Invesco PowerShares Leading the Intelligent ETF Revolution Fixed Income ETFs Transforming Investor Access to the Bond Market 1 FOR U.S Institutional Use Only Not For Use With the Public
Fixed Income ETFs: Significant growth in recent years The first fixed income ETFs were launched in 2002, but 85% of total flows have been post-2007. Approximately 37 million shares of fixed income ETFs trade on an average day, with a notional value of $3B. Source: Morningstar Direct, Bloomberg LP, as of December 31, 2012 2 For US Institutional Investor Use Only Not For Use With The Public
Fixed Income ETFs: Significant growth in recent years Fixed Income Average Equity Average ETF Asset Ratio: Equity to Fixed-Income January 2008 December 2012 10.5 2.0 Source: Morningstar Direct, Bloomberg LP, as of December 31, 2012. Equity represented by Morningstar U.S. Stock Asset Class Category. Fixed Income represented by the sum of Morningstar Taxable and Municipal Bond Asset Class Categories. 3 For US Institutional Investor Use Only Not For Use With The Public
Fixed Income ETF Sector Timeline: Slicing and dicing the fixed income market Intermediate Corporate # of Funds as of August 31, 2012 Long Corporate Intermediate Gov t Foreign Bond Short Gov t TIPS High Yield Emerging Markets Long Gov t Short Corporate Mortgage Backed Ultra Short Corp. Nat l Muni Long California Muni NY Muni Nat l Muni Short Nat l Muni Interm HY Muni Bank Loan Launch Date of Each Sector s First ETF Source: Morningstar Direct, as of December 31, 2012 4 For US Institutional Investor Use Only Not For Use With The Public
Fixed Income ETFs: Ground-shifting benefits E Q U I T Y E T F S low management fees : tax efficiency : transparency F I X E D I N C O M E E T F S liquidity : market visibility : agility 5 For US Institutional Investor Use Only Not For Use With The Public
Fixed Income ETFs: Room to grow Source: Morningstar Direct, Bloomberg LP, as of December 31, 2012. Equity represented by Morningstar U.S. Stock Asset Class Category. Fixed Income represented by the sum of Morningstar Taxable and Municipal Bond Asset Class Categories. Bond market value measured by BofA ML Domestic Master, Municipal Securities and High Yield Master Indexes. Equity market value measured by S&P 1500 Composite Index. 6 For US Institutional Investor Use Only Not For Use With The Public
Fixed Income ETFs: Wide-ranging opportunities 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 High Yield EM Debt EM Debt High Yield TIPS Treasury High Yield High Yield TIPS Int'l Treas 28.1% 11.8% 12.0% 11.8% 11.3% 14.0% 57.5% 15.2% 13.5% 23.7% EM Debt High Yield Loans EM Debt Treasury MBS Loans EM Debt Treasury EM Debt 27.6% 10.9% 5.0% 10.6% 9.1% 8.3% 52.2% 12.5% 9.8% 18.3% Loans 9.9% TIPS 8.5% Int'l Treas 3.8% Loans 6.6% US Agg 7.2% Int'l Treas 7.4% EM Debt 27.2% Loans 9.7% EM Debt 8.2% High Yield 15.6% US Credit 8.3% US Credit 5.4% Treasury 2.8% MBS 5.3% MBS 7.0% US Agg 6.2% US Credit 19.8% US Credit 9.5% US Agg 7.9% Loans 10.5% TIPS 8.3% Int'l Treas 5.2% TIPS 2.8% US Credit 4.4% EM Debt 6.4% TIPS -0.8% TIPS 9.7% US Agg 6.4% US Credit 7.5% US Credit 10.4% US Agg 4.1% Loans 5.0% High Yield 2.7% US Agg 4.3% US Credit 4.6% US Credit -6.8% MBS 5.8% TIPS 6.1% MBS 6.1% TIPS 7.1% MBS MBS MBS Treasury Int'l Treas EM Debt US Agg Treasury Int'l Treas US Agg 3.3% 4.7% 2.6% 3.1% 2.5% -10.2% 5.2% 5.9% 4.6% 4.4% Treasury US Agg US Agg TIPS High Yield High Yield Int'l Treas MBS High Yield MBS 2.3% 4.3% 2.6% 0.7% 2.2% -26.4% 2.3% 5.7% 4.4% 2.6% Int'l Treas Treasury US Credit Int'l Treas Loans Loans Treasury Int'l Treas Loans Treasury 2.2% 3.5% 2.0% 0.2% 1.7% -28.2% -3.7% 2.8% 0.6% 2.2% Difference Between Top and Bottom Performing Market Segments 26.0% 8.3% 10.0% 11.6% 9.6% 42.2% 61.2% 12.4% 12.9% 21.5% Source: Bloomberg LP, as of December 31, 2012. See disclosure for list of indexes used. All fixed-income securities are subject to two types of risk: credit risk and interest rate risk. Non-investment grade securities (junk bonds) have greater risk than investment grade securities including the risk of default. Government debt is guaranteed as to the timely payment of principal and interest. Foreign securities entail special risk not associated with domestic securities including but not limited to political instability, illiquidity and increased volatility. 7 For US Institutional Investor Use Only Not For Use With The Public
