ANNUAL
REPORT
August 31, 1997
Franklin Universal Trust
CELEBRATING 50 YEARS
This year marks 50 years of business
This year marks 50 years of business for Franklin Templeton. Over these years,
the mutual fund industry has experienced profound changes in technology,
regulations and customer expectations. As one of the largest mutual fund
families, we're proud to be an innovative industry leader, providing people like
you with an opportunity to invest around the globe. We thank you for your past
support and look forward to serving your investment needs in the years ahead.
Charles B. Johnson
President
Franklin Universal Trust
CONTENTS
Shareholder Letter 1
Manager's Discussion 3
Performance Summary 7
Financial Highlights and
Statement of Investments 14
Financial Statements 22
Notes to
Financial Statements 25
Report of
Independent Accountants 28
Tax Designation 29
SHAREHOLDER LETTER
Dear Shareholder:
We are pleased to bring you the annual report for Franklin Universal Trust for
the period ended August 31, 1997.
During this reporting period, the U.S. economy continued to enjoy moderate
growth. Fears that a tight labor market might lead to inflationary pressure in
the form of wage demands contributed to the Federal Reserve Board's (the Fed's)
decision in March to raise the federal funds rate (the rate banks charge each
other for overnight loans) 25 basis points, from 5.25% to 5.50%. No further rate
hikes have been forthcoming, however, as reports released later in this period
showed no signs of inflation. In fact, some economists have dubbed the current,
benign U.S. economic environment the "Goldilocks Economy," as it is neither "too
hot" (possessing growth rates that are too high and would generate higher prices
and inflation) or "too cold" (characterized by growth rates so low that the
economy threatens to slip into recession); rather, the economy is "just right."1
1. There is no assurance that these economic conditions will continue.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
In this favorable environment, both major investment sectors of the Trust --
utility stocks and high-yield corporate bonds -- performed well. High-yield
corporate securities benefited from stronger corporate earnings, because a
majority of the companies in our portfolio prospered in the prevailing economy.
The stock market, spurred by the current "just right" economic environment,
boosted many utility stocks.
The Franklin Universal Trust also performed favorably in this environment, and
the Manager's Discussion on page three provides specific details about your
fund's performance and investment strategies.
As always, we appreciate your continued investment in the Franklin Universal
Trust and look forward to serving your future investment needs.
Sincerely,
Charles B. Johnson
President
Franklin Universal Trust
MANAGER'S DISCUSSION
Your Fund's Objective: The Franklin Universal Trust seeks to provide high,
current income consistent with preservation of capital.
The Franklin Universal Trust (NYSE: FT) generated a cumulative total return of
14.00% for the one-year period ended August 31, 1997, based on its change in
market price on the New York Stock Exchange.
The Trust benefited from the strong performance of individual securities we
selected for its portfolio, in addition to solid, underlying, economic and
sector fundamentals.
Sector Discussions
Wireless
Several of the Trust's holdings in the wireless communication sector performed
well over the period. Our holdings in Millicom International Cellular further
appreciated, as Millicom enjoyed strong international demand, high growth in its
subscriber base, and a dramatic rise in the value of its Brazilian assets
because of that market's large jump. Our position in Nextel Communications
enjoyed a large capital gain as a result of the company's successful
introduction of its new, wireless powerFone. At the same time, consolidation of
the U.S. rural cellular phone industry benefited the Trust's holdings in Sygnet
Wireless.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Top Ten Holdings
As a percentage of
Total Market Value
8/31/96 vs. 8/31/97
8/31/96
Thermadyne Industries, Inc. 2.71%
SCANA Corp. 2.57%
Texas Utilities 2.51%
DPL Inc. 2.15%
Southern Company 2.00%
Wisconsin Energy 1.93%
CINergy Corp. 1.89%
Del Monte Corp. 1.80%
American Electric
Power Co., Inc. 1.76%
Dominion Resources, Inc. 1.71%
8/31/97
Thermadyne Industries, Inc. 2.66%
Cablevision Systems 2.04%
CINergy Corp. 1.97%
DPL Inc. 1.91%
Southern Company 1.76%
Acme Metals, Inc. 1.65%
Collins & Aikman, Inc. 1.64%
Dominion Resources, Inc. 1.56%
American Electric
Power Co., Inc. 1.56%
Comcast Corp. 1.51%
Utilities
The Trust's focus on those utility companies that should perform well in an
environment of increased competition resulted in several gains during the
period. Numerous deregulation issues were resolved, which removed some
uncertainty regarding the future of the utility sector and helped boost stock
prices. In addition, federal and state agencies continued the process of
deregulating the electric and telephone utility sectors, and the Federal
Communications Commission specified rules regarding the deregulation of regional
Bell Telephone companies. State authorities in California clarified the timing
and details of deregulating its market which helped elevate many of the Trust's
utility positions in that state. We believe that as individual states further
define their own deregulation policies, other utility stocks will experience
similar appreciation. Among the Trust's positions that performed strongly in
this sector were BellSouth, CINergy and SCANA Corp.
Automotive
The Trust's positions in Collins & Aikman and Aetna continued their excellent
performance. Both firms benefited from the well-established trend of increased
outsourcing by the large corporations in this sector.
Chemicals
As mentioned in the previous semi-annual report, the Trust realized substantial
profits on the sale of IMC Global Inc. securities earlier in the period, when
Moody's upgraded IMC's debt to investment grade status, from Ba3 to Baa2.
Energy
Rising oil and gas prices contributed to pushing commodity prices higher. This
was a positive trend for the sector's companies. Many firms are well-positioned
to take advantage of these higher prices, and the Trust's holdings in Gulf
Canada and Forcenergy performed well over the period.
Food Retailing
Ongoing consolidation and cost-cutting benefited many of the large, publicly
traded companies in this sector. Most notably the Trust's holdings in Dominick's
Finer Foods and Ralphs Grocery performed strongly.
