FOUR MUST-KNOW DEVELOPMENTS

FOR MUNICIPAL BOND INVESTORS

This report outlines four major developments in the municipal bond market
and discusses the impact they have hadand are likely to have in the
futurefor municipal bond investors and their advisors.

EXECUTIVE SUMMARY
Four major developments have influenced the municipal bond market recently, and all have implications for investors.

First, the demise of municipal insurers has reduced the proportion of prime-rate bonds relative to the total market
and removed an important level of safety for investors.

Second, federal stimulus initiatives, including Build America Bonds and fiscal relief, are helping to shore up
municipal budgets and fuel a bond rally.

Third, record demand for municipal bond funds, including strong participation from retail investors, has removed
many of the markets pricing distortions and caused some investor opportunities to mitigate. Nevertheless,
compensation investors receive for bearing credit risk remains relatively high, especially relative to pre-crisis
levels. We believe investors have rediscovered the need for low-volatility bonds within their asset allocation
strategies, and fewer distortions should make long-term allocations easier to determine.

Fourth, municipal budgets may continue to face significant pressures through 2010 and beyond. We recommend
investors stay vigilant and prudent, since municipal budgets may continue to face significant pressures.

We recommend being very selective about choosing municipal bonds, favoring larger issues that have more
resources to address budgetary pressures and those that offer greater liquidity. Additionally, we recommend
maintaining broad diversification across geographies and sectors. The ongoing surveillance of credits is important, so
investors cant simply set it and forget it.
CONTRIBUTORS
Philip G. Condon, managing director, head of municipal bond portfolio management
Ashton P. Goodfield, CFA, managing director, head of municipal bond trading
Carol L. Flynn, CFA, managing director, head of municipal bond research team
Rebecca Flinn, director, municipal bond portfolio manager
Anthony Parish, vice president, fixed-income product specialist

FOUR MUST-KNOW DEVELOPMENTS FOR MUNICIPAL BOND INVESTORS

INTRODUCTION

DEVELOPMENT 1: DEMISE OF THE MONOLINE

Recently, the municipal bond market has exhibited

INSURERS

higher volatility than many market participants typically

As recently as 2008, the municipal insurers were

expect. In 2008, bonds sold off dramatically, but they

associated with the majority of new municipal bond

staged a turnaround in the first nine months of 2009 and

issuance. By some estimates, approximately 60% of

subsequently have been choppy. These events have

municipal bond issues were insured in 2007, compared

not been random. Rather, significant developments

to only 3% in 1980.1

have exacerbated or mitigated volatility. Lets discuss

the four major developments in the municipal bond

Bond issuers could lower their borrowing costs by

market and the impact they have had for municipal bond

purchasing insurance, investors enjoyed the safety that

investors. In conclusion, we will discuss the potential

insured bonds represented and municipalities rarely

implications of these developmentsnamely, that the

defaulted. This was a good business model for the

market offers the potential for good investment

insurers.

opportunities.
However, in 2007 and 2008, the financial strength of

Although we are facing a difficult credit

environment, that doesnt mean investors
should shy away from municipal debt; on
the contrary, we believe the market offers
the potential for good investment

municipal insurers weakened, largely due to losses in

their non-municipal-mortgage and structured-products
businesses. Subsequently, rating agencies downgraded
the rating of the major municipal insurers.
In the secondary (already issued) market, most bonds
that had been issued as AAA-insured lost their prime

opportunities.

rating.2 (Prime-rated bonds are the highest-quality

bonds in the municipal bond market.) Bonds began

CURRENT RATING STATUS, MUNICIPAL BOND INSURERS

Moody's

Standard & Poor's

Fitch

Caa2

CC

Rating withdrawn 6/26/08

Aa2

AAA

AA

Caa2

CC

Rating withdrawn 10/21/08

Rating withdrawn 03/24/09

Rating withdrawn 04/22/09

Rating withdrawn 11/24/08

Financial Security Assurance (FSA)

Aa3

AAA

AA

National Public Finance Guarantee

(formerly MBIA)

Baa1

Rating withdrawn 6/26/09

Syncora Guarantee (formerly XL

Capital)

Ca

Rating withdrawn 9/05/08

Berkshire Hathaway Assurance Corp.