Fixed Income ETFs: Wide-ranging uses and applications 8 For US Institutional Investor Use Only Not For Use With The Public
Fiscal Whiff Source: Tax Policy Center, as of Dec. 31, 2012 9 For US Institutional Investor Use Only Not For Use With The Public
GDP Growth and Interest Rates Source: Bloomberg, LP, as of Dec. 31, 2012 10 For US Institutional Investor Use Only Not For Use With The Public
What about inflation? Source: Bloomberg, LP, as of Dec. 31, 2012 11 For US Institutional Investor Use Only Not For Use With The Public
An abundance of money Source: Federal Reserve Bank of St. Louis, as of Dec. 31, 2012 12 For US Institutional Investor Use Only Not For Use With The Public
An abundance of money Source: Federal Reserve Bank of St. Louis, as of Dec. 31, 2012 13 For US Institutional Investor Use Only Not For Use With The Public
Inflation Threat? V= GDP Money Supply Source: Federal Reserve Bank of St. Louis, as of Dec. 31, 2012 14 For US Institutional Investor Use Only Not For Use With The Public
Bank balance sheets back to good health Source: Federal Reserve Bank of St. Louis, as of Dec. 31, 2012 15 For US Institutional Investor Use Only Not For Use With The Public
maybe too healthy? Source: Federal Reserve Bank of St. Louis, as of Dec. 31, 2012 16 For US Institutional Investor Use Only Not For Use With The Public
Lending has still not fully recovered Source: Federal Reserve Bank of St. Louis, as of Dec. 31, 2012 17 For US Institutional Investor Use Only Not For Use With The Public
What Does This Mean For Investors? High Credit Risk Yield Low Short Duration Long For Illustrative Purposes Only. 18 For US Institutional Investor Use Only Not For Use With The Public
Investors dilemma Inflation Rising Rates Weak GDP Growth Low Rates For Illustrative Purposes Only. 19 For US Institutional Investor Use Only Not For Use With The Public
Senior Loans: A different form of debt capital Senior Secured Floating Rate In the event of financial hardship, senior loans have first claim to repayment. Company assets are typically pledged as collateral to secure senior loans. The coupons on senior loans are generally in addition to LIBOR. Priority of Repayment in the Event of Default: High Priority Senior Secured Loans Bonds Preferred Stock Common Stock Low Priority Average Ultimate Recovery Rates: 1987 2011 Prices Fixed-Rate Bonds Floating-Rate Loans Interest Rates For illustrative purposes only. Does not represent actual prices. Loans 80.3% Subordinated Bonds 28.7% Source: Moody s Annual Default Study, February 2012 Senior Loans are typically non investment grade, or high yield, securities (junk bonds). High yield securities have additional risks, including interest rate changes, decreased market liquidity and a larger amount of outstanding debt than investment grade securities. Investors of senior loans may not be able to enforce all rights and remedies under the loan including any associated collateral.if the loan is foreclosed, the investor may become part owner of any collateral and may bear the costs and liabilities of owning and disposing of the collateral. 20 For US Institutional Investor Use Only Not For Use With The Public
Senior Loans: A different form of debt capital Floating Rate Notes Senior Loans High Yield Bonds Floating Rate? Yes Yes No Senior in Capital Structure? No Yes No Secured? No Yes No Below Investment Grade? No Yes Yes Yield Spectrum Lower Middle Higher 21 For US Institutional Investor Use Only Not For Use With The Public
Current state of the loan market: Source: Bloomberg LP, as of December 31, 2012. See disclosure for list of indexes used. 22 For US Institutional Investor Use Only Not For Use With The Public
Current state of the loan market: Source: Bloomberg LP, as of Dec. 31, 2012 23 For US Institutional Investor Use Only Not For Use With The Public
Senior Loans vs. High Yield: 2008 3-Month LIBOR in 2008: January 1: 4.70% December 31: 1.43% 24 Source: Bloomberg LP, as of Dec. 31, 2012 For US Institutional Investor Use Only Not For Use With The Public