Industrial
The Trust selectively invested in several strong performers within the
industrial sector. These include Allied Waste, Acme Metals, and Amphenol, a
manufacturer of both low and high technology connectors, which has benefited
from the computerization of the automotive industry.
What's Ahead
Recent economic data suggests continued moderate economic growth accompanied by
relatively stable interest rates. Inflation appears to remain under control,
although it increased slightly. If this environment persists, high-yield
corporate bonds and utility equities should remain attractive investments over
the short to intermediate term, and this would bode favorably for the Franklin
Universal Trust.
This discussion reflects the strategies we employed for the Trust during the 12
months under review and includes our opinions as of the close of the period.
Because economic and market conditions are constantly changing, our strategies,
and our evaluations, conclusions and decisions regarding portfolio holdings may
change as new circumstances arise. Although past performance of a specific
investment or sector cannot guarantee future performance, such information can
be useful in analyzing securities we purchase or sell for the Trust.
PERFORMANCE SUMMARY
The Franklin Universal Trust's share price on the New York Stock Exchange (NYSE)
increased 37 cents, from $9.13 on August 31, 1996, to $9.50 on August 31, 1997.
The Trust's net asset value per share increased 67 cents, from $9.53, to $10.20
for the same period.
During the reporting period, the Trust's distributions totaled 84.3 cents
($0.843) per share. This included a December 1996 distribution made up of the
regular monthly dividend of 6.7 cents ($0.067), a long-term capital gain of 1.4
cents ($0.014) and a 2.5 cents ($0.025) income distribution to meet excise tax
requirements.
Based on an annualization of the August's dividend of 6.7 cents ($.067) per
share and the NYSE closing price of $9.50 on August 31, 1997, the Trust's
distribution rate was 8.46%. Dividends will vary based on the earnings of the
portfolio, and past distributions are not predictive of future trends.
The Franklin Universal Trust reported a cumulative total return of 14.00% for
the one-year period ended August 31, 1997. Total return reflects the change in
the Trust's share price on the NYSE. Based on the change in net asset value (as
opposed to market price), the one-year total return for the same period was
17.19%. All total returns assume the reinvestment of dividends and capital gains
according to the terms specified in the Trust's dividend reinvestment plan.
We urge you to view your investment in the Franklin Universal Trust with a
long-term perspective. As the chart to the right shows, the Trust reported a
cumulative total return of 191.57%, based on net asset value, since its
inception on September 23, 1988.
Franklin Universal Trust
Periods ended 8/31/97
Since
Inception
1-Year 5-Year (9/23/88)
Cumulative Total Return1
Based on change in net asset value 17.19% 81.40% 191.57%
Based on change in market price 14.00% 77.70% 152.35%
Average Annual Total Return1
Based on change in net asset value 17.19% 12.65% 12.72%
Based on change in market price 14.00% 12.19% 10.91%
Distribution Rate2 8.46%
1. Total return calculations represent the change in value of an investment over
the periods indicated and assume reinvestment of all distributions according to
the terms specified in the Trust's dividend reinvestment plan.
2. Distribution rate is based on the annualization of the Trust's current 6.7
cents per share monthly dividend and the New York Stock Exchange closing price
of $9.50 on August 31, 1997.
PORTFOLIO OPERATIONS
Christopher Molumphy
Senior Portfolio Manager
Franklin Advisers, Inc.
Christopher Molumphy earned his Bachelor of Arts degree in economics from
Stanford University and his Master's degree in finance from the University of
Chicago. He has been with Franklin Advisers, Inc. since 1988. Mr. Molumphy is a
Chartered Financial Analyst (CFA) and a member of several securities industry
associations. He has managed the Franklin Universal Trust since 1991.
Past performance is not predictive of future results.
DIVIDEND REINVESTMENT PLAN
The Fund's Dividend Reinvestment Plan (the "Plan") offers you a prompt and
simple way to reinvest income dividends and capital gain distributions in shares
of the Fund. Franklin Universal Trust, c/o PNC Bank, National Association (the
"Plan Agent") P.O. Box 8950, Wilmington, Delaware 19899, acts as your Plan Agent
in administering the Plan. All reinvestments are in full and fractional shares,
carried to three decimal places. The complete Terms and Conditions of the
Dividend Reinvestment Plan are contained in the Fund's prospectus, dated
September 23, 1988, used in connection with its initial public offering. A copy
of that prospectus may be obtained from the Fund 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
the plan Agent, in writing, if you wish to receive dividends or distributions in
cash.
If the Fund declares an income dividend or a capital gains distribution payable
in either the Fund's shares or in cash, you, as a participant in the Plan, will
automatically receive an equivalent amount of shares of the Fund. If the market
price per share on the valuation date equals or exceeds the net asset value per
share on that date, the Fund will issue new shares to you at the higher of the
net asset value or 95% of the market price on the valuation date. The valuation
date is generally the payment date or, if that date is not a trading day on the
New York Stock Exchange, the next preceding trading day. If the net asset value
per share exceeds the market price per share at such time, or if the Fund
declares a dividend or distribution payable only in cash, you will be deemed to
have elected to receive shares of the Fund valued at the market price on the
valuation date, purchased on your behalf by the Plan Agent in the open market.
If, before the Plan Agent has completed its purchases, the market price exceeds
the net asset value per share, the average per share purchase price paid by the
Plan Agent may exceed the net asset value per share of the Fund, resulting in
the acquisition of fewer shares than if the dividend or distribution had been
paid in shares issued by the Fund.
There is no direct charge to participants for reinvesting dividends and
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 automatic reinvestment of dividends and distributions does not relieve
shareholders of liability for any taxes which may be payable on such dividends
or distributions. Generally, income and capital gains resulting from dividends
and distributions received in the form of shares of the Fund are realized
notwithstanding the fact that cash is not received by shareholders.
