We noticed when browsing Charles Schwab & Co.'s revamped website a piece entitled, "FAQs about the closure of Schwab U.S. Treasury Money Fund as a Sweep Option for New Accounts. The Q&A, updated Sept. 26, says, "Q: Why did Schwab decide to close the Schwab U.S. Treasury Money Fund (SWUXX) as a sweep option for new accounts? A: Due to the historically low yields and the tight supply of U.S. Treasuries, as well as the substantial growth of the Schwab U.S.Treasury Money Market Fund (SWUXX) in 2011, Charles Schwab & Company, Inc. decided to close SWUXX as a sweep option for new accounts to limit the inflow of new assets, which in the current market environment, can negatively impact the aggregate yield available to investors."
It continues, "Q. How long will the Schwab U.S. Treasury Money Fund be closed as a sweep option to new accounts? A. There is no specific time frame for when the Fund will reopen as a sweep option for new accounts. Q. What does the fund's closure as a sweep option mean to existing accounts that have SWUXX set as their Interest Bearing Feature (IBF) in Client Central? A. Existing accounts enrolled in the Schwab U.S. Treasury Money Fund as of 12:01 am PST on the day of the soft close 09/26/2011 will not be affected by this closure and will continue to have their un-invested cash automatically invested in the Fund."
Schwab adds, "The Fund will continue to accept additional investments from existing accounts for which the fund serves as the sweep feature -- allowing dividend reinvestment, automatic liquidation of shares to cover purchases or check-writing within the account and automatic investment in the sweep money fund of clients' "free credit balances". Advisors will not be able to select the Fund as the sweep feature on new accounts nor will they be able to change the sweep feature on an existing account to the Schwab U.S. Treasury Money Fund. If you change a client's sweep feature from the Schwab U.S. Treasury Money Fund to another sweep feature, you will not be able re-select the Schwab U.S. Treasury Fund as long as it remains closed as a sweep option to new accounts."
The Q&A also asks, "Q. What does the fund's closure as a sweep option mean to new accounts? A: The closure prevents Schwab from adding the Fund as a sweep feature for new accounts, including new accounts of existing investors, and existing accounts where the Fund is not the interest bearing feature on the account as of the Fund close date. Q: What other sweep money market funds are currently available at Schwab? A: Schwab offers the following additional sweep money market funds: Schwab Government Money Fund, Schwab Cash Reserves, Schwab Advisor Cash Reserves, and A broad array of Schwab sweep municipal money funds."
The Schwab piece writes, "Q: Why are the yields in the Schwab U.S. Treasury Money Fund (SWUXX) so low? A: Due to the market-wide demand for U.S. Treasury securities and decreased supply, Treasury yields have dropped to record lows. As securities in the portfolio mature, the money is being reinvested at historically low yields. The combination of higher yielding assets maturing and the reinvestment of assets at low yields applies downward pressure on the aggregate yield of the portfolio. Q: If yields for the Schwab U.S. Treasury Money Fund continue to decline, will Schwab continue to waive expenses? A: We are waiving fund expenses to help maintain a positive net yield. These fee waivers are voluntary and could be discontinued at any time. There is no guarantee that a fund will be able to avoid a net negative yield."
It explains, "Q: Is a net negative yield the same as "breaking the buck"? A: No. It's important not to confuse a fund's "yield" with its net asset value (NAV). NAV is the total value of all the securities in the portfolio divided by the number of shares outstanding. Money market funds are designed to maintain a stable $1 NAV. The fund's yield, however, is the current income produced by the securities in the portfolio."
Finally, the Q&A says, "Q: What non–U.S. Treasury securities does the Schwab U.S. Treasury Money Fund invest in? A: In accordance with SEC rules and the Fund's prospectus, the Schwab U.S. Treasury Money Fund may invest up to 20% of its net assets in non–U.S. Treasury securities. These securities include: (i) obligations that are issued by the U.S. government, its agencies or instrumentalities, including obligations that are not guaranteed by the U.S. Treasury, such as those issued by Fannie Mae and Freddie Mac; and (ii) obligations that are issued by private issuers that are guaranteed as to principal or interest by the U.S. government, its agencies or instrumentalities."
