On September 29, 2008, the Treasury finalized the terms of its program to provide a temporary guarantee to any registered investment company that holds itself out as a money market fund (a “money market fund”). (An earlier proposal of the Treasury’s program was discussed in the September 23, 2008 Alert.) Under the Treasury program, in the event a participating fund “breaks a buck”, a covered shareholder (as described below) generally will receive $1.00 per covered share (as described below), subject to certain adjustments and, importantly, subject to the overall amount of funds available to all money market funds in the program. Currently, the assets of the Exchange Stabilization Fund, which are valued at approximately $50 billion, have been made available to guarantee any payment to covered shareholders of a money market fund participating in the program. Below are some additional terms of the Treasury program.
Eligible Funds. Any registered investment company that holds itself out as a money market fund, maintains a stable net asset value per share of $1.00, and offers shares that are registered under the Securities Act of 1933, as amended, generally may participate in the program. The program does not limit participation to taxable or tax-exempt funds; both may participate. The guarantee provided under the program applies on a fund-by-fund basis, irrespective of whether a participating money market fund is one of a series or family of funds.
Covered Shareholders. A shareholder of a participating money market fund who was a shareholder of record of that fund on September 19, 2008 and who is a shareholder of record as of the date of a guarantee event (as described below) is covered under the program. Note that shareholders of money market funds do not participate directly in the program, and only may benefit from the program if the money market fund in which they have invested participates.
Covered Shares. The number of shares held by a covered shareholder that are covered by the program is the lesser of (a) the number of shares owned by the covered shareholder on September 19, 2008 and (b) the number of shares owned by the covered shareholder on the date of a guarantee event. Shares of the covered shareholder held as of September 19, 2008 remain as covered shares even if they are sold and later repurchased before a guarantee event.
Guarantee (Trigger) Event. A guarantee event occurs when, any time after September 19, 2008, the fund’s market-based net asset value per share is less than $0.995, unless promptly cured.
Status of NAV Support Agreements. If a money market fund has a NAV support agreement in effect at the time of a guarantee event, the fund generally must take all necessary action to receive payment under that agreement. A money market fund may not amend, terminate or withdraw from a NAV support agreement on which it has relied at any time on or after September 19, 2008, and it must renew or extend the NAV support agreement if it has the option do so.
Conditions for Payment. The following events, among other conditions, must occur before the Treasury will pay under the program:
The guarantee event must occur before the termination date of the program;
The money market fund generally must be liquidated within 30 days of the guarantee event; and
The Treasury must receive written assurances that there is no legal impediment to the disbursement of guarantee payments.
Effective Date. Provided that a money market fund is a participant in the program by October 8, 2008, the guarantee provided to the fund by the program is retroactive to September 19, 2008.
Date of Termination of the Program/Extension of the Program. The program will terminate on December 18, 2008. The Treasury, in its sole discretion, may extend the program to any date on or before September 18, 2009. If the program is extended, a money market fund may continue to participate provided that as of the extension date, it has a market-based net asset value per share of at least $0.995.
Cost to Participate in the Program. A money market fund intending to participate in the initial period of the Treasury program must pay the following fees:
If the fund’s market-based net asset value per share is greater than or equal to $0.9975, the fee is $1 multiplied by the number of covered shares multiplied by 0.00010 (1 basis point); or
If the fund’s market-based net asset value per share is less than $0.9975 but greater than or equal to $0.995, the fee is $1 multiplied by the number of covered shares multiplied by 0.00015 (1.5 basis points).
Fees to participate in any extension of the program will be determined at the time of the Treasury’s decision to extend the program.
Required Documentation. A money market fund intending to participate in the program must submit, and the Treasury must receive, on or before 11:59 pm Washington, D.C. time on October 8, 2008 the following:
Guarantee Agreement, two forms of which (for single and multiple funds) may be found on the Treasury’s website (note that according to the instructions accompanying the form of Guarantee Agreement, the agreement may not be altered except to insert identifying information, adding signature blocks, and completing Annex A (information about the fund or funds));
Execution Notice (a form of which is included as Exhibit G to the Guarantee Agreement);
Acknowledgment and Investment Adviser Undertaking from each investment adviser to the fund (a form of which is found immediately after the form of Guarantee Agreement); and
The fee for payment to participate in the program.