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The PowerShares Senior Loan Portfolio is the first senior loan exchange-traded fund (ETF) and seeks investment results that correspond (before fees and expenses) generally to the price and yield of the S&P/LSTA U.S. Leveraged Loan 100 Index (Index). The Fund will normally invest at least 80% of its total assets in the securities that comprise the Index. The Index is designed to track the market-weighted performance of the largest institutional leveraged loans based on market weightings, spreads and interest payments. The Fund may also invest up to 20% of its assets in closed-end funds that invest all or a portion of their assets in senior loans and in other liquid instruments such as high-yield securities.

The PowerShares Senior Loan Portfolio:

  • Is the first senior loan ETF.
  • Seeks to track the industry's leading benchmark.
  • Provides low cost,1 broad exposure to the senior loan market.
  • May help to mitigate a portfolio's interest rate risk.
  • Offers the benefits of the ETF structure including intra-day liquidity2 and transparency3.
  • Offers the potential for monthly income.

The S&P/LSTA U.S. Leveraged Loan 100 Index

The S&P/LSTA U.S. Leveraged Loan 100 Index is a market value-weighted index designed to measure the performance of the U.S. leveraged loan market.

The Underlying Index consists of 100 loan facilities drawn from a larger benchmark - the S&P/LSTA (Loan Syndic ations and Trading Association®) Leveraged Loan Index (LLI), which covers more than 1,100 facilities.

The S&P/LSTA U.S. Leveraged Loan 100 Index is designed to reflect the performance of the largest loan facilities in the leveraged loan market. It mirrors the market-weighted performance of the largest institutional leveraged loans based upon market weightings, spreads and interest payments.

Senior loans (also called leveraged loans, syndicated loans, bank loans or floating rate loans) are privately arranged debt instruments that provide capital to a company (usually with a below-investment-grade rating) and are issued by a bank or financial institution and syndicated by a group of banks and institutional investors.

Senior loans are typically issued in conjunction with leveraged buyouts, mergers or acquisitions. A company's payment of interest and repayment of principal on its loan is usually contractually senior to any other form of debt or equity.

Within a company's capital structure, senior loans are typically:

  • Senior to the claims of other creditors.
  • Protected by performance and leverage based covenants.
  • Secured by collateral, such as property, inventory, equipment and intangibles.
The rate paid by a senior secured floating rate loan "floats" at a pre-determined spread over a reference rate, usually the U.S. dollar London Interbank Offered Rate (LIBOR). For example, if three-month LIBOR were yielding 2.50%, a senior secured floating rate loan with a spread of 3.00% would yield LIBOR + 3.00% 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.

Senior loans offer the potential to diversify a fixed-income portfolio through both their distinct structure and their historically low correlation to other fixed-income investments.

Senior Loans: Relationship to Other Segments of the Fixed-Income Market

(S&P/LSTA Leveraged Loan Index)

10 Years Ended Dec. 31 2012 Correlation to Beta vs.
Barclays U.S. Aggregate -0.03 -0.06
Barclays U.S. Government: Intermediate -0.42 .1.10
Barclays Capital U.S. Municipal Bond 0.28 0.50
Barclays U.S. Treasury: U.S. TIPS 0.20 0.24
Barclays U.S. Agg Corporate 0.37 0.48
Consumer Price Index 0.20 0.84
S&P 500 Index 0.59 0.32

Sources: Bloomberg and Zephyr Style Advisor, as of December 31, 2012 As of the Fund's inception, the index had approximately 28 months of live history. The S&P/LSTA Leveraged Loan Index had more historical data and was used in order to provide more meaningful longer term comparisons.

Why Invesco PowerShares?

Invesco Senior Secured Management, Inc.

As part of Invesco, Invesco PowerShares is able to leverage the wealth of expertise of the Fund's sub-adviser, Invesco Senior Secured Management, Inc. (ISSM).

With more than U.S. $27 billion under management,4 ISSM is one of the largest institutional managers of senior loans. ISSM developed one of the first institutional senior loan platforms, and ultimately helped foster the maturation of the syndicated senior loan market. ISSM's senior loan platform is also supported by global resources of Invesco, Ltd., one of the world's largest asset management companies.

1 Since ordinary brokerage commissions may apply for each buy and sell transaction, frequent trading activity may increase the cost of ETFs.

2 Shares are not individually redeemable. Shares may be acquired from and tendered to the Fund in creation unit aggregations only, typically consisting of 100,000 shares.

3 ETFs disclose their full portfolio holdings daily.

4 Source: ISSM, as of December 31, 2013.
Invesco Senior Secured Management, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. It is an indirect, wholly owned subsidiary of Invesco Ltd.

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.

A closed-end fund is a publicly traded investment company that raises capital by issuing shares through an initial public offering. The fund is then listed and traded like a stock on a stock exchange.

Correlation indicates the degree of similarity between the historical performance of two investments.

Beta is a measure of relative risk and is the slope of regression.

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 100,000 shares.

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 timely interest 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.

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.

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 market value of the shares of closed-end investment companies may differ from their NAV. In addition, the shares of closed-end investment companies frequently trade at a discount to their NAV. As an investor in closed-end investment companies, the Fund would bear its ratable share of those closed-end investment companies' fees and expenses, including its investment advisory and administration fees, while continuing to pay its own advisory and administration fees and other expenses. As a result, shareholders will be absorbing duplicate levels of fees with respect to investments in closed-end investment companies.

The Fund's use of a representative sampling approach will result in its holding a smaller number of loans than are in the Underlying Index, and may subject the Fund to greater volatility.

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.

The Fund is non-diversified and can invest a greater portion of its assets in securities of individual issuers 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.

Covenants carry counterparty risk and do not guarantee against loss of principal.

The Barclays Capital U.S. Aggregate, Barclays Capital U.S. Government: Intermediate and Barclays Capital U.S. Municipal Bond Indexes are unmanaged indexes considered representative of the U.S. investment-grade, fixed-rate bond market, intermediate maturity U.S. government securities market and the U.S. municipal bond market, respectively.The BofA Merrill Lynch U.S. Corporate Master Index is an unmanaged index of corporate bonds considered representative of the investment-grade corporate bond market.The Barclays Capital U.S. Treasury: U.S. TIPS is an unmanaged index considered representative of the U.S. Treasury inflation protected securities market. The S&P/LSTA Leveraged Loan Index is designed to mirror the investable universe of the $U.S.-denominated leveraged loan market. The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.