UPDATE 1-A Reserve money market fund halts distributions
* A Reserve money fund freezes distributions
* Investors still cannot recover $85.5 million
* Board to evaluate whether more money should be paid out
By Jonathan Stempel
NEW YORK, Nov 12 (Reuters) - More than a year after the implosion of the Reserve Primary Fund triggered near panic in the $3.3 trillion money market mutual fund industry, a smaller fund once run by the same company has halted distributions.
The board of trustees for the Reserve Yield Plus fund on Thursday said the fund will not for now distribute its $85.5 million of remaining assets, citing potential costs including litigation. It said it has already distributed more than $1 billion, or in excess of 90 percent, of its assets.
Reserve Primary, which once held $62 billion of assets, imploded when Lehman Brothers Holdings Inc (LEHMQ.PK) went bankrupt on Sept. 15, 2008, forcing it to write off $785 million of Lehman holdings.
The next day, Reserve Primary said it was worth 97 cents per share, becoming the first major money fund to fell below $1 per share, or "break the buck."
Its collapse was a big factor in a seizing of credit markets that prompted the government to shore up money funds, which buy corporate and government debt and are used by millions of workers in retirement plans.
The Yield Plus fund's board said it has set aside $44.9 million for potential legal costs including over Lehman, $37.8 million for distributions it might have to make on a non-pro rata basis, and $1.5 million for management fees and other expenses. This left just $1.3 million available for investors.
"Given the size of this amount, the uncertainties surrounding the calculations and the possibility of making a larger distribution in the near future, the board has determined not to make a distribution at this time," the board said. "As the litigation proceeds, the board will evaluate whether an additional distribution should be made."
The decision prolongs the wait for investors, many of whom viewed money funds as a liquid substitute for cash, despite the lack of federal guarantees. (Reporting by Jonathan Stempel)
