n-csr_ftldit33114.htm - Generated by SEC Publisher for SEC Filing

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT

 COMPANIES 

 

Investment Company Act file number_811-21357 

 

_Franklin Templeton Limited Duration Income Trust

(Exact name of registrant as specified in charter)

 

_One Franklin Parkway, San Mateo, CA 94403-1906

Address of principal executive offices)        (Zip code)

 

Craig S. Tyle, One Franklin Parkway, San Mateo, CA  94403-1906
(Name and address of agent for service)

 

Registrant's telephone number, including area code: (650) 312-2000

 

Date of fiscal year end: 3/31 

 

Date of reporting period: 3/31/14 

 

 

Item 1. Reports to Stockholders.

 

 


 



 

 


 

Contents          
Annual Report   Annual Shareholders’ Meeting 16 Report of Independent  
Franklin Templeton Limited   Dividend Reinvestment Plan 17 Registered Public  
Duration Income Trust 1     Accounting Firm 57
    Financial Highlights and      
Performance Summary 8 Statement of Investments 20 Tax Information 58
Important Notice to   Financial Statements 40 Board Members and Officers 59
Shareholders 9 Notes to Financial Statements 43 Shareholder Information 64

 

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 corporate loans and mortgage- and other

asset-backed securities.

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.

 

Dear Shareholder:

This annual report for Franklin Templeton Limited Duration Income Trust covers the fiscal year ended March 31, 2014.

Performance Overview

For the 12 months under review, Franklin Templeton Limited Duration Income Trust had cumulative total returns of +6.77% based on net asset value and -5.85% based on market price. Net asset value increased from $14.30 per share on March 31, 2013, to $14.36 at period-end, and the market price decreased from $14.82 to $13.05 over the same period. You can find the Fund’s long-term performance data in the Performance Summary on page 8.

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 21.

Annual Report | 1


 


Economic and Market Overview

During the 12-month period ended March 31, 2014, especially in the second half of 2013, the U.S. economy showed ongoing signs of recovery supported by consumer and business spending and rising inventories. Harsh winter weather conditions across many states, however, suppressed economic activity early in 2014. Historically low mortgage rates and improving sentiment aided the housing market recovery, evidenced by solid home sales, rising home prices, low inventories and multi-year lows in new foreclosures. Manufacturing activity expanded during the period under review, although adverse weather led to a slowdown in early 2014. The unemployment rate declined to 6.7% in March 2014 from 7.5% in March 2013.1 Inflation remained well below the U.S. Federal Reserve Board’s (Fed’s) 2.0% target.

In October 2013, the federal government temporarily shut down after Congress reached a budget impasse. However, Congress passed a spending bill in January to fund the federal government though September 2014. Congress then approved suspension of the debt ceiling until March 2015.

In May 2013, the Fed indicated it might reduce its monthly asset purchases based on improved economic data, triggering a bond market sell-off that raised long-term U.S. Treasury yields to a two-year high. Long-term Treasury yields rose again late in 2013 as the Fed announced it would reduce its bond purchases $10 billion a month beginning in January 2014 while keeping interest rates low. However, yields declined through period-end as investors shifted from emerging market assets to less risky assets because of concerns over emerging market growth prospects and the potential impact of the Fed’s reductions to its asset-purchase program. Although economic data in early 2014 were soft resulting from severe winter weather, Fed Chair Janet Yellen kept the pace of asset-purchase tapering intact in the March meeting while saying the Fed might quicken the expected pace of the central bank’s rate-hike cycle and adopting a more qualitative approach to rate-hike guidance.

The 10-year Treasury yield rose from 1.87% at the beginning of the period to a high of 3.04% on December 31, 2013, mainly because of an improved economic environment and market certainty about the Fed’s plans. However, some weakening economic data, possibly due to bad weather, and increasing political tension in Ukraine contributed to the 10-year U.S. Treasury yield’s decline to 2.73% at period-end. Below-investment-grade corporate bonds, as measured by the Credit Suisse (CS) High Yield Index,2 outperformed investment-grade fixed income markets, as measured by the Barclays U.S. Aggregate Index.3

2 | Annual Report


 

Investment Strategy

We invest in a diversified mix of fixed income securities, primarily high yield corporate bonds, senior secured floating rate corporate 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 corporate 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, potential pricing inefficiencies and underlying collateral characteristics.

Manager’s Discussion

Performance of the Fund’s primary asset classes was positive during the fiscal year under review. The U.S. economy continued to expand and showed signs that growth could potentially be sustainable without active support from the Fed. Concerns about the Fed’s tapering of its quantitative easing program led to a sharp rise in interest rates in May and June 2013, but outgoing Fed Chairman Ben Bernanke calmed investor concerns when he reiterated that any tapering would be data dependent and was not imminent. Although initial comments made by new Fed Chair Janet Yellen caused a brief spike in interest rates, overall the transition in Fed leadership went fairly smoothly and expectations were that the Fed would continue the same accommodative policies it has followed in recent years. With short-term interest rates remaining near zero and government bond yields close to historically low levels, investors continued to shift money to the credit markets in search of yield, resulting in strong flows to high yield bonds and term loans.

Given the interest rate spike in mid-2013, financial investments had mixed returns for the period, depending on their degree of rate sensitivity. The broader stock market, as measured by the Standard & Poor’s® 500 Index, returned +21.86% over the 12-month period.4, 5 Yields for 10-year Treasury bonds rose from 1.87% at the beginning of the Fund’s fiscal year to 2.73% at period-end, pressuring returns for assets with a high degree of rate sensitivity. In this environment, high yield corporate bonds returned +7.67%, followed

Dividend Distributions*
4/1/13–3/31/14

 

  Dividend per
Month Common Share (cents)
April 7.3
May 7.3
June 7.3
July 7.3
August 7.3
September 7.3
October 7.3
November 7.3
December 7.3
January 7.3
February 7.3
March 7.3
Total 87.60

 

*All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.

Annual Report | 3


 

by +5.04% for leveraged loans and +0.20% for mortgage-backed securities (MBS), as measured by the CS High Yield,2, 4 CS Leveraged Loan (CS LLI)2, 4 and Barclays U.S. MBS3, 4 Indexes, respectively. Over the course of the year, we initiated positions in municipal securities, which we funded in part by selling certain MBS. Our exposure to leveraged loans and high yield corporate bonds remained relatively unchanged.

High Yield Corporate Bonds

High yield bonds generated coupon-like returns of +7.67% for the year, as spread tightening of nearly 100 basis points (100 basis points equal one percentage point) offset the impact of higher interest rates on Treasury bonds.2, 4 The spread tightening was supported by favorable fundamental factors, which included a continued low default rate, as well as by technical factors such as positive inflows into the high yield market. Robust credit markets enabled many companies to refinance debt at lower interest rates and improve cash flows. Although the fundamental outlook remained favorable to us, we began to see early signs of shareholder-friendly activity such as pay-in-kind deals to fund dividends to shareholders and an increased presence by activist investors, which could be detrimental to credit quality going forward. Nevertheless, based on our expectations for continued moderate economic growth and a below average default rate, we remained optimistic on the asset class.

Floating Rate Corporate Loans

For the one-year period, the corporate loan asset class returned +5.04%, as measured by the CS LLI.2, 4 Technical conditions in the corporate loan market remained supportive amid robust issuance of new collateralized loan obligations (CLOs) and inflows into corporate loan mutual funds. The strong demand also helped buoy loans trading at significant discounts to par, including securities from lower rated and distressed issuers.

Inflows into loan mutual funds reached the highest level since early 2011 and accelerated amid expectations of Fed tapering. The robust inflows in the loan market reflected a broader trend of many investors moving to credit sectors with shorter duration as they sought a potential hedge against rising interest rates. New CLO issuance also contributed to strong technical factors, as banks drove demand for AAA-rated CLO tranches. CLO activity remained strong during the period despite uncertainty surrounding potential regulations, which could possibly constrain future issuance, as well as a more challenging arbitrage environment amid higher U.S. Treasury yields.

4 | Annual Report


 

With fund inflows and CLO formation helping lift a majority of loans to trade over par, a wave of repricing transactions took place for a large portion of the loan market. Repricing and refinancing transactions that tightened spreads and lowered LIBOR floors helped increase demand for relatively high-coupon loans with protection against repricing activity, as well as for loans trading at a discount to par. The high demand also allowed issuers to alter the structure of deals as a majority of new issuance launched without maintenance covenants, furthering a market shift away from more restrictive covenants.

The default rate declined during the period, reflecting favorable loan market fundamentals including strong interest coverage and a lack of near-term maturities across the market.

Mortgage-Backed and Asset-Backed Securities

Agency MBS and high-quality securitized sectors had positive performance over the period and outperformed Treasuries with similar duration. In our view, agency mortgages were fully valued. Investor awareness about the timeline for tapering reduced anxiety. Questions remained about the demand source for agency MBS after the Fed ends its buying program. We felt the demand from banks, mortgage real estate investment trusts, overseas investors and domestic money managers would need to rise to compensate for the Fed’s reduced presence in the MBS sector. The recent decline in gross issuance may contribute to tighter spreads, but we believed recent spreads did not fully compensate investors for the risks. As interest rates and mortgage rates have moved higher, actual prepayment levels have declined and could, in our opinion, allow investors to keep a greater portion of their income.

We shifted our MBS allocation to lower coupons during the period. Our heaviest exposure was in 3.0% and 4.0% coupon securities as we decreased exposure to 5.0% through 6.0% coupon MBS, concentrating on specified pools. We continued to invest in bonds from higher quality securitized sectors as we found what we viewed as fundamentally sound bonds at attractive yields. The Fund remained allocated to higher quality asset-backed securities and commercial MBS as credit fundamentals in the sectors have shown signs of improvement. We favored this positioning because we believe commercial real estate fundamentals could slowly and steadily improve over the next few years.

Annual Report | 5


 

Thank you for your continued participation in Franklin Templeton Limited Duration Income Trust. We look forward to serving your future investment needs.

Sincerely,


Portfolio Management Team
Franklin Templeton Limited Duration Income Trust

CFA® is a trademark owned by CFA Institute.

The foregoing information reflects our analysis, opinions and portfolio holdings as of March 31, 2014, 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


 

The index is unmanaged and includes reinvestment of any income or distributions. One cannot invest directly in an
index, and an index is not representative of the Fund’s portfolio.
1. Source: Bureau of Labor Statistics.
2. CS High Yield Index and CS LLI. Copyright © 2014 CREDIT SUISSE GROUP AG and/or its affiliates. All rights reserved.
3. Source: Barclays Global Family of Indices. © 2014 Barclays Capital Inc. Used with permission.
4. Source: © 2014 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar
and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or
timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of
this information.
5. Standard & Poor’s (S&P®) 500 Index: Copyright © 2014, S&P Dow Jones Indices LLC. All rights reserved. Reproduction
of S&P U.S. Index data in any form is prohibited except with the prior written permission of S&P. S&P does not guaran-
tee the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or
omissions, regardless of the cause or for the results obtained from the use of such information. S&P DISCLAIMS ANY
AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall S&P be liable for any direct, indirect, special or
consequential damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity
costs) in connection with subscriber’s or others’ use of S&P U.S. Index data.

Annual Report | 7


 

Performance Summary as of 3/31/14

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.

FTF Share Prices                        
          3/31/14     3/31/13     Change  
Net Asset Value (NAV)       $ 14.36   $ 14.30   +$ 0.06  
Market Price (NYSE MKT)       $ 13.05   $ 14.82   -$ 1.77  
 
 
Distributions                        
    Dividend Income              
4/1/13–3/31/14       $ 0.8760              
 
 
Performance1                        
    Cumulative Total Return2     Average Annual Total Return3  
    Based on                          Based on change     Based on     Based on change  
                                    change in NAV3                                                                           in market price4     change in NAV3     in market price4  
1-Year + 6.77 %   -5.85 % + 6.77 %   -5.85 %
5-Year + 102.22 % + 112.94 % + 15.12 % + 16.32 %
10-Year + 104.86 % + 94.81 % + 7.43 % + 6.90 %

 

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.

All investments involve risks, including possible loss of principal. Interest rate movements and mortgage prepayments will affect the Fund’s share price and yield. Bond prices generally move in the opposite direction of interest rates. As prices of bonds in a fund adjust to a rise in interest rates, the Fund’s share price may decline. Investments in lower rated bonds include higher risk of default and loss of principal. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results.

1. Figures are for common shares. As of 3/31/14, the Fund had leverage in the amount of 31.51% of the Fund’s total portfolio. The Fund employs leverage through the issuance of Auction Preferred Shares and purchase of Mortgage Dollar Rolls. The use of financial leverage creates an opportunity for increased income but, at the same time, creates special risks (including the likelihood of greater volatility of net asset value and market price of common shares). The cost of leverage rises and falls with changes in short-term interest rates. Such increases/decreases in the cost of the Fund’s leverage may be offset by increased/decreased income from the Fund’s floating rate investments.

2. Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated. Six-month returns have not been annualized.

3. Assumes reinvestment of distributions based on net asset value.

4. Assumes reinvestment of distributions based on the dividend reinvestment and cash purchase plan.

8 | Annual Report


 

Important Notice to Shareholders

Collateralized Debt Obligations

The Fund may invest in any tranche (other than the equity tranche) of collateralized debt obligations.

Collateralized debt obligations and similarly structured securities, sometimes known generally as CDOs, are interests in a trust or other special purpose entity (SPE) and are typically backed by a diversified pool of bonds, loans or other debt obligations. CDOs are not limited to investments in one type of debt and, accordingly, a CDO may be collateralized by corporate bonds, commercial loans, asset-backed securities, residential mortgage-backed securities, real estate investment trusts (REITs), commercial mortgage-backed securities, emerging market debt, and municipal bonds. Certain CDOs may use derivatives contracts, such as credit default swaps, to create “synthetic” exposure to assets rather than holding such assets directly, which entails the risks of derivative instruments.

Common varieties of CDOs include the following:

Collateralized loan obligations. Collateralized loan obligations (CLOs) are interests in a trust typically collateralized substantially by a pool of loans, which may include, among others, domestic and foreign senior secured loans, senior unsecured loans, and subordinate corporate loans made to domestic and foreign borrowers, including loans that may be rated below investment grade or equivalent unrated loans.

Collateralized bond obligations. Collateralized bond obligations (CBOs) are interests in a trust typically backed substantially by a diversified pool of high risk, below investment grade fixed income securities.

Structured finance CDOs. Structured finance CDOs are interests in a trust typically backed substantially by structured investment products such as asset-backed securities and commercial mortgage-backed securities.