(BHAC)

Aa1

AAA

NR

Radian Asset Assurance

Ba1

BBB-

Rating withdrawn 5/02/08

ACA Financial Guaranty

NR

Rating withdrawn 12/15/08

NR

Ambac Financial Group

Assured Guaranty
CIFG
Financial Guaranty Insurance
Company (FGIC)

Source: Bank of America Merrill Lynch, "Municipal Bond Insurers Current Rating Status & Timeline of Developments, October 13, 2009.

FOUR MUST-KNOW DEVELOPMENTS FOR MUNICIPAL BOND INVESTORS

trading based on their underlying credit rating. The

supply of AAA-rated bonds greatly diminished, and the
relative demand has increased, driving up premiums for
the highest quality municipal bonds.
The primary (newly issued) market has undergone
similar changes. Bonds previously issued as AAAinsured are now coming to market with the underlying
rating of their issuers (AA, A, etc.). Many municipalities
have realized that downgraded insurers cannot lower
their borrowing costs in the current environment. During

DEMISE OF INSURERS
IMPLICATIONS FOR MUNICIPAL INVESTORS
We anticipate reduced supply and premium

pricing for prime bonds, and increased supply of

below-prime bonds.
New concerns about credit risk and default risk

could arise.
We believe there will be an enhanced emphasis

on credit research.
We see an enhanced need for ongoing monitoring

of issuer fundamentals.

the first eight months of 2009, almost all of the 2009

insured volume (approximately $28 billion or 11% of new
issuance) has been originated by Assured/FSA.3

DEVELOPMENT 2: FEDERAL STIMULUS ACTIVITIES

The American Recovery and Reinvestment Act of 2009

The breakdown of the monoline model has removed the

safety net that helped protect much of the municipal
market. Insurers had contributed to the markets
liquidity. Keep in mind, the municipal bond market

(ARRA) has had, among other things, two important and

direct influences on the municipal bond market: The
introduction of Build America Bonds (BABs) and fiscal
relief budgeted for state and local governments.

consists of at least 60,000 issuers and 1.5 million

issues, most of which are relatively unknown. The

Build America Bonds (BABs)

insurers, by attaching their recognizable names to the

bonds, helped to overcome investors unfamiliarity with

The BABs program allows municipalities to issue bonds

the issuers.

that are subsidized by the federal government and

generate income subject to federal taxation. This federal

The models breakdown is having a particular impact on

subsidy (currently 35% of the bonds income) allows

smaller issuers whose resources alone may not be

BABs to carry higher coupons than would be the case

sufficient to keep their borrowing costs low. Without the

with traditional municipal debt, thus making them more

credit enhancement previously provided by insurance,

attractive to investors who invest in taxable debt. The

their borrowing costs have risenin some cases

BABs program is currently scheduled to cease at the

dramaticallycausing greater concern about their

end of 2010, though existing BABs will continue to be

financial health.

subsidized until maturity.

The significance of the insurers demise cannot be

So far BABs have been very popular with both issuers

overstated. Prices of many bonds issued as AAA-

and investors. Through the first 11 months of 2009,

insured are not likely to fully recover unless they can

$55.5 billion of the total $373 billion of new municipal

regain their prime rating. Some investors who held

bond issuance has been in the form of taxable BABs,

prime-rated portfolios are now holding portfolios whose

and they accounted for more than 19% of new issuance

average prices are permanently impaired. Investors

during the month of September.4

must either sell at a loss or hoping to eventually recover

their principal when the bonds mature.

BABs have influenced the municipal bond market in two

important ways. First, they have attracted new types of

FOUR MUST-KNOW DEVELOPMENTS FOR MUNICIPAL BOND INVESTORS

buyers. Tax-exempt investors such as pensions,

case with nearly all of the 50 states). However, this will

endowments and foundations had previously not been

not come close to solving municipal budget problems.

heavy buyers of traditional municipal debt because the

For example, for the fiscal year ending in June 2009

tax-exempt status of muni bond income offers them no

total state tax collections declined by roughly twice as

special incentive. (They themselves are tax-exempt

much as relief they received from the federal stimulus

investors.) However, BABs offer subsidized levels of

package.6

income, making these bonds more attractive to taxexempt investors due to their relatively higher coupons.
Second, in 2009 municipalities have often chosen to
issue BABs in lieu of traditional municipal debt, and this
is serving to reduce the new supply of tax-exempt debt
coming to market.

