US Municipal Bonds Market Update Graig Saloom (212) 723-7249 com MARKET COMMENT August 23, 2010 Tobacco Settlement-Backed Bonds: Master Settlement Agreement Mid-Year 2010 Volume Adjust. Update Having experienced the largest single-year shipment decline on record last year. one of the key questions for tobacco settlement-backed bonds is whether 2010 is ultimately going to look more like 2008 or 2009. Having both the Original Participating Manufacturer?s ?rst half results and the Alcohol and Tobacco Tax and Trade Bureau tax data for June 2010. we can begin to analyze the drivers of the Master Settlement Agreement Volume Adjustment through the ?rst half of the year. Through June. according to TTB tax receipt data. total domestic cigarette shipments are down 8.14% year- over-year. TTB has been a strong predictor of the actual industry shipment volumes used by the MSA auditor. as the variance has generally been less than 100 basis points over the past 10 years. However. the MSA Volume Adjustment is based on 0PM shipments. not total market shipments. Lorillard reported a 4.9% increase in domestic shipments during the ?rst six months of 2010. helping moderate the overall 0PM shipment decline at 4.58%. There appear to be two reasons for the discrepancy in the trend between top-line TTB industry shipment data and the 0PM shipment data reported by the manufacturers. both of which are positive for MSA cash?ows. First. 0PM market share appears to be increasing by at least 100 based on 0PM reported shipments against total industry shipments ?om TTB. This trend toward more ?normalized? market share was anticipated as consumer downtrading to non-premium brands. which disproportionately impacts OPMs. moderates as the economy improves. Second. as we?ve noted on several occasions. economic incentives to re-label roll-your-own loose cigarette tobacco as pipe tobacco resulting from last year?s Federal excise tax increases have caused year-over-year total reported RYO shipments to decline 62.32%. bringing the total industry shipment decline to 8.14% versus 6.73% for traditional cigarettes alone. However. as RYO is more of a niche business. this phenomenon is clearly not having as big an impact on 0PM sales. and. hence. we think it will have lessened in?uence on the MSA Volume Adjustment. The impact of RYO reporting on MSA payments will depend on if and how it changes the market share mix. Figure l. 2009 and 2010 Domestic Shipments by Month 2009 2010 03% Lbs. RYO RYO Converted Total 36m Lbs. RYO RYO Converted Total Shiments Jan 26.215.740.996 2,202,129 1,064,125,046 27.299.666.042 24.930.266.966 536,106 263,929,106 25.194.196.074 Feb 26.35.124.607 1.965.023 977242092 27.334.366.699 20.014.556.666 566.230 279,744,000 20.294.300.666 Mar 27.762.960.944 1.336.571 656,004,165 26.440.965.129 26.153.045.925 649.604 319,903,506 26.472.949.433 Apr 25.467.046.666 1.013.761 499,082,338 25.966.129.224 26.656.004.965 525.669 256,600,736 27.116.605.703 May 24.192.374.976 1.092.977 536,060,965 24.730.455.961 24.712.914.159 376,130 186,156,308 24.699.070.467 June 31.355.714.406 906,697 447,356,523 31.603.072.931 26.139.435.965 553,639 272,659,200 26.412.095.165 July 26.736.960.393 620,690 305,570,462 27.044.530.655 - - Aug 26.351.274.971 690,140 339,761,231 26.691.036.202 - - Sept 27.619.384.112 641,524 315.627.200 27.935.211.312 - on 27.216.464.329 549,673 270,606,246 27.469.092.575 Nov 23.201.405.736 576,537 264,616,215 23.466.223.951 Dec 25.036.556.100 607,665 299.166.000 25.335.726.100 Source: TTB andCiti With respect to the second half of the year. we expect shipment declines to continue to moderate toward the 4% level. During the portion of the Reynolds Q2 earnings call. executives predicted that full-year industry shipments will ultimately be down between 4 and likely at the lower end of the range. The chart above shows TTB data for 2009 and 2010 June 2009 was the biggest shipment month of last year and second-half comps in general. particularly November and December. are attractive. Finally. our canvassing of the equity research community continues to suggest that believe full-year shipment declines will be around -1- Investors should be aware that this is a product of the trading desk and should not be confused with research. Please review disclosures on the ?nal page of this trade idea for additional important information. Citigroup Global Markets Inc. Municipal Securities Division ADDITIONAL INFORMATION AVAILABLE UPON REQUEST This communication has been prepared by a member of the Sales and Trading Department of Citigroup Global Markets Inc. which distributes this communication by or through its locally authorized affiliates (collectively, the “Firm”). Sales and Trading personnel are not research analysts and the information in this communication is not intended to constitute “research” as that term is defined by applicable regulations. Compensation of Sales and Trading personnel includes consideration of the performance of this Department’s activities. The views expressed herein may change without notice and may differ from those views expressed by other Firm personnel. You should assume the following: The Firm may be the issuer of, or may trade as principal in, the financial instruments referred to in this communication or other related financial instruments. 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It does not constitute an offer or solicitation to purchase or sell any financial instruments. The information contained in this communication is based on generally available information and, although obtained from sources believed by the Firm to be reliable, its accuracy and completeness is not guaranteed. Certain personnel or business areas of the Firm may have access to or have acquired material non-public information that may have an impact (positive or negative) on the information contained herein, but that is not available to or known by the author of this communication. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Financial instruments denominated in a foreign currency are also subject to exchange rate fluctuations, which may have an adverse effect on the price or value of an investment in such products. 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(together with its subsidiaries and branches worldwide, “Citibank”), you should be aware that none of the other financial instruments mentioned in this communication (unless expressly stated otherwise) are (i) insured by the Federal Deposit Insurance Corporation or any other governmental authority, or (ii) deposits or other obligations of, or guaranteed by, Citibank or any other insured depository institution. IRS Circular 230 Disclosure: Citi and its employees are not in the business of providing tax or legal advice to any taxpayer outside of Citi. This communication and any attachments are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. 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Z) MARKET COMMENT {?3.39 A US Municipal Bonds April 21, 2010 Market Update Graigsmm Tobacco Settlement-Backed Bonds: 2010 Master g?zizg?sizm3'7?iim Settlement Agreement (MSA) Payment Summary: The National Association of Attorneys General (NAAG) has released details of the of?cial cash ?ows deposited pursuant to the 2010 MSA required payments. 