Sign up today and take advantage of member-only content — the kind of timely, cutting edge industry insight that only Money Management Executive can deliver.
  • Exclusive Online Only Content
  • Free Daily Email News Alerts
  • Asset Management Blogs

Up Front News

Harvard/Templeton China Fund Fight Turns Ugly

Templeton Asset Management, a subsidiary of Franklin Templeton Investments has filed suit against the $19.8 billion investment arm of Harvard University, Harvard Management Co., charging it with "repeated violations of federal securities laws," according to a Templeton statement.

The complaint, filed in the United States District Court for the District of Maryland, claims Harvard improperly dealt with the handling of its investments in two private equity funds, the Templeton China World Fund, and the Templeton Dragon Fund.

The suit charges Harvard with failing to make timely disclosures to the SEC concerning the trading of shares of the two funds; making false or misleading statements in connection with Harvard's solicitation of proxies from the shareholders of the China World Fund; and illegally profiting from short-swing trading in the shares of the funds.

The lawsuit comes on the heels of a decision by Harvard to vote in March on whether or not to terminate its investment management agreement with Templeton.

"We think the relationship [between Harvard and Templeton] needs to be changed," said Steven Alperin, Harvard's emerging assets portfolio manager. No specific date has been set for the March vote.

No Response

Harvard expressed ongoing dissatisfaction with what it deemed to be a lackluster response by Templeton management to "constructive suggestions" concerning the management of its $54 million China World Fund, according to SEC filings.

Similar problems occurred late last year between the two companies concerning Harvard's $58 million investment in the Dragon Fund, according to Alperin.

Harvard Management is advising its shareholders to terminate Templeton management, merge the China World Fund into the Dragon Fund, and then convert the combined assets to interval fund status. Harvard has also recommended that shareholders vote against a suggestion by Templeton to open-end the China World Fund, due to its lack of liquidity.

In its suit, Templeton is requesting that Harvard be prohibited from "soliciting proxies from shareholders of China World for the 2003 annual meeting until Harvard has corrected its false and misleading statements, and voiding previously obtained proxies."

Illegal Action by Harvard?

The suit also requests that Harvard be prevented from buying new shares of either the China World or Dragon fund until SEC disclosures have been corrected. It also wants Harvard to surrender the right to vote on or retain profits from shares of the two funds that Templeton claims were acquired illegally, and return to the funds any profits it alleges Harvard obtained from any illegal short-swing trading. And it wants Harvard to pay court costs.

Harvard called the suit a "desperate act by Templeton and the funds' boards of directors to divert attention from the important issues Harvard has raised."

Morningstar/Fidelity Deal Puts Neutrality in Question

Fidelity Investments' three-year contract with Morningstar to have the fund rating service maintain a list of 24 "Fidelity Fund Favorites" has put Morningstar's neutrality into question. Fidelity is paying Morningstar an undisclosed sum to maintain the list, which investors may incorrectly perceive as impartial research, according to a report in The Wall Street Journal.

This is the first time that the fund rating giant has highlighted any single fund family's offerings.

Copyright 2003 Thomson Media Inc. All Rights Reserved.