Muni Opinion Fixed Income

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1 Strategy Insights September 2013 Muni Opinion Fixed Income Out of gas: The motor city s tank runs dry On July 18, 2013, the city of Detroit filed for Chapter 9 bankruptcy. The bankruptcy filing the largest ever by a city in U.S. history begins a period that will determine whether the city is eligible for Chapter 9 bankruptcy protection. This month we want to take a look at what led to Detroit s bankruptcy, and more specifically, what it may mean for the muni market. The rise In 1899, Ransom Olds moved his Olds Motor Works 90 miles east from Lansing Michigan to Detroit, making it the first major automaker to locate in the city. The company s stay in Detroit would be brief following a fire two years later, Olds would move the firm back to Lansing but its impact on the industry is worth noting. Contributors Philip G. Condon, head of municipal bond portfolio management, Deutsche Asset & Wealth Management Carol L. Flynn, CFA, head of municipal bond research, Deutsche Asset & Wealth Management Ashton P. Goodfield, CFA, head of municipal bond trading, Deutsche Asset & Wealth Management Richard McBain, municipal bond research analyst, Deutsche Asset & Wealth Management Kevin M. Walsh, CFA, investment specialist, Deutsche Asset & Wealth Management Rather than producing all of its parts in house, Olds subcontracted the production of parts to manufacturing firms within the city. Many of these subcontractors, as well as executives of the firm, came to learn so much about cars that they would launch their own brands. Men who would be instrumental in the development of firms such as Buick, Cadillac, Lincoln and Dodge were all at one time subcontractors for Olds. In the following decades, Detroit would come to dominate the U.S. market for automobile production. In 1903, Ford Motor Company was founded in the city, followed by General Motors in 1908 and Chrysler in During the early twentieth century, the city was similar to Silicon Valley today. Startups launched and executives jumped from one firm to another as the new industry took off. Over time, the industry

2 consolidated, and Ford, General Motors and Chrysler became known as the Big Three automakers, controlling more than 90% of U.S. auto sales. As the auto industry grew, Detroit thrived. By the 1950s, the city s population hit 1.8 million, and Detroit became the fourth largest city in the United States. The fall Sadly, modern-day Detroit in no way resembles its former self. The city s population has fallen to about 700,000 as jobs have left the city and crime has spiked. More than a third of residents live below the poverty line, the unemployment rate is greater than 18% and the city s median household income is just a little more than $25,000. Unfortunately, the liabilities per capita (not per household) are more than $25,000 as well, making payment of these obligations very difficult. How did Detroit get to the point of bankruptcy? First, let s be clear that bankruptcy was not the first option for Detroit, as it never is for any city. In recent years, services have been cut to a point that nearly half of the city s streetlights don t work, many parks have closed, and response time for 911 calls is nearly an hour (partly due to a 40% decline in the city s police force over the past decade). In a city that spans over 140 square miles, but has only about 700,000 people, it has become very difficult to provide municipal services. The downfall of Detroit has been decades in the making. The decline of the auto industry, partly due to increased foreign competition, took its toll on the city. As Detroit lost jobs, faced race riots, and struggled with crime, residents fled for the suburbs or left the region altogether. This created a vicious cycle. Detroit was forced to raise taxes and cut services, which caused a greater number of people to pack their bags. Figures 1, 2, and 3 illustrate the decline in action. Figure 1 shows the long-term drop in population. In 2012, the city s population was only 37% of what it was in It s not uncommon for a large city to have lost population over time, but a decrease the magnitude of what Detroit experienced is devastating. As if it s not bad enough that the city s population has declined so much, the remaining population struggles with a 36.2% poverty rate and an unemployment rate that is 18.6%, more than double the national average. Figure 2 outlines the trend in unemployment in recent years. Figure 1: Detroit s population has declined (in thousands) 1,850 1,670 1,511 1,203 1, /50 6/60 6/70 6/80 6/90 6/00 6/10 12/12 Source: City of Detroit Proposal for Creditors as of June 14,

