Reserve Primary Fund shareholders who placed redemption orders before the fund announced that it had broken the buck, but whose redemption orders were not satisfied, will share pro rata with other shareholders in the fund's liquidation proceeds, according to a Bloomberg news report. The money market fund had about $62 billion of assets on Friday, September 12. After the Lehman Brothers Holdings bankruptcy was announced on Monday, September 15, and before the Reserve announced that the fund had broken the buck on Tuesday, September 16, there were redemption orders placed for about $40 billion, of which about $10 billion were satisfied. The decision means that the fund's losses on the $785 million it held in Lehman Brothers securities will be shared across a base of more than $50 billion, not just the $22 billion that were not redeemed, potentially resulting in a loss of only 1.6%, not the more than 3% announced on September 16. The actual return to investors, of course, must depend on the fund's success and costs in liquidating and distributing its assets.
The Reserve has announced that there will be an initial distribution of $20 billion on or about October 13. The Reserve explained that the two-week time frame for the initial distribution is necessary in order to make system modifications, since the existing system was programmed to accommodate a constant $1.00 NAV. The Reserve said it cannot currently estimate when additional distributions to investors will be made. While the Primary Fund and the U.S. Government Fund have an order from the Securities and Exchange Commission allowing the postponement of payments for share redemptions, there are anecdotal reports that some of the other Reserve Funds also are not always satisfying redemptions within the seven-day period allowed by statute.
The Bloomberg report is available at
Statements from the Reserve are posted at
The court in the Ameriprise Financial Services litigation has lifted its temporary restraining order against honoring any redemption requests made to the Primary Fund. Ameriprise Financial Services v. Reserve Fund, File No. 08-CV-5219 (PAM/JJK) (D. Minn. Sept. 25, 2008). The court ruled that the SEC is the proper authority to supervise the liquidation of the fund's assets and that the SEC order adequately protects the interests of investors in the Primary Fund. The court vacated its order without prejudice, however, so that, should the SEC order fail to adequately protect plaintiffs' interests or should defendants' conduct threaten irreparable harm to plaintiffs, plaintiffs could return to the court and request reimposition of a temporary restraining order. The plaintiffs' claim for damages, in connection with the defendants' alleged selective disclosure of the Primary Fund's problems, continues for now. For this and selected other litigation documents involving the Reserve, see
For my prior post on the litigation, see
For additional information on developments of interest to the investment company industry, particularly in light of recent market developments, a valuable new resource is the Mutual Fund Directors Forum's Forum News Feed, an electronic journal of news and resources for fund independent directors. Forum News Feed is available online at
John M. Baker <JMB@...
Stradley Ronon Stevens & Young, LLP http://www.stradley.com
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