Synthetic CDOs. In contrast to CDOs that directly own the underlying debt obligations, referred to as cash CDOs, synthetic CDOs are typically collateralized substantially by derivatives contracts, such as credit default swaps, to create “synthetic” exposure to assets rather than holding such assets directly, which entails the risks of derivative instruments, principally counterparty risk.

CDOs are similar in structure to collateralized mortgage obligations. Unless the context indicates otherwise, the discussion of CDOs below also applies to CLOs, CBOs and other similarly structured securities.

In CDOs, the cash flows from the SPE are split into two or more portions, called tranches (or classes), that vary in risk and yield. The riskiest portion is the “equity” tranche, which bears the first loss from defaults on the bonds or loans in the SPE and is intended to protect the other, more senior tranches from

Annual Report | 9


 

severe, and potentially unforeseen, defaults or delinquent collateral payments (though such protection is not complete). Because they may be partially protected from defaults, senior tranches from a CDO typically have higher ratings and lower yields than the underlying collateral securities held by the trust, and may be rated investment grade. Despite protection from the equity tranche, more senior tranches can experience, and may have experienced in the past, substantial losses due to actual defaults, increased sensitivity to defaults due to collateral default, downgrades of the underlying collateral by rating agencies, forced liquidation of a collateral pool due to a failure of coverage tests, disappearance of protecting tranches, market anticipation of defaults, as well as a market aversion to CDO securities as a class.

The risks of an investment in a CDO depend largely on the type of collateral held by the SPE and the tranche of the CDO in which the Fund invests. Investment risk may also be affected by the performance of a CDO’s collateral manager (the entity responsible for selecting and managing the pool of collateral securities held by the SPE trust), especially during a period of market volatility like that experienced in 2007-2008. Normally, CDOs are privately offered and sold, and thus, are not registered under the securities laws and traded in a public market. As a result, investments in CDOs may be characterized by the Fund as illiquid securities. However, an active dealer market may exist for CDOs allowing the Fund to trade CDOs with other qualified institutional investors under Rule 144A. To the extent such investments are characterized as illiquid, they will be subject to the Fund’s restrictions on investments in illiquid securities. The Fund’s investment in unregistered securities such as CDOs will not receive the same investor protection as an investment in registered securities.

All tranches of CDOs, including senior tranches with high credit ratings, can experience, and many have recently experienced, substantial losses due to actual defaults, increased sensitivity to future defaults due to the disappearance of protecting tranches, market anticipation of defaults, as well as market aversion to CDO securities as a class. Prices of CDO tranches have declined considerably. The drop in prices was initially triggered by the subprime mortgage crisis. Subprime mortgages make up a significant portion of the mortgage securities that collateralize many CDOs. As floating interest rates and mortgage default rates increased, the rating agencies that had rated the mortgage securities and CDO transactions backed by such mortgages realized their default assumptions were too low and began to downgrade the credit rating of these transactions. There can be no assurance that additional losses of equal or greater magnitude will not occur in the future.

In addition to the normal risks associated with debt securities and asset-backed securities (e.g., interest rate risk, credit risk and default risk), CDOs carry

10 | Annual Report


 

additional risks including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may decline in value or quality or go into default or be downgraded; (iii) the Fund may invest in tranches of a CDO that are subordinate to other classes; and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer, difficulty in valuing the security or unexpected investment results.

Certain issuers of CDOs may be deemed to be “investment companies” as defined in the 1940 Act. As a result, the Fund’s investment in these structured investments from these issuers may be limited by the restrictions contained in the 1940 Act. CDOs generally charge management fees and administrative expenses that the shareholders of the Fund would pay indirectly.

Swap Agreements

Generally, swap agreements are contracts between the Fund and, typically, a brokerage firm, bank or other institutional buyer (the swap counterparty) for periods ranging from a few days to multiple years. In a basic swap transaction, the Fund agrees with the swap counterparty to exchange the returns (or differentials in rates of return) and/or cash flows earned or realized on a particular “notional amount” or value of predetermined underlying reference instruments. The notional amount is the set dollar or other value selected by the parties to use as the basis on which to calculate the obligations that the parties to a swap agreement have agreed to exchange. The parties typically do not actually exchange the notional amount. Instead they agree to exchange the returns that would be earned or realized if the notional amount were invested in given investments or at given interest rates. Examples of returns that may be exchanged in a swap agreement are those of a particular security, a particular fixed or variable interest rate, a particular non-U.S. currency, or a “basket” of securities representing a particular index. The Fund customarily enters into swap agreements that are based on the standard terms and conditions of an International Swaps and Derivatives Association (ISDA) Master Agreement. ISDA is a voluntary industry association of participants in the over-the-counter (OTC) derivatives markets that has developed standardized contracts used by such participants that have agreed to be bound by such standardized contracts.

The Fund will generally enter into swap agreements on a net basis, which means that the two payment streams that are to be made by the Fund and its counter-party are netted out, with the Fund receiving or paying, as the case may be, only the net difference in the two payments. The Fund’s obligations (or rights) under a swap agreement that is entered into on a net basis will generally be the

Annual Report | 11


 

net amount to be paid or received under the agreement based on the relative values of the obligations of each party upon termination of the agreement or at set valuation dates. The Fund will accrue its obligations under a swap agreement daily (offset by any amounts the counterparty owes the Fund). If the swap agreement does not provide for that type of netting, the full amount of the Fund’s obligations will be accrued on a daily basis.

During the term of a swap agreement, the Fund is usually required to pledge to the swap counterparty, from time to time, an amount of cash and/or other assets equal to the total net amount (if any) that would be payable by the Fund to the counterparty if the swap were terminated on the date in question, including any early termination payments. Periodically, changes in the amount pledged are made to recognize changes in value of the contract resulting from, among other things, interest on the notional value of the contract, market value changes in the underlying investment, and/or dividends paid by the issuer of the underlying instrument. Likewise, the counterparty may be required to pledge cash or other assets to cover its obligations to the Fund. However, the amount pledged may not always be equal to or more than the amount due to the other party. Therefore, if a counterparty defaults on its obligations to the Fund, the amount pledged by the counterparty and available to the Fund may not be sufficient to cover all the amounts due to the Fund and the Fund may sustain a loss.

Inflation Index Swaps. An inflation index swap is a contract between two parties, whereby one party makes payments based on the cumulative percentage increase in an index that serves as a measure of inflation (typically, the Consumer Price Index) and the other party makes a regular payment based on a compounded fixed rate. Each party’s payment obligation is determined by reference to a specified “notional” amount of money. Typically, an inflation index swap has payment obligations netted and exchanged upon maturity. The value of an inflation index swap is expected to change in response to changes in the rate of inflation. If inflation increases at a faster rate than anticipated at the time the swap is entered into, the swap will increase in value. Similarly, if inflation increases at a rate slower than anticipated at the time the swap is entered into, the swap will decrease in value.

Risks of Swaps. The use of swap transactions is a highly specialized activity, which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. Whether the Fund will be successful in using swap agreements to achieve its investment goal depends on the ability of the investment manager correctly to predict which types of investments are likely to produce greater returns. If the investment manager, in using swap agreements, is incorrect in its forecasts of market values, interest rates, inflation, currency exchange rates or other applicable factors, the investment performance of the Fund will be less than its performance would have been if it had not used the swap agreements.

12 | Annual Report


 

The risk of loss to the Fund for swap transactions that are entered into on a net basis depends on which party is obligated to pay the net amount to the other party. If the counterparty is obligated to pay the net amount to the Fund, the risk of loss to the Fund is loss of the entire amount that the Fund is entitled to receive. If the Fund is obligated to pay the net amount, the Fund’s risk of loss is limited to that net amount. If the swap agreement involves the exchange of the entire principal value of a security, the entire principal value of that security is subject to the risk that the other party to the swap will default on its contractual delivery obligations.

Because swap agreements are two-party contracts and may have terms of greater than seven days, they may be illiquid and, therefore, subject to the Fund’s limitation on investments in illiquid securities. If a swap transaction is particularly large or if the relevant market is illiquid, the Fund may not be able to establish or liquidate a position at an advantageous time or price, which may result in significant losses. Participants in the swap markets are not required to make continuous markets in the swap contracts they trade. Participants could refuse to quote prices for swap contracts or quote prices with an unusually wide spread between the price at which they are prepared to buy and the price at which they are prepared to sell. However, the swap markets have grown substantially in recent years, with a large number of financial institutions acting both as principals and agents, utilizing standardized swap documentation. As a result, the swap markets have become increasingly liquid. Some swap agreements entail complex terms and may require a greater degree of subjectivity in their valuation.

Swap agreements currently are not automatically traded on exchanges and are not subject to government regulation. As a result, swap participants are not as protected as participants on organized exchanges. Performance of a swap agreement is the responsibility only of the swap counterparty and not of any exchange or clearinghouse. As a result, the Fund is subject to the risk that a counterparty will be unable or will refuse to perform under such agreement, including because of the counterparty’s bankruptcy or insolvency. No limitations on daily price movements or speculative position limits apply to swap transactions. Counterparties may, however, limit the size or duration of a swap agreement with the Fund as a consequence of credit considerations. The Fund risks the loss of the accrued but unpaid amounts under a swap agreement, which could be substantial, in the event of a default, insolvency or bankruptcy by a swap counterparty. In such an event, the Fund will have contractual remedies pursuant to the swap agreements, but bankruptcy and insolvency laws could affect the Fund’s rights as a creditor. If the counterparty’s creditworthi-ness declines, the value of a swap agreement would likely decline, potentially resulting in losses. The Fund’s investment manager will only approve a swap agreement counterparty for the Fund if the investment manager deems the

Annual Report | 13


 

counterparty to be creditworthy under the Fund’s Counterparty Credit Review Standards, adopted and reviewed annually by the Fund’s board. However, in unusual or extreme market conditions, a counterparty’s creditworthiness and ability to perform may deteriorate rapidly, and the availability of suitable replacement counterparties may become limited.

As a result of the recent turmoil in the financial markets, legislation has been enacted that will likely result in numerous proposals by various entities to regulate the OTC derivatives markets, including, specifically, most swaps. The Fund cannot predict the outcome or final form of any of these proposals or if or when any of them would become effective. However, any additional regulation or limitation on the OTC markets for derivatives could materially and adversely impact the ability of the Fund to buy or sell OTC derivatives, including certain swaps.

Certain Internal Revenue Service positions may limit the Fund’s ability to use swap agreements in a desired tax strategy. It is possible that developments in the swap markets and/or the laws relating to swap agreements, including potential government regulation, could adversely affect the Fund’s ability to benefit from using swap agreements, or could have adverse tax consequences.

Derivative Instruments

The performance of derivative instruments (including currency-related derivatives) depends largely on the performance of an underlying currency, security or index and such instruments often have risks similar to their underlying instrument in addition to other risks. Derivative instruments involve costs and can create economic leverage in the Fund’s portfolio that may result in significant volatility and cause the Fund to participate in losses (as well as gains) in an amount that significantly exceeds the Fund’s initial investment. Certain derivatives have the potential for unlimited loss, regardless of the size of the initial investment. Other risks include illiquidity, mispricing or improper valuation of the derivative instrument, and imperfect correlation between the value of the derivative and the underlying instrument so that the Fund may not realize the intended benefits. Their successful use will usually depend on the investment manager’s ability to accurately forecast movements in the market relating to the underlying instrument. Should a market or markets, or prices of particular classes of investments, move in an unexpected manner, especially in unusual or extreme market conditions, the Fund may not achieve the anticipated benefits of the transaction, and it may realize losses, which could be significant. If the investment manager is not successful in using such derivative instruments, the Fund’s performance may be worse than if the investment manager did not use

14 | Annual Report


 

such derivative instruments at all. To the extent that the Fund uses such instruments for hedging purposes, there is the risk of imperfect correlation between movements in the value of the derivative instrument and the value of the underlying investment or other asset being hedged. There is also the risk, especially under extreme market conditions, that an instrument, which usually would operate as a hedge, provides no hedging benefits at all.

Use of these instruments could also result in a loss if the counterparty to the transaction (with respect to swap agreements, forward currency contracts and other OTC derivatives) does not perform as promised, including because of such counterparty’s bankruptcy or insolvency. This risk may be heightened during volatile market conditions. Other risks include the inability to close out a position because the trading market becomes illiquid (particularly in the OTC markets) or the availability of counterparties becomes limited for a period of time. In addition, the presence of speculators in a particular market could lead to price distortions. To the extent that the Fund is unable to close out a position because of market illiquidity, the Fund may not be able to prevent further losses of value in its derivatives holdings and the Fund’s liquidity may be impaired to the extent that it has a substantial portion of its otherwise liquid assets marked as segregated to cover its obligations under such derivative instruments. The Fund may also be required to take or make delivery of an underlying instrument that the investment manager would otherwise have attempted to avoid. Some derivatives can be particularly sensitive to changes in interest rates or other market prices. Investors should bear in mind that, while the Fund intends to use derivative strategies on a regular basis, it is not obligated to actively engage in these transactions, generally or in any particular kind of derivative, if the investment manager elects not to do so due to availability, cost or other factors.

The use of derivative strategies may also have a tax impact on the Fund. The timing and character of income, gains or losses from these strategies could impair the ability of the investment manager to utilize derivatives when it wishes to do so.

Annual Report | 15


 

Annual Shareholders’ Meeting

September 19, 2013

At an annual Meeting of Shareholders of the Fund held on September 19, 2013, shareholders approved the election of the following persons as Trustees of the Fund.

The results of the voting are as follows:                
  Shares % of      % of   Withheld or % of   % of  
Trustees For     Shares      Voted   Abstain Shares   Voted  
Harris J. Ashton 23,760,362.40 88.53 % 97.54 % 598,852.00 2.23 % 2.46 %
Edith E. Holiday 23,567,487.40 87.81 % 96.75 % 791,727.00 2.95 % 3.25 %
John B. Wilson 23,880,719.40 88.98 % 98.04 % 478,495.00 1.78 % 1.96 %

 

Note: Sam Ginn, Gregory E. Johnson, Rupert H. Johnson, Jr., Frank W.T. LaHaye, J. Michael Luttig, Frank A, Olson and Larry D. Thompson are Trustees of the Fund who are currently serving and whose terms of office continued after the meeting.

16 | 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. BNY Mellon Investment Servicing (US) Inc. (Agent), P.O. Box 43006, Providence, RI 02940-3006, 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. Participants may contact the Agent at the address above to obtain a copy of the Brochure.

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.

Annual Report | 17


 

The market price of shares on a particular date shall be the last sales price on NYSE MKT, 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

18 | Annual Report


 

acquisition date. Although from time to time you may have an undivided fractional interest in a share of the Fund, no certificates for a fractional share will be issued. Distributions on fractional shares will be credited to your account. If you terminate your account under the Plan, the Agent will adjust for any such undivided fractional interest in cash at the market value of shares at the time of termination.

