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
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(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, 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: 7/31/06
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ITEM 1. REPORTS TO STOCKHOLDERS.
JULY 31, 2006
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[PHOTO]
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ANNUAL REPORT AND SHAREHOLDER LETTER SECTOR
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WANT TO RECEIVE
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FRANKLIN GOLD AND
PRECIOUS METALS FUND Eligible shareholders can
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See inside for details.
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[GRAPHIC]
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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 ....................................................... 7
Your Fund's Expenses ...................................................... 12
Financial Highlights and Statement of Investments ......................... 14
Financial Statements ...................................................... 21
Notes to Financial Statements ............................................. 25
Report of Independent Registered Public Accounting Firm ................... 34
Tax Designation ........................................................... 35
Board Members and Officers ................................................ 36
Shareholder Information ................................................... 41
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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 its 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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We are pleased to bring you Franklin Gold and Precious Metals Fund's annual
report for the fiscal year ended July 31, 2006.
PERFORMANCE OVERVIEW
Franklin Gold and Precious Metals Fund - Class A delivered a +73.36% cumulative
total return for the 12 months ended July 31, 2006. The Fund outperformed the
broad Standard & Poor's 500 Index's (S&P 500's) +5.38% total return and the
sector-specific FTSE Gold Mines Index's +55.49% price return during the same
period. 1 You can find the Fund's long-term performance data in the Performance
Summary beginning on page 7.
ECONOMIC AND MARKET OVERVIEW
During the 12 months ended July 31, 2006, the U.S. economy advanced at a
moderate pace. After a slow fourth quarter 2005, gross domestic product grew an
annualized 5.6% in first quarter 2006 and moderated to an estimated 2.9%
annualized rate in the second quarter. Growth was driven by consumer, business
and government spending. Productivity gains and corporate profits also
contributed. Export growth picked up some momentum, but a wide trade deficit
remained. The labor market firmed as employment generally increased and the
unemployment rate fell from 5.0% to 4.8%. 2 Although labor costs rose during the
reporting period, hiring increased in many industries and personal income grew.
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.
2. Source: Bureau of Labor Statistics.
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 18.
Annual Report | 3
GEOGRAPHIC BREAKDOWN
Based on Total Net Assets as of 7/31/06
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Canada 40.2%
South Africa 25.6%
U.S. 9.7%
Australia 9.7%
U.K 5.5%
Peru 3.3%
Papua New Guinea 1.7%
Bolivia 0.2%
Short-Term Investments & Other Net Assets 4.1%
Elevated energy and other commodity prices were a primary economic concern. Oil
prices remained high, largely due to potential supply disruptions and strong
growth in global demand, especially from China and India. Gasoline, medical and
pharmacy costs climbed substantially. Consumer confidence and spending remained
surprisingly strong but could weaken with the impact of higher prices. As home
price appreciation slowed, borrowing against home equity flattened and could
have a gradual effect on consumer spending. Inflation was also a concern, as the
core Consumer Price Index (CPI) rose 2.7% for the 12 months ended July 31, 2006,
which was higher than the 2.2% 10-year average. 3
The Federal Reserve Board (Fed) raised the federal funds target rate from 3.25%
to 5.25% in eight quarter-point steps. The Fed's credit-tightening campaign
contributed to cooler housing and real estate markets as the cost of credit grew
less attractive to most consumers who were already dealing with near-record
consumer debt burdens, low personal savings and historically high gas prices. By
period-end, most market observers expected the Fed to pause its rate tightening
in August.
In this environment, equity markets experienced dramatic swings late in the
period. Overall, the blue chip stocks of the Dow Jones Industrial Average
returned +7.59%, while the broader S&P 500 and the technology-heavy NASDAQ
Composite Index returned +5.38% and -3.48% for the 12 months under review. 4
Energy, telecommunications and financials stocks performed particularly well.
