Middle East Fund Has Its Quirks, Perks

1) One beneficial aspect of owning ETFs is the tax efficiency, most of the time there are no capital gains distributions. This occurs because of something in the day to day running of ETFs called in-kind transfer. The practice of in-kind transfer will not exist with PMNA, which creates the visibility for capital gains to be paid to shareholders which are taxable depending on the type of account that the fund is held in.

2) One other quirk: Although it will be temporary, the fund, as opposed to the index, will not own the Kuwaiti stocks but instead will own a type of note called a Participation-note that will serve as a proxy for the intended Kuwaiti exposure. The fate of the Participation-note is dependent on the fate of the issuer (Deutsche Bank(DB Quote), Citicorp(T Quote) and Morgan Stanley(MS Quote)). A failure is unlikely, but were a failure to occur, the fund would be negatively impacted.

The P-notes will be swapped out for Kuwaiti equities once PowerShares completes the process for opening an account in Kuwait to buy and sell securities and at this time there is no timeline of when that will occur.

As for the normal sorts of risk, like market fluctuation, there is some recent history to understand. Most of the region skyrocketed in 2005. Egypt, for example, was up 100% but then in the first six months of 2006 the region got decimated. Egypt was down almost 40% and the index underlying the fund was down 28%.