UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21357
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FRANKLIN TEMPLETON LIMITED DURATION INCOME 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: 3/31
----
Date of reporting period: 9/30/08
--------
ITEM 1. REPORTS TO STOCKHOLDERS.
SEPTEMBER 30, 2008
SEMIANNUAL REPORT FIXED INCOME
(GRAPHIC)
FRANKLIN TEMPLETON
LIMITED DURATION INCOME TRUST
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
FRANKLIN - Templeton - 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)
Not part of the semiannual report
Contents
CEO'S MESSAGE ............................................................. 1
SEMIANNUAL REPORT
Franklin Templeton Limited Duration Income Trust .......................... 4
Performance Summary ....................................................... 10
Annual Shareholders' Meeting .............................................. 11
Dividend Reinvestment Plan ................................................ 12
Financial Highlights and Statement of Investments ......................... 15
Financial Statements ...................................................... 27
Notes to Financial Statements ............................................. 30
Shareholder Information ................................................... 40
A Message from Gregory E. Johnson,
President and Chief Executive Officer of Franklin Resources, Inc.
October 31, 2008
Dear Shareholder:
The enclosed semiannual report for Franklin Templeton Limited Duration Income
Trust covers the six months ended September 30, 2008, but I would like to add
some comments on market events that occurred in October. Recent market
volatility has been jarring to everyone, including those of us who have worked
in financial markets for many years. Bank lending around the world has seized
up, and the fallout has impacted venerable firms alongside broader stock and
bond indexes.
This environment is bound to provoke great concern, but it's equally important
to put the latest market developments in perspective. That's why I'd like to
offer a few thoughts on these events, our company's approach to investing and
the strong health of our organization.
A key point to recognize is that global financial turmoil is being addressed by
global action. Central banks around the world have coordinated their efforts to
cut interest rates and supply liquidity to frozen funding markets. A number of
governments have also intervened to rescue major financial institutions or find
an orderly way for them to be acquired. Here in the U.S., the Federal Reserve
and Treasury Department have moved rapidly to establish new programs for easing
money market pressures and handling troubled financial assets. The outcome of
all these efforts may take a while to be realized, but I believe the latest
actions here and abroad mark a significant turning point for global capital
markets.
Not part of the semiannual report | 1
It's also important to remember that as daunting as current market conditions
may be, we have navigated through other periods of market volatility. U.S. stock
markets recorded three bear markets during the 1960s as the nation grappled with
the Vietnam War and a turbulent economy.(1) The quintupling of oil prices in
1973 led to a deep U.S. recession and a stock market plunge of 45.1% from
January 1973 through December 1974.(1) And the "Black Monday" stock market crash
of 1987 remains the largest single-day percentage decline in the history of the
Dow Jones Industrial Average.(2)
Advice applicable throughout these upheavals remains true today. The late Sir
John Templeton, writing 15 years ago, ended a list of his core investment
principles with these thoughts: "Do not be fearful or negative too often. . . .
For 100 years optimists have carried the day in U.S. stocks. Even in the dark
'70s, many professional money managers -- and many individual investors too --
made money in stocks .... In this century or the next it's still 'Buy low, sell
high.'"(3)
Sir John knew these simple concepts were difficult to execute in the face of
pessimism. Nonetheless, that is precisely how our Franklin, Templeton and Mutual
Series portfolio managers are contending with today's challenging environment.
They are using their expertise to sort through investment opportunities,
avoiding those firms that have become merely cheap and identifying those firms
best positioned to be eventual winners. This kind of rigorous, bottom-up,
security-by-security analysis is the fundamental investment discipline practiced
across our global platform.
These asset management strengths are also the core of our business. Unlike
financial firms that have dominated recent headlines, Franklin Templeton derives
its revenue primarily from investment management, not investment banking or
securities brokerage. Additionally, our assets under management are diversified
by investment objective, clientele and geographic region. Diversified
positioning helps our firm maintain healthy operating margins even when volatile
markets reduce assets under management. It is also important to note that
maintaining a strong balance sheet has been a pillar of our management strategy.
We have a substantial pool of cash and investments and low levels of debt, and
we are in the enviable position of not having to depend on credit to meet our
operating needs. In fact, our strong franchise, sound capitalization
(1.) Source: Ned Davis Research, Inc.
(2.) Source: NYSE Euronext. The Dow Jones Industrial Average is price weighted
based on the average market price of 30 blue chip stocks of companies that
are generally industry leaders.
(3.) Source: "16 Rules for Investment Success" by Sir John Templeton.
2 | Not part of the semiannual report
and minimal leverage led Standard & Poor's to recently raise its credit ratings
on Franklin Resources, Inc. (BEN) to the highest level currently applied to a
publicly traded asset manager.(4)
Franklin Templeton's six-decade growth into a premier global asset manager has
given us the conviction that although conditions remain challenging, there are
ample reasons to be optimistic about eventual market stabilization and recovery.
Being able to take advantage of markets shaken by maximum pessimism has helped
our firm develop into an organization that stretches across 29 countries and
manages assets for more than 20 million shareholder accounts.
In the enclosed semiannual report for Franklin Templeton Limited Duration Income
Trust, the portfolio managers discuss market conditions, investment decisions
and Fund performance during the six months ended September 30, 2008. The report
contains additional performance data and financial information. Our website,
FRANKLINTEMPLETON.COM, offers more timely discussions, daily prices, portfolio
holdings and other information. We encourage you to discuss your concerns with
your financial advisor, who can review your overall portfolio, reassess your
goals and help you stay focused on the long term. As times like these
illustrate, all securities markets fluctuate, as do fund share prices.
We are grateful for the trust you have placed in Franklin Templeton and remain
focused on serving your investment needs.
Sincerely,
/s/ Gregory E. Johnson
Gregory E. Johnson
President and Chief Executive Officer
Franklin Resources, Inc.
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF OCTOBER 31, 2008. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE.
(4.) Source: Standard & Poor's press release, 10/6/08.
Not part of the semiannual report | 3
Semiannual Report
Franklin Templeton
Limited Duration Income Trust
YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin Templeton Limited Duration
Income Trust seeks to provide high, current income, with a secondary objective
of capital appreciation to the extent it is possible and consistent with the
Fund's primary objective, through a portfolio consisting primarily of high yield
corporate bonds, floating rate bank loans and mortgage- and other asset-backed
securities.
Dear Shareholder:
This semiannual report for Franklin Templeton Limited Duration Income Trust
covers the period ended September 30, 2008.
PERFORMANCE OVERVIEW
For the six months under review, Franklin Templeton Limited Duration Income
Trust had cumulative total returns of -4.88% based on net asset value and
-20.09% based on market price. Net asset value decreased from $12.85 per share
on March 31, 2008, to $11.78 at period-end, and the market price fell from
$10.94 to $8.36 over the same time. You can find the Fund's performance data in
the Performance Summary on page 10.
ECONOMIC AND MARKET OVERVIEW
During the six months under review, financial market conditions deteriorated
sharply, weighing heavily on the U.S. economy as the credit crisis that
originated in the U.S. housing market worsened. Job losses mounted and the
unemployment rate rose to 6.1% during the reporting period.(1) Home prices
continued to fall and default rates rose as wages remained essentially flat.
Waning consumer confidence led to a pullback in consumer spending as the impact
of the government's tax rebates dissipated. These factors as well as upward
inflationary pressures from a weak U.S. dollar and high food, energy and
commodity
(1.) Source: Bureau of Labor Statistics.
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 16.
4 | Semiannual Report
prices burdened the overall economy. The economy grew at a 2.8% annualized rate
in the second quarter of 2008 but contracted in the third quarter at a -0.3%
estimated annualized rate.
Oil prices soared to a record high in July, rising above $145 per barrel, before
dramatically retreating to $101 by period-end. Many other commodities such as
agricultural products and precious and base metals followed similar trends.
September's inflation rate was an annual 4.9%, largely due to higher food and
energy costs. Core inflation, which excludes such costs, rose at a more moderate
2.5% annual rate; however, this level was above the Federal Reserve Board's
(Fed's) informal target range of 1.5%-2.0%.(1) The core personal consumption
expenditures price index reported a 12-month increase of 2.4%.(2)
Amid a series of events that included massive government intervention and
emergency funding, the Fed was focused primarily on restoring liquidity and
confidence to unsettled financial markets. The Fed cut interest rates twice over
the six-month period, bringing the federal funds target rate to 2.00%, and it
implemented a series of unconventional measures aimed at easing strained credit
conditions. The U.S. Treasury Department also agreed to temporarily guarantee
money market funds against losses after the Reserve Primary Fund and two others
"broke the buck," falling below one dollar in value. In the final days of the
reporting period, U.S. Treasury Secretary Henry Paulson and Fed Chairman Ben
Bernanke proposed a $700 billion bailout plan intended to save the financial
system.
Volatility remained high throughout the reporting period but intensified in
September as stocks fluctuated wildly and Treasury prices soared. Panicked
investors drove the yield on the three-month Treasury bill to a multi-decade
low, and LIBOR rates, which banks charge each other for loans, jumped to record
highs. Although fixed income spreads were generally wide relative to Treasury
yields over the period due to heightened market turbulence, two-, five- and
10-year Treasury yields increased, with the two-year bill yielding 2.00% at the
end of September, up from 1.62% six months earlier. Over the same period, the
10-year U.S. Treasury note yield rose from 3.45% to 3.85%. The yield curve
steepened and the spread between the two-year Treasury yield and the 10-year
Treasury yield increased to 185 basis points (100 basis points equal one
percentage point) at the end of September from 38 basis points at the beginning
of the reporting period as investors sought the relative safety of short-term
U.S. Treasury securities.
(2.) Source: Bureau of Economic Analysis.
Semiannual Report | 5
PORTFOLIO BREAKDOWN
Based on Total Investments as of 9/30/08*
(BAR CHART)
Floating Rate Loans 36.2%
Mortgage-Backed Securities 27.1%
High Yield Corporate Bonds 25.1%
Other Asset-Backed Securities &
Commercial Mortgage-Backed Securities 4.9%
Investment Grade Corporate Bonds 3.1%
Foreign Government & Agency Securities 2.6%
Short-Term Investments & Other Net Assets 1.0%
* Total investments include long-term and short-term investments and other
net assets excluding preferred stock issued by the Fund and other financial
leverage.
INVESTMENT STRATEGY
We invest in a diversified mix of fixed income securities, primarily high yield
corporate bonds, senior secured floating rate bank loans, and mortgage- and
other asset-backed securities. Our top-down analysis of macroeconomic trends
combined with a bottom-up fundamental analysis of market sectors, industries and
issuers drives our investment process. We seek to maintain a limited duration,
or interest rate sensitivity, to moderate the impact that fluctuating interest
rates might have on the Fund's fixed income portfolio. Within the corporate bond
and bank loan sectors, we seek securities trading at reasonable valuations from
issuers with characteristics such as strong market positions, stable cash flows,
reasonable capital structures, supportive asset values, strong sponsorship and
improving credit fundamentals. In the mortgage- and other asset-backed
securities sector, we look to capture an attractive income stream and total
return through our analysis of security prepayment assumptions, pricing
inefficiencies and underlying collateral characteristics.
