-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EgxSXZb21gA8+8k9wjG0DMP381whwZEOsYOJiLvq873mhIJgw9JlLbLouHHOuyTL /kuyk3fE6NbgpRtuvwEzRw== 0000833040-05-000017.txt : 20051031 0000833040-05-000017.hdr.sgml : 20051031 20051031163137 ACCESSION NUMBER: 0000833040-05-000017 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050831 FILED AS OF DATE: 20051031 DATE AS OF CHANGE: 20051031 EFFECTIVENESS DATE: 20051031 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN UNIVERSAL TRUST CENTRAL INDEX KEY: 0000833040 IRS NUMBER: 943077602 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-05569 FILM NUMBER: 051166763 BUSINESS ADDRESS: STREET 1: ONE FRANKLIN PARKWAY CITY: SAN MATEO STATE: CA ZIP: 94403-1906 BUSINESS PHONE: 650-312-2000 MAIL ADDRESS: STREET 1: ONE FRANKLIN PARKWAY CITY: SAN MATEO STATE: CA ZIP: 94403-1906 N-CSR 1 futncsr.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-05569 --------- FRANKLIN UNIVERSAL TRUST ------------------------ (Exact name of registrant as specified in charter) ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906 (Address of principal executive offices) (Zip code) CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906 ----------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 650 312-2000 ------------ Date of fiscal year end: 8/31 ---- Date of reporting period: 8/31/05 ------- ITEM 1. REPORTS TO STOCKHOLDERS. [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- | AUGUST 31, 2005 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ANNUAL REPORT INCOME - -------------------------------------------------------------------------------- FRANKLIN UNIVERSAL TRUST - -------------------------------------------------------------------------------- [LOGO](R) FRANKLIN TEMPLETON INVESTMENTS FRANKLIN o Templeton o Mutual Series FRANKLIN TEMPLETON INVESTMENTS GAIN FROM OUR PERSPECTIVE(R) Franklin Templeton's distinct multi-manager structure combines the specialized expertise of three world-class investment management groups--Franklin, Templeton and Mutual Series. SPECIALIZED EXPERTISE Each of our portfolio management groups operates autonomously, relying on its own research and staying true to the unique investment disciplines that underlie its success. FRANKLIN. Founded in 1947, Franklin is a recognized leader in fixed income investing and also brings expertise in growth- and value-style U.S. equity investing. TEMPLETON. Founded in 1940, Templeton pioneered international investing and, in 1954, launched what has become the industry's oldest global fund. Today, with offices in over 25 countries, Templeton offers investors a truly global perspective. MUTUAL SERIES. Founded in 1949, Mutual Series is dedicated to a unique style of value investing, searching aggressively for opportunity among what it believes are undervalued stocks, as well as arbitrage situations and distressed securities. TRUE DIVERSIFICATION Because our management groups work independently and adhere to different investment approaches, Franklin, Templeton and Mutual Series funds typically have distinct portfolios. That's why our funds can be used to build truly diversified allocation plans covering every major asset class. RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to consistently provide investors with exceptional risk-adjusted returns over the long term, as well as the reliable, accurate and personal service that has helped us become one of the most trusted names in financial services. - -------------------------------------------------------------------------------- MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] Not part of the annual report Contents ANNUAL REPORT Franklin Universal Trust .................................................. 1 Performance Summary ....................................................... 6 Annual Shareholders' Meeting .............................................. 7 Dividend Reinvestment and Cash Purchase Plan .............................. 8 Financial Highlights and Statement of Investments ......................... 11 Financial Statements ...................................................... 17 Notes to Financial Statements ............................................. 21 Report of Independent Registered Public Accounting Firm ................... 30 Tax Designation ........................................................... 31 Board Members and Officers ................................................ 32 Shareholder Information ................................................... 37 - -------------------------------------------------------------------------------- ANNUAL REPORT FRANKLIN UNIVERSAL TRUST YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin Universal Trust's primary investment objective is to provide high, current income consistent with preservation of capital. Its secondary objective is growth of income through dividend increases and capital appreciation. Dear Shareholder: This annual report for Franklin Universal Trust covers the fiscal year ended August 31, 2005. Also in the report is new information about the Board of Trustees' approval of the Fund's investment advisory contract in the past six months. It is designed to give you an understanding of several factors considered before the Board approved the Fund's contract with the Investment Manager. The disclosure is in the "Shareholder Information" section beginning on page 37. PERFORMANCE OVERVIEW For the 12 months under review, the Fund's cumulative total returns were +17.20% based on change in net asset value and +17.51% based on change in market price on the New York Stock Exchange, as shown in the Performance Summary on page 6. For comparison, the Credit Suisse First Boston (CSFB) High Yield Index returned 8.98%, and utilities stocks, as measured by the Standard & Poor's 500 (S&P 500) Electric Utilities Index, returned 34.50% for the year ended August 31, 2005.(1) (1) Sources: Credit Suisse First Boston; Standard & Poor's Micropal. The CSFB High Yield Index is designed to mirror the investible universe of the U.S. dollar denominated high yield debt market. The S&P 500 Electric Utilities Index is a market capitalization-weighted index that includes electric utility stocks in the S&P 500. The indexes are unmanaged and include reinvestment of any income or distributions. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 12. Annual Report | 1 PORTFOLIO BREAKDOWN Based on Gross Assets* 8/31/05 - -------------------------------------------------------------------------------- Corporate Bonds 68.7% - -------------------------------------------------------------------------------- Utilities Common & Preferred Stocks 26.6% - -------------------------------------------------------------------------------- Foreign Government U.S. Dollar-Denominated Bonds 2.1% - -------------------------------------------------------------------------------- Natural Resources Common Stocks 0.8% - -------------------------------------------------------------------------------- Foreign Government Agencies 0.3% - -------------------------------------------------------------------------------- Miscellaneous Common & Preferred Stocks 0.0%** - -------------------------------------------------------------------------------- Cash & Other Net Assets 1.5% - -------------------------------------------------------------------------------- * The calculation of percentages is based on total net assets plus the senior note issued by the Fund. ** Rounds to less than 0.05% of gross assets. ECONOMIC AND MARKET OVERVIEW Overall domestic economic growth remained healthy during the reporting period. Approximately two-thirds of U.S. gross domestic product (GDP) is generated by consumer spending, and almost one-fifth by business spending. Since consumer spending relies on consumers' ability to remain gainfully employed, many analysts study the employment picture for indications of consumer spending. Over the past year, nonfarm payroll data, as well as other indexes, showed growing employment. This along with other factors helped consumer spending increase 6.6% in August 2005 compared with the same month a year earlier, which supported U.S. economic growth.(2) Business spending also rose during the reporting period, contributing to economic growth. Nonresidential investment spending rose in each of the last four quarters, resulting in 9.1% growth for the year ended June 30, 2005.(2) Historically low interest rates continued to allow many companies easy access to capital, and ample cash also helped some companies to support their spending plans. Productivity continued to grow, which helped businesses generate more goods and services without substantially raising prices. Energy prices rose significantly, as oil prices hit a record of $69.81 per barrel on August 30, exacerbated by a sharp spike following widespread oil and gas disruptions stemming from the Hurricane Katrina disaster.(3) Inflation remained relatively contained for the 12 months ended August 31, 2005, as measured by the 2.1% rise for the core Consumer Price Index (CPI), excluding volatile food and energy costs, which was below the core CPI's 10-year average of 2.3%.(4) However, acknowledging the economy's strength as well as potential inflationary pressure from high energy prices, the Federal Reserve Board (Fed) raised the federal funds target rate to 3.50% from 1.50% during the 12-month period and continued to hold the opinion that monetary policy remains accommodative, that the risks to growth and inflation remain equally balanced, and that future Fed policy will be tightened in a measured way. During the period, the yield curve flattened, as the 10- and 30-year U.S. Treasury yields fell while those of shorter-maturity Treasuries rose. At period-end, the 10-year Treasury yielded 4.02%. (2) Source: Bureau of Economic Analysis. (3) Source: Bloomberg Energy/Commodity Service. (4) Source: Bureau of Labor Statistics. 2 | Annual Report INVESTMENT STRATEGY We invest primarily in two asset classes: high yield bonds and utility stocks. Within the high yield portion of the portfolio, we use fundamental research to invest in a diversified portfolio of bonds. Within the utility portion of the portfolio, we focus on companies with attractive dividend yields and with a history of increasing their dividends. MANAGER'S DISCUSSION During the year under review, the Fund benefited from positive returns in each of its primary asset classes. High yield bond returns were driven by the ongoing favorable credit cycle, as economic growth generally enabled companies to improve their credit profiles. In turn, improving credit quality helped the default rate decline further below historical averages during the period. Utility stocks benefited from the continued low interest rate environment, as yields on the 10-year Treasury remained at historically low levels. In addition, many utility companies generated improved earnings, which they used as an opportunity to increase dividend payments and repurchase shares. HIGH YIELD CORPORATE BONDS The Fund benefited from its overweighted positions in wireless telecommunications and chemicals relative to the CSFB High Yield Index.(5) The wireless telecommunications industry benefited from merger and acquisition activity, in particular the merger of Fund holding Nextel Communications with Sprint, whose bonds were rated investment grade. In addition, industry growth remained positive and the feared demise of roaming charges failed to materialize. The chemicals industry experienced renewed pricing power, as demand for plastics and other chemical end-products improved along with the economy. Since very little new capacity was built during the recent industry downturn, the increase in demand led to higher operating rates, which enabled companies to expand margins in spite of high oil and natural gas costs. In this favorable fundamental environment, several companies, including fund holdings Nalco, Celanese (BCP Caylux Holding in the SOI), and Huntsman International Holdings (no longer held by period-end), issued equity via initial public offerings. (5) In the SOI, the wireless telecommunications industry is part of communications; the chemicals industry is part of process industries. TOP 10 HOLDINGS Based on Gross Assets* 8/31/05 vs. 8/31/04 - -------------------------------------------------------------------------------- 8/31/05 - -------------------------------------------------------------------------------- FPL Group Inc. 2.4% - -------------------------------------------------------------------------------- Southern Co. 2.3% - -------------------------------------------------------------------------------- Exelon Corp. 2.2% - -------------------------------------------------------------------------------- Dominion Resources Inc. 2.1% - -------------------------------------------------------------------------------- Government of Mexico 1.6% - -------------------------------------------------------------------------------- TXU Corp. 1.5% - -------------------------------------------------------------------------------- FirstEnergy Corp. 1.5% - -------------------------------------------------------------------------------- Georgia-Pacific Corp. 1.4% - -------------------------------------------------------------------------------- Pinnacle West Capital Corp. 1.4% - -------------------------------------------------------------------------------- Midwest Generation LLC 1.3% - -------------------------------------------------------------------------------- 8/31/04 - -------------------------------------------------------------------------------- Southern Co. 2.2% - -------------------------------------------------------------------------------- FPL Group Inc. 2.1% - -------------------------------------------------------------------------------- Dominion Resources Inc. 1.9% - -------------------------------------------------------------------------------- Government of Mexico 1.7% - -------------------------------------------------------------------------------- Exelon Corp. 1.6% - -------------------------------------------------------------------------------- Republic of Bulgaria 1.5% - -------------------------------------------------------------------------------- Nicor Inc. 1.5% - -------------------------------------------------------------------------------- Fimep SA 1.5% - -------------------------------------------------------------------------------- Laidlaw International Inc. 1.5% - -------------------------------------------------------------------------------- D.R. Horton Inc. 1.5% - -------------------------------------------------------------------------------- * The calculation of percentages is based on total net assets plus the senior note issued by the Fund. Annual Report | 3 Our underweighted position relative to the CSFB High Yield Index in the utility sector and overweighted position in the industrials sector impeded the Fund's performance in the high yield bond asset class.(6) Bonds in the utility sector generated returns greater than that of the overall index. As noted in the Fund's 2005 semiannual report, we intentionally kept the high yield utility exposure fairly low given the portfolio's large exposure to that sector through utility stocks. In the industrials sector's case, we had an above-index allocation, yet the sector generated returns below that of the index. We were attracted to the diversified nature of the industrials sector, as well as the exposure it can provide to an improving economy. However, the industrial manufacturing sector faced headwinds over the course of the fiscal year, primarily in the form of higher energy and raw material costs that lowered profit margins and caused the group to generally underperform the broader CSFB High Yield Index. UTILITY STOCKS We increased the Fund's exposure to utility stocks, from 22.2% of gross assets at the beginning of the fiscal year to 26.6% on August 31, 2005. On average, our utility exposure hovered around the middle of the targeted 20%-30% range outlined in the Fund's prospectus. Utility stocks' strong results were driven by a combination of factors. These included improved industry growth prospects as regulators encouraged investment to shore up reliability following the 2000-2001 California energy crisis and the Northeastern/Midwestern U.S. blackout of 2003. Also, high energy prices, in particular those for natural gas, benefited utilities that use nuclear power or coal. Finally, interest rates remained relatively low over the course of the fiscal year. Given the support offered by such strong industry fundamentals, a number of utility companies were able to increase their dividends or repurchased shares during the year. (6) In the SOI, the industrials sector comprises industrial services and producer manufacturing. 