You will receive a monthly 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, and, 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, without penalty, by notifying the
Plan Agent in writing at the address above. If you withdraw from the Plan, you
will receive a certificate issued in your name for all full shares and the Plan
Agent will convert any fractional shares you hold at the time of withdrawal to
cash at the then 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 shares are not held in your name, you should contact
your brokerage firm, bank, or other nominee for more information.
FRANKLIN UNIVERSAL TRUST
Financial Highlights
<TABLE>
<CAPTION>
Year Ended August 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $9.53 $9.36 $8.71 $9.81 $8.94
-----------------------------------------------------
Income from investment operations:
Net investment income................................. .86 .82 .85 .84 .88
Net realized and unrealized gain (loss)............... .65 .20 .61 (1.08) .74
-----------------------------------------------------
Total from investment operations....................... 1.51 1.02 1.46 (.24) 1.62
-----------------------------------------------------
Less distributions:
Dividends from net investment income.................. (.83) (.85) (.81) (.86) (.75)
Distributions from net realized gain.................. (.01) -- -- -- --
-----------------------------------------------------
Total distributions.................................... (.84) (.85) (.81) (.86) (.75)
-----------------------------------------------------
Net asset value, end of year .......................... $10.20 $9.53 $9.36 $8.71 $9.81
=====================================================
Market value per share, end of year .................. $9.50 $9.13 $8.88 $8.13 $9.50
=====================================================
Total Return
Based on market value per share....................... 14.00% 12.84% 20.42% (5.60)% 21.16%
Ratios/Supplemental Data:
Net assets, end of year (000's)........................ $273,173 $255,200 $250,734 $233,302 $262,793
Ratios to average net assets:
Expenses.............................................. 2.72% 2.80% 2.97% 3.01% 4.23%
Net investment income................................. 8.74% 8.56% 9.59% 9.22% 9.65%
Portfolio turnover rate................................ 51.48% 19.24% 27.41% 36.76% 39.49%
Average commission rate paid*.......................... $.0507 $.0528 -- -- --
Total debt outstanding at end of year (000's omitted).. $74,987 $74,974 $74,961 $74,948 $74,523
Asset coverage per $1,000 of debt ..................... $4,643 $4,404 $4,345 $4,113 $4,526
Average amount of notes per share during the year...... $2.80 $2.80 $2.80 $2.80 $2.68
</TABLE>
*Relates to purchases and sales of equity securities. Prior to FYE 1996
disclosure of average commission rate was not required.
+Based on the last sale on the New York Stock Exchange
See notes to financial statements.
FRANKLIN UNIVERSAL TRUST
Statement of Investments, August 31, 1997
<TABLE>
<CAPTION>
SHARES,
WARRANTS
& RIGHTS VALUE
<S> <C> <C>
Common Stocks, Warrants and Rights 31.7%
Automotive
aHarvard Industries, Inc., Class B ............................................. 60,800 $ 53,200
---------
Cable Television
aWireless One, Inc., warrants................................................... 6,000 60
---------
Consumer Products .7%
RJR Nabisco Holdings Corp. ..................................................... 54,000 1,879,875
---------
Containers & Packaging .1%
aGaylord Container Corp., warrants ............................................. 46,137 415,233
---------
Energy .9%
aMcMoRan Oil & Gas Co. ......................................................... 9,000 36,000
aSanta Fe Energy Resources, Inc. ............................................... 14,935 165,218
Ultramar Diamond Shamrock Corp. ................................................ 66,600 2,172,825
---------
2,374,043
---------
Financial Services
aWestfed Holdings, Inc., Series B .............................................. 15,180 --
---------
Health Care .7%
aKendall International, Inc., Class A, warrants ................................ 4,066 763,064
aKendall International, Inc., Class B, warrants ................................ 4,348 793,552
aKendall International, Inc., rights ........................................... 2,456 460,917
---------
2,017,533
---------
Industrial .1%
aThermadyne Industries, Inc. ................................................... 7,254 224,874
---------
Lodging
aHost Marriott Corp. ........................................................... 752 14,664
Marriott International, Inc. ................................................... 752 50,055
---------
64,719
---------
Metals & Mining 1.8%
Driefontein Consolidated Mines, Ltd., ADR ...................................... 228,000 1,710,000
Free State Consolidated Gold Mines, Ltd., ADR .................................. 131,350 673,169
Freeport-McMoRan, Inc. ......................................................... 15,000 513,750
Freeport-McMoRan Copper & Gold, Inc. ........................................... 4,500 120,375
Freeport-McMoRan Copper & Gold, Inc., Class B .................................. 63,156 1,768,368
aGulf States Steel, warrants ................................................... 4,000 20,400
---------
4,806,062
---------
Technology/Information Systems
aMemorex Telex N.V., ADR ....................................................... 84,885 637
---------
Transportation .3%
aContinental Airlines, Inc., Class A ........................................... 5,446 199,460
