In this environment, the Tax-Exempt Fund returned 0.42%. During the period, the Fund benefited from the high quality and excellent liquidity characteristics of its portfolio holdings. Our emphasis on higher-coupon bonds also contributed to performance based on the lower volatility and higher current-income characteristics of these issues. Holdings in New York and California tax-exempt bonds performed especially well for the Fund. The outlook for the two states going forward also looks favorable as supply in New York and California is likely to be low, while reinvestment flows from maturing bonds and coupons in these states are forecasted to be high. During the period, as credit spreads widened due to continued selling pressure from mutual funds, we added to portfolio holdings in A-rated securities, though the Funds positioning in this credit category is still much lower than its overall investment universe, 18% versus 31%.
As we expect market volatility to remain high, we will continue to employ an active relative-value management style. We will also seek to capitalize on the generous tax-free income potential within the municipal bond market.
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.
- Maintain a dollar-weighted average maturity range, under normal circumstances, between 10 and 30 years. This segment of the municipal market, while potentially more volatile, also may provide higher yields than shorter-term securities.
- Invest in high-quality securities, primarily investment-grade debt.
- Select investments on the basis of their relative value with a focus on total return.