4 | Annual Report Thank you for your continued participation in Franklin Universal Trust. We look forward to serving your future investment needs. Sincerely, [PHOTO OMITTED] /s/ Christopher J. Molumphy Christopher J. Molumphy, CFA Senior Portfolio Manager [PHOTO OMITTED] /s/ Glenn I. Voyles Glenn I. Voyles, CFA Portfolio Manager Franklin Universal Trust THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF AUGUST 31, 2005, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE ADVISER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. Annual Report | 5 PERFORMANCE SUMMARY AS OF 8/31/05 Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. All total returns include reinvested distributions according to the terms specified in the Fund's dividend reinvestment and cash purchase plan and do not reflect any sales charges paid at inception or brokerage commissions paid on secondary market purchases. The performance table does not reflect any taxes due on Fund dividends, capital gains distributions, if any, or realized gains on the sale of Fund shares. PRICE AND DISTRIBUTION INFORMATION - -------------------------------------------------------------------------------- SYMBOL: FT CHANGE 8/31/05 8/31/04 - -------------------------------------------------------------------------------- Net Asset Value (NAV) +$0.64 $7.12 $6.48 - -------------------------------------------------------------------------------- Market Price (NYSE) +$0.57 $6.22 $5.65 - -------------------------------------------------------------------------------- DISTRIBUTIONS (9/1/04-8/31/05) - -------------------------------------------------------------------------------- Dividend Income $0.40 - -------------------------------------------------------------------------------- PERFORMANCE - -------------------------------------------------------------------------------- 1-YEAR 5-YEAR 10-YEAR - -------------------------------------------------------------------------------- Cumulative Total Return(1) - -------------------------------------------------------------------------------- Based on change in NAV +17.20% +34.67% +96.68% - -------------------------------------------------------------------------------- Based on change in market price +17.51% +25.69% +81.24% - -------------------------------------------------------------------------------- Average Annual Total Return(1) - -------------------------------------------------------------------------------- Based on change in NAV +17.20% +6.13% +7.00% - -------------------------------------------------------------------------------- Based on change in market price +17.51% +4.68% +6.13% - -------------------------------------------------------------------------------- Distribution Rate(2) 6.75% - -------------------------------------------------------------------------------- PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MORE CURRENT PERFORMANCE, CALL FRANKLIN TEMPLETON INVESTMENTS AT 1-800/342-5236. ENDNOTES THE RISKS ASSOCIATED WITH HIGHER-YIELDING, LOWER-RATED SECURITIES INCLUDE HIGHER RISK OF DEFAULT AND LOSS OF PRINCIPAL. THESE SECURITIES CARRY A GREATER DEGREE OF CREDIT RISK RELATIVE TO INVESTMENT GRADE SECURITIES. IN ADDITION TO OTHER FACTORS, SECURITIES ISSUED BY UTILITY COMPANIES ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS. THE FUND'S SHARE PRICE AND YIELD MAY BE AFFECTED BY INTEREST RATE MOVEMENTS. SPECIAL RISKS ARE ASSOCIATED WITH FOREIGN INVESTING, INCLUDING CURRENCY VOLATILITY, ECONOMIC INSTABILITY AND POLITICAL DEVELOPMENTS OF COUNTRIES WHERE THE FUND INVESTS. EMERGING MARKETS INVOLVE HEIGHTENED RISKS RELATED TO THE SAME FACTORS, IN ADDITION TO THOSE ASSOCIATED WITH THEIR RELATIVELY SMALL SIZE AND LESSER LIQUIDITY. (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 Fund's 3.5 cent per share August dividend and the NYSE closing price of $6.22 on 8/31/05. 6 | Annual Report ANNUAL SHAREHOLDERS' MEETING FEBRUARY 16, 2005 At an Annual Shareholders' Meeting of Franklin Universal Trust (the "Fund") held on February 16, 2005, shareholders approved the following: 1. Regarding the election of a Board of Trustees of the Fund. - -------------------------------------------------------------------------------- TRUSTEES SHARES FOR WITHHELD OR ABSTAIN - -------------------------------------------------------------------------------- Harris J. Ashton 24,708,022.463 366,695.216 - -------------------------------------------------------------------------------- Robert F. Carlson 24,691,411.094 383,306.585 - -------------------------------------------------------------------------------- S. Joseph Fortunato 24,708,023.700 366,693.979 - -------------------------------------------------------------------------------- Edith E. Holiday 24,721,269.489 353,448.190 - -------------------------------------------------------------------------------- Edward B. Jamieson 24,718,808.673 355,909.006 - -------------------------------------------------------------------------------- Charles B. Johnson 24,710,430.204 364,287.476 - -------------------------------------------------------------------------------- Rupert H. Johnson, Jr. 24,727,855.765 346,861.914 - -------------------------------------------------------------------------------- Frank W.T. LaHaye 24,694,064.402 380,653.277 - -------------------------------------------------------------------------------- Gordon S. Macklin 24,686,551.493 388,166.186 - -------------------------------------------------------------------------------- Annual Report | 7 DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN The Fund'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 Fund. The Plan also allows you to purchase additional shares of the Fund by making voluntary cash payments. PFPC Inc. (the "Plan Agent"), P.O. Box 9223, Chelsea, MA 02150-9223, 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 Fund's Dividend Reinvestment and Cash Purchase Plan Brochure. A copy of that Brochure may be obtained from the Fund 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 Fund declares a dividend or capital gain distribution payable either in cash or in stock of the Fund and the market price of shares on the valuation date equals or exceeds the net asset value, the Fund will issue new shares to you at the higher of net asset value or 95% of the then current market price. Whenever the Fund declares a distribution from capital gains or an income dividend payable in either cash or shares, if the net asset value per share of the Fund's common stock exceeds the market price per share on the valuation date, the Plan Agent shall apply the amount of such dividend or distribution payable to participants to the purchase of shares (less their pro rata share of brokerage commissions incurred with respect to open market purchases in connection with the reinvestment of such dividend or distribution). 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 Fund had issued new shares. All reinvestments are in full and fractional shares, carried to three decimal places. The Fund 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 Fund. 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 PFPC Inc. and sent to PFPC Inc., Attn: Franklin Universal Trust, P.O. Box 9223, Chelsea, MA 02150-9223. 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 Fund that are purchased in the open market. 8 | Annual Report 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 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 Fund. 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 Fund 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 Fund 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. Annual Report | 9 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 Fund 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 Fund. 10 | Annual Report FRANKLIN UNIVERSAL TRUST FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------- YEAR ENDED AUGUST 31, 2005 2004 2003 2002 2001 ------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................. $ 6.48 $ 5.67 $ 5.13 $ 7.32 $ 8.21 ------------------------------------------------------------------------- Income from investment operations: Net investment income(a) ........................... 0.45 0.43 0.45 0.65(c) 0.73 Net realized and unrealized gains (losses) ......... 0.59 0.74 0.59 (2.05)(c) (0.82) ------------------------------------------------------------------------- Total from investment operations .................... 1.04 1.17 1.04 (1.40) (0.09) ------------------------------------------------------------------------- Less distributions from net investment income ....... (0.40) (0.36) (0.50) (0.79) (0.80) ------------------------------------------------------------------------- Net asset value, end of year ........................ $ 7.12 $ 6.48 $ 5.67 $ 5.13 $ 7.32 ========================================================================= Market value, end of year(b) ........................ $ 6.22 $ 5.65 $ 5.20 $ 6.37 $ 8.24 ========================================================================= Total return (based on market value per share) ...... 17.49% 15.79% (10.13)% (13.68)% 19.01% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) ..................... $198,861 $180,850 $158,364 $141,619 $198,598 Ratios to average net assets: Expenses ........................................... 2.32% 2.47% 3.59% 4.05% 3.29% Net investment income .............................. 6.49% 6.85% 8.68% 10.04%(c) 9.38% Portfolio turnover rate ............................. 34.60% 46.35% 65.15% 17.38% 31.60% Total debt outstanding at end of year (000's) ....... $ 55,000 $ 55,000 $ 55,000 $ 60,000 $ 75,000 Asset coverage per $1,000 of debt ................... $ 4,616 $ 4,288 $ 3,879 $ 3,360 $ 3,648 Average amount of senior fixed rate notes per share during the year ............................. $ 1.97 $ 1.97 $ 1.87 $ 2.65 $ 2.76
(a) Based on average daily shares outstanding. (b) Based on the last sale on the New York Stock Exchange. (c) Effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing all premium and discount on fixed-income securities, as required. The effect of this change was as follows: Net investment income per share ............................. $ (0.012) Net realized and unrealized gains (losses) per share ........ 0.012 Ratio of net investment income to average net assets ........ (0.19)% Per share data and ratios for prior periods have not been restated to reflect this change in accounting policy. Annual Report | 11 FRANKLIN UNIVERSAL TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2005
- ------------------------------------------------------------------------------------------------------------------------------------ COUNTRY SHARES VALUE - ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS 34.0% NON-ENERGY MINERALS 1.0% AngloGold Ashanti Ltd., ADR ........................................ South Africa 30,446 $ 1,080,529 Barrick Gold Corp. ................................................. Canada 35,800 938,676 ------------- 2,019,205 ------------- PRODUCER MANUFACTURING 0.0%a (b)Harvard Industries Inc. ............................................ United States 109,618 1,096 (b),(c)VS Holdings ........................................................ United States 181,875 -- ------------- 1,096 ------------- UTILITIES 33.0% Alliant Energy Corp. ............................................... United States 95,000 2,854,750 Ameren Corp. ....................................................... United States 40,000 2,197,200 American Electric Power Co. Inc. ................................... United States 30,000 1,115,400 Atmos Energy Corp. ................................................. United States 85,000 2,515,150 CenterPoint Energy Inc. ............................................ United States 139,200 1,978,032 Cinergy Corp. ...................................................... United States 55,000 2,422,200 Dominion Resources Inc. ............................................ United States 70,000 5,353,600 DTE Energy Co. ..................................................... United States 45,000 2,059,650 Edison International ............................................... United States 65,000 2,926,950 Energy East Corp. .................................................. United States 42,000 1,101,240 Entergy Corp. ...................................................... United States 28,000 2,097,480 Exelon Corp. ....................................................... United States 104,000 5,604,560 FirstEnergy Corp. .................................................. United States 75,000 3,827,250 FPL Group Inc. ..................................................... United States 140,000 6,032,600 NiSource Inc. ...................................................... United States 80,000 1,931,200 ONEOK Inc. ......................................................... United States 22,600 768,400 Pepco Holdings Inc. ................................................ United States 68,000 1,553,120 Pinnacle West Capital Corp. ........................................ United States 76,000 3,414,680 Progress Energy Inc. ............................................... United States 70,000 3,051,300 Public Service Enterprise Group Inc. ............................... United States 47,250 3,049,987 Southern Co. ....................................................... United States 170,000 5,848,000 TXU Corp. .......................................................... United States 39,600 3,841,992 ------------- 65,544,741 ------------- TOTAL COMMON STOCKS (COST $45,338,700) ............................. 67,565,042 ------------- PREFERRED STOCKS 1.0% PROCESS INDUSTRIES 0.0%a (c),(d),(e)Asia Pulp & Paper Co. Ltd., 12.00%, pfd., Perpetual ................ Indonesia 4,000,000 45,200 ------------- UTILITIES 1.0% Heco Capital Trust III, 6.50%, pfd ................................. United States 75,000 1,987,500 ------------- TOTAL PREFERRED STOCKS (COST $5,875,000) ........................... 2,032,700 ------------- ------------------- PRINCIPAL AMOUNT(f) ------------------- BONDS 87.7% COMMERCIAL SERVICES 1.2% Corrections Corp. of America, senior note, 7.50%, 5/01/11 .......... United States 2,300,000 2,389,125 -------------
12 | Annual Report FRANKLIN UNIVERSAL TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2005 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------- COUNTRY PRINCIPAL AMOUNT(f) VALUE - ----------------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) COMMUNICATIONS 11.3% Dobson Cellular Systems Inc., senior secured note, 9.875%, 11/01/12 ........................................................... United States 1,900,000 $ 2,099,500 Inmarsat Finance PLC, senior note, 7.625%, 6/30/12 ................... United Kingdom 645,000 681,281 Inmarsat Finance II PLC, senior disc. note, zero cpn. to 11/15/08, 10.375% thereafter, 11/15/12 ....................................... United Kingdom 2,700,000 2,234,250 (g)Intelsat Bermuda Ltd., senior note, 144A, 8.25%, 1/15/13 ............. Bermuda 2,900,000 2,965,250 Millicom International Cellular SA, senior note, 10.00%, 12/01/13 .... Luxembourg 2,300,000 2,397,750 Nextel Communications Inc., senior note, D, 7.375%, 8/01/15 .......... United States 3,000,000 3,242,781 Qwest Communications International Inc., senior note, 7.50%, 2/15/14 .................................................. United States 2,000,000 1,930,000 (g)144A, 7.50%, 2/15/14 ............................................ United States 1,000,000 965,000 Rogers Wireless Communications Inc., senior secured note, 7.25%, 12/15/12 ........................................................... Canada 2,700,000 2,909,250 Time Warner Telecom Holdings Inc., senior note, 9.25%, 2/15/14 ....... United States 3,000,000 3,060,000 ------------- 22,485,062 ------------- CONSUMER DURABLES 5.8% D.R. Horton Inc., senior note, 8.50%, 4/15/12 ........................ United States 3,000,000 3,269,955 General Motors Acceptance Corp., 6.875%, 8/28/12 ..................... United States 2,000,000 1,882,676 Jostens IH Corp., senior sub. note, 7.625%, 10/01/12 ................. United States 1,400,000 1,445,500 Simmons Co., senior sub. note, 7.875%, 1/15/14 ....................... United States 2,100,000 2,026,500 William Lyon Homes Inc., senior note, 7.625%, 12/15/12 ............... United States 3,000,000 2,880,000 ------------- 11,504,631 ------------- CONSUMER NON-DURABLES 3.0% Smithfield Foods Inc., senior note, 7.00%, 8/01/11 .................................................... United States 2,000,000 2,070,000 7.75%, 5/15/13 .................................................... United States 1,000,000 1,080,000 Spectrum Brands Inc., senior sub. note, 7.375%, 2/01/15 .............. United States 3,000,000 2,902,500 ------------- 6,052,500 ------------- CONSUMER SERVICES 15.0% AMC Entertainment Inc., senior note, B, 8.625%, 8/15/12 .............. United States 1,900,000 1,976,000 (c),(d)Atherton Franchise Capital, 13.073%, 12/01/08 ........................ United States 752,296 11,284 Cablevision Systems Corp., senior note, B, 8.00%, 4/15/12 ............ United States 2,900,000 2,896,375 CanWest Media Inc., senior note, B, 7.625%, 4/15/13 .................. Canada 2,400,000 2,580,000 (d)Century Communications Corp., senior disc. note, B, zero cpn., 1/15/08 ............................................................ United States 4,000,000 2,590,000 Charter Communications Holdings II LLC, senior note, 10.25%, 9/15/10 ............................................................ United States 2,500,000 2,593,750 Dex Media West LLC, senior sub. note, 9.875%, 8/15/13 ................ United States 2,342,000 2,661,097 DIRECTV Holdings LLC, senior note, 8.375%, 3/15/13 ................................................. United States 1,283,000 1,414,508 (g)144A, 6.375%, 6/15/15 ........................................... United States 1,700,000 1,704,250 Emmis Operating Co., senior sub. note, 6.875%, 5/15/12 ............... United States 2,700,000 2,713,500 Pinnacle Entertainment Inc., senior sub. note, 8.75%, 10/01/13 ....... United States 800,000 832,000 (g)Radio One Inc., senior sub. note, 144A, 6.375%, 2/15/13 .............. United States 1,200,000 1,192,500
