Income Exchange-Traded Funds Meeting Income Objectives

Transcription

1 Income Exchange-Traded Funds Meeting Income Objectives Not FDIC Insured May Lose Value No Bank Guarantee For US Use Only

2 PowerShares offers investors the ability to meet a variety of income objectives by providing a broad lineup of income-based ETFs. Equity Income PFM PEY PID KBWD SPHD PowerShares Dividend Achievers TM Portfolio PowerShares High Yield Equity Dividend Achievers TM Portfolio PowerShares International Dividend Achievers TM Portfolio PowerShares KBW High Dividend Yield Financial Portfolio PowerShares S&P 500 High Dividend Portfolio Fixed Income PLW BAB DSUM PCY PWZ PZA PZT PICB BKLN PVI PowerShares 1-30 Laddered Treasury Portfolio PowerShares Build America Bond Portfolio PowerShares Chinese Yuan Dim Sum Bond Portfolio PowerShares Emerging Markets Sovereign Debt Portfolio PowerShares Insured California Municipal Bond Portfolio PowerShares Insured National Municipal Bond Portfolio PowerShares Insured New York Municipal Bond Portfolio PowerShares International Corporate Bond Portfolio PowerShares Senior Loan Portfolio PowerShares VRDO Tax-Free Weekly Portfolio Hybrid Income PCEF CVRT PGF KBWY PGX PowerShares CEF Income Composite Portfolio PowerShares Convertible Securities Portfolio PowerShares Financial Preferred Portfolio PowerShares KBW Premium Yield Equity REIT Portfolio PowerShares Preferred Portfolio Fundamentals Weighted Fixed Income PHB PFIG PowerShares Fundamental High Yield Corporate Bond Portfolio PowerShares Fundamental Investment Grade Corporate Bond Portfolio 1 Since ordinary brokerage commissions apply for each buy and sell transaction, frequent trading activity may increase the cost of ETFs. 2 While it is not Invesco PowerShares intention, there is no guarantee that the funds will not distribute capital gains to shareholders. Invesco PowerShares does not offer tax advice. Please consult your own tax advisor for information regarding your tax situation. Income Exchange-Traded Funds Meeting Income Objectives

3 For many investors, the question is not so much whether or not to invest for income, but how best to invest for income. Which asset classes offer the best opportunity for income? Which products will most efficiently help me meet my income objectives? PowerShares offers low cost, 1 tax-efficient 2 ETFs focused on income generation from across the capital structure. Not FDIC Insured May Lose Value No Bank Guarantee For US Use Only 3

4 Investing for Income Whether it s for generating an income stream to live on or for its contribution to an investment s total return, income plays an important role in investors portfolios. Depending on their objectives, outlooks and risk tolerances, investors can build portfolios that generate income from across the various segments of the corporate capital structure: senior loans, bonds, preferred stock and common stock. Income as a Significant Source of Total Return The charts below track the cumulative returns of the various segments of the capital structure showing the extent to which income contributed to the total returns: Order of Repayment in the Event of Financial Hardship Senior Loans Preferred Stock Common Stock Senior Loan Total Return Price Return Corporate Total Return Price Return (%) (%) Preferreds Total Return Price Return Common Stock Total Return Price Return (%) (%) By considering income generation from across the capital structure, investors can take advantage of each segment s different characteristics and thereby address and manage their individual concerns and goals for income investing. PowerShares offers ETFs that enable investors to access and generate income across all areas of the capital structure. Source: Bloomberg L.P., as of Dec. 31, Credit ratings are assigned by Nationally Recognized Statistical Rating Organizations based on assessment of the credit worthiness of the underlying bond issuers. The ratings range from AAA (highest) to D (lowest) and are subject to change. Not rated indicated the debtor was not rated and should not be interpreted as indicating low quality. Futures and other derivatives are not eligible for assigned credit ratings by any NRSRO and are excluded from quality allocations. For more information on rating methodologies, please visit the following NRSRO websites:standandpoors.com and select Understanding Ratings under Rating Resources, fitchratings.com and select Ratings Definitions under Criteria and moodys.com and select Rating Methodologies under Research and Ratings. Income Exchange-Traded Funds Meeting Income Objectives

