1/4 March * March * March * March * March 4 1/4 March 66 5/16 April * April * April * April 2 43/64 April 6 3/4 April 76 3/4 May * May * May * May 2 1/32 May 6 3/16 May 51 31/32 June * June * June * June 1 17/32 June 7 3/8 June 91 7/8 July * July * July * July 1 11/16 July 6 3/4 July 58 3/4 August * August * August * August 1 11/16 August 5 17/32 August 65 September * September * September * September 2 7/32 September 3 3/4 October * October * October * October 2 October 5 1/2 November * November * November * November 1 25/32 November 8 1/2 December * December * December * December 1 23/32 December 8 27/32
A-6 INKTOMI Inktomi Corporation develops and markets software applications designed to enhance the performance and intelligence of the Internet and other large- scale networks. Inktomi's systems use parallel-processing technology across clusters of workstations to deliver greater speed and performance while utilizing smaller workstations.
Closing Closing Closing Closing Closing Closing 1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price - ---- ------- --------- ------- --------- ------- --------- ------- --------- -------- -------- --------- January * January * January * January * January * January 71 15/16 February * February * February * February * February * February 62 March * March * March * March * March * March 85 1/2 April * April * April * April * April * April 120 1/8 May * May * May * May * May * May 102 3/4 June * June * June * June * June 19 13/16 June 131 1/2 July * July * July * July * July 28 7/16 July 108 3/16 August * August * August * August * August 24 1/4 August 113 3/8 September * September * September * September * September 37 1/2 October * October * October * October * October 42 5/32 November * November * November * November * November 66 25/32 December * December * December * December * December 64 31/32
LYCOS Lycos, Inc. develops and provides guides to various information available on the Internet. Lycos also provides Internet users the ability to create personal home-pages and join interest-based communities on the Internet.
Closing Closing Closing Closing Closing Closing 1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price - ---- ------- --------- ------- --------- ------- --------- -------- --------- -------- -------- -------- January * January * January * January 4 7/32 January 9 35/64 January 68 1/2 February * February * February * February 4 11/16 February 10 5/16 February 43 13/16 March * March * March * March 3 33/64 March 11 1/16 March 43 1/32 April * April * April 4 3/8 April 3 7/32 April 15 29/64 April 49 27/32 May * May * May 3 27/32 May 3 5/8 May 13 17/64 May 50 1/4 June * June * June 2 25/32 June 3 3/16 June 18 27/32 June 45 15/16 July * July * July 1 31/64 July 4 23/32 July 14 9/32 July 41 5/16 August * August * August 1 11/16 August 7 53/64 August 10 27/32 August 40 5/8 September * September * September 2 31/32 September 8 1/2 September 16 29/32 October * October * October 2 17/32 October 6 17/32 October 20 5/16 November * November * November 2 29/32 November 7 41/64 November 29 1/2 December * December * December 2 5/8 December 10 11/32 December 27 15/32
A-7 MINDSPRING MindSpring Enterprises, Inc. provides Internet access primarily to individual and small business subscribers in United States. MindSpring's business services include web hosting, high-speed dedicated Internet access, web page design, and domain name registration.
Closing Closing Closing Closing Closing Closing 1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price - ---- ------- --------- ------- --------- ------- --------- ------- --------- -------- -------- -------- January * January * January * January 1 39/64 January 5 37/64 January 51 February * February * February * February 1 1/2 February 8 1/16 February 42 3/4 March * March * March 1 5/16 March 1 3/16 March 10 45/64 March 43 1/32 April * April * April 1 19/32 April 1 7/16 April 11 1/4 April 48 15/32 May * May * May 2 1/16 May 1 5/8 May 8 27/32 May 37 June * June * June 1 49/64 June 1 3/4 June 17 9/64 June 44 5/16 July * July * July 1 5/8 July 2 21/64 July 20 3/8 July 33 9/16 August * August * August 1 39/64 August 2 37/64 August 13 7/16 August 29 3/16 September * September * September 1 53/64 September 3 39/64 September 20 3/4 October * October * October 1 19/64 October 4 9/16 October 19 27/32 November * November * November 1 3/64 November 4 55/64 November 32 9/32 December * December * December 1 1/64 December 5 39/64 December 30 17/32
NETWORK ASSOCIATES Network Associates, Inc. develops and provides software products that address Internet and other large-scale network security, privacy, and management issues. Network Associates also offers a range of consumer-oriented security and management software products to retail customers, including anti- virus, Internet security/privacy, and desktop utilities software.