2010 MSA Distribution: A breakout of the 2010 cash ?ows to be distributed to the states is presented below. across both Original and Subsequent Participating Manufacturers. as well as Annual and Strategic Contribution Payments. Figure l. 2010 LISA Payments Annual Strategic Base 5 8,139,000,000 861,000,000 In?ation Factor 1413181847 1413181847 Actual Volume 269,095,000,000 269,095,000,000 Adjusted Payment 5,798,398,973 698,925,034 a. Annual Strategic SPM Market Share 10.76% 10.76% 0PM Market Share 82.81% 82.81 Adjusted Payment 516,813,103 54,672,083 6,315,212,076 Minus: Prior Year Credits (512,028) (24,179) Minus: NPM Withholding (726,070,868) (86,610,012) 753,597,1 17 Plus: AltIia/Other NPM Share 167,943,726 3 47,541,373 Totals Minus: Net v. Gross Dispute (2,818,018) (298,062) Minus: Gen. Tobacco Default (78,625,507) (8,317,553) Plus: Prior Year Payments 12,292,088 17,896 Plus: Cunent Year Over?Payments 32,152 162 Total 2010 Amount Distributed 5,687,453,621.90 705,906,742.02 Source: NAAG, ?In?ation factor calculated by Citigroup Differences in actual payments versus the calculated payments previously disclosed by NAAG include an approximately $215 million reduction in the NPM withholding. due primarily to Phillip Morris? decision to once again make its entire MSA payment prior to any NPM arbitration decision having been reached. and an approximately $87 million default by General Tobacco. a non- grandfathered SPM currently engaged in various litigation with a number of state attorneys general. Comparison to 2009: The following are the major year-over-year changes to the factors impacting the MSA payment: 0 The total amount distributed pursuant to the armual MSA payment decreased by approximately 10% to $6.393 billion ?om $7.106 billion. 0 Total cigarette shipments declined 9.3% to 324.947.851.672. 0 Original Participating Manufacturer market share decreased to 82.81% from 83.06%. -1- Please review disclosures on the ?nal page of this trade idea for Investors should be aware that this is a addi?onal important information- prodnct of the trading desk and should not be confused with research. Citigoup Global Markets Inc. Municipal Securities Division ADDITIONAL INFORMATION AVAILABLE UPON REQUEST This communication has been prepared by a member of the Sales and Trading Department of Citigroup Global Markets Inc. which distributes this communication by or through its locally authorized affiliates (collectively, the “Firm”). 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(together with its subsidiaries and branches worldwide, “Citibank”), you should be aware that none of the other financial instruments mentioned in this communication (unless expressly stated otherwise) are (i) insured by the Federal Deposit Insurance Corporation or any other governmental authority, or (ii) deposits or other obligations of, or guaranteed by, Citibank or any other insured depository institution. IRS Circular 230 Disclosure: Citi and its employees are not in the business of providing tax or legal advice to any taxpayer outside of Citi. This communication and any attachments are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. This communication contains data compilations, writings and information that are proprietary to the Firm and protected under copyright and other intellectual property laws, and may not be redistributed or otherwise transmitted by you to any other person for any purpose. Copyright © 2010 Citigroup Global Markets Inc. Member SIPC. All Rights Reserved. Citi and Citi-and-Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world. c?t?l US Municipal Bonds Market Update Graig Saloom (212) 723-7249 graig salMciti corn MARKET COMMENT May 20, 2010 Tobacco Settlement-Backed Bonds: Litigation Update Summary: We recently attended the latest proceedings in the Grand River case argued before Judge John Keenan in the United States District Court for the Southern District of New York. This case. like the Freedom Holdings case. is a challenge to the legality of the Master Settlement Agreement the model statutes. and various accompanying legislation enacted to enforce the model statutes. This short write-up is intended to give investors an update on where these cases are in the judicial process. not to provide legal commentary or predictions on potential outcomes. Litigation Update: Both cases originally date to the early 20005 soon after the MSA framework was adopted. and the history of each is chronicled extensively in the offering documents for the most recent bond deals. Grand River: Grand River is a suit brought by three non-participating manufacturers against the attorneys general of 31 states (including MI. NY. OH. and CA). Though the case against the 30 non- New York attorneys general was dismissed at one point by the district court for lack of jurisdiction. the circuit court subsequently reinstated it on appeal. Plaintiffs have brought a number of different legal challenges. but the only ones surviving to date are an ?extraterritorial effect" claim against the model statutes. under the Constitution?s ?dormant? Commerce Clause prohibition on state statutues that regulate commerce wholly outside the respective states. and a claim that the Sherman Anti-Trust Act ?preempts? the MSA and the model statutes. which would allegedly comprise a ?per se? anti-trust violation if they were arranged amongst private parties. The states contend that the doctrine of collateral estoppel should apply. as Grand River has already lost on the same issues in other Federal courts. The New York attorney general?s of?ce is hopeful that the district court will render a new opinion before the end of this year. and both parties would then have the right to appeal again to the circuit court. as well as to ultimately petition the US. Supreme Court for review. Freedom Holdings: In January 2009. the United States District Court for the Southern District of New York issued its opinion in this case. which dismissed the challenge by Freedom Holdings. an NPM. to the New York's MSA and model statute. The judge in this case dismissed a Sherman Anti-Trust claim on the grounds that. due in part to empirical evidence presented during discovery showing NPM market share gains. the MSA is not a ?per se? anti-trust violation. and that the Parker doctrine immrmizes the state's model statute as a ?clearly articulated? expression of state policy. The court also dismissed an ?extraterritorial effect" claim. though the framing of the complaint and reasoning of the court are different than those in Grand River. The circuit court heard an appeal in December 2009. and. once an opinion is issued. both parties will have the right to petition the US. Supreme Court for review. Each state technically has its own MSA. so a ruling against any one state. such as New York in Freedom Holdings. would not necessarily immediately impact the MSA of any other state. though immediate market impact could be much broader. Other Federal courts. including the Sixth. Eighth. Ninth. and Tenth Circuits. hearing similar challenges to the MSA and related legislation. have almost uniformly ruled to dismiss. generally on Parker grounds. An adverse ruling against the 31 states in Grand River would setup a con?ict between circuit courts. as certain states that are defendants in that case. such as California. have already had the MSA upheld by their local circuit court. -1- Investors should be aware that this is a product of the trading desk and should not be confused with research. Please review disclosures on the ?nal page of this trade idea for additional important information. Citigroup Global Markets Inc. Municipal Securities Division ADDITIONAL INFORMATION AVAILABLE UPON REQUEST This communication has been prepared by a member of the Sales and Trading Department of Citigroup Global Markets Inc. which distributes this communication by or through its locally authorized affiliates (collectively, the “Firm”). Sales and Trading personnel are not research analysts and the information in this communication is not intended to constitute “research” as that term is defined by applicable regulations. Compensation of Sales and Trading personnel includes consideration of the performance of this Department’s activities. The views expressed herein may change without notice and may differ from those views expressed by other Firm personnel. You should assume the following: The Firm may be the issuer of, or may trade as principal in, the financial instruments referred to in this communication or other related financial instruments. The Firm may also perform or seek to perform investment banking and other services for the issuer of any such financial instruments. The author of this communication may have discussed the information contained herein with others within the Firm and the author and such other Firm personnel may have already acted on the basis of this information (including by trading for the Firm’s proprietary accounts or communicating the information contained herein to other customers of the Firm). The Firm, the Firm’s personnel (including those with whom the author may have consulted in the preparation of this communication), and other customers of the Firm may be long or short the financial instruments referred to herein, may have acquired such positions at prices and market conditions that are no longer available, and may have interests different or adverse to your interests. This communication is provided for information and discussion purposes only. It does not constitute an offer or solicitation to purchase or sell any financial instruments. The information contained in this communication is based on generally available information and, although obtained from sources believed by the Firm to be reliable, its accuracy and completeness is not guaranteed. Certain personnel or business areas of the Firm may have access to or have acquired material non-public information that may have an impact (positive or negative) on the information contained herein, but that is not available to or known by the author of this communication. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Financial instruments denominated in a foreign currency are also subject to exchange rate fluctuations, which may have an adverse effect on the price or value of an investment in such products. 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(together with its subsidiaries and branches worldwide, “Citibank”), you should be aware that none of the other financial instruments mentioned in this communication (unless expressly stated otherwise) are (i) insured by the Federal Deposit Insurance Corporation or any other governmental authority, or (ii) deposits or other obligations of, or guaranteed by, Citibank or any other insured depository institution. IRS Circular 230 Disclosure: Citi and its employees are not in the business of providing tax or legal advice to any taxpayer outside of Citi. This communication and any attachments are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. This communication contains data compilations, writings and information that are proprietary to the Firm and protected under copyright and other intellectual property laws, and may not be redistributed or otherwise transmitted by you to any other person for any purpose. Copyright © 2010 Citigroup Global Markets Inc. Member SIPC. All Rights Reserved. Citi and Citi-and-Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world. A I MARKET COMMENT US Municipal Bonds February 5, 2010 Market Update Tobacco Settlement-Backed Bonds: Master Settlement (gr-2g1312m3'7Q23um Agreement (MSA) Volume Adjustment Update Summary: Cigarette shipments in 2009 experienced the largest year-over-year decline on record due to a substantial increase in the Federal excise tax. the economic downturn. and the ongoing secular trend away from domestic smoking. While consumption declines are expected to moderate in 2010 and beyond. we also believe that the future long-term average aimual decline will exceed the base-case assumptions utilized in most of the tobacco bond deals. Historic Domestic Cigarette Consumption: Cigarette shipments to the 50 states. District of Columbia. and Puerto Rico peaked at 640 billion units in 1982. and have declined at an compounded annual rate of approximately 2.30% ever since. The 10-year post-MSA decline accelerates to a CAGR of -2.93% based on the Alcohol and Tobacco Tax and Trade Bureau (TTB) numbers. We sourced historic consumption data from a variety of outlets. including 0PM annual and quarterly reports. the TTB. and testimony by Pricewaterhouse Coopers. the MSA Independent Auditor. in various legal proceedings. Though the various data sources utilize different methodologies. the overall decline trends are consistent. Figure 1. Estimates of Annual Cigarette Consumption billions of cigarettes PWC USDA - Average Year Data? Data? ERS ITB Change 1998 459 30 465.00 471.37 468.18 1999 439.10 435.00 438.53 436.77 -6.71% 2000 432.90 430.00 437.73 433.87 066% 2W1 426.30 425.00 428.42 426.71 -1 .65% 2002 418.00 414.30 415.00 417.80 416.40 -2.42% 2W3 401.20 399.90 400.00 402.57 401.28 -3.63% 2W4 394.50 400.30 388.00 400.04 394.02 -1.81% 2005 381.70 384.30 376.00 384.21 380.10 -3.53% 2115 376.00 384.70 372.00 383.70 377.85 -0.59% 2W7 357.20 365.80 360.00 364.96 362.48 -4.07% 2008 345.30 35029 350.29 3.36% 2009 Est 319.51 319.51 -8.79% CAGR -3. 13% -2.50% 2.80% ?2.93% -2.60% Factors Impacting Consumption: declines have. and will continue to be. impacted by a number of factors. including the following: Increases in the Federal excise tax. including a $.61 per pack adjustment in 2009. 0 Increases in state excise taxes according to the Centers for Disease Control. there have been 107 separate state increases since 1995. and New York. Kansas. Utah. and Guam have already proposed increases for 2010. 0 Many states. towns. and other institutions have banned or limited smoking in bars. restaurants. and other public places. 0 Regulation of advertising and marketing by manufacturers under Federal and state law. including the removal by July 2010 of terms such as ?light? and ??iltra-light" from packaging. 0 Recommendations from the FDA panel studying menthol cigarettes and whether or not they should be included in the 2009 ban on ?avored cigarettes. It is important to keep the impact of these factors in perspective when considering how future consumption will compare to historical levels. It is generally accepted that cigarette demand is relatively inelastic with respect to price. Various consumption models estimate that cigarette demand exhibits elasticity of between 30-35% with respect to large changes in price. and even lower demand elasticity with respect to incremental changes in price. Additionally. the industry has faced challenges for decades. from increased regulation. restrictions on advertising. and limitations on public smoking. -1- Please review disclosures on the ?nal page of this trade idea for additional important information. Investors should be aware that this is a product of the trading desk and should not be 001101596 with march- Citigroup Global Markets Inc. Municipal Securities Division US Municipal Bonds February 5, 2010 Market Update Forecasts of Future Consumption: Global Insight, the industry consultant on many of the tobacco settlement-backed bond deals, originally predicted a 1.81% long-term annual decline for most issues based on its proprietary econometric model. To update our own analysis, we conducted a broad review of future consumption forecasts from government regulators, industry analysts, and the rating agencies. x x x x x TTB: Shipments for 2009 are down 8.68% year-over-year through October data. Final 2009 numbers won’t be available until February 2010. Equity Research: General Street consensus is for a decline of 3-4% in 2010 and average annual declines of 3-3.5% thereafter. Participating Manufacturers: Altria estimates that overall industry shipments were down 8% in 2009. Top line guidance for 2010 indicates the company expects shipment declines to moderate significantly year-over-year. Reynold’s total shipments were down 8.7% in 2009 – management projects that total industry shipments will decline 4-5% in 2010. Moody’s: Projects an 8-9% decline for 2009 with a 3-4% long-term average annual decline thereafter. Baa-rated bonds must withstand at least a 3.00% long-term average annual decline. S&P: Revised methodology for tobacco settlement-backed bonds issued in 2009 stresses a BBBbond using a 7.02-8.09% decline for 2009 and 2010 and a 3.58-4.08% long-term average annual decline. Conclusion: We think 2009 is likely to be an extreme data point due to the dual impacts of the largestever Federal excise tax increase and a sharp economic downturn. However, we also believe that consumption declines in 2010 and beyond are likely to moderate considerably versus last year. The key question for tobacco settlement-backed bonds is whether consumption declines reach steady-state at a level closer to the 10-year historical average or at a higher level that would have further negative implications for