FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF
REGISTERED MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number 811-05569
Franklin Universal Trust
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(Exact name of registrant as specified in charter)
One Franklin Parkway, San Mateo, CA 94403-1906
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(Address of principal executive offices) (Zip code)
Craig S. Tyle, One Franklin Parkway, San Mateo, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: 650/312-2000
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Date of fiscal year end: 8/31
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Date of reporting period: 05/31/09
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Item 1. Schedule of Investments.
Franklin Universal Trust
QUARTERLY STATEMENT OF INVESTMENTS
MAY 31, 2009
CONTENTS
Statement of Investments ................................................... 3
Notes to Statement of Investments .......................................... 9
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
FRANKLIN - Templeton - Mutual Series
Quarterly Statement of Investments | 1
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Franklin Universal Trust
STATEMENT OF INVESTMENTS, MAY 31, 2009 (UNAUDITED)
COUNTRY SHARES VALUE
-------------- ----------- ------------
COMMON STOCKS 34.3%
AUTOMOBILES & COMPONENTS 0.0%(a)
(b,c) Harvard Industries Inc. .................................................. United States 109,618 $ 1,096
------------
COMMERCIAL & PROFESSIONAL SERVICES 0.0%
(b,d) VS Holdings Inc. ......................................................... United States 181,875 --
------------
ENERGY 1.1%
Spectra Energy Corp. ..................................................... United States 92,350 1,482,218
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UTILITIES 33.2%
Alliant Energy Corp. ..................................................... United States 85,000 2,017,050
Ameren Corp. ............................................................. United States 60,000 1,395,600
American Electric Power Co. Inc. ......................................... United States 75,000 1,975,500
Atmos Energy Corp. ....................................................... United States 45,000 1,080,000
CenterPoint Energy Inc. .................................................. United States 226,600 2,293,192
Constellation Energy Group ............................................... United States 20,000 545,600
Dominion Resources Inc. .................................................. United States 100,000 3,179,000
Duke Energy Corp. ........................................................ United States 160,000 2,264,000
Edison International ..................................................... United States 63,000 1,842,120
Entergy Corp. ............................................................ United States 50,000 3,731,000
Exelon Corp. ............................................................. United States 70,000 3,360,700
FirstEnergy Corp. ........................................................ United States 50,000 1,889,500
FPL Group Inc. ........................................................... United States 75,000 4,239,750
Great Plains Energy Inc. ................................................. United States 32,600 491,282
Pinnacle West Capital Corp. .............................................. United States 70,000 1,935,500
Progress Energy Inc. ..................................................... United States 45,000 1,597,950
Public Service Enterprise Group Inc. ..................................... United States 50,000 1,593,500
Sempra Energy ............................................................ United States 48,500 2,215,480
The Southern Co. ......................................................... United States 120,000 3,409,200
Westar Energy Inc. ....................................................... United States 27,300 487,305
Wisconsin Energy Corp. ................................................... United States 20,000 789,200
Xcel Energy Inc. ......................................................... United States 60,000 1,029,000
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43,361,429
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TOTAL COMMON STOCKS (COST $42,693,903) ................................... 44,844,743
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PREFERRED STOCKS (COST $214,420) 0.2%
DIVERSIFIED FINANCIALS 0.2%
(e) Preferred Blocker Inc., 9.00%, pfd., 144A ................................ United States 604 254,794
