SHAREHOLDER LETTER
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Your Fund's Objective: Franklin Universal Trust seeks to provide high, current
income consistent with preservation of capital.
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Dear Shareholder:
This semiannual report for Franklin Universal Trust covers the six months ended
February 29, 2000.
ECONOMIC OVERVIEW
During this time, many Asian countries recovered from recent economic crises,
Europe experienced renewed economic growth and the U.S. economy continued its
remarkable expansion. U.S. gross domestic product increased at robust annualized
rates of 5.7% and 7.3% in the third and fourth quarters of 1999, respectively,
while inflation remained relatively muted.
However, worldwide recovery placed upward pressure on U.S. interest rates, which
rose during the reporting period. In an environment of unabated economic growth
and rising oil prices, the Federal Reserve Board raised the federal funds target
rate two times during the reporting period to 5.75%, in an effort to head off
inflationary tendencies.
Most financial asset classes and the fixed income markets, in particular,
underwent challenging times during the six months under review, as the Dow
Jones(R) Industrial Average fell 5.9%, while the Standard & Poor's(R) (S&P(R))
500 Index managed only a 4.1% gain. The asset classes that comprise the majority
of the fund's assets also suffered during this period. The Chase High Yield
Index returned 0.3%, while the S&P Electrical Companies Index posted a return of
- -19.4%. In this difficult environment, the Trust's cumulative total return for
the six months under review was -4.35% based on the change in net asset value,
and -20.32% based on the change in market price on the New York Stock
Exchange.(1)
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter ......................................... 1
Performance Summary ........................................ 6
Dividend Reinvestment and Cash Purchase Plan ............... 8
Financial Highlights & Statement of Investments ............ 12
Financial Statements ....................................... 19
Notes to Financial Statements .............................. 23
</TABLE>
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 13.
PORTFOLIO BREAKDOWN
As a % of Total Market Value
2/29/00
Corporate Bonds 66.37%
Utilities Stocks 20.12%
Misc. Equities & Preferred Stocks 7.68%
Foreign Government
U.S. Dollar-Denominated Bonds 1.70%
Natural Resources Equities &
Preferred Stocks 1.09%
Convertible Bonds 0.99%
Foreign Government Agencies 0.20%
Cash & Equivalents 1.85%
SECTOR DISCUSSIONS
TELECOMMUNICATIONS
The telecommunications sector once again delivered one of the strongest
performances in the high yield universe over the reporting period. Increasing
Internet usage drove demand for greater bandwidth or faster data transmission
rates, creating a tremendous opportunity for companies providing this capacity.
Seeking to take advantage of this demand, we added to our position in PSINet
Inc., an Internet service provider that is evolving into an Internet
supercarrier. We also initiated a position in Williams Communications Group
Inc., a wholesale bandwidth provider. As the cost of bandwidth comes down, we
expect demand to grow at an increasing rate. This positive dynamic and the
Internet's continued growth should benefit the Trust.
CABLE (CONSUMER SERVICES IN SOI)
The cable fixed-income sector once again displayed its defensive characteristics
and performed well over the period. Continuing consolidation, both domestically
and in the U.K., buoyed performance. We expect U.S. consolidation to slow, as
many business mergers and acquisitions have already occurred. Nevertheless,
launches for new products, such as cable modems and digital set-top boxes,
should create further growth opportunities. In Europe, deregulation and sales of
non-core assets by traditional telecommunications companies should increase the
pace of consolidation. During the reporting period, we added to our position in
Charter Communications Holdings LLC, a domestic cable company that has been
actively consolidating cable systems. The Trust increased its holding in the
U.K.'s Telewest Communications PLC, which announced its intention to acquire
Flextech PLC, a programming supplier, as well as the remaining 50% of Cable
London that it did not already own. We also initiated a position in Century
Communications Corp., a domestic cable operator. We believe the cable industry's
capacity to sustain earnings during difficult economic times, combined with the
potential upside of its high-yield bonds being called at a premium or being
bought by an investment-grade company, make it an attractive in vestment going
forward.
(1). Index includes reinvested dividends. One cannot invest directly in an
index.
CHEMICALS (PROCESS INDUSTRIES IN SOI)
We believe the chemical sector is poised for a rebound, assuming that 1999's
negative cash flow margins represented the low point for many commodity
products, and that Asia's recovery will boost demand for chemicals. In this
cyclical sector, we invested in the debt of what we believe are high-quality
companies with sufficient liquidity to survive another downturn -- even though
we do not expect one. Generally, we take a contrarian investment approach to the
chemical sector. In our opinion, the reporting period's valuations did not
reflect various companies' upside potential once the cycle turns. In an effort
to take advantage of improving fundamentals, we purchased Georgia Gulf Corp.
bonds. Georgia Gulf Corp., which produces PVC and other chemicals, has a proven
history of improving its debt profile during strong markets.