According to the Nelson A. Rockefeller Institute of

Government, during the three-year period beginning in
2009, states are likely to face budget gaps of $400
billion or more. Budget gaps will likely continue growing.
In the near term, state and local governments will
probably have to introduce significant spending cuts, tax

The impact of BABs has not been uniform across the

increases and other actions to balance their finances.

bond-maturity spectrum, however. They are being

issued mostly as long-maturity bonds. This is reducing
the supply of long-dated tax-free bonds more than shortdated tax-free bonds and reshaping the municipal yield
curve in the process. The yield curve has been steep,

FEDERAL STIMULUS
IMPLICATIONS FOR MUNICIPAL INVESTORS
We believe BABs effect is positive, bringing new

but BABs have mitigated some of its steepness, since a

buyers into the muni market and reducing supply

scarcity of long-dated tax-exempt bonds drives their

of new issuance in 2009 and 2010.

prices up and their yields down.5

In our opinion, BABs are serving to flatten an

otherwise steep municipal yield curve.

Overall, fewer new tax-exempt deals (less supply) is
having a positive effect on bond pricing and contributing
to the municipal bond rally.

We believe fiscal relief will help improve

fundamental conditions for state and local issuers.

We believe this relief will temporarily ease some

budget concerns, but gaps are likely to continue

Fiscal relief

growing, prompting municipalities to introduce

further austerity measures down the road.

Of the $787 billion budgeted by the federal stimulus

(ARRA), roughly $250 billion was allocated to state and
local governments. This includes roughly $130 billion for

DEVELOPMENT 3: RECORD-SETTING DEMAND

flexible fiscal relief, with the rest going to programs

FOR MUNICIPAL BOND FUNDS

related to infrastructure programs (such as

Net flows into municipal bond mutual funds were

transportation, housing and water) and non-

positive for every week during the first 11 months of

infrastructure programs (such as education, child

2009. During this time, net flows were $62 billion,

support and law enforcement). The majority of stimulus

exceeding the previous record of $44 billion for the full-

spending for state and local governments (roughly $162

year 1993, according to Lipper FMI.

billion of $250 billion) is scheduled for 2009 and 2010.

One driver of that momentum seems to be investor
The $130 billion designed for fiscal relief will certainly

concern about the tax implications of federal stimulus

help municipalities facing budget shortfalls (which is the

and state budget shortfalls. Some states have recently

FOUR MUST-KNOW DEVELOPMENTS FOR MUNICIPAL BOND INVESTORS

increased income tax and sales tax rates, and several

The impact of strong retail buying has influenced the

more are considering doing so. Ballooning federal

magnitude and characteristics of the municipal bond

deficits produce, among other things, speculation about

rally. Retail ownership during most of 2009 has favored

how to pay for them. The Bush administration's tax cuts

very high quality, and short- to intermediate-term, munis.

are due to expire at the end of 2010. If they are allowed

to expire, the highest marginal federal income tax rate

A rule of thumb suggests the long-term relationships

would revert back to 39.6% from 35%. By some

between yields on prime municipal bonds and US

estimates, assuming deductions, exemptions and

Treasuries should be somewhere between 80% and

credits are kept the same as they are now, the federal

90%. That is, a five-year AAA-rated muni should yield

government would have to nearly triple every tax rate to

about 80% to 90% of the five-year Treasury yield. The

pay for current and projected deficits.7

same applies to 10-year munis vs. 10-year Treasuries,

20-year munis vs. 20-year Treasuries, and so on.

Many investors concerned about higher tax rates are

looking to municipal debt to provide tax-free income.

When the ratio gets below 80%, we view those munis as

After a tumultuous 2008, more investors seem to have

expensive relative to Treasuries; when it gets above

rediscovered the need for low-volatility bonds within

90%, we view them as cheap. In the fourth quarter of

their asset allocations. They also recognize that with

2008, as investors fled to safety, Treasury prices spiked

minuscule yields on cash investments, in most cases

(compressing their yields) and municipal debt sold off

money markets do not represent a viable long-term

(expanding their yields). By the end of 2008, the

investment strategy.

normally sleepy 80% to 90% ratio relative to 10-year

Treasuries blew out to 186%. Munis, relative to

This is particularly true of retail investors. In 2009 retail

Treasuries, were cheaper than any time in recent

investors have re-emerged as a dominant buyer of

history.

