Sm-2 (Co, Fe, Cu, Zr)(17) type magnets are unique high energy product magnet materials for applications at temperatures higher than 200 degreesC. These magnets have (BH)(max) values up to 32 MGOe at 25 degreesC and up to 26.5 MGOe at 200 degreesC. A new, recently introduced class of these Sm-TM 2:17 type magnets can be used at temperatures as high as 550 degreesC. However, exposure to such high temperatures presents new challenges because of the reactions between the magnets and the environment. An investigation has been conducted using SEM/EDXA and EPMA/WDXA to study the microstructure formed in Sm-2 (Co, Fe, Cu, Zr)(17) magnets after long-term exposure to air at 550 degreesC. It was anticipated that the permanent magnetic loss observed was due mostly to surface oxidation. Surprisingly, the investigation shows that the major cause for the magnetic loss is Sm depletion. It was found that at the surface layer, Sm is lost by vaporization, leaving an oxide of Fe-Co. But Sm depletion also occurs in a zone between the surface layer and the matrix of the samples. In this affected zone, many Sm free Fe-Co-Cu stripes are formed as part of the process of Sm atoms migrating toward the surface layer and eventually evaporating. Coating can minimize Sm depletion and reduce the magnetic loss. Research for improved coating systems is in progress.