For the second quarter of 2010, Barclays Capital municipal indices showed returns ranging from 0.55% for short-term municipal securities to 2.43% for the longest maturities. The strongest performance came from the intermediate section of the municipal yield curve, with returns of up to 2.68%. A “flight to quality” bias returned to the market during the quarter, as fears that the economic recovery may be faltering led investors to seek safety in high quality assets. For example, the five-year pre-refunded sector returned 1 93% for the quarter compared to 1 55% for 1.93% quarter, 1.55% the riskier five-year revenue sector. This is a reversal of last quarter’s results, when investors shifted to more risky assets as they reached for higher yields.

Fund Performance Relative to Benchmark

The Munder Tax-Free Short & Intermediate Bond Fund performed in line with its custom benchmark (50%/50% blend of the Barclays Capital Municipal Managed Money Short Term and Barclays Capital Municipal Managed Money Short/Intermediate Term Indexes) for the quarter. Although the pre-refunded sector’s weight in the Fund continued to decline during the quarter, the sector was still overweighted in the Fund and this had a positive impact on relative performance. The Fund’s overweight in general obligation bonds and in municipal securities with maturities of greater than 10 years were also positive factors in the relative performance of the Fund.

Fund Performance Relative to Peer Group

For the quarter, the Fund significantly outperformed the average return of both its Lipper and Morningstar peer groups of mutual funds.* Maximizing the income dividend payout to our shareholders continued to be a top priority. With a six-fold increase in the number of taxpayers subject to alternative minimum tax in 2010, we note that the Fund held no bonds subject to the alternative minimum tax as of June 30, 2010.

Noteworthy News in the Municipal Market

The municipal yield curve remained close to historically steep levels as of June 30, 2010. The two-year to ten-year spread stood at 229 basis points (2.29 percentage points) at the end of the quarter, compared to a ten-year average of 126 basis points.

The five-year municipal to treasury ratio rose from 71% on March 31, 2010 to 96% on June 30, versus a ten-year average of 85%. This illustrates the strong ‘flight to quality’ during the quarter, with Treasury yields declining significantly more than municipal yields.

With the federal deficit at a record level and climbing, the municipal market is attracting buyers who are fearful of an increase in income tax rates.

States and local government units are struggling with lower revenues and, unlike the federal government, they must balance their budgets. There is an increasing awareness of pension, health care and education expenses becoming a larger percentage of total expenses for both state and local governments, and some issuers are being more proactive in addressing these and other budgetary issues. The difficulty in balancing state and local budgets highlights the importance of a higher quality traditional bias in constructing municipal portfolios.