average lives, and possibly legal maturies. *Management Science Associates Inc. is responsible for gathering annual shipment data from the participating manufacturers. The reported numbers are from the offering circular for the 2008 Suffolk Tobacco Asset Securitization Corp. deal and the 2008 Lorillard annual report. **The consumption figures attributed to PWC are from testimony cited as part of the most recent decision in the Freedom Holdings, Inc. v. Andrew Cuomo case. Investors should be aware that this is a product of the trading desk and should not be confused with research. -2Please review disclosures on the final page of this trade idea for additional important information. Citigroup Global Markets Inc. Municipal Securities Division ADDITIONAL INFORMATION AVAILABLE UPON REQUEST This communication has been prepared by a member of the Sales and Trading Department of Citigroup Global Markets Inc. which distributes this communication by or through its locally authorized affiliates (collectively, the “Firm”). Sales and Trading personnel are not research analysts and the information in this communication is not intended to constitute “research” as that term is defined by applicable regulations. Compensation of Sales and Trading personnel includes consideration of the performance of this Department’s activities. The views expressed herein may change without notice and may differ from those views expressed by other Firm personnel. You should assume the following: The Firm may be the issuer of, or may trade as principal in, the financial instruments referred to in this communication or other related financial instruments. The Firm may also perform or seek to perform investment banking and other services for the issuer of any such financial instruments. The author of this communication may have discussed the information contained herein with others within the Firm and the author and such other Firm personnel may have already acted on the basis of this information (including by trading for the Firm’s proprietary accounts or communicating the information contained herein to other customers of the Firm). The Firm, the Firm’s personnel (including those with whom the author may have consulted in the preparation of this communication), and other customers of the Firm may be long or short the financial instruments referred to herein, may have acquired such positions at prices and market conditions that are no longer available, and may have interests different or adverse to your interests. This communication is provided for information and discussion purposes only. It does not constitute an offer or solicitation to purchase or sell any financial instruments. The information contained in this communication is based on generally available information and, although obtained from sources believed by the Firm to be reliable, its accuracy and completeness is not guaranteed. Certain personnel or business areas of the Firm may have access to or have acquired material non-public information that may have an impact (positive or negative) on the information contained herein, but that is not available to or known by the author of this communication. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Financial instruments denominated in a foreign currency are also subject to exchange rate fluctuations, which may have an adverse effect on the price or value of an investment in such products. Investors should obtain advice from their own tax, financial, legal and other advisors, and only make investment decisions on the basis of the investor’s own objectives, experience and resources. This communication is not intended to forecast or predict future events. Past performance is not a guarantee or indication of future results. Any prices provided herein (other than those that are identified as being historical) are indicative only and do not represent firm quotes as to either price or size. You should contact your local representative directly if you are interested in buying or selling any financial instrument, or pursuing any trading strategy, mentioned herein. No liability is accepted by the Firm for any loss (whether direct, indirect or consequential) that may arise from any use of the information contained herein or derived herefrom. Although the Firm is affiliated with Citibank, N.A. (together with its subsidiaries and branches worldwide, “Citibank”), you should be aware that none of the other financial instruments mentioned in this communication (unless expressly stated otherwise) are (i) insured by the Federal Deposit Insurance Corporation or any other governmental authority, or (ii) deposits or other obligations of, or guaranteed by, Citibank or any other insured depository institution. IRS Circular 230 Disclosure: Citi and its employees are not in the business of providing tax or legal advice to any taxpayer outside of Citi. This communication and any attachments are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. This communication contains data compilations, writings and information that are proprietary to the Firm and protected under copyright and other intellectual property laws, and may not be redistributed or otherwise transmitted by you to any other person for any purpose. Copyright © 2010 Citigroup Global Markets Inc. Member SIPC. All Rights Reserved. Citi and Citi-and-Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world. US Municipal Bonds Trade Idea Graig Saloom (212) 723-7249 Egg saloMciti com Andrew Goodwin (212) 723?7087 andrew .citi com Investors should be aware that this is a product of the trading desk and should not be confused with research. TRADE IDEA June 25, 2010 Tobacco Settlement-Backed Bonds: Short Tobacco Maturities Look Attractive After Sell-Off Summary: As the tobacco curve continues to ?atten. the relative value and risk-reward trade-off in the short end become increasingly interesting, as on-going turbo redemptions and access to reserve lessen extension risk. Current Market Overview: In the aftermath of the April 2010 MSA payment. which the cash ?ow impact of a record 9.3% cigarette shipment decline in 2009. investors have steadily traded out of shorter maturity tobacco bonds. causing the yield curve to ?atten substantially from where it was just two months ago. The particularly strong sell-o?' that began three weeks ago may be driven to some extent by conditions in the broader credit markets. as there has been little new ?mdamental data to drive trading. Short maturities in the benchmark 2007 deals are currently trading in the 5.50-6.75% yield-to-maturity range. making the bonds attractive relative to other high-yield sectors. Extension Risk: As we?ve discussed previously. repayment at ?nal maturity for these bonds may not be as important as it is in other types of debt. and investors should look beyond the 40-year rating agency framework and breakeven declines based on repayment at stated maturity. Payments under the MSA are perpetual and ownership of those payments by the various authorities is uninterrupted so long as bonds remain outstanding in other words. MSA payments don?t revert to the states until the bonds are repaid. no matter 110w long that takes. With a clearly de?ned capital structure and inter-creditor mechanics. post-default MSA payments should continue to be passed through to bondholders. Therefore. one of the major risks in these deals is extension due to increased shipment declines. The structure of most tobacco deals manages this risk for the shortest maturity bonds. Assuming shipment declines are not extreme enough to cause an interest payment shortfall. the shortest maturity bonds will continue to bene?t from all current turbo redemptions. meaning that. even under increased decline scenarios. a majority of the outstanding debt will have been redeemed by ?nal maturity. At ?nal maturity. these bonds will have the ?rst call on the debt service reserve fund to repay any principal remaining outstanding after that year?s turbo redemptions. if any. If all principal is not fully repaid after tapping the debt service reserve. future principal redemptions will be applied pro rata after the default. However. given the relatively small amount of principal likely to be outstanding after drawing down the reserve. the default. and associated future pro rata distributions. are likely to have a muted impact on weighted-average life. It should be noted that if shipment declines were to consistently come in well above historical rates. there could be insuf?cient cash ?ow to make all interest payments. potentially resulting in loss of principal. This table shows the performance of Buckeye 5.125%5 of 2024 under different scenarios in our model. Downside Cases Upside Cases BaseCase 3.50% 93.9091. 