UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21357
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FRANKLIN TEMPLETON LIMITED DURATION INCOME TRUST
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(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: (650) 312-2000
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Date of fiscal year end: 3/31
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Date of reporting period: 3/31/10
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ITEM 1. REPORTS TO STOCKHOLDERS.
MARCH 31, 2010
ANNUAL REPORT
(GRAPHIC)
FIXED INCOME
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 annual report
Contents
ANNUAL REPORT
Franklin Templeton Limited Duration Income Trust ........................... 1
Performance Summary ........................................................ 7
Annual Shareholders' Meeting ............................................... 8
Important Notice to Shareholders ........................................... 9
Dividend Reinvestment Plan ................................................. 10
Financial Highlights and Statement of Investments .......................... 13
Financial Statements ....................................................... 28
Notes to Financial Statements .............................................. 31
Report of Independent Registered Public Accounting Firm .................... 42
Tax Designation ............................................................ 43
Board Members and Officers ................................................. 44
Shareholder Information .................................................... 49
Annual 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:
We are pleased to bring you Franklin Templeton Limited Duration Income
Trust's annual report for the fiscal year ended March 31, 2010.
PERFORMANCE OVERVIEW
For the 12 months under review, Franklin Templeton Limited Duration Income
Trust had cumulative total returns of +43.18% based on net asset value and
+63.14% based on market price. Net asset value increased from $10.15 per
share on March 31, 2009, to $13.48 at period-end, and the market price rose
from $8.92 to $13.40 over the same time. You can find the Fund's
performance data in the Performance Summary on page 7.
ECONOMIC AND MARKET OVERVIEW
The U.S. economy improved during the 12-month reporting period as corporate
profits, manufacturing and exports showed steady gains. The nation's
economic
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 14.
Annual Report | 1
activity as measured by gross domestic product registered annualized
quarterly growth rates of -0.7%, 2.2% and 5.6% in the last three quarters
of 2009 and an estimated 3.2% in 2010's first quarter. Remaining challenges
to economic recovery included elevated debt concerns, tight credit markets,
stalled consumer confidence, restrained spending, and lack of job prospects
for the unemployed as federal stimulus measures began to wind down. The
unemployment rate, which peaked at 10.1% in October 2009, stood at 9.7% by
period-end.(1)
As economic conditions improved, demand for energy products increased and
crude oil prices rose from $50 per barrel in March 2009 to $84 at
period-end, still well below 2008 highs. March's inflation rate was an
annualized 2.3%.(1) Core inflation, which excludes food and energy costs,
rose at a 1.1% annualized rate,(1) which was below the Federal Reserve
Board's (Fed's) informal target range of 1.5% to 2.0%. The core personal
consumption expenditures price index reported a 12-month increase of 1.3%
for the second month in a row.(2)
During the period under review, economic improvement and benign inflation
trends prompted Fed policymakers to maintain record-low interest rates and
discontinue certain stimulus plans. Noting that it believed the recession
had ended, the Fed left the federal funds target rate unchanged at a range
of 0% to 0.25% and began laying the groundwork for its exit strategy. The
market anticipated an eventual tightening of monetary policy and a gradual
phase-out of the Fed's support and liquidity programs.
In February 2010, investor fears over the Greek government's ability to
finance its budget deficit forced several companies to delay bond sales and
prompted investors to flee to safer assets such as U.S. Treasuries. These
fears largely subsided by period-end, and the credit market rebounded
although uncertainty remained about how several European countries would
meet their debt obligations. U.S. companies aggressively borrowed in the
debt market and liquidity levels rose.
Wary investors favored short-term Treasuries, and the Treasury yield curve
reached all-time steep levels in February. The spread between two- and
10-year Treasury yields increased from 190 basis points (100 basis points
equal one percentage point) at the beginning of the period to 282 basis
points at period-end. The two-year Treasury bill yield rose from 0.81% to
1.02% over the 12-month period, while the 10-year Treasury note yield rose
from 2.71% to 3.84%.
(1.) Source: Bureau of Labor Statistics.
(2.) Source: Bureau of Economic Analysis.
2 | Annual Report
INVESTMENT STRATEGY
We primarily 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, possible pricing inefficiencies and underlying
collateral characteristics.
MANAGER'S DISCUSSION
The Fund's fiscal year was marked by a remarkable recovery from one of the worst
economic environments in modern history. With unprecedented amounts of
government stimulus being applied around the globe, most risky assets began to
recover in late 2008 or early 2009, and equity markets rose significantly.
Meanwhile, as investors became more convinced the economy would recover, raising
concerns of higher inflation, the 10-year Treasury note yield increased from
2.71% at the end of March 2009 to 3.84% at the end of March 2010. During the
same period, the Fed kept short-term interest rates extremely low.
In the prevailing environment of improving economic prospects and low short-term
interest rates, investors increasingly sought out risky assets, thus driving
returns for such securities sharply higher. High yield corporate bonds returned
+52.27% as measured by the Credit Suisse (CS) High Yield Index, while leveraged
loans returned +41.06% as measured by the CS Leveraged Loan Index.(3)
Mortgage-backed securities (MBS), which are generally higher quality and lower
yield than other fixed income securities, generated a more modest +5.21% return
as measured by the Barclays Capital (BC) U.S. MBS Index.(4) Within the credit
PORTFOLIO BREAKDOWN
Based on Total Investments as of 3/31/10*
(BAR CHART)
High Yield Corporate Bonds 35.6%
Floating Rate Loans 33.7%
Mortgage-Backed Securities 17.9%
Other Asset-Backed Securities 8.1%
Foreign Government & Agency Securities 2.4%
Investment-Grade Corporate Bonds 0.4%
Common Stock 0.2%
Preferred Stock 0.1%
Short-Term Investments & Other Net Assets 1.6%
* Total investments include long-term and short-term investments and other
net assets excluding preferred stock issued by the Fund and other financial
leverage.
(3.) Source: (C) 2010 Morningstar. The CS High Yield Index is designed to mirror
the investible universe of the U.S. dollar-denominated high yield debt
market. The CS Leveraged Loan Index is designed to mirror the investible
universe of the U.S. dollar-denominated leveraged loan market.
(4.) Source: (C) 2010 Morningstar. The BC U.S. MBS Index is the MBS component of
the BC U.S. Aggregate Index and covers agency mortgage-backed passthrough
securities (both fixed rate and hybrid adjustable-rate mortgages) issued by
Ginnie Mae (GNMA), Fannie Mae (FNMA) and Freddie Mac (FHLMC).
Annual Report | 3
DIVIDEND DISTRIBUTIONS*
4/1/09-3/31/10
DIVIDEND PER
MONTH COMMON SHARE
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April 7.6 cents
May 7.6 cents
June 7.6 cents
July 7.6 cents
August 7.6 cents
September 7.6 cents
October 7.6 cents
November 7.6 cents
December** 11.8 cents
January 7.6 cents
February 7.6 cents
March 7.6 cents
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TOTAL 95.4 CENTS
* All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
** Includes an additional 4.2 cent per share distribution to meet excise tax
requirements.
portion of our portfolio, we liquidated investment-grade corporate positions we
had purchased at cheaper valuations, as those bonds were again trading at prices
near historical averages. We used the proceeds to increase our high yield
corporate bond and leveraged loan exposures, and the Fund ended the period with
overweighted positions in both of these asset classes relative to MBS and
asset-backed securities (ABS). We reduced our MBS exposure, partly to invest in
what we believed were more attractively valued ABS and partly due to relative
performance versus the Fund's other assets.
HIGH YIELD CORPORATE BONDS
High yield corporate bonds generated positive returns every month during the
Fund's fiscal year. After suffering severely from the deep credit crisis, high
yield corporate bonds began the period with attractive valuations and yields
above 17%.(5) As signs of economic improvement became more widespread, fears of
record default levels abated and investors seemed to believe the market had
overreacted. In addition, the new-issue market gradually opened, allowing
companies to refinance debt to extend maturities or to eliminate onerous bank
covenants. This refinancing activity led to further decreases in default
expectations and enabled bond yields and spreads to tighten. Following the
remarkable rally over the past fiscal year, valuations were in line with
historical averages. At year-end, we had a favorable outlook for high yield
corporate issuers' fundamentals, and we maintained a slightly overweighted
position.
FLOATING RATE BANK LOANS
The bank loan asset class delivered strong returns for the year, and lower
credit-quality loans outperformed higher credit-quality loans. The loan rally
was supported by strong liquidity in the finance system, which allowed companies
to refinance their bank debt through the high yield bond and public equity
markets. In particular, the bond-for-loan conversion returned significant cash
to loan investors, which forced them to redeploy the cash in the secondary loan
market. Demand strengthened in the secondary market because supply was limited
in the primary market. As a result, secondary loan prices increased from 75
cents on the dollar on March 31, 2009, to 94.9 at period-end, and the average
discounted spread to maturity (the interest rate margin over LIBOR, factoring
the current trading price and the loan's maturity) tightened from 991 basis
points to 370 basis points over the same period.(6)
(5.) Source: (C) 2010 Morningstar.
(6.) Source: Standard & Poor's (S&P) Leveraged Commentary & Data, "LoanStats
Weekly Supplemental."
4 | Annual Report
Merger and acquisition activity also benefited some leveraged companies that
were acquired by larger and better-capitalized companies who subsequently repaid
loans at par. In addition, loan fund inflows and year-end loan amortization
payments also returned cash to investors and contributed to the loan market's
continued strength. With improvement in credit markets, several issuers extended
loan maturities through amendments to their credit agreements, with a few
issuers returning for second extensions. These actions benefited investors with
higher spreads, which also helped secondary market prices. Overall, the
environment remained positive for the loan market as the high percentage of
loans coming due from 2012 to 2014 was slowly being addressed.
With issuers' improved access to capital markets and their ability to amend and
extend loan maturities, the loan default rate trended lower from its peak of
10.8% in November 2009 to 5.8% at the period-end, according to S&P Leveraged
Commentary and Data.(6)
MORTGAGE- AND OTHER ASSET-BACKED SECURITIES
During the Fund's fiscal year, the overall MBS market delivered solid results
but lagged the robust performance of the high yield corporate bond and bank loan
sectors. The Fed's MBS purchase program continued to support the agency MBS
market but was concluded at period-end. With a lack of consistent investor
demand outside Fed purchases, we anticipate less favorable technical conditions
and higher volatility.
The Fund's coupon allocation remained relatively constant over the period.
Prepayment risk for higher coupon MBS remained restrained as stagnant home
prices, loss of home equity and tighter underwriting standards lessened
prepayment activity. The Fund's heaviest allocation remained in the 5.0% to 6.0%
range.
Outside conventional MBS, the Fund remained allocated to higher quality
securitized sectors with strong credit fundamentals, specifically those related
to commercial real estate. During the period, the Term Asset-Backed Securities
Lending Facility (TALF) was successful in supporting the commercial MBS and
consumer ABS markets.
Annual Report | 5
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
CFA(R) is a trademark owned by CFA Institute.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF MARCH 31, 2010, 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.
6 | Annual Report
Performance Summary as of 3/31/10
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 gain
distributions, if any, or any realized gains on the sale of Fund shares.
PRICE AND DISTRIBUTION INFORMATION
SYMBOL: FTF CHANGE 3/31/10 3/31/09
------------------------------------- ------ ------- -------
Net Asset Value (NAV) +$3.33 $13.48 $10.15
Market Price (NYSE Amex) +$4.48 $13.40 $ 8.92
DISTRIBUTIONS (4/1/09-3/31/10)
Dividend Income $0.9540
PERFORMANCE(1)
COMMENCEMENT OF
1-YEAR 5-YEAR OPERATIONS (8/27/03)
------ ------- --------------------
Cumulative Total Return(2)
Based on change in NAV(3) +43.18% +36.92% +55.40%
Based on change in market price(4) +63.14% +47.23% +54.01%
Average Annual Total Return(2)
Based on change in NAV(3) +43.18% +6.49% +6.91%
Based on change in market price(4) +63.14% +8.04% +6.77%
Distribution Rate(5) 6.81%
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 3/31/10, the Fund had leverage in the
amount of 32.01% of the Fund's total assets. The Fund 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
Fund's leverage may be offset by increased/decreased income from the Fund's
floating rate investments.
(2.) Total return calculations represent the cumulative and average annual
changes in value of an investment over the periods indicated.
(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 March dividend and the NYSE Amex closing price of $13.40 on 3/31/10.
Annual Report | 7
Annual Shareholders' Meeting
SEPTEMBER 24, 2009
At an annual Meeting of Shareholders of Franklin Templeton Limited Duration
Income Trust (Fund) held on September 24, 2009, 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
------------------ ------------- ----------- ----- ----------- ----------- -----
Frank W.T. LaHaye 21,972,070.74 85.25% 97.53% 555,607.00 2.16% 2.47%
Frank A. Olson 21,972,070.74 85.25% 97.53% 555,607.00 2.16% 2.47%
PREFERRED % OF % OF
SHARES OUTSTANDING % OF WITHHELD OR OUTSTANDING % OF
TRUSTEES FOR SHARES VOTED ABSTAIN SHARES VOTED
------------------ ------------- ----------- ----- ----------- ----------- -----
Frank W.T. LaHaye 2,742.00 76.17% 98.42% 44.00 1.22% 1.58%
Frank A. Olson 2,742.00 76.17% 98.42% 44.00 1.22% 1.58%
Charles B. Johnson 2,742.00 76.17% 98.42% 44.00 1.22% 1.58%
Note: Pursuant to the Fund's Amended and Restated Declaration of Trust, Charles
B. Johnson was nominated to be elected solely by holders of Preferred Shares.
Harris J. Ashton, Robert F. Carlson, Sam Ginn, Edith E. Holiday, Rupert H.
Johnson, Jr., Larry D. Thompson, and John B. Wilson are Trustees of the Fund who
are currently serving and whose terms of office continued after the meeting.
8 | Annual Report
Important Notice to Shareholders
AMENDMENT TO THE BYLAWS OF THE TRUST
The Bylaws of the Trust have been amended as follows, effective February 23,
2010:
ARTICLE IX
COMPLIANCE WITH FITCH RATING GUIDELINES
Section 1. OVERCOLLATERALIZATION TESTS. For as long as the Trust has
outstanding Auction Preferred Shares, Series M, Series W or Series F
(collectively, "AP Shares"), as described in that certain Statement of
Preferences of Auction Rate Preferred Shares (the "Statement") dated October 20,
2003, and the AP Shares are rated by Fitch, Inc. ("Fitch"), the Trust shall
maintain asset coverage ratios with respect to the Fitch Total
Overcollateralization Test ("Fitch Total OC Test") and the Fitch Net
Overcollateralization Test ("Fitch Net OC Test") consistent with maintaining a
Fitch rating of AAA, as described by Fitch in CLOSED-END FUND DEBT AND PREFERRED
STOCK RATING CRITERIA dated August 17, 2009, as the same may be amended from
time to time and made publicly available by Fitch on its website or such other
location as Fitch may designate by reasonable notice (collectively, the "Fitch
OC Tests").
