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Exchange-Traded Funds (ETFs)Exchange-traded funds, or ETFs, are investment companies that are legally classified as open-end companies or Unit Investment Trusts (UITs), but that differ from traditional open-end companies and UITs in the following respects:
An ETF, like any other type of investment company, will have a prospectus. All investors that purchase Creation Units receive a prospectus. Some ETFs also deliver a prospectus to secondary market purchasers. ETFs that do not deliver a prospectus are required to give investors a document known as a Product Description, which summarizes key information about the ETF and explains how to obtain a prospectus. All ETFs will deliver a prospectus upon request. Before purchasing ETF shares, you should carefully read all of an ETF’s available information, including its prospectus. The websites of the New York Stock Exchange, American Stock Exchange and NASDAQ provide more information about different types of ETFs and how they work. An ETF will have annual operating expenses and may also impose certain shareholders fees that are disclosed in the prospectus. Currently, all ETFs seek to achieve the same return as a particular market indexes. Such an ETF is similar to an index fund in that it will primarily invest in the securities of companies that are included in a selected market index. An ETF will invest in either all of the securities or a representative sample of the securities included in the index. For example, one type of ETF, known as Spiders or SPDRs, invests in all of the stocks contained in the S&P 500 Composite Stock Price Index. http://www.sec.gov/answers/etf.htm
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