UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-01700
---------
Franklin Gold and Precious Metals Fund
--------------------------------------
(Exact name of registrant as specified in charter)
One Franklin Parkway, San Mateo, CA 94403-1906
(Address of principal executive offices) (Zip code)
Murray L. Simpson, One Franklin Parkway, San Mateo, CA 94403-1906
------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (650) 312-2000
--------------
Date of fiscal year end: 7/31
----
Date of reporting period: 7/31/04
-------
Item 1. Reports to Stockholders.
JULY 31, 2004
[GRAPHIC OMITTED]
ANNUAL REPORT AND SHAREHOLDER LETTER
SECTOR
WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at franklintempleton.com. see
inside for details.
Franklin Gold and
Precious Metals Fund
[GRAPHIC OMITTED]
[LOGO OMITTED]
FRANKLIN(R) TEMPLETON(R)
INVESTMENTS
FRANKLIN o Templeton o Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE
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
research offices in over 25 countries, they offer investors the broadest global
reach in the industry.
MUTUAL SERIES. Founded in 1949, Mutual Series is dedicated to a unique style of
value investing, searching aggressively for opportunity among undervalued
stocks, arbitrage situations and distressed companies.
TRUE DIVERSIFICATION
Because our management groups work independently and adhere to distinctly
different investment approaches, Franklin, Templeton and Mutual Series funds
typically have a low overlap of securities. That's why our funds can be used to
build truly diversified portfolios 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 account services that have helped us become one of the most trusted
names in financial services.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
[GRAPHIC OMITTED]
Not part of the annual report
Contents
SHAREHOLDER LETTER ......................... 1
ANNUAL REPORT
Franklin Gold and Precious
Metals Fund ................................ 3
Performance Summary ........................ 8
Your Fund's Expenses ....................... 13
Financial Highlights and
Statement of Investments ................... 15
Financial Statements ....................... 21
Notes to Financial
Statements ................................. 25
Report of Independent
Registered Public
Accounting Firm ............................ 33
Tax Designation ............................ 34
Board Members and Officers ................. 35
Shareholder Information .................... 40
Annual Report
Franklin Gold and Precious Metals Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Gold and Precious Metals Fund
seeks capital appreciation, with current income as a secondary goal, by
investing at least 80% of total net assets in securities of companies that mine,
process or deal in gold or other precious metals.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
GEOGRAPHIC DISTRIBUTION 2
Based on Total Net Assets as of 7/31/04
Canada 35.2%
South Africa 25.8%
U.S. 15.9%
Australia 9.6%
Peru 4.1%
U.K. 3.5%
Jersey Islands 1.4%
Papua New Guinea 1.3%
Short-Term Investments and
Other Net Assets 3.2%
PERFORMANCE DATA QUOTED REPRESENTS 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. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL
1-800/342-5236 FOR MOST RECENT MONTH-END PERFORMANCE.
We are pleased to bring you Franklin Gold and Precious Metals Fund's annual
report, covering the fiscal year ended July 31, 2004.
PERFORMANCE OVERVIEW
Franklin Gold and Precious Metals Fund - Class A delivered a +16.68% cumulative
total return for the 12 months ended July 31, 2004, as shown in the Performance
Summary beginning on page 8. By comparison, the broad Standard & Poor's 500
Composite Index (S&P 500) had a +13.16% total return, and the sector-specific
FTSE Gold Mines Index posted a +8.98% price return during the same period.1
1. Sources: Standard & Poor's Micropal; Financial Times. The S&P 500 consists of
500 stocks chosen for market size, liquidity and industry group representation.
Each stock's weight in the index is proportionate to its market value. The S&P
500 includes reinvested dividends and is one of the most widely used benchmarks
of U.S. equity performance. The FTSE Gold Mines Index is an unweighted index
that tracks the daily performance of gold mining companies in South Africa,
Australia and North America. This is a price-only index and does not include
dividends. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
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 19.
Annual Report | 3
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
PORTFOLIO BREAKDOWN
Based on Total Net Assets as of 7/31/04
Long Life Gold Mines ............................... 59.3%
Medium Life Gold Mines ............................. 12.6%
Platinum & Palladium ............................... 11.2%
Gold & Diversified Resources ....................... 9.6%
Gold Exploration ................................... 2.8%
Mutual Funds ....................................... 1.3%
Short-Term Investments & Other Net Assets .......... 3.2%
ECONOMIC AND MARKET OVERVIEW
During the 12 months ended July 31, 2004, the U.S. economy remained strong as
one-year gross domestic product (GDP) rose an estimated 4.7% through June. Major
contributors to growth included inventory investment, equipment and software
spending, and federal government spending. Despite solid export growth and a
resilient housing market, annualized second quarter 2004 GDP grew an estimated
2.8%, which was less than expected, due largely to the weakest consumer spending
growth in three years. Approximately 70% of GDP stemmed from consumer activity,
which slowed as personal liquidity from tax cuts and low interest-rate
incentives faded. Business investment and corporate profits rose and contributed
to overall economic growth.
Labor market conditions improved during the reporting period. More than one-half
of the jobs lost during the recession and weak economic expansion have been
recovered. The economy created 1.5 million jobs since summer 2003. In addition,
the unemployment rate fell from 6.2% in July 2003 to 5.5% at period-end.2
Services created the most jobs led by leisure and hospitality, education and
health, and business and professional services.
In light of positive economic developments, consumer inflation remained modest
but picked up speed in 2004. Excluding the volatile food and energy categories,
consumer prices increased 1.8% for the 12 months ended July 31, 2004.
Consequently, for the first time in more than four years, the Federal Reserve
Board (Fed) raised the federal funds target rate on June 30, 2004, by a
quarter-point to 1.25%. Because Fed policymakers expect inflation to remain
relatively low, they believe they can raise interest rates at a measured pace.
Nonetheless, the Fed said it will respond to changes in economic prospects as
needed to fulfill its obligation to maintain price stability.
Domestic equity markets sustained a rally through year-end 2003, then flattened
before falling into negative territory through July 2004. Despite continued
signs of enhanced corporate fundamentals, investors appeared cautious due to
geopolitical
2. Source: Bureau of Labor Statistics.
4 | Annual Report
uncertainty, soaring oil prices and rising interest rates. The S&P 500 rose
13.16% for the 12 months under review, while the technology-heavy NASDAQ
Composite Index gained 9.33%. 3
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Gold Palladium Platinum
7/31/03 $354.35 $178.50 $686.50
8/1/03 $346.15 $183.50 $679.50
8/4/03 $349.45 $181.50 $677.50
8/5/03 $352.05 $175.00 $682.50
8/6/03 $351.75 $176.50 $682.00
8/7/03 $352.85 $177.50 $680.50
8/8/03 $356.75 $177.50 $679.50
8/11/03 $361.85 $177.00 $692.00
8/12/03 $358.45 $175.50 $695.50
8/13/03 $362.70 $170.50 $687.50
8/14/03 $365.95 $172.50 $694.50
8/15/03 $363.75 $176.50 $699.50
8/18/03 $358.35 $176.50 $695.50
8/19/03 $362.05 $176.50 $695.50
8/20/03 $366.25 $181.50 $699.50
8/21/03 $360.75 $188.50 $707.50
8/22/03 $362.95 $193.50 $698.50
8/25/03 $361.25 $197.50 $694.50
8/26/03 $364.45 $204.50 $691.50
8/27/03 $372.55 $200.50 $710.50
8/28/03 $369.65 $203.50 $713.00
8/29/03 $375.55 $201.50 $710.00
9/1/03 $375.55 $202.00 $709.50
9/2/03 $371.95 $201.50 $713.50
9/3/03 $373.85 $203.50 $713.50
9/4/03 $373.35 $207.50 $712.50
9/5/03 $377.35 $218.50 $713.50
9/8/03 $375.25 $226.50 $709.50
9/9/03 $382.65 $230.50 $711.50
9/10/03 $380.45 $220.50 $699.50
9/11/03 $380.15 $215.50 $697.50
9/12/03 $375.25 $213.50 $698.00
9/15/03 $374.05 $204.50 $700.50
9/16/03 $373.25 $218.50 $700.50
9/17/03 $376.75 $214.50 $697.50
9/18/03 $376.35 $213.50 $701.50
9/19/03 $381.85 $218.50 $699.50
9/22/03 $387.10 $218.50 $705.50
9/23/03 $384.75 $214.50 $706.50
9/24/03 $388.85 $217.50 $705.50
9/25/03 $385.35 $216.50 $715.50
9/26/03 $380.85 $211.50 $705.50
9/29/03 $382.25 $208.50 $702.50
9/30/03 $385.35 $212.50 $706.50
10/1/03 $384.75 $213.50 $712.50
10/2/03 $382.85 $211.50 $712.00
10/3/03 $369.55 $209.50 $716.00
10/6/03 $372.95 $207.50 $710.50
10/7/03 $376.45 $207.50 $722.50
10/8/03 $375.25 $211.50 $728.50
10/9/03 $370.05 $207.50 $724.50
10/10/03 $373.05 $208.50 $730.50
10/13/03 $374.75 $205.50 $723.50
10/14/03 $375.25 $203.50 $729.50
10/15/03 $372.95 $191.50 $726.50
10/16/03 $371.65 $191.50 $724.50
10/17/03 $371.65 $195.50 $726.50
10/20/03 $373.35 $194.50 $734.50
10/21/03 $380.75 $197.50 $737.50
10/22/03 $385.85 $198.50 $738.50
10/23/03 $384.25 $200.50 $742.50
10/24/03 $388.55 $195.50 $737.50
10/27/03 $387.95 $197.50 $747.50
10/28/03 $382.85 $197.50 $747.50
10/29/03 $386.50 $203.50 $755.50
10/30/03 $383.55 $209.50 $759.50
10/31/03 $384.25 $208.50 $748.50
11/3/03 $376.65 $210.00 $741.50
11/4/03 $379.55 $207.00 $747.50
11/5/03 $381.35 $206.50 $757.50
11/6/03 $379.95 $205.00 $757.50
11/7/03 $383.05 $203.50 $755.50
11/10/03 $385.95 $201.50 $762.50
11/11/03 $387.95 $195.00 $761.50
11/12/03 $394.05 $194.50 $759.50
11/13/03 $394.65 $201.50 $770.00
11/14/03 $397.55 $199.50 $771.00
11/17/03 $391.05 $197.50 $752.50
11/18/03 $398.75 $198.50 $771.50
11/19/03 $395.05 $195.50 $766.50
11/20/03 $394.45 $193.50 $765.50
11/21/03 $396.05 $194.50 $764.50
11/24/03 $391.48 $194.00 $755.50
11/25/03 $391.25 $190.50 $757.50
11/26/03 $396.65 $190.00 $767.50
11/27/03 $395.25 $190.00 $765.50
11/28/03 $398.15 $189.50 $765.50
12/1/03 $402.25 $189.50 $771.50
12/2/03 $403.25 $190.50 $778.00
12/3/03 $404.75 $194.00 $780.50
12/4/03 $402.75 $197.50 $787.50
12/5/03 $406.35 $197.50 $788.00
12/8/03 $406.75 $205.50 $801.50
12/9/03 $408.25 $212.00 $800.50
12/10/03 $405.45 $210.00 $812.50
12/11/03 $404.95 $209.50 $807.50
12/12/03 $408.85 $208.50 $823.00
12/15/03 $409.75 $203.50 $825.50
12/16/03 $407.25 $200.50 $827.50
12/17/03 $412.55 $199.50 $844.00
12/18/03 $410.75 $200.50 $828.50
12/19/03 $409.35 $194.50 $829.50
12/22/03 $410.05 $197.50 $803.50
12/23/03 $410.75 $200.50 $801.50
12/24/03 $412.05 $202.50 $823.50
12/25/03 $412.95 $202.50 $818.50
12/26/03 $412.25 $202.50 $818.50
12/29/03 $414.58 $199.50 $818.50
12/30/03 $416.25 $197.50 $814.50
12/31/03 $415.45 $193.50 $813.50
1/1/04 $415.85 $193.50 $814.50
1/2/04 $415.85 $194.50 $814.50
1/5/04 $423.65 $202.50 $840.50
1/6/04 $422.35 $198.50 $847.50
1/7/04 $420.55 $202.50 $843.50
1/8/04 $423.88 $199.00 $855.50
1/9/04 $426.38 $203.50 $852.00
1/12/04 $424.45 $214.00 $858.50
1/13/04 $424.15 $218.50 $859.50
1/14/04 $419.95 $217.50 $862.50
