Muni Fund White Paper

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.

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

CONTRIBUTORS

FOUR MUST-KNOW DEVELOPMENTS FOR MUNICIPAL BOND INVESTORS 2

INTRODUCTION

Recently, the municipal bond market has exhibited

higher volatility than many market participants typically

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

staged a turnaround in the first nine months of 2009 and

subsequently have been choppy. These events have

not been random. Rather, significant developments

have exacerbated or mitigated volatility. Lets discuss

the four major developments in the municipal bond

market and the impact they have had for municipal bond

investors. In conclusion, we will discuss the potential

implications of these developmentsnamely, that the

market offers the potential for good investment

opportunities.

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

NRRating withdrawn 12/15/08NRACA Financial Guaranty

Rating withdrawn 5/02/08BBB-Ba1Radian Asset Assurance

NRAAAAa1Berkshire Hathaway Assurance Corp. (BHAC)

Rating withdrawn 9/05/08RCaSyncora Guarantee (formerly XL Capital)

Rating withdrawn 6/26/09ABaa1National Public Finance Guarantee (formerly MBIA)

AAAAAAa3Financial Security Assurance (FSA)

Rating withdrawn 11/24/08Rating withdrawn 04/22/09Rating withdrawn 03/24/09Financial Guaranty Insurance Company (FGIC)

Rating withdrawn 10/21/08CCCaa2CIFG

AAAAAAa2Assured Guaranty

Rating withdrawn 6/26/08CCCaa2Ambac Financial Group

FitchStandard & Poor'sMoody's

CURRENT RATING STATUS, MUNICIPAL BOND INSURERS

DEVELOPMENT 1: DEMISE OF THE MONOLINE INSURERS

As recently as 2008, the municipal insurers were

associated with the majority of new municipal bond

issuance. By some estimates, approximately 60% of

municipal bond issues were insured in 2007, compared

to only 3% in 1980.1

Bond issuers could lower their borrowing costs by

purchasing insurance, investors enjoyed the safety that

insured bonds represented and municipalities rarely

defaulted. This was a good business model for the

insurers.

However, in 2007 and 2008, the financial strength of

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

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

bonds in the municipal bond market.) Bonds began

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

opportunities.


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 AAA-

insured 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

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

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

consists of at least 60,000 issuers and 1.5 million

issues, most of which are relatively unknown. The

insurers, by attaching their recognizable names to the

bonds, helped to overcome investors unfamiliarity with

the issuers.

The models breakdown is having a particular impact on

smaller issuers whose resources alone may not be

sufficient to keep their borrowing costs low. Without the

credit enhancement previously provided by insurance,

their borrowing costs have risenin some cases

dramaticallycausing greater concern about their

financial health.

The significance of the insurers demise cannot be

overstated. Prices of many bonds issued as AAA-

insured are not likely to fully recover unless they can

regain their prime rating. Some investors who held

prime-rated portfolios are now holding portfolios whose

average prices are permanently impaired. Investors

must either sell at a loss or hoping to eventually recover

their principal when the bonds mature.

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.

DEMISE OF INSURERS IMPLICATIONS FOR MUNICIPAL INVESTORS

DEVELOPMENT 2: FEDERAL STIMULUS ACTIVITIES

The American Recovery and Reinvestment Act of 2009

(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.

Build America Bonds (BABs)

The BABs program allows municipalities to issue bonds

that are subsidized by the federal government and

generate income subject to federal taxation. This federal

subsidy (currently 35% of the bonds income) allows

BABs to carry higher coupons than would be the case

with traditional municipal debt, thus making them more

attractive to investors who invest in taxable debt. The

BABs program is currently scheduled to cease at the

end of 2010, though existing BABs will continue to be

subsidized until maturity.

So far BABs have been very popular with both issuers

and investors. Through the first 11 months of 2009,

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

bond issuance has been in the form of taxable BABs,

and they accounted for more than 19% of new issuance

during the month of September.4

BABs have influenced the municipal bond market in two

important ways. First, they have attracted new types of


buyers. Tax-exempt investors such as pensions,

endowments and foundations had previously not been

heavy buyers of traditional municipal debt because the

tax-exempt status of muni bond income offers them no

special incentive. (They themselves are tax-exempt

investors.) However, BABs offer subsidized levels of

income, making these bonds more attractive to tax-

exempt 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.

The impact of BABs has not been uniform across the

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 short-

dated tax-free bonds and reshaping the municipal yield

curve in the process. The yield curve has been steep,

but BABs have mitigated some of its steepness, since a

scarcity of long-dated tax-exempt bonds drives their

prices up and their yields down.5

Overall, fewer new tax-exempt deals (less supply) is

having a positive effect on bond pricing and contributing

to the municipal bond rally.

