FRANKLIN UNIVERSAL TRUST, N-30D, 1999-04-27

FRANKLIN UNIVERSAL TRUST
N-30D, 1999-04-27

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SHAREHOLDER LETTER

Dear Shareholder:

It's a pleasure to bring you Franklin Universal Trust's semiannual report for
the period ended February 28, 1999.

The domestic economy continued to grow at a healthy pace during the period under
review. Higher income levels coupled with a robust real estate market and
increasing stock prices fueled the consumer sector, which was the primary driver
of domestic growth. Consumption also buoyed the labor market, with the
unemployment rate reaching 4.3% in December, the lowest in 28 years. The overall
economy, as measured by U.S. Gross Domestic Product, grew at an annualized rate
of 6.1% for the fourth quarter of 1998, well above the Federal Reserve Board's
(the Fed's) targeted long-term growth rate of 2.50%.(1)

The global financial crisis in Asia, Latin America and eastern Europe led to
significant volatility. The declining interest rate trend over the last four
years continued in 1998, as many regions around the world experienced a slowdown
in growth. On a national level, many economies suffered from recessionary
forces, and in certain cases from outright depression. These regions purchased
fewer U.S. goods as a consequence, directly impacting the U.S. economy through
reduced exports. At home, the American consumer boosted the domestic economy by
spending at higher-than-anticipated levels. With global and domestic inflation
firmly under control,

CONTENTS

Shareholder Letter .............................................. 1
Manager's Discussion ............................................ 3
Performance Summary ............................................. 9
Dividend Reinvestment and Cash Purchase Plan .................... 11
Financial Highlights & Statement of Investments ................. 15
Financial Statements ............................................ 22
Notes to Financial Statements ....... ... ... ................... 26

1. Source: Bureau of Labor Statistics.

You will find a complete listing of the Trust's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 16 of
this report.

- -PAGE-

the Fed's monetary policy panel, the Federal Open Market Committee, made three
quarter-point cuts to the federal funds target rate, lowering it to 4.75% on
November 17, 1998. The Fed hoped to stimulate economic growth and instill
confidence in the financial markets.

The recent global problems contributed to dramatic U.S. market ups and downs,
which understandably created investor uncertainty. Such conditions remind us of
the importance of investing for the long term, so daily market fluctuations and
short-term volatility have minimal impact on overall investment goals. We
encourage you to discuss your financial goals with your investment
representative. He or she can address concerns about market volatility, and help
you diversify your investments and stay focused on the long term.

As always, we appreciate your continued investment in Franklin Universal Trust
and look forward to serving your future investment needs.

Sincerely,

/s/ C. B. Johnson

Charles B. Johnson
Chairman
Franklin Universal Trust

- -PAGE-

MANAGER'S DISCUSSION

- ------------------------------------------------------------------------------
Your Fund's Objective: Franklin Universal Trust seeks to provide high, current
income consistent with preservation of capital.
- ------------------------------------------------------------------------------

During the six-month period under review, the environment for high yield bonds
and utility equities was decidedly mixed, with sustained volatility in both
markets. Despite substantial declines at the beginning of the reporting period,
the high yield corporate bond market enjoyed a recovery that began in October
and continued through the end of the period. Utility equities also rebounded
from their September lows, but weakened over January and February, giving up
some of their earlier gains. Stronger-than-expected domestic economic conditions
contributed to the U.S. stock market's general recovery, which buoyed the high
yield market. However, an expected weaker domestic economy failed to
materialize, and electric utility stocks suffered somewhat due to their
relatively defensive nature.

Although asset price volatility persisted, the Trust maintained its focus on
sound, positive sector fundamentals and benefited from the solid performance of
certain individual securities selected for the portfolio. Franklin Universal
Trust (NYSE: FT) generated a total return of +3.25% for the six-month period
ended February 28, 1999, based on the change in net asset value.

- -PAGE-

PORTFOLIO BREAKDOWN
Based on Total Market Value
2/28/99

<TABLE>

<S> <C>
Corporate Bonds 67.72%

Utilities Stocks 20.12%

Natural Resources Equities & Preferred Stocks 1.07%

Convertible Bonds 0.82%

Foreign Government Agencies 0.18%

Misc. Equities & Preferred Stocks 10.09%
</TABLE>

SECTOR DISCUSSIONS

WIRELESS

During the reporting period, strong industry growth benefited the wireless
sector. Moreover, industry revenues grew despite increased pricing pressures
from elevated market penetration. The market for wireless services, although
highly competitive, provided attractive opportunities for companies with sound,
aggressive business plans. In general, we focused on lower-cost operators who
successfully expanded their networks to offer customers better coverage. On the
cellular side, our holdings in Nextel Communications Inc. and Comcast Cellular
Corp. benefited the Trust. Nextel furthered its rapid network expansion and
boasted the highest average revenue per unit in the industry during the
reporting period. Meanwhile, Comcast Cellular entered into an agreement to be
acquired by SBC Communications Inc., a significantly positive development given
SBC's superior credit profile. The Trust also initiated a position during the
period in Dobson/Sygnet Communications Co., which performed strongly due to
favorable growth prospects and industry trends.

TELECOMMUNICATIONS

The telecommunications sector significantly outperformed the overall high yield
market during the period, and the Trust took advantage of this strength.
Centrally important trends of technological convergence, global deregulation and
the rise of data services continued to impact the industry. Similar to the
U.S.'s restructuring and deregulation initiatives of the early '90s, regulatory
barriers are falling in Europe. Additionally, "silicon economics" became the
driving force behind data services growth, as the increasing need for Internet
traffic, client-server networks and computer-to-computer communication
dramatically increased the number of users. Seeking to take advantage of these
trends, we focused on companies with their own networks, strong

- -PAGE-

management teams, and established access to capital markets. Among the
competitive local exchange carriers (CLECs), we focused on diversified services
providers, which generally have the ability to cross-sell higher margin products
and reduce customer turnover. We invested in issues from companies such as
NEXTLINK Communications Inc., which is well-capitalized, has a strong management
team and employs a myriad of technologies to serve its customers.