Annual Report | 13 FRANKLIN UNIVERSAL TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2005 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------ COUNTRY PRINCIPAL AMOUNT(f) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ BONDS (CONT.) CONSUMER SERVICES (CONT.) Royal Caribbean Cruises Ltd., senior note, 8.00%, 5/15/10 .......................................................... United States 1,200,000 $ 1,320,000 6.875%, 12/01/13 ........................................................ United States 800,000 856,000 Station Casinos Inc., senior note, 6.00%, 4/01/12 ............................................. United States 500,000 506,250 senior sub. note, 6.50%, 2/01/14 ........................................ United States 300,000 306,000 senior sub. note, 6.875%, 3/01/16 ....................................... United States 2,200,000 2,271,500 Young Broadcasting Inc., senior sub. note, 8.75%, 1/15/14 .................. United States 1,500,000 1,365,000 ------------- 29,790,014 ------------- ELECTRONIC TECHNOLOGY 4.5% Flextronics International Ltd., senior sub. note, 6.50%, 5/15/13 ........... Singapore 1,500,000 1,533,750 (g)L-3 Communications Corp., senior sub. note, 144A, 6.375%, 10/15/15 .................................................................. United States 2,800,000 2,856,000 Sanmina-SCI Corp., senior sub note, 6.75%, 3/01/13 ......................... United States 2,000,000 1,920,000 Xerox Corp., senior note, 7.125%, 6/15/10 .................................. United States 2,500,000 2,643,750 ------------- 8,953,500 ------------- ENERGY MINERALS 4.2% Chesapeake Energy Corp., senior note, 6.25%, 1/15/18 ....................... United States 3,000,000 2,988,750 Foundation PA Coal Co., senior note, 7.25%, 8/01/14 ........................ United States 1,700,000 1,795,625 (g)Markwest Energy Partners LP, senior note, 144A, 6.875%, 11/01/14 ........... United States 1,800,000 1,818,000 Plains Exploration & Production Co., senior note, 7.125%, 6/15/14 .......... United States 1,700,000 1,819,000 ------------- 8,421,375 ------------- HEALTH SERVICES 4.7% (g)Davita Inc., senior sub. note, 144A, 7.25%, 3/15/15 ........................ United States 3,000,000 3,063,750 Tenet Healthcare Corp., senior note, 7.375%, 2/01/13 ....................... United States 3,000,000 2,940,000 Vanguard Health Holding Co. II LLC, senior sub. note, 9.00%, 10/01/14 .................................................................. United States 3,000,000 3,277,500 ------------- 9,281,250 ------------- HEALTH TECHNOLOGY 1.5% Bio-Rad Laboratories Inc., senior sub. note, 6.125%, 12/15/14 .............. United States 3,000,000 2,973,750 ------------- INDUSTRIAL SERVICES 3.5% Allied Waste North America Inc., senior secured note, 6.50%, 11/15/10 ......................................................... United States 2,100,000 2,073,750 B, 5.75%, 2/15/11 ....................................................... United States 900,000 844,875 (g)Grant Prideco Inc., senior note, 144A, 6.125%, 8/15/15 ..................... United States 800,000 814,000 Hanover Equipment Trust 01, senior secured note, B, 8.75%, 9/01/11 ................................................................... United States 3,000,000 3,232,500 ------------- 6,965,125 ------------- NON-ENERGY MINERALS 2.0% Ispat Inland ULC, senior secured note, 9.75%, 4/01/14 ...................... United States 1,863,000 2,178,406 (g)Novelis Inc., senior note, 144A, 7.25%, 2/15/15 ............................ Canada 1,700,000 1,712,750 ------------- 3,891,156 -------------
14 | Annual Report FRANKLIN UNIVERSAL TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2005 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------ COUNTRY PRINCIPAL AMOUNT(f) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ BONDS (CONT.) PROCESS INDUSTRIES 10.5% Abitibi-Consolidated Inc., senior note, 8.375%, 4/01/15 ........... Canada 3,000,000 $ 3,030,000 BCP Crystal Holdings Corp., senior sub. note, 9.625%, 6/15/14 ..... United States 1,785,000 2,032,668 Georgia-Pacific Corp., senior note, 8.00%, 1/15/24 ................ United States 3,000,000 3,427,500 JSG Funding PLC, senior sub. note, 7.75%, 4/01/15 ................. Ireland 3,000,000 2,655,000 Nalco Co., senior sub. note, 8.875%, 11/15/13 ..................... United States 2,000,000 2,162,500 Owens-Brockway Glass Container Inc., senior note, 6.75%, 12/01/14 ........................................................ United States 2,000,000 2,005,000 (b),(c),(e)Pindo Deli Finance Mauritius Ltd., 144A, (h)FRN, 4.675%, 4/29/15 ......................................... Indonesia 339,219 79,106 (h)FRN, 4.675%, 4/29/18 ......................................... Indonesia 882,036 205,691 zero cpn., 4/29/25 ............................................ Indonesia 1,822,397 424,983 (g)PQ Corp., senior sub. note, 144A, 7.50%, 2/15/13 .................. United States 1,500,000 1,515,000 Rhodia SA, senior note, 10.25%, 6/01/10 ........................... France 3,000,000 3,262,500 ------------- 20,799,948 ------------- PRODUCER MANUFACTURING 6.9% Case New Holland Inc., senior note, 9.25%, 8/01/11 ................ United States 3,000,000 3,210,000 Fimep SA, senior note, 10.50%, 2/15/13 ............................ France 2,000,000 2,300,000 (g)Invensys PLC, senior note, 144A, 9.875%, 3/15/11 .................. United Kingdom 1,800,000 1,818,000 Milacron Escrow Corp., senior secured note, 11.50%, 5/15/11 ....... United States 2,500,000 2,512,500 (g)Nell AF Sarl, senior note, 144A, 8.375%, 8/15/15 .................. Luxembourg 1,200,000 1,219,500 Nortek Inc., senior sub. note, 8.50%, 9/01/14 ..................... United States 800,000 782,000 TRW Automotive Inc., senior note, 9.375%, 2/15/13 ................. United States 1,701,000 1,896,615 ------------- 13,738,615 ------------- REAL ESTATE INVESTMENT TRUSTS 1.6% Host Marriott LP, senior note, 7.00%, 8/15/12 ................................................ United States 2,500,000 2,625,000 6.375%, 3/15/15 ............................................... United States 500,000 498,125 ------------- 3,123,125 ------------- RETAIL TRADE 2.8% Leslie's Poolmart, senior note, 7.75%, 2/01/13 .................... United States 2,600,000 2,691,000 (g)Rite Aid Corp., senior note, 144A, 6.125%, 12/15/08 ............... United States 3,000,000 2,835,000 ------------- 5,526,000 ------------- TECHNOLOGY SERVICES 2.6% (d)PSINet Inc., 10.50%, 12/01/06 .............................................. United States 700,000 875 senior note, 11.00%, 8/01/09 .................................. United States 3,250,000 4,063 (g)Sungard Data Systems Inc., senior note, 144A, 9.125%, 8/15/13 ............................ United States 900,000 949,500 senior sub. note, 144A, 10.25%, 8/15/15 ....................... United States 900,000 945,000 UGS Corp., senior sub. note, 10.00%, 6/01/12 ...................... United States 3,000,000 3,375,000 ------------- 5,274,438 -------------
Annual Report | 15 FRANKLIN UNIVERSAL TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2005 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------- COUNTRY PRINCIPAL AMOUNT(f) VALUE - ----------------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) TRANSPORTATION 0.5% Great Lakes Dredge & Dock Co., senior sub. note, 7.75%, 12/15/13 .......... United States 1,200,000 $ 1,104,000 ------------- UTILITIES 6.1% Aquila Inc., senior note, 14.875%, 7/01/12 ................................ United States 2,000,000 2,705,000 (g)Calpine Corp., senior secured note, 144A, 8.75%, 7/15/13 .................. United States 2,500,000 1,862,500 Dynegy Holdings Inc., senior note, 8.75%, 2/15/12 ......................... United States 2,600,000 2,866,500 Midwest Generation LLC, senior secured note, 8.75%, 5/01/34 ............... United States 3,000,000 3,375,000 (g)Texas Genco LLC, senior note, 144A, 6.875%, 12/15/14 ...................... United States 1,200,000 1,251,000 ------------- 12,060,000 ------------- TOTAL BONDS (COST $171,255,346) ........................................... 174,333,614 ------------- FOREIGN GOVERNMENT AND AGENCY SECURITIES 3.1% Eskom, E168, 11.00%, 6/01/08 .............................................. South Africa 4,350,000 734,196 Government of Mexico, 11.375%, 9/15/16 .................................... Mexico 2,750,000 4,119,500 Government of Russia, 3.00%, 5/14/06 ...................................... Russia 1,300,000 1,287,410 ------------- TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES (COST $5,284,403) .......... 6,141,106 ------------- TOTAL LONG TERM INVESTMENTS (COST $227,753,449) ........................... 250,072,462 ------------- ---------- SHARES ---------- SHORT TERM INVESTMENT (COST $1,683,740) 0.8% MONEY FUND 0.8% (i)Franklin Institutional Fiduciary Trust Money Market Portfolio ............. United States 1,683,740 1,683,740 ------------- TOTAL INVESTMENTS (COST $229,437,189) 126.6% .............................. 251,756,202 OTHER ASSETS, LESS LIABILITIES (26.6)% .................................... (52,895,443) ------------- NET ASSETS 100.0% ......................................................... $ 198,860,759 =============
CURRENCY ABBREVIATIONS ZAR - South African Rand SELECTED PORTFOLIO ABBREVIATIONS ADR - American Depository Receipt FRN - Floating Rate Note (a) Rounds to less than 0.05% of net assets. (b) Non-income producing. (c) See Note 10 regarding restricted and illiquid securities. (d) See Note 9 regarding defaulted securities. (e) See Note 11 regarding other considerations. (f) The principal amount is stated in U.S. dollars unless otherwise indicated. (g) 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 the guidelines approved by the Fund's Board of Trustees. (h) The coupon rate shown represents the rate at period end. (i) See Note 8 regarding investments in the Franklin Institutional Fiduciary Trust Money Market Portfolio. 16 | See notes to financial statements. | Annual Report FRANKLIN UNIVERSAL TRUST FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES August 31, 2005 Assets: Investments in securities: Cost - Unaffiliated issuers ............................ $ 227,753,449 Cost - Sweep Money Fund (Note 8) ....................... 1,683,740 ------------- Total cost of investments .............................. $ 229,437,189 ============= Value - Unaffiliated issuers ........................... $ 250,072,462 Value - Sweep Money Fund (Note 8) ...................... 1,683,740 ------------- Total value of investments ............................. 251,756,202 Cash .................................................... 2,750 Receivables: Dividends and interest ................................. 3,486,144 Note issuance costs (Note 3) ............................ 124,974 ------------- Total assets ........................................ 255,370,070 ------------- Liabilities: Payables: Affiliates ............................................. 157,123 Distributions to shareholders .......................... 977,350 Senior fixed rate notes (Note 3) ........................ 55,000,000 Deferred sale proceeds (Note 11) ........................ 291,204 Other liabilities ....................................... 83,634 ------------- Total liabilities ................................... 56,509,311 ------------- Net assets, at value .............................. $ 198,860,759 ============= Net assets consist of: Paid-in capital ......................................... $ 254,815,425 Undistributed net investment income ..................... 2,069,849 Net unrealized appreciation (depreciation) .............. 22,319,248 Accumulated net realized gain (loss) .................... (80,343,763) ------------- Net assets, at value .............................. $ 198,860,759 ============= Shares outstanding ....................................... 27,924,294 ============= Net asset value per share ................................ $ 7.12 ============= Annual Report | See notes to financial statements. | 17 FRANKLIN UNIVERSAL TRUST FINANCIAL STATEMENTS (CONTINUED) STATEMENT OF OPERATIONS for the year ended August 31, 2005 Investment income: Dividends: Unaffiliated issuers ................................................................ $ 2,631,174 Sweep Money Fund (Note 8) ........................................................... 67,950 Interest ............................................................................. 14,191,441 Other income (Note 12) ............................................................... 4,475 ------------ Total investment income ....................................................... 16,895,040 ------------ Expenses: Management fees (Note 4a) ............................................................ 1,840,198 Interest expense (Note 3) ............................................................ 2,277,000 Transfer agent fees .................................................................. 90,455 Custodian fees (Note 5) .............................................................. 8,619 Reports to shareholders .............................................................. 72,665 Professional fees .................................................................... 71,695 Trustees' fees and expenses .......................................................... 17,094 Amortization of note issuance costs (Note 3) ......................................... 38,297 Other ................................................................................ 33,094 ------------ Total expenses ................................................................ 4,449,117 Expense reductions (Note 5) ................................................... (504) ------------ Net expenses ................................................................ 4,448,613 ------------ Net investment income ...................................................... 12,446,427 ------------ Realized and unrealized gains (losses): Net realized gain (loss) from: Investments ......................................................................... (10,744,78) Foreign currency transactions ....................................................... (2) ------------ Net realized gain (loss) .................................................... (10,744,78) ------------ Net change in unrealized appreciation (depreciation) on: Investments ......................................................................... 27,477,251 Translation of assets and liabilities denominated in foreign currencies ............. 1,184 ------------ Net change in unrealized appreciation (depreciation) ....................... 27,478,435 ------------ Net realized and unrealized gain (loss) ............................................... 16,733,651 ------------ Net increase (decrease) in net assets resulting from operations ....................... $ 29,180,078 ------------
18 | See notes to financial statements. | Annual Report FRANKLIN UNIVERSAL TRUST FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS
------------------------------ YEAR ENDED AUGUST 31, 2005 2004 ------------------------------ Increase (decrease) in net assets: Operations: Net investment income .......................................................................... $ 12,446,427 $ 11,947,853 Net realized gain (loss) from investments and foreign currency transactions .................... (10,744,784) (7,220,380) Net change in unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies ............................................ 27,478,435 27,811,839 ------------------------------ Net increase (decrease) in net assets resulting from operations .......................... 29,180,078 32,539,312 Distributions to shareholders from net investment income ........................................ (11,169,717) (10,052,746) ------------------------------ Net increase (decrease) in net assets .................................................... 18,010,361 22,486,566 Net assets: Beginning of year ............................................................................... 180,850,398 158,363,832 ------------------------------ End of year ..................................................................................... $ 198,860,759 $ 180,850,398 ============================== Undistributed net investment income included in net assets: End of year ..................................................................................... $ 2,069,849 $ 299,620 ==============================
