MOUSSEAU, JOHN April 0711

Florida New Jersey 800-257-7013

One Sarasota Tower 614 Landis Ave.

2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360

Sarasota, FL 34236

U.S. MUNICIPAL BONDS

IN WORLD MARKETS

John Mousseau, CFA Managing Director &Portfolio Manager

Peter DemiraliManaging Director & Portfolio Manager

David KotokChairman & Chief Investment Officer

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Sarasota, FL 34236

©Copyright 2011 Cumberland Advisors

®. Further distribution prohibited without prior permission.

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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Sarasota, FL 34236



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 rentsderived from the facility financed. Examples include turnpikes/tollroads, water and electric authorities, education and dormitoryauthorities, housing authorities, economic development authorities, portauthorities and others.

• Historically, most municipal debt issued is exempt from federal incometaxes. Recently, the Build America Bond (BAB) has significantly increasedthe amount of taxable municipal supply and attracted substantial interestinternationally.

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Sarasota, FL 34236



CLD4

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

458

614

822

1100

1472

1970

2636

3527

4720

6315

8450

11307

15129

458

614

822

1100

1472

1970

2636

3527

4720

6315

8450

11307

15129 Total Marketable and Nonmarketable Federal Government Debt ( ) 12/31/2010=14025.22

Components of US Government Debt (USD Billions)

2

4

9

18

36

72

141

277

541

1057

2063

4027

7857

2

4

9

18

36

72

141

277

541

1057

2063

4027

7857Government-Sponsored Enterprises (GSE) Debt ( ) 12/31/2010=6378.81

24

36

54

80

119

176

261

386

571

844

1248

1846

2729

24

36

54

80

119

176

261

386

571

844

1248

1846

2729State and Local Government Debt ( ) 12/31/2010=2464.74

1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

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

. www.ndr.com/vendorinfo/ . For data vendor disclaimers refer to www.ndr.com/copyright.htmlSee NDR Disclaimer at

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Sarasota, FL 34236



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Sarasota, FL 34236



DOES SUB-SOVEREIGN = SUBPRIME?

• No! Historically, investment grade municipal bonds have had exceptionally

low default rates.

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Sarasota, FL 34236



Source Moody’s

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Sarasota, FL 34236



Source Moody’s

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Sarasota, FL 34236



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Sarasota, FL 34236



Chart 11




Sarasota, FL 34236



Chart 12




Sarasota, FL 34236



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Sarasota, FL 34236



BUILD AMERICA BONDSFederally Subsidized Taxable Municipal Bonds

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

• Permits state and local governments to sell taxable bonds instead of tax-exempt 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 toprovide a more efficient subsidy than tax exemption

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Sarasota, FL 34236



• BABs program expired December 31, 2010.

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

• From an investor’s perspective, BABs are simply taxable municipal bonds.The Federal interest subsidies are paid directly to the issuers, not toinvestors, and are generally not material in the analysis of thecreditworthiness of BABs.


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Sarasota, FL 34236



• 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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Sarasota, FL 34236



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Sarasota, FL 34236



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Sarasota, FL 34236



“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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Sarasota, FL 34236


®. Further distribution prohibited without prior permission.Source: Bloomberg

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

0

1

2

3

4

5

6

7

8

150

170

190

210

230

250

270

290

310

Spread To Worst Bond Buyer 40 Yield to Call 30 yr. Treasury BABS Yld to Worst

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Sarasota, FL 34236


®. Further distribution prohibited without prior permission.Source: Bloomberg

Build America Bonds (BABs) vs. AA Corporates

3

3.5

4

4.5

5

0

50

100

150

200

250

300

4/3

0/2

00

9

5/3

1/2

00

9

6/3

0/2

00

9

7/3

1/2

00

9

8/3

1/2

00

9

9/3

0/2

00

9

10

/31

/20

09

11

/30

/20

09

12

/31

/20

09

1/3

1/2

01

0

2/2

8/2

01

0

3/3

1/2

01

0

4/3

0/2

01

0

5/3

1/2

01

0

6/3

0/2

01

0

7/3

1/2

01

0

8/3

1/2

01

0

9/3

0/2

01

0

10

/31

/20

10

11

/30

/20

10

12

/31

/20

10

1/3

1/2

01

1

2/2

8/2

01

1

3/3

1/2

01

1

BABS AA Corporates 30-yr

%bp

s

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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 areTax-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.

http://www.cumber.com/

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MOUSSEAU, JOHN April 0711

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