Section 2. VALUATION PERIOD. The Trust shall calculate its compliance with
the Fitch OC Tests weekly (each such weekly calculation date to be referred to
as a "Valuation Date") and will send the calculation to Fitch monthly.
Section 3. CURE PERIOD. If in any weekly valuation the Trust fails to
comply with the Fitch OC Tests, the Trust shall have ten (10) business days from
such Valuation Date to restore compliance with such coverage ratios (such tenth
(10th) business day to be referred to as the "Cure Date"). The Trust may restore
compliance through any combination of deleveraging, portfolio rebalancing,
suspending dividends or distribution payments on common shares, or such other
means as the officers of the Trust deem necessary, desirable or appropriate to
restore compliance with the Fitch OC Tests.
Section 4. MANDATORY REDEMPTION. In the event that the Trust fails to
comply with the Fitch OC Tests on a Valuation Date and fails to restore
compliance by the close of business on the Cure Date, the Trust shall conduct a
mandatory redemption of AP Shares in accordance with Section 9(b) of Part I of
the Statement and such other provisions of the Statement as shall be applicable
to mandatory redemptions. Such mandatory redemption shall take place within
thirty (30) days of the Cure Date (the date on which the redemption takes place
to be referred to as the "Redemption Date"). During the period between the Cure
Date and the Redemption Date, the Trust shall not issue or incur additional
leverage, nor declare or pay dividends or distribution on common shares.
Annual Report | 9
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 Servicing (Agent), P.O. Box 43027,
Providence, RI 02940-3027, 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.
10 | Annual Report
The market price of shares on a particular date shall be the last sales price on
NYSE Amex, 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 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
Annual Report | 11
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.
12 | Annual Report
Franklin Templeton
Limited Duration Income Trust
FINANCIAL HIGHLIGHTS
YEAR ENDED MARCH 31,
-------------------------------------------------------------
2010 2009 2008 2007 2006
-------- -------- -------- -------- --------
PER COMMON SHARE OPERATING PERFORMANCE
(for a common share outstanding throughout the year)
Net asset value, beginning of year ................. $ 10.15 $ 12.85 $ 14.24 $ 14.14 $ 14.41
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income(a) ........................ 0.93 0.93 1.28 1.32 1.18
Net realized and unrealized gains (losses) ...... 3.40 (2.56) (1.29) 0.16 (0.10)
Dividends to preferred shareholders from net
investment income ............................ (0.05) (0.14) (0.37) (0.35) (0.26)
-------- -------- -------- -------- --------
Total from investment operations ................... 4.28 (1.77) (0.38) 1.13 0.82
-------- -------- -------- -------- --------
Less distributions to common shareholders from net
investment income ............................... (0.95) (0.93) (1.01) (1.03) (1.09)
-------- -------- -------- -------- --------
Net asset value, end of year ....................... $ 13.48 $ 10.15 $ 12.85 $ 14.24 $ 14.14
======== ======== ======== ======== ========
Market value, end of year(b) ....................... $ 13.40 $ 8.92 $ 10.94 $ 14.27 $ 12.87
======== ======== ======== ======== ========
Total return (based on market value per share) ..... 63.14% (9.97)% (16.64)% 19.66% 0.60%
RATIOS TO AVERAGE NET ASSETS APPLICABLE TO
COMMON SHARES
Expenses before expense reduction .................. 1.15% 1.33% 1.28% 1.27% 1.26%
Expenses net of expense reduction .................. 1.15%(c) 1.33%(c) 1.28%(c) 1.26% 1.26%(c)
Net investment income .............................. 7.47% 8.16% 9.38% 9.32% 8.24%
SUPPLEMENTAL DATA
Net assets applicable to common shares, end of
year (000's) .................................... $360,798 $271,679 $344,010 $380,813 $378,080
Portfolio turnover rate ............................ 220.09% 203.31% 47.48% 52.17% 46.55%
Portfolio turnover rate excluding mortgage dollar
rolls(d) ........................................ 66.07% 42.58% 47.48% 52.17% 46.55%
Asset coverage per preferred share ................. $ 78,092 $ 72,571(e) $ 70,264 $ 75,107 $ 74,747
Liquidation preference per preferred share ......... $ 25,000 $ 25,000 $ 25,000 $ 25,000 $ 25,000
(a) Based on average daily common shares outstanding.
(b) Based on the last sale on the NYSE Amex.
(c) Benefit of expense reduction rounds to less than 0.01%.
(d) See Note 1(e) regarding mortgage dollar rolls.
(e) Prior amount of $115,173 has been corrected to include the impact of
mortgage dollar rolls.
The accompanying notes are an integral part of these financial statements.
Annual Report | 13
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2010
COUNTRY SHARES VALUE
--------------- --------------- -------------
COMMON STOCKS (COST $1,375,698) 0.4%
MEDIA 0.4%
(a, b) Dex One Corp. ..................................................... United States 44,377 $ 1,239,006
-------------
PREFERRED STOCKS (COST $237,850) 0.1%
DIVERSIFIED FINANCIALS 0.1%
(c) GMAC Inc., 7.00%, pfd., 144A ...................................... United States 670 510,749
-------------
PRINCIPAL
AMOUNT(d)
---------------
CORPORATE BONDS 53.5%
AUTOMOBILES & COMPONENTS 1.6%
Arvinmeritor Inc., senior note, 10.625%, 3/15/18 .................. United States 700,000 733,248
Ford Motor Credit Co. LLC, senior note,
9.875%, 8/10/11 ................................................ United States 2,000,000 2,121,836
7.50%, 8/01/12 ................................................. United States 2,000,000 2,072,058
(c) TRW Automotive Inc., senior note, 144A, 7.25%, 3/15/17 ............ United States 1,000,000 970,000
-------------
5,897,142
-------------
CAPITAL GOODS 2.4%
(c) Allison Transmission Inc., senior note, 144A, 11.00%, 11/01/15 .... United States 1,500,000 1,605,000
Greenbrier Cos. Inc., senior note, 8.375%, 5/15/15 ................ United States 600,000 549,000
(c) Libbey Glass Inc., senior secured note, 144A, 10.00%, 2/15/15 ..... United States 800,000 846,000
The Manitowoc Co. Inc., senior note, 9.50%, 2/15/18 ............... United States 1,100,000 1,152,250
(c) Oshkosh Corp., senior note, 144A,
8.25%, 3/01/17 ................................................. United States 200,000 209,000
8.50%, 3/01/20 ................................................. United States 200,000 209,000
RBS Global & Rexnord Corp., senior note, 9.50%, 8/01/14 ........... United States 2,000,000 2,090,000
RSC Equipment Rental Inc., senior note, 9.50%, 12/01/14 ........... United States 2,000,000 1,990,000
-------------
8,650,250
-------------
COMMERCIAL & PROFESSIONAL SERVICES 0.6%
(c) Casella Waste Systems Inc., senior secured note, 144A, 11.00%,
7/15/14 ........................................................ United States 600,000 646,500
(c, e) JohnsonDiversey Holdings Inc., senior note, 144A, PIK, 10.50%,
5/15/20 ........................................................ United States 1,300,000 1,423,500
-------------
2,070,000
-------------
CONSUMER DURABLES & APPAREL 1.3%
Jarden Corp., senior sub. note, 7.50%, 5/01/17 .................... United States 2,000,000 2,037,500
Jostens IH Corp., senior sub. note, 7.625%, 10/01/12 .............. United States 2,500,000 2,518,750
KB Home, senior note, 6.375%, 8/15/11 ............................. United States 209,000 214,747
-------------
4,770,997
-------------
CONSUMER SERVICES 5.1%
(c) Grupo Posadas SAB de CV, senior note, 144A, 9.25%, 1/15/15 ........ Mexico 500,000 525,131
Harrah's Operating Co. Inc., senior secured note, 11.25%,
6/01/17 ........................................................ United States 3,000,000 3,247,500
Host Hotels & Resorts LP, senior note, K, 7.125%, 11/01/13 ........ United States 1,500,000 1,533,750
MGM MIRAGE,
senior note, 6.75%, 4/01/13 .................................... United States 3,000,000 2,730,000
(c) senior secured note, 144A, 9.00%, 3/15/20 ...................... United States 500,000 517,500
14 | Annual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2010 (CONTINUED)
PRINCIPAL
COUNTRY AMOUNT(d) VALUE
---------------- --------------- -------------
CORPORATE BONDS (CONTINUED)
CONSUMER SERVICES (CONTINUED)
(c) Norwegian Cruise Line Ltd., senior secured note, 144A, 11.75%,
11/15/16 ....................................................... United States 2,000,000 $ 2,185,000
(c) Pinnacle Entertainment Inc., senior note, 144A, 8.625%, 8/01/17 ... United States 2,000,000 1,965,000
Royal Caribbean Cruises Ltd., senior note, 7.25%, 6/15/16 ......... United States 1,500,000 1,500,000
(c) Shingle Springs Tribal Gaming, senior note, 144A, 9.375%,
6/15/15 ........................................................ United States 800,000 668,000
Starwood Hotels & Resorts Worldwide Inc., senior note, 6.75%,
5/15/18 ........................................................ United States 2,000,000 2,015,000
(f) Station Casinos Inc., senior note, 7.75%, 8/15/16 ................. United States 200,000 14,625
(c) Universal City Development,
senior note, 144A, 8.875%, 11/15/15 ............................ United States 1,200,000 1,215,000
senior sub. note, 144A, 10.875%, 11/15/16 ...................... United States 200,000 210,000
-------------
18,326,506
-------------
DIVERSIFIED FINANCIALS 1.1%
GMAC Inc., senior note,
7.25%, 3/02/11 ................................................. United States 1,266,000 1,294,485
6.875%, 8/28/12 ................................................ United States 2,000,000 2,037,500
(f) Lehman Brothers Holdings Inc., senior note, 6.20%, 9/26/14 ........ United States 3,000,000 712,500
-------------
4,044,485
-------------
ENERGY 10.0%
(c) Antero Resources Finance, senior note, 144A, 9.375%, 12/01/17 ..... United States 1,400,000 1,449,000
(c) Arch Coal Inc., senior note, 144A, 8.75%, 8/01/16 ................. United States 400,000 425,000
Berry Petroleum Co., senior note, 10.25%, 6/01/14 ................. United States 1,300,000 1,439,750
Chesapeake Energy Corp., senior note, 7.50%, 6/15/14 .............. United States 3,000,000 3,060,000
Compagnie Generale de Geophysique-Veritas, senior note, 7.50%,
5/15/15 ........................................................ France 2,000,000 2,015,000
Concho Resources Inc., senior note, 8.625%, 10/01/17 .............. United States 700,000 745,500
(c, g) Consol Energy Inc., senior note, 144A, 8.00%, 4/01/17 ............. United States 700,000 722,750
(c) Crosstex Energy LP/Crosstex Energy Finance Corp., senior note,
144A, 8.875%, 2/15/18 .......................................... United States 400,000 414,500
Denbury Resources Inc., senior sub. note, 8.25%, 2/15/20 .......... United States 600,000 639,000
El Paso Corp., senior note, 12.00%, 12/12/13 ...................... United States 2,000,000 2,350,000
(c) Expro Finance Luxembourg, senior secured note, 144A, 8.50%,
12/15/16 ....................................................... United Kingdom 1,500,000 1,522,482
(c) General Maritime Corp., senior note, 144A, 12.00%, 11/15/17 ....... United States 700,000 752,500
(c) Holly Corp., senior note, 144A, 9.875%, 6/15/17 ................... United States 800,000 828,000
(c, g) Linn Energy Corp., senior note,144A, 8.625%, 4/15/20 .............. United States 1,300,000 1,304,875
Mariner Energy Inc., senior note, 7.50%, 4/15/13 .................. United States 2,000,000 2,025,000
MarkWest Energy Partners LP, senior note, B, 6.875%, 11/01/14 ..... United States 700,000 689,500
(c) Martin Midstream Partners LP, senior note, 144A, 8.875%,
4/01/18 ........................................................ United States 400,000 406,000
(c) OPTI Canada Inc., senior secured note, 144A, 9.00%, 12/15/12 ...... Canada 600,000 621,000
Annual Report | 15
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2010 (CONTINUED)
PRINCIPAL
COUNTRY AMOUNT(d) VALUE
---------------- --------------- -------------
CORPORATE BONDS (CONTINUED)
ENERGY (CONTINUED)
Petrohawk Energy Corp., senior note, 10.50%, 8/01/14 .............. United States 2,000,000 $ 2,217,500
Petroleos de Venezuela SA, senior bond, zero cpn., 7/10/11 ........ Venezuela 2,440,000 2,150,250
(c) Petroplus Finance Ltd., senior note, 144A, 6.75%, 5/01/14 ......... Switzerland 1,900,000 1,719,500
Plains Exploration & Production Co., senior note, 10.00%,
3/01/16 ........................................................ United States 2,000,000 2,220,000
Quicksilver Resources Inc., senior note, 9.125%, 8/15/19 .......... United States 2,000,000 2,110,000
(c) SandRidge Energy Inc., senior note, 144A, 8.00%, 6/01/18 .......... United States 2,000,000 1,910,000
Teekay Corp., senior note, 8.50%, 1/15/20 ......................... Marshall Islands 500,000 523,750
Tesoro Corp., senior note, 6.625%, 11/01/15 ....................... United States 2,000,000 1,925,000
-------------
36,185,857
-------------
FOOD & STAPLES RETAILING 0.9%
Rite Aid Corp., senior secured note, 9.75%, 6/12/16 ............... United States 1,700,000 1,836,000
SUPERVALU Inc., senior note, 8.00%, 5/01/16 ....................... United States 1,200,000 1,221,000
-------------
3,057,000
-------------
FOOD, BEVERAGE & TOBACCO 1.9%
(c) Alliance One International Inc., senior note, 144A, 10.00%,
7/15/16 ........................................................ United States 200,000 208,750
7/15/16 United States 200,000 210,000
(c) CEDC Finance Corp. International Inc., senior secured note, 144A,
9.125%, 12/01/16 ............................................... United States 1,000,000 1,060,000
(c) Cott Beverages Inc., senior note, 144A, 8.375%, 11/15/17 .......... United States 900,000 931,500
Dole Food Co. Inc., senior secured note, 13.875%, 3/15/14 ......... United States 1,029,000 1,243,804
(c) JBS USA LLC, senior note, 144A, 11.625%, 5/01/14 .................. United States 2,000,000 2,290,000
(c) Pinnacle Foods Finance LLC, senior note, 144A, 9.25%, 4/01/15 ..... United States 1,000,000 1,030,000
-------------
6,974,054
-------------
HEALTH CARE EQUIPMENT & SERVICES 4.4%
DaVita Inc.,
senior note, 6.625%, 3/15/13 ................................... United States 900,000 910,125
senior sub. note, 7.25%, 3/15/15 ............................... United States 1,000,000 1,025,000
FMC Finance III SA, senior note, 6.875%, 7/15/17 .................. Germany 2,000,000 2,090,000
