The Treasury yield curve flattened in the final quarter of 2014. Short-term Treasury yields rose in anticipation of the start of the Fed's monetary tightening, which is expected to occur in mid-2015, but the yield on the benchmark 10-year Treasury note declined significantly. The U.S. economy grew at a revised 5.0% annualized pace in the third quarter, its fastest growth since the summer of 2003. After its December policy meeting, the Federal Reserve said that it would remain "patient" before raising short-term interest rates, relieving those who feared that a stronger economy would lead the central bank to raise rates sooner than expected.
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 December 31, 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 0.96% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 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 December 31, 2014, was 0.01%. Its seven-day simple annualized yield without waiver was −0.35%.* 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 ended its monthly asset purchases in October, but the very short-term securities in which the fund invests were largely immune from the policy change. The low interest rate environment of the past six years, along with hefty demand and constrained supply, continued to keep rates very low. 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. As has been the case all year, we kept the portfolio's weighted average maturity (WAM) longer than that of our peer group.
Maintaining a high credit quality across municipal issuers and the banks that provide liquidity support is the primary consideration for the fund. Although money market rates are still low, they appear to have halted their multiyear decline, and some rates have inched higher. Short-term rates are not likely to rise significantly until the Fed clearly signals that a short-term rate hike is imminent. We remain committed to managing a high-quality diversified portfolio with a primary focus on liquidity and stability of principal.