Annual Report | See notes to financial statements. | 19 FRANKLIN UNIVERSAL TRUST FINANCIAL STATEMENTS (CONTINUED) STATEMENT OF CASH FLOWS for the year ended August 31, 2005 Cash flow from operating activities: Dividends and interest received ........................................................................... $ 15,701,795 Operating expenses paid ................................................................................... (1,798,760) Interest expense paid ..................................................................................... (2,277,000) ------------ Cash provided - operating activities ..................................................................... 11,626,035 ============ Cash flow from investing activities: Investment purchases ...................................................................................... (83,851,52) Investment sales and maturities ........................................................................... 84,385,329 Short term investment securities, net ..................................................................... (1,612,544) ------------ Cash used - investing activities ......................................................................... (1,078,740) ============ Cash flow from financing activities - distributions to shareholders ........................................ (11,030,09) ============ Net increase (decrease) in cash ............................................................................ (482,801) Cash at beginning of year .................................................................................. 485,551 ------------ Cash at end of year ........................................................................................ $ 2,750 ============ RECONCILIATION OF NET INVESTMENT INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES FOR THE YEAR ENDED AUGUST 31, 2005 Net investment income ...................................................................................... $ 12,446,427 Adjustments to reconcile net investment income to net cash provided by operating activities: Amortization income ...................................................................................... (382,393) Interest income on bond restructurings and other investment transactions ................................. (541,330) Amortization of note issuance costs ...................................................................... 38,297 Reinvested dividends from Sweep Money Fund ............................................................... (67,950) Increase in dividends and interest receivable ............................................................ (201,572) Increase in liabilities .................................................................................. 334,556 ------------ Net cash provided by operating activities .................................................................. $ 11,626,035 ============
20 | See notes to financial statements. | Annual Report FRANKLIN UNIVERSAL TRUST NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Franklin Universal Trust (the Fund) is registered under the Investment Company Act of 1940 as a diversified, closed-end investment company. The Fund has two classes of securities: senior fixed-rate notes (the Notes) and shares of beneficial interest (the Shares). The following summarizes the Fund's significant accounting policies. A. 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. 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 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. Annual Report | 21 FRANKLIN UNIVERSAL TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert 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 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 on the Statement of Operations. 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. dollar 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. FOREIGN CURRENCY CONTRACTS When the Fund purchases or sells foreign securities it may enter into foreign exchange contracts to minimize foreign exchange risk from the trade date to the settlement date of the transactions. A foreign exchange contract is an agreement between two parties to exchange different currencies at an agreed upon exchange rate on a specified date. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. The risks of these contracts include movement in the values of the foreign currencies relative to the U.S. dollar and the possible inability of the counterparties to fulfill their obligations under the contracts, which may be in excess of the amount reflected in the Statement of Assets and Liabilities. D. INCOME TAXES No provision has been made for U.S. income taxes because the Fund's policy is to continue to qualify as a regulated investment company under the Internal Revenue Code and to distribute to shareholders substantially all of its taxable income and net realized gains. Foreign securities held by the Fund may be subject to foreign taxation. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. 22 | Annual Report FRANKLIN UNIVERSAL TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. 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. Amortization of premium and accretion of discount on debt securities are included in interest income. Dividend income is recorded on the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with generally accepted accounting principles. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they will reverse in subsequent periods. F. ACCOUNTING ESTIMATES The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period. Actual results could differ from those estimates. G. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and trustees are indemnified by the Fund against certain liabilities arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote. 2. SHARES OF BENEFICIAL INTEREST At August 31, 2005, there were an unlimited number of shares authorized ($0.01 par value). During the year ended August 31, 2005, there were no share transactions; all reinvested distributions were satisfied with previously issued shares purchased in the open market. 3. SENIOR FIXED RATE NOTES On August 29, 2003, the Fund issued $55 million principal amount of a new class of five-year senior fixed rate 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. Annual Report | 23 FRANKLIN UNIVERSAL TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. SENIOR FIXED RATE NOTES (CONTINUED) The Notes bear interest, payable semi-annually, at the rate of 4.14% per year, to maturity on August 29, 2008. The Fund may prepay the Notes at any time; therefore, market value approximates the principal amount of 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 year ended August 31, 2005. The issuance costs of $200,000 incurred by the Fund are deferred and amortized on an interest method basis over the term of the Notes. 4. TRANSACTIONS WITH AFFILIATES Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers or directors of the following subsidiaries: - -------------------------------------------------------------------------------- SUBSIDIARY AFFILIATION - -------------------------------------------------------------------------------- Franklin Advisers Inc. (Advisers) Investment Manager Franklin Templeton Services LLC (FT Services) Administrative Manager A. MANAGEMENT FEES The Fund pays an investment management fee to Advisers of 0.75% per year of the average weekly net assets plus the principal amount of the Notes. B. ADMINISTRATIVE FEES 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. EXPENSE OFFSET ARRANGEMENT The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund's custodian expenses. During the year ended August 31, 2005, the custodian fees were reduced as noted in the Statement of Operations. 24 | Annual Report FRANKLIN UNIVERSAL TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. INCOME TAXES At August 31, 2005, the Fund had tax basis capital losses which may be carried over to offset future capital gains, if any. At August 31, 2005, the capital loss carryforwards were as follows: Capital loss carryovers expiring in: 2008 ........................................................ $ 5,088,195 2009 ........................................................ 1,167,255 2010 ........................................................ 6,827,086 2011 ........................................................ 34,372,527 2012 ........................................................ 18,676,213 2013 ........................................................ 3,246,257 ----------- $69,377,533 =========== For tax purposes, realized capital losses, occurring subsequent to October 31, may be deferred and treated as occurring on the first day of the following fiscal year. At August 31, 2005, the Fund deferred realized capital losses of $10,937,370. The tax character of distributions paid during the years ended August 31, 2005 and 2004, was as follows: --------------------------- 2005 2004 --------------------------- Distributions paid from ordinary income ........ $11,169,717 $10,052,746 Net investment income and net realized gains (losses) differ for financial statement and tax purposes primarily due to differing treatments of defaulted securities, foreign currency transactions, and bond discounts and premiums. At August 31, 2005, the cost of investments, net unrealized appreciation (depreciation), and undistributed ordinary income for income tax purposes were as follows: Cost of investments ......................................... $ 229,605,656 ============= Unrealized appreciation ..................................... $ 36,374,049 Unrealized depreciation ..................................... (14,223,503) ------------- Net unrealized appreciation (depreciation) .................. $ 22,150,546 ============= Distributable earnings - undistributed ordinary income ...... $ 3,249,410 ============= Annual Report | 25 FRANKLIN UNIVERSAL TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. INVESTMENT TRANSACTIONS Purchases and sales of investments (excluding short term securities) for the year ended August 31, 2005, aggregated $83,851,525 and $83,626,475, respectively. 8. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market Portfolio (the Sweep Money Fund), an open-end investment company managed by Advisers. Management fees paid by the Fund are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management fees paid by the Sweep Money Fund. 9. CREDIT RISK AND DEFAULTED SECURITIES The Fund has 68.40% of its portfolio invested in below investment grade 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. The Fund held defaulted securities and/or other securities for which the income has been deemed uncollectible. At August 31, 2005, the value of these securities was $2,651,422, representing 1.05% of the Fund's portfolio. The Fund discontinues accruing income on securities for which income has been deemed uncollectible and provides an estimate for losses on interest receivable. The securities have been identified on the accompanying Statement of Investments. 10. RESTRICTED AND ILLIQUID SECURITIES At August 31, 2005, investments in securities included issues that are restricted and illiquid. Restricted securities are often purchased in private placement transactions, and cannot be sold without prior registration under the Securities Act of 1933, unless the sale is pursuant to an exemption under the 1933 Act. The Fund has registration rights for certain restricted securities held at period end. The issuer generally incurs all registration costs. 26 | Annual Report FRANKLIN UNIVERSAL TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 10. RESTRICTED AND ILLIQUID SECURITIES (CONTINUED) A security may be considered illiquid if it lacks a readily available market or if its valuation has not changed for a certain period of time. At August 31, 2005, the Fund held investments in restricted and illiquid securities, 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 - ------------------------------------------------------------------------------------------------------------------- 4,000,000 Asia Pulp & Paper Co. Ltd., 12.00%, pfd., Perpetual .................................... 2/14/97 $4,000,000 $ 45,200 752,296 Atherton Franchise Capital, 13.073%, 12/01/08 ..................................... 4/28/94 752,296 11,284 339,219 Pindo Deli Finance Mauritius Ltd., 144A, FRN, 4.675%, 4/29/15 .............................. 4/29/05 78,821 79,106 882,036 Pindo Deli Finance Mauritius Ltd., 144A, FRN, 4.675%, 4/29/18 .............................. 4/29/05 204,950 205,691 1,822,397 Pindo Deli Finance Mauritius Ltd., 144A, zero cpn., 4/29/25 ........................... 4/29/05 423,452 424,983 181,875 VS Holdings ................................... 12/06/01 181,875 -- ----------- TOTAL RESTRICTED AND ILLIQUID SECURITIES (0.39% OF NET ASSETS) ............... $ 766,264 ===========
11. OTHER CONSIDERATIONS Subject to certain terms and conditions, the Fund has agreed to sell its holdings in Asia Pulp & Paper Co. Ltd. and Pindo Deli Finance Mauritius Ltd. in November 2006. Until the completion of the sale, the transaction is being accounted for as a secured borrowing with a pledge of collateral and any preliminary sales proceeds or other interest and cash distributions received are deferred until the completion of the transaction and are recorded as part of the net sales proceeds. 12. REGULATORY MATTERS INVESTIGATIONS AND SETTLEMENTS As part of various investigations by a number of federal, state, and foreign regulators and governmental entities, including the Securities and Exchange Commission ("SEC"), the California Attorney General's Office ("CAGO"), and the National Association of Securities Dealers, Inc. ("NASD"), relating to certain practices in the mutual fund industry, including late trading, market timing and marketing support payments to securities dealers who sell fund shares, Franklin Resources, Inc. and certain of its subsidiaries (as used in this section, together, the "Company"), as well as certain current or former executives and employees of the Company, provided documents and information in response to subpoenas and/or requests for documents, information and/or testimony. Beginning in August 2004, the Company entered into settlements with certain of the regulators and a governmental entity investigating the mutual fund industry practices noted above. The Company believes that settlement of each of the matters is in the best interest of the Company and shareholders of the Franklin, Templeton, and Mutual Series mutual funds (the "funds"). Annual Report | 27 FRANKLIN UNIVERSAL TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 12. REGULATORY MATTERS (CONTINUED) INVESTIGATIONS AND SETTLEMENTS (CONTINUED) Two of the settlement agreements, those with the SEC and the CAGO concerning marketing support payments, provide that the distribution of settlement monies are to be made to the relevant funds, not to individual shareholders. The CAGO has approved the distribution plan pertaining to the distribution of the monies owed under the CAGO settlement agreement and, in accordance with the terms and conditions of that settlement, the monies were disbursed to the participating funds and are recorded as other income in the current period. The SEC has not yet approved the distribution plan pertaining to the SEC settlement. When approved, disbursements of settlement monies under the SEC's settlement will be made promptly in accordance with the terms and conditions of that order. OTHER LEGAL PROCEEDINGS On April 12, 2005, the Attorney General of West Virginia filed a complaint in the Circuit Court of Marshall County, West Virginia against a number of companies engaged in the mutual fund industry, including Franklin Resources, Inc. and its subsidiary, Franklin Advisers, Inc., and certain other parties alleging violations of the West Virginia Consumer Credit and Protection Act and seeking, among other things, civil penalties and attorneys' fees and costs. Defendants have since removed the matter to the United States District Court for the Northern District of West Virginia. To the extent applicable to the Company, the complaint arises from activity that occurred in 2001 and duplicates, in whole or in part, the allegations asserted in the February 4, 2004 Massachusetts Administrative Complaint concerning one instance of market timing (the "Administrative Complaint") and the SEC's findings regarding market timing in its August 2, 2004 Order (the "SEC Order"), both of which matters were previously reported. The Company, in addition to certain funds, and certain current and former officers, employees, and directors have been named in multiple lawsuits in different courts alleging violations of various federal securities and state laws and seeking, among other relief, monetary damages, restitution, removal of fund trustees, directors, advisers, administrators, and distributors, rescission of management contracts and 12b-1 plans, and/or attorneys' fees and costs. Specifically, the lawsuits claim breach of duty with respect to alleged arrangements to permit