As we began collecting data for our August Money Fund Intelligence and July 31, 2010, performance statistics, we noticed several funds reporting eye-poppingly high 7-day yields. Even a 1.0% yield would jump out in this environment, but these were ridiculous. One Victory Money Market Fund is showing a yield of almost 9%, while two Cavanal Hill Money Funds are showing yields over 4.0%. After investigating, we discovered the temporary anomaly was caused by the SEC's "Fair Fund" and a distribution related to a case against BISYS Fund Services (now part of Citi). (Note: Cavanal Hill has since adjusted their yields to remove the impact of the Fair Fund settlement.)

Cavanal Hill Funds, which are Bank of Oklahoma affiliated and the former American Performance Funds, says on its website, "The Cavanal Hill Funds listed below received funds on July 30, 2010 as part of a distribution from a 'fair fund' established by the SEC in connection with a consent order against BISYS Fund Services, Inc. This distribution was not in respect of the performance of securities invested by the Fund. As a result, the yield numbers provided elsewhere on this site for such Funds are affected, in some instances materially, by such distribution. The income associated with the distribution is non-recurring and the effect is not expected to be duplicated." Cavanal Hill Cash Management Fund Inst is showing a yield of 4.51%, and Cavanal Hill U.S. Treasury Fund Inst is showing a yield of 4.33%.

Victory, which is affiliated with KeyBank, doesn't say anything about it on its website, but a customer service rep confirmed the one-time nature of the yield pop. Victory Prime Obligations is posting a 7-day (annualized) yield of 8.91% and a 1-month return of 0.24%. Victory Financial Reserves Fund is showing a yield of 3.08%, Victory Institutional Money Market Fund is showing a yield of 1.06%, and Victory Federal Money Market Fund is showing a yield of 0.99%. (We haven't seen any others benefiting from this settlement yet.)

The website says, "A Fair Fund was established pursuant to a settlement between the U.S. Securities and Exchange Commission and BISYS Fund Services, Inc., now known as Citi Fund Services, Inc.... On September 26, 2006, BISYS and the Commission entered into the Settlement with respect to findings by the Commission that certain arrangements between BISYS, acting as mutual fund administrator, and certain mutual fund advisers, were improper. The Settlement requires, among other things, a distribution of settlement monies from the BISYS Fair Fund to benefit the Mutual Funds within the affected fund families..... Pursuant to the Settlement, BISYS has paid into the BISYS Fair Fund a total of approximately $21.4 million, of which $10 million represents a civil penalty and approximately $11.4 million represents disgorgement and interest. The distribution of the BISYS Fair Fund will be made pursuant to a Fair Fund Distribution Plan that has been reviewed and approved by the Commission."

While unusual and mercifully rare, it's worth noting that money fund yields and returns are occasionally impacted by one-time payments, accounting adjustments, and other factors. Note that the 7-day yield (or SEC yield), which is the main performance gauge of money market funds and which takes the previous 7 days' worth of income and annualizes it, excludes capital gains and losses. (It also should exclude any income that is "non-investment income," so these yields may have to be revised. In 1996, the SEC changed the rules to exclude any non-investment income.) Note too that Crane Data will be excluding these ridiculously high yields from its performance statistics. But investors in these funds, at least for a couple of days, can enjoy a brief respite from the endless landscape of near-zero yields.

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