MANAGER'S DISCUSSION
The semiannual period under review was characterized by the deepening financial
crisis that began last year as losses worsened on subprime mortgage-backed
securities (MBS). Credit tightened as even high-quality borrowers had difficulty
accessing capital, and banks were reluctant to lend to one another. The entire
American financial landscape changed during the review period, which began just
after Bear Stearns was sold to JPMorgan Chase in a hastily arranged deal
intended to avert the investment banker's impending bankruptcy. The period ended
with a frenetic chain of events in September that included Lehman Brothers'
failure and what was essentially the nationalization of mortgage giants Fannie
Mae and Freddie Mac and the world's largest insurance company, American
International Group. Given the severe capital market dislocations, virtually no
asset class was immune from the turmoil. During the six months under review, the
Standard & Poor's 500 Index (S&P 500) fell 10.87%, while the Barclay's Capital
(BC; formerly Lehman Brothers) U.S. Aggregate Index, a broad measure of the bond
market, declined 1.50%.(3) Even Treasuries,
(3.) Source: (C) 2008 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. Past performance is no guarantee of future results. The
S&P 500 consists of 500 stocks chosen for market size, liquidity and
industry group representation. Each stock's weight in the index is
proportionate to its market value. The S&P 500 is one of the most widely
used benchmarks of U.S. equity performance. The BC U.S. Aggregate Index
represents securities that are SEC-registered, taxable and dollar
denominated. The index covers the U.S. investment grade fixed-rate bond
market, with index components for government and corporate securities,
mortgage pass-through securities and asset-backed securities. All issues
included must have at least one year to final maturity and must be rated
investment grade (Baa3 or better) by Moody's Investors Service. They must
also be dollar-denominated and non-convertible. Total return includes price
appreciation/depreciation and income as a percentage of the original
investment. The index is rebalanced monthly by market capitalization.
6 | Semiannual Report
which are generally considered a safe haven in turbulent markets, returned only
0.15% as a rise in yields resulted in price declines that largely offset the
coupon income.(4) The increase in Treasury yields was driven by expectations of
increased budget deficits due to the cost of government bailouts and potentially
declining tax revenues. In this environment, the fundamental underpinnings of
the high yield corporate bond and leveraged loan markets deteriorated
significantly. Although default rates for these two asset classes were below
average, many analysts expected defaults could increase over the coming year if
the credit crunch exacerbates the economic slowdown. Largely as a result, high
yield corporate bonds and leveraged loans had negative returns during the
reporting period. After the government takeover of Fannie Mae and Freddie Mac,
mortgage-backed securities (MBS) rallied and ended the period with modest gains.
During the review period, we reduced our high yield exposure and invested part
of the proceeds in investment-grade corporate bonds, particularly those of
financial companies. We also slightly reduced our exposure to bank loans and
increased our investments in MBS.
The fundamental outlook for high yield bonds deteriorated sharply during the
reporting period as the economy slowed and fears increased that a recession may
already be under way. As the credit crunch intensified, concerns grew that the
crisis would move from the financial sector to the overall economy. Many
believed the lack of liquidity could lead to higher default rates in the months
ahead. Reflecting the troubled outlook, high yield spreads widened to over 1,000
basis points (10 percentage points) above Treasuries -- their highest level
since 2002. We believed fundamentals could deteriorate further; therefore, we
reduced our high yield exposure and purchased investment-grade debt, including
that of major financial companies. However, given the financial market turmoil
during the period, the investment-grade sector was the worst performing segment
in the BC U.S. Aggregate Index. Fund holdings included the senior notes of
Lehman Brothers, which filed for bankruptcy protection in September.
For the six-month period under review, the bank loan asset class was extremely
volatile, with few pockets of strength in a generally weak overall market, and
the Credit Suisse (CS) Leveraged Loan Index had a -1.93% total return.(5) Early
in the review period, the loan market rallied as investors seemed to find the
sector's valuations attractive, and loan prices rebounded to a period high in
June. As secondary loan prices stabilized, underwriters began to syndicate new
issues left over from 2007 deals. As the excess supply was reduced, underwriters
began
(4.) Source: (C) 2008 Morningstar. The BC U.S. Treasury Index is the U.S.
Treasury component of the U.S. Government index, and covers public
obligations of the U.S. Treasury with a remaining maturity of one year or
more.
(5.) Source: (C) 2008 Morningstar. The CS Leveraged Loan Index is designed to
mirror the investible universe of the U.S. dollar denominated leveraged
loan market.
DIVIDEND DISTRIBUTIONS*
4/1/07-9/30/08
MONTH DIVIDEND PER COMMON SHARE
----- -------------------------
April 8.4 cents
May 8.4 cents
June 7.6 cents
July 7.6 cents
August 7.6 cents
September 7.6 cents
------------
TOTAL $47.20 CENTS
* All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
Semiannual Report | 7
to add a few new deals in 2008, which were more attractively priced, better
structured and less leveraged than prior loans. However, despite easing
technical pressure and a better balance between supply and demand, corporate
fundamentals began to deteriorate during the period along with the weakening
economy. Largely as a result, amendment activity increased and loan default
rates rose, moving closer to historical averages. The Fund, however, did not
experience any bank loan defaults during the period.
Despite weakening corporate fundamentals and the uptick in loan defaults, the
loan market was relatively stable in August and early September, and secondary
loan prices were mostly range bound. However, in the final two weeks of
September, following Lehman Brothers' bankruptcy filing, the credit markets
experienced significant volatility. As a result, secondary loan prices plummeted
to a new all-time low, which was below the previously established low in
February of 2008. Secondary loan price activity is tracked by the Standard &
Poor's Leveraged Commentary and Data (LCD) flow names composite, which comprises
the 15 most active loans in the Standard & Poor's Loan Syndications and Trading
Association (LSTA) Leveraged Loan Index (LLI).(6)
Although we expected volatility to remain high in this difficult market
environment, we believed the volatility created many attractive long-term
opportunities as we found valuations historically attractive, with discounted
spreads at all-time highs and average bids at all-time lows.
During the review period, MBS generally outperformed the high yield corporate
bond and bank loan sectors. Although not immune from volatility and tightening
credit conditions, agency mortgages benefited somewhat from government
intervention, while privately issued MBS and asset-backed securities (ABS)
generally generated lower returns during the period. Agency MBS benefited from
the takeovers of Fannie Mae and Freddie Mac as investor confidence was boosted
by the government's actions. In addition, the economic rescue plan enacted by
Congress in early October may help the MBS and ABS sectors.
During the period, we found opportunities in higher-coupon MBS as they became
less susceptible to early prepayments. We also found an opportunity to invest in
those sectors that experienced yield spread widening and were hampered by low
liquidity. For example, we found what we believed were attractive opportunities
in securitized sectors with strong credit fundamentals, specifically those
related to commercial real estate. At period-end, these investments were
(6.) Source: Standard & Poor's. The Standard & Poor's/LSTA LLI covers more than
1,100 U.S. loan facilities and reflects the market-weighted performance of
institutional leveraged loans based upon real-time market weightings,
spreads and interest payments.
8 | Semiannual Report
rated AAA and were most senior in the capital structure. The Fund had little
exposure to subprime mortgage loans, and during the period, the Fund did not
experience principal losses on any of its subprime investments.
Thank you for your continued participation in Franklin Templeton Limited
Duration Income Trust. We look forward to serving your future investment needs.
Sincerely,
(PHOTO OF CHRISTOPHER J. MOLUMPHY)
/s/ Christopher J. Molumphy
Christopher J. Molumphy, CFA
(PHOTO OF ERIC G. TAKAHA)
/s/ Eric G. Takaha
Eric G. Takaha, CFA
(PHOTO OF GLENN I. VOYLES)
/s/ Glenn I. Voyles
Glenn I. Voyles, CFA
(PHOTO OF RICHARD S. HSU)
/s/ Richard S. Hsu
Richard S. Hsu, CFA
(PHOTO OF ROGER A. BAYSTON)
/s/ Roger A. Bayston
Roger A. Bayston, CFA
Portfolio Management Team
Franklin Templeton Limited Duration Income Trust
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF SEPTEMBER 30, 2008, 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 INVESTMENT MANAGER 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.
Semiannual Report | 9
Performance Summary as of 9/30/08
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. Total
returns 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 that a shareholder would pay on Fund dividends, capital gains
distributions, if any, or any realized gains on the sale of Fund shares.
PRICE AND DISTRIBUTION INFORMATION
SYMBOL: FTF CHANGE 9/30/08 3/31/08
----------- ------ ------- -------
Net Asset Value (NAV) -$1.07 $11.78 $12.85
Market Price (AMEX) -$2.58 $ 8.36 $10.94
DISTRIBUTIONS (4/1/08-9/30/08)
Dividend Income $0.4720
PERFORMANCE(1)
COMMENCEMENT OF
6-MONTH 1-YEAR 5-YEAR OPERATIONS (8/27/03)
------- ------ ------ --------------------
Cumulative Total Return(2)
Based on change in NAV(3) -4.88% -7.92% +18.75% +20.33%
Based on change in market price(4) -20.09% -26.33% -15.94% -16.17%
Average Annual Total Return(2)
Based on change in NAV(3) -4.88% -7.92% +3.50% +3.70%
Based on change in market price(4) -20.09% -26.33% -3.41% -3.40%
Distribution Rate(5) 10.91%
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.
ENDNOTES
INTEREST RATE MOVEMENTS AND MORTGAGE PREPAYMENTS WILL AFFECT THE FUND'S SHARE
PRICE AND YIELD. THE RISKS ASSOCIATED WITH HIGHER-YIELDING, LOWER-RATED
SECURITIES INCLUDE HIGHER RISK OF DEFAULT AND LOSS OF PRINCIPAL.
(1.) Figures are for common shares. As of 9/30/08, the Trust had leverage in the
amount of 36.91% of the Trust's total assets. The Trust employs leverage
through the issuance of Auction Preferred Shares and purchase of Mortgage
Dollar Rolls. The use of financial leverage creates an opportunity for
increased income but, at the same time, creates special risks (including
the likelihood of greater volatility of net asset value and market price of
common shares). The cost of leverage rises and falls with changes in
short-term interest rates. Such increases/decreases in the cost of the
Trust's leverage may be offset by increased/decreased income from the
Trust's floating rate investments.
(2.) Total return calculations represent the cumulative and average annual
changes in value of an investment over the periods indicated. Six-month
return has not been annualized.
(3.) Assumes reinvestment of distributions at net asset value.
(4.) Assumes reinvestment of distributions based on the dividend reinvestment
plan.
(5.) Distribution rate is based on an annualization of the Fund's 7.6 cent per
share September dividend and the AMEX closing price of $8.36 on 9/30/08.
10 | Semiannual Report
Annual Shareholders' Meeting
SEPTEMBER 25, 2008
At an annual Meeting of Shareholders of Franklin Templeton Limited Duration
Income Trust (Fund) held on September 25, 2008, shareholders approved the
following:
Regarding the proposal to elect Trustees:
COMMON % OF % OF
SHARES OUTSTANDING % OF WITHHELD OR OUTSTANDING % OF
TRUSTEES FOR SHARES VOTED ABSTAIN SHARES VOTED
-------- -------------- ----------- ----- ----------- ----------- -----
Robert F. Carlson 22,944,704.074 85.70% 97.92% 488,182.729 1.82% 2.08%
Sam Ginn 22,957,103.074 85.74% 97.97% 475,783.729 0.02% 2.03%
Larry D. Thompson 22,972,435.074 85.80% 98.04% 460,451.729 1.72% 1.96%
PREFERRED % OF % OF
SHARES OUTSTANDING % OF WITHHELD OR OUTSTANDING % OF
TRUSTEES FOR SHARES VOTED ABSTAIN SHARES VOTED
-------- -------------- ----------- ----- ----------- ----------- -----
Robert F. Carlson 3,205.000 77.42% 97.71% 75.000 1.81% 2.29%
Sam Ginn 3,229.000 78.00% 98.45% 51.000 1.23% 1.55%
Larry D. Thompson 3,229.000 78.00% 98.45% 51.000 1.23% 1.55%
Rupert H. Johnson, Jr. 3,226.000 77.92% 98.35% 54.000 1.30% 1.65%
Semiannual Report | 11
Dividend Reinvestment Plan
The Fund's Dividend Reinvestment Plan (Plan) offers you a prompt and simple way
to reinvest dividends and capital gain distributions (Distributions) in shares
of the Fund. PNC Global Investment Services (Agent), P.O. Box 6006, Carol
Stream, IL 60197-6006, will act as your Agent in administering the Plan. The
Agent will open an account for you under the Plan in the same name as your
outstanding shares are registered. The complete Terms and Conditions of the
Dividend Reinvestment Plan are contained in the Fund's Dividend Reinvestment
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
Distributions in cash. If you own shares in your own name, you should notify the
Agent, in writing, if you wish to receive Distributions in cash.
