The Funds relative performance benefited from decisions to start the year with a somewhat more aggressive stance with respect to overall duration and interest rate sensitivity, along with a broad maturity structure that performed well as the yield curve flattened. The Fund remains very high in credit quality with over 90% of holdings rated in the AAA or AA categories, which constrained returns to a degree as credit spreads tightened during the quarter. However, our duration stance, curve positioning and specific security selections more than offset this.
Duration was reduced to a more neutral level at quarter end, as supply may pick up in the second quarter. The Fund remains positioned with a tilt toward higher quality and is focused on higher-coupon structures with attractive risk/reward profiles.
If you are an investor who favors current income exempt from regular federal 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. Income from the Fund may be subject to federal alternative minimum tax (AMT), state and local taxes.