Precious metals prices appreciated significantly during the past 12 months. Gold
bullion started the reporting period at $430 per ounce, hit a 26-year high of
$715 per ounce in May, and closed the period at $637 per ounce, up 48.1% for the
period. The surge in price coincided with a dramatic rise in investment in gold
exchange traded funds (ETFs), with more than 15 million ounces held globally at
the end of the reporting period. Silver moved up 58.6% during the Fund's fiscal
year from $7.21 per ounce to $11.43 per ounce. Platinum climbed 37.3% from $896
per ounce to $1,230 per ounce. Palladium began the period at $193 per ounce and
ended the period 62.2% higher at $313 per ounce.
3. Source: Bureau of Labor Statistics. Core CPI excludes food and energy
costs.
4. Source: Standard & Poor's Micropal. The Dow Jones Industrial Average is
price weighted based on the average market price of 30 blue chip stocks of
companies that are generally industry leaders. See footnote 1 for a
description of the S&P 500. The NASDAQ Composite Index measures all 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 (8/1/05-7/31/06) 5
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
GOLD PALLADIUM PLATINUM
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8/1/2005 $432.20 $193.50 $906.50
8/2/2005 $432.30 $192.50 $903.00
8/3/2005 $436.80 $194.50 $914.50
8/4/2005 $437.60 $191.50 $907.50
8/5/2005 $437.30 $191.50 $909.50
8/8/2005 $435.00 $189.50 $900.50
8/9/2005 $434.80 $188.00 $904.50
8/10/2005 $437.60 $186.50 $902.50
8/11/2005 $445.90 $187.00 $911.50
8/12/2005 $446.20 $188.00 $915.50
8/15/2005 $442.40 $185.50 $905.50
8/16/2005 $446.15 $184.00 $891.00
8/17/2005 $440.10 $185.00 $890.50
8/18/2005 $439.70 $183.50 $892.00
8/19/2005 $436.30 $183.00 $887.50
8/22/2005 $438.20 $183.50 $891.00
8/23/2005 $439.20 $184.00 $896.50
8/24/2005 $437.67 $184.50 $897.50
8/25/2005 $438.70 $184.50 $896.50
8/26/2005 $437.70 $183.50 $894.50
8/29/2005 $436.90 $185.00 $900.50
8/30/2005 $431.60 $183.00 $889.00
8/31/2005 $435.20 $182.50 $890.50
9/1/2005 $443.25 $184.00 $899.00
9/2/2005 $444.40 $185.00 $906.00
9/5/2005 $445.35 $184.00 $909.50
9/6/2005 $444.00 $182.50 $908.50
9/7/2005 $444.70 $184.50 $905.50
9/8/2005 $447.40 $184.00 $910.50
9/9/2005 $449.20 $183.50 $911.50
9/12/2005 $449.75 $183.00 $906.00
9/13/2005 $446.50 $184.00 $908.50
9/14/2005 $450.30 $184.50 $913.00
9/15/2005 $455.75 $184.50 $917.50
9/16/2005 $459.75 $191.50 $920.00
9/19/2005 $464.75 $200.50 $925.00
9/20/2005 $463.85 $198.50 $929.50
9/21/2005 $472.35 $199.50 $929.50
9/22/2005 $466.05 $197.50 $924.50
9/23/2005 $463.25 $196.50 $922.50
9/26/2005 $466.65 $192.50 $914.50
