MESSAGE FROM THE CHAIRMAN
Table of Contents
Message
from the Chairman page 1
Manager's Discussion page 2
Performance Summary page 5
Dividend
Reinvestment Plan page 6
Voting Results from Annual
Meeting of Shareholders page 8
Statement of Investments page 9
Financial Statements page 18
Notes to
Financial Statements page 20
April 14, 1995
Dear Shareholder:
We're pleased to bring you the semi-annual report of the Franklin Universal
Trust for the six months ended February 28, 1995.
In the pages that follow, you'll find a discussion of the factors that affected
the Trust's performance over the six-month reporting period, as well as a
summary of the Trust's distributions and total returns.
As always, we thank you for your continued support of the Franklin Universal
Trust and look forward to serving your investment needs in the years to come.
Sincerely,
s\Charles B. Johnson
Charles B. Johnson
Chairman
Franklin Universal Trust
MANAGER'S DISCUSSION
Trust Objective:
The Franklin Universal Trust seeks to
provide high current income consistent with preservation of capital.
While the markets were somewhat volatile, the
six months ending February 28, 1995, were very profitable for the Trust and its
investors. As shown in the Performance Summary on page 5, the Trust reported a
cumulative total return of +10.10% for the period, based on the change in its
market price on the New York Stock Exchange (NYSE).1
Recent economic data seems to indicate that the Federal Reserve Board may have
successfully engineered its much sought-after "soft landing" -- economic growth
has been slowed and inflation kept under control without sending the economy
back into recession. As a result, it appears that further interest rate
increases may be unnecessary -- an impression that has bolstered the performance
of both the stock and bond markets. The Dow Jones Industrial Average(R), for
example, topped the 4,000 mark in February for the first time, and bond markets
rallied in the opening months of `95. Even more surprisingly, long-term interest
rates, as measured by the 30-year Treasury bond, actually declined during the
past few months, from 7.99% on November 30, 1994, to 7.46% on February 28,
1995.2
This decline in interest rates benefited the Trust's corporate bond holdings,
which remain the Trust's largest sector. These securities also benefited from
the improved corporate profitability that has accompanied the continued economic
expansion.
1. Total return measures the change in the Trust's market
price on the NYSE and assumes reinvestment of dividends and capital gains as
described in the Trust's Dividend Reinvestment Plan.
2. Source: Micropal
The Trust's strategic positioning in industries that recently outperformed the
overall market also helped to boost the fund's performance. In the healthcare
sector, the Trust's investments in Healthtrust, Inc., American Medical Holding,
Inc., and Abbey Healthcare Group, Inc., performed well in response to the
continuing trend toward consolidation in that industry. The Trust's healthcare
holdings rose to 9.1% of total net assets on February 28, 1995, from 8.6% at the
beginning of the six-month reporting period.
The gaming/leisure and cable television industries also outperformed the market
during the reporting period. The Trust's holdings in the gaming/leisure sector
increased, rising to 6.8% of total net assets on February 28, 1995, from 5.3% on
August 31, 1994. The Trust's cable television holdings remained fairly constant,
dropping slightly from 10.4% to 10.2% of total net assets during the six-month
period.
Utility securities also responded positively to slightly declining long-term
interest rates. Standard & Poor's Utilities Index, for example, reported a
cumulative total return of 4.79% for the six months ended February 28, 1995.3
Likewise, the Trust's utility securities performed well during the reporting
period. Reversing the trend of the previous six months, the Trust's utility
holdings increased as a percentage of total net assets during the six months
under review. By February 28, 1995, utility stocks accounted for 18.7% of the
Trust's total net assets.
Franklin Universal Trust
Top 10 Company Holdings on February 28, 1995
As a percentage of total portfolio
Company % of total
Industry portfolio
- - -------------------------------------------------------------------------------
Southern Company 3.23%
Utility (stocks)
- - -------------------------------------------------------------------------------
Thermadyne Industries, Inc. 2.77%
Industrial (bonds)
- - -------------------------------------------------------------------------------
Texas Utilities Co. 2.19%
Utility (stocks)
- - -------------------------------------------------------------------------------
Comcast Corp. 1.76%
Cable Television (bonds)
- - -------------------------------------------------------------------------------
Rogers Communication 1.74%
Cable/Cellular (bonds)
- - -------------------------------------------------------------------------------
Healthtrust, Inc. 1.70%
Healthcare (bonds)
- - -------------------------------------------------------------------------------
Dr. Pepper/7-Up, Cos. 1.70%
Food & Beverage (bonds)
- - -------------------------------------------------------------------------------
Del Monte Corp. 1.57%
Food & Beverage (bonds)
- - -------------------------------------------------------------------------------
American Electric Power Co., Inc. 1.56%
Utility (stocks)
- - -------------------------------------------------------------------------------
Ft. Howard Corp. 1.55%
Forest & Paper Products (bonds)
As of February 28, 1995, the fund was well- diversified with 162 positions from
over 20 different industries. Its 10 largest holdings, as the table on the
previous page illustrates, represent both utility stocks and corporate bonds.
Recent economic data suggesting the best of both worlds -- moderate growth with
inflation well under control -- should be quite positive for financial markets
overall, and for the high yield corporate bond and utility equity markets in
particular.4 With prospects for a recession in the foreseeable future appearing
fairly slim, the majority of domestic corporations should continue to experience
further improvement in their financial conditions as well as increased earnings
potential. Correspondingly, this should positively impact the high yield
corporate bond market. Furthermore, last year's correction in utility stocks
appears to be behind us. While the sustainability of this year's rally in this
sector remains to be seen, signs are considerably more promising than at any
point in the recent past.
3. Cumulative total return of Standard & Poor's Utility Index includes
reinvested dividends and capital gains.
4. On February 28, 1995, 67.5% of the fund's total net assets was invested in
high yielding corporate bonds. High yields reflect the higher credit risks
associated with certain lower-rated securities in the Trust's portfolio and, in
some cases, the lower market price for these securities.
Performance Summary
The Franklin Universal Trust reported cumulative total returns of +10.10% and
+4.38%, respectively, for the six-month and one-year periods ended February 28,
1995. Total return reflects the change in the Trust's market price on the New
York Stock Exchange (NYSE). Based on the change in net asset value (as opposed
to market price), six-month and one-year total returns for the same period were
+6.52% and +0.70%, respectively. All total return calculations assume
reinvestment of dividends and capital gains according to the terms specified in
the Trust's Dividend Reinvestment Plan.
The Trust's closing price on the NYSE rose to $8.50 per share on February 28,
1995, from $8.125 on August 31, 1994. The Trust's net asset value price per
share increased to $8.85 on February 28, 1995, from $8.71 on August 31, 1994.
