After a steady start to the year, the municipal bond market weakened in March as investor worries regarding changes in the tax-exempt status of municipal bonds weighed on bond prices. In addition, developments regarding troubled municipalities, along with outflows from tax-exempt mutual funds, hurt performance toward the end of the quarter. High-yield municipals outperformed investment-grade tax-exempts by a wide margin, as investor demand for yield remained robust.
The Fund returned 0.88%, matching the 0.88% return of the Barclays Municipal Bond 65-35 Investment Grade/High Yield Index. Our positions in healthcare-related securities performed well after lagging during the prior quarter. The Funds underweight to tobacco bonds continued to negatively impact performance, as the sector delivered above-market returns. Lastly, the Fund is maintaining significant exposure to securities rated BBB, reflecting our conservative positioning versus the peer group.
If you are an aggressive investor seeking a high level of current income that is largely free from federal income tax, you may find this Fund provides an attractive complement to a well-diversified portfolio. The Fund is best suited for long-term higher income investors willing to assume the additional risks associated with investing in high yield securities including above-average share price fluctuations. Income from the Fund may be subject to federal alternative minimum tax (AMT), state and local taxes.
- Concentrate primarily on municipalities that issue medium (rated A and BBB) and lower-quality debt (rated BBB and below). Lower-quality debt or high-yield securities are also commonly referred to as "non-investment grade" or "junk bonds."
- Manage to a benchmark index of 65% investment grade and 35% non-investment grade bonds.
- Select investments on the basis of their relative value with a focus on total return.