Interview – May 8, 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 update us on how defense and security stocks have done in the market as well as his thoughts on some current events that may influence how the sector performs in the coming months. Mr. Sacknoff, thank you for joining us.

SMS: My pleasure Ann Marie.

HDS: We’re now five months into 2007. The Dow has been setting historic highs and the S&P 500 has set multi-year highs. In this environment, how have the stocks of defense and security firms been doing?

SMS: Actually, better than the broader market. As you may remember, we finished 2006 up more than 19%, having beat the S&P 500 for the seventh consecutive year. Through the end of April, the SPADE Defense Index was up 8.88% closing out an all-time high. The run has continued in the early days of May and the index rising another 2%, bringing the gain in the index up to 11.2%. This compares to a gain in the S&P500 of 6.15%. What this means is that year-to-date, the defense and security sector has outperformed the broader markets by more than 500 basis points!

HDS: Are these gains across-the-board or are their particular subsectors or stocks that have done better?

SMS: Actually, with the exception of Honeywell, which is up nearly 20% for the year, many of the best gainers in the index are in the 2.5 billion to 7 billion dollar range. As would be expected, firms involved with the armored vehicles used in Iraq, such as Armor Holdings and Force Protection, have done well with the firms up 30% and 24% respectively. Defense IT firms such as CACI, SI International, Mantech, and MTC Technologies continue to lag the index as the Pentagon shifts monies from R&D and investment programs to fund the war in Iraq. The Big 5 defense prime systems contractors are all up in the 4-7% range.

HDS: So who are the top gainers for the year?

SMS: Well, looking at our May 2007 ‘SPADE Investor’ newsletter, Precision Castparts, which has expanded to feed demand from commercial aircraft manufactures such as Boeing is up 33% for the year. The rest of the leading gainers includes three security and biometrics firms, Cogent, L-1 Identity Solutions, and OSI Systems; Armor Holdings and Force Protection which I mentioned before, and two mid-cap companies, Goodrich, and FLIR Systems.

HDS: What can we expect going forward?

SMS: Actually, we are in a time of the year where things are relatively quiet. The core budget proposal for DoD is out and the earnings season has concluded. Iraq will still be front-and-center and the War on the Budget will continue through the summer. From a news-item perspective, in mid-June the much of the defense and aerospace industry will be at the Paris Air Show. Typically, firms wait for the show to announce new partnerships, deals, and commercial contracts.

HDS: Going back to Iraq, how do you see the funding battle between Congress and the President playing out? Will Congress pass a bill without a deadline for removing troops or will the President agree to these terms?

SMS: Well, the Army still has money to cover its costs through early summer. One option, which appears the most likely outcome, is that the Democrats in Congress will approve a smaller amount of funding without a deadline and force the President to continue to make pitches to Congress for additional funds. This way the debate continues to stay at the forefront, Congress can show that it is supporting the troops while working on a means to get the troops home. In the end, what the pundits feel may happen is that should the President’s popularity continue to weaken, Republican members of Congress may break from the President as their re-election approaches.

HDS: This has been great. Thank you for joining us today. If you are interested in getting more information about the SPADE Defense Index, please visit www.spadeindex.com. Historical data for the 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.