<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act File number 811-21265
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PowerShares Exchange-Traded Fund Trust
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(Exact name of registrant as specified in charter)
301 W. Roosevelt Road
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
H. Bruce Bond
301 W. Roosevelt Road
Wheaton, IL 60187
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(Name and address of agent for service)
Registrant's telephone number, including area code: 800-983-0903
----------------
Date of fiscal year end: April 30, 2006
----------------
Date of reporting period: April 30, 2006
----------------
<Page>
ITEM 1. REPORTS TO STOCKHOLDERS.
The Registrant's annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940 is as follows:
<Page>
2006 ANNUAL REPORT TO SHAREHOLDERS
30 APRIL 2006
POWERSHARES(TM)
XCHANGE TRADED FUNDS(TM)
POWERSHARES DYNAMIC MARKET PORTFOLIO
POWERSHARES DYNAMIC OTC PORTFOLIO
POWERSHARES FTSE RAFI US 1000 PORTFOLIO
POWERSHARES DYNAMIC LARGE CAP GROWTH PORTFOLIO
POWERSHARES DYNAMIC LARGE CAP VALUE PORTFOLIO
POWERSHARES DYNAMIC MID CAP GROWTH PORTFOLIO
POWERSHARES DYNAMIC MID CAP VALUE PORTFOLIO
POWERSHARES DYNAMIC SMALL CAP GROWTH PORTFOLIO
POWERSHARES DYNAMIC SMALL CAP VALUE PORTFOLIO
POWERSHARES DIVIDEND ACHIEVERS(TM) PORTFOLIO
POWERSHARES HIGH YIELD EQUITY DIVIDEND ACHIEVERS(TM) PORTFOLIO
POWERSHARES HIGH GROWTH RATE DIVIDEND ACHIEVERS(TM) PORTFOLIO
POWERSHARES INTERNATIONAL DIVIDEND ACHIEVERS(TM) PORTFOLIO
POWERSHARES AEROSPACE & DEFENSE PORTFOLIO
POWERSHARES GOLDEN DRAGON HALTER USX CHINA PORTFOLIO
POWERSHARES LUX NANOTECH PORTFOLIO
POWERSHARES VALUE LINE TIMELINESS(TM) SELECT PORTFOLIO
POWERSHARES WATER RESOURCES PORTFOLIO
POWERSHARES WILDERHILL CLEAN ENERGY PORTFOLIO
POWERSHARES ZACKS MICRO CAP PORTFOLIO
POWERSHARES ZACKS SMALL CAP PORTFOLIO
POWERSHARES DYNAMIC BIOTECHNOLOGY & GENOME PORTFOLIO
POWERSHARES DYNAMIC BUILDING & CONSTRUCTION PORTFOLIO
POWERSHARES DYNAMIC ENERGY EXPLORATION & PRODUCTION PORTFOLIO
POWERSHARES DYNAMIC FOOD & BEVERAGE PORTFOLIO
POWERSHARES DYNAMIC HARDWARE & CONSUMER ELECTRONICS PORTFOLIO
POWERSHARES DYNAMIC INSURANCE PORTFOLIO
POWERSHARES DYNAMIC LEISURE AND ENTERTAINMENT PORTFOLIO
POWERSHARES DYNAMIC MEDIA PORTFOLIO
POWERSHARES DYNAMIC NETWORKING PORTFOLIO
POWERSHARES DYNAMIC OIL & GAS SERVICES PORTFOLIO
POWERSHARES DYNAMIC PHARMACEUTICALS PORTFOLIO
POWERSHARES DYNAMIC RETAIL PORTFOLIO
POWERSHARES DYNAMIC SEMICONDUCTORS PORTFOLIO
POWERSHARES DYNAMIC SOFTWARE PORTFOLIO
POWERSHARES DYNAMIC TELECOMMUNICATIONS & WIRELESS PORTFOLIO
POWERSHARES DYNAMIC UTILITIES PORTFOLIO
<Page>
TABLE OF CONTENTS
<Table>
Shareholder Letter 4
Managers' Analysis 5
Funds' Distribution History 82
Frequency Distribution of Discounts & Premiums 84
Fees and Expenses 86
BROAD MARKET PORTFOLIOS
Schedule of Investments
PowerShares Dynamic Market Portfolio 92
PowerShares Dynamic OTC Portfolio 94
PowerShares FTSE RAFI US 1000 Portfolio 96
Statements of Assets and Liabilities 107
Statements of Operations 108
Statements of Changes in Net Assets 109
Financial Highlights 110
STYLE PORTFOLIOS
Schedule of Investments
PowerShares Dynamic Large Cap Growth Portfolio. 112
PowerShares Dynamic Large Cap Value Portfolio 113
PowerShares Dynamic Mid Cap Growth Portfolio 114
PowerShares Dynamic Mid Cap Value Portfolio 116
PowerShares Dynamic Small Cap Growth Portfolio 118
PowerShares Dynamic Small Cap Value Portfolio 120
Statements of Assets and Liabilities 122
Statements of Operations 124
Statements of Changes in Net Assets 126
Financial Highlights 128
<Page>
DIVIDEND INCOME PORTFOLIOS
Schedule of Investments
PowerShares Dynamic Dividend Achievers(TM) Portfolio 131
PowerShares High Yield Equity Dividend Achievers(TM) Portfolio 135
PowerShares Dynamic High Growth Rate Dividend Achievers(TM) Portfolio 136
PowerShares Dynamic International Dividend Achievers(TM) Portfolio 138
Statements of Assets and Liabilities 140
Statements of Operations 141
Statements of Changes in Net Assets 142
Financial Highlights 143
SPECIALTY PORTFOLIOS
Schedule of Investments
PowerShares Aerospace & Defense Portfolio 145
PowerShares Golden Dragon Halter USX China Portfolio 146
PowerShares Lux Nanotech Portfolio 147
PowerShares Value Line Timeliness(TM) Select Portfolio 148
PowerShares Water Resources Portfolio 149
PowerShares WilderHill Clean Energy Portfolio 150
PowerShares Zacks Micro Cap Portfolio 151
PowerShares Zacks Small Cap Portfolio 156
Statements of Assets and Liabilities 160
Statements of Operations 162
Statements of Changes in Net Assets 164
Financial Highlights 166
<Page>
INDUSTRY PORTFOLIOS
Schedule of Investments
PowerShares Dynamic Biotechnology & Genome Portfolio 170
PowerShares Dynamic Building & Construction Portfolio 171
PowerShares Dynamic Energy Exploration & Production Portfolio 172
PowerShares Dynamic Food & Beverage Portfolio 173
PowerShares Dynamic Hardware & Consumer Electronics Portfolio 174
PowerShares Dynamic Insurance Portfolio 175
PowerShares Dynamic Leisure and Entertainment Portfolio 176
PowerShares Dynamic Media Portfolio 177
PowerShares Dynamic Networking Portfolio 178
PowerShares Dynamic Oil & Gas Services Portfolio 179
PowerShares Dynamic Pharmaceuticals Portfolio 180
PowerShares Dynamic Retail Portfolio 181
PowerShares Dynamic Semiconductors Portfolio 182
PowerShares Dynamic Software Portfolio 183
PowerShares Dynamic Telecommunications & Wireless Portfolio 184
PowerShares Dynamic Utilities Portfolio 185
Statements of Assets and Liabilities 186
Statements of Operations 188
Statements of Changes in Net Assets 190
Financial Highlights 192
Notes to Financial Statements 200
Report of Independent Registered Public Accounting Firm 220
Supplemental Information (Unaudited) 221
Information about Advisory Agreements (Unaudited) 225
</Table>
<Page>
[PHOTO H. BRUCE BOND]
TO MY FELLOW INVESTORS,
It gives me great pleasure to report on the current state of the thirty-seven
(37) funds comprising the PowerShares Exchange-Traded Fund Trust and to thank
you for your confidence in and support of PowerShares Capital Management LLC as
the adviser of the funds.
PowerShares Exchange-Traded Fund Trust (the "PowerShares Exchange-Traded
Fund(s)") has experienced exceptional growth over the last fiscal year, more
than tripling the number of PowerShares funds offered in the marketplace from
11 to 37 funds. Of the 26 new exchange-traded funds offered, 25 funds are listed
on the AMEX, while the remaining FTSE RAFI US 1000 Portfolio constitutes our
first listing on the New York Stock Exchange. During this fiscal period, new
assets have increased at an even faster rate than new product offerings, with
assets under management growing from $1 billion to over $6 billion.
This phenomenal growth demonstrates PowerShares Exchange-Traded Funds'
leadership role in the ETF marketplace. Additionally, it reveals investors' and
advisors' interest in intelligent ETFs, their developing knowledge about
quantitative asset management strategies as a value-added approach in their
portfolios, as well as their comfort with and understanding of the operational
structure of ETFs. Further contributing to our growth and visibility has been
the performance of our first two funds (PWC and PWO), which listed on 5/01/2003
and recently crossed their three year anniversary on 4/30/2006.
In the future, we plan to continue educating investors about the benefits of
PowerShares Exchange-Traded Funds and to provide exceptional advisory services
for our Funds. With this goal in mind, on January 23rd, 2006 PowerShares agreed
to be acquired by AMVESCAP PLC. AMVESCAP is one of the largest independent asset
management firms in the world with 5,586 employees, located in 19 different
countries with $414.6 billion in assets under management as of 6/8/2006. They
also have tremendous international presence and distribution capabilities, which
PowerShares will seek to leverage in order to introduce products around the
globe. AIM Investments Distribution group (an affiliate of AMVESCAP) alone has
500 individuals covering every major financial distribution channel. We also
plan to integrate many of our resources and infrastructure, allowing us to
introduce additional PowerShares funds to the market while continuing to provide
exceptional asset management.
On behalf of PowerShares and the Board of Trustees for the PowerShares
Exchange-Traded Fund Trust, I want to thank you for your participation in the
PowerShares Exchange-Traded Fund family of ETFs. We look forward to serving you
in the future.
Highest Regards,
/s/ H. Bruce Bond
H. Bruce Bond
President and Chairman of the Board of Trustees
PowerShares Exchange-Traded Fund Trust
4
<Page>
MANAGERS' ANALYSIS
THE MARKET ENVIRONMENT
Over the prior year, the U.S. marketplace proved to be fertile ground,
continuing to reward equity investors. A turning job market and solid economy
helped investors cast aside any memory of recession and turn their focus to
strong financial results for many U.S. corporations. Although the much
anticipated large cap rally never fully materialized, small and mid cap growth
stocks continued their torrid pace.
Spiking commodity prices helped energy, coal and steel companies post
spectacular results, although creating concerns that the equity rally could be
dampened by the threat of inflation. Media, U.S. automobile makers,
pharmaceutical and healthcare facility stocks lagged the overall market.
Bond prices struggled as the Fed continued its hawkish policy on rates,
increasing overnight borrowing rates throughout the reporting period. All eyes
are on new Fed Chairman Ben Bernanke to see if he can ease inflation concerns
and control rising commodity prices without stalling the economy.
POWERSHARES DYNAMIC MARKET PORTFOLIO (TICKER: PWC)
The PowerShares Dynamic Market Portfolio completed another impressive year,
building on already solid results from its prior two years.
Over the prior twelve months, the PowerShares Dynamic Market Portfolio returned
23.30%, while the S&P 500(R) Index returned 15.40%. Large cap value stocks were
the biggest contributors to overall performance, although mid cap growth and
small cap stocks within the Fund posted the strongest results. Financial,
energy and technology stocks contributed the most to performance, while consumer
staples and utilities contributed least, although posting solid results. The
Fund has not paid any capital gains distributions for the life of the Fund.
Relative to the broad U.S. market, the Fund benefited from over-weighting
insurance stocks and from under-weighting pharmaceutical and media stocks.
Stock selection was most effective in large cap value names, and the Fund also
benefited from allocating more to mid and small cap stocks when compared to
conventional cap-weighted benchmarks which tend to allocate a disproportionate
amount to the largest companies.
The PowerShares Dynamic Market Portfolio bases its stock selection, portfolio
management, and asset allocation decisions on an enhanced index called the
Dynamic Market Intellidex(SM) Index. The Fund utilized a direct Index
replication method during the reporting period (less fees and expenses).
The Index's investment decisions are derived from a proprietary methodology
which incorporates technically advanced and robust institutional investment
research available in the marketplace today.
Domestic companies are evaluated for inclusion in the Index across numerous
investment criteria, including fundamentals, valuation, timeliness and risk
perspectives, providing a comprehensive determination of a company's overall
investment potential. Securities identified by the methodology that possess the
greatest capital appreciation potential are selected for the Index and
incorporated into the Fund by the portfolio manager.
5
<Page>
POWERSHARES DYNAMIC MARKET PORTFOLIO (TICKER: PWC)
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
AVG. ANN. FUND INCEPTION
1 YEAR AVG ANN CUMULATIVE
INDEX
DYNAMIC MARKET INTELLIDEX 23.75 22.71 84.76
S&P 500(R) INDEX 15.40 14.69 50.87
RUSSELL 3000 INDEX 18.08 16.49 58.09
FUND
NAV 23.30 21.81 80.72
SHARE PRICE RETURN 23.40 21.76 80.53
</Table>
FUND INCEPTION: 1 MAY 2003
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P 500(R) INDEX AND THE RUSSELL 3000 INDEX ARE UNMANAGED INDEXES THAT ARE
BROAD MEASUREMENTS OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF 500 AND 3000 WIDELY HELD COMMON STOCKS, RESPECTIVELY.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS; CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, ABSENT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
6
<Page>
POWERSHARES DYNAMIC MARKET PORTFOLIO (TICKER: PWC)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES
DYNAMIC MARKET S&P 500(R) RUSSELL 3000
PORTFOLIO INDEX INDEX
06/30/2003 $10,000 $10,000 $10,000
07/31/2003 $10,189 $10,128 $10,135
08/29/2003 $10,340 $10,306 $10,367
09/30/2003 $10,644 $10,507 $10,597
10/31/2003 $10,513 $10,396 $10,482
11/28/2003 $11,250 $10,984 $11,117
12/31/2003 $11,640 $11,080 $11,270
01/30/2004 $11,822 $11,661 $11,785
02/27/2004 $12,053 $11,875 $12,031
03/31/2004 $12,539 $12,040 $12,193
04/30/2004 $12,515 $11,859 $12,048
05/28/2004 $12,119 $11,673 $11,799
06/30/2004 $12,284 $11,833 $11,970
07/30/2004 $12,788 $12,063 $12,209
08/31/2004 $12,240 $11,664 $11,747
09/30/2004 $12,195 $11,711 $11,795
10/29/2004 $12,608 $11,838 $11,977
11/30/2004 $12,519 $12,018 $12,173
12/31/2004 $13,494 $12,505 $12,739
01/31/2005 $13,953 $12,930 $13,193
02/28/2005 $13,687 $12,615 $12,842
03/31/2005 $14,132 $12,881 $13,124
04/29/2005 $13,970 $12,652 $12,902
05/31/2005 $13,477 $12,413 $12,622
06/30/2005 $14,194 $12,808 $13,100
07/29/2005 $14,608 $12,826 $13,192
08/31/2005 $15,266 $13,301 $13,733
09/30/2005 $15,218 $13,180 $13,602
10/31/2005 $15,524 $13,286 $13,721
11/30/2005 $15,252 $13,065 $13,464
12/30/2005 $15,741 $13,559 $13,989
01/31/2006 $15,621 $13,564 $14,000
02/28/2006 $16,396 $13,923 $14,468
03/31/2006 $16,141 $13,961 $14,494
04/28/2006 $16,517 $14,135 $14,745
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
FINANCIALS 20.3
INFORMATION TECHNOLOGY 16.8
CONSUMER DISCRETIONARY 13.7
INDUSTRIALS 11.3
HEALTH CARE 11.3
CONSUMER STAPLES 9.0
ENERGY 7.2
MATERIALS 4.1
UTILITIES 3.3
TELECOMMUNICATIONS 2.9
MONEY MARKET FUND 0.1
</Table>
STYLE ALLOCATION (%)
<Table>
LARGE VALUE 34.50
MID VALUE 20.76
MID GROWTH 15.83
LARGE GROWTH 14.64
SMALL VALUE 9.72
SMALL GROWTH 4.55
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
EXXON MOBIL CORP. 3.80
REYNOLDS AMERICAN, INC. 3.21
GENERAL MILLS, INC. 3.13
NUCOR CORP. 3.06
PRECISION CASTPARTS CORP. 2.85
STAPLES, INC. 2.59
LOCKHEED MARTIN CORP. 2.57
LOEWS CORP. 2.57
J.C. PENNEY CO., INC. 2.55
NATIONAL SEMICONDUCTOR CORP. 2.54
-----
TOTAL 28.87
=====
</Table>
7
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC OTC PORTFOLIO (TICKER: PWO)
The PowerShares Dynamic OTC Portfolio continued to outpace the Nasdaq
marketplace over the reporting period, furthering its outperformance from the
prior two years. Over the prior twelve months, the PowerShares Dynamic OTC
Portfolio returned 26.63%, while the Nasdaq Composite returned 19.70%.
Stock selection among software and semiconductors contributed most to the Fund's
performance, while selections within information technology services and
communication equipment stocks lagged. Relative to the Nasdaq market, the Fund
benefited from over-weightings in capital markets and information technology
services stocks and from under-weightings in media and internet and multiline
retail stocks.
Stock selection was most effective in large cap growth names and least effective
in large cap value names. The Fund benefited from allocating more to mid cap
stocks when compared to the cap-weighted Nasdaq Composite Index. The Fund has
accomplished this performance without paying any capital gains distributions
since the inception of the Fund.
The PowerShares Dynamic OTC Portfolio bases its stock selection, portfolio
management and asset allocation decisions on an enhanced index called the
Dynamic OTC Intellidex(SM) Index. The Fund utilized a direct Index replication
method during the reporting period (less fees and expenses).
The Index's investment decisions are derived from a proprietary methodology
which incorporates technically advanced and robust institutional investment
research available in the marketplace today.
Domestic Nasdaq companies are evaluated for inclusion in the Index across
numerous investment criteria, including fundamentals, valuation, timeliness and
risk perspectives, providing a comprehensive determination of a company's
overall investment potential. Securities identified by the methodology that
possess the greatest capital appreciation potential are selected for the Index
and incorporated by the portfolio manager.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
AVG. ANN. FUND INCEPTION
1 YEAR AVG ANN CUMULATIVE
INDEX
DYNAMIC OTC INTELLIDEX 27.25 24.27 91.89
NASDAQ 100 INDEX 20.86 16.40 57.72
NASDAQ COMPOSITE INDEX 19.70 15.17 52.78
FUND
NAV 26.63 23.39 87.87
SHARE PRICE RETURN 26.58 23.35 87.66
</Table>
FUND INCEPTION: 1 MAY 2003
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE NASDAQ 100 INDEX AND THE NASDAQ COMPOSITE INDEX ARE UNMANAGED INDEXES THAT
ARE BROAD MEASUREMENTS OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF 100 AND APPROXIMATELY 3,300 WIDELY HELD NASDAQ STOCKS,
RESPECTIVELY.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS OT A
GUARANTEE OF FUTURE RESULTS; CURRENT PERFORMANCE MAY BE HIGHER OR OWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FUCTUATE AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR RIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, ABSENT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
8
<Page>
POWERSHARES DYNAMIC OTC PORTFOLIO (TICKER: PWO)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES NASDAQ
DYNAMIC OTC COMPOSITE NASDAQ 100
PORTFOLIO INDEX INDEX
06/30/2003 $10,000 $10,000 $10,000
07/31/2003 $10,182 $10,168 $10,032
08/29/2003 $10,500 $10,872 $10,660
09/30/2003 $11,142 $11,344 $11,196
10/31/2003 $11,385 $11,197 $10,883
11/28/2003 $12,394 $12,107 $11,824
12/31/2003 $13,098 $12,283 $11,890
01/30/2004 $12,952 $12,553 $12,254
02/27/2004 $13,467 $12,947 $12,464
03/31/2004 $13,425 $12,719 $12,275
04/30/2004 $13,098 $12,496 $12,008
05/28/2004 $11,885 $12,032 $11,699
06/30/2004 $12,546 $12,449 $12,240
07/30/2004 $13,094 $12,831 $12,661
08/31/2004 $12,122 $11,826 $11,690
09/30/2004 $11,726 $11,518 $11,426
10/29/2004 $12,297 $11,886 $11,794
11/30/2004 $13,017 $12,375 $12,411
12/31/2004 $13,976 $13,139 $13,119
01/31/2005 $14,580 $13,631 $13,533
02/28/2005 $14,015 $12,923 $12,686
03/31/2005 $14,119 $12,856 $12,614
04/29/2005 $14,336 $12,527 $12,376
05/31/2005 $13,688 $12,041 $11,861
06/30/2005 $15,056 $12,960 $12,878
07/29/2005 $14,901 $12,889 $12,468
08/31/2005 $15,494 $13,690 $13,400
09/30/2005 $15,306 $13,485 $13,204
10/31/2005 $15,394 $13,483 $13,371
11/30/2005 $15,442 $13,286 $13,183
12/30/2005 $16,068 $13,991 $13,963
01/31/2006 $15,955 $13,819 $13,734
02/28/2006 $16,798 $14,448 $14,281
03/31/2006 $16,357 $14,295 $13,946
04/28/2006 $17,044 $14,661 $14,222
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
INFORMATION TECHNOLOGY 53.7
CONSUMER DISCRETIONARY 13.9
HEALTH CARE 12.6
FINANCIALS 9.3
INDUSTRIALS 5.5
CONSUMER STAPLES 1.8
TELECOMMUNICATIONS 1.5
ENERGY 1.1
MATERIALS 0.6
</Table>
STYLE ALLOCATION (%)
<Table>
MID GROWTH 43.12
LARGE GROWTH 17.67
SMALL VALUE 14.46
SMALL GROWTH 14.32
MID VALUE 10.43
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
NVIDIA CORP. 3.74
CITRIX SYSTEMS, INC. 3.73
AUTODESK, INC. 3.34
LAM RESEARCH CORP. 3.29
RED HAT, INC. 3.24
QUALCOMM, INC. 3.20
TELLABS, INC. 3.14
PAYCHEX, INC. 3.14
FISERV, INC. 3.11
ADOBE SYSTEMS, INC. 2.95
-----
TOTAL 32.88
=====
</Table>
9
<Page>
MANAGERS' ANALYSIS
POWERSHARES FTSE RAFI US 1000 PORTFOLIO (TICKER: PRF)
The PowerShares FTSE RAFI US 1000 Portfolio ended the fiscal year impressively,
outperforming the Russell 1000 Index. Since the December 19, 2005 inception, the
Fund returned 5.89%, outpacing the Russell 1000 which returned 4.99%.
Top gainers in the portfolio included the telecommunication services, energy and
financial sectors. Relative to the S&P 500(R) Index, the healthcare, information
technology and industrial sectors generated the greatest relative
outperformance.
The Fund benefited from over-weighting financial and telecommunication services
and under-weighting healthcare and information technology sectors. Stock
selection was most effective in the healthcare, information technology and
industrial sectors.
The Fund seeks investment results that correspond generally to the price and
yield (before the Fund's fees and expenses) of an equity index called the FTSE
RAFI US 1000 Index. The FTSE RAFI US 1000 Index is designed to track the
performance of the largest U.S. equities, selected based on the following four
fundamental measures of firm size: book value, income, sales and dividends. U.S.
equities are then weighted by each of these four fundamental measures. An
overall weight is calculated for each firm by equally-weighting each fundamental
measure. Each of the 1000 equities with the highest fundamental weight are then
selected and assigned a weight equal to its fundamental weight.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
FTSE RAFI US 1000 6.16
RUSSELL 1000 INDEX 4.99
FUND
NAV 5.89
SHARE PRICE RETURN 6.25
</Table>
FUND INCEPTION: 19 DECEMBER 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE RUSSELL 1000 INDEX IS AN UNMANAGED INDEX USED AS A MEASUREMENT OF CHANGE IN
STOCK MARKET CONDITIONS BASED ON THE AVERAGE PERFORMANCE OF APPROXIMATELY 1000
COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
10
<Page>
POWERSHARES FTSE RAFI US 1000 PORTFOLIO (TICKER: PRF)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES
FTSE RAFI US 1000 RUSSELL 1000
PORTFOLIO INDEX
01/31/2006 $10,000 $10,000
02/28/2006 $10,314 $10,280
03/31/2006 $10,365 $10,303
04/28/2006 $10,479 $10,449
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
FINANCIALS 24.5
CONSUMER DISCRETIONARY 13.5
INDUSTRIALS 10.9
INFORMATION TECHNOLOGY 9.8
CONSUMER STAPLES 9.7
ENERGY 8.9
HEALTH CARE 8.7
UTILITIES 5.9
TELECOMMUNICATIONS SERVICES 3.9
MATERIALS 3.9
OTHER 0.3
</Table>
STYLE ALLOCATION (%)
<Table>
LARGE VALUE 53.33
MID VALUE 18.22
LARGE GROWTH 17.84
MID GROWTH 6.64
SMALL VALUE 3.47
SMALL GROWTH 0.50
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
EXXON MOBIL CORP. 2.83
GENERAL ELECTRIC CO. 2.59
CITIGROUP, INC. 2.07
BANK OF AMERICA CORP. 1.72
JPMORGAN CHASE & CO. 1.55
MICROSOFT CORP. 1.55
CHEVRON CORP. 1.52
WAL-MART STORES, INC. 1.41
ALTRIA GROUP, INC. 1.28
VERIZON COMMUNICATIONS, INC. 1.27
-----
TOTAL 17.79
=====
</Table>
11
<Page>
POWERSHARES DYNAMIC STYLE PORTFOLIOS
PowerShares Style Portfolios are based on enhanced indexes called Intellidexes.
Their investment decisions are derived from a proprietary methodology which
incorporates technically advanced and robust institutional investment research
available in the marketplace today.
The Style Intellidexes apply a rigorous ten factor style isolation process to
objectively segregate companies into their appropriate investment style and size
universe. Next, each company considered for the Intellidex is thoroughly
evaluated to determine its investment merit by analyzing numerous unique
financial characteristics from four broad financial perspectives: fundamental,
valuation, timeliness and risk.
12
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC LARGE CAP GROWTH PORTFOLIO (TICKER: PWB)
The PowerShares Dynamic Large Cap Growth Portfolio is based on the Dynamic Large
Cap Growth Intellidex(SM) Index, and seeks to provide capital appreciation while
maintaining consistent and stylistically accurate exposure.
The PowerShares Dynamic Large Cap Growth Portfolio posted good results during
the fiscal year, returning 15.89%. Despite being the lowest performer of the
style groups and still trailing its mid and small cap counterparts, decent
positive performance in the large cap growth segment was a welcomed event after
years of mediocre results. The largest contributors to performance were
technology hardware and equipment makers, energy, retailing and diversified
financial stocks; food and beverage and media stocks lagged.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
1 YEAR AVG ANN CUMULATIVE
INDEX
DYNAMIC LARGE CAP GROWTH INTELLIDEX(SM) INDEX 16.58 9.49 11.15
DOW JONES US LARGE CAP GROWTH INDEX 10.87 4.69 5.49
RUSSELL LARGE CAP GROWTH INDEX 15.18 8.76 10.29
S&P BARRA LARGE CAP GROWTH INDEX 10.74 5.37 6.29
FUND
NAV 15.89 8.75 10.21
SHARE PRICE RETURN 15.78 8.52 10.01
</Table>
FUND INCEPTION: 3 MARCH 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE DOW JONES US LARGE CAP GROWTH INDEX, RUSSELL LARGE CAP GROWTH INDEX AND THE
S&P BARRA LARGE CAP GROWTH INDEX ARE UNMANAGED INDEXES THAT ARE
BROAD-MEASUREMENTS OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF APPROXIMATELY 108 AND 600 AND 500 COMMON STOCKS, RESPECTIVELY.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
13
<Page>
POWERSHARES DYNAMIC LARGE CAP GROWTH PORTFOLIO (TICKER: PWB)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES DOW JONES S&P BARRA
DYNAMIC LARGE CAP US LARGE CAP RUSSELL 1000 LARGE CAP
GROWTH PORTFOLIO GROWTH INDEX GROWTH INDEX GROWTH INDEX
04/29/2005 $10,000 $10,000 $10,000 $10,000
05/31/2005 $ 9,664 $ 9,781 $ 9,810 $ 9,826
06/30/2005 $10,288 $10,235 $10,284 $10,141
07/29/2005 $10,192 $10,096 $10,246 $10,015
08/31/2005 $10,665 $10,585 $10,747 $10,446
09/30/2005 $10,493 $10,422 $10,609 $10,333
10/31/2005 $10,562 $10,426 $10,658 $10,393
11/30/2005 $10,446 $10,382 $10,554 $10,229
12/30/2005 $10,973 $10,836 $11,009 $10,620
01/31/2006 $10,870 $10,711 $10,975 $10,543
02/28/2006 $11,220 $10,909 $11,167 $10,741
03/31/2006 $11,151 $10,807 $11,150 $10,703
04/28/2006 $11,337 $10,903 $11,314 $10,851
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
INFORMATION TECHNOLOGY 31.4
HEALTH CARE 20.9
CONSUMER DISCRETIONARY 12.1
INDUSTRIALS 11.7
ENERGY 10.4
FINANCIALS 7.2
CONSUMER STAPLES 6.2
MONEY MARKET FUND 0.0
OTHER 0.1
</Table>
STYLE ALLOCATION (%)
<Table>
LARGE GROWTH 100.00
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
SCHLUMBERGER LTD. (NETHERLANDS) 3.93
BOEING CO. 3.75
QUALCOMM, INC. 3.63
UNITED PARCEL SERVICE, INC., CLASS B 3.58
CISCO SYSTEMS, INC. 3.53
NEWS CORP., INC., CLASS A 3.51
APPLE COMPUTER, INC. 3.26
MOTOROLA, INC. 3.25
GENENTECH, INC. 3.18
PROCTER & GAMBLE CO. 3.14
-----
TOTAL 34.76
=====
</Table>
14
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC LARGE CAP VALUE PORTFOLIO (TICKER: PWV)
The PowerShares Dynamic Large Cap Value Portfolio is based on the Dynamic Large
Cap Value Intellidex(SM) Index, and seeks to provide capital appreciation while
maintaining consistent and stylistically accurate exposure.
The PowerShares Dynamic Large Cap Value Portfolio performed very well during the
fiscal year, posting a 21.71% return. The Fund's strong performance was still
not enough to catch some of its mid and small cap counterparts. It did
outperform large cap growth, a trend not followed in the mid and small cap
segments, where growth outperformed value. Energy, financials and insurance
companies contributed most to performance, while autos, commercial services and
household product stocks underperformed.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
1 YEAR AVG ANN CUMULATIVE
INDEX
DYNAMIC LARGE CAP VALUE INTELLIDEX INDEX 22.59 15.99 18.89
DOW JONES US LARGE CAP VALUE INDEX 11.94 6.94 8.14
RUSSELL LARGE CAP VALUE INDEX 18.30 11.83 13.93
S&P BARRA LARGE CAP VALUE INDEX 20.00 12.50 14.73
FUND
NAV 21.71 15.27 17.90
SHARE PRICE RETURN 21.44 14.94 17.64
</Table>
FUND INCEPTION: 3 MARCH 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE DOW JONES US LARGE CAP VALUE INDEX, RUSSELL LARGE CAP VALUE INDEX AND THE
S&P BARRA LARGE CAP VALUE INDEX ARE UNMANAGED INDEXES THAT ARE
BROAD-MEASUREMENTS OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF APPROXIMATELY 130, 600 AND 300 COMMON STOCKS, RESPECTIVELY.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
0BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
15
<Page>
POWERSHARES DYNAMIC LARGE CAP VALUE PORTFOLIO (TICKER: PWV)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES DOW JONES US S&P BARRA
DYNAMIC LARGE CAP LARGE CAP RUSSELL 1000 LARGE CAP
VALUE PORTFOLIO VALUE INDEX VALUE INDEX VALUE INDEX
04/29/2005 $10,000 $10,000 $10,000 $10,000
05/31/2005 $ 9,831 $ 9,894 $ 9,821 $ 9,796
06/30/2005 $10,024 $10,009 $10,057 $10,106
07/29/2005 $10,230 $10,056 $10,167 $10,258
08/31/2005 $10,602 $10,246 $10,462 $10,579
09/30/2005 $10,663 $10,177 $10,416 $10,500
10/31/2005 $10,865 $10,314 $10,562 $10,609
11/30/2005 $10,656 $10,086 $10,294 $10,424
12/30/2005 $10,926 $10,347 $10,632 $10,814
01/31/2006 $10,899 $10,375 $10,696 $10,896
02/28/2006 $11,291 $10,635 $11,111 $11,264
03/31/2006 $11,386 $10,684 $11,179 $11,360
04/28/2006 $11,521 $10,794 $11,331 $11,486
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
FINANCIALS 35.9
INDUSTRIALS 12.9
ENERGY 11.3
INFORMATION TECHNOLOGY 7.9
HEALTH CARE 7.5
CONSUMER STAPLES 6.0
UTILITIES 5.4
CONSUMER DISCRETIONARY 5.3
TELECOMMUNICATION SERVICES 4.6
MATERIALS 3.1
MONEY MARKET FUND 0.0
OTHER 0.1
</Table>
STYLE ALLOCATION (%)
<Table>
LARGE VALUE 100.00
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
3M CO. 3.76
BANK OF AMERICA CORP. 3.56
CONOCOPHILLIPS 3.53
CITIGROUP, INC. 3.46
WELLS FARGO & CO. 3.46
EXXON MOBIL CORP. 3.42
WACHOVIA CORP. 3.41
GENERAL ELECTRIC CO. 3.37
INTERNATIONAL BUSINESS MACHINES CORP. 3.33
HEWLETT-PACKARD CO. 3.25
-----
TOTAL 34.55
=====
</Table>
16
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC MID CAP GROWTH PORTFOLIO (TICKER: PWJ)
The PowerShares Dynamic Mid Cap Growth Portfolio is based on the Dynamic Mid Cap
Growth Intellidex(SM) Index, and seeks to provide capital appreciation while
maintaining consistent and stylistically accurate exposure.
The PowerShares Dynamic Mid Cap Growth Portfolio performed the best of the six
PowerShares style funds, posting a 34.99% return for the period. Healthcare
equipment and services, diversified financials, retail and material stocks
contributed strongly; household products, media and apparel stocks trailed.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
1 YEAR AVG ANN CUMULATIVE
INDEX
DYNAMIC MID CAP GROWTH INTELLIDEX INDEX 36.26 22.28 26.44
DOW JONES US MID CAP GROWTH INDEX 31.54 19.76 23.41
RUSSELL MID CAP GROWTH INDEX 28.27 17.58 20.79
S&P BARRA MID CAP GROWTH INDEX 28.86 18.03 21.33
FUND
NAV 34.99 21.36 25.15
SHARE PRICE RETURN 35.10 21.10 25.02
</Table>
FUND INCEPTION: 3 MARCH 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE DOW JONES US MID CAP GROWTH INDEX, RUSSELL MID CAP GROWTH INDEX AND THE S&P
BARRA MID CAP GROWTH INDEX ARE UNMANAGED INDEXES THAT ARE BROAD-MEASUREMENTS OF
CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE PERFORMANCE OF
APPROXIMATELY 210, 500 AND 250 COMMON STOCKS, RESPECTIVELY.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
17
<Page>
POWERSHARES DYNAMIC MID CAP GROWTH PORTFOLIO (TICKER: PWJ)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES DOW JONES RUSSELL S&P BARRA
DYNAMIC MID CAP US MID CAP MID CAP MID CAP
GROWTH PORTFOLIO GROWTH INDEX GROWTH INDEX GROWTH INDEX
04/29/2005 $10,000 $10,000 $10,000 $10,000
05/31/2005 $ 9,569 $ 9,577 $ 9,604 $ 9,597
06/30/2005 $10,217 $10,139 $10,154 $10,182
07/29/2005 $10,659 $10,400 $10,343 $10,366
08/31/2005 $11,024 $10,998 $10,947 $10,874
09/30/2005 $11,045 $11,025 $10,880 $10,754
10/31/2005 $11,356 $11,251 $11,021 $10,820
11/30/2005 $11,238 $10,968 $10,696 $10,667
12/30/2005 $11,818 $11,489 $11,277 $11,264
01/31/2006 $12,073 $11,629 $11,400 $11,352
02/28/2006 $12,625 $12,354 $12,083 $12,016
03/31/2006 $12,508 $12,161 $11,934 $11,929
04/28/2006 $12,929 $12,567 $12,268 $12,250
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
INFORMATION TECHNOLOGY 21.8
INDUSTRIALS 20.0
CONSUMER DISCRETIONARY 19.1
HEALTH CARE 13.2
FINANCIALS 9.0
MATERIALS 7.7
TELECOMMUNICATION SERVICES 3.7
UTILITIES 3.5
ENERGY 1.3
MONEY MARKET FUND 0.7
</Table>
STYLE ALLOCATION (%)
<Table>
MID GROWTH 100.00
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
NVIDIA CORP. 3.91
FREEPORT-MCMORAN COPPER & GOLD, INC., CLASS B 3.82
AUTODESK, INC. 3.49
NATIONAL SEMICONDUCTOR CORP. 3.41
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. 3.38
HILTON HOTELS CORP. 3.37
FLUOR CORP. 3.31
INTERNATIONAL GAME TECHNOLOGY 3.24
ROCKWELL AUTOMATION, INC. 3.18
ECOLAB, INC. 3.16
-----
TOTAL 34.27
=====
</Table>
18
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC MID CAP VALUE PORTFOLIO (TICKER: PWP)
The PowerShares Dynamic Mid Cap Value Portfolio is based on the Dynamic Mid Cap
Value Intellidex(SM) Index, and seeks to provide capital appreciation while
maintaining consistent and stylistically accurate exposure.
The PowerShares Dynamic Mid Cap Value Portfolio posted good results during the
fiscal year, returning 20.85%, putting it in the middle of the pack as far as
the PowerShares style funds. Financial stocks, including insurance and banks,
contributed most to performance along with basic materials and capital goods
stocks benefiting from construction spending and the escalating costs of steel
and other basic materials. Food and beverage and apparel stocks lagged.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
1 YEAR AVG ANN CUMULATIVE
INDEX
DYNAMIC MID CAP VALUE INTELLIDEX INDEX 22.20 14.67 17.32
DOW JONES US MID CAP VALUE INDEX 19.12 11.71 13.79
RUSSELL MID CAP VALUE INDEX 24.75 16.86 19.94
S&P BARRA MID CAP VALUE INDEX 27.70 17.53 20.74
FUND
NAV 20.85 13.62 15.95
SHARE PRICE RETURN 20.93 13.31 15.70
</Table>
FUND INCEPTION: 3 MARCH 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE DOW JONES US MID CAP VALUE INDEX, RUSSELL MID CAP VALUE INDEX AND S&P BARRA
MID CAP VALUE INDEX ARE UNMANAGED INDEXES THAT ARE BROAD-MEASUREMENTS OF CHANGE
IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE PERFORMANCE OF APPROXIMATELY
229, 500 AND 300 COMMON STOCKS, RESPECTIVELY.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
19
<Page>
POWERSHARES DYNAMIC MID CAP VALUE PORTFOLIO (TICKER: PWP)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES DOW JONES RUSSELL S&P BARRA
DYNAMIC MID CAP US MID CAP MID CAP MID CAP
VALUE PORTFOLIO VALUE INDEX VALUE INDEX VALUE INDEX
04/29/2005 $10,000 $10,000 $10,000 $10,000
05/31/2005 $ 9,652 $ 9,759 $ 9,736 $ 9,625
06/30/2005 $10,134 $10,197 $10,139 $10,198
07/29/2005 $10,328 $10,453 $10,470 $10,486
08/31/2005 $10,802 $10,947 $10,969 $11,074
09/30/2005 $10,575 $10,780 $10,883 $10,949
10/31/2005 $10,668 $10,819 $11,031 $11,052
11/30/2005 $10,521 $10,401 $10,693 $10,728
12/30/2005 $10,983 $10,811 $11,070 $11,172
01/31/2006 $10,996 $10,913 $11,178 $11,238
02/28/2006 $11,324 $11,377 $11,663 $11,906
03/31/2006 $11,370 $11,375 $11,773 $11,791
04/28/2006 $11,390 $11,521 $12,030 $12,061
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
FINANCIALS 43.4
INDUSTRIALS 11.2
CONSUMER STAPLES 10.9
UTILITIES 10.8
INFORMATION TECHNOLOGY 9.2
CONSUMER DISCRETIONARY 7.1
MATERIALS 5.6
ENERGY 0.7
MONEY MARKET FUND 0.6
HEALTH CARE 0.5
</Table>
STYLE ALLOCATION (%)
<Table>
MID VALUE 100.00
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
FREESCALE SEMICONDUCTOR, INC., CLASS B 3.85
COMPUTER SCIENCES CORP. 3.55
COOPER INDUSTRIES LTD., CLASS A (BERMUDA) 3.54
AMBAC FINANCIAL GROUP, INC. 3.52
AON CORP. 3.44
M&T BANK CORP. 3.41
PACCAR, INC. 3.36
CAMPBELL SOUP CO. 3.35
CNA FINANCIAL CORP. 3.33
LINCOLN NATIONAL CORP. 3.27
-----
TOTAL 34.62
=====
</Table>
20
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC SMALL CAP GROWTH PORTFOLIO (TICKER: PWT)
The PowerShares Dynamic Small Cap Growth Portfolio is based on the Dynamic Small
Cap Growth Intellidex(SM) Index, and seeks to provide capital appreciation while
maintaining consistent and stylistically accurate exposure.
The PowerShares Dynamic Small Cap Growth Portfolio posted the second strongest
results of the six PowerShares style funds during the fiscal year, returning
33.17%. Benefiting from a lower tax base and improved consumer confidence, small
cap growth stocks charged forward, led primarily by technology names such as
computer software and services stocks as well as computer hardware companies.
Healthcare equipment and services companies as well as industrial stocks also
benefited from the economic recovery. Materials, media and personal products
stocks lagged.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
1 YEAR AVG ANN CUMULATIVE
INDEX
DYNAMIC SMALL CAP GROWTH INTELLIDEX(SM) INDEX 33.74 19.54 23.14
DOW JONES US SMALL CAP GROWTH INDEX 28.33 16.09 19.02
RUSSELL SMALL CAP GROWTH INDEX 36.13 18.80 22.26
S&P BARRA SMALL CAP GROWTH INDEX 29.66 14.90 17.59
FUND
NAV 33.17 19.16 22.52
SHARE PRICE RETURN 33.72 18.89 22.37
</Table>
FUND INCEPTION: 3 MARCH 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE DOW JONES US SMALL CAP GROWTH INDEX, RUSSELL SMALL CAP GROWTH INDEX AND THE
S&P BARRA SMALL CAP GROWTH INDEX ARE UNMANAGED INDEXES THAT ARE
BROAD-MEASUREMENTS OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF APPROXIMATELY 305, 1300 AND 350 COMMON STOCKS, RESPECTIVELY.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
21
<Page>
POWERSHARES DYNAMIC SMALL CAP GROWTH PORTFOLIO (TICKER: PWT)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES DOW JONES S&P BARRA
DYNAMIC SMALL CAP US SMALL CAP RUSSELL 2000 SMALL CAP
GROWTH PORTFOLIO GROWTH INDEX GROWTH INDEX GROWTH INDEX
04/29/2005 $10,000 $10,000 $10,000 $10,000
05/31/2005 $ 9,427 $ 9,583 $ 9,364 $ 9,432
06/30/2005 $10,211 $10,109 $10,024 $10,114
07/29/2005 $10,539 $10,330 $10,348 $10,378
08/31/2005 $11,138 $10,951 $11,071 $11,015
09/30/2005 $11,104 $10,820 $10,915 $10,902
10/31/2005 $11,254 $10,868 $11,002 $11,065
11/30/2005 $10,716 $10,527 $10,595 $10,677
12/30/2005 $11,295 $11,125 $11,195 $11,193
01/31/2006 $11,431 $11,130 $11,178 $11,089
02/28/2006 $12,290 $11,949 $12,257 $11,913
03/31/2006 $12,181 $11,868 $12,191 $11,776
04/28/2006 $12,515 $12,376 $12,784 $12,343
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
INFORMATION TECHNOLOGY 31.2
INDUSTRIALS 21.5
HEALTH CARE 16.1
FINANCIALS 10.7
ENERGY 8.4
CONSUMER DISCRETIONARY 8.3
TELECOMMUNICATIONS 2.9
UTILITIES 0.9
</Table>
STYLE ALLOCATION (%)
<Table>
SMALL GROWTH 100.00
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
KIRBY CORP. 2.88
VERIFONE HOLDINGS, INC. 2.74
ACTUANT CORP., CLASS A 2.72
VERITAS DGC, INC. 2.68
NETFLIX, INC. 2.67
CYMER, INC. 2.65
MEDICIS PHARMACEUTICAL CORP., CLASS A 2.60
PHILLIPS-VAN HEUSEN CORP. 2.54
WABTEC CORP. 2.53
GREENHILL & CO., INC. 2.52
-----
TOTAL 26.53
=====
</Table>
22
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC SMALL CAP VALUE PORTFOLIO (TICKER: PWY)
The PowerShares Dynamic Small Cap Value Portfolio is based on the Dynamic Small
Cap Value Intellidex(SM) Index, and seeks to provide capital appreciation while
maintaining consistent and stylistically accurate exposure.
The PowerShares Dynamic Small Cap Value Portfolio posted impressive results
during the fiscal year, returning 24.20%. Financial, industrial and retail
stocks contributed the most to the Fund's performance. Small cap energy and
basic material stocks surged ahead, benefiting from ever-increasing commodity
prices. Media and household product names had a slightly negative contribution
to the Fund's performance.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
1 YEAR AVG ANN CUMULATIVE
INDEX
DYNAMIC SMALL CAP VALUE INTELLIDEX(SM) INDEX 25.26 12.53 14.77
DOW JONES US SMALL CAP VALUE INDEX 29.16 16.08 19.00
RUSSELL SMALL CAP VALUE INDEX 30.85 17.23 20.38
S&P BARRA SMALL CAP VALUE INDEX 33.17 18.92 22.41
FUND
NAV 24.20 11.73 13.72
SHARE PRICE RETURN 24.39 11.43 13.45
</Table>
FUND INCEPTION: 3 MARCH 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE DOW JONES US SMALL CAP VALUE INDEX, RUSSELL SMALL CAP VALUE INDEX AND THE
S&P BARRA SMALL CAP VALUE INDEX ARE UNMANAGED INDEXES THAT ARE
BROAD-MEASUREMENTS OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF APPROXIMATELY 373, 1300 AND 350 COMMON STOCKS, RESPECTIVELY.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
23
<Page>
POWERSHARES DYNAMIC SMALL CAP VALUE PORTFOLIO (TICKER: PWY)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES DOW JONES S&P BARRA
DYNAMIC SMALL CAP US SMALL CAP RUSSELL 2000 SMALL CAP
VALUE PORTFOLIO VALUE INDEX VALUE INDEX VALUE INDEX
04/29/2005 $10,000 $10,000 $10,000 $10,000
05/31/2005 $ 9,474 $ 9,466 $ 9,484 $ 9,451
06/30/2005 $10,242 $10,022 $10,063 $10,018
07/29/2005 $10,547 $10,357 $10,508 $10,411
08/31/2005 $11,087 $11,020 $11,105 $11,025
09/30/2005 $10,699 $10,910 $10,851 $10,815
10/31/2005 $10,775 $10,911 $10,833 $10,844
11/30/2005 $10,540 $10,585 $10,560 $10,546
12/30/2005 $10,886 $11,023 $10,989 $11,005
01/31/2006 $10,734 $11,038 $10,905 $10,904
02/28/2006 $11,412 $11,790 $11,806 $11,924
03/31/2006 $11,322 $11,819 $11,805 $11,883
04/28/2006 $11,633 $12,259 $12,377 $12,477
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
FINANCIALS 33.9
INDUSTRIALS 17.6
INFORMATION TECHNOLOGY 15.2
CONSUMER DISCRETIONARY 12.9
MATERIALS 11.3
CONSUMER STAPLES 5.8
UTILITIES 1.3
ENERGY 0.9
HEALTH CARE 0.5
TELECOMMUNICATIONS SERVICES 0.4
MONEY MARKET FUND 0.2
</Table>
STYLE ALLOCATION (%)
<Table>
SMALL VALUE 100.00
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
NORDSON CORP. 2.65
DOWNEY FINANCIAL CORP. 2.61
BISYS GROUP (THE), INC. 2.60
GREIF, INC., CLASS A 2.56
PILGRIM'S PRIDE CORP. 2.51
TORO (THE) CO. 2.51
CATHAY GENERAL BANCORP 2.47
COMMERCE GROUP, INC. 2.47
SEABOARD CORP. 2.44
STATE AUTO FINANCIAL CORP. 2.41
-----
TOTAL 25.23
=====
</Table>
24
<Page>
MANAGERS' ANALYSIS
POWERSHARES DIVIDEND ACHIEVERS(TM) PORTFOLIO (TICKER: PFM)
The PowerShares Dividend Achievers(TM) Portfolio is based on the Broad Dividend
Achievers(TM) Index, and seeks investment results that correspond generally to
the price and yield (before the Fund's fees and expenses) of that equity Index.
The Broad Dividend Achievers(TM) Index is designed to track the performance of
companies that meet the requirements to be classified as "Dividend
Achievers(TM)." To become eligible for inclusion in the Broad Dividend
Achievers(TM) Index, a company must be incorporated in the United States or
territories, trade on the New York Stock Exchange ("NYSE"), NASDAQ or AMEX, and
must have raised its annual regular cash dividend payments for at least each of
the last ten consecutive fiscal years.
Since the Fund's inception in September of last year, the Fund achieved a 6.45%
return, reaching a peak on March 16, 2006. Much of the return was generated by
the Fund's large cap companies, but relative to the overall market, both small
and mid cap stocks provided higher relative performance as mid and small cap
stocks continued to outpace their larger brethren. Diversified financials,
manufacturing, and banking stocks performed soundly and were the biggest
contributors to overall performance, while pharmaceuticals, health care
equipment makers and energy stocks trailed.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
BROAD DIVIDEND ACHIEVERS(TM) INDEX 6.85
S&P 500(R) INDEX 7.96
FUND
NAV 6.45
SHARE PRICE RETURN 6.53
</Table>
FUND INCEPTION: 15 SEPTEMBER 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P 500(R) INDEX IS AN UNMANAGED INDEX USED AS A MEASUREMENT OF CHANGE IN
STOCK MARKET CONDITIONS BASED ON THE AVERAGE PERFORMANCE OF 500 COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
25
<Page>
POWERSHARES DIVIDEND ACHIEVERS(TM) PORTFOLIO (TICKER: PFM)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES
DIVIDEND ACHIEVERS(TM) S&P 500(R)
PORTFOLIO INDEX
10/31/2005 $10,000 $10,000
11/30/2005 $ 9,919 $ 9,833
12/30/2005 $10,216 $10,205
01/31/2006 $10,148 $10,209
02/28/2006 $10,297 $10,479
03/31/2006 $10,378 $10,508
04/28/2006 $10,378 $10,638
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
FINANCIALS 30.0
CONSUMER STAPLES 19.5
HEALTH CARE 13.1
INDUSTRIALS 12.9
ENERGY 7.8
CONSUMER DISCRETIONARY 6.5
INFORMATION TECHNOLOGY 3.6
TELECOMMUNICATION SERVICES 2.5
MATERIALS 2.3
UTILITIES 1.5
OTHER 0.3
</Table>
STYLE ALLOCATION (%)
<Table>
LARGE VALUE 67.65
LARGE GROWTH 16.35
MID VALUE 9.69
MID GROWTH 3.65
SMALL VALUE 2.37
SMALL GROWTH 0.29
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
GENERAL ELECTRIC CO. 5.13
EXXON MOBIL CORP. 5.03
CITIGROUP, INC. 4.75
BANK OF AMERICA CORP. 4.43
PROCTER & GAMBLE (THE) CO. 3.82
WAL-MART STORES, INC. 3.58
PFIZER, INC. 3.56
JOHNSON & JOHNSON 3.33
AMERICAN INTERNATIONAL GROUP, INC. 3.23
ALTRIA GROUP, INC. 2.91
-----
TOTAL 39.77
=====
</Table>
26
<Page>
MANAGERS' ANALYSIS
POWERSHARES HIGH YIELD EQUITY DIVIDEND ACHIEVERS(TM) PORTFOLIO (TICKER: PEY)
The PowerShares High Yield Equity Dividend Achievers(TM) Portfolio is based on
the Mergent Dividend Achievers(TM) 50 Index. The Mergent Dividend Achievers(TM)
50 Index seeks to deliver high current income and capital appreciation. It is
comprised of the fifty highest yielding companies with at least ten years of
consecutive dividend increases. The Index's high dividend yield approach
provides exposure to deep value companies while the long-term dividend growth
requirement attempts to minimize exposure to distressed value companies. The
yield weighted portfolio is rebalanced quarterly and reconstituted annually.
Navigating through a rising rate environment typically unfriendly to interest
rate sensitive stocks, the Fund returned 7.92%. Banks and utilities which
comprise a majority of the portfolio were the biggest contributors to overall
performance, while the manufacturing and food and beverage stocks lagged.
Although returns were positive for all three market cap groups, small cap stocks
were the biggest contributors to the overall performance. Relative to the broad
U.S. market, the Fund did not benefit from over weighting financials and
utilities and underweighting energy stocks as financials and utilities
underperformed and energy outperformed the U.S. equity market as a whole.
During the one year reporting period ended on April 30, 2006, the Fund paid four
quarterly dividends totaling $0.47938 per share, providing a twelve month yield
at the Fund's fiscal year end of 3.18%. It is important to note that beginning
in May 2006, the Fund will begin making monthly distributions as opposed to
quarterly distributions.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
1 YEAR AVG ANN CUMULATIVE
INDEX
DIVIDEND ACHIEVERS(TM) 50 INDEX 7.31 4.02 5.65
S&P 500(R) INDEX 15.40 9.15 12.99
S&P BARRA LARGE CAP VALUE INDEX 20.00 12.36 17.67
FUND
NAV 7.92 4.53 6.34
SHARE PRICE RETURN 7.88 4.44 6.26
</Table>
FUND INCEPTION: 9 DECEMBER 2004
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P 500(R) INDEX & S&P BARRA LARGE CAP VALUE INDEXES ARE UNMANAGED INDEXES
USED AS A MEASUREMENT OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF APPROXIMATELY 500 & 250 COMMON STOCKS, RESPECTIVELY.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
27
<Page>
POWERSHARES HIGH YIELD EQUITY DIVIDEND ACHIEVERS(TM) PORTFOLIO (TICKER: PEY)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES S&P BARRA
HIGH YIELD EQUITY DIVIDEND S&P 500(R) LARGE CAP
ACHIEVERS(TM) PORTFOLIO INDEX VALUE INDEX
01/31/2005 $10,000 $10,000 $10,000
02/28/2005 $ 9,686 $ 9,756 $ 9,757
03/31/2005 $ 9,705 $ 9,962 $ 9,934
04/29/2005 $ 9,535 $ 9,785 $ 9,757
05/31/2005 $ 9,437 $ 9,600 $ 9,558
06/30/2005 $ 9,758 $ 9,905 $ 9,860
07/29/2005 $ 9,830 $ 9,919 $10,009
08/31/2005 $10,183 $10,287 $10,322
09/30/2005 $10,013 $10,193 $10,245
10/31/2005 $ 9,876 $10,275 $10,351
11/30/2005 $ 9,732 $10,104 $10,171
12/30/2005 $ 9,915 $10,486 $10,551
01/31/2006 $ 9,777 $10,490 $10,631
02/28/2006 $ 9,974 $10,768 $10,990
03/31/2006 $ 9,869 $10,797 $11,084
04/28/2006 $ 9,836 $10,931 $11,207
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
FINANCIALS 48.9
UTILITIES 32.6
CONSUMER STAPLES 9.1
CONSUMER DISCRETIONARY 3.2
TELECOMMUNICATIONS 2.4
HEALTH CARE 2.1
MATERIAL 1.7
MONEY MARKET FUND 0.1
OTHER (0.1)
</Table>
STYLE ALLOCATION (%)
<Table>
SMALL VALUE 49.80
MID VALUE 25.17
LARGE VALUE 25.03
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
PEOPLES ENERGY CORP. 2.97
F.N.B. CORP. 2.71
PROGRESS ENERGY, INC. 2.70
CONSOLIDATED EDISON, INC. 2.60
CONAGRA FOODS, INC. 2.45
PINNACLE WEST CAPITAL CORP. 2.45
AT&T, INC. 2.37
ATMOS ENERGY CORP. 2.31
WASHINGTON MUTUAL, INC. 2.30
UNIVERSAL CORP. 2.29
-----
TOTAL 25.15
=====
</Table>
28
<Page>
MANAGERS' ANALYSIS
POWERSHARES HIGH GROWTH RATE DIVIDEND ACHIEVERS(TM) PORTFOLIO (TICKER: PHJ)
The PowerShares High Growth Rate Dividend Achievers(TM) Portfolio is based on
the High Growth Rate Dividend Achievers(TM) Index, and seeks investment results
that correspond generally to the price and yield (before the Fund's fees and
expenses) of that equity index.
The High Growth Rate Dividend Achievers(TM) Index is designed to track the
performance of the 100 companies with the highest annual dividend growth rate
over the last 10 years that meet the requirements to be classified as "High
Growth Rate Dividend Achievers(TM)." To become eligible for inclusion in the
High Growth Rate Dividend Achievers(TM) Index, a company must be incorporated in
the United States or its territories, trade on the NYSE, NASDAQ or AMEX, and its
aggregate annual regular dividend payments must have increased consistently over
the course of the last 10 or more fiscal years.
The September 2005 launch of the PowerShares High Growth Rate Dividend
Achievers(TM) Portfolio presented investors with an opportunity to invest in a
dividend growth Index that focuses on companies which are growing their
dividends at rapid pace. Since inception, the Fund has returned 9.39%, reaching
a high for the reporting period on April 30, 2006.
In absolute terms, most of the total return of all three market capitalizations
was positive, with large cap and small cap companies contributing slightly less
to the Fund's total return relative to their weightings. The Fund benefited from
allocating more to mid cap stocks relative to the overall market. Diversified
financials, banks, capital goods and materials stocks were the biggest
contributors to overall performance. The Fund also benefited from overweighting
financial stocks relative to the market. Healthcare equipment makers,
pharmaceuticals, media and staples stocks within the Fund underperformed.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
HIGH GROWTH RATE DIVIDEND ACHIEVERS(TM) INDEX 9.69
DOW JONES INDUSTRIAL AVERAGE 7.66
FUND
NAV 9.39
SHARE PRICE RETURN 9.34
</Table>
FUND INCEPTION: 15 SEPTEMBER 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE DOW JONES INDUSTRIAL AVERAGE IS AN UNMANAGED INDEX USED AS A MEASUREMENT OF
CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE PERFORMANCE OF 30 COMMON
STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
29
<Page>
POWERSHARES HIGH GROWTH RATE DIVIDEND ACHIEVERS(TM) PORTFOLIO (TICKER: PHJ)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES
HIGH GROWTH RATE DIVIDEND DOW JONES
ACHIEVERS(TM) PORTFOLIO INDUSTRIALS AVERAGE
10/31/2005 $10,000 $10,000
11/30/2005 $10,082 $ 9,878
12/30/2005 $10,477 $10,224
01/31/2006 $10,395 $10,141
02/28/2006 $10,675 $10,280
03/31/2006 $10,750 $10,402
04/28/2006 $10,757 $10,512
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
FINANCIALS 49.5
CONSUMER DISCRETIONARY 14.7
HEALTH CARE 12.3
CONSUMER STAPLES 9.6
INDUSTRIALS 5.2
INFORMATION TECHNOLOGY 4.9
MATERIALS 3.8
</Table>
STYLE ALLOCATION (%)
<Table>
LARGE VALUE 52.16
LARGE GROWTH 28.21
MID VALUE 8.31
MID GROWTH 7.56
SMALL VALUE 3.24
SMALL GROWTH 0.52
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
WELLS FARGO & CO. 4.21
BANK OF AMERICA CORP. 4.21
CITIGROUP, INC. 4.21
AMERICAN INTERNATIONAL GROUP, INC. 4.10
PFIZER, INC. 4.08
MEDTRONIC, INC. 4.05
LOWE'S COS., INC. 4.03
JOHNSON & JOHNSON 4.03
HOME DEPOT (THE), INC. 4.01
MCDONALD'S CORP. 3.97
-----
TOTAL 40.90
=====
</Table>
30
<Page>
MANAGERS' ANALYSIS
POWERSHARES INTERNATIONAL DIVIDEND ACHIEVERS(TM) PORTFOLIO (TICKER: PID)
The PowerShares International Dividend Achievers(TM) Portfolio is based on the
International Dividend Achievers(TM) Index, and seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of that equity Index.
The International Dividend Achievers(TM) Index is designed to track the
performance of dividend paying American Depositary Receipts and non-U.S. common
or ordinary stocks trading on the NYSE, NASDAQ or AMEX. To become eligible for
inclusion in the International Dividend Achievers(TM) Index, a company's
aggregate annual regular dividend payments must have increased consistently over
the course of the last five calendar or fiscal years.
The September 2005 launch of the PowerShares International Dividend
Achievers(TM) Portfolio presented investors with an opportunity to invest in
international high yield equities listed in the United States. At the beginning
of 2006, the Fund increased the number of companies from 42 to 60, providing
increased diversification, lower volatility and an increased dividend yield.
Since inception, the Fund has returned 14.50%, reaching a high near the end of
the reporting period.
Financials, which comprise the largest percentage of the Fund, contributed
nicely to the Fund's overall performance. Within financials, banks performed the
best, followed by insurance companies; diversified financials lagged. Utility
stocks in the Fund performed well, and defensive food and tobacco stocks kept
pace, while energy stocks contributed only modestly. From a geographical
perspective, Canada, the United Kingdom and Spain contributed the most, Chile
and China lagged moderately.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
INTERNATIONAL DIVIDEND ACHIEVERS(TM) INDEX 14.44
MSCI EAFE INDEX 21.42
FUND
NAV 14.50
SHARE PRICE RETURN 14.42
</Table>
FUND INCEPTION: 15 SEPTEMBER 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE MSCI EAFE INDEX IS AN UNMANAGED INDEX USED AS A MEASUREMENT OF CHANGE IN
STOCK MARKET CONDITIONS BASED ON THE AVERAGE PERFORMANCE OF 1000 COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
31
<Page>
POWERSHARES INTERNATIONAL DIVIDEND ACHIEVERS(TM) PORTFOLIO (TICKER: PID)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES
INTERNATIONAL DIVIDEND MSCI EAFE
ACHIEVERS(TM) PORTFOLIO INDEX
10/31/2005 $10,000 $10,000
11/30/2005 $ 9,508 $ 9,709
12/30/2005 $ 9,888 $ 9,949
01/31/2006 $10,092 $10,412
02/28/2006 $10,610 $11,052
03/31/2006 $10,676 $11,030
04/28/2006 $10,650 $11,399
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
FINANCIALS 44.0
CONSUMER STAPLES 14.0
ENERGY 9.3
UTILITIES 8.7
CONSUMER DISCRETIONARY 5.8
TELECOMMUNICATIONS SERVICES 5.0
INFORMATION TECHNOLOGY 4.7
HEALTH CARE 3.1
MATERIALS 2.8
INDUSTRIALS 2.7
OTHER (0.1)
</Table>
STYLE ALLOCATION (%)
<Table>
LARGE VALUE 57.85
LARGE GROWTH 20.51
MID VALUE 8.16
MID GROWTH 4.78
SMALL VALUE 4.71
SMALL GROWTH 3.99
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
TELSTRA CORP. LTD. ADR 5.02
LLOYDS TSB GROUP PLC ADR 4.02
ADMINISTRADORA DE FONDOS DE PENSIONES PROVIDA SA ADR 3.52
NAM TAI ELECTRONICS, INC. 3.42
ROYAL BANK OF CANADA 3.13
NATIONAL GRID PLC ADR 2.80
NATIONAL AUSTRALIA BANK LTD. ADR 2.77
HUANENG POWER INTERNATIONAL, INC. ADR 2.61
AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD. ADR 2.60
ENI SPA ADR 2.52
-----
TOTAL 32.41
=====
</Table>
32
<Page>
MANAGERS' ANALYSIS
POWERSHARES AEROSPACE & DEFENSE PORTFOLIO (TICKER: PPA)
The PowerShares Aerospace & Defense Portfolio is based on the SPADE(TM) Defense
Index, and seeks investment results that correspond generally to the price and
yield (before the Fund's fees and expenses) of that equity Index.
The October 2005 launch of the PowerShares Aerospace & Defense Portfolio
presented investors with an opportunity to invest in a sector that has now
outperformed the S&P 500(R) Index for six consecutive years and in 19 of the
last 23 quarters. Since inception, the Fund has returned 16.66%, reaching its
all-time high near the end of April 2006; during that time the S&P 500(R) Index
returned 11.10%.
Performance in the sector continues to be driven by several factors, including
rising government spending for defense and homeland security, supplemental
appropriations to fund the wars in Iraq and Afghanistan and a rebound in the
market for manufacturing commercial aircraft. With the portfolio representing a
diversified offering of large cap and small/mid cap companies, spending in areas
such as armor for vehicles and soldiers, night vision systems, battlefield
visualization and secure communications can be captured.
While short-term corrections may occur with the most recent federal budget
proposal forecasting an $89 billion increase in defense spending from now until
2011, along with increased spending for port and border security, the prospects
for the sector, absent political changes, appear to be favorable.
The SPADE(TM) Defense Index is a modified market capitalization weighted index
comprised of publicly traded companies that seeks to measure the performance of
securities in the defense, homeland security and space marketplace. The
SPADE(TM) Defense Index includes companies that are involved with the
development, manufacture, operation and support of U.S. defense, military,
homeland security and space operations that are listed on the NYSE, or AMEX or
quoted on the NASDAQ National Market.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
SPADE(TM) DEFENSE INDEX 16.45
S&P 500(R) INDEX 11.10
FUND
NAV 16.66
SHARE PRICE RETURN 16.72
</Table>
FUND INCEPTION: 26 OCTOBER 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P 500(R) INDEX IS AN UNMANAGED INDEX USED AS A MEASUREMENT OF CHANGE IN
STOCK MARKET CONDITIONS BASED ON THE AVERAGE PERFORMANCE OF 500 COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
33
<Page>
POWERSHARES AEROSPACE & DEFENSE PORTFOLIO (TICKER: PPA)
GROWTH SINCE INCEPTION
<Table>
<Caption>
POWERSHARES
AEROSPACE & S&P 500(R)
DEFENSE PORTFOLIO INDEX
11/30/2005 $10,000 $10,000
12/30/2005 $10,269 $10,378
01/31/2006 $10,423 $10,382
02/28/2006 $10,604 $10,657
03/31/2006 $11,095 $10,686
04/28/2006 $11,545 $10,819
</Table>
INDUSTRY BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
AEROSPACE/DEFENSE 50.0
MEDIA 13.3
MISCELLANEOUS MANUFACTURING 10.8
COMPUTERS 7.1
ELECTRONICS 6.7
TELECOMMUNICATIONS 5.0
METAL FABRICATE/HARDWARE 3.4
AUTO MANUFACTURERS 1.7
PACKAGING & CONTAINERS 1.6
SOFTWARE 0.4
</Table>
STYLE ALLOCATION (%)
<Table>
LARGE VALUE 29.10
MID VALUE 21.40
MID GROWTH 20.57
LARGE GROWTH 16.45
SMALL GROWTH 7.60
SMALL VALUE 4.88
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
UNITED TECHNOLOGIES CORP. 7.45
BOEING CO. 7.45
HONEYWELL INTERNATIONAL, INC. 6.43
LOCKHEED MARTIN CORP. 6.07
GENERAL DYNAMICS CORP. 4.79
DIRECTV GROUP (THE), INC. 4.68
NORTHROP GRUMMAN CORP. 4.35
RAYTHEON CO. 4.32
ECHOSTAR COMMUNICATIONS CORP., CLASS A 4.18
COMPUTER SCIENCES CORP. 4.13
-----
TOTAL 53.85
=====
</Table>
34
<Page>
MANAGERS' ANALYSIS
POWERSHARES GOLDEN DRAGON HALTER USX CHINA PORTFOLIO (TICKER: PGJ)
Benefiting substantially from a growing and expanding Chinese economy, the Fund
posted a 31.52% return over the reporting period. Energy, chemicals, metals and
mining and other basic materials stocks benefited from surging commodity prices
around the world as well as increased demand from within China, fueled by its
burgeoning middle class. Telecom, insurance and computer software companies also
contributed positively to the Fund's performance. Utilities and healthcare
stocks trailed, and a few instances of lagging software or semiconductor stocks
contributed adversely to the Fund.
The PowerShares Golden Dragon Halter USX China Portfolio is based on the Halter
USX China Index(SM). The Halter USX China Index(SM) is comprised of companies
whose common stock is publicly traded in the United States and the majority of
whose business is conducted within the People's Republic of China. It was
created by the Halter Financial Group in response to the unique economic
opportunities taking place in China, as well as the current dynamics in the U.S.
capital markets. While there is strong demand for Chinese equity, U.S. investors
still seek and prefer the transparency offered with a U.S. listing. The listing
of Chinese companies in the United States is a growing trend and this Index is
intended to provide a valuable tracking and information tool for the investment
community.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
1 YEAR AVG ANN CUMULATIVE
INDEX
HALTER USX CHINA INDEX 33.48 13.07 18.71
MSCI EAFE INDEX 34.00 12.20 17.43
S&P 500(R) INDEX 15.40 37.36 55.76
FUND
NAV 31.52 12.33 17.53
SHARE PRICE RETURN 31.59 11.99 17.12
</Table>
FUND INCEPTION: 9 DECEMBER 2004
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE MSCI EAFE AND THE S&P 500(R) INDEXES ARE UNMANAGED INDEXES USED AS A
MEASUREMENT OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF APPROXIMATELY 1000 & 500 COMMON STOCKS RESPECTFULLY.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
35
<Page>
POWERSHARES GOLDEN DRAGON HALTER USX CHINA PORTFOLIO (TICKER: PGJ)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES
GOLDEN DRAGON HALTER MSCI EAFE
USX CHINA PORTFOLIO INDEX
01/31/2005 $10,000 $10,000
02/28/2005 $ 9,145 $ 9,817
03/31/2005 $ 9,593 $10,244
04/29/2005 $ 9,111 $ 9,990
05/31/2005 $ 8,959 $ 9,767
06/30/2005 $ 9,042 $ 9,782
07/29/2005 $ 9,456 $ 9,915
08/31/2005 $ 9,855 $10,220
09/30/2005 $ 9,717 $10,481
10/31/2005 $ 9,993 $10,950
11/30/2005 $ 9,090 $10,631
12/30/2005 $ 9,476 $10,894
01/31/2006 $ 9,559 $11,402
02/28/2006 $10,924 $12,102
03/31/2006 $10,937 $12,078
04/28/2006 $11,454 $12,482
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
INFORMATION TECHNOLOGY 24.6
TELECOMMUNICATION SERVICES 21.3
ENERGY 15.6
MATERIALS 12.8
INDUSTRIALS 9.7
CONSUMER DISCRETIONARY 4.8
UTILITIES 4.7
FINANCIALS 4.5
HEALTH CARE 1.6
CONSUMER STAPLES 0.1
OTHER 0.3
</Table>
STYLE ALLOCATION (%)
<Table>
SMALL VALUE 29.40
MID VALUE 21.88
LARGE VALUE 15.49
SMALL GROWTH 14.57
LARGE GROWTH 10.98
MID GROWTH 7.68
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
CHINA MOBILE (HONG KONG) LTD. ADR 6.35
PETROCHINA CO. LTD. ADR 6.25
CHINA PETROLEUM AND CHEMICAL CORP. ADR 4.80
HUANENG POWER INTERNATIONAL, INC. ADR 4.70
CHINA UNICOM LTD. ADR 4.64
CNOOC LTD. ADR 4.60
CHINA NETCOM GROUP CORP. (HONG KONG) LTD. ADR 4.55
CHINA LIFE INSURANCE CO. LTD. ADR 4.50
SINOPEC SHANGHAI PETROCHEMICAL CO. LTD. ADR 4.46
CHINA TELECOM CORP. LTD. ADR 4.34
-----
TOTAL 49.19
=====
</Table>
36
<Page>
MANAGERS' ANALYSIS
POWERSHARES LUX NANOTECH PORTFOLIO (TICKER: PXN)
The PowerShares Lux Nanotech Portfolio had a return of 24.94% to shareholders
since its inception in October 2005. Leading the charge were companies involved
in developing nano-enabled products for pharmaceutical and life sciences. For
instance, Elan Corp. PLC, Westaim Corp., Immunicon Corp. and BioSante
Pharmaceuticals, Inc. all contributed nicely to the Fund over the reporting
period. Materials companies Nanophase Technologies Corp. and Symyx Technologies
also performed well, as did semiconductor-related issues Veeco Instruments, Inc.
and NVE Corp. Conversely, the Fund's exposure to automaker General Motors Corp.
contributed negatively to the portfolio's otherwise strong showing.
The PowerShares Lux Nanotech Portfolio is based on the Lux Nanotech Index(TM),
and seeks investment results that correspond generally to the price and yield
(before the Fund's fees and expenses) of that equity Index.
The Lux Nanotech Index(TM) includes companies that are involved with funding
nanotechnology development, developing nanotechnology applications,
manufacturing goods that incorporate those applications and/or supplying tools
and instrumentation to nanotechnology researchers.
The Lux Nanotech Index is calculated using a modified equal weighting
methodology. In conjunction with the scheduled quarterly updates to the Lux
Nanotech Index(TM), the components are split into two groups: nanotechnology
specialists and end-use incumbents.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
Lux Nanotech Index(TM) 24.65
Merrill Lynch Nanotech Index 16.97
FUND
NAV 24.94
Share Price Return 25.01
</Table>
FUND INCEPTION: 26 OCTOBER 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE MERRILL LYNCH NANOTECH INDEX IS AN UNMANAGED INDEX USED AS A MEASUREMENT OF
CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE PERFORMANCE OF 27 COMMON
STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
37
<Page>
POWERSHARES LUX NANOTECH PORTFOLIO (TICKER: PXN)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES LUX MERRILL LYNCH
NANOTECH PORTFOLIO NANOTECH INDEX
11/30/2005 $10,000 $10,000
12/30/2005 $11,445 $10,512
01/31/2006 $10,919 $10,335
02/28/2006 $12,344 $11,798
03/31/2006 $11,691 $11,520
04/28/2006 $12,150 $12,407
</Table>
INDUSTRY BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
PHARMACEUTICALS 22.0
CHEMICALS 12.8
COMPUTERS 10.1
COMMERCIAL SERVICES 9.7
MISCELLANEOUS MANUFACTURING 9.4
ELECTRONICS 8.8
SEMICONDUCTORS 7.2
HEALTHCARE - PRODUCTS 5.0
BIOTECHNOLOGY 4.5
INVESTMENT COMPANIES 3.9
ENERGY - ALTERNATE SOURCES 3.7
AUTOMOBILE MANUFACTURERS 2.9
</Table>
STYLE ALLOCATION (%)
<Table>
SMALL GROWTH 61.77
LARGE VALUE 22.18
MID GROWTH 8.89
SMALL VALUE 4.48
LARGE GROWTH 2.68
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
NUCRYST PHARMACEUTICALS CORP. (CANADA) 5.26
IMMUNICON CORP. 5.05
ARROWHEAD RESEARCH CORP. 4.87
ALTAIR NANOTECHNOLOGIES, INC. (CANADA) 4.82
CAMBRIDGE DISPLAY TECHNOLOGY, INC.
(UNITED KINGDOM) 4.77
ABRAXIS BIOSCIENCE, INC. 4.54
BIOSANTE PHARMACEUTICALS, INC. 4.51
VEECO INSTRUMENTS, INC. 4.50
FEI CO. 4.48
SYMYX TECHNOLOGIES 4.40
-----
TOTAL 47.20
=====
</Table>
38
<Page>
MANAGERS' ANALYSIS
POWERSHARES VALUE LINE TIMELINESS(TM) SELECT PORTFOLIO (TICKER: PIV)
The Fund seeks investment results that correspond generally to the price and
yield (before the Fund's fees and expenses) of an equity index called the Value
Line Timeliness(TM) Select Index ("Value Line Index").
