Byline: John Christoffersen

NEW HAVEN, Conn. - An investment fund that serves about 1,000 colleges and private schools partially froze withdrawals this week amid the credit crunch, forcing colleges to develop new plans to pay bills.

Wachovia Bank, trustee for the $9.3 billion

Wachovia initially told investors Monday that they could only withdraw 10 percent of their money, but that figure was increased to 34 percent by Wednesday and 37 percent by yesterday.

Commonfund, a Wilton, Conn.-based nonprofit that advises colleges and schools on money management, also said yesterday it put a 30 percent limit on withdrawals from its Intermediate Term Fund after investors in the Short Term Fund tried to withdraw money from that fund, said Keith Luke, managing director of Commonfund.

About 200 colleges and universities have about $1 billion in the intermediate fund, which is used for long-term needs, such as equipment plant purchases, he said.

"We just didn't have the liquidity in the fund to do that," Luke said. "We will relax that as soon as market conditions permit."

Partially freezing the Short Term Fund as officials prepare for liquidation prevents a run on money and protects investors, said Laura Fay, a Wachovia spokeswoman.

Some colleges are securing lines of credit because of the restriction on accessing money from the short-term account, according to Matthew Hamill, senior vice president of the National Association of College and University Business Officers.

That means borrowing costs that effectively reduce their rate of return in the original investment, he said.

Hamill said he does not expect the issue to affect students and their families and noted that the crisis has eased somewhat with a greater percentage of cash allowed to be withdrawn.

Assumption College in Worcester, Mass., had about $20 million in the fund, but was able to get back nearly a third of that, said Christian McCarthy, the school's executive vice president and treasurer. The redemption and other funds enabled the college to pay all its bills, he said.

"It's been a tremendous inconvenience," McCarthy said. "It really did come as quite a shock. It is disconcerting."

Bethany College - a Lutheran school in Lindsborg, Kan., with 600 students and a $12 million budget - has $700,000 invested in the fund.

"Obviously we weren't planning on withdrawing all at once," said Aubrey Streit, a spokeswoman. "We're just re-evaluating our plan for how we will work with the cash flow over the course of the next academic year."

Bethany College is not in a state of panic, Streit said, but she noted that the investment was a significant part of its budget.

"It wasn't something we expected," Streit said. "It really makes it real to see the financial impact coming here."