Cohen &Steers Limited Duration Preferred and Income Fund. edelivery AVAILABLE COHEN &STEERS 280 PARK AVENUE LIMITED DURATION PREFERRED AND INCOME FUND

Transcription

1 Sign up at cohenandsteers.com Stop traditional mail delivery; receive your shareholder reports and prospectus online. edelivery AVAILABLE COHEN &STEERS LIMITED DURATION PREFERRED AND INCOME FUND 280 PARK AVENUE NEW YORK, NY Annual Report December 31, 2017 Cohen &Steers Limited Duration Preferred and Income Fund LDPAR

2 To Our Shareholders: We would like to share with you our report for the year ended December 31, The total returns for the Fund and its comparative benchmarks were: Six Months Ended December 31, 2017 Year Ended December 31, 2017 Cohen &Steers Limited Duration Preferred and Income Fund at Net Asset Valuea % 15.02%b Cohen&Steers Limited Duration Preferred and Income Fund at Market Valuea % 14.49% ICE BofAML US Capital Securities Indexc % 9.62% Linked Blended Benchmarkc % 10.44% Bloomberg Barclays USAggregate Bond Indexc % 3.54% The performance data quoted represent past performance. Past performance is no guarantee of future results. The investment return and the principal value of an investment will fluctuate and shares, if sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Performance results reflect the effects of leverage, resulting from borrowings under a credit agreement. Current total returns of the Fund can be obtained by visiting our website at cohenandsteers.com. The Fund s returns assume the reinvestment of all dividends and distributions at prices obtained under the Fund s dividend reinvestment plan. Index performance does not reflect the deduction of any fees, taxes or expenses. An investor cannot invest directly in an index. Performance figures for periods shorter than one year are not annualized. Managed Distribution Policy Cohen & Steers Limited Duration Preferred and Income Fund, Inc. (the Fund), acting in accordance with an exemptive order received from the U.S. Securities and Exchange Commission (SEC) and with approval of its Board of Directors (the Board), adopted a managed distribution policy under which the Fund intends to include long-term capital gains, where applicable, as part of the regular monthly cash distributions to its shareholders (the Plan). The Plan gives the Fund greater flexibility to realize long-term capital gains and to distribute those gains on a regular monthly basis. In accordance with the Plan, the Fund currently distributes $0.156 per share onamonthly basis. The Fund may pay distributions in excess of the Fund s investment company taxable income and net realized gains. This excess would be a return of capital distributed from the Fund s assets. Distributions of capital decrease the Fund s total assets and, therefore, could have the effect of increasing the Fund s expense ratio. In addition, inorder to make these distributions, the Fund may have to sell portfolio securities ataless than opportune time. a As a closed-end investment company, the price of the Fund s exchange-traded shares will be set by market forces and can deviate from the net asset value (NAV) per share of the Fund. b The returns shown are based on net asset values reported on December 31, 2017 and may differ from the returns shown in the financial highlights, which reflect adjustments made to the net asset values in accordance with accounting principles generally accepted inthe United States of America. c For benchmark descriptions, see pg 4. 1

3 Shareholders should not draw any conclusions about the Fund s investment performance from the amount of these distributions or from the terms of the Fund s Plan. The Fund s total return based on net asset value is presented in the table above as well as in the Financial Highlights table. The Plan provides that the Board may amend or terminate the Plan at any time without prior notice to Fund shareholders; however, at this time, there are no reasonably foreseeable circumstances that might cause the termination. The termination of the Plan could have the effect of creating a trading discount (if the Fund s stock is trading at or above NAV) or widening an existing trading discount. Market Review Preferred securities delivered strong returns in 2017 and outperformed most other classes of fixed income, including U.S. Treasuries, investment-grade bonds and high-yield debt. The year was defined by a broad-based acceleration in global growth the most expansive since the International Monetary Fund began collecting data in 1980 as well as subdued inflation, low interest rates and a high investor appetite for income. Supported by economic growth, central banks took measures to tighten highly accommodative monetary policy conditions. The U.S. Federal Reserve hiked overnight rates three times to end the year at 1.5%, and also laid out plans for slowly shrinking its balance sheet beginning in late The Bank of England and the Bank of Canada also raised rates, while the European Central Bank (ECB) announced plans to reduce its quantitative easing program by cutting its monthly bond purchases in half to 30 billion ($36 billion) per month for the first nine months of The yield on the 10-year U.S. Treasury, which rose dramatically late in 2016 following the U.S. presidential election, touched a 2017 low in September as geopolitical concerns rose and the chances of passing substantial pro-growth legislation declined. However, Treasury yields rallied to the upper end of their yield ranges late in 2017, with the 10-year U.S. Treasury ending the year relatively unchanged at 2.4%, as the Tax Cut and Jobs Act was enacted in late December. Sovereign yields in Europe rose modestly from near-zero levels, as the region s economy continued to improve. In addition, the supportive growth and inflation conditions, coupled with the investor demand mentioned above, led to a widespread tightening of credit spreads. Fund Performance The Fund had a positive total return in the year and outperformed its benchmark on both a NAV and market price basis. In general, we sought to own securities with meaningful call protection in both the retail and over-the-counter (OTC) markets, with the aim of limiting redemption risk and allowing more room for a security s price to appreciate. With credit spreads compressing and sovereign yields relatively steady over the year, this had an overall positive effect onperformance. U.S. and European banks the largest issuers of preferreds enjoyed strong earnings growth, benefiting from higher net interest margins, as well as improved trading and investment banking income all of which contributed to improving credit fundamentals. Security selection in the banking sector contributed to relative performance. We were overweight European contingent capital securities (CoCos), which were among the strongest performers in the period, as economic fundamentals and a better political backdrop in Europe continued to support credit spread compression amid improvements in banking markets. 2

4 In August, we reduced our allocation to property & casualty and reinsurance companies, becoming more underweight as the outlook for hurricane damage in the U.S. worsened. While these companies have strong capital positions, the large accumulated losses from hurricane activity raised near-term earnings concerns. Security selection and an underweight in the insurance sector also contributed to performance. The Fund s out-of-index allocation to the real estate sector detracted modestly from performance. Impact of Leverage on Fund Performance The Fund employs leverage as part of a yield-enhancement strategy. Leverage, which can increase total return in rising markets (just as it can have the opposite effect in declining markets), significantly contributed to the Fund s performance during the 12-month period ended December 31, Impact of Derivatives on Fund Performance In connection with its use of leverage, the Fund pays interest on borrowings based on a floating rate under the terms of its credit agreement. To reduce the impact that an increase in interest rates could have on the performance of the Fund with respect to these borrowings, the Fund used interest rate swaps to exchange a significant portion of the floating rate for a fixed rate. The Fund s use of swaps did not have a material impact on the Fund s performance during the 12-month period ended December 31, The Fund also used derivatives in the form of currency options for hedging purposes, as well as forward foreign currency exchange contracts for managing currency risk on certain Fund positions denominated in foreign currencies. The currency exchange contracts detracted from the Fund s total return during the 12-month period ended December 31, 2017, while the currency options did not have a material effect. Sincerely, WILLIAM F. SCAPELL Portfolio Manager ELAINE ZAHARIS-NIKAS Portfolio Manager 3