1/15/04 $408.88 $215.50 $854.00
1/16/04 $406.75 $215.50 $855.50
1/19/04 $407.25 $215.50 $860.50
1/20/04 $412.85 $220.50 $862.50
1/21/04 $410.55 $235.50 $861.50
1/22/04 $409.35 $245.50 $867.50
1/23/04 $408.08 $235.50 $864.50
1/26/04 $404.05 $235.50 $858.50
1/27/04 $410.35 $238.00 $858.50
1/28/04 $410.35 $242.50 $856.50
1/29/04 $399.35 $225.50 $830.50
1/30/04 $402.45 $229.50 $837.50
2/2/04 $398.35 $225.50 $817.50
2/3/04 $399.65 $232.50 $831.50
2/4/04 $400.75 $237.50 $825.50
2/5/04 $396.95 $236.50 $822.50
2/6/04 $403.35 $238.50 $829.50
2/9/04 $406.75 $236.50 $834.00
2/10/04 $406.35 $238.50 $837.50
2/11/04 $411.15 $239.50 $846.50
2/12/04 $411.85 $244.50 $848.00
2/13/04 $410.15 $243.50 $849.00
2/16/04 $411.65 $240.50 $851.50
2/17/04 $415.55 $242.00 $859.00
2/18/04 $410.95 $245.50 $862.50
2/19/04 $409.98 $240.50 $856.00
2/20/04 $397.55 $230.50 $844.50
2/23/04 $398.65 $225.50 $842.50
2/24/04 $403.85 $234.50 $858.50
2/25/04 $396.05 $226.50 $854.00
2/26/04 $395.05 $227.50 $866.50
2/27/04 $396.15 $228.50 $882.50
3/1/04 $399.55 $242.50 $902.50
3/2/04 $393.05 $240.50 $875.50
3/3/04 $393.35 $237.50 $884.00
3/4/04 $393.05 $238.50 $881.50
3/5/04 $401.25 $248.50 $886.50
3/8/04 $401.45 $260.50 $893.50
3/9/04 $402.75 $256.50 $896.00
3/10/04 $400.15 $270.50 $920.50
3/11/04 $402.92 $273.50 $902.50
3/12/04 $395.25 $274.50 $904.50
3/15/04 $399.48 $278.50 $912.50
3/16/04 $402.25 $279.50 $902.50
3/17/04 $407.35 $273.50 $907.50
3/18/04 $411.35 $277.50 $897.50
3/19/04 $412.35 $274.00 $892.50
3/22/04 $417.25 $287.50 $895.50
3/23/04 $419.75 $286.50 $911.50
3/24/04 $415.55 $285.50 $916.50
3/25/04 $416.25 $285.50 $910.00
3/26/04 $422.35 $286.00 $910.00
3/29/04 $417.85 $286.50 $889.50
3/30/04 $420.85 $283.50 $893.50
3/31/04 $426.45 $286.50 $903.50
4/1/04 $425.90 $294.50 $914.50
4/2/04 $420.65 $304.50 $908.50
4/5/04 $415.65 $307.50 $890.00
4/6/04 $419.45 $312.50 $882.50
4/7/04 $423.05 $322.50 $882.50
4/8/04 $420.05 $328.50 $902.50
4/9/04 $420.05 $332.50 $902.50
4/12/04 $418.65 $334.50 $939.50
4/13/04 $406.65 $326.50 $929.50
4/14/04 $400.55 $312.50 $927.50
4/15/04 $399.35 $311.50 $922.50
4/16/04 $400.55 $312.50 $922.50
4/19/04 $401.05 $323.50 $934.50
4/20/04 $394.85 $310.50 $917.50
4/21/04 $390.05 $292.50 $888.50
4/22/04 $392.95 $272.50 $848.50
4/23/04 $395.05 $278.50 $852.50
4/26/04 $396.35 $272.50 $822.50
4/27/04 $398.75 $275.50 $842.50
4/28/04 $385.65 $251.50 $804.50
4/29/04 $387.85 $245.50 $790.00
4/30/04 $386.75 $255.50 $798.50
5/3/04 $387.15 $262.50 $812.75
5/4/04 $392.65 $255.50 $817.50
5/5/04 $393.25 $250.50 $811.50
5/6/04 $387.75 $253.50 $797.50
5/7/04 $378.75 $245.50 $787.50
5/10/04 $378.75 $234.00 $770.00
5/11/04 $377.85 $235.50 $782.50
5/12/04 $378.13 $240.50 $786.50
5/13/04 $374.85 $243.50 $798.00
5/14/04 $376.65 $239.50 $793.00
5/17/04 $379.15 $240.50 $817.50
5/18/04 $377.15 $237.50 $800.50
5/19/04 $382.45 $243.50 $806.00
5/20/04 $379.65 $239.50 $805.50
5/21/04 $384.35 $249.50 $817.50
5/24/04 $385.55 $252.50 $823.50
5/25/04 $388.65 $254.50 $835.50
5/26/04 $388.75 $251.50 $837.50
5/27/04 $394.75 $253.50 $845.50
5/28/04 $393.35 $247.50 $830.50
5/31/04 $395.55 $249.50 $837.50
6/1/04 $394.65 $252.00 $844.50
6/2/04 $391.55 $249.50 $831.50
6/3/04 $388.35 $245.50 $827.77
6/4/04 $389.95 $241.50 $830.00
6/7/04 $393.75 $241.50 $832.50
6/8/04 $391.35 $240.50 $834.50
6/9/04 $384.65 $216.50 $806.50
6/10/04 $386.05 $218.50 $797.50
6/11/04 $384.55 $217.50 $794.50
6/14/04 $383.55 $216.00 $794.50
6/15/04 $389.05 $217.50 $778.50
6/16/04 $384.65 $222.50 $779.50
6/17/04 $388.88 $225.00 $793.50
6/18/04 $394.85 $227.50 $807.50
6/21/04 $393.85 $230.50 $815.50
6/22/04 $394.95 $224.00 $807.50
6/23/04 $395.75 $222.50 $808.50
6/24/04 $402.15 $229.50 $811.50
6/25/04 $401.55 $224.50 $806.50
6/28/04 $400.88 $223.50 $789.50
6/29/04 $392.55 $217.50 $777.50
6/30/04 $394.25 $214.50 $789.50
7/1/04 $395.95 $215.50 $784.50
7/2/04 $397.95 $213.50 $776.50
7/5/04 $398.25 $212.50 $783.50
7/6/04 $392.75 $219.50 $776.50
7/7/04 $402.45 $223.50 $795.50
7/8/04 $407.95 $224.50 $808.50
7/9/04 $407.65 $224.50 $812.50
7/12/04 $407.95 $225.50 $821.50
7/13/04 $401.65 $221.50 $810.50
7/14/04 $405.45 $223.00 $817.50
7/15/04 $404.05 $222.50 $817.50
7/16/04 $406.65 $225.50 $824.50
7/19/04 $405.65 $227.50 $828.50
7/20/04 $400.15 $229.50 $834.50
7/21/04 $396.75 $227.50 $829.25
7/22/04 $395.05 $224.50 $830.50
7/23/04 $390.15 $220.50 $818.50
7/26/04 $388.95 $219.50 $816.50
7/27/04 $387.25 $219.50 $807.00
7/28/04 $387.85 $213.50 $799.00
7/29/04 $387.55 $215.50 $821.50
7/30/04 $391.05 $217.50 $820.00
For illustrative purposes only; not representative of the Fund's portfolio
composition or performance.
Gold and other precious metals remained strong over the past year as broader
equity markets delivered uneven performances. The gold price, which moved up
significantly in the previous semiannual reporting period, rose from $354 to
$391 per ounce during the year under review. Although $391 at period-end was
significantly below the $426 high in March, it represented a notable 10%
improvement for the year. The continued effects of war in Iraq, lingering U.S.
economic uncertainty, fears of further terrorist attacks at home and abroad, and
a weaker U.S. dollar contributed to a steady, healthy tone in the gold market,
underscoring gold's historical role as a safe haven. Like gold, platinum
delivered an impressive performance in the reporting period, appreciating from
$686 at the beginning of the period to $940 on April 12, 2004, before ending the
period at $820 per ounce. Platinum prices rose largely due to supply concerns as
the strengthening South African rand, which appreciated 18% against the U.S.
dollar for the 12-month period, led to delays of expansion projects needed to
meet strong platinum jewelry and autocatalyst demand. Platinum companies only
realized partial benefits from high platinum prices, as the strong rand elevated
costs and hurt operating margins. Palladium began the period at $178 and ended
this rebuilding year at $218 per ounce.
3. Source: Standard & Poor's Micropal. See footnote 1 for a description of the
S&P 500. The NASDAQ Composite Index measures all domestic and international
common stocks listed on The NASDAQ Stock Market. The index is market value
weighted and includes over 3,000 companies.
4. Amounts shown are based on spot prices quoted in U.S. dollars per troy ounce.
Annual Report | 5
TOP 10 HOLDINGS
7/31/04
- -------------------------------------------------------------
COMPANY % OF TOTAL
- -------------------------------------------------------------
INDUSTRY, COUNTRY NET ASSETS
- -------------------------------------------------------------
Barrick Gold Corp. 8.1%
- -------------------------------------------------------------
Long Life Gold Mines, Canada
- -------------------------------------------------------------
AngloGold Ashanti Ltd. 8.0%
- -------------------------------------------------------------
Long Life Gold Mines, South Africa
- -------------------------------------------------------------
Placer Dome Inc. 7.8%
- -------------------------------------------------------------
LONG LIFE GOLD MINES, CANADA
- -------------------------------------------------------------
Newcrest Mining Ltd. 6.9%
- -------------------------------------------------------------
Long Life Gold Mines, Australia
- -------------------------------------------------------------
Newmont Mining Corp. 6.5%
- -------------------------------------------------------------
Long Life Gold Mines, U.S.
- -------------------------------------------------------------
Impala Platinum Holdings Ltd. 5.7%
- -------------------------------------------------------------
Platinum & Palladium, South Africa
- -------------------------------------------------------------
Freeport-McMoRan Copper & Gold Inc., B 5.3%
- -------------------------------------------------------------
Gold and Diversified Resources, U.S.
- -------------------------------------------------------------
Meridian Gold Inc. 4.9%
- -------------------------------------------------------------
Long Life Gold Mines, Canada
- -------------------------------------------------------------
Compania de Minas Buenaventura SA 4.1%
- -------------------------------------------------------------
Long Life Gold Mines, Peru
- -------------------------------------------------------------
Anglo American Platinum Corp. Ltd. 4.1%
- -------------------------------------------------------------
Platinum & Palladium, South Africa
INVESTMENT STRATEGY
Our conservative management style seeks to expose shareholders to the benefits
of diversification by investing globally in the precious metals sector. We like
companies with multiple mines, attractive production profiles, strong reserve
bases and active exploration programs that can drive future reserve and
production growth. While the sector can be volatile, especially over the short
term; precious metals, such as gold, can be attractive because they are a hard
asset not tied to any particular country or financial system.
MANAGER'S DISCUSSION
During the year under review, precious metals market fundamentals continued to
improve, and the Fund outperformed its benchmark, the FTSE Gold Mines Index.
Fund performance was supported by a number of holdings outside the index,
including, for a second consecutive year, Impala Platinum and Freeport-McMoRan
Copper & Gold, which appreciated notably as metals prices improved. Some of the
best performers this year were palladium-producing companies also outside the
index; two of the Fund's positions, Stillwater Mining and North American
Palladium, more than doubled in value for the 12-month period. Non-index
holdings in select small capitalization gold companies like Yamana Gold, an
emerging producer with operations in South America, also delivered strong
returns. Additionally, consolidation remained a theme throughout the period, as
Fund holding Wheaton River Minerals received competing acquisition offers during
the period.
Several of our South African gold holdings hindered Fund performance during this
fiscal year due to the strengthening rand environment that drove operating costs
higher in U.S. dollar terms. As a result, South African gold companies like Gold
Fields and Harmony Gold Mining experienced declining margins despite the higher
gold price, and ended the period among the industry's highest cost producers.
Seeking to minimize exposure to any single mining operation, we maintained our
top positions in the industry's largest and most geographically diversified
companies. Our top two positions at period-end were Barrick Gold and AngloGold
Ashanti, a result of the merger between AngloGold and Ghana's Ashanti Goldfields
during the reporting period. Consistent with our strategy, we increased our
weightings in companies that we believe have the potential to benefit from
6 | Annual Report
exploration discoveries and production growth in coming years -- most notably
Newcrest Mining, Meridian Gold and Placer Dome.
Thank you for your participation in Franklin Gold and Precious Metals Fund. We
look forward to serving your future investment needs.
[PHOTO OMITTED]
/S/Stephen M. Land
Stephen M. Land
Portfolio Manager
Franklin Gold and Precious Metals Fund
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
JULY 31, 2004, 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 ADVISER 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.