Using senior loans to reduce interest rate risk Loans BABS BABS & Loans Annualized Return 8.7% 6.2% 7.5% Standard Deviation 4.3% 8.5% 4.5% Max Drawdown -7.2% -8.8% -2.7% Average Coupon Yield 3.8% 5.7% 4.8% Correlations to: Barclays Agg -0.07 0.65 0.53 S&P 500 0.41-0.49-0.22 BABs -0.03 Source: Bloomberg L.P., April 30, 2009 Nov. 30, 2012. BABs measured by BofA ML Build America Bond Index. Loans represented by S&P/LSTA Leveraged Loan Index. For illustrative purposes only. Does not reflect the results of any PowerShares Product. An investment cannot be made in an index. Past performance does not guarantee future results. 25 For US Institutional Investor Use Only Not For Use With The Public
PowerShares Senior Loan Portfolio Fund Details: Ticker: BKLN Underlying Index: S&P/LSTA U.S Leveraged Loan 100 Index Listing Exchange: NYSE Arca Inception Date: March 3, 2011 Net Expense Ratio: 0.76% Creation Unit Size: 100,000 shares Creation/Redemption: Cash Distribution Frequency: Monthly Management: Passive/Sampled 26 For US Institutional Investor Use Only Not For Use With The Public
PowerShares Senior Loan Portfolio Fund Stats: AUM: 90-day ADTV $1.5B 1 million shares ($25M) 90-day bid/ask spread: $0.01 (0.05%) 90-day inflow: $571M Advisor: As part of Invesco, PowerShares is able to leverage theexpertise of BKLN s sub-advisor, Invesco Senior Secured Management, Inc. (ISSM): $16B AUM Global team of 39 experienced professionals Proprietary systems built for senior loan asset class Source: Bloomberg LP, ArcaVision as of Dec. 31, 2012 27 FOR U.S. INSTITUTIONAL INVESTOR USE ONLY NOT FOR USE WITH THE PUBLIC
Emerging Market Bonds GDP Growth (based on PPP): Return per unit of risk: 1 2 Correlation to Emerging Market Debt EM Equities High Yield Bonds Dev'd Mkt Sov Bonds Corporate Bonds US Agg Bonds US Treasuries Commodities US Equities Int l Equities 0.28 0.58 0.58 0.79 0.58 0.28 0.29 0.58 0.64 1 DB Emerging Market USD Liquid Balanced Index 2 MSCI Emerging Markets Index Sources: Bloomberg LP, IMF, 10 years ended Dec. 31, 2012. An investor cannot invest directly in an index. Index returns donot represent Fund returns. The indexes do not charge management fees or brokerage expenses. Past performance is not indicative of future results. 28 For US Institutional Investor Use Only Not For Use With The Public
PowerShares Emerging Markets Bond Portfolios PowerShares Emerging Markets Sovereign Debt Portfoliois the original emerging market bond ETF. It seeks investment results that generally correspond (before fees and expenses) to the price and yield performance of the DB Emerging Market USD Liquid Balanced Index. PowerShares Fundamental Emerging Markets Local Debt Portfoliois the first fundamentally weighted emerging market bond ETF. It seeks investment results that generally correspond (before fees and expenses) to the price and yield performance of the Citi RAFI Sovereign Emerging Markets Local Currency Bond Index Master. Ticker: PCY Weighting: Equal country weight Expense Ratio: 0.50% Inception Date: October 11, 2007 AUM: $3 billion Ticker: PFEM Weighting: Fundamental Expense Ratio: 0.50% Inception Date: January 31, 2013 Source: Invesco PowerShares, as of Dec. 31, 2012 29 For US Institutional Investor Use Only Not For Use With The Public
Indexes used to measure fixed income performance and characteristics: EM Debt BofA ML USD Emerging Market Sovereign Plus High Yield BofA ML US High Yield Master II Index US Credit BofA ML U.S. Corporate Master MBS BofA ML Mortgage Master Index Treasury BofA ML U.S. Treasury Master TIPS BofA ML All Maturity US Inflation-Linked Government Index Loans S&P/LSTA Leveraged Loan Index Int'l Treas BofA ML Global Government Bond Index II, Excl. U.S. U.S. Agg BofA ML Domestic Master BKLN risk information The Fund s use of a representative sampling approach will result in its holding a smaller number of securities than are in the underlyingindex, and may be subject to greater volatility. The Fund is considered non-diversified and may be subject to greater risks than a diversified fund. Investments focused in a particular industry are subject to greater risk, and are more greatly impacted by market volatility than more diversified investments. The Fund may invest in non-investment grade, or high-yield, securities (junk bonds). High-yield securities have additional risks, including interest rate changes, decreased market liquidity and a larger amount of outstanding debt than investment grade securities. The Fund currently intends 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. Investments in loans are subject to