-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JtoPHejyPzz43ZG13iVhPgUdUD7ku0U/tkIZIFSmaptuYzucMUhvu8FO5mpTbeVT Nsh8ftFVPkfgNPUU1Tug1w== 0000950130-00-000328.txt : 20000203 0000950130-00-000328.hdr.sgml : 20000203 ACCESSION NUMBER: 0000950130-00-000328 CONFORMED SUBMISSION TYPE: 424B4 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20000201 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERRILL LYNCH PIERCE FENNER & SMITH INC CENTRAL INDEX KEY: 0000728612 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B4 SEC ACT: SEC FILE NUMBER: 333-92163 FILM NUMBER: 519390 BUSINESS ADDRESS: STREET 1: NORTH TOWER WORLD FINANCIAL CENTER STREET 2: NORTH TOWER WORLD FINANCIAL CENTER 5TH F CITY: NEW YORK STATE: NY ZIP: 10281-1323 BUSINESS PHONE: 2124496202 MAIL ADDRESS: STREET 1: WORLD FINANCIAL CENTER STREET 2: NORTH TOWER 23RD FL CITY: NEW YORK STATE: NY ZIP: 10281-1323 424B4 1 FINAL PROSPECTUS FILED PURSUANT TO RULE NO. 424(b)(4) REGISTRATION NO. 333-92163 REGISTRATION NO. 333-95807 PROSPECTUS [LOGO OF TELECOM HOLDERS] 1,000,000,000 Depositary Receipts Telecom HOLDRs SM Trust The Telecom HOLDRs SM Trust will issue Depositary Receipts called Telecom HOLDRs SM representing your undivided beneficial ownership in the U.S.-traded common stock of a group of 20 specified companies that are involved in various segments of the telecommunications industry. The Bank of New York will be the trustee. You only may acquire, hold or transfer Telecom HOLDRs in a round-lot amount of 100 Telecom HOLDRs or round-lot multiples. Telecom HOLDRs are separate from the underlying deposited common stocks that are represented by the Telecom HOLDRs. For a list of the names and the number of shares of the companies that make up a Telecom HOLDR, see "Highlights of Telecom HOLDRs--The Telecom HOLDRs" starting on page 9. Merrill Lynch, Pierce, Fenner & Smith Incorporated has sold 9,900,000 Telecom HOLDRs in the initial distribution. The trust will issue the additional Telecom HOLDRs on a continuous basis after the initial distribution. Investing in Telecom HOLDRs involves significant risks. See "Risk factors" starting on page 4. The initial public offering price for a round-lot of 100 Telecom HOLDRs will equal the sum of the closing market price on the primary trading market on January 31, 2000 for each deposited share multiplied by the share amount specified in this prospectus, plus an underwriting fee. Telecom 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 Telecom HOLDRs. The Telecom HOLDRs have been approved for listing on the American Stock Exchange under the symbol "TTH", subject to official notice of issuance. --------------- 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.
Initial Price to Underwriting Public* Fee -------- ------------ Per Telecom HOLDR.................................... $89.60 2%
------- * Includes underwriting fee. For purchases of Telecom HOLDRs in excess of 10,000 Telecom HOLDRs, the underwriting fee will be 1.5%. --------------- Merrill Lynch & Co. --------------- The date of this prospectus is January 31, 2000. "HOLDRs" and "HOLding Company Depositary Receipts" are service marks of Merrill Lynch & Co., Inc. TABLE OF CONTENTS
Page ---- Summary.................................................................... 3 Risk Factors............................................................... 4 Highlights of Telecom HOLDRs............................................... 9 The Trust.................................................................. 15 Description of Telecom HOLDRs.............................................. 15 Description of the Underlying Securities................................... 16 Description of the Depositary Trust Agreement.............................. 18 Federal Income Tax Consequences............................................ 21 Erisa Considerations....................................................... 22 Plan of Distribution....................................................... 22 Legal Matters.............................................................. 23 Where You Can Find More Information........................................ 23
---------------- This prospectus contains information you should consider when making your investment decision. With respect to information about Telecom 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 Telecom HOLDRs in any jurisdiction where the offer or sale is not permitted. 2 SUMMARY The Telecom HOLDRs trust will be formed under the depositary trust agreement, dated as of January 24, 2000 among The Bank of New York, as trustee, Merrill Lynch, Pierce, Fenner & Smith Incorporated, other depositors and the owners of the Telecom 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 telecommunications industry. The number of shares of each common stock held by the trust with respect to each round-lot of Telecom HOLDRs is specified under "Highlights of Telecom HOLDRs--The Telecom 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 Telecom HOLDRs that represent your undivided beneficial ownership interest in the shares of common stock held by the trust on your behalf. The Telecom HOLDRs are separate from the underlying common stocks that are represented by the Telecom HOLDRs. 3 RISK FACTORS An investment in Telecom HOLDRs involves risks similar to investing in each of the underlying securities outside of the Telecom HOLDRs, including the risks associated with concentrated investments in the telecommunications industry. General Risk Factors . Loss of investment. Because the value of Telecom HOLDRs directly relates to the value of the underlying securities, you may lose all or a substantial portion of your investment in the Telecom HOLDRs if the underlying securities decline in value. . Discount trading price. Telecom HOLDRs may trade at a discount to the aggregate value of the underlying securities. . Not necessarily representative of the telecommunications industry. While the underlying securities are common stocks of companies generally considered to be involved in various segments of the telecommunications industry, the underlying securities and the Telecom HOLDRs may not necessarily follow the price movements of the entire telecommunications industry generally. If the underlying securities decline in value, your investment in the Telecom HOLDRs will decline in value even if common stock prices in the telecommunications 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 telecommunications industry. In this case, the Telecom HOLDRs may no longer consist of securities issued only by companies involved in the telecommunications industry. . No investigation of underlying securities. The underlying securities included in the Telecom 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 telecommunications industry, without regard for the value, price performance, volatility or investment merit of the underlying securities. The Telecom 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, Telecom HOLDRs may not necessarily continue to be a diversified investment in the telecommunications industry. As a result of market fluctuation and/or reconstitution events, Telecom 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 Telecom HOLDRs and receive delivery of each of the underlying securities. The cancellation of your Telecom HOLDRs will allow you to sell individual underlying securities or to deliver individual underlying securities in a tender offer. The cancellation of Telecom HOLDRs will involve payment of a cancellation fee to the trustee. . Trading halts. Trading in Telecom 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 Telecom 4 HOLDRs even though there is trading in some of the underlying securities, however, you will be able to cancel your Telecom HOLDRs to receive the underlying securities. . 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 Telecom HOLDRs. If the Telecom HOLDRs are delisted by the American Stock Exchange, a termination event will result if the Telecom HOLDRs are not listed for trading on another national securities exchange or through NASDAQ within five business days from the date the Telecom HOLDRs are delisted. . Possible conflicts of interest. Merrill Lynch, Pierce, Fenner & Smith Incorporated, as initial depositor, has selected 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 included in the Telecom HOLDRs, the selection of the telecommunications industry, Merrill Lynch's activity in the secondary market in the underlying securities, and the creation and cancellation of Telecom 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 Telecom HOLDRs, particularly in connection with the initial issuance of Telecom HOLDRs, could temporarily increase the market price of the underlying securities, resulting in a higher price on that date. This purchasing activity could create a temporary imbalance between the supply and demand of the underlying securities, thereby limiting the liquidity of the underlying securities due to a temporary increased demand for underlying securities. Consequently, prices for the underlying securities may decline after these purchases as the volume of purchases subsides. This in turn is likely to have an immediate, adverse effect on the trading price of Telecom HOLDRs. Risk Factors Specific to the Telecommunications Industry . Telecommunications companies' stock prices have been and will likely continue to be extremely volatile which will directly affect the price volatility of the Telecom HOLDRs and you could lose all or part of your investment. Telecommunications companies' stock prices could be subject to wide fluctuations in response to a variety of factors, including: . failure to integrate or realize projected benefits from acquisitions; . acquisition-related announcements; . announcements of new contracts, technological innovations or new products; . changes in government regulations; . fluctuations in quarterly and annual operating results; and . general market conditions. As a result, the value of your investment may be subject to significant decreases over short periods of time. . Many telecommunications companies are highly leveraged and must raise additional capital to implement their business strategies. The business strategies of many telecommunications companies are focused on acquisitions and extensive capital expenditures. Implementing such 5 strategies has resulted in the incurrence of substantial debt obligations and the regular need to incur additional debt. As a result of high levels of debt, these telecommunications companies will need significant cash to service existing debt obligations, which could reduce funds available to implement their business strategies. Telecommunications companies may not be able to obtain additional financing or may not be able to obtain it on a timely basis or on favorable terms. There can be no assurance that telecommunications companies will be able to service their debt, refinance existing debt or raise additional financing necessary to implement key aspects of their business strategies. . Failure to integrate acquisitions could disrupt operations and prevent the realization of intended benefits. Many telecommunications companies are active acquirors of other companies as part of their business plans. There can be no assurance that telecommunications companies will be able to integrate these acquired companies, which may result in failure to realize expected cost savings, increases in revenue and other projected benefits from such integration. There can be no assurance that telecommunications companies will be able to attract and retain qualified personnel from acquired businesses or be successful in integrating such personnel. Further, telecommunications companies may suffer material adverse short and long-term effects on operating results and financial condition as a result of such acquisitions. . Inability to manage rapid growth could adversely affect financial reporting, customer service and revenues. Many telecommunications