taxable account. These costs, which are not reflected in Total Annual Fund Operating Expenses or in the example, may affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 58% of the average value of its portfolio, excluding the value of portfolio securities received or delivered as a result of the Fund’s in-kind creations and redemptions.

Principal Investment Strategies

The Fund seeks to achieve its investment objective by using a quantitative, rules-based strategy designed to provide returns that correspond to the performance of the S&P 500 ^® Dynamic VEQTOR Index (the “Benchmark”). The Fund, in accordance with strategy allocation rules provided by Standard & Poor’s (“S&P”), invests in a combination of (i) equity securities contained in the S&P 500 ^® Index and that are listed on a U.S. securities exchange, (ii) Chicago Board Options Exchange Volatility Index (“VIX Index”) related instruments, such as listed VIX Index futures contracts that reflect exposure to the S&P 500 ^® VIX Short Term Futures Index (“VIX Futures Index”), and (iii) money market instruments, cash and cash equivalents. Generally, futures contracts are a type of derivative whose value depends upon, or is derived from, the value of an underlying asset, reference rate, or index. The Fund’s use of futures contracts are underpinned by investments in short-term, high quality U.S. Treasury Securities, money market instruments, cash, and cash equivalent securities to provide liquidity, collateralize its futures contracts, or to track the Benchmark during times when the Benchmark moves its entire allocation to cash. In addition to its investments in the components of the Benchmark, the Fund also may invest in other VIX Index related instruments, including ETFs and exchange-traded notes (“ETNs”) that are listed on a U.S. securities exchange and that provide exposure to the VIX Index (collectively with VIX Index futures contracts, the “VIX Index Related Instruments”) and U.S. listed futures contracts that track the S&P 500 ^® Index (“S&P 500 Futures”) and are listed on the Chicago Mercantile Exchange (“CME”).

The Benchmark is comprised of up to three types of components at any given time: an equity component, represented by the S&P 500 ^® Index; a volatility component, represented by the VIX Futures Index; and cash. The VIX Futures Index measures the return from a long position in the VIX Index futures contracts traded on the Chicago Board Options Exchange (“CBOE”). The Benchmark’s allocation to the VIX Futures Index serves as an implied volatility hedge, as volatility historically tends to correlate negatively to the performance of the U.S. equity markets (i.e., rapid declines in the performance of the U.S. equity markets generally are associated with particularly high volatility in such markets). “Implied volatility” is a measure of the expected volatility of the S&P 500 ^® Index that is reflected in the value of the VIX Index. The VIX Index is a theoretical calculation and cannot be traded. The VIX Index measures the 30-day forward volatility of the S&P 500 ^® Index as calculated based on the prices of certain put and call options on the S&P 500 ^® Index.

The allocation among the Fund’s investments generally approximate the allocation among the components of the Benchmark. During periods of low volatility, a greater portion of the Fund’s assets will be invested in equity securities, and during periods of increased volatility, a greater portion of the Fund’s assets will be

invested in VIX Index Related Instruments. Although the Fund seeks returns comparable to the returns of the Benchmark, the Fund can have a higher or lower exposure to any component within the Benchmark at any time.

The U.S. Index Committee of S&P (the “Committee”), a division of The McGraw-Hill Companies, Inc., maintains the Benchmark. The Committee meets monthly. At each meeting, the Committee reviews pending corporate actions that may affect Benchmark constituents, statistics comparing the composition of the Benchmark to the market, companies that are being considered as candidates for addition to the Benchmark, and any significant market events. In addition, the Committee may revise the Benchmark’s policy covering rules for selecting companies, treatment of dividends, share counts or other matters.

Principal Risks of Investing in the Fund

The following summarizes the principal risks of the Fund.

The Shares will change in value, and you could lose money by investing in the Fund. The Fund may not achieve its investment objective.

Management Risk. The Fund is subject to management risk because it is an actively managed portfolio. In managing the Fund’s portfolio holdings, the Adviser applies investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee that these actions will produce the desired results.

Equity Risk. Equity risk is the risk that the value of equity securities, including common stocks, may fall due to both changes in general economic conditions that impact the market as a whole, as well as factors that directly relate to a specific company or its industry. Such general economic conditions include changes in interest rates, periods of market turbulence or instability, or general and prolonged periods of economic decline and cyclical change. It is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds. In addition, equity risk includes the risk that investor sentiment toward particular industries will become negative. The value of a company’s common stock may fall solely because of factors, such as an increase in production costs, that negatively impact other companies in the same region, industry or sector of the market. A company’s common stock also may decline significantly in price over a short period of time due to factors specific to that company, including decisions made by its management or lower demand for the company’s products or services. For example, an adverse event, such as an unfavorable earnings report or the failure to make anticipated dividend payments, may depress the value of common stock.

VIX Index Risk. The CBOE can make methodological changes to the calculation of the VIX Index that could affect the value of the futures contracts on the VIX Index. There can be no assurance that the CBOE will not change the VIX Index calculation methodology in a way that may affect the value of your investment. Additionally, the CBOE may alter, discontinue or suspend calculation or dissemination of the VIX Index and/or the exercise settlement value. Any of these actions could adversely affect the value of your investment.

 

Futures Contract Risk. The Fund may enter into U.S. listed futures contracts on the VIX Index and U.S. listed futures contracts on the S&P 500 ^® Index to simulate full investment in the Benchmark, to facilitate trading or to reduce transaction costs. The Fund will not use futures for speculative purposes. Unlike equities, which typically entitle the holder to a continuing stake in a corporation, futures contracts normally specify a certain date for delivery of the underlying asset for settlement in cash based on the level of the underlying asset. Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of a specific instrument or index at a specified future time and at a specified price. Stock index contracts are futures contracts based on indices that reflect the market value of common stock of the firms included in the indices. The clearing exchange is deemed to be the counterparty to the Fund, and consequently investments in stock index futures contracts on the S&P 500 ^® Index potentially expose the Fund to counterparty risk with respect to an exchange (i.e., the risk that an exchange or its affiliates will be unable to perform its obligations under the terms of the futures contracts or otherwise defaults).

As the futures contracts on the VIX Index or an S&P 500 Futures approach expiration, they may be replaced by similar contracts that have a later expiration. This process is referred to as “rolling.” If the market for these contracts is in “contango,” meaning that the prices of futures contracts in the nearer months are lower than the price of contracts in the distant months, the sale of the near-term month contract would be at a lower price than the longer-term contract, resulting in a cost to “roll” the futures contract. The actual realization of a potential roll cost will depend on the difference in price of the near and distant contracts. The contracts included in the VIX Index historically have traded in “contango” markets, resulting in a roll cost, which could adversely affect the value of the Shares. At any given time, the Fund’s investment in VIX Index Related Instruments may not correspond identically to the direction of the VIX Index.

Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of a stock index future and the movement in the underlying index. In the event of adverse price movements, the Fund would be required to make daily cash payments to maintain its required margin.

The Fund also must segregate liquid assets or enter into off-setting positions to “cover” open positions in futures contracts. For futures contracts that do not cash settle, the Fund must segregate liquid assets equal to the full notional value of the futures contracts while the positions are open. For futures contracts that do cash settle, the Fund is permitted to set aside liquid assets in an amount equal to the Fund’s daily marked-to-market net obligations (i.e., the Fund’s daily net liability) under the futures contract, if any, rather than their full notional value.

By investing in the Futures, the Fund also is subject to capacity constraints and liquidity risks. In particular, the market for the Futures is not unlimited, and as the Fund grows in size, the supply for the Futures may not be sufficient to meet the Fund’s investment demands. There is no guarantee that the market for the Futures will grow in an amount sufficient to meet those

investment demands. In addition, futures contracts may be subject to contractual or other restrictions on resale and may lack readily available markets for resale.

Risk of Investing in ETFs. An ETF is a fund that is listed and traded on a U.S. stock exchange. Because the Fund may invest in ETFs, its investment performance may depend on the investment performance of the underlying ETF in which it invests. An investment in an ETF is subject to the risks associated with the ETF. The Fund will pay indirectly a proportional share of the fees and expenses of the ETFs in which it invests (including operating expenses and management fees of the ETF), while continuing to pay its own management fee to the Adviser. As a result, shareholders will absorb duplicate levels of fees with respect to the Fund’s investments in ETFs.

Risks of Investing in ETNs. ETNs are unsecured, unsubordinated debt securities of an issuer that are listed and traded on a U.S. stock exchange. An ETN’s returns generally are linked to the performance of a particular market benchmark or strategy minus applicable fees. ETNs do not provide principal protection and may or may not make periodic coupon payments. ETNs are subject to credit risk, and the value of the ETN may drop due to a downgrade in the issuer’s credit rating, despite the underlying market benchmark or strategy remaining unchanged. The value of an ETN also may be influenced by time to maturity, level of supply and demand for the ETN, volatility and lack of liquidity in underlying assets, changes in the applicable interest rates, changes in the issuer’s credit rating, and economic, legal, political, or geographic events that affect the referenced underlying asset.

Cash Transaction Risk. Unlike most ETFs, 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 Shares may be less tax efficient than investments in conventional ETFs.

Volatility Risk. The Fund seeks to achieve positive total returns in rising or falling markets. Significant short-term price movements could adversely impact the performance of the Fund. Market conditions in which significant price movements develop, but then repeatedly reverse, could cause substantial losses due to prices moving against the Fund’s long or short positions (which are based on prior trends). The performance of the Fund is based in part on the prices of one or more of the VIX Index Related Instruments in which the Fund invests. Each of the equity securities held by the Fund and the VIX Index Related Instruments are affected by a variety of factors and may change unpredictably, affecting the value of such equity securities and VIX Index Related Instruments and, consequently, the value of the Shares.

Liquidity Risk. The Fund will invest in derivatives and other instruments that may be less liquid than other types of investments. Investments that are less liquid or that trade less can be more difficult or more costly to buy, or to sell, compared to other more liquid or active investments. This liquidity risk is a factor of the trading volume of a particular investment, as well as the size and liquidity of the market for such an investment. The derivatives in which the Fund invests may not always be liquid. This could have a negative effect on the Fund’s ability to achieve its investment objective and may result in losses to Fund shareholders.

 

Interest Rate Risk. The Fund’s investments in U.S. government securities will change in value in response to interest rate changes and other factors, such as the perception of an issuer’s creditworthiness. For example, the value of fixed-income securities generally will decrease when interest rates rise, which may cause the value of the Fund to decrease. In addition, the Fund’s investments in fixed-income securities with longer maturities will fluctuate more in response to interest rate changes.

Market Risk. Securities held by the Fund are subject to market fluctuations. You should anticipate that the value of the shares will decline, more or less, in correlation with any decline in value of the securities in the Fund’s portfolio.

Market Trading Risk. The Fund faces numerous market trading risks, including the potential lack of an active market for the Shares, losses from trading in secondary markets, and disruption in the creation/redemption process of the Fund. Additionally, the trading prices of the equity securities the Fund holds and VIX Index Related Instruments in which the Fund invests and other instruments fluctuate in response to a variety of factors, including events that impact the entire market or specific market segments, such as political, market and economic developments. In addition, fluctuations in the VIX Index itself may indirectly affect the price of equity securities held by the Fund. Any of these factors may lead to the Shares trading at a premium or discount to the Fund’s net asset value (“NAV”). As a result, an investor could lose money over short or even long periods.

Non-Diversified Fund Risk. Because the Fund is non-diversified and can invest a greater portion of its assets in securities of individual issuers than a diversified fund, changes in the market value of a single investment could cause greater fluctuations in Share price than would occur in a diversified fund. This may increase the Fund’s volatility and cause the performance of a relatively small number of issuers to have a greater impact on the Fund’s performance.

Issuer-Specific Changes. The value of an individual security or particular type of security may be more volatile than the market as a whole and may perform differently from the value of the market as a whole.

Commodity Pool Risk. The Fund’s investments in futures contracts has caused it to be deemed a commodity pool, thereby subjecting the Fund to regulation under the Commodity Exchange Act and Commodity Futures Trading Commission (“CFTC”) rules. The Adviser is registered as a Commodity Pool Operator (“CPO”), and the Fund is operated in accordance with CFTC rules, as well as the rules that apply to registered investment companies. Registration as a CPO subjects the Adviser to additional laws, regulations and enforcement policies, all of which could increase compliance costs and may affect the operations and financial performance of funds whose adviser is required to register as a CPO. Registration as a commodity pool may have negative effects on the ability of the Fund to engage in its planned investment program.