During the reporting period, shareholders received income distributions totaling
40.8 cents ($0.408) per share. Dividends will vary based on the Trust's
earnings, and past distributions are not indicative of future trends.
Based on an annualization of the current monthly dividend of 6.7 cents ($0.067)
per share and the NYSE closing price of $8.50 on February 28, 1995, the Trust's
distribution rate was 9.46%.
While the Trust is bound to encounter short- term volatility, we are confident
that its performance will be rewarding for long-term investors. During the five
years ended February 28, 1995, for example, the Trust reported a total return of
+101.83% in market-price terms, as shown in the chart below.5
Franklin Universal Trust
Periods ended February 28, 1995
Since
Six- One- Five- Inception
Month year year (9/23/88)
- - -------------------------------------------------------------------------
Cumulative
Total Return5 10.10% 4.38% 101.83% 79.37%
(based on
market value)
Cumulative
Total Return5 6.52% 0.70% 99.79% 100.51%
(based on net
asset value)
Distribution Rate6 9.46%
- - -------------------------------------------------------------------------
5. Cumulative total returns measure the change in value of an investment over
the periods indicated. These figures assume reinvestment of dividends and
capital gains according to the terms specified in the Trust's Dividend
Reinvestment Plan.
6. Based on an annualization of the current 6.7 cent per share monthly dividend
and the Trust's NYSE closing price of $8.50 on February 28, 1995. High yields
reflect the higher credit risks associated with certain lower-rated securities
in the Trust's portfolio and, in some cases, the lower market price for these
securities.
DIVIDEND REINVESTMENT PLAN
The Trust Dividend Reinvestment Plan offers you a prompt and simple way to
reinvest income from dividends and capital gain distributions in shares of the
Trust. Provident National Bank, 17th and Chestnut Streets, Philadelphia,
Pennsylvania 19103, acts as your Plan Agent in administering the Plan. All
reinvestments are in full and fractional shares, carried to two decimal places.
The complete Terms and Conditions of the Dividend Reinvestment Plan appear in
the Trust's prospectus, which may be obtained from the Trust at the address on
the 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
Provident National Bank, the Plan Agent, in writing if you wish to receive
dividends or distributions in cash.
If the Trust declares a dividend or capital gain distribution, you, as a
participant in the Plan, will automatically receive shares of the Trust. If the
market price of the shares on the relevant date, normally the payment date,
equals or exceeds the net asset value, the Trust will issue new shares to you at
the greater of net asset value or 95% of fair market value. If the market price
(including commissions or costs of the acquisition) is lower than net asset
value, you will receive shares purchased on the New York Stock Exchange (NYSE)
or otherwise on the open market to the extent available. If the market price is
equal to net asset value before the Plan Agent has completed its purchases, the
Plan Agent will then issue all remaining shares for reinvestment purposes at net
asset value. Therefore, the average price will not exceed net asset value. All
reinvestments are in full and fractional shares.
There is no direct charge to participants for reinvesting dividends and
distributions, since the Plan Agent's fees are paid by the Trust. Whenever
shares are purchased through the NYSE, each participant will pay a pro rata
portion of brokerage commissions. Please note: The automatic reinvestment of
dividends and distributions does not relieve you of any income tax that may be
payable on dividends or distributions.
You will receive an annual account statement from the Plan Agent, showing total
dividends and 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 according to the Plan. If you vote by proxy, your proxy will
include all such shares.
As long as you participate in the Plan, the Plan Agent will hold the shares it
has acquired for you in safekeeping, in non-certificated form. This convenience
provides added protection against loss, theft or inadvertent destruction of
certificates.
You may withdraw from the Plan at any time. If you do withdraw from the Plan,
you will receive, without charge, a certificate issued in your name for all full
shares. The Plan Agent will convert to cash, at the then-current market price,
any fractional shares you hold at the time of withdrawal and send you a check
for the proceeds. If you request liquidation of your fractional shares, your
enrollment in the Plan will automatically be canceled. If you prefer, the Plan
Agent will sell all of your full and fractional shares upon your withdrawal and
send you the proceeds.
If you hold shares in your own name, please address all notices, correspondence,
questions, or other communication regarding the Plan to the Plan Agent at the
address noted previously. If shares are not held in your name, you should
contact your brokerage firm, bank, or other nominee for more information.
FRANKLIN UNIVERSAL TRUST
Annual Meeting of Shareholders
February 14, 1995
1. Regarding the election of trustees who constitute the current Board of
Trustees:
<TABLE>
<CAPTION>
% of Broker
For (%) Voted Against (%) Abstain (%) Non-Vote
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Frank H. Abbott 22,200,312.118 82.900 97.850 -0- -0- 487,621.990 2.150 -0-
Harris J. Ashton 22,386,115.745 83.590 98.670 -0- -0- 301,818.363 1.330 -0-
S. Joseph Fortunato 22,384,676.838 83.590 98.660 -0- -0- 303,257.270 1.340 -0-
David W. Garbellano 22,203,131.391 82.910 97.860 -0- -0- 484,802.717 2.140 -0-
Edward B. Jamieson 22,344,342.735 83.440 98.490 -0- -0- 343,591.373 1.510 -0-
Charles B. Johnson 22,398,703.673 83.640 98.730 -0- -0- 289,230.435 1.270 -0-
Rupert H. Johnson, Jr. 22,398,198.467 83.640 98.720 -0- -0- 289,735.641 1.280 -0-
Frank W. T. LaHaye 22,389,547.120 83.610 98.680 -0- -0- 298,386.988 1.320 -0-
Gordon S. Macklin 22,247,229.729 83.080 98.060 -0- -0- 440,704.379 1.940 -0-
</TABLE>
2. Regarding the ratification of the selection of Coopers & Lybrand L.L.P.,
Certified Public Accountants, as the independent auditors for the Fund for the
fiscal year ending August 31, 1995:
<TABLE>
<CAPTION>
Broker
For (%) % of Voted Against (%) Abstain (%) Non-Vote
- - ----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
