UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-01700
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FRANKLIN GOLD AND PRECIOUS METALS FUND
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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: 7/31
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Date of reporting period: 7/31/05
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ITEM 1. REPORTS TO STOCKHOLDERS.
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JULY 31, 2005
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ANNUAL REPORT AND SHAREHOLDER LETTER SECTOR
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WANT TO RECEIVE
THIS DOCUMENT
FRANKLIN GOLD AND FASTER VIA EMAIL?
PRECIOUS METALS FUND
Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
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[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
FRANKLIN o Templeton o Mutual Series
FRANKLIN TEMPLETON INVESTMENTS
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management
groups--Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a
recognized leader in fixed income investing and
also brings expertise in growth- and value-style
U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched
what has become the industry's oldest global fund.
Today, with offices in over 25 countries,
Templeton offers investors a truly global
perspective.
MUTUAL Series. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what
it believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently
and adhere to different investment approaches,
Franklin, Templeton and Mutual Series funds
typically have distinct portfolios. That's why our
funds can be used to build truly diversified
allocation plans covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well
as the reliable, accurate and personal service
that has helped us become one of the most trusted
names in financial services.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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Not part of the annual report
CONTENTS
SHAREHOLDER LETTER ........................................................ 1
ANNUAL REPORT
Franklin Gold and Precious Metals Fund .................................... 3
Performance Summary ....................................................... 8
Your Fund's Expenses ...................................................... 13
Financial Highlights and Statement of Investments ......................... 15
Financial Statements ...................................................... 22
Notes to Financial Statements ............................................. 26
Report of Independent Registered Public Accounting Firm ................... 35
Tax Designation ........................................................... 36
Board Members and Officers ................................................ 37
Shareholder Information ................................................... 42
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ANNUAL 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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PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
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PORTFOLIO BREAKDOWN
Based on Total Net Assets as of 7/31/05
Long Life Gold Mines 57.0%
Medium Life Gold Mines 12.0%
Platinum & Paladium 11.2%
[PIE CHART] Gold & Diversified Resources 9.6%
Gold Exploration 7.8%
Mutual Funds 1.2%
Short-Term Investments &
Other Net Assets 1.2%
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We are pleased to bring you Franklin Gold and Precious Metals Fund's annual
report for the fiscal year ended July 31, 2005.
PERFORMANCE OVERVIEW
Franklin Gold and Precious Metals Fund - Class A delivered a +11.78% cumulative
total return for the 12 months ended July 31, 2005. The Fund underperformed the
broad Standard & Poor's 500 Composite Index's (S&P 500's) 14.04% total return,
but outperformed the sector-specific FTSE Gold Mines Index's 5.37% 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 19.
Annual Report | 3
GEOGRAPHIC BREAKDOWN
Based on Total Net Assets as of 7/31/05
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Canada 40.4%
South Africa 27.9%
U.S. 14.4%
Australia 10.3%
Peru 4.1%
Papua New Guinea 1.5%
U.K 0.2%
Short-Term Investments & Other Net Assets 1.2%
ECONOMIC AND MARKET OVERVIEW
During the 12 months ended July 31, 2005, a maturing domestic economic expansion
was driven by staying power across most industries, sectors and regions. Gross
domestic product (GDP) rose each quarter, benefiting primarily from personal
consumption and greater business investment. Demand for imported goods and
materials fueled a widening trade gap. The U.S. dollar rallied in the first half
of 2005 driven largely by rising short-term domestic interest rates and strong
U.S. economic growth relative to its major trading partners.
With controlling inflation at the forefront of its agenda, the Federal Reserve
Board raised the federal funds target rate from 1.25% to 3.25% and said it would
respond to changes in economic prospects as needed to fulfill its obligation to
maintain price stability. Oil prices hit record highs, yet inflation remained
relatively contained for the 12 months ended July 31, 2005, as measured by the
2.1% rise for the core Consumer Price Index, which excludes volatile food and
energy costs.(2) Continued competition, globalization and offshoring helped ease
pricing pressures, and many companies held back in passing along higher
commodity and energy costs to consumers. Although short-term interest rates
rose, long-term interest rates actually declined, contributing to continued
robust housing and commercial real estate activity, which added to economic
growth.
Many businesses enjoyed their widest profit margins on record, propelled largely
by productivity gains that lifted corporate profitability and cash flow. The
favorable business environment also helped stabilize the labor market, which
firmed as employment increased and the unemployment rate dropped from 5.5% to
5.0% during the reporting period.2 Personal income rose, and hiring rebounded in
many industries, bolstered by healthy business spending and solid business
confidence.
For the second half of the reporting period, most stock markets were volatile,
influenced partly by inflation worries, energy prices, the fluctuating dollar
and short-term interest rate hikes. Toward period-end, the S&P 500 and NASDAQ
Composite Indexes reached four-year highs, as rising dividend payments and solid
corporate profits supported investor confidence. The blue chip stocks of the Dow
Jones Industrial Average posted a one-year total return of 7.29%, while the
broader S&P 500 and technology-heavy NASDAQ Composite Indexes returned 14.04%
and 16.14%.(3)
(2) Source: Bureau of Labor Statistics.
(3) 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 NASDAQ
domestic and international-based common type stocks listed on The NASDAQ
Stock Market. The index is market value weighted and includes more than
3,000 companies.
4 | Annual Report
PRECIOUS METALS PRICES (8/01/05-7/31/05)(4)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Gold Palladium Platinum
7/30/04 $391.05 $217.50 $820.00
8/2/04 $392.15 $217.50 $827.50
8/3/04 $394.05 $215.50 $825.50
8/4/04 $391.65 $215.50 $834.00
8/5/04 $392.85 $211.50 $827.50
8/6/04 $399.75 $213.50 $828.50
8/9/04 $400.25 $214.00 $833.00
8/10/04 $398.65 $215.50 $847.50
8/11/04 $395.45 $212.50 $836.50
8/12/04 $393.75 $211.00 $849.25
8/13/04 $398.95 $211.00 $863.50
8/16/04 $402.25 $214.50 $883.50
8/17/04 $405.05 $216.50 $881.00
8/18/04 $404.55 $217.50 $860.00
8/19/04 $406.65 $221.00 $863.50
8/20/04 $412.75 $222.50 $853.00
8/23/04 $409.95 $219.00 $836.50
8/24/04 $403.15 $215.50 $845.00
8/25/04 $406.55 $213.50 $849.50
8/26/04 $406.55 $215.50 $855.50
8/27/04 $403.25 $212.50 $864.50
8/30/04 $408.05 $214.50 $864.50
8/31/04 $409.85 $214.50 $865.50
9/1/04 $408.85 $214.50 $869.50
9/2/04 $406.35 $213.00 $870.00
9/3/04 $401.05 $212.00 $860.00
9/6/04 $402.55 $213.50 $848.50
9/7/04 $397.75 $209.50 $845.50
9/8/04 $399.65 $207.50 $845.50
9/9/04 $398.95 $207.00 $828.50
9/10/04 $402.75 $205.25 $835.75
9/13/04 $403.95 $209.50 $842.50
9/14/04 $405.42 $210.50 $845.50
9/15/04 $405.15 $209.00 $845.50
9/16/04 $404.52 $208.00 $838.50
9/17/04 $405.65 $208.50 $839.50
9/20/04 $405.05 $206.50 $835.00
9/21/04 $409.25 $209.00 $850.00
9/22/04 $407.35 $207.50 $844.00
9/23/04 $410.13 $213.00 $850.00
9/24/04 $407.83 $221.00 $852.50
9/27/04 $408.63 $225.00 $857.00
9/28/04 $412.25 $221.00 $873.00
9/29/04 $412.95 $217.50 $849.50
9/30/04 $418.25 $221.50 $860.50
10/1/04 $419.47 $221.50 $859.50
10/4/04 $414.05 $217.00 $828.00
10/5/04 $418.75 $220.00 $839.50
10/6/04 $417.88 $224.00 $844.00
10/7/04 $417.65 $232.50 $841.00
10/8/04 $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 $846.47
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
11/1/04 $427.55 $209.00 $834.00
11/2/04 $421.55 $211.00 $824.46
11/3/04 $426.85 $209.50 $829.00
11/4/04 $429.55 $213.00 $847.50
11/5/04 $433.55 $214.00 $848.50
11/8/04 $431.95 $213.00 $847.00
11/9/04 $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
12/1/04 $454.75 $211.00 $877.75
12/2/04 $449.25 $210.50 $881.75
12/3/04 $455.90 $206.50 $872.75
12/6/04 $452.25 $209.25 $872.75
12/7/04 $450.90 $208.50 $869.25
12/8/04 $440.60 $202.00 $832.25
12/9/04 $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
1/3/05 $429.55 $184.50 $855.00
1/4/05 $427.55 $181.50 $844.00
1/5/05 $426.55 $182.00 $847.50
1/6/05 $421.40 $181.50 $845.50
1/7/05 $419.05 $183.00 $841.50
1/10/05 $419.63 $189.00 $848.00
1/11/05 $421.65 $192.50 $861.00
1/12/05 $426.15 $190.50 $861.50
1/13/05 $425.20 $186.75 $860.00
1/14/05 $423.15 $184.50 $855.50
1/17/05 $422.13 $183.50 $855.50
1/18/05 $423.05 $182.50 $860.00
1/19/05 $423.15 $188.00 $868.00
1/20/05 $422.35 $184.50 $862.50
1/21/05 $427.25 $189.00 $867.50
1/24/05 $427.35 $191.50 $872.00
1/25/05 $422.20 $190.50 $860.50
1/26/05 $426.80 $190.50 $867.50
1/27/05 $426.20 $188.75 $869.50
1/28/05 $427.00 $189.50 $871.50
1/31/05 $422.60 $188.50 $867.75
2/1/05 $421.13 $190.00 $881.75
2/2/05 $421.96 $187.50 $871.50
2/3/05 $417.20 $183.00 $863.50
2/4/05 $414.70 $182.00 $866.50
2/7/05 $413.40 $179.00 $868.50
2/8/05 $412.70 $178.50 $855.00
2/9/05 $413.35 $178.75 $849.50
2/10/05 $417.80 $180.00 $865.00
2/11/05 $420.90 $182.50 $867.50
2/14/05 $425.75 $185.50 $876.50
2/15/05 $425.75 $182.50 $855.50
2/16/05 $425.20 $180.50 $855.50
2/17/05 $427.17 $181.00 $863.00
2/18/05 $427.41 $181.50 $864.00
2/21/05 $427.45 $179.50 $861.50
2/22/05 $435.85 $182.00 $874.50
2/23/05 $434.55 $183.00 $863.00
2/24/05 $433.75 $183.00 $863.25
2/25/05 $435.25 $182.50 $860.50
2/28/05 $435.65 $182.50 $864.75
3/1/05 $432.60 $183.00 $864.00
3/2/05 $432.95 $187.00 $865.25
3/3/05 $429.65 $198.50 $866.50
3/4/05 $434.30 $210.75 $869.00
3/7/05 $434.55 $205.25 $865.50
3/8/05 $440.55 $207.00 $871.00
3/9/05 $440.60 $204.50 $871.25
3/10/05 $442.13 $201.00 $869.50
3/11/05 $444.95 $203.00 $869.00
3/14/05 $440.97 $197.50 $870.75
3/15/05 $440.70 $202.50 $876.00
3/16/05 $443.15 $204.50 $887.50
3/17/05 $438.80 $200.00 $878.50
3/18/05 $439.35 $200.50 $874.50
3/21/05 $431.20 $200.00 $870.00
3/22/05 $427.11 $200.00 $864.00
3/23/05 $425.35 $192.50 $854.50
3/24/05 $425.05 $194.50 $859.25
3/25/05 $424.88 $194.50 $857.50
3/28/05 $426.20 $195.50 $857.50
3/29/05 $426.10 $193.50 $861.00
3/30/05 $426.35 $196.50 $862.75
3/31/05 $428.35 $201.50 $867.75
4/1/05 $426.25 $200.00 $861.75
4/4/05 $424.25 $198.00 $857.00
4/5/05 $425.35 $198.50 $857.50
4/6/05 $426.70 $199.00 $861.00
4/7/05 $425.90 $199.00 $865.50
4/8/05 $427.10 $194.50 $860.00
4/11/05 $428.00 $197.50 $859.50
4/12/05 $428.20 $197.00 $861.50
4/13/05 $428.90 $196.50 $864.00
4/14/05 $424.00 $197.50 $863.00
4/15/05 $424.90 $198.50 $863.25
4/18/05 $427.35 $199.50 $862.75
4/19/05 $434.00 $200.00 $790.00
4/20/05 $434.60 $204.00 $874.00
4/21/05 $432.57 $200.00 $871.00
4/22/05 $434.60 $201.50 $874.75
4/25/05 $434.70 $201.50 $878.50
4/26/05 $437.10 $200.50 $879.00
4/27/05 $432.46 $201.50 $870.00
4/28/05 $431.40 $195.00 $866.00
4/29/05 $434.39 $199.50 $871.00
5/2/05 $429.80 $195.00 $870.50
5/3/05 $427.90 $192.50 $867.00
5/4/05 $429.80 $193.00 $874.50
5/5/05 $430.40 $196.50 $872.50
5/6/05 $426.20 $194.50 $876.50
5/9/05 $426.10 $193.50 $875.00
5/10/05 $426.60 $193.50 $876.00
5/11/05 $427.40 $193.00 $882.75
5/12/05 $422.40 $192.50 $869.25
5/13/05 $420.40 $187.50 $866.50
5/16/05 $419.75 $187.00 $851.75
5/17/05 $418.75 $188.50 $861.50
5/18/05 $421.75 $191.50 $859.00
5/19/05 $420.60 $188.50 $865.75
5/20/05 $417.65 $188.50 $862.00
5/23/05 $417.55 $189.00 $862.50
5/24/05 $418.35 $186.50 $866.75
5/25/05 $419.55 $185.50 $866.00
5/26/05 $417.80 $184.00 $861.50
5/27/05 $420.45 $186.50 $860.75
5/30/05 $418.55 $185.00 $864.00
5/31/05 $417.25 $183.00 $860.75
6/1/05 $415.40 $183.00 $871.25
6/2/05 $421.80 $183.00 $877.00
6/3/05 $422.45 $185.00 $874.50
6/6/05 $425.95 $189.00 $878.00
6/7/05 $424.75 $188.50 $878.50
6/8/05 $423.15 $188.50 $876.50
6/9/05 $423.70 $185.50 $873.00
6/10/05 $427.05 $185.50 $869.75
6/13/05 $428.90 $185.50 $871.50
6/14/05 $426.85 $185.00 $875.50
6/15/05 $428.90 $190.00 $879.50
6/16/05 $435.65 $187.50 $882.50
6/17/05 $437.65 $187.50 $895.50
6/20/05 $437.90 $188.50 $895.50
6/21/05 $438.60 $188.00 $879.50
6/22/05 $438.15 $189.50 $886.75
6/23/05 $441.30 $188.50 $888.50
6/24/05 $439.95 $189.00 $892.75
6/27/05 $439.80 $187.50 $888.25
6/28/05 $435.55 $184.50 $882.50
6/29/05 $437.25 $183.00 $882.75
6/30/05 $435.50 $181.50 $885.50
7/1/05 $427.40 $180.50 $870.50
7/4/05 $427.90 $171.50 $871.75
7/5/05 $423.60 $178.50 $857.00
7/6/05 $423.76 $177.00 $864.00
7/7/05 $424.20 $180.50 $864.50
7/8/05 $423.10 $181.50 $863.00
7/11/05 $425.90 $184.50 $867.00
7/12/05 $426.95 $183.50 $872.50
7/13/05 $424.10 $182.50 $873.50
7/14/05 $419.60 $183.50 $867.50
7/15/05 $421.55 $182.50 $865.75
7/18/05 $421.05 $186.00 $868.00
7/19/05 $420.10 $186.50 $867.26
7/20/05 $423.15 $190.50 $873.75
7/21/05 $425.60 $194.50 $881.00
7/22/05 $425.00 $194.50 $882.50
7/25/05 $425.85 $193.00 $888.00
7/26/05 $423.50 $190.50 $884.00
7/27/05 $425.50 $189.00 $883.00
7/28/05 $428.00 $193.00 $886.50
7/29/05 $429.80 $193.00 $896.00
For illustrative purposes only; not representative of the Fund's portfolio
composition or performance.
