The U.S. economy grew briskly at a 4.6% annualized rate in the second quarter. Household spending and business fixed investment have been increasing, but the housing market recovery remains sluggish. Job growth has been solid, as evidenced by the unemployment rate's decline to 5.9% in September. The Federal Reserve continued to pare its monthly asset purchases and is on track to end the program in October. We believe that short-term interest rate increases will likely begin around mid-2015. Money market yields remained anchored near 0.00% by the Fed's commitment to keep the fed funds rate very low "for a considerable time" after the Fed stops purchasing securities.
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, 2014, 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 0.99% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2014. The fund's expense ratio was 0.67% as of its fiscal year ended February 28, 2014. The fund's seven-day simple annualized yield as of September 30, 2014, was 0.01%. Its seven-day simple annualized yield without waiver was −0.47%.* 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.
The Fed began tapering its monthly asset purchases starting in January, but the very short-term securities in which the fund invests felt no impact from the policy change. The low interest rate environment of the past six years, along with hefty demand and constrained supply, continued to drive rates lower. Low interest rates have encouraged municipalities to borrow for longer periods to lock in favorable financing costs, reducing the supply of short-dated paper. Credit quality continues to play a major role in managing the fund. We favor highly rated securities such as hospital, water and sewer, and housing revenue bonds. We remain partial to prerefunded bonds, which are typically higher quality because they are backed by collateral held in Treasuries.
While some analysts believe the Fed may start raising short-term rates within the next 12 months, money market yields are not expected to change significantly for quite some time. The tremendous demand for short-dated, high-quality assets in which the fund invests suggests that higher rates will only materialize in the money markets a few months before the Fed tightens policy. Given that this event will likely occur at the very end of our investment horizon, we remain comfortable operating in the longer end of our permissible weighted average maturity (WAM) range, with a target WAM of 50 to 55 days. We are committed to managing a high-quality, diversified portfolio focused on liquidity and stability of principal.