Edgar Filing: FRANKLIN TEMPLETON LTD DURATION INCOME TRUST

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSRS

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES

Investment Company Act file number 811-21357
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FRANKLIN TEMPLETON LIMITED DURATION INCOME TRUST
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(Exact name of registrant as specified in charter)

ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Address of principal executive offices) (Zip code)

CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)

Registrant's telephone number, including area code: 650 312-2000
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Date of fiscal year end: 3/31
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Date of reporting period: 9/30/06
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ITEM 1. REPORTS TO STOCKHOLDERS.

[GRAPHIC OMITTED]

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SEPTEMBER 30, 2006
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SEMIANNUAL REPORT INCOME
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FRANKLIN TEMPLETON
LIMITED DURATION INCOME TRUST

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[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS

FRANKLIN o Templeton o Mutual Series

Franklin Templeton Investments

GAIN FROM OUR PERSPECTIVE(R)

Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management groups--
Franklin, Templeton and Mutual Series.

SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.

FRANKLIN. Founded in 1947, Franklin is a
recognized leader in fixed income investing and
also brings expertise in growth- and value-style
U.S. equity investing.

TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched
what has become the industry's oldest global fund.
Today, with offices in over 25 countries,
Templeton offers investors a truly global
perspective.

MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what
it believes are undervalued stocks, as well as
arbitrage situations and distressed securities.

TRUE DIVERSIFICATION Because our management groups work independently
and adhere to different investment approaches,
Franklin, Templeton and Mutual Series funds
typically have distinct portfolios. That's why our
funds can be used to build truly diversified
allocation plans covering every major asset class.

RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well
as the reliable, accurate and personal service
that has helped us become one of the most trusted
names in financial services.

MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS

[PHOTO OMITTED]

Not part of the semiannual report

Contents

SEMIANNUAL REPORT

Franklin Templeton Limited Duration Income Trust .......................... 1

Performance Summary ....................................................... 5

Annual Shareholders' Meeting .............................................. 6

Dividend Reinvestment Plan ................................................ 7

Financial Highlights and Statement of Investments ......................... 10

Financial Statements ...................................................... 22

Notes to Financial Statements ............................................. 25

Shareholder Information ................................................... 34

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Semiannual Report

Franklin Templeton
Limited Duration Income Trust

YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin Templeton Limited Duration
Income Trust seeks to provide high, current income, with a secondary objective
of capital appreciation to the extent possible, through a portfolio consisting
primarily of high yield corporate bonds, floating rate bank loans and mortgage-
and other asset-backed securities.

Dear Shareholder:

This semiannual report for Franklin Templeton Limited Duration Income Trust
covers the period ended September 30, 2006.

PERFORMANCE OVERVIEW

For the six months under review, Franklin Templeton Limited Duration Income
Trust posted cumulative total returns of +3.14% based on net asset value and
+6.97% based on market price. Net asset value decreased from $14.14 per share on
March 31, 2006, to $14.05 at period-end, while the market price increased from
$12.87 to $13.22 over the same period. You can find the Fund's performance data
in the Performance Summary on page 5.

ECONOMIC AND MARKET OVERVIEW

The U.S. economy continued to grow during the six months under review, although
the pace in the second and third quarters of 2006 slowed from the first
quarter's 5.6% annualized rate. Overall, several factors contributed to

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 11.

Semiannual Report | 1

PORTFOLIO BREAKDOWN
Based on Total Investments as of 9/30/06*

[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]

Floating Rate Loans 33.1%
High Yield Corporate Bonds 32.9%
Mortgage-Backed Securities 23.2%
Other Asset-Backed Securities 5.6%
Foreign Government & Agency Securities 3.4%
Investment Grade Corporate Bonds 0.7%
Short-Term Investments & Other Net Assets 1.1%

* Total investments include long-term and short-term investments and other
net assets excluding preferred stock issued by the Fund.

real growth. During most of the reporting period, labor markets improved,
indicated by nonfarm payroll data and the unemployment rate. Rising personal
income also helped support consumer spending increases. However, the economy
experienced rising inflation pressures, largely due to high energy prices and
increasing labor costs. In addition, productivity growth and the pace of
business spending slowed.

Oil prices reached a historical high during the reporting period, which
contributed to the rise in headline, or overall, inflation. Core inflation,
which excludes food and energy costs, remained contained but nonetheless began
to experience some upward pressure. For example, while September's headline
Consumer Price Index (CPI) reported a 12-month rise of 2.1%, core CPI increased
2.9%. 1 Oil prices fell in the latter part of the reporting period, partly due
to ample supply and easing demand. This price drop, in conjunction with
relatively stable inflation, contributed to declining interest rates.

Several times during the period the Federal Reserve Board (Fed) acknowledged the
economy's strength as well as the potential inflationary pressure from high
energy prices. The Fed raised the federal funds target rate from 4.75% to 5.25%,
and then suspended its rate hikes in August and September. The Fed indicated its
future decisions would be highly dependent on forthcoming economic data. The
10-year Treasury note yield rose from 4.86% at the beginning of the period to a
high of 5.25% on June 28, 2006 and then fell to 4.64% on September 30, 2006. The
decline reflected some concerns about the slowing housing market and its
potential effect on the economy.

INVESTMENT STRATEGY

We invest in a diversified mix of fixed income securities, primarily high yield
corporate bonds, senior secured floating rate bank loans, and mortgage- and
other asset-backed securities. Our top-down analysis of macroeconomic trends
combined with a bottom-up fundamental analysis of market sectors, industries and
issuers drives our investment process. We seek to maintain a limited duration,
or interest rate sensitivity, to moderate the impact that fluctuating interest
rates might have on the Fund's fixed income portfolio. Within the corporate bond
and bank loan sectors, we seek securities trading at reasonable valuations from
issuers with characteristics such as strong market positions, stable cash flows,
reasonable capital structures, supportive asset values, strong sponsorship and
improving credit fundamentals. In the mortgage- and other asset-backed
securities sector, we look to capture an attractive income stream and total
return

1. Source: Bureau of Labor Statistics.

2 | Semiannual Report

through our analysis of security prepayment assumptions, pricing inefficiencies
and underlying collateral characteristics.

MANAGER'S DISCUSSION

During the six months under review, economic growth moderated as third quarter
gross domestic product advanced at an estimated annualized 1.6% rate. A weak
housing market was largely credited for the slowdown. During the period,
interest rate volatility increased and investors were uncertain as to whether
the Fed's decision to hold rates steady was temporary. All three of the Fund's
primary asset classes generated broadly similar returns during the review
period. High yield bonds benefited from positive fundamentals, despite
historically rich valuations. Likewise, bank loans also benefited from healthy
credit fundamentals, in addition to the flat-to-slightly inverted yield curve.
Our exposure to both sectors remained largely unchanged throughout the reporting
period. We modestly increased our allocation to mortgage-backed securities
(MBS), although our exposure remained somewhat underweighted, relative to the
Fund's high yield bond and bank loan weightings at period-end.

Robust corporate earnings, low default rates and healthy balance sheet liquidity
led to a positive credit environment for high yield corporate bonds. These
bonds' yield spread over Treasuries, as measured by the CS High Yield Index,
widened from 3.3 percentage points at the beginning of the reporting period to
3.7 percentage points at period-end. 2 The wider spread reflected some investor
concerns about future economic growth and whether corporate earnings would
remain strong. At period-end, we continued to view the sector's fundamental
trends favorably, but given the historically tight valuations, we maintained the
weighting at a neutral level, which is roughly equivalent to one-third of the
portfolio.

Strong inflows during the period supported the bank loan market and
institutional bank loan spreads (yields above short-term interest rates)
remained near historical lows. Fueled by increasing mergers and acquisitions
activity, institutional new loan issuances were the highest in five years.
Investors anticipating an increase in short-term rates drove much of the demand.
Bank loans represented our largest sector weighting at period-end, considering
our positive fundamental outlook and the flat-to-inverted yield curve.

A larger than expected drop in housing activity in addition to falling Treasury
yields added to the appeal of MBS during the review period as many investors

DIVIDEND DISTRIBUTIONS*

4/1/06-9/30/06

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MONTH DIVIDEND PER COMMON SHARE
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April 9.10 cents
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May 9.10 cents
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June 9.10 cents
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July 8.40 cents
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August 8.40 cents
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September 8.40 cents
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TOTAL 52.50 CENTS
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* All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.

2. Source: Credit Suisse (CS). The CS High Yield Index is designed to mirror
the investable universe of the U.S. dollar-denominated high yield debt
market.

Semiannual Report | 3

turned to MBS as an alternative to Treasuries for their higher yields. As
interest rates rose, the U.S. housing market began to cool. Higher interest
rates earlier in the period coupled with slowing home price appreciation caused
prepayments on MBS to moderate. In this environment, we found opportunities in
higher coupon MBS attractive.

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

Sincerely,

[PHOTO OMITTED] /s/ Christopher J. Molumphy [PHOTO OMITTED] /s/ Richard S. Hsu

Christopher J. Molumphy, CFA Richard S. Hsu, CFA

[PHOTO OMITTED] /s/ Eric G. Takaha [PHOTO OMITTED] /s/ Roger A. Bayston

Eric G. Takaha, CFA Roger A. Bayston, CFA

[PHOTO OMITTED] /s/ Glenn I. Voyles
Glenn I. Voyles, CFA

Portfolio Management Team
Franklin Templeton Limited Duration Income Trust

THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF SEPTEMBER 30, 2006, 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.

4 | Semiannual Report

Performance Summary as of 9/30/06

Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses. Capital
gain distributions are net profits realized from the sale of portfolio
securities. Total return reflects reinvestment of the Fund's dividends and
capital gain distributions, if any, and any unrealized gains or losses. Total
returns do not reflect any sales charges paid at inception or brokerage
commissions paid on secondary market purchases. The performance table does not
reflect any taxes that a shareholder would pay on Fund dividends, capital gain
distributions, if any, or any realized gains on the sale of Fund shares.

PRICE AND DISTRIBUTION INFORMATION

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SYMBOL: FTF CHANGE 9/30/06 3/31/06
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Net Asset Value (NAV) -$0.09 $14.05 $14.14
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Market Price (AMEX) +$0.35 $13.22 $12.87
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DISTRIBUTIONS (4/1/06-9/30/06)
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Dividend Income $0.5250
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PERFORMANCE 1

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COMMENCEMENT OF
6-MONTH 1-YEAR 3-YEAR OPERATIONS (8/27/03)
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Cumulative Total Return 2
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Based on change in NAV 3 +3.14% +6.35% +22.35% +23.97%
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Based on change in market price 4 +6.97% +8.81% +12.84% +12.54%
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Average Annual Total Return 2
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Based on change in NAV 3 +3.14% +6.35% +6.96% +7.19%
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Based on change in market price 4 +6.97% +8.81% +4.11% +3.89%
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Distribution Rate 5 7.62%
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PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN.