Tax Risk. The Fund will gain most of its exposure to the futures markets by entering into VIX Index futures (and, to a lesser extent, S&P 500 ^® Futures). To qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of

1986, as amended (“RIC”), the Fund must, among other requirements, meet a certain qualifying income test each taxable year, including with respect to its investments in futures. The Fund has received a private letter ruling from the Internal Revenue Service (“IRS”) that income it derives from VIX Index futures contracts will constitute qualifying income for purposes of that test. If the IRS were to later determine that the income that the Fund derives from the Futures did not constitute qualifying income, and if that position were upheld, the Fund likely would be required to reduce its exposure to such investments in order to maintain its qualification as a RIC, which may result in difficulty in implementing its investment strategies.

Portfolio Turnover Risk. The Fund may engage in frequent trading of its portfolio securities in connection with the rebalancing or adjustment of the Underlying Index. A portfolio turnover rate of 200%, for example, is equivalent to the Fund buying and selling all of its securities two times during the course of a year. A high portfolio turnover rate (such as 100% or more) could result in high brokerage costs for the Fund. While a high portfolio turnover rate can result in an increase in taxable capital gains distributions to the Fund’s shareholders, the Fund will seek to utilize the in-kind creation and redemption mechanism to minimize capital gains to the extent possible.

Performance

The bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before and after taxes). The table provides an indication of the risks of investing in the Fund by showing how the Fund’s total return has varied from year to year and by showing how the Fund’s average annual total returns compared with a broad measure of market performance and additional indexes with characteristics relevant to the Fund. The Fund’s performance reflects any fee waiver and/or expense reimbursement, absent which performance would have been lower. Although the information shown in the bar chart and the table gives you some idea of the risks involved in investing in the Fund, the Fund’s past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future. Updated performance information is available online at www.InvescoPowerShares.com.

 

 

Annual Total Returns—Calendar Years

 

 

Best Quarter		Worst Quarter
4.90% (4th Quarter 2013)		(0.39)% (3rd Quarter 2013)

 

Average Annual Total Returns for the Periods Ended December 31, 2014

After-tax returns in the table below are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold Shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.

 

		1 Year				Since Inception (12/06/12)
Return Before Taxes			5.04	%			8.63	%
Return After Taxes on Distributions			2.72	%			7.05	%
Return After Taxes on Distributions and Sale of Fund Shares			2.92	%			5.93	%
S&P 500 ® Dynamic VEQTOR Index (reflects no deduction for fees, expenses or taxes)			5.77	%			9.78	%
S&P 500 ® Index (reflects no deduction for fees, expenses or taxes)			13.69	%			22.46	%
HFRX Global Hedge Fund Index (reflects no deduction for fees, expenses or taxes)			(0.58	)%			3.26	%
U.S. Treasury Three-Month Treasury Bills Index (reflects no deduction for fees, expenses or taxes)			0.03	%			0.04	%

Management of the Fund

Investment Adviser. Invesco PowerShares Capital Management LLC (the “Adviser”).

Portfolio Managers. The following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:

 

Name		Title with Adviser/Trust		Date Began Managing the Fund
Peter Hubbard		Vice President and Director of Portfolio Management of the Adviser and Vice President of the Trust		Since Inception
Michael Jeanette		Vice President and Senior Portfolio Manager of the Adviser		October 2013
Kevin Baum		Vice President and Senior Portfolio Manager of the Adviser		February 2015
Theodore Samulowitz		Vice President and Portfolio Manager of the Adviser		Since Inception
Tony Seisser		Vice President and Portfolio Manager of the Adviser		February 2015
Brian Picken		Vice President and Portfolio Manager of the Adviser		October 2013

Purchase and Sale of Shares

The Fund will issue and redeem Shares at NAV only with authorized participants (“APs”) and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation Unit”), or multiples thereof (“Creation Unit Aggregations”), partially in exchange for cash and partially in exchange for the deposit or delivery of a

basket of securities. Except when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.

Individual Shares may be purchased and sold only on a national securities exchange through brokers. Shares are listed for trading on NYSE Arca, Inc. (“NYSE Arca” or the “Exchange”) and because the Shares will trade at market prices rather than NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less than NAV (at a discount).

Tax Information

The Fund’s distributions will generally be taxable, typically as either ordinary income or long-term capital gain. A sale of Shares may result in capital gain or loss.

 

 

Additional Information About the Funds’ Strategies and Risks

Principal Investment Strategies

PowerShares Active U.S. Real Estate Fund

PowerShares Active U.S. Real Estate Fund seeks to achieve its investment objective by investing, under normal market conditions, at least 80% of its assets in securities of companies that are principally engaged in the U.S. real estate industry and included within the FTSE NAREIT All Equity REITs Index. The Fund considers a company to be principally engaged in the U.S. real estate industry if it: (i) derives 50% of its revenues or profits from the ownership, leasing, construction, financing or sale of U.S. real estate; or (ii) has at least 50% of the value of its assets invested in U.S. real estate. The Fund plans to invest principally in REITs. Equity REITs pool investors’ funds for investments primarily in real estate properties or real estate-related loans (such as mortgages). The Fund also may invest in REOCs, as well as securities of other companies principally engaged in the U.S. real estate industry. REOCs are similar to REITs, except that REOCs reinvest their earnings into the business, rather than distributing them to unitholders like REITs.

The Fund structures and selects its investments primarily from a universe of securities that are included within the FTSE NAREIT All Equity REITs Index at the time of purchase. In constructing the portfolio, the Sub-Adviser analyzes quantitative and statistical metrics to identify attractively priced securities. The Sub-Adviser will consider selling or reducing a security position if: (i) the relative attractiveness of a security falls below desired levels, (ii) its quantitative risk/return profile changes significantly, or (iii) a more attractive investment opportunity is identified. The Sub-Adviser generally conducts the security and portfolio evaluation process monthly.

PowerShares S&P 500 ^® Downside Hedged Portfolio

PowerShares S&P 500 ^® Downside Hedged Portfolio seeks to achieve its investment objective by using a quantitative, rules-based strategy designed to provide returns that correspond to the performance of the Benchmark. The Fund, in accordance with strategy allocation rules provided by S&P, will invest in a combination of (i) equity securities contained in the S&P 500 ^® Index and that are listed on a U.S. securities exchange, (ii) listed VIX Index futures contracts that reflect exposure to the VIX Futures Index, and (iii) money market instruments, cash and cash equivalents. The Fund will invest in money market instruments, cash and cash equivalents to provide liquidity, collateralize its futures contracts, or to track the Benchmark during times when the Benchmark moves its entire allocation to cash. In addition to its investments in the components of the Benchmark, the Fund also may invest in other VIX Index Related Instruments and U.S. listed S&P 500 Futures that are listed on the CME.

The Benchmark is comprised of up to three types of components at any given time: an equity component, represented by the S&P 500 ^® Index; a volatility component, represented by the VIX Futures Index; and cash. The VIX Futures Index measures the return from a long position in the VIX Index futures contracts

traded on the CBOE. The Benchmark’s allocation to the VIX Futures Index serves as an implied volatility hedge, as volatility historically tends to correlate negatively to the performance of the U.S. equity markets (i.e., rapid declines in the performance of the U.S. equity markets generally are associated with particularly high volatility in such markets). “Implied volatility” is a measure of the expected volatility of the S&P 500 ^® Index that is reflected by the value of the VIX Index. Following S&P’s proprietary formula, under normal circumstances (i.e., times other than when the Benchmark’s stop-loss process (as described below) is triggered), the Benchmark is invested fully, with VIX Index futures constituting between 2.5% and 40% of the Benchmark and equity securities in the S&P 500 ^® Index composing the remainder. In the event losses on the Benchmark over the previous five business days are greater than 2%, the Benchmark’s stop-loss provision is triggered and the Benchmark moves its entire allocation to cash.

The Fund will attempt to allocate its investments in the components of the Benchmark to the same extent as the Benchmark’s allocation of those components. Accordingly, during periods of low volatility, a greater portion of the Fund’s assets will be invested in equity securities, and during periods of increased volatility, a greater portion of the Fund’s assets will be invested in VIX Index Related Instruments. Although the Fund seeks returns comparable to the returns of the Benchmark, the Fund will be actively managed and can have a higher or lower exposure to any component within the Benchmark at any time and also may invest in securities not included in the Benchmark, such as ETFs and ETNs that are listed on a U.S. securities exchange and that provide exposure to the VIX Index, and E-mini S&P 500 Futures that are listed on the CME.

The Committee maintains the Benchmark. The Committee meets monthly. At each meeting, the Committee reviews pending corporate actions that may affect Benchmark constituents, statistics comparing the composition of the Benchmark to the market, companies that are being considered as candidates for addition to the Benchmark, and any significant market events. In addition, the Committee may revise the Benchmark’s policy covering rules for selecting companies, treatment of dividends, share counts or other matters.

The VIX Index is a theoretical calculation and cannot be traded. The VIX Index is an index designed to measure the market price of volatility in large capitalization U.S. stocks over 30 days in the future and is calculated based on the prices of certain put and call options on the S&P 500 ^® Index. The VIX Index measures the premium paid by investors for certain options linked to the S&P 500 ^® Index. During periods of market instability, the implied volatility of the S&P 500 ^® Index typically increases and, consequently, the prices of options linked to the S&P 500 ^® Index typically increase (assuming all other relevant factors remain constant or have negligible changes). This, in turn, causes the level of the VIX Index to increase. Because the level of the VIX Index may increase in times of uncertainty, the VIX Index is known as the “fear gauge” of the broad U.S. equities market. The VIX Index historically has had negative correlations to the S&P 500 ^® Index.

 

Because the VIX Index is not a tangible item that can be purchased and sold directly, a futures contract on the VIX Index provides for the payment and receipt of cash based on the level of the VIX Index at settlement or liquidation of the contract. A futures contract provides for a specified settlement month in which the cash settlement is made or in which the underlying asset or financial instrument is to be delivered by the seller (whose position is therefore described as “short”) and acquired by the purchaser (whose position is therefore described as “long”). There is no purchase price paid or received on the purchase or sale of a futures contract. Instead, an amount of cash or cash equivalents must be deposited with the broker as “initial margin.” This amount varies based on the requirements imposed by the exchange clearing houses, but may be lower than 5% of the notional value of the contract. This margin deposit provides collateral for the obligations of the parties to the futures contract on the VIX Index.

Futures on the VIX Index were first launched for trading by the CBOE in 2004. Futures contracts on the VIX Index have expirations ranging from the near month consecutively out to the tenth month. Futures on the VIX Index provide investors the ability to invest in forward market volatility based on their view of the future direction or movement of the VIX Index. Investors who believe the implied volatility of the S&P 500 ^® Index will increase may buy VIX Index futures, expecting that the VIX Index will rise. Conversely, investors who believe that the implied volatility of the S&P 500 ^® Index will decline may sell VIX Index futures, expecting the VIX Index will fall.

PowerShares China A-Share Portfolio

PowerShares China A-Share Portfolio seeks to achieve its investment objective by providing exposure to the China A-Shares market using a quantitative, rules-based investment strategy. Under normal circumstances, the Fund will invest in a combination of (i) Futures on the Benchmark; (ii) Underlying ETFs that provide exposure to the largest companies within the China A-Shares market; and (iii) A-Shares, to the extent permissible under Chinese law. The Fund expects to invest its remaining assets in U.S. government securities, money market instruments, cash and cash equivalent securities (i.e., corporate commercial paper) to collateralize its investments in Futures or for other purposes. The Fund does not intend to use leverage. The Fund is actively managed by the Adviser and is not obligated to invest in the instruments included in the Benchmark or to track the performance of the Benchmark or of any index. Although the Fund seeks to exceed the performance of the Benchmark, there can be no assurance that the Fund will do so at any time.

The Benchmark is comprised of China’s domestic market A-Shares, which are securities issued by companies that are incorporated in mainland China and that trade in Renminbi on the Shanghai Stock Exchange or the Shenzhen Stock Exchange. The Benchmark includes the A-share securities of the largest 50 A-Share companies (as determined by market capitalization) listed on those two exchanges.

Because it currently cannot invest in A-Shares directly, the Fund will invest primarily in futures contracts on the Benchmark that provide exposure to the China A-Shares market. These futures contracts are listed on the Singapore Exchange. By investing in

the Futures, the Fund will have no direct ownership of the A-Shares of the companies included in the Benchmark, but the Fund will gain exposure to the performance of those companies.

The Fund will invest in the Futures as a significant part of its investment strategy. Generally, futures contracts are a type of derivative whose value depends upon, or is derived from, the value of an underlying asset, reference rate, or index. The Fund’s use of futures contracts will be underpinned by investments in short-term, high quality U.S. Treasury Securities, money market instruments, cash, and cash equivalent securities. The Futures will be used to simulate full investment in China A-Share securities.

