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Kevin Davenport

History of The Euro

(Relevant to truly understand the nature of the fund) In 1998, the European Central Bank in Frankfurt was organized by Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain in order to establish a common currency—the euro. In 2001, Greece joined as the twelfth country adopting the euro as its national currency. Unlike the U.S. Federal Reserve System, the Bank of Japan and other comparable central banks, the European Central Bank is a central authority that conducts monetary policy for an economic area consisting of many otherwise largely autonomous states.

At its inception on January 1, 1999, the euro was launched as an electronic currency used by banks, foreign exchange dealers and stock markets. In 2002, the euro became cash currency for approximately 300 million citizens of 12 European countries. On May 1, 2004, ten additional countries joined the European Union and, subject to meeting rigorous criteria established by the European Central Bank, are expected to adopt the euro as their national currency some time before 2010. These countries are Cyprus (South), the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia.

Although the European countries that have adopted the euro are members of the European Union, the United Kingdom, Denmark and Sweden are European Union members that have not adopted the euro as their national currency.

Reasons for Investing in The Euro

All forms of investment carry some degree of risk. Although the Shares have certain unique risks described in ‘‘Risk Factors,’’ generally these are the same risks as investing directly in euro. Moreover, investment in the Shares may help to balance a portfolio or protect against currency swings, thereby reducing overall risk. Investors may wish to invest in euro in order to take advantage of short-term tactical or long-term strategic opportunities. From a tactical perspective, an investor that believes that the U.S. dollar is weakening relative to the euro may choose to buy Shares in order to capitalize on the potential movement. An investor that believes that the euro is overvalued relative to the U.S. dollar may choose to sell Shares. Sales may also include short sales that are permitted under SEC and exchange regulations.

From a strategic standpoint, since currency movements can affect returns on cross-border investments and businesses, both individual investors and businesses may choose to hedge their currency hedging risk through the purchase or sale of euro. For example, in the case where a U.S. investor has a portfolio consisting of European equity and fixed income securities, the investor may decide to hedge the currency exposure that exists within the European portfolio by selling an appropriate amount of Shares. Again, such sales may include short sales in accordance with applicable SEC regulations. In doing this, the U.S. investor may be able to mitigate the impact that changes in exchange rates have on the returns associated with the European equity and fixed income components of the portfolio. Similarly, a business that has currency exposure because it manufactures or sells its products abroad is exposed to exchange rate risk. Buying or selling Shares in appropriate amounts can reduce the business’s exchange rate risk. More generally, investors that wish to diversify their investment portfolios with a wider range of non-correlative investments may desire to invest in foreign currencies. Non-correlative asset classes, such as foreign currencies, are often used to enhance investment portfolios by making them more consistent and less volatile. Less volatility means lower risk and closer proximity to an expected return.

Cost-efficient Participation in the Euro Market

The Shares are intended to offer investors a new and different opportunity to participate in the euro market through an investment in securities. Historically, the logistics and expense of investing in foreign exchange have been a barrier to entry for many investors. This offering is aimed at overcoming the barriers to entry. A prospective purchaser of Shares should not encounter any tasks or costs beyond those associated with purchasing another publicly-traded equity security. The Shares are intended to provide institutional and retail investors with a simple, cost-effective means of gaining investment benefits similar to those of holding euro. The Shares are an investment that is: Easily Accessible. Investors will be able to access the euro market through a traditional brokerage account. The Shares will be bought and sold on the NYSE like any other exchange-listed security, except that they will regularly be traded until 4:15 PM (New York time) instead of 4:00 PM (New York time). Cost-Effective. Investors and businesses wishing to buy or sell currencies in modest size have had to pay as much as a 3% commission to effectuate their transactions. Because Shares will be traded as securities, transaction costs will be substantially reduced.

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