ENDNOTES

INTEREST RATE MOVEMENTS AND MORTGAGE PREPAYMENTS WILL AFFECT THE FUND'S SHARE
PRICE AND YIELD. THE RISKS ASSOCIATED WITH HIGHER-YIELDING, LOWER-RATED
SECURITIES INCLUDE HIGHER RISK OF DEFAULT AND LOSS OF PRINCIPAL.

1. Figures are for common shares. As of September 30, 2006, the Trust had
leverage in the amount of approximately 33.59% of the Trust's total
assets. The Trust employs leverage through the issuance of Auction
Preferred Shares. The use of financial leverage creates an opportunity for
increased income but, at the same time, creates special risks (including
the likelihood of greater volatility of net asset value and market price
of common shares). The cost of leverage rises and falls with changes in
short-term interest rates. Such increases/decreases in the cost of the
Trust's leverage may be offset by increased/decreased income from the
Trust's floating rate investments.

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

3. Assumes reinvestment of distributions on net asset value.

4. Assumes reinvestment of distributions based on the dividend reinvestment
plan.

5. Distribution rate is based on an annualization of the Fund's 8.40 cent per
share September dividend and the AMEX closing price of $13.22 on 9/30/06.

Semiannual Report | 5

Annual Shareholders' Meeting

SEPTEMBER 21, 2006

At an annual Meeting of Shareholders of Franklin Templeton Limited Duration
Income Trust (the "Fund") held on September 21, 2006, shareholders approved the
following:

Regarding the proposal to elect Trustees:

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COMMON % OF % OF
SHARES OUTSTANDING % OF WITHHELD OR OUTSTANDING % OF
TRUSTEES FOR SHARES VOTED ABSTAIN SHARES VOTED
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Frank W.T. LaHaye 22,368,751.280 83.654% 98.848% 260,798.000 0.975% 1.152%
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Gordon S. Macklin 22,344,318.280 83.563% 98.740% 285,231.000 1.067% 1.260%
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Frank A. Olson 22,362,739.280 83.632% 98.821% 266,810.000 0.998% 1.179%
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PREFERRED % OF % OF
SHARES OUTSTANDING % OF WITHHELD OR OUTSTANDING % OF
TRUSTEES FOR SHARES VOTED ABSTAIN SHARES VOTED
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Frank W.T. LaHaye 6,832.000 89.895% 99.91% 6.000 0.079% 0.09%
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Gordon S. Macklin 6,832.000 89.895% 99.91% 6.000 0.079% 0.09%
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Frank A. Olson 6,832.000 89.895% 99.91% 6.000 0.079% 0.09%
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Charles B. Johnson 6,832.000 89.895% 99.91% 6.000 0.079% 0.09%
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6 | Semiannual Report

Dividend Reinvestment Plan

The Fund's Dividend Reinvestment Plan (the "Plan") offers you a prompt and
simple way to reinvest dividends and capital gain distributions
("Distributions") in shares of the Fund. PFPC, Inc. (the "Agent"), P.O. Box
43027, Providence, RI 02940-3027, will act as your Agent in administering the
Plan. The Agent will open an account for you under the Plan in the same name as
your outstanding shares are registered. The complete Terms and Conditions of the
Dividend Reinvestment Plan are contained in the Fund's Dividend Reinvestment
Plan Brochure. A copy of that Brochure may be obtained from the Fund at the
address on the back cover of this report.

You are automatically enrolled in the Plan unless you elect to receive
Distributions in cash. If you own shares in your own name, you should notify the
Agent, in writing, if you wish to receive Distributions in cash.

If the Fund declares a Distribution, you, as a participant in the Plan, will
automatically receive an equivalent amount of shares of the Fund purchased on
your behalf by the Agent.

If on the payment date for a Distribution, the net asset value per share is
equal to or less than the market price per share plus estimated brokerage
commissions, the Agent shall receive newly issued shares, including fractions,
from the Fund for your account. The number of additional shares to be credited
shall be determined by dividing the dollar amount of the Distribution by the
greater of the net asset value per share on the payment date, or 95% of the then
current market price per share.

If the net asset value per share exceeds the market price plus estimated
brokerage commissions on the payment date for a Distribution, the Agent (or a
broker-dealer selected by the Agent) shall try, for a purchase period of 30
days, to apply the amount of such Distribution on your shares (less your pro
rata share of brokerage commissions incurred) to purchase shares on the open
market. The weighted average price (including brokerage commissions) of all
shares it purchases shall be your allocated price per share. If, before the
Agent has completed its purchases, the market price plus estimated brokerage
commissions exceeds the net asset value of the shares as of the payment date,
the purchase price the Agent paid may exceed the net asset value of the shares,
resulting in the acquisition of fewer shares than if such Distribution had been
paid in shares issued by the Fund. Participants should note that they will not
be able to instruct the Agent to purchase shares at a specific time or at a
specific price. The Agent may make open-market purchases on any securities
exchange where shares are traded, in the over-the-counter market or in
negotiated transactions, and may be on such terms as to price, delivery and
otherwise as the Agent shall determine.

Semiannual Report | 7

The market price of shares on a particular date shall be the last sales price on
the American Stock Exchange, or, if there is no sale on the exchange on that
date, then the mean between the closing bid and asked quotations on the exchange
on such date. The net asset value per share on a particular date shall be the
amount most recently calculated by or on behalf of the Fund as required by law.

The Agent shall at all times act in good faith and agree to use its best efforts
within reasonable limits to ensure the accuracy of all services performed under
this agreement and to comply with applicable law, but assumes no responsibility
and shall not be liable for loss or damage due to errors unless such error is
caused by the Agent's negligence, bad faith, or willful misconduct or that of
its employees. Your uninvested funds held by the Agent will not bear interest.
The Agent shall have no responsibility for the value of shares acquired. For the
purpose of cash investments, the Agent may commingle your funds with those of
other participants in the same Fund.

There is no direct charge to participants for reinvesting Distributions, since
the Agent's fees are paid by the Fund. However, when shares are purchased in the
open market, each participant will pay a pro rata portion of any brokerage
commissions incurred. If you elect by notice to the Agent to have it sell part
or all of your shares and remit the proceeds, the Agent will deduct brokerage
commissions from the proceeds.

The automatic reinvestment of Distributions does not relieve you of any taxes
that may be payable on Distributions. In connection with the reinvestment of
Distributions, shareholders generally will be treated as having received a
Distribution equal to the cash Distribution that would have been paid.

The Agent will forward to you any proxy solicitation material and will vote any
shares so held for you first in accordance with the instructions set forth on
proxies you return to the Fund, and then with respect to any proxies you do not
return to the Fund in the same portion as the Agent votes proxies the
participants return to the Fund.

8 | Semiannual Report

As long as you participate in the Plan, the Agent will hold the shares it has
acquired for you in safekeeping, in its name or in the name of its nominee. This
convenience provides added protection against loss, theft or inadvertent
destruction of certificates. However, you may request that a certificate
representing your Plan shares be issued to you. Upon your written request, the
Agent will deliver to you, without charge, a certificate or certificates for the
full shares. The Agent will send you a confirmation of each acquisition made for
your account as soon as practicable, but not later than 60 days after the
acquisition date. Although from time to time you may have an undivided
fractional interest in a share of the Fund, no certificates for a fractional
share will be issued. Distributions on fractional shares will be credited to
your account. If you terminate your account under the Plan, the Agent will
adjust for any such undivided fractional interest in cash at the market value of
shares at the time of termination.

You may withdraw from the Plan at any time, without penalty, by notifying the
Agent in writing at the address above or by telephone at 1-800/331-1710. Such
termination will be effective with respect to a Distribution if the Agent
receives your notice prior to the Distribution record date. The Agent or the
Fund may terminate the Plan upon notice to you in writing mailed at least 30
days prior to any record date for the payment of any Distribution. Upon any
termination, the Agent will issue, without charge, stock certificates for all
full shares you own and will convert any fractional shares you hold at the time
of termination to cash at current market price and send you a check for the
proceeds.

The Fund or the Agent may amend the Plan. You will receive written notice at
least 30 days before the effective date of any amendment.

Semiannual Report | 9

Franklin Templeton
Limited Duration Income Trust

FINANCIAL HIGHLIGHTS

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SIX MONTHS ENDED
SEPTEMBER 30, 2006 YEAR ENDED MARCH 31,
(UNAUDITED) 2006 2005 2004 g
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PER COMMON SHARE OPERATING PERFORMANCE
(for a common share outstanding throughout the period)

Net asset value, beginning of period .................................... $ 14.14 $ 14.41 $ 14.75 $ 14.33
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Income from investment operations a:

Net investment income b ................................................ 0.65 1.18 1.10 0.53

Net realized and unrealized gains (losses) ............................. (0.04) (0.10) (0.12) 0.63

Dividends to preferred shareholders from net investment income ......... (0.17) (0.26) (0.13) (0.03)
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Total from investment operations ........................................ 0.44 0.82 0.85 1.13
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Less distributions to common shareholders from net investment income .... (0.53) (1.09) (1.19) (0.59)
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Offering costs charged to capital:

Common shares .......................................................... -- -- -- (0.03)

Preferred shares ....................................................... -- -- -- (0.09)
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Total offering costs .................................................... -- -- -- (0.12)
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Net asset value, end of period .......................................... $ 14.05 $ 14.14 $ 14.41 $ 14.75
=================================================
Market value, end of period c ........................................... $ 13.22 $ 12.87 $ 13.89 $ 14.87
=================================================

Total return (based on market value per share) .......................... 6.97%e 0.60% 1.38% 3.16% e

RATIOS/SUPPLEMENTAL DATA

Net assets applicable to common shares, end of period (000's) ........... $375,595 $378,080 $385,344 $393,125

Ratios to average net assets applicable to common shares:

Expenses d ............................................................. 1.28% f 1.26% 1.21% 1.11% f

Net investment income .................................................. 9.28% f 8.24% 7.50% 6.12% f

Portfolio turnover rate ................................................. 24.23% 46.55% 55.02% 45.08%

Asset coverage per preferred share ...................................... $ 74,420 $ 74,747 $ 75,703 $ 76,727

Liquidation preference per preferred share .............................. $ 25,000 $ 25,000 $ 25,000 $ 25,000

a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market value of the investments of the Fund.

b Based on average daily common shares outstanding.

c Based on the last sale on the American Stock Exchange.

d Benefit of expense reduction rounds to less than 0.01%.

e Total return is not annualized for periods less than one year.

f Annualized.

g For the period August 27, 2003 (commencement of operations) to March 31,
2004.