(c) Fresenius US Finance II, senior note, 144A, 9.00%, 7/15/15 ........ Germany 1,000,000 1,120,000
HCA Inc., senior secured note, 9.125%, 11/15/14 ................... United States 3,000,000 3,176,250
(c) Tenet Healthcare Corp., senior note, 144A,
9.00%, 5/01/15 ................................................. United States 1,000,000 1,082,500
10.00%, 5/01/18 ................................................ United States 1,000,000 1,125,000
(e) United Surgical Partners International Inc., senior sub. note,
PIK, 9.25%, 5/01/17 ............................................ United States 2,000,000 2,080,000
(e, h) US Oncology Holdings Inc., senior note, PIK, FRN, 6.643%,
3/15/12 ........................................................ United States 2,397,042 2,283,182
(c) Vanguard Health Holding Co. II LLC, senior bond, 144A, 8.00%,
2/01/18 ........................................................ United States 1,000,000 977,500
-------------
15,869,557
-------------
16 | Annual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2010 (CONTINUED)
PRINCIPAL
COUNTRY AMOUNT(d) VALUE
---------------- --------------- -------------
CORPORATE BONDS (CONTINUED)
MATERIALS 5.7%
Ball Corp., senior note, 7.125%, 9/01/16 .......................... United States 500,000 $ 533,750
(c) Building Materials Corp. of America, senior note, 144A, 7.50%,
3/15/20 ........................................................ United States 700,000 701,750
Huntsman International LLC, senior sub. note, 7.875%, 11/15/14 .... United States 2,000,000 2,030,000
(c) Ineos Group Holdings PLC, senior secured note, 144A, 8.50%,
2/15/16 ........................................................ United Kingdom 1,000,000 830,000
(c) Kerling PLC, senior sec. note, 144A, 10.625%, 1/28/17 ............. United Kingdom 1,100,000 EUR 1,562,335
(c, g) LBI Escrow Corp., senior secured note, 144A, 8.00%, 11/01/17 ...... United States 600,000 623,250
(c) MacDermid Inc., senior sub. note, 144A, 9.50%, 4/15/17 ............ United States 2,000,000 2,065,000
Nalco Co., senior sub. note, 8.875%, 11/15/13 ..................... United States 2,000,000 2,070,000
NewPage Corp., senior secured note, 11.375%, 12/31/14 ............. United States 2,000,000 2,000,000
Novelis Inc., senior note, 7.25%, 2/15/15 ......................... Canada 1,600,000 1,552,000
Owens-Brockway Glass Container Inc., senior note, 7.375%,
5/15/16 ........................................................ United States 700,000 738,500
Solo Cup Co.,
senior secured note, 10.50%, 11/01/13 .......................... United States 500,000 530,000
senior sub. note, 8.50%, 2/15/14 ............................... United States 1,500,000 1,473,750
Solutia Inc., senior note, 8.75%, 11/01/17 ........................ United States 200,000 212,000
Teck Resources Ltd., senior note, 9.75%, 5/15/14 .................. Canada 2,000,000 2,380,000
Weyerhaeuser Co., senior note, 7.375%, 10/01/19 ................... United States 1,200,000 1,269,544
-------------
20,571,879
-------------
MEDIA 5.9%
(c) Cablevision Systems Corp., senior note, 144A, 8.625%, 9/15/17 ..... United States 1,000,000 1,062,500
(c) CCH II LLC/CCH II Capital Corp., senior note, 144A, 13.50%,
11/30/16 ....................................................... United States 2,933,512 3,512,881
(c) Clear Channel Worldwide Holdings Inc., senior note,
A, 144A, 9.25%, 12/15/17 ....................................... United States 200,000 208,750
B, 144A, 9.25%, 12/15/17 ....................................... United States 800,000 840,000
(c) CSC Holdings Inc., senior note, 144A, 8.50%, 4/15/14 .............. United States 1,000,000 1,070,000
Lamar Media Corp., senior sub. note,
7.25%, 1/01/13 ................................................. United States 1,000,000 1,012,500
C, 6.625%, 8/15/15 ............................................. United States 1,000,000 966,250
LIN Television Corp., senior sub. note, 6.50%, 5/15/13 ............ United States 1,500,000 1,485,000
(c) Media General Inc., senior secured note, 144A, 11.75%, 2/15/17 .... United States 1,100,000 1,091,750
(b) Radio One Inc., senior sub. note, B, 8.875%, 7/01/11 .............. United States 2,000,000 1,825,000
(c) Seat Pagine Gialle SpA, senior secured note, 144A, 10.50%,
1/31/17 ........................................................ Italy 1,500,000 EUR 1,987,732
(c) Sinclair Television Group Inc., senior secured note, 144A, 9.25%,
11/01/17 ....................................................... United States 2,000,000 2,115,000
(c) Sitel LLC, senior note, 144A, 11.50%, 4/01/18 ..................... United States 1,000,000 1,012,500
(c) UPC Germany GmbH, senior sub. note, 144A, 9.625%, 12/01/19 ........ Germany 400,000 EUR 572,845
(c) UPC Holding BV, senior note, 144A, 9.875%, 4/15/18 ................ Netherlands 400,000 422,000
(c) WMG Acquisition Corp., senior secured note, 144A, 9.50%,
6/15/16 ........................................................ United States 2,000,000 2,147,500
-------------
21,332,208
-------------
Annual Report | 17
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2010 (CONTINUED)
PRINCIPAL
COUNTRY AMOUNT(d) VALUE
---------------- --------------- -------------
CORPORATE BONDS (CONTINUED)
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 0.3%
(c) Talecris Biotherapeutics Holdings Corp., senior note, 144A, 7.75%,
11/15/16 ....................................................... United States 1,100,000 $ 1,111,000
-------------
REAL ESTATE 0.9%
FelCor Lodging LP, senior secured note, 10.00%, 10/01/14 .......... United States 1,800,000 1,863,000
Forest City Enterprises Inc., senior note, 7.625%, 6/01/15 ........ United States 1,400,000 1,309,000
-------------
3,172,000
-------------
RETAILING 1.2%
(c, h) Edcon Proprietary Ltd., senior secured note, 144A, FRN, 3.90%,
6/15/14 ........................................................ South Africa 2,000,000 EUR 2,080,617
Michaels Stores Inc., senior note, 10.00%, 11/01/14 ............... United States 2,000,000 2,120,000
-------------
4,200,617
-------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 0.6%
(c) Advanced Micro Devices Inc., senior note, 144A, 8.125%,
12/15/17 ....................................................... United States 400,000 414,000
Freescale Semiconductor Inc., senior note, 8.875%, 12/15/14 ....... United States 2,000,000 1,920,000
-------------
2,334,000
-------------
SOFTWARE & SERVICES 0.7%
SunGard Data Systems Inc., senior note, 9.125%, 8/15/13 ........... United States 2,500,000 2,575,000
-------------
TECHNOLOGY HARDWARE & EQUIPMENT 0.7%
Sanmina-SCI Corp.,
(c, h) senior note, 144A, FRN, 3.007%, 6/15/14 ........................ United States 1,000,000 950,000
senior sub. note, 6.75%, 3/01/13 ............................... United States 1,000,000 1,005,000
(c) ViaSat Inc., senior note, 144A, 8.875%, 9/15/16 ................... United States 400,000 412,500
-------------
2,367,500
-------------
TELECOMMUNICATION SERVICES 4.7%
Crown Castle International Corp., senior note, 9.00%, 1/15/15 ..... United States 1,000,000 1,087,500
(c) Digicel Group Ltd., senior note, 144A, 8.875%, 1/15/15 ............ Jamaica 2,000,000 1,967,500
Intelsat Subsidiary Holding Co. Ltd., senior note,
8.50%, 1/15/13 ................................................. Bermuda 2,500,000 2,550,000
(c) 144A, 8.875%, 1/15/15 .......................................... Bermuda 500,000 516,250
MetroPCS Wireless Inc., senior note, 9.25%, 11/01/14 .............. United States 2,000,000 2,055,000
Millicom International Cellular SA, senior note, 10.00%,
12/01/13 ....................................................... Luxembourg 1,000,000 1,042,500
(c, g) New Communications Holdings, senior note, 144A, 7.875%, 4/15/15 ... United States 1,900,000 1,961,750
Qwest Communications International Inc., senior note, B, 7.50%,
2/15/14 ........................................................ United States 2,000,000 2,045,000
Qwest Corp., senior note, 8.375%, 5/01/16 ......................... United States 500,000 565,000
(c) Wind Acquisition Finance SA, senior note, 144A, 10.75%,
12/01/15 ....................................................... Italy 2,500,000 2,712,500
(c, e) Wind Acquisition Holding, senior note, 144A, PIK, 12.25%,
7/15/17 ........................................................ Italy 400,000 EUR 528,261
-------------
17,031,261
-------------
18 | Annual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2010 (CONTINUED)
PRINCIPAL
COUNTRY AMOUNT(d) VALUE
---------------- --------------- -------------
CORPORATE BONDS (CONTINUED)
TRANSPORTATION 0.7%
(c) Ceva Group PLC, senior secured note, 144A, 11.625%, 10/01/16 ...... United Kingdom 500,000 $ 536,250
11.50%, 4/01/18 ................................................ United Kingdom 1,100,000 1,146,750
(c) Delta Air Lines Inc., senior secured note, 144A, 9.50%, 9/15/14 ... United States 900,000 954,000
-------------
2,637,000
-------------
UTILITIES 2.8%
Ameren Corp., senior note, 8.875%, 5/15/14 ........................ United States 1,000,000 1,154,779
Dynegy Holdings Inc., senior note, 7.50%, 6/01/15 ................. United States 2,000,000 1,670,000
Mirant North America LLC, senior note, 7.375%, 12/31/13 ........... United States 2,000,000 2,005,000
NRG Energy Inc., senior note, 7.25%, 2/01/14 ...................... United States 3,000,000 3,030,000
Texas Competitive Electric Holdings Co. LLC, senior note, A,
10.25%, 11/01/15 ............................................... United States 3,000,000 2,100,000
-------------
9,959,779
-------------
TOTAL CORPORATE BONDS (COST $184,047,306) 193,138,092
-------------
MORTGAGE-BACKED SECURITIES 26.3%
(h) FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) ADJUSTABLE RATE 0.3%
FHLMC, 4.202%, 5/01/34 ............................................ United States 862,687 890,278
-------------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) FIXED RATE 10.8%
(g) FHLMC Gold 15 Year, 4.50%, 4/01/24 ................................ United States 2,160,000 2,240,663
(g) FHLMC Gold 15 Year, 5.00%, 4/01/24 ................................ United States 4,590,000 4,846,039
FHLMC Gold 15 Year, 5.50%, 7/01/19 ................................ United States 155,334 167,490
(g) FHLMC Gold 15 Year, 6.00%, 4/01/24 ................................ United States 870,000 938,377
(g) FHLMC Gold 30 Year, 5.00%, 4/01/39 ................................ United States 5,025,000 5,189,096
(g) FHLMC Gold 30 Year, 5.50%, 4/01/39 ................................ United States 7,500,000 7,920,705
FHLMC Gold 30 Year, 6.00%, 7/01/28 - 11/01/33 ..................... United States 2,386,694 2,596,440
(g) FHLMC Gold 30 Year, 6.00%, 4/01/39 ................................ United States 9,660,000 10,366,387
(g) FHLMC Gold 30 Year, 6.50%, 4/01/39 ................................ United States 2,211,000 2,403,773
FHLMC Gold 30 Year, 7.00%, 9/01/27 ................................ United States 607,855 687,591
FHLMC Gold 30 Year, 8.00%, 1/01/31 ................................ United States 87,721 101,234
FHLMC Gold 30 Year, 8.50%, 7/01/31 ................................ United States 1,341,378 1,580,774
-------------
39,038,569
-------------
(h) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE 0.4%
FNMA, 2.207%, 7/01/34 ............................................. United States 1,411,995 1,451,230
FNMA, 5.964%, 6/01/32 ............................................. United States 37,741 40,238
-------------
1,491,468
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) FIXED RATE 12.5%
(g) FNMA 15 Year, 5.00%, 4/01/25 ...................................... United States 1,170,000 1,234,168
FNMA 15 Year, 5.50%, 7/01/20 - 9/01/22 ............................ United States 2,519,830 2,721,429
(g) FNMA 15 Year, 6.00%, 4/01/25 ...................................... United States 1,650,000 1,778,132
FNMA 15 Year, 6.50%, 7/01/20 ...................................... United States 104,736 112,886
FNMA 15 Year, 7.00%, 9/01/18 ...................................... United States 204,492 228,261
(g) FNMA 30 Year, 4.50%, 4/01/39 ...................................... United States 1,540,000 1,543,850
Annual Report | 19
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2010 (CONTINUED)
PRINCIPAL
COUNTRY AMOUNT(d) VALUE
---------------- --------------- -------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) FIXED RATE (CONTINUED)
(g) FNMA 30 Year, 5.00%, 4/01/39 ...................................... United States 17,305,000 $ 17,853,897
(g) FNMA 30 Year, 5.50%, 4/01/39 ...................................... United States 4,798,000 5,057,394
FNMA 30 Year, 6.00%, 4/01/33 ...................................... United States 710,777 772,314
(g) FNMA 30 Year, 6.00%, 4/01/39 ...................................... United States 9,860,000 10,474,712
(g) FNMA 30 Year, 6.50%, 8/01/32 - 4/01/39 ............................ United States 2,585,933 2,821,177
FNMA 30 Year, 8.00%, 10/01/29 ..................................... United States 187,416 216,707
FNMA 30 Year, 8.50%, 8/01/26 ...................................... United States 299,589 348,823
-------------
45,163,750
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) FIXED RATE 2.3%
(g) GNMA I SF 30 Year, 5.50%, 4/01/39 ................................. United States 5,910,000 6,251,675
GNMA I SF 30 Year, 6.50%, 6/15/31 - 12/15/33 ...................... United States 1,441,860 1,582,026
GNMA II SF 30 Year, 7.00%, 1/20/24 - 1/20/29 ...................... United States 171,200 191,986
GNMA II SF 30 Year, 8.00%, 1/20/28 - 2/20/32 ...................... United States 329,404 378,386
-------------
8,404,073
-------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $94,189,184) ............... 94,988,138
-------------
ASSET-BACKED SECURITIES AND COMMERCIAL MORTGAGE-BACKED
SECURITIES 12.0%
BANKS 8.3%
Banc of America Commercial Mortgage Inc., 2005-3, A2, 4.501%,
7/10/43 ........................................................ United States 4,123,877 4,158,885
Citigroup Commercial Mortgage Trust,
(h) 2007-C6, AM, FRN, 5.888%, 6/10/17 .............................. United States 320,000 271,393
2008-C7, A4, 6.299%, 9/10/17 ................................... United States 700,000 706,735
(h) Citigroup/Deutsche Bank Commercial Mortgage Trust, 2005-CD1, A3,
FRN, 5.225%, 7/15/44 ........................................... United States 3,000,000 3,124,023