Fiscal relief

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

flexible fiscal relief, with the rest going to programs

related to infrastructure programs (such as

transportation, housing and water) and non-

infrastructure programs (such as education, child

support and law enforcement). The majority of stimulus

spending for state and local governments (roughly $162

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

The $130 billion designed for fiscal relief will certainly

help municipalities facing budget shortfalls (which is the

We believe BABs effect is positive, bringing new buyers into the muni market and reducing supply of new issuance in 2009 and 2010.

In our opinion, BABs are serving to flatten an otherwise steep municipal yield curve.

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 growing, prompting municipalities to introduce further austerity measures down the road.

FEDERAL STIMULUSIMPLICATIONS FOR MUNICIPAL INVESTORS

DEVELOPMENT 3: RECORD-SETTING DEMAND FOR MUNICIPAL BOND FUNDS

Net flows into municipal bond mutual funds were

positive for every week during the first 11 months of

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

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

year 1993, according to Lipper FMI.

One driver of that momentum seems to be investor

concern about the tax implications of federal stimulus

and state budget shortfalls. Some states have recently

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

not come close to solving municipal budget problems.

For example, for the fiscal year ending in June 2009

total state tax collections declined by roughly twice as

much as relief they received from the federal stimulus

package.6

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

increases and other actions to balance their finances.


increased income tax and sales tax rates, and several

more are considering doing so. Ballooning federal

deficits produce, among other things, speculation about

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

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

to expire, the highest marginal federal income tax rate

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

estimates, assuming deductions, exemptions and

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

government would have to nearly triple every tax rate to

pay for current and projected deficits.7

Many investors concerned about higher tax rates are

looking to municipal debt to provide tax-free income.

After a tumultuous 2008, more investors seem to have

rediscovered the need for low-volatility bonds within

their asset allocations. They also recognize that with

minuscule yields on cash investments, in most cases

money markets do not represent a viable long-term

investment strategy.

This is particularly true of retail investors. In 2009 retail

investors have re-emerged as a dominant buyer of

municipal debt, eclipsing the participation of hedge

funds and other institutions that had been prominent in

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

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

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

significantly dislocated from fundamental values. Deep

discounts reflected not only concerns about the long-

term 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,

and although liquidity has not returned to pre-crisis

levels, it has greatly improved during 2009.

The impact of strong retail buying has influenced the

magnitude and characteristics of the municipal bond

rally. Retail ownership during most of 2009 has favored

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

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

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

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

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

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. In the fourth quarter of

2008, as investors fled to safety, Treasury prices spiked

(compressing their yields) and municipal debt sold off

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

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

Treasuries blew out to 186%. Munis, relative to

Treasuries, were cheaper than any time in recent

history.

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

seen a reversal, and the yield ratios have moved closer

to their long-term averages.9

The first chart on the following page 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.

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.

One interpretation of the quality spread is the amount of

compensation investors require to hold municipal credit

0 %

4 0 %

8 0 %

12 0 %

16 0 %

2 0 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

0

100

200

300

400

500

600

Oct-04 A pr-05 Oct-05 A pr-06 Oct-06 A pr-07 Oct-07 A pr-08 Oct-08 A pr-09 Oct-09


Bas

is p

oint

s

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

186.06% on 12/18/08

85.93% on 11/25/09

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

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.

231 bps on 11/25/09

485 bps on 12/24/08

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.

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.


DEVELOPMENT 4: MUNICIPAL BUDGETS UNDER PRESSURE

State and local tax revenues are highly correlated with

the economic cycle and have significantly decreased

during the recession. This is a problem since states

must balance their budgets annually.

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 same is true for combined state and local tax

collections, which declined by 12.2% in nominal

terms.6

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

The charts on the following page illustrate.

At least 36 states anticipate deficits for the fiscal year

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

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

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.

Retail investors have helped to drive up the price of high-quality, short- to intermediate-term muniscompared 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.

RECORD-SETTING DEMANDIMPLICATIONS FOR MUNICIPAL INVESTORS

risk. The long-term average difference in yield between

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

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 longer-

term context, municipal credit spreads are still

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

municipal credit risk is still relatively high.

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

broad municipal bond market (as represented by the

Barclays Capital Municipal Bond Index) has been

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 result is that most of the extreme dislocations

present at the beginning of 2009 have mitigated. This

does not mean, however, that municipal bonds have lost

their importance within investor allocations. On the

contrary, the 2009 rally has brought the municipal bond

market back to normal from previously distorted levels.

Investors should recognize that the municipal yield curve

is still positively sloped and credit spreads are still wide

by historical standards. On average, munis are still

attractive relative to US Treasuries, especially on an

after-tax basis. Valuations that are less distorted should

help investors to establish weightings consistent with

their long-term allocations.

-16%

-12%

-8%

-4%

0%

4%

8%

12%

2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1

Income taxSales taxProperty tax


STATE TAXES ARE FARING WORSE THAN LOCAL TAXES

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

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..