10 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Templeton
Limited Duration Income Trust

STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006

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COUNTRY PRINCIPAL AMOUNT c VALUE
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LONG TERM INVESTMENTS 148.0%
CORPORATE BONDS 50.6%
COMMERCIAL SERVICES 2.9%
Dex Media West LLC, senior sub. note, 9.875%, 8/15/13 .................... United States $ 4,000,000 $ 4,340,000
JohnsonDiversey Holdings Inc., senior disc. note, zero cpn. To 5/17/07,
10.67% thereafter, 5/15/13 .............................................. United States 4,300,000 3,741,000
United Rentals North America Inc., senior sub. note, 7.75%,
11/15/13 ................................................................ United States 3,000,000 2,970,000
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11,051,000
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COMMUNICATIONS 6.1%
Dobson Cellular Systems Inc., senior secured note, 9.875%,
11/01/12 ................................................................ United States 3,000,000 3,232,500
a Intelsat Bermuda Ltd., senior note, FRN, 10.484%, 1/15/12 ................ Bermuda 4,000,000 4,075,000
Millicom International Cellular SA, senior note, 10.00%,
12/01/13 ................................................................ Luxembourg 3,000,000 3,236,250
Qwest Communications International Inc., senior note, B, 7.50%,
2/15/14 ................................................................. United States 3,000,000 3,022,500
a Rogers Wireless Communications Inc., senior secured note, FRN,
8.515%, 12/15/10 ........................................................ Canada 3,000,000 3,060,000
b Wind Acquisition Finance SA, senior note, 144A, 10.75%,
12/01/15 ................................................................ Italy 3,000,000 3,326,250
b Windstream Corp., senior note, 144A, 8.625%, 8/01/16 ..................... United States 2,800,000 3,010,000
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22,962,500
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CONSUMER DURABLES 4.6%
Beazer Homes USA Inc., senior note, 8.375%, 4/15/12 ...................... United States 2,000,000 2,000,000
Ford Motor Credit Co.,
5.625%, 10/01/08 ...................................................... United States 4,000,000 3,839,076
a FRN, 9.957%, 4/15/12 .................................................. United States 1,000,000 1,047,744
General Motors Acceptance Corp.,
6.875%, 8/28/12 ....................................................... United States 3,500,000 3,468,447
7.25%, 3/02/11 ........................................................ United States 2,000,000 2,013,308
Jostens IH Corp., senior sub. note, 7.625%, 10/01/12 ..................... United States 1,100,000 1,111,000
KB Home, 6.375%, 8/15/11 ................................................. United States 4,000,000 3,884,708
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17,364,283
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CONSUMER NON-DURABLES 3.8%
Dole Food Co. Inc., senior note, 8.625%, 5/01/09 ......................... United States 2,000,000 1,965,000
b Reynolds American Inc., 144A, 7.25%, 6/01/13 ............................. United States 2,000,000 2,068,056
Smithfield Foods Inc., senior note, 8.00%, 10/15/09 ...................... United States 4,000,000 4,200,000
Spectrum Brands Inc., senior sub. note, 8.50%, 10/01/13 .................. United States 3,000,000 2,610,000
Tyson Foods Inc., senior note, 8.25%, 10/01/11 ........................... United States 3,000,000 3,228,024
-------------
14,071,080
-------------
CONSUMER SERVICES 10.8%
a AMC Entertainment Inc., senior note, FRN, 9.655%, 8/15/10 ................ United States 3,000,000 3,112,500
Boyd Gaming Corp., senior sub. note, 8.75%, 4/15/12 ...................... United States 2,000,000 2,110,000
CanWest Media Inc., senior sub. note, 8.00%, 9/15/12 ..................... Canada 3,000,000 2,977,500
CCH II LLC, senior note, 10.25%, 9/15/10 ................................. United States 4,000,000 4,100,000

Semiannual Report | 11

Franklin Templeton
Limited Duration Income Trust

STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
CONSUMER SERVICES (CONTINUED)
Clear Channel Communications Inc., senior note, 7.65%,
9/15/10 ................................................................. United States $ 4,000,000 $ 4,220,980
CSC Holdings Inc., senior note, 8.125%, 7/15/09 .......................... United States 3,000,000 3,120,000
DIRECTV Holdings LLC, senior note, 8.375%, 3/15/13 ....................... United States 2,000,000 2,082,500
Liberty Media Corp., senior note, 7.875%, 7/15/09 ........................ United States 3,000,000 3,155,739
LIN Television Corp., senior sub. note, 6.50%, 5/15/13 ................... United States 4,000,000 3,750,000
MGM MIRAGE Inc., senior note, 6.75%, 4/01/13 ............................. United States 4,000,000 3,950,000
Pinnacle Entertainment Inc., senior sub. note, 8.75%, 10/01/13 ........... United States 3,000,000 3,198,750
Quebecor Media Inc., senior note, 7.75%, 3/15/16 ......................... Canada 1,600,000 1,610,000
Royal Caribbean Cruises Ltd., senior note, 8.00%, 5/15/10 ................ United States 3,000,000 3,194,190
-------------
40,582,159
-------------
ELECTRONIC TECHNOLOGY 1.6%
Sanmina-SCI Corp., senior sub. note, 6.75%, 3/01/13 ...................... United States 3,000,000 2,842,500
Solectron Global Finance Ltd., senior sub. note, 8.00%, 3/15/16 .......... United States 3,000,000 2,985,000
-------------
5,827,500
-------------
ENERGY MINERALS 2.4%
Chesapeake Energy Corp., senior note, 7.50%, 6/15/14 ..................... United States 4,000,000 4,065,000
b Mariner Energy Inc., senior note, 144A, 7.50%, 4/15/13 ................... United States 2,000,000 1,920,000
Massey Energy Co., senior note, 6.875%, 12/15/13 ......................... United States 2,000,000 1,820,000
b Pogo Producing Co., senior sub. note, 144A, 7.875%, 5/01/13 .............. United States 1,200,000 1,228,500
-------------
9,033,500
-------------
HEALTH SERVICES 4.5%
DaVita Inc.,
senior note, 6.625%, 3/15/13 ........................................... United States 1,900,000 1,864,375
senior sub. note, 7.25%, 3/15/15 ....................................... United States 1,000,000 987,500
Fresenius Medical Care Capital Trust II, 7.875%, 2/01/08 ................. Germany 4,000,000 4,070,000
HCA Inc., senior note, 8.75%, 9/01/10 .................................... United States 3,000,000 3,037,500
Tenet Healthcare Corp., senior note, 6.375%, 12/01/11 .................... United States 3,500,000 3,093,125
Vanguard Health Holding Co. II LLC, senior sub. note, 9.00%,
10/01/14 ................................................................ United States 4,000,000 3,900,000
-------------
16,952,500
-------------
INDUSTRIAL SERVICES 1.4%
Allied Waste North America Inc., senior note, B, 8.50%,
12/01/08 ................................................................ United States 2,000,000 2,105,000
El Paso Natural Gas Co., senior note, A, 7.625%, 8/01/10 ................. United States 3,000,000 3,105,000
-------------
5,210,000
-------------
PROCESS INDUSTRIES 5.5%
Buckeye Technologies Inc., senior sub. note, 8.00%, 10/15/10 ............. United States 1,400,000 1,351,000
Crown Americas Inc., senior note, 7.625%, 11/15/13 ....................... United States 3,000,000 3,052,500
Graphic Packaging International Corp., senior note, 8.50%,
8/15/11 ................................................................. United States 3,000,000 3,082,500
JSG Funding PLC, senior sub. note, 7.75%, 4/01/15 ........................ Ireland 3,000,000 2,850,000

12 | Semiannual Report

Franklin Templeton
Limited Duration Income Trust

STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
PROCESS INDUSTRIES (CONTINUED)
Lyondell Chemical Co., senior note, 8.00%, 9/15/14 ..................... United States $ 900,000 $ 915,750
Nalco Co.,
senior note, 7.75%, 11/15/11 ......................................... United States 2,000,000 2,050,000
senior sub. note, 8.875%, 11/15/13 ................................... United States 2,000,000 2,095,000
Rhodia SA, senior note, 10.25%, 6/01/10 ................................ France 3,000,000 3,375,000
a,b Verso Paper Holdings LLC, senior note, 144A, FRN, 9.25%,
8/01/14 ............................................................... United States 2,000,000 2,030,000
-------------
20,801,750
-------------
PRODUCER MANUFACTURING 1.9%
Case New Holland Inc., senior note, 9.25%, 8/01/11 ..................... United States 4,000,000 4,260,000
b Invensys PLC, senior note, 144A, 9.875%, 3/15/11 ....................... United Kingdom 1,987,000 2,155,895
Milacron Escrow Corp., senior secured note, 11.50%, 5/15/11 ............ United States 600,000 573,000
-------------
6,988,895
-------------
REAL ESTATE INVESTMENT TRUST 1.1%
Host Marriott LP, senior note, 9.25%, 10/01/07 ......................... United States 4,000,000 4,145,000
-------------
RETAIL TRADE 0.8%
a GSC Holdings Corp., senior note, FRN, 9.383%, 10/01/11 ................. United States 3,000,000 3,135,000
-------------
TECHNOLOGY SERVICES 1.1%
SunGard Data Systems Inc., senior note,
9.125%, 8/15/13 ..................................................... United States 1,000,000 1,040,000
a FRN, 9.973%, 8/15/13 ................................................ United States 3,000,000 3,127,500
-------------
4,167,500
-------------
UTILITIES 2.1%
Aquila Inc., senior note, 9.95%, 2/01/11 ............................... United States 2,000,000 2,203,714
NRG Energy Inc., senior note, 7.25%, 2/01/14 ........................... United States 2,800,000 2,786,000
TXU Corp., 4.80%, 11/15/09 ............................................. United States 3,000,000 2,939,022
-------------
7,928,736
-------------
TOTAL CORPORATE BONDS (COST $188,882,020) .............................. 190,221,403
-------------
MORTGAGE-BACKED SECURITIES 34.8%
a FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) ADJUSTABLE RATE 0.7%
FHLMC, 3.314%, 5/01/34 ................................................. United States 2,514,559 2,509,765
-------------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) FIXED RATE 9.8%
FHLMC Gold 15 Year, 4.50%, 6/01/18 - 9/01/18 ........................... United States 3,256,329 3,147,814
FHLMC Gold 15 Year, 5.00%, 9/01/18 ..................................... United States 4,405,947 4,342,071
FHLMC Gold 15 Year, 5.00%, 11/01/18 .................................... United States 2,574,858 2,537,529
FHLMC Gold 15 Year, 5.50%, 7/01/19 ..................................... United States 334,670 335,008

