UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-05569
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FRANKLIN UNIVERSAL TRUST
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(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: 650/312-2000
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Date of fiscal year end: 8/31
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Date of reporting period: 2/29/08
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ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMITTED]
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FEBRUARY 29, 2008
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SEMIANNUAL REPORT INCOME
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FRANKLIN UNIVERSAL TRUST
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[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
FRANKLIN o Templeton o Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management
groups--Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a
recognized leader in fixed income investing and
also brings expertise in growth- and value-style
U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched
what has become the industry's oldest global fund.
Today, with offices in over 25 countries,
Templeton offers investors a truly global
perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what
it believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently
and adhere to different investment approaches,
Franklin, Templeton and Mutual Series funds
typically have distinct portfolios. That's why our
funds can be used to build truly diversified
allocation plans covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well
as the reliable, accurate and personal service
that has helped us become one of the most trusted
names in financial services.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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[GRAPHIC OMITTED]
Not part of the semiannual report
Contents
SEMIANNUAL REPORT
Franklin Universal Trust .................................................. 1
Performance Summary ....................................................... 6
Important Notice to Shareholders .......................................... 7
Dividend Reinvestment and Cash Purchase Plan .............................. 8
Financial Highlights and Statement of Investments ......................... 11
Financial Statements ...................................................... 18
Notes to Financial Statements ............................................. 22
Shareholder Information ................................................... 30
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Semiannual Report
Franklin Universal Trust
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Universal Trust's primary
investment objective is to provide high, current income consistent with
preservation of capital. Its secondary objective is growth of income through
dividend increases and capital appreciation.
PORTFOLIO BREAKDOWN
Based on Total Investments*
2/29/08
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Corporate Bonds 68.0%
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Utilities Common Stocks 27.1%
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Natural Resources Common Stocks 1.9%
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Foreign Government & Agency Securities 0.1%
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Miscellaneous Common Stocks 0.0%**
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Cash & Other Net Assets 2.9%
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* Percentage of total investments of the Fund. Total investments of the Fund
include long-term and short-term investments and other net assets, excluding
long-term debt issued by the Fund.
** Rounds to less than 0.1% of total investments.
Dear Shareholder:
This semiannual report for Franklin Universal Trust covers the period ended
February 29, 2008.
PERFORMANCE OVERVIEW
For the six months under review, the Fund's cumulative total returns were -0.72%
based on change in net asset value and +1.38% based on change in market price on
the New York Stock Exchange, as shown in the Performance Summary on page 6. For
comparison, the Credit Suisse (CS) High Yield Index returned -1.54%, and
utilities stocks, as measured by the Standard & Poor's (S&P) 500 Utilities
Index, returned -1.34% for the six months ended February 29, 2008. 1
ECONOMIC AND MARKET OVERVIEW
The pace of U.S. economic growth decelerated for the six-month period ended
February 29, 2008, as fourth quarter 2007 gross domestic product grew at
1. Sources: Credit Suisse; Standard & Poor's Micropal. The CS High Yield Index
is designed to mirror the investible universe of the U.S. dollar denominated
high yield debt market. The S&P 500 Utilities Index is a market
capitalization-weighted index that includes electric utility stocks in the S&P
500. The indexes are unmanaged and include reinvestment of any income or
distributions. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 12.
Semiannual Report | 1
TOP 10 HOLDINGS
Based on Total Investments*
2/29/08 vs. 8/31/07
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ISSUER 2/29/08
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Exelon Corp. 3.3%
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FPL Group Inc. 2.4%
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The Southern Co. 2.3%
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Entergy Corp. 2.2%
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Constellation Energy Group 2.1%
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FirstEnergy Corp. 2.0%
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Dominion Resources Inc. 1.7%
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Public Service Enterprise Group Inc. 1.7%
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GMAC LLC 1.5%
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Ford Motor Credit Co. LLC 1.5%
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8/31/07
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Exelon Corp. 3.0%
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The Southern Co. 2.5%
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FPL Group Inc. 2.4%
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Edison International 2.3%
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Entergy Corp. 2.1%
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FirstEnergy Corp. 1.9%
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Constellation Energy Group 1.9%
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Dominion Resources Inc. 1.7%
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Public Service Enterprise Group Inc. 1.7%
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CenterPoint Energy Inc. 1.5%
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* Percentage of total investments of the Fund. Total investments of the Fund
include long-term and short-term investments and other net assets, excluding
long-term debt issued by the Fund.
an estimated 0.6% annualized rate, down from 4.9% annualized in the third
quarter. Although consumer spending and personal income continued to support the
economy, signs of a slowdown became evident during the six months under review.
A number of indicators reflected a housing market correction, financial market
strains, and softening business and consumer spending, as well as upward
inflation pressures from increasing food, energy and commodity prices and a
weaker dollar.
Volatile oil prices reached a historical high on February 29 of $102 per barrel.
Core inflation, which excludes food and energy costs, rose for the period,
signaling that inflation risk remains. For February 2008, core inflation had a
12-month increase of 2.3%. 2 The Federal Reserve Board's (Fed's) preferred
measure of inflation, the core personal consumption expenditures price index,
reported a 12-month increase of 2.0%. 3
As investor uncertainty persisted, the Fed remained committed to act in an
effort to restore normalcy to U.S. financial markets. After a broad-based
international stock sell-off in January, the Fed cut interest rates twice and
brought the federal funds target rate to 3.0%. Likewise, Congress passed a $168
billion fiscal stimulus plan intended to boost the flagging U.S. economy.
Over the period, investors sought relative safety in short-term U.S. Treasuries,
Treasury yields declined and the yield curve steepened. Short-term, two- and
five-year yields declined significantly, with the two-year bill yielding 1.65%
at the end of February, down from 4.15% six months earlier. The 10-year U.S.
Treasury note ended February yielding 3.53%, compared with 4.54% at the
beginning of the period.
INVESTMENT STRATEGY
We invest primarily in two asset classes: high yield bonds and utility stocks.
Within the high yield portion of the portfolio, we use fundamental research to
invest in a diversified portfolio of bonds. Within the utility portion of the
portfolio, we focus on companies with attractive dividend yields and with a
history of increasing their dividends.
MANAGER'S DISCUSSION
During the six-month period under review, the Fund's performance was hindered by
negative returns within its primary asset classes. Both high yield bonds and
2. Source: Bureau of Labor Statistics.
3. Source: Bureau of Economic Analysis.
2 | Semiannual Report
utility stocks suffered from the general environment of risk aversion that
typified financial markets since the subprime mortgage crisis first emerged in
the summer of 2007. Yield spreads for high yield corporate bonds began the
period at 4.6 percentage points above Treasury securities, and increased to 7.6
percentage points at period-end. 4 The ending spread was the highest in nearly
five years, as investors worried that the developing credit crunch would lead to
a U.S. recession, and thus higher default rates. Utility stocks, displaying
their traditionally defensive characteristics, continued to perform well through
the end of 2007 before succumbing to weak overall equity markets in the first
two months of 2008. Despite these short-term losses, our fundamental outlook for
utilities remained favorable as these companies continued a trend seen in recent
years of increased capital investment into their own networks and
infrastructure.
HIGH YIELD CORPORATE BONDS
The Fund benefited from its overweighted position in the food and beverage
industry relative to the CS High Yield Index, as well as its underweighted
exposure to the building industry. 5 The food and beverage industry, which
includes tobacco companies, generally benefited from its defensive, non-cyclical
characteristics. Demand for food and tobacco is typically less sensitive to
economic concerns, and therefore business conditions were relatively unaffected
by the economic uncertainty that arose during the period. In addition, the
Fund's holdings within the sector were of an overall higher quality, so their
valuations held up better during the extended market sell-off. The building
industry suffered in the aftermath of the subprime mortgage meltdown. New home
sales fell dramatically due to home values declining in most parts of the
country and significantly tighter lending standards. As a result of these
factors, the building industry was one of the worst performers during the
period.
The Fund's overweighted allocations in the pay television and gaming industries
hurt relative performance. 6 The pay TV industry was pressured as increased
competition and economic weakness contributed to lower valuations, thereby
reducing the implied equity cushion underlying the bonds. As the pay TV industry
generally will need to access capital markets to refinance debt over the coming
years, the emerging credit crunch also weighed on such companies' performance.
According to our analysis, the gaming industry weakened mainly because many
companies took on increased financial leverage just as the economy began to
slow. In addition, further pressuring the industry were concerns about Las Vegas
casinos that cater to local residents who may be adversely affected by housing
market weakness.
4. Source: Credit Suisse.
5. Food and beverage holdings are in the food, beverage and tobacco sector in
the SOI. Building holdings are in the consumer durables and apparel sector in
the SOI.
6. Pay television and gaming holdings are in the consumer services and media
sectors in the SOI.
Semiannual Report | 3
UTILITY STOCKS
Utility stocks declined in value during the six months under review, as the
sector was affected by investor concern about the overall weakening economy.
However, the utility sector exhibited some of its defensive nature as the S&P
500 Utilities Index had a -1.34% return compared with the S&P 500's -8.79%
return. 7 Many utilities companies increased distributions to shareholders, with
significant dividend increases announced during the period by Fund holdings
Exelon, Dominion Resources, FPL Group and Public Service Enterprise Group. In
addition to higher dividends, many utilities may use capital for growth
initiatives. The Edison Electric Institute forecasted higher capital spending by
utilities companies in 2008, which continues a trend that has occurred over the
past few years. An area where utilities increased spending was environmental
emissions control, as the industry was preparing for an uncertain future in
regard to regulation and in terms of who will bear the costs of potential CO 2
and mercury emissions legislation. Exelon and FirstEnergy, which appeared well
positioned for future carbon initiatives, were leading contributors to the
Fund's performance during the period under review. On the other hand, Ameren
detracted from Fund performance as it faced rising cost pressures and announced
earnings guidance that was below investors' expectations.
7. Source: Standard & Poor's Micropal. See footnote 1 for a description of the
S&P 500 Utilities Index. The S&P 500 consists of 500 stocks chosen for market
size, liquidity and industry group representation. Each stock's weight in the
index is proportionate to its market value. The S&P 500 is one of the most
widely used benchmarks of U.S. equity performance.
