The U.S. economy grew at 1.8% in the first half of 2013 and the effects of federal sequestration continued to weigh on growth in the third quarter. However, we expect the pace of recovery to quicken to 2.5% in the fourth quarter. To support the economy, the Federal Reserve kept its fed funds target rate in the 0.00% to 0.25% range after policymakers elected not to reduce the pace of asset purchases in September. However, we expect the Fed will begin tapering by year-end and modest rate hikes at some point in mid-2015. The Fed sees the target fed funds rate at 1% at the end of 2015 and expects it to be at 2% a year later. This gradual removal of accommodation should allow money fund yields to rise, a welcome development for shareholders.
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, 2013, 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%, 0.09%, and 1.04% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2013. The fund's expense ratio was 0.68% as of its fiscal year ended February 28, 2013. The fund's seven-day simple annualized yield as of September 30, 2013, was 0.01%. Its seven-day simple annualized yield without waiver was −0.44%.* 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.
All money market rates continue to be closely tied to the fed funds target range of 0.00% to 0.25%. Yields in all sectors of the money market have drifted lower in recent months. Our investment selection continues to focus on debt with the highest credit quality. We have significant allocations to highly rated hospitals, higher education, water and sewer revenue, and re-rated prerefunded bonds. Bank liquidity providers always play a big part in financing short-term municipal debt. The banking sector's health has improved in recent years, but the supply of bank liquidity in the municipal money market remains limited.
While prospects for Fed tapering will impact longer-term munis, the money markets will remain anchored by the fed funds target range, which we don't expect to change until 2015. Therefore, we expect yields to remain range-bound for the foreseeable future. Given this outlook, we continue to operate in the longer range of our targeted weighted average maturity of 50 to 55 days. As always, we are committed to managing a high-quality, diversified portfolio focused on liquidity and stability of principal.