Semiannual Report | 13

Franklin Templeton
Limited Duration Income Trust

STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
MORTGAGE-BACKED SECURITIES (CONTINUED)
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) FIXED RATE (CONTINUED)
FHLMC Gold 30 Year, 5.50%, 8/01/33 ....................................... United States $ 5,527,509 $ 5,468,530
FHLMC Gold 30 Year, 5.50%, 12/01/34 - 2/01/35 ............................ United States 3,170,120 3,132,436
FHLMC Gold 30 Year, 6.00%, 7/01/28 - 4/01/35 ............................. United States 9,228,608 9,298,637
FHLMC Gold 30 Year, 6.50%, 1/01/35 ....................................... United States 3,938,907 4,017,594
FHLMC Gold 30 Year, 7.00%, 9/01/27 ....................................... United States 1,138,150 1,175,049
FHLMC Gold 30 Year, 8.00%, 1/01/31 ....................................... United States 271,265 285,284
FHLMC Gold 30 Year, 8.50%, 7/01/31 ....................................... United States 2,805,046 3,015,781
-------------
36,755,733
-------------
a FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE 0.7%
FNMA, 4.637%, 7/01/34 .................................................... United States 2,725,527 2,693,867
FNMA, 5.989%, 6/01/32 .................................................... United States 108,691 107,532
-------------
2,801,399
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) FIXED RATE 19.2%
FNMA 15 Year, 5.00%, 10/01/17 ............................................ United States 1,865,362 1,839,853
FNMA 15 Year, 5.50%, 10/01/17 - 1/01/21 .................................. United States 6,398,855 6,407,427
FNMA 15 Year, 5.50%, 1/01/21 ............................................. United States 4,292,372 4,291,770
FNMA 15 Year, 6.00%, 9/01/21 ............................................. United States 5,945,842 6,038,938
FNMA 15 Year, 6.50%, 7/01/20 ............................................. United States 1,500,000 1,513,096
FNMA 15 Year, 7.00%, 9/01/18 ............................................. United States 441,838 457,830
FNMA 30 Year, 5.50%, 8/01/33 - 7/01/35 ................................... United States 6,764,460 6,678,361
FNMA 30 Year, 5.50%, 9/01/33 ............................................. United States 4,708,459 4,653,330
FNMA 30 Year, 5.50%, 7/01/35 - 1/01/36 ................................... United States 3,954,421 3,899,065
FNMA 30 Year, 6.00%, 4/01/33 - 1/01/36 ................................... United States 13,015,428 13,095,520
d FNMA 30 Year, 6.50%, 8/01/32 - 6/01/36 ................................... United States 10,951,654 11,163,030
d FNMA 30 Year, 6.50%, 6/01/36 ............................................. United States 10,903,503 11,107,121
FNMA 30 Year, 8.00%, 10/01/29 ............................................ United States 379,920 401,583
FNMA 30 Year, 8.50%, 8/01/26 ............................................. United States 614,202 658,878
-------------
72,205,802
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) FIXED RATE 4.4%
GNMA I SF 30 Year, 5.50%, 4/15/33 - 12/15/34 ............................. United States 3,063,291 3,046,557
GNMA I SF 30 Year, 5.50%, 12/15/34 ....................................... United States 4,345,748 4,321,669
GNMA I SF 30 Year, 6.50%, 6/15/31 - 12/15/33 ............................. United States 2,827,340 2,905,281
GNMA II SF 30 Year, 5.00%, 10/20/33 ...................................... United States 3,879,677 3,760,979
GNMA II SF 30 Year, 7.00%, 1/20/24 - 12/20/30 ............................ United States 1,736,513 1,787,938
GNMA II SF 30 Year, 8.00%, 1/20/28 - 2/20/32 ............................. United States 643,614 678,997
-------------
16,501,421
-------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $132,329,204) 130,774,120
-------------

14 | Semiannual Report

Franklin Templeton
Limited Duration Income Trust

STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
ASSET-BACKED SECURITIES AND COMMERCIAL MORTGAGE-BACKED
SECURITIES 8.5%
FINANCE 8.5%
a Argent Securities Inc., 2003-W5, M4, FRN, 9.135%, 10/25/33 ............... United States $ 4,000,000 $ 4,137,855
a GSR Mortgage Trust, 2003-AHL, B1, FRN, 9.33%, 10/25/33 ................... United States 5,000,000 5,052,532
a Merrill Lynch Mortgage Investors Inc., 2003-OPT1, B2, FRN, 8.08%,
7/25/34 ................................................................. United States 1,000,000 1,012,187
a Morgan Stanley ABS Capital,
2003-HE3, B1, FRN, 8.63%, 10/25/33 ..................................... United States 3,500,000 3,531,114
2003-NC10, B1, FRN, 8.63%, 10/25/33 .................................... United States 2,140,602 2,164,495
a Morgan Stanley Dean Witter Capital I, 2003-NC3, B1, FRN, 8.33%,
3/25/33 ................................................................. United States 973,100 977,104
a New Century Home Equity Loan Trust, 2003-2, M3, FRN, 9.03%,
1/25/33 ................................................................. United States 4,870,465 4,889,917
a Option One Mortgage Loan Trust, 2003-6, M5, FRN, 8.63%,
11/25/33 ................................................................ United States 3,500,000 3,556,951
a Residential Asset Securities Corp., 2003-KS10, MII3, FRN, 7.88%,
12/25/33 ................................................................ United States 1,500,000 1,510,237
a Specialty Underwriting & Residential Finance, 2003-BC4, B2, FRN,
7.83%, 11/25/34 ......................................................... United States 1,500,000 1,518,414
a Structured Asset Investment Loan Trust,
2003-BC2, M3, FRN, 8.58%, 4/25/33 ...................................... United States 22,774 23,056
2003-BC13, M4, FRN, 8.08%, 11/25/33 .................................... United States 3,340,000 3,374,072
-------------
TOTAL ASSET-BACKED SECURITIES AND COMMERCIAL MORTGAGE-BACKED
SECURITIES (COST $31,122,481) 31,747,934
-------------
SENIOR FLOATING RATE INTERESTS 49.8% a,e
COMMERCIAL SERVICES 3.4%
d Acxiom Corp., Term Loan B, 9.00%, 9/15/12 ................................ United States 1,200,000 1,201,213
Affiliated Computer Services Inc.,
Additional Term Loan, 7.39% - 7.40%, 3/20/13 ........................... United States 1,795,500 1,797,439
Term Loan B, 7.389%, 3/20/13 ........................................... United States 496,250 496,786
d Buhrmann U.S. Inc., Term Loan D-1, 9.00%, 12/23/10 ....................... United States 2,500,000 2,496,175
Dex Media West LLC, Term Loan B2, 6.83% - 6.90%, 3/09/10 ................. United States 2,634,655 2,620,401
Nielsen Finance LLC (VNU Inc.), Term Loan B, 8.19%, 8/09/13 .............. United States 3,000,000 2,996,400
Workflow Management Inc., Term Loan B, 9.485%, 11/30/11 .................. United States 1,106,104 1,111,469
-------------
12,719,883
-------------
COMMUNICATIONS 4.9%
Alaska Communications Systems Holdings Inc.,
Incremental Term Loan, 7.117%, 2/01/12 ................................. United States 100,000 99,725
Term Loan, 7.117%, 2/01/12 ............................................. United States 4,000,000 3,989,000
Fairpoint Communications Inc., Term Loan B, 7.125%, 2/08/12 .............. United States 2,089,041 2,077,050
Intelsat Corp., Term Loan B2, 8.008%, 12/03/13 ........................... United States 3,940,000 3,971,678
Intelsat Subsidiary Holding Co. Ltd., Term Loan B, 7.758%,
6/30/13 ................................................................. United States 2,400,689 2,415,333

Semiannual Report | 15

Franklin Templeton
Limited Duration Income Trust

STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
SENIOR FLOATING RATE INTERESTS (CONTINUED)
COMMUNICATIONS (CONTINUED)
Iowa Telecommunications Services Inc., Term Loan B,
7.12% - 7.15%, 11/23/11 ................................................. United States $ 3,000,000 $ 2,999,550
Windstream Corp., Term Loan B, 7.26%, 7/17/13 ............................ United States 2,700,000 2,709,693
-------------
18,262,029
-------------
CONSUMER DURABLES 3.4%
Eastman Kodak Co.,
Term Loan B1, 7.639% - 7.75%, 10/18/12 ................................. United States 2,311,985 2,307,708
Term Loan B2 (Delayed Draw), 7.655% - 7.757%, 10/18/12 ................. United States 968,162 966,332
Jarden Corp., Term Loan B2, 7.117%, 1/24/12 .............................. United States 3,632,093 3,612,007
Solo Cup Co., Term Loan B, 9.75%, 2/27/11 ................................ United States 593,982 592,390
Stile Acquisition Corp. (Masonite), Canadian Term Loan,
7.367% - 7.49%, 4/05/13 ................................................. Canada 1,823,172 1,794,694
Stile U.S. Acquisition Corp. (Masonite), U.S. Term Loan,
7.367% - 7.49%, 4/05/13 ................................................. United States 1,826,278 1,797,751
Tupperware Corp., Term Loan B, 6.89%, 12/05/12 ........................... United States 1,903,506 1,893,037
-------------
12,963,919
-------------
CONSUMER NON-DURABLES 2.9%
Acco Brands Corp., Term Loan B, 7.14% - 7.24%, 8/17/12 ................... United States 910,745 911,137
Bumble Bee Foods LLC, Term Loan B, 7.039% - 7.25%,
5/02/12 ................................................................. United States 500,000 499,340
CBRL Group (Cracker Barrel), Term Loan B1, 6.93% - 6.97%,
4/27/13 ................................................................. United States 963,060 952,004
Central Garden & Pet Co., Term Loan B, 6.83%, 9/30/12 .................... United States 271,973 271,997
Constellation Brands Inc., Term Loan B, 6.938% - 7.00%,
6/05/13 ................................................................. United States 1,333,333 1,337,533
Del Monte Foods Co., Term Loan B, 7.00% - 7.072%, 2/08/12 ................ United States 830,300 829,536
Dole Food Co. Inc., Term Loan B, 7.438% - 9.00%, 4/12/13 ................. United States 213,492 209,256
Herbalife International Inc., Term Loan B, 6.83% - 6.87%,
12/21/10 ................................................................ United States 720,000 719,950
Michael Foods Inc., Term Loan B1, 7.387% - 7.553%, 11/21/10 .............. United States 637,329 636,615
Reynolds American Inc., Term Loan B, 7.25% - 7.313%,
5/31/12 .................................................................. United States 1,795,500 1,800,761
Solvest Ltd. (Dole),
L/C, 5.37%, 4/12/13 .................................................... Bermuda 95,362 93,470
Term Loan C, 7.313% - 9.25%, 4/12/13 ................................... Bermuda 711,641 697,522
d Sonic Corp., Term Loan B, 9.25%, 9/08/13 ................................. United States 800,000 802,208
Southern Wine & Spirits of America Inc., Term Loan B, 6.867%,
5/31/12 ................................................................. United States 1,148,728 1,148,154
-------------
10,909,483
-------------
CONSUMER SERVICES 11.0%
Arby's Restaurant Holdings LLC, Term Loan B, 7.617% - 7.735%,
7/25/12 ................................................................. United States 1,584,173 1,581,116
Century Theaters Inc., Term Loan B, 7.275%, 3/01/13 ...................... United States 500,000 500,385