22,254,197.541 83.100 98.090 79,949.585 .350 353,786.982 1.560 -0-
</TABLE>
FRANKLIN UNIVERSAL TRUST
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, February 28, 1995
(unaudited)
Shares,
Warrants Value
& Rights (Note 2)
- - -----------------------------------------------------------------------------------------------------------------------------------
Common Stocks, Warrants & Rights 23.8%
Automotive .4%
<C> <S> <C>
60,800 a Harvard Industries, Inc., Class B ........................................... $ 965,200
------------
Containers & Packaging .7%
164,117 a Gaylord Container Corp., warrants ........................................... 1,702,714
------------
Energy .8%
9,000 a McMoRan Oil & Gas Co. ....................................................... 24,750
14,935 a Santa Fe Energy Resources, Inc. ............................................. 134,415
66,600 Ultramar Corp. .............................................................. 1,714,950
------------
1,874,115
------------
Financials
15,180 a,b,d Westfed Holdings, Inc., Series B ............................................ --
------------
Gaming & Leisure
752 a Host Marriott Corp. ......................................................... 8,272
752 Marriott International, Inc. ................................................ 23,312
------------
31,584
------------
Healthcare .2%
4,066 a Kendall International, Inc., Class A, warrants .............................. 213,441
4,348 a Kendall International, Inc., Class B, warrants .............................. 206,504
2,456 a Kendall International, Inc., rights ......................................... 128,925
------------
548,870
------------
Home Building .2%
67,247 a NVR, Inc. ................................................................... 403,482
35,607 a NVR, Inc., warrants ......................................................... 37,832
------------
441,314
------------
Industrial
7,254 a Thermadyne Industries, Inc. ................................................. 105,183
------------
Metals & Mining 2.8%
228,000 Driefontein Consolidated Mines, Ltd., ADR ................................... 2,992,500
24,571 East Daggafontein Mines, Ltd., ADR .......................................... 54,916
131,350 Free State Consolidated Gold Mines, Ltd., ADR ............................... 1,526,944
4,500 Freeport-McMoRan Copper & Gold, Inc. ........................................ 94,500
90,000 Freeport-McMoRan, Inc. ...................................................... 1,620,000
------------
6,288,860
------------
Technology/Information Systems
84,885 a Memorex Telex N.V., ADR ..................................................... 76,927
------------
Transportation
2,723 a Continental Airlines, Inc., Class A ......................................... $ 23,145
7,580 a Continental Airlines, Inc., Class B ......................................... 66,325
------------
89,470
------------
Utilities 18.7%
138,600 American Electric Power Co., Inc. ........................................... 4,695,075
105,600 CiNergy Corp. ............................................................... 2,613,600
79,700 Delmarva Power & Light Co. .................................................. 1,584,037
28,000 DPL, Inc. ................................................................... 584,500
100,000 Duke Power Co. .............................................................. 3,925,000
130,000 Long Island Lighting Co. .................................................... 2,080,000
175,000 New York State Electric & Gas Corp. ......................................... 3,762,500
180,600 Pacific Gas & Electric Co. .................................................. 4,627,875
135,000 Pinnacle West Capital Corp. ................................................. 2,902,500
79,000 SCEcorp ..................................................................... 1,293,625
472,000 Southern Co. ................................................................ 9,735,000
200,200 Texas Utilities Co. ......................................................... 6,581,575
------------
44,385,287
------------
Total Common Stocks, Warrants & Rights (Cost $52,972,944) ............. 56,509,524
------------
Partnership Units .4%
Financials .4%
5 b,d PG Partners, Limited Partnership, Preference Units (Cost $339,704) .......... 970,775
------------
Preferred Stocks 9.0%
Automotive 1.1%
12,000 Ford Motor Co., $4.20 cum. cvt. exch. pfd., Series A ........................ 1,018,500
61,049 Harvard Industries, Inc., 14.25% pfd., PIK .................................. 1,617,798
------------
2,636,298
------------
Consumer Goods 1.0%
420,000 RJR Nabisco Holdings, $0.6012 cvt. pfd., Series C ........................... 2,467,500
------------
Energy 2.0%
12,200 Ashland Oil, Inc., $3.125 cum. cvt. pfd. .................................... 655,750
18,200 c Diamond Shamrock, $2.50 cvt. pfd. ........................................... 928,200
34,900 Noble Drilling Corp., $2.25 cvt. exch. pfd. ................................. 1,051,363
16,500 Occidental Petroleum Corp., $3.00 cvt. pfd. ................................. 787,875
20,000 c Occidental Petroleum Corp., $3.875 cvt. exch. pfd. .......................... 990,000
6,700 c Transco Energy Co., $3.50 cvt. pfd., Series E ............................... 349,238
------------
4,762,426
------------
Financials 2.8%
10,200 Citicorp, $5.375 cvt. cum. pfd. ............................................. $ 1,245,675
40,000 First Nationwide Bank, 11.50% pfd. .......................................... 4,000,000
60,000 Property Trust of America, $1.75 cvt. pfd., Series A ........................ 1,365,000
49,806 b,d Westfed Holdings, Inc., 15.50% cum. senior pfd., Series A ................... 498
------------
6,611,173
------------
Metals & Mining .4%
20,000 c Freeport-McMoRan, Inc., $4.375 cvt. pfd. .................................... 935,000
------------
Real Estate Investment Trust .4%
40,000 Tanger Factory Outlet Centers, Inc., $1.575 cvt. pfd., Series A ............. 927,500
------------
Restaurants .5%
60,400 Flagstar Cos., Inc., $2.25 cvt. pfd., Series A .............................. 1,117,400
------------
Utilities .5%
38,000 c Philippine Long Distance Telephone Co., 5.75% cvt. pfd., Series II .......... 1,292,000
------------
Wireless/Cellular .3%
20,000 c Mobile Telecommunication Co., $2.25 cvt. pfd. ............................... 632,500
------------
Total Preferred Stocks (Cost $26,435,804) ............................. 21,381,797