Greenwich Capital Commercial Funding Corp.,
2004-GG1, A7, 5.317%, 6/10/36 .................................. United States 1,605,000 1,689,136
2005-GG5, A5, 5.224%, 4/10/37 .................................. United States 900,000 905,360
GS Mortgage Securities Corp. II, 2003-C1, A3, 4.608%, 1/10/40 ..... United States 400,000 414,420
LB-UBS Commercial Mortgage Trust,
(h) 2002-C2, A4, FRN, 5.594%, 6/15/31 .............................. United States 2,000,000 2,125,895
2005-C1, A2, 4.31%, 2/15/30 .................................... United States 257,776 257,873
2005-C5, A4, 4.954%, 9/15/30 ................................... United States 6,000,000 6,093,647
2006-C1, A4, 5.156%, 2/15/31 ................................... United States 2,800,000 2,843,210
(h) Merrill Lynch Mortgage Investors Trust, 2003-OPT1, B2, FRN,
2.996%, 7/25/34 ................................................ United States 115,396 11,313
(h) Morgan Stanley ABS Capital I Inc. Trust,
2003-HE3, B1, FRN, 5.196%, 10/25/33 ............................ United States 676,717 155,759
2003-NC10, B1, FRN, 5.196%, 10/25/33 ........................... United States 415,207 80,238
(c, h) Schiller Park CLO Ltd., 2007-1A, A2, 144A, FRN, 0.489%,
4/25/21 ........................................................ United States 1,700,000 1,513,238
(c, h) Wachovia Bank Commercial Mortgage Trust, 2007-WHL8, A1, 144A,
FRN, 0.31%, 6/15/20 ............................................ United States 6,077,114 5,369,313
-------------
29,720,438
-------------
20 | Annual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2010 (CONTINUED)
PRINCIPAL
COUNTRY AMOUNT(d) VALUE
---------------- --------------- -------------
ASSET-BACKED SECURITIES AND COMMERCIAL MORTGAGE-BACKED
SECURITIES (CONTINUED)
DIVERSIFIED FINANCIALS 3.7%
(h) Argent Securities Inc., 2003-W5, M4, FRN, 3.996%, 10/25/33 ........ United States 1,031,256 $ 362,789
(c, h) Armstrong Loan Funding Ltd., 2008-1A, B, 144A, FRN, 1.249%,
8/01/16 ........................................................ Cayman Islands 1,868,573 1,742,930
(c, h) Babson CLO Ltd., 2005-2A, A1, 144A, FRN, 0.499%, 7/20/19 .......... Cayman Islands 876,578 799,360
(c, h) Cent CDO Ltd., 2007-15A, A2B, 144A, FRN, 0.596%, 3/11/21 .......... Cayman Islands 457,000 391,535
(h) Chase Funding Mortgage Loan Asset-Backed Certificates, 2004-2, 2A2,
FRN, 0.746%, 2/25/35 ........................................... United States 1,227,709 884,019
(c, h) Columbus Nova CLO Ltd., 2007-2A, A2, 144A, FRN, 1.251%,
10/15/21 ....................................................... Cayman Islands 310,000 248,763
(h) GSAMP Trust, 2003-AHL, B1, FRN, 6.246%, 10/25/33 .................. United States 1,243,595 324,966
JPMorgan Chase Commercial Mortgage Securities Corp.,
2005-LDP2, AM, 4.78%, 7/15/42 .................................. United States 200,000 187,194
(h) 2005-LDP5, A4, FRN, 5.179%, 12/15/44 ........................... United States 1,000,000 1,036,530
(h) MBNA Credit Card Master Note Trust, 2005-A11, A11, FRN, 0.27%,
5/15/13 ........................................................ United States 4,000,000 3,991,919
(h) MBNA Master Credit Card Trust II, 1997-B, A, FRN, 0.39%,
8/15/14 ........................................................ United States 3,000,000 2,973,838
(h) Morgan Stanley Dean Witter Capital I, 2003-NC3, B1, FRN, 4.746%,
3/25/33 ........................................................ United States 611,179 52,495
(h, i) New Century Home Equity Loan Trust, 2003-2, M3, FRN, 5.796%,
1/25/33 ........................................................ United States 653,942 25,471
(h) Option One Mortgage Loan Trust, 2003-6, M5, FRN, 3.546%,
11/25/33 ....................................................... United States 797,277 302,858
(h) Specialty Underwriting & Residential Finance, 2003-BC4, B2, FRN,
3.996%, 11/25/34 ............................................... United States 253,977 70,485
(h) Structured Asset Investment Loan Trust,
2003-BC2, M3, FRN, 5.121%, 4/25/33 ............................. United States 13,987 1,247
2003-BC13, M4, FRN, 4.371%, 11/25/33 ........................... United States 96,980 58,947
-------------
13,455,346
-------------
TOTAL ASSET-BACKED SECURITIES AND COMMERCIAL
MORTGAGE-BACKED SECURITIES (COST $45,655,638) .................. 43,175,784
-------------
(h, j) SENIOR FLOATING RATE INTERESTS 49.4%
AUTOMOBILES & COMPONENTS 1.1%
Federal-Mogul Corp., Term Loan B, 2.168% - 2.178%, 12/27/14 ....... United States 2,089,746 1,936,281
United Components Inc., Term Loan D, 2.239% - 2.25%, 6/29/12 ...... United States 2,000,000 1,930,000
-------------
3,866,281
-------------
CAPITAL GOODS 5.7%
Ashtead Group PLC, Term Loan, 2.063%, 8/31/11 ..................... United Kingdom 912,000 906,300
Baldor Electric Co., Term Loan B, 5.25%, 1/31/14 .................. United States 540,633 544,354
BE Aerospace Inc., Term Loan B, 5.75%, 7/28/14 .................... United States 1,201,559 1,218,581
Bucyrus International Inc., Term Loan C, 4.50%, 2/19/16 ........... United States 1,890,000 1,912,680
Goodman Global Holdings Co. Inc., Term Loan B, 6.25%, 2/13/14 ..... United States 2,035,898 2,048,614
Annual Report | 21
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2010 (CONTINUED)
PRINCIPAL
COUNTRY AMOUNT(d) VALUE
---------------- --------------- -------------
(h, j) SENIOR FLOATING RATE INTERESTS (CONTINUED)
CAPITAL GOODS (CONTINUED)
Manitowoc Co. Inc., Term Loan B, 7.50%, 11/06/14 .................. United States 2,050,113 $ 2,057,162
Mueller Water Products Inc., Term Loan B, 5.249% - 5.29%,
5/24/14 ........................................................ United States 1,993,956 2,000,436
Oshkosh Truck Corp., Term Loan B, 6.25% - 6.26%, 12/06/13 ......... United States 1,161,360 1,167,364
RBS Global Inc. (Rexnord),
Incremental Tranche B-2, 2.50%, 7/22/13 ........................ United States 989,770 935,951
Tranche B-1 Term Loan B, 2.75% - 2.813%, 7/22/13 ............... United States 3,000,000 2,871,564
Sensus Metering Systems Inc., Term Loan B-3, 7.00%, 6/17/13 ....... United States 1,058,894 1,035,069
Spirit Aerosystems Inc. (Onex Wind Finance LP), Term B-1 Loan,
2.001%, 9/30/13 ................................................ United States 1,240,945 1,230,087
TriMas Co. LLC,
Term Loan B, 6.00%, 12/15/15 ................................... United States 1,535,081 1,462,165
Tranche B-1 L/C, 6.00%, 8/02/11 ................................ United States 366,149 348,757
URS Corp., Term Loan B, 2.54%, 5/15/13 ............................ United States 892,742 891,760
-------------
20,630,844
-------------
COMMERCIAL & PROFESSIONAL SERVICES 2.5%
ARAMARK Corp.,
Synthetic L/C, 2.113%, 1/26/14 ................................. United States 271,357 265,867
Term Loan B, 2.126%, 1/26/14 ................................... United States 4,126,169 4,042,524
Diversey Inc., Tranche B Dollar Term Loan, 5.50%, 11/24/15 ........ United States 415,818 421,276
Language Line LLC, Term Loan B, 5.50%, 11/04/15 ................... United States 498,750 502,023
Nielsen Finance LLC (VNU Inc.), Class A Term Loan, 2.229%,
8/09/13 ........................................................ United States 2,650,044 2,545,934
West Corp., Term Loan B-4, 4.122% - 4.125%, 7/15/16 ............... United States 1,260,951 1,259,150
-------------
9,036,774
-------------
CONSUMER DURABLES & APPAREL 0.9%
Jarden Corp., Term Loan B2, 2.04%, 1/24/12 ........................ United States 702,334 701,355
Term Loan B4, 3.54%, 1/26/15 ................................... United States 1,221,920 1,227,520
Jostens IH Corp. (Visant Holding Corp.), Term Loan C, 2.228%,
10/04/11 ....................................................... United States 1,350,000 1,342,829
-------------
3,271,704
-------------
CONSUMER SERVICES 5.8%
Affinion Group Inc., Term Loan B, 2.746%, 10/17/12 ................ United States 2,970,687 2,960,661
Bright Horizons Family Solution Inc., Term Loan B, 7.50%,
5/21/15 ........................................................ United States 1,815,433 1,825,078
Education Management LLC, Term Loan C, 2.063%, 6/01/13 ............ United States 2,408,284 2,342,800
Harrah's Operating Co. Inc., Term Loan B-4, 9.50%, 10/31/16 ....... United States 2,992,500 3,102,017
Las Vegas Sands LLC,
Delayed Draw II Term Loan, 2.05%, 5/23/13 ...................... United States 167,664 150,217
Term Loan B, 2.05%, 5/23/14 .................................... United States 829,778 761,840
Laureate Education Inc.,
Closing Date Term Loan, 3.499%, 8/18/14 ........................ United States 1,979,295 1,840,194
Delayed Draw Term Loan, 3.499%, 8/18/14 ........................ United States 296,264 275,444
Series A New Term Loan, 7.00%, 8/18/14 ......................... United States 1,094,500 1,096,211
22 | Annual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2010 (CONTINUED)
PRINCIPAL
COUNTRY AMOUNT(d) VALUE
---------------- --------------- -------------
(h, j) SENIOR FLOATING RATE INTERESTS (CONTINUED)
CONSUMER SERVICES (CONTINUED)
Penn National Gaming Inc., Term Loan B, 1.98% - 2.00%,
10/03/12 ....................................................... United States 1,574,499 $ 1,558,848
Universal City Development Partners Ltd., Term Loan, 6.50%,
11/06/14 ....................................................... United States 997,500 1,008,921
VML U.S. Finance LLC (Venetian Macau),
Delayed Draw, 4.80%, 5/25/12 ................................... Macau 664,377 650,375
New Project Term Loans, 4.80%, 5/25/13 ......................... Macau 2,476,997 2,419,159
Term Loan B, 4.80%, 5/25/13 .................................... Macau 887,268 868,569
-------------
20,860,334
-------------
ENERGY 0.8%
Dresser Inc., Term Loan B, 2.497% - 2.50%, 5/04/14 ................ United States 1,552,923 1,494,272
Targa Resources Inc., 6.00%, 7/05/16 .............................. United States 1,456,350 1,465,452
-------------
2,959,724
-------------
FOOD & STAPLES RETAILING 0.9%
Rite Aid Corp., Tranche 3 Term Loan, 6.00%, 6/04/14 ............... United States 1,984,530 1,945,903
Wm. Wrigley Jr. Co., Term Loan B1, 3.063%, 12/17/12 ............... United States 510,602 514,464
Term Loan B2, 3.313%, 10/06/14 ................................. United States 714,207 719,812
-------------
3,180,179
-------------
FOOD, BEVERAGE & TOBACCO 1.0%
Dean Foods Co., Term Loan B, 1.675%, 4/02/14 ...................... United States 1,730,537 1,702,809
(g) Dole Food Co. Inc., Tranche B-1 Term Loan, 5.50%, 3/02/17 ......... United States 564,706 570,470
(g) Solvest Ltd. (Dole), Tranche C-1 Term Loan, 5.50%, 3/02/17 ........ Bermuda 1,402,588 1,416,906
-------------
3,690,185
-------------
HEALTH CARE EQUIPMENT & SERVICES 4.9%
Bausch and Lomb Inc.,
Delayed Draw Term Loan, 3.54%, 4/28/15 ......................... United States 322,724 315,994
Parent Term Loan, 3.54%, 4/28/15 ............................... United States 1,330,702 1,302,954
Community Health Systems Inc.,
Delayed Draw Term Loan, 1.00% - 2.502%, 7/25/14 ................ United States 122,735 119,797
Term Loan, 2.502%, 7/25/14 ..................................... United States 2,395,966 2,338,614
DaVita Inc., Term Loan B-1, 1.73% - 1.80%, 10/05/12 ............... United States 2,717,434 2,681,336
DJO Finance LLC, Term Loan B, 3.248%, 5/20/14 ..................... United States 1,215,237 1,184,249
Fresenius Medical Care Holdings Inc., Term Loan B, 1.612% - 1.665%,
3/31/13 ........................................................ Germany 1,477,530 1,452,828
(g) Fresenius SE,
Tranche C1 Dollar Term Loan, 5.25%, 9/10/14 .................... Germany 387,570 392,415
Tranche C2 Term Loan, 5.25%, 9/10/14 ........................... Germany 270,430 273,810
HCA Inc., Term Loan B-1, 2.54%, 11/18/13 .......................... United States 3,455,424 3,376,813
Iasis Healthcare LLC,
Delayed Draw Term Loan, 2.248%, 3/14/14 ........................ United States 232,013 223,941
Initial Term Loan, 2.248%, 3/14/14 ............................. United States 670,387 647,063
Synthetic L/C, 2.293%, 3/14/14 ................................. United States 62,972 60,781
Annual Report | 23
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2010 (CONTINUED)
PRINCIPAL
COUNTRY AMOUNT(d) VALUE
---------------- --------------- -------------
(h, j) SENIOR FLOATING RATE INTERESTS (CONTINUED)
HEALTH CARE EQUIPMENT & SERVICES (CONTINUED)
Psychiatric Solutions Inc., Term Loan, 2.002% - 2.154%, 7/01/12 ... United States 915,722 $ 908,854
Vanguard Health Holding Co. II LLC, Initial Term Loan, 5.00%,
1/29/16 ........................................................ United States 2,517,207 2,525,971
-------------
17,805,420
-------------
HOUSEHOLD & PERSONAL PRODUCTS 0.6%
Revlon Consumer Products Corp., Term Loan B, 6.00%, 3/11/15 ....... United States 2,000,000 1,981,876
-------------
INSURANCE 0.4%
Conseco Inc., Term Loan, 7.50%, 10/10/13 .......................... United States 1,646,835 1,601,135
-------------
MATERIALS 7.0%
Anchor Glass Container Corp., First Lien Term Loan, 6.00%,
3/02/16 ........................................................ United States 2,960,000 2,956,300
Celanese U.S. Holdings LLC, Dollar Term Loan, 2.001%, 4/02/14 ..... United States 2,932,086 2,871,245
Georgia-Pacific LLC,
Additional Term Loan, 2.24% - 2.29%, 12/20/12 .................. United States 739,412 734,101
Term Loan B, 2.254% - 2.29%, 12/20/12 .......................... United States 708,082 702,997
Term Loan C, 3.502% - 3.54%, 12/23/14 .......................... United States 928,154 933,951
Graham Packaging Co. LP, Term Loan C, 6.75%, 4/05/14 .............. United States 1,741,166 1,759,927
Hexion Specialty Chemicals BV, Term Loan C-2B, 4.063%, 5/03/15 .... Netherlands 688,963 657,673
Hexion Specialty Chemicals Inc.,
Term Loan C-1B, 4.063%, 5/03/15 ................................ United States 1,563,197 1,492,201
Term Loan C-4B, 4.00%, 5/03/15 ................................. United States 489,090 467,081
Huntsman International LLC, Term Loan B, 1.999% - 2.016%,
4/19/14 ........................................................ United States 2,260,314 2,168,489
Nalco Co., Term Loan, 6.50%, 5/13/16 .............................. United States 995,000 1,007,231
Oxbow Carbon LLC, Term Loan B, 2.29%, 5/08/14 ..................... United States 2,738,897 2,675,560
Reynolds Consumer Products Holdings Inc., U.S. Term Loan, 6.25%,
11/05/15 ....................................................... United States 2,000,000 2,022,708
Rockwood Specialties Group Inc., Term Loan H, 6.00%, 5/15/14 ...... United States 1,788,467 1,800,763
Univar Inc., Opco Tranche B Term Loan, 3.248%, 10/10/14 ........... United States 3,206,817 3,093,911
-------------
25,344,138
-------------
MEDIA 8.5%
CSC Holdings Inc. (Cablevision), Incremental Term Loan B-2, 1.98%,
3/29/16 ........................................................ United States 768,000 768,267
Dex Media West LLC, Term Loan B, 7.50%, 10/24/14 .................. United States 2,990,104 2,859,754
Discovery Communications Inc., Term Loan C, 5.25%, 5/14/14 ........ United States 891,000 901,457
Entravision Communications Corp., Term Loan B, 5.51%, 3/29/13 ..... United States 2,996,945 2,981,946
Gray Television Inc., Term Loan B, 3.75%, 12/31/14 ................ United States 2,536,475 2,441,357
Insight Midwest Holdings, Term Loan B, 2.25%, 4/02/14 ............. United States 2,160,000 2,103,976
MCC Iowa LLC (Mediacom Broadband), Term Loan E, 6.50%,
1/03/16 ........................................................ United States 884,250 896,851
Mission Broadcasting Inc., Term Loan B, 5.00%, 10/01/12 ........... United States 963,015 945,561
Newsday LLC, Floating Rate Term Loan, 6.501%, 8/01/13 ............. United States 2,400,000 2,427,000
Nexstar Broadcasting Inc., Term Loan B, 5.00% - 6.25%, 10/01/12 ... United States 897,951 881,675
(g) R.H. Donnelley Inc., Term Loan B, 8.50%, 10/24/14 ................. United States 1,703,988 1,672,890
24 | Annual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2010 (CONTINUED)
PRINCIPAL
COUNTRY AMOUNT(d) VALUE
---------------- --------------- -------------
(h, j) SENIOR FLOATING RATE INTERESTS (CONTINUED)
MEDIA (CONTINUED)
Regal Cinemas Corp., Term Loan, 3.79%, 10/27/13 ................... United States 3,068,200 $ 3,082,169
Sinclair Television Group Inc., Tranche B Term Loan, 6.50%,
10/29/15 ....................................................... United States 1,000,000 1,011,250
(g) TWCC Holding Corp., Replacement Term Loans, 5.00%, 9/12/15 ........ United States 1,021,429 1,034,941
Univision Communications Inc., Initial Term Loan, 2.54%, 9/29/14 .. United States 3,000,000 2,679,741
UPC Financing Partnership,
Term Loan N, 2.18%, 12/31/14 ................................... Netherlands 1,897,847 1,842,097
Term Loan T, 3.93%, 12/31/16 ................................... Netherlands 2,272,153 2,243,751
-------------
30,774,683
-------------
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 0.8%
Warner Chilcott Co. LLC,
Term Loan A, 5.50%, 10/30/14 ................................... United States 1,864,681 1,870,558
Term Loan B2, 5.75%, 4/30/15 ................................... United States 430,619 432,330
Warner Chilcott Corp.,
Additional Term Loan, 5.75%, 4/30/15 ........................... United States 201,191 201,956
Term Loan B1, 5.75%, 4/30/15 ................................... United States 258,602 259,630
-------------
2,764,474
-------------
REAL ESTATE 0.2%
CB Richard Ellis Services Inc., Term Loan B, 6.00% - 6.25%,
12/20/13 ....................................................... United States 801,674 798,793
-------------
RETAILING 0.8%
Dollar General Corp., Tranche B-1 Term Loan, 2.986% - 2.999%,
7/07/14 ........................................................ United States 1,709,531 1,689,133
(g) Pilot Travel Centers LLC, Term Loan B, 5.50%, 12/15/15 ............ United States 1,000,000 1,009,919
-------------
2,699,052
-------------
SOFTWARE & SERVICES 2.8%
Emdeon Business Services LLC, First Lien Term Loan, 2.30%,
11/16/13 ....................................................... United States 2,013,542 1,982,080
Fidelity National Information Services Inc., Tranche C Term Loan,
4.484%, 1/18/12 ................................................ United States 60,106 60,744
First Data Corp., Term Loan B-2, 3.032% - 3.04%, 9/24/14 .......... United States 2,932,537 2,601,128
Metavante Corp., Term Loan B, 3.479% - 3.499%, 11/01/14 ........... United States 874,983 878,264
Springboard Finance LLC, Term Loan B, 7.00%, 2/23/15 .............. United States 970,000 978,245
SunGard Data Systems Inc.,
Tranche A U.S. Term Loan, 1.979%, 2/28/14 ...................... United States 118,935 115,124
Tranche B U.S. Term Loan, 3.864% - 3.874%, 2/28/16 ............. United States 3,344,433 3,322,136
-------------
9,937,721
-------------
TECHNOLOGY HARDWARE & EQUIPMENT 1.2%
CommScope Inc., Term Loan B, 2.748% - 2.79%, 12/26/14 ............. United States 881,577 874,492
Flextronics International USA Inc.,
A Closing Date Loan, 2.479% - 2.501%, 10/01/14 ................. United States 1,817,679 1,741,725
A-1-A Delayed Draw Term Loan, 2.501%, 10/01/14 ................. United States 522,321 500,496
Itron Inc., Dollar Term Loan, 3.75%, 4/18/14 ...................... United States 1,155,281 1,154,842
-------------
4,271,555
-------------
Annual Report | 25
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2010 (CONTINUED)
PRINCIPAL
COUNTRY AMOUNT(d) VALUE
---------------- --------------- -------------
(h, j) SENIOR FLOATING RATE INTERESTS (CONTINUED)
TELECOMMUNICATION SERVICES 1.8%
Intelsat Corp. (PanAmSat),
Tranche B-2-A, 2.728%, 1/03/14 ................................. United States 1,268,410 $ 1,237,228
Tranche B-2-B, 2.728%, 1/03/14 ................................. United States 1,268,021 1,236,850
Tranche B-2-C, 2.728%, 1/03/14 ................................. United States 1,268,021 1,236,849
NTELOS Inc., Term Loan B, 5.75%, 8/07/15 .......................... United States 828,097 836,637
Windstream Corp., Tranche B-2 Term Loan, 3.01%, 12/17/15 .......... United States 1,992,429 1,990,650
-------------
6,538,214
-------------
UTILITIES 1.7%
Dynegy Holdings Inc.,
Term L/C Facility, 4.00%, 4/02/13 .............................. United States 1,797,879 1,772,878
Term Loan B, 4.00%, 4/02/13 .................................... United States 23,994 23,661
NRG Energy Inc.,
Credit Link, 2.04%, 2/01/13 .................................... United States 819,782 803,845
Term Loan, 1.998% - 2.04%, 2/01/13 ............................. United States 1,241,530 1,217,394
Texas Competitive Electric Holdings Co. LLC, Term Loan B-2,
3.729% - 3.79%, 10/10/14 ....................................... United States 2,930,025 2,413,406
-------------
6,231,184
-------------
TOTAL SENIOR FLOATING RATE INTERESTS
(COST $173,982,419) ............................................ 178,244,270
-------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 2.3%
(h, k) Government of Argentina, senior bond, FRN, 0.39%, 8/03/12 ......... Argentina 3,950,000 1,333,125
Government of Malaysia, 3.833%, 9/28/11 ........................... Malaysia 6,800,000 MYR 2,120,410
Government of Sweden, 5.25%, 3/15/11 .............................. Sweden 19,400,000 SEK 2,807,235
Korea Treasury Bond, 0475-1112, 4.75%, 12/10/11 ................... South Korea 2,250,000,000 KRW 2,037,177
-------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES
(COST $8,204,934) .............................................. 8,297,947
-------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS
(COST $507,693,029) ............................................ 519,593,986
-------------
SHORT TERM INVESTMENTS 4.7%
FOREIGN GOVERNMENT AND AGENCY SECURITIES (COST $2,048,805) 0.6%
(l) Egypt Treasury Bill, 8/03/10 - 3/08/11 ............................ Egypt 12,100,000 EGP 2,042,504
-------------
(h, j) SENIOR FLOATING RATE INTERESTS (COST $496,250) 0.1%
(g) Smurfit-Stone Container Enterprises, CAM Exchange, 4.50%,
1/11/11 ........................................................ United States 500,000 497,438
-------------
TOTAL INVESTMENTS BEFORE MONEY MARKET FUNDS
(COST $510,238,084) ............................................ 522,133,928
-------------
26 | Annual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2010 (CONTINUED)
COUNTRY SHARES VALUE
---------------- --------------- -------------
SHORT TERM INVESTMENTS (CONTINUED)
MONEY MARKET FUNDS (COST $14,450,215) 4.0%
(m) Institutional Fiduciary Trust Money Market Portfolio, 0.00%........ United States 14,450,215 $ 14,450,215
-------------
TOTAL INVESTMENTS (COST $524,688,299) 148.7%....................... 536,584,143
PREFERRED SHARES (24.9)%........................................... (90,000,000)
OTHER ASSETS, LESS LIABILITIES (23.8)%............................. (85,786,545)
-------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%...................... $ 360,797,598
=============
(a) Non-income producing.
(b) See Note 12 regarding other considerations.
(c) 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 March 31, 2010, the
aggregate value of these securities was $82,998,547, representing 23.0% of
net assets.
(d) The principal amount is stated in U.S. dollars unless otherwise indicated.
(e) Income may be received in additional securities and/or cash.
(f) See Note 9 regarding defaulted securities.
(g) A portion or all of the security purchased on a when-issued, delayed
delivery, or TBA basis. See Note 1(c).
(h) The coupon rate shown represents the rate at period end.
(i) The bond pays interest and/or principal based upon the issuer's ability to
pay, which may be less than the stated interest rate or principal paydown.
(j) See Note 1(f) regarding senior floating rate interests.
(k) The principal amount is stated in original face, and scheduled paydowns are
reflected in the market price on ex-date.
(l) The security is traded on a discount basis with no stated coupon rate.
(m) See Note 8 regarding investments in the Institutional Fiduciary Trust Money
Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
At March 31, 2010, the Fund had the following forward exchange contracts
outstanding. See Note 1(d).
CONTRACT SETTLEMENT UNREALIZED UNREALIZED
CURRENCY COUNTERPARTY TYPE QUANTITY AMOUNT DATE APPRECIATION DEPRECIATION
-------- ------------ ---- ----------- ---------- ---------- ------------ ------------
Euro ................................. DBAB Sell 390,608 $ 583,764 5/20/10 $ 56,013 $ --
Euro ................................. DBAB Sell 2,080,000 2,982,720 9/01/10 172,662 --
Mexican Peso ......................... DBAB Buy 19,690,812 1,540,391 9/01/10 24,308 --
Mexican Peso ......................... DBAB Sell 19,690,812 1,412,439 9/01/10 -- (152,260)
Japanese Yen ......................... JPHQ Sell 180,180,000 2,000,000 11/02/10 69,570 --
Japanese Yen ......................... BZWS Sell 171,860,000 2,000,000 12/02/10 157,874 --
Euro ................................. DBAB Sell 389,500 567,852 12/15/10 41,707 --
Euro ................................. BZWS Sell 1,470,694 2,116,329 1/12/11 129,597 --
Japanese Yen ......................... DBAB Sell 90,560,000 1,000,000 1/19/11 28,455 --
Euro ................................. DBAB Sell 1,874,121 2,646,166 1/27/11 114,327 --
Euro ................................. DBAB Sell 673,313 918,937 2/16/11 9,267 --
Japanese Yen ......................... HSBC Sell 28,600,000 320,280 3/01/11 13,182 --
Japanese Yen ......................... JPHQ Sell 28,600,000 320,097 3/01/11 13,000 --
Japanese Yen ......................... UBSW Sell 31,900,000 358,596 3/01/11 16,065 --
-------- ---------
Unrealized appreciation
(depreciation) ................................................................................. 846,027 (152,260)
-------- ---------
Net unrealized
appreciation (depreciation) ................................................................. $693,767
========
See Abbreviations on page 41.
The accompanying notes are an integral part of these financial statements.
Annual Report | 27
Franklin Templeton
Limited Duration Income Trust
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2010
Assets:
Investments in securities:
Cost - Unaffiliated issuers ..................................... $510,238,084
Cost - Sweep Money Fund (Note 8) ................................ 14,450,215
------------
Total cost of investments ....................................... $524,688,299
============
Value - Unaffiliated issuers .................................... $522,133,928
Value - Sweep Money Fund (Note 8) ............................... 14,450,215
------------
Total value of investments ...................................... 536,584,143
Cash ............................................................... 1,564,905
Receivables:
Investment securities sold ...................................... 724,417
Interest ........................................................ 4,696,520
Unrealized appreciation on forward exchange contracts .............. 846,027
Unrealized appreciation on unfunded loan commitments (Note 10) ..... 27,173
------------
Total assets ................................................. 544,443,185
------------
Liabilities:
Payables:
Investment securities purchased ................................. 90,955,959
Affiliates ...................................................... 313,169
Distributions to common shareholders ............................ 2,034,807
Distributions to preferred shareholders ......................... 17,309
Unrealized depreciation on forward exchange contracts .............. 152,260
Accrued expenses and other liabilities ............................. 172,083
------------
Total liabilities ............................................ 93,645,587
------------
Preferred shares at redemption value [$25,000 liquidation preference
per share (3,600 shares outstanding)] ........................... 90,000,000
------------
Net assets applicable to common shares ............................. $360,797,598
============
Net assets applicable to common shares consist of:
Paid-in capital .................................................... $380,507,822
Undistributed net investment income ................................ 688,674
Net unrealized appreciation (depreciation) ......................... 12,614,408
Accumulated net realized gain (loss) ............................... (33,013,306)
------------
Net assets applicable to common shares ....................... $360,797,598
============
Common shares outstanding .......................................... 26,773,772
============
Net asset value per common share ................................... $ 13.48
============
The accompanying notes are an integral part of these financial statements.