aContinental Airlines, Inc., Class B ........................................... 15,160 555,235
---------
754,695
---------
Utilities 26.1%
American Electric Power Co., Inc. .............................................. 123,600 $ 5,399,775
CINergy Corp. .................................................................. 205,600 6,797,650
Delmarva Power & Light Co. ..................................................... 79,700 1,429,619
Dominion Resources, Inc. ....................................................... 150,000 5,400,000
DPL, Inc. ...................................................................... 278,000 6,585,125
Duke Energy Corp. .............................................................. 70,000 3,390,625
Edison International............................................................ 74,600 1,799,725
Florida Progress Corp. ......................................................... 140,000 4,506,250
New Century Energies, Inc....................................................... 100,000 4,037,500
New England Electric System..................................................... 35,300 1,350,225
New Jersey Resources Corp. ..................................................... 90,000 2,885,625
New York State Electric & Gas Corp. ............................................ 175,000 4,265,625
OGE Energy Corp. ............................................................... 90,500 4,021,594
PECO Energy Co. ................................................................ 140,000 3,333,750
Pinnacle West Capital Corp. .................................................... 77,000 2,488,063
SCANA Corp. .................................................................... 109,200 2,634,450
Southern Co. ................................................................... 289,300 6,093,381
Texas Utilities Co. ............................................................ 141,500 4,934,813
---------
71,353,795
---------
Wireless/Telecommunications 1.0%
BellSouth Corp. ................................................................ 40,600 1,786,400
SBC Communications, Inc. ....................................................... 15,300 831,938
---------
2,618,338
---------
Total Common Stocks, Warrants & Rights (Cost $75,995,100) ...................... 86,563,064
---------
Partnership Units .1%
Financial Services
a,bPG Partners, L.P., Preference Units (Cost $0) ............................... 5 216,775
---------
Preferred Stocks 11.9%
Automotive
aHarvard Industries, Inc., 14.25% pfd., PIK .................................... 69,017 99,212
---------
Broadcasting 2.0%
Sinclair Capital, 11.625% pfd. ................................................. 40,000 4,320,000
Triathlon Broadcasting Co., 9.00% cvt. pfd. .................................... 142,190 1,279,710
---------
5,599,710
---------
Cable Television 1.4%
aCablevision Systems Corp., 11.125% pfd., PIK, Series L ........................ 34,896 3,838,560
---------
Consumer Products .7%
Ralston Purina Co., 7.00% cvt. pfd. ............................................ 31,000 1,846,438
---------
Energy 1.3%
CMS Energy Corp., 7.75% cvt. pfd. .............................................. 70,000 3,680,177
---------
Financial Services 2.2%
California Federal Bank, 11.50% pfd............................................. 40,000 $ 4,560,000
Security Capital Pacific, 1.75% cvt. pfd., Series A ............................ 45,000 1,333,125
Westfed Holdings, Inc., 15.50% cum. senior pfd., Series A ...................... 49,806 498
---------
5,893,623
---------
Forest & Paper Products 1.5%
Asia Pulp & Paper Co., Ltd., 12.00% pfd. ....................................... 4,000,000 3,990,000
---------
Lodging .3%
Hilton Hotels Corp., 8.00% cvt. pfd............................................. 28,000 805,000
---------
Media 1.2%
PanAmSat Corp.,12.75% pfd., PIK ................................................ 2,644 3,186,032
---------
Transportation .5%
CNF Trust I, Series A, 5.00% cvt. pfd. ......................................... 22,900 1,328,200
---------
Wireless/Telecommunications .8%
Nortel Inversora, 10.00% cvt. pfd. ............................................. 40,000 2,105,000
---------
Total Preferred Stocks (Cost $35,880,007) ...................................... 32,371,952
---------
PRINCIPAL
AMOUNT*
Non-Convertible Bonds 74.9%
Automotive 3.5%
Aetna Industries, Inc., senior notes, 11.875%, 10/01/06 ........................ $2,600,000 2,866,500
Cambridge Industries, Inc., senior sub. notes, 144A, 10.25%, 7/15/07............ 1,000,000 1,040,000
Collins & Aikman Corp., senior sub. notes, 11.50%, 4/15/06...................... 2,000,000 2,280,000
cHarvard Industries, Inc., senior notes, 12.00%, 7/15/04........................ 4,000,000 1,700,000
Key Plastics, Inc., Series B, senior sub. notes, 10.25%, 3/15/07................ 1,500,000 1,567,500
---------
9,454,000
---------
Broadcasting 1.5%
Chancellor Corp., senior sub. notes, 144A, 8.75%, 6/15/07....................... 4,000,000 4,085,000
---------
Cable Television 3.8%
dBell Cablemedia, Plc., senior disc. notes, zero coupon to 7/15/99,
(original accretion rate 11.95%), 11.95% thereafter, 7/15/04 ................... 5,000,000 4,675,000
Cablevision Systems Corp., senior sub. deb., 9.875%, 4/01/23 ................... 3,000,000 3,195,000
Comcast Corp., senior sub. deb., 144A, 9.50%, 1/15/08 .......................... 1,000,000 1,071,250
dWireless One, Inc., senior disc. notes, zero coupon to 8/01/01,
(original accretion rate 13.50%), 13.50% thereafter, 8/01/06.................... 6,000,000 1,350,000