16 | Semiannual Report

Franklin Templeton
Limited Duration Income Trust

STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
SENIOR FLOATING RATE INTERESTS (CONTINUED)
CONSUMER SERVICES (CONTINUED)
Charter Communications Operating LLC, Term Loan B, 8.125%,
4/28/13 ................................................................... United States $ 1,462,560 $ 1,470,326
Cinram International, Term Loan B, 7.222%, 5/05/11 ......................... Canada 2,579,510 2,534,007
CSC Holdings Inc. (Cablevision), Incremental Term Loan,
7.11% - 7.258%, 3/29/13 ................................................... United States 796,000 790,699
DIRECTV Holdings LLC, Term Loan B, 6.826%, 4/13/13 ......................... United States 1,127,624 1,126,992
Education Management LLC, Term Loan B, 9.75%, 6/01/13 ...................... United States 1,695,750 1,705,925
Entravision Communications Corp., Term Loan B, 7.01%,
3/29/12 ................................................................... United States 1,091,750 1,084,970
Hertz Corp.,
Credit Link, 5.39%, 12/21/12 ............................................. United States 155,556 156,383
Term Loan B, 7.58% - 7.73%, 12/21/12 ..................................... United States 1,239,008 1,245,600
Insight Midwest Holdings LLC,
Term Loan A, 6.688%, 6/30/09 ............................................. United States 872,025 871,083
Term Loan C, 7.438%, 12/31/09 ............................................ United States 1,974,175 1,974,984
MCC Iowa, Term Loan D-1, 7.002% - 7.37%, 1/31/15 ........................... United States 1,980,000 1,977,505
MediaNews Group Inc., Term Loan B, 6.574%, 12/30/10 ........................ United States 2,266,312 2,237,213
Metro-Goldwyn-Mayer Inc., Term Loan B, 8.749%, 4/08/12 ..................... United States 1,460,543 1,450,158
Mission Broadcasting Inc., Term Loan B, 7.117%, 10/01/12 ................... United States 1,685,649 1,681,570
Nexstar Broadcasting Inc., Term Loan B, 7.117%, 10/01/12 ................... United States 1,597,597 1,593,731
Penn National Gaming Inc., Term Loan B, 7.02% - 7.25%,
10/03/12 .................................................................. United States 1,782,000 1,788,522
R.H. Donnelley Inc., Term Loan D-2, 6.83% - 6.90%, 6/30/11 ................. United States 1,445,190 1,434,091
Regal Cinemas Corp., Term Loan B, 7.117%, 11/10/10 ......................... United States 3,856,407 3,844,067
UPC Financing Partnership,
Term Loan J2, 7.64%, 3/31/13 ............................................. Netherlands 2,000,000 2,000,780
Term Loan K2, 7.64%, 12/31/13 ............................................ Netherlands 2,000,000 2,000,780
VML US Finance LLC (Venetian Macau), Term Loan B, 8.12%,
5/26/13 ................................................................... United States 2,333,333 2,345,187
WMG Acquisition Corp. (Warner Music), Term Loan B,
7.205% - 7.511%, 3/01/11 .................................................. United States 3,866,803 3,876,818
-------------
41,272,892
-------------
ELECTRONIC TECHNOLOGY 0.2%
Onex Wind Finance LP (Mid-Western Aircraft), Term Loan B,
7.748%, 12/31/11 .......................................................... United States 840,616 846,601
-------------
ENERGY MINERALS 0.4%
Citgo Petroleum Corp., Term Loan B, 6.703%, 11/15/12 ....................... United States 1,687,250 1,691,687
-------------
FINANCE 2.7%
Ameritrade Holding Corp., Term Loan B, 6.83%, 12/31/12 ..................... United States 1,865,659 1,866,517
Avis Budget Car Rental LLC, Term Loan, 6.75%, 4/19/12 ...................... United States 978,571 970,557
Conseco Inc., Term Loan, 7.08%, 6/22/10 .................................... United States 361,623 361,934
Fidelity National Information Services Inc., Term Loan B, 7.08%,
3/09/13 ................................................................... United States 4,355,299 4,359,916

Semiannual Report | 17

Franklin Templeton
Limited Duration Income Trust

STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
SENIOR FLOATING RATE INTERESTS (CONTINUED)
FINANCE (CONTINUED)
Nasdaq Stock Market Inc.,
Term Loan B, 6.971% - 7.117%, 4/18/12 .................................. United States $ 1,545,589 $ 1,544,120
Term Loan C (Delayed Draw), 7.03% - 7.249%, 4/18/12 .................... United States 909,537 908,674
-------------
10,011,718
-------------
HEALTH SERVICES 2.4%
DaVita Inc., Term Loan B, 7.37% - 7.69%, 10/05/12 ........................ United States 3,474,102 3,478,480
Fresenius Medical Care Holdings Inc., Term Loan B,
6.742% - 6.775%, 3/31/13 ................................................ United States 2,487,500 2,473,943
LifePoint Hospitals Inc., Term Loan B, 6.949%, 4/15/12 ................... United States 2,893,383 2,882,359
-------------
8,834,782
-------------
INDUSTRIAL SERVICES 0.8%
Allied Waste North America Inc.,
Credit Link, 5.348%, 1/15/12 ........................................... United States 764,558 763,840
Term Loan B, 7.17% - 7.27%, 1/15/12 .................................... United States 1,926,945 1,925,134
Petroleum Geo-Services ASA and PGS Finance Inc., Term Loan,
7.58% - 7.62%, 12/17/12 ................................................. Norway 276,353 277,646
-------------
2,966,620
-------------
NON-ENERGY MINERALS 1.2%
Novelis Corp., U.S. Term Loan, 7.718%, 1/09/12 ........................... United States 1,041,257 1,045,738
Novelis Inc., Canadian Term Loan, 7.718%, 1/09/12 ........................ Canada 599,512 602,092
St. Marys Cement Inc., Term Loan B, 7.367%, 12/04/09 ..................... Canada 2,929,736 2,956,601
-------------
4,604,431
-------------
PROCESS INDUSTRIES 6.0%
Boise Cascade LLC, Term Loan D, 7.094% - 7.125%, 10/28/11 ................ United States 527,299 527,911
BPC Holding Corp. (Berry Plastics), Term Loan B, 7.08%,
9/20/13 ................................................................. United States 1,010,000 1,008,950
Georgia-Pacific Corp.,
Second Lien Term Loan, 8.39%, 12/23/13 ................................. United States 1,000,000 1,009,700
Term Loan B, 7.367% - 7.485%, 12/20/12 ................................. United States 2,481,250 2,488,197
Graham Packaging Co.,
First Lien Term Loan, 7.625% - 7.875%, 10/07/11 ........................ United States 1,674,037 1,678,891
Incremental Term Loan B, 7.813%, 10/07/11 .............................. United States 369,548 370,479
Hexion Specialty Chemicals BV, Term Loan C-2, 7.37%, 5/05/13 ............. Netherlands 624,110 618,018
Hexion Specialty Chemicals Inc., Term Loan C-1, 7.563%,
5/05/13 ................................................................. United States 2,880,257 2,852,145
Huntsman International LLC, Term Loan B, 7.08%, 8/16/12 .................. United States 3,725,242 3,719,841
Ineos U.S. Finance LLC,
Term Loan B2, 7.611% - 7.615%, 12/16/13 ................................ United States 400,000 403,140
Term Loan C2, 8.111% - 8.115%, 12/23/14 ................................ United States 400,000 403,136
d Lyondell Chemical Co., Term Loan, 9.00%, 8/16/13 ......................... United States 1,700,000 1,706,222
Nalco Co., Term Loan B, 7.08% - 9.00%, 11/04/09 .......................... United States 3,578,875 3,590,721
NewPage Corp., Term Loan, 8.499%, 5/02/11 ................................ United States 2,322,346 2,323,833
-------------
22,701,184
-------------

18 | Semiannual Report

Franklin Templeton
Limited Duration Income Trust

STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
SENIOR FLOATING RATE INTERESTS (CONTINUED)
PRODUCER MANUFACTURING 3.5%
Cooper Standard Automotive Inc., Term Loan D, 7.875%,
12/23/11 .................................................................. Canada $ 893,250 $ 887,489
Day International Group Inc., Term Loan B, 8.12%, 12/05/12 ................. United States 706,894 710,944
Euramax International Inc., Domestic Term Loan, 8.188%,
6/29/12 ................................................................... United States 1,040,916 1,042,238
Headwaters Inc., Term Loan B, 7.33% - 7.50%, 4/30/11 ....................... United States 823,404 822,992
Nortek Inc., Term Loan, 7.36%, 8/27/11 ..................................... United States 1,964,912 1,964,067
Sensus Metering Systems Inc.,
Term Loan B1, 7.399% - 7.583%, 12/17/10 .................................. United States 2,341,615 2,338,852
Term Loan B2, 7.399% - 7.583%, 12/17/10 .................................. Luxembourg 311,036 310,890
TriMas Co. LLC,
Term Loan B, 8.25%, 8/02/13 .............................................. United States 1,616,924 1,622,681
Tranche B-1 L/C, 8.08%, 8/02/11 .......................................... United States 373,136 374,427
TRW Automotive Inc., Term Loan B, 7.188%, 6/30/12 .......................... United States 2,955,000 2,933,842
-------------
13,008,422
-------------
REAL ESTATE DEVELOPMENT 0.9%
LandSource Communities Development LLC, Term Loan B, 7.875%,
3/31/10 ................................................................... United States 1,000,000 999,750
London Arena and Waterfront Finance LLC, Term Loan A, 8.89%,
3/08/12 ................................................................... United States 447,000 452,963
Mattamy Group, Term Loan B, 7.688%, 4/11/13 ................................ United States 498,750 498,017
Yellowstone Club, Term Loan, 7.699%, 9/30/10 ............................... United States 1,348,243 1,334,936
-------------
3,285,666
-------------
REAL ESTATE INVESTMENT TRUSTS 2.2%
Capital Automotive REIT, Term Loan B, 7.08%, 12/10/10 ...................... United States 2,842,447 2,843,243
General Growth Properties Inc., Term Loan A-1, 6.58%, 2/24/10 .............. United States 3,500,000 3,455,025
Lion Gables Realty LP, Term Loan B, 7.08%, 9/30/07 ......................... United States 46,737 46,737
Maguire Properties Inc., Term Loan B, 7.08%, 3/15/10 ....................... United States 554,431 552,430
Newkirk Master LP, Term Loan B, 7.08%, 8/11/08 ............................. United States 639,226 639,156
Trizec Partners Real Estate LP, Term Loan B, 6.775%, 5/02/07 ............... United States 820,000 819,114
-------------
8,355,705
-------------
RETAIL TRADE 1.3%
Neiman Marcus Group Inc., Term Loan, 7.891%, 4/06/13 ....................... United States 1,139,241 1,143,923
Pantry Inc., Term Loan, 7.08%, 1/02/12 ..................................... United States 633,214 636,196
The William Carter Co., Term Loan B, 6.758% - 6.985%,
7/14/12 ................................................................... United States 785,798 783,920
TravelCenters of America Inc., Term Loan, 7.11% - 7.12%,
12/01/11 .................................................................. United States 2,481,250 2,492,788
-------------
5,056,827
-------------

