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: 03/31
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Date of reporting period: 03/31/08
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ITEM 1. REPORTS TO STOCKHOLDERS.
[PHOTO]
MARCH 31, 2008
ANNUAL REPORT INCOME
FRANKLIN TEMPLETON
LIMITED DURATION INCOME TRUST
[PHOTO]
FRANKLIN TEMPLETON
INVESTMENTS
Franklin - Templeton - Mutul Series
Contents
ANNUAL REPORT
Franklin Templeton Limited Duration Income Trust ................... 1
Performance Summary ................................................ 7
Annual Shareholders' Meeting ....................................... 8
Dividend Reinvestment Plan ......................................... 9
Financial Highlights and Statement of Investments .................. 12
Financial Statements ............................................... 24
Notes to Financial Statements ...................................... 27
Report of Independent Registered Public Accounting Firm ............ 36
Tax Designation .................................................... 37
Board Members and Officers ......................................... 38
Shareholder Information ............................................ 43
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:
This annual report for Franklin Templeton Limited Duration Income Trust covers
the fiscal year ended March 31, 2008.
PERFORMANCE OVERVIEW
For the year under review, Franklin Templeton Limited Duration Income Trust had
cumulative total returns of -2.83% based on net asset value and -16.64% based on
market price. Net asset value decreased from $14.24 per share on March 31, 2007,
to $12.85 at period-end, and the market price fell from $14.27 to $10.94 over
the same time. You can find the Fund's performance data in the Performance
Summary on page 7.
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 13.
1 | Annual Report
PORTFOLIO BREAKDOWN
Based on Total Investments as of 3/31/08*
[BAR GRAPH]
Floating Rate Loans 37.6%
High Yield Corporate Bonds 28.7%
Mortgage-Backed Securities 22.9%
Other Asset-Backed Securities 4.9%
Foreign Government & Agency Securities 3.9%
Short-Term Investments & Other Net Assets 2.0%
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*Total investments include long-term and short-term investments and other net
assets excluding preferred stock issued by the Fund.
ECONOMIC AND MARKET OVERVIEW
The U.S. economy slowed during the 12 months ended March 31, 2008, as gross
domestic product (GDP) growth decelerated sharply and registered an annualized
rate of 0.6% in the fourth quarter of 2007 and first quarter of 2008. This was a
significant change from the third quarter's fairly robust 4.9% annualized
growth, which was the highest in more than seven years. A softening labor
market, tighter credit conditions and ongoing housing market weakness rattled
consumer confidence and hurt consumer spending. These factors as well as upward
inflationary pressures from rising food, energy and commodity prices, and a
weaker dollar significantly weighed on the overall economy.
Volatile oil prices reached a historical high in March, topping $110 per barrel
before retreating to $102 by period-end. Core inflation, which excludes food and
energy costs, rose modestly for the period, signaling that inflation risk
remains. For March 2008, core inflation had a 12-month increase of 2.4%. (1) The
Federal Reserve Board's (Fed's) preferred measure of inflation, the core
personal consumption expenditures price index, reported a 12-month increase of
2.1%. (2)
As financial market turmoil and investor uncertainty persisted, the Fed
remained committed to act in an effort to restore confidence and liquidity to
U.S. financial markets. The Fed implemented a number of programs to buffer
downside risk, such as a $200 billion package to increase liquidity to banks, an
extension on direct credit lines to non-banking financial service companies and
the orchestration of Bear Stearns' acquisition by JPMorgan Chase. The Fed cut
interest rates five times over the 12-month period, bringing the federal funds
target rate to 2.25%. In addition, regulators eased capital requirements on
government-sponsored Fannie Mae and Freddie Mac. Despite the Fed's aggressive
actions, U.S. Treasuries rallied in a flight to quality and equities continued
to fall during the period.
--------------
1. Source: Bureau of Labor Statistics.
2. Source: Bureau of Economic Analysis.
2 | Annual Report
Over the period, as investors sought the relative safety of short-term U.S.
Treasuries, Treasury yields declined and the yield curve steepened. Short-term,
two- and five-year yields declined substantially, with the two-year bill
yielding 1.62% at the end of March, down from 4.58% 12 months prior. The 10-year
U.S. Treasury note ended March yielding 3.45%, compared with 4.65% at the
beginning of the period.
INVESTMENT STRATEGY
We invest in a diversified mix of fixed income securities, primarily high yield
corporate bonds, senior secured floating rate bank loans, and mortgage- and
other asset-backed securities. Our top-down analysis of macroeconomic trends
combined with a bottom-up fundamental analysis of market sectors, industries and
issuers drives our investment process. We seek to maintain a limited duration,
or interest rate sensitivity, to moderate the impact that fluctuating interest
rates might have on the Fund's fixed income portfolio. Within the corporate bond
and bank loan sectors, we seek securities trading at reasonable valuations from
issuers with characteristics such as strong market positions, stable cash flows,
reasonable capital structures, supportive asset values, strong sponsorship and
improving credit fundamentals. In the mortgage- and other asset-backed
securities sector, we look to capture an attractive income stream and total
return through our analysis of security prepayment assumptions, pricing
inefficiencies and underlying collateral characteristics.
MANAGER'S DISCUSSION
The fiscal year under review was characterized by volatility and the emergence
of one of the largest financial crises in decades. The period began with strong
economic growth leading to inflationary concerns. However, fear and uncertainty
took hold as subprime mortgage delinquencies led to a significant credit crunch.
After rising initially on inflation fears, U.S. Treasury yields began falling in
June 2007 and many ended the period more than 100 basis points (100 basis points
equal one percentage point) below where they began. Declining interest rates and
a flight to quality boosted returns of mortgage-backed securities, which were
the Fund's best performing asset class during the period. High yield corporate
bonds and leveraged bank loans, however,
DIVIDEND DISTRIBUTIONS*
4/1/07-3/31/08
MONTH DIVIDEND PER COMMON SHARE
---------------- -------------------------
April 8.4 cents
May 8.4 cents
June 8.4 cents
July 8.4 cents
August 8.4 cents
September 8.4 cents
October 8.4 cents
November 8.4 cents
December 8.4 cents
January 8.4 cents
February 8.4 cents
March 8.4 cents
---------
TOTAL $ 1.008
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*All Fund distributions will vary depending upon current market conditions, and
past distributions are not indicative of future trends.
3 | Annual Report
were negatively affected by the market's general risk aversion. Although default
rates remained relatively low during the period for both asset classes, fears of
a recession and expectations for increasing default rates in the near future
contributed to rising risk premiums. In addition, high yield corporate bonds and
leveraged bank loans suffered from technical factors, as financing for leveraged
buyouts (LBOs) that were arranged in a more favorable environment still needed
to come to market. The increased spreads on these assets more than offset the
decline in interest rates and the interest earned on the securities. Therefore,
both asset classes experienced negative returns during the fiscal year. In an
effort to take advantage of opportunities created by market volatility, the Fund
increased its exposure to bank loans and reduced its weighting in high yield
corporate bonds. Our exposure to mortgage-backed and other asset-backed
securities was roughly unchanged.
As the fiscal year began, strong corporate earnings and balance sheet liquidity
contributed to a healthy fundamental environment for high yield corporate bonds.
As a result, the default rate was low and credit spreads above Treasuries
tightened to a record low of 265 basis points in early June. Subprime market
turmoil and the resulting credit crunch, however, led to fears of a recession
and expectations that default rates could rise. In addition, despite a somewhat
reduced forward calendar of LBO transactions from summer 2007 levels, pending
supply weighed on the sector at period-end. Consequently, credit spreads widened
significantly and ended the period nearly 800 basis points above Treasuries,
more than three times as much as in June and the highest level in five years.
Although spreads were above the historical average at period-end, the
fundamental outlook for the asset class was uncertain. In our view, corporate
balance sheets were generally favorable, but a recession could lead to
increasing default rates. During the Fund's fiscal year, we found more
attractive investment opportunities in other asset classes, in particular bank
loans and investment grade corporate bonds.
Similar to high yield corporate bonds, bank loans enjoyed a favorable market
environment early in the fiscal year, followed by rapidly deteriorating
fundamental and technical factors beginning in July. As investor risk aversion
increased, structured products such as collateralized loan obligations, which
previously had accounted for about two-thirds of purchases of all loans, nearly
4 | Annual Report
disappeared from the market. Therefore, spreads widened to attract new buyers to
the asset class. At the same time, banks held a large supply of loans from
previous LBO funding commitments, which further pressured the market. In
addition, as the Fed cut short-term interest rates in an effort to boost the
economy, bank loan yields fell. As loan prices fell, some investors that
employed leverage to purchase loans were forced to unload some of their
positions, putting yet more pressure on the market. Largely as a result, average
secondary loan prices fell to a period low in February before rebounding and
stabilizing at higher levels as investors found value at the lower levels.
At period-end, the market seemed to be pricing in a default rate that would be
worse than the last down cycle of 2001-2002. However, the 1.7% default rate at
the end of March was below the historical average, and companies within our bank
loan portfolio performed adequately. (3) With spreads above previous levels and
bid prices close to historical lows, we found what we believed were attractive
long-term investment opportunities in light of valuations that were attractive
on a historical basis and relative to high yield corporate bonds.
Over the Fund's fiscal year, agency mortgage-backed securities generally
outperformed the Fund's other primary investment sectors. Within an environment
of increased volatility and uncertainty, the overall mortgage-backed securities
market performed relatively well. As spreads in many fixed income sectors
widened relative to Treasuries, markets experienced a flight to quality that
benefited GNMA, FNMA and FHLMC securities due to their government backing or
sponsorship. On the other hand, securities from privately issued companies, as
well as some other asset-backed securities, tended to generate lower returns.
With tightening credit standards and slowing housing and refinancing activity
during the period, prepayments declined across all coupons and program types.
Consistent with our strategy, we increased the Fund's allocation to higher
coupon mortgage-backed securities and found investment opportunities in those
sectors that experienced widening yield spreads and were hampered by relatively
low liquidity.
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3. Source: Moody's Investors Service.
5 | Annual Report
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] [PHOTO OF Richard S. Hsu]
-s- Christopher J. Molumphy -s- Richard S. Hsu
------------------------------ -----------------------------
Christopher J. Molumphy, CFA Richard S. Hsu, CFA
[PHOTO OF Eric G. Takaha] [PHOTO OF Roger A. Bayston]
-s- Eric G. Takaha -s- Roger A. Bayston
------------------------------ -----------------------------
Eric G. Takaha, CFA Roger A. Bayston, CFA
[PHOTO OF Glenn I. Voyles]
-s- Glenn I. Voyles
------------------------------
Glenn I. Voyles, CFA
Portfolio Management Team
Franklin Templeton Limited Duration Income Trust
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF MARCH 31, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
6 | Annual Report
Performance Summary as of 3/31/08
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses. Capital
gain distributions are net profits realized from the sale of portfolio
securities. Total return reflects reinvestment of the Fund's dividends and
capital gain distributions, if any, and any unrealized gains or losses. Total
returns do not reflect any sales charges paid at inception or brokerage
commissions paid on secondary market purchases. The performance table does not
reflect any taxes that a shareholder would pay on Fund dividends, capital gain
distributions, if any, or any realized gains on the sale of Fund shares.
PRICE AND DISTRIBUTION INFORMATION
SYMBOL: FTF CHANGE 3/31/08 3/31/07
---------------------------------- ------- ------- -------
Net Asset Value (NAV) -$ 1.39 $ 12.85 $ 14.24
Market Price (AMEX) -$ 3.33 $ 10.94 $ 14.27
DISTRIBUTIONS (4/1/07-3/31/08)
Dividend Income $ 1.008
PERFORMANCE (1)
COMMENCEMENT OF
1-YEAR 3-YEAR OPERATIONS (8/27/03)
-------- ------ --------------------
Cumulative Total Return (2)
Based on change in NAV (3) -2.83% +11.43% +26.47%
Based on change in market price (4) -16.64% +0.32% +4.94%
Average Annual Total Return (2)
Based on change in NAV (3) -2.83% +3.67% +5.24%
Based on change in market price (4) -16.64% +0.11% +1.06%
Distribution Rate (5) 9.21%
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 March 31, 2008, the Trust had leverage
in the amount of 35.58% of the Trust's total assets. The Trust employs
leverage through the issuance of Auction Preferred Shares. The use of
financial leverage creates an opportunity for increased income but, at the
same time, creates special risks (including the likelihood of greater
volatility of net asset value and market price of common shares). The cost of
leverage rises and falls with changes in short-term interest rates. Such
increases/decreases in the cost of the Trust's leverage may be offset by
increased/decreased income from the Trust's floating rate investments.