---------
10,291,250
---------
Chemicals 1.3%
Huntsman Corp., senior sub. notes, 144A, 9.50%, 7/01/07......................... 3,500,000 3,640,000
---------
Consumer Products 1.2%
E&S Holdings Corp., senior sub. notes, Series AI, 10.375%, 10/01/06 ............ $1,750,000 $ 1,756,563
RJR Nabisco, Inc., senior notes, 9.25%, 8/15/13................................. 1,500,000 1,594,746
---------
3,351,309
---------
Containers & Packaging 4.0%
Anchor Glass, first mortgage, 144A, 11.25%, 4/01/05............................. 4,000,000 4,300,000
Container Corp. of America, guaranteed senior notes, Series A, 11.25%, 5/01/04 . 1,000,000 1,102,500
Container Corp. of America, senior notes, 9.75%, 4/01/03 ....................... 3,000,000 3,228,750
U.S. Can Corp., company guaranteed senior sub. notes, 10.125%, 10/15/06......... 2,100,000 2,205,000
---------
10,836,250
---------
Energy 5.3%
Dailey Petroleum Services Corp., company guaranteed, senior sub. notes,
144A, 9.75%, 8/15/07........................................................... 1,500,000 1,518,750
Dawson Production Services, Inc., senior notes, 9.375%, 2/01/07................. 900,000 931,500
Forcenergy, Inc., senior sub. notes, 9.50%, 11/01/06............................ 2,000,000 2,085,000
Gulf Canada Resources, Ltd., senior sub. deb., 9.25%, 1/15/04 .................. 3,500,000 3,701,250
Magnum Hunter Resources, Inc., senior notes, 144A, 10.00%, 6/01/07 ............. 5,000,000 5,125,000
Pride Petroleum Services, Inc., senior notes, 9.375%, 5/01/07................... 1,000,000 1,047,500
---------
14,409,000
---------
Financial Services 1.3%
First Nationwide Holdings, Inc., senior sub. notes, 10.625%, 10/01/03........... 3,300,000 3,630,000
---------
Food & Beverages 4.7%
AmeriServ Food Co., senior sub. notes, 144A, 10.125%, 7/15/07................... 3,000,000 3,090,000
Doane Products Co., senior notes, 10.625%, 3/01/06 ............................. 850,000 895,688
Fleming Cos., Inc., senior sub. notes, 144A, 10.50%, 12/01/04................... 4,000,000 4,070,000
PMI Acquisition Corp., guaranteed senior sub. notes, 10.25%, 9/01/03 ........... 2,800,000 2,975,000
Specialty Foods Corp., senior unsecured notes, Series B, 10.25%, 8/15/01 ....... 2,000,000 1,970,000
---------
13,000,688
---------
Food Retailing 3.5%
Bruno's, Inc., senior sub. notes, 10.50%, 8/01/05 .............................. 2,000,000 1,690,000
Dominick's Finer Foods, senior sub. notes, 10.875%, 5/01/05 .................... 1,000,000 1,131,250
P & C Food Markets, Inc., senior sub. notes, 11.50%, 10/15/01 .................. 1,100,000 976,250
Penn Traffic Co., senior notes, 8.625%, 12/15/03 ............................... 1,000,000 827,500
Penn Traffic Co., senior notes, 10.375%, 10/01/04 .............................. 2,000,000 1,710,000
Ralphs Grocery Co., sub. notes, 10.45%, 6/15/04 ................................ 1,000,000 1,087,500
Shoppers Food Warehouse Corp., senior notes, 144A, 9.75%, 6/15/04............... 2,000,000 2,060,000
---------
9,482,500
---------
Forest & Paper Products 1.9%
Fort Howard Corp., sub. deb., 11.00%, 1/02/02 .................................. 1,745,544 1,848,095
Tjiwi Kimia International, guaranteed senior notes, 13.25%, 8/01/01 ............ 3,000,000 3,330,000
---------
5,178,095
---------
Gaming & Leisure 1.7%
Showboat, Inc., senior sub. notes, 13.00%, 8/01/09 ............................. $4,000,000 $ 4,640,000
---------
Health Care 4.3%
Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 ............... 4,000,000 4,170,000
Maxxim Medical, Inc., senior sub. notes, 10.50%, 8/01/06 ....................... 1,500,000 1,616,250
Tenet Healthcare Corp., senior sub. notes, 8.625%, 1/15/07 ..................... 2,000,000 2,055,000
Vencor, Inc., senior sub. notes, 144A, 8.625%, 7/15/07.......................... 4,000,000 4,010,000
---------
11,851,250
---------
Industrial 9.6%
dAllied Waste Industries, Inc., senior disc. notes, 144A, zero coupon to 6/01/02,
(original accretion rate 11.30%), 11.30% thereafter, 6/01/07................... 5,000,000 3,400,000
American Standard, Inc., S.F., deb., 9.25%, 12/01/16 ........................... 3,000,000 3,135,000
dAmerican Standard, Inc., S.F., senior sub. deb., zero coupon to 6/01/98,
(original accretion rate 10.50%), 10.50% thereafter, 6/01/05 ................. 1,000,000 992,500
Derlan Industries, Ltd., senior notes, 10.00%, 1/15/07.......................... 2,000,000 2,060,000
dFalcon Building Products, Inc., senior disc. notes, 144A, zero coupon to 6/15/02,
(original accretion rate 10.50%), 10.50% thereafter, 6/15/07.................. 2,000,000 1,250,000
Intertek Finance, Plc., senior sub. notes, 10.25%, 11/01/06..................... 2,000,000 2,090,000
Inter-City Products Corp., senior secured notes, 9.75%, 3/01/00 ................ 2,400,000 2,472,000
Nortek, Inc., senior notes, 144A, 9.125%, 9/01/07............................... 2,000,000 1,985,000
Thermadyne Industries, Inc., senior notes, 10.25%, 5/01/02 ..................... 3,631,000 3,794,395
Thermadyne Industries, Inc., sub. notes, 10.75%, 11/01/03 ...................... 5,035,000 5,154,581
---------
26,333,476
---------
Lodging 2.9%
HMH Properties, Inc., senior notes, 144A, 8.875%, 7/15/07....................... 3,500,000 3,535,000
Prime Hospitality Corp., senior sub. notes, Series B, 9.75%, 4/01/07............ 4,000,000 4,260,000
---------
7,795,000
---------
Media 3.8%
American Media Operation, senior sub. notes, 11.625%, 11/15/04 ................. 2,000,000 2,190,000
