What is the ruling about?
Revenue Ruling 2008-1, which was issued on December 7, 2007, describes the tax treatment of a financial instrument which is purchased with the U.S. dollar equivalent of a specified amount of foreign currency and which provides that at maturity the issuer will deliver the U.S. dollar equivalent of the specified amount of foreign currency plus the U.S. dollar value of a return based on market interest rates in the foreign currency. The ruling holds that this instrument is classified as debt, even though the amount of U.S. dollars received at maturity may be less than the amount of U.S. dollars used to purchase the instrument. This treatment applies whether the instrument is privately-offered, publicly-offered or traded on an exchange. Therefore, any interest accrued during the contract is taxable to investors as the interest accrues, and a gain or loss from the sale or redemption of the instrument will be ordinary. Some industry participants had claimed that certain foreign currency exchange traded notes (ETNs) were not classified as debt and that the holders could defer the recognition of the amounts accruing on the ETNs, and could obtain the benefits of the preferential long-term capital gains rate (15%) upon the sale or redemption of the ETNs.

Does this new ruling affect Rydex CurrencyShares^SM?
No.

What are the tax implications for the investors in CurrencyShares products?
Shareholders of each CurrencyShares Trust will continue to be treated, for U.S. federal income tax purposes, as if they owned a pro rata share of the assets held by the particular Trust. Because of this, the income and expenses of each Trust “flow through” to the Trust’s shareholders. Any U.S. person who owns CurrencyShares is required to recognize currency exchange gains or losses when the Trust converts the foreign currency it holds to U.S. dollars to make distributions to the shareholders, or uses the foreign currency it holds to pay the sponsor’s fee. Any U.S. person who owns CurrencyShares is also required to recognize interest income at the time that the corresponding Trust receives interest earnings. Shareholders should refer to the applicable CurrencyShares Trust prospectus for important tax information. The preferential federal income tax rate generally applicable to long-term capital gains does not apply to any gains (long-term or short-term) on CurrencyShares or to any interest income attributable to CurrencyShares.

Do the CurrencyShares products earn income?
Shareholders may earn income, although earning income for shareholders is not the objective of the CurrencyShares Trusts. Whether investors earn income primarily depends on the relative value of the currency held by the Trust and the U.S. dollar. In general, a currency exchange gain will be recognized by a shareholder if the currency held by the Trust appreciates relative to the U.S. dollar during the period that the shareholder owns CurrencyShares. A currency exchange loss will be recognized by a shareholder if the currency held by the Trust depreciates relative to the U.S. dollar during the period that the shareholder owns CurrencyShares.

Do the CurrencyShares products make income distributions to shareholders?
Although paying interest is not an investment objective of the CurrencyShares Trusts, some of the Trusts may distribute interest. In contrast to ETNs, which reinvest the interest earned, the Trusts may distribute interest to shareholders on a monthly basis if interest earned during the previous month exceeds the expenses of the particular Trust.

How does the CurrencyShares product structure differ from the ETN structure?
CurrencyShares products are structured as grantor trusts. They are exchange traded products that are registered under the Securities Act of 1933 and the Securities Exchange Act of 1934, and are subject to SEC prospectus delivery and periodic reporting requirements. As opposed to ETNs, which are unsecured promissory notes, CurrencyShares represent an undivided interest in currency held in a bank account (at JPMorgan Chase Bank N.A., London Branch).