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Van Eck Global and Merrill Lynch & Co., a subsidiary of Bank of America Corporation ("Merrill Lynch"), have entered into an agreement relating to Merrill Lynch-sponsored HOLding Depository ReceiptS (“HOLDRS”). Van Eck’s Market Vectors ETF Trust plans to offer investors in six HOLDRS -- Oil Services (OIH), Semiconductor (SMH), Pharmaceutical (PPH), Biotech (BBH), Retail (RTH), and Regional Bank (RKH) -- the opportunity to exchange their shares in these funds for shares of new Market Vectors exchange-traded funds (ETFs). These HOLDRS had approximately $3.65 billion in aggregate assets and a combined 30-day average daily trading volume of approximately 20.07 million shares as of the close of trading on August 11, 2011. Terms of the transaction were not disclosed.
Van Eck’s proposed exchange offer is expected to allow participating investors the opportunity for uninterrupted exposure to target industries. The new ETFs are expected to retain the corresponding HOLDRS’ ticker symbols. Van Eck expects the exchange offer to be launched early in the fourth quarter of 2011 and the transaction to be consummated later in the fourth quarter of 2011. The exchange offer documents, which are expected to be filed with the Securities Exchange Commission (“SEC”) in September 2011, will contain information about the transaction including its mechanics and potential tax implications.
“As a leading provider of exchange-traded funds, Van Eck Global is an excellent partner for us on this transaction,” said Liam O’Neil, Head of Market Linked Solutions at Merrill Lynch.
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.) The six new ETFs will be part of Van Eck’s family of Market Vectors ETFs. Upon the completion of Van Eck’s expected exchange offer, Merrill Lynch intends to delist the six HOLDRS included in the transaction and liquidate them thereafter.
ETFs vs. HOLDRS
Van Eck believes that ETFs offer a more dynamic investment vehicle than HOLDRS since ETFs are better able to reflect changes in the composition of industry sectors that inevitably occur over time. When first introduced in 1999, HOLDRS were an innovative product that gave investors an opportunity to gain broad exposure to certain sectors through a single market-traded security. HOLDRS use a depositary trust structure which means that their initial portfolio of securities generally remains static over time. In comparison, ETFs are able to rebalance their portfolios periodically and thereby track an underlying index. “We believe ETFs offer significant advantages over HOLDRS in their ability to evolve with a dynamic underlying index; this in turn leads to enhanced diversification and broader-based representation of a market or industry segment,” said Adam Phillips, Managing Director of ETFs at Van Eck. “We are pleased to have been chosen by Merrill Lynch to partner with them in this important transaction.”