At the start of the reporting period, gold traded at $391 per ounce and
strengthened over the course of the fiscal year before peaking at $456 per ounce
in early December, which marked a 16-year high. A subsequent sell-off in January
was influenced primarily by U.S. dollar strength versus other world currencies
early in the calendar year. However, for the remainder of the period, gold
prices traded within a range of $410 and $445 per ounce. Gold ended the period
up 9.9% at $430 per ounce.
Silver charted a similar path to gold's during the period, peaking in early
December, only to sell off and remain range bound for the final five months of
the period. Silver ended the period up 10.1% at $7.20 per ounce. Platinum moved
steadily higher throughout the year, finishing the period up 9.3% at $896 per
ounce, while palladium traded lower ending the period down 11.3% at $193 per
ounce.
INVESTMENT STRATEGY
Our conservative management style seeks to expose shareholders to the benefits
of diversification by investing globally in the precious metals sector. We like
companies with multiple mines, attractive production profiles, strong reserve
bases and active exploration programs that can drive future reserve and
production growth. While the sector can be volatile, especially over the short
term, precious metals, such as gold, can be attractive because they are a hard
asset not tied to any particular country or financial system.
(4) Amounts shown are based on spot prices quoted in U.S. dollars per troy
ounce.
Annual Report | 5
MANAGER'S DISCUSSION
The 12-month period ended July 31 was exciting for gold investors as gold
bullion prices rose steadily and reached a 16-year high. Furthermore, the launch
of the streetTRACKS Gold Trust on the New York Stock Exchange in November
boosted investment demand for gold. The introduction of gold exchange traded
funds (ETFs) made investing in the commodity more liquid and accessible to a
greater number of investors. As of July 31, more than seven million ounces of
gold bullion backed gold exchange traded securities globally. However, the
period was not without challenges as cost pressures continued to weigh on
earnings results. Overall, the industry struggled with rising costs due to
several factors such as high energy prices, shortages of truck tires, wait lists
for new mining equipment and tight labor markets. The 16-year high gold price in
December also coincided with a new wave of attempted consolidation in the gold
industry. During the review period, Goldcorp successfully merged with Wheaton
River Minerals despite attempts by Glamis Gold to intervene. Harmony Gold also
launched a hostile takeover bid for Gold Fields Mining, but was unsuccessful,
securing just 11% of Gold Fields stock.
Several of the Fund's top holdings, such as Newcrest Mining, Meridian Gold,
Barrick Gold, Impala Platinum and Anglo American Platinum were strong performers
for the period and contributed to the Fund's outperformance of the benchmark,
the FTSE Gold Mines Index. Newcrest's underlying share price rose ahead of the
successful February startup of its Telfer mine, a $1.4 billion project located
in Northwestern Australia that is expected to dramatically increase Newcrest's
gold production. Meridian Gold benefited from further exploration success in
Chile, finding additional veins with high grades of gold and silver. Meridian
closed out its hedged positions in silver and should now fully benefit from any
increase in silver prices. The market reacted positively to Barrick Gold's
Lagunas Norte mine startup in Peru, which was on time and within budget. The
company should further benefit from its strong pipeline of growth projects
including Valadero in Argentina and Cowell in Australia, which are scheduled to
begin operation in the next 12 months. Shares of Impala Platinum and Anglo
American Platinum moved higher during the review period mostly due to strong
platinum prices and expanding profit margins as the South African rand began to
weaken in 2005. Several of the Fund's smaller positions including Yamana Gold,
Randgold Resources, Bendigo Mining and Ivanhoe Mines also contributed to the
Fund's performance, all appreciating more than 50%.
There were some detractors from Fund performance during the year. Harmony Gold's
failed takeover attempt for Gold Fields and Placer Dome's continued struggles
with cost control and financing of its project pipeline hindered the performance
of these stocks. Despite reports of dwindling inventories and anticipated
increased demand, several of the Fund's palladium producing holdings had
lackluster performance as metal prices continued to decline.
6 | Annual Report
Currency movements continued to be volatile over the period, with the weaker
U.S. dollar putting pressure on companies with non-U.S. based costs. In general,
if the value of the U.S. dollar goes up compared with a foreign currency, an
investment traded in that foreign currency will go down 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, an investment traded in that foreign currency will increase in value,
which can contribute to Fund performance.
For the 12 months ended July 31, 2005, the U.S. dollar declined in value
relative to Canadian and Australian currencies, positively affecting Fund
performance. Offsetting the currency gain, the weaker U.S. dollar can make it
more expensive to operate in foreign countries, hurting margins. The U.S. dollar
appreciated relative to the South African rand, resulting in a currency loss for
the Fund. Despite the currency loss, several South African mining stocks
performed well in the weaker rand environment as operating margins improved
because costs fell in U.S. dollar terms.
The Fund increased its exposure to gold exploration companies by seeking out
prospects we think are positioned to take advantage of the current higher
commodity price environment. New holdings in the Fund over the past year include
Alamos Gold, Gammon Lake Resources, Ballarat Goldfields, Pan Australian
Resources and European Minerals. None of these companies have current production
but all are working to bring on new mines within the next two years.
Thank you for your participation in Franklin Gold and Precious Metals Fund. We
look forward to serving your future investment needs.
/s/ Stephen M. Land
[PHOTO OMITTED]
Stephen M. Land
Portfolio Manager
Franklin Gold and Precious Metals Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JULY 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.
TOP 10 HOLDINGS
7/31/05
- --------------------------------------------------------------------------------
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------------------------------------
Barrick Gold Corp. 7.9%
LONG LIFE GOLD MINES, CANADA
- --------------------------------------------------------------------------------
Newcrest Mining Ltd. 7.0%
LONG LIFE GOLD MINES, AUSTRALIA
- --------------------------------------------------------------------------------
Impala Platinum Holdings Ltd. 6.5%
PLATINUM & PALLADIUM, SOUTH AFRICA
- --------------------------------------------------------------------------------
Freeport McMoRan Copper & Gold Inc., B 6.2%
GOLD AND DIVERSIFIED RESOURCES, U.S.
- --------------------------------------------------------------------------------
AngloGold Ashanti Ltd. 5.9%
LONG LIFE GOLD MINES, SOUTH AFRICA
- --------------------------------------------------------------------------------
Placer Dome Inc. 5.4%
LONG LIFE GOLD MINES, CANADA
- --------------------------------------------------------------------------------
Meridian Gold Inc. 4.7%
LONG LIFE GOLD MINES, U.S.
- --------------------------------------------------------------------------------
Newmont Mining Corp. 4.6%
LONG LIFE GOLD MINES, U.S.
- --------------------------------------------------------------------------------
Anglo American Platinum Corp. Ltd. 4.3%
PLATINUM & PALLADIUM, SOUTH AFRICA
- --------------------------------------------------------------------------------
Compania de Minas Buenaventura SA 4.1%
LONG LIFE GOLD MINES, PERU
- --------------------------------------------------------------------------------
Annual Report | 7
Performance Summary as of 7/31/05
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 and graphs do not reflect any taxes
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects reinvestment of the Fund's
dividends and capital gain distributions, if any, and any unrealized gains or
losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------
CLASS A(SYMBOL: FKRCX) CHANGE 7/31/05 7/31/04
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.87 $17.81 $15.94
- --------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/04-7/31/05)
- --------------------------------------------------------------------------------
Dividend Income $0.0078
- --------------------------------------------------------------------------------
CLASS B(SYMBOL: FAGPX) CHANGE 7/31/05 7/31/04
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.70 $17.24 $15.54
- --------------------------------------------------------------------------------
CLASS C(SYMBOL: FRGOX) CHANGE 7/31/05 7/31/04
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.71 $17.40 $15.69
- --------------------------------------------------------------------------------
ADVISOR CLASS(SYMBOL: FGADX) CHANGE 7/31/05 7/31/04
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.92 $18.28 $16.36
- --------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/04-7/31/05)
- --------------------------------------------------------------------------------
Dividend Income $0.0519
- --------------------------------------------------------------------------------
8 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES
CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER;
CLASS C: 1% CDSC IN FIRST YEAR ONLY. CUMULATIVE TOTAL RETURN EXCLUDES SALES
CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND VALUE OF $10,000 INVESTMENT INCLUDE
MAXIMUM SALES CHARGES.