The Value Line Index is comprised of the 50 domestic stocks with the greatest
capital appreciation potential as identified by the Value Line Timeliness Select
Methodology. The Value Line Index contains the 50 highest cumulative ranked
stocks for Safety(TM) and Technicals(TM) chosen from the one hundred number one
ranked stocks for Timeliness(TM). The Value Line Index seeks to provide market
outperformance and reduce risk by incorporating Value Line's Safety Ranking into
the investment process.
The objective of the Value Line Index is to represent a group of U.S. common
stocks that have the potential to outperform the U.S. equity market. Stocks are
selected using a proprietary rules-based discipline, which selects stocks with
the greatest potential for capital appreciation based on the three core Value
Line Ranking Systems.
Since the Fund's inception in December 2005, the Fund provided 10.12% return,
more than doubling the 4.45% earned by the S&P 500(R) Index over the same
period. The Fund benefited from having higher allocations to mid and small cap
names relative to the market, with mid cap value stocks providing the strongest
source of relative outperformance to the S&P 500(R) Index.
Technology names led the charge as the Fund benefited from apt hardware,
semiconductor and software stock selection. Capital goods stocks such as Trinity
Industries, Inc. and Joy Global, Inc. provided strong contributions to the
Fund's performance. Retailing and healthcare equipment and services stocks had a
slightly negative contribution to return, while energy stocks contributed
positively to the Fund but trailed the overall market.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
VALUE LINE TIMELINESS(TM) SELECT INDEX 10.12
S&P 500 INDEX(R) 4.45
FUND
NAV 10.12
SHARE PRICE RETURN 9.75
</Table>
FUND INCEPTION: 06 DECEMBER 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P 500(R) INDEX IS AN UNMANAGED INDEX USED AS A MEASUREMENT OF CHANGE IN
STOCK MARKET CONDITIONS BASED ON THE AVERAGE PERFORMANCE OF APPROXIMATELY 500
COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
39
<Page>
POWERSHARES VALUE LINE TIMELINESS(TM) SELECT PORTFOLIO (TICKER: PIV)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES VALUE
LINE TIMELINESS(TM) S&P 500(R)
SELECT PORTFOLIO INDEX
01/31/2006 $10,000 $10,000
02/28/2006 $10,877 $10,265
03/31/2006 $10,497 $10,293
04/28/2006 $10,923 $10,421
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
INFORMATION TECHNOLOGY 35.7
INDUSTRIALS 24.5
ENERGY 15.1
HEALTH CARE 8.6
CONSUMER DISCRETIONARY 6.1
FINANCIALS 5.8
MATERIALS 4.2
</Table>
STYLE ALLOCATION (%)
<Table>
MID GROWTH 42.98
LARGE GROWTH 28.37
SMALL GROWTH 17.14
LARGE VALUE 5.72
SMALL VALUE 3.86
MID VALUE 1.93
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
PLEXUS CORP. 2.45
TETRA TECHNOLOGIES, INC. 2.44
PEABODY ENERGY CORP. 2.41
NVIDIA CORP. 2.40
CITRIX SYSTEMS, INC. 2.40
TRINITY INDUSTRIES, INC. 2.33
WEATHERFORD INTERNATIONAL LTD. (BERMUDA) 2.29
EAGLE MATERIALS, INC. 2.27
MCDERMOTT INTERNATIONAL, INC. (PANAMA) 2.24
JOY GLOBAL, INC. 2.21
-----
TOTAL 23.44
=====
</Table>
40
<Page>
MANAGERS' ANALYSIS
POWERSHARES WATER RESOURCES PORTFOLIO (TICKER: PHO)
The PowerShares Water Resources Portfolio, launched in December 2005 filled, the
demand by investors to participate in the growth of an industry focused on one
of the most vital resources on earth: water. Virtually every country in the
world is presented with some combination of water quality and quantity issues
that require significant expenditures to resolve.
Since inception, the PowerShares Water Resources Portfolio has returned 19.38%,
significantly outperforming the S&P 500(R) Index over the same period at 4.45%.
We believe that compelling factors affecting in the water industry include
population growth and urbanization, advanced treatment requirements, regulatory
mandates, aging water infrastructure and converging technologies. The increasing
value of water derives from the adjustment of a growing global population to the
links between human health, economic development and resource sustainability.
Water infrastructure and water resource management stocks posted the largest
gains with solid results from water utilities and water treatment companies
contributing to overall Fund performance. Conglomerates were the lowest
contributors due to the relative underweighting of these Fund components. Basic
material stocks in the Fund lagged the group. We believe that while the strong
performance may increase short-term volatility commensurate with broader market
average movements, the fundamental prospects for the water industry continue the
positive long-term outlook.
The Fund seeks investment results that correspond generally to the price and
yield (before the Fund's fees and expenses) of an equity index called the
Palisades Water Index. The Palisades Water Index includes water companies drawn
from the following sectors: water utilities, treatment, analytical and
monitoring, infrastructure and distribution, water resource management and
conglomerate water companies.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
PALISADES WATER INDEX 18.97
S&P 500(R) INDEX 4.45
FUND
NAV 19.38
SHARE PRICE RETURN 18.42
</Table>
FUND INCEPTION: 06 DECEMBER 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P 500(R) INDEX IS AN UNMANAGED INDEX USED AS A MEASUREMENT OF CHANGE IN
STOCK MARKET CONDITIONS BASED ON THE AVERAGE PERFORMANCE OF APPROXIMATELY 500
COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
41
<Page>
POWERSHARES WATER RESOURCES PORTFOLIO (TICKER: PHO)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES WATER S&P 500(R)
RESOURCES PORTFOLIO INDEX
01/31/2006 $10,000 $10,000
02/28/2006 $11,211 $10,265
03/31/2006 $11,618 $10,293
04/28/2006 $11,895 $10,421
</Table>
INDUSTRY BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
WATER 29.3
MISCELLANEOUS MANUFACTURING 19.1
ENVIRONMENTAL CONTROL 12.5
ENGINEERING & CONSTRUCTION 10.2
ELECTRONICS 7.6
HAND/MACHINE TOOLS 4.3
MACHINERY - DIVERSIFIED 4.2
BIOTECHNOLOGY 3.9
METAL FABRICATE/HARDWARE 3.3
HEALTHCARE - PRODUCTS 2.8
ELECTRICAL COMPONENTS & EQUIPMENT 1.0
CHEMICALS 0.9
ELECTRIC 0.9
</Table>
STYLE ALLOCATION (%)
<Table>
SMALL VALUE 41.58
MID GROWTH 19.65
MID VALUE 14.65
SMALL GROWTH 13.40
LARGE GROWTH 5.65
LARGE VALUE 5.07
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
COMPANHIA DE SANEAMENTO BASICO DO
ESTADO DE SAO PAULO ADR (BRAZIL) 4.64
FRANKLIN ELECTRIC CO., INC. 4.32
NALCO HOLDING CO. 4.12
AMERICAN STATES WATER CO. 4.05
WATTS WATER TECHNOLOGIES, INC., CLASS A 3.92
INSITUFORM TECHNOLOGIES, INC. CLASS A 3.90
MILLIPORE CORP. 3.87
UNITED UTILITIES PLC ADR (UNITED KINGDOM) 3.82
LAYNE CHRISTENSEN CO. 3.76
ITT INDUSTRIES, INC. 3.73
-----
TOTAL 40.13
=====
</Table>
42
<Page>
MANAGERS' ANALYSIS
POWERSHARES WILDERHILL CLEAN ENERGY PORTFOLIO (TICKER: PBW)
The past twelve months was characterized by rising valuations in clean energy,
culminating with a high coincidentally near the end of April 2006, resulting in
the Fund achieving a 74.03% return for the period. This year-long increase was
due to several influential factors, including historic, sustained high oil
prices, new attention given to IPOs in solar power and ethanol, fast growing
demand for biofuels and energy efficiency technology stocks receiving heightened
valuations. Such strong outperformance to the upside is not likely sustainable,
however, given the period is ending on a relatively high valuation. Sizable
volatility can be expected to continue as well. In general, the past twelve
months have perhaps brought greater attention to clean energy stocks than ever
before.
The PowerShares WilderHill Clean Energy Portfolio is based on the WilderHill
Clean Energy Index. The WilderHill Clean Energy Index seeks to deliver capital
appreciation. It is comprised of companies that focus on greener and generally
renewable sources of energy and technologies facilitating cleaner energy. The
modified equal-weighted portfolio is rebalanced and reconstituted quarterly.
Companies selected for the Clean Energy Index include companies that contribute
to the advancement of clean energy, including those developing and selling
energy technologies and energy management services designed to address
efficiency and environmental challenges as well as changes in fossil fuel
resource abundance. Trends affecting adoption of clean energy technologies
include (but are not limited to) conventional air pollution, carbon dioxide and
other greenhouse gas pollution leading to global warming, and risks to
centralized grid or other energy infrastructure.
There is a strong bias in favor of pure-play companies in wind, solar power,
hydrogen and fuel cells and directly related industries. Companies in emerging
clean energy fields, such as wave, tidal, geothermal and others, will be
considered with respect to carbon content, impact upon marine and terrestrial
biodiversity, and the degree to which they advance or reflect the clean energy
sector.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
1 YEAR AVG ANN CUMULATIVE
INDEX
WILDERHILL CLEAN ENERGY INDEX 74.06 36.60 43.89
NASDAQ COMPOSITE INDEX 20.86 10.90 12.83
S&P 500(R) INDEX 15.40 44.00 53.02
FUND
NAV 74.03 36.49 43.40
SHARE PRICE RETURN 74.34 36.32 43.54
</Table>
FUND INCEPTION: 3 MARCH 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE NASDAQ COMPOSITE AND S&P 500(R) INDEX ARE UNMANAGED INDEXES USED AS A
MEASUREMENT OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF APPROXIMATELY 3300 & 500 COMMON STOCKS RESPECTFULLY.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
43
<Page>
POWERSHARES WILDERHILL CLEAN ENERGY PORTFOLIO (TICKER: PBW)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES
WILDERHILL CLEAN NASDAQ COMPOSITE
ENERGY PORTFOLIO INDEX
04/29/2005 $10,000 $10,000
05/31/2005 $ 8,924 $ 9,612
06/30/2005 $ 9,389 $10,345
07/29/2005 $10,146 $10,289
08/31/2005 $11,007 $10,928
09/30/2005 $11,958 $10,765
10/31/2005 $12,292 $10,763
11/30/2005 $10,743 $10,606
12/30/2005 $11,222 $11,168
01/31/2006 $11,243 $11,031
02/28/2006 $14,222 $11,534
03/31/2006 $14,208 $11,411
04/28/2006 $14,750 $11,703
</Table>
INDUSTRY BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
ENERGY - ALTERNATE SOURCES 26.6
ELECTRICAL COMPONENTS & EQUIPMENT 24.9
SEMICONDUCTORS 14.7
ELECTRONICS 11.9
CHEMICALS 7.9
ELECTRIC 5.8
COMPUTERS 5.0
AUTO PARTS & EQUIPMENT 3.2
</Table>
STYLE ALLOCATION (%)
<Table>
SMALL GROWTH 63.68
MID GROWTH 16.23
SMALL VALUE 9.56
LARGE GROWTH 6.18
MID VALUE 2.64
LARGE VALUE 1.71
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
MECHANICAL TECHNOLOGY, INC. 3.48
BALLARD POWER SYSTEMS, INC. (CANADA) 3.23
IMPCO TECHNOLOGIES, INC. 3.18
UQM TECHNOLOGIES, INC. 3.07
QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE, INC. 3.00
ACTIVE POWER, INC. 2.89
MEDIS TECHNOLOGIES LTD. 2.86
PLUG POWER, INC. 2.81
ZOLTEK COS., INC. 2.77
MEMC ELECTRONIC MATERIALS, INC. 2.69
-----
TOTAL 29.98
=====
</Table>
44
<Page>
MANAGERS' ANALYSIS
POWERSHARES ZACKS MICRO CAP PORTFOLIO (TICKER: PZI)
The PowerShares Zacks Micro Cap Portfolio is based on the Zacks Micro Cap Index
which seeks investment results that correspond generally to the price and yield
(before the Fund's fees and expenses) of that equity Index.
The Zacks Micro Cap Index selection methodology is designed to identify
companies with potentially superior risk-return profiles as determined by Zacks
Investment Research. The objective of the Zacks Micro Cap Index is to actively
represent a group of stocks which have the potential to outperform passive
benchmark micro cap indices (such as the Russell and Dow Jones Micro Cap
Indices) and other actively managed U.S. micro cap strategies.
The PowerShares Zacks Micro Cap Portfolio launched in August of 2005 and
produced strong returns in its first eight months. Since inception on August 18,
2005, the PowerShares Zacks Micro Cap Portfolio has returned 18.20% with an
annualized standard deviation of 13.36%. Meanwhile, over a comparable time
period, the Russell Micro Cap ETF Index returned 17.55% with an annualized
standard deviation of 13.56%.
The catalyst for the strong returns was the result of superior stock selections
within the PowerShares Zacks Micro Cap Portfolio. Specifically, the finance,
industrial products, oil/energy and retail/wholesale sectors provided
significant contributions to the Fund's excess performance. Outperformance was
also helped by an underweighting of the medical sector. Real estate,
transportation and banking stocks lagged.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
ZACKS MICRO CAP INDEX 18.13
RUSSELL MICRO CAP ETF INDEX 17.55
FUND
NAV 18.20
SHARE PRICE RETURN 18.00
</Table>
FUND INCEPTION: 18 AUGUST 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE RUSSELL MICRO CAP ETF INDEX IS AN UNMANAGED INDEX USED AS A MEASUREMENT OF
CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE PERFORMANCE OF 2000
COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
45
<Page>
POWERSHARES ZACKS MICRO CAP PORTFOLIO (TICKER: PZI)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES
ZACKS MICRO CAP RUSSELL MICRO CAP
PORTFOLIO ETF INDEX
09/30/2005 $10,000 $10,000
10/31/2005 $ 9,980 $10,035
11/30/2005 $ 9,595 $ 9,726
12/30/2005 $10,033 $10,135
01/31/2006 $10,060 $10,135
02/28/2006 $10,969 $11,065
03/31/2006 $10,850 $11,055
04/28/2006 $11,454 $11,543
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
INFORMATION TECHNOLOGY 27.6
INDUSTRIALS 17.7
FINANCIALS 17.4
CONSUMER DISCRETIONARY 14.9
HEALTH CARE 9.2
ENERGY 4.9
MATERIALS 3.5
CONSUMER STAPLES 3.0
TELECOMMUNICATION SERVICES 0.8
UTILITIES 0.8
OTHER 0.2
</Table>
STYLE ALLOCATION (%)
<Table>
MICRO GROWTH 51.07
MICRO VALUE 48.93
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
MGP INGREDIENTS, INC. 0.37
STEVEN MADDEN LTD. 0.37
AMPCO-PITTSBURGH CORP. 0.36
GIGAMEDIA LTD. (SINGAPORE) 0.36
HOME SOLUTIONS OF AMERICA, INC. 0.35
T-3 ENERGY SERVICES, INC. 0.34
U.S. GLOBAL INVESTORS, INC., CLASS A 0.33
ANDERSONS (THE), INC. 0.33
ADAMS RESOURCES & ENERGY, INC. 0.32
RUSSELL CORP. 0.32
----
TOTAL 3.45
====
</Table>
46
<Page>
MANAGERS' ANALYSIS
POWERSHARES ZACKS SMALL CAP PORTFOLIO (TICKER: PZJ)
The Fund seeks investment results that correspond generally to the price and
yield (before the Fund's fees and expenses) of an equity index called the Zacks
Small Cap Index.
The Zacks Small Cap Index selects companies with potentially superior
risk/return profiles as identified using a proprietary ranking methodology
developed by Zacks. The goal of the Zacks Small Cap Index is to outperform both
the Russell 2000 Index and professional small capitalization asset managers.
The PowerShares Zacks Small Cap Portfolio enjoyed a successful launch in
February and has already begun to provide strong returns in the U.S. small cap
marketplace. Since inception on February 16, 2006, the PowerShares Small Cap
Portfolio has produced a return of 5.31%, while the S&P Small Cap Index returned
4.66%.
Stock selection was the key to the Fund's excess returns with significant
contributions from the finance, computer & technology and consumer discretionary
sectors. Outperformance in computer / technology and consumer discretionary is
consistent with the philosophy and research that strong earnings surprises are
good predictors of future performance.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
ZACKS SMALL CAP INDEX 5.32
S&P SMALL CAP INDEX 4.66
FUND
NAV 5.31
SHARE PRICE RETURN 5.23
</Table>
FUND INCEPTION: 16 FEBRUARY 2006
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P SMALL CAP INDEX IS AN UNMANAGED INDEX USED AS A MEASUREMENT OF CHANGE IN
STOCK MARKET CONDITIONS BASED ON THE AVERAGE PERFORMANCE OF APPROXIMATELY 600
COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
47
<Page>
POWERSHARES ZACKS SMALL CAP PORTFOLIO (TICKER: PZJ)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES ZACKS S&P SMALL CAP
SMALL CAP PORTFOLIO INDEX
03/31/2006 $10,000 $10,000
04/28/2006 $10,417 $10,480
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
INDUSTRIALS 20.1
CONSUMER DISCRETIONARY 19.4
INFORMATION TECHNOLOGY 17.9
FINANCIALS 13.9
HEALTH CARE 11.9
MATERIALS 6.9
ENERGY 4.0
UTILITIES 3.8
CONSUMER STAPLES 1.6
TELECOMMUNICATION SERVICES 0.4
OTHER 0.1
</Table>
STYLE ALLOCATION (%)
<Table>
SMALL VALUE 52.35
SMALL GROWTH 47.65
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
NEWMARKET CORP. 0.68
ENCORE WIRE CORP. 0.62
WESCO INTERNATIONAL, INC. 0.61
PIPER JAFFRAY COS., INC. 0.59
NUANCE COMMUNICATIONS, INC. 0.59
SOTHEBY'S HOLDINGS, CLASS A 0.58
TTM TECHNOLOGIES, INC. 0.58
COMMSCOPE, INC. 0.57
MANITOWOC CO.(THE), INC. 0.57
US AIRWAYS GROUP, INC. 0.57
----
TOTAL 5.96
====
</Table>
48
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC BIOTECHNOLOGY & GENOME PORTFOLIO (TICKER: PBE)
The PowerShares Dynamic Biotechnology & Genome Portfolio is based on the Dynamic
Biotechnology & Genome Intellidex(SM) Index, and seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of that equity Index.
Since its inception in June of 2005, the Fund posted a respectable 17.20% return
through the end of the reporting period. Biotechnology companies involved in
life sciences services contributed the most, while biotechnology companies also
involved in the pharmaceutical space contributed the least. The largest
individual contributors to the Fund's performance during the period were Cubist
Pharmaceuticals, Inc., Applera Corp.--Applied Biosystems Group, Gilead Sciences,
Inc., Myogen, Inc. and Myriad Genetics, Inc.; stocks which impacted the Fund
negatively included NPS Pharmaceuticals, Inc., Invitrogen Corp. and Incyte Corp.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
DYNAMIC BIOTECHNOLOGY & GENOME INTELLIDEX(SM) INDEX 17.23
S&P SUPERCOMPOSITE BIOTECHNOLOGY INDEX 17.17
FUND
NAV 17.20
SHARE PRICE RETURN 17.30
</Table>
FUND INCEPTION: 23 JUNE 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P SUPERCOMPOSITE BIOTECHNOLOGY INDEX IS AN UNMANAGED INDEX USED AS A
MEASUREMENT OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF 40 COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
49
<Page>
POWERSHARES DYNAMIC BIOTECHNOLOGY & GENOME PORTFOLIO (TICKER: PBE)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES DYNAMIC S&P SUPERCOMPOSITE
BIOTECHNOLOGY & GENOME BIOTECHNOLOGY
PORTFOLIO INDEX
07/29/2005 $10,000 $10,000
08/31/2005 $11,159 $11,993
09/30/2005 $11,331 $12,056
10/31/2005 $11,278 $12,247
11/30/2005 $10,903 $11,915
12/30/2005 $11,518 $12,625
01/31/2006 $11,572 $12,538
02/28/2006 $12,241 $12,409
03/31/2006 $12,562 $12,831
04/28/2006 $12,054 $12,451
</Table>
INDUSTRY BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
BIOTECHNOLOGY 41.6
PHARMACEUTICALS 32.5
ELECTRONICS 17.4
CHEMICALS 5.7
HEALTHCARE - PRODUCTS 2.8
</Table>
STYLE ALLOCATION (%)
<Table>
SMALL GROWTH 36.36
LARGE GROWTH 24.77
MID VALUE 19.43
MID GROWTH 16.24
SMALL VALUE 3.20
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
SIGMA-ALDRICH CORP. 5.70
WATERS CORP. 5.56
APPLERA CORP. - APPLIED BIOSYSTEMS GROUP 5.39
GENENTECH, INC. 5.15
GILEAD SCIENCES, INC. 5.05
BIOGEN IDEC, INC. 4.97
AMGEN, INC. 4.87
GENZYME CORP. 4.73
DIONEX CORP. 3.25
VARIAN, INC. 3.20
-----
TOTAL 47.87
=====
</Table>
50
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC BUILDING & CONSTRUCTION PORTFOLIO (TICKER: PKB)
The PowerShares Dynamic Building & Construction Portfolio is based on the
Dynamic Building & Construction Intellidex(SM) Index, and seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of that equity index.
Since its inception in October of last year, the Fund started with an upbeat
tone, providing a 18.99% return to shareholders. Construction and machinery
stocks led the Fund forward, while homebuilding stocks lagged. Caterpillar,
Manitowoc Co., Inc. and Terex Corp. led machinery stocks, while EMCOR Group,
Inc., Fluor and Jacobs Engineering Group, Inc. contributed most among
construction engineering stocks. Building products stocks, USG Corp., Universval
Forest Products, Inc. and NCI Building Systems, Inc. all added to the Fund's
performance. Centex Corp., Toll Brothers, Inc. and William Lyon Homes, were
homebuilders which struggled during the reporting period.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
DYNAMIC BUILDING & CONSTRUCTION INTELLIDEX(SM) INDEX 19.64
S&P SUPERCOMPOSITE CONSTRUCTION & ENGINEERING INDEX 37.82
FUND
NAV 18.99
SHARE PRICE RETURN 18.88
</Table>
FUND INCEPTION: 26 OCTOBER 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P SUPERCOMPOSITE CONSTRUCTION & ENGINEERING INDEX AND IS AN UNMANAGED
INDEX USED AS A MEASUREMENT OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE
AVERAGE PERFORMANCE OF 9 COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
51
<Page>
POWERSHARES DYNAMIC BUILDING & CONSTRUCTION PORTFOLIO (TICKER: PKB)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES DYNAMIC S&P SUPERCOMPOSITE
BUILDING & CONSTRUCTION CONSTRUCTION & ENGINEERING
PORTFOLIO INDEX
11/30/2005 $10,000 $10,000
12/30/2005 $10,626 $11,082
01/31/2006 $10,471 $11,118
02/28/2006 $11,581 $12,995
03/31/2006 $11,542 $13,081
04/28/2006 $11,716 $13,193
</Table>
INDUSTRY BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
HOME BUILDERS 26.1
BUILDING MATERIALS 21.3
ENGINEERING & CONSTRUCTION 19.5
RETAIL 9.9
MACHINERY - DIVERSIFIED 6.1
TEXTILES 4.9
METAL FABRICATE/HARDWARE 4.1
COMMERCIAL SERVICES 3.6
MACHINERY - CONSTRUCTIONS & MINING 2.8
FOREST PRODUCTS & PAPER 2.7
OTHER (1.0)
</Table>
STYLE ALLOCATION (%)
<Table>
MID VALUE 36.54
SMALL VALUE 28.07
MID GROWTH 16.74
SMALL GROWTH 8.85
LARGE GROWTH 4.91
LARGE VALUE 4.89
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
FLUOR CORP. 5.58
LOWE'S COS., INC. 4.96
HOME DEPOT, INC. 4.94
TOLL BROTHERS, INC. 4.93
MOHAWK INDUSTRIES, INC. 4.88
LENNAR CORP., CLASS A 4.64
KB HOME 4.53
VALMONT INDUSTRIES, INC. 4.12
CENTEX CORP. 4.02
MANITOWOC CO., INC. 3.82
-----
TOTAL 46.42
=====
</Table>
52
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC ENERGY EXPLORATION & PRODUCTION PORTFOLIO (TICKER: PXE)
The PowerShares Dynamic Energy Exploration & Production Portfolio is based on
the Dynamic Energy Exploration & Production Intellidex(SM) Index, and seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of that equity Index.
Benefiting from surging energy prices and escalating world demand, energy
exploration and production companies advanced, causing the Fund to post a 16.33%
return since its inception in October of 2005. Top performers included
Burlington Resources, which was acquired by ConocoPhillips, Atlas America and
W&T Offshore, Inc. Oil and gas refiners also performed well as shares of
Frontier Oil Corp., Valero Energy Corp. and Giant Industries, Inc. zoomed.
Integrated oil and gas companies, Occidental Petroleum and Exxon Mobil Corp.,
contributed positively as well. Williams Companies, an oil and gas storage
company, and Energen Corp., a gas utility company, lagged.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
DYNAMIC ENERGY EXPLORATION & PRODUCTION INTELLIDEX(SM) INDEX 16.71
S&P SUPERCOMPOSITE OIL & GAS EXPLORATION & PRODUCTION INDEX 10.99
FUND
NAV 16.33
SHARE PRICE RETURN 16.40
</Table>
FUND INCEPTION: 26 OCTOBER 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P SUPERCOMPOSITE OIL & GAS EXPLORATION INDEX IS AN UNMANAGED INDEX USED AS
A MEASUREMENT OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF 25 COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
53
<Page>
POWERSHARES DYNAMIC ENERGY EXPLORATION & PRODUCTION PORTFOLIO (TICKER: PXE)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES DYNAMIC S&P SUPERCOMPOSITE
ENERGY EXPLORATION & OIL & GAS EXPLORATION &
PRODUCTION PORTFOLIO PRODUCTION INDEX
11/30/2005 $10,000 $10,000
12/30/2005 $ 9,963 $10,020
01/31/2006 $10,270 $10,657
02/28/2006 $11,949 $11,914
03/31/2006 $10,490 $10,484
04/28/2006 $11,029 $10,798
</Table>
INDUSTRY BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
OIL COMPANIES - EXPLORATION & PRODUCTION 66.0
OIL REFINING & MARKETING 15.1
OIL COMPANIES - INTEGRATED 13.2
PIPELINES 2.9
GAS - DISTRIBUTION 2.6
OIL - US ROYALTY TRUSTS 0.2
</Table>
STYLE ALLOCATION (%)
<Table>
LARGE VALUE 34.79
MID VALUE 19.43
SMALL VALUE 17.28
MID GROWTH 12.54
LARGE GROWTH 9.90
SMALL GROWTH 6.06
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
VALERO ENERGY CORP. 5.80
CONOCOPHILLIPS 5.35
EXXON MOBIL CORP. 5.18
ANADARKO PETROLEUM CORP. 5.12
XTO ENERGY, INC. 4.96
EOG RESOURCES, INC. 4.94
DEVON ENERGY CORP. 4.92
FRONTIER OIL CORP. 3.53
KCS ENERGY, INC. 3.28
PENN VIRGINIA CORP. 3.12
-----
TOTAL 46.20
=====
</Table>
54
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC FOOD & BEVERAGE PORTFOLIO (TICKER: PBJ)
The PowerShares Dynamic Food & Beverage Portfolio is based on the Dynamic Food &
Beverage Intellidex(SM) Index, and seeks investment results that correspond
generally to the price and yield (before the Fund's fees and expenses) of that
equity index.
The Fund returned 2.78% since its inception on June 23, 2005, less than the
market as a whole. While agricultural product stocks, such as
Archer-Daniels-Midland Co., generally achieved solid returns, and selected
restaurant names in the portfolio also posted positive performance, food
packagers and distributors turned in negative results. The overall impact on the
Fund was a small positive growth.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
DYNAMIC FOOD & BEVERAGE INTELLIDEX(SM) INDEX 3.39
S&P SUPERCOMPOSITE FOOD & TOBACCO PRODUCTS INDEX 20.15
FUND
NAV 2.78
SHARE PRICE RETURN 2.76
</Table>
FUND INCEPTION: 23 JUNE 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P SUPERCOMPOSITE FOOD & TOBACCO PRODUCTS INDEX IS AN UNMANAGED INDEX USED
AS A MEASUREMENT OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF 40 COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
55
<Page>
POWERSHARES DYNAMIC FOOD & BEVERAGE PORTFOLIO (TICKER: PBJ)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES DYNAMIC S&P SUPERCOMPOSITE
FOOD & BEVERAGE FOOD BEVERAGE & TOBACCO
PORTFOLIO INDEX
07/29/2005 $10,000 $10,000
08/31/2005 $10,230 $10,252
09/30/2005 $ 9,703 $10,338
10/31/2005 $ 9,797 $10,542
11/30/2005 $ 9,710 $10,548
12/30/2005 $ 9,784 $10,497
01/31/2006 $ 9,703 $10,550
02/28/2006 $ 9,932 $10,477
03/31/2006 $10,020 $10,595
04/28/2006 $10,263 $10,697
</Table>
INDUSTRY BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
FOOD 55.8
RETAIL 28.7
BEVERAGES 12.6
COMMERCIAL SERVICES 2.7
MONEY MARKET FUND 0.2
</Table>
STYLE ALLOCATION (%)
<Table>
MID VALUE 30.15
LARGE VALUE 29.64
SMALL VALUE 24.69
LARGE GROWTH 9.85
SMALL GROWTH 2.87
MID GROWTH 2.80
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
YUM! BRANDS, INC. 5.08
STARBUCKS CORP. 5.05
KELLOGG CO. 5.03
GENERAL MILLS, INC. 4.92
SARA LEE CORP. 4.91
COCA-COLA (THE) CO. 4.89
PEPSICO, INC. 4.78
MCDONALD'S CORP. 4.76
CONAGRA FOODS, INC. 2.94
PEPSI BOTTLING GROUP, INC. 2.92
-----
TOTAL 45.28
=====
</Table>
56
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC HARDWARE & CONSUMER ELECTRONICS PORTFOLIO (TICKER: PHW)
The PowerShares Dynamic Hardware & Consumer Electronics Portfolio is based on
the Dynamic Hardware & Consumer Electronics Intellidex(SM) Index, and seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of that equity index.
Since its December 2005 inception, the Fund provided a 9.54% return for
shareholders. Electronic manufacturing companies Plexus Corp., Multi-Fineline
Electronix, Inc. and Trimble Navigation Ltd. advanced handsomely as did
computer storage maker Western Digital Corp., Network Appliance and Brocade
Communications Systems, Inc. Electronic equipment makers National Instruments
Corp., Agilent Technologies, Inc. and Tektronix, Inc. also contributed to the
Fund's positive performance. Computer hardware companies Dell, Inc., Gateway,
Inc. and Apple Computer, Inc. all struggled and contributed negatively during
the reporting period.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
DYNAMIC HARDWARE & CONSUMER ELECTRONICS INTELLIDEX(SM) INDEX 9.89
S&P SUPERCOMPOSITE TECHNOLOGY HARDWARE & EQUIPMENT INDEX 5.20
FUND
NAV 9.54
SHARE PRICE RETURN 9.60
</Table>
FUND INCEPTION: 06 DECEMBER 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P SUPERCOMPOSITE TECHNOLOGY HARDWARE & EQUIPMENT INDEX IS AN UNMANAGED
INDEX USED AS A MEASUREMENT OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE
AVERAGE PERFORMANCE OF 108 COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
57
<Page>
POWERSHARES DYNAMIC HARDWARE & CONSUMER ELECTRONICS PORTFOLIO (TICKER: PHW)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
S&P SUPER COMPOSITE
POWERSHARES DYNAMIC TECHONOLOGY
HARDWARE & CONSUMER HARDWARE & EQUIPMENT
ELECTRONICS PORTFOLIO INDEX
01/31/2006 $10,000 $10,000
02/28/2006 $10,682 $10,561
03/31/2006 $10,735 $10,628
04/28/2006 $11,015 $11,015
</Table>
INDUSTRY BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
COMPUTERS 44.8
ELECTRONICS 32.7
OFFICE/BUSINESS EQUIPMENT 4.7
HOME FURNISHINGS 4.1
SOFTWARE 3.2
COMMERCIAL SERVICES 2.9
SEMICONDUCTORS 2.9
TELECOMMUNICATIONS 2.4
MACHINERY - DIVERSIFIED 2.3
</Table>
STYLE ALLOCATION (%)
<Table>
MID GROWTH 26.45
SMALL GROWTH 21.51
LARGE GROWTH 19.64
SMALL VALUE 14.14
LARGE VALUE 9.67
MID VALUE 8.59
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
AGILENT TECHNOLOGIES, INC. 5.33
JABIL CIRCUIT, INC. 5.14
HEWLETT-PACKARD CO. 5.01
EMC CORP. 4.92
APPLE COMPUTER, INC. 4.90
XEROX CORP. 4.66
DELL, INC. 4.50
HARMAN INTERNATIONAL INDUSTRIES, INC. 4.07
GARMIN LTD. (CAYMAN ISLANDS) 3.59
PLEXUS CORP. 3.55
-----
TOTAL 45.67
=====
</Table>
58
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC INSURANCE PORTFOLIO (TICKER: PIC)
The PowerShares Dynamic Insurance Portfolio is based on the Dynamic Insurance
Intellidex(SM) Index, and seeks investment results that correspond generally to
the price and yield (before the Fund's fees and expenses) of that equity index.
Since its October 2005 inception, the Fund started on a positive note, providing
a 12.54% return. Property and casualty stocks led the advance as W.R. Berkley
Corp., The Chubb Corp. and Safety Insurance Group, Inc. moved upward. Life and
health insurance stocks were next in line as Conseco, Inc., StanCorp Financial
Group, Inc. and Lincoln National Corp. appreciated nicely. Multi-line insurers
such as Hartford Financial Services Group, Inc., Loews Corp. and American
Financial Group, Inc. also contributed positively to the Fund's performance over
the reporting period. Reinsurance companies contributed the least to the Fund's
performance.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
DYNAMIC INSURANCE INTELLIDEX(SM) INDEX 12.91
S&P SUPERCOMPOSITE INSURANCE INDEX 7.94
FUND
NAV 12.54
SHARE PRICE RETURN 12.59
</Table>
FUND INCEPTION: 26 OCTOBER 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P SUPERCOMPOSITE INSURANCE INDEX IS AN UNMANAGED INDEX USED AS A
MEASUREMENT OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF 52 COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
59
<Page>
POWERSHARES DYNAMIC INSURANCE PORTFOLIO (TICKER: PIC)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES DYNAMIC S&P SUPERCOMPOSITE
INSURANCE PORTFOLIO INSURANCE INDEX
11/30/2005 $10,000 $10,000
12/30/2005 $10,523 $10,480
01/31/2006 $10,296 $10,375
02/28/2006 $10,535 $10,229
03/31/2006 $10,516 $10,339
04/28/2006 $10,617 $10,228
</Table>
INDUSTRY BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
PROPERTY/CASUALTY INSURANCE 38.0
LIFE/HEALTH INSURANCE 27.8
MULTI-LINE INSURANCE 26.2
INSURANCE BROKERS 4.6
FINANCIAL GUARANTEE INSURANCE 2.9
OTHER 0.5
</Table>
STYLE ALLOCATION (%)
<Table>
MID VALUE 42.79
SMALL VALUE 27.52
LARGE VALUE 24.89
LARGE GROWTH 4.80
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
LOEWS CORP. 5.27
HARTFORD FINANCIAL SERVICES GROUP (THE), INC. 5.15
LINCOLN NATIONAL CORP. 4.91
CHUBB (THE) CORP. 4.89
METLIFE, INC. 4.81
AFLAC, INC. 4.78
PRUDENTIAL FINANCIAL, INC. 4.66
AON CORP. 4.65
LANDAMERICA FINANCIAL GROUP, INC. 3.22
SAFETY INSURANCE GROUP, INC. 2.96
-----
TOTAL 45.30
=====
</Table>
60
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC LEISURE AND ENTERTAINMENT PORTFOLIO (TICKER: PEJ)
The PowerShares Dynamic Leisure and Entertainment Portfolio is based on the
Dynamic Leisure and Entertainment Intellidex(SM) Index, and seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of that equity index.
Leisure and Entertainment stocks generally kept pace with the broad U.S. market
during the reporting period; similarly, the Fund posted a market-like 10.41%
return. Restaurant stocks led the charge, as Papa John's International, Inc.,
Starbucks Corp. and McDonald's Corp. all contributed nicely. International Game
Technology and other gaming stocks performed well as did hotel and resort
companies such as Choice Hotels International, Inc., Hilton Hotels Corp. and
Starwood. Internet retailers such as Priceline.com, Inc. and Expedia lagged.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
DYNAMIC LEISURE AND ENTERTAINMENT INTELLIDEX(SM) INDEX 11.08
S&P SUPERCOMPOSITE HOTELS, RESTAURANTS & LEISURE INDEX 13.52
FUND
NAV 10.41
SHARE PRICE RETURN 10.47
</Table>
FUND INCEPTION: 23 JUNE 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P SUPERCOMPOSITE HOTELS, RESTAURANTS & LEISURE INDEX IS AN UNMANAGED INDEX
USED AS A MEASUREMENT OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF 45 COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
61
<Page>
POWERSHARES DYNAMIC LEISURE AND ENTERTAINMENT PORTFOLIO (TICKER: PEJ)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES DYNAMIC S&P SUPERCOMPOSITE
LEISURE AND ENTERTAINMENT HOTELS, RESTAURANTS &
PORTFOLIO LEISURE INDEX
07/29/2005 $10,000 $10,000
08/31/2005 $10,239 $10,338
09/30/2005 $ 9,576 $ 9,797
10/31/2005 $ 9,481 $ 9,722
11/30/2005 $ 9,713 $ 9,716
12/30/2005 $10,349 $10,457
01/31/2006 $10,396 $10,565
02/28/2006 $10,984 $10,947
03/31/2006 $10,841 $11,113
04/28/2006 $11,169 $11,351
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
RETAIL 41.5
ENTERTAINMENT 19.2
LODGING 15.9
INTERNET 7.7
LEISURE TIME 7.0
MEDIA 3.2
SOFTWARE 2.7
COMMERCIAL SERVICES 2.7
MONEY MARKET FUND 0.1
</Table>
STYLE ALLOCATION (%)
<Table>
MID GROWTH 32.87
SMALL VALUE 21.06
LARGE GROWTH 14.71
SMALL GROWTH 11.00
MID VALUE 10.53
LARGE VALUE 9.83
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
HILTON HOTELS CORP. 5.40
MARRIOTT INTERNATIONAL, INC., CLASS A 5.20
INTERNATIONAL GAME TECHNOLOGY 5.19
YUM! BRANDS, INC. 5.07
STARBUCKS CORP. 5.04
IAC/INTERACTIVECORP 4.95
MCDONALD'S CORP. 4.75
CARNIVAL CORP. (PANAMA) 4.44
PENN NATIONAL GAMING, INC. 3.29
CHOICE HOTELS INTERNATIONAL, INC. 3.28
-----
TOTAL 46.61
=====
</Table>
62
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC MEDIA PORTFOLIO (TICKER: PBS)
The PowerShares Dynamic Media Portfolio is based on the Dynamic Media
Intellidex(SM) Index, and seeks investment results that correspond generally to
the price and yield (before the Fund's fees and expenses) of that equity index.
Media stocks languished during the reporting period, with the Fund returning
- -3.15% since its inception in June 2005. Publishing stocks led the Fund downward
as ProQuest Co., Media General, Inc., Class A and The McClatchy Co., Class A all
posted disappointing results. Advertising stocks provided little relief, as
Schawk, Valassis Communications, Inc. and Arbitron, Inc. all posted
disappointing results. The Fund did benefit from a few Internet services
companies such as Monster Worldwide, Inc., aQuantive, Inc., HomeStore, Inc. and
Sohu.com., Inc., all which posted positive results.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
DYNAMIC MEDIA INTELLIDEX(SM) INDEX -2.39
S&P SUPERCOMPOSITE MEDIA INDEX 0.32
FUND
NAV -3.15
SHARE PRICE RETURN -3.15
</Table>
FUND INCEPTION: 23 JUNE 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P SUPERCOMPOSITE MEDIA INDEX IS AN UNMANAGED INDEX USED AS A MEASUREMENT
OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE PERFORMANCE OF 32
COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
63
<Page>
POWERSHARES DYNAMIC MEDIA PORTFOLIO (TICKER: PBS)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES DYNAMIC S&P SUPERCOMPOSITE
MEDIA PORTFOLIO MEDIA INDEX
07/29/2005 $10,000 $10,000
08/31/2005 $10,020 $10,232
09/30/2005 $ 9,940 $10,332
10/31/2005 $ 9,751 $10,069
11/30/2005 $ 9,362 $ 9,644
12/30/2005 $ 9,677 $ 9,855
01/31/2006 $ 9,630 $ 9,729
02/28/2006 $ 9,711 $ 9,923
03/31/2006 $ 9,711 $ 9,961
04/28/2006 $ 9,845 $ 9,868
</Table>
INDUSTRY BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
MEDIA 53.6
INTERNET 18.4
ADVERTISING 16.5
COMMERCIAL SERVICES 11.4
MONEY MARKET FUND 0.1
</Table>
STYLE ALLOCATION (%)
<Table>
MID GROWTH 23.95
SMALL VALUE 23.44
LARGE VALUE 20.99
SMALL GROWTH 13.91
LARGE GROWTH 10.28
MID VALUE 7.43
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
OMNICOM GROUP, INC. 5.73
ECHOSTAR COMMUNICATIONS CORP., CLASS A 5.49
UNIVISION COMMUNICATIONS, INC., CLASS A 5.28
MCGRAW-HILL COS. (THE), INC. 5.17
CLEAR CHANNEL COMMUNICATIONS, INC. 5.10
LIBERTY MEDIA CORP., CLASS A 5.10
WALT DISNEY (THE) CO. 5.07
TIME WARNER, INC. 5.05
SOHU.COM, INC. 3.38
MONSTER WORLDWIDE, INC. 3.26
-----
TOTAL 48.63
=====
</Table>
64
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC NETWORKING PORTFOLIO (TICKER: PXQ)
The PowerShares Dynamic Networking Portfolio is based on the Dynamic Networking
Intellidex(SM) Index, and seeks investment results that correspond generally to
the price and yield (before the Fund's fees and expenses) of that equity index.
Networking stocks in general had a fairly strong showing during the reporting
period; as a result, the Fund posted a respectable 16.18% since its June 2005
inception. Broadcom Corp., Class A, Conexant Systems, Inc. and Atheros
Communications, Inc. are examples of semiconductor stocks involved in networking
which posted exceptional results during the reporting period. Communications
equipment stocks Tellabs, Inc., Ciena Corp. and QUALCOMM also contributed nicely
to the Fund's performance. Software makers Citrix Systems and RSA Security,
Inc. contributed, as did Brocade Communications Systems, Inc. on the hardware
side. Internet software company Websense, Inc., contributed least, although up
during the period. Computer storage and peripheral stocks trailed.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
DYNAMIC NETWORKING INTELLIDEX(SM) INDEX 16.30
S&P SUPERCOMPOSITE COMMUNICATIONS EQUIPMENT INDEX 23.00
FUND
NAV 16.18
SHARE PRICE RETURN 15.98
</Table>
FUND INCEPTION: 23 JUNE 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P SUPERCOMPOSITE COMMUNICATION EQUIPMENT INDEX IS AN UNMANAGED INDEX USED
AS A MEASUREMENT OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF 38 COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
65
<Page>
POWERSHARES DYNAMIC NETWORKING PORTFOLIO (TICKER: PXQ)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES S&P SUPERCOMPOSITE
DYNAMIC NETWORKING COMMUNICATIONS EQUIPMENT
PORTFOLIO INDEX
07/29/2005 $10,000 $10,000
08/31/2005 $10,848 $10,870
09/30/2005 $10,534 $10,655
10/31/2005 $10,985 $11,104
11/30/2005 $10,342 $10,647
12/30/2005 $10,841 $11,282
01/31/2006 $10,691 $10,878
02/28/2006 $11,505 $11,882
03/31/2006 $11,375 $12,126
04/28/2006 $12,283 $13,003
</Table>
INDUSTRY BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
TELECOMMUNICATIONS 53.2
SEMICONDUCTORS 21.2
INTERNET 13.6
COMPUTERS 6.1
SOFTWARE 6.0
OTHER (0.1)
</Table>
STYLE ALLOCATION (%)
<Table>
MID GROWTH 36.93
SMALL GROWTH 25.30
LARGE GROWTH 19.11
SMALL VALUE 14.03
MID VALUE 4.63
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
CITRIX SYSTEMS, INC. 6.04
QUALCOMM, INC. 5.17
TELLABS, INC. 5.08
CISCO SYSTEMS, INC. 5.02
JUNIPER NETWORKS, INC. 4.90
LUCENT TECHNOLOGIES, INC. 4.63
MOTOROLA, INC. 4.63
BROADCOM CORP., CLASS A 4.30
RSA SECURITY, INC. 3.74
NETGEAR, INC. 3.40
-----
TOTAL 46.91
=====
</Table>
66
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC OIL & GAS SERVICES PORTFOLIO (TICKER: PXJ)
The PowerShares Dynamic Oil & Gas Services Portfolio is based on the Dynamic Oil
Services Intellidex(SM) Index, and seeks investment results that correspond
generally to the price and yield (before the Fund's fees and expenses) of that
equity index.
Benefiting from surging energy prices and increasing demand, oil and gas
services companies rocketed, and the Fund posted a 30.31% return in its short
life starting in October 2005. Leading the group was oilfield services companies
Schlumberger Ltd. (Netherlands), RPC, Inc., Baker Hughes, Inc. and Weatherford
International Ltd. (Bermuda). Drillers also contributed robustly, while
companies Diamond Offshore Drilling, Inc., Transocean, Inc. (Cayman Islands) and
GlobalSantaFe Corp. were foremost in performance. Drillers which lagged the
group included Parker Drilling Co. and Pioneer Drilling Co.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
DYNAMIC OIL & GAS SERVICES INTELLIDEX(SM) INDEX 30.82
S&P SUPERCOMPOSITE OIL & GAS EQUIPMENT & SERVICES INDEX 43.21
FUND
NAV 30.31
SHARE PRICE RETURN 30.59
</Table>
FUND INCEPTION: 26 OCTOBER 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P SUPERCOMPOSITE OIL & GAS EQUIPMENT & SERVICES INDEX IS AN UNMANAGED
INDEX USED AS A MEASUREMENT OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE
AVERAGE PERFORMANCE OF 25 COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
67
<Page>
POWERSHARES DYNAMIC OIL & GAS SERVICES PORTFOLIO (TICKER: PXJ)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES DYNAMIC S&P SUPERCOMPOSITE
OIL & GAS OIL & GAS EQUIPMENT &
SERVICES PORTFOLIO SERVICES INDEX
11/30/2005 $10,000 $10,000
12/30/2005 $10,546 $10,593
01/31/2006 $10,864 $10,771
02/28/2006 $13,277 $13,511
03/31/2006 $11,236 $11,835
04/28/2006 $12,035 $12,747
</Table>
INDUSTRY BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
OIL & GAS SERVICES 53.2
OIL & GAS 34.0
ENGINEERING & CONSTRUCTION 5.2
TRANSPORTATION 4.6
METAL FABRICATE/HARDWARE 3.0
</Table>
STYLE ALLOCATION (%)
<Table>
MID GROWTH 38.10
LARGE GROWTH 35.94
SMALL VALUE 13.05
SMALL GROWTH 12.91
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
WEATHERFORD INTERNATIONAL LTD. (BERMUDA) 5.47
SCHLUMBERGER LTD. (NETHERLANDS) 5.31
BAKER HUGHES, INC. 5.24
DIAMOND OFFSHORE DRILLING, INC. 5.22
BJ SERVICES CO. 5.07
TRANSOCEAN, INC. (CAYMAN ISLANDS) 5.07
HALLIBURTON CO. 4.96
NATIONAL-OILWELL VARCO, INC. 4.82
TODCO, CLASS A 3.09
GRANT PRIDECO, INC. 3.03
-----
TOTAL 47.28
=====
</Table>
68
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC PHARMACEUTICALS PORTFOLIO (TICKER: PJP)
The PowerShares Dynamic Pharmaceuticals Portfolio is based on the Dynamic
Pharmaceuticals Intellidex(SM) Index, and seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of that equity index.
Although pharmaceutical stocks struggled in general, with the S&P SuperComposite
Pharmaceutical Index losing 3.22%, the Fund was able to navigate an 11.74%
positive return since its inception in June 2005. By having dramatically lower
exposures to the largest pharmaceutical companies that a typical cap-weighted
index produces, the Fund was able to mitigate losses from shares of struggling
Pfizer, Inc., Johnson & Johnson, Abbott Laboratories and Eli Lilly & Co., which
alone comprise more than 60% of the S&P Pharmaceutical Index.
The Fund also benefited from timely selections of companies such as Alpharma,
Inc., Class A, King Pharmaceuticals, Inc. and First Horizon Pharmaceutical
Corp., all of which have little to no exposure in the S&P SuperComposite
Pharmaceutical Index. Additionally, because of the distinct 'bottom-up'
classification process used by the Intellidex, the Fund benefited from owning
biotech companies which are also involved in the pharmaceutical space, such as
Celgene Corp. and Cephalon, Inc., which would not be included in an index
utilizing a 'top-down' classification approach in which overlap is generally not
permitted.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
DYNAMIC PHARMACEUTICALS INTELLIDEX(SM) INDEX 11.99
S&P SUPERCOMPOSITE PHARMACEUTICAL INDEX -3.22
FUND
NAV 11.74
SHARE PRICE RETURN 11.86
</Table>
FUND INCEPTION: 23 JUNE 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P SUPERCOMPOSITE PHARMACEUTICAL INDEX IS AN UNMANAGED INDEX USED AS A
MEASUREMENT OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF 44 COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
69
<Page>
POWERSHARES DYNAMIC PHARMACEUTICALS PORTFOLIO (TICKER: PJP)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES DYNAMIC S&P SUPERCOMPOSITE
PHARMACEUTICALS PHARMACEUTICAL
PORTFOLIO INDEX
07/29/2005 $10,000 $10,000
08/31/2005 $10,485 $ 9,908
09/30/2005 $10,876 $ 9,759
10/31/2005 $10,856 $ 9,598
11/30/2005 $10,512 $ 9,142
12/30/2005 $10,822 $ 9,021
01/31/2006 $11,112 $ 9,514
02/28/2006 $11,375 $ 9,809
03/31/2006 $11,523 $ 9,962
04/28/2006 $11,584 $ 9,888
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
PHARMACEUTICALS 74.4
BIOTECHNOLOGY 20.2
HEALTH CARE 5.3
MONEY MARKET FUND 0.1
</Table>
STYLE ALLOCATION (%)
<Table>
LARGE VALUE 34.41
LARGE GROWTH 26.07
SMALL GROWTH 17.87
MID GROWTH 16.29
MID VALUE 5.36
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
JOHNSON & JOHNSON 5.32
WYETH 5.31
ABBOTT LABORATORIES 5.23
MERCK & CO., INC. 5.17
PFIZER, INC. 5.15
GENENTECH, INC. 5.09
ELI LILLY & CO. 5.03
AMGEN, INC. 4.82
FIRST HORIZON PHARMACEUTICAL CORP. 3.44
KOS PHARMACEUTICALS, INC. 3.39
-----
TOTAL 47.95
=====
</Table>
70
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC RETAIL PORTFOLIO (TICKER: PMR)
The PowerShares Dynamic Retail Portfolio is based on the Dynamic Retail
Intellidex(SM) Index, and seeks investment results that correspond generally to
the price and yield (before the Fund's fees and expenses) of that equity index.
The Fund started on a strong positive note since its inception in October of
last year, providing a 20.98% return to investors. Although automakers
struggled, retail automotive stocks such as Group 1 Automotive, Inc. rocketed
and contributed most to the Fund's performance as a group. Apparel stocks
American Eagle Outfitters, Inc., Men's Wearhouse and Dress Barn, Inc. advanced,
adding to the Fund's bottom line. Shoppers frequented specialty retailers
Claire's Stores, Inc., Staples, Inc., The Sports Authority, Inc., Office Depot
and Barnes & Noble, Inc., rewarding investors. Retail distributor Building
Materials Holding Corp. and home furnisher Bed Bath & Beyond lagged their peers.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
DYNAMIC RETAIL INTELLIDEX(SM) INDEX 21.26
S&P SUPERCOMPOSITE RETAILING INDEX 12.35
FUND
NAV 20.98
SHARE PRICE RETURN 20.83
</Table>
FUND INCEPTION: 26 OCTOBER 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P SUPERCOMPOSITE RETAILING INDEX IS AN UNMANAGED INDEX USED AS A
MEASUREMENT OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF 91 COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
71
<Page>
POWERSHARES DYNAMIC RETAIL PORTFOLIO (TICKER: PMR)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES S&P SUPERCOMPOSITE
DYNAMIC RETAIL RETAILING
PORTFOLIO INDEX
11/30/2005 $10,000 $10,000
12/30/2005 $10,486 $10,496
01/31/2006 $10,454 $10,426
02/28/2006 $11,043 $10,572
03/31/2006 $11,231 $10,773
04/28/2006 $11,641 $10,931
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
RETAIL 84.5
COMMERCIAL SERVICES 5.1
INTERNET 3.0
DISTRIBUTION/WHOLESALE 2.5
FOOD 2.5
BUILDING MATERIALS 2.4
</Table>
STYLE ALLOCATION (%)
<Table>
SMALL VALUE 27.51
LARGE GROWTH 20.19
MID GROWTH 18.02
MID VALUE 13.59
SMALL GROWTH 10.74
LARGE VALUE 9.95
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
STAPLES, INC. 5.51
J.C. PENNEY CO., INC. 5.44
OFFICE DEPOT, INC. 5.39
COSTCO WHOLESALE CORP. 5.07
CVS CORP. 4.97
TARGET CORP. 4.64
NORDSTROM, INC. 4.55
GAP (THE), INC. 4.51
GROUP 1 AUTOMOTIVE, INC. 3.71
AMERICAN EAGLE OUTFITTERS, INC. 3.27
-----
TOTAL 47.06
=====
</Table>
72
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC SEMICONDUCTORS PORTFOLIO (TICKER: PSI)
The PowerShares Dynamic Semiconductors Portfolio is based on the Dynamic
Semiconductors Intellidex(SM) Index, and seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of that equity index.
Semiconductor stocks in general did well over the reporting period and the Fund
was able to provide additional outperformance to the industry, returning 35.16%
since its June 2005 inception. Advanced Micro Devices, NVIDIA Corp. and SiRF
Technology all posted stellar results within the Fund. MEMC Electronics
Materials, Inc., Cymer, Inc. and Lam Research Corp. were the best performers of
the semiconductor equipment makers. The Fund also benefited from a lower
exposure to the struggling Intel Corp., which carries a high weight in cap
weighted indexes. The Fund completely avoided Maxim Integrated Products, Inc.,
another flagging semiconductor which typically has fairly high representation in
passive semiconductor benchmarks. Although benefiting on a relative basis from a
lower weight in Intel Corp., overall the stock contributed negatively to the
Fund's performance.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
DYNAMIC SEMICONDUCTORS INTELLIDEX(SM) INDEX 35.87
S&P SUPERCOMPOSITE SEMICONDUCTOR INDEX 4.65
FUND
NAV 35.16
SHARE PRICE RETURN 35.07
</Table>
FUND INCEPTION: 23 JUNE 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P SUPERCOMPOSITE SEMICONDUCTOR INDEX IS AN UNMANAGED INDEX USED AS A
MEASUREMENT OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF 65 COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
73
<Page>
POWERSHARES DYNAMIC SEMICONDUCTORS PORTFOLIO (TICKER: PSI)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES DYNAMIC S&P SUPERCOMPOSITE
SEMICONDUCTORS SEMICONDUCTOR
PORTFOLIO INDEX
07/29/2005 $10,000 $10,000
08/31/2005 $11,086 $10,890
09/30/2005 $11,037 $10,673
10/31/2005 $11,065 $10,556
11/30/2005 $10,401 $ 9,736
12/30/2005 $11,598 $10,938
01/31/2006 $11,362 $10,575
02/28/2006 $13,320 $10,725
03/31/2006 $13,216 $10,599
04/28/2006 $13,555 $10,461
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
SEMICONDUCTORS 89.3
TELECOMMUNICATIONS 5.2
ELECTRONICS 2.9
ELECTRICAL COMPONENTS & EQUIPMENT 2.6
</Table>
STYLE ALLOCATION (%)
<Table>
SMALL GROWTH 31.72
MID GROWTH 30.29
LARGE GROWTH 23.59
SMALL VALUE 14.40
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
NVIDIA CORP. 6.05
TEXAS INSTRUMENTS, INC. 5.50
NATIONAL SEMICONDUCTOR CORP. 5.28
QUALCOMM, INC. 5.17
ANALOG DEVICES, INC. 4.69
LINEAR TECHNOLOGY CORP. 4.54
APPLIED MATERIALS, INC. 4.45
ADVANCED MICRO DEVICES, INC. 3.79
ZORAN CORP. 3.71
AMKOR TECHNOLOGY, INC. 3.46
-----
TOTAL 46.64
=====
</Table>
74
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC SOFTWARE PORTFOLIO (TICKER: PSJ)
The PowerShares Dynamic Software Portfolio is based on the Dynamic Software
Intellidex(SM) Index, and seeks investment results that correspond generally to
the price and yield (before the Fund's fees and expenses) of that equity index.
Software stocks in general did well over the reporting period and the Fund did
even better, posting a 23.10% return since its June 2005 inception. Application
software stocks led the pack, with names such as Informatica Corp., Blackbaud,
Inc., Citrix Systems, Inc. and MicroStrategy, Inc., Class A leading the charge.
Next in line were data processing software firms such as DST Systems, Inc. and
TALX Corp. Software companies servicing the investment brokerage and healthcare
field also posted strong results. Relative to the industry, the Fund benefited
from lower exposures to declining systems software stocks such as Symantec Corp.
and CA, Inc., although contributing negatively to the Fund on an absolute basis.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
DYNAMIC SOFTWARE INTELLIDEX(SM) INDEX 23.73
S&P SUPERCOMPOSITE SOFTWARE & SERVICES INDEX 6.53
FUND
NAV 23.10
SHARE PRICE RETURN 23.15
</Table>
FUND INCEPTION: 23 JUNE 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P SUPERCOMPOSITE SOFTWARE & SERVICES INDEX IS AN UNMANAGED INDEX USED AS A
MEASUREMENT OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF 102 COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
75
<Page>
POWERSHARES DYNAMIC SOFTWARE PORTFOLIO (TICKER: PSJ)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES DYNAMIC S&P SUPERCOMPOSITE
SOFTWARE PORTFOLIO SOFTWARE & SERVICES INDEX
07/29/2005 $10,000 $10,000
08/31/2005 $10,732 $10,314
09/30/2005 $10,802 $10,524
10/31/2005 $11,100 $10,394
11/30/2005 $11,354 $10,557
12/30/2005 $11,555 $10,945
01/31/2006 $11,642 $10,688
02/28/2006 $12,070 $11,033
03/31/2006 $11,856 $10,767
04/28/2006 $11,969 $10,944
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
SOFTWARE 75.8
COMPUTERS 11.1
INTERNET 6.2
TELECOMMUNICATIONS 3.9
DIVERSIFIED FINANCIAL SERVICES 3.1
OTHER (0.1)
</Table>
STYLE ALLOCATION (%)
<Table>
MID GROWTH 38.75
SMALL GROWTH 32.47
SMALL VALUE 16.46
LARGE GROWTH 9.39
MID VALUE 2.93
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
CITRIX SYSTEMS, INC. 6.26
AUTODESK, INC. 5.61
RED HAT, INC. 5.43
FISERV, INC. 5.21
ADOBE SYSTEMS, INC. 4.95
BMC SOFTWARE, INC. 4.73
MICROSOFT CORP. 4.44
COMVERSE TECHNOLOGY, INC. 3.88
TRANSACTION SYSTEMS ARCHITECTS, INC. 3.44
REALNETWORKS, INC. 3.39
-----
TOTAL 47.34
=====
</Table>
76
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC TELECOMMUNICATIONS & WIRELESS PORTFOLIO (TICKER: PTE)
The PowerShares Dynamic Telecommunications & Wireless Portfolio is based on the
Dynamic Telecommunications & Wireless Intellidex. The Intellidex thoroughly
evaluates companies based on a variety of investment merit criteria, including
fundamental growth, stock valuation, investment timeliness and risk factors.
Securities shown to possess the greatest capital appreciation potential are
selected by the Index and incorporated by the portfolio manager.
The Fund has started positively since its inception in December of last year,
accomplishing an 11.74% return in its relatively short life. Alternative
telephone carriers such as Time Warner Telecom, Inc., Class A, Level 3
Communications, Inc. and Broadwing Corp. led the advance, posting solid results.
Integrated telecommunication companies BellSouth Corp. and Qwest Communications
International, Inc. also contributed positively. The Fund also benefited from
wireless carriers American Tower Corp. and U.S. Cellular. Internet software
company EarthLink, Inc. declined as did communications equipment stocks Comverse
Technology, Inc. and Motorola, Inc.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
DYNAMIC TELECOMMUNICATIONS & WIRELESS INTELLIDEX(SM) INDEX 12.52
S&P SUPERCOMPOSITE TELECOMMICATIONS SERVICES INDEX 7.82
FUND
NAV 11.74
SHARE PRICE RETURN 11.80
</Table>
FUND INCEPTION: 06 DECEMBER 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P SUPERCOMPOSITE TELECOMMUNICATIONS SERVICES INDEX IS AN UNMANAGED INDEX
USED AS A MEASUREMENT OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF 13 COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
77
<Page>
POWERSHARES TELECOMMUNICATIONS & WIRELESS PORTFOLIO (TICKER: PTE)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES DYNAMIC S&P SUPERCOMPOSITE
TELECOMMUNICATIONS & WIRELESS TELECOMMUNICATIONS SERVICES
PORTFOLIO INDEX
01/31/2006 $10,000 $10,000
02/28/2006 $10,392 $10,407
03/31/2006 $10,514 $11,090
04/28/2006 $11,299 $11,442
</Table>
INDUSTRY BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
TELECOMMUNICATIONS 80.5
MEDIA 5.1
INTERNET 4.9
ELECTRONICS 3.4
COMMERCIAL SERVICES 3.0
SOFTWARE 2.9
OTHER 0.2
</Table>
STYLE ALLOCATION (%)
<Table>
MID GROWTH 28.60
LARGE VALUE 18.76
MID VALUE 15.63
SMALL GROWTH 14.66
SMALL VALUE 12.91
LARGE GROWTH 9.44
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
ECHOSTAR COMMUNICATIONS CORP., CLASS A 5.13
BELLSOUTH CORP. 5.00
SPRINT NEXTEL CORP. 4.82
ALLTEL CORP. 4.74
LUCENT TECHNOLOGIES, INC. 4.60
MOTOROLA, INC. 4.60
VERIZON COMMUNICATIONS, INC. 4.58
AT&T, INC. 4.41
LEVEL 3 COMMUNICATIONS, INC. 4.17
BROADWING CORP. 3.96
-----
TOTAL 46.01
=====
</Table>
78
<Page>
MANAGERS' ANALYSIS
POWERSHARES DYNAMIC UTILITIES PORTFOLIO (TICKER: PUI)
The PowerShares Dynamic Utilities Portfolio is based on the Dynamic Utilities
Intellidex(SM) Index, and seeks investment results that correspond generally to
the price and yield (before the Fund's fees and expenses) of that equity index.
Since its October 2005 inception, the Fund has started positively, accomplishing
a 7.82% return. Multi-line and electric utility companies made up a vast
majority of the Fund's holdings, while gas and water utilities had significantly
less representation in the Fund. CMS Energy Corp. and Centerpoint Energy, Inc.
and NiSource, Inc. were the worst performing of the group. PG&E Corp., KeySpan
Corp. and NorthWestern Corp. were the best performing multi-line utility
companies; Allegheny Energy, Inc., FirstEnergy Corp. and Pepco Holdings, Inc.
were top performing electric utilities for the Fund; American Electric Power
Co., Inc., El Paso Electric Co. and Edison International lagged. Independent
power producers Ormat Technologies, Inc. and NRG Energy, Inc. also contributed
during the reporting period.
FUND PERFORMANCE HISTORY (%) AS OF 30 APRIL 2006
<Table>
<Caption>
FUND INCEPTION
INDEX
DYNAMIC UTILITIES INTELLIDEX(SM) INDEX 8.28
S&P SUPERCOMPOSITE UTILITIES INDEX 4.22
FUND
NAV 7.82
SHARE PRICE RETURN 7.85
</Table>
FUND INCEPTION: 26 OCTOBER 2005
INVESTMENT OBJECTIVE, RISKS AND EXPENSES SHOULD ALSO BE CONSIDERED WHEN
COMPARING INVESTMENT RETURNS. THE INDEX PERFORMANCE RESULTS ARE HYPOTHETICAL.
THE S&P SUPERCOMPOSITE UTILITIES INDEX IS AN UNMANAGED INDEX USED AS A
MEASUREMENT OF CHANGE IN STOCK MARKET CONDITIONS BASED ON THE AVERAGE
PERFORMANCE OF 82 COMMON STOCKS.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS, CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
PERFORMANCE QUOTED. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE; AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
FUND'S PERFORMANCE REFLECTS FEE WAIVERS, WITHOUT WHICH, PERFORMANCE WOULD HAVE
BEEN LOWER. SEE POWERSHARES.COM TO FIND THE MOST RECENT MONTH-END PERFORMANCE
NUMBERS.
