As of November 4, 2011, it is expected that approximately 28% of the securities underlying the Oil Service HOLDRS Trust (OIH) will be sold in the rebalancing transaction and that approximately 72% of the underlying stocks are expected to be transferred to the ETF (and would therefore generally not be currently taxable) to conform as closely as possible to the Market Vectors US Listed Oil Services 25 Index (MVOIHTR). OIH is highlighted here as it is the largest of the HOLDRS Trusts included in the exchange offers; it should be noted that these breakdowns vary greatly by HOLDRS Trust. As of November 4, 2011, it is expected that the following percentages of securities underlying the other five HOLDRS will be sold in the rebalancing transaction: SMH: 42%; PPH: 53%; BBH: 62%; RTH: 26%; RKH: 77%. These percentages may change between now and expiration of the exchange offers.
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.
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. On October 12, 2011, the Options Clearing Corporation (“OCC”) made an official determination regarding the settlement of HOLDRS options. Their decision is outlined on the homepage of the OCC’s website under “Latest InfoMemos”.HOLDRS Trading in the six HOLDRS is expected to be halted approximately 30 minutes prior to the expiration of Van Eck’s exchange offers and is expected to be suspended prior to the opening of trading in the new ETFs. The six HOLDRS Trusts are expected to be terminated and the HOLDRS are expected to be delisted shortly thereafter. The trustee has the right to liquidate the HOLDRS approximately four months after the termination of the HOLDRS Trusts.