Interview – January 23, 2008

HDS: Hi this is Dawn Van Zant with HomelandDefenseStocks.com.

HDS: We had thought that our January chat would be an upbeat one especially after the SPADE Defense Index finished its eighth consecutive year of outperforming the S&P500. But with the markets in the midst of a correction and turmoil in the financial markets, we decided that we should focus this discussion on what’s happening right now for investors interested in the defense and homeland security sector. We are once again joined by Scott Sacknoff, manager of the SPADE® Defense Index, which provides an investment benchmark for the defense and homeland security sector. So, please tell our listeners what’s going on.

SMS: 2008 is turning out to be one of the worst performing January’s since the Great Depression. And unfortunately, there are few sectors that have been spared the pain. Even the defense and homeland security sector has been dragged down from the downward pressure in the broader markets. Our SPADE Defense Index is down double digits from its all-time high but for the year, it is tracking the declines in the overall market.

HDS: Why do you think the sector has seen this selloff?

SMS: Essentially, from four factors. Most importantly is the overwhelming negative sentiment in the market due to the decline of broad economic factors signaling the real possibility that the U.S. economy will enter into a recession, if we are not there already. With daily reports from financial institutions announcing billion-dollar plus write-offs, the mood among long equity investors is quite low. With respect to the defense and security sector, downward pressure is largely driving the pullback we are seeing in the market and there are those investors who fear being caught in a sector that has already shown substantial gains. In addition, Boeing’s announcement of delays in the initial deliveries of its 787 aircraft has affected the company as well as its suppliers. Lastly, we are in the middle of a presidential primary season and, as such, people are trying to determine what the future holds for defense spending based on the comments from the various candidates.

HDS: In the long-term, what do you see as the impact of these factors on the sector?

SMS: While painful in the short-term, the long-term impact, quite likely, is minimal. The underlying trends that drove the performance of the defense and homeland security sector to all-time highs in the early fourth quarter have not changed. Much of the defense sector sales come from the U.S. government budget, which is defined through October 2008. The backlog of commercial aircraft orders for future delivery remains and will keep factories operating at high capacity for several more years. And lastly, the world is no safer than it was three months ago when the SPADE Defense Index was hitting all time highs. Politics is always a wild card to companies operating in the sector, but I believe that the Democratic Party recognizes that cutting defense and security spending would be a bad political move.

HDS: So what are the next inflection points for the sector?

SMS: The Monday after the Super Bowl is typically when the White House releases its budget proposal for the forthcoming year. One consistent with the current budget or that includes additional spending for the war as part of the core budget, should be viewed favorably. In addition, you’ll begin seeing in late January and February companies release their quarterly reports.

HDS: So, when do you predict a rebound for the sector?

SMS: We don’t predict, but at the present time, I remain confident that the underlying trends that drove the sector higher have not changed.

HDS: Lastly, let’s end on a positive note. How did the Index perform in 2007?

SMS: The SPADE Defense Index finished up 22.17% -- the 8th consecutive year that it has beaten the broader market as defined by the S&P500 and the 6th in the last 8 it has done so by double digits.

HDS: Once again, thank you for your time. If and of our listeners are interested in getting more information about the SPADE Defense Index, or signing up for the complimentary “SPADE Investor” newsletter, please visit www.spadeindex.com.

And as always, the information presented in this interview is for information purposes only and should not represent a solicitation or an offer to purchase an investment product. Investors interested in the Powershares ETF that tracks the SPADE Defense Index and trades 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.