While a host of money fund managers have been busy converting prime funds into government funds, there have been some that have launched Prime Institutional MMFs, and a handful of these have even put "Floating NAV" in the fund's name. The latest of these is from BMO Funds, which filed a Form N-1A to offer a new BMO Floating NAV Prime Money Market Fund to investors. We also write below about another money fund manager that is "going Government," GuideStone Funds, which is converting its $1.3 billion GuideStone Money Market Fund to Government.
BMO Floating NAV Prime MMF's Registration Statement says, "Shares of the Fund are not bank deposits or other obligations of, or issued, endorsed or guaranteed by, BMO Harris Bank N.A. or any of its affiliates. Shares of the Fund, like shares of all mutual funds, are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation (FDIC), or any other government agency, and may lose value. By October 2016, the Fund will be a "floating net asset value" money market fund. Therefore, the share price will fluctuate. It is possible to lose money by investing in the Fund."
It explains, "The Fund invests in short-term, high quality money market instruments, such as short-term commercial paper, corporate bonds and notes, asset-backed securities, bank instruments, demand and variable rate demand instruments, U.S. government obligations, municipal securities, repurchase agreements, and funding agreements. The Fund may invest in U.S. dollar-denominated instruments issued by foreign governments, corporations, and financial institutions. Prior to October 14, 2016, the securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations.... Effective October 14, 2016, the Fund may invest only in securities which have been determined by the Board to present minimal credit risks to the Fund, based on the Board's consideration of a number of factors."
It continues, "In pursuing its investment objective and implementing its investment strategies, the Fund will comply with Rule 2a-7 under the Investment Company Act of 1940, as amended, which requires, among other things, the Fund to meet certain requirements as to portfolio diversification, maturity, and liquidity. Although the Fund is a money market fund, by October 2016 the net asset value (NAV) of the Fund's shares will "float," fluctuating with changes in the values of the Fund's portfolio securities. The Fund is not limited to institutional investors, and is available to retail investors as well."
Under "Fees and Gates Risks," BMO says, "On or before October 14, 2016, the Fund will adopt policies and procedures to impose liquidity fees on redemptions and/or temporary redemption gates in the event that the Fund's weekly liquid assets were to fall below a designated threshold, subject to the discretion of the Fund's Board. If the Fund's weekly liquid assets fall below 30% of its total assets, the Board, in its discretion, may impose liquidity fees of up to 2% of the value of the shares redeemed and/or impose temporary gates on redemptions. In addition, if the Fund's weekly liquid assets fall below 10% of its total assets at the end of any business day, the Fund must impose a liquidity fee in the default amount of 1% of the value of shares redeemed unless the Board determines that not doing so is in the best interests of the Fund."
Under "Floating Net Asset Value Risk," the filing says, "The Fund will not maintain a stable NAV per share by October 2016. The value of the Fund's shares will be calculated to four decimal places and will vary reflecting the value of the portfolio of investments held by the Fund. It is possible to lose money by investing in the Fund."
It adds, "Peter J. Arts and Boyd R. Eager have co-managed the Fund since its inception in 2016." BMO, the 39th largest money fund manager with $4.9 billion in assets, also offers the $3.3 billion BMO Prime Money Market Fund, which intends to qualify as a Retail fund, the $803 million BMO Government MMF, and the $662 million BMO Tax-Free Money Fund, which will also qualify as Retail.
Schwab also recently launched a new FNAV fund, Schwab Variable Share Price Money Fund, which we first reported in our Nov. 10, 2015 News, "Schwab Files Variable NAV Money Fund." Its SEC filing explained, "The fund is a money market fund that is designed to serve as a complementary product to traditional stable share price money market funds. Unlike a traditional stable share price money market fund, the fund will not use the amortized cost method of valuation or round the per share net asset value (NAV) to the nearest whole cent and does not seek to maintain a stable share price. As a result, the fund's share price, which is its NAV, will vary and reflect the effects of unrealized appreciation and depreciation and realized losses and gains." The fund recently went live but still contains only internal money.
We are also waiting for T. Rowe Price to come out with a new Prime Institutional fund, as we first wrote in our Aug. 19, 2015 News, "T. Rowe Price to Launch Prime Inst MMF." We have not yet seen a filing or come across any announcements on this proposed new fund.
Meanwhile, the Prime to Govt conversion trend continues. GuideStone Funds is the latest manager to "go Government" with its money fund. GuideStone is the 41st largest MMF manager with $1.3 billion in assets; it is converting its only fund, the $1.3 billion GuideStone MMF, to Government. Its Prospectus Supplement filing explains, "The Board of Trustees of GuideStone Funds, on behalf of the Money Market Fund, has approved an investment policy in order for the Fund to meet the definition of a "government money market fund" under Rule 2a-7 under the Investment Company Act of 1940, as amended. Under amended Rule 2a-7, a government money market fund is a money market fund that invests at least 99.5% of its total assets in U.S. government securities, cash, and/or repurchase agreements that are fully collateralized by U.S. government securities or cash. These changes will become effective on or about May 1, 2016."
It adds, "The Fund's operation as a government money market fund will result in shareholders having continued access to a money market fund which seeks to maintain a stable net asset value of $1.00 per share. As a government money market fund, the Fund may allow retail and institutional investors in the Fund. The Board has chosen not to subject the Fund to discretionary or default liquidity fees or temporary suspensions of redemptions due to declines in the Fund's weekly liquid assets. However, the Board reserves the right to impose liquidity fees or redemption gates in the future."
With the pending GuideStone conversion, we now tally $289.2 billion that will leave Prime for Government, with $213.6 billion already converted as of April 15. The latest funds poised to complete their transitions include: the $111 million Schwab MM Portfolio, which converts to Schwab Govt MM Portfolio on April 14; the $824 million UBS Liquid Assets, which converts to UBS Liquid Assets Govt Fund on April 15; and $316 million Goldman Sachs VIT MMF, which will convert to Goldman Sachs Govt MMF on April 15."