INDUSTRIAL

During the reporting period, we maintained our strategy of investing in
securities of companies whose profiles provided some defense against
fluctuations in economic conditions, as well as consolidators who enjoyed a
higher degree of pricing power. We focused on those that demonstrated ample
liquidity, favorable cost structures, strong management strategies and
successful integration of acquisitions. In the building products sector,
International Comfort Products Inc., a leader in the heating-ventilation-air
conditioning (HVAC) industry, enjoyed healthy performance due to effective
cost-cutting measures, increased market penetration and leadership by a capable
management team. Nortek Inc., a manufacturer of building products and HVAC
systems, increased its market share and cut costs through effective integration
of acquisitions. Safety Kleen Services benefited from consolidation within the
environmental services sector, and became one of the leading price-setters in
the environmental treatment business.

BROADCASTING AND MEDIA

The broadcasting and media sectors continued to benefit from a healthy
advertising environment and a strong domestic economy during the period.
Consolidation remained a dominant

TOP 10 HOLDINGS

Based on Total Market Value
2/28/99 vs. 8/31/98

2/28/99
<TABLE>

<S> <C>
Texas Utilities Co. 2.54%

Cinergy Corp. 1.92%

Dominion Resources Inc. 1.85%

Southern Co. 1.67%

Duke Energy Corp. 1.64%

Nextel Communications Inc. 1.62%

Outdoor Systems Inc. 1.55%

Comcast Cellular Corp. 1.46%

Sinclair Capital 1.43%

Dobson/Sygnet Communications Co. 1.39%
</TABLE>

<TABLE>
<S> <C>
8/31/98

Cinergy Corp. 2.24%

Dominion Resources Inc. 1.96%

Texas Utilities Co. 1.88%

Southern Co. 1.84%

American Electric Power Co. Inc. 1.75%

Nextel Communications Inc. 1.53%

New Century Energies Inc. 1.44%

Magnum Hunter Resources Inc. 1.43%

Outdoor Systems Inc. 1.42%

Sygnet Wireless Inc. 1.42%

</TABLE>
5

- -PAGE-

theme, as industry leaders gained market share and realized efficiencies from
mergers and acquisitions. In general, we maintained our strategy of looking for
larger consolidators with lower cost structures. In the media sector, Outdoor
Systems Inc., the country's largest outdoor advertiser, benefited from strong
demand for billboard space and the implementation of more effective, lower-cost
vinyl technology. Chancellor Media Corp., another noteworthy holding, posted
strong operating results, particularly in its radio division. Chancellor bonds
strengthened on the prospect of additional, credit-enhancing, strategic
transactions the company may pursue such as a potential merger with an
investment-grade consolidator.

METALS AND MINING

During the reporting period, we chose to underweight sectors of the metals and
mining industry, which we felt low-priced foreign imports were likely to affect.
Specifically, we underweighted steel companies during the period to limit
exposure to the veritable flood of Asia's imported steel products resulting from
the regional crisis. We concentrated on companies with above-average liquidity,
superior credit statistics and solid asset protection. Envirosource Inc., which
provides metal reclamation for the steel industry, benefited from market
acceptance of its proprietary method of processing electric arc furnace dust.
LTV Corp.'s solid ability to meet debt requirements and high-quality assets
generated strong performance relative to the overall steel industry. P&L Coal
Holdings Corp., the country's largest coal producer, benefited from the electric
utility industry's increasing usage of high-quality, low-sulfur coal.

- -PAGE-

ELECTRIC UTILITIES

Electric utility stocks enjoyed a strong rally over the third quarter of 1998 as
many investors shifted assets into this traditionally defensive sector, sparked
by concerns that U.S. economic conditions were deteriorating. Unfortunately, the
flight to quality peaked in the third quarter as economic data releases eased
investor concerns regarding a growth slowdown, which led to falling demand for
utility equities. Despite recent price declines, we believe sector fundamentals
are improving and recent valuations offer attractive opportunities. Deregulation
continues to be a key trend in the electric utilities sector, as many states are
in the process of opening their power generation markets to competition. Given
this outlook, we maintained our strategy of searching out attractively valued
companies in favorable regulatory environments. Such companies exhibit
competitive cost structures, visionary management teams, and non-regulated
investments. Montana Power Co. embodies these strategic elements, and performed
well over the period due to the sale of its generation plant as well as improved
regulatory clarity in the state of Montana. Additionally, Montana Power Co.'s
expansion of its fiber optic cable operation should allow the company to
continue generating above-average revenue growth going forward.

WHAT'S AHEAD

Recent economic data suggests that further domestic growth is likely, although
possibly at a slower pace, and that inflation is still under control. Within
this context, we anticipate that interest rates should remain relatively stable
over the near term, which would provide a favorable environment for high yield
bonds and utility equities. We believe that positive fundamentals will most
likely support the recent recovery in the high

- -PAGE-

yield market, and that many utility equities offer value given current market
conditions. Thus, our outlook for these types of securities remains positive,
and we believe there will continue to be attractive opportunities in high yield
and utility equity markets over the near to intermediate term.

Please remember, this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected to
affect our strategies and the fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.

- -PAGE-

PERFORMANCE SUMMARY AS OF 2/28/99

Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions according to the terms specified in the fund's dividend
reinvestment and cash purchase plan.

PRICE AND DISTRIBUTION INFORMATION (8/31/98-2/28/99)

<TABLE>
<CAPTION>
CHANGE 2/28/99 8/31/98
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$ 0.14 $ 9.14 $9.28

Market Price (NYSE) -$0.3125 $8.9375 $9.25
</TABLE>

DISTRIBUTIONS
-----------------------------------------------
<S> <C>
Dividend Income $0.4420
</TABLE>

PERFORMANCE

<TABLE>
<CAPTION>
INCEPTION
6-MONTH 1-YEAR 5-YEAR 10-YEAR (9/23/88)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1)

Based on change
in net asset value +3.25% -3.00% +54.53% +197.70% +208.31%

Based on change
in market price +1.29% -2.28% +62.73% +191.19% +180.45%

Average Annual Total Return(1)

Based on change
in net asset value +3.25% -3.00% +9.09% +11.53% +11.40%

Based on change
in market price +1.29% -2.28% +10.23% +11.28% +10.39%

Distribution Rate(2) 9.00%
</TABLE>

1. Total return calculations represent the cumulative and average annual change
in value of an investment over the periods indicated.