2. Total return calculations represent the cumulative and average annual changes
in value of an investment over the periods indicated.
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 8.4 cent per
share March dividend and the AMEX closing price of $10.94 on 3/31/08.
7 | Annual Report
Annual Shareholders' Meeting
SEPTEMBER 26, 2007
At an annual Meeting of Shareholders of Franklin Templeton Limited Duration
Income Trust (Fund) held on September 26, 2007, 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
---------------------- -------------- ----------- ------ ----------- ----------- ------
Harris J. Ashton 23,912,942.927 89.31% 98.64% 330,774.000 1.24% 1.36%
Sam Ginn 23,920,371.927 89.34% 98.67% 323,345.000 1.21% 1.33%
Edith E. Holiday 23,923,413.927 89.35% 98.68% 320,303.000 1.20% 1.32%
Larry D. Thompson 23,936,935.927 89.40% 98.73% 306,781.000 1.15% 1.27%
John B. Wilson 23,940,198.927 89.42% 98.75% 303,518.000 1.13% 1.25%
PREFERRED % OF % OF
SHARES OUTSTANDING % OF WITHHELD OR OUTSTANDING % OF
TRUSTEES FOR SHARES VOTED ABSTAIN SHARES VOTED
------------------------ --------- ----------- ------ ----------- ----------- ------
Harris J. Ashton 6,877.000 90.49% 99.77% 16.000 0.21% 0.23%
Sam Ginn 6,878.000 90.50% 99.78% 15.000 0.20% 0.22%
Edith E. Holiday 6,870.000 90.39% 99.67% 23.000 0.30% 0.33%
Larry D. Thompson 6,868.000 90.37% 99.64% 25.000 0.33% 0.36%
John B. Wilson 6,871.000 90.41% 99.68% 22.000 0.29% 0.32%
8 | Annual Report
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. PFPC, Inc. (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.
9 | Annual Report
The market price of shares on a particular date shall be the last sales price on
the American Stock Exchange, or, if there is no sale on the exchange on that
date, then the mean between the closing bid and asked quotations on the exchange
on such date. The net asset value per share on a particular date shall be the
amount most recently calculated by or on behalf of the Fund as required by law.
The Agent shall at all times act in good faith and agree to use its best efforts
within reasonable limits to ensure the accuracy of all services performed under
this agreement and to comply with applicable law, but assumes no responsibility
and shall not be liable for loss or damage due to errors unless such error is
caused by the Agent's negligence, bad faith, or willful misconduct or that of
its employees. Your uninvested funds held by the Agent will not bear interest.
The Agent shall have no responsibility for the value of shares acquired. For the
purpose of cash investments, the Agent may commingle your funds with those of
other participants in the same Fund.
There is no direct charge to participants for reinvesting Distributions, since
the Agent's fees are paid by the Fund. However, when shares are purchased in the
open market, each participant will pay a pro rata portion of any brokerage
commissions incurred. If you elect by notice to the Agent to have it sell part
or all of your shares and remit the proceeds, the Agent will deduct brokerage
commissions from the proceeds.
The automatic reinvestment of Distributions does not relieve you of any taxes
that may be payable on Distributions. In connection with the reinvestment of
Distributions, shareholders generally will be treated as having received a
Distribution equal to the cash Distribution that would have been paid.
The Agent will forward to you any proxy solicitation material and will vote any
shares so held for you first in accordance with the instructions set forth on
proxies you return to the Fund, and then with respect to any proxies you do not
return to the Fund in the same portion as the Agent votes proxies the
participants return to the Fund.
As long as you participate in the Plan, the Agent will hold the shares it has
acquired for you in safekeeping, in its name or in the name of its nominee. This
convenience provides added protection against loss, theft or inadvertent
destruction of certificates. However, you may request that a certificate
representing your Plan shares be issued to you. Upon your written request, the
Agent will deliver to you, without charge, a certificate or certificates for the
full shares. The Agent will send you a confirmation of each acquisition made 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
10 | Annual Report
will be issued. Distributions on fractional shares will be credited to your
account. If you terminate your account under the Plan, the Agent will adjust for
any such undivided fractional interest in cash at the market value of shares at
the time of termination.
You may withdraw from the Plan at any time, without penalty, by notifying the
Agent in writing at the address above or by telephone at 1-800/331-1710. 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.
11 | Annual Report
Franklin Templeton
Limited Duration Income Trust
FINANCIAL HIGHLIGHTS
YEAR ENDED MARCH 31,
2008 2007 2006 2005 2004 (e)
--------- --------- ---------- --------- -----------
PER COMMON SHARE OPERATING PERFORMANCE
(for a common share outstanding throughout the year)
Net asset value, beginning of year .................... $ 14.24 $ 14.14 $ 14.41 $ 14.75 $ 14.33
--------- --------- --------- --------- ----------
Income from investment operations:
Net investment income (a) .......................... 1.28 1.32 1.18 1.10 0.53
Net realized and unrealized gains (losses) ......... (1.29) 0.16 (0.10) (0.12) 0.63
Dividends to preferred shareholders from net
investment income .................................. (0.37) (0.35) (0.26) (0.13) (0.03)
--------- --------- --------- --------- ----------
Total from investment operations ...................... (0.38) 1.13 0.82 0.85 1.13
--------- --------- --------- --------- ----------
Less distributions to common shareholders from net
investment income ..................................... (1.01) (1.03) (1.09) (1.19) (0.59)
Offering costs charged to capital:
Common shares ...................................... -- -- -- -- (0.03)
Preferred shares ................................... -- -- -- -- (0.09)
--------- --------- --------- --------- ----------
Total offering costs .................................. -- -- -- -- (0.12)
--------- --------- --------- --------- ----------
Net asset value, end of year .......................... $ 12.85 $ 14.24 $ 14.14 $ 14.41 $ 14.75
--------- --------- --------- --------- ----------
Market value, end of year (b) ......................... $ 10.94 $ 14.27 $ 12.87 $ 13.89 $ 14.87
--------- --------- --------- --------- ----------
Total return (based on market value per share) ........ (16.64)% 19.66% 0.60% 1.38% 3.16% (f)
RATIOS TO AVERAGE NET ASSETS APPLICABLE TO COMMON
SHARES (c)
Expenses before expense reduction ..................... 1.28% 1.27% 1.26% 1.21% 1.11%
Expenses net of expense reduction ..................... 1.28% (d) 1.26% 1.26% (d) 1.21% (d) 1.11% (d)
Net investment income ................................. 9.38% 9.32% 8.24% 7.50% 6.12%
SUPPLEMENTAL DATA
Net assets applicable to common shares, end of year
(000's) ............................................... $ 344,010 $ 380,813 $ 378,080 $ 385,344 $ 393,125
Portfolio turnover rate ............................... 47.48% 52.17% 46.55% 55.02% 45.08%
Asset coverage per preferred share .................... $ 70,264 $ 75,107 $ 74,747 $ 75,703 $ 76,727
Liquidation preference per preferred
share ................................................. $ 25,000 $ 25,000 $ 25,000 $ 25,000 $ 25,000
---------------
(a) Based on average daily common shares outstanding.
(b) Based on the last sale on the American Stock Exchange.
(c) Ratios are annualized for periods less than one year.
(d) Benefit of expense reduction rounds to less than 0.01%.
(e) For the period August 27, 2003 (commencement of operations)
to March 31, 2004.
(f) Total return is not annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
12 | Annual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2008
COUNTRY PRINCIPAL AMOUNT (a) VALUE
------------- -------------------- --------------
LONG TERM INVESTMENTS 151.4%
CORPORATE BONDS 44.5%
COMMERCIAL SERVICES 2.8%
(b) ARAMARK Corp., senior note, FRN, 6.739%, 2/01/15 ................ United States 1,800,000 $ 1,597,500
Dex Media West LLC, senior sub. note, 9.875%, 8/15/13 ........... United States 4,000,000 3,490,000
JohnsonDiversey Holdings Inc., senior disc. note, 10.67%,
5/15/13 ......................................................... United States 2,000,000 1,930,000
Lamar Media Corp., senior sub. note, C, 6.625%, 8/15/15 ......... United States 2,000,000 1,770,000
RSC Equipment Rental Inc., senior note, 9.50%, 12/01/14 ......... United States 800,000 672,000
--------------
9,459,500
--------------
COMMUNICATIONS 3.1%
(c) Digicel Group Ltd., senior note, 144A, 8.875%, 1/15/15 .......... Jamaica 2,000,000 1,675,000
MetroPCS Wireless Inc., senior note, 9.25%, 11/01/14 ............ United States 2,000,000 1,850,000
Millicom International Cellular SA, senior note, 10.00%,
12/01/13 ...................................................... Luxembourg 2,000,000 2,130,000
Qwest Communications International Inc., senior note, B, 7.50%,
2/15/14 ....................................................... United States 2,000,000 1,890,000
(c) Wind Acquisition Finance SA, senior note, 144A, 10.75%,
12/01/15 ...................................................... Italy 3,000,000 3,075,000
--------------
10,620,000
--------------
CONSUMER DURABLES 3.1%
Ford Motor Credit Co. LLC,
(b) FRN, 8.708%, 4/15/12 ......................................... United States 1,000,000 939,882
senior note, 5.80%, 1/12/09 .............................. United States 4,000,000 3,811,436
senior note, 9.875%, 8/10/11 ............................. United States 500,000 446,578
Jarden Corp., senior sub. note, 7.50%, 5/01/17 .................. United States 2,000,000 1,760,000
Jostens IH Corp., senior sub. note, 7.625%, 10/01/12 ............ United States 2,000,000 1,955,000
KB Home, senior note, 6.375%, 8/15/11 ........................... United States 2,000,000 1,890,000
--------------
10,802,896
--------------
CONSUMER NON-DURABLES 1.5%
Dean Foods Inc., senior note, 7.00%, 6/01/16 .................... United States 1,200,000 1,056,000
Reynolds American Inc., senior secured note, 7.25%, 6/01/13 ..... United States 2,000,000 2,129,232
Smithfield Foods Inc., senior note, 8.00%, 10/15/09 ............. United States 2,000,000 2,040,000
--------------
5,225,232
--------------
CONSUMER SERVICES 7.8%
CanWest Media Inc., senior sub. note, 8.00%, 9/15/12 ............ Canada 3,000,000 2,865,000
CCH II LLC, senior note, 10.25%, 9/15/10 ........................ United States 4,000,000 3,660,000
CSC Holdings Inc., senior note, 8.125%, 7/15/09 ................. United States 1,000,000 1,012,500
DIRECTV Holdings LLC, senior note, 8.375%, 3/15/13 .............. United States 1,000,000 1,018,750
Intelsat Subsidiary Holding Co. Ltd., senior note, 8.25%, 1/15/13 Bermuda 3,000,000 3,037,500
Liberty Media Corp., senior note, 7.875%, 7/15/09 ............... United States 2,000,000 2,017,840
MGM MIRAGE, senior note, 6.75%, 4/01/13 ......................... United States 3,000,000 2,775,000
(c) Outback Steakhouse Inc., senior note, 144A, 10.00%, 6/15/15 ..... United States 1,500,000 952,500
Pinnacle Entertainment Inc., senior sub. note, 8.75%, 10/01/13
