Standard & Poor's recently issued two releases involving local government investment pools (LGIPs) which hold Reserve Primary Fund. The first update is "Florida Surplus Asset Fund Trust 'AAAm' Rating Remains On CreditWatch Negative" while the second is "Colorado Surplus Asset Fund Trust (CSAFE) 'AAAm' Rating Remains On CreditWatch Negative". S&P says, "[I]ts 'AAAm' principal stability fund rating on the Florida Surplus Asset Fund Trust (FLSAFE) remains on CreditWatch with negative implications, where it was placed Feb. 27, 2009. The initial CreditWatch action was based on uncertainty surrounding the redemption share price or net asset value (NAV) the pool expects to receive from its investments in the Reserve Primary Fund. On Feb. 26, 2009, the Reserve stated that it would set aside $3.5 billion in a special reserve to cover potential damages and legal fees. On May 5, 2009, the SEC filed fraud charges against several entities and individuals who operate the Reserve Primary Fund for failing to provide key material facts to investors and trustees about the fund's vulnerability as Lehman Brothers Holdings Inc. sought bankruptcy protection. We believe that in bringing the enforcement action, the SEC also seeks to expedite the distribution of the fund's remaining assets to investors. Although this SEC action is an important development in resolving the distribution of fund shares, it does not, in our view, eliminate the uncertainty that prompted the CreditWatch actions on FLSAFE."