Annual Report | 7
Performance Summary as of 7/31/04
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- -----------------------------------------------------------------------------------------------------------------
CLASS A CHANGE 7/31/04 7/31/03
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$2.20 $15.94 $13.74
- -----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/03-7/31/04)
- -----------------------------------------------------------------------------------------------------------------
Dividend Income $0.1001
- -----------------------------------------------------------------------------------------------------------------
CLASS B CHANGE 7/31/04 7/31/03
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$2.08 $15.54 $13.46
- -----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/03-7/31/04)
- -----------------------------------------------------------------------------------------------------------------
Dividend Income $0.0457
- -----------------------------------------------------------------------------------------------------------------
CLASS C CHANGE 7/31/04 7/31/03
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$2.10 $15.69 $13.59
- -----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/03-7/31/04)
- -----------------------------------------------------------------------------------------------------------------
Dividend Income $0.0403
- -----------------------------------------------------------------------------------------------------------------
ADVISOR CLASS CHANGE 7/31/04 7/31/03
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$2.28 $16.36 $14.08
- -----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/03-7/31/04)
- -----------------------------------------------------------------------------------------------------------------
Dividend Income $0.1268
8 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES
CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER;
CLASS C: 1% CDSC IN FIRST YEAR ONLY. CUMULATIVE TOTAL RETURN EXCLUDES SALES
CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND VALUE OF $10,000 INVESTMENT INCLUDE
MAXIMUM SALES CHARGES.
- -------------------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +16.68% +103.99% +31.83%
Average Annual Total Return 2 +9.95% +13.96% +2.19%
Value of $10,000 Investment 3 $10,995 $19,218 $12,424
Avg. Ann. Total Return (6/30/04) 4 +15.80% +13.53% +2.56%
- -------------------------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 5-YEAR INCEPTION (1/1/99)
- -------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +15.81% +96.74% +110.50%
Average Annual Total Return 2 +11.81% +14.26% +14.17%
Value of $10,000 Investment 3 $11,181 $19,474 $20,950
Avg. Ann. Total Return (6/30/04) 4 +17.86% +13.78% +14.64%
- -------------------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- -------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +15.77% +97.03% +21.54%
Average Annual Total Return 2 +14.77% +14.53% +2.13%
Value of $10,000 Investment 3 $11,477 $19,703 $12,154
Avg. Ann. Total Return (6/30/04) 4 +20.76% +14.05% +2.28%
- -------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS5 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +16.91% +106.41% +38.97%
Average Annual Total Return 2 +16.91% +15.60% +3.35%
Value of $10,000 Investment 3 $11,691 $20,641 $13,897
Avg. Ann. Total Return (6/30/04) 4 +23.10% +15.15% +3.72%
PERFORMANCE DATA QUOTED REPRESENTS 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.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | 9
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The indexes are unmanaged, differ
from the Fund in composition and do not pay management fees or expenses. One
cannot invest directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------
CLASS A 7/31/04
- ----------------------------------------
1-Year +9.95%
- ----------------------------------------
5-Year +13.96%
- ----------------------------------------
10-Year +2.19%
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin
Gold & Precious
Metals Fund - FTSE Gold
Date Class A S&P 500 6 Mines Index 6
8/1/94 $9,424 $10,000 $10,000
8/31/94 $9,905 $10,409 $10,616
9/30/94 $10,709 $10,155 $11,850
10/31/94 $10,196 $10,383 $10,991
11/30/94 $9,164 $10,005 $9,632
12/31/94 $9,556 $10,153 $10,073
1/31/95 $8,130 $10,416 $8,350
2/28/95 $8,588 $10,822 $8,823
3/31/95 $9,435 $11,141 $9,839
4/30/95 $9,511 $11,468 $9,836
5/31/95 $9,390 $11,926 $9,692
6/30/95 $9,455 $12,203 $9,827
7/31/95 $9,719 $12,607 $9,942
8/31/95 $9,732 $12,639 $10,057
9/30/95 $9,777 $13,172 $10,124
10/31/95 $8,687 $13,125 $8,784
11/30/95 $9,326 $13,700 $9,622
12/31/95 $9,433 $13,964 $9,755
1/31/96 $10,937 $14,439 $11,755
2/29/96 $10,964 $14,573 $11,931
3/31/96 $10,998 $14,713 $11,899
4/30/96 $11,132 $14,930 $11,862
5/31/96 $11,555 $15,314 $12,118
6/30/96 $10,102 $15,373 $10,282
7/31/96 $9,879 $14,694 $10,175
8/31/96 $10,270 $15,004 $10,357
9/30/96 $9,657 $15,848 $9,441
10/31/96 $9,684 $16,285 $9,573
11/30/96 $9,609 $17,515 $9,560
12/31/96 $9,532 $17,168 $9,297
1/31/97 $9,108 $18,240 $8,658
2/28/97 $10,206 $18,383 $9,725
3/31/97 $9,087 $17,629 $8,345
4/30/97 $8,512 $18,681 $7,487
5/31/97 $8,950 $19,817 $8,004
6/30/97 $8,398 $20,705 $7,101
7/31/97 $8,254 $22,351 $7,210
8/31/97 $8,138 $21,100 $7,198
9/30/97 $8,506 $22,255 $7,775
10/31/97 $7,164 $21,512 $6,330
11/30/97 $5,981 $22,507 $4,984
12/31/97 $6,128 $22,894 $5,395
1/31/98 $6,469 $23,147 $5,699
2/28/98 $6,440 $24,815 $5,491
3/31/98 $6,825 $26,085 $5,838
4/30/98 $7,296 $26,347 $6,620
5/31/98 $6,288 $25,895 $5,542
6/30/98 $5,812 $26,946 $5,067
7/31/98 $5,462 $26,660 $4,592
8/31/98 $4,366 $22,809 $3,577
9/30/98 $6,104 $24,270 $5,613
10/31/98 $6,119 $26,243 $5,675
11/30/98 $6,002 $27,833 $5,379
12/31/98 $5,665 $29,436 $4,764
1/31/99 $5,650 $30,666 $4,752
2/28/99 $5,533 $29,713 $4,443
3/31/99 $5,635 $30,902 $4,430
4/30/99 $6,677 $32,098 $5,190
5/31/99 $5,826 $31,341 $4,223
6/30/99 $6,281 $33,079 $4,512
7/31/99 $6,090 $32,048 $4,306
8/31/99 $6,340 $31,889 $4,578
9/30/99 $7,485 $31,016 $5,757
10/31/99 $6,765 $32,978 $4,995
11/30/99 $6,876 $33,648 $4,772
12/31/99 $7,103 $35,629 $4,733
1/31/00 $6,617 $33,839 $4,176
2/29/00 $6,329 $33,199 $4,308
3/31/00 $6,145 $36,445 $3,985
4/30/00 $5,718 $35,349 $3,856
5/31/00 $5,917 $34,625 $3,972
6/30/00 $6,189 $35,479 $4,117
7/31/00 $5,821 $34,925 $3,715
8/31/00 $6,403 $37,093 $3,761
9/30/00 $5,946 $35,135 $3,562
10/31/00 $5,629 $34,986 $3,020
11/30/00 $5,998 $32,230 $3,185
12/31/00 $6,579 $32,388 $3,485
1/31/01 $6,706 $33,537 $3,403
2/28/01 $7,004 $30,481 $3,644
3/31/01 $6,153 $28,551 $3,285
4/30/01 $7,042 $30,768 $3,831
5/31/01 $7,587 $30,974 $3,962
6/30/01 $7,206 $30,220 $3,958
7/31/01 $6,631 $29,923 $3,864
8/31/01 $7,057 $28,052 $4,111
9/30/01 $6,922 $25,786 $4,484
10/31/01 $6,713 $26,278 $4,289
11/30/01 $6,795 $28,294 $4,117
12/31/01 $7,237 $28,542 $4,276
1/31/02 $7,797 $28,125 $4,886
2/28/02 $8,511 $27,583 $5,371
3/31/02 $9,201 $28,620 $5,922
4/30/02 $9,700 $26,886 $6,316
5/31/02 $10,813 $26,689 $7,238
6/30/02 $9,478 $24,788 $6,199
7/31/02 $7,889 $22,856 $5,245
8/31/02 $8,902 $23,006 $5,972
9/30/02 $8,917 $20,508 $6,003
10/31/02 $8,442 $22,311 $5,460
11/30/02 $8,472 $23,623 $5,320
12/31/02 $9,942 $22,236 $6,514
1/31/03 $10,058 $21,655 $6,485
2/28/03 $9,345 $21,329 $6,071
3/31/03 $8,779 $21,534 $5,695
4/30/03 $8,639 $23,309 $5,635
5/31/03 $9,919 $24,536 $6,280
6/30/03 $10,229 $24,849 $6,606
7/31/03 $10,648 $25,288 $6,846
8/31/03 $12,214 $25,780 $7,724
9/30/03 $12,493 $25,507 $7,780
10/31/03 $13,633 $26,949 $8,411
11/30/03 $15,200 $27,186 $9,309
12/31/03 $15,144 $28,611 $9,303
1/31/04 $13,671 $29,136 $8,138
2/29/04 $14,006 $29,541 $8,292
3/31/04 $14,832 $29,095 $8,995
4/30/04 $11,823 $28,639 $7,035
5/31/04 $12,876 $29,031 $7,752
6/30/04 $12,564 $29,595 $7,438
7/31/04 $12,424 $28,616 $7,460
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------
CLASS B 7/31/04
- -------------------------------------------
1-Year +11.81%
- -------------------------------------------
5-Year +14.26%
- -------------------------------------------
Since Inception (1/1/99) +14.17%
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin
Gold & Precious
Metals Fund - FTSE Gold
Date Class B S&P 500 6 Mines Index 6
1/1/99 $10,000 $10,000 $10,000
1/31/99 $9,961 $10,418 $9,975
2/28/99 $9,754 $10,094 $9,325
3/31/99 $9,935 $10,498 $9,299
4/30/99 $11,762 $10,905 $10,894
5/31/99 $10,259 $10,647 $8,864
6/30/99 $11,049 $11,238 $9,471
7/31/99 $10,699 $10,887 $9,038
8/31/99 $11,140 $10,834 $9,610
9/30/99 $13,161 $10,537 $12,085
10/31/99 $11,878 $11,203 $10,484
11/30/99 $12,073 $11,431 $10,017
12/31/99 $12,452 $12,104 $9,934
1/31/00 $11,606 $11,496 $8,766
2/29/00 $11,099 $11,279 $9,043
3/31/00 $10,747 $12,381 $8,365
4/30/00 $10,006 $12,009 $8,093
5/31/00 $10,344 $11,763 $8,338
6/30/00 $10,812 $12,053 $8,641
7/31/00 $10,175 $11,865 $7,798
8/31/00 $11,177 $12,601 $7,895
9/30/00 $10,370 $11,936 $7,476
10/31/00 $9,810 $11,886 $6,338
11/30/00 $10,448 $10,949 $6,685
12/31/00 $11,436 $11,003 $7,315
1/31/01 $11,658 $11,393 $7,142
2/28/01 $12,169 $10,355 $7,649
3/31/01 $10,676 $9,699 $6,896
4/30/01 $12,208 $10,453 $8,040
5/31/01 $13,165 $10,523 $8,316
6/30/01 $12,497 $10,267 $8,308
7/31/01 $11,475 $10,166 $8,110
8/31/01 $12,222 $9,530 $8,629
9/30/01 $11,973 $8,760 $9,412
10/31/01 $11,606 $8,927 $9,002
11/30/01 $11,737 $9,612 $8,641
12/31/01 $12,497 $9,696 $8,974
1/31/02 $13,449 $9,555 $10,257
2/28/02 $14,669 $9,371 $11,274
3/31/02 $15,849 $9,723 $12,431
4/30/02 $16,693 $9,134 $13,258
5/31/02 $18,611 $9,067 $15,192
6/30/02 $16,305 $8,421 $13,011