- ------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return(1) +11.78% +138.56% +42.88%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return(2) +5.36% +17.60% +3.02%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(3) $10,536 $22,489 $13,466
- ------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (6/30/05)(4) +5.60% +16.47% +3.45%
- ------------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 5-YEAR INCEPTION (1/1/99)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return(1) +10.94% +129.51% +133.53%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return(2) +6.94% +17.87% +13.76%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(3) $10,694 $22,751 $23,353
- ------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (6/30/05)(4) +7.20% +16.76% +14.19%
- ------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return(1) +10.96% +129.77% +32.94%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return(2) +9.96% +18.10% +2.89%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(3) $10,996 $22,977 $13,294
- ------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (6/30/05)(4) +10.22% +17.00% +3.31%
- ------------------------------------------------------------------------------------------------------
ADVISOR CLASS(5) 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return(1) +12.09% +141.52% +51.04%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return(2) +12.09% +19.29% +4.21%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(3) $11,209 $24,152 $15,104
- ------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (6/30/05)(4) +12.32% +18.14% +4.63%
- ------------------------------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | 9
PERFORMANCE SUMMARY (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The indexes are unmanaged, differ
from the Fund in composition and do not pay management fees or expenses. One
cannot invest directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS A 7/31/05
- --------------------------------------------------------------------------------
1-Year +5.36%
- --------------------------------------------------------------------------------
5-Year +17.60%
- --------------------------------------------------------------------------------
10-Year +3.02%
- --------------------------------------------------------------------------------
CLASS A (8/1/95-7/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Franklin Gold &
Precious Metals FTSE Gold
Date Fund - Class A* S&P 500 Index(6) Mines Index(6)
7/31/95 9425.00 10000.00 10000.00
$9,437.00 $10,024.96 $10,115.48
9481.00 10447.79 10182.97
8424.00 10410.47 8835.31
9043.00 10866.95 9678.52
9147.00 11076.28 9812.36
10606.00 11452.82 11824.00
10632.00 11559.37 12000.77
10664.00 11670.66 11969.03
10795.00 11842.57 11931.34
11205.00 12147.46 12189.23
9796.00 12193.78 10341.73
9580.00 11655.35 10234.30
9959.00 11901.57 10417.32
9364.00 12570.83 9496.37
10/31/96 9390.00 12917.40 9629.29
9318.00 13892.94 9616.42
9243.00 13617.73 9351.30
8832.00 14468.05 8709.16
9897.00 14581.63 9781.75
8811.00 13983.61 8394.30
8254.00 14817.68 7531.09
8679.00 15719.16 8050.51
8143.00 16422.99 7142.59
8004.00 17729.01 7251.87
7892.00 16736.54 7240.48
8248.00 17652.63 7820.57
6947.00 17063.74 6367.17
5800.00 17853.01 5013.31
5943.00 18159.39 5426.63
1/31/98 6273.00 18360.05 5732.31
6245.00 19683.49 5523.40
6618.00 20690.64 5872.26
7075.00 20898.70 6658.44
6097.00 20539.98 5574.83
5636.00 21373.69 5096.59
5296.00 21146.67 4618.50
4234.00 18092.45 3597.75
5919.00 19251.52 5645.65
5933.00 20816.06 5708.11
5820.00 22077.17 5410.78
5493.00 23348.52 4792.13
5479.00 24324.51 4780.13
5365.00 23568.64 4468.76
5465.00 24511.35 4456.30
4/30/99 6475.00 25460.54 5220.33
5650.00 24860.17 4247.69
6091.00 26238.74 4538.60
5906.00 25420.67 4331.22
6148.00 25294.81 4605.06
7258.00 24602.24 5791.08
6560.00 26158.42 5023.87
6667.00 26690.13 4800.18
6888.00 28261.15 4760.34
6416.00 26841.41 4200.92
6138.00 26333.84 4333.53
5959.00 28908.39 4008.56
5545.00 28038.96 3878.41
5738.00 27465.13 3995.54
6002.00 28142.34 4140.71
7/31/00 5645.00 27702.75 3736.72
6209.00 29422.52 3783.44
5766.00 27869.60 3582.37
5459.00 27751.39 3037.20
5816.00 25565.08 3203.51
6379.00 25690.50 3505.55
6503.00 26601.43 3422.73
6792.00 24177.42 3665.39
5967.00 22646.63 3304.63
6828.00 24405.10 3852.98
7357.00 24568.83 3985.08
6988.00 23971.07 3981.39
6430.00 23735.00 3886.62
6843.00 22250.64 4134.92
6712.00 20453.99 4510.35
10/31/01 6510.00 20844.25 4313.89
6589.00 22442.75 4140.97
7017.00 22639.47 4300.61
7561.00 22309.27 4915.05
8253.00 21879.00 5402.53
8922.00 22701.81 5956.98
9406.00 21326.12 6353.38
10485.00 21169.56 7280.07
9190.00 19662.07 6235.28
7650.00 18129.88 5275.30
8632.00 18248.59 6006.46
8647.00 16267.09 6038.56
8186.00 17697.51 5491.76
8216.00 18738.15 5351.30
9641.00 17637.89 6552.50
1/31/03 9753.00 17176.72 6523.22
9062.00 16918.62 6106.66
8513.00 17081.22 5728.57
8377.00 18488.85 5668.37
9618.00 19461.98 6316.92
9919.00 19710.66 6644.80
10325.00 20058.33 6885.72
11844.00 20448.76 7769.19
12115.00 20232.24 7825.80
13220.00 21376.19 8459.99
14739.00 21564.05 9363.14
14685.00 22694.09 9357.20
13256.00 23110.64 8185.17
13581.00 23431.78 8340.71
14382.00 23078.32 9047.61
4/30/04 11465.00 22716.62 7075.82
12485.00 23027.70 7797.29
12183.00 23475.18 7481.50
12047.00 22698.39 7504.12
12803.00 22789.56 8162.30
13800.00 23036.23 8760.80
14080.00 23388.17 9096.89
14723.00 24334.28 9381.35
13882.00 25161.91 8709.11
13103.00 24548.63 8067.33
14108.00 25065.00 8615.68
13473.00 24621.63 8201.28
12271.00 24154.81 7344.58
12460.00 24922.76 7424.17
13647.00 24958.42 8183.48
7/31/05 13466.00 25886.23 7907.44
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS B 7/31/05
- --------------------------------------------------------------------------------
1-Year +6.94%
- --------------------------------------------------------------------------------
5-Year +17.87%
- --------------------------------------------------------------------------------
Since Inception (1/1/99) +13.76%
- --------------------------------------------------------------------------------
CLASS B (1/1/99-7/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Franklin Gold &
Precious Metals FTSE Gold
Date Fund - Class B* S&P 500 Index(6) Mines Index(6)
1/1/99 $10,000 $10,000 $10,000
1/31/99 $9,961 $10,418 $9,975
2/28/99 $9,754 $10,094 $9,325
3/31/99 $9,935 $10,498 $9,299
4/30/99 $11,762 $10,905 $10,894
5/31/99 $10,259 $10,647 $8,864
6/30/99 $11,049 $11,238 $9,471
7/31/99 $10,699 $10,887 $9,038
8/31/99 $11,140 $10,834 $9,610
9/30/99 $13,161 $10,537 $12,085
10/31/99 $11,878 $11,203 $10,484
11/30/99 $12,073 $11,431 $10,017
12/31/99 $12,452 $12,104 $9,934
1/31/00 $11,606 $11,496 $8,766
2/29/00 $11,099 $11,279 $9,043
3/31/00 $10,747 $12,381 $8,365
4/30/00 $10,006 $12,009 $8,093
5/31/00 $10,344 $11,763 $8,338
6/30/00 $10,812 $12,053 $8,641
7/31/00 $10,175 $11,865 $7,798
8/31/00 $11,177 $12,601 $7,895
9/30/00 $10,370 $11,936 $7,476
10/31/00 $9,810 $11,886 $6,338
11/30/00 $10,448 $10,949 $6,685
12/31/00 $11,436 $11,003 $7,315
1/31/01 $11,658 $11,393 $7,142
2/28/01 $12,169 $10,355 $7,649
3/31/01 $10,676 $9,699 $6,896
4/30/01 $12,208 $10,453 $8,040
5/31/01 $13,165 $10,523 $8,316
6/30/01 $12,497 $10,267 $8,308
7/31/01 $11,475 $10,166 $8,110
8/31/01 $12,222 $9,530 $8,629
9/30/01 $11,973 $8,760 $9,412
10/31/01 $11,606 $8,927 $9,002
11/30/01 $11,737 $9,612 $8,641
12/31/01 $12,497 $9,696 $8,974
1/31/02 $13,449 $9,555 $10,257
2/28/02 $14,669 $9,371 $11,274
3/31/02 $15,849 $9,723 $12,431
4/30/02 $16,693 $9,134 $13,258
5/31/02 $18,611 $9,067 $15,192
6/30/02 $16,305 $8,421 $13,011
7/31/02 $13,556 $7,765 $11,008
8/31/02 $15,299 $7,816 $12,534
9/30/02 $15,312 $6,967 $12,601
10/31/02 $14,481 $7,580 $11,460
11/30/02 $14,535 $8,025 $11,167
12/31/02 $17,041 $7,554 $13,673
1/31/03 $17,230 $7,357 $13,612
2/28/03 $16,000 $7,246 $12,743
3/31/03 $15,027 $7,316 $11,954
4/30/03 $14,771 $7,919 $11,828
5/31/03 $16,960 $8,335 $13,182
6/30/03 $17,473 $8,442 $13,866
7/31/03 $18,176 $8,591 $14,369
8/31/03 $20,838 $8,758 $16,212
9/30/03 $21,298 $8,665 $16,331
10/31/03 $23,217 $9,155 $17,654
11/30/03 $25,879 $9,236 $19,539
12/31/03 $25,764 $9,720 $19,526
1/31/04 $23,244 $9,898 $17,080
2/29/04 $23,800 $10,036 $17,405
3/31/04 $25,195 $9,884 $18,880
4/30/04 $20,061 $9,729 $14,765
5/31/04 $21,835 $9,863 $16,271
6/30/04 $21,294 $10,054 $15,612
7/31/04 $21,050 $9,722 $15,659
8/31/04 $22,350 $9,761 $17,033
9/30/04 $24,070 $9,866 $18,282
10/31/04 $24,545 $10,017 $18,983
11/30/04 $25,642 $10,422 $19,577
12/31/04 $24,179 $10,777 $18,174
1/31/05 $22,811 $10,514 $16,835
2/28/05 $24,531 $10,735 $17,979
3/31/05 $23,420 $10,545 $17,114
4/30/05 $21,307 $10,345 $15,326
5/31/05 $21,632 $10,674 $15,492
6/30/05 $23,678 $10,690 $17,077
7/31/05 $23,353 $11,087 $16,501
10 | Annual Report
PERFORMANCE SUMMARY (CONTINUED)
CLASS C (8/1/95-7/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Franklin Gold &
Precious Metals FTSE Gold
Date Fund - Class C* S&P 500 Index(6) Mines Index(6)
7/31/95 $10,000.00 $10,000.00 $10,000.00
10007.00 10024.96 10115.48
10047.00 10447.79 10182.97
8924.00 10410.47 8835.31
9575.00 10866.95 9678.52
9672.00 11076.28 9812.36
11203.00 11452.82 11824.00
11230.00 11559.37 12000.77
11251.00 11670.66 11969.03
11382.00 11842.57 11931.34
11803.00 12147.46 12189.23
10316.00 12193.78 10341.73
10081.00 11655.35 10234.30
10475.00 11901.57 10417.32
9846.00 12570.83 9496.37
9867.00 12917.40 9629.29
9784.00 13892.94 9616.42
9700.00 13617.73 9351.30
9266.00 14468.05 8709.16
10369.00 14581.63 9781.75
3/31/97 9222.00 13983.61 8394.30
8634.00 14817.68 7531.09
9075.00 15719.16 8050.51
8502.00 16422.99 7142.59
8355.00 17729.01 7251.87
8230.00 16736.54 7240.48
8605.00 17652.63 7820.57
7223.00 17063.74 6367.17
6040.00 17853.01 5013.31
6180.00 18159.39 5426.63
6525.00 18360.05 5732.31
6496.00 19683.49 5523.40
6885.00 20690.64 5872.26
7363.00 20898.70 6658.44
6349.00 20539.98 5574.83
5862.00 21373.69 5096.59
5485.00 21146.67 4618.50
4385.00 18092.45 3597.75
6128.00 19251.52 5645.65
6143.00 20816.06 5708.11
11/30/98 6017.00 22077.17 5410.78
5682.00 23348.52 4792.13
5660.00 24324.51 4780.13
5541.00 23568.64 4468.76
5645.00 24511.35 4456.30
6687.00 25460.54 5220.33
5830.00 24860.17 4247.69
6280.00 26238.74 4538.60
6081.00 25420.67 4331.22
6332.00 25294.81 4605.06
7470.00 24602.24 5791.08
6746.00 26158.42 5023.87
6857.00 26690.13 4800.18
7072.00 28261.15 4760.34
6591.00 26841.41 4200.92
6303.00 26333.84 4333.53
6111.00 28908.39 4008.56
5682.00 28038.96 3878.41
5882.00 27465.13 3995.54
6148.00 28142.34 4140.71
7/31/00 5786.00 27702.75 3736.72
6355.00 29422.52 3783.44
5904.00 27869.60 3582.37
5579.00 27751.39 3037.20
5941.00 25565.08 3203.51
6509.00 25690.50 3505.55
6635.00 26601.43 3422.73
6925.00 24177.42 3665.39
6079.00 22646.63 3304.63
6955.00 24405.10 3852.98
7489.00 24568.83 3985.08
7110.00 23971.07 3981.39
6532.00 23735.00 3886.62
6955.00 22250.64 4134.92
6814.00 20453.99 4510.35
6606.00 20844.25 4313.89
6680.00 22442.75 4140.97
7107.00 22639.47 4300.61
7653.00 22309.27 4915.05
8350.00 21879.00 5402.53
3/31/02 9017.00 22701.81 5956.98
9501.00 21326.12 6353.38
10593.00 21169.56 7280.07
9274.00 19662.07 6235.28
7713.00 18129.88 5275.30
8706.00 18248.59 6006.46
8713.00 16267.09 6038.56
8244.00 17697.51 5491.76
8274.00 18738.15 5351.30
9701.00 17637.89 6552.50
9807.00 17176.72 6523.22
9106.00 16918.62 6106.66
8558.00 17081.22 5728.57
8413.00 18488.85 5668.37
9655.00 19461.98 6316.92
9952.00 19710.66 6644.80
10348.00 20058.33 6885.72
11865.00 20448.76 7769.19