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PRINCIPAL
AMOUNT(f)
-----------
(g) SENIOR FLOATING RATE INTERESTS (COST $1,356,561) 0.8%
MATERIALS 0.8%
Novelis Corp., US Term Loan, 3.22%, 7/07/14 .............................. United States 1,356,561 1,129,337
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CORPORATE BONDS 94.1%
AUTOMOBILES & COMPONENTS 3.8%
Ford Motor Credit Co. LLC,
7.80%, 6/01/12 ........................................................ United States 2,000,000 1,709,824
senior note, 9.875%, 8/10/11 .......................................... United States 2,000,000 1,826,686
(e) TRW Automotive Inc., senior note, 144A, 7.25%, 3/15/17 ................... United States 2,000,000 1,410,000
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4,946,510
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Quarterly Statement of Investments | 3
Franklin Universal Trust
STATEMENT OF INVESTMENTS, MAY 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL
COUNTRY AMOUNT(f) VALUE
-------------- ----------- ------------
CORPORATE BONDS (CONTINUED)
CAPITAL GOODS 5.1%
(e) Allison Transmission Inc., senior note, 144A, 11.00%, 11/01/15 ........... United States 2,000,000 $ 1,570,000
Case New Holland Inc., senior note, 7.125%, 3/01/14 ...................... United States 600,000 559,500
L-3 Communications Corp., senior sub. note, 6.375%, 10/15/15 ............. United States 1,200,000 1,098,000
RBS Global & Rexnord Corp., senior note, 9.50%, 8/01/14 .................. United States 2,000,000 1,680,000
RSC Equipment Rental Inc., senior note, 9.50%, 12/01/14 .................. United States 2,200,000 1,727,000
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6,634,500
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COMMERCIAL & PROFESSIONAL SERVICES 2.1%
ARAMARK Corp., senior note, 8.50%, 2/01/15 ............................... United States 1,000,000 958,750
Iron Mountain Inc., senior sub. note, 8.75%, 7/15/18 ..................... United States 900,000 879,750
JohnsonDiversey Inc., senior sub. note, B, 9.625%, 5/15/12 ............... United States 1,000,000 980,000
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2,818,500
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CONSUMER DURABLES & APPAREL 3.4%
Jarden Corp., senior sub. note, 7.50%, 5/01/17 ........................... United States 2,000,000 1,740,000
Jostens IH Corp., senior sub. note, 7.625%, 10/01/12 ..................... United States 400,000 396,000
KB Home, senior note,
6.25%, 6/15/15 ........................................................ United States 700,000 602,000
7.25%, 6/15/18 ........................................................ United States 800,000 688,000
Visant Holding Corp., senior note, 8.75%, 12/01/13 ....................... United States 1,100,000 1,069,750
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4,495,750
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CONSUMER SERVICES 4.2%
(d,h) Atherton Franchise Capital, 13.073%, 12/01/08 ............................ United States 721,603 7,216
(e,h) Fontainebleau Las Vegas, 144A, 10.25%, 6/15/15 ........................... United States 1,600,000 80,000
(e,i) Harrah's Operating Escrow, senior secured note, 144A, 11.25%, 6/01/17 .... United States 600,000 589,500
Host Hotels & Resorts LP, senior note, M, 7.00%, 8/15/12 ................. United States 1,000,000 965,000
MGM MIRAGE, senior note,
6.875%, 4/01/16 ....................................................... United States 1,500,000 969,375
7.50%, 6/01/16 ........................................................ United States 1,200,000 786,000
Pinnacle Entertainment Inc., senior sub. note, 8.25%, 3/15/12 ............ United States 1,000,000 980,000
Royal Caribbean Cruises Ltd., senior note, 6.875%, 12/01/13 .............. United States 800,000 668,000
(h) Station Casinos Inc.,
senior note, 7.75%, 8/15/16 ........................................... United States 1,100,000 401,500
senior sub. note, 6.50%, 2/01/14 ...................................... United States 100,000 3,500
senior sub. note, 6.875%, 3/01/16 ..................................... United States 1,200,000 42,000
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5,492,091
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DIVERSIFIED FINANCIALS 1.9%
(e) GMAC LLC, senior note, 144A, 6.875%, 8/28/12 ............................. United States 2,849,000 2,466,094
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ENERGY 13.5%
Berry Petroleum Co., senior note, 10.25%, 6/01/14 ........................ United States 300,000 295,875