If the Fund declares a Distribution, you, as a participant in the Plan, will
automatically receive an equivalent amount of shares of the Fund purchased on
your behalf by the Agent.
If on the payment date for a Distribution, the net asset value per share is
equal to or less than the market price per share plus estimated brokerage
commissions, the Agent shall receive newly issued shares, including fractions,
from the Fund for your account. The number of additional shares to be credited
shall be determined by dividing the dollar amount of the Distribution by the
greater of the net asset value per share on the payment date, or 95% of the then
current market price per share.
If the net asset value per share exceeds the market price plus estimated
brokerage commissions on the payment date for a Distribution, the Agent (or a
broker-dealer selected by the Agent) shall try, for a purchase period of 30
days, to apply the amount of such Distribution on your shares (less your pro
rata share of brokerage commissions incurred) to purchase shares on the open
market. The weighted average price (including brokerage commissions) of all
shares it purchases shall be your allocated price per share. If, before the
Agent has completed its purchases, the market price plus estimated brokerage
commissions exceeds the net asset value of the shares as of the payment date,
the purchase price the Agent paid may exceed the net asset value of the shares,
resulting in the acquisition of fewer shares than if such Distribution had been
paid in shares issued by the Fund. Participants should note that they will not
be able to instruct the Agent to purchase shares at a specific time or at a
specific price. The Agent may make open-market purchases on any securities
exchange where shares are traded, in the over-the-counter market or in
negotiated transactions, and may be on such terms as to price, delivery and
otherwise as the Agent shall determine.
12 | Semiannual Report
The market price of shares on a particular date shall be the last sales price on
the American Stock Exchange, or, if there is no sale on the exchange on that
date, then the mean between the closing bid and asked quotations on the exchange
on such date. The net asset value per share on a particular date shall be the
amount most recently calculated by or on behalf of the Fund as required by law.
The Agent shall at all times act in good faith and agree to use its best efforts
within reasonable limits to ensure the accuracy of all services performed under
this agreement and to comply with applicable law, but assumes no responsibility
and shall not be liable for loss or damage due to errors unless such error is
caused by the Agent's negligence, bad faith, or willful misconduct or that of
its employees. Your uninvested funds held by the Agent will not bear interest.
The Agent shall have no responsibility for the value of shares acquired. For the
purpose of cash investments, the Agent may commingle your funds with those of
other participants in the same Fund.
There is no direct charge to participants for reinvesting Distributions, since
the 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. If you elect by notice to the Agent to have it sell part
or all of your shares and remit the proceeds, the Agent will deduct brokerage
commissions from the proceeds.
The automatic reinvestment of Distributions does not relieve you of any taxes
that may be payable on Distributions. In connection with the reinvestment of
Distributions, shareholders generally will be treated as having received a
Distribution equal to the cash Distribution that would have been paid.
The Agent will forward to you any proxy solicitation material and will vote any
shares so held for you first in accordance with the instructions set forth on
proxies you return to the Fund, and then with respect to any proxies you do not
return to the Fund in the same portion as the Agent votes proxies the
participants return to the Fund.
As long as you participate in the Plan, the 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. Upon your written request, the
Agent will deliver to you, without charge, a certificate or certificates for the
full shares. The Agent will send you a confirmation of each acquisition made
Semiannual Report | 13
for your account as soon as practicable, but not later than 60 days after the
acquisition date. Although from time to time you may have an undivided
fractional interest in a share of the Fund, no certificates for a fractional
share will be issued. Distributions on fractional shares will be credited to
your account. If you terminate your account under the Plan, the Agent will
adjust for any such undivided fractional interest in cash at the market value of
shares at the time of termination.
You may withdraw from the Plan at any time, without penalty, by notifying the
Agent in writing at the address above or by telephone at (800) 331-1710. Such
termination will be effective with respect to a Distribution if the Agent
receives your notice prior to the Distribution record date. The Agent or the
Fund may terminate the Plan upon notice to you in writing mailed at least 30
days prior to any record date for the payment of any Distribution. Upon any
termination, the Agent will issue, without charge, stock certificates for all
full shares you own and will convert any fractional shares you hold at the time
of termination to cash at current market price and send you a check for the
proceeds.
The Fund or the Agent may amend the Plan. You will receive written notice at
least 30 days before the effective date of any amendment.
14 | Semiannual Report
Franklin Templeton
Limited Duration Income Trust
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
2008 ----------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004(a)
---------------- -------- -------- -------- -------- --------
PER COMMON SHARE OPERATING PERFORMANCE
(for a common share outstanding throughout the
period)
Net asset value, beginning of period .......... $ 12.85 $ 14.24 $ 14.14 $ 14.41 $ 14.75 $ 14.33
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income(b) ................... 0.48 1.28 1.32 1.18 1.10 0.53
Net realized and unrealized gains
(losses) ............................... (0.98) (1.29) 0.16 (0.10) (0.12) 0.63
Dividends to preferred shareholders from net
investment income ....................... (0.10) (0.37) (0.35) (0.26) (0.13) (0.03)
-------- -------- -------- -------- -------- --------
Total from investment operations .............. (0.60) (0.38) 1.13 0.82 0.85 1.13
-------- -------- -------- -------- -------- --------
Less distributions to common shareholders
from net investment income ................. (0.47) (1.01) (1.03) (1.09) (1.19) (0.59)
-------- -------- -------- -------- -------- --------
Offering costs charged to capital:
Common shares .............................. -- -- -- -- -- (0.03)
Preferred shares ........................... -- -- -- -- -- (0.09)
-------- -------- -------- -------- -------- --------
Total offering costs .......................... -- -- -- -- -- (0.12)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................ $ 11.78 $ 12.85 $ 14.24 $ 14.14 $ 14.41 $ 14.75
======== ======== ======== ======== ======== ========
Market value, end of period(c) ................ $ 8.36 $ 10.94 $ 14.27 $ 12.87 $ 13.89 $ 14.87
======== ======== ======== ======== ======== ========
Total return (based on market value per
share)(d) .................................. (20.09)% (16.64)% 19.66% 0.60% 1.38% 3.16%
RATIOS TO AVERAGE NET ASSETS APPLICABLE TO
COMMON SHARES(e)
Expenses before expense reduction ............. 1.27% 1.28% 1.27% 1.26% 1.21% 1.11%
Expenses net of expense reduction ............. 1.27%(f) 1.28%(f) 1.26% 1.26%(f) 1.21%(f) 1.11%(f)
Net investment income ......................... 7.45% 9.38% 9.32% 8.24% 7.50% 6.12%
SUPPLEMENTAL DATA
Net assets applicable to common shares, end of
period (000's) ............................. $315,424 $344,010 $380,813 $378,080 $385,344 $393,125
Portfolio turnover rate ....................... 92.49% 47.48% 52.17% 46.55% 55.02% 45.08%
Portfolio turnover rate excluding mortgage
dollar rolls(g) ............................ 16.46% 47.48% 52.17% 46.55% 55.02% 45.08%
Asset coverage per preferred share ............ $112,618 $ 70,264 $ 75,107 $ 74,747 $ 75,703 $ 76,727
Liquidation preference per preferred share .... $ 25,000 $ 25,000 $ 25,000 $ 25,000 $ 25,000 $ 25,000
(a) For the period August 27, 2003 (commencement of operations) to March 31,
2004.
(b) Based on average daily common shares outstanding.
(c) Based on the last sale on the American Stock Exchange.
(d) Total return is not annualized for periods less than one year.
(e) Ratios are annualized for periods less than one year.
(f) Benefit of expense reduction rounds to less than 0.01%.
(g) See Note 1(e) regarding mortgage dollar rolls.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 15
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED)
COUNTRY PRINCIPAL AMOUNT(a) VALUE
-------------- ------------------- ------------
CORPORATE BONDS 44.6%
AUTOMOBILES & COMPONENTS 1.3%
Ford Motor Credit Co. LLC,
(b) FRN, 7.241%, 4/15/12 ...................................... United States 1,000,000 $ 924,624
senior note, 5.80%, 1/12/09 ............................... United States 2,000,000 1,899,072
senior note, 9.875%, 8/10/11 .............................. United States 2,000,000 1,381,716
------------
4,205,412
------------
CAPITAL GOODS 1.7%
RBS Global & Rexnord Corp., senior note, 9.50%, 8/01/14 ...... United States 2,000,000 1,890,000
RSC Equipment Rental Inc., senior note, 9.50%, 12/01/14 ...... United States 2,500,000 1,906,250
TransDigm Inc., senior sub. note, 7.75%, 7/15/14 ............. United States 1,600,000 1,512,000
------------
5,308,250
------------
COMMERCIAL & PROFESSIONAL SERVICES 1.3%
(b) ARAMARK Corp., senior note, FRN, 6.301%, 2/01/15 ............. United States 2,500,000 2,200,000
JohnsonDiversey Holdings Inc., senior disc. note, 10.67%,
5/15/13 ................................................... United States 2,000,000 1,950,000
------------
4,150,000
------------
CONSUMER DURABLES & APPAREL 1.8%
Jarden Corp., senior sub. note, 7.50%, 5/01/17 ............... United States 2,500,000 2,093,750
Jostens IH Corp., senior sub. note, 7.625%, 10/01/12 ......... United States 2,000,000 1,845,000
KB Home, senior note, 6.375%, 8/15/11 ........................ United States 2,000,000 1,820,000
------------
5,758,750
------------
CONSUMER SERVICES 3.2%
Host Hotels & Resorts LP, senior note, K, 7.125%, 11/01/13 ... United States 2,500,000 2,237,500
MGM MIRAGE, senior note, 6.75%, 4/01/13 ...................... United States 3,000,000 2,355,000
OSI Restaurant Partners Inc., senior note, 10.00%, 6/15/15 ... United States 1,300,000 585,000
Pinnacle Entertainment Inc., senior sub. note, 8.75%,
10/01/13 .................................................. United States 2,000,000 1,925,000
Royal Caribbean Cruises Ltd., senior note, 8.00%, 5/15/10 .... United States 3,000,000 2,970,000
------------
10,072,500
------------
DIVERSIFIED FINANCIALS 4.5%
American Express Credit Corp., C, 7.30%, 8/20/13 ............. United States 2,000,000 1,930,990
CIT Group Inc., senior note, 7.625%, 11/30/12 ................ United States 1,100,000 698,353
General Electric Capital Corp., 4.80%, 5/01/13 ............... United States 3,000,000 2,739,039
GMAC LLC,
7.25%, 3/02/11 ............................................ United States 2,000,000 946,552
6.875%, 8/28/12 ........................................... United States 3,000,000 1,193,295
JPMorgan Chase & Co., sub. note, 5.75%, 1/02/13 .............. United States 3,000,000 2,874,729
(c) Lehman Brothers Holdings Inc., senior note, 6.20%, 9/26/14 ... United States 3,000,000 390,000
Merrill Lynch & Co. Inc., 5.45%, 2/05/13 ..................... United States 2,000,000 1,803,330
Morgan Stanley,
senior note, 6.00%, 4/28/15 ............................... United States 1,200,000 817,508
sub. note, 4.75%, 4/01/14 ................................. United States 1,300,000 689,850
------------
14,083,646
------------
16 | Semiannual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
COUNTRY PRINCIPAL AMOUNT(a) VALUE
-------------- ------------------- ------------
CORPORATE BONDS (CONTINUED)
ENERGY 4.0%
Chesapeake Energy Corp., senior note, 7.50%, 6/15/14 ......... United States 4,000,000 $ 3,850,000
Compagnie Generale de Geophysique-Veritas, senior note, 7.50%,
5/15/15 ................................................... France 2,000,000 1,920,000
Mariner Energy Inc., senior note, 7.50%, 4/15/13 ............. United States 2,000,000 1,780,000
(d) Petroplus Finance Ltd., senior note, 144A, 6.75%, 5/01/14 .... Switzerland 2,500,000 2,125,000
(d) SandRidge Energy Inc., senior note, 144A, 8.00%, 6/01/18 ..... United States 900,000 778,500
The Williams Co. Inc., 8.125%, 3/15/12 ....................... United States 2,000,000 2,021,960
------------
12,475,460
------------
FOOD, BEVERAGE & TOBACCO 1.6%
Dean Foods Inc., senior note, 7.00%, 6/01/16 ................. United States 1,200,000 1,050,000
Reynolds American Inc., senior secured note, 7.25%, 6/01/13 .. United States 2,000,000 2,057,222
Smithfield Foods Inc., senior note, 8.00%, 10/15/09 .......... United States 2,000,000 1,950,000
------------
5,057,222
------------
HEALTH CARE EQUIPMENT & SERVICES 5.5%
Coventry Health Care Inc., senior note, 5.875%, 1/15/12 ...... United States 3,000,000 2,894,262
DaVita Inc.,
senior note, 6.625%, 3/15/13 .............................. United States 900,000 859,500
senior sub. note, 7.25%, 3/15/15 .......................... United States 1,000,000 955,000
FMC Finance III SA, senior note, 6.875%, 7/15/17 ............. Germany 2,000,000 1,935,000
HCA Inc., senior secured note, 9.125%, 11/15/14 .............. United States 3,000,000 2,925,000
Tenet Healthcare Corp., senior note, 6.375%, 12/01/11 ........ United States 2,500,000 2,318,750
(b, e) U.S. Oncology Holdings Inc., senior note, FRN, PIK, 8.334%,
3/15/12 ................................................... United States 2,149,218 1,665,644
(e) United Surgical Partners International Inc., senior sub.