7/31/02 $13,556 $7,765 $11,008
8/31/02 $15,299 $7,816 $12,534
9/30/02 $15,312 $6,967 $12,601
10/31/02 $14,481 $7,580 $11,460
11/30/02 $14,535 $8,025 $11,167
12/31/02 $17,041 $7,554 $13,673
1/31/03 $17,230 $7,357 $13,612
2/28/03 $16,000 $7,246 $12,743
3/31/03 $15,027 $7,316 $11,954
4/30/03 $14,771 $7,919 $11,828
5/31/03 $16,960 $8,335 $13,182
6/30/03 $17,473 $8,442 $13,866
7/31/03 $18,176 $8,591 $14,369
8/31/03 $20,838 $8,758 $16,212
9/30/03 $21,298 $8,665 $16,331
10/31/03 $23,217 $9,155 $17,654
11/30/03 $25,879 $9,236 $19,539
12/31/03 $25,764 $9,720 $19,526
1/31/04 $23,244 $9,898 $17,080
2/29/04 $23,800 $10,036 $17,405
3/31/04 $25,195 $9,884 $18,880
4/30/04 $20,061 $9,729 $14,765
5/31/04 $21,835 $9,863 $16,271
6/30/04 $21,294 $10,054 $15,612
7/31/04 $20,950 $9,722 $15,659
10 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------
CLASS C 7/31/04
- --------------------------------------------
1-Year +14.77%
- --------------------------------------------
5-Year +14.53%
- --------------------------------------------
Since Inception (5/1/95) +2.13%
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin
Gold & Precious
Metals Fund - FTSE Gold
Date Class C S&P 500 6 Mines Index 6
5/1/95 $10,000 $10,000 $10,000
5/31/95 $9,814 $10,399 $9,853
6/30/95 $9,875 $10,640 $9,990
7/31/95 $10,145 $10,993 $10,107
8/31/95 $10,151 $11,020 $10,224
9/30/95 $10,192 $11,485 $10,292
10/31/95 $9,053 $11,444 $8,930
11/30/95 $9,713 $11,946 $9,782
12/31/95 $9,812 $12,176 $9,917
1/31/96 $11,365 $12,590 $11,951
2/29/96 $11,393 $12,707 $12,129
3/31/96 $11,414 $12,829 $12,097
4/30/96 $11,547 $13,018 $12,059
5/31/96 $11,973 $13,354 $12,320
6/30/96 $10,465 $13,404 $10,453
7/31/96 $10,227 $12,813 $10,344
8/31/96 $10,626 $13,083 $10,529
9/30/96 $9,989 $13,819 $9,598
10/31/96 $10,010 $14,200 $9,732
11/30/96 $9,926 $15,272 $9,719
12/31/96 $9,840 $14,970 $9,451
1/31/97 $9,400 $15,905 $8,802
2/28/97 $10,519 $16,029 $9,887
3/31/97 $9,356 $15,372 $8,484
4/30/97 $8,759 $16,289 $7,612
5/31/97 $9,207 $17,280 $8,137
6/30/97 $8,625 $18,054 $7,219
7/31/97 $8,476 $19,489 $7,330
8/31/97 $8,349 $18,398 $7,318
9/30/97 $8,729 $19,405 $7,904
10/31/97 $7,328 $18,758 $6,435
11/30/97 $6,128 $19,626 $5,067
12/31/97 $6,269 $19,962 $5,485
1/31/98 $6,620 $20,183 $5,794
2/28/98 $6,590 $21,638 $5,583
3/31/98 $6,985 $22,745 $5,935
4/30/98 $7,470 $22,974 $6,730
5/31/98 $6,441 $22,579 $5,635
6/30/98 $5,947 $23,496 $5,151
7/31/98 $5,565 $23,246 $4,668
8/31/98 $4,449 $19,889 $3,636
9/30/98 $6,216 $21,163 $5,706
10/31/98 $6,231 $22,883 $5,769
11/30/98 $6,104 $24,269 $5,469
12/31/98 $5,764 $25,667 $4,843
1/31/99 $5,742 $26,740 $4,831
2/28/99 $5,622 $25,909 $4,517
3/31/99 $5,727 $26,945 $4,504
4/30/99 $6,783 $27,988 $5,276
5/31/99 $5,914 $27,329 $4,293
6/30/99 $6,371 $28,844 $4,587
7/31/99 $6,169 $27,945 $4,378
8/31/99 $6,424 $27,806 $4,654
9/30/99 $7,578 $27,045 $5,853
10/31/99 $6,843 $28,756 $5,078
11/30/99 $6,956 $29,340 $4,852
12/31/99 $7,174 $31,067 $4,811
1/31/00 $6,687 $29,506 $4,246
2/29/00 $6,394 $28,949 $4,380
3/31/00 $6,199 $31,779 $4,052
4/30/00 $5,765 $30,823 $3,920
5/31/00 $5,967 $30,192 $4,038
6/30/00 $6,237 $30,937 $4,185
7/31/00 $5,870 $30,453 $3,777
8/31/00 $6,447 $32,344 $3,824
9/30/00 $5,990 $30,637 $3,621
10/31/00 $5,660 $30,507 $3,070
11/30/00 $6,027 $28,103 $3,238
12/31/00 $6,603 $28,241 $3,543
1/31/01 $6,731 $29,243 $3,459
2/28/01 $7,025 $26,578 $3,705
3/31/01 $6,167 $24,895 $3,340
4/30/01 $7,055 $26,828 $3,894
5/31/01 $7,597 $27,008 $4,028
6/30/01 $7,213 $26,351 $4,024
7/31/01 $6,626 $26,092 $3,928
8/31/01 $7,055 $24,460 $4,179
9/30/01 $6,912 $22,485 $4,559
10/31/01 $6,701 $22,914 $4,360
11/30/01 $6,777 $24,671 $4,185
12/31/01 $7,210 $24,887 $4,347
1/31/02 $7,763 $24,524 $4,968
2/28/02 $8,471 $24,051 $5,460
3/31/02 $9,147 $24,956 $6,021
4/30/02 $9,639 $23,444 $6,421
5/31/02 $10,746 $23,271 $7,358
6/30/02 $9,408 $21,614 $6,302
7/31/02 $7,825 $19,930 $5,332
8/31/02 $8,832 $20,060 $6,071
9/30/02 $8,840 $17,882 $6,103
10/31/02 $8,363 $19,455 $5,551
11/30/02 $8,394 $20,599 $5,409
12/31/02 $9,841 $19,389 $6,623
1/31/03 $9,949 $18,882 $6,593
2/28/03 $9,238 $18,598 $6,172
3/31/03 $8,681 $18,777 $5,790
4/30/03 $8,535 $20,325 $5,729
5/31/03 $9,795 $21,394 $6,385
6/30/03 $10,096 $21,668 $6,716
7/31/03 $10,498 $22,050 $6,959
8/31/03 $12,037 $22,479 $7,852
9/30/03 $12,299 $22,241 $7,910
10/31/03 $13,405 $23,499 $8,551
11/30/03 $14,936 $23,705 $9,463
12/31/03 $14,873 $24,947 $9,457
1/31/04 $13,417 $25,405 $8,273
2/29/04 $13,742 $25,758 $8,430
3/31/04 $14,540 $25,370 $9,145
4/30/04 $11,581 $24,972 $7,152
5/31/04 $12,611 $25,314 $7,881
6/30/04 $12,294 $25,806 $7,562
7/31/04 $12,154 $24,952 $7,585
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------------
ADVISOR CLASS5 7/31/04
- ----------------------------------------------
1-Year +16.91%
- ----------------------------------------------
5-Year +15.60%
- ----------------------------------------------
10-Year +3.35%
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin
Gold & Precious
Metals Fund - FTSE Gold
Date Advisor Class S&P 500 6 Mines Index 6
8/1/94 $10,000 $10,000 $10,000
8/31/94 $10,511 $10,409 $10,616
9/30/94 $11,364 $10,155 $11,850
10/31/94 $10,820 $10,383 $10,991
11/30/94 $9,724 $10,005 $9,632
12/31/94 $10,140 $10,153 $10,073
1/31/95 $8,627 $10,416 $8,350
2/28/95 $9,113 $10,822 $8,823
3/31/95 $10,012 $11,141 $9,839
4/30/95 $10,093 $11,468 $9,836
5/31/95 $9,964 $11,926 $9,692
6/30/95 $10,033 $12,203 $9,827
7/31/95 $10,314 $12,607 $9,942
8/31/95 $10,327 $12,639 $10,057
9/30/95 $10,375 $13,172 $10,124
10/31/95 $9,219 $13,125 $8,784
11/30/95 $9,896 $13,700 $9,622
12/31/95 $10,010 $13,964 $9,755
1/31/96 $11,606 $14,439 $11,755
2/29/96 $11,634 $14,573 $11,931
3/31/96 $11,670 $14,713 $11,899
4/30/96 $11,813 $14,930 $11,862
5/31/96 $12,261 $15,314 $12,118
6/30/96 $10,720 $15,373 $10,282
7/31/96 $10,483 $14,694 $10,175
8/31/96 $10,898 $15,004 $10,357
9/30/96 $10,247 $15,848 $9,441
10/31/96 $10,276 $16,285 $9,573
11/30/96 $10,197 $17,515 $9,560
12/31/96 $10,114 $17,168 $9,297
1/31/97 $9,790 $18,240 $8,658
2/28/97 $10,969 $18,383 $9,725
3/31/97 $9,767 $17,629 $8,345
4/30/97 $9,151 $18,681 $7,487
5/31/97 $9,628 $19,817 $8,004
6/30/97 $9,024 $20,705 $7,101
7/31/97 $8,876 $22,351 $7,210
8/31/97 $8,752 $21,100 $7,198
9/30/97 $9,156 $22,255 $7,775
10/31/97 $7,696 $21,512 $6,330
11/30/97 $6,445 $22,507 $4,984
12/31/97 $6,599 $22,894 $5,395
1/31/98 $6,975 $23,147 $5,699
2/28/98 $6,950 $24,815 $5,491
3/31/98 $7,365 $26,085 $5,838
4/30/98 $7,881 $26,347 $6,620
5/31/98 $6,803 $25,895 $5,542
6/30/98 $6,286 $26,946 $5,067
7/31/98 $5,995 $26,660 $4,592
8/31/98 $4,798 $22,809 $3,577
9/30/98 $6,712 $24,270 $5,613
10/31/98 $6,736 $26,243 $5,675
11/30/98 $6,602 $27,833 $5,379
12/31/98 $6,241 $29,436 $4,764
1/31/99 $6,225 $30,666 $4,752
2/28/99 $6,098 $29,713 $4,443
3/31/99 $6,217 $30,902 $4,430
4/30/99 $7,367 $32,098 $5,190
5/31/99 $6,431 $31,341 $4,223
6/30/99 $6,938 $33,079 $4,512
7/31/99 $6,733 $32,048 $4,306
8/31/99 $7,018 $31,889 $4,578
9/30/99 $8,286 $31,016 $5,757
10/31/99 $7,486 $32,978 $4,995
11/30/99 $7,620 $33,648 $4,772
12/31/99 $7,860 $35,629 $4,733
1/31/00 $7,326 $33,839 $4,176
2/29/00 $7,007 $33,199 $4,308
3/31/00 $6,800 $36,445 $3,985
4/30/00 $6,330 $35,349 $3,856
5/31/00 $6,553 $34,625 $3,972
6/30/00 $6,856 $35,479 $4,117
7/31/00 $6,449 $34,925 $3,715
8/31/00 $7,095 $37,093 $3,761
9/30/00 $6,593 $35,135 $3,562
10/31/00 $6,242 $34,986 $3,020
11/30/00 $6,649 $32,230 $3,185
12/31/00 $7,289 $32,388 $3,485
1/31/01 $7,435 $33,537 $3,403
2/28/01 $7,768 $30,481 $3,644
3/31/01 $6,820 $28,551 $3,285
4/30/01 $7,809 $30,768 $3,831
5/31/01 $8,424 $30,974 $3,962
6/30/01 $8,003 $30,220 $3,958
7/31/01 $7,354 $29,923 $3,864
8/31/01 $7,833 $28,052 $4,111
9/30/01 $7,687 $25,786 $4,484
10/31/01 $7,459 $26,278 $4,289
11/30/01 $7,548 $28,294 $4,117
12/31/01 $8,037 $28,542 $4,276
1/31/02 $8,663 $28,125 $4,886
2/28/02 $9,455 $27,583 $5,371
3/31/02 $10,223 $28,620 $5,922
4/30/02 $10,781 $26,886 $6,316
5/31/02 $12,023 $26,689 $7,238
6/30/02 $10,547 $24,788 $6,199
7/31/02 $8,780 $22,856 $5,245
8/31/02 $9,906 $23,006 $5,972
9/30/02 $9,931 $20,508 $6,003
10/31/02 $9,397 $22,311 $5,460
11/30/02 $9,438 $23,623 $5,320
12/31/02 $11,076 $22,236 $6,514
1/31/03 $11,210 $21,655 $6,485
2/28/03 $10,409 $21,329 $6,071
3/31/03 $9,792 $21,534 $5,695
4/30/03 $9,632 $23,309 $5,635
5/31/03 $11,067 $24,536 $6,280
6/30/03 $11,413 $24,849 $6,606
7/31/03 $11,885 $25,288 $6,846
8/31/03 $13,633 $25,780 $7,724
9/30/03 $13,946 $25,507 $7,780
10/31/03 $15,220 $26,949 $8,411
11/30/03 $16,967 $27,186 $9,309
12/31/03 $16,912 $28,611 $9,303
1/31/04 $15,272 $29,136 $8,138
2/29/04 $15,647 $29,541 $8,292
3/31/04 $16,581 $29,095 $8,995
4/30/04 $13,208 $28,639 $7,035
5/31/04 $14,398 $29,031 $7,752
6/30/04 $14,049 $29,595 $7,438
7/31/04 $13,897 $28,616 $7,460
Annual Report | 11
Performance Summary (CONTINUED)
ENDNOTES
INVESTING IN A NON-DIVERSIFIED FUND CONCENTRATING IN THE PRECIOUS METALS SECTOR
INVOLVES SPECIAL RISKS, INCLUDING THOSE RELATED TO FLUCTUATIONS IN THE PRICE OF
GOLD AND OTHER PRECIOUS METALS AND INCREASED SUSCEPTIBILITY TO ADVERSE ECONOMIC
AND REGULATORY DEVELOPMENTS AFFECTING THE SECTOR. THE FUND MAY ALSO INVEST IN
FOREIGN COMPANIES, INCLUDING IN DEVELOPING MARKETS, WHICH CAN INVOLVE EXPOSURE
TO CURRENCY VOLATILITY AND POLITICAL, ECONOMIC AND REGULATORY UNCERTAINTY. THE
FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS A: Prior to 8/3/98, these shares were offered at a lower initial sales
charge; thus actual total returns may differ. Effective 5/1/94, the Fund
implemented a Rule 12b-1 plan, which affects subsequent performance.
