Reserve Primary Fund investors get some cash back

  • Article by: KARA McGUIRE
  • Star Tribune
  • October 31, 2008 - 8:47 PM

After weeks of waiting and wondering, shareholders of the troubled Reserve Primary Fund are getting back some, but not all, of their cash. Reserve Management Co. of New York said it was handing out $26 billion to the fund's investors on Halloween.

Assets in the money market fund -- including $3.2 billion belonging to Ameriprise Financial Inc. and its clients -- have been frozen since mid-September. That's when the supposedly safe-as-cash fund's value fell below $1 per share.

The distribution is being made equally to all shareholders, who will receive roughly 50 percent of their account balance. "This is a positive development, but it doesn't resolve the whole situation," said Ameriprise spokesman Ben Pratt, who confirmed Friday that Ameriprise received the Primary Fund distribution.

It's been a tough few weeks for the more than 330,000 clients of Ameriprise and subsidiary Securities America who have money in the fund. Some investors scrambled to find new ways to pay for college and everyday expenses and to fund retirement. Financial advisers fronted money for investors that relied on the fund for cash.

It hasn't been a picnic for Ameriprise, either. The company filed a lawsuit in September alleging that Reserve informed institutional investors about its troubles, caused by worthless Lehman Brothers paper, before it told retail investors. The company also decided to reimburse clients as much as $33 million if Reserve fails to reimburse shareholders at full value. That contributed to Ameriprise's third-quarter loss of $70 million, or 32 cents per share.

After the move, the Primary Fund will be worth roughly $25 billion. It had been worth $64.3 billion at the end of May. "We are committed to making future distributions when more cash becomes available," Reserve President Bruce Bent said in a statement Thursday night.

Reserve also announced it plans to post details for total liquidation of the fund "in the next several days." However, the company has failed to meet self-imposed deadlines regarding distribution details before. It also hasn't announced any distribution information for the frozen U.S. Government Fund, which some Minnesota investors also own.

Kara McGuire • 612-673-7293

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