------------
Face
Amount
- - -------------
Non-Convertible Bonds 88.8%
Automotive 1.7%
$ 3,800,000 SPX Corp., senior sub. notes, 11.75%, 06/01/02 .............................. 3,923,500
------------
Cable Television 10.2%
5,000,000 e Bell Cablemedia, Plc., senior disc. notes, zero coupon to 07/15/99, (original
accretion rate 11.95%), 11.95% thereafter, 07/15/04 ........................ 3,031,250
2,500,000 Cablevision Industries Corp., guaranteed senior sub. deb., 10.75%, 01/30/02 . 2,621,875
3,000,000 Cablevision Systems Corp., senior sub. deb., 9.875%, 04/01/23 ............... 2,880,000
2,000,000 e Century Communications, Inc., senior disc. notes, (original accretion rate 8.875%),
0.00%, 03/15/03 895,000
1,000,000 Comcast Corp., senior sub. deb., 9.50%, 01/15/08 ............................ 952,500
2,000,000 Continental Cablevision, Inc., senior sub. deb., 11.00%, 06/01/07 ........... 2,135,000
1,400,000 Continental Cablevision, Inc., senior sub. deb., 9.00%, 09/01/08 ............ 1,347,500
5,250,000 e Diamond Cable Communications Co., senior disc. notes, zero coupon to 09/30/99,
(original accretion rate 13.25%), 13.25% thereafter, 09/30/04 ............... 3,051,563
1,200,000 Le Groupe Videotron, senior notes, 10.625%, 02/15/05 ........................ 1,242,000
2,400,000 f Rogers Cablesystems, Inc., senior secured deb. (Canada), 9.65%, 01/15/14 .... 1,403,710
$ 3,000,000 Tele-Communications, Inc., senior deb., 9.80%, 02/01/12 ..................... $ 3,083,961
2,000,000 Turner Broadcasting Systems, Inc., senior deb., 8.40%, 02/01/24 ............. 1,647,500
------------
24,291,859
------------
Cellular Telephone 3.7%
6,000,000 e Comcast Cellular Corp., senior sub. deb., Series B, (original accretion rate 11.37%),
0.00%, 03/05/00 4,350,000
3,000,000 e Nextel Communications, senior disc. notes, (original accretion rate 9.75%) 0.00%,
08/15/04 1,215,000
3,000,000 Rogers Cantel Mobile Communications, Inc., senior sub. notes, 10.75%, 11/01/01 3,112,500
------------
8,677,500
------------
Chemicals 5.1%
3,000,000 Arcadian Partners, S.F., senior sub. notes, Series B, 10.75%, 05/01/05 ...... 2,977,500
4,000,000 e Harris Chemical North America, Inc., senior secured disc. notes, zero coupon to
01/15/96, (original accretion rate 10.25%), 10.25% thereafter, 07/15/01 ..... 3,580,000
500,000 IMC Global, Inc., senior deb., 9.45%, 12/15/11 .............................. 475,000
1,000,000 IMC Global, Inc., senior notes, 9.25%, 10/01/00 ............................. 990,000
1,500,000 IMC Global, Inc., senior notes, Series B, 10.125%, 06/15/01 ................. 1,561,875
1,350,000 IMC Global, Inc., senior notes, Series B, 10.75%, 06/15/03 .................. 1,427,625
1,150,000 Uniroyal Chemical Corp., senior notes, 10.50%, 05/01/02 ..................... 1,155,750
------------
12,167,750
------------
Consumer Goods 4.5%
2,750,000 e Coleman Holdings, Inc., senior secured disc. notes, (original accretion rate
10.875%), 0.00%, 05/27/98 ................................................... 1,925,000
1,700,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 ........... 1,561,875
3,000,000 Revlon Consumer Products Corp., senior sub. notes, Series B, 10.50%, 02/15/03 2,820,000
1,500,000 e Revlon Worldwide Corp., senior secured disc. notes, Series B, (original accretion
rate 12.00%), 0.00%, 03/15/98 ............................................... 907,500
1,500,000 RJR Nabisco, Inc., senior notes, 9.25%, 08/15/13 ............................ 1,445,625
2,000,000 Sealy Corp., senior sub. notes, 9.50%, 05/01/03 ............................. 1,965,000
------------
10,625,000
------------
Containers & Packaging 4.7%
1,000,000 Container Corp. of America, guaranteed senior notes, Series A, 11.25%, 05/01/04 1,056,250
3,000,000 Container Corp. of America, senior notes, 9.75%, 04/01/03 ................... 2,955,000
3,000,000 Owens-Illinois, Inc., senior sub. notes, 9.75%, 08/15/04 .................... 2,962,500
3,200,000 Stone Container Corp., senior notes, 9.875%, 02/01/01 ....................... 3,140,000
1,000,000 Stone Container Corp., senior notes, 11.50%, 10/01/04 ....................... 1,068,750
------------
11,182,500
------------
Energy 1.6%
$ 4,000,000 Gulf Canada Resources, Ltd., senior sub. deb., 9.25%, 01/15/04 .............. $ 3,754,880
------------
Food & Beverages 8.2%
1,600,000 Beatrice Foods, Inc., S.F., senior sub. notes, 12.00%, 12/01/01 ............. 1,552,000
600,000 Curtice-Burns Foods, Inc., senior sub. notes, 12.25%, 02/01/05 .............. 628,500
5,073,000 c Del Monte Corp., sub. notes, PIK, 12.25%, 09/01/02 .......................... 4,717,890
300,000 Dr Pepper Bottling Co. of Texas, senior sub. notes, 10.25%, 02/15/00 ........ 307,500
6,043,000 e Dr Pepper/Seven-Up Cos., Inc., senior sub. disc. notes, zero coupon to 11/01/97,
(original accretion rate 11.50%), 11.50% thereafter, 11/01/02 ............... 5,106,335
1,500,000 PMI Acquisition Corp., guaranteed senior sub. notes, 10.25%, 09/01/03 ....... 1,451,250
3,000,000 Royal Crown Corp., guaranteed senior secured notes, 9.75%, 08/01/00 ......... 2,827,500
1,000,000 Specialty Foods Corp., senior sub. notes, Series B, 11.25%, 08/15/03 ........ 955,000
2,000,000 Specialty Foods Corp., senior unsecured notes, Series B, 10.25%, 08/15/01 ... 1,930,000
------------
19,475,975
------------
Food Retailing 5.3%
1,100,000 P & C Food Markets, Inc., senior sub. notes, 11.50%, 10/15/01 ............... 1,152,250
4,000,000 Pathmark Stores, Inc., senior sub. notes, 9.625%, 05/01/03 .................. 3,770,000
1,000,000 Penn Traffic Co., senior notes, 8.625%, 12/15/03 ............................ 920,000
2,000,000 Penn Traffic Co., senior notes, 10.375%, 10/01/04 ........................... 2,017,500
2,000,000 Pueblo Xtra International, senior notes, 9.50%, 08/01/03 .................... 1,750,000
3,000,000 Ralphs Grocery Co., senior sub. notes, 10.25%, 07/15/02 ..................... 2,947,500
------------
12,557,250
------------
Forest & Paper Products 5.5%
2,000,000 Fort Howard Corp., senior sub. notes, 9.00%, 02/01/06 ....................... 1,790,000
1,873,237 Fort Howard Corp., sub. deb., 11.00%, 01/02/02 .............................. 1,915,385
1,000,000 Fort Howard Corp., sub. notes, 10.00%, 03/15/03 ............................. 970,000
1,500,000 REPAP Wisconsin, Inc., senior secured notes, 9.25%, 02/01/02 ................ 1,417,500
500,000 REPAP Wisconsin, Inc., senior secured notes, 9.875%, 05/01/06 ............... 470,000
