Today's Wall Street Journal reports that up to 200 variable annuity money market subaccounts have "broken the buck." Don't think that can't happen to Forty Act funds either if their advisors are not careful. Last week no less than 75 funds were in danger of breaking the buck if their sponsor did not take action to reduce fees. And, at least one fund firm recently saw the one-day yield it reported to IMoneyNet drop to zero.

IMoneyNet, a unit of Informa, reports that 75 of the 1,734 money funds it tracks reported seven-day yields of less than 50 basis points. Typically, these ultra-low yields are found on funds with class B or C shares, says IMoneyNet's Connie Bugbee. With this week's 50 basis point cut by the Fed now wending its way through the bond market, many of these funds may be at risk of breaking the buck if no action is taken.

One fund with an especially low reported yield is the Money Market ProFund Service Class. That fund is now down to a 4 basis point yield. On September 20, the one-day yield it reported to IMoneyNet dropped to zero. The fund's seven-day yield also hit zero on September 24. By October 1, ProFunds had reimbursed enough of the fees charged against the fund to return both yields to 1 basis point and it has climbed to range from 2 to 4 bps. in recent weeks.

The low yields of the fund (which is subadvised by Deutsche Asset Management) are entirely the result of fees taken out of the assets by ProFunds. Indeed, the Investor Class shares of the fund are currently reporting a seven-day yield of 77 basis points. Neither a ProFunds spokesperson nor Chairman Michael Sapir were available to comment for this story.

A second fund, Pioneer's Cash Reserves Fund, saw its yield dip to 6 basis on August 27. The Boston-based fund firm reacted to that event by cutting its fees to boost the seven-day yield to 21 basis points the next day.

ProFunds and Pioneer are not alone in facing this dilemma. Bruce Bent (the senior), founder of Reserve Funds, believes that this environment will cause more funds to seek outside providers who can cut costs. He does not believe sponsors will let yields dip into negative territory, though. "That would make them unmarketable," he explained.

If the variable annuity market is a guide, though, Bent may be overoptimistic in his assessment.

Morningstar told the Journal that the average money market subaccount in an annuity yielded just fewer than 10 basis points for the year through October. The average fee on annuity funds is 183 basis points for the variable annuity universe. Fortunately for those providers there is not concept of the sacred $1 NAV. The fund industry is not so lucky.  

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