Closing Closing Closing Closing Closing Closing 1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price - ---- ------- --------- -------- --------- -------- --------- -------- --------- -------- -------- -------- January 1 53/64 January 2 63/64 January 14 13/16 January 38 53/64 January 36 January 52 3/8 February 1 25/32 February 4 17/64 February 15 55/64 February 30 37/64 February 43 5/64 February 47 March 1 47/64 March 5 47/64 March 16 7/32 March 29 1/2 March 44 11/64 March 30 11/16 April 1 31/32 April 6 33/64 April 18 9/64 April 37 11/64 April 45 43/64 April 13 1/4 May 1 37/64 May 5 17/32 May 16 7/16 May 43 7/8 May 40 53/64 May 14 11/16 June 1 3/8 June 5 63/64 June 21 25/62 June 42 5/64 June 47 7/8 June 14 11/16 July 1 31/64 July 7 1/2 July 22 21/64 July 43 29/64 July 47 11/16 July 17 1/2 August 1 25/32 August 8 43/64 August 26 1/2 August 37 3/4 August 32 1/4 August 16 7/8 September 1 53/64 September 10 11/64 September 30 43/64 September 35 21/64 September 35 1/2 October 2 31/32 October 11 1/2 October 30 21/64 October 33 11/64 October 42 1/4 November 2 27/32 November 14 9/64 November 31 53/64 November 30 1/2 November 50 7/8 December 4 December 13 December 29 21/64 December 35 1/4 December 66 1/4
A-8 PRICELINE.COM Priceline.com Incorporated enables consumers to use the Internet to name their own price on products or services and communicates that demand directly to participating sellers or to their private databases. Participants include domestic and international airlines, and hotel chains.
Closing Closing Closing Closing Closing Closing 1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price - ---- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- -------- January * January * January * January * January * January * February * February * February * February * February * February * March * March * March * March * March * March 82 7/8 April * April * April * April * April * April 162 3/8 May * May * May * May * May * May 112 1/32 June * June * June * June * June * June 115 9/16 July * July * July * July * July * July 75 9/16 August * August * August * August * August * August 68 1/8 September * September * September * September * September * October * October * October * October * October * November * November * November * November * November * December * December * December * December * December *
PSINET PSINet Inc. provides Internet access services and related products. PSINet offers dedicated and dial-up Internet connection to businesses in various metropolitan areas in the United States, as well as in Canada, Europe, and Asia. PSINet also provides value-added services, including corporate intranets, web hosting services, and remote user access services.
Closing Closing Closing Closing Closing Closing 1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price - ---- ------- --------- ------- --------- -------- --------- ------- --------- --------- -------- -------- January * January * January 13 1/4 January 9 7/8 January 7 7/16 January 33 15/16 February * February * February 10 1/8 February 8 1/8 February 7 23/32 February 35 13/16 March * March * March 9 11/16 March 7 3/8 March 11 1/8 March 42 9/16 April * April * April 14 1/8 April 5 3/4 April 13 7/8 April 50 1/2 May * May 13 7/8 May 14 1/2 May 7 9/16 May 10 3/4 May 44 1/2 June * June 15 3/16 June 11 1/2 June 7 1/2 June 13 June 43 3/4 July * July 20 1/2 July 9 3/4 July 8 13/16 July 17 1/2 July 51 23/32 August * August 18 1/2 August 11 August 8 3/16 August 10 1/2 August 47 7/8 September * September 21 1/2 September 10 7/8 September 8 1/16 September 13 15/16 October * October 17 3/4 October 9 1/2 October 8 3/8 October 14 7/16 November * November 21 1/8 November 12 11/16 November 6 3/4 November 18 3/4 December * December 22 7/8 December 10 7/8 December 5 1/8 December 20 7/8
A-9 REALNETWORKS RealNetworks, Inc. develops and markets software products and services. RealNetworks' software and services enable the creation and real-time delivery and playback of audio, video, text, animation, and other media content over the Internet and intranets on both a live and on-demand basis. Products and services include RealSystem G2, Real Broadcast Network, and RealJukebox.
