Vanguard's ETF Structure

ETFs from all companies other than from Vanguard are what is called
"stand alone" funds -- those are there by their own right. On the contrary,
the Vipers, or Vanguard Index Participation Equity Receipts, are separate
share-classes of Vanguard's existing index funds.

Vanguard claims that its unique Viper structure benefits investors in both
ETF and index-fund share classes. The group has a patent on Vipers ETF
structure that they invented. The patent protection means that rivals will
have to negotiate with Vanguard in order to introduce similar funds.

The Viper share class provides a home for traders away from long-term
investors in the index-fund share class. Rapid trading (of ETF) raises a
fund's administrative and trading costs and can increase taxes for share
-holders. It also can distract managers from day-to-day portfolio duties.
In addition, according to Vanguard, a symbiotic relationship exists between
the Vipers ETFs and the index funds.

The way in which all ETFs create and redeem shares provides tax benefits.
Brokers and specialists, known as authorized participants, make markets
in ETFs much like individual securities. Authorized participants create and
redeem large blocks of ETF shares called creation units -- typically 50,000
shares -- based on demand. Once created, the individual shares are
traded among investors on exchanges.

Vanguard's mutual funds own less than 20% of the Vipers. The company
expects that figure to get reduced over time.