2. Distribution rate is based on an annualization of the Trust's current 6.7
cent per share monthly dividend and the NYSE closing price of $8.9375 on
February 28, 1999. Six-month returns have not been annualized.

Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility, and the economic,
social and political climates of countries where the Trust invests. Emerging
markets involve heightened risks related to the same factors, in addition to
those associated with their relatively small size and lesser liquidity. You may
have a gain or loss when you sell your shares.

Past performance is not predictive of future results.

- -PAGE-

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 and a member of several securities industry
associations. He has managed Franklin Universal Trust since 1991.

JEFFREY S. CARLSON
Portfolio Manager
Franklin Advisers, Inc.
- -------------------------------------------------------------------------------

Mr. Carlson is a Chartered Financial Analyst and holds a Bachelor of Science
degree in finance with a minor in economics from San Jose State University. He
has been with the Franklin Templeton Group since 1991. He is a member of several
securities industry-related associations.

- -PAGE-

DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN

The Trust's Dividend Reinvestment Plan and Cash Purchase Plan (the "Plan")
offers you a prompt and simple way to reinvest income dividends and capital gain
distributions in shares of the Trust. The Plan also allows you to purchase
additional shares of the Trust by making voluntary cash payments. PNC Bank, N.A.
(the "Plan Agent"), Attn: Franklin Universal Trust, P.O. Box 8950, 400 Bellevue
Parkway, Wilmington, Delaware 19809, acts as your Plan Agent in administering
the Plan. The complete Terms and Conditions of the Dividend Reinvestment and
Cash Purchase Plan are contained in the Trust's Dividend Reinvestment and Cash
Purchase Plan Brochure. A copy of that Brochure 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
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 payable either in
cash or in stock of the Trust and the market price of shares on the valuation
date equals or exceeds the net asset value, the Trust will issue new shares to
you at the higher of net asset value or 95% of the then current market price. If
the market price is lower than net asset value and if dividends or capital gain
distributions are payable only in cash, then you will receive shares purchased
on the New York Stock Exchange or otherwise on the open market. If the price
exceeds the net asset

- -PAGE-

value before the Plan Agent has completed its purchases, the average purchase
price may exceed the net asset value, resulting in fewer shares being acquired
than if the Trust had issued new shares. All reinvestments are in full and
fractional shares, carried to three decimal places. The Trust will not issue
shares under the Plan at a price below net asset value.

The Plan permits you on a voluntary basis to submit in cash payments of not less
than $100 each up to a total of $5,000 per month to purchase additional shares
of the Trust. It is entirely up to you whether you wish to buy additional shares
with voluntary cash payments, and you do not have to send in the same amount
each time if you do. These payments should be made by check or money order
payable to PNC Bank, N.A. and sent to PNC Bank, N.A., Attn: Franklin Universal
Trust, P.O. Box 8950, 400 Bellevue Parkway, Wilmington, Delaware 19809.

Your cash payment will be aggregated with the payments of other participants and
invested on your behalf by the Plan Agent in shares of the Trust which are
purchased in the open market.

The Plan Agent will invest cash payments on approximately the 5th of each month
in which no dividend or distribution is payable and, during each month in which
a dividend or distribution is payable, will invest cash payments beginning on
the dividend payments date. Under no circumstances will interest be paid on your
funds held by the Plan Agent. Accordingly, you should send any voluntary cash
payments which you wish to make shortly before an investment date but in
sufficient time to ensure that your payment will reach the Plan Agent not less
than two business days before an investment date. Payments received less than
two business days before an investment date will be invested during the next
month or, if there are more than 30 days until the next investment date, will be
returned to you. You may obtain a refund of any cash payment by written

- -PAGE-

notice, if the written notice is received by the Plan Agent not less than 48
hours before an investment date.

There is no direct charge to participants for reinvesting dividends and capital
gain distributions, since the Plan Agent's fees are paid by the Trust. However,
when shares are purchased in the open market, each participant will pay a pro
rata portion of any brokerage commissions incurred. The Plan Agent will deduct a
$5.00 service fee from each of your voluntary cash payments.

The automatic reinvestment of dividends and capital gain distributions does not
relieve you of any taxes which may be payable on such dividends or
distributions. In connection with the reinvestment of dividends and capital gain
distributions, if the Trust issues new shares, shareholders receiving such
shares generally will be treated as having a distribution equal to the market
value of the shares received, and if shares are purchased on the open market,
shareholders generally will be treated as having received a distribution equal
to the cash distribution that would have been paid.

The Trust does not issue new shares in connection with voluntary cash payments.
All investments are in full and fractional shares, carried to three decimal
places. If the market price exceeds the net asset value at the time the Plan
Agent purchases the additional shares, you will receive shares at a price
greater than the net asset value.

You will receive a monthly account statement from the Plan Agent showing total
dividends and capital gain distributions, date of investment, shares acquired
and price per share, and total shares of record held by you and by the Plan
Agent for you. You are entitled to vote all shares of record, including shares
purchased for you by the Plan Agent, and, if you vote by proxy, your proxy will
include all such shares.

- -PAGE-

As long as you participate in the Plan, the Plan Agent will hold the shares it
has acquired for you in safekeeping, in its name or in the name of its nominee.
This convenience provides added protection against loss, theft or inadvertent
destruction of certificates. However, you may request that a certificate
representing your Plan shares be issued to you.

You may withdraw from the Plan without penalty at any time by notifying the Plan
Agent, in writing, at the address above. If you withdraw, you will receive,
without charge, stock certificates issued in your name for all full shares. The
Plan Agent will convert any fractional shares you hold at the time of your
withdrawal to cash at current market price and send you a check for the
proceeds.

If you hold shares in your own name, please address all notices, correspondence,
questions, or other communications regarding the Plan to the Plan Agent at the
address noted above. If your shares are not held in your name, you should
contact your brokerage firm, bank, or other nominee for more information and to
determine if your nominee will participate in the Plan on your behalf.

The Trust or the Plan Agent may amend or terminate the Plan. You will receive
written notice at least 90 days before the effective date of termination or of
any amendment. In the case of termination, you will receive written notice at
least 90 days before the record date of any dividend or capital gain
distribution by the Trust.

