1. Perception Meets Reality
2008 Market Update
Perception Meets Reality
Robert F. Carey, CFA
Chief Investment Officer
First Trust Portfolios L.P.

2. Firm Overview History $33.9 Billion (as of 12/31/07)
First Trust Advisors L.P.
Established in 1991
Privately owned
Client focused
Manages Investments For
Charitable foundations and endowments
High net worth clients
Pension and retirement systems
Profit-sharing plans
Mutual funds
Insurance companies
Closed-end funds
Exchange-traded funds
$33.9 Billion (as of 12/31/07)
VA/SMA/CEF/ETF
$8.79 Billion
Canada/Europe
$0.83 Billion
Who we are
UITs $24.33 Billion
* Includes $24.33 billion for which FTA serves as supervisor for unit investment trusts sponsored by First Trust Portfolios L.P. 2

3. 2003-2007 Bull Market Underpinnings
Quarterly EPS Blowouts
Low Cost of Capital
Increasing Returns on Capital
Higher Short Interest, Bearish Sentiment
Reasonable Valuations
Record M&A and Share Buybacks
Factors that driven the equity markets since the market lows of March 2003 3

4. Corporate Profits Booming Part 1
Percent
Est. as of 12/31/07
% of S&P 500 reporting positive earnings surprises each quarter last 10 years
Source: Bloomberg, EPS Positive Surprise %, Quarterly 4

5. Corporate Profits Booming Part 2
Earnings for the companies that comprise the S&P 500 have doubled since the market peak of 2000
Source: Bloomberg, SPX Earnings, Quarterly 5

6. Earnings Matter!!!
Over time, markets track earnings 6

7. Aggregate Relative Wealth Chart Market Section
United States
- Enterprise Value Weighted Discount Rate
■ Gross Investment Weighted CFROI Used in Valuation
Bull and bear markets track changes in CFROI levels (blue bars). CFROI is a measure of corporate performance comparing cash flow levels against balance sheet size.
Monthly S&P 500 Index Closes
Source: CSFB
Data Date: August 14, 2007 7

8. AAII Bearish % Sentiment
% of bearish respondents weekly in the AAII poll. Spikes in bearish response tend to coincide with market bottoms.
Source: Bloomberg, AAII 8

9. NYSE Short Interest Ratio
The level of NYSE short interest has increased sharply this decade.
Source: Bloomberg, NYSE 9

10. 1990’s P/E Expansion Source: Bloomberg, S&P
P/E of the S&P500 throughout the bull market of the 1990s rose over time
Source: Bloomberg, S&P 10

11. 2000’s P/E Compression Source: Bloomberg, S&P
P/E of the S&P500 throughout the bull market of the 2000s has declined over time
Source: Bloomberg, S&P 11

12. S&P 500 Comparison – Then and Now
2000
30+
~9%
Narrow
IPOs
2007
16x
10%+
Broad
M&A, Repurchases
Price/Earnings
Return on Capital (CFROI)
Market Breadth
Driving Factors
The S&P500 index now in the 1500 range as in the late 90s/2000 peak. Valuations today are substantially lower, corporate performance is better, markets have advanced more broadly and the supply of equity shares has declined unlike the late 90s when share levels increased 12

13. Rising Discount Rates, Rising ROC Levels
2008 Outlook:
Déjà Vu – Q EPS Blowout
Rising Discount Rates, Rising ROC Levels
Large caps attractively valued and lead mkt up
Tech, Industrials, Health Care Top Sectors
Caution: Commodities, Select Emerging Markets, REITS, Utilities, Fixed Income
Tax Cut Extension? = Higher Valuations
Capital markets outlook/opinion. Earnings estimates for Q are likely to be surpassed again. Over time, we expect higher interest rates offset by continued improvement in ROC/CFROI levels which in turn should lift stocks prices over time. The FOMC in our opinion is likely to keep rates on the tight side which in turn makes commodities and interest-sensitive securities vulnerable. Lastly, capital gains and dividend tax rates are subject to change after 2011 – markets will be monitoring closely any shift in policy resulting from the elections of 2008 and 2010. 13

14. Disclosure
Provided courtesy of Pruco Life Insurance Company (in New York, Pruco Life Insurance Company of New Jersey) both located in Newark, NJ, or by Prudential Annuities Life Assurance Corporation, Shelton, CT. as well as Prudential Annuities Distributors, Inc.,Shelton, CT. All are Prudential Financial companies. The views expressed are those of First Trust Advisors L.P. They are subject to change at any time. These views do not necessarily reflect the view of the Prudential Financial companies.
First Trust Advisors L.P. is not affiliated with any of the Prudential Financial companies.
IFS-A Ed. 01/2008 2