5 Senior Loans Within a company s capital structure, senior loans are typically: Senior to the claims of other creditors Receives priority in repayment due to performance and leverage-based covenants Secured by collateral such as property, inventory, equipment and tangibles Senior loans are privately arranged debt instruments that provide capital to a company (usually with a below-investment-grade rating) 1 and are issued by a bank or financial institution and purchased by a group of banks and institutional investors. These types of loans are typically issued in conjunction with leveraged buyouts, mergers or acquisitions. A company s payment of interest and loan principal is usually contractually senior to any other form of debt or equity. The rate paid by a senior secured loan floats at a pre-determined spread over a reference rate, usually the US dollar London Interbank Offered Rate (LIBOR). LIBOR is the interest rate that international banks charge each other for loans. For example, if three-month LIBOR were yielding 2.50%, a senior secured floating rate loan with a spread or percentage above the LIBOR rate of 3.00% would yield LIBOR % or 5.50%. The reference rate, in general, is then reset every, 30, 60 or 90 days, so that the aggregate rate floats in lockstep with the reference rate. Addressing Two Fixed-Income Risks in a Single Trade There are two fundamental risks that all fixed-income investors face: Credit risk potential failure of the issuer to pay principal and coupon Interest rate risk potential for bond prices to fall due to rising rates A senior loan is a different form of debt capital that directly addresses these risks. Loans distinguish themselves from traditional bonds in at least three ways: Senior: In the event of financial hardship, senior loans have first claim to repayment Secured: company assets are typically pledged as collateral to secure senior loans Floating rates: the coupons on senior loans are generally in addition to LIBOR Please note that senior loans tend to be lower rated securities despite their senior level in the lending structure. Senior loans are extended by financial institutions to entities of below investment-grade credit quality and are subject to significant credit, valuation and liquidity risk. The senior and secured status of loans contributes to a very high recovery rate relative to bonds, resulting in a significantly different credit risk profile: High Priority Average Ultimate Recovery Rates: Prices Floating vs. Fixed Fixed Rate Interest Rates For Illustrative Purposes Only Floating Rate Loans Senior Secured Loans Loans 80.3% Preferred Stock Common Stock Subordinated ** 28.7% Low Priority Source: Moody s Annual Default Study, February 2012 ** Includes senior subordinated and junior subordinated bonds The floating rate nature of loans makes loan prices less sensitive to interest rate changes than fixed-rate bonds, resulting in a significantly different interest rate risk profile: Investors may do well to consider diversifying their fixed-income risk by adding senior loan exposure to their portfolios. The PowerShares Senior Loan Portfolio is the world s first senior loan ETF and provides low cost, 2 transparent 3 exposure to the loan market. It tracks the S&P/LSTA U.S. Leveraged Loan 100 Index, which is designed to reflect the performance of the largest facilities in the leveraged loan market. 2 Since ordinary brokerage commissions apply for each buy and sell transaction, frequent trading activity may increase the cost of ETFs. 3 ETFs disclose their full portfolio holdings daily. An investment cannot be made directly to an index. For US Use Only 5