Quebecor Media Inc., ............................................ United States 2,000,000 1,980,000
(c) 144A, 7.75%, 3/15/16 .................................... Canada 500,000 458,750
senior note, 7.75%, 3/15/16 ............................... Canada 2,000,000 1,835,000
13 | Annual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2008 (CONTINUED)
COUNTRY PRINCIPAL AMOUNT (a) VALUE
------------- -------------------- -------------
LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
CONSUMER SERVICES (CONTINUED)
Radio One Inc., senior sub. note, B, 8.875%, 7/01/11 .......... United States 2,000,000 $ 1,615,000
(c) Rainbow National Services LLC, senior sub. deb., 144A, 10.375%,
9/01/14 .................................................. United States 600,000 639,000
Royal Caribbean Cruises Ltd., senior note, 8.00%, 5/15/10 ..... United States 3,000,000 3,066,012
-------------
26,932,852
-------------
ELECTRONIC TECHNOLOGY 1.8%
(b) Freescale Semiconductor Inc., senior note, FRN, 6.675%,
12/15/14 ................................................. United States 2,000,000 1,390,000
Sanmina-SCI Corp.,
(b),(c) senior note, 144A, FRN, 5.55%, 6/15/14 ............... United States 1,300,000 1,176,500
senior sub. note, 6.75%, 3/01/13 ...................... United States 1,700,000 1,483,250
TransDigm Inc., senior sub. note, 7.75%, 7/15/14 .............. United States 2,000,000 2,010,000
-------------
6,059,750
-------------
ENERGY MINERALS 2.4%
Chesapeake Energy Corp., senior note, 7.50%, 6/15/14 .......... United States 4,000,000 4,120,000
Mariner Energy Inc., senior note, 7.50%, 4/15/13 .............. United States 2,000,000 1,930,000
(c) Petroplus Finance Ltd., senior note, 144A, 6.75%, 5/01/14 ..... Switzerland 2,500,000 2,275,000
-------------
8,325,000
-------------
FINANCE 4.8%
CIT Group Funding Co. of Canada, senior note, 4.65%, 7/01/10 .. United States 1,100,000 903,594
CIT Group Inc., senior note, 7.625%, 11/30/12 ................. United States 1,800,000 1,497,985
GMAC LLC,
6.875%, 8/28/12 ....................................... United States 3,000,000 2,282,604
7.25%, 3/02/11 ........................................ United States 2,000,000 1,577,168
(c) ICICI Bank Ltd., 144A, 6.625%, 10/03/12 ....................... India 1,000,000 999,693
Lehman Brothers Holdings Inc., senior note, 6.20%, 9/26/14 .... United States 3,000,000 2,963,625
Merrill Lynch & Co. Inc., 5.45%, 2/05/13 ...................... United States 2,500,000 2,463,260
Morgan Stanley, sub. note, 4.75%, 4/01/14 ..................... United States 2,500,000 2,323,665
United Rentals North America Inc., senior sub. note, 7.75%,
11/15/13 ................................................. United States 2,000,000 1,630,000
-------------
16,641,594
-------------
HEALTH SERVICES 4.9%
Coventry Health Care Inc., senior note, 5.875%, 1/15/12
DaVita Inc., .................................................. United States 3,000,000 3,054,534
senior note, 6.625%, 3/15/13 .......................... United States 900,000 877,500
senior sub. note, 7.25%, 3/15/15 ...................... United States 1,000,000 980,000
FMC Finance III SA, senior note, 6.875%, 7/15/2017 ............ Germany 1,700,000 1,708,500
HCA Inc., senior secured note, 9.125%, 11/15/14 ............... United States 3,000,000 3,097,500
Tenet Healthcare Corp., senior note, 6.375%, 12/01/11 ......... United States 2,500,000 2,268,750
(b),(d) U.S. Oncology Holdings Inc., senior note, FRN, PIK, 10.759%,
3/15/12 .................................................. United States 2,107,298 1,633,156
14 | Annual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2008 (CONTINUED)
COUNTRY PRINCIPAL AMOUNT (a) VALUE
------------- -------------------- -------------
LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
HEALTH SERVICES (CONTINUED)
(d) United Surgical Partners International Inc., senior sub. note,
PIK, 9.25%, 5/01/17 ............................................. United States 1,500,000 $ 1,395,000
Vanguard Health Holding Co. II LLC, senior sub. note, 9.00%,
10/01/14 ...................................................... United States 2,000,000 1,935,000
-------------
16,949,940
-------------
INDUSTRIAL SERVICES 1.8%
Compagnie Generale de Geophysique-Veritas, senior note, 7.50%,
5/15/15 ....................................................... France 2,000,000 2,040,000
El Paso Corp., senior note, 6.875%, 6/15/14 ..................... United States 2,000,000 2,050,062
The Williams Co. Inc., 8.125%, 3/15/12 .......................... United States 2,000,000 2,195,000
-------------
6,285,062
-------------
NON-ENERGY MINERALS 0.9%
(b) Freeport-McMoRan Copper & Gold Inc., senior note, FRN, 8.394%,
4/01/15 ....................................................... United States 3,000,000 2,955,000
-------------
PROCESS INDUSTRIES 4.1%
Crown Americas Inc., senior note, 7.625%, 11/15/13 .............. United States 3,000,000 3,075,000
Huntsman International LLC, senior sub. note, 7.875%, 11/15/14 .. United States 1,500,000 1,597,500
(c) Ineos Group Holdings PLC, 144A, 8.50%, 2/15/16 .................. United Kingdom 3,000,000 2,347,500
JSG Funding PLC, senior sub. note, 7.75%, 4/01/15 ............... Ireland 3,000,000 2,640,000
(c) MacDermid Inc., senior sub. note, 144A, 9.50%, 4/15/17 .......... United States 2,000,000 1,800,000
Nalco Co., senior sub. note, 8.875%, 11/15/13 ................... United States 2,500,000 2,581,250
-------------
14,041,250
-------------
PRODUCER MANUFACTURING 0.6%
RBS Global & Rexnord Corp., senior note, 9.50%, 8/01/14 ......... United States 2,000,000 1,880,000
-------------
REAL ESTATE INVESTMENT TRUST 0.7%
Host Marriott LP, senior note, K, 7.125%, 11/01/13 .............. United States 2,500,000 2,462,500
-------------
RETAIL TRADE 0.5%
Michaels Stores Inc., senior note, 10.00%, 11/01/14 ............. United States 2,000,000 1,760,000
-------------
TECHNOLOGY SERVICES 1.2%
SunGard Data Systems Inc., senior note, 9.125%, 8/15/13 ......... United States 4,000,000 4,060,000
-------------
UTILITIES 2.5%
Aquila Inc., senior note, 9.95%, 2/01/11 ........................ United States 2,000,000 2,116,420
Dynegy Holdings Inc., senior note, 7.50%, 6/01/15 ............... United States 2,000,000 1,885,000
NRG Energy Inc., senior note, 7.25%, 2/01/14 .................... United States 2,800,000 2,772,000
(c) Texas Competitive Electric Holdings Co. LLC, senior note, B,
144A, 10.25%, 11/01/15 .......................................... United States 1,900,000 1,902,375
-------------
8,675,795
-------------
TOTAL CORPORATE BONDS (COST $161,723,570) ....................... 153,136,371
-------------
15 | Annual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2008 (CONTINUED)
COUNTRY PRINCIPAL AMOUNT (a) VALUE
------------- -------------------- -------------
LONG TERM INVESTMENTS (CONTINUED)
MORTGAGE-BACKED SECURITIES 35.6%
(b) FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) ADJUSTABLE RATE 0.3%
FHLMC, 5.266%, 5/01/34 .......................................... United States 1,039,789 $ 1,047,289
-------------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) FIXED RATE 12.9%
FHLMC Gold 15 Year, 4.50%, 6/01/18 - 9/01/18 .................... United States 2,590,166 2,589,815
FHLMC Gold 15 Year, 5.00%, 9/01/18 - 11/01/18 ................... United States 5,131,854 5,208,611
FHLMC Gold 15 Year, 5.50%, 7/01/19 .............................. United States 261,273 267,518
FHLMC Gold 15 Year, 6.00%, 5/01/22 .............................. United States 1,272,206 1,310,414
FHLMC Gold 30 Year, 5.50%, 12/01/34 - 2/01/37 ................... United States 4,342,824 4,393,857
FHLMC Gold 30 Year, 5.50%, 8/01/33 .............................. United States 4,648,439 4,710,140
FHLMC Gold 30 Year, 6.00%, 7/01/28 - 12/01/37 ................... United States 14,302,796 14,713,855
FHLMC Gold 30 Year, 6.00%, 7/01/36 .............................. United States 5,141,497 5,279,441
FHLMC Gold 30 Year, 6.50%, 1/01/35 .............................. United States 2,781,281 2,895,486
FHLMC Gold 30 Year, 7.00%, 9/01/27 .............................. United States 879,261 934,574
FHLMC Gold 30 Year, 8.00%, 1/01/31 .............................. United States 130,801 142,058
FHLMC Gold 30 Year, 8.50%, 7/01/31 .............................. United States 1,845,381 2,047,208
-------------
44,492,977
-------------
(b) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE 0.7%
FNMA, 4.573%, 7/01/34 ........................................... United States 2,027,991 2,079,176
FNMA, 5.991%, 6/01/32 ........................................... United States 106,293 108,813
-------------
2,187,989
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) FIXED RATE 18.9%
FNMA 15 Year, 5.00%, 10/01/17 ................................... United States 1,464,023 1,486,090
FNMA 15 Year, 5.50%, 10/01/17 - 1/01/21 ......................... United States 8,180,371 8,376,961
FNMA 15 Year, 6.00%, 8/01/21 .................................... United States 4,842,416 4,989,667
FNMA 15 Year, 6.00%, 9/01/21 .................................... United States 4,158,300 4,284,748
FNMA 15 Year, 6.50%, 7/01/20 .................................... United States 517,250 528,747
FNMA 15 Year, 7.00%, 9/01/18 .................................... United States 326,802 348,112
FNMA 30 Year, 5.00%, 3/01/37 .................................... United States 2,915,026 2,887,900
FNMA 30 Year, 5.50%, 8/01/33 - 1/01/36 .......................... United States 8,843,619 8,950,370
FNMA 30 Year, 5.50%, 9/01/33 .................................... United States 3,937,856 3,988,690
FNMA 30 Year, 6.00%, 4/01/33 - 1/01/36 .......................... United States 10,340,759 10,629,123
FNMA 30 Year, 6.50%, 8/01/32 - 8/01/36 .......................... United States 9,143,728 9,488,046
FNMA 30 Year, 6.50%, 6/01/36 .................................... United States 7,981,278 8,274,749
FNMA 30 Year, 8.00%, 10/01/29 ................................... United States 212,611 231,446
FNMA 30 Year, 8.50%, 8/01/26 .................................... United States 589,203 647,324
-------------
65,111,973
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) FIXED RATE 2.8%
GNMA I SF 30 Year, 5.50%, 4/15/33 - 12/15/34 .................... United States 2,417,096 2,470,788
GNMA I SF 30 Year, 5.50%, 12/15/34 .............................. United States 3,764,903 3,847,730
GNMA I SF 30 Year, 6.50%, 6/15/31 - 12/15/33 .................... United States 2,288,132 2,390,039
GNMA II SF 30 Year, 7.00%, 1/20/24 - 1/20/29 .................... United States 224,646 240,219
GNMA II SF 30 Year, 8.00%, 1/20/28 - 2/20/32 .................... United States 448,236 490,280
-------------
9,439,056
-------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $120,639,819) ............ 122,279,284
-------------
16 | Annual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2008 (CONTINUED)
COUNTRY PRINCIPAL AMOUNT (a) VALUE
------------- -------------------- -------------
LONG TERM INVESTMENTS (CONTINUED)
ASSET-BACKED SECURITIES AND COMMERCIAL MORTGAGE-BACKED
SECURITIES 7.6%
FINANCE 7.6%
(b) Argent Securities Inc., 2003-W5, M4, FRN, 6.663%, 10/25/33 ...... United States 1,439,776 $ 894,430
Banc of America Commercial Mortgage Inc., 2005-3, A2, 4.501%,