28 | Annual Report
Franklin Templeton
Limited Duration Income Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended March 31, 2010
Investment income:
Dividends:
Unaffiliated issuers ............................................ $ 46,645
Sweep Money Fund (Note 8) ....................................... 392
Interest ........................................................... 28,692,604
------------
Total investment income ...................................... 28,739,641
------------
Expenses:
Management fees (Note 4) ........................................... 2,426,468
Administrative fees (Note 4) ....................................... 976,049
Transfer agent fees ................................................ 28,834
Custodian fees (Note 5) ............................................ 3,902
Reports to shareholders ............................................ 64,691
Professional fees .................................................. 127,000
Trustees' fees and expenses ........................................ 26,541
Auction agent fees and expenses .................................... 101,030
Other .............................................................. 82,740
------------
Total expenses ............................................... 3,837,255
Expense reductions (Note 5) .................................. (267)
------------
Net expenses .............................................. 3,836,988
------------
Net investment income .................................. 24,902,653
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ..................................................... 2,550,302
Foreign currency transactions ................................... 1,164,707
------------
Net realized gain (loss) ............................... 3,715,009
------------
Net change in unrealized appreciation (depreciation) on:
Investments ..................................................... 87,889,180
Translation of other assets and liabilities denominated in
foreign currencies ........................................... (457,884)
------------
Net change in unrealized appreciation (depreciation) ... 87,431,296
------------
Net realized and unrealized gain (loss) ............................... 91,146,305
------------
Net increase (decrease) in net assets resulting from operations ....... 116,048,958
Distributions to preferred shareholders from net investment income .... (1,387,686)
------------
Net increase (decrease) in net assets applicable to common shares
resulting from operations .......................................... $114,661,272
============
The accompanying notes are an integral part of these financial statements.
Annual Report | 29
Franklin Templeton
Limited Duration Income Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED MARCH 31,
---------------------------
2010 2009
------------ ------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................................... $ 24,902,653 $ 24,951,361
Net realized gain (loss) from investments and foreign currency
transactions ................................................. 3,715,009 (21,083,127)
Net change in unrealized appreciation (depreciation) on
investments and translation of other assets and liabilities
denominated in foreign currencies ............................ 87,431,296 (47,704,440)
Distributions to preferred shareholders from net investment
income ....................................................... (1,387,686) (3,649,273)
------------ ------------
Net increase (decrease) in net assets applicable to common
shares resulting from operations .......................... 114,661,272 (47,485,479)
------------ ------------
Distributions to common shareholders from net investment income .... (25,542,177) (24,846,060)
------------ ------------
Net increase (decrease) in net assets ........................ 89,119,095 (72,331,539)
Net assets applicable to common shares:
Beginning of year .................................................. 271,678,503 344,010,042
------------ ------------
End of year ........................................................ $360,797,598 $271,678,503
============ ============
Undistributed net investment income (distributions in excess of net
investment income) included in net assets:
End of year ........................................................ $ 688,674 $ (2,769,367)
============ ============
The accompanying notes are an integral part of these financial statements.
30 | Annual Report
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS
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 closed-end
investment company.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Equity and other 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. Certain equity securities are valued based upon
fundamental characteristics or relationships to similar securities. Investments
in open-end mutual funds are valued at the closing net asset value.
Corporate debt securities, government securities, mortgage backed securities,
asset-backed securities, collateralized debt obligations and other debt
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. Debt securities
denominated in a foreign currency are converted into their U.S. dollar
equivalent at the foreign exchange rate in effect at the close of the NYSE on
the date that the values of the foreign debt securities are determined.
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.
Annual Report | 31
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (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 based upon the underlying investment book value,
anticipated future cash flows, market changes in comparable or similar
securities, 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. The Fund may enter
into foreign currency exchange contracts to facilitate transactions denominated
in a foreign currency. 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.
32 | Annual Report
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (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. DERIVATIVE FINANCIAL INSTRUMENTS
The Fund may invest in derivative financial instruments (derivatives) in order
to manage risk or gain exposure to various other investments or markets.
Derivatives are financial contracts based on an underlying or notional amount,
require no initial investment or an initial net investment that is smaller than
would normally be required to have a similar response to changes in market
factors, and require or permit net settlement. Derivatives may contain various
risks including the potential inability of the counterparty to fulfill their
obligations under the terms of the contract, the potential for an illiquid
secondary market, and the potential for market movements which may expose the
Fund to gains or losses in excess of the amounts shown on the Statement of
Assets and Liabilities.
Derivatives are marked to market daily based upon quotations from market makers
or the Fund's independent pricing services and the Fund's net benefit or
obligation under the contract, as measured by the fair market value of the
contract, is included in net assets. Realized gain and loss and unrealized
appreciation and depreciation on these contracts for the period are included in
the Statement of Operations.
The Fund generally enters into forward exchange contracts in order to hedge
against fluctuations in foreign exchange rates or to gain exposure to certain
foreign currencies. A forward exchange contract is an agreement between the Fund
and a counterparty to buy or sell a foreign currency for a specific exchange
rate on a future date.
See Note 11 regarding other derivative information.
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 invest the cash proceeds that are received from the
initial sale. During the period between the sale
Annual Report | 33
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. MORTGAGE DOLLAR ROLLS (CONTINUED)
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.
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
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. As a result, no provision for federal
income taxes is required. The Fund files U.S. income tax returns as well as tax
returns in certain other jurisdictions. As of March 31, 2010, and for all open
tax years, the Fund has determined that no provision for income tax is required
in the Fund's financial statements. Open tax years are those that remain subject
to examination by such taxing authorities, which in the case of the U.S. is
three years after the filing of a fund's tax return.
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
shareholders are recorded on the ex-dividend date and are determined according
to income tax regulations (tax basis). Distributable earnings determined on a
tax basis may differ from earnings recorded in accordance with accounting
principles generally accepted in the United States of America. These differences
may be permanent or temporary. Permanent differences are reclassified among
capital
34 | Annual Report
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
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 the Fund's organizational documents, its officers and trustees are
indemnified by the Fund against certain liabilities arising out of the
performance of their duties to the Fund. Additionally, in the normal course of
business, the Fund enters into contracts with service providers that contain
general indemnification clauses. The Fund's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Fund that have not yet occurred. Currently, the Fund expects the
risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
At March 31, 2010, there were an unlimited number of common shares authorized
(without par value). During the years ended March 31, 2010 and 2009, there were
no shares issued; all reinvested distributions were satisfied with previously
issued shares purchased in the open market.
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 year
ended March 31, 2009, there was a pro rata 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
Annual Report | 35
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. AUCTION RATE PREFERRED SHARES (CONTINUED)
and are declared weekly, at rates established through an auction process. The
weekly auctions for Series M, W and F have all failed during the year ended
March 31, 2010; consequently, the dividend rate paid on the Preferred Shares has
moved to the maximum rate as defined in the prospectus. During the year ended
March 31, 2010, the dividends on Preferred Shares ranged from 1.46% to 1.66%.
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 year ended March 31, 2010, 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 year ended March 31, 2010, the
custodian fees were reduced as noted in the Statement of Operations.
36 | Annual Report
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At March 31, 2010, the capital loss carryforwards were as
follows:
Capital loss carryforwards expiring in:
2014 ............................... $ 682,502
2015 ............................... 895,575
2016 ............................... 726,440
2017 ............................... 11,687,026
2018 ............................... 15,871,424
-----------
$29,862,967
===========
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, 2010, the Fund deferred realized capital losses of
$2,883,891.
The tax character of distributions paid during the years ended March 31, 2010
and 2009, was as follows:
2010 2009
----------- -----------
Distributions paid from ordinary income ... $26,929,863 $28,495,333
At March 31, 2010, the cost of investments, net unrealized appreciation
(depreciation) and undistributed ordinary income for income tax purposes were as
follows:
Cost of investments ..................................... $525,532,398
============
Unrealized appreciation ................................. $ 22,770,933
Unrealized depreciation ................................. (11,719,188)
------------
Net unrealized appreciation (depreciation) .............. $ 11,051,745
============
Distributable earnings - undistributed ordinary income .. $ 4,350,800
============
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, paydown losses, payments-in-kind, and bond
discounts and premiums.
Annual Report | 37
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended March 31, 2010, aggregated $1,078,893,838 and $1,065,353,326,
respectively.
8. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund may invest in the 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.
9. CREDIT RISK AND DEFAULTED SECURITIES
At March 31, 2010, the Fund had 68.10% 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 March 31, 2010, the aggregate value of these
securities was $727,125, representing 0.14% of the Fund's portfolio. The Fund
discontinues accruing income on securities for which income has been deemed
uncollectible and provides an estimate for losses on interest receivable. The
securities have been identified on the accompanying Statement of Investments.
10. 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 March 31, 2010, unfunded commitments were as follows:
UNFUNDED
BORROWER COMMITMENT
-------- ----------
Smurfit-Stone Container Enterprises, Term Loan ... $2,100,000
==========
Unfunded loan commitments and funded portions of credit agreements are marked to
market daily and any unrealized appreciation or depreciation is included in the
Statement of Assets and Liabilities and Statement of Operations.
38 | Annual Report
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. OTHER DERIVATIVE INFORMATION
At March 31, 2010, the Fund has invested in derivative contracts which are
reflected on the Statement of Assets and Liabilities as follows:
ASSET DERIVATIVES LIABILITY DERIVATIVES
------------------------------------------- ------------------------------------------
DERIVATIVE CONTRACTS STATEMENT OF STATEMENT OF
NOT ACCOUNTED FOR AS ASSETS AND FAIR VALUE ASSETS AND FAIR VALUE
HEDGING INSTRUMENTS LIABILITIES LOCATION AMOUNT LIABILITIES LOCATION AMOUNT
-------------------------- ------------------------------ ---------- ----------------------------- ----------
Foreign exchange contracts Unrealized appreciation on Unrealized depreciation on
forward exchange contracts $846,027 forward exchange contracts $(152,260)
For the year ended March 31, 2010, the effect of derivative contracts on the
Fund's Statement of Operations was as follows:
CHANGE IN AVERAGE
UNREALIZED AMOUNT
DERIVATIVE CONTRACTS REALIZED GAIN APPRECIATION OUTSTANDING
NOT ACCOUNTED FOR AS STATEMENT OF OPERATIONS (LOSS) FOR (DEPRECIATION) DURING THE
HEDGING INSTRUMENTS LOCATIONS THE YEAR FOR THE YEAR PERIOD(a)
-------------------------- ------------------------------ ------------- -------------- -----------
Foreign exchange contracts Net realized gain (loss) from
foreign currency transactions/
Net change in unrealized
appreciation (depreciation)
on translation of other assets
and liabilities denominated
in foreign currencies $1,159,980 $(455,890) $9,863,174
(a) Represents the average notional amount for derivative contracts outstanding
during the year.
See Note 1(d) regarding derivative financial instruments.
12. OTHER CONSIDERATIONS
From time to time, officers, directors or employees of the Fund's Investment
Manager may have discussions or enter into agreements with issuers, underwriters
or creditors' committees which, pursuant to the Fund's policies and requirements
of applicable securities laws, could prevent the Fund from trading in the
securities of such company for limited or extended periods of time.
Annual Report | 39
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. FAIR VALUE MEASUREMENTS
The Fund follows 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 March 31, 2010, in valuing
the Fund's assets and liabilities carried at fair value:
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
----------- ------------ ------- ------------
ASSETS:
Investments in Securities:
Equity Investments:(a)
Diversified Financials ........ $ -- $ 510,749 $-- $ 510,749
Media ......................... 1,239,006 -- -- 1,239,006
Corporate Bonds .................. -- 193,138,092 -- 193,138,092
Mortgage-Backed Securities ....... -- 94,988,138 -- 94,988,138
Asset-Backed Securities and
Commercial Mortgage-Backed
Securities .................... -- 43,175,784 -- 43,175,784
Senior Floating Rate Interests ... -- 178,244,270 -- 178,244,270
Foreign Government and Agency
Securities .................... -- 8,297,947 -- 8,297,947
Short Term Investments ........... 14,450,215 2,539,942 -- 16,990,157
----------- ------------ --- ------------
Total Investments in Securities ..... $15,689,221 $520,894,922 $-- $536,584,143
=========== ============ === ============
Forward Exchange Contracts .......... -- 846,027 -- 846,027
Unfunded Loan Commitments ........... -- 27,173 -- 27,173
LIABILITIES:
Forward Exchange Contracts .......... -- 152,260 -- 152,260
(a) Includes common and preferred stock.
40 | Annual Report
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. NEW ACCOUNTING PRONOUNCEMENTS
In January 2010, the Financial Accounting Standards Board (FASB) issued an
Accounting Standards Update which enhances and clarifies existing fair value
measurement disclosure requirements and is effective for interim and annual
periods beginning after December 15, 2009. The Fund believes the adoption of
this Accounting Standards Update will not have a material impact on its
financial statements.
15. SUBSEQUENT EVENTS
The Fund has evaluated subsequent events through the issuance of the financial
statements and determined that no events have occurred that require disclosure.
ABBREVIATIONS
COUNTERPARTY
BZWS - Barclays Bank PLC
DBAB - Deutsche Bank AG
HSBC - HSBC Bank USA
JPHQ - JP Morgan Chase & Co.
UBSW - UBS AG
CURRENCY
EGP - Egyptian Pound
EUR - Euro
KRW - South Korean Won
MYR - Malaysian Ringgit
SEK - Swedish Krona
SELECTED PORTFOLIO
CDO - Collateralized Debt Obligation
CLO - Collateralized Loan Obligation
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association
FRN - Floating Rate Note
GNMA - Government National Mortgage Association
L/C - Letter of Credit
PIK - Payment-In-Kind
SF - Single Family
Annual Report | 41
Franklin Templeton
Limited Duration Income Trust
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN TEMPLETON LIMITED DURATION
INCOME TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Templeton Limited Duration
Income Trust (the "Fund") at March 31, 2010, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at March 31, 2010 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
May 19, 2010
42 | Annual Report
Franklin Templeton
Limited Duration Income Trust
TAX DESIGNATION (UNAUDITED)
Under Section 871(k)(1)(C) of the Internal Revenue Code (Code), the Fund
designates the maximum amount allowable but no less than $22,318,048 as interest
related dividends for purposes of the tax imposed under Section 871(a)(1)(A) of
the Code for the fiscal year ended March 31, 2010.
Annual Report | 43
Franklin Templeton
Limited Duration Income Trust
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Trust, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Generally, each board member
serves a three-year term until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
------------------------------- -------------- -------------- ----------------------- --------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 2003 133 Bar-S Foods (meat packing company).
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief
Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
SAM GINN (1937) Trustee Since 2007 110 ICO Global Communications
One Franklin Parkway (Holdings) Limited (satellite
San Mateo, CA 94403-1906 company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board and Chief
Executive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific Telesis Groups (telephone holding
company) (1988-1994).
EDITH E. HOLIDAY (1952) Trustee Since 2005 133 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas), H.J. Heinz
San Mateo, CA 94403-1906 Company (processed foods and allied
products), RTI International Metals,
Inc. (manufacture and distribution
of titanium), Canadian National
Railway (railroad) and White
Mountains Insurance Group, Ltd.