6 Options within the subordinated debt area include approaches for gaining exposure domestically, internationally and to debt issued by public, corporate and sovereign entities. Please be aware that fixed-income products such as bonds are subject to risk, including credit risk of the issuer and the effects of changing interest rates. They are also subject to call risk, which may result in having to reinvest proceeds at lower interest rates, resulting in a decline in income. Why Invest in International? International bonds perform differently from domestic bonds at different times, as indicated in the chart below. Rolling 12-Month Returns (%) International Bond US Int l Outperformance US Outperformance International bonds are represented by the Merrill Lynch Global Broad Market Ex US Dollar Index. US bonds are presented by the Merrill Lynch US Broad Market Index. The US dollar is represented by the US Dollar Index (DXY). The Merrill Lynch Global Broad Market Ex US Dollar Index tracks the performance of investment -grade debt publicly issued in the major domestic and Eurobond markets, including sovereign, quasi-government, corporate, securitized and collateralized securities. The Merrill Lynch US Broad Market Index tracks the performance of US dollar-denominated investment-grade government and corporate public debt issues in the US domestic bond market including US Treasury, quasi-government, corporate, securitized and collateralized securities. The US Dollar Index (DXY) is composed of a basket of five currencies: the euro, yen, sterling, Canadian dollar, Swedish Krona and Swiss franc and is representative of currencies trading in the spot market. The addition of international bonds to a portfolio may help to offset a downturn in the US bond market. Moreover, approximately 56% of the global investment-grade fixed-income market is outside of the US. 2 Adding foreign bonds to a portfolio may help create exposure that is more representative of the global bond market. Annualized Performance of International 1 Correlation of International with US Dollar 1 8% % 6.21% % 4.46% % % Local USD Local USD Local currencies are represented by the Merrill Lynch Global Broad Market Ex US Dollar Index and the USD is represented by the Merrill Lynch US Broad Market Index and the US Dollar Index. Currency Matters Foreign currency exposure has been a significant determinant of the performance of international bonds for US investors. For the 10-year period ended Dec. 31, 2012, foreign currency accounted for 41% of the returns of international bonds. 2 * See back page for definitions 1 Bloomberg, L.P., Jan. 1, 1998 through Dec. 31, 2012 Income Exchange-Traded Funds Meeting Income Objectives

7 (cont.) Correlation * International bonds have exhibited a high negative correlation with the US dollar and have provided a meaningful way for investors to take a position against it, while also receiving a coupon.* The PowerShares International Corporate Bond Portfolio (PICB) is an ETF that offers exposure to investment-grade corporate bonds issued solely in developed markets outside of the US. Relative to the economies of developed countries, many emerging market (EM) economies are exhibiting greater health in areas like GDP growth, demographics and fiscal balances. Over the last 10 years, both EM equity and EM debt have outperformed most other asset classes. EM Debt has Outperformed: Asset Class Performance over 10 years EM Equities EM Sov Debt High Yield US Equity Corporate Dev d Mkt Sov Debt Return (%) Standard Deviation* (%) Dev d Mkt Equity US Agg US Commodities Treasuries *See back page for asset class indexes This does not constitute a recommendation of the suitability of any investment strategy for a particular investor. Commodities generally are volatile and are not suitable for all investors. Investments in the securities of issuers in emerging market countries involve risks not associated with investments in the securities of issuers in developed countries. Emerging markets may be subject to greater market volatility, lower trading volume, political and economic instability, uncertainty regarding the existence of trading markets and more governmental limitations on foreign investment than more developed markets Correlation to EM Sovereign Debt 3 EM Equity EM Sov Debt High-Yield US Equity Corporate Dev d Mkt Sov Debt Dev d Mkt Equity US Agg US Treasuries Commodities *See back page for asset class indexes While EM equity and sovereign debt were both top performers, EM sovereign debt has generated much higher risk-adjusted returns than EM equity: Return Per Unit of Risk EM Debt EM Equity 0% 20% 40% 60% 80% 100% 120% 140% The PowerShares Emerging Markets Sovereign Debt Portfolio (PCY) is the original EM debt ETF. It seeks to track the DB Emerging Market USD Liquid Balanced Index and offers broad exposure to the sovereign debt of 22 emerging market countries. The index selects one to three eligible bonds displaying the largest Z-spread from each country and then weights each country equally on a quarterly basis. 2 Source: Bloomberg, L.P., as Dec. 31, Source: International Monetary Fund, as of June 2012 Past performance is no guarantee of future results. For US Use Only 7

