HOLDRS are trust–issued receipts that represent your beneficial ownership of a specified group of stocks. HOLDRS allow you to benefit from the ownership of the stocks in a particular industry, sector or group.

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.