Money Funds

A major rating service lowered its outlook yesterday on Legg Mason Inc. to "negative" on concerns about exposure that the Baltimore firm's money market mutual funds have to losses on debt issued by so-called structured investment vehicles. The previous outlook was "stable," Chicago-based Fitch Ratings said in a statement. It was Fitch's first outlook change on a money-fund manager related to debt issued by structured investment vehicles, also called SIVs. Legg Mason's debt ratings were left at "A," Fitch said.

Legg Mason Inc. reported yesterday that it would take a $90 million charge in the fiscal third quarter - and a 15-cent hit to its earnings per share - as the company undertook the biggest bailout by a money manager related to debt sold by structured investment vehicles (SIVs). The Baltimore money manager pumped $1.1 billion into two foreign money market funds to prevent losses. The move follows an earlier cash infusion of $100 million and an arrangement for letters of credit to back up money funds offered by the company.

One person's flight to safety is another person's panic. But no matter what you call it, many investors are making an unnecessary trip in that direction with their money-market mutual funds. Market concerns are behind the flight to quality that has pushed assets in money-market funds to a record $2.72 trillion. But if you have been thinking that you might join in that journey and change your money-market fund to gain additional safety, think again; the journey isn't only unnecessary, but you're already too late.

IN THIS volatile market, are you worried about your 40l(k) and other investments?"Every major study shows that asset allocation -- how your money is divided among stocks, bonds and money funds -- accounts for 90 percent of your long-term investment success," says Ted Benna, president of the 401(k) Association."In the weeks ahead, re-examine your mix. Aggressive investors should have 90 percent of their money in stocks, moderate investors 50 percent and conservative investors 20 percent. The balance should go into bonds, bond funds and money market funds."

PERSONALLY, I could do without stock market dives. But when they come, they often trigger useful second thoughts. How much of your life have you put at risk? Maybe you're too far out on a limb.Most investors understand the two surest rules for earning long-term capital gains. Buy well-diversified stock-owning mutual funds (or stocks in first-class companies) and hold on. Don't try to move money in and out of the market, when you think stocks are going to rise or fall, because you'll so often get it wrong.

America was mesmerized several days ago by how John Jarrell, one of the Lucky 13, would spend the $12 million he won in the Powerball lottery. To William H. Miller III, that's pocket change. Five million dollars a day on average crosses his desk, five days a week, and almost instantly he must decide where that money should go.Miller, manager of the Legg Mason Value Trust, has seen his fund swell to $6.2 billion in assets under management in just 12 months, more than doubling in size. In July alone, $200 million flowed into the fund, and the money is still pouring in despite last week's swoon when the Dow Jones industrial average plunged nearly 300 points.

IT'S A GOOD idea to have an "emergency" fund to cover expenses during unemployment or disability, or to pay large unexpected bills, such as repair and medical.Families should have an emergency fund before they invest so that it doesn't become necessary to sell stocks to cover the emergencies.To decide where to put those funds, figure out how much money you'll need. According to the Institute of Certified Financial Planners, most advisers suggest three to six months' take-home pay.Three months seems enough if your job is secure, or if you have other income such as Social Security, stock dividends, etc. You should save more if your income fluctuates due to commission, seasonal income changes or job instability.

Vanguard is offering its no-load customers financial planning and asset management. Fidelity and Dreyfus are offeringhigh-net-worth customers asset management and advice. Smith Barney, Prudential and Merrill Lynch are offering their customers no-load mutual funds.Mutual-fund customers are hot properties. And the name of the game for fund companies is assets under management.The more money funds they manage, the more fees they collect. So direct-marketed funds want to keep their customers, while brokerage houses want to entice them to switch.

After the stock market closed on Nov. 30 with the Dow Jones industrial average at 3,683.95, the "late-entry model" of the Chartist Mutual Fund Timer, a fund newsletter, flashed a "buy" signal.It was intended for subscribers who did not act on its "long-term buy signal" of Jan. 24, 1991, editor Dan Sullivan explained.At about the same time that Sullivan advised his readers by mailgram or hotline to buy equity funds, Donoghue'$ Moneyletter's "Donoghue Signal" switched to "sell."Designed by publisher William E. Donoghue for long-term investors "seeking higher returns at lower risk," the Signal told its followers to sell their Columbia Special, Oakmark, and Twentieth Century Ultra funds and move into money market funds.

NEW YORK -- How safe is your money market mutual fund? As safe as any investor could reasonably expect. Your principal is always worth $1 a share. Only the yield fluctuates, as interest rates in the market change. Any time you want, you can take out the money you invested plus the yield it has earned.Last month, however, money-fund investors got a scare. A handful of funds got stuck with some losses on risky securities they held. Every $1 kept in those funds might have dropped to a value of 99 or 98 cents, had the fund sponsors not injected enough cash to bail everybody out.No one has ever lost money in a true money-market fund, but there have been some close calls.