TOP 10 HOLDINGS
As a % of Total Market Value
2/28/99 vs. 2/29/00
<TABLE>
<CAPTION>
2/29/00
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<S> <C>
Millicom International Cellular SA 1.80%
Avecia Group PLC 1.77%
Republic of Brazil 1.70%
Edison International 1.69%
Arch Communications Group Inc. 1.67%
Southern Co. 1.60%
Texas Utilities Co. 1.60%
Consolidated Container Co. LLC 1.58%
Magnum Hunter Resources Inc. 1.54%
Duke Energy Corp. 1.51%
</TABLE>
<TABLE>
<CAPTION>
2/28/99
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<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>
WIRELESS (TELECOMMUNICATIONS IN SOI)
The wireless sector continued to grow at a solid pace, increasing its
penetration rate in the U.S. market from 25% at the end of 1998 to an expected
31% at the end of 1999. The expanding market enabled many companies to generate
strong revenue growth. During the reporting period, Nextel Communications Inc.
made strides in signing up subscribers and raising additional funds to build out
its network. We sold short-term Nextel bonds in favor of longer-maturity bonds
to participate more fully in the company's expected upside potential.
Consolidation also continued to boost the sector. We believe VoiceStream
Wireless Corp., whose bonds we purchased during the six-month review period,
stands at the forefront of the industry's PCS segment consolidation.
ELECTRIC UTILITIES
Electric utility stocks, which are sensitive to rising interest rates, posted
another period of weak performance. Such stocks tend to behave like fixed-income
assets, and fall as interest rates rise. In such an environment, they remained
out of favor with investors. Despite utilities stocks' disappointing returns, we
believe the better growth opportunities created by deregulation should improve
the industry's outlook. Seeking to participate in this growth, we invested in
utilities that are expected to profit from further deregulation.
WHAT'S AHEAD
Various indicators show the economy continuing its strong growth, extending what
is already a record expansion. As recent Fed actions failed to slow economic
growth, further interest-rate increases are expected. In a rising interest-rate
environment, the high coupons and relatively short maturities of high yield
bonds should help them outperform other fixed-income asset classes. Should the
Fed's actions succeed in slowing down the economy, more defensive assets such as
utility stocks could return to favor among investors. In the meantime, high
yield bond and utility stock valuations remain attractive on a historical basis.
As the fundamentals for both asset classes remain favorable, the Trust expects
to continue to find attractive investment opportunities.
Sincerely,
/s/ Christopher Molumphy
Christopher Molumphy
Senior Portfolio Manager
Franklin Universal Trust
/s/ Glenn I. Voyles
Glenn I. Voyles
Portfolio Manager
Franklin Universal Trust
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This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any country, industry, security or
the Trust. Our strategies and the Trust's portfolio composition will change
depending on market and economic conditions. Although historical performance is
no guarantee of future results, these insights may help you understand our
investment and management philosophy.
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1. Total return calculations represent the cumulative and average annual changes
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 ($0.067) per share monthly dividend and the NYSE closing price of $6.50 on
February 29, 2000.
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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.
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SIX-MONTH PERFORMANCE SUMMARY AS OF 2/29/00
Distributions will vary based on earnings of the Trust'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 Trust's dividend
reinvestment and cash purchase plan.
PERFORMANCE
<TABLE>
<S> <C> <C>
Six-Month Total Return -4.35% (Based on change in Net Asset Value)
-20.32% (Based on change in Market Price)
Net Asset Value (NAV) (2/29/00) (8/31/99)
$8.00 $8.91
Change in NAV -$0.91
Market Price (NYSE) (2/29/00) (8/31/99)
$6.500 $8.688
Change in Market Price -$2.188
Distributions (9/1/99 - 2/29/00) Dividend Income $0.4020
Short-Term Capital Gain $0.0573
-------------------------------------------------------
Total $0.4593
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 3/31/00
<TABLE>
<CAPTION>
INCEPTION
1-YEAR 5-YEAR 10-YEAR (9/23/88)
------ ------ ------- ---------
<S> <C> <C> <C> <C>
Cumulative Total Return(1)
Based on change in net asset value -3.02% +47.08% +192.46% +198.58%
Based on change in market price -17.01% +34.12% +166.13% +136.04%
Average Annual Total Return(1)
Based on change in net asset value -3.02% +8.02% +11.33% +9.96%
Based on change in market price -17.01% +6.05% +10.28% +7.74%
AS OF 2/29/00
Distribution Rate(2) 12.37%
</TABLE>
Past performance does not guarantee future results.
PORTFOLIO OPERATIONS
CHRISTOPHER MOLUMPHY
Senior Portfolio Manager
Franklin Advisers, Inc.
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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.
GLENN I. VOYLES
Portfolio Manager
Franklin Advisers, Inc.
- --------------------------------------------------------------------------------
Glenn Voyles is a Chartered Financial Analyst and holds a Bachelor of Arts
degree in economics from Stanford University. He joined Franklin Templeton in
1993. He is a member of Security Analysts of San Francisco (SASF) and the
Association for Investment Management and Research (AIMR).
DIVIDEND REINVESTMENT
AND CASH PURCHASE PLAN
The Trust's Dividend Reinvestment and Cash Purchase Plan (the "Plan") offers you
a prompt and simple way to reinvest 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
back cover of this report.
