Van Eck Global has filed with the Securities and Exchange
Commission (“SEC”) documents necessary to commence exchange offers
for six Merrill Lynch-sponsored HOLDRS: Oil Services (OIH),
Semiconductor (SMH), Pharmaceutical (PPH), Biotech (BBH), Retail
(RTH), and Regional Bank (RKH). When the exchange offers are
commenced, Van Eck will be offering investors of these six HOLDRS
the opportunity to exchange their receipts in these HOLDRS Trusts
for shares of new Market Vectors exchange-traded funds (ETFs). Van
Eck’s exchange offers are expected to allow participating HOLDRS
investors the opportunity for uninterrupted exposure to target
industries. The new ETFs are expected to trade under the
corresponding HOLDRS’ ticker symbols.
Van Eck expects the exchange offers to be launched in the fourth
quarter of 2011 and to be consummated later that same quarter. The
exchange offers will require proactive action on the part of
individual HOLDRS investors. By participating in the exchange
offers, HOLDRS investors will authorize the conversion of the
stocks in the HOLDRS Trusts into a diversified basket of stocks
that align with the indices underlying the new Market Vectors ETFs.
The transaction is structured to be an equal value exchange, i.e.,
the value of the shares of the new ETF received by investors
participating in the exchange will be expected to have the
equivalent value to the tendered HOLDRS (based on the underlying
securities as of the close of trading on the date the exchange
offers expire). The risks of the transaction to rebalance the
portfolio are described in detail in the exchange offer documents.
Investors participating in the exchange offers will not bear any
costs relating to the exchange transaction, although they may be
subject to fees charged by their financial intermediaries.
Van Eck believes that ETFs offer a more dynamic, diversified
investment vehicle than HOLDRS since ETFs are better able to
reflect changes in the composition of industry sectors that
inevitably occur over time. HOLDRS use a depositary trust structure
which means that their initial portfolio of securities generally
remains static over time. For example, the Oil Services HOLDRS
Trust, created in 2001, does not include some of today’s important
companies within the industry such as FMC Technologies (FTI) and
SeaDrill Limited (SDRL). In comparison, ETFs generally are able to
rebalance their portfolios periodically and thereby track an
underlying index.
Investors in the six HOLDRS can expect to receive an information
package shortly following commencement of the exchange offers
containing instructions on how to participate in the exchange.
Investors may also wish to contact their financial advisors after
the exchange offers commence.
Investors interested in obtaining details about the exchange
offers can visit vaneck.com/holdrs. This site has been updated to
include an outline of the choices available to current HOLDRS
investors, details on the mechanics of the exchange offers, tax
information and more. Subscriptions for Email Updates can be found
on the site, providing investors and financial advisors the
opportunity to receive periodic notifications regarding important
information related to the exchange offers.
U.S. Federal Income Taxes
Generally speaking, Van Eck is structuring the exchange offers
so that a portion of the exchange of HOLDRS for shares of the ETF
is expected to benefit from tax-free exchange treatment for U.S.
federal income tax purposes. However, because certain securities
underlying the HOLDRS will be sold (and securities will be
purchased) in order to conduct portfolio rebalancing and to conform
each new Market Vectors ETF as closely as possible to the
securities in the underlying index, investors that participate in
the exchange offers generally will recognize taxable gains or
losses in respect of the securities that are sold. The amount of
securities underlying the HOLDRS that will be sold will vary by
HOLDRS Trust. Any unrealized gain (or loss) in respect of the
underlying securities of HOLDRS that are not sold and are
transferred to the ETF will generally not be currently taxable and,
instead, will generally remain deferred until the ETF shares are
sold by investors or the ETF sells such underlying securities (in
which case, such recognized gain (or loss) will impact the ETF’s
overall calculation of its income).
Van Eck notes that while not entirely tax-free, participation in
the exchange offers may have certain tax advantages when compared
to other alternatives such as a sale of HOLDRS in the open market.
Investors are encouraged to consult with their own tax advisors
regarding the tax consequences under all applicable tax laws of
participating in an exchange offer, including any particular tax
consequences pertaining to their situation.