municipal debt, eclipsing the participation of hedge

funds and other institutions that had been prominent in

So far in 2009, with the help of retail buying, we have

recent years. As of June 30, 2009, retail ownership of

seen a reversal, and the yield ratios have moved closer

municipal debt (directly or via mutual funds or tax-free

to their long-term averages.9

money market funds) stood at 70.6% of outstanding

debt, up from 65.5% of outstanding debt in 1999.8
By all accounts, at the beginning of 2009, most sectors
of the municipal bond market were trading at prices

The first chart on the following page shows the

relationship of the 10-year AAA-rated muni to the 10year Treasury. The story is similar among shorter- and
longer-term maturities.

significantly dislocated from fundamental values. Deep

discounts reflected not only concerns about the longterm financial health of the issuers themselves, but also
concerns about the efficient workings of the debt
markets (the credit freeze), de-leveraging of hedge
funds and other market participants, and general lack of
liquidity. During 2009, many of those concerns abated,

Keep in mind this snapshot depicts the highest quality

munis relative to Treasuries. We get additional insight by
looking at the quality spread, which shows the
relationship between lower-medium grade (BBB-rated)
munis relative to prime munis. That is illustrated in the
second chart on the following page.

and although liquidity has not returned to pre-crisis

levels, it has greatly improved during 2009.

One interpretation of the quality spread is the amount of

compensation investors require to hold municipal credit

FOUR MUST-KNOW DEVELOPMENTS FOR MUNICIPAL BOND INVESTORS

YIELD RATIO, 10-YEAR AAA-RATED MUNI VS. 10-YEAR TREASURY, 11/4/0411/30/09

200%

16 0 %

This chart shows the relationship of the 10-year AAA-rated

muni to the 10-year Treasury. The story is similar among
shorter- and longer-term maturities. This snapshot depicts
the highest quality munis relative to Treasuries.

186.06% on 12/18/08

12 0 %

85.93% on
11/25/09
80%

40%

0%
10 / 7/ 0 4

4 / 7/ 0 5

10 / 7/ 0 5

4 / 7/ 0 6

10 / 7/ 0 6

4 / 7/ 0 7

10 / 7/ 0 7

4 / 7/ 0 8

10 / 7/ 0 8

4 / 7/ 0 9

10 / 7/ 0 9

YIELD SPREAD, BBB-RATED MUNI VS. 30-YEAR AAA-RATED MUNIS

600

500

We get additional insight by looking at the quality spread,

which shows the relationship between lower-medium grade
(BBB-rated) munis relative to prime munis. One
interpretation of the quality spread is the amount of
compensation investors require to hold municipal credit risk.

485 bps on 12/24/08

Basis points

400

231 bps on
11/25/09

300

200

10 0

0
Oct-04

A pr- 0 5

Oct-05

A pr- 0 6

Oct-06

A pr- 0 7

Oct-07

A pr- 0 8

Oct-08

A pr- 0 9

Oct-09

Source: Municipal Market Data and DWS Investments, as of 11/25/09. Past performance is no guarantee of future results. This data is for
illustrative purposes and does not represent any DWS fund. Yield ratios and yield spreads may vary over other time periods.

FOUR MUST-KNOW DEVELOPMENTS FOR MUNICIPAL BOND INVESTORS

risk. The long-term average difference in yield between

BBB-rated munis and AAA-rated munis has been 125

RECORD-SETTING DEMAND
IMPLICATIONS FOR MUNICIPAL INVESTORS

basis points. Around the end of 2008, that spread spiked

to 485 basis points. By the end of November 2009, the
spread had come much of the way back to the average.
In other words, investors in the latter part of 2009 are
somewhat more cautious than average about municipal
credit risk, but significantly less cautious than they were
at the beginning of 2009.10 However, within a longerterm context, municipal credit spreads are still

Retail investors have helped to drive up the price

of high-quality, short- to intermediate-term munis

compared to lower-quality bonds.
We believe opportunities for outsized returns are

more muted, though valuations are more in line

with long-term levels.
Risk appetites may continue to increase, further

tightening credit spreads.

significantly wider than they were during most of the last

five years. Stated differently, in the latter part of 2009 the
level of compensation investors receive for bearing

DEVELOPMENT 4: MUNICIPAL BUDGETS UNDER

municipal credit risk is still relatively high.