- -PAGE-

FRANKLIN UNIVERSAL TRUST
Financial Highlights

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28, 1999 YEAR ENDED AUGUST 31,
------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 9.28 $ 10.20 $ 9.53 $ 9.36 $ 8.71 $ 9.81
----------------------------------------------------------------------
Income from investment operations:
Net investment income ........................... .43 .85 .86 .82 .85 .84
Net realized and unrealized gains (losses) ...... (.13) (.63) .65 .20 .61 (1.08)
----------------------------------------------------------------------
Total from investment operations ................. .30 .22 1.51 1.02 1.46 (.24)
======================================================================
Less distributions from:
Net investment income ........................... (.44) (.80) (.83) (.85) (.81) (.86)
Net realized gain ............................... -- (.34) (.01) -- -- --
----------------------------------------------------------------------
Total distributions .............................. (.44) (1.14) (.84) (.85) (.81) (.86)
----------------------------------------------------------------------
Net asset value, end of period ................... $ 9.14 $ 9.28 $ 10.20 $ 9.53 $ 9.36 $ 8.71
======================================================================
Market value end of period(1) .................... $ 8.938 $ 9.250 $ 9.500 $ 9.125 $ 8.875 $ 8.125
======================================================================
Total return (based on market value per share)(2) 1.29% 9.40% 14.00% 12.84% 20.42% (5.60)%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $245,444 $248,419 $273,173 $255,200 $250,734 $233,302
Ratios to average net assets:
Expenses ........................................ 2.91%** 2.63% 2.72% 2.80% 2.97% 3.01%
Expenses excluding interest expense ............. 1.14%** 1.09% 1.12% 1.16% 1.19% 1.27%
Net investment income ........................... 9.15%** 8.29% 8.74% 8.56% 9.59% 9.22%
Portfolio turnover rate .......................... 9.13% 36.66% 51.48% 19.24% 27.41% 36.76%
Total debt outstanding at end of period
(000's omitted) ............................. $ 75,000 $ 75,000 $ 74,987 $ 74,974 $ 74,961 $ 74,948
Asset coverage per $1,000 of debt $ 4,273 $ 4,312 $ 4,643 $ 4,404 $ 4,345 $ 4,113
Average amount of notes per share during the period $ 2.80 $ 2.80 $ 2.80 $ 2.80 $ 2.80 $ 2.80
</TABLE>

(1) Based on the last sale on the New York Stock Exchange.

(2) Total return is not annualized for periods less than one year.

** Annualized

See notes to financial statements.

- -PAGE-

FRANKLIN UNIVERSAL TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES,
WARRANTS
& RIGHTS VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS, WARRANTS AND RIGHTS 32.0%
COMMERCIAL SERVICES
(a) Sodexho Marriott Services Inc. .................. 188 $ 4,395
----------
CONSUMER NON-DURABLES .6%
RJR Nabisco Holdings Corp. ...................... 54,000 1,474,875
----------
CONSUMER SERVICES
Marriott International Inc., A .................. 1,504 54,144
(a) Wireless One Inc., wts., 8/01/01 ................ 6,000 --
----------
54,144
----------
ENERGY MINERALS .6%
(a) McMoRan Exploration Co. ......................... 1,800 29,250
(a) Santa Fe Energy Resources Inc. .................. 14,935 78,409
Ultramar Diamond Shamrock Corp. ................. 66,600 1,315,350
----------
1,423,009
----------
NON-ENERGY MINERALS .8%
AngloGold Ltd., ADR (South Africa) .............. 30,446 551,834
Driefontein Consolidated Ltd., ADR (South Africa) 210,300 749,194
Freeport-McMoRan Copper & Gold Inc., A .......... 4,500 41,625
Freeport-McMoRan Copper & Gold Inc., B .......... 63,156 596,035
(a) Gulf States Steel, wts., 4/15/03 ................ 4,000 40
----------
1,938,728
----------
PROCESS INDUSTRIES .1%
(a) Gaylord Container Corp., wts., 11/01/02 ......... 46,137 299,891
----------
PRODUCER MANUFACTURING 2.0%
(a) Harvard Industries Inc. ......................... 109,618 822,135
(a) Harvard Industries Inc., wts., 12/31/99 ......... 8,125 406
(a) Kendall International Inc., A, wts., 7/07/99 .... 4,066 1,504,752
(a) Kendall International Inc., B, wts., 7/07/99 .... 4,348 1,586,679
(a) Kendall International Inc., rts., 7/07/99 ....... 2,456 908,920
----------
4,822,892
----------
UTILITIES 27.9%
American Electric Power Co. Inc. ................ 93,300 3,883,613
BellSouth Corp. ................................. 81,200 3,755,500
Cinergy Corp. ................................... 205,600 6,000,950
CMS Energy Corp. ................................ 12,900 533,738
Conectiv Inc. ................................... 104,700 2,218,331
Dominion Resources Inc. ......................... 150,000 5,793,750
DPL Inc. ........................................ 217,000 3,865,313
DTE Energy Co. .................................. 50,000 1,975,000
Duke Energy Corp. ............................... 90,000 5,118,750
Edison International ............................ 74,600 1,902,300
Florida Progress Corp. .......................... 50,000 2,006,250
GTE Corp. ....................................... 25,000 1,621,875
(a) Loral Space & Communications Ltd., wts., 1/15/07 5,000 42,683
Montana Power Co. ............................... 56,200 3,421,175
</TABLE>