5 Benchmark Descriptions The Linked Blended Benchmark is represented by the performance of the blended benchmark consisting of 75% ICE BofAML US Capital Securities Index and 25% ICE BofAML 7% Constrained Adjustable Rate Preferred Securities Index through 1/31/2017 and the blended benchmark consisting of 70% ICE BofAML US IG Institutional Capital Securities Index, 20% ICE BofAML 7% Constrained Adjustable Rate Preferred Securities Index and 10% Bloomberg Barclays Developed Market USD Contingent Capital Index from February 1, 2017 and thereafter. The ICE BofAML US Capital Securities Index tracks the performance of US dollar-denominated investment-grade corporate debt publicly issued in the US domestic market, consisting of fixed-to-floating-rate, perpetual callable and capital securities. The ICE BofAML 7% Constrained Adjustable Rate Preferred Securities Index tracks the performance of US dollar-denominated investment-grade floating-rate preferred securities publicly issued in the US domestic market, but with issuer exposure capped at 7%. The ICE BofAML US IG Institutional Capital Securities Index is a subset of the ICE BofAML US Corporate Index including all fixed-to-floating rate, perpetual callable and capital securities. The Bloomberg Barclays Developed Market USD Contingent Capital Index includes hybrid capital securities in developed markets with explicit equity conversion or write down loss absorption mechanisms that are based on an issuer s regulatory capital ratio or other explicit solvency-based triggers. The Bloomberg Barclays US Aggregate Bond Index is a broad-market measure of the U.S. dollar-denominated investment-grade fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, mortgage-backed securities, asset-backed securities, and commercial mortgage-backed securities. Benchmark returns are shown for comparative purposes only and may not be representative of the Fund s portfolio. The views and opinions in the preceding commentary are subject to change without notice and are as of the date of the report. There is no guarantee that any market forecast set forth in the commentary will be realized. This material represents an assessment of the market environment at a specific point in time, should not be relied upon as investment advice and is not intended to predict or depict performance of any investment. Visit Cohen &Steers online at cohenandsteers.com For more information about the Cohen & Steers family of mutual funds, visit cohenandsteers.com. Here you will find fund net asset values, fund fact sheets and portfolio highlights, as well as educational resources and timely market updates. Our website also provides comprehensive information about Cohen &Steers, including our most recent press releases, profiles of our senior investment professionals and their investment approach to each asset class. The Cohen & Steers family of mutual funds invests in major real asset categories including real estate securities, listed infrastructure, commodities and natural resource equities, as well as preferred securities and other income solutions. 4

6 Our Leverage Strategy (Unaudited) Our current leverage strategy utilizes borrowings up to the maximum permitted by the Investment Company Act of 1940 to provide additional capital for the Fund, with an objective of increasing the net income available for shareholders. As of December 31, 2017, leverage represented 29% of the Fund s managed assets. It has been our philosophy to utilize interest rate swap transactions to seek to reduce the interest rate risk inherent in our utilization of leverage. Considering that the Fund s borrowings have variable interest rate payments, we seek to lock in those rates on a significant portion of this additional capital through interest rate swap agreements (where we effectively convert our variable rate obligations to fixed-rate obligations for the term of the swap agreements). Locking in a significant portion of our leveraging costs is designed to protect the dividend-paying ability of the Fund. The use of leverage increases the volatility of the Fund s NAV in both up and down markets. However, we believe that locking in a portion of the Fund s leveraging costs for the term of the swap agreements partially protects the Fund s expenses from an increase inshort-term interest rates. Leverage Factsa,b Leverage (as a%of managed assets)... 29% %Fixed Rate... 86% %Variable Rate % Weighted Average Rate onswaps: Fixed Rate (Payer) % Floating Rate (Receiver) % Weighted Average Term onswaps years Current Rate ondebt % The Fund seeks to enhance its dividend yield through leverage. The use of leverage is a speculative technique and there are special risks and costs associated with leverage. The NAV of the Fund s shares may be reduced by the issuance and ongoing costs of leverage. So long as the Fund is able to invest in securities that produce an investment yield that is greater than the total cost of leverage, the leverage strategy will produce higher current net investment income for shareholders. On the other hand, to the extent that the total cost of leverage exceeds the incremental income gained from employing such leverage, shareholders would realize lower net investment income. In addition to the impact on net income, the use of leverage will have an effect of magnifying capital appreciation or depreciation for shareholders. Specifically, in an up market, leverage will typically generate greater capital appreciation than if the Fund were not employing leverage. Conversely, in down markets, the use of leverage will generally result in greater capital depreciation than if the Fund had been unlevered. To the extent that the Fund is required or elects to reduce its leverage, the Fund may need to liquidate investments, including under adverse economic conditions which may result in capital losses potentially reducing returns to shareholders. There can be no assurance that a leveraging strategy will be successful during any period in which it is employed. a Data as of December 31, Information is subject to change. b See Note 7inNotes to Financial Statements. 5

7 Security December 31, 2017 Top Ten Holdingsa (Unaudited) Value %of Managed Assets Mellon Capital IV, 4.00%, Series 1(FRN).... $53,520, General Electric Co., 5.00% to1/21/21, Series D... 27,395, GMAC Capital Trust I, 7.201%, due 2/15/40, Series 2(TruPS) (FRN)... 25,313, US Bancorp, 3.50%, Series A(FRN)... 24,684, Rabobank Nederland, 11.00% to6/30/19, 144A (Netherlands)... 23,854, Emera, 6.75% to 6/15/26, due 6/15/76, Series 16-A (Canada) ,537, Meiji Yasuda Life Insurance Co., 5.20% to 10/20/25, due 10/20/45, 144A (Japan)... 18,484, Aegon NV, 2.388% (FRN) (Netherlands)... 18,452, Prudential Financial, 5.625% to6/15/23, due 6/15/ ,573, BHP Billiton Finance USA Ltd., 6.75% to 10/25/25, due 10/19/75, 144A (Australia) ,030, a Top ten holdings are determined on the basis of the value of individual securities held. The Fund may also hold positions inother types of securities issued by the companies listed above. See the Schedule of Investments for additional details on such other positions. Sector Breakdown (Based on Managed Assets) (Unaudited) Real Estate (Preferred) 1.9% Financial (Preferred) 2.7% Industrials (Preferred) 3.7% Material (Preferred) 1.5% Utilities (Preferred) 3.9% Pipelines (Preferred) 4.7% Other 5.8% Banks (Preferred) 27.7% Insurance (Preferred) 21.6% Banks Foreign (Preferred) 26.5% 6

8 SCHEDULE OF INVESTMENTS December 31, 2017 Number of Shares Value PREFERRED SECURITIES $25 PAR VALUE 12.1% BANKS 4.1% Bank of America Corp., 6.50%, Series Ya... 40,675 $ 1,099,039 Citigroup, 6.875% to11/15/23, Series Ka,b ,080 3,882,362 GMAC Capital Trust I,7.201%, due 2/15/40, Series 2 (TruPS) (FRN) (3 Month US LIBOR %)c ,475 25,313,576 Regions Financial Corp., 6.375% to 9/15/24, Series Ba,b... 62,050 1,764,082 32,059,059 FINANCIAL INVESTMENT BANKER/BROKER 1.7% Morgan Stanley, 6.875% to 1/15/24, Series Fa,b ,821 7,275,549 Morgan Stanley, 6.375% to10/15/24, Series Ia,b ,980 5,875,793 13,151,342 INDUSTRIALS CHEMICALS 1.7% CHS, 6.75% to 9/30/24, Series 3a,b ,523 5,096,084 CHS, 7.10% to 3/31/24, Series 2a,b ,589 7,950,515 13,046,599 INSURANCE 2.1% LIFE/HEALTH INSURANCE 0.7% MetLife, 4.00%, Series A(FRN) (3 Month US LIBOR %, Floor 4.00%)a,c ,431 5,127,746 LIFE/HEALTH INSURANCE FOREIGN 0.9% Aegon NV, 4.00%, Series I(FRN) (3Month US LIBOR %, Floor 4.00%) (Netherlands)a,c ,974 7,328,941 REINSURANCE 0.2% Reinsurance Group ofamerica, 5.75% to 6/15/26, due 6/15/56b... 65,600 1,836,144 REINSURANCE FOREIGN 0.3% Aspen Insurance Holdings Ltd., 5.95% to 7/1/23 (Bermuda)a,b... 73,555 2,006,580 TOTAL INSURANCE... 16,299,411 PIPELINES 0.6% NuStar Energy LP, 7.625% to 6/15/22, Series Ba,b ,684 4,500,193 REAL ESTATE 1.5% DIVERSIFIED 1.2% Colony NorthStar, 8.50%, Series Da ,475 3,437,181 VEREIT, 6.70%, Series Fa ,627 5,820,422 See accompanying notes to financial statements. 9,257,603 7

9 SCHEDULE OF INVESTMENTS (Continued) December 31, 2017 Number of Shares Value HOTEL 0.3% Summit Hotel Properties, 7.125%a ,500 $ 2,932,545 TOTAL REAL ESTATE... 12,190,148 UTILITIES 0.4% SCE Trust IV, 5.375% to 9/15/25, Series Ja,b ,000 3,508,800 TOTAL PREFERRED SECURITIES $25 PAR VALUE (Identified cost $90,054,339)... 94,755,552 Principal Amount PREFERRED SECURITIES CAPITAL SECURITIES 123.6% BANKS 34.7% AgriBank FCB, 6.875% to 1/1/24a,b... $ 36,200 3,966,163 BAC Capital Trust XIV, 4.00%,Series G(FRN) (3 Month US LIBOR %, Floor 4.00%)a,c... 16,930,000 15,150,318 Bank of America Corp., 6.25% to9/5/24, Series Xa,b... 6,410,000 7,091,383 Bank of America Corp., 6.50% to 10/23/24, Series Za,b... 12,082,000 13,743,275 Citigroup, 5.95% to8/15/20, Series Qa,b... 5,250,000 5,496,094 Citigroup, 6.125% to11/15/20, Series Ra,b... 5,129,000 5,462,385 Citigroup, 6.25% to 8/15/26, Series Ta,b... 3,092,000 3,414,341 CoBank ACB, 6.25% to 10/1/22, Series F, 144Aa,b,d ,000 12,723,750 CoBank ACB, 6.125%, Series Ga... 32,250 3,293,531 CoBank ACB, 6.25% to 10/1/26, Series Ia,b... 6,255,000 6,892,541 Corestates Capital III, 1.986%, due 2/15/27, 144A (TruPS) (FRN) (3 Mo. US LIBOR %)c,d , ,000 Farm Credit Bank of Texas, 6.75% to 9/15/23, 144Aa,b,d... 67,500 7,425,000 Goldman Sachs Capital II, 4.00% (FRN) (3 Month US LIBOR %, Floor 4.00%)a,c... 1,102, ,923 Goldman Sachs Group/ The, 5.70% to 5/10/19, Series La,b... 6,850,000 7,071,598 Goldman Sachs Group/The, 5.375% to 5/10/20, Series Ma,b... 7,500,000 7,734,375 Goldman Sachs Group/The, 5.00% to11/10/22, Series Pa,b... 4,640,000 4,577,360 JPMorgan Chase &Co., 7.90% to 4/30/18, Series Ia,b... 6,500,000 6,589,375 JPMorgan Chase &Co., 6.75% to 2/1/24, Series Sa,b... 12,400,000 14,058,500 JPMorgan Chase &Co., 5.30% to 5/1/20, Series Za,b... 7,500,000 7,797,000 Mellon Capital IV, 4.00%,Series 1(FRN) (3 Month US LIBOR %, Floor 4.00%)a,c... 56,635,000 53,520,075 PNC Financial Services Group, 6.75% to 8/1/21a,b... 6,965,000 7,740,204 8 See accompanying notes to financial statements.

