The value of the debt securities issued by Lehman Brothers Holdings, Inc. (face value $785 million) and held by the Primary Fund has been valued at zero effective as of 4:00PM New York time today. As a result, the NAV of the Primary Fund, effective as of 4:00PM, is $0.97 per share.
The Reserve Fund is not the only money market fund to be hurt by Lehman Brothers. However, as Crane Data News reports, other firms are taking support actions to protect investors from any decline in the NAVs of money funds. One example is Wachovia which was reported to be pumping money into three Evergreen money market funds.
It's important to note the difference between money market funds and money market accounts. A good explanation of the difference is described in this Bankrate article:
A money market account, or MMA, is an interest-earning savings account offered by a FDIC-insured financial institution with limited transaction privileges.
In contrast, a money market mutual fund, or money fund, carries no FDIC insurance and is simply a collection of short-term debt investments held by that mutual fund.
In previous years, money market funds had higher rates than many bank savings and money market accounts. However, this year has been different. The top bank savings accounts now have a lead of over 100 basis points.
Thanks to the readers who emailed me on this news.