On September 29, 2008, the U.S. Treasury Department announced the details of its Temporary Guarantee Program for Money Market Funds, which was established in response to growing concern about the health of the money market industry. Under the program, Treasury will guarantee the share price of eligible money market funds that apply to the program and pay a fee to participate. The program provides coverage to shareholders for amounts held in participating money market funds as of the close of business on September 19, 2008. The guarantee will be triggered if a fund’s net asset value, or NAV, falls below $0.995 per share, which is commonly referred to as “breaking the buck.” Funds that broke the buck before September 19, 2008 are not eligible for the program. Following an initial three month term, the Secretary of the Treasury will have the option to renew the program for an additional period up to September 18, 2009. The program is being funded through Treasury’s Exchange Stabilization Fund, which currently has approximately $50 billion in assets.
The program is open to publicly offered money market mutual funds that are registered with the Securities and Exchange Commission and regulated pursuant to Rule 2a-7 under the Investment Company Act of 1940. This includes both retail and institutional funds and taxable and tax-exempt funds. To be eligible, a fund must have had an NAV per share of at least $0.995 as of September 19, 2008. The program does not cover funds that broke the buck prior to that date, such as The Reserve Fund’s Primary Fund, which fell to 97 cents per share on September 16, 2008 as a result of its holdings of securities issued by Lehman Brothers Holdings Inc. The guarantee program is open to funds that have a policy of maintaining a stable share price of $1.00, as well as funds that maintain a stable per share price of more than $1.00.
The enrollment deadline was October 8, 2008 for funds with a policy of maintaining a $1.00 per share price and October 10, 2008 for funds that maintain a higher per share price. Investors are not permitted to enroll in the program directly. Annex A to this memorandum provides a partial listing of money market mutual funds that have applied to enroll in the program.
The coverage of the Treasury program is based on the number of shares held at the close of business on September 19, 2008. Specifically, the guarantee covers the lesser of (i) the number of shares held on September 19, 2008 and (ii) the number of shares held at the time of a “Guarantee Event” (defined as the initial date on which the NAV per share falls below $0.995, unless promptly cured). Any increase in the number of shares held after September 19, 2008 will not be covered. The guarantee will cover shares that are sold and repurchased. For example, if an investor held 100 shares as of September 19, subsequently sold 50 shares and later repurchased 25 shares, the investor would be covered for 75 shares.
Upon the occurrence of a Guarantee Event, a participating fund must be liquidated within 30 days, at which time shareholders will receive $1.00 per covered share, subject to the overall amount available to all funds under the program. The program will be funded by Treasury’s Exchange Stabilization Fund, which currently has approximately $50 billion in assets. The guarantee program is not otherwise backed by the full faith and credit of the U.S. government.
Time period and fees
The guarantee program is initially available for a three month term ending on December 18, 2008. Treasury may extend the program in its sole discretion for any additional period up until September 18, 2009.
Participating funds are required to pay a fee for the initial period of 1 basis point if the fund’s NAV per share is greater than or equal to $0.9975 and 1.5 basis points if the fund’s NAV per share is less than $0.9975 but greater than or equal to $0.995. Any extension of the program beyond the initial three month term will require additional payments by participating funds.