Short-term Maryland municipal bonds outperformed intermediate- and long-term Treasuries and other government-backed bonds in the fourth quarter. In the municipal market, short-term municipals performed in line with longer-term municipal bonds as their yields declined or were flat. The Federal Reserve announced in December that it would begin to taper the amount of its monthly purchases of Treasuries and mortgage-backed securities in January, and we anticipate that the Fed will conclude its asset purchase program sometime in the second half of 2014.
The Maryland Short-Term Tax-Free Bond Fund returned 0.34% in the quarter compared with 0.31% for the Lipper Short Municipal Debt Funds Average. For the 12 months ended December 31, 2013, the fund returned 0.73% versus 0.18% for the Lipper Short Municipal Debt Funds Average. The fund's average annual total returns were 0.73%, 1.46%, and 1.90% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2013. The fund's expense ratio was 0.53% as of its fiscal year ended February 28, 2013.
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Given that the yield on virtually all short- and intermediate-term Maryland securities has fallen to very low levels, we opted to add to our holdings in longer-maturity (five-year) state and local general obligations, with a particular focus on local municipal authorities, to generate additional current income. However, we carefully monitor the portfolio's interest rate risk. Revenue bonds continue to account for a large portion of the portfolio, and we intend to add to holdings in lower-rated categories if and when the opportunity presents itself. However, at this time, there are few lower-rated Maryland bonds available. Several of our holdings matured in the fourth quarter, and we used the proceeds to add exposure in four different Maryland counties and several hospitals.
Yields on short-term Maryland bonds, which are typically very high quality, remain at very low levels. The decline in longer-term municipal bond prices 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 Maryland municipal bonds offer attractive tax-free income for investors with a long-term focus. As always, we are on the lookout for attractively valued bonds issued by municipalities with good fundamentals-an investment strategy that has served our investors well in the past.