Georgia tax-free municipal bonds produced solid gains in the second quarter. The Treasury and municipal yield curves continued to flatten during the second quarter: Long-term yields declined, while short-term rates remained anchored by the Fed's commitment to keep them low "for a considerable time" after the Fed stops purchasing securities. High-quality 30-year municipal yields fell more than the 30-year Treasury yield; by the end of June, they were lower than the 30-year U.S. government bond yield, which we have not seen for about one year. Nevertheless, long-term munis remain attractive versus taxable bonds as an alternative for fixed income investors.
The Georgia Tax-Free Bond Fund returned 2.71% in the quarter compared with 2.53% for the Lipper Other States Municipal Debt Funds Average. For the 12 months ended June 30, 2014, the fund returned 6.83% versus 4.39% for the Lipper Other States Municipal Debt Funds Average. The fund's average annual total returns were 6.83%, 5.56%, and 4.43% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2014. The fund's expense ratio was 0.54% as of its fiscal year ended February 28, 2014.
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We continue to believe that revenue-backed debt and longer-term debt offer the most attractive value. Our most significant absolute sector allocation is to hospitals, which is also our most significant overweight relative to the benchmark, and we modestly added to our allocation during the quarter. Opportunities to invest in lower-quality investment-grade debt remain scarce in the state, so we have added yield in the portfolio through modest, and select, allocations to prepaid gas and life-care securities. The portfolio is dominated by holdings from the Atlanta metropolitan area, but we are looking to add bonds outside this region for diversification, when available.
We still believe that the municipal bond market remains a high-quality market that offers good opportunities for long-term investors seeking tax-free income. Fundamentally, the credit environment for municipalities is sound and should improve with the economy. Economic growth and higher income and sales tax revenues are providing some support for state and local governments, and a healthier real estate market should lead to higher property tax revenues for local governments. Taking a longer view, we remain concerned about state and local government liabilities such as pension benefits and retiree health care costs. Ultimately, we believe T. Rowe Price's independent credit research is our greatest strength and will remain an asset for our investors as we navigate the current market environment. As always, we are on the lookout for attractively valued bonds issued by municipalities with good long-term fundamentals, which is an investment strategy that we believe will continue to serve our investors well.