Closing Closing Closing Closing Closing Closing 1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price - ---- ------- --------- ------- --------- ------- --------- ------- --------- -------- -------- -------- January * January * January * January * January 7 1/2 January 35 13/32 February * February * February * February * February 7 1/2 February 35 1/16 March * March * March * March * March 14 1/2 March 61 3/32 April * April * April * April * April 16 31/32 April 110 3/4 May * May * May * May * May 11 9/16 May 70 7/8 June * June * June * June * June 18 21/32 June 68 7/8 July * July * July * July * July 14 27/32 July 76 5/16 August * August * August * August * August 9 7/8 August 81 3/4 September * September * September * September * September 17 11/32 October * October * October * October * October 16 27/32 November * November * November * November 7 11/16 November 19 December * December * December * December 6 15/16 December 17 15/16
YAHOO! Yahoo! Inc., a global Internet media company, offers an online guide to Web navigation, aggregated information content, communication services, and commerce. Yahoo!'s site includes a hierarchical, subject-based directory of Web sites, which enables users to locate and access desired information and services through hypertext links included in the directory.
Closing Closing Closing Closing Closing Closing 1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price - ---- ------- --------- ------- --------- ------- --------- -------- --------- --------- -------- --------- January * January * January * January 5 41/64 January 15 27/32 January 177 1/8 February * February * February * February 5 3/64 February 18 19/64 February 153 1/2 March * March * March * March 4 11/16 March 23 7/64 March 168 3/8 April * April * April 4 61/64 April 5 11/16 April 29 47/64 April 174 11/16 May * May * May 4 43/64 May 5 3/8 May 27 3/8 May 148 June * June * June 3 1/2 June 5 7/8 June 39 3/8 June 172 1/4 July * July * July 3 July 9 27/64 July 45 31/64 July 136 7/16 August * August * August 3 17/64 August 9 59/64 August 34 1/2 August 147 1/2 September * September * September 3 35/64 September 12 17/32 September 64 3/4 October * October * October 3 19/64 October 10 31/32 October 65 27/64 November * November * November 3 3/16 November 12 25/32 November 96 December * December * December 2 53/64 December 17 5/16 December 118 15/32
A-10 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [LOGO] 1,000,000,000 Depositary Receipts Internet HOLDRs SM Trust ----------------------- P R O S P E C T U S ----------------------- Merrill Lynch & Co. September , 1999 Until [ ], 1999 (25 days after the date of this prospectus), all dealers effecting transactions in the offered Internet HOLDRs, whether or not participating in this distribution, may be required to deliver a prospectus. This requirement is in addition to the obligations of dealers to deliver a prospectus when acting as underwriters and with respect to unsold allotments or subscriptions. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution. The expenses expected to be incurred in connection with the issuance and distribution of the securities being registered, other than underwriting compensation, are as set forth below. Except for the registration fee payable to the Securities and Exchange Commission, all such expenses are estimated: Securities and Exchange Commission registration fee........... $ 347,181 Printing and engraving expenses............................... 150,000 Legal fees and expenses....................................... 1,000,000 Rating agency fees............................................ 0 Miscellaneous................................................. 2,819 ---------- Total....................................................... $1,500,000
Item 15. Indemnification of Directors and Officers. Section 145 of the General Corporation Law of the State of Delaware, as amended, provides that under certain circumstances a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of the corporation or is or was serving at its request in such capacity in another corporation or business association, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. Article XIV, Section 2 of the Restated Certificate of Incorporation of Merrill Lynch, Pierce, Fenner & Smith Incorporated provides in effect that, subject to certain limited exceptions, Merrill Lynch, Pierce, Fenner & Smith Incorporated shall indemnify its directors and officers to the full extent authorized or permitted by law. The directors and officers of Merrill Lynch, Pierce, Fenner & Smith Incorporated are insured under policies of insurance maintained by Merrill Lynch, Pierce, Fenner & Smith Incorporated, subject to the limits of the policies, against certain losses arising from any claim made against them by reason of being or having been such directors or officers. In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated has entered into contracts with all of its directors providing for indemnification of such persons by Merrill Lynch, Pierce, Fenner & Smith Incorporated to the full extent authorized or permitted by law, subject to certain limited exceptions. Item 16. Exhibits. See Exhibit Index. Item 17. Undertakings. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: II-1 (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933. (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of the prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (5) For purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (6) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to Item 15 of this registration statement, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant hereby certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this Amendment No. 6 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, on September 8, 1999. Merrill Lynch, Pierce, Fenner & Smith Incorporated By: * ---------------------------------- Name: Michael Castellano Title:Chief Financial Officer and Controller Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 6 to the Registration Statement has been signed by the following persons in the capacities indicated below on September 8, 1999.
Signature Title --------- ----- * Chief Financial Officer ___________________________________________ and Controller Michael Castellano * Director ___________________________________________ George A. Schieren * Director ___________________________________________
John L. Steffens *By: /s/ Stephen G. Bodurtha Attorney-in-Fact --------------------------------- Stephen G. Bodurtha II-3 INDEX TO EXHIBITS
Sequential page Exhibits numbers -------- ---------- *4.1 Form of Depositary Trust Agreement....................... *4.2 Form of Internet HOLDRs.................................. 5.1 Opinion of Shearman & Sterling regarding the validity of the Internet HOLDRs...................................... 8.1 Opinion of Shearman & Sterling, as special U. S. tax counsel regarding the material federal income tax consequences............................................. *24.1 Power of Attorney (included on page II-3 of original filing)..................................................
- -------- * Previously filed. II-4 EX-5.1 2 OPINION OF SHEARMAN STERLING REGARDING THE VALIDITY EXHIBIT 5.1 September 3, 1999 Merrill Lynch, Pierce, Fenner & Smith Incorporated 250 Vesey Street New York, New York 10281 Merrill Lynch, Pierce, Fenner & Smith Incorporated Internet HOLDRs_ Trust Registration Statement on Form S-1 Registration No. 333-78575 -------------------------- Ladies and Gentlemen: We are acting as counsel to Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation (the "Initial Depositor"), and as special counsel to the Internet HOLDRs_ Trust (the "Trust") in connection with the preparation and filing with the Securities and Exchange Commission (the "Commission") of the Registration Statement on Form S-1, as amended from time to time and filed by the Initial Depositor (the "Registration Statement"), of which the prospectus forms a part (the "Prospectus"), for the registration under the Securities Act of 1933, as amended (the "Securities Act"), of 1,000,000,000 Internet HOLDRs_ (the "HOLDRs_") to be issued by the Trust. In this capacity, we have examined (a) a signed copy of the Registration Statement and (b) a copy of the depositary trust agreement, to be signed on September 1, 1999 between The Bank of New York, as trustee (the "Trustee"), and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as initial depositor (the "Depositary Trust Agreement"). We have also examined originals, or copies certified or otherwise identified to our satisfaction, of such other corporate records of the Initial Depositor, such other certificates and advice of public officials and of officers of the Initial Depositor, including resolutions of the Board of Directors of the Initial Depositor, and such other agreements, instruments and documents as we have deemed necessary as a basis for the opinions expressed below. In such examination we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity with the originals of all documents submitted to us as copies. As to questions of fact material to such opinions, we have relied upon such certificates and advice. The opinions set forth below are also based upon the assumptions that: (i) the Registration Statement, as finally amended (including any post-effective amendments), has become effective under the Securities Act; (ii) the amount, price, and other principal terms of the HOLDRs_ have been approved by the Board of Directors of the Initial Depositor or an authorized designee thereof; (iii) the Depositary