Tax-free municipal bonds outperformed taxable bonds in the fourth quarter. Intermediate- and long-term Treasury interest rates increased as the economy continued expanding and as Congress agreed late in the year on a two-year budget deal that could add slightly to 2014 economic growth. The Federal Reserve announced in mid-December that it will begin to curtail its $85 billion of monthly asset purchases in January. The 10-year Treasury note yield rose to 3.03% by the end of 2013, the highest level in about two and a half years. In the municipal market, long-term interest rates rose, but not as much as Treasury yields, while shorter-term yields declined or were flat. BBB rated municipals in the investment-grade universe fared worse than higher-quality tiers.
The Tax-Free Short-Intermediate Fund returned 0.43% in the quarter compared with 0.58% for the Barclays 1−5 Year Blend (1−6 Year Maturity) Index and 0.35% for the Lipper Short-Intermediate Municipal Debt Funds Average. For the 12 months ended December 31, 2013, the fund returned 0.53% versus 1.02% for the Barclays 1−5 Year Blend (1−6 Year Maturity) Index and −0.45% for the Lipper Short-Intermediate Municipal Debt Funds Average. The fund's average annual total returns were 0.53%, 3.29%, and 2.91% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2013. The fund's expense ratio was 0.49% as of its fiscal year ended February 28, 2013.
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Our positioning along the yield curve (a graphic depiction of the relationship between yields and maturities for similar securities, such as Treasuries or municipals) trimmed fund performance during the quarter. We maintained a modest exposure to 10-year bonds, which weighed on results as intermediate-term yields moved higher during the past three months, pressured by a sharp increase in Treasury rates. Our sector allocations, however, were positive. We had relatively low exposure to prerefunded debt, which did not perform as well as revenue-backed and general obligation bonds.
The decline in municipal bond prices in 2013 has rattled some investors, but it does not represent a fundamental change in the nature, quality, or risk characteristics of the market. We continue to believe that it is a high-quality market with good investment opportunities for those with a long-term focus, particularly for those in the highest tax brackets. The poor performance of long-term municipals in 2013 makes their nominal and taxable-equivalent yields more attractive, but if market outflows persist and rates resume rising, further price declines are likely. Given the potential for rates to rise further, we will remain careful with any investment shift that might materially increase our portfolio's interest rate sensitivity. We do believe, however, that future rate increases will be more modest than those experienced in 2013.