BOSTON - The nearly $4 trillion money-market mutual fund industry has a proposition for its play-it-safe investors: We'll tighten the rules we play by so you don't have to worry about not getting back at least a dollar for each buck you put in. But beware if you want to take on the marginal risk of stashing cash in the most aggressive, highest-yielding category of money funds. You might see an even smaller return. That's the crux of money fund changes that the industry's trade group recommended to federal regulators yesterday.

Legg Mason Inc. has wiped out the last of the toxic securities from its money market funds that have troubled the money manager for almost two years - a move that executives said will allow the company to focus on improving the performance of its struggling mutual funds. The Baltimore company said yesterday that it sold $1.8 billion of so-called structured investment vehicles for 25 cents on the dollar. SIVs issue debt, some backed by mortgage-linked securities, that has plummeted in value amid the credit turmoil.

Legg's issuer default rating lowered to A- Legg Mason Inc. had its issuer default rating lowered one level to A- by Fitch Ratings because slumping investment performance and rising costs to support money funds have reduced the money manager's profits. Legg Mason's previous issuer default rating was A, Chicago-based Fitch said in a statement yesterday. Fitch maintained its negative rating outlook on the Baltimore-based company. Legg Mason's earnings have been cut by $1.29 billion since the credit crisis began last year because of expenses to support money funds that have mortgage-linked debt.

Baltimore's Legg Mason Inc. said late yesterday that it expects to take a $523 million charge in the quarter ending Dec. 31 to provide more support for four money market funds invested in troubled asset-backed securities. The money manager has stepped up numerous times to shore up the money market funds managed by its Western Asset Management Co. subsidiary. Including the most recent support, Legg has committed $2.6 billion to bolster money funds exposed to so-called structured investment vehicles.

The Treasury Department announced yesterday that the government for the first time will insure money market mutual funds to discourage investors from pulling trillions of dollars from a bedrock investment that isn't supposed to lose money. Investors have grown increasingly skittish this week after the oldest money market fund, Reserve Primary Fund, announced that investors will lose some principal because of losses on debt of the collapsed investment bank Lehman Brothers. It was only the second incident of investor losses in the 37-year history of money funds.

Baltimore-based T. Rowe Price Group's plain vanilla approach to investing led it to a $162.2 million quarterly profit, while its flashier crosstown peer, Legg Mason Inc., reported a $31.3 million loss as its star fund managers continued to struggle in a bear market, the companies reported yesterday. Price's profit for the second quarter that ended June 30 matched the $162.2 million it earned in the year-earlier period despite a volatile market that left most major financial firms staggering.

Legg Mason Inc. said yesterday that it will take a $265.3 million charge in the quarter ended yesterday, more than half of it to shore up more money market funds invested in troubled asset-backed securities. This is the fifth time since last year that the Baltimore money manager has stepped in to buttress money market funds managed by its subsidiaries. So far, Legg has committed $2.147 billion to bolster six money market funds. In this latest action, Legg said it would be extending lines of credit totaling $240 million to three funds managed by its Western Asset Management subsidiary in Pasadena, Calif.

As the Federal Reserve was slashing interest rates in recent weeks, billions of dollars in investor money was flowing into some of the most rate-sensitive investments out there, into funds that are almost certain to have a tough time keeping up with inflation. The flight to safety is, for many people, seen as a way to minimize risk. In fact, it is just turning from one form of risk to another and, given current market conditions, puts savers in a situation most will hate. Money-market mutual fund assets now stand at a record of $3.27 trillion, according to Money Fund Report, a service of iMoneyNet of Westborough, Mass.

Legg Mason Inc. reported yesterday that it would take a $90 million charge in the fiscal third quarter - and a 15-cent hit to its earnings per share - as the company undertook the biggest bailout by a money manager related to debt sold by structured investment vehicles (SIVs). The Baltimore money manager pumped $1.1 billion into two foreign money market funds to prevent losses. The move follows an earlier cash infusion of $100 million and an arrangement for letters of credit to back up money funds offered by the company.

A major rating service lowered its outlook yesterday on Legg Mason Inc. to "negative" on concerns about exposure that the Baltimore firm's money market mutual funds have to losses on debt issued by so-called structured investment vehicles. The previous outlook was "stable," Chicago-based Fitch Ratings said in a statement. It was Fitch's first outlook change on a money-fund manager related to debt issued by structured investment vehicles, also called SIVs. Legg Mason's debt ratings were left at "A," Fitch said.