April 2013 Market Commentary

Interest rates rose modestly during the first quarter as ten year Treasury yields increased by approximately 0.10% or 10 basis points. Seasonal tax-time municipal bond liquidations, together with a heavier primary calendar, weighed heavily on the market causing municipal bond yields to underperform on a relative basis. In our recent market opinion we thoroughly discussed our view that the relative cheapening of municipal bonds presented investors with and attractive entry point as we expect technical conditions to improve as we move into the summer months. June, July, and August historically have represented a period of significant investor demand for municipal bonds due to reinvestment of coupon income and bond redemptions.

While consternation from the media and financial pundits regarding the future direction of interest rates continues to capture headlines, fixed income investors have been comforted by the fact that yields have largely remained range bond for some time. In addition, the Fed has continued to reassure the market that interest rates will remain low for a considerable period. While there have been indications of modest improvement in economic conditions, including better non-farm payroll data in particular, we remain concerned that these improvements may prove to be temporary. We do not share the view that recent declines in the unemployment rate are a reflection of broader economic strength. Rather, the drop in the unemployment can largely be attributed to a significant decline in the number of unemployed who have simply given up looking for work. As a result, the so called participation rate is the lowest it has been since 1979. We also believe that the improvement we saw in tax receipts in the fourth quarter of 2012 was largely attributable to the one time pulling forward of income into 2012 as taxpayers sought to avoid the significantly higher individual income tax rates that took effect January 1, 2013. The US Bureau of Economic Analysis, or BEA, estimates that $121 billion of dividend and wage income was shifted into Q4 2012 from future periods. We, therefore, do not believe the temporary improvement in tax receipts is sustainable based on current economic conditions. We do, however, believe that economic growth will remain restrained for some time. This is due in large part to the recent resolution of the Fiscal Cliff resulting in significantly higher tax rates for individuals earning more than $400,000 per year together with the reinstatement of the payroll tax. In addition, the impending economic effects of government spending cuts associated with sequestration are likely to have a negative impact on economic growth going forward for some time. We, of course, will continue to monitor economic conditions for indications of meaningful improvement in job creation as well as inflationary pressures should they arise.

We continue to believe the credit selection and corresponding cash flow will deliver the majority of municipal bond investor returns going forward. As we have discussed in previous commentary, we place considerable emphasis on not only selecting stable if not improving issuers, but we also believe that ongoing credit oversight together with the tactical and opportunistic adjustment of portfolio credit quality distribution is necessary to achieve attractive risk adjusted returns over time. While credit selection will play a vital role in future portfolio returns, we continue to believe that significant value can also be added through yield curve optimization as well. Once again, we seek to capitalize on inefficiencies that are created due to the differing investment objectives of various municipal bond market participants.

We are pleased to announce that, as of Q1 2013, our Short Duration strategy has achieved Top Gun status within the Informa Investment Solutions' PSN manager ranking database. This signifies that our strategy is one of the top 10 performers within one or more peer groups reporting to PSN including over 100 managers that make up the municipal bond manager universe. Our Short Duration strategy outperformed 99% of the universe in the first quarter of 2013. It is also worth noting that our Market Duration strategy continues to be ranked in the top 10% of the managers within the PSN municipal bond universe on an inception-to- date basis. We are proud of these results as we believe it further illustrates the consistency with which we have delivered true value to our clients across each of the investment strategies we offer. If you would like to learn more about the municipal bond market or have any questions about this commentary, or any of our strategies, please do not hesitate to contact me directly.

Best Regards

Andrew Clinton

President

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*ITD Market Duration - 05/31/2007 through 03/31/2013

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