Sept. 18 (Bloomberg) -- Putnam Investments LLC closed its $12.3 billion institutional Putnam Prime Money Market Fund yesterday and plans to return all cash to investors.

The fund, which was valued yesterday at $1 a share, experienced ``significant redemption pressure,'' the Boston- based company said in a statement. A drop below $1 a share, known as breaking the buck, would have exposed investors to losses.

The fund had no current exposure to securities issued by Lehman Brothers Holdings Inc., Washington Mutual Inc. or American International Group Inc., the company said.

Reserve Primary Fund, the oldest U.S. money-market fund, on Sept. 16 became the first in 14 years to break the buck. Investors pulled 60 percent of their money from the $62.6 billion fund on Sept. 15 and 16 before withdrawals were delayed.

Putnam, a unit of Canadian insurer Great-West Lifeco Inc., said in a shareholder report for the period ended March 31 that the Putnam Prime Money Market was continuing to invest in short- term debt issued by ``large global banks.'' The fund looks for banks with sizable franchises and diverse revenue sources that can help them weather economic slowdowns, according to the report, which cited Citigroup Inc. and Bank of America Corp. as examples of companies that fit these criteria.

As of June 30, Putnam Prime Money Market held $27 million of Lehman debt that matured on Aug. 27, along with $98.5 million of senior secured notes issued by Merrill Lynch & Co. that also came due last month, according to an Aug. 28 filing with the U.S. Securities and Exchange Commission. The fund also held about $109 million of notes issued by Wachovia Corp. that mature next year in February and August.

`Cautionary Stance'

In its March report, Putnam Prime said its ``cautionary stance'' toward mortgage and credit markets helped the fund avoid securities ``that proved the most disappointing'' in terms of falling values earlier this year and in 2007. ``The fund not only lacked direct exposure to the subprime mortgage market,'' the report said, but also avoided investments in structured investment vehicles that came under scrutiny when financial markets ``experienced credit and liquidity problems.''

Other Putnam funds hold shares in the Prime money-market fund, according to SEC filings. The fund was managed by Joanne Driscoll, 38, who, prior to joining Putnam in 1995, worked as a graduate teaching assistant in the finance department of Northeastern University in Boston and as a financial associate at Bank of Boston.

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net

Last Updated: September 18, 2008 16:40 EDT