79
<Page>
POWERSHARES DYNAMIC UTILITIES PORTFOLIO (TICKER: PUI)
GROWTH SINCE INCEPTION
[CHART]
<Table>
<Caption>
POWERSHARES DYNAMIC S&P SUPERCOMPOSITE
UTILITIES PORTFOLIO UTILITIES INDEX
11/30/2005 $10,000 $10,000
12/30/2005 $ 9,898 $ 9,992
01/31/2006 $ 9,924 $10,067
02/28/2006 $10,381 $10,345
03/31/2006 $10,604 $10,455
04/28/2006 $10,292 $10,048
</Table>
SECTOR BREAKDOWN (% OF THE FUND'S NET ASSETS)
<Table>
ELECTRIC 83.9
GAS 10.3
PIPELINES 5.6
OTHER 0.2
</Table>
STYLE ALLOCATION (%)
<Table>
MID VALUE 50.20
LARGE VALUE 24.43
MID GROWTH 10.99
SMALL GROWTH 8.77
SMALL VALUE 5.61
</Table>
TOP TEN FUND HOLDINGS (% OF THE FUND'S NET ASSETS) AS OF 30 APRIL 2006
<Table>
SECURITY
PG&E CORP. 5.36
DUKE ENERGY CORP. 5.22
FIRSTENERGY CORP. 5.15
SEMPRA ENERGY 4.81
EXELON CORP. 4.79
PPL CORP. 4.74
AMERICAN ELECTRIC POWER CO., INC. 4.68
EDISON INTERNATIONAL 4.56
AQUILA, INC. 3.14
NORTHWESTERN CORP. 2.99
-----
TOTAL 45.44
=====
</Table>
80
<Page>
This page intentionally left blank
<Page>
FUNDS' DIVIDEND HISTORY (UNAUDITED)
<Table>
<Caption>
EX-DIVIDEND 03/17/06 12/30/05 12/16/05 09/16/05 06/17/05
RECORD 03/21/06 01/04/06 12/20/05 09/20/05 06/21/05
PAYABLE 03/30/06 01/31/06 12/30/05 09/30/05 06/30/05
PRODUCT TICKER
POWERSHARES DYNAMIC MARKET PORTFOLIO PWC 0.04452 -- 0.13055 0.04739 0.10797
POWERSHARES DYNAMIC OTC PORTFOLIO PWO -- -- -- 0.05663 --
POWERSHARES FTSE RAFI US 1000 PORTFOLIO PRF 0.12172 -- -- -- --
POWERSHARES DYNAMIC LARGE CAP GROWTH PORTFOLIO PWB -- -- 0.00241 -- --
POWERSHARES DYNAMIC LARGE CAP VALUE PORTFOLIO PWV 0.04783 -- 0.07647 0.05490 0.06233
POWERSHARES DYNAMIC MID CAP GROWTH PORTFOLIO PWJ --
POWERSHARES DYNAMIC MID CAP VALUE PORTFOLIO PWP 0.03356 -- 0.12251 0.04806 0.04852
POWERSHARES DYNAMIC SMALL CAP GROWTH PORTFOLIO PWT --
POWERSHARES DYNAMIC SMALL CAP VALUE PORTFOLIO PWY 0.01644 -- 0.02879 0.02835 0.03471
POWERSHARES DIVIDEND ACHIEVERS(TM) PORTFOLIO PFM 0.07660 -- 0.08740 -- --
POWERSHARES HIGH YIELD EQUITY DIVIDEND ACHIEVERS(TM)
PORTFOLIO PEY 0.12300 -- 0.11320 0.11490 0.12828
POWERSHARES HIGH GROWTH RATE DIVIDEND ACHIEVERS(TM)
PORTFOLIO PHJ 0.05916 -- 0.08594 -- --
POWERSHARES INTERNATIONAL DIVIDEND ACHIEVERS(TM)
PORTFOLIO PID 0.11910 -- 0.07747 -- --
POWERSHARES AEROSPACE & DEFENSE PORTFOLIO PPA -- -- 0.02191 -- --
POWERSHARES GOLDEN DRAGON HALTER USX CHINA
PORTFOLIO PGJ -- -- 0.00132 0.11161 0.04962
POWERSHARES LUX NANOTECH PORTFOLIO PXN -- 0.06725 0.01063 -- --
POWERSHARES VALUE LINE TIMELINESS(TM) SELECT
PORTFOLIO PIV -- -- -- -- --
POWERSHARES WATER RESOURCES PORTFOLIO PHO -- 0.02682 0.00627 -- --
POWERSHARES WILDERHILL CLEAN ENERGY PORTFOLIO PBW --
POWERSHARES ZACKS MICRO CAP PORTFOLIO PZI -- -- 0.01012 -- --
POWERSHARES ZACKS SMALL CAP PORTFOLIO PZJ -- -- -- -- --
POWERSHARES DYNAMIC BIOTECHNOLOGY & GENOME
PORTFOLIO PBE --
POWERSHARES DYNAMIC BUILDING & CONSTRUCTION
PORTFOLIO PKB -- -- 0.00730 -- --
POWERSHARES DYNAMIC ENERGY EXPLORATION & PRODUCTION
PORTFOLIO PXE -- -- 0.01681 -- --
POWERSHARES DYNAMIC FOOD & BEVERAGE PORTFOLIO PBJ 0.01605 -- 0.02825 0.04552 --
POWERSHARES DYNAMIC HARDWARE & CONSUMER ELECTRONICS
PORTFOLIO PHW -- -- -- -- --
POWERSHARES DYNAMIC INSURANCE PORTFOLIO PIC 0.01798 -- 0.04533 -- --
POWERSHARES DYNAMIC LEISURE AND ENTERTAINMENT
PORTFOLIO PEJ -- -- 0.01677 -- --
POWERSHARES DYNAMIC MEDIA PORTFOLIO PBS -- -- 0.00257 0.01746 --
POWERSHARES DYNAMIC NETWORKING PORTFOLIO PXQ --
POWERSHARES DYNAMIC OIL & GAS SERVICES PORTFOLIO PXJ -- -- -- -- --
POWERSHARES DYNAMIC PHARMACEUTICALS PORTFOLIO PJP 0.01237 -- 0.01581 0.01493 --
POWERSHARES DYNAMIC RETAIL PORTFOLIO PMR -- -- 0.01269 -- --
POWERSHARES DYNAMIC SEMICONDUCTORS PORTFOLIO PSI --
POWERSHARES DYNAMIC SOFTWARE PORTFOLIO PSJ --
POWERSHARES DYNAMIC TELECOMMUNICATIONS & WIRELESS
PORTFOLIO PTE 0.03180 -- 0.00158 -- --
POWERSHARES DYNAMIC UTILITIES PORTFOLIO PUI 0.07089 -- 0.11650 -- --
</Table>
82
<Page>
<Table>
<Caption>
EX-DIVIDEND 03/18/05 04/01/05 12/17/04 12/31/04 09/17/04
RECORD 03/22/05 04/05/05 12/21/04 01/04/05 09/21/04
PAYABLE 04/29/05 04/29/05 01/31/05 01/31/05 10/29/04
PRODUCT TICKER
POWERSHARES DYNAMIC MARKET PORTFOLIO PWC -- 0.02900 -- 0.08784 0.03096
POWERSHARES DYNAMIC OTC PORTFOLIO PWO -- -- -- -- --
POWERSHARES FTSE RAFI US 1000 PORTFOLIO PRF -- -- -- -- --
POWERSHARES DYNAMIC LARGE CAP GROWTH PORTFOLIO PWB -- -- -- -- --
POWERSHARES DYNAMIC LARGE CAP VALUE PORTFOLIO PWV -- 0.01222 -- -- --
POWERSHARES DYNAMIC MID CAP GROWTH PORTFOLIO PWJ
POWERSHARES DYNAMIC MID CAP VALUE PORTFOLIO PWP -- 0.02010 -- -- --
POWERSHARES DYNAMIC SMALL CAP GROWTH PORTFOLIO PWT
POWERSHARES DYNAMIC SMALL CAP VALUE PORTFOLIO PWY -- -- -- -- --
POWERSHARES DIVIDEND ACHIEVERS(TM) PORTFOLIO PFM -- -- -- -- --
POWERSHARES HIGH YIELD EQUITY DIVIDEND ACHIEVERS(TM)
PORTFOLIO PEY 0.03688 0.09700 0.00859 0.02742 --
POWERSHARES HIGH GROWTH RATE DIVIDEND ACHIEVERS(TM)
PORTFOLIO PHJ -- -- -- -- --
POWERSHARES INTERNATIONAL DIVIDEND ACHIEVERS(TM)
PORTFOLIO PID -- -- -- -- --
POWERSHARES AEROSPACE & DEFENSE PORTFOLIO PPA -- -- -- -- --
POWERSHARES GOLDEN DRAGON HALTER USX CHINA
PORTFOLIO PGJ -- -- -- -- --
POWERSHARES LUX NANOTECH PORTFOLIO PXN -- -- -- -- --
POWERSHARES VALUE LINE TIMELINESS(TM) SELECT
PORTFOLIO PIV -- -- -- -- --
POWERSHARES WATER RESOURCES PORTFOLIO PHO -- -- -- -- --
POWERSHARES WILDERHILL CLEAN ENERGY PORTFOLIO PBW
POWERSHARES ZACKS MICRO CAP PORTFOLIO PZI -- -- -- -- --
POWERSHARES ZACKS SMALL CAP PORTFOLIO PZJ -- -- -- -- --
POWERSHARES DYNAMIC BIOTECHNOLOGY & GENOME
PORTFOLIO PBE
POWERSHARES DYNAMIC BUILDING & CONSTRUCTION
PORTFOLIO PKB -- -- -- -- --
POWERSHARES DYNAMIC ENERGY EXPLORATION & PRODUCTION
PORTFOLIO PXE -- -- -- -- --
POWERSHARES DYNAMIC FOOD & BEVERAGE PORTFOLIO PBJ -- -- -- -- --
POWERSHARES DYNAMIC HARDWARE & CONSUMER ELECTRONICS
PORTFOLIO PHW -- -- -- -- --
POWERSHARES DYNAMIC INSURANCE PORTFOLIO PIC -- -- -- -- --
POWERSHARES DYNAMIC LEISURE AND ENTERTAINMENT
PORTFOLIO PEJ -- -- -- -- --
POWERSHARES DYNAMIC MEDIA PORTFOLIO PBS -- -- -- -- --
POWERSHARES DYNAMIC NETWORKING PORTFOLIO PXQ
POWERSHARES DYNAMIC OIL & GAS SERVICES PORTFOLIO PXJ -- -- -- -- --
POWERSHARES DYNAMIC PHARMACEUTICALS PORTFOLIO PJP -- -- -- -- --
POWERSHARES DYNAMIC RETAIL PORTFOLIO PMR -- -- -- -- --
POWERSHARES DYNAMIC SEMICONDUCTORS PORTFOLIO PSI
POWERSHARES DYNAMIC SOFTWARE PORTFOLIO PSJ
POWERSHARES DYNAMIC TELECOMMUNICATIONS & WIRELESS
PORTFOLIO PTE -- -- -- -- --
POWERSHARES DYNAMIC UTILITIES PORTFOLIO PUI -- -- -- -- --
<Caption>
EX-DIVIDEND 06/18/04 03/19/04 12/24/03 09/19/03 06/20/03
RECORD 06/22/04 03/23/04 12/29/03 09/23/03 06/24/03
PAYABLE 07/30/04 04/30/04 01/30/04 10/31/03 07/31/03
PRODUCT TICKER
POWERSHARES DYNAMIC MARKET PORTFOLIO PWC 0.07211 0.05300 0.03646 0.04418 0.16848
POWERSHARES DYNAMIC OTC PORTFOLIO PWO -- -- -- -- --
POWERSHARES FTSE RAFI US 1000 PORTFOLIO PRF -- -- -- -- --
POWERSHARES DYNAMIC LARGE CAP GROWTH PORTFOLIO PWB -- -- -- -- --
POWERSHARES DYNAMIC LARGE CAP VALUE PORTFOLIO PWV -- -- -- -- --
POWERSHARES DYNAMIC MID CAP GROWTH PORTFOLIO PWJ
POWERSHARES DYNAMIC MID CAP VALUE PORTFOLIO PWP -- -- -- -- --
POWERSHARES DYNAMIC SMALL CAP GROWTH PORTFOLIO PWT
POWERSHARES DYNAMIC SMALL CAP VALUE PORTFOLIO PWY -- -- -- -- --
POWERSHARES DIVIDEND ACHIEVERS(TM) PORTFOLIO PFM -- -- -- -- --
POWERSHARES HIGH YIELD EQUITY DIVIDEND ACHIEVERS(TM)
PORTFOLIO PEY -- -- -- -- --
POWERSHARES HIGH GROWTH RATE DIVIDEND ACHIEVERS(TM)
PORTFOLIO PHJ -- -- -- -- --
POWERSHARES INTERNATIONAL DIVIDEND ACHIEVERS(TM)
PORTFOLIO PID -- -- -- -- --
POWERSHARES AEROSPACE & DEFENSE PORTFOLIO PPA -- -- -- -- --
POWERSHARES GOLDEN DRAGON HALTER USX CHINA
PORTFOLIO PGJ -- -- -- -- --
POWERSHARES LUX NANOTECH PORTFOLIO PXN -- -- -- -- --
POWERSHARES VALUE LINE TIMELINESS(TM) SELECT
PORTFOLIO PIV -- -- -- -- --
POWERSHARES WATER RESOURCES PORTFOLIO PHO -- -- -- -- --
POWERSHARES WILDERHILL CLEAN ENERGY PORTFOLIO PBW
POWERSHARES ZACKS MICRO CAP PORTFOLIO PZI -- -- -- -- --
POWERSHARES ZACKS SMALL CAP PORTFOLIO PZJ -- -- -- -- --
POWERSHARES DYNAMIC BIOTECHNOLOGY & GENOME
PORTFOLIO PBE
POWERSHARES DYNAMIC BUILDING & CONSTRUCTION
PORTFOLIO PKB -- -- -- -- --
POWERSHARES DYNAMIC ENERGY EXPLORATION & PRODUCTION
PORTFOLIO PXE -- -- -- -- --
POWERSHARES DYNAMIC FOOD & BEVERAGE PORTFOLIO PBJ -- -- -- -- --
POWERSHARES DYNAMIC HARDWARE & CONSUMER ELECTRONICS
PORTFOLIO PHW -- -- -- -- --
POWERSHARES DYNAMIC INSURANCE PORTFOLIO PIC -- -- -- -- --
POWERSHARES DYNAMIC LEISURE AND ENTERTAINMENT
PORTFOLIO PEJ -- -- -- -- --
POWERSHARES DYNAMIC MEDIA PORTFOLIO PBS -- -- -- -- --
POWERSHARES DYNAMIC NETWORKING PORTFOLIO PXQ
POWERSHARES DYNAMIC OIL & GAS SERVICES PORTFOLIO PXJ -- -- -- -- --
POWERSHARES DYNAMIC PHARMACEUTICALS PORTFOLIO PJP -- -- -- -- --
POWERSHARES DYNAMIC RETAIL PORTFOLIO PMR -- -- -- -- --
POWERSHARES DYNAMIC SEMICONDUCTORS PORTFOLIO PSI
POWERSHARES DYNAMIC SOFTWARE PORTFOLIO PSJ
POWERSHARES DYNAMIC TELECOMMUNICATIONS & WIRELESS
PORTFOLIO PTE -- -- -- -- --
POWERSHARES DYNAMIC UTILITIES PORTFOLIO PUI -- -- -- -- --
</Table>
83
<Page>
FREQUENCY DISTRIBUTION OF DISCOUNTS & PREMIUMS (UNAUDITED)
SINCE INCEPTION THRU APRIL 28, 2006
<Table>
<Caption>
CLOSING PRICE ABOVE NAV
--------------------------------------------------------------
0-24 25-49 50-99 100-149 150-199 200+
BASIS BASIS BASIS BASIS BASIS BASIS
TICKER FUND NAME INCEPTION DAYS POINTS POINTS POINTS POINTS POINTS POINTS
PWC DYNAMIC MARKET PORTFOLIO 05/01/03 641 447 62 9 0 0 0
PWO DYNAMIC OTC PORTFOLIO 05/01/03 641 364 29 11 0 0 0
PRF FTSE RAFI US 1000 PORTFOLIO 12/19/05 70 38 4 0 0 0 0
PWB DYNAMIC LARGE CAP GROWTH PORTFOLIO 03/03/05 292 220 2 1 0 0 0
PWV DYNAMIC LARGE CAP VALUE PORTFOLIO 03/03/05 292 229 2 1 0 0 0
PWJ DYNAMIC MID CAP GROWTH PORTFOLIO 03/03/05 292 174 1 2 0 0 0
PWP DYNAMIC MID CAP VALUE PORTFOLIO 03/03/05 292 166 0 2 0 0 0
PWT DYNAMIC SMALL CAP GROWTH PORTFOLIO 03/03/05 292 162 10 2 0 0 0
PWY DYNAMIC SMALL CAP VALUE PORTFOLIO 03/03/05 292 165 4 3 0 0 0
PFM DIVIDEND ACHIEVERS(TM) PORTFOLIO 09/15/05 156 101 1 0 0 0 0
PEY HIGH YIELD EQUITY DIVIDEND
ACHIEVERS(TM) PORTFOLIO 12/09/04 349 196 8 0 0 0 0
PHJ HIGH GROWTH RATE DIVIDEND
ACHIEVERS(TM) PORTFOLIO 09/15/05 156 113 0 0 0 0 0
PID INTERNATIONAL DIVIDEND ACHIEVERS(TM)
PORTFOLIO 09/15/05 156 115 3 0 0 0 0
PPA AEROSPACE & DEFENSE PORTFOLIO 10/26/05 127 84 8 1 0 0 0
PGJ GOLDEN DRAGON HALTER USX CHINA
PORTFOLIO 12/09/04 349 208 69 16 0 0 0
PXN LUX NANOTECH PORTFOLIO 10/26/05 127 87 6 1 0 0 0
PIV VALUE LINE TIMELINESS(TM) SELECT
PORTFOLIO 12/06/05 99 81 9 1 0 0 0
PHO WATER RESOURCES PORTFOLIO 12/06/05 99 38 42 11 1 0 0
PBW WILDERHILL CLEAN ENERGY PORTFOLIO 03/03/05 292 145 62 4 1 0 0
PZI ZACKS MICRO CAP PORTFOLIO 08/18/05 175 87 5 3 0 0 0
PZJ ZACKS SMALL CAP PORTFOLIO 02/16/06 50 40 1 0 0 0 0
PBE DYNAMIC BIOTECHNOLOGY & GENOME
PORTFOLIO 06/23/05 214 149 15 0 1 0 0
PKB DYNAMIC BUILDING & CONSTRUCTION
PORTFOLIO 10/26/05 127 35 11 1 0 0 0
PXE DYNAMIC ENERGY EXPLORATION &
PRODUCTION PORTFOLIO 10/26/05 127 97 1 1 0 0 0
PBJ DYNAMIC FOOD & BEVERAGE PORTFOLIO 06/23/05 214 117 1 0 0 0 0
PHW DYNAMIC HARDWARE & CONSUMER
ELECTRONICS PORTFOLIO 12/06/05 99 43 2 1 0 0 0
PIC DYNAMIC INSURANCE PORTFOLIO 10/26/05 127 84 4 0 0 0 0
PEJ DYNAMIC LEISURE AND ENTERTAINMENT
PORTFOLIO 06/23/05 214 88 1 0 0 0 0
PBS DYNAMIC MEDIA PORTFOLIO 06/23/05 214 85 2 0 0 0 0
PXQ DYNAMIC NETWORKING PORTFOLIO 06/23/05 214 89 1 1 0 0 0
PXJ DYNAMIC OIL & GAS SERVICES PORTFOLIO 10/26/05 127 81 23 3 0 0 0
PJP DYNAMIC PHARMACEUTICALS PORTFOLIO 06/23/05 214 160 5 4 0 0 0
PMR DYNAMIC RETAIL PORTFOLIO 10/26/05 127 63 1 1 0 0 0
PSI DYNAMIC SEMICONDUCTORS PORTFOLIO 06/23/05 214 144 12 2 0 0 0
PSJ DYNAMIC SOFTWARE PORTFOLIO 06/23/05 214 137 5 6 0 0 0
PTE DYNAMIC TELECOMMUNICATIONS &
WIRELESS PORTFOLIO 12/06/05 99 51 1 2 0 0 0
PUI DYNAMIC UTILITIES PORTFOLIO 10/26/05 127 54 2 2 0 0 0
</Table>
84
<Page>
<Table>
<Caption>
CLOSING PRICE BELOW NAV
----------------------------------------
-0-24 -25-49 -50-99
TICKER FUND NAME INCEPTION DAYS BASIS POINTS BASIS POINTS BASIS POINTS
PWC DYNAMIC MARKET PORTFOLIO 05/01/03 641 120 3 0
PWO DYNAMIC OTC PORTFOLIO 05/01/03 641 224 11 2
PRF FTSE RAFI US 1000 PORTFOLIO 12/19/05 70 19 4 5
PWB DYNAMIC LARGE CAP GROWTH PORTFOLIO 03/03/05 292 67 1 1
PWV DYNAMIC LARGE CAP VALUE PORTFOLIO 03/03/05 292 55 2 3
PWJ DYNAMIC MID CAP GROWTH PORTFOLIO 03/03/05 292 111 3 1
PWP DYNAMIC MID CAP VALUE PORTFOLIO 03/03/05 292 122 2 0
PWT DYNAMIC SMALL CAP GROWTH PORTFOLIO 03/03/05 292 105 10 3
PWY DYNAMIC SMALL CAP VALUE PORTFOLIO 03/03/05 292 112 5 3
PFM DIVIDEND ACHIEVERS(TM) PORTFOLIO 09/15/05 156 53 1 0
PEY HIGH YIELD EQUITY DIVIDEND
ACHIEVERS(TM) PORTFOLIO 12/09/04 349 139 6 0
PHJ HIGH GROWTH RATE DIVIDEND
ACHIEVERS(TM) PORTFOLIO 09/15/05 156 43 0 0
PID INTERNATIONAL DIVIDEND ACHIEVERS(TM)
PORTFOLIO 09/15/05 156 38 0 0
PPA AEROSPACE & DEFENSE PORTFOLIO 10/26/05 127 33 1 0
PGJ GOLDEN DRAGON HALTER USX CHINA
PORTFOLIO 12/09/04 349 48 6 2
PXN LUX NANOTECH PORTFOLIO 10/26/05 127 31 2 0
PIV VALUE LINE TIMELINESS(TM) SELECT
PORTFOLIO 12/06/05 99 6 2 0
PHO WATER RESOURCES PORTFOLIO 12/06/05 99 7 0 0
PBW WILDERHILL CLEAN ENERGY PORTFOLIO 03/03/05 292 73 7 0
PZI ZACKS MICRO CAP PORTFOLIO 08/18/05 175 80 0 0
PZJ ZACKS SMALL CAP PORTFOLIO 02/16/06 50 9 0 0
PBE DYNAMIC BIOTECHNOLOGY & GENOME
PORTFOLIO 06/23/05 214 47 2 0
PKB DYNAMIC BUILDING & CONSTRUCTION
PORTFOLIO 10/26/05 127 79 1 0
PXE DYNAMIC ENERGY EXPLORATION &
PRODUCTION PORTFOLIO 10/26/05 127 26 1 1
PBJ DYNAMIC FOOD & BEVERAGE PORTFOLIO 06/23/05 214 95 1 0
PHW DYNAMIC HARDWARE & CONSUMER
ELECTRONICS PORTFOLIO 12/06/05 99 51 1 0
PIC DYNAMIC INSURANCE PORTFOLIO 10/26/05 127 38 1 0
PEJ DYNAMIC LEISURE AND ENTERTAINMENT
PORTFOLIO 06/23/05 214 125 0 0
PBS DYNAMIC MEDIA PORTFOLIO 06/23/05 214 127 0 0
PXQ DYNAMIC NETWORKING PORTFOLIO 06/23/05 214 121 1 1
PXJ DYNAMIC OIL & GAS SERVICES PORTFOLIO 10/26/05 127 20 0 0
PJP DYNAMIC PHARMACEUTICALS PORTFOLIO 06/23/05 214 43 2 0
PMR DYNAMIC RETAIL PORTFOLIO 10/26/05 127 61 1 0
PSI DYNAMIC SEMICONDUCTORS PORTFOLIO 06/23/05 214 55 1 0
PSJ DYNAMIC SOFTWARE PORTFOLIO 06/23/05 214 64 2 0
PTE DYNAMIC TELECOMMUNICATIONS &
WIRELESS PORTFOLIO 12/06/05 99 43 2 0
PUI DYNAMIC UTILITIES PORTFOLIO 10/26/05 127 67 2 0
<Caption>
CLOSING PRICE BELOW NAV
----------------------------------------
-100-149 -150-199 -200+
TICKER FUND NAME INCEPTION DAYS BASIS POINTS BASIS POINTS BASIS POINTS
PWC DYNAMIC MARKET PORTFOLIO 05/01/03 641 0 0 0
PWO DYNAMIC OTC PORTFOLIO 05/01/03 641 0 0 0
PRF FTSE RAFI US 1000 PORTFOLIO 12/19/05 70 0 0 0
PWB DYNAMIC LARGE CAP GROWTH PORTFOLIO 03/03/05 292 0 0 0
PWV DYNAMIC LARGE CAP VALUE PORTFOLIO 03/03/05 292 0 0 0
PWJ DYNAMIC MID CAP GROWTH PORTFOLIO 03/03/05 292 0 0 0
PWP DYNAMIC MID CAP VALUE PORTFOLIO 03/03/05 292 0 0 0
PWT DYNAMIC SMALL CAP GROWTH PORTFOLIO 03/03/05 292 0 0 0
PWY DYNAMIC SMALL CAP VALUE PORTFOLIO 03/03/05 292 0 0 0
PFM DIVIDEND ACHIEVERS(TM) PORTFOLIO 09/15/05 156 0 0 0
PEY HIGH YIELD EQUITY DIVIDEND
ACHIEVERS(TM) PORTFOLIO 12/09/04 349 0 0 0
PHJ HIGH GROWTH RATE DIVIDEND
ACHIEVERS(TM) PORTFOLIO 09/15/05 156 0 0 0
PID INTERNATIONAL DIVIDEND ACHIEVERS(TM)
PORTFOLIO 09/15/05 156 0 0 0
PPA AEROSPACE & DEFENSE PORTFOLIO 10/26/05 127 0 0 0
PGJ GOLDEN DRAGON HALTER USX CHINA
PORTFOLIO 12/09/04 349 0 0 0
PXN LUX NANOTECH PORTFOLIO 10/26/05 127 0 0 0
PIV VALUE LINE TIMELINESS(TM) SELECT
PORTFOLIO 12/06/05 99 0 0 0
PHO WATER RESOURCES PORTFOLIO 12/06/05 99 0 0 0
PBW WILDERHILL CLEAN ENERGY PORTFOLIO 03/03/05 292 0 0 0
PZI ZACKS MICRO CAP PORTFOLIO 08/18/05 175 0 0 0
PZJ ZACKS SMALL CAP PORTFOLIO 02/16/06 50 0 0 0
PBE DYNAMIC BIOTECHNOLOGY & GENOME
PORTFOLIO 06/23/05 214 0 0 0
PKB DYNAMIC BUILDING & CONSTRUCTION
PORTFOLIO 10/26/05 127 0 0 0
PXE DYNAMIC ENERGY EXPLORATION &
PRODUCTION PORTFOLIO 10/26/05 127 0 0 0
PBJ DYNAMIC FOOD & BEVERAGE PORTFOLIO 06/23/05 214 0 0 0
PHW DYNAMIC HARDWARE & CONSUMER
ELECTRONICS PORTFOLIO 12/06/05 99 1 0 0
PIC DYNAMIC INSURANCE PORTFOLIO 10/26/05 127 0 0 0
PEJ DYNAMIC LEISURE AND ENTERTAINMENT
PORTFOLIO 06/23/05 214 0 0 0
PBS DYNAMIC MEDIA PORTFOLIO 06/23/05 214 0 0 0
PXQ DYNAMIC NETWORKING PORTFOLIO 06/23/05 214 0 0 0
PXJ DYNAMIC OIL & GAS SERVICES PORTFOLIO 10/26/05 127 0 0 0
PJP DYNAMIC PHARMACEUTICALS PORTFOLIO 06/23/05 214 0 0 0
PMR DYNAMIC RETAIL PORTFOLIO 10/26/05 127 0 0 0
PSI DYNAMIC SEMICONDUCTORS PORTFOLIO 06/23/05 214 0 0 0
PSJ DYNAMIC SOFTWARE PORTFOLIO 06/23/05 214 0 0 0
PTE DYNAMIC TELECOMMUNICATIONS &
WIRELESS PORTFOLIO 12/06/05 99 0 0 0
PUI DYNAMIC UTILITIES PORTFOLIO 10/26/05 127 0 0 0
</Table>
85
<Page>
FEES AND EXPENSES (UNAUDITED)
As a shareholder of a Fund of the PowerShares Exchange-Traded Fund Trust, you
incur advisory fees and other Fund expenses. The expense examples below are
intended to help you understand your ongoing costs (in dollars) of investing in
the Funds and to compare these costs with the ongoing costs of investing in
other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of
the period and held through the six-month (or shorter) period ended
April 30, 2006.
ACTUAL EXPENSES
The first line in the following tables provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading "Expenses Paid During the Six-Month Period"
to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following tables provides information about hypothetical
account values and hypothetical expenses based on the Funds' actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Funds' actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only, and do not reflect any transactional costs such as sales
charges (loads). Therefore the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING ANNUALIZED
ACCOUNT ACCOUNT EXPENSE RATIO EXPENSES PAID
VALUE VALUE BASED ON THE DURING THE
NOVEMBER 1, 2005 APRIL 30, 2006 SIX-MONTH PERIOD SIX-MONTH PERIOD (1)
POWERSHARES DYNAMIC MARKET PORTFOLIO
ACTUAL $1,000.00 $1,087.10 0.60% $3.08
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.82 0.60% $3.01
POWERSHARES DYNAMIC OTC PORTFOLIO
ACTUAL $1,000.00 $1,125.30 0.60% $3.16
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.82 0.60% $3.01
</Table>
86
<Page>
<Table>
<Caption>
EXPENSES PAID
BEGINNING DURING PERIOD (3)
ACCOUNT VALUE ANNUALIZED DECEMBER 19, 2005
DECEMBER 19, 2005 EXPENSE RATIO (COMMENCEMENT
(COMMENCEMENT ENDING BASED ON OF INVESTMENT
OF INVESTMENT ACCOUNT VALUE NUMBER OF DAYS OPERATIONS) TO
OPERATIONS) APRIL 30, 2006 IN THE PERIOD APRIL 30, 2006
PowerShares FTSE RAFI US 1000 Portfolio
Actual $1,000.00 $1,058.80 0.76% $2.84
Hypothetical (5% return before expenses) $1,000.00 $1,021.04 0.76% $3.79
<Caption>
BEGINNING ENDING ANNUALIZED
ACCOUNT ACCOUNT EXPENSE RATIO EXPENSES PAID
VALUE VALUE BASED ON THE DURING THE
NOVEMBER 1, 2005 APRIL 30, 2006 SIX-MONTH PERIOD SIX-MONTH PERIOD (1)
POWERSHARES DYNAMIC LARGE CAP GROWTH PORTFOLIO
ACTUAL $1,000.00 $1,069.20 0.64% $3.27
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.63 0.64% $3.20
POWERSHARES DYNAMIC LARGE CAP VALUE PORTFOLIO
ACTUAL $1,000.00 $1,113.20 0.64% $3.38
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.60 0.64% $3.23
POWERSHARES DYNAMIC MID CAP GROWTH PORTFOLIO
ACTUAL $1,000.00 $1,154.50 0.64% $3.42
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.62 0.64% $3.21
POWERSHARES DYNAMIC MID CAP VALUE PORTFOLIO
ACTUAL $1,000.00 $1,103.00 0.65% $3.39
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.57 0.65% $3.26
POWERSHARES DYNAMIC SMALL CAP GROWTH PORTFOLIO
ACTUAL $1,000.00 $1,177.30 0.64% $3.46
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.62 0.64% $3.21
POWERSHARES DYNAMIC SMALL CAP VALUE PORTFOLIO
ACTUAL $1,000.00 $1,119.50 0.65% $3.43
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.56 0.65% $3.27
POWERSHARES DIVIDEND ACHIEVERS(TM) PORTFOLIO
ACTUAL $1,000.00 $1,075.50 0.66% $3.41
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.51 0.66% $3.32
POWERSHARES HIGH YIELD EQUITY DIVIDEND
ACHEIVERS(TM) PORTFOLIO
ACTUAL $1,000.00 $1,031.40 0.61% $3.05
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.79 0.61% $3.04
POWERSHARES HIGH GROWTH RATE DIVIDEND
ACHIEVERS(TM) PORTFOLIO
ACTUAL $1,000.00 $1,094.10 0.66% $3.42
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.53 0.66% $3.30
</Table>
87
<Page>
<Table>
<Caption>
BEGINNING ENDING ANNUALIZED
ACCOUNT ACCOUNT EXPENSE RATIO EXPENSES PAID
VALUE VALUE BASED ON THE DURING THE
NOVEMBER 1, 2005 APRIL 30, 2006 SIX-MONTH PERIOD SIX-MONTH PERIOD (1)
POWERSHARES INTERNATIONAL DIVIDEND
ACHIEVERS(TM) PORTFOLIO
ACTUAL $1,000.00 $1,182.20 0.62% $3.34
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.73 0.62% $3.10
POWERSHARES AEROSPACE & DEFENSE PORTFOLIO
ACTUAL $1,000.00 $1,171.00 0.68% $3.66
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.42 0.68% $3.41
POWERSHARES GOLDEN DRAGON HALTER USX
CHINA PORTFOLIO
ACTUAL $1,000.00 $1,282.90 0.70% $3.98
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.31 0.70% $3.53
POWERSHARES LUX NANOTECH PORTFOLIO
ACTUAL $1,000.00 $1,275.60 0.73% $4.11
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.18 0.73% $3.65
<Caption>
EXPENSES PAID
BEGINNING DURING PERIOD (2)
ACCOUNT VALUE ANNUALIZED DECEMBER 6, 2005
DECEMBER 6, 2005 EXPENSE RATIO (COMMENCEMENT
(COMMENCEMENT ENDING BASED ON OF INVESTMENT
OF INVESTMENT ACCOUNT VALUE NUMBER OF DAYS OPERATIONS) TO
OPERATIONS) APRIL 30, 2006 IN THE PERIOD APRIL 30, 2006
POWERSHARES VALUE LINE
TIMELINESS(TM) SELECT PORTFOLIO
ACTUAL $1,000.00 $1,100.70 0.71% $2.99
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.27 0.71% $3.57
POWERSHARES WATER RESOURCES PORTFOLIO
ACTUAL $1,000.00 $1,194.30 0.67% $2.96
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.45 0.67% $3.38
</Table>
88
<Page>
<Table>
<Caption>
BEGINNING ENDING ANNUALIZED
ACCOUNT ACCOUNT EXPENSE RATIO EXPENSES PAID
VALUE VALUE BASED ON THE DURING THE
NOVEMBER 1, 2005 APRIL 30, 2006 SIX-MONTH PERIOD SIX-MONTH PERIOD (1)
POWERSHARES WILDERHILL CLEAN ENERGY PORTFOLIO
ACTUAL $1,000.00 $1,447.10 0.70% $4.26
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.31 0.70% $3.52
POWERSHARES ZACKS MICRO CAP PORTFOLIO
ACTUAL $1,000.00 $1,209.20 0.72% $3.92
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.25 0.72% $3.59
<Caption>
EXPENSES PAID
BEGINNING DURING PERIOD (4)
ACCOUNT VALUE ANNUALIZED DECEMBER 16, 2006
DECEMBER 16, 2006 EXPENSE RATIO (COMMENCEMENT
(COMMENCEMENT ENDING BASED ON OF INVESTMENT
OF INVESTMENT ACCOUNT VALUE NUMBER OF DAYS OPERATIONS) TO
OPERATIONS) APRIL 30, 2006 IN THE PERIOD APRIL 30, 2006
POWERSHARES ZACKS SMALL CAP PORTFOLIO
ACTUAL $1,000.00 $1,053.00 0.75% $1.55
HYPOTHETICAL
(5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.10 0.75% $3.73
<Caption>
BEGINNING ENDING ANNUALIZED
ACCOUNT ACCOUNT EXPENSE RATIO EXPENSES PAID
VALUE VALUE BASED ON THE DURING THE
NOVEMBER 1, 2005 APRIL 30, 2006 SIX-MONTH PERIOD SIX-MONTH PERIOD (1)
POWERSHARES DYNAMIC BIOTECHNOLOGY &
GENOME PORTFOLIO
ACTUAL $1,000.00 $1,059.10 0.63% $3.23
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.65 0.63% $3.17
POWERSHARES DYNAMIC BUILDING &
CONSTRUCTION PORTFOLIO
ACTUAL $1,000.00 $1,176.10 0.67% $3.62
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.47 0.67% $3.36
POWERSHARES DYNAMIC ENERGY EXPLORATION &
PRODUCTION PORTFOLIO
ACTUAL $1,000.00 $1,145.50 0.65% $3.48
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.55 0.65% $3.28
POWERSHARES DYNAMIC FOOD & BEVERAGE PORTFOLIO
ACTUAL $1,000.00 $1,060.60 0.66% $3.39
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.50 0.66% $3.33
</Table>
89
<Page>
<Table>
<Caption>
EXPENSES PAID
BEGINNING DURING PERIOD (2)
ACCOUNT VALUE ANNUALIZED DECEMBER 6, 2005
DECEMBER 6, 2005 EXPENSE RATIO (COMMENCEMENT
(COMMENCEMENT ENDING BASED ON OF INVESTMENT
OF INVESTMENT ACCOUNT VALUE NUMBER OF DAYS OPERATIONS) TO
OPERATIONS) APRIL 30, 2006 IN THE PERIOD APRIL 30, 2006
POWERSHARES DYNAMIC HARDWARE &
CONSUMER ELECTRONICS PORTFOLIO
ACTUAL $1,000.00 $1,095.50 0.68% $2.84
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.44 0.68% $3.39
<Caption>
BEGINNING ENDING ANNUALIZED
ACCOUNT ACCOUNT EXPENSE RATIO EXPENSES PAID
VALUE VALUE BASED ON THE DURING THE
NOVEMBER 1, 2005 APRIL 30, 2006 SIX-MONTH PERIOD SIX-MONTH PERIOD (1)
POWERSHARES DYNAMIC INSURANCE PORTFOLIO
ACTUAL $1,000.00 $1,093.80 0.68% $3.54
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.41 0.68% $3.42
POWERSHARES DYNAMIC LEISURE AND
ENTERTAINMENT PORTFOLIO
ACTUAL $1,000.00 $1,149.00 0.66% $3.52
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.52 0.66% $3.31
POWERSHARES DYNAMIC MEDIA PORTFOLIO
ACTUAL $1,000.00 $1,037.30 0.66% $3.35
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.52 0.66% $3.31
POWERSHARES DYNAMIC NETWORKING PORTFOLIO
ACTUAL $1,000.00 $1,151.50 0.66% $3.52
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.52 0.66% $3.31
POWERSHARES DYNAMIC OIL & GAS SERVICES PORTFOLIO
ACTUAL $1,000.00 $1,289.80 0.64% $3.61
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.64 0.64% $3.19
POWERSHARES DYNAMIC PHARMACEUTICALS PORTFOLIO
ACTUAL $1,000.00 $1,062.60 0.65% $3.31
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.59 0.65% $3.24
POWERSHARES DYNAMIC RETAIL PORTFOLIO
ACTUAL $1,000.00 $1,185.90 0.70% $3.80
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.32 0.70% $3.51
POWERSHARES DYNAMIC SEMICONDUCTORS PORTFOLIO
ACTUAL $1,000.00 $1,344.30 0.64% $3.72
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.62 0.64% $3.21
POWERSHARES DYNAMIC SOFTWARE PORTFOLIO
ACTUAL $1,000.00 $1,087.30 0.65% $3.37
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.57 0.65% $3.26
</Table>
90
<Page>
<Table>
<Caption>
EXPENSES PAID
BEGINNING DURING PERIOD (2)
ACCOUNT VALUE ANNUALIZED DECEMBER 6, 2005
DECEMBER 6, 2005 EXPENSE RATIO (COMMENCEMENT
(COMMENCEMENT ENDING BASED ON OF INVESTMENT
OF INVESTMENT ACCOUNT VALUE NUMBER OF DAYS OPERATIONS) TO
OPERATIONS) APRIL 30, 2006 IN THE PERIOD APRIL 30, 2006
POWERSHARES DYNAMIC TELECOMMUNICATIONS &
WIRELESS PORTFOLIO
ACTUAL $1,000.00 $1,117.30 0.67% $2.84
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.47 0.67% $3.36
<Caption>
BEGINNING ENDING ANNUALIZED
ACCOUNT ACCOUNT EXPENSE RATIO EXPENSES PAID
VALUE VALUE BASED ON THE DURING THE
NOVEMBER 1, 2005 APRIL 30, 2006 SIX-MONTH PERIOD SIX-MONTH PERIOD (1)
POWERSHARES DYNAMIC UTILITIES PORTFOLIO
ACTUAL $1,000.00 $1,054.70 0.69% $3.49
HYPOTHETICAL (5% RETURN BEFORE EXPENSES) $1,000.00 $1,021.39 0.69% $3.44
</Table>
(1) EXPENSES ARE CALCULATED USING THE ANNUALIZED EXPENSE RATIO, WHICH
REPRESENTS THE ONGOING EXPENSES AS A PERCENTAGE OF NET ASSETS FOR THE SIX
MONTHS ENDED APRIL 30, 2006. EXPENSES ARE CALCULATED BY MULTIPLYING THE
FUND'S ANNUALIZED EXPENSE RATIO BY THE AVERAGE ACCOUNT VALUE FOR THE
PERIOD; THEN MULTIPLYING THE RESULT BY 181 AND THEN DIVIDING THE RESULT BY
365. EXPENSE RATIOS FOR THE MOST RECENT HALF-YEAR MAY DIFFER FROM EXPENSE
RATIOS BASED ON THE ONE YEAR DATA IN THE FINANCIAL HIGHLIGHTS.
(2) EXPENSES ARE CALCULATED USING THE ANNUALIZED EXPENSE RATIO, WHICH
REPRESENTS THE ONGOING EXPENSES AS A PERCENTAGE OF NET ASSETS FOR THE
PERIOD DECEMBER 6, 2006 (COMMENCEMENT OF INVESTMENT OPERATIONS) TO APRIL
30, 2006. EXPENSES ARE CALCULATED BY MULTIPLYING THE FUND'S ANNUALIZED
EXPENSE RATIO BY THE AVERAGE ACCOUNT VALUE FOR THE PERIOD; THEN MULTIPLYING
THE RESULT BY 146 AND THEN DIVIDING THE RESULT BY 365.
(3) EXPENSES ARE CALCULATED USING THE ANNUALIZED EXPENSE RATIO, WHICH
REPRESENTS THE ONGOING EXPENSES AS A PERCENTAGE OF NET ASSETS FOR THE
PERIOD DECEMBER 19, 2005 (COMMENCEMENT OF INVESTMENT OPERATIONS) TO APRIL
30, 2006. EXPENSES ARE CALCULATED BY MULTIPLYING THE FUND'S ANNUALIZED
EXPENSE RATIO BY THE AVERAGE ACCOUNT VALUE FOR THE PERIOD; THEN MULTIPLYING
THE RESULT BY 133 AND THEN DIVIDING THE RESULT BY 365.
(4) EXPENSES ARE CALCULATED USING THE ANNUALIZED EXPENSE RATIO, WHICH
REPRESENTS THE ONGOING EXPENSES AS A PERCENTAGE OF NET ASSETS FOR THE
PERIOD FEBRUARY 16, 2006 (COMMENCEMENT OF INVESTMENT OPERATIONS) TO APRIL
30, 2006. EXPENSES ARE CALCULATED BY MULTIPLYING THE FUND'S ANNUALIZED
EXPENSE RATIO BY THE AVERAGE ACCOUNT VALUE FOR THE PERIOD; THEN MULTIPLYING
THE RESULT BY 74 AND THEN DIVIDING THE RESULT BY 365.
91
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC MARKET PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
COMMON STOCKS--99.9%
CONSUMER DISCRETIONARY--13.7%
106,851 Career Education Corp.* $ 3,939,596
109,269 Claire's Stores, Inc. 3,848,454
96,627 Education Management Corp.* 4,102,782
1,076,251 Gap (The), Inc. 19,469,381
459,255 Genuine Parts Co. 20,046,481
105,827 GTECH Holdings Corp. 3,615,050
358,501 J.C. Penney Co., Inc. 23,467,476
108,836 Papa John's International, Inc.* 3,637,299
155,034 Payless ShoeSource, Inc.* 3,561,131
106,785 Penn National Gaming, Inc.* 4,348,285
95,915 Phillips-Van Heusen Corp. 3,855,783
162,998 Skechers U.S.A., Inc., Class A* 4,457,995
900,803 Staples, Inc. 23,790,208
38,895 Whirlpool Corp. 3,490,826
------------
125,630,747
------------
CONSUMER STAPLES--9.0%
91,074 Alberto-Culver Co. 4,095,598
58,356 Brown-Forman Corp., Class B 4,347,522
132,090 Campbell Soup Co. 4,245,373
174,397 Elizabeth Arden, Inc.* 3,986,715
583,549 General Mills, Inc. 28,792,308
117,630 Hormel Foods Corp. 3,947,663
268,768 Reynolds American, Inc. 29,470,411
95,855 Weis Markets, Inc. 3,978,941
------------
82,864,531
------------
ENERGY--7.2%
553,470 Exxon Mobil Corp. 34,912,888
171,647 Grant Prideco, Inc.* 8,788,326
149,548 Maverick Tube Corp.* 8,138,402
741,475 Parker Drilling Co.* 6,228,390
189,832 St. Mary Land & Exploration Co. 8,003,317
------------
66,071,323
------------
FINANCIALS--20.3%
537,714 Aon Corp. 22,535,594
126,620 Argonaut Group, Inc.* 4,419,038
100,992 Assurant, Inc. 4,864,785
84,206 Bank of Hawaii Corp. 4,573,228
444,250 Chubb (The) Corp. 22,896,645
83,651 Commerce Group (The), Inc. 4,852,595
107,996 First American Corp. 4,600,630
210,176 Franklin Resources, Inc. 19,571,589
251,039 Hartford Financial Services Group (The), Inc. 23,078,015
222,590 Loews Corp. 23,627,928
315,387 Moody's Corp. 19,557,148
104,519 Nationwide Financial Services, Inc., Class A 4,586,294
145,878 Ohio Casualty Corp. 4,325,283
87,890 SAFECO Corp. 4,561,491
109,693 Safety Insurance Group, Inc. 5,077,689
84,489 StanCorp Financial Group, Inc. 4,168,687
134,482 State Auto Financial Corp. 4,729,732
117,964 W.R. Berkley Corp. 4,414,213
------------
186,440,584
------------
HEALTH CARE--11.3%
397,411 Aetna, Inc. 15,300,324
160,176 AMN Healthcare Services, Inc.* 3,078,583
112,514 Applera Corp. - Applied Biosystems Group 3,244,904
350,930 Coventry Health Care, Inc.* 17,430,693
87,750 Dade Behring Holdings, Inc. 3,422,250
105,620 Endo Pharmaceuticals Holdings, Inc.* 3,321,749
234,677 Express Scripts, Inc.* 18,337,660
65,306 Health Net, Inc.* 2,657,954
41,625 IDEXX Laboratories, Inc.* 3,463,616
167,463 King Pharmaceuticals, Inc.* 2,912,182
77,968 Lincare Holdings, Inc.* 3,082,075
93,679 Pharmaceutical Product Development, Inc. 3,360,266
74,839 Sierra Health Services, Inc.* 2,934,437
349,750 UnitedHealth Group, Inc. 17,396,565
116,853 VCA Antech, Inc.* 3,632,960
------------
103,576,218
------------
INDUSTRIALS--11.3%
821,855 ARAMARK Corp., Class B 23,102,344
34,445 Cummins, Inc. 3,599,503
116,961 Herman Miller, Inc. 3,601,229
82,596 Landstar System, Inc. 3,509,504
114,988 Lennox International, Inc. 3,752,058
311,343 Lockheed Martin Corp. 23,630,934
114,193 Mueller Industries, Inc. 4,325,631
78,660 Nordson Corp. 4,204,377
416,464 Precision Castparts Corp. 26,228,902
75,824 Thomas & Betts Corp.* 4,318,177
86,321 West Corp.* 3,998,389
------------
104,271,048
------------
INFORMATION TECHNOLOGY--16.8%
115,657 Arrow Electronics, Inc.* 4,186,783
226,305 Blackbaud, Inc. 4,754,668
143,632 Blackboard, Inc.* 4,218,472
182,670 BMC Software, Inc.* 3,934,712
391,723 Computer Sciences Corp.* 22,935,382
378,572 EarthLink, Inc.* 3,441,219
80,598 Global Payments, Inc. 3,822,763
171,006 Hyperion Solutions Corp.* 5,236,204
260,729 International Business Machines Corp. 21,468,426
958,317 Motorola, Inc. 20,460,068
80,921 Multi-Fineline Electronix, Inc.* 4,716,076
778,497 National Semiconductor Corp. 23,339,340
140,902 Reynolds & Reynolds (The) Co., Class A 4,190,425
77,720 Rofin-Sinar Technologies, Inc.* 4,360,869
192,966 Sybase, Inc.* 4,200,870
1,390,324 Xerox Corp.* 19,520,149
------------
154,786,426
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
92
<Page>
POWERSHARES DYNAMIC MARKET PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
MATERIALS--4.1%
258,560 Nucor Corp. $ 28,136,498
150,622 Olin Corp. 3,095,282
56,090 Sealed Air Corp. 3,020,447
79,720 Silgan Holdings, Inc. 3,095,528
------------
37,347,755
------------
TELECOMMUNICATION SERVICES--2.9%
137,623 ALLTEL Corp. 8,858,792
276,409 BellSouth Corp. 9,337,095
72,881 Commonwealth Telephone Enterprises, Inc. 2,418,192
199,697 Time Warner Telecom, Inc., Class A* 3,348,919
258,988 UbiquiTel, Inc.* 2,683,116
------------
26,646,114
------------
UTILITIES--3.3%
158,965 Otter Tail Corp. 4,745,105
712,349 PPL Corp. 20,686,615
211,537 UGI Corp. 4,738,429
------------
30,170,149
------------
TOTAL COMMON STOCKS
(Cost $875,788,429) 917,804,895
------------
MONEY MARKET FUND--0.1%
888,937 AIM Liquid Asset Portfolio Private Class
(Cost $888,937) 888,937
------------
TOTAL INVESTMENTS
(Cost $876,677,366)--100.0% 918,693,832
Other assets less liabilities--0.0% 462,214
------------
NET ASSETS--100.0% $919,156,046
============
</Table>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
93
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC OTC PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
COMMON STOCKS--100.0%
CONSUMER DISCRETIONARY--13.9%
46,848 Aftermarket Technology Corp.* $ 1,194,624
142,988 Career Education Corp.* 5,271,968
26,523 Conn's, Inc.* 906,291
27,708 Education Management Corp.* 1,176,482
34,702 K-Swiss, Inc., Class A 995,253
17,459 Pantry (The), Inc.* 1,155,611
142,902 Penn National Gaming, Inc.* 5,818,969
168,903 Ross Stores, Inc. 5,175,188
27,822 Select Comfort Corp.* 1,111,767
206,650 Staples, Inc. 5,457,627
23,743 Steiner Leisure Ltd. (Bahamas)* 1,023,798
31,579 Steven Madden Ltd.* 1,681,266
------------
30,968,844
------------
CONSUMER STAPLES--1.8%
53,724 Costco Wholesale Corp. 2,924,198
50,118 Elizabeth Arden, Inc.* 1,145,697
------------
4,069,895
------------
ENERGY--1.1%
23,650 GulfMark Offshore, Inc.* 648,010
56,312 Patterson-UTI Energy, Inc. 1,822,256
------------
2,470,266
------------
FINANCIALS--9.3%
12,689 American Physicians Capital, Inc.* 613,132
64,349 Arch Capital Group Ltd. (Bermuda)* 3,909,201
17,290 Argonaut Group, Inc.* 603,421
81,351 Cincinnati Financial Corp. 3,468,807
32,895 Donegal Group, Inc., Class A 610,202
34,736 Hanmi Financial Corp. 676,657
22,425 Harleysville Group, Inc. 672,750
30,897 National Interstate Corp.* 578,701
19,921 Ohio Casualty Corp. 590,658
70,010 SAFECO Corp. 3,633,519
14,979 Safety Insurance Group, Inc. 693,378
11,257 Selective Insurance Group, Inc. 626,565
18,364 State Auto Financial Corp. 645,862
180,686 TD Ameritrade Holding Corp.* 3,353,532
------------
20,676,385
------------
HEALTH CARE--12.6%
134,673 Dade Behring Holdings, Inc. 5,252,247
56,134 Express Scripts, Inc.* 4,386,311
63,893 IDEXX Laboratories, Inc.* 5,316,537
22,888 Kos Pharmaceuticals, Inc.* 1,107,779
119,670 Lincare Holdings, Inc.* 4,730,555
28,699 Molecular Devices Corp.* 918,368
50,849 Odyssey HealthCare, Inc.* 884,264
35,979 Per-Se Technologies, Inc.* 1,005,613
51,041 Res-Care, Inc.* 1,047,872
21,140 Schick Technologies, Inc.* 813,679
15,937 Techne Corp.* 902,990
23,911 Varian, Inc.* 1,034,629
46,713 ViroPharma, Inc.* 525,054
------------
27,925,898
------------
INDUSTRIALS--5.5%
11,100 Genlyte Group, Inc.* 764,901
18,754 Heidrick & Struggles International, Inc.* 678,145
84,970 Landstar System, Inc. 3,610,375
13,871 Nordson Corp. 741,405
20,639 Pacer International, Inc. 707,711
25,898 SOURCECORP* 640,458
37,585 Superior Essex, Inc.* 1,050,877
88,799 West Corp.* 4,113,169
------------
12,307,041
------------
INFORMATION TECHNOLOGY--53.7%
167,663 Adobe Systems, Inc.* 6,572,390
63,312 Advanced Energy Industries, Inc.* 993,365
20,315 ANSYS, Inc.* 1,146,782
210,543 Atmel Corp.* 1,103,245
176,879 Autodesk, Inc.* 7,435,993
54,625 Blackbaud, Inc. 1,147,671
34,670 Blackboard, Inc.* 1,018,258
34,260 Brightpoint, Inc.* 1,147,025
197,835 Brocade Communications Systems, Inc.* 1,218,664
208,076 Citrix Systems, Inc.* 8,306,394
30,774 Coherent, Inc.* 1,138,946
783,169 Compuware Corp.* 6,014,738
65,201 Covansys Corp.* 1,134,497
44,551 CSG Systems International, Inc.* 1,126,249
30,206 Digital Insight Corp.* 1,041,805
26,157 Diodes, Inc.* 1,065,636
91,379 EarthLink, Inc.* 830,635
153,308 Fiserv, Inc.* 6,911,125
32,918 Gevity HR, Inc. 845,663
29,795 Hyperion Solutions Corp.* 912,323
85,500 infoUSA, Inc.* 955,035
23,244 iPayment, Inc.* 1,005,303
149,776 Lam Research Corp.* 7,321,051
126,543 Lawson Software, Inc.* 971,850
78,911 Mattson Technology, Inc.* 906,687
42,473 Metrologic Instruments, Inc.* 721,616
243,822 Microsoft Corp. 5,888,301
25,374 MTS Systems Corp. 1,135,487
19,532 Multi-Fineline Electronix, Inc.* 1,138,325
284,663 NVIDIA Corp.* 8,317,854
37,831 Omnivision Technologies, Inc.* 1,100,125
172,742 Paychex, Inc. 6,977,049
138,511 Qualcomm, Inc. 7,111,155
124,303 RealNetworks, Inc.* 1,245,516
245,295 Red Hat, Inc.* 7,209,220
18,760 Rofin-Sinar Technologies, Inc.* 1,052,624
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
94
<Page>
POWERSHARES DYNAMIC OTC PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
70,992 SYKES Enterprises, Inc.* $ 1,149,360
440,400 Tellabs, Inc.* 6,980,340
31,686 Transaction Systems Architects, Inc.* 1,265,539
212,822 Triquint Semiconductor, Inc.* 1,155,623
76,636 TTM Technologies, Inc.* 1,246,101
89,794 Ulticom, Inc.* 900,634
129,715 webMethods, Inc.* 1,241,373
51,506 Zoran Corp.* 1,413,325
------------
119,520,897
------------
MATERIALS--0.6%
13,200 Sigma-Aldrich Corp. 905,652
9,156 Silgan Holdings, Inc. 355,527
------------
1,261,179
------------
TELECOMMUNICATION SERVICES--1.5%
36,072 NII Holdings, Inc.* 2,160,713
65,082 Time Warner Telecom, Inc., Class A* 1,091,425
------------
3,252,138
------------
TOTAL INVESTMENTS
(Cost $206,351,581)--100.0% 222,452,543
Liabilities in excess of other assets--(0.0%) (12,313)
------------
NET ASSETS--100.0% $222,440,230
============
</Table>
* Non-income producing security.
COUNTRY BREAKDOWN (UNAUDITED)
APRIL 30, 2006
<Table>
<Caption>
TOTAL
VALUE NET ASSETS
------------ ----------
United States $217,519,544 97.8%
Bermuda 3,909,201 1.7
Bahamas 1,023,798 0.5
------------ -----
Total value of investments 222,452,543 100.0
Liabilities in excess of other assets (12,313) (0.0)
------------ -----
Net Assets $222,440,230 100.0%
============ =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
95
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES FTSE RAFI US 1000 PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
COMMON STOCKS--99.7%
CONSUMER DISCRETIONARY--13.5%
302 Abercrombie & Fitch Co., Class A $ 18,340
661 Advance Auto Parts, Inc.* 26,585
816 Amazon.com, Inc.* 28,731
1,536 American Axle & Manufacturing Holdings, Inc. 27,049
484 American Eagle Outfitters, Inc. 15,682
1,059 American Greetings Corp., Class A 23,849
467 AnnTaylor Stores Corp.* 17,433
402 Apollo Group, Inc., Class A* 21,965
2,720 ArvinMeritor, Inc. 45,234
1,051 Asbury Automotive Group, Inc.* 20,253
897 Autoliv, Inc. 49,604
5,903 Autonation, Inc.* 132,936
457 Autozone, Inc.* 42,780
944 Barnes & Noble, Inc. 42,556
416 Beazer Homes USA, Inc. 23,974
1,258 Bed Bath & Beyond, Inc.* 48,244
1,243 Belo Corp., Class A 22,784
2,178 Best Buy Co., Inc. 123,405
2,172 Big Lots, Inc.* 31,385
460 Black & Decker Corp. 43,061
18,983 Blockbuster, Inc., Class A 89,220
11,635 Blockbuster, Inc., Class B 49,216
955 Borders Group, Inc. 22,538
492 BorgWarner, Inc. 29,879
325 Boyd Gaming Corp. 16,192
735 Brinker International, Inc. 28,783
1,017 Brunswick Corp. 39,887
1,055 Cablevision Systems Corp., Class A* 21,385
440 Career Education Corp.* 16,223
530 Carmax, Inc.* 18,714
3,508 Carnival Corp. (Panama) 164,245
382 CBRL Group, Inc. 15,551
9,909 CBS Corp., Class B 252,382
1,185 Centex Corp. 65,886
1,331 Charming Shoppes, Inc.* 18,301
36,937 Charter Communications, Inc.* 43,586
1,953 Circuit City Stores, Inc. 56,149
4,317 Clear Channel Communications, Inc. 123,164
562 Coach, Inc.* 18,557
275 Columbia Sportswear Co.* 13,995
11,847 Comcast Corp., Class A* 366,665
7,353 Comcast Corp., Special Class A* 226,693
1,920 Cooper Tire & Rubber Co. 24,384
2,772 D.R. Horton, Inc. 83,215
796 Darden Restaurants, Inc. 31,522
1,815 Dillard's, Inc., Class A 47,335
6,629 DIRECTV Group (The), Inc.* 113,223
2,591 Dollar General Corp. 45,239
913 Dollar Tree Stores, Inc.* 23,802
602 Dow Jones & Co., Inc. 22,256
655 DreamWorks Animation SKG, Inc., Class A* 17,751
4,552 Eastman Kodak Co. 122,722
1,057 EchoStar Communications Corp., Class A* 32,661
675 EW Scripps Co. 31,104
1,471 Family Dollar Stores, Inc. 36,775
1,781 Federated Department Stores, Inc. 138,651
1,422 Foot Locker, Inc. 32,962
129,348 Ford Motor Co. 898,969
1,002 Fortune Brands, Inc. 80,461
694 Furniture Brands International, Inc. 15,962
2,312 Gannett Co., Inc. 127,160
6,860 Gap (The), Inc. 124,097
194 Garmin Ltd. (Cayman Islands) 16,754
52,197 General Motors Corp. 1,194,266
1,854 Genuine Parts Co. 80,927
215 Getty Images, Inc.* 13,762
6,173 Goodyear Tire & Rubber (The) Co.* 86,422
619 Group 1 Automotive, Inc.* 33,785
461 GTECH Holdings Corp. 15,748
2,796 H&R Block, Inc. 63,833
1,231 Harley-Davidson, Inc. 62,584
165 Harman International Industries, Inc. 14,518
663 Harrah's Entertainment, Inc. 54,127
1,404 Hasbro, Inc. 27,673
781 Hearst-Argyle Television, Inc. 17,979
2,069 Hilton Hotels Corp. 55,739
1,756 Hollinger International, Inc., Class A 13,995
12,464 Home Depot (The), Inc. 497,688
917 Hovnanian Enterprises, Inc., Class A* 36,469
3,776 IAC/InterActiveCorp* 109,013
1,139 International Game Technology 43,202
4,346 Interpublic Group of Cos., Inc.* 41,635
2,572 J.C. Penney Co., Inc. 168,363
426 Jack in the Box, Inc.* 17,807
1,977 Johnson Controls, Inc. 161,224
1,440 Jones Apparel Group, Inc. 49,464
802 KB HOME 49,379
580 Kellwood Co. 18,583
205 Kerzner International Ltd. (Bahamas)* 16,019
689 Knight Ridder, Inc. 42,718
1,985 Kohl's Corp.* 110,842
360 Lamar Advertising Co.* 19,796
423 Las Vegas Sands Corp.* 27,415
964 La-Z-Boy, Inc. 14,768
4,185 Lear Corp. 98,682
445 Lee Enterprises, Inc. 13,706
2,052 Leggett & Platt, Inc. 54,440
2,052 Lennar Corp., Class A 112,716
1,109 Liberty Global, Inc., Class A* 22,967
1,118 Liberty Global, Inc., Series C* 22,326
25,304 Liberty Media Corp.* 211,288
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
96
<Page>
POWERSHARES FTSE RAFI US 1000 PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- -----------
4,278 Limited Brands, Inc. $ 109,688
924 Liz Claiborne, Inc. 36,082
3,278 Lowe's Cos., Inc. 206,678
520 M.D.C. Holdings, Inc. 30,046
881 Marriott International, Inc., Class A 64,375
3,150 Mattel, Inc. 50,967
390 McClatchy Co., Class A 17,628
7,899 McDonald's Corp. 273,068
1,537 McGraw-Hill (The) Cos., Inc. 85,549
264 Meredith Corp. 13,094
338 Meritage Homes Corp.* 22,166
1,258 MGM MIRAGE* 56,484
707 Michaels Stores, Inc. 26,746
597 Mohawk Industries, Inc.* 47,820
1,604 New York Times (The) Co., Class A 39,763
2,860 Newell Rubbermaid, Inc. 78,421
12,186 News Corp., Inc., Class A 209,112
5,734 News Corp., Inc., Class B 104,531
1,407 NIKE, Inc., Class B 115,149
1,116 Nordstrom, Inc. 42,776
3,710 NTL Inc.* 101,951
45 NVR, Inc.* 33,975
2,474 Office Depot, Inc.* 100,395
2,019 OfficeMax, Inc. 78,135
1,114 Omnicom Group, Inc. 100,271
460 O'Reilly Automotive, Inc.* 15,585
522 OSI Restaurant Partners, Inc. 22,289
280 Pantry (The), Inc.* 18,533
1,018 Payless ShoeSource, Inc.* 23,383
1,039 PEP Boys-Manny Moe & Jack 15,450
675 Petsmart, Inc. 18,671
1,444 Pier 1 Imports, Inc. 17,429
442 Polo Ralph Lauren Corp. 26,838
2,310 Pulte Homes, Inc. 86,279
1,977 RadioShack Corp. 33,609
1,076 Reader's Digest Association (The), Inc. 14,827
3,503 Regal Entertainment Group, Class A 73,633
1,176 Rent-A-Center, Inc.* 32,481
875 Ross Stores, Inc. 26,810
1,737 Royal Caribbean Cruises Ltd. (Liberia) 72,589
423 Ryland Group, Inc. 26,696
2,469 Saks, Inc.* 49,726
718 Scholastic Corp.* 19,056
1,374 Sears Holdings Corp.* 197,430
4,293 Service Corp. International 34,559
3,424 ServiceMaster (The) Co. 41,225
1,127 Sherwin-Williams (The), Co. 57,409
1,640 Six Flags, Inc.* 15,104
606 Snap-On, Inc. 25,149
1,081 Sonic Automotive, Inc. 29,209
804 Standard-Pacific Corp. 25,495
700 Stanley Works (The) 36,575
4,188 Staples, Inc. 110,605
1,418 Starbucks Corp.* 52,849
1,258 Starwood Hotels & Resorts Worldwide, Inc. 72,184
603 Talbots (The), Inc. 14,303
5,903 Target Corp. 313,449
1,058 Tenneco, Inc.* 25,445
710 Tiffany & Co. 24,772
39,904 Time Warner, Inc. 694,330
3,126 TJX Cos., Inc. 75,430
1,631 Toll Brothers, Inc.* 52,437
907 Tommy Hilfiger Corp. (British Virgin Islands)* 15,102
3,310 Tribune Co. 95,427
3,212 TRW Automotive Holdings Corp.* 71,242
699 Tupperware Brands Corp. 14,749
759 United Auto Group, Inc. 32,106
1,156 Univision Communications, Inc.* 41,258
1,109 VF Corp. 67,860
4,181 Viacom, Inc., Class B* 166,529
17,028 Visteon Corp.* 100,125
13,663 Walt Disney Co. 382,017
847 Warner Music Group Corp. 22,412
54 Washington Post (The) Co., Class B 41,364
637 WCI Communities, Inc.* 16,326
569 Wendy's International, Inc. 35,153
1,016 Whirlpool Corp. 91,186
601 Williams-Sonoma, Inc.* 25,164
1,192 Yum! Brands, Inc. 61,603
792 Zale Corp.* 19,523
------------
14,101,793
------------
CONSUMER STAPLES--9.7%
602 Alberto-Culver Co. 27,072
9,150 Albertson's, Inc. 231,770
18,331 Altria Group, Inc. 1,341,095
4,860 Anheuser-Busch Cos., Inc. 216,659
5,538 Archer-Daniels-Midland Co. 201,251
2,283 Avon Products, Inc. 74,449
938 BJ's Wholesale Club, Inc.* 28,722
145 Brown-Forman Corp., Class A 10,942
309 Brown-Forman Corp., Class B 23,021
1,941 Bunge Ltd. (Bermuda) 103,552
2,992 Campbell Soup Co. 96,163
822 Chiquita Brands International, Inc. 13,333
884 Clorox Co. 56,735
12,484 Coca-Cola (The) Co. 523,829
6,583 Coca-Cola Enterprises, Inc. 128,566
2,259 Colgate-Palmolive Co. 133,552
9,420 ConAgra Foods, Inc. 213,646
1,669 Constellation Brands, Inc., Class A* 41,224
747 Corn Products International, Inc. 20,916
3,889 Costco Wholesale Corp. 211,678
5,718 CVS Corp. 169,939
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
97
<Page>
POWERSHARES FTSE RAFI US 1000 PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
1,827 Dean Foods Co.* $ 72,367
2,377 Del Monte Foods Co. 27,716
394 Energizer Holdings, Inc.* 20,153
1,270 Estee Lauder Cos. (The), Inc., Class A 47,142
978 Fresh Del Monte Produce, Inc. (Cayman Islands) 18,396
3,216 General Mills, Inc. 158,677
1,079 Great Atlantic & Pacific Tea Co., Inc.* 29,241
3,736 H.J. Heinz Co. 155,081
1,081 Hershey (The) Co. 57,661
1,130 Hormel Foods Corp. 37,923
562 J.M. Smucker (The) Co. 22,064
2,704 Kellogg Co. 125,222
3,578 Kimberly-Clark Corp. 209,420
16,608 Kraft Foods, Inc., Class A 518,834
15,927 Kroger (The) Co.* 322,681
1,934 Loews Corp. - Carolina Group 99,098
521 Longs Drug Stores Corp. 24,701
839 McCormick & Co., Inc. 29,222
459 Molson Coors Brewing Co., Class B 33,902
679 NBTY, Inc.* 15,379
2,250 Pepsi Bottling Group, Inc. 72,225
1,200 PepsiAmericas, Inc. 28,344
6,775 PepsiCo, Inc. 394,576
921 Performance Food Group Co.* 28,275
1,058 Pilgrim's Pride Corp. 27,646
12,066 Procter & Gamble (The) Co. 702,362
1,602 Reynolds American, Inc. 175,659
16,271 Rite Aid Corp.* 73,220
718 Ruddick Corp. 16,665
9,882 Safeway, Inc. 248,335
10,551 Sara Lee Corp. 188,546
2,088 Smithfield Foods, Inc.* 56,167
699 Spectrum Brands, Inc.* 11,568
3,085 SUPERVALU, Inc. 89,496
5,108 Sysco Corp. 152,678
9,063 Tyson Foods, Inc., Class A 132,320
602 Universal Corp. 22,918
1,504 UST, Inc. 66,071
4,641 Walgreen Co. 194,597
32,918 Wal-Mart Stores, Inc. 1,482,297
383 Weis Markets, Inc. 15,898
413 Whole Foods Market, Inc. 25,350
907 Wm. Wrigley Jr. Co. 42,692
213 Wm. Wrigley Jr. Co., Class B 10,021
------------
10,150,920
------------
ENERGY--8.9%
1,706 Anadarko Petroleum Corp. 178,823
2,253 Apache Corp. 160,053
203 Arch Coal, Inc. 19,283
1,191 Baker Hughes, Inc. 96,269
1,046 BJ Services Co. 39,800
1,285 Chesapeake Energy Corp. 40,709
26,048 Chevron Corp. 1,589,449
12,242 ConocoPhillips 818,990
319 Consol Energy, Inc. 27,166
655 Cooper Cameron Corp.* 32,907
3,346 Devon Energy Corp. 201,128
326 Diamond Offshore Drilling, Inc. 29,591
16,026 El Paso Corp. 206,896
477 ENSCO International, Inc. 25,515
913 EOG Resources, Inc. 64,120
47,072 Exxon Mobil Corp. 2,969,302
362 FMC Technologies, Inc.* 19,758
772 Forest Oil Corp.* 28,232
274 Giant Industries, Inc.* 19,695
708 GlobalSantaFe Corp. (Cayman Islands) 43,337
2,012 Halliburton Co. 157,238
970 Hanover Compressor Co.* 19,555
233 Helmerich & Payne, Inc. 16,948
902 Hess Corp. 129,230
333 Houston Exploration Co.* 18,621
73 Hugoton Royalty Trust 2,032
985 Kerr-McGee Corp. 98,362
568 Kinder Morgan, Inc. 49,995
3,716 Marathon Oil Corp. 294,902
458 Massey Energy Co. 17,702
1,403 Murphy Oil Corp. 70,403
1,708 Nabors Industries Ltd. (Bermuda)* 63,760
357 National-Oilwell Varco, Inc.* 24,622
1,155 Newfield Exploration Co.* 51,513
494 Noble Corp. (Cayman Islands) 38,996
604 Noble Energy, Inc. 27,168
2,462 Occidental Petroleum Corp. 252,946
352 Overseas Shipholding Group, Inc. 17,188
614 Peabody Energy Corp. 39,210
837 Pioneer Natural Resources Co. 35,840
621 Pogo Producing Co. 30,857
918 Pride International, Inc.* 32,029
3,299 Schlumberger Ltd. (Netherlands) 228,093
1,075 Smith International, Inc. 45,397
419 Stone Energy Corp.* 19,735
1,194 Sunoco, Inc. 96,762
843 Teekay Shipping Corp. (Marshall Islands) 32,430
1,052 Tesoro Corp. 73,556
393 Tidewater, Inc. 22,888
4,421 TransMontaigne, Inc.* 48,454
835 Transocean, Inc. (Cayman Islands)* 67,693
1,518 USEC, Inc.* 19,279
4,791 Valero Energy Corp. 310,169
1,074 Weatherford International Ltd. (Bermuda)* 56,847
422 Western Gas Resoures, Inc. 21,944
6,550 Williams Cos., Inc. 143,642
1,298 XTO Energy, Inc. 54,970
------------
9,341,999
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
98
<Page>
POWERSHARES FTSE RAFI US 1000 PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
FINANCIALS--24.5%
728 A.G. Edwards, Inc. $ 38,468
2,125 ACE Ltd. (Cayman Islands) 118,023
146 Affiliated Managers Group, Inc.* 14,790
2,458 Aflac, Inc. 116,853
55 Alleghany Corp.* 15,730
1,493 Allied Capital Corp. 46,373
6,323 Allstate (The) Corp. 357,186
639 AMB Property Corp. 31,944
741 AMBAC Financial Group, Inc. 61,029
828 American Capital Strategies Ltd. 28,831
5,034 American Express Co. 270,880
834 American Financial Group, Inc. 36,930
14,294 American International Group, Inc. 932,683
357 American National Insurance 42,572
1,116 AmeriCredit Corp.* 33,792
3,242 Ameriprise Financial, Inc. 158,988
336 AmerUs Group Co. 19,706
2,975 AmSouth Bancorp. 86,097
2,703 Annaly Mortgage Management, Inc. 36,409
2,544 Aon Corp. 106,619
1,193 Apartment Investment & Management Co., Class A 53,315
436 Arch Capital Group Ltd. (Bermuda)* 26,487
1,754 Archstone-Smith Trust 85,736
643 Arden Realty, Inc. 29,154
625 Arthur J. Gallagher & Co. 17,150
1,046 Associated Banc-Corp. 35,376
1,124 Assurant, Inc. 54,143
849 Astoria Financial Corp. 26,591
441 AvalonBay Communities, Inc. 47,496
943 Axis Capital Holdings Ltd. (Bermuda) 28,120
717 BancorpSouth, Inc. 18,377
36,101 Bank of America Corp. 1,802,161
318 Bank of Hawaii Corp. 17,271
5,689 Bank of New York (The) Co., Inc. 199,968
5,230 BB&T Corp. 224,576
953 Bear Stearns (The ) Cos., Inc. 135,812
344 Berkshire Hathaway, Inc., Class B* 1,015,487
112 BlackRock, Inc., Class A 16,972
365 BOK Financial Corp. 17,768
762 Boston Properties, Inc. 67,262
662 Brandywine Realty Trust 18,741
355 BRE Properties, Inc. 19,127
391 Camden Property Trust 26,873
1,916 Capital One Financial Corp. 166,002
530 CarrAmerica Realty Corp. 23,723
254 CB Richard Ellis Group, Inc., Class A* 22,324
499 CBL & Associates Properties, Inc. 19,955
4,322 Charles Schwab (The) Corp. 77,364
40 Chicago Mercantile Exchange Holdings, Inc. 18,320
3,398 Chubb (The) Corp. 175,133
1,259 Cincinnati Financial Corp. 53,684
1,934 CIT Group, Inc. 104,455
43,466 Citigroup, Inc. 2,171,126
291 City National Corp. 21,231
3,256 CNA Financial Corp.* 104,648
1,003 Colonial BancGroup (The), Inc. 26,008
347 Colonial Properties Trust 17,086
1,834 Comerica, Inc. 104,300
821 Commerce Bancorp, Inc. 33,119
427 Commerce Bancshares, Inc. 22,311
412 Commerce Group, Inc. 23,900
876 Compass Bancshares, Inc. 48,145
2,564 Conseco, Inc.* 64,741
5,984 Countrywide Financial Corp. 243,309
2,088 Crescent Real Estate EQT Co. 41,760
346 Cullen/Frost Bankers, Inc. 20,026
692 Developers Diversified Realty Corp. 36,814
2,263 Doral Financial Corp. 17,900
243 Downey Financial Corp. 17,443
1,483 Duke Realty Corp. 52,498
587 Endurance Specialty Holdings Ltd. (Bermuda) 18,174
304 Equity Lifestyle Properties, Inc. 13,373
5,567 Equity Office Properties Trust 179,814
2,320 Equity Residential 104,098
396 Erie Indemnity Co., Class A 20,168
395 Everest Re Group Ltd. (Bermuda) 35,945
9,138 Fannie Mae 462,383
287 Federal Realty Investment Trust 19,582
402 Federated Investors, Inc., Class B 14,110
1,892 Fidelity National Financial, Inc. 79,426
2,334 Fidelity National Title Group, Inc., Class A 50,554
5,062 Fifth Third Bancorp 204,606
1,061 First American Corp. 45,199
1,294 First Horizon National Corp. 54,891
720 First Industrial Realty Trust, Inc. 28,253
843 FirstMerit Corp. 20,729
917 Franklin Resources, Inc. 85,391
761 Franklin Street Properties Corp. 16,225
8,131 Freddie Mac 496,479
720 Fremont General Corp. 16,013
2,565 Friedman Billings Ramsey Group, Inc. 27,728
1,217 Fulton Financial Corp. 20,020
1,057 General Growth Properties, Inc. 49,626
8,183 Genworth Financial, Inc. 271,676
575 Glimcher Realty Trust 14,835
1,528 Golden West Financial Corp. 109,817
2,819 Goldman Sachs Group, Inc. 451,858
493 Hanover Insurance Group, Inc. 26,080
2,657 Hartford Financial Services Group (The), Inc. 244,258
446 HCC Insurance Holdings, Inc. 14,937
1,465 Health Care Property Investors, Inc. 40,170
601 Health Care REIT, Inc. 20,915
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
99
<Page>
POWERSHARES FTSE RAFI US 1000 PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
381 Healthcare Realty Trust, Inc. $ 14,428
440 Heritage Property Investment Trust 16,993
866 Highwoods Properties, Inc. 27,314
458 Home Properties, Inc. 22,909
971 Hospitality Properties Trust 41,850
2,997 Host Hotels & Resorts, Inc. 62,997
3,228 HRPT Properties Trust 35,443
3,717 Hudson City Bancorp, Inc. 49,845
2,191 Huntington Bancshares, Inc. 52,913
2,494 IMPAC Mortgage Holdings, Inc. 23,693
627 Independence Community Bank Corp. 26,334
560 IndyMac Bancorp, Inc. 27,059
1,540 iStar Financial, Inc. 58,920
1,404 Janus Capital Group, Inc. 27,322
282 Jefferies Group, Inc. 18,739
35,909 JPMorgan Chase & Co. 1,629,549
4,025 KeyCorp 153,836
1,321 Kimco Realty Corp. 49,049
864 KKR Financial Corp. 18,662
306 LandAmerica Financial Group, Inc. 21,230
275 Legg Mason, Inc. 32,582
1,603 Lehman Brothers Holdings, Inc. 242,293
309 Leucadia National Corp. 18,772
848 Liberty Property Trust 37,906
1,687 Lincoln National Corp. 97,981
1,471 Loews Corp. 156,147
728 M&T Bank Corp. 86,923
397 Macerich (The) Co. 29,068
858 Mack-Cali Realty Corp. 38,799
75 Markel Corp.* 26,194
6,544 Marsh & McLennan Cos., Inc. 200,704
1,602 Marshall & Ilsley Corp. 73,243
1,312 MBIA, Inc. 78,235
2,908 Mellon Financial Corp. 109,428
864 Mercantile Bankshares Corp. 32,469
480 Mercury General Corp. 25,618
5,911 Merrill Lynch & Co., Inc. 450,773
7,245 MetLife, Inc. 377,465
693 MGIC Investment Corp. 48,995
492 Mills (The) Corp. 15,700
1,093 Montpelier Re Holdings Ltd. (Bermuda) 17,652
314 Moody's Corp. 19,471
9,343 Morgan Stanley 600,755
8,094 National City Corp. 298,669
1,362 Nationwide Financial Services, Inc., Class A 59,765
875 Nationwide Health Properties, Inc. 18,830
643 New Century Financial Corp. 32,934
1,522 New Plan Excel Realty Trust 37,517
2,692 New York Community Bancorp, Inc. 46,329
2,921 North Fork Bancorp, Inc. 88,010
1,182 Northern Trust Corp. 69,608
341 Nuveen Investments, Inc. 16,409
885 Odyssey Re Holdings Corp. 21,284
484 Ohio Casualty Corp. 14,351
2,736 Old Republic International Corp. 60,876
239 Pan Pacific Retail Properties, Inc. 15,927
615 PartnerRe Ltd. (Bermuda) 38,468
506 People's Bank 16,572
1,423 Phoenix (The) Cos., Inc. 21,615
1,704 Plum Creek Timber Co., Inc. 61,855
742 PMI Group (The), Inc. 34,243
2,442 PNC Financial Services Group, Inc. 174,530
2,782 Popular, Inc. 57,532
430 Post Properties, Inc. 18,787
624 Potlatch Corp. 24,299
1,977 Principal Financial Group, Inc. 101,440
802 Progressive (The) Corp. 87,041
1,168 ProLogis 58,657
622 Protective Life Corp. 31,349
3,394 Prudential Financial, Inc. 265,173
654 Public Storage, Inc. 50,280
634 Radian Group, Inc. 39,764
670 Raymond James Financial, Inc. 20,335
532 Rayonier, Inc. 21,897
782 Realty Income Corp. 17,728
695 Reckson Associates Realty Corp. 28,273
445 Redwood Trust, Inc. 18,899
441 Regency Centers Corp. 27,823
3,947 Regions Financial Corp. 144,105
679 Reinsurance Group of America, Inc. 32,660
643 RenaissanceRe Holdings Ltd. (Bermuda) 27,038
1,357 SAFECO Corp. 70,428
996 Senior Housing Properties Trust 17,101
289 Shurgard Storage Centers, Inc., Class A 18,201
603 Simon Property Group, Inc. 49,374
944 Sky Financial Group, Inc. 24,402
187 SL Green Realty Corp. 18,513
1,566 SLM Corp. 82,810
636 South Financial Group (The), Inc. 17,255
2,774 Sovreign Bancorp, Inc. 61,500
6,230 St. Paul Travelers (The) Cos., Inc. 274,307
380 Stancorp Financial Group, Inc. 18,749
1,594 State Street Corp. 104,120
116 Student Loan Corp. 24,157
3,176 SunTrust Banks, Inc. 245,600
2,155 Synovus Financial Corp. 60,340
461 T. Rowe Price Group, Inc. 38,812
1,046 TCF Financial Corp. 28,096
1,064 TD Ameritrade Holding Corp.* 19,748
2,197 TD Banknorth, Inc. 65,229
1,294 Thornburg Mortgage, Inc. 37,410
849 Torchmark Corp. 51,033
512 Transatlantic Holdings, Inc. 29,414
1,934 Trizec Properties, Inc. 48,389
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
100
<Page>
POWERSHARES FTSE RAFI US 1000 PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
1,074 UnionBanCal Corp. $ 75,277
978 United Dominion Realty Trust, Inc. 26,592
877 Unitrin, Inc. 42,841
6,499 UnumProvident Corp. 131,995
15,617 US Bancorp 490,998
837 Valley National Bancorp 21,795
794 Vornado Realty Trust 75,938
709 W.R. Berkley Corp. 26,531
12,331 Wachovia Corp. 738,010
920 Washington Federal, Inc. 22,006
10,957 Washington Mutual, Inc. 493,722
473 Webster Financial Corp. 22,207
695 Weingarten Realty Investors 27,390
12,385 Wells Fargo & Co. 850,726
55 Wesco Financial Corp. 21,533
61 White Mountain Insurance Group Ltd. (Bermuda) 31,812
442 Whitney Holding Corp. 15,718
811 Willis Group Holdings Ltd. (Bermuda) 28,507
465 Wilmington Trust Corp. 20,600
1,533 XL Capital Ltd., Class A (Cayman Islands) 101,009
646 Zions Bancorp. 53,637
------------
25,643,486
------------
HEALTH CARE--8.7%
9,409 Abbott Laboratories 402,141
2,892 Aetna, Inc. 111,342
764 Alcon, Inc. (Switzerland) 77,706
255 Allergan, Inc. 26,194
3,452 AmerisourceBergen Corp. 148,954
3,925 Amgen, Inc.* 265,723
932 Applera Corp. - Applied Biosystems Group 26,879
706 Apria Healthcare Group, Inc.* 15,461
324 Barr Pharmaceuticals, Inc.* 19,618
394 Bausch & Lomb, Inc. 19,286
3,380 Baxter International, Inc. 127,426
437 Beckman Coulter, Inc. 22,444
1,141 Becton Dickinson & Co. 71,929
1,164 Biogen Idec, Inc.* 52,205
761 Biomet, Inc. 28,294
4,895 Boston Scientific Corp.* 113,751
21,032 Bristol-Myers Squibb Co. 533,792
366 C.R. Bard, Inc. 27,252
3,599 Cardinal Health, Inc. 242,393
1,651 Caremark Rx, Inc. 75,203
320 Charles River Laboratories International, Inc.* 15,120
1,043 CIGNA Corp. 111,601
709 Community Health Systems, Inc.* 25,694
549 Coventry Health Care, Inc.* 27,269
484 Dade Behring Holdings, Inc. 18,876
390 DaVita, Inc.* 21,941
340 DENTSPLY International, Inc. 20,288
6,341 Eli Lilly & Co. 335,566
740 Express Scripts, Inc.* 57,824
903 Fisher Scientific International, Inc.* 63,707
1,138 Forest Laboratories, Inc.* 45,952
1,369 Genentech, Inc.* 109,123
688 Genzyme Corp.* 42,078
641 Gilead Sciences, Inc.* 36,858
3,471 HCA, Inc. 152,342
1,617 Health Management Associates, Inc. 33,488
1,269 Health Net, Inc.* 51,648
557 Henry Schein, Inc.* 25,967
521 Hillenbrand Industries, Inc. 26,759
1,173 Hospira, Inc.* 45,219
1,476 Humana, Inc.* 66,686
757 IMS Health, Inc. 20,575
288 Invitrogen Corp.* 19,011
14,394 Johnson & Johnson 843,631
932 Kindred Healthcare, Inc.* 22,610
1,654 King Pharmaceuticals, Inc.* 28,763
518 Laboratory Corp. of America Holdings* 29,578
654 LifePoint Hospitals, Inc.* 20,732
567 Lincare Holdings, Inc.* 22,414
428 Magellan Health Services, Inc.* 17,398
516 Manor Care, Inc. 22,627
4,199 McKesson Corp. 204,029
3,367 Medco Health Solutions, Inc.* 179,225
578 Medimmune, Inc.* 18,190
3,539 Medtronic, Inc. 177,375
24,295 Merck & Co., Inc. 836,234
1,514 Millennium Pharmaceuticals, Inc.* 13,747
1,108 Mylan Laboratories, Inc. 24,199
456 Omnicare, Inc. 25,860
578 Owens & Minor, Inc. 18,421
569 Patterson Cos., Inc.* 18,538
960 PerkinElmer, Inc. 20,582
49,213 Pfizer, Inc. 1,246,564
903 Quest Diagnostics, Inc. 50,324
11,533 Schering-Plough Corp. 222,818
975 St. Jude Medical, Inc.* 38,493
1,032 Stryker Corp. 45,150
15,141 Tenet Healthcare Corp.* 125,973
1,109 Thermo Electron Corp.* 42,741
939 Triad Hospitals, Inc.* 38,687
236 UnitedHealth Group, Inc. 11,739
516 Universal Health Services, Inc., Class B 26,208
269 Varian Medical Systems, Inc.* 14,090
1,057 Watson Pharmaceuticals, Inc.* 30,061
7,349 WellPoint, Inc.* 521,779
7,252 Wyeth 352,955
940 Zimmer Holdings, Inc.* 59,126
------------
9,152,446
------------
</Table>
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101
<Page>
POWERSHARES FTSE RAFI US 1000 PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
INDUSTRIALS--10.9%
4,417 3M Co. $ 377,344
381 Acuity Brands, Inc. 15,728
652 Adesa, Inc. 16,633
1,178 AGCO Corp.* 27,883
650 Alaska Air Group, Inc.* 24,674
376 Alexander & Baldwin, Inc. 18,751
272 Alliant Techsystems, Inc.* 21,757
6,113 Allied Waste Industries, Inc.* 86,560
183 AMERCO* 19,113
1,071 American Power Conversion Corp. 23,819
2,566 American Standard Cos., Inc. 111,698
3,313 AMR Corp.* 81,632
1,791 ARAMARK Corp., Class B 50,345
848 Avery Dennison Corp. 53,000
4,885 Boeing Co. 407,653
555 Briggs & Stratton Corp. 18,726
444 Brink's (The) Co. 22,555
2,142 Burlington Northern Santa Fe Corp. 170,353
512 C.H. Robinson Worldwide, Inc. 22,707
221 Carlisle Cos, Inc. 18,675
3,543 Caterpillar, Inc. 268,347
12,885 Cendant Corp. 224,586
396 ChoicePoint, Inc.* 17,436
869 Cintas Corp. 36,481
2,191 Continental Airlines, Class B* 57,054
496 Con-way, Inc. 27,637
641 Cooper Industries Ltd., Class A(Bermuda) 58,619
427 Crane Co. 18,041
2,100 CSX Corp. 143,829
446 Cummins, Inc. 46,607
1,109 Danaher Corp. 71,098
2,133 Deere & Co. 187,235
855 Deluxe Corp. 20,383
487 Dollar Thrifty Automotive Group* 23,707
1,284 Dover Corp. 63,879
195 Dun & Bradstreet Corp.* 15,019
1,183 Eaton Corp. 90,677
497 EMCOR Group, Inc.* 24,875
2,803 Emerson Electric Co. 238,115
483 Equifax, Inc. 18,615
212 Expeditors International Washington, Inc. 18,149
1,623 FedEx Corp. 186,856
270 Flowserve Corp.* 15,530
603 Fluor Corp. 56,025
681 GATX Corp. 31,871
2,522 General Dynamics Corp. 165,494
78,566 General Electric Co. 2,717,597
1,064 Goodrich Corp. 47,348
300 Harsco Corp. 25,005
307 HNI Corp. 16,234
6,453 Honeywell International, Inc. 274,253
521 Hubbell, Inc., Class B 26,910
2,360 IKON Office Solutions, Inc. 31,152
1,580 Illinois Tool Works, Inc. 162,266
2,371 Ingersoll-Rand Co. Ltd., Class A(Bermuda) 103,731
1,039 ITT Industries, Inc. 58,423
392 Jacobs Engineering Group, Inc.* 32,418
778 JB Hunt Transport Services, Inc. 18,540
1,471 JetBlue Airways Corp.* 15,092
755 Kelly Services, Inc. 20,891
321 Kennametal, Inc. 19,854
681 L-3 Communications Holdings, Inc. 55,638
1,099 Laidlaw International, Inc. 27,200
602 Lennox International, Inc. 19,643
2,852 Lockheed Martin Corp. 216,467
1,026 Manpower, Inc. 66,844
4,231 Masco Corp. 134,969
326 Monster Worldwide, Inc.* 18,712
461 Mueller Industries, Inc. 17,463
117 NACCO Industries, Inc., Class A 18,849
1,696 Navistar International Corp.* 44,740
2,491 Norfolk Southern Corp. 134,514
3,575 Northrop Grumman Corp. 239,168
270 Oshkosh Truck Corp. 16,524
1,426 Paccar, Inc. 102,572
904 Pall Corp. 27,283
849 Parker Hannifin Corp. 68,811
676 Pentair, Inc. 25,877
1,798 PHH Corp.* 50,128
1,841 Pitney Bowes, Inc. 77,046
494 Precision Castparts Corp. 31,112
1,192 Quanta Services, Inc.* 19,334
4,323 Raytheon Co. 191,379
791 Republic Services, Inc. 34,812
481 Robert Half International, Inc. 20,332
761 Rockwell Automation, Inc. 55,142
600 Rockwell Collins, Inc. 34,320
2,171 RR Donnelley & Sons Co. 73,141
1,008 Ryder System, Inc. 52,567
743 Shaw Group (The), Inc.* 22,736
4,642 Southwest Airlines Co. 75,293
734 SPX Corp. 40,187
1,528 Steelcase, Inc., Class A 28,604
977 Swift Transportation Co., Inc.* 29,261
604 Tecumseh Products Co., Class A* 13,862
175 Tecumseh Products Co., Class B* 3,467
333 Teleflex, Inc. 21,725
307 Terex Corp.* 26,571
983 Textron, Inc. 88,421
300 Thomas & Betts Corp.* 17,085
1,014 Timken Co. 35,389
324 Trinity Industries, Inc. 20,574
16,658 Tyco International Ltd. (Bermuda) 438,938
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
102
<Page>
POWERSHARES FTSE RAFI US 1000 PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
2,381 Union Pacific Corp. $ 217,171
5,654 United Parcel Service, Inc., Class B 458,369
1,006 United Rentals, Inc.* 35,884
522 United Stationers, Inc.* 28,005
5,676 United Technologies Corp. 356,510
535 URS Corp.* 23,042
260 USG Corp.* 27,812
624 W.W. Grainger, Inc. 47,998
378 Washington Group International, Inc.* 21,021
4,098 Waste Management, Inc. 153,511
738 Werner Enterprises, Inc. 14,155
353 WESCO International, Inc.* 26,475
412 West Corp.* 19,084
671 YRC Worldwide, Inc.* 28,182
------------
11,479,404
------------
INFORMATION TECHNOLOGY--9.8%
3,524 Accenture Ltd. (Bermuda) 102,443
1,262 Activision, Inc.* 17,908
718 Adobe Systems, Inc.* 28,146
1,855 Advanced Micro Devices, Inc.* 60,009
815 Affiliated Computer Services, Inc., Class A* 45,444
1,054 Agere System, Inc.* 16,569
1,723 Agilent Technologies, Inc.* 66,198
352 Alliance Data Systems Corp.* 19,360
977 Altera Corp.* 21,338
843 Amdocs Ltd. (Guernsey)* 31,360
2,257 Amkor Technology, Inc.* 27,287
341 Amphenol Corp., Class A 19,710
1,266 Analog Devices, Inc. 48,007
1,679 Andrew Corp.* 17,764
394 Anixter International, Inc.* 20,031
1,585 Apple Computer, Inc.* 111,568
5,673 Applied Materials, Inc. 101,830
2,080 Arrow Electronics, Inc.* 75,296
3,912 Atmel Corp.* 20,499
2,808 Automatic Data Processing, Inc. 123,777
4,011 Avaya, Inc.* 48,132
1,982 Avnet, Inc.* 51,829
1,332 AVX Corp. 23,710
1,360 BEA Systems, Inc.* 18,020
2,189 BearingPoint, Inc.* 20,314
661 Benchmark Electronics, Inc.* 18,045
1,014 BISYS Group (The), Inc.* 16,163
995 BMC Software, Inc.* 21,432
747 Broadcom Corp., Class A* 30,709
1,956 CA, Inc. 49,604
1,561 Cadence Design System, Inc.* 29,550
517 CDW Corp. 30,772
815 Ceridian Corp.* 19,747
974 Check Point Software Technologies (Israel)* 18,847
356 Checkfree Corp.* 19,178
19,597 Cisco Systems, Inc.* 410,557
515 Citrix Systems, Inc.* 20,559
2,442 Computer Sciences Corp.* 142,979
2,927 Compuware Corp.* 22,479
664 Comverse Technology, Inc.* 15,040
1,744 Convergys Corp.* 33,956
2,523 Corning, Inc.* 69,710
9,844 Dell, Inc.* 257,913
583 Diebold, Inc. 24,807
421 DST Systems, Inc.* 25,900
3,087 eBay, Inc.* 106,224
976 Electronic Arts, Inc.* 55,437
6,888 Electronic Data Systems Corp. 186,527
10,929 EMC Corp.* 147,651
1,097 Fairchild Semiconductor International, Inc.* 22,675
2,649 First Data Corp. 126,331
1,145 Fiserv, Inc.* 51,617
8,224 Flextronics International Ltd. (Singapore)* 93,425
969 Freescale Semiconductor, Inc., Class A* 30,640
1,771 Freescale Semiconductor, Inc., Class B* 56,088
6,572 Gateway, Inc.* 14,458
317 Google, Inc., Class A* 132,487
525 Harris Corp. 24,449
901 Hewitt Associates, Inc., Class A* 26,120
19,670 Hewlett-Packard Co. 638,685
6,415 Ingram Micro, Inc., Class A* 117,972
897 Insight Enterprises, Inc.* 17,734
30,414 Intel Corp. 607,672
9,931 International Business Machines Corp. 817,719
519 International Rectifier Corp.* 23,459
761 Intersil Corp. 22,533
570 Intuit, Inc.* 30,877
567 Iron Mountain, Inc.* 22,170
1,229 Jabil Circuit, Inc.* 47,919
4,977 JDS Uniphase Corp.* 17,370
3,701 Juniper Networks, Inc.* 68,394
646 Kla-Tencor Corp. 31,111
420 Lam Research Corp.* 20,530
974 Lexmark International, Inc.* 47,434
955 Linear Technology Corp. 33,903
2,539 LSI Logic Corp.* 27,040
10,447 Lucent Technologies, Inc.* 29,147
399 Marvell Technology Group Ltd. (Bermuda)* 22,779
1,089 Maxim Integrated Products, Inc. 38,398
2,312 Maxtor Corp.* 22,380
816 McAfee, Inc.* 21,289
251 Mettler Toledo International, Inc.* 16,265
552 Microchip Technology, Inc. 20,568
5,754 Micron Technology, Inc.* 97,645
67,301 Microsoft Corp. 1,625,318
530 Molex, Inc. 19,674
454 Molex, Inc., Class A 14,596
</Table>
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103
<Page>
POWERSHARES FTSE RAFI US 1000 PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
557 MoneyGram International, Inc. $ 18,882
13,801 Motorola, Inc. 294,651
956 National Semiconductor Corp. 28,661
1,283 NCR Corp.* 50,550
684 Network Appliance, Inc.* 25,356
2,535 Novell, Inc.* 20,838
950 Novellus Systems, Inc.* 23,465
838 NVIDIA Corp.* 24,486
17,416 Oracle Corp.* 254,099
1,142 Paychex, Inc. 46,125
1,156 Perot Systems Corp., Class A* 17,432
2,946 QUALCOMM, Inc. 151,248
1,855 Sabre Holdings Corp., Class A 42,832
605 SanDisk Corp.* 38,617
17,006 Sanmina-SCI Corp.* 88,261
3,431 Seagate Technology (Cayman Islands)* 91,127
20,742 Solectron Corp.* 82,968
26,982 Sun Microsystems, Inc.* 134,910
3,150 Symantec Corp.* 51,597
1,360 Symbol Technologies, Inc. 14,484
1,172 SYNNEX Corp.* 22,209
881 Synopsys, Inc.* 19,232
2,639 Tech Data Corp.* 96,904
2,457 Tellabs, Inc.* 38,943
1,040 Teradyne, Inc.* 17,534
5,566 Texas Instruments, Inc. 193,196
831 Total System Services, Inc. 16,645
5,000 Unisys Corp.* 31,200
3,086 UTStarcom, Inc.* 21,448
1,265 VeriSign, Inc.* 29,753
2,791 Vishay Intertechnology, Inc.* 43,595
1,038 Western Digital Corp.* 21,840
8,608 Xerox Corp.* 120,856
1,147 Xilinx, Inc. 31,737
3,289 Yahoo!, Inc.* 107,813
------------
10,322,700
------------
MATERIALS--3.9%
1,622 Air Products & Chemicals, Inc. 111,139
402 Airgas, Inc. 16,261
1,337 AK Steel Holding Corp.* 19,935
383 Albemarle Corp. 18,315
9,098 Alcoa, Inc. 307,330
354 Allegheny Technologies, Inc. 24,546
953 Ashland, Inc. 62,726
702 Ball Corp. 28,066
986 Bemis Co., Inc. 31,020
961 Bowater, Inc. 26,206
625 Cabot Corp. 22,500
1,295 Celanese Corp., Series A 28,425
1,792 Chemtura Corp. 21,862
468 Commercial Metals Co. 25,459
2,071 Crown Holdings, Inc.* 33,198
272 Cytec Industries, Inc. 16,448
9,752 Dow Chemical (The) Co. 396,030
10,033 E.I. du Pont de Nemours and Co. 442,456
1,101 Eastman Chemical Co. 59,839
1,041 Ecolab, Inc. 39,350
883 Engelhard Corp. 33,916
272 Florida Rock Industries, Inc. 16,965
373 FMC Corp. 23,708
786 Freeport-McMoRan Copper & Gold, Inc., Class B 50,760
6,157 Graphic Packaging Corp.* 16,378
185 Greif, Inc., Class A 11,984
58 Greif, Inc., Class B 3,486
1,266 Hercules, Inc.* 17,990
710 International Flavors & Fragrances, Inc. 25,084
6,742 International Paper Co. 245,072
560 Lafarge North America, Inc. 47,768
1,145 Louisiana-Pacific Corp. 31,579
709 Lubrizol Corp. 30,919
3,178 Lyondell Chemical Co. 76,590
221 Martin Marietta Materials, Inc. 23,461
2,623 MeadWestvaco Corp. 74,782
1,103 Monsanto Co. 91,990
2,030 Mosaic (The) Co.* 30,450
1,561 Nalco Holding Co.* 29,425
1,591 Newmont Mining Corp. 92,851
1,153 NL Industries, Inc. 15,185
838 Nucor Corp. 91,191
740 Olin Corp. 15,207
2,735 Owens-Illinois, Inc.* 49,996
812 Packaging Corp of America 18,254
1,316 Pactiv Corp.* 32,031
1,122 Phelps Dodge Corp. 96,705
1,687 PPG Industries, Inc. 113,231
1,547 Praxair, Inc. 86,833
176 Reliance Steel & Aluminum Co. 15,655
1,736 Rohm & Haas Co. 87,842
1,493 RPM International, Inc. 27,471
361 Scotts Miracle-Gro (The) Co. 15,978
694 Sealed Air Corp. 37,372
328 Sigma-Aldrich Corp. 22,504
4,810 Smurfit-Stone Container Corp.* 62,290
989 Sonoco Products Co. 30,975
354 Southern Copper Corp. 35,064
316 Steel Dynamics, Inc. 19,731
1,070 Temple-Inland, Inc. 49,691
251 Texas Industries, Inc. 14,232
159 Tronox, Inc., Class B 2,751
1,215 United States Steel Corp. 83,228
879 Valhi, Inc. 17,501
884 Valspar Corp. 25,017
564 Vulcan Materials Co. 47,917
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
104
<Page>
POWERSHARES FTSE RAFI US 1000 PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
2,856 Weyerhaeuser Co. $ 201,262
1,231 Worthington Industries 24,312
------------
4,045,695
------------
TELECOMMUNICATION SERVICES--3.9%
3,297 ALLTEL Corp. 212,228
720 American Tower Corp., Class A* 24,581
45,001 AT&T, Inc. 1,179,476
16,705 BellSouth Corp. 564,295
1,424 CenturyTel, Inc. 53,685
3,601 Cincinnati Bell, Inc.* 15,124
4,216 Citizens Communications Co. 55,988
814 Crown Castle International Corp.* 27,391
244 IDT Corp.* 2,672
1,083 IDT Corp., Class B* 12,021
24,097 Qwest Communications International, Inc.* 161,691
11,808 Sprint Nextel Corp. 292,838
652 Telephone & Data Systems, Inc. 25,558
646 Telephone & Data Systems, Inc., Special Shares 24,354
765 US Cellular Corp.* 47,736
1,396 Valor Communications Group, Inc. 18,218
40,401 Verizon Communications, Inc. 1,334,446
------------
4,052,302
------------
UTILITIES--5.9%
5,460 AES (The) Corp.* 92,656
718 AGL Resources, Inc. 25,403
1,242 Allegheny Energy, Inc.* 44,252
566 Allete, Inc. 26,472
1,640 Alliant Energy Corp. 52,414
2,558 Ameren Corp. 128,846
8,122 American Electric Power Co., Inc. 271,762
17,167 Aquila, Inc.* 74,333
1,213 Atmos Energy Corp. 32,193
1,186 Avista Corp. 24,918
478 Black Hills Corp. 17,399
12,122 CenterPoint Energy, Inc. 145,706
725 Cleco Corp. 16,313
5,116 CMS Energy Corp.* 68,145
3,633 Consolidated Edison, Inc. 156,655
1,842 Constellation Energy Group, Inc. 101,163
3,862 Dominion Resources, Inc. 289,148
1,359 DPL, Inc. 36,924
3,029 DTE Energy Co. 123,523
16,057 Duke Energy Corp. 467,581
1,455 Duquesne Light Holdings, Inc. 24,691
18,485 Dynegy, Inc., Class A* 91,870
3,573 Edison International 144,385
456 Energen Corp. 16,083
2,492 Energy East Corp. 60,207
2,228 Entergy Corp. 155,826
645 Equitable Resources, Inc. 22,904
4,754 Exelon Corp. 256,716
3,934 FirstEnergy Corp. 199,493
4,397 FPL Group, Inc. 174,121
1,279 Great Plains Energy, Inc. 36,132
1,146 Hawaiian Electric Industries, Inc. 30,793
796 IDACORP, Inc. 27,104
2,561 KeySpan Corp. 103,413
1,093 MDU Resources Group, Inc. 40,168
1,093 National Fuel Gas Co. 36,342
399 New Jersey Resources Corp. 17,664
727 Nicor, Inc. 28,796
5,400 NiSource, Inc. 113,994
3,152 Northeast Utilities 63,513
899 NRG Energy, Inc.* 42,783
1,541 NSTAR 42,609
1,482 OGE Energy Corp. 44,697
1,529 Oneok, Inc. 50,472
747 Peoples Energy Corp. 27,139
3,150 Pepco Holdings, Inc. 72,702
4,503 PG&E Corp. 179,400
915 Piedmont Natural Gas Co., Inc. 22,445
1,679 Pinnacle West Capital Corp. 67,328
925 PNM Resources, Inc. 23,412
2,931 PPL Corp. 85,116
4,018 Progress Energy, Inc. 171,970
2,523 Public Service Enterprise Group, Inc. 158,192
2,117 Puget Energy, Inc. 43,970
444 Questar Corp. 35,542
12,194 Reliant Energy, Inc.* 138,402
1,483 SCANA Corp. 58,045
2,379 Sempra Energy 109,482
2,121 Sierra Pacific Resources* 29,949
8,981 Southern (The) Co. 289,458
654 Southern Union Co.* 16,952
614 Southwest Gas, Corp. 17,020
3,100 TECO Energy, Inc. 49,538
3,798 TXU Corp. 188,495
1,406 UGI Corp. 31,494
328 UIL Holding Corp. 18,220
517 Unisource Energy Corp. 15,639
1,074 Vectren Corp. 28,697
1,601 Westar Energy, Inc 33,525
844 WGL Holdings, Inc. 24,830
1,392 Wisconsin Energy Corp. 54,358
659 WPS Resources Corp. 32,943
8,956 Xcel Energy, Inc. 168,731
------------
6,213,576
------------
TOTAL COMMON STOCKS
(Cost $101,976,023) 104,504,321
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
105
<Page>
POWERSHARES FTSE RAFI US 1000 PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
