Risk assets performed well for the quarter, building on their gains of 2012. The Funds return of -0.10% for the quarter slightly outperformed its benchmark. An overweight position in corporate bonds was the largest contributor to performance. In addition, fundamental research added value through security selection, as the Funds corporate holdings appreciated significantly more than those in the Index. Our generally neutral-to-long duration relative to the benchmark during the quarter represented the largest detractor from performance.
We believe that entering the second quarter, fixed-income markets are largely focused on whether global central bank policy accommodation will continue throughout 2013. A key aspect of our constructive view on global economic growth has been the ongoing monetary policy accommodation in developed economies. Federal Reserve Chairman Ben Bernanke has made it clear that low rates and additional policy accommodation will continue until he sees a substantial improvement in the labor market. We continue to believe that corporate debt with five- to 10-year maturities offers significant value in the low interest rate environment we expect.
If you're a conservative, income-oriented investor who wants higher current income than that generally offered by the U.S. Government Fund and you're willing to assume moderately more risk in exchange, you may find this Fund suitable. This Fund can also be an appropriate choice for investors who want to broaden and diversify their fixed income portfolio.
- Invest primarily in investment-grade domestic debt obligations with an average maturity, under normal circumstances, between three and 15 years, but may own, to a limited extent, securities of foreign issuers and non-investment-grade debt.
- Buy and sell securities using a relative value approach that employs models that analyze and compare expected returns and assumed risks.
- Emphasize securities and types of securities (such as Treasury, agency, mortgage-related and corporate securities) that we believe have the potential to provide a favorable return.