As discussed in several recent editions of the Alert, the U.S. Treasury is providing a temporary guarantee program for certain money market funds (the “Treasury Program”), in which the Treasury will guarantee the value of the shares of participating funds that were owned by beneficial owners as of the close of business on September 19, 2008. Three recent developments for the Treasury Program are summarized below.
Extension of the Treasury Program. The Treasury announced that it is extending the Treasury Program until April 30, 2009. Only money market funds currently participating in the Treasury Program may participate in the extension, and the guarantee only will extend to those shares of participating funds that were owned by beneficial owners as of the close of business on September 19, 2008. To participate in the extension of the Treasury Program, a fund must meet the following conditions: (a) no Guarantee Event shall have occurred before December 19, 2008, the program extension date, (b) the fund’s market-based net asset value per share must be at least $0.9950 (or for a stable value fund, its Guaranteed Threshold Value), and (c) the fund’s board of directors/trustees, including a majority of its disinterested directors/trustees, must have determined that participating in the Treasury Program extension is in the best interests of the fund and its shareholders.
Participating funds have until 11:59 p.m. Washington, D.C. time, December 5, 2008 to submit a completed and executed Program Extension Notice and a Bring-Down Notice (Exhibits A and B, respectively, to the Treasury’s extension notice), as well as the full program extension payment, to participate in the extension to April 30, 2008. All documents must be sent to the Treasury by e-mail. The amount of the payment for the extension period will be based on the participating fund’s net asset value per share as of September 19, 2008, and is determined as follows:
If the participating fund’s market-based net asset value per share is at least 99.75% of its stable share price, the payment due is 0.015%, or 1.5 basis points, multiplied by the number of shares outstanding on September 19, 2008.
If the participating fund’s market-based net asset value per share is less than 99.75%, but at least 99.50%, of its stable share price, the payment due is 0.022%, or 2.2 basis points, multiplied by the number of shares outstanding on September 19, 2008.
The Treasury may make further extensions of the Treasury Program until September 18, 2009, but it has not announced any decision to extend the program past April 30, 2009. Any fund currently participating in the Treasury Program that elects not to participate in the extension to April 30, 2009 will not be permitted to participate in any further extension .
ICI Publishes Further Clarifications by the Treasury, SEC and FINRA Related to the Treasury Program. Since adoption of the Treasury Program, the Treasury, the SEC and FINRA have held periodic discussions with the Investment Company Institute (the “ICI”) to clarify, among other things, how certain laws and regulations are to apply to funds participating in the Treasury Program. A summary of some of those discussions was included in the October 14, 2008 Alert. Recently, the ICI held additional discussions with the Treasury, SEC and FINRA, in which it reported the following.
A fund that is participating in the Treasury Program must continue to include the legend that states that an investment in the fund is not insured or guaranteed by the FDIC or any other agency, and that although the fund seeks to preserve the value of shareholder investments at $1.00 per share, it is possible to lose money by investing in the fund (the “Required Money Market Fund Legend”). However, the fund also must disclose its participation in the Treasury Program by sticker or post-effective amendment information, and after the Required Money Market Fund Legend may provide a brief description of the guarantee provided to certain shareholders.
Rule 482 advertisements and Rule 34b-1 supplemental sales materials, which also must incorporate the Required Money Market Fund Legend, may include immediately after the Required Money Market Fund Legend a brief description of the Treasury guarantee, provided that that description is followed by a statement that the guarantee does not apply to new investments made after September 19, 2008, the guarantee is scheduled to expire on December 18, 2008, and the reader should see the fund’s prospectus for more information about the Treasury Program.
Sales materials that discuss the Treasury Program other than as described above should provide in substance the descriptive and cautionary information recently provided in FINRA Regulatory Notice 08-58 relating to NASD Rule 2210 (which was discussed in the October 28, 2008 Alert).
Re-registrations and transfers of a shareholder account originally covered by the Treasury Program that occur after September 19, 2008 will be continue to be covered by the Treasury Program if the re-registration and transfer involve a shareholder’s estate or successor by will, intestacy, gift, court order or court approved settlement. Any other transfer of shares from one ownership structure to another will be deemed to be a new investment made after September 19, 2008, and ineligible for coverage under the Treasury Program.
SEC Publishes Interim Rule Providing Relief to Money Market Funds Participating in the Treasury Program Relating to Redemption Payments on Liquidation. The SEC has adopted temporary Rule 22e‑3T to permit a money market fund that has commenced liquidation under the Treasury Program to suspend redemptions temporarily and postpone payment of redemption proceeds notwithstanding the limit on postponing redemption payments in Section 22(e) of the Investment Company Act of 1940, as amended (the “1940 Act”). Under the Treasury Program, a money market fund that experiences a “Guarantee Event” (e.g., “breaks a buck”) generally is required to initiate the actions necessary under applicable law to commence the liquidation of the fund within five business days following the Guarantee Event, and liquidate within thirty days. Section 22(e) of the 1940 Act prohibits a registered investment company, which would include a money market fund, from suspending the right of redemption, or postponing redemption payments for more than seven days, absent certain specified exemptions or an SEC order. Rule 22e-3T is intended to relieve funds from having to apply for an individual order or no-action relief under Section 22(e) if they experience a Guarantee Event. In general, the temporary rule will exempt a money market fund participating in the Treasury Program from the requirements of Section 22(e) provided that the fund (a) has delivered to the Treasury notice that it has experienced a Guarantee Event and will promptly commence liquidation under the terms of its agreement with the Treasury, and (b) has not cured the Guarantee Event, as provided under the terms of its agreement with the Treasury. Rule 22e-3T expires on October 18, 2009, that is, thirty days beyond the last date to which the Treasury may extend the Treasury Program.