INVESTMENT COMPANY--0.0%
FINANCIALS--0.0%
900 Tri-Continental Corp.
(Cost $17,606) $ 18,495
------------
TOTAL INVESTMENTS
(Cost $101,993,629)--99.7% 104,522,816
Other assets less liabilities--0.3% 360,190
------------
NET ASSETS--100.0% $104,883,006
============
</Table>
* Non-income producing security.
COUNTRY BREAKDOWN(UNAUDITED)
APRIL 30, 2006
<Table>
<Caption>
TOTAL
VALUE NET ASSETS
------------ ----------
United States $102,074,793 97.3%
Bermuda 1,202,872 1.2
Cayman Islands 495,335 0.5
Netherlands Antilles 228,093 0.2
Panama 164,245 0.2
Singapore 93,425 0.1
Switzerland 77,706 0.1
Liberia 72,589 0.1
Marshall Islands 32,430 0.0
Guernsey 31,360 0.0
Israel 18,847 0.0
Bahamas 16,019 0.0
British Virgin Islands 15,102 0.0
------------ -------
Total value of investments 104,522,816 99.7
Other assets less liabilities 360,190 0.3
------------ -------
Net Assets $104,883,006 100.0%
============ =======
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
106
<Page>
STATEMENTS OF ASSETS AND LIABILITIES
POWERSHARES EXCHANGE-TRADED FUNDS
APRIL 30, 2006
<Table>
<Caption>
POWERSHARES POWERSHARES POWERSHARES
DYNAMIC MARKET DYNAMIC OTC FTSE RAFI US 1000
PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ------------ -----------------
ASSETS:
Investments at value $918,693,832 $222,452,543 $104,522,816
Cash 340,109 -- 283,960
Receivables:
Investments sold -- 166,781 213,044
Dividends 650,808 30,376 147,770
Due from Advisor 164,856 52,650 44,974
------------ ------------ ------------
TOTAL ASSETS 919,849,605 222,702,350 105,212,564
------------ ------------ ------------
LIABILITIES:
Due to custodian -- 60,414 --
Payables:
Investments purchased -- -- 201,060
Accrued advisory fees 373,784 88,922 40,110
Accrued expenses 319,775 112,784 88,388
------------ ------------ ------------
TOTAL LIABILITIES 693,559 262,120 329,558
------------ ------------ ------------
NET ASSETS $919,156,046 $222,440,230 $104,883,006
============ ============ ============
NET ASSETS CONSIST OF:
Paid-in capital $924,385,169 $225,237,416 $102,304,523
Undistributed net investment income 507,337 -- 129,021
Accumulated net realized loss on investments (47,752,926) (18,898,148) (79,725)
Net unrealized appreciation/depreciation on investments 42,016,466 16,100,962 2,529,187
------------ ------------ ------------
NET ASSETS $919,156,046 $222,440,230 $104,883,006
============ ============ ============
Shares outstanding (unlimited amount authorized, $0.01 par value) 19,200,000 4,150,000 2,000,000
Net asset value $ 47.87 $ 53.60 $ 52.44
============ ============ ============
Investments at cost $876,677,366 $206,351,581 $101,993,629
============ ============ ============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
107
<Page>
STATEMENTS OF OPERATIONS
<Table>
<Caption>
POWERSHARES POWERSHARES POWERSHARES
DYNAMIC MARKET DYNAMIC OTC FTSE RAFI US 1000
PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ------------- -----------------
FOR THE PERIOD
DECEMBER 19, 2005*
YEAR ENDED YEAR ENDED THROUGH
APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006
--------------- -------------- ------------------
INVESTMENT INCOME:
Dividends $ 8,060,557 $ 866,215 $ 500,553
Foreign withholding taxes -- -- (30)
------------ ------------ ----------
TOTAL INCOME 8,060,557 866,215 500,523
------------ ------------ ----------
EXPENSES:
Advisory fees 2,964,415 778,316 117,073
Printing 196,982 49,482 17,000
Licensing 177,865 46,699 23,415
Administration fees 126,411 59,002 4,089
Accounting 72,912 54,998 2,341
Registration & filings 60,318 13,533 9,472
Legal 36,971 14,971 15,000
Custodian and transfer agent fees 37,442 15,867 4,671
Audit 18,000 18,000 12,000
Listing fee and expenses 12,950 10,669 1,208
Trustees 12,292 3,878 474
Offering costs -- -- 12,812
Other expenses 25,532 14,492 14,053
------------ ------------ ----------
TOTAL EXPENSES 3,742,090 1,079,907 233,608
Less fees waived:
Advisory (188,751) (145,318) (56,474)
------------ ------------ ----------
NET EXPENSES 3,553,339 934,589 177,134
------------ ------------ ----------
NET INVESTMENT INCOME (LOSS) 4,507,218 (68,374) 323,389
------------ ------------ ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) from:
Investments (33,630,448) (11,173,744) (79,725)
In-kind redemptions 84,382,607 27,334,598 998,141
------------ ------------ ----------
Net realized gain 50,752,159 16,160,854 918,416
Net change in unrealized appreciation/depreciation on investments 45,428,370 15,104,755 2,529,187
------------ ------------ ----------
Net realized and unrealized gain on investments 96,180,529 31,265,609 3,447,603
------------ ------------ ----------
Net increase in net assets resulting from operations $100,687,747 $ 31,197,235 $3,770,992
============ ============ ==========
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
108
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
POWERSHARES POWERSHARES POWERSHARES
DYNAMIC MARKET DYNAMIC OTC FTSE RAFI US 1000
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------- ------------------------------- ------------------
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR DECEMBER 19, 2005*
ENDED ENDED ENDED ENDED THROUGH
APRIL 30, 2006 APRIL 30, 2005 APRIL 30, 2006 APRIL 30, 2005 APRIL 30, 2006
-------------- -------------- -------------- -------------- ------------------
OPERATIONS:
Net investment income (loss) $ 4,507,218 $ 1,281,300 $ (68,374) $ (30,229) $ 323,389
Net realized gain on investments 50,752,159 18,332,720 16,160,854 1,444,299 918,416
Net change in unrealized appreciation/
depreciation on investments 45,428,370 (2,695,196) 15,104,755 3,831,933 2,529,187
-------------- ------------- ------------- ------------ ------------
Net increase in net assets resulting
from operations 100,687,747 16,918,824 31,197,235 5,246,003 3,770,992
-------------- ------------- ------------- ------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (4,155,736) (1,056,515) (51,000) -- (194,752)
Tax return of capital -- -- (107,644) -- --
-------------- ------------- ------------- ------------ ------------
Total distributions (4,155,736) (1,056,515) (158,644) -- (194,752)
-------------- ------------- ------------- ------------ ------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold 1,422,241,078 485,012,060 365,564,123 93,231,719 121,737,639
Value of shares repurchased (883,237,374) (303,199,586) (239,909,539) (67,548,001) (20,430,873)
-------------- ------------- ------------- ------------ ------------
Net increase in net assets resulting
from share transactions 539,003,704 181,812,474 125,654,584 25,683,718 101,306,766
-------------- ------------- ------------- ------------ ------------
Increase in Net Assets 635,535,715 197,674,783 156,693,175 30,929,721 104,883,006
NET ASSETS:
Beginning of period 283,620,331 85,945,548 65,747,055 34,817,334 --
-------------- ------------- ------------- ------------ ------------
End of period $ 919,156,046 $ 283,620,331 $ 222,440,230 $ 65,747,055 $104,883,006
============== ============= ============= ============ ============
Undistributed net investment income $ 507,337 $ 168,765 $ -- $ -- $ 129,021
============== ============= ============= ============ ============
CHANGES IN SHARES
OUTSTANDING:
Shares sold 31,600,000 12,700,000 7,500,000 2,250,000 2,400,000
Shares repurchased (19,652,228) (7,900,000) (4,901,424) (1,650,000) (400,000)
Shares outstanding, beginning of period 7,252,228 2,452,228 1,551,424 951,424 --
-------------- ------------- ------------- ------------ ------------
Shares outstanding, end of period 19,200,000 7,252,228 4,150,000 1,551,424 2,000,000
============== ============= ============= ============ ============
</Table>
* Commencement of Investment Operations.
SEE NOTES TO FINANCIAL STATEMENTS.
109
<Page>
FINANCIAL HIGHLIGHTS
POWERSHARES DYNAMIC MARKET PORTFOLIO
<Table>
<Caption>
FOR THE YEAR
FOR THE YEAR FOR THE YEAR MAY 1, 2003*
ENDED ENDED THROUGH
APRIL 30, 2006 APRIL 30, 2005 APRIL 30, 2004
--------------- --------------- ---------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 39.11 $ 35.05 $ 26.99+
-------- -------- -------
Net investment income** 0.34 0.26 0.15+
Net realized and unrealized gain on investments 8.75 4.02 8.09+
-------- -------- -------
Total from operations 9.09 4.28 8.24+
-------- -------- -------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.33) (0.22) (0.18)+
-------- -------- -------
Net asset value at end of period $ 47.87 $ 39.11 $ 35.05+
-------- -------- -------
TOTAL RETURN:*** 23.30% 12.23% 30.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $919,156 $283,620 $85,946
Ratio to average net assets of:
Expenses, net of waivers 0.60% 0.60% 0.60%
Expenses, prior to waivers 0.63% 0.70% 1.26%
Net investment income, net of waivers 0.76% 0.68% 0.46%
Portfolio turnover rate ++ 103% 94% 58%
</Table>
POWERSHARES DYNAMIC OTC PORTFOLIO
<Table>
<Caption>
FOR THE YEAR
FOR THE YEAR FOR THE YEAR MAY 1, 2003*
ENDED ENDED THROUGH
APRIL 30, 2006 APRIL 30, 2005 APRIL 30, 2004
--------------- --------------- ---------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 42.38 $ 36.59 $ 28.57+
-------- -------- -------
Net investment loss** (0.02) (0.03) (0.04)+
Net realized and unrealized gain on investments 11.30 5.82 8.06+
-------- -------- -------
Total from operations 11.28 5.79 8.02+
-------- -------- -------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.02) -- --
Tax return of capital (0.04) -- --
-------- -------- -------
Total distributions (0.06) -- --
-------- -------- -------
Net asset value at end of period $ 53.60 $ 42.38 $ 36.59+
-------- -------- -------
TOTAL RETURN:*** 26.63% 15.81% 28.07%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $222,440 $65,747 $34,817
Ratio to average net assets of:
Expenses, net of waivers 0.60% 0.60% 0.60%
Expenses, prior to waivers 0.69% 1.06% 1.66%
Net investment loss, net of waivers (0.04)% (0.06)% (0.10)%
Portfolio turnover rate ++ 77% 112% 79%
</Table>
* Commencement of Investment Operations.
** Based on average shares outstanding.
*** Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Total investment return
calculated for a period of less than one year is not annualized.
+ Per share amounts have been adjusted for 4 for 1 stock split (See Note 9).
++ Portfolio turnover rate is not annualized and does not include securities
received or delivered from processing creations or redemptions.
SEE NOTES TO FINANCIAL STATEMENTS.
110
<Page>
POWERSHARES FTSE RAFI 1000 PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
DECEMBER 19, 2005*
THROUGH
APRIL 30, 2006
-----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 49.64
--------
Net investment income** 0.24
Net realized and unrealized gain on investments 2.68
--------
Total from operations 2.92
--------
Distributions to shareholders from:
Net investment income (0.12)
--------
Net asset value at end of period $ 52.44
--------
TOTAL RETURN:*** 5.89%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $104,883
Ratio to average net assets of:
Expenses, net of waivers 0.76%+
Expenses, prior to waivers 1.00%+
Net investment income, net of waivers 1.38%+
Portfolio turnover rate ++ 2%
</Table>
* Commencement of Investment Operations.
** Based on average shares outstanding.
*** Totalreturn is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption on
the last day of the period. Totalreturn calculated for a period of less
than one year is not annualized.
+ Annualized.
++ Portfolio turnover rate is not annualized and does not include securities
received or delivered from processing creations or redemptions.
SEE NOTES TO FINANCIAL STATEMENTS.
111
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC LARGE CAP GROWTH PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
COMMON STOCKS--99.9%
CONSUMER DISCRETIONARY--12.1%
58,474 Coach, Inc.* $ 1,930,811
32,347 Lowe's Cos., Inc. 2,039,478
39,124 McGraw-Hill (The) Cos., Inc. 2,177,642
304,044 News Corp., Inc., Class A 5,217,396
92,804 Staples, Inc. 2,450,954
58,568 Starbucks Corp.* 2,182,829
38,844 Target Corp. 2,062,616
------------
18,061,726
------------
CONSUMER STAPLES--6.2%
41,437 Costco Wholesale Corp. 2,255,416
74,294 CVS Corp. 2,208,018
80,366 Procter & Gamble Co. 4,678,104
------------
9,141,538
------------
ENERGY--10.4%
62,914 BJ Services Co. 2,393,878
30,307 EOG Resources, Inc. 2,128,461
29,983 Halliburton Co. 2,343,171
42,566 Peabody Energy Corp. 2,718,265
84,534 Schlumberger Ltd. (Netherlands) 5,844,680
------------
15,428,455
------------
FINANCIALS--7.2%
127,858 Charles Schwab (The) Corp. 2,288,658
5,079 Chicago Mercantile Exchange Holdings, Inc. 2,326,182
20,985 Franklin Resources, Inc. 1,954,123
31,472 Moody's Corp. 1,951,579
33,900 State Street Corp. 2,214,348
------------
10,734,890
------------
HEALTH CARE--20.9%
40,472 Aetna, Inc. 1,558,172
19,153 Allergan, Inc. 1,967,396
66,157 Amgen, Inc.* 4,478,829
42,833 Caremark Rx, Inc. 1,951,043
23,900 Express Scripts, Inc.* 1,867,546
59,381 Genentech, Inc.* 4,733,260
34,557 Gilead Sciences, Inc.* 1,987,028
39,211 McKesson Corp. 1,905,262
91,030 Medtronic, Inc. 4,562,424
83,102 UnitedHealth Group, Inc. 4,133,493
27,343 WellPoint, Inc.* 1,941,353
------------
31,085,806
------------
INDUSTRIALS--11.7%
66,849 Boeing Co. 5,578,549
34,458 Danaher Corp. 2,209,102
19,835 FedEx Corp. 2,283,604
125,898 Southwest Airlines Co. 2,042,066
65,645 United Parcel Service, Inc., Class B 5,321,840
------------
17,435,161
------------
INFORMATION TECHNOLOGY--31.4%
54,622 Adobe Systems, Inc.* 2,141,182
52,434 Advanced Micro Devices, Inc.* 1,696,240
58,824 Agilent Technologies, Inc.* 2,260,018
68,856 Apple Computer, Inc.* 4,846,774
250,551 Cisco Systems, Inc.* 5,249,043
86,077 Corning, Inc.* 2,378,308
169,954 Dell, Inc.* 4,452,795
79,570 Electronic Data Systems Corp. 2,154,756
154,564 EMC Corp.* 2,088,160
185,318 Microsoft Corp. 4,475,430
226,449 Motorola, Inc. 4,834,686
56,278 Paychex, Inc. 2,273,068
105,280 QUALCOMM, Inc. 5,405,076
70,919 Texas Instruments, Inc. 2,461,598
------------
46,717,134
------------
TOTAL COMMON STOCKS
(Cost $144,499,267) 148,604,710
------------
MONEY MARKET FUND--0.0%
63,419 AIM Liquid Asset Portfolio Private Class
(Cost $63,419) 63,419
------------
TOTAL INVESTMENTS
(Cost $144,562,686)--99.9% 148,668,129
Other assets less liabilities--0.1% 81,532
------------
NET ASSETS--100.0% $148,749,661
============
</Table>
* Non-income producing security.
COUNTRY BREAKDOWN (UNAUDITED)
APRIL 30, 2006
<Table>
<Caption>
TOTAL
VALUE NET ASSETS
------------ ----------
United States $142,823,449 96.0%
Netherlands 5,844,680 3.9
------------ -----
Total value of investments 148,668,129 99.9
Other assets less liabilities 81,532 0.1
------------ -----
Net Assets $148,749,661 100.0%
============ =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
112
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC LARGE CAP VALUE PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
COMMON STOCKS--99.9%
CONSUMER DISCRETIONARY--5.3%
153,850 Ford Motor Co. $ 1,069,258
65,809 Gap (The), Inc. 1,190,485
35,318 McDonald's Corp. 1,220,943
25,200 Yum! Brands, Inc. 1,302,336
-----------
4,783,022
-----------
CONSUMER STAPLES--6.0%
39,969 Altria Group, Inc. 2,924,132
25,590 General Mills, Inc. 1,262,611
11,786 Reynolds American, Inc. 1,292,335
-----------
5,479,078
-----------
ENERGY--11.3%
47,736 ConocoPhillips 3,193,537
20,946 Devon Energy Corp. 1,259,064
49,021 Exxon Mobil Corp. 3,092,245
13,203 Kerr-McGee Corp. 1,318,452
16,491 Sunoco, Inc. 1,336,431
-----------
10,199,729
-----------
FINANCIALS--35.9%
23,067 Allstate (The) Corp. 1,303,055
64,644 Bank of America Corp. 3,227,027
36,444 Bank of New York (The) Co., Inc. 1,281,007
26,324 Chubb (The) Corp. 1,356,739
62,669 Citigroup, Inc. 3,130,316
38,240 Genworth Financial, Inc. 1,269,568
14,875 Hartford Financial Services Group (The), Inc. 1,367,459
13,189 Loews Corp. 1,400,012
34,101 Mellon Financial Corp. 1,283,221
38,319 Merrill Lynch & Co., Inc. 2,922,207
24,545 MetLife, Inc. 1,278,795
17,774 PNC Financial Services Group, Inc. 1,270,308
25,863 Principal Financial Group, Inc. 1,327,031
11,589 Progressive (The) Corp. 1,257,754
16,420 Prudential Financial, Inc. 1,282,895
29,576 St. Paul Travelers (The) Cos., Inc. 1,302,231
51,590 Wachovia Corp. 3,087,662
45,549 Wells Fargo & Co. 3,128,760
-----------
32,476,047
-----------
HEALTH CARE--7.5%
10,140 CIGNA Corp. 1,084,980
82,827 Merck & Co., Inc. 2,850,905
112,200 Pfizer, Inc. 2,842,026
-----------
6,777,911
-----------
INDUSTRIALS--12.9%
39,822 3M Co. 3,401,992
20,738 General Dynamics Corp. 1,360,828
88,181 General Electric Co. 3,050,181
29,786 Ingersoll-Rand Co. Ltd., Class A(Bermuda) 1,303,138
17,104 Lockheed Martin Corp. 1,298,194
19,252 Northrop Grumman Corp. 1,287,959
-----------
11,702,292
-----------
INFORMATION TECHNOLOGY--7.9%
90,605 Hewlett-Packard Co. 2,941,944
36,570 International Business Machines Corp. 3,011,174
83,575 Xerox Corp.* 1,173,393
-----------
7,126,511
-----------
MATERIALS--3.1%
29,036 Dow Chemical (The) Co. 1,179,152
14,560 Nucor Corp. 1,584,419
2,559 Tronox, Inc., Class B* 44,271
-----------
2,807,842
-----------
TELECOMMUNICATION SERVICES--4.6%
39,514 BellSouth Corp. 1,334,783
86,465 Verizon Communications, Inc. 2,855,939
-----------
4,190,722
-----------
UTILITIES--5.4%
34,636 American Electric Power Co., Inc. 1,158,921
27,951 Edison International 1,129,500
25,164 FirstEnergy Corp. 1,276,066
33,324 PG&E Corp. 1,327,628
-----------
4,892,115
-----------
TOTAL COMMON STOCKS
(Cost $85,763,477) 90,435,269
-----------
MONEY MARKET FUND--0.0%
3,781 AIM Liquid Asset Portfolio Private Class
(Cost $3,781) 3,781
-----------
TOTAL INVESTMENTS
(Cost $85,767,258)--99.9% 90,439,050
Other assets less liabilities--0.1% 92,924
-----------
NET ASSETS--100.0% $90,531,974
===========
</Table>
* Non-income producing security.
COUNTRY BREAKDOWN (UNAUDITED)
APRIL 30, 2006
<Table>
<Caption>
TOTAL
VALUE NET ASSETS
------------ ----------
United States $89,135,912 98.5%
Bermuda 1,303,138 1.4
------------ -----
Total value of investments 90,439,050 99.9
Other assets less liabilities 92,924 0.1
------------ -----
Net Assets $90,531,974 100.0%
============ =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
113
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC MID CAP GROWTH PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
COMMON STOCKS--99.3%
CONSUMER DISCRETIONARY--19.1%
8,484 Abercrombie & Fitch Co., Class A $ 515,233
55,148 Apollo Group, Inc., Class A* 3,013,287
15,382 Education Management Corp.* 653,120
14,617 Guess ?, Inc.* 579,272
29,252 Harman International Industries, Inc. 2,573,883
129,288 Hilton Hotels Corp. 3,483,019
110,644 IAC/InterActiveCorp.* 3,194,292
24,680 Interactive Data Corp.* 549,624
88,156 International Game Technology 3,343,757
8,751 ITT Educational Services, Inc.* 556,126
16,999 Penn National Gaming, Inc.* 692,199
20,092 Ross Stores, Inc. 615,619
------------
19,769,431
------------
ENERGY--1.3%
13,570 Grant Prideco, Inc.* 694,784
17,724 Pride International, Inc.* 618,390
------------
1,313,174
------------
FINANCIALS--9.0%
18,096 Brown & Brown, Inc. 565,138
8,133 CB Richard Ellis Group, Inc., Class A* 714,809
128,866 E*Trade Financial Corp.* 3,206,186
12,378 Investment Technology Group, Inc.* 655,910
7,907 Jones Lang LaSalle, Inc. 670,197
13,453 SEI Investments Co. 577,672
157,353 TD Ameritrade Holding Corp.* 2,920,472
------------
9,310,384
------------
HEALTH CARE--13.2%
47,079 Barr Pharmaceuticals, Inc.* 2,850,633
53,221 Coventry Health Care, Inc.* 2,643,487
15,190 Dade Behring Holdings, Inc. 592,410
18,285 Endo Pharmaceuticals Holdings, Inc.* 575,063
7,207 IDEXX Laboratories, Inc.* 599,694
14,860 Kinetic Concepts, Inc.* 648,788
13,554 Kos Pharmaceuticals, Inc.* 656,014
16,218 Pharmaceutical Product Development, Inc. 581,740
12,955 Sierra Health Services, Inc.* 507,966
9,438 Techne Corp.* 534,757
52,846 Varian Medical Systems, Inc.* 2,768,073
20,230 VCA Antech, Inc.* 628,951
------------
13,587,576
------------
INDUSTRIALS--20.0%
71,343 C.H. Robinson Worldwide, Inc. 3,164,062
5,766 Corporate Executive Board Co. 617,712
40,804 Expeditors International of Washington, Inc. 3,493,230
36,812 Fluor Corp. 3,420,203
17,843 Herman Miller, Inc. 549,386
11,751 IDEX Corp. 596,951
12,598 Landstar System, Inc. 535,289
17,542 Lennox International, Inc. 572,395
11,626 Monster Worldwide, Inc.* 667,332
12,051 MSC Industrial Direct Co., Inc., Class A 624,965
10,010 Oshkosh Truck Corp. 612,612
10,210 Precision Castparts Corp. 643,026
15,386 Robert Half International, Inc. 650,366
45,411 Rockwell Automation, Inc. 3,290,481
11,564 Thomas & Betts Corp.* 658,570
13,168 West Corp.* 609,942
------------
20,706,522
------------
INFORMATION TECHNOLOGY--21.8%
10,166 Anteon International Corp.* 555,572
85,805 Autodesk, Inc.* 3,607,242
33,793 AVX Corp. 601,515
21,635 Ceridian Corp.* 524,216
17,957 Citrix Systems, Inc.* 716,843
12,887 Fair Isaac Corp. 478,237
11,102 Global Payments, Inc. 526,568
16,999 Hyperion Solutions Corp.* 520,509
12,567 Iron Mountain, Inc.* 491,370
12,926 Lam Research Corp.* 631,823
85,225 Linear Technology Corp. 3,025,488
59,615 LSI Logic Corp.* 634,900
17,187 MEMC Electronic Materials, Inc.* 697,792
20,193 MoneyGram International, Inc. 684,543
117,400 National Semiconductor Corp. 3,519,652
138,093 NVIDIACorp.* 4,035,078
21,169 Red Hat, Inc.* 622,157
38,006 Tellabs, Inc.* 602,395
------------
22,475,900
------------
MATERIALS--7.7%
10,618 Allegheny Technologies, Inc.* 736,252
86,393 Ecolab, Inc. 3,265,655
61,076 Freeport-McMoRan Copper & Gold, Inc., Class B 3,944,289
------------
7,946,196
------------
TELECOMMUNICATION SERVICES--3.7%
112,259 Nextel Partners, Inc., Class A* 3,181,420
10,375 US Cellular Corp.* 647,400
------------
3,828,820
------------
UTILITIES--3.5%
181,227 AES (The) Corp.* 3,075,422
15,856 Allegheny Energy, Inc.* 564,949
------------
3,640,371
------------
TOTAL COMMON STOCKS
(Cost $98,284,791) 102,578,374
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
114
<Page>
POWERSHARES DYNAMIC MID CAP GROWTH PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
MONEY MARKET FUND--0.7%
751,251 AIM Liquid Asset Portfolio Private Class
(Cost $751,251) $ 751,251
------------
TOTAL INVESTMENTS
(Cost $99,036,042)--100.0% 103,329,625
Liabilities in excess of other assets--(0.0%) (4,977)
------------
NET ASSETS--100.0% $103,324,648
============
</Table>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
115
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC MID CAP VALUE PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
COMMON STOCKS--99.4%
CONSUMER DISCRETIONARY--7.1%
25,799 Centex Corp. $ 1,434,424
7,304 Genuine Parts Co. 318,820
15,994 Hasbro, Inc. 315,242
30,160 Lennar Corp., Class A 1,656,689
3,608 Whirlpool Corp. 323,818
-----------
4,048,993
-----------
CONSUMER STAPLES--10.9%
71,923 Albertson's, Inc. 1,821,810
59,279 Campbell Soup Co. 1,905,227
47,793 Estee Lauder Cos. (The), Inc., Class A 1,774,076
9,391 Hormel Foods Corp. 315,162
11,123 Pepsi Bottling Group, Inc. 357,048
-----------
6,173,323
-----------
ENERGY--0.7%
6,889 Maverick Tube Corp.* 374,899
-----------
FINANCIALS--43.4%
7,136 A.G. Edwards, Inc. 377,066
24,291 AMBAC Financial Group, Inc. 2,000,606
8,090 American Financial Group, Inc. 358,225
5,311 AmerUs Group Co. 311,490
46,581 AON Corp. 1,952,209
5,810 Arch Capital Group Ltd. (Bermuda)* 352,958
7,263 Assurant, Inc. 349,859
6,056 Bank of Hawaii Corp. 328,901
41,286 Cincinnati Financial Corp. 1,760,435
4,272 City National Corp. 311,685
58,785 CNA Financial Corp.* 1,889,350
13,097 Colonial BancGroup (The), Inc. 339,605
31,987 Comerica, Inc. 1,819,101
6,260 Commerce Bancshares, Inc. 327,085
13,509 Conseco, Inc.* 341,102
5,969 Cullen/Frost Bankers, Inc. 345,486
8,187 Federated Investors, Inc., Class B 287,364
7,977 Independence Community Bank Corp. 335,034
31,987 Lincoln National Corp. 1,857,805
16,236 M&T Bank Corp. 1,938,578
7,517 Nationwide Financial Services, Inc., Class A 329,846
10,492 Ohio Casualty Corp. 311,088
15,298 Old Republic International Corp. 340,381
7,553 PMI Group (The), Inc. 348,571
6,747 Protective Life Corp. 340,049
5,757 Radian Group, Inc. 361,079
10,590 Raymond James Financial, Inc. 321,407
6,882 Reinsurance Group of America, Inc. 331,024
6,321 SAFECO Corp. 328,060
6,076 Stancorp Financial Group, Inc. 299,790
12,740 TCF Financial Corp. 342,196
5,978 Torchmark Corp. 359,338
26,233 UnionBanCal Corp. 1,838,671
6,782 Unitrin, Inc. 331,301
7,534 Wilmington Trust Corp. 333,756
8,484 W.R. Berkley Corp. 317,471
6,348 Zenith National Insurance Corp. 280,074
-----------
24,698,046
-----------
HEALTH CARE--0.5%
16,895 King Pharmaceuticals, Inc.* 293,804
-----------
INDUSTRIALS--11.2%
4,293 Alliant Techsystems, Inc.* 343,397
11,743 ARAMARK Corp., Class B 330,096
6,572 Con-way, Inc. 366,192
22,021 Cooper Industries Ltd., Class A(Bermuda) 2,013,820
8,380 Crane Co. 354,055
3,062 Cummins, Inc. 319,979
6,057 Manpower, Inc. 394,614
26,571 Paccar, Inc. 1,911,252
5,097 Teleflex, Inc. 332,528
-----------
6,365,933
-----------
INFORMATION TECHNOLOGY--9.2%
9,282 Arrow Electronics, Inc.* 336,008
34,425 Computer Sciences Corp.* 2,015,584
69,084 Freescale Semiconductor, Inc., Class B* 2,187,891
8,361 NCR Corp.* 329,423
15,486 Sybase, Inc.* 337,130
-----------
5,206,036
-----------
MATERIALS--5.6%
6,938 Commercial Metals Co. 377,427
5,226 FMC Corp. 332,165
13,971 Pactiv Corp.* 340,054
35,641 Rohm & Haas Co. 1,803,434
10,096 Sonoco Products Co. 316,207
-----------
3,169,287
-----------
UTILITIES--10.8%
10,012 Alliant Energy Corp. 319,984
31,445 Constellation Energy Group, Inc. 1,726,959
13,695 Pepco Holdings, Inc. 316,081
59,145 PPL Corp. 1,717,571
37,889 Sempra Energy 1,743,652
14,581 UGI Corp. 326,614
-----------
6,150,861
-----------
TOTAL COMMON STOCKS
(Cost $54,215,004) 56,481,182
-----------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
116
<Page>
POWERSHARES DYNAMIC MID CAP VALUE PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- -----------
MONEY MARKET FUND--0.6%
320,544 AIM Liquid Asset Portfolio Private Class
(Cost $320,544) $ 320,544
-----------
TOTAL INVESTMENTS
(Cost $54,535,548)--100.0% 56,801,726
Other assets less liabilities--0.0% 13,349
-----------
NET ASSETS--100.0% $56,815,075
===========
</Table>
* Non-income producing security.
COUNTRY BREAKDOWN(UNAUDITED)
APRIL 30, 2006
<Table>
<Caption>
TOTAL
VALUE NET ASSETS
----------- ----------
United States $54,434,948 95.8%
Bermuda 2,366,778 4.2
----------- -----
Total value of investments 56,801,726 100.0
Other assets less liabilities 13,349 0.0
----------- -----
Net Assets $56,815,075 100.0%
=========== =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
117
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC SMALL CAP GROWTH PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
COMMON STOCKS--100.0%
CONSUMER DISCRETIONARY--8.3%
15,505 Blue Nile, Inc.* $ 539,574
31,865 Champion Enterprises, Inc.* 486,260
13,022 Conn's, Inc.* 444,962
22,130 Dress Barn (The), Inc.* 559,668
15,711 Hibbett Sporting Goods, Inc.* 476,200
73,522 Phillips-Van Heusen Corp. 2,955,584
13,660 Select Comfort Corp.* 545,854
45,981 Six Flags, Inc.* 423,485
85,319 Sonic Corp.* 2,893,167
5,017 Strayer Education, Inc. 521,718
------------
9,846,472
------------
ENERGY--8.4%
375,689 Grey Wolf, Inc.* 2,930,374
9,237 Lufkin Industries, Inc. 591,722
46,741 Oceaneering International, Inc.* 2,852,603
51,952 Parker Drilling Co.* 436,397
65,074 Veritas DGC, Inc.* 3,118,347
------------
9,929,443
------------
FINANCIALS--10.7%
26,518 Asset Acceptance Capital Corp.* 553,961
46,493 GFI Group, Inc.* 2,644,522
41,443 Greenhill & Co., Inc. 2,939,138
87,702 optionsXpress Holdings, Inc. 2,762,613
52,737 SVB Financial Group* 2,677,457
23,425 Texas Capital Bancshares, Inc.* 540,181
14,793 Western Alliance Bancorp* 537,873
------------
12,655,745
------------
HEALTH CARE--16.1%
85,428 Alpharma, Inc., Class A 2,242,485
24,525 AMN Healthcare Services, Inc.* 471,371
9,494 Biosite, Inc.* 535,462
8,877 Chemed Corp. 483,708
16,700 DJ Orthopedics, Inc.* 663,992
34,792 eResearch Technology, Inc.* 394,193
26,404 First Horizon Pharmaceutical Corp.* 588,017
9,370 Haemonetics Corp.* 510,665
186,419 Medarex, Inc.* 2,238,892
92,097 Medicis Pharmaceutical Corp., Class A 3,028,149
69,022 Myogen, Inc.* 2,281,867
18,843 Per-Se Technologies, Inc.* 526,662
11,159 Schick Technologies, Inc.* 429,510
77,912 Sunrise Senior Living, Inc.* 2,898,326
28,221 TriZetto Group (The), Inc.* 443,634
11,796 USANA Health Sciences, Inc.* 431,616
19,002 Ventiv Health, Inc.* 570,820
24,465 ViroPharma, Inc.* 274,987
------------
19,014,356
------------
INDUSTRIALS--21.5%
49,609 Actuant Corp., Class A 3,172,496
10,336 Administaff, Inc. 596,904
151,753 AirTran Holdings, Inc.* 2,121,507
19,060 American Reprographics Co.* 676,058
46,815 Ceradyne, Inc.* 2,481,195
11,671 EMCOR Group, Inc.* 584,134
13,820 Forward Air Corp. 555,149
17,675 FTI Consulting, Inc.* 507,980
11,464 Hub Group, Inc.* 563,685
14,714 Kaydon Corp. 631,819
45,467 Kirby Corp.* 3,350,917
129,306 Knight Transportation, Inc. 2,525,346
20,144 Labor Ready, Inc.* 532,406
177,710 MPS Group, Inc.* 2,836,252
17,744 PRA International* 412,725
38,974 TeleTech Holdings, Inc.* 500,426
25,108 Vicor Corp. 517,978
80,753 WABTEC Corp. 2,949,907
------------
25,516,884
------------
INFORMATION TECHNOLOGY--31.2%
31,948 Advanced Energy Industries, Inc.* 501,264
10,250 ANSYS, Inc.* 578,613
98,656 aQuantive, Inc.* 2,472,319
27,563 Blackbaud, Inc. 579,099
17,495 Blackboard, Inc.* 513,828
17,288 Brightpoint, Inc.* 578,802
63,608 Cirrus Logic, Inc.* 601,096
16,246 Comtech Telecommunications Corp.* 462,199
59,630 Cymer, Inc.* 3,082,275
15,243 Digital Insight Corp.* 525,731
13,199 Diodes, Inc.* 537,727
18,908 FileNET Corp.* 526,021
176,562 Finisar Corp.* 829,841
84,091 Homestore, Inc.* 516,319
30,989 Informatica Corp.* 476,301
13,471 Intergraph Corp.* 592,993
11,729 iPayment, Inc.* 507,279
11,641 j2 Global Communications, Inc.* 571,457
123,965 Jack Henry & Associates, Inc. 2,783,014
17,360 Mantech International Corp.* 573,401
36,535 Micrel, Inc.* 469,109
9,856 Multi-Fineline Electronix, Inc.* 574,408
15,706 Net 1 UEPS Technologies, Inc.* 492,540
105,065 Netflix, Inc.* 3,114,126
14,863 Plexus Corp.* 647,432
19,556 PortalPlayer, Inc.* 216,094
19,973 Power Integrations, Inc.* 422,828
26,848 Semtech Corp.* 503,400
47,251 Silicon Image, Inc.* 481,960
71,499 SiRF Technology Holdings, Inc.* 2,441,691
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
118
<Page>
POWERSHARES DYNAMIC SMALL CAP GROWTH PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
15,505 SPSS, Inc.* $ 540,504
15,989 Transaction Systems Architects, Inc.* 638,601
96,610 Trident Microsystems, Inc.* 2,569,826
103,060 VeriFone Holdings, Inc.* 3,190,737
88,159 Websense, Inc.* 2,191,633
25,990 Zoran Corp.* 713,166
------------
37,017,634
------------
TELECOMMUNICATION SERVICES--2.9%
126,817 Syniverse Holdings, Inc.* 2,245,929
39,438 Time Warner Telecom, Inc., Class A* 661,375
51,149 UbiquiTel, Inc.* 529,904
------------
3,437,208
------------
UTILITIES--0.9%
130,221 Aquila, Inc.* 563,857
13,706 Ormat Technologies, Inc. 468,882
------------
1,032,739
------------
TOTAL COMMON STOCKS (Cost $112,427,474) 118,450,481
------------
MONEY MARKET FUND--0.0%
20,442 AIM Liquid Asset Portfolio Private Class
(Cost $20,442) 20,442
------------
TOTAL INVESTMENTS
(Cost $112,447,916)--100.0% 118,470,923
Liabilities in excess of other assets--(0.0%) (6,070)
------------
NET ASSETS--100.0% $118,464,853
============
</Table>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
119
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC SMALL CAP VALUE PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- -----------
COMMON STOCKS--99.8%
CONSUMER DISCRETIONARY--12.9%
14,139 Asbury Automotive Group, Inc.* $ 272,459
8,927 Brown Shoe Co., Inc. 339,494
59,498 Domino's Pizza, Inc. 1,566,581
7,371 Group 1 Automotive, Inc.* 402,309
5,754 IHOP Corp. 275,732
6,843 Jack in the Box, Inc.* 286,037
9,682 K-Swiss, Inc., Class A 277,680
6,186 Oxford Industries, Inc. 270,328
67,535 Payless ShoeSource, Inc.* 1,551,279
8,007 RC2 Corp.* 316,597
10,648 Sonic Automotive, Inc. 287,709
53,910 Stewart Enterprises, Inc., Class A 312,678
12,394 Tenneco, Inc.* 298,076
35,023 United Auto Group, Inc. 1,481,473
9,797 Valassis Communications, Inc.* 286,758
12,957 Wolverine World Wide, Inc. 321,852
-----------
8,547,042
-----------
CONSUMER STAPLES--5.8%
12,008 Elizabeth Arden, Inc.* 274,503
63,669 Pilgrim's Pride Corp. 1,663,671
1,051 Seaboard Corp. 1,620,642
6,600 Weis Markets, Inc. 273,966
-----------
3,832,782
-----------
ENERGY--0.9%
4,273 Giant Industries, Inc.* 307,143
7,183 Swift Energy Co.* 304,272
-----------
611,415
-----------
FINANCIALS--33.9%
17,056 21st Century Insurance Group 273,919
8,109 Advanta Corp., Class B 309,439
4,098 Alabama National BanCorp. 282,270
16,615 Alfa Corp. 279,797
9,342 Amcore Financial, Inc. 276,897
7,853 Argonaut Group, Inc.* 274,070
6,624 BancFirst Corp. 288,144
42,891 Cathay General Bancorp 1,641,010
9,722 Chittenden Corp. 267,938
7,571 City Holding Co. 273,919
17,068 CNA Surety Corp.* 307,053
28,249 Commerce Group, Inc. 1,638,724
12,869 Community Bank System, Inc. 264,201
29,212 Delphi Financial Group, Inc., Class A 1,530,417
24,117 Downey Financial Corp. 1,731,118
8,349 FBL Financial Group, Inc., Class A 280,944
7,664 First Financial Bankshares, Inc. 284,871
6,302 Hancock Holding Co. 313,525
15,777 Hanmi Financial Corp. 307,336
10,186 Harleysville Group, Inc. 305,580
14,778 Horace Mann Educators Corp. 257,285
10,279 Independent Bank Corp. 280,617
7,213 Infinity Property & Casualty Corp. 323,431
4,602 LandAmerica Financial Group, Inc. 319,287
6,077 Navigators Group, Inc.* 287,503
19,312 Phoenix (The) Cos., Inc. 293,349
5,706 Piper Jaffray Cos., Inc.* 398,849
30,911 ProAssurance Corp.* 1,557,296
15,037 Provident Financial Services, Inc. 274,425
5,319 RLI Corp. 263,822
6,803 Safety Insurance Group, Inc. 314,911
27,840 Selective Insurance Group, Inc. 1,549,574
45,416 State Auto Financial Corp. 1,597,281
9,869 Sterling Financial Corp. 317,288
10,521 Umpqua Holdings Corp. 277,754
40,881 United Bankshares, Inc. 1,491,339
66,454 Waddell & Reed Financial, Inc. 1,562,998
-----------
22,498,181
-----------
HEALTH CARE--0.5%
7,369 Magellan Health Services, Inc.* 299,550
-----------
INDUSTRIALS--17.6%
38,493 Acuity Brands, Inc. 1,588,991
6,574 Arkansas Best Corp. 282,156
5,714 Banta Corp. 289,014
5,476 Cascade Corp. 227,254
45,176 CLARCOR, Inc. 1,581,160
8,153 Heidrick & Struggles International, Inc.* 294,812
118,082 IKON Office Solutions, Inc. 1,558,682
8,756 Mueller Industries, Inc. 331,677
32,836 Nordson Corp. 1,755,085
8,973 Pacer International, Inc. 307,684
33,627 Toro (The) Co. 1,662,856
4,621 Universal Forest Products, Inc. 345,512
26,041 Washington Group International, Inc.* 1,448,140
-----------
11,673,023
-----------
INFORMATION TECHNOLOGY--15.2%
31,293 Amkor Technology, Inc.* 378,332
108,103 BISYS Group (The), Inc.* 1,723,162
18,697 Covansys Corp.* 325,328
12,776 CSG Systems International, Inc.* 322,977
142,664 EarthLink, Inc.* 1,296,816
34,628 Imation Corp. 1,454,376
24,518 infoUSA, Inc.* 273,866
7,277 MTS Systems Corp. 325,646
9,719 Park Electrochemical Corp. 300,997
101,459 Perot Systems Corp., Class A* 1,530,002
53,098 Reynolds & Reynolds (The) Co., Class A 1,579,135
5,380 Rofin-Sinar Technologies, Inc.* 301,872
22,998 United Online, Inc. 296,444
-----------
10,108,953
-----------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
120
<Page>
POWERSHARES DYNAMIC SMALL CAP VALUE PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- -----------
MATERIALS--11.3%
11,947 A. Schulman, Inc. $ 286,011
26,173 Greif, Inc., Class A 1,695,486
6,982 H.B. Fuller Co. 365,159
72,512 Olin Corp. 1,490,122
32,113 PolyOne Corp.* 285,163
37,247 Quanex Corp. 1,592,682
7,049 Silgan Holdings, Inc. 273,713
76,562 Worthington Industries 1,512,100
-----------
7,500,436
-----------
TELECOMMUNICATION SERVICES--0.4%
8,180 Commonwealth Telephone Enterprises, Inc. 271,412
-----------
UTILITIES--1.3%
12,822 Cleco Corp. 288,495
8,672 NorthWestern Corp. 304,647
9,450 Otter Tail Corp. 282,083
-----------
875,225
-----------
TOTAL COMMON STOCKS
(Cost $62,203,638) 66,218,019
-----------
MONEY MARKET FUND--0.2%
145,937 AIM Liquid Asset Portfolio Private Class
(Cost $145,937) 145,937
-----------
TOTAL INVESTMENTS
(Cost $62,349,575)--100.0% 66,363,956
Liabilities in excess of other assets--(0.0%) (24,560)
-----------
NET ASSETS--100.0% $66,339,396
===========
</Table>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
121
<Page>
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 2006
<Table>
<Caption>
POWERSHARES POWERSHARES POWERSHARES POWERSHARES
DYNAMIC DYNAMIC DYNAMIC DYNAMIC
LARGE CAP LARGE CAP MID CAP MID CAP
GROWTH VALUE GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ------------ -----------
ASSETS:
Investments at value $148,668,129 $90,439,050 $103,329,625 $56,801,726
Cash 152,780 27,341 -- 8,914
Receivables:
Investments sold -- -- 169,925 --
Capital stock sold -- -- 1,881,450 --
Dividends 41,092 142,824 33,876 59,865
Due from Advisor 30,820 26,503 26,195 23,550
------------ ----------- ------------ -----------
TOTAL ASSETS 148,892,821 90,635,718 105,441,071 56,894,055
------------ ----------- ------------ -----------
LIABILITIES:
Due to custodian -- -- 139,146 --
Payables:
Investments purchased -- -- 1,868,115 --
Capital stock purchased -- -- -- --
Accrued advisory fees 61,297 36,673 41,547 22,691
Accrued expenses 81,863 67,071 67,615 56,289
------------ ----------- ------------ -----------
TOTAL LIABILITIES 143,160 103,744 2,116,423 78,980
------------ ----------- ------------ -----------
NET ASSETS $148,749,661 $90,531,974 $103,324,648 $56,815,075
============ =========== ============ ===========
NET ASSETS CONSIST OF:
Paid-in capital $147,323,695 $85,996,707 $ 99,329,910 $55,219,915
Undistributed net investment income (loss)/distributions
in excess of net investment income -- 117,050 711,633 44,433
Accumulated net realized loss on investments (2,679,477) (253,575) (1,010,478) (715,451)
Net unrealized appreciation on investments 4,105,443 4,671,792 4,293,583 2,266,178
------------ ----------- ------------ -----------
NET ASSETS $148,749,661 $90,531,974 $103,324,648 $56,815,075
============ =========== ============ ===========
Shares outstanding (unlimited amount authorized,
$0.01 par value) 9,100,000 5,200,000 5,500,000 3,300,000
Net asset value $ 16.35 $ 17.41 $ 18.79 $ 17.22
============ =========== ============ ===========
Investments at cost 144,562,686 85,767,258 99,036,042 54,535,548
============ =========== ============ ===========
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
122
<Page>
<Table>
<Caption>
POWERSHARES POWERSHARES
DYNAMIC DYNAMIC
SMALL CAP SMALL CAP
GROWTH VALUE
PORTFOLIO PORTFOLIO
------------- ------------
ASSETS:
Investments at value $118,470,923 $66,363,956
Cash 16,487 2,077
Receivables:
Investments sold 65,441 --
Capital stock sold -- --
Dividends 1,335 31,522
Due from Advisor 26,546 27,446
------------ -----------
TOTAL ASSETS 118,580,732 66,425,001
------------ -----------
LIABILITIES:
Due to custodian -- --
Payables:
Investments purchased -- --
Capital stock purchased -- --
Accrued advisory fees 48,550 25,554
Accrued expenses 67,329 60,051
------------ -----------
TOTAL LIABILITIES 115,879 85,605
------------ -----------
NET ASSETS $118,464,853 $66,339,396
============ ===========
NET ASSETS CONSIST OF:
Paid-in capital $115,115,748 $64,121,047
Undistributed net investment income (loss)/distributions
in excess of net investment income -- 45,098
Accumulated net realized loss on investments (2,673,902) (1,841,130)
Net unrealized appreciation on investments 6,023,007 4,014,381
------------ -----------
NET ASSETS $118,464,853 $66,339,396
============ ===========
Shares outstanding (unlimited amount authorized,
$0.01 par value) 6,400,000 3,900,000
Net asset value $ 18.51 $ 17.01
============ ===========
Investments at cost 112,447,916 62,349,575
============ ===========
</Table>
123
<Page>
STATEMENTS OF OPERATIONS
YEAR ENDED APRIL 30, 2006
<Table>
<Caption>
POWERSHARES POWERSHARES POWERSHARES POWERSHARES
DYNAMIC DYNAMIC DYNAMIC DYNAMIC
LARGE CAP LARGE CAP MID CAP MID CAP
GROWTH VALUE GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------ ------------- -----------
INVESTMENT INCOME:
Dividends $ 410,705 $ 969,718 $ 1,008,769 $ 525,363
Foreign withholding taxes -- -- (23) --
----------- ---------- ----------- ----------
TOTAL INCOME 410,705 969,718 1,008,746 525,363
----------- ---------- ----------- ----------
EXPENSES:
Advisory fees 338,596 201,490 228,568 131,577
Administration fees 41,779 40,869 40,589 40,452
Accounting 37,670 37,066 36,878 36,788
Printing 24,482 17,482 15,782 12,682
Licensing 20,316 12,090 13,714 7,895
Audit 18,569 18,569 18,569 18,569
Registration & filings 14,324 9,877 9,016 4,854
Listing fee and expenses 14,237 14,060 14,123 13,982
Offering costs 8,578 8,886 8,567 8,909
Custodian and transfer agent fees 7,565 4,621 8,907 7,846
Legal 3,471 2,271 2,171 1,471
Trustees 2,099 1,241 1,405 792
Other expenses 11,318 10,554 11,379 11,495
----------- ---------- ----------- ----------
TOTAL EXPENSES 543,004 379,076 409,668 297,312
Less fees waived:
Advisory (107,262) (115,781) (112,555) (122,082)
----------- ---------- ----------- ----------
NET EXPENSES 435,742 263,295 297,113 175,230
----------- ---------- ----------- ----------
NET INVESTMENT INCOME (LOSS) (25,037) 706,423 711,633 350,133
----------- ---------- ----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Investments (2,725,539) (253,575) (1,026,526) (715,542)
In-kind redemptions 4,237,947 2,071,099 5,879,112 2,010,129
----------- ---------- ----------- ----------
Net realized gain 1,512,408 1,817,524 4,852,586 1,294,587
Net change in unrealized appreciation/depreciation
on investments 4,485,766 4,964,860 4,866,054 2,697,692
----------- ---------- ----------- ----------
Net realized and unrealized gain on investments 5,998,174 6,782,384 9,718,640 3,992,279
----------- ---------- ----------- ----------
Net increase in net assets resulting from operations $ 5,973,137 $7,488,807 $10,430,273 $4,342,412
=========== ========== =========== ==========
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
124
<Page>
<Table>
<Caption>
POWERSHARES POWERSHARES
DYNAMIC DYNAMIC
SMALL CAP SMALL CAP
GROWTH VALUE
PORTFOLIO PORTFOLIO
------------- -------------
INVESTMENT INCOME:
Dividends $ 597,717 $ 438,861
Foreign withholding taxes -- (1,058)
----------- -----------
TOTAL INCOME 597,717 437,803
----------- -----------
EXPENSES:
Advisory fees 230,144 158,136
Administration fees 40,437 40,609
Accounting 36,777 36,891
Printing 13,482 16,482
Licensing 13,809 9,488
Audit 18,569 18,569
Registration & filings 12,260 6,041
Listing fee and expenses 14,156 13,948
Offering costs 8,870 8,840
Custodian and transfer agent fees 11,033 10,246
Legal 1,571 1,971
Trustees 1,576 808
Other expenses 11,817 11,539
----------- -----------
TOTAL EXPENSES 414,501 333,568
Less fees waived:
Advisory (115,109) (124,935)
----------- -----------
NET EXPENSES 299,392 208,633
----------- -----------
NET INVESTMENT INCOME (LOSS) 298,325 229,170
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Investments (3,129,904) (1,849,161)
In-kind redemptions 7,463,858 2,772,862
----------- -----------
Net realized gain 4,333,954 923,701
Net change in unrealized appreciation/depreciation
on investments 6,844,625 4,894,679
----------- -----------
Net realized and unrealized gain on investments 11,178,579 5,818,380
----------- -----------
Net increase in net assets resulting from operations $11,476,904 $ 6,047,550
=========== ===========
</Table>
125
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
POWERSHARES POWERSHARES
DYNAMIC LARGE CAP DYNAMIC LARGE CAP
GROWTH VALUE
PORTFOLIO PORTFOLIO
------------------------------- -------------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE YEAR MARCH 3, 2005* FOR THE YEAR MARCH 3, 2005*
ENDED THROUGH ENDED THROUGH
APRIL 30, 2006 APRIL 30, 2005 APRIL 30, 2006 APRIL 30, 2005
-------------- -------------- -------------- ---------------
OPERATIONS:
Net investment income (loss) $ (25,037) $ 1,784 $ 706,423 $ 33,128
Net realized gain (loss) on investments 1,512,408 8,604 1,817,524 --
Net change in unrealized appreciation/depreciation
on investments 4,485,766 (380,323) 4,964,860 (293,068)
------------- ---------- ------------ -----------
Net increase (decrease) in net assets resulting
from operations 5,973,137 (369,935) 7,488,807 (259,940)
------------- ---------- ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (12,532) -- (613,947) (8,554)
------------- ---------- ------------ -----------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold 170,931,671 8,836,990 98,229,981 10,434,433
Value of shares repurchased (36,609,670) -- (24,738,806) --
------------- ---------- ------------ -----------
Net increase in net assets resulting from share
transactions 134,322,001 8,836,990 73,491,175 10,434,433
------------- ---------- ------------ -----------
INCREASE IN NET ASSETS 140,282,606 8,467,055 80,366,035 10,165,939
NET ASSETS:
Beginning of period 8,467,055 -- 10,165,939 --
------------- ---------- ------------ -----------
End of period $ 148,749,661 $,467,055 $ 90,531,974 $10,165,939
============= ========== ============ ===========
Undistributed net investment income (loss)/(distributions
in excess of net investment income) at end of period $ -- $ 1,784 $ 117,050 $ 24,574
============= ========== ============ ===========
CHANGES IN SHARES OUTSTANDING:
Shares sold 10,800,000 600,000 6,000,000 700,000
Shares repurchased (2,300,000) -- (1,500,000) --
Shares outstanding, beginning of period 600,000 -- 700,000 --
------------- ---------- ------------ -----------
Shares outstanding, end of period 9,100,000 600,000 5,200,000 700,000
============= ========== ============ ===========
</Table>
* Commencement of Investment Operations.
SEE NOTES TO FINANCIAL STATEMENTS.
