Franklin Limited Duration Income Trust (“FTF” or the “Fund”) Announces Notification of Sources of Distributions

Rhea-AI Summary

Franklin Duration Income Trust (FTF) announces sources of distributions for March 28, 2024, and fiscal year 2024. The estimated allocations reveal a distribution per share of $0.0615 for March, with a breakdown of net investment income, short-term capital gains, long-term capital gains, and return of capital. Cumulative allocations for the fiscal year-to-date show a distribution per share of $0.1230, with details on income and capital gains. The Fund has incurred a cumulative loss in undistributed net realized and unrealized capital gains and losses, including unrealized depreciation of portfolio securities.

Insights

Financial Analyst

The distribution announcement by Franklin Limited Duration Income Trust indicates a return of capital component which constitutes 32% of the March distribution and 41% for the fiscal year-to-date. This is a notable figure as it suggests that a significant portion of the payout is not sourced from the fund's earnings but from the invested capital. Investors typically prefer distributions to be sourced primarily from net investment income and realized capital gains, as a return of capital could imply that the fund is not generating enough income and may be eroding the principal value of the investment.

Additionally, the disclosure of a cumulative loss in undistributed net realized and unrealized capital gains and losses totaling $1.7351 per share, with $0.5866 per share being unrealized depreciation, is a critical point. This indicates the fund's investments have decreased in value, which may concern investors regarding the fund's current investment strategy and market conditions impacting the fund's performance. It is essential for investors to assess the sustainability of distributions in light of these losses and the potential impact on future payouts.

Tax Advisor

From a taxation perspective, the composition of the fund's distribution is significant. The portion classified as return of capital is generally not taxable until the investor's cost basis in the fund is recovered. This can provide a tax advantage for investors in the short term. However, it is important to note that this reduces the cost basis of the investment, potentially resulting in a higher capital gains tax when the shares are sold.

Furthermore, the tax implications of net realized short-term and long-term capital gains differ, with short-term gains typically being taxed at a higher rate. The fund's report shows minimal short-term gains, which may be favorable for investors concerned with tax efficiency. Investors should consult with a tax professional to understand the impact of these distributions on their individual tax situation.

Investment Strategist

The reported figures highlight the importance of scrutinizing the underlying assets and strategies of income-focused funds. The Franklin Limited Duration Income Trust's reliance on return of capital for a significant portion of its distribution may signal a need for the fund to re-evaluate its investment approach, especially in light of the unrealized depreciation of portfolio securities. Investors should consider the long-term viability of the fund's strategy, as consistent return of capital distributions could be unsustainable and might lead to a reduction in future payouts or the erosion of the fund's asset base.

Moreover, it is essential for investors to understand the fund's position within the broader market context. Current economic conditions, interest rate trends and market volatility could all be contributing factors to the fund's performance and should be considered when making investment decisions regarding income trusts like FTF.

SAN MATEO, Calif.--(BUSINESS WIRE)-- Franklin Limited Duration Income Trust [NYSE American: FTF]:

Notification of Sources of Distributions Pursuant to Section 19(a) of the Investment Company Act of 1940

The Fund’s estimated sources of the distribution to be paid on March 28, 2024 and for the fiscal year 2024 year-to-date are as follows:

Estimated Allocations for March Monthly Distribution as of February 29, 2024:

Distribution Per Share	Net Investment Income	Net Realized Short-Term Capital Gains	Net Realized Long-Term Capital Gains	Return of Capital
$0.0615	$0.0409 (67%)	$0.0006 (1%)	$0.00 (0%)	$0.0200 (32%)

Cumulative Estimated Allocations fiscal year-to-date as of February 29, 2024, for the fiscal year ending December 31, 2024:

Distribution Per Share	Net Investment Income	Net Realized Short-Term Capital Gains	Net Realized Long-Term Capital Gains	Return of Capital
$0.1230	$0.0667 (54%)	$0.0064 (5%)	$0.00 (0%)	$0.0499 (41%)

The Fund has experienced a cumulative loss in undistributed net realized and unrealized capital gains and losses totaling $1.7351 per share. Of that amount, $0.5866 per share represents unrealized depreciation of portfolio securities.

Shareholders should not draw any conclusions about the Fund’s investment performance from the amount of the current distribution or from the terms of the Fund’s Plan. FTF estimates that it has distributed more than its income and net realized capital gains; therefore, a portion of the FTF distribution to shareholders may be a return of capital. A return of capital may occur, for example, when some or all of the money that a shareholder invested in a Fund is paid back to them. A return of capital distribution does not necessarily reflect FTF’s investment performance and should not be confused with ‘yield’ or ‘income’. The amounts and sources of distributions reported herein are only estimates and are not being provided for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the Fund’s investment experience during the remainder of its fiscal year and may be subject to changes based on tax regulations. The Fund will send a Form 1099-DIV to shareholders for the calendar year that will describe how to report the Fund’s distributions for federal income tax purposes.

