Wachovia Corp.'s Evergreen Investments investment-management unit is liquidating its mortgage-centered Ultra Short Opportunities Fund to the tune of $403 million — less than half the fund's value six months ago.

The fund's asset value, which had faired better than most, has plunged precipitously since the beginning of June amid continuing turmoil at the nation's sixth largest bank. The bank ousted its chief executive earlier this month, raising questions about further losses.

The Ultra Short Opportunities Fund invested in commercial and residential mortgage-backed securities - a losing proposition in today's credit market. The fund, managed by Evergreen veteran Lisa Premo, had posted an average annualized loss of 1.3% since its inception in May of 2003. According to the fund's Web site, the bulk of its holdings were rated AAA by Standard & Poor's.

In a December profile of the fund, Premo said she wished the fund "didn't own any mortgage-backed securities, but that wouldn't have been practical, given that it is our area of specialization." At the time, the fund was worth $947 million and had a posted a 3.7% return for 2007 through Dec. 20.

Mutual-fund companies rolled out more ultrashort funds this decade after low short-term interest-rate levels made money-market funds less attractive.

Money-market funds often have an average maturity of about three months. Ultrashort funds may own some securities with significantly longer maturities, but they aim for an average portfolio duration of within one year.

Ultrashort funds try to generate yields significantly above those of money-market funds, which often involves taking more credit risk. They typically buy corporate and mortgage-backed securities, which pay a yield premium, or spread, over Treasury securities. Some funds, including Evergreen's, also own structured securities, an area of the markets that seized up in late summer and fall.

Wachovia two months ago recorded a $708 million loss driven by asset write-downs and provisions against future credit losses. Much of the damage was due to surprisingly high losses on a portfolio of pay-option mortgages that the bank took on as part of its ill-timed purchase of Golden West Financial in early 2006, just before the mortgage market cratered.

Wachovia's plunge into the red in the first quarter forced the bank to raise $7 billion in fresh capital and cut its dividend 41%.

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