PRESSURE
State and local tax revenues are highly correlated with

During the first 11 months of 2009, the total return on the

the economic cycle and have significantly decreased

broad municipal bond market (as represented by the

during the recession. This is a problem since states

Barclays Capital Municipal Bond Index) has been

must balance their budgets annually.

12.35% (not annualized).11 This, by the way, is in the

high range of calendar-year returns over the past 10
years, but not nearly the highest over the past 20
years.12

The year-over-year change in state taxes averaged

9.2% over the four quarters ending June 2009.6

The second quarter of 2009 brought the largest

decline in state tax collections since at least 1963.

The result is that most of the extreme dislocations

The same is true for combined state and local tax

present at the beginning of 2009 have mitigated. This

collections, which declined by 12.2% in nominal

does not mean, however, that municipal bonds have lost

terms.6

their importance within investor allocations. On the

contrary, the 2009 rally has brought the municipal bond
market back to normal from previously distorted levels.

During the second quarter of 2009, personal income

taxes declined more than any other period in the 45

years that we have data on the subject.6

Investors should recognize that the municipal yield curve

is still positively sloped and credit spreads are still wide

The charts on the following page illustrate.

by historical standards. On average, munis are still

attractive relative to US Treasuries, especially on an

At least 36 states anticipate deficits for the fiscal year

after-tax basis. Valuations that are less distorted should

2011. Of the 30 states that have given estimates, the

help investors to establish weightings consistent with

shortfalls represent $74 billion, or 15% of their budgets.

their long-term allocations.

As the full extent of 2011 deficits become known,

shortfalls are likely to equal at least $180 billion.13
To make matters worse, many economists expect a
challenging economic recovery, with employment and
wages recovering more slowly than the broader
economy.

FOUR MUST-KNOW DEVELOPMENTS FOR MUNICIPAL BOND INVESTORS

STATE TAXES ARE FARING WORSE THAN LOCAL TAXES

YEAR-OVER-YEAR PERCENT CHANGE IN REAL STATE TAXES AND LOCAL TAXES
State

Local

7%

4%

1%

-2%

-5%

-8%

-11%
2004Q1

2004Q3

2005Q1

2005Q3

2006Q1

2006Q3

2007Q1

2007Q3

2008Q1

2008Q3

2009Q1

BOTH INCOME TAX AND SALES TAX DECLINED SHARPLY

YEAR-OVER-YEAR PERCENT REAL CHANGE IN MAJOR TAXES
12%

Income tax
Sales tax
Property tax

8%

4%

0%

-4%

-8%

-12%

-16%
2004Q1

2004Q3

2005Q1

2005Q3

2006Q1

2006Q3

2007Q1

2007Q3

2008Q1

2008Q3

2009Q1

Sources: US Census Bureau (tax revenue) and Bureau of Economic Analysis (GDP price index), as of 6/30/09. Shows four-quarter average of percent
change in real tax revenue. No adjustments were made for legislative changes..

FOUR MUST-KNOW DEVELOPMENTS FOR MUNICIPAL BOND INVESTORS

Personal consumption, historically a strong engine of

economic recovery, may be modest coming out of the

MUNICIPAL BUDGET PRESSURES:

IMPLICATIONS FOR MUNICIPAL INVESTORS

recession, and some revenue sources have natural lags.

For instance, corporate income tax receipts may be
muted as corporations use existing losses to offset
future gains.
Despite unusually high pressure on municipal budgets,
we believe only a small proportion of municipal bond

We see a low likelihood that a meaningful number

of investment-grade municipal issuer will default,

but fundamental analysis of municipal issuers is
important.
We recommend being very selective about

choosing municipal credits.

Investors may want to favor larger issuers that

issuers will default, and even fewer will ultimately result

have more resources to address budgetary

in loss of principal for bond investors. Since state

pressures.

governments must balance their budgets, they will be

forced to address financial problems in the short term:

Smaller issuers and those with low debt-coverage

ratios, narrow revenue base and/or meager

reserves are likely to be most at risk.

