UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-01700
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FRANKLIN GOLD AND PRECIOUS METALS
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(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
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(Name and address of agent for service)
Registrant's telephone number, including area code: 650 312-2000
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Date of fiscal year end: 07/31
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Date of reporting period: 1/31/05
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ITEM 1. REPORTS TO STOCKHOLDERS.
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JANUARY 31, 2005
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SEMIANNUAL REPORT AND SHAREHOLDER LETTER SECTOR
WANT TO RECEIVE
THIS DOCUMENT
FASTER VIA EMAIL?
FRANKLIN GOLD AND
PRECIOUS METALS FUND Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
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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.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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Not part of the semiannual report
Contents
SHAREHOLDER LETTER ...................... 1
SEMIANNUAL REPORT
Franklin Gold and Precious Metals Fund .. 3
Performance Summary ..................... 8
Your Fund's Expenses .................... 11
Financial Highlights and
Statement of Investments ................ 13
Financial Statements .................... 19
Notes to Financial Statements ........... 23
Tax Designation ......................... 33
Shareholder Information ................. 35
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Semiannual Report
Franklin Gold and Precious Metals Fund
YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin Gold and Precious Metals Fund
seeks capital appreciation with current income as its 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.
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GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets as of 1/31/05
Canada .............................. 42.9%
South Africa ........................ 21.4%
U.S. ................................ 11.7%
Australia ........................... 10.7%
Peru ................................ 3.8%
U.K. ................................ 2.9%
Jersey Islands ...................... 2.4%
Papua New Guinea .................... 1.3%
Short-Term Investments &
Other Net Assets .................... 2.9%
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[SIDEBAR]
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PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL
1-800/342-5236 FOR MOST RECENT MONTH-END PERFORMANCE.
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We are pleased to bring you Franklin Gold and Precious Metals Fund's semiannual
report for the six-month period ended January 31, 2005.
PERFORMANCE OVERVIEW
Franklin Gold and Precious Metals Fund - Class A delivered a +8.76% cumulative
total return for the six months ended January 31, 2005, as shown in the
Performance Summary beginning on page 8. The Fund outperformed the broad
Standard & Poor's 500 Composite Index's (S&P 500's) 8.15% total return, and the
sector-specific FTSE Gold Mines Index's 7.51% price return during the same
period. 1 You can find the Fund's long-term performance data in the Performance
Summary beginning on page 8.
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. The indexes are unmanaged. 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 17.
Semiannual Report |3
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PORTFOLIO BREAKDOWN
Based on Total Net Assets as of 1/31/05
Long Life Gold Mines 56.3%
Medium Life Gold Mines 14.5%
Platinum & Palladium 10.6%
Gold & Diversified Resources 9.4%
Gold Exploration 5.1%
Mutual Funds 1.2%
Short-Term Investments & Other Net Assets 2.9%
ECONOMIC AND MARKET OVERVIEW
During the six months ended January 31, 2005, the domestic economy expanded
steadily across most industries, sectors and regions. Gross domestic product
(GDP) rose at annualized rates of 4.0% and 3.8% during the third and fourth
quarters of 2004. Major contributors to GDP during fourth quarter 2004 were
personal spending, capital equipment spending, inventory investment and
government spending. However, the trade deficit dragged on economic growth as
the real deficit widened to an annualized $631.9 billion in fourth quarter 2004,
from $583.2 billion in the third quarter. 2
The labor market firmed and unemployment dropped from 5.5% to 5.2% during the
reporting period. 3 An improving business and employment environment contributed
to increased consumer confidence. However, consumers still held an uncertain
outlook for future income and business conditions.
The core inflation rate rose to 2.3% for the 12 months ended January 31, 2005.
Including volatile food and energy costs, the inflation rate was 3.0%. Aiming to
keep inflation tame, the Federal Reserve Board (Fed) raised the federal funds
target rate from 1.25% to 2.25%, the highest level in more than three years. The
Fed said it will respond to changes in economic prospects as needed to fulfill
its obligation to maintain price stability.
Despite a generally robust economy and improving corporate fundamentals,
investors had to digest a wide range of information during the six-month period,
including rising inflation, the dollar's value, a contentious presidential
election and ongoing concerns about terrorism, war and reconstruction in Iraq.
Disappointing earnings from a number of blue chip companies applied downward
pressure, but initial public offering (IPO) activity was strong, and investor
sentiment improved later in the period despite the mixed signals. After U.S.
elections concluded, the markets enjoyed a strong rally. The blue chip stocks of
the Dow Jones Industrial Average gained 4.57% for the period under review, while
the broader S&P 500 rose 8.15%, and the technology-heavy NASDAQ Composite Index
increased 9.60%. 4
2. Source: Bureau of Economic Analysis.
3. Source: Bureau of Labor Statistics.
4. Source: Standard & Poor's Micropal. The Dow Jones Industrial Average is price
weighted based on the average market price of 30 blue chip stocks of companies
that are generally industry leaders. 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| Semiannual Report
PRECIOUS METALS PRICES (8/1/04-1/31/05) 5
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[The following is an EDGAR representation of Precious Metals prices for
platinum, palladium and gold in U.S. dollars per troy ounce, between 8/1/05 and
1/31/05.]
GOLD PALLADIUM PLATINUM
08/02/04 $392.15 $217.50 $827.50
08/03/04 $394.05 $215.50 $825.50
08/04/04 $391.65 $215.50 $834.00
08/05/04 $392.85 $211.50 $827.50
08/06/04 $399.75 $213.50 $828.50
08/09/04 $400.25 $214.00 $833.00
08/10/04 $398.65 $215.50 $847.50
08/11/04 $395.45 $212.50 $836.50
08/12/04 $393.75 $211.00 $849.25
08/13/04 $398.95 $211.00 $863.50
08/16/04 $402.25 $214.50 $883.50
08/17/04 $405.05 $216.50 $881.00
08/18/04 $404.55 $217.50 $860.00
08/19/04 $406.65 $221.00 $863.50
08/20/04 $412.75 $222.50 $853.00
08/23/04 $409.95 $219.00 $836.50
08/24/04 $403.15 $215.50 $845.00
08/25/04 $406.55 $213.50 $849.50
08/26/04 $406.55 $215.50 $855.50
08/27/04 $403.25 $212.50 $864.50
08/30/04 $408.05 $214.50 $864.50
08/31/04 $409.85 $214.50 $865.50
09/01/04 $408.85 $214.50 $869.50
09/02/04 $406.35 $213.00 $870.00
09/03/04 $401.05 $212.00 $860.00
09/06/04 $402.55 $213.50 $848.50
09/07/04 $397.75 $209.50 $845.50
09/08/04 $399.65 $207.50 $845.50
09/09/04 $398.95 $207.00 $828.50