You may withdraw from the Plan at any time, without penalty, by notifying the Agent in writing at the address above or by telephone at (866) 340-2909. 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.

Annual Report | 19


 

Franklin Templeton                              
 
Limited Duration Income Trust                    
 
Financial Highlights                              
 
          Year Ended March 31,        
    2014     2013     2012     2011     2010  
Per common share operating performance                              
(for a common share outstanding throughout the year)                              
Net asset value, beginning of year $ 14.30   $ 13.82   $ 14.01   $ 13.48   $ 10.15  
Income from investment operations:                              
Net investment incomea   0.80     0.90     0.92     0.98     0.93  
Net realized and unrealized gains (losses)   0.20     0.62     (0.04 )   0.65     3.40  
Dividends to preferred shareholders from net investment income   (0.06 )   (0.05 )   (0.05 )   (0.05 )   (0.05 )
Total from investment operations   0.94     1.47     0.83     1.58     4.28  
Less distributions to common shareholders from net investment                              
income   (0.88 )   (0.99 )   (1.02 )   (1.05 )   (0.95 )
Net asset value, end of year $ 14.36   $ 14.30   $ 13.82   $ 14.01   $ 13.48  
Market value, end of yearb $ 13.05   $ 14.82   $ 14.01   $ 13.14   $ 13.40  
 
Total return (based on market value per share)   (5.85 )%   13.41 %   15.03 %   6.25 %   63.14 %
 
Ratios to average net assets applicable to common sharesc                              
Expenses   1.12 %d,e   1.13 %   1.15 %   1.14 %   1.15 %d
Net investment income   5.65 %   6.44 %   6.73 %   7.15 %   7.47 %
 
Supplemental data                              
Net assets applicable to common shares, end of year (000’s) $ 385,388   $ 383,632   $ 370,095   $ 375,016   $ 360,798  
Portfolio turnover rate   318.57 %   295.39 %   302.18 %   262.57 %   220.09 %
Portfolio turnover rate excluding mortgage dollar rollsf   137.85 %   106.42 %   106.49 %   115.51 %   66.07 %
Asset coverage per preferred share $ 78,686   $ 79,157   $ 77,796   $ 76,096   $ 78,092  
Liquidation preference per preferred share $ 25,000   $ 25,000   $ 25,000   $ 25,000   $ 25,000  
 
 
aBased on average daily common shares outstanding.                              
bBased on the last sale on the NYSE Amex.                              
cBased on income and expenses applicable to both common and preferred shares.                              
dBenefit of expense reduction rounds to less than 0.01%.                              
eBenefit of waiver and payment by affiliate rounds to less than 0.01%.                              
fSee Note 1(e) regarding mortgage dollar rolls.                              

 

20 | The accompanying notes are an integral part of these financial statements. | Annual Report


 

Franklin Templeton          
 
Limited Duration Income Trust        
 
Statement of Investments, March 31, 2014          
 
 
  Country Shares     Value
Common Stocks 0.1%          
Materials 0.1%          
NewPage Holdings Inc. United States 3,000   $ 270,000
Transportation 0.0%          
aCEVA Holdings LLC United Kingdom 112     140,175
Total Common Stocks (Cost $728,297)         410,175
Convertible Preferred Stocks 0.1%          
Transportation 0.1%          
aCEVA Holdings LLC, cvt. pfd., A-1 United Kingdom 6     10,021
aCEVA Holdings LLC, cvt. pfd., A-2 United Kingdom 243     303,437
Total Convertible Preferred Stocks (Cost $369,948)         313,458
 
    Principal Amount*      
Corporate Bonds 48.2%          
Automobiles & Components 0.4%          
The Goodyear Tire & Rubber Co., senior note, 6.50%, 3/01/21 United States 1,300,000     1,423,500
Banks 2.9%          
bBank of America Corp., junior sub. bond, M, 8.125% to 5/15/18,          
FRN thereafter, Perpetual United States 3,000,000     3,443,919
CIT Group Inc.,          
4.25%, 8/15/17 United States 1,500,000     1,575,000
senior note, 5.00%, 5/15/17 United States 1,200,000     1,288,500
csenior note, 144A, 6.625%, 4/01/18 United States 500,000     561,875
bJPMorgan Chase & Co., junior sub. bond, 6.00% to 8/01/23,          
FRN thereafter, Perpetual United States 1,500,000     1,485,000
Royal Bank of Scotland Group PLC, sub. note, 6.125%, 12/15/22 United Kingdom 1,000,000     1,050,000
The Royal Bank of Scotland PLC, sub. note, 6.934%, 4/09/18 United Kingdom          1,100,000  EUR   1,731,550
          11,135,844
Capital Goods 0.6%          
cAbengoa Finance SAU, senior note, 144A, 8.875%, 11/01/17 Spain 2,000,000     2,258,750
Commercial & Professional Services 0.4%          
c,dNielsen Finance LLC/Co., senior note, 144A, 5.00%, 4/15/22 Netherlands 700,000     701,750
United Rentals North America Inc., senior bond, 5.75%, 11/15/24 United States 900,000     907,875
          1,609,625
Consumer Durables & Apparel 1.5%          
KB Home, senior note,          
4.75%, 5/15/19 United States 1,100,000     1,111,000
7.00%, 12/15/21 United States 1,100,000     1,186,625
cTaylor Morrison Communities Inc./Monarch Communities Inc.,          
senior note, 144A,          
7.75%, 4/15/20 United States 722,000     799,615
5.25%, 4/15/21 United States 500,000     507,500

 

Annual Report | 21


 

Franklin Templeton        
 
Limited Duration Income Trust      
 
Statement of Investments, March 31, 2014 (continued)      
 
 
  Country Principal Amount*   Value
Corporate Bonds (continued)        
Consumer Durables & Apparel (continued)        
Toll Brothers Finance Corp., senior bond, 5.625%, 1/15/24 United States 800,000 $ 830,000
Visant Corp., senior note, 10.00%, 10/01/17 United States 1,400,000   1,401,750
        5,836,490
Consumer Services 1.9%        
Caesars Entertainment Operating Co. Inc., senior secured note,        
11.25%, 6/01/17 United States 2,500,000   2,412,500
cLandry’s Inc., senior note, 144A, 9.375%, 5/01/20 United States 900,000   995,625
MGM Resorts International, senior note, 8.625%, 2/01/19 United States 2,500,000   3,006,250
cParis Las Vegas Holding LLC, senior secured note, first lien, 144A,        
8.00%, 10/01/20 United States 500,000   528,750
cPNK Finance Corp., senior note, 144A, 6.375%, 8/01/21 United States 500,000   522,500
        7,465,625
Diversified Financials 2.4%        
Ally Financial Inc., senior note,        
6.25%, 12/01/17 United States 2,000,000   2,240,000
4.75%, 9/10/18 United States 1,000,000   1,061,250
E*TRADE Financial Corp., senior note, 6.375%, 11/15/19 United States 800,000   874,000
cNeuberger Berman Group LLC/Finance Corp., senior note, 144A,        
5.625%, 3/15/20 United States 700,000   738,500
cNuveen Investments Inc., senior note, 144A, 9.125%, 10/15/17 United States 1,500,000   1,593,750
SLM Corp., senior note,        
8.45%, 6/15/18 United States 1,400,000   1,653,750
5.50%, 1/15/19 United States 1,100,000   1,167,701
        9,328,951
Energy 10.7%        
BreitBurn Energy Partners LP/Finance Corp., senior bond, 7.875%,        
4/15/22 United States 600,000   652,500
CHC Helicopter SA, senior secured note, first lien, 9.25%,        
10/15/20 Canada 1,800,000   1,962,000
Chesapeake Energy Corp., senior note,        
6.625%, 8/15/20 United States 2,500,000   2,818,750
6.125%, 2/15/21 United States 1,000,000   1,095,000
Clayton Williams Energy Inc., senior note, 7.75%, 4/01/19 United States 1,500,000   1,601,250
cDrill Rigs Holdings Inc., secured note, 144A, 6.50%, 10/01/17 United States 1,000,000   1,047,500
Energy Transfer Equity LP, senior note, 7.50%, 10/15/20 United States 2,500,000   2,871,875
cEnergy XXI Gulf Coast Inc., senior note, 144A, 7.50%, 12/15/21 United States 600,000   631,500
EPL Oil & Gas Inc., senior note, 8.25%, 2/15/18 United States 1,000,000   1,087,500
cExpro Finance Luxembourg, senior secured note, 144A, 8.50%,        
12/15/16 United Kingdom 1,000,000   1,046,875
Halcon Resources Corp., senior note,        
9.75%, 7/15/20 United States 100,000   108,250
8.875%, 5/15/21 United States 1,500,000   1,563,750
c144A, 9.25%, 2/15/22 United States 500,000   523,750

 

22 | Annual Report


 

Franklin Templeton

Limited Duration Income Trust

Statement of Investments, March 31, 2014 (continued)

  Country Principal Amount*   Value
Corporate Bonds (continued)        
Energy (continued)        
cKinder Morgan Inc., senior secured note, 144A, 5.00%, 2/15/21 United States 600,000 $ 603,911
Kodiak Oil & Gas Corp., senior note,        
8.125%, 12/01/19 United States 900,000   1,002,375
5.50%, 1/15/21 United States 300,000   309,375
Linn Energy LLC/Finance Corp., senior note,        
8.625%, 4/15/20 United States 1,500,000   1,636,875
7.75%, 2/01/21 United States 1,000,000   1,080,000
Martin Midstream Partners LP/Martin Midstream Finance Corp.,        
senior note,        
8.875%, 4/01/18 United States 878,000   916,966
7.25%, 2/15/21 United States 800,000   843,000
c,d144A, 7.25%, 2/15/21 United States 600,000   632,250
Midstates Petroleum Co. Inc./LLC, senior note, 9.25%, 6/01/21 United States 1,000,000   1,050,000
cMurray Energy Corp., senior secured note, 144A, 8.625%, 6/15/21 United States 800,000   846,000
cOcean Rig UDW Inc., senior note, 144A, 7.25%, 4/01/19 Cyprus 600,000   599,625
Offshore Group Investment Ltd.,        
senior bond, first lien, 7.125%, 4/01/23 United States 600,000   613,500
senior secured note, first lien, 7.50%, 11/01/19 United States 900,000   965,813
Peabody Energy Corp., senior note, 6.00%, 11/15/18 United States 2,500,000   2,634,375
Penn Virginia Resource Partners LP/Finance Corp. II, senior note,        
8.375%, 6/01/20 United States 632,000   712,580
6.50%, 5/15/21 United States 300,000   321,750
QR Energy LP/QRE Finance, senior note, 9.25%, 8/01/20 United States 1,400,000   1,505,000
Quicksilver Resources Inc., senior note, 9.125%, 8/15/19 United States 1,500,000   1,500,000
Regency Energy Partners LP/Regency Energy Finance Corp.,        
senior note, 5.875%, 3/01/22 United States 200,000   208,000
Sabine Pass Liquefaction LLC, first lien, 5.625%, 2/01/21 United States 2,000,000   2,072,500
cSamson Investment Co., senior note, 144A, 9.75%, 2/15/20 United States 1,500,000   1,642,500
cSanchez Energy Corp., senior note, 144A, 7.75%, 6/15/21 United States 1,000,000   1,072,500
W&T Offshore Inc., senior note, 8.50%, 6/15/19 United States 1,500,000   1,627,500
        41,406,895
Food, Beverage & Tobacco 1.8%        
Constellation Brands Inc., senior note, 3.75%, 5/01/21 United States 400,000   392,000
Del Monte Corp., senior note, 7.625%, 2/15/19 United States 1,380,000   1,439,512
cDole Food Co. Inc., senior secured note, 144A, 7.25%, 5/01/19 United States 1,000,000   1,006,250
cJBS USA LLC/Finance Inc., senior note, 144A, 8.25%, 2/01/20 United States 1,900,000   2,090,000
cPost Holdings Inc., senior note, 144A,        
6.75%, 12/01/21 United States 300,000   318,375
7.375%, 2/15/22 United States 1,000,000   1,080,000
cSun Merger Sub Inc., senior note, 144A, 5.25%, 8/01/18 United States 400,000   417,500
        6,743,637
Health Care Equipment & Services 2.4%        
Alere Inc.,        
senior note, 7.25%, 7/01/18 United States 1,300,000   1,436,500
senior sub. note, 6.50%, 6/15/20 United States 200,000   211,000
 
        Annual Report | 23

 


 

Franklin Templeton          
 
Limited Duration Income Trust        
 
Statement of Investments, March 31, 2014 (continued)        
 
 
  Country Principal Amount*     Value
Corporate Bonds (continued)          
Health Care Equipment & Services (continued)          
Aviv Healthcare Properties LP/Aviv Healthcare Capital Corp.,          
senior note, 6.00%, 10/15/21 United States 400,000   $ 417,000
CHS/Community Health Systems Inc.,          
senior note, 8.00%, 11/15/19 United States 1,100,000     1,214,125
senior note, 7.125%, 7/15/20 United States 400,000     434,500
csenior note, 144A, 6.875%, 2/01/22 United States 100,000     105,000
senior secured note, 5.125%, 8/15/18 United States 900,000     947,250
HCA Inc.,          
senior note, 7.50%, 2/15/22 United States 1,000,000     1,145,000
senior note, 5.875%, 5/01/23 United States 1,500,000     1,546,875
senior secured note, 5.875%, 3/15/22 United States 1,000,000     1,080,000
cTenet Healthcare Corp., senior note, 144A,          
5.00%, 3/01/19 United States 200,000     200,250
6.00%, 10/01/20 United States 500,000     535,937
          9,273,437
Materials 6.3%          
ArcelorMittal, senior note, 5.00%, 2/25/17 Luxembourg 3,000,000     3,191,250
cArdagh Packaging Finance PLC, senior note, 144A, 9.125%,          
10/15/20 Luxembourg 700,000     782,250
cArdagh Packaging Finance PLC/Ardagh MP Holdings USA Inc.,          
senior note, 144A,          
6.25%, 1/31/19 Ireland 300,000     314,250
7.00%, 11/15/20 Ireland 88,235     93,143
cBarminco Finance Pty. Ltd., senior note, 144A, 9.00%, 6/01/18 Australia 1,000,000     922,500
cCemex SAB de CV,          
secured note, 144A, 5.875%, 3/25/19 Mexico 500,000     520,000
senior secured note, 144A, 9.00%, 1/11/18 Mexico 2,000,000     2,182,500
cEldorado Gold Corp., senior note, 144A, 6.125%, 12/15/20 Canada 1,500,000     1,507,500
cFirst Quantum Minerals Ltd., senior note, 144A,          
6.75%, 2/15/20 Canada 1,261,000     1,283,068
7.00%, 2/15/21 Canada 1,261,000     1,289,372
cFMG Resources (August 2006) Pty. Ltd., senior note, 144A,          
6.875%, 2/01/18 Australia 1,500,000     1,584,375
8.25%, 11/01/19 Australia 1,000,000     1,103,750
cIneos Group Holdings SA, senior note, 144A,          
6.50%, 8/15/18 Switzerland 600,000 EUR   870,192
5.875%, 2/15/19 Luxembourg 400,000     410,500
Novelis Inc., senior note,          
8.375%, 12/15/17 Canada 500,000     535,625
8.75%, 12/15/20 Canada 900,000     1,010,250
cOrion Engineered Carbons Bondco GmbH, senior secured note,          
first lien, 144A, 9.625%, 6/15/18 Germany 850,000     925,438
c,eOrion Engineered Carbons Finance & Co. SCA, senior note, 144A, PIK,          
9.25%, 8/01/19 Germany 200,000     208,500
cPerstorp Holding AB, first lien, 144A, 8.75%, 5/15/17 Sweden 1,900,000     2,034,100

