A money-market mutual fund that held more than $60 billion before it notoriously
”broke the buck" a year ago said Wednesday it will hand out $1 billion in a fifth distribution to investors from the fund's remaining assets.
The $1 billion distribution, the smallest of five partial payouts since the Reserve Primary Fund's collapse, will be made to shareholders on or about Oct. 2, said New York-based Reserve Management Co., which ran the fund.
After the distribution, it will hold about $3.5 billion, not including a separate $3.5 billion reserve created to cover pending litigation costs.
The fund had held more than $64 billion shortly before Sept. 16, 2008, when its net asset value fell below the $1 level needed to ensure investors a dollar-for-dollar return of their principal put into the fund. The fund declared $785 million that it held in Lehman Brothers debt worthless after the investment bank's bankruptcy filing. That sank the fund's net asset value to 97 cents, leading to the fund's collapse as institutional investors demanded cash back and fund managers were forced to sell assets at steep discounts amid plunging markets.
The episode was the first such investor exposure to money-market losses since 1994, and created fears about the safety of the more than $3 trillion in assets held in money-market funds that are normally considered nearly as safe as cash. The government responded with a temporary government guarantee program that expired last week.
Reserve Primary's latest distribution is being paid out on a pro rata basis proportionate to how much each investor held in the fund, Reserve Management said. Once the new distribution is completed, about 92 percent of the assets the fund held before breaking the buck will have been returned to investors, Reserve Management said.
The fund held $4.5 billion as of Tuesday. The size of the final payout to investors depends in part on whether the separate $3.5 billion reserve is big enough to cover costs once all litigation is resolved.
Details about the final distribution also hinge on the outcome of a civil fraud case the Securities and Exchange Commission brought in May against Reserve Management and its two top executives. The complaint accuses the firm and executives of withholding key facts from investors around the time of the fund's collapse.
An update that Reserve Management published on Sept. 17 said the fund had accrued expenses of nearly $20 million from various fund trustee and management fees during the fund's liquidation. In addition, the fund has earned nearly $197 million in net income from its assets during the liquidation, an amount that remains undistributed to investors, and may decrease once final expenses are determined.
