Persistently low interest rates continued to suppress income for investors in the California Tax-Free Money Fund. With the U.S. economy steadily showing improvement, many market observers have concluded that the Fed will lift short-term rates sometime later this year. The Federal Reserve has maintained a zero interest rate monetary policy since the financial crisis of 2008 and has not raised rates since 2006. Still, with the possibility of rate increases, the municipal money market remains quite slow in fully pricing in this view.
The California Tax-Free Money Fund returned 0.00% in the quarter compared with 0.00% for the Lipper California Tax-Exempt Money Market Funds Average. For the 12 months ended September 30, 2015, the fund returned 0.01% versus 0.01% for the Lipper California Tax-Exempt Money Market Funds Average. The fund's average annual total returns were 0.01%, 0.01%, and 0.83% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2015. The fund's expense ratio was 0.69% as of its fiscal year ended February 28, 2015. The fund's seven-day simple annualized yield as of September 30, 2015, was 0.01%. Its seven-day simple annualized yield without waiver was −0.48%.* The fund's yield more closely reflects its current earnings than the total return.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
Current performance may be lower or higher than the quoted past performance,
which cannot guarantee future results. Return and yield will vary.
An investment in money market funds is not insured or guaranteed by the FDIC
or any other government agency. Although the fund seeks to preserve the value
of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
*In an effort to maintain a zero or positive net yield for the fund, T. Rowe Price has voluntarily waived all or a portion of the management fee it is entitled to receive from the fund. A fee waiver has the effect of increasing the fund's net yield. The 7-day yield without waiver represents what the yield would have been if we were not waiving our management fee. This voluntary waiver is in addition to any contractual expense ratio limitation in effect for the fund and may be amended or terminated at any time without prior notice. Please see the prospectus for more details.
Maintaining high credit quality across municipal issuers and the banks that provide liquidity is the primary consideration for the California Tax-Free Money Fund. California's credit quality remains quite strong relative to other states, and your fund is 100% invested in tier 1 rated securities. As revenues improve for municipalities so does credit quality, which plays a large role in the management of the fund. As a policy, we favor highly rated credits, including general obligation, housing revenue, and hospital issuance. Money market supply remains constrained for several reasons, including the fact that an improving economy has generated increased revenues for municipalities, reducing their need for short-term borrowing.
The Fed has made it clear that it needs to see improving economic data (economic growth and the potential for inflation) before it begins to raise short-term rates. When the Fed starts removing monetary accommodation, the path toward rate normalization is expected to be long and slow. As always, we remain committed to managing a high-quality, diversified portfolio focused on liquidity and stability of principal, which we deem to be of the utmost importance to our shareholders.