CLASS B: These shares have higher annual fees and expenses than Class A shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares have higher
annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include a sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include any current, applicable, maximum
sales charge.
4. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
5. Effective 1/2/97, the Fund began offering Advisor Class shares, which do not
have sales charges or a Rule 12b-1 plan. Performance quotations for this class
reflect the following methods of calculation: (a) For periods prior to 1/2/97, a
restated figure is used based upon the Fund's Class A performance, excluding the
effect of Class A's maximum initial sales charge, but reflecting the effect of
the Class A Rule 12b-1 fees; and (b) for periods after 1/1/97, actual Advisor
Class performance is used reflecting all charges and fees applicable to that
class. Since 1/2/97 (commencement of sales), the cumulative and average annual
total returns of Advisor Class shares were +37.40% and +4.28%.
6. Sources: Standard & Poor's Micropal; Financial Times. The S&P 500 consists of
500 stocks chosen for market size, liquidity and industry group representation.
Each stock's weight in the index is proportionate to its market value. The S&P
500 includes reinvested dividends and is one of the most widely used benchmarks
of U.S. equity performance. The FTSE Gold Mines Index is an unweighted index
that tracks the daily performance of gold mining companies in South Africa,
Australia and North America. This is a price-only index and does not include
dividends.
12 | Annual Report
Your Fund's Expenses
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period, by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 =
$64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different
Annual Report | 13
Your Fund's Expenses (CONTINUED)
funds. In addition, if transaction costs were included, your total costs would
have been higher. Please refer to the Fund prospectus for additional information
on operating expenses.
- ----------------------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A VALUE 1/31/04 VALUE 7/31/04 PERIOD* 1/31/04-7/31/04
- ----------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 908.80 $4.37
Hypothetical (5% return before expenses) $1,000 $1,020.29 $4.62
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B
- ----------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 905.60 $7.91
Hypothetical (5% return before expenses) $1,000 $1,016.56 $8.37
- ----------------------------------------------------------------------------------------------------------------------------
CLASS C
- ----------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 905.90 $7.91
Hypothetical (5% return before expenses) $1,000 $1,016.56 $8.37
- ----------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ----------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 909.90 $3.18
Hypothetical (5% return before expenses) $1,000 $1,021.53 $3.37
- ----------------------------------------------------------------------------------------------------------------------------
*Expenses are equal to the annualized expense ratio for each class (A: 0.92%; B: 1.67%; C: 1.67%; and Advisor:
0.67%), multiplied by the average account value over the period, multiplied by 182/366 to reflect the one-half
year period.
14 | Annual Report
Franklin Gold and Precious Metals Fund
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------
YEAR ENDED JULY 31,
--------------------------------------------------------------
CLASS A 2004 2003 2002 2001 2000
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........................... $13.74 $10.28 $ 8.88 $7.90 $8.30
--------------------------------------------------------------
Income from investment operations:
Net investment income a ..................................... .05 .13 .13 .25 .10
Net realized and unrealized gains (losses) .................. 2.25 3.44 1.52 .84 (.46)
--------------------------------------------------------------
Total from investment operations ............................. 2.30 3.57 1.65 1.09 (.36)
--------------------------------------------------------------
Less distributions from net investment income ................ (.10) (.11) (.25) (.11) (.04)
--------------------------------------------------------------
Redemption fees .............................................. -- c -- -- -- --
--------------------------------------------------------------
Net asset value, end of year ................................. $15.94 $13.74 $10.28 $8.88 $7.90
--------------------------------------------------------------
Total return b ............................................... 16.68% 34.97% 18.97% 13.91% (4.42)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .............................. $394,292 $306,283 $200,627 $164,004 $156,236
Ratios to average net assets:
Expenses .................................................... .96% 1.09% 1.13% 1.32% 1.34%
Net investment income ....................................... .26% 1.05% 1.18% 2.86% 1.17%
Portfolio turnover rate ...................................... 8.11% 6.59% 12.77% 71.31% 3.53%
aBased on average daily shares outstanding.
bTotal return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
cAmount is less than $.001 per share.
Annual Report | 15
Franklin Gold and Precious Metals Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
---------------------------------------------------------------
YEAR ENDED JULY 31,
---------------------------------------------------------------
CLASS B 2004 2003 2002 2001 2000
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................ $13.46 $10.11 $ 8.76 $7.82 $8.26
---------------------------------------------------------------
Income from investment operations:
Net investment income (loss) a ............................... (.08) .02 .01 .17 .01
Net realized and unrealized gains (losses) ................... 2.21 3.41 1.55 .83 (.41)
---------------------------------------------------------------
Total from investment operations .............................. 2.13 3.43 1.56 1.00 (.40)
---------------------------------------------------------------
Less distributions from net investment income ................. (.05) (.08) (.21) (.06) (.04)
---------------------------------------------------------------
Redemption fees ............................................... -- c -- -- -- --
---------------------------------------------------------------
Net asset value, end of year .................................. $15.54 $13.46 $10.11 $8.76 $7.82
---------------------------------------------------------------
Total return b ................................................ 15.81% 34.08% 18.14% 12.78% (4.90)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................... $37,738 $26,278 $10,964 $4,037 $2,779
Ratios to average net assets:
Expenses ..................................................... 1.71% 1.85% 1.89% 2.08% 2.10%
Net investment income (loss) ................................. (.49)% .29% .12% 1.88% .17%
Portfolio turnover rate ....................................... 8.11% 6.59% 12.77% 7.31% 3.53%
aBased on average daily shares outstanding.
bTotal return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
cAmount is less than $.001 per share.
16 | Annual Report
Franklin Gold and Precious Metals Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
-------------------------------------------------------------
YEAR ENDED JULY 31,
CLASS C 2004 2003 2002 2001 2000
-------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................. $13.59 $10.18 $ 8.80 $7.83 $8.23
-------------------------------------------------------------
Income from investment operations:
Net investment income (loss) a ................................ (.09) .04 .04 .18 .03
Net realized and unrealized gains (losses) .................... 2.23 3.43 1.53 .83 (.43)
-------------------------------------------------------------
Total from investment operations ............................... 2.14 3.47 1.57 1.01 (.40)
-------------------------------------------------------------
Less distributions from net investment income .................. (.04) (.06) (.19) (.04) -- d
-------------------------------------------------------------
Redemption fees ................................................ -- c -- -- -- --
-------------------------------------------------------------
Net asset value, end of year ................................... $15.69 $13.59 $10.18 $8.80 $7.83
-------------------------------------------------------------
Total return b ................................................. 15.77% 34.16% 18.09% 12.89% (4.85)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................ $101,962 $65,729 $38,219 $22,220 $20,721
Ratios to average net assets:
Expenses ...................................................... 1.71% 1.82% 1.88% 2.07% 2.10%
Net investment income (loss) .................................. (.49)% .32% .35% 2.11% .36%
Portfolio turnover rate ........................................ 8.11% 6.59% 12.77% 7.31% 3.53%
aBased on average daily shares outstanding.
bTotal return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
cAmount is less than $.001 per share.
dIncludes distributions from net investment income in the amount of $.001.
Annual Report | 17
Franklin Gold and Precious Metals Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
-----------------------------------------------------------------
YEAR ENDED JULY 31,
ADVISOR CLASS 2004 2003 2002 2001 2000
-----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........................ $14.08 $10.53 $ 9.09 $8.09 $8.49
-----------------------------------------------------------------
Income from investment operations:
Net investment income a .................................. .08 .09 .15 .28 .11
Net realized and unrealized gains (losses) ............... 2.33 3.60 1.56 .85 (.46)
-----------------------------------------------------------------
Total from investment operations .......................... 2.41 3.69 1.71 1.13 (.35)
-----------------------------------------------------------------
Less distributions from net investment income ............. (.13) (.14) (.27) (.13) (.05)
-----------------------------------------------------------------
Redemption fees ........................................... -- c -- -- -- --
-----------------------------------------------------------------
Net asset value, end of year .............................. $16.36 $14.08 $10.53 $9.09 $8.09
-----------------------------------------------------------------
Total return b ............................................ 16.91% 35.38% 19.38% 14.04% (4.21)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................... $35,351 $21,223 $5,573 $3,574 $3,715
Ratios to average net assets:
Expenses ................................................. .71% .85% .90% 1.08% 1.10%
Net investment income .................................... .51% 1.29% 1.29% 3.15% 1.24%
Portfolio turnover rate ................................... 8.11% 6.59% 12.77% 7.31% 3.53%
aBased on average daily shares outstanding.
bTotal return is not annualized for periods less than one year.
cAmount is less than $.001 per share.
18 | See notes to financial statements. | Annual Report
Franklin Gold and Precious Metals Fund
STATEMENT OF INVESTMENTS, JULY 31, 2004
- ----------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES/WARRANTS VALUE
COMMON STOCKS, WARRANTS AND MUTUAL FUNDS 96.8%
GOLD AND DIVERSIFIED RESOURCES 9.6%
Anglo American PLC .................................................. United Kingdom 256,100 $ 5,439,424
Anglo American PLC, ADR ............................................. United Kingdom 420,479 8,947,793
Freeport-McMoRan Copper & Gold Inc., B .............................. United States 859,011 29,936,533
a Mvelaphanda Resources Ltd. .......................................... South Africa 2,250,000 5,743,917
Rio Tinto PLC ....................................................... United Kingdom 170,401 4,440,367
a Sociedad Minera El Brocal SA ........................................ Peru 1,006 2,001
----------------
54,510,035
----------------
GOLD EXPLORATION 2.8%
a Bendigo Mining NL ................................................... Australia 4,000,000 2,044,875
a Ivanhoe Mines Ltd. .................................................. Canada 1,628,600 7,144,272
a Ivanhoe Mines Ltd., wts., 12/19/05 .................................. Canada 159,300 86,302
a Metallica Resources Inc. ............................................ Canada 988,998 922,767
a Metallica Resources Inc., wts., 12/11/08 ............................ Canada 494,499 96,742
a,c Miramar Mining Corp. .............................................. Canada 1,330,000 1,551,166
a,c Miramar Mining Corp., wts., 6/09/05 ............................... Canada 165,000 --
a Nevsun Resources Ltd. ............................................... Canada 877,000 2,309,631
a,c Semafo Inc. ....................................................... Canada 3,000,000 1,783,296
a,c Semafo Inc., 144A, wts., 12/18/06 ................................. Canada 1,225,000 48,853
----------------
15,987,904
----------------
LONG LIFE GOLD MINES 59.3%
Agnico-Eagle Mines Ltd. ............................................. Canada 425,000 5,622,750
AngloGold Ashanti Ltd. .............................................. South Africa 182,530 6,016,864
AngloGold Ashanti Ltd., ADR ......................................... South Africa 1,206,327 39,555,462
Barrick Gold Corp. .................................................. Canada 2,405,371 45,990,694
a Centerra Gold Inc., 144A ............................................ Canada 611,600 6,994,974
Compania de Minas Buenaventura SA ................................... Peru 100,593 2,188,659
Compania de Minas Buenaventura SA, ADR .............................. Peru 988,986 21,292,869
Gold Fields Ltd. .................................................... South Africa 704,999 7,267,648
Gold Fields Ltd., ADR ............................................... South Africa 854,528 8,767,457
Harmony Gold Mining Co. Ltd. ........................................ South Africa 1,793,000 19,739,450
Harmony Gold Mining Co. Ltd., ADR ................................... South Africa 200,000 2,192,000
Highland Gold Mining Ltd. ........................................... United Kingdom 250,000 1,091,068
a Lihir Gold Ltd. ..................................................... Papua New Guinea 8,566,841 6,539,298
a Lihir Gold Ltd., ADR, 144A .......................................... Papua New Guinea 50,000 770,000
a Meridian Gold Inc. .................................................. Canada 2,085,260 27,679,925
Newcrest Mining Ltd. ................................................ Australia 3,930,828 39,144,216
Newmont Mining Corp. ................................................ United States 915,114 37,034,664
a Oxiana Ltd. ......................................................... Australia 9,882,655 5,675,073
Placer Dome Inc. .................................................... Canada 2,766,655 44,321,813
a Randgold Resources Ltd., ADR ........................................ Jersey Islands 997,600 8,190,296
a Western Areas Ltd. .................................................. South Africa 402,225 1,668,584
a Western Areas Ltd., ADR ............................................. South Africa 26,430 109,642
----------------
337,853,406
----------------
Annual Report | 19
Franklin Gold and Precious Metals Fund
STATEMENT OF INVESTMENTS, JULY 31, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES/WARRANTS VALUE
COMMON STOCKS, WARRANTS AND MUTUAL FUNDS (CONT.)
