The Internet HOLDR (HHH) is an exchange-traded fund that invests in twelve firms that derive the majority of their revenue directly from business transacted on the Internet. The fund's three largest holdings -- eBay (EBAY), Yahoo (YHOO) and Amazon.com (AMZN) -- account for more than 85% of its value, with each of these three accounting for at least 24% of HHH's total value. In fact, eBay alone accounts for more than 30% of the fund!

HHH has been one of the top-performing funds since the market bottomed last year. It has already delivered returns in excess of +100% in 2003, and is now ahead more than +80% compared to its level a year ago. However, since its inception in September 1999, the fund has posted a dismal annualized return of -17.46%. After trading as high as $192 per share at its peak in 2000, HHH fell below $18 last year, a loss of more than -90%.

HHH has a fairly high correlation with the Nasdaq overall, as well as with the Technology Sector SPDR (XLK). However, these 77-79% correlations are well below what you'll find if you compare, for example, the tech sector itself with the entire Nasdaq Composite. The fund is fairly volatile, with an average daily trading range of about 2.5% (this figure stood at nearly 4.0% back in 2002).

Important Reminder:  HHH is a HOLDR managed by brokerage giant Merrill Lynch. These types of funds are a bit different from traditional ETFs in the way they trade and in their expense ratios. (There are some other technical issues that you might want to discuss with your tax advisor as well, after you've read the prospectus.) For example, you cannot buy or sell less than 100 shares of a HOLDR in any transaction. However, they are still exempt from the uptick rule (the uptick rule says that you cannot short a stock unless the last price change in the stock was to a higher price).

Unlike most other types of funds, which track broad-based indices that contain hundreds (or some cases even thousands) of stocks, HOLDRS consist of just a handful of stocks and are designed to track particular industry groups. Because they only track a few companies, HOLDRS are very inexpensive to manage. However, because they aren't highly diversified, HOLDRS tend to be much more volatile than the average ETF.

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