2,200,000 c S.D. Warren Co., senior sub. notes, 12.00%, 12/15/04 ........................ 2,332,000
4,000,000 Tjiwi Kimia International, guaranteed senior notes, 13.25%, 08/01/01 ........ 4,040,000
------------
12,934,885
------------
Gaming & Leisure 6.8%
4,000,000 Aztar Corp., senior sub. notes, 13.75%, 10/01/04 ............................ 4,300,000
1,500,000 Harrah's Jazz Co., first mortgage, 14.25%, 11/15/01 ......................... 1,650,000
396,000 Host Marriott Hospitality, senior notes, Series L, 11.00%, 05/01/07 ......... 398,970
4,000,000 John Q. Hammons Hotels, first mortgage, 8.875%, 02/15/04 .................... 3,660,000
$ 2,000,000 Red Roof Inns, senior notes, 9.625%, 12/15/03 ............................... $ 1,890,000
4,000,000 Showboat, Inc, senior sub. notes, 13.00%, 08/01/09 .......................... 4,140,000
------------
16,038,970
------------
Healthcare 8.5%
4,000,000 Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 ............ 3,980,000
1,200,000 e American Medical Holding, Inc., junior sub. disc. deb., zero coupon to 11/25/95,
(original accretion rate 15.00%), 15.00% thereafter, 11/26/05 ............... 2,262,000
1,409,000 Amerisource Distribution Corp., senior deb., PIK, 11.25%, 07/15/05 .......... 1,500,585
2,700,000 Healthtrust, Inc. - The Hospital Co., sub. notes, 10.75%, 05/01/02 .......... 2,936,250
2,000,000 Healthtrust, Inc. - The Hospital Co., sub. notes, 10.25%, 04/15/04 .......... 2,195,000
500,000 National Medical Enterprises, senior notes, 9.625%, 09/01/02 ................ 510,000
2,500,000 National Medical Enterprises, senior sub. notes, 10.125%, 03/01/05 .......... 2,556,250
4,000,000 OrNda Healthcorp., guaranteed senior sub. notes, 11.375%, 08/15/04 .......... 4,250,000
------------
20,190,085
------------
Industrial 5.9%
3,000,000 American Standard, Inc., S.F., deb., 9.25%, 12/01/16 ........................ 2,805,000
1,000,000 e American Standard, Inc., S.F., senior sub. deb., zero coupon to 06/01/98, (original
accretion rate 10.25%), 10.25% thereafter, 06/01/05 ......................... 687,500
2,400,000 Inter-City Products Corp., senior secured notes, 9.75%, 03/01/00 ............ 2,208,000
3,631,000 Thermadyne Industries, Inc., senior notes, 10.25%, 05/01/02 ................. 3,467,605
5,035,000 Thermadyne Industries, Inc., sub. notes, 10.75%, 11/01/03 ................... 4,758,075
------------
13,926,180
------------
Media & Broadcasting 3.9%
2,000,000 American Media Operation, senior sub. notes, 11.625%, 11/15/04 .............. 2,090,000
3,000,000 New World Communications Group, Inc., senior notes, 11.00%, 06/30/05 ........ 3,097,500
6,000,000 e PanAmSat Capital Corp., L.P., senior sub. disc. notes, zero coupon to 08/01/98,
(original accretion rate 11.375%), 11.375% thereafter, 08/01/03 ............. 3,990,000
------------
9,177,500
------------
Metals & Mining 3.2%
5,000,000 e Acme Metals, Inc., guaranteed senior secured disc. notes, zero coupon to 08/01/97,
(original accretion rate 13.50%), 13.50% thereafter, 08/01/04 ............... 3,743,750
3,000,000 Envirosource, Inc., senior notes, 9.75%, 06/15/03 ........................... 2,670,000
1,200,000 c UCAR Global Enterprises, senior sub. notes, 12.00%, 01/15/05 ................ 1,282,500
------------
7,696,250
------------
Restaurants 3.5%
2,353,146 b,d Atherton Franchise Capital, L.P., 11.00%, 05/01/06 .......................... 1,976,643
2,000,000 Family Restaurant, Inc., senior notes, 9.75%, 02/01/02 ...................... 1,530,000
Restaurants (cont.)
$ 1,500,000 Flagstar Corp., senior notes, 10.875%, 12/01/02 ............................. $ 1,466,250
1,510,000 Flagstar Corp., S.F., senior sub. deb., 11.25%, 11/01/04 .................... 1,291,050
2,500,000 Foodmaker, Inc., S.F., senior sub. notes, 9.25%, 03/01/99 ................... 2,131,250
------------
8,395,193
------------
Technology/Information Systems 1.2%
3,000,000 ADT Operations, Ltd., guaranteed senior sub. notes, 9.25%, 08/01/03 ......... 2,895,000
------------
Textiles & Apparel 2.3%
1,550,000 Forstmann Textile & Co., Inc., S.F., senior sub. notes, 14.75%, 04/15/99 .... 1,666,250
2,567,000 JPS Textile Group, Inc., S.F., disc. notes, 10.85%, 06/01/99 ................ 1,912,415
1,000,000 WestPoint Stevens, Inc., senior notes, 8.75%, 12/15/01 ...................... 932,500
1,000,000 WestPoint Stevens, Inc., senior sub. deb., 9.375%, 12/15/05 ................. 951,250
------------
5,462,415
------------
Transportation 1.8%
1,000,000 Delta Airlines, Inc., S.F., pass through equipment trust, 10.06%, 01/02/16 .. 1,039,002
3,000,000 Delta Airlines, Inc., S.F., pass through equipment trust, 10.50%, 04/30/16 .. 3,264,855
------------
4,303,857
------------
Utilities 1.2%
916,219 Midland CoGeneration Venture, S.F., deb., Series C, 10.33%, 07/23/02 ........ 899,256
2,000,000 Midland CoGeneration Venture, S.F., secured lease obligation, Series A, 11.75%,
07/23/05 1,903,302
------------
2,802,558
------------
Total Non-Convertible Bonds (Cost $210,737,004) ....................... 210,479,107
------------
Convertible Bonds 4.2%
Cellular Telephone .3%
2,175,000 e Rogers Communication, Inc., cvt. sub. notes, LYONs, (original accretion rate 5.50%),
0.00%, 05/20/13 717,750
------------
Energy 1.3%
2,000,000 Noble Affiliates, cvt. sub. notes, 4.25%, 11/01/03 .......................... 1,815,000
1,000,000 Pennzoil Co., cvt. sub. deb., 6.50%, 01/15/03 ............................... 1,180,000
------------
2,995,000
------------
Environmental Services .3%
1,000,000 Air & Water Technology Corp., cvt. sub. deb., 8.00%, 05/15/15 ............... 637,500
------------
Financials .6%
2,000,000 c Peregrine Investment Finance, cvt. guaranteed, 4.50%, 12/01/00 .............. 1,510,000
------------
Healthcare .4%
$ 1,000,000 Quantum Health Resources, cvt. sub. deb., 4.75%, 10/01/00 ................... $ 890,000
------------
Metals & Mining .2%
500,000 c Homestake Mining Co., cvt. sub. deb., 5.50%, 06/23/00 ....................... 455,000
------------
Publishing/Newspaper .2%
1,500,000 e Hollinger, Inc., cvt. sub. notes, LYONs, (original accretion rate 6.00%), 0.00%,
10/05/13 427,500
------------
Retail .3%
900,000 Carter Hawley Hale Stores, cvt. senior sub. notes, 6.25%, 12/31/00 .......... 612,000
------------
Technology/Information Systems .6%
1,600,000 Storage Technology Corp., cvt. deb., 8.00%, 05/31/15 ........................ 1,432,000
------------
Total Convertible Bonds (Cost $10,913,200) ............................ 9,676,750
Total Bonds (Cost $221,650,204) ....................................... 220,155,857
