By MARK JEWELL (AP) – July 17, 2010
BOSTON — A money-market mutual fund that once held more than $60 billion before it 'broke the buck' and collapsed due to its ties to the doomed Lehman Brothers is returning nearly all its remaining cash to investors.
Reserve Management Co. said it will return about $215 million, perhaps as soon as Friday, to Reserve Primary Fund shareholders. It's the seventh of the partial payouts the fund has made since its September 2008 collapse.
The fund disintegrated after announcing that the $785 million it held in Lehman debt had become worthless when the investment bank filed for bankruptcy protection.
Money funds put clients' cash to work by investing in short-term debt and other safe investments so they can ensure clients can get back at least a dollar for each dollar put in. Returns are typically small, since money funds are designed to be safe harbors where investors can temporarily park cash and quickly access it when needed.
The value of Reserve Primary's assets, however, dipped to 97 cents per share, below the $1-per-share threshold that money funds are supposed to maintain to ensure investors get their money back.
After the fund 'broke the buck' — the term the industry uses when money funds expose investors to losses — institutional clients demanded cash back from Reserve Primary. Managers were forced to sell the fund's assets at steep discounts during the market plunge in September 2008.
It was the first time individual money fund investors suffered losses since Reserve Primary launched the industry in 1971, shocking Wall Street and stoking more fear about a full-blown economic collapse.
The federal government was forced to step in with a temporary guarantee program for money funds that has since expired. The Securities and Exchange Commission is phasing in rules this year to make money funds safer.
Money funds that held nearly $4 trillion in late 2008 as investors sought safe places to stash cash during the financial crisis now hold only about $2.8 trillion.
Over the past 12 months, investors have withdrawn a net $791 billion from the funds, according to fund tracker Morningstar Inc.
They've been fleeing money funds because yields have hovered barely above zero since early last year. Yields normally ranging from 2 percent to 4 percent now average 0.04 percent — four bucks a year for each $10,000 invested — making even bank account returns look good.
After the latest distribution, announced Friday, New York-based Reserve Management says 99 percent of what the fund held at the peak of the financial crisis will have been returned. About $108 million remains to cover legal and management costs.
The final distribution and its timing of funds is tied up in a pending civil fraud case brought by the SEC against Reserve Management and its two top executives.
Copyright © 2010 The Associated Press. All rights reserved.
From The Associated Press published on July 17, 2010