7/10/43 ....................................................... United States 5,000,000 4,921,978
(b) Chase Credit Card Master Trust, 2003-6, A, FRN, 2.928%,
2/15/11 ....................................................... United States 1,700,000 1,693,065
(b) Chase Funding Mortgage Loan Asset-Backed Certificates, 2004-2,
2A2, FRN, 2.849%, 2/25/35 ..................................... United States 1,922,951 1,842,003
(b) Chase Issuance Trust, 2005-A9, A9, FRN, 2.838%, 11/15/11 ........ United States 1,000,000 987,545
(b) Citigroup/Deutsche Bank Commercial Mortgage Trust, 2005-CD1,
A3, FRN, 5.40%, 7/15/44 .................................... United States 3,000,000 2,943,171
A4, FRN, 5.40%, 7/15/44 .................................... United States 400,000 400,024
Greenwich Capital Commercial Funding Corp., 2004-GG1, A7,
5.317%, 6/10/36 ............................................... United States 1,605,000 1,603,110
GS Mortgage Securities Corp. II, 2003-C1, A3, 4.608%, 1/10/40 ... United States 400,000 381,470
(b) GSAMP Trust, 2003-AHL, B1, FRN, 6.599%, 10/25/33 ................ United States 1,333,924 725,212
(b) JPMorgan Chase Commercial Mortgage Securities, 2005-LDP5, A4,
FRN, 5.179%, 12/15/44 ......................................... United States 1,000,000 998,805
LB-UBS Commercial Mortgage Trust,
2005-C1, A2, 4.31%, 2/15/30 ................................ United States 1,395,000 1,373,607
b2002-C2, A4, FRN, 5.594%, 6/15/31 ............................ United States 2,000,000 2,035,110
(b) MBNA Master Credit Card Trust, 1997-B, A, FRN, 2.978%,
8/15/14 ....................................................... United States 3,000,000 2,898,894
(b) Merrill Lynch Mortgage Investors Trust, 2003-OPT1, B2, FRN,
5.349%, 7/25/34 ............................................... United States 309,986 31,656
(b) Morgan Stanley ABS Capital,
2003-HE3, B1, FRN, 5.899%, 10/25/33 ........................ United States 870,467 474,446
2003-NC10, B1, FRN, 6.435%, 10/25/33 ....................... United States 605,756 237,597
(b) Morgan Stanley Dean Witter Capital I, 2003-NC3, B1, FRN, 7.099%,
3/25/33 ....................................................... United States 683,608 121,610
(b) New Century Home Equity Loan Trust, 2003-2, M3, FRN, 8.685%,
1/25/33 ....................................................... United States 903,015 245,218
(b) Option One Mortgage Loan Trust, 2003-6, M5, FRN, 5.899%,
11/25/33 ...................................................... United States 1,059,481 584,530
(b) Specialty Underwriting & Residential Finance, 2003-BC4, B2, FRN,
5.099%, 11/25/34 .............................................. United States 465,742 211,005
(b) Structured Asset Investment Loan Trust,
2003-BC2, M3, FRN, 5.849%, 4/25/33 ......................... United States 13,987 3,514
2003-BC13, M4, FRN, 5.349%, 11/25/33 ....................... United States 648,405 416,882
-------------
TOTAL ASSET-BACKED SECURITIES AND COMMERCIAL MORTGAGE-BACKED
SECURITIES (COST $30,482,733) ................................. 26,024,882
-------------
17 | Annual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2008 (CONTINUED)
COUNTRY PRINCIPAL AMOUNT (a) VALUE
------------- -------------------- -------------
LONG TERM INVESTMENTS (CONTINUED)
(b),(e) SENIOR FLOATING RATE INTERESTS 58.4%
COMMERCIAL SERVICES 7.8%
Acxiom Corp., Term Loan B, 4.349% - 6.599%, 9/14/12 ............ United States 1,045,000 $ 989,479
Affiliated Computer Services Inc.,
Additional Term Loan, 4.935% - 5.122%, 3/20/13 .......... United States 1,770,750 1,690,236
Term Loan B, 4.654%, 3/20/13 ............................ United States 488,750 466,527
ARAMARK Corp.,
Synthetic L/C, 5.198%, 1/26/14 .......................... United States 241,490 225,592
Term Loan B, 4.571%, 1/26/14 ............................ United States 3,801,213 3,550,967
Cenveo Corp.,
Delayed Draw Term Loan, 4.349%, 6/21/13 ................. United States 52,996 47,531
Term Loan C, 4.349%, 6/21/13 ............................ United States 1,590,449 1,426,434
Corporate Express U.S. Finance Inc., Term Loan D-1 Add-On,
4.568% - 4.775%, 12/23/10 ................................. United States 1,660,922 1,627,604
Dealer Computer Services Inc. (Reynolds & Reynolds), First Lien
Term Loan, 4.678%, 10/26/12 .................................. United States 3,397,752 3,057,127
Emdeon Business Services LLC, First Lien Term Loan, 4.70%,
11/16/13 ..................................................... United States 2,606,353 2,361,148
First Data Corp., Term Loan B-2, 5.349% - 5.446%, 9/24/14 ...... United States 2,985,000 2,693,285
Idearc Inc., Term Loan B, 4.70% - 4.71%, 11/17/14 .............. United States 4,063,975 3,269,976
Nielsen Finance LLC (VNU Inc.), Dollar Term Loan, 5.346%,
8/09/13 ...................................................... United States 4,046,706 3,662,269
R.H. Donnelley Inc., Term Loan D-2, 4.10% - 4.75%, 6/30/11 ..... United States 1,777,440 1,657,240
-------------
26,725,415
-------------
COMMUNICATIONS 4.0%
Alaska Communications Systems Holdings Inc.,
2005 Incremental Loan, 6.58%, 2/01/12 ................... United States 100,000 92,063
Term Loan, 4.446%, 2/01/12 .............................. United States 4,000,000 3,682,500
Alltel Communications Inc., Term Loan B-3, 5.568%, 5/18/15 ..... United States 2,487,500 2,250,150
CommScope Inc., Term Loan B, 5.171% - 5.196%, 12/27/14 ......... United States 2,475,832 2,376,799
West Corp., Term Loan B-2, 5.079% - 6.093%, 10/24/13 ........... United States 3,876,298 3,406,451
Windstream Corp., Tranche B-1, 5.50%, 7/17/13 .................. United States 2,033,200 1,960,586
-------------
13,768,549
-------------
CONSUMER DURABLES 1.2%
Jarden Corp., Term Loan B2, 4.446%, 1/24/12 .................... United States 2,927,275 2,722,773
Jostens IH Corp. (Visant Holding Corp.), Term Loan C, 6.717%,
12/21/11 ..................................................... United States 1,350,000 1,280,529
-------------
4,003,302
-------------
CONSUMER NON-DURABLES 1.4%
Acco Brands Corp., Term Loan B, 4.292% - 5.701%, 8/17/12 ....... United States 702,330 670,725
Bumble Bee Foods LLC, Term Loan B, 5.378% - 6.305% , 5/02/12 ... United States 500,000 463,255
Central Garden & Pet Co., Term Loan B, 4.06% - 4.210%, 9/30/12 . United States 179,742 152,781
Dean Foods Co., Term Loan B, 4.45% - 4.46%, 4/02/14 ............ United States 3,766,218 3,509,904
-------------
4,796,665
-------------
18 | Annual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2008 (CONTINUED)
COUNTRY PRINCIPAL AMOUNT (a) VALUE
------------- -------------------- -----------
LONG TERM INVESTMENTS (CONTINUED)
(b,e) SENIOR FLOATING RATE INTERESTS (CONTINUED)
CONSUMER SERVICES 16.3%
Affinion Group Inc., Term Loan B, 5.099% - 5.570%, 10/17/12 .............. United States 4,000,000 $ 3,706,668
Arby's Restaurant Holdings LLC, Term Loan B, 4.946% - 5.494%, 7/25/12 .... United States 1,557,923 1,429,395
Charter Communications Operating LLC, Term Loan, 5.26%, 3/06/14 .......... United States 2,362,560 2,001,778
Citadel Broadcasting Corp., Term Loan B, 4.296% - 4.745%, 6/12/14 ........ United States 4,000,000 3,271,720
CSC Holdings Inc. (Cablevision), Incremental Term Loan, 4.75%, 3/29/13 ... United States 784,000 734,623
Education Management LLC, Term Loan C, 4.50%, 6/01/13 .................... United States 3,866,643 3,373,646
Entravision Communications Corp., Term Loan B, 6.23%, 3/29/13 ............ United States 1,892,883 1,643,653
Gray Television Inc., Term Loan B, 6.21%, 12/31/14 ....................... United States 798,000 671,118
Insight Midwest Holdings, Term Loan B, 6.73%, 4/02/14 .................... United States 2,160,000 1,976,400
Intelsat Corp. (Panamsat),
Tranche B-2-A, 5.611%, 1/03/14 ........................................ United States 1,630,576 1,496,053
Tranche B-2-B, 5.611%, 1/03/14 ........................................ United States 1,630,087 1,495,605
Tranche B-2-C, 5.611%, 1/03/14 ........................................ United States 1,630,087 1,495,605
Intelsat Subsidiary Holding Co. Ltd., Term Loan B, 5.611%, 6/30/13 ....... United States 875,693 822,276
(f) Intelsat Subsidiary Holding Co. Ltd., Unfunded Bridge
Loan, 5.25%, 1/15/13 ..................................................... Bermuda 2,000,000 1,821,000
Laureate Education Inc., Closing Date Term Loan, 6.068%, 8/17/14 ......... United States 2,345,734 2,119,370
MCC Iowa,
Term Loan D-1, 4.35% - 4.83%, 1/31/15 ................................. United States 2,503,595 2,170,974
Term Loan D-2 (Delayed Draw), 4.35% - 4.83%, 1/31/15 .................. United States 58,263 50,522
MediaNews Group Inc., Term Loan B, 4.454%, 12/30/10 ...................... United States 680,938 525,650
Mission Broadcasting Inc., Term Loan B, 4.446%, 10/01/12 ................. United States 1,660,109 1,491,874
Nexstar Broadcasting Inc., Term Loan B, 4.454%, 10/01/12 ................. United States 1,571,599 1,412,333
OSI Restaurant Partners LLC (Outback),
Pre-Funded Revolving Credit, 2.67%, 6/14/13 ........................... United States 296,204 230,298
Term Loan B, 5.00%, 6/14/14 ........................................... United States 3,722,465 2,894,216
Penn National Gaming Inc., Term Loan B, 4.45% - 6.60%, 10/03/12 .......... United States 4,235,916 4,035,888
Regal Cinemas Corp., Term Loan, 4.196%, 10/27/13 ......................... United States 3,798,561 3,543,108
Tribune Co., Term Loan B, 5.542%, 5/16/14 ................................ United States 3,970,000 2,670,536
Univision Communications Inc., Term Loan B, 4.954% - 5.494%, 9/29/14 ..... United States 2,706,040 2,141,154
UPC Financing Partnership, Term Loan N, 4.869%, 12/31/14 ................. Netherlands 3,570,000 3,186,225
VML U.S. Finance LLC (Venetian Macau),
Delay Draw, 4.950%, 5/25/12 ........................................... Macau 1,166,667 1,057,292
New Project Term Loans, 4.95%, 5/25/13 ................................ Macau 977,778 886,111
Term Loan B, 4.950%, 5/24/13 .......................................... Macau 1,703,704 1,543,981
------------
55,899,072
------------
ELECTRONIC TECHNOLOGY 1.8%
Flextronics International USA Inc.,
Term Loan A, 7.394% - 7.395%, 10/01/14 ................................ United States 1,859,625 1,710,855
Term Loan A-1, 7.455%, 10/01/14 ....................................... United States 534,375 491,625
19 | Annual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2008 (CONTINUED)
COUNTRY PRINCIPAL AMOUNT (a) value
------------- -------------------- -------------
LONG TERM INVESTMENTS (CONTINUED)
(b,e) SENIOR FLOATING RATE INTERESTS (CONTINUED)
ELECTRONIC TECHNOLOGY (CONTINUED)
Marvell Technology Group Ltd., Term Loan, 5.196%, 11/08/09 ................. Bermuda 3,150,000 $ 2,970,261
Spirit Aerosystems Inc. (Onex Wind Finance LP), Term Loan B,
5.676%, 12/31/11 ........................................................ United States 1,269,879 1,166,346
------------
6,339,087
------------
ENERGY MINERALS 0.2%
Citgo Petroleum Corp., Term Loan B, 4.419%, 11/15/12 ....................... United States 900,363 837,338
------------
FINANCE 1.4%
Conseco Inc., Term Loan, 4.704%, 10/10/13 .................................. United States 2,180,427 1,711,243
Nuveen Investments Inc., Term Loan B, 5.654% - 5.704%, 11/13/14 ............ United States 1,900,000 1,716,532
