The No. 1 U.S. public pension fund placed a maligned Franklin Resources unit on probation Tuesday, pending further investigation.

Calpers, the California Public Employees’ Retirement System, eschewed Franklin Advisors into its "watch list" room amid allegations that the fund firm partook in improper trades.

Board President Sean Harrigan said that with the situation still not settled, it became appropriate "to hold off on further action."

"The situation at Franklin continues to unfold and is very fluid," Harrigan said. "We will await the final determination of all investigations, but placing them on the watch list is the most responsible course of action in the interim."

Franklin Advisors is the third mutual fund firm to be placed on the Calpers watch list during the last three months. The other two were The Boston Co. and Alliance Bernstein. Back in November, Calpers fired Putnam Investments for its top management’s allowance of market timing.

As of December 31, 2003, Calpers had $826.2 million of its assets handled by Franklin.

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