Tax-free bonds produced good returns in the fourth quarter of 2014, outperforming taxable bonds for the year and capping a very strong year in absolute terms. Municipal debt prices rose along with long-term Treasuries, whose interest rates continued to fall. The decline occurred despite strong U.S. economic growth and the conclusion of the Federal Reserve's monthly asset purchases in October, and it was more a reflection of global macroeconomic considerations, such as general economic weakness and falling bond yields in Europe and Japan. Slowing growth in emerging countries and low U.S. inflation underscored by a sharp drop in oil prices also helped drive favorable fixed income returns.
The Tax-Free Income Fund returned 1.55% in the quarter compared with 1.37% for the Barclays Municipal Bond Index and 1.40% for the Lipper General & Insured Municipal Debt Funds Average. For the 12 months ended December 31, 2014, the fund returned 10.53% versus 9.05% for the Barclays Municipal Bond Index and 10.14% for the Lipper General & Insured Municipal Debt Funds Average. The fund's average annual total returns were 10.53%, 5.39%, and 4.71% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2014. The fund's expense ratio was 0.52% as of its fiscal year ended February 28, 2014.
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Demand for municipal bonds was strong, helping the market absorb an uptick in issuance later in the year as municipalities took advantage of low interest rates. Long-term municipals surpassed shorter-term issues, as shorter-term rates rose incrementally in anticipation of potential Fed rate hikes in 2015. Lower-quality municipals, in contrast to taxable high yield bonds that fell with oil prices amid concerns about the energy sector, delivered strong returns for the quarter and the full year. Ultimately, the combination of long maturities and a lower credit-quality profile was the best combination to have throughout 2014.
While yields remain low, we believe that municipal bonds are a high-quality segment of the market that offers good opportunities for long-term investors seeking tax-free income. We remain concerned about the potential for rising rates and believe that short- and intermediate-term rates could continue to increase as we approach the first Fed rate hike. Our portfolios, while remaining conservative in their duration positioning, continue to underweight short-term securities in favor of longer-maturity bonds. In addition, we have a strong bias toward revenue bonds that not only provide incremental yield over state and local general obligation debt, but also are largely insulated from the pension risk that we believe will become more evident over time.