In response to the credit market instability, the Treasury Department will make available certain funds from its Exchange Stabilization Fund, on a temporary basis, to enable money market funds to insure the amount of assets held in publicly offered money market mutual funds to maintain a stable $1.00 per share net asset value. This program will be voluntary and is a temporary program to last no more than one year (after one year, it will be evaluated to determine if an extension is warranted).

"This Notice provides administrative relief in furtherance of public policy to promote stability in the market for money market funds," the IRS wrote. "Except with respect to the administrative relief expressly provided in this Notice, no inference should be drawn from this Notice regarding any other federal tax issues affecting tax-exempt bonds, money market funds, or any other security."

Premiums for participating money market mutual funds will be assessed against the mutual fund and we understand that most, if not all, investment companies maintaining these funds are planning to participate. The amount insured will not be capped like FDIC insurance. Once a participating fund board determines the fund has "broken a buck" and decides to liquidate, any shortfall would be covered by the Treasury. The SEC has been given the responsibility of developing this program.

It is important to note that new money that comes into these funds after close of business on September 19, 2008, will NOT be covered by this program. Though details are still being worked on, it appears intermediaries and recordkeepers will find it necessary to keep data on money market mutual fund account values as of the close of business on September 19, 2008, in order to be in a position to properly allocate recoupment of Treasury insured amounts, if subsequently necessary.

For further information, please contact Jim Bartoszewicz, Executive Vice President, Cowden Advisers, Inc. Defined Contribution & Investment Advisory Services. Jim can be reached at 412-208-0481 or toll-free at 888-889-9432.
The IRS Notice is available here.