FAQ’s on Exchange Traded Funds

 What are exchange traded funds? 

 How can I buy or sell exchange traded funds? 
 How easily can I buy or sell exchange traded funds? 
 What is the minimum size purchase of an exchange traded fund? 
 Why invest in an index? 
 What are the benefits of exchange traded funds trading as stocks? 
 How does the performance of an exchange traded fund compare with the
performance of its underlying index? 
 Can exchange traded funds be purchased on margin? 
 Can exchange traded funds be sold short? 
 Is there a sales load on exchange traded funds? 
 Do I get paid dividends on exchange traded funds? 
 Where do exchange traded funds initially come from? 
 Where can I find exchange traded funds listed in the newspaper?
 Is the value of an exchange traded fund equivalent to the value of the
underlying index?
 Where can I get up-to-date price information?
 Where can I get a prospectus?
  What are the risks of investing in exchange traded funds?

Fixed Income ETFs

 What are fixed income ETFs? 

 Why buy fixed income investments? 
 Do fixed income ETFs pay dividends? 
 How will they be taxed? 
 Will fixed income ETFs be as tax efficient as equity ETFs? 

1. What are exchange traded funds?

Exchange traded funds (ETFs) are index funds or trusts that are listed and traded
intraday on an exchange. ETFs allow investors to buy or sell shares in the
collective performance of an entire stock or bond portfolio as a single security.
Exchange traded funds add the flexibility, ease and liquidity of stock trading to
the benefits of traditional index fund investing.

2. How can I buy or sell exchange traded funds?

Investors can buy or sell exchange traded funds through a broker, the same as
stocks.

3. How easily can I buy or sell exchange traded funds?

 As easily as buying or selling shares of stock. Exchange traded funds are listed
on an exchange and can be traded intraday, making it easy for investors to buy
or sell ETFs.

4. What is the minimum size purchase of an exchange traded fund?

Investors can purchase as little as one share.

5. Why invest in an index?

Indexing, often called "passive management," involves investing in a group of
securities that represent the composition of a broad stock market, stock industry
sector, international stock, or U.S. bond index. Index funds offer "market level"
performance; they aim to generally match the performance of a specific index.
Index funds generally have lower management fees and operating expenses than
actively managed funds.

6. What are the benefits of exchange traded funds trading as stocks?

The unique "exchange traded" structure offers several advantages to ETF
investors:
> buy and sell at any time during the trading day
> instantly get exposure to a portfolio of stocks or bonds
> buy on margin
> sell short
> no sales loads, although brokerage commissions will apply
> lower fees
> tax efficiencies

7. How does the performance of an exchange traded fund compare with the
performance of its underlying index?
Exchange traded funds are designed to provide investment results that generally
correspond to their underlying benchmark index by holding a portfolio of
securities designed to give similar price and yield performance. In the secondary
market, one mechanism that helps to keep an ETF trading on the exchange at a
price close to the value of its underlying portfolio is arbitrage. Because exchange
traded funds are both created from the securities of an underlying portfolio and
can be redeemed into the securities of an underlying portfolio on any day,
arbitrage traders may move to profit from any price discrepancies between an
exchange traded fund and the portfolio, which in turn helps to close the price
gap between the two. (ETF creations and redemptions are restricted to large
transactions, typically in multiples of 50,000 shares but ranging from 25,000 to
600,000 shares, usually transacted by large investors and institutions.) Of course,
because of the forces of supply and demand and other market factors, there may
be times when shares of an exchange traded fund trade at a premium or discount
to its underlying portfolio value.
8. Can exchange traded funds be purchased on margin?
Exchange traded funds may be purchased on margin, subject to the same terms
that apply to common stocks. Investors should contact their broker regarding
initial and maintenance margin requirements.

9. Can exchange traded funds be sold short?

Yes. All exchange traded funds may be sold short, representing the sale of
"borrowed" shares in anticipation of lower prices. Investors are required to make
arrangements to borrow securities before selling short.

10. Is there a sales load on exchange traded funds?

While exchange traded funds are not subject to sales loads, usual brokerage
commissions for securities purchases and sales will apply.

11. Do I get paid dividends on exchange traded funds?

ETF holders are eligible to receive their pro rata share of dividends, if any,
accumulated on the stocks held in an ETF, and interest on the bonds held in an
ETF, less fees and expenses. Of course, based on past performance, little, if any,
dividend distributions can be expected on certain ETFs. There may also be the
opportunity for dividend reinvestment.

12. Where do exchange traded funds initially come from?

Exchange traded funds are "created" by large investors and institutions in block-
sized units of shares (or multiples thereof) known as "Creation Units" of a
respective ETF. A creation requires a deposit with the trustee for a specified
number of shares of a portfolio of securities closely approximating the
composition of the specific index and a specific amount of cash in return for
shares of a specific exchange traded fund. Similarly, block-sized units of
exchange traded fund shares can be redeemed in return for a portfolio of
securities approximating the index and a specified amount of cash.

13. Where can I find exchange traded funds listed in the newspaper?
Investors can find exchange traded funds listed in the financial section of many
newspapers under the heading "American Stock Exchange Listed Stocks." They
are also listed under "Exchange Traded Portfolios" in the financial section of The
Wall Street Journal.

14. Is the value of an exchange traded fund equivalent to the value of the underlying
index?
Not necessarily. The share price of many exchange traded funds is initially set at
a percentage of the index upon which they are based, but may differ over time
due to costs and other factors.
15. Where can I get up-to-date price information on ETFs?
The pricing of exchange traded funds is continuous on the American Stock
Exchange during normal trading hours. Investors can obtain this information
from their brokers, stock quotation systems, or on a delayed basis by clicking
here. The closing prices are also published in major newspapers on the following
business day.

16. Where can I get a prospectus?

It is important that investors read a prospectus for all exchange traded funds in
which they are interested. A prospectus, which contains more complete
information, including charges, expenses and potential risks, can be obtained on
a specific exchange traded fund by clicking here. Read the prospectus carefully
before investing.

17. What are the risks of investing in ETFs?

Equity-based exchange traded funds are subject to risks similar to those of
stocks; fixed income-based ETFs are subject to risks similar to those of bonds.
Investment returns will fluctuate and are subject to market volatility, so that an
investor's shares, when redeemed or sold, may be worth more or less than their
original cost. Foreign investments have unique and greater risks than domestic
investments. Past performance is no guarantee of future results.

Fixed Income ETFs

1. What are fixed income ETFs?

Fixed income ETFs are bond index funds that are listed and traded intraday on
an exchange. They let investors buy or sell shares in the collective performance of
an entire bond portfolio as a single security. ETFs add the flexibility, ease and
liquidity of stock trading to the benefits of traditional bond index fund investing.

2. Why buy fixed income investments? 

Diversifying into fixed income investments may provide stability to an equity
portfolio because the bond markets are often less volatile than the stock markets.

3. Do fixed income ETFs pay dividends? 

Yes. Dividends, if any, will be distributed on a monthly basis, similar to bond
mutual funds.

4. How will fixed income ETFs be taxed? 

 Dividends paid out of an ETF's net investment income and net short-term capital
gains, if any, are taxable as ordinary income. Distributions of net long-term
capital gains, if any, in excess of any net short-term capital losses, are taxable as
long-term capital gains.

5. Will fixed income ETFs be as tax efficient as equity ETFs?

Because fixed income ETFs typically have higher yields than equity ETFs, they
may not be as tax efficient. In addition, the deletion of maturing bonds from
bond indexes and the addition of newly issued bonds may result in higher
turnover rates than equity funds.