companies are rapidly expanding their networks and operations. This expansion has placed and will continue to place significant demands on the operating, financial control and billing systems, customer support, sales and marketing and administrative resources and network infrastructure of many telecommunications companies. This growth will require many telecommunications companies to enhance management, financial and information systems and to effectively develop and train their employee base. . Changes in the regulatory environments in which telecommunications companies operate could affect their ability to offer products and services. Communications services and products are subject to significant regulation at the federal, state, local and international levels. Delays in receiving required regulatory approvals and licenses or the enactment of new and adverse regulatory requirements may have a material adverse effect upon the ability of telecommunications companies to continue to offer existing and new products and services. In addition legislative, judicial, and regulatory agency actions could negatively affect the ability of many telecommunications companies to maintain required licenses or renew licenses upon their expiration. . If telecommunications companies do not adapt to the rapid changes in the industry, they could lose customers or market share. The telecommunications industry is changing rapidly due to, among other factors, deregulation initiatives in many countries, privatization of monopoly government telecommunications providers, technological improvements, expansion of telecommunications infrastructure and the globalization of the worlds's economies and trade. This period of rapid technological evolution is marked by the introduction of new products and services and increased availability of transmission capacity, as well as the increasing utilization of Internet-based technologies for voice and data transmission. The success of telecommunications companies will depend substantially on their ability to predict which of the many possible networks, products and services will be important to finance, establish and maintain. In particular, as telecommunications companies expand and develop their network further, they will become increasingly exposed to the risks associated with the relative effectiveness of their technology and equipment. The cost of implementation of technologies could be significant, and there can be no assurances that a telecommunications company will select appropriate technology and equipment or that it will obtain appropriate 6 new technology on a timely basis or on satisfactory terms. The failure to obtain effective technology and equipment may adversely affect a telecommunications company ability to offer competitive products and services and the viability of its operations. . Virtually every aspect of the telecommunications industry is extremely competitive which could adversely affect the business, results of operations and financial conditions of many telecommunications companies. Many telecommunications companies face significant competition from other telecommunications companies with greater or equal market share and financial resources. Many telecommunications companies compete domestically and internationally with incumbent telecommunications providers, some of which have special regulatory status and exclusive rights to provide certain services, and all which have historically dominated local telecommunications. Many telecommunications companies also compete with long distance carriers for the provision of long distance services. Sometimes the incumbent telecommunications provider offers both local and long distance services. A continuing trend toward business combinations and alliances in the telecommunications industry may create significant new and larger competitors. . Inability to offer long distance on a profitable basis could adversely affect the revenues of many telecommunications companies. Many telecommunications companies offer domestic and international long distance services. The long distance market is extremely competitive. The risks associated with this market include the following: . the need to engage in significant price competition and discounting to attract and retain customers; . high average customer turnover rates; . reliance on other carriers for a portion of transmission and termination services; and . difficulty in estimating future supply and demand. . Inability to predict traffic volume could adversely affect the revenues of many telecommunications companies. Some telecommunications companies offering long distance services enter into long-term agreements for leased capacity on the land based or undersea cable and switches of other telecommunications companies. If capacity is leased in anticipation of traffic volumes that do not reach expected levels, telecommunications companies will have to pay for transmission capacity without corresponding revenues. Also, additional fees are often charged when a telecommunications company under-utilizes the capacity it leases. Conversely, if a telecommunications company underestimates its need for capacity, it often must obtain additional transmission capacity through more expensive sources. . System failures, interruptions or shutdowns may cause loss of customers. The success of many telecommunications companies depends upon their ability to deliver reliable, high-speed telecommunications service over their networks. The companies' networks are vulnerable to damage or cessation of operations from fire, earthquakes, severe storms, power loss and similar events, particularly if such events occur within a high traffic location of the network. As many of telecommunications companies increase both their capacity and reach, and as traffic volume continues to increase, they will be faced with increasing demands and challenges in managing circuit capacity and traffic management systems. Any prolonged failure of communications networks or other systems or hardware that causes interruptions to operations could seriously damage the reputation of such telecommunications companies and result in customer attrition and financial losses. . Many telecommunications companies may not be able to implement billing and customer information systems effectively and on schedule which could adversely affect their growth and ability to bill and receive payments from customers. Sophisticated billing and information systems are vital to the growth of many telecommunications companies and their ability to bill and receive payments from customers, reduce credit exposure and monitor 7 costs. If these systems are not effectively implemented or are delayed, call details may not be accurately recorded and customer bills may not be generated promptly or accurately. This would adversely affect the business of these telecommunications companies since they would not be able to promptly collect on customer balances due them. . Telecommunications companies may be affected by the Year 2000 issue which could disrupt their business and operations. The Year 2000 issue is the result of computer programs using 2 digits rather than 4 to define the applicable year. As a result of this programming convention, software or hardware may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failures, miscalculations or errors causing disruptions of operations or other business problems, including, among others, a temporary inability to process transactions, send invoices, or engage in similar normal business activities during and after the year 2000. The failures that may occur in the systems of telecommunications companies could result in litigation brought by its customers for service interruption. . The international operations and investments of many telecommunication companies expose them to risks associated with the instability and changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations and other risks inherent to international business. The risks that telecommunications companies' international operations and investments are exposed to include: . general economic, social and political conditions; . the difficulty of enforcing agreements and collecting receivables through certain foreign legal systems; . differing tax rates, tariffs, exchange controls or other similar restrictions; . currency fluctuations; and . changes in and compliance with domestic and foreign laws and regulations which impose a range of restrictions on operations, trade practices, foreign trade and international investment decisions. . Many telecommunications companies are dependent on their ability to continue to retain and attract highly skilled technical and managerial personnel to develop and operate their businesses. The success of many telecommunications companies is highly dependent on the experience, abilities and continued services of key executive officers and key technical personnel. If these companies lose the services of any of these officers or key technical personnel, their future success could be undermined. Competition for such personnel and relationships is intense, especially in emerging markets. There is no certainty that any of these telecommunications companies will be able to continue to attract and retain qualified personnel. 8 HIGHLIGHTS OF TELECOM HOLDRs This discussion highlights information regarding Telecom HOLDRs; we present certain information more fully in the rest of this prospectus. You should read the entire prospectus carefully before you purchase Telecom HOLDRs. Issuer....................... Telecom HOLDRs Trust. The trust.................... The Telecom HOLDRs Trust will be formed under the depositary trust agreement, dated as of January 24, 2000 among The Bank of New York, as trustee, Merrill Lynch, Pierce, Fenner & Smith Incorporated, other depositors and the owners of the Telecom 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 Telecom HOLDRs.... Telecom HOLDRs are designed to achieve the following: Diversification. Telecom HOLDRs are designed to allow you to diversify your investment in the telecommunications industry through a single, exchange-listed instrument representing your undivided beneficial ownership of the underlying securities. Flexibility. The beneficial owners of Telecom HOLDRs have undivided beneficial ownership interests in each of the underlying securities represented by the Telecom HOLDRs, and can cancel their Telecom HOLDRs to receive each of the underlying securities represented by the Telecom HOLDRs. Transaction costs. The expenses associated with trading Telecom 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 telecommunications 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 Telecom 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 Telecom HOLDRs........... The trust will issue Telecom HOLDRs that represent your undivided beneficial ownership interest in the shares of U.S.-traded common stock held by the trust on your behalf. The Telecom 9 HOLDRs themselves are separate from the underlying securities that are represented by the Telecom HOLDRs. The specific share amounts for each round-lot of 100 Telecom HOLDRs are set forth in the chart below and were determined on December 15, 1999 so that the initial weightings of each underlying security included in the Telecom HOLDRs approximated the relative market capitalizations of the specified companies, subject to a maximum weight of 20%. Because these weightings are a function of market prices, it is expected that these weightings will change substantially over time, including during the period between December 15, 1999 and the date the Telecom 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 the Telecom HOLDRs, . stock ticker symbols, . share amounts represented by a round-lot of 100 Telecom HOLDRs, . initial weightings as of December 15, 1999 and . principal market on which the shares of common stock of the selected companies are traded.
