IRS Ruling Provides Clarity to Investors in Barclays iPath(R) Currency
Exchange Traded Notes
NEW YORK, Dec. 10 /PRNewswire/ -- Barclays Bank PLC announced today that a
U.S. Internal Revenue Service ruling, issued on December 7, 2007, holds that
any financial instrument linked to a single currency regardless of whether the
instrument is privately offered, publicly offered or traded on an exchange,
including an ETN, should be treated like debt for federal tax purposes. This
means that any interest is taxable to investors, even though the interest is
reinvested and not paid out until the holder sells any such financial
instrument, including an ETN, or the contract, matures. It also means that
gain or loss on sale or redemption will generally be ordinary, and investors
will not be able to elect capital gain treatment.
The Revenue Ruling does not apply to ETNs that are linked to equities or
commodities. The IRS also issued Notice 2008-2 asking for comments on the
appropriate tax treatment of instruments described as prepaid forward
contracts, which is how investors currently treat the equity and commodity
ETNs for tax purposes.
The ruling provides guidance to the tax treatment of three iPath(R)
currency ETNs ("iPath Currency ETNs") -- iPath(R) EUR/USD Exchange Rate ETN
(ticker ERO), iPath(R) GBP/USD Exchange Rate ETN (ticker GBB), and iPath(R)
JPY/USD Exchange Rate ETN (ticker JYN). Launched in May 2007, they are
designed specifically to offer exposure to a single currency exchange rate
relative to the US dollar. The products would be considered debt for federal
tax purposes, even though the holder's initial investment and repayment are
made in U.S. dollars, and the holder may get back fewer U.S. dollars than it
invested.
"Ruling 2008-1 provides taxable investors clarity on the tax treatment of
foreign currency exchange traded notes," said Philippe El-Asmar, Managing
Director, Head of Investor Solutions, Americas, at Barclays Capital.
"Institutional and individual investors increasingly recognize that currency
exposure may constitute a separate asset class to provide portfolio
diversification and add potential portfolio returns. The iPath Currency ETNs
provide simple, transparent and cost-effective access to three significant
exchange rates."
The iPath Currency ETNs are senior, unsecured, unsubordinated debt
securities linked to the performance of an exchange rate and issued by
Barclays Bank PLC. As an example, the return on the iPath(R) GBP/USD Exchange
Rate ETN ("iPath GBP/USD ETN") is linked to the performance of the British
pound/U.S. dollar exchange rate (the "GBP/USD exchange rate"). The GBP/USD
exchange rate is a foreign exchange spot rate that measures the relative
values of two currencies, the British pound and the U.S. dollar. When the
British pound appreciates relative to the U.S. dollar, the GBP/USD exchange
rate (and the value of iPath GBP/USD ETN) increases; when the British pound
depreciates relative to the U.S. dollar, the GBP/USD exchange rate (and the
value of iPath GBP/USD ETN) decreases.
iPath ETNs (the "Securities") are designed to provide investors with
convenient access to the returns of market benchmarks, less investor fees,.
Subject to requirements described in the applicable prospectus, the
Securities may be redeemed daily from the Issuer in large, institutional
blocks (typically, 50,000 Securities).
Barclays Bank PLC is the issuer; Barclays Capital Inc. is the issuer's
agent; and Barclays Global Investors Services (BGIS), an affiliate, assists in
the promotion of iPath ETNs.
About Barclays
Barclays PLC is a major global financial services provider engaged in
retail and commercial banking, credit cards, investment banking, wealth
management and investment management services. Barclays is one of the largest
financial services companies in the world by market capitalization. With over
300 years of history and expertise in banking, Barclays operates in over 50
countries and employs 123,000 people. Barclays transfers, lends invests and
protects money for over 27 million customers and clients worldwide. For
further information about Barclays, please visit our website www.barclays.com.
iPath ETNS
An investment in iPath ETNs involves risks, including possible loss of
principal. For a description of the main risks see "Risk Factors" in the
applicable prospectus.
Barclays Bank PLC has filed a registration statement (including a
prospectus) with the SEC for the offering to which this communication relates.
Before you invest, you should read the prospectus and other documents Barclays
Bank PLC has filed with the SEC for more complete information about the issuer
and this offering. You may get these documents for free by visiting
www.iPathETN.com or EDGAR on the SEC website at www.sec.gov. Alternatively,
Barclays Bank PLC will arrange for Barclays Capital Inc. to send you the
prospectus if you request it by calling toll-free 1-877-76-iPATH, or you may
request a copy from any other dealer participating in the offering.
iPath ETNs are unsecured obligations of Barclays Bank PLC and are not
secured debt. The Securities are riskier than ordinary unsecured debt
securities and have no principal protection. Risks of investing in the
Securities include limited portfolio diversification, trade price
fluctuations, uncertain principal repayment, and illiquidity. Investing in the
Securities is not equivalent to direct investment in the index or index
components. The investor fee will reduce the amount of investor return at
maturity or on redemption, and as a result investor may receive less than the
principal amount of investment at maturity or upon redemption of Securities
even if the value of the relevant index has increased. An investment in iPath
ETNs may not be suitable for all investors.
The Securities may be sold throughout the day on the exchange through any
brokerage account. There are restrictions on the minimum number of Securities
that may be redeemed directly with the issuer, and on the dates on which to
redeem them, as specified in the applicable prospectus. Commissions may apply
and there are tax consequences in the event of sale, redemption or maturity of
the Securities. Sales in the secondary market may result in significant
losses.
An investment in iPath ETNs linked to the performance of a foreign
currency exchange rate is subject to risks associated with fluctuations,
particularly a decline, in the price of the applicable single foreign currency
relative to the U.S. dollar. Factors that may have the effect of causing a
decline in the price of a foreign currency include national debt levels and
trade deficits, domestic and foreign inflation rates, domestic and foreign
interest rates, and global or regional economic, financial, political,
regulatory, geographical or judicial events. Currency exchange rates may be
extremely volatile, and exposure to a single currency can lead to significant
losses.
(C) 2007 Barclays Bank PLC. All rights reserved. iPath, iPath ETNs and
the iPath logo are registered trademarks of Barclays Bank PLC. All other
trademarks, servicemarks or registered trademarks are the property, and used
with the permission, of their respective owners.
SOURCE Barclays Bank PLC
Peter Truell, +1-212-412-7576, peter.truell@barclayscapital.com, or Kristin
Friel, +1-212-412-7521, kristin.friel@barclayscapital.com, or Christine
Hudacko, +1-415-597 2687, christine.hudacko@barclaysglobal.com, all of
Barclays Bank PLC
