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Invesco PowerShares is pleased to introduce the PowerShares Build America Bond Portfolio. The ETF seeks investment results that correspond generally to the price and yield (before fees and expenses) of The BofA Merrill Lynch Build America Bond Index.
The Fund normally invests at least 80% of its total assets in taxable municipal securities eligible to participate in the Build America Bond program created under the American Recovery and Reinvestment Act of 2009 or other legislation providing for the issuance of taxable municipal securities on which the issuer receives federal support of the interest paid.
The Build America Bond (BAB) program was launched by the U.S. Treasury under the American Recovery and Reinvestment Act of 2009. The objective of the program is to reduce the borrowing costs of state and local governments.
BABs are taxable bonds issued by state and local governments; the interest from the bonds is subsidized by the U.S. Treasury.
Taxable municipal bonds (munis) have historically produced yields comparable to similarly rated corporate bonds, but have exhibited much lower default rates.
Pre-tax yields on taxable munis frequently rival yields on similar corporate bonds.
Since 1997, 10-year AAA-rated taxable munis have, on average, yielded just five basis points less than 10-year AAA-rated corporate bonds.
While the interest income from BABs is not exempt from federal income taxes, it can be exempt from state and local taxes for residents of the issuing state or local body.
The default rates on taxable municipal bonds historically tend to be lower than that of similarly rated corporate bonds.
An S&P study found that between 1990 and 2008, the 10-year cumulative default rate for all investment-grade munis was 0.06%, compared to 2.25% for all investment-grade corporate bonds.
In cases of default, muni-bond investors have historically enjoyed a higher rate of recovery of principal and interest on their investment after a default than corporate-bond investors.
The average recovery rate on defaulted munis has been 68% of par, compared to 42% of par for defaulted corporate bonds.
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Learn more about the U.S. Treasury Build America Bond program and the PowerShares Build America Bond Portfolio.
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BAB in Brief
The PowerShares Build America Bond Portfolio (BAB) offers:
  • Access to a distinct asset class
  • Low cost,1 broad exposure to the BAB market
  • All the benefits of the ETF structure including daily liquidity2 and transparency3
Index Methodology
To qualify for The BofA Merrill Lynch Build America Bond Index, securities must have:
  • An investment-grade rating4
  • At least one year remaining term to final maturity5
  • A fixed coupon schedule6
  • A minimum amount outstanding of $1 million
  • A direct pay federal subsidy
1 Since ordinary brokerage commissions apply for each buy and sell transaction, frequent trading activity may increase the cost of ETFs.
2 Shares are not individually redeemable and owners of the Shares may acquire those shares from the Funds and tender those shares for redemption to the Funds in Creation Unit aggregations only, typically consisting of 50,000 Shares.
3 ETFs disclose their full portfolio holdings daily.
4 A classification given to a bond when its credit rating is BBB- or higher from Standard & Poor's, Baa3 or higher from Moody's or BBB- or higher from Fitch.
5 The length of time until the principal amount of a bond must be paid back.
6 Fixed amount of interest paid on bonds over a specific period of time
Important Risk Information
There are risks involved with investing in ETFs including possible loss of money. The Fund is not actively managed. Ordinary brokerage commissions apply.
Invesco PowerShares does not offer tax advice. Please consult a tax advisor for advice regarding your specific situation.
While it is not Invesco PowerShares intention, there is no guarantee that the Funds will not distribute capital gains to its shareholders.
The credit quality of the Fund's holdings represents the weighted average quality rating of the securities in the portfolio as assigned by Nationally Recognized Statistical Rating Organizations based on assessment of the credit worthiness of the underlying securities. The ratings range from AAA (highest) to D (lowest).
Past performance is not indicative of future results.
Municipal securities are subject to the risk that litigation, legislation or other political events, local business or economic conditions or the bankruptcy of the issuer could have a significant effect on an issuer’s ability to make payments of principal and/or interest. Municipal securities can be significantly affected by political changes as well as uncertainties in the municipal market related to taxation, legislative changes or the rights of municipal security holders. Because many securities are issued to finance similar projects, especially those relating to education, health care, t transportation and utilities, conditions in those sectors can affect the overall municipal market. In addition, changes in the financial condition of an individual municipal insurer can affect the overall municipal market.
