MOUSSEAU, JOHN April 0711

U.S. MUNICIPAL BONDS IN WORLD MARKETS John Mousseau, CFA Managing Director &Portfolio Manager

Peter Demirali Managing Director & Portfolio Manager

David Kotok Chairman & Chief Investment Officer

Florida One Sarasota Tower 2 N. Tamiami Trail, Suite 303 Sarasota, FL 34236

New Jersey 614 Landis Ave. Vineland, NJ 08360

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U.S. STATE & LOCAL GOVERNMENT (SUB-SOVEREIGN) DEBT MARKET • $2.9 Trillion in U.S. Dollars • State and Local General Obligations, State and Local Agencies (Housing, Public Utilities, Water, Education, Economic Development, others) • Does Sub-Sovereign = Subprime?

• Historical Default Rates • Recent Developments (Build America Bonds, Global Rating Changes, Bond Insurers) • Outlook

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WHAT IS A MUNICIPAL BOND? • It is a bond issued by a state, state or local agency, or local government (city or town).  2 types of municipal bonds • General Obligation (G.O.)  The bond is secured by the issuer’s full faith, credit, and taxing power.

• Revenue Bond  The bond is secured by revenue from tolls, user charges, or rents derived from the facility financed. Examples include turnpikes/toll roads, water and electric authorities, education and dormitory authorities, housing authorities, economic development authorities, port authorities and others.

• Historically, most municipal debt issued is exempt from federal income taxes. Recently, the Build America Bond (BAB) has significantly increased the amount of taxable municipal supply and attracted substantial interest internationally. ©Copyright 2011 Cumberland Advisors®. Further distribution prohibited without prior permission.

Florida One Sarasota Tower 2 N. Tamiami Trail, Suite 303 Sarasota, FL 34236

New Jersey 614 Landis Ave. Vineland, NJ 08360

800-257-7013 Chart 3

Quarterly Data 3/31/1952 - 12/31/2010 (Log Scale)

Components of US Government Debt (USD Billions) 15129 11307 8450 6315 4720 3527 2636 1970 1472 1100 822 614 458

Total Marketable and Nonmarketable Federal Government Debt (

7857 4027 2063 1057 541 277 141 72 36 18 9 4 2

Government-Sponsored Enterprises (GSE) Debt (

2729 1846 1248 844 571 386 261 176 119 80 54 36 24

State and Local Government Debt (

1955

1960

1965

15129 11307 8450 6315 4720 3527 2636 1970 1472 1100 822 614 458

) 12/31/2010=14025.22

7857 4027 2063 1057 541 277 141 72 36 18 9 4 2

) 12/31/2010=6378.81

2729 1846 1248 844 571 386 261 176 119 80 54 36 24

) 12/31/2010=2464.74

1970

1975

1980

1985

1990

1995

2000

2005

2010

CLD4  Copyright 2011 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.

See NDR Disclaimer at

www.ndr.com/copyright.html

. For data vendor disclaimers refer to

www.ndr.com/vendorinfo/

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Florida One Sarasota Tower 2 N. Tamiami Trail, Suite 303 Sarasota, FL 34236

New Jersey 614 Landis Ave. Vineland, NJ 08360

800-257-7013 Chart 4

.

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Florida One Sarasota Tower 2 N. Tamiami Trail, Suite 303 Sarasota, FL 34236

New Jersey 614 Landis Ave. Vineland, NJ 08360

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DOES SUB-SOVEREIGN = SUBPRIME? • No! Historically, investment grade municipal bonds have had exceptionally low default rates.

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Florida One Sarasota Tower 2 N. Tamiami Trail, Suite 303 Sarasota, FL 34236

New Jersey 614 Landis Ave. Vineland, NJ 08360

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Source Moody’s Florida One Sarasota Tower 2 N. Tamiami Trail, Suite 303 Sarasota, FL 34236

New Jersey 614 Landis Ave. Vineland, NJ 08360

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Source Moody’s Florida One Sarasota Tower 2 N. Tamiami Trail, Suite 303 Sarasota, FL 34236

New Jersey 614 Landis Ave. Vineland, NJ 08360

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800-257-7013 Chart 8

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Florida One Sarasota Tower 2 N. Tamiami Trail, Suite 303 Sarasota, FL 34236

New Jersey 614 Landis Ave. Vineland, NJ 08360

800-257-7013 Chart 9

ŠCopyright 2011 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.

Florida One Sarasota Tower 2 N. Tamiami Trail, Suite 303 Sarasota, FL 34236

New Jersey 614 Landis Ave. Vineland, NJ 08360

800-257-7013 Chart 10

ŠCopyright 2011 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.

Florida One Sarasota Tower 2 N. Tamiami Trail, Suite 303 Sarasota, FL 34236

New Jersey 614 Landis Ave. Vineland, NJ 08360

800-257-7013 Chart 11

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Florida One Sarasota Tower 2 N. Tamiami Trail, Suite 303 Sarasota, FL 34236

New Jersey 614 Landis Ave. Vineland, NJ 08360

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BUILD AMERICA BONDS Federally Subsidized Taxable Municipal Bonds

• Build America Bonds (BABs) were created by the American Recovery and Reinvestment Act of 2009 (“ARRA” or “Stimulus Act”) in February.

• Permits state and local governments to sell taxable bonds instead of taxexempt bonds and receive periodic payments from the US Treasury equal to 35% of the interest on the bonds for the life of the debt.

• Congress created BABs to broaden the market for municipal debt and to provide a more efficient subsidy than tax exemption

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Florida One Sarasota Tower 2 N. Tamiami Trail, Suite 303 Sarasota, FL 34236

New Jersey 614 Landis Ave. Vineland, NJ 08360

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BUILD AMERICA BONDS Federally Subsidized Taxable Municipal Bonds

• BABs program expired December 31, 2010.