9/27/2005 $462.50 $193.50 $914.50
9/28/2005 $469.00 $197.50 $909.00
9/29/2005 $472.15 $197.50 $926.50
9/30/2005 $469.30 $196.00 $930.50
10/3/2005 $465.95 $193.50 $925.50
10/4/2005 $466.25 $193.50 $915.50
10/5/2005 $464.75 $191.75 $909.00
10/6/2005 $473.45 $195.50 $926.50
10/7/2005 $474.85 $201.00 $933.50
10/10/2005 $475.24 $204.50 $936.50
10/11/2005 $475.50 $210.00 $940.00
10/12/2005 $470.90 $211.50 $943.50
10/13/2005 $471.60 $209.50 $930.50
10/14/2005 $469.70 $207.50 $924.50
10/17/2005 $474.00 $213.50 $933.50
10/18/2005 $472.20 $211.00 $930.00
10/19/2005 $464.55 $207.00 $927.00
10/20/2005 $461.20 $208.50 $923.50
10/21/2005 $466.89 $209.50 $927.50
10/24/2005 $465.25 $208.50 $927.50
10/25/2005 $472.60 $215.50 $935.50
10/26/2005 $470.95 $224.00 $941.50
10/27/2005 $473.65 $226.50 $938.00
10/28/2005 $473.49 $225.50 $937.50
10/31/2005 $465.18 $224.50 $937.50
11/1/2005 $459.15 $221.50 $925.50
11/2/2005 $463.20 $221.51 $934.50
11/3/2005 $461.10 $226.50 $936.50
11/4/2005 $456.90 $222.50 $931.50
11/7/2005 $459.60 $226.50 $930.50
11/8/2005 $460.80 $228.00 $939.00
11/9/2005 $467.10 $235.50 $951.50
11/10/2005 $466.85 $241.00 $960.00
11/11/2005 $468.70 $248.50 $967.50
11/14/2005 $467.50 $251.50 $971.50
11/15/2005 $468.52 $246.50 $969.50
11/16/2005 $479.30 $255.50 $987.00
11/17/2005 $486.00 $257.50 $977.50
11/18/2005 $485.80 $264.50 $979.50
11/21/2005 $491.76 $265.50 $973.50
11/22/2005 $494.58 $257.50 $971.50
11/23/2005 $492.50 $252.50 $977.50
11/24/2005 $493.49 $256.00 $979.50
11/25/2005 $496.08 $258.00 $988.50
11/28/2005 $498.70 $262.50 $994.50
11/29/2005 $499.80 $264.50 $996.50
11/30/2005 $493.08 $259.50 $976.50
12/1/2005 $503.90 $262.50 $989.75
12/2/2005 $503.38 $266.50 $1,000.75
12/5/2005 $509.40 $271.50 $1,001.50
12/6/2005 $511.40 $271.50 $987.50
12/7/2005 $515.20 $274.50 $994.50
12/8/2005 $521.13 $280.00 $1,000.50
12/9/2005 $526.40 $286.50 $1,000.50
12/12/2005 $528.00 $293.50 $1,016.50
12/13/2005 $518.70 $271.50 $992.00
12/14/2005 $506.50 $262.50 $965.00
12/15/2005 $502.98 $265.00 $958.00
12/16/2005 $503.24 $261.00 $957.50
12/19/2005 $503.80 $260.50 $973.50
12/20/2005 $492.25 $258.50 $957.50
12/21/2005 $495.33 $245.50 $953.50
12/22/2005 $504.33 $250.00 $962.50
12/23/2005 $502.80 $254.50 $961.00
12/26/2005 $505.13 $254.50 $960.50
12/27/2005 $507.90 $256.00 $966.00
12/28/2005 $516.60 $259.50 $969.75
12/29/2005 $516.90 $255.00 $964.50
12/30/2005 $517.00 $254.50 $970.50
1/2/2006 $516.88 $254.00 $966.50
1/3/2006 $534.15 $268.50 $977.50
1/4/2006 $534.40 $272.50 $994.50
1/5/2006 $524.80 $261.50 $985.50
1/6/2006 $539.95 $271.50 $995.50
1/9/2006 $548.95 $275.50 $1,007.50
1/10/2006 $542.50 $270.50 $1,010.00