Semiannual Report | 19

Franklin Templeton
Limited Duration Income Trust

STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
SENIOR FLOATING RATE INTERESTS (CONTINUED)
TECHNOLOGY SERVICES 0.8%
SunGard Data Systems Inc., Term Loan, 7.999%, 2/11/13 .................. United States $ 2,847,950 $ 2,867,601
-------------
TRANSPORTATION 0.3%
Laidlaw International Inc., Term Loan B, 7.117%, 6/28/12 ............... United States 598,500 599,805
Laidlaw Transit Inc., Term Loan B, 7.117%, 6/28/12 ..................... Canada 199,500 199,935
United Air Lines Inc.,
Delay Draw, 9.125%, 2/01/12 ......................................... United States 60,844 61,519
Term Loan B, 9.25%, 2/01/12 ......................................... United States 425,909 430,632
-------------
1,291,891
-------------
UTILITIES 1.5%
Astoria Generating Co. Acquisitions LLC,
L/C Term Loan, 7.33%, 2/23/11 ....................................... United States 106,599 106,706
Term Loan B, 7.39%, 2/23/13 ......................................... United States 450,773 451,409
LSP General Finance Co. LLC,
f Delay Draw, 7.117%, 5/04/13 ......................................... United States 27,824 27,751
Term Loan, 7.117%, 5/04/13 .......................................... United States 654,217 652,510
NRG Energy Inc.,
Credit Link, 7.367%, 2/01/13 ........................................ United States 798,351 799,509
Term Loan B, 7.367%, 2/01/13 ........................................ United States 3,484,141 3,489,158
-------------
5,527,043
-------------
TOTAL SENIOR FLOATING RATE INTERESTS (COST $187,557,668) ............... 187,178,384
-------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 4.3%
a,g Government of Argentina, FRN, 5.59%, 8/03/12 ........................... Argentina 3,950,000 2,754,558
Government of Canada, 7.25%, 6/1/07 .................................... Canada 1,500,000 CAD 1,369,957
Government of Malaysia, 8.60%, 12/01/07 ................................ Malaysia 4,700,000 MYR 1,344,751
Government of Norway, 6.75%, 1/15/07 ................................... Norway 8,300,000 NOK 1,282,766
Government of Poland, 8.50%, 11/12/06 .................................. Poland 8,750,000 PLN 2,809,846
Government of Singapore, 5.625%, 7/01/08 ............................... Singapore 2,150,000 SGD 1,415,168
Government of Sweden, 8.00%, 8/15/07 ................................... Sweden 8,300,000 SEK 1,179,202
Korea Treasury Note, 4.75%, 3/12/08 .................................... South Korea 3,600,000,000 KRW 3,811,655
-------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES
(COST $15,526,581) .................................................... 15,967,903
-------------
TOTAL LONG TERM INVESTMENTS (COST $555,417,954) ........................ 555,889,744
-------------
SHORT TERM INVESTMENTS 4.5%
GOVERNMENT BONDS 0.9%
h Thailand Treasury Bill, 7/19/07 - 9/06/07 .............................. Thailand 132,200,000 THB 3,363,861
-------------

20 | Semiannual Report

Franklin Templeton
Limited Duration Income Trust

STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (CONTINUED)

------------------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------

SHORT TERM INVESTMENTS (CONTINUED)
MONEY MARKET FUND 3.6%
i Franklin Institutional Fiduciary Trust Money Market Portfolio,
4.95% ................................................................... United States 13,560,707 $ 13,560,707
-------------
TOTAL SHORT TERM INVESTMENTS (COST $16,930,752) .......................... 16,924,568
-------------
TOTAL INVESTMENTS (COST $572,348,706) 152.5% ............................. 572,814,312
PREFERRED SHARES (50.6)% ................................................. (190,000,000)
OTHER ASSETS, LESS LIABILITIES (1.9)% .................................... (7,219,453)
-------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0% ............................ $ 375,594,859
=============

CURRENCY ABBREVIATIONS

CAD - Canadian Dollar
KRW - South Korean Won
MYR - Malaysian Ringgit
NOK - Norwegian Krone
PLN - Polish Zloty
SEK - Swedish Krona
SGD - Singapore Dollar
THB - Thai Baht

SELECTED PORTFOLIO ABBREVIATIONS

FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association
FRN - Floating Rate Note
GNMA - Government National Mortgage Association
L/C - Letter of Credit
SF - Single Family

a The coupon rate shown represents the rate at period end.

b Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under
the Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Fund's Board of Trustees. At September 30,
2006, the aggregate value of these securities was $15,738,701,
representing 4.19% of net assets.

c The principal amount is stated in U.S. dollars unless otherwise indicated.

d See Note 1(c) regarding securities purchased on a when-issued or delayed
delivery basis.

e See Note 1(e) regarding senior floating rate interests.

f See Note 10 regarding unfunded loan commitments.

g The principal amount is stated in original face, and scheduled paydowns
are reflected in the market price on ex-date.

h The security is traded on a discount basis with no stated coupon rate.

i See Note 8 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio. The rate shown is the annualized seven-day
yield at period end.

Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 21

Franklin Templeton
Limited Duration Income Trust

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
September 30, 2006 (unaudited)

Assets:
Investments in securities:
Cost - Unaffiliated issuers .................................................................................. $558,787,999
Cost - Sweep Money Fund (Note 8) ............................................................................. 13,560,707
------------
Total cost of investments .................................................................................... $572,348,706
============
Value - Unaffiliated issuers ................................................................................. $559,253,605
Value - Sweep Money Fund (Note 8) ............................................................................ 13,560,707
------------
Total value of investments ................................................................................... 572,814,312
Cash .......................................................................................................... 2,061,896
Foreign currency, at value (cost $47,531) ..................................................................... 47,631
Receivables:
Investment securities sold ................................................................................... 15,602,853
Interest ..................................................................................................... 5,877,070
------------
Total assets ........................................................................................... 596,403,762
------------

Liabilities:
Payables:
Investment securities purchased .............................................................................. 28,090,991
Affiliates ................................................................................................... 322,573
Distributions to shareholders ................................................................................ 2,246,119
Unrealized loss on unfunded loan commitments (Note 10) ....................................................... 5,557
Accrued expenses and other liabilities ........................................................................ 143,663
------------
Total liabilities ...................................................................................... 30,808,903
------------
Preferred shares at redemption value [$25,000 liquidation preference per share (7,600 shares outstanding)] ..... 190,000,000
------------
Net assets applicable to common shares ............................................................... $375,594,859
============
Net assets applicable to common shares consist of:
Paid-in capital ............................................................................................... $380,014,364
Distributions in excess of net investment income .............................................................. (5,299,401)
Net unrealized appreciation (depreciation) .................................................................... 460,150
Accumulated net realized gain (loss) .......................................................................... 419,746
------------
Net assets applicable to common shares ............................................................... $375,594,859
============
Common shares outstanding ...................................................................................... 26,739,511
============
Net asset value per common share ............................................................................... $ 14.05
============

22 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Templeton
Limited Duration Income Trust

FINANCIAL STATEMENTS (CONTINUED)

STATEMENT OF OPERATIONS
for the six months ended September 30, 2006 (unaudited)

Investment income:

Dividends - Sweep Money Fund (Note 8) ........................................................... $ 219,290
Interest ........................................................................................ 19,622,950
-----------
Total investment income .................................................................. 19,842,240
-----------

Expenses:
Management fees (Note 4a) ....................................................................... 1,400,869
Administrative fees (Note 4b) ................................................................... 566,781
Transfer agent fees ............................................................................. 36,099
Custodian fees (Note 5) ......................................................................... 19,965
Reports to shareholders ......................................................................... 27,946
Professional fees ............................................................................... 26,728
Trustees' fees and expenses ..................................................................... 29,232
Auction agent fees and expenses (Note 3) ........................................................ 240,996
Other ........................................................................................... 53,219
-----------
Total expenses ........................................................................... 2,401,835
Expense reductions (Note 5) .............................................................. (12,327)
-----------
Net expenses ........................................................................... 2,389,508
-----------
Net investment income ................................................................. 17,452,732
-----------

Realized and unrealized losses:
Net realized gain (loss) from:
Investments .................................................................................... 1,701,280
Foreign currency transactions .................................................................. 12,584
-----------
Net realized gain (loss) .............................................................. 1,713,864
-----------

Net change in unrealized appreciation (depreciation) on:
Investments .................................................................................... (2,957,844)
Translation of assets and liabilities denominated in foreign currencies ........................ 284
-----------
Net change in unrealized appreciation (depreciation) .................................. (2,957,560)
-----------
Net realized and unrealized gain (loss) .......................................................... (1,243,696)
-----------
Net increase (decrease) in net assets resulting from operations .................................. 16,209,036
Distributions to preferred shareholders from net investment income ............................... (4,655,833)
-----------
Net increase (decrease) in net assets applicable to common shares resulting from operations ...... $11,553,203
===========

Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 23

Franklin Templeton
Limited Duration Income Trust

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CHANGES IN NET ASSETS

-----------------------------------
SIX MONTHS ENDED
SEPTEMBER 30, 2006 YEAR ENDED
(UNAUDITED) MARCH 31, 2006
-----------------------------------

Increase (decrease) in net assets:
Operations:
Net investment income ..................................................................... $ 17,452,732 $ 31,497,261
Net realized gain (loss) from investments and foreign currency transactions ............... 1,713,864 1,841,824
Net change in unrealized appreciation (depreciation) on investments and translation of
assets and liabilities denominated in foreign currencies ................................ (2,957,560) (4,448,879)
Distribution to preferred shareholders from net investment income ......................... (4,655,833) (6,954,398)
-------------------------------
Net increase (decrease) in net assets applicable to common shares resulting
from operations ................................................................... 11,553,203 21,935,808
Distribution to common shareholders from net investment income ............................. (14,038,243) (29,199,546)
-------------------------------
Net increase (decrease) in net assets ............................................... (2,485,040) (7,263,738)
Net assets applicable to common shares:
Beginning of period ........................................................................ 378,079,899 385,343,637
-------------------------------
End of period .............................................................................. $375,594,859 $378,079,899
===============================
Distributions in excess of net investment income included in net assets:
End of period .............................................................................. $ (5,299,401) $ (4,058,057)
===============================

24 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Templeton
Limited Duration Income Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

The following summarizes the Fund's significant accounting policies.

A. SECURITY VALUATION

Securities listed on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market. Investments in open-end mutual funds are valued at the closing net asset
value. Short term investments are valued at cost.

Corporate debt securities, government securities, mortgage pass-through
securities, other mortgage-backed securities, and asset-backed securities
generally trade in the over-the-counter market rather than on a securities
exchange. The Fund may utilize independent pricing services, quotations from
bond dealers, and information with respect to bond and note transactions, to
assist in determining a current market value for each security. The Fund's
pricing services may use valuation models or matrix pricing which considers
information with respect to comparable bond and note transactions, quotations
from bond dealers, or by reference to other securities that are considered
comparable in such characteristics as rating, interest rate and maturity date,
option adjusted spread models, prepayment projections, interest rate spreads and
yield curves, to determine current value.

Senior secured corporate loans with floating or variable interest rates
generally trade in the over-the-counter market rather than on a securities
exchange. The Fund may utilize independent pricing services, quotations from
loan dealers and other financial institutions, and information with respect to
bond and note transactions, to assist in determining a current market value for
each security. The Fund's pricing services use independent market quotations
from loan dealers or financial institutions and may incorporate valuation
methodologies that consider multiple bond characteristics such as dealer quotes,
issuer type, coupon, maturity, weighted average maturity, interest rate spreads
and yield curves, cash flow and credit risk/quality analysis to determine
current value.