Futures contracts on the Benchmark were first approved for investment by U.S. investors by the CFTC in 2012. The Futures have expirations at the two nearest consecutive months, and March, June, September and December on a 1-year cycle, and provide investors the ability to invest based on their view of the future direction or movement of the Benchmark. By investing in the Futures, the Fund will not invest directly in A-Shares of the companies included in the Benchmark; however, it will gain exposure to the performance of those companies.

The Chinese government strictly controls the ability of non-Chinese investors to invest in A-Shares, which are traded in Renminbi, the currency of China, and traditionally have been restricted to domestic Chinese investors and a limited pool of foreign investors, including foreign investors who have been approved as QFIIs by the CSRC and have obtained a QFII license and a quota. The Adviser currently is in the process of applying for a QFII license on behalf of the Fund for the Fund to invest directly in A-Shares. There are no assurances that such a QFII license will be granted, or that such a license, if granted, would permit the Fund to purchase A-Shares, or that the Adviser would invest the Fund, in an amount necessary to provide the Fund with sufficient A-Shares exposure.

The Adviser will continuously monitor the Fund’s holdings. If, in the future, the Adviser is unable to obtain a QFII license, the Fund is unable to invest in A-Shares, the Adviser concludes that direct investments in China A-Shares is not prudent, the market for the Futures presents liquidity constraints, or the Fund is unable to obtain sufficient exposure to the China A-Shares market, then the Adviser may propose changes to the Fund’s investment strategies to the Board of the Trust that it believes are in the best interests of the Fund and its shareholders, including changing the Fund’s investment strategy to invest in other eligible equity securities of Chinese companies. These securities may include China H Shares and China Red Chip shares. Any such proposed change would be contingent on the SEC first approving a rule change submitted by NYSE Arca as it relates to the Fund. There can be no guarantee that the SEC would approve such a rule change.

PowerShares Multi-Strategy Alternative Portfolio

PowerShares Multi-Strategy Alternative Portfolio seeks to achieve its investment objective by investing in a combination of equity securities, financial futures contracts, forward currency contracts and other securities. The Sub-Adviser selects investments for inclusion in the Fund’s portfolio with reference to the components of the Benchmark through a quantitative process that seeks to exceed the Benchmark’s performance.

 

The Benchmark Agent develops, maintains and sponsors the Benchmark, which includes a combination of Benchmark Strategies. The Fund will follow the Benchmark Strategies while seeking to outperform the Benchmark. The Benchmark Strategies are designed to capture non-traditional risk premia across equities, rates, currencies and volatility markets. A “risk premium” is the economic concept that an investor should receive a premium (that is, a higher expected return) for bearing risk. In other words, risk premium refers to the return that is expected for assuming a particular market risk.

The Benchmark Strategies may be categorized into three types: (1) Quantitative/Stylistic Strategies, (2) Volatility Risk Premium Strategies, and (3) Carry Strategies. Quantitative/Stylistic Strategies consist of rules-based methodologies designed to identify undervalued stocks or currencies using relative valuation, fundamental analysis and publicly-available market information (such as regulatory filings regarding the equity holdings of institutional investment managers). A Quantitative or Stylistic Strategy may take a long/short position to generate market neutral returns. Volatility Risk Premium Strategies consist of rules-based investment methodologies designed to capture the difference between implied (i.e., expected) and realized (i.e., actual) volatility that is often observed in equity and currency options markets. The volatility risk premium can be seen as compensation to option sellers for taking on potential risk of losses during periods when realized volatility increases suddenly. In addition, the volatility premium reflects the supply/demand imbalance often present in each asset class. Carry Strategies consist of rules-based methodologies designed to capture the forward rate bias and term premium often observed in currency, interest rate and equity volatility markets. Forward rate bias is the tendency for the markets to overestimate the amount of future price changes that might actually occur; the actual price movements tend to be smaller than the expectations as measured by forward rates.

The Fund’s equity exposure may be obtained through direct investment in equity securities or through investment in other investment companies. The equity securities in which the Fund may invest include common stocks of publicly traded companies of any capitalization. As part of the investment process described above, under normal market conditions, the Fund may take both long and short positions in equity securities, other investment companies, and equity index futures.

Additionally, the Fund may take long and short positions in various currencies by investing in currency forward and/or futures contracts. The Fund also may purchase and sell interest rate futures, including Eurodollar interest rate futures or Euro Euribor interest rate futures, and VIX Index futures contracts. The Fund will make significant use of financial futures contracts and forward contracts to gain exposure to various asset classes to generate returns, for hedging purposes (to offset risks associated with an investment, currency exposure, or market conditions), to adjust currency exposure, and to earn income and enhance returns. One or more of these instruments may have a leveraging effect on the Fund. This financial leverage occurs when the Fund’s market exposure exceeds the amounts actually invested. This leverage will vary over time and may at times be significant. However, any instance of financial leverage will be covered in accordance with guidance

promulgated by the SEC and its staff. The Fund does not presently intend to borrow money for investment purposes, and will not be operated in a manner designed to seek to return a multiple of the performance of the Benchmark or any index. However, the Fund may engage in frequent and active trading of portfolio securities and other instruments to achieve its investment objective.

The Fund also may have a substantial cash position due to margin and collateral requirements related to the Fund’s use of derivatives. The Fund may invest in U.S. government securities, money market instruments, cash and cash equivalents ( e.g. , corporate commercial paper) to provide liquidity and to collateralize its investments in derivative instruments. The instruments in which the Fund may invest include: (i) short-term obligations issued by the U.S. Government; (ii) short term negotiable obligations of commercial banks, fixed time deposits and bankers’ acceptances of U.S. and foreign banks and similar institutions; and (iii) commercial paper rated at the date of purchase “Prime-1” by Moody’s Investors Service, Inc. or “A-1+” or “A-1” by Standard & Poor’s or, if unrated, of comparable quality, as determined by the Sub-Adviser.

In addition, the Fund may invest in the securities of other investment companies (including money market funds) beyond the limits permitted under the 1940 Act, subject to certain terms and conditions set forth in an SEC exemptive order issued pursuant to Section 12(d)(1)(J) of the 1940 Act.

Temporary Defensive Strategies

Each Fund may take a temporary defensive position and hold a portion of its assets in cash or cash equivalents that may include unaffiliated money market funds if there are inadequate investment opportunities available due to adverse market, economic, political or other conditions, or atypical circumstances such as unusually large cash inflows or redemptions. Maintaining a larger proportion of the Fund’s assets in cash could negatively impact the Fund’s investment results in a period of rising market prices; conversely, it could reduce the magnitude of the Fund’s losses in the event of falling market prices and provide liquidity to make additional investments.

Principal Risks of Investing in the Funds

The following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing in the Fund” in each Fund’s “Summary Information” section.

Management Risk

The Funds are subject to management risk because they are actively managed portfolios. In managing the Funds’ portfolio securities, the Adviser and Sub-Adviser, as applicable, apply investment techniques and risk analyses in making investment decisions for the Funds, but there can be no guarantee that they will produce the desired results.

Equity Risk

Equity risk is the risk that the value of equity securities, including common stocks, will fall. The value of an equity security may fall due to changes in general economic conditions that impact the market as a whole and that are relatively unrelated to an issuer or

 

its industry. These conditions include changes in interest rates, specific periods of overall market turbulence or instability, or general and prolonged periods of economic decline and cyclical change. An issuer’s common stock in particular may be especially sensitive to, and more adversely affected by, these general movements in the stock market; it is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds.

In addition, equity risk includes the risk that investor sentiment toward, and perceptions regarding, particular industries or economic sectors will become negative. Price changes of equity securities may occur in a particular region, industry, or sector of the market, and as a result, the value of an issuer’s common stock may fall solely because of factors, such as increases in production costs, that negatively impact other companies in the same industry or in a number of different industries.

Equity risk also includes the financial risks of a specific company, including that the value of the company’s securities may fall as a result of factors directly relating to that company, such as decisions made by its management or lower demand for the company’s products or services. In particular, the common stock of a company may decline significantly in price over short periods of time. For example, an adverse event, such as an unfavorable earnings report, may depress the value of common stock; similarly, the common stock of an issuer may decline in price if the issuer fails to make anticipated dividend payments because, among other reasons, the issuer experiences a decline in its financial condition.

Industry Concentration Risk

By concentrating its investments in an industry or group of industries, a Fund may face more risks than if it were diversified broadly over numerous industries or sectors. Such industry-based risks, any of which may adversely affect the companies in which the Fund invests, may include, but are not limited to, the following: general economic conditions or cyclical market patterns that could negatively affect supply and demand in a particular industry; competition for resources, adverse labor relations, political or world events; obsolescence of technologies; and increased competition or new product introductions that may affect the profitability or viability of companies in an industry. In addition, at times, an industry or sector may be out of favor and underperform other industries or the market as a whole. Information about the Fund’s exposure to a particular industry is available in the Fund’s Annual and Semi-Annual Reports to Shareholders, as well as on its Forms N-Q as filed with the SEC.

Risks of Investing in the Real Estate Industry

PowerShares Active U.S. Real Estate Fund invests in securities issued by companies in the real estate industry. The risks associated with the real estate industry in general include fluctuations in the value of underlying properties; defaults by borrowers or tenants; market saturation; changes in general and local economic conditions; decreases in market rates for rents; increases in competition, property taxes, capital expenditures or operating expenses; and other economic, political or regulatory occurrences affecting the real estate industry.

 

REIT Risk

Each of PowerShares Active U.S. Real Estate Fund and PowerShares S&P 500 ^® Downside Hedged Portfolio may invest in REITs, although they will not invest directly in real estate, the REITs in which each Fund invests will be subject to risks inherent in the direct ownership of real estate. These risks include, among others: fluctuations in the value of the underlying properties; defaults by borrowers or tenants; market saturation; changes in general and local economic conditions; decreases in market rates for rents; changes in the availability, cost and terms of mortgage funds; increased competition, property taxes, capital expenditures, or operating expenses; and other occurrences, including the impact of changes in environmental laws, that may affect the real estate industry. In addition, REITs are subject to certain requirements under the federal tax law. A REIT that fails to comply with all those requirements may be subject to federal income taxation, or the federal tax requirement that a REIT distribute substantially all of its net income to its shareholders may result in a REIT’s having insufficient capital for future expenditures. The value of a REIT can depend on the structure of and cash flow generated by the REIT. Also, like mutual funds, REITs have expenses, including advisory and administration fees, that their shareholders pay. As a result, an investor will absorb duplicate levels of fees when a Fund invests in REITs. The failure of a company to qualify as a REIT could have adverse consequences for the Fund, including significantly reducing return to the Fund on its investment in such a company.

Mortgage REITs lend money to developers and owners of properties and invest primarily in mortgages and similar real estate interests. Mortgage REITs receive interest payments from the owners of the mortgaged properties. Accordingly, mortgage REITs are subject to the credit risk of the borrowers to whom they extend funds. Credit risk is the risk that the borrower will not be able to make interest and principal payments on the loan to the REIT when they are due. Mortgage REITs also are subject to the risk that the value of mortgaged properties may be less than the amounts owed on the properties. If a mortgage REIT is required to foreclose on a borrower, the amount recovered in connection with the foreclosure may be less than the amount owed to the mortgage REIT. Mortgage REITs are subject to significant interest rate risk. During periods when interest rates are declining, mortgages are often refinanced or prepaid. Refinancing or prepayment of mortgages may reduce the yield of mortgage REITs. When interest rates decline, however, the value of a REIT’s investment in fixed rate obligations can be expected to rise. Conversely, when interest rates rise, the value of a REIT’s investment in fixed rate obligations can be expected to decline. In addition, rising interest rates generally increase the costs of obtaining financing, which could cause the value of a mortgage REIT’s investments to decline. A REIT’s investment in adjustable rate obligations may react differently to interest rate changes than an investment in fixed rate obligations. As interest rates on adjustable rate mortgage loans are reset periodically, yields on a REIT’s investment in such loans will gradually align themselves to reflect changes in market interest rates, causing the value of such investments to fluctuate less dramatically in response to interest rate fluctuations than would investments in fixed rate obligations. Mortgage REITs typically use leverage (and in many cases, may be highly leveraged), which increases investment risk and could adversely

 

affect a REIT’s operations and market value in periods of rising interest rates, increased interest rate volatility, downturns in the economy and reductions in the availability of financing or deterioration in the conditions of the REIT’s mortgage-related assets.

Small and Medium Capitalization Company Risk

For PowerShares Active U.S. Real Estate Fund and PowerShares Multi-Strategy Alternative Portfolio, investing in securities of small and medium capitalization companies involves greater risk than customarily is associated with investing in larger, more established companies. These companies’ securities may be more volatile and less liquid than those of more established companies. These securities may have returns that vary, sometimes significantly, from the overall securities market. Often small and medium capitalization companies and the industries in which they focus are still evolving and, as a result, they may be more sensitive to changing market conditions.