12124.00 20232.24 7825.80
13214.00 21376.19 8459.99
11/30/03 14722.00 21564.05 9363.14
14661.00 22694.09 9357.20
13225.00 23110.64 8185.17
13546.00 23431.78 8340.71
14333.00 23078.32 9047.61
11416.00 22716.62 7075.82
12431.00 23027.70 7797.29
12118.00 23475.18 7481.50
11981.00 22698.39 7504.12
12721.00 22789.56 8162.30
13706.00 23036.23 8760.80
13966.00 23388.17 9096.89
14600.00 24334.28 9381.35
13760.00 25161.91 8709.11
12981.00 24548.63 8067.33
13966.00 25065.00 8615.68
13332.00 24621.63 8201.28
12126.00 24154.81 7344.58
12309.00 24922.76 7424.17
13477.00 24958.42 8183.48
7/31/05 13294.00 25886.23 7907.44
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS C 7/31/05
- --------------------------------------------------------------------------------
1-Year +9.96%
- --------------------------------------------------------------------------------
5-Year +18.10%
- --------------------------------------------------------------------------------
10-Year +2.89%
- --------------------------------------------------------------------------------
ADVISOR CLASS (8/1/95-7/31/05)(5)
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Franklin Gold &
Precious Metals FTSE Gold
Date Fund - Advisor Class S&P 500 Index(6) Mines Index(6)
7/31/95 $10,000 $10,000 $10,000
8/31/95 $10,013 $10,025 $10,115
9/30/95 $10,060 $10,448 $10,183
10/31/95 $8,938 $10,410 $8,835
11/30/95 $9,595 $10,867 $9,679
12/31/95 $9,706 $11,076 $9,812
1/31/96 $11,253 $11,453 $11,824
2/29/96 $11,281 $11,559 $12,001
3/31/96 $11,315 $11,671 $11,969
4/30/96 $11,453 $11,843 $11,931
5/31/96 $11,889 $12,147 $12,189
6/30/96 $10,394 $12,194 $10,342
7/31/96 $10,165 $11,655 $10,234
8/31/96 $10,567 $11,902 $10,417
9/30/96 $9,936 $12,571 $9,496
10/31/96 $9,963 $12,917 $9,629
11/30/96 $9,887 $13,893 $9,616
12/31/96 $9,807 $13,618 $9,351
1/31/97 $9,493 $14,468 $8,709
2/28/97 $10,637 $14,582 $9,782
3/31/97 $9,470 $13,984 $8,394
4/30/97 $8,873 $14,818 $7,531
5/31/97 $9,336 $15,719 $8,051
6/30/97 $8,750 $16,423 $7,143
7/31/97 $8,607 $17,729 $7,252
8/31/97 $8,486 $16,737 $7,240
9/30/97 $8,878 $17,653 $7,821
10/31/97 $7,462 $17,064 $6,367
11/30/97 $6,250 $17,853 $5,013
12/31/97 $6,399 $18,159 $5,427
1/31/98 $6,762 $18,360 $5,732
2/28/98 $6,740 $19,683 $5,523
3/31/98 $7,142 $20,691 $5,872
4/30/98 $7,642 $20,899 $6,658
5/31/98 $6,595 $20,540 $5,575
6/30/98 $6,095 $21,374 $5,097
7/31/98 $5,813 $21,147 $4,618
8/31/98 $4,652 $18,092 $3,598
9/30/98 $6,508 $19,252 $5,646
10/31/98 $6,532 $20,816 $5,708
11/30/98 $6,401 $22,077 $5,411
12/31/98 $6,052 $23,349 $4,792
1/31/99 $6,036 $24,325 $4,780
2/28/99 $5,913 $23,569 $4,469
3/31/99 $6,029 $24,511 $4,456
4/30/99 $7,143 $25,461 $5,220
5/31/99 $6,236 $24,860 $4,248
6/30/99 $6,728 $26,239 $4,539
7/31/99 $6,529 $25,421 $4,331
8/31/99 $6,805 $25,295 $4,605
9/30/99 $8,035 $24,602 $5,791
10/31/99 $7,258 $26,158 $5,024
11/30/99 $7,389 $26,690 $4,800
12/31/99 $7,622 $28,261 $4,760
1/31/00 $7,103 $26,841 $4,201
2/29/00 $6,795 $26,334 $4,334
3/31/00 $6,593 $28,908 $4,009
4/30/00 $6,138 $28,039 $3,878
5/31/00 $6,353 $27,465 $3,996
6/30/00 $6,648 $28,142 $4,141
7/31/00 $6,253 $27,703 $3,737
8/31/00 $6,880 $29,423 $3,783
9/30/00 $6,393 $27,870 $3,582
10/31/00 $6,053 $27,751 $3,037
11/30/00 $6,447 $25,565 $3,204
12/31/00 $7,068 $25,691 $3,506
1/31/01 $7,210 $26,601 $3,423
2/28/01 $7,532 $24,177 $3,665
3/31/01 $6,613 $22,647 $3,305
4/30/01 $7,571 $24,405 $3,853
5/31/01 $8,168 $24,569 $3,985
6/30/01 $7,759 $23,971 $3,981
7/31/01 $7,132 $23,735 $3,887
8/31/01 $7,594 $22,251 $4,135
9/30/01 $7,454 $20,454 $4,510
10/31/01 $7,233 $20,844 $4,314
11/30/01 $7,320 $22,443 $4,141
12/31/01 $7,794 $22,639 $4,301
1/31/02 $8,400 $22,309 $4,915
2/28/02 $9,168 $21,879 $5,403
3/31/02 $9,912 $22,702 $5,957
4/30/02 $10,454 $21,326 $6,353
5/31/02 $11,658 $21,170 $7,280
6/30/02 $10,227 $19,662 $6,235
7/31/02 $8,513 $18,130 $5,275
8/31/02 $9,605 $18,249 $6,006
9/30/02 $9,629 $16,267 $6,039
10/31/02 $9,112 $17,698 $5,492
11/30/02 $9,152 $18,738 $5,351
12/31/02 $10,739 $17,638 $6,552
1/31/03 $10,870 $17,177 $6,523
2/28/03 $10,092 $16,919 $6,107
3/31/03 $9,495 $17,081 $5,729
4/30/03 $9,339 $18,489 $5,668
5/31/03 $10,731 $19,462 $6,317
6/30/03 $11,067 $19,711 $6,645
7/31/03 $11,525 $20,058 $6,886
8/31/03 $13,219 $20,449 $7,769
9/30/03 $13,523 $20,232 $7,826
10/31/03 $14,759 $21,376 $8,460
11/30/03 $16,453 $21,564 $9,363
12/31/03 $16,398 $22,694 $9,357
1/31/04 $14,809 $23,111 $8,185
2/29/04 $15,171 $23,432 $8,341
3/31/04 $16,077 $23,078 $9,048
4/30/04 $12,807 $22,717 $7,076
5/31/04 $13,961 $23,028 $7,797
6/30/04 $13,623 $23,475 $7,482
7/31/04 $13,474 $22,698 $7,504
8/31/04 $14,323 $22,790 $8,162
9/30/04 $15,443 $23,036 $8,761
10/31/04 $15,755 $23,388 $9,097
11/30/04 $16,472 $24,334 $9,381
12/31/04 $15,541 $25,162 $8,709
1/31/05 $14,673 $24,549 $8,067
2/28/05 $15,797 $25,065 $8,616
3/31/05 $15,095 $24,622 $8,201
4/30/05 $13,741 $24,155 $7,345
5/31/05 $13,964 $24,923 $7,424
6/30/05 $15,301 $24,958 $8,183
7/31/05 $15,104 $25,886 $7,907
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
ADVISOR CLASS(5) 7/31/05
- --------------------------------------------------------------------------------
1-Year +12.09%
- --------------------------------------------------------------------------------
5-Year +19.29%
- --------------------------------------------------------------------------------
10-Year +4.21%
- --------------------------------------------------------------------------------
Annual Report | 11
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. IN ADDITION, THE FUND IS
SUBJECT TO THE RISKS OF CURRENCY FLUCTUATION AND POLITICAL UNCERTAINTY
ASSOCIATED WITH FOREIGN INVESTING. INVESTMENTS IN DEVELOPING MARKETS INVOLVE
HEIGHTENED RISKS RELATED TO THE SAME FACTORS, IN ADDITION TO THOSE ASSOCIATED
WITH THEIR RELATIVELY SMALL SIZE AND LESSER LIQUIDITY. 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.
(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 +54.01% and +5.16%.
(6) Sources: Standard & Poor's Micropal; Financial Times. The S&P 500 consists
of 500 stocks chosen for market size, liquidity and industry group
representation. Each stock's weight in the index is proportionate to its
market value. The S&P 500 includes reinvested dividends and is one of the
most widely used benchmarks of U.S. equity performance. The FTSE Gold
Mines Index is an unweighted index that tracks the daily performance of
gold mining companies in South Africa, Australia and North America. This
is a price-only index and does not include dividends.
12 | Annual Report
YOUR FUND'S EXPENSES
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period, by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 13
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 1/31/05 VALUE 7/31/05 PERIOD* 1/31/05-7/31/05
- -----------------------------------------------------------------------------------------------------------
Actual $1,000 $1,027.70 $4.93
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.93 $4.91
- -----------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------
Actual $1,000 $1,023.80 $8.68
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,016.22 $8.65
- -----------------------------------------------------------------------------------------------------------
CLASS C
- -----------------------------------------------------------------------------------------------------------
Actual $1,000 $1,024.10 $8.73
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,016.17 $8.70
- -----------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- -----------------------------------------------------------------------------------------------------------
Actual $1,000 $1,029.30 $3.72
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.12 $3.71
- -----------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio for each class (A:
0.98%; B: 1.73%; C: 1.74%; and Advisor: 0.74%), multiplied by the average
account value over the period, multiplied by 181/365 to reflect the
one-half year period.
14 | Annual Report
FRANKLIN GOLD AND PRECIOUS METALS FUND
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------
YEAR ENDED JULY 31,
CLASS A 2005 2004 2003 2002 2001
-------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................... $ 15.94 $ 13.74 $ 10.28 $ 8.88 $ 7.90
-------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ............................ 0.04 0.05 0.13 0.13 0.25
Net realized and unrealized gains (losses) .......... 1.84 2.25 3.44 1.52 0.84
-------------------------------------------------------------------------
Total from investment operations ..................... 1.88 2.30 3.57 1.65 1.09
-------------------------------------------------------------------------
Less distributions from net investment income ........ (0.01) (0.10) (0.11) (0.25) (0.11)
-------------------------------------------------------------------------
Redemption fees ...................................... --(c) --(c) -- -- --
-------------------------------------------------------------------------
Net asset value, end of year ......................... $ 17.81 $ 15.94 $ 13.74 $ 10.28 $ 8.88
=========================================================================
Total return(b) ...................................... 11.78% 16.68% 34.97% 18.97% 13.91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $439,628 $394,292 $306,283 $200,627 $164,004
Ratios to average net assets:
Expenses ............................................ 0.96% 0.96% 1.09% 1.13% 1.32%
Net investment income ............................... 0.21% 0.26% 1.05% 1.18% 2.86%
Portfolio turnover rate .............................. 11.33% 8.11% 6.59% 12.77% 7.31%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge.
(c) Amount is less than $0.01 per share.
Annual Report | See notes to financial statements. | 15
FRANKLIN GOLD AND PRECIOUS METALS FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
---------------------------------------------------------------
YEAR ENDED JULY 31,
CLASS B 2005 2004 2003 2002 2001
---------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................... $ 15.54 $ 13.46 $ 10.11 $ 8.76 $ 7.82
---------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) ..................... (0.09) (0.08) 0.02 0.01 0.17
Net realized and unrealized gains (losses) .......... 1.79 2.21 3.41 1.55 0.83
---------------------------------------------------------------
Total from investment operations ..................... 1.70 2.13 3.43 1.56 1.00
---------------------------------------------------------------
Less distributions from net investment income ........ -- (0.05) (0.08) (0.21) (0.06)
---------------------------------------------------------------
Redemption fees ...................................... --(c) --(c) -- -- --
---------------------------------------------------------------
Net asset value, end of year ......................... $ 17.24 $ 15.54 $ 13.46 $ 10.11 $ 8.76
===============================================================
Total return(b) ...................................... 10.94% 15.81% 34.08% 18.14% 12.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $41,270 $37,738 $26,278 $10,964 $4,037
Ratios to average net assets:
Expenses ............................................ 1.70% 1.71% 1.85% 1.89% 2.08%
Net investment income (loss) ........................ (0.53)% (0.49)% 0.29% 0.12% 1.88%
Portfolio turnover rate .............................. 11.33% 8.11% 6.59% 12.77% 7.31%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect the contingent deferred sales charge.1
(c) Amount is less than $0.01 per share.