interest rate risk and credit risk. Interest rate risk refers to fluctuations in the value of a loan resulting from changes in the general level of interest rates. Credit risk refers to the possibility that the borrower of a loan will be unable and/or unwilling to make timelyinterest payments and/or repay the principal on its obligation. There is no organized exchange on which loans are traded and reliable market quotations may not be readily available. As the purchaser of a loan assignment, the Fund typically succeeds to all assigning institution rights and obligations and becomes a lender under the credit agreement with respect to the debt obligation. However, the Fund may not be able to enforce all rights and remedies under the loan including any associated collateral. If the loan is foreclosed, the Fund may become part owner of any collateral and may bear the costs and liabilities of owning and disposing of the collateral. The Fund may be required to pass on to a purchaser that buys a loan from the Fund a portion of fees it is entitled to under the loan. In connection with purchasing loan participations, the Fund will have no right to enforce borrower compliance with the terms of the loan agreement, nor any rights of set-off against the borrower, and the Fund may not benefit from any collateral supporting the loan. Consequently, the Fund will be subject to the credit risk of both the borrower andthe lender that is selling the participation. In the event of the insolvency of the lender selling a participation, the Fund may be treated as the lender s general creditor and may not benefit from any set-off between the lender and the borrower. Proceeds from a current investment of the Fund, both interest payments and principal payments, may be reinvested in instruments that offer lower yields than the current investment due in part to market conditions and the interest rate environment at the time of reinvestment. The Fund may invest all or a portion of its assets in loans of non-u.s. borrowers. Loans of non-u.s. borrowers have additional risks, including decreased market liquidity, political instability and taxation by foreign governments. 30 For US Institutional Investor Use Only Not For Use With The Public
PFEM risk information The fund may invest in debt securities, such as notes and bonds,which carry interest rate and credit risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. Credit risk is the risk of loss on an investment due to the deterioration of an issuer's financial health. Securities that have longer maturities are subject to greater risks, and are more greatly impacted by market volatility, than a fund investing solely in shorter term securities. High-yield securities have additional risks, including interest-rate changes, decreased market liquidity and a larger amount of outstanding debt than investment-grade securities. The Fund s underlying securities may be subject to call risk, which may result in the Fund having to reinvest the proceeds at lower interest rates, resulting in a decline in the Fund s income. The Fund may invest in illiquid securities, resulting in a decline of the Fund s returns. 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 unableor 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. The Fund invests in the bonds of governments located in emergingmarket countries and much of the income received by the Fund will be in foreign currencies. Because the Fund s net asset value ( NAV ) is determined in U.S. dollars, the Fund s NAV could decline if the currency of the non-u.s. markets in which the Fund invests depreciate against the U.S. dollar, even if the value of the Fund s holdings, measured in the foreign currencies, increases. Global bonds are subject to the same risks as other debt issues,notably credit risk, market risk, interest rate risk and liquidity risk. Investments in the securities of non-u.s. issuers involve risks beyond those associated with investments in U.S. securities, including greater market volatility, theavailability of less reliable financial information, higher transactional costs,taxation by foreign governments, decreased market liquidity andpolitical instability.investment in securities in emerging market countries involves risks not associated with investments in securities in developed countries. Foreign securities have additional risks, including exchange-rate changes, decreased market liquidity, political instability and taxation by foreign governments. The Fund is considered non-diversified and may be subject to greater risks than a diversified fund. 31 For US Institutional Investor Use Only Not For Use With The Public