3 Figure 2: Detroit s unemployment rate has risen 23.4% 19.3% 18.6% 16.0% 12.0% 14.0% 13.6% 7.0% 6.3% 6/98 6/00 6/02 6/04 6/06 6/08 6/10 6/12 6/13 Source: Office of the Emergency Manager/Bureau of Labor Statistics as of June Figure 3: Detroit s income-tax revenue has fallen (in millions) $362 $378 $324 $291 $284 $276 $217 $233 6/98 6/00 6/02 6/04 6/06 6/08 6/10 6/12 Source: Office of the Emergency Manager for fiscal years ending June 30. Add in the $25,000 average household income that we referenced earlier, and the picture becomes clearer: The city has lost a substantial number of its people, and the current population is dealing with above-average financial challenges. So, what happens when a city loses population and the remaining residents have an 18% unemployment rate? Raising revenue becomes a much greater challenge. Figure 3 highlights the decline in income-tax revenue for Detroit, showing that 2012 income tax revenues were only 62% of the 2000 figure. There have also been declines in other sources of revenue, but income tax has experienced the largest blow. Figure 4 gives a few other areas where revenues have changed over the last five years. As the population of Detroit became smaller and poorer, one important number did not decline the city s obligations. The total reported liabilities are more than $18 billion. As The Economist stated recently, the debts racked up when Detroit was big and rich are unpayable now that it is smaller and poor. With revenues declining and obligations elevated the city was forced to try to reduce expenditures. Figure 5 shows the general fund expenditures over the past five years. As you can see, the overall expenditures in the city declined by around 15% in the past five years alone. 3

4 Figure 4: Detroit s General Fund revenue sources (in millions) Property taxes Other revenue Municipal income tax Financing proceeds (debt) Wagering taxes Other taxes State revenue sharing $75 $383 $365 $250 $336 $340 $319 $250 $73 $180 $276 $267 $72 $173 $241 $264 $65 $183 $217 $239 $65 $177 $228 $173 $57 $181 $233 $155 $164 $143 $183 $ Source: Office of the Emergency Manager for fiscal years ending June 30. Figure 5: Detroit s General Fund expenditures (in millions) Salaries, wages and overtime Pensions Benefits Debt service and POCs Other expenditures $578 $490 $442 $398 $397 $126 $227 $173 $221 $134 $222 $141 $228 $144 $226 $61 $454 $49 $472 $43 $437 $99 $423 $64 $ Source: Office of the Emergency Manager for fiscal years ending June 30. You ll also notice that the biggest decreases came in salaries, wages and overtime, as well as other expenditures. Why is that? Because those are areas that could be cut. Most of the other obligations had little to no flexibility. Benefits each year were very similar, because the city did not have as much flexibility with those expenses. To understand the larger problem, we need to expand the discussion from current revenues and expenditures to total liabilities. Figure 5 shows expense related to pensions and benefits, but it fails to show the extent of the unfunded obligations. Let s first address the pension obligations, as pensions tend to catch the most headlines. Figure 6 illustrates the actuarial assets and liabilities of the pension plan, as well as the unfunded liability and funding ratio. As the chart shows, the audited unfunded liability at fiscal year-end 2012 is listed at almost $650 million, with a funding ratio more than 90%. 4