MEDIUM LIFE GOLD MINES 12.6%
a Apollo Gold Corp. ...................................................... Canada 1,150,000 $ 1,133,559
a Cambior Inc. ........................................................... Canada 2,130,000 5,978,104
a Eldorado Gold Corp. .................................................... Canada 1,020,000 2,532,731
a Glamis Gold Ltd. ....................................................... Canada 1,041,000 16,343,700
Kingsgate Consolidated Ltd. ............................................ Australia 1,855,148 4,352,185
a Kinross Gold Corp. ..................................................... Canada 2,178,012 11,570,176
a Northgate Minerals Corp. ............................................... Canada 1,300,000 2,063,958
a Queenstake Resources Ltd. .............................................. Canada 6,000,000 1,986,456
a Rio Narcea Gold Mines Ltd. ............................................. Canada 1,100,000 1,953,348
a Sons of Gwalia Ltd. .................................................... Australia 2,980,500 3,590,058
a Wheaton River Minerals Ltd. ............................................ Canada 4,750,000 11,973,288
a Wheaton River Minerals Ltd., wts., 5/30/07 ............................. Canada 912,500 1,242,758
a Yamana Gold Inc. ....................................................... Canada 2,640,000 5,522,348
a Yamana Gold Inc., wts., 7/31/08 ........................................ Canada 1,150,000 1,492,664
----------------
71,735,333
----------------
PLATINUM & PALLADIUM 11.2%
Anglo American Platinum Corp. Ltd. ..................................... South Africa 40,000 1,531,711
Anglo American Platinum Corp. Ltd., ADR ................................ South Africa 571,138 21,870,462
Impala Platinum Holdings Ltd. .......................................... South Africa 216,000 17,090,451
Impala Platinum Holdings Ltd., ADR ..................................... South Africa 771,200 15,254,810
a North American Palladium Ltd. .......................................... Canada 501,500 4,075,395
a Stillwater Mining Co. .................................................. United States 253,246 3,684,729
----------------
63,507,558
----------------
MUTUAL FUNDS 1.3%
Central Fund Canada -- Class A ......................................... Canada 1,405,000 7,699,400
----------------
TOTAL COMMON STOCKS, WARRANTS AND MUTUAL FUNDS (COST $423,742,245) ..... 551,293,636
----------------
SHARES
SHORT TERM INVESTMENTS (COST $18,184,550) 3.2%
MONEY FUND
b Franklin Institutional Fiduciary Trust Money Market Porfolio ........... United States 18,184,550 18,184,550
----------------
TOTAL INVESTMENTS (COST $441,926,795) 100.0% ........................... 569,478,186
OTHER ASSETS, LESS LIABILITIES ......................................... (135,922)
----------------
NET ASSETS 100.0% ...................................................... $ 569,342,264
----------------
aNon-income producing.
bSee Note 7 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio.
cSee Note 8 regarding restricted securities.
20 | See notes to financial statements. | Annual Report
Franklin Gold and Precious Metals Fund
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2004
Assets:
Investments in securities:
Cost - Unaffiliated issuers ................................. $423,742,245
Cost - Sweep money fund (Note 7) ............................ 18,184,550
-------------
Value - Unaffiliated issuers ................................ 551,293,636
Value - Sweep money fund (Note 7) ........................... 18,184,550
Receivables:
Capital shares sold ......................................... 1,039,633
Dividends ................................................... 170,857
-------------
Total assets ................................................ 570,688,676
-------------
Liabilities:
Payables:
Capital shares redeemed ..................................... 713,323
Affiliates .................................................. 581,239
Other liabilities ............................................ 51,850
-------------
Total liabilities ........................................... 1,346,412
-------------
Net assets, at value .................................... $569,342,264
-------------
Net assets consist of:
Undistributed net investment income .......................... $ 310,439
Net unrealized appreciation (depreciation) ................... 127,551,391
Accumulated net realized gain (loss) ......................... (31,835,743)
Capital shares ............................................... 473,316,177
-------------
Net assets, at value .................................... $569,342,264
-------------
Annual Report | 21
Franklin Gold and Precious Metals Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
July 31, 2004
CLASS A:
Net assets, at value .............................................................. $394,292,064
-------------
Shares outstanding ................................................................ 24,732,492
-------------
Net asset value per share a ....................................................... $15.94
-------------
Maximum offering price per share (net asset value per share / 94.25%) ............. $16.91
-------------
CLASS B:
Net assets, at value .............................................................. $ 37,737,757
-------------
Shares outstanding ................................................................ 2,428,997
-------------
Net asset value and maximum offering price per share a ............................ $15.54
-------------
CLASS C:
Net assets, at value .............................................................. $101,961,659
-------------
Shares outstanding ................................................................ 6,499,837
-------------
Net asset value and maximum offering price per share a ............................ $15.69
-------------
ADVISOR CLASS:
Net assets, at value .............................................................. $ 35,350,784
-------------
Shares outstanding ................................................................ 2,160,975
-------------
Net asset value and maximum offering price per share b ............................ $16.36
-------------
aRedemption price is equal to net asset value less any applicable contingent
deferred sales charge and redemption fees retained by the Fund.
bRedemption price is equal to net asset value less any applicable redemption
fees retained by the Fund.
22 | See notes to financial statements. | Annual Report
Franklin Gold and Precious Metals Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended July 31, 2004
Investment income:
(net of foreign taxes of $195,668)
Dividends
Unaffiliated issuers ......................................................... $ 6,788,297
Sweep money fund (Note 7) .................................................... 216,057
Interest ...................................................................... 1,535
------------
Total investment income .................................................. 7,005,889
------------
Expenses:
Management fees (Note 3) ...................................................... 2,776,017
Distribution fees (Note 3)
Class A ...................................................................... 987,901
Class B ...................................................................... 386,340
Class C ...................................................................... 1,012,699
Transfer agent fees (Note 3) .................................................. 1,015,296
Custodian fees (Note 4) ....................................................... 76,559
Reports to shareholders ....................................................... 55,102
Registration and filing fees .................................................. 89,332
Professional fees ............................................................. 40,621
Trustees' fees and expenses ................................................... 16,981
Other ......................................................................... 16,959
------------
Total expenses ........................................................... 6,473,807
Expense reductions (Note 4) .............................................. (60)
------------
Net expenses ............................................................. 6,473,747
------------
Net investment income .................................................. 532,142
------------
Realized and unrealized gains (losses): Net realized gain (loss) from:
Investments .................................................................. 18,966,133
Foreign currency transactions ................................................ (118,976)
------------
Net realized gain (loss) ................................................. 18,847,157
------------
Net unrealized appreciation (depreciation) on:
Investments .................................................................. 37,147,930
Translation of assets and liabilities denominated in foreign currencies ...... (32,685)
------------
Net unrealized appreciation (depreciation) ............................... 37,115,245
------------
Net realized and unrealized gain (loss) ........................................ 55,962,402
------------
Net increase (decrease) in net assets resulting from operations ................ $56,494,544
------------
Annual Report | See notes to financial statements. | 23
Franklin Gold and Precious Metals Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended July 31, 2004 and 2003
-----------------------------------
2004 2003
-----------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ......................................................... $ 532,142 $ 3,055,697
Net realized gain (loss) from investments and foreign currency transactions .......... 18,847,157 (4,829,414)
Net unrealized appreciation (depreciation) on investments and translation of
assets and liabilities denominated in foreign currencies ............................ 37,115,245 98,025,903
-----------------------------------
Net increase (decrease) in net assets resulting from operations .................. 56,494,544 96,252,186
Distributions to shareholders from:
Net investment income:
Class A ............................................................................. (2,303,565) (2,293,660)
Class B ............................................................................. (108,625) (118,232)
Class C ............................................................................. (236,649) (251,973)
Advisor Class ....................................................................... (253,015) (72,571)
-----------------------------------
Total distributions to shareholders ................................................... (2,901,854) (2,736,436)
Capital share transactions: (Note 2)
Class A ............................................................................. 46,820,124 35,230,740
Class B ............................................................................. 7,857,969 10,718,114
Class C ............................................................................. 28,515,228 13,422,528
Advisor Class ....................................................................... 13,041,561 11,243,440
-----------------------------------
Total capital share transactions ...................................................... 96,234,882 70,614,822
Redemption fees (Note 1f) ............................................................. 751 --
Net increase (decrease) in net assets ............................................ 149,828,323 164,130,572
Net assets:
Beginning of year ..................................................................... 419,513,941 255,383,369
-----------------------------------
End of year ........................................................................... $569,342,264 $419,513,941
-----------------------------------
Undistributed net investment income included in net assets:
End of year ........................................................................... $ 310,439 $ 2,900,602
-----------------------------------
24 | See notes to financial statements. | Annual Report
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Gold and Precious Metals Fund (the Fund) is registered under the
Investment Company Act of 1940 as a non-diversified, open-end investment
company. The Fund seeks capital appreciation, with current income as a secondary
goal, by investing at least 80% of total net assets in securities of companies
that mine, process or deal in gold or other precious metals.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Securities listed or traded on a recognized national exchange are valued at the
last reported sales price. Securities listed or traded on NASDAQ are valued at
their official closing price. Over-the-counter securities and listed securities
for which no sale is reported are valued within the range of the latest quoted
bid and asked prices by independent pricing services or recognized dealers in
such securities. Foreign securities are valued at the close of trading of the
foreign exchange or the NYSE, whichever is earlier. If events occur that
materially affect the values of securities after the prices or foreign exchange
rates are determined, but prior to 4:00 p.m. Eastern time or the close of
trading on the NYSE, whichever is earlier, or if market quotations are deemed
not readily available or reliable, the securities (including restricted
securities) will be valued at fair value. Investments in open-end mutual funds
are valued at the closing net asset value. All security valuation procedures are
approved by the 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.
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.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. INCOME TAXES
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its taxable income. Fund distributions to
shareholders are determined on a tax basis and may differ from net investment
income and realized gains for financial reporting purposes.
Annual Report | 25
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. 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. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Realized and
unrealized gains and losses and net investment income, other than class specific
expenses, are allocated daily to each class of shares based upon the relative
proportion of net assets of each class.
E. 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.
F. REDEMPTION FEES
Effective June 1, 2004, redemptions and exchanges of Fund shares held five
trading days or less may be subject to the Fund's redemption fee, which is 2% of
the amount redeemed. Such fees are retained by the Fund and accounted for as
additional paid-in capital as noted in the Statement of Changes.
G. GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and trustees are
indemnified against certain liability 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
The Fund offers four classes of shares: Class A, Class B, Class C, and Advisor
Class. Each class of shares differs by its initial sales load, contingent
deferred sales charges, distribution fees, voting rights on matters affecting a
single class and its exchange privilege.
26 | Annual Report
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
At July 31, 2004, there were an unlimited number of shares authorized ($.10 par
value). Transactions in the Fund's shares were as follows:
------------------------------------------------------------------
YEAR ENDED YEAR ENDED
JULY 31, 2004 JULY 31, 2003
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------
CLASS A SHARES:
Shares sold 15,570,606 $ 267,648,705 16,656,770 $ 203,119,760
Shares issued in reinvestment of
distributions 100,150 1,994,995 184,327 2,003,492
Shares redeemed (13,225,965) (222,823,576) (14,078,537) (169,892,512)
------------------------------------------------------------------
Net increase (decrease) 2,444,791 $ 46,820,124 2,762,560 $ 35,230,740
------------------------------------------------------------------
CLASS B SHARES:
Shares sold 1,565,131 $ 26,340,327 1,491,869 $ 17,975,850
Shares issued in reinvestment of
distributions 5,064 98,800 10,078 107,837
Shares redeemed (1,093,974) (18,581,158) (633,983) (7,365,573)
------------------------------------------------------------------
Net increase (decrease) 476,221 $ 7,857,969 867,964 $ 10,718,114
------------------------------------------------------------------
CLASS C SHARES:
Shares sold 3,529,183 $ 60,071,858 2,475,924 $ 30,074,772
Shares issued in reinvestment of
distributions 9,916 195,334 18,783 202,855
Shares redeemed (1,877,614) (31,751,964) (1,410,209) (16,855,099)
------------------------------------------------------------------
Net increase (decrease) 1,661,485 $ 28,515,228 1,084,498 $ 13,422,528
------------------------------------------------------------------
ADVISOR CLASS SHARES:
Shares sold 1,648,203 $ 29,129,104 1,354,547 $ 16,005,126
Shares issued in reinvestment of
distributions 11,945 243,798 6,238 69,364
Shares redeemed (1,005,991) (16,331,341) (383,473) (4,831,050)
------------------------------------------------------------------
Net increase (decrease) 654,157 $ 13,041,561 977,312 $ 11,243,440
------------------------------------------------------------------
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Fund are also officers and/or directors of
the following entities:
- -------------------------------------------------------------------------------------------------------
ENTITY AFFILIATION
- -------------------------------------------------------------------------------------------------------
Franklin Advisers Inc. (Advisers) Investment manager
Franklin Templeton Services LLC (FT Services) Administrative manager
Franklin Templeton Distributors Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services LLC (Investor Services) Transfer agent
Annual Report | 27
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
The Fund pays an investment management fee to Advisers based on the net assets
of the Fund as follows:
- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE AVERAGE MONTHLY NET ASSETS
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% In excess of $250 million
Under an agreement with Advisers, FT Services provides administrative services
to the Fund. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Fund.
