Exchange-traded notes: Don't even think about it

— -- Wall Street has many useful maxims, such as "Don't catch a falling knife," "Don't fight the Fed," and "Count the silverware after the CEO visits." Now, it's time to add another: Beware of complex investments with cute names.

Wall Street has created a new generation of investments, called exchange-traded notes, or ETNs, which go by names such as BOXES, LUNARS, MITTS, PERQS and PISTONS. Except for the plainest of plain-vanilla ETNs, you should handle them like XPLOSIVs.

ETNs are a relatively new development. The value of an ETN depends on the movements of a stock index or, sometimes, even an individual stock. And, as you might have guessed from their name, ETNs trade on the stock exchange — typically, the American Stock Exchange.

In those respects, ETNs are fairly similar to their cousins, exchange-traded funds. But ETNs have a big difference: They are debt securities, not equity securities. When you buy an exchange-traded fund, you're buying a slice of a diversified portfolio of stocks. When you buy an ETN, you're buying a promise — specifically, the promise that the issuer will pay the note according to the terms laid out in the ETN's prospectus.

Those terms can be simple or complex. Let's start with a simple one: The iPath Dow Jones-AIG Commodity Index Total Return ETN, which trades under the ticker DJP. The note pays no interest, but the issuer, Barclays, will pay a cash payment at maturity equal to the gain on the Dow Jones-AIG Commodity Index total return. The maturity date is June 12, 2036.

You can sell the note before it matures, at which point you'll get whatever other investors feel it's worth. As of Thursday, its value was up 9.2% in 2008.

Jeffrey Ptak, Morningstar's director of ETF research, likes DJP because it does a better job tracking the index than an ETF can. A fund has to use futures and other investments to track the commodity index. Because a note isn't a fund, it doesn't have to line up investments that mirror the index. All it needs is the promise to pay according to the index's movements.