While the municipal market was impacted by the increase in interest rates, it remained fairly range-bound as new-issue supply contracted. New-issue supply for 2013 was down by approximately 12% over the previous year. Demand was weak in the fourth quarter as municipal bond mutual funds continued to experience sharp outflows due to ongoing credit concerns and weak total returns versus other asset classes. High-yield municipals underperformed investment-grade tax-exempts as liquidity was hampered due to year end pressures.
The Funds return of 0.39% for the quarter outperformed the benchmark. The Fund also outperformed its high-yield municipal fund peer group based on an overweight in higher-coupon holdings, which help to cushion against price volatility, and an underweight in below-investment-grade securities. Our underweight in tobacco-related and Puerto Rico-based securities helped performance during the quarter, while an underweight in airline-backed debt limited performance.
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.