TD Ameritrade Holding Corp., Term Loan B, 4.21%, 12/31/12 .................. United States 1,611,114 1,523,733
------------
4,951,508
------------
HEALTH SERVICES 5.0%
Community Health Systems Inc., Term Loan, 5.335%, 7/25/14 .................. United States 2,448,964 2,262,701
DaVita Inc., Term Loan B-1, 4.21% - 6.23%, 10/05/12 ........................ United States 2,717,434 2,559,021
Fresenius Medical Care Holdings Inc., Term Loan B, 3.954% -
6.205%, 3/31/13 . ....................................................... United States 4,004,464 3,836,421
HCA Inc., Term Loan B-1, 4.946%, 11/18/13 .................................. United States 4,111,534 3,787,385
Health Management Associates Inc., Term Loan B, 6.58%, 2/28/14 ............. United States 1,531,739 1,334,289
Iasis Healthcare LLC,
Delayed Draw Term Loan, 4.704% - 5.075%, 3/14/14 ........................ United States 480,176 436,961
Initial Term Loan, 5.244%, 3/14/14 ...................................... United States 1,394,776 1,269,246
Synthetic L/C, 6.631%, 3/14/14 .......................................... United States 128,047 116,523
Vanguard Health Holding Co. II LLC, Replacement Term Loan,
4.954%, 9/23/11 . ....................................................... United States 1,588,030 1,477,530
------------
17,080,077
------------
HEALTH TECHNOLOGY 1.6%
Bausch and Lomb Inc.,
(g) Delayed Draw Term Loan, 5.946%, 4/28/15 ............................... United States 70,000 68,131
Parent Term Loan B, 5.946%, 4/28/15 ..................................... United States 558,600 543,683
DJO Finance LLC, Term Loan B, 5.696%, 5/20/14 .............................. United States 2,743,125 2,605,969
Mylan Inc., Term Loan B, 5.938% - 6.25%, 10/02/14 .......................... United States 2,194,500 2,121,122
------------
5,338,905
------------
INDUSTRIAL SERVICES 1.1%
Allied Waste North America Inc.,
Credit Link, 4.50%, 3/28/14 ............................................. United States 965,857 914,666
Term Loan B, 4.06% - 4.59%, 3/28/14 ..................................... United States 1,606,459 1,521,317
URS Corp., Term Loan B, 5.421%, 5/15/13 .................................... United States 1,468,712 1,465,958
------------
3,901,941
------------
20 | Annual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2008 (CONTINUED)
COUNTRY PRINCIPAL AMOUNT (a) VALUE
-------------- -------------------- ------------
LONG TERM INVESTMENTS (CONTINUED)
(b,e) SENIOR FLOATING RATE INTERESTS (CONTINUED)
PROCESS INDUSTRIES 6.5%
Celanese U.S. Holdings LLC, Dollar Term Loan, 6.229%, 4/02/14 .............. United States 4,000,000 $ 3,740,000
Georgia-Pacific Corp.,
Additional Term Loan, 4.446% - 4.74%, 12/20/12 .......................... United States 1,678,226 1,538,631
Term Loan B, 4.446% - 4.835%, 12/20/12 .................................. United States 2,443,750 2,255,630
Graphic Packaging International Inc., Term Loan B, 5.331% -
6.729%, 5/16/14 . ....................................................... United States 1,500,000 1,339,791
Hexion Specialty Chemicals BV, Term Loan C-2, 5.00%, 5/03/13 ............... Netherlands 703,279 655,149
Hexion Specialty Chemicals Inc., Term Loan C-1, 7.00%, 5/03/13 ............. United States 3,245,747 3,023,618
Huntsman International LLC, Term Loan B, 4.428%, 4/19/14 ................... United States 2,711,000 2,611,881
Ineos U.S. Finance LLC,
Term Loan B2, 4.885%, 12/16/13 .......................................... United States 392,000 361,253
Term Loan C2, 5.385%, 12/23/14 .......................................... United States 392,000 354,807
Nalco Co., Term Loan B, 4.75% - 6.48%, 11/04/10 ............................ United States 1,343,428 1,311,042
NewPage Corp., Term Loan, 8.75%, 12/22/14 .................................. United States 846,472 829,660
Oxbow Carbon LLC,
Delayed Draw Term Loan, 4.704%, 5/08/14 ................................. United States 239,799 212,222
Term Loan B, 4.704% - 5.75%, 5/08/14 .................................... United States 2,674,113 2,366,590
Verso Paper Holdings LLC, Term Loan B, 4.446%, 8/01/13 ..................... United States 1,909,618 1,707,518
------------
22,307,792
------------
PRODUCER MANUFACTURING 6.4%
Allison Transmission, Term Loan B, 5.74% - 5.75%, 8/07/14 .................. United States 2,493,750 2,198,064
Cooper Standard Automotive Inc., Term Loan D, 5.25%, 12/23/11 .............. United States 879,750 781,068
Dresser Inc., Term Loan B, 5.204% - 5.565%, 5/04/14 ........................ United States 1,571,385 1,478,411
Goodman Global Holdings Co. Inc., Term Loan B, 7.50%, 2/13/14 .............. United States 3,300,000 3,219,563
GPS CCMP Merger Corp. (Generac), Term Loan B, 7.203%, 11/09/13 ............. United States 1,687,699 1,355,784
Nortek Inc., Term Loan, 5.35%, 8/27/11 ..................................... United States 1,439,965 1,256,427
Oshkosh Corp.,
Term Loan A, 4.51%, 12/06/11 ............................................ United States 875,000 805,000
Term Loan B, 4.76%, 12/06/13 ............................................ United States 2,863,750 2,673,491
RBS Global Inc. (Rexnord Corp.), Term Loan, 5.099% - 6.426%,
7/22/13 ................................................................. United States 3,000,000 2,737,500
Sensus Metering Systems Inc.,
Term Loan B1, 4.654% - 6.901%, 12/17/10 ................................. United States 2,084,295 1,859,399
Term Loan B2, 6.901%, 12/17/10 .......................................... Luxembourg 143,778 128,264
TriMas Co. LLC,
Term Loan B, 5.494%, 8/02/13 ............................................ United States 1,592,671 1,374,618
Tranche B-1 L/C, 7.086%, 8/02/13 ........................................ United States 373,136 323,886
TRW Automotive Inc., Tranche B-1 Term Loan, 4.625% - 4.688%,
2/09/14 ................................................................. United States 1,912,909 1,809,293
------------
22,000,768
------------
REAL ESTATE DEVELOPMENT 0.4%
CB Richard Ellis Services Inc., Term Loan B, 4.036%, 12/20/13 .............. United States 1,730,909 1,521,036
------------
21 | Annual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2008 (CONTINUED)
COUNTRY PRINCIPAL AMOUNT (a) VALUE
------------ -------------------- ------------
LONG TERM INVESTMENTS (CONTINUED)
(b,e) SENIOR FLOATING RATE INTERESTS (CONTINUED)
TECHNOLOGY SERVICES 1.0%
SunGard Data Systems Inc., New U.S. Term Loan, 4.878%, 2/28/14 ............. United States 3,824,028 $ 3,559,822
------------
UTILITIES 2.3%
Dynegy Holdings Inc.,
Term L/C Facility, 4.204%, 4/02/13 ...................................... United States 2,923,913 2,700,965
Term Loan B, 4.683%, 4/02/13 ............................................ United States 75,707 69,934
NRG Energy Inc.,
Credit Link, 2.596%, 2/01/13 ............................................ United States 819,782 769,115
Term Loan, 4.196%, 2/01/13 .............................................. United States 1,683,471 1,579,422
Texas Competitive Electric Holdings Co. LLC, Term Loan B-2, 6.478%
- 6.596%, 10/10/14 ...................................................... United States 2,992,500 2,732,356
------------
7,851,792
------------
TOTAL SENIOR FLOATING RATE INTERESTS (COST $ 217,961,970) 200,883,069
------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 5.3%
European Investment Bank, 4.50%, 5/15/13 ................................... Supranational 1,680,000 NOK 322,989
(b,h) Government of Argentina, FRN, 3.092%, 8/03/12 .............................. Argentina 3,950,000 2,091,036
Government of Malaysia,
6.45%, 7/01/08 .......................................................... Malaysia 1,400,000 MYR 440,976
7.00%, 3/15/09 .......................................................... Malaysia 1,500,000 MYR 484,712
3.756%, 4/28/11 ......................................................... Malaysia 7,510,000 MYR 2,369,819
Government of Norway,
5.50%, 5/15/09 .......................................................... Norway 3,360,000 NOK 662,668
6.00%, 5/16/11 .......................................................... Norway 3,850,000 NOK 787,421
Government of Poland, 6.00%, 5/24/09 ....................................... Poland 5,645,000 PLN 2,526,536
Government of Singapore, 5.625%, 7/01/08 ................................... Singapore 2,150,000 SGD 1,580,338
Government of Sweden,
6.50%, 5/05/08 .......................................................... Sweden 15,600,000 SEK 2,629,479
5.00%, 1/28/09 .......................................................... Sweden 2,800,000 SEK 474,171
Korea Treasury Bond, 5.25%, 9/10/12 ........................................ South Korea 3,600,000,000 KRW 3,654,667
------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES
(COST $ 16,955,432)......................................................... 18,024,812
------------
TOTAL LONG TERM INVESTMENTS (COST $ 547,763,524)............................ 520,348,418
------------
SHORT TERM INVESTMENTS 2.5%
FOREIGN GOVERNMENT AND AGENCY SECURITIES 0.7%
(i) Egypt Treasury Bills, 7/01/08 - 12/16/08 ................................. Egypt 9,150,000 EGP 1,598,716
(i) Government of Sweden, Strip, 6/18/08 - 9/17/08 . ......................... Sweden 5,550,000 SEK 922,965
(i) Malaysia Treasury Bill, 6/06/08 .......................................... Malaysia 800,000 MYR 248,551
(i) Norway Treasury Bills, 6/18/08 - 9/17/08 ................................. Norway 340,000 NOK 65,515
------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES
(COST $ 2,673,751).......................................................... 2,835,747
------------
TOTAL INVESTMENTS BEFORE MONEY MARKET FUND
(COST $ 550,437,275)........................................................ 523,184,165
------------
22 | Annual Report
Franklin Templeton
Limited Duration Income Trust
STATEMENT OF INVESTMENTS, MARCH 31, 2008 (CONTINUED)
COUNTRY SHARES VALUE
------------- --------- --------------
SHORT TERM INVESTMENTS (CONTINUED)
MONEY MARKET FUND (COST $6,181,210) 1.8%
(j) Franklin Institutional Fiduciary Trust Money Market Portfolio,
2.50% ..................................................... United States 6,181,210 $ 6,181,210
--------------
TOTAL INVESTMENTS (COST $556,618,485) 153.9% ................. 529,365,375
PREFERRED SHARES (55.2)% (190,000,000)
NET UNREALIZED GAIN ON FORWARD EXCHANGE CONTRACTS 0.0%k ...... 154,989
OTHER ASSETS, LESS LIABILITIES 1.3% .......................... 4,489,678
--------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0% ................ $ 344,010,042
==============
CURRENCY ABBREVIATIONS
EGP - Egyptian Pound
KRW - South Korean Won
MYR - Malaysian Ringgit
NOK - Norwegian Krone
PLN - Polish Zloty
SEK - Swedish Krona
SGD - Singapore Dollar
SELECTED PORTFOLIO ABBREVIATIONS
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association
FRN - Floating Rate Note
GNMA - Government National Mortgage Association
L/C - Letter of Credit
PIK - Payment-In-Kind
SF - Single Family
----------
(a) The principal amount is stated in U.S. dollars unless otherwise indicated.
(b) The coupon rate shown represents the rate at period end.
(c) 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, 2008,
the aggregate value of these securities were $17,301,318, representing
5.03% of net assets.
(d) Income may be received in additional securities and/or cash.