942596 932591. 100% um Recom 3.2591. mm Detail10.56 10.96 12.52 15.55 10.23 9.99 10.15 10.56 10.96 11.02 11.10 10.23 9.99 10.15 FnalCash?owReceived 2024 2024 2057 2067 2024 2024 2024 960me Redeemedby2024 100.0016 100.0% 93.6% 052% 100.0% 100.091. 100.091. menesmolarpnce 6.80% 6.76% 6.61% 6.41% 6.84% 6.87% 6.85% Source: Citigroup -1- Please review disclosures on the ?nal page of this trade idea for additional important information. Citigroup Global Markets Inc. Municipal Securities Division June 25, 2010 US Municipal Bonds Trade Idea This table shows the performance of Golden 4.50%s of 2027 under different scenarios in our model. Default? WAL Final Cashflow Received % of Principal Redeemed by 2027 Yield-to-WAL @ 87 Dollar Price Base Case @ 3.50% NO 8.88 2024 100.00% 6.35% Downside Cases @ 4.50% @ 4.75% NO NO 11.15 11.80 2027 2027 100.00% 100.00% 6.05% 5.98% Source: Citigroup @ 4.25% NO 10.48 2027 100.00% 6.13% @ 3.25% NO 8.51 2023 100.00% 6.42% Upside Cases 100% NPM Recovery NO 7.79 2023 100.00% 6.56% 3.25% Inflation NO 8.44 2023 100.00% 6.43% SHORT TOBACCO MATURITIES 6.60% Daily JJ Kenny YTM 6.40% 6.20% 6.00% 5.80% 5.60% 5.40% 5.20% 5.00% 1-Apr 15-Apr 29-Apr 13-May Buckeyes of 2024 27-May 10-Jun 24-Jun Goldens of 2027 BUCKEYE YIELD CURVE 9.00% Daily JJ Kenny YTM 8.50% 8.00% 7.50% 7.00% 6.50% 6.00% 5.50% 2024 2030 2034 2037 @ Apr 1, 2010 2042 2047 @ Jun 24, 2010 Source. Standard & Poor’s J.J. Kenny -2- Investors should be aware that this is a product of the trading desk and should not be confused with research. Please review disclosures on the final page of this trade idea for additional important information. Citigroup Global Markets Inc. Municipal Securities Division ADDITIONAL INFORMATION AVAILABLE UPON REQUEST This communication has been prepared by a member of the Sales and Trading Department of Citigroup Global Markets Inc. which distributes this communication by or through its locally authorized affiliates (collectively, the “Firm”). Sales and Trading personnel are not research analysts and the information in this communication is not intended to constitute “research” as that term is defined by applicable regulations. Compensation of Sales and Trading personnel includes consideration of the performance of this Department’s activities. The views expressed herein may change without notice and may differ from those views expressed by other Firm personnel. You should assume the following: The Firm may be the issuer of, or may trade as principal in, the financial instruments referred to in this communication or other related financial instruments. The Firm may also perform or seek to perform investment banking and other services for the issuer of any such financial instruments. The author of this communication may have discussed the information contained herein with others within the Firm and the author and such other Firm personnel may have already acted on the basis of this information (including by trading for the Firm’s proprietary accounts or communicating the information contained herein to other customers of the Firm). The Firm, the Firm’s personnel (including those with whom the author may have consulted in the preparation of this communication), and other customers of the Firm may be long or short the financial instruments referred to herein, may have acquired such positions at prices and market conditions that are no longer available, and may have interests different or adverse to your interests. This communication is provided for information and discussion purposes only. It does not constitute an offer or solicitation to purchase or sell any financial instruments. The information contained in this communication is based on generally available information and, although obtained from sources believed by the Firm to be reliable, its accuracy and completeness is not guaranteed. Certain personnel or business areas of the Firm may have access to or have acquired material non-public information that may have an impact (positive or negative) on the information contained herein, but that is not available to or known by the author of this communication. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Financial instruments denominated in a foreign currency are also subject to exchange rate fluctuations, which may have an adverse effect on the price or value of an investment in such products. Investors should obtain advice from their own tax, financial, legal and other advisors, and only make investment decisions on the basis of the investor’s own objectives, experience and resources. This communication is not intended to forecast or predict future events. Past performance is not a guarantee or indication of future results. Any prices provided herein (other than those that are identified as being historical) are indicative only and do not represent firm quotes as to either price or size. You should contact your local representative directly if you are interested in buying or selling any financial instrument, or pursuing any trading strategy, mentioned herein. No liability is accepted by the Firm for any loss (whether direct, indirect or consequential) that may arise from any use of the information contained herein or derived herefrom. Although the Firm is affiliated with Citibank, N.A. (together with its subsidiaries and branches worldwide, “Citibank”), you should be aware that none of the other financial instruments mentioned in this communication (unless expressly stated otherwise) are (i) insured by the Federal Deposit Insurance Corporation or any other governmental authority, or (ii) deposits or other obligations of, or guaranteed by, Citibank or any other insured depository institution. IRS Circular 230 Disclosure: Citi and its employees are not in the business of providing tax or legal advice to any taxpayer outside of Citi. This communication and any attachments are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. This communication contains data compilations, writings and information that are proprietary to the Firm and protected under copyright and other intellectual property laws, and may not be redistributed or otherwise transmitted by you to any other person for any purpose. Copyright © 2010 Citigroup Global Markets Inc. Member SIPC. All Rights Reserved. Citi and Citi-and-Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world. US Municipal Bonds Market Update Graig Saloom (212) 723-7249 salMciti corn MARKET COMMENT April 30, 2010 Tobacco Settlement-Backed Bonds: Modeled 2010 Turbo Payments Summary: Turbo redemptions on a number of actively traded deals are likely to be signi?cantly lower in 2010 than in previous years. Actual turbo redemption notices will be posted between May 1 and May 15. 2010. Projected Turbo Redemptions: The table below presents the original projected turbo redemptions. scheduled sinking fund installments. turbo redemptions to date. adjusted sinking fund installments. and modeled redemptions for the shortest maturity bonds in six benchmark deals. Each of these deals originally used a Lehman guaranteed investment contract or forward purchase agreement to invest reserves and other pledged accounts. Figure 1. Projected 2010 Turbo Redemptious (S) PLO: cted Turbo from OS Scheduled SF Turbos to Date A igted SF Pament Buckeye 5.375%5 of 2024 5 17,935,000 5 - 5 1,444,000 Buckeye 5.125%5 of 2024 5 85,115,000 5 23,255,000 5 99,560,000 5 - 6,858,000 Golden 4.500365 of 2027 5 67,460,000 5 5 1927851300 5 - 5 3,300,000 New Jersey 4.500%5 of 2023 5 67,920,000 5 16,830,000 5 144,870,m0 - 5 13,265,000 Virginia 6.706%5 of 2046 5 18,800,000 2,400,000 - - Michigan 2006 7.309365 of 2034 5 12,916,306 5 3,640,000 - 5 1,988,000 Michigan 2007 5.250965 of 2022 5 2,350,000 710,000 5 - 710,000 64,000 Michigan 2007 5.125965 of 2022 5 6,710,000 2,020,000 - 5 2,020,000 183,000 Source: Various o?amg documents, Citigroup With the Lehman obligations terminated. the pledged accounts on each of these deals are now invested in either money market or short-term agency securities earning very low rates. Additional Comments: It is important to take the following into account when evaluating the modeled turbo redemptions: 0 The modeled turbo redemptions assume a reinvestment rate of 20 for June 2009 through June 2010. 