 

24 | Annual Report


 

Franklin Templeton

Limited Duration Income Trust

Statement of Investments, March 31, 2014 (continued)

  Country Principal Amount*     Value
Corporate Bonds (continued)          
Materials (continued)          
cRain CII Carbon LLC/Corp., second lien, 144A, 8.25%, 1/15/21 United States 600,000   $ 621,000
Reynolds Group Issuer Inc./LLC/SA,          
senior note, 8.50%, 5/15/18 United States 1,000,000     1,050,000
senior note, 9.00%, 4/15/19 United States 100,000     107,500
senior note, 8.25%, 2/15/21 United States 1,000,000     1,096,250
senior secured note, 7.125%, 4/15/19 United States 500,000     531,250
          24,174,563
Media 4.9%          
Cablevision Systems Corp., senior note, 8.625%, 9/15/17 United States 1,000,000     1,190,000
CCO Holdings LLC/CCO Holdings Capital Corp., senior bond, 5.25%,          
9/30/22 United States 900,000     892,125
Clear Channel Communications Inc.,          
senior secured bond, first lien, 9.00%, 3/01/21 United States 2,500,000     2,621,875
senior secured note, first lien, 9.00%, 12/15/19 United States 500,000     527,500
Clear Channel Worldwide Holdings Inc.,          
senior note, 6.50%, 11/15/22 United States 700,000     751,625
senior sub. note, 7.625%, 3/15/20 United States 800,000     868,000
CSC Holdings LLC, senior note, 6.75%, 11/15/21 United States 1,500,000     1,683,750
DISH DBS Corp., senior note, 7.125%, 2/01/16 United States 2,000,000     2,190,000
cGannett Co. Inc., senior note, 144A, 5.125%,          
10/15/19 United States 1,200,000     1,258,500
7/15/20 United States 500,000     516,250
cRadio One Inc., senior sub. note, 144A, 9.25%, 2/15/20 United States 400,000     426,000
cUnivision Communications Inc.,          
senior secured bond, 144A, 6.75%, 9/15/22 United States 472,000     524,510
senior secured note, 144A, 6.875%, 5/15/19 United States 500,000     538,750
senior secured note, 144A, 5.125%, 5/15/23 United States 1,000,000     1,027,500
cUPCB Finance II Ltd., senior secured note, 144A, 6.375%,          
7/01/20 Netherlands        1,100,000  EUR   1,632,015
cVirgin Media Secured Finance PLC, senior secured bond, 144A,          
5.50%, 1/15/25 United Kingdom 1,100,000     1,113,062
cVTR Finance BV, senior secured note, 144A, 6.875%, 1/15/24 Chile 300,000     312,750
c,dWMG Acquisition Corp., senior note, 144A, 5.625%, 4/15/22 United States 600,000     610,500
          18,684,712
Pharmaceuticals, Biotechnology & Life Sciences 1.7%          
cGrifols Worldwide Operations Ltd., senior note, 144A, 5.25%,          
4/01/22 United States 200,000     205,000
c,eJaguar Holding Co. I, senior note, 144A, PIK, 9.375%, 10/15/17 United States 700,000     739,375
cJaguar Holding Co. II/Merger Sub Inc., senior note, 144A, 9.50%,          
12/01/19 United States 500,000     558,750
Par Pharmaceutical Cos. Inc., senior note, 7.375%, 10/15/20 United States 1,900,000     2,066,250

 

Annual Report | 25


 

Franklin Templeton

Limited Duration Income Trust

Statement of Investments, March 31, 2014 (continued)

  Country Principal Amount*     Value
Corporate Bonds (continued)          
Pharmaceuticals, Biotechnology & Life Sciences (continued)          
cValeant Pharmaceuticals International Inc., senior note, 144A,          
6.75%, 8/15/18 United States 700,000   $ 773,500
5.625%, 12/01/21 United States 500,000     526,250
cVPI Escrow Corp., senior note, 144A, 6.375%, 10/15/20 United States 1,500,000     1,627,500
          6,496,625
Retailing 0.4%          
cNew Look Bondco I PLC, 144A, 8.75%, 5/14/18 United Kingdom          900,000  GBP   1,616,456
Semiconductors & Semiconductor Equipment 0.1%          
Freescale Semiconductor Inc., senior note, 8.05%, 2/01/20 United States 446,000     492,273
Software & Services 1.7%          
cBMC Software Finance Inc., senior note, 144A, 8.125%, 7/15/21 United States 900,000     951,750
Equinix Inc., senior note, 4.875%, 4/01/20 United States 1,500,000     1,541,250
cFirst Data Corp., senior secured bond, 144A, 8.25%, 1/15/21 United States 3,000,000     3,270,000
Sterling International Inc., senior note, 11.00%, 10/01/19 United States 700,000     740,250
          6,503,250
Technology Hardware & Equipment 1.0%          
cAlcatel-Lucent USA Inc., senior note, 144A,          
4.625%, 7/01/17 France 700,000     721,875
6.75%, 11/15/20 United States 1,300,000     1,381,250
cBlackboard Inc., senior note, 144A, 7.75%, 11/15/19 United States 500,000     526,250
c,eCommScope Holdings Co. Inc., senior note, 144A, PIK, 6.625%,          
6/01/20 United States 500,000     531,250
cCommScope Inc., senior note, 144A, 8.25%, 1/15/19 United States 728,000     791,700
          3,952,325
Telecommunication Services 4.9%          
CenturyLink Inc., senior bond, 6.75%, 12/01/23 United States 300,000     319,875
cDigicel Group Ltd., senior note, 144A, 8.25%, 9/30/20 Bermuda 1,200,000     1,284,282
cDigicel Ltd., senior note, 144A, 6.00%, 4/15/21 Bermuda 700,000     717,063
ceAccess Ltd., senior note, 144A, 8.25%, 4/01/18 Japan 1,200,000     1,313,250
Frontier Communications Corp., senior note, 8.125%, 10/01/18 United States 2,000,000     2,345,000
Intelsat Jackson Holdings SA, senior note, 7.25%,          
4/01/19 Luxembourg 2,000,000     2,160,000
10/15/20 Luxembourg 1,000,000     1,088,750
cMillicom International Cellular SA, senior note, 144A, 6.625%,          
10/15/21 Luxembourg 1,000,000     1,068,750
cSprint Corp.,          
senior bond, 144A, 7.125%, 6/15/24 United States 300,000     315,750
senior note, 144A, 7.25%, 9/15/21 United States 500,000     546,875
Sprint Nextel Corp., senior note,          
8.375%, 8/15/17 United States 1,000,000     1,181,250
c144A, 9.00%, 11/15/18 United States 1,500,000     1,837,500
c144A, 7.00%, 3/01/20 United States 600,000     694,500

 

26 | Annual Report


 

Franklin Templeton          
 
Limited Duration Income Trust        
 
Statement of Investments, March 31, 2014 (continued)        
 
 
  Country Principal Amount*     Value
Corporate Bonds (continued)          
Telecommunication Services (continued)          
T-Mobile USA Inc., senior note,          
6.542%, 4/28/20 United States 900,000   $ 972,000
6.125%, 1/15/22 United States 300,000     315,375
cWind Acquisition Finance SA, senior secured note, 144A, 11.75%,          
7/15/17 Italy 1,500,000     1,581,525
c,eWind Acquisition Holdings Finance SA, senior secured note, 144A,          
PIK, 12.25%, 7/15/17 Italy          649,764  EUR   941,529
          18,683,274
Transportation 0.9%          
HDTFS Inc., senior note, 5.875%, 10/15/20 United States 1,000,000     1,071,253
Hertz Corp., senior note, 6.75%, 4/15/19 United States 1,000,000     1,076,250
cStena AB, senior bond, 144A, 7.00%, 2/01/24 Sweden 600,000     612,000
cStena International SA, secured bond, 144A, 5.75%, 3/01/24 Sweden 700,000     701,312
          3,460,815
Utilities 1.3%          
cCalpine Corp., senior secured note,          
144A, 7.875%, 7/31/20 United States 492,000     543,660
144A, 7.50%, 2/15/21 United States 830,000     910,925
144A, 7.875%, 1/15/23 United States 406,000     456,750
first lien, 144A, 6.00%, 1/15/22 United States 100,000     105,500
cInterGen NV, secured bond, 144A, 7.00%, 6/30/23 Netherlands 1,000,000     1,056,875
cTexas Competitive Electric Holdings Co. LLC/Texas Competitive Electric          
Holdings Finance Inc., senior secured note, 144A, 11.50%,          
10/01/20 United States 2,500,000     1,931,250
          5,004,960
Total Corporate Bonds (Cost $173,180,128)         185,552,007
f,gSenior Floating Rate Interests 50.8%          
Automobiles & Components 1.4%          
August LuxUK Holding Co., Lux Term B-1 Loan, 5.00%, 4/27/18 Luxembourg 489,926     493,295
August U.S. Holding Co. Inc., U.S. Term B-1 Loan, 5.00%,          
4/27/18 United States 505,572     509,048
Chrysler Group LLC, Tranche B Term Loan, 3.50%, 5/24/17 United States 3,113,345     3,119,183
FRAM Group Holdings Inc. (Autoparts Holdings), Second Lien Term          
Loan, 10.50%, 1/29/18 United States 298,246     284,824
UCI International Inc., Term Loan, 5.50%, 7/26/17 United States 1,053,094     1,061,650
          5,468,000
Capital Goods 2.4%          
AWAS Finance Luxembourg 2012 SA, Term Loan, 3.50%, 7/16/18 Luxembourg 681,624     683,328
Fly Funding II S.A.R.L., Loans, 4.50%, 8/09/19 Luxembourg 740,625     749,420
RBS Global Inc. (Rexnord), Term B Loan, 4.00%, 8/21/20 United States 2,079,550     2,085,718
Terex Corp., Term Loan, 3.50%, 4/28/17 United States 1,484,483     1,492,834

 

Annual Report | 27


 

Franklin Templeton        
 
Limited Duration Income Trust      
 
Statement of Investments, March 31, 2014 (continued)      
 
 
  Country Principal Amount*   Value
f,gSenior Floating Rate Interests (continued)        
Capital Goods (continued)        
Tomkins LLC and Tomkins Inc., Term B-2 Loan, 3.75%, 9/21/16 United States 2,205,971 $ 2,212,578
TransDigm Inc., Tranche C Term Loan, 3.75%, 2/28/20 United States 1,982,437   1,986,154
        9,210,032
Commercial & Professional Services 3.2%        
dAcosta Inc., Add-On Term Loan B, 5.50%, 3/01/18 United States 380,000   382,791
ADS Waste Holdings Inc., Tranche B-2 Term Loan, 3.75%,        
10/09/19 United States 3,729,068   3,728,777
ARAMARK Corp.,        
Extended Synthetic L/C, 3.581%, 7/26/16 United States 174,490   174,708
U.S. Term E Loans, 3.25%, 9/07/19 United States 730,000   725,210
U.S. Term F Loans, 3.25%, 2/14/21 United States 1,630,000   1,619,473
Interactive Data Corp., Term B Loan, 3.75%, 2/11/18 United States 2,404,206   2,408,112
KAR Auction Services Inc. (Adesa), Term Loan, 5.00%, 5/19/17 United States 1,578,315   1,586,453
West Corp., Term Loan B-10, 3.25%, 6/30/18 United States 1,706,294   1,698,962
        12,324,486
Consumer Services 5.3%        
24 Hour Fitness Worldwide Inc., New Tranche B Term Loan,        
5.00% - 5.25%, 4/22/16 United States 1,925,051   1,946,107
Boyd Gaming Corp., Term B Loan, 4.00%, 8/14/20 United States 995,000   997,239
Bright Horizons Family Solutions LLC, Term B Loan, 4.00% - 5.25%,        
1/30/20 United States 3,819,209   3,834,127
Burger King Corp., Tranche B Term Loan, 3.75%, 9/28/19 United States 1,043,010   1,050,099
Caesars Entertainment Operating Co. Inc., Term Loan B-4, 9.50%,        
10/31/16 United States 2,385,278   2,383,124
Four Seasons Holdings Inc.,        
First Lien Term Loan, 3.50%, 6/27/20 Canada 995,000   999,975
Second Lien Term Loan, 6.25%, 12/27/20 Canada 670,000   682,563
Hilton Worldwide Finance LLC, Initial Term Loan, 3.50%,        
10/25/20 United States 1,531,404   1,535,998
dLa Quinta Intermediate Holdings LLC, First Lien Term Loan, 5.25%,        
4/14/21 United States 2,000,000   2,003,438
Pinnacle Entertainment Inc., Tranche B-2 Term Loan, 3.75%,        
8/13/20 United States 1,052,050   1,056,489
Scientific Games International Inc., Term Loan B, 4.25%,        
10/18/20 United States 1,995,000   2,000,195
Tropicana Entertainment Inc., Term Loans, 4.00%, 11/27/20 United States 1,960,150   1,969,339
        20,458,693
Diversified Financials 2.6%        
Asurion LLC,        
Incremental Tranche B-1 Term Loan, 5.00%, 5/24/19 United States 1,373,659   1,378,715
Incremental Tranche B-2 Term Loans, 4.25%, 7/08/20 United States 426,775   425,530

 

28 | Annual Report


 

  Franklin Templeton        
 
  Limited Duration Income Trust      
 
  Statement of Investments, March 31, 2014 (continued)      
 