8 (cont.) The Fundamentals-Weighted Approach Traditional broad market, cap-weighted bond indexes assign issuer weights based solely on the amount of debt they have outstanding. The more debt they issue, the greater their weight is in the index. Fundamentals weighted bond indexes assign issuer weights based on four factors that are indicative of their ability to service debt issues: sales, cash flows, dividends and book value of assets. Issuer s Weight in Index Cap-Weighted Index Issuer s Weight in Index Fundamentals-Weighted Index Why would you want to give the biggest portion of assets to those companies that are the biggest debtors? Robert Arnott Chairman, Research Affiliates Bond Issuance Ability to Service Debt PowerShares offers both a high yield (PowerShares Fundamental High Yield Corporate Bond Portfolio) and an investment-grade (PowerShares Fundamental Investment Grade Corporate Bond Portfolio) portfolio that are the first Fundamentals Weighted fixed-income ETFs. They are based on the RAFI US High Yield 1-10 Index and the RAFI US Investment Grade 1-10 Index, respectively. Fund Characteristics Distribution Frequency Maturity Rate Index Provider Monthly 1-10 Years Research Affiliates PHB PFIG Fixed Income Category Rating Constraint 1 Fixed Income Category Rating Constraint 1 High Yield BB to B Investment Grade AAA to BBB Build America The first Build America (BABs) were issued in April 2009 under the American Recovery and Reinvestment Act. The BABs program allowed municipalities to issue taxable bonds, with the Federal government subsidizing 35% of the coupon. The Federal interest subsidy continues through each BAB s maturity, while the sunset of the program at the end of 2010 marked the end of the ability to issue more of these bonds. During the program s 21 months, states and municipalities issued a total of $182 billion in BABs. All 50 states issued bonds, but, not unlike the tax-free market, the largest 10 issuers account for almost 70% of the total issuance: Top 10 Issuing States ($Billion) CA NY TX IL OH NJ WA FL PA MA Source: Securities Industry and Financial Markets Association, SIFMA.org, as of Dec. 31, 2010 PowerShares Build America Bond Portfolio (BAB) was the first ETF to invest in taxable municipal bonds through this program. BAB offers investors a unique asset class that can potentially earn corporate bond-like income, and has municipal bond features. 1 Credit ratings are assigned by Nationally Recognized Statistical Rating Organizations based on assessment of the credit worthiness of the underlying bond issuers. The ratings range from AAA (highest) to D (lowest) and are subject to change. Not rated indicated the debtor was not rated and should not be interpreted as indicating low quality. Futures and other derivatives are not eligible for assigned credit ratings by any NRSRO and are excluded from quality allocations. For more information on rating methodologies, please visit the following NRSRO websites:standandpoors.com and select Understanding Ratings under Rating Resources, fitchratings.com and select Ratings Definitions under Criteria and moodys.com and select Rating Methodologies under Research and Ratings. Income Exchange-Traded Funds Meeting Income Objectives

9 Preferred Stock Considered a hybrid of debt and equity by many experts, preferred stock may be an equity compliment worth considering given their relatively high rates of income and the low correlations they have tended to exhibit to the broader fixed-income market. Preferreds have a pre-determined coupon based on a fixed or adjustable rate and trade at a price that includes the accrued dividend. They typically have long initial maturities or are perpetual. Although payments may be deferred at the issuer s option, they cannot be skipped or deferred unless payments on common shares are also eliminated. Please note that preferred securities may be less liquid than many other types of securities, and in certain circumstances, an issuer of preferred securities may redeem the securities prior to a specified date. Invesco PowerShares offers investors exposure to the preferred securities market through two different ETFs. The PowerShares Preferred Portfolio (PGX) is based on the BofA Merrill Core Plus Fixed Rate Preferred Securities Index, which is designed to replicate the total return of a diversified group of investment-grade preferred securities. The PowerShares Financial Preferred Portfolio (PGF) is based on the Wells Fargo Hybrid and Preferred Securities Financial Index (WHPS Financial Index), which is designed to track the performance of US-listed preferred stocks issued in the US market by financial institutions. Common Stock PowerShares S&P 500 High Dividend Portfolio Are you concerned about dividends and volatility? When interest rates are low, equities can be an alternative source of higher income that may also offer the ability to keep pace with inflation through their potential to appreciate in price. Weighting the securities in a portfolio by their dividend yield serves not only to increase the portfolio s overall yield, but also to provide an alternative to market-cap weighting, which may result in outperformance over time. The PowerShares S&P 500 High Dividend Portfolio (SPHD) seeks results that generally correspond (before fees and expenses) to the price and yield of the S&P 500 Low Volatility High Dividend Index (LVHD Index). The methodology behind the S&P LVHD Index is designed to provide a simple way to gain diversified exposure to high-yield stocks. 1. The 75 stocks in the S&P 500 Index with the highest 12-month dividend yield are chosen, with no more than 10 in any single sector. 2. From the 75, the 50 stocks with the lowest volatility are selected to form the index. Prices of equity securities such as common stock change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. Please note there can be no guarantee or assurance that companies will declare dividends in the future or that if declared, they will remain at current levels or increase over time. S&P 500 High Yield 75 Stocks Low Volatility S&P 500 High Dividend Index constituents are weighted by indicated dividend yield, subject to stock and sector constraints: 1. Individual stock weight is capped between 0.5% and 3%. 2. Sector weight is capped at 25%. Volatility is defined as trailing the 12-month standard deviation. The index is rebalanced twice a year in January and July. For US Use Only 9