09/10/04 $402.75 $205.25 $835.75
09/13/04 $403.95 $209.50 $842.50
09/14/04 $405.42 $210.50 $845.50
09/15/04 $405.15 $209.00 $845.50
09/16/04 $404.52 $208.00 $838.50
09/17/04 $405.65 $208.50 $839.50
09/20/04 $405.05 $206.50 $835.00
09/21/04 $409.25 $209.00 $850.00
09/22/04 $407.35 $207.50 $844.00
09/23/04 $410.13 $213.00 $850.00
09/24/04 $407.83 $221.00 $852.50
09/27/04 $408.63 $225.00 $857.00
09/28/04 $412.25 $221.00 $873.00
09/29/04 $412.95 $217.50 $849.50
09/30/04 $418.25 $221.50 $860.50
10/01/04 $419.47 $221.50 $859.50
10/04/04 $414.05 $217.00 $828.00
10/05/04 $418.75 $220.00 $839.50
10/06/04 $417.88 $224.00 $844.00
10/07/04 $417.65 $232.50 $841.00
10/08/04 $422.78 $232.50 $842.50
10/11/04 $422.05 $228.50 $847.50
10/12/04 $415.25 $222.50 $842.50
10/13/04 $416.25 $215.00 $832.50
10/14/04 $417.75 $217.50 $842.50
10/15/04 $418.80 $220.00 $846.46
10/18/04 $416.25 $215.50 $839.00
10/19/04 $419.85 $214.50 $838.00
10/20/04 $424.13 $216.00 $848.00
10/21/04 $423.75 $214.50 $848.50
10/22/04 $424.23 $215.50 $843.50
10/25/04 $428.45 $217.00 $849.00
10/26/04 $426.85 $215.00 $843.50
10/27/04 $424.25 $214.00 $835.50
10/28/04 $424.35 $214.50 $830.50
10/29/04 $428.55 $213.50 $834.50
11/01/04 $427.55 $209.00 $834.00
11/02/04 $421.55 $211.00 $824.45
11/03/04 $426.85 $209.50 $829.00
11/04/04 $429.55 $213.00 $847.50
11/05/04 $433.55 $214.00 $848.50
11/08/04 $431.95 $213.00 $847.00
11/09/04 $435.15 $213.50 $850.00
11/10/04 $434.55 $213.00 $847.50
11/11/04 $434.88 $210.75 $853.00
11/12/04 $437.85 $218.50 $874.00
11/15/04 $436.75 $217.50 $876.50
11/16/04 $439.45 $218.00 $866.50
11/17/04 $444.65 $220.00 $874.25
11/18/04 $442.95 $217.50 $860.00
11/19/04 $447.05 $218.50 $859.75
11/22/04 $448.94 $216.00 $853.00
11/23/04 $447.05 $217.00 $853.00
11/24/04 $449.55 $216.00 $861.25
11/25/04 $451.69 $216.00 $863.00
11/26/04 $451.95 $214.00 $864.50
11/29/04 $453.95 $211.50 $863.75
11/30/04 $450.95 $211.00 $868.25
12/01/04 $454.75 $211.00 $877.75
12/02/04 $449.25 $210.50 $881.75
12/03/04 $455.90 $206.50 $872.75
12/06/04 $452.25 $209.25 $872.75
12/07/04 $450.90 $208.50 $869.25
12/08/04 $440.60 $202.00 $832.25
12/09/04 $437.30 $195.50 $821.00
12/10/04 $434.20 $195.25 $832.25
12/13/04 $438.85 $194.50 $833.50
12/14/04 $435.60 $190.50 $833.75
12/15/04 $440.60 $185.00 $840.00
12/16/04 $437.20 $179.50 $842.25
12/17/04 $441.50 $179.50 $838.25
12/20/04 $442.99 $185.75 $843.25
12/21/04 $441.60 $182.50 $842.50
12/22/04 $439.70 $184.00 $842.00
12/23/04 $442.24 $185.00 $843.25
12/24/04 $442.65 $182.50 $846.00
12/27/04 $444.35 $188.50 $867.50
12/28/04 $443.75 $187.50 $867.50
12/29/04 $436.45 $185.00 $865.00
12/30/04 $437.99 $186.00 $860.25
12/31/04 $438.45 $186.50 $861.50
01/03/05 $429.55 $184.50 $855.00
01/04/05 $427.55 $181.50 $844.00
01/05/05 $426.55 $182.00 $847.50
01/06/05 $421.40 $181.50 $845.50
01/07/05 $419.05 $183.00 $841.50
01/10/05 $419.63 $189.00 $848.00
01/11/05 $421.65 $192.50 $861.00
01/12/05 $426.15 $190.50 $861.50
01/13/05 $425.20 $186.75 $860.00
01/14/05 $423.15 $184.50 $855.50
01/17/05 $422.13 $183.50 $855.50
01/18/05 $423.05 $182.50 $860.00
01/19/05 $423.15 $188.00 $868.00
01/20/05 $422.35 $184.50 $862.50
01/21/05 $427.25 $189.00 $867.50
01/24/05 $427.35 $191.50 $872.00
01/25/05 $422.20 $190.50 $860.50
01/26/05 $426.80 $190.50 $867.50
01/27/05 $426.20 $188.75 $867.50
01/28/05 $427.00 $189.50 $871.50
01/31/05 $422.60 $188.50 $871.00
For illustrative purposes only; not representative of the Fund's portfolio
composition or performance.
The continued effects of war in Iraq, fears of further terrorist attacks at home
and abroad, and a considerably weakened U.S. dollar contributed to steady,
healthy demand in the gold market, underscoring its historical role as a safe
haven. Gold prices began the reporting period at $391 per ounce, strengthened
and hit a 16-year high of $456 per ounce in December, then sold off and closed
the period near $423 per ounce on January 31, 2005. Gold's sell-off in January
was influenced primarily by the U.S. dollar's reversal of fortune and subsequent
appreciation versus other world currencies, since gold prices usually rise or
fall inversely to the U.S. dollar's value. The value of other precious metals
varied. Silver prices charted a similar path as gold's, climbing more than 22%
from $6.54 on July 31, 2004, through early December, only to sell off through
January 2005 to end the reporting period at $6.72 per ounce, for an overall
increase of about 3%. Platinum prices remained relatively range bound largely
due to industry supply/demand trends that remained well balanced. Platinum
nonetheless rose approximately 6% for the six months under review. Palladium
prices were essentially flat through November, sold off like gold and silver in
late December and January, and ended the reporting period down just over 13%.
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
5. Amounts shown are based on spot prices quoted in U.S. dollars per troy ounce.
Semiannual Report |5
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
It was an active period for the precious metals sector, as the 16-year high for
gold prices appeared to spur a flurry of consolidation activity involving a
number of the Fund's holdings. The period began with South Africa's Gold Fields'
proposed merger of their non-South African assets with Canada's IAMGOLD,
designed to create an internationally focused mid-capitalization Canadian mining
company. However, this proposal was spoiled by Harmony Gold Mining's hostile bid
to acquire Gold Fields. By period-end, Harmony had only secured about 11% of
Gold Fields' voting shares but the offer was still outstanding. Similarly,
Canada's Goldcorp (not owned by the Fund) announced a friendly merger with
Wheaton River Minerals, only to have Nevada-based Glamis Gold launch a hostile
bid for Goldcorp. At period-end, it appeared likely that Goldcorp shareholders
would vote in mid-February to decide which deal would move forward.
The Fund's performance versus the benchmark FTSE Gold Mines Index was aided by
our large positions in Newcrest Mining and Barrick Gold. Newcrest's underlying
share price rose in part due to the anticipated start-up of its Telfer mine, a
$1.4 billion project located in Northwestern Australia that holds the potential
to dramatically increase Newcrest's production. Barrick Gold also outperformed
the index during the six months under review, partially influenced by an analyst
trip to South America that helped focus attention on Barrick's strong pipeline
of growth projects. Although they represented smaller positions in the portfolio
than Newcrest or Barrick, the Fund's investments in Meridian Gold, Randgold
Resources and Ivanhoe Mines nonetheless contributed positively to our results as
their stocks rose approximately 38%, 42% and 50%, respectively, during the six
months ended January 31, 2005.
In general, if the value of the U.S. dollar increases compared with a foreign
currency, holdings in that foreign currency will decrease in value because it
will be worth fewer U.S. dollars. This can have a negative effect on Fund
performance. Conversely, when the U.S. dollar weakens in relation to a foreign
currency, holdings in that foreign currency will increase in value, which can
contribute to Fund performance. For the six months ended January 31, 2005, the
U.S. dollar declined in value relative to most non-U.S. currencies. The Fund's
performance was positively affected by the portfolio's significant investment in
securities with non-U.S. currency exposure due to the U.S. dollar's decrease in
value during the period. However, one cannot expect the same result in future
periods.