1/11/2006 $547.50 $273.25 $1,014.00
1/12/2006 $546.40 $273.50 $1,020.50
1/13/2006 $557.34 $281.50 $1,035.50
1/16/2006 $562.20 $287.50 $1,049.50
1/17/2006 $554.80 $283.00 $1,041.50
1/18/2006 $542.95 $270.50 $1,024.50
1/19/2006 $557.80 $276.00 $1,038.50
1/20/2006 $554.49 $275.75 $1,034.50
1/23/2006 $559.40 $275.50 $1,045.50
1/24/2006 $558.60 $274.25 $1,048.50
1/25/2006 $563.40 $281.00 $1,057.50
1/26/2006 $560.65 $273.50 $1,057.50
1/27/2006 $559.50 $275.50 $1,064.50
1/30/2006 $568.35 $281.50 $1,072.75
1/31/2006 $568.90 $294.00 $1,081.25
2/1/2006 $569.35 $293.50 $1,071.50
2/2/2006 $572.20 $306.50 $1,079.50
2/3/2006 $568.90 $314.50 $1,072.50
2/6/2006 $569.90 $308.50 $1,070.75
2/7/2006 $548.45 $288.50 $1,054.50
2/8/2006 $551.45 $291.50 $1,050.50
2/9/2006 $564.40 $302.50 $1,066.50
2/10/2006 $551.00 $282.50 $1,037.50
2/13/2006 $540.35 $273.50 $1,012.50
2/14/2006 $547.55 $280.50 $1,015.50
2/15/2006 $539.95 $279.50 $1,014.00
2/16/2006 $548.15 $276.50 $1,005.50
2/17/2006 $552.10 $288.50 $1,011.50
2/20/2006 $555.84 $290.50 $1,029.25
2/21/2006 $554.35 $293.50 $1,029.50
2/22/2006 $555.20 $286.50 $1,028.50
2/23/2006 $548.84 $285.75 $1,019.00
2/24/2006 $559.05 $286.50 $1,034.50
2/27/2006 $553.95 $280.50 $1,032.50
2/28/2006 $561.55 $288.50 $1,051.50
3/1/2006 $562.95 $296.50 $1,048.50
3/2/2006 $569.85 $297.50 $1,052.50
3/3/2006 $565.40 $302.50 $1,057.50
3/6/2006 $555.35 $296.50 $1,041.50
3/7/2006 $552.70 $289.50 $1,037.50
3/8/2006 $543.55 $281.50 $1,008.50
3/9/2006 $546.05 $289.50 $1,018.50
3/10/2006 $541.05 $290.00 $1,011.50
3/13/2006 $545.90 $298.50 $1,018.50
3/14/2006 $551.05 $302.50 $1,022.50
3/15/2006 $552.95 $316.50 $1,027.50
3/16/2006 $555.40 $312.50 $1,028.00
3/17/2006 $554.10 $316.50 $1,032.50
3/20/2006 $554.90 $318.50 $1,041.50
3/21/2006 $552.10 $315.50 $1,035.00
3/22/2006 $550.80 $321.50 $1,044.50
3/23/2006 $549.80 $320.75 $1,044.50
3/24/2006 $560.13 $330.50 $1,048.50
3/27/2006 $567.30 $339.75 $1,067.00
3/28/2006 $563.60 $338.75 $1,070.50
3/29/2006 $573.60 $336.00 $1,072.50
3/30/2006 $588.65 $344.50 $1,090.50
3/31/2006 $583.65 $333.00 $1,063.00
4/3/2006 $587.85 $343.50 $1,076.50
4/4/2006 $586.70 $339.50 $1,079.50
4/5/2006 $588.50 $338.75 $1,071.00
4/6/2006 $595.30 $355.50 $1,085.50
4/7/2006 $588.85 $349.50 $1,065.50
4/10/2006 $599.75 $356.50 $1,094.50
4/11/2006 $593.41 $343.50 $1,083.50
4/12/2006 $598.38 $345.50 $1,089.00
4/13/2006 $596.47 $346.50 $1,078.50
4/14/2006 $602.99 $337.50 $1,075.50
4/17/2006 $613.47 $358.50 $1,101.75
4/18/2006 $621.07 $365.50 $1,113.50
4/19/2006 $640.20 $371.50 $1,120.00
4/20/2006 $612.50 $348.75 $1,099.50
4/21/2006 $633.97 $355.50 $1,128.00