dFox/Liberty Networks, L.L.C., senior disc. notes, 144A, zero coupon to 8/15/02,
(original accretion rate 9.75%), 9.75% thereafter, 8/15/07.................... 4,000,000 2,460,000
Hollinger International Publishing, senior sub. notes, 9.25%, 2/01/06........... 1,000,000 1,040,000
Outdoor Systems, Inc., senior sub. notes, 8.875%, 6/15/07 ...................... 4,500,000 4,601,250
---------
10,291,250
---------
Metals & Mining 3.6%
dAcme Metals, Inc., guaranteed senior secured disc. notes, 13.50%, 8/01/04 ..... 5,000,000 5,712,500
Envirosource, Inc., senior notes, 9.75%, 6/15/03 ............................... 3,000,000 2,985,000
Neenah Corp., senior sub. notes, 11.125%, 5/01/07............................... 1,000,000 1,067,500
---------
9,765,000
---------
Restaurants 1.7%
bAtherton Franchise Capital, L.P., 11.00%, 5/01/06 ............................. $1,905,261 $ 1,600,419
Family Restaurants, Inc., senior notes, 9.75%, 2/01/02 ......................... 2,000,000 1,630,000
Flagstar Corp., senior notes, 10.875%, 12/01/02 ................................ 1,500,000 1,537,500
---------
4,767,919
---------
Retail .7%
Stage Stores, Inc., company guaranteed notes, 144A, 8.50%, 7/15/05 ............. 2,000,000 2,045,000
---------
Technology/Information Systems 1.2%
Amphenol Corp., senior sub. notes, 9.875%, 5/15/07.............................. 1,000,000 1,037,500
Celestica International, Inc., senior sub. notes, 10.50%, 12/31/06 ............. 2,000,000 2,150,000
---------
3,187,500
---------
Textiles & Apparel 1.2%
Collins & Aikman Floor Covering, Series B, senior sub. notes, 10.00%, 1/15/07... 3,300,000 3,366,000
---------
Utilities .9%
Midland Funding II, S.F., secured lease obligation, Series A, 11.75%, 7/23/05 .. 2,000,000 2,354,993
---------
Wireless/Telecommunications 11.3%
dArch Communications Group, Inc., senior disc. notes, zero coupon to 3/15/01,
(original accretion rate 10.875%), 10.875% thereafter, 3/15/08................ 6,000,000 3,330,000
Comcast Cellular Corp., senior notes, 9.50%, 5/01/07............................ 4,000,000 4,150,000
dIntermedia Communications, Inc., senior disc. notes, 144A,
zero coupon to 7/15/02, (original accretion rate 11.25%),
11.25% thereafter, 7/15/07 ................................................ 5,000,000 3,137,500
dMillicom International Cellular, SA, senior disc. notes, zero coupon to 6/01/00,
(original accretion rate 13.50%), 13.50% thereafter, 6/01/06 ................. 6,000,000 4,507,500
dNextel Communications, senior disc. notes,
(original accretion rate 9.75%), 0.00%, 8/15/04 ............................... 5,000,000 4,175,000
dOrion Network Systems, units, zero coupon to 1/15/02,
(original accretion rate 12.50%), 12.50% thereafter, 1/15/07.................. 5,000,000 3,350,000
Paging Network, Inc., senior sub. notes, 10.00%, 10/15/08....................... 4,000,000 4,025,000
Sygnet Wireless, Inc., senior notes, 11.50%, 10/01/06........................... 4,000,000 4,180,000
---------
30,855,000
---------
Total Non-Convertible Bonds (Cost $197,808,689) ................................ 204,610,480
---------
Convertible Bonds 6.5%
Automotive .2%
Tower Automotive, Inc., cvt. sub. notes, 5.00%, 8/01/04......................... 600,000 650,250
---------
Electronics 2.3%
Dovatron International, Inc., cvt. sub. notes, 6.00%, 10/15/02 ................. 1,500,000 2,370,000
DSC Communications Corp., cvt. sub. notes, 144A, 7.00%, 8/01/04................. 2,500,000 2,512,500
Reptron Electronics, Inc., cvt. sub. notes, 6.75%, 8/01/04...................... 1,300,000 1,345,500
---------
6,228,000
---------
Financial Services .6%
APP Global Finance V, Ltd., cvt. secured notes, 144A, 2.00%, 7/25/00............ 700,000 675,500
Peregrine Investment Finance, cvt. guaranteed, 144A, 4.50%, 12/01/00 ........... 1,000,000 930,000
---------
1,605,500
---------
Health Care .5%
U.S. Diagnostic Labs, Inc., cvt. sub. deb., 144A, 9.00%, 3/31/03................ $1,375,000 $ 1,464,374
---------
Metals & Mining .4%
Dayton Mining Corp., cvt. sub. deb., 144A, 7.00%, 4/01/02....................... 1,100,000 990,000
---------
Real Estate Investment Trust 1.0%
Macerich Co., cvt. sub. notes, 144A, 7.25%, 12/15/02............................ 2,750,000 2,750,000
---------
Retail .7%
Rent-Way, Inc., cvt. sub. deb., 144A, 7.00%, 2/01/07............................ 1,400,000 1,981,000
---------
Technology/Information Systems .8%
Adaptec, Inc., cvt. sub. notes, 144A, 4.75%, 2/01/04............................ 700,000 807,624
HMT Technology Corp., cvt. sub. notes, 5.75%, 1/15/04........................... 400,000 390,000
HMT Technology Corp., cvt. sub. notes, 144A, 5.75%, 1/15/04..................... 1,000,000 975,000
---------
2,172,624
---------
Total Convertible Bonds (Cost $16,565,906) ..................................... 17,841,748
---------
Foreign Government Agencies .2%
ESCOM, E168, utility deb. (South Africa), 11.00%, 6/01/08 (Cost $1,038,836)..... 4,350,000 751,072
---------
Total Bonds (Cost $215,413,431) ................................................ 223,203,300
---------
Total Long Term Investments (Cost $327,288,538)................................. 342,355,091
---------
eRepurchase Agreements .7%
Joint Repurchase Agreement, 5.439%, 9/02/97, (Maturity Value $1,854,087)
(Cost $1,852,967)........................................................... 1,874,408
Aubrey G. Lanston & Co., Inc.
Chase Securities, Inc.
Daiwa Securities America, Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson North America, L.L.C.
Fuji Securities, Inc.
Greenwich Capital Markets, Inc.