The Fund reimburses Distributors up to .25%, 1.00%, and 1.00% per year of the
average daily net assets of Class A, Class B, and Class C, respectively, for
costs incurred in marketing the Fund's shares under a Rule 12b-1 plan. Under the
distribution plan, costs exceeding the maximum for the current plan year cannot
be reimbursed in subsequent periods.
Distributors has advised the Fund of the following commission transactions
related to the sale of the Fund's shares for the period:
Commissions paid ................................................... $1,265,719
Sales charges received from ........................................ $ 325,797
Contingent deferred sales charges received ......................... $ 150,990
The Fund paid transfer agent fees of $1,015,296, of which $701,612 was paid to
Investor Services.
4. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the year ended July 31, 2004, the
custodian fees were reduced as noted in the Statement of Operations.
5. INCOME TAXES
At July 31, 2004, the net unrealized appreciation (depreciation) and
undistributed ordinary income based on the cost of investments for income tax
purposes was as follows:
Cost of investments ............................................ $441,987,030
-------------
Unrealized appreciation ........................................ $159,943,521
Unrealized depreciation ........................................ (32,452,365)
-------------
Net unrealized appreciation (depreciation) ..................... $127,491,156
-------------
Distributable earnings -- undistributed ordinary income ........ $ 310,439
-------------
28 | Annual Report
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The tax character of distributions paid during the years ended July 31, 2003 and
2004, was as follows:
----------------------------
2004 2003
----------------------------
Distributions paid from:
Ordinary income ......................... $2,901,854 $2,736,436
----------------------------
At July 31, 2004, the Fund had tax basis capital losses which may be carried
over to offset future capital gains. Such losses expire as follows:
Capital loss carryovers expiring in:
2007 ..................................................... $27,861,921
2008 ..................................................... 2,754,018
2009 ..................................................... 1,043,050
------------
$31,658,989
------------
At July 31, 2004, the Fund had deferred currency losses occurring subsequent to
October 31, 2003 of $116,518. For tax purposes, such losses will be reflected in
the year ending July 31, 2005.
Net investment income differs for financial statement and tax purposes primarily
due to differing treatment of foreign currency transactions.
Net realized losses differ for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions and wash sales.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term securities) for the
year ended July 31, 2004 aggregated $145,794,047 and $43,877,297, respectively.
7. INVESTMENTS IN THE 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 fees paid by the
Sweep Money Fund.
Annual Report | 29
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. RESTRICTED SECURITIES
At July 31, 2004, investments in securities included issues that are restricted
or illiquid. Restricted securities are often purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. A security may also be considered
illiquid if it lacks a readily available market or if its valuation has not
changed for a certain period of time. At July 31, 2004, the Fund held
investments in restricted and illiquid securities that were valued under
approved methods by the Board of Trustees, as follows:
- -------------------------------------------------------------------------------------------------------------------
NUMBER ACQUISITION
OF SHARES/WARRANTS ISSUER DATE COST VALUE
- -------------------------------------------------------------------------------------------------------------------
1,330,000 Miramar Mining Corp. .......................... 10/03/03 $2,548,786 $1,551,166
165,000 Miramar Mining Corp., wts., 6/09/05 ........... 12/05/03 17,537 --
3,000,000 Semafo Inc. ................................... 12/18/03 2,414,008 1,783,296
1,225,000 Semafo Inc., 12/18/06 ......................... 12/18/03 21,630 48,853
-----------------------------
TOTAL RESTRICTED SECURITIES (.6% OF NET ASSETS) ................... $5,001,961 $3,383,315
-----------------------------
9. REGULATORY MATTERS
MASSACHUSETTS ADMINISTRATIVE PROCEEDING
On February 4, 2004, the Securities Division of the Office of the Secretary of
the Commonwealth of Massachusetts filed an administrative complaint against
Franklin Resources, Inc. and certain of its subsidiaries (the "Company")
claiming violations of the Massachusetts Uniform Securities Act ("Massachusetts
Act") with respect to an alleged arrangement to permit market timing (the "Mass.
Proceeding"). On February 17, 2004, the Company filed an answer denying all
violations of the Massachusetts Act.
U.S. SECURITIES AND EXCHANGE COMMISSION (SEC) SETTLEMENT
On August 2, 2004, the Company announced that an agreement had been reached by
the Trust's investment manager with the SEC that resolved the issues resulting
from the SEC's investigation of market timing activity. The SEC issued an "order
instituting administrative and cease-and-desist proceedings pursuant to sections
203(e) and 203(k) of the Investment Advisers Act of 1940 and sections 9(b) and
9(f) of the Investment Company Act of 1940, making findings and imposing
remedial sanctions and a cease and desist order" (the "Order"). The SEC's Order
concerns the activities of a limited number of third parties that ended in 2000
and those that are the subject of the Mass. Proceeding described above.
30 | Annual Report
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. REGULATORY MATTERS (CONTINUED)
U.S. SECURITIES AND EXCHANGE COMMISSION (SEC) SETTLEMENT (CONTINUED)
Under the terms of the SEC's Order, pursuant to which the Trust's investment
manager neither admits nor denies any wrongdoing, the Trust's investment manager
has agreed to pay $50 million, of which $20 million is a civil penalty, to be
distributed to certain fund shareholders in accordance with a plan to be
developed by an Independent Distribution Consultant. At this time, it is unclear
whether shareholders of all funds will receive distributions or whether all
shareholders of any particular fund will receive distributions. The SEC Order
also requires the Trust's investment manager to, among other things, enhance and
periodically review compliance policies and procedures.
OTHER GOVERNMENTAL INVESTIGATIONS
As part of ongoing investigations by the SEC, the U.S. Attorney for the Northern
District of California, the New York Attorney General, the California Attorney
General, the U.S. Attorney for the District of Massachusetts, the Florida
Department of Financial Services and the Commissioner of Securities, the West
Virginia Attorney General, the Vermont Department of Banking, Insurance,
Securities, and Health Care Administration and the National Association of
Securities Dealers, relating to certain practices in the mutual fund industry,
including late trading, market timing and payments to securities dealers who
sell fund shares, the Company and its subsidiaries, as well as certain current
or former executives and employees of the Company, have received requests for
information and/or subpoenas to testify or produce documents. The Company has
been providing documents and information in response to these requests and
subpoenas. In addition, the Company has responded to requests for similar kinds
of information from regulatory authorities in some of the foreign countries
where the Company conducts its global asset management business.
The Staff of the SEC has also informed the Company that it is considering
recommending a civil action or proceeding against the Trust's investment manager
and the Trust's principal underwriter concerning payments to securities dealers
who sell fund shares (commonly referred to as "revenue sharing"). The staff of
the California Attorney General's Office (CAGO) also has advised the Company
that it is authorized to bring a civil action against Franklin Resources, Inc.
and the Trust's principal underwriter arising from the same events. Even though
the Company currently believes that the charges the SEC staff and CAGO staff are
contemplating are unwarranted, it also believes that it is in the best interest
of the Company and fund shareholders to resolve these issues voluntarily, to the
extent the Company can reasonably do so.
Annual Report | 31
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. REGULATORY MATTERS (CONTINUED)
OTHER LEGAL PROCEEDINGS
The Trust, in addition to other entities within Franklin Templeton Investments,
including the Company and certain of its subsidiaries, other funds, and current
and former officers, employees, and directors have been named in multiple
lawsuits in different federal courts in Nevada, California, Illinois, New York
and Florida, alleging violations of various federal securities laws and seeking,
among other things, monetary damages and costs. Specifically, the lawsuits claim
breach of duty with respect to alleged arrangements to permit market timing
and/or late trading activity, or breach of duty with respect to the valuation of
the portfolio securities of certain funds managed by Company subsidiaries,
resulting in alleged market timing activity. The majority of these lawsuits
duplicate, in whole or in part, the allegations asserted in the Mass. Proceeding
detailed above. The lawsuits are styled as class actions or derivative actions
on behalf of either the named funds or the Company.
In addition, the Company and certain of its subsidiaries, as well as certain
current and former officers, employees, and directors have been named in
multiple lawsuits alleging violations of various securities laws and pendent
state law claims relating to the disclosure of directed brokerage payments
and/or payment of allegedly excessive commissions and advisory fees. These
lawsuits are styled as class actions and derivative actions.
The Company's management strongly believes that the claims made in each of these
lawsuits are without merit and intends to vigorously defend against them.
The Company cannot predict with certainty the eventual outcome of the foregoing
Mass. Proceeding, other governmental investigations or other legal proceedings.
The impact, if any, of these matters on the Trust is uncertain at this time. If
the Company determines that it bears responsibility for any unlawful or
inappropriate conduct that caused losses to the Trust, it is committed to making
the Trust or its shareholders whole, as appropriate.
32 | Annual Report
Franklin Gold and Precious Metals Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE TRUSTEES AND SHAREHOLDERS OF FRANKLIN GOLD AND PRECIOUS METALS FUND
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Gold and Precious Metals
Fund (the "Fund") at July 31, 2004, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at July 31, 2004 by correspondence with the
custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
September 9, 2004
Annual Report | 33
Franklin Gold and Precious Metals Fund
TAX DESIGNATION (UNAUDITED)
Under Section 854(b)(2) of the Internal Revenue Code (Code), the Fund hereby
designates up to a maximum of $6,984,736 as qualified dividends for purposes of
the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended
July 31, 2004. In January 2005, shareholders will receive Form 1099-DIV which
will include their share of qualified dividends distributed during the calendar
year 2004. Shareholders are advised to check with their tax advisors for
information on the treatment of these amounts on their individual income tax
returns.
Under Section 854(b)(2) of the Code, the Fund hereby designates 26.59% of the
ordinary income dividends as income qualifying for the dividends received
deduction for the fiscal year ended July 31, 2004.
At July 31, 2004, more than 50% of the Franklin Gold and Precious Metals Fund
total assets were invested in securities of foreign issuers. In most instances,
foreign taxes were withheld from dividends paid to the Fund on these
investments. The Fund elects to treat foreign taxes paid under Section 853 of
the Internal Revenue Code. This election will allow shareholders of record in
December 2004, to treat their proportionate share of foreign taxes paid by the
Fund as having been paid directly by them. The shareholder shall consider these
amounts as foreign taxes paid in the tax year in which they receive the Fund
distribution.
The foreign tax information will be disclosed in the January 31, 2005
semi-annual report of the Fund. In addition, in January 2005, shareholders will
receive Form 1099-DIV which will include their share of taxes withheld and
foreign source income distributed during the calendar year 2004.
34 | Annual Report
Board Members and Officers
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the Fund, principal occupations during the
past five years and number of portfolios overseen in the Franklin Templeton
Investments fund complex are shown below. Each board member will serve until
that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- -------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -------------------------------------------------------------------------------------------------------------------
FRANK H. ABBOTT, III (83) Trustee Since 1968 111 None
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Director, Abbott Corporation (an investment company).
- ------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (72) Trustee Since 1982 140 Director, Bar-S Foods
One Franklin Parkway (meat packing company).
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002);
and President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft
centers) (until 1998).
- ------------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (72) Trustee Since 1989 141 None
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch.
- ------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (52) Trustee Since 2003 96 Director, Amerada Hess
One Franklin Parkway Corporation (exploration
San Mateo, CA 94403-1906 and refining of oil and
gas); H.J. Heinz Company
(processed foods and
allied products); RTI
International Metals,
Inc. (manufacture and
distribution of
titanium); and Canadian
National Railway
(railroad).
------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United
States and Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department
(1989-1990); and Counselor to the Secretary and Assistant Secretary for Public Affairs and Public Liaison-United
States Treasury Department (1988-1989).
------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (75) Trustee Since 1968 113 Director, The California
One Franklin Parkway Center for Land
San Mateo, CA 94403-1906 Recycling
(redevelopment).
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company
(venture capital).
- ------------------------------------------------------------------------------------------------------------------
Annual Report | 35
- -------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (76) Trustee Since 1997 140 Director, White
One Franklin Parkway Mountains Insurance
San Mateo, CA 94403-1906 Group, Ltd. (holding
company); Martek
Biosciences Corporation;
MedImmune, Inc.