(e) See Note 1(f) regarding senior floating rate interests.
(f) A portion or all of the security purchased on a when-issued or delayed
delivery basis. See Note 1(c).
(g) See Note 11 regarding unfunded loan commitments.
(h) The principal amount is stated in original face, and scheduled paydowns
are reflected in the market price on ex-date.
(i) The security is traded on a discount basis with no stated coupon rate.
(j) See Note 8 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio. The rate shown is the annualized seven-day
yield at period end.
(k) Rounds to less than 0.1% of net assets.
The accompanying notes are an integral part of these financial statements.
23 | Annual Report
Franklin Templeton
Limited Duration Income Trust
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2008
Assets:
Investments in securities:
Cost - Unaffiliated issuers ............................ $ 550,437,275
Cost - Sweep Money Fund (Note 8) ....................... 6,181,210
-------------
Total cost of investments .............................. $ 556,618,485
=============
Value - Unaffiliated issuers ........................... $ 523,184,165
Value - Sweep Money Fund (Note 8) ...................... 6,181,210
-------------
Total value of investments ............................. 529,365,375
Cash ..................................................... 1,343,084
Receivables:
Investment securities sold ............................. 2,271,702
Interest ............................................... 5,465,014
Unrealized gain on forward exchange contracts (Note 9) ..... 289,046
-------------
Total assets ......................................... 538,734,221
-------------
Liabilities:
Payables:
Investment securities purchased ........................ 1,819,620
Affiliates ............................................. 314,165
Distributions to common shareholders ................... 2,248,997
Unrealized loss on forward exchange contracts (Note 9) ... 134,057
Unrealized loss on unfunded loan commitments (Note 11) ... 49,798
Accrued expenses and other liabilities ................... 157,542
-------------
Total liabilities .................................... 4,724,179
-------------
Preferred shares at redemption value [$25,000 liquidation
preference per share (7,600 shares outstanding)] .......... 190,000,000
-------------
Net assets applicable to common shares ............. $ 344,010,042
=============
Net assets applicable to common shares consist of:
Paid-in capital .......................................... $ 380,504,435
Distributions in excess of net investment income (2,788,434)
Net unrealized appreciation (depreciation) ............... (27,112,448)
Accumulated net realized gain (loss) ..................... (6,593,511)
-------------
Net assets applicable to common shares ............. $ 344,010,042
=============
Common shares outstanding .................................. 26,773,772
=============
Net asset value per common share ........................... $ 12.85
=============
The accompanying notes are an integral part of these financial statements.
24 | Annual Report
Franklin Templeton
Limited Duration Income Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended March 31, 2008
Investment income:
Dividends - Sweep Money Fund (Note 8) .................................. $ 407,254
Interest (net of foreign taxes of $ 24,572) ............................ 38,556,149
-------------
Total investment income ............................................ 38,963,403
-------------
Expenses:
Management fees (Note 4) ............................................... 2,748,132
Administrative fees (Note 4) ........................................... 1,111,728
Transfer agent fees .................................................... 73,877
Custodian fees (Note 5) ................................................ 34,419
Reports to shareholders ................................................ 52,163
Professional fees ...................................................... 60,446
Trustees' fees and expenses ............................................ 36,745
Auction agent fees and expenses ........................................ 485,032
Other .................................................................. 83,349
-------------
Total expenses ..................................................... 4,685,891
Expense reductions (Note 5) ........................................ (20,822)
-------------
Net expenses ..................................................... 4,665,069
-------------
Net investment income .......................................... 34,298,334
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments .......................................................... (2,473,348)
Foreign currency transactions ........................................ 370,256
-------------
Net realized gain (loss) ....................................... (2,103,092)
-------------
Net change in unrealized appreciation (depreciation) on:
Investments .......................................................... (32,751,074)
Translation of assets and liabilities denominated
in foreign currencies ............................................... 30,567
-------------
Net change in unrealized appreciation (depreciation) ........... (32,720,507)
-------------
Net realized and unrealized gain (loss) .................................. (34,823,599)
-------------
Net increase (decrease) in net assets resulting from operations .......... (525,265)
Distributions to preferred shareholders from net investment income ....... (9,781,438)
-------------
Net increase (decrease) in net assets applicable to common
shares resulting from operations ......................................... $ (10,306,703)
=============
The accompanying notes are an integral part of these financial statements.
25 | Annual Report
Franklin Templeton
Limited Duration Income Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED MARCH 31,
------------------------------
2008 2007
------------- -------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................................................... $ 34,298,334 $ 35,221,748
Net realized gain (loss) from investments and foreign currency transactions ......... (2,103,092) 2,328,409
Net change in unrealized appreciation (depreciation) on investments and
translation of assets and liabilities denominated in foreign currencies ............ (32,720,507) 2,190,349
Distribution to preferred shareholders from net investment income ................... (9,781,438) (9,492,218)
------------- -------------
Net increase (decrease) in net assets applicable to common shares resulting
from operations ........................................................... (10,306,703) 30,248,288
------------- -------------
Distributions to common shareholders from net investment income ........................ (26,986,555) (27,514,958)
Capital share transactions from reinvestment of distributions (Note 2) ................. 490,071 --
------------- -------------
Net increase (decrease) in net assets ........................................ (36,803,187) 2,733,330
Net assets applicable to common shares:
Beginning of year ...................................................................... 380,813,229 378,079,899
------------- -------------
End of year ............................................................................ $ 344,010,042 $ 380,813,229
============= =============
Distributions in excess of net investment income included in net assets:
End of year ............................................................................ $ (2,788,434) $ (2,834,292)
============= =============
The accompanying notes are an integral part of these financial statements.
26 | 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 diversified,
closed-end investment company.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Securities listed on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market. Investments in open-end mutual funds are valued at the closing net asset
value.
Corporate debt securities, government securities, mortgage pass-through
securities, other mortgage-backed securities, and asset-backed securities
generally trade in the over-the-counter market rather than on a securities
exchange. The Fund may utilize independent pricing services, quotations from
bond dealers, and information with respect to bond and note transactions, to
assist in determining a current market value for each security. The Fund's
pricing services may use valuation models or matrix pricing which considers
information with respect to comparable bond and note transactions, quotations
from bond dealers, or by reference to other securities that are considered
comparable in such characteristics as rating, interest rate and maturity date,
option adjusted spread models, prepayment projections, interest rate spreads and
yield curves, to determine current value.
Senior secured corporate loans with floating or variable interest rates
generally trade in the over-the-counter market rather than on a securities
exchange. The Fund may utilize independent pricing services, quotations from
loan dealers and other financial institutions, and information with respect to
bond and note transactions, to assist in determining a current market value for
each security. The Fund's pricing services use independent market quotations
from loan dealers or financial institutions and may incorporate valuation
methodologies that consider multiple bond characteristics such as dealer quotes,
issuer type, coupon, maturity, weighted average maturity, interest rate spreads
and yield curves, cash flow and credit risk/quality analysis, to determine
current value.
Foreign securities are valued as of the close of trading on the foreign stock
exchange on which the security is primarily traded, or the NYSE, whichever is
earlier. If no sale is reported at that time, the foreign security will be
valued within the range of the most recent quoted bid and ask prices. The value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at the close of the NYSE on the day that the value of the foreign
security is determined.
27 | Annual Report
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, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the Fund. If such an event occurs, the securities may be valued
using fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by the Fund's Board of
Trustees.
B. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Fund's Board of Trustees.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments on the
Statement of Operations.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS
The Fund may purchase securities on a when-issued or delayed delivery 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.
28 | Annual Report
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. FOREIGN CURRENCY CONTRACTS
When the Fund purchases or sells foreign securities it may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. A foreign exchange contract is an agreement
between two parties to exchange different currencies at an agreed upon exchange
rate at a future date. Realized and unrealized gains and losses on these
contracts are included in the Statement of Operations.
The Fund may also enter into forward exchange contracts to hedge against
fluctuations in foreign exchange rates or to gain exposure to certain foreign
currencies. These contracts are valued daily by the Fund and the unrealized
gains or losses on the contracts, as measured by the difference between the
contractual forward foreign exchange rates and the forward rates at the
reporting date, are included in the Statement of Assets and Liabilities.
Realized and unrealized gains and losses on these contracts are included in the
Statement of Operations.
The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities.
E. MORTGAGE DOLLAR ROLLS
The Fund enters into mortgage dollar rolls, typically on a to-be-announced (TBA)
basis. Mortgage dollar rolls are agreements between the fund and a financial
institution to simultaneously sell and repurchase mortgage-backed securities at
a future date. Gains or losses are realized on the initial sale, and the
difference between the repurchase price and the sale price is recorded as an
unrealized gain or loss to the fund upon entering into the mortgage dollar roll.
In addition, the Fund may earn interest on the cash proceeds that are received
from the initial sale. During the period between the sale and repurchase, the
Fund is not entitled to principal and interest paid on the mortgage backed
securities. The risks of mortgage dollar roll transactions include the potential
inability of the counterparty to fulfill its obligations.
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.
29 | Annual Report
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
G. INCOME TAXES
No provision has been made for U.S. income taxes because it is the Fund's policy
to qualify as a regulated investment company under the Internal Revenue Code and
to distribute to shareholders substantially all of its taxable income and net
realized gains.
Foreign securities held by the Fund may be subject to foreign taxation on
dividend and interest income received. Foreign taxes, if any, are recorded based
on the tax regulations and rates that exist in the foreign markets in which the
Fund invests.
The Fund has reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of March 31, 2008, and has
determined that no provision for income tax is required in the Fund's financial
statements.
H. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Amortization of
premium and accretion of discount on debt securities are included in interest
income. Facility fees are recognized as income over the expected term of the
loan. Dividend income is recorded on the ex-dividend date. Distributions to
common shareholders are recorded on the ex-dividend date and are determined
according to income tax regulations (tax basis). Distributable earnings
determined on a tax basis may differ from earnings recorded in accordance with
accounting principles generally accepted in the United States of America. These
differences may be permanent or temporary. Permanent differences are
reclassified among capital accounts to reflect their tax character. These
reclassifications have no impact on net assets or the results of operations.
Temporary differences are not reclassified, as they may reverse in subsequent
periods.
I. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.
J. GUARANTEES AND INDEMNIFICATIONS
Under Franklin Templeton Limited Duration Income Trust's (Trust) organizational
documents, its officers and trustees are indemnified by the Trust against
certain liabilities arising out of the performance of their duties to the Trust.
Additionally, in the normal course of business, the Trust enters into contracts
with service providers that contain general indemnification clauses. The Trust's
maximum exposure under these arrangements is unknown as this would involve
future
30 | Annual Report
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
J. GUARANTEES AND INDEMNIFICATIONS (CONTINUED)
claims that may be made against the Trust that have not yet occurred. Currently,
the Trust expects the risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
At March 31, 2008, there were 28,290,000 common shares authorized (without par
value). During the year ended March 31, 2008, there were 34,261 shares issued
for $490,071 from reinvested distributions. During the year ended March 31,
2007, 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. Dividends to
preferred shareholders are cumulative and are declared weekly, at rates
established through an auction process. During the year ended March 31, 2008,
the dividends on Preferred Shares ranged from 3.65% to 6.15%. The weekly
auctions for Series M, W and F have failed since February 13, 2008;
consequently, the dividend rate paid on the preferred shares has moved to the
maximum rate as defined in the prospectus.
The Fund is required to maintain, on a weekly basis, a specified discounted
value of its portfolio in compliance with guidelines established by Fitch
Ratings and Moody's Investor Services Inc., and is required to maintain asset
coverage for the Preferred Shares of at least 200%.
The Preferred Shares are redeemable by the Fund at any time and are subject to
mandatory redemption if the asset coverage or discounted value requirements are
not met. During the year ended March 31, 2008, all requirements were met.
4. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Fund are also officers and/or directors of the following
subsidiaries:
SUBSIDIARY AFFILIATION
--------------------------------------------- ----------------------
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
31 | Annual Report
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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, 2008, the
custodian fees were reduced as noted in the Statement of Operations.
