Reserve To Pay Out Most Of Primary Fund's Remaining Assets

Reserve Management said it will return most of the cash remaining in its troubled Primary Fund to investors on or about Friday.

The New York-based asset manager said Tuesday it will return $3.4 billion to investors in the once-$63 billion Primary Fund. The fund lost some of its value on Sept. 16, 2008 after the collapse of Lehman Brothers Holdings Inc., sparking panic across the money-market fund industry.

The distribution will be supervised by the U.S. District Court for the Southern District of New York.

After the distribution, which will be the sixth from the Primary Fund, 99% of its assets as of the close of business on Sept. 15, 2008, will have been distributed, the company said in a statement on its website. About $160 million will remain in the fund to cover management fees and other expenses to the extent such amounts are approved by the court, the company said. That excludes the fund's stake in Lehman Brothers' securities, once valued at $785 million, but now carried at zero.

Robert Skinner, an attorney with Boston law firm Ropes & Gray, who represents Ameriprise Financial Inc. (AMP) and its clients in a lawsuit against Reserve Management, said Ameriprise is pleased that the court's order has prevented the distribution from taking any longer.

"It's very disappointing that it took 16 months and the court's involvement in order to make this happen when the Reserve itself could have chosen to bring about this outcome many, many months ago," he said.

Reserve Management did not return a call seeking comment.

The Primary Fund's independent trustees had no comment on the distribution.

In a statement earlier this month, Reserve Management said that the court will review claims by the fund's adviser and distributor for management fees and expenses to determine the amount payable for such expenses out of the fund's assets. A complete statement of the fund's expenses can't be provided until that review is complete, it said.

As of Jan. 19, the adviser listed accrued fund expenses of more than $17.3 million, including $15.1 million in management fees, about $1.5 million in 12b-1 fees and $682,801 in trustees' fees, trustees' counsel fees and fees and expenses of the fund's chief compliance officer.

Skinner said the court continues to review the claims for fees and expenses and that parties are submitting briefs. "It seems hard to justify to shareholders a management fee for a fund adviser that held investors' money hostage for 16 months," he said.

-By Daisy Maxey, Dow Jones Newswires; 212 416 2237; daisy.maxey@dowjones.com

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