4/24/2006 $620.70 $356.50 $1,117.00
4/25/2006 $630.30 $365.50 $1,133.50
4/26/2006 $638.63 $365.75 $1,135.75
4/27/2006 $633.63 $361.00 $1,138.00
4/28/2006 $654.42 $373.50 $1,153.50
5/1/2006 $655.10 $382.00 $1,168.50
5/2/2006 $668.80 $382.50 $1,176.50
5/3/2006 $667.00 $377.50 $1,179.50
5/4/2006 $679.70 $377.50 $1,170.50
5/5/2006 $683.80 $373.50 $1,182.50
5/8/2006 $678.70 $373.50 $1,195.50
5/9/2006 $700.90 $390.75 $1,235.50
5/10/2006 $707.90 $386.50 $1,256.50
5/11/2006 $714.30 $396.50 $1,295.50
5/12/2006 $714.80 $389.50 $1,317.00
5/15/2006 $677.40 $365.50 $1,282.00
5/16/2006 $690.40 $375.50 $1,298.00
5/17/2006 $687.10 $371.50 $1,309.50
5/18/2006 $682.30 $369.50 $1,302.50
5/19/2006 $657.60 $348.50 $1,306.00
5/22/2006 $656.05 $340.50 $1,282.50
5/23/2006 $666.50 $360.50 $1,317.00
5/24/2006 $640.70 $346.50 $1,284.00
5/25/2006 $650.90 $349.50 $1,292.50
5/26/2006 $653.70 $350.50 $1,295.50
5/29/2006 $647.77 $347.00 $1,287.50
5/30/2006 $652.90 $355.50 $1,288.50
5/31/2006 $645.20 $344.50 $1,245.50
6/1/2006 $629.60 $337.50 $1,226.50
6/2/2006 $638.20 $352.50 $1,244.50
6/5/2006 $637.15 $358.50 $1,256.00
6/6/2006 $630.65 $345.00 $1,232.50
6/7/2006 $626.45 $338.00 $1,231.50
6/8/2006 $613.25 $316.00 $1,193.00
6/9/2006 $607.45 $322.00 $1,192.50
6/12/2006 $604.25 $311.00 $1,167.50
6/13/2006 $562.05 $272.50 $1,118.50
6/14/2006 $559.75 $290.50 $1,139.50
6/15/2006 $577.05 $300.50 $1,161.00
6/16/2006 $581.15 $305.00 $1,143.50
6/19/2006 $565.25 $292.00 $1,139.50
6/20/2006 $575.85 $300.00 $1,168.50
6/21/2006 $587.55 $312.00 $1,190.00
6/22/2006 $580.65 $308.00 $1,177.50
6/23/2006 $583.05 $306.00 $1,172.00
6/26/2006 $585.25 $318.00 $1,182.50
6/27/2006 $579.05 $311.00 $1,184.50
6/28/2006 $580.15 $308.00 $1,183.00
6/29/2006 $599.65 $314.00 $1,203.50
6/30/2006 $615.85 $315.00 $1,227.50
7/3/2006 $623.49 $325.50 $1,243.50
7/4/2006 $620.24 $325.00 $1,235.00
7/5/2006 $628.15 $323.00 $1,235.50
7/6/2006 $633.03 $327.00 $1,235.50
7/7/2006 $629.25 $321.00 $1,230.50
7/10/2006 $624.15 $319.00 $1,219.50
7/11/2006 $641.45 $325.00 $1,241.25
7/12/2006 $651.53 $328.00 $1,255.00
7/13/2006 $660.05 $329.00 $1,255.50
7/14/2006 $664.15 $327.00 $1,253.25
7/17/2006 $643.03 $317.00 $1,236.50
7/18/2006 $633.05 $312.00 $1,220.50
7/19/2006 $642.75 $313.00 $1,223.75
7/20/2006 $628.15 $307.00 $1,215.50
7/21/2006 $619.75 $308.00 $1,206.75
7/24/2006 $615.25 $311.00 $1,197.50
7/25/2006 $619.13 $311.00 $1,219.50
7/26/2006 $624.75 $313.00 $1,221.50
7/27/2006 $634.35 $316.50 $1,228.50
7/28/2006 $634.75 $310.00 $1,222.50
7/31/2006 $636.74 $313.00 $1,230.50
For illustrative purposes only; not representative of the Fund's portfolio
composition or performance.