 
    Country Principal Amount*   Value
  f,gSenior Floating Rate Interests (continued)        
  Diversified Financials (continued)        
  Trans Union LLC,        
  2013 Replacement Term Loan, 4.25%, 2/10/19 United States 4,047,653 $ 4,061,569
  Term Loan B, 5.25%, 4/09/21 United States 4,056,129   4,067,539
          9,933,353
  Energy 0.8%        
  Obsidian Natural Gas Trust, Term Loan, 7.00%, 11/02/15 United States 578,616   585,849
  Pacific Drilling SA, Term Loan, 4.50%, 6/03/18 Luxembourg 605,425   608,679
  Samson Investment Co., Second Lien Tranche I Term Loan, 5.00%,        
  9/25/18 United States 2,000,000   2,020,750
          3,215,278
  Food & Staples Retailing 0.3%        
  AdvancePierre Foods Inc., Second Lien Term Loan, 9.50%,        
  10/10/17 United States 1,040,000   1,016,600
  Food, Beverage & Tobacco 2.2%        
  Big Heart Pet Brands (Del Monte Pet), Initial Term Loans, 3.50%,        
  2/24/20 United States 2,160,242   2,150,454
  Dole Food Co. Inc., Tranche B Term Loan, 4.246% - 4.50%,        
  11/01/18 United States 1,633,617   1,643,011
  H.J. Heinz Co., Term B-2 Loan, 3.50%, 6/05/20 United States 2,683,922   2,702,207
  Pinnacle Foods Finance LLC, Tranche G Term Loan, 3.25%,        
  4/29/20 United States 1,881,000   1,874,785
          8,370,457
  Health Care Equipment & Services 4.9%        
  Alere Inc., B Term Loan, 4.25%, 6/30/17 United States 2,140,725   2,156,781
  Biomet Inc., Dollar Term B-2 Loan, 3.653% - 3.733%, 7/25/17 United States 994,987   997,406
  Community Health Systems Inc.,        
  2017 Term E Loan, 3.447% - 3.483%, 1/25/17 United States 630,472   635,642
  2021 Term D Loan, 4.25%, 1/27/21 United States 2,927,292   2,955,640
  DaVita HealthCare Partners Inc., Tranche B-2 Term Loan, 4.00%,        
  8/24/19 United States 2,873,625   2,894,663
  Envision Healthcare Corp. (Emergency Medical), Initial Term Loan,        
  4.00%, 5/25/18 United States 2,071,114   2,075,969
  Iasis Healthcare LLC, Term B-2 Loan, 4.50%, 5/03/18 United States 1,747,008   1,756,015
  Kinetic Concepts Inc., Term E-2 Loan, 3.50%, 11/04/16 United States 1,955,324   1,961,841
  National Mentor Holdings Inc., Initial Tranche B Term Loan, 4.75%,        
  1/31/21 United States 360,000   363,075
  U.S. Renal Care Inc.,        
   Add -On Tranche B-2 Term Loan, 3.25%, 7/03/19 United States 1,280,000   1,280,800
  Tranche B-2 Term Loan, 4.25% - 5.50%, 7/03/19 United States 1,990,000   1,991,244
          19,069,076

 

Annual Report | 29


 

Franklin Templeton        
 
Limited Duration Income Trust      
 
Statement of Investments, March 31, 2014 (continued)      
 
 
  Country Principal Amount*   Value
f,gSenior Floating Rate Interests (continued)        
Household & Personal Products 1.3%        
Apex Tool Group LLC, Term Loan, 4.50%, 2/01/20 United States 1,366,200 $ 1,355,954
Revlon Consumer Products Corp., Replacement Term Loans, 3.25%,        
11/19/17 United States 1,606,088   1,607,259
Spectrum Brands Inc., Tranche C Term Loan, 3.50%, 9/04/19 United States 228,850   229,564
Sun Products Corp., Tranche B Term Loan, 5.50%, 3/23/20 United States 1,991,203   1,903,257
        5,096,034
Insurance 0.2%        
CNO Financial Group Inc. (fka Conseco), Tranche B-2 Term Loan,        
3.75%, 9/28/18 United States 911,904   915,324
Materials 6.1%        
Arysta Lifescience SPC LLC,        
dInitial Term Loan, 4.50%, 5/29/20 United States 2,882,579   2,896,992
Second Lien Initial Term Loan, 8.25%, 11/30/20 United States 1,000,000   1,023,750
Axalta Coating Systems U.S. Holdings Inc., 2014 Specified        
Refinancing Term, 4.00%, 2/01/20 United States 1,925,450   1,930,608
BWAY Holding Co., Initial Term Loan, 4.50%, 8/06/17 United States 938,125   944,721
CeramTec Acquisition Corp., Initial Dollar Term B-2 Loan, 4.25%,        
8/30/20 United States 42,015   42,120
CeramTec GmbH, Dollar Term B-3 Loan, 4.25%, 8/30/20 Germany 129,787   130,111
Exopack Holdings SA, USD Term Loan, 5.25%, 5/08/19 Luxembourg 982,160   996,893
Faenza Acquisition GmbH, Initial Dollar Term B-1 Loan, 4.25%,        
8/30/20 Germany 424,158   425,219
FMG America Finance Inc. (Fortescue Metals Group), Loans, 4.25%,        
6/30/19 United States 2,482,326   2,504,434
Ineos U.S. Finance LLC, Dollar Term Loan, 3.75%, 5/04/18 United States 1,945,949   1,942,300
MacDermid Holdings LLC, First Lien Tranche B Term Loan, 4.00%,        
6/07/20 United States 992,500   997,256
OCI Beaumont LLC, Term B-2 Loans, 6.25%, 8/20/19 United States 508,725   515,084
Oxbow Carbon LLC, First Lien Tranche B Term Loan, 4.25%,        
7/19/19 United States 1,359,684   1,370,448
Reynolds Group Holdings Inc., U.S. Term Loan, 4.00%, 12/01/18 United States 2,514,417   2,526,793
Taminco Global Chemical Corp., Initial Tranche B-3 Dollar Term Loan,        
3.25%, 2/15/19 United States 1,960,237   1,962,687
Tronox Pigments (Netherlands) BV, Term Loan, 4.50%, 3/19/20 Netherlands 1,369,650   1,379,828
Univar Inc., Term B Loan, 5.00%, 6/30/17 United States 1,969,510   1,966,695
        23,555,939
Media 4.7%        
dCengage Learning Acquisitions Inc., Original Term Loans, 8.25%,        
3/31/20 United States 2,000,000   2,026,666
Clear Channel Communications Inc.,        
Tranche B Term Loan, 3.803%, 1/29/16 United States 9,862   9,755
Tranche D Term Loan, 6.903%, 1/30/19 United States 566,279   555,414
Tranche E Term Loan, 7.653%, 7/30/19 United States 182,125   182,239

 

30 | Annual Report


 

  Franklin Templeton        
 
  Limited Duration Income Trust      
 
  Statement of Investments, March 31, 2014 (continued)      
 
 
    Country Principal Amount*   Value
  f,gSenior Floating Rate Interests (continued)        
  Media (continued)        
  Cumulus Media Holdings Inc., Term Loans, 4.25%, 12/23/20 United States 3,519,255 $ 3,551,501
  Entercom Radio LLC, Term Loan B-2, 4.00% - 5.25%, 11/23/18 United States 737,333   742,556
  Gray Television Inc., Initial Term Loan, 4.50%, 10/12/19 United States 472,964   476,275
  Media General Inc., Term B Loan, 4.25%, 7/31/20 United States 970,057   979,751
  Nine Entertainment Group Pty. Ltd., Term B Loan, 3.25%,        
  2/05/20 Australia 1,980,000   1,972,575
  Univision Communications Inc.,        
         First-Lien Term Loan, Add-on, 4.00%, 3/01/20 United States 999,900   1,000,421
           Replacement First-Lien Term Loan, 4.00%, 3/01/20 United States 623,712   624,297
  Virgin Media Bristol LLC, B Facility, 3.50%, 6/07/20 United States 3,100,000   3,096,512
  William Morris Endeavor Entertainment LLC, Term Loans First Lien,        
  6.50%, 3/21/21 United States 3,000,000   2,988,750
          18,206,712
  Pharmaceuticals, Biotechnology & Life Sciences 2.9%        
  dGrifols SA, U.S. Tranche B Term Loan, 5.25%, 2/27/21 United States 1,000,000   1,000,625
  Jazz Pharmaceuticals Inc., Tranche 2 Term Loan, 3.25%, 6/12/18 United States 279,300   279,911
  dMallinckrodt International Finance SA and Mallinck, Initial Term B        
  Loan, 5.00%, 3/19/21 United States 1,170,000   1,172,102
  Par Pharmaceutical Cos. Inc., Term B-2 Loan, 4.00%, 9/30/19 United States 1,596,289   1,600,845
  Pharmaceutical Product Development LLC, Term Loan, 4.00%,        
  12/05/18 United States 2,062,789   2,071,384
  Quintiles Transnational Corp., Term B-3 Loan, 3.75%, 6/08/18 United States 2,000,000   2,003,750
  Valeant Pharmaceuticals International Inc.,        
           Series C-2 Tranche B Term Loan, 3.75%, 12/11/19 Canada 997,468   1,002,456
           Series D-2 Tranche B Term Loan, 3.75%, 2/13/19 Canada 1,876,647   1,886,030
          11,017,103
  Retailing 4.7%        
  Academy Ltd., Initial Term Loans, 4.50%, 8/03/18 United States 1,006,941   1,011,976
  American Builders & Contractors Supply Co. Inc., Term B Loans,        
  3.50%, 4/16/20 United States 1,064,650   1,064,318
  Bass Pro Group LLC, New Term Loan, 3.75%, 11/20/19 United States 1,989,797   1,999,953
  BJ’s Wholesale Club Inc., 2013 (Nov) Replacement Loans, 4.50%,        
  9/26/19 United States 2,190,813   2,201,898
  Evergreen AcqCo. 1 LP (Savers), Term Loan, 5.00% - 6.00%,        
  7/09/19 United States 2,962,500   2,977,312
Jo-Ann Stores Inc., Term B Loan, 4.00%, 3/18/18 United States 1,904,565   1,905,733
  dThe Neiman Marcus Group Ltd. Inc., Other Term Loan, 4.25%,        
  10/25/20 United States 2,000,000   2,010,156
  Party City Holdings Inc., 2014 Replacement Term Loan, 4.00%,        
  7/27/19 United States 2,689,203   2,696,249
  Prestige Brands Inc., Term B-1 Loan, 3.75%, 1/31/19 United States 660,792   664,757
  Sungard Availability Services Capital Inc., Term Loan B, 7.25%,        
  3/31/19 United States 1,400,000   1,405,688
          17,938,040

 

Annual Report | 31


 

Franklin Templeton        
 
Limited Duration Income Trust      
 
Statement of Investments, March 31, 2014 (continued)      
 
 
  Country Principal Amount*   Value
f,gSenior Floating Rate Interests (continued)        
Semiconductors & Semiconductor Equipment 0.3%        
Freescale Semiconductor Inc., Tranche B-4 Term Loan, 4.25%,        
2/28/20 United States 992,500 $ 996,687
Software & Services 1.9%        
Activision Blizzard Inc., Term Loan, 3.25%, 10/11/20 United States 745,800   746,846
BMC Software Finance Inc., Initial U.S. Term Loans, 5.00%,        
9/10/20 United States 2,014,950   2,019,605
MoneyGram International Inc., Incremental Term Loan B, 5.50%,        
3/28/20 United States 660,000   662,475
Safenet Inc., First Lien Initial Term Loan, 6.75%, 2/24/20 United States 850,000   854,250
SunGard Data Systems Inc., Tranche E Term Loan, 4.00%,        
3/08/20 United States 2,019,977   2,027,552
Web.com Group Inc., 1st Lien Term Loan, 4.50%, 10/27/17 United States 1,030,297   1,043,175
        7,353,903
Technology Hardware & Equipment 1.4%        
Alcatel-Lucent USA Inc., US Term Loan C (TLC), 4.50%, 1/30/19 United States 994,962   1,005,409
Dell International LLC, Term B Loan, 4.50%, 4/29/20 United States 1,995,000   1,984,028
dOberthur Technologies of America Corp., Tranche B-2 Term Loan,        
5.75%, 10/18/19 United States 997,500   1,002,338
Telesat Canada/Telesat LLC, U.S. Term B-2 Loan, 3.50%, 3/28/19 Canada 1,487,425   1,489,750
        5,481,525
Telecommunication Services 2.2%        
Genesys Telecom Holdings U.S. Inc., Dollar Term Loan, 4.00%,        
2/08/20 United States 1,093,243   1,094,609
Intelsat Jackson Holdings SA, Tranche B-2 Term Loan, 3.75%,        
6/30/19 Luxembourg 3,410,931   3,423,705
NTELOS Inc., Term B Advance, 5.75%, 11/11/19 United States 2,311,671   2,314,560
Zayo Group LLC, Term Loan, 4.00%, 7/02/19 United States 1,562,059   1,565,151
        8,398,025
Transportation 1.2%        
Delta Air Lines Inc.,        
Term Loan B, 3.50%, 4/20/17 United States 1,945,000   1,951,772
Term Loan B-1, 3.50%, 10/18/18 United States 871,200   872,834
Hertz Corp., Credit Linked Deposit, 3.75%, 3/11/18 United States 1,000,000   994,375
U.S. Airways Inc., Tranche B-1 Term Loan, 3.50%, 5/23/19 United States 970,000   970,304
        4,789,285
Utilities 0.8%        
Calpine Corp.,        
Term Loan, 4.00%, 4/01/18 United States 2,638,400   2,651,043
Term Loans, 4.00%, 10/09/19 United States 334,900   336,365
        2,987,408
Total Senior Floating Rate Interests        
(Cost $194,091,430)       195,801,960
 
32 | Annual Report        

 


 

Franklin Templeton          
 
Limited Duration Income Trust        
 
Statement of Investments, March 31, 2014 (continued)        
 