5 Figure 6: Detroit s pension assets and liabilities (in thousands) Fiscal year Total actuarial valuation of assets Total actuarial accrued liability Total unfunded actuarial accrued liability Total funded ratio 2012 $6,885,056 $7,528,810 $643, % 2011 $7,091,410 $7,707,111 $615, % 2010 $7,357,616 $7,910,357 $552, % 2009 $7,957,461 $7,680,613 $276, % 2008 $7,893,734 $7,526,031 $367, % 2007 $7,353,943 $7,243,241 $110, % 2006 $6,980,288 $7,127,835 $147, % 2005 $5,544,759 $7,241,420 $1,696, % 2004 $5,743,185 $6,992,220 $1,249, % Source: Detroit Comprehensive Annual Financial Report for fiscal years ending June 30. Figure 7: Detroit s OPEB liabilities Year Unfunded Funded 2012 $5,718,286,228 0% 2011 $4,971,236,281 0% 2010 $4,971,236,281 0% 2009 $4,823,562,208 0% 2008 $4,823,562,208 0% Source: Detroit Comprehensive Annual Financial Report for fiscal years ending June 30. Many people may be surprised to see the funding ratio greater than 90%. Detroit s emergency manager, Kevyn Orr, is one of those people. He claims the assumptions used in calculating the value of Detroit s unfunded liability are too aggressive, and he believes the unfunded liability is around $3.5 billion. Assumptions used in pension accounting have come under fire, and it s not far-fetched for Orr to claim the liability is understated. Things get noticeably uglier when other post-employment benefits (OPEB) are included. This is primarily an expense related to retiree health care. Figure 7 shows unfunded OPEB liabilities. At the end of 2012, the total liability was $5.7 billion. The bigger problem is, it is 0% funded. No need to challenge any assumptions here; there is $0 set aside, growing at a rate of 0%. This isn t atypical; municipalities often don t fund OPEB liabilities. For a city that s fallen on hard times, like Detroit, this is hard to overcome. How to make a bad situation worse Hopefully, the discussion so far has helped give a clearer picture of the many elements that led to the distress in Detroit. Couldn t get much worse, huh? Well, maybe it could. Many of the pressures Detroit has felt may have occurred regardless of leadership, but mismanagement of the city only made the situation worse. One of the more controversial figures in Detroit history is Coleman Young, who served five terms as mayor from 1974 to Young was a sharp-tongued antiestablishment politician who often found himself in conflict with portions of his own electorate as well as municipal institutions, such as the police department. It s difficult to say that Young could have stopped the decline of Detroit, but a more aggressive strategy to bring jobs to the city and reduce the population loss could have helped set the city on a more sustainable path. Kwame Kilpatrick, mayor from 2002 to 2008, introduced a level of corruption to Detroit that has rarely been seen elsewhere (except maybe, at times, in Illinois). Kilpatrick has been convicted on more than 25 felony counts, including racketeering, mail fraud, wire fraud, perjury and obstruction of justice. He has been in and out of prison over the past several years, and is set to be sentenced once again this month. So it s safe to say Detroit could have used a better leader at a time when the city was facing severe economic challenges. The writing on the wall When discussing reasons why municipalities want to avoid bankruptcy, we often mention the need for market access. Following a bankruptcy, a city will find it much more difficult to issue debt at a reasonable interest rate. 5

6 The case of Detroit is an interesting example of how market access may be restricted well before a bankruptcy occurs. Looking at the past several years, it s clear that municipal bond market participants identified dire challenges within Detroit long before the city went down the path to bankruptcy. In 2008 and 2009, Detroit depended on short-term borrowing because it was very difficult for the city to issue long-term debt that did not have either bond insurance or a secured revenue pledge. In 2010, then, the city issued $250 million in fiscal stability bonds. In order to make these marketable, the city had to pledge state aid revenue to pay back the bonds. What you haven t seen from Detroit since June 2008 are general obligation (GO) bonds solely backed by the full faith and credit of the city. 1 The market had come to realize the credit was on thin ice. Who s going to pay? Getting back to the topic of Detroit s liabilities, let s break down where the challenges lie. Many investors hear about $18 billion dollars in obligations and mistakenly take this to mean $18 billion in GO bond debt. That is very far from reality. In truth, the GO debt totals just more than $1 billion. According to the emergency manager, Detroit s obligations are as shown in Figure 8. Figure 8: Detroit s obligations (in billions) Balance-sheet obligations: $5.85 Special revenue obligations (water and sewer debt) $1.43 Pension-related certificates of participation $1.01 General obligation bonds $0.76 Other $9.05 subtotal for balance-sheet obligations Off-balance-sheet obligations: $5.72 Health-care liabilities $3.50 Pension-liabilities $9.22 subtotal off-balance-sheet obligations $18.27 total obligations The figures to the left highlight challenges with which some other municipalities are struggling as well, most notably hardships due to pension and health-care obligations. These issues tend to be the largest challenges for struggling municipalities. The bond debt has not increased nearly as dramatically as most people believe. As we ve highlighted in previous Muni Opinions, state and local debt as a percentage of gross domestic product (GDP) has been fairly stable for more than 50 years, in sharp contrast to federal debt. 2 In Detroit, the court battle over which of the above creditors will pay the price in bankruptcy will take some time. Below, we highlight a few thoughts we have on the pledges held by various parties. GO bonds The treatment of GO debt in Detroit will be closely watched by the municipal-bond market. Historically, even in the case of a bankruptcy, GO bondholders were eventually made whole. Orr is seeking to change that. Orr s restructuring proposal suggested paying some bondholders pennies on the dollar for their bonds. Current pricing on the uninsured GO debt indicates the market does not believe the bonds will take as severe of a haircut as Orr proposed. But they are trading well below par, so investors are certainly not confident that things are going to play out well for all GO bondholders. This is the first case of which we re aware that unlimited-tax GO debt is being treated as equal to unsecured obligations. We believe the bonds will, in time, be viewed as a more senior obligation. Does the uncertain fate of Detroit GO debt mean GO bonds should be avoided? Not in our opinion. An occasional bankruptcy does not detract from the fact that there are thousands of quality GO credits available in the municipalbond market. As the corporate bond market survived the General Motors bankruptcy (along with plenty of others), there will be life in the municipal-bond market beyond Detroit. Source: City of Detroit Proposal for Creditors as of June 14,

