Q: What is the FTSE NASDAQ Index Series?

A: The FTSE NASDAQ index series was launched in July 2005 and includes the FTSE NASDAQ 500, the FTSE NASDAQ Large Cap, the FTSE NASDAQ Mid Cap and the FTSE NASDAQ Small Cap indexes. The series was created to track various sized market cap segments of the Nasdaq.

The wide popularity of the Power- Shares QQQ ETF, which tracks the performance of the Nasdaq 100 index, indicated strong investor interest in the Nasdaq marketplace and a demand for choice between large, mid and small market cap segments.

Q: How do you come up with the classification in terms of market cap?

A: The FTSE NASDAQ Large Cap index consists of the largest 70% of Nasdaq listed companies, the FTSE NASDAQ Mid Cap index represents the next 20%, and FTSE NASDAQ Small Cap Index is the smallest 10%.

The FTSE NASDAQ Small Cap index is made up of 1,159 companies, and has a market capitalization of approximately $300USDBillion. It's much smaller than almost every other small cap index out there and shares many similarities with micro-cap indexes.

Q: Why are investors interested in the FTSE NASDAQ Small Cap, even though there are the Russell 2000 and so many other indexes out there?

A: The FTSE NASDAQ Index Series was created to diversify the NASDAQ by capitalization structure. Investors are interested in the Nasdaq exchange because it gives them exposure in technology and biotechnology. The creation of the FTSE NASDAQ series allowed them to keep this exposure while diversifying away from only the largest companies. Because the FTSE NASDAQ Small Cap really bridges between Small Cap and micro-cap, it also offers investors further diversification in the Small Cap world.

Q: How many companies actually trade everyday on Nasdaq?

A: Roughly three thousand companies trade everyday on the Nasdaq. Not all are included in the FTSE NASDAQ Index Series. Companies must meet FTSE's free-float and liquidity standards in order to be part of the indexes. FTSE also eliminates any dually listed companies from the indexes, meaning companies must trade on the Nasdaq only, rather than trading on both the Nasdaq and another exchange.

Q: How many companies actually pass through your free-float liquidity tests?

A: About 3,100 companies out of 3,800 companies listed on the Nasdaq passed. This is because the Nasdaq has its own free float and liquidity rules, so the companies are prescreened. Although FTSE's rules are a bit tighter, most of the companies that list on the exchange -- about 81.5% -- passed.

Q: Generally what kind of industry breakdown do you see? Are there any dominant industries?

A: In the FTSE NASDAQ Large Cap and FTSE NASDAQ 500 indexes, the dominant industries are what Nasdaq is best known for - technology. Microsoft, Cisco, Google are all in the top ten names. The FTSE NASDAQ Mid Cap index is a blend of technology and biotechnology companies. This blend changes further with the FTSE NASDAQ Small Cap index, which is heavy in biotechnology and pharmaceuticals, but includes some other industries. The Small Cap index is the most diversified by industry.

Q: It looks like the large cap index has almost all the companies that generate at least some consistency in profit and the small cap index has all the companies with uneven profit track record.

A: It is true that FTSE NASDAQ Large Cap index includes more profitable and stable companies such as Microsoft and Oracle. The FTSE NASDAQ Small Cap includes companies like Insight, Royal Gold and ManTech International which are not as well known and have less predictable earnings.

Investing in Small Cap companies is no doubt riskier, but within an index, risk is diversified amongst all of the constituents. While some may underperform, others may be the mid andlarge cap companies of tomorrow. Anindex is able to capture some of the extraordinary returns, and do it in away that investors can diversify without necessarily having to do research on individual companies. Actually, the Small Cap index has consistently outperformed the mid and the Large Capover the past five years.

Q: What is the thinking behind the FTSE NASDAQ 500 index?

A: The FTSE NASDAQ 500 was created due to demand from investors interested in diversifying their Nasdaq holdings in a way similar to the S&P 500 index. The index represents the Nasdaq's tilt toward technology. It is also unique because unlike the S&P 500, which selects 500 companies by the committee, the FTSE NASDAQ 500 uses a rules-based, transparent approach to selecting the 500 five hundred largest companies by market capitalization.

Q: How often stocks in the indexare reviewed? Is it quarterly or annual?