In the second quarter, the California Intermediate Tax-Exempt Fund generated a solid return of 2.22%, for a 5.37% year-to-date total return. During the three-month period, we increased the Funds modified duration slightly by extending maturity. This positioning helped performance as the California yield curve flattened. With regard to structure, we continue to favor higher coupon bonds for their superior liquidity. Our credit bias for high quality debt has also been maintained. In light of the state of Californias credit upgrade to Aa3 by Moodys, the Funds exposure to A-rated securities declined to only 10%. Additionally, throughout the quarter the Fund had no holdings of BBB-rated bonds and no exposure to Puerto Rico.
Going forward, we will closely follow the comments and actions of the Federal Reserve for significant changes to monetary policy. In addition, we will focus on tax-exempt supply and demand in the California market as we look for trading opportunities. As always, we will monitor the debate concerning municipal debt policy at the federal level.
Holdings are subject to change and current and future portfolio holdings are subject to risk.
If you are an investor who favors current income exempt from federal income tax and who is looking for an investment intended to be exempt from California state personal income tax, this Fund may be ideal for you. It is particularly well suited for income-oriented investors in higher tax brackets willing to assume some risk. 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 three and 10 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.