- -PAGE-

FRANKLIN UNIVERSAL TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>

SHARES,
WARRANTS
& RIGHTS VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS, WARRANTS AND RIGHTS (CONT.)
UTILITIES (CONT.)
New Century Energies Inc. .................................... 50,000 $ 2,028,125
New England Electric System .................................. 48,600 2,366,213
NIPSCO Industries Inc. ....................................... 48,000 1,245,000
Northwestern Corp. ........................................... 92,000 2,213,750
PECO Energy Co. .............................................. 70,000 2,480,625
Pinnacle West Capital Corp. .................................. 77,000 2,781,625
(a) Poland Telecom Finance, wts., 144A, 12/01/07 (Poland) ........ 3,000 12,000
SCANA Corp. .................................................. 80,000 1,880,000
Southern Co. ................................................. 208,800 5,233,050
Texas Utilities Co. .......................................... 141,500 6,004,906
-----------
68,384,522
-----------
TOTAL COMMON STOCKS, WARRANTS AND RIGHTS (COST $66,643,688) .. 78,402,456
-----------
PREFERRED STOCKS 2.6%
CONSUMER SERVICES 1.8%
Sinclair Capital, 11.625%, pfd. .............................. 40,000 4,480,000
-----------
PROCESS INDUSTRIES .8%
Asia Pulp & Paper Co. Ltd., pfd., 12.00%, 12/29/49 (Indonesia) 4,000,000 1,960,000
-----------
TOTAL PREFERRED STOCKS (COST $8,000,000) ..................... 6,440,000
-----------
CONVERTIBLE PREFERRED STOCKS 6.1%
CONSUMER NON-DURABLES 1.2%
Ralston-Ralston Purina Group, 7.00%, cvt. pfd. ............... 61,000 2,989,000
-----------
CONSUMER SERVICES .6%
Triathlon Broadcasting Co., 9.00%, cvt. pfd. ................. 142,190 1,466,334
-----------
FINANCE .5%
Archstone Communities Trust, $1.75, cvt. pfd., A ............. 45,000 1,215,000
-----------
TRANSPORTATION .8%
(a) Union Pacific Capital Trust, 6.25%, cvt. pfd. ................ 40,000 1,915,000
-----------
UTILITIES 3.0%
(b) CMS Energy Corp., 7.75%, cvt. pfd. ........................... 70,000 3,771,250
Nortel Inversora SA, 10.00%, cvt. pfd., MEDS (Argentina) ..... 35,000 1,693,125
Texas Utilities Co., 9.25%, cvt. pfd. ........................ 37,200 1,941,375
-----------
7,405,750
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST 14,877,192) ......... 14,991,084
-----------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT*
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
BONDS 79.2%
COMMERCIAL SERVICES 5.5%
Ameriserve Food Distribution Inc., senior sub. note, 8.875%, 10/15/06 $1,000,000 855,000
Ameriserve Food Distribution Inc., senior sub. note, 10.125%, 7/15/07 3,000,000 2,415,000
Big Flower Press Holdings Inc., senior sub. note, 8.875%, 7/01/07 ... 1,500,000 1,545,000
</TABLE>

- -PAGE-

FRANKLIN UNIVERSAL TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT* VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
BONDS (CONT.)
COMMERCIAL SERVICES (CONT.)
Fleming Cos. Inc., senior sub. note, B, 10.50%, 12/01/04 ......... $ 4,000,000 $ 3,730,000
Outdoor Systems Inc., senior sub. note, 8.875%, 6/15/07 .......... 4,500,000 4,860,000
-----------
13,405,000
-----------
CONSUMER DURABLES 1.9%
E&S Holdings Corp., senior sub. note, B, 10.375%, 10/01/06 ....... 1,750,000 691,250
Revlon Consumer Products Corp., senior sub. note, 8.625%, 2/01/08 3,500,000 3,062,500
Windmere-Durable Holdings Inc., senior sub. note, 10.00%, 7/31/08 900,000 828,000
-----------
4,581,750
-----------
CONSUMER NON-DURABLES 2.3%
Packaged Ice Inc., senior note, B, 9.75%, 2/01/05 ................ 2,000,000 2,060,000
RJR Nabisco Inc., senior note, 9.25%, 8/15/13 .................... 1,500,000 1,533,630
Specialty Foods Corp., senior unsecured note, B, 10.25%, 8/15/01 . 2,000,000 1,950,000
-----------
5,543,630
-----------
CONSUMER SERVICES 12.2%
Advantica Restaurant Group, senior note, 11.25%, 1/15/08 ......... 1,598,325 1,626,296
(b) Atherton Franchise Capital, L.P., 11.00%, 5/01/06 ................ 1,596,281 1,340,876
Chancellor Media Corp., senior note, 144A, 8.00%, 11/01/08 ....... 2,000,000 2,090,000
Chancellor Media Corp., senior sub. note, B, 8.75%, 6/15/07 ...... 2,000,000 2,070,000
CSC Holdings Inc., senior sub. deb., 9.875%, 4/01/23 ............. 3,000,000 3,405,000
Family Restaurant Inc., senior note, 9.75%, 2/01/02 .............. 2,000,000 1,260,000
Fox Family Worldwide Inc., senior disc. note, zero cpn. to
11/01/02, 10.25% thereafter, 11/01/07 ..................... 850,000 535,500
Fox/Liberty Networks LLC, senior disc. note, zero cpn. to
8/15/02, 9.75% thereafter, 8/15/07 ........................ 4,000,000 2,930,000
Hollinger International Inc., senior sub. note, 9.25%, 2/01/06 ... 1,000,000 1,075,000
LIN Holdings Corp., senior disc. note, zero cpn. to 3/01/03,
10.00% thereafter, 3/01/08 ................................ 2,000,000 1,475,000
LIN Television Corp., senior sub. note, 8.375%, 3/01/08 .......... 2,100,000 2,215,500
Prime Hospitality Corp., senior sub. note, B, 9.75%, 4/01/07 ..... 4,000,000 4,150,000
Regal Cinemas Inc., senior sub. note, 9.50%, 6/01/08 ............. 4,000,000 3,980,000
Six Flags Entertainment Corp., senior unsecured note,
8.875%, 4/01/06 ........................................... 1,750,000 1,811,250
(c) Wireless One Inc., senior disc. note, zero cpn. to 8/01/01,
13.50% thereafter, 8/01/06 ................................ 2,400,000 96,000
-----------
30,060,422
-----------
ELECTRONIC TECHNOLOGY .7%
Derlan Manufacturing, senior note, 10.00%, 1/15/07 ............... 2,000,000 1,770,000
-----------
ENERGY MINERALS 6.8%
Abraxas Petroleum Corp., senior note, D, 11.50%, 11/01/04 ........ 3,300,000 1,699,500
Chesapeake Energy Corp., senior note, B, 9.625%, 5/01/05 ......... 750,000 500,625
Clark R&M Inc., senior sub. note, 8.875%, 11/15/07 ............... 4,000,000 3,340,000
Forcenergy Inc., senior sub. note, 9.50%, 11/01/06 ............... 2,000,000 710,000
Magnum Hunter Resources Inc., senior note, 10.00%, 6/01/07 ....... 5,000,000 4,262,500
Nuevo Energy Co., senior sub. note, B, 8.875%, 6/01/08 ........... 1,000,000 915,000
P&L Coal Holdings Corp., senior note, B, 8.875%, 5/15/08 ......... 500,000 513,750
</TABLE>