PORTFOLIO BREAKDOWN
Based on Total Net Assets as of 7/31/06
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Long Life Gold Mines 52.7%
Platinum & Palladium 14.3%
Medium Life Gold Mines 10.4%
Gold Exploration & Development 10.0%
Gold & Diversified Resources 7.6%
Mutual Funds 0.9%
Short-Term Investments & Other Net Assets 4.1%
INVESTMENT STRATEGY
We believe that investing in gold and other precious metals offers an excellent
opportunity for diversification in an attractive asset class over the long term.
We like companies with multiple mines, attractive production profiles, strong
reserve bases and active exploration programs that can drive future reserve and
production growth. While the sector can be volatile, especially over the short
term, precious metals, such as gold, can be attractive because they are a hard
asset not tied to any particular country or financial system.
MANAGER'S DISCUSSION
Consolidation was a major theme in the precious metals industry during the year
under review. Barrick Gold acquired Placer Dome in March to surpass Newmont
Mining as the world's largest gold company. Gold Fields acquired Bolivar Gold,
Glamis Gold bought Western Silver, and Yamana Gold merged with RNC Gold and
Desert Sun Mining. In addition, Barrick launched a hostile bid for NovaGold
Resources on July 24.
High metals prices contributed to strong equity gains. Many significant Fund
holdings rose in value more than 100% during the period, including Oxiana,
Agnico-Eagle Mines, Yamana Gold, Anglo Platinum, Glamis Gold and Impala Platinum
Holdings. Oxiana and Agnico-Eagle benefited from strong byproduct credits that
drove down their costs. 6 Shares of Yamana and Glamis rose in
5. Amounts shown are based on spot prices quoted in U.S. dollars per troy ounce.
6. Mining entities receive credits from other mineral byproduct revenues to
offset their costs. This results in a lower cost than stated to produce their
primary metals.
Annual Report | 5
TOP 10 HOLDINGS
7/31/06
- --------------------------------------------------------------------------------
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------------------------------------
Barrick Gold Corp. 8.8%
LONG LIFE GOLD MINES, CANADA
- --------------------------------------------------------------------------------
Impala Platinum Holdings Ltd.,
ord. & ADR 6.9%
PLATINUM & PALLADIUM, SOUTH AFRICA
- --------------------------------------------------------------------------------
Anglo Platinum Ltd., ord. & ADR 5.7%
PLATINUM & PALLADIUM, SOUTH AFRICA
- --------------------------------------------------------------------------------
AngloGold Ashanti Ltd., ord. & ADR 5.3%
LONG LIFE GOLD MINES, SOUTH AFRICA
- --------------------------------------------------------------------------------
Newcrest Mining Ltd. 4.8%
LONG LIFE GOLD MINES, AUSTRALIA
- --------------------------------------------------------------------------------
Glamis Gold Ltd. 4.2%
LONG LIFE GOLD MINES, CANADA
- --------------------------------------------------------------------------------
Randgold Resources Ltd., ADR 3.9%
LONG LIFE GOLD MINES, U.K.
- --------------------------------------------------------------------------------
Goldcorp Inc. 3.8%
LