The Fund returned 0.27% for the quarter. We maintained a slightly defensive duration profile throughout the period, which represented a modest drag on relative performance as yields declined inside six years. We feel that a defensive approach is warranted given the potential for rising interest rate, should the economy continue to improve, and the Feds continued reduction of its asset purchases.
Holdings outside the benchmark maturity range detracted from relative performance as the yield curve steepened between five and seven years. We added exposure to the six-to-seven-year range to take advantage of incremental yield and what we believe are attractive total return opportunities. By contrast, we reduced exposure to five-year issues as we feel they are overvalued. The Funds underweighting of single-A credits detracted from relative performance as credit spreads narrowed. However, shareholders benefited as the Fund did not own Puerto Rico bonds or BBB-rated securities, both of which underperformed.
If you are an investor seeking higher current income, but potentially less price volatility than the Intermediate Tax-Exempt Fund, with income exempt from regular federal income tax, you may find this Fund attractive. It is well suited for income-oriented investors in higher tax brackets who are willing to accept 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.