Foreign securities are valued as of the close of trading on the foreign stock
exchange on which the security is primarily traded, or the NYSE, whichever is
earlier. If no sale is reported at that time, the foreign security will be
valued within the range of the most recent quoted bid and ask prices. The value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at the close of the NYSE on the day that the value of the foreign
security is determined.

Semiannual Report | 25

Franklin Templeton
Limited Duration Income Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

A. SECURITY VALUATION (CONTINUED)

The Fund has procedures to determine the fair value of individual securities and
other assets for which market prices are not readily available or which may not
be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the Fund. If such an event occurs, the securities may be valued
using fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by the Fund's Board of
Trustees.

B. FOREIGN CURRENCY TRANSLATION

Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Fund's Board of Trustees.

The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments on the
Statement of Operations.

Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.

26 | Semiannual Report

Franklin Templeton
Limited Duration Income Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

C. SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS

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

D. FOREIGN CURRENCY CONTRACTS

When the Fund purchases or sells foreign securities it may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. A foreign exchange contract is an agreement
between two parties to exchange different currencies at an agreed upon exchange
rate on a specified date. Realized and unrealized gains and losses on these
contracts are included in the Statement of Operations.

The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities.

E. SENIOR FLOATING RATE INTERESTS

Senior secured corporate loans pay interest at rates which are periodically
reset by reference to a base lending rate plus a spread. These base lending
rates are generally the prime rate offered by a designated U.S. bank or the
London InterBank Offered Rate (LIBOR). Senior secured corporate loans often
require prepayment of principal from excess cash flows or at the discretion of
the borrower. As a result, actual maturity may be substantially less than the
stated maturity.

Senior secured corporate loans in which the Fund invests are generally readily
marketable, but may be subject to some restrictions on resale.

F. INCOME TAXES

No provision has been made for U.S. income taxes because the Fund intends to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute to shareholders substantially all of its taxable income and net
realized gains.

Semiannual Report | 27

Franklin Templeton
Limited Duration Income Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

G. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Amortization of
premium and accretion of discount on debt securities are included in interest
income. Facility fees are recognized as income over the expected term of the
loan. Dividend income is recorded on the ex-dividend date. Distributions to
shareholders are recorded on the ex-dividend date and are determined according
to income tax regulations (tax basis). Distributable earnings determined on a
tax basis may differ from earnings recorded in accordance with accounting
principles generally accepted in the United States. 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.

H. 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.

I. GUARANTEES AND INDEMNIFICATIONS

Under the Fund's organizational documents, its officers and trustees are
indemnified by the Fund against certain liabilities arising out of the
performance of their duties to the Fund. Additionally, in the normal course of
business, the Fund enters into contracts with service providers that contain
general indemnification clauses. The Fund's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Fund that have not yet occurred. However, based on experience, the
Fund expects the risk of loss to be remote.

2. SHARES OF BENEFICIAL INTEREST

At September 30, 2006, there were 28,290,900 shares authorized (no par value).
During the period ended September 30, 2006, there were no share transactions;
all reinvested distributions were satisfied with previously issued shares
purchased in the open market.

28 | Semiannual Report

Franklin Templeton
Limited Duration Income Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. AUCTION RATE PREFERRED SHARES

On November 7, 2003 the Fund issued 2,534 Preferred Shares Series M, 2,533
Preferred Shares Series W and 2,533 Preferred Shares Series F, each with a
$25,000 liquidation preference per share totaling $190,000,000. Dividends to
preferred shareholders are cumulative and are declared weekly, at rates
established through an auction process. In connection with the weekly auctions,
the Fund pays an annual fee as well as commissions to the auction agent for its
services. During the period ended September 30, 2006, the dividends on Preferred
Shares ranged from 4.35% to 5.30%.

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. Additionally, the Fund may be precluded from declaring dividends to
common shareholders if the asset coverage or discounted value requirements are
not met. During the period ended September 30, 2006, 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 0.50% per year of the
average daily net assets of the Fund plus the liquidation value of the Preferred
Shares.

B. ADMINISTRATIVE FEES

The Fund pays an administrative fee to FT Services of 0.20% per year of the
average daily net assets of the Fund plus the liquidation value of the Preferred
Shares.

Semiannual Report | 29

Franklin Templeton
Limited Duration Income Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

5. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the period ended September 30, 2006, the
custodian fees were reduced as noted in the Statement of Operations.

6. INCOME TAXES

For tax purposes, realized capital losses and realized currency losses occurring
subsequent to October 31, may be deferred and treated as occurring on the first
day of the following fiscal year. At March 31, 2006, the Fund deferred realized
capital losses and realized currency losses of $666,686 and $23,148,
respectively.

At September 30, 2006, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:

Cost of investments ............................... $574,441,088
============

Unrealized appreciation ........................... $ 5,449,240
Unrealized depreciation ........................... (7,076,016)
------------
Net unrealized appreciation (depreciation) ........ $ (1,626,776)
============

Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions, mortgage dollar
rolls, paydown losses, and bond discounts and premiums.

Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions, mortgage dollar rolls, paydown losses, and bond discounts and
premiums.

7. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the
period ended September 30, 2006, aggregated $135,873,711 and $134,329,803,
respectively.

8. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund), an open-end investment company managed by
Advisers. Management fees paid by the Fund are reduced on assets invested in the
Sweep Money Fund, in an amount not to exceed the management and administrative
fees paid by the Sweep Money Fund.

30 | Semiannual Report

Franklin Templeton
Limited Duration Income Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

9. CREDIT RISK

The Fund has 65.33% of its portfolio invested in below investment grade and
comparable quality unrated high yield securities, which tend to be more
sensitive to economic conditions than higher rated securities. The risk of loss
due to default by the issuer may be significantly greater for the holders of
high yielding securities because such securities are generally unsecured and are
often subordinated to other creditors of the issuer.

10. UNFUNDED LOAN COMMITMENTS

The Fund may enter into certain credit agreements, all or a portion of which may
be unfunded. The Fund is obligated to fund these loan commitments at the
borrowers' discretion. Funded portions of credit agreements are presented on the
Statement of Investments.

At September 30, 2006, unfunded commitments were as follows:

---------------------------------------------------------------------------
UNFUNDED
BORROWER COMMITMENT
---------------------------------------------------------------------------
CBRL Group (Cracker Barrel), Term Loan B2 (Delayed Draw) ..... $ 134,276
LSP General Finance Co. LLC, Delay Draw ...................... 389
VML US Finance LLC (Venetian Macau), Delay Draw .............. 1,166,666
----------
$1,301,331
==========

Unfunded loan commitments and funded portions of credit agreements are marked to
market daily and any unrealized gain or loss is included in the Statement of
Assets and Liabilities and Statement of Operations.

11. REGULATORY MATTERS

As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, relating to certain practices in the
mutual fund industry, including late trading, market timing and marketing
support payments to securities dealers who sell fund shares, Franklin Resources,
Inc. and certain of its subsidiaries (collectively, the "Company"), entered into
settlements with certain of those regulators.

Specifically, the Company entered into settlements with the Securities and
Exchange Commission ("SEC") concerning market timing (the "August 2, 2004 SEC
Order") and marketing support payments to securities dealers who sell fund
shares (the "December 13, 2004 SEC Order") and with the California Attorney
General's Office ("CAGO") concerning marketing support payments to securities
dealers who sell fund shares (the "CAGO Settlement"). Under the terms of

Semiannual Report | 31

Franklin Templeton
Limited Duration Income Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

11. REGULATORY MATTERS (CONTINUED)

the settlements with the SEC and the CAGO, the Company retained an Independent
Distribution Consultant ("IDC") to develop separate plans for the distribution
of the respective settlement monies. The CAGO approved the distribution plan
pertaining to the distribution of the monies owed under the CAGO settlement
agreement, and in March 2005, the disbursement of monies to the relevant funds
in accordance with the terms and conditions of that settlement was completed.
The Fund did not participate in the CAGO Settlement.

On June 23, 2006, the SEC approved the IDC's proposed plan of distribution
arising from the December 13, 2004 SEC Order and disbursement of the settlement
monies to the designated funds in accordance with the terms and conditions of
the SEC's order and the plan was completed in September 2006. The Fund did not
participate in the December 13, 2004 SEC Order.

The IDC has also completed a proposed Plan of Distribution under the August 2,
2004 SEC Order resolving the SEC's market timing investigation and has submitted
that plan to the SEC staff, where it is under review. The SEC has announced the
following expected schedule with respect to the market timing Plan of
Distribution. The SEC anticipates that Notice of the Plan will be published on
or after November 15, 2006. After publication and comment, the proposed
Distribution Plan will be submitted to the SEC for approval. When the SEC
approves the proposed Distribution Plan, with modifications as appropriate,
distributions will begin pursuant to that Plan.

In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, directors, and/or
employees, have been named in private lawsuits (styled as shareholder class
actions, or as derivative actions on behalf of either the named funds or
Franklin Resources, Inc.) relating to the industry practices referenced above,
as well as to allegedly excessive advisory fees, commissions, and/or 12b-1 fees.
The lawsuits were filed in different courts throughout the country. Many of
those suits are now pending in a multi-district litigation in the United States
District Court for the District of Maryland.

The Company and fund management strongly believe that the claims made in each of
the private lawsuits referenced above are without merit and intend to defend
against them vigorously. The Company cannot predict with certainty the eventual
outcome of these lawsuits, nor whether they will have a material negative impact
on the Company. If it is determined that the Company bears responsibility for
any unlawful or inappropriate conduct that caused losses to the Fund, it is
committed to making the Trust or its shareholders whole, as appropriate.

32 | Semiannual Report

Franklin Templeton
Limited Duration Income Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

12. NEW ACCOUNTING PRONOUNCEMENTS

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the
accounting for uncertainty in tax positions taken or expected to be taken in a
tax return. FIN 48 provides guidance on the measurement, recognition,
classification and disclosure of tax positions, along with accounting for the
related interest and penalties. FIN 48 is effective for fiscal years beginning
after December 15, 2006, and is to be applied to all open tax years as of the
date of effectiveness. The Fund is currently evaluating the impact, if any, of
applying the various provisions of FIN 48.

In September 2006, FASB issued FASB Statement No. 157, "Fair Value Measurement"
("SFAS 157"), which defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value measurements. SFAS 157 is
effective for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Fund believes the adoption of SFAS 157
will have no material impact on its financial statements.

Semiannual Report | 33

Franklin Templeton
Limited Duration Income Trust

SHAREHOLDER INFORMATION

PROXY VOTING POLICIES AND PROCEDURES

The Fund has established Proxy Voting Policies and Procedures ("Policies") that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/527-7678 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Fund's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.

QUARTERLY STATEMENT OF INVESTMENTS

The Fund files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.

34 | Semiannual Report

This page intentionally left blank.

