State Street Global Advisors is merging its SSGA money funds into similar State Street products, according to a July 1 letter to clients and a recent SEC filing, which outline the fund mergers and revamped money fund lineup. The $2.4 billion SSGA Money Market Fund and $6.4 billion SSGA Prime Money Market Fund will be merged into the $39.5 billion State Street Institutional Liquid Reserves Fund. Also, the $2.8 billion SSGA US Government MMF will be reorganized into the $19.3 billion State Street Institutional US Government MMF, and the $9.2 billion SSGA US Treasury MMF will be merged into the $1.5 billion State Street Institutional Treasury Plus Money Market Fund. (For more, see our Jan. 28 News, "SSGA's "Cash Solutions for the New Reality" Webinar; Fed Holds Rates” and Oct. 16, 2015 News, “SSGA Meets Challenges With New Money Funds, Enhanced Cash Options.”) We also review some additional changes from State Farm, American Century and Rydex, below.
The SSGA filing explains, "The Board of Trustees of each Fund has approved a proposal to merge the Fund (each, a "Selling Fund") with and into the buying fund (the "Buying Fund") listed in the table below (each, a "Reorganization"). Each Reorganization is expected to be a tax-free reorganization for U.S. federal income tax purposes. More information about the Buying Fund and the definitive terms of each of the proposed Reorganizations will be included in proxy materials."
It adds, "It is currently anticipated that proxy materials regarding the Reorganizations will be distributed to shareholders of the Selling Funds in the third quarter of 2016, and that meetings of shareholders to consider the mergers also will be held in the third quarter of 2016.... The Buying Fund and each Selling Fund is a money market fund that currently buys and sells its shares at $1.00 per share by valuing its portfolio at amortized cost." The table lists SSGA Money Market Fund and SSGA Prime Money Market Fund under "Selling Fund" and State Street Institutional Liquid Reserves Fund under "Buying Fund" for each of the Selling Funds.
The filing continues, "The Securities and Exchange Commission ("SEC") has adopted new requirements for money market funds and has set October 14, 2016 as the compliance date for certain key aspects of these new requirements that affect the Funds. Under these new requirements, money market funds can operate as "retail" money market funds, "government" money market funds or a money market fund that falls into neither category, referred to as an "institutional" money market fund. Each Fund has been designated by its Board of Trustees to operate as an institutional money market fund in the event that its Reorganization is not consummated prior to the compliance date."
It explains, "Below is a description of certain changes to the Funds' operations that would be implemented if they begin to operate as institutional money market funds. Each Fund anticipates implementing these changes on or before the compliance date, but no earlier than October 3, 2016.... The Buying Fund has also been designated by its Board of Trustees to operate as an institutional money market fund on or prior to the compliance date, but no earlier than October 3, 2016."
Under "Summary of Changes Affecting the Funds," it adds, "The Funds, like other institutional money market funds, will no longer be permitted to use amortized cost to buy and sell its shares at a fixed NAV per share. Instead, each Fund will buy and sell its shares using a floating NAV reflecting the current market-based values of its portfolio holdings. Each Fund's floating NAV will be rounded to four decimal places (e.g., $1.0000). The share price of each Fund will fluctuate.... The SEC is requiring all institutional money market funds, like the Funds, to adopt policies and procedures to enable them to impose liquidity fees of up to 2% on redemptions and/or redemption gates of up to 10 business days in the event that a Fund's weekly liquid assets (as discussed below) were to fall below a designated threshold." The filing also discusses the two Government funds that are being reorganized -- SSGA US Government MMF into State Street Institutional US Government MMF and SSGA US Treasury MMF into State Street Institutional Treasury Plus MMF.
SSGA's client letter says, "We are excited to share some important updates about our money market fund lineup as well as some operational changes to our funds to ensure timely compliance with money market fund reforms issued by the U.S. Securities and Exchange Commission (SEC). The effective date of the reforms is October 14, 2016."
Under "Government Money Market Funds," it says, "The new regulations require that a government money market fund invests at least 99.5% of its total assets in cash, government securities, and/or repurchase agreements that are "collateralized fully" (i.e., collateralized by cash or government securities). Our government money market funds meet these requirements today. A government money market fund is not required to implement a floating net asset value. State Street Global Advisors has no plans to implement liquidity fees or redemption gates in our government money market funds and has reviewed this intention with the Funds' Board of Trustees."
Under "Prime Institutional Money Market Funds," it states, "Institutional money market funds will no longer be permitted to use amortized cost to buy and sell its shares at a fixed NAV per share. Instead, each fund will buy and sell its shares using a floating NAV reflecting the current market-based values of its portfolio holdings. Each Fund's floating NAV will be rounded to four decimal places (e.g., $1.0000). Liquidity fees and redemption gates were designed by regulators to safeguard clients' assets in extraordinary conditions. The SEC is requiring all institutional money market funds to adopt policies and procedures to enable them to impose liquidity fees of up to 2% on redemptions and/or redemption gates for up to 10 business days over a 90 day period in the event that a fund's weekly liquid assets were to fall below 30% of total assets and the fund's board decided it was in the best interest of the fund. State Street Global Advisors plans to implement the floating NAV for its State Street Institutional Liquid Reserves Money Market Fund on or about October 12, 2016. In order to preserve intraday liquidity for clients, the fund will price at 8 a.m., 12 p.m., and 3 p.m. (Eastern Time)."
In other "Fund Changes" news, State Farm Money Market Fund's Summary Prospectus says the $131 million fund will qualify as a Government fund. It explains, "The Fund intends to qualify as a "government money market fund" as defined in, or interpreted in accordance with, Rule 2a-7 under the Investment Company Act of 1940, as amended.... While the Trust's Board of Trustees may elect to subject the Fund to liquidity fee and gate requirements in the future, the Board of Trustees has elected not to do so at this time." Currently, about $314 billion in Prime funds has either liquidated or converted to Government to date.
Also, American Century, which converted its $1.4 billion Premium Money Market Fund to the American Century US Government MMF in December 2015, has designated the $1.8 billion American Century Prime MMF as Retail. The Prime MMF SEC filing says, "In response to amendments to Rule 2a-7 under the Investment Company Act of 1940, this fund will be designated a retail money market fund on October 14, 2016. To prepare for this transition, the fund is now closed to any investments from accounts that are not beneficially owned by natural persons. Additionally, the fund and its authorized agents and intermediaries will begin involuntarily redeeming current accounts that are not beneficially owned by natural persons on September 9, 2016. Additionally, beginning on October 14, 2016, this fund will have the ability to implement liquidity fees and/or redemption gates as described below."
Finally, Rydex filed with the SEC to state that its Rydex US Government Money Market Fund will comply with new rules for Government funds. They say, "In response to recent amendments to Rule 2a-7 under the Investment Company of 1940, the Board of Trustees (the "Board") of Rydex Series Funds (the "Trust") approved changes to the U.S. Government Money Market Fund's principal investment strategies to facilitate the Fund's operation as a "government money market fund".... As a government money market fund, the Fund will continue to seek to maintain a stable $1.00 net asset value, though there is no guarantee that it will be able to do so. In addition, the Fund will not be required to impose liquidity fees and redemptions gates. Rather, the Board has the right to voluntarily impose such measures in the future if it believes they are warranted."