VIX Index Risk

The CBOE can make methodological changes to the calculation of the VIX Index that could affect the value of the futures contracts on the VIX Index. There can be no assurance that the CBOE will not change the VIX Index calculation methodology. Additionally, the CBOE may alter, discontinue or suspend calculation or dissemination of the VIX Index and/or the exercise settlement value. Any of these actions could adversely affect the value of an investment in the PowerShares S&P 500 ^® Downside Hedged Portfolio and PowerShares Multi-Strategy Alternative Portfolio.

Futures Contract Risk

PowerShares S&P 500 ^® Downside Hedged Portfolio, PowerShares China A-Share Portfolio and PowerShares Multi-Strategy Alternative Portfolio may enter into futures contracts. Unlike equities, which typically entitle the holder to a continuing stake in a corporation, futures contracts normally specify a certain date for delivery of the underlying asset for settlement in cash based on the level of the underlying asset. As the futures contracts approach expiration, they may be replaced by similar contracts that have a later expiration. This process is referred to as “rolling.” If the market for these contracts is in “contango,” meaning that the prices of futures contracts in the nearer months are lower than the price of contracts in the distant months, the sale of the near-term month contract would be at a lower price than the longer-term contract, resulting in a cost to “roll” the futures contract. The actual realization of a potential roll cost will depend on the difference in price of the near and distant contracts.

Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of a stock index future and the movement in the underlying index. In the event of adverse price movements, each Fund would be required to make daily cash payments to maintain its required margin.

Each Fund must segregate liquid assets or enter into off-setting positions to “cover” open positions in futures contracts. For futures contracts that do not cash settle, each Fund must segregate liquid assets equal to the full notional value of the futures contracts while the positions are open. For futures contracts that

do cash settle, each Fund is permitted to set aside liquid assets in an amount equal to the Fund’s daily marked-to-market net obligations (i.e., the Fund’s daily net liability) under the futures contract, if any, rather than their full notional value.

Liquidity Risk

PowerShares S&P 500 ^® Downside Hedged Portfolio, PowerShares China A-Share Portfolio and PowerShares Multi-Strategy Alternative Portfolio will invest in derivatives and other instruments that may be less liquid than other types of investments. Investments that are less liquid or that trade less can be more difficult or more costly to buy, or to sell, compared to other more liquid or active investments. This liquidity risk is a factor of the trading volume of a particular investment, as well as the size and liquidity of the market for such an investment. The derivatives in which the Funds invest may not always be liquid. This could have a negative effect on a Fund’s ability to achieve its investment objective and may result in losses to Fund shareholders.

Valuation Risk

During periods of reduced market liquidity or in the absence of readily available market quotations for PowerShares China A-Share Portfolio and PowerShares Multi-Strategy Alternative Portfolio holdings, the ability of each Fund to value its holdings becomes more difficult and the judgment of the Adviser (through fair value procedures adopted by the Board of the Trust) may play a greater role in the valuation of a Fund’s holdings due to reduced availability of reliable objective pricing data. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult for a Fund to accurately assign a daily value.

Valuation Time Risk

PowerShares China A-Share Portfolio will invest in common stock of foreign issuers and, because foreign exchanges may be open on days when the Fund does not price its Shares, the value of those non-U.S. securities in the Fund’s portfolio may change on days when you will not be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and, therefore, increase the difference between the market price of the Shares and the NAV of such Shares.

Interest Rate Risk

Investments in U.S. government securities will change in value in response to interest rate changes and other factors, such as the perception of an issuer’s creditworthiness. For example, the value of fixed-income securities generally will decrease when interest rates rise, which may cause a decrease in the value of PowerShares S&P 500 ^® Downside Hedged Portfolio, PowerShares China A-Share Portfolio and PowerShares Multi-Strategy Alternative Portfolio. In addition, a Fund’s investments in fixed-income securities with longer maturities will fluctuate more in response to interest rate changes.

Tax Risk

PowerShares China A-Share Portfolio, PowerShares S&P 500 ^® Downside Hedged Portfolio and PowerShares Multi-Strategy Alternative Portfolio may invest in future contracts. To qualify as a

 

RIC, each Fund must meet a qualifying income test each taxable year. Failure to comply with the qualifying income test in any taxable year would have significant negative tax consequences to Fund shareholders, including the imposition of an entity-level tax on the Fund, which would reduce the amount available for distribution to shareholders. Although the Funds generally will seek to invest in derivative instruments that each believes generate qualifying income, the treatment of income from certain derivative instruments under the qualifying income requirements is not entirely clear. Each Fund will seek to limit its non-qualifying income so as to qualify as a RIC. PowerShares China A-Share Portfolio and PowerShares Multi-Strategy Alternative Portfolio each have received an opinion of counsel, which is not binding on the IRS or the courts, that the income that the Fund derives from its investments in certain derivative instruments, should constitute qualifying income. Based on that opinion, each such Fund believes that it will qualify as a RIC. PowerShares S&P 500 ^® Downside Hedged Portfolio has received a private letter ruling from the IRS that income it derives from futures contracts constitute qualifying income for purposes of this qualifying income test. If the IRS were to determine that the income that a Fund derives from its investments in certain derivative instruments did not constitute qualifying income, and if that position were upheld, a Fund might cease to qualify as a RIC or would be required to reduce its exposure to such investments in order to maintain its qualification as a RIC, which may result in difficulty in implementing its investment strategies.

China Investment Risk

There are significant legal requirements that must be resolved before the PowerShares China A-Share Portfolio can invest directly in A-Shares. Currently, the Fund will invest in Futures. Investing in Futures based on the performance of Chinese companies included in the FTSE China A50 Index involves several risks: The economy of China differs, sometimes unfavorably, from the U.S. economy in such respects as structure, general development, government involvement, wealth distribution, rate of inflation, growth rate, allocation of resources and capital reinvestment, among others; the central government has historically exercised substantial control over virtually every sector of the Chinese economy through administrative regulation and/or state ownership; and actions of the Chinese central and local government authorities continue to have a substantial effect on economic conditions in China. In addition, from time to time, the Chinese government has taken actions that influence the prices at which certain goods may be sold, encouraged companies to invest or concentrate in particular industries, induced mergers between companies in certain industries and induced private companies to publicly offer their securities to increase or continue the rate of economic growth, control the rate of inflation or otherwise regulated economic expansion. The regulatory oversight of Chinese companies differs from that in the United States and may not otherwise deter or uncover fraudulent actions by the issuers.

Chinese A-Shares Market Risk

The A-Shares market in China is an emerging market with a limited operating history, and it is not as developed as capital markets in the United States. Emerging markets tend to be smaller in size, have less liquidity and have greater volatility than markets in

the United States. The various restrictions on the free flow of capital into the Chinese A-Shares market may adversely impact the liquidity of the market and increase the volatility of the trading prices of A-Shares, which in turn could impact the performance of the FTSE China A50 Index and of the PowerShares China A-Share Portfolio. If and when the Fund is permitted to invest directly in A-Shares, the investment regulations in China under which the Fund would invest are relatively new; the application and interpretation of those investment regulations are relatively untested, and there is no certainty as to how they will be applied.

The Chinese government in the past has taken actions that benefited holders of A-Shares. Recent actions by the Chinese government to reform its capital markets have included reducing the time needed to obtain QFII quotas, increasing the amount of those quotas and reducing the requirements for applicants seeking QFII status. If A-Shares continue to become more available to foreign investors, the Chinese government may be less likely to take action that would benefit holders of A-Shares. Moreover, the laws, regulations (including the regulations allowing QFIIs to invest in China A-Shares), government policies and political and economic climate in China may change with little or no advance notice, and there can be no assurance that the Chinese government will continue to take similar actions in the future. Any such change could adversely affect the market conditions for A-Shares. It is not possible to predict the future development of the QFII system, and the CSRC may impose additional restrictions on QFIIs’ operations. In addition, the existence of a liquid trading market for the A-Shares may depend on whether there is supply of, and demand for, such A-Shares.

In addition, if the Fund were to be permitted to invest in A-Shares, the Shanghai and Shenzhen Stock Exchanges upon which China A-Shares currently trade are substantially smaller, less liquid and more volatile than the major securities markets in the United States.

Because restrictions continue to exist and capital therefore cannot flow freely into the A-Share market, it is possible that in the event of a market disruption, the liquidity of the A-Share market and trading prices of A-Shares could be more severely affected than the liquidity and trading prices of markets where securities are freely tradable and capital therefore flows more freely. It is not possible to predict the nature or duration of such a market disruption or the impact that it may have on the A-Share market and the short-term and long-term prospects of its investments in the A-Share market.

Also, if and when the Fund is permitted to invest directly in A-Shares, from time to time, certain of the companies in which the Fund may invest may operate in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. Government or countries identified by the U.S. Government as state sponsors of terrorism. A company may suffer damage to its reputation if it is identified as a company which operates in, or has dealings with, countries subject to sanctions or embargoes imposed by the U.S. Government or countries identified by the U.S. Government as state sponsors of terrorism. As an investor in such companies, the Fund will be indirectly subject to those risks.

 

Investment and Repatriation Restrictions

If the PowerShares China A-Share Portfolio were to invest directly in A-Shares, such investments would be subject to pre-approved government limitations on the quantity of A-Shares in which the Fund may invest. If the Adviser obtains a QFII license, it would be required to remit the entire investment principal for its A-Share quota into a local sub-custodian account after the Adviser obtains a foreign exchange registration certificate from the Chinese government agency responsible for foreign exchange administration. Once remitted, investment capital only may be repatriated at certain designated times. Repatriation of investment capital and profits currently is subject to a lock-up period and other restrictions. This means that the Fund may be limited in its ability to transfer its investment principal for the Fund’s A-Share quota, which will be denominated in Renminbi, outside of China. Additionally, future changes to the repatriation rules could further limit the Fund’s ability to repatriate capital and could have a negative effect on the Fund’s operations.

The regulations on investments and repatriation of capital are relatively new. As a result, the application and interpretation of such investment regulations are therefore relatively untested. In addition, Chinese authorities have broad discretion, and the Fund’s rights with respect to its investments in A-Shares would not be governed by U.S. law, and instead would be governed by Chinese law. China operates under a civil law system, in which court precedent is not binding. Because there is no binding precedent to interpret existing statutes, there is uncertainty regarding the implementation of existing law.

Risk of Investing in Other Chinese Securities

Should the PowerShares China A-Share Portfolio be permitted to invest in other eligible equity securities of China companies, including China H Shares and China Red Chip shares, the Fund will be exposed to the legal, regulatory, political, currency and economic risks of investing in Hong Kong. China is Hong Kong’s largest trading partner, and any changes in the Chinese economy, trade regulations or currency exchange rates may have an adverse impact on Hong Kong’s economy. Hong Kong reverted to Chinese sovereignty in 1997, and although China is obligated to maintain the current capitalist economic and social system of Hong Kong until 2047, the continuation of economic and social freedoms enjoyed in Hong Kong is dependent on the government of China. There is no guarantee that China will continue to honor Hong Kong’s autonomy, and China may change its policies regarding Hong Kong at any time. Any attempt by China to increase its control over Hong Kong’s political, economic or social policies may adversely affect Hong Kong’s economy. Additionally, Hong Kong is located in a part of the world that has historically been prone to natural disasters, such as earthquakes and flooding, and is sensitive economically to environmental events. Any such event could result in a significant adverse impact on its economy.

Risk of Direct Investment in Foreign Securities

Investments in the securities of non-U.S. issuers, including investments in non-U.S. ETFs, involve risks beyond those associated with investments in the securities of U.S. issuers, such as less reliable financial information, higher transactional costs, taxation by foreign governments, decreased market liquidity and greater

market volatility and political instability. Foreign issuers often are subject to less stringent requirements regarding accounting, auditing, financial reporting and record keeping than are U.S. issuers, and as such, not all material information may be available or reliable. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact PowerShares China A-Share Portfolio’s ability to invest in foreign securities or may prevent the Fund from repatriating its investments. In addition, the Fund may not receive shareholder communications or be permitted to vote the securities that it holds, as the issuers may be under no legal obligation to distribute shareholder communications. Additionally, Underlying ETFs that are organized outside of the United States may not provide shareholders with the same type of protections that shareholders of U.S. organized investment companies regulated under the 1940 Act receive.

If PowerShares China A-Share Portfolio were to invest directly in A-Shares, the Fund’s investments will be in securities denominated in Renminbi, and the income received by the Fund in respect of such investments will be in Renminbi. In such circumstances, changes in currency exchange rates may negatively impact the Fund’s returns. The value of the Renminbi may be subject to a high degree of fluctuation due to changes in interest rates, the imposition of currency controls, or the effects of monetary policies of China, other foreign governments, the United States, central banks or supranational entities. Furthermore, because dividends declared by the Fund would be declared in U.S. dollars and underlying payments received by the Fund from A-Shares would be made in Renminbi, fluctuations in exchange rates may adversely affect the dividends that the Fund would pay.