Trust Agreement will be duly authorized, executed and delivered by the parties thereto substantially in the form filed as an exhibit to the Registration Statement; and (iv) the HOLDRs_ will be duly authenticated by the Trustee in accordance with the Depositary Trust Agreement and sold and delivered by the Initial Depositor against payment therefor. Our opinions expressed herein are limited to the laws of the State of New York, and the Federal law of the United States, and we do not express any opinion herein concerning any other law. Based upon and subject to the foregoing, and having regard for such legal considerations as we have deemed relevant, we are of the opinion that the HOLDRs_ will be legally issued, fully paid and nonassessable, will be legal, valid and binding obligations of the Trust, enforceable against the Trust in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). We hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the use of our name under the heading "Legal matters" in the Prospectus. In giving this consent, we do not thereby concede that we come within the category of persons whose consent is required by the Securities Act or the General Rules and Regulations promulgated thereunder. Very truly yours, /s/ Shearman & Sterling EX-8.1 3 OPINION OF SHEARMAN STERLING AS SPECIAL U.S. TAX COUNSEL EXHIBIT 8.1 September 3, 1999 Merrill Lynch, Pierce, Fenner & Smith Incorporated 250 Vesey Street New York, New York 10281 Merrill Lynch, Pierce, Fenner & Smith Incorporated Internet HOLDRs_ Trust Registration Statement on Form S-1 Registration No. 333-78575 -------------------------- Ladies and Gentlemen: We are acting as special tax counsel to Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation (the "Initial Depositor"), and as special counsel to the Internet HOLDRs_ Trust (the "Trust") in connection with the preparation and filing with the Securities and Exchange Commission (the "Commission") of the Registration Statement on Form S-1, as amended from time to time and filed by the Initial Depositor (the "Registration Statement"), of which the prospectus forms a part (the "Prospectus"), for the registration under the Securities Act of 1933, as amended (the "Securities Act"), of 1,000,000,000 Internet HOLDRs_ (the "HOLDRs_") to be issued by the Trust. In this capacity, we have examined (a) a signed copy of the Registration Statement and (b) a copy of the depositary trust agreement, to be signed on September 1, 1999 between The Bank of New York, as trustee (the "Trustee"), and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as initial depositor (the "Depositary Trust Agreement"). We have also examined originals, or copies certified or otherwise identified to our satisfaction, of such other corporate records of the Initial Depositor, such other certificates and advice of public officials and of officers of the Initial Depositor, including resolutions of the Board of Directors of the Initial Depositor, and such other agreements, instruments and documents as we have deemed necessary as a basis for the opinions expressed below. In such examination we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity with the originals of all documents submitted to us as copies. As to questions of fact material to such opinions, we have relied upon such certificates and advice. The opinions set forth below are also based upon the assumptions that: (i) the Registration Statement, as finally amended (including any post-effective amendments), has become effective under the Securities Act; (ii) the amount, price, and other principal terms of the HOLDRs_ have been approved by the Board of Directors of the Initial Depositor or an authorized designee thereof; (iii) the Depositary Trust Agreement will be duly authorized, executed and delivered by the parties thereto substantially in the form filed as an exhibit to the Registration Statement; and (iv) the HOLDRs_ will be duly authenticated by the Trustee in accordance with the Depositary Trust Agreement and sold and delivered by the Initial Depositor against payment therefor. We are of the opinion that the discussion set forth under the caption "Federal Income Tax" accurately describes the material United States federal income tax consequences relating to the HOLDRs. The foregoing opinion is based upon the Internal Revenue Code of 1986, as amended, Treasury Regulations (including proposed Regulations and temporary Regulations) promulgated thereunder, rulings, official pronouncements and judicial decisions, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect, or to different interpretations. We hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the use of our name under the heading "Legal matters" in the Prospectus. Very truly yours, /s/ Shearman & Sterling -----END PRIVACY-ENHANCED MESSAGE-----