This ownership
feature of HOLDRS has important benefits for investors:
Diversification
HOLDRS automatically provide you with diversified exposure to an
industry, sector or group of stocks in a single investment. If you
buy individual names, you would have to buy an equivalent number of
different stocks to achieve the same level of diversification.
Personal control
With HOLDRS, you can own a group of stocks as one asset, or unbundle
them to own each of the underlying stocks. Then, you can trade the
stocks individually to meet your tax or investment goals. This
feature also facilitates more advanced portfolio strategies without
requiring you to monitor each of the individual stocks.
Tax advantages
HOLDRS have no hidden capital gains - you owe taxes only on gains
that you actually realize. If you wish, HOLDRS allow you to take tax
losses in any stocks that decline and to defer gains indefinitely on
your best-performing stocks. The buy-and-hold feature of HOLDRS
limits taxes that result from portfolio turnover.
Liquidity
HOLDRS are exchange-traded and are priced throughout the trading day
just like any other stock.
Flexibility
HOLDRS can be used as a sector investment, an alternative to index
funds, a starting point for long-term stock pickers, or as an
inexpensive way to own a basket of stocks.
Lower costs
You don't have to pay management fees of any kind. Your only expense
comes from transaction costs and from a small annual custody fee
taken against cash dividends and distributions, when they are
issued. This annual custody fee is eight cents per HOLDR, and will
be waived if no dividends or cash distributions are paid on any of
the underlying stocks.
Ownership benefits
You retain the voting and dividend rights on the underlying stocks.
You may elect to receive shareholder disclosure and proxy materials
by email rather than traditional, physical mail.
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