note, PIK, 9.25%, 5/01/17 .................................... United States 2,000,000 1,710,000
Vanguard Health Holding Co. II LLC, senior sub. note, 9.00%,
10/01/14 .................................................. United States 2,000,000 1,940,000
------------
17,203,156
------------
INSURANCE 0.5%
(d) Metropolitan Life Global Funding I, senior secured note, 144A,
5.125%, 4/10/13 ........................................... United States 1,700,000 1,653,148
------------
MATERIALS 4.4%
Crown Americas Inc., senior note, 7.625%, 11/15/13 ........... United States 3,000,000 2,970,000
(b) Freeport-McMoRan Copper & Gold Inc., senior note, FRN, 5.883%,
4/01/15 ................................................... United States 3,000,000 2,877,420
Huntsman International LLC, senior sub. note, 7.875%,
11/15/14 .................................................. United States 1,500,000 1,297,500
(d) Ineos Group Holdings PLC, senior secured note, 144A, 8.50%,
2/15/16 ................................................... United Kingdom 3,000,000 1,635,000
(d) MacDermid Inc., senior sub. note, 144A, 9.50%, 4/15/17 ....... United States 2,000,000 1,690,000
Nalco Co., senior sub. note, 8.875%, 11/15/13 ................ United States 2,500,000 2,506,250
Smurfit Kappa Funding PLC, senior sub. note, 7.75%, 4/01/15 .. Ireland 1,200,000 1,005,000
------------
13,981,170
------------
Semiannual Report | 17
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
COUNTRY PRINCIPAL AMOUNT(a) VALUE
-------------- ------------------- ------------
CORPORATE BONDS (CONTINUED)
MEDIA 6.2%
CanWest Media Inc., senior sub. note, 8.00%, 9/15/12 ......... Canada 2,700,000 $ 2,268,000
CCH II LLC, senior note, 10.25%, 9/15/10 ..................... United States 4,000,000 3,620,000
CSC Holdings Inc., senior note, 8.125%, 7/15/09 .............. United States 1,000,000 992,500
Dex Media West Finance, senior sub. note, 9.875%, 8/15/13 .... United States 4,000,000 2,490,000
DIRECTV Holdings LLC, senior note, 8.375%, 3/15/13 ........... United States 1,000,000 992,500
Lamar Media Corp., senior sub. note,
7.25%, 1/01/13 ............................................ United States 1,000,000 910,000
C, 6.625%, 8/15/15 ........................................ United States 2,000,000 1,665,000
Liberty Media Corp., senior note, 7.875%, 7/15/09 ............ United States 2,000,000 2,016,210
Quebecor Media Inc., senior note, 7.75%, 3/15/16 ............. Canada 2,500,000 2,200,000
Radio One Inc., senior sub. note, B, 8.875%, 7/01/11 ......... United States 2,000,000 1,645,000
(d) Rainbow National Services LLC, senior sub. deb., 144A,
10.375%, 9/01/14 .......................................... United States 600,000 615,000
------------
19,414,210
------------
RETAILING 0.4%
Michaels Stores Inc., senior note, 10.00%, 11/01/14 .......... United States 2,000,000 1,270,000
------------
SOFTWARE & SERVICES 1.2%
SunGard Data Systems Inc., senior note, 9.125%, 8/15/13 ...... United States 4,000,000 3,620,000
------------
TECHNOLOGY HARDWARE & EQUIPMENT 1.1%
(d) Nortel Networks Ltd., senior note, 144A, 10.75%, 7/15/16 ..... Canada 2,000,000 1,235,000
Sanmina-SCI Corp.,
(b, d) senior note, 144A, FRN, 5.569%, 6/15/14 ................... United States 1,000,000 875,000
senior sub. note, 6.75%, 3/01/13 .......................... United States 1,700,000 1,496,000
------------
3,606,000
------------
TELECOMMUNICATION SERVICES 3.8%
(d) Digicel Group Ltd., senior note, 144A, 8.875%, 1/15/15 ....... Jamaica 2,000,000 1,685,000
(d) Intelsat Subsidiary Holding Co. Ltd., senior note, 144A,
8.50%, 1/15/13 ............................................ Bermuda 2,000,000 1,860,000
MetroPCS Wireless Inc., senior note, 9.25%, 11/01/14 ......... United States 2,000,000 1,880,000
Millicom International Cellular SA, senior note, 10.00%,
12/01/13 .................................................. Luxembourg 2,000,000 1,990,000
Qwest Communications International Inc., senior note, B,
7.50%, 2/15/14 ............................................ United States 2,000,000 1,740,000
(d) Wind Acquisition Finance SA, senior note, 144A, 10.75%,
12/01/15 .................................................. Italy 3,000,000 2,955,000
------------
12,110,000
------------
UTILITIES 2.1%
Dynegy Holdings Inc., senior note, 7.50%, 6/01/15 ............ United States 2,000,000 1,700,000
NRG Energy Inc., senior note, 7.25%, 2/01/14 ................. United States 2,800,000 2,604,000
PNM Resources Inc., senior note, 9.25%, 5/15/15 .............. United States 600,000 594,000
(d) Texas Competitive Electric Holdings Co. LLC, senior note,
144A, 10.25%, 11/01/15 .................................... United States 2,000,000 1,815,000
------------
6,713,000
------------
TOTAL CORPORATE BONDS (COST $164,057,875) .................... 140,681,924
------------
18 | Semiannual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
COUNTRY PRINCIPAL AMOUNT(a) VALUE
-------------- ------------------- ------------
MORTGAGE-BACKED SECURITIES 42.9%
(b) FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) ADJUSTABLE RATE 0.3%
FHLMC, 4.452%, 5/01/34 ....................................... United States 1,031,106 $ 1,041,491
------------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) FIXED RATE 16.4%
FHLMC Gold 15 Year, 4.50%, 6/01/23 ........................... United States 2,458,735 2,395,685
(f) FHLMC Gold 15 Year, 5.00%, 10/01/23 .......................... United States 4,582,000 4,542,622
FHLMC Gold 15 Year, 5.50%, 7/01/19 ........................... United States 235,873 238,750
FHLMC Gold 15 Year, 6.00%, 7/01/23 ........................... United States 1,161,575 1,183,002
FHLMC Gold 30 Year, 5.00%, 4/01/38 ........................... United States 2,991,247 2,916,112
FHLMC Gold 30 Year, 5.50%, 6/01/38 - 7/01/38 ................. United States 3,712,434 3,696,245
(f) FHLMC Gold 30 Year, 5.50%, 10/15/35 .......................... United States 5,000,000 4,974,220
FHLMC Gold 30 Year, 6.00%, 7/01/28 - 7/01/38 ................. United States 9,055,902 9,193,992
(f) FHLMC Gold 30 Year, 6.00%, 10/01/30 .......................... United States 12,085,000 12,234,177
(f) FHLMC Gold 30 Year, 6.50%, 10/01/32 .......................... United States 7,211,000 7,394,657
FHLMC Gold 30 Year, 7.00%, 9/01/27 ........................... United States 767,190 810,111
FHLMC Gold 30 Year, 8.00%, 1/01/31 ........................... United States 128,526 139,443
FHLMC Gold 30 Year, 8.50%, 7/01/31 ........................... United States 1,723,486 1,912,488
------------
51,631,504
------------
(b) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE
0.6%
FNMA, 4.569%, 7/01/34 ........................................ United States 1,715,008 1,707,414
FNMA, 5.993%, 6/01/32 ........................................ United States 104,345 105,286
------------
1,812,700
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) FIXED RATE 22.9%
FNMA 15 Year, 5.00%, 6/01/23 ................................. United States 1,412,729 1,404,354
(f) FNMA 15 Year, 5.50%, 10/11/18 ................................ United States 7,885,000 7,947,836
(f) FNMA 15 Year, 6.00%, 10/01/16 ................................ United States 8,041,000 8,190,514
FNMA 15 Year, 6.50%, 7/01/20 ................................. United States 316,957 323,417
(f) FNMA 30 Year, 5.00%, 10/25/35 ................................ United States 1,500,000 1,461,796
FNMA 30 Year, 5.00%, 4/01/38 ................................. United States 5,832,623 5,687,940
(f) FNMA 30 Year, 5.50%, 10/15/34 ................................ United States 12,298,000 12,265,336
FNMA 30 Year, 6.00%, 4/01/33 - 8/01/38 ....................... United States 3,981,146 4,041,291
(f) FNMA 30 Year, 6.00%, 10/01/28 ................................ United States 12,910,000 13,077,430
FNMA 30 Year, 6.50%, 8/01/32 ................................. United States 1,276,848 1,319,500
(f) FNMA 30 Year, 6.50%, 10/01/29 ................................ United States 15,123,000 15,508,168
FNMA 30 Year, 7.00%, 9/01/18 ................................. United States 279,019 293,862
FNMA 30 Year, 8.00%, 10/01/29 ................................ United States 206,740 225,242
FNMA 30 Year, 8.50%, 8/01/26 ................................. United States 476,231 523,978
------------
72,270,664
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) FIXED RATE
2.7%
(f) GNMA I SF 30 Year, 5.50%, 10/15/37 ........................... United States 5,910,000 5,916,466
GNMA I SF 30 Year, 6.50%, 6/15/31 - 12/15/33 ................. United States 1,994,515 2,052,481
GNMA II SF 30 Year, 7.00%, 1/20/24 - 1/20/29 ................. United States 200,463 210,323
GNMA II SF 30 Year, 8.00%, 1/20/28 - 2/20/32 ................. United States 407,619 445,946
------------
8,625,216
------------
TOTAL MORTGAGE-BACKED SECURITIES
(COST $136,300,071) ....................................... 135,381,575
------------
Semiannual Report | 19
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
COUNTRY PRINCIPAL AMOUNT(a) VALUE
-------------- ------------------- ------------
ASSET-BACKED SECURITIES AND COMMERCIAL
MORTGAGE-BACKED SECURITIES 7.8%
BANKS 4.3%
Banc of America Commercial Mortgage Inc., 2005-3, A2, 4.501%,
7/10/43 ................................................... United States 5,000,000 $ 4,872,649
(b) Citigroup/Deutsche Bank Commercial Mortgage Trust, 2005-CD1,
A3, FRN, 5.399%, 7/15/44 .................................. United States 3,000,000 2,859,521
A4, FRN, 5.399%, 7/15/44 .................................. United States 400,000 367,773
Greenwich Capital Commercial Funding Corp., 2004-GG1, A7,
5.317%, 6/10/36 ........................................... United States 1,605,000 1,514,915
GS Mortgage Securities Corp. II, 2003-C1, A3, 4.608%, 1/10/40 United States 400,000 371,085
LB-UBS Commercial Mortgage Trust,
(b) 2002-C2, A4, FRN, 5.594%, 6/15/31 ......................... United States 2,000,000 1,948,650
2005-C1, A2, 4.31%, 2/15/30 ............................... United States 1,395,000 1,361,798
(b) Merrill Lynch Mortgage Investors Trust, 2003-OPT1, B2, FRN,
5.957%, 7/25/34 ........................................... United States 236,373 19,107
(b) Morgan Stanley ABS Capital I Inc. Trust,
2003-HE3, B1, FRN, 6.507%, 10/25/33 ....................... United States 799,909 184,871
2003-NC10, B1, FRN, 7.422%, 10/25/33 ...................... United States 605,756 117,636
------------
13,618,005
------------
DIVERSIFIED FINANCIALS 3.5%