PCY risk information The fund may invest in debt securities, such as notes and bonds,which carry interest rate and credit risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. Credit risk is the risk of loss on an investment due to the deterioration of an issuer's financial health. Securities that have longer maturities are subject to greater risks, and are more greatly impacted by market volatility, than a fund investing solely in shorter term securities. High-yield securities have additional risks, including interest-rate changes, decreased market liquidity and a larger amount of outstanding debt than investment-grade securities. The Fund s underlying securities may be subject to call risk, which may result in the Fund having to reinvest the proceeds at lower interest rates, resulting in a decline in the Fund s income. The Fund may invest in illiquid securities, resulting in a decline of the Fund s returns. 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 unableor 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. Global bonds are subject to the same risks as other debt issues,notably credit risk, market risk, interest rate risk and liquidity risk. Investments in the securities of non-u.s. issuers involve risks beyond those associated with investments in U.S. securities, including greater market volatility, theavailability of less reliable financial information, higher transactional costs,taxation by foreign governments, decreased market liquidity andpolitical instability.investment in securities in emerging market countries involves risks not associated with investments in securities in developed countries. Foreign securities have additional risks, including exchange-rate changes, decreased market liquidity, political instability and taxation by foreign governments. The Fund is considered non-diversified and may be subject to greater risks than a diversified fund. 32 For US Institutional Investor Use Only Not For Use With The Public
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. Municipal securities can be significantly affected by political changes as well as uncertainties in the municipal market related to taxation, legislative changes or the rights of municipal security holders. Because many securities are issued to finance similar projects, especially those relating to education, health care, transportation and utilities, conditions in those sectors can affect the overall municipal market. In addition, changes in the financial condition of an individual municipal insurer can affect the overall municipal market. There is no guarantee that municipalities will continue to take advantage of the BAB program in the future and there can be no assurance that BABs will be actively traded. Furthermore, under the American Recovery and Reinvestment Act of 2009, the ability of municipalities to issue BABs expired on Dec. 31, 2010. As a result, the number of available BABs in the market islimited. In addition, illiquidity of the BABs may negatively affect the value of the BABs. Invesco Distributors, Inc. is the distributor of the PowerSharesExchange-Traded Fund Trust, the PowerShares Exchange-Traded Fund Trust II, the PowerShares India Exchange-Traded Fund Trust and the PowerShares Actively Managed Exchange-Traded Fund Trust. Invesco Senior Secured Management, Inc. (ISSM) is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. PowerShares is a registered trademark of Invesco PowerShares Capital Management LLC. ISSM, Invesco PowerShares Capital Management LLC (Invesco PowerShares) and Invesco Distributors, Inc. are indirect, whollyowned subsidiaries of Invesco Ltd. An investor should consider the Funds investment objectives, risks, charges and expenses carefully before investing. For this and more complete information about the Funds call 800 983 0903 or visit invescopowershares.com for a prospectus. Please read the prospectus carefully before investing. 33 For US Institutional Investor Use Only Not For Use With The Public