Chesapeake Energy Corp., senior note, 6.25%, 1/15/18 ..................... United States 2,000,000 1,632,500
Compagnie Generale de Geophysique-Veritas, senior note,
7.50%, 5/15/15 ........................................................ France 400,000 368,000
7.75%, 5/15/17 ........................................................ France 600,000 531,000
Copano Energy LLC, senior note, 8.125%, 3/01/16 .......................... United States 1,500,000 1,402,500
4 | Quarterly Statement of Investments
Franklin Universal Trust
STATEMENT OF INVESTMENTS, MAY 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL
COUNTRY AMOUNT(f) VALUE
-------------- ----------- ------------
CORPORATE BONDS (CONTINUED)
ENERGY (CONTINUED)
El Paso Corp., senior note, 12.00%, 12/12/13 ............................. United States 1,200,000 $ 1,326,000
Mariner Energy Inc., senior note, 7.50%, 4/15/13 ......................... United States 2,000,000 1,760,000
MarkWest Energy Partners LP, senior note, 6.875%, 11/01/14 ............... United States 2,000,000 1,650,000
(e) Petroplus Finance Ltd., senior note, 144A, 6.75%, 5/01/14 ................ Switzerland 2,000,000 1,630,000
Plains Exploration & Production Co., senior note, 7.625%, 6/01/18 ........ United States 1,900,000 1,686,250
Quicksilver Resources Inc., senior note, 8.25%, 8/01/15 .................. United States 2,000,000 1,680,000
(e) SandRidge Energy Inc., senior note, 144A, 8.00%, 6/01/18 ................. United States 1,900,000 1,615,000
Tesoro Corp., senior note, 6.50%, 6/01/17 ................................ United States 1,500,000 1,226,250
The Williams Cos. Inc., senior note, 8.75%, 3/15/32 ...................... United States 800,000 769,842
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17,573,217
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FOOD & STAPLES RETAILING 0.9%
SUPERVALU Inc., senior note, 8.00%, 5/01/16 .............................. United States 1,200,000 1,182,000
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FOOD, BEVERAGE & TOBACCO 3.6%
Altria Group Inc., senior bond, 9.25%, 8/06/19 ........................... United States 800,000 904,196
Dean Foods Inc., senior note, 7.00%, 6/01/16 ............................. United States 1,000,000 942,500
(e) Dole Food Co. Inc, senior note, 144A, 13.875%, 3/15/14 ................... United States 1,000,000 1,075,000
(e) JBS USA LLC, senior note, 144A, 11.625%, 5/01/14 ......................... United States 1,200,000 1,158,000
Smithfield Foods Inc., senior note, 7.75%,
5/15/13 ............................................................... United States 100,000 78,500
7/01/17 ............................................................... United States 100,000 69,500
(e) Tyson Foods Inc., senior note, 144A, 10.50%, 3/01/14 ..................... United States 500,000 532,500
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4,760,196
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HEALTH CARE EQUIPMENT & SERVICES 8.7%
FMC Finance III SA, senior note, 6.875%, 7/15/17 ......................... Germany 1,500,000 1,440,000
(e) Fresenius US Finance II, senior note, 144A, 9.00%, 7/15/15 ............... Germany 700,000 735,000
HCA Inc.,
senior note, 6.50%, 2/15/16 ........................................... United States 2,500,000 1,925,000
(j) senior secured note, PIK, 9.625%, 11/15/16 ............................ United States 1,051,000 1,008,960
Tenet Healthcare Corp., senior note, 7.375%, 2/01/13 ..................... United States 1,700,000 1,644,750
(g,j) U.S. Oncology Holdings Inc., senior note, PIK, FRN, 6.904%, 3/15/12 ...... United States 2,237,000 1,521,160
(j) United Surgical Partners International Inc., senior sub. note, PIK,
9.25%, 5/01/17 ........................................................ United States 2,000,000 1,560,000
Vanguard Health Holding Co. II LLC, senior sub. note, 9.00%, 10/01/14 .... United States 1,500,000 1,477,500
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11,312,370
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MATERIALS 11.3%
(e) Anglo American Capital PLC, senior note, 144A, 9.375%, 4/08/14 ........... United Kingdom 700,000 741,076
ArcelorMittal, senior note, 9.85%, 6/01/19 ............................... Luxembourg 1,000,000 1,029,462
Crown Americas Inc., senior note, 7.75%, 11/15/15 ........................ United States 1,800,000 1,764,000
Freeport-McMoRan Copper & Gold Inc., senior note, 8.375%, 4/01/17 ........ United States 1,700,000 1,689,637
Huntsman International LLC, senior sub. note, 7.875%, 11/15/14 ........... United States 2,000,000 1,380,000