(b) Argent Securities Inc., 2003-W5, M4, FRN, 6.957%, 10/25/33 ... United States 1,266,041 687,329
(b) Chase Credit Card Master Trust, 2003-6, A, FRN, 2.598%,
2/15/11 ................................................... United States 1,700,000 1,698,758
(b) Chase Funding Mortgage Loan Asset-Backed Certificates, 2004-2,
2A2, FRN, 3.457%, 2/25/35 ................................. United States 1,857,019 1,626,255
(b) Chase Issuance Trust, 2005-A9, A9, FRN, 2.508%, 11/15/11 ..... United States 1,000,000 986,175
Citigroup Commercial Mortgage Trust, 2008-C7, A4, 6.299%,
12/10/49 .................................................. United States 700,000 617,007
(b) GSAMP Trust, 2003-AHL, B1, FRN, 7.207%, 10/25/33 ............. United States 1,243,595 609,828
(b) JPMorgan Chase Commercial Mortgage Securities Corp.,
2005-LDP5, A4, FRN, 5.345%, 12/15/44 ...................... United States 1,000,000 907,841
(b) MBNA Master Credit Card Trust II, 1997-B, A, FRN, 2.648%,
8/15/14 ................................................... United States 3,000,000 2,840,506
(b) Morgan Stanley Dean Witter Capital I, 2003-NC3, B1, FRN,
7.707%, 3/25/33 ........................................... United States 683,608 98,838
(b) New Century Home Equity Loan Trust, 2003-2, M3, FRN, 8.022%,
1/25/33 ................................................... United States 903,015 94,805
(b) Option One Mortgage Loan Trust, 2003-6, M5, FRN, 6.507%,
11/25/33 .................................................. United States 970,109 254,506
(b) Specialty Underwriting & Residential Finance, 2003-BC4, B2,
FRN, 5.707%, 11/25/34 ..................................... United States 453,337 176,316
(b) Structured Asset Investment Loan Trust,
2003-BC2, M3, FRN, 8.082%, 4/25/33 ........................ United States 13,987 2,272
2003-BC13, M4, FRN, 7.332%, 11/25/33 ...................... United States 586,583 350,640
------------
10,951,076
------------
TOTAL ASSET-BACKED SECURITIES AND COMMERCIAL
MORTGAGE-BACKED SECURITIES (COST $30,559,189) ............. 24,569,081
------------
20 | Semiannual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
COUNTRY PRINCIPAL AMOUNT(a) VALUE
-------------- ------------------- ------------
(b, g) SENIOR FLOATING RATE INTERESTS 57.4%
AUTOMOBILES & COMPONENTS 2.9%
Allison Transmission Inc., Term Loan B, 5.22% - 5.57%,
8/07/14 ................................................... United States 2,434,677 $ 2,023,390
Cooper Standard Automotive Inc., Term Loan D, 6.313%,
12/23/11 .................................................. United States 875,250 813,983
Federal Mogul Corp., Term Loan B, 4.428% - 4.968%, 12/27/14 .. United States 4,243,108 3,104,542
Key Safety Systems Inc., Term Loan B, 5.036% - 5.959%,
3/10/14 ................................................... United States 1,989,899 1,552,121
TRW Automotive Inc., Tranche B-1 Term Loan, 4.313% - 4.625%,
2/09/14 ................................................... United States 1,908,091 1,796,786
------------
9,290,822
------------
CAPITAL GOODS 4.8%
BE Aerospace Inc., Term Loan B, 5.75% - 6.52%, 7/28/14 ....... United States 500,000 488,750
Goodman Global Holdings Co. Inc., Term Loan B, 7.708%,
2/13/14 ................................................... United States 3,184,500 3,127,497
Oshkosh Truck Corp.,
Term Loan A, 3.99% - 5.21%, 12/06/11 ...................... United States 775,000 709,125
Term Loan B, 3.99% - 5.21%, 12/06/13 ...................... United States 3,400,437 2,947,452
RBS Global Inc. (Rexnord Corp.), Term Loan, 5.286%, 7/22/13 .. United States 3,000,000 2,730,000
Spirit Aerosystems Inc. (Onex Wind Finance LP), Term B-1 Loan,
4.538%, 12/31/11 .......................................... United States 1,263,449 1,162,373
TriMas Co. LLC,
Term Loan B, 5.045% - 5.679%, 8/02/13 ..................... United States 2,392,321 2,141,127
Tranche B-1 L/C, 4.686%, 8/02/11 .......................... United States 563,341 504,190
URS Corp., Term Loan B, 5.726%, 5/15/13 ...................... United States 1,272,877 1,233,100
------------
15,043,614
------------
COMMERCIAL & PROFESSIONAL SERVICES 3.9%
Acco Brands Corp., Term Loan B, 4.535% - 4.813%, 8/17/12 ..... United States 702,330 628,585
Affinion Group Inc., Term Loan B, 5.311% - 6.204%, 10/17/12 .. United States 4,000,000 3,700,000
ARAMARK Corp.,
Synthetic L/C, 2.44%, 1/26/14 ............................. United States 271,357 236,006
Term Loan B, 5.637%, 1/26/14 .............................. United States 4,271,345 3,714,883
Nielsen Finance LLC (VNU Inc.), Dollar Term Loan, 4.803%,
8/09/13 ................................................... United States 4,026,176 3,494,721
West Corp., Term Loan B-2, 5.171% - 6.084%, 10/24/13 ......... United States 871,872 677,880
------------
12,452,075
------------
CONSUMER DURABLES & APPAREL 1.2%
Jarden Corp., Term Loan B2, 5.512%, 1/24/12 .................. United States 2,904,758 2,556,187
Jostens IH Corp. (Visant Holding Corp.), Term Loan C, 5.171%,
12/21/11 .................................................. United States 1,350,000 1,299,938
------------
3,856,125
------------
CONSUMER SERVICES 5.1%
Education Management LLC, Term Loan C, 5.563%, 6/01/13 ....... United States 3,846,575 3,369,600
Laureate Education Inc.,
Closing Date Term Loan, 6.438%, 8/17/14 ................... United States 2,333,976 2,048,064
Delayed Draw Term Loan, 6.438%, 8/17/14 ................... United States 348,387 305,710
Semiannual Report | 21
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
COUNTRY PRINCIPAL AMOUNT(a) VALUE
-------------- ------------------- ------------
(b, g) SENIOR FLOATING RATE INTERESTS (CONTINUED)
CONSUMER SERVICES (CONTINUED)
OSI Restaurant Partners LLC (Outback),
Pre-Funded Revolving Credit, 2.639%, 6/14/13 .............. United States 296,204 $ 204,380
Term Loan B, 6.00%, 6/14/14 ............................... United States 3,703,063 2,555,114
Penn National Gaming Inc., Term Loan B, 4.24% - 4.55%,
10/03/12 .................................................. United States 4,214,193 3,809,631
VML U.S. Finance LLC (Venetian Macau),
Delayed Draw, 6.02%, 5/25/12 .............................. Macau 1,166,667 1,025,937
New Project Term Loans, 6.02%, 5/25/13 .................... Macau 1,477,778 1,299,521
Term Loan B, 6.02%, 5/24/13 ............................... Macau 1,703,704 1,498,194
------------
16,116,151
------------
DIVERSIFIED FINANCIALS 0.5%
Nuveen Investments Inc., Term Loan B, 6.704% - 6.769%,
11/13/14 .................................................. United States 1,890,500 1,627,720
------------
ENERGY 0.5%
Dresser Inc., Term Loan B, 5.057% - 5.954%, 5/04/14 .......... United States 1,552,923 1,418,336
------------
FOOD, BEVERAGE & TOBACCO 0.8%
Dean Foods Co., Term Loan B, 5.21% - 5.27%, 4/02/14 .......... United States 1,757,298 1,556,087
(f) Wm. Wrigley Jr. Co., Term Loan B, 7.50%, 8/15/14 ............. United States 900,000 884,652
------------
2,440,739
------------
HEALTH CARE EQUIPMENT & SERVICES 5.4%
Bausch and Lomb Inc.,
(h) Delayed Draw Term Loan, 7.012%, 4/28/15 ...................... United States 84,000 78,190
Parent Term Loan B, 7.012%, 4/28/15 ....................... United States 555,800 517,357
Community Health Systems Inc., 5.06% - 5.973%, 7/25/14 ....... United States 2,448,964 2,155,089
DaVita Inc., Term Loan B-1, 4.30% - 5.27%, 10/05/12 .......... United States 2,717,434 2,461,995
DJO Finance LLC, Term Loan B, 6.723% - 6.762%, 5/20/14 ....... United States 2,729,375 2,579,259
Fresenius Medical Care Holdings Inc., Term Loan B,
4.167% - 5.137%, 3/31/13 .................................. United States 1,500,617 1,408,704
(f) Fresenius SE (APP), Term Loan B2, 6.50%, 8/20/14 ............. Germany 280,084 274,483
Fresenius SE (New Finco1), Term Loan B, 7.50%, 8/20/14 ....... Germany 800,000 788,000
HCA Inc., Term Loan B-1, 6.012%, 11/18/13 .................... United States 4,080,386 3,588,190
Iasis Healthcare LLC,
Delayed Draw Term Loan, 5.704%, 3/14/14 ................... United States 478,976 430,280
Initial Term Loan, 5.704%, 3/14/14 ........................ United States 1,384,236 1,243,505
Synthetic L/C, 4.54%, 3/14/14 ............................. United States 128,047 115,029
Vanguard Health Holding Co. II LLC, Replacement Term Loan,
5.954% - 6.012%, 9/23/11 .................................. United States 1,580,100 1,438,878
------------
17,078,959
------------
HOUSEHOLD & PERSONAL PRODUCTS 0.2%
FTD Group Inc., Term Loan B, 7.929%, 8/04/14 ................. United States 600,000 593,250
------------
INSURANCE 0.5%
Conseco Inc., Term Loan, 5.709%, 10/10/13 .................... United States 2,174,902 1,636,614
------------
22 | Semiannual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
COUNTRY PRINCIPAL AMOUNT(a) VALUE
-------------- ------------------- ------------
(b, g) SENIOR FLOATING RATE INTERESTS (CONTINUED)
MATERIALS 7.7%
Anchor Glass Container Corp., Term Loan, 7.75% - 7.851%,
6/20/14 ................................................... United States 1,097,143 $ 1,075,200
Celanese U.S. Holdings LLC, Dollar Term Loan, 4.283%, 4/02/14 United States 3,979,849 3,617,683
Georgia-Pacific LLC,
Additional Term Loan, 4.238% - 5.512%, 12/20/12 ........... United States 1,609,838 1,426,551
Term Loan B, 4.551% - 5.454%, 12/20/12 .................... United States 2,337,855 2,071,681
Graphic Packaging International Inc., Term Loan B, 4.785% -
4.80%, 5/16/14 ............................................ United States 1,485,607 1,301,392
Hexion Specialty Chemicals BV, Term Loan C-2, 6.063%,
5/03/13 ................................................... Netherlands 699,700 541,393
Hexion Specialty Chemicals Inc., Term Loan C-1, 5.063%,
5/03/13 ................................................... United States 3,229,272 2,498,649
Huntsman International LLC, Term Loan B, 5.459%, 4/19/14 ..... United States 2,711,000 2,388,584
Ineos U.S. Finance LLC,
Term Loan B2, 5.727% - 5.952%, 12/16/13 ................... United States 376,650 314,150
Term Loan C2, 6.227% - 6.452%, 12/23/14 ................... United States 376,650 322,153
Lyondell Chemical Co.,
Tranche B-1, 7.00%, 12/20/14 .............................. United States 748,125 540,984
Tranche B-2, 7.00% 12/20/14 ............................... United States 1,995,000 1,455,241
NewPage Corp., Term Loan, 7.75%, 12/22/14 .................... United States 840,124 767,138
Oxbow Carbon LLC,
Delayed Draw Term Loan, 5.762%, 5/08/14 ................... United States 238,591 214,135
Term Loan B, 5.762%, 5/08/14 .............................. United States 2,653,854 2,381,834
