A federal judge has dismissed a shareholders' suit brought against Merrill Lynch Ready Assets Trust, the world's largest money market fund.
Two shareholders--Irving Gartenberg and Simone Andre--filed separate "derivative action" suits in 1979 on behalf of Merrill Lynch Ready Assets Trust, complaining of the amount of the annual compensation paid to the fund's adviser, Merrill Lynch Asset Management, Inc. A derivative action suit is one brought by shareholders for the benefit of the corporation.
In a 66-page opinion, U.S. District Judge Milton Pollack said that the basic contention of the plaintiffs was that the adviser "is making 'too much' money and that this constitutes a violation of the fiduciary duty imposed upon investment advisers" by the law.
"Money market shareholders hold the key to the continuance of the adviser in charge of their funds. They can terminate the relationship simply by writing a check and redeeming it at once," the judge ruled.
However, Pollack wrote that "Congress explicitly recognized 'the fact that the investment adviser is entitled to make a profit.' "
The fee paid to the adviser is contingent on the average daily value of the net assets of the fund. The annual compensation to the adviser amounted to slightly above one-quarter of 1 percent of the net assets during the fiscal 1980 year period.
In September, at the time of the three-day, nonjury trial here, the fund had net assets of over $19 billion. For the year beginning in September 1980, the adviser's fee was estimated to be $40 million.
Pollack noted that the money market fund industry is a highly competitive business. He said that in 1975, there were only 32 money market funds and that today there are 139 such funds.
"Under our political system," Pollack said, "no ceilings have been placed on making money except in regulated, public utility areas."
According to Pollack, last September, 1.1 million persons and institutions were shareholders in Merrill Lynch Ready Assets Trust. In addition to the fund and the adviser, the parent company, Merrill Lynch Pierce Fenner & Smith Inc., was named as a defendant.
This is believed to be the first court decision, after trial, concerning the fees paid by a money market fund to its adviser.