Primary Share Initial Trading Name of Company Ticker Amounts Weighting Market ----------------------- ------ ------- --------- ------- SBC Communications Inc. SBC 27 15.66% NYSE AT & T Corp. T 25 15.06% NYSE MCI WorldCom Inc. WCOM 22 12.28% NASDAQ Bell Atlantic Corp. BEL 12 8.66% NYSE BellSouth Corp. BLS 15 7.91% NYSE GTE Corp. GTE 8 6.60% NYSE BCE Inc. BCE 5 4.35% NYSE Sprint Corporation (FON Group) FON 6 4.29% NYSE Sprint Corporation (PCS Group) PCS 3 3.77% NYSE Global Crossing Ltd. GBLX 6 3.33% NASDAQ Nextel Communications, Inc. NXTL 3 3.31% NASDAQ US WEST, Inc. USW 4 3.08% NYSE Qwest Communications, International Inc. Q 6 2.76% NYSE Level 3 Communications, Inc. LVLT 3 2.59% NASDAQ ALLTEL Corp. AT 2 1.94% NYSE Telephone and Data Systems, Inc. TDS 1 1.42% AMEX NTL Incorporated(/1/) NTLI 1 1.18% NASDAQ Broadwing Inc. BRW 2 0.67% NYSE McLeodUSA Inc. MCLD 1 0.61% NASDAQ Century Telephone Enterprises, Inc. CTL 1 0.52% NYSE
-------- (/1/)On February 4, 2000, as a result of a 5- for-4 stock split, the share amount of NTL Incorporated, represented by a round-lot of 100 Telecom HOLDRs, will be 1.25. Please see the description of NTL in Annex A. 10 These companies generally are considered to be among the 20 largest and most liquid companies with U.S.-traded common stock involved in the telecommunications industry as measured by market capitalization and trading volume on December 15, 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, Telecom HOLDRs in a round-lot of 100 Telecom HOLDRs and round-lot multiples. The trust will only issue Telecom HOLDRs upon the deposit of the whole shares represented by a round-lot of 100 Telecom HOLDRs. In the event that a fractional share comes to be represented by a round-lot of Telecom HOLDRs, the trust may require a minimum of more than one round-lot of 100 Telecom HOLDRs for an issuance so that the trust will always receive whole share amounts for issuance of Telecom HOLDRs. The number of outstanding Telecom 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 Telecom 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 Telecom HOLDRs will equal the sum of the closing market price on the primary trading market on January 31, 2000, 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 Telecom 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 purchase Telecom 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 10,000 Telecom HOLDRs or fewer, 2%. . For purchases in excess of 10,000 Telecom HOLDRs, 1.5%. You will not be charged any issuance fee or other sales commission in connection with purchases of Telecom HOLDRs made in the initial public offering. Issuance and cancellation fees......................... After the initial offering, if you wish to create Telecom HOLDRs by delivering to the trust the requisite shares of common stock represented by a round-lot of 100 Telecom HOLDRs, The Bank of 11 New York as trustee will charge you an issuance fee of up to $10.00 for each round-lot of 100 Telecom HOLDRs. If you wish to cancel your Telecom 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 Telecom HOLDRs. Commissions.................. If you choose to deposit underlying securities in order to receive Telecom HOLDRs after the conclusion of the 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 Telecom 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 Telecom 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 Telecom 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 Telecom 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 Telecom 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 Telecom HOLDRs themselves will not have voting rights. Rights relating to the underlying You have the right to: securities.................. . 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. 12 . 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 Telecom 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." 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 Telecom 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 Telecom 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 Telecom HOLDRs, unless the merger, consolidation or other corporate combination is between companies that are already included in the Telecom HOLDRs and the consideration paid is additional underlying securities. In this case, the additional underlying securities will be deposited into the trust. D. If an issuer's underlying securities are delisted from trading on a national securities exchange or NASDAQ and are not listed for trading on another national securities exchange or through NASDAQ within 5 business days from the date such securities are delisted, then the trustee will distribute the shares of that company to the owners of Telecom HOLDRs. 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 Telecom 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 Telecom HOLDRs are delisted. 13 B. The trustee resigns and no successor trustee is appointed within 60 days from the date the trustee provides notice to Merrill Lynch, Pierce, Fenner & Smith Incorporated, as initial depositor, of its intent to resign. C. 75% of beneficial owners of outstanding Telecom 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 consequences................ The federal income tax laws will treat a U.S. holder of Telecom HOLDRs as directly owning the underlying securities. The Telecom HOLDRs themselves will not result in any federal tax consequences separate from the tax consequences associated with ownership of the underlying securities. Listing...................... The Telecom HOLDRs have been approved for listing on the American Stock Exchange under the symbol "TTH", subject to official notice of issuance. Trading will take place only in round-lots of 100 Telecom HOLDRs and round-lot multiples. A minimum of 150,000 Telecom 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 Telecom HOLDRs. Bid and ask prices, however, will be quoted per single Telecom HOLDRs. Clearance and settlement..... The trust will issue Telecom HOLDRs in book- entry form. Telecom HOLDRs will be evidenced by one or more global certificates that the trustee will deposit with The Depository 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 Telecom HOLDRs." 14 THE TRUST General. This discussion highlights information about the Telecom HOLDRs trust. You should read this information, information about the depositary trust agreement as well as the depositary trust agreement before you purchase Telecom HOLDRs. The material terms of the depositary trust agreement are described in this prospectus under the heading "Description of the depositary trust agreement." The Telecom HOLDRs trust. The trust will be formed pursuant to the depositary trust agreement, dated as of January 24, 2000. The Bank of New York will be the trustee. The Telecom HOLDRs trust is not a registered investment company under the Investment Company Act of 1940. The Telecom HOLDRs trust is intended to hold deposited shares for the benefit of owners of Telecom 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, 2040 or earlier if a termination event occurs. DESCRIPTION OF TELECOM HOLDRs The trust will issue Telecom 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 Telecom HOLDRs on a continuous basis when an investor deposits the requisite underlying securities with the trustee. You may only acquire, hold, trade and surrender Telecom HOLDRs in a round-lot of 100 Telecom HOLDRs and round-lot multiples. The trust will only issue Telecom HOLDRs upon the deposit of the whole shares of underlying securities that are represented by a round-lot of 100 Telecom HOLDRs. In the event of a stock split, reverse stock split, or other distribution by the issuer of an underlying security that results in a fractional share becoming represented by a round-lot of Telecom HOLDRs, the trust may require a minimum of more than one round-lot of 100 Telecom HOLDRs for an issuance so that the trust will always receive whole share amounts for issuance of Telecom HOLDRs. Telecom 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 Telecom HOLDRs--The Telecom HOLDRs." Beneficial owners of Telecom 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 Telecom HOLDRs to receive the underlying securities. See "Description of the depositary trust agreement." Telecom 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 the aggregate value of the underlying securities represented by a receipt. Telecom 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 Telecom HOLDRs wishes to realize the dollar value of the underlying securities, that owner will have to cancel the Telecom HOLDRs. Such cancellation will require payment of fees and expenses as described in "Description of the depositary trust agreement--Withdrawal of underlying securities." 15 Telecom 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. Telecom HOLDRs will be available only in book-entry form. Owners of Telecom HOLDRs may hold their Telecom HOLDRs through DTC, if they are participants in DTC, or indirectly through entities that are participants in DTC. DESCRIPTION OF THE UNDERLYING SECURITIES Selection criteria. The underlying securities are the common stocks of a group of 20 specified companies involved in various segments of the telecommunications 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 telecommunications industry as measured by market capitalization and trading volume. The following criteria were used in selecting the underlying securities on December 15, 1999: .Market capitalization equal to or greater than $5 billion; . Average daily trading volume of at least 225,000 shares over the 60 trading days prior to and including December 15, 1999; . Average daily dollar volume (that is, the average daily trading volume multiplied by the closing price on December 15, 1999) of at least $17 million over the 60 trading days prior to and including December 15, 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 met the above-stated criteria for inclusion in the Telecom HOLDRs, Merrill Lynch, Pierce, Fenner & Smith Incorporated examined available public information about the company. 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 telecommunications industry. In this case, the Telecom HOLDRs may no longer consist of securities issued by companies involved in the telecommunications industry. Merrill Lynch, Pierce, Fenner & Smith Incorporated will determine, in its sole discretion, whether the issuer of a particular underlying security remains in the telecommunications industry and will undertake to make adequate disclosure when necessary. Underlying securities. For a list of the underlying securities represented by Telecom HOLDRs, please refer to "Highlights of Telecom HOLDRs-- The Telecom 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 stated selection criteria. Accordingly, before you acquire Telecom HOLDRs, you should consider publicly available financial and other information about the issuers of the underlying securities. See "Risk factors" and "Where you can find more information." Investors and market participants should not conclude that the inclusion of a company in the list is any form of investment 16 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." The following table sets forth the composite performance of all of the underlying securities represented by a single Telecom HOLDR, measured at the close of each business day on November 17, 1998, the first date when all of the underlying securities were publicly traded, and thereafter as of the end of each month to January 13, 2000. The following graph sets forth such performance at the close of each business day during the same period. The performance table and graph data are adjusted for any splits that may have occurred over the measurement period. Past movements of the underlying securities are not necessarily indicative of future values.