PQ Corp., Term Loan, 6.05% - 7.02%, 7/30/14 .................. United States 1,795,500 1,553,107
Verso Paper Holdings LLC, Term Loan B, 5.512%, 8/01/13 ....... United States 1,898,977 1,766,049
------------
24,235,924
------------
MEDIA 10.2%
Charter Communications Operating LLC, Term Loan, 4.80%,
3/06/14 ................................................... United States 2,344,841 1,872,942
Citadel Broadcasting Corp., Term Loan B, 5.335% - 5.395%,
6/12/14 ................................................... United States 4,000,000 2,970,000
CSC Holdings Inc. (Cablevision), Incremental Term Loan,
4.569%, 3/29/13 ........................................... United States 780,000 690,857
Dex Media East LLC, Term Loan B, 4.80% - 5.77%, 10/24/14 ..... United States 1,750,000 1,491,875
Dex Media West LLC, Term Loan B, 7.00% - 7.77%, 10/24/14 ..... United States 1,600,000 1,395,429
Entravision Communications Corp., Term Loan B, 4.29%,
3/29/13 ................................................... United States 1,892,883 1,627,879
Gray Television Inc., Term Loan B, 4.29% - 5.25%, 12/31/14 ... United States 1,618,253 1,262,237
Idearc Inc., Term Loan B, 5.71% - 5.77%, 11/17/14 ............ United States 5,030,649 2,867,470
Insight Midwest Holdings, Term Loan B, 4.49%, 4/02/14 ........ United States 2,160,000 1,985,040
MCC Iowa,
Term Loan E, 6.50% - 7.47%, 1/03/16 ....................... United States 897,750 859,596
Tranche D-1 Term Loan, 4.24% - 5.72%, 1/31/15 ............. United States 498,520 438,386
Tranche D-2 Term Loan, 4.24% - 5.72%, 1/31/15 ............. United States 57,968 50,975
Mission Broadcasting Inc., Term Loan B, 5.512%, 10/01/12 ..... United States 885,006 774,380
Newsday LLC, 7.958%, Floating Rate Term Loan, 8/1/13 ......... United States 2,400,000 2,340,000
Nexstar Broadcasting Inc., Term Loan B, 5.512%, 10/01/12 ..... United States 837,496 732,809
Semiannual Report | 23
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
COUNTRY PRINCIPAL AMOUNT(a) VALUE
-------------- ------------------- ------------
(b, g) SENIOR FLOATING RATE INTERESTS (CONTINUED)
MEDIA (CONTINUED)
Regal Cinemas Corp., Term Loan, 5.262%, 10/27/13 ............. United States 2,083,605 $ 1,823,154
Tribune Co.,
Term Loan B, 5.786%, 5/16/14 ............................ United States 3,960,000 2,108,700
Term Loan X, 5.541%, 5/16/09 ............................ United States 365,714 338,286
Univision Communications Inc., Initial Term Loan, 5.049% -
6.25%, 9/29/14 ............................................ United States 5,000,000 3,242,500
UPC Financing Partnership, Term Loan N, 4.236%, 12/31/14 ..... Netherlands 3,570,000 3,200,505
------------
32,073,020
------------
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 0.9%
(f) Applied Biosystems Inc., Term Loan B, 7.00%, 10/31/15 ........ United States 800,000 782,833
Mylan Inc., Term Loan B, 7.00% -7.063%, 10/02/14 ............. United States 2,183,500 2,036,114
------------
2,818,947
------------
REAL ESTATE 0.4%
CB Richard Ellis Services Inc., Term Loan B, 4.688%,
12/20/13 .................................................. United States 1,720,992 1,394,004
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 0.5%
Marvell Technology Group Ltd., Term Loan, 6.204%, 11/08/09 ... Bermuda 1,534,000 1,522,495
------------
SOFTWARE & SERVICES 4.0%
Affiliated Computer Services Inc.,
Additional Term Loan, 4.489% - 5.704%, 3/20/13 ............ United States 1,759,500 1,620,206
Term Loan B, 5.709%, 3/20/13 .............................. United States 486,250 447,755
Dealer Computer Services Inc. (Reynolds & Reynolds), First
Lien
Term Loan, 5.704%, 10/26/12 ............................... United States 3,193,804 2,838,493
Emdeon Business Services LLC, First Lien Term Loan,
4.81% - 5.762%, 11/16/13 .................................. United States 2,092,603 1,820,565
First Data Corp., Term Loan B-2, 5.926% - 6.512%, 9/24/14 .... United States 2,471,259 2,123,225
Lender Processing Services Inc., Term Loan B, 6.204%,
7/02/14 ................................................... United States 997,500 979,213
Macrovision Solutions Corp., Term Loan B, 7.25% - 7.48%,
5/02/13 ................................................... United States 1,246,875 1,184,531
SunGard Data Systems Inc., New U.S. Term Loan, 4.553%,
2/28/14 ................................................... United States 2,004,172 1,749,267
------------
12,763,255
------------
TECHNOLOGY HARDWARE & EQUIPMENT 1.8%
CommScope Inc., Term Loan B, 5.929% - 6.262%, 12/26/14 ....... United States 1,565,433 1,463,680
Flextronics International USA Inc.,
Term Loan A, 5.038% - 5.041%, 10/01/14 .................... United States 1,850,304 1,584,322
Term Loan A-1, 5.041%, 10/01/14 ........................... United States 531,696 455,265
Sensus Metering Systems Inc., Term Loan B1, 4.47% - 4.812%,
12/17/10 .................................................. United States 2,084,295 2,047,820
------------
5,551,087
------------
TELECOMMUNICATION SERVICES 3.8%
Alltel Communications Inc., Term Loan B-3, 4.997%, 5/18/15 ... United States 2,475,000 2,408,484
GCI Holdings Inc., Add-On Term Loan, 7.96%, 8/31/12 .......... United States 2,387,860 2,349,057
24 | Semiannual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
COUNTRY PRINCIPAL AMOUNT(a) VALUE
-------------- ------------------- ------------
(b, g) SENIOR FLOATING RATE INTERESTS (CONTINUED)
TELECOMMUNICATION SERVICES (CONTINUED)
Intelsat Corp. (Panamsat),
Tranche B-2-A, 5.288%, 1/03/14 ............................ United States 1,622,322 $ 1,479,354
Tranche B-2-B, 5.288%, 1/03/14 ............................ United States 1,621,833 1,478,909
Tranche B-2-C, 5.288%, 1/03/14 ............................ United States 1,621,833 1,478,909
Intelsat Subsidiary Holding Co. Ltd., Term Loan B, 5.288%,
6/30/13 ................................................... . United States 871,259 795,569
Windstream Corp., Tranche B-1, 4.29%, 7/17/13 ................ United States 2,022,957 1,859,435
------------
11,849,717
------------
UTILITIES 2.3%
Dynegy Holdings Inc.,
Term L/C Facility, 5.21%, 4/02/13 ......................... United States 2,923,913 2,508,717
Term Loan B, 5.21%, 4/02/13 ............................... United States 75,326 64,630
NRG Energy Inc.,
Credit Link, 2.701%, 2/01/13 .............................. United States 819,782 724,369
Term Loan, 5.262%, 2/01/13 ................................ United States 1,668,636 1,474,425
Texas Competitive Electric Holdings Co. LLC, Term Loan B-2,
5.989% - 7.262%, 10/10/14 ................................. United States 2,970,000 2,520,787
------------
7,292,928
------------
TOTAL SENIOR FLOATING RATE INTERESTS
(COST $204,285,327) ....................................... 181,055,782
------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 3.7%
(b, i) Government of Argentina, senior bond, FRN, 3.127%, 8/03/12 Argentina 3,950,000 1,436,338
Government of Malaysia,
7.00%, 3/15/09 ............................................ Malaysia 2,735,000 MYR 806,333
3.869%, 4/13/10 ........................................... Malaysia 108,000 MYR 31,357
3.756%, 4/28/11 ........................................... Malaysia 7,510,000 MYR 2,171,857
Government of Singapore, 2.625%, 4/01/10 ..................... Singapore 2,080,000 SGD 1,470,513
Government of Sweden,
5.00%, 1/28/09 ............................................ Sweden 2,800,000 SEK 404,621
4.00%, 12/01/09 ........................................... Sweden 15,300,000 SEK 2,212,346
Korea Treasury Note, 0525-1209, 5.25%, 9/10/12 ............... South Korea 3,600,000,000 KRW 2,932,295
------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES
(COST $13,284,045) ........................................... 11,465,660
------------
SHORT TERM INVESTMENTS 0.8%
FOREIGN GOVERNMENT AND AGENCY SECURITIES
(COST $1,608,429)0.5%
(j) Egypt Treasury Bills, 11/18/08 - 12/16/08 .................... Egypt 8,975,000 EGP 1,622,062
------------
TOTAL INVESTMENTS BEFORE MONEY MARKET FUNDS
(COST $550,094,936) .......................................... 494,776,084
------------
Semiannual Report | 25
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
COUNTRY SHARES VALUE
-------------- ------------------- ------------
SHORT TERM INVESTMENTS (CONTINUED)
MONEY MARKET FUNDS (COST $953,183) 0.3%
(k) Franklin Institutional Fiduciary Trust Money Market Portfolio,
1.98% ..................................................... United States 953,183 $ 953,183
------------
TOTAL INVESTMENTS (COST $551,048,119) 157.2% ................. 495,729,267
PREFERRED SHARES (28.5)% ..................................... (90,000,000)
NET UNREALIZED APPRECIATION ON FORWARD EXCHANGE
CONTRACTS 0.4% ............................................... 1,422,912
OTHER ASSETS, LESS LIABILITIES (29.1)% ....................... (91,728,166)
------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0% ................ $315,424,013
============
CURRENCY ABBREVIATIONS
EGP - Egyptian Pound
KRW - South Korean Won
MYR - Malaysian Ringgit
SEK - Swedish Krona
SGD - Singapore Dollar
SELECTED PORTFOLIO ABBREVIATIONS
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association
FRN - Floating Rate Note
GNMA - Government National Mortgage Association
GP - Graduated Payment
L/C - Letter of Credit
PIK - Payment-In-Kind
SF - Single Family
(a) The principal amount is stated in U.S. dollars unless otherwise indicated.
(b) The coupon rate shown represents the rate at period end.
(c) See Note 10 regarding defaulted securities.
(d) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under the
Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Fund's Board of Trustees. At September 30, 2008,
the aggregate value of these securities was $18,921,648, representing 6.00%
of net assets.
(e) Income may be received in additional securities and/or cash.
(f) A portion or all of the security purchased on a when-issued, delayed
delivery, or to be announced basis. See Note 1(c).
(g) See Note 1(f) regarding senior floating rate interests.
(h) See Note 11 regarding unfunded loan commitments.
(i) The principal amount is stated in original face, and scheduled paydowns are
reflected in the market price on ex-date.
(j) The security is traded on a discount basis with no stated coupon rate.
(k) See Note 8 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio. The rate shown is the annualized seven-day
yield at period end.
The accompanying notes are an integral part of these financial statements.
