Tax-Free Money Market Fund (SS) TFSXX

The first quarter of 2013 was marked by improving economic conditions. The housing market showed particular strength, with better pricing, lower inventory, and fewer regional issues, and sales of existing homes and housing starts showing increases. Manufacturing, autos, employment and consumer confidence all looked more promising. While the Federal Reserve (the Fed) began to acknowledge the improved conditions during the quarter, statements from Federal Open Market Committee (FOMC) meetings did not indicate any immediate change in policy. The FOMC continued its commitment to keep to a 0% to 0.25% federal funds target as long as unemployment remained above 6.5% and projected inflation ran no more than a half point above its 2% target. There were more signs of dissent among FOMC members on the benefits and risks of quantitative easing, however, and the quarter ended with some speculation in the markets that the Fed might consider scaling back its monthly purchases of $85 billion in longer-term Treasury and agency mortgage-backed securities at some point in 2013. As has become routine, much of the quarter was dogged by distractions from Washington, this time in the form of the spending sequester, which went into effect March 1. The sequester failed to have an immediate impact on the recovery, but is expected to make itself felt in the second quarter of 2013. The fiscal-cliff compromise struck in the first hours of 2013 did not curtail the federal tax exemption on interest income on bonds issued by states and localities—a primary attraction for most municipal bond investors.