Telecom HOLDRs ------- November 17, 1998....... 63.13 November 1998........... 64.17 December 1998........... 72.80 January 1999............ 78.34 February 1999........... 76.35 March 1999.............. 76.59 April 1999.............. 80.83 May 1999................ 81.10
Telecom HOLDRs ------- June 1999............... 84.62 July 1999............... 82.66 August 1999............. 74.64 September 1999.......... 77.70 October 1999............ 84.70 November 1999........... 88.35 December 1999........... 89.19 January 13, 2000........ 84.14
[LINE GRAPH] 17 DESCRIPTION OF THE DEPOSITARY TRUST AGREEMENT General. The depositary trust agreement, dated as of January 24, 2000, among Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Bank of New York, as trustee, other depositors and the owners of the Telecom HOLDRs, provides that Telecom HOLDRs will represent an owner's undivided beneficial ownership interest in the common stock of the underlying companies. The trustee. The Bank of New York will serve 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 Telecom HOLDRs. You may create and cancel Telecom HOLDRs only in round-lots of 100 Telecom HOLDRs. You may create Telecom HOLDRs by delivering to the trustee the requisite underlying securities. The trust will only issue Telecom HOLDRs upon the deposit of the whole shares represented by a round-lot of 100 Telecom HOLDRs. In the event that a fractional share comes to be represented by a round-lot of Telecom HOLDRs, the trust may require a minimum of more than one round-lot of 100 Telecom HOLDRs for an issuance so that the trust will always receive whole share amounts for issuance of Telecom HOLDRs. Similarly, you must surrender Telecom HOLDRs in integral multiples of 100 Telecom 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 Telecom 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 Telecom HOLDRs, other than Merrill Lynch, Pierce, Fenner & Smith Incorporated owning Telecom 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 Telecom 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 Telecom 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 Telecom 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. 18 Shareholder communications. The trustee promptly will forward to you all shareholder communications that it receives from issuers of the underlying securities. Withdrawal of underlying securities. You may surrender your Telecom 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 Telecom 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 Telecom HOLDRs. Further issuances of Telecom HOLDRs. The depositary trust agreement provides for further issuances of Telecom HOLDRs on a continuous basis without your consent. Reconstitution events. The depositary trust agreement provides for the automatic distribution of underlying securities to you in four circumstances. A. If an issuer of underlying securities no longer has a class of common stock registered under section 12 of the Securities Exchange Act of 1934, then its securities will no longer be an underlying security and the trustee will distribute the shares of that company to the owners of the Telecom 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 Telecom 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 Telecom HOLDRs, unless the merger, consolidation or other corporate combination is between companies that are already included in the Telecom HOLDRs and the consideration paid is additional underlying securities. In this case, the additional underlying securities will be deposited into the trust. D. If an issuer's underlying securities are delisted from trading on a national securities exchange or NASDAQ and are not listed for trading on another national securities exchange or through NASDAQ within 5 business days from the date such securities are delisted, then the trustee will distribute the shares of that company to owners of Telecom HOLDRs. 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 Merrill Lynch, Pierce, Fenner & Smith Incorporated, as initial depositor, within 60 days from the date the trustee provides notice to Merrill Lynch, Pierce, Fenner & Smith Incorporated, as initial depositor, of its intent to resign. Upon termination, the beneficial owners of Telecom HOLDRs will surrender their Telecom 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 the underlying securities. The trust also will terminate if Telecom 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 Telecom HOLDRs are delisted. Finally, the trust will terminate if 75% of the owners of outstanding Telecom 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. 19 Amendment of the depositary trust agreement. The trustee and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as initial depositor, may amend any provisions of the depositary trust agreement without the consent of any other depositor or any of the owners of the Telecom HOLDRs. Promptly after the execution of any amendment to the agreement, the trustee must furnish or cause to be furnished written notification of the substance of the amendment to each owner of Telecom 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 Telecom HOLDRs will not become effective until 30 days after notice of the amendment is given to the owners of Telecom HOLDRs. Issuance and cancellation fees. After the initial public offering, the trust expects to issue more Telecom HOLDRs. If you wish to create Telecom 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 Telecom HOLDRs. If you wish to cancel your Telecom 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 Telecom 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 Telecom HOLDRs after the conclusion of the 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 a quarterly custody fee of $2.00 for each round-lot of 100 Telecom HOLDRs to be deducted from any dividend payments or other cash distributions on underlying securities received by the trustee. With respect to the aggregate custody fee payable in any calendar year for each Telecom 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 Telecom 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 Telecom 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. 20 FEDERAL INCOME TAX CONSEQUENCES General The following is a summary of the U.S. federal income tax consequences relating to the Telecom 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 (each of the above, 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 Telecom 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 Telecom HOLDRs A receipt holder purchasing and owning Telecom HOLDRs will be treated, for U.S. federal income tax purposes, as directly owning a proportionate share of the underlying securities represented by Telecom 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 Telecom 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 Telecom 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 Telecom HOLDRs. Similarly, with respect to sales of Telecom HOLDRs for cash in the secondary market, the amount realized with respect to a sale of Telecom 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 Telecom 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. 21 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 Telecom 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 Telecom HOLDRs should consult with its counsel with respect to the potential applicability of ERISA and the Internal Revenue 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 Telecom 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 depositary 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 Telecom HOLDRs. Merrill Lynch & Co., as underwriter, proposes to offer the Telecom HOLDRs to the public at the offering price set forth on the cover page of this prospectus. Merrill Lynch expects the trust to deliver the initial distribution of Telecom HOLDRs against deposit of the underlying securities in New York, New York on February 3, 2000. After the initial offering, the public offering price, concession and discount may be changed. The trust will continue to issue Telecom HOLDRs, in connection with deposits of underlying securities. This offering is being made in compliance with Conduct Rule 2810 of the National Association of Securities Dealers, Inc. Accordingly, Merrill Lynch will not make any sales to a discretionary account without the prior written approval of a purchaser of Telecom HOLDRs. 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 Telecom 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. 22 Merrill Lynch, Pierce, Fenner & Smith Incorporated has agreed to indemnify the trustee against certain 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 Telecom HOLDRs. 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. LEGAL MATTERS Legal matters, including the validity of the Telecom 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. 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 Telecom HOLDRs. WHERE YOU CAN FIND MORE INFORMATION Merrill Lynch, Pierce, Fenner & Smith Incorporated has filed a registration statement on Form S-1 with the SEC covering the Telecom 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 Telecom HOLDRs. This prospectus relates only to Telecom 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 Telecom 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 Telecom HOLDRs, have been publicly disclosed. 23 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 1995, 1996, 1997, 1998, 1999 and 2000 through January 2000. All market prices in excess of one dollar are rounded to the nearest one sixty-fourth of a 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. ALLTEL CORP. ALLTEL Corp. provides services in two business segments: the telecommunications services segment which operates in the southeastern and eastern United States and the information services segment which offers its services to customers throughout the world. The communications services segment offers wireline, wireless, long distance, long distance paging, Internet access services for residential and business customers, and telephone directory publishing. The information services segment provides a wide range of services primarily to the financial services and telecommunications industries and also develops and markets software to financial services and telecommunications companies who offer their own information services. ALLTEL markets most of its products and service offerings through its retail operations and maintains its own sales force.
Closing Closing Closing Closing Closing Closing 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price 2000 Price - --------- ------- --------- ------- --------- ------- --------- -------- --------- -------- ------- ------- January 28 3/8 January 31 3/8 January 32 1/8 January 42 3/4 January 64 9/16 January 66 3/4 February 28 5/8 February 33 1/4 February 35 3/8 February 45 11/16 February 59 7/8 March 28 3/4 March 30 7/8 March 32 1/2 March 43 11/16 March 62 3/8 April 24 3/4 April 32 7/8 April 31 1/2 April 42 3/4 April 67 7/16 May 24 5/8 May 31 1/2 May 32 7/8 May 39 7/16 May 71 11/16 June 25 3/8 June 30 3/4 June 33 7/16 June 46 1/2 June 71 1/2 July 26 3/8 July 27 3/8 July 32 7/8 July 41 15/16 July 71 13/16 August 28 1/4 August 28 1/4 August 31 5/8 August 44 7/8 August 67 5/8 September 29 7/8 September 27 7/8 September 34 1/2 September 47 1/8 September 70 3/8 October 30 5/8 October 30 1/2 October 35 3/8 October 46 13/16 October 83 1/4 November 29 1/2 November 31 7/8 November 39 3/4 November 53 November 86 1/2 December 29 1/2 December 31 3/8 December 41 1/16 December 59 13/16 December 82 11/16
The closing price on January 31, 2000 was 66 3/4. A-1 AT&T CORP. AT&T Corp. provides voice, data, and video communications services to residential consumers, large and small businesses and government entities in the United States. AT&T has also entered into alliances with international telecommunications services providers throughout the world to broaden the geographic range of its service offerings. AT&T provides domestic and international long distance, regional, local and wireless telecommunications services, cable television and Internet communications transmission services and professional consulting services which provide clients with recommendations for future investments in new telecommunications-related technologies and assist with implementation of such technologies. AT&T also provides billing, directory and calling card services to support its communications business. AT&T markets many of its services through it own sales representatives and by means of television advertising, direct mail solicitations and customer care telephone solicitations, as well as through brand awareness.
