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CASHING IN ON CURRENCY: AN ASSET CLASS TO HELP DIVERSIFY YOUR PORTFOLIO The information provided

CASHING IN ON CURRENCY:

AN ASSET CLASS TO HELP DIVERSIFY YOUR PORTFOLIO

The information provided here is intended to be general in nature and should not be construed as investment advice nor a recommendation of any specific security or strategy.

WHETHER USED TO MEET TACTICAL OR STRATEGIC OBJECTIVES, CONSIDER ADDING A CURRENCY STRATEGY TO YOUR PORTFOLIO

Foreign Currency Investments May Help You:

Provide potential for wider diversification—With a low correlation to stocks and bonds, currency investments may help further diversify a portfolio beyond traditional asset classes. Keep in mind no investment strategy can eliminate the risk of experiencing investment loss.

Manage the risk of international investments—While concentration in a single currency,

rather than a basket of currencies, may increase an investor’s risk due to daily volatility, by taking a long or short position in a specific currency (or currencies) you potentially reduce the currency effect on your international stock and bond returns.

Find a source of incremental returns—Foreign exchange positions offer you the potential to garner short-term profits from fluctuations in exchange rates. Though currency rates may rise over short- term cycles, they may also fall short over the short term for a number of reasons including changes in interest rates, the imposition of currency controls or other potential developments in the U.S. or abroad.

To learn whether the various available currency tactics and strategies are right for your circumstances, please contact your financial professional.

available currency tactics and strategies are right for your circumstances, please contact your financial professional.

THE CURRENCY MARKET IS THE WORLD’S LARGEST AND MOST LIQUID MARKET, WITH AN AVERAGE DAILY TURNOVER OF $3.2 TRILLION 1

Take Advantage of a Large, Widely Traded and Accessible Asset Class

Investors seeking to enhance returns, manage risk and add greater diversity to their portfolios today have asset classes at their disposal beyond stocks and bonds. Because global currencies often move in cycles of higher and lower valuations, they offer a distinct source of returns and can play a comple- mentary role in a well-diversified portfolio.

Until recently, most foreign exchange activity has been limited to large institutional banks providing market access to Fortune 1000 companies and large funds. Access to currency markets for individual investors has opened up considerably through the introduction of several currency mutual funds and exchange traded products. Consider adding global currencies as: 2

• A noncorrelated diversifier

• An international risk management tool

• A source of incremental returns

The Currency Market Moves Independently of Other Asset Classes

Including an asset class that performs indepen- dently of other asset classes is a way to add diversity to a portfolio. The currency markets, as measured by the U.S. Dollar Index ® (USDX), have had a very low to negative correlation to the stock, bond and commodities markets, making it an attractive portfolio diversifier. Of course, while diversification can help protect your returns from excessive volatility, it cannot fully insulate you from market losses.

Correlation of U.S. Dollar Index (USDX) with major asset classes, 1992-2007 3

U.S. Dollar Index ® (USDX)

1.00

S&P 500 ® Index

0.04

Lehman Brothers Aggregate Bond Index ®

-0.18

S&P GSCI TM Commodity Index (GSCI)

-0.18

Correlation is a useful measure of an asset class’ diversification potential. Assets with a correlation measure close to 1.00 are closely correlated (poor diversification potential), while those with a zero or a negative correlation are not correlated (better diversification potential). Performance displayed represents past performance, which is no guarantee of future results.

1 Source: Bank for International Settlements, Triennial Central Bank Survey: Foreign Exchange and Derivatives Activity in 2007, p.1. Data quoted as of April 2007.

2 No investment strategy can guarantee returns in a declining market. Diversification neither assures a profit nor eliminates the risk of experiencing investment losses. Exposure to foreign currencies may add to the risk that those currencies will decline in value relative to the U.S. dollar.