market timing and/or late trading activity, or breach of duty with respect to the valuation of the portfolio securities of certain Templeton funds managed by Franklin Resources, Inc. subsidiaries, allegedly resulting in market timing activity. The majority of these lawsuits duplicate, in whole or in part, the allegations asserted in the Administrative Complaint and the SEC's findings regarding market timing in the SEC Order. The lawsuits are styled as class actions, or derivative actions on behalf of either the named funds or Franklin Resources, Inc. 28 | Annual Report FRANKLIN UNIVERSAL TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 12. REGULATORY MATTERS (CONTINUED) OTHER LEGAL PROCEEDINGS (CONTINUED) The Company, in addition to certain funds, and certain current and former officers, employees, and directors have been named in multiple lawsuits alleging violations of various securities laws and pendent state law claims relating to the disclosure of marketing support payments and/or payment of allegedly excessive commissions and/or advisory or distribution fees, and seeking, among other relief, monetary damages, restitution, rescission of advisory contracts, including recovery of all fees paid pursuant to those contracts, an accounting of all monies paid to the named advisers, declaratory relief, injunctive relief, and/or attorneys' fees and costs. These lawsuits are styled as class actions or derivative actions brought on behalf of the named funds. The Company and fund management strongly believe that the claims made in each of the lawsuits described above are without merit and intends to defend against them vigorously. The Company cannot predict with certainty the eventual outcome of these lawsuits, nor whether they will have a material negative impact on the Company. Public trust and confidence are critical to the Company's business and any material loss of investor and/or client confidence could result in a significant decline in assets under management by the Company, which would have an adverse effect on future financial results. If it is determined that the Company bears responsibility for any unlawful or inappropriate conduct that caused losses to the Fund, it is committed to making the Fund or its shareholders whole, as appropriate. The Company is committed to taking all appropriate actions to protect the interests of its funds' shareholders. Annual Report | 29 FRANKLIN UNIVERSAL TRUST REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN UNIVERSAL TRUST In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations, of changes in net assets, and of cash flows and financial highlights present fairly, in all material respects, the financial position of Franklin Universal Trust (the "Fund") at August 31, 2005, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2005 by correspondence with the custodian, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP San Francisco, California October 10, 2005 30 | Annual Report FRANKLIN UNIVERSAL TRUST TAX DESIGNATION (UNAUDITED) Under Section 854(b)(2) of the Internal Revenue Code (Code), the Fund designates 16.48% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended August 31, 2005. Under Section 854(b)(2) of the Code, the Fund designates the maximum amount allowable but no less than $2,411,030 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended August 31, 2005. In January 2006, shareholders will receive Form 1099-DIV which will include their share of qualified dividends distributed during the calendar year 2005. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns. Annual Report | 31 FRANKLIN UNIVERSAL TRUST BOARD MEMBERS AND OFFICERS The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Fund, principal occupations during the past five years and number of portfolios overseen in the Franklin Templeton Investments fund complex are shown below. Each board member will serve until that person's successor is appointed and qualified. INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------------------------------------------------------------------------------------------------------------ HARRIS J. ASHTON (1932) Trustee Since 1988 141 Director, Bar-S Foods (meat packing One Franklin Parkway company). San Mateo, CA 94403-1906 - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998). - ------------------------------------------------------------------------------------------------------------------------------------ ROBERT F. CARLSON (1928) Trustee Since 2000 56 None One Franklin Parkway San Mateo, CA 94403-1906 - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice President, senior member and past President, Board of Administration, California Public Employees Retirement Systems (CALPERS); and FORMERLY, member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of California; and Chief Counsel, California Department of Transportation. - ------------------------------------------------------------------------------------------------------------------------------------ S. JOSEPH FORTUNATO (1932) Trustee Since 1989 142 None One Franklin Parkway San Mateo, CA 94403-1906 - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch (until 2002) (Consultant (2003)). - ------------------------------------------------------------------------------------------------------------------------------------ EDITH E. HOLIDAY (1952) Trustee Since 2004 134 Director, Amerada Hess Corporation 500 East Broward Blvd. (exploration and refining of oil and Suite 2100 gas), H.J. Heinz Company (processed Fort Lauderdale, FL 33394-3091 foods and allied products), RTI International Metals, Inc. (manufac- ture and distribution of titanium), Canadian National Railway (railroad), and White Mountains Insurance Group, Ltd. (holding company). - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989). - ------------------------------------------------------------------------------------------------------------------------------------
32 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------------------------------------------------------------------------------------------------------------ FRANK W.T. LAHAYE (1929) Trustee Since 1988 115 Director, The California Center for One Franklin Parkway Land Recycling (redevelopment). San Mateo, CA 94403-1906 - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital). - ------------------------------------------------------------------------------------------------------------------------------------ GORDON S. MACKLIN (1928) Trustee Since 1993 141 Director, Martek Biosciences One Franklin Parkway Corporation, MedImmune, Inc. San Mateo, CA 94403-1906 (biotechnology), and Overstock.com (Internet services); and FORMERLY, Director, MCI Communication Corporation (subsequently known as MCI WorldCom, Inc. and WorldCom, Inc.) (communications services) (1988-2002), White Mountains Insurance Group, Ltd. (holding com- pany) (1987-2004) and Spacehab, Inc. (aerospace services) (1994-2003). - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director of various companies; and FORMERLY, Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company) (2001-2004); Chairman, White River Corporation (financial services) (1993-1998) and Hambrecht & Quist Group (investment banking) (1987-1992); and President, National Association of Securities Dealers, Inc. (1970-1987). - ------------------------------------------------------------------------------------------------------------------------------------ FRANK A. OLSON (1932) Trustee Since June 2005 101 Director, White Mountains Insurance One Franklin Parkway Group, Ltd. (holding company), San Mateo, CA 94403-1906 Amerada Hess Corporation (explo- ration and refining of oil and gas) and Sentient Jet (private jet service); and FORMERLY, Director, Becton Dickinson and Company (medical technology), Cooper Industries, Inc. (electrical products and tools and hardware), Health Net, Inc. (formerly, Foundation Health) (integrated managed care), The Hertz Corporation, Pacific Southwest Airlines, The RCA Corporation, Unicom (formerly, Commonwealth Edison) and UAL Corporation (airlines). - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer (1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines). - ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 33 INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------------------------------------------------------------------------------------------------------------ **EDWARD B. JAMIESON (1948) Trustee, Trustee and 1 None One Franklin Parkway President and President since San Mateo, CA 94403-1906 Chief 1993 and Chief Executive Executive Officer Officer - - Investment Investment Management Management since 2002 - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Executive Vice President and Portfolio Manager, Franklin Advisers, Inc.; and officer and/or trustee, as the case may be, of other subsidiaries of Franklin Resources, Inc. and of four of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ **CHARLES B. JOHNSON (1933) Trustee and Trustee since 141 None One Franklin Parkway Chairman of 1988 and San Mateo, CA 94403-1906 the Board Chairman of the Board since 1993 - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President, Franklin Templeton Distributors, Inc.; Director, Fiduciary Trust Company International; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 43 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ **RUPERT H. JOHNSON, JR. (1940) Trustee and Trustee and 125 None One Franklin Parkway Senior Vice Senior Vice San Mateo, CA 94403-1906 President President since 1988 - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.; Director, Franklin Advisers, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ HARMON E. BURNS (1945) Vice President Since 1988 Not Applicable None One Franklin Parkway San Mateo, CA 94403-1906 - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ JAMES M. DAVIS (1952) Chief Since 2004 Not Applicable Not Applicable One Franklin Parkway Compliance San Mateo, CA 94403-1906 Officer - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director, Global Compliance, Franklin Resources, Inc.; officer of 48 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001). - ------------------------------------------------------------------------------------------------------------------------------------
34 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------------------------------------------------------------------------------------------------------------ LAURA FERGERSON (1962) Treasurer Since 2004 Not Applicable Not Applicable One Franklin Parkway San Mateo, CA 94403-1906 - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice President, Franklin Templeton Services, LLC; officer of 32 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC (1997-2003). - ------------------------------------------------------------------------------------------------------------------------------------ JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable 500 East Broward Blvd. President and Suite 2100 Chief Executive Fort Lauderdale, FL 33394-3091 Officer - Finance and Administration - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 48 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable One Franklin Parkway San Mateo, CA 94403-1906 - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Associate General Counsel, Franklin Resources, Inc.; officer and director of one of the subsidiaries of Franklin Resources, Inc.; officer of 48 of the investment companies in Franklin Templeton Investments; and FORMERLY, President, Chief Executive Officer and Director, Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust (until 2000). - ------------------------------------------------------------------------------------------------------------------------------------ BARBARA J. GREEN (1947) Vice President Since 2000 Not Applicable Not Applicable One Franklin Parkway San Mateo, CA 94403-1906 - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, LLC, Franklin Mutual Advisers, LLC, Franklin Templeton Alternative Strategies, Inc., Franklin Templeton Investor Services, LLC, Franklin Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin Investment Services, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 48 of the investment companies in Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of Investment Management, Executive Assistant and Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and Exchange Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and Judicial Clerk, U.S. District Court (District of Massachusetts) (until 1979). - ------------------------------------------------------------------------------------------------------------------------------------ MURRAY L. SIMPSON (1937) Vice President Since 2000 Not Applicable Not Applicable One Franklin Parkway and Secretary San Mateo, CA 94403-1906 - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Executive Vice President, Franklin Resources, Inc.; officer and/or director, as the case may be, of some of the subsidiaries of Franklin Resources, Inc. and of 48 of the investment companies in Franklin Templeton Investments; and FORMERLY, General Counsel, Franklin Resources, Inc.; Chief Executive Officer and Managing Director, Templeton Franklin Investment Services (Asia) Limited (until 2000); and Director, Templeton Asset Management Ltd. (until 1999). - ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 35
- ------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------------------------------------------------------------------------------------------------------------ GALEN G. VETTER (1951) Chief Financial Since 2004 Not Applicable Not Applicable 500 East Broward Blvd. Officer and Suite 2100 Chief Fort Lauderdale, FL 33394-3091 Accounting Officer - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President, Franklin Templeton Services, LLC; officer of 48 of the investment companies in Franklin Templeton Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc. (1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987 and 1991-2004). - ------------------------------------------------------------------------------------------------------------------------------------
* We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment adviser or affiliated investment advisers. ** Charles B. Johnson and Rupert H. Johnson, Jr. are considered to be interested persons of the Trust under the federal securities laws due to their positions as officers and directors and major shareholders of Franklin Resources, Inc., which is the parent company of the Trust's adviser and distributor. Edward B. Jamieson is considered to be an interested person of the Trust under the federal securities laws due to his position as an officer of Franklin Advisers, Inc., which is the Trust's adviser. Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers. THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF TRUSTEES HAS DETERMINED THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS DESIGNATED FRANK W.T. LAHAYE AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT MR. LAHAYE QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS PRESIDENT AND DIRECTOR OF MCCORMICK SELPH ASSOCIATES FROM 1954 THROUGH 1965; DIRECTOR AND CHAIRMAN OF TELEDYNE CANADA LTD. FROM 1966 THROUGH 1971; DIRECTOR AND CHAIRMAN OF QUARTERDECK CORPORATION FROM 1982 THROUGH 1998; AND SERVICES AS A DIRECTOR OF VARIOUS OTHER PUBLIC COMPANIES INCLUDING U.S. TELEPHONE INC. (1981-1984), FISHER IMAGING INC. (1991-1998) AND DIGITAL TRANSMISSIONS SYSTEMS (1995-1999). IN ADDITION, MR. LAHAYE SERVED FROM 1981 TO 2000 AS A DIRECTOR AND CHAIRMAN OF PEREGRINE VENTURE MANAGEMENT CO., A VENTURE CAPITAL FIRM, AND HAS BEEN A MEMBER AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE ITS INCEPTION. AS A RESULT OF SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. LAHAYE HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. LAHAYE IS AN INDEPENDENT TRUSTEE AS THAT TERM IS DEFINED UNDER THE RELEVANT STOCK EXCHANGE RULES AND U.S. SECURITIES AND EXCHANGE COMMISSION RULES AND RELEASES. 