Municipal debt: Research matters

With the number of downgrades for municipal bonds on the rise, choosing the optimal mix remains a challenge for investors.

Are you prepared for today's muni bond market?

Investors have long been drawn to municipal bonds for their attractive risk/return profile ability, and to generate income that’s free from federal taxes and, in some cases, state and local income taxes. Since 2009, however, the municipal bond market has shown signs of fiscal pressure, resulting from the global recession of 2008-2009. As the chart below indicates, the number of municipal bond credit downgrades has risen sharply in this timeframe, while the number of credit upgrades has declined.

Number of municipal upgrades vs. downgrades

Source: Moody’s Investor Services. June 2013. Most recent data available.

Chart above is for illustrative purposes only and is not representative of the performance of any specific investment. Past performance does not guarantee future results.

While defaults within the municipal bond market remain rare, we believe recent conditions highlight the importance of bottom-up (bond-by-bond), fundamental research — critical to our investment style at Delaware Investments — when creating a high-quality municipal bond portfolio.

Learn more about the long-term case for investing in municipal bonds as well as our thorough, bond-by-bond approach to the municipal bond market.

Carefully consider the Funds' investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Funds' prospectuses and their summary prospectuses, which may be obtained by visiting the fund literature page or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.

IMPORTANT RISK CONSIDERATIONS

Investing involves risk, including the possible loss of principal.

Fixed income securities can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder a issuer’s ability to make interest and principal payments on its debt.

The Fund may also be subject to prepayment risk, the risk that the principal of a fixed income security that is held by the Fund may be prepaid prior to maturity, potentially forcing the Fund to reinvest that money at a lower interest rate.

High yielding, noninvestment grade bonds (junk bonds) involve higher risk than investment grade bonds.

Substantially all dividend income derived from tax-free funds is exempt from federal income tax. Some income may be subject to the federal alternative minimum tax (AMT) that applies to certain investors. Capital gains, if any, are taxable.

Funds that invest primarily in one state may be more susceptible to the economic, regulatory, and other factors of that state than funds that invest more broadly.

Diversification may not protect against market risk.

Not FDIC Insured | No Bank Guarantee | May Lose Value

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