0 Differences between the munbers presented and previous estimates of 2010 turbo redemptions include 1) a focus on the 2009-2010 reinvestment rate as opposed to our assumption for the long-term average reinvestment rate and 2) adjustments for actual 2010 MSA distributions. 0 Failure to pay scheduled sinking fund installments is not an event of default and reserve are not available to pay scheduled sinking fund installments. 0 Adjusted sinking fund installments represent actual turbo redemptions in prior years credited against future scheduled sinking installments. 0 We expect that the trustee in the Virginia deal may have to use a small amount of reserve funds to make the full December 2010 interest payment. 0 Modeled redemptions include any actual redemptions made in December 2009. -1- Investors should be aware that this is a product of the trading desk and should not be confused with research. Please review disclosures on the ?nal page of this trade idea for additional important information. Citig?oup Global Markets Inc. Municipal Securities Division ADDITIONAL INFORMATION AVAILABLE UPON REQUEST This communication has been prepared by a member of the Sales and Trading Department of Citigroup Global Markets Inc. which distributes this communication by or through its locally authorized affiliates (collectively, the “Firm”). Sales and Trading personnel are not research analysts and the information in this communication is not intended to constitute “research” as that term is defined by applicable regulations. Compensation of Sales and Trading personnel includes consideration of the performance of this Department’s activities. The views expressed herein may change without notice and may differ from those views expressed by other Firm personnel. You should assume the following: The Firm may be the issuer of, or may trade as principal in, the financial instruments referred to in this communication or other related financial instruments. The Firm may also perform or seek to perform investment banking and other services for the issuer of any such financial instruments. The author of this communication may have discussed the information contained herein with others within the Firm and the author and such other Firm personnel may have already acted on the basis of this information (including by trading for the Firm’s proprietary accounts or communicating the information contained herein to other customers of the Firm). The Firm, the Firm’s personnel (including those with whom the author may have consulted in the preparation of this communication), and other customers of the Firm may be long or short the financial instruments referred to herein, may have acquired such positions at prices and market conditions that are no longer available, and may have interests different or adverse to your interests. This communication is provided for information and discussion purposes only. It does not constitute an offer or solicitation to purchase or sell any financial instruments. The information contained in this communication is based on generally available information and, although obtained from sources believed by the Firm to be reliable, its accuracy and completeness is not guaranteed. Certain personnel or business areas of the Firm may have access to or have acquired material non-public information that may have an impact (positive or negative) on the information contained herein, but that is not available to or known by the author of this communication. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Financial instruments denominated in a foreign currency are also subject to exchange rate fluctuations, which may have an adverse effect on the price or value of an investment in such products. Investors should obtain advice from their own tax, financial, legal and other advisors, and only make investment decisions on the basis of the investor’s own objectives, experience and resources. This communication is not intended to forecast or predict future events. Past performance is not a guarantee or indication of future results. Any prices provided herein (other than those that are identified as being historical) are indicative only and do not represent firm quotes as to either price or size. You should contact your local representative directly if you are interested in buying or selling any financial instrument, or pursuing any trading strategy, mentioned herein. No liability is accepted by the Firm for any loss (whether direct, indirect or consequential) that may arise from any use of the information contained herein or derived herefrom. Although the Firm is affiliated with Citibank, N.A. (together with its subsidiaries and branches worldwide, “Citibank”), you should be aware that none of the other financial instruments mentioned in this communication (unless expressly stated otherwise) are (i) insured by the Federal Deposit Insurance Corporation or any other governmental authority, or (ii) deposits or other obligations of, or guaranteed by, Citibank or any other insured depository institution. IRS Circular 230 Disclosure: Citi and its employees are not in the business of providing tax or legal advice to any taxpayer outside of Citi. This communication and any attachments are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. This communication contains data compilations, writings and information that are proprietary to the Firm and protected under copyright and other intellectual property laws, and may not be redistributed or otherwise transmitted by you to any other person for any purpose. Copyright © 2010 Citigroup Global Markets Inc. Member SIPC. All Rights Reserved. Citi and Citi-and-Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world. a) TRADE IDEA US Municipal Bonds May 13,2010 Market Update Tobacco Settlement-Backed Bonds: Inland Empire g?zlzg?slzm3'7?iim 2021 Maturities Look Attractive Summary: The shortest maturity bonds in the Inland Empire deal made at a discount to the shortest maturity bonds in other 2007 deals. including Buckeyes and Goldens. Fitch rates the bonds BB. re?ecting their concerns about Riverside County?s population growth. However. we believe the Inland bonds have a similar risk pro?le to the large benchmark deals. and therefore represent an opportunity to pick up relative yield in the tobacco sector without increasing duration. Deal Comparison: All three deals were completed in 2007 at the height of the structured ?nance boom. and. as such. are some of the most leveraged in the tobacco universe. Though these deals generally employ the same structure. Riverside County reserves the ?rst $10 million of revenues through 2020 and $11.5 million from 2021 through 2026 before 100% of revenues begin ?owing to the trust in 2027. Inland Empire Golden Buckeye CUSIP 38122NNY4 Maturity 2021 2027 2024 Coupon 4.625%l5.000% 4.50% 5.375%l5.125% Indicative Offered Weld 7.00% 5.30% 6.17% Fed. Taxable? No No No State TaxableMoody's NR Baa3 Baa3 Fitch GIC Depfa Base Case WAL 6.77 8.94 10.64 Breakeven Shipment Decline 4.15% 4.90% 3.80% Source: Citigroup, various o??ering documents Citi?s base case WALs are driven by a number of assumptions. including a 3.50% aimual shipment decline from 2011 into perpetuity. California Population Issues: California distributes 45% of its tobacco settlement revenues to the counties based on population. adjusted every 10 years to re?ect actual census data. Therefore. there is an additional layer