Over the past three months, the California Intermediate Tax-Exempt Fund returned 0.44%, and -2.33% for the full year. During the period, we reduced the Funds duration but kept it overweight versus the benchmark. To take advantage of an historically steep California yield curve, we slightly increased positions in longer-intermediate maturities. With regard to structure, we added higher-coupon bonds to help protect against rising interest rates. In light of narrow credit spreads, our high-quality bias remains in place. As of year end, the Fund had no holdings of BBB-rated bonds and no exposure to Puerto Rico.
In the coming months, we will watch for any significant changes that Chairman Yellen brings to the Federal Reserve. At the federal level, we will monitor the debate concerning tax-exempt debt policy. We will also focus on in-state demand as California residents feel the impact of higher taxes.
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.