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 authorise 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.