10 Highlighted Fund Overview (in order discussed) Fund Name Ticker Index Methodology Universe PowerShares Senior Loan Portfolio BKLN S&P/LSTA U.S. Leveraged Loan 100 Index The Fund will normally invest at least 80% of its total assets in the component securities that comprise the Index. The S&P/LSTA (Loan Syndications and Trading Association ) Leveraged Loan Index (LLI), which covers more than 1,100 facilities PowerShares International Corporate Bond Portfolio PICB S&P International Corporate Bond Index The Fund will normally invest at least 80% of its total assets in the securities that comprise the Index. Investment-grade corporate bonds issued by non-us issuers in the following currencies: Australian dollar (AUD), British pound (GBP), Canadian dollar (CAD), euro (EUR), Japanese yen (JPY), Swiss franc (CHF), New Zealand dollar (NZD), Norwegian krone (NOK) and Swedish krona (SEK) PowerShares Emerging Markets Sovereign Debt Portfolio PCY DB Emerging Market USD Liquid Balanced Index The Fund will invest at least 90% of its total assets in securities that comprise the Index. Liquid emerging markets US dollardenominated government bonds issued by approximately 22 emerging-market countries PowerShares Fundamental High Yield Corporate Bond Portfolio PHB RAFI US High Yield 1-10 Index The Fund will normally invest at least 80% of its total assets in the securities that comprise the Index. US dollar-denominated bonds registered for sale in the United States whose issuers are public companies listed on major US stock exchanges PowerShares Fundamental Investment Grade Corporate Bond Portfolio PFIG RAFI US Investment Grade 1-10 Index The Fund will normally invest at least 80% of its total assets in the securities that comprise the Index. Non-convertible, non-exchangeable, non-zero, fixed coupon investible investment grade corporate bonds with greater than one year to maturity PowerShares Build America Bond Portfolio BAB BofA Merrill Lynch Build America Bond Index The Fund will normally invest at least 80% of its total assets in the securities that comprise the Index. US dollar-denominated Build America publicly issued by US states and territories, and their political subdivisions, in the US market PowerShares Preferred Portfolio PGX The BofA Merrill Lynch Core Plus Fixed Rate Preferred Securities Index The Fund will normally invest at least 80% of its total assets in fixed-rate US dollar-denominated preferred securities that comprise the Index. Fixed-rate US dollar-denominated preferred securities issued in the US domestic market. (Securities must be rated at least B3, based on an average of three leading ratings agencies: Moody s, S&P and Fitch) and must have an investment-grade country risk profile (based on an average of Moody s, S&P and Fitch foreign currency long-term sovereign debt ratings) PowerShares Financial Preferred Portfolio PGF Wells Fargo Hybrid and Preferred Securities Financial Index (WHPSF Index) The Fund will normally invest at least 90% of its total assets in preferred securities that comprise the Index. US-listed securities issued by financial institutions PowerShares S&P 500 High Dividend Portfolio SPHD S&P 500 Low Volatility High Dividend Index The Fund generally will invest at least 90% of its total assets in common stocks that comprise the Underlying Index. Fifty securities traded on the S&P 500 Index that historically have provided high dividend yields and low volatility Please see powershares.com for further information on our entire lineup of income-based ETFs. Income Exchange-Traded Funds Meeting Income Objectives