Closing Closing Closing Closing Closing Closing 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price 2000 Price - --------- -------- --------- -------- --------- -------- --------- -------- --------- -------- ------- ------- January 23 25/32 January 31 57/64 January 26 1/4 January 41 3/4 January 60 1/2 January 52 3/4 February 24 5/8 February 30 11/32 February 26 37/64 February 40 43/64 February 54 3/4 March 24 11/16 March 29 5/32 March 23 1/4 March 43 53/64 March 53 13/64 April 24 13/64 April 29 7/32 April 22 21/64 April 40 5/64 April 50 1/2 May 24 13/64 May 29 3/4 May 24 1/2 May 40 37/64 May 55 1/2 June 25 9/32 June 29 37/64 June 23 3/8 June 38 5/64 June 55 13/16 July 25 5/32 July 24 59/64 July 24 35/64 July 40 37/64 July 52 1/8 August 27 1/64 August 25 3/64 August 26 August 33 27/64 August 45 September 31 23/64 September 24 59/64 September 29 1/2 September 38 61/64 September 43 1/2 October 30 17/32 October 23 21/64 October 32 37/64 October 41 43/64 October 46 3/4 November 31 27/64 November 26 11/64 November 37 1/4 November 41 29/64 November 55 7/8 December 30 57/64 December 28 59/64 December 40 7/8 December 50 1/2 December 50 13/16
The closing price on January 31, 2000 was 52 3/4. BELL ATLANTIC CORP. Bell Atlantic Corp. is a telecommunications company that operates predominantly in the east coast region of the United States, stretching from Maine to Virginia. Bell Atlantic focuses on four distinct areas of operations: domestic wireline services providing local telephone services, including voice and data transport; wireless telecommunications services in 24 states in the United States and foreign wireless investments servicing customers in Latin America, Europe and the Pacific Rim; domestic and international publishing businesses, including print directories and Internet-based shopping guides, website creation and web hosting, which is a means of hosting the web-server application on a computer system through which electronic content on the Internet is readily available to any web-browser client; and other businesses such as international wireline telecommunications investments in Europe and the Pacific Rim and lease financing.
Closing Closing Closing Closing Closing Closing 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price 2000 Price - --------- -------- --------- -------- --------- -------- --------- -------- --------- -------- ------- -------- January 27 1/8 January 34 7/16 January 33 5/8 January 46 9/32 January 60 January 61 15/16 February 26 13/16 February 33 1/16 February 34 9/16 February 44 7/8 February 57 5/8 March 26 7/16 March 30 15/16 March 30 3/8 March 51 1/8 March 51 11/16 April 27 5/16 April 32 1/2 April 33 7/8 April 46 25/32 April 57 5/8 May 27 3/4 May 31 3/16 May 35 May 45 13/16 May 54 3/4 June 28 June 31 7/8 June 37 15/16 June 45 5/8 June 65 3/8 July 28 5/8 July 29 9/16 July 36 9/32 July 45 11/32 July 64 August 29 3/4 August 28 1/8 August 36 3/16 August 44 1/8 August 61 5/16 September 30 11/16 September 29 15/16 September 40 7/32 September 48 7/16 September 67 5/16 October 31 3/4 October 30 1/8 October 40 October 53 3/16 October 64 15/16 November 31 1/2 November 31 7/16 November 44 5/8 November 55 5/8 November 63 5/16 December 33 7/16 December 32 3/8 December 45 1/2 December 54 December 61 9/16
The closing price on January 31, 2000 was 61 15/16. A-2 BCE INC. BCE provides residence and business customers in Canada with wireline and wireless telecommunications products and applications, satellite communications and direct-to-home television services, systems integration expertise, electronic commerce solutions, Internet access and high-speed data services and directories. BCE provides communications services in Asia and Latin America and has an international presence through its ownership in Nortel Networks, a designer and builder of communications networks, and through its ownership in Teleglobe, an international telecommunications carrier.
Closing Closing Closing Closing Closing Closing 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price 2000 Price - --------- ------- --------- ------- --------- --------- --------- -------- --------- -------- ------- -------- January 30 January 36 1/8 January 50 1/4 January 31 1/4 January 44 5/8 January 102 3/16 February 30 7/8 February 34 3/4 February 48 1/2 February 35 9/16 February 40 7/16 March 30 7/8 March 35 3/8 March 46 March 41 3/4 March 44 5/16 April 31 3/4 April 39 3/8 April 46 3/4 April 42 9/16 April 45 11/16 May 31 3/8 May 39 3/4 May 26 1/2 May 46 1/16 May 46 1/16 June 32 1/8 June 39 1/2 June 28 June 42 11/16 June 49 5/16 July 31 1/8 July 39 7/8 July 30 7/16 July 40 5/16 July 49 11/16 August 32 1/4 August 39 3/8 August 28 / 5/16 August 32 3/16 August 46 3/4 September 33 3/8 September 42 3/4 September 29 7/8 September 27 15/16 September 49 13/16 October 33 5/8 October 46 October 27 7/8 October 34 1/16 October 60 1/4 November 33 1/2 November 50 1/8 November 30 5/16 November 35 9/16 November 67 5/8 December 34 1/2 December 47 3/4 December 33 5/16 December 37 15/16 December 90 3/16
The closing price on January 31, 2000 was 102 3/16. BELLSOUTH CORP. BellSouth Corp. provides a broad range of telecommunications services in the United States and international wireless telecommunications services. BellSouth's operations are divided into a wireline communications, domestic wireless, international wireless and advertising and publishing operating segments. Its wireline communications segment offers local exchange, network access, long distance and data services in the southeastern United States and its domestic wireless segment offers a broad range of cellular services in a similar service area. BellSouth, through its international wireless segment, has entered into ventures in India, Israel and throughout Central and South America to provide cellular services and technology. The advertising and publishing segment prints and sells advertising in telephone directories. BellSouth markets its products primarily through its own sales representatives and promotes its brand name and services by advertising in connection with major sports and cultural events, such as the Olympics and through its affiliation with several professional and collegiate sports organizations.
Closing Closing Closing Closing Closing Closing 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price 2000 Price - --------- -------- --------- -------- --------- -------- --------- -------- --------- -------- ------- ------- January 14 13/16 January 21 7/16 January 22 3/16 January 30 9/32 January 44 5/8 January 47 1/16 February 14 23/32 February 19 15/16 February 23 7/16 February 30 15/32 February 46 1/2 March 14 7/8 March 18 1/2 March 21 1/16 March 33 23/32 March 40 1/16 April 15 9/32 April 20 April 22 1/4 April 32 3/32 April 44 1/2 May 15 9/32 May 20 5/16 May 22 11/16 May 32 1/4 May 47 3/16 June 15 7/8 June 21 June 23 3/16 June 33 9/16 June 46 1/8 July 16 15/16 July 20 1/2 July 23 11/16 July 34 3/8 July 48 1/16 August 17 3/16 August 18 1/8 August 22 August 34 9/32 August 45 1/4 September 18 9/32 September 18 1/2 September 23 1/8 September 37 5/8 September 45 October 19 1/8 October 20 3/8 October 23 21/32 October 39 25/32 October 45 November 19 7/16 November 20 3/16 November 27 3/8 November 43 5/8 November 46 1/16 December 21 3/4 December 20 1/4 December 28 5/32 December 49 7/8 December 46 13/16
The closing price on January 31, 2000 was 47 1/16. A-3 BROADWING INC. Formed by the merger of Cincinnati Bell, a local communications provider, and IXC Communications, a fiber network carrier, Broadwing Inc. is an integrated communications company delivering voice, data, wireless and Internet solutions to a variety of customers across the United States. Broadwing provides Internet access and hosting, local and long distance services, high bandwidth data transport, such as frame relay (high-speed data transfer over telephone lines), and managed services, such as information technology consulting.