7 Water and sewer bonds In recent years, many investors have become more interested in revenue bonds due to fears around obligations that could affect the credit of GO issuers. Water and sewer debt is an area many investors like because the cash flows tend to be very stable. The bonds are backed by the dedicated revenue stream created by payment of water and wastewater bills. Regardless of economic conditions, people usually pay these bills, even in Detroit. So as the pending bankruptcy became more evident, few investors worried about the water and sewer bonds. Orr s restructuring proposal includes water and sewer debt. These bonds were not to be impacted to the degree of the GO debt, but the fact that they have been included at all has raised some eyebrows. The water and sewer system is a separate legal entity from the city, and cash flows do not flow through Detroit s general fund. Also, 65% of the revenues of the water and sewer systems come from outside Detroit. Our team, which is in line with most industry participants, believes these bonds will ultimately not be impaired by the bankruptcy. The bonds hold a special revenue pledge, and there is precedent for water and sewer bonds to be excluded from bankruptcy. Even Orr s recent comments seem to indicate the city will continue to make payments on these positions. In a recent interview with Bloomberg, Orr said Water and sewer, we re going to honor those. They are unimpaired, they are paid according to their terms, and we are current on all our obligations with our secured debt. Pensions and health care Given that pension and health-care obligations make up over half the city s liabilities, and most people believe the nearly $6 billion in water and sewer debt will be unimpaired, it appears that some savings will likely have to be found through restructuring pension and health-care obligations. This raises a delicate issue. Detroit municipal pensions are protected by the state s constitution. Detroit s pension plans and unions attempted to halt the bankruptcy filing due to this issue, but the judge ruled the city could face irreparable damage if the bankruptcy proceedings were delayed. So as of now, the filing has moved forward with pensions and retiree health care on the table. Deciphering bond indentures Several challenges going forward will revolve around exactly what is contracted to bondholders in the offering document. It s very important to understand that not all GO bonds are created equal. In the case of Detroit, some GO bonds are more likely to receive par than others. Figure 9 gives an outline of the various types of GO debt, and the dollar amount of each outstanding in Detroit. Figure 9: Amount outstanding in different types of Detroit GO debt Unlimited-tax GO bonds ($469.1 million) Secured ($100.0 million) Unsecured ($369.1 million) GO bonds ($1.01 billion) Limited-tax GO bonds ($540.3 million) Secured ($379.3 million) Unsecured ($161.0 million) Source: City of Detroit Proposal for Creditors as of June 14,