126
<Page>
<Table>
<Caption>
POWERSHARES POWERSHARES
DYNAMIC MID CAP DYNAMIC MID CAP
GROWTH VALUE
PORTFOLIO PORTFOLIO
-------------------------------- -------------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE YEAR MARCH 3, 2005* FOR THE YEAR MARCH 3, 2005*
ENDED THROUGH ENDED THROUGH
APRIL 30, 2006 APRIL 30, 2005 APRIL 30, 2006 APRIL 30, 2005
-------------- --------------- -------------- ---------------
OPERATIONS:
Net investment income (loss) $ 711,633 $ (2,756) $ 350,133 $ 107,020
Net realized gain (loss) on investments 4,852,586 48 1,294,587 (959)
Net change in unrealized appreciation/depreciation
on investments 4,866,054 (572,471) 2,697,692 (431,514)
------------ ---------- ------------ -----------
Net increase (decrease) in net assets resulting
from operations 10,430,273 (575,179) 4,342,412 (325,453)
------------ ---------- ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- -- (398,693) (14,070)
------------ ---------- ------------ -----------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold 147,620,675 8,924,219 60,676,498 10,465,342
Value of shares repurchased (63,075,340) -- (17,930,961) --
------------ ---------- ------------ -----------
Net increase in net assets resulting from share
transactions 84,545,335 8,924,219 42,745,537 10,465,342
------------ ---------- ------------ -----------
INCREASE IN NET ASSETS 94,975,608 8,349,040 46,689,256 10,125,819
NET ASSETS:
Beginning of period 8,349,040 -- 10,125,819 --
------------ ---------- ------------ -----------
End of period $103,324,648 $8,349,040 $ 56,815,075 $10,125,819
============ ========== ============ ===========
Undistributed net investment income (loss)/(distributions
in excess of net investment income) at end of period $ 711,633 $ -- $ 44,433 $ 92,950
============ ========== ============ ===========
CHANGES IN SHARES OUTSTANDING:
Shares sold 8,500,000 600,000 3,700,000 700,000
Shares repurchased (3,600,000) -- (1,100,000) --
Shares outstanding, beginning of period 600,000 -- 700,000 --
------------ ---------- ------------ -----------
Shares outstanding, end of period 5,500,000 600,000 3,300,000 700,000
============ ========== ============ ===========
<Caption>
POWERSHARES POWERSHARES
DYNAMIC SMALL CAP DYNAMIC SMALL CAP
GROWTH VALUE
PORTFOLIO PORTFOLIO
------------------------------ ------------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE YEAR MARCH 3, 2005* FOR THE YEAR MARCH 3, 2005*
ENDED THROUGH ENDED THROUGH
APRIL 30, 2006 APRIL 30, 2005 APRIL 30, 2006 APRIL 30, 2005
-------------- -------------- -------------- --------------
OPERATIONS:
Net investment income (loss) $ 298,325 $ (7,226) $ 229,170 $ 6,769
Net realized gain (loss) on investments 4,333,954 (1) 923,701 105
Net change in unrealized appreciation/depreciation
on investments 6,844,625 (821,618) 4,894,679 (880,298)
------------ ----------- ------------ -----------
Net increase (decrease) in net assets resulting
from operations 11,476,904 (828,845) 6,047,550 (873,424)
------------ ----------- ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- -- (190,946) --
------------ ----------- ------------ -----------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold 161,744,388 10,556,073 74,827,926 10,524,352
Value of shares repurchased (64,483,667) -- (23,996,062) --
------------ ----------- ------------ -----------
Net increase in net assets resulting from share
transactions 97,260,721 10,556,073 50,831,864 10,524,352
------------ ----------- ------------ -----------
INCREASE IN NET ASSETS 108,737,625 9,727,228 56,688,468 9,650,928
NET ASSETS:
Beginning of period 9,727,228 -- 9,650,928 --
------------ ----------- ------------ -----------
End of period $118,464,853 $ 9,727,228 $ 66,339,396 $ 9,650,928
============ =========== ============ ===========
Undistributed net investment income (loss)/(distributions
in excess of net investment income) at end of period $ -- $ -- $ 45,098 $ 6,769
============ =========== ============ ===========
CHANGES IN SHARES OUTSTANDING:
Shares sold 9,400,000 700,000 4,700,000 700,000
Shares repurchased (3,700,000) -- (1,500,000) --
Shares outstanding, beginning of period 700,000 -- 700,000 --
------------ ----------- ------------ -----------
Shares outstanding, end of period 6,400,000 700,000 3,900,000 700,000
============ =========== ============ ===========
</Table>
* Commencement of Investment Operations.
127
<Page>
FINANCIAL HIGHLIGHTS
POWERSHARES DYNAMIC LARGE CAP GROWTH PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
FOR THE YEAR MARCH 3, 2005*
ENDED THROUGH
APRIL 30, 2006 APRIL 30, 2005
-------------- --------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 14.11 $14.83
-------- ------
Net investment income (loss)** (0.01) --(a)
Net realized and unrealized gain (loss) on investments 2.25 (0.72)
-------- ------
Total from operations 2.24 (0.72)
-------- ------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income --(a) --
Net asset value at end of period $ 16.35 $14.11
-------- ------
TOTAL RETURN:*** 15.89% (4.87)%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $148,750 $8,467
Ratio to average net assets of:
Expenses, net of waivers 0.64% 0.63%+
Expenses, prior to waivers 0.80% 2.45%+
Net investment income (loss), net of waivers (0.04)% 0.13%+
Portfolio turnover rate ++ 73% 2%
</Table>
POWERSHARES DYNAMIC LARGE CAP VALUE PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
FOR THE YEAR MARCH 3, 2005*
ENDED THROUGH
APRIL 30, 2006 APRIL 30, 2005
-------------- --------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 14.52 $ 15.00
------- -------
Net investment income** 0.28 0.05
Net realized and unrealized gain (loss) on investments 2.85 (0.52)
------- -------
Total from operations 3.13 (0.47)
------- -------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.24) (0.01)
------- -------
Net asset value at end of period $ 17.41 $ 14.52
------- -------
TOTAL RETURN:*** 21.71% (3.11)%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $90,532 $10,166
Ratio to average net assets of:
Expenses, net of waivers 0.65% 0.63%+
Expenses, prior to waivers 0.94% 2.16%+
Net investment income, net of waivers 1.75% 1.99%+
Portfolio turnover rate ++ 29% 0%
</Table>
* Commencement of Investment Operations.
** Based on average shares outstanding.
*** Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption on
the last day of the period. Total return calculated for a period of less
than one year is not annualized.
+ Annualized.
++ Portfolio turnover rate is not annualized and does not include securities
received or delivered from processing creations or redemptions.
(a) Amount represents less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS.
128
<Page>
POWERSHARES DYNAMIC MID CAP GROWTH PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
FOR THE YEAR MARCH 3, 2005*
ENDED THROUGH
APRIL 30, 2006 APRIL 30, 2005
-------------- --------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 13.92 $ 15.01
--------- -------
Net investment income (loss)** 0.28 (0.01)
Net realized and unrealized gain (loss) on investments 4.59 (1.08)
--------- -------
Total from operations 4.87 (1.09)
--------- -------
Net asset value at end of period $ 18.79 $ 13.92
--------- -------
TOTAL RETURN:*** 34.99% (7.30)%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $ 103,325 $ 8,349
Ratio to average net assets of:
Expenses, net of waivers 0.65% 0.63%+
Expenses, prior to waivers 0.90% 2.45%+
Net investment income (loss), net of waivers 1.56% (0.20)%+
Portfolio turnover rate ++ 86% 1%
</Table>
POWERSHARES DYNAMIC MID CAP VALUE PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
FOR THE YEAR MARCH 3, 2005*
ENDED THROUGH
APRIL 30, 2006 APRIL 30, 2005
-------------- --------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 14.47 $ 15.10
------- -------
Net investment income** 0.22 0.15
Net realized and unrealized gain (loss) on investments 2.78 (0.76)
------- -------
Total from operations 3.00 (0.61)
------- -------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.25) (0.02)
------- -------
Net asset value at end of period $ 17.22 $ 14.47
------- -------
TOTAL RETURN:*** 20.85% (4.07)%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $56,815 $10,126
Ratio to average net assets of:
Expenses, net of waivers 0.67% 0.63%+
Expenses, prior to waivers 1.13% 2.14%+
Net investment income, net of waivers 1.33% 6.34%+
Portfolio turnover rate ++ 117% 1%
</Table>
* Commencement of Investment Operations.
** Based on average shares outstanding.
*** Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption on
the last day of the period. Total return calculated for a period of less
than one year is not annualized.
+ Annualized.
++ Portfolio turnover rate is not annualized and does not include securities
received or delivered from processing creations or redemptions.
SEE NOTES TO FINANCIAL STATEMENTS.
129
<Page>
POWERSHARES DYNAMIC SMALL CAP GROWTH PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
FOR THE YEAR MARCH 3, 2005*
ENDED THROUGH
APRIL 30, 2006 APRIL 30, 2005
-------------- --------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 13.90 $ 15.11
--------- -------
Net investment income (loss)** 0.11 (0.01)
Net realized and unrealized gain (loss) on investments 4.50 (1.20)
--------- -------
Total from operations 4.61 (1.21)
--------- -------
Net asset value at end of period $ 18.51 $ 13.90
--------- -------
TOTAL RETURN:*** 33.17% (8.02)%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $ 118,465 $ 9,727
Ratio to average net assets of:
Expenses, net of waivers 0.65% 0.63%+
Expenses, prior to waivers 0.90% 2.34%+
Net investment income (loss), net of waivers 0.65% (0.48)%+
Portfolio turnover rate ++ 120% 0%
</Table>
POWERSHARES DYNAMIC SMALL CAP VALUE PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
FOR THE YEAR MARCH 3, 2005*
ENDED THROUGH
APRIL 30, 2006 APRIL 30, 2005
-------------- --------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 13.79 $15.06
------- ------
Net investment income** 0.11 0.01
Net realized and unrealized gain (loss) on investments 3.22 (1.28)
------- ------
Total from operations 3.33 (1.27)
------- ------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.11) --
------- ------
Net asset value at end of period $ 17.01 $13.79
------- ------
TOTAL RETURN:*** 24.20% (8.46)%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $66,339 $9,651
Ratio to average net assets of:
Expenses, net of waivers 0.66% 0.63%+
Expenses, prior to waivers 1.06% 2.36%+
Net investment income, net of waivers 0.73% 0.45%+
Portfolio turnover rate ++ 118% 0%
</Table>
* Commencement of Investment Operations.
** Based on average shares outstanding.
*** Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption on
the last day of the period. Total return calculated for a period of less
than one year is not annualized.
+ Annualized.
++ Portfolio turnover rate is not annualized and does not include securities
received or delivered from processing creations or redemptions.
SEE NOTES TO FINANCIAL STATEMENTS.
130
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DIVIDEND ACHIEVERS(TM) PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- ------------- ----------
COMMON STOCKS--99.7%
CONSUMER DISCRETIONARY--6.5%
341 Applebee's International, Inc. $ 7,915
87 Bandag, Inc. 3,490
241 Cedar Fair, L.P. 6,784
54 Courier Corp. 2,330
697 Family Dollar Stores, Inc. 17,425
776 Genuine Parts Co. 33,872
1,229 Harley-Davidson, Inc. 62,482
367 Harte-Hanks, Inc. 10,019
100 Haverty Furniture Cos., Inc. 1,510
9,505 Home Depot (The), Inc. 379,534
261 John Wiley & Sons, Inc., Class A 9,563
862 Johnson Controls, Inc. 70,296
233 La-Z-Boy, Inc. 3,570
824 Leggett & Platt, Inc. 21,861
3,500 Lowe's Cos., Inc. 220,674
142 Matthews International Corp., Class A 4,942
5,634 McDonald's Corp. 194,767
1,677 McGraw-Hill (The) Cos., Inc. 93,342
108 Media General, Inc., Class A 4,437
220 Meredith Corp. 10,912
652 New York Times (The) Co., Class A 16,163
389 Pier 1 Imports, Inc. 4,695
188 Polaris Industries, Inc. 9,005
648 Ross Stores, Inc. 19,855
1,302 ServiceMaster (The) Co. 15,676
612 Sherwin-Williams (The), Co. 31,175
375 Stanley Works (The) 19,594
119 Superior Industries International, Inc. 2,240
238 Talbots (The), Inc. 5,645
3,935 Target Corp. 208,949
498 VF Corp. 30,473
263 Wolverine World Wide, Inc. 6,533
----------
1,529,728
----------
CONSUMER STAPLES--19.5%
414 Alberto-Culver Co. 18,618
9,319 Altria Group, Inc. 681,778
3,473 Anheuser-Busch Cos., Inc. 154,826
2,923 Archer-Daniels-Midland Co. 106,222
2,051 Avon Products, Inc. 66,883
548 Brown-Forman Corp., Class B 40,826
674 Clorox Co. 43,257
10,646 Coca-Cola (The) Co. 446,706
2,317 Colgate-Palmolive Co. 136,981
2,323 ConAgra Foods, Inc. 52,686
1,081 Hershey (The) Co. 57,661
618 Hormel Foods Corp. 20,740
2,092 Kimberly-Clark Corp. 122,445
153 Lancaster Colony Corp. 6,281
593 McCormick & Co., Inc. 20,654
7,425 PepsiCo, Inc. 432,432
15,373 Procter & Gamble (The) Co. 894,862
3,398 Sara Lee Corp. 60,722
610 SUPERVALU, Inc. 17,696
2,776 Sysco Corp. 82,975
248 Tootsie Roll Industries, Inc. 7,254
114 Universal Corp. 4,340
4,529 Walgreen Co. 189,901
18,632 Wal-Mart Stores, Inc. 838,999
1,004 Wm. Wrigley Jr. Co. 47,258
251 Wm. Wrigley Jr. Co., Class B 11,822
----------
4,564,825
----------
ENERGY--7.8%
171 Buckeye Partners LP 7,399
10,046 Chevron Corp. 613,007
18,714 Exxon Mobil Corp. 1,180,478
232 Helmerich & Payne, Inc. 16,876
133 Holly Corp. 10,264
313 TEPPCO Partners, L.P. 11,913
----------
1,839,937
----------
FINANCIALS--30.0%
93 1st Source Corp. 2,574
2,240 Aflac, Inc. 106,490
359 Alfa Corp. 6,046
2,904 Allstate (The) Corp. 164,047
471 AMBAC Financial Group, Inc. 38,792
11,616 American International Group, Inc. 757,943
1,557 AmSouth Bancorp. 45,060
97 Anchor BanCorp Wisconsin, Inc. 2,830
428 Arthur J. Gallagher & Co. 11,744
609 Associated Banc-Corp. 20,596
471 Astoria Financial Corp. 14,752
69 BancFirst Corp. 3,002
352 BancorpSouth, Inc. 9,022
20,787 Bank of America Corp. 1,037,686
231 Bank of Hawaii Corp. 12,546
2,433 BB&T Corp. 104,473
624 Brown & Brown, Inc. 19,488
82 Capital City Bank Group, Inc. 2,605
286 CBL & Associates Properties, Inc. 11,437
114 Chemical Financial Corp. 3,319
210 Chittenden Corp. 5,788
1,788 Chubb (The) Corp. 92,154
783 Cincinnati Financial Corp. 33,387
22,286 Citigroup, Inc. 1,113,185
220 City National Corp. 16,051
691 Colonial BancGroup (The), Inc. 17,918
202 Colonial Properties Trust 9,946
728 Comerica, Inc. 41,401
802 Commerce Bancorp, Inc. 32,353
304 Commerce Bancshares, Inc. 15,884
151 Commerce Group, Inc. 8,760
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
131
<Page>
POWERSHARES DIVIDEND ACHIEVERS(TM) PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- ------------- ----------
244 Commercial Net Lease Realty $ 5,136
134 Community Bank System, Inc. 2,751
107 Community Banks, Inc. 2,819
69 Community Trust Bancorp, Inc. 2,312
559 Compass Bancshares, Inc. 30,723
126 Corus Bankshares, Inc. 8,434
245 Cullen/Frost Bankers, Inc. 14,181
341 CVB Financial Corp. 5,565
484 Doral Financial Corp. 3,828
616 Duke Realty Corp. 21,806
97 EastGroup Properties, Inc. 4,333
580 Eaton Vance Corp. 16,513
309 Erie Indemnity Co., Class A 15,737
102 Essex Property Trust, Inc. 11,128
258 F.N.B. Corp. 4,329
236 Federal Realty Investment Trust 16,102
776 Fidelity National Financial, Inc. 32,576
2,486 Fifth Third Bancorp 100,484
363 First BanCorp. 3,848
98 First Busey Corp. 2,004
138 First Charter Corp. 3,280
315 First Commonwealth Financial Corp. 4,215
53 First Financial Holdings, Inc. 1,689
77 First Indiana Corp. 1,968
202 First Midwest Bancorp, Inc. 7,278
79 First State Bancorp. 2,036
368 FirstMerit Corp. 9,049
454 Forest City Enterprises, Inc., Class A 20,494
1,155 Franklin Resources, Inc. 107,554
3,091 Freddie Mac 188,736
702 Fulton Financial Corp. 11,548
1,069 General Growth Properties, Inc. 50,190
143 Glacier Bancorp, Inc. 4,341
1,378 Golden West Financial Corp. 99,037
226 Greater Bay Bancorp 6,242
137 Harleysville Group, Inc. 4,110
123 Harleysville National Corp. 2,440
608 Health Care Property Investors, Inc. 16,671
215 Healthcare Realty Trust, Inc. 8,142
160 Hilb, Rogal & Hobbs Co. 6,541
144 Home Properties, Inc. 7,203
42 IBERIABANK Corp. 2,460
97 Independent Bank Corp. 2,648
127 Irwin Financial Corp. 2,332
1,821 KeyCorp 69,599
1,017 Kimco Realty Corp. 37,761
546 Legg Mason, Inc. 64,690
232 Lexington Corporate Properties Trust 5,002
397 Liberty Property Trust 17,746
774 Lincoln National Corp. 44,954
503 M&T Bank Corp. 60,058
313 Macerich (The) Co. 22,918
142 MAF Bancorp, Inc. 6,302
1,052 Marshall & Ilsley Corp. 48,097
600 MBIA, Inc. 35,778
366 Mercantile Bankshares Corp. 13,754
246 Mercury General Corp. 13,129
84 Midland (The) Co. 2,995
2,754 National City Corp. 101,623
208 National Penn Bancshares, Inc. 4,106
2,091 North Fork Bancorp, Inc. 63,002
976 Northern Trust Corp. 57,477
346 Nuveen Investments, Inc. 16,650
304 Old National Bancorp 6,275
1,028 Old Republic International Corp. 22,873
61 Old Second Bancorp, Inc. 1,879
206 Pacific Capital Bancorp 6,909
64 Park National Corp. 6,419
636 People's Bank 20,829
1,238 Popular, Inc. 25,602
882 Progressive (The) Corp. 95,723
1,089 ProLogis 54,690
312 Protective Life Corp. 15,725
375 Realty Income Corp. 8,501
305 Regency Centers Corp. 19,242
337 Republic Bancorp, Inc. 3,865
113 RLI Corp. 5,605
117 S&T Bancorp, Inc. 4,155
68 Sandy Spring Bancorp, Inc. 2,413
444 SEI Investments Co. 19,065
210 Shurgard Storage Centers, Inc., Class A 13,226
486 Sky Financial Group, Inc. 12,563
1,850 SLM Corp. 97,828
336 South Financial Group (The), Inc. 9,116
63 Southwest Bancorp, Inc. 1,416
77 Sovran Self Storage, Inc. 3,785
181 State Auto Financial Corp. 6,366
1,492 State Street Corp. 97,457
85 Sterling Bancorp 1,777
202 Sterling Bancshares, Inc. 3,345
128 Sterling Financial Corp. 2,669
47 Suffolk Bancorp 1,436
83 Sun Communities, Inc. 2,702
1,620 SunTrust Banks, Inc. 125,275
210 Susquehanna Bancshares, Inc. 5,013
1,400 Synovus Financial Corp. 39,200
590 T. Rowe Price Group, Inc. 49,672
138 Tanger Factory Outlet Centers 4,524
599 TCF Financial Corp. 16,089
1,056 TD Banknorth, Inc. 31,353
244 Texas Regional Bancshares, Inc., Class A 6,995
294 Transatlantic Holdings, Inc. 16,890
249 Trustmark Corp. 7,821
187 United Bankshares, Inc. 6,822
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
132
<Page>
POWERSHARES DIVIDEND ACHIEVERS(TM) PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- ------------- ----------
615 United Dominion Realty Trust, Inc. $ 16,722
51 Universal Health Realty Income Trust 1,640
499 Valley National Bancorp 12,994
389 Washington Federal, Inc. 9,305
4,449 Washington Mutual, Inc. 200,472
187 Washington Real Estate Investment Trust 6,969
241 Webster Financial Corp. 11,315
398 Weingarten Realty Investors 15,685
7,509 Wells Fargo & Co. 515,792
97 WesBanco, Inc. 3,010
32 Wesco Financial Corp. 12,528
141 Westamerica Bancorp 7,211
284 Whitney Holding Corp. 10,099
304 Wilmington Trust Corp. 13,467
----------
7,042,052
----------
HEALTH CARE--13.1%
6,941 Abbott Laboratories 296,658
201 Arrow International, Inc. 6,277
277 Beckman Coulter, Inc. 14,227
1,108 Becton Dickinson & Co. 69,848
470 C.R. Bard, Inc. 34,996
353 DENTSPLY International, Inc. 21,064
12,587 Eli Lilly & Co. 666,104
276 Hillenbrand Industries, Inc. 14,175
13,314 Johnson & Johnson 780,334
9,786 Merck & Co., Inc. 336,834
116 Meridian Bioscience, Inc. 3,011
32,987 Pfizer, Inc. 835,561
143 West Pharmaceutical Services, Inc. 5,094
----------
3,084,183
----------
INDUSTRIALS--12.9%
3,400 3M Co. 290,461
135 A.O. Smith Corp. 6,402
217 ABM Industries, Inc. 3,732
494 Avery Dennison Corp. 30,875
31 Badger Meter, Inc. 1,912
108 Banta Corp. 5,463
219 Brady Corp., Class A 7,877
233 Briggs & Stratton Corp. 7,861
138 Carlisle Cos, Inc. 11,661
3,044 Caterpillar, Inc. 230,553
752 Cintas Corp. 31,569
234 CLARCOR, Inc. 8,190
1,378 Danaher Corp. 88,344
367 Donaldson Co., Inc. 12,199
908 Dover Corp. 45,173
1,839 Emerson Electric Co. 156,223
477 Expeditors International Washington, Inc. 40,836
99 Franklin Electric, Co., Inc. 5,775
1,802 General Dynamics Corp. 118,247
34,808 General Electric Co. 1,204,008
188 Harsco Corp. 15,670
247 HNI Corp. 13,061
1,281 Illinois Tool Works, Inc. 131,559
91 LSI Industries, Inc. 1,521
1,898 Masco Corp. 60,546
112 McGrath RentCorp 3,012
164 Mine Safety Appliances Co. 6,855
38 NACCO Industries, Inc., Class A 6,122
147 Nordson Corp. 7,857
535 Parker Hannifin Corp. 43,362
454 Pentair, Inc. 17,379
1,021 Pitney Bowes, Inc. 42,729
38 Quixote Corp. 784
82 Raven Industries, Inc. 3,323
383 Roper Industries, Inc. 18,177
182 Teleflex, Inc. 11,874
39 Tennant Co. 1,984
4,558 United Technologies Corp. 286,288
84 Universal Forest Products, Inc. 6,281
399 W.W. Grainger, Inc. 30,691
----------
3,016,436
----------
INFORMATION TECHNOLOGY--3.6%
2,580 Automatic Data Processing, Inc. 113,726
310 Diebold, Inc. 13,191
7,069 International Business Machines Corp. 582,060
410 Jack Henry & Associates, Inc. 9,205
1,364 Linear Technology Corp. 48,422
1,699 Paychex, Inc. 68,623
----------
835,227
----------
MATERIALS--2.3%
995 Air Products & Chemicals, Inc. 68,177
209 Albemarle Corp. 9,994
158 AptarGroup, Inc. 8,281
473 Bemis Co., Inc. 14,881
1,147 Ecolab, Inc. 43,357
129 H.B. Fuller Co. 6,747
207 Martin Marietta Materials, Inc. 21,975
157 Myers Industries, Inc. 2,779
698 Nucor Corp. 75,956
747 PPG Industries, Inc. 50,139
1,443 Praxair, Inc. 80,995
992 Rohm & Haas Co. 50,195
528 RPM International, Inc. 9,715
302 Sigma-Aldrich Corp. 20,720
443 Sonoco Products Co. 13,875
452 Valspar Corp. 12,792
456 Vulcan Materials Co. 38,742
----------
529,320
----------
TELECOMMUNICATION SERVICES--2.5%
1,714 ALLTEL Corp. 110,330
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
133
<Page>
POWERSHARES DIVIDEND ACHIEVERS(TM) PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- ------------- -----------
17,513 AT&T, Inc. $ 459,016
587 CenturyTel, Inc. 22,130
-----------
591,476
-----------
UTILITIES--1.5%
75 American States Water Co. 2,993
580 Aqua America, Inc. 13,862
363 Atmos Energy Corp. 9,634
148 Black Hills Corp. 5,387
84 California Water Service Group 3,571
1,096 Consolidated Edison, Inc. 47,260
328 Energen Corp. 11,569
1,766 FPL Group, Inc. 69,934
537 MDU Resources Group, Inc. 19,735
92 MGE Energy, Inc. 2,935
379 National Fuel Gas Co. 12,602
124 New Jersey Resources Corp. 5,489
131 Otter Tail Corp. 3,910
173 Peoples Energy Corp. 6,285
343 Piedmont Natural Gas Co., Inc. 8,414
442 Pinnacle West Capital Corp. 17,724
1,126 Progress Energy, Inc. 48,193
383 Questar Corp. 30,659
93 Southwest Water Co. 1,420
471 UGI Corp. 10,550
340 Vectren Corp. 9,085
217 WGL Holdings, Inc. 6,384
179 WPS Resources Corp. 8,948
-----------
356,543
-----------
TOTAL INVESTMENTS
(Cost $22,179,901)--99.7% 23,389,727
Other assets less liabilities--0.3% 59,475
-----------
NET ASSETS--100.0% $23,449,202
===========
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
134
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES HIGH YIELD EQUITY DIVIDEND ACHIEVERS(TM) PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- ------------- ------------
COMMON STOCKS--100.0%
CONSUMER DISCRETIONARY--3.2%
622,722 Pier 1 Imports, Inc. $ 7,516,255
602,701 ServiceMaster (The) Co. 7,256,520
------------
14,772,775
------------
CONSUMER STAPLES--9.1%
139,919 Altria Group, Inc. 10,236,474
495,948 ConAgra Foods, Inc. 11,248,101
545,846 Sara Lee Corp. 9,754,268
276,534 Universal Corp. 10,527,649
------------
41,766,492
------------
FINANCIALS--48.9%
301,275 AmSouth Bancorp. 8,718,898
349,949 Arthur J. Gallagher & Co. 9,602,601
273,260 BancorpSouth, Inc. 7,003,654
203,285 Bank of America Corp. 10,147,987
204,191 BB&T Corp. 8,767,962
192,009 Citigroup, Inc. 9,590,850
164,503 Comerica, Inc. 9,355,286
206,064 Community Trust Bancorp, Inc. 6,903,144
741,381 F.N.B. Corp. 12,440,373
213,041 Fifth Third Bancorp 8,611,117
770,772 First Commonwealth Financial Corp. 10,312,929
424,293 FirstMerit Corp. 10,433,365
363,863 Harleysville National Corp. 7,219,042
227,111 KeyCorp 8,680,182
264,096 National City Corp. 9,745,142
344,424 National Penn Bancshares, Inc. 6,798,930
420,204 Old National Bancorp 8,673,011
75,926 Park National Corp. 7,615,378
716,166 Republic Bancorp, Inc. 8,214,424
406,198 Sterling Bancorp 8,489,538
341,091 Susquehanna Bancshares, Inc. 8,141,842
296,710 Valley National Bancorp 7,726,328
311,454 Washington Federal, Inc. 7,449,980
234,797 Washington Mutual, Inc. 10,579,953
228,428 WesBanco, Inc. 7,088,121
189,872 Whitney Holding Corp. 6,751,848
------------
225,061,885
------------
HEALTH CARE--2.1%
277,448 Merck & Co., Inc. 9,549,760
------------
MATERIALS--1.7%
414,685 RPM International, Inc. 7,630,204
------------
TELECOMMUNICATION SERVICES--2.4%
415,515 AT&T, Inc. 10,890,648
------------
UTILITIES--32.6%
399,948 Atmos Energy Corp. 10,614,620
244,851 Black Hills Corp. 8,912,576
277,151 Consolidated Edison, Inc. 11,950,751
214,564 FPL Group, Inc. 8,496,734
298,208 MGE Energy, Inc. 9,512,835
238,678 National Fuel Gas Co. 7,936,044
158,739 New Jersey Resources Corp. 7,027,376
300,318 Otter Tail Corp. 8,964,492
375,790 Peoples Energy Corp. 13,652,451
355,624 Piedmont Natural Gas Co., Inc. 8,723,457
280,411 Pinnacle West Capital Corp. 11,244,481
290,010 Progress Energy, Inc. 12,412,428
392,122 Vectren Corp. 10,477,500
330,417 WGL Holdings, Inc. 9,720,868
206,658 WPS Resources Corp. 10,330,833
------------
149,977,446
------------
TOTAL COMMON STOCKS
(Cost $467,033,309) 459,649,210
------------
MONEY MARKET FUND--0.1%
533,370 AIM Liquid Asset Portfolio Private Class
(Cost $533,370) 533,370
------------
TOTAL INVESTMENTS
(Cost $467,566,680)--100.1% 460,182,580
Liabilities in excess of other assets--(0.1%) (493,068)
------------
NET ASSETS--100.0% $459,689,512
============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
135
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES HIGH GROWTH RATE DIVIDEND ACHIEVERS(TM) PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- ------------- -----------
COMMON STOCKS--100.0%
CONSUMER DISCRETIONARY--14.7%
1,849 Applebee's International, Inc. $ 42,915
307 Courier Corp. 13,244
6,771 Harley-Davidson, Inc. 344,238
2,019 Harte-Hanks, Inc. 55,119
27,330 Home Depot (The), Inc. 1,091,287
1,430 John Wiley & Sons, Inc., Class A 52,395
17,421 Lowe's Cos., Inc. 1,098,393
31,246 McDonald's Corp. 1,080,174
2,159 Pier 1 Imports, Inc. 26,059
1,033 Polaris Industries, Inc. 49,481
3,568 Ross Stores, Inc. 109,324
1,357 Wolverine World Wide, Inc. 33,708
-----------
3,996,337
-----------
CONSUMER STAPLES--9.6%
2,291 Alberto-Culver Co. 103,026
16,257 Archer-Daniels-Midland Co. 590,779
15,399 Sysco Corp. 460,276
23,817 Wal-Mart Stores, Inc. 1,072,480
8,067 Wm. Wrigley Jr. Co. 379,714
46 Wm. Wrigley Jr. Co., Class B 2,178
-----------
2,608,453
-----------
FINANCIALS--49.5%
12,391 Aflac, Inc. 589,068
17,100 American International Group, Inc. 1,115,775
543 Anchor BanCorp Wisconsin, Inc. 15,845
2,404 Arthur J. Gallagher & Co. 65,966
2,558 Astoria Financial Corp. 80,117
389 BancFirst Corp. 16,922
22,953 Bank of America Corp. 1,145,814
3,466 Brown & Brown, Inc. 108,243
22,934 Citigroup, Inc. 1,145,553
1,232 City National Corp. 89,887
4,553 Commerce Bancorp, Inc. 183,668
842 Commerce Group, Inc. 48,844
694 Corus Bankshares, Inc. 46,456
1,370 Cullen/Frost Bankers, Inc. 79,296
1,902 CVB Financial Corp. 31,041
2,683 Doral Financial Corp. 21,223
3,214 Eaton Vance Corp. 91,503
1,672 Erie Indemnity Co., Class A 85,155
4,332 Fidelity National Financial, Inc. 181,857
13,837 Fifth Third Bancorp 559,292
2,009 First BanCorp. 21,295
437 First State Bancorp. 11,261
2,544 Forest City Enterprises, Inc., Class A 114,836
17,172 Freddie Mac 1,048,522
511 Fulton Financial Corp. 8,406
803 Glacier Bancorp, Inc. 24,379
7,672 Golden West Financial Corp. 551,387
1,247 Greater Bay Bancorp 34,442
241 IBERIABANK Corp. 14,115
540 Independent Bank Corp. 14,742
3,203 Legg Mason, Inc. 379,491
2,771 M&T Bank Corp. 330,857
847 MAF Bancorp, Inc. 37,590
1,358 Mercury General Corp. 72,476
11,525 North Fork Bancorp, Inc. 347,248
5,709 Old Republic International Corp. 127,025
337 Old Second Bancorp, Inc. 10,380
1,161 Pacific Capital Bancorp 38,940
3,527 People's Bank 115,509
6,914 Popular, Inc. 142,982
1,857 Republic Bancorp, Inc. 21,300
368 Sandy Spring Bancorp, Inc. 13,060
2,460 SEI Investments Co. 105,632
2,703 Sky Financial Group, Inc. 69,873
10,262 SLM Corp. 542,655
351 Southwest Bancorp, Inc. 7,887
438 Sovran Self Storage, Inc. 21,528
1,013 State Auto Financial Corp. 35,627
8,267 State Street Corp. 540,000
466 Sterling Bancorp 9,739
1,130 Sterling Bancshares, Inc. 18,713
257 Suffolk Bancorp 7,851
7,949 Synovus Financial Corp. 222,572
3,302 T. Rowe Price Group, Inc. 277,995
3,278 TCF Financial Corp. 88,047
1,362 Texas Regional Bancshares, Inc., Class A 39,049
1,384 Trustmark Corp. 43,471
23,841 Washington Mutual, Inc. 1,074,275
16,694 Wells Fargo & Co. 1,146,712
784 Westamerica Bancorp 40,094
-----------
13,473,488
-----------
HEALTH CARE--12.3%
1,114 Arrow International, Inc. 34,790
18,707 Johnson & Johnson 1,096,417
22,021 Medtronic, Inc. 1,103,693
648 Meridian Bioscience, Inc. 16,822
43,857 Pfizer, Inc. 1,110,898
-----------
3,362,620
-----------
INDUSTRIALS--5.2%
4,181 Cintas Corp. 175,518
2,049 Donaldson Co., Inc. 68,109
2,656 Expeditors International of Washington, Inc. 227,380
562 Franklin Electric Co., Inc. 32,781
6,985 Illinois Tool Works, Inc. 717,360
497 LSI Industries, Inc. 8,305
619 McGrath RentCorp 16,645
909 Mine Safety Appliances Co. 37,996
450 Raven Industries, Inc. 18,239
2,144 Roper Industries, Inc. 101,754
-----------
1,404,087
-----------
</Table>
See Notes to Financial Statements.
136
<Page>
POWERSHARES HIGH GROWTH RATE DIVIDEND ACHIEVERS(TM) PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- ------------- -----------
INFORMATION TECHNOLOGY--4.9%
14,411 Automatic Data Processing, Inc. $ 635,236
2,277 Jack Henry & Associates, Inc. 51,119
7,601 Linear Technology Corp. 269,836
9,443 Paychex, Inc. 381,403
-----------
1,337,594
-----------
MATERIALS--3.8%
875 AptarGroup, Inc. 45,859
3,872 Nucor Corp. 421,351
8,034 Praxair, Inc. 450,949
1,663 Sigma-Aldrich Corp. 114,098
-----------
1,032,257
-----------
TOTAL INVESTMENTS
(Cost $25,749,983)--100.0% 27,214,836
Other assets less liabilities--0.0% 12,538
-----------
NET ASSETS--100.0% $27,227,374
===========
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
137
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES INTERNATIONAL DIVIDEND ACHIEVERS(TM) PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- ------------- ------------
COMMON STOCKS--100.1%
CONSUMER DISCRETIONARY--5.8%
24,793 Luxottica Group SpA ADR $ 738,583
100,233 Reed Elsevier NV ADR 2,963,890
65,793 Reed Elsevier PLC ADR 2,618,561
61,110 Thomson (The) Corp. 2,438,900
19,840 WPP Group PLC ADR 1,223,930
------------
9,983,864
------------
CONSUMER STAPLES--14.0%
65,843 British American Tobacco PLC ADR 3,364,577
58,731 Cadbury Schweppes PLC ADR 2,346,891
52,206 Diageo PLC ADR 3,458,648
65,172 Gallaher Group PLC ADR 4,141,680
53,726 Imperial Tobacco Group PLC ADR 3,367,546
49,982 Unilever NV 3,598,204
84,541 Unilever PLC ADR 3,612,437
------------
23,889,983
------------
ENERGY--9.3%
43,187 BP PLC ADR 3,183,746
117,357 Enbridge, Inc. 3,500,759
70,232 Eni SpA ADR 4,298,900
7,261 Imperial Oil Ltd. 789,271
12,468 Norsk Hydro ASA ADR 1,907,604
54,340 Sasol Ltd. ADR 2,248,046
------------
15,928,326
------------
FINANCIALS--44.0%
141,747 ABN AMRO Holding NV ADR 4,109,246
32,554 ACE Ltd. 1,808,049
220,150 Administradora de Fondos de Pensiones
Provida SA ADR 6,010,095
71,593 Allied Irish Banks PLC ADR 3,430,737
41,747 Australia and New Zealand Banking
Group Ltd. ADR 4,433,531
176,531 Banco Santander Central Hispanic SA ADR 2,707,986
42,247 Bank of Ireland ADR 3,172,750
52,702 Bank of Montreal 3,056,716
76,184 Bank of Nova Scotia 3,181,444
82,864 Barclays PLC ADR 4,130,770
43,667 Canadian Imperial Bank of Commerce 3,231,358
5,481 Everest Re Group Ltd. 498,771
49,308 HSBC Holdings PLC ADR 4,274,017
176,009 Lloyds TSB Group PLC ADR 6,873,151
29,876 Manulife Financial Corp. 1,950,604
33,151 National Australia Bank Ltd. ADR 4,733,963
40,834 PartnerRe Ltd. 2,554,167
46,077 RenaissanceRe Holdings Ltd 1,937,538
124,871 Royal Bank of Canada 5,353,220
48,355 Sun Life Financial, Inc. 2,033,811
47,274 Toronto-Dominion Bank (The) 2,641,671
45,362 XL Capital Ltd., Class A 2,988,902
------------
75,112,497
------------
HEALTH CARE--3.1%
23,977 Fresenius Medical Care AG ADR 959,320
29,117 Novartis AG ADR 1,674,518
17,533 Novo-Nordisk A/S ADR 1,128,249
24,178 Smith & Nephew PLC ADR 1,005,805
13,706 Teva Pharmaceutical Industries Ltd. ADR 555,093
------------
5,322,985
------------
INDUSTRIALS--2.7%
27,034 Canadian National Railway Co. 1,214,097
66,095 Volvo AB ADR 3,331,188
------------
4,545,285
------------
INFORMATION TECHNOLOGY--4.7%
12,969 CANON, Inc. ADR 983,050
11,359 Dassault Systemes SA ADR 620,997
258,497 Nam Tai Electronics, Inc. 5,836,862
9,317 SAP AG ADR 508,988
------------
7,949,897
------------
MATERIALS--2.8%
49,268 Compania de Minas Buenaventura SA ADR 1,497,255
31,883 CRH PLC ADR 1,170,744
145,176 Sappi Ltd. ADR 2,038,270
------------
4,706,269
------------
TELECOMMUNICATION SERVICES--5.0%
559,259 Telstra Corp. Ltd. ADR 8,573,440
------------
UTILITIES--8.7%
36,967 Consolidated Water Co., Inc. 991,455
55,089 E.ON AG ADR 2,236,063
75,171 Endesa SA ADR 2,476,884
152,358 Huaneng Power International, Inc. ADR 4,464,089
91,081 National Grid PLC ADR 4,782,664
------------
14,951,155
------------
TOTAL INVESTMENTS
(Cost $162,477,888)--100.1% 170,963,701
Liabilities in excess of other assets--(0.1%) (121,071)
------------
NET ASSETS--100.0% $170,842,630
============
</Table>
ADR American Depositary Receipt.
SEE NOTES TO FINANCIAL STATEMENTS.
138
<Page>
POWERSHARES INTERNATIONAL DIVIDEND ACHIEVERS(TM) PORTFOLIO
APRIL 30, 2006
COUNTRY BREAKDOWN (UNAUDITED)
APRIL 30, 2006
<Table>
<Caption>
TOTAL
VALUE NET ASSETS
------------ ----------
United Kingdom $ 48,384,422 28.3%
Canada 29,391,851 17.2
Australia 17,740,934 10.4
Netherlands 10,671,340 6.3
Ireland 7,774,231 4.6
Chile 6,010,095 3.5
Cayman Islands 5,788,406 3.4
Virgin Islands 5,836,862 3.4
Spain 5,184,870 3.0
Italy 5,037,483 2.9
Bermuda 4,990,476 2.9
China 4,464,089 2.6
South Africa 4,286,317 2.5
Germany 3,704,371 2.2
Sweden 3,331,188 1.9
Norway 1,907,604 1.1
Switzerland 1,674,518 1.0
Peru 1,497,255 0.9
Denmark 1,128,249 0.7
Japan 983,050 0.6
France 620,997 0.4
Israel 555,093 0.3
------------ -----
Total value of investments 170,963,701 100.1
Liabilities in excess of other assets (121,071) (0.1)
------------ -----
Net Assets $170,842,630 100.0%
============ =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
139
<Page>
STATEMENTS OF ASSETS AND LIABILITIES
POWERSHARES EXCHANGE-TRADED FUNDS
APRIL 30, 2006
<Table>
<Caption>
POWERSHARES
POWERSHARES HIGH YIELD EQUITY POWERSHARES POWERSHARES
DIVIDEND DIVIDEND HIGH GROWTH RATE INTERNATIONAL
ACHIEVERS(TM) ACHIEVERS(TM) DIVIDEND ACHIEVERS(TM) DIVIDEND ACHIEVERS(TM)
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ----------------- ---------------------- ---------------------
ASSETS:
Investments at value $23,389,727 $460,182,580 $27,214,836 $170,963,701
Cash 43,026 5,112 --
Receivables:
Investments sold 408,078 23,980,235 1,265,186 10,519,055
Capital stock sold -- 13,564,609 1,601,611 15,209,154
Dividends 36,388 1,251,313 36,333 882,790
Due from Advisor 22,834 -- 25,367 12,472
----------- ------------ ----------- ------------
Total Assets 23,900,053 498,978,737 30,148,445 197,587,172
----------- ------------ ----------- ------------
LIABILITIES:
Due to custodian -- 198,300 -- 81,117
Payables:
Investments purchased 392,911 25,096,124 1,259,224 14,702,679
Capital stock purchased -- 13,564,608 1,601,611 11,840,578
Accrued advisory fees 7,592 159,042 8,779 52,131
Accrued expenses 50,348 271,151 51,457 68,037
----------- ------------ ----------- ------------
TOTAL LIABILITIES 450,851 39,289,225 2,921,071 26,744,542
----------- ------------ ----------- ------------
NET ASSETS $23,449,202 $459,689,512 $27,227,374 $170,842,630
=========== ============ =========== ============
NET ASSETS CONSIST OF:
Paid-in capital $22,265,889 $472,452,879 $25,808,497 $162,280,365
Undistributed net investment income 16,670 1,587,278 17,860 472,257
Net realized (loss) on Investments (43,183) (6,966,545) (63,836) (395,805)
Net unrealized appreciation/depreciation
on Investments 1,209,826 (7,384,100) 1,464,853 8,485,813
----------- ------------ ----------- ------------
NET ASSETS $23,449,202 $459,689,512 $27,227,374 $170,842,630
=========== ============ =========== ============
Shares outstanding (unlimited amount
authorized, $0.01 par value) 1,500,000 30,500,000 1,700,000 10,100,000
Net asset value $ 15.63 $ 15.07 $ 16.02 $ 16.92
=========== ============ =========== ============
Investments at cost $22,179,901 $467,566,680 $25,749,983 $162,477,888
=========== ============ =========== ============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
140
<Page>
STATEMENTS OF OPERATIONS
<Table>
<Caption>
POWERSHARES
POWERSHARES HIGH YIELD EQUITY POWERSHARES POWERSHARES
DIVIDEND DIVIDEND HIGH GROWTH RATE INTERNATIONAL
ACHIEVERS(TM) ACHIEVERS(TM) DIVIDEND ACHIEVERS(TM) DIVIDEND ACHIEVERS(TM)
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ----------------- ---------------------- ----------------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
SEPTEMBER 15, SEPTEMBER 15, SEPTEMBER 15,
2005* THROUGH YEAR ENDED 2005* THROUGH 2005* THROUGH
APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006
-------------- ----------------- ---------------------- ---------------------
INVESTMENT INCOME:
Dividends $ 396,643 $18,562,630 $ 390,684 $ 2,367,493
Foreign withholding taxes (59) -- (295) (143,861)
---------- ----------- ---------- -----------
TOTAL INCOME 396,584 18,562,630 390,389 2,223,632
---------- ----------- ---------- -----------
EXPENSES:
Advisory fees 64,029 1,809,924 69,246 241,777
Audit 18,000 26,073 18,000 18,000
Licensing 16,007 452,481 17,312 60,444
Administration fees 10,529 96,574 10,709 16,255
Offering costs 9,889 49,598 10,110 8,105
Accounting 8,583 54,528 8,673 11,555
Printing 6,700 240,982 13,002 13,100
Listing fee and expenses 6,292 17,195 6,296 9,660
Legal 5,200 57,271 5,900 6,500
Custodian and transfer agent fees 3,943 27,344 1,688 4,333
Registration & filings 2,594 57,276 2,740 16,643
Trustees 185 7,300 202 1,198
Other expenses 11,794 22,084 9,685 10,024
---------- ----------- ---------- -----------
TOTAL EXPENSES 163,745 2,918,630 173,563 417,594
Less fees waived:
Advisory (57,204) (168,670) (58,976) (43,114)
---------- ----------- ---------- -----------
NET EXPENSES 106,541 2,749,960 114,587 374,480
---------- ----------- ---------- -----------
NET INVESTMENT INCOME 290,043 15,812,670 275,802 1,849,152
---------- ----------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) from:
Investments (44,699) (4,439,585) (63,836) (440,639)
In-kind redemptions 232,417 16,388,961 958,632 6,065,576
---------- ----------- ---------- -----------
Net realized gain 187,718 11,949,376 894,796 5,624,937
Net unrealized appreciation/depreciation
on Investments 1,209,826 955,503 1,464,853 8,485,813
---------- ----------- ---------- -----------
Net realized and unrealized gain
on Investments 1,397,544 12,904,879 2,359,649 14,110,750
---------- ----------- ---------- -----------
Net increase in net assets resulting
from operations $1,687,587 $28,717,549 $2,635,451 $15,959,902
========== =========== ========== ===========
</Table>
* Commencement of Investment Operations.
SEE NOTES TO FINANCIAL STATEMENTS.
141
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
POWERSHARES
POWERSHARES HIGH YIELD EQUITY POWERSHARES POWERSHARES
DIVIDEND DIVIDEND HIGH GROWTH RATE INTERNATIONAL
ACHIEVERS(TM) ACHIEVERS(TM) DIVIDEND ACHIEVERS(TM) DIVIDEND ACHIEVERS(TM)
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ------------------------------- ---------------------- ----------------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
SEPTEMBER 15, FOR THE YEAR DECEMBER 9, SEPTEMBER 15, SEPTEMBER 15,
2005* THROUGH ENDED 2004* THROUGH 2005* THROUGH 2005* THROUGH
APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2005 APRIL 30, 2006 APRIL 30, 2006
--------------- -------------- -------------- -------------- --------------
OPERATIONS:
Net investment income $ 290,043 $ 15,812,670 $ 2,874,452 $ 275,802 $ 1,849,152
Net realized gain (loss) on
Investments 187,718 11,949,376 (1,810,498) 894,796 5,624,937
Net unrealized appreciation/
depreciation on Investments 1,209,826 955,503 (8,339,603) 1,464,853 8,485,813
----------- ------------- ------------ ------------- -------------
Net increase (decrease) in
net assets resulting
from operations 1,687,587 28,717,549 (7,275,649) 2,635,451 15,959,902
----------- ------------- ------------ ------------- -------------
Undistributed net investment
income included in price of
units issued and redeemed (770) 522,910 -- 4,850 (246,561)
----------- ------------- ------------ ------------- -------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (272,220) (14,376,272) (2,710,823) (257,942) (1,377,038)
----------- ------------- ------------ ------------- -------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold 28,151,565 315,767,012 349,078,454 37,416,728 211,304,049
Value of shares repurchased (6,117,730) (184,663,966) (24,846,793) (12,566,863) (55,044,283)
Net income equalization 770 (522,910) -- (4,850) 246,561
----------- ------------- ------------ ------------- -------------
Net increase in net assets
resulting from share
transactions 22,034,605 130,580,136 324,231,661 24,845,015 156,506,327
----------- ------------- ------------ ------------- -------------
INCREASE IN NET ASSETS 23,449,202 145,444,323 314,245,189 27,227,374 170,842,630
NET ASSETS:
Beginning of period -- 314,245,189 -- -- --
----------- ------------- ------------ ------------- -------------
End of period $23,449,202 $ 459,689,512 $314,245,189 $ 27,227,374 $ 170,842,630
=========== ============= ============ ============= =============
Undistributed net investment
income $ 16,670 $ 1,587,278 $ 150,880 $ 17,860 $ 472,257
=========== ============= ============ ============= =============
CHANGES IN SHARES OUTSTANDING:
Shares sold 1,900,000 20,900,000 23,500,000 2,500,000 13,500,000
Shares repurchased (400,000) (12,200,000) (1,700,000) (800,000) (3,400,000)
Shares outstanding,
beginning of period -- 21,800,000 -- -- --
----------- ------------- ------------ ------------- -------------
Shares outstanding, end
of period 1,500,000 30,500,000 21,800,000 1,700,000 10,100,000
=========== ============= ============ ============= =============
</Table>
* Commencement of Investment Operations.
SEE NOTES TO FINANCIAL STATEMENTS.
142
<Page>
FINANCIAL HIGHLIGHTS
POWERSHARES DIVIDEND ACHIEVERS(TM) PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
SEPTEMBER 15, 2005*
THROUGH
APRIL 30, 2006
------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 14.84
-------
Net investment income** 0.17
Net realized and unrealized gain on Investments 0.78
-------
Total from operations 0.95
-------
Undistributed net investment income included in price of units issued and redeemed** --(a)
-------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income** (0.16)
-------
Net asset value at end of period $ 15.63
-------
TOTAL RETURN:*** 6.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $23,449
Ratio to average net assets of:
Expenses, net of waivers 0.67%+
Expenses, prior to waivers 1.02%+
Net investment income, net of waivers 1.81%+
Portfolio turnover rate 8%
</Table>
POWERSHARES HIGH YIELD EQUITY DIVIDEND ACHIEVERS(TM) PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
FOR THE YEAR DECEMBER 9, 2004*
ENDED THROUGH
APRIL 30, 2006 APRIL 30, 2005
-------------- ----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 14.41 $ 14.79
-------- --------
Net investment income** 0.53 0.18
Net realized and unrealized gain (loss) on Investments 0.59 (0.39)
-------- --------
Total from operations 1.12 (0.21)
-------- --------
Undistributed net investment income included in price of units issued and redeemed** 0 02 --
-------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income** (0.48) (0.17)
-------- --------
Net asset value at end of period $ 15.07 $ 14.41
-------- --------
TOTAL RETURN:*** 7.92% (1.44)%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $459,690 $314,245
Ratio to average net assets of:
Expenses, net of waivers 0.61% 0.60%+
Expenses, prior to waivers 0.65% 0.66%+
Net investment income, net of waivers 3.49% 3.57%+
Portfolio turnover rate ++ 9% 21%
</Table>
* Commencement of Investment Operations.
** Based on average shares outstanding.
*** Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption on
the last day of the period. Total return calculated for a period of less
than one year is not annualized.
+ Annualized.
++ Portfolio turnover rate is not annualized and does not include securities
received or delivered from processing creations or redemptions.
(a) Amount represents less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS.
143
<Page>
POWERSHARES HIGH GROWTH RATE DIVIDEND ACHIEVERS(TM) PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
SEPTEMBER 15, 2005*
THROUGH
APRIL 30, 2006
-------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 14.78
-------
Net investment income** 0.15
Net realized and unrealized gain on Investments 1.24
-------
Total from operations 1.39
-------
Undistributed net investment income included in price of units issued and redeemed** --(a)
-------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income** (0.15)
-------
Net asset value at end of period $ 16.02
-------
TOTAL RETURN:*** 9.39%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $27,227
Ratio to average net assets of:
Expenses, net of waivers 0.66%+
Expenses, prior to waivers 1.00%+
Net investment income, net of waivers 1.59%+
Portfolio turnover rate ++ 20%+
</Table>
<Table>
<Caption>
POWERSHARES INTERNATIONAL DIVIDEND ACHIEVERS(TM) PORTFOLIO
FOR THE PERIOD
SEPTEMBER 15, 2005*
THROUGH
APRIL 30, 2006
-------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 14.96
--------
Net investment income** 0.28
Net realized and unrealized gain on Investments 1.84
--------
Total from operations 2.12
--------
Undistributed net investment income included in price of units issued and redeemed** 0.04
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income** (0.20)
--------
Net asset value at end of period $ 16.92
--------
TOTAL RETURN:*** 14.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $170,843
Ratio to average net assets of:
Expenses, net of waivers 0.62%+
Expenses, prior to waivers 0.69%+
Net investment income, net of waivers 3.06%+
Portfolio turnover rate ++ 8%
</Table>
* Commencement of Investment Operations.
** Based on average shares outstanding.
*** Total return is calculated assuming an initial investment made at the
net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Total return calculated for a
period of less than one year is not annualized.
+ Annualized.
++ Portfolio turnover rate is not annualized and does not include securities
received or delivered from processing creations or redemptions.
(a) Amount represents less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS.
144
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES AEROSPACE & DEFENSE PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- -----------
COMMON STOCKS--100.0%
AEROSPACE/DEFENSE--50.0%
11,732 Alliant Techsystems, Inc.* $ 938,443
7,072 Argon ST, Inc.* 235,003
11,375 Armor Holdings, Inc.* 694,671
75,963 Boeing Co. 6,339,112
12,812 DRS Technologies, Inc. 711,450
6,531 EDO Corp. 170,655
8,166 Esterline Technologies Corp.* 361,917
17,727 GenCorp, Inc.* 346,386
62,103 General Dynamics Corp. 4,075,199
39,605 Goodrich Corp. 1,762,423
4,670 Herley Industries, Inc.* 98,911
39,149 L-3 Communications Holdings, Inc. 3,198,473
68,128 Lockheed Martin Corp. 5,170,915
13,253 Moog, Inc., Class A* 496,325
5,069 MTC Technologies, Inc.* 145,125
55,298 Northrop Grumman Corp. 3,699,436
17,729 Orbital Sciences Corp.* 277,459
83,122 Raytheon Co. 3,679,811
55,428 Rockwell Collins, Inc. 3,170,482
10,887 Teledyne Technologies, Inc.* 396,396
3,629 United Industrial Corp. 238,425
101,024 United Technologies Corp. 6,345,316
-----------
42,552,333
-----------
AUTO MANUFACTURERS--1.7%
23,679 Oshkosh Truck Corp. 1,449,155
-----------
COMPUTERS--7.1%
12,049 Anteon International Corp.* 658,478
9,711 CACI International, Inc., Class A* 607,326
59,998 Computer Sciences Corp.* 3,512,882
9,376 Intergraph Corp.* 412,732
6,763 Mercury Computer Systems, Inc.* 128,903
3,645 SI International, Inc.* 124,185
17,743 SRA International, Inc., Class A* 568,131
-----------
6,012,637
-----------
ELECTRONICS--6.7%
2,634 American Science & Engineering, Inc.* 225,760
10,472 Cogent, Inc.* 171,322
8,593 Cubic Corp. 197,553
22,239 Flir Systems, Inc.* 543,744
34,811 Garmin Ltd. (Cayman Islands) 3,006,277
5,275 OSI Systems, Inc.* 100,542
19,933 Taser International, Inc.* 213,283
17,484 Trimble Navigation Ltd.* 828,392
27,345 Viisage Technology, Inc.* 458,576
-----------
5,745,449
-----------
MEDIA--13.3%
233,350 DIRECTV Group (The), Inc.* 3,985,619
115,040 EchoStar Communications Corp., Class A* 3,554,736
446,718 Sirius Satellite Radio, Inc.* 2,090,640
82,984 XM Satellite Radio Holdings, Inc., Class A* 1,677,936
-----------
11,308,931
-----------
METAL FABRICATE/HARDWARE--3.4%
4,508 Ladish Co., Inc.* 160,800
43,130 Precision Castparts Corp. 2,716,328
-----------
2,877,128
-----------
MISCELLANEOUS MANUFACTURING--10.8%
8,626 Ceradyne, Inc.* 457,178
128,866 Honeywell International, Inc. 5,476,805
58,860 ITT Industries, Inc. 3,309,698
-----------
9,243,681
-----------
PACKAGING & CONTAINERS--1.6%
33,591 Ball Corp. 1,342,968
-----------
SOFTWARE--0.4%
10,645 Mantech International Corp.* 351,604
-----------
TELECOMMUNICATIONS--5.0%
51,263 Andrew Corp.* 542,363
3,760 Applied Signal Technology, Inc. 67,492
6,918 Essex Corp.* 147,561
43,121 Harris Corp. 2,008,145
4,746 KVH Industries, Inc.* 51,257
39,445 PanAmSat Holding Corp. 980,208
8,221 SafeNet, Inc.* 165,160
8,825 ViaSat, Inc.* 265,897
-----------
4,228,083
-----------
TOTAL INVESTMENTS
(Cost $76,808,272)--100.0% 85,111,969
Other assets less liabilities--0.0% 23,562
-----------
NET ASSETS--100.0% $85,135,531
===========
</Table>
* Non-income producing security.
COUNTRY BREAKDOWN (UNAUDITED)
APRIL 30, 2006
<Table>
<Caption>
TOTAL
VALUE NET ASSETS
----------- ----------
United States $82,105,691 96.5%
Cayman Islands 3,006,278 3.5
----------- ------
Total value of investments 85,111,969 100.0
Other assets less liabilities 23,562 0.0
----------- ------
Net Assets $85,135,531 100.0%
=========== ======
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
145
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES GOLDEN DRAGON HALTER USX CHINA PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
COMMON STOCKS--99.7%
CONSUMER DISCRETIONARY--4.8%
109,486 Brilliance China Automotive Holdings Ltd. ADR $ 1,922,574
67,371 China Automotive Systems, Inc.* 639,964
105,465 China Yuchai International Ltd. 853,212
44,505 Deswell Industries, Inc. 423,243
123,998 Focus Media Holding Ltd. ADR* 7,488,239
------------
11,327,232
------------
CONSUMER STAPLES--0.1%
150,739 New Dragon Asia Corp.* 295,448
------------
ENERGY--15.6%
177,833 China Petroleum and Chemical Corp. ADR 11,434,662
132,480 CNOOC Ltd. ADR 10,953,446
132,524 PetroChina Co. Ltd. ADR 14,895,698
------------
37,283,806
------------
FINANCIALS--4.5%
198,739 China Life Insurance Co. Ltd. ADR* 10,716,007
------------
HEALTH CARE--1.6%
81,649 China Medical Technologies, Inc. ADR* 2,057,555
103,766 Sinovac Biotech Ltd.* 465,909
212,905 Tiens Biotech Group USA, Inc.* 1,247,623
------------
3,771,087
------------
INDUSTRIALS--9.7%
82,995 51job, Inc. ADR* 2,089,814
145,263 China Eastern Airlines Corp. Ltd. ADR 2,164,419
72,024 China Energy Savings Technology, Inc.* 493,364
261,102 China Southern Airlines Co. Ltd. ADR 3,464,824
258,782 Guangshen Railway Co. Ltd. ADR 4,984,141
285,761 Suntech Power Holdings Co. Ltd. ADR* 9,798,745
------------
22,995,307
------------
INFORMATION TECHNOLOGY--24.6%
404,969 ASAT Holdings Ltd. ADR* 380,671
133,430 AsiaInfo Holdings, Inc.* 631,124
98,337 Baidu.com ADR* 5,699,613
331,181 CDC Corp., Class A* 1,516,809
59,300 China Finance Online Co. Ltd. ADR* 363,509
95,026 Comtech Group, Inc.* 1,231,537
95,282 Ctrip.com International Ltd. ADR* 4,287,233
74,975 eLong, Inc. ADR* 1,045,901
66,263 INTAC International, Inc.* 909,791
132,745 International DisplayWorks, Inc.* 746,027
102,602 KongZhong Corp. ADR* 1,396,413
129,838 Nam Tai Electronics, Inc. 2,931,742
389,611 Netease.com, Inc. ADR* 8,446,766
104,430 Ninetowns Digital World Trade Holdings Ltd. ADR* 528,416
35,688 PacificNet, Inc.* 269,444
56,781 Radica Games Ltd. 607,557
1,091,288 Semiconductor Manufacturing International
Corp. ADR* 8,261,050
212,793 Shanda Interactive Entertainment Ltd. ADR* 2,630,121
159,056 SINA Corp.* 4,207,031
109,257 Sohu.com, Inc.* 3,031,882
72,174 The9 Ltd. ADR* 2,164,498
156,889 Tom Online, Inc. ADR* 3,937,914
353,162 UTStarcom, Inc.* 2,454,476
129,052 Webzen, Inc. ADR 967,890
------------
58,647,415
------------
MATERIALS--12.8%
97,427 Aluminum Corp. of China Ltd. ADR 9,567,331
183,410 Sinopec Shanghai Petrochemical Co. Ltd. ADR 10,637,780
241,067 Yanzhou Coal Mining Co. Ltd. ADR 10,259,812
------------
30,464,923
------------
TELECOMMUNICATION SERVICES--21.3%
524,221 China Mobile (Hong Kong) Ltd. ADR 15,129,019
293,665 China Netcom Group Corp. (Hong Kong) Ltd. ADR 10,845,048
130,955 China Techfaith Wireless Communication
Technology Ltd. ADR* 1,782,298
294,346 China Telecom Corp. Ltd. ADR 10,349,205
1,266,047 China Unicom Ltd. ADR 11,052,590
65,277 Hurray! Holding Co. Ltd. ADR* 569,868
75,730 Linktone Ltd. ADR* 581,606
54,127 Qiao Xing Universal Telephone, Inc.* 499,051
------------
50,808,685
------------
UTILITIES--4.7%
382,349 Huaneng Power International, Inc. ADR 11,202,826
------------
TOTAL INVESTMENTS
(Cost $217,690,855)--99.7% 237,512,736
Other assets less liabilities--0.3% 817,538
------------
NET ASSETS--100.0% $238,330,274
============
</Table>
ADR American Depositary Receipt.
* Non-income producing security.
COUNTRY BREAKDOWN (UNAUDITED)
APRIL 30, 2006
<Table>
<Caption>
TOTAL
VALUE NET ASSETS
------------ -----------
China $100,040,213 42.1%
Cayman Islands 68,870,562 28.9
Hong Kong 47,980,103 20.1
United States 11,950,681 5.0
Virgin Islands 3,854,035 1.6
Bermuda 3,383,343 1.4
South Korea 967,890 0.4
Antigua 465,909 0.2
------------ -----
Total value of investments 237,512,736 99.7
Other assets less liabilities 817,538 0.3
------------ -----
Net Assets $238,330,274 100.0%
============ =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
146
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES LUX NANOTECH PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- ---------- ------------
COMMON STOCKS--100.0%
AUTOMOBILE MANUFACTURERS--2.9%
27,469 Toyota Motor Corp. ADR (Japan) $ 3,217,444
------------
BIOTECHNOLOGY--4.5%
1,250,878 BioSante Pharmaceuticals, Inc.* 5,066,056
------------
CHEMICALS--12.8%
44,885 Air Products & Chemicals, Inc. 3,075,520
38,292 BASF AG ADR (Germany) 3,276,264
69,674 E.I. du Pont de Nemours & Co. 3,072,623
169,772 Symyx Technologies* 4,948,853
------------
14,373,260
------------
COMMERCIAL SERVICES--9.7%
1,306,628 Altair Nanotechnologies, Inc. (Canada)* 5,422,506
862,279 Arrowhead Research Corp.* 5,475,472
------------
10,897,978
------------
COMPUTERS--10.1%
609,194 Cambridge Display Technology, Inc.
(United Kingdom)* 5,366,999
92,095 Hewlett-Packard Co. 2,990,325
35,830 International Business Machines Corp. 2,950,242
------------
11,307,566
------------
ELECTRONICS--8.8%
231,759 FEI Co.* 5,038,440
293,174 NVE Corp.* 4,875,484
------------
9,913,924
------------
ENERGY-ALTERNATE SOURCES--3.7%
121,839 Headwaters, Inc.* 4,103,538
------------
HEALTHCARE PRODUCTS--5.0%
1,152,529 Immunicon Corp.* 5,681,968
------------
INVESTMENT COMPANIES--3.9%
339,421 Harris & Harris Group, Inc.* 4,388,714
------------
MISCELLANEOUS MANUFACTURING--9.4%
38,709 3M Co. 3,306,910
87,901 General Electric Co. 3,040,496
593,021 Nanophase Technologies Corp.* 4,269,751
------------
10,617,157
------------
PHARMACEUTICALS--22.0%
163,215 Abraxis Bioscience, Inc.* 5,098,837
637,336 Accelrys, Inc.* 4,486,845
332,681 Elan Corp. PLC ADR (Ireland)* 4,893,738
217,771 Flamel Technologies ADR (France)* 4,398,974
469,080 NUCRYST Pharmaceuticals Corp. (Canada)* 5,910,407
------------
24,788,801
------------
SEMICONDUCTORS--7.2%
150,841 Intel Corp. 3,013,803
211,012 Veeco Instruments, Inc.* 5,053,738
------------
8,067,541
------------
TOTAL INVESTMENTS
(Cost $104,015,102)--100.0% 112,423,947
Liabilities in excess of other assets--0.0% (7,535)
------------
NET ASSETS--100.0% $112,416,412
============
</Table>
ADR American Depositary Receipt.
* Non-income producing security.
COUNTRY BREAKDOWN (UNAUDITED)
APRIL 30, 2006
<Table>
<Caption>
TOTAL
VALUE NET ASSETS
------------ ----------
United States $ 79,937,615 71.1%
Canada 11,332,914 10.1
United Kingdom 5,366,999 4.8
Ireland 4,893,737 4.3
France 4,398,974 3.9
Germany 3,276,264 2.9
Japan 3,217,444 2.9
------------ -----
Total value of investments 112,423,947 100.0
Liabilities in excess of other assets (7,535) (0.0)
------------ -----
Net Assets $112,416,412 100.0%
============ =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
147
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES VALUE LINE TIMELINESS(TM) SELECT PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- ---------- ------------
COMMON STOCKS--100.0%
CONSUMER DISCRETIONARY--6.1%
153,116 Dress Barn (The), Inc.* $ 3,872,304
82,560 Home Depot (The), Inc. 3,296,621
162,232 Matsushita Electric Industrial Co.
Ltd. ADR (Japan) 3,927,636
------------
11,096,561
------------
ENERGY--15.1%
116,962 Chesapeake Energy Corp. 3,705,356
49,146 EOG Resources, Inc. 3,451,524
69,016 Peabody Energy Corp. 4,407,362
74,790 Petro-Canada (Canada) 3,678,172
90,623 Tetra Technologies, Inc.* 4,458,651
63,406 Tidewater, Inc. 3,692,765
79,006 Weatherford International Ltd. (Bermuda)* 4,181,788
------------
27,575,618
------------
FINANCIALS--5.8%
140,287 E*TRADE Financial Corp.* 3,490,341
75,747 Investment Technology Group, Inc.* 4,013,833
51,038 Moody's Corp. 3,164,866
------------
10,669,040
------------
HEALTH CARE--8.6%
51,251 Barr Pharmaceuticals, Inc.* 3,103,248
133,469 Biovail Corp. (Canada)* 3,478,202
38,741 Express Scripts, Inc.* 3,027,222
63,254 Medtronic, Inc. 3,170,290
57,531 Varian Medical Systems, Inc.* 3,013,474
------------
15,792,436
------------
INDUSTRIALS--24.5%
77,665 C.H. Robinson Worldwide, Inc. 3,444,443
59,495 Ceradyne, Inc.* 3,153,235
124,967 Columbus McKinnon Corp.* 3,345,367
71,309 Dover Corp. 3,547,623
44,420 Expeditors International Washington, Inc. 3,802,796
121,172 JLG Industries, Inc. 3,475,213
61,432 Joy Global, Inc. 4,035,468
67,310 McDermott International, Inc. (Panama)* 4,092,448
73,745 MSC Industrial Direct Co., Inc., Class A 3,824,416
73,038 Tennant Co. 3,714,713
70,765 Thomas & Betts Corp.* 4,030,067
67,126 Trinity Industries, Inc. 4,262,500
------------
44,728,289
------------
INFORMATION TECHNOLOGY--35.7%
105,985 Accenture Ltd. (Bermuda) 3,080,984
84,993 Advanced Micro Devices, Inc.* 2,749,524
95,357 Agilent Technologies, Inc.* 3,663,616
47,844 Apple Computer, Inc.* 3,367,739
75,948 Broadcom Corp., Class A* 3,122,222
109,886 Citrix Systems, Inc.* 4,386,649
75,781 Cymer, Inc.* 3,917,120
106,050 Hewlett-Packard Co. 3,443,444
233,685 Integrated Device Technology, Inc.* 3,556,686
122,208 Intersil Corp. 3,618,579
54,681 Marvell Technology Group Ltd. (Bermuda)* 3,121,738
225,844 MPS Group, Inc.* 3,604,470
106,412 National Instruments Corp. 3,370,068
150,331 NVIDIA Corp.* 4,392,672
132,083 Omnivision Technologies, Inc.* 3,840,974
102,841 Plexus Corp.* 4,479,754
73,148 QUALCOMM, Inc. 3,755,418
59,764 SanDisk Corp.* 3,814,736
------------
65,286,393
------------
MATERIALS--4.2%
62,573 Eagle Materials, Inc. 4,145,461
39,677 Reliance Steel & Aluminum Co. 3,529,269
------------
7,674,730
------------
TOTAL INVESTMENTS
(Cost $172,166,532)--100.0% 182,823,067
Liabilities in excess of other assets--(0.0%) (13,530)
------------
NET ASSETS--100.0% $182,809,537
============
</Table>
* Non-income producing security.
COUNTRY BREAKDOWN (UNAUDITED)
APRIL 30, 2006
<Table>
<Caption>
TOTAL
VALUE NET ASSETS
------------ ----------
United States $157,262,098 86.0%
Bermuda 10,384,510 5.7
Canada 7,156,374 3.9
Panama 4,092,448 2.2
Japan 3,927,637 2.2
------------ -----
Total investments 182,823,067 100.0
Liabilities in excess of other assets (13,530) (0.0)
------------ -----
Net Assets $182,809,537 100.0%
============ =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
148
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES WATER RESOURCES PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- ---------- ------------
COMMON STOCKS--100.0%
BIOTECHNOLOGY--3.9%
519,535 Millipore Corp.* $ 38,331,292
------------
CHEMICALS--0.9%
138,731 Ashland, Inc. 9,131,274
------------
ELECTRIC--0.9%
245,977 Suez SA ADR (France) 9,379,103
------------
ELECTRICAL COMPONENTS & EQUIPMENT--1.0%
114,219 Emerson Electric Co. 9,702,904
------------
ELECTRONICS--7.6%
404,724 Badger Meter, Inc. 24,963,376
164,088 Itron, Inc.* 11,002,100
1,136,090 Watts Water Technologies, Inc., Class A 38,865,640
------------
74,831,116
------------
ENGINEERING & CONSTRUCTION--10.2%
1,516,234 Insituform Technologies, Inc., Class A* 38,633,642
1,263,461 Layne Christensen Co.* 37,272,100
578,244 URS Corp.* 24,904,969
------------
100,810,711
------------
ENVIRONMENTAL CONTROL--12.5%
4,506,419 Calgon Carbon Corp. 33,753,078
2,166,761 Nalco Holding Co.* 40,843,445
5,099,544 Synagro Technologies, Inc. 24,477,811
1,294,413 Tetra Tech, Inc.* 25,150,445
------------
124,224,779
------------
HAND/MACHINE TOOLS--4.3%
733,867 Franklin Electric Co., Inc. 42,806,462
------------
HEALTHCARE - PRODUCTS--2.8%
339,221 IDEXX Laboratories, Inc.* 28,226,579
------------
MACHINERY - DIVERSIFIED--4.2%
169,351 Flowserve Corp.* 9,741,070
187,101 IDEX Corp. 9,504,731
873,174 Lindsay Manufacturing Co. 22,702,523
------------
41,948,324
------------
METAL FABRICATE/HARDWARE--3.3%
601,061 Valmont Industries, Inc. 32,307,029
------------
MISCELLANEOUS MANUFACTURING--19.1%
127,468 3M Co. 10,889,591
155,608 Ameron International Corp. 10,221,890
457,507 Danaher Corp. 29,330,774
289,394 General Electric Co. 10,010,138
656,836 ITT Industries, Inc. 36,933,889
1,204,121 Pall Corp. 36,340,372
925,237 Pentair, Inc. 35,418,072
211,164 Roper Industries, Inc. 10,021,843
107,982 Siemens AG ADR (Germany) 10,219,416
------------
189,385,985
------------
WATER--29.3%
1,006,171 American States Water Co. 40,156,285
1,357,145 Aqua America, Inc. 32,435,766
847,646 California Water Service Group 36,033,431
1,888,433 Companhia de Saneamento Basico do
Estado de Sao Paulo ADR (Brazil) 45,983,344
1,346,719 Consolidated Water Co., Ltd.
(Cayman Islands) 36,119,004
2,270,536 Southwest Water Co. 34,671,085
1,524,027 United Utilities PLC ADR
(United Kingdom) 37,887,311
444,542 Veolia Environnement ADR (France) 26,623,620
------------
289,909,846
------------
TOTAL INVESTMENTS
(Cost $930,014,484)--100.0% 990,995,404
Other assets less liabilities--0.0% 212,642
------------
NET ASSETS--100.0% $991,208,046
============
</Table>
ADR American Depositary Receipt.
* Non-income producing security.
COUNTRY BREAKDOWN (UNAUDITED)
APRIL 30, 2006
<Table>
<Caption>
TOTAL
VALUE NET ASSETS
------------ ----------
United States $824,783,606 83.2%
Brazil 45,983,344 4.7
United Kingdom 37,887,311 3.8
Cayman Islands 36,119,004 3.7
France 36,002,723 3.6
Germany 10,219,416 1.0
------------ -----
Total value of investments 990,995,404 100.0
Other assets less liabilities 212,642 0.0
------------ -----
Net Assets $991,208,046 100.0%
============ =====
</Table>
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149
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES WILDERHILL CLEAN ENERGY PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- ---------- ------------
COMMON STOCKS--100.0%
AUTO PARTS & EQUIPMENT--3.2%
3,171,782 IMPCO Technologies, Inc.* $ 22,963,702
------------
CHEMICALS--7.9%
180,581 Air Products & Chemicals, Inc. 12,373,410
220,573 BOC Group PLC ADR (United Kingdom) 12,473,403
215,650 Praxair, Inc. 12,104,435
784,482 Zoltek Cos., Inc.* 19,996,446
------------
56,947,694
------------
COMPUTERS--5.0%
2,161,625 Echelon Corp.* 18,027,952
923,577 Maxwell Technologies, Inc.* 17,926,630
------------
35,954,582
------------
ELECTRIC--5.8%
416,089 IDACORP, Inc. 14,167,830
429,999 Ormat Technologies, Inc. 14,710,266
325,185 Scottish Power PLC ADR
(United Kingdom) 13,228,526
------------
42,106,622
------------
ELECTRICAL COMPONENTS & EQUIPMENT--24.9%
4,400,848 Active Power, Inc.* 20,904,029
763,831 American Power Conversion Corp. 16,987,601
1,589,195 American Superconductor Corp.* 17,417,577
4,563,090 Capstone Turbine Corp.* 17,248,480
2,784,911 Distributed Energy Systems Corp.* 17,572,788
382,184 Energy Conversion Devices, Inc.* 19,113,022
696,846 Intermagnetics General Corp.* 15,135,495
4,516,660 Magnetek, Inc.* 18,021,473
697,686 Medis Technologies Ltd.* 20,651,507
1,585,891 Ultralife Batteries, Inc.* 17,365,506
------------
180,417,478
------------
ELECTRONICS--11.9%
289,675 Itron, Inc.* 19,422,709
206,314 KYOCERA Corp. ADR (Japan) 19,368,758
5,658,232 Mechanical Technology, Inc.* 25,179,133
4,248,343 UQM Technologies, Inc.* 22,176,350
------------
86,146,950
------------
ENERGY-ALTERNATE SOURCES--26.6%
2,407,759 Ballard Power Systems, Inc. (Canada)* 23,379,339
1,164,170 Evergreen Solar, Inc.* 16,158,680
1,425,247 FuelCell Energy, Inc.* 18,713,493
4,891,843 Hydrogenics Corp. (Canada)* 19,224,943
770,076 MGP Ingredients, Inc. 18,913,067
590,865 Pacific Ethanol, Inc.* 19,108,574
3,388,163 Plug Power, Inc.* 20,328,978
5,117,264 Quantum Fuel Systems Technologies
Worldwide, Inc.* 21,697,198
461,388 Sunpower Corp., Class A* 17,726,527
495,095 Suntech Power Holdings Co.
Ltd. ADR (Cayman Islands)* 16,976,808
------------
192,227,607
------------
SEMICONDUCTORS--14.7%
525,837 Cree, Inc.* 15,680,459
1,052,151 Cypress Semiconductor Corp.* 18,054,911
1,768,197 Emcore Corp.* 18,848,980
421,082 International Rectifier Corp.* 19,032,906
478,738 MEMC Electronic Materials, Inc.* 19,436,764
716,930 Power Integrations, Inc.* 15,177,408
------------
106,231,428
------------
TOTAL INVESTMENTS
(Cost $642,551,299)--100.0% 722,996,063
Liabilities in excess of other assets--(0.0%) (56,435)
------------
NET ASSETS--100.0% $722,939,628
============
</Table>
ADR American Depositary Receipt.