of risk in each California county deal versus other state tobacco settlement securitizations. Assuming a two-year lag in incorporating the new census data. the Inland 2021 cash ?ows are dependent only on the 2010 population report. At issuance. Global Insight. the independent consultant. predicted that Riverside County would have 6.14% of the state?s population in 2010. and that estimate was used in the original cash ?ow projections. The Califomia Department of Finance projected 5.72% in 2010. The WAL and breakeven decline shown above are based on a new January 2010 California Department of Finance county popul_ation estimate which is higher than the 2000 census data but lower than the original Global Insight proiection. In other words. while the actual population ?gures won?t be determined until after the census is completed. we believe we have a reasonable proxy for the share of revenues Riverside County will receive beginning in 2012. -1- Please review disclosures on the ?nal page of this trade idea for Investors should be aware that this is a addi?onal important information- prodnct of the trading desk and should not be confused with research. Citigroup Global Markets Inc. Municipal Securities Division ADDITIONAL INFORMATION AVAILABLE UPON REQUEST This communication has been prepared by a member of the Sales and Trading Department of Citigroup Global Markets Inc. which distributes this communication by or through its locally authorized affiliates (collectively, the “Firm”). Sales and Trading personnel are not research analysts and the information in this communication is not intended to constitute “research” as that term is defined by applicable regulations. Compensation of Sales and Trading personnel includes consideration of the performance of this Department’s activities. The views expressed herein may change without notice and may differ from those views expressed by other Firm personnel. You should assume the following: The Firm may be the issuer of, or may trade as principal in, the financial instruments referred to in this communication or other related financial instruments. The Firm may also perform or seek to perform investment banking and other services for the issuer of any such financial instruments. The author of this communication may have discussed the information contained herein with others within the Firm and the author and such other Firm personnel may have already acted on the basis of this information (including by trading for the Firm’s proprietary accounts or communicating the information contained herein to other customers of the Firm). The Firm, the Firm’s personnel (including those with whom the author may have consulted in the preparation of this communication), and other customers of the Firm may be long or short the financial instruments referred to herein, may have acquired such positions at prices and market conditions that are no longer available, and may have interests different or adverse to your interests. This communication is provided for information and discussion purposes only. It does not constitute an offer or solicitation to purchase or sell any financial instruments. The information contained in this communication is based on generally available information and, although obtained from sources believed by the Firm to be reliable, its accuracy and completeness is not guaranteed. Certain personnel or business areas of the Firm may have access to or have acquired material non-public information that may have an impact (positive or negative) on the information contained herein, but that is not available to or known by the author of this communication. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Financial instruments denominated in a foreign currency are also subject to exchange rate fluctuations, which may have an adverse effect on the price or value of an investment in such products. Investors should obtain advice from their own tax, financial, legal and other advisors, and only make investment decisions on the basis of the investor’s own objectives, experience and resources. This communication is not intended to forecast or predict future events. Past performance is not a guarantee or indication of future results. Any prices provided herein (other than those that are identified as being historical) are indicative only and do not represent firm quotes as to either price or size. You should contact your local representative directly if you are interested in buying or selling any financial instrument, or pursuing any trading strategy, mentioned herein. No liability is accepted by the Firm for any loss (whether direct, indirect or consequential) that may arise from any use of the information contained herein or derived herefrom. Although the Firm is affiliated with Citibank, N.A. (together with its subsidiaries and branches worldwide, “Citibank”), you should be aware that none of the other financial instruments mentioned in this communication (unless expressly stated otherwise) are (i) insured by the Federal Deposit Insurance Corporation or any other governmental authority, or (ii) deposits or other obligations of, or guaranteed by, Citibank or any other insured depository institution. IRS Circular 230 Disclosure: Citi and its employees are not in the business of providing tax or legal advice to any taxpayer outside of Citi. This communication and any attachments are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. This communication contains data compilations, writings and information that are proprietary to the Firm and protected under copyright and other intellectual property laws, and may not be redistributed or otherwise transmitted by you to any other person for any purpose. Copyright © 2010 Citigroup Global Markets Inc. Member SIPC. All Rights Reserved. Citi and Citi-and-Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world. c?t?l US Municipal Bonds Trade Idea Graig Saloom (212) 723-7249 saloog@.citi com TRADE IDEA March 26, 2010 Tobacco Settlement-Backed Bonds: Buy Buckeye 6.5%s of 2047 as Curve Continues to Steepen Summary: As the tobacco curve continues to steepen, the relative value and risk-reward trade-off in the Buckeye 6.5%s of 2047 become increasingly compelling. as structural protections and potential improvement in certain model variables limit extension risk. Current Market Overview: As we approach the April 2010 MSA payment. investors continue to review their tobacco portfolios and analyze the impact of record shipment declines in 2009 minus 8.7% according to govermnent data. The recent trend has been to sell longer average life tobacco bonds and buy shorter average life issues. resulting in a steepening of the tobacco curve. In addition to the 2009 shipment results. this activity is driven by a variety of fundamental and technical factors. including recognition that actual results have deviated from original assumptions about average life and consumption. the potential for ratings downgrades. anticipation of new issuance with less leverage. increased FDA regulation. new state proposals for excise tax increases. and a concerted effort by manufacturers to position non-cigarette tobacco products as ?safer? altematives to smoking. Trading Activity: The bonds have cheapened sigri?cantly over the past two months. as shown in the graphs on the next page: 0 Currently trading in the 8.30% yield-to-matulity range (12.7% taxable equivalent). which is the cheapest the bonds have been this year. Over 400 spread to MMD Bonds trade cheap to healthcare and airlines. Based on Citi?s estimation of projected turbo payments. yield-to-WAL is 8.34%. Given the trend toward shorter average life tobacco and supply of these bonds in the market place. we believe a buyer could transact in size at yields wider than where bonds are currently trading. Extension Risk: Repayment at ?nal maturity is not as important as it is in other types of debt. and investors should look beyond the 40-year rating agency framework and breakeven declines based on repayment at ?nal stated maturin'. Payments under the MSA are perpetual and ownership of those payments by the various authorities is perpetual so long as bonds remain outstanding in other words MSA payments don?t revert to the states until the bonds are paid off. no matter how long that takes. With a clearly de?ned capital structure and inter-creditor mechanics. post-default MSA payments should continue to be passed through to bondholders. Therefore. one of the major risks in these deals is extension due to increased shipment declines. The structure of most tobacco deals manages this extension risk for the longer maturity bonds. A payment default resulting from failure to pay interest or principal (note that failure to making sinking payments does not constitute a default) at ?nal maturity causes all future TSRs on each succeeding settlement date to be applied pro mm across maturities. 