6| Semiannual Report
Offsetting the currency gain, the weaker U.S. dollar can make it more expensive
to operate in foreign countries, hurting margins. Several of our South African
holdings detracted from the Fund's overall performance during the reporting
period as the strong rand environment drove operating costs higher in U.S.
dollar terms. Companies such as Anglo American Platinum and Harmony Gold Mining
struggled with lower margins despite strong metals prices. In December 2004, the
rand's value versus the U.S. dollar reached its highest level since 1999. The
rand weakened somewhat in January 2005, but not enough for South African miners
to surmount the challenges of recent currency trends.
Seeking to minimize exposure to any single mining operation, we maintained our
top positions among the industry's largest and most geographically diversified
companies. On the other hand, we also increased exposure to junior gold
companies that we believed held the potential to take advantage of the current
higher commodity price environment. New Fund holdings included two Canadian
companies, Alamos Gold and Gammon Lake Resources, both of which are building new
gold mines in Mexico.
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
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Stephen M. Land
Portfolio Manager
Franklin Gold and Precious Metals Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JANUARY 31, 2005, 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.
[SIDEBAR]
TOP 10 HOLDINGS
1/31/05
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COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------------------
Newcrest Mining Ltd. 8.5%
LONG LIFE GOLD MINES, AUSTRALIA
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Barrick Gold Corp. 7.8%
LONG LIFE GOLD MINES, CANADA
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Placer Dome Inc. 6.8%
LONG LIFE GOLD MINES, CANADA
- --------------------------------------------------------------
Freeport McMoRan Copper & Gold Inc., B 6.0%
GOLD & DIVERSIFIED RESOURCES, U.S.
- --------------------------------------------------------------
Impala Platinum Holdings Ltd.,
ord. & ADR 6.0%
PLATINUM & PALLADIUM, SOUTH AFRICA
- --------------------------------------------------------------
AngloGold Ashanti Ltd., ord. & ADR 5.8%
LONG LIFE GOLD MINES, SOUTH AFRICA
- --------------------------------------------------------------
Meridian Gold Inc. 5.5%
LONG LIFE GOLD MINES, CANADA
- --------------------------------------------------------------
Newmont Mining Corp. 5.2%
LONG LIFE GOLD MINES, U.S.
- --------------------------------------------------------------
Compania de Minas Buenaventura
SA, ord. & ADR 3.8%
LONG LIFE GOLD MINES, PERU
- --------------------------------------------------------------
Anglo American Platinum Corp. Ltd.,
ord. & ADR 3.6%
PLATINUM & PALLADIUM, SOUTH AFRICA
- --------------------------------------------------------------
Semiannual Report |7
Performance Summary as of 1/31/05
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 does 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 reinvestment of the Fund's dividends
and capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
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CLASS A CHANGE 1/31/05 7/31/04
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Net Asset Value (NAV) +$1.39 $17.33 $15.94
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DISTRIBUTIONS (8/1/04-1/31/05)
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Dividend Income $0.0078
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CLASS B CHANGE 1/31/05 7/31/04
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Net Asset Value (NAV) +$1.30 $16.84 $15.54
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CLASS C CHANGE 1/31/05 7/31/04
- -------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.31 $17.00 $15.69
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ADVISOR CLASS CHANGE 1/31/05 7/31/04
- -------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.41 $17.77 $16.36
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DISTRIBUTIONS (8/1/04-1/31/05)
- -------------------------------------------------------------------------------------------------------
Dividend Income $0.0519
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8| Semiannual 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.
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CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +8.76% -1.16% +104.21% +66.21%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +2.52% -6.84% +13.99% +4.59%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,252 $9,316 $19,242 $15,664
- -------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (12/31/04) 4 -10.92% +13.69% +3.51%
- -------------------------------------------------------------------------------------------------------
CLASS B 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/99)
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +8.37% -1.86% +96.54% +128.11%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +4.37% -5.79% +14.24% +14.51%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,437 $9,421 $19,454 $22,811
- -------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (12/31/04) 4 -9.91% +13.96% +15.77%
- -------------------------------------------------------------------------------------------------------
CLASS C 6-MONTH 1-YEAR 5-YEAR INCEPTION (5/1/95)
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +8.35% -1.85% +96.94% +31.69%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +7.35% -2.83% +14.52% +2.86%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,735 $9,717 $19,694 $13,169
- -------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (12/31/04) 4 -7.08% +14.24% +3.51%
- -------------------------------------------------------------------------------------------------------
ADVISOR CLASS5 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +8.90% -0.91% +106.57% +75.43%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +8.90% -0.91% +15.61% +5.78%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,890 $9,909 $20,657 $17,543
- -------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (12/31/04) 4 -5.23% +15.32% +4.69%
- -------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Semiannual Report |9
Performance Summary (CONTINUED)
ENDNOTES
INVESTING IN A NONDIVERSIFIED 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 THOSE 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.
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. Six-month return has not been annualized.
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 +49.63% and +5.92%.
10| Semiannual 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.
Semiannual Report |11
Your Fund's Expenses (CONTINUED)
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 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 7/31/04 VALUE 1/31/05 PERIOD* 7/31/04-1/31/05
- ---------------------------------------------------------------------------------------------------------
Actual $1,000 $1,087.60 $4.95
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,020.47 $4.79
- ---------------------------------------------------------------------------------------------------------
CLASS B
- ---------------------------------------------------------------------------------------------------------
Actual $1,000 $1,083.70 $8.82
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,016.74 $8.54
- ---------------------------------------------------------------------------------------------------------
CLASS C
- ---------------------------------------------------------------------------------------------------------
Actual $1,000 $1,083.50 $8.88
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,016.69 $8.59
- ---------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ---------------------------------------------------------------------------------------------------------
Actual $1,000 $1,089.00 $3.63
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.73 $3.52
- ---------------------------------------------------------------------------------------------------------
*Expenses are equal to the annualized expense ratio for each class (A: 0.94%; B:
1.68%; C: 1.69%; and Advisor: 0.69%), multiplied by the average account value
over the period, multiplied by 184/365 to reflect the one-half year period.
12| Semiannual Report
Franklin Gold and Precious Metals Fund
FINANCIAL HIGHLIGHTS
---------------------------------------------------------------------------
SIX MONTHS ENDED
JANUARY 31, 2005 YEAR ENDED JULY 31,
CLASS A (UNAUDITED) 2004 2003 2002 2001 2000
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $15.94 $13.74 $10.28 $ 8.88 $7.90 $8.30
---------------------------------------------------------------------------
Income from investment operations:
Net investment income a ......................... .03 .05 .13 .13 .25 .10
Net realized and unrealized gains (losses) ...... 1.37 2.25 3.44 1.52 .84 (.46)
---------------------------------------------------------------------------
Total from investment operations ................. 1.40 2.30 3.57 1.65 1.09 (.36)
---------------------------------------------------------------------------
Less distributions from net investment income .... (.01) (.10) (.11) (.25) (.11) (.04)
---------------------------------------------------------------------------
Redemption fees .................................. -- c -- c -- -- -- --
---------------------------------------------------------------------------
Net asset value, end of period ................... $17.33 $15.94 $13.74 $10.28 $8.88 $7.90
===========================================================================
Total return b ................................... 8.76% 16.68% 34.97% 18.97% 13.91% (4.42)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $414,794 $394,292 $306,283 $200,627 $164,004 $156,236
Ratios to average net assets:
Expenses ........................................ .94% d .96% 1.09% 1.13% 1.32% 1.34%
Net investment income ........................... .30% d .26% 1.05% 1.18% 2.86% 1.17%
Portfolio turnover rate .......................... 6.49% 8.11% 6.59% 12.77% 7.31% 3.53%
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c Amount is less than $0.001 per share.
d Annualized.