There is no guarantee that municipalities will continue to take advantage of the Build America Bond (BAB) program in the future and there can be no assurance that BABs will be actively traded. Furthermore, under the American Recovery and Reinvestment Act of 2009, the ability of municipalities to issue BABs expires on Dec. 31, 2010. If the BAB program is not extended, the number of BABs available in the market will be limited. In addition, illiquidity of the BABs may negatively affect the value of the BABs.
Fixed-income securities are subject to interest rate risk and credit risk. Generally, the prices of fixed-income securities tend to fall as interest rates rise. To the extent the Fund invests a substantial portion of its assets in fixed-income securities with longer term maturities, rising interest rates may cause the value of the Fund’s investments to decline significantly. If interest rates fall, it is possible that issuers of callable securities with high interest coupons will "call" (or prepay) their bonds before their maturity date. Credit risk refers to the possibility that the issuer of a security will be unable and/or unwilling to make timely interest payments and/or repay the principal on its debt, which may adversely affect the value of the security.
The Shares 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.
The Fund’s use of a representative sampling approach will result in its holding a smaller number of securities than are in the Underlying Index. As a result, an adverse development respecting an issuer of securities held by the Fund could result in a greater decline in NAV than would be the case if the Fund held all of the securities in the Underlying Index. To the extent the assets in the Fund are smaller, these risks will be greater.
The Fund is non-diversified and can invest a greater portion of its assets in securities of individual issuers than a diversified fund.
"BofA Merrill Lynch" and "The BofA Merrill Lynch Build America Bond IndexSM" are reprinted with permission. ©Copyright 2009 Merrill Lynch, Pierce, Fenner & Smith Incorporated ("BofA Merrill Lynch"). All rights reserved. "BofA Merrill Lynch" and "The BofA Merrill Lynch Build America Bond IndexSM" are service marks of BofA Merrill Lynch and/or its affiliates and have been licensed for use for certain purposes by PowerShares on behalf of the PowerShares Build America Bond Portfolio that is based on the BofA Merrill Lynch Build America Bond IndexSM, and is not issued, sponsored, endorsed or promoted by BofA Merrill Lynch and/or BofA Merrill Lynch’s affiliates nor is BofA Merrill Lynch and/or BofA Merrill Lynch’s affiliates an adviser to the PowerShares Build America Bond Portfolio. BofA Merrill Lynch and BofA Merrill Lynch’s affiliates make no representation, express or implied, regarding the advisability of investing in the PowerShares Build America Bond Portfolio or The BofA Merrill Lynch Build America Bond IndexSM and do not guarantee the quality, accuracy or completeness of The BofA Merrill Lynch Build America Bond Index IndexSM, index values or any index related data included herein, provided herewith or derived therefrom and assume no liability in connection with their use. As the index provider, BofA Merrill Lynch is licensing certain trademarks, The BofA Merrill Lynch Build America Bond IndexSM and trade names which are composed by BofA Merrill Lynch without regard to PowerShares, the PowerShares Build America Bond Portfolio or any investor. BofA Merrill Lynch and BofA Merrill Lynch’s affiliates do not provide investment advice to PowerShares or the PowerShares Build America Bond Portfolio and are not responsible for the performance of the PowerShares Build America Bond Portfolio.
Shares are not individually redeemable and owners of the Shares may acquire those Shares from the Fund and tender those Shares for redemption to the Fund in Creation Unit aggregations only, typically consisting of 50,000 Shares.
©2010 Invesco PowerShares Capital Management LLC
PowerShares® is a registered trademark of Invesco PowerShares Capital Management LLC (Invesco PowerShares). Invesco PowerShares Capital Management LLC and Invesco Distributors, Inc. are indirect, wholly owned subsidiaries of Invesco Ltd.
Invesco Distributors, Inc. is the distributor of the PowerShares Exchange-Traded Fund Trust, the PowerShares Exchange-Traded Fund Trust II, the PowerShares India Exchange-Traded Fund Trust and the PowerShares Actively Managed Exchange-Traded Fund Trust.
Investment products offered are: Not FDIC Insured  • No Bank Guarantee  • May Lose Value
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