4 | Semiannual Report
Thank you for your continued participation in Franklin Universal Trust. We look
forward to serving your future investment needs.
Sincerely,
[PHOTO OMITTED] /s/ Christopher J. Molumphy
Christopher J. Molumphy, CFA
Senior Portfolio Manager
[PHOTO OMITTED] /s/ Glenn I. Voyles
Glenn I. Voyles, CFA
Portfolio Manager
Franklin Universal Trust
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 29, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Semiannual Report | 5
Performance Summary as of 2/29/08
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses. Capital
gain distributions are net profits realized from the sale of portfolio
securities. Total return reflects reinvestment of the Fund's dividends and
capital gain distributions, if any, and any unrealized gains or losses. Total
returns do not reflect any sales charges paid at inception or brokerage
commissions paid on secondary market purchases. The performance table does not
reflect any taxes that a shareholder would pay on Fund dividends, capital gain
distributions, if any, or any realized gains on the sale of Fund shares.
PRICE AND DISTRIBUTION INFORMATION
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SYMBOL: FT CHANGE 2/29/08 8/31/07
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Net Asset Value (NAV) -$0.27 $7.14 $7.41
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Market Price (NYSE) -$0.13 $6.55 $6.68
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DISTRIBUTIONS (9/1/07-2/29/08)
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Dividend Income $0.228
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PERFORMANCE
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6-MONTH 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1
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Based on change in NAV 2 -0.72% -1.60% +97.92% +58.80%
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Based on change in market price 3 +1.38% -0.47% +74.00% +54.97%
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Average Annual Total Return 1
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Based on change in NAV 2 -0.72% -1.60% +14.63% +4.73%
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Based on change in market price 3 +1.38% -0.47% +11.71% +4.48%
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Distribution Rate 4 6.96%
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PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN.
ENDNOTES
THE RISKS ASSOCIATED WITH HIGHER-YIELDING, LOWER-RATED SECURITIES INCLUDE HIGHER
RISK OF DEFAULT AND LOSS OF PRINCIPAL. THESE SECURITIES CARRY A GREATER DEGREE
OF CREDIT RISK RELATIVE TO INVESTMENT GRADE SECURITIES. IN ADDITION TO OTHER
FACTORS, SECURITIES ISSUED BY UTILITY COMPANIES ARE PARTICULARLY SENSITIVE TO
INTEREST RATE MOVEMENTS. THE FUND'S SHARE PRICE AND YIELD WILL BE AFFECTED BY
INTEREST RATE MOVEMENTS. SPECIAL RISKS ARE ASSOCIATED WITH FOREIGN INVESTING,
INCLUDING CURRENCY VOLATILITY, ECONOMIC INSTABILITY AND POLITICAL DEVELOPMENTS
OF COUNTRIES WHERE THE FUND INVESTS. EMERGING MARKETS INVOLVE HEIGHTENED RISKS
RELATED TO THE SAME FACTORS, IN ADDITION TO THOSE ASSOCIATED WITH THEIR
RELATIVELY SMALL SIZE AND LESSER LIQUIDITY.
1. Total return calculations represent the cumulative and average annual changes
in value of an investment over the periods indicated. Six-month return has not
been annualized.
2. Assumes reinvestment of distributions based on net asset value.
3. Assumes reinvestment of distributions based on the dividend reinvestment and
cash purchase plan.
4. Distribution rate is based on an annualization of the Fund's 3.8 cent per
share February dividend and the NYSE closing price of $6.55 on 2/29/08.
6 | Semiannual Report
Important Notice to Shareholders
SHARE REPURCHASE PROGRAM
In January 2006, the Fund's Board authorized an initial open-market share
repurchase program that resulted in the Fund repurchasing 10% of the Fund's
outstanding shares in open-market transactions through February 1, 2008. In
December 2007, the Fund's Board authorized, at the investment manager's
discretion, the repurchase of an additional 10% of the Fund's outstanding shares
in open market transactions. This authorization remains in effect.
Semiannual Report | 7
Dividend Reinvestment and Cash Purchase Plan
The Fund's Dividend Reinvestment and Cash Purchase Plan (Plan) offers you a
prompt and simple way to reinvest dividends and capital gain distributions in
shares of the Fund. The Plan also allows you to purchase additional shares of
the Fund by making voluntary cash payments. PFPC Inc. (Plan Agent), P.O. Box
9223, Chelsea, MA 02150-9223, acts as your Plan Agent in administering the Plan.
The complete Terms and Conditions of the Dividend Reinvestment and Cash Purchase
Plan are contained in the Fund's Dividend Reinvestment and Cash Purchase Plan
Brochure. A copy of that Brochure may be obtained from the Fund at the address
on the back cover of this report.
You are automatically enrolled in the Plan unless you elect to receive dividends
or distributions in cash. If you own shares in your own name, you should notify
the Plan Agent, in writing, if you wish to receive dividends or distributions in
cash.
If the Fund declares a dividend or capital gain distribution payable either in
cash or in stock of the Fund and the market price of shares on the valuation
date equals or exceeds the net asset value, the Fund will issue new shares to
you at the higher of net asset value or 95% of the then current market price.
Whenever the Fund declares a distribution from capital gains or an income
dividend payable in either cash or shares, if the net asset value per share of
the Fund's common stock exceeds the market price per share on the valuation
date, the Plan Agent shall apply the amount of such dividend or distribution
payable to participants to the purchase of shares (less their pro rata share of
brokerage commissions incurred with respect to open market purchases in
connection with the reinvestment of such dividend or distribution). If the price
exceeds the net asset value before the Plan Agent has completed its purchases,
the average purchase price may exceed the net asset value, resulting in fewer
shares being acquired than if the Fund had issued new shares. All reinvestments
are in full and fractional shares, carried to three decimal places. The Fund
will not issue shares under the Plan at a price below net asset value.
The Plan permits you on a voluntary basis to submit in cash payments of not less
than $100 each up to a total of $5,000 per month to purchase additional shares
of the Fund. It is entirely up to you whether you wish to buy additional shares
with voluntary cash payments, and you do not have to send in the same amount
each time if you do. These payments should be made by check or money order
payable to PFPC Inc. and sent to PFPC Inc., Attn: Franklin Universal Trust, P.O.
Box 9223, Chelsea, MA 02150-9223.
Your cash payment will be aggregated with the payments of other participants and
invested on your behalf by the Plan Agent in shares of the Fund that are
purchased in the open market.
8 | Semiannual Report
The Plan Agent will invest cash payments on approximately the 5th of each month
in which no dividend or distribution is payable and, during each month in which
a dividend or distribution is payable, will invest cash payments beginning on
the dividend payment date. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON YOUR
FUNDS HELD BY THE PLAN AGENT. Accordingly, you should send any voluntary cash
payments you wish to make shortly before an investment date but in sufficient
time to ensure that your payment will reach the Plan Agent not less than two
business days before an investment date. Payments received less than two
business days before an investment date will be invested during the next month
or, if there are more than 30 days until the next investment date, will be
returned to you. You may obtain a refund of any cash payment by written notice,
if the Plan Agent receives the written notice not less than 48 hours before an
investment date.
There is no direct charge to participants for reinvesting dividends and capital
gain distributions, since the Plan Agent's fees are paid by the Fund. However,
when shares are purchased in the open market, each participant will pay a pro
rata portion of any brokerage commissions incurred. The Plan Agent will deduct a
$5.00 service fee from each of your voluntary cash payments.
The automatic reinvestment of dividends and capital gain distributions does not
relieve you of any taxes which may be payable on dividends or distributions. In
connection with the reinvestment of dividends and capital gain distributions, if
the Fund issues new shares, shareholders receiving such shares generally will be
treated as having a distribution equal to the market value of the shares
received, and if shares are purchased on the open market, shareholders generally
will be treated as having received a distribution equal to the cash distribution
that would have been paid.
The Fund does not issue new shares in connection with voluntary cash payments.
All investments are in full and fractional shares, carried to three decimal
places. If the market price exceeds the net asset value at the time the Plan
Agent purchases the additional shares, you will receive shares at a price
greater than the net asset value.
You will receive a monthly account statement from the Plan Agent showing total
dividends and capital gain distributions, date of investment, shares acquired
and price per share, and total shares of record held by you and by the Plan
Agent for you. You are entitled to vote all shares of record, including shares
purchased for you by the Plan Agent, and, if you vote by proxy, your proxy will
include all such shares.
Semiannual Report | 9
As long as you participate in the Plan, the Plan Agent will hold the shares it
has acquired for you in safekeeping, in its name or in the name of its nominee.
This convenience provides added protection against loss, theft or inadvertent
destruction of certificates. However, you may request that a certificate
representing your Plan shares be issued to you.
You may withdraw from the Plan without penalty at any time by notifying the Plan
Agent, in writing, at the address above. If you withdraw, you will receive,
without charge, stock certificates issued in your name for all full shares. The
Plan Agent will convert any fractional shares you hold at the time of your
withdrawal to cash at current market price and send you a check for the
proceeds.
If you hold shares in your own name, please address all notices, correspondence,
questions, or other communications regarding the Plan to the Plan Agent at the
address noted above. If your shares are not held in your name, you should
contact your brokerage firm, bank, or other nominee for more information and to
determine if your nominee will participate in the Plan on your behalf.
The Fund or the Plan Agent may amend or terminate the Plan. You will receive
written notice at least 90 days before the effective date of termination or of
any amendment. In the case of termination, you will receive written notice at
least 90 days before the record date of any dividend or capital gain
distribution by the Fund.