------------
Foreign Government Agencies .9%
4,350,000 f ESCOM, E168, utility deb. (South Africa), 11.00%, 06/01/08 .................. 778,247
3,000,000 Republic of Venezuela, 4.312%, 12/18/07 ..................................... 1,338,750
------------
Total Foreign Government Agencies (Cost $3,395,087) ................... 2,116,997
------------
Total Investments before Repurchase Agreements (Cost $304,793,743) .... 301,134,950
------------
g,h Receivables from Repurchase Agreements 4.4%
10,694,386 Joint Repurchase Agreement, 6.132%, 03/01/95 (Maturity Value $10,520,558)
(Cost $10,518,766)
Collateral: U.S. Treasury Bills, 04/06/95
U.S. Treasury Notes, 4.375% - 8.75%, 07/31/96 - 12/31/99 ...... 10,518,766
------------
Total Investments (Cost $315,312,509) 131.5% ..................... 311,653,716
Liabilities in Excess of Other Assets, Net (31.5)% ............... (74,605,053)
------------
Net Assets 100.0% ................................................ $237,048,663
============
At February 28, 1995, the net unrealized depreciation based
on the cost of investments for income tax purposes of $315,312,509 was as
follows:
Aggregate gross unrealized appreciation for all investments in which there was
an excess of value over tax cost ............................................ $ 21,547,395
Aggregate gross unrealized depreciation for all investments in which there was
an excess of tax cost over value ............................................ (25,206,188)
------------
Net unrealized depreciation ............................................... $ (3,658,793)
============
</TABLE>
PORTOFOLIO ABBREVIATIONS:
L.P. - Limit Partnership
LYONs - Liquid Yield Option Notes
PIK - Payment-in-Kind
S.F. - Sinking Fund
aNon-income producing.
bSee Note 8 regarding restricted securities.
cSee Note 9 regarding Rule 144A securities.
dSee Note 2 regarding securities valued by the Board of Trustees.
eZero coupon/step-up bonds. The current effective yield may vary.
The original accretion rate will remain constant.
fFace amount stated in foreign currencies, value in U.S. dollars.
gFace amount for repurchase agreements is for the underlying collateral.
hSee Note 2(F) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
<PAGE>
FRANKLIN UNIVERSAL TRUST
Financial Statements
Statement of Assets and Liabilities
February 28, 1995 (unaudited)
Assets:
Investment in securities, at value
(identified cost $304,793,743) $301,134,950
------------
Receivables from repurchase
agreements, at value and cost 10,518,766
Receivables:
Dividends and interest 4,754,438
Investment securities sold 558,570
Prepaid expenses 17,092
Unamortized note issuance costs
(Note 3) 433,852
------------
Total assets 317,417,668
------------
Liabilities:
Payables:
Notes (Note 3) 74,954,361
Investment securities purchased 3,000,000
Accrued interest (Note 3) 2,109,375
Management fees 192,628
Accrued expenses and other liabilities 112,641
------------
Total liabilities 80,369,005
------------
Net assets, at value $237,048,663
============
Net assets consist of:
Undistributed net investment income $ 1,194,087
Unrealized depreciation on investments
and translation of assets and liabilities
denominated in foreign currencies (3,657,613)
Net realized loss from investments and
foreign currency transactions (7,358,950)
Capital shares 267,793
Additional paid-in capital 246,603,346
------------
Net assets, at value $237,048,663
============
Net asset value per share
($237,048,663 / 26,779,333 shares
of beneficial interest outstanding) $8.85
============
<PAGE>
Statement of Operations
for the six months ended February 28, 1995 (unaudited)
Investment income:
Dividends $ 2,950,298
Interest 11,889,190
------------
Total income $14,839,488
Expenses:
Management fees (Note 5) 1,141,860
Shareholder servicing costs 64,860
Custodian fees 23,057
Reports to shareholders 58,696
Professional fees 27,781
Trustees' fees and expenses 14,316
Amortization of notes
issuance costs 62,028
Other 31,531
------------
Operating expenses 1,424,129
Interest expense (Note 3) 2,115,900
------------
Total expenses 3,540,029
------------
Net investment income 11,299,459
------------
Realized and unrealized gain
from investments and
foreign currency:
Net realized gain from:
Investments 2,396,719
Foreign currency
transactions 10,425
Net unrealized appreciation
on investments and trans-
lation of assets and liabilities
denominated in foreign
currencies 966,332
------------
Net realized and
unrealized gain from
investments and foreign
currency 3,373,476
------------
Net increase in net assets
resulting from operations $14,672,935
============
The accompanying notes are an integral part of these financial statements.
<PAGE>
FRANKLIN UNIVERSAL TRUST
Financial Statements (cont.)
Statements of Changes in Net Assets
for the six months ended February 28, 1995 (unaudited)
and the year ended August 31, 1994
Six months Year
ended ended
2/28/95 8/31/94
------------ ------------
Increase (decrease) in net assets:
Operations:
Net investment income $11,299,459 $22,386,677
Net realized gain from
investments and foreign
currency transactions 2,407,144 11,252,874
Net unrealized appre-
ciation (depreciation)
on investments and
translation of assets
and liabilities denomi-
nated in foreign
currencies 966,332 (40,114,480)
------------ ------------
Net increase
(decrease) in net
assets resulting
from operations 14,672,935 (6,474,929)
Distributions to
shareholders from
undistributed net
investment income (10,925,968) (23,016,837)
------------ ------------
Net increase
(decrease)
in net assets 3,746,967 (29,491,766)
Net assets:
Beginning of period 233,301,696 262,793,462
------------ ------------
End of period (including
undistributed net in-
vestment income of
$1,194,087 at 2/28/95,
and $820,596 at
8/31/94) $237,048,663 $233,301,696
============ ============
Statement of Cash Flows
for the six months ended February 28, 1995 (unaudited)
Interest and dividends received $ 12,261,848
Operating expenses paid (1,368,026)
Interest expense paid (2,109,375)
-------------
Cash provided - operations 8,784,447
-------------
Investment purchases (498,692,666)
-------------
Investment sales 500,834,187
-------------
Cash provided - investments 2,141,521
Distributions to shareholders (10,925,968)
Cash used - financing activities (10,925,968)
-------------
Net change in cash --
Cash at beginning of period --
-------------
Cash at end of period $ --
=============
The accompanying notes are an integral part of these financial statements.