Semiannual Report | See notes to financial statements. |13
Franklin Gold and Precious Metals Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
---------------------------------------------------------------------------
SIX MONTHS ENDED
JANUARY 31, 2005 YEAR ENDED JULY 31,
CLASS B (UNAUDITED) 2004 2003 2002 2001 2000
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $15.54 $13.46 $10.11 $ 8.76 $7.82 $8.26
---------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) a .................. (.04) (.08) .02 .01 .17 .01
Net realized and unrealized gains (losses) ...... 1.34 2.21 3.41 1.55 .83 (.41)
---------------------------------------------------------------------------
Total from investment operations ................. 1.30 2.13 3.43 1.56 1.00 (.40)
---------------------------------------------------------------------------
Less distributions from net investment income .... -- (.05) (.08) (.21) (.06) (.04)
---------------------------------------------------------------------------
Redemption fees .................................. -- c -- c -- -- -- --
---------------------------------------------------------------------------
Net asset value, end of period ................... $16.84 $15.54 $13.46 $10.11 $8.76 $7.82
===========================================================================
Total return b ................................... 8.37% 15.81% 34.08% 18.14% 12.78% (4.90)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $41,325 $37,738 $26,278 $10,964 $4,037 $2,779
Ratios to average net assets:
Expenses ........................................ 1.68% d 1.71% 1.85% 1.89% 2.08% 2.10%
Net investment income (loss) .................... (.44)% d (.49)% .29% .12% 1.88% .17%
Portfolio turnover rate .......................... 6.49% 8.11% 6.59% 12.77% 7.31% 3.53%
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one
year.
c Amount is less than $0.001 per share.
d Annualized.
14| See notes to financial statements. | Semiannual Report
Franklin Gold and Precious Metals Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
---------------------------------------------------------------------------
SIX MONTHS ENDED
JANUARY 31, 2005 YEAR ENDED JULY 31,
CLASS C (UNAUDITED) 2004 2003 2002 2001 2000
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $15.69 $13.59 $10.18 $ 8.80 $7.83 $8.23
---------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) a .................. (.04) (.09) .04 .04 .18 .03
Net realized and unrealized gains (losses) ...... 1.35 2.23 3.43 1.53 .83 (.43)
---------------------------------------------------------------------------
Total from investment operations ................. 1.31 2.14 3.47 1.57 1.01 (.40)
---------------------------------------------------------------------------
Less distributions from net investment income .... -- (.04) (.06) (.19) (.04) -- e
---------------------------------------------------------------------------
Redemption fees .................................. -- c -- c -- -- -- --
---------------------------------------------------------------------------
Net asset value, end of period ................... $17.00 $15.69 $13.59 $10.18 $8.80 $7.83
===========================================================================
Total return b ................................... 8.35% 15.77% 34.16% 18.09% 12.89% (4.85)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $112,105 $101,962 $65,729 $38,219 $22,220 $20,721
Ratios to average net assets:
Expenses ........................................ 1.69% d 1.71% 1.82% 1.88% 2.07% 2.10%
Net investment income (loss) .................... (.45)% d (.49)% .32% .35% 2.11% .36%
Portfolio turnover rate .......................... 6.49% 8.11% 6.59% 12.77% 7.31% 3.53%
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c Amount is less than $0.001 per share.
d Annualized.
e Includes distributions from net investment income in the amount of $0.001.
Semiannual Report | See notes to financial statements. |15
Franklin Gold and Precious Metals Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
---------------------------------------------------------------------------
SIX MONTHS ENDED
JANUARY 31, 2005 YEAR ENDED JULY 31,
ADVISOR CLASS (UNAUDITED) 2004 2003 2002 2001 2000
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $16.36 $14.08 $10.53 $ 9.09 $8.09 $8.49
---------------------------------------------------------------------------
Income from investment operations:
Net investment income a ......................... .05 .08 .09 .15 .28 .11
Net realized and unrealized gains (losses) ...... 1.41 2.33 3.60 1.56 .85 (.46)
---------------------------------------------------------------------------
Total from investment operations ................. 1.46 2.41 3.69 1.71 1.13 (.35)
---------------------------------------------------------------------------
Less distributions from net investment income .... (.05) (.13) (.14) (.27) (.13) (.05)
---------------------------------------------------------------------------
Redemption fees .................................. -- c -- c -- -- -- --
---------------------------------------------------------------------------
Net asset value, end of period ................... $17.77 $16.36 $14.08 $10.53 $9.09 $8.09
===========================================================================
Total return b ................................... 8.90% 16.91% 35.38% 19.38% 14.04% (4.21)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $42,456 $35,351 $21,223 $5,573 $3,574 $3,715
Ratios to average net assets:
Expenses ........................................ .69% d .71% .85% .90% 1.08% 1.10%
Net investment income ........................... .55% d .51% 1.29% 1.29% 3.15% 1.24%
Portfolio turnover rate .......................... 6.49% 8.11% 6.59% 12.77% 7.31% 3.53%
a Based on average daily shares outstanding.
b Total return is not annualized for periods less than one year.
c Amount is less than $0.001 per share.
d Annualized.
16| See notes to financial statements. | Semiannual Report
Franklin Gold and Precious Metals Fund
STATEMENT OF INVESTMENTS, JANUARY 31, 2005 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES/WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS, WARRANTS AND MUTUAL FUNDS 97.1%
GOLD AND DIVERSIFIED RESOURCES 9.4%
Anglo American PLC ................................................. United Kingdom 256,100 $ 5,942,913
Anglo American PLC, ADR ............................................ United Kingdom 420,479 9,805,570
Freeport McMoRan Copper & Gold Inc., B ............................. United States 999,211 36,780,957
a Mvelaphanda Resources Ltd. ......................................... South Africa 2,250,000 5,033,389
a Sociedad Minera El Brocal SA ....................................... Peru 1,006 2,341
-------------
57,565,170
-------------
GOLD EXPLORATION 5.1%
a Alamos Gold Inc. ................................................... Canada 346,400 1,052,828
a Alamos Gold Inc., 144A ............................................. Canada 400,000 1,215,737
a Bendigo Mining Ltd. ................................................ Australia 4,000,000 2,790,178
a Gammon Lake Resources Inc., wts., 4/30/05 .......................... Canada 1,364,500 6,886,303
a Ivanhoe Mines Ltd. ................................................. Canada 1,628,600 10,726,912
a Ivanhoe Mines Ltd., wts., 12/19/05 ................................. Canada 159,300 115,584
a Metallica Resources Inc. ........................................... Canada 1,488,998 1,980,689
a Metallica Resources Inc., wts., 12/11/08 ........................... Canada 494,499 135,545
a,b Miramar Mining Corp. ............................................... Canada 1,330,000 1,468,961
a,b Miramar Mining Corp., wts., 6/09/05 ................................ Canada 165,000 --
a Nevsun Resources Ltd. .............................................. Canada 877,000 1,887,770
a,b Semafo Inc. ........................................................ Canada 3,000,000 2,781,361
a,b Semafo Inc., 144A, wts., 12/18/06 .................................. Canada 1,225,000 155,051
-------------
31,196,919
-------------
LONG LIFE GOLD MINES 56.3%
a Agnico-Eagle Mines Ltd. ............................................ Canada 525,000 6,688,500
AngloGold Ashanti Ltd. ............................................. South Africa 62,530 2,042,820
AngloGold Ashanti Ltd., ADR ........................................ South Africa 1,021,327 33,468,886
Barrick Gold Corp. ................................................. Canada 2,168,171 47,396,218
a Centerra Gold Inc., 144A ........................................... Canada 536,600 8,889,979
Compania de Minas Buenaventura SA .................................. Peru 100,593 2,159,392
Compania de Minas Buenaventura SA, ADR ............................. Peru 988,986 21,035,732
Gold Fields Ltd. ................................................... South Africa 604,999 6,908,503
Gold Fields Ltd., ADR .............................................. South Africa 854,528 9,673,257
Harmony Gold Mining Co. Ltd. ....................................... South Africa 1,343,000 11,053,406
Harmony Gold Mining Co. Ltd., ADR .................................. South Africa 200,000 1,626,000
Highland Gold Mining Ltd. .......................................... United Kingdom 524,000 1,998,644
a Lihir Gold Ltd. .................................................... Papua New Guinea 8,566,841 6,905,316
a Lihir Gold Ltd., ADR, 144A ......................................... Papua New Guinea 50,000 805,000
a Meridian Gold Inc. ................................................. Canada 1,835,260 33,870,969
Newcrest Mining Ltd. ............................................... Australia 3,930,828 51,913,837
Newmont Mining Corp. ............................................... United States 770,714 32,053,995
a Oxiana Ltd. ........................................................ Australia 9,882,655 6,893,593
Placer Dome Inc. ................................................... Canada 2,436,655 41,544,968
a Randgold Resources Ltd., ADR ....................................... Jersey Islands 1,272,600 14,774,886
a Western Areas Ltd. ................................................. South Africa 402,225 2,031,270
a Western Areas Ltd., ADR ............................................ South Africa 26,430 133,474
-------------
343,868,645
-------------
Semiannual Report |17
Franklin Gold and Precious Metals Fund
STATEMENT OF INVESTMENTS, JANUARY 31, 2005 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES/WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS, WARRANTS AND MUTUAL FUNDS (CONT.)