10 | Semiannual Report
Franklin Universal Trust
FINANCIAL HIGHLIGHTS
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SIX MONTHS ENDED
FEBRUARY 29, 2008 YEAR ENDED AUGUST 31,
(UNAUDITED) 2007 2006 2005 2004 2003
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PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $ 7.41 $ 7.09 $ 7.12 $ 6.48 $ 5.67 $ 5.13
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Income from investment operations a:
Net investment income b ..................... 0.25 0.47 0.45 0.45 0.43 0.45
Net realized and unrealized gains (losses) .. (0.30) 0.29 (0.05) 0.59 0.74 0.59
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Total from investment operations ............... (0.05) 0.76 0.40 1.04 1.17 1.04
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Repurchase of shares ........................... 0.01 0.02 0.01 -- -- --
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Less distributions from net investment income .. (0.23) (0.46) (0.44) (0.40) (0.36) (0.50)
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Net asset value, end of period ................. $ 7.14 $ 7.41 $ 7.09 $ 7.12 $ 6.48 $ 5.67
==================================================================================
Market value, end of period c .................. $ 6.55 $ 6.68 $ 6.52 $ 6.22 $ 5.65 $ 5.20
==================================================================================
Total return (based on market value per
share) d .................................... 1.38% 9.38% 12.48% 17.49% 15.79% (10.13)%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 2.31% f 2.24% f 2.27% f 2.32% f 2.47% f 3.59%
Net investment income .......................... 6.54% 6.15% 6.47% 6.49% 6.85% 8.68%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $179,363 $190,968 $194,724 $198,861 $180,850 $158,364
Portfolio turnover rate ........................ 8.79% 29.30% 32.95% 34.60% 46.35% 65.15%
Total debt outstanding at end of period
(000's) ..................................... $ 55,000 $ 55,000 $ 55,000 $ 55,000 $ 55,000 $ 55,000
Asset coverage per $1,000 of debt .............. $ 4,261 $ 4,472 $ 4,540 $ 4,616 $ 4,288 $ 3,879
Average amount of senior fixed rate notes
per share during the period ................. $ 2.17 $ 2.06 $ 1.97 $ 1.97 $ 1.97 $ 1.87
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Based on the last sale on the New York Stock Exchange.
d Total return is annualized for periods less than one year.
e Ratios are annualized for periods less than one year.
f Benefit of expense reduction rounds to less than 0.01%.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 11
Franklin Universal Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2008 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES VALUE
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LONG TERM INVESTMENTS 126.9%
COMMON STOCKS 37.9%
AUTOMOBILES & COMPONENTS 0.0% a
b Harvard Industries Inc. .............................................. United States 109,618 $ 1,096
-----------------
COMMERCIAL SERVICES & SUPPLIES 0.0% a
b,c,d VS Holdings Inc. ..................................................... United States 181,875 --
-----------------
ENERGY 0.8%
Spectra Energy Corp. ................................................. United States 62,350 1,440,908
-----------------
MATERIALS 1.6%
AngloGold Ashanti Ltd., ADR .......................................... South Africa 30,446 1,099,710
Barrick Gold Corp. ................................................... Canada 35,800 1,859,810
-----------------
2,959,520
-----------------
UTILITIES 35.5%
Alliant Energy Corp. ................................................. United States 55,000 1,910,700
Ameren Corp. ......................................................... United States 60,000 2,562,000
American Electric Power Co. Inc. ..................................... United States 30,000 1,227,600
Atmos Energy Corp. ................................................... United States 85,000 2,210,000
CenterPoint Energy Inc. .............................................. United States 226,600 3,326,488
Constellation Energy Group ........................................... United States 55,000 4,859,250
Dominion Resources Inc. .............................................. United States 100,000 3,994,000
Duke Energy Corp. .................................................... United States 124,700 2,187,238
Edison International ................................................. United States 65,000 3,211,000
Entergy Corp. ........................................................ United States 50,500 5,188,370
Exelon Corp. ......................................................... United States 104,000 7,784,400
FirstEnergy Corp. .................................................... United States 70,000 4,731,300
FPL Group Inc. ....................................................... United States 93,000 5,606,970
Pinnacle West Capital Corp. .......................................... United States 76,000 2,701,800
Progress Energy Inc. ................................................. United States 30,000 1,257,300
Public Service Enterprise Group Inc. ................................. United States 90,000 3,969,000
Sempra Energy ........................................................ United States 28,500 1,514,205
The Southern Co. ..................................................... United States 155,000 5,352,150
-----------------
63,593,771
-----------------
TOTAL COMMON STOCKS (COST $43,248,324) ............................... 67,995,295
-----------------
------------------
PRINCIPAL AMOUNT e
------------------
CORPORATE BONDS 88.9%
AUTOMOBILES & COMPONENTS 2.1%
f Allison Transmission Inc., senior note, 144A, 11.00%, 11/01/15 ....... United States 1,700,000 1,462,000
General Motors Corp., senior deb., 8.25%, 7/15/23 .................... United States 700,000 532,875
f TRW Automotive Inc., senior note, 144A, 7.25%, 3/15/17 ............... United States 2,000,000 1,830,000
-----------------
3,824,875
-----------------
CAPITAL GOODS 7.2%
DRS Technologies Inc., senior sub. note, 7.625%, 2/01/18 ............. United States 1,800,000 1,809,000
Greenbrier Cos. Inc., senior note, 8.375%, 5/15/15 ................... United States 2,000,000 1,917,500
L-3 Communications Corp., senior sub. note, 6.375%, 10/15/15 ......... United States 2,500,000 2,493,750
RBS Global & Rexnord Corp., senior note, 9.50%, 8/01/14 .............. United States 2,000,000 1,810,000
12 | Semiannual Report
Franklin Universal Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2008 (UNAUDITED) (CONTINUED)
------------------------------------------------------------------------------------------------------------------------------------
COUNTRY PRINCIPAL AMOUNT e VALUE
------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
CAPITAL GOODS (CONTINUED)
RSC Equipment Rental Inc., senior note, 9.50%, 12/01/14 .............. United States 2,200,000 $ 1,809,500
TransDigm Inc., senior sub. note, 7.75%, 7/15/14 ..................... United States 1,500,000 1,500,000
United Rentals North America Inc., senior sub. note, 7.75%,
11/15/13 .......................................................... United States 2,000,000 1,630,000
-----------------
12,969,750
-----------------
COMMERCIAL SERVICES & SUPPLIES 3.1%
Allied Waste North America Inc., senior secured note, 6.875%,
6/01/17 ........................................................... United States 1,100,000 1,069,750
ARAMARK Corp., senior note, 8.50%, 2/01/15 ........................... United States 2,000,000 1,980,000
f Ceva Group PLC, senior note, 144A, 10.00%, 9/01/14 ................... United Kingdom 1,500,000 1,432,500
JohnsonDiversey Inc., senior sub. note, B, 9.625%, 5/15/12 ........... United States 1,000,000 1,000,000
-----------------
5,482,250
-----------------
CONSUMER DURABLES & APPAREL 3.3%
Jarden Corp., senior sub. note, 7.50%, 5/01/17 ....................... United States 2,000,000 1,762,500
Jostens IH Corp., senior sub. note, 7.625%, 10/01/12 ................. United States 1,400,000 1,358,000
KB Home, senior note,
6.25%, 6/15/15 .................................................. United States 1,200,000 1,081,500
7.25%, 6/15/18 .................................................. United States 800,000 746,000
Visant Holding Corp., senior note, 8.75%, 12/01/13 ................... United States 1,100,000 1,047,750
-----------------
5,995,750
-----------------
CONSUMER SERVICES 4.2%
c,d,g Atherton Franchise Capital, 13.073%, 12/01/08 ........................ United States 721,603 7,216
f Fontainebleau Las Vegas, 144A, 10.25%, 6/15/15 ....................... United States 1,100,000 797,500
MGM MIRAGE, senior note,
6.875%, 4/01/16 ................................................. United States 2,000,000 1,810,000
7.50%, 6/01/16 .................................................. United States 500,000 467,500
f Outback Steakhouse Inc., senior note, 144A, 10.00%, 6/15/15 .......... United States 1,300,000 799,500
Royal Caribbean Cruises Ltd., senior note,
8.00%, 5/15/10 .................................................. United States 1,200,000 1,267,274
6.875%, 12/01/13 ................................................ United States 800,000 766,892
Station Casinos Inc., senior sub. note,
6.50%, 2/01/14 .................................................. United States 300,000 201,750
6.875%, 3/01/16 ................................................. United States 2,200,000 1,397,000
-----------------
7,514,632
-----------------
DIVERSIFIED FINANCIALS 4.0%
Ford Motor Credit Co. LLC,
7.80%, 6/01/12 .................................................. United States 2,000,000 1,725,986
senior note, 9.875%, 8/10/11 .................................... United States 2,000,000 1,852,646
GMAC LLC, 6.875%, 8/28/12 ............................................ United States 4,500,000 3,595,185
-----------------
7,173,817
-----------------
ENERGY 9.6%
f Bristow Group Inc., senior note, 144A, 7.50%, 9/15/17 ................ United States 700,000 705,250
Chesapeake Energy Corp., senior note, 6.25%, 1/15/18 ................. United States 2,500,000 2,400,000
Semiannual Report | 13
Franklin Universal Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2008 (UNAUDITED) (CONTINUED)
------------------------------------------------------------------------------------------------------------------------------------
COUNTRY PRINCIPAL AMOUNT e VALUE
------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
ENERGY (CONTINUED)
Compagnie Generale de Geophysique-Veritas, senior note,
7.50%, 5/15/15 .................................................. France 400,000 $ 404,000
7.75%, 5/15/17 .................................................. France 600,000 607,500
Copano Energy LLC, senior note, 8.125%, 3/01/16 ...................... United States 1,500,000 1,537,500
El Paso Corp., senior note, 6.875%, 6/15/14 .......................... United States 2,400,000 2,466,137
Mariner Energy Inc., senior note, 7.50%, 4/15/13 ..................... United States 2,500,000 2,418,750