• There were no limits on the amount of debt that may be sold as BABs and no restrictions on their structure or maturity beyond the rules applicable to tax-exempt bonds.

• From an investor’s perspective, BABs are simply taxable municipal bonds.

The Federal interest subsidies are paid directly to the issuers, not to investors, and are generally not material in the analysis of the creditworthiness of BABs.

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Florida One Sarasota Tower 2 N. Tamiami Trail, Suite 303 Sarasota, FL 34236

New Jersey 614 Landis Ave. Vineland, NJ 08360

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BUILD AMERICA BONDS Federally Subsidized Taxable Municipal Bonds • On April 15, 2010 triple-A rated University of Virginia sold $250 million of 30-year BABs at a yield of 6.22%, 250 basis points above 30-year US Treasury yields. UVA has an after subsidy interest cost of 4.04% (65% of 6.22%) and is saving approximately $2 million per year in interest cost (80 basis points) versus issuing tax-exempt bonds.

• At the end of December 2010, states and local governments across the country had sold over 3500 bond issues of BABs aggregating to more than $187 billion in par in a large range of sizes and structures

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Florida One Sarasota Tower 2 N. Tamiami Trail, Suite 303 Sarasota, FL 34236

New Jersey 614 Landis Ave. Vineland, NJ 08360

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ŠCopyright 2011 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.

Florida One Sarasota Tower 2 N. Tamiami Trail, Suite 303 Sarasota, FL 34236

New Jersey 614 Landis Ave. Vineland, NJ 08360

800-257-7013 Chart 16

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Florida One Sarasota Tower 2 N. Tamiami Trail, Suite 303 Sarasota, FL 34236

New Jersey 614 Landis Ave. Vineland, NJ 08360

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“Build America Bond Plan Gains Obama Backing With Lower Subsidy” • “Repairing Market” Build America Bonds “were successful in helping to repair a severely damaged municipal finance market, making much needed credit available at lower borrowing costs for infrastructure projects that create jobs,” Treasury Secretary Timothy Geithner said in an e-mailed statement last week. “By making Build America Bonds a permanent and expanded financing tool for state and local governments, we’re investing in our country’s long- term economic growth in a cost-effective way.”

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Florida One Sarasota Tower 2 N. Tamiami Trail, Suite 303 Sarasota, FL 34236

New Jersey 614 Landis Ave. Vineland, NJ 08360

800-257-7013 Chart 18

Build America Bonds (BABs) vs. Tax-Exempt Munis 310

8

290

7

270

6

250

5

230

4

210

3

190

2

170

1

150

0

Spread To Worst

Bond Buyer 40 Yield to Call

BABS Yld to Worst

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Source: Bloomberg Florida One Sarasota Tower 2 N. Tamiami Trail, Suite 303 Sarasota, FL 34236

30 yr. Treasury

New Jersey 614 Landis Ave. Vineland, NJ 08360

800-257-7013 Chart 19

Build America Bonds (BABs) vs. AA Corporates 300

5

250 4.5 200

150

4

%

bps 100 3.5 50

0

3 3/31/2011

2/28/2011

1/31/2011

12/31/2010

11/30/2010

10/31/2010

9/30/2010

8/31/2010

7/31/2010

AA Corporates

30-yr

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Source: Bloomberg Florida One Sarasota Tower 2 N. Tamiami Trail, Suite 303 Sarasota, FL 34236

6/30/2010

5/31/2010

4/30/2010

3/31/2010

2/28/2010

1/31/2010

12/31/2009

11/30/2009

10/31/2009

9/30/2009

8/31/2009

7/31/2009

6/30/2009

5/31/2009

4/30/2009

BABS

New Jersey 614 Landis Ave. Vineland, NJ 08360

800-257-7013 Chart 20

About Cumberland Advisors Cumberland Advisors supervises over one billion dollars in separate account assets for individuals, institutions, retirement plans, government entities, and cash management portfolios. Cumberland manages portfolios for clients in 47 states, the District of Columbia, and in countries outside the U.S. Cumberland Advisors is an SEC-registered investment adviser.

Munis, Taxables, ETFs Cumberland’s portfolio management efforts emphasize long-lasting relationships and continuous dialogue among clients, their consultants, tax advisors, accountants, estate planners, and their assigned portfolio management contact at Cumberland. Cumberland offers several different investment portfolio management styles. Our investment strategy is described in detail on our website.

Fixed Income All of our fixed-income offerings are total return strategies, but can take the client’s current income needs into consideration. Our fixed income styles are Tax-Free Municipal Bonds, Taxable Bonds, and Short-Term Investment Program Stocks Cumberland uses Exchange-Traded Funds to manage global equities. Exchange-Traded Funds (ETFs) are securities that mimic the price performance and dividend yield of an index, or a basket, of securities. Cumberland uses ETFs as building blocks in crafting a portfolio, investing in attractive equity sectors, industries, market capitalization strata, styles, and regions. Our equity portfolios are U.S. Exchange-Traded Funds (ETF) Equity, International Exchange-Traded Funds (ETF) Equity, Emerging Markets Exchange-Traded Funds, and Global Multi-Asset Class Exchange-Traded Funds.

Balanced Accounts Cumberland can blend the strategies presented above to create a balanced mix of stocks and bonds.

For further information about Cumberland Advisors, please visit our website at www.cumber.com.

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Florida One Sarasota Tower 2 N. Tamiami Trail, Suite 303 Sarasota, FL 34236

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800-257-7013 Chart 21