UPDATE: US Treasury Agrees To Backstop Money Market Fund
11/20 03:48 PM
By Meena Thiruvengadam
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--The U.S. Treasury Department on Thursday said it would serve as a purchaser of last resort for securities that The Reserve Fund'sU.S. Government Fund is trying to sell in a liquidation.
The money market fund, a sister fund of the Reserve Primary Fund which earlier this year broke the buck and heightened fears among money market mutual fund investors, could end up selling a maximum of $5.6 billion in government securities to the Treasury.
Money market mutual funds aim to maintain a net asset value of $1 a share to ensure shareholders can get back at least their initial investment.
The Treasury plans to purchase from the fund any assets it is unable to sell prior to Jan. 3, 2009. It will purchase remaining securities at an amortized cost.
Funds to purchase those securities would come from the Treasury's Exchange Stabilization Fund, which also is being used to insure the holdings of money market mutual funds through another program.
"This action is being taken to ensure that the fund is liquidated in an orderly and timely fashion," the department said.
The fund has estimated assets of approximately $6.3 billion, including $231 million in cash. The fund's holdings include debt and securities from Fannie Mae (FNM:$0.36,00$-0.02,00-5.26%) , the Federal Home Loan Banks and the Federal Farm Credit Bank.
"Because of this agreement, the Government Fund will be able to return all of the fund's money to investors early next year," said Bruce R. Bent, president of Reserve Management Company Inc., the fund's adviser.
Treasury said the fund's unique position prompted it to provide the assistance. The fund, facing a run on deposits after the failure of its sister fund, was permitted by the Securities and Exchange Commission to suspend redemptions Sept. 17. Its board decided to liquidate the fund Sept. 19.
Because no other funds have similar deals with the SEC, the Treasury doesn't expect to provide similar assistance to other money market mutual funds.
The fund also is part of Treasury's temporary guarantee program, but it hasn't made a claim under that initiative.
-By Meena Thiruvengadam, Dow Jones Newswires; 202-862-6629; meena.thiruvengadam@dowjones.com
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11-20-081548ET
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