16 | See notes to financial statements. | Annual Report
FRANKLIN GOLD AND PRECIOUS METALS FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
----------------------------------------------------------------------
YEAR ENDED JULY 31,
CLASS C 2005 2004 2003 2002 2001
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 15.69 $ 13.59 $ 10.18 $ 8.80 $ 7.83
----------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) .................... (0.09) (0.09) 0.04 0.04 0.18
Net realized and unrealized gains (losses) ......... 1.80 2.23 3.43 1.53 0.83
----------------------------------------------------------------------
Total from investment operations .................... 1.71 2.14 3.47 1.57 1.01
----------------------------------------------------------------------
Less distributions from net investment income ....... -- (0.04) (0.06) (0.19) (0.04)
----------------------------------------------------------------------
Redemption fees ..................................... --(c) --(c) -- -- --
----------------------------------------------------------------------
Net asset value, end of year ........................ $ 17.40 $ 15.69 $ 13.59 $ 10.18 $ 8.80
======================================================================
Total return(b) ..................................... 10.96% 15.77% 34.16% 18.09% 12.89%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $114,315 $101,962 $65,729 $38,219 $22,220
Ratios to average net assets:
Expenses ........................................... 1.71% 1.71% 1.82% 1.88% 2.07%
Net investment income (loss) ....................... (0.54)% (0.49)% 0.32% 0.35% 2.11%
Portfolio turnover rate ............................. 11.33% 8.11% 6.59% 12.77% 7.31%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect the contingent deferred sales charge.
(c) Amount is less than $0.01 per share.
Annual Report | See notes to financial statements. | 17
FRANKLIN GOLD AND PRECIOUS METALS FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------
YEAR ENDED JULY 31,
ADVISOR CLASS 2005 2004 2003 2002 2001
--------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ..................... $ 16.36 $ 14.08 $ 10.53 $ 9.09 $ 8.09
--------------------------------------------------------------
Income from investment operations:
Net investment income(a) .............................. 0.08 0.08 0.09 0.15 0.28
Net realized and unrealized gains (losses) ............ 1.89 2.33 3.60 1.56 0.85
--------------------------------------------------------------
Total from investment operations ....................... 1.97 2.41 3.69 1.71 1.13
--------------------------------------------------------------
Less distributions from net investment income .......... (0.05) (0.13) (0.14) (0.27) (0.13)
--------------------------------------------------------------
Redemption fees ........................................ --(b) --(b) -- -- --
--------------------------------------------------------------
Net asset value, end of year ........................... $ 18.28 $ 16.36 $ 14.08 $10.53 $ 9.09
==============================================================
Total return ........................................... 12.09% 16.91% 35.38% 19.38% 14.04%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................ $34,519 $35,351 $21,223 $5,573 $3,574
Ratios to average net assets:
Expenses .............................................. 0.71% 0.71% 0.85% 0.90% 1.08%
Net investment income ................................. 0.46% 0.51% 1.29% 1.29% 3.15%
Portfolio turnover rate ................................ 11.33% 8.11% 6.59% 12.77% 7.31%
(a) Based on average daily shares outstanding.
(b) Amount is less than $0.01 per share.
18 | See notes to financial statements. | Annual Report
FRANKLIN GOLD AND PRECIOUS METALS FUND
STATEMENT OF INVESTMENTS, JULY 31, 2005
- -----------------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES/WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS, WARRANTS AND MUTUAL FUNDS 98.8%
COMMON STOCKS, WARRANTS AND MUTUAL
Anglo American PLC ............................................... South Africa 256,100 $ 6,482,063
Anglo American PLC, ADR .......................................... South Africa 370,479 9,424,986
Freeport McMoRan Copper & Gold Inc., B ........................... United States 969,211 39,039,819
(a)Mvelaphanda Resources Ltd. ....................................... South Africa 2,250,000 5,360,160
------------
60,307,028
------------
GOLD EXPLORATION 7.8%
a Alamos Gold Inc. ................................................. Canada 696,400 2,577,363
(a),(b)Alamos Gold Inc., 144A ........................................... Canada 400,000 1,480,392
(a)Ballarat Goldfields NL ........................................... Australia 10,000,000 1,967,804
(a)Bendigo Mining Ltd. .............................................. Australia 6,000,000 5,267,659
(a)European Minerals Corp. .......................................... Canada 550,000 260,621
(a),(b)European Minerals Corp., 144A .................................... Canada 10,600,000 5,022,876
(a),(b)European Minerals Corp., wts., 144A, 4/01/10 ..................... Canada 5,300,000 779,412
(a)Gammon Lake Resources Inc. ....................................... Canada 1,364,500 9,408,807
(a)Guinor Gold Corp. ................................................ Canada 3,000,000 2,328,431
(a)Ivanhoe Mines Ltd. ............................................... Canada 1,628,600 12,041,528
(a)Metallica Resources Inc. ......................................... Canada 1,488,998 1,581,452
(a)Metallica Resources Inc., wts., 12/11/08 ......................... Canada 494,499 96,961
(a)Miramar Mining Corp. ............................................. Canada 1,330,000 1,499,510
(a)Nevsun Resources Ltd. ............................................ Canada 877,000 1,540,482
(a)Pan Australian Resources Ltd. .................................... Australia 10,000,000 1,778,592
(a)Shore Gold Inc. .................................................. Canada 375,000 1,366,421
------------
48,998,311
------------
LONG LIFE GOLD MINES 57.0%
Agnico-Eagle Mines Ltd. .......................................... Canada 750,000 9,165,000
AngloGold Ashanti Ltd. ........................................... South Africa 62,530 2,160,989
AngloGold Ashanti Ltd., ADR ...................................... South Africa 1,021,327 35,113,222
Barrick Gold Corp. ............................................... Canada 2,038,671 49,947,439
(a)Centerra Gold Inc. ............................................... Canada 40,000 584,967
(a),(b)Centerra Gold Inc., 144A ......................................... Canada 536,600 7,847,337
Compania de Minas Buenaventura SA ................................ Peru 100,593 2,320,663
Compania de Minas Buenaventura SA, ADR ........................... Peru 988,986 23,270,841
Gold Fields Ltd. ................................................. South Africa 604,999 6,629,912
Gold Fields Ltd., ADR ............................................ South Africa 854,528 9,220,357
Goldcorp Inc. .................................................... Canada 1,350,000 21,949,055
(a)Goldcorp Inc., wts., 5/30/07 ..................................... Canada 912,500 2,489,992
Harmony Gold Mining Co. Ltd. ..................................... South Africa 1,343,000 11,243,968
Harmony Gold Mining Co. Ltd., ADR ................................ South Africa 200,000 1,640,000
Highland Gold Mining Ltd. ........................................ United Kingdom 524,000 1,372,330
(a)Lihir Gold Ltd. .................................................. Papua New Guinea 8,566,841 8,461,350
(a),(b)Lihir Gold Ltd., ADR, 144A ....................................... Papua New Guinea 50,000 988,000
(a)Meridian Gold Inc. ............................................... Canada 513,760 9,213,261
(a)Meridian Gold Inc. ............................................... United States 1,156,500 20,631,960
Newcrest Mining Ltd. ............................................. Australia 3,570,828 44,295,164
Newmont Mining Corp. ............................................. United States 770,714 28,940,311
(a)Oxiana Ltd. ...................................................... Australia 9,882,655 7,292,672
Annual Report | 19
FRANKLIN GOLD AND PRECIOUS METALS FUND
STATEMENT OF INVESTMENTS, JULY 31, 2005 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES/WARRANTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS, WARRANTS AND MUTUAL FUNDS (CONT.)
LONG LIFE GOLD MINES (CONT.)
Placer Dome Inc. ..................................................... Canada 2,471,655 $ 34,281,855
(a)Randgold Resources Ltd., ADR ......................................... South Africa 1,427,600 18,987,080
(a)Western Areas Ltd. ................................................... South Africa 402,225 1,209,253
(a)Western Areas Ltd., ADR .............................................. South Africa 26,430 79,459
-------------
359,336,437
-------------
MEDIUM LIFE GOLD MINES 12.0%
(a)Apollo Gold Corp. .................................................... Canada 1,000,000 285,948
(a)Cambior Inc. ......................................................... Canada 2,130,000 4,524,510
(a)Eldorado Gold Corp. .................................................. Canada 2,145,000 5,800,613
(a)Glamis Gold Ltd. ..................................................... Canada 948,500 16,570,295
IAMGOLD Corp. ........................................................ Canada 467,400 3,005,260
Kingsgate Consolidated Ltd. .......................................... Australia 1,855,148 4,478,965
(a)Kinross Gold Corp. ................................................... Canada 3,513,012 19,401,929
(a)Northgate Minerals Corp. ............................................. Canada 1,150,000 1,399,918
(a)Queenstake Resources Ltd. ............................................ Canada 7,500,000 1,654,412
(a)Rio Narcea Gold Mines Ltd. ........................................... Canada 1,100,000 1,770,425
(a)Semafo Inc. .......................................................... Canada 3,000,000 3,357,843
(a),(c)Semafo Inc., wts., 144A, 12/18/06 .................................... Canada 1,225,000 236,193
(a)Yamana Gold Inc. ..................................................... Canada 2,640,000 9,749,019
(a)Yamana Gold Inc., wts., 7/31/08 ...................................... Canada 1,150,000 3,185,049
-------------
75,420,379
-------------
MUTUAL FUNDS 1.2%
Central Fund of Canada, A ............................................ Canada 1,405,000 7,362,200
-------------
PLATINUM & PALLADIUM 11.2%
Anglo American Platinum Corp. Ltd. ................................... South Africa 40,000 1,777,967
Anglo American Platinum Corp. Ltd., ADR .............................. South Africa 571,138 25,386,616
Impala Platinum Holdings Ltd. ........................................ South Africa 248,000 22,971,702
Impala Platinum Holdings Ltd., ADR ................................... South Africa 771,200 17,858,646
(a)North American Palladium Ltd. ........................................ Canada 132,000 652,451
(a)Stillwater Mining Co. ................................................ United States 253,246 2,066,486
-------------
70,713,868
-------------
TOTAL COMMON STOCKS, WARRANTS AND MUTUAL FUNDS (COST $443,457,194) ..... 622,138,223
-------------
20 | Annual Report
FRANKLIN GOLD AND PRECIOUS METALS FUND
STATEMENT OF INVESTMENTS, JULY 31, 2005 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (COST $5,611,162) 0.9%
MONEY FUND 0.9%
(d)Franklin Institutional Fiduciary Trust Money Market Portfolio ....... United States 5,611,162 $ 5,611,162
-------------
TOTAL INVESTMENTS (COST $449,068,356) 99.7% ......................... 627,749,385
OTHER ASSETS, LESS LIABILITIES 0.3% ................................. 1,982,882
-------------
NET ASSETS 100.0% ................................................... $629,732,267
=============
SELECTED PORTFOLIO ABBREVIATIONS:
ADR - American Depository Receipt
(a) Non-income producing.
(b) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under
the Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Fund's Board of Trustees.
(c) See Note 8 regarding restricted and illiquid securities.
(d) See Note 9 regarding investments in Franklin Institutional Fiduciary Trust
Money Market Portfolio.
Annual Report | See notes to financial statements. | 21
FRANKLIN GOLD AND PRECIOUS METALS FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2005
Assets:
Investments in securities:
Cost - Unaffiliated issuers ...................................... $ 443,457,194
Cost - Sweep Money Fund (Note 9) ................................. 5,611,162
--------------
Total cost of investments ........................................ $ 449,068,356
==============
Value - Unaffiliated issuers ..................................... $ 622,138,223
Value - Sweep Money Fund (Note 9) ................................ 5,611,162
--------------
Total value of investments ....................................... 627,749,385
Cash .............................................................. 17,212
Receivables:
Investment securities sold ....................................... 4,137,302
Capital shares sold .............................................. 873,928
Dividends ........................................................ 248,448
--------------
Total assets ................................................... 633,026,275
--------------
Liabilities:
Payables:
Capital shares redeemed .......................................... 2,665,160
Affiliates ....................................................... 558,252
Other liabilities ................................................. 70,596
--------------
Total liabilities .............................................. 3,294,008
--------------
Net assets, at value ......................................... $ 629,732,267
==============
Net assets consist of:
Undistributed net investment income ............................... $ 549,543
Net unrealized appreciation (depreciation) ........................ 178,681,029
Accumulated net realized gain (loss) .............................. (15,629,542)
Paid-in capital ................................................... 466,131,237
--------------
Net assets, at value ......................................... $ 629,732,267
==============
22 | See notes to financial statements. | Annual Report
FRANKLIN GOLD AND PRECIOUS METALS FUND
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
July 31, 2005
CLASS A:
Net assets, at value ........................................................................... $439,628,122
=============
Shares outstanding ............................................................................. 24,682,984
=============
Net asset value per sharea ..................................................................... $ 17.81
=============
Maximum offering price per share (net asset value per share / 94.25%) .......................... $ 18.90
=============
CLASS B:
Net assets, at value ........................................................................... $ 41,270,444
=============
Shares outstanding ............................................................................. 2,394,364
=============
Net asset value and maximum offering price per share(a) ........................................ $ 17.24
=============
CLASS C:
Net assets, at value ........................................................................... $114,315,035
=============
Shares outstanding ............................................................................. 6,568,768
=============
Net asset value and maximum offering price per share(a) ........................................ $ 17.40
=============
ADVISOR CLASS:
Net assets, at value ........................................................................... $ 34,518,666
=============
Shares outstanding ............................................................................. 1,888,027
=============
Net asset value and maximum offering price per share(a) ........................................ $ 18.28
=============
(a) Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable, and redemption fees retained by the Fund.