10 SCHEDULE OF INVESTMENTS (Continued) December 31, 2017 Principal Amount Value SunTrust Capital III, 2.239%, due 3/15/28 (FRN) (3 Month US LIBOR %)c... $ 4,100,000 $ 3,761,750 US Bancorp, 3.50%,Series A(FRN) (3 Month US LIBOR %, Floor 3.50%)a,c... 27,758 24,684,773 USB Capital IX, 3.50% (FRN) (3Month US LIBOR %, Floor 3.50%)a,c... 9,878,000 8,951,937 Wachovia Capital Trust II, 1.859%, due 1/15/27 (FRN) (3 Month US LIBOR +0.50%)c... 1,000, ,500 Wachovia Capital Trust III, 5.57% (FRN) (3 Month US LIBOR %, Floor 5.57%)a,c... 5,000,000 5,043,750 Wells Fargo &Co., 7.98% to 3/15/18, Series Ka,b... 14,700,000 14,956,515 Wells Fargo &Co., 5.875% to6/15/25, Series Ua,b... 10,000,000 11,088,000 Wells Fargo Capital X, 5.95%, due 12/15/36 (TruPS)... 5,893,000 6,718, ,616,436 BANKS FOREIGN 37.2% Australia &New Zealand Banking Group Ltd./United Kingdom, 6.75% to 6/15/26, 144A (Australia)a,b,d... 5,900,000 6,726,000 Banco Bilbao Vizcaya Argentaria SA, 6.125% to 11/16/27 (Spain)a,b... 2,800,000 2,894,500 Banco Bilbao Vizcaya Argentaria SA, 8.875% to 4/14/21 (EUR) (Spain)a,b... 6,400,000 9,122,049 Banco Bilbao Vizcaya Argentaria SA, 9.00% to 5/9/18 (Spain)a,b... 5,200,000 5,330,000 Banco Santander SA, 6.75% to 4/25/22 (EUR) (Spain)a,b... 3,800,000 5,188,683 Bank of Nova Scotia/The, 4.65% to 10/12/22 (Canada)a,b.. 3,794,000 3,773,797 Barclays PLC, 7.875% to 3/15/22 (United Kingdom)a,b... 5,200,000 5,713,500 Barclays PLC, 8.25% to12/15/18 (United Kingdom)a,b... 6,095,000 6,402,036 BNP Paribas SA, 7.375% to8/19/25, 144A (France)a,b,d... 1,800,000 2,081,250 BNP Paribas SA, 7.625% to 3/30/21, 144A (France)a,b,d... 12,100,000 13,340,250 Credit Agricole SA, 8.125% to 12/23/25, 144A (France)a,b,d... 8,550,000 10,275,869 Credit Suisse Group AG, 7.125% to7/29/22 (Switzerland)a,b... 10,600,000 11,614,950 Credit Suisse Group AG, 7.50% to 12/11/23, 144A (Switzerland)a,b,d... 2,463,000 2,820,012 Danske Bank A/S, 6.125% to 3/28/24 (Denmark)a,b... 6,400,000 6,837,600 DNB Bank ASA, 5.75% to 3/26/20 (Norway)a,b... 2,300,000 2,374,065 DNB Bank ASA, 6.50% to 3/26/22 (Norway)a,b... 7,800,000 8,404,500 Dresdner Funding Trust I, 8.151%, due 6/30/31, 144A (Germany)d... 4,530,280 6,022,455 See accompanying notes to financial statements. 9

11 10 SCHEDULE OF INVESTMENTS (Continued) December 31, 2017 Principal Amount Value HSBC Capital Funding LP, % to 6/30/30, 144A (United Kingdom)a,b,d... $ 6,395,000 $ 10,327,925 HSBC Holdings PLC, 6.00% to 5/22/27 (United Kingdom)a,b... 3,800,000 4,004,250 HSBC Holdings PLC, 6.375% to 3/30/25 (United Kingdom)a,b... 5,800,000 6,249,500 HSBC Holdings PLC, 6.875% to 6/1/21 (United Kingdom)a,b... 8,800,000 9,504,000 ING Groep N.V., 6.875% to4/16/22 (Netherlands)a,b... 5,400,000 5,913,000 Intesa Sanpaolo SpA, 7.00% to 1/19/21, Series EMTN (EUR) (Italy)a,b... 2,400,000 3,192,183 Itau Unibanco Holding SA/Cayman Island, 6.125% to 12/12/22, 144A (Brazil)a,b,d... 3,800,000 3,802,806 Lloyds Banking Group PLC, 7.50% to 6/27/24 (United Kingdom)a,b... 12,050,000 13,691,812 Macquarie Bank Ltd./London, 6.125% to 3/8/27, 144A (Australia)a,b,d... 2,800,000 2,915,500 Nationwide Building Society, 10.25% (GBP) (United Kingdom)a... 6,380,000 13,556,223 Rabobank Nederland, 11.00% to 6/30/19, 144A (Netherlands)a,b,d... 21,275,000 23,854,594 Royal Bank of Scotland Group PLC, 7.50% to 8/10/20 (United Kingdom)a,b... 1,600,000 1,696,000 Royal Bank of Scotland Group PLC, 7.648% to 9/30/31 (United Kingdom)a,b... 3,427,000 4,489,370 Royal Bank of Scotland Group PLC, 8.625% to 8/15/21 (United Kingdom)a,b... 14,000,000 15,802,500 Skandinaviska Enskilda Banken AB, 5.75% to 5/13/20, Series EMTN (Sweden)a,b... 4,800,000 4,976,006 Societe Generale SA, 7.375% to9/13/21, 144A (France)a,b,d... 7,200,000 7,821,360 Societe Generale SA, 7.875% to12/18/23, 144A (France)a,b,d... 3,689,000 4,154,736 Societe Generale SA, 8.25% to 11/29/18, Series EMTN (France)a,b... 2,083,000 2,184,432 Standard Chartered PLC, 7.50% to4/2/22, 144A (United Kingdom)a,b,d... 2,600,000 2,814,500 Standard Chartered PLC, 7.75% to4/2/23, 144A (United Kingdom)a,b,d... 3,200,000 3,512,000 Swedbank AB, 6.00% to 3/17/22 (Sweden)a,b... 6,400,000 6,782,835 UBS Group AG, 6.875% to 8/7/25 (Switzerland)a,b... 1,800,000 1,996,317 See accompanying notes to financial statements.