36 | Annual Report FRANKLIN UNIVERSAL TRUST SHAREHOLDER INFORMATION BOARD REVIEW OF INVESTMENT ADVISORY CONTRACT At a meeting held February 28, 2005, the Board of Trustees ("Board"), including a majority of non-interested or independent Trustees, approved renewal of the investment advisory contract for Franklin Universal Trust (the "Fund"). In reaching this decision, the Board took into account information furnished throughout the year at regular Board meetings, as well as information prepared specifically in connection with the annual renewal review process. Information furnished and discussed throughout the year included reports on the Fund, the share price premium or discount to net asset value, the results of investment performance and related financial information for the Fund, as well as periodic reports on legal, compliance, pricing, brokerage commissions and execution and other services provided by the Investment Manager ("Manager") and its affiliates. Information furnished specifically in connection with the renewal process included a report prepared by Lipper Financial Services ("Lipper"), an independent organization, as well as a Fund profitability analysis report prepared by management. The Lipper report compared the Fund's investment performance and expenses with those of other funds deemed comparable to the Fund as selected by Lipper. The Fund profitability analysis report discussed the profitability to Franklin Templeton Investments from its overall U.S. fund operations, as well as on an individual fund-by-fund basis. Included with such profitability analysis report was information on a fund-by-fund basis listing portfolio managers and other accounts they manage, as well as information on management fees charged by the Manager including management's explanation of differences where relevant, and a three-year expense analysis with an explanation for any increase in expense ratios. Additional information accompanying such report was a memorandum prepared by management describing enhancements to the services provided to the Fund by the Franklin Templeton Investments organization, as well as a memorandum relating to economies of scale. In considering such materials, the independent Trustees received assistance and advice from and met separately with independent counsel. In approving continuance of the investment advisory contract for the Fund, the Board, including a majority of independent Trustees, determined that the existing management fee structure was fair and reasonable and that continuance of the investment advisory contract was in the best interests of the Fund and its shareholders. While attention was given to all information furnished, the following discusses the primary factors relevant to the Board's decision. NATURE, EXTENT AND QUALITY OF SERVICE. The Board was satisfied with the nature and quality of the overall services provided by the Manager and its affiliates to the Fund and its shareholders. In addition to investment performance and expenses discussed later, the Board's opinion was based, in part, upon periodic reports furnished them showing that the investment policies and restrictions for the Fund were consistently complied with as well as other reports periodically furnished the Board covering matters such as the compliance of portfolio managers and other management personnel with the code of ethics adopted throughout the Franklin Templeton fund complex, the adherence to fair value pricing procedures established by the Board, and the accuracy of net asset value calculations. Favorable consideration was given to management's efforts and expenditures in establishing back-up systems and recovery procedures to function in the event of a natural disaster, it being noted by the Board that such systems and procedures had functioned Annual Report | 37 FRANKLIN UNIVERSAL TRUST SHAREHOLDER INFORMATION (CONTINUED) BOARD REVIEW OF INVESTMENT ADVISORY CONTRACT (CONTINUED) smoothly during the hurricanes and blackout experienced last year in Florida. Other factors taken into account by the Board were the Manager's best execution trading policies, as well as the compliance procedures and qualifications of the Chief Compliance Officer established in accordance with recently adopted SEC requirements. Consideration was also given to the experience of the Fund's portfolio management team, the number of accounts managed and general method of compensation. In this latter respect, the Board noted that a primary factor in management's determination of the level of a portfolio manager's bonus compensation was the relative investment performance of the funds he or she managed so as to be aligned with the interests of Fund shareholders. INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment performance of the Fund in view of its importance to shareholders. Consideration was given to performance reports and discussions with portfolio managers at Board meetings during the year, as well as the Lipper reports furnished for the contract renewals. The Lipper report prepared for the Fund showed its investment performance in comparison with a performance universe consisting of the Fund and all closed-end leveraged high yield funds as selected by Lipper during 2004, as well as the previous ten years ended December 31, 2004. Such report considered both income return and total return on a net asset value basis without regard to market discounts or premiums in order to accurately reflect investment performance. The Lipper report showed the Fund's income return to be in the lowest quintile of such performance universe for the one-year period and on an annualized basis for each of the previous three-, five- and ten-year periods. The Lipper report also showed that the Fund's total return was in the second highest quintile of such universe during 2004 and on an annualized basis was in the lowest quintile for the previous three-year period and at the median of the performance universe for the previous five- and ten-year periods. In discussing such performance, management pointed out the Fund's mandate to invest between 20 and 30 percent of its assets in utilities stocks differed from the Lipper performance universe, which consisted of pure high yield funds, and that its relative performance within such universe reflected such difference. Management further pointed out that the Fund's favorable investment performance in comparison to a blend of the Credit Suisse First Boston High Yield Index and the Standard & Poors Electric Utilities Index was a more meaningful measure of performance. The Board believed the Fund's investment performance was satisfactory in view of such explanation. COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the management fees and total expense ratios of the Fund compared with a Lipper expense group consisting of the Fund and 14 closed-end leveraged high current yield funds as selected by Lipper. Prior to making such comparison, the Board relied upon a survey showing that the scope of management advisory services covered under the Fund's investment advisory contract was similar to those provided by fund managers to other fund groups that would be used as a basis of comparison in the Lipper reports. In reviewing comparative costs, emphasis was given to each Fund's management fee in comparison with the effective management fee rate that would have been charged by other funds within its Lipper expense group assuming they were the same size as the Fund, as well as the actual total expenses of the Fund in comparison with those of its Lipper expense group. The Lipper 38 | Annual Report FRANKLIN UNIVERSAL TRUST SHAREHOLDER INFORMATION (CONTINUED) BOARD REVIEW OF INVESTMENT ADVISORY CONTRACT (CONTINUED) report showed the Fund's effective management fee rate was in the highest third of the Lipper expense group being five basis points above the median for such group. The report showed the Fund's actual total expenses computed on a basis that included investment related expenses and taxes, which, according to Lipper primarily relates to leveraging, were in the highest third of its expense group, but computed on a basis excluding investment related expenses and taxes were in the lowest third of its Lipper expense group and 30 basis points below the median for such group. The Board found such expenses to be acceptable. MANAGEMENT PROFITABILITY. The Board also considered the level of profits realized by the Manager and its affiliates in connection with the operation of the Fund. In this respect, the Board reviewed the fund profitability analysis that addresses the overall profitability of Franklin Templeton's U.S. fund business, as well as its profits in providing management and other services to each fund. The Board also considered the extent to which the Manager and its affiliates might derive ancillary benefits from fund operations, as well as potential benefits resulting from allocation of fund brokerage and the use of "soft" commission dollars to pay for research. Specific attention was given to the methodology followed in allocating costs to each fund, it being recognized that allocation methodologies are inherently subjective and various allocation methodologies may each be reasonable while producing different results. In this respect, the Board noted that the cost allocation methodology was consistent with that followed in profitability report presentations made in prior years and that it had engaged on a biennial basis the Fund's independent accountants to perform certain procedures specified by the Board solely for its purpose and use. It was also noted that legal costs and payments incurred by Franklin Templeton in resolving various legal proceedings arising from its U.S. fund operations had not been allocated to the Fund for purposes of determining profitability. Included in the analysis were the revenue and related costs involved in managing the Fund, as well as its relative contribution to the profitability of the Manager's parent. In reviewing and discussing such analysis, management discussed with the Board its belief that costs incurred in establishing the infrastructure necessary to the type of fund operations conducted by the Manager and its corporate affiliates may not be fully reflected in the expenses allocated to the Fund in determining its profitability, as well as the fact that the level of profits, to a certain extent, reflected operational cost savings and efficiencies initiated by management. In addition, the Board considered a third-party study comparing the profitability of the Manager's parent on an overall basis as compared to other publicly held managers broken down to show profitability from management operations exclusive of distribution expenses, as well as profitability including distribution expenses. Based upon their consideration of all these factors, the Board determined that the level of profits realized by the Manager under its investment advisory contract with the Fund was not excessive in view of the nature, quality and extent of services provided. ECONOMIES OF SCALE. The Board also considered whether the Manager realizes economies of scale as the Fund grows larger and the extent to which any such benefit is shared with the Fund and its shareholders. The Board believed that a manager's ability to realize economies of scale and the sharing of such benefit is a more relevant consideration in the case of an open-end fund whose Annual Report | 39 FRANKLIN UNIVERSAL TRUST SHAREHOLDER INFORMATION (CONTINUED) BOARD REVIEW OF INVESTMENT ADVISORY CONTRACT (CONTINUED) size increases as a result of the continuous sale of its shares. A closed-end investment company such as the Fund does not continuously offer shares and growth following its initial public offering will primarily result from market appreciation, which benefits its shareholders. While believing economies of scale to be less of a factor in the context of a closed-end fund, the Board believes at some point an increase in size may lead to economies of scale which should be shared with the Fund and its shareholders and intends to monitor future growth of the Fund accordingly. PROXY VOTING POLICIES AND PROCEDURES The Fund has established Proxy Voting Policies and Procedures ("Policies") that the Fund uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Fund's complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at 1-954/847-2268 or by sending a written request to: Franklin Templeton Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy Group. Copies of the Fund's proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission's website at sec.gov and reflect the most recent 12-month period ended June 30. QUARTERLY STATEMENT OF INVESTMENTS The Fund files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's website at sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800/SEC-0330. CERTIFICATIONS The Fund's Chief Executive Officer - Finance and Administration is required by the New York Stock Exchange's Listing Standards to file annually with the Exchange a certification that he is not aware of any violation by the Fund of the Exchange's Corporate Governance Standards applicable to the Fund. The Fund has filed such certification. In addition, the Fund's Chief Executive Officer - Finance and Administration and Chief Financial Officer and Chief Accounting Officer are required by the rules of the SEC to provide certain certifications with respect to the Fund's Form N-CSR and Form N-CSRS (which include the Fund's annual and semiannual reports to shareholders) that are filed semiannually with the SEC. The Fund has filed such certifications with its Form N-CSRS for the six months ended February 28, 2005. Additionally, the Fund expects to file, on or about October 31, 2005, such certifications with its Form N-CSR for the year ended August 31, 2005. 40 | Annual Report LITERATURE REQUEST LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT 1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. To ensure the highest quality of service, we may monitor, record and access telephone calls to or from our service departments. These calls can be identified by the presence of a regular beeping tone. FRANKLIN TEMPLETON INVESTMENTS INTERNATIONAL Mutual European Fund Templeton China World Fund Templeton Developing Markets Trust Templeton Foreign Fund Templeton Foreign Smaller Companies Fund Templeton International (Ex EM) Fund GLOBAL Mutual Discovery Fund Templeton Global Long-Short Fund Templeton Global Opportunities Trust Templeton Global Smaller Companies Fund Templeton Growth Fund Templeton World Fund GROWTH Franklin Aggressive Growth Fund Franklin Capital Growth Fund Franklin Flex Cap Growth Fund Franklin Small-Mid Cap Growth Fund Franklin Small Cap Growth Fund II(1) VALUE Franklin Balance Sheet Investment Fund(2) Franklin Equity Income Fund Franklin Large Cap Value Fund Franklin MicroCap Value Fund(2) Franklin MidCap Value Fund Franklin Small Cap Value Fund Mutual Beacon Fund Mutual Qualified Fund Mutual Recovery Fund(3) Mutual Shares Fund BLEND Franklin Blue Chip Fund Franklin Convertible Securities Fund Franklin Growth Fund Franklin Rising Dividends Fund Franklin U.S. Long-Short Fund SECTOR Franklin Biotechnology Discovery Fund Franklin DynaTech Fund Franklin Global Communications Fund Franklin Global Health Care Fund Franklin Gold and Precious Metals Fund Franklin Natural Resources Fund Franklin Real Estate Securities Fund Franklin Technology Fund Franklin Utilities Fund Mutual Financial Services Fund ASSET ALLOCATION Franklin Templeton Corefolio Allocation Fund Franklin Templeton Founding Funds Allocation Franklin Templeton Perspectives Allocation Fund TARGET FUNDS Franklin Templeton Conservative Target Fund Franklin Templeton Growth Target Fund Franklin Templeton Moderate Target Fund INCOME Franklin Adjustable U.S. Government Securities Fund(4) Franklin's AGE High Income Fund Franklin Floating Rate Daily Access Fund Franklin Income Fund Franklin Limited Maturity U.S. Government Securities Fund(4) Franklin Low Duration Total Return Fund Franklin Real Return Fund Franklin Strategic Income Fund Franklin Strategic Mortgage Portfolio Franklin Templeton Hard Currency Fund Franklin Total Return Fund Franklin U.S. Government Securities Fund(4) Templeton Global Bond Fund Templeton Income Fund TAX-FREE INCOME(5) NATIONAL FUNDS Double Tax-Free Income Fund Federal Tax-Free Income Fund High Yield Tax-Free Income Fund Insured Tax-Free Income Fund(6) LIMITED-TERM FUNDS California Limited-Term Tax-Free Income Fund Federal Limited-Term Tax-Free Income Fund New York Limited-Term Tax-Free Income Fund INTERMEDIATE-TERM FUNDS California Intermediate-Term Tax-Free Income Fund Federal Intermediate-Term Tax-Free Income Fund New York Intermediate-Term Tax-Free Income Fund STATE-SPECIFIC Alabama Arizona California(7) Colorado Connecticut Florida(7) Georgia Kentucky Louisiana Maryland Massachusetts(6) Michigan(6) Minnesota(6) Missouri New Jersey New York(7) North Carolina Ohio(7) Oregon Pennsylvania Tennessee Virginia INSURANCE FUNDS Franklin Templeton Variable Insurance Products Trust(8) (1) The fund is closed to new investors. Existing shareholders can continue adding to their accounts. (2) The fund is only open to existing shareholders and select retirement plans. (3) The fund is a continuously offered, closed-end fund. Shares may be purchased daily; there is no daily redemption. However, each quarter, pending board approval, the fund will authorize the repurchase of 5%-25% of the outstanding number of shares. Investors may tender all or a portion of their shares during the tender period. (4) An investment in the fund is neither insured nor guaranteed by the U.S. government or by any other entity or institution. (5) For investors subject to the alternative minimum tax, a small portion of fund dividends may be taxable. Distributions of capital gains are generally taxable. (6) Portfolio of insured municipal securities. (7) These funds are available in two or more variations, including long-term portfolios, portfolios of insured securities, a high-yield portfolio (CA) and limited-term, intermediate-term and money market portfolios (CA and NY). (8) The funds of the Franklin Templeton Variable Insurance Products Trust are generally available only through insurance company variable contracts. 