THE Securities and Futures Commission (SFC) has backed a move by fund manager First Investments to suspend indefinitely trading in its $1 billion open-ended bond fund. The Leveraged US Government Bond Fund, which invests in collateralised mortgages, was suspended from its weekly trading session yesterday after a meeting on Tuesday afternoon between senior SFC officials and directors of First Investments. Geoffrey Mansfield, managing director of the group, said the move followed a 14.3 per cent plunge in the value of the bond fund last month and the danger of investors being forced to redeem holdings at unrealistic prices. The company will today be contacting brokers, which include Mathesons and Chase Manhattan, and hundreds of local investors in a bid to reassure them about the decision. Mr Mansfield said the company was forced to seek a suspension after lenders to Askin Capital Management, another fund management company, based in New York, dumped more than $9 billion worth of collateralised mortgages - complex securities based on packages of home mortgages - on to the market and boosted daily market volumes 15-fold. This resulted in a five-fold widening of the bid offer spread to 30 per cent. Neither First Investments nor the bond fund have any association with Askin Capital. The Bermudan-registered fund was warned by its manager, Trust Co of the West, that, in today's market conditions, securities ''are not trading at fair market values''. Mr Mansfield said: ''The result is that, firstly, we cannot fairly price the assets of the fund; and secondly, it would be improper to sell at such a wide spread and discount to market value. ''As an open-ended fund the only mechanism we have available to avoid trading at such prices and to protect the interests of our shareholders is to suspend dealing in the shares on the market. ''For the moment this is a market of unwilling buyers and it is important to our investors that the fund not become an unwilling seller, were redemptions to take place due to concerns over these market conditions.'' He said: ''The suspension will be lifted as soon as it is practicable to price the investments fairly. If it is next week then that would be terrific, if it is longer than a month, then we might have to seek alternatives.'' Asked whether he feared the price might dramatically drop when trading reopened, he said: ''The United States Government mortgage market is highly liquid - we could sell the fund's assets tomorrow. The issue is the price - its dumb to let some people take the loss or the first person off the lift to be much better off. ''We have to explain the circumstances and the changes. We have had universal acceptance that it protects share holders. Had there been an alternative we would have taken it.'' The fund, which was launched in October 1992, has assets totalling $947 million, net assets totalling $477 million and monthly cash flow of $25 million, of which $16.5 million is net interest income and $7.7 million is repayment of principal. According to its prospectus, the aim of the fund is to ''achieve an above average total return on capital by investing in mortgage-related securities guaranteed by, or secured by collateral that is guaranteed by, the Government of the United States, its agencies or sponsored corporations.'' It was last year's glamour fund and won First Investments the the Sunday Morning Post's Fund Manager of the Year Award. A return of 28 per cent over the year also secured it the coveted top position in the Lipper Overseas Fund Table. Leading Wall Street investment bank Kidder Peabody, and Lehman Brothers are bringing legal actions against funds managed by Askin Capital. Samuel Friedman, a partner with New York law firm Lord Day Lord, said three funds that Askin advises - Granite Corp, Granite Partner and Quartz Hedge Fund - were filing for bankruptcy. Askin is believed to have borrowed $2.50 for every dollar invested. Leveraging - or borrowing - can amplify a funds gains and losses. As prices fell Askin had to sell some of its holdings at a loss to provide the collateral (margin calls) demanded by the brokerage firms that had lent it money. In late March, the big brokerage firms auctioned much of Askin's remaining holdings.