<PAGE>
FRANKLIN UNIVERSAL TRUST
Notes to Financial Statements (unaudited)
NOTE 1 - ORGANIZATION
Franklin Universal Trust (the "Fund") was organized as a Massachusetts business
trust on April 26, 1988, and is registered as a diversified, closed-end
management investment company under the Investment Company Act of 1940. The Fund
has two classes of securities: senior fixed-rate notes (the "Notes") and shares
of beneficial interest (the "Shares").
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. Security Valuation:
Portfolio securities listed on a securities exchange or on the NASDAQ National
Market System for which market quotations are readily available are valued at
the last quoted sale price of the day or, if there is no such reported sale,
within the range of the most recent quoted bid and ask prices. Other securities,
for which market quotations are readily available, are valued at current market
values obtained from pricing services, which are based on a variety of factors,
including recent trades, institutional size trading in similar types of
securities (considering yield, risk and maturity) and/or developments related to
specific securities. Portfolio securities which are traded both in the
over-the-counter market and on a securities exchange are valued according to the
broadest and most representative market as determined by the Manager. Other
securities for which market quotations are not available, if any, are valued in
accordance with procedures established by the Board of Trustees.
Securities denominated in foreign currencies and traded on foreign exchanges or
in foreign markets are valued in a similar manner, and these values are
translated into U.S. Dollars at current market quotations of their respective
currency against U.S. Dollars last quoted by a major bank or, if no such
quotation is available, at the rate of exchange determined in accordance with
procedures established by the Board of Trustees.
The fair values of securities restricted as to resale, if any, are determined
following procedures approved by the Board of Trustees - see Note 8.
B. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification for both financial statement
and income tax purposes.
C. Investment income, Expenses and Distributions:
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income and estimated expenses are accrued daily. Bond
discount, if any, is amortized as required by the Internal Revenue Code.
D. Income Taxes:
The Fund intends to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to its shareholders which will be sufficient to relieve
it from income and excise taxes. Therefore, no income tax provision is required.
E. Foreign Currency Translation:
The accounting records of the Fund are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies are translated into U.S.
dollars at the rate of exchange of such currencies against U.S. dollars on the
date of the valuation. Purchases and sales of securities, income and expenses
are translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are recognized when reported by the custodian
bank.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
E. Foreign Currency Translation (cont.):
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency gains
or losses realized between the trade date and settlement dates on securities
transactions, the difference between the amounts of dividends, interest and
foreign withholding taxes recorded on the Fund's books, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities during the reporting period,
resulting from changes in exchange rates.
F. Repurchase Agreements:
The Fund may enter into a Joint Repurchase Agreement whereby its uninvested cash
balance is deposited into a joint cash account to be used to invest in one or
more repurchase agreements with government securities dealers recognized by the
Federal Reserve Board and/or member banks of the Federal Reserve System. The
value and face amount of the Joint Repurchase Agreement is allocated to the Fund
based on its pro-rata interest.
In a repurchase agreement, the Fund purchases a U.S. government security from a
dealer or bank subject to an agreement to resell it at a mutually agreed upon
price and date. Such a transaction is accounted for as a loan by the Fund to the
seller, collateralized by the underlying security. The transaction requires the
initial collateralization of the seller's obligation by U.S. government
securities with market value, including accrued interest, of at least 102% of
the dollar amount invested by the Fund, with the value of the underlying
security marked to market daily to maintain coverage of at least 100%. The
collateral is delivered to the Fund's custodian and held until resold to the
dealer or bank. At February 28, 1995, the outstanding joint repurchase
agreements held by the Fund had been entered into on that date.
G. Change in Accounting Policy for Foreign Currency Presentation:
Effective February 28, 1995, the Fund adopted AICPA Statement of Position (SOP)
93-4: Foreign Currency Accounting and Financial Statement Presentation for
Investment Companies. The adoption of SOP 93-4 had no effect on net assets for
the six months ended February 28, 1995, but affected the classification of
foreign currency trasactions from assets and liabilities other than investments
on the income statements.
NOTE 3 - SENIOR FIXED-RATE NOTES
On August 30, 1993, the Fund issued $75 million aggregate principal amount of a
new class of five year senior notes (the Notes) and received proceeds of
$74,522,250 after deduction of underwriting commissions and discounts. The Notes
are general unsecured obligations of the Fund and rank senior to all existing or
future unsecured indebtedness of the Fund. The Notes are senior to the Shares
and, in any liquidation of the Fund, the Notes must be paid in full before any
payments would be made with respect to the Shares.
The Notes carry a rating by Standard & Poor's Corporation of "AAA" and bear
interest, payable semi-annually, at the rate of 5.625% per annum, to maturity on
September 1, 1998. The market value of the Notes as of February 28, 1995 is
$71,212,500. Under the Investment Company Act of 1940, the Fund is required to
maintain asset coverage for the Notes of at least 300%. In addition, pursuant to
the indenture with respect to the Notes, the Fund is required to maintain on a
semi-monthly basis a specified discounted asset value for its portfolio that
equals or exceeds an amount determined under guidelines established by Standard
& Poor's Corporation. The Fund has met these requirements for the six months
ended February 28, 1995.
NOTE 3 - SENIOR FIXED-RATE NOTES (cont.)
The costs of $620,282 incurred by the Fund in connection with the issuance of
the New Notes are deferred and amortized on a straight-line basis over the term
of the notes.
The discounts relating to the issuance of these Notes, which amounted to
$65,250, are being amortized to interest expense over a period of five years
from August 30, 1993.
NOTE 4 - DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At August 31, 1994 for tax purposes, the Fund had capital loss carryovers
available for future use of $9,778,526 expiring as follows:
1999 $2,415,716
2000 7,362,810
-------------
$9,778,526
=============
For tax purposes, the aggregate cost of securities and unrealized depreciation
of the Fund are the same as for financial statement purposes at February 28,
1995.
NOTE 5 - TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc., under the terms of an agreement, provides investment
advice, administrative services, office space and facilities to the Fund, and
receives fees computed weekly and payable monthly at an annualized rate of 0.75%
of the Fund's average weekly net assets (total assets less liabilities other
than the principal amount of the Notes). Fees incurred by the Fund pursuant to
this agreement aggregated $1,141,860 for the six months ended February 28, 1995.
Certain officers and Trustees of the Fund are also officers and/or directors of
Franklin Advisers, Inc. a wholly owned subsidiary of Franklin Resources, Inc.
