OSC Panel Approves $49.1 Million Settlement With Franklin Templeton

Toronto – A panel of Commissioners of the Ontario Securities Commission (OSC) approved a settlement agreement today that will result in $49.1 million being distributed to mutual fund investors who suffered harm from market timing activities in certain funds managed by Franklin Templeton Investment Corp. The settlement agreement was reached earlier this week by OSC staff and Franklin Templeton.

The agreement said that the conduct of the fund manager - in failing to protect fully the best interests of the relevant funds - was contrary to the public interest. Together with payments arising from four other settlement agreements approved December 16, 2004, a total of $205.6 million will be repaid to investors harmed by market timing activities. The repayments are a result of the OSC's extensive probe into trading practices in mutual funds, completed in December, 2004, with only the Franklin Templeton matter outstanding at that time.

"We kept the investors as our clear focus throughout the probe," said OSC Chair David Brown. "Our sweeping approach had us scrutinize every fund manager with funds available to investors in Ontario. The result is an unprecedented $205 million being returned to the investors - and an end to market timing activities in the mutual fund industry."

No evidence of ongoing market timing activity has been found since the review of the Canadian mutual fund industry began in November 2003. In the probe, OSC staff did not uncover any evidence of late trading.

"Our next steps will be to follow through and consider appropriate policy changes to ensure that the activity that we have stopped stays stopped. As well, we need to consider a broader governance framework that will prevent or detect future abuses and continue to protect mutual fund investors," added Mr. Brown. "We know we will have the industry's backing when we turn to them to consider measures that enhance and protect the integrity of our investment marketplace."

Facts and Terms of Settlement
In the period February 1999 to February 2003:

• the total profit realized in Franklin Templeton Funds by the market timing traders was approximately $120.8 million (not all of the profit realized by the Market Timing Traders was from frequent trading market timing transactions, and the profit realized by the Market Timing Traders does not equate to harm to other investors in the Franklin Templeton Funds);
• the market timing traders achieved a return on their overall investment in the relevant funds that was significantly higher than the return that long-term investors would have achieved on their investments in the relevant funds in the same period;
• in connection with the trading by the market timing traders, Franklin Templeton charged management fees to the relevant funds of approximately $4.6 million (net of trailer fees paid to Canadian investment dealers and other expenses, Franklin Templeton earned approximately $1.5 million on those management fees); and
• no fees were charged by Franklin Templeton to the market timing traders.

Franklin Templeton agrees that, as a term of settlement, it will make a payment in the amount of $49.1 million to be distributed to affected investors. Franklin Templeton will be responsible for all costs of implementing the distribution of the funds according to a distribution plan prepared by an independent consultant and approved by the OSC.

Copies of the approved Settlement Agreement for Franklin Templeton Investments Corp. are made available on the OSC's web site (www.osc.gov.on.ca).

The Franklin Templeton settlement agreement brings to an end the year-long probe by the OSC into trading practices in the mutual fund industry. In related settlement agreements approved December 16, 2004, four other mutual fund managers agreed to make payments to investors who suffered harm from market timing activities. The total of funds to be returned to investors as a result of the probe is $205.6 million.

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