For the quarter, the Fund posted a total return of 4.48%. We reduced the Funds overall duration and corresponding interest rate sensitivity while maintaining a slightly above-benchmark interest rate exposure. Our longer-dated holdings helped performance as the California yield curve flattened. With respect to structure, we continue to favor higher coupons to enhance the Funds liquidity. Given tight credit spreads, we maintained our bias toward high quality. As of quarter end, the Fund had no holdings of BBB-rated bonds and no exposure to Puerto Rico.
We will continue to closely follow any impact on interest rates from changes in Fed policy and actions. In addition, we will monitor any debate at the federal level concerning the tax-exempt status of municipal debt. At the state level, we will focus on in-state demand as California residents feel the impact of higher taxes.
Holdings are subject to change and current and future portfolio holdings are subject to risk.
If you are an investor who wants high current income that is exempt from regular federal income tax and California state personal income tax, you may find this Fund attractive. It is well suited for income-oriented investors in higher tax brackets who are willing to accept some risk of principal in exchange for higher yield potential. Income from the Fund may be subject to federal alternative minimum tax (AMT), state and local taxes.
- Concentrate our investments in California state-specific, investment-grade municipal instruments which are exempt from federal income tax and California state personal income tax while maintaining an average maturity, under normal circumstances, between 10 and 30 years.
- Invest in high-quality securities, primarily investment-grade debt.
- Select investments on the basis of their relative value with a focus on total return.