For the fourth quarter, the Arizona Tax-Exempt Fund returned 0.62%, and
-2.50% for the full year. During the period, we slightly reduced the Funds duration but kept it neutral versus the benchmark. To take advantage of an historically steep Arizona yield curve, we slightly increased positions in longer maturities. With regard to structure, we added higher-coupon bonds to help protect against rising interest rates. In light of narrow credit spreads, our high-quality bias remains in place. As of year end, the Fund had no holdings of BBB-rated bonds and no exposure to Puerto Rico.
Going forward, we will watch for any significant changes that Chairman Yellen brings to the Federal Reserve. At the federal level, we will monitor the debate concerning tax-exempt debt policy. We will also focus on in-state demand as Arizona residents feel the impact of higher taxes.
If you are an investor who favors high current income exempt from federal income tax and who is looking for an investment intended to be exempt from Arizona state personal income tax, this Fund may be ideal for you. It is particularly well suited for income-oriented investors in higher tax brackets willing to assume some risk of principal in exchange for higher yield potential. Income from the Fund may be subject to federal alternative minimum tax (AMT), state and local taxes.
- Concentrate on investments in Arizona state-specific, investment-grade municipal bonds which are exempt from federal income tax and Arizona state personal income tax while maintaining an average maturity, under normal circumstances, between 10 and 30 years.
- Invest in high-quality securities, primarily investment-grade debt.
- Select investments on the basis of their relative value with a focus on total return.