Money market yields remained historically low during the fourth quarter of 2014, while short-term rates beyond the money market yield curve rose slightly. The Federal Reserve's commitment to keep the fed funds target rate anchored near 0% as it concluded its quantitative easing program in October contained yields on the shortest-term securities. We believe the Fed is likely to begin raising short-term interest rates this year, which would be a welcome change for conservative fixed income investors who have endured negligible returns since the end of 2008.
The Tax-Exempt Money Fund returned 0.00% in the quarter compared with 0.01% for the Lipper 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 Tax-Exempt Money Market Funds Average. The fund's average annual total returns were 0.01%, 0.02%, and 1.03% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 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 December 31, 2014, was 0.01%. Its seven-day simple annualized yield without waiver was −0.31%.* 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.
Our portfolio focuses on the highest-quality municipal credits, including highly rated hospitals, state and local general obligations, and guaranteed housing finance bonds. Our investment preference is for high-quality issuers with strong balance sheets. For issuers with less robust balance sheets, we look to the additional safeguard of bank guarantees from first-tier providers. While the future direction of rates seems to be upward, the timing is less clear. We acknowledge the need for patience as we watch the rate situation clarify over the next few months. For now, we are maintaining the fund's weighted average maturity toward the longer end of our permissible range. As rate hikes become more probable, though, that position may shorten. As always, our primary focus is on principal stability and liquidity.
The Securities and Exchange Commission passed new rules in July governing the management of money market funds' pricing, liquidity, risk management, and disclosure. Most individual investors will notice little change in their funds, but institutional investors will be subject to more substantial changes over the next two years. T. Rowe Price is evaluating the effects of the changes and will keep our shareholders informed about their possible impact. We remain concerned about the potential for rising rates and believe that short-term rates could continue to increase as we approach the first Fed rate hike.