Markwest Energy Partners LP, senior note, 6.875%, 11/01/14 ........... United States 2,000,000 1,902,500
f Petroplus Finance Ltd., senior note, 144A, 6.75%, 5/01/14 ............ Switzerland 2,000,000 1,845,000
Tesoro Corp., senior note, 6.50%, 6/01/17 ............................ United States 600,000 561,000
The Williams Cos. Inc.,
8.75%, 3/15/32 .................................................. United States 800,000 946,000
senior note, 7.625%, 7/15/19 .................................... United States 600,000 645,000
senior note, 7.875%, 9/01/21 .................................... United States 700,000 766,500
-----------------
17,205,137
-----------------
FOOD, BEVERAGE & TOBACCO 3.1%
Dean Foods Inc., senior note, 7.00%, 6/01/16 ......................... United States 1,400,000 1,232,000
Dole Foods Co., senior note, 7.25%, 6/15/10 .......................... United States 100,000 82,500
Reynolds American Inc., senior secured note, 7.625%, 6/01/16 ......... United States 2,500,000 2,659,960
Smithfield Foods Inc., senior note, 7.75%,
5/15/13 ......................................................... United States 700,000 691,250
7/01/17 ......................................................... United States 1,000,000 955,000
-----------------
5,620,710
-----------------
HEALTH CARE EQUIPMENT & SERVICES 6.6%
FMC Finance III SA, senior note, 6.875%, 7/15/17 ..................... Germany 2,500,000 2,518,750
HCA Inc., senior note, 6.50%, 2/15/16 ................................ United States 2,500,000 2,125,000
Tenet Healthcare Corp., senior note, 7.375%, 2/01/13 ................. United States 2,500,000 2,181,250
h,i U.S. Oncology Holdings Inc., senior note, FRN, PIK, 10.759%,
3/15/12 ........................................................... United States 2,000,000 1,550,000
i United Surgical Partners International Inc., senior sub. note, PIK,
9.25%, 5/01/17 .................................................... United States 1,100,000 1,017,500
Vanguard Health Holding Co. II LLC, senior sub. note, 9.00%,
10/01/14 .......................................................... United States 2,500,000 2,400,000
-----------------
11,792,500
-----------------
MATERIALS 10.6%
Crown Americas Inc., senior note, 7.75%, 11/15/15 .................... United States 2,500,000 2,568,750
Freeport-McMoRan Copper & Gold Inc., senior note, 8.375%,
4/01/17 ........................................................... United States 1,700,000 1,806,250
Huntsman International LLC, senior sub. note, 7.875%, 11/15/14 ....... United States 2,500,000 2,600,000
f Ineos Group Holdings PLC, 144A, 8.50%, 2/15/16 ....................... United Kingdom 2,500,000 1,887,500
JSG Funding PLC, senior sub. note, 7.75%, 4/01/15 .................... Ireland 2,000,000 1,810,000
f MacDermid Inc., senior sub. note, 144A, 9.50%, 4/15/17 ............... United States 1,300,000 1,150,500
Nalco Co., senior sub. note, 8.875%, 11/15/13 ........................ United States 2,000,000 2,050,000
f New Page Corp., senior secured note, 144A, 10.00%, 5/01/12 ........... United States 2,000,000 2,015,000
14 | Semiannual Report
Franklin Universal Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2008 (UNAUDITED) (CONTINUED)
-----------------------------------------------------------------------------------------------------------------------------------
COUNTRY PRINCIPAL AMOUNT e VALUE
-----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
MATERIALS (CONTINUED)
Novelis Inc., senior note, 7.25%, 2/15/15 .......................... Canada 1,700,000 $ 1,538,500
Owens-Brockway Glass Container Inc., senior note, 6.75%,
12/01/14 ......................................................... United States 1,500,000 1,507,500
----------------
18,934,000
----------------
MEDIA 11.8%
Cablevision Systems Corp., senior note, B, 8.00%, 4/15/12 .......... United States 1,200,000 1,161,000
CanWest Media Inc., senior sub. note, 8.00%, 9/15/12 ............... Canada 2,000,000 1,890,000
CCH I LLC, senior secured note, 11.00%, 10/01/15 ................... United States 800,000 560,000
CCH II LLC, senior note, 10.25%, 9/15/10 ........................... United States 2,500,000 2,300,000
CSC Holdings Inc., senior note, 6.75%, 4/15/12 ..................... United States 800,000 776,000
Dex Media West LLC, senior sub. note, 9.875%, 8/15/13 .............. United States 2,342,000 1,973,135
Dish Network Corp., senior note, 7.125%, 2/01/16 ................... United States 2,000,000 1,975,000
Idearc Inc., senior note, 8.00%, 11/15/16 .......................... United States 2,500,000 1,487,500
Lamar Media Corp., senior sub. note, 6.625%, 8/15/15 ............... United States 2,500,000 2,312,500
LIN Television Corp., senior sub. note, 6.50%, 5/15/13 ............. United States 1,500,000 1,365,000
Quebecor Media Inc.,
f 144A, 7.75%, 3/15/16 ............................................ Canada 200,000 184,500
senior note, 7.75%, 3/15/16 ..................................... Canada 2,000,000 1,845,000
R.H. Donnelley Corp., senior note, 8.875%, 1/15/16 ................. United States 700,000 420,000
Radio One Inc., senior sub. note, 6.375%, 2/15/13 .................. United States 1,700,000 1,198,500
f,i Univision Communications Inc., senior note, 144A, PIK, 9.75%,
3/15/15 .......................................................... United States 2,500,000 1,737,500
----------------
21,185,635
----------------
REAL ESTATE 1.1%
Host Marriott LP, senior note,
M, 7.00%, 8/15/12 ............................................... United States 1,500,000 1,470,000
O, 6.375%, 3/15/15 .............................................. United States 500,000 470,000
----------------
1,940,000
----------------
RETAILING 2.3%
f Dollar General Corp., senior note, 144A, 10.625%, 7/15/15 .......... United States 2,000,000 1,920,000
Michaels Stores Inc., senior note, 10.00%, 11/01/14 ................ United States 2,500,000 2,196,875
----------------
4,116,875
----------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 0.6%
Freescale Semiconductor Inc., senior note, 8.875%, 12/15/14 ........ United States 1,300,000 1,066,000
----------------
SOFTWARE & SERVICES 3.6%
f First Data Corp., senior note, 144A, 9.875%, 9/24/15 ............... United States 1,300,000 1,129,375
Iron Mountain Inc., senior sub. note, 8.75%, 7/15/18 ............... United States 2,400,000 2,526,000
c,g PSINet Inc.,
10.50%, 12/01/06 ................................................ United States 700,000 70
senior note, 11.00%, 8/01/09 .................................... United States 3,250,000 325
SunGard Data Systems Inc.,
senior note, 9.125%, 8/15/13 .................................... United States 900,000 911,250
senior sub. note, 10.25%, 8/15/15 ............................... United States 1,900,000 1,900,000
----------------
6,467,020
----------------
Semiannual Report | 15
Franklin Universal Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2008 (UNAUDITED) (CONTINUED)
-----------------------------------------------------------------------------------------------------------------------------------
COUNTRY PRINCIPAL AMOUNT e VALUE
-----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
TECHNOLOGY HARDWARE & EQUIPMENT 1.1%
Sanmina-SCI Corp.,
f,h senior note, 144A, FRN, 7.741%, 6/15/14 ....................... United States 700,000 $ 647,500
senior sub. note, 6.75%, 3/01/13 .............................. United States 1,100,000 962,500
senior sub. note, 8.125%, 3/01/16 ............................. United States 400,000 358,000
----------------
1,968,000
----------------
TELECOMMUNICATION SERVICES 7.8%
f Digicel Group Ltd., senior note, 144A, 8.875%, 1/15/15 ............. Jamaica 2,000,000 1,755,000
Inmarsat Finance II PLC, senior note, zero cpn. to 11/15/08,
10.375% thereafter, 11/15/12 ..................................... United Kingdom 1,500,000 1,458,750
j Intelsat Subsidiary Holding Co. Ltd., senior note, 8.25%, 1/15/13 .. Bermuda 2,500,000 2,512,500
MetroPCS Wireless Inc., senior note, 9.25%, 11/01/14 ............... United States 2,000,000 1,770,000
Qwest Communications International Inc., senior note, 7.50%,
2/15/14 .......................................................... United States 2,000,000 1,955,000
f Wind Acquisition Finance SA, senior note, 144A, 10.75%,
12/01/15 ......................................................... Italy 2,500,000 2,543,750
Windstream Corp., senior note, 8.625%, 8/01/16 ..................... United States 1,900,000 1,942,750
----------------
13,937,750
----------------
UTILITIES 6.8%
Aquila Inc., senior note, 14.875%, 7/01/12 ......................... United States 2,000,000 2,470,000
Dynegy Holdings Inc., senior note, 8.75%, 2/15/12 .................. United States 2,600,000 2,645,500
Edison Mission Energy, senior note, 7.00%, 5/15/17 ................. United States 2,300,000 2,271,250
NRG Energy Inc., senior note, 7.375%,
2/01/16 ....................................................... United States 1,800,000 1,739,250
1/15/17 ....................................................... United States 700,000 675,500
f Texas Competitive Electric Holdings Co. LLC, senior note, 144A,
10.25%, 11/01/15 ................................................. United States 2,500,000 2,450,000
----------------
12,251,500
----------------
TOTAL CORPORATE BONDS (COST $174,331,492) .......................... 159,446,201
----------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 0.1%
GOVERNMENT BONDS 0.1%
Eskom Holdings Ltd., 11.00%,
6/01/08 ....................................................... South Africa 783,334 ZAR 99,902
6/01/09 ....................................................... South Africa 783,333 ZAR 99,247
----------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES
(COST $427,688) .................................................. 199,149
----------------
TOTAL LONG TERM INVESTMENTS (COST $218,007,504) .................... 227,640,645
----------------
16 | Semiannual Report
Franklin Universal Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2008 (UNAUDITED) (CONTINUED)
-----------------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES VALUE
-----------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENT (COST $3,954,779) 2.2%
MONEY MARKET FUND 2.2%
k Franklin Institutional Fiduciary Trust Money Market Portfolio, 3.13% ......... United States 3,954,779 $ 3,954,779
----------------
TOTAL INVESTMENTS (COST $221,962,283) 129.1% ................................. 231,595,424
NOTES PAYABLE (30.6)% ........................................................ (55,000,000)
OTHER ASSETS, LESS LIABILITIES 1.5% .......................................... 2,767,484
----------------
NET ASSETS 100.0% ............................................................ $ 179,362,908
================
CURRENCY ABBREVIATIONS
ZAR - South African Rand
SELECTED PORTFOLIO ABBREVIATIONS
ADR - American Depository Receipt
FRN - Floating Rate Note
PIK - Payment-In-Kind
a Rounds to less than 0.1% of net assets.
b Non-income producing for the twelve months ended February 29, 2008.