-11%

-8%

-5%

-2%

1%

4%

7%

2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1

State Local

BOTH INCOME TAX AND SALES TAX DECLINED SHARPLY

YEAR-OVER-YEAR PERCENT REAL CHANGE IN MAJOR TAXES


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 have more resources to address budgetary pressures.

Smaller issuers and those with low debt-coverage ratios, narrow revenue base and/or meager reserves are likely to be most at risk.

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 importantso investors cant simply set it and forget it.

MUNICIPAL BUDGET PRESSURES:IMPLICATIONS FOR MUNICIPAL INVESTORS

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.

Personal consumption, historically a strong engine of

economic recovery, may be modest coming out of the

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

issuers will default, and even fewer will ultimately result

in loss of principal for bond investors. Since state

governments must balance their budgets, they will be

forced to address financial problems in the short term:


CONCLUSION

Four major developments have influenced the municipal

bond market recently with implications for investors.

The demise of municipal insurers reduced the proportion

of prime-rate bonds relative to the total market and

removed an important level of safety for investors.

Federal stimulus initiatives, including BABs and fiscal

relief, are helping to shore up municipal budgets and

fuel a bond rally, but their effects are temporary.

Record demand for municipal bond funds and debt,

including strong participation from retail investors, has

removed many of the pricing distortions and caused

some of the investor opportunities to mitigate. However,

compensation investors receive for bearing credit risk is

still relatively high. 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.

1Source: WM Financial Strategies, as of 9/30/09.2Credit 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.

Additionally, we think the effects of the recession and

economic recovery on municipal budgets are likely to be

deep and long lasting.

We believe these market conditions call for investment

managers to be prudent and disciplined in their

practices, favoring deep credit research more so now

than any time in recent decades. Although we are facing

the worst credit environment in a very long time, that

doesnt mean investors should shy away from municipal

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

potential for good investment opportunities that can

contribute to portfolio returns.

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.

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.


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.

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 60606-5808www.dws-investments.com [email protected] (800) 621-1148

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

NOT FDIC/NCUA INSURED MAY LOSE VALUE NO BANK GUARANTEE NOT A DEPOSITNOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

OBTAIN A PROSPECTUSTo obtain a summary prospectus, if available, or prospectus, download one from www.dws-investments.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.

IMPORTANT RISK INFORMATIONBond investments are subject to interest-rate risk such that when interest rates rise, the prices of thebonds, 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.


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.

/ColorImageDict > /JPEG2000ColorACSImageDict > /JPEG2000ColorImageDict > /AntiAliasGrayImages false /CropGrayImages true /GrayImageMinResolution 300 /GrayImageMinResolutionPolicy /OK /DownsampleGrayImages true /GrayImageDownsampleType /Bicubic /GrayImageResolution 300 /GrayImageDepth -1 /GrayImageMinDownsampleDepth 2 /GrayImageDownsampleThreshold 1.50000 /EncodeGrayImages true /GrayImageFilter /DCTEncode /AutoFilterGrayImages true /GrayImageAutoFilterStrategy /JPEG /GrayACSImageDict > /GrayImageDict > /JPEG2000GrayACSImageDict > /JPEG2000GrayImageDict > /AntiAliasMonoImages false /CropMonoImages true /MonoImageMinResolution 1200 /MonoImageMinResolutionPolicy /OK /DownsampleMonoImages true /MonoImageDownsampleType /Bicubic /MonoImageResolution 1200 /MonoImageDepth -1 /MonoImageDownsampleThreshold 1.50000 /EncodeMonoImages true /MonoImageFilter /CCITTFaxEncode /MonoImageDict > /AllowPSXObjects false /CheckCompliance [ /None ] /PDFX1aCheck false /PDFX3Check false /PDFXCompliantPDFOnly false /PDFXNoTrimBoxError true /PDFXTrimBoxToMediaBoxOffset [ 0.00000 0.00000 0.00000 0.00000 ] /PDFXSetBleedBoxToMediaBox true /PDFXBleedBoxToTrimBoxOffset [ 0.00000 0.00000 0.00000 0.00000 ] /PDFXOutputIntentProfile () /PDFXOutputConditionIdentifier () /PDFXOutputCondition () /PDFXRegistryName () /PDFXTrapped /False

/Description > /Namespace [ (Adobe) (Common) (1.0) ] /OtherNamespaces [ > /FormElements false /GenerateStructure false /IncludeBookmarks false /IncludeHyperlinks false /IncludeInteractive false /IncludeLayers false /IncludeProfiles false /MultimediaHandling /UseObjectSettings /Namespace [ (Adobe) (CreativeSuite) (2.0) ] /PDFXOutputIntentProfileSelector /DocumentCMYK /PreserveEditing true /UntaggedCMYKHandling /LeaveUntagged /UntaggedRGBHandling /UseDocumentProfile /UseDocumentBleed false >> ]>> setdistillerparams> setpagedevice

Documents

Muni Fund White Paper