(holding company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of
the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and
Assistant Secretary for Public Affairs and Public Liaison - United States Treasury Department (1988-1989).
FRANK W.T. LAHAYE (1929) Trustee Since 2003 109 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital).
44 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
------------------------------- -------------- -------------- ----------------------- --------------------------------------
J. MICHAEL LUTTIG (1954) Trustee Since December 133 Boeing Capital Corporation (aircraft
One Franklin Parkway 2009 financing).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President, General Counsel and member of Executive Council, The Boeing Company; and FORMERLY, Federal Appeals Court
Judge, U.S. Court of Appeals for the Fourth Circuit (1991-2006).
FRANK A. OLSON (1932) Trustee Since 2005 133 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer
(1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).
LARRY D. THOMPSON (1945) Trustee Since 2007 141 Cbeyond Inc. (business
One Franklin Parkway communications provider).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY,
Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of
The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General,
U.S. Department of Justice (2001-2003).
JOHN B. WILSON (1959) Lead Trustee since 110 None
One Franklin Parkway Independent 2006 and Lead
San Mateo, CA 94403-1906 Trustee Independent
Trustee since
2008
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit
boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer
and Executive Vice President - Finance and Strategy, Staples, Inc. (office supplies) (1992-1996); Senior Vice President - Corporate
Planning, Northwest Airlines, Inc. (airlines) (1990-1992); Vice President and Partner, Bain & Company (consulting firm) (1986-1990).
INTERESTED BOARD MEMBERS AND OFFICERS
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
------------------------------- -------------- -------------- ----------------------- --------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Since 2003 133 None
One Franklin Parkway Chairman of
San Mateo, CA 94403-1906 the Board
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; and officer and/or director or
trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 41 of the investment companies in
Franklin Templeton Investments.
Annual Report | 45
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
------------------------------- -------------- -------------- ----------------------- --------------------------------------
**RUPERT H. JOHNSON, JR. (1940) Trustee and Since 2003 52 None
One Franklin Parkway Senior Vice
San Mateo, CA 94403-1906 President
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc.; Senior
Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc. and of 43 of the investment companies in Franklin Templeton Investments.
JAMES M. DAVIS (1952) Chief Since 2004 Not Applicable Not Applicable
One Franklin Parkway Compliance
San Mateo, CA 94403-1906 Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of
45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc.
(1994-2001).
LAURA F. FERGERSON (1962) Chief Since 2009 Not Applicable Not Applicable
One Franklin Parkway Executive
San Mateo, CA 94403-1906 Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant
Treasurer of most of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton
Services, LLC (1997-2003).
GASTON GARDEY (1967) Treasurer, Since 2009 Not Applicable Not Applicable
One Franklin Parkway Chief Financial
San Mateo, CA 94403-1906 Officer and
Chief
Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Fund Accounting, Franklin Templeton Investments; and officer of 27 of the investment companies in Franklin Templeton
Investments.
ALIYA S. GORDON (1973) Vice President Since 2009 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Templeton Investments; officer of 45 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Litigation Associate, Steefel, Levitt & Weiss, LLP (2000-2004).
46 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
------------------------------- -------------- -------------- ----------------------- --------------------------------------
DAVID P. GOSS (1947) Vice President Since 2003 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and/or director, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments.
STEVEN J. GRAY (1955) Vice President Since August Not Applicable Not Applicable
One Franklin Parkway 2009
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc.; and officer
of 45 of the investment companies in Franklin Templeton Investments.
GREGORY E. JOHNSON (1961) Vice President Since 2003 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, Inc.; and officer and/or director or trustee, as the case may
be, of some of the other subsidiaries of Franklin Resources, Inc. and of 33 of the investment companies in Franklin Templeton
Investments.
CHRISTOPHER J. MOLUMPHY (1962) President and Since 2003 Not Applicable Not Applicable
One Franklin Parkway Chief
San Mateo, CA 94403-1906 Executive
Officer -
Investment
Management
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director and Executive Vice President, Franklin Advisers, Inc.; Executive Vice President, Franklin Templeton Institutional, LLC; and
officer of some of the other subsidiaries of Franklin Resources, Inc. and of six of the investment companies in Franklin Templeton
Investments.
ROBERT C. ROSSELOT (1960) Vice President Since August Not Applicable Not Applicable
500 East Broward Blvd. 2009
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and
Secretary, Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust International of the
South; and officer of 45 of the investment companies in Franklin Templeton Investments.
KAREN L. SKIDMORE (1952) Vice President Since 2006 Not Applicable Not Applicable
One Franklin Parkway and Secretary
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin
Templeton Investments.
Annual Report | 47
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
------------------------------- -------------- -------------- ----------------------- --------------------------------------
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman & Sterling,
LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments
fund complex. These portfolios have a common investment manager or
affiliated investment managers.
** Charles B. Johnson and Rupert H. Johnson, Jr. are considered to be
interested persons of the Trust under the federal securities laws due to
their positions as officers and directors and major shareholders of
Franklin Resources, Inc. (Resources), which is the parent company of the
Fund's investment manager and distributor.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Gregory E. Johnson.
Note 2: Officer information is current as of the date of this report. It is
possible that after this date, information about officers may change.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD HAS DETERMINED THAT THERE IS
AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS DESIGNATED
JOHN B. WILSON AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT
MR. WILSON QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE BUSINESS
BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS CHIEF FINANCIAL OFFICER OF
STAPLES, INC. FROM 1992 TO 1996. MR. WILSON HAS BEEN A MEMBER AND CHAIRMAN OF
THE FUND'S AUDIT COMMITTEE SINCE 2006. AS A RESULT OF SUCH BACKGROUND AND
EXPERIENCE, THE BOARD BELIEVES THAT MR. WILSON HAS ACQUIRED AN UNDERSTANDING OF
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL
APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES,
ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT
PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY
COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL
CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT
COMMITTEE FUNCTIONS. MR. WILSON IS AN INDEPENDENT BOARD MEMBER AS THAT TERM IS
DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION RULES AND RELEASES
OR THE LISTING STANDARDS APPLICABLE TO THE FUND.
48 | Annual Report
Franklin Templeton
Limited Duration Income Trust
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 23, 2010, the Board of Trustees (Board), including a
majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for Franklin Templeton Limited Duration Income
Trust (Fund). In reaching this decision, the Board took into account information
furnished throughout the year at regular Board meetings, as well as information
prepared specifically in connection with the annual renewal review process.
Information furnished and discussed throughout the year included investment
performance reports on the Fund, information on its share price discount to net
asset value, and other related financial information, as well as periodic
reports on legal, compliance, pricing, brokerage commissions and execution and
other services provided by the Investment Manager (Manager) and its affiliates.
Information furnished specifically in connection with the renewal process
included a report prepared by Lipper, Inc. (Lipper), an independent
organization, as well as additional material, including a Fund profitability
analysis report prepared by management. The Lipper report compared the Fund's
investment performance and expenses with those of other funds deemed comparable
to the Fund as selected by Lipper. The Fund profitability analysis report
discussed the profitability to Franklin Templeton Investments from its overall
U.S. fund operations, as well as on an individual fund-by-fund basis. Included
with such profitability analysis report was information on a fund-by-fund basis
listing portfolio managers and other accounts they manage, as well as
information on management fees charged by the Manager and its affiliates to U.S.
funds and other accounts, including management's explanation of differences
where relevant, and a three-year expense analysis with an explanation for any
increase in expense ratios. Additional material accompanying such report was a
memorandum prepared by management describing project initiatives and capital
investments relating to the services provided to the Fund by the Franklin
Templeton Investments organization, as well as a memorandum relating to
economies of scale.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. In approving
continuance of the investment management agreement for the Fund, the Board,
including a majority of independent Trustees, determined that the existing
management fee structure was fair and reasonable and that continuance of the
investment management agreement was in the best interests of the Fund and its
shareholders. While attention was given to all information furnished, the
following discusses some primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Fund and its shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished it showing that the investment policies and restrictions for
the Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management
Annual Report | 49
Franklin Templeton
Limited Duration Income Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
personnel with the code of ethics adopted throughout the Franklin Templeton fund
complex, the adherence to fair value pricing procedures established by the
Board, and the accuracy of net asset value calculations. Favorable consideration
was given to management's efforts and expenditures in establishing back-up
systems and recovery procedures to function in the event of a natural disaster,
it being noted by the Board that such systems and procedures had functioned
smoothly during the Florida hurricanes and blackouts experienced in recent
years. Among other factors taken into account by the Board were the Manager's
best execution trading policies, including a favorable report by an independent
portfolio trading analytical firm. Consideration was also given to the
experience of the Fund's portfolio management team, the number of accounts
managed and general method of compensation. In this latter respect, the Board
noted that a primary factor in management's determination of the level of a
portfolio manager's bonus compensation was the relative investment performance
of the funds he or she managed and that a portion of such bonus was required to
be invested in a predesignated list of funds within such person's fund
management area so as to be aligned with the interests of Fund shareholders.
Particular attention was given to management's conservative approach and
diligent risk management procedures, including continuous monitoring of
counterparty credit risk and attention given to derivatives and other complex
instruments. The Board also took into account, among other things, the strong
financial position of the Manager's parent company and its commitment to the
fund business as evidenced by its subsidization of money market funds. The Board
also noted management's efforts to minimize any negative impact on the nature
and quality of services provided the Fund arising from Franklin Templeton
Investments' implementation of a hiring freeze and employee reductions in
response to market conditions during the latter part of 2008 and early 2009.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of the Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings during the year, particular attention in assessing
performance was given to the Lipper reports furnished for the agreement renewal.
The Lipper report prepared for the Fund showed its investment performance in
comparison with a performance universe consisting of the Fund and all leveraged
closed-end BBB-rated corporate debt funds as selected by Lipper during 2009 and
the five previous calendar years. Such report considers both income return and
total return on a net asset value basis without regard to market discounts or
premiums to accurately reflect investment performance. The Lipper report showed
the Fund's income return for 2009 to be in the middle quintile of such
performance universe and its income return on an annualized basis to be in the
second-highest quintile of such universe for the previous three- and five-year
periods. The Lipper report showed the Fund's 2009 total return to be in the
second-highest quintile in such performance universe, and on an annualized basis
to be in the second-highest quintile and highest quintile of such universe for
the previous three- and five-year periods, respectively. The Board was satisfied
with the Fund's performance as shown in the Lipper report.
50 | Annual Report
Franklin Templeton
Limited Duration Income Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the
management fees and total expense ratios of the Fund compared with a Lipper
expense group consisting of the Fund and three other leveraged closed-end
BBB-rated corporate debt funds as selected by Lipper. Lipper expense data is
based upon information taken from each fund's most recent annual report, which
reflects historical asset levels that may be quite different from those
currently existing, particularly in a period of market volatility. While
recognizing such inherent limitation and the fact that expense ratios generally
increase as assets decline and decrease as assets grow, the Board believed the
independent analysis conducted by Lipper to be an appropriate measure of
comparative expenses. In reviewing comparative costs, Lipper provides
information on the Fund's contractual investment management fee rate in
comparison with the contractual investment management fee that would have been
charged by other funds within its Lipper expense group assuming they were
similar in size to the Fund, as well as the actual total expense ratio of the
Fund in comparison with those of its Lipper expense group. The Lipper
contractual investment management fee analysis includes administrative charges
as being part of contractual investment management fees. The results of such
expense comparisons showed that the Fund's contractual investment management fee
rate was the second highest in its Lipper expense group, but within five basis
points of its Lipper expense group median, while its actual total expense ratio,
including investment related expenses and taxes, was the lowest of such expense
group. The Board found such expenses to be acceptable.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
the Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
the Fund during the 12-month period ended September 30, 2009, being the most
recent fiscal year-end for Franklin Resources, Inc., the Manager's parent. In
reviewing the analysis, attention was given to the methodology followed in
allocating costs to the Fund, it being recognized that allocation methodologies
are inherently subjective and various allocation methodologies may each be
reasonable while producing different results. In this respect, the Board noted
that, while being continuously refined and reflecting changes in the Manager's
own cost accounting, such cost allocation methodology was consistent with that
followed in profitability report presentations made in prior years and that the
Fund's independent registered public accounting firm had been engaged by the
Manager to review the reasonableness of the allocation methodologies solely for
use by the Fund's Board in reference to the profitability analysis. In reviewing
and discussing such analysis, management discussed with the Board its belief
that costs incurred in establishing the infrastructure necessary for the type of
fund operations conducted by the Manager and its affiliates may not be fully
reflected in the expenses allocated to the Fund in determining its
profitability, as well as the fact that the level of profits, to a certain
extent, reflected operational cost savings and efficiencies initiated by
management. In addition, the Board considered a third-party study comparing the
profitability of the Manager's parent on an overall basis as compared to other
publicly held managers broken
Annual Report | 51
Franklin Templeton
Limited Duration Income Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
down to show profitability from management operations exclusive of distribution
expenses, as well as profitability including distribution expenses. The Board
also considered the extent to which the Manager and its affiliates might derive
ancillary benefits from fund operations, as well as potential benefits resulting
from allocation of fund brokerage and the use of commission dollars to pay for
research. Based upon its consideration of all these factors, the Board
determined that the level of profits realized by the Manager and its affiliates
from providing services to the Fund was not excessive in view of the nature,
quality and extent of services provided.
ECONOMIES OF SCALE. The Board also considered whether the manager realizes
economies of scale as the Fund grows larger and the extent to which any such
benefit is shared with the Fund and its shareholders. The Board believed that a
manager's ability to realize economies of scale and the sharing of such benefit
is a more relevant consideration in the case of an open-end fund whose size
increases as a result of the continuous sale of its shares. A closed-end
investment company such as the Fund does not continuously offer shares, and
growth following its initial public offering will primarily result from market
appreciation, which benefits its shareholders. While believing economies of
scale to be less of a factor in the context of a closed-end fund, the Board
believes at some point an increase in size may lead to economies of scale that
should be shared with the Fund and its shareholders and intends to monitor
future growth of the Fund accordingly.
PROXY VOTING POLICIES AND PROCEDURES
The Fund'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.
52 | Annual Report
Franklin Templeton
Limited Duration Income Trust
SHAREHOLDER INFORMATION (CONTINUED)
CERTIFICATIONS
The Fund's Chief Executive Officer - Finance and Administration is required by
NYSE Amex's Listing Standards to file annually with the Exchange a certification
that she is not aware of any violation by the Fund of the Exchange's Corporate
Governance Standards applicable to the Fund. The Fund has filed such
certification.
In addition, the Fund's Chief Executive Officer - Finance and Administration and
Chief Financial Officer and Chief Accounting Officer are required by the rules
of the U.S. Securities and Exchange Commission to provide certain certifications
with respect to the Fund's Form N-CSR and Form N-CSRS (which include the Fund's
annual and semiannual reports to shareholders) that are filed semiannually with
the Commission. The Fund has filed such certifications with its Form N-CSRS for
the six months ended September 30, 2009. Additionally, the Fund expects to file,
on or about May 31, 2010, such certifications with its Form N-CSR for the year
ended March 31, 2010.