Sanwa Securities (USA) Co., L.P.
SBC Warburg, Inc.
The Nikko Securities Co. International, Inc.
UBS Securities, L.L.C.
Collateralized by U.S. Treasury Bills & Notes................................. 1,852,967
---------
Total Investments (Cost $329,141,505) 126.0%.................................... 344,208,058
Other Assets, less Liabilities 26.0%............................................ (71,035,158)
---------
Net Assets 100.0%............................................................... $273,172,900
=========
*Securities traded in U.S. dollars unless otherwise indicated.
aNon-income producing.
bSee Note 7 regarding restricted securities.
cSee Note 8 regarding defaulted securities.
dZero coupon/step-up bonds. The current effective yield may vary. The original
accretion rate will remain constant.
eInvestment is through participation in a joint account with other funds managed
by the investment advisor. At 8/31/97, all repurchase agreements held by the
Fund had been entered into on August 29, 1997.
FRANKLIN UNIVERSAL TRUST
Financial Statements
Statement of Assets and Liabilities
August 31, 1997
Assets:
Investments in securities, at value (cost $329,141,505).......................... $344,208,058
Receivables:
Investment securities sold........................................................ 1,105,160
Dividends and interest............................................................ 5,165,680
Note issuance costs (Note 2)..................................................... 124,057
---------
Total assets...................................................................... 350,602,955
---------
Liabilities:
Payables:
Notes (Note 2).................................................................... 74,986,950
Accrued interest (Note 2)......................................................... 2,109,375
To affiliates..................................................................... 218,144
Funds advance by custodian....................................................... 40,864
Other liabilities................................................................ 74,722
---------
Total liabilities................................................................. 77,430,055
---------
Net assets, at value............................................................. $273,172,900
=========
Net assets consist of:
Undistributed net investment income.............................................. $ 2,066,401
Net unrealized appreciation...................................................... 15,065,901
Accumulated net realized gain.................................................... 9,175,056
Capital shares................................................................... 246,865,542
---------
Net assets, at value.............................................................. $273,172,900
=========
Net asset value per share ($273,172,900 O 26,779.333
shares of capital stock outstanding)............................................. $10.20
=========
</TABLE>
See notes to financial statements.
FRANKLIN UNIVERSAL TRUST
Financial Statements (continued)
Statement of Operations
for the year ended August 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Investment income:
(net of foreign taxes of $3,462)
Dividends................................................................... $ 6,038,496
Interest.................................................................... 24,140,630
---------
Total investment income...................................................... $30,179,126
Expenses:
Management fees (Note 5).................................................... 2,539,333
Transfer agent fees......................................................... 127,043
Custodian fees.............................................................. 4,976
Reports to shareholders..................................................... 25,802
Professional fees........................................................... 43,399
Trustees' fees and expenses................................................. 21,005
Amortization of note issuance costs......................................... 123,602
Other....................................................................... 55,387
---------
Total expenses............................................................... 2,940,547
Interest expense............................................................. 4,231,752
---------
Net expenses................................................................. 7,172,299
---------
Net investment income....................................................... 23,006,827
---------
Realized and unrealized gain:
Net realized gain from:
Investments................................................................ 9,442,395
Foreign currency transactions.............................................. 1,924
---------
Net realized gain........................................................... 9,444,319
Net unrealized appreciation (depreciation) on:
Investments.................................................................. 8,097,150
Translation of assets and liabilities denominated in foreign currencies...... (249)
---------
Net unrealized appreciation................................................. 8,096,901
---------
Net realized and unrealized gain............................................. 17,541,220
---------
Net increase in net assets resulting from operations......................... $40,548,047
=========
</TABLE>
See notes to financial statements.
FRANKLIN UNIVERSAL TRUST
Financial Statements (continued)
Statements of Changes in Net Assets
for the years ended August 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income........................................................ $ 23,006,827 $ 22,022,608
Net realized gain from investments and foreign currency transactions......... 9,444,319 4,578,673
Net unrealized appreciation on investments and
translation of assets and liabilities
denominated in foreign currencies........................................... 8,096,901 520,346
---------------------------
Net increase in net assets resulting from operations......................... 40,548,047 27,121,627
Distributions to shareholders from:
Net investment income........................................................ (22,200,067) (22,655,316)
Net realized gain............................................................ (374,911) --
---------------------------
Net increase in net assets................................................... 17,973,069 4,466,311
Net assets:
Beginning of year........................................................... 255,199,831 250,733,520
---------------------------
End of year................................................................. $273,172,900 $255,199,831
===========================
Undistributed net investment income included in net assets:
Beginning of year........................................................... $ 1,252,117 $ 1,948,330
===========================
End of year................................................................. $ 2,066,401 $ 1,252,117
===========================
Statement of Cash Flows
for the year ended August 31, 1997
<S> <C>
Dividends and interest received.............................................. $ 22,486,739
Operating expenses paid...................................................... (2,814,611)
Interest expense paid........................................................ (4,218,750)
---------
Cash provided - operations................................................... 15,453,378
---------
Investment purchases......................................................... (694,939,504)
Investment sales............................................................. 702,020,240
---------
Cash provided - investments.................................................. 7,080,736
---------
Distributions to shareholders................................................ (22,574,978)
---------
Cash used - financing activities............................................. (22,574,978)
---------
Net decrease in cash......................................................... (40,864)
---------
Cash at beginning of year.................................................... --
---------
Cash at end of year.......................................................... $ (40,864)
=========
See notes to financial statements.