You are automatically enrolled in the Plan unless you elect to receive dividends
or distributions in cash. If you own shares in your own name, you should notify
the Plan Agent, in writing, if you wish to receive dividends or distributions in
cash.
If the 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 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 payment date. Under no circumstances will interest be paid on your
funds held by the Plan Agent. Accordingly, you should send any voluntary cash
payments 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 notice,
if the Plan Agent receives the written notice not less than 48 hours before an
investment date.
There is no direct charge to participants for reinvesting dividends and capital
gain distributions, since the Plan Agent's fees are paid by the 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 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.
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.
FRANKLIN UNIVERSAL TRUST
Financial Highlights
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 ---------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(c)
(for a share outstanding throughout the period)
Net asset value, beginning of period $ 8.91 $ 9.28 $ 10.20 $ 9.53 $ 9.36 $ 8.71
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Income from investment operations:
Net investment income .41 .82 .85 .86 .82 .85
Net realized and unrealized gains (losses) (.86) (.35) (.63) .65 .20 .61
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Total from investment operations (.45) .47 .22 1.51 1.02 1.46
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Less distributions from:
Net investment income (.40) (.84) (.80) (.83) (.85) (.81)
Net realized gains (.06) -- (.34) (.01) -- --
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Total distributions (.46) (.84) (1.14) (.84) (.85) (.81)
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Net asset value, end of period $ 8.00 $ 8.91 $ 9.28 $ 10.20 $ 9.53 $ 9.36
===============================================================================
Market value, end of period(a) $ 6.500 $ 8.688 $ 9.250 $ 9.500 $ 9.125 $ 8.875
===============================================================================
Total return (based on market value per share)(b) (20.32%) 2.95% 9.40% 14.00% 12.84% 20.42%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $215,246 $239,537 $248,419 $273,173 $255,200 $250,734
Ratios to average net assets:
Expenses 3.08%d 2.92% 2.63% 2.72% 2.80% 2.97%
Net investment income 9.76%d 8.86% 8.29% 8.74% 8.56% 9.59%
Portfolio turnover rate 15.40% 31.62% 36.66% 51.48% 19.24% 27.41%
Total debt outstanding at end of period (000's) $ 75,000 $ 75,000 $ 75,000 $ 74,987 $ 74,974 $ 74,961
Asset coverage per $1,000 of debt $ 3,870 $ 4,194 $ 4,312 $ 4,643 $ 4,404 $ 4,345
Average amount of notes per share during the period $ 2.79 $ 2.79 $ 2.80 $ 2.80 $ 2.80 $ 2.80
</TABLE>
(a) Based on the last sale on the New York Stock Exchange.
(b) Total return is not annualized for periods less than one year.
(c) Based on average shares outstanding effective August 31, 1999.
(d) Annualized
See notes to financial statements.
FRANKLIN UNIVERSAL TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
WARRANTS/
COUNTRY RIGHTS VALUE
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<S> <C> <C> <C>
COMMON STOCKS, WARRANTS, AND RIGHTS 30.9%
CONSUMER NON-DURABLES .4%
Nabisco Group Holdings Corp. ......................................................... United States 54,000 $ 465,750
R.J. Reynolds Tobacco Holdings Inc. .................................................. United States 18,000 324,000
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789,750
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CONSUMER SERVICES
Marriott International Inc., A ....................................................... United States 1,504 41,454
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ENERGY MINERALS .9%
(a) Abraxas Petroleum Corp. .............................................................. United States 196,740 270,518
(a) Abraxas Petroleum Corp., rts., 11/01/04 .............................................. United States 196,740 98,370
(a) McMoRan Exploration Co. .............................................................. United States 1,800 36,000
(a) Santa Fe Snyder Corp. ................................................................ United States 14,935 112,013
Ultramar Diamond Shamrock Corp. ...................................................... United States 66,600 1,444,388
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1,961,289
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INDUSTRIAL SERVICES .2%
(a) R&B Falcon Corp. 144A, wts., 5/01/09 ................................................. United States 1,250 343,750
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NON-ENERGY MINERALS .4%
AngloGold Ltd., ADR .................................................................. South Africa 30,446 780,179
Freeport-McMoRan Copper & Gold Inc., A ............................................... United States 4,500 57,656
(a) Gulf States Steel Inc., wts., 4/15/03 ................................................ United States 4,000 4
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837,839
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PROCESS INDUSTRIES .1%
(a) Gaylord Container Corp., wts., 11/01/02 ............................................... United States 46,137 242,219
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PRODUCER MANUFACTURING .3%
(a) Harvard Industries Inc. .............................................................. United States 109,618 712,517
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TELECOMMUNICATIONS 3.8%
BellSouth Corp. ...................................................................... United States 81,200 3,308,900
GTE Corp. ............................................................................ United States 25,000 1,475,000
(a) Loral Space & Communications Ltd., wts., 1/15/07 ..................................... United States 5,000 35,717
(a) Poland Telecom Finance, 144A, wts., 12/01/07 ......................................... Poland 3,000 9,150
U.S. West Inc. ....................................................................... United States 45,500 3,304,438
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8,133,205
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UTILITIES 24.8%
American Electric Power Co. Inc. ..................................................... United States 93,300 2,624,063
CMS Energy Corp. ..................................................................... United States 12,900 216,075
Conectiv Inc. ........................................................................ United States 18,800 267,900
Constellation Energy Group Inc. ...................................................... United States 94,500 2,811,375
Dominion Resources Inc. .............................................................. United States 24,557 900,935
DTE Energy Co. ....................................................................... United States 50,000 1,509,375
Duke Energy Corp. .................................................................... United States 90,000 4,365,000
Edison International ................................................................. United States 185,600 4,883,600
Florida Progress Corp. ............................................................... United States 50,000 2,131,250
FPL Group Inc. ....................................................................... United States 100,000 3,862,500
Montana Power Co. .................................................................... United States 80,000 3,150,000
New Century Energies Inc. ............................................................ United States 50,000 1,353,125
</TABLE>
FRANKLIN UNIVERSAL TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES/
WARRANTS/
COUNTRY RIGHTS VALUE
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<S> <C> <C> <C>
COMMON STOCKS, WARRANTS, AND RIGHTS (CONT.)