12 SCHEDULE OF INVESTMENTS (Continued) December 31, 2017 Principal Amount Value UBS Group AG, 6.875% to3/22/21 (Switzerland)a,b... $ 2,749,000 $ 2,953,113 UBS Group AG, 7.00% to 2/19/25 (Switzerland)a,b... 2,400,000 2,724,000 UBS Group AG, 7.125% to 2/19/20 (Switzerland)a,b... 6,300,000 6,703,168 UBS Group AG, 7.125% to 8/10/21 (Switzerland)a,b... 9,400,000 10,253,257 UniCredit SpA, 5.375% to6/3/25 (EUR) (Italy)a,b... 3,400,000 4,092,795 UniCredit SpA, 6.75% to 9/10/21, Series EMTN (EUR) (Italy)a,b... 2,000,000 2,594, ,484,144 ELECTRIC 0.9% INTEGRATED ELECTRIC 0.2% Southern California Edison Co., 6.25% to 2/1/22, Series Ea,b... 1,500,000 1,642,650 REGULATED ELECTRIC 0.7% Southern Co./The, 5.50% to 3/15/22, due 3/15/57, Series Bb... 4,980,000 5,285,625 TOTAL ELECTRIC... 6,928,275 FINANCIAL 2.1% DIVERSIFIED FINANCIAL SERVICES 0.7% State Street Corp., 5.25% to 9/15/ 20, Series Fa,b... 5,152,000 5,416,297 INVESTMENT BANKER/BROKER 1.4% Charles Schwab Corp./The, 7.00% to2/1/22a,b... 9,785,000 11,082,002 TOTAL FINANCIAL... 16,498,299 FOOD 0.7% Dairy Farmers of America, 7.875%, Series A, 144Aa,d,e... 55,000 5,776,194 INDUSTRIALS DIVERSIFIED MANUFACTURING 3.5% General Electric Co., 5.00% to1/21/21, Series Da,b... 26,550,000 27,395,618 INSURANCE 28.3% LIFE/HEALTH INSURANCE 7.5% MetLife, 9.25%, due 4/8/38, 144Ad... 8,300,000 12,263,250 MetLife, 5.25% to 6/15/20, Series Ca,b... 6,515,000 6,790,194 MetLife Capital Trust IV, 7.875%, due 12/15/37, 144Ad... 10,800,000 14,445,000 Prudential Financial, 5.20% to 3/15/24, due 3/15/44b... 2,600,000 2,772,250 Prudential Financial, 5.375% to5/15/25, due 5/15/45b... 2,000,000 2,148,000 Prudential Financial, 5.625% to6/15/23, due 6/15/43b... 16,208,000 17,573,524 Prudential Financial, 5.875% to9/15/22, due 9/15/42b... 2,507,000 2,742,031 58,734,249 See accompanying notes to financial statements. 11

13 SCHEDULE OF INVESTMENTS (Continued) December 31, 2017 Principal Amount Value LIFE/HEALTH INSURANCE FOREIGN 12.1% Aegon NV, 2.388%, (FRN) (10-year US ISDA %, Cap 8.50%) (Netherlands)a,c... $20,985,000 $ 18,452,530 Dai-ichi Life Insurance Co. Ltd., 4.00% to7/24/26, 144A (Japan)a,b,d... 11,000,000 10,804,200 Dai-ichi Life Insurance Co. Ltd., 5.10% to 10/28/24, 144A (Japan)a,b,d... 5,100,000 5,406,000 Dai-ichi Life Insurance Co. Ltd., 7.25% to 7/25/21, 144A (Japan)a,b,d... 4,150,000 4,689,500 La Mondiale Vie, 7.625% to 4/23/19 (France)a,b... 12,050,000 12,784,267 Meiji Yasuda Life Insurance Co., 5.20% to 10/20/25, due 10/20/45, 144A (Japan)b,d... 17,235,000 18,484,538 Nippon Life Insurance Co., 4.70% to 1/20/26, due 1/20/46, 144A (Japan)b,d... 12,900,000 13,351,500 Nippon Life Insurance Co., 5.10% to 10/16/24, due 10/16/44, 144A (Japan)b,d... 7,200,000 7,614,000 Sumitomo Life Insurance Co., 6.50% to 9/20/23, due 9/20/73, 144A (Japan)b,d... 2,400,000 2,706,984 94,293,519 MULTI-LINE 1.8% Hartford Financial Services Group/The, 3.541%, due 2/12/47, 144A, Series ICON (FRN) (3 Month US LIBOR %)c,d... 11,460,000 11,144,850 Nationwide Mutual Insurance Co., 3.879%, due 12/15/24, 144A, (FRN) (3 Month US LIBOR %)c,d... 3,125,000 3,112,429 14,257,279 MULTI-LINE FOREIGN 0.7% AXA SA, 0.969%, (FRN) (EUAMDB %, Cap 8.00%) (EUR) (France)a,c... 5,000,000 5,396,850 PROPERTY CASUALTY 2.0% Liberty Mutual Group, 7.80%, due 3/7/37, 144Ad... 5,503,000 7,019,077 Liberty Mutual Group, 4.494%, due 3/7/37, 144A, (FRN) (3 Month USLIBOR %)c,d... 9,075,000 8,916,187 15,935,264 PROPERTY CASUALTY FOREIGN 2.4% QBE Insurance Group Ltd., 6.75% to12/2/24, due 12/2/44 (Australia)b... 6,755,000 7,683, See accompanying notes to financial statements.

14 SCHEDULE OF INVESTMENTS (Continued) December 31, 2017 Principal Amount Value QBE Insurance Group Ltd., 5.25% to 5/16/25, Series EMTN (Australia)a,b... $ 2,800,000 $ 2,866,416 QBE Insurance Group Ltd., 5.875% to6/17/26, due 6/17/46, Series EMTN (Australia)b... 4,000,000 4,363,636 VIVAT NV, 6.25% to 11/16/22 (Netherlands)a,b... 4,100,000 4,115,441 19,029,305 REINSURANCE FOREIGN 1.8% Aquarius +Investments PLC, 6.375% to 9/1/19, due 9I1I24 (Ireland)b... 2,505,000 2,636,888 Aquarius +Investments PLC, 8.25% to9/1/18, Series EMTN (Ireland)a,b... 10,600,000 10,994,659 13,631,547 TOTAL INSURANCE ,278,013 INTEGRATED TELECOMMUNICATIONS SERVICES 1.6% Centaur Funding Corp., 9.08%, due 4/21/20, 144A (Cayman Islands)d... 1,500 1,714,440 SoftBank Group Corp., 6.00% to 7/19/23 (Japan)a,b... 6,500,000 6,439,452 SoftBank Group Corp., 6.875% to 7/19/27 (Japan)a,b... 2,700,000 2,738,799 Telefonica Europe BV, 7.625% to 9/18/21 (EUR) (Netherlands)a,b ,000 1,295,589 12,188,280 MATERIAL METALS &MINING 2.0% BHP Billiton Finance USA Ltd., 6.75% to 10/20/25, due 10/19/75, 144A (Australia)b,d... 13,700,000 16,030,233 MEDIA 0.4% Viacom, 5.875% to2/28/22, due 2/28/57b... 3,290,000 3,239,494 PIPELINES 6.0% Enbridge, 5.50% to 7/15/27, due 7/15/77 (Canada)b... 3,180,000 3,168,075 Enbridge, 6.00% to 1/15/27, due 1/15/77, Series 16-A (Canada)b... 4,553,000 4,746,502 Energy Transfer Partners LP, 6.625% to 2/15/28, Series Ba,b , ,329 Enterprise Products Operating LLC, 5.25% to 8/16/27, due 8/16/77, Series Eb... 3,550,000 3,523,375 Enterprise Products Operating LP, 5.084%, due 8/1/66, Series A, (FRN) (3 Month US LIBOR %)c... 7,000,000 7,008,750 Plains All American Pipeline LP, 6.125% to 11/15/22, SeriesBa,b... 2,699,000 2,701,699 See accompanying notes to financial statements. 13

