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The PowerShares Chinese Yuan Dim Sum Bond Portfolio seeks investment results that generally correspond (before fees and expenses) to the price and yield performance of the Citigroup Dim Sum (Offshore CNY) Bond Index (Dim Sum Bond Index). The Fund will normally invest at least 90% of its total assets in Chinese yuan-denominated bonds that compromise the Index.
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| Citigroup Dim Sum Bond Index |
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The Dim Sum Bond Index measures the performance of Chinese yuan-denominated “Dim Sum” bonds issued and settled outside mainland China. The Dim Sum Bond Index includes fixed-rate securities issued by governments, agencies, supranationals and corporations.
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| Dim Sum Bonds |
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Dim sum bonds get their name from the Chinese cuisine that is especially popular in Hong Kong. These bonds are yuan denominated and generally issued in Hong Kong by a variety of issuers ranging from governments to corporations.
The dim sum bond market was introduced in 2007 when the People’s Republic of China Incorporated Financial Institutions were first allowed to issue yuan-denominated bonds offshore. Since then, the market for dim sum bonds has seen significant growth, particularly since its deregulation in July 2010.1
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| Chinese Yuan |
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The official currency of the People’s Republic of China is renminbi; the yuan is its primary unit. Prior to 2005, the yuan was actively pegged by the People’s Bank of China (PBC) to the U.S. dollar at a fixed exchange rate (8.28¥/$).1
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Source: Bloomberg L.P., as of Aug. 31 2011
Past performance cannot guarantee future results.
In July 2005 the peg was removed and the yuan is now allowed to float within a range managed by the PBC.
Since the peg was lifted, the yuan has appreciated in value against the dollar, as depicted in the chart above.
In September 2011, Chinese officials indicated a decisive shift in policy that would allow the yuan to float freely and achieve “full convertibility” by 2015, which means they will allow it to be exchanged at the market-determined rate.2
Dim sum bonds may be attractive to investors outside of China who want exposure to yuan-denominated assets, but are prevented by China’s controls on capital from investing in domestic Chinese debt.
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| Powershares Chinese Yuan Dim Sum Bond Primer |
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| Additional Resources: |
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| Fund Details: |
| Fund Ticker | DSUM | | CUSIP # | 73937B753 | | ISIN | US73937B7617 | | Intraday NAV | DSUM.IV | | Index Ticker | CCDSBIU | | Index Provider | Citigroup | | Expense Ratio | 0.45% | | Exchange | NYSE Arca | | Inception Date | 09/23/2011 |
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| 1 Source: Citigroup, as of April 2011 |
| 2 Source: Bloomberg L.P., as of Sept. 8, 2011 |
| Important Risk Information |
| There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks simialr to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. The Fund's return may not match the return of the Underlying Index. |
| The Fund may invest in fixed-income securities, such as notes and bonds, which carry interest rate and credit risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. Credit risk is the risk of loss on an investment due to the deterioration of an issuer’s financial health. |
| Adverse economic conditions, such as unfavorable or volatile currency exchange rates and interest rates, political events or other conditions may cause the Chinese government to intervene and impose “capital controls,” including the prohibition of, or restrictions on, the ability to transfer currency, securities or other assets. |
| There are special risks associated with investing in securities designed to provide exposure to Chinese Yuan, such as Yuan-denominated bonds in which the Fund will invest. The Chinese government maintains strict currency controls and regularly intervenes in the currency market. As a result, the value of the Yuan, and the value of Yuan-denominated securities, may change quickly and arbitrarily, potentially impacting the availability, liquidity, and pricing of securities designed to provide offshore investors with exposure to Chinese markets. |
| The Fund invests at least 80% of its assets in Chinese Yuan-denominated bonds issued and settled outside of mainland China. Because the Fund’s net asset value (NAV) is determined in U.S. dollars, the NAV could decline if the currency of the non- U.S. market in which the Fund invests depreciates against the U.S. dollar, even if the value of the Fund’s holdings increases, as measured in the foreign currency, including securities denominated in the Chinese Yuan. In addition, if the Chinese currencies, the Renminbi, which is traded in mainland China and the Yuan, which is traded off-shore (traded as “CNH” in Hong Kong), diverge in value, that divergence could negatively impact the Fund. |
| The Fund’s underlying securities may be subject to call risk, which may result in the Fund having to reinvest the proceeds at lower interest rates, resulting in a decline in the Fund’s income. |
| The Fund’s use of a representative sampling approach will result in its holding a smaller number of securities than are in the underlying Index, and may be subject to greater volatility. |
| The Fund is considered non-diversified and may be subject to greater risks than a diversified fund. |
| Investments focused in a particular industry are subject to greater risk, and are more greatly impacted by market volatility than more diversified investments |
| Unlike most ETFs, the Fund currently intends to effect redemptions principally for cash and partially in-kind, rather than primarily in-kind redemptions because of the nature of the Fund’s investments. As such, investments in Shares may be less tax efficient than investments in conventional ETFs. |
| The Fund may invest in non-investment grade, or high-yield, securities (junk bonds). High-yield securities have additional risks, including interest rate changes, decreased market liquidity and a larger amount of outstanding debt than investment grade securities. |
| Sovereign debt securities are subject to the additional risk that — under some political, diplomatic, social or economic circumstances — some developing countries that issue lower quality debt securities may be unable or unwilling to make principal or interest payments as they come due. The fund may have limited legal recourse against the issuer and/or guarantor of sovereign debt when default occurs. As a holder of government debt, the Fund may be requested to participate in the rescheduling of such debt and to extend further loans to government debtors. |
| The Fund is not sponsored, endorsed, sold or promoted by Citigroup Index LLC (Citigroup Index) or any of its affiliates (collectively,Citigroup). Citigroup Index makes no representation or warranty, express or implied, to the owners or prospective owners of shares of the Fund or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly, or the ability of the Fund to track the price and yield performance of the Dim Sum Bond Index or the ability of the Dim Sum Bond Index to track general bond market performance. |
| 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 Units only, typically consisting of aggregations of 50,000 shares. |
| Note: Not all products available through all firms. |
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