Closing Closing Closing Closing Closing Closing 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price 2000 Price - --------- -------- --------- -------- --------- -------- --------- -------- --------- -------- ------- ------- January 9 5/8 January 16 1/4 January 30 15/16 January 35 13/16 January 20 5/16 January 38 February 10 1/2 February 16 3/8 February 31 February 32 February 19 3/4 March 10 3/4 March 26 March 28 1/4 March 35 5/8 March 22 7/16 April 12 April 24 5/8 April 28 April 38 1/4 April 22 11/16 May 12 7/16 May 26 9/16 May 30 3/4 May 31 13/16 May 24 3/16 June 12 5/8 June 26 1/16 June 31 1/2 June 28 5/8 June 24 15/16 July 13 5/16 July 24 5/16 July 30 July 32 1/8 July 21 1/4 August 13 5/8 August 23 7/8 August 26 15/16 August 23 1/2 August 18 1/2 September 13 1/2 September 26 1/2 September 28 1/4 September 26 September 19 7/16 October 14 11/16 October 24 11/16 October 27 October 25 15/16 October 20 13/16 November 14 15/16 November 29 13/16 November 29 1/2 November 31 1/2 November 29 December 17 3/8 December 30 13/16 December 31 December 37 13/16 December 36 7/8
The closing price on January 31, 2000 was 38. CENTURY TELEPHONE ENTERPRISES, INC. Century Telephone Enterprises, Inc. is a regional diversified communications company engaged primarily in providing local exchange telephone services and cellular telephone services in 21 states in the United States. CenturyTel local telephone operations offers its services primarily in rural and smaller suburban areas in its coverage area. It also provides long distance, cable television and home and business security and monitoring services in certain local and regional markets. CenturyTel markets many of its services through several distribution channels, including its own direct sales force and retail outlets and through independent agents.
Closing Closing Closing Closing Closing Closing 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price 2000 Price - --------- -------- --------- -------- --------- -------- --------- -------- --------- -------- ------- ------- January 14 January 15 1/16 January 13 15/16 January 23 7/16 January 45 21/64 January 38 1/4 February 13 25/32 February 14 15/16 February 13 39/64 February 27 7/64 February 41 11/64 March 13 1/2 March 14 7/64 March 13 7/64 March 27 11/64 March 46 53/64 April 13 7/32 April 14 9/16 April 13 9/32 April 28 3/8 April 40 1/4 May 13 1/16 May 14 7/16 May 13 7/16 May 29 35/64 May 38 5/16 June 12 39/64 June 14 11/64 June 14 31/32 June 30 37/64 June 39 3/4 July 12 43/64 July 14 11/64 July 16 21/64 July 33 11/64 July 42 3/4 August 12 25/64 August 15 1/16 August 16 9/64 August 30 1/4 August 39 5/16 September 13 1/2 September 15 9/32 September 19 9/16 September 31 1/2 September 40 5/8 October 12 57/64 October 14 9/32 October 18 55/64 October 37 7/8 October 40 7/16 November 13 57/74 November 14 11/64 November 20 15/32 November 38 November 46 December 14 7/64 December 13 23/32 December 22 .9/64 December 45 December 47 3/8
The closing price on January 31, 2000 was 38 1/4. A-4 GLOBAL CROSSING LTD. Global Crossing Ltd. is a global provider of Internet and long distance telecommunication facilities and related services utilizing a network of undersea and terrestrial digital fiber optic cable systems. Global Crossing is building and offering services over a global fiber optic network serving five continents, 24 countries and 200 major cities. Global Crossing markets capacity on its systems to telecommunications providers, including Internet services providers and established and emerging telecommunications companies. Global Crossing is in the process of establishing regional sales and marketing companies in the United States, the United Kingdom and Asia to facilitate sales of capacity on its systems.
Closing Closing Closing Closing Closing Closing 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price 2000 Price - --------- ------- --------- ------- --------- ------- --------- -------- --------- ------- ------- ------- January * January * January * January * January 26 7/16 January 50 3/4 February * February * February * February * February 29 1/2 March * March * March * March * March 46 1/4 April * April * April * April * April 54 May * May * May * May * May 47 7/16 June * June * June * June * June 42 5/8 July * July * July * July * July 41 1/2 August * August * August * August 8 7/16 August 25 7/8 September * September * September * September 10 7/16 September 26 1/2 October * October * October * October 14 3/8 October 34 5/8 November * November * November * November 18 15/16 November 43 5/8 December * December * December * December 22 9/16 December 50
The closing price on January 31, 2000 was 50 3/4. GTE CORPORATION GTE Corporation is a telecommunications company that provides local telephone and wireless services in 29 states in the United States and long- distance service and Internet access throughout the United States. GTE's national and international operations serve approximately 30 million telephone access lines in the United States, Canada, Dominican Republic and Venezuela. GTE provides government and defense communications systems and equipment, aircraft passenger telecommunications and directories and telecommunications- based information services. Outside the United States, GTE operates wireless networks serving approximately 2.8 million customers. GTE also participates in a venture which operates a paging network in China.
Closing Closing Closing Closing Closing Closing 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price 2000 Price - --------- ------- --------- ------- --------- ------- --------- -------- --------- -------- ------- ------- January 33 7/8 January 46 January 47 January 54 1/2 January 67 1/2 January 73 5/16 February 33 3/8 February 42 7/8 February 46 7/8 February 54 1/8 February 64 7/8 March 33 1/4 March 43 3/4 March 46 5/8 March 59 7/8 March 60 1/2 April 33 7/8 April 43 3/8 April 45 3/4 April 58 7/16 April 66 15/16 May 33 3/8 May 42 3/4 May 44 1/8 May 58 5/16 May 63 1/16 June 34 1/8 June 44 3/4 June 43 7/8 June 55 5/8 June 75 1/2 July 35 1/2 July 41 1/8 July 46 7/16 July 54 3/8 July 73 3/4 August 36 5/8 August 39 3/8 August 44 9/16 August 50 1/16 August 69 5/16 September 39 1/8 September 38 1/2 September 45 3/8 September 55 September 76 7/8 October 41 1/8 October 42 1/8 October 42 9/16 October 58 11/16 October 75 1/4 November 42 5/8 November 44 7/8 November 50 9/16 November 61 13/16 November 73 December 43 7/8 December 45 3/8 December 52 1/4 December 65 December 70 9/16
The closing price on January 31, 2000 was 73 5/16. A-5 LEVEL 3 COMMUNICATIONS, INC. Level 3 Communications, Inc. provides, primarily in the United States, a broad range of integrated communications services through technology and equipment that it owns or leases. Level 3 is currently building an advanced international Internet technology-based network consisting of both local and long distance networks which it expects to complete within the next six years. Level 3 currently offers computer operations outsourcing, Internet access and related services, which allow its customers to utilize its facilities network and support services rather than investing in their own. Level 3 markets its products and service offerings through a combination of its own direct sales force and agents, resellers and wholesalers.
Closing Closing Closing Closing Closing Closing 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price 2000 Price - --------- ------- --------- ------- --------- -------- --------- -------- --------- -------- ------- --------- January * January * January * January 19 15/16 January 52 3/8 January 117 15/16 February * February * February * February 24 3/4 February 56 March * March * March * March 35 13/16 March 72 13/16 April * April * April * April 31 April 90 1/16 May * May * May * May 25 1/32 May 78 1/2 June * June * June * June 37 June 60 1/16 July * July * July * July 41 1/4 July 53 August * August * August * August 29 25/32 August 59 3/4 September * September * September * September 31 15/16 September 52 7/32 October * October * October 7 October 32 9/16 October 68 3/8 November * November * November 10 45/64 November 34 1/2 November 67 13/16 December * December * December 14 51/64 December 43 1/8 December 81 7/8
The closing price on January 31, 2000 was 117 15/16. MCI WORLDCOM INC. MCI WorldCom, Inc. provides fully integrated local, long distance, international and Internet services through its own network of fiber optic cables, digital microwave, which is the transmission in the high giga (billions) hertz range used mainly for data transmission over distances of 20- 40 miles, and fixed and transportable satellite stations on land. MCI WorldCom offers switched, which is routing of incoming signals to proper outgoing lines, and dedicated, which are products pre-assigned to a specific user, long distance and local products, dedicated and dial-up Internet access, wireless services, toll free services, calling cards, private lines, debit cards, conference calling, messaging and mobility services. MCI WorldCom operates a "local-to-global-to-local" network with facilities throughout North America, Latin America, Europe and the Asia-Pacific region which reduces its reliance on capacity provided by local public telecommunications operators. MCI WorldCom markets its services mainly through its own sales force which it targets at specific geographic markets. MCI WorldCom agreed on October 5, 1999 to merge with Sprint Corporation. This merger is subject to federal regulatory approval. MCI WorldCom effected a 3-for-2 stock split on its common stock to shareholders of record on December 15, 1999. The shares of common stock began trading on a split-adjusted basis on December 31, 1999. The following table is adjusted to account for this stock split.