15 SCHEDULE OF INVESTMENTS (Continued) December 31, 2017 Principal Amount Value Transcanada Trust, 5.30% to 3/15/27, due 3/15/77 (Canada)b... $ 5,375,000 $ 5,553,047 Transcanada Trust, 5.625% to5/20/25, due 5/20/75 (Canada)b... 5,500,000 5,802,500 Transcanada Trust, 5.875% to 8/15/26, due 8/15/76, Series 16-A (Canada)b... 12,573,000 13,641,705 47,038,982 REAL ESTATE 1.1% FINANCE 0.3% AT Securities BV, 5.25% to7/21/23 (Netherlands)a,b... 2,500,000 2,537,775 SPECIALTY 0.8% Equinix, 2.875%, due 2/1/26 (EUR) (United States).... 5,000,000 6,009,595 TOTAL REAL ESTATE... 8,547,370 UTILITIES 5.1% ELECTRIC UTILITIES 0.6% NextEra Energy Capital Holdings, 4.80% to 12/1/27, due 12/1/77b... 4,254,000 4,286,574 ELECTRIC UTILITIES FOREIGN 4.5% Emera, 6.75% to 6/15/26, due 6/15/76, Series 16-A (Canada)b... 17,290,000 19,537,700 Enel SpA, 8.75% to 9/24/23, due 9/24/73, 144A (Italy)b,d... 12,792,000 15,942,030 35,479,730 TOTAL UTILITIES... 39,766,304 TOTAL PREFERRED SECURITIES CAPITAL SECURITIES (Identified cost $890,047,900) ,787,642 CORPORATE BONDS REAL ESTATE 0.4% istar, 6.00%, due 4/1/ ,500,000 2,593,750 TOTAL CORPORATE BONDS (Identified cost $2,585,215)... 2,593, See accompanying notes to financial statements.

16 SCHEDULE OF INVESTMENTS (Continued) December 31, 2017 Number of Shares Value SHORT-TERM INVESTMENTS 2.6% MONEY MARKET FUNDS State Street Institutional Treasury Money Market Fund, Premier Class, 1.15%f... 20,477,055 $ 20,477,055 TOTAL SHORT-TERM INVESTMENTS (Identified cost $20,477,055)... 20,477,055 TOTAL INVESTMENTS INSECURITIESg (Identified cost $1,003,164,509) % 1,085,613,999 LIABILITIES INEXCESS OF OTHER ASSETS... (38.7) (302,726,633) NET ASSETS (Equivalent to$27.15 per share based on 28,830,580 shares of common stock outstanding) % $ 782,887,366 Note: Percentages indicated are based on the net assets of the Fund. Represents shares. a Perpetual security. Perpetual securities have no stated maturity date, but they may be called/ redeemed bythe issuer. The date indicated, if any, represents the next call date. b Security converts tofloating rate after the indicated fixed-rate coupon period. c Variable rate. Rate shown is in effect at December 31, d Resale is restricted to qualified institutional investors. Aggregate holdings amounted to $280,788,419 or 35.9% ofthe net assets ofthe Fund, of which 0.7% are illiquid. e Security value isdetermined based on significant unobservable inputs (Level 3). f Rate quoted represents the annualized seven-day yield ofthe fund. g Securities held by the Fund are subject to alien, granted to the lender, to the extent of the borrowing outstanding inconnection with the Fund s revolving credit agreement. Notional Amount Fixed Rate Payable Fixed Payment Frequency Centrally Cleared Interest Rate Swap Contracts Floating Rate(resets monthly) Receivablea Floating Payment Frequency Maturity Date Upfront Payments (Receipts) Unrealized Appreciation (Depreciation) Fair Value $60,000, % Quarterly 1.495% Monthly 10/19/21 $ $ 2,115,741 $ 2,115,741 90,000, % Quarterly 1.495% Monthly 10/19/22 3,802,460 3,802,460 31,000, % Quarterly 1.495% Monthly 10/19/22 356, ,717 90,000, % Quarterly 1.495% Monthly 10/19/23 4,332,586 4,332,586 $ $10,607,504 $10,607,504 a Based on LIBOR (London Interbank Offered Rate). Represents rates in effect at December 31, See accompanying notes to financial statements. 15

17 Counterparty SCHEDULE OF INVESTMENTS (Continued) December 31, 2017 Forward Foreign Currency Exchange Contracts Contracts to Deliver In Exchange For Settlement Date Unrealized Appreciation (Depreciation) Brown Brothers Harriman.. EUR 22,270,739 USD 26,604,848 1/3/18 $(116,683) Brown Brothers Harriman.. EUR 4,989,867 USD 5,893,831 1/3/18 (93,257) Brown Brothers Harriman.. EUR 3,419,259 USD 4,031,409 1/3/18 (71,187) Brown Brothers Harriman.. GBP 11,133,300 USD 15,092,079 1/3/18 60,445 Brown Brothers Harriman.. USD 36,847,745 EUR 30,679,865 1/3/18 (36,531) Brown Brothers Harriman.. USD 15,057,566 GBP 11,133,300 1/3/18 (25,931) Brown Brothers Harriman.. EUR 30,740,615 USD 36,981,267 2/2/18 33,395 Brown Brothers Harriman.. GBP 10,040,525 USD 13,590,955 2/2/18 21,607 $(228,142) The total amount of all forward foreign currency exchange contracts as presented in the table above is representative of the volume of activity for this derivative type during the year ended December 31, Glossary of Portfolio Abbreviations EUAMDB EUR FRN GBP LIBOR TruPS USD USISDA Euribor ICE Swap Rate Euro Currency Floating Rate Note Great British Pound London Interbank Offered Rate Trust Preferred Securities United States Dollar Unites States Dollar ICE Swap Rate See accompanying notes to financial statements. 16

