ederated

WHY MUNICIPAL BOND FUNDS NOW?

Over the past several months, extreme market volatility due to the subprime implosion, bond insurer
downgrades and the resulting credit crunch has contributed to the underperformance of municipal bonds
— creating a tremendous window of opportunity for municipal bond fund investors.

Municipal Bonds Outyield Treasuries

8/29/2008 = 105.6%
120 120
Munis are Undervalued when the yield is greater than 85.1% as compared to Treasury yields.
112 112
104 104
96 96
88 88
80 80
Average yield ratio of Muni Bonds to U.S. Treasuries = 85.1%
72 72
Munis are Overvalued when the yield is less than 85.1% as compared to Treasury yields.
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Chart information reflects (pre-tax) municipal bond yields versus (pre-tax) Treasury yields from 1/08/65-8/29/08. Source: Ned Davis Research, Inc.
This chart is for illustrative purposes only and is not representative of performance for any specific investment.
A common measure of relative value of Muni vs. Treasuries is the ratio of Muni vs. treasury yields.

WHY NOW WHAT YOU SHOULD KNOW POTENTIAL BENEFITS

TO INVESTORS

Valuation The yield ratio of muni bonds to
U.S. Treasuries, traditionally averaging
85.1%, has been at or near 100% of the
20-year Treasury yield.
Source: Ned Davis Research, Inc.
Muni yields in the range of 85% of
Treasuries are appealing to investors
in higher tax brackets, but when
muni yields are at or near 100% of
Treasuries, the appeal of munis
broadens to any investor —
particularly when the effects of
federal taxes are taken into account.

Falling Rate Environment Bond prices have an inverse If interest rates continue to fall, the
relationship to interest rates. When time to buy muni bonds may be now,
interest rates fall, bond prices rise, before prices increase.
and vice versa.

Impact of an Election Year Top federal tax rates are expected Higher top tax rates typically increase
to rise with a Democratic Congress — the appeal of tax shelters such as
and even more likely to rise with a muni bonds — long considered one
Democratic president. of the last legal loopholes.

Supply and Demand While municipal issuance may be A reduction in the supply of municipal
declining, demand would increase. bond issues would raise the value
of existing bonds, supporting their
price levels.

Not FDIC Insured • May Lose Value • No Bank Guarantee

MUNICIPAL BONDS HAVE 10-Year Cumulative Default Rates 1970-2006
HISTORICALLY OFFERED
• Attractive tax-equivalent yields vs. comparable Credit Rating Municipal Corporate
taxable investments Aaa 0.00% 0.52%
Aa 0.06% 0.52%
• Competitive performance vs. other fixed income A 0.03% 1.29%
asset classes
Baa 0.13% 4.63%
• Low historical default rates Ba 2.65% 19.15%
• Low correlation to other fixed income and B 11.86% 43.34%
equity asset classes Caa-C 16.58% 69.18%
Investment Grade 0.07% 2.09%
Speculative Grade 4.29% 31.37%

Source: Moody’s
Most recent data available.

LONG HISTORY OF EXPERIENCE IN THE Federated offers municipal bond funds across the
MUNICIPAL BOND MARKET entire spectrum of the yield curve
Through Federated’s wide range of municipal bond funds,

Maximum
shareholders are hiring one of the most experienced and
skilled municipal bond management teams in the industry.
Federated’s municipal management team is widely recog-
nized and respected for its breadth of product and experience
Yield Potential

in the industry, achieving a history of unique stability. This

core municipal team that has worked together for nearly
20 years.
• Federated is a significant institutional buyer of municipal
securities — currently managing more than 13 portfolios Ultra-
Minimum

totaling over $2.9 billion in assets as of 6/30/08. short Short Intermediate Long

• Six municipal portfolio managers averaging 19 years

experience and 17 years with Federated. 0 0.25 1 3 6
Average Duration (Years)

This chart is for illustrative purposes and not representative of any specific
Federated fund.

ederated
WORLD-CLASS INVESTMENT MANAGER
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
39037 (9/08)
Federated Securities Corp., Distributor
Federated is a registered mark of
Federated Investors, Inc.
2008 ©Federated Investors, Inc.
Past performance is no guarantee of future results.
Bond prices are sensitive to prices in interest rates and a rise in interest rates can cause a decline in
their prices.
Interest income may be subject to the federal alternative minimum tax (AMT) for individuals and
corporations and to state and local taxes.
Duration is a measure of a security’s price sensitivity to changes in interest rates. Securities with longer
durations are more sensitive to changes in interest rates than securities of shorter durations.
Mutual funds are subject to risks and fluctuate in value.
For more complete information please call your investment professional, visit
FederatedInvestors.com or call 1-800-341-7400 for a prospectus. You should
consider the fund’s investment objectives, risks, charges, and expenses carefully
before you invest. Information about these and other important subjects is in the
fund’s prospectus, which you should read carefully before you invest.