c Security has been deemed illiquid because it may not be able to be sold within
seven days. At February 29, 2008, the aggregate value of these securities was
$7,611, representing less than 0.01% of net assets.
d See Note 10 regarding restricted securities.
e The principal amount is stated in U.S. dollars unless otherwise indicated.
f Security was purchased pursuant to Rule 144A under the Securities Act of 1933
and may be sold in transactions exempt from registration only to qualified
institutional buyers or in a public offering registered under the Securities Act
of 1933. These securities have been deemed liquid under guidelines approved by
the Fund's Board of Trustees. At February 29, 2008, the aggregate value of these
securities was $26,292,375, representing 14.66% of net assets.
g See Note 9 regarding defaulted securities.
h The coupon rate shown represents the rate at period end.
i Income may be received in additional securities and/or cash.
j See Note 11 regarding other considerations.
k See Note 8 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 17
Franklin Universal Trust
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
February 29, 2008 (unaudited)
Assets:
Investments in securities:
Cost - Unaffiliated issuers .............................................. $ 218,007,504
Cost - Sweep Money Fund (Note 8) ......................................... 3,954,779
---------------
Total cost of investments ................................................ $ 221,962,283
===============
Value - Unaffiliated issuers ............................................. $ 227,640,645
Value - Sweep Money Fund (Note 8) ........................................ 3,954,779
---------------
Total value of investments ............................................... 231,595,424
Foreign currency, at value (cost $110,408) .................................. 99,975
Receivables:
Investment securities sold ............................................... 658,284
Dividends and interest ................................................... 3,773,588
Note issuance costs (Note 3) ................................................ 19,523
---------------
Total assets .......................................................... 236,146,794
---------------
Liabilities:
Payables:
Investment securities purchased .......................................... 578,535
Affiliates ............................................................... 147,272
Distributions to shareholders ............................................ 955,012
Senior fixed rate notes (Note 3) ............................................ 55,000,000
Funds advanced by custodian ................................................. 20,700
Accrued expenses and other liabilities ...................................... 82,367
---------------
Total liabilities ..................................................... 56,783,886
---------------
Net assets, at value ............................................... $ 179,362,908
===============
Net assets consist of:
Paid-in capital ............................................................. $ 235,784,083
Undistributed net investment income ......................................... 3,132,450
Net unrealized appreciation (depreciation) .................................. 9,622,707
Accumulated net realized gain (loss) ........................................ (69,176,332)
---------------
Net assets, at value ............................................... $ 179,362,908
===============
Shares outstanding ............................................................. 25,131,894
===============
Net asset value per share ...................................................... $ 7.14
===============
18 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Universal Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the six months ended February 29, 2008 (unaudited)
Investment income:
Dividends:
Unaffiliated issuers ..................................................... $ 1,220,970
Sweep Money Fund (Note 8) ................................................ 77,093
Interest .................................................................... 7,205,678
---------------
Total investment income ............................................... 8,503,741
---------------
Expenses:
Management fees (Note 4a) ................................................... 924,573
Interest expense (Note 3) ................................................... 1,138,500
Transfer agent fees ......................................................... 31,896
Custodian fees (Note 5) ..................................................... 4,298
Reports to shareholders ..................................................... 20,995
Professional fees ........................................................... 52,098
Trustees' fees and expenses ................................................. 8,539
Amortization of note issuance costs (Note 3) ................................ 23,886
Other ....................................................................... 17,371
---------------
Total expenses ........................................................ 2,222,156
Expense reductions (Note 5) ........................................... (2,100)
---------------
Net expenses ....................................................... 2,220,056
---------------
Net investment income ........................................... 6,283,685
---------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments .............................................................. 2,259,577
Foreign currency transactions ............................................ 193
---------------
Net realized gain (loss) ........................................ 2,259,770
---------------
Net change in unrealized appreciation (depreciation) on:
Investments .............................................................. (9,943,361)
Translation of assets and liabilities denominated in foreign currencies .. (9,780)
---------------
Net change in unrealized appreciation (depreciation) ............ (9,953,141)
---------------
Net realized and unrealized gain (loss) ........................................ (7,693,371)
---------------
Net increase (decrease) in net assets resulting from operations ................ $ (1,409,686)
===============
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 19
Franklin Universal Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------
SIX MONTHS ENDED
FEBRUARY 29, 2008 YEAR ENDED
(UNAUDITED) AUGUST 31, 2007
------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................................................ $ 6,283,685 $ 12,445,928
Net realized gain (loss) from investments and foreign currency transactions .......... 2,259,770 2,829,968
Net change in unrealized appreciation (depreciation) on investments and
translation of assets and liabilities denominated in foreign currencies ........... (9,953,141) 4,787,313
------------------------------------
Net increase (decrease) in net assets resulting from operations ................ (1,409,686) 20,063,209
------------------------------------
Distributions to shareholders from net investment income ................................ (5,772,658) (12,153,252)
Capital share transactions from repurchase of shares (Note 2) ........................... (4,422,626) (11,666,494)
------------------------------------
Net increase (decrease) in net assets .......................................... (11,604,970) (3,756,537)
Net assets:
Beginning of period ..................................................................... 190,967,878 194,724,415
------------------------------------
End of period ........................................................................... $ 179,362,908 $ 190,967,878
====================================
Undistributed net investment income included in net assets:
End of period ........................................................................... $ 3,132,450 $ 2,621,423
====================================
20 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Universal Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF CASH FLOWS
for the six months ended February 29, 2008 (unaudited)
Cash flow from operating activities:
Dividends and interest received ............................................. $ 8,118,532
Operating expenses paid ..................................................... (1,067,906)
Interest expense paid ....................................................... (1,138,500)
Purchases of long-term investments .......................................... (20,639,774)
Sales and maturities of long-term investments ............................... 26,269,389
Net purchases of short-term investments ..................................... (2,317,819)
---------------
Cash provided - operating activities ..................................... 9,223,922
---------------
Cash flow from financing activities:
Open-market shares repurchased .............................................. (4,584,903)
Distributions to shareholders ............................................... (5,798,205)
---------------
Cash used - financing activities ......................................... (10,383,108)
---------------
Net increase (decrease) in cash ................................................ (1,159,186)
Cash at beginning of period .................................................... 1,248,894
---------------
Cash at end of period .......................................................... $ 89,708
===============
RECONCILIATION OF NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATING ACTIVITIES
For the period ended February 29, 2008
Net increase (decrease) in net assets resulting from operating activities ...... $ (1,409,686)
Adjustments to reconcile net increase (decrease) in net assets resulting
from operating activities to net cash provided by operating activities:
Amortization of note issuance costs ................................... 23,886
Net amortization income ............................................... (129,693)
Reinvested dividends from Sweep Money Fund ............................ (77,093)
Other investment transactions ......................................... (145,778)
Increase in dividends and interest receivable ......................... (32,645)
Increase in other liabilities ......................................... (10,236)
Decrease in cost of investments ....................................... 1,052,026
Decrease in unrealized appreciation on investments .................... 9,953,141
---------------
Net cash provided by operating activities ...................................... $ 9,223,922
===============
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 21
Franklin Universal Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Universal Trust (Fund) is registered under the Investment Company Act
of 1940, as amended, (1940 Act) as a diversified, closed-end investment company.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Securities listed on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market. Investments in open-end mutual funds are valued at the closing net asset
value.
Corporate debt securities and government securities generally trade in the
over-the-counter market rather than on a securities exchange. The Fund may
utilize independent pricing services, quotations from bond dealers, and
information with respect to bond and note transactions, to assist in determining
a current market value for each security. The Fund's pricing services may use
valuation models or matrix pricing which considers information with respect to
comparable bond and note transactions, quotations from bond dealers, or by
reference to other securities that are considered comparable in such
characteristics as rating, interest rate and maturity date, option adjusted
spread models, prepayment projections, interest rate spreads and yield curves,
to determine current value.
Foreign securities are valued as of the close of trading on the foreign stock
exchange on which the security is primarily traded, or the NYSE, whichever is
earlier. If no sale is reported at that time, the foreign security will be
valued within the range of the most recent quoted bid and ask prices. The value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at the close of the NYSE on the day that the value of the foreign
security is determined.
The Fund has procedures to determine the fair value of individual securities and
other assets for which market prices are not readily available or which may not
be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the Fund. The investment manager monitors price movements
following the close of trading in foreign stock markets through a series of
country specific market proxies (such as baskets of
22 | Semiannual Report
Franklin Universal Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. SECURITY VALUATION (CONTINUED)
American Depository Receipts, futures contracts and exchange traded funds).
These price movements are measured against established trigger thresholds for
each specific market proxy to assist in determining if an event has occurred. If
such an event occurs, the securities may be valued using fair value procedures,
which may include the use of independent pricing services. All security
valuation procedures are approved by the Fund's Board of Trustees.
B. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Fund's Board of Trustees.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments on the
Statement of Operations.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. FOREIGN CURRENCY CONTRACTS
When the Fund purchases or sells foreign securities it may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. A foreign exchange contract is an agreement
between two parties to exchange different currencies at an agreed upon exchange
rate at a future date. Realized and unrealized gains and losses on these
contracts are included in the Statement of Operations.
The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities.
Semiannual Report | 23
Franklin Universal Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. INCOME TAXES
No provision has been made for U.S. income taxes because it is the Fund's policy
to qualify as a regulated investment company under the Internal Revenue Code and
to distribute to shareholders substantially all of its taxable income and net
realized gains.
E. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Amortization of
premium and accretion of discount on debt securities are included in interest
income. Dividend income is recorded on the ex-dividend date. Distributions to
shareholders are recorded on the ex-dividend date and are determined according
to income tax regulations (tax basis). Distributable earnings determined on a
tax basis may differ from earnings recorded in accordance with accounting
principles generally accepted in the United States of America. These differences
may be permanent or temporary. Permanent differences are reclassified among
capital accounts to reflect their tax character. These reclassifications have no
impact on net assets or the results of operations. Temporary differences are not
reclassified, as they may reverse in subsequent periods.
F. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.
G. GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and trustees are
indemnified by the Fund against certain liabilities arising out of the
performance of their duties to the Fund. Additionally, in the normal course of
business, the Fund enters into contracts with service providers that contain
general indemnification clauses. The Fund's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Fund that have not yet occurred. Currently, the Fund expects the
risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
At February 29, 2008, there were an unlimited number of shares authorized ($0.01
par value). During the periods ended February 29, 2008 and August 31, 2007 there
were no shares issued; all reinvested distributions were satisfied with
previously issued shares purchased in the open market.
24 | Semiannual Report
Franklin Universal Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
In January 2006, the Fund's Board of Trustees authorized an initial open-market
share repurchase program that resulted in the Fund repurchasing 10% of the
Fund's outstanding shares in open-market transactions through February 1, 2008.
In December 2007, the Fund's Board of Trustees authorized, at the investment
manager's discretion, the repurchase of an additional 10% of the Fund's
outstanding shares in open market transactions. This authorization remains in
effect.
Transactions in the Fund's shares were as follows:
--------------------------------------------
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2008 AUGUST 31, 2007
--------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------
Shares repurchased .......................... 648,100 $4,422,626 1,681,800 $11,666,494
Weighted average discount of market
price to net asset value of shares
repurchased .............................. 11.34% 8.78%
3. SENIOR FIXED RATE NOTES
On August 29, 2003, the Fund issued $55 million principal amount of a new class
of five-year senior fixed rate notes (Notes). The Notes are general unsecured
obligations of the Fund and rank senior to trust shares and all existing or
future unsecured indebtedness of the Fund.
The Notes bear interest, payable semi-annually, at the rate of 4.14% per year,
to maturity on August 29, 2008. The Fund may prepay the Notes at par at any
time; therefore, market value approximates the principal amount of the Notes.
The Fund is required to maintain on a monthly basis a specified discounted asset
value for its portfolio in compliance with guidelines established in the Note
Agreement, and is required under the 1940 Act to maintain asset coverage for the
Notes of at least 300%. The Fund has met these requirements during the period
ended February 29, 2008.
The issuance costs of $200,000 incurred by the Fund are deferred and amortized
on an interest method basis over the term of the Notes.
4. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Fund are also officers and/or directors of the following
subsidiaries:
--------------------------------------------------------------------------------
SUBSIDIARY AFFILIATION
--------------------------------------------------------------------------------
Franklin Advisers Inc. (Advisers) Investment Manager
Franklin Templeton Services, LLC (FT Services) Administrative Manager
Semiannual Report | 25
Franklin Universal Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES
The Fund pays an investment management fee to Advisers of 0.75% per year of the
average weekly managed assets. Managed assets are defined as the Fund's gross
asset value minus the sum of accrued liabilities, other than the principal
amount of the Notes.
B. ADMINISTRATIVE FEES
Under an agreement with Advisers, FT Services provides administrative services
to the Fund. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Fund.
5. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the period ended February 29, 2008, the
custodian fees were reduced as noted in the Statement of Operations.
6. INCOME TAXES
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At August 31, 2007, the capital loss carryforwards were as
follows:
Capital loss carryforwards expiring in:
2008 ............................................................ $ 2,437,234
2009 ............................................................ 1,167,255
2010 ............................................................ 6,827,086
2011 ............................................................ 34,372,527
2012 ............................................................ 18,676,213
2013 ............................................................ 3,246,257
2014 ............................................................ 4,662,560
------------
$71,389,132
============
For tax purposes, realized currency losses occurring subsequent to October 31,
may be deferred and treated as occurring on the first day of the following
fiscal year. At August 31, 2007, the Fund deferred realized currency losses of
$106,970.
26 | Semiannual Report
Franklin Universal Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. INCOME TAXES (CONTINUED)
At February 29, 2008, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
Cost of investments .......................................... $ 222,282,355
==============
Unrealized appreciation ...................................... $ 30,915,136
Unrealized depreciation ...................................... (21,602,067)
--------------
Net unrealized appreciation (depreciation) ................... $ 9,313,069
==============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions, bond discounts and
premiums and Note offering costs.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of foreign currency transactions and bond
discounts and premiums.
7. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
period ended February 29, 2008, aggregated $21,218,309 and $26,927,866,
respectively.
8. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (Sweep Money Fund), an open-end investment company managed by
Advisers. Management fees paid by the Fund are reduced on assets invested in the
Sweep Money Fund, in an amount not to exceed the management and administrative
fees paid by the Sweep Money Fund.
9. CREDIT RISK AND DEFAULTED SECURITIES
The Fund has 68.93% of its portfolio invested in below investment grade and
comparable quality unrated high yield securities, which tend to be more
sensitive to economic conditions than higher rated securities. The risk of loss
due to default by the issuer may be significantly greater for the holders of
high yielding securities because such securities are generally unsecured and are
often subordinated to other creditors of the issuer.
The Fund held defaulted securities and/or other securities for which the income
has been deemed uncollectible. At February 29, 2008, the aggregate value of
these securities was $7,611, representing less than 0.01% of the Fund's
portfolio. The Fund discontinues accruing income on securities for which income
has been deemed uncollectible and provides an estimate for losses on interest
receivable. The securities have been identified on the accompanying Statement of
Investments.
Semiannual Report | 27
Franklin Universal Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
10. RESTRICTED SECURITIES
The Fund may invest in securities that are restricted under the Securities Act
of 1933 (1933 Act) or which are subject to legal, contractual, or other agreed
upon restrictions on resale. Restricted securities are often purchased in
private placement transactions, and cannot be sold without prior registration
unless the sale is pursuant to an exemption under the 1933 Act. Disposal of
these securities may require greater effort and expense, and prompt sale at an
acceptable price may be difficult. The Fund may have registration rights for
restricted securities. The issuer generally incurs all registration costs.
At February 29, 2008, the Fund held investments in restricted securities,
excluding 144A securities deemed to be liquid, valued in accordance with
procedures approved by the Fund's Board of Trustees as reflecting fair value, as
follows:
---------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT/ ACQUISITION
SHARES ISSUER DATE COST VALUE
---------------------------------------------------------------------------------------------------------------
721,603 Atherton Franchise Capital, 13.073%,
12/01/08 ............................................. 4/28/94 $721,603 $7,216
181,875 VS Holdings Inc. ....................................... 12/06/01 181,875 --
-------
TOTAL RESTRICTED SECURITIES (0.00% of Net Assets) a .... $7,216
=======
a Rounds to less than 0.01% of net assets.
11. OTHER CONSIDERATIONS
Officers, directors or employees of the Fund's Investment Manager may have
discussions with issuers and underwriters that could cause the Investment
Manager to be in the possession of material non-public information which,
pursuant to the Fund's policies and the requirements of applicable securities
laws, could prevent the Fund from trading in the securities of such companies
for limited or extended periods of time.
12. REGULATORY AND LITIGATION MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the Securities and Exchange
Commission (SEC), relating to certain practices in the mutual fund industry,
including late trading, market timing and marketing support payments to
securities dealers who sell fund shares (marketing support), Franklin Resources,
Inc. and certain of its subsidiaries (collectively, the Company), entered into
settlements with certain of those regulators and governmental entities.
Specifically, the Company entered into settlements with the SEC, among others,
concerning market timing and marketing support.
28 | Semiannual Report
Franklin Universal Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
12. REGULATORY AND LITIGATION MATTERS (CONTINUED)
On June 6, 2007, the SEC posted for public comment the proposed plan of
distribution for the market timing settlement. Once the SEC approves the final
plan of distribution, disbursements of settlement monies will be made promptly
to individuals who were shareholders of the designated funds during the relevant
period, in accordance with the terms and conditions of the settlement and plan
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, Company directors,
fund directors, and employees, have been named in private lawsuits (styled as
shareholder class actions, or as derivative actions on behalf of either the
named funds or Franklin Resources, Inc.). The lawsuits relate to the industry
practices referenced above.
The Company and fund management believe that the claims made in each of the
private lawsuits referenced above are without merit and intend to defend against
them vigorously. The Company cannot predict with certainty the eventual outcome
of these lawsuits, nor whether they will have a material negative impact on the
Company. If it is determined that the Company bears responsibility for any
unlawful or inappropriate conduct that caused losses to the Funds, it is
committed to making the Funds or their shareholders whole, as appropriate.
13. NEW ACCOUNTING PRONOUNCEMENTS
The Fund adopted Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (FIN 48), on February 29, 2008. FIN 48
clarifies the accounting for uncertainty in tax positions taken or expected to
be taken in a tax return. FIN 48 provides guidance on the measurement,
recognition, classification and disclosure of tax positions, along with
accounting for the related interest and penalties. The Fund has reviewed the tax
positions for each of the three open tax years as of February 29, 2008 and has
determined that the implementation of FIN 48 did not have a material impact on
the Fund's financial statements.
In September 2006, FASB issued FASB Statement No. 157, "Fair Value Measurement"
(SFAS 157), which defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. SFAS 157 is
effective for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Fund believes the adoption of SFAS 157
will have no material impact on its financial statements.
Semiannual Report | 29
Franklin Universal Trust
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 25, 2008, the Board of Trustees (Board), including a
majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for Franklin Universal Trust (Fund). In reaching
this decision, the Board took into account information furnished throughout the
year at regular Board meetings, as well as information prepared specifically in
connection with the annual renewal review process. Information furnished and
discussed throughout the year included investment performance reports on the
Fund, information on its share price discount to net asset value, and other
related financial information, as well as periodic reports on legal, compliance,
pricing, brokerage commissions and execution and other services provided by the
Investment Manager (Manager) and its affiliates. Information furnished
specifically in connection with the renewal process included a report prepared
by Lipper, Inc. (Lipper), an independent organization, as well as a Fund
profitability analysis report prepared by management. The Lipper report compared
the Fund's investment performance and expenses with those of other funds deemed
comparable to the Fund as selected by Lipper. The Fund profitability analysis
report discussed the profitability to Franklin Templeton Investments from its
overall U.S. fund operations, as well as on an individual fund-by-fund basis.