Literature Request

LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. To ensure the highest quality of
service, we may monitor, record and access telephone calls to or from our
service departments. These calls can be identified by the presence of a regular
beeping tone.

FRANKLIN TEMPLETON INVESTMENTS

INTERNATIONAL

Mutual European Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund

GLOBAL

Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund

GROWTH

Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II 1

VALUE

Franklin Balance Sheet Investment Fund 2
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 2
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund

BLEND

Franklin Balanced Fund
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund

SECTOR

Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Global Real Estate Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund

ASSET ALLOCATION

Franklin Templeton Corefolio
Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund

TARGET FUNDS

Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund

RETIREMENT TARGET FUNDS

Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund

INCOME

Franklin Adjustable U.S. Government
Securities Fund 4
Franklin's AGE High Income Fund
Franklin Floating Rate Daily Access Fund
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund 4
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 4
Templeton Global Bond Fund
Templeton Income Fund

TAX-FREE INCOME 5

NATIONAL FUNDS

Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 6

LIMITED-TERM FUNDS

California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund

INTERMEDIATE-TERM FUNDS

California Intermediate-Term
Tax-Free Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
New York Intermediate-Term
Tax-Free Income Fund

STATE-SPECIFIC
Alabama Michigan 6
Arizona Minnesota 6
California 7 Missouri
Colorado New Jersey
Connecticut New York 7
Florida 7 North Carolina
Georgia Ohio 6
Kentucky Oregon
Louisiana Pennsylvania
Maryland Tennessee
Massachusetts 6 Virginia

INSURANCE FUNDS

Franklin Templeton Variable Insurance Products
Trust 8

1. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.

2. The fund is only open to existing shareholders and select retirement
plans.

3. The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25%
of the outstanding number of shares. Investors may tender all or a portion
of their shares during the tender period.

4. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.

5. For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.

6. Portfolio of insured municipal securities.

7. These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA)
and limited-term, intermediate-term and money market portfolios (CA and
NY).

8. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.

07/06
Not part of the semiannual report

[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906

SEMIANNUAL REPORT

FRANKLIN TEMPLETON
LIMITED DURATION INCOME TRUST

INVESTMENT MANAGER

Franklin Advisers, Inc.
1-800/DIAL BEN(R)

TRANSFER AGENT

PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027

To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.

FTF S2006 11/06

ITEM 2. CODE OF ETHICS.

(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.

(d) N/A

(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy
of its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.

(2) The audit committee financial expert is Frank W. T. LaHaye and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

Members of the Audit Committee are: Robert F. Carlson, Frank W.T. LaHaye,
Frank A. Olson and John B. Wilson.

ITEM 6. SCHEDULE OF INVESTMENTS. N/A

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.

The board of trustees of the Trust has delegated the authority to vote proxies
related to the portfolio securities held by the Fund to the Fund's manager
Franklin Advisers, Inc. in accordance with the Proxy Voting Policies and
Procedures (Policies) adopted by the manager.

The manager has delegated its administrative duties with respect to the voting
of proxies to the Proxy Group within Franklin Templeton Companies, LLC (Proxy
Group), an affiliate and wholly owned subsidiary of Franklin Resources, Inc. All
proxies received by the Proxy Group will be voted based upon the manager's
instructions and/or policies.

To assist it in analyzing proxies, the manager subscribes to Institutional
Shareholder Services (ISS), an unaffiliated third party corporate governance
research service that provides in-depth analyses of shareholder meeting agendas,
vote recommendations, recordkeeping and vote disclosure services. In addition,
the manager subscribes to Glass, Lewis & Co., LLC (Glass Lewis), an unaffiliated
third party analytical research firm, to receive analyses and vote
recommendations on the shareholder meetings of publicly held U.S. companies.
Although ISS' and/or Glass Lewis' analyses are thoroughly reviewed and
considered in making a final voting decision, the manager does not consider
recommendations from ISS, Glass Lewis or any other third party to be
determinative of the manager's ultimate decision. The manager votes proxies
solely in the interests of the Fund and its shareholders. As a matter of policy,
the officers, directors/trustees and employees of the Fund, the manager and the
Proxy Group will not be influenced by outside sources whose interests conflict
with the interests of the Fund and its shareholders. All conflicts are resolved
in the interests of the manager's clients. In situations where the manager
perceives a material conflict of interest, the manager may: disclose the
conflict to the Fund's board of trustees; defer to the voting recommendation of
the Fund's board of trustees, ISS, Glass Lewis or those of another independent
third party provider of proxy services; or take such other action in good faith
(in consultation with counsel) which would protect the interests of the Fund and
its shareholders.
The recommendation of management on any issue is a factor which the manager
considers in determining how proxies should be voted, but is not determinative
of the manager's ultimate decision. As a matter of practice, the votes with
respect to most issues are cast in accordance with the position of the company's
management. Each issue, however, is considered on its own merits, and the
manager will not support the position of the company's management in any
situation where it deems that the ratification of management's position would
adversely affect the investment merits of owning that company's shares.

MANAGER'S PROXY VOTING POLICIES AND PRINCIPLES The manager has adopted general
proxy voting guidelines, which are summarized below. These guidelines are not an
exhaustive list of all the issues that may arise and the manager cannot
anticipate all future situations. In all cases, each proxy will be considered
based on the relevant facts and circumstances.

BOARD OF DIRECTORS. The manager supports an independent board of directors, and
prefers that key committees such as audit, nominating, and compensation
committees be comprised of independent directors. The manager will generally
vote against management efforts to classify a board and will generally support
proposals to declassify the board of directors. The manager may withhold votes
from directors who have attended less than 75% of meetings without a valid
reason. While generally in favor of separating Chairman and CEO positions, the
manager will review this issue as well as proposals to restore or provide for
cumulative voting on a case-by-case basis, taking into consideration factors
such as the company's corporate governance guidelines or provisions and
performance.

RATIFICATION OF AUDITORS OF PORTFOLIO COMPANIES. In light of several high
profile accounting scandals, the manager will closely scrutinize the role and
performance of auditors. On a case-by-case basis, the manager will examine
proposals relating to non-audit relationships and non-audit fees. The manager
will also consider, on a case-by-case basis, proposals to rotate auditors, and
will vote against the ratification of auditors when there is clear and
compelling evidence of accounting irregularities or negligence.

MANAGEMENT AND DIRECTOR COMPENSATION. A company's equity-based compensation plan
should be in alignment with its shareholders' long-term interests. The manager
evaluates plans on a case-by-case basis by considering several factors to
determine whether the plan is fair and reasonable, including the ISS
quantitative model utilized to assess such plans and/or the Glass Lewis
evaluation of the plans. The manager will generally oppose plans that have the
potential to be excessively dilutive, and will almost always oppose plans that
are structured to allow the repricing of underwater options, or plans that have
an automatic share replenishment "evergreen" feature. The manager will generally
support employee stock option plans in which the purchase price is at least 85%
of fair market value, and when potential dilution is 10% or less.

Severance compensation arrangements will be reviewed on a case-by-case basis,
although the manager will generally oppose "golden parachutes" that are
considered to be excessive. The manager will normally support proposals that
require a percentage of directors' compensation to be in the form of common
stock, as it aligns their interests with those of shareholders. The manager will
review on a case-by-case basis any shareholder proposals to adopt policies on
expensing stock option plans.

ANTI-TAKEOVER MECHANISMS AND RELATED ISSUES. The manager generally opposes
anti-takeover measures since they tend to reduce shareholder rights. On
occasion, the manager may vote with management when the research analyst has
concluded that the proposal is not onerous and would not harm the Fund or its
shareholders' interests. The manager generally supports proposals that require
shareholder rights' plans ("poison pills") to be subject to a shareholder vote
and will closely evaluate such plans on a case-by-case basis to determine
whether or not they warrant support. The manager will generally vote against any
proposal to issue stock that has unequal or subordinate voting rights. The
manager generally opposes any supermajority voting requirements as well as the
payment of "greenmail." The manager generally supports "fair price" provisions
and confidential voting.

CHANGES TO CAPITAL STRUCTURE. The manager will review, on a case-by-case basis,
proposals by companies to increase authorized shares and the purpose for the
increase and proposals seeking preemptive rights. The manager will generally not
vote in favor of dual-class capital structures to increase the number of
authorized shares where that class of stock would have superior voting rights.
The manager will generally vote in favor of the issuance of preferred stock in
cases where the company specifies the voting, dividend, conversion and other
rights of such stock and the terms of the preferred stock issuance are deemed
reasonable.

MERGERS AND CORPORATE RESTRUCTURING. Mergers and acquisitions will be subject to
careful review by the research analyst to determine whether each will be
beneficial to shareholders. The manager will analyze various economic and
strategic factors in making the final decision on a merger or acquisition.
Corporate restructuring and reincorporation proposals are also subject to a
thorough examination on a case-by-case basis.

SOCIAL AND CORPORATE POLICY ISSUES. The manager will generally give management
discretion with regard to social, environmental and ethical issues, although the
manager may vote in favor of those that are believed to have significant
economic benefits or implications for the Fund and its shareholders.

GLOBAL CORPORATE GOVERNANCE. Many of the tenets discussed above are applied to
proxy voting decisions for international companies. However, the manager must be
more flexible in these instances and must be mindful of the varied market
practices of each region.

The manager will attempt to process every proxy it receives for all domestic and
foreign proxies. However, there may be situations in which the manager cannot
process proxies, for example, where a meeting notice was received too late, or
sell orders preclude the ability to vote. If a security is on loan, the manager
may determine that it is not in the best interests of the Fund to recall the
security for voting purposes. Also, the manager may abstain from voting under
certain circumstances or vote against items such as "Other Business" when the
manager is not given adequate information from the company.

Shareholders may view the complete Policies online at franklintempleton.com.
Alternatively, shareholders may request copies of the Policies free of charge by
calling the Proxy Group collect at 1-954/527-7678 or by sending a written
request to: Franklin Templeton Companies, LLC, 500 East Broward Boulevard, Suite
1500, Fort Lauderdale, FL 33394, Attention: Proxy Group. Copies of the Fund's
proxy voting records are available online at franklintempleton.com and posted on
the SEC website at www.sec.gov and reflect the twelve-month period beginning
July 1, 2005, and ending June 30, 2006..

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
N/A

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS. N/A

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY Holders. There have
been no changes to the procedures by which shareholders may recommend nominees
to the Registrant's Board of Trustees that would require disclosure herein.

ITEM 11. CONTROLS AND PROCEDURES.
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules
and forms of the Securities and Exchange Commission. Such information is
accumulated and communicated to the Registrant's management, including its
principal executive officer and principal financial officer, as appropriate, to
allow timely decisions regarding required disclosure. The Registrant's
management, including the principal executive officer and the principal
financial officer, recognizes that any set of controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives.

Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.

(b) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.

ITEM 12. EXHIBITS.

(a) (1) Code of Ethics

(a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

FRANKLIN TEMPLETON LIMITED DURATION INCOME TRUST

By /S/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date November 27, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

By /S/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date November 27, 2006

By /S/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Financial Officer
Date November 27, 2006