In money market funds, what must the front cover state?

• A. Investments are insured by the U.S. government
• B. Investments are not insured by the U.S. government
• C. Investments are guaranteed by the sponsor
• D. Investments are backed by government securities only

Answer: (B)

Money market funds do not enjoy federal government insurance or guarantees. Because of that, the front cover must clearly state that investments are not insured or guaranteed by the U.S. government. This disclosure helps investors understand that while these funds aim to preserve value and provide liquidity, there is still risk of loss and no government-backed protection.

While money market funds often invest in high-quality, short-term securities, including some government securities, that fact does not create a government guarantee. The sponsor does not insure or guarantee the fund’s investments, and the front cover is required to avoid implying such protection. Saying the investments are backed by government securities only would be inaccurate, since the fund’s holdings can include a mix of assets, not exclusively government securities.