Risk of Investing in ETFs and Other Investment Companies

If a Fund invests in other investment companies (including ETFs) the Fund’s investment performance may depend on the investment performance of the underlying fund or ETF in which it invests. An investment in a Fund or ETF is subject to the risks associated with such investment company, which include, but are not limited to, the risk that the investment strategy may not produce the intended results; the risk that securities may underperform in comparison to the general securities markets or other asset classes; and the risk that the investment company will be concentrated in a particular issuer, market, industry or sector, and therefore will be especially susceptible to loss due to adverse occurrences affecting that issuer, market, industry or sector. The Fund will pay indirectly a proportional share of the fees and expenses of the funds or ETFs in which they invest (including operating expenses and management fees of those funds or ETFs), while continuing to pay its own management fee to the Adviser. As a result, shareholders will absorb duplicate levels of fees with respect to the Fund’s investments in such other investment companies.

Risks of Investing in ETNs

PowerShares S&P 500 ^® Downside Hedged Portfolio may invest in ETNs. ETNs are unsecured, unsubordinated debt securities of an issuer that are listed and traded on a U.S. stock exchange. An ETN’s returns generally are linked to the performance of a particular market benchmark or strategy minus applicable fees. ETNs do not provide principal protection and may or may not make periodic

 

coupon payments. ETNs are subject to credit risk, and the value of the ETN may drop due to a downgrade in the issuer’s credit rating, despite the underlying market benchmark or strategy remaining unchanged. The value of an ETN also may be influenced by time to maturity, level of supply and demand for the ETN, volatility and lack of liquidity in underlying assets, changes in the applicable interest rates, changes in the issuer’s credit rating, and economic, legal, political, or geographic events that affect the referenced underlying asset.

Cash Transaction Risk

Unlike most ETFs, PowerShares S&P 500 ^® Downside Hedged Portfolio currently effects creations and redemptions partially for cash and partially in-kind, rather than primarily in-kind, and PowerShares China A-Share Portfolio and PowerShares Multi-Strategy Alternative Portfolio effect creations and redemptions principally for cash, rather than principally in-kind, because of the nature of each Fund’s investments. As such, investments in these Funds’ Shares may be less tax-efficient than investments in shares of conventional ETFs that utilize an entirely in-kind redemption process.

Volatility Risk

PowerShares S&P 500 ^® Downside Hedged Portfolio seeks to achieve positive total returns in rising or falling markets. Significant short-term price movements could adversely impact the performance of the Fund. Market conditions in which significant price movements develop but then repeatedly reverse, could cause substantial losses due to prices moving against the Fund’s long or short positions (which are based on prior trends). The performance of the Fund is based in part on the prices of one or more of the VIX Index Related Instruments in which the Fund invests. Each of the equity securities held by the Fund and the VIX Index are affected by a variety of factors and may change unpredictably, affecting the value of the futures contracts on the VIX Index and, consequently, the value of the Shares.

Commodity Pool Risk

Because PowerShares S&P 500 ^® Downside Hedged Portfolio, PowerShares China A-Share Portfolio and PowerShares Multi-Strategy Alternative Portfolio do not expect to use futures contracts solely for “bona fide hedging purposes,” nor limit use of positions in the futures in accordance with the requirements of those rules, each Fund’s investments in these futures will cause it to be deemed to be a commodity pool, thereby subjecting each Fund to regulation under the Commodity Exchange Act and CFTC rules. The Adviser is registered as a CPO, and each Fund will be operated in accordance with CFTC rules. Registration as a commodity pool may have a negative impact on the ability of a Fund to engage in its planned investment program. Moreover, registration as a CPO subjects the registrant to additional laws, regulations and enforcement policies, all of which could increase compliance costs and may affect the operations and financial performance of funds whose adviser is required to register as a CPO.

The CFTC’s harmonization rules regarding the disclosure, reporting and recordkeeping requirements apply to the Funds as a result of the Adviser’s registration as a CPO. Generally, these rules allow

for substituted compliance with CFTC disclosure and shareholder reporting requirements, based on the Adviser’s compliance with comparable SEC requirements. This means that for most of the CFTC’s disclosure and shareholder reporting requirements applicable to the Adviser as the Funds’ CPO, the Funds’ compliance with SEC disclosure and shareholder reporting requirements will be deemed to fulfill the Adviser’s CFTC compliance obligations. As a result of CFTC regulation with respect to the Funds, the Fund’s may incur additional compliance and other expenses. However, each Fund’s status as a commodity pool and the Adviser’s registration as a CPO do not materially adversely affect each Fund’s ability to achieve its investment objective.

Portfolio Turnover Risk

Each Fund, except for the PowerShares China A-Share Portfolio, may engage in frequent trading of its portfolio securities in connection with the rebalancing or adjustment of its Underlying Index. A portfolio turnover rate of 200%, for example, is equivalent to a Fund buying and selling all of its securities two times during the course of a year. A high portfolio turnover rate (such as 100% or more) could result in high brokerage costs for the Fund. While a high portfolio turnover rate can result in an increase in taxable capital gains distributions to a Fund’s shareholders, each Fund will seek to utilize the in-kind creation and redemption mechanism to minimize capital gains to the extent possible.

Market Risk

Securities held by each Fund are subject to market fluctuations caused by such factors as economic, political, regulatory or market developments, changes in interest rates and perceived trends in securities prices. You should anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in a Fund’s portfolio.

Market Trading Risk

The Funds face numerous market trading risks, including the potential lack of an active market for the Shares, losses from trading in secondary markets, and disruption in the creation/redemption process of the Funds. Additionally, the trading prices of the instruments in which PowerShares S&P 500 ^® Downside Hedged Portfolio and PowerShares China A-Share Portfolio, invest, fluctuate in response to a variety of factors, including events that impact the entire market or specific market segments, such as political, market and economic developments. In addition, fluctuations in the VIX Index itself may indirectly affect the price of equity securities held by PowerShares S&P 500 ^® Downside Hedged Portfolio. Any of these factors may lead to the Shares trading at a premium or discount to each Fund’s NAV. As a result, an investor could lose money over short or long periods.

Non-Diversified Fund Risk

Because each Fund is non-diversified and can invest a greater portion of its assets in securities of individual issuers than a diversified fund, changes in the market value of a single investment could cause greater fluctuations in Share price than would occur in a diversified fund. This may increase the Funds’ volatility and cause the performance of a relatively small number of issuers to have a greater impact on the Funds’ performance.

 

Issuer-Specific Changes

The value of an individual security or particular type of security may be more volatile than the market as a whole and may perform differently from the value of the market as a whole.

Investment Strategy Risk

The Sub-Adviser uses a rules-based methodology to allocate the PowerShares Multi-Strategy Alternative Portfolio’s assets in a combination of Benchmark Strategies designed to benefit from risk premia. As market dynamics shift over time, these various Benchmark Strategies—as well as the rules-based methodology that the Sub-Adviser employs to allocate Fund assets among them—may become outdated or inaccurate. There can be no guarantee that existing market trends will continue over time or be reflected in future market movements in a manner that will permit the methodology to achieve the Fund’s objective. In particular, in markets without sustained trends, highly volatile markets or markets with significant price movements that quickly reverse, the Sub-Adviser’s investment methodology may fail to accurately predict the correct combination of Benchmark Strategies that the Fund should employ. As a result, the Fund may suffer significant losses.

Counterparty Risk

Certain derivative instruments that involve counterparties subject the PowerShares Multi-Strategy Alternative Portfolio to the risk that the counterparty could default on its obligations under the agreement, either through the counterparty’s bankruptcy or failure to perform its obligations. In the event of default, the Fund could experience lengthy delays in recovering some or all of its assets or no recovery at all. The Fund’s investments in the futures markets also introduce the risk that its FCM would default on an obligation set forth in an agreement between the Fund and the FCM, including the FCM’s obligation to return margin posted in connection with the Fund’s futures contracts. bankruptcy or failure to perform its obligations. In the event of default, the Fund could experience lengthy delays in recovering some or all of its assets or no recovery at all. The Fund’s investments in the futures markets also introduce the risk that its FCM would default on an obligation set forth in an agreement between the Fund and the FCM, including the FCM’s obligation to return margin posted in connection with the Fund’s futures contracts.

Foreign Exchange Risk

The PowerShares Multi-Strategy Alternative Portfolio may invest in foreign currency forward contracts, which may expose the Fund to foreign exchange risk. Foreign exchange rates are determined by factors of supply and demand in the international markets, which themselves are influenced by factors such as macroeconomic, governmental policy, speculative factors, market sentiment, and other political and economic considerations. These factors may effect the value of the assets of the Fund.

Hedging Risk

In the PowerShares Multi-Strategy Alternative Portfolio some Benchmark Strategies attempt to hedge out broader exposure to their respective asset classes by taking short positions in futures, forwards, individual stocks, or other securities. These hedges may

not always be effective, can result in unexpected exposures and potential losses, and may act to magnify losses.

Diversification of Strategies Risk

In the PowerShares Multi-Strategy Alternative Portfolio while the Benchmark Strategies are designed to exhibit low correlation to each other and to the broader securities markets, there are no assurances that this low correlation will occur in the future, especially over short to medium time horizons or in periods of market stress. It is possible that under certain circumstances, including large scale market shocks, two or more of the Benchmark Strategies will have higher correlation, while trending in a direction adverse to the PowerShares Multi-Strategy Alternative Portfolio’s performance. In such instances, the Fund will experience higher than anticipated losses.

Short Sales Risk

Short sales are speculative transactions and involve special risks, including a greater reliance on the Sub-Adviser’s ability to accurately anticipate the future value of a security. The PowerShares Multi-Strategy Alternative Portfolio will suffer a loss if it sells a security short and the value of the security then rises rather than falls. The Fund’s losses are potentially unlimited in a short sale transaction. Due to the investment process of long and short positions, the Fund also may be subject to additional transaction costs that may lower the Fund’s returns. The Fund’s use of short sales also may have a leveraging effect on the Fund’s portfolio.

Leverage Risk

Leverage occurs when the PowerShares Multi-Strategy Alternative Portfolio’s market exposure exceeds amounts invested. The Fund’s exposure to derivatives and other investment techniques, such as short sales, can create a leveraging effect on the portfolio. This leverage will vary over time and may at times be significant. Engaging in transactions using leverage or those having a leveraging effect subjects the Fund to certain risks. Leverage can magnify the effect of any gains or losses, causing the Fund to be more volatile than if it had not used leverage. The Fund may have a substantial cash position due to margin and collateral requirements related to the Fund’s use of derivatives, and to cover its positions in these investments due to the effects of leverage. Such margin and collateral requirements may limit the Fund’s ability to take advantage of other investment opportunities, and the Fund also may have to sell or liquidate a portion of its assets at inopportune times to satisfy these requirements. This may negatively affect the Fund’s ability to achieve its investment objective. In addition, the Fund’s assets that are used as collateral to secure these transactions may decrease in value while the positions are outstanding, which may force the Fund to use its other assets to increase collateral. The use of leverage is considered to be a speculative investment practice and may result in the loss of a substantial amount of the Fund’s assets. There is no assurance that a leveraging strategy will be successful.

Currency Risk

The PowerShares Multi-Strategy Alternative Portfolio’s investments and strategies will involve exposure to foreign currencies. Currency risk is the risk that changes in the exchange rate between currencies will adversely affect the value (in U.S. dollar

 

terms) of an investment. As long as the Fund holds a foreign currency denominated security, its value will be affected by the value of the local currency relative to the U.S. dollar. When the Fund sells a foreign currency denominated security, its value may be worth less in U.S. dollars even if the security increases in value in its home country. U.S. dollar-denominated securities of foreign issuers also may be affected by currency risk, as the value of these securities may also be affected by changes in the issuer’s local currency. Additionally, and as a result of the Fund’s use of currency investment strategies, the Fund’s net currency positions may expose the Fund to losses independent of any securities positions.

Non-Principal Investment Strategies

Each Fund’s investment objective and investment policies constitutes a non-fundamental policy that the Board of Trustees (“Board”) of the Trust may change at any time without shareholder approval.

In accordance with the 1940 Act rules, PowerShares Active U.S. Real Estate Fund has adopted a policy to invest at least 80% of the value of its net assets (plus the amount of any borrowing for investment purposes) in real estate securities, and PowerShares China A-Share Portfolio has adopted a policy to invest in futures contracts and other securities in an amount that provides investment exposure of at least 80% of the value in its net assets (plus the amount of any borrowing for investment purposes) to China A-Shares (each, an “80% investment policy”). The Board may change the 80% investment policy of PowerShares Active U.S. Real Estate Fund or PowerShares China A-Share Portfolio without shareholder approval upon 60 days’ prior written notice to shareholders. The fundamental and non-fundamental policies of the Funds are set forth in the Trust’s SAI under the section “Investment Restrictions.”