 
  Country                                                     Principal Amount*     Value
Foreign Government and Agency Securities 1.2%          
Government of Malaysia,          
3.434%, 8/15/14 Malaysia 85,000 MYR $ 26,082
3.741%, 2/27/15 Malaysia 2,860,000 MYR   881,523
3.835%, 8/12/15 Malaysia 475,000 MYR   146,829
4.72%, 9/30/15 Malaysia 63,000 MYR   19,733
3.197%, 10/15/15 Malaysia 280,000 MYR   85,797
Government of Poland,          
5.75%, 4/25/14 Poland 870,000 PLN   288,360
5.50%, 4/25/15 Poland 645,000 PLN   219,420
5.00%, 4/25/16 Poland 125,000 PLN   42,971
4.75%, 10/25/16 Poland 1,200,000 PLN   412,692
Strip, 1/25/16 Poland 310,000 PLN   97,251
Korea Monetary Stabilization Bond,          
senior bond, 2.47%, 4/02/15 South Korea 43,700,000 KRW   40,965
senior note, 2.57%, 6/09/14 South Korea 153,000,000 KRW   143,674
senior note, 2.82%, 8/02/14 South Korea 170,200,000 KRW   159,953
senior note, 2.78%, 10/02/14 South Korea 678,400,000 KRW   637,614
senior note, 2.84%, 12/02/14 South Korea 242,080,000 KRW   227,681
Korea Treasury Bond, senior note,          
3.25%, 12/10/14 South Korea 56,700,000 KRW   53,475
3.25%, 6/10/15 South Korea 42,100,000 KRW   39,795
2.75%, 12/10/15 South Korea 204,200,000 KRW   191,739
3.00%, 12/10/16 South Korea 1,000,000,000 KRW   942,688
Total Foreign Government and Agency Securities          
(Cost $4,595,293)         4,658,242
Asset-Backed Securities and Commercial Mortgage-Backed          
Securities 8.9%          
Banks 6.3%          
Banc of America Commercial Mortgage Trust,          
2005-3, A2, 4.501%, 7/10/43 United States 239,727     240,377
2006-4, AJ, 5.695%, 7/10/46 United States 1,610,000     1,674,428
Bear Stearns Commercial Mortgage Securities Inc.,          
g2006-PW11, AJ, FRN, 5.607%, 3/11/39 United States 1,750,000     1,831,489
g2006-PW12, AJ, FRN, 5.937%, 9/11/38 United States 1,500,000     1,547,314
2006-PW13, AJ, 5.611%, 9/11/41 United States 1,820,000     1,867,448
g2007-PW16, AM, FRN, 5.896%, 6/11/40 United States 260,000     290,234
Bear Stearns Commercial Mortgage Securities Trust, 2007-PW15, A4,          
5.331%, 2/11/44 United States 97,449     105,860
Citigroup Commercial Mortgage Trust,          
2006-C5, AJ, 5.482%, 10/15/49 United States 1,200,000     1,206,362
g2007-C6, AM, FRN, 5.893%, 6/10/17 United States 1,520,000     1,677,446
gCitigroup/Deutsche Bank Commercial Mortgage Trust, 2006-CD3, AJ,          
FRN, 5.688%, 10/15/48 United States 1,300,000     1,248,660

 

Annual Report | 33


 

Franklin Templeton        
 
Limited Duration Income Trust      
 
Statement of Investments, March 31, 2014 (continued)      
 
 
  Country Principal Amount*   Value
Asset-Backed Securities and Commercial Mortgage-Backed        
Securities (continued)        
Banks (continued)        
Greenwich Capital Commercial Funding Corp.,        
g2006-GG7, AJ, FRN, 6.015%, 7/10/38 United States 1,590,000 $ 1,648,852
2007-GG9, A4, 5.444%, 3/10/39 United States 825,000   904,827
2007-GG9, AM, 5.475%, 3/10/39 United States 1,430,000   1,541,125
JPMorgan Chase Commercial Mortgage Securities Corp.,        
2006-CB17, AM, 5.464%, 12/12/43 United States 380,000   395,906
g2006-LDP7, AJ, FRN, 6.025%, 4/15/45 United States 2,000,000   2,055,678
gLB-UBS Commercial Mortgage Trust, 2006-C4, AM, FRN, 6.051%,        
6/15/38 United States 1,100,000   1,202,359
gMerrill Lynch Mortgage Investors Trust, 2003-OPT1, B2, FRN, 4.28%,        
7/25/34 United States 33,301   2,996
gMerrill Lynch Mortgage Trust, 2005-CKI1, AJ, FRN, 5.457%,        
11/12/37 United States 1,825,000   1,919,739
gMorgan Stanley ABS Capital I Inc. Trust, 2003-NC10, B1, FRN,        
5.104%, 10/25/33 United States 350,442   250,573
gMorgan Stanley Capital I Trust,        
2006-HQ8, AJ, FRN, 5.678%, 3/12/44 United States 110,000   112,920
2007-IQ16, AM, FRN, 6.297%, 12/12/49 United States 710,000   804,101
2007-IQ16, AMA, FRN, 6.293%, 12/12/49 United States 750,000   841,883
Wells Fargo Mortgage Backed Securities Trust,        
g04-W, A9, FRN, 2.615%, 11/25/34 United States 552,568   572,472
2007-3, 3A1, 5.50%, 4/25/37 United States 306,503   317,958
        24,261,007
Diversified Financials 2.6%        
c,gARES CLO Funds, 2007-12A, B, 144A, FRN, 1.235%, 11/25/20 United States 530,000   514,365
gArgent Securities Inc., 2003-W5, M4, FRN, 5.779%, 10/25/33 United States 575,617   446,382
c,gAtrium CDO Corp., 10A, C, 144A, FRN, 2.837%, 7/16/25 United States 920,000   902,980
c,gCatamaran CLO Ltd., 2013-1A, C, 144A, FRN, 2.839%, 1/27/25 Cayman Islands 750,000   727,634
c,gCent CDO Ltd., 2007-15A, A2B, 144A, FRN, 0.576%, 3/11/21 United States 457,000   427,789
c,gCent CLO LP, 2013-17A, D, 144A, FRN, 3.236%, 1/30/25 Cayman Islands 392,157   392,526
g,hChase Funding Mortgage Loan Asset-Backed Certificates, 2004-2,        
2A2, FRN, 0.654%, 2/25/35 United States 493,412   426,386
c,gCIFC Funding Ltd., 2007-3A, A1J, 144A, FRN, 0.639%, 7/26/21 United States 640,000   610,368
c,gColumbus Nova CLO Ltd., 2007-2A, A2, 144A, FRN, 1.239%,        
10/15/21 United States 310,000   301,645
c,gCT CDO IV Ltd., 2006-4A, A1, 144A, FRN, 0.467%, 10/20/43 United States 1,125,472   1,094,251
c,gGleneagles CLO Ltd., 2005-1A, A2, 144A, FRN, 0.638%,        
11/01/17 United States 1,000,000   976,942
c,gING Investment Management CLO Ltd.,        
2013-1A, B, 144A, FRN, 3.139%, 4/15/24 Cayman Islands 180,000   180,000
2013-1A, C, 144A, FRN, 3.739%, 4/15/24 Cayman Islands 450,000   435,870
2013-2A, B, 144A, FRN, 2.919%, 4/25/25 United States 1,000,000   986,500

 

34 | Annual Report


 

Franklin Templeton

Limited Duration Income Trust

Statement of Investments, March 31, 2014 (continued)

  Country Principal Amount*     Value
Asset-Backed Securities and Commercial Mortgage-Backed          
Securities (continued)          
Diversified Financials (continued)          
gOption One Mortgage Loan Trust, 2003-6, M5, FRN, 5.104%,          
11/25/33 United States 285,741   $ 136,441
gStructured Asset Investment Loan Trust, 2003-BC2, M3, FRN,          
5.029%, 4/25/33 United States 13,987     1,533
g,iTalisman 6 Finance, Reg S, FRN, 0.462%, 10/22/16 Ireland         729,366   EUR   963,468
c,gWestchester CLO Ltd., 2007-1A, A1A, 144A, FRN, 0.463%,          
8/01/22 United States 522,389     514,240
          10,039,320
Total Asset-Backed Securities and Commercial          
Mortgage-Backed Securities (Cost $33,095,748)         34,300,327
Mortgage-Backed Securities 31.7%          
gFederal Home Loan Mortgage Corp. (FHLMC) Adjustable Rate 0.1%          
FHLMC, 2.702%, 5/01/34 United States 530,088     537,132
Federal Home Loan Mortgage Corp. (FHLMC) Fixed Rate 4.9%          
FHLMC Gold 15 Year, 5.00%, 12/01/23 United States 1,505,651     1,630,762
FHLMC Gold 15 Year, 5.50%, 7/01/19 United States 41,087     44,610
FHLMC Gold 30 Year, 3.50%, 5/01/42 - 10/01/43 United States 1,618,854     1,629,900
dFHLMC Gold 30 Year, 4.00%, 4/01/41 United States 8,000,000     8,301,563
FHLMC Gold 30 Year, 4.50%, 9/01/39 - 4/01/40 United States 561,751     600,079
FHLMC Gold 30 Year, 5.00%, 11/01/38 United States 897,470     975,337
FHLMC Gold 30 Year, 5.50%, 4/01/38 United States 1,799,738     1,978,974
FHLMC Gold 30 Year, 6.00%, 7/01/28 - 11/01/36 United States 1,666,304     1,859,515
FHLMC Gold 30 Year, 6.50%, 8/01/27 - 3/01/38 United States 770,165     862,559
FHLMC Gold 30 Year, 7.00%, 9/01/27 United States 259,432     290,269
FHLMC Gold 30 Year, 8.00%, 1/01/31 United States 31,309     36,085
FHLMC Gold 30 Year, 8.50%, 7/01/31 United States 678,039     824,284
          19,033,937
gFederal National Mortgage Association (FNMA) Adjustable Rate 0.3%          
FNMA, 1.79% - 1.975%, 6/01/32 - 7/01/34 United States 1,101,491     1,162,289
Federal National Mortgage Association (FNMA) Fixed Rate 24.8%          
FNMA 15 Year, 3.00%, 8/01/27 United States 29,325     30,211
dFNMA 15 Year, 3.00%, 4/15/28 United States 36,475,000     37,478,062
dFNMA 15 Year, 3.50%, 1/01/26 - 4/15/28 United States 514,844     540,137
FNMA 15 Year, 5.50%, 7/01/20 United States 675,828     727,140
FNMA 15 Year, 6.00%, 6/01/17 United States 431     433
FNMA 15 Year, 6.50%, 7/01/20 United States 7,003     7,354
FNMA 30 Year, 3.00%, 9/01/32 - 4/01/43 United States 2,937,775     2,862,110
FNMA 30 Year, 4.00%, 12/01/40 - 2/01/41 United States 3,643,329     3,793,833
dFNMA 30 Year, 4.00%, 3/01/41 United States 30,850,000     32,074,359
FNMA 30 Year, 4.50%, 9/01/40 - 12/01/40 United States 3,186,807     3,407,049
dFNMA 30 Year, 5.00%, 4/01/39 United States 6,653,000     7,254,371

 

Annual Report | 35


 

Franklin Templeton        
 
Limited Duration Income Trust      
 
Statement of Investments, March 31, 2014 (continued)      
 
 
  Country Principal Amount*   Value
Mortgage-Backed Securities (continued)        
Federal National Mortgage Association (FNMA) Fixed Rate (continued)        
FNMA 30 Year, 5.00%, 5/01/38 - 7/01/39 United States 1,903,093 $ 2,079,428
FNMA 30 Year, 5.50%, 6/01/37 United States 1,529,979   1,689,383
FNMA 30 Year, 6.00%, 4/01/33 - 6/01/38 United States 2,425,473   2,711,732
FNMA 30 Year, 6.50%, 8/01/32 United States 295,720   332,564
FNMA 30 Year, 7.00%, 9/01/18 United States 59,999   65,604
FNMA 30 Year, 8.00%, 10/01/29 United States 109,984   122,848
FNMA 30 Year, 8.50%, 8/01/26 United States 200,519   220,022
        95,396,640
Government National Mortgage Association (GNMA) Fixed Rate 1.6%        
GNMA I SF 30 Year, 6.50%, 6/15/31 - 12/15/33 United States 571,954   645,303
dGNMA II SF 30 Year, 3.50%, 4/01/42 United States 3,800,000   3,878,969
GNMA II SF 30 Year, 3.50%, 6/20/42 - 7/20/43 United States 1,190,941   1,217,578
GNMA II SF 30 Year, 7.00%, 1/20/24 - 1/20/29 United States 83,490   94,403
GNMA II SF 30 Year, 8.00%, 1/20/28 - 10/20/31 United States 190,636   227,092
        6,063,345
Total Mortgage-Backed Securities        
(Cost $121,541,798)       122,193,343
Municipal Bonds 1.6%        
Arizona School Facilities Board COP, Refunding, Series A-1, 5.00%,        
9/01/19 United States 650,000   755,684
Metropolitan St. Louis Sewer District Wastewater System Revenue,        
Series B, 4.00%, 5/01/19 United States 1,000,000   1,125,960
New York Thruway Authority General Junior Indebtedness Obligations        
Revenue, Series A, 5.00%, 5/01/19 United States 1,000,000   1,155,660
Tobacco Settlement Financing Corp. Revenue, Asset-Backed, State        
Contingency Contract Secured, Refunding, Series B, 5.00%,        
6/01/20 United States 1,000,000   1,046,880
Triborough Bridge and Tunnel Authority Revenues, Refunding,        
Sub Series D-1, 2.885%, 11/15/19 United States 1,000,000   1,007,610
University of California Revenues, General, Series AK, 5.00%,        
5/15/48 United States 790,000   940,163
Washington State GO, Various Purpose, Series D, 5.00%, 2/01/23 United States 255,000   298,676
Total Municipal Bonds (Cost $6,260,995)       6,330,633
 
                   Shares    
Litigation Trusts (Cost $—) 0.0%        
a,jNewPage Corp., Litigation Trust United States 1,500,000  
Total Investments before Short Term Investments        
(Cost $533,863,637)       549,560,145

 

36 | Annual Report


 

Franklin Templeton

Limited Duration Income Trust

Statement of Investments, March 31, 2014 (continued)

  Country Principal Amount*     Value  
Short Term Investments 5.2%            
Foreign Government and Agency Securities 0.3%            
kBank of Negara Monetary Notes, 4/03/14 - 11/06/14 Malaysia       1,745,000  MYR $ 528,262  
Government of Sweden, 6.75%, 5/05/14 Sweden  3,200,000   SEK   497,180  
Korea Monetary Stabilization Bond, senior bond, 2.72%, 9/09/14 South Korea 150,000,000  KRW   140,930  
kMalaysia Treasury Bill, 5/30/14 Malaysia         60,000  MYR   18,290  
Total Foreign Government and Agency Securities            
(Cost $1,189,011)         1,184,662  
Total Investments before Money Market Funds            
      (Cost $535,052,648)         550,744,807  
 
    Shares        
Money Market Funds (Cost $18,716,414) 4.9%            
a,lInstitutional Fiduciary Trust Money Market Portfolio United States 18,716,414     18,716,414  
Total Investments (Cost $553,769,062) 147.8%         569,461,221  
Preferred Shares (23.4)%         (90,000,000 )
Other Assets, less Liabilities (24.4)%         (94,073,163 )
Net Assets 100.0%       $ 385,388,058  

 

Rounds to less than 0.1% of net assets.
*The principal amount is stated in U.S. dollars unless otherwise indicated.
aNon-income producing.
bPerpetual security with no stated maturity date.
cSecurity 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 Trust’s Board of Trustees. At March 31,
2014, the aggregate value of these securities was $87,125,925, representing 22.61% of net assets.
dA portion or all of the security purchased on a when-issued, delayed delivery, or to-be-announced basis. See Note 1(c).
eIncome may be received in additional securities and/or cash.
fSee Note 1(f) regarding senior floating rate interests.
gThe coupon rate shown represents the rate at period end.
hThe bond pays interest and/or principal based upon the issuer’s ability to pay, which may be less than the stated interest rate or principal paydown.
iSecurity was purchased pursuant to Regulation S under the Securities Act of 1933, which exempts from registration securities offered and sold outside of the United States.
Such a security cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption
from registration. This security has been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At March 31, 2014, the value of this security was $963,468,
representing 0.25% of net assets.
jSecurity has been deemed illiquid because it may not be able to be sold within seven days.
kThe security is traded on a discount basis with no stated coupon rate.
lSee Note 4(c) regarding investments in the Institutional Fiduciary Trust Money Market Portfolio.

