The Federal Reserve began tapering its asset purchase program in January 2014, and it remains a key for fixed income investors. However, the yield on very short-term securities in which the Tax-Free Money Market Fund invests were little changed in the second quarter and remains closely tied to the federal funds rate, currently targeted between 0.00% and 0.25%. Short-term rates are unlikely to rise significantly until the Fed signals that a short-term benchmark rate increase is imminent. New short-term security issuance continues to be constrained, perpetuated by a supply/demand imbalance. The low-rate environment of the past few years has encouraged municipal issuers to borrow for longer periods to lock in favorable financing costs.
The Tax-Exempt Money Fund returned 0.00% in the quarter compared with 0.00% for the Lipper Tax-Exempt Money Market Funds Average. For the 12 months ended June 30, 2014, the fund returned 0.01% versus 0.02% for the Lipper Tax-Exempt Money Market Funds Average. The fund's average annual total returns were 0.01%, 0.02%, and 1.08% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2014. The fund's expense ratio was 0.52% as of its fiscal year ended February 28, 2014. The fund's seven-day simple annualized yield as of June 30, 2014, was 0.01%. Its seven-day simple annualized yield without waiver was −0.42%.* 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.
As always, credit quality plays a major role in the management of the fund. We favor highly rated general obligations and housing finance bonds in addition to hospitals and higher education bonds. We also have a significant allocation to high-quality prerefunded bonds, which are escrowed in U.S. Treasury debt. At this point, the portfolio is maintaining a target weighted average maturity of 50 to 55 days, which is at the long end of our permissible range.
Maintaining a high credit quality profile with respect to municipal issuers and the banks that provide liquidity support is the primary consideration for the Tax-Free Money Market Fund. While the Fed has started the long process of removing monetary accommodation, yields in the money market are not expected to change significantly for quite some time. Our view is that the Fed will not begin to actively increase short-term interest rates until sometime in late 2015, at the earliest. We remain committed to managing a high-quality diversified portfolio with our primary focus on liquidity and stability of principal.