Tax Exempt Municipal Bonds

We believe that the best way to add value in the tax-exempt municipal bond market is through having a superior security selection process.

Portfolio Construction

Our actively managed investment process begins once the client's investment guidelines, tax situation and selected benchmark (e.g. 5-Year vs. 10-Year Index) are identified. Allocations between “in-state” and “out-of-state” municipal bonds are determined based on investment guideline limitations as well as whether the portfolio is subject to state tax.

Our strategy for interest rate risk management is to be duration neutral (defined as +/- 5%) versus the applicable benchmark under most economic conditions and to ladder each portfolio across the yield curve, particularly in the case of bulleted benchmarks, such as 5-Year or 10-Year indices.

Duration and yield curve strategies are largely a result of the objective to limit the relatively expensive transaction costs in the municipal market and to minimize the risk of generating realized gains (which would adversely impact after-tax return). Sector weightings are based on both the relative value analyses among the sectors as well as the credit risk strategy that is being deployed.

Risk Controls

Credit risk is minimized by limiting all holdings to investment grade ratings and maintaining an overall average credit rating for each portfolio of "AA" or higher. To achieve the credit objectives, our portfolios contain a high allocation of "AAA" rated Insured municipal bonds.

Tax Considerations

Each potential trade is analyzed in terms of the expected incremental after-tax return versus the potential realized gain or loss. Annual net realized gains are held to a minimum. To minimize transaction costs, active tax loss harvesting is not practiced.

After-Tax Risk/Return (Since Inception) (%)^{1 *}

R² vs Lehman 10-Year Municipal	0.99
Lehman 10-Year Municipal Standard Deviation	3.54
Composite Standard Deviation	3.69
Tracking Error vs Lehman 10-Year Municipal	0.44

Quality vs. Benchmark (%)^*

¹Composite inception January 1, 1999.

*Periods ending 3/31/08. Past performance is no guarantee of future results. This material is deemed supplemental and complements the Institutional Performance & Disclosure contained in the Product Profile. Holdings are subject to change. Indices are not available for direct investment.

IRS Circular 230 Disclosure: Any information contained in this communication (including any attachments) is not intended to be used, and cannot be used, to avoid penalties imposed under the U. S. Internal Revenue Code. This communication was written to support the promotion or marketing of the transactions or matters addressed here. Individuals should seek independent tax advice based on their own circumstances.