Annual Report | See notes to financial statements. | 23
FRANKLIN GOLD AND PRECIOUS METALS FUND
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended July 31, 2005
Investment income:
Dividends
Unaffiliated issuers ........................................................................ $ 7,045,801
Sweep Money Fund (Note 9) ................................................................... 364,650
Other income (Note 10) ....................................................................... 3,552
------------
Total investment income ................................................................. 7,414,003
-------------
Expenses:
Management fees (Note 3a) .................................................................... 3,077,751
Distribution fees (Note 3c)
Class A ..................................................................................... 1,072,341
Class B ..................................................................................... 418,701
Class C ..................................................................................... 1,142,375
Transfer agent fees (Note 3e) ................................................................ 1,118,243
Custodian fees (Note 4) ...................................................................... 70,902
Reports to shareholders ...................................................................... 80,290
Registration and filing fees ................................................................. 99,650
Professional fees ............................................................................ 22,083
Trustees' fees and expenses .................................................................. 16,837
Other ........................................................................................ 25,102
------------
Total expenses .......................................................................... 7,144,275
Expense reductions (Note 4) ............................................................. (307)
------------
Net expenses ........................................................................... 7,143,968
-------------
Net investment income ................................................................. 270,035
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ................................................................................. 16,089,682
Foreign currency transactions ............................................................... 396,874
-------------
Net realized gain (loss) ................................................................ 16,486,556
Net change in unrealized appreciation (depreciation) on investments .......................... 51,129,638
-------------
Net realized and unrealized gain (loss) ....................................................... 67,616,194
-------------
Net increase (decrease) in net assets resulting from operations ............................... $ 67,886,229
=============
24 | See notes to financial statements. | Annual Report
FRANKLIN GOLD AND PRECIOUS METALS FUND
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
-------------------------------------
YEAR ENDED JULY 31,
2005 2004
-------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income .............................................................. $ 270,035 $ 532,142
Net realized gain (loss) from investments and foreign currency transactions ........ 16,486,556 18,847,157
Net change in unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in foreign currencies ..... 51,129,638 37,115,245
-------------------------------------
Net increase (decrease) in net assets resulting from operations ................ 67,886,229 56,494,544
-------------------------------------
Distributions to shareholders from:
Net investment income:
Class A ........................................................................... (196,281) (2,303,565)
Class B ........................................................................... -- (108,625)
Class C ........................................................................... -- (236,649)
Advisor Class ..................................................................... (115,006) (253,015)
-------------------------------------
Total distributions to shareholders ................................................. (311,287) (2,901,854)
-------------------------------------
Capital share transactions: (Note 2)
Class A ........................................................................... (3,154,226) 46,820,124
Class B ........................................................................... (404,873) 7,857,969
Class C ........................................................................... 1,304,585 28,515,228
Advisor Class ..................................................................... (4,939,072) 13,041,561
-------------------------------------
Total capital share transactions .................................................... (7,193,586) 96,234,882
-------------------------------------
Redemption fees ..................................................................... 8,647 751
-------------------------------------
Net increase (decrease) in net assets .......................................... 60,390,003 149,828,323
Net assets:
Beginning of year ................................................................... 569,342,264 419,513,941
-------------------------------------
End of year ......................................................................... $ 629,732,267 $ 569,342,264
=====================================
Undistributed net investment income included in net assets:
End of year ......................................................................... $ 549,543 $ 310,439
=====================================
Annual Report | See notes to financial statements. | 25
FRANKLIN GOLD AND PRECIOUS METALS FUND
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Gold and Precious Metals Fund (the Fund) is registered under the
Investment Company Act of 1940 as a non-diversified, open-end investment
company.
The 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. If no sale is reported at that time, the foreign security will be
valued within the range of the most recent quoted bid and ask prices. The value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at the close of the NYSE on the day that the value of the foreign
security is determined.
The Fund has procedures to determine the fair value of individual securities and
other assets for which market prices are not readily available or which may not
be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the Fund. If such an event occurs, the securities may be valued
using fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by the Fund's Board of
Trustees.
B. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Fund's Board of Trustees.
26 | Annual Report
FRANKLIN GOLD AND PRECIOUS METALS FUND
NOTES TO FINANCIAL STATEMENTS (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, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities.
D. INCOME TAXES
No provision has been made for U.S. income taxes because the Fund's policy is to
continue 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.
Annual Report | 27
FRANKLIN GOLD AND PRECIOUS METALS FUND
NOTES TO FINANCIAL STATEMENTS (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 year. 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.
H. GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and trustees are
indemnified by the Fund against certain liabilities arising out of the
performance of their duties to the Fund. Additionally, in the normal course of
business, the Fund enters into contracts with service providers that contain
general indemnification clauses. The Fund's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Fund that have not yet occurred. However, based on experience the
Fund expects the risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
The Fund offers four classes of shares: Class A, Class B, Class C and Advisor
Class. Effective March 1, 2005, Class B shares are only offered to existing
Class B shareholders in the form of reinvested distributions and certain
exchanges from other Franklin Templeton Class B shares. 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.
28 | Annual Report
FRANKLIN GOLD AND PRECIOUS METALS FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
At July 31, 2005, there were an unlimited number of shares authorized ($0.10 par
value). Transactions in the Fund's shares were as follows:
------------------------------------------------------------------------------
YEAR ENDED JULY 31,
2005 2004
------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------
CLASS A SHARES:
Shares sold .......................... 11,059,746 $ 194,135,361 15,570,606 $ 267,648,705
Shares issued in reinvestment of
distributions ...................... 8,786 171,070 100,150 1,994,995
Shares redeemed ...................... (11,118,040) (197,460,657) (13,225,965) (222,823,576)
------------------------------------------------------------------------------
Net increase (decrease) .............. (49,508) $ (3,154,226) 2,444,791 $ 46,820,124
==============================================================================
CLASS B SHARES:
Shares sold .......................... 468,037 $ 8,154,926 1,565,131 $ 26,340,327
Shares issued in reinvestment of
distributions ...................... -- -- 5,064 98,800
Shares redeemed ...................... (502,670) (8,559,799) (1,093,974) (18,581,158)
------------------------------------------------------------------------------
Net increase (decrease) .............. (34,633) $ (404,873) 476,221 $ 7,857,969
==============================================================================
CLASS C SHARES:
Shares sold .......................... 1,406,424 $ 24,673,748 3,529,183 $ 60,071,858
Shares issued in reinvestment of
distributions ...................... -- -- 9,916 195,334
Shares redeemed ...................... (1,337,493) (23,369,163) (1,877,614) (31,751,964)
------------------------------------------------------------------------------
Net increase (decrease) .............. 68,931 $ 1,304,585 1,661,485 $ 28,515,228
==============================================================================
ADVISOR CLASS SHARES:
Shares sold .......................... 482,952 $ 8,680,605 1,648,203 $ 29,129,104
Shares issued in reinvestment of
distributions ...................... 5,639 112,495 11,945 243,798
Shares redeemed ...................... (761,539) (13,732,172) (1,005,991) (16,331,341)
------------------------------------------------------------------------------
Net increase (decrease) .............. (272,948) $ (4,939,072) 654,157 $ 13,041,561
==============================================================================
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Fund are also officers and/or directors of the following
subsidiaries:
- ------------------------------------------------------------------------------------------------------------------
SUBSIDIARY AFFILIATION
- ------------------------------------------------------------------------------------------------------------------
Franklin Advisers Inc. (Advisers) Investment manager
Franklin Templeton Services LLC (FT Services) Administrative manager
Franklin Templeton Distributors Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services LLC (Investor Services) Transfer agent
Annual Report | 29
FRANKLIN GOLD AND PRECIOUS METALS FUND
NOTES TO FINANCIAL STATEMENTS (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% In excess of $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's Board of Trustees has adopted distribution plans for each share
class, with the exception of Advisor class shares, pursuant to Rule 12b-1 under
the 1940 Act. Under the Fund's reimbursement distribution plan, the Fund
reimburses Distributors up to 0.25% per year of Class A's average daily net
assets for costs incurred in connection with the sale and distribution of the
Fund's shares. Under the Class A reimbursement distribution plan, costs
exceeding the maximum for the current plan year cannot be reimbursed in
subsequent periods.
Under the Fund's compensation distribution plans, the Fund pays Distributors for
costs incurred in connection with the sale and distribution of the Fund's shares
up to a certain percentage per year of its average daily net assets of each
class as follows:
Class B .................................................. 1.00%
Class C .................................................. 1.00%
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 year:
Net sales charges received(a) ............................ $184,465
Contingent deferred sales charges retained ............... $ 88,295
(a) Net of commissions paid to unaffiliated broker/dealers.
E. TRANSFER AGENT FEES
The Fund paid transfer agent fees of $1,118,243, of which $751,668 was retained
by Investor Services.
30 | Annual Report
FRANKLIN GOLD AND PRECIOUS METALS FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the year ended July 31, 2005, the
custodian fees were reduced as noted in the Statement of Operations.
5. INCOME TAXES
At July 31, 2005, 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 .......................................................... $11,772,239
2008 .......................................................... 2,754,018
2009 .......................................................... 1,043,050
-----------
$15,569,307
===========
The tax character of distributions paid during the years ended July 31, 2005 and
2004, was as follows:
-------------------------
2005 2004
-------------------------
Distributions paid from ordinary income ...... $311,287 $2,901,854
Net investment income (loss) differs for financial statement and tax purposes
primarily due to differing treatments of foreign currency transactions and
passive foreign investment company shares.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of foreign currency transactions and wash
sales.
At July 31, 2005, the cost of investments, net unrealized appreciation
(depreciation) and undistributed ordinary income for income tax purposes were as
follows:
Cost of investments ............................................ $ 452,065,597
=============
Unrealized appreciation ........................................ $ 206,152,178
Unrealized depreciation ........................................ (30,468,390)
-------------
Net unrealized appreciation (depreciation) ..................... $ 175,683,788
=============
Distributable earnings--undistributed ordinary income .......... $ 3,486,549
=============
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term securities) for the
year ended July 31, 2005 aggregated $73,013,923 and $69,388,656, respectively.
Annual Report | 31
FRANKLIN GOLD AND PRECIOUS METALS FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. RISK OF INVESTING IN FOREIGN SECURITIES
Investing in foreign securities may include certain risks and considerations not
typically associated with investing in U.S. securities, such as fluctuating
currency values and changing local and regional economic, political and social
conditions, which may result in greater market volatility. In addition, certain
foreign securities may not be as liquid as U.S. securities.
8. RESTRICTED AND ILLIQUID SECURITIES
At July 31, 2005, investments in securities included issues that are restricted
and illiquid. Restricted securities are often purchased in private placement
transactions, and cannot be sold without prior registration under the Securities
Act of 1933, unless the sale is pursuant to an exemption under the 1933 Act. The
Fund has registration rights for all restricted securities held at period end.
The issuer generally incurs all registration costs.
A security may be considered illiquid if it lacks a readily available market or
if its valuation has not changed for a certain period of time. At July 31, 2005,
the Fund held investments in restricted and illiquid securities, valued in
accordance with procedures approved by the Fund's Board of Trustees as
reflecting fair value, as follows:
- --------------------------------------------------------------------------------------------------------
SHARES AND ACQUISITION
WARRANTS ISSUER DATE COST VALUE
- --------------------------------------------------------------------------------------------------------
1,225,000 Semafo Inc., wts., 144A, 12/18/06(a) ....... 12/18/03 $21,630 $236,193
---------
TOTAL RESTRICTED AND ILLIQUID SECURITIES (0.04% of Net Assets) ............... $236,193
=========
(a) The Fund also invests in unrestricted securities of the issuer, valued at
$3,357,843 as of July 31, 2005.
9. 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.
32 | Annual Report
FRANKLIN GOLD AND PRECIOUS METALS FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. REGULATORY MATTERS
INVESTIGATIONS AND SETTLEMENTS
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, provided documents and information in response to
subpoenas and/or requests for documents, information and/or testimony. Beginning
in August 2004, the Company entered into settlements with certain of the
regulators and a governmental entity investigating the mutual fund industry
practices noted above. The Company believes that settlement of each of the
matters is in the best interest of the Company and shareholders of the Franklin,
Templeton, and Mutual Series mutual funds (the "funds").
Two of the settlement agreements, those with the SEC and the CAGO concerning
marketing support payments, provide that the distribution of settlement monies
are to be made to the relevant funds, not to individual shareholders. 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 were disbursed to the participating
funds and are recorded as other income in the current period. The SEC has not
yet approved the distribution plan pertaining to the SEC settlement. When
approved, disbursements of settlement monies under the SEC's settlement will be
made promptly in accordance with the terms and conditions of that order.