0 If a shorter maturity bond experiences a default. the 6.5%s of 2047 will receive cash sooner but average life and yield will remain largely unchanged (for small decline increases). 0 If all other senior bonds repay on time. but the 6.5%s of 2047 fail to be repaid at ?nal maturity. all future net TSRs will be applied to pay down the bonds no difference between pre- and post-default application as the CABS are totally subordinated. -1- Investors should be aware that this is a product of the trading desk and should not be confused with research. Please review disclosures on the ?nal page of this trade idea for additional important information. Citigroup Global Markets Inc. Municipal Securities Division March 26, 2010 US Municipal Bonds Trade Idea The 6.5%s of 2047 particularly benefit from this structure because of the high leverage in the deal – shorter maturity bonds are more likely to default resulting in a tighter range of WALs. It is worth noting that the numbers in the table below already include a 9% decline for 2009 and 4% decline for 2010. Post 2010 Decline -3.60% -3.70% -3.80% -3.90% -4.00% -4.25% -4.45% First Turbo 2040 2041 2035 2031 2031 2025 2025 Final Turbo 2047 2049 2049 2051 2053 2061 2078 WAL 34.46 35.54 32.99 32.62 34.09 36.87 47.75 Default? No Yes Yes Yes Yes Yes Yes Whereas investors often focus on the breakeven decline that the bonds can withstand and still repay at final maturity, the reality is that, on a WAL basis, the bonds can withstand larger shipment declines before they extend significantly. Clearly, long-term average declines substantially greater than what have been experienced historically may result in loss of principal. As final repayment is pushed farther into the future, investors should also consider the potential positive impact of higher inflation, higher recovery on NPM withholdings, and higher investment rates on reserve funds, while also considering the potential for increased manufacturer bankruptcy and regulatory risk. BUCKEYES AND GOLDENS OF 2047 Feb-Mar 2010 8.40 Daily JJ Kenny YTM (%) 8.30 8.20 8.10 8.00 7.90 7.80 7.70 7.60 2/1 2/4 2/9 2/12 2/18 2/23 2/26 Buckeye 6.50s of 2047 3/3 3/8 3/11 3/16 3/19 Golden 5.75s of 2047 HIGH YIELD BENCHMARKS Feb-Mar 2010 8.40 Daily JJ Kenny YTM (%) 8.20 8.00 7.80 7.60 7.40 7.20 2/1 2/4 2/9 2/12 Buckeye 6.50s of 2047 2/18 2/23 2/26 3/3 Allegh. Hosp. 5.375s of 2040 3/8 3/11 3/16 3/19 JFK AMR 7.75s of 2031 Source: Standard & Poor’s J J Kenny Investors should be aware that this is a product of the trading desk and should not be confused with research. -2Please review disclosures on the final page of this trade idea for additional important information. Citigroup Global Markets Inc. Municipal Securities Division ADDITIONAL INFORMATION AVAILABLE UPON REQUEST This communication has been prepared by a member of the Sales and Trading Department of Citigroup Global Markets Inc. which distributes this communication by or through its locally authorized affiliates (collectively, the “Firm”). Sales and Trading personnel are not research analysts and the information in this communication is not intended to constitute “research” as that term is defined by applicable regulations. Compensation of Sales and Trading personnel includes consideration of the performance of this Department’s activities. The views expressed herein may change without notice and may differ from those views expressed by other Firm personnel. You should assume the following: The Firm may be the issuer of, or may trade as principal in, the financial instruments referred to in this communication or other related financial instruments. The Firm may also perform or seek to perform investment banking and other services for the issuer of any such financial instruments. The author of this communication may have discussed the information contained herein with others within the Firm and the author and such other Firm personnel may have already acted on the basis of this information (including by trading for the Firm’s proprietary accounts or communicating the information contained herein to other customers of the Firm). The Firm, the Firm’s personnel (including those with whom the author may have consulted in the preparation of this communication), and other customers of the Firm may be long or short the financial instruments referred to herein, may have acquired such positions at prices and market conditions that are no longer available, and may have interests different or adverse to your interests. This communication is provided for information and discussion purposes only. It does not constitute an offer or solicitation to purchase or sell any financial instruments. The information contained in this communication is based on generally available information and, although obtained from sources believed by the Firm to be reliable, its accuracy and completeness is not guaranteed. Certain personnel or business areas of the Firm may have access to or have acquired material non-public information that may have an impact (positive or negative) on the information contained herein, but that is not available to or known by the author of this communication. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Financial instruments denominated in a foreign currency are also subject to exchange rate fluctuations, which may have an adverse effect on the price or value of an investment in such products. Investors should obtain advice from their own tax, financial, legal and other advisors, and only make investment decisions on the basis of the investor’s own objectives, experience and resources. This communication is not intended to forecast or predict future events. Past performance is not a guarantee or indication of future results. Any prices provided herein (other than those that are identified as being historical) are indicative only and do not represent firm quotes as to either price or size. You should contact your local representative directly if you are interested in buying or selling any financial instrument, or pursuing any trading strategy, mentioned herein. No liability is accepted by the Firm for any loss (whether direct, indirect or consequential) that may arise from any use of the information contained herein or derived herefrom. Although the Firm is affiliated with Citibank, N.A. (together with its subsidiaries and branches worldwide, “Citibank”), you should be aware that none of the other financial instruments mentioned in this communication (unless expressly stated otherwise) are (i) insured by the Federal Deposit Insurance Corporation or any other governmental authority, or (ii) deposits or other obligations of, or guaranteed by, Citibank or any other insured depository institution. IRS Circular 230 Disclosure: Citi and its employees are not in the business of providing tax or legal advice to any taxpayer outside of Citi. This communication and any attachments are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. This communication contains data compilations, writings and information that are proprietary to the Firm and protected under copyright and other intellectual property laws, and may not be redistributed or otherwise transmitted by you to any other person for any purpose. Copyright © 2010 Citigroup Global Markets Inc. Member SIPC. All Rights Reserved. Citi and Citi-and-Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world.