The U.S. Treasury announced yesterday that it had reached an agreement with The Reserve Fund’s U.S. Government Fund (the “Fund”), a money market mutual fund, to assist in its orderly and timely liquidation, due to “unique and extraordinary circumstances.” The Fund, which holds debt of Federal Home Loan Banks and government sponsored enterprises such as Fannie Mae and Freddie Mac, has 45 days in which it must attempt to sell its assets at or above their amortized cost. At the conclusion of this period, Treasury will purchase any remaining securities at amortized cost, up to an amount required to ensure that shareholders receive $1 for every share that they own. The Securities and Exchange Commission had earlier permitted the Fund to suspend share redemptions as of Sept. 17.
This action signifies continuing troubles for The Reserve’s various money market funds. The Reserve’s Primary Fund had already commenced liquidation, after its net asset value dropped below $1 per share in September of this year. The Primary Fund’s failure sparked the creation of the Treasury’s temporary guarantee program for money market mutual funds, which is designed to protect investors who realize losses in participating money market mutual funds when their fund’s net asset value falls below $0.995 per share and is limited to shareholder accounts and assets as of the close of business on September 19, 2008. The program will remain available for an interim three month term and thereafter as deemed necessary until September 18, 2009. The Reserve applied to the program on behalf of its money market funds, including the Fund, on October 9 of this year.