Annual Report | 37


 

Franklin Templeton

Limited Duration Income Trust

Statement of Investments, March 31, 2014 (continued)

At March 31, 2014, the Fund had the following forward exchange contracts outstanding. See Note 1(d).

Forward Exchange Contracts                      
 
          Contract Settlement   Unrealized   Unrealized  
Currency Counterpartya                                        Type        Quantity   Amount Date   Appreciation   Depreciation  
Euro DBAB Buy 376,000 $ 518,692 4/03/14 $ $ (642 )
Euro DBAB Sell 376,000   483,216 4/03/14     (34,833 )
Euro DBAB Buy 391,123   522,032 4/22/14   16,833    
Euro DBAB Sell 781,096   1,025,423 4/22/14     (50,723 )
Euro DBAB Sell 378,290   500,667 5/05/14     (20,506 )
Japanese Yen DBAB Sell 48,553,750   500,000 5/07/14   29,513    
British Pound Sterling DBAB Sell 900,000   1,391,670 5/09/14     (108,326 )
Euro DBAB Buy 471,560   645,424 5/09/14   4,244    
Euro DBAB Sell 600,000   787,650 5/09/14     (38,969 )
Euro DBAB Sell 385,820   500,000 5/28/14     (31,531 )
Japanese Yen BZWS Sell 30,150,000   309,815 6/10/14   17,609    
Japanese Yen HSBC Sell 32,110,000   331,948 6/10/14   20,747    
Japanese Yen JPHQ Sell 21,770,000   221,248 6/10/14   10,259    
Japanese Yen DBAB Sell 10,600,000   110,306 6/11/14   7,574    
Japanese Yen JPHQ Sell 29,750,000   309,820 6/11/14   21,489    
Japanese Yen JPHQ Sell 12,500,000   132,296 6/17/14   11,145    
Euro DBAB Sell 208,656   269,396 7/10/14     (18,055 )
Euro DBAB Sell 210,898   281,760 8/26/14     (8,776 )
Euro JPHQ Sell 105,568   140,881 8/27/14     (4,550 )
Japanese Yen JPHQ Sell 180,180,000   1,839,348 11/05/14   91,332    
Euro DBAB Sell 117,683   159,326 11/10/14     (2,800 )
Euro JPHQ Sell 78,316   104,430 11/12/14     (3,462 )
Euro DBAB Sell 309,763   419,624 12/04/14     (7,126 )
Japanese Yen DBAB Sell 309,500,000   3,006,752 12/22/14   2,869    
Euro DBAB Sell 366,621   499,759 1/09/15     (5,347 )
Japanese Yen DBAB Sell 397,510,000   3,871,086 1/09/15   31,532   (19,197 )
Euro DBAB Sell 2,633,948   3,625,326 2/09/15   1,047   (4,880 )
Japanese Yen DBAB Sell 171,860,000   1,677,501 2/09/15   8,689    
Japanese Yen HSBC Sell 28,600,000   279,016 2/09/15   1,302    
Japanese Yen JPHQ Sell 60,500,000   590,564 2/09/15   3,091    
Unrealized appreciation (depreciation)             279,275   (359,723 )
Net unrealized appreciation (depreciation)               $ (80,448 )
 
aMay be comprised of multiple contracts using the same currency and settlement date.                

 

38 | Annual Report


 

Franklin Templeton

Limited Duration Income Trust

Statement of Investments, March 31, 2014 (continued)

At March 31, 2014, the Fund had the following credit default swap contracts outstanding. See Note 1(d).

Credit Default Swap Contracts                                  
 
                Upfront                  
  Counter-     Periodic       Premiums                  
  party/   Notional Payment   Expiration   Paid     Unrealized   Unrealized   Market    
Description Exchange   Amounta Rate   Date   (Received)     Appreciation   Depreciation   Value   Ratingb
OTC Swaps                                  
Contracts to Sell Protectionc                                  
Traded Index                                  
CMBX.NA.AJ.2 FBCO $ 1,750,000 1.09 % 3/15/49 $ (250,053 ) $ 84,664 $ $ (165,389 ) Non
                                  Investment
                                  Grade
MCDX.NA.21 CITI   3,000,000 1.00 % 12/20/18   (53,443 )   32,230     (21,213 ) Investment
                                  Grade
OTC Swaps unrealized appreciation (depreciation)                   116,894          
Net unrealized appreciation (depreciation)                   $ 116,894            

 

aIn U.S. dollars unless otherwise indicated. For contracts to sell protection, the notional amount is equal to the maximum potential amount of the future payments and no
recourse provisions have been entered into in association with the contracts.
bBased on Standard and Poor’s (S&P) Rating for single name swaps and internal ratings for index swaps. Internal ratings based on mapping into equivalent ratings from
external vendors.
cThe fund enters contracts to sell protection to create a long credit position. Performance triggers include failure to pay or bankruptcy of the underlying securities for traded
index swaps.

See Note 9 regarding other derivative information.

See Abbreviations on page 56.

Annual Report | The accompanying notes are an integral part of these financial statements. | 39


 

Franklin Templeton      
 
Limited Duration Income Trust      
 
Financial Statements      
 
 
Statement of Assets and Liabilities      
March 31, 2014      
 
Assets:      
Investments in securities:      
Cost - Unaffiliated issuers $ 535,052,648  
Cost - Sweep Money Fund (Note 4c)   18,716,414  
Total cost of investments $ 553,769,062  
Value - Unaffiliated issuers $ 550,744,807  
Value - Sweep Money Fund (Note 4c)   18,716,414  
Total value of investments   569,461,221  
Cash   2,328,320  
Foreign currency, at value (cost $629,206)   631,079  
Receivables:      
Investment securities sold   12,541,750  
Dividends and interest   4,766,115  
Due from brokers   560,000  
Unrealized appreciation on forward exchange contracts   279,275  
Unrealized appreciation on OTC swap contracts   116,894  
            Total assets   590,684,654  
Liabilities:      
Payables:      
Investment securities purchased   112,244,696  
Management fees   335,447  
Distributions to common shareholders   1,959,002  
Distributions to preferred shareholders   9,224  
Trustees’ fees and expenses   372  
OTC Swaps (premiums received $315,333)   303,496  
Unrealized depreciation on forward exchange contracts   359,723  
Accrued expenses and other liabilities   84,636  
              Total liabilities   115,296,596  
Preferred shares at redemption value [$25,000 liquidation preference per share (3,600 shares outstanding)]      
(Note 3)   90,000,000  
Net assets applicable to common shares $ 385,388,058  
Net assets applicable to common shares consist of:      
Paid-in capital $ 381,377,452  
Undistributed net investment income   152,058  
Net unrealized appreciation (depreciation)   15,735,924  
Accumulated net realized gain (loss)   (11,877,376 )
Net assets applicable to common shares $ 385,388,058  
Common shares outstanding   26,835,650  
Net asset value per common share $ 14.36  

 

40 | The accompanying notes are an integral part of these financial statements. | Annual Report


 

Franklin Templeton      
 
Limited Duration Income Trust      
 
Financial Statements (continued)      
 
 
Statement of Operations      
for the year ended March 31, 2014      
 
Investment income:      
Dividends $ 4,261  
Interest   25,843,485  
Total investment income   25,847,746  
Expenses:      
Management fees (Note 4a)   3,839,069  
Administrative fees (Note 4b)   92,592  
Transfer agent fees   71,103  
Custodian fees (Note 5)   6,961  
Reports to shareholders   50,552  
Registration and filing fees   22,532  
Professional fees   70,874  
Trustees’ fees and expenses   22,149  
Auction agent fees and expenses   44,808  
Other   64,789  
Total expenses   4,285,429  
Expense reductions (Note 5)   (178 )
Expense waived/paid by affiliates (Note 4c)   (13,076 )
                Net expenses   4,272,175  
 Net investment income   21,575,571  
Realized and unrealized gains (losses):      
Net realized gain (loss) from:      
Investments   4,653,863  
Foreign currency transactions   553,886  
Swap contracts   302,365  
Net realized gain (loss)   5,510,114  
Net change in unrealized appreciation (depreciation) on:      
Investments   347,468  
Translation of other assets and liabilities denominated in foreign currencies   (722,218 )
Net change in unrealized appreciation (depreciation)   (374,750 )
Net realized and unrealized gain (loss)   5,135,364  
Net increase (decrease) in net assets resulting from operations   26,710,935  
Distributions to preferred shareholders from net investment income   (1,498,482 )
Net increase (decrease) in net assets applicable to common shares resulting from operations $ 25,212,453  

 

Annual Report | The accompanying notes are an integral part of these financial statements. | 41


 

Franklin Templeton            
 
Limited Duration Income Trust            
 
Financial Statements (continued)            
 
 
Statements of Changes in Net Assets            
 
 
                           Year Ended March 31,  
    2014     2013  
Increase (decrease) in net assets:            
Operations:            
Net investment income $ 21,575,571   $ 24,197,340  
Net realized gain (loss) from investments, foreign currency transactions and swap contracts   5,510,114     6,624,015  
Net change in unrealized appreciation (depreciation) on investments and translation of other            
assets and liabilities denominated in foreign currencies   (374,750 )   9,974,725  
Distribution to preferred shareholders from net investment income   (1,498,482 )   (1,459,254 )
Net increase (decrease) in net assets applicable to common shares resulting from            
                    operations   25,212,453     39,336,826  
Distributions to common shareholders from net investment income   (23,508,029 )   (26,434,975 )
Capital share transactions from reinvestment of distributions (Note 2)   52,099     634,640  
Net increase (decrease) in net assets   1,756,523     13,536,491  
Net assets applicable to common shares:            
Beginning of year   383,631,535     370,095,044  
End of year $ 385,388,058   $ 383,631,535  
Undistributed net investment income (distributions in excess of net investment income) included            
in net assets:            
End of year $ 152,058   $ (474,725 )

 

42 | The accompanying notes are an integral part of these financial statements. | Annual Report


 

Franklin Templeton

Limited Duration Income Trust

Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Templeton Limited Duration Income Trust (Fund) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as a closed-end investment company.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Fund calculates the net asset value (NAV) per share at the close of the New York Stock Exchange (NYSE), generally at 4 p.m. Eastern time (NYSE close) on each day the NYSE is open for trading. Under procedures approved by the Fund’s Board of Trustees (the Board), the Fund’s administrator, investment manager and other affiliates have formed the Valuation and Liquidity Oversight Committee (VLOC). The VLOC provides administration and oversight of the Fund’s valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities listed on an 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 (OTC) securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities. Investments in open-end mutual funds are valued at the closing net asset value.

Debt securities generally trade in the OTC market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, credit spreads, estimated default rates, anticipated market interest rate volatility, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent

Annual Report | 43


 

Franklin Templeton

Limited Duration Income Trust

Notes to Financial Statements (continued)

1.      ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
a.      Financial Instrument Valuation (continued)

at the foreign exchange rate in effect at the NYSE close on the date that the values of the foreign debt securities are determined.

Certain derivative financial instruments (derivatives) trade in the OTC market. The Fund’s pricing services use various techniques including industry standard option pricing models and proprietary discounted cash flow models to determine the fair value of those instruments. The Fund’s net benefit or obligation under the derivative contract, as measured by the fair value of the contract, is included in net assets.

The Fund has procedures to determine the fair value of financial instruments for which market prices are not reliable or readily available. Under these procedures, the VLOC convenes on a regular basis to review such financial instruments and considers a number of factors, including significant unobservable valuation inputs, when arriving at fair value. The VLOC primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VLOC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.

b. Foreign Currency Translation

Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. 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 Board.

44 | Annual Report


 

Franklin Templeton

Limited Duration Income Trust

Notes to Financial Statements (continued)

1.      ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
b.      Foreign Currency Translation (continued)

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, Delayed Delivery, and TBA Basis

The Fund purchases securities on a when-issued, delayed delivery, and to-be-announced (TBA) basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of holding the securities, it may sell the securities before the settlement date. Sufficient assets have been segregated for these securities.

d. Derivative Financial Instruments

The Fund invested in derivatives in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown on the Statement of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Statement of Operations.

Derivative counterparty credit risk is managed through a formal evaluation of the creditworthi-ness of all potential counterparties. The Fund attempts to reduce its exposure to counterparty credit risk on OTC derivatives, whenever possible, by entering into International Swaps and Derivatives Association (ISDA) master agreements with certain counterparties. These agreements contain various provisions, including but not limited to collateral requirements, events of default, or early termination. Termination events applicable to the counterparty include certain

Annual Report | 45


 

Franklin Templeton

Limited Duration Income Trust

Notes to Financial Statements (continued)

1.      ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
d.      Derivative Financial Instruments (continued)

deteriorations in the credit quality of the counterparty. Termination events applicable to the Fund include failure of the Fund to maintain certain net asset levels and/or limit the decline in net assets over various periods of time. In the event of default or early termination, the ISDA master agreement gives the non-defaulting party the right to net and close-out all transactions traded, whether or not arising under the ISDA agreement, to one net amount payable by one counterparty to the other. However, absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities. Early termination by the counterparty may result in an immediate payment by the Fund of any net liability owed to that counterparty under the ISDA agreement.