UTILITIES (CONT.)
New England Electric System .......................................................... United States 48,600 $ 2,624,400
Northwestern Corp. ................................................................... United States 92,000 2,081,500
PECO Energy Co. ...................................................................... United States 70,000 2,611,875
Pinnacle West Capital Corp. .......................................................... United States 90,000 2,486,250
Reliant Energy Inc. .................................................................. United States 96,200 1,978,113
(a) SCANA Corp. .......................................................................... United States 31,551 751,308
Southern Co. ......................................................................... United States 208,800 4,632,750
Texas Utilities Co. .................................................................. United States 141,500 4,616,438
Unicom Corp. ......................................................................... United States 66,000 2,495,625
Utilicorp United Inc. ................................................................ United States 64,000 1,048,000
-----------
53,401,457
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TOTAL COMMON STOCKS, WARRANTS, AND RIGHTS (COST $63,140,743) ......................... 66,463,480
-----------
PREFERRED STOCKS 3.4%
CONSUMER SERVICES 1.7%
Sinclair Capital, 11.625%, pfd ....................................................... United States 40,000 3,610,000
-----------
INDUSTRIAL SERVICES .6%
R&B Falcon Corp., 13.875%, pfd., PIK ................................................. United States 1,389 1,430,196
-----------
PROCESS INDUSTRIES 1.1%
Asia Pulp & Paper Co. Ltd., pfd., 12.00%, 12/29/49 ................................... Indonesia 4,000,000 2,380,000
-----------
TOTAL PREFERRED STOCKS (COST $9,327,730) ............................................. 7,420,196
-----------
CONVERTIBLE PREFERRED STOCKS 4.5%
CONSUMER NON-DURABLES .5%
Ralston Purina Group, 7.00%, cvt. pfd ................................................ United States 44,600 1,070,400
-----------
CONSUMER SERVICES 1.1%
MediaOne Group Inc., 7.00%, cvt. pfd ................................................. United States 44,400 2,422,575
-----------
REAL ESTATE INVESTMENT TRUST .6%
Archstone Communities Trust, $1.75, cvt. pfd., A ..................................... United States 45,000 1,209,375
-----------
TRANSPORTATION .3%
Canadian National Railway Co., 5.25%, cvt. pfd ....................................... Canada 16,000 640,000
-----------
UTILITIES 2.0%
CMS Energy Trust I, 7.75%, cvt. pfd .................................................. United States 70,000 2,450,000
Utilicorp United Inc., 9.75%, cvt. pfd ............................................... United States 91,000 1,871,188
-----------
4,321,188
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TOTAL CONVERTIBLE PREFERRED STOCKS (COST $12,098,322) ................................ 9,663,538
-----------
<CAPTION>
PRINCIPAL
AMOUNT(d)
---------
<S> <C> <C> <C>
BONDS 93.1%
COMMERCIAL SERVICES 2.8%
(c) AmeriServe Food Distribution Inc., senior sub note, 8.875%, 10/15/06 ................. United States $1,000,000 135,000
(c) AmeriServe Food Distribution Inc., senior sub note, 10.125%, 10.125% ................ United States 2,700,000 94,500
</TABLE>
FRANKLIN UNIVERSAL TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT(d) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
COMMERCIAL SERVICES (CONT.)
