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HOLDRS Trust from Merrill Lynch

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A Sector Investing Perspective

Holding Company Depositary Receipts or HOLDRS, issued by HOLDRS Trusts, are receipts that represent beneficial ownership of a specified group of stocks.

The HOLDRS are exchange-traded products listed for trading on the American Stock Exchange and are marketed by Merrill Lynch, Pierce, Fenner & Smith Inc., the initial depositor for the HOLDRS Trusts. The HOLDRS Trusts themselves are not registered investment companies under the 1940 Investment Company Act.

Breadth of Merrill Lynch HOLDRS Trust

Merrill Lynch markets two sector and 13 industry-group HOLDRS. Seven of the HOLDRS are in the technology sector with four of them oriented towards different facets of the Internet.

Investment Approach

The composition of each HOLDRS Trust is not actively managed. Each HOLDRS Trust typically included shares of 20 companies when the Trust was formed. Merrill Lynch selected the securities included in each HOLDRS Trust at inception. Changes to the list of shares included in the HOLDRS Trusts are typically the result of corporate events like spin-offs or reconstitution events like mergers.

Expense Ratio

As trustee and custodian, The Bank of New York charges $2.00 in custody fees each quarter for each round-lot of 100 HOLDRS owned. These fees are deducted from cash dividends or other cash distributions the HOLDRS Trust receives from the underlying securities. The Bank of New York waives any portion of the fee that exceeds total cash dividends and other cash distributions.

Trading Size

Merrill Lynch HOLDRS trade only in round lots of 100 HOLDRS. As such, HOLDRS may be purchased or sold only in 100 HOLDRS increments.

AlphaProfit Take

Merrill Lynch HOLDRS allow investors to own a diversified group of stocks with a single investment. HOLDRS typically have an aggressive orientation since they tend to focus on relatively narrow and volatile industry groups while limiting the number of securities.

The composition of HOLDRS does not change except in case of corporate or reconstitution events. Even when such events take place, no new security is added. Such constraints in combination with rampant merger activity in some groups have caused some HOLDRS to become highly concentrated in a few securities, e.g., Telecom HOLDRS. The burst of the technology bubble has also resulted in some HOLDRS becoming overwhelmingly concentrated, e.g., B2B HOLDRS.

The 100 HOLDRS round-lot minimum may however make the minimum amount required for investing in some HOLDRS relatively large for some retail investors. Some HOLDRS are popular among institutional investors and they tend to be actively traded.

An attractive feature of the HOLDRS though is their relatively low expenses. One should evaluate each HOLDR on its own merits before making commitments.

AlphaProfit Newsletter and HOLDRS Trust Recommendations

AlphaProfit Sector Investors' Newsletter is the premier resource for sector investors. The Newsletter offers recommendations on Merrill Lynch HOLDRS Trust. The Newsletter and its model portfolios have frequently been ranked #1 by Hulbert Financial Digest.

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Merrill Lynch HOLDRS Trust List

HOLDRS in Consumer Discretionary Sector

Merrill Lynch Retail HOLDRS Trust
HOLDRS Ticker Inception Underlying Index Components Key HOLDRS Components
Retail HOLDRS RTH 05/02/2001 Retail HOLDRS Index, IRH 18 Wal-Mart, Home Depot, Target, Walgreen Co., Lowe's

HOLDRS in Energy Sector

Merrill Lynch Oil Service HOLDRS Trust
HOLDRS Ticker Inception Underlying Index Components Key HOLDRS Components
Oil Service HOLDRS OIH 02/06/2001 Oil Service HOLDRS Index, OXH 18 Schlumberger, Transocean, Baker Hughes, Halliburton, GlobalSantaFe

HOLDRS in Financials Sector

Merrill Lynch Regional Bank HOLDRS Trust
HOLDRS Ticker Inception Underlying Index Components Key HOLDRS Components
Regional Bank HOLDRS RKH 06/22/2000 Regional Bank HOLDRS Index, XRH 19 JPMorgan Chase, Wachovia, US Bancorp, Wells Fargo, Bank of America

HOLDRS in Health Care Sector

Merrill Lynch Biotech and Pharmaceutical HOLDRS Trust
HOLDRS Ticker Inception Underlying Index Components Key HOLDRS Components
Biotech HOLDRS BBH 11/22/1999 Biotech HOLDRS Index, IBH 15 Genentech, Amgen, Gilead Sciences, Biogen-Idec, Genzyme
Pharmaceutical HOLDRS PPH 01/31/2000 Pharmaceutical HOLDRS Index, IPH 20 Johnson, Pfizer, Merck, Abbott Laboratories, Wyeth

HOLDRS in Information Technology Sector

Merrill Lynch HOLDRS Trust - Technology
HOLDRS Ticker Inception Underlying Index Components Key HOLDRS Components
Broadband HOLDRS BDH 04/05/2000 Broadband HOLDRS Index, XDH 17 Qualcomm, Motorola, Corning, Broadcom, Alcatel
B2B Internet HOLDRS BHH 02/23/2000 B2B HOLDRS Index, BUX 4 CheckFree, Ariba, Internet Cap
Internet HOLDRS HHH 09/22/1999 Internet HOLDRS Index, HHI 12 eBay, Amazon.com, Yahoo!, Time Warner, McAfee
Internet Arch. HOLDRS IAH 02/24/2000 Internet Architecture HOLDRS Index, XAH 20 IBM, Hewlett-Packard, Cisco, Apple, Dell
Internet Infrastructure HOLDRS IIH 02/24/2000 Internet Infrastructure HOLDRS Index, YIH 9 Verisign, BEA Systems, Akamai Technologies, RealNetworks, InfoSpace
Semiconductor HOLDRS SMH 05/04/2000 Semiconductor Index, XSH 19 Texas Instruments, Intel, Applied Materials, Analog Devices, Linear Technology
Software HOLDRS SWH 09/27/2000 Software HOLDRS Index, XWH 13 Microsoft, SAP AG, Oracle, Adobe Systems, CA

HOLDRS in Telecommunication Services Sector

Merrill Lynch Telecom and Wireless HOLDRS Trust
HOLDRS Ticker Inception Underlying Index Components Key HOLDRS Components
Telecom HOLDRS TTH 01/31/2000 Telecom HOLDRS Index, ITH 12 AT&T, Verizon, Sprint Nextel, BCE, Alltel
Wireless HOLDRS WMH 10/31/2000 Wireless HOLDRS Index, IWH 18 Qualcomm, Research in Motion, Verizon, Nokia, Motorola, Sprint Nextel

HOLDRS in Utilities Sector

Merrill Lynch Utilities HOLDRS Trust
HOLDRS Ticker Inception Underlying Index Components Key HOLDRS Components
Utilities HOLDRS UTH 06/22/2000 Utilities HOLDRS Index, XUH 19 Exelon, TXU, Entergy, The Southern Co., Dominion Resources

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Besides buying or selling HOLDRS in the secondary market, investors have the option of creating or canceling HOLDRS by delivering or withdrawing the requisite securities represented by a round-lot of 100 HOLDRS to the HOLDRS Trust. The Bank of New York charges $10.00 for each round-lot of 100 HOLDRS issued or cancelled. This cancellation feature provides HOLDRS investors with the option to take possession of underlying securities and sell losers for tax purposes.

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