Closing Closing Closing Closing Closing Closing 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price 2000 Price - --------- -------- --------- -------- --------- -------- --------- -------- --------- -------- ------- -------- January 7 1/4 January 12 13/64 January 16 3/4 January 23 7/8 January 53 11/64 January 45 15/16 February 7 13/16 February 13 1/8 February 17 3/4 February 25 29/64 February 55 March 7 51/64 March 15 21/64 March 14 43/64 March 28 45/64 March 59 3/64 April 8 April 15 43/64 April 16 April 28 33/64 April 54 51/64 May 8 43/64 May 16 19/64 May 19 3/4 May 30 21/64 May 57 37/64 June 9 June 18 29/64 June 21 21/64 June 32 19/64 June 57 3/8 July 9 61/64 July 17 1/4 July 23 19/64 July 35 1/4 July 55 August 11 15/64 August 14 August 19 61/64 August 27 19/64 August 50 1/2 September 10 45/64 September 14 1/4 September 23 37/64 September 32 37/64 September 47 59/64 October 10 7/8 October 16 1/4 October 22 27/64 October 36 53/64 October 57 13/64 November 10 53/64 November 15 27/64 November 21 21/64 November 39 21/64 November 55 1/8 December 11 3/4 December 17 3/8 December 20 11/64 December 47 53/64 December 53 1/16
The closing price on January 31, 2000 was 45 15/16. A-6 McLEODUSA INC. McLeodUSA Inc. provides communications services to business and residential customers in the midwest and western regions of the United States. McLeodUSA offers local, long distance, data, voice mail, paging and Internet access services. McLeodUSA also sells advertising space in telephone directories, offers special access, private line and data services, communications network maintenance services, video services and telemarketing services. McLeodUSA offers a single bill format through which all of its services provided to a customer are aggregated in one statement. McLeodUSA markets its services to business customers through direct sales personnel and to residential customers through telemarketers.
Closing Closing Closing Closing Closing Closing 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price 2000 Price - --------- ------- --------- ------- --------- -------- --------- -------- --------- -------- ------- ------- January * January * January 11 1/2 January 17 7/32 January 20 25/32 January 68 3/4 February * February * February 8 15/16 February 19 31/64 February 19 1/4 March * March * March 8 7/8 March 21 1/8 March 21 April * April * April 9 3/16 April 23 April 28 1/32 May * May * May 11 7/8 May 20 3/4 May 26 3/4 June * June 12 June 16 7/8 June 19 7/16 June 27 1/2 July * July 12 5/8 July 17 3/16 July 18 11/16 July 29 13/16 August * August 14 7/16 August 16 15/16 August 14 1/2 August 33 3/8 September * September 16 1/2 September 19 23/32 September 10 15/16 September 42 9/16 October * October 16 1/4 October 18 9/16 October 18 9/32 October 44 5/8 November * November 14 1/4 November 18 1/2 November 15 15/32 November 43 December * December 12 3/4 December 16 December 15 5/8 December 58 7/8
The closing price on January 31, 2000 was 68 3/4. NEXTEL COMMUNICATIONS, INC. Nextel Communications, Inc. provides digital and analog wireless communications services to its customers in the United States. Nextel's network offers an integrated wireless communications system with digital cellular, text and numeric paging capabilities and a digital two-way radio feature that allows users to instantly contact other users. In addition to Nextel's extensive operations in the United States, Nextel has ownership interests in international wireless companies operating in Latin America, Asia and Canada.
Closing Closing Closing Closing Closing Closing 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price 2000 Price - --------- ------- --------- ------- --------- -------- --------- -------- --------- -------- ------- ------- January 9 5/8 January 13 3/4 January 15 3/8 January 27 5/16 January 32 January 106 3/8 February 12 1/8 February 15 1/8 February 14 1/4 February 29 9/16 February 30 1/16 March 13 5/8 March 18 7/8 March 13 3/8 March 33 3/4 March 36 5/8 April 16 1/8 April 18 1/8 April 13 3/16 April 28 11/16 April 40 15/16 May 13 1/2 May 20 3/4 May 14 3/4 May 23 9/16 May 36 7/8 June 14 1/8 June 19 1/16 June 18 15/16 June 24 7/8 June 50 3/16 July 19 3/8 July 15 1/8 July 24 1/8 July 26 25/32 July 53 9/16 August 17 7/8 August 16 3/8 August 25 1/16 August 18 1/16 August 57 13/16 September 16 7/8 September 18 1/2 September 28 7/8 September 20 3/16 September 67 13/16 October 13 7/8 October 16 October 26 1/4 October 18 1/8 October 86 3/16 November 15 3/8 November 15 November 25 1/4 November 21 1/2 November 99 1/8 December 14 3/4 December 13 1/16 December 26 December 23 5/8 December 103 1/8
The closing price on January 31, 2000 was 106 3/8. A-7 NTL INCORPORATED NTL Incorporated is a communications company in the United Kingdom that provides residential, business and wholesale customers with telephone, cable television and Internet access services. NTL also offers broadcast transmission and telecommunication services. NTL provides these services over local, national and international network infrastructure. On January 20, 2000, NTL announced a 5-for-4 stock split on its common stock to shareholders of record on January 31, 2000. The shares of common stock will begin trading on a split- adjusted basis on February 4, 2000. The following table does not take into account any adjustments for this stock split.
Closing Closing Closing Closing Closing Closing 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price 2000 Price - --------- -------- --------- -------- --------- -------- --------- -------- --------- -------- ------- --------- January 16 51/64 January 18 1/2 January 18 29/32 January 25 19/32 January 66 1/2 January 125 13/16 February 19 13/64 February 20 February 15 1/2 February 26 19/32 February 62 5/32 March 17 27/32 March 24 3/32 March 17 13/64 March 34 19/32 March 65 3/32 April 17 45/64 April 23 13/32 April 15 19/32 April 31 13/64 April 61 May 19 13/64 May 25 3/32 May 18 19/64 May 32 1/2 May 75 35/64 June 19 1/2 June 23 19/32 June 19 29/32 June 42 51/64 June 68 61/64 July 20 15/32 July 19 29/32 July 17 13/64 July 43 13/32 July 83 3/32 August 21 19/32 August 19 13/32 August 17 45/64 August 31 61/64 August 78 35/64 September 22 13/32 September 20 1/2 September 21 3/32 September 34 13/32 September 76 7/8 October 21 13/64 October 19 October 21 45/64 October 38 11/32 October 75 3/8 November 20 45/64 November 20 November 22 1/2 November 44 35/64 November 91 3/16 December 19 19/32 December 20 13/64 December 22 19/64 December 45 5/32 December 124 3/4
The closing price on January 31, 2000 was 125 13/16. QWEST COMMUNICATIONS INTERNATIONAL INC. Qwest Communications International Inc. is a telecommunications services and infrastructure provider. Its operations are divided into a communications services and construction services segments. Qwest's communications services segment includes Internet and multimedia services, as well as traditional voice communications services. Qwest's construction services segment builds and installs fiberoptic systems for its own network and other telecommunications providers. Through a joint venture in Europe, Qwest is involved in building a network that will connect together 40 cities Europe and the United States. In the Pacific region, Qwest is involved in building a cable to connect California with Japan and the Pacific Rim. On January 3, 2000, Qwest moved to the New York Stock Exchange from the Nasdaq National Market and trades under the stock symbol "Q".
Closing Closing Closing Closing Closing Closing 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price 2000 Price - --------- ------- --------- ------- --------- -------- --------- -------- --------- -------- ------- ------- January * January * January * January 17 23/32 January 29 31/32 January 39 3/8 February * February * February * February 17 9/16 February 30 23/32 March * March * March * March 19 7/16 March 36 3/64 April * April * April * April 19 9/32 April 42 23/32 May * May * May * May 16 17/32 May 42 5/8 June * June * June 6 13/16 June 17 7/16 June 33 1/16 July * July * July 7 25/32 July 20 3/16 July 29 1/2 August * August * August 10 3/16 August 12 1/2 August 28 3/4 September * September * September 11 17/32 September 15 21/32 September 29 9/16 October * October * October 15 7/16 October 19 9/16 October 36 November * November * November 13 21/32 November 20 November 34 3/16 December * December * December 14 7/8 December 25 December 43
The closing price on January 31, 2000 was 39 3/8. A-8 SBC COMMUNICATIONS INC. SBC Communications Inc. provides communications services in the United States, with a focus on Texas and California, and other countries, including France, Mexico, Taiwan and Israel. SBC provides local and long distance phone services, wireless and data communications, paging, Internet services and messaging, cable and satellite television, security services and telecommunications equipment. SBC operations are conducted through its subsidiaries, which include large regional and national operators such as Ameritech, Pacific Bell, Southwestern Bell, Cellular One and SNET. SBC also provides directory advertising and publishing services.