(biotechnology); and
Overstock.com (Internet
services); and FORMERLY,
Director, MCI
Communication
Corporation
(subsequently known as
MCI WorldCom, Inc. and
WorldCom, Inc.)
(communications
services) (1988-2002)
and Spacehab, Inc.
(aerospace services)
(1994-2003).
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company); and FORMERLY, Chairman, White River
Corporation (financial services) (1993-1998) and Hambrecht & Quist Group (investment banking) (1987-1992); and
President, National Association of Securities Dealers, Inc. (1970-1987).
- ------------------------------------------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
- -------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -------------------------------------------------------------------------------------------------------------------
**HARMON E. BURNS (59) Trustee and Trustee since 36 None
One Franklin Parkway Vice President 1993 and
San Mateo, CA 94403-1906 Vice President
since 1986
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and
Director, Franklin Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Director,
Franklin Investment Advisory Services, Inc.; and officer and/or director or trustee, as the case may be, of
some of the other subsidiaries of Franklin Resources, Inc. and of 49 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (71) Trustee and Trustee since 140 None
One Franklin Parkway Chairman of 1976 and
San Mateo, CA 94403-1906 the Board Chairman of
the Board
since 1993
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President,
Franklin Templeton Distributors, Inc.; Director, Fiduciary Trust Company International; and officer and/or
director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 46
of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------
36 | Annual Report
- -------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (63) Trustee, Trustee since 123 None
One Franklin Parkway President 1982, President
San Mateo, CA 94403-1906 and Chief since 2001
Executive and Chief
Officer - Executive
Investment Officer -
Management Investment
Management
since 2002
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and
Director, Franklin Templeton Distributors, Inc.; Director, Franklin Advisers, Inc. and Franklin Investment
Advisory Services, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or
trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 49 of the
investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (52) Chief Since July 2004 Not Applicable None
One Franklin Parkway Compliance
San Mateo, CA 94403-1906 Officer
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 51 of the investment companies in Franklin Templeton Investments; Director, Global Compliance,
Franklin Resources, Inc., and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001).
- ------------------------------------------------------------------------------------------------------------------
LAURA FERGERSON (42) Treasurer Since July 2004 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 34 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director and member of
Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the investment
companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
- ------------------------------------------------------------------------------------------------------------------
MARTIN L. FLANAGAN (44) Vice President Since 1995 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Co-President and Chief Executive Officer, Franklin Resources, Inc.; Senior Vice President and Chief Financial
Officer, Franklin Mutual Advisers, LLC; Executive Vice President, Chief Financial Officer and Director, Templeton
Worldwide, Inc.; Executive Vice President and Chief Operating Officer, Templeton Investment Counsel, LLC;
President and Director, Franklin Advisers, Inc.; Executive Vice President, Franklin Investment Advisory Services,
Inc. and Franklin Templeton Investor Services, LLC; Chief Financial Officer, Franklin Advisory Services, LLC;
Chairman, Franklin Templeton Services, LLC; and officer and/or director or trustee, as the case may be, of some
of the other subsidiaries of Franklin Resources, Inc. and of 49 of the investment companies in Franklin Templeton
Investments.
- ------------------------------------------------------------------------------------------------------------------
Annual Report | 37
- -------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (56) Senior Vice Since 2002 Not Applicable None
500 East Broward Blvd. President
Suite 2100 and Chief
Fort Lauderdale, FL Executive
33394-3091 Officer -
Finance and
Administration
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of
51 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (57) Vice President Since 2000 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Resources, Inc.; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; officer of 51 of the investment companies in Franklin Templeton Investments; and FORMERLY,
President, Chief Executive Officer and Director, Property Resources Equity Trust (until 1999) and Franklin Select
Realty Trust (until 2000).
- ------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (56) Vice President Since 2000 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice
President, Templeton Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC,
Franklin Investment Advisory Services, Inc., Franklin Mutual Advisers, LLC, Franklin Templeton Alternative
Strategies, Inc., Franklin Templeton Investor Services, LLC, Franklin Templeton Services, LLC, Franklin
Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin Investment Services,
Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 51 of the investment
companies in Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of Investment Management,
Executive Assistant and Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel and Attorney
Fellow, U.S. Securities and Exchange Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and
Judicial Clerk, U.S. District Court (District of Massachusetts) (until 1979).
- ------------------------------------------------------------------------------------------------------------------
MICHAEL O. MAGDOL (67) Vice President Since 2002 Not Applicable Director, FTI Banque,
600 Fifth Avenue - AML Arch Chemicals, Inc. and
Rockefeller Center Compliance Lingnan Foundation.
New York, NY 10020-2302
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Chief Banking Officer and Director, Fiduciary Trust Company International; and officer and/or
director, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 48 of the
investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------
38 | Annual Report
- -------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -------------------------------------------------------------------------------------------------------------------
MURRAY L. SIMPSON (67) Vice President Since 2000 Not Applicable None
One Franklin Parkway and Secretary
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President and General Counsel, Franklin Resources, Inc.; officer and/or director, as the case
may be, of some of the subsidiaries of Franklin Resources, Inc. and of 51 of the investment companies in
Franklin Templeton Investments; and FORMERLY, Chief Executive Officer and Managing Director, Templeton Franklin
Investment Services (Asia) Limited (until 2000); and Director, Templeton Asset Management Ltd. (until 1999).
- ------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (52) Chief Since May 2004 Not Applicable None
500 East Broward Blvd. Financial
Suite 2100 Officer
Fort Lauderdale, FL
33394-3091
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 51 of the investment companies in Franklin Templeton Investments; Senior Vice President, Franklin
Templeton Services, LLC; and formerly, Managing Director, RSM McGladrey, Inc.; and Partner, McGladrey & Pullen,
LLP.
- ------------------------------------------------------------------------------------------------------------------
*We base the number of portfolios on each separate series of the U.S. registered
investment companies within the Franklin Templeton Investments fund complex.
These portfolios have a common investment adviser or affiliated investment
advisers.
**Charles B. Johnson and Rupert H. Johnson, Jr. are considered to be interested
persons of the Fund under the federal securities laws due to their positions as
officers and directors and major shareholders of Franklin Resources, Inc.
(Resources), which is the parent company of the Fund's adviser and distributor.
Harmon E. Burns is considered to be an interested person of the Fund under the
federal securities laws due to his position as officer and director Resources.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF TRUSTEES HAS DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED FRANK W.T. LAHAYE AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. LAHAYE QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE
BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS PRESIDENT AND DIRECTOR
OF MCCORMICK SELPH ASSOCIATES FROM 1954 THROUGH 1965; DIRECTOR AND CHAIRMAN OF
TELEDYNE CANADA LTD. FROM 1966 THROUGH 1971; DIRECTOR AND CHAIRMAN OF
QUARTERDECK CORPORATION FROM 1982 THROUGH 1998; AND SERVICES AS A DIRECTOR OF
VARIOUS OTHER PUBLIC COMPANIES INCLUDING U.S. TELEPHONE INC. (1981-1984), FISHER
IMAGING INC. (1991-1998) AND DIGITAL TRANSMISSIONS SYSTEMS (1995-1999). IN
ADDITION, MR. LAHAYE SERVED FROM 1981 TO 2000 AS A DIRECTOR AND CHAIRMAN OF
PEREGRINE VENTURE MANAGEMENT CO., A VENTURE CAPITAL FIRM, AND HAS BEEN A MEMBER
AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE ITS INCEPTION. AS A RESULT OF
SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. LAHAYE
HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION
WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND
EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY
OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN
UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN
UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. LAHAYE IS AN INDEPENDENT TRUSTEE
AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION
RULES AND RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
Annual Report | 39
Franklin Gold and Precious Metals Fund
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 1-954/847-2268 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 Securities and Exchange Commission's
website at sec.gov and reflect the 12-month period beginning July 1, 2003, and
ending June 30, 2004.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the 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.
40 | Annual Report
Literature Request
For a brochure and prospectus, which contains more complete information,
including charges, expenses and risks, call Franklin Templeton Investments at
1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before
investing or sending money. 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 China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund
GLOBAL
Franklin Global Aggressive Growth Fund Franklin Global Growth Fund Mutual
Discovery Fund Templeton Capital Accumulator 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 Small Cap Value
Fund Mutual Beacon Fund Mutual Qualified Fund Mutual Recovery Fund 3 Mutual
Shares Fund
BLEND
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund 4
SECTOR
Franklin Biotechnology Discovery Fund Franklin DynaTech Fund Franklin Global
Communications Fund Franklin Global Health Care Fund Franklin Gold and Precious
Metals Fund Franklin Natural Resources Fund Franklin Real Estate Securities Fund
Franklin Utilities Fund Franklin Technology Fund Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
TARGET FUNDS
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund 5
Franklin's AGE High Income Fund
Franklin Federal Money Fund 5, 6
Franklin Floating Rate Daily Access Fund
Franklin Floating Rate Trust 3
Franklin Income Fund
Franklin Money Fund 5, 6
Franklin Short-Intermediate U.S. Government Securities Fund 5
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 5
Templeton Global Bond Fund
TAX-FREE INCOME 7
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 8
Tax-Exempt Money Fund 5, 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 7
Alabama
Arizona
California 9
Colorado
Connecticut
Florida 9
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 8
Michigan 8
Minnesota 8
Missouri
New Jersey
New York 9
North Carolina
Ohio 8
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance
Products Trust 10
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 as well as 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.Upon reaching approximately $350 million in assets, the fund intends to close
to all investors.
5.An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
6.No assurance exists that the fund's $1.00 per share price will be maintained.
It is possible to lose money by investing in the fund.
7.For investors subject to the alternative minimum tax, a small portion of fund
dividends may be taxable. Distributions of capital gains are generally taxable.
8.Portfolio of insured municipal securities.
9.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).
10.The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
02/04 Not part of the annual report
[LOGO OMITTED]
FRANKLIN(R) TEMPLETON(R)
INVESTMENTS
One Franklin Parkway
San Mateo, CA 94403-1906
WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at franklintempleton.com. See
inside for details.
ANNUAL REPORT AND SHAREHOLDER LETTER
Franklin Gold and
Precious Metals Fund
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
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.
132 A2004 09/04
Item 2. Code of Ethics.
(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 11(A), 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.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the
principal accountant in connection with statutory and regulatory filings or
engagements were $43,061 for the fiscal year ended July 31, 2004 and $26,569
for the fiscal year ended July 31, 2003.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's
financial statements and are not reported under paragraph (a) of Item 4.
The aggregate fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control
with the investment adviser that provides ongoing services to the registrant
that are reasonably related to the performance of the audit of the their
financial statements were $48,134 for the fiscal year ended July 31, 2004 and
$0 for the fiscal year ended July 31, 2003. The services for which these
fees were paid included attestation services.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance,
tax advice and tax.
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser
and any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $253 for the fiscal year ended July 31,
2004 and $0 for the fiscal year ended July 31, 2003. The services for which
these fees were paid included review of materials provided to the fund Board
in connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser
and any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant not
reported in paragraphs (a)-(c) of Item 4 were $99,747 for the fiscal year
ended July 31, 2004 and $12,972 for the fiscal year ended July 31, 2003. The
services for which these fees were paid included review of materials provided
to the fund Board in connection with the investment management contract
renewal process, subscription fees and a review of an ICI transfer agent
survey.
(e) (1) The registrant's audit committee is directly responsible for
approving the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to
the Fund by the auditors;
(iii)pre-approval of all non-audit related services to be provided to
the registrant by the auditors to the registrant's investment adviser or to
any entity that controls, is controlled by or is under common control with
the registrant's investment adviser and that provides ongoing services to the
registrant where the non-audit services relate directly to the operations or
financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a
designated member or members of the committee; provided the policies and
procedures are detailed as to the particular service and the committee is
informed of each service and such policies and procedures do not include
delegation of audit committee responsibilities, as contemplated under the
Securities Exchange Act of 1934, to management; subject, in the case of (ii)
through (iv), to any waivers, exceptions or exemptions that may be available
under applicable law or rules.
(e) (2) None of the services provided to the registrant described in
paragraphs (b)-(d) of Item 4 were pre-approved by the audit committee
pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for
services rendered by the principal accountant to the registrant and the
registrant's investment adviser and any entity controlling, controlled by or
under common control with the investment adviser that provides ongoing
services to the registrant were $148,134 for the fiscal year ended July 31,
2004 and $12,972 for the fiscal year ended July 31, 2003.
(h) No disclosures are required by this Item 4(h).
Item 5. Audit Committee of Listed Registrants. N/A
Item 6. Schedule of Investments. N/A
Item 7. Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies. N/A
Item 8. Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers. N/A
Item 9. 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 10. 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 11. Exhibits.
(A) Code of Ethics
(B) (1) 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) (2) 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 GOLD AND PRECIOUS METALS FUND
By /s/Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date September 30, 2004
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
Chief Executive Officer - Finance and Administration
Date September 30, 2004
By /s/Galen G. Vetter
Chief Financial Officer
Date September 30, 2004