- -PAGE-

FRANKLIN UNIVERSAL TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)

PRINCIPAL
AMOUNT* VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
BONDS (CONT.)
ENERGY MINERALS (CONT.)
P&L Coal Holdings Corp., senior sub. note, B, 9.625%, 5/15/08 .... $ 3,500,000 $ 3,578,750
Rutherford-Moran Oil Corp., senior sub. note, 10.75%, 10/01/04 ... 1,000,000 1,142,500
-----------
16,662,625
-----------
HEALTH SERVICES 3.0%
Abbey Healthcare Group, senior sub. note, 9.50%, 11/01/02 ........ 4,000,000 3,900,000
Magellan Health Services Inc., senior sub. note, 9.00%, 2/15/08 .. 2,300,000 1,978,000
Vencor Operating Inc., senior sub. note, 9.875%, 5/01/05 ......... 3,200,000 1,424,000
-----------
7,302,000
-----------
INDUSTRIAL SERVICES 4.7%
Allied Waste North America Inc., senior note, 144A,
7.875%, 1/01/09 ........................................... 3,700,000 3,727,750
Dailey International Inc., senior note, B, 9.50%, 2/15/08 ........ 1,250,000 631,250
Envirosource Inc., senior note, 9.75%, 6/15/03 ................... 3,000,000 2,625,000
Envirosource Inc., senior note, B, 9.75%, 6/15/03 ................ 1,000,000 875,000
Great Lakes Dredge & Dock Corp., senior sub. note, 144A,
11.25%, 8/15/08 ........................................... 500,000 516,875
Safety Kleen Services, 9.25%, 6/01/08 ............................ 1,000,000 1,052,500
Universal Compression Inc., senior disc. note, zero cpn. to
2/15/03, 9.875% thereafter, 2/15/08 ....................... 3,550,000 2,130,000
-----------
11,558,375
-----------
NON-ENERGY MINERALS 3.1%
LTV Corp., senior note, 8.20%, 9/15/07 ........................... 4,000,000 3,830,000
Sheffield Steel Corp., first mortgage, B, 11.50%, 12/01/05 ....... 4,000,000 3,820,000
-----------
7,650,000
-----------
PROCESS INDUSTRIES 7.6%
Anchor Glass, first mortgage, 11.25%, 4/01/05 .................... 4,000,000 4,200,000
Container Corp. of America, senior note, A, 9.75%, 4/01/03 ....... 3,000,000 3,150,000
Equistar Chemicals, 144A, senior note, 8.75%, 2/15/09 ............ 2,800,000 2,828,000
Graham Packaging Co., senior disc. note, B, zero cpn. to
1/15/03, 10.75% thereafter, 1/15/09 ....................... 600,000 429,000
Graham Packaging Co., senior sub. note, B, 8.75%, 1/15/08 ........ 800,000 810,000
Huntsman Corp., senior sub. note, 144A, 9.50%, 7/01/07 ........... 3,500,000 3,526,250
Ormet Corp., senior secured note, 144A, 11.00%, 8/15/08 .......... 4,000,000 3,760,000
-----------
18,703,250
-----------
PRODUCER MANUFACTURING 11.5%
Aetna Industries Inc., senior note, 11.875%, 10/01/06 ............ 2,600,000 2,759,250
Collins & Aikman Corp., senior sub. note, 11.50%, 4/15/06 ........ 2,000,000 2,110,000
Collins & Aikman Corp., senior sub. note, B, 10.00%, 1/15/07 ..... 3,300,000 3,444,375
Falcon Building Products Inc., senior disc. note, B, zero cpn. to
6/15/02, 10.50% thereafter, 6/15/07 ...................... 2,000,000 1,215,000
Falcon Building Products Inc., senior sub. note, B, 9.50%, 6/15/07 2,000,000 1,790,000
International Comfort Products Inc., senior note, B, 8.625%, 5/15/08 4,000,000 4,080,000
Key Plastics Inc., senior sub. note, B, 10.25%, 3/15/07 .......... 1,500,000 1,473,750
Nortek Inc., senior note, 144A, 8.875%, 8/01/08 .................. 1,000,000 1,027,500
Nortek Inc., senior note, B, 9.125%, 9/01/07 ..................... 2,000,000 2,092,500
Oshkosh Truck Corp., senior sub. note, 8.75%, 3/01/08 ............ 1,500,000 1,530,000
Simonds Industries Inc., 10.25%, 7/01/08 ......................... 2,000,000 2,020,000
</TABLE>