MEDIUM LIFE GOLD MINES 14.5%
a Apollo Gold Corp. .................................................. Canada 1,150,000 $ 732,425
a Cambior Inc. ....................................................... Canada 2,130,000 5,357,627
a Eldorado Gold Corp. ................................................ Canada 1,920,000 5,169,945
a Glamis Gold Ltd. ................................................... Canada 1,041,000 16,406,160
Iamgold Corp. ...................................................... Canada 1,017,400 6,725,798
Kingsgate Consolidated Ltd. ........................................ Australia 1,855,148 3,810,254
a Kinross Gold Corp. ................................................. Canada 2,458,012 16,308,803
a Northgate Minerals Corp. ........................................... Canada 1,300,000 1,855,047
a Queenstake Resources Ltd. .......................................... Canada 7,500,000 2,146,485
a Rio Narcea Gold Mines Ltd. ......................................... Canada 1,100,000 1,933,247
a Wheaton River Minerals Ltd. ........................................ Canada 5,000,000 16,238,046
a Wheaton River Minerals Ltd., wts., 5/30/07 ......................... Canada 912,500 1,794,986
a Yamana Gold Inc. ................................................... Canada 2,640,000 7,981,296
a Yamana Gold Inc., wts., 7/31/08 .................................... Canada 1,150,000 2,252,902
-------------
88,713,021
-------------
PLATINUM & PALLADIUM 10.6%
Anglo American Platinum Corp. Ltd. ................................. South Africa 40,000 1,439,132
Anglo American Platinum Corp. Ltd., ADR ............................ South Africa 571,138 20,548,573
Impala Platinum Holdings Ltd. ...................................... South Africa 248,000 20,684,608
Impala Platinum Holdings Ltd., ADR ................................. South Africa 771,200 16,080,614
a North American Palladium Ltd. ...................................... Canada 401,500 3,068,542
a Stillwater Mining Co. .............................................. United States 253,246 2,679,343
-------------
64,500,812
-------------
MUTUAL FUNDS 1.2%
Central Fund Canada- Class A ....................................... Canada 1,405,000 7,348,150
-------------
TOTAL COMMON STOCKS, WARRANTS AND MUTUAL FUNDS (COST $424,333,707) . 593,192,717
-------------
SHORT TERM INVESTMENTS (COST $17,324,671) 2.9%
MONEY FUND
c Franklin Institutional Fiduciary Trust Money Market Portfolio ...... United States 17,324,671 17,324,671
-------------
TOTAL INVESTMENTS (COST $441,658,378) 100.0% ....................... 610,517,388
OTHER ASSETS, LESS LIABILITIES ..................................... 162,026
-------------
NET ASSETS 100.0% .................................................. $610,679,414
=============
aNon-income producing.
bSee Note 8 regarding restricted securities.
cSee Note 7 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio.
18| See notes to financial statements. | Semiannual Report
Franklin Gold and Precious Metals Fund
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2005 (unaudited)
Assets:
Investments in securities:
Cost - Unaffiliated issuers ............................. $424,333,707
Cost - Sweep Money Fund (Note 7) ........................ 17,324,671
-------------
Total cost of investments ............................... 441,658,378
=============
Value - Unaffiliated issuers ............................ 593,192,717
Value - Sweep Money Fund (Note 7) ....................... 17,324,671
-------------
Total value of investments .............................. 610,517,388
Receivables:
Capital shares sold ..................................... 1,620,070
Dividends ............................................... 248,834
-------------
Total assets ............................................ 612,386,292
-------------
Liabilities:
Payables:
Capital shares redeemed ................................. 1,154,680
Affiliates .............................................. 531,027
Other liabilities ........................................ 21,171
-------------
Total liabilities ....................................... 1,706,878
-------------
Net assets, at value ................................ $610,679,414
=============
Net assets consist of:
Undistributed net investment income ...................... $ 416,480
Net unrealized appreciation (depreciation) ............... 168,859,010
Accumulated net realized gain (loss) ..................... (23,278,438)
Capital shares ........................................... 464,682,362
-------------
Net assets, at value ................................ $610,679,414
=============
Semiannual Report| See notes to financial statements. |19
Franklin Gold and Precious Metals Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
January 31, 2005 (unaudited)
CLASS A:
Net assets, at value .......................................................... $414,793,504
=============
Shares outstanding ............................................................ 23,928,654
=============
Net asset value per share a ................................................... $17.33
=============
Maximum offering price per share (net asset value per share / 94.25%) ......... $18.39
=============
CLASS B:
Net assets, at value .......................................................... $ 41,325,175
=============
Shares outstanding ............................................................ 2,454,297
=============
Net asset value and maximum offering price per share a ........................ $16.84
=============
CLASS C:
Net assets, at value .......................................................... $112,104,858
=============
Shares outstanding ............................................................ 6,594,469
=============
Net asset value and maximum offering price per share a ........................ $17.00
=============
ADVISOR CLASS:
Net assets, at value .......................................................... $ 42,455,877
=============
Shares outstanding ............................................................ 2,389,062
=============
Net asset value and maximum offering price per share a ........................ $17.77
=============
aRedemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.