Options
Van Eck believes the exchange offers may have implications for
some HOLDRS options investors (in OIH, SMH, PPH, BBH, RTH and RKH),
particularly those with options expiring subsequent to the
expiration of the exchange offers. At this time, Van Eck
understands the Options Clearing Corporation (“OCC”) has made no
determination regarding the exchange offer and has offered no
indication of what action, if any, may be taken with regard to the
offers. Van Eck intends to post any OCC determination to its
website at such time as it may become publicly available. It should
be noted that existing options are not issued by the HOLDRS
Trusts.
HOLDRS
Trading in the six HOLDRS is expected to be halted approximately
30 minutes prior to the expiration of Van Eck’s exchange offers.
The six HOLDRS Trusts will be terminated and delisted shortly
thereafter. The trustee is expected to liquidate the HOLDRS
approximately four months after the termination of the HOLDRS
Trusts.
After the expiration of the exchange offers, the six HOLDRS will
no longer trade on the NYSE Arca or any other national securities
exchange and will no longer use HOLDRS ticker symbols. Therefore,
there may not be any means for an investor to sell receipts in
those six HOLDRS after the exchange offers expire.
As of the close of trading on September 29, 2011, the six
HOLDRS subject to Van Eck’s exchange offers had approximately $3.3
billion in aggregate assets and a combined 30-day average daily
trading volume of approximately 19.54 million shares.
New Market Vectors ETFs
Trading in the new ETFs is expected to begin on the trading day
immediately following the expiration of the exchange offers. The
new products will join the Market Vectors family, which currently
totals $22.9 billion in assets under management, making it the
sixth-largest ETF family in the U.S. and the ninth-largest
worldwide as of June 30, 2011.
Each new ETF will have a net expense ratio of 35 basis points
(0.35%), subject to certain exceptions. Expenses for the new ETFs
will be capped contractually at 0.35% through at least April 30,
2013, but could be extended at Van Eck’s discretion. In contrast,
HOLDRS have a custody fee of $0.02 per HOLDRS share per quarter ($8
per year per 100 HOLDRS shares), which is subtracted from any cash
dividends or distributions paid by the underlying securities. Van
Eck notes that while its ETF fees will be higher than those charged
for HOLDRS, in part due to the portfolio management required by an
ETF as opposed to the static structure of the HOLDRS, it views the
fees as competitive with existing comparable mutual fund and ETF
sector products.
The underlying indices for the new Market Vectors ETFs seek to
represent the most liquid stocks within that particular industry.
The top 25 constituents based on full market capitalization and
three-month average daily trading volume are included in each
index. The indices include companies that derive most of their
revenues from the relevant industry; individual company weightings
are capped at 20%. The indices will be reviewed semi-annually, with
weighting caps applied quarterly. Index information, including
constituents, can be found on vaneck.com/holdrs.
Exchange Offers at a Glance
The table below presents the six HOLDRS as well as ticker
symbols, names and underlying indices of the soon-to-be-launched
Market Vectors ETFs. (The table includes links to information about
the underlying indices, including methodology and
constituents.)
Ticker HOLDRS Trust Market Vectors
ETF
See links for prospectus filings.
Market Vectors IndexSee links for index information.
HOLDRS/ETFs INCLUDED IN EXCHANGE OFFERS: OIH
Oil Services
Oil Services ETF
US Listed Oil Services 25 Index
(MVOIHTR)
SMH Semiconductor
Semiconductor ETF
US Listed Semiconductor 25 Index
(MVSMHTR)
PPH Pharmaceutical
Pharmaceutical ETF
US Listed Pharmaceutical 25 Index
(MVPPHTR)
BBH Biotech
Biotech ETF
US Listed Biotech 25 Index(MVBBHTR)
RTH Retail
Retail ETF
US Listed Retail 25 Index(MVRTHTR)
RKH Regional Bank
Bank and Brokerage ETF
US Listed Bank and Brokerage 25 Index
(MVRKHTR)
About Van Eck Global
Founded in 1955, Van Eck Global was among the first U.S. money
managers helping investors achieve greater diversification through
global investing. Today the firm continues this 55+ year tradition
by offering global investment choices in hard assets, emerging
markets, precious metals including gold, and other specialized
asset classes.
