Charles Schwab liquidated its Schwab Money Market Fund late last week as the brokerage continues to shift large amounts of money market fund "sweep" assets into bank deposits. Schwab MMF (SWMXX) saw its assets decline to zero on Friday, from $15.4 billion two years ago and $7.3 billion on April 30, 2018. Schwab is the 8th largest manager of money market mutual funds with $138.8 billion in assets as of April 30, 2018. The brokerages' money fund assets declined by $4.1 billion in April, by $16.9 billion over 3 months, and by $17.5 billion, or 11.2%, over the past 12 months. Year-to-date, Schwab has shifted at least $32 billion in money fund sweep assets into bank deposits.
A Prospectus Supplement filing for Schwab Money Market Fund says "This supplement provides new and additional information beyond that contained in the Summary Prospectus, Prospectus and SAI and should be read in conjunction with the Summary Prospectus, Prospectus and SAI. At a meeting held on December 12, 2017, the Board of Trustees of The Charles Schwab Family of Funds approved the liquidation of, and the related Plan of Liquidation for, Schwab Money Market Fund (the Fund)."
It explains, "In accordance with the Plan of Liquidation, the Fund will redeem all of its outstanding shares on or about May 25, 2018 (the Liquidation Date), and distribute the proceeds to the Fund's shareholders in an amount equal to the shareholder's proportionate interest in the net assets of the Fund after the Fund has paid or provided for all of its charges, taxes, expenses and liabilities. Additionally, the Fund anticipates making a distribution of any taxable dividends and capital gains of the Fund prior to or on the Liquidation Date."
The filing explains, "As the Fund approaches the Liquidation Date, the Fund will wind up its business and affairs, and will cease investing its assets in accordance with its stated investment policies. On or before the Liquidation Date, all portfolio holdings of the Fund will be converted to cash, cash equivalents or other liquid assets. As a result, the Fund will not be able to achieve its investment objective and will deviate from its investment policies during the period as it approaches the Liquidation Date."
It continues, "The Fund's investment adviser will bear all expenses associated with the liquidation other than transaction costs associated with winding down the Fund's portfolio and effective April 2, 2018 through the Liquidation Date, the Fund's investment adviser will waive the Fund's management fees."
Schwab's filing adds, "The liquidation is not expected to be a taxable event for the Fund. As is the case with other redemptions of Fund shares, each shareholder's redemption, including a mandatory redemption on the Liquidation Date, may constitute a taxable disposition of shares for shareholders who do not hold their shares through tax-advantaged plans (i.e., may constitute a sale that may result in gain or loss for federal income tax purposes). Shareholders should contact their tax advisors to discuss the potential tax consequences of the liquidation."
A letter to shareholders from Charles Schwab & Co. Senior Vice President, Strategy and Product Jonathan de St. Paer on the "Schwab Money Market Fund (SWMXX) Liquidation," comments, "Thank you for investing in the Schwab Money Market Fund (the "Fund"). I am writing to let you know that the Fund's Board of Trustees has approved the liquidation of the Fund on or about May 25, 2018."
It tells us, "Charles Schwab & Co., Inc. (Schwab) has advised the Fund that, with respect to your account at Schwab: At this time, you do not need to take any action. For most shareholders of the Fund, Schwab will automatically move you to a sweep option for which you are eligible within your account. In the coming weeks, additional communications regarding any changes to your account will come from Schwab."
He adds, "If you have questions about how the liquidation of the Fund impacts your account, please contact your Schwab Financial Consultant or call Schwab at 1-800-435-4000. If you are a client of an independent investment advisor, please call them directly or call Schwab Alliance at 1-800-515-2157. If you are a Personal Choice Retirement Account (PCRA) participant, please call 1-877-553-1971. We value your business and the continued opportunity to assist you in reaching your investment goals."
See our April 17, 2018 News, "Schwab Moves 25 Billion from MMFs to Deposits in Q1," where we wrote: CEO Walt Bettinger says, "[W]e initiated a 'Sweep Tower' for uninvested cash, offering eligible clients extended FDIC insurance of up to $500,000. (A footnote here says, "Bank Sweep deposits are held at one or more FDIC-insured banks that are affiliated with Charles Schwab & Co., Inc. Funds deposited at Affiliated Banks are insured, in aggregate, up to $250,000 per Affiliated Bank, per depositor, for each account ownership category, by the Federal Deposit Insurance Corporation.) This enhancement broadens Schwab's range of cash solutions for our clients, which provide smart features, competitive yields, and transparency that helps investors make informed decisions."
CFO Peter Crawford commented, "During the first quarter, we actively utilized available capital to further our client cash strategy. As part of this process, we transferred approximately $25 billion from sweep money market funds to bank sweep and paid off $15 billion in Federal Home Loan Bank advances. The net effect of these moves and client activity lifted our consolidated balance sheet assets to $248 billion at quarter-end. We still anticipate crossing the $250 billion threshold in the first half of 2018." (See also our Feb. 16 News, "Schwab Changes Brokerage Cash Sweep, Adds Bank, Cuts Money Funds," and also our Jan. 4 News, "Schwab Liquidating MMF, Shifting to FDIC; Brokerage Sweep Rates Jump.")