20| See notes to financial statements. | Semiannual Report
Franklin Gold and Precious Metals Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the six months ended January 31, 2005 (unaudited)
Investment income:
Dividends (net of foreign taxes of $90,876)
Unaffiliated issuers .................................. $ 3,830,000
Sweep Money Fund (Note 7) ............................. 152,694
-------------
Total investment income ........................... 3,982,694
-------------
Expenses:
Management fees (Note 3) ............................... 1,562,827
Distribution fees (Note 3)
Class A ............................................... 551,113
Class B ............................................... 214,883
Class C ............................................... 580,722
Transfer agent fees (Note 3) ........................... 511,185
Custodian fees (Note 4) ................................ 33,223
Reports to shareholders ................................ 27,493
Registration and filing fees ........................... 45,245
Professional fees ...................................... 21,808
Trustees' fees and expenses ............................ 8,409
Other .................................................. 8,501
-------------
Total expenses .................................... 3,565,409
Expense reductions (Note 4) ....................... (42)
-------------
Net expenses .................................... 3,565,367
-------------
Net investment income ........................ 417,327
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ........................................... 8,212,015
Foreign currency transactions ......................... 345,290
-------------
Net realized gain (loss) .......................... 8,557,305
Net change in unrealized appreciation
(depreciation) on investments .......................... 41,307,619
-------------
Net realized and unrealized gain (loss) ................. 49,864,924
-------------
Net increase (decrease) in net assets resulting
from operations ......................................... $50,282,251
=============
Semiannual Report | See notes to financial statements. |21
Franklin Gold and Precious Metals Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
for the six months ended January 31, 2005 (unaudited)
and the year ended July 31, 2004
--------------------------------------
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2005 JULY 31, 2004
--------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income .......................................................... $ 417,327 $ 532,142
Net realized gain (loss) from investments and foreign currency transactions .... 8,557,305 18,847,157
Net change in unrealized appreciation (depreciation) on investments ............ 41,307,619 37,115,245
--------------------------------------
Net increase (decrease) in net assets resulting from operations ............ 50,282,251 56,494,544
Distributions to shareholders from:
Net investment income:
Class A ....................................................................... (196,280) (2,303,565)
Class B ....................................................................... -- (108,625)
Class C ....................................................................... -- (236,649)
Advisor Class ................................................................. (115,006) (253,015)
--------------------------------------
Total distributions to shareholders ............................................. (311,286) (2,901,854)
Capital share transactions: (Note 2)
Class A ....................................................................... (14,839,556) 46,820,124
Class B ....................................................................... 432,954 7,857,969
Class C ....................................................................... 1,581,919 28,515,228
Advisor Class ................................................................. 4,187,906 13,041,561
--------------------------------------
Total capital share transactions ................................................ (8,636,777) 96,234,882
Redemption fees ................................................................. 2,962 751
======================================
Net increase (decrease) in net assets ...................................... 41,337,150 149,828,323
Net assets:
Beginning of period ............................................................. 569,342,264 419,513,941
--------------------------------------
End of period ................................................................... $610,679,414 $569,342,264
======================================
Undistributed net investment income included in net assets:
End of period ................................................................... $ 416,480 $ 310,439
======================================
22| See notes to financial statements. | Semiannual Report
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 on a securities exchange or on the NASDAQ National Market
System, are valued at the last quoted sale price or the official closing price
of the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market. Investments in open-end mutual funds are valued at the closing net asset
value.
Foreign securities are valued as of the close of trading on the foreign stock
exchange on which the security is primarily traded, or the NYSE, whichever is
earlier. The value is then converted into its U.S. dollar equivalent at the
foreign exchange rate in effect at the close of the NYSE on the day that the
value of the foreign security is determined. If no sale is reported at that
time, the foreign security will be valued within the range of the most recent
quoted bid and ask prices.
The Fund has procedures to determine the fair value of individual securities and
other assets for which market prices are not readily available or which may not
be reliably priced. Some methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Occasionally, events occur between the
time at which trading in a security is completed and the close of the NYSE that
might call into question the availability (including the reliability) of the
value of a portfolio security held by the Fund. If such an event occurs, the
securities may be valued using fair value procedures, which may include the use
of independent pricing services. All security valuation procedures are approved
by the Fund's Board of Trustees.
B. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Fund's Board of Trustees.
Semiannual Report |23
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. FOREIGN CURRENCY TRANSLATION (CONTINUED)
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments on the
Statement of Operations.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. FOREIGN CURRENCY CONTRACTS
When the Fund purchases or sells foreign securities it may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. A foreign exchange contract is an agreement
between two parties to exchange different currencies at an agreed upon exchange
rate on a specified date. Realized and unrealized gains and losses on these
contracts are included in the Statement of Operations.
The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts.
D. INCOME TAXES
No provision has been made for U.S. income taxes because the Fund's policy is to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code and to distribute substantially all of its taxable income. Fund
distributions to shareholders are determined on an income tax basis and may
differ from net investment income and realized gains for financial reporting
purposes.
E. 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.
24| Semiannual Report
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. 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.
G. 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 Statements of Changes in Net Assets.
H. GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and trustees are
indemnified by the Fund 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. Effective March 1, 2005, Class B shares will no longer be offered except
to existing Class B shareholders through reinvested distributions or exchanges
into other Franklin Templeton funds' Class B shares, as permitted by the
applicable fund prospectus. 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.
Semiannual Report |25
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
At January 31, 2005, there were an unlimited number of shares authorized ($0.10
par value). Transactions in the Fund's shares were as follows:
-----------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2005 JULY 31, 2004
-----------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------
CLASS A SHARES:
Shares sold ................................ 4,770,768 $ 85,718,423 15,570,606 $ 267,648,705
Shares issued in reinvestment of
distributions .............................. 8,786 171,058 100,150 1,994,995
Shares redeemed ............................ (5,583,392) (100,729,037) (13,225,965) (222,823,576)
-----------------------------------------------------------------------------------
Net increase (decrease) .................... (803,838) $(14,839,556) 2,444,791 $ 46,820,124
===================================================================================
CLASS B SHARES:
Shares sold ................................ 273,158 $ 4,785,579 1,565,131 $ 26,340,327
Shares issued in reinvestment of
distributions .............................. -- -- 5,064 98,800
Shares redeemed ............................ (247,858) (4,352,625) (1,093,974) (18,581,158)
-----------------------------------------------------------------------------------
Net increase (decrease) .................... 25,300 $ 432,954 476,221 $ 7,857,969
===================================================================================
CLASS C SHARES:
Shares sold ................................ 741,688 $ 13,165,721 3,529,183 $ 60,071,858
Shares issued in reinvestment of
distributions .............................. -- -- 9,916 195,334
Shares redeemed ............................ (647,056) (11,583,802) (1,877,614) (31,751,964)
-----------------------------------------------------------------------------------
Net increase (decrease) .................... 94,632 $ 1,581,919 1,661,485 $ 28,515,228
===================================================================================
ADVISOR CLASS SHARES:
Shares sold ................................ 435,701 $ 7,833,341 1,648,203 $ 29,129,104
Shares issued in reinvestment of
distributions .............................. 5,639 112,495 11,945 243,798
Shares redeemed ............................ (213,253) (3,757,930) (1,005,991) (16,331,341)
-----------------------------------------------------------------------------------
Net increase (decrease) .................... 228,087 $ 4,187,906 654,157 $ 13,041,561
===================================================================================
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
26| Semiannual Report
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES
The Fund pays an investment management fee to Advisers based on the average
daily net assets of the Fund as follows:
- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- --------------------------------------------------------------------------------
0.625% Up to and including $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million
B. ADMINISTRATIVE FEES
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.
C. DISTRIBUTION FEES
The Fund reimburses Distributors up to 0.25%, 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
Class A distribution plan, costs exceeding the maximum for the current plan year
cannot be reimbursed in subsequent periods.
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Fund of the following commission transactions
related to the sales and redemptions of the Fund's shares for the period:
Net sales charges received .................................. $ 112,321
Contingent deferred sales charges retained .................. $ 48,929
E. TRANSFER AGENT FEES
The Fund paid transfer agent fees of $511,185, of which $369,215 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 period ended January 31, 2005, the
custodian fees were reduced as noted in the Statement of Operations.
Semiannual Report |27
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. INCOME TAXES
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 (loss) differs for financial statement and tax purposes
primarily due to differing treatments 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.
At January 31, 2005, the net unrealized appreciation (depreciation) based on the
cost of investments for income tax purposes was as follows:
Cost of investments ..................................... $442,317,159
-------------
Unrealized appreciation ................................. $191,438,798
Unrealized depreciation ................................. (23,238,569)
-------------
Net unrealized appreciation (depreciation) .............. $168,200,229
=============
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term securities) for the
period ended January 31, 2005 aggregated $40,033,105 and $47,653,658,
respectively.
7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund), an open-end investment company managed by
Advisers. Management fees paid by the Fund are reduced on assets invested in the
Sweep Money Fund, in an amount not to exceed the management fees paid by the
Sweep Money Fund.
