Municipals Have Delivered On Their Primary Objectives by Providing Strong Taxable Equivalent Returns With Low Relative Volatility.

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Over the Past Five Years, Municipals Have Produced Strong Taxable Equivalent Returns Despite High Levels of Supply

On a trailing 5-year basis, the municipal asset class has provided capital preservation and strong taxable equivalent returns with relatively low volatility. The asset class has served its investor base well despite surging supply and low absolute yields. The scatter chart shows the taxable equivalent returns for the municipal investment grade and High Yield Index as well as the total return of the major taxable fixed income and equity asset classes. The taxable equivalent total return (13.04%) of the High-Yield Municipal Bond Index was the highest return of the asset categories presented, with the investment grade Municipal Index posting the seventh best return (8.03%). The chart also illustrates the volatility of the various asset classes expressed in terms of the annualized standard deviation of the monthly return series. High-Yield and investment grade municipals displayed average volatility while maintaining low default ratios.

Higher standard deviation is an indication of greater historical volatility.

* U.S. Treasury income returns are exempt from State income taxes and adjusted (3.25% in 2002 - 2005, 3.23% in 2001, and 3.18% prior) using a national state average (top bracket), net of Federal income tax.

** Based on an equally weighted national average Federal and State (top bracket) income tax rate (38.45% for 2003 - 2005, 41.85% for 2002, 42.33% for 2001, and 42.78% prior – local taxes have not been considered in the analysis.

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