Fitch Affirms Ratings of Two Franklin Closed End Funds at 'AAA'

CHICAGO--()--Fitch Ratings has affirmed the ratings assigned to the auction preferred shares (APS) issued by Franklin Limited Duration Income Trust (NYSE AMEX: FTF) and the senior notes issued by Franklin Universal Trust (NYSE AMEX: FT), two multi strategy closed-end funds managed by Franklin Advisers, Inc. (Franklin):

Franklin Limited Duration Income Trust:

--Series M, 1200 shares outstanding, with a liquidation preference of $25,000 per share, affirmed at 'AAA';

--Series W, 1200 shares outstanding, with a liquidation preference of $25,000 per share, affirmed at 'AAA';

--Series F, 1200 shares outstanding, with a liquidation preference of $25,000 per share, affirmed at 'AAA'.

Franklin Universal Trust:

--$60,000,000 of 2.87% senior notes, due Aug. 28, 2018, affirmed at 'AAA'.

KEY RATING DRIVERS

The 'AAA' rating affirmations reflect:

--Sufficient asset coverage provided to the APS (FTF) and senior notes (FT) by the underlying portfolios of assets;

--The structural protections afforded by mandatory de-leveraging provisions in the event of asset coverage declines;

--The legal and regulatory parameters that govern the funds' operations;

--The capabilities of Franklin as investment advisor.

LEVERAGE

As of Jan. 31, 2015, FTF's total assets were approximately $560 million and total leverage consisted of $90 million of rated APS and $90 million of mortgage dollar rolls, or 32% of total assets.

As of Jan. 31, 2015, FT's total assets were approximately $263 million and total leverage consisted of $60 million of rated senior notes, or 23% of total assets.

ASSET COVERAGE

At the time of the rating affirmations, the funds' asset coverage ratios, as calculated in accordance with the Fitch total and net overcollateralization tests (Fitch OC tests) per the 'AAA' rating guidelines outlined in Fitch's applicable criteria, were in excess of 100%, which is the minimum asset coverage amount deemed consistent with an 'AAA' rating. These tests serve as minimum asset coverage covenants required by the funds' governing documents.

Additionally, the FTF's asset coverage ratio for preferred shares, as calculated in accordance with the Investment Company Act of 1940 (the 1940 Act), was in excess of 200%, which is also the minimum asset coverage required by the fund's governing documents. FT's asset coverage ratio for the notes, as calculated in accordance with the 1940 Act, was in excess of 300%, which is the minimum asset coverage required the fund's governing documents.

STRUCTURAL PROTECTIONS

Should the funds' asset coverage tests decline below their minimum threshold amounts (as tested on the last business day of each month), the fund manager is then expected to cure any breaches by altering the composition of the portfolio toward assets with lower discount factors (for Fitch OC Tests breaches), or by reducing leverage in a sufficient amount (for both the Fitch OC Tests and the 1940 Act test breaches) within a pre-specified time period.

FUND PROFILES

Franklin Limited Duration Income Trust is a diversified, closed-end management investment company, registered under the 1940 Act, as amended, that commenced investment operations in August 2003. The fund's primary investment objective is to seek high current income. The fund's secondary investment objective is to seek capital appreciation to the extent it is possible and is consistent with the fund's primary objective.

At the time of the rating affirmations, the portfolio was comprised of 36% corporate bonds, 34% leveraged loans, 22% U.S. government agency securities, and 7% structured finance securities. A small portion, representing approximately 1% of net assets, was invested in short-term emerging market sovereign securities. The structured finance portion of the portfolio consisted primarily of senior collateralized loan obligation securities and senior commercial mortgage-backed securities.

Franklin Universal Trust is a diversified, closed-end management investment company, registered under the Investment Company Act of 1940, as amended, that commenced investment operations in September 1988. The fund's primary investment objective is high current income consistent with preservation of capital. The fund's secondary investment objective is growth of income through dividend increases and capital appreciation.

Under normal circumstances, the fund invests primarily in two asset classes: high yield bonds and utility stocks. The fund also invests to a lesser extent in foreign equity securities and sovereign debt, in each case U.S. dollar denominated. At the time of the rating affirmation, the portfolio was comprised of 63% high yield corporate securities, 35% common equity securities, and 2% cash and short-term investments.

FUNDS ADVISOR

Franklin Advisers, Inc., a subsidiary of Franklin Resources, Inc. (NYSE: BEN) acts as the investment adviser to the fund. As of Jan. 31, 2015, Franklin Resources, Inc. managed approximately $872 billion in assets.

RATINGS SENSITIVITY

The assigned rating may be sensitive to material changes in the leverage composition, portfolio credit quality or market risk of the funds. A material adverse deviation from Fitch guidelines for any key rating driver could cause the ratings to be lowered by Fitch.

For additional information about Fitch's rating guidelines applicable to debt and preferred stock issued by closed-end funds, please review the criteria referenced below, which can be found on Fitch's web site at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Closed-End Fund Debt and Preferred Stock' (Sept. 4, 2014).

Applicable Criteria and Related Research:

Rating Closed-End Fund Debt and Preferred Stock

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=765528

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=981074

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Russ Thomas, +1-312-368-3189
Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Gwen Fink-Stone, JD, +1-212-908-9128
Associate Director
or
Committee Chairperson
Ian Rasmussen, +1-212-908-0232
Senior Director
or
Media Relations
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Russ Thomas, +1-312-368-3189
Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Gwen Fink-Stone, JD, +1-212-908-9128
Associate Director
or
Committee Chairperson
Ian Rasmussen, +1-212-908-0232
Senior Director
or
Media Relations
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com