Fleming Cos. Inc., senior sub. note, B, 10.50%, 12/01/04 .............................. United States $3,500,000 $ 3,263,750
Intertek Finance PLC, senior sub. note, B, 10.25%, 11/01/06 ........................... United Kingdom 2,800,000 2,450,000
-----------
5,943,250
-----------
CONSUMER DURABLES 1.0%
E&S Holdings Corp., senior sub. note, B, 10.375%, 10/01/06 ............................ United States 1,750,000 708,750
Revlon Consumer Products Corp., senior sub. note, 8.625%, 2/01/08 ..................... United States 3,500,000 1,400,000
-----------
2,108,750
-----------
CONSUMER NON-DURABLES 3.7%
Packaged Ice Inc., senior sub. note, B, 9.75%, 2/01/05 ................................ United States 2,000,000 1,790,000
Premier International Foods, senior note, 144A, 12.00%, 9/01/09 ....................... United States 4,000,000 3,900,000
SFC New Holdings Inc., senior note, 11.25%, 8/15/01 ................................... United States 2,000,000 1,760,000
SFC New Holdings Inc., zero cpn. to 6/15/05, 11.00% thereafter, 12/15/09 .............. United States 95,787 --
Specialty Retailers Inc., senior note, B, 8.50%, 7/15/05 .............................. United States 2,000,000 610,000
-----------
8,060,000
-----------
CONSUMER SERVICES 20.8%
Advantica Restaurant Group, senior note, 11.25%, 1/15/08 .............................. United States 1,598,325 1,142,802
AMFM Inc., senior note, 8.00%, 11/01/08 ............................................... United States 2,000,000 2,010,000
AMFM Inc., senior sub. note, B, 8.75%, 6/15/07 ........................................ United States 2,000,000 2,012,500
(b) Atherton Franchise Capital, LP, 11.00%, 5/01/06 ...................................... United States 1,596,281 1,269,043
Century Communications Corp., B, senior disc. note, 1/15/08 ........................... United States 2,000,000 850,000
Charter Communications Holdings LLC, 144A, zero cpn. to 01/15/05 11.75%
thereafter, 01/15/10 ................................................................. United States 1,750,000 1,006,250
Charter Communications Holdings LLC, senior disc. note, zero cpn. to 4/01/04, 9.92%
thereafter, 4/01/11 .................................................................. United States 4,750,000 2,766,875
CSC Holdings Inc., senior sub. deb., 9.875%, 4/01/23 .................................. United States 3,000,000 3,150,000
Diamond Holdings PLC, senior note, 9.125%, 2/01/08 .................................... United Kingdom 3,000,000 2,925,000
Family Restaurant Inc., senior note, 9.75%, 2/01/02 ................................... United States 2,000,000 910,000
Fox/Liberty Networks LLC, senior disc. note, zero cpn. to 8/15/02, 9.75%
thereafter, 8/15/07 .................................................................. United States 4,000,000 3,225,000
Hollinger International Inc., senior sub. note, 9.25%, 2/01/06 ........................ United States 1,000,000 950,000
Horseshoe Gaming Holding Corp., senior sub. note, 8.625%, 5/15/09 ..................... United States 4,000,000 3,700,000
LIN Holdings Corp., senior disc. note, zero cpn. to 3/01/03, 10.00% thereafter,
3/01/08 .............................................................................. United States 2,000,000 1,290,000
Lodgian Finance Corp., senior sub note, 12.25%, 7/15/09 ............................... United States 4,000,000 3,820,000
Park Place Entertainment, 144A, 9.375%, 2/15/07 ....................................... United States 3,500,000 3,960,000
Regal Cinemas Inc., senior sub. note, 9.50%, 6/01/08 .................................. United States 3,000,000 1,935,000
Six Flags Entertainment Corp., senior unsecured note, 8.875%, 4/01/06 ................. United States 2,250,000 2,117,813
Telewest Communications PLC, 144A, zero cpn. to 2/01/05, 11.375% thereafter, 2/01/10 .. United Kingdom 3,500,000 2,065,000
Telewest Communications PLC, senior disc. note, 144A, zero cpn. to 4/15/04, 9.25%
thereafter, 4/15/09 .................................................................. United Kingdom 1,500,000 900,000
United Pan-Europe Communications NV, senior disc. note, zero cpn. to 8/01/04,
12.50% thereafter, 8/01/09 ........................................................... Netherlands 5,250,000 2,835,000
-----------
44,840,283
-----------
ENERGY MINERALS 5.6%
Abraxas Petroleum Corp., senior note, D, 11.50%, 11/01/04 ............................. United States 2,310,000 2,067,450
Clark R&M Inc., senior sub. note, 8.875%, 11/15/07 .................................... United States 4,000,000 1,820,000
</TABLE>
FRANKLIN UNIVERSAL TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT(d) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
ENERGY MINERALS (CONT.)