Included with such profitability analysis report was information on a
fund-by-fund basis listing portfolio managers and other accounts they manage, as
well as information on management fees charged by the Manager and its affiliates
including management's explanation of differences where relevant, and a
three-year expense analysis with an explanation for any increase in expense
ratios. Additional material accompanying such report was a memorandum prepared
by management describing project initiatives and capital investments relating to
the services provided to the Fund by the Franklin Templeton Investments
organization, as well as a memorandum relating to economies of scale.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. In approving
continuance of the investment management agreement for the Fund, the Board,
including a majority of independent Trustees, determined that the existing
management fee structure was fair and reasonable and that continuance of the
investment management agreement was in the best interests of the Fund and its
shareholders. While attention was given to all information furnished, the
following discusses some primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Fund and its shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished them showing that the investment policies and restrictions for
the Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund complex, the adherence to fair value
pricing procedures established by the Board, and the accuracy of net asset value
calculations. Favorable consideration was given to management's efforts and
expenditures in establishing back-up systems and recovery procedures to function
in the event of
30 | Semiannual Report
Franklin Universal Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
a natural disaster, it being noted by the Board that such systems and procedures
had functioned smoothly during the Florida hurricanes and blackouts experienced
in recent years. Among other factors taken into account by the Board were the
Manager's best execution trading policies, including a favorable report by an
independent portfolio trading analytical firm. Consideration was also given to
the experience of the Fund's portfolio management team, the number of accounts
managed and general method of compensation. In this latter respect, the Board
noted that a primary factor in management's determination of the level of a
portfolio manager's bonus compensation was the relative investment performance
of the funds he or she managed and that a portion of such bonus was required to
be invested in a predesignated list of funds within such person's fund
management area so as to be aligned with the interests of Fund shareholders.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of the Fund in view of its importance to shareholders. Consideration
was given to performance reports and discussions with portfolio managers at
Board meetings during the year, as well as the Lipper report furnished for the
agreement renewals. The Lipper report prepared for the Fund showed its
investment performance in comparison with a performance universe consisting of
the Fund and all leveraged closed-end high current yield funds as selected by
Lipper during 2007, as well as the previous 10 years ended December 31, 2007.
Such report considered both income return and total return on a net asset value
basis without regard to market discounts or premiums to accurately reflect
investment performance. The Lipper report showed the Fund's income return to be
the lowest in such performance universe for the one-year period and on an
annualized basis for each of the previous three-, five- and 10-year periods, but
that the Fund's total return was in the highest quintile of such universe during
2007 and on an annualized basis for the previous three-and five-year periods as
well, and in the second-highest quintile for the previous 10-year period. In
discussing such performance, management pointed out the Fund's mandate to invest
between 20% and 30% of its assets in utilities stocks differed from the Lipper
performance universe, which included pure high yield funds, and that its
relative income performance within such universe reflected such difference. The
Board was satisfied with the Fund's investment performance in view of such
explanation and its overall rate of return noting that its income return
exceeded 6% in 2007 and on an annualized basis also exceeded 6% for the previous
three- and five-year periods and was 8.64% for the previous 10-year period as
shown by the Lipper report.
COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the
management fee and total expense ratio of the Fund compared with a Lipper
expense group consisting of the Fund and six other leveraged closed-end high
current yield funds as selected by Lipper. Prior to making such comparison, the
Board relied upon a survey showing that the scope of services covered under the
Fund's investment management agreement was similar to those provided by fund
managers to other fund groups. In reviewing comparative costs, emphasis was
given to the Fund's contractual investment management fee in comparison with the
contractual investment management fee rate that would have been charged by other
funds within its Lipper expense group
Semiannual Report | 31
Franklin Universal Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
assuming they were similar in size to the Fund, as well as the actual total
expenses of the Fund in comparison with those of its Lipper expense group. The
Lipper contractual investment management fee analysis considers administrative
fees to be part of investment management fees and showed the Fund's contractual
management fee rate to be tied with another fund as the lowest in its Lipper
expense group and its total expenses to be the third lowest in such expense
group. The Board found such expenses to be acceptable.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
the Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
the Fund. Specific attention was given to the methodology followed in allocating
costs to the Fund, it being recognized that allocation methodologies are
inherently subjective and various allocation methodologies may each be
reasonable while producing different results. In this respect, the Board noted
that, while being continuously refined and reflecting changes in the Manager's
own cost accounting, such allocation methodology was consistent with that
followed in profitability report presentations made in prior years and that the
Fund's independent registered public accounting firm had been engaged by the
Manager to perform certain procedures on a biennial basis, specified and
approved by the Manager and the Fund's Board solely for their purposes and use
in reference to the profitability analysis. In reviewing and discussing such
analysis, management discussed with the Board its belief that costs incurred in
establishing the infrastructure necessary for the type of fund operations
conducted by the Manager and its affiliates may not be fully reflected in the
expenses allocated to the Fund in determining its profitability, as well as the
fact that the level of profits, to a certain extent, reflected operational cost
savings and efficiencies initiated by management. In addition, the Board
considered a third-party study comparing the profitability of the Manager's
parent on an overall basis as compared to other publicly held managers broken
down to show profitability from management operations exclusive of distribution
expenses, as well as profitability including distribution expenses. The Board
also considered the extent to which the Manager and its affiliates might derive
ancillary benefits from fund operations, including potential benefits resulting
from allocation of fund brokerage and the use of "soft" commission dollars to
pay for research. Based upon its consideration of all these factors, the Board
determined that the level of profits realized by the Manager and its affiliates
from providing services to the Fund was not excessive in view of the nature,
quality and extent of services provided.
ECONOMIES OF SCALE. The Board also considered whether the Manager realizes
economies of scale as the Fund grows larger and the extent to which any such
benefit is shared with the Fund and its shareholders. The Board believed that a
manager's ability to realize economies of scale and the sharing of such benefit
is a more relevant consideration in the case of an open-end fund whose size
increases as a result of the continuous sale of its shares. A closed-end
investment company such as the Fund does not continuously offer shares, and
growth following its initial public offering will primarily result from market
appreciation, which benefits its shareholders. While believing
32 | Semiannual Report
Franklin Universal Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
economies of scale to be less of a factor in the context of a closed-end fund,
the Board believes at some point an increase in size may lead to economies of
scale that should be shared with the Fund and its shareholders and intends to
monitor future growth of the Fund accordingly.
PROXY VOTING POLICIES AND PROCEDURES
The Fund has established Proxy Voting Policies and Procedures (Policies) that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/527-7678 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Fund's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
CERTIFICATIONS
The Fund's Chief Executive Officer - Finance and Administration is required by
the New York Stock Exchange's Listing Standards to file annually with the
Exchange a certification that he is not aware of any violation by the Fund of
the Exchange's Corporate Governance Standards applicable to the Fund. The Fund
has filed such certification.
In addition, the Fund's Chief Executive Officer - Finance and Administration and
Chief Financial Officer and Chief Accounting Officer are required by the rules
of the U.S. Securities and Exchange Commission to provide certain certifications
with respect to the Fund's Form N-CSR and Form N-CSRS (which include the Fund's
annual and semiannual reports to shareholders) that are filed semiannually with
the Commission. The Fund has filed such certifications with its Form N-CSR for
the year ended August 31, 2007. Additionally, the Fund expects to file, on or
about April 30, 2008, such certifications with its Form N-CSRS for the six
months ended February 29, 2008.
Semiannual Report | 33
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Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF
SERVICE, WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR
SERVICE DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR
BEEPING TONE.
FRANKLIN TEMPLETON FUNDS
INTERNATIONAL
Franklin India Growth Fund
Mutual European Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund 1
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund 1
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Growth Opportunities Fund 2
Franklin Small Cap Growth Fund 3
Franklin Small-Mid Cap Growth Fund
VALUE
Franklin All Cap Value Fund
Franklin Balance Sheet Investment Fund
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 1
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 4
Mutual Shares Fund
BLEND
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Focused Core Equity Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Global Real Estate Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund 5
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Income Fund
Franklin Limited Maturity U.S. Government Securities Fund 5
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 5
Templeton Global Bond Fund
Templeton Income Fund
Templeton International Bond Fund
TAX-FREE INCOME 6
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 7
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California 8
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 7
Michigan 7
Minnesota 7
Missouri
New Jersey
New York 8
North Carolina
Ohio 7
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust 9
1. The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
2. Effective 11/1/07, Franklin Aggressive Growth Fund changed its name to
Franklin Growth Opportunities Fund. The fund's investment goal and strategy
remained the same.
3. Effective 3/31/08, Franklin Small Cap Growth Fund II changed its name to
Franklin Small Cap Growth Fund. The fund's investment goal and strategy remained
the same.
4. The fund is a continuously offered, closed-end fund. Shares may be purchased
daily; there is no daily redemption. However, each quarter, pending board
approval, the fund will authorize the repurchase of 5%-25% of the outstanding
number of shares. Investors may tender all or a portion of their shares during
the tender period.
5. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
6. For investors subject to the alternative minimum tax, a small portion of fund
dividends may be taxable. Distributions of capital gains are generally taxable.
7. The fund invests primarily in insured municipal securities.
8. These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA) and
limited-term, intermediate-term and money market portfolios (CA and NY).
9. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
04/08 Not part of the semiannual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
SEMIANNUAL REPORT
FRANKLIN UNIVERSAL TRUST
INVESTMENT MANAGER
Franklin Advisers, Inc.
1-800/DIAL BEN(R)
TRANSFER AGENT
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
FUT S2008 04/08
ITEM 2. CODE OF ETHICS.
(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a
copy of its code of ethics that applies to its principal executive
officers and principal financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial expert is John B. Wilson and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Members of the Audit Committee are: Robert F. Carlson, Frank W.T. LaHaye,
and John B. Wilson.
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The board of trustees of the Fund has delegated the authority to vote proxies
related to the portfolio securities held by the Fund to the Fund's manager
Franklin Advisers, Inc. in accordance with the Proxy Voting Policies and
Procedures (Policies) adopted by the manager.
The manager has delegated its administrative duties with respect to the voting
of proxies to the Proxy Group within Franklin Templeton Companies, LLC (Proxy
Group), an affiliate and wholly owned subsidiary of Franklin Resources, Inc. All
proxies received by the Proxy Group will be voted based upon the manager's
instructions and/or policies.
To assist it in analyzing proxies, the manager subscribes to RiskMetrics Group
(RiskMetrics), an unaffiliated third party corporate governance research service
that provides in-depth analyses of shareholder meeting agendas, vote
recommendations, recordkeeping and vote disclosure services. In addition, the
manager subscribes to Glass, Lewis & Co., LLC (Glass Lewis), an unaffiliated
third party analytical research firm, to receive analyses and vote
recommendations on the shareholder meetings of publicly held U.S. companies.
