The U.S. Treasury has released more details on its plan to insure money market mutual funds. Sunday night's statement, "Treasury Provides Further Clarity For Guaranty Program for Money Market Funds," says, "The U.S. Treasury Department is continuing to develop the specific details surrounding the temporary guaranty program for money market funds that was announced on September 19, 2008." Though the Treasury program should help funds that have halted redemptions, such as Putnam Prime MM Institutional, and now UCM Institutional Money Market Fund and American Beacon Money Market Portfolio, it may not help shareholders of The Reserve Primary Fund. (See WSJ's "Primary Fund Investors Not Allowed To Participate in Guaranty Program", though we're told by Reserve that this decision has not yet been made.)

Treasury's release says, "While these details are being finalized, Treasury is making the following clarifications: 1. All money market mutual funds that are regulated under Rule 2a-7 of the Investment Company Act of 1940 and are publicly offered and registered with the Securities and Exchange Commission will be eligible to participate in the program. 2. Eligible funds include both taxable and tax-exempt money market funds. The Treasury and the IRS intend to issue guidance that will confirm that participation in the temporary guaranty program will not be treated as a federal guaranty that jeopardizes the tax-exempt treatment of payments by tax-exempt money market funds. 3. The temporary guaranty program will be designed to provide coverage to shareholders for amounts held by them in such funds as of the close of business on September 19, 2008. 4. Further details on other aspects of the temporary guaranty program and the required documentation for funds to participate will be provided in the coming days.

Published reports indicate that clarification #3 above may mean that the program will not insure new assets in money market funds, though we're unsure how they would separate old and new assets and are awaiting clarification on this point. Last week, money market mutual fund assets declined by a record $210 billion, or 6.7%, according to our Money Fund Intelligence Daily. The declines slowed, but continued Friday. Money fund assets fell $21.83 billion, or 0.7%, and the dramatic shift from Prime money funds into Treasury funds continued. However, Friday's numbers undoubtedly contained sell orders from Thursday afternoon that didn't make trade deadlines. We expect flows to reverse today as news of the Treasury's guarantee spreads.

Regarding the handful of funds that are redeeming in kind or have halted or restricted redemptions, Standard & Poor's says that "its principal stability fund ratings (PSFRs) on money market funds that elect to meet investor redemptions with payments in kind (PIK) will not be negatively affected as long as investors receive the equivalent of a $1.00 per share net asset value (NAV)." Moody's though "downgraded the ratings of the American Beacon Money Market Portfolio and its sub funds, Money Market Select, Money Market Fund, and BBH Com Set ... from Aaa to B." Last night's press release said, "Today's downgrade actions follow American Beacon's decision last night to temporarily suspend redemptions of shares of the funds entirely in cash on the redemption date. In a letter to shareholders, it was stated that effective Sept. 19 proceeds from redemption requests exceeding $250,000 would be made in pro rata payments of cash and in-kind distributions of securities held by the funds, to prevent redemptions from ... having a material adverse impact on the funds and their remaining shareholders.... American Beacon's decision has been made in the face of significant redemptions yesterday and serious constraints on liquidity in money market instruments." It adds, "The Portfolio, whose net asset value was calculated on September 19 at $1.00 per share, with a mark-to-market value of $0.9982, owns very high quality assets, with a weighted average maturity of 32 days and securities with the longest final maturity falling within 85 days.... The Portfolio holds no impaired assets."

On Friday, Moody's said it, "downgraded the rating of Utendahl Institutional Money Market Fund from Aaa to B.... Today's downgrade action follows Utendahl's decision last night to suspend redemptions in the Fund. Utendahl and the Fund's Board of Trustees at the same time made a decision to close the Fund and distribute all fund assets to shareholders. The decision was made in the face of significant redemptions yesterday and serious constraints on liquidity in money market instruments. Moody's considers the decision to discontinue cash redemptions a material deviation from the fund's stated objective to protect principal and provide daily liquidity."

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