Transparency of Portfolios

Each Fund will disclose, prior to the opening of trading on NYSE Arca or NASDAQ, the identity and quantity of the securities in the Fund’s portfolio that will form the basis for the Fund’s NAV calculation.

Additional Risks of Investing in the Funds

The following provides additional risk information regarding investing in the Funds.

Trading Issues

Trading in Shares on NYSE Arca or NASDAQ (each, an “Exchange”) may be halted due to market conditions or for reasons that, in the view of the relevant Exchange, make trading in Shares inadvisable. In addition, trading in Shares on an Exchange is subject to trading halts caused by extraordinary market volatility pursuant to an Exchange’s “circuit breaker” rules. There can be no assurance that the requirements of either NYSE Arca or NASDAQ necessary to maintain the listing of a Fund will continue to be met or will remain unchanged.

Shares May Trade at Prices Different than NAV

The NAV of a Fund’s Shares generally will fluctuate with changes in the market value of the Fund’s holdings. The market prices of

Shares generally will fluctuate in accordance with changes in NAV, as well as the relative supply of and demand for the Shares on NYSE Arca or NASDAQ, as applicable. The Adviser cannot predict whether the Shares will trade below, at or above their NAV. Price differences may be due largely to the fact that supply and demand forces at work in the secondary trading market for the Shares will be related, but not identical, to the same forces influencing the prices of the securities, futures contracts, VIX Index Related Instruments or other instruments, as applicable, held by a Fund, individually or in the aggregate. In addition, disruptions to creations and redemptions or the existence of extreme market volatility may result in trading prices that differ significantly from NAV. If a shareholder purchases at a time when the market price is at a premium to the NAV or sells at a time when the market price is at a discount to the NAV, the shareholder may sustain losses.

Unlike conventional ETFs, the Funds are not index funds. The Funds are actively managed and do not seek to replicate the performance of a specified index. Index-based ETFs generally have traded at prices that closely correspond to NAV per share. Given the high level of transparency of the Funds’ holdings, the Adviser believes that the trading experience of the Funds should be similar to that of index-based ETFs. However, there can be no assurance as to whether and/or the extent to which the Shares will trade at premiums or discounts to NAV.

Borrowing Money

Each Fund may borrow money to the extent permitted by the 1940 Act or an exemption or other relief applicable to the Fund from the provisions of the 1940 Act, in order to meet shareholder redemptions and for temporary or emergency purposes.

Collateral Securities Risk

Each of PowerShares S&P 500 ^® Downside Hedged Portfolio, PowerShares China A-Share Portfolio and PowerShares Multi-Strategy Alternative Portfolio may invest in U.S. government obligations issued or guaranteed by the U.S. Government, money market funds (including affiliated money market funds), cash and cash equivalent securities to collateralize its investments in futures contracts, or to provide liquidity.

U.S. Government securities include securities that are issued or guaranteed by the United States Treasury, by various agencies of the U.S. Government, or by various instrumentalities which have been established or sponsored by the U.S. Government. U.S. Treasury securities are backed by the “full faith and credit” of the United States. Securities issued or guaranteed by federal agencies and U.S. Government-sponsored instrumentalities may or may not be backed by the full faith and credit of the United States. In the case of those U.S. Government securities not backed by the full faith and credit of the United States, the investor must look principally to the agency or instrumentality issuing or guaranteeing the security for ultimate repayment, and may not be able to assert a claim against the United States itself in the event that the agency or instrumentality does not meet its commitment. The U.S. Government, its agencies and instrumentalities do not guarantee the market value of their securities, and consequently, the value of such securities may fluctuate.

 

 

Money market funds are subject to management fees and other expenses. Therefore, investments in money market funds will cause a Fund to bear proportionately the costs incurred by the money market funds’ operations. At the same time, the Fund will continue to pay its own management fees and expenses with respect to all of its assets, including any portion invested in the shares of the money market fund. It is possible for a Fund to lose money by investing in money market funds. While the Funds will incur expenses associated with unaffiliated money market funds, the Adviser has agreed to waive the fees it receives under each Fund’s unitary management fee in an amount equality to the indirect management fees that each Fund incurs through investments in affiliated money market funds (see the section titled “Management of the Funds” below).

Corporate debt securities such as commercial paper generally are short-term unsecured promissory notes issued by businesses. Corporate debt may be rated investment-grade or below investment-grade and may carry variable or floating rates of interest. Corporate debt securities carry both credit risk and interest rate risk. Credit risk is the risk that the Fund could lose money if the issuer of a corporate debt security is unable to pay interest or repay principal when it is due. Some corporate debt securities that are rated below investment-grade generally are considered speculative because they present a greater risk of loss, including default, than higher quality debt securities.

Interest rate risk is the risk that investments in U.S. government securities and commercial paper will change in value in response to interest rate changes and other factors, such as the perception of an issuer’s creditworthiness. For example, the value of fixed-income securities generally will decrease when interest rates rise, which may cause the value of the Fund to decrease. In addition, the value of a Fund’s investments in fixed-income securities with longer maturities will fluctuate more in response to interest rate changes.

 

 

Tax-Advantaged Structure of ETFs

Unlike interests in conventional mutual funds, which typically are bought and sold only at their closing NAV per share, the Shares are traded throughout the day in the secondary market on a national securities exchange on an intra-day basis, and are created and redeemed principally in-kind for PowerShares Active U.S. Real Estate Fund, partially for cash and partially in-kind for PowerShares S&P 500 ^® Downside Hedged Portfolio, and principally for cash for PowerShares China A-Share Portfolio and PowerShares Multi-Strategy Alternative Portfolio in Creation Units at each day’s next calculated NAV. In-kind arrangements are designed to protect ongoing shareholders from the adverse effects on each Fund’s portfolio that could arise from frequent cash creation and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because of the mutual fund’s need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains that must be distributed to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption mechanism generally will not lead to a tax event for either PowerShares Active U.S. Real Estate Fund or PowerShares

S&P 500 ^® Downside Hedged Portfolio (to the extent it uses in-kind redemptions) or their ongoing shareholders. The tax advantages of investing in Shares may be less pronounced because the Funds are actively managed and, therefore, may have greater turnover in their portfolio securities, which could result in less tax efficiency than an investment in a fund that is not actively managed.

Because PowerShares Active U.S. Real Estate Fund invests principally in REITs, its shareholders may receive distributions of ordinary income and long-term capital gains in greater amounts and at earlier times compared to investors in a fund that does not invest in REITs.

Because PowerShares S&P 500 ^® Downside Hedged Portfolio intends to effect creations and redemptions partially for cash, and because PowerShares China A-Share Portfolio and PowerShares Multi-Strategy Alternative Portfolio intend to effect creations and redemptions principally for cash, investments in Shares of these Funds may be less tax-efficient than investments in shares of conventional ETFs that utilize an entirely in-kind redemption process.

 

 

Portfolio Holdings

A description of the Trust’s policies and procedures with respect to the disclosure of the Funds’ portfolio holdings is available in the Trust’s SAI, which is available at www.InvescoPowerShares.com.

 

 

Management of the Funds

Invesco PowerShares Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, Illinois 60515. Invesco PowerShares Capital Management LLC serves as the investment adviser to the Trust, PowerShares Actively Managed Exchange-Traded Commodity Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Exchange-Traded Fund Trust, a family of ETFs with combined assets under management of more than $49.3 billion as of January 31, 2015.

As the Funds’ investment adviser, the Adviser has overall responsibility for selecting PowerShares S&P 500 ^® Downside Hedged Portfolio’s and PowerShares China A-Share Portfolio’s investments, and continuously monitoring the investments of all four Funds, managing the Funds’ business affairs, providing certain clerical, bookkeeping and other administrative services of the Trust and oversight of the Sub-Adviser. In doing so, the Adviser uses a team of portfolio managers, investment strategists and other investment specialists. This team approach brings together many disciplines and leverages the Adviser’s extensive resources.

Invesco Advisers, Inc., a subsidiary of Invesco Ltd., the parent of Invesco PowerShares Capital Management LLC, is a registered investment adviser and serves as the investment sub-adviser to the PowerShares Active U.S. Real Estate Fund and PowerShares Multi-Strategy Alternative Portfolio and, subject to the supervision of the Adviser and the Board, is responsible for the investment

 

management of each of these Funds. The Sub-Adviser’s principal business address is 1555 Peachtree Street, N.E., Atlanta, Georgia 30309.

Portfolio Managers

Investment decisions for PowerShares Active U.S. Real Estate Fund are made by investment management teams at the Sub-Adviser. The following individuals are responsible jointly and primarily for the day-to-day management of PowerShares Active U.S. Real Estate Fund’s portfolio:

 

Ÿ

Joe V. Rodriguez, Jr., Portfolio Manager and the lead manager overseeing the investment team and Fund operations, has been responsible for the management of the Fund since its inception and has been associated with the Sub-Adviser and/or its affiliates since 1990.

 

Ÿ

Mark Blackburn, Portfolio Manager, has been responsible for the management of the Fund since its inception and has been associated with the Sub-Adviser and/or its affiliates since 1998.

 

Ÿ

Paul S. Curbo, Portfolio Manager, has been responsible for the management of the Fund since its inception and has been associated with the Sub-Adviser and/or its affiliates since 1998.

 

Ÿ

Ping-Ying Wang, Portfolio Manager, has been responsible for the management of the Fund since its inception and has been associated with Sub-Adviser and/or its affiliates since 1998.

 

Ÿ

Darin Turner, Portfolio Manager, has been responsible for the management of the Fund since February 2015 and has been associated with the Sub-Adviser and/or its affiliates since 2005.

Investment decisions for PowerShares China A-Share Portfolio are made by investment management teams at the Adviser. The following individuals are responsible jointly and primarily for the day-to-day management of PowerShares China A-Share Portfolio:

 

Ÿ

Peter Hubbard is a Vice President and Director of Portfolio Management of the Adviser and has been primarily responsible for the day-to-day management of the Fund since its inception. Mr. Hubbard has been a Portfolio Manager of the Adviser since June 2007.

 

Ÿ

Brian Picken is a Vice President and Portfolio Manager of the Adviser and has been one of the Portfolio Managers primarily responsible for the day-to-day management of the Fund since its inception. Mr. Picken has been a Portfolio Manager of the Adviser since August 2010. Mr. Picken was an Associate Portfolio Manager of the Adviser from August 2009 to August 2010.

 

Ÿ

Michael Jeanette is a Vice President and Senior Portfolio Manager of the Adviser and has been employed by the Adviser since 2005. He has been one of the Portfolio Managers primarily responsible for the day-to-day management of the Fund since its inception. Mr. Jeanette has been a Portfolio Manager of the Adviser since July 2008.

 

Ÿ

Theodore Samulowitz is a Vice President and Portfolio Manager of the Adviser and has been one of the Portfolio Managers primarily responsible for the day-to-day management of the Fund since its inception. He has been a Portfolio Manager of the Adviser since May 2012. Prior to that,

Mr. Samulowitz was the Managing Partner of Endurance Capital Markets LLC from February 2010 to February 2012 and a Portfolio Manager of CMT Asset Management from 2006 to 2010.

 

Ÿ

Tony Seisser is a Vice President and Portfolio Manager of the Adviser and has been one of the Portfolio Managers primarily responsible for the day-to-day management of the Fund since February 2015. He has been associated with the Adviser since 2013. From 2010 to 2013, he was employed by Guggenheim Funds Distributors, Inc. From 2008 to 2010, he was a compliance investigator at the Chicago Board Options Exchange and Chicago Futures Exchange.

 

Ÿ

Kevin Baum is a Vice President and Senior Portfolio Manager of the Adviser and has been one of the Portfolio Managers primarily responsible for the day-to-day management of the Fund since February 2015. He has been a portfolio manager of the Adviser since October 2014. Prior to that, Mr. Baum was the Head of Commodities and Senior Vice President (from 2009 to 2012) and a Vice President (from 2000 to 2009) of OppenheimerFunds, Inc.

Investment decisions for PowerShares Multi-Strategy Alternative Portfolio are made by investment management teams at the Adviser and Sub-Adviser. The following individuals are responsible jointly and primarily for the day-to-day management of PowerShares Multi-Strategy Alternative Portfolio:

 

Ÿ

Peter Hubbard has been one of the Portfolio Managers primarily responsible for the day-to-day management of the Fund since its inception.