Annual Report | 53
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Franklin Templeton Funds
LITERATURE REQUEST. TO RECEIVE A 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.
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 Quest Fund(2)
Mutual Recovery Fund(3)
Mutual Shares Fund
BLEND
Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund
GROWTH
Franklin DynaTech Fund
Franklin Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund
Franklin Small Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin Global Real Estate Fund
Franklin Gold & Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund
GLOBAL
Mutual Global Discovery Fund(4)
Templeton Global Long-Short Fund(5)
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
INTERNATIONAL
Franklin India Growth Fund
Franklin International Growth Fund
Franklin International Small Cap Growth Fund
Mutual European Fund
Mutual International 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
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(6)
Franklin Templeton Conservative Allocation Fund(7)
Franklin Templeton Growth Allocation Fund(7)
Franklin Templeton Moderate Allocation Fund(7)
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(8)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(8)
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(8)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund
TAX-FREE INCOME(9)
NATIONAL
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(10)
LIMITED-/INTERMEDIATE-TERM
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(11)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(12)
Michigan(12)
Minnesota(12)
Missouri
New Jersey
New York(11)
North Carolina
Ohio(12)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(13)
(1.) The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
(2.) Effective 5/1/09, Mutual Qualified Fund changed its name to Mutual Quest
Fund. The fund's investment goal and strategy remained unchanged.
(3.) The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25% of
the outstanding number of shares. Investors may tender all or a portion of
their shares during the tender period.
(4.) Effective 5/1/09, Mutual Discovery Fund changed its name to Mutual Global
Discovery Fund. The fund's investment goal and strategy remained unchanged.
(5.) Effective 12/18/09, this fund is closed to new investors, pending a
proposal to merge the fund into Templeton World Fund. Existing shareholders
may continue to make additional investments until shortly before the
completion of the transaction, expected in April 2010.
(6.) Effective 3/19/10, this fund is closed to new investors, pending a
reorganization of the fund into Franklin Templeton Corefolio Allocation
Fund. Existing shareholders may continue to make additional investments
until shortly before the completion of the transaction, expected in June
2010.
(7.) Effective 5/1/10, the Franklin Templeton Target Funds changed their name to
the Franklin Templeton Allocation Funds. The funds' investment goals and
primary investment strategies remained unchanged.
(8.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(9.) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are generally
taxable.
(10.) The fund invests primarily in insured municipal securities.
(11.) These funds are available in three or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities,
a high-yield portfolio (CA only) and a money market portfolio (CA only).
(12.) The Board of Trustees approved the elimination of the non-fundamental
policy requiring the fund to invest at least 80% of net assets in insured
municipal securities and the removal of the word "Insured" from the fund
name. The changes became effective 2/15/09.
(13.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
05/10 Not part of the annual report
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) One Franklin Parkway
San Mateo, CA 94403-1906
ANNUAL REPORT
FRANKLIN TEMPLETON
LIMITED DURATION INCOME TRUST
INVESTMENT MANAGER
Franklin Advisers, Inc.
(800) DIAL BEN(R)
TRANSFER AGENT
PNC Global Investment Servicing
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 A 05/10
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.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements
were $44,784 for the fiscal year ended March 31, 2010 and $44,724 for the fiscal
year ended March 31, 2009.
(b) Audit-Related Fees
The aggregate fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item 4 were $12,600 for
the fiscal year ended March 31, 2010 and $12,600 for the fiscal year ended March
31, 2009. The services for which fees were paid included attestation services.
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control with
the investment adviser that provides ongoing services to the registrant that are
reasonably related to the performance of the audit of their financial
statements.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance, tax
advice and tax planning.
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning were $2,762 for the fiscal year ended
March 31, 2010 and $4,000 for the fiscal year ended March 31, 2009. The services
for which these fees were paid included tax compliance and advice.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended March 31, 2010
and $265 for the fiscal year ended March 31, 2009. The services for which these
fees were paid included review of materials provided to the fund Board in
connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant other than
services reported in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year
ended March 31, 2010 and $283,812 for the fiscal year ended March 31, 2009. The
services for which these fees were paid included review of materials provided to
the fund Board in connection with the investment management contract renewal
process.
(e) (1) The registrant's audit committee is directly responsible for approving
the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to the
Fund by the auditors;
(iii) pre-approval of all non-audit related services to be provided to the
registrant by the auditors to the registrant's investment adviser or to any
entity that controls, is controlled by or is under common control with the
registrant's investment adviser and that provides ongoing services to the
registrant where the non-audit services relate directly to the operations
or financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above,
of policies and procedures to permit such services to be pre-approved by
other means, such as through establishment of guidelines or by action of a
designated member or members of the committee; provided the policies and
procedures are detailed as to the particular service and the committee is
informed of each service and such policies and procedures do not include
delegation of audit committee responsibilities, as contemplated under the
Securities Exchange Act of 1934, to management; subject, in the case of
(ii) through (iv), to any waivers, exceptions or exemptions that may be
available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs
(b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $15,362 for the fiscal year ended March 31, 2010 and $300,677
for the fiscal year ended March 31, 2009.
(h) The registrant's audit committee of the board has considered whether the
provision of non-audit services that were rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Members of the Audit Committee are: Frank W.T. LaHaye, J. Michael Luttig, 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. The manager votes proxies solely in the interests
of the Fund and its shareholders.
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. As a matter of policy, the
officers, directors/trustees and employees of 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,
distributor, broker dealer 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 the manager's
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, if any, 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 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 any one of Sections 12(d)(1)(E), (F), or (G) 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. 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.
ANTI-TAKEOVER MECHANISMS AND RELATED ISSUES. The manager generally opposes
anti-takeover measures since they tend to reduce shareholder rights. However, as
with all proxy issues, the manager conducts an independent review of each
anti-takeover proposal. 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. In addition, 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 realizes that a company's financing
decisions have a significant impact on its shareholders, particularly when they
involve the issuance of additional shares of common or preferred stock or the
assumption of additional debt. The manager will review, on a case-by-case basis,
proposals by companies to increase authorized shares and the purpose for the
increase. 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 they would 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 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
the manager's proxy voting decisions for international investments. However, the
manager must be 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.
(a)(1) As of May 27, 2010 the portfolio managers of the Fund are as follows:
Roger Bayston, CFA, Richard Hsu, Christopher Molumphy, CFA and Eric G. Takaha,
CFA, serve as the portfolio management team responsible for managing the Fund's
portfolio investment. Each of them has experience managing Franklin mutual funds
and private accounts.
Mr. Bayston has been a portfolio manager of the Fund since inception. He joined
Franklin Templeton Investments in 1991.
Mr. Hsu has been a portfolio manager of the Fund since 2006. He joined Franklin
Templeton Investments in 1996.
Mr. Molumphy has been a portfolio manager of the Fund since inception. He joined
Franklin Templeton Investments in 1988.
Mr. Takaha has been a portfolio manager of the Fund since inception. He joined
Franklin Templeton Investments in 1989.
(a)(2) This section reflects information about the portfolio managers as of the
fiscal year ended March 31, 2010.
The following table shows the number of other accounts managed by each portfolio
manager and the total assets in the accounts managed within each category:
-------------------------------------------------------------------------------------------------------------
ASSETS ASSETS OF
NUMBER OF OTHER OTHER POOLED ASSETS OF
OF OTHER REGISTERED NUMBER OF INVESTMENTS OTHER
REGISTERED INVESTMENT OTHER POOLED VEHICLES NUMBER OF ACCOUNTS
INVESTMENT COMPANIES INVESTMENT MANAGED OTHERS MANAGED
COMPANIES MANAGED VEHICLES (X $1 ACCOUNTS (X $1
NAME MANAGED (x $1 MILLION) MANAGED/1 MILLION)/1 MANAGED/1 MILLION)/1
--------------------------------------------------------------------------------------------------------------
Roger Bayston 6 15,554.3 4 3,273.0 1 1,341.9
--------------------------------------------------------------------------------------------------------------
Richard Hsu 2 1,481.5 2 533.9 0 0
--------------------------------------------------------------------------------------------------------------
Christopher 8 13,277.6 5 1,572.4 4 355.4
Molumphy
--------------------------------------------------------------------------------------------------------------
Eric G. Takaha 5 9,369.0 5 1,000.6 4 277.6
--------------------------------------------------------------------------------------------------------------
1. The various pooled investment vehicles and accounts listed are managed by a
team of investment professionals. Accordingly, the individual manager listed
would not be solely responsible for managing such listed amounts.
Portfolio managers that provide investment services to the Fund may also provide
services to a variety of other investment products, including other funds,
institutional accounts and private accounts. The advisory fees for some of such
other products and accounts may be different than that charged to the Fund and
may include performance based compensation. This may result in fees that are
higher (or lower) than the advisory fees paid by the Fund. As a matter of
policy, each fund or account is managed solely for the benefit of the beneficial
owners thereof. As discussed below, the separation of the trading execution
function from the portfolio management function and the application of
objectively based trade allocation procedures help to mitigate potential
conflicts of interest that may arise as a result of the portfolio managers
managing accounts with different advisory fees.
CONFLICTS. The management of multiple funds, including the Fund, and accounts
may also give rise to potential conflicts of interest if the funds and other
accounts have different objectives, benchmarks, time horizons, and fees as the
portfolio manager must allocate his or her time and investment ideas across
multiple funds and accounts. The manager seeks to manage such competing
interests for the time and attention of portfolio managers by having portfolio
managers focus on a particular investment discipline. Most other accounts
managed by a portfolio manager are managed using the same investment strategies
that are used in connection with the management of the Fund. Accordingly,
portfolio holdings, position sizes, and industry and sector exposures tend to be
similar across similar portfolios, which may minimize the potential for
conflicts of interest. The separate management of the trade execution and
valuation functions from the portfolio management process also helps to reduce
potential conflicts of interest. However, securities selected for funds or
accounts other than the Fund may outperform the securities selected for the
Fund. Moreover, if a portfolio manager identifies a limited investment
opportunity that may be suitable for more than one fund or other account, the
Fund may not be able to take full advantage of that opportunity due to an
allocation of that opportunity across all eligible funds and other accounts. The
manager seeks to manage such potential conflicts by using procedures intended to
provide a fair allocation of buy and sell opportunities among funds and other
accounts.
The structure of a portfolio manager's compensation may give rise to potential
conflicts of interest. A portfolio manager's base pay and bonus tend to increase
with additional and more complex responsibilities that include increased assets
under management. As such, there may be an indirect relationship between a
portfolio manager's marketing or sales efforts and his or her bonus.
Finally, the management of personal accounts by a portfolio manager may give
rise to potential conflicts of interest. While the funds and the manager have
adopted a code of ethics which they believe contains provisions reasonably
necessary to prevent a wide range of prohibited activities by portfolio managers
and others with respect to their personal trading activities, there can be no
assurance that the code of ethics addresses all individual conduct that could
result in conflicts of interest.
The manager and the Fund have adopted certain compliance procedures that are
designed to address these, and other, types of conflicts. However, there is no
guarantee that such procedures will detect each and every situation where a
conflict arises.
COMPENSATION. The manager seeks to maintain a compensation program that is
competitively positioned to attract, retain and motivate top-quality investment
professionals. Portfolio managers receive a base salary, a cash incentive bonus
opportunity, an equity compensation opportunity, and a benefits package.
Portfolio manager compensation is reviewed annually and the level of
compensation is based on individual performance, the salary range for a
portfolio manager's level of responsibility and Franklin Templeton guidelines.
Portfolio managers are provided no financial incentive to favor one fund or
account over another. Each portfolio manager's compensation consists of the
following three elements:
BASE SALARY Each portfolio manager is paid a base salary.
ANNUAL BONUS Annual bonuses are structured to align the interests of
the portfolio manager with those of the Fund's shareholders. Each
portfolio manager is eligible to receive an annual bonus. Bonuses
generally are split between cash (50% to 65%) and restricted shares of
Resources stock (17.5% to 25%) and mutual fund shares (17.5% to 25%).
The deferred equity-based compensation is intended to build a vested
interest of the portfolio manager in the financial performance of both
Resources and mutual funds advised by the manager. The bonus plan is
intended to provide a competitive level of annual bonus compensation
that is tied to the portfolio manager achieving consistently strong
investment performance, which aligns the financial incentives of the
portfolio manager and Fund shareholders. The Chief Investment Officer
of the manager and/or other officers of the manager, with
responsibility for the Fund, have discretion in the granting of annual
bonuses to portfolio managers in accordance with Franklin Templeton
guidelines. The following factors are generally used in determining
bonuses under the plan:
o INVESTMENT PERFORMANCE. Primary consideration is given to the
historic investment performance over the 1, 3 and 5 preceding years of
all accounts managed by the portfolio manager. The pre-tax performance
of each fund managed is measured relative to a relevant peer group
and/or applicable benchmark as appropriate.
o NON-INVESTMENT PERFORMANCE. The more qualitative contributions of a
portfolio manager to the manager's business and the investment
management team, including professional knowledge, productivity,
responsiveness to client needs and communication, are evaluated in
determining the amount of any bonus award.
o RESPONSIBILITIES. The characteristics and complexity of funds managed
by the portfolio manager are factored in the manager's appraisal.
ADDITIONAL LONG-TERM EQUITY-BASED COMPENSATION Portfolio managers may
also be awarded restricted shares or units of Resources stock or
restricted shares or units of one or more mutual funds, and options to
purchase common shares of Resources stock. Awards of such deferred
equity-based compensation typically vest over time, so as to create
incentives to retain key talent.
Portfolio managers also participate in benefit plans and programs available
generally to all employees of the manager.
OWNERSHIP OF FUND SHARES. The manager has a policy of encouraging portfolio
managers to invest in the funds they manage. Exceptions arise when, for example,
a fund is closed to new investors or when tax considerations or jurisdictional
constraints cause such an investment to be inappropriate for the portfolio
manager. The following is the dollar range of Fund shares beneficially owned by
each portfolio manager (such amounts may change from time to time):
----------------------------------------------------------------------
PORTFOLIO MANAGER DOLLAR RANGE OF FUND SHARES
BENEFICIALLY OWNED
----------------------------------------------------------------------
Roger Bayston None
----------------------------------------------------------------------
Richard Hsu None
----------------------------------------------------------------------
Christopher Molumphy None
----------------------------------------------------------------------
Eric G. Takaha None
---------------------------------------------------------------------
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 Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Gaston Gardey, Chief Financial Officer and Chief Accounting Officer
(B) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Gaston Gardey, Chief Financial Officer and Chief Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN TEMPLTON LIMITED DURATION INCOME TRUST
By /s/LAURA F. FERGERSON
----------------------------
Laura F. Fergerson
Chief Executive Officer -
Finance and Administration
Date May 27, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/LAURA F. FERGERSON
----------------------------
Laura F. Fergerson
Chief Executive Officer -
Finance and Administration
Date May 27, 2010
By /s/GASTON GARDEY
-----------------------------
Gaston Gardey
Chief Financial Officer and
Chief Accounting Officer
Date May 27, 2010