09/05 Not part of the annual report [LOGO](R) FRANKLIN TEMPLETON One Franklin Parkway INVESTMENTS San Mateo, CA 94403-1906 ANNUAL REPORT FRANKLIN UNIVERSAL TRUST INVESTMENT MANAGER Franklin Advisers, Inc. 1-800/DIAL BEN(R) TRANSFER AGENT PFPC Inc. P.O. Box 43027 Providence, RI 02940 -3027 To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded and accessed . These calls can be identified by the presence of a regular beeping tone. FUT A2005 10/05 ITEM 2. CODE OF ETHICS. (a) The Registrant has adopted a code of ethics that applies to its principal executive officers and principal financial and accounting officer. (c) N/A (d) N/A (f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers and principal financial and accounting officer. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a)(1) The Registrant has an audit committee financial expert serving on its audit committee. (2) The audit committee financial expert is Frank W. T. LaHaye and he is "independent" as defined under the relevant Securities and Exchange Commission Rules and Releases. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Audit Fees The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or for services that are normally provided by the principal accountant in connection with statutory and regulatory filings or engagements were $16,480 for the fiscal year ended August 31, 2005 and $20,816 for the fiscal year ended August 31, 2004. (b) Audit-Related Fees The aggregate fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of Item 4 were $16,000 for the fiscal year ended August 31, 2005 and $12,500 for the fiscal year ended August 31, 2004. The services for which these fees were paid included attestation services. The aggregate fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant that are reasonably related to the performance of the audit of their financial statements were $0 for the fiscal year ended August 31, 2005 and $48,579 for the fiscal year ended August 31, 2004. The services for which these fees were paid included attestation services. (c) Tax Fees There were no fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant for tax compliance, tax advice and tax planning. The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant for tax compliance, tax advice and tax planning were $19,591 for the fiscal year ended August 31, 2005 and $0 for the fiscal year ended August 31, 2004. The services for which these fees were paid included tax compliance and advise. (d) All Other Fees The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant not reported in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended August 31, 2005 and $109 for the fiscal year ended August 31, 2004. The services for which these fees were paid included review of materials provided to the fund Board in connection with the investment management contract renewal process. The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant not reported in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended August 31, 2005 and $99,891 for the fiscal year ended August 31, 2004. The services for which these fees were paid included review of materials provided to the fund Board in connection with the investment management contract renewal process. (e) (1) The registrant's audit committee is directly responsible for approving the services to be provided by the auditors, including: (i) pre-approval of all audit and audit related services; (ii) pre-approval of all non-audit related services to be provided to the Fund by the auditors; (iii)pre-approval of all non-audit related services to be provided to the registrant by the auditors to the registrant's investment adviser or to any entity that controls, is controlled by or is under common control with the registrant's investment adviser and that provides ongoing services to the registrant where the non-audit services relate directly to the operations or financial reporting of the registrant; and (iv) establishment by the audit committee, if deemed necessary or appropriate, as an alternative to committee pre-approval of services to be provided by the auditors, as required by paragraphs (ii) and (iii) above, of policies and procedures to permit such services to be pre-approved by other means, such as through establishment of guidelines or by action of a designated member or members of the committee; provided the policies and procedures are detailed as to the particular service and the committee is informed of each service and such policies and procedures do not include delegation of audit committee responsibilities, as contemplated under the Securities Exchange Act of 1934, to management; subject, in the case of (ii) through (iv), to any waivers, exceptions or exemptions that may be available under applicable law or rules. (e) (2) None of the services provided to the registrant described in paragraphs (b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of regulation S-X. (f) No disclosures are required by this Item 4(f). (g) The aggregate non-audit fees paid to the principal accountant for services rendered by the principal accountant to the registrant and the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant were $35,591 for the fiscal year ended August 31, 2005 and $161,079 for the fiscal year ended August 31, 2004. (h) The registrant's audit committee of the board of trustees has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Members of the Audit Committee are: Robert F. Carlson, S. Joseph Fortunato and Frank W. T. LaHaye. ITEM 6. SCHEDULE OF INVESTMENTS. N/A ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. The board of trustees of the Trust has delegated the authority to vote proxies related to the portfolio securities held by the Fund to the Fund's manager Franklin Advisers, Inc. in accordance with the Proxy Voting Policies and Procedures (Policies) adopted by the manager. The manager has delegated its administrative duties with respect to the voting of proxies to the Proxy Group within Franklin Templeton Companies, LLC (Proxy Group), an affiliate and wholly owned subsidiary of Franklin Resources, Inc. All proxies received by the Proxy Group will be voted based upon the manager's instructions and/or policies. To assist it in analyzing proxies, the manager subscribes to Institutional Shareholder Services (ISS), an unaffiliated third party corporate governance research service that provides in-depth analyses of shareholder meeting agendas, vote recommendations, recordkeeping and vote disclosure services. In addition, the manager subscribes to Glass, Lewis & Co., LLC (Glass Lewis), an unaffiliated third party analytical research firm, to receive analyses and vote recommendations on the shareholder meetings of publicly held U.S. companies. Although ISS' and/or Glass Lewis' analyses are thoroughly reviewed and considered in making a final voting decision, the manager does not consider recommendations from ISS, Glass Lewis or any other third party to be determinative of the manager's ultimate decision. The manager votes proxies solely in the interests of the Fund and its shareholders. As a matter of policy, the officers, directors/trustees and employees of the Fund, the manager and the Proxy Group will not be influenced by outside sources whose interests conflict with the interests of the Fund and its shareholders. All conflicts are resolved in the interests of the manager's clients. In situations where the manager perceives a material conflict of interest, the manager may: disclose the conflict to the Fund's board of trustees; defer to the voting recommendation of the Fund's board of trustees, ISS, Glass Lewis or those of another independent third party provider of proxy services; or take such other action in good faith (in consultation with counsel) which would protect the interests of the Fund and its shareholders. The recommendation of management on any issue is a factor which the manager considers in determining how proxies should be voted, but is not determinative of the manager's ultimate decision. As a matter of practice, the votes with respect to most issues are cast in accordance with the position of the company's management. Each issue, however, is considered on its own merits, and the manager will not support the position of the company's management in any situation where it deems that the ratification of management's position would adversely affect the investment merits of owning that company's shares. MANAGER'S PROXY VOTING POLICIES AND PRINCIPLES The manager has adopted general proxy voting guidelines, which are summarized below. These guidelines are not an exhaustive list of all the issues that may arise and the manager cannot anticipate all future situations. In all cases, each proxy will be considered based on the relevant facts and circumstances. BOARD OF DIRECTORS. The manager supports an independent board of directors, and prefers that key committees such as audit, nominating, and compensation committees be comprised of independent directors. The manager will generally vote against management efforts to classify a board and will generally support proposals to declassify the board of directors. The manager may withhold votes from directors who have attended less than 75% of meetings without a valid reason. While generally in favor of separating Chairman and CEO positions, the manager will review this issue as well as proposals to restore or provide for cumulative voting on a case-by-case basis, taking into consideration factors such as the company's corporate governance guidelines or provisions and performance. RATIFICATION OF AUDITORS OF PORTFOLIO COMPANIES. In light of several high profile accounting scandals, the manager will closely scrutinize the role and performance of auditors. On a case-by-case basis, the manager will examine proposals relating to non-audit relationships and non-audit fees. The manager will also consider, on a case-by-case basis, proposals to rotate auditors, and will vote against the ratification of auditors when there is clear and compelling evidence of accounting irregularities or negligence. MANAGEMENT AND DIRECTOR COMPENSATION. A company's equity-based compensation plan should be in alignment with its shareholders' long-term interests. The manager evaluates plans on a case-by-case basis by considering several factors to determine whether the plan is fair and reasonable, including the ISS quantitative model utilized to assess such plans and/or the Glass Lewis evaluation of the plans. The manager will generally oppose plans that have the potential to be excessively dilutive, and will almost always oppose plans that are structured to allow the repricing of underwater options, or plans that have an automatic share replenishment "evergreen" feature. The manager will generally support employee stock option plans in which the purchase price is at least 85% of fair market value, and when potential dilution is 10% or less. Severance compensation arrangements will be reviewed on a case-by-case basis, although the manager will generally oppose "golden parachutes" that are considered to be excessive. The manager will normally support proposals that require a percentage of directors' compensation to be in the form of common stock, as it aligns their interests with those of shareholders. The manager will review on a case-by-case basis any shareholder proposals to adopt policies on expensing stock option plans. ANTI-TAKEOVER MECHANISMS AND RELATED ISSUES. The manager generally opposes anti-takeover measures since they tend to reduce shareholder rights. On occasion, the manager may vote with management when the research analyst has concluded that the proposal is not onerous and would not harm the Fund or its shareholders' interests. The manager generally supports proposals that require shareholder rights' plans ("poison pills") to be subject to a shareholder vote and will closely evaluate such plans on a case-by-case basis to determine whether or not they warrant support. The manager will generally vote against any proposal to issue stock that has unequal or subordinate voting rights. The manager generally opposes any supermajority voting requirements as well as the payment of "greenmail." The manager generally supports "fair price" provisions and confidential voting. CHANGES TO CAPITAL STRUCTURE. The manager will review, on a case-by-case basis, proposals by companies to increase authorized shares and the purpose for the increase and proposals seeking preemptive rights. The manager will generally not vote in favor of dual-class capital structures to increase the number of authorized shares where that class of stock would have superior voting rights. The manager will generally vote in favor of the issuance of preferred stock in cases where the company specifies the voting, dividend, conversion and other rights of such stock and the terms of the preferred stock issuance are deemed reasonable. MERGERS AND CORPORATE RESTRUCTURING. Mergers and acquisitions will be subject to careful review by the research analyst to determine whether each will be beneficial to shareholders. The manager will analyze various economic and strategic factors in making the final decision on a merger or acquisition. Corporate restructuring and reincorporation proposals are also subject to a thorough examination on a case-by-case basis. SOCIAL AND CORPORATE POLICY ISSUES. The manager will generally give management discretion with regard to social, environmental and ethical issues, although the manager may vote in favor of those that are believed to have significant economic benefits or implications for the Fund and its shareholders. GLOBAL CORPORATE GOVERNANCE. Many of the tenets discussed above are applied to proxy voting decisions for international companies. However, the manager must be more flexible in these instances and must be mindful of the varied market practices of each region. The manager will attempt to process every proxy it receives for all domestic and foreign proxies. However, there may be situations in which the manager cannot process proxies, for example, where a meeting notice was received too late, or sell orders preclude the ability to vote. The manager may abstain from voting under certain circumstances or vote against items such as "Other Business" when the manager is not given adequate information from the company. Shareholders may view the complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at 1-954/847-2268 or by sending a written request to: Franklin Templeton Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy Group. Copies of the Fund's proxy voting records are available online at franklintempleton.com and posted on the SEC website at WWW.SEC.GOV and reflect the twelve-month period beginning July 1, 2004, and ending June 30, 2005. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant's Board of Trustees that would require disclosure herein. ITEM 11. 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 Shareholder Report on Form N-CSR, 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 Shareholder Report on Form N-CSR. ITEM 12. EXHIBITS. (a) (1) Code of Ethics (a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and Galen G. Vetter, Chief Financial Officer (b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and Galen G. Vetter, Chief Financial 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/JIMMY D. GAMBILL -------------------- Jimmy D. Gambill Chief Executive Officer - Finance and Administration Date October 21, 2005 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/JIMMY D. GAMBILL ------------------- Jimmy D. Gambill Chief Executive Officer - Finance and Administration Date October 21, 2005 By /s/GALEN G. VETTER ------------------ Galen G. Vetter Chief Financial Officer Date October 21, 2005 EX-99.CODE ETH 2 ncsr-code704.txt Exhibit (a)(1) CODE OF ETHICS FOR PRINCIPAL EXECUTIVES & SENIOR FINANCIAL OFFICERS - ------------------------------------------------------------------------------ PROCEDURES Dated July 2004 - ------------------------------------------------------------------------------- FRANKLIN TEMPLETON FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS I. Covered Officers and Purpose of the Code This code of ethics (the "Code") applies to the Principal Executive Officers, Principal Financial Officer and Principal Accounting Officer (the "Covered Officers," each of whom is set forth in Exhibit A) of each investment company advised by a Franklin Resources subsidiary and that is registered with the United States Securities & Exchange Commission ("SEC") (collectively, "FT Funds") for the purpose of promoting: o Honest and ethical conduct, including the ethical resolution of actual or apparent conflicts of interest between personal and professional relationships; o Full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the SEC and in other public communications made by or on behalf of the FT Funds; o Compliance with applicable laws and governmental rules and regulations; o The prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o Accountability for adherence to the Code. Each Covered Officer will be expected to adhere to a high standard of business ethics and must be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Franklin Resources, Inc. has separately adopted the CODE OF ETHICS AND BUSINESS CONDUCT ("Business Conduct"), which is applicable to all officers, directors and employees of Franklin Resources, Inc., including Covered Officers. It summarizes the values, principles and business practices that guide the employee's business conduct and also provides a set of basic principles to guide officers, directors and employees regarding the minimum ethical requirements expected of them. It supplements the values, principles and business conduct identified in the Code and other existing employee policies. Additionally, the Franklin Templeton Funds have separately adopted the CODE OF ETHICS AND POLICY STATEMENT ON INSIDER TRADING governing personal securities trading and other related matters. The Code for Insider Trading provides for separate requirements that apply to the Covered Officers and others, and therefore is not part of this Code. Insofar as other policies or procedures of Franklin Resources, Inc., the Funds, the Funds' adviser, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superceded by this Code to the extent that they overlap or conflict with the provisions of this Code. Please review these other documents or consult with the Legal Department if have questions regarding the applicability of these policies to you. III. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his or her service to, the FT Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of apposition with the FT Funds. Certain conflicts of interest arise out of the relationships between Covered Officers and the FT Funds and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the FT Funds because of their status as "affiliated persons" of the FT Funds. The FT Funds' and the investment advisers' compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the FT Funds, the investment advisers and the fund administrator of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the FT Funds, for the adviser, the administrator, or for all three), be involved in establishing policies and implementing decisions that will have different effects on the adviser, administrator and the FT Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the FT Funds, the adviser, and the administrator and is consistent with the performance by the Covered Officers of their duties as officers of the FT Funds. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the FT Funds' Boards of Directors ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the FT Funds. Each Covered Officer must: o Not use his or her personal influence or personal relationships improperly to influence investment decisions orfinancial reporting by the FT Funds whereby the Covered Officer would benefit personally to the detriment of the FT Funds; o Not cause the FT Funds to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit the FT Funds; o Not retaliate against any other Covered Officer or any employee of the FT Funds or their affiliated persons for reports of potential violations that are made in good faith; o Report at least annually the following affiliations or other relationships:/ 1 o all directorships for public companies and all companies that are required to file reports with the SEC; o any direct or indirect business relationship with any independent directors of the FT Funds; o any direct or indirect business relationship with any independent public accounting firm (which are not related to the routine issues related to the firm's service as the Covered Persons accountant); and o any direct or indirect interest in any transaction with any FT Fund that will benefit the officer (not including benefits derived from the advisory, sub-advisory, distribution or service agreements with affiliates of Franklin Resources). These reports will be reviewed by the Legal Department for compliance with the Code. There are some conflict of interest situations that should always be approved in writing by Franklin Resources General Counsel or Deputy General Counsel, if material. Examples of these include/2: o Service as a director on the board of any public or private Company; o The receipt of any gifts in excess of $100 from any person, from any corporation or association o The receipt of any entertainment from any Company with which the FT Funds has current or prospective business dealings unless such entertainment is business related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety. Notwithstanding the foregoing, the Covered Officers must obtain prior approval from the Franklin Resources General Counsel for any entertainment with a value in excess of $1000. o Any ownership interest in, or any consulting or employment relationship with, any of the FT Fund's service providers, other than an investment adviser, principal underwriter, administrator or any affiliated person thereof; - ----------------------------- 1 Reporting of these affiliations or other relationships shall be made by completing the annual Directors and Officers Questionnaire and returning the questionnaire to Franklin Resources Inc, General Counsel or Deputy General Counsel. 2 Any activity or relationship that would present a conflict for a Covered Officer may also present a conflict for the Covered Officer if a member of the Covered Officer's immediate family engages in such an activity or has such a relationship. The Cover Person should also obtain written approval by FT's General Counsel in such situations. o A direct or indirect financial interest in commissions, transaction charges or spreads paid by the FT Funds for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. Franklin Resources General Counsel or Deputy General Counsel will provide a report to the FT Funds Audit Committee of any approvals granted at the next regularly scheduled meeting. IV. Disclosure and Compliance o Each Covered Officer should familiarize himself with the disclosure requirements generally applicable to the FT Funds; o Each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the FT Funds to others, whether within or outside the FT Funds, including to the FT Funds' directors and auditors, and to governmental regulators and self-regulatory organizations; o Each Covered Officer should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the FT Funds, the FT Fund's adviser and the administrator with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the FT Funds file with, or submit to, the SEC and in other public communications made by the FT Funds; and o It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. V. Reporting and Accountability Each Covered Officer must: o Upon becoming a covered officer affirm in writing to the Board that he or she has received, read, and understands the Code (see Exhibit B); o Annually thereafter affirm to the Board that he has complied with the requirements of the Code; and o Notify Franklin Resources' General Counsel or Deputy General Counsel promptly if he or she knows of any violation of this Code. Failure to do so is itself is a violation of this Code. Franklin Resources' General Counsel and Deputy General Counsel are responsible for applying this Code to specific situations in which questions are presented under it and have the authority to interpret this Code in any particular situation./3 However, the Independent Directors of the respective FT Funds will consider any approvals or waivers/4 sought by any Chief Executive Officers of the Funds. - ----------------- 3 Franklin Resources General Counsel and Deputy General Counsel are authorized to consult, as appropriate, with members of the Audit Committee, counsel to the FT Funds and counsel to the Independent Directors, and are encouraged to do so. 4 Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics" and "implicit waiver," which must also be disclosed, as "the registrant's failure to take action within a reasonable period of time regarding a material departure from a provision of the code of ethics that has been made known to an executive officer" of the registrant. See Part X. The FT Funds will follow these procedures in investigating and enforcing this Code: o Franklin Resources General Counsel or Deputy General Counsel will take all appropriate action to investigate any potential violations reported to the Legal Department; o If, after such investigation, the General Counsel or Deputy General Counsel believes that no violation has occurred, The General Counsel is not required to take any further action; o Any matter that the General Counsel or Deputy General Counsel believes is a violation will be reported to the Independent Directors of the appropriate FT Fund; o If the Independent Directors concur that a violation has occurred, it will inform and make a recommendation to the Board of the appropriate FT Fund or Funds, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; o The Independent Directors will be responsible for granting waivers, as appropriate; and o Any changes to or waivers of this Code will, to the extent required, are disclosed as provided by SEC rules./5 VI. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the FT Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the FT Funds, the FT Funds' advisers, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The FT Code of Ethics and Policy Statement On Insider Trading, adopted by the FT Funds, FT investment advisers and FT Fund's principal underwriter pursuant to Rule 17j-1 under the Investment Company Act, the Code of Ethics and Business Conduct and more detailed policies and procedures set forth in FT's Employee Handbook are separate requirements applying to the Covered Officers and others, and are not part of this Code. VII. Amendments Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of the FT Funds' Board including a majority of independent directors. VIII. Confidentiality All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the FT Funds' Board and their counsel. - --------------------- 5 See Part X. IX. Internal Use The Code is intended solely for the internal use by the FT Funds and does not constitute an admission, by or on behalf of any FT Funds, as to any fact, circumstance, or legal conclusion. X. Disclosure on Form N-CSR Item 2 of Form N-CSR requires a registered management investment company to disclose annually whether, as of the end of the period covered by the report, it has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these officers are employed by the registrant or a third party. If the registrant has not adopted such a code of ethics, it must explain why it has not done so. The registrant must also: (1) file with the SEC a copy of the code as an exhibit to its annual report; (2) post the text of the code on its Internet website and disclose, in its most recent report on Form N-CSR, its Internet address and the fact that it has posted the code on its Internet website; or (3) undertake in its most recent report on Form N-CSR to provide to any person without charge, upon request, a copy of the code and explain the manner in which such request may be made. Disclosure is also required of amendments to, or waivers (including implicit waivers) from, a provision of the code in the registrant's annual report on Form N-CSR or on its website. If the registrant intends to satisfy the requirement to disclose amendments and waivers by posting such information on its website, it will be required to disclose its Internet address and this intention. The Legal Department shall be responsible for ensuring that: o a copy of the Code is filed with the SEC as an exhibit to each Fund's annual report; and o any amendments to, or waivers (including implicit waivers) from, a provision of the Code is disclosed in the registrant's annual report on Form N-CSR. In the event that the foregoing disclosure is omitted or is determined to be incorrect, the Legal Department shall promptly file such information with the SEC as an amendment to Form N-CSR. In such an event, the Fund Chief Compliance Officer shall review the Code and propose such changes to the Code as are necessary or appropriate to prevent reoccurrences. EXHIBIT A Persons Covered by the Franklin Templeton Funds Code of Ethics August 2004 FRANKLIN GROUP OF FUNDS Edward B. Jamieson, President and Chief Executive Officer - Investment Management Charles B. Johnson, President and Chief Executive Officer - Investment Management Gregory E. Johnson, President and Chief Executive Officer - Investment Management Rupert H. Johnson, Jr. President and Chief Executive Officer - Investment Management William J. Lippman, President and Chief Executive Officer - Investment Management Christopher Molumphy President and Chief Executive Officer - Investment Management Jimmy D. Gambill, Senior Vice President and Chief Executive Officer - Finance and Administration Galen G. Vetter Chief Financial Officer FRANKLIN MUTUAL SERIES FUNDS David Winters Chairman of the Board, President, Chief Executive Officer-Investment Management Jimmy D. Gambill Senior Vice President and Chief Executive Officer- Finance and Administration Galen G. Vetter Chief Financial Officer TEMPLETON GROUP OF FUNDS Jeffrey A. Everett President and Chief Executive Officer - Investment Management Martin L. Flanagan President and Chief Executive Officer - Investment Management Mark Mobius President and Chief Executive Officer - Investment Management Christopher J. Molumphy President and Chief Executive Officer - Investment Management Gary P. Motyl President and Chief Executive Officer - Investment Management Donald F. Reed President and Chief Executive Officer - Investment Management Jimmy D. Gambill, Senior Vice President and Chief Executive Officer - Finance and Administration Galen G. Vetter Chief Financial Officer EXHIBIT B ACKNOWLEDGMENT FORM JULY 2004 FRANKLIN TEMPLETON FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS. INSTRUCTIONS: 1. Complete all sections of this form. 2. Print the completed form, sign, and date. 3. Submit completed form to FT's General Counsel within 10 days of becoming a Covered Officer and by January 30th of each subsequent year. INTER-OFFICE MAIL: Murray Simpson, General Counsel, Legal SM-920/2 TELEPHONE: (650) 312-7331 Fax: (650) 312-2221 E-MAIL: Simpson, Murray (internal address); mlsimpson@frk.com (external address) - ---------------------------------------------------------------------------- COVERED OFFICER'S NAME: - ---------------------------------------------------------------------------- TITLE: - ---------------------------------------------------------------------------- DEPARTMENT: - ---------------------------------------------------------------------------- LOCATION: - ---------------------------------------------------------------------------- CERTIFICATION FOR YEAR ENDING: - ---------------------------------------------------------------------------- TO: Franklin Resources General Counsel, Legal Department I hereby acknowledge receipt of a copy of Franklin Templeton Fund's code of ethics for Principal Executive Officers and Senior Financial Officers (the "Code") that I have read and understand. I will comply fully with all provisions of the Code to the extent they apply to me during the period of my employment. I further understand and acknowledge that any violation of the Code may subject me to disciplinary action, including termination of employment - ---------------------------- ---------------------- Signature Date signed EX-99.CERT 3 fut302cert.txt Exhibit (a)(2) CERTIFICATIONS I, Jimmy D. Gambill, certify that: 1. I have reviewed this report on Form N-CSR of FRANKLIN UNIVERSAL TRUST; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. October 21, 2005 /s/JIMMY D. GAMBILL Chief Executive Officer - Finance and Administration I, Galen G. Vetter, certify that: 1. I have reviewed this report on Form N-CSR of Franklin Universal Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. October 21, 2005 /s/GALEN G. VETTER Chief Financial Officer EX-99.906 4 fut906cert.txt Exhibit (b) CERTIFICATIONS CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Jimmy D. Gambill, Chief Executive Officer of the FRANKLIN UNIVERSAL TRUST (the "Registrant"), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The periodic report on Form N-CSR of the Registrant for the period ended 8/31/05 (the "Form N-CSR") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: October 21, 2005 /s/Jimmy D. Gambill ------------------- Jimmy D. Gambill Chief Executive Officer - Finance and Administration CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Galen G. Vetter, Chief Financial Officer of the FRANKLIN UNIVERSAL TRUST (the "Registrant"), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The periodic report on Form N-CSR of the Registrant for the period ended 8/31/05 (the "Form N-CSR") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: October 21, 2005 /s/GALEN G. VETTER ------------------ Galen G. Vetter Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----