Although RiskMetrics' and/or Glass Lewis' analyses are thoroughly reviewed and
considered in making a final voting decision, the manager does not consider
recommendations from RiskMetrics, Glass Lewis or any other third party to be
determinative of the manager's ultimate decision. The manager votes proxies
solely in the interests of the Fund and its shareholders. As a matter of policy,
the officers, directors/trustees and employees of the Fund, the manager and the
Proxy Group will not be influenced by outside sources whose interests conflict
with the interests of the Fund and its shareholders. Efforts are made to resolve
all conflicts in the interests of the manager's clients. Material conflicts of
interest are identified by the Proxy Group based upon analyses of client, broker
and vendor lists, information periodically gathered from directors and officers,
and information derived from other sources, including public filings. In
situations where a material conflict of interest is identified, the Proxy Group
will refer the matter, along with the recommended course of action by the
manager to an interdepartmental Proxy Review Committee (which may include
portfolio managers and/or research analysts employed by the manager), for
evaluation and voting instructions. The Proxy Review Committee may defer to the
voting recommendation of RiskMetrics, Glass Lewis or those of another
independent third party provider of proxy services; or send the proxy directly
to the Fund with a recommendation regarding the vote for approval. Where the
Proxy Review Committee refers a matter to the Fund, it may rely upon the
instructions of a representative of the Fund, such as the board of trustees or a
committee of the board.
The recommendation of management on any issue is a factor which the manager
considers in determining how proxies should be voted, but is not determinative
of the manager's ultimate decision. As a matter of practice, the votes with
respect to most issues are cast in accordance with the position of the company's
management. Each issue, however, is considered on its own merits, and the
manager will not support the position of the company's management in any
situation where it deems that the ratification of management's position would
adversely affect the investment merits of owning that company's shares.
MANAGER'S PROXY VOTING POLICIES AND PRINCIPLES The manager has adopted general
proxy voting guidelines, which are summarized below. These guidelines are not an
exhaustive list of all the issues that may arise and the manager cannot
anticipate all future situations. In all cases, each proxy will be considered
based on the relevant facts and circumstances.
BOARD OF DIRECTORS. The manager supports an independent board of directors, and
prefers that key committees such as audit, nominating, and compensation
committees be comprised of independent directors. The manager will generally
vote against management efforts to classify a board and will generally support
proposals to declassify the board of directors. The manager may withhold votes
from directors who have attended less than 75% of meetings without a valid
reason. While generally in favor of separating Chairman and CEO positions, the
manager will review this issue as well as proposals to restore or provide for
cumulative voting on a case-by-case basis, taking into consideration factors
such as the company's corporate governance guidelines or provisions and
performance.
RATIFICATION OF AUDITORS OF PORTFOLIO COMPANIES. In light of several high
profile accounting scandals, the manager will closely scrutinize the role and
performance of auditors. On a case-by-case basis, the manager will examine
proposals relating to non-audit relationships and non-audit fees. The manager
will also consider, on a case-by-case basis, proposals to rotate auditors, and
will vote against the ratification of auditors when there is clear and
compelling evidence of accounting irregularities or negligence.
MANAGEMENT AND DIRECTOR COMPENSATION. A company's equity-based compensation plan
should be in alignment with its shareholders' long-term interests. The manager
believes that executive compensation should be directly linked to the
performance of the company. The manager evaluates plans on a case-by-case basis
by considering several factors to determine whether the plan is fair and
reasonable, including the RiskMetrics quantitative model utilized to assess such
plans and/or the Glass Lewis evaluation of the plans. The manager will generally
oppose plans that have the potential to be excessively dilutive, and will almost
always oppose plans that are structured to allow the repricing of underwater
options, or plans that have an automatic share replenishment "evergreen"
feature. The manager will generally support employee stock option plans in which
the purchase price is at least 85% of fair market value, and when potential
dilution is 10% or less.
Severance compensation arrangements will be reviewed on a case-by-case basis,
although the manager will generally oppose "golden parachutes" that are
considered to be excessive. The manager will normally support proposals that
require a percentage of directors' compensation to be in the form of common
stock, as it aligns their interests with those of shareholders. The manager will
review on a case-by-case basis any shareholder proposals to adopt policies on
expensing stock option plans.
ANTI-TAKEOVER MECHANISMS AND RELATED ISSUES. The manager generally opposes
anti-takeover measures since they tend to reduce shareholder rights. On
occasion, the manager may vote with management when the research analyst has
concluded that the proposal is not onerous and would not harm the Fund or its
shareholders' interests. The manager generally supports proposals that require
shareholder rights' plans ("poison pills") to be subject to a shareholder vote
and will closely evaluate such plans on a case-by-case basis to determine
whether or not they warrant support. The manager will generally vote against any
proposal to issue stock that has unequal or subordinate voting rights. The
manager generally opposes any supermajority voting requirements as well as the
payment of "greenmail." The manager generally supports "fair price" provisions
and confidential voting.
CHANGES TO CAPITAL STRUCTURE. The manager will review, on a case-by-case basis,
proposals by companies to increase authorized shares and the purpose for the
increase and proposals seeking preemptive rights. The manager will generally not
vote in favor of dual-class capital structures to increase the number of
authorized shares where that class of stock would have superior voting rights.
The manager will generally vote in favor of the issuance of preferred stock in
cases where the company specifies the voting, dividend, conversion and other
rights of such stock and the terms of the preferred stock issuance are deemed
reasonable.
MERGERS AND CORPORATE RESTRUCTURING. Mergers and acquisitions will be subject to
careful review by the research analyst to determine whether each will be
beneficial to shareholders. The manager will analyze various economic and
strategic factors in making the final decision on a merger or acquisition.
Corporate restructuring and reincorporation proposals are also subject to a
thorough examination on a case-by-case basis.
SOCIAL AND CORPORATE POLICY ISSUES. The manager will generally give management
discretion with regard to social, environmental and ethical issues, although the
manager may vote in favor of those that are believed to have significant
economic benefits or implications for the Fund and its shareholders.
GLOBAL CORPORATE GOVERNANCE. Many of the tenets discussed above are applied to
proxy voting decisions for international companies. However, the manager must be
more flexible in these instances and must be mindful of the varied market
practices of each region.
The manager will attempt to process every proxy it receives for all domestic and
foreign issuers. However, there may be situations in which the manager cannot
process proxies, for example, where a meeting notice was received too late, or
sell orders preclude the ability to vote. If a security is on loan, the manager
may determine that it is not in the best interests of the Fund to recall the
security for voting purposes. Also, the manager may abstain from voting under
certain circumstances or vote against items such as "Other Business" when the
manager is not given adequate information from the company.
Shareholders may view the complete Policies online at franklintempleton.com.
Alternatively, shareholders may request copies of the Policies free of charge by
calling the Proxy Group collect at 1-954/527-7678 or by sending a written
request to: Franklin Templeton Companies, LLC, 500 East Broward Boulevard, Suite
1500, Fort Lauderdale, FL 33394, Attention: Proxy Group. Copies of the Fund's
proxy voting records are available online at franklintempleton.com and posted on
the SEC website at WWW.SEC.GOV. The proxy voting records are updated each year
by August 31 to reflect the most recent 12-month period ended June 30.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
------------------------------- ------------------ ------------------ ------------------- --------------------
(a) (b) (c) (d)
TOTAL NUMBER OF
SHARES PURCHASED MAXIMUM NUMBER OF
AS PART OF SHARES THAT MAY
PUBLICLY YET BE PURCHASED
TOTAL NUMBER OF AVERAGE PRICE ANNOUNCED PLANS UNDER THE PLANS OR
PERIOD SHARES PURCHASED PAID PER SHARE OR PROGRAM PROGRAMS
---------------------------------------------------------------------------------------------------------------
(9/1/07 - 9/30/07) 182,400 6.77 182,400 465,700
---------------------------------------------------------------------------------------------------------------
(10/1/07 - 10/31/07) 157,500 6.95 157,500 308,200
---------------------------------------------------------------------------------------------------------------
(11/1/07 - 11/30/07) 130,300 6.77 130,300 177,900
---------------------------------------------------------------------------------------------------------------
(12/1/07 - 12/31/07) 76,800 6.88 76,800 2,614,289
---------------------------------------------------------------------------------------------------------------
(1/1/08 - 1/31/08) 98,900 6.76 98,900 2,515,389
---------------------------------------------------------------------------------------------------------------
(2/1/08 - 2/29/08) 2,200 6.76 2,200 2,513,189
---------------------------------------------------------------------------------------------------------------
TOTAL 648,100 6.82 648,100 2,513,189
---------------------------------------------------------------------------------------------------------------
In January 2006, the Fund's Board of Trustees authorized an initial open-market
share repurchase program that resulted in the Fund repurchasing 2,792,429 shares
in open market transactions through February 1, 2008. In December 2007, the
Fund's Board of Trustees authorized, at the investment manager's discretion, the
repurchase of an additional 2,513,189 shares in open market transactions. This
authorization remains in effect"
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no changes to the procedures by which shareholders may recommend
nominees to the Registrant's Board of Trustees that would require disclosure
herein.
ITEM 11. CONTROLS AND PROCEDURES.
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 12. EXHIBITS.
(A) (1) Code of Ethics
(A) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Galen G. Vetter, Chief Executive Officer - Finance and Administration, and
Laura F. Fergerson, Chief Financial Officer and Chief Accounting Officer
(B) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Galen G. Vetter, Chief Executive Officer - Finance and Administration, and Laura
F. Fergerson, Chief Financial Officer and Chief Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN UNIVERSAL TRUST
By /s/GALEN G. VETTER
-----------------------------
Galen G. Vetter
Chief Executive Officer -
Finance and Administration
Date: April 28, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/GALEN G. VETTER
----------------------------
Galen G. Vetter
Chief Executive Officer -
Finance and Administration
Date: April 28, 2008
By /s/LAURA F. FERGERSON
----------------------------
Laura F. Fergerson
Chief Financial Officer and
Chief Accounting Officer
Date: April 28, 2008