Municipal Issuer Defaults Global Investment Strategy Group

July 2010

Confidential Presentation

Source: S&P Ratings Direct

S&P-Rated Municipal Defaults, 1986-2008

Municipal defaults occasionally happen, but are more common in speculative grade issues•Moody’s data shows that speculative grade municipal

issuers exhibit much higher short term and long term default rates

•S&P-rated speculative grade munis have also defaulted more frequently than investment grade munis

•As of 2009, 85% of municipal issuers are rated single A or higher by Moody’s (37% of corporate issuers are > A)

- 54 Moody’s-rated issues have defaulted over the past 40 years

- 39 S&P-rated issues defaulted between 1986 and 2008

Moody’s-Rated Municipal Default Rates, 1970-2009All Municipals (1970-2009)

Moody's Rating / Years 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 YearAaa 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Aa 0.00% 0.00% 0.01% 0.01% 0.01% 0.02% 0.02% 0.02% 0.03% 0.03%A 0.00% 0.00% 0.01% 0.01% 0.01% 0.01% 0.02% 0.02% 0.02% 0.03%Baa 0.01% 0.02% 0.04% 0.06% 0.08% 0.10% 0.11% 0.13% 0.14% 0.16%Ba 0.22% 0.71% 1.06% 1.33% 1.57% 1.91% 2.27% 2.52% 2.71% 2.80%B 3.65% 6.00% 7.88% 9.91% 11.73% 12.40% 12.40% 12.40% 12.40% 12.40%CaaC 7.07% 8.97% 11.03% 11.60% 11.60% 11.60% 11.60% 11.60% 11.60% 11.60%Inv. Grade 0.00% 0.01% 0.01% 0.02% 0.03% 0.03% 0.04% 0.05% 0.05% 0.06%Spec-Grade 1.05% 1.86% 2.49% 3.00% 3.43% 3.79% 4.10% 4.32% 4.47% 4.55%All Rated 0.01% 0.02% 0.03% 0.04% 0.05% 0.06% 0.07% 0.07% 0.08% 0.09%

Source: Moody’s Investors Service

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19861987198819891990199119921993199419951996199719981999200020012002200320042005200620072008

Spec Grade Investment Grade

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General Obligation (“GO”) bonds have defaulted less frequently than non-GO bonds

GO (1970-2009)Moody's Rating / Years 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 YearAaa 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Aa 0.00% 0.00% 0.01% 0.01% 0.01% 0.02% 0.02% 0.02% 0.02% 0.02%A 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Baa 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Ba 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%B 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%CaaC 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Inv. Grade 0.00% 0.00% 0.00% 0.00% 0.00% 0.01% 0.01% 0.01% 0.01% 0.01%Spec-Grade 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%All Rated 0.00% 0.00% 0.00% 0.00% 0.00% 0.01% 0.01% 0.01% 0.01% 0.01%

Non- GO (1970-2009)Moody's Rating / Years 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 YearAaa 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Aa 0.00% 0.01% 0.01% 0.01% 0.02% 0.02% 0.03% 0.03% 0.04% 0.05%A 0.00% 0.01% 0.01% 0.01% 0.02% 0.02% 0.03% 0.04% 0.06% 0.07%Baa 0.01% 0.04% 0.09% 0.14% 0.19% 0.23% 0.27% 0.31% 0.35% 0.39%Ba 0.35% 1.14% 1.74% 2.20% 2.64% 3.29% 3.99% 4.52% 4.91% 5.10%B 3.97% 6.55% 8.64% 10.92% 13.00% 13.78% 13.78% 13.78% 13.78% 13.78%CaaC 8.43% 10.74% 13.33% 14.07% 14.07% 14.07% 14.07% 14.07% 14.07% 14.07%Inv. Grade 0.00% 0.01% 0.03% 0.04% 0.05% 0.07% 0.08% 0.09% 0.11% 0.13%Spec-Grade 1.55% 2.77% 3.75% 4.57% 5.29% 5.93% 6.48% 6.90% 7.20% 7.37%All Rated 0.02% 0.04% 0.07% 0.09% 0.11% 0.12% 0.14% 0.16% 0.18% 0.19%

Source: Moody’s Investors Service

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Risks

BONDS and DEBT SECURITIES

Bonds are subject to market, interest rate and credit risk; and are subject to availability and market conditions. Generally, the higher the interest rate the greater the risk. Bond values will decline as interest rates rise. Government bonds are subject to federal taxes. Municipal bond interest may be subject to the alternative minimum tax; other state and local taxes may apply. High yield bonds, also known as “junk bonds” are subject to additional risks such as the increased risk of default.

- Bond mutual fund volatility rating is a description issued by an independent third party relating to the sensitivity of the net asset value of a portfolio of an open-end management investment company that invests in debt securities to changes in market conditions and the general economy, and is based on an evaluation of objective factors, including the credit quality of the fund's individual portfolio holdings, the market price volatility of the portfolio, the fund's performance, and specific risks, such as interest rate risk, prepayment risk, and currency risk.

- Debt securities may be subject to call features or other redemption features, such as sinking funds, and may be redeemed in whole or in part before maturity. These occurrences may affect yield.

- Like all bonds, corporate bonds tend to rise in value when interest rates fall, and they fall in value when interest rates rise. The longer the maturity of the bond, the greater the degree of price volatility. If you hold a bond until maturity, you may be less concerned about these price fluctuations (which are known as interest rate risk or market risk), because you will receive the par or face value of your bond at maturity.

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Note About Ratings

Ratings Agencies Moody's ratings represent the opinion of Moody's Investors Service as to the relative

creditworthiness of securities. As such, they should be used in conjunction with the descriptions and statistics appearing in Moody's publications. Reference should be made to these statements for information regarding the issuer. Moody's ratings are not commercial credit ratings. In no case is default or receivership to be imputed unless expressly stated.

Standard & Poor's credit ratings express forward-looking opinions about the creditworthiness of issuers and obligations. More specifically, Standard & Poor's credit ratings express a relative ranking of creditworthiness. Issuers and obligations with higher ratings are judged by us to be more creditworthy than issuers and obligations with lower credit ratings. Creditworthiness is a multi-faceted phenomenon. Although there is no "formula" for combining the various facets, our credit ratings attempt to condense their combined effects into rating symbols along a simple, one-dimensional scale. Indeed, as discussed below, the relative importance of the various factors may change in different situations. The term creditworthiness refers to the question of whether a bond or other financial instrument will be paid according to its contractual terms. At first blush, the idea of creditworthiness seems entirely straightforward.

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Disclaimer

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