Ignites reported on Friday that Wells Fargo Advantage Funds plans to liquidate four municipal money market funds. They wrote, "The single-state funds that will be axed are the $54 million Minnesota Money Market Fund; the $99 million New Jersey Municipal Money Market Fund; the $174 million New York Municipal Money Market Fund; and the $83 million Pennsylvania Municipal Money Market Fund. Wells Fargo had $124 billion in money market fund assets at the end of October.... It continues to offer the $2.1 billion California Municipal Money Market Fund and several national municipal money market funds.... Municipal money market funds face the same low-interest-rate difficulties that all money funds have been dealing with." The article quotes Crane Data President Peter Crane, "The low-yield environment, in addition to fee waivers, is really just making the tax break ineffective -- meaning that nobody cares about exemption from taxation if there's no income to tax."
Wells Fargo says in its recent filing, entitled, "Wells Fargo Advantage Funds schedules liquidations of four single-state money market funds", "On November 16, 2011, the Board of Trustees of Wells Fargo Advantage Funds approved the liquidation of four single-state Wells Fargo Advantage Money Market Funds. The liquidations are expected to take place at the close of business on or around December 21, 2011. The funds to be liquidated are: Wells Fargo Advantage Minnesota Money Market Fund, Wells Fargo Advantage New Jersey Municipal Money Market Fund, Wells Fargo Advantage New York Municipal Money Market Fund, and Wells Fargo Advantage Pennsylvania Municipal Money Market Fund."
It explains in a Q&A, "Q: Why are these funds being liquidated? A. We believe that a liquidation of these funds is necessary given the current and projected asset levels of the funds. Difficulty in implementing the funds' investment strategies at these asset levels is the driving factor, and we believe this decision is in the best interest of shareholders. Q: What are the details of the liquidations? A: The liquidations of the funds are expected to occur at the close of business on or around December 21, 2011, in accordance with a written plan of liquidation and termination approved by the Board. No action is required on the part of shareholders of these funds. All of the shares that they own will be automatically redeemed.... In addition, these funds are now closed to new direct investors."
The Wells document also asks, "Q: How will shareholders be notified about the liquidations? A: On November 17, 2011, direct-to-fund shareholders will be mailed a notification describing the pending liquidation of their fund, including information about the expected date of redemption. Q: What potential tax consequences, if any, does the liquidation of the funds pose to shareholders? A: The funds may be required by the Internal Revenue Code to make a distribution of income and capital gains, if any, realized from liquidating the portfolio. The likelihood or amount of any distribution cannot be determined at this time. It is anticipated that any such distribution would be paid to shareholders prior to liquidation. Investors should consult their tax advisors to determine their specific tax consequences, if any. The liquidations will be treated as a sale of shares as of the liquidation date. Q: Are there alternative money market fund options that shareholders can consider? A: We invite you to explore our other money market fund offerings to meet your cash management needs."
In other news, Reuters writes "U.S. money funds seen at risk from Europe's debt storm". The article says, "When Lehman Brothers collapsed in 2008 and shattered the belief that U.S. money market funds would never "break the buck," Washington rushed to limit the damage. But as Europe's debt crisis threatens to put the U.S. financial system under strain again, U.S. policymakers are worried they cannot turn to those same, impromptu tools to shore up the $2.6 trillion money markets industry."
The piece quotes Richmond Federal Reserve Bank Jeffrey Lacker, who supposedly commented Wednesday, "We've done a lot to prepare the banking sector. I'm less confident about the money market funds and their ability to weather major problems at European institutions."
Reuters adds, "Less well known, and of concern to U.S. officials, is that the money funds cannot count on the protection measures that were pulled together to help them in 2008. The Treasury Department is barred from reprising a guarantee program under the terms of the 2008 bailout of the U.S. banking system. Congress, which agreed to the bailout only reluctantly, prohibited renewing the program on grounds that it was providing a false sense of security to investors who might expect government protection again in the future. The Federal Reserve is also unlikely to dust off either of two facilities it set up in 2008 to ensure money market funds had cash to meet redemption requests -- the Asset-Backed Commercial Paper Money Mutual Fund Liquidity Facility and the less-used Money Market Investor Funding Facility."
