Interview – January 9, 2007

HDS: Hi this is Ann Marie Fleming with HomelandDefenseStocks.com.

HDS: We are once again joined by Scott Sacknoff, manager of the SPADE ® Defense Index, ticker symbol, DXS, who will look back with us on how investors performed in 2006 as well as give us a look ahead to what we can expect in 2007 and how investors can take advantage of this. Mr. Sacknoff, thank you for joining us.

SMS: My pleasure Ann Marie.

HDS: Let’s start with 2006. How did the sector perform?

SMS: As a whole, companies involved with defense, homeland security, and space continued to outperform the broader market in 2006 with our benchmark SPADE Defense Index gaining 19.33%, more than 5% better than the S&P500. This marked the seventh consecutive year that the sector has outperformed the broader market. Indicative of its strength, in 2006, the Index hit all-time intraday highs 40 times and it ended the year at near-record levels.

HDS: Can you tell us what drove this performance?

SMS: The key to the sector’s gains was the performance of companies with the largest market caps. The 12 largest constituents in the index all posted gains of 10% or more with 10 of the 12 posting gains of at least 20%. Specifically, the returns posted by five largest defense prime contractors were Lockheed Martin (NYSE: LMT) – 44.7%, Raytheon (NYSE: RTN) – 31.5%, General Dynamics (NYSE: GD) – 30.4%, Boeing (NYSE: BA) – 26.5%, and Northrop Grumman (NYSE: NOC) – 12.6%.

HDS: Were there any other noticeable trends?

SMS: Surprisingly, while the financial media reported the woes of satellite radio firms – XM (NASDQ: XMSR) and Sirius (NASDQ: SIRI), five of the ten best gainers in the index had significant space and satellite-related operations – specifically, DirecTV (NYSE: DTV) at 76.6%, Garmin (NASDQ: GRMN) at 67.8%, Orbital Sciences (NYSE: ORB)– 43.6%, Trimble (NASDQ: TRMB) at 42.9%, and Echostar (NASDQ: DISH) at 39.9%).

HDS: Skipping ahead to 2007, can you tell us which companies or activities might perform well?

SMS: With the U.S. defense budget scheduled to grow by nearly $30 billion in 2007 and supplemental spending forecast to add between $110 billion and $130 billion to cover the cost of the wars in Iraq and Afghanistan, there is likely some legs left in this rally. For those interested in a contrarian play, companies involved with defense-related IT as well as biometrics / homeland security firms were out of favor in 2006 and underperformed the market. With an increased focus by Congress on improving border security and DoD restrategizing its plan for Iraq, both elements could rebound. In addition, companies involved with replacing or improving equipment used in Iraq, such as those involved with manufacturing military vehicles and enhancing their armor, should benefit from continued supplemental spending.

HDS: How else can investors participate in this sector?

SMS: Well, besides identifying individual companies, the easiest way is to review the prospectus of an exchange traded fund, such as the Powershares Aerospace & Defense ETF, ticker PPA. This fund tracks the performance of our SPADE Defense Index and provides exposure to 58 companies including the recent additions of SAIC (NYSE: SAI) and Stanley (NYSE: SXE).

HDS: Lastly, in 2007 what are the key events that investors should pay attention to?

SMS: 2006 provided a perfect example to investors interested in defense. The sector in January and February began to run-up after the announced defense budget was higher than analysts had originally forecast and companies reported quarterly earnings and revenue growth. In mid-May, the world markets began a decline, notably in the international and energy sectors that affected other sectors as investors exited the market and took profits. The defense sector was no different and the Index declined before rebounding over the next few months. Late in the year, the defense sector was in the forefront as investors reacted to the Congressional elections. What investors should take out of this is that defense sector stocks are affected by: the government budget, political issues, and broader economic issues.

HDS: Once again, thank you for taking the time. If you are interested in getting more information about the SPADE Defense Index, please visit www.spadeindex.com. Investors should note that the exchange traded fund trades under the symbol ‘PPA’. Historical data for the SPADE Defense Index can be found using the index symbol ‘DXS’.

And as always, the information presented in this interview is for information purposes and should not represent a solicitation or an offer to purchase an investment product. Investors interested in the Powershares ETF trading under the ticker ‘PPA’ should visit the powershares.com website for a prospectus.

Disclaimers:  The information presented in this interview is for informational purposes and should not represent a solicitation or an offer to purchase an investment product.  SPADE and the SPADE Defense Index are registered trademarks of the ISBC.  Powershares is a registered trademark of Powershares Capital Management.