6. INCOME TAXES
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At March 31, 2008, the capital loss carryforwards were as
follows:
Capital loss carryforwards expiring in:
2014 .............................. $ 601,751
2015 .............................. 895,576
2016 .............................. 703,562
-----------
$ 2,200,889
===========
For tax purposes, realized capital losses occurring subsequent to October 31,
may be deferred and treated as occurring on the first day of the following
fiscal year. At March 31, 2008, the Fund deferred realized capital losses of
$4,369,429.
The tax character of distributions paid during the years ended March 31, 2008
and 2007, was as follows:
2008 2007
------------ ------------
Distributions paid from ordinary income $ 36,767,993 $ 37,007,176
At March 31, 2008, the cost of investments, net unrealized appreciation
(depreciation) and undistributed ordinary income for income tax purposes were as
follows:
Cost of investments ...................................... $ 557,938,270
=============
Unrealized appreciation .................................. $ 4,345,897
Unrealized depreciation .................................. (32,918,792)
-------------
Net unrealized appreciation (depreciation) ............... $ (28,572,895)
=============
Distributable earnings - undistributed ordinary income ... $ 912,143
=============
32 | Annual Report
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of 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, and bond discounts and
premiums.
7. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended March 31, 2008, aggregated $259,419,990 and $258,945,374,
respectively.
8. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (Sweep Money Fund), an open-end investment company managed by
Advisers. Management fees paid by the Fund are reduced on assets invested in the
Sweep Money Fund, in an amount not to exceed the management and administrative
fees paid by the Sweep Money Fund.
9. FORWARD EXCHANGE CONTRACTS
At March 31, 2008, the Fund had the following forward exchange contracts
outstanding:
CONTRACT SETTLEMENT UNREALIZED UNREALIZED
AMOUNT (a) DATE GAIN LOSS
--------------- ---------- ---------- ----------
CONTRACTS TO SELL
1,905,000,000 South Korean Won ............................... 2,195,257 CHF 2/13/09 $ 275,504 $ --
1,980,000 EURO ........................................... 2,964,515 3/04/09 -- (106,813)
990,000 EURO ........................................... 150,663,150 JPY 3/05/09 -- (3,204)
990,000 EURO ........................................... 152,260,020 JPY 3/09/09 13,542 --
975,000 EURO ........................................... 1,487,509 3/16/09 -- (24,040)
Unrealized gain (loss) on forward exchange contracts ......... 289,046 (134,057)
Net unrealized gain (loss) on forward exchange contracts ... $ 154,989
----------
(a) In U.S. Dollar unless otherwise indicated.
CURRENCY ABBREVIATIONS
CHF - Swiss Franc
JPY - Japanese Yen
33 | Annual Report
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. CREDIT RISK
The Fund has 62.10% 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.
11. UNFUNDED LOAN COMMITMENTS
The Fund may enter into certain credit agreements, all or a portion of which may
be unfunded. The Fund is obligated to fund these loan commitments at the
borrowers' discretion. Funded portions of credit agreements are presented on the
Statement of Investments.
At March 31, 2008, unfunded commitments were as follows:
UNFUNDED
BORROWER COMMITMENT
---------------------------------------------------------- ----------
Bausch and Lomb Inc., Delayed Draw Term Loan ............. $ 70,000
Community Health Systems Inc., Delayed Draw Term Loan .... 125,290
Laureate Education Inc., Delayed Draw Term Loan .......... 348,387
Univision Communications Inc., Delayed Draw Term Loan .... 93,960
$ 637,637
Unfunded loan commitments and funded portions of credit agreements are marked to
market daily and any unrealized gain or loss is included in the Statement of
Assets and Liabilities and Statement of Operations.
12. REGULATORY AND LITIGATION MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the U.S. Securities and Exchange
Commission (SEC), relating to certain practices in the mutual fund industry,
including late trading, market timing and marketing support payments to
securities dealers who sell fund shares (marketing support), Franklin Resources,
Inc. and certain of its subsidiaries (collectively, the Company), entered into
settlements with certain of those regulators and governmental entities.
Specifically, the Company entered into settlements with the SEC, among others,
concerning market timing and marketing support.
On May 9, 2008, the SEC approved a final plan of distribution for the Company's
market timing settlement. Disbursements of settlement monies will be made
promptly to individuals who were shareholders of the designated funds during the
relevant period, in accordance with the terms and conditions of the settlement
and plan.
34 | Annual Report
Franklin Templeton
Limited Duration Income Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. REGULATORY AND LITIGATION MATTERS (CONTINUED)
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, Company directors,
fund directors, and employees, have been named in private lawsuits (styled as
shareholder class actions, or as derivative actions on behalf of either the
named funds or Franklin Resources, Inc.). The lawsuits relate to the industry
practices referenced above.
The Company and fund management believe that the claims made in each of the
private lawsuits referenced above are without merit and intend to defend against
them vigorously. The Company cannot predict with certainty the eventual outcome
of these lawsuits, nor whether they will have a material negative impact on the
Company. If it is determined that the Company bears responsibility for any
unlawful or inappropriate conduct that caused losses to the Funds, it is
committed to making the Funds or their shareholders whole, as appropriate.
13. NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 157, "Fair Value Measurement" (SFAS 157), which defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. SFAS 157 is effective for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. The Fund
believes the adoption of SFAS 157 will have no material impact on its financial
statements.
In March 2008, FASB issued FASB Statement No. 161, "Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133"
(SFAS 161), which expands disclosures about derivative investments and hedging
activities. SFAS 161 is effective for fiscal years beginning after November 15,
2008, and interim periods within those fiscal years. The Fund is currently
evaluating the impact, if any, of applying the various provisions of SFAS 161.
14. SUBSEQUENT EVENT
On May 20, 2008, the Fund's Board of Trustees approved a plan to redeem
$100,000,000 of the Fund's auction rate preferred shares, to be funded through
the use of mortgage dollar rolls. The partial redemption will be offered on a
pro rata basis across the three series of preferred shares and is anticipated to
be completed in June 2008.
35 | Annual Report
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, 2008, 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 periods
presented, 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, 2008 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
May 20, 2008
36 | 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 $30,994,527 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, 2008.
37 | Annual Report
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 143 Bar-S Foods (meat packing
One Franklin Parkway company).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank
holding company) (until 2002); and President, Chief Executive Officer and
Chairman of the Board, General Host Corporation (nursery and craft centers)
(until 1998).
---------------------------------------------------------------------------------------------------------------------------------
ROBERT F. CARLSON (1928) Trustee Since 2003 122 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Retired; and FORMERLY, Vice President, senior member and past President, Board
of Administration, California Public Employees Retirement Systems (CALPERS)
(1971-January 2008); member and Chairman of the Board, Sutter Community
Hospitals; member, Corporate Board, Blue Shield of California; and Chief
Counsel, California Department of Transportation.
---------------------------------------------------------------------------------------------------------------------------------
SAM GINN (1937) Trustee Since 2007 122 Chevron Corporation (global energy
One Franklin Parkway company) and ICO Global
San Mateo, CA 94403-1906 Communications (Holdings) Limited
(satellite 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 143 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).
---------------------------------------------------------------------------------------------------------------------------------
38 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
---------------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 2003 122 Center for Creative Land Recycling
One Franklin Parkway (brownfield redevelopment).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman,
Peregrine Venture Management Company (venture capital).
---------------------------------------------------------------------------------------------------------------------------------
FRANK A. OLSON (1932) Trustee Since 2005 143 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas) and Sentient
San Mateo, CA 94403-1906 Jet (private jet service).
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 143 None
One Franklin Parkway
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 122 None
One Franklin Parkway Independent 2006 and Lead
San Mateo, CA 94403-1906 Trustee Independent
Trustee since
January 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); Executive Vice President -
Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice
President and Partner, Bain & Company (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 143 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.; Director, Templeton Worldwide, 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 42 of the investment companies in Franklin
Templeton Investments.
---------------------------------------------------------------------------------------------------------------------------------
39 | 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
---------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (1940) Trustee and Since 2003 56 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. and Templeton Worldwide, 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 44 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 46 of the investment
companies in Franklin Templeton Investments; and FORMERLY, Director of
Compliance, Franklin Resources, Inc. (1994-2001).
---------------------------------------------------------------------------------------------------------------------------------
LAURA F. FERGERSON (1962) Treasurer, Treasurer since Not Applicable Not Applicable
One Franklin Parkway Chief Financial 2004, Chief
San Mateo, CA 94403-1906 Officer and Financial Officer
Chief and Chief
Accounting Accounting Officer
Officer since February
2008
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 46 of the
investment companies in Franklin Templeton Investments; and FORMERLY, Director
and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004);
Assistant Treasurer of most of the investment companies in Franklin Templeton
Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
---------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Vice President Since February 2008 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton
Worldwide, Inc.; and officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton
Investments.
---------------------------------------------------------------------------------------------------------------------------------
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
director of one of the subsidiaries of Franklin Resources, Inc.; and officer of
46 of the investment companies in Franklin Templeton Investments.
---------------------------------------------------------------------------------------------------------------------------------
40 | 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
---------------------------------------------------------------------------------------------------------------------------------
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.;
President, Templeton Worldwide, Inc.; Director, Templeton Asset Management Ltd.;
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 Since 2003 Not Applicable Not Applicable
One Franklin Parkway and Chief
San Mateo, CA 94403-1906 Executive
Officer -
Investment
Management
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director and Executive Vice President, Franklin Advisers, Inc.; and officer of
some of the other subsidiaries of Franklin Resources, Inc. and of six 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
30 of the investment companies in Franklin Templeton Investments.
---------------------------------------------------------------------------------------------------------------------------------
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 46 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).
---------------------------------------------------------------------------------------------------------------------------------
41 | 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
---------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (1951) Senior Vice Since February Not Applicable Not Applicable
500 East Broward Blvd. President 2008
Suite 2100 and Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of some of the
other subsidiaries of Franklin Resources, Inc. and of 46 of the investment
companies in Franklin Templeton Investments; and FORMERLY, Managing Director,
RSM McGladrey, Inc. (1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987
and 1991-2004).
---------------------------------------------------------------------------------------------------------------------------------
-----------------
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments fund
complex. These portfolios have a common investment 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.
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.
42 | Annual Report
Franklin Templeton
Limited Duration Income Trust
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 25, 2008, 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 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 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 them showing that the investment policies and restrictions for
the Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund
43 | Annual Report
Franklin Templeton
Limited Duration Income Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
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.
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 report furnished for the agreement renewals.
The Lipper report prepared for the Fund showed its investment performance in
comparison with a performance universe consisting of the Fund and six other
leveraged closed-end BBB-rated corporate debt funds as selected by Lipper during
2007, 2006, 2005 and 2004, being the Fund's first four full years of operation.
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 2007 income return
was above the median of such performance universe and on an annualized basis was
at the median of such universe for the four-year period ended December 31, 2007.
The Lipper report showed the Fund's 2007 total return was the second-lowest in
such performance universe, but on an annualized basis was within three basis
points of the median of such universe for the four-year period ended December
31, 2007. The Board felt such performance was acceptable in view of the Fund's
investment mandate to invest in securities with limited interest rate
sensitivities with at least 50 percent of its assets being invested in high
yield corporate bonds and corporate bank loans.
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 four other leveraged closed-end
BBB-rated corporate debt funds as selected by Lipper. Prior to making such
comparison, the Board relied upon a survey showing that the scope of services
covered under the Fund's investment management agreement was similar to those
provided by fund managers to other fund groups. In reviewing comparative costs,
emphasis was
44 | Annual Report
Franklin Templeton
Limited Duration Income Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
given to 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 and total
expense ratios were both the second highest in its Lipper expense group, but
that the Fund's contractual investment management expense ratio was within 10
basis points of the Lipper expense group median, and its total expense ratio was
less than half a basis point above its Lipper expense group median. 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. Specific 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 perform certain procedures on a biennial basis, specified and
approved by the Manager and the Fund's Board solely for their purposes and use
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 each Fund in determining its profitability, as well as the
fact that the level of profits, to a certain extent, reflected operational cost
savings and efficiencies initiated by management. In addition, the Board
considered a third-party study comparing the profitability of the Manager's
parent on an overall basis as compared to other publicly held managers broken
down to show profitability from management operations exclusive of distribution
expenses, as well as profitability including distribution expenses. The Board
also considered the extent to which the Manager and its affiliates might derive
ancillary benefits from fund operations, as well as potential benefits resulting
from allocation of fund brokerage and the use of "soft" commission dollars to
pay for research. 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.