Market Vectors exchange-traded products have been offered by Van
Eck Global since 2006 when the firm launched the nation’s first
gold mining ETF. Today, Market Vectors ETFs and ETNs span several
asset classes, including equities, municipal bonds and other fixed
income as well as currencies.
Van Eck Global also offers mutual funds, insurance portfolios,
separate accounts and alternative investments. Designed for
investors seeking innovative choices for portfolio diversification,
Van Eck Global’s investment products are often categorized in asset
classes having returns with low correlations to those of more
traditional U.S. equity and fixed income investments.
Important Disclosure
The information contained in the registration statements for the
new ETFs referred to herein is not complete and may be changed. Van
Eck may not sell these securities until the registration statements
filed with the Securities and Exchange Commission become effective.
The prospectus (or Statement of Additional Information) contained
in each registration statement is not an offer to sell the
securities referenced therein and is not soliciting an offer to buy
these securities in any state where the offer or sale is not
permitted.
This material is neither an offer to buy nor a solicitation of
an offer to sell any of the HOLDRS or new ETF shares. The
exchange offers will be made only pursuant to the exchange
offer documents, which will be distributed to holders of the
outstanding HOLDRS and have been filed with the Securities and
Exchange Commission (the “SEC”) as part of the Registration
Statement. INVESTORS AND SECURITY HOLDERS OF HOLDRS ARE
URGED TO READ THE EXCHANGE OFFER DOCUMENTS AND OTHER RELEVANT
MATERIALS CAREFULLY IN THEIR ENTIRETY AS THEY BECOME AVAILABLE
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE EXCHANGE
OFFERS, INCLUDING THE RISKS OF PARTICIPATING IN THE EXCHANGE
OFFERS. SUCH DOCUMENTS ARE AVAILABLE FREE OF CHARGE THROUGH THE
WEBSITE MAINTAINED BY THE SEC AT SEC.GOV, BY CALLING THE SEC AT
800.SEC.0330, OR BY DIRECTING A REQUEST TO D.F. KING & CO., THE
INFORMATION AGENT, AT 800.290.6424.
All information in this material (other than opinions or
expectations) concerning applicable HOLDRS, including their
business and operations, was provided by Merrill Lynch & Co.,
Inc. All information in This material concerning Van Eck ETFs,
including its business, operations and financial results, was
provided by Van Eck. Information on HOLDRS assets under management
and trading volume was sourced from Bloomberg.
Certain statements made in this material that are not historical
facts are referred to as "forward-looking statements" under the
U.S. federal securities laws. Actual future results or occurrences
may differ significantly from those anticipated in any
forward-looking statements due to numerous factors. Generally, the
words "believe," "expect," "intend," "estimate," "anticipate,"
"project," "will" and similar expressions identify forward-looking
statements, which generally are not historical in nature.
Forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ from the
historical experience of Van Eck and the ETFs managed by Van Eck
and its present expectations or projections. You should not place
undue reliance on forward-looking statements, which speak only as
of the date they are made. Van Eck and the ETFs managed by Van Eck
undertake no responsibility to update publicly or revise any
forward-looking statements.
Investing involves substantial risk and high volatility,
including possible loss of principal. An investor should consider
the investment objective, risks, charges and expenses of a new ETF
carefully before investing. Please read the prospectus and summary
prospectus carefully before investing.
Investors may obtain free copies of the prospectus and
summary prospectus, exchange offer documents, and other documents
(when they become available) filed with the SEC at the SEC’s web
site at www.sec.gov. In addition, free copies of the
prospectus and summary prospectus, exchange offer documents and
other documents filed with the SEC may also be obtained after the
registration statements become effective by directing a request to:
Van Eck Securities Corporation, Distributor, 335 Madison Avenue,
New York, NY 10017 or by calling: 800.826.2333 or visiting
vaneck.com/etf.
The indexes referred to herein are published by and are the
exclusive property of Market Vectors Index Solutions GmbH, which
has contracted with Structured Solutions AG to maintain and
calculate the Indexes. Structured Solutions AG uses its best
efforts to ensure that the Indices are calculated correctly.
Structured Solutions AG has no obligation to point out errors in
the Indices to third parties.
Van Eck Securities Corporation, Distributor,
335 Madison Avenue, New York, NY 10017