OTHER LEGAL PROCEEDINGS
On April 12, 2005, the Attorney General of West Virginia filed a complaint in
the Circuit Court of Marshall County, West Virginia against a number of
companies engaged in the mutual fund industry, including Franklin Resources,
Inc. and its subsidiary, Franklin Advisers, Inc., and certain other parties
alleging violations of the West Virginia Consumer Credit and Protection Act and
seeking, among other things, civil penalties and attorneys' fees and costs.
Defendants have since removed the matter to the United States District Court for
the Northern District of West Virginia. To the extent applicable to the Company,
the complaint arises from activity that occurred in 2001 and duplicates, in
whole or in part, the allegations asserted in the February 4, 2004 Massachusetts
Administrative Complaint concerning one instance of market timing (the
"Administrative Complaint") and the SEC's findings regarding market timing in
its August 2, 2004 Order (the "SEC Order"), both of which matters were
previously reported.
Annual Report | 33
FRANKLIN GOLD AND PRECIOUS METALS FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. REGULATORY MATTERS (CONTINUED)
OTHER LEGAL PROCEEDINGS (CONTINUED)
The Company, in addition to certain Franklin, Templeton, and Mutual Series
mutual funds, and certain current and former officers, employees, and directors
have been named in multiple lawsuits in different courts alleging violations of
various federal securities and state 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
Administrative Complaint and the SEC's findings regarding market timing in the
SEC Order. The lawsuits are styled as class actions, or derivative actions on
behalf of either the named funds or Franklin Resources, Inc.
The Company, in addition to certain Franklin, Templeton, and Mutual Series
mutual funds, and 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 marketing
support payments and/or payment of allegedly excessive commissions and/or
advisory or 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 the named funds.
The Company and fund management strongly believe that the claims made in each of
the lawsuits described above are without merit and intends to defend against
them vigorously. The Company cannot predict with certainty the eventual outcome
of these lawsuits, nor whether they will have a material negative impact on the
Company. 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 future financial results. If it is determined that the
Company bears responsibility for any unlawful or inappropriate conduct that
caused losses to the Fund, it is committed to making the Fund or its
shareholders whole, as appropriate. The Company is committed to taking all
appropriate actions to protect the interests of its funds' shareholders.
34 | Annual Report
FRANKLIN GOLD AND PRECIOUS METALS FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN GOLD AND PRECIOUS METALS
FUND
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Gold and Precious Metals
Fund (the "Fund") at July 31, 2005, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at July 31, 2005 by correspondence with the
custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
September 9, 2005
Annual Report | 35
FRANKLIN GOLD AND PRECIOUS METALS FUND
TAX DESIGNATION (UNAUDITED)
Under Section 854(b)(2) of the Internal Revenue Code (Code), the Fund designates
up to a maximum of $7,165,871 as qualified dividends for purposes of the maximum
rate under Section 1(h)(11) of the Code for the fiscal year ended July 31, 2005.
In January 2006, shareholders will receive Form 1099-DIV which will include
their share of qualified dividends distributed during the calendar year 2005.
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their individual income tax returns.
Under Section 854(b)(2) of the Code, the Fund designates 100.00% of the ordinary
income dividends as income qualifying for the dividends received deduction for
the fiscal year ended July 31, 2005.
At July 31, 2005, 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 Funds on these
investments. The Fund elects to treat foreign taxes paid under Section 853 of
the Code. This election will allow shareholders of record in December 2005, to
treat their proportionate share of foreign taxes paid by the Fund as having been
paid directly by them. The shareholder shall consider these amounts as foreign
taxes paid in the tax year in which they receive the Fund distribution.
The foreign tax information will be disclosed in the January 2006 semi-annual
report of the Funds. In addition, in January 2006, shareholders will receive
Form 1099-DIVwhich will include their share of taxes withheld and foreign source
income distributed during the calendar year 2005.
36 | Annual Report
FRANKLIN GOLD AND PRECIOUS METALS FUND
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Fund, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Each board member will serve
until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- -----------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -----------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1982 141 Director, Bar-S Foods (meat packing
One Franklin Parkway company).
San Mateo, CA 94403-1906
- -----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President,
Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
- -----------------------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (1932) Trustee Since 1989 142 None
One Franklin Parkway
San Mateo, CA 94403-1906
- -----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch (until 2002) (Consultant (2003)).
- -----------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (1952) Trustee Since 2003 134 Director, Amerada Hess Corporation
One Franklin Parkway (exploration and refining of oil and
San Mateo, CA 94403-1906 gas), H.J. Heinz Company (processed
foods and allied products), RTI
International Metals, Inc.
(manufacture and distribution of
titanium), Canadian National Railway
(railroad), and White Mountains
Insurance Group, Ltd. (holding
company).
- ------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and
Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to
the Secretary and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
- ------------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 1968 115 Director, The California Center for
One Franklin Parkway Land Recycling (redevelopment).
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture
capital).
- ------------------------------------------------------------------------------------------------------------------------------
Annual Report | 37
- ------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (1928) Trustee Since 1997 141 Director, Martek Biosciences
One Franklin Parkway Corporation, MedImmune, Inc.
San Mateo, CA 94403-1906 (biotechnology), and Overstock.com
(Internet services); and FORMERLY,
Director, MCI Communication
Corporation (subsequently known as
MCI WorldCom, Inc. and WorldCom,
Inc.) (communications services)
(1988-2002), White Mountains
Insurance Group, Ltd. (holding
company) (1987-2004) and Spacehab,
Inc. (aerospace services)
(1994-2003).
- ------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company)
(2001-2004); Chairman, White River Corporation (financial services) (1993-1998) and Hambrecht & Quist Group (investment
banking) (1987-1992); and President, National Association of Securities Dealers, Inc. (1970-1987).
- ------------------------------------------------------------------------------------------------------------------------------
FRANK A. OLSON (1932) Trustee Since June 2005 96 Director, White Mountains Insurance
One Franklin Parkway Group, Ltd. (holding company),
San Mateo, CA 94403-1906 Amerada Hess Corporation
(exploration and refining of oil and
gas) and Sentient Jet (private jet
service); and FORMERLY, Director,
Becton Dickinson and Company
(medical technology), Cooper
Industries, Inc. (electrical
products and tools and hardware),
Health Net, Inc. (FORMERLY,
Foundation Health) (integrated
managed care), The Hertz
Corporation, Pacific Southwest
Airlines, The RCA Corporation,
Unicom (FORMERLY, Commonwealth
Edison) and UAL Corporation
(airlines).
- ------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive
Officer (1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).
- ------------------------------------------------------------------------------------------------------------------------------
38 | Annual Report
INTERESTED BOARD MEMBERS AND OFFICERS
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ----------------------------------------------------------------------------------------------------------------------------------
**HARMON E. BURNS (1945) Trustee and Trustee since 22 None
One Franklin Parkway Vice President 1993 and
San Mateo, CA 94403-1906 Vice President
since 1986
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; and officer and/or director or trustee, as the
case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 47 of the investment companies in Franklin
Templeton Investments.
- ----------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Trustee since 141 None
One Franklin Parkway Chairman of 1976 and
San Mateo, CA 94403-1906 the Board Chairman of the
Board since 1993
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President, Franklin Templeton
Distributors, Inc.; Director, Fiduciary Trust Company International; and officer and/or director or trustee, as the case may be,
of some of the other subsidiaries of Franklin Resources, Inc. and of 43 of the investment companies in Franklin Templeton
Investments.
- ----------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. Trustee, Trustee since 125 None
(1940) President and 1982, President
One Franklin Parkway Chief since 2001 and
San Mateo, CA 94403-1906 Executive Chief Executive
Officer - Officer -
Investment Investment
Management Management
since 2002
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Director, Franklin Advisers, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and
officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 46
of the investment companies in Franklin Templeton Investments.
- ----------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Since 2004 Not Applicable Not Applicable
One Franklin Parkway Compliance
San Mateo, CA 94403-1906 Officer
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of 48 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001).
- ----------------------------------------------------------------------------------------------------------------------------------
LAURA FERGERSON (1962) Treasurer Since 2004 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President of Franklin Templeton Services, LLC; and Officer of 32 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant
Treasurer of most of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin
Templeton Services, LLC (1997-2003).
- ----------------------------------------------------------------------------------------------------------------------------------
Annual Report | 39
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ----------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer -
Finance and
Administration
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 48 of the investment
companies in Franklin Templeton Investments.
- ----------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Resources, Inc.; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; officer of 48 of the investment companies in Franklin Templeton Investments; and FORMERLY, President, Chief
Executive Officer and Director, Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust (until 2000).
- ----------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, LLC,
Franklin Mutual Advisers, LLC, Franklin Templeton Alternative Strategies, Inc., Franklin Templeton Investor Services, LLC,
Franklin Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and
Templeton/Franklin Investment Services, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 48
of the investment companies in Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of Investment Management,
Executive Assistant and Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S.
Securities and Exchange Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and Judicial Clerk, U.S. District Court
(District of Massachusetts) (until 1979).
- ----------------------------------------------------------------------------------------------------------------------------------
MICHAEL O. MAGDOL (1937) Vice President Since 2002 Not Applicable Not Applicable
600 Fifth Avenue - AML
Rockefeller Center Compliance
New York, NY 10020-2302
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Chief Banking Officer and Director, Fiduciary Trust Company International; Director, FTI Banque, Arch Chemicals,
Inc. and Lingnan Foundation; and officer and/or director, as the case may be, of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
- ----------------------------------------------------------------------------------------------------------------------------------
MURRAY L. SIMPSON (1937) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway and Secretary
San Mateo, CA 94403-1906
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President and General Counsel, Franklin Resources, Inc.; officer and/or director, as the case may be, of some of
the subsidiaries of Franklin Resources, Inc. and of 48 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Chief Executive Officer and Managing Director, Templeton Franklin Investment Services (Asia) Limited (until 2000); and
Director, Templeton Asset Management Ltd. (until 1999).
- ----------------------------------------------------------------------------------------------------------------------------------
40 | Annual Report
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ----------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (1951) Chief Financial Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 48 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc.; and Partner, McGladrey & Pullen, LLP.
- ----------------------------------------------------------------------------------------------------------------------------------
We base the number of portfolios on each separate series of the U.S. registered
investment companies within the Franklin Templeton Investments fund complex.
These portfolios have a common investment adviser or affiliated investment
advisers.
**Charles B. Johnson and Rupert H. Johnson, Jr. are considered to be interested
persons of the Fund under the federal securities laws due to their positions as
officers and directors and major shareholders of Franklin Resources, Inc.
(Resources), which is the parent company of the Fund's adviser and distributor.
Harmon E. Burns is considered to be an interested person of the Fund under the
federal securities laws due to his position as officer and director Resources.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF TRUSTEES HAS DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED FRANK W.T. LAHAYE AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. LAHAYE QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE
BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS PRESIDENT AND DIRECTOR
OF MCCORMICK SELPH ASSOCIATES FROM 1954 THROUGH 1965; DIRECTOR AND CHAIRMAN OF
TELEDYNE CANADA LTD. FROM 1966 THROUGH 1971; DIRECTOR AND CHAIRMAN OF
QUARTERDECK CORPORATION FROM 1982 THROUGH 1998; AND SERVICES AS A DIRECTOR OF
VARIOUS OTHER PUBLIC COMPANIES INCLUDING U.S. TELEPHONE INC. (1981-1984), FISHER
IMAGING INC. (1991-1998) AND DIGITAL TRANSMISSIONS SYSTEMS (1995-1999). IN
ADDITION, MR. LAHAYE SERVED FROM 1981 TO 2000 AS A DIRECTOR AND CHAIRMAN OF
PEREGRINE VENTURE MANAGEMENT CO., A VENTURE CAPITAL FIRM, AND HAS BEEN A MEMBER
AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE ITS INCEPTION. AS A RESULT OF
SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. LAHAYE
HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION
WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND
EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY
OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN
UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN
UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. LAHAYE IS AN INDEPENDENT TRUSTEE
AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION
RULES AND RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
Annual Report | 41
FRANKLIN GOLD AND PRECIOUS METALS FUND
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT ADVISORY CONTRACT
At a meeting held April 19, 2005, the Board of Trustees ("Board"), including a
majority of non-interested or independent Trustees, approved renewal of the
investment advisory contract for the Fund. In reaching this decision, the Board
took into account information furnished throughout the year at regular Board
meetings, as well as information prepared specifically in connection with the
annual renewal review process. Information furnished and discussed throughout
the year included investment performance reports and related financial
information for the Fund, as well as periodic reports on shareholder services,
legal, compliance, pricing, brokerage commissions and execution and other
services provided by the Investment Manager ("Manager") and its affiliates.