Closing Closing Closing Closing Closing Closing 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price 2000 Price - --------- -------- --------- -------- --------- -------- --------- -------- --------- ------- ------- ------- January 21 5/16 January 28 5/16 January 27 1/2 January 38 7/8 January 54 January 43 1/8 February 20 13/16 February 27 7/16 February 28 3/4 February 37 13/16 February 52 7/8 March 21 March 26 5/16 March 26 1/4 March 43 3/8 March 47 3/16 April 22 1/16 April 25 1/16 April 27 3/4 April 41 7/16 April 55 3/4 May 22 1/2 May 24 11/16 May 29 1/4 May 38 7/8 May 51 1/8 June 23 13/16 June 24 5/8 June 30 15/16 June 40 June 58 July 24 1/16 July 24 7/16 July 29 19/32 July 40 15/16 July 57 1/8 August 25 5/16 August 23 5/16 August 27 3/16 August 38 1/16 August 48 1/16 September 27 1/2 September 24 1/16 September 30 23/32 September 44 3/8 September 51 1/16 October 27 15/16 October 24 5/16 October 31 13/16 October 46 5/16 October 53 November 27 1/16 November 26 5/16 November 36 5/16 November 47 15/16 November 51 7/8 December 28 5/8 December 25 15/16 December 36 5/8 December 53 5/8 December 48 3/4
The closing price on January 31, 2000 was 43 1/8. SPRINT CORPORATION (FON GROUP) Sprint Corporation's Fon Group provides domestic and international long distance communications, local exchange communications, product distribution and directory publishing activities. The Fon Group's long distance division operates a digital network in the United States and provides voice, data and video communication services throughout the world. The local division provides local telephone services in the United States. The product distribution division provides wholesale distribution services of telecommunications products and the directory publishing division publishes and markets phone directories. MCI WorldCom agreed on October 5, 1999 to merge with Sprint Corporation. This merger is subject to federal regulatory approval. In November 1998, Sprint Corporation reclassified its publicly traded common shares into one share of FON stock and half a share of PCS stock. Since both the FON and PCS stocks are tracking stocks, owning either stock does not represent a direct legal interest in the assets and liabilities of the FON and PCS Groups. Rather, shareholders remain invested in Sprint Corporation. The historical stock prices listed below beginning in November 1998 reflect the performance of the FON tracking stock. The stock prices prior to November 1998 reflect the performance of Sprint Corporation before the reclassification of its stock.
Closing Closing Closing Closing Closing Closing 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price 2000 Price - --------- -------- --------- -------- --------- -------- --------- -------- --------- -------- ------- -------- January 10 1/2 January 15 57/64 January 18 1/4 January 26 43/64 January 41 15/16 January 64 11/16 February 10 25/32 February 15 51/64 February 20 3/8 February 29 9/16 February 42 29/32 March 11 9/64 March 17 1/64 March 20 21/64 March 30 5/16 March 49 1/16 April 12 5/32 April 18 7/8 April 19 21/32 April 30 19/32 April 51 9/32 May 12 11/32 May 18 63/64 May 21 57/64 May 32 3/16 May 56 3/8 June 12 25/64 June 18 13/16 June 23 13/32 June 31 37/64 June 53 July 12 5/8 July 16 13/32 July 22 11/64 July 31 23/64 July 51 11/16 August 13 11/64 August 18 1/4 August 21 3/64 August 30 1/32 August 44 3/8 September 12 57/64 September 17 13/32 September 22 25/64 September 32 1/4 September 54 1/4 October 14 3/16 October 17 37/64 October 23 19/64 October 34 3/8 October 74 9/16 November 14 47/64 November 18 3/4 November 26 15/64 November 36 7/16 November 69 3/8 December 14 19/32 December 17 55/64 December 26 17/64 December 42 1/16 December 67 5/16
The closing price on January 31, 2000 was 64 11/16. A-9 SPRINT CORPORATION (PCS GROUP) Sprint Corporation's PCS Group includes all of Sprint's domestic wireless mobile phone services. The PCS Group operates a fully digital wireless network in the United States with licenses to provide nationwide service using a single frequency and technology. The PCS Group currently serves many of the largest metropolitan markets in the United States and Puerto Rico and the United States Virgin Islands. MCI WorldCom agreed on October 5, 1999 to merge with Sprint Corporation. This merger is subject to federal regulatory approval. On December 14, 1999, Sprint Corporation declared a 2-for-1 stock split on its PCS tracking stock, to be effected by means of a stock dividend to shareholders of record on January 14, 2000. The shares of PCS stock will begin trading on a split- adjusted basis on February 4, 2000. In November 1998, Sprint Corporation reclassified its publicly traded common shares into one share of FON stock and half a share of PCS stock. Since both the FON and PCS stocks are tracking stocks, owning either stock does not represent a direct legal interest in the assets and liabilities of the FON and PCS Groups. Rather, shareholders remain invested in Sprint Corporation. The historical stock prices listed below reflect the performance of the PCS tracking stock. For historical stock prices of Sprint Corporation prior to the reclassification in November 1998, see the immediately preceding table.
Closing Closing Closing Closing Closing Closing 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price 2000 Price - --------- ------- --------- ------- --------- ------- --------- -------- --------- -------- ------- -------- January * January * January * January * January 31 3/4 January 110 1/16 February * February * February * February * February 32 March * March * March * March * March 44 5/16 April * April * April * April * April 42 1/4 May * May * May * May * May 45 June * June * June * June * June 57 July * July * July * July * July 60 5/8 August * August * August * August * August 59 3/4 September * September * September * September * September 74 9/16 October * October * October * October * October 82 15/16 November * November * November * November 15 15/16 November 91 3/4 December * December * December * December 23 1/8 December 102 1/2
The closing price on January 31, 2000 was 110 1/16. TELEPHONE AND DATA SYSTEMS, INC. Telephone and Data Systems, Inc. is a diversified telecommunications company with operations primarily in the cellular telephone, local telephone and personal communications services segments. Telephone and Data System's distribution channels include direct sales personnel, agents and retail service centers in the majority of its markets.
Closing Closing Closing Closing Closing Closing 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price 2000 Price - --------- ------- --------- ------- --------- -------- --------- -------- --------- --------- ------- ------- January 43 3/4 January 40 5/8 January 38 1/8 January 44 January 53 1/4 January 104 February 45 5/8 February 46 1/8 February 40 February 43 9/16 February 50 1/4 March 39 1/2 March 46 1/4 March 38 3/8 March 47 1/2 March 56 3/8 April 37 1/4 April 46 1/2 April 37 April 47 1/2 April 59 7/8 May 37 3/4 May 43 5/8 May 38 13/16 May 43 3/4 May 67 5/16 June 36 3/8 June 45 June 37 15/16 June 39 3/8 June 73 1/8 July 38 3/4 July 38 5/8 July 38 3/8 July 40 July 74 3/8 August 41 August 42 5/8 August 39 1/2 August 33 1/8 August 69 5/8 September 42 September 40 1/4 September 45 September 34 7/8 September 88 13/16 October 40 October 35 October 42 1/2 October 39 7/8 October 115 1/4 November 38 1/8 November 37 3/8 November 43 15/16 November 42 3/4 November 133 3/16 December 39 1/2 December 36 1/4 December 46 9/16 December 44 15/16 December 126
The closing price on January 31, 2000 was 104. A-10 US WEST, INC. US WEST, Inc. provides a full range of telecommunications services primarily in 14 states in the western region of the United States. US WEST's operations are divided into a communications and directory services segment. The communications segment offers local exchange telephone services, local phone interconnections to long distance service providers, long distance services within certain areas, wireless services and high speed data and Internet services. US WEST's directory services segment publishes approximately 270 white pages and yellow pages in its regions of operations in the United States.
Closing Closing Closing Closing Closing Closing 1995 Price 1996 Price 1997 Price 1998 Price 1999 Price 2000 Price - --------- -------- --------- ------- --------- -------- --------- -------- --------- ------- ------- ------- January 23 1/2 January 35 1/8 January 32 7/8 January 48 1/8 January 61 3/4 January 66 1/2 February 23 17/64 February 32 5/8 February 35 7/8 February 52 1/16 February 53 5/16 March 24 3/32 March 32 3/8 March 33 7/8 March 54 5/8 March 55 1/16 April 24 49/64 April 32 5/8 April 35 1/8 April 52 3/4 April 52 5/16 May 24 49/64 May 32 5/8 May 36 1/2 May 50 3/4 May 54 1/16 June 25 June 32 June 37 11/16 June 46 13/16 June 58 3/4 July 25 3/4 July 30 3/8 July 36 9/16 July 53 3/8 July 57 5/16 August 26 1/8 August 29 5/8 August 35 13/16 August 51 11/16 August 52 1/4 September 28 19/64 September 29 7/8 September 38 1/2 September 52 1/2 September 57 1/16 October 28 3/4 October 30 3/8 October 39 13/16 October 57 3/8 October 61 1/16 November 31 1/4 November 31 1/4 November 45 3/16 November 62 1/4 November 62 1/16 December 35 5/8 December 32 1/4 December 45 1/8 December 64 5/8 December 72
The closing price on January 31, 2000 was 66 1/2. A-11 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [LOGO OF TELECOM HOLDRs] 1,000,000,000 Depositary Receipts Telecom HOLDRs SM Trust -------------------- PROSPECTUS -------------------- Merrill Lynch & Co. January 31, 2000 Until February 25, 2000 (25 days after the date of this prospectus), all dealers effecting transactions in the offered Telecom 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----