 

Ÿ

Michael Jeanette has been one of the Portfolio Managers primarily responsible for the day-to-day management of the Fund since its inception.

 

Ÿ

Theodore Samulowitz has been one of the Portfolio Managers primarily responsible for the day-to-day management of the Fund since its inception.

 

Ÿ

Duy Nguyen has been one of the Portfolio Managers primarily responsible for the day-to-day management of the Fund since its inception. He has been associated by the Sub-Adviser since 2000. Prior to joining the Sub-Adviser, Mr. Nguyen served as an assistant vice president for Van Kampen American Capital and as vice president of FactSet Research Systems, Inc.

 

Ÿ

Tony Seisser has been one of the Portfolio Managers primarily responsible for the day-to-day management of the Fund since February 2015.

 

Ÿ

Kevin Baum has been one of the Portfolio Managers primarily responsible for the day-to-day management of the Fund since February 2015.

Investment decisions for PowerShares S&P 500 ^® Downside Hedged Portfolio are made by investment management teams at the Adviser. The following individuals are responsible jointly and primarily for the day-to-day management of PowerShares S&P 500 ^® Downside Hedged Portfolio:

 

Ÿ

Peter Hubbard has been one of the Portfolio Managers primarily responsible for the day-to-day management of the Fund since its inception.

 

Ÿ

Michael Jeanette has been one of the Portfolio Managers primarily responsible for the day-to-day management of the Fund since October 2013.

 

Ÿ

Brian Picken has been one of the Portfolio Managers primarily responsible for the day-to-day management of the Fund since October 2013.

 

Ÿ

Theodore Samulowitz has been one of the Portfolio Managers primarily responsible for the day-to-day management of the Fund since its inception.

 

Ÿ

Tony Seisser has been one of the Portfolio Managers primarily responsible for the day-to-day management of the Fund since February 2015.

 

Ÿ

Kevin Baum has been one of the Portfolio Managers primarily responsible for the day-to-day management of the Fund since February 2015.

The Trust’s SAI provides additional information about the Portfolio Managers’ compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers’ ownership of Shares.

The Adviser has overall responsibility for the general management and administration of the Trust. The Adviser oversees the Sub-Adviser and/or implements an investment program for the Funds and manages the investment of each Fund’s assets. For its services, the Adviser receives a unitary management fee from each Fund, which accrues daily and is payable monthly.

PowerShares Active U.S. Real Estate Fund pays the Adviser a unitary management fee equal to 0.80% of its average daily net assets. Out of the unitary management fee, the Adviser pays substantially all expenses of the PowerShares Active U.S. Real Estate Fund, including the payments to the Sub-Adviser, the costs of transfer agency, custody, fund administration, legal, audit and other services, except for advisory fees, distribution fees, if any, brokerage expenses, taxes, interest, litigation expenses and other extraordinary expenses (including Acquired Fund Fees and Expenses, if any).

PowerShares China A-Share Portfolio pays the Adviser an annual unitary management fee equal to 0.50% of its average daily net assets. Out of the unitary management fee, the Adviser pays substantially all expenses of the PowerShares China A-Share Portfolio, including the costs of transfer agency, custody, fund administration, legal, audit and other services, except for advisory fees, distribution fees, if any, brokerage expenses, taxes, interest, litigation expenses and other extraordinary expenses (including Acquired Fund Fees and Expenses, if any).

PowerShares Multi-Strategy Alternative Portfolio pays the Adviser an annual unitary management fee equal to 0.95% of its average daily net assets. Out of the unitary management fee, the Adviser pays substantially all expenses of the PowerShares Multi-Strategy Alternative Portfolio, including the payments to the Sub-Adviser, the costs of transfer agency, custody, fund administration, legal, audit and other services, except for advisory fees, distribution fees, if any, brokerage expenses, taxes, interest, litigation expenses and other extraordinary expenses (including Acquired Fund Fees and Expenses, if any).

PowerShares S&P 500 ^® Downside Hedged Portfolio pays the Adviser an annual unitary management fee equal to 0.39% of its average daily net assets. Out of the unitary management fee, the Adviser pays substantially all expenses of the PowerShares S&P 500 ^® Downside Hedged Portfolio, including the costs of transfer agency, custody, fund administration, legal, audit and other services, except for advisory fees, distribution fees, if any, brokerage expenses, taxes, interest, litigation expenses and other extraordinary expenses (including Acquired Fund Fees and Expenses, if any).

The Funds may invest in money market funds that are managed by affiliates of the Adviser or Sub-Adviser. The indirect portion of the management fee that the Funds will incur through such investments is in addition to the unitary management fee. Therefore, the Adviser has agreed voluntarily to waive the fees that it receives under the Fund’s unitary management fee in an amount equal to the indirect management fees that the Funds incur through their investments in affiliated money market funds.

The Adviser has entered into an Investment Sub-Advisory Agreement with the Sub-Adviser for PowerShares Active U.S. Real Estate Fund and PowerShares Multi-Strategy Alternative Portfolio. The sub-advisory fee is paid by the Adviser to the Sub-Adviser at 40% of the Adviser’s compensation of the sub-advised assets of each Fund.

A discussion regarding the basis for the Board’s approval of the Trust’s Investment Advisory Agreement on behalf of PowerShares S&P 500 ^® Downside Hedged Portfolio and PowerShares China A-Share Portfolio and the Trust’s Investment Advisory Agreement and Sub-Advisory Agreement with respect to PowerShares Active U.S. Real Estate Fund is available in the Trust’s semi-annual report to shareholders for the period ended April 30, 2014.

A discussion regarding the basis for the Board’s approval of the Trust’s Investment Advisory Agreement and Sub-Advisory Agreement on behalf of PowerShares Multi-Strategy Alternative Portfolio is available in the Trust’s annual report to shareholders for the fiscal year ended October 31, 2014.

 

 

How to Buy and Sell Shares

Each Fund issues or redeems its Shares at NAV per Share only in Creation Units, or Creation Unit Aggregations.

Most investors buy and sell Shares of each Fund in secondary market transactions through brokers. Shares of each Fund will be listed for trading on the secondary market on NYSE Arca or NASDAQ, as applicable. Shares can be bought and sold throughout the trading day like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots” of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “oddlots,” at no per share price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase and sale) transaction. The Shares of the Funds trade on the relevant Exchange under the following symbols:

 

Fund		Trading Symbol
PowerShares Active U.S. Real Estate Fund		PSR
PowerShares China A-Share Portfolio		CHNA
PowerShares Multi-Strategy Alternative Portfolio		LALT
PowerShares S&P 500 ® Downside Hedged Portfolio		PHDG

Share prices are reported in dollars and cents per Share.

APs may acquire Shares directly from each Fund, and APs may tender their Shares for redemption directly to each Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance with the procedures described in the SAI.

Each Fund may liquidate and terminate at any time without shareholder approval.

Book Entry

Shares are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its nominee is the record owner of all outstanding Shares of the Funds and is recognized as the owner of all Shares for all purposes.

Investors owning Shares are beneficial owners as shown on the records of DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers, banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other securities that you hold in book entry or “street name” form.

Share Trading Prices

The trading prices of Shares of each Fund on the NYSE Arca or NASDAQ, as applicable, may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions and other factors may affect the trading prices of Shares of each Fund.

The approximate value of Shares of each Fund, an amount representing on a per share basis the sum of the current market price of the cash or securities (and an estimated cash component, if any), as applicable, accepted by the Fund in exchange for Shares of the Fund is disseminated every 15 seconds throughout the trading day through the facilities of the Consolidated Tape Association. As the respective international local markets close, the market value of the Deposit Securities will continue to be updated for foreign exchange rates for the remainder of the U.S. trading day at the prescribed 15 second intervals. This approximate value should not be viewed as a “real-time” update of the NAV per Share of the Fund because the approximate value may not be calculated in the same manner as the NAV, which is computed once a day, generally at the end of the business day. The Funds are not involved in, or responsible for, the calculation or dissemination of the approximate value of the Shares and the Funds do not make any warranty as to its accuracy.

 

Frequent Purchases and Redemptions of Fund Shares

Shares of the Funds may be purchased and redeemed directly from the Funds only in Creation Units by APs. The vast majority of trading in Shares of the Funds occurs on the secondary market, and does not involve a Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market are unlikely to cause many of the harmful effects of frequent purchases and/or redemptions of Shares of a Fund. Cash purchases and/or redemptions of Creation Units, however, can result in disruption of portfolio management, dilution to a Fund and increased transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases. However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.

To minimize these potential consequences of frequent purchases and redemptions of Shares, a Fund employs fair valuation pricing, and imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Funds reserve the right to not accept orders from APs that the Adviser has determined may be disruptive to the management of the Funds, or otherwise are not in the best interests of the Funds. For these reasons, the Board has not adopted policies and procedures with respect to frequent purchases and redemptions of Shares of PowerShares Active U.S. Real Estate Fund and PowerShares S&P 500 ^® Downside Hedged Portfolio. In recognition of the nature of PowerShares China-A Share Portfolio and PowerShares Multi-Strategy Alternative Portfolio’s investments and that Shares of each of these Funds are purchased and redeemed in Creation Units principally in cash, the Board has adopted policies and procedures with respect to frequent purchases and redemptions of Shares which incorporate the practices described above, as well as additional trade monitoring for market timing activities.

 

 

Dividends, Other Distributions and Taxes

Dividends and Capital Gain Distributions

A portion of PowerShares Active U.S. Real Estate Fund’s distributions received from REITs may be reclassified as a return of capital for federal income tax purposes. As a result of such reclassification, the Fund is more likely to make distributions that are treated as returns of capital, and possibly in greater amounts, than a fund that does not invest in REITs.

Ordinarily, dividends from net investment income, if any, are declared and paid quarterly by PowerShares Active U.S. Real Estate Fund and PowerShares S&P 500 ^® Downside Hedged Portfolio and annually by PowerShares China A-Share Portfolio and PowerShares Multi-Strategy Alternative Portfolio. Each Fund distributes its net realized capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to comply with the distribution requirements of

 

Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and to avoid a federal excise tax imposed on regulated investment companies.

Distributions in cash may be reinvested automatically in additional whole Shares only if the broker through whom you purchased Shares makes such option available.

Taxes

As with any investment, you should consider how your investment in Shares will be taxed. The tax information in this Prospectus is provided as general information only. You should consult your own tax professional about the tax consequences of an investment in Shares.

Unless your investment in Shares is made through a tax-exempt entity or tax-deferred retirement account, such as an individual retirement amount, you need to be aware of the possible tax consequences when:

 

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Your Fund makes distributions,

 

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You sell your Shares, and

 

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You purchase or redeem Creation Units.

Taxes on Distributions

As stated above, dividends from net investment income, if any, ordinarily are declared and paid quarterly by PowerShares Active U.S. Real Estate Fund and PowerShares S&P 500 ^® Downside Hedged Portfolio and annually by PowerShares China A-Share Portfolio and PowerShares Multi-Strategy Alternative Portfolio. Each Fund also may pay a special distribution at the end of a calendar year to comply with federal tax requirements and/or to minimize or eliminate federal tax liability. In general, your distributions are subject to federal income tax when they are paid, whether you take them in cash or reinvest them in Shares (if reinvestment is available from the broker through whom you purchased your Shares).

Dividends paid out of a Fund’s net investment income and net realized short-term capital gains, if any, generally are taxable as ordinary income, except that a Fund’s dividends attributable to its “qualified dividend income” generally will be subject to federal income tax for individual and certain other non-corporate shareholders (each, an “individual shareholder”) who satisfy those restrictions with respect to their Fund shares at the lower rates for long-term capital gains—a maximum of 15% (or 20% for individual shareholders with taxable income exceeding certain thresholds, which will be adjusted annually for inflation). Distributions of net long-term capital gains in excess of net short term capital losses, if any, are taxable as long-term capital gains at the rates mentioned above for individual shareholders, regardless of how long you have held your Shares.

Distributions to you in excess of a Fund’s current and accumulated earnings and profits, if any, are treated as a tax-free return of capital to the extent of your basis in your Shares and as capital gain thereafter. A distribution will reduce a Fund’s NAV per Share and may be taxable to you (as ordinary income or long-term capital gain) even though, from an investment standpoint, the distribution constitutes a partial return of capital.

By law, a Fund is required to withhold 28% of distributions and redemption proceeds (regardless of whether you realize a gain or loss) otherwise payable to you if you are an individual shareholder and have not provided a correct social security number or other taxpayer identification number or are otherwise subject to backup withholding.

There is a risk that the tax treatment of futures, options, and options on futures may be affected by future regulatory or legislative changes that could affect the character, timing, and/or amount of a Fund’s taxable income or gains and distributions.

