The U.S. economy expanded at a modest pace over the last year. Job growth has been steady, but the national unemployment level remains elevated. To support the economy, the Federal Reserve kept its fed funds target rate in the 0.00% to 0.25% range. The central bank is purchasing $40 billion of agency mortgage-backed securities every month-a plan that started in September. In addition, the Fed announced in December that it will purchase $45 billion worth of Treasuries monthly starting in 2013 and that it would keep short-term rates very low as long as the jobless rate stays above 6.5% and the inflation outlook stays below 2.5%. Shorter-term municipal yields remained very low and changed little over the last 12 months.
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 March 31, 2013, the fund returned 0.01% versus 0.02% for the Lipper California Tax-Exempt Money Market Funds Average. The fund's average annual total returns were 0.01%, 0.26%, and 1.06% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2013. The fund's expense ratio was 0.69% as of its fiscal year ended February 29, 2012. The fund's seven-day simple annualized yield as of March 31, 2013, was 0.01%. Its seven-day simple annualized yield without waiver was −0.38%.* 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.
Benchmark Definitions
As the Fed's zero-interest rate policy continues, California municipal money market rate movements were minimal over the quarter. Generally, yields on California-specific names were unchanged to slightly lower. Credit quality continues to play a big role in managing the fund. The challenging credit backdrop affecting many California issuers has made investing somewhat more difficult. We are maintaining an overweight to highly rated hospital, dedicated tax and education revenue bonds and certain housing issues that are backed by Fannie Mae. As always, the quality of bank liquidity providers plays an integral part in the financing of short-term debt.
We expect yields to remain stable over the next few months barring a flare-up in the European crisis or another event that would disrupt supply. Given this outlook and the Fed's accommodative stance, we continue to operate at the long end of our targeted weighted average maturity range of 50 to 55 days. Short-term issuance will continue to be constrained with interest rates at or near record lows as issuers prefer to lock in favorable rates on longer-dated maturities. This reduction in supply will add to pressure on short-term rates. As always, our primary goal is principal preservation. Liquidity and principal stability remain fundamental needs for shareholders, and we are focused on managing the fund with those needs in mind.
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