8 The first point to consider is the difference between unlimited tax GOs and limited-tax GOs. The unlimited tax GOs are contracted to levy taxes without limitation as to rate or amount in order to pay interest and principal. The language for the limited-tax GO is different. For these bonds the indenture states the city must levy taxes subject to applicable charter, statutory and constitutional rate limitations. The difference in the bond indentures could mean the various classes of bondholders may be treated differently in bankruptcy. Next, it s important to consider whether or not a bond is secured by special-revenues or other collateral. A secured structure means the bond has specific cash flow streams or assets to which bondholders have claim. Secured structures are much more likely to have a favorable outcome in bankruptcy. In the emergency manager s proposal to creditors, Orr separates the four classes of GO debt, and highlights the specific claims backing the secured debt. For the secured unlimited-tax GO debt, he states that $100 million of foregoing bonds are backed by a second lien on distributable state aid. For the secured limited tax GO debt, he says $249.8 million of the [limited-tax GO] bonds are secured by a first lien on distributable state aid. $129.5 million of the [limited-tax GO] bonds are secured by a third lien on distributable state aid. When we look at both indenture language and the secured backing of many GO bonds, we feel the courts should rule that much, if not all, of the GO debt in Detroit should receive favorable treatment in bankruptcy. Figure 10 shows our expected hierarchy of Detroit s GO claims with the unlimited-tax and limited-tax secured bonds at the top and limited-tax unsecured at the bottom. Bonds that are unlimited-tax and/or secured should not be lumped in with unsecured obligations. Figure 10: Expected hierarchy of Detroit s GO bond claims Unlimited-tax secured and limited-tax secured Unlimited-tax unsecured Limited-tax unsecured Potential impact on the municipal-bond market The results of Detroit s bankruptcy are possibly years away, so it s too early to predict how things will shake out. As of now we re monitoring two potential impacts on the municipalbond market the short-term concern of headline risk, and the longer term issue of what type of precedent could be set. Headline risk When Detroit defaulted on its pension obligation debt in June, we were not particularly concerned that anything had fundamentally changed in the municipal-bond market. The default was not a surprise, and overall default rates in the municipal-bond market remain low. Including Detroit s $1.4 billion default on its pension-obligation bonds, the municipal-bond market saw only $2.1billion in defaults in the first half of In a $3.7 trillion market, this is not significant. The larger concern we had was whether investors would overreact to the news. Municipal-bond market performance has been very weak for the past several months. Following U.S. Treasury rate increases, many municipal-bond investors sold out of municipal-bond funds. We hoped the Detroit bankruptcy would not cause more investors to sell and put further downward pressure on prices. But the market continues to struggle, and fund outflows remain high. It appears the bankruptcy did cause more investors to sell, but it s difficult to separate the problems we were seeing before Detroit from any fallout that occurred because of it. Precedent While municipal bankruptcy is very rare, Detroit is not the first municipality to file for Chapter 9 protection. But Detroit is seeking to be the first to not make whole on their full-faith-and-credit GO pledges. In previous cases such as Central Falls, Rhode Island, and Orange County, California, measures such as impairing pensions, cutting programs, laying off workers and increasing taxes were implemented. But the GO bondholders were always made whole. This is what the municipal-bond market expects. To note, in the current Chapter 9 cases of Stockton, California, and San Bernardino, California, there is no GO debt outstanding. 8

9 Orr s proposal lumped the unsecured unlimited-tax and limited-tax GOs in with unsecured obligations. This means pension and retiree health care obligations were put at the same level as unsecured GO debt. This is unprecedented, as GO bonds have always been viewed as a more senior obligation than pension payments. This case raises the potential for GOs to not recover what bondholders expect. Could that change the perception of a full-faith-and-credit pledge? Maybe. The outcome will help to clarify the pecking order of who gets paid first in a bankruptcy, and a conclusion that does not favor bondholders could cause the value of the GO pledge to decline in some people s minds. It certainly would make people pay a lot more attention to indentures like those we reviewed previously. It s also very possible that the effect could be regional. Chapter 9 is a federal bankruptcy code, so the rules that govern it are national. But states have different rules regarding the ability of a municipality to declare Chapter 9. States that make it easier for municipalities to declare bankruptcy may find the GO pledge in their state is viewed as less valuable than it is in states with more bondholder-friendly laws. Rhode Island is a great example of a state that has implemented laws favorable to bondholders. At the time of the Central Falls bankruptcy, the state put through legislation assuring that bondholders would be made whole in the case of a bankruptcy. This helped to stop the threat that Central Falls could impact the borrowing rates of other municipalities in the state. Regardless of the outcome, we continue to believe GO credits are among the safest credits in the bond market. A vast majority of GO debt is rated A or better, and by the time a bankruptcy is on the horizon, the rating has typically fallen well into non-investment-grade territory. The reason there is so much concern around the Detroit bankruptcy stems from the fact that municipal bankruptcy is so rare; there are simply too few past cases to look at for precedent. This is a good thing, because it highlights the scarcity of bankruptcies, but it creates uncertainty in the rare event that a municipality files for Chapter 9. We believe municipal bankruptcy will continue to be exceptionally rare. Who s next? Since Detroit filed on July 18, the question we hear over and over again is, who s next? As we mentioned above, we think the number of bankruptcies will remain very low, but Detroit will not be the last. From time to time you ll hear about a city filing for bankruptcy, but the fact that Detroit filed in no way increases the likelihood of any other city to follow suit. The cities that will go bankrupt in the future will most likely have a few common characteristics. Most will be smaller cities that have limited options for raising revenues; another bankruptcy on the scale of Detroit would be shocking to us. These cities would likely also struggle with high fixed costs as a percentage of their budget. Fixed costs such as pension liabilities limit the portion of the budget that can be cut. Finally, the municipalities would be yet to show much economic recovery. A weak local economy and declining real estate prices cause severe revenue challenges for local governments. The city that has continuously made headlines following Detroit is Chicago. Part of the reason is that Chicago shares some of the same characteristics as Detroit, but on a different scale. Most notably, Chicago s pension liabilities are problematic. We ve been disappointed in the lack of progress made within Illinois to address pension reform, but Chicago is a very different city from Detroit. Chicago is the third-largest city in the country, with a population of more than 2.7 million. The city s economy is very diverse, and the health of the economy cannot be compared to Detroit. So the short answer is no, Chicago is not going to declare bankruptcy anytime soon. The last question we ll address is whether other struggling cities will use Detroit as an example to try to free themselves of pension obligations. Again, we do not think this will be the case, for several reasons. First, Detroit is by no means in an easy situation. The court battles may continue for years to come, and the challenges created by the bankruptcy will be severe. Also, for cities hoping to access the capital markets in the future, a bankruptcy is a major black eye. In many cases, cost is going to be a deterrent as well. Even a small city like Vallejo lost $10 million to bankruptcy costs, not to mention the 3.5 years it took the city to get through the process. 9

