Freetrade - CAUTION

[timhyma]

Dear Valued Client,

Thank you for being a Freetrade by Ameritrade™ client.

In May 2003, President Bush signed into law the Jobs and Growth Tax Relief Reconciliation Act of 2003. We wanted to let you know how this may affect your margin account(s).

The new tax relief act includes a reduced tax rate on certain dividends paid by corporate issuers. Because of this, the government will tax any "qualified dividend income" an individual receives at the long-term capital gain rate (generally 15%) rather than at ordinary rates (35% maximum) as long as you satisfy a 60-day holding period.

While this is good news for individual investors like you, there are some exceptions to the new law. To be eligible for the reduced tax rate, you must hold the dividend-paying security for a 60-day period. There are also situations where the investor receives "payments in lieu" of dividends on stocks a broker has borrowed as part of its securities lending practices, which do not qualify for the reduced rate.

Because Freetrade may borrow your dividend-paying stock in the normal course of business, you might receive a "payment in lieu" of dividends instead of a qualifying dividend. When this happens, Freetrade will credit your account for the difference between the long-term capital gains rate of 15% and the maximum 35% ordinary rate.

We'll also include the additional tax due on the difference (or a "gross-up"). We'll calculate the gross-up as the difference between the 35% ordinary rate and the 15% capital gains rate divided by 65% - resulting in a premium payment of 30.77% on the payment in lieu. After we credit your account, if you are in the highest tax bracket, you should be in approximately the same after-tax position you would have been in if you had received a qualified dividend. If you qualify for a lower tax bracket, you'll actually receive more income receiving a payment in lieu. For an example of the "payments in lieu" and "gross-up" after tax position, please see example at the end of this e-mail.

As your account is self-directed, we're not allowed to give you tax or investment advice. Please contact your tax advisor with any questions about the effects this tax law change may have on your account.

If you have any questions about your account please contact a Client Services representative at [e-mail].

Again, thank you for being a Freetrade client. Your business is very important to us and we look forward to serving you for years to come.



Sincerely,

James A. Ricketts
Vice President