28| Semiannual Report
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. RESTRICTED SECURITIES
At January 31, 2005, 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 January 31, 2005, the Fund held investments in restricted and illiquid
securities that were valued under approved methods by the Trustees, as follows:
- -------------------------------------------------------------------------------------------------------
ACQUISITION
SHARES/WARRANTS ISSUER DATE COST VALUE
- -------------------------------------------------------------------------------------------------------
1,330,000 Miramar Mining Corp. ...................... 10/03/03 $2,548,786 $1,468,961
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 2,781,361
1,225,000 Semafo Inc., 144A, wts., 12/18/06 ......... 12/18/03 21,630 155,051
----------------------------
TOTAL RESTRICTED SECURITIES (0.72% OF NET ASSETS) ......... $5,001,961 $4,405,373
============================
9. REGULATORY MATTERS
INVESTIGATIONS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the Securities and Exchange
Commission ("SEC"), the California Attorney General's Office ("CAGO"), and the
National Association of Securities Dealers, Inc. ("NASD"), relating to certain
practices in the mutual fund industry, including late trading, market timing and
marketing support payments to securities dealers who sell fund shares, Franklin
Resources, Inc. and certain of its subsidiaries (as used in this section,
together, the "Company"), as well as certain current or former executives and
employees of the Company, received subpoenas and/or requests for documents,
information and/or testimony. The Company and its current employees provided
documents and information in response to those requests and subpoenas.
SETTLEMENTS
Beginning in August 2004, the Company entered into settlements with certain
regulators investigating the mutual fund industry practices noted above. The
Company believes that settlement of each of the matters described in this
section is in the best interest of the Company and shareholders of the Franklin,
Templeton, and Mutual Series mutual funds (the "funds").
Semiannual Report |29
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. REGULATORY MATTERS (CONTINUED)
SETTLEMENTS (CONTINUED)
On August 2, 2004, Franklin Resources, Inc. announced that its subsidiary,
Franklin Advisers, Inc., reached an agreement with the SEC that resolved the
issues resulting from the SEC investigation into market timing activity. In
connection with that agreement, 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 concerned the
activities of a limited number of third parties that ended in 2000 and those
that were the subject of the first Massachusetts administrative complaint
described below.
Under the terms of the SEC's Order, pursuant to which Franklin Advisers, Inc.
neither admitted nor denied any of the findings contained therein, Franklin
Advisers, Inc. agreed to pay $50 million, of which $20 million is a civil
penalty, to be distributed to shareholders of certain funds in accordance with a
plan to be developed by an independent distribution consultant. At this time, it
is unclear which funds or which shareholders of any particular fund will receive
distributions. The Order also required Franklin Advisers, Inc. to, among other
things, enhance and periodically review compliance policies and procedures.
On September 20, 2004, Franklin Resources, Inc. announced that two of its
subsidiaries, Franklin Advisers, Inc. and Franklin Templeton Alternative
Strategies, Inc. ("FTAS"), reached an agreement with the Securities Division of
the Office of the Secretary of the Commonwealth of Massachusetts (the "State of
Massachusetts") related to its administrative complaint filed on February 4,
2004, concerning one instance of market timing that was also a subject of the
August 2, 2004 settlement that Franklin Advisers, Inc. reached with the SEC, as
described above.
Under the terms of the settlement consent order issued by the State of
Massachusetts, Franklin Advisers, Inc. and FTAS consented to the entry of a
cease-and-desist order and agreed to pay a $5 million administrative fine to the
State of Massachusetts (the "Massachusetts Consent Order"). The Massachusetts
Consent Order included two different sections: "Statements of Fact" and
"Violations of Massachusetts Securities Laws." Franklin Advisers, Inc. and FTAS
admitted the facts in the Statements of Fact.
On October 25, 2004, the State of Massachusetts filed a second administrative
complaint, alleging that Franklin Resources, Inc.'s Form 8-K filing, in which it
described the Massachusetts Consent Order and stated that "Franklin did not
admit or deny engaging in any wrongdoing", failed to state that Franklin
Advisers, Inc. and FTAS admitted the Statements of Fact portion of the
Massachusetts Consent Order (the "Second Complaint"). Franklin Resources, Inc.
reached a second agreement with the State of Massachusetts on November 19, 2004,
resolving the Second Complaint. As a result of the November 19, 2004 settlement,
Franklin Resources, Inc. filed anew Form 8-K. The terms of the Massachusetts
Consent Order did not change and there was no monetary fine associated with this
second settlement.
30| Semiannual Report
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. REGULATORY MATTERS (CONTINUED)
SETTLEMENTS (CONTINUED)
On November 17, 2004, Franklin Resources, Inc. announced that Franklin/Templeton
Distributors, Inc. ("FTDI") reached an agreement with the CAGO, resolving the
issues resulting from the CAGO's investigation concerning sales and marketing
support payments. Under the terms of the settlement, FTDI neither admitted nor
denied the allegations in the CAGO's complaint and agreed to pay $2 million to
the State of California as a civil penalty, $14 million to the funds, to be
allocated by an independent distribution consultant to be paid for by FTDI, and
$2 million to the CAGO for its investigative costs.
On December 13, 2004, Franklin Resources, Inc. announced that its subsidiaries
FTDI and Franklin Advisers, Inc. reached an agreement with the SEC, resolving
the issues resulting from the SEC's investigation concerning marketing support
payments to securities dealers who sell fund shares. In connection with that
agreement, the SEC issued an "Order Instituting Administrative and
Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions
Pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940,
Sections 9(b) and 9(f) of the Investment Company Act of 1940, and Section 15(b)
of the Securities Exchange Act of 1934" (the "Second Order").
Under the terms of the Second Order, in which FTDI and Franklin Advisers, Inc.
neither admitted nor denied the findings contained therein, they agreed to pay
the funds a penalty of $20 million and disgorgement of $1 (one dollar). FTDI and
Franklin Advisers, Inc. also agreed to implement certain measures and
undertakings relating to marketing support payments to broker-dealers for the
promotion or sale of fund shares, including making additional disclosures in the
funds' Prospectuses and Statements of Additional Information. The Second Order
further requires the appointment of an independent distribution consultant, at
the Company's expense, who shall develop a plan for the distribution of the
penalty and disgorgement to the funds.
The SEC's Second Order and the CAGO settlement agreement concerning marketing
support payments provide that the distribution of settlement monies are to be
made to the relevant funds, not to individual shareholders. The IDC has
substantially completed preparation of these distribution plans. The CAGO has
approved the distribution plan pertaining to the distribution of the monies owed
under the CAGO settlement agreement and, in accordance with the terms and
conditions of that settlement, the monies are expected to be disbursed promptly.
The SEC has not yet approved the distribution plan pertaining to the Second
Order. When approved, disbursements of settlement monies under the SEC's Second
Order will be made promptly in accordance with the terms and conditions of that
order.
Semiannual Report |31
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. REGULATORY MATTERS (CONTINUED)
OTHER LEGAL PROCEEDINGS
The Fund, in addition to the Company and other funds, and certain 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 relief, monetary damages, restitution, removal of fund trustees,
directors, advisers, administrators, and distributors, rescission of management
contracts and 12b-1 Plans, and/or attorneys' fees 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 Templeton funds managed by
Franklin Resources, Inc. subsidiaries, resulting in alleged market timing
activity. The majority of these lawsuits duplicate, in whole or in part, the
allegations asserted in the February 4, 2004 Massachusetts administrative
complaint and the findings in the SEC's August 2, 2004 Order, as described
above. The lawsuits are styled as class actions, or derivative actions on behalf
of either the named funds or Franklin Resources, Inc.