* Non-income producing security.
COUNTRY BREAKDOWN (UNAUDITED)
APRIL 30, 2006
<Table>
<Caption>
TOTAL
VALUE NET ASSETS
------------ ----------
United States $618,344,285 85.5%
Canada 42,604,283 5.9
United Kingdom 25,701,929 3.6
Japan 19,368,758 2.7
Cayman Islands 16,976,808 2.3
------------ -----
Total value of investments 722,996,063 100.0
Liabilities in excess of other assets (56,435) (0.0)
------------ -----
Net Assets $722,939,628 100.0%
============ =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
150
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES ZACKS MICRO CAP PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- ---------- ------------
COMMON STOCKS--99.8%
CONSUMER DISCRETIONARY--14.9%
17,294 Aftermarket Technology Corp.* $ 440,997
11,797 Aldila, Inc. 388,003
19,831 Asbury Automotive Group, Inc.* 382,143
32,727 Audiovox Corp.* 397,306
6,427 Avatar Holdings, Inc.* 392,497
18,097 Bakers Footwear Group, Inc.* 350,358
19,619 Bassett Furniture Industries, Inc. 361,774
12,643 Benihana, Inc., Class A* 453,378
9,429 Blair Corp. 363,771
12,093 Bon-Ton Stores (The), Inc. 344,288
81,437 Carriage Services, Inc.* 381,940
8,034 Cavco Industries, Inc.* 361,530
18,266 Charlotte Russe Holdings, Inc.* 394,546
36,913 Cobra Electronics Corp. 427,083
22,072 Delta Apparel, Inc. 377,210
11,247 DXP Enterprises, Inc.* 451,005
49,852 Franklin Covey Co.* 451,161
24,270 Gaiam, Inc., Class A* 429,579
35,306 G-III Apparel Group Ltd.* 347,411
69,556 Harris Interactive, Inc.* 335,955
43,890 Hartmarx Corp.* 377,454
27,230 Haverty Furniture Cos., Inc. 411,173
57,843 Home Solutions of America, Inc.* 550,665
26,892 Iconix Brand Group, Inc.* 462,542
38,266 InfoSonics Corp.* 495,162
159,576 Jameson Inns, Inc.* 389,365
31,163 K2, Inc.* 367,412
43,552 Krispy Kreme Doughnuts, Inc.* 371,934
13,869 Lifetime Brands, Inc. 410,800
13,742 Lone Star Steakhouse & Saloon, Inc. 374,607
31,289 Luby's, Inc.* 371,088
76,828 Main Street Restaurant Group, Inc.* 376,457
15,349 McCormick & Schmick's Seafood Restaurants, Inc.* 383,725
15,349 Miller Industries, Inc.* 417,800
16,279 Mothers Work, Inc.* 423,905
16,956 Movado Group, Inc. 333,525
26,258 Multimedia Games, Inc.* 362,098
7,949 National Presto Industries, Inc. 479,325
21,184 O'Charley's, Inc.* 359,069
18,224 Palm Harbor Homes, Inc.* 394,732
26,681 Retail Ventures, Inc.* 429,564
25,962 Rex Stores Corp.* 496,393
28,330 Russell Corp. 512,773
26,977 Ryan's Restaurant Group, Inc.* 361,222
32,516 Sands Regent (The) 429,211
30,528 Sharper Image Corp.* 459,141
15,645 Shoe Carnival, Inc.* 438,529
130,316 Silverleaf Resorts, Inc.* 448,287
34,292 Source Interlink Cos., Inc.* 371,382
10,994 Steven Madden Ltd.* 585,321
18,689 StoneMor Partners LP 385,180
27,019 Stride Rite (The) Corp. 378,536
20,211 Superior Industries International, Inc. 380,371
26,046 Syms Corp. 466,744
88,456 Syntax-Brillian Corp.* 302,520
49,852 Tweeter Home Entertainment Group, Inc.* 426,235
20,888 United Retail Group, Inc.* 409,614
100,253 Wilsons The Leather Experts, Inc.* 390,987
------------
23,616,783
------------
CONSUMER STAPLES--3.0%
4,989 Andersons (The), Inc. 521,350
12,812 Imperial Sugar Co. 437,786
21,945 Ingles Markets, Inc., Class A 402,691
11,628 J & J Snack Foods Corp. 398,259
24,144 MGP Ingredients, Inc. 592,976
37,378 Pathmark Stores, Inc.* 386,862
49,048 PriceSmart, Inc.* 453,694
65,370 Schiff Nutrition International, Inc.* 390,913
23,848 Smart & Final, Inc.* 404,224
30,655 Spartan Stores, Inc. 423,346
19,239 Wild Oats Markets, Inc.* 330,526
------------
4,742,627
------------
ENERGY--4.9%
13,869 Adams Resources & Energy, Inc. 516,620
28,668 Allis-Chalmers Energy, Inc.* 445,787
11,205 Arena Resources, Inc.* 401,139
9,260 Atlas Pipeline Partners, LP 387,994
30,655 Bolt Technology Corp.* 465,956
18,605 Callon Petroleum Co.* 384,007
16,110 Castle Energy Corp. 374,880
8,795 Copano Energy LLC 408,968
14,165 Dawson Geophysical Co.* 410,785
15,645 Edge Petroleum Corp.* 361,556
34,799 Exploration Co. of Delaware (The), Inc.* 413,760
31,332 Genesis Enery LP 383,817
8,879 Hiland Partners LP 408,434
12,516 Martin Midstream Partners LP 387,245
23,509 Mitcham Industries, Inc.* 378,025
14,419 NATCO Group, Inc.* 426,370
45,158 Ngas Resources, Inc. (Canada)* 381,585
10,655 PHI, Inc.* 383,367
24,651 T-3 Energy Services, Inc.* 547,745
------------
7,868,040
------------
FINANCIALS--17.4%
37,251 Affordable Residential Communities* 341,964
15,095 American Campus Communities, Inc. 364,544
8,161 American Physicians Capital, Inc.* 394,340
23,383 American Safety Insurance Holdings
Ltd. (Bermuda)* 399,615
49,725 Anworth Mortgage Asset Corp. 401,281
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
151
<Page>
POWERSHARES ZACKS MICRO CAP PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- ---------- ------------
14,503 Arbor Realty Trust, Inc. $ 375,628
11,755 ASTA Funding, Inc. 427,058
36,871 Beverly Hills Bancorp, Inc. 383,458
34,630 Boykin Lodging Co.* 343,530
20,296 Bristol West Holdings, Inc. 374,664
35,264 Capital Lease Funding, Inc. 376,620
4,101 Capital Southwest Corp. 401,898
12,558 Capital Trust, Inc., Class A 390,554
24,693 Cedar Shopping Centers, Inc. 364,222
15,602 CentraCore Properties Trust 374,448
13,827 Citizens First Bancorp, Inc. 444,537
11,670 Columbia Banking Systems, Inc. 393,863
11,543 Community Trust Bancorp, Inc. 386,691
9,598 Crescent Banking Co. 384,880
19,958 Donegal Group, Inc., Class A 370,221
38,774 Eagle Hospitality Properties Trust, Inc. 348,578
25,539 Education Realty Trust, Inc. 381,042
14,038 EMC Insurance Group, Inc. 410,612
13,235 EZCORP, Inc., Class A* 419,550
13,277 Federal Agricultural Mortgage Corp., Class C 381,979
13,996 First Indiana Corp. 357,738
14,757 First Merchants Corp. 367,744
15,772 First Place Financial Corp. 362,598
13,827 First Potomac Realty Trust 381,487
14,714 First State Bancorporation 379,180
21,268 FirstBank NW Corp. 395,587
10,359 FPIC Insurance Group, Inc.* 413,842
20,338 Franklin Bank Corp.* 394,761
19,323 Gladstone Commercial Corp. 383,562
15,687 Gramercy Capital Corp. 389,508
6,892 IBERIABANK Corp. 403,664
17,717 Integrity Financial Corp. 397,747
24,524 Kite Realty Group Trust 374,481
23,932 KNBT Bancorp, Inc. 403,254
16,829 LTC Properties, Inc. 369,228
48,203 Luminent Mortgage Capital, Inc. 400,085
32,516 MarketAxess Holdings, Inc.* 362,879
55,856 Meadowbrook Insurance Group, Inc.* 399,370
28,837 Medallion Financial Corp. 383,820
20,634 Mercer Insurance Group, Inc.* 395,141
61,564 MFA Mortgage Investments, Inc. 422,329
53,995 NetBank, Inc. 377,965
35,687 NorthStar Realty Finance Corp. 400,051
13,108 NYMAGIC, Inc. 366,369
38,266 Ocwen Financial Corp.* 422,839
32,812 Partners Trust Financial Group, Inc. 387,182
42,368 Penn Treaty American Corp.* 344,876
11,882 PICO Holdings, Inc.* 389,373
13,700 Placer Sierra Bancshares 363,735
38,393 PMA Capital Corp., Class A* 375,484
28,668 ProCentury Corp. 381,284
30,148 Provident New York Bancorp 394,034
15,941 SCPIE Holdings, Inc.* 395,337
22,452 SeaBright Insurance Holdings, Inc.* 382,133
26,469 Sizeler Property Investors, Inc. 380,095
17,590 Southwest Bancorp, Inc. 395,247
8,964 Stifel Financial Corp.* 361,249
14,968 SWS Group, Inc. 409,974
9,979 Taylor Capital Group, Inc. 389,181
11,501 TierOne Corp. 391,724
16,913 Tower Group, Inc. 434,325
25,116 U.S. Global Investors, Inc., Class A* 521,407
17,082 United America Indemnity Ltd. (Cayman Islands)* 405,527
25,920 Windrose Medical Properties Trust 390,874
34,376 Winston Hotels, Inc. 370,230
73,911 Winthrop Realty Trust 393,207
------------
27,597,484
------------
HEALTH CARE--9.2%
13,235 Air Methods Corp.* 364,360
38,478 Albany Molecular Research, Inc.* 384,780
82,832 AMICAS, Inc.* 377,714
51,501 AVI BioPharma, Inc.* 327,546
75,644 Avigen, Inc.* 434,953
54,249 BioScrip, Inc.* 300,539
26,300 Bradley Pharmaceuticals, Inc.* 390,292
18,097 Candela Corp.* 420,755
34,926 Capital Senior Living Corp.* 383,487
26,427 Collagenex Pharmaceuticals, Inc.* 323,466
20,211 Cross Country Healthcare, Inc.* 366,223
14,419 Cutera, Inc.* 379,508
76,363 Encore Medical Corp.* 418,469
85,200 Gene Logic, Inc.* 246,228
127,357 Generex Biotechnology Corp.* 338,770
17,843 Greatbatch, Inc.* 437,154
56,236 Hanger Orthopedic Group, Inc.* 377,344
47,272 HealthTronics, Inc.* 401,812
13,869 Hi-Tech Pharmacal Co., Inc.* 338,542
19,746 Horizon Health Corp.* 412,691
33,869 IntegraMed America, Inc.* 392,203
115,348 I-trax, Inc.* 369,114
11,586 Kendle International, Inc.* 435,054
16,786 Matrixx Initiatives, Inc.* 273,276
24,482 Merge Technologies, Inc.* 309,452
11,797 Molecular Devices Corp.* 377,504
16,829 National Dentex Corp.* 397,838
19,070 Natus Medical, Inc.* 381,209
49,006 Novavax, Inc.* 265,613
27,822 Pediatric Services of America, Inc.* 383,944
30,359 Quidel Corp.* 347,611
105,665 Repligen Corp.* 368,771
21,268 Res-Care, Inc.* 436,632
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
152
<Page>
POWERSHARES ZACKS MICRO CAP PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- ---------- ------------
98,985 Rita Medical Systems, Inc.* $ 407,818
73,361 Savient Pharmaceuticals, Inc.* 410,088
17,251 Symbion, Inc.* 396,946
55,687 Synergetics USA, Inc.* 458,304
11,459 Vital Images, Inc.* 383,074
14,841 Zoll Medical Corp.* 393,287
------------
14,612,371
------------
INDUSTRIALS--17.7%
5,328 Ameron International Corp. 349,996
19,535 Ampco-Pittsburgh Corp. 574,915
9,894 Amrep Corp.* 462,545
15,898 AZZ, Inc.* 381,552
6,850 Badger Meter, Inc. 422,508
62,748 Baldwin Technology Company, Inc., Class A 387,783
14,461 Barrett Business Services, Inc.* 382,060
23,467 Bowne & Co., Inc. 368,667
23,805 BTU International, Inc.* 481,099
107,399 Capstone Turbine Corp.* 405,968
7,400 Cascade Corp. 307,100
48,879 CBIZ, Inc.* 407,651
13,573 CDI Corp. 384,795
17,843 Celadon Group, Inc.* 485,151
24,440 Central Parking Corp. 372,710
51,120 China Yuchai International Ltd. (Bermuda)* 413,561
13,404 CIRCOR International, Inc. 406,141
14,503 Columbus McKinnon Corp.* 388,245
28,964 Comfort Systems USA, Inc. 441,991
32,051 Cronos Group (The) (Luxembourg) 408,650
55,053 Distributed Energy Systems Corp.* 347,384
17,632 Ducommun, Inc.* 420,700
26,765 ENGlobal Corp.* 274,341
20,042 Ennis, Inc. 394,827
16,152 First Advantage Corp., Class A* 435,296
50,782 Frontier Airlines Holdings, Inc. 344,302
11,797 Gehl Co.* 423,276
24,313 Hardinge, Inc. 391,439
18,731 Herley Industries, Inc.* 396,723
14,376 Hurco Cos., Inc. 446,375
6,892 Insteel Industries, Inc. 257,485
9,514 International Aluminum Corp. 404,345
25,370 International Shipholding Corp.* 350,613
15,560 Kaman Corp. 378,108
32,093 Key Technology, Inc.* 394,423
13,488 Ladish Co., Inc.* 481,117
14,038 Lamson & Sessions (The) Co.* 353,056
11,670 Layne Christensen Co.* 344,265
21,564 LMI Aerospace, Inc.* 378,879
22,960 LSI Industries, Inc. 383,662
27,399 M F Worldwide Corp.* 387,696
32,981 Mac-Gray Corp.* 392,474
16,025 Maritrans, Inc. 384,440
21,607 Marten Transport Ltd.* 470,600
34,165 Mesa Air Group, Inc.* 359,757
35,602 On Assignment, Inc.* 462,826
15,856 PAM Transportation Services* 428,112
5,666 Patriot Transportation Holding, Inc.* 444,894
24,905 Portec Rail Products, Inc. 403,710
17,970 Powell Industries, Inc.* 441,882
14,080 PW Eagle, Inc. 429,722
36,659 RailAmerica, Inc.* 418,646
26,385 Republic Airways Holdings, Inc.* 448,545
22,241 Rush Enterprises, Inc., Class A* 424,136
13,446 SCS Transportation, Inc.* 353,226
93,107 Sitel Corp.* 411,533
37,590 Spherion Corp.* 397,702
18,013 Sterling Construction Co., Inc.* 499,861
18,309 Sun Hydraulics Corp. 385,954
15,349 Superior Essex, Inc.* 429,158
52,642 Supreme Industries, Inc., Class A 393,236
11,755 Team, Inc. 369,107
7,484 Tennant Co. 380,636
12,600 Todd Shipyards Corp. 388,584
24,566 Tredegar Corp. 394,530
8,837 Triumph Group, Inc.* 415,869
14,376 Twin Disc, Inc. 479,727
15,898 USA Truck, Inc.* 348,961
12,812 Volt Information Sciences, Inc.* 402,041
39,831 World Air Holdings, Inc.* 363,259
------------
28,144,528
------------
INFORMATION TECHNOLOGY--27.6%
37,378 24/7 Real Media, Inc.* 378,265
44,313 Acacia Research - Acacia Technologies* 494,976
30,444 Access Integrated Technologies,
Inc., Class A* 407,950
24,524 Actel Corp.* 394,101
44,524 Advanced Digital Information Corp.* 378,009
27,653 Advanced Energy Industries, Inc.* 433,876
51,247 Agile Software Corp.* 357,192
25,962 Agilysys, Inc. 375,930
49,513 ANADIGICS, Inc.* 443,141
20,084 Anaren, Inc.* 412,525
60,803 Answersthink, Inc.* 355,090
20,127 Applied Films Corp.* 441,184
121,817 Art Technology Group, Inc.* 345,960
78,181 AsiaInfo Holdings, Inc.* 369,796
33,319 Astea International, Inc.* 279,550
101,014 AXT, Inc.* 422,239
63,467 Bell Microproducts, Inc.* 412,536
33,319 CalAmp Corp.* 448,807
88,879 CDC Corp., Class A (Cayman Islands)* 407,066
102,071 Centillium Communications, Inc.* 381,746
54,672 ChipMOS Technologies Ltd. (Bermuda)* 394,185
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
153
<Page>
POWERSHARES ZACKS MICRO CAP PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
112,050 Chordiant Software, Inc.* $ 374,247
61,268 Ciber, Inc.* 419,686
16,321 Click Commerce, Inc.* 348,780
18,435 Cohu, Inc. 353,768
78,181 Computer Horizons Corp.* 427,650
29,218 CTS Corp. 412,266
29,725 DayStar Technologies, Inc.* 376,021
55,053 Dot Hill Systems Corp.* 250,491
76,067 ECtel Ltd. (Israel)* 416,847
59,788 Edgewater Technology, Inc.* 463,357
36,237 EFJ, Inc.* 370,342
38,266 Emcore Corp.* 407,916
21,691 EMS Technologies, Inc.* 416,467
20,592 EPIQ Systems, Inc.* 358,507
27,484 ePlus, Inc.* 385,601
27,399 Exar Corp.* 397,012
49,683 Exfo Electro-Optical Engineering, Inc. (Canada)* 374,113
17,505 Forrester Research, Inc.* 428,873
37,801 Gerber Scientific, Inc.* 391,996
68,837 GigaMedia Ltd. (Singapore)* 569,282
74,460 Glenayre Technologies, Inc.* 411,764
35,391 GSI Group, Inc. (Canada)* 354,264
42,029 Hypercom Corp.* 381,623
14,503 Integral Systems, Inc. 419,282
58,900 Integrated Silicon Solutions, Inc.* 389,329
41,522 Internet Capital Group, Inc.* 388,231
43,509 Interwoven, Inc.* 441,616
13,573 Intevac, Inc.* 381,401
48,795 iPass, Inc.* 405,974
27,061 JDA Software Group, Inc.* 369,653
78,054 Kopin Corp.* 433,980
35,222 Lightbridge, Inc.* 448,024
16,321 LoJack Corp.* 360,857
181,014 Manugistics Group, Inc.* 439,864
84,651 McDATA Corp., Class A* 408,864
31,797 Merix Corp.* 366,937
35,898 Methode Electronics, Inc. 351,800
17,674 Micronetics, Inc.* 272,180
44,143 Monolithic System Technology, Inc.* 382,720
24,482 MRO Software, Inc.* 465,648
28,245 Nanometrics, Inc.* 389,216
23,552 Napco Security Systems, Inc.* 359,639
13,192 Neoware, Inc.* 285,871
42,960 Netscout Systems, Inc.* 412,416
126,130 Network Engines, Inc.* 292,622
10,613 NovAtel, Inc. (Canada)* 365,299
45,962 NU Horizons Electronics Corp.* 389,758
30,063 Online Resources Corp.* 389,917
14,334 Open Solutions, Inc.* 390,171
22,537 Oplink Communications, Inc.* 434,513
126,934 Optical Communication Products, Inc.* 308,450
18,520 OSI Systems, Inc.* 352,991
6,638 OYO Geospace Corp.* 386,597
45,750 Pacific Internet Ltd. (Singapore)* 401,228
22,029 PAR Technology Corp.* 368,765
13,235 Park Electrochemical Corp. 409,888
41,057 PC-Tel, Inc.* 433,562
41,564 Pegasus Solutions, Inc.* 392,364
47,907 Pegasystems, Inc.* 380,861
45,962 Perceptron, Inc.* 364,754
39,661 Pericom Semiconductor Corp.* 387,091
23,129 Planar Systems, Inc.* 376,540
41,184 PLATO Learning, Inc.* 411,840
45,750 Qiao Xing Universal Telephone, Inc.
(British Virgin Islands)* 421,815
19,704 RadiSys Corp.* 416,937
21,903 RADVision Ltd. (Israel)* 382,207
24,482 Radyne Corp.* 374,330
40,127 Relm Wireless Corp.* 381,608
158,308 Safeguard Scientifics, Inc.* 408,435
11,120 SI International, Inc.* 378,858
89,260 Silicon Storage Technology, Inc.* 407,918
55,137 SonicWALL, Inc.* 468,113
12,347 SPSS, Inc.* 430,416
32,981 Stellent, Inc.* 422,487
48,330 Stratos International, Inc.* 371,174
10,402 Supertex, Inc.* 401,725
27,569 Sykes Enterprises, Inc.* 446,342
21,057 SYNNEX Corp.* 399,030
100,507 Terabeam, Inc.* 315,592
21,142 TESSCO Technologies, Inc.* 412,267
26,258 Tollgrade Communications, Inc.* 301,179
79,450 Triquint Semiconductor, Inc.* 431,414
26,977 TTM Technologies, Inc.* 438,646
15,983 Ultratech, Inc.* 313,906
26,511 Vignette Corp.* 420,199
22,325 Viisage Technology, Inc.* 374,390
76,659 WatchGuard Technologies, Inc.* 398,627
46,427 webMethods, Inc.* 444,306
66,723 White Electronic Designs Corp.* 382,323
145,877 Zhone Technologies, Inc.* 353,022
23,974 Zygo Corp.* 430,813
------------
43,963,789
------------
MATERIALS--3.5%
13,235 A. M. Castle & Co. 477,784
36,110 Charles & Colvard Ltd.* 426,459
69,809 Core Molding Technologies, Inc. 375,572
78,181 ICO, Inc. 445,632
15,264 Innospec, Inc. 383,737
24,440 Myers Industries, Inc. 432,588
33,488 North American Palladium Ltd. (Canada)* 369,708
12,896 Northwest Pipe Co.* 380,303
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
154
<Page>
POWERSHARES ZACKS MICRO CAP PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
12,939 Olympic Steel, Inc. $ 407,708
26,089 Rock-Tenn Co., Class A 414,032
14,630 Ryerson Tull, Inc. 429,829
1,405 Schweitzer-Mauduit International, Inc. 34,015
4,803 Steel Dynamics, Inc. 299,899
16,110 Steel Technologies, Inc. 374,235
27,019 US Concrete, Inc.* 370,701
------------
5,622,202
------------
TELECOMMUNICATION SERVICES--0.8%
77,124 @Road, Inc.* 433,437
28,752 CT Communications, Inc. 408,278
45,835 Talk America Holdings, Inc.* 417,557
------------
1,259,272
------------
UTILITIES--0.8%
10,486 American States Water Co. 418,496
17,590 Empire District Electric (The) Co. 400,173
24,524 Southwest Water Co. 374,481
------------
1,193,150
------------
TOTAL INVESTMENTS
(Cost $146,502,079)--99.8% 158,620,246
Other assets less liabilities--0.2% 355,335
------------
NET ASSETS--100.0% $158,975,581
============
</Table>
* Non-income producing security.
COUNTRY BREAKDOWN (UNAUDITED)
APRIL 30, 2006
<Table>
<Caption>
TOTAL
VALUE NET ASSETS
------------ ----------
United States $152,155,294 95.7%
Canada 1,844,969 1.2
Bermuda 1,207,361 0.8
Singapore 970,510 0.6
Cayman Islands 812,593 0.5
Israel 799,054 0.5
British Virgin Islands 421,815 0.3
Luxembourg 408,650 0.2
------------ -----
Total value of investments 158,620,246 99.8
Other assets less liabilities 355,335 0.2
------------ -----
Net Assets $158,975,581 100.0%
============ =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
155
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES ZACKS SMALL CAP PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
COMMON STOCKS--99.9%
CONSUMER DISCRETIONARY--19.4%
10,890 American Greetings Corp., Class A $ 245,243
5,632 Arbitron, Inc. 200,837
9,504 Arctic Cat, Inc. 205,572
16,588 Big Lots, Inc.* 239,697
13,678 Bluegreen Corp.* 168,650
8,426 Bob Evans Farms, Inc. 243,343
7,618 Brown Shoe Co., Inc. 289,713
7,260 Build-A-Bear-Workshop, Inc.* 234,498
5,540 Building Material Holding Corp. 185,147
3,278 Carter's, Inc.* 220,806
16,340 Champion Enterprises, Inc.* 249,348
14,256 CKE Restaurants, Inc. 225,672
10,868 Coldwater Creek, Inc.* 303,869
11,194 Dolby Laboratories, Inc.* 263,507
8,338 DreamWorks Animation SKG, Inc., Class A* 225,960
9,724 Dress Barn (The), Inc.* 245,920
31,476 Entravision Communications Corp.* 263,769
18,584 Fleetwood Enterprises, Inc.* 174,690
5,302 Guess ?, Inc.* 210,118
4,178 IHOP Corp. 200,210
7,038 K-Swiss, Inc., Class A 201,850
21,644 Lin TV Corp., Class A* 191,333
7,194 Lithia Motors, Inc., Class A 243,805
9,878 LKQ Corp.* 207,833
7,018 MarineMax, Inc.* 229,910
14,606 Nautilus, Inc. 239,538
11,790 New York & Co., Inc.* 183,570
4,662 Nutri/System, Inc.* 316,363
3,916 Pantry (The), Inc.* 259,200
12,628 PetMed Express, Inc.* 203,311
6,204 Phillips-Van Heusen Corp. 249,401
10,252 Priceline.com, Inc.* 250,559
17,292 Retail Ventures, Inc.* 278,401
14,586 Salem Communications Corp., Class A* 222,874
27,542 Sinclair Broadcast Group, Inc., Class A 216,205
11,462 Sotheby's Holdings, Class A* 343,745
7,832 Stamps.com, Inc.* 220,862
13,184 Stein Mart, Inc. 208,307
5,874 Steiner Leisure Ltd. (Bahamas)* 253,287
9,702 Technical Olympic USA, Inc. 203,742
8,688 TRW Automotive Holdings Corp.* 192,700
9,702 Tupperware Brands Corp. 204,712
17,796 ValueVision Media, Inc., Class A* 222,450
7,434 VistaPrint Ltd. (Bermuda)* 237,739
5,764 Volcom, Inc.* 205,602
11,242 Warner Music Group Corp. 297,463
2,156 William Lyon Homes, Inc.* 215,708
15,136 World Wrestling Entertainment, Inc. 262,458
9,064 Zumiez, Inc.* 294,580
------------
11,454,077
------------
CONSUMER STAPLES--1.6%
8,888 Casey's General Stores, Inc. 190,114
4,554 Central Garden & Pet Co.* 224,330
11,682 Inter Parfums Inc 221,374
6,248 Longs Drug Stores Corp. 296,218
------------
932,036
------------
ENERGY--4.0%
5,602 Bill Barrett Corp.* 168,284
3,630 Dril-Quip, Inc.* 261,287
4,598 GMX Resources, Inc.* 193,622
5,648 Hornbeck Offshore Services, Inc.* 202,820
28,066 Input/Output, Inc.* 282,906
7,172 Pacific Energy Partners LP 228,428
10,868 Parallel Petroleum Corp.* 251,051
18,282 Parker Drilling Co.* 153,569
3,476 Penn Virginia Corp. 251,245
6,270 RPC, Inc. 173,616
14,586 USEC, Inc.* 185,242
------------
2,352,070
------------
FINANCIALS--13.9%
7,854 American Home Mortgage Investment Corp. 272,691
4,576 American Physicians Capital, Inc.* 221,112
8,360 Cash America International, Inc. 274,877
6,028 City Holding Co. 218,093
9,658 Community Bank System, Inc. 198,279
5,588 CompuCredit Corp.* 223,241
3,476 Corus Bankshares, Inc. 232,683
4,752 Delphi Financial Group, Inc., Class A 248,957
3,410 Downey Financial Corp. 244,770
11,766 Encore Capital Group, Inc.* 173,784
13,260 F.N.B. Corp. 222,503
8,126 First Indiana Corp. 207,701
5,896 First Republic Bank 256,594
6,044 FPIC Insurance Group, Inc.* 241,458
3,850 Greenhill & Co., Inc. 273,042
8,096 Harleysville Group, Inc. 242,880
13,222 Housevalues, Inc.* 121,775
4,950 Investment Technology Group, Inc.* 262,301
10,378 Irwin Financial Corp. 190,540
19,574 Knight Capital Group, Inc., Class A* 328,060
19,838 LaBranche & Co., Inc.* 280,311
3,316 LandAmerica Financial Group, Inc. 230,064
6,136 Lazard Ltd., Class A (Bermuda) 272,438
12,430 Nara Bancorp, Inc. 233,684
22,000 Ocwen Financial Corp.* 243,100
7,436 Ohio Casualty Corp. 220,477
14,870 Phoenix (The) Cos., Inc. 225,875
4,972 Piper Jaffray Cos., Inc.* 347,542
8,017 Raymond James Financial, Inc. 243,316
3,872 Selective Insurance Group, Inc. 215,516
12,760 Tradestation Group, Inc.* 203,394
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
156
<Page>
POWERSHARES ZACKS SMALL CAP PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
8,096 Trammell Crow Co.* $ 315,177
4,994 Unitrin, Inc. 243,957
6,732 Whitney Holding Corp. 239,390
------------
8,169,582
------------
HEALTH CARE--11.9%
5,060 Adams Respiratory Therapeutics, Inc.* 217,023
27,186 Align Technology, Inc.* 238,965
6,600 Alpharma, Inc., Class A 173,250
8,294 American Retirement Corp.* 210,668
6,132 Aspect Medical Systems, Inc.* 174,517
10,162 Bentley Pharmaceuticals, Inc.* 129,057
5,192 Computer Programs & Systems, Inc. 245,166
14,800 Connetics Corp.* 224,220
14,342 First Horizon Pharmaceutical Corp.* 319,397
8,228 Given Imaging Ltd. (Israel)* 192,864
8,756 Greatbatch, Inc.* 214,522
4,576 Hillenbrand Industries, Inc. 235,023
4,398 Hologic, Inc.* 209,653
5,368 Kyphon, Inc.* 223,040
8,426 Laserscope* 200,202
4,026 LCA-Vision, Inc. 226,100
9,828 LifeCell Corp.* 265,749
9,195 Martek Biosciences Corp.* 273,092
8,332 Merge Technologies, Inc.* 105,316
6,028 Myogen, Inc.* 199,286
6,468 Neurometrix, Inc.* 243,973
20,832 OraSure Technologies, Inc.* 223,527
24,392 Pain Therapeutics, Inc.* 225,870
8,930 Per-Se Technologies, Inc.* 249,594
13,792 Pharmion Corp.* 267,013
8,008 Syneron Medical Ltd. (Israel)* 207,167
18,114 Tanox, Inc.* 291,454
8,932 Thoratec Corp.* 160,865
12,358 TriZetto Group (The), Inc.* 194,268
5,720 United Surgical Partners International, Inc.* 188,817
3,476 United Therapeutics Corp.* 206,996
8,690 Ventiv Health, Inc.* 261,048
------------
6,997,702
------------
INDUSTRIALS--20.1%
5,170 A.O. Smith Corp. 245,161
11,704 ABM Industries, Inc. 201,309
13,706 AirTran Holdings, Inc.* 191,610
2,838 AMERCO* 296,401
3,410 American Science & Engineering, Inc.* 292,271
5,214 Applied Industrial Technologies, Inc. 216,642
6,688 ASV, Inc.* 167,200
6,534 Beacon Roofing Supply, Inc.* 241,758
15,048 BlueLinx Holdings, Inc. 227,977
5,632 Brady Corp., Class A 202,583
8,932 Builders FirstSource, Inc.* 192,485
4,378 Cascade Corp. 181,687
37,750 CBIZ, Inc.* 314,835
6,512 CLARCOR, Inc. 227,920
4,466 Consolidated Graphics, Inc.* 233,527
4,372 CoStar Group, Inc.* 246,799
4,510 DRS Technologies, Inc. 250,440
5,984 Dynamic Materials Corp. 228,529
5,412 EMCOR Group, Inc.* 270,871
8,734 Encore Wire Corp.* 366,216
7,194 EnPro Industries, Inc.* 265,315
4,598 ESCO Technologies, Inc.* 233,119
4,576 Florida East Coast Industries, Inc. 255,798
5,192 Franklin Electric, Co., Inc. 302,849
5,648 GATX Corp. 264,326
9,108 General Cable Corp.* 287,540
3,828 Genlyte Group, Inc.* 263,787
6,666 Heidrick & Struggles International, Inc.* 241,043
5,280 Hub Group, Inc., Class A* 259,618
17,154 JetBlue Airways Corp.* 176,000
8,228 JLG Industries, Inc. 235,979
8,272 Laidlaw International, Inc. 204,732
6,732 Manitowoc Co. (The), Inc. 333,840
17,264 Orbital Sciences Corp.* 270,182
7,832 PHH Corp.* 218,356
12,582 Pike Electric Corp.* 240,694
20,322 Spherion Corp.* 215,007
6,754 Teledyne Technologies, Inc.* 245,913
19,270 TeleTech Holdings, Inc.* 247,427
5,058 Toro (The) Co. 250,118
5,280 Triumph Group, Inc.* 248,477
10,884 UAP Holding Corp. 224,863
4,906 United Industrial Corp. 322,324
7,700 US Airways Group, Inc.* 333,102
7,920 Viad Corp. 260,330
13,332 Vicor Corp. 275,039
4,752 WESCO International, Inc.* 356,399
------------
11,828,398
------------
INFORMATION TECHNOLOGY--17.9%
39,840 Adaptec, Inc.* 220,315
8,050 Advent Software, Inc.* 283,360
10,862 Agilysys, Inc. 157,282
6,380 Ansoft Corp.* 281,868
8,602 aQuantive, Inc.* 215,566
23,538 Ariba, Inc.* 217,491
12,364 ASM International N.V. (Netherlands)* 238,007
17,180 AudioCodes Ltd. (Israel)* 233,992
34,709 Borland Software Corp.* 177,016
8,206 Checkpoint Systems, Inc.* 216,228
7,898 Cohu, Inc. 151,563
10,184 CommScope, Inc.* 336,582
14,872 Covansys Corp.* 258,773
6,534 Digital River, Inc.* 284,490
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
157
<Page>
POWERSHARES ZACKS SMALL CAP PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- -----------
26,790 ECI Telecom Ltd. (Israel)* $ 286,117
9,036 Electro Scientific Industries, Inc.* 180,991
4,730 Equinix, Inc.* 311,707
7,898 FileNET Corp.* 219,722
16,010 Gartner, Inc.* 224,460
8,244 Gevity HR, Inc. 211,788
9,262 InfoSpace, Inc.* 236,459
9,150 Interdigital Communications Corp.* 231,678
6,182 Intermec, Inc.* 163,761
4,658 Itron, Inc.* 312,319
29,588 iVillage, Inc.* 250,314
16,780 IXYS Corp.* 169,646
30,156 Lawson Software, Inc.* 231,598
8,580 LoJack Corp.* 189,704
9,262 Marchex, Inc., Class B* 201,541
19,090 MasTec, Inc.* 235,380
11,858 Mercury Computer Systems, Inc.* 226,013
24,792 MIPS Technologies, Inc.* 183,709
14,668 MRO Software, Inc.* 278,985
9,504 Nam Tai Electronics, Inc. (British
Virgin Islands) 214,600
5,940 Netlogic Microsystems, Inc.* 239,204
26,922 Nuance Communications, Inc.* 345,410
7,942 Park Electrochemical Corp. 245,964
15,900 Radiant Systems, Inc.* 206,700
6,534 Standard Microsystems Corp.* 152,242
10,758 Technitrol, Inc. 269,380
6,798 Transaction Systems Architects, Inc.* 271,512
21,030 TTM Technologies, Inc.* 341,949
11,478 Ultratech, Inc.* 225,428
16,236 United Online, Inc. 209,282
16,432 Wind River Systems, Inc.* 187,489
-----------
10,527,585
-----------
MATERIALS--6.9%
9,128 A. Schulman, Inc. 218,524
18,599 AK Steel Holding Corp.* 277,311
5,148 Albemarle Corp. 246,177
5,632 Aleris International, Inc.* 260,480
8,536 AMCOL International Corp. 246,008
5,830 Cabot Corp. 209,880
2,618 Carpenter Technology Corp. 311,411
17,858 Chemtura Corp. 217,868
6,358 Headwaters, Inc.* 214,137
14,800 Myers Industries, Inc. 261,960
7,826 NewMarket Corp. 397,953
10,604 Olin Corp. 217,912
10,117 Packaging Corp of America 227,430
2,794 Reliance Steel & Aluminum Co. 248,526
10,708 Rockwood Holdings, Inc.* 254,529
8,030 Symyx Technologies* 234,075
-----------
4,044,181
-----------
TELECOMMUNICATION SERVICES--0.4%
30,862 Dobson Communications Corp.* 277,758
-----------
UTILITIES--3.8%
10,142 Cleco Corp. 228,195
12,408 Duquesne Light Holdings, Inc. 210,564
6,776 Laclede Group (The), Inc. 231,062
7,964 Oneok, Inc. 262,892
6,468 Ormat Technologies, Inc. 221,270
7,298 Otter Tail Corp. 217,845
6,006 Peoples Energy Corp. 218,198
10,620 Puget Energy, Inc. 220,577
7,568 South Jersey Industries, Inc. 201,157
8,072 Southwest Gas, Corp. 223,756
-----------
2,235,516
-----------
TOTAL INVESTMENTS
(Cost $56,251,167)--99.9% 58,818,905
Other assets less liabilities--0.1% 47,247
-----------
NET ASSETS--100.0% $58,866,152
===========
</Table>
* Non-income producing security.
COUNTRY BREAKDOWN (UNAUDITED)
APRIL 30, 2006
<Table>
<Caption>
TOTAL
VALUE NET ASSETS
----------- ----------
United States $56,682,693 96.3%
Israel 920,140 1.6
Bermuda 510,178 0.8
Bahamas 253,287 0.4
Netherlands 238,007 0.4
Virgin Islands 214,600 0.4
----------- -----
Total value of investments 58,818,905 99.9
Other assets less liabilities 47,247 0.1
----------- -----
Net Assets $58,866,152 100.0%
=========== =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
158
<Page>
This page intentionally left blank
<Page>
STATEMENTS OF ASSETS AND LIABILITIES
POWERSHARES EXCHANGE-TRADED FUNDS
APRIL 30, 2006
<Table>
<Caption>
POWERSHARES POWERSHARES POWERSHARES
AEROSPACE & GOLDEN DRAGON POWERSHARES VALUE LINE
DEFENSE HALTER USX CHINA LUX NANOTECH TIMELINESS SELECT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ---------------- ------------ -----------------
ASSETS:
Investments at value $85,111,969 $237,512,736 $112,423,947 $182,823,067
Cash 63,763 49,950 -- --
Receivables:
Investments sold -- -- 101,477 186,542
Capital stock sold -- -- -- --
Dividends 29,115 903,881 13,051 19,819
Interest -- -- -- --
Due from Advisor 19,271 30,721 16,630 17,583
----------- ------------ ------------ ------------
TOTAL ASSETS 85,224,118 238,497,288 112,555,105 183,047,011
----------- ------------ ------------ ------------
LIABILITIES:
Due to custodian -- -- 39,805 103,858
Payables:
Investments purchased -- -- -- --
Capital stock purchased -- -- -- --
Accrued advisory fees 31,419 87,140 44,290 69,654
Accrued expenses 57,168 79,874 54,598 63,962
----------- ------------ ------------ ------------
TOTAL LIABILITIES 88,587 167,014 138,693 237,474
----------- ------------ ------------ ------------
NET ASSETS $85,135,531 $238,330,274 $112,416,412 $182,809,537
=========== ============ ============ ============
NET ASSETS CONSIST OF:
Paid-in capital $76,931,836 $222,621,705 $104,273,106 $174,806,110
Undistributed net investment income (loss)/distributions
in excess of net investment income 32,046 606,662 -- --
Accumulated net realized loss on investments (132,048) (4,719,974) (265,539) (2,653,108)
Net unrealized appreciation/depreciation on investments 8,303,697 19,821,881 8,408,845 10,656,535
----------- ------------ ------------ ------------
NET ASSETS $85,135,531 $238,330,274 $112,416,412 $182,809,537
=========== ============ ============ ============
Shares outstanding (unlimited amount authorized,
$0.01 par value) 4,900,000 14,100,000 5,900,000 10,700,000
Net asset value $ 17.37 $ 16.90 $ 19.05 $ 17.09
=========== ============ ============ ============
Investments at cost $76,808,272 $217,690,855 $104,015,102 $172,166,532
=========== ============ ============ ============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
160
<Page>
<Table>
<Caption>
POWERSHARES
POWERSHARES WILDERHILL CLEAN POWERSHARES POWERSHARES
WATER RESOURCES ENERGY ZACKS MICRO CAP ZACKS SMALL CAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- ---------------- --------------- ---------------
ASSETS:
Investments at value $ 990,995,404 $722,996,063 $158,620,246 $58,818,905
Cash -- -- -- 75,132
Receivables:
Investments sold -- 553,149 639,975 --
Capital stock sold 51,114,961 13,583,291 -- --
Dividends 737,857 92,463 49,343 21,719
Interest -- -- -- --
Due from Advisor 38,543 44,403 49,283 23,253
-------------- ------------ ------------ -----------
TOTAL ASSETS 1,042,886,765 737,269,369 159,358,847 58,939,009
-------------- ------------ ------------ -----------
LIABILITIES:
Due to custodian 32,388 292,626 218,584 --
Payables:
Investments purchased 51,068,890 13,609,256 29,467 --
Capital stock purchased -- -- -- --
Accrued advisory fees 351,566 246,834 61,773 21,751
Accrued expenses 225,875 181,025 73,442 51,106
-------------- ------------ ------------ -----------
TOTAL LIABILITIES 51,678,719 14,329,741 383,266 72,857
-------------- ------------ ------------ -----------
NET ASSETS $ 991,208,046 $722,939,628 $158,975,581 $58,866,152
============== ============ ============ ===========
NET ASSETS CONSIST OF:
Paid-in capital $ 931,707,681 $647,508,422 $151,620,396 $56,346,347
Undistributed net investment income (loss)/distributions
in excess of net investment income 421,922 -- -- 26,152
Accumulated net realized loss on investments (1,902,477) (5,013,558) (4,762,982) (74,085)
Net unrealized appreciation/depreciation on investments 60,980,920 80,444,764 12,118,167 2,567,738
-------------- ------------ ------------ -----------
NET ASSETS $ 991,208,046 $722,939,628 $158,975,581 $58,866,152
============== ============ ============ ===========
Shares outstanding (unlimited amount authorized,
$0.01 par value) 54,300,000 32,300,000 9,100,000 2,200,000
Net asset value $ 18.25 $ 22.38 $ 17.47 $ 26.76
============== ============ ============ ===========
Investments at cost $ 930,014,484 $642,551,299 $146,502,079 $56,251,167
============== ============ ============ ===========
</Table>
161
<Page>
STATEMENTS OF OPERATIONS
<Table>
<Caption>
POWERSHARES POWERSHARES POWERSHARES
AEROSPACE & GOLDEN DRAGON POWERSHARES VALUE LINE
DEFENSE HALTER USX CHINA LUX NANOTECH TIMELINESS SELECT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ---------------- -------------- -----------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
OCTOBER 26, OCTOBER 26, DECEMBER 6,
2005* THROUGH YEAR ENDED 2005* THROUGH 2005* THROUGH
APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006
-------------- ---------------- -------------- -----------------
INVESTMENT INCOME:
Dividends $ 289,956 $ 1,710,342 $ 293,750 $ 177,249
Net of foreign withholding taxes -- -- -- (1,499)
---------- ----------- ----------- -----------
TOTAL INCOME 289,956 1,710,342 293,750 175,750
---------- ----------- ----------- -----------
EXPENSES:
Advisory fees 145,938 452,163 162,591 211,802
Audit 18,000 19,573 18,000 12,000
Licensing 17,513 90,433 32,511 42,360
Printing 11,000 40,482 7,500 10,000
Registration & filings 7,361 17,811 10,008 16,443
Administration fees 5,948 55,219 6,416 7,446
Offering costs 5,766 9,967 9,271 4,990
Listing fee and expenses 5,241 11,654 5,279 4,214
Accounting 3,496 50,208 3,806 4,236
Custodian and transfer agent fees 2,659 8,668 2,226 3,788
Legal 1,650 24,971 3,600 1,700
Trustees 484 3,673 640 885
Other expenses 8,936 12,065 8,613 10,573
---------- ----------- ----------- -----------
TOTAL EXPENSES 233,992 796,887 270,461 330,437
Less fees waived:
Advisory (35,058) (153,739) (33,080) (29,056)
---------- ----------- ----------- -----------
NET EXPENSES 198,934 643,148 237,381 301,381
---------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) 91,022 1,067,194 56,369 (125,631)
---------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Investments (132,048) (4,687,850) (416,295) (2,653,108)
In-kind redemptions 291,817 6,226,725 4,641,337 2,726,406
---------- ----------- ----------- -----------
Net realized gain (loss) 159,769 1,538,875 4,225,042 73,298
Net change in unrealized appreciation/depreciation
on investments 8,303,697 23,738,694 8,408,845 10,656,535
---------- ----------- ----------- -----------
Net realized and unrealized gain on investments 8,463,466 25,277,569 12,633,887 10,729,833
---------- ----------- ----------- -----------
Net increase in net assets resulting from operations $8,554,488 $26,344,763 $12,690,256 $10,604,202
========== =========== =========== ===========
</Table>
* Commencement of Investment Operations.
SEE NOTES TO FINANCIAL STATEMENTS.
162
<Page>
<Table>
<Caption>
POWERSHARES
POWERSHARES WILDERHILL CLEAN POWERSHARES POWERSHARES
WATER RESOURCES ENERGY ZACKS MICRO CAP ZACKS SMALL CAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- ----------------- --------------- ---------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
DECEMBER 6, AUGUST 18, FEBRUARY 16,
2005* THROUGH YEAR ENDED 2005* THROUGH 2006* THROUGH
APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006
--------------- ----------------- --------------- ---------------
INVESTMENT INCOME:
Dividends $ 2,008,871 $ 636,050 $ 527,182 $ 90,405
Net of foreign withholding taxes (80,504) (5,566) -- --
----------- ------------ ----------- ----------
TOTAL INCOME 1,928,367 630,484 527,182 90,405
----------- ------------ ----------- ----------
EXPENSES:
Advisory fees 900,605 999,292 364,824 43,105
Audit 12,000 18,569 18,000 12,000
Licensing 135,072 199,858 72,965 8,621
Printing 22,230 71,982 23,660 15,000
Registration & filings 81,138 48,530 13,030 5,387
Administration fees 30,915 47,037 22,030 1,398
Offering costs 6,800 22,205 11,459 3,447
Listing fee and expenses 5,098 15,114 7,741 2,067
Accounting 18,010 37,509 16,348 862
Custodian and transfer agent fees 9,605 12,694 20,211 636
Legal 11,500 11,971 11,000 600
Trustees 4,543 7,270 1,217 163
Other expenses 17,048 14,273 17,604 7,205
----------- ------------ ----------- ----------
TOTAL EXPENSES 1,254,564 1,506,304 600,089 100,491
Less fees waived:
Advisory (39,206) (92,899) (78,032) (36,238)
----------- ------------ ----------- ----------
NET EXPENSES 1,215,358 1,413,405 522,057 64,253
----------- ------------ ----------- ----------
NET INVESTMENT INCOME (LOSS) 713,009 (782,921) 5,125 26,152
----------- ------------ ----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Investments (1,902,477) (4,937,958) (4,842,133) (74,085)
In-kind redemptions 5,583,088 24,246,926 9,901,315 --
----------- ------------ ----------- ----------
Net realized gain (loss) 3,680,611 19,308,968 5,059,182 (74,085)
Net change in unrealized appreciation/depreciation
on investments 60,980,920 84,680,554 12,118,167 2,567,738
----------- ------------ ----------- ----------
Net realized and unrealized gain on investments 64,661,531 103,989,522 17,177,349 2,493,653
----------- ------------ ----------- ----------
Net increase in net assets resulting from operations $65,374,540 $103,206,601 $17,182,474 $2,519,805
=========== ============ =========== ==========
</Table>
* Commencement of Investment Operations.
163
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
POWERSHARES POWERSHARES
AEROSPACE & GOLDEN DRAGON POWERSHARES
DEFENSE HALTER USX CHINA LUX NANOTECH
PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ----------------------------------- --------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
OCTOBER 26, FOR THE YEAR DECEMBER 9, OCTOBER 26,
2005* THROUGH ENDED 2004* THROUGH 2005* THROUGH
APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2005 APRIL 30, 2006
-------------- -------------- -------------- --------------
OPERATIONS:
Net investment income (gain) $ 91,022 $ 1,067,194 $ 185,418 $ 56,369
Net realized gain (loss) on investments 159,769 1,538,875 487,615 4,225,042
Net change in unrealized appreciation/depreciation
on investments 8,303,697 23,738,694 (3,916,813) 8,408,845
----------- ------------ ----------- ------------
Net increase (decrease) in net assets resulting
from operations 8,554,488 26,344,763 (3,243,780) 12,690,256
----------- ------------ ----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (59,157) (741,732) -- (22,920)
Tax return of capital -- -- -- (147,353)
----------- ------------ ----------- ------------
Total distributions (59,157) (741,732) -- (170,273)
----------- ------------ ----------- ------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold 79,923,553 182,731,681 59,495,034 117,694,691
Value of shares repurchased (3,283,353) (19,388,492) (6,867,200) (17,798,262)
Net income equalization -- -- -- --
----------- ------------ ----------- ------------
Net increase in net assets resulting from share
transactions 76,640,200 163,343,189 52,627,834 99,896,429
----------- ------------ ----------- ------------
INCREASE IN NET ASSETS 85,135,531 188,946,220 49,384,054 112,416,412
NET ASSETS:
Beginning of period -- 49,384,054 -- --
----------- ------------ ----------- ------------
End of period $85,135,531 $238,330,274 $49,384,054 $112,416,412
=========== ============ =========== ============
Undistributed net investment income (loss)/
(distributions in excess of net investment
income) at end of period $ 32,046 $ 606,662 $ 185,418 $ --
=========== ============ =========== ============
CHANGES IN SHARES OUTSTANDING:
Shares sold 5,100,000 11,600,000 4,300,000 6,900,000
Shares repurchased (200,000) (1,300,000) (500,000) (1,000,000)
Shares outstanding, beginning of period -- 3,800,000 -- --
----------- ------------ ----------- ------------
Shares outstanding, end of period 4,900,000 14,100,000 3,800,000 5,900,000
=========== ============ =========== ============
</Table>
* Commencement of Investment Operations.
SEE NOTES TO FINANCIAL STATEMENTS.
164
<Page>
<Table>
<Caption>
POWERSHARES POWERSHARES
VALUE LINE POWERSHARES WILDERHILL CLEAN
TIMELINESS SELECT WATER RESOURCES ENERGY
PORTFOLIO PORTFOLIO PORTFOLIO
----------------- --------------- -------------------------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
DECEMBER 6, DECEMBER 6, FOR THE YEAR MARCH 3, 2005*
2005* THROUGH 2005* THROUGH ENDED THROUGH
APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2005
---------------- -------------- -------------- ---------------
OPERATIONS:
Net investment income (gain) $ (125,631) $ 713,009 $ (782,921) $ (12,511)
Net realized gain (loss) on investments 73,298 3,680,611 19,308,968 (216,715)
Net change in unrealized appreciation/depreciation
on investments 10,656,535 60,980,920 84,680,554 (4,235,790)
------------ ------------ ------------ -----------
Net increase (decrease) in net assets resulting
from operations 10,604,202 65,374,540 103,206,601 (4,465,016)
------------ ------------ ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (291,087) -- --
Tax return of capital -- -- -- --
------------ ------------ ------------ -----------
Total distributions -- (291,087) -- --
------------ ------------ ------------ -----------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold 206,285,386 963,167,470 667,646,977 32,906,261
Value of shares repurchased (34,080,051) (37,042,877) (74,926,387) (1,428,808)
Net income equalization -- -- -- --
------------ ------------ ------------ -----------
Net increase in net assets resulting from share
transactions 172,205,335 926,124,593 592,720,590 31,477,453
------------ ------------ ------------ -----------
INCREASE IN NET ASSETS 182,809,537 991,208,046 695,927,191 27,012,437
NET ASSETS:
Beginning of period -- -- 27,012,437 --
------------ ------------ ------------ -----------
End of period $182,809,537 $991,208,046 $722,939,628 $27,012,437
============ ============ ============ ===========
Undistributed net investment income (loss)/
(distributions in excess of net investment
income) at end of period $ -- $ 421,922 $ -- $ --
============ ============ ============ ===========
CHANGES IN SHARES OUTSTANDING:
Shares sold 12,800,000 56,400,000 34,200,000 2,200,000
Shares repurchased (2,100,000) (2,100,000) (4,000,000) (100,000)
Shares outstanding, beginning of period -- -- 2,100,000 --
------------ ------------ ------------ -----------
Shares outstanding, end of period 10,700,000 54,300,000 32,300,000 2,100,000
============ ============ ============ ===========
<Caption>
POWERSHARES POWERSHARES
ZACKS MICRO CAP ZACKS SMALL CAP
PORTFOLIO PORTFOLIO
--------------- ----------------
FOR THE PERIOD FOR THE PERIOD
AUGUST 18, FEBRUARY 16,
2005* THROUGH 2006* THROUGH
APRIL 30, 2006 APRIL 30, 2006
---------------- ---------------
OPERATIONS:
Net investment income (gain) $ 5,125 $ 26,152
Net realized gain (loss) on investments 5,059,182 (74,085)
Net change in unrealized appreciation/depreciation
on investments 12,118,167 2,567,738
------------- -----------
Net increase (decrease) in net assets resulting
from operations 17,182,474 2,519,805
------------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (50,928) --
Tax return of capital (17,888) --
------------- -----------
Total distributions (68,816) --
------------- -----------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold 188,141,968 56,346,347
Value of shares repurchased (46,280,045) --
Net income equalization -- --
------------- -----------
Net increase in net assets resulting from share
transactions 141,861,923 56,346,347
------------- -----------
INCREASE IN NET ASSETS 158,975,581 58,866,152
NET ASSETS:
Beginning of period -- --
------------- -----------
End of period $ 158,975,581 $58,866,152
============= ===========
Undistributed net investment income (loss)/
(distributions in excess of net investment
income) at end of period $ -- $ 26,152
============= ===========
CHANGES IN SHARES OUTSTANDING:
Shares sold 12,000,000 2,200,000
Shares repurchased (2,900,000) --
Shares outstanding, beginning of period -- --
------------- -----------
Shares outstanding, end of period 9,100,000 2,200,000
============= ===========
</Table>
* Commencement of Investment Operations.
165
<Page>
FINANCIAL HIGHLIGHTS
POWERSHARES AEROSPACE & DEFENSE PORTFOLIOR
<Table>
<Caption>
FOR THE PERIOD
OCTOBER 26, 2005*
THROUGH
APRIL 30, 2006
-----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 14.91
-------
Net investment income** 0.03
Net realized and unrealized gain on investments 2.45
-------
Total from operations 2.48
-------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.02)
-------
Net asset value at end of period $ 17.37
-------
TOTAL RETURN:*** 16.66%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $85,136
Ratio to average net assets of:
Expenses, net of waivers 0.68%+
Expenses, prior to waivers 0.80%+
Net investment loss, net of waivers 0.31%+
Portfolio turnover rate ++ 1%
</Table>
POWERSHARES GOLDEN DRAGON HALTER USX CHINA PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
DECEMBER 9, 2004*
YEAR ENDED THROUGH
APRIL 30, 2006 APRIL 30, 2005
-------------- -----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 13.00 $ 14.55
-------- -------
Net investment income** 0.17 0.06
Net realized and unrealized gain (loss) on investments 3.89 (1.61)
-------- -------
Total from operations 4.06 (1.55)
-------- -------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.16) --
-------- -------
Net asset value at end of period $ 16.90 $ 13.00
-------- -------
TOTAL RETURN:*** 31.52% (10.68)%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $238,330 $49,384
Ratio to average net assets of:
Expenses, net of waivers 0.71% 0.70%+
Expenses, prior to waivers 0.88% 0.97%+
Net investment income, net of waivers 1.18% 1.24%+
Portfolio turnover rate ++ 21% 9%
</Table>
* Commencement of Investment Operations.
** Based on average shares outstanding.
*** Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption on
the last day of the period. Total return calculated for a period of less
than one year is not annualized.
+ Annualized.
++ Portfolio turnover rate is not annualized and does not include securities
received or delivered from processing creations or redemptions.
SEE NOTES TO FINANCIAL STATEMENTS.
166
<Page>
POWERSHARES LUX NANOTECH PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
OCTOBER 26, 2005*
THROUGH
APRIL 30, 2006
-----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 15.32
--------
Net investment income** 0.02
Net realized and unrealized gain on investments 3.79
--------
Total from operations 3.81
--------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income** (0.01)
Tax return of capital (0.07)
--------
Total distributions 0.08
--------
Net asset value at end of period $ 19.05
--------
TOTAL RETURN:*** 24.94%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $112,416
Ratio to average net assets of:
Expenses, net of waivers 0.73%+
Expenses, prior to waivers 0.83%+
Net investment income, net of waivers 0.17%+
Portfolio turnover rate ++ 6%
</Table>
POWERSHARES VALUE LINE TIMELINESS SELECT PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
DECEMBER 6, 2005*
THROUGH
APRIL 30, 2006
-----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 15.52
--------
Net investment loss** (0.02)
Net realized and unrealized gain on investments 1.59
--------
Total from operations 1.57
--------
Net asset value at end of period $ 17.09
--------
TOTAL RETURN:*** 10.12%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $182,810
Ratio to average net assets of:
Expenses, net of waivers 0.71%+
Expenses, prior to waivers 0.78%+
Net investment loss, net of waivers (0.30)%+
Portfolio turnover rate ++ 39%
</Table>
* Commencement of Investment Operations.
** Based on average shares outstanding.
*** Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption on
the last day of the period. Total return calculated for a period of less
than one year is not annualized.
+ Annualized.
++ Portfolio turnover rate is not annualized and does not include securities
received or delivered from processing creations or redemptions.
SEE NOTES TO FINANCIAL STATEMENTS.
167
<Page>
POWERSHARES WATER RESOURCES PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
DECEMBER 6, 2005*
THROUGH
APRIL 30, 2006
-----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 15.32
--------
Net investment income** 0.02
Net realized and unrealized gain on investments 2.94
--------
Total from operations 2.96
--------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.03)
--------
Net asset value at end of period $ 18.25
--------
TOTAL RETURN:*** 19.38%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $991,208
Ratio to average net assets of:
Expenses, net of waivers 0.67%+
Expenses, prior to waivers 0.70%+
Net investment income, net of waivers 0.40%+
Portfolio turnover rate ++ 2%
</Table>
POWERSHARES WILDERHILL CLEAN ENERGY PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
MARCH 3, 2005*
YEAR ENDED THROUGH
APRIL 30, 2006 APRIL 30, 2005
-------------- --------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 12.86 $ 15.61
-------- -------
Net investment loss** (0.07) (0.01)
Net realized and unrealized gain (loss) on investments 9.59 (2.74)
-------- -------
Total from operations 9.52 (2.75)
-------- -------
Net asset value at end of period $ 22.38 $ 12.86
-------- -------
TOTAL RETURN:*** 74.03% (17.59)%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $722,940 $27,012
Ratio to average net assets of:
Expenses, net of waivers 0.71% 0.70%+
Expenses, prior to waivers 0.75% 1.35%+
Net investment loss, net of waivers (0.39)% (0.31)%+
Portfolio turnover rate ++ 6% 9%
</Table>
* Commencement of Investment Operations.
** Based on average shares outstanding.
*** Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption on
the last day of the period. Total return calculated for a period of less
than one year is not annualized.
+ Annualized.
++ Portfolio turnover rate is not annualized and does not include securities
received or delivered from processing creations or redemptions.
SEE NOTES TO FINANCIAL STATEMENTS.
168
<Page>
POWERSHARES ZACKS MICRO CAP PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
AUGUST 18, 2005*
THROUGH
APRIL 30, 2006
----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 14.79
--------
Net investment income** --(a)
Net realized and unrealized gain on investments 2.69
--------
Total from operations 2.69
--------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income** (0.01)
Tax return of capital --(a)
--------
Total distributions (0.01)
--------
Net asset value at end of period $ 17.47
--------
TOTAL RETURN:*** 18.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $158,976
Ratio to average net assets of:
Expenses, net of waivers 0.72%+
Expenses, prior to waivers 0.82%+
Net investment income, net of waivers 0.01%+
Portfolio turnover rate ++ 78%
</Table>
POWERSHARES ZACKS SMALL CAP PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
FEBRUARY 16, 2006*
THROUGH
APRIL 30, 2006
------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 25.41
-------
Net investment income** 0.02
Net realized and unrealized gain on investments 1.33
-------
Total from operations 1.35
-------
Net asset value at end of period $ 26.76
-------
TOTAL RETURN:*** 5.31%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $58,866
Ratio to average net assets of:
Expenses, net of waivers 0.75%+
Expenses, prior to waivers 1.17%+
Net investment income, net of waivers 0.30%+
Portfolio turnover rate ++ 1%
</Table>
* Commencement of Investment Operations.
** Based on average shares outstanding.
*** Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption on
the last day of the period. Total return calculated for a period of less
than one year is not annualized.
+ Annualized.
++ Portfolio turnover rate is not annualized and does not include securities
received or delivered from processing creations or redemptions.
(a) Amount represents less than $0.01
SEE NOTES TO FINANCIAL STATEMENTS.
169
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC BIOTECHNOLOGY & GENOME PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
COMMON STOCKS--100.0%
BIOTECHNOLOGY--41.6%
180,023 Amgen, Inc.* $ 12,187,557
277,235 Biogen Idec, Inc.* 12,433,990
161,609 Genentech, Inc.* 12,881,854
193,271 Genzyme Corp.* 11,820,454
294,425 ICOS Corp.* 6,456,740
699,820 Millennium Pharmaceuticals, Inc.* 6,354,366
106,756 Millipore Corp.* 7,876,458
187,405 Myogen, Inc.* 6,195,609
305,334 Myriad Genetics, Inc.* 7,825,710
487,641 Regeneron Pharmaceuticals, Inc.* 7,080,547
359,339 Telik, Inc.* 6,608,244
------------
176,301 Vertex Pharmaceuticals, Inc.* 6,412,067
------------
CHEMICALS--5.7%
207,691 Sigma-Aldrich Corp. 14,249,680
------------
ELECTRONICS--17.4%
466,871 Applera Corp. - Applied Biosystems Group 13,464,560
135,041 Dionex Corp.* 8,118,665
185,111 Varian, Inc.* 8,009,753
306,493 Waters Corp.* 13,890,262
------------
43,483,240
------------
HEALTHCARE - PRODUCTS--2.8%
123,386 Techne Corp.* 6,991,051
------------
PHARMACEUTICALS--32.5%
283,608 Adolor Corp.* 6,670,460
310,505 Alkermes, Inc.* 6,666,542
461,265 AtheroGenics, Inc.* 6,526,900
602,144 BioMarin Pharmaceuticals, Inc.* 7,406,371
219,418 Gilead Sciences, Inc.* 12,616,535
193,206 ImClone Systems, Inc.* 6,974,737
506,150 Medarex, Inc.* 6,078,862
109,826 Neurocrine Biosciences, Inc.* 6,299,619
538,876 NPS Pharmaceuticals, Inc.* 4,618,167
390,943 Tanox, Inc.* 6,290,273
116,934 United Therapeutics Corp.* 6,963,420
361,642 ViroPharma, Inc.* 4,064,856
------------
81,176,742
------------
TOTAL INVESTMENTS
(Cost $258,150,890)--100.0% 250,034,309
Liabilities in excess of other assets--(0.0%) (12,916)
------------
NET ASSETS--100.0% $250,021,393
============
</Table>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
170
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC BUILDING & CONSTRUCTION PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- -----------
COMMON STOCKS--101.0%
BUILDING MATERIALS--21.3%
30,352 Builders FirstSource, Inc.* $ 654,086
12,038 Florida Rock Industries, Inc. 750,810
22,306 Lennox International, Inc. 727,845
12,526 NCI Buildings Systems, Inc.* 814,065
18,027 Simpson Manufacturing Co., Inc. 720,900
11,692 Universal Forest Products, Inc. 874,211
8,198 USG Corp.* 876,939
-----------
5,418,856
-----------
COMMERCIAL SERVICES--3.6%
55,513 Quanta Services, Inc.* 900,421
-----------
ENGINEERING & CONSTRUCTION--19.5%
16,778 EMCOR Group, Inc.* 839,739
15,267 Fluor Corp. 1,418,456
15,302 Granite Construction, Inc. 709,401
8,199 Jacobs Engineering Group, Inc.* 678,057
20,796 Shaw Group (The), Inc.* 636,358
12,101 Washington Group International, Inc.* 672,937
-----------
4,954,948
-----------
FOREST PRODUCTS & PAPER--2.7%
25,072 Louisiana-Pacific Corp. 691,486
-----------
HOME BUILDERS--26.1%
18,359 Centex Corp. 1,020,760
45,813 Champion Enterprises, Inc.* 699,106
18,686 KB Home 1,150,497
21,461 Lennar Corp., Class A 1,178,853
928 NVR, Inc.* 700,640
9,944 Ryland Group, Inc. 627,566
38,988 Toll Brothers, Inc.* 1,253,464
-----------
6,630,886
-----------
MACHINERY - CONSTRUCTION & MINING--2.8%
25,179 JLG Industries, Inc. 722,134
-----------
MACHINERY - DIVERSIFIED--6.1%
13,854 Cascade Corp. 574,941
19,569 Manitowoc Co., Inc. 970,427
-----------
1,545,368
-----------
METAL FABRICATE/HARDWARE--4.1%
19,477 Valmont Industries, Inc. 1,046,889
-----------
RETAIL--9.9%
31,451 Home Depot, Inc. 1,255,838
19,972 Lowe's Cos., Inc. 1,259,235
-----------
2,515,073
-----------
TEXTILES--4.9%
15,493 Mohawk Industries, Inc.* 1,240,989
-----------
TOTAL INVESTMENTS
(Cost $24,508,630)--101.0% 25,667,050
Liabilities in excess of other assets--(1.0%) (261,490)
-----------
NET ASSETS--100.0% $25,405,560
===========
</Table>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
171
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC ENERGY EXPLORATION& PRODUCTION PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
COMMON STOCKS--100.0%
GAS - DISTRIBUTION--2.6%
83,498 Energen Corp. $ 2,944,974
------------
OIL COMPANIES-EXPLORATION & PRODUCTION--66.0%
54,645 Anadarko Petroleum Corp. 5,727,889
63,883 Cabot Oil & Gas Corp. 3,146,877
102,104 Chesapeake Energy Corp. 3,234,655
66,876 Cimarex Energy Co. 2,872,324
104,090 Comstock Resources, Inc.* 3,235,117
91,552 Devon Energy Corp. 5,503,191
78,655 EOG Resources, Inc. 5,523,941
124,865 KCS Energy, Inc.* 3,664,788
31,477 Kerr-McGee Corp. 3,143,293
48,258 Penn Virginia Corp. 3,488,088
69,451 Petroleum Development Corp.* 2,778,735
68,922 Pioneer Natural Resources Co. 2,951,240
71,471 Remington Oil & Gas Corp.* 3,116,850
88,557 Southwestern Energy Co.* 3,189,823
80,170 St. Mary Land & Exploration Co. 3,379,967
70,710 Stone Energy Corp.* 3,330,441
76,349 Swift Energy Co.* 3,234,144
54,250 Ultra Petroleum Corp.* (Canada) 3,469,830
75,070 W&T Offshore, Inc. 3,204,738
130,991 XTO Energy, Inc. 5,547,469
------------
73,743,400
------------
OIL COMPANIES - INTEGRATED--13.2%
89,422 ConocoPhillips 5,982,332
91,829 Exxon Mobil Corp. 5,792,573
21,192 Hess Corp.* 3,036,178
------------
14,811,083
------------
OIL REFINING & MARKETING--15.1%
65,247 Frontier Oil Corp. 3,949,401
45,405 Giant Industries, Inc.* 3,263,711
39,318 Sunoco, Inc. 3,186,331
100,166 Valero Energy Corp. 6,484,747
------------
16,884,190
------------
OIL - US ROYALTY TRUSTS--0.2%
7,671 Hugoton Royalty Trust 212,103
------------
PIPELINES--2.9%
40,600 Questar Corp. 3,250,030
------------
TOTAL INVESTMENTS
(Cost $103,547,830)--100.0% 111,845,780
Liabilities in excess of other assets--(0.0%) (50,927)
------------
NET ASSETS--100.0% $111,794,853
============
</Table>
* Non-income producing security.
COUNTRY BREAKDOWN (UNAUDITED)
APRIL 30, 2006
<Table>
<Caption>
TOTAL
VALUE NET ASSETS
------------ ----------
United States $108,375,950 96.9%
Canada 3,469,830 3.1%
------------ -----
Total value of investments 111,845,780 100.0
Liabilities in excess of other assets (50,927) (0.0)
------------ -----
Net Assets $111,794,853 100.0%
============ =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
172
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC FOOD & BEVERAGE PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- -----------
COMMON STOCKS--99.8%
BEVERAGES--12.6%
28,301 Coca-Cola (The) Co. $ 1,187,510
22,076 Pepsi Bottling Group, Inc. 708,640
19,938 PepsiCo, Inc. 1,161,189
-----------
3,057,339
-----------
COMMERCIAL SERVICES--2.7%
23,305 ARAMARK Corp., Class B 655,104
-----------
FOOD--55.8%
25,394 Albertson's, Inc. 643,230
20,930 Campbell Soup Co. 672,690
31,450 ConAgra Foods, Inc. 713,286
24,022 Corn Products International, Inc. 672,616
17,074 Dean Foods Co.* 676,301
60,412 Del Monte Foods Co. 704,404
24,216 General Mills, Inc. 1,194,817
18,639 Hormel Foods Corp. 625,525
16,615 J.M. Smucker (The) Co. 652,305
26,375 Kellogg Co. 1,221,425
21,868 Performance Food Group Co.* 671,348
26,911 Pilgrim's Pride Corp. 703,184
27,113 Ruddick Corp. 629,293
26,646 Safeway, Inc. 669,614
66,676 Sara Lee Corp. 1,191,500
444 Seaboard Corp. 684,648
20,156 SUPERVALU, Inc. 584,726
15,188 Weis Markets, Inc. 630,454
-----------
13,541,366
-----------
RETAIL--28.7%
25,148 Domino's Pizza, Inc. 662,147
15,748 Jack in the Box, Inc.* 658,266
33,423 McDonald's Corp. 1,155,433
9,142 Panera Bread Co., Class A* 678,154
20,038 Papa John's International, Inc.* 669,670
20,493 Sonic Corp.* 694,918
32,905 Starbucks Corp.* 1,226,369
23,847 Yum! Brands, Inc. 1,232,413
-----------
6,977,370
-----------
TOTAL COMMON STOCKS
(Cost $23,618,666) 24,231,179
-----------
MONEY MARKET FUND--0.2%
36,291 AIM Liquid Asset Portfolio Private Class
(Cost $36,291) 36,291
-----------
TOTAL INVESTMENTS
(Cost $23,654,957)--100.0% 24,267,470
Other assets less liabilities--0.0% 2,603
-----------
NET ASSETS--100.0% $24,270,073
===========
</Table>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
173
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC HARDWARE & CONSUMER ELECTRONICS PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- -----------
COMMON STOCKS--100.0%
COMMERCIAL SERVICES--2.9%
17,725 Coinstar, Inc.* $ 483,361
-----------
COMPUTERS--44.8%
51,054 Advanced Digital Information Corp.* 433,448
11,664 Apple Computer, Inc.* 821,029
91,838 Brocade Communications Systems, Inc.* 565,722
28,784 Dell, Inc.* 754,141
17,342 Electronics for Imaging, Inc.* 476,211
61,079 EMC Corp.* 825,178
190,177 Gateway, Inc.* 418,389
25,850 Hewlett-Packard Co. 839,351
9,459 Lexmark International, Inc., Class A* 460,653
11,675 NCR Corp.* 459,995
23,262 Palm, Inc.* 525,721
19,080 Synaptics, Inc.* 500,278
20,617 Western Digital Corp.* 433,782
-----------
7,513,898
-----------
ELECTRONICS--32.7%
23,243 Agilent Technologies, Inc.* 892,997
6,965 Garmin Ltd. (Cayman Islands) 601,497
22,091 Jabil Circuit, Inc. 861,328
9,068 Multi-Fineline Electronix, Inc.* 528,483
14,150 National Instruments Corp. 448,131
23,169 Paxar Corp.* 506,011
13,673 Plexus Corp.* 595,596
14,714 Tektronix, Inc. 519,698
11,317 Trimble Navigation Ltd.* 536,199
-----------
5,489,940
-----------
HOME FURNISHINGS--4.1%
7,761 Harman International Industries, Inc. 682,890
-----------
MACHINERY-DIVERSIFIED--2.3%
14,600 Intermec, Inc.* 386,754
-----------
OFFICE/BUSINESS EQUIPMENT--4.7%
55,637 Xerox Corp.* 781,143
-----------
SEMICONDUCTORS--2.9%
23,262 QLogic Corp.* 484,082
-----------
SOFTWARE--3.2%
17,413 VeriFone Holdings, Inc.* 539,106
-----------
TELECOMMUNICATIONS--2.4%
73,145 Adaptec, Inc.* 404,492
-----------
TOTAL INVESTMENTS
(Cost $15,939,846)--100.0% 16,765,666
Liabilities in excess of other assets--(0.0%) (1,680)
-----------
NET ASSETS--100.0% $16,763,986
===========
</Table>
* Non-income producing security.
COUNTRY BREAKDOWN (UNAUDITED)
APRIL 30, 2006
<Table>
<Caption>
TOTAL
VALUE NET ASSETS
------------ ----------
United States $16,164,169 96.4%
Cayman Islands 601,497 3.6
----------- -----
Total value of investments 16,765,666 100.0
Liabilities in excess of other assets (1,680) (0.0)
----------- -----
Net Assets $16,763,986 100.0%
=========== =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
174
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC INSURANCE PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
Number
of Shares Value
- --------- ------------
COMMON STOCKS--99.5%
FINANCIAL GUARANTEE INSURANCE--2.9%
14,527 Radian Group, Inc. $ 911,133
-----------
INSURANCE BROKERS--4.6%
34,604 Aon Corp. 1,450,254
-----------
LIFE/HEALTH INSURANCE--27.8%
31,313 AFLAC, Inc. 1,488,620
34,896 Conseco, Inc.* 881,124
24,431 FBL Financial Group, Inc., Class A 822,103
26,327 Lincoln National Corp. 1,529,071
19,919 Nationwide Financial Services, Inc., Class A 874,046
56,514 Phoenix Cos. (The), Inc. 858,448
18,598 Prudential Financial, Inc. 1,453,062
15,337 StanCorp Financial Group, Inc. 756,728
-----------
8,663,202
-----------
MULTI-LINE INSURANCE--26.2%
20,416 American Financial Group, Inc. 904,020
18,332 Assurant, Inc. 883,052
18,534 Cincinnati Financial Corp. 790,290
17,448 Hartford Financial Services Group (The), Inc. 1,603,995
15,475 Loews Corp. 1,642,672
28,763 MetLife, Inc. 1,498,552
17,118 Unitrin, Inc. 836,214
-----------
8,158,795
-----------
PROPERTY/CASUALTY INSURANCE--38.0%
14,665 Arch Capital Group Ltd. (Bermuda)* 890,899
22,984 Argonaut Group, Inc.* 802,142
29,540 Chubb (The) Corp. 1,522,491
15,184 Commerce Group (The), Inc. 880,824
19,605 First American Corp. 835,173
29,809 Harleysville Group, Inc. 894,270
14,470 LandAmerica Financial Group, Inc. 1,003,929
26,479 Ohio Casualty Corp. 785,102
15,949 SAFECO Corp. 827,753
19,911 Safety Insurance Group, Inc. 921,680
24,412 State Auto Financial Corp. 858,570
24,109 W. R. Berkley Corp. 902,159
16,024 Zenith National Insurance Corp. 706,979
-----------
11,831,971
-----------
TOTAL INVESTMENTS
(Cost $29,470,844)--99.5% 31,015,355
Other assets less liabilities--0.5% 148,992
-----------
NET ASSETS--100.0% $31,164,347
===========
</Table>
* Non-income producing security.