45 | Annual Report
Franklin Templeton
Limited Duration Income Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
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 has established Proxy Voting Policies and Procedures (Policies) that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/527-7678 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
1-800/SEC-0330.
46 | Annual Report
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[FRANKLIN TEMPLETON INVESTMENTS LOGO] One Franklin Parkway
San Mateo, CA 94403-1906
ANNUAL REPORT
FRANKLIN TEMPLETON
LIMITED DURATION INCOME TRUST
INVESTMENT MANAGER
Franklin Advisers, Inc.
1-800/DIAL BEN (R)
TRANSFER AGENT
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
FTF A2008 05/08
PAGE
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 $41,205 for the fiscal year ended March 31, 2008 and $31,437 for the fiscal
year ended March 31, 2007.
(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 $11,903 for
the fiscal year ended March 31, 2008 and $10,920 for the fiscal year ended March
31, 2007. 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 $0 for the fiscal year ended March
31, 2008 and $46,000 for the fiscal year ended March 31, 2007. 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, 2008
and $213 for the fiscal year ended March 31, 2007. 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, 2008 and $175,648 for the fiscal year ended March 31, 2007. 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 $11,903 for the fiscal year ended March 31, 2008 and $232,781
for the fiscal year ended March 31, 2007.
(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: Robert F. Carlson, Frank W.T. LaHaye, Frank
A. Olson and John B. Wilson.
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The board of trustees of the Fund has delegated the authority to vote proxies
related to the portfolio securities held by the Fund to the Fund's manager
Franklin Advisers, Inc. in accordance with the Proxy Voting Policies and
Procedures (Policies) adopted by the manager.
The manager has delegated its administrative duties with respect to the voting
of proxies to the Proxy Group within Franklin Templeton Companies, LLC (Proxy
Group), an affiliate and wholly owned subsidiary of Franklin Resources, Inc. All
proxies received by the Proxy Group will be voted based upon the manager's
instructions and/or policies.
To assist it in analyzing proxies, the manager subscribes to RiskMetrics Group
(RiskMetrics), an unaffiliated third party corporate governance research service
that provides in-depth analyses of shareholder meeting agendas, vote
recommendations, recordkeeping and vote disclosure services. In addition, the
manager subscribes to Glass, Lewis & Co., LLC (Glass Lewis), an unaffiliated
third party analytical research firm, to receive analyses and vote
recommendations on the shareholder meetings of publicly held U.S. companies.
Although RiskMetrics' and/or Glass Lewis' analyses are thoroughly reviewed and
considered in making a final voting decision, the manager does not consider
recommendations from RiskMetrics, Glass Lewis or any other third party to be
determinative of the manager's ultimate decision. The manager votes proxies
solely in the interests of the Fund and its shareholders. As a matter of policy,
the officers, directors/trustees and employees of the Fund, the manager and the
Proxy Group will not be influenced by outside sources whose interests conflict
with the interests of the Fund and its shareholders. Efforts are made to resolve
all conflicts in the interests of the manager's clients. Material conflicts of
interest are identified by the Proxy Group based upon analyses of client, broker
and vendor lists, information periodically gathered from directors and officers,
and information derived from other sources, including public filings. In
situations where a material conflict of interest is identified, the Proxy Group
may defer to the voting recommendation of RiskMetrics, Glass Lewis or those of
another independent third party provider of proxy services; or send the proxy
directly to the Fund with a recommendation regarding the vote for approval. If
the conflict is not resolved by the Fund, the Proxy Group may refer the matter,
along with the recommended course of action by the manager to an
interdepartmental Proxy Review Committee (which may include portfolio managers
and/or research analysts employed by the manager), for evaluation and voting
instructions. The Proxy Review Committee may defer to the voting recommendation
of RiskMetrics, Glass Lewis or those of another independent third party provider
of proxy services; or send the proxy directly to the Fund. Where the Proxy Group
or the Proxy Review Committee refers a matter to the Fund, it may rely upon the
instructions of a representative of the Fund, such as the board of trustees or a
committee of the board.
Where a material conflict of interest has been identified, but the items on
which the manager's vote recommendations differ from Glass Lewis, RiskMetrics,
or another independent third party provider of proxy services relate
specifically to (1) shareholder proposals regarding social or environmental
issues or political contributions, (2) "Other Business" without describing the
matters that might be considered, or (3) items the manager wishes to vote in
opposition to the recommendations of an issuer's management, the Proxy Group may
defer to the vote recommendations of the manager rather than sending the proxy
directly to the Fund for approval.
To avoid certain potential conflicts of interest, the manager will employ echo
voting, if possible, in the following instances: (1) when the Fund invests in an
underlying fund in reliance on Sections 12(d)(1) of the 1940 Act, or pursuant to
an SEC exemptive order; (2) when the Fund invests uninvested cash in affiliated
money market funds pursuant to an SEC exemptive order ("cash sweep
arrangement"); or (3) when required pursuant to the Fund's governing documents
or applicable law. Echo voting means that the investment manager will vote the
shares in the same proportion as the vote of all of the other holders of the
fund's shares.
The recommendation of management on any issue is a factor which the manager
considers in determining how proxies should be voted, but is not determinative
of the manager's ultimate decision. As a matter of practice, the votes with
respect to most issues are cast in accordance with the position of the company's
management. Each issue, however, is considered on its own merits, and the
manager will not support the position of the company's management in any
situation where it deems that the ratification of management's position would
adversely affect the investment merits of owning that company's shares.
MANAGER'S PROXY VOTING POLICIES AND PRINCIPLES The manager has adopted general
proxy voting guidelines, which are summarized below. These guidelines are not an
exhaustive list of all the issues that may arise and the manager cannot
anticipate all future situations. In all cases, each proxy will be considered
based on the relevant facts and circumstances.
BOARD OF DIRECTORS. The manager supports an independent board of directors, and
prefers that key committees such as audit, nominating, and compensation
committees be comprised of independent directors. The manager will generally
vote against management efforts to classify a board and will generally support
proposals to declassify the board of directors. The manager may withhold votes
from directors who have attended less than 75% of meetings without a valid
reason. While generally in favor of separating Chairman and CEO positions, the
manager will review this issue as well as proposals to restore or provide for
cumulative voting on a case-by-case basis, taking into consideration factors
such as the company's corporate governance guidelines or provisions and
performance.
RATIFICATION OF AUDITORS OF PORTFOLIO COMPANIES. In light of several high
profile accounting scandals, the manager will closely scrutinize the role and
performance of auditors. On a case-by-case basis, the manager will examine
proposals relating to non-audit relationships and non-audit fees. The manager
will also consider, on a case-by-case basis, proposals to rotate auditors, and
will vote against the ratification of auditors when there is clear and
compelling evidence of accounting irregularities or negligence.
MANAGEMENT AND DIRECTOR COMPENSATION. A company's equity-based compensation plan
should be in alignment with its shareholders' long-term interests. The manager
believes that executive compensation should be directly linked to the
performance of the company. The manager evaluates plans on a case-by-case basis
by considering several factors to determine whether the plan is fair and
reasonable, including the RiskMetrics quantitative model utilized to assess such
plans and/or the Glass Lewis evaluation of the plans. The manager will generally
oppose plans that have the potential to be excessively dilutive, and will almost
always oppose plans that are structured to allow the repricing of underwater
options, or plans that have an automatic share replenishment "evergreen"
feature. The manager will generally support employee stock option plans in which
the purchase price is at least 85% of fair market value, and when potential
dilution is 10% or less.
Severance compensation arrangements will be reviewed on a case-by-case basis,
although the manager will generally oppose "golden parachutes" that are
considered to be excessive. The manager will normally support proposals that
require a percentage of directors' compensation to be in the form of common
stock, as it aligns their interests with those of shareholders. The manager will
review on a case-by-case basis any shareholder proposals to adopt policies on
expensing stock option plans.
ANTI-TAKEOVER MECHANISMS AND RELATED ISSUES. The manager generally opposes
anti-takeover measures since they tend to reduce shareholder rights. On
occasion, the manager may vote with management when the research analyst has
concluded that the proposal is not onerous and would not harm the Fund or its
shareholders' interests. The manager generally supports proposals that require
shareholder rights' plans ("poison pills") to be subject to a shareholder vote
and will closely evaluate such plans on a case-by-case basis to determine
whether or not they warrant support. The manager will generally vote against any
proposal to issue stock that has unequal or subordinate voting rights. The
manager generally opposes any supermajority voting requirements as well as the
payment of "greenmail." The manager generally supports "fair price" provisions
and confidential voting.
CHANGES TO CAPITAL STRUCTURE. The manager will review, on a case-by-case basis,
proposals by companies to increase authorized shares and the purpose for the
increase and proposals seeking preemptive rights. The manager will generally not
vote in favor of dual-class capital structures to increase the number of
authorized shares where that class of stock would have superior voting rights.
The manager will generally vote in favor of the issuance of preferred stock in
cases where the company specifies the voting, dividend, conversion and other
rights of such stock and the terms of the preferred stock issuance are deemed
reasonable.
MERGERS AND CORPORATE RESTRUCTURING. Mergers and acquisitions will be subject to
careful review by the research analyst to determine whether each will be
beneficial to shareholders. The manager will analyze various economic and
strategic factors in making the final decision on a merger or acquisition.
Corporate restructuring and reincorporation proposals are also subject to a
thorough examination on a case-by-case basis.
SOCIAL AND CORPORATE POLICY ISSUES. The manager will generally give management
discretion with regard to social, environmental and ethical issues, although the
manager may vote in favor of those that are believed to have significant
economic benefits or implications for the Fund and its shareholders.
GLOBAL CORPORATE GOVERNANCE. Many of the tenets discussed above are applied to
proxy voting decisions for international companies. However, the manager must be
more flexible in these instances and must be mindful of the varied market
practices of each region.
The manager will attempt to process every proxy it receives for all domestic and
foreign issuers. However, there may be situations in which the manager cannot
process proxies, for example, where a meeting notice was received too late, or
sell orders preclude the ability to vote. If a security is on loan, the manager
may determine that it is not in the best interests of the Fund to recall the
security for voting purposes. Also, the manager may abstain from voting under
certain circumstances or vote against items such as "Other Business" when the
manager is not given adequate information from the company.
Shareholders may view the complete Policies online at franklintempleton.com.
Alternatively, shareholders may request copies of the Policies free of charge by
calling the Proxy Group collect at 1-954/527-7678 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 30, 2008 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, 2008.
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 8,661.9 4 3,289.0 0 0
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Richard Hsu 1 1,396.0 2 496.9 0 0
-----------------------------------------------------------------------------------------------------------------
Christopher 9 9,483.2 5 1,088.8 2 390.2
Molumphy
-----------------------------------------------------------------------------------------------------------------
Eric G. Takaha 6 6,922.1 4 718.7 3 43.3
-----------------------------------------------------------------------------------------------------------------
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
Franklin 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 Franklin 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 Franklin Resources stock or
restricted shares or units of one or more mutual funds, and options to
purchase common shares of Franklin 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 as of March 31, 2008 (such amounts may change from time
to time):
---------------------------------------------------------------------
Dollar Range of Fund Shares
Portfolio Manager 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 Galen G. Vetter, Chief Executive Officer - Finance and Administration, and
Laura F. Fergerson, Chief Financial Officer and Chief Accounting Officer
(B) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Galen G. Vetter, Chief Executive Officer - Finance and Administration, and Laura
F. Fergerson, Chief Financial Officer and Chief Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN TEMPLTON LIMITED DURATION INCOME TRUST
By /s/GALEN G. VETTER
----------------------------
Galen G. Vetter
Chief Executive Officer -
Finance and Administration
Date May 27, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/GALEN G. VETTER
----------------------------
Galen G. Vetter
Chief Executive Officer -
Finance and Administration
Date May 27, 2008
By /s/LAURA F. FERGERSON
---------------------------
Laura F. Fergerson
Chief Financial Officer and
Chief Accounting Officer
Date May 27, 2008