11 For US Use Only 11

12 *Asset Class Indexes Emerging Mkt. Sov. Debt Commodities U.S. Treasuries Emerging Mkt. Equities U.S. Aggregate High Yield Developed Mkt. Equities U.S. Equities Corporate Dev d. Mkt. Sov. BAML U.S. Dollar Emerging Sov Plus Index S&P GSCI Index ML U.S. Treasury Master MSCI EM Index ML U.S. Domestic Master Index ML U.S. High Yield Master II Index MSCI EAFE Index S&P 500 Index BAML U.S. Corporate Master Index BAML Global Gov Bond Index II Excl. U.S. Definitions Correlation indicates the degree to which two investments have historically moved in the same direction and magnitude. A greater positive correlation (+1.00 maximum) means the two investments have behaved more similarly; a greater negative correlation (-1.00 maximum) means the two have performed less similarly. A coupon is the interest rate on a debt security the issuer promises to pay to the holder until maturity, expressed as an annual percentage of the face value. The Z-spread of a bond is a spread measure that looks at future cash flows over their respective points across the entire yield curve rather than simply looking at one point on the yield curve. Standard deviation measures a fund s range of total returns and identifies the spread of a fund s short-term fluctuations. Volatility is the annualized standard deviation of index returns. The S&P 500 Index is an unmanaged index considered representative of the US stock market. The S&P GSCI Index is an unmanaged world production-weighted index composed of the principal physical commodities that are the subject of active, liquid futures markets. The MSCI Emerging Markets Index SM is an unmanaged index considered representative of stocks of developing countries. The MSCI EAFE Index is an unmanaged index considered representative of stocks of Europe, Australasia and the Far East. The BofA Merrill Lynch U.S. Corporate Master Index is a market-value-weighted index composed of domestic Corporate (BBB/Baa rated or better) debt issues. The BofA Merrill Lynch High Yield Master Bond Index monitors the performance of below investment-grade US dollar-denominated corporate bonds publicly issued in the US domestic market. The BofA Merrill Lynch US Domestic Master Index tracks the performance of US dollar-denominated investment grade government and corporate public debt issued in the US domestic bond market including mortgage. The BofA Merrill Lynch Global Government Bond Index II Excl. US monitors the performance in investment-grade public debt of sovereign issuers issued and denominated in their own domestic market and currency. The BofA Merrill Lynch U.S. Treasury Master Index is an unmanaged index of US Treasuries including all Treasuries with a remaining term to final maturity greater than or equal to 15 years. The BofA Merrill Lynch US Dollar Emerging Sovereign Plus Index is an unmanaged index that tracks debt securities of emerging markets denominated in US dollars. General Risks There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. Treasury securities are backed by the full faith and credit of the US government as to the timely payment of principal and interest. Fixed-income products are subject to risk, including credit risk of the issuer and the effects of changing interest rates. Junk bonds involve a greater risk of default or price changes due to changes in the credit quality of the issuer. There is no assurance that any investment or strategy will achieve its investment objective. The dollar value of foreign investments will be affected by changes in the exchange rates between the dollar and the currencies in which those investments are traded. An investment in emerging market countries carries additional risks compared with more developed economies. Municipal securities are subject to the risk that litigation, legislation or other political events, local business or economic conditions or the bankruptcy of the issuer could have a significant effect on an issuer s ability to make payments of principal and/ or interest. Common stocks do not assure dividend payments. Dividends are paid only when declared by an issuer s board of directors and the amount of any dividend may vary over time. Sovereign debt securities are subject to the additional risk that under some political, diplomatic, social or economic circumstances some developing countries that issue lower quality debt securities may be unable or unwilling to make principal or interest payments as they come due. The fund may have limited legal recourse against the issuer and/or guarantor of sovereign debt when default occurs. As a holder of government debt, the Fund may be requested to participate in the rescheduling of such debt and to extend further loans to government debtors. Some Fund s use of a representative sampling approach will result in its