- -PAGE-

FRANKLIN UNIVERSAL TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT* VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BONDS (CONT.)
PRODUCER MANUFACTURING (CONT.)
Talon Automotive Group Inc., senior sub. note, B, 9.625%, 5/01/08 ......... $ 2,250,000 $ 1,996,875
Terex Corp., senior sub. note, 144A, 8.875%, 4/01/08 ...................... 2,650,000 2,650,000
------------
28,189,250
------------
RETAIL TRADE 1.7%
(c) Penn Traffic Co., senior note, 8.625%, 12/15/03 .......................... 1,000,000 470,000
Penn Traffic Co., senior note, 10.375%, 10/01/04 .......................... 2,000,000 940,000
Shoppers Food Warehouse Corp., senior note, 9.75%, 6/15/04 ................ 1,000,000 1,095,000
Specialty Retailers Inc., senior note, B, 8.50%, 7/15/05 .................. 2,000,000 1,750,000
------------
4,255,000
------------
TECHNOLOGY SERVICES 1.3%
Anacomp Inc., senior sub. note, D, 10.875%, 4/01/04 ....................... 3,100,000 3,247,250
------------
TRANSPORTATION 1.1%
American Commercial Lines LLC, 10.25%, 6/30/08 ............................ 2,500,000 2,600,000
------------
UTILITIES 15.8%
AES Corp., senior sub. note, 8.50%, 11/01/07 .............................. 2,000,000 1,985,000
Arch Communications Group, senior disc. note, zero cpn. to
3/15/01, 10.875% thereafter, 3/15/08 ............................... 6,000,000 3,210,000
Comcast Cellular Corp., senior note, B, 9.50%, 5/01/07 .................... 4,000,000 4,580,000
Dobson/Sygnet Communications Co., senior note, 144A,
12.25%, 12/15/08 ................................................... 4,000,000 4,360,000
Intermedia Communications Inc., senior disc. note, B, zero cpn.
to 7/15/02, 11.25% thereafter, 7/15/07 ............................. 5,000,000 3,500,000
IXC Communications Inc., senior sub. note, 9.00%, 4/15/08 ................. 1,750,000 1,820,000
Loral Space & Communications Ltd., senior disc. note, zero cpn.
to 1/15/02, 12.50% thereafter, 1/15/07 ............................. 5,000,000 3,237,500
Metrocall Inc., senior sub. note, 9.75%, 11/01/07 ......................... 4,000,000 3,640,000
Nextel Communications Inc., zero cpn. to 2/15/99, 9.75% thereafter, 8/15/04 5,000,000 5,062,500
NEXTLINK Communications Inc., senior note, 9.625%, 10/01/07 ............... 2,000,000 1,970,000
NEXTLINK Communications Inc., senior note, 9.00%, 3/15/08 ................. 2,000,000 1,905,000
Paging Network Inc., senior sub. note, 10.00%, 10/15/08 ................... 4,000,000 3,450,000
------------
38,720,000
------------
TOTAL BONDS (COST $208,409,389) ........................................... 194,248,552
------------
CONVERTIBLE BONDS 1.0%
FINANCE 1.0%
Macerich Co., cvt. sub. note, 144A, 7.25%, 12/15/02
(COST $2,750,000) .................................................. 2,750,000 2,571,250
------------
FOREIGN BONDS 6.6%
COMMERCIAL SERVICES 1.1%
Intertek Finance PLC, senior sub. note, B, 10.25%, 11/01/06
(United Kingdom) ................................................... 2,800,000 2,604,000
------------
CONSUMER NON-DURABLES .3%
Compania Alimentos Fargo SA, senior note, 144A, 13.25%,
8/01/08 (Argentina) ................................................ 1,000,000 720,000
------------
CONSUMER SERVICES 1.3%
Diamond Holdings PLC, senior note, 9.125%, 2/01/08
(United Kingdom) ................................................... 3,000,000 3,165,000
------------
GOVERNMENT BONDS .2%
ESCOM, E168, utility deb., 11.00%, 6/01/08 (South Africa) ................. 4,350,000 ZAR 567,884
------------
PROCESS INDUSTRIES .6%
Pindo Deli Finance Mauritius, senior note, 11.75%, 10/01/17
(Indonesia) ........................................................ 3,000,000 1,455,000
------------
</TABLE>

- -PAGE-

CURRENCY ABBREVIATION:
ZAR - South Africa Rand

PORTFOLIO ABBREVIATION:
MEDS - Mandatory Exchangeable Debt Security

* Securities traded in U.S. dollars unless otherwise indicated.

(a) Non-income producing

(b) See Note 8 regarding restricted securities.

See notes to financial statements.

- -PAGE-

FRANKLIN UNIVERSAL TRUST
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities:
Cost ............................................................... $ 319,750,271
=============
Value .............................................................. 312,852,226
Receivables:
Investment securities sold ........................................... 4,154,258
Dividends and interest ............................................... 5,746,605
Note issuance costs ................................................... 179,608
-------------
Total assets ..................................................... 322,932,697
-------------
Liabilities:
Payables:
Affiliates ........................................................... 202,127
Notes ................................................................ 75,000,000
Funds advanced by custodian ........................................... 2,205,601
Other liabilities ..................................................... 80,820
-------------
Total liabilities ................................................ 77,488,548
-------------
Net assets, at value ............................................ $ 245,444,149
=============
Net assets consist of:
Undistributed net investment income ................................... $ 2,984,776
Net unrealized depreciation ........................................... (6,898,702)
Accumulated net realized gain ......................................... 1,687,002
Capital shares ........................................................ 247,671,073
-------------
Net assets, at value ............................................ $ 245,444,149
=============
Net asset value per share ($245,444,149 / 26,864,622 shares outstanding) $ 9.14
=============
</TABLE>

See notes to financial statements.

- -PAGE-

FRANKLIN UNIVERSAL TRUST
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<S> <C>
Investment income:
Dividends .............................................................. $ 2,719,372
Interest ............................................................... 12,460,920
------------
Total investment income ........................................... 15,180,292
------------
Expenses:
Management fees (Note 4) ............................................... 1,223,939
Transfer agent fees .................................................... 62,238
Custodian fees ......................................................... 1,899
Reports to shareholders ................................................ 69,247
Professional fees ...................................................... 25,691
Trustees' fees and expenses ............................................ 8,690
Amortization of note issuance costs .................................... 19,520
Other .................................................................. 25,843
------------
Total expenses .................................................... 1,437,067
Interest expense .................................................. 2,227,500
------------
Net expenses ..................................................... 3,664,567
------------
Net investment income ........................................... 11,515,725
------------
Realized and unrealized gains (losses):
Net realized gain from:
Investments ........................................................... 2,033,623
Foreign currency transactions ......................................... 1,277
------------
Net realized gain ................................................. 2,034,900
Net unrealized appreciation (depreciation) on:
Investments ........................................................... (5,477,639)
Translation of assets and liabilities denominated in foreign currencies 853
------------
Net unrealized depreciation ....................................... (5,476,786)
------------
Net realized and unrealized loss ........................................ (3,441,886)
============
Net increase in net assets resulting from operations .................... $ 8,073,839
============

</TABLE>

See notes to financial statements.