(e) Ineos Group Holdings PLC, senior secured note, 144A, 8.50%, 2/15/16 ...... United Kingdom 3,500,000 1,102,500
(e) MacDermid Inc., senior sub. note, 144A, 9.50%, 4/15/17 ................... United States 1,800,000 1,107,000
Quarterly Statement of Investments | 5
Franklin Universal Trust
STATEMENT OF INVESTMENTS, MAY 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL
COUNTRY AMOUNT(f) VALUE
-------------- ----------- ------------
CORPORATE BONDS (CONTINUED)
MATERIALS (CONTINUED)
Nalco Co., senior sub. note, 8.875%, 11/15/13 ............................ United States 2,000,000 $ 2,020,000
NewPage Corp., senior secured note, 10.00%, 5/01/12 ...................... United States 2,000,000 1,130,000
Owens-Brockway Glass Container Inc., senior note, 6.75%, 12/01/14 ........ United States 1,500,000 1,428,750
Solo Cup Co., senior sub. note, 8.50%, 2/15/14 ........................... United States 500,000 402,500
(e) Teck Resources Ltd., secured senior note, 144A, 10.75%, 5/15/19 .......... Canada 900,000 927,285
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14,722,210
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MEDIA 11.8%
(h) CanWest Media Inc., senior sub. note, 8.00%, 9/15/12 ..................... Canada 2,000,000 570,000
(h,k) CCH I LLC, senior secured note, 11.00%, 10/01/15 ......................... United States 800,000 96,000
(h,k) CCH II LLC, senior note, 10.25%, 9/15/10 ................................. United States 3,000,000 2,985,000
CSC Holdings Inc., senior note,
6.75%, 4/15/12 ........................................................ United States 800,000 776,000
(e) 144A, 8.50%, 4/15/14 .................................................. United States 300,000 300,000
(h,k) Dex Media Inc.,
senior disc. note, 9.00%, 11/15/13 .................................... United States 200,000 33,000
senior note, B, 8.00%, 11/15/13 ....................................... United States 500,000 82,500
(h,k) Dex Media West Finance, senior sub. note, 9.875%, 8/15/13 ................ United States 2,342,000 509,385
DIRECTV Holdings LLC, senior note, 7.625%, 5/15/16 ....................... United States 1,500,000 1,458,750
EchoStar DBS Corp., senior note, 7.125%, 2/01/16 ......................... United States 2,000,000 1,850,000
(h) Idearc Inc., senior note, 8.00%, 11/15/16 ................................ United States 2,500,000 68,750
Lamar Media Corp., senior sub. note, B, 6.625%, 8/15/15 .................. United States 2,000,000 1,650,000
LIN Television Corp., senior sub. note, 6.50%, 5/15/13 ................... United States 1,500,000 1,046,250
Quebecor Media Inc., senior note, 7.75%, 3/15/16 ......................... Canada 2,200,000 1,963,500
Radio One Inc., senior sub. note, 6.375%, 2/15/13 ........................ United States 1,700,000 467,500
(e,j) Univision Communications Inc., senior note, 144A, PIK, 10.50%, 3/15/15 ... United States 1,000,000 315,000
(e) UPC Holding BV, senior note, 144A, 9.875%, 4/15/18 ....................... Netherlands 300,000 288,099
(e) WMG Acquisition Corp., senior secured note, 144A, 9.50%, 6/15/16 ......... United States 900,000 906,750
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15,366,484
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REAL ESTATE 0.2%
Forest City Enterprises Inc., senior note, 7.625%, 6/01/15 ............... United States 400,000 222,000
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RETAILING 1.4%
Michaels Stores Inc., senior note, 10.00%, 11/01/14 ...................... United States 2,500,000 1,812,500
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SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 0.3%
Freescale Semiconductor Inc., senior note, 8.875%, 12/15/14 .............. United States 800,000 364,000
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SOFTWARE & SERVICES 2.3%
First Data Corp., senior note, 9.875%, 9/24/15 ........................... United States 1,300,000 890,500
SunGard Data Systems Inc.,
senior note, 9.125%, 8/15/13 .......................................... United States 900,000 870,750
senior sub. note, 10.25%, 8/15/15 ..................................... United States 1,400,000 1,277,500
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3,038,750
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6 | Quarterly Statement of Investments
Franklin Universal Trust
STATEMENT OF INVESTMENTS, MAY 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL
COUNTRY AMOUNT(f) VALUE
-------------- ----------- ------------
CORPORATE BONDS (CONTINUED)