26 | Semiannual Report
Franklin Templeton
Limited Duration Income Trust
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2008 (unaudited)
Assets:
Investments in securities:
Cost - Unaffiliated issuers ...................................... $550,094,936
Cost - Sweep Money Fund (Note 8) ................................. 953,183
------------
Total cost of investments ........................................ $551,048,119
============
Value - Unaffiliated issuers ..................................... $494,776,084
Value - Sweep Money Fund (Note 8) ................................ 953,183
------------
Total value of investments ....................................... 495,729,267
Cash ................................................................ 1,245,769
Receivables:
Investment securities sold ....................................... 25,140,853
Interest ......................................................... 4,665,501
Unrealized appreciation on forward exchange contracts (Note 9) ...... 1,617,235
------------
Total assets .................................................. 528,398,625
------------
Liabilities:
Payables:
Investment securities purchased .................................. 120,158,199
Affiliates ....................................................... 301,669
Distributions to common shareholders ............................. 2,034,807
Unrealized depreciation on forward exchange contracts (Note 9) ...... 194,323
Unrealized depreciation on unfunded loan commitments (Note 11) ...... 80,277
Accrued expenses and other liabilities .............................. 205,337
------------
Total liabilities ............................................. 122,974,612
------------
Preferred shares at redemption value [$25,000 liquidation
preference per share (3,600 shares outstanding)] ................. 90,000,000
------------
Net assets applicable to common shares ..................... $315,424,013
============
Net assets applicable to common shares consist of:
Paid-in capital ..................................................... $380,504,435
Distributions in excess of net investment income .................... (5,062,227)
Net unrealized appreciation (depreciation) .......................... (53,988,721)
Accumulated net realized gain (loss) ................................ (6,029,474)
------------
Net assets applicable to common shares ..................... $315,424,013
============
Common shares outstanding .............................................. 26,773,772
============
Net asset value per common share ....................................... $ 11.78
============
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 27
Franklin Templeton
Limited Duration Income Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the six months ended September 30, 2008 (unaudited)
Investment income:
Dividends - Sweep Money Fund (Note 8) ............................... $ 79,685
Interest (net of foreign taxes of $11,444) .......................... 15,054,393
------------
Total investment income ....................................... 15,134,078
------------
Expenses:
Management fees (Note 4) ............................................ 1,332,073
Administrative fees (Note 4) ........................................ 537,907
Transfer agent fees ................................................. 35,863
Custodian fees (Note 5) ............................................. 19,296
Reports to shareholders ............................................. 32,180
Professional fees ................................................... 33,466
Trustees' fees and expenses ......................................... 13,796
Auction agent fees and expenses ..................................... 167,034
Other ............................................................... 41,870
------------
Total expenses ................................................ 2,213,485
Expense reductions (Note 5) ................................... (5,879)
------------
Net expenses ............................................... 2,207,606
------------
Net investment income ................................... 12,926,472
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ...................................................... 517,592
Foreign currency transactions .................................... 46,445
------------
Net realized gain (loss) ................................ 564,037
------------
Net change in unrealized appreciation (depreciation) on:
Investments ...................................................... (26,828,297)
Translation of other assets and liabilities denominated in
foreign currencies ............................................ (47,976)
------------
Net change in unrealized appreciation (depreciation) .... (26,876,273)
------------
Net realized and unrealized gain (loss) ................................ (26,312,236)
------------
Net increase (decrease) in net assets resulting from operations ........ (13,385,764)
Distributions to preferred shareholders from net investment income ..... (2,563,045)
------------
Net increase (decrease) in net assets applicable to common shares
resulting from operations ........................................... $(15,948,809)
============
The accompanying notes are an integral part of these financial statements.
28 | Semiannual Report
Franklin Templeton
Limited Duration Income Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
SEPTEMBER 30, 2008 YEAR ENDED
(UNAUDITED) MARCH 31, 2008
------------------ --------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................................ $ 12,926,472 $ 34,298,334
Net realized gain (loss) from investments and foreign currency
transactions .................................................. 564,037 (2,103,092)
Net change in unrealized appreciation (depreciation) on
investments and translation of other assets and liabilities
denominated in foreign currencies ............................. (26,876,273) (32,720,507)
Distribution to preferred shareholders from net investment income ... (2,563,045) (9,781,438)
------------ ------------
Net increase (decrease) in net assets applicable to
common shares resulting from operations ................... (15,948,809) (10,306,703)
------------ ------------
Distributions to common shareholders from net investment income ..... (12,637,220) (26,986,555)
Capital share transactions from reinvestment of distributions
(Note 2) ......................................................... -- 490,071
------------ ------------
Net increase (decrease) in net assets ........................ (28,586,029) (36,803,187)
Net assets applicable to common shares:
Beginning of period ................................................. 344,010,042 380,813,229
------------ ------------
End of period ....................................................... $315,424,013 $344,010,042
============ ============
Distributions in excess of net investment income included in net assets:
End of period ....................................................... $ (5,062,227) $ (2,788,434)
============ ============
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 29
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Limited Duration Income Trust (Fund) is registered under the
Investment Company Act of 1940, as amended, (1940 Act) as a diversified,
closed-end investment company.
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, government securities, mortgage pass-through
securities, other mortgage-backed securities, and asset-backed 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.
Senior secured corporate loans with floating or variable interest rates
generally trade in the over-the-counter market rather than on a securities
exchange. The Fund may utilize independent pricing services, quotations from
loan dealers and other financial institutions, 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 use independent market quotations
from loan dealers or financial institutions and may incorporate valuation
methodologies that consider multiple bond characteristics such as dealer quotes,
issuer type, coupon, maturity, weighted average maturity, interest rate spreads
and yield curves, cash flow and credit risk/quality analysis, 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.
30 | Semiannual Report
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. SECURITY VALUATION (CONTINUED)
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.
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.
Semiannual Report | 31
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. SECURITIES PURCHASED ON A WHEN-ISSUED, DELAYED DELIVERY AND TBA BASIS
The Fund may purchase securities on a when-issued, delayed delivery and
to-be-announced (TBA) basis, with payment and delivery scheduled for a future
date. These transactions are subject to market fluctuations and are subject to
the risk that the value at delivery may be more or less than the trade date
purchase price. Although the Fund will generally purchase these securities with
the intention of holding the securities, it may sell the securities before the
settlement date. Sufficient assets have been segregated for these securities.
D. 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 at a future date. Realized and unrealized gains and losses on these
contracts are included in the Statement of Operations.
The Fund may also enter into forward exchange contracts to hedge against
fluctuations in foreign exchange rates or to gain exposure to certain foreign
currencies. These contracts are valued daily by the Fund and the unrealized
gains or losses on the contracts, as measured by the difference between the
contractual forward foreign exchange rates and the forward rates at the
reporting date, are included in the Statement of Assets and Liabilities.
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.
E. MORTGAGE DOLLAR ROLLS
The Fund may enter into mortgage dollar rolls, typically on a TBA basis.
Mortgage dollar rolls are agreements between the fund and a financial
institution to simultaneously sell and repurchase mortgage-backed securities at
a future date. Gains or losses are realized on the initial sale, and the
difference between the repurchase price and the sale price is recorded as an
unrealized gain or loss to the fund upon entering into the mortgage dollar roll.
In addition, the Fund may earn interest on the cash proceeds that are received
from the initial sale. During the period between the sale and repurchase, the
Fund is not entitled to principal and interest paid on the mortgage backed
securities. The risks of mortgage dollar roll transactions include the potential
inability of the counterparty to fulfill its obligations.
32 | Semiannual Report
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. MORTGAGE DOLLAR ROLLS (CONTINUED)
The Fund is investing in mortgage dollar rolls as an alternate form of leverage.
As a result, the mortgage dollar rolls are considered indebtedness or a "senior
security" for purposes of the asset coverage requirements under the 1940 Act.
F. SENIOR FLOATING RATE INTERESTS
Senior secured corporate loans pay interest at rates which are periodically
reset by reference to a base lending rate plus a spread. These base lending
rates are generally the prime rate offered by a designated U.S. bank or the
London InterBank Offered Rate (LIBOR). Senior secured corporate loans often
require prepayment of principal from excess cash flows or at the discretion of
the borrower. As a result, actual maturity may be substantially less than the
stated maturity.
Senior secured corporate loans in which the Fund invests are generally readily
marketable, but may be subject to some restrictions on resale.
G. INCOME TAXES
No provision has been made for U.S. income taxes because it is the Fund's policy
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 on
dividend and interest income received. Foreign taxes, if any, are recorded based
on the tax regulations and rates that exist in the foreign markets in which the
Fund invests.
The Fund has reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of September 30, 2008, and has
determined that no provision for income tax is required in the Fund's financial
statements.
H. 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. Facility fees are recognized as income over the expected term of the
loan. Dividend income is recorded on the ex-dividend date. Distributions to
common 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
Semiannual Report | 33
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
in accordance with accounting principles generally accepted in the United States
of America. 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 may reverse
in subsequent periods.
I. 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.
J. GUARANTEES AND INDEMNIFICATIONS
Under Franklin Templeton Limited Duration Income Trust's (Trust) organizational
documents, its officers and trustees are indemnified by the Trust against
certain liabilities arising out of the performance of their duties to the Trust.
Additionally, in the normal course of business, the Trust enters into contracts
with service providers that contain general indemnification clauses. The Trust's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Trust that have not yet occurred.
Currently, the Trust expects the risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
At September 30, 2008, there were 28,290,000 common shares authorized (without
par value). During the period ended September 30, 2008, there were no shares
issued; all reinvested distributions were satisfied with previously issued
shares purchased in the open market. During the year ended March 31, 2008, there
were 34,261 shares issued for $490,071 from reinvested distributions.
3. AUCTION RATE PREFERRED SHARES
On November 7, 2003 the Fund issued 2,534 Preferred Shares Series M, 2,533
Preferred Shares Series W and 2,533 Preferred Shares Series F, each with a
$25,000 liquidation preference per share totaling $190,000,000. During the
period ended September 30, 2008, there was a pro rata
34 | Semiannual Report
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. AUCTION RATE PREFERRED SHARES (CONTINUED)
preferred redemption of each series totaling 4,000 shares and $100,000,000
leaving 1,200 Preferred Shares Series M, 1,200 Preferred Shares Series W and
1,200 Preferred Shares Series F, each with a $25,000 liquidation preference
totaling $90,000,000. Dividends to preferred shareholders are cumulative and are
declared weekly, at rates established through an auction process. During the
period ended September 30, 2008, the dividends on Preferred Shares ranged from
3.54% to 5.62%. The weekly auctions for Series M, W and F have failed since
February 13, 2008; consequently, the dividend rate paid on the preferred shares
has moved to the maximum rate as defined in the prospectus.
The Fund is required to maintain, on a weekly basis, a specified discounted
value of its portfolio in compliance with guidelines established by Fitch
Ratings and Moody's Investor Services Inc., and is required to maintain asset
coverage for the Preferred Shares of at least 200%.
The Preferred Shares are redeemable by the Fund at any time and are subject to
mandatory redemption if the asset coverage or discounted value requirements are
not met. During the period ended September 30, 2008, all requirements were met.
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 and/or directors of the following
subsidiaries:
SUBSIDIARY AFFILIATION
---------- -------------------------------
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
The Fund pays an investment management fee and administrative fee to Advisers
and FT Services of 0.50% and 0.20%, respectively, per year of the average daily
managed assets. Managed assets are defined as the Fund's gross asset value minus
the sum of accrued liabilities, other than the liquidation value of the
preferred shares and other financial leverage.
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 period ended September 30, 2008, the
custodian fees were reduced as noted in the Statement of Operations.
Semiannual Report | 35
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. INCOME TAXES
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At March 31, 2008, the capital loss carryforwards were as
follows:
Capital loss carryforwards expiring in:
2014 .... $ 601,752
2015 .... 895,575
2016 .... 726,440
----------
$2,223,767
==========
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 March 31, 2008, the Fund deferred realized capital losses of
$4,369,070.
At September 30, 2008, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
Cost of investments ........................................ $552,576,676
============
Unrealized appreciation .................................... $ 524,876
Unrealized depreciation .................................... (57,372,285)
------------
Net unrealized appreciation (depreciation) ................. $(56,847,409)
============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities, foreign currency
transactions, mortgage dollar rolls, paydown losses, payments-in-kind, and bond
discounts and premiums.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions, mortgage dollar rolls, pay-down losses, and bond discounts and
premiums.
7. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
period ended September 30, 2008, aggregated $486,139,125 and $487,270,752,
respectively.
8. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (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 and administrative
fees paid by the Sweep Money Fund.
36 | Semiannual Report
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. FORWARD EXCHANGE CONTRACTS
At September 30, 2008, the Fund had the following forward exchange contracts
outstanding:
CONTRACT SETTLEMENT UNREALIZED UNREALIZED
AMOUNT(a) DATE APPRECIATION DEPRECIATION
----------- ---------- ------------ ------------
CONTRACTS TO BUY
382,000 Euro ............... 593,361 3/04/09 $ -- $ (54,511)
455,000 Euro ............... 701,050 3/16/09 -- (59,297)
700,000 Euro ............... 1,017,450 6/03/09 -- (32,219)
300,000 U.S. Dollar ........ 195,081 EUR 7/10/09 25,679 --
CONTRACTS TO SELL
1,905,000,000 South Korean Won ... 2,195,257 CHF 2/13/09 383,585 --
1,980,000 Euro ............... 2,964,515 3/04/09 171,526 --
990,000 Euro ............... 150,663,150 JPY 3/05/09 47,832 --
990,000 Euro ............... 152,260,020 JPY 3/09/09 63,671 --
975,000 Euro ............... 1,487,509 3/16/09 112,323 --
320,000 Euro ............... 49,532,800 JPY 4/06/09 24,857 --
990,000,000 South Korean Won ... 1,002,096 CHF 4/24/09 76,137 --
311,100,000 South Korean Won ... 313,640 CHF 6/02/09 23,065 --
1,140,000 Euro ............... 1,736,961 6/03/09 132,442 --
391,937 Euro ............... 1,955,883 MYR 6/12/09 23,628 --
1,934,000 Euro ............... 2,957,183 6/15/09 236,114 --
514,044 Euro ............... 2,552,999 MYR 6/15/09 27,494 --
1,019,036 Euro ............... 5,044,228 MYR 6/16/09 49,626 --
308,000,000 South Korean Won ... 312,310 CHF 7/09/09 24,741 --
101,000,000 South Korean Won ... 101,722 CHF 7/24/09 7,538 --
680,000 Euro ............... 1,375,096 SGD 9/02/09 17,215 --
540,000 Euro ............... 2,646,108 MYR 9/03/09 20,838 --
Unrealized appreciation (depreciation) on offsetting forward
exchange contracts ........................................... 148,924 (48,296)
---------- ---------
Unrealized appreciation (depreciation) on forward exchange
contracts ................................................. 1,617,235 (194,323)
========== =========
Net unrealized appreciation (depreciation) on forward
exchange contracts ..................................... $1,422,912
==========
(a) In U.S. dollars unless otherwise indicated.
CURRENCY ABBREVIATIONS
CHF - Swiss Franc
EUR - Euro
JPY - Japanese Yen
MYR - Malaysian Ringgit
SGD - Singapore Dollar
Semiannual Report | 37
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
10. CREDIT RISK AND DEFAULTED SECURITIES
The Fund has 61.69% of its portfolio invested in high yield, senior secured
floating rate notes, or other securities rated below investment grade. These
securities may be more sensitive to economic conditions causing greater price
volatility and are potentially subject to a greater risk of loss due to default
than higher rated securities.
The Fund held defaulted securities and/or other securities for which the income
has been deemed uncollectible. At September 30, 2008, the value of this security
was $390,000, representing 0.08% 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.
11. UNFUNDED LOAN COMMITMENTS
The Fund may enter into certain credit agreements, all or a portion of which may
be unfunded. The Fund is obligated to fund these loan commitments at the
borrowers' discretion. Funded portions of credit agreements are presented on the
Statement of Investments.
At September 30, 2008, unfunded commitments were as follows:
UNFUNDED
BORROWER COMMITMENT
-------- ----------
Bausch and Lomb Inc., Delayed Draw Term Loan ............. $ 56,000
Community Health Systems Inc., Delayed Draw Term Loan .... 125,290
Manitowoc Company Inc., Term Loan B ...................... 2,800,000
----------
$2,981,290
==========
Unfunded loan commitments and funded portions of credit agreements are marked to
market daily and any unrealized gain or loss is included in the Statement of
Assets and Liabilities and Statement of Operations.
12. FAIR VALUE MEASUREMENTS
The Fund adopted Financial Accounting Standards Board (FASB) issued FASB
Statement No. 157, "Fair Value Measurement" (SFAS 157), on April 1, 2008. SFAS
157 defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. The Fund has determined that
the implementation of SFAS 157 did not have a material impact on the Fund's
financial statements.
38 | Semiannual Report
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
12. FAIR VALUE MEASUREMENTS (CONTINUED)
SFAS 157 establishes a fair value hierarchy that distinguishes between market
data obtained from independent sources (observable inputs) and the Fund's own
market assumptions (unobservable inputs). These inputs are used in determining
the value of the Fund's investments and are summarized in the following fair
value hierarchy:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speed, credit risk,
etc.)
- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
The following is a summary of the inputs used as of September 30, 2008, in
valuing the Fund's assets and liabilities carried at fair value:
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------- ------------ ------- ------------
ASSETS:
Investments in Securities $953,183 $494,776,084 $-- $495,729,267
Other Financial Instruments(a) -- 1,617,235 -- 1,617,235
LIABILITIES:
Other Financial Instruments(a) -- 274,600 -- 274,600
(a) Other financial instruments may include net unrealized appreciation
(depreciation) of futures, forward exchange contracts, swaps, and unfunded
loan commitments.
13. NEW ACCOUNTING PRONOUNCEMENTS
In March 2008, FASB issued FASB Statement No. 161, "Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133"
(SFAS 161), which expands disclosures about derivative investments and hedging
activities. SFAS 161 is effective for fiscal years and interim periods beginning
after November 15, 2008. The Fund is currently evaluating the impact, if any, of
applying the various provisions of SFAS 161.
Semiannual Report | 39
Franklin Templeton
Limited Duration Income Trust
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Fund's investment manager 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 (954) 527-7678 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 (800)
SEC-0330.
40 | Semiannual Report
Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
(800) DIAL BEN/(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 FUNDS
VALUE
Franklin All Cap Value Fund
Franklin Balance Sheet Investment Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(1)
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund(4)
Mutual Shares Fund
BLEND
Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund
GROWTH
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund(2)
Franklin Small Cap Growth Fund(3)
Franklin Small-Mid Cap Growth Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Real Estate Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund(1)
Templeton Growth Fund
Templeton World Fund
INTERNATIONAL
Franklin India Growth Fund
Franklin International Growth Fund
Franklin International Small Cap Growth Fund
Mutual European Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund(1)
Templeton Frontier Markets Fund
HYBRID
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Templeton Income Fund
ASSET ALLOCATION
Franklin Templeton Corefolio(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
FIXED INCOME
Franklin Adjustable U.S. Government Securities Fund(5)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(5)
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(5)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund
TAX-FREE INCOME(6)
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(7)
LIMITED-/INTERMEDIATE-TERM FUNDS
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(8)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(7)
Michigan(7)
Minnesota(7)
Missouri
New Jersey
New York(8)
North Carolina
Ohio(7)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(9)
(1.) The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
(2.) Effective 11/1/07, Franklin Aggressive Growth Fund changed its name to
Franklin Growth Opportunities Fund. The fund's investment goal and strategy
remained the same.
(3.) Effective 3/31/08, Franklin Small Cap Growth Fund II changed its name to
Franklin Small Cap Growth Fund. The fund's investment goal and strategy
remained the same.
(4.) 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.
(5.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(6.) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are generally
taxable.
(7.) The fund invests primarily in insured municipal securities.
(8.) These funds are available in four or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities,
a high-yield portfolio (CA only) and money market portfolios.
(9.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
11/08 Not part of the semiannual report
(FRANKLIN TEMPLETON INVESTMENTS LOGO)
One Franklin Parkway
San Mateo, CA 94403-1906
SEMIANNUAL REPORT
FRANKLIN TEMPLETON
LIMITED DURATION INCOME TRUST
INVESTMENT MANAGER
Franklin Advisers, Inc.
(800) DIAL BEN((R))
TRANSFER AGENT
PNC Global Investment Services
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.
FTF S2008 11/08
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 John B. Wilson and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Members of the Audit Committee are: Robert F. Carlson, Frank W.T. LaHaye,
Frank A. Olson and John B. Wilson.
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 Fund 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 RiskMetrics Group
(RiskMetrics), 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 RiskMetrics' and/or Glass Lewis' analyses are thoroughly reviewed and
considered in making a final voting decision, the manager does not consider
recommendations from RiskMetrics, 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. Efforts are made to resolve
all conflicts in the interests of the manager's clients. Material conflicts of
interest are identified by the Proxy Group based upon analyses of client, broker
and vendor lists, information periodically gathered from directors and officers,
and information derived from other sources, including public filings. In
situations where a material conflict of interest is identified, the Proxy Group
may defer to the voting recommendation of RiskMetrics, Glass Lewis or those of
another independent third party provider of proxy services; or send the proxy
directly to the Fund with a recommendation regarding the vote for approval. If
the conflict is not resolved by the Fund, the Proxy Group may refer the matter,
along with the recommended course of action by the manager to an
interdepartmental Proxy Review Committee (which may include portfolio managers
and/or research analysts employed by the manager), for evaluation and voting
instructions. The Proxy Review Committee may defer to the voting recommendation
of RiskMetrics, Glass Lewis or those of another independent third party provider
of proxy services; or send the proxy directly to the Fund. Where the Proxy Group
or the Proxy Review Committee refers a matter to the Fund, it may rely upon the
instructions of a representative of the Fund, such as the board of trustees or a
committee of the board.
Where a material conflict of interest has been identified, but the items on
which the manager's vote recommendations differ from Glass Lewis, RiskMetrics,
or another independent third party provider of proxy services relate
specifically to (1) shareholder proposals regarding social or environmental
issues or political contributions, (2) "Other Business" without describing the
matters that might be considered, or (3) items the manager wishes to vote in
opposition to the recommendations of an issuer's management, the Proxy Group may
defer to the vote recommendations of the manager rather than sending the proxy
directly to the Fund for approval.
To avoid certain potential conflicts of interest, the manager will employ echo
voting, if possible, in the following instances: (1) when the Fund invests in an
underlying fund in reliance on Section 12(d)(1) of the 1940 Act, or pursuant to
an SEC exemptive order; (2) when the Fund invests uninvested cash in affiliated
money market funds pursuant to an SEC exemptive order ("cash sweep
arrangement"); or (3) when required pursuant to the Fund's governing documents
or applicable law. Echo voting means that the investment manager will vote the
shares in the same proportion as the vote of all of the other holders of the
Fund's shares.
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
believes that executive compensation should be directly linked to the
performance of the company. 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 RiskMetrics 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 issuers. 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. If a security is on loan, the manager
may determine that it is not in the best interests of the Fund to recall the
security for voting purposes. Also, 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 (954) 527-7678 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. The proxy voting records are updated each year
by August 31 to reflect the most recent 12-month period ended June 30.
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 Galen G. Vetter, Chief Executive Officer - Finance and Administration, and
Laura F. Fergerson, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Galen G. Vetter, Chief Executive Officer - Finance and Administration, and Laura
F. Fergerson, Chief Financial Officer and Chief Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN TEMPLETON LIMITED DURATION INCOME TRUST
By GALEN G. VETTER
-----------------------------------
Galen G. Vetter
Chief Executive Officer - Finance
and Administration
Date November 25, 2008
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 GALEN G. VETTER
-----------------------------------
Galen G. Vetter
Chief Executive Officer - Finance
and Administration
Date November 25, 2008
By LAURA F. FERGERSON
-----------------------------------
Laura F. Fergerson
Chief Financial Officer and
Chief Accounting Officer
Date November 25, 2008