COUNTRY BREAKDOWN (UNAUDITED)
APRIL 30, 2006
<Table>
<Caption>
TOTAL
VALUE NET ASSETS
------------ ----------
United States $30,124,456 96.7%
Bermuda 890,899 2.8
----------- -----
Total value of investments 31,015,355 99.5
Other assets less liabilities 148,992 0.5
----------- -----
Net Assets $31,164,347 100.0%
=========== =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
175
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC LEISUREAND ENTERTAINMENT PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
COMMON STOCKS --99.9%
COMMERCIAL SERVICES--2.7%
26,547 ARAMARK Corp., Class B $ 746,236
-----------
ENTERTAINMENT--19.2%
22,194 GTECH Holdings Corp. 758,147
37,880 International Game Technology 1,436,789
15,860 International Speedway Corp., Class A 780,153
22,396 Penn National Gaming, Inc.* 911,965
68,496 Six Flags, Inc.* 630,848
20,644 Speedway Motorsports, Inc. 786,124
-----------
5,304,026
-----------
INTERNET--7.7%
47,543 IAC/InterActiveCorp* 1,372,566
31,638 Priceline.com, Inc.* 773,233
-----------
2,145,799
-----------
LEISURE TIME--7.0%
26,284 Carnival Corp. (Panama) 1,230,617
30,215 Sabre Holdings Corp., Class A 697,664
-----------
1,928,281
-----------
LODGING--15.9%
16,955 Choice Hotels International, Inc. 907,601
55,554 Hilton Hotels Corp. 1,496,624
31,720 Marcus Corp. 571,912
19,709 Marriott International, Inc., Class A 1,440,137
-----------
4,416,274
-----------
MEDIA--3.2%
50,691 World Wrestling Entertainment, Inc. 878,982
-----------
RETAIL--41.5%
28,177 BJ's Restaurants, Inc.* 741,900
17,476 Brinker International, Inc. 684,360
44,469 CKE Restaurants, Inc. 703,944
17,398 Darden Restaurants, Inc. 688,961
28,646 Domino's Pizza, Inc. 754,249
15,083 IHOP Corp. 722,777
17,939 Jack in the Box, Inc.* 749,850
38,072 McDonald's Corp. 1,316,149
10,414 Panera Bread Co., Class A* 772,511
22,825 Papa John's International, Inc.* 762,812
23,344 Sonic Corp.* 791,595
37,482 Starbucks Corp.* 1,396,955
27,165 Yum! Brands, Inc. 1,403,888
-----------
11,489,951
-----------
SOFTWARE--2.7%
11,674 Pixar* 750,521
-----------
TOTAL COMMON STOCKS
(Cost $25,056,310) 27,660,070
-----------
MONEY MARKET FUND--0.1%
35,267 AIM Liquid Asset Portfolio Private Class
(Cost $35,267) 35,267
-----------
TOTAL INVESTMENTS
(Cost $25,091,578)--100.0% 27,695,337
Other assets less liabilities--0.0% 5,941
-----------
NET ASSETS--100.0% $27,701,278
===========
</Table>
* Non-income producing security.
COUNTRY BREAKDOWN (UNAUDITED)
APRIL 30, 2006
<Table>
<Caption>
TOTAL
VALUE NET ASSETS
----------- ----------
United States $26,464,720 95.6%
Panama 1,230,617 4.4
----------- -----
Total value of investments 27,695,337 100.0
Other assets less liabilities 5,941 0.0
----------- -----
Net Assets $27,701,278 100.0%
=========== =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
176
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC MEDIA PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
COMMON STOCKS--99.9%
ADVERTISING--16.5%
30,098 Catalina Marketing Corp. $ 712,721
8,198 Getty Images, Inc.* 524,754
23,831 Harte-Hanks, Inc. 650,586
13,610 Lamar Advertising Co., Class A* 748,414
15,624 Omnicom Group, Inc. 1,406,316
-----------
4,042,791
-----------
COMMERCIAL SERVICES--11.4%
17,421 Arbitron, Inc. 621,233
13,948 Monster Worldwide, Inc.* 800,615
23,384 Valassis Communications, Inc.* 684,450
21,447 Viad Corp. 704,963
-----------
2,811,261
-----------
INTERNET--18.4%
24,580 aQuantive, Inc.* 615,975
46,606 CNET Networks, Inc.* 502,413
47,764 Digitas, Inc.* 673,950
114,066 HomeStore, Inc.* 700,365
27,913 InfoSpace, Inc.* 712,619
30,301 ProQuest Co.* 475,726
29,911 Sohu.com, Inc.* 830,030
-----------
4,511,078
-----------
MEDIA--53.6%
43,908 Clear Channel Communications, Inc. 1,252,695
48,416 Cox Radio, Inc., Class A* 625,051
43,582 EchoStar Communications Corp., Class A* 1,346,685
72,287 Hollinger International, Inc., Class A 576,127
149,917 Liberty Media Corp., Class A* 1,251,807
11,992 McClatchy Co. (The), Class A 542,038
22,802 McGraw-Hill Cos. (The), Inc. 1,269,159
13,428 Media General, Inc., Class A 551,622
12,225 Meredith Corp. 606,360
85,297 Sinclair Broadcast Group, Inc., Class A 669,581
71,236 Time Warner, Inc. 1,239,506
36,310 Univision Communications, Inc., Class A* 1,295,904
44,526 Walt Disney (The) Co. 1,244,947
878 Washington Post (The) Co., Class B 672,548
-----------
13,144,030
-----------
TOTAL COMMON STOCKS (Cost $24,477,618) 24,509,160
-----------
MONEY MARKET FUND--0.1%
35,146 AIM Liquid Asset Portfolio Private Class
(Cost $35,146) 35,146
-----------
TOTAL INVESTMENTS
(Cost $24,512,764)--100.0% 24,544,306
Liabilities in excess of other assets--(0.0%) (1,221)
-----------
NET ASSETS--100.0% $24,543,085
===========
</Table>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
177
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC NETWORKING PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- -----------
COMMON STOCKS--100.1%
COMPUTERS--6.1%
144,286 Brocade Communications Systems, Inc.* $ 888,802
167,157 McDATA Corp., Class A* 807,368
-----------
1,696,170
-----------
INTERNET--13.6%
11,135 F5 Networks, Inc.* 652,066
30,424 Internet Security Systems, Inc.* 682,715
31,070 McAfee, Inc.* 810,616
49,695 RSA Security, Inc.* 1,040,613
23,404 Websense, Inc.* 581,823
-----------
3,767,833
-----------
SEMICONDUCTORS--21.2%
29,086 Broadcom Corp., Class A* 1,195,725
246,427 Conexant Systems, Inc.* 872,352
26,878 DSP Group, Inc.* 726,781
41,789 Emulex Corp.* 758,470
21,266 Netlogic Microsystems, Inc.* 856,382
36,550 QLogic Corp.* 760,606
15,472 Silicon Laboratories, Inc.* 721,150
-----------
5,891,466
-----------
SOFTWARE--6.0%
42,084 Citrix Systems, Inc.* 1,679,993
-----------
TELECOMMUNICATIONS--53.2%
25,574 Adtran, Inc. 642,930
52,962 Andrew Corp.* 560,338
55,204 Arris Group, Inc.* 654,167
35,343 Atheros Communications, Inc.* 897,359
66,153 Avaya, Inc.* 793,836
168,334 Ciena Corp.* 688,486
66,668 Cisco Systems, Inc.* 1,396,695
23,481 Comtech Telecommunications Corp.* 668,034
52,806 Foundry Networks, Inc.* 750,373
73,776 Juniper Networks, Inc.* 1,363,380
461,294 Lucent Technologies, Inc.* 1,287,010
60,252 Motorola, Inc. 1,286,380
42,158 NETGEAR, Inc.* 946,447
28,014 QUALCOMM, Inc. 1,438,240
89,071 Tellabs, Inc.* 1,411,776
-----------
14,785,451
-----------
TOTAL INVESTMENTS
(Cost $24,704,598)--100.1% 27,820,913
Liabilities in excess of other assets--(0.1%) (14,987)
-----------
NET ASSETS--100.0% $27,805,926
===========
</Table>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
178
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC OIL & GAS SERVICES PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
COMMON STOCKS--100.0%
ENGINEERING & CONSTRUCTION--5.2%
170,808 Foster Wheeler Ltd. (Bermuda)* $ 7,611,204
161,330 McDermott International, Inc. (Panama)* 9,808,864
------------
17,420,068
------------
METAL FABRICATE/HARDWARE--3.0%
200,661 NS Group, Inc.* 10,037,063
------------
OIL & GAS--34.0%
193,143 Diamond Offshore Drilling, Inc. 17,531,590
1,144,301 Grey Wolf, Inc.* 8,925,548
122,289 Helmerich & Payne, Inc. 8,895,302
861,531 Parker Drilling Co.* 7,236,860
285,679 Patterson-UTI Energy, Inc. 9,244,572
512,606 Pioneer Drilling Co.* 8,309,343
259,963 Pride International, Inc.* 9,070,109
201,147 Rowan Cos., Inc. 8,916,847
226,653 Todco, Class A* 10,396,573
210,050 Transocean, Inc. (Cayman Islands)* 17,028,754
154,663 Unit Corp.* 8,931,788
------------
114,487,286
------------
OIL & GAS SERVICES--53.2%
217,903 Baker Hughes, Inc. 17,613,099
448,131 BJ Services Co. 17,051,385
199,033 Grant Prideco, Inc.* 10,190,490
213,524 Halliburton Co. 16,686,901
116,683 Hydril* 9,353,309
153,192 Lufkin Industries, Inc. 9,813,480
173,410 Maverick Tube Corp.* 9,436,972
234,963 National-Oilwell Varco, Inc.* 16,205,398
142,373 Oceaneering International, Inc.* 8,689,024
354,942 RPC, Inc. 9,828,344
258,064 Schlumberger Ltd. (Netherlands) 17,842,545
208,740 Smith International, Inc. 8,815,090
151,962 Tidewater, Inc. 8,850,267
347,136 Weatherford International Ltd. (Bermuda)* 18,373,909
------------
178,750,213
------------
TRANSPORTATION--4.6%
279,944 GulfMark Offshore, Inc.* 7,670,466
159,770 Overseas Shipholding Group, Inc. 7,801,569
------------
15,472,035
------------
TOTAL INVESTMENTS
(Cost $311,066,730)--100.0% 336,166,665
Liabilities in excess of other assets--(0.0%) (35,050)
------------
NET ASSETS--100.0% $336,131,651
============
</Table>
* Non-income producing security.
COUNTRY BREAKDOWN (Unaudited)
APRIL 30, 2006
<Table>
<Caption>
TOTAL
VALUE NET ASSETS
------------ ----------
United States $265,501,389 79.0%
Bermuda 25,985,113 7.7
Netherlands 17,842,545 5.3
Cayman Islands 17,028,754 5.1
Panama 9,808,864 2.9
------------ -----
Total value of investments 336,166,665 100.0
Liabilities in excess of other assets (35,050) (0.0)
------------ -----
Net Assets $336,131,615 100.0%
============ =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
179
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC PHARMACEUTICALS PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- -----------
COMMON STOCKS--99.9%
BIOTECHNOLOGY--20.2%
47,085 Amgen, Inc.* $ 3,187,655
39,552 Biogen Idec, Inc.* 1,773,907
42,269 Genentech, Inc.* 3,369,262
27,573 Genzyme Corp.* 1,686,365
53,196 Medimmune, Inc.* 1,674,078
183,039 Millennium Pharmaceuticals, Inc.* 1,661,994
-----------
13,353,261
-----------
HEALTHCARE-PRODUCTS--5.3%
60,024 Johnson & Johnson 3,518,007
-----------
PHARMACEUTICALS--74.4%
80,976 Abbott Laboratories 3,460,914
61,680 Abraxis BioScience, Inc.* 1,926,883
17,342 Allergan, Inc. 1,781,370
60,666 Alpharma, Inc., Class A 1,592,483
120,644 AtheroGenics, Inc.* 1,707,113
28,639 Barr Pharmaceuticals, Inc.* 1,734,091
82,683 Bristol-Myers Squibb Co. 2,098,495
62,878 Eli Lilly & Co. 3,327,504
62,524 Endo Pharmaceuticals Holdings, Inc.* 1,966,380
102,089 First Horizon Pharmaceutical Corp.* 2,273,522
41,556 Forest Laboratories, Inc.* 1,678,031
31,303 Gilead Sciences, Inc.* 1,799,923
99,134 King Pharmaceuticals, Inc.* 1,723,940
46,346 Kos Pharmaceuticals, Inc.* 2,243,146
85,293 KV Pharmaceutical Co., Class A* 1,840,623
65,402 Medicis Pharmaceutical Corp., Class A 2,150,418
99,317 Merck & Co., Inc. 3,418,491
82,577 Mylan Laboratories, Inc. 1,803,482
134,536 Pfizer, Inc. 3,407,797
101,120 Schering-Plough Corp. 1,953,638
63,942 Watson Pharmaceuticals, Inc.* 1,818,510
72,125 Wyeth 3,510,323
-----------
49,217,077
-----------
TOTAL COMMON STOCKS
(Cost $67,432,177) 66,088,345
-----------
MONEY MARKET FUND--0.1%
71,044 AIM Liquid Asset Portfolio Private Class
(Cost $71,044) 71,044
-----------
TOTAL INVESTMENTS
(Cost $67,503,221)--100.0% 66,159,389
Liabilities in excess of other assets--(0.0%) (2,837)
-----------
NET ASSETS--100.0% $66,156,552
===========
</Table>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
180
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC RETAIL PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- -----------
COMMON STOCKS--100.0%
BUILDING MATERIALS--2.4%
26,289 Builders FirstSource, Inc.* $ 566,528
-----------
COMMERCIAL SERVICES--5.1%
24,419 Adesa, Inc. 622,929
21,520 Escala Group, Inc.* 592,015
-----------
1,214,944
-----------
DISTRIBUTION/WHOLESALE--2.5%
13,801 Genuine Parts Co. 602,414
-----------
FOOD--2.5%
14,461 Weis Markets, Inc. 600,276
-----------
INTERNET--3.0%
24,030 NetFlix, Inc.* 712,249
-----------
RETAIL--84.5%
9,345 Abercrombie & Fitch Co., Class A 567,522
23,992 American Eagle Outfitters, Inc. 777,341
30,982 Asbury Automotive Group, Inc.* 597,023
14,300 Barnes & Noble, Inc. 644,644
19,560 Brown Shoe Co., Inc. 743,867
19,156 Claire's Stores, Inc. 674,674
16,215 Conn's, Inc.* 554,067
22,160 Costco Wholesale Corp. 1,206,169
39,740 CVS Corp. 1,181,073
22,400 Dollar Tree Stores, Inc.* 583,968
27,560 Dress Barn, Inc.* 696,992
59,299 Gap (The), Inc. 1,072,719
15,019 Genesco, Inc.* 620,735
16,149 Group 1 Automotive, Inc. 881,412
19,753 J. C. Penney Co., Inc. 1,293,031
19,364 Men's Wearhouse, Inc.* 686,260
28,233 Nordstrom, Inc. 1,082,171
31,602 Office Depot, Inc.* 1,282,409
25,411 Pacific Sunwear of California, Inc.* 592,076
27,180 Payless ShoeSource, Inc.* 624,325
22,125 Ross Stores, Inc. 677,910
23,331 Sonic Automotive, Inc. 630,404
49,633 Staples, Inc. 1,310,808
20,780 Target Corp. 1,103,418
-----------
20,085,018
-----------
TOTAL INVESTMENTS
(Cost $21,143,865)--100.0% 23,781,429
Other assets less liabilities--0.0% 1,830
-----------
NET ASSETS--100.0% $23,783,259
===========
</Table>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
181
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC SEMICONDUCTORS PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- ------------
COMMON STOCKS--100.0%
ELECTRICAL COMPONENTS & EQUIPMENT--2.6%
177,572 Advanced Energy Industries, Inc.* $ 2,786,105
------------
ELECTRONICS--2.9%
60,877 Cymer, Inc.* 3,146,732
------------
SEMICONDUCTORS--89.3%
125,174 Advanced Micro Devices, Inc.* 4,049,379
140,342 Altera Corp.* 3,065,069
306,071 Amkor Technology, Inc.* 3,700,398
132,317 Analog Devices, Inc. 5,017,461
265,256 Applied Materials, Inc. 4,761,345
590,514 Atmel Corp.* 3,094,293
353,552 Cirrus Logic, Inc.* 3,341,066
73,362 Diodes, Inc.* 2,988,768
63,541 Lam Research Corp.* 3,105,884
136,644 Linear Technology Corp. 4,850,862
293,061 LSI Logic Corp.* 3,121,100
221,326 Mattson Technology, Inc.* 2,543,036
84,488 MEMC Electronic Materials, Inc.* 3,430,213
203,072 Micrel, Inc.* 2,607,444
188,227 National Semiconductor Corp. 5,643,045
221,406 NVIDIA Corp.* 6,469,484
106,106 Omnivision Technologies, Inc.* 3,085,562
416,571 ON Semiconductor Corp.* 2,986,814
157,044 Photronics, Inc.* 2,822,081
108,699 PortalPlayer, Inc.* 1,201,124
111,019 Power Integrations, Inc.* 2,350,272
149,228 Semtech Corp.* 2,798,025
262,639 Silicon Image, Inc.* 2,678,918
160,893 Teradyne, Inc.* 2,712,656
169,316 Texas Instruments, Inc. 5,876,959
596,905 TriQuint Semiconductor, Inc* 3,241,194
144,457 Zoran Corp.* 3,963,900
------------
95,506,352
------------
TELECOMMUNICATIONS--5.2%
107,730 QUALCOMM, Inc. 5,530,858
------------
TOTAL INVESTMENTS
(Cost $95,848,248)--100.0% 106,970,047
Liabilities in excess of other assets--(0. 0 %) (41,194)
------------
NET ASSETS--100.0% $106,928,853
============
</Table>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
182
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC SOFTWARE PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- -----------
COMMON STOCKS--100.1%
COMPUTERS--11.1%
23,756 DST Systems, Inc.* $ 1,461,469
61,084 Jack Henry & Associates, Inc. 1,371,336
46,040 Reynolds & Reynolds (The) Co., Class A 1,369,230
59,821 Synopsys, Inc.* 1,305,892
-----------
5,507,927
-----------
DIVERSIFIED FINANCIAL SERVICES--3.1%
29,369 Investment Technology Group, Inc.* 1,556,263
-----------
INTERNET--6.2%
40,892 Digital Insight Corp.* 1,410,365
168,270 RealNetworks, Inc.* 1,686,065
-----------
3,096,430
-----------
SOFTWARE--75.8%
62,940 Adobe Systems, Inc.* 2,467,248
27,500 ANSYS, Inc.* 1,552,375
66,401 Autodesk, Inc.* 2,791,498
73,945 Blackbaud, Inc. 1,553,584
46,933 Blackboard, Inc.* 1,378,422
109,427 BMC Software, Inc.* 2,357,058
78,112 Citrix Systems, Inc.* 3,118,232
60,309 CSG Systems International, Inc.* 1,524,612
50,495 eFunds Corp.* 1,299,741
30,577 Fair Isaac Corp. 1,134,712
57,552 Fiserv, Inc.* 2,594,444
40,334 Hyperion Solutions Corp.* 1,235,027
83,137 Informatica Corp.* 1,277,816
171,302 Lawson Software, Inc.* 1,315,599
91,531 Microsoft Corp. 2,210,474
14,089 MicroStrategy, Inc., Class A* 1,320,703
92,083 Red Hat, Inc.* 2,706,319
31,918 SEI Investments Co. 1,370,559
41,595 SPSS, Inc.* 1,450,002
63,050 Sybase, Inc.* 1,372,599
42,894 Transaction Systems Architects, Inc.* 1,713,186
-----------
37,744,210
-----------
TELECOMMUNICATIONS--3.9%
85,322 Comverse Technology, Inc.* 1,932,543
-----------
TOTAL INVESTMENTS
(Cost $44,950,551)--100.1% 49,837,373
Liabilities in excess of other assets--(0.1%) (38,461)
-----------
NET ASSETS--100.0% $49,798,912
===========
</Table>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
183
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC TELECOMMUNICATIONS & WIRELESS PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- -----------
COMMON STOCKS--99.8%
COMMERCIAL SERVICES--3.0%
49,242 Convergys Corp.* $ 958,742
-----------
ELECTRONICS--3.4%
12,399 Garmin Ltd. (Cayman Islands) 1,070,778
-----------
INTERNET--4.9%
75,511 EarthLink, Inc.* 686,395
66,272 United Online, Inc. 854,246
-----------
1,540,641
-----------
MEDIA--5.1%
52,617 EchoStar Communications Corp., Class A* 1,625,865
-----------
SOFTWARE--2.9%
36,815 CSG Systems International, Inc.* 930,683
-----------
TELECOMMUNICATIONS--80.5%
23,315 ALLTEL Corp. 1,500,787
53,313 AT&T, Inc. 1,397,334
74,953 Avaya, Inc.* 899,436
46,828 BellSouth Corp. 1,581,849
90,178 Broadwing Corp.* 1,252,572
22,049 CenturyTel, Inc. 831,247
62,404 Citizens Communications Co. 828,725
23,572 Commonwealth Telephone Enterprises, Inc. 782,119
26,604 Comtech Telecommunications Corp.* 756,884
28,409 Comverse Technology, Inc.* 643,464
26,303 Crown Castle International Corp.* 885,096
27,074 Golden Telecom, Inc. 826,840
16,867 Harris Corp. 785,496
244,729 Level 3 Communications, Inc.* 1,321,537
522,660 Lucent Technologies, Inc.* 1,458,221
68,267 Motorola, Inc. 1,457,500
31,739 NTL, Inc.* 872,188
128,560 Qwest Communications International, Inc.* 862,638
61,578 Sprint Nextel Corp. 1,527,134
38,146 Syniverse Holdings, Inc.* 675,566
64,587 Time Warner Telecom, Inc., Class A* 1,083,124
83,763 UbiquiTel, Inc.* 867,785
15,027 United States Cellular Corp.* 937,685
43,915 Verizon Communications, Inc. 1,450,512
-----------
25,485,739
-----------
TOTAL INVESTMENTS
(Cost $29,226,507)--99.8% 31,612,448
Other assets less liabilities--0.2% 56,145
-----------
NET ASSETS--100.0% $31,668,593
===========
</Table>
* Non-income producing security.
COUNTRY BREAKDOWN (Unaudited)
APRIL 30, 2006
<Table>
<Caption>
TOTAL
VALUE NET ASSETS
----------- ----------
United States $30,541,670 96.4%
Cayman Islands 1,070,778 3.4
----------- -----
Total investments 31,612,448 99.8
Other assets less liabilities 56,145 0.2
----------- -----
Net Assets $31,668,593 100.0%
=========== =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
184
<Page>
SCHEDULE OF INVESTMENTS
POWERSHARES DYNAMIC UTILITIES PORTFOLIO
APRIL 30, 2006
<Table>
<Caption>
NUMBER
OF SHARES VALUE
- --------- -----------
COMMON STOCKS--99.8%
ELECTRIC--83.9%
36,356 AES (The) Corp.* $ 616,961
17,878 Allegheny Energy, Inc.* 636,993
19,370 Alliant Energy Corp. 619,065
31,958 American Electric Power Co., Inc. 1,069,315
166,015 Aquila, Inc.* 718,845
47,956 CenterPoint Energy, Inc. 576,431
28,760 Cleco Corp. 647,100
10,824 Constellation Energy Group, Inc. 594,454
23,429 DPL, Inc. 636,566
40,944 Duke Energy Corp. 1,192,289
25,785 Edison International 1,041,972
20,265 Exelon Corp. 1,094,310
23,217 FirstEnergy Corp. 1,177,334
22,060 Great Plains Energy, Inc. 623,195
19,453 NorthWestern Corp. 683,384
14,216 NRG Energy, Inc.* 676,539
21,602 NSTAR 597,295
17,473 Ormat Technologies, Inc. 597,751
21,203 Otter Tail Corp. 632,910
26,496 Pepco Holdings, Inc. 611,528
30,741 PG&E Corp. 1,224,722
37,321 PPL Corp. 1,083,802
14,252 Progress Energy, Inc. 609,986
15,401 SCANA Corp. 602,795
15,620 Wisconsin Energy Corp. 609,961
-----------
19,175,503
-----------
GAS--10.3%
17,846 AGL Resources, Inc. 631,391
15,389 KeySpan Corp. 621,408
23,908 Sempra Energy 1,100,246
-----------
2,353,045
-----------
PIPELINES--5.6%
17,949 Equitable Resources, Inc. 637,369
19,580 National Fuel Gas Co. 651,035
-----------
1,288,404
-----------
TOTAL INVESTMENTS
(Cost $22,243,744)--99.8% 22,816,952
Other assets less liabilities--0.2% 43,708
-----------
NET ASSETS--100.0% $22,860,660
===========
</Table>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
185
<Page>
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 2006
<Table>
<Caption>
POWERSHARES
POWERSHARES POWERSHARES DYNAMIC
DYNAMIC DYNAMIC ENERGY POWERSHARES
BIOTECHNOLOGY & BUILDING & EXPLORATION & DYNAMIC FOOD &
GENOME CONSTRUCTION PRODUCTION BEVERAGE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- ------------ ------------- --------------
ASSETS:
Investments at value $250,034,309 $25,667,050 $111,845,780 $24,267,470
Cash 82,362 23,872 33,449 10,468
Receivables:
Investments sold 98,933 9,888,878 -- --
Dividends -- 5,818 3,684 34,795
Due from Advisor 28,609 10,513 17,476 20,348
------------ ----------- ------------ -----------
TOTAL ASSETS 250,244,213 35,596,131 111,900,389 24,333,081
------------ ----------- ------------ -----------
LIABILITIES:
Due to custodian -- -- -- --
Payables:
Investments purchased -- 1,050,671 -- --
Capital stock purchased -- 9,082,324 -- --
Accrued advisory fees 105,616 14,532 45,980 9,918
Accrued expenses 117,204 43,044 59,556 53,090
------------ ----------- ------------ -----------
TOTAL LIABILITIES 222,820 10,190,571 105,536 63,008
------------ ----------- ------------ -----------
NET ASSETS $250,021,393 $25,405,560 $111,794,853 $24,270,073
============ =========== ============ ===========
NET ASSETS CONSIST OF:
Paid-in capital $263,224,071 $24,348,120 $103,136,889 $24,948,016
Undistributed net investment income
(loss)/distributions in excess of
net investment income -- -- -- 38,426
Net realized gain (loss) on investments (5,086,097) (100,980) 360,014 (1,328,882)
Net unrealized appreciation/
depreciation on investments (8,116,581) 1,158,420 8,297,950 612,513
------------ ----------- ------------ -----------
NET ASSETS $250,021,393 $25,405,560 $111,794,853 $24,270,073
============ =========== ============ ===========
Shares outstanding (unlimited amount
authorized, $0.01 par value) 14,500,000 1,400,000 6,000,000 1,600,000
Net asset value $ 17.24 $ 18.15 $ 18.63 $ 15.17
============ =========== ============ ===========
Investments at cost $258,150,890 $24,508,630 $103,547,830 $23,654,957
============ =========== ============ ===========
<Caption>
POWERSHARES
DYNAMIC POWERSHARES
HARDWARE & POWERSHARES DYNAMIC
CONSUMER DYNAMIC LEISURE AND
ELECTRONICS INSURANCE ENTERTAINMENT
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- -------------
ASSETS:
Investments at value $16,765,666 $31,015,355 $27,695,337
Cash 26,254 173,394 13,192
Receivables:
Investments sold -- -- 24,386
Dividends -- 19,682 12,895
Due from Advisor 17,207 10,027 18,178
----------- ----------- -----------
TOTAL ASSETS 16,809,127 31,218,458 27,763,988
----------- ----------- -----------
LIABILITIES:
Due to custodian -- -- --
Payables:
Investments purchased -- -- --
Capital stock purchased -- -- --
Accrued advisory fees 8,067 12,546 11,350
Accrued expenses 37,074 41,565 51,360
----------- ----------- -----------
TOTAL LIABILITIES 45,141 54,111 62,710
----------- ----------- -----------
NET ASSETS $16,763,986 $31,164,347 $27,701,278
=========== =========== ===========
NET ASSETS CONSIST OF:
Paid-in capital $16,072,805 $29,765,552 $26,450,984
Undistributed net investment income
(loss)/distributions in excess of
net investment income -- 24,741 18,022
Net realized gain (loss) on investments (134,639) (170,457) (1,371,487)
Net unrealized appreciation/
depreciation on investments 825,820 1,544,511 2,603,759
----------- ----------- -----------
NET ASSETS $16,763,986 $31,164,347 $27,701,278
=========== =========== ===========
Shares outstanding (unlimited amount
authorized, $0.01 par value) 1,000,000 1,800,000 1,700,000
Net asset value $ 16.76 $ 17.31 $ 16.29
=========== =========== ===========
Investments at cost $15,939,846 $29,470,844 $25,091,578
=========== =========== ===========
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
186
<Page>
<Table>
<Caption>
POWERSHARES
POWERSHARES POWERSHARES DYNAMIC POWERSHARES POWERSHARES
DYNAMIC DYNAMIC OIL & GAS DYNAMIC DYNAMIC
MEDIA NETWORKING SERVICES PHARMACEUTICALS RETAIL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ------------ --------------- -----------
ASSETS:
Investments at value $24,544,306 $27,820,913 $336,166,665 $66,159,389 $23,781,429
Cash 12,817 29,931 146,509 -- 34,894
Receivables:
Investments sold 26,596 -- 6,424,219 176,329 --
Dividends 1,820 -- 22,939 45,952 9,289
Due from Advisor 19,435 20,441 16,836 24,524 11,886
----------- ----------- ------------ ----------- -----------
TOTAL ASSETS 24,604,974 27,871,285 342,777,168 66,406,194 23,837,498
----------- ----------- ------------ ----------- -----------
LIABILITIES:
Due to custodian -- -- -- 161,450 --
Payables:
Investments purchased -- -- -- -- --
Capital stock purchased -- -- 6,422,816 -- --
Accrued advisory fees 10,166 11,657 132,284 27,361 9,652
Accrued expenses 51,723 53,702 90,453 60,831 44,587
----------- ----------- ------------ ----------- -----------
TOTAL LIABILITIES 61,889 65,359 6,645,553 249,642 54,239
----------- ----------- ------------ ----------- -----------
NET ASSETS $24,543,085 $27,805,926 $336,131,615 $66,156,552 $23,783,259
=========== =========== ============ =========== ===========
NET ASSETS CONSIST OF:
Paid-in capital $26,286,872 $25,479,393 $312,362,690 $67,840,890 $21,413,094
Undistributed net investment income
(loss)/distributions in excess of
net investment income 7,510 -- -- 35,370 5,308
Net realized gain (loss) on investments (1,782,839) (789,782) (1,331,010) (375,876) (272,707)
Net unrealized appreciation/
depreciation on investments 31,542 3,116,315 25,099,935 (1,343,832) 2,637,564
----------- ----------- ------------ ----------- -----------
NET ASSETS $24,543,085 $27,805,926 $336,131,615 $66,156,552 $23,783,259
=========== =========== ============ =========== ===========
Shares outstanding (unlimited amount
authorized, $0.01 par value) 1,700,000 1,600,000 15,700,000 4,000,000 1,300,000
Net asset value $ 14.44 $ 17.38 $ 21.41 $ 16.54 $ 18.29
=========== =========== ============ =========== ===========
Investments at cost $24,512,764 $24,704,598 $311,066,730 $67,503,221 $21,143,865
=========== =========== ============ =========== ===========
<Caption>
POWERSHARES
POWERSHARES POWERSHARES DYNAMIC POWERSHARES
DYNAMIC DYNAMIC TELECOMMUNICATIONS & DYNAMIC
SEMICONDUCTORS SOFTWARE WIRELESS UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ----------- -------------------- -----------
ASSETS:
Investments at value $106,970,047 $49,837,373 $31,612,448 $22,816,952
Cash 23,085 15,953 42,156 36,004
Receivables:
Investments sold -- -- -- --
Dividends 25,576 -- 46,508 51,772
Due from Advisor 25,708 22,873 16,368 11,227
------------ ----------- ----------- -----------
TOTAL ASSETS 107,044,416 49,876,199 31,717,480 22,915,955
------------ ----------- ----------- -----------
LIABILITIES:
Due to custodian -- -- -- --
Payables:
Investments purchased -- -- -- --
Capital stock purchased -- -- -- --
Accrued advisory fees 43,355 19,408 12,623 10,635
Accrued expenses 72,208 57,879 36,264 44,660
------------ ----------- ----------- -----------
TOTAL LIABILITIES 115,563 77,287 48,887 55,295
------------ ----------- ----------- -----------
NET ASSETS $106,928,853 $49,798,912 $31,668,593 $22,860,660
============ =========== =========== ===========
NET ASSETS CONSIST OF:
Paid-in capital $ 98,000,097 $45,825,070 $29,313,919 $22,447,081
Undistributed net investment income
(loss)/distributions in excess of
net investment income -- -- 25,352 53,346
Net realized gain (loss) on investments (2,193,043) (912,980) (56,619) (212,975)
Net unrealized appreciation/
depreciation on investments 11,121,799 4,886,822 2,385,941 573,208
------------ ----------- ----------- -----------
NET ASSETS $106,928,853 $49,798,912 $31,668,593 $22,860,660
============ =========== =========== ===========
Shares outstanding (unlimited amount
authorized, $0.01 par value) 5,300,000 2,700,000 1,900,000 1,400,000
Net asset value $ 20.18 $ 18.44 $ 16.67 $ 16.33
============ =========== =========== ===========
Investments at cost $ 95,848,248 $44,950,551 $29,226,507 $22,243,744
============ =========== =========== ===========
</Table>
187
<Page>
STATEMENTS OF OPERATIONS
<Table>
<Caption>
POWERSHARES
POWERSHARES POWERSHARES DYNAMIC
DYNAMIC DYNAMIC ENERGY POWERSHARES
BIOTECHNOLOGY & BUILDING & EXPLORATION & DYNAMIC FOOD &
GENOME CONSTRUCTION PRODUCTION BEVERAGE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- ----------------- ----------------- ---------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
JUNE 23, 2005* OCTOBER 26, 2005* OCTOBER 26, 2005* JUNE 23, 2005*
THROUGH THROUGH THROUGH THROUGH
APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006
--------------- ----------------- ----------------- ---------------
INVESTMENT INCOME:
Dividends $ 118,169 $ 146,122 $ 224,571 $ 319,971
----------- ---------- ----------- -----------
EXPENSES:
Advisory fees 670,518 109,138 174,806 100,258
Licensing 40,231 6,548 10,488 6,015
Administration fees 32,448 4,785 6,886 24,079
Registration & filings 31,457 4,095 10,154 2,827
Printing 30,500 4,000 9,000 7,250
Accounting 26,992 2,811 4,081 21,151
Audit 18,000 18,000 18,000 18,000
Offering costs 10,619 8,692 8,692 10,891
Listing fee and expenses 9,856 5,193 5,311 9,191
Custodian and transfer agent fees 9,437 1,726 2,748 4,294
Legal 5,700 1,100 1,300 1,300
Trustees 3,052 288 772 279
Other expenses 11,636 8,257 8,754 9,247
----------- ---------- ----------- -----------
TOTAL EXPENSES 900,446 174,633 260,992 214,782
Less fees waived:
Advisory (46,667) (27,897) (31,935) (76,949)
----------- ---------- ----------- -----------
NET EXPENSES 853,779 146,736 229,057 137,833
----------- ---------- ----------- -----------
NET INVESTMENT INCOME (LOSS) (735,610) (614) (4,486) 182,138
----------- ---------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Investments (5,086,097) (100,980) 411,568 (1,329,330)
In-kind redemptions 13,715,213 6,162,217 4,170,156 943,544
----------- ---------- ----------- -----------
Net realized gain (loss) 8,629,116 6,061,237 4,581,724 (385,786)
Net unrealized appreciation/
depreciation on investments (8,116,581) 1,158,420 8,297,950 612,513
----------- ---------- ----------- -----------
Net realized and unrealized gain (loss)
on investments 512,535 7,219,657 12,879,674 226,727
----------- ---------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations $ (223,075) $7,219,043 $12,875,188 $ 408,865
=========== ========== =========== ===========
<Caption>
POWERSHARES
DYNAMIC POWERSHARES
HARDWARE & POWERSHARES DYNAMIC
CONSUMER DYNAMIC LEISURE AND
ELECTRONICS INSURANCE ENTERTAINMENT
PORTFOLIO PORTFOLIO PORTFOLIO
----------------- ----------------- --------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
DECEMBER 6, 2005* OCTOBER 26, 2005* JUNE 23, 2005*
THROUGH THROUGH THROUGH
APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006
----------------- ----------------- --------------
INVESTMENT INCOME:
Dividends $ 18,548 $ 251,816 $ 193,171
---------- ---------- -----------
EXPENSES:
Advisory fees 47,841 83,944 107,413
Licensing 2,870 5,037 6,445
Administration fees 1,778 3,808 24,118
Registration & filings 2,449 3,354 2,988
Printing 8,500 4,000 5,500
Accounting 957 2,292 21,167
Audit 12,000 18,000 18,000
Offering costs 3,993 8,692 10,890
Listing fee and expenses 4,031 5,174 9,201
Custodian and transfer agent fees 733 1,702 3,902
Legal 2,500 1,000 1,300
Trustees 125 208 317
Other expenses 10,533 8,212 9,275
---------- ---------- -----------
TOTAL EXPENSES 98,310 145,423 220,516
Less fees waived:
Advisory (33,578) (30,432) (73,676)
---------- ---------- -----------
NET EXPENSES 64,732 114,991 146,840
---------- ---------- -----------
NET INVESTMENT INCOME (LOSS) (46,184) 136,825 46,331
---------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Investments (134,639) (170,457) (1,373,694)
In-kind redemptions 1,843,273 1,267,161 1,076,203
---------- ---------- -----------
Net realized gain (loss) 1,708,634 1,096,704 (297,491)
Net unrealized appreciation/
depreciation on investments 825,820 1,544,511 2,603,759
---------- ---------- -----------
Net realized and unrealized gain (loss)
on investments 2,534,454 2,641,215 2,306,268
---------- ---------- -----------
Net increase (decrease) in net assets
resulting from operations $2,488,270 $2,778,040 $ 2,352,599
========== ========== ===========
</Table>
* Commencement of Investment Operations.
SEE NOTES TO FINANCIAL STATEMENTS.
188
<Page>
<Table>
<Caption>
POWERSHARES
POWERSHARES POWERSHARES DYNAMIC POWERSHARES POWERSHARES
DYNAMIC DYNAMIC OIL & GAS DYNAMIC DYNAMIC
MEDIA NETWORKING SERVICES PHARMACEUTICALS RETAIL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------------- ----------------- --------------- -----------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
JUNE 23, 2005* JUNE 23, 2005* OCTOBER 26, 2005* JUNE 23, 2005* OCTOBER 26, 2005*
THROUGH THROUGH THROUGH THROUGH THROUGH
APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006
--------------- -------------- ----------------- --------------- -----------------
INVESTMENT INCOME:
Dividends $ 185,838 $ 19,359 $ 418,366 $ 367,803 $ 112,548
----------- ---------- ----------- ----------- ----------
EXPENSES:
Advisory fees 105,733 109,881 389,237 169,573 64,699
Licensing 6,344 6,593 23,354 10,174 3,882
Administration fees 24,270 24,248 13,822 24,786 3,137
Registration & filings 3,013 2,822 31,433 7,385 2,174
Printing 6,204 7,500 8,500 9,300 7,500
Accounting 21,268 21,249 8,103 21,541 1,952
Audit 18,000 18,000 18,000 18,000 18,000
Offering costs 10,925 10,924 8,132 10,912 8,693
Listing fee and expenses 9,188 9,204 5,602 9,303 5,163
Custodian and transfer agent fees 4,340 4,333 4,442 4,354 1,333
Legal 1,400 1,400 1,700 1,700 1,000
Trustees 284 328 1,980 763 159
Other expenses 9,256 9,394 9,755 9,578 8,340
----------- ---------- ----------- ----------- ----------
TOTAL EXPENSES 220,225 225,876 524,060 297,369 126,032
Less fees waived:
Advisory (75,466) (75,892) (28,393) (72,185) (35,289)
----------- ---------- ----------- ----------- ----------
NET EXPENSES 144,759 149,984 495,667 225,184 90,743
----------- ---------- ----------- ----------- ----------
NET INVESTMENT INCOME (LOSS) 41,079 (130,625) (77,301) 142,619 21,805
----------- ---------- ----------- ----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) from:
Investments (1,782,957) (791,040) (1,331,010) (379,249) (272,707)
In-kind redemptions 709,645 1,637,190 6,161,997 3,407,720 2,959,676
----------- ---------- ----------- ----------- ----------
Net realized gain (loss) (1,073,312) 846,150 4,830,987 3,028,471 2,686,969
Net unrealized appreciation/
depreciation on investments 31,542 3,116,315 25,099,935 (1,343,832) 2,637,564
----------- ---------- ----------- ----------- ----------
Net realized and unrealized gain (loss)
on investments (1,041,770) 3,962,465 29,930,922 1,684,639 5,324,533
----------- ---------- ----------- ----------- ----------
Net increase (decrease) in net assets
resulting from operations $(1,000,691) $3,831,840 $29,853,621 $ 1,827,258 $5,346,338
=========== ========== =========== =========== ==========
<Caption>
POWERSHARES
POWERSHARES POWERSHARES DYNAMIC POWERSHARES
DYNAMIC DYNAMIC TELECOMMUNICATIONS & DYNAMIC
SEMICONDUCTORS SOFTWARE WIRELESS UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------------- -------------------- -----------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
JUNE 23, 2005* JUNE 23, 2005* DECEMBER 06, 2005* OCTOBER 26, 2005*
THROUGH THROUGH THROUGH THROUGH
APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006
--------------- -------------- -------------------- -----------------
INVESTMENT INCOME:
Dividends $ 188,937 $ 41,381 $ 157,800 $ 523,280
----------- ---------- ---------- ----------
EXPENSES:
Advisory fees 299,810 149,525 53,898 79,060
Licensing 17,989 8,971 3,234 4,744
Administration fees 28,020 24,985 1,961 3,643
Registration & filings 9,745 4,646 3,154 3,570
Printing 15,700 9,500 8,500 4,000
Accounting 23,498 21,686 1,078 2,207
Audit 18,000 18,000 12,000 18,000
Offering costs 10,929 10,934 3,993 8,692
Listing fee and expenses 9,401 9,242 4,042 5,175
Custodian and transfer agent fees 5,072 4,308 813 1,418
Legal 2,800 1,600 1,800 1,000
Trustees 1,159 513 173 212
Other expenses 10,227 9,442 10,410 8,410
----------- ---------- ---------- ----------
TOTAL EXPENSES 452,350 273,352 105,056 140,131
Less fees waived:
Advisory (63,354) (73,406) (32,692) (31,294)
----------- ---------- ---------- ----------
NET EXPENSES 388,996 199,946 72,364 108,837
----------- ---------- ---------- ----------
NET INVESTMENT INCOME (LOSS) (200,059) (158,565) 85,436 414,443
----------- ---------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) from:
Investments (2,209,125) (915,843) (56,619) (212,975)
In-kind redemptions 11,351,953 2,869,432 855,794 1,385,401
----------- ---------- ---------- ----------
Net realized gain (loss) 9,142,828 1,953,589 799,175 1,172,426
Net unrealized appreciation/
depreciation on investments 11,121,799 4,886,822 2,385,941 573,208
----------- ---------- ---------- ----------
Net realized and unrealized gain (loss)
on investments 20,264,627 6,840,411 3,185,116 1,745,634
----------- ---------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations $20,064,568 $6,681,846 $3,270,552 $2,160,077
=========== ========== ========== ==========
</Table>
* Commencement of Investment Operations.
189
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
POWERSHARES
POWERSHARES POWERSHARES DYNAMIC
DYNAMIC DYNAMIC ENERGY POWERSHARES
BIOTECHNOLOGY & BUILDING & EXPLORATION & DYNAMIC FOOD &
GENOME CONSTRUCTION PRODUCTION BEVERAGE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- ----------------- ----------------- ---------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
JUNE 23, 2005* OCTOBER 26, 2005* OCTOBER 26, 2005* JUNE 23, 2005*
THROUGH THROUGH THROUGH THROUGH
APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006
--------------- ----------------- ----------------- ---------------
OPERATIONS:
Net investment income (loss) $ (735,610) $ (614) $ (4,486) $ 182,138
Net realized gain (loss) on investments 8,629,116 6,061,237 4,581,724 (385,786)
Net unrealized appreciation/
depreciation on investments (8,116,581) 1,158,420 8,297,950 612,513
------------ ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations (223,075) 7,219,043 12,875,188 408,865
------------ ------------ ------------ -----------
Undistributed net investment income
included in price of units issued
and redeemed -- -- -- --
------------ ------------ ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (15,330) (47,068) (143,712)
------------ ------------ ------------ -----------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold 331,894,266 74,726,928 133,305,347 34,218,637
Value of shares repurchased (81,649,798) (56,525,081) (34,338,614) (10,213,717)
Net income equalization -- -- -- --
------------ ------------ ------------ -----------
Net increase in net assets resulting
from share transactions 250,244,468 18,201,847 98,966,733 24,004,920
------------ ------------ ------------ -----------
INCREASE IN NET ASSETS 250,021,393 25,405,560 111,794,853 24,270,073
NET ASSETS:
Beginning of period -- -- -- --
------------ ------------ ------------ -----------
End of period $250,021,393 $ 25,405,560 $111,794,853 $24,270,073
============ ============ ============ ===========
Undistributed net investment income
(loss)/(distributions in excess of
net investment income) at end
of period $ -- $ -- $ -- $ 38,426
============ ============ ============ ===========
CHANGES IN SHARES OUTSTANDING:
Shares sold 19,100,000 4,600,000 8,000,000 2,300,000
Shares repurchased (4,600,000) (3,200,000) (2,000,000) (700,000)
Shares outstanding,
beginning of period -- -- -- --
------------ ------------ ------------ -----------
Shares outstanding, end of period 14,500,000 1,400,000 6,000,000 1,600,000
============ ============ ============ ===========
<Caption>
POWERSHARES
DYNAMIC POWERSHARES
HARDWARE & POWERSHARES DYNAMIC
CONSUMER DYNAMIC LEISURE AND
ELECTRONICS INSURANCE ENTERTAINMENT
PORTFOLIO PORTFOLIO PORTFOLIO
----------------- ----------------- --------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
DECEMBER 6, 2005* OCTOBER 26, 2005* JUNE 23, 2005*
THROUGH THROUGH THROUGH
APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006
----------------- ----------------- --------------
OPERATIONS:
Net investment income (loss) $ (46,184) $ 136,825 $ 46,331
Net realized gain (loss) on investments 1,708,634 1,096,704 (297,491)
Net unrealized appreciation/
depreciation on investments 825,820 1,544,511 2,603,759
------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations 2,488,270 2,778,040 2,352,599
------------ ------------ ------------
Undistributed net investment income
included in price of units issued
and redeemed -- -- --
------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (112,084) (28,509)
------------ ------------ ------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold 30,972,458 51,895,393 37,406,748
Value of shares repurchased (16,696,742) (23,397,002) (12,029,560)
Net income equalization -- -- --
------------ ------------ ------------
Net increase in net assets resulting
from share transactions 14,275,716 28,498,391 25,377,188
------------ ------------ ------------
INCREASE IN NET ASSETS 16,763,986 31,164,347 27,701,278
NET ASSETS:
Beginning of period -- -- --
------------ ------------ ------------
End of period $ 16,763,986 $ 31,164,347 $ 27,701,278
============ ============ ============
Undistributed net investment income
(loss)/(distributions in excess of
net investment income) at end
of period $ -- $ 24,741 $ 18,022
============ ============ ============
CHANGES IN SHARES OUTSTANDING:
Shares sold 2,000,000 3,200,000 2,500,000
Shares repurchased (1,000,000) (1,400,000) (800,000)
Shares outstanding,
beginning of period -- -- --
------------ ------------ ------------
Shares outstanding, end of period 1,000,000 1,800,000 1,700,000
============ ============ ============
</Table>
* Commencement of Investment Operations.
SEE NOTES TO FINANCIAL STATEMENTS.
190
<Page>
<Table>
<Caption>
POWERSHARES
POWERSHARES POWERSHARES DYNAMIC POWERSHARES POWERSHARES
DYNAMIC DYNAMIC OIL & GAS DYNAMIC DYNAMIC
MEDIA NETWORKING SERVICES PHARMACEUTICALS RETAIL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------------- ----------------- --------------- -----------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
JUNE 23, 2005* JUNE 23, 2005* OCTOBER 26, 2005* JUNE 23, 2005* OCTOBER 26, 2005*
THROUGH THROUGH THROUGH THROUGH THROUGH
APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006
--------------- -------------- ----------------- --------------- -----------------
OPERATIONS:
Net investment income (loss) $ 41,079 $ (130,625) $ (77,301) $ 142,619 $ 21,805
Net realized gain (loss) on
investments (1,073,312) 846,150 4,830,987 3,028,471 2,686,969
Net unrealized appreciation/
depreciation on investments 31,542 3,116,315 25,099,935 (1,343,832) 2,637,564
------------ ------------ ------------- ------------ ------------
Net increase (decrease) in net
assets resulting from
operations (1,000,691) 3,831,840 29,853,621 1,827,258 5,346,338
------------ ------------ ------------- ------------ ------------
Undistributed net investment income
included in price of units issued
and redeemed -- -- -- -- --
------------ ------------ ------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (34,051) -- -- (107,249) (16,497)
------------ ------------ ------------- ------------ ------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold 35,776,211 35,217,483 362,551,971 84,466,520 67,902,200
Value of shares repurchased (10,198,384) (11,243,397) (56,273,977) (20,029,977) (49,448,782)
Net income equalization -- -- -- -- --
------------ ------------ ------------- ------------ ------------
Net increase in net assets resulting
from share transactions 25,577,827 23,974,086 306,277,994 64,436,543 18,453,418
------------ ------------ ------------- ------------ ------------
INCREASE IN NET ASSETS 24,543,085 27,805,926 336,131,615 66,156,552 23,783,259
NET ASSETS:
Beginning of period -- -- -- -- --
------------ ------------ ------------- ------------ ------------
End of period $ 24,543,085 $ 27,805,926 $ 336,131,615 $ 66,156,552 $ 23,783,259
============ ============ ============= ============ ============
Undistributed net investment income
(loss)/(distributions in excess
of net investment income) at end
of period $ 7,510 $ -- $ -- $ 35,370 $ 5,308
============ ============ ============= ============ ============
CHANGES IN SHARES OUTSTANDING:
Shares sold 2,400,000 2,300,000 18,700,000 5,200,000 4,300,000
Shares repurchased (700,000) (700,000) (3,000,000) (1,200,000) (3,000,000)
Shares outstanding, beginning
of period -- -- -- -- --
------------ ------------ ------------- ------------ ------------
Shares outstanding, end of period 1,700,000 1,600,000 15,700,000 4,000,000 1,300,000
============ ============ ============= ============ ============
<Caption>
POWERSHARES
POWERSHARES POWERSHARES DYNAMIC POWERSHARES
DYNAMIC DYNAMIC TELECOMMUNICATIONS & DYNAMIC
SEMICONDUCTORS SOFTWARE WIRELESS UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- -------------------- -----------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
JUNE 23, 2005* JUNE 23, 2005* DECEMBER 06, 2005* OCTOBER 26, 2005*
THROUGH THROUGH THROUGH THROUGH
APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006 APRIL 30, 2006
-------------- -------------- -------------------- -----------------
OPERATIONS:
Net investment income (loss) $ (200,059) $ (158,565) $ 85,436 $ 414,443
Net realized gain (loss) on investments 9,142,828 1,953,589 799,175 1,172,426
Net unrealized appreciation/
depreciation on investments 11,121,799 4,886,822 2,385,941 573,208
------------ ------------ ----------- ------------
Net increase (decrease) in net assets
resulting from operations 20,064,568 6,681,846 3,270,552 2,160,077
------------ ------------ ----------- ------------
Undistributed net investment income
included in price of units issued
and redeemed -- -- -- (9,333)
------------ ------------ ----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- -- (60,084) (361,097)
------------ ------------ ----------- ------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold 157,737,331 62,047,515 37,788,226 45,288,573
Value of shares repurchased (70,873,046) (18,930,449) (9,330,101) (24,226,893)
Net income equalization -- -- -- 9,333
------------ ------------ ----------- ------------
Net increase in net assets resulting
from share transactions 86,864,285 43,117,066 28,458,125 21,071,013
------------ ------------ ----------- ------------
INCREASE IN NET ASSETS 106,928,853 49,798,912 31,668,593 22,860,660
NET ASSETS:
Beginning of period -- -- -- --
------------ ------------ ----------- ------------
End of period $106,928,853 $ 49,798,912 $31,668,593 $ 22,860,660
============ ============ =========== ============
Undistributed net investment income
(loss)/(distributions in excess of
net investment income) at end
of period $ -- $ -- $ 25,352 $ 53,346
============ ============ =========== ============
CHANGES IN SHARES OUTSTANDING:
Shares sold 9,200,000 3,800,000 2,500,000 2,900,000
Shares repurchased (3,900,000) (1,100,000) (600,000) (1,500,000)
Shares outstanding, beginning
of period -- -- -- --
------------ ------------ ----------- ------------
Shares outstanding, end of period 5,300,000 2,700,000 1,900,000 1,400,000
============ ============ =========== ============
</Table>
* Commencement of Investment Operations.
191
<Page>
FINANCIAL HIGHLIGHTS
POWERSHARES DYNAMIC BIOTECHNOLOGY & GENOME PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
JUNE 23, 2005*
THROUGH
APRIL 30, 2006
--------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 14.71
--------
Net investment loss** (0.08)
Net realized and unrealized gain on investments 2.61
--------
Total from operations 2.53
--------
Net asset value at end of period $ 17.24
--------
TOTAL RETURN:*** 17.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $250,021
Ratio to average net assets of:
Expenses, net of waivers 0.64%+
Expenses, prior to waivers 0.67%+
Net investment loss, net of waivers (0.55)%+
Portfolio turnover rate ++ 49%
</Table>
POWERSHARES DYNAMIC BUILDING & CONSTRUCTION PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
OCTOBER 26, 2005*
THROUGH
APRIL 30, 2006
-----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 15.26
-------
Net investment loss** --(a)
Net realized and unrealized gain on investments 2.90
-------
Total from operations 2.90
-------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income** (0.01)
-------
Net asset value at end of period $ 18.15
-------
TOTAL RETURN:*** 18.99%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $25,406
Ratio to average net assets of:
Expenses, net of waivers 0.67%+
Expenses, prior to waivers 0.80%+
Net investment loss, net of waivers --+(a)
Portfolio turnover rate ++ 29%
</Table>
* Commencement of Investment Operations.
** Based on average shares outstanding.
*** Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption on
the last day of the period. Total return calculated for a period of less
than one year is not annualized.
+ Annualized.
++ Portfolio turnover rate is not annualized and does not include securities
received or delivered from processing creations or redemptions.
(a) Amount represents less than $0.01 or 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS.
192
<Page>
POWERSHARES DYNAMIC ENERGY EXPLORATION & PRODUCTION PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
OCTOBER 26, 2005*
THROUGH
APRIL 30, 2006
-----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 16.03
--------
Net investment loss** --(a)
Net realized and unrealized gain on investments 2.62
--------
Total from operations 2.62
--------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income** (0.02)
--------
Net asset value at end of period $ 18.63
--------
TOTAL RETURN:*** 16.33%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $111,795
Ratio to average net assets of:
Expenses, net of waivers 0.66%+
Expenses, prior to waivers 0.75%+
Net investment loss, net of waivers (0.01)%+
Portfolio turnover rate ++ 19%
</Table>
POWERSHARES DYNAMIC FOOD & BEVERAGE PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
JUNE 23, 2005*
THROUGH
APRIL 30, 2006
--------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 14.85
-------
Net investment income** 0.11
Net realized and unrealized gain on investments 0.30
-------
Total from operations 0.41
-------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income** (0.09)
-------
Net asset value at end of period $ 15.17
-------
TOTAL RETURN:*** 2.78%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $24,270
Ratio to average net assets of:
Expenses, net of waivers 0.69%+
Expenses, prior to waivers 1.07%+
Net investment income, net of waivers 0.91%+
Portfolio turnover rate ++ 72%
</Table>
* Commencement of Investment Operations.
** Based on average shares outstanding.
*** Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption on
the last day of the period. Total return calculated for a period of less
than one year is not annualized.
+ Annualized.
++ Portfolio turnover rate is not annualized and does not include securities
received or delivered from processing creations or redemptions.
(a) Amount represents less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS.
193
<Page>
POWERSHARES HARDWARE & CONSUMER ELECTRONICS PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
JUNE 23, 2005*
THROUGH
APRIL 30, 2006
--------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 15.30
-------
Net investment loss** (0.03)
Net realized and unrealized gain on investments 1.49
-------
Total from operations 1.46
-------
Net asset value at end of period $ 16.76
-------
TOTAL RETURN:*** 9.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $16,764
Ratio to average net assets of:
Expenses, net of waivers 0.68%+
Expenses, prior to waivers 1.03%+
Net investment loss, net of waivers (0.48)%+
Portfolio turnover rate ++ 14%
</Table>
POWERSHARES DYNAMIC INSURANCE PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
JUNE 23, 2005*
THROUGH
APRIL 30, 2006
--------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 15.44
-------
Net investment income** 0.07
Net realized and unrealized gain on investments 1.86
-------
Total from operations 1.93
-------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income** (0.06)
-------
Net asset value at end of period $ 17.31
-------
TOTAL RETURN:*** 12.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $31,164
Ratio to average net assets of:
Expenses, net of waivers 0.68%+
Expenses, prior to waivers 0.87%+
Net investment income, net of waivers 0.81%+
Portfolio turnover rate ++ 30%
</Table>
* Commencement of Investment Operations.
** Based on average shares outstanding.
*** Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption on
the last day of the period. Total return calculated for a period of less
than one year is not annualized.
+ Annualized.
++ Portfolio turnover rate is not annualized and does not include securities
received or delivered from processing creations or redemptions.
SEE NOTES TO FINANCIAL STATEMENTS.
194
<Page>
POWERSHARES DYNAMIC LEISURE AND ENTERTAINMENT PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
JUNE 23, 2005*
THROUGH
APRIL 30, 2006
--------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 14.77
-------
Net investment income** 0.03
Net realized and unrealized gain on investments 1.51
-------
Total from operations 1.54
-------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income** (0.02)
-------
Net asset value at end of period $ 16.29
-------
TOTAL RETURN:*** 10.41%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $27,701
Ratio to average net assets of:
Expenses, net of waivers 0.68%+
Expenses, prior to waivers 1.03%+
Net investment income, net of waivers 0.22%+
Portfolio turnover rate ++ 48%
</Table>
POWERSHARES DYNAMIC MEDIA PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
JUNE 23, 2005*
THROUGH
APRIL 30, 2006
--------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 14.93
-------
Net investment income** 0.02
Net realized and unrealized loss on investments (0.49)
-------
Total from operations (0.47)
-------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income** (0.02)
-------
Net asset value at end of period $ 14.44
-------
TOTAL RETURN:*** (3.15)%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $24,543
Ratio to average net assets of:
Expenses, net of waivers 0.68%+
Expenses, prior to waivers 1.04%+
Net investment income, net of waivers 0.19%+
Portfolio turnover rate ++ 68%
</Table>
* Commencement of Investment Operations.
** Based on average shares outstanding.
*** Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption on
the last day of the period. Total return calculated for a period of less
than one year is not annualized.
+ Annualized.
++ Portfolio turnover rate is not annualized and does not include securities
received or delivered from processing creations or redemptions.
SEE NOTES TO FINANCIAL STATEMENTS.
195
<Page>
POWERSHARES DYNAMIC NETWORKING PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
JUNE 23, 2005*
THROUGH
APRIL 30, 2006
--------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 14.96
-------
Net investment loss** (0.08)
Net realized and unrealized gain on investments 2.50
-------
Total from operations 2.42
-------
Net asset value at end of period $ 17.38
-------
TOTAL RETURN:*** 16.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $27,806
Ratio to average net assets of:
Expenses, net of waivers 0.68%+
Expenses, prior to waivers 1.03%+
Net investment loss, net of waivers (0.59)%+
Portfolio turnover rate ++ 42%
</Table>
POWERSHARES DYNAMIC OIL & GAS SERVICES PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
OCTOBER 26, 2005*
THROUGH
APRIL 30, 2006
-----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 16.43
--------
Net investment loss** (0.01)
Net realized and unrealized gain on investments 4.99
--------
Total from operations 4.98
--------
Net asset value at end of period $ 21.41
--------
TOTAL RETURN:*** 30.31%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $336,132
Ratio to average net assets of:
Expenses, net of waivers 0.64%+
Expenses, prior to waivers 0.67%+
Net investment loss, net of waivers (0.10)%+
Portfolio turnover rate ++ 10%
</Table>
* Commencement of Investment Operations.
** Based on average shares outstanding.
*** Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption on
the last day of the period. Total return calculated for a period of less
than one year is not annualized.
+ Annualized
++ Portfolio turnover rate is not annualized and does not include securities
received or delivered from processing creations or redemptions.
SEE NOTES TO FINANCIAL STATEMENTS.
196
<Page>
POWERSHARES DYNAMIC PHARMACEUTICALS PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
JUNE 23, 2005*
THROUGH
APRIL 30, 2006
--------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 14.84
-------
Net investment income** 0.06
Net realized and unrealized gain on investments 1.68
-------
Total from operations 1.74
-------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income** (0.04)
-------
Net asset value at end of period $ 16.54
-------
TOTAL RETURN:*** 11.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $66,157
Ratio to average net assets of:
Expenses, net of waivers 0.66%+
Expenses, prior to waivers 0.88%+
Net investment income, net of waivers 0.42%+
Portfolio turnover rate ++ 29%
</Table>
POWERSHARES DYNAMIC RETAIL PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
OCTOBER 26, 2005*
THROUGH
APRIL 30, 2006
-----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 15.13
-------
Net investment income** 0.01
Net realized and unrealized gain on investments 3.16
-------
Total from operations 3.17
-------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income** (0.01)
-------
Net asset value at end of period $ 18.29
-------
TOTAL RETURN:*** 20.98%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $23,783
Ratio to average net assets of:
Expenses, net of waivers 0.70%+
Expenses, prior to waivers 0.97%+
Net investment income, net of waivers 0.17%+
Portfolio turnover rate ++ 11%
</Table>
* Commencement of Investment Operations.
** Based on average shares outstanding.
*** Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption on
the last day of the period. Total return calculated for a period of less
than one year is not annualized.
+ Annualized.
++ Portfolio turnover rate is not annualized and does not include securities
received or delivered from processing creations or redemptions.
SEE NOTES TO FINANCIAL STATEMENTS.
197
<Page>
POWERSHARES DYNAMIC SEMICONDUCTORS PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
JUNE 23, 2005*
THROUGH
APRIL 30, 2006
--------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 14.93
--------
Net investment loss** (0.05)
Net realized and unrealized gain on investments 5.30
--------
Total from operations 5.25
--------
Net asset value at end of period $ 20.18
--------
TOTAL RETURN:*** 35.16%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $106,929
Ratio to average net assets of:
Expenses, net of waivers 0.65%+
Expenses, prior to waivers 0.75%+
Net investment loss, net of waivers (0.33)%+
Portfolio turnover rate ++ 42%
</Table>
POWERSHARES DYNAMIC SOFTWARE PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
JUNE 23, 2005*
THROUGH
APRIL 30, 2006
--------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 14.98
-------
Net investment loss** (0.08)
Net realized and unrealized gain on investments 3.54
-------
Total from operations 3.46
-------
Net asset value at end of period $ 18.44
-------
TOTAL RETURN:*** 23.10%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $49,799
Ratio to average net assets of:
Expenses, net of waivers 0.67%+
Expenses, prior to waivers 0.91%+
Net investment loss, net of waivers (0.53)%+
Portfolio turnover rate ++ 75%
</Table>
* Commencement of Investment Operations.
** Based on average shares outstanding.
*** Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption on
the last day of the period. Total return calculated for a period of less
than one year is not annualized.
+ Annualized.
++ Portfolio turnover rate is not annualized and does not include securities
received or delivered from processing creations or redemptions.
SEE NOTES TO FINANCIAL STATEMENTS.
198
<Page>
POWERSHARES DYNAMIC TELECOMMUNICATIONS & WIRELESS PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
DECEMBER 6, 2005*
THROUGH
APRIL 30, 2006
-----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 14.95
-------
Net investment income** 0.05
Net realized and unrealized gain on investments 1.70
-------
Total from operations 1.75
-------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income** (0.03)
-------
Net asset value at end of period $ 16.67
-------
TOTAL RETURN:*** 11.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $31,669
Ratio to average net assets of:
Expenses, net of waivers 0.67%+
Expenses, prior to waivers 0.97%+
Net investment income, net of waivers 0.79%+
Portfolio turnover rate ++ 3%
</Table>
POWERSHARES DYNAMIC UTILITIES PORTFOLIO
<Table>
<Caption>
FOR THE PERIOD
JUNE 23, 2005*
THROUGH
APRIL 30, 2006
--------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 15.32
-------
Net investment income** 0.24
Net realized and unrealized gain on investments 0.97
-------
Total from operations 1.21
-------
Undistributed net investment income included in price of units issued and redeemed** (0.01)
-------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income** (0.19)
-------
Net asset value at end of period $ 16.33
-------
TOTAL RETURN:*** 7.82%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted) $22,861
Ratio to average net assets of:
Expenses, net of waivers 0.69%+
Expenses, prior to waivers 0.89%+
Net investment income, net of waivers 2.62%+
Portfolio turnover rate ++ 38%
</Table>
* Commencement of Investment Operations.
** Based on average shares outstanding.
*** Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption on
the last day of the period. Total return calculated for a period of less
than one year is not annualized.
+ Annualized.
++ Portfolio turnover rate is not annualized and does not include securities
received or delivered from processing creations or redemptions.
SEE NOTES TO FINANCIAL STATEMENTS.
199
<Page>
NOTES TO FINANCIAL STATEMENTS
POWERSHARES EXCHANGE-TRADED FUND TRUST
APRIL 30, 2006
NOTE 1. ORGANIZATION
PowerShares Exchange-Traded Fund Trust (the "Trust"), which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), is an
exchange-traded, management investment company that was organized as a
Massachusetts business trust on June 9, 2000. The Trust currently consists of
the following thirty-seven portfolios:
PowerShares Dynamic Market Portfolio - "Dynamic Market Portfolio"
PowerShares Dynamic OTC Portfolio - "Dynamic OTC Portfolio"
PowerShares FTSE RAFI US 1000 Portfolio - "FTSE RAFI US 1000 Portfolio"
PowerShares Dynamic Large Cap Growth Portfolio - "Dynamic Large Cap Growth
Portfolio"
PowerShares Dynamic Large Cap Value Portfolio - "Dynamic Large Cap Value
Portfolio"
PowerShares Dynamic Mid Cap Growth Portfolio - "Dynamic Mid Cap Growth
Portfolio"
PowerShares Dynamic Mid Cap Value Portfolio - "Dynamic Mid Cap Value
Portfolio"
PowerShares Dynamic Small Cap Growth Portfolio - "Dynamic Small Cap Growth
Portfolio"
PowerShares Dynamic Small Cap Value Portfolio - "Dynamic Small Cap Value
Portfolio"
PowerShares Dividend Achievers(TM) Portfolio - "Dividend Achievers(TM)
Portfolio"
PowerShares High Yield Equity Dividend Achievers(TM) Portfolio - "High Yield
Equity Dividend Achievers(TM) Portfolio"
PowerShares High Growth Rate Dividend Achievers(TM) Portfolio - "High Growth
Rate Dividend Achievers(TM) Portfolio"
PowerShares International Dividend Achievers(TM) Portfolio - "International
Dividend Achievers(TM) Portfolio"
PowerShares Aerospace & Defense Portfolio - "Aerospace & Defense Portfolio"
PowerShares Golden Dragon Halter USX China Portfolio - "Golden Dragon Halter
USX China Porfolio"
PowerShares Lux Nanotech Portfolio - "Lux Nanotech Portfolio"
PowerShares Value Line Timeliness(TM) Select Portfolio - "Value Line
Timeliness(TM) Select Portfolio"
PowerShares Water Resources Portfolio - "Water Resources Portfolio"
PowerShares WilderHill Clean Energy Portfolio - "WilderHill Clean Energy
Portfolio"
PowerShares Zacks Micro Cap Portfolio - "Zacks Micro Cap Portfolio"
PowerShares Zacks Small Cap Portfolio - "Zacks Small Cap Portfolio"
200
<Page>
POWERSHARES EXCHANGE-TRADED FUND TRUST
APRIL 30, 2006
PowerShares Dynamic Biotechnology & Genome Portfolio - "Dynamic
Biotechnology & Genome Portfolio"
PowerShares Dynamic Building & Construction Portfolio - "Dynamic Building &
Construction Portfolio"
PowerShares Dynamic Energy Exploration & Production Portfolio - "Dynamic
Energy Exploration & Production Portfolio"
PowerShares Dynamic Food & Beverage Portfolio - "Dynamic Food & Beverage
Portfolio"
PowerShares Dynamic Hardware & Consumer Electronics Portfolio - "Dynamic
Hardware & Consumer Electronics Portfolio"
PowerShares Dynamic Insurance Portfolio - "Dynamic Insurance Portfolio"
PowerShares Dynamic Leisure and Entertainment Portfolio - "Dynamic Leisure
and Entertainment Portfolio"
PowerShares Dynamic Media Portfolio - "Dynamic Media Portfolio"
PowerShares Dynamic Networking Portfolio - "Dynamic Networking Portfolio"
PowerShares Dynamic Oil & Gas Services Portfolio - "Dynamic Oil & Gas
Services Portfolio"
PowerShares Dynamic Pharmaceuticals Portfolio - "Dynamic Pharmaceuticals
Portfolio"
PowerShares Dynamic Retail Portfolio - "Dynamic Retail Portfolio"
PowerShares Dynamic Semiconductors Portfolio - "Dynamic Semiconductors
Portfolio"
PowerShares Dynamic Software Portfolio - "Dynamic Software Portfolio"
PowerShares Dynamic Telecommunications & Wireless Portfolio - "Dynamic
Telecommunications & Wireless Portfolio"
PowerShares Dynamic Utilities Portfolio - "Dynamic Utilities Portfolio"
Each portfolio represents a separate series of the Trust (the "Fund" or
"Funds"). The Funds' shares are listed and traded on the American Stock Exchange
except for the FTSE RAFI US 1000 Portfolio, which is listed and traded on the
New York Stock Exchange. The Funds' market prices may differ to some degree from
the net asset value of the shares of each Fund. Unlike conventional mutual
funds, each Fund issues and redeems shares on a continuous basis, at net asset
value, only in a large specified number of shares, each called a "Creation
Unit." Creation Units are issued and redeemed principally in-kind for securities
included in the relevant index. Except when aggregated in Creation Units, shares
are not individually redeemable securities of the Funds. The investment
objective of each Fund is to seek investment results
201
<Page>
POWERSHARES EXCHANGE-TRADED FUND TRUST
APRIL 30, 2006
that correspond generally to the price and yield (before the Fund's fees and
expenses) of the following equity indices:
Dynamic Market Portfolio - Dynamic Market Intellidex Index
Dynamic OTC Portfolio - Dynamic OTC Intellidex Index
FTSE RAFI US 1000 Portfolio - FTSE RAFI US 1000 Index
Dynamic Large Cap Growth Portfolio - Dynamic Large Cap Growth Intellidex
Index
Dynamic Large Cap Value Portfolio - Dynamic Large Cap Value Intellidex Index
Dynamic Mid Cap Growth Portfolio - Dynamic Mid Cap Growth Intellidex Index
Dynamic Mid Cap Value Portfolio - Dynamic Mid Cap Value Intellidex Index
Dynamic Small Cap Growth Portfolio - Dynamic Small Cap Growth Intellidex
Index
Dynamic Small Cap Value Portfolio - Dynamic Small Cap Value Intellidex Index
Dividend Achievers(TM) Portfolio - Broad Dividend Achievers(TM) Index
High Yield Equity Dividend Achievers(TM) Portfolio - Dividend Achievers(TM)
50 Index
High Growth Rate Dividend Achievers(TM) Portfolio - High Growth Rate
Dividend Achievers(TM) Index
International Dividend Achievers(TM) Portfolio - International Dividend
Achievers(TM) Index
Aerospace & Defense Portfolio - SPADE(TM) Defense Index
Golden Dragon Halter USX China Portfolio - USX China Index
Lux Nanotech Portfolio - Lux Nanotech Index(TM)
Value Line Timeliness(TM) Select Portfolio - Value Line Timeliness(TM)
Select Index
Water Resources Portfolio - Palisades Water Index
WilderHill Clean Energy Portfolio - WilderHill Clean Energy Index
Zacks Micro Cap Portfolio - Zacks Micro Cap Index
Zacks Small Cap Portfolio - Zacks Small Cap Index
Dynamic Biotechnology & Genome Portfolio - Dynamic Biotechnology & Genome
Intellidex(SM) Index
Dynamic Building & Construction Portfolio - Dynamic Building & Construction
Intellidex(SM) Index
202
<Page>
POWERSHARES EXCHANGE-TRADED FUND TRUST
APRIL 30, 2006
Dynamic Energy Exploration & Production Portfolio - Dynamic Energy
Exploration & Production Intellidex(SM) Index
Dynamic Food & Beverage Portfolio - Dynamic Food & Beverage Intellidex(SM)
Index
Dynamic Hardware & Consumer Electronics Portfolio - Dynamic Hardware &
Consumer Electronics Intellidex(SM) Index
Dynamic Insurance Portfolio - Dynamic Insurance Intellidex(SM) Index
Dynamic Leisure and Entertainment Portfolio - Dynamic Leisure and
Entertainment Intellidex(SM) Index
Dynamic Media Portfolio - Dynamic Media Intellidex(SM) Index
Dynamic Networking Portfolio - Dynamic Networking Intellidex(SM) Index
Dynamic Oil & Gas Services Portfolio - Dynamic Oil Services Intellidex(SM)
Index
Dynamic Pharmaceuticals Portfolio - Dynamic Pharmaceuticals Intellidex(SM)
Index
Dynamic Retail Portfolio - Dynamic Retail Intellidex(SM) Index
Dynamic Semiconductors Portfolio - Dynamic Semiconductors Intellidex(SM)
Index
Dynamic Software Portfolio - Dynamic Software Intellidex(SM) Index
Dynamic Telecommunications & Wireless Portfolio - Dynamic Telecommunications
& Wireless Intellidex(SM) Index
Dynamic Utilities Portfolio - Dynamic Utilities Intellidex(SM) Index
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of the financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
these estimates.
A. SECURITY VALUATION
Securities are valued based on their last sale price. Price information on
listed securities is taken from the exchange where the security is primarily
traded. Securities regularly traded in an over-the-counter market are valued at
the latest quoted sale price in such market or in the case of NASDAQ, at the
NASDAQ official closing price. Other portfolio securities and assets for which
market quotations are not readily available are valued based on fair value as
determined in accordance with procedures adopted by the Board of Trustees.
Investments in money market mutual funds are stated at net asset value.
203
<Page>
POWERSHARES EXCHANGE-TRADED FUND TRUST
APRIL 30, 2006
B. FEDERAL INCOME TAXES
Each Fund intends to comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies and will distribute all net
investment income and net taxable capital gains to its shareholders. Therefore,
no provision for Federal income taxes is required.
Income and capital gain distributions are determined in accordance with Federal
income tax regulations, which may differ from accounting principles generally
accepted in the United States. These differences are primarily due to differing
book and tax treatments for in-kind transactions, losses deferred due to wash
sales, losses deferred due to post-October losses and excise tax regulations.
C. INVESTMENT INCOME
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis.
D. EXPENSES
Expenses of the Trust, which are directly identifiable to a specific Fund, are
applied to that Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration the nature and type of expense and the relative net assets of each
Fund.