TECHNOLOGY HARDWARE & EQUIPMENT 2.0%
Celestica Inc., senior sub. note, 7.625%, 7/01/13 ........................ Canada 500,000 $ 490,000
(e,h) Nortel Networks Ltd., senior note, 144A, 10.75%, 7/15/16 ................. Canada 2,000,000 640,000
Sanmina-SCI Corp.,
(e,g) senior note, 144A, FRN, 4.07%, 6/15/14 ................................ United States 700,000 532,000
senior sub. note, 6.75%, 3/01/13 ...................................... United States 1,100,000 726,000
senior sub. note, 8.125%, 3/01/16 ..................................... United States 400,000 226,000
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2,614,000
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TELECOMMUNICATION SERVICES 9.0%
(e) CC Holdings GS V LLC, senior secured note, 144A, 7.75%, 5/01/17 .......... United States 300,000 297,000
Crown Castle International Corp., senior note, 9.00%, 1/15/15 ............ United States 800,000 812,000
(e) Digicel Group Ltd., senior note, 144A, 8.875%, 1/15/15 ................... Jamaica 2,000,000 1,637,500
Inmarsat Finance PLC, senior note, 10.375%, 11/15/12 ..................... United Kingdom 1,500,000 1,556,250
Intelsat Bermuda Ltd., senior note, 11.25%, 6/15/16 ...................... Bermuda 500,000 515,000
(e) Intelsat Subsidiary Holding Co. Ltd., senior note, 144A, 8.50%, 1/15/13 .. Bermuda 1,500,000 1,477,500
MetroPCS Wireless Inc., senior note, 9.25%, 11/01/14 ..................... United States 2,000,000 2,017,500
Qwest Communications International Inc., senior note, 7.50%, 2/15/14 ..... United States 2,000,000 1,850,000
(e) Wind Acquisition Finance SA, senior note, 144A, 10.75%, 12/01/15 ......... Italy 1,500,000 1,582,500
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11,745,250
------------
TRANSPORTATION 0.7%
(e) Ceva Group PLC, senior note, 144A, 10.00%, 9/01/14 ....................... United Kingdom 1,500,000 909,375
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UTILITIES 7.9%
The AES Corp., senior note, 8.00%, 6/01/20 ............................... United States 1,500,000 1,327,500
Ameren Corp., senior note, 8.875%, 5/15/14 ............................... United States 900,000 931,977
Aquila Inc., senior note, 11.875%, 7/01/12 ............................... United States 1,300,000 1,393,519
Dynegy Holdings Inc., senior note, 8.75%, 2/15/12 ........................ United States 2,000,000 1,915,000
Edison Mission Energy, senior note, 7.00%, 5/15/17 ....................... United States 1,800,000 1,314,000
NRG Energy Inc., senior note, 7.375%,
2/01/16 ............................................................... United States 1,800,000 1,698,750
1/15/17 ............................................................... United States 200,000 188,500
Texas Competitive Electric Holdings Co. LLC, senior note, A, 10.25%,
11/01/15 .............................................................. United States 2,500,000 1,493,750
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10,262,996
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TOTAL CORPORATE BONDS (COST $151,234,667) ................................ 122,738,793
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FOREIGN GOVERNMENT AND AGENCY SECURITIES (COST $216,713) 0.1%
Eskom Holdings Ltd., 11.00%, 6/01/09 ..................................... South Africa 783,333 ZAR 98,458
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TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS (COST $195,716,264) ...... 169,066,125
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Quarterly Statement of Investments | 7
Franklin Universal Trust
STATEMENT OF INVESTMENTS, MAY 31, 2009 (UNAUDITED) (CONTINUED)
COUNTRY SHARES VALUE
-------------- ----------- ------------
SHORT TERM INVESTMENTS (COST $993,662) 0.8%
MONEY MARKET FUNDS 0.8%
(l) Institutional Fiduciary Trust Money Market Portfolio, 0.02% .............. United States 993,662 $ 993,662
------------
TOTAL INVESTMENTS (COST $196,709,926) 130.3% ............................. 170,059,787
NOTES PAYABLE (32.2)% .................................................... (42,000,000)
OTHER ASSETS, LESS LIABILITIES 1.9% ...................................... 2,404,763
------------
NET ASSETS 100.0% ........................................................ $130,464,550
============
See Abbreviations on page 12.
(a) Rounds to less than 0.1% of net assets.
(b) Non-income producing.
(c) Security has been deemed illiquid because it may not be able to be sold
within seven days. At May 31, 2009, the value of this security was $1,096,
representing less than 0.01% of net assets.