3 Source data used to create chart: Bloomberg, January 2008

The U.S. Dollar Index ® is a market-weighted basket of six foreign currencies that is commonly used to track price movements in foreign currencies. Utilizing exchange rates expressed in units of foreign currency per U.S. dollar, the six currencies include the euro, Japanese yen, British pound sterling, Canadian dollar, Swedish krona and Swiss franc. The S&P 500 ® Index is a capitalization-weighted index of 500 U.S. stocks and is widely used as a diversified proxy for the U.S. stock market. The Lehman Aggregate Bond ® Index, a common measure of the performance of invest- ment grade bonds, is comprised of approximately 6,000 publicly traded bonds including U.S. government, mortgage-backed, corporate and yankee bonds with an approximate average maturity of 10 years. The S&P GSCI TM Commodity Index is a composite index of commodity sector returns, representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. It is not possible to invest directly in any index.

MANAGING THE FOREIGN CURRENCY/DOLLAR RELATIONSHIP

Currency valuations move in cycles, just as other asset classes such as stocks, bonds or commodities. There are periods of short-term volatility within longer-term trends. The image below illustrates the general cyclical nature of the U.S. Dollar Index ® , which is a basket of six foreign currencies showing the international value of the U.S. dollar.

A 20-Year Look at the USDX (1987 – 2007) 4

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95

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(1987 – 2007) 4 125 120 115 110 105 100 95 90 85 80 75 70
During periods when the U.S. dollar is strengthening relative to foreign currencies, investors may decide
During periods when the U.S. dollar is strengthening relative
to foreign currencies, investors may decide to sell units of
foreign currency to capitalize on that movement.
During periods when the U.S. dollar is weakening relative
to foreign currencies, investors may decide to buy a foreign
currency to take advantage of the valuation difference.
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Performance displayed represents past performance, which is no guarantee of future results. This is for illustrative purposes only and is not indicative of any investment. You cannot invest directly into an index.

While the image above illustrates the dollar to a basket of currencies, the images to the right show the dollar’s relationship to individual currencies by way of their exchange rate.

4 Source data used to create chart: Bloomberg, January 2008

MANAGING COUNTRY-SPECIFIC/REGIONAL CURRENCY EXPOSURE

Similar to the U.S. dollar, the cyclical movement of individual currencies provides the ability to target specific regional strategies. As shown in the graphs below, with foreign currency as the base, a rising exchange rate indicates a weakening dollar. Conversely, a decreasing exchange rate indicates a strengthening dollar.

20-Year Exchange Rate History of Major Foreign Currencies 5

Exchange Rate: U.S. dollar per euro 6

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Exchange Rate: U.S. dollar per 100 Japanese yen 2. 1 2 1. 9 1. 8
Exchange Rate: U.S. dollar per 100 Japanese yen
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Exchange Rate: U.S. dollar per Australian dollar

1. 00 0. 90 0. 80 0. 70 0. 60 0. 50 0. 40 Dec
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Exchange Rate: U.S. dollar per British pound sterling

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Performance displayed represents past performance, which is no guarantee of future results. This is for illustrative purposes only and is not indicative of any investment. You cannot invest directly into an index.

5 Source data used to create charts: MorningStar Encorr, January 2008

6 The euro was established in January 1999.

Rydex offers products with investment strategies tied to the indices and currencies referenced throughout this material. However, perfor- mance for the indices and/or currencies referenced throughout is that of the index and individual currencies, not of any Rydex fund.

9601 Blackwell Road, Suite 500 Rockville, MD 20850 www.rydexinvestments.com 800.820.0888 CACO-6-0108 x1208 Read the

9601 Blackwell Road, Suite 500 Rockville, MD 20850 www.rydexinvestments.com 800.820.0888 CACO-6-0108 x1208

Read the fund’s prospectus carefully before investing. It contains the fund’s investment objectives, risks, charges, expenses, and other information. Obtain a prospectus at rydexinvestments.com or call 877.RYDEX34.

Rydex Distributors, Inc., an affiliate of Rydex Investments, is the distributor of Rydex funds.