With the filing of a federal lawsuit Thursday, Harvard landed the latest blow in an increasingly bitter power struggle between the University and the manager of two of its largest investment funds.

The lawsuit alleges that the managers of the funds are putting their interests before shareholder profits by blocking Harvard’s attempts to raise the funds’ share price.

Thursday’s suit, filed in federal district court in Maryland, comes in response to Templeton Asset Management’s initial suit filed on Jan. 29. That lawsuit alleges that the University was employing “strong-arm investment tactics” to further a “self-serving, short-term agenda” potentially at the expense of other investors in the funds.

Templeton claims that long-term shareholders will be hurt if Harvard pursues short-term increases in share price. Such increases could be acheived, among other ways, by liquidating the fund.

Filed by the Harvard Management Company (HMC), which manages Harvard’s $18 billion endowment, Thursday’s suit challenges fund manager J. Mark Mobius’ handling of the China World and Dragon funds. Harvard holds a combined $115 million in these funds and is the largest minority shareholder in both.

HMC’s lawsuit said that Templeton had made “materially false and misleading statements” while Templeton argues the same against HMC. HMC also alleges that Templeton is trying to retain power over the fund by averting a “full and fair shareholder vote” on replacing Templeton as the funds’ manager.

The China fund’s annual meeting is set for March, when the shareholders would consider HMC’s proposal to end Templeton’s management.

HMC has urged terminating Templeton’s management because Templeton has, according to HMC, “done remarkably little over the years to enhance shareholder value.”

HMC said a vote would allow shareholders to pass judgement on Templeton’s management.

“We said let’s put it to the shareholders,” said Jeff Larson, senior vice president of international equity at HMC. “Templeton, in their lawsuit, has couched it like it’s some kind of illegal action.”

Larson said this kind of disagreement rarely spills over into the courts.

“This is a fund suing its own investors,” he said. “That’s pretty unusual.”

Templeton officials could not be reached for comment.

The feud between Templeton and HMC arose from a dispute over share price. HMC said it believes that the China and Dragon funds trade at excessively low prices, reflecting poor management. Templeton said the funds’ growth should allay those concerns.

The two funds are closed-end mutual funds, which tend to trade at a price lower than their actual value, called a discount.

HMC has proposed various plans to raise share prices, including firing the management and recalling the fund's assets.

“Shareholders in closed-end funds trading at a discount would in many cases be better off if the fund would simply liquidate,” HMC wrote.

Templeton responded by proposing to make the fund open-ended, which would raise share price.

HMC once supported this idea, but now calls it a “sham proposal” because it said Templeton simultaneously tried to convince shareholders to vote against the proposal. This maneuver, according to HMC, was intended to “give the appearance that the managers were (belatedly) serious about addressing the persistent discount,” while Templeton was not actually addressing the issue.

—Staff writer Stephen M. Marks can be reached at marks@fas.harvard.edu.