(d) See Note 4 regarding restricted and illiquid securities.
(e) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under the
Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Fund's Board of Trustees. At May 31, 2009, the
aggregate value of these securities was $25,879,473, representing 19.84% of
net assets.
(f) The principal amount is stated in U.S. dollars unless otherwise indicated.
(g) The coupon rate shown represents the rate at period end.
(h) Defaulted security or security for which income has been deemed
uncollectible.
(i) Security purchased on a when-issued basis.
(j) Income may be received in additional securities and/or cash.
(k) See Note 5 regarding other considerations.
(l) The Institutional Fiduciary Trust Money Market Portfolio is managed by the
Fund's investment manager. The rate shown is the annualized seven-day yield
at period end.
See Notes to Statement of Investments.
8 | Quarterly Statement of Investments
Franklin Universal Trust
NOTES TO STATEMENT OF INVESTMENTS (UNAUDITED)
1. ORGANIZATION
Franklin Universal Trust (Fund) is registered under the Investment Company Act
of 1940, as amended, as a closed-end investment company.
2. SECURITY VALUATION
Securities listed on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market. Investments in open-end mutual funds are valued at the closing net asset
value.
Corporate debt securities and government securities generally trade in the
over-the-counter market rather than on a securities exchange. The Fund may
utilize independent pricing services, quotations from bond dealers, and
information with respect to bond and note transactions, to assist in determining
a current market value for each security. The Fund's pricing services may use
valuation models or matrix pricing which considers information with respect to
comparable bond and note transactions, quotations from bond dealers, or by
reference to other securities that are considered comparable in such
characteristics as rating, interest rate and maturity date, option adjusted
spread models, prepayment projections, interest rate spreads and yield curves,
to determine current value.
Foreign securities are valued as of the close of trading on the foreign stock
exchange on which the security is primarily traded, or the NYSE, whichever is
earlier. If no sale is reported at that time, the foreign security will be
valued within the range of the most recent quoted bid and ask prices. The value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at the close of the NYSE on the day that the value of the foreign
security is determined. Occasionally, events may impact the availability or
reliability of foreign exchange rates used to convert to the U.S. dollar
equivalent value. If such an event occurs, the foreign exchange rate will be
valued at fair value using procedures established and approved by the Fund's
Board of Trustees.
The Fund has procedures to determine the fair value of individual securities and
other assets for which market prices are not readily available or which may not
be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into
Quarterly Statement of Investments | 9
Franklin Universal Trust
NOTES TO STATEMENT OF INVESTMENTS (UNAUDITED) (CONTINUED)
2. SECURITY VALUATION (CONTINUED)
question the availability (including the reliability) of the value of a
portfolio security held by the Fund. If such an event occurs, the securities may
be valued using fair value procedures, which may include the use of independent
pricing services. All security valuation procedures are approved by the Fund's
Board of Trustees.
3. INCOME TAXES
At May 31, 2009, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
Cost of investments ............................................. $197,134,589
============
Unrealized appreciation ......................................... $ 11,770,977
Unrealized depreciation ......................................... (38,845,779)
------------
Net unrealized appreciation (depreciation) ...................... $(27,074,802)
============
4. RESTRICTED SECURITIES
At May 31, 2009, the Fund held investments in restricted securities, excluding
144A securities deemed to be liquid, valued in accordance with procedures
approved by the Fund's Board of Trustees as reflecting fair value, as follows:
PRINCIPAL AMOUNT/ ACQUISITION
SHARES ISSUER DATE COST VALUE
----------------- ----------------------------------------------------- ----------- -------- ------
721,603 Atherton Franchise Capital, 13.073%, 12/1/08 ........ 4/28/94 $721,603 $7,216
181,875 VS Holdings Inc. .................................... 12/06/01 181,875 --
------
TOTAL RESTRICTED SECURITIES (0.01% of Net Assets) ............................ $7,216
======
5. OTHER CONSIDERATIONS
From time to time, officers, directors or employees of the Fund's Investment
manager may have discussions or enter into agreements with issuers, underwriters
or creditors' committees which, pursuant to the Fund's policies and requirements
of applicable securities laws, could prevent the Fund from trading in the
securities of such company for limited or extended periods of time.