Taxes on Share Sales

Any capital gain or loss you realize upon a sale of Shares generally is treated as long-term capital gain, taxable at the rates mentioned above for individual shareholders, or loss if you held the Shares for more than one year and as short-term capital gain or loss if you held the Shares for one year or less. Your ability to deduct capital losses realized on a sale of Shares may be limited.

Taxes on Purchase and Redemption of Creation Units

An AP that exchanges securities for a Creation Unit generally will recognize a capital gain or loss equal to the difference between the market value of the Creation Units and the sum of the AP’s aggregate basis in the securities surrendered plus any cash component paid. An AP redeems a Creation Unit for securities generally will recognize a gain or loss equal to the difference between the AP’s basis in the Creation Unit and the aggregate market value of the securities received plus or minus an amount, if any, equal to the difference between the NAV of the redeemed Shares, as next determined after a receipt of a request in proper form, and the value of those securities. The IRS, however, may assert that a loss realized upon an exchange of securities for a Creation Unit, or of a Creation Unit for securities, cannot be deducted currently under the rules governing “wash sales” or on the ground that there has been no significant change in the AP’s economic position. An AP exchanging securities should consult their own tax advisors with respect to whether wash sale rules apply and when a loss otherwise might not be deductible.

Any capital gain or loss realized on a redemption of a Creation Unit generally is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss if they have been held for one year or less.

If you purchase or redeem one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.

Qualifying Income

PowerShares S&P 500 ^® Downside Hedged Portfolio, PowerShares Multi-Strategy Alternative Portfolio and PowerShares China A-Share Portfolio will gain exposure to the futures markets by entering into futures contracts. To qualify as a regulated investment company under Subchapter M of Chapter 1 of Subtitle A of the Code, each Fund must, among other requirements, meet a certain qualifying income test each taxable year, including with respect to its investments in futures.

 

Failure to comply with the qualifying income requirements would have significant negative tax consequences to a Fund’s shareholders, including the imposition of an entity-level tax on the Fund, which would reduce the amount available for distribution to shareholders. Although each Fund generally will seek to invest in derivative instruments that it believes generate qualifying income, the treatment of income from certain derivative instruments under the qualifying income requirements is not entirely clear. Each Fund will seek to limit its non-qualifying income so as to qualify as a regulated investment company. PowerShares China A-Share Portfolio and PowerShares Multi-Strategy Alternative Portfolio each believe that, and PowerShares S&P 500 ^® Downside Hedged Portfolio has received a private letter ruling from the IRS that, income it derives from futures contracts will constitute qualifying income for purposes of that test.

The foregoing discussion summarizes some of the possible consequences under current federal tax law of an investment in a Fund. It is not a substitute for personal tax advice. You also may be subject to state, local, and/or foreign tax on Fund distributions and sales and/or redemptions of Shares. Consult your personal tax advisor(s) about the potential tax consequences of an investment in Shares under all applicable tax laws.

 

 

Distributor

Invesco Distributors, Inc. (the “Distributor”) serves as the distributor of Creation Units for each Fund on an agency basis. The Distributor does not maintain a secondary market in Shares. The Distributor is an affiliate of the Adviser.

 

 

Net Asset Value

The Bank of New York Mellon (“BNYM”) calculates each Fund’s NAV at the close of regular trading (normally 4:00 p.m., Eastern time) every day the New York Stock Exchange (“NYSE”) is open, provided that U.S. fixed-income assets may be valued as of the announced closing time for trading in fixed-income instruments on any day that the Securities Industry and Financial Markets Association announces an early closing time. NAV is calculated by deducting all of the Fund’s liabilities from the total value of its assets and dividing the result by the number of Shares outstanding, rounding to the nearest cent. All valuations are subject to review by the Board or its delegate.

In determining NAV, expenses are accrued and applied daily and securities and other assets for which market quotations are readily available are valued at market value. Securities listed or traded on an exchange generally are valued at the last sales price or official closing price that day as of the close of the exchange where the security primarily is traded. The NAV for each Fund will be calculated and disseminated on each day that the NYSE is open. If a security’s market price is not readily available, the security will be valued using pricing provided from independent pricing services or by another method that the Adviser or the Sub-Adviser (as applicable), in its judgment, believes will better reflect the security’s fair value in accordance with the Trust’s valuation policies and procedures approved by the Board.

Even when market quotations are available for portfolio securities, they may be stale or unreliable because the security is not traded frequently, trading on the security ceased before the close of the trading market or issuer specific events occurred after the security ceased trading or because of the passage of time between the close of the market on which the security trades and the close of the NYSE and when a Fund calculates its NAV. Events that may cause the last market quotation to be unreliable include a merger or insolvency, events which affect a geographical area or an industry segment, such as political events or natural disasters, or market events, such as a significant movement in the U.S. market. Where market quotations are not readily available, including where the Adviser or Sub-Adviser (as applicable) determines that the closing price of the security is unreliable, the Adviser and Sub-Adviser (as applicable) will value the security at fair value in good faith using procedures approved by the Board. Fair value pricing involves subjective judgments and it is possible that a fair value determination for a security is materially different than the value that could be realized upon the sale of the security. With respect to securities that primarily are listed on foreign exchanges, the value of a Fund’s portfolio securities may change on days when you will not be able to purchase or sell your Shares.

 

 

Fund Service Providers

BNYM, 101 Barclay Street, New York, New York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for each Fund.

K&L Gates LLP, 70 W. Madison Street, Suite 3100, Chicago, Illinois 60602 and 1601 K Street, N.W., Washington, D.C. 20006, serves as legal counsel to the Trust.

PricewaterhouseCoopers LLP, One North Wacker Drive, Chicago, Illinois 60606, serves as the Funds’ independent registered public accounting firm. PricewaterhouseCoopers LLP is responsible for auditing the annual financial statements of each Fund and performs other related audit services.

 

 

Financial Highlights

The financial highlights table below is intended to help you understand each Fund’s financial performance over the past 5 years or, if less, since its inception. Certain information reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and other distributions). This information has been derived from each Fund’s financial statements which have been audited by PricewaterhouseCoopers LLP, whose report, along with the Fund’s financial statements, is included in the Trust’s Annual Report for the fiscal year ended October 31, 2014, which is available upon request.

 

 

Information Relating to the LALT Benchmark and Benchmark Agent

The Benchmark for PowerShares Multi-Strategy Alternative Portfolio is an index developed, maintained and sponsored by the Benchmark Agent. The Benchmark Agent is not an adviser or subadviser, and does not act as a fiduciary to the Fund, the Adviser, the Sub-Adviser or any other person. The Benchmark Agent makes no representation that any result or return will be achieved by investing in the Benchmark, any strategy included in the Benchmark, or any index, instrument or other component that is or that may be included, directly or indirectly, in the Benchmark (each, a “component”). The Adviser will compensate the Benchmark Agent for the licensing of certain trademarks in connection with the Benchmark.

Although the Benchmark, and each strategy included in the Benchmark, generally will follow a rules-based methodology, in certain circumstances the Benchmark Agent may make adjustments in respect of the Benchmark. Such circumstances may include a disruption in the availability of a pricing source for a component; a material change in a component; a change in law that affects a component; a disruption in the ability of market participants to effect transactions in a component; an abnormally large movement in the price of a component; or a force majeure event in respect of a component that makes it impracticable for the Benchmark Agent to calculate the value, or to take any other necessary action in respect, of the Benchmark, a strategy included in the Benchmark, or the component. In making the foregoing or any other determinations regarding the Benchmark, a strategy or a component, the Benchmark Agent will have no obligation to consider the effect on the PowerShares Multi-Strategy Alternative Portfolio or the investments held by the Fund.

In connection with its investment strategy, the PowerShares Multi-Strategy Alternative Portfolio may enter into derivative instruments in which the Benchmark Agent or one of its affiliates acts as the Fund’s counterparty and receives fees from the Fund. The Benchmark Agent and its affiliates also may enter into transactions unrelated to the Fund that involve the Benchmark, a strategy included in the Benchmark, or a component, which may be for the Benchmark Agent’s or its affiliate’s proprietary account(s) and/or for accounts of their clients, and also may act as a market-maker for components or issue research reports on components. Such activities may have a positive or negative effect on the value of the Benchmark, a strategy included in the Benchmark, or a component. In addition, the unwinding of any such transactions may affect the value of the Benchmark, a strategy included in the Benchmark, or a component. The Benchmark Agent and its affiliates may benefit from gains from hedging activity relating to derivatives that are linked to the value of the Benchmark, a strategy or a component, while the Fund may suffer losses on its investments in the components or derivative instruments thereon.

 

 

Premium/Discount Information

Information on the daily NAV per Share for each Fund, can be found at www.InvescoPowerShares.com. Additionally, information

regarding how often the Shares of each Fund traded on NYSE Arca or NASDAQ, as applicable, at a price above (at a premium) or below (at a discount) the NAV of the Fund during the past four calendar quarters, if available, will be found at www.InvescoPowerShares.com.

 

 

Other Information

Section 12(d)(1) of the 1940 Act restricts investments by investment companies (and companies relying on Sections 3(c)(1) or 3(c)(7) of the 1940 Act) in the securities of other investment companies. However, registered investment companies are permitted to invest in the beyond the limits set forth in Section 12(d)(1) subject to certain terms and conditions set forth in an SEC exemptive order issued to the Trust, including that such investment companies enter into a participation agreement with the Trust on behalf of a Fund prior to exceeding the limits imposed by Section 12(d)(1). Additionally, the Funds are permitted pursuant to an SEC exemptive order to invest in other registered investment companies beyond the limits set forth in Section 12(d)(1) subject to certain terms and conditions set forth in another exemptive order the SEC has issued to the Trust. If a Fund relies on this exemptive relief, however, other investment companies may not invest in the Fund beyond the statutory provisions of Section 12(d)(1).

Continuous Offering

The method by which Creation Unit Aggregations of Fund Shares are created and traded may raise certain issues under applicable securities laws. Because new Creation Unit Aggregations of Shares are issued and sold by the Funds on an ongoing basis, a “distribution,” as such term is used in the Securities Act of 1933, as amended (the “Securities Act”), may occur at any point. Broker-dealers and other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render them statutory underwriters and subject them to the prospectus-delivery requirement and liability provisions of the Securities Act.

For example, a broker-dealer firm or its client may be deemed a statutory underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling effort involving solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities that could lead to a characterization as an underwriter.

Broker-dealer firms should also note that dealers who are not “underwriters” but are effecting transactions in Shares, whether or not participating in the distribution of Shares, are generally required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is

 

not available in respect of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not “underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions), and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act only is available with respect to transactions on a national exchange.

Delivery of Shareholder Documents—Householding

Householding is an option available to certain investors of the Funds. Householding is a method of delivery, based on the preference of the individual investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their accounts are registered under different names. Householding for the Funds is available through certain broker-dealers. If you are interested in enrolling in householding and receiving a single copy of prospectuses and other shareholder documents, please contact your broker-dealer. If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.

For More Information

For more detailed information on the Trust, the Funds and the Shares, you may request a copy of the Trust’s SAI. The SAI provides detailed information about the Funds and is incorporated by reference into this Prospectus. This means that the SAI legally is a part of this Prospectus. Additional information about the Funds’ investments also is available in the Funds’ Annual and Semi-Annual Reports to Shareholders. In the Funds’ Annual Report, you will find a discussion of the market conditions and investment strategies that significantly affected each Fund’s performance during the last fiscal year. If you have questions about the Funds or Shares or you wish to obtain the SAI, Annual Report, and/or Semi-Annual Report, free of charge, or to make shareholder inquiries, please:

 

Call:

Invesco Distributors, Inc. at 1.800.983.0903 Monday through Friday 8:00 a.m. to 5:00 p.m. Central Time

 

Write:

PowerShares Actively Managed Exchange-Traded Fund Trust c/o Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, Texas 77046-1173

 

Visit:

www.InvescoPowerShares.com

Information about the Funds (including the SAI) can be reviewed and copied at the SEC’s Public Reference Room, 100 F Street N.E., Washington, D.C. 20549, and information on the operation of the Public Reference Room may be obtained by calling the SEC at 1.202.551.8090. Reports and other information about the Fund are available on the EDGAR Database on the SEC’s Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at

the following e-mail address: publicinfo@sec.gov,or by writing the SEC’s Public Reference Section, Washington, D.C. 20549-1520.

No person is authorized to give any information or to make any representations about the Funds and their Shares not contained in this Prospectus, and you should not rely on any other information. Read and keep this Prospectus for future reference.

Dealers effecting transactions in the Funds’ Shares, whether or not participating in this distribution, generally are required to deliver a Prospectus. This is in addition to any obligation of dealers to deliver a Prospectus when acting as underwriters.

The Trust’s registration number under the 1940 Act is 811-22148.