Average Annual Total Return (in relation to the change in net asset value (NAV) for the 5-year period ended on 2/29/2024)1	Annualized Distribution Rate (as a percentage of NAV for the current fiscal period through 2/29/2024)2	Cumulative Total Return (in relation to the change in NAV for the fiscal period through 2/29/2024)3	Cumulative Fiscal Year-To-Date Distribution Rate (as a percentage of NAV as of 2/29/2024)4
2.48%	10.37%	0.88%	1.73%

Fund Performance and Distribution Rate Information:

1. Average Annual Total Return in relation to NAV represents the compound average of the Annual NAV Total Returns of the Fund for the five-year period ended through February 29, 2024. Annual NAV Total Return is the percentage change in the Fund’s NAV over a year, assuming reinvestment of distributions paid.
2. The Annualized Distribution Rate is the current fiscal period’s distribution rate annualized as a percentage of the Fund’s NAV through February 29, 2024.
3. Cumulative Total Return is the percentage change in the Fund’s NAV from December 31, 2023 through February 29, 2024, assuming reinvestment of distributions paid.
4. The Cumulative Fiscal Year-To-Date Distribution Rate is the dollar value of distributions for the fiscal period (December 31, 2023 through February 29, 2024), as a percentage of the Fund’s NAV as of February 29, 2024.

The Fund’s Board of Trustees (the “Board”) has authorized a managed distribution plan (the “Plan”) pursuant to which the Fund makes monthly distributions to shareholders at the fixed rate of $0.0615 per share. The Plan is intended to provide shareholders with consistent distributions each month and is intended to narrow the discount between the market price and the net asset value (“NAV”) of the Fund’s common shares, but there can be no assurance that the Plan will be successful in doing so. The Fund is managed with a goal of generating as much of the distribution as possible from net ordinary income and short-term capital gains, that is consistent with the Fund’s investment strategy and risk profile. To the extent that sufficient distributable income is not available on a monthly basis, the Fund will distribute long-term capital gains and/or return of capital in order to maintain its managed distribution rate. A return of capital may occur, for example, when some or all of the money that was invested in the Fund is paid back to shareholders. A return of capital distribution does not necessarily reflect the Fund’s investment performance and should not be confused with “yield” or “income”. Even though the Fund may realize current year capital gains, such gains may be offset, in whole or in part, by the Fund’s capital loss carryovers from prior years.

The Board may amend the terms of the Plan or terminate the Plan at any time without prior notice to the Fund’s shareholders. The amendment or termination of the Plan could have an adverse effect on the market price of the Fund’s common shares. The Plan will be subject to the periodic review by the Board, including a yearly review of the fixed rate to determine if an adjustment should be made.

For further information on Franklin Limited Duration Income Trust, please visit our web site at: www.franklintempleton.com

Franklin Resources, Inc. is a global investment management organization with subsidiaries operating as Franklin Templeton and serving clients in over 150 countries. Franklin Templeton’s mission is to help clients achieve better outcomes through investment management expertise, wealth management and technology solutions. Through its specialist investment managers, the company offers specialization on a global scale, bringing extensive capabilities in fixed income, equity, alternatives and multi-asset solutions. With more than 1,400 investment professionals, and offices in major financial markets around the world, the California-based company has over 75 years of investment experience and approximately $1.6 trillion in assets under management as of February 29, 2024. For more information, please visit franklintempleton.com.

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Franklin Templeton at 1-800-342-5236

Source: Franklin Templeton

FAQ

What is the distribution per share for the March monthly distribution for Franklin Duration Income Trust (FTF)?

The distribution per share for the March monthly distribution is $0.0615 for FTF.

What are the estimated sources of distribution for the fiscal year 2024 year-to-date for FTF?

For the fiscal year 2024 year-to-date, FTF has estimated sources of distribution including net investment income, short-term capital gains, long-term capital gains, and return of capital.

Has Franklin Duration Income Trust (FTF) experienced a cumulative loss in undistributed net realized and unrealized capital gains and losses?

Yes, FTF has experienced a cumulative loss in undistributed net realized and unrealized capital gains and losses totaling $1.7351 per share, including unrealized depreciation of portfolio securities.