Profit Jumps 58% at Fund Firm Franklin Resources

Franklin Resources Inc., the largest publicly traded U.S. mutual fund firm, said its fiscal second-quarter earnings jumped 58% as the rising stock market boosted assets and management fees. The results included $60 million set aside to cover costs for a regulatory probe of alleged improper trading.

Net income in the three months ended March 31 increased to $172.8 million, or 69 cents a share, from $109.6 million, or 43 cents, a year earlier, San Mateo, Calif.-based Franklin said.

Franklin shares had their biggest one-day gain since March 17, 2003, rising $1.95 to $54.41 on the New York Stock Exchange.

Franklin, led by co-Chief Executives Greg Johnson, 42, and Martin Flanagan, 43, is among more than 20 firms that have been sued or are under investigation for allegedly allowing market-timing trades that diluted returns for long-term investors.

“They’re working to resolve the regulatory activities,” said Franklin Morton, a money manager at Ariel Capital Management in Chicago, which owned 3.9 million shares of the firm at the end of 2003. “I don’t think it’s a significant long-term issue.”

The $60 million set aside is less than the $110 million paid by Putnam Investments and the $675 million Bank of America Corp. spent to settle Securities and Exchange Commission and state complaints.

Unlike other firms that have been sued and seen clients withdraw funds, Franklin has continued to attract new money. Individual investors added $4.9 billion more than they took out in the quarter; institutions added $1.1 billion. Franklin also runs funds under the Templeton and Mutual Series brands.