Debt-servicing provisions exist in state charters and

constitutions. For instance, the California State

Constitution specifies that debt servicing is the
state's second-highest budgetary priority (only
below education, but above all other line items).
On average, states allocate approximately 5% to

7% of their budgetsa relatively small amountto

debt servicing.
Municipalities often have many choices to help

balance budgets: scale back, delay or cancel

projects, lay off or furlough workers, sell assets,
raise taxes, etc.
Nevertheless, financial concerns are likely to be

significant among municipalities well into 2012 and

possibly beyond.

Investors may want to favor bonds that offer

greater liquidity.
We recommend maintaining broad diversification

across geographies and sectors.

The ongoing surveillance of credits is important

so investors cant simply set it and forget it.

FOUR MUST-KNOW DEVELOPMENTS FOR MUNICIPAL BOND INVESTORS

10

CONCLUSION

Additionally, we think the effects of the recession and

Four major developments have influenced the municipal

economic recovery on municipal budgets are likely to be

bond market recently with implications for investors.

deep and long lasting.

The demise of municipal insurers reduced the proportion

We believe these market conditions call for investment

of prime-rate bonds relative to the total market and

managers to be prudent and disciplined in their

removed an important level of safety for investors.

practices, favoring deep credit research more so now

than any time in recent decades. Although we are facing

Federal stimulus initiatives, including BABs and fiscal

the worst credit environment in a very long time, that

relief, are helping to shore up municipal budgets and

doesnt mean investors should shy away from municipal

fuel a bond rally, but their effects are temporary.

debt. On the contrary, we believe the market offers the

potential for good investment opportunities that can

Record demand for municipal bond funds and debt,

contribute to portfolio returns.

including strong participation from retail investors, has

removed many of the pricing distortions and caused

Investors seeking to help protect their investment

some of the investor opportunities to mitigate. However,

principal should be willing to shift their allocations as

compensation investors receive for bearing credit risk is

market conditions dictate. Above all, diversification and

still relatively high. We believe investors have

robust research will be important contributors to the

rediscovered the need for low-volatility bonds within their

realization of successful investment strategies. Of

asset allocation strategies, and fewer distortions should

course, diversification neither assures a profit nor

make long-term allocations easier to determine.

guarantees against loss.

Investors seeking to help protect their investment principal should be willing to shift their
allocations as market conditions dictate. Above all, diversification and robust research
will be important contributors to the realization of successful investment strategies. Of
course, diversification neither assures a profit nor guarantees against loss.

1Source:

WM Financial Strategies, as of 9/30/09.

quality is a measure of a bond issuers ability to repay interest and principal in a timely manner. Rating agencies assign letter designations such
as AAA, AA and so forth. The lower the rating, the higher the probability of default.
3Source: "What is the Demand for Bond Insurance? Assured/FSA, 9/14/09.
4Source: The Bond Buyer and DWS, as of 12/1/09.
5The yield curve is a graphical representation of how yields on bonds of different maturities compare. Normally, yield curves slant up, as bonds with
longer maturities typically offer higher yields than short-term bonds.
6Source: Nelson A. Rockefeller Institute of Government, "State Revenue Report," as of 10/09.
7Source: Tax Foundation, Can Income Tax Hikes Close the Deficit?" by William Ahern, as of 10/09.
8Source: Fed Flow of Funds Report for the second quarter of 2009.
9Yield ratio is the ratio between the yields on two types of bonds. As noted on page 5, a rule of thumb suggests the long-term relationships between
yields on prime municipal bonds and US Treasuries should be somewhere between 80% and 90%. When the ratio gets below 80%, we view those
munis as expensive relative to Treasuries; when it gets above 90%, we view them as cheap.
10Credit risk refers to the ability to of an issuer to make timely payments of principal and interest.
11Source: Morningstar, as of 11/30/09. The Barclays Capital Municipal Bond Index is an unmanaged, market-value-weight measure of municipal bonds
issued across the United States. Index returns do not reflect fees or expenses, and it is not possible to invest directly in an index.
12Source: Morningstar, as of 11/30/09.
13Source: Center on Budget and Policy Priorities, New Fiscal year Brings No Relief From Unprecedented State Budget Problems, 9/09.
2Credit