10 But for a minute, let s forget about all of the reasons why a municipality would want to avoid bankruptcy, and let s assume some cities will see it as the easy way out. These cities would face barriers from multiple angles. As mentioned previously, the rules allowing municipal bankruptcy vary from state to state. In a couple of states, bankruptcy is specifically not allowed. Cities in those states are out of luck if they want to file. Many states require permission from the state to declare bankruptcy (conditional authorization). For example, Harrisburg, Pennsylvania, attempted to file for Chapter 9 but the state rejected the filing. Almost half of states have no process in place for municipal bankruptcy. Detroit s bankruptcy filing has put municipal finance under the microscope. Issues related to pension obligations continue to become more and more concerning to many investors, and the result of the bankruptcy could potentially impact the perception of general obligation debt. But we caution investors from growing too concerned over the effect on the municipal-bond market. There will continue to be a small number of bankruptcies, but the market as a whole continues to be extremely high quality. Given the attractiveness of pricing in municipal bonds relative to alternatives, we find municipal bonds to be among the best values in the fixed-income market today. In the event that a municipality was allowed to file for Chapter 9, barriers remain. The first step of Chapter 9 is a process of proving eligibility. This requires proof that the municipality is insolvent and that it has negotiated in good faith with creditors. This is the part of the process that Detroit is currently in. So, while discussion is already widespread as to what the effect of the bankruptcy will be, the court has not even ruled on eligibility yet. Cities looking for an easy way out without first exercising all other options would find it very difficult to get through this part of the process. 10

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12 1 General obligation bonds are municipal bonds secured by an issuer s full faith and credit and taxing power. 2 Gross domestic product (GDP) is the value of all goods and services produced by a country s economy. The opinions and forecasts expressed herein by the fund managers and product specialist do not necessarily reflect those of Deutsche Asset & Wealth Management, are as of September 2013 and may not come to pass. Important risk information Bond investments are subject to interest-rate and credit risks. When interest rates rise, bond prices generally fall. Credit risk refers to the ability of an issuer to make timely payments of principal and interest. Investments in lower-quality and non-rated securities present greater risk of loss than investments in higher-quality securities. The fund invests in inverse floaters, which are derivatives that involve leverage and could magnify the fund s gains or losses. Although the fund seeks income that is federally tax-free, a portion of the fund s distributions may be subject to federal, state and local taxes, including the alternative minimum tax. See the prospectus for details. Obtain a prospectus To obtain a summary prospectus, if available, or prospectus, download one from talk to your financial representative or call (800) We advise you to carefully consider the product s 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. Investment products: No bank guarantee Not FDIC insured May lose value Investment products offered through DWS Investments Distributors, Inc. Advisory services offered through Deutsche Investment Management Americas, Inc. Deutsche Asset & Wealth Management represents the asset management and wealth management activities conducted by Deutsche Bank AG or any of its subsidiaries. Clients will be provided Deutsche Asset & Wealth Management products or services by one or more legal entities that will be identified to clients pursuant to the contracts, agreements, offering materials or other documentation relevant to such products or services. DWS Investments Distributors, Inc. 222 South Riverside Plaza Chicago, IL service@db.com Tel (800) Deutsche Asset & Wealth Management. All rights reserved. PM (9/13) R MUNI-OPIN-SEP RETAIL-PUBLIC