18 STATEMENT OF ASSETS AND LIABILITIES December 31, 2017 ASSETS: Investments in securities, at value (Identified cost $1,003,164,509)... $1,085,613,999 Cash collateral pledged for interest rate swap contracts.... 4,150,107 Foreign currency, atvalue (Identified cost $437,672) ,465 Receivable for dividends and interest 13,104,096 Unrealized appreciation onforward foreign currency exchange contracts ,447 Other assets.... 3,326 Total Assets... 1,103,428,440 LIABILITIES: Unrealized depreciation onforward foreign currency exchange contracts ,589 Payable for: Revolving credit agreement ,000,000 Dividends and distributions declared... 3,250,543 Investment advisory fees ,755 Interestexpense ,582 Variation margin on interest rate swap contracts ,035 Investment securities purchased ,978 Administration fees... 56,122 Due to custodian Directors fees Other liabilities ,676 Total Liabilities ,541,074 NET ASSETS... $ 782,887,366 NET ASSETS consist of: Paid-in capital... $ 688,664,651 Dividends in excess of net investment income... (560,876) Accumulated undistributed net realized gain... 1,943,932 Net unrealized appreciation... 92,839,659 $ 782,887,366 NET ASSET VALUE PER SHARE: ($782,887,366 28,830,580 shares outstanding)... $ MARKET PRICE PER SHARE... $ MARKET PRICE PREMIUM (DISCOUNT) TO NET ASSET VALUE PER SHARE... (3.98)% See accompanying notes to financial statements. 17

19 STATEMENT OF OPERATIONS For the Year Ended December 31, 2017 Investment Income: Interest income... $ 47,550,479 Dividend income... 10,284,855 Total Investment Income... 57,835,334 Expenses: Investment advisory fees... 7,624,193 Interest expense... 6,116,654 Administration fees ,251 Shareholder reporting expenses ,619 Professionalfees... 84,794 Directors fees and expenses... 57,176 Custodian fees and expenses ,381 Transfer agent fees and expenses... 21,526 Miscellaneous... 86,750 Total Expenses... 15,010,344 Net Investment Income (Loss)... 42,824,990 Net Realized and Unrealized Gain (Loss): Net realized gain (loss) on: Investments in securities... 14,370,998 Written option contracts ,607 Foreigncurrencytransactions... (46,091) Forward foreign currency exchange contracts... (4,031,580) Interest rate swap contracts... (472,519) Net realized gain (loss)... 10,143,415 Net change in unrealized appreciation (depreciation) on: Investments in securities... 52,371,258 Foreigncurrencytranslations... 20,359 Forward foreign currency exchange contracts... (618,503) Interest rate swap contracts... 1,188,789 Net change in unrealized appreciation (depreciation)... 52,961,903 Net Realized and Unrealized Gain (Loss)... 63,105,318 Net Increase (Decrease) in Net Assets Resulting from Operations... $105,930, See accompanying notes to financial statements.

20 STATEMENT OF CHANGES IN NET ASSETS For the Year Ended December 31, 2017 For the Year Ended December 31, 2016 Change in Net Assets: From Operations: Net investment income (loss)... $ 42,824,990 $ 45,717,906 Net realized gain (loss) ,143,415 14,275,498 Net change in unrealized appreciation (depreciation)... 52,961,903 (570,826) Net increase (decrease) in net assets resulting from operations ,930,308 59,422,578 Dividends and Distributions to Shareholders from: Net investment income... (45,586,505) (41,875,924) Net realized gain... (11,267,399) (12,383,228) Total dividends and distributions to shareholders... (56,853,904) (54,259,152) Total increase (decrease) innet assets... 49,076,404 5,163,426 Net Assets: Beginning of year ,810, ,647,536 End of yeara... $782,887,366 $733,810,962 a Includes dividends in excess of net investment income and accumulated undistributed net investment income of$560,876 and $1,122,228, respectively. See accompanying notes to financial statements. 19

21 STATEMENT OF CASH FLOWS For the Year Ended December 31, 2017 Increase (Decrease) in Cash: Cash Flows from Operating Activities: Net increase (decrease) in net assets resulting from operations... $105,930,308 Adjustments to reconcile net increase (decrease) innet assets resulting from operations tonet cash provided by operating activities: Purchases of long-term investments... (380,492,757) Proceeds from sales and maturities of long-term investments ,155,807 Net purchases, sales and maturities of short-term investments.... (11,116,505) Net amortization of premium on investments in securities... 3,911,998 Net increase in dividends and interest receivable and other assets... (753,648) Net decrease in cash collateral pledged for interest rate swap contracts... 2,110,695 Net increase in interest expense payable, accrued expenses and other liabilities ,777 Net decrease in payable for variation margin oninterest rate swap contracts... (103,137) Net change in unrealized appreciation oninvestments in securities.... (52,371,258) Net change in unrealized depreciation onforward foreign currency exchange contracts ,503 Net realized gain on investments in securities... (14,370,998) Cash provided byoperating activities... 44,759,785 Cash Flows from Financing Activities: Dividends and distributions paid... (54,256,157) Increase (decrease) in cash... (9,496,372) Cash at beginning of year (including foreign currency)... 9,937,837 Cash atend of year (including foreign currency).... $ 441,465 Supplemental Disclosure of Cash Flow Information and Non-Cash Activities: During the year ended December 31, 2017, interest paid was $5,906,161. During the year ended December 31, 2017, as part of an exchange offer from four of the Fund s investments, the Fund received shares of new securities valued at $23,684, See accompanying notes to financial statements.

