Frequently Asked Questions About the Treasury’s Temporary Guarantee Plan for Money Market Mutual Funds
On September 29, 2008, the U.S. Department of the Treasury opened its Temporary Guarantee Program for Money Market Funds (Program), a plan to protect shareholders of participating money market funds from losses if their funds are unable to maintain a $1.00 net asset value (break the dollar). The plan was first announced on September 19, 2008, and will end on September 18, 2009. Treasu ry has posted investor and technical FAQs on the Program. The following questions and answers address the Program’s major features:
What does the Program cover?
The Program is designed to protect shareholders who had accounts in money market funds as of September 19, 2008, if their funds cannot maintain a stable net asset value (NAV) of $1.00 or more. Funds elected to enroll voluntarily in the Program and are paying a fee for coverage. If a fund enrolled, its shareholders will be protected for assets they had in their accounts as of the close of business on Friday, September 19, 2008.
Which funds were eligible to participate?
All money market funds that are regulated by Rule 2a-7 under the Investment Company Act of 1940, maintain a stable share price of $1.00 or more, and are publicly offered and registered with the SEC were eligible to participate in the Program. Tax-exempt and taxable money market funds were eligible to participate.
What shareholders and assets are covered?
Coverage in participating funds is limited to the value of assets that were in accounts as of September 19, 2008.
Why is the Program limited to accounts and assets as of September 19, 2008?
The decision to limit the Program to the value of accounts at the close of business on September 19, 2008, arose from grave concerns ICI raised with Treasury over the Program’s potential effects on flows among funds. Large institutional shareholders, who hold almost two-thirds of assets in money market funds, had been moving money from “prime” money market funds (those funds that invest in corporate obligations) into funds that invest primarily in Treasury securities. The Program raised fears that this flow of funds would suddenly reverse if prime funds joined the Program. Limiting the protection to account balances as of September 19, 2008, alleviated this problem.
I had an account in a money market fund on September 19, 2008, but I’ve withdrawn or added money since. How much am I covered for?
If your fund enrolled in the Program and then cannot maintain the $1.00 NAV (or, depending on the fund, a NAV greater than $1.00), you will be covered for the amount you had in the fund on September 19, 2008, or the amount you have when the Program is invoked—whichever is less—so long as you did not actually close your account. Treasury’s investor FAQs offer examples.
Is there a cap on the amount per account that’s covered?
No, there is no per-account cap on the coverage.
Why should I invest now in a money market fund if I’ve missed out on the Program?
Money market funds have long provided investors with capital preservation along with competitive rates of return. In the 25-year history of money market funds, only one fund ever failed to maintain the $1.00 NAV prior to the unprecedented market conditions of last fall. Money market funds are strictly regulated by the SEC and operate under tight requirements for the maturity, creditworthiness, and diversification of their assets.
Are retail and institutional shareholders all covered? What about foreign shareholders?
The Program covers all shareholders, retail and institutional, domestic and foreign, who had accounts on September 19, 2008, in the eligible funds that enrolled.
What about foreign-domiciled funds?
Only U.S.-registered funds that operate under Rule 2a-7 and are publicly offered were eligible for the Program.
How will I know if my fund is participating in the Program?
Ask your fund sponsor.
How long does the Program last?
The Program is intended to address temporary dislocations in credit markets. The initial Program operated for three months. Secretary of the Treasury Henry M. Paulson Jr. reviewed the Program in November 2008 and extended it to April 30, 2009. In April 2009, Secretary Timothy Geithner exercised the option to renew the Program again, until September 18, 2009. Each time the Secretary extended the Program, funds needed to re-enroll to extend their participation.
What are the Program costs? Who bears the fees?
To participate in the Program initially and again for the extension, funds paid a fee based on the number of their shares outstanding on September 19, 2008, and their NAV on that date.
How does the coverage work?
If a participating fund cannot maintain its NAV and the fund sponsor chooses not to provide credit support, the fund board will notify the Treasury that it has determined to liquidate the fund. The fund will then close and liquidate. The Program will pay the fund the difference between a $1.00 NAV (or an NAV of greater than $1.00) and its shareholder payout; the fund will then distribute that payment to shareholders.
Does the Program cover a fund that broke the dollar before September 19, 2008?
What should I do if I’m concerned about my money market fund?
Contact the fund company for its latest available information.