Information furnished specifically in connection with the renewal process
included a report for the Fund prepared by Lipper Financial Services ("Lipper"),
an independent organization, as well as a Fund profitability analysis report
prepared by management. The Lipper report compared the Fund's investment
performance and expenses with those of other mutual funds deemed comparable to
the Fund as selected by Lipper. The Fund profitability analysis report discussed
the profitability to Franklin Templeton Investments from its overall U.S. fund
operations, as well as on an individual fund-by-fund basis. Included with such
profitability analysis report was information on a fund-by-fund basis listing
portfolio managers and other accounts they manage, as well as information on
management fees charged by the Manager including management's explanation of
differences where relevant and a three-year expense analysis with an explanation
for any increase in expense ratios. Additional information accompanying such
report was a memorandum prepared by management describing enhancements to the
services provided to the Fund by the Franklin Templeton Investments
organization, as well as a memorandum relating to economies of scale.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. In approving
continuance of the investment advisory contract for the Fund, the Board,
including a majority of independent Trustees, determined that the existing
management fee structure was fair and reasonable and that continuance of the
investment advisory contract was in the best interests of the Fund and its
shareholders. While attention was given to all information furnished, the
following discusses the primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICES. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Fund and its shareholders. In addition to investment performance and
expenses of the Fund discussed later, the Board's opinion was based, in part,
upon periodic reports furnished them showing that the investment policies and
restrictions for the Fund were consistently complied with as well as other
reports periodically furnished the Board covering matters such as the compliance
of portfolio managers and other management personnel with the code of ethics
adopted throughout the Franklin Templeton fund complex, the adherence to fair
value pricing procedures established by the Board, and the accuracy of net asset
value calculations. The Board also noted the extent of
42 | Annual Report
FRANKLIN GOLD AND PRECIOUS METALS FUND
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT ADVISORY CONTRACT (CONTINUED)
benefits provided Fund shareholders from being part of the Franklin Templeton
family of funds, including the right to exchange investments between the same
class of funds without a sales charge, the ability to reinvest Fund dividends
into other funds and the right to combine holdings in other funds to obtain a
reduced sales charge. Favorable consideration was given to management's efforts
and expenditures in establishing back-up systems and recovery procedures to
function in the event of a natural disaster, it being noted by the Board that
such systems and procedures had functioned smoothly during the hurricanes and
blackout experienced last year in Florida. Other factors taken into account by
the Board were the Manager's best execution trading policies, including a
favorable third-party report on portfolio execution, as well as the compliance
procedures and qualifications of the Chief Compliance Officer established in
accordance with recently adopted SEC requirements. Consideration was also given
to the experience of the Fund's portfolio management team, the number of
accounts managed and general method of compensation. In this latter respect, the
Board noted that a primary factor in management's determination of the amount of
a portfolio manager's bonus compensation was the relative investment performance
of the funds he or she managed so as to be aligned with the interests of Fund
shareholders. The Board also took into account the transfer agent and
shareholder services provided Fund shareholders by an affiliate of the Manager,
noting continuing expenditures by management to increase and improve the scope
of such services, periodic favorable reports on such service conducted by third
parties such as Dalbar, and the firsthand experience of the individual Trustees
who deal with the shareholder services department in their capacities as
shareholders in one or more of the various Franklin Templeton funds.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of the Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings during the year, particular attention in assessing
such performance was given to the Lipper report furnished for the contract
renewal. The Lipper report prepared for the Fund showed the investment
performance of its Class A shares during the year ended February 28, 2005, as
well as the previous ten years ended that date in comparison to a performance
universe consisting of all retail and institutional gold-oriented funds as
selected by Lipper. The Board noted that the Fund's total return for the
one-year period was in the highest quintile of such group and on an annualized
basis was in the lowest quintile of such universe for the previous three- and
five-year periods, and the middle quintile of such universe during the previous
ten-year period. The Board found such performance acceptable.
COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the
management fee and total expense ratios of the Fund compared with those of a
group of other funds selected by Lipper as its appropriate Lipper expense group
under the Lipper report. Prior to making such comparison, the Board relied upon
a survey showing that the scope of management advisory services covered under
the Fund's investment advisory contract was similar to those
Annual Report | 43
FRANKLIN GOLD AND PRECIOUS METALS FUND
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT ADVISORY CONTRACT (CONTINUED)
provided by fund managers to other mutual fund groups that would be used as a
basis of comparison in the Lipper report. In reviewing comparative costs,
emphasis was given to the Fund's management fee in comparison with the effective
management fee that would have been charged by other funds within its Lipper
expense group assuming they were the same size as the Fund, as well as the
actual total expenses of the Fund in comparison with those of its Lipper expense
group. The Lipper effective management fee analysis includes administrative
charges as being part of a management fee, and total expenses, for comparative
consistency, are shown by Lipper for Fund Class A shares. The results of such
expense comparisons showed that both the effective management fee rate for the
Fund, as well as its actual total expenses were in the lowest quintile of its
Lipper expense group. While realizing that other factors such as the Manager's
profitability and economies of scale bear on the reasonableness of fees, the
Board was satisfied with the management fee and total expenses of the Fund in
comparison to its expense group as shown in the Lipper report.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
the Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
each of the individual funds. The Board also considered the extent to which the
Manager and its affiliates might derive ancillary benefits from fund operations,
including its interest in a joint venture entity which finances up-front
commissions paid to brokers/dealers who sold fund Class B shares, as well as
potential benefits resulting from allocation of fund brokerage and the use of
"soft" commission dollars to pay for research. Specific attention was given to
the methodology followed in allocating costs to the Fund, it being recognized
that allocation methodologies are inherently subjective and various allocation
methodologies may each be reasonable while producing different results. In this
respect, the Board noted that the cost allocation methodology was consistent
with that followed in profitability report presentations for the Fund made in
prior years and that it had engaged on a biennial basis the Fund's independent
accountants to perform certain procedures specified by the Board solely for its
purpose and use. It was also noted that legal costs and payments incurred by
Franklin Templeton in resolving various legal proceedings arising from its U.S.
fund operations had not been allocated to the Fund for purposes of determining
profitability. Included in the analysis for the Fund were the revenue and
related costs broken down separately from the management, underwriting and
shareholder services functions provided by the Manager and its affiliates to the
Fund, as well as the relative contribution of the Fund to the profitability of
the Manager's parent. In reviewing and discussing such analysis, management
discussed with the Board its belief that costs incurred in establishing the
infrastructure necessary to the type of mutual fund operations conducted by the
Manager and its corporate affiliates may not be fully reflected in the expenses
allocated to the Fund in determining its profitability, as well as the fact that
the level of profits, to a certain extent, reflected operational cost savings
and efficiencies initiated by management. The Board also took into account
management's expenditures in improving shareholder services provided
44 | Annual Report
FRANKLIN GOLD AND PRECIOUS METALS FUND
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT ADVISORY CONTRACT (CONTINUED)
the Fund, as well as the need to meet additional regulatory and compliance
requirements resulting from the Sarbanes-Oxley Act and recent SEC requirements.
In addition, the Board considered a third-party study comparing the
profitability of the Manager's parent on an overall basis as compared to other
publicly held managers broken down to show profitability from management
operations exclusive of distribution expenses, as well as profitability
including distribution expenses. Based upon their consideration of all these
factors, the Board determined that the level of profits realized by the Manager
under its investment advisory contract with the Fund was not excessive in view
of the nature, quality and extent of services provided.
ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Manager as the Fund grows larger and the extent to which this is
reflected in the level of management fees charged. While recognizing that any
precise determination is inherently subjective, the Board noted that based upon
the Fund profitability analysis, it appears that as some funds get larger, at
some point economies of scale do result in the Manager realizing a larger profit
margin on management services provided such a fund. The Board also noted that
economies of scale are shared with a fund and its shareholders through
management fee breakpoints so that as a fund grows in size, its effective
management fee rate declines. The fee structure under the Fund's investment
advisory contract provides an initial fee of 0.625% on the first $100 million of
assets; 0.50% on the next $150 million of assets and 0.45% on assets in excess
of $250 million. The Fund had assets of approximately $650 million on December
31, 2004, and the independent Trustees discussed the prospect of adding
additional fee breakpoints with management. In such discussions management
expressed its view that the existing fee schedule was low and reflected
anticipated economies of scale and pointed out the favorable effective
management fee and expense comparisons within its Lipper expense group.
Management also observed and the Board acknowledged that the fact that the Fund
had assets beyond the last breakpoint level does not mean that it no longer
benefits from economies of scale since the continuous growth of amount of assets
being charged at the lowest breakpoint fee level results in a lower overall
effective management fee rate. While intending to monitor future growth, the
Board believes that to the extent any economies of scale may be realized by the
Manager and its affiliates, the schedule of fees under the investment advisory
contract provides a sharing of benefits with the Fund and its shareholders.
Annual Report | 45
FRANKLIN GOLD AND PRECIOUS METALS FUND
SHAREHOLDER INFORMATION (CONTINUED)
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 U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
46 | Annual Report
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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 MidCap Value Fund
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)
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund(4)
Templeton Global Bond Fund
Templeton Income Fund
TAX-FREE INCOME(5)
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(6)
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term
Tax-Free Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
New York Intermediate-Term
Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(7)
Colorado
Connecticut
Florida(7)
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(6)
Michigan(6)
Minnesota(6)
Missouri
New Jersey
New York(7)
North Carolina
Ohio(7)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(8)
(1) The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
(2) The fund is only open to existing shareholders and select retirement
plans.
(3) The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25%
of the outstanding number of shares. Investors may tender all or a portion
of their shares during the tender period.
(4) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(5) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.
(6) Portfolio of insured municipal securities.
(7) These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA)
and limited-term, intermediate-term and money market portfolios (CA and
NY).
(8) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
06/05 Not part of the annual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
|_| WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at franklintempleton.com.
See inside for details.
ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN GOLD AND
PRECIOUS METALS FUND
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632 -2301
Authorized for distribution only when accompanied or preceded by a prospectus .
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing . The prospectus contains this and other
information; please read it carefully before investing .
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed . These calls can be
identified by the presence of a regular beeping tone.
132 A2005 09/05
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 12(a)(1), the Registrant is attaching as an exhibit a copy
of its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial expert is Frank W. T. LaHaye and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements
were $2,739 for the fiscal year ended July 31, 2005 and $43,061 for the fiscal
year ended July 31, 2004.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item 4.
The aggregate fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control with
the investment adviser that provides ongoing services to the registrant that are
reasonably related to the performance of the audit of their financial statements
were $0 for the fiscal year ended July 31, 2005 and $48,579 for the fiscal year
ended July 31, 2004. The services for which these fees were paid included
attestation services.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance, tax
advice and tax planning.
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning were $19,591 for the fiscal year ended
July 31, 2005 and $0 for the fiscal year ended July 31, 2004. The services for
which these fees were paid included tax compliance and advise.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended July 31, 2005 and
$253 for the fiscal year ended July 31, 2004. The services for which these fees
were paid included review of materials provided to the fund Board in connection
with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant not reported
in paragraphs (a)-(c) of Item 4 were $4,500 for the fiscal year ended July 31,
2005 and $99,797 for the fiscal year ended July 31, 2004. The services for which
these fees were paid included review of materials provided to the fund Board in
connection with the investment management contract renewal process and the
review of the ICI transfer agent survey.
(e) (1) The registrant's audit committee is directly responsible for approving
the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to the
Fund by the auditors;
(iii)pre-approval of all non-audit related services to be provided to the
registrant by the auditors to the registrant's investment adviser or to any
entity that controls, is controlled by or is under common control with the
registrant's investment adviser and that provides ongoing services to the
registrant where the non-audit services relate directly to the operations or
financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a designated
member or members of the committee; provided the policies and procedures are
detailed as to the particular service and the committee is informed of each
service and such policies and procedures do not include delegation of audit
committee responsibilities, as contemplated under the Securities Exchange Act of
1934, to management; subject, in the case of (ii) through (iv), to any waivers,
exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs
(b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $24,091 for the fiscal year ended July 31, 2005 and $148,579 for
the fiscal year ended July 31, 2004.
(h) The registrant's audit committee of the board of trustees has considered
whether the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal accountant's
independence.
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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT
INVESTMENT COMPANIES. N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END
MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY Holders. There have
been no changes to the procedures by which shareholders may recommend nominees
to the Registrant's Board of Trustees that would require disclosure herein.
ITEM 11. CONTROLS AND PROCEDURES. (A) EVALUATION OF DISCLOSURE CONTROLS
AND PROCEDURES. The Registrant maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed in the
Registrant's filings under the Securities Exchange Act of 1934 and the
Investment Company Act of 1940 is recorded, processed, summarized and reported
within the periods specified in the rules and forms of the Securities and
Exchange Commission. Such information is accumulated and communicated to the
Registrant's management, including its principal executive officer and principal
financial officer, as appropriate, to allow timely decisions regarding required
disclosure. The Registrant's management, including the principal executive
officer and the principal financial officer, recognizes that any set of controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 12. EXHIBITS.
(a) (1) Code of Ethics
(a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN GOLD AND PRECIOUS METALS FUND
By /s/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date September 26, 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
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date September 26, 2005
By /s/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Financial Officer
Date September 26, 2005