22 FINANCIAL HIGHLIGHTS The following table includes selected data for a share outstanding throughout each year and other performance information derived from the financial statements. It should be read in conjunction with the financial statements and notes thereto. For the Year Ended December 31, Per Share Operating Performance: Net asset value, beginning of year... $25.45 $25.27 $25.70 $25.07 $25.37 Income (loss) from investment operations: Net investment income (loss)a Net realized and unrealized gain (loss) (0.24) 1.03 (0.20) Total from investment operations Less dividends and distributions to shareholders from: Net investment income... (1.58) (1.45) (1.50) (1.65) (1.83) Net realized gain... (0.39) (0.43) (0.30) (0.52) (0.03) Return of capital.... (0.07) (0.04) Total dividends and distributions to shareholders... (1.97) (1.88) (1.87) (2.17) (1.90) Anti-dilutive effect from the issuance of reinvested shares b Anti-dilutive effect from the repurchase of shares Net increase (decrease) in net asset value (0.43) 0.63 (0.30) Net asset value, end of year... $27.15 $25.45 $25.27 $25.70 $25.07 Market value, end of year... $26.07 $24.54 $22.52 $22.66 $22.62 Total net asset value returnc % 8.89% 6.52% 12.13% 6.80% Total market value returnc % 17.82% 7.66% 9.57% -2.37% Ratios/Supplemental Data: Net assets, end of year (in millions)... $782.9 $733.8 $728.6 $740.9 $722.8 Ratio of expenses to average daily net assets % 1.72% 1.61% 1.57% 1.62% Ratio of expenses to average daily net assets (excluding interest expense) % 1.15% 1.17% 1.14% 1.16% Ratio of net investment income (loss) to average daily net assets (net of expense reduction) % 6.29% 6.53% 6.72% 6.98% Ratio of expenses to average daily managed assetsd % 1.20% 1.13% 1.11% 1.13% Portfolio turnover rate... 36% 48% 47% 47% 40% See accompanying notes to financial statements. 21

23 FINANCIAL HIGHLIGHTS (Continued) For the Year Ended December 31, Revolving Credit Agreement Asset coverage ratio for revolving credit agreement % 333% 331% 335% 329% Asset coverage per $1,000 for revolving credit agreement... $3,485 $3,330 $3,313 $3,352 $3,295 a Calculation based on average shares outstanding. b Amount is less than $ c Total net asset value return measures the change in net asset value per share over the period indicated. Total market value return is computed based upon the Fund s market price per share and excludes the effects of brokerage commissions. Dividends and distributions are assumed, for purposes of these calculations, to be reinvested at prices obtained under the Fund s dividend reinvestment plan. d Average daily managed assets represent net assets plus the outstanding balance of the revolving credit agreement. 22 See accompanying notes to financial statements.

24 NOTES TO FINANCIAL STATEMENTS Note 1. Organization and Significant Accounting Policies Cohen & Steers Limited Duration Preferred and Income Fund, Inc. (the Fund) was incorporated under the laws of the State of Maryland on May 1, 2012 and is registered under the Investment Company Act of 1940 (the 1940 Act) as a diversified, closed-end management investment company. The Fund s investment objective is high current income. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The Fund is an investment company and, accordingly, follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 946 Investment Companies. The accounting policies of the Fund are in conformity with accounting principles generally accepted in the United States of America (GAAP). The preparation of the financial statements in accordance with GAAP 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 reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Portfolio Valuation: Investments in securities that are listed on the New York Stock Exchange (NYSE) are valued, except as indicated below, at the last sale price reflected at the close of the NYSE on the business day as of which such value is being determined. If there has been no sale on such day, the securities are valued at the mean of the closing bid and ask prices on such day or, if no ask price is available, at the bid price. Forward foreign currency contracts are valued daily at the prevailing forward exchange rate. Centrally cleared interest rate swaps are valued at the price determined by the relevant exchange or clearinghouse. Over-the-counter (OTC) interest rate swaps are valued utilizing quotes received from a third-party pricing service. OTC options are valued based upon prices provided by a third-party pricing service or counterparty. Securities not listed on the NYSE but listed on other domestic or foreign securities exchanges (including NASDAQ) are valued in a similar manner. Securities traded on more than one securities exchange are valued at the last sale price reflected at the close of the exchange representing the principal market for such securities on the business day as of which such value is being determined. If after the close of a foreign market, but prior to the close of business on the day the securities are being valued, market conditions change significantly, certain non-u.s. equity holdings may be fair valued pursuant toprocedures established by the Board of Directors. Readily marketable securities traded in the OTC market, including listed securities whose primary market is believed by Cohen &Steers Capital Management, Inc. (the investment advisor) tobeotc, are valued on the basis of prices provided by a third-party pricing service or third-party broker-dealers when such prices are believed by the investment advisor, pursuant to delegation by the Board of Directors, to reflect the fair value of such securities. Fixed-income securities are valued on the basis of prices provided by a third-party pricing service or third-party broker-dealers when such prices are believed by the investment advisor, pursuant to delegation by the Board of Directors, to reflect the fair value of such securities. The pricing services or broker-dealers use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services or broker-dealers may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient 23

25 NOTES TO FINANCIAL STATEMENTS (Continued) market activity may not exist or is limited, the pricing services or broker-dealers also utilize proprietary valuation models which may consider market transactions in comparable securities and the various relationships between securities in determining fair value and/or characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features which are then used to calculate the fair values. Short-term debt securities with a maturity date of 60 days or less are valued at amortized cost, which approximates fair value. Investments in open-end mutual funds are valued at their closing net asset value (NAV). The policies and procedures approved by the Fund s Board of Directors delegate authority to make fair value determinations to the investment advisor, subject to the oversight of the Board of Directors. The investment advisor has established a valuation committee (Valuation Committee) to administer, implement and oversee the fair valuation process according to the policies and procedures approved annually by the Board of Directors. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources todetermine fair value. Securities for which market prices are unavailable, or securities for which the investment advisor determines that the bid and/or ask price or a counterparty valuation does not reflect market value, will be valued at fair value, as determined in good faith by the Valuation Committee, pursuant to procedures approved by the Fund s Board of Directors. Circumstances in which market prices may be unavailable include, but are not limited to, when trading in a security is suspended, the exchange on which the security is traded is subject to an unscheduled close or disruption or material events occur after the close of the exchange on which the security is principally traded. In these circumstances, the Fund determines fair value in amanner that fairly reflects the market value ofthe security on the valuation date based on consideration of any information or factors it deems appropriate. These may include, but are not limited to, recent transactions in comparable securities, information relating to the specific security and developments in the markets. The Fund s use of fair value pricing may cause the NAV of Fund shares to differ from the NAV that would be calculated using market quotations. Fair value pricing involves subjective judgments and it is possible that the fair value determined for a security may be materially different than the value that could be realized upon the sale of that security. Fair value isdefined as the price that the Fund would expect to receive upon the sale of an investment or expect to pay to transfer a liability in an orderly transaction with an independent buyer in the principal market or, in the absence of a principal market, the most advantageous market for the investment or liability. The hierarchy of inputs that are used in determining the fair value of the Fund s investments is summarized below. 24 Level 1 quoted prices in active markets for identical investments Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates, credit risk, etc.) Level 3 significant unobservable inputs (including the Fund s own assumptions in determining the fair value of investments)