The PowerShares DWA Technical Leaders ETF (PDP) is scheduled to begin trading Thursday, March 1st 2007. There is already a tremendous amount of interest, and we have been fielding a lot of questions from the DWA Community about the new ETF. We feel this is a fantastic product that can fit into your business in a number of ways. We hope this FAQ will answer some of the common questions we have been fielding over the past couple of days, that aren’t covered in the other informational documents.

The ETF is designed to be a domestic equity portfolio focusing exclusively on high relative strength stocks. Equities are selected from a universe of mid to large cap stocks with sufficient liquidity for a product like this. The investment universe is similar to the Russell 1000 index.

PowerShares publishes all of the marketing brochures for the ETF. You can get information at www.powershares.com, or by contacting your PowerShares wholesaler. The material will provide you with expense information, portfolio statistics (Performance, Beta, etc…), current holdings in the fund, and information on the historical testing of the strategy.

The investment objectives of the two products are different. The Arrow DWA Balanced fund is a global asset allocation vehicle that invests in ETFs of various uncorrelated asset classes. As mentioned above, the DWA Technical Leaders Index is a domestic equity product only. We do not invest in fixed income, alternative, or foreign markets in the new ETF.

Because all ETFs trade on the stock exchanges they are available for purchase through every broker/dealer. You buy and sell the PowerShares DWA Technical Leaders ETF just like you would any other U.S. equity.

We use Relative Strength as the only factor in the investment process. From our extensive research we know RS is a very robust and adaptable stock selection method. Stocks exhibiting superior Relative Strength characteristics are eligible for inclusion in the portfolio. The process of selecting the stocks for the portfolio is 100% systematic. We do not discuss what we think should be included or excluded from the portfolio. The systematic process determines the securities and weights, and we follow it without question.

There will be 100 securities in the index. From time to time, corporate actions may necessitate the index holding slightly more or less than 100 securities, but the number should always be close to 100.

The holdings of all ETFs are published and part of the public domain. We will most likely make the complete list available in pdf format on the Dorsey Wright website.

We use a modified equal weighting methodology. We assign more weight to securities with better relative strength characteristics. Essentially, stocks that have performed better in the past get a higher weighting in the portfolio.

We rebalance the portfolio quarterly. Every three months we revisit our relative strength rankings for the entire universe to determine what needs to be sold and what needs to be added to the portfolio. We also re-weight all of the securities at this time.

It is always difficult to determine how much turnover a process can reasonably bear. We know from our research that simply increasing the trading frequency does not necessarily lead to better returns. (This, by the way, is one of the most common misperceptions we hear from people calling our office.) Rebalancing quarterly is a nice compromise between overtrading (say rebalancing monthly) and undertrading (rebalancing annually). After the launch, we will no doubt receive spreadsheets from people detailing how we would be able to increase our performance by changing the trading frequency. We know quarterly rebalancing will not be optimal in every period. However, we do know from our testing that quarterly rebalancing works extremely well for this methodology, and that over time is the best solution for what we are trying to accomplish. This product is designed to perform well over the long-term and is not designed to react to every little wiggle that comes along.

This is a high turnover strategy. From an investor’s standpoint, however, this will not make any difference. When there are changes to the portfolio the changes are made automatically and the investor is unaffected. There are also tax advantages to using a high turnover strategy in an ETF format as opposed to a mutual fund format, which should help mitigate some of the effects of the turnover.

Relative Strength is a trend following methodology. As a result, when there are definable trends in place this portfolio should perform well. All trend following methodologies struggle when trends change. You can expect the DWA Technical Leaders Index to lag the broad market when there are leadership changes. From the historical testing we know the portfolio is capable of performing well in both broad market advances (2003) and more narrow moves (2005). Where we will struggle are markets like 2000 or 2006 when there is a major change in leadership. While underperformance is always unsettling, the portfolio is designed to be extremely adaptive. When trends change we will not be the first to change, but as they develop the process is designed to latch on and exploit the new leadership.

Because we invest in such a specialized area of the market there will be times when the performance of the ETF is substantially different from the broad market. There will be times when high RS securities are performing well while the broad market is down, and the reverse is true as well. Just as small-caps, large-caps, growth, and value portfolios have certain performance characteristics, so does a high RS portfolio.

The DWA Technical Leaders Index provides a turnkey solution for exposure to a high relative strength stock portfolio. Small accounts that can’t buy individual securities can get immediate exposure to the strategy by utilizing this ETF. Many people will also use the ETF as part of an overall asset allocation plan. Mixing the ETF with bonds, for example, can still provide very good returns while reducing volatility substantially. You can also buy the Technical Leaders ETF and short a broad market index and profit from the outperformance of high RS securities versus the broad market over time. The new ETF is a tool and as people begin to use the product I’m sure we will hear about some very creative ways it is being used!

It is important to remember this is an equity product, and there will be volatility. As of this writing, there will be options traded on the ETF. If options are your preferred method of risk management that will be available to you. ETFs are also very easily bought and sold so you can raise cash if you wish. There are a number of alternatives available on this front. Always keep in mind that the DWA Technical Leaders ETF holds a specialized basket of stocks. When the defensive team moves on to the field that does not mean every stock in your portfolio is going to start taking on water. You will need to monitor what the leadership is doing and act accordingly.