FOUR MUST-KNOW DEVELOPMENTS FOR MUNICIPAL BOND INVESTORS

11

CONTRIBUTORS
Philip G. Condon, managing director, is head of municipal bond portfolio management for retail and tax-exempt
advisory clients. He joined the firm in 1983 after seven years of experience as a fixed-income analyst for Connecticut
General Life Insurance Company (CIGNA) and an analyst at the Federal Reserve Bank of Boston, and initially served
as director of the municipal bond department and director of the DWS municipal bond research group. He received a
bachelors degree and a masters in business administration from the University of Massachusetts, Amherst.
Ashton P. Goodfield, CFA, managing director, is head of municipal bond trading and co-lead portfolio manager of
DWS Managed Municipal Bond Fund, DWS Short-Term Municipal Bond Fund, DWS New York Tax-Free Income
Fund and DWS Intermediate Tax/AMT Free Fund. She joined the firm in 1986, managing municipal assets for
individuals, institutions and mutual funds. From 1990 through 2000, she served on the Finance Advisory Board of the
Commonwealth of Massachusetts. She received a bachelors degree from Duke University.
Carol L. Flynn, CFA, managing director, is head of the municipal bond research team, and is responsible for
analyzing municipal securities in the higher education, project finance, housing and bond insurance sectors. She
joined the firm in 1994 as a municipal bond research analyst after four years of experience as a fixed-income
investment manager responsible for credit analysis of municipal bonds and corporate private placements and public
bonds at The Travelers. She received a bachelors degree from Duke University and a masters in business
administration from the University of Connecticut.
Rebecca Flinn, director, is a portfolio manager for DWS Strategic High Yield Tax-Free Fund, DWS Massachusetts
Tax-Free Fund and DWS Strategic Municipal Income Trust. She joined the firm in 1986 after one year of experience
as a transfer agent for Paine Webber Properties, Inc. She received a bachelors degree from the University of
Redlands, California.
Anthony Parish, vice president, is a fixed-income product specialist. He joined the firm in 2008 after seven years of
experience as a fixed-income product specialist and head of product analysis at Oppenheimer Funds and a product
development specialist at Credit Suisse Asset Management. He received a masters in business administration from
Fordham University.

DWS INVESTMENTS. RESHAPING INVESTING.

Through Deutsche Bank, DWS Investments is connected to a powerful global network of more than 900
investment professionals in all major financial centers around the world. Organizations under the DWS brand
manage approximately $132 billion in retail and retirement assets in the United States, and approximately $336 billion
globally (as of 9/30/09). We are proud to be an organization that makes innovative investment strategies and
solutions, such as alternatives, available to retail investors. Many of these strategies have traditionally been
reserved for institutions.

FOUR MUST-KNOW DEVELOPMENTS FOR MUNICIPAL BOND INVESTORS

12

Past performance is no guarantee of future results. The opinions and forecasts expressed herein by the fund
managers do not necessarily reflect those of DWS Investments, are as of 12/9/09 and may not come to pass.

IMPORTANT RISK INFORMATION

Bond investments are subject to interest-rate risk such that when interest rates rise, the prices of the
bonds, and thus the value of a bond fund, can decline and the investor can lose principal value. Additionally,
although a municipal bond fund seeks income that is federally tax-free, a portion of the fund's distributions may be
subject to federal, state, local and alternative minimum tax. A municipal bond fund may also focus its investments
in certain geographical regions, thereby increasing its vulnerability to developments in a particular region. This
may result in greater share price volatility. Please read a funds prospectus for specific details regarding its
individual risk profile.

OBTAIN A PROSPECTUS
To obtain a summary prospectus, if available, or prospectus, download one from www.dwsinvestments.com, talk to your financial representative or call [phone number]. We advise you to carefully
consider the products objectives, risks, charges and expenses before investing. The summary
prospectus and prospectus contain this and other important information about the investment product.
Please read the prospectus carefully before you invest.

NOT FDIC/NCUA INSURED MAY LOSE VALUE

NO BANK GUARANTEE NOT A DEPOSIT
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

DWS Investments is part of Deutsche Banks

Asset Management division and, within the US,
represents the retail asset management activities of
Deutsche Bank AG, Deutsche Bank Trust Company
Americas, Deutsche Investment Management
Americas Inc. and DWS Trust Company.
DWSInvestments Distributors, Inc.
222 South Riverside Plaza Chicago, IL 60606-5808
www.dws-investments.com inquiry.info@dws.com
Tel (800) 621-1148

2009 DWS Investments Distributors, Inc. All rights reserved. R-14547-2 (12/09) MUNIS-WHITE