In addition, the Company, 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 advisory, commission, and distribution fees, and seeking, among other
relief, monetary damages, restitution, rescission of advisory contracts,
including recovery of all fees paid pursuant to those contracts, an accounting
of all monies paid to the named advisers, declaratory relief, injunctive relief,
and/or attorneys' fees and costs. These lawsuits are styled as class actions or
derivative actions brought on behalf of certain funds.
The Company and fund management strongly believes that the claims made in each
of the lawsuits identified above are without merit and intends to vigorously
defend against them. The Company cannot predict with certainty, however, the
eventual outcome of the remaining governmental investigations or private
lawsuits, nor whether they will have a material negative impact on the Company.
Public trust and confidence are critical to the Company's business and any
material loss of investor and/or client confidence could result in a significant
decline in assets under management by the Company, which would have an adverse
effect on the Company's future financial results. If the Company finds that it
bears responsibility for any unlawful or inappropriate conduct that caused
losses to the Fund, it is committed to making the Fund or its shareholders
whole, as appropriate. The Company is committed to taking all appropriate
actions to protect the interests of its funds' shareholders.
32| Semiannual Report
Franklin Gold and Precious Metals Fund
TAX DESIGNATION (UNAUDITED)
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. As shown in the table below, the Fund hereby designates to
shareholders the foreign source income and foreign taxes paid, pursuant to
Section 853 of the Internal Revenue Code. This designation will allow
shareholders of record on November 30, 2004, to treat their proportionate share
of foreign taxes paid by the Funds 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 following tables provide a detailed analysis by country, of foreign tax
paid, foreign source income, foreign qualified dividends and adjusted foreign
source income as designated by the Fund, to Class A and Advisor Class
shareholders of record. As a service to individual shareholders filing Form
1116, "Adjusted Foreign Source Income per Share" in column 4 below reports
foreign source income with the required adjustments to foreign source qualified
dividends. This information is provided to simplify your reporting of foreign
source income for line 1 of Form 1116.
- ------------------------------------------------------------------------------------------------------------
CLASS A
FOREIGN ADJUSTED
FOREIGN TAX FOREIGN QUALIFIED FOREIGN
PAID SOURCE INCOME DIVIDENDS SOURCE INCOME
COUNTRY PER SHARE PER SHARE PER SHARE PER SHARE
- ------------------------------------------------------------------------------------------------------------
Australia ................................. 0.0000 0.0011 0.0011 0.0005
Canada .................................... 0.0041 0.0024 0.0024 0.0010
Peru ...................................... 0.0007 0.0014 0.0014 0.0006
South Africa .............................. 0.0000 0.0133 0.0133 0.0057
United Kingdom ............................ 0.0018 0.0016 0.0016 0.0007
---------------------------------------------------------
TOTAL ..................................... $0.0066 $0.0198 $0.0198 $0.0085
=========================================================
- ----------------------------------------------------------------------------------------------------------
ADVISOR CLASS
FOREIGN ADJUSTED
FOREIGN TAX FOREIGN QUALIFIED FOREIGN
PAID SOURCE INCOME DIVIDENDS SOURCE INCOME
COUNTRY PER SHARE PER SHARE PER SHARE PER SHARE
- ----------------------------------------------------------------------------------------------------------
Australia ................................. 0.0000 0.0030 0.0030 0.0013
Canada .................................... 0.0041 0.0065 0.0065 0.0028
Peru ...................................... 0.0007 0.0038 0.0038 0.0016
South Africa .............................. 0.0000 0.0360 0.0360 0.0154
United Kingdom ............................ 0.0018 0.0043 0.0043 0.0018
---------------------------------------------------------
TOTAL ..................................... $0.0066 $0.0536 $0.0536 $0.0229
---------------------------------------------------------
Foreign Tax Paid Per Share (Column 1) is the amount per share available to you,
as a tax credit or deduction (assuming you held your shares in the Fund for a
minimum of 16 days during the 30-day period beginning 15 days before the
ex-dividend date of the Fund's distribution to which the foreign taxes relate).
Semiannual Report |33
Franklin Gold and Precious Metals Fund
TAX DESIGNATION (UNAUDITED) (CONTINUED)
Foreign Source Income Per Share (Column 2) is the amount per share of income
dividends paid to you that is attributable to foreign securities held by the
Fund, plus any foreign taxes withheld on these dividends. The amounts reported
include foreign source qualified dividends without adjustment for the lower U.S.
tax rates. Generally, this is the foreign source income to be reported by
certain trusts and corporate shareholders.
Foreign Qualified Dividends Per Share (Column 3) is the amount per share of
foreign source qualified dividends the Fund paid to you, plus any foreign taxes
withheld on these dividends. These amounts represent the portion of the Foreign
Source Income reported to you in column 2 that were derived from qualified
foreign securities held by the Fund. If you are an individual shareholder who
does not meet the qualified dividend holding period requirements, you may find
this information helpful to calculate the foreign source income adjustment
needed to complete line 1 of Form 1116.
Adjusted Foreign Source Income Per Share (Column 4) is the adjusted amount per
share of foreign source income the Fund paid to you. These amounts reflect the
Foreign Source Income reported in column 2 adjusted for the tax rate
differential on foreign source qualified dividends that may be required for
certain individual shareholders pursuant to Internal Revenue Code 904(b)(2)(B).
If you are an individual shareholder who meets the qualified dividend holding
period requirements, generally, these Adjusted Foreign Source Income amounts may
be reported directly on line 1 of Form 1116 without additional adjustment.
In January 2005, shareholders received Form 1099-DIV which included their share
of taxes paid and foreign source income distributed during the calendar year
2004. The Foreign Source Income reported on Form 1099-DIV was reduced to take
into account the tax rate differential on foreign source qualified dividend
income pursuant to Internal Revenue Code 904(b)(2)(B). Shareholders are advised
to check with their tax advisors for information on the treatment of these
amounts on their 2004 individual income tax return.
34| Semiannual Report
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 most recent 12-month period ended June 30.
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.
Semiannual Report |35
This page intentionally left blank.
Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN[R] (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. To ensure the highest quality of
service, we may monitor, record and access telephone calls to or from our
service departments. These calls can be identified by the presence of a regular
beeping tone.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II 1
VALUE
Franklin Balance Sheet
Investment Fund 2
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 2
Franklin 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
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 Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio
Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
TARGET FUNDS
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
INCOME
Franklin Adjustable U.S. Government
Securities Fund 4
Franklin's AGE High Income Fund
Franklin Floating Rate Daily Access Fund
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund 4,5
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 4
Templeton Global Bond Fund
TAX-FREE INCOME 6
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 7
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term
Tax-Free Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
New York Intermediate-Term
Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California 8
Colorado
Connecticut
Florida 8
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 7
Michigan 7
Minnesota 7
Missouri
New Jersey
New York 8
North Carolina
Ohio 7
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products
Trust 9
1.The fund is closed to new investors. Existing shareholders can continue adding
to their accounts.
2.The fund is only open to existing shareholders and select retirement plans.
3.The fund is a continuously offered, closed-end fund. Shares may be purchased
daily; there is no daily redemption. However, each quarter, pending board
approval, the fund will authorize the repurchase of 5%-25% of the outstanding
number of shares. Investors may tender all or a portion of their shares during
the tender period.
4.An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
5.Formerly Franklin Short-Intermediate U.S. Government Securities Fund.
Effective 9/1/04, the fund's name changed; its investment goal and strategy
remained the same.
6.For investors subject to the alternative minimum tax, a small portion of fund
dividends may be taxable. Distributions of capital gains are generally taxable.
7.Portfolio of insured municipal securities.
8.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).
9.The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
01/05 Not part of the semiannual 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.
SEMIANNUAL 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 S2005 03/05
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. N/A
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: March 22, 2005
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: March 22, 2005
By /s/Galen G. Vetter
Chief Financial Officer
Date: March 22, 2005