E. INVESTMENT TRANSACTIONS
Investment transactions are recorded on the trade date. Realized gains and
losses from the sale or disposition of securities are calculated on the
identified cost basis. Corporate actions (including cash dividends) are recorded
net of nonreclaimable foreign tax withholdings on the ex-dividend date.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Each Fund declares and pays dividends from net investment income to its
shareholders quarterly and distributes net realized taxable capital gains, if
any, annually (see Note 12).
G. EQUALIZATION
The Dividend Achievers(TM) Portfolio, High Yield Equity Dividend Achievers(TM)
Portfolio, High Growth Rate Dividend Achievers(TM) Portfolio, International
Dividend Achievers(TM) Portfolio and Dynamic Utilities Portfolio use the
accounting practice of equalization. This accounting method is used to keep the
continuing shareholder's per share equity in undistributed net investment income
from being affected by the continuous sales and redemptions of capital shares.
Equalization is calculated on a per share basis whereby a portion of the
proceeds from the sales and cost of repurchases of capital shares is applied to
undistributed net investment income. The amount of equalization is disclosed in
the Statements of Changes in Net Assets as undistributed net investment income
included in the price of capital shares issued or redeemed. The distributions to
shareholders of amounts so applied may be deemed to be a return of capital for
tax purposes.
H. RISK OF CONCENTRATION
The PowerShares Specialty and Industry Funds concentrate their investments in
certain industries, subjecting them to greater risk than funds that invest in a
wider range of industries.
204
<Page>
POWERSHARES EXCHANGE-TRADED FUND TRUST
APRIL 30, 2006
NOTE 3. ADVISORY, ADMINISTRATION AND OTHER TRANSACTIONS WITH AFFILIATES
PowerShares Capital Management LLC (the "Adviser") has overall responsibility as
the Funds' investment adviser for the selection and ongoing monitoring of the
Funds' investments, managing the Funds' business affairs and providing certain
clerical, bookkeeping and other administrative services.
The fee paid by each Fund to the Adviser's accrues daily and is payable at the
following annual rates:
<Table>
<Caption>
% OF AVERAGE
DAILY NET ASSETS
----------------
Dynamic Market Portfolio .50%
Dynamic OTC Portfolio .50%
FTSE RAFI US 1000 Portfolio .50%
Dynamic Large Cap Growth Portfolio .50%
Dynamic Large Cap Value Portfolio .50%
Dynamic Mid Cap Growth Portfolio .50%
Dynamic Mid Cap Value Portfolio .50%
Dynamic Small Cap Growth Portfolio .50%
Dynamic Small Cap Value Portfolio .50%
Dividend Achievers(TM) Portfolio .40%
High Yield Equity Dividend Achievers(TM) Portfolio .40%
High Growth Rate Dividend Achievers(TM) Portfolio .40%
International Dividend Achievers(TM) Portfolio .40%
Aerospace & Defense Portfolio .50%
Golden Dragon Halter USX China Portfolio .50%
Lux Nanotech Portfolio .50%
Value Line Timeliness(TM) Select Portfolio .50%
Water Resources Portfolio .50%
WilderHill Clean Energy Portfolio .50%
Zacks Micro Cap Portfolio .50%
Zacks Small Cap Portfolio .50%
Dynamic Biotechnology & Genome Portfolio .50%
Dynamic Building & Construction Portfolio .50%
Dynamic Energy Exploration & Production Portfolio .50%
Dynamic Food & Beverage Portfolio .50%
Dynamic Hardware & Consumer Electronics Portfolio .50%
Dynamic Insurance Portfolio .50%
Dynamic Leisure and Entertainment Portfolio .50%
Dynamic Media Portfolio .50%
Dynamic Networking Portfolio .50%
Dynamic Oil & Gas Services Portfolio .50%
Dynamic Pharmaceuticals Portfolio .50%
Dynamic Retail Portfolio .50%
Dynamic Semiconductors Portfolio .50%
Dynamic Software Portfolio .50%
Dynamic Telecommunications & Wireless Portfolio .50%
Dynamic Utilities Portfolio .50%
</Table>
205
<Page>
POWERSHARES EXCHANGE-TRADED FUND TRUST
APRIL 30, 2006
For the period ended April 30, 2006, the Adviser waived the following fees:
<Table>
<Caption>
FEES WAIVED
-----------
Dynamic Market Portfolio $188,751
Dynamic OTC Portfolio 145,318
FTSE RAFI US 1000 Portfolio 56,474
Dynamic Large Cap Growth Portfolio 107,262
Dynamic Large Cap Value Portfolio 115,781
Dynamic Mid Cap Growth Portfolio 112,555
Dynamic Mid Cap Value Portfolio 122,082
Dynamic Small Cap Growth Portfolio 115,109
Dynamic Small Cap Value Portfolio 124,935
Dividend Achievers(TM) Portfolio 57,204
High Yield Equity Dividend Achievers(TM) Portfolio 168,670
High Growth Rate Dividend Achievers(TM) Portfolio 58,976
International Dividend Achievers(TM) Portfolio 43,114
Aerospace & Defense Portfolio 35,058
Golden Dragon Halter USX China Portfolio 153,739
Lux Nanotech Portfolio 33,080
Value Line Timeliness(TM) Select Portfolio 29,056
Water Resources Portfolio 39,206
WilderHill Clean Energy Portfolio 92,899
Zacks Micro Cap Portfolio 78,032
Zacks Small Cap Portfolio 36,238
Dynamic Biotechnology & Genome Portfolio 46,667
Dynamic Building & Construction Portfolio 27,897
Dynamic Energy Exploration & Production Portfolio 31,935
Dynamic Food & Beverage Portfolio 76,949
Dynamic Hardware & Consumer Electronics Portfolio 33,578
Dynamic Insurance Portfolio 30,432
Dynamic Leisure and Entertainment Portfolio 73,676
Dynamic Media Portfolio 75,466
Dynamic Networking Portfolio 75,892
Dynamic Oil & Gas Services Portfolio 28,393
Dynamic Pharmaceuticals Portfolio 72,185
Dynamic Retail Portfolio 35,289
Dynamic Semiconductors Portfolio 63,354
Dynamic Software Portfolio 73,406
Dynamic Telecommunications & Wireless Portfolio 32,692
Dynamic Utilities Portfolio 31,294
</Table>
206
<Page>
POWERSHARES EXCHANGE-TRADED FUND TRUST
APRIL 30, 2006
Each Fund is responsible for all of its expenses, including the investment
advisory fees, costs of transfer agency, custody, fund administration, legal,
audit and other services, interest, taxes, brokerage commissions and other
expenses connected with executions of portfolio transactions, any distribution
fees or expenses and extraordinary expenses. Pursuant to the Investment Advisory
Agreement with the Trust, the Adviser has agreed to waive fees and/or pay Fund
expenses to the extent necessary to prevent the operating expenses of the Funds
(excluding interest expense, brokerage commissions and other trading expenses,
licensing fees (except as to the Dynamic Market Portfolio and the Dynamic OTC
Portfolio), offering costs, taxes and extraordinary expenses) from exceeding
0.60% (0.50% for the Dividend Achievers(TM) Portfolio, High Yield Equity
Dividend Achievers(TM) Portfolio, High Growth Rate Dividend Achievers(TM)
Portfolio and International Dividend Achievers(TM) Portfolio) of average net
assets per year (the "Expense Cap"), at least until April 30, 2007. Offering
costs excluded from the Expense Cap are: (a) legal fees pertaining to the Funds'
Shares offered for sale; (b) Securities and Exchange Commission and state
registration fees; and (c) initial fees paid to be listed on an exchange.
Except for the Dynamic Market Portfolio and the Dynamic OTC Portfolio, the Trust
and the Adviser have entered into an Excess Expense Agreement (the "Expense
Agreement") in which expenses borne by the Adviser are subject to reimbursement
by the Fund up to three years from the date the fee or expense was incurred, but
no reimbursement payment will be made by the Fund if it would result in the Fund
exceeding its Expense Cap as specified above.
The Expense Agreement does not apply to the Dynamic Market Portfolio and Dynamic
OTC Portfolio. Accordingly, expenses of these Funds borne by the Adviser are
not subject to reimbursement.
During the period ended April 30, 2006, the Funds that reimbursed expenses to
the Adviser under the Expense Agreement were as follows:
<Table>
FTSE RAFI US 1000 Portfolio $ 1,832
High Yield Equity Dividend Acheivers(TM) Portfolio 65,566
Golden Dragon Halter USX China Portfolio 19,750
WilderHill Clean Energy Portfolio 6,161
Water Resources Portfolio 1,195
</Table>
The amounts subject to reimbursement to the Adviser at April 30, 2006 are as
follows:
<Table>
FTSE RAFI US 1000 Portfolio $ 56,474
Dynamic Large Cap Growth Portfolio 132,693
Dynamic Large Cap Value Portfolio 141,037
Dynamic Mid Cap Growth Portfolio 138,069
Dynamic Mid Cap Value Portfolio 147,405
Dynamic Small Cap Growth Portfolio 140,653
Dynamic Small Cap Value Portfolio 150,485
Dividend Achievers(TM) Portfolio 57,204
High Yield Equity Dividend Achievers(TM) Portfolio 193,286
High Growth Rate Dividend Achievers(TM) Portfolio 58,976
International Dividend Achievers(TM) Portfolio 43,114
Aerospace & Defense Portfolio 35,058
Golden Dragon Halter USX China Portfolio 189,231
207
<Page>
POWERSHARES EXCHANGE-TRADED FUND TRUST
APRIL 30, 2006
Lux Nanotech Portfolio $ 33,080
Value Line Timeliness(TM) Select Portfolio 29,056
Water Resources Portfolio 39,206
WilderHill Clean Energy Portfolio 118,530
Zacks Micro Cap Portfolio 78,032
Zacks Small Cap Portfolio 36,238
Dynamic Biotechnology & Genome Portfolio 46,667
Dynamic Building & Construction Portfolio 27,897
Dynamic Energy Exploration & Production Portfolio 31,935
Dynamic Food & Beverage Portfolio 76,949
Dynamic Hardware & Consumer Electronics Portfolio 33,578
Dynamic Insurance Portfolio 30,432
Dynamic Leisure and Entertainment Portfolio 73,676
Dynamic Media Portfolio 75,466
Dynamic Networking Portfolio 75,892
Dynamic Oil & Gas Services Portfolio 28,393
Dynamic Pharmaceuticals Portfolio 72,185
Dynamic Retail Portfolio 35,289
Dynamic Semiconductors Portfolio 63,354
Dynamic Software Portfolio 73,406
Dynamic Telecommunications & Wireless Portfolio 32,692
Dynamic Utilities Portfolio 31,294
</Table>
LICENSING FEE AGREEMENTS
The Advisor has entered into licensing agreements with each of the following
"Licensors" for the respective Funds:
<Table>
<Caption>
FUNDS LICENSOR
- ----- --------
Dynamic Market Portfolio American Stock Exchange
Dynamic OTC Portfolio American Stock Exchange
FTSE RAFI US 1000 Portfolio Research Associates, LLC
Dynamic Large Cap Growth Portfolio American Stock Exchange
Dynamic Large Cap Value Portfolio American Stock Exchange
Dynamic Mid Cap Growth Portfolio American Stock Exchange
Dynamic Mid Cap Value Portfolio American Stock Exchange
Dynamic Small Cap Growth Portfolio American Stock Exchange
Dynamic Small Cap Value Portfolio American Stock Exchange
Dynamic Dividend(TM) Portfolio Mergent, Inc.
High Yield Equity Dividend Achievers(TM) Portfolio Mergent, Inc.
Dynamic High Growth Rate Dividend(TM) Portfolio Mergent, Inc.
Dynamic International Dividend Achievers(TM) Portfolio Mergent, Inc.
Aerospace & Defense Portfolio International Space Business Council
Golden Dragon Halter USX China Portfolio Halter Financial Group
Lux Nanotech Portfolio Lux Research, Inc.
Value Line Timeliness(TM) Select Portfolio Value Line Publishing, Inc.
</Table>
208
<Page>
POWERSHARES EXCHANGE-TRADED FUND TRUST
APRIL 30, 2006
<Table>
<Caption>
FUNDS LICENSOR
- ----- --------
Water Resources Portfolio Hydrogen Ventures, LLC
WilderHill Clean Energy Portfolio WilderShares, LLC
Zacks Micro Cap Portfolio Zacks Investment Research, Inc.
Zacks Small Cap Value Portfolio Zacks Investment Research, Inc.
Dynamic Biotechnology & Genome Portfolio American Stock Exchange
Dynamic Building & Construction Portfolio American Stock Exchange
Dynamic Energy Exploration & Production Portfolio American Stock Exchange
Dynamic Food & Beverage Portfolio American Stock Exchange
Dynamic Hardware & Consumer Electronics Portfolio American Stock Exchange
Dynamic Insurance Portfolio American Stock Exchange
Dynamic Leisure and Entertainment Portfolio American Stock Exchange
Dynamic Media Portfolio American Stock Exchange
Dynamic Networking Portfolio American Stock Exchange
Dynamic Oil & Gas Services Portfolio American Stock Exchange
Dynamic Pharmaceuticals Portfolio American Stock Exchange
Dynamic Retail Portfolio American Stock Exchange
Dynamic Semiconductors Portfolio American Stock Exchange
Dynamic Software Portfolio American Stock Exchange
Dynamic Telecommunications & Wireless Portfolio American Stock Exchange
Dynamic Utilities Portfolio American Stock Exchange
</Table>
The above trademarks are trademarks owned by the respective Licensors. These
trademarks have been licensed to PowerShares Capital Management LLC for use with
the Funds. The Funds are not sponsored, endorsed, sold or promoted by the
Licensors and the Licensors make no representation regarding the advisability of
investing in any of these Funds. The Funds are required to pay the licensing
fees, which are shown on the Statements of Operations.
The Bank of New York serves as the administrator, custodian and fund accounting
and transfer agent for each Fund.
NOTE 4. FEDERAL INCOME TAX
At April 30, 2006, the components of accumulated earnings/loss on a tax-basis
were as follows:
<Table>
<Caption>
NET ACCUMULATED UNREALIZED
ACCUMULATED CAPITAL AND OTHER APPRECIATION/ GROSS UNREALIZED GROSS UNREALIZED TOTAL ACCUMULATED
EARNINGS GAINS/LOSSES DEPRECIATION APPRECIATION DEPRECIATION EARNINGS/LOSS
----------- ----------------- ------------- ---------------- ---------------- -----------------
Dynamic Market Portfolio $ 507,337 $(27,854,889) $41,847,353 $59,937,822 $(18,090,469) $14,499,801
Dynamic OTC Portfolio -- (11,650,725) 15,927,697 2,015,853 (4,224,156) 4,276,972
FTSE RAFI US 1000 Portfolio 129,021 -- 2,494,690 4,269,479 (1,774,789) 2,623,711
Dynamic Large Cap
Growth Portfolio -- (191,864) 4,009,028 9,324,747 (5,315,719) 3,817,164
Dynamic Large Cap
Value Portfolio 117,050 (70,814) 4,640,933 5,288,556 (647,623) 4,687,169
Dynamic Mid Cap
Growth Portfolio 711,633 (422,220) 4,129,726 6,582,732 (2,453,006) 4,419,139
</Table>
209
<Page>
POWERSHARES EXCHANGE-TRADED FUND TRUST
APRIL 30, 2006
<Table>
<Caption>
NET
ACCUMULATED
CAPITAL UNREALIZED GROSS GROSS TOTAL
ACCUMULATED AND OTHER APPRECIATION/ UNREALIZED UNREALIZED ACCUMULATED
EARNINGS GAINS/LOSSES DEPRECIATION APPRECIATION DEPRECIATION EARNINGS/LOSS
----------- ------------ ------------- ------------- -------------- -------------
Dynamic Mid Cap
Value Portfolio $ 44,433 $ (237,806) $ 2,242,135 $ 3,053,582 $ (811,447) $ 2,048,762
Dynamic Small Cap
Growth Portfolio -- (823,782) 5,826,453 10,205,788 (4,379,335) 5,002,671
Dynamic Small Cap
Value Portfolio 45,098 (703,862) 3,964,099 4,643,272 (679,173) 3,305,335
Dividend Achievers(TM) Portfolio 16,670 (23,569) 1,199,581 1,454,875 (255,294) 1,192,682
High Yield Equity Dividend
Achievers(TM) Portfolio 1,587,278 (2,613,033) (8,661,003) 14,288,643 (22,949,646) (9,686,758)
High Growth Rate Dividend
Achievers(TM) Portfolio 17,860 (1,847) 1,424,505 1,849,512 (425,007) 1,440,518
International Dividend
Achievers(TM) Portfolio 472,257 (183,478) 8,422,902 9,142,698 (719,796) 8,711,681
Aerospace & Defense Portfolio 32,046 -- 8,262,989 9,743,428 (1,480,439) 8,295,035
Golden Dragon Halter
USX China Portfolio 606,662 (1,018,146) 16,120,053 24,472,408 (8,352,355) 15,708,569
Lux Nanotech Portfolio -- -- 8,216,369 9,440,226 (1,223,857) 8,216,369
Value Line Timeliness(TM)
Select Portfolio -- -- 10,591,156 14,275,154 (3,683,998) 10,591,156
Water Resources Portfolio 421,922 -- 59,118,920 66,694,227 (7,575,307) 59,540,842
WilderHill Clean
Energy Portfolio -- (2,098,368) 77,680,448 87,704,138 (10,023,690) 75,582,080
Zacks Micro Cap Portfolio -- (1,951,245) 11,887,779 16,339,746 (4,451,967) 9,936,534
Zacks Small Cap Portfolio 26,152 -- 2,567,738 4,092,281 (1,524,543) 2,593,890
Dynamic Biotechnology &
Genome Portfolio -- (321,497) (8,397,644) 11,607,097 (20,004,741) (8,719,141)
Dynamic Building &
Construction Portfolio -- -- 1,155,652 2,422,062 (1,266,410) 1,155,652
Dynamic Energy Exploration &
Production Portfolio(1) 434,363 -- 8,223,601 8,834,018 (610,417) 8,657,964
Dynamic Food &
Beverage Portfolio 38,426 (433,620) 599,857 1,063,410 (463,553) 204,663
Dynamic Hardware &
Consumer Electronics Portfolio -- -- 825,820 1,588,322 (762,502) 825,820
Dynamic Insurance Portfolio 24,741 -- 1,544,255 1,799,094 (254,839) 1,568,996
Dynamic Leisure and
Entertainment Portfolio 18,022 (751,908) 2,598,031 2,968,358 (370,327) 1,864,145
Dynamic Media Portfolio 7,510 (545,973) (23,023) 1,730,849 (1,753,872) (561,486)
Dynamic Networking Portfolio -- (383,187) 3,102,675 4,110,404 (1,007,729) 2,719,488
Dynamic Oil & Gas
Services Portfolio -- -- 24,763,731 28,430,107 (3,666,376) 24,763,731
Dynamic Pharmaceuticals
Portfolio(2) 35,370 (231,410) (1,488,298) 1,391,441 (2,879,739) (1,684,338)
Dynamic Retail Portfolio 5,308 -- 2,637,564 2,912,893 (275,329) 2,642,872
Dynamic Semiconductors
Portfolio -- (271,588) 11,078,441 13,448,693 (2,370,252) 10,806,853
Dynamic Software Portfolio -- (108,427) 4,819,642 5,643,585 (524,216) 4,711,215
Dynamic Telecommunications &
Wireless Portfolio 25,352 -- 2,375,117 3,075,702 (700,585) 2,400,469
Dynamic Utilities Portfolio 53,346 -- 572,495 1,024,425 (451,930) 625,841
</Table>
210
<Page>
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APRIL 30, 2006
At April 30, 2006, the cost of investments for Federal income tax purpose was as
follows:
<Table>
Dynamic Market Portfolio $876,846,479
Dynamic OTC Portfolio 206,524,846
FTSE RAFI US 1000 Portfolio 102,028,126
Dynamic Large Cap Growth Portfolio 144,659,101
Dynamic Large Cap Value Portfolio 85,798,117
Dynamic Mid Cap Growth Portfolio 99,199,899
Dynamic Mid Cap Value Portfolio 54,559,591
Dynamic Small Cap Growth Portfolio 112,644,470
Dynamic Small Cap Value Portfolio 62,399,857
Dividend Achievers(TM) Portfolio 22,190,146
High Yield Equity Dividend Achievers(TM) Portfolio 468,843,583
High Growth Rate Dividend Achievers(TM) Portfolio 25,790,331
International Dividend Achievers(TM) Portfolio 162,540,799
Aerospace & Defense Portfolio 76,848,980
Golden Dragon Halter USX China Portfolio 221,392,683
Lux Nanotech Portfolio 104,207,578
Value Line Timeliness(TM) Select Portfolio 172,231,911
Water Resources Portfolio 931,876,484
WilderHill Clean Energy Portfolio 645,315,615
Zacks Micro Cap Portfolio 146,732,467
Zacks Small Cap Portfolio 56,251,167
Dynamic Biotechnology & Genome Portfolio 258,431,953
Dynamic Building & Construction Portfolio 24,511,398
Dynamic Energy Exploration & Production Portfolio(1) 103,622,179
Dynamic Food & Beverage Portfolio 23,667,613
Dynamic Hardware & Consumer Electronics Portfolio 15,939,846
Dynamic Insurance Portfolio 29,471,100
Dynamic Leisure and Entertainment Portfolio 25,097,306
Dynamic Media Portfolio 24,567,329
Dynamic Networking Portfolio 24,718,238
Dynamic Oil & Gas Services Portfolio 311,402,934
Dynamic Pharmaceuticals Portfolio(2) 67,647,687
Dynamic Retail Portfolio 21,143,865
Dynamic Semiconductors Portfolio 95,891,606
Dynamic Software Portfolio 45,017,731
Dynamic Telecommunications & Wireless Portfolio 29,237,331
Dynamic Utilities Portfolio 22,244,457
</Table>
211
<Page>
POWERSHARES EXCHANGE-TRADED FUND TRUST
APRIL 30, 2006
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the period ended April 30, 2006
was as follows:
<Table>
<Caption>
DISTRIBUTIONS PAID
FROM ORDINARY
INCOME
------------------
Dynamic Market Portfolio $ 4,155,736
Dynamic OTC Portfolio 51,000
FTSE RAFI US 1000 Portfolio 194,752
Dynamic Large Cap Growth Portfolio 12,532
Dynamic Large Cap Value Portfolio 613,947
Dynamic Mid Cap Value Portfolio 398,693
</Table>
<Table>
<Caption>
DISTRIBUTIONS PAID
FROM ORDINARY
INCOME
------------------
Dynamic Small Cap Value Portfolio $ 190,946
Dividend Achievers(TM) Portfolio 272,220
High Yield Equity Dividend Achievers(TM) Portfolio 14,376,272
High Growth Rate Dividend Achievers(TM) Portfolio 257,942
International Dividend Achievers(TM) Portfolio 1,377,038
Aerospace & Defense Portfolio 59,157
Golden Dragon Halter USX China Portfolio 741,732
Lux Nanotech Portfolio 22,920
Water Resources Portfolio 291,087
Zacks Micro Cap Portfolio 50,928
Dynamic Building & Construction Portfolio 15,330
Dynamic Energy Exploration & Production Portfolio(1) 47,068
Dynamic Food & Beverage Portfolio 143,712
Dynamic Insurance Portfolio 112,084
Dynamic Leisure and Entertainment Portfolio 28,509
Dynamic Media Portfolio 34,051
Dynamic Pharmaceuticals Portfolio(2) 107,249
Dynamic Retail Portfolio 16,497
Dynamic Telecommunications & Wireless Portfolio 60,084
Dynamic Utilities Portfolio 361,097
</Table>
<Table>
<Caption>
DISTRIBUTIONS PAID
FROM RETURN
OF CAPTIAL
------------------
Dynamic OTC Portfolio $ 107,644
Lux Nanotech Portfolio 147,353
Zacks Micro Cap Portfolio 17,888
</Table>
212
<Page>
POWERSHARES EXCHANGE-TRADED FUND TRUST
APRIL 30, 2006
The tax character of distributions paid during the period ended April 30, 2005
was as follows:
<Table>
<Caption>
DISTRIBUTIONS PAID
FROM ORDINARY
INCOME
------------------
Dynamic Market Portfolio $1,056,515
High Yield Equity Dividend Achievers(TM) Portfolio 2,710,823
Dynamic Large Cap Value Portfolio 8,554
Dynamic Mid Cap Value Portfolio 14,070
</Table>
At April 30, 2006, for Federal income tax purposes, the Funds have capital loss
carryforwards available as shown in the table below, to the extent provided by
the regulations, to offset future capital gains through the years indicated. To
the extent that these loss carryforwards are used to offset future capital
gains, it is probable that the capital gains so offset will not be distributed
to shareholders.
<Table>
<Caption>
CAPITAL LOSS AVAILABLE THROUGH
------------------------------------------------ TOTAL
2011 2012 2013 2014 AMOUNT
-------- ---------- ---------- ----------- -----------
Dynamic Market Portfolio $225,469 $8,920,879 $5,021,729 $13,686,812 $27,854,889
Dynamic OTC Portfolio 252,044 651,452 5,297,385 5,449,844 11,650,725
Dynamic Large Cap Growth Portfolio -- -- -- 191,864 191,864
Dynamic Large Cap Value Portfolio -- -- -- 70,814 70,814
Dynamic Mid Cap Growth Portfolio -- -- -- 422,220 422,220
Dynamic Mid Cap Value Portfolio -- -- -- 237,806 237,806
Dynamic Small Cap Growth Portfolio -- -- -- 823,782 823,782
Dynamic Small Cap Value Portfolio -- -- -- 703,862 703,862
Dividend Achievers(TM) Portfolio -- -- -- 23,569 23,569
High Yield Equity Dividend Achievers(TM)
Portfolio -- -- -- 2,613,033 2,613,033
High Growth Rate Dividend Achievers(TM)
Portfolio -- -- -- 1,847 1,847
International Dividend Achievers(TM)
Portfolio -- -- -- 183,478 183,478
Golden Dragon Halter USX China Portfolio -- -- -- 1,018,146 1,018,146
WilderHill Clean Energy Portfolio -- -- -- 2,098,368 2,098,368
Zacks Micro Cap Portfolio -- -- -- 1,951,245 1,951,245
Dynamic Biotechnology & Genome Portfolio -- -- -- 321,497 321,497
Dynamic Food & Beverage Portfolio . -- -- -- 433,620 433,620
Dynamic Leisure and Entertainment Portfolio -- -- -- 751,908 751,908
Dynamic Media Portfolio -- -- -- 545,973 545,973
Dynamic Networking Portfolio -- -- -- 383,187 383,187
Dynamic Pharmaceuticals Portfolio(2) -- -- 164,751 66,659 231,410
Dynamic Semiconductors Portfolio -- -- -- 271,588 271,588
Dynamic Software Portfolio -- -- -- 108,427 108,427
</Table>
213
<Page>
POWERSHARES EXCHANGE-TRADED FUND TRUST
APRIL 30, 2006
Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of each Fund's next
taxable year.
During the period ended April 30, 2006, the following Funds incurred and will
elect to defer net capital losses as follows:
<Table>
<Caption>
POST-OCTOBER
LOSSES
------------
Dynamic Market Portfolio $19,728,924
Dynamic OTC Portfolio 7,074,158
FTSE RAFI US 1000 Portfolio 45,228
Dynamic Large Cap Growth Portfolio 2,391,198
Dynamic Large Cap Value Portfolio 151,902
Dynamic Mid Cap Growth Portfolio 424,401
Dynamic Mid Cap Value Portfolio 453,602
Dynamic Small Cap Growth Portfolio 1,653,566
Dynamic Small Cap Value Portfolio 1,086,986
Dividend Achievers(TM) Portfolio 9,369
High Yield Equity Dividend Achievers(TM) Portfolio 3,076,609
High Growth Rate Dividend Achievers(TM) Portfolio 21,641
International Dividend Achievers(TM) Portfolio 149,416
Aerospace & Defense Portfolio 91,340
Lux Nanotech Portfolio 73,063
Value Line Timeliness(TM) Select Portfolio 2,587,729
Water Resources Portfolio 40,477
WilderHill Clean Energy Portfolio 150,874
Zacks Micro Cap Portfolio 2,581,349
Zacks Small Cap Portfolio 74,085
Dynamic Biotechnology & Genome Portfolio 4,483,537
Dynamic Building & Construction Portfolio 98,212
Dynamic Food & Beverage Portfolio 882,606
Dynamic Hardware & Consumer Electronics Portfolio 134,639
Dynamic Insurance Portfolio 170,201
Dynamic Leisure and Entertainment Portfolio 613,851
Dynamic Media Portfolio 1,182,301
Dynamic Networking Portfolio 392,955
Dynamic Oil & Gas Services Portfolio 994,806
Dynamic Retail Portfolio 272,707
Dynamic Semiconductors Portfolio 1,878,097
Dynamic Software Portfolio 737,373
Dynamic Telecommunications & Wireless Portfolio 45,795
Dynamic Utilities Portfolio 212,262
</Table>
In order to present paid-in capital and accumulated net realized gains or losses
on the Statements of Assets and Liabilities that more closely represent their
tax character, certain adjustments have been made to
214
<Page>
POWERSHARES EXCHANGE-TRADED FUND TRUST
APRIL 30, 2006
additional paid-in capital, undistributed net investment income and accumulated
net realized gains or losses on investments. For the period ended April 30,
2006, the adjustments were as follows:
<Table>
<Caption>
UNDISTRIBUTED
UNDISTRIBUTED CAPITAL GAINS/
NET INVESTMENT (ACCUMULATED PAID-IN
INCOME (LOSS) LOSSES) CAPITAL
------------- -------------- -----------
Dynamic Market Portfolio $ (12,910) $(84,022,274) $84,035,184
Dynamic OTC Portfolio 227,018 (27,227,477) 27,000,459
FTSE RAFI US 1000 Portfolio 384 (998,141) 997,757
Dynamic Large Cap Growth Portfolio 35,785 (4,200,489) 4,164,704
Dynamic Large Cap Value Portfolio -- (2,071,099) 2,071,099
Dynamic Mid Cap Growth Portfolio -- (5,863,064) 5,863,064
Dynamic Mid Cap Value Portfolio 43 (2,009,079) 2,009,036
Dynamic Small Cap Growth Portfolio (298,325) (7,007,855) 7,306,180
Dynamic Small Cap Value Portfolio 105 (2,764,936) 2,764,831
Dividend Achievers(TM) Portfolio (383) (230,901) 231,284
High Yield Equity Dividend Achievers(TM) Portfolio (522,910) (15,759,227) 16,282,137
High Growth Rate Dividend Achievers(TM) Portfolio (4,850) (958,632) 963,482
International Dividend Achievers(TM) Portfolio 246,704 (6,020,742) 5,774,038
Aerospace & Defense Portfolio 181 (291,817) 291,636
Golden Dragon Halter USX China Portfolio 95,782 (6,255,601) 6,159,819
Lux Nanotech Portfolio 113,904 (4,490,581) 4,376,677
Value Line Timeliness(TM) Select Portfolio 125,631 (2,726,406) 2,600,775
Water Resources Portfolio -- (5,583,088) 5,583,088
WilderHill Clean Energy Portfolio 782,921 (24,041,018) 23,258,097
Zacks Micro Cap Portfolio 63,691 (9,822,164) 9,758,473
Dynamic Biotechnology & Genome Portfolio 735,610 (13,715,213) 12,979,603
Dynamic Building & Construction Portfolio 15,944 (6,162,217) 6,146,273
Dynamic Energy Exploration & Production Portfolio(1) 51,554 (4,221,710) 4,170,156
Dynamic Food & Beverage Portfolio -- (943,096) 943,096
Dynamic Hardware & Consumer Electronics Portfolio 46,184 (1,843,273) 1,797,089
Dynamic Insurance Portfolio -- (1,267,161) 1,267,161
Dynamic Leisure and Entertainment Portfolio 200 (1,073,996) 1,073,796
Dynamic Media Portfolio 482 (709,527) 709,045
Dynamic Networking Portfolio 130,625 (1,635,932) 1,505,307
Dynamic Oil & Gas Services Portfolio 77,301 (6,161,997) 6,084,696
Dynamic Pharmaceuticals Portfolio(2) -- (3,404,347) 3,404,347
Dynamic Retail Portfolio -- (2,959,676) 2,959,676
Dynamic Semiconductors Portfolio 200,059 (11,335,871) 11,135,812
Dynamic Software Portfolio 158,565 (2,866,569) 2,708,004
Dynamic Telecommunications & Wireless Portfolio -- (855,794) 855,794
Dynamic Utilities Portfolio 9,333 (1,385,401) 1,376,068
</Table>
(1) First tax year-end will be May 31, 2006.
(2) First tax year-end was November 30, 2005. Tax year-end was changed to
April 30, 2006.
215
<Page>
POWERSHARES EXCHANGE-TRADED FUND TRUST
APRIL 30, 2006
NOTE 5. DISTRIBUTION AGREEMENT
ALPS Distributors, Inc. (the "Distributor") serves as the distributor of
Creation Units of each Fund pursuant to a Distribution Agreement between the
Distributor and the Trust. The Distributor does not maintain a secondary market
in Shares.
The Board of Trustees of the Trust has adopted a distribution plan pursuant to
Rule 12b-1 under the 1940 Act. In accordance with its Rule 12b-1 plan, each Fund
is authorized to pay an amount up to a maximum annual rate of 0.25% of the
average daily net assets for certain distribution-related activities. No 12b-1
fees are currently charged to the Funds, and there are no plans to impose these
fees.
NOTE 6. INVESTMENT TRANSACTIONS
For the period ended April 30, 2006, the cost of securities purchased and
proceeds from sales of securities, excluding short-term securities and in-kind
transactions, were as follows:
<Table>
<Caption>
PURCHASES SALES
------------ ------------
Dynamic Market Portfolio $610,100,398 $627,795,046
Dynamic OTC Portfolio 119,574,109 124,214,996
FTSE RAFI US 1000 Portfolio 1,550,949 1,947,436
Dynamic Large Cap Growth Portfolio 50,079,356 50,306,416
Dynamic Large Cap Value Portfolio 12,122,565 11,933,694
Dynamic Mid Cap Growth Portfolio 39,110,777 40,887,393
Dynamic Mid Cap Value Portfolio 30,667,572 31,114,737
Dynamic Small Cap Growth Portfolio 57,874,206 58,341,175
Dynamic Small Cap Value Portfolio 38,164,653 38,376,493
Dividend Achievers(TM) Portfolio 1,968,963 2,876,663
High Yield Equity Dividend Achievers(TM) Portfolio 42,223,638 57,376,097
High Growth Rate Dividend Achievers(TM) Portfolio 5,489,575 5,443,611
International Dividend Achievers(TM) Portfolio 8,092,996 11,451,074
Aerospace & Defense Portfolio 782,822 831,037
Golden Dragon Halter USX China Portfolio 19,844,453 19,885,862
Lux Nanotech Portfolio 4,200,924 4,895,819
Value Line Timeliness(TM) Select Portfolio 48,914,339 47,063,766
Water Resources Portfolio 13,166,162 15,786,746
WilderHill Clean Energy Portfolio 13,387,568 26,677,324
Zacks Micro Cap Portfolio 82,899,652 85,708,667
Zacks Small Cap Portfolio 391,365 368,151
Dynamic Biotechnology & Genome Portfolio 79,746,563 78,440,844
Dynamic Building & Construction Portfolio 11,226,880 10,971,578
Dynamic Energy Exploration & Production Portfolio 13,595,382 13,148,674
Dynamic Food & Beverage Portfolio 17,625,757 16,989,052
Dynamic Hardware & Consumer Electronics Portfolio 3,450,219 3,182,094
Dynamic Insurance Portfolio 9,421,095 9,332,097
Dynamic Leisure and Entertainment Portfolio 12,307,886 12,157,539
Dynamic Media Portfolio 16,826,663 16,888,242
</Table>
216
<Page>
POWERSHARES EXCHANGE-TRADED FUND TRUST
APRIL 30, 2006
<Table>
<Caption>
PURCHASES SALES
-------------- ------------
Dynamic Networking Portfolio $ 10,774,511 $ 12,364,938
Dynamic Oil & Gas Services Portfolio 15,695,639 18,498,940
Dynamic Pharmaceuticals Portfolio 11,631,754 11,919,515
Dynamic Retail Portfolio 2,692,219 3,651,895
Dynamic Semiconductors Portfolio 30,098,303 30,358,099
Dynamic Software Portfolio 27,093,629 26,740,902
Dynamic Telecommunications & Wireless Portfolio 817,210 1,027,114
Dynamic Utilities Portfolio 10,534,632 10,624,399
</Table>
For the period ended April 30, 2006, in-kind transactions were as follows:
<Table>
<Caption>
PURCHASES SALES
-------------- ------------
Dynamic Market Portfolio $1,435,242,479 $879,343,502
Dynamic OTC Portfolio 369,235,710 239,120,526
FTSE RAFI US 1000 Portfolio 117,643,503 16,171,804
Dynamic Large Cap Growth Portfolio 171,491,882 37,123,778
Dynamic Large Cap Value Portfolio 96,999,278 23,676,630
Dynamic Mid Cap Growth Portfolio 148,291,068 62,006,767
Dynamic Mid Cap Value Portfolio 60,155,891 17,252,873
Dynamic Small Cap Growth Portfolio 164,279,657 66,275,811
Dynamic Small Cap Value Portfolio 73,366,798 22,394,801
Dividend Achievers(TM) Portfolio 27,834,379 4,934,497
High Yield Equity Dividend Achievers(TM) Portfolio 332,039,363 184,075,186
High Growth Rate Dividend Achievers(TM) Portfolio 36,318,808 11,509,586
International Dividend Achievers(TM) Portfolio 213,933,173 53,722,144
Aerospace & Defense Portfolio 78,880,750 2,184,031
Golden Dragon Halter USX China Portfolio 182,624,766 19,525,345
Lux Nanotech Portfolio 117,330,260 16,845,304
Value Line Timeliness(TM) Select Portfolio 203,824,556 33,581,894
Water Resources Portfolio 960,666,994 31,712,537
WilderHill Clean Energy Portfolio 672,709,716 67,490,469
Zacks Micro Cap Portfolio 188,736,074 44,482,988
Zacks Small Cap Portfolio 56,302,038 --
Dynamic Biotechnology & Genome Portfolio 329,835,928 81,619,872
Dynamic Building & Construction Portfolio 73,980,883 55,788,793
Dynamic Energy Exploration & Production Portfolio 134,113,043 35,593,645
Dynamic Food & Beverage Portfolio 36,144,919 12,777,172
Dynamic Hardware & Consumer Electronics Portfolio 30,954,801 16,991,714
Dynamic Insurance Portfolio 51,278,415 22,993,273
Dynamic Leisure and Entertainment Portfolio 39,300,753 14,097,299
Dynamic Media Portfolio 37,309,815 11,697,306
Dynamic Networking Portfolio 37,037,110 11,588,235
Dynamic Oil & Gas Services Portfolio 362,673,183 53,634,138
</Table>
217
<Page>
POWERSHARES EXCHANGE-TRADED FUND TRUST
APRIL 30, 2006
<Table>
<Caption>
PURCHASES SALES
------------ -----------
Dynamic Pharmaceuticals Portfolio $ 82,981,978 $18,290,511
Dynamic Retail Portfolio 69,391,073 49,974,502
Dynamic Semiconductors Portfolio 156,125,472 69,160,255
Dynamic Software Portfolio 60,468,891 17,824,657
Dynamic Telecommunications & Wireless Portfolio 36,806,281 8,169,044
Dynamic Utilities Portfolio 43,956,157 22,795,071
</Table>
There were no purchases or sales of U.S. government or government agency
obligations for the period ended April 30, 2006. Gains on in-kind transactions
are not considered taxable gains for Federal income tax purposes.
NOTE 7. TRUSTEES' FEES
The Trust compensates each Trustee who is not an employee of the Adviser or its
affiliates. Total Trustees' fees are allocated to each Fund based on its average
daily net assets.
NOTE 8. CAPITAL
Shares are created and redeemed by the Trust only in Creation Unit size
aggregations of 100,000 (50,000 for Dynamic Market and Dynamic OTC Portfolios).
Transaction fees at scheduled amounts ranging from $500 to $5,000 per Creation
Unit are charged to those persons creating or redeeming Creation Units. Such
transactions are generally permitted on an in-kind basis, with a balancing cash
component to equate the transaction to the net asset value per unit of each Fund
of the Trust on the transaction date.
NOTE 9. STOCK SPLIT
On July 15, 2003, the Board of Trustees of the Trust declared a 4-for-1 stock
split for Dynamic Market Portfolio and Dynamic OTC Portfolio based on the shares
outstanding at the close of business on July 15, 2003. The stock split entitled
each shareholder of record three additional shares for every share of the Fund.
Consequently, 901,671 shares were issued for PowerShares Dynamic Market
Portfolio and 601,068 shares were issued for PowerShares Dynamic OTC Portfolio.
All capital share activity and per share data have been restated to reflect
these stock splits.
NOTE 10. INDEMNIFICATIONS
Under the Trust's organizational documents, its Officers and Trustees are
indemnified against certain liability arising out of the performance of their
duties to the Trust. Additionally, in the normal course of business, the Trust
enters into contracts with service providers that contain general
indemnification clauses. The Trust's maximum exposure under these arrangements
is unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, based on experience, the Trust
believes the risk of loss to be remote.
NOTE 11. OTHER MATTERS
On January 23, 2006, the Trust's Adviser announced that it had entered into a
Purchase Agreement under which the Adviser will sell a controlling interest in
itself to AMVESCAP PLC ("AMVESCAP").
The transaction, subject to certain conditions including approval from the Board
of Trustees and the shareholders of the Funds, is expected to close in the
second or third quarter of 2006.
218
<Page>
POWERSHARES EXCHANGE-TRADED FUND TRUST
APRIL 30, 2006
Under the 1940 Act, consummation of this transaction will result in the
automatic termination of the investment advisory agreement with the Adviser.
Therefore, the Trust's Board of Trustees has approved a new investment advisory
agreement among the Adviser and certain owners thereof, AMVESCAP and AIM
Management Group, Inc., an indirect wholly-owned subsidiary of AMVESCAP to
become effective upon the closing of the sale to AMVESCAP, and subject to
approval by the shareholders.
NOTE 12. SUBSEQUENT EVENT
The Board of Trustees authorized the High Yield Equity Dividend Achievers(TM)
Portfolio to change the dividend distribution from a quarterly to a monthly
basis effective May 1, 2006.
219
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF POWERSHARES EXCHANGE-TRADED FUND
TRUST
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the portfolios (identified in Note
1) comprising PowerShares Exchange-Traded Fund Trust (the "Trust") at April 30,
2006, the results of each of their operations, the changes in each of their net
assets and the financial highlights for the periods indicated, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments owned at April 30, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
June 26, 2006
220
<Page>
SUPPLEMENTAL INFORMATION (UNAUDITED)
FEDERAL INCOME TAX INFORMATION
The percentages of investment income (dividend income plus short-term gains, if
any) qualify as follows:
<Table>
<Caption>
QUALIFIED DIVIDEND DIVIDENDS-RECEIVED
INCOME DEDUCTION
------------------ ------------------
PowerShares Dynamic Market Portfolio 100% 100%
PowerShares Dynamic OTC Portfolio 100% 100%
PowerShares FTSE RAFI US 1000 Portfolio 100% 100%
PowerShares Dynamic Large Cap Growth Portfolio 100% 100%
PowerShares Dynamic Large Cap Value Portfolio 100% 100%
PowerShares Dynamic Mid Cap Value Portfolio 100% 100%
PowerShares Dynamic Small Cap Value Portfolio 100% 100%
PowerShares Dividend Achievers(TM) Portfolio 100% 100%
PowerShares High Yield Equity Dividend Achievers(TM) Portfolio 100% 100%
PowerShares High Growth Rate Dividend Achievers(TM) Portfolio 100% 100%
PowerShares International Dividend Achievers(TM) Portfolio 100% 0%
PowerShares Aerospace & Defense Portfolio 100% 100%
PowerShares Golden Dragon Halter USX China Portfolio 100% 0%
PowerShares Lux Nanotech Portfolio 100% 100%
PowerShares Water Resources Portfolio 100% 100%
PowerShares Zacks Micro Cap Portfolio 100% 100%
PowerShares Dynamic Building & Construction Portfolio 100% 100%
PowerShares Dynamic Energy Exploration & Production Portfolio 45% 43%
PowerShares Dynamic Food & Beverage Portfolio 100% 100%
PowerShares Dynamic Insurance Portfolio 100% 100%
PowerShares Dynamic Leisure and Entertainment Portfolio 100% 100%
PowerShares Dynamic Media Portfolio 100% 100%
PowerShares Dynamic Pharmaceuticals Portfolio 100% 100%
PowerShares Dynamic Retail Portfolio 100% 100%
PowerShares Dynamic Telecommunications & Wireless Portfolio 100% 100%
PowerShares Dynamic Utilities Portfolio 100% 100%
</Table>
221
<Page>
SUPPLEMENTAL INFORMATION (UNAUDITED)
TRUSTEES AND OFFICERS
The Trustees who are affiliated with the Adviser or affiliates of the Adviser
and executive officers of the Trust, their term of office and length of time
served, their principal business occupations during the past five years, the
number of portfolios in the Fund Complex overseen by each Trustee and the other
directorships, if any, held by the Trustee, are shown below.
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
IN FUND
LENGTH OF PRINCIPAL COMPLEX
NAME, ADDRESS AND AGE OF POSITION(S) TIME OCCUPATION(S) DURING OVERSEEN OTHER DIRECTORSHIPS
TRUSTEES WITH TRUST SERVED* PAST 5 YEARS BY TRUSTEES HELD BY TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------
H. Bruce Bond (43)** Trustee and Since Managing Director, 37 None
PowerShares Capital Chief 2003 PowerShares Capital
Management LLC Executive Management LLC
301 W. Roosevelt Road Officer (August 2002-
Wheaton, IL 60187 Present); Manager,
Nuveen Investments
(April 1998-
August 2002)
John Southard (36)** Trustee and Since Managing Director, 37 None
PowerShares Capital Treasurer 2003 PowerShares Capital
Management LLC Management LLC
301 W. Roosevelt Road (August 2002-
Wheaton, IL 60187 Present);
Analyst, Charles A.
Schwab Securities
(May 2001-
August 2002);
Analyst, Nike
Securities
(October 1992-
May 2001)
</Table>
- -------------------
* This is the date the Trustee began serving the Trust.
** Interested Trustee as defined in Section 2a-19 of the 1940 Act.
222
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
IN FUND
LENGTH OF PRINCIPAL COMPLEX
NAME, ADDRESS AND AGE OF POSITION(S) TIME OCCUPATION(S) DURING OVERSEEN OTHER DIRECTORSHIPS
TRUSTEES WITH TRUST SERVED* PAST 5 YEARS BY TRUSTEES HELD BY TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------
D. Mark McMillan (43) Trustee Since Member, Bell, Boyd & 37 None
c/o PowerShares Capital 2003 Lloyd LLC (1989-
Management LLC Present)
301 W. Roosevelt Road
Wheaton, IL 60187
Philip M. Nussbaum (44) Trustee Since Chairman, 37 Director of the
c/o PowerShares Capital 2003 Performance Trust Betzold Companies;
Management LLC Capital Partners Director of the
301 W. Roosevelt Road (Investment Bank); Communication
Wheaton, IL 60187 formerly Betzold, Institute
Berg, Nussbaum &
Heitman, Inc.
(July 1999-
December 2000);
formerly Executive
Vice President of
Finance, Betzold,
Berg, Nussbaum &
Heitman, Inc.
(March 1994-
July 1999)
Ronn R. Bagge (48) Trustee Since YQA Capital 37 Advisor of Park
YQA Capital 2003 Management LLC Industries, Inc.
Management, LLC (July 1998-Present); (manufacturer);
1755 S. Naperville Rd., formerly Owner/CEO Director of
Suite 100 of Electronic Dynamic MasterCare Experts,
Wheaton, IL 60187 Balancing Co., Inc. Inc. (consumer
(high-speed rotating services); Advisor of
equipment service IVCF Great Lakes
provider) Region (non-profit);
Director of Living
Waters Wilderness
Adventure Inc. (non-
profit); Director of
Wheaton Christian
Grammar School
</Table>
- ---------------
* This is the date the Trustee began serving the Trust.
223
<Page>
<Table>
<Caption>
LENGTH OF
NAME, ADDRESS AND POSITION(S) TIME
AGE OF OFFICERS WITH TRUST SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- -----------------------------------------------------------------------------------------------------------------------
Keith Ovitt (43) Secretary Since Managing Director, PowerShares Capital Management
PowerShares Capital 2003 LLC (April 2003-Present); President, Ovitech
Management LLC (2002-2003); Vice President of Information Systems
301 W. Roosevelt Road for DFG Foods, LLC (Division of FoodBrands
Wheaton, IL 60187 America/Tyson Foods) (1999-2002); Systems
Manager, Nabisco Biscuit Company (1997-1999)
Kevin R. Gustafson (40) Chief Since General Counsel and Chief Compliance Officer,
PowerShares Capital Compliance 2004 PowerShares Capital Management LLC (September
Management LLC Oficer 2004-Present); Attorney, Nyberg & Gustafson (2001-
301 W. Roosevelt Road 2004); Attorney, Burke, Warren, McKay & Serritella,
Wheaton, IL 60187 P.C. (1997-2000)
Bruce T. Duncan (51) Chief Since Sr. VP-Finance, PowerShares Capital Management
PowerShares Capital Financial 2006 LLC (September 2005-Present; CFO since April 2006);
Management LLC Officer Certified Public Accountant & Attorney, Private
301 W. Roosevelt Road Practice (June 2000-September 2005); Vice President-
Wheaton, IL 60187 Tax and Vice President-Investor Relations, The
ServiceMaster Company (January 1990-June 2000)
</Table>
224
<Page>
BOARD CONSIDERATIONS REGARDING APPROVAL/RENEWAL OF INVESTMENT ADVISORY AGREEMENT
(UNAUDITED)
At a meeting held on March 22, 2006, the Board of Trustees of PowerShares
Exchange-Traded Fund Trust (the "Trust"), including the Independent Trustees,
unanimously approved (1) the continuation of the current Advisory Agreement (the
"Existing Advisory Agreement") between PowerShares Capital Management LLC (the
"Adviser") and the Trust with respect to certain Funds of the Trust as listed
below (the Existing Advisory Agreement for the newer Funds of the Trust was
approved at the organizational meetings for such Funds, as described below) and
(2) the new Advisory Agreement (the "New Advisory Agreement") between the
Adviser and the Trust with respect to each Fund in connection with the
acquisition of the Adviser by AMVESCAP PLC ("AMVESCAP") pursuant to the terms of
a Purchase Agreement dated as of January 23, 2006 by and among the Adviser and
certain owners thereof, AMVESCAP and A I M Management Group, Inc., an indirect
wholly-owned subsidiary of AMVESCAP (the "Acquisition").
As discussed in more detail below, the Board of Trustees believes that the
nature and extent of services provided to the Funds under the Existing Advisory
Agreement are appropriate and that the quality of the services is good. The
Board also believes that the advisory fee and expense ratio of each Fund are
competitive and that the advisory fee for each Fund is reasonable and
appropriate in light of the quality of services provided.
The Board also believes that the Acquisition will not adversely affect the
Adviser or the level of services provided by the Adviser, but rather, may
enhance the Adviser's facilities and organization, which may, in turn, enhance
the level of services provided by the Adviser to the Funds.
NEW ADVISORY AGREEMENT
In late November 2005, the Adviser informed the Independent Trustees that it was
negotiating with AMVESCAP regarding a potential sale of a controlling interest
in the Adviser. At the December 16, 2005 quarterly Board meeting, management of
the Adviser described the possible sale, and the Independent Trustees met in
executive session to discuss their duties in connection with the proposed
transaction. The Independent Trustees received a memorandum from independent
counsel that addressed their duties in light of the possible change of control
of the Adviser.
On January 23, 2006, the Adviser announced that it had entered into the Purchase
Agreement. Under the direction of the Independent Trustees, independent counsel
provided AMVESCAP with an initial list of requested information to be addressed.
After receiving written responses to these requests, the Board met on February
21, 2006 to consider the information and to meet certain senior executives of
AMVESCAP. The Independent Trustees then requested additional information on how
AMVESCAP intended to integrate the Adviser's back office operations and on the
compliance and other resources that would become available to the Adviser after
the closing of the Acquisition. Representatives of the Adviser and AMVESCAP
discussed this information at the March 22, 2006 Board meeting. At this meeting,
the Board considered the information provided by the Adviser and the information
provided by AMVESCAP as described above.
Throughout the process, the Independent Trustees had the assistance of legal
counsel, who advised them on, among other things, their duties and obligations.
In connection with its review, the Board obtained substantial information
regarding: the management of AMVESCAP, the history of AMVESCAP's business and
operations, and the future plans of AMVESCAP
225
<Page>
and the Adviser with respect to the Funds. The Board also received information
regarding the terms of the Acquisition, including the terms of the Purchase
Agreement and employment agreements with key employees of the Adviser to become
effective upon the closing of the Acquisition. AMVESCAP described its plans to
add resources to the back office support areas such as legal and compliance,
fund administration, information technology, finance and human resources, and to
provide significant management support to the Funds and the Adviser's management
team.
The Board also considered that the Purchase Agreement requires the Adviser to
use its best efforts to obtain the Board's approval of a new principal
underwriter agreement with A I M Distributors, Inc. (an affiliate of AMVESCAP).
Although a new principal underwriter agreement had not yet been presented to the
Board, the Board considered the role of the principal underwriter, generally,
and under the terms of the Trust's exemptive orders from the SEC, and the
capabilities of A I M Distributors, Inc.
The Board also considered that AMVESCAP intends, after the Acquisition, to
consider proposing that AMVESCAP affiliates assume various administrative
responsibilities currently performed for the Trust by unaffiliated third party
service providers.
The Board also reviewed regulatory issues relating to AMVESCAP and its
affiliates.
In connection with their deliberations, the Independent Trustees obtained
certain assurances from AMVESCAP, including the following:
* AMVESCAP and its affiliates would use its reasonable best efforts to comply
with Section 15(f) of the Investment Company Act of 1940, as amended (the
"1940 Act"), and that AMVESCAP is not aware of any express or implied term,
condition, arrangement or understanding that would impose an "unfair burden"
on any Fund as a result of the Acquisition and has agreed that neither it nor
any of its affiliates will take any action that would have the effect of
imposing an "unfair burden" on any Fund as a result of the Acquisition,
* AMVESCAP or its affiliates would pay a portion of the costs and expenses
incurred by the Funds associated with the Acquisition (the Adviser agreed to
bear all remaining costs),
* the Acquisition would not result in any change to any Fund's investment
objective or policies (other than as described in a Proxy Statement prepared
in connection with seeking shareholder approval of the New Advisory Agreement
and certain changes to the Funds' policies),
* AMVESCAP does not propose to make any material change in the manner in which
investment advisory or other services are rendered to each Fund, apart from
its intention to propose, subject to receipt of necessary regulatory
approvals, that the Trust retain A I M Distributors, Inc. to serve as
principal underwriter of the Funds,
* after the Acquisition, AMVESCAP intends that the Funds will continue to
receive, without interruption, services of the type and quality no less
favorable than that currently provided by the Adviser,
* AMVESCAP intends to maintain or enhance the Adviser's facilities and
organization either directly or indirectly through the Adviser's access to
the facilities and organization of AMVESCAP and its affiliates,
226
<Page>
* AMVESCAP intends to maintain the "PowerShares" brand identity and is
committed to seeking to strengthen and enhance the brand, either singly or in
combination with other brands utilized by AMVESCAP and its affiliates, and
the distribution of the Funds,
* AMVESCAP will promptly advise the Independent Trustees of decisions
materially affecting the Adviser that could have an impact on the Funds, and
* AMVESCAP will indemnify, defend and hold harmless the Trust and the
Independent Trustees from and against any liability, claims and expenses
insofar as such liability, claim or expense is based upon or arises from
(1) any untrue statement or alleged untrue statement of a material fact
contained in the following (collectively, "AMVESCAP Information"):
(A) certain statements included in the Proxy Statement in conformity with
information furnished in writing by AMVESCAP or (B) descriptions of certain
information presented to the Independent Trustees at meetings of the Board
held on February 21, 2006 and March 22, 2006 and set forth in written
minutes of such meetings or (2) any omission or alleged omission to state a
material fact in the AMVESCAP Information required to be stated therein in
order to make the statements in the AMVESCAP Information, in light of the
circumstances under which they were made, not misleading.
The Board noted that, in previously approving the Existing Advisory Agreement
for each Fund (either initially or for the continuation thereof), the Board had
considered numerous factors, as described below. As a result of their review
and consideration of the Acquisition and the New Advisory Agreement for each
Fund, the Board, including the Independent Trustees, determined to approve the
New Advisory Agreement for each Fund, and to recommend the Agreement to the
shareholders of each Fund for their approval. No single factor was determinative
in the Board's analysis.
EXISTING ADVISORY AGREEMENT
At the March 22, 2006 Board meeting, the Trustees considered the Existing
Advisory Agreements for the following Funds:
PowerShares Dynamic Market Portfolio
PowerShares Dynamic OTC Portfolio
PowerShares Golden Dragon Halter USX China Portfolio
PowerShares High Yield Equity Dividend Achievers(TM) Portfolio
PowerShares WilderHill Clean Energy Portfolio
PowerShares Dynamic Large Cap Growth Portfolio
PowerShares Dynamic Large Cap Value Portfolio
PowerShares Dynamic Mid Cap Growth Portfolio
PowerShares Dynamic Mid Cap Value Portfolio
PowerShares Dynamic Small Cap Growth Portfolio
PowerShares Dynamic Small Cap Value Portfolio
PowerShares Dynamic Biotechnology & Genome Portfolio
PowerShares Dynamic Food & Beverage Portfolio
PowerShares Dynamic Leisure and Entertainment Portfolio
PowerShares Dynamic Media Portfolio
PowerShares Dynamic Networking Portfolio
PowerShares Dynamic Pharmaceuticals Portfolio
PowerShares Dynamic Semiconductors Portfolio
PowerShares Dynamic Software Portfolio
PowerShares Zacks Micro Cap Portfolio
PowerShares Aerospace & Defense Portfolio
PowerShares Dynamic Hardware & Consumer Electronics Portfolio
PowerShares Dynamic Telecommunications & Wireless Portfolio
PowerShares Value Line Timeliness(TM) Select Portfolio
227
<Page>
The Trustees reviewed information from the Adviser describing: (i) the nature,
extent and quality of services provided, (ii) the investment performance of the
Funds, (iii) the costs of services to be provided and estimated profits realized
by the Adviser, (iv) the extent to which economies of scale are realized as the
Funds grow, (v) whether fee levels reflect any possible economies of scale for
the benefit of Fund shareholders, (vi) comparisons of services rendered and
amounts paid to other registered investment companies, and (vii) any benefits
realized by the Adviser from its relationship with each Fund. Based on all of
the information considered and the conclusions reached, the Board, including the
Independent Trustees, determined to approve the Existing Advisory Agreement for
each Fund listed above. No single factor was determinative in the Board's
analysis.
NATURE, EXTENT AND QUALITY OF SERVICES. In evaluating the nature, extent and
quality of the Adviser's services, the Trustees reviewed information concerning
the functions performed by the Adviser for the Funds, information describing the
Adviser's current organization and the background and experience of the persons
responsible for the day-to-day management of the Funds. The Trustees reviewed
matters related to the Adviser's portfolio transaction policies and procedures.
The Trustees reviewed information on the performance of the Funds and the
performance of their benchmark indices. The Trustees also reviewed the
correlation between the underlying index and each Fund's performance and
concluded that the correlation between the Fund's performance, before expenses,
to the underlying index that the Adviser seeks to replicate was appropriate.
The Trustees also considered the services provided by the Adviser in its
oversight of the Funds' administrator, custodian and transfer agent. They noted
the significant amount of time and effort that had been devoted to this
oversight function.
Based on their review, the Trustees found that the nature and extent of services
provided to the Funds under the Existing Advisory Agreement are appropriate and
that the quality is good.
FEES, EXPENSES AND PROFITABILITY. The Trustees reviewed and discussed the
information provided by the Adviser on each Fund's expense ratios and the
advisory fee, as compared to three categories of comparable funds selected by
Lipper Inc., an independent source: exchange-traded index funds ("ETFs"),
open-end funds and closed-end funds. The Trustees also reviewed and discussed
information prepared by Lipper Inc. on expense ratios and advisory fees of all
ETFs. The Trustees noted that the advisory fee charged to the Funds was
identical, except for the advisory fee for the PowerShares High Yield Dividend
Achievers(TM) Portfolio (for which the annual advisory fee was 0.40% of average
net assets), and that the Adviser had agreed to waive the fee and/or pay
expenses to the extent necessary to prevent the annual operating expenses of
each Fund (excluding interest expenses, licensing fees (for all Funds other than
the initial two Funds, the PowerShares Dynamic OTC Portfolio and the PowerShares
Dynamic Market Portfolio), brokerage commissions and other trading expenses,
taxes and extraordinary expenses) from exceeding 0.60% (0.50% for the
PowerShares High Yield Equity Dividend Achievers(TM) Portfolio) at least until
April 30, 2007. The Trustees noted that the Adviser does not provide investment
management services to clients other than the Trust. The Trustees noted that the
advisory fees were at the higher end of the ETF universe, but were generally
lower than fees for actively-managed open-end and closed-end funds, and were
reasonable because of the complexity of the indices, which require more frequent
rebalancing of the portfolios, the distinguishing factors of the Funds, and the
administrative, operational and management oversight costs for the Adviser. The
Board therefore concluded that the advisory fee and
228
<Page>
expense ratio of each Fund are competitive and that the advisory fee for each
Fund is reasonable and appropriate in amount in light of the quality of services
provided and the expense cap in place.
In conjunction with their review of fees, the Trustees also considered
information provided by the Adviser on the revenues received by the Adviser
under each Agreement, as well as the fees waived and expenses reimbursed by the
Adviser for the Funds. The Trustees reviewed information provided by the Adviser
on its profitability as well as any profits realized by the Adviser from its
relationship to each Fund. The Trustees noted that the Adviser had not yet fully
recovered losses it had experienced during the first years of the Funds when
they were heavily subsidized by the Adviser. The Trustees concluded that the
profitability to the Adviser of the advisory services provided to the Funds is
not unreasonable.
ECONOMIES OF SCALE AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE. The
Trustees reviewed the information provided by the Adviser as to the extent to
which economies of scale are realized as each Fund grows and whether fee levels
reflect economies of scale for the benefit of shareholders. The Trustees
reviewed each Fund's asset size, expense ratio, expense limitation agreed to by
the Adviser and whether the investment process produced economies of scale. The
Trustees noted that certain fixed costs associated with the management of the
Funds are being reduced on a per-Fund basis as additional Funds are added, and
that the gradual reduction of the per-Fund cost may enable the Adviser to
operate the Funds under the expense cap, which potentially would lower the costs
to shareholders. The Trustees noted that the Expense Recapture Agreement with
the Trust provided that the Adviser was entitled to be reimbursed by each Fund
for fees waived or expenses absorbed pursuant to the expense cap for a period of
three years from the date the fee or expense was incurred, provided that no
reimbursement would be made that would result in a Fund exceeding its expense
cap.
The Trustees noted that the Adviser had not identified any further benefits that
it derived from its relationship with the Funds, and had noted that it does not
have any soft-dollar arrangements.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, determined to approve the Existing
Advisory Agreement for each Fund listed above. No single factor was
determinative in the Board's analysis.
The Existing Advisory Agreement was considered at their respective
organizational meeting for the following Funds:
PowerShares Dividend Achievers(TM) Portfolio
PowerShares International Dividend Achievers(TM) Portfolio
PowerShares High Growth Rate Dividend Achievers(TM) Portfolio
PowerShares Zacks Small Cap Portfolio
PowerShares Dynamic Building & Construction Portfolio
PowerShares Energy Exploration & Production Portfolio
PowerShares Dynamic Insurance Portfolio
PowerShares Dynamic Oil & Gas Services Portfolio
PowerShares Dynamic Retail Portfolio
PowerShares Dynamic Utilities Portfolio
PowerShares Lux Nanotech Portfolio
PowerShares FTSE RAFI US 1000 Portfolio
PowerShares Global Water Portfolio
229
<Page>
The Trustees reviewed information from the Adviser describing: (i) the nature,
extent and quality of services to be provided, (ii) the investment performance
of the indices tracked by the Funds (since Fund performance information was not
available), (iii) the costs of services to be provided and estimated profits to
be realized by the Adviser, (iv) the extent to which economies of scale are
realized as the Funds grow, (v) whether fee levels reflect any possible
economies of scale for the benefit of Fund shareholders, (vi) comparisons of
services rendered and amounts paid to other registered investment companies, and
(vii) any benefits realized by the Adviser from its relationship with each Fund.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, determined to approve the Existing
Advisory Agreement for each Fund listed above. No single factor was
determinative in the Board's analysis.
NATURE, EXTENT AND QUALITY OF SERVICES. With respect to the nature, extent and
quality of services to be provided by the Adviser, the Board reviewed the
functions performed by the Adviser, the Adviser's Form ADV and the Adviser's
financial condition, and considered the quality of services provided to the
other Funds of the Trust. The Board reviewed information on the performance of
other Funds and the performance of their benchmark indices, and concluded that
the Adviser had demonstrated capability with respect to an investment strategy
of replicating, before fees and expenses, as closely as possible the performance
of various indices. The Board also considered the services provided by the
Adviser in its oversight of the Funds' administrator, custodian and transfer
agent, and noted the significant amount of time and effort that had been devoted
to this oversight function.
FEES, EXPENSES AND PROFITABILITY. The Board reviewed and discussed the
information provided by the Adviser on the Funds' anticipated expense ratios and
the advisory fee, as compared to comparable funds selected by Lipper Inc., an
independent source. The Board noted that the advisory fee to be charged to the
Funds was identical, except for the advisory fee for the PowerShares Dividend
Achievers(TM) Portfolio, the PowerShares International Dividend Achievers(TM)
Portfolio and the PowerShares High Growth Rate Dividend Achievers(TM) Portfolio
(for which the annual advisory fee was 0.40% of average net assets) and that the
Adviser had agreed to waive the fee and/or pay expenses to the extent necessary
to prevent the annual operating expenses of each Fund (excluding interest
expenses, licensing fees, brokerage commissions and other trading expenses,
taxes and extraordinary expenses) from exceeding 0.60% (0.50% for the three
Funds with annual advisory fees of 0.40%) at least until April 30, 2007. The
Board noted that the Adviser does not provide investment management services to
clients other than the Trust. The Board noted that the advisory fees were at
the higher end of the ETF universe, but were lower than open-end (non-ETF) funds
as well as closed-end funds, and were reasonable because of the complexity of
the indices, which generally require more frequent rebalancing of the
portfolios, the distinguishing factors of the Funds, and the higher
administrative, operational and management oversight costs for the Adviser. The
Board therefore concluded that the advisory fee and anticipated expense ratio of
each Fund were competitive and that the advisory fee for each Fund was
reasonable and appropriate in amount in light of the quality of services to be
provided and the expense cap that would be in place. The Board reviewed the
profitability data that had been provided by the Adviser for the initial two
Funds, noting that the Adviser stated that its costs of managing those Funds
have generally exceeded the amount otherwise payable as the advisory fee, and
that the Adviser also had absorbed expenses pursuant to the expense cap
provisions of the Existing Advisory Agreement.
230
<Page>
ECONOMIES OF SCALE AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE. The
Board reviewed the information provided by the Adviser as to the extent to which
economies of scale may be realized as each Fund grows and whether fee levels
reflect economies of scale for the benefit of shareholders. The Board reviewed
information provided by the Adviser with respect to its ability to spread
certain fixed costs among the Funds. The Board noted that certain fixed costs
associated with the management of the series of the Trust are being reduced on a
per-fund basis as additional series are added, and that the gradual reduction of
the per-fund cost may enable the Adviser to operate the Funds under the expense
cap, which potentially would lower the costs to shareholders.
The Board noted that the Adviser had not identified any further benefits that it
derived from its relationship with the Funds, and had noted that it does not
have any soft-dollar arrangements.
* * * *
As a result of their review and consideration of the Acquisition and the
proposed New Advisory Agreement, at the March 22, 2006 meeting the Board,
including the Independent Trustees, unanimously determined to approve the New
Advisory Agreement for each Fund, and to recommend the Agreement to the
shareholders of each Fund for their approval.
231
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<Page>
PROXY VOTING POLICIES AND PROCEDURES
A description of the Funds' proxy voting policies and procedures that the Funds
use to determine how to vote proxies relating to portfolio securities is
available, without charge and upon request, by calling (800) 843-2639. This
information is also available on the Securities and Exchange Commission's
("Commission") website at WWW.SEC.GOV.
Information regarding how the Funds voted proxies for portfolio securities, if
applicable, during the most recent 12-month period ended June 30, is also
available, without charge and upon request, by (i) calling (800) 843-2639; or
(ii) accessing the Funds' Form N-PX on the Commission's website at WWW.SEC.GOV.
QUARTERLY PORTFOLIOS
The Funds file their complete schedules of portfolio holdings with the
Commission for the first and third quarters of each fiscal year on Form N-Q. The
Funds' Forms N-Q are available on the Commission's website at WWW.SEC.GOV. The
Funds' Forms N-Q may also be reviewed and copied at the Commission's Public
Reference Room in Washington, DC; information on the operation of the Public
Reference Room may be obtained by calling (800) SEC-0330.
THERE ARE RISKS INVOLVED IN INVESTING IN ETFS, INCLUDING POSSIBLE LOSS OF MONEY.
INVESTING IN SECURITIES OF SMALL AND MEDIUM SIZED COMPANIES INVOLVES GREATER
RISK THAN IS CUSTOMARILY ASSOCIATED WITH INVESTING IN MORE ESTABLISHED
COMPANIES, AND INVESTMENTS IN CONCENTRATED INDUSTRY SECTORS INVOLVE GREATER
RISKS THAN INVESTMENTS THAT ARE MORE DIVERSIFIED. POWERSHARES ARE NOT ACTIVELY
MANAGED AND ARE SUBJECT TO RISKS SIMILAR TO STOCKS, INCLUDING THOSE RELATED TO
SHORT SELLING AND MARGIN MAINTENANCE. POWERSHARES ARE NOT FDIC INSURED, MAY LOSE
VALUE AND HAVE NO BANK GUARANTEE. POWERSHARES IS A REGISTERED TRADEMARK OF
POWERSHARES CAPITAL MANAGEMENT LLC. PAST PERFORMANCE IS NOT A GUARANTEE OF
FUTURE RESULTS.
ALPS DISTRIBUTORS, INC. IS THE DISTRIBUTOR OF THE POWERSHARES EXCHANGE-TRADED
FUND TRUST.
AN INVESTOR SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE, RISKS, CHARGES AND
EXPENSES CAREFULLY BEFORE INVESTING. FOR MORE COMPLETE INFORMATION ABOUT
POWERSHARES CALL 800.THE.AMEX OR VISIT OUR WEBSITE POWERSHARES.COM FOR A
PROSPECTUS. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
233
<Page>
POWERSHARES(TM)
301 W. ROOSEVELT ROAD
WHEATON, IL 60187
800.983.0903
WWW.POWERSHARES.COM
<Page>
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a Code of Ethics that applies to the registrant's
principal executive officer and principal financial officer. This Code is
filed as an exhibit to this report on Form N-CSR under Item 12(a)(1).
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Registrant's Board of Trustees has determined that the Registrant has at
least one audit committee financial expert serving on its audit committee.
The audit committee financial expert is Phillip Nussbaum. Mr. Nussbaum is
independent as defined in Form N-CSR, Item 3(a)(2).
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES. The aggregate fees billed for the Registrant's fiscal
years ended April 30, 2006 and April 30, 2005 for professional services
rendered by the principal accountant for the audit of the Registrant's annual
financial statements or services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements for such
fiscal periods were $636,000 and $166,500, respectively.
(b) AUDIT-RELATED FEES. The aggregate fees billed for the Registrant's
fiscal years ended April 30, 2006 and April 30, 2005 for professional
services rendered by the principal accountant for assurance and related
services by the principal accountant that are reasonably related to the
performance of the audit of the Registrant's financial statements and are not
reported above in Item 4(a) were $247,675 and $42,000, respectively. These
fees principally related to tax return reviews as well as reviews of Trust's
Registration Statements.
(c) TAX FEES. The aggregate fees billed for the Registrant's fiscal years
ended April 30, 2006 and April 30, 2005 for professional services rendered by
the principal accountant for tax compliance, tax advice and tax planning were
$0 and $0, respectively.
(d) ALL OTHER FEES. All other aggregate fees billed for the Registrant's
fiscal years ended April 30, 2006 and April 30, 2005 were $0 and $10,000,
respectively. All other fees for the fiscal year ended April 30, 2005 related
to review of the Trust's disclosure controls and procedures.
(e) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES. In accordance
with Rule 2-01(c)(7)(A), the Audit Committee pre-approves all of the Audit
and Tax Fees of the Registrant. All of the services described in
paragraphs (b) and (c) above were approved by the Audit Committee in
accordance with paragraph (c) (7) (i) (c) of Rule 2-01 of Regulation S-X.
<Page>
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The Registrant has a separately designated Audit Committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act, which consists of
the independent trustees. The Audit Committee members are Phillip Nussbaum,
Mark McMillan, and Ronn Bagge.
ITEMS 6. SCHEDULE OF INVESTMENTS.
The Schedules of Investments are included as a part of the report to
shareholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no changes to the procedures by which shareholders may
recommend nominees to the Registrant's Board of Trustees that would require
disclosure herein.
ITEM 11. CONTROLS AND PROCEDURES.
a) Based on their evaluation of the Registrant's disclosure controls and
procedures (as defined in Rule 30a-3-(c) under the Investment Company
Act of 1940) as of a date within 90 days of the filing date of this
report, the Registrant's President (principal executive officer) and
Treasurer (principal financial officer) have concluded that such
disclosure controls and procedures are reasonably designed and are
operating effectively to ensure that material information relating to
the Registrant, including its consolidated subsidiaries, is made known
to them by others within those entities, particularly during the period
in which this report is being prepared, and that the information
required in filings on Form N-CSR is recorded, processed, summarized
and reported on a timely basis.
A stock held by the PowerShares Golden Dragon Halter USX China
Portfolio (the "Fund"), China Energy Savings Technology, Inc. ("CESV"),
was subject to a trading halt commencing on February 15, 2006 and was
delisted from the NASDAQ on May 19, 2006. CESV commenced trading in
the Pink Sheets on June 5, 2006. Immediately prior to the trading
halt, CESV represented approximately 0.22% of the Fund's portfolio.
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During this period, a fair value was assigned to CESV by the Fund
manager and staff. However, the Fund's Pricing Committee was not
convened and CESV was not valued in a manner consistent with the Fund's
pricing procedures. There was a deficiency in the Fund's control
procedures to the extent that the Fund's pricing procedures were not
followed. The difference in pricing of the security had no material
effect on the financial statements of the Fund.
Management has taken steps to enhance its control procedures related to
fair value pricing. These steps include, among other things, (i)
working with the Fund's Administrator to implement an automated system
which will trigger an electronic notice to Pricing Committee members in
the event of a trading halt, the delisting of a security or if a
security does not change its price for three consecutive business days
and (ii) the imposition of more rigorous documentation requirements.
b) There were no significant changes in the Registrant's internal controls
over financial reporting (as defined in Rule 30a-3(d) under the
Investment Company Act of 1940) that occurred during the Registrant's
most recent fiscal half-year that have materially affected, or are
reasonably likely to materially affect, the Registrant's internal
control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics.
(a)(2) Certifications of the Registrant's Chief Executive Officer and Chief
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 are attached as Exhibit 99.CERT.
(b) Certifications of the Registrant's Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 is attached as Exhibit 99.906CERT.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PowerShares Exchange-Traded Fund Trust
- ----------------------------------------
By: /s/ H. Bruce Bond
------------------------------
Name: H. Bruce Bond
Title: Chairman and Chief Executive Officer
Date: July 5, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the
following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
By: /s/ H. Bruce Bond
------------------------------
Name: H. Bruce Bond
Title: Chairman and Chief Executive Officer
Date: July 5, 2006
By: /s/ Bruce T. Duncan
------------------------------
Name: Bruce T. Duncan
Title: Chief Financial Officer
Date: July 5, 2006