6. FAIR VALUE MEASUREMENTS
The Fund adopted Financial Accounting Standards Board (FASB) Statement No. 157,
"Fair Value Measurement" (SFAS 157), on September 1, 2008. SFAS 157 defines fair
value, establishes a
10 | Quarterly Statement of Investments
Franklin Universal Trust
NOTES TO STATEMENT OF INVESTMENTS (UNAUDITED) (CONTINUED)
6. FAIR VALUE MEASUREMENTS (CONTINUED)
framework for measuring fair value, and expands disclosures about fair value
measurements. The Fund has determined that the implementation of SFAS 157 did
not have a material impact on the Fund's financial statements.
SFAS 157 establishes a fair value hierarchy that distinguishes between market
data obtained from independent sources (observable inputs) and the Fund's own
market assumptions (unobservable inputs). These inputs are used in determining
the value of the Fund's investments and are summarized in the following fair
value hierarchy:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speed, credit risk,
etc.)
- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
The following is a summary of the inputs used as of May 31, 2009, in valuing the
Fund's assets and liabilities carried at fair value:
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
----------- ------------ ------- ------------
ASSETS:
Investments in Securities $45,837,309 $124,214,166 $8,312 $170,059,787
LIABILITIES:
Senior Fixed Rate Notes -- 42,000,000 -- 42,000,000
At May 31, 2009, the reconciliation of assets in which significant unobservable
inputs (Level 3) were used in determining fair value, is as follows:
INVESTMENTS IN
SECURITIES
--------------
Beginning Balance - September 1, 2008 ........................... $ 7,611
Net realized gain (loss) ..................................... (3,384,733)
Net change in unrealized appreciation (depreciation) ......... 3,388,384
Net purchases (sales) ........................................ (4,046)
Transfers in and/or out of Level 3 ........................... 1,096
-----------
Ending Balance .................................................. $ 8,312
===========
Net change in unrealized appreciation (depreciation) attributable
to assets still held at end of period ........................ $ --
===========
Quarterly Statement of Investments | 11
Franklin Universal Trust
NOTES TO STATEMENT OF INVESTMENTS (UNAUDITED) (CONTINUED)
7. NEW ACCOUNTING PRONOUNCEMENTS
In April 2009, FASB issued FASB Staff Position FSP FAS 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly" (FSP
FAS 157-4), which provides additional guidance when the volume and level of
activity for the asset or liability measured at fair value have significantly
decreased. Additionally, FSP FAS 157-4 amends SFAS 157, expanding disclosure
requirements by reporting entities surrounding the major categories of assets
and liabilities carried at fair value. FSP FAS 157-4 is effective for interim
and annual periods ending after June 15, 2009. The Fund believes applying FSP
FAS 157-4 will not have a material impact on its financial statements.
In May 2009, FASB issued Statement No. 165, "Subsequent Events", which is
intended to establish general standards of accounting for and disclosure of
events that occur after the balance sheet date but before the statements are
issued or are available to be issued. FASB 165 is effective for interim or
annual financial periods ending after June 15, 2009, the adoption of FASB 165
will not have a material impact on the financial statements.
ABBREVIATIONS
CURRENCY
ZAR - South African Rand
SELECTED PORTFOLIO
FRN - Floating Rate Note
PIK - Payment-In-Kind
For information on the Fund's policy regarding other significant accounting
policies, please refer to the Fund's most recent semiannual or annual
shareholder report.
12 | Quarterly Statement of Investments
Item 2. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Quarterly Schedule of Portfolio
Holdings on Form N-Q, the Registrant had carried out an evaluation, under the
supervision and with the participation of the Registrant's management, including
the Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(b) Changes in Internal Controls. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Quarterly Schedule of Portfolio Holdings
on Form N-Q.
Item 3. Exhibits.
(a) Certification pursuant to Section 30a-2 under the Investment Company Act of
1940 of Laura F. Fergerson, Chief Executive Officer - Finance and
Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting
Officer.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Franklin Universal Trust
By /s/LAURA F. FERGERSON
------------------------------
Laura F. Fergerson
Chief Executive Officer -
Finance and Administration
Date July 27, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/LAURA F. FERGERSON
------------------------------
Laura F. Fergerson
Chief Executive Officer -
Finance and Administration
Date July 27, 2009
By /s/GASTON GARDEY
--------------------------------
Gaston Gardey
Chief Financial Officer and
Chief Accounting Officer
Date July 27, 2009