holding a smaller number of securities than are in the underlying Index, and may be subject to greater volatility. Some Funds are considered non-diversified and may be subject to greater risks than a diversified fund. Prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. Investing in securities of small- and medium-sized companies may involve greater risk than is customarily associated with investing in large companies. Investments focused in a particular industry are subject to greater risk, and are more greatly impacted by market volatility than more diversified investments. Some of the Funds currently intend to effect creations and redemptions principally for cash, rather than principally in-kind because of the nature of the Fund s investments. As such, investments in the Fund may be less tax efficient than investments in ETFs that create and redeem in-kind. Shares of closed-end funds frequently trade at a discount to their net asset value in the secondary market and the net asset value of closed-end fund shares may decrease. The funds mentioned are subject to additional specific risks. Please see each fund s prospectus for additional information regarding the risks associated with an investment. Trademarks and Distributor Information The S&P 500 Index is an unmanaged index considered representative of the US stock market. Standard & Poor s and S&P are registered trademarks of Standard & Poor s Financial Services LLS ( Standard and Poor s ) and have been licensed for use by Invesco PowerShares Capital Management LLC. The Fund is not sponsored, endorsed, sold or promoted by Standard & Poor s or its Affiliates, and Standard & Poor s and Affiliates make no representation, warranty of condition regarding the advisability of buying, selling or holding shares of the Fund. The trade names Fundamental Index, RAFI, the RAFI logo, and the Research Affiliates corporate name and logo are registered trademarks and are the exclusive intellectual property of Research Affiliates, LLC. Any use of these trade names and logos without the prior written permission of Research Affiliates, LLC is expressly prohibited. Research Affiliates, LLC reserves the right to take any and all necessary action to preserve all of its rights, title and interest in and to these marks. The RAFI US Investment Grade 1-10 Index and RAFI US High Yield 1-10 Index is calculated by ALM Research Solutions, LLC. in conjunction with Research Affiliates, LLC. All rights and interests in the RAFI US Investment Grade 1-10 Index and RAFI US High Yield 1-10 Index vest in Research Affiliates, LLC. All rights in and to the Research Affiliates, LLC Fundamental Index concept used in the calculation of the RAFI US Investment Grade 1-10 Index and RAFI US High Yield 1-10 Index vest in Research Affiliates, LLC. The RAFI US Investment Grade 1-10 Index and the RAFI US High Yield 1-10 Index are not sponsored, endorsed, sold or promoted by ALM Research Solutions, LLC., and ALM Research Solutions, LLC. makes no representation regarding the advisability of investing in such product(s). Neither ALM Research Solutions, LLC. nor Research Affiliates, LLC make any warranties, express or implied, to any of their customers nor anyone else regarding the accuracy or completeness of any data related to the RAFI US Investment Grade 1-10 Index or the RAFI US High Yield 1-10 Index. All information is provided for information purposes only. Neither ALM Research Solutions, LLC. nor Research Affiliates, LLC accept any liability for any errors or any loss arising from the use of information in this publication. Invesco Distributors, Inc. is not affiliated with Robert Arnott or Research Affiliates. PowerShares is a registered trademark of Invesco PowerShares Capital Management LLC. Invesco PowerShares Capital Management LLC (Invesco PowerShares) and Invesco Distributors, Inc. are indirect, wholly owned subsidiaries of Invesco Ltd. Invesco Distributors, Inc. is the distributor of the PowerShares Exchange-Traded Fund Trust and the PowerShares Exchange-Traded Fund Trust II. Shares are not individually redeemable and owners of the shares may acquire those shares from the Fund and tender those shares for redemption to the Fund in Creation Unit aggregations only, typically consisting of 50,000 shares. An investor should consider the Funds investment objective, risks, charges and expenses carefully before investing. For this and more complete information about the Funds, call or visit invescopowershares.com for a prospectus. Please read the prospectus carefully before investing. Note: Not all products are available through all firms. PFM PEY PID KBWD SPHD PLW BAB DSUM PCY PWZ PZA PZT PICB BKLN PIV PCEF CVRT PGF KBWY PGX PHB PFIG 2013 Invesco PowerShares Capital Management LLC invescopowershares.com P-INCOME-IVG-1 03/13 X 03/14