NOTE 6 - TRUST SHARES
At February 28, 1995, there were an unlimited number of shares of $.01 par value
authorized. At February 28, 1995, no shares were issued pursuant to the Fund's
Dividend Reinvestment Plan; all reinvested dividends were satisfied with
previously issued shares purchased in the open market pursuant to such Plan.
NOTE 7 - STATEMENT OF CASH FLOWS
The Fund's financial statements for the six months ended February 28, 1995
include a statement of cash flows in compliance with SFAS 102. Cash provided
from operations differs from net investment income because of amortization of
bond discount, amortization of note issuance costs, commissions and discounts,
bonds paid-in-kind, stock dividends and year-end income and expense accrual
changes amounting to $2,515,012.
NOTE 8 - RESTRICTED SECURITIES
A restricted security is a security which has not been registered with the
Securities and Exchange Commission pursuant to the Securities Act of 1933. The
Fund may purchase restricted securities through a private offering and they
cannot be sold without prior registration under the Securities Act of 1933
unless such sale is pursuant to an exemption therefrom. Subsequent costs of
registration of such securities are borne by the issuer. A secondary market
exists for certain privately placed securities.The Fund values these restricted
securities as disclosed in Note 2. At February 28, 1995, the Fund held
restricted securities with a value aggregating $2,947,916, representing 1.24% of
the Fund's net assets. Such securities are:
<TABLE>
<CAPTION>
Face Acquisition
Amount Security Date Cost Value
-------- ---------------------------------------------------- ------- -------- --------
<C> <S> <C> <C> <C>
$2,353,146 Atherton Franchise Capital, L.P., 11.00%, 05/01/06......... 04/28/94 $2,353,146 $1,976,643
Units
--------
5 PG Partners, Limited Partnership, Preference Units......... 03/31/93 339,704 970,775
Shares
--------
49,806 Westfed Holdings, Inc., 15.50% cum. senior pfd., Series A.. 10/04/88 4,307,579 498
15,180 Westfed Holdings, Inc., Series B........................... 10/04/88 458 --
</TABLE>
NOTE 9 - RULE 144A SECURITIES
Rule 144A provides a non-exclusive safe harbor exemption from the registration
requirements of the Securities Act of 1933 for specified resales of restricted
securities to qualified institutional investors. The Fund values these
securities as disclosed in Note 2. At February 28, 1995, the Fund held 144A
securities with a value aggregating $15,424,328, representing 6.51% of the
Fund's net assets. See the accompanying Statement of Investments in Securities
and Net Assets for specific information on such securities.
NOTE 10 - CREDIT RISK AND DEFAULTED SECURITIES
Although the Fund has a diversified portfolio, 69.84% of its portfolio is
invested in lower rated and comparable quality unrated high yield securities.
Investments in higher yield securities are accompanied by a greater degree of
credit risk and such lower quality securities 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 holders of high yielding
securities, because such securities are generally unsecured and are often
subordinated to other creditors of the issuer.
Although the Fund has a diversified investment portfolio, it has investments
exceeding 10% of net assets in the Cable Television industry, which may subject
the Fund more significantly to economic changes occurring in this industry
sector.
NOTE 11 - FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for each share of
beneficial interest outstanding, total investment return, ratios to average net
assets and other supplemental data. This information has been derived from the
information provided in the financial statements and market price data for the
Fund's shares.
<TABLE>
<CAPTION>
Six Months Ended Year Ended August 31,
----------------- ------------------------------------
February 28, 1995 1994 1993 1992 1991 1990
----------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period........ $8.71 $9.81 $8.94 $7.50 $7.01 $9.44
------------- ------- ------- ------- ------- -------
Net investment income...................... 0.42 0.84 0.88 0.80 0.84 1.04
Net gain (loss) on securities (realized and
unrealized)................................ 0.128 (1.08) 0.74 1.465 0.654 (2.316)
------------- ------- ------- ------- ------- -------
Total from investment operations............ 0.548 (0.24) 1.62 2.265 1.494 (1.276)
------------- ------- ------- ------- ------- -------
Less distributions:
Distributions from net investment income... (.408) (0.86) (0.750) (0.797) (0.934) (1.154)
Distributions from paid-in capital......... -- -- -- (0.028) (0.070) --
------------- ------- ------- ------- ------- -------
Total distributions......................... (.408) (0.86) (0.750) (0.825) (1.004) (1.154)
------------- ------- ------- ------- ------- -------
Net asset value, end of period.............. $8.85 $8.71 $9.81 $8.94 $7.50 $7.01
============= ======= ======= ======= ======= =======
Market value per share, end of period1...... $8.50 $8.125 $9.50 $8.50 $7.25 $6.625
============= ======= ======= ======= ======= =======
Total Investment return:
Based on market value per share2........... 10.10% (5.60)% 21.16% 32.39% 26.47% (21.27)%
Ratio to Average Net Assets:
Expenses................................... 2.32%+ 2.30% 3.24% 3.36% 4.01% 5.47%
Net investment income...................... 7.42%+ 7.04% 7.39% 7.28% 9.04% 12.80%
Supplemental Data:
Net assets at end of period (000's omitted) $237,049 $233,302 $262,793 $239,486 $200,891 $186,270
Portfolio turnover rate.................... 9.72% 36.76% 39.49% 30.44% 38.57% 34.29%
Total debt outstanding at end of period
(000's omitted)............................ $ 74,954 $ 74,948 $ 74,523 $ 71,475 $ 71,356 $ 86,580
Asset coverage per $1,000 of debt
(000's omitted)............................ $ 3,163 $ 3,113 $ 3,526 $ 3,351 $ 2,815 $ 2,151
</TABLE>
NOTE 11 - FINANCIAL HIGHLIGHTS (cont.)
(For Notes outstanding throughout the year)
<TABLE>
<CAPTION>
Face Amount of Average Monthly Average Monthly Average Amount of
Period Notes Outstanding Face Amount of Number of Shares Notes Per Share
Ended End of Year Notes Outstanding Outstanding During the Year
---- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
1990 $87,000,000 $89,750,000 26,560,025 $3.38
1991 $71,600,000 $72,550,000 26,698,150 $2.72
1992 $71,600,000 $71,600,000 26,779,333 $2.67
1993 $75,000,000 $71,883,333 26,779,333 $2.68
1994 $75,000,000 $75,000,000 26,779,333 $2.80
1995 3 $75,000,000 $75,000,000 26,779,333 $2.80
</TABLE>
+Annualized.
*Effective date of registration.
1Based on last sale on the New York Stock Exchange.
2Total return measures the change in value of an investment over ther periods
indicated. It is not annualized. It reflects the change in market value of the
capital shares, and assumes reinvestment of dividends and capital gains in
accordance with the dividend reinvestment plan as stated in the Prospectus.
3For the six months ended February 28, 1995.