Magnum Hunter Resources Inc., senior note, 10.00%, 6/01/07 ............................ United States $5,000,000 $ 4,450,000
P&L Coal Holdings Corp., senior note, B, 8.875%, 5/15/08 .............................. United States 500,000 466,250
P&L Coal Holdings Corp., senior sub. note, B, 9.625%, 5/15/08 ......................... United States 3,500,000 3,211,250
-----------
12,014,950
-----------
FINANCE 1.3%
Sovereign Bancorp Inc., senior note, 10.50%, 11/15/06 ................................. United States 2,900,000 2,900,000
-----------
GOVERNMENT BONDS 2.3%
Republic of Brazil, 12.75%, 1/15/20 ................................................... Brazil 5,000,000 4,906,250
-----------
HEALTH SERVICES 3.1%
Abbey Healthcare Group Inc., senior sub. note, 9.50%, 11/01/02 ........................ United States 3,100,000 3,026,375
Magellan Health Services Inc., senior sub. note, 9.00%, 2/15/08 ....................... United States 2,300,000 1,886,000
Omnicare Inc., cvt. sub. deb., 5.00%, 12/01/07 ........................................ United States 1,500,000 1,034,925
(c) Vencor Operating Inc., senior sub. note, 9.875%, 5/01/05 ............................. United States 3,200,000 640,000
-----------
6,587,300
-----------
INDUSTRIAL SERVICES 4.0%
Allied Waste North America Inc., senior note, B, 7.875%, 1/01/09 ...................... United States 3,700,000 3,145,000
Great Lakes Dredge & Dock Corp., senior sub. note, 11.25%, 8/15/08 .................... United States 500,000 521,875
R&B Falcon Corp., senior note, 12.25%, 3/15/06 ........................................ United States 1,400,000 1,505,000
RBF Finance Co., senior note, 11.375%, 3/15/09 ........................................ United States 1,200,000 1,272,000
Universal Compression Inc., senior disc. note, zero cpn. to 2/15/03, 9.875%
thereafter, 2/15/08 ................................................................. United States 3,550,000 2,076,750
-----------
8,520,625
-----------
NON-ENERGY MINERALS 4.4%
LTV Corp., senior note, 8.20%, 9/15/07 ................................................ United States 3,650,000 3,221,125
Ormet Corp., senior secured note, 144A, 11.00%, 8/15/08 ............................... United States 4,000,000 3,720,000
Sheffield Steel Corp., first mortgage, B, 11.50%, 12/01/05 ............................ United States 2,000,000 1,670,000
Trizec Hahn Corp., cvt. senior deb., 3.00%, 1/29/21 ................................... Canada 1,500,000 906,795
-----------
9,517,920
-----------
PROCESS INDUSTRIES 11.3%
Anchor Glass, first mortgage, 11.25%, 4/01/05 ......................................... United States 4,200,000 3,381,000
Avecia Group PLC, 7/1/09, 11.00%, 7/01/09 ............................................. United Kingdom 5,000,000 5,125,000
Consolidated Container Co. LLC, senior sub. note, 144A, 10.125%, 7/15/09 .............. United States 4,500,000 4,567,500
Container Corp. of America, senior note, A, 9.75%, 4/01/03 ............................ United States 3,000,000 3,052,500
Georgia Gulf Corp., senior sub. note, 144A, 10.375%, 11/01/07 ......................... United States 2,000,000 2,070,000
Huntsman ICI Chemicals LLC, 144A, 12/31/09 ............................................ United States 7,500,000 2,400,000
Lyondell Chemical Co., 9.875%, 5/01/07 ................................................ United States 1,850,000 1,766,750
Pindo Deli Finance Mauritius, senior note, 11.75%, 10/01/17 ........................... Indonesia 3,000,000 1,957,500
-----------
24,320,250
-----------
PRODUCER MANUFACTURING 3.9%
Derlan Industries Ltd., senior note, 10.00%, 1/15/07 .................................. Canada 1,165,000 1,144,613
Nortek Inc., 8.875%, 8/01/08 .......................................................... United States 1,000,000 922,500
Nortek Inc., senior note, B, 9.125%, 9/01/07 .......................................... United States 2,000,000 1,875,000
</TABLE>
FRANKLIN UNIVERSAL TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT(d) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
PRODUCER MANUFACTURING (CONT.)
Talon Automotive Group Inc., senior sub. note, B, 9.625%, 5/01/08 ................... United States $2,250,000 $ 1,181,250
Terex Corp., 8.875%, 4/01/08 ........................................................ United States 1,000,000 875,000
Terex Corp., senior sub. note, 8.875%, 4/01/08 ...................................... United States 2,650,000 2,318,750
------------
8,317,113
------------
TECHNOLOGY SERVICES 1.4%
Anacomp Inc., senior sub. note, D, 10.875%, 4/01/04 ................................. United States 3,100,000 3,022,500
------------
TELECOMMUNICATIONS 24.9%
Arch Communications Group Inc., senior disc. note, zero cpn. to 3/15/01, 10.875%
thereafter, 3/15/08 ................................................................ United States 6,000,000 4,830,000
Call-Net Enterprises Inc., senior note, 9.375%, 5/15/09 ............................. Canada 3,750,000 3,000,000
Crown Castle International Corp., senior disc. note, zero cpn. to 8/01/04, 11.25%
thereafter, 8/01/11 ................................................................ United States 5,000,000 3,100,000
Dobson/Sygnet Communications Co., 12.25%, 12/15/08 .................................. United States 4,000,000 4,290,000
Intermedia Communications Inc., senior disc. note, B, zero cpn. to 7/15/02, 11.25%
thereafter, 7/15/07 ................................................................ United States 5,000,000 4,000,000
Level 3 Communications Inc., zero cpn to 12/01/03, 10.50% thereafter, 12/01/08 ...... United States 7,000,000 4,147,500
Loral Space and Communications Ltd., senior disc. note, zero cpn. to 1/15/02, 12.50%
thereafter, 1/15/07 ................................................................ United States 5,000,000 2,625,000
Metrocall Inc., senior sub. note, 9.75%, 11/01/07 ................................... United States 4,000,000 3,060,000
Millicom International Cellular SA, senior disc. note, zero cpn. to 6/01/01, 13.50%
thereafter, 6/01/06 ................................................................ Luxembourg 6,000,000 5,205,000
Nextel Communications Inc., senior disc. note, zero cpn. to 2/15/03, 9.95%
thereafter, 2/15/08 ................................................................ United States 5,000,000 3,600,000
NEXTLINK Communications Inc., senior note, 9.625%, 10/01/07 ......................... United States 2,000,000 1,930,000
NEXTLINK Communications Inc., senior note, 9.00%, 3/15/08 ........................... United States 2,000,000 1,870,000
