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Exchange offer of HOLDRS for Market Vector ETFs

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On August 12, 2011, Van Eck announced that they had entered into an Asset Purchase Agreement with Merrill Lynch pursuant to which Merrill Lynch had agreed to sell or license all their rights related to six HOLDRS including: BBH, OIH, PPH, RKH, RTH, and SMH.

The exchange offer commenced on 10 November, 2011 and will expire by 11:00 am, NY City time, on December 20, 2011, unless extended. The current HOLDRS will stop trading approximately 30 minutes prior to the expiration date and will be terminated shortly thereafter. The new ETFs are expected to begin trading on December 21, 2011 using the old HOLDRS symbols.

The HOLDRS trustee is expected to liquidate any remaining positions following a wind-down period of about four months.

As of last Friday, November 18, all six HOLDRS represented USD3.45bn in AUM, and had traded an average of USD1.15bn in daily turnover since August 12, 2011.

In addition, they had recorded outflows of USD0.16bn in the same period.

The AUM and turnover of the HOLDRS have remained practically unaffected by the exchange offer process. It seems creation/redemption activity has also become almost non-existent since the announcement, with the exception of one significant outflow recorded around mid October

Investors in the six HOLDRS have four alternatives in relation to the exchange offer: (1) take no action (default), (2) participate in the offer(s), (3) sell their HOLDRS, or (4) cancel their HOLDRS.

Investors who take no action won’t be able to trade on any exchange following the expiration date of the offering. They will be able to cancel their positions in round-lots directly with the trustee during the wind-down period or they will receive cash from the liquidation of the trust assets, after the deduction of applicable fees and expenses.

Investors who choose to participate in the offer will be able to enjoy trading and exposure continuity. They will also agree and authorise the ETFs to engage in a rebalancing transaction which may have taxation implications.

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