Wachovia's money-management arm, Evergreen Investments, is liquidating it's $403 million Evergreen Ultra-Short Opportunities Fund after it dropped a whopping 18% this month. Three quarters of the fund's assets are mortgage-backed securities.
Shareholders in the Ultra-Short Opportunities Fund will receive $7.48 a share (per closing price on June 18th) and Wachovia will finance the redemptions to guarantee that price.
Managed by Lisa Brown-Premo and Robert Rowe, the Evergreen Ultra-Short has lost 20% this year and is second worst among ultra-short bond funds.
Evergreen is not alone in its losses though. Rival funds like Fidelity and Charles Schwab's YieldPlus funds are all linked to investments in mortgage-backed securities and have suffered major losses, prompting investor lawsuits.
Schwab's YieldPlus fund, which is down 29 percent, takes the title as the worst performer among ultra-short funds. YieldPlus funds were marketed as alternatives to money-market accounts that provided higher returns by taking more risk.
At the end of the first quarter, two thirds of Evergreen's Ultra-Short Opportunities assets were home-loan securities without guarantees from government-linked entities such as Fannie Mae or asset-backed securities that may be tied to subprime mortgages. The fund is carrying a $13 million share of the Novastar ABS CDO I Ltd., a group of low-rated sub-prime mortgage bonds created last year, at $9.1 million, or 70 percent of its face value.
Standard & Poor's already gave a non-investment grade rating of B to that debt. The shareholdings will need to be valued correctly to make sure investors who redeem their shares aren't receiving too much or too little.
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