Poland Telecom Finance, senior note, B, 14.00%, 12/01/07 ............................ Poland 3,000,000 1,972,500
PSINet Inc., senior note, 11.00%, 8/01/09 ........................................... United States 3,250,000 3,233,750
PSINet Inc., senior note, 144A, 10.50%, 12/01/06 .................................... United States 700,000 682,500
VoiceStream Wireless Corp., senior disc. note, 144A, zero cpn. to 11/15/04, 11.875%
thereafter, 11/15/09 ............................................................... United States 3,500,000 2,187,500
Williams Communications Group Inc., senior note, 10.875%, 10/01/09 .................. United States 3,750,000 3,825,000
------------
53,558,750
------------
TRANSPORTATION 1.0%
American Commercial Lines LLC, senior note, B, 10.25%, 6/30/08 ...................... United States 2,500,000 2,200,000
------------
UTILITIES 1.6%
AES Corp., senior note, 9.50%, 6/01/09 .............................................. United States 2,000,000 1,975,000
ESCOM, E168, utility deb., 11.00%, 6/01/08........................................... South Africa 4,350,000 ZAR 582,770
Global Telesystems Group Inc., cvt., 5.75%, 7/01/10 ................................. United States 900,000 930,372
------------
3,488,142
------------
TOTAL BONDS (COST $231,443,226) ..................................................... 200,306,083
------------
TOTAL LONG TERM INVESTMENTS (COST $316,010,021) ..................................... 283,853,297
------------
</TABLE>
FRANKLIN UNIVERSAL TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
(e) REPURCHASE AGREEMENT 2.5% )
Joint Repurchase Agreement, 5.733%, 03/01/00 (Maturity Value $5,338,251)
(COST $5,337,401) $ 5,337,401 $ 5,337,401
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paine Webber Inc.
Paribas Corporation
Societe Generale
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
TOTAL INVESTMENTS (COST $321,347,422) 134.4% ........................... 289,190,698
-------------
OTHER ASSETS, LESS LIABILITIES (34.4%) ................................. (73,944,523)
-------------
NET ASSETS 100.0% ...................................................... $ 215,246,175
=============
CURRENCY ABBREVIATION:
ZAR - South African Rand
</TABLE>
(a) Non-Income producing
(b) See Note 8 regarding restricted securities.
(c) See Note 7 regarding defaulted securities.
(d) The principal amount is stated in U.S. dollars unless otherwise indicated
(e) Investment is through participation in a joint account with other funds
managed by the investment advisor. At February 29, 2000, all repurchase
agreements had been entered into on that date.
See notes to financial statements.
FRANKLIN UNIVERSAL TRUST
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $321,347,422) ................... $ 289,190,698
Receivables from dividends and interest ................................... 5,149,942
Note issuance costs (Note 3) .............................................. 139,477
-------------
Total assets ........................................................... 294,480,117
-------------
Liabilities:
Payables:
Investment securities purchased .......................................... 3,977,526
Affiliates ............................................................... 183,434
Notes (Note 3) ........................................................... 75,000,000
Other liabilities ......................................................... 72,982
-------------
Total liabilities ...................................................... 79,233,942
-------------
Net assets, at value ................................................... 215,246,175
=============
Net assets consist of:
Undistributed net investment income ....................................... 3,045,766
Net unrealized depreciation ............................................... (32,157,182)
Accumulated net realized loss ............................................. (3,615,662)
Capital shares ............................................................ 247,973,253
-------------
Net assets, at value ................................................... $ 215,246,175
=============
Net assets value per share ($215,246,175 / 26,897,361 shares outstanding) .. $ 8.00
=============
</TABLE>
See notes to financial statements.
FRANKLIN UNIVERSAL TRUST
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<S> <C>
Investment income:
Dividends ................................................................. $ 2,474,435
Interest .................................................................. 12,121,896
------------
Total investment income ............................................... 14,596,331
------------
Expenses:
Management fees (Note 4) .................................................. 1,133,686
Transfer agent fees ....................................................... 45,545
Custodian fees ............................................................ 1,784
Reports to shareholders ................................................... 32,725
Registration and filing fees .............................................. 16,196
Professional fees ......................................................... 24,686
Trustees' fees and expenses ............................................... 8,086
Amortization of note issuance costs ....................................... 19,848
Other ..................................................................... 6,810
------------
Expenses before interest expense ...................................... 1,289,366
Interest expense (Note 3) ............................................. 2,215,328
------------
Total expenses ...................................................... 3,504,694
------------
Net investment income ............................................. 11,091,637
------------
Realized and unrealized losses:
Net realized loss from:
Investments .............................................................. (1,880,271)
Foreign currency transactions ............................................ (569)
------------
Net realized loss ..................................................... (1,880,840)
Net unrealized depreciation on:
Investments .............................................................. (21,147,156)
Translation of assets and liabilities denominated in foreign currencies .. (536)
------------
Net unrealized depreciation ........................................... (21,147,692)
------------
Net realized and unrealized loss ........................................... (23,028,532)
------------
Net decrease in net assets resulting from operations ....................... $(11,936,895)
============
</TABLE>
See notes to financial statements.
