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Something new: bond ETFs



Exchange traded funds---first introduced in equity-index form--- now come in fixed-income form.

Exchange traded funds, ETFs for short, have grown in popularity with investment pros and investors ever since they were first introduced in the early 1990s. Issued in equity-index form, these funds, that packaged like stocks and therefore trade all day long on the major exchanges, currently have about $90 billion in assets. Those assets are likely to soar now that ETFs are also available in a fixed-income format.

"There are only four (bond ETFs) available now and all under the iShares brand name," says Don Cassidy, a Lipper research analyst specializing in the ETF market.

The four ETFs currently offered are: iShares Lehman 1-3 year Treasury Bond Fund, (SHY); iShares Lehman 7-10 year Treasury Bond Fund, (IEF); the iShares Lehman 20+ Years Bond Fund, (TLT); and the iShares Goldman Sachs $InvesTop Corporate Bond Fund, (LQD).

Cassidy says that what investors are buying are the underlying bond index components named in the index each ETF represents. And, that one of the benefits of ownership is that you'll receive monthly interest payments. "Of course, the price of these ETFs, like those on any bond fund, can fluctuate in the opposite direction of interest rates. And, the longer the portfolio maturity, the greater that chance," he adds.

Timing for these new bond ETFs couldn't be better. With the stock market still ugly and dividends on stocks meager, bond ETFs hold appeal for those who want to avoid things like the sales charges and 12-b 1 fees that mutual funds impose. And, who like the thought of being able to buy and sell their fund shares throughout the day, knowing of course that there will be commissions to be paid when both buying and selling ETF shares.

To learn more about ETF, Cassidy suggests the following two web sites:www.nasdaq.com , and, www.ETFzone.com .


The Vanguard Group has just released another educational brochure for their Plain Talk library. It's titled, Be a Tax-Savvy Investor.

This 16-page booklet looks at four steps to becoming a tax-smart investor: Step 1: Invest in tax-advantaged accounts; Step 2: Put your finds in the right accounts; Step 3: Cut taxes on your taxable accounts; and, Step 4: Buy and sell with care.

According to the brochure, the mutual funds that generally trigger the highest current taxes tend to be taxable money market and bond funds. The reason being, most of their total returns come from taxable interest income which is taxed as ordinary income at the investor's marginal tax rate. The mutual funds that tend to trigger few tax consequences are tax-managed funds and some types of growth funds.

To order your free copy of Vanguard's, Be a Tax-Savvy Investor, call 800-992-8845. Or, read it on-line in the Plain Talk section of Vanguard's web site at www.vanguard.com/?plaintalk .

Continuing along that same educational vein, the New York Stock Exchange has published a special supplement to their Your Market magazine. It's titled, Your Market, Straight Talk for Investors.

Within its 28 pages is a round table discussion about restoring investor confidence between Leon Panetta, Gerald Lenin and H.Carl McCall; information about where to find SEC filings; a corporate governance time line that begins in 1853 and runs through June of 2002; and more educational information.

The piece is available in pdf format on the New York Stock Exchange's web site. Get to it by using this address: www.nyse.com/magazine. Once there, scroll down to "Your Market" , and click-on the July/August supplement, pdf file.

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Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.


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