High-quality, short-term Maryland municipal bonds underperformed long-term and lower-quality tax-free bonds in the first quarter. Most of the state's recent new issuance of short-term bonds generates very low yields. Diminishing yields on short-term credits is an ongoing issue and is not unique to this fund or our state. U.S. economic signals were mixed during the period, but many investors appeared willing to attribute the weaker data to the unusually cold and snowy winter in the Northeast. We anticipate that the Federal Reserve will conclude its asset purchase program sometime in the second half of 2014. With fewer fiscal headwinds, we expect the economic picture in the U.S. to continue to brighten, which in turn could lead to a gradual rise in rates.
The Maryland Short-Term Tax-Free Bond Fund returned −0.03% in the quarter compared with 0.33% for the Lipper Short Municipal Debt Funds Average. For the 12 months ended March 31, 2014, the fund returned 0.10% versus 0.21% for the Lipper Short Municipal Debt Funds Average. The fund's average annual total returns were 0.10%, 1.10%, and 1.84% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2014. The fund's expense ratio was 0.53% as of its fiscal year ended February 28, 2013.
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Because of the low yields on virtually all short-term Maryland securities, we slightly increased our out-of-benchmark holdings in securities with longer (five-year) maturities. Our particular focus was on local municipal and ground transportation authorities to generate additional current income. However, we carefully monitor the portfolio's interest rate risk. Despite the nature of the market, we have been able to maintain a significant allocation, and relative overweight, to revenue-backed holdings that typically offer additional yield. We intend to add to lower-rated investment-grade bonds if and when the opportunity presents itself. Trading activity was somewhat limited in the quarter. We shifted our allocation in general obligation bonds; our holdings in local issues increased, while state debt decreased.
Yields on short-term Maryland bonds are likely to remain at very low levels for some time. The first-quarter rally in longer-term municipal bonds has emboldened some investors, who trimmed short-term holdings and added to longer-maturity municipals for additional yield. We believe that the Maryland Short-Term Tax-Free Fund offers attractive tax-free income for investors with a long-term focus that seek to own a portfolio with modest interest rate risk. As always, we are on the lookout for attractively valued issues with good fundamentals, an investment strategy that has served our investors well in the past.