</TABLE>
FRANKLIN UNIVERSAL TRUST
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Universal Trust (the Fund) is registered under the Investment Company
Act of 1940 as a closed-end, diversified investment company. The Fund has two
classes of securities: senior fixed-rate notes (the Notes) and shares of
beneficial interest (the Shares). The Fund seeks to provide high current income
consistent with preservation of capital. The following summarizes the Fund's
significant accounting policies.
a. Security Valuation
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Restricted securities and securities for
which market quotations are not readily available are valued at fair value as
determined by management in accordance with procedures established by the Board
of Trustees.
b. Income Taxes
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
distribute all of its taxable income.
c. 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.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Bond discount is amortized on an income tax basis. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
d. Accounting Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles 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.
e. 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 and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
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.
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. dollars
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.
2. SENIOR FIXED-RATE NOTES
On August 30, 1993, the Fund issued $75 million 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 Trust shares and all
existing or future unsecured indebtedness of the Fund.
The Notes bear interest, payable semi-annually, at the rate of 5.625% per year,
to maturity on September 1, 1998. The market value of the Notes as of August 31,
1997, is $74,805,000. The Fund is required to maintain on a semi-monthly basis a
specified discounted asset value for its portfolio in compliance with guidelines
established by Standard & Poor's Corporation, and is required to maintain asset
coverage for the Notes of at least 300%. The Fund has met these requirements
during the year ended August 31, 1997.
The issuance costs of $620,282 incurred by the Fund are deferred and amortized
on a straight line basis over the term of the Notes. The discount of $65,250
relating to the issuance of the Notes is being amortized to interest expense
over five years.
3. INCOME TAXES
At August 31, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $329,172,444 was as follows:
Unrealized appreciation $35,747,591
Unrealized depreciation (20,711,977)
------------
Net unrealized appreciation $15,035,614
============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatment of foreign currency transactions. Net realized
capital gains differ for financial statement and tax purposes primarily due to
differing treatment of wash sales and foreign currency transactions.
4. TRUST SHARES
At August 31, 1997, there were an unlimited number of shares authorized ($0.01
par value). During the year ended August 31, 1997, there were no share
transactions; all reinvested distributions were satisfied with previously issued
shares purchased in the open market.
5. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Fund are also officers and /or directors of
Franklin Advisers, Inc. (Advisers), and Franklin Templeton Services, Inc. (FT
Services), the Fund's Investment Manager and Administrative Manager,
respectively.
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.
The Fund pays an investment management fee to Advisers of 0.75% per year of the
average weekly net assets of the Fund (total assets less liabilities other than
the principal amount of the Notes).
6. STATEMENT OF CASH FLOWS
Cash provided from operations differs from net investment income due to
amortization of bond discount and note issuance costs, and year-end income and
expense accrual changes.
7. RESTRICTED SECURITIES
The Fund may purchase securities through a private offering that generally
cannot be sold to the public without prior registration under the Securities Act
of 1933. The costs of registering such securities are paid by the issuer.
Restricted securities held at August 31, 1997 are as follows:
<TABLE>
<CAPTION>
Principal Acquisition
Amount Issuer Date Cost Value
<S> <C> <C> <C>
1,905,261 Atherton Franchise Capital, L.P. 11.00%, 05/01/06............... 4/28/94 $1,905,261 $1,600,419
Units
5 PG Partners, L.P. Preference Units ............................. 3/31/93 0 216,775
Total Restricted Securities $1,817,194
---------
(0.67% of net Assets)
</TABLE>
8. CREDIT RISK AND DEFAULTED SECURITIES
The Fund has 69.88% of its portfolio invested in lower rated 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. At August 31, 1997, the
Fund held one defaulted security with a value aggregating $1,700,000
representing 0.6% of the Fund's net assets. For information as to specific
securities, see the accompanying Statement of Investments. For financial
reporting purposes, the Fund discontinues accruing income on defaulted bonds and
provides an estimate for losses on interest receivable.
The Fund has investments in excess of 10% of its total net assets in the
Wireless/Telecommunications industry. Such concentration may subject the Fund
more significantly to economic changes occurring within that industry.
9. OTHER CONSIDERATIONS
Advisers, as the Fund's manager, may serve as a member of various credit
committees, representing credit interests in certain corporate restructuring
negotiations. Currently, the manager serves on the credit committees for Harvard
Industries. As a result of this involvement, Advisers may be in possession of
certain material non-public information. The Fund's manager has not nor does it
intend to sell any of its holdings in these securities while in possession of
this information.
FRANKLIN UNIVERSAL TRUST
Report of Independent Accountants
To the Shareholders and Board of Trustees
of the Franklin Universal Trust
We have audited the accompanying statements of assets and liabilities of the
Franklin Universal Trust (the Fund), including the Fund's statement of
investments in securities and net assets, as of August 31, 1997, and the related
statements of operations and cash flows for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for the periods presented. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund as of August 31, 1997, the results of its operations and its cash flows for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and its financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
October 3, 1997
FRANKLIN UNIVERSAL TRUST
Tax Designation
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
6.29% of the ordinary income dividends paid (including short-term capital gains
distributions) as income qualifying for the dividends received deduction for the
fiscal year ended August 31, 1997.
Franklin Universal Trust Annual Report August 31, 1997
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM
304(a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in bar format the comparison between the S&P Utilities Index
total return of 10.70% and the Lehman Brothers High Yield Corporate Index total
return of 14.97% over a one year period from 8/31/96 to 8/31/97.
GRAPHIC MATERIAL (2)
This chart shows in bar format the comparison breakdown of the fund's securities
on 8/31/97 and 8/31/96, respectively, based on total market value.
<TABLE>
<CAPTION>
Portfolio Breakdown
<S> <C> <C>
Corporate Bonds 59.44% 64.68%
Utilities 22.48% 23.62%
Miscellaneous 10.04% 6.99%
Convertible Bonds 5.18% 1.61%
Natural Resources Equities 2.10% 2.73%
& Preferred Stocks
Foreign Government Agencies 0.22% 0.23%
Partnership Units 0.00% 0.12%
Cash & Equivalents 0.54% 0.02%
</TABLE>
