Treasury Extended Money Market Funds Guarantee

Last September, shortly after The Reserve Primary Fund broke the buck, the Treasury Department introduced a plan to provide temporary guarantee to money market mutual funds. The original plan was to use $50 billion from the Exchange Stabilization Fund to guarantee principal in money market mutual funds, which by design has the NAV of $1, to boost investor confidence in these funds at the time when investors were shocked by the collapse of Lehman Brothers. Generally, mutual funds are not insured or guaranteed by the government. The guarantee program was set to expire on April 30, 2009.

The Treasury Department last week announced that the program will be extended to September 18, 2009, maintaining coverage to shareholders up to the amount held in participating money market funds. However, investors shold not assume that the funds they invest in are automatically covered by the guarantee program because participation in the program is not mandatory. Therefore, if you invest in a money market mutual fund, you need to contact the fund company to see whether it is covered by the Treasury plan or not.

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