<PAGE>
As filed with the Securities and Exchange Commission on September 3, 1999
Registration No. 333-78575
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 6
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]
<TABLE>
<CAPTION>
Delaware 6211 13-5674085
<S> <C> <C>
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
---------------
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
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<TABLE>
<CAPTION>
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)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Internet HOLDRs......... 1,000,000,000 $100 $1,248,850,000 $347,181
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</TABLE>
(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.
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- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 has sold Depositary Receipts in the initial
distribution. The trust will issue the remaining Depositary Receipts 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.
<TABLE>
<CAPTION>
Price to Underwriting
Public Fee
-------- ------------
<S> <C> <C>
Per Internet HOLDR........................... 2%
Total Internet HOLDRs Sold in Initial
Distribution................................
</TABLE>
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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
</TABLE>
----------------
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
<PAGE>
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
<PAGE>
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
<PAGE>
. 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
industry receipts 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 common stocks 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
<PAGE>
. In addition, the trading price 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
<PAGE>
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 1, 1999 among The Bank of New York,
as trustee, and 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
<PAGE>
August 31, 1999 so that the initial weightings
of each underlying security included in the
Internet HOLDRs will approximate 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.
<TABLE>
<CAPTION>
Primary
Name of Share Initial Trading
Company Ticker Amounts Weighting Market
------------------------ ------ ------- --------- -------
<S> <C> <C> <C> <C>
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
</TABLE>
8
<PAGE>
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
<PAGE>
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
HOLDRs....................... You have the right to withdraw the underlying
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
<PAGE>
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 the 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
<PAGE>
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
<PAGE>
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 a
receipt. 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 1, 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 split, or other distribution by the issuer of
an underlying security that results in a fractional share becoming an
underlying security, 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
<PAGE>
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 of 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
<PAGE>
The following table and graph set forth the composite performance of all
of the underlying securities 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 were
determined by using the specific share amounts reflected in a round-lot of 100
Internet HOLDRs, as 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.
<TABLE>
<CAPTION>
Closing
1999 Price
- ---- -------
<S> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Closing
1999 Price
- ---- -------
<S> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Closing
1999 Price
- ---- -------
<S> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Closing
1999 Price
- ---- -------
<S> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Closing
1999 Price
- ---- -------
<S> <C>
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
</TABLE>
15
<PAGE>
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
<PAGE>
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 a
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 the 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 the initial depositor or any of the owners of the Internet
HOLDRs. Promptly after the execution of any amendment to the agreement, the
trustee must
17
<PAGE>
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 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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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 S1 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
<PAGE>
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 outstanding 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.
<TABLE>
<CAPTION>
Closing Closing Closing Closing Closing Closing
1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price
- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION>
Closing Closing Closing Closing Closing Closing
1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price
- ---- ------- ---- ------- --------- ------- --------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
A-1
<PAGE>
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.
<TABLE>
<CAPTION>
Closing Closing Closing Closing Closing Closing
1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price
- ---- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION>
Closing Closing Closing Closing Closing Closing
1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price
- ---- ------- --------- ------- --------- ------- --------- ------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
A-2
<PAGE>
CMGI
CMGI Inc. invests in, develops, and operates advanced Internet,
interactive, and database management technologies.
<TABLE>
<CAPTION>
Closing Closing Closing Closing Closing Closing
1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price
- ---- ------- --------- ------- --------- ------- --------- ------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January .31664 January 0.86086 January 3 33/64 January 2 January 4 17/32 January 61
February .31664 February 0.94991 February 4 19/32 February 1 37/64 February 5 63/64 February 61 5/16
March .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
</TABLE>
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.
<TABLE>
<CAPTION>
Closing Closing Closing Closing Closing Closing
1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price
- ---- ------- --------- ------- --------- ------- --------- ------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
A-3
<PAGE>
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.
<TABLE>
<CAPTION>
Closing Closing Closing Closing Closing Closing
1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price
- ---- ------- --------- ------- --------- ------- --------- ------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION>
Closing Closing Closing Closing Closing Closing
1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price
- ---- ------- --------- ------- --------- ------- --------- ------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
A-4
<PAGE>
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.
<TABLE>
<CAPTION>
Closing Closing Closing Closing Closing Closing
1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price
- ---- ------- --------- ------- --------- ------- --------- ------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION>
Closing Closing Closing Closing Closing Closing
1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price
- ---- ------- --------- ------- --------- ------- --------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
A-5
<PAGE>
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.
<TABLE>
<CAPTION>
Closing Closing Closing Closing Closing Closing
1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price
- ---- ------- --------- ------- --------- ------- --------- ------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
GO2NET
Go2Net, Inc. is a network of branded, technology, and community 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.
<TABLE>
<CAPTION>
Closing Closing Closing Closing Closing Closing
1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price
- ---- ------- --------- ------- --------- ------- ---- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
A-6
<PAGE>
INKTOMI
Inktomi Corporation develops and markets software applications designed
to enhance the performance and intelligence of large-scale networks. Inktomi's
systems use parallel-processing technology across clusters of workstations to
deliver greater speed and performance while utilizing smaller workstations.
<TABLE>
<CAPTION>
Closing Closing Closing Closing Closing Closing
1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price
- ---- ------- --------- ------- --------- ------- --------- ------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION>
Closing Closing Closing Closing Closing Closing
1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price
- ---- ------- --------- ------- --------- ------- --------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
A-7
<PAGE>
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.
<TABLE>
<CAPTION>
Closing Closing Closing Closing Closing Closing
1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price
- ---- ------- --------- ------- --------- ------- --------- ------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
NETWORK ASSOCIATES
Network Associates, Inc. develops and provides software products that
address network security and network management. 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.
<TABLE>
<CAPTION>
Closing Closing Closing Closing Closing Closing
1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price
- ---- ------- --------- -------- --------- -------- --------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
A-8
<PAGE>
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.
<TABLE>
<CAPTION>
Closing Closing Closing Closing Closing Closing
1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price
- ---- ------- --------- ------- --------- ------- --------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 *
</TABLE>
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.
<TABLE>
<CAPTION>
Closing Closing Closing Closing Closing Closing
1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price
- ---- ------- --------- ------- --------- -------- --------- ------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
A-9
<PAGE>
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.
<TABLE>
<CAPTION>
Closing Closing Closing Closing Closing Closing
1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price
- ---- ------- --------- ------- --------- ------- --------- ------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION>
Closing Closing Closing Closing Closing Closing
1994 Price 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price
- ---- ------- --------- ------- --------- ------- --------- -------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
A-10
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Information regarding other expenses of issuance and distribution is not
included because these expenses will be paid by the initial depositor and not
by the trust or the investors in the securities being issued.
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
<PAGE>
(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
<PAGE>
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
3, 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 3, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
* Chief Financial Officer
___________________________________________ and Controller
Michael Castellano
* Director
___________________________________________
George A. Schieren
* Director
___________________________________________
</TABLE> John L. Steffens
*By: /s/ Stephen G. Bodurtha Attorney-in-Fact
---------------------------------
Stephen G. Bodurtha
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequential
page
Exhibits numbers
-------- ----------
<C> <S> <C>
*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)..................................................
</TABLE>
- --------
* Previously filed.
II-4