FRANKLIN UNIVERSAL TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED FEBRUARY 29, 2000
(UNAUDITED) AND THE YEAR ENDED AUGUST 31, 1999
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999
----------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ........................................................... $ 11,091,637 $ 22,101,607
Net realized gain (loss) from investments and foreign currency transactions ..... (1,880,840) 154,470
Net unrealized depreciation on investments and translation of assets and
liabilities denominated in foreign currencies ................................. (21,147,692) (9,587,574)
------------- -------------
Net increase (decrease) in net assets resulting from operations .............. (11,936,895) 12,668,503
Distributions to shareholders from:
Net investment income ........................................................... (10,812,739) (22,657,771)
Net realized gains .............................................................. (1,541,219) --
------------- -------------
Total distributions to shareholders ............................................... (12,353,958) (22,657,771)
Capital share transactions (Note 2) ............................................... -- 1,107,711
------------- -------------
Net decrease in net assets ................................................... (24,290,853) (8,881,557)
Net assets:
Beginning of period ............................................................... 239,537,028 248,418,585
------------- -------------
End of period ..................................................................... $ 215,246,175 $ 239,537,028
============= =============
Undistributed net investment income included in net assets:
End of period ..................................................................... $ 3,045,766 $ 2,766,868
============= =============
</TABLE>
See notes to financial statements.
FRANKLIN UNIVERSAL TRUST
Financial Statements (continued)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<S> <C>
Cash flow from operating activities:
Dividends and interest received ......................................... $ 11,626,843
Operating expenses paid ................................................. (1,327,696)
Interest expense paid ................................................... (2,215,328)
-------------
Cash provided - operations ......................................... 8,083,819
=============
Cash flow from investing activities:
Investment purchases .................................................... (891,394,351)
Investment sales and maturities ......................................... 895,664,490
-------------
Cash provided - investments ........................................ 4,270,139
=============
Cash flow from financing activities:
Distributions to shareholders ........................................... (12,353,958)
-------------
Cash used - financing .............................................. (12,353,958)
=============
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 29, 2000
Net investment income .................................................... $ 11,091,637
Amortization income ..................................................... (2,771,007)
Amortization of note issuance costs ..................................... 19,848
Decrease in dividends and interest receivable ........................... (198,481)
Decrease in interest payable ............................................ --
Decrease in other liabilities ........................................... (58,178)
-------------
Cash provided - operations ............................................... $ 8,083,819
=============
</TABLE>
See notes to financial statements.
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 diversified, closed-end investment company. The Fund has two
classes of securities: senior fixed-rate notes and shares of beneficial interest
(the Shares). 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.
FRANKLIN UNIVERSAL TRUST
Notes to Financial Statements (unaudited) (continued)
2. SHARES OF BENEFICIAL INTEREST
At February 29, 2000, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999
------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued in reinvestment of dividends -- -- 118,028 $1,107,711
------------------------------------------------
Net increase -- -- 118,028 $1,107,711
================================================
</TABLE>
All 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 29, 2000.
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 and/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 29, 2000, the net unrealized depreciation based on the cost of
investments for income tax purposes of $321,378,361 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation ... $ 14,521,266
Unrealized depreciation ... (46,708,929)
------------
Net unrealized depreciation $(32,187,663)
============
</TABLE>
FRANKLIN UNIVERSAL TRUST
Notes to Financial Statements (unaudited) (continued)
5. INCOME TAXES (CONT.)
At August 31, 1999, the Fund had deferred capital loss occurring subsequent to
October 31, 1998 of $3,702,327. For tax purposes, such loss will be reflected in
the year ending August 31, 2000.
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities and foreign currency
transactions.
Net realized capital losses differ for financial statement and tax purposes
primarily due to differing treatment of wash sale and foreign currency
transactions.
6. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended February 29, 2000 aggregated $45,621,981 and $45,083,233,
respectively.
7. CREDIT RISK AND DEFAULTED SECURITIES
The Fund has 69.8% 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 29, 2000, the
Fund held three defaulted securities with a value of $869,500 representing .40%
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, Process Industries and Telecommunications industries. Such
concentration 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. At
February 29, 2000, the Fund held one restricted security as follows:
<TABLE>
<CAPTION>
PRINCIPAL ACQUISITION
AMOUNT ISSUER DATE COST VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1,596,281 Atherton Franchise Capital, LP, 11.00%, 5/01/06 ........ 4/28/94 $1,596,281 $1,269,043
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