- -PAGE-

FRANKLIN UNIVERSAL TRUST
Financial Statements (continued)

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
AND THE YEAR ENDED AUGUST 31, 1998
<TABLE>
<CAPTION>

SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................... $ 11,515,725 $ 22,797,130
Net realized gain (loss) from investments and
foreign currency transactions .................... 2,034,900 (320,954)
Net unrealized depreciation on investments and
translation of assets and liabilities
denominated in foreign currencies ................ (5,476,786) (16,487,817)
--------------------------------
Net increase in net assets resulting from operations 8,073,839 5,988,359
Distributions to shareholders from:
Net investment income ................................... (11,853,806) (21,530,584)
Net realized gains ...................................... -- (9,212,090)
--------------------------------
Total distributions to shareholders ...................... (11,853,806) (30,742,674)
Capital share transactions (Note 2) ...................... 805,531 --
--------------------------------
Net decrease in net assets .......................... (2,974,436) (24,754,315)
Net assets:
Beginning of period ...................................... 248,418,585 273,172,900
--------------------------------
End of period ............................................ $ 245,444,149 $ 248,418,585
================================
Undistributed net investment income included in net assets:
End of period ............................................ $ 2,984,776 $ 3,322,857
================================
</TABLE>

See notes to financial statements.

- -PAGE-

FRANKLIN UNIVERSAL TRUST
Financial Statements (continued)

STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>

<S> <C>
Cash flow from operating activities:
Dividends and interest received ......................................... $ 12,952,481
Operating expenses paid ................................................. (1,429,666)
Interest expense paid ................................................... (4,353,304)
-------------
Cash provided - operations ......................................... 7,169,511
=============
Cash flow from investing activities:
Investment purchases .................................................... (442,150,142)
Investment sales and maturities ......................................... 443,823,305
-------------
Cash provided - investments ........................................ 1,673,163
=============
Cash flow from financing activities:
Net distributions to shareholders ....................................... (11,048,275)
Cash advanced by custodian .............................................. 2,205,601
-------------
Cash used - financing .............................................. (8,842,674)
=============
Net change in cash ....................................................... --
Cash at beginning of period .............................................. --
-------------
Cash at end of period .................................................... $ --
=============
RECONCILIATION OF NET INVESTMENT INCOME TO NET CASH PROVIDED BY OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)

Net investment income .................................................... $ 11,515,725
Amortization income ..................................................... (2,331,004)
Amortization of note issuance costs ..................................... 19,520
Decrease in dividends and interest receivable ........................... 103,193
Decrease in interest payable ............................................ (2,125,804)
Decrease in other liabilities ........................................... (12,119)
-------------
Cash provided - operations ............................................... $ 7,169,511
=============
</TABLE>

See notes to financial statements.

- -PAGE-

FRANKLIN UNIVERSAL TRUST
Notes to Financial Statements (unaudited)

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 and shares of beneficial
interest. The Fund seeks 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. 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 denominated assets and liabilities other than investments in securities
held at the end of the reporting period.

c. 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 to
distribute substantially all of its taxable income.

d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:

Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Bond discount is
amortized on an income tax basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.

e. 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 expense during the reporting
period. Actual results could differ from those estimates.

- -PAGE-

FRANKLIN UNIVERSAL TRUST
Notes to Financial Statements (unaudited) (continued)

2. SHARES OF BENEFICIAL INTEREST

At February 28, 1999, there were an unlimited number of shares authorized ($0.01
par value). During the period ended February 28, 1999, 85,289 shares were issued
for $805,531 from reinvested distributions; all other reinvested distributions
were satisfied with previously issued shares purchased in the open market.

3. SENIOR FIXED-RATE NOTES

On August 24, 1998, the Fund issued $75 million principal amount of a new class
of five-year senior notes (the Notes). The Notes are general unsecured
obligations of the Fund and rank senior to Trust shares and all existing or
future unsecured indebtedness of the Fund.

The Notes bear interest, payable semi-annually, at the rate of 5.94% per year,
to maturity on August 31, 2003. The Notes were issued in a private placement,
and are not available for resale. Therefore no market value can be obtained for
the Notes. The Fund is required to maintain on a monthly basis a specified
discounted asset value for its portfolio in compliance with guidelines
established 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 period ended February 28, 1999.

The issuance costs of $200,000 incurred by the Fund are deferred and amortized
on a straight line basis over the term of the Notes.

4. TRANSACTIONS WITH AFFILIATES

Certain officers and trustees of the Fund are also officers or directors of
Franklin Advisers, Inc. (Advisers) and Franklin Templeton Services, Inc. (FT
Services), the Fund's investment manager and administrative manager,
respectively.

The Fund pays an investment management fee to Advisers of .75% per year of the
average weekly net assets of the Fund excluding the principal amount of the
Notes.

Under an agreement with Advisers, FT Services provides administrative services
to the Fund. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Fund.

5. INCOME TAXES

At February 28, 1999, the net unrealized depreciation based on the cost of
investments for income tax purposes of $319,781,210 was as follows:

Unrealized appreciation ........... $ 27,552,604
Unrealized depreciation ........... (34,481,588)
-----------
Net unrealized depreciation ....... $ (6,928,984)
============

At August 31, 1998, the Fund had tax basis capital losses of $316,959 which may
be carried over to offset future capital gains. Such losses expire in 2006.

Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities and foreign currency
transactions.

- -PAGE-

FRANKLIN UNIVERSAL TRUST
Notes to Financial Statements (unaudited) (continued)

5. INCOME TAXES (CONT.)

Net realized capital gains differ for financial statement and tax purposes
primarily due to differing treatment of wash sales and foreign currency
transactions.

6. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
period ended February 28, 1999 aggregated $29,172,911 and $33,569,318,
respectively.

7. CREDIT RISK AND DEFAULTED SECURITIES

The Fund has 65.07% 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 February 28, 1999, the
Fund held two defaulted securities with a value aggregating $566,000
representing .23% 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
Consumer Services, Producer Manufacturing and the Utilities industries. Such
concentrations may subject the Fund more significantly to economic changes
occurring within those industries.

8. RESTRICTED SECURITIES

The Fund may purchase securities through a private offering that generally
cannot be resold 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 February 28, 1999 are as follows:

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT/ ACQUISITION
SHARES ISSUER DATE COST VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1,596,281 Atherton Franchise Capital, L.P., 11.00%, 5/01/06 ............ 4/28/94 $1,596,281 $1,340,876
70,000 CMS Energy Corp., 7.75% cvt. pfd ............................. 6/18/97 3,500,000 3,771,250
----------
Total Restricted Securities (2.08% of Net Assets) ....................... $5,112,126
==========
</TABLE>