Collateral requirements differ by type of derivative. Collateral terms are contract specific for OTC derivatives. For OTC derivatives traded under an ISDA master agreement, posting of collateral is required by either the fund or the applicable counterparty if the total net exposure of all OTC derivatives with the applicable counterparty exceeds the minimum transfer amount, which typically ranges from $100,000 to $250,000, and can vary depending on the counterparty and the type of the agreement. Generally, collateral is determined at the close of fund business each day and any additional collateral required due to changes in derivative values may be delivered by the fund or the counterparty within a few business days. Collateral pledged and/or received by the fund, if any, is held in segregated accounts with the fund’s custodian/counter-party broker and can be in the form of cash and/or securities. Unrestricted cash may be invested according to the Fund’s investment objectives.

The Fund entered into forward exchange contracts primarily to manage and/or gain exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency at a specific exchange rate on a future date.

The Fund entered into credit default swap contracts primarily to manage and/or gain exposure to credit risk. A credit default swap is an agreement between the Fund and a counterparty whereby the buyer of the contract receives credit protection and the seller of the contract guarantees the credit worthiness of a referenced debt obligation. These agreements may be privately negotiated in the over-the-counter market (“OTC credit default swaps”) or may be executed in a multilateral trade facility platform, such as a registered exchange (“centrally cleared credit default swaps”). The underlying referenced debt obligation may be a single issuer of corporate or sovereign debt, a credit index, or a tranche of a credit index. In the event of a default of the underlying referenced debt obligation, the buyer is entitled to receive the notional amount of the credit default swap contract from the seller in exchange for the referenced debt obligation, a net settlement amount equal to the notional amount of the credit default swap less the recovery value of the referenced debt obligation, or other agreed upon amount. For centrally cleared credit

46 | Annual Report


 

Franklin Templeton

Limited Duration Income Trust

Notes to Financial Statements (continued)

1.      ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
d.      Derivative Financial Instruments (continued)

default swaps, required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable on the Statement of Assets and Liabilities. Over the term of the contract, the buyer pays the seller a periodic stream of payments, provided that no event of default has occurred. Such periodic payments are accrued daily as an unrealized appreciation or depreciation until the payments are made, at which time they are realized. Payments received or paid to initiate a credit default swap contract are reflected on the Statement of Assets and Liabilities and represent compensating factors between stated terms of the credit default swap agreement and prevailing market conditions (credit spreads and other relevant factors). These upfront payments are amortized over the term of the contract as a realized gain or loss on the Statement of Operations.

See Note 9 regarding other derivative information.

e. Mortgage Dollar Rolls

The Fund enters into mortgage dollar rolls, typically on a TBA basis. Mortgage dollar rolls are agreements between the Fund and a financial institution to simultaneously sell and repurchase mortgage-backed securities at a future date. Gains or losses are realized on the initial sale, and the difference between the repurchase price and the sale price is recorded as an unrealized gain or loss to the Fund upon entering into the mortgage dollar roll. In addition, the Fund may invest the cash proceeds that are received from the initial sale. During the period between the sale and repurchase, the Fund is not entitled to principal and interest paid on the mortgage backed securities. The risks of mortgage dollar roll transactions include the potential inability of the counterparty to fulfill its obligations.

The Fund is investing in mortgage dollar rolls as an alternate form of leverage. As a result, the mortgage dollar rolls are considered indebtedness or a “senior security” for purposes of the asset coverage requirements under the 1940 Act.

f. Senior Floating Rate Interests

The Fund invests in senior secured corporate loans that 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 certain restrictions on resale.

Annual Report | 47


 

Franklin Templeton

Limited Duration Income Trust

Notes to Financial Statements (continued)

1.      ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
g.      Income and Deferred Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of March 31, 2014, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

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. Paydown gains and losses are recorded as an adjustment to interest income. Facility fees are recognized as income over the expected term of the loan. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recognized as soon as the Fund is notified of the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital 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.

48 | Annual Report


 

Franklin Templeton

Limited Duration Income Trust

Notes to Financial Statements (continued)

1.      ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
i.      Accounting Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

j. Guarantees and Indemnifications

Under the Trust’s 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 Fund enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

2. SHARES OF BENEFICIAL INTEREST

At March 31, 2014, there were an unlimited number of shares authorized (without par value).

Transactions in the Fund’s shares were as follows:

                Year Ended March 31,
      2014     2013
  Shares   Amount Shares   Amount
Shares issued in reinvestment of distributions 3,618 $ 52,099 45,099 $ 634,640
 
 
3. AUCTION RATE PREFERRED SHARES            

 

The Fund has outstanding 1,200 Preferred Shares Series M, 1,200 Preferred Shares Series W and 1,200 Preferred Shares Series F, each with a $25,000 liquidation preference totaling $90,000,000. Preferred Shares are senior to common shares and the Fund will not declare or pay any dividend on the common shares unless the Fund has declared or paid full cumulative dividends on the Preferred Shares through the most recent dividend date. Dividends to preferred shareholders are cumulative and are declared weekly, at rates established through an auction process. The weekly auctions for Series M, W and F have all failed during the year ended March 31, 2014; consequently, the dividend rate paid on the Preferred Shares has moved to the maximum rate as defined in the prospectus. During the year ended March 31, 2014, the dividends on Preferred Shares ranged from 1.617% to 1.675%.

Annual Report | 49


 

Franklin Templeton

Limited Duration Income Trust

Notes to Financial Statements (continued)

3. AUCTION RATE PREFERRED SHARES (continued)

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, 2014, 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

 

a. Management Fees

The Fund pays an investment management fee to Advisers of 0.70% 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.

Effective May 1, 2013, the Fund combined its investment management and administration agreements as approved by the Board. The fees paid under the combined agreement do not exceed the aggregate fees that were paid under the separate agreements.

Prior to May 1, 2013, the Fund paid investment management fees to Advisers of 0.50% per year of the average daily managed assets.

b. Administrative Fees

Effective May 1, 2013, under an agreement with Advisers, FT Services provides administrative services to the Fund. The fee is paid by Advisers based on the Fund’s average daily managed assets, and is not an additional expense of the Fund.

Prior to May 1, 2013, the Fund paid administrative fees to FT Services of 0.20% per year of the average daily managed assets of the Fund.

50 | Annual Report


 

Franklin Templeton

Limited Duration Income Trust

Notes to Financial Statements (continued)

4.      TRANSACTIONS WITH AFFILIATES (continued)
c.      Investment in Institutional Fiduciary Trust Money Market Portfolio

The Fund invests in the Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), an affiliated open-end investment company. Management fees paid by the Fund are waived on assets invested in the Sweep Money Fund, in an amount not to exceed the management and administrative fees paid directly or indirectly by the Sweep Money Fund.

5. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended March 31, 2014, 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. Capital loss carryforwards with no expiration, if any, must be fully utilized before those losses with expiration dates.

At March 31, 2014, the Fund had capital loss carryforwards of $11,875,503 expiring in 2018.

During the year ended March 31, 2014, the Fund utilized $806,951 of capital loss carryforwards.

The tax character of distributions paid during the years ended March 31, 2014 and 2013, was as follows:

    2014   2013
Distributions paid from Ordinary income $ 25,006,511 $ 27,894,229

 

At March 31, 2014, the cost of investments, net unrealized appreciation (depreciation), and undistributed ordinary income for income tax purposes were as follows:

Cost of investments $ 554,410,154  
 
Unrealized appreciation $ 17,140,519  
Unrealized depreciation   (2,089,452 )
Net unrealized appreciation (depreciation) $ 15,051,067  
 
Distributable earnings - Undistributed ordinary income $ 2,573,840  

 

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatment of mortgage dollar rolls, paydown losses, and swaps.

Annual Report | 51


 

Franklin Templeton

Limited Duration Income Trust

Notes to Financial Statements (continued)

7. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the year ended March 31, 2014, aggregated $1,743,562,564 and $1,744,210,337, respectively.

8. CREDIT RISK

At March 31, 2014, the Fund had 69.39% 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.

9. OTHER DERIVATIVE INFORMATION

At March 31, 2014, the Fund’s investments in derivative contracts are reflected on the Statement of Assets and Liabilities as follows:

  Asset Derivatives     Liability Derivatives
 
Derivative Contracts            
Not Accounted for as Statement of Assets and   Fair Value Statement of Assets and   Fair Value
Hedging Instruments Liabilities Location   Amount Liabilities Location   Amount
Foreign exchange            
contracts Unrealized appreciation on     Unrealized depreciation on    
  forward exchange contracts $ 279,275 forward exchange contracts $ 359,723
Credit contracts Unrealized appreciation on     Unrealized depreciation on    
    OTC swap contracts   116,894 OTC swap contracts  

 

For the year ended March 31, 2014, the effect of derivative contracts on the Fund’s Statement of Operations was as follows:

          Change in  
          Unrealized  
Derivative Contracts     Realized Gain   Appreciation  
Not Accounted for as     (Loss) for   (Depreciation)  
Hedging Instruments Statement of Operations Locations   the Year   for the Year  
Foreign exchange contracts Net realized gain (loss) from foreign currency          
                                                      transactions / Net change in unrealized appreciation
                                                        (depreciation) on translation of other assets and
        liabilities denominated in foreign currencies $ 504,771 $ (732,656 )
Credit contracts Net realized gain (loss) from swap contracts / Net          
                                                      change in unrealized appreciation (depreciation) on
  investments   302,365   76,191  

 

52 | Annual Report


 

Franklin Templeton

Limited Duration Income Trust

Notes to Financial Statements (continued)

9. OTHER DERIVATIVE INFORMATION (continued)

For the year ended March 31, 2014, the average month end fair value of derivatives represented 0.20% of average month end net assets. The average month end number of open derivative contracts for the year was 48.

At March 31, 2014, the Fund’s OTC derivative assets and liabilities, are as follows:

    Gross and Net Amounts of Assets and Liabilities
    Presented in the
    Statement of Assets and Liabilities
                         Assetsa   Liabilitiesa
Derivatives        
Forward exchange contracts $ 279,275 $ 359,723
Swap Contracts   116,894   303,496
         Total $ 396,169 $ 663,219

 

aAbsent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities.

At March 31, 2014, the Fund’s OTC derivative assets which may be offset against the Fund’s OTC derivative liabilities and collateral received from the counterparty, is as follows:

              Amounts Not Offset in the    
          Statement of Assets and Liabilities    
    Gross and                        
    Net Amounts of                        
    Assets Presented   Financial     Financial          
    in the Statement   Instruments     Instruments     Cash   Net Amount
    of Assets and   Available for     Collateral     Collateral   (Not less
    Liabilities      Offset     Receiveda     Received   than zero)
Counterparty                            
BZWS $ 17,609   $     $   $ $ 17,609
CITI   32,230     (32,230 )          
DBAB   102,301     (102,301 )          
FBCO   84,664     (84,664 )          
HSBC   22,049                 22,049
JPHQ   137,316     (8,012 )     (45,258 )     84,046
Total $ 396,169 $ (227,207 ) $ (45,258 ) $ $ 123,704
 
aAt March 31, 2014, the Fund received U.S. Treasury Notes as collateral for derivatives.                  

 

Annual Report | 53


 

Franklin Templeton

Limited Duration Income Trust

Notes to Financial Statements (continued)

9. OTHER DERIVATIVE INFORMATION (continued)

At March 31, 2014, the Fund’s OTC derivative liabilities which may be offset against the Fund’s OTC derivative assets and collateral pledged to the counterparty, is as follows:

        Amounts Not Offset in the      
        Statement of Assets and Liabilities      
    Gross and                      
    Net Amounts                      
    of Liabilities                      
    Presented in   Financial     Financial            
    the Statement   Instruments     Instruments     Cash     Net Amount
    of Assets and   Available for     Collateral          Collateral     (Not less
    Liabilities   Offset     Pledged     Pledgeda     than zero)
Counterparty                          
BZWS $ $   $     —   $   $
CITI   53,443   (32,230 )       —         21,213
DBAB   351,711   (102,301 )       —   (249,410 )  
FBCO   250,053   (84,664 )       —   (165,389 )  
HSBC             —        
JPHQ   8,012   (8,012 )       —        
      Total $ 663,219 $ (227,207 ) $     — $ (414,799 ) $ 21,213

 

aIn some instances, the collateral amounts disclosed in the table above were adjusted due to the requirement to limit collateral amounts to avoid the effect of overcollateralization. Actual collateral received and/or pledged may be more than the amount disclosed herein.

See Note 1(d) regarding derivative financial instruments.

10. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s financial instruments and are summarized in the following fair value hierarchy:

The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.

54 | Annual Report


 

Franklin Templeton

Limited Duration Income Trust

Notes to Financial Statements (continued)

10. FAIR VALUE MEASUREMENTS (continued)

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

A summary of inputs used as of March 31, 2014, in valuing the Fund’s assets and liabilities carried at fair value, is as follows:

    Level 1   Level 2   Level 3   Total
Assets:                
Investments in Securities:                
Equity Investmentsa:                
         Materials $ $ 270,000 $ $ 270,000
Transportation     453,633     453,633
Corporate Bonds     185,552,007     185,552,007
Senior Floating Rate Interests     195,801,960     195,801,960
Foreign Government and Agency                
Securities     4,658,242     4,658,242
Asset-Backed Securities and Commercial                
Mortgage-Backed Securities     34,300,327     34,300,327
Mortgage-Backed Securities     122,193,343     122,193,343
Municipal Bonds     6,330,633     6,330,633
Litigation Trust       b  
Short Term Investments   18,716,414   1,184,662     19,901,076
Total Investments in Securities $ 18,716,414 $ 550,744,807 $ $ 569,461,221
Other Financial Instruments                
Forward Exchange Contracts     279,275     279,275
Swap Contracts     116,894     116,894
Total Other Financial Instruments $ $ 396,169 $ $ 396,169
Liabilities:                
Other Financial Instruments                
Forward Exchange Contracts $ $ 359,723 $ $ 359,723

 

aIncludes common and convertible preferred stocks as well as other equity investments.
bIncludes securities determined to have no value at March 31, 2014.

A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented
when there are significant Level 3 financial instruments at the end of the year.

Annual Report | 55


 

Franklin Templeton

Limited Duration Income Trust

Notes to Financial Statements (continued)

11. NEW ACCOUNTING PRONOUNCEMENTS

In June 2013, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2013-08, Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements. The ASU modifies the criteria used in defining an investment company under U.S. Generally Accepted Accounting Principles and also sets forth certain measurement and disclosure requirements. Under the ASU, an entity that is registered under the 1940 Act automatically qualifies as an investment company. The ASU is effective for interim and annual reporting periods beginning after December 15, 2013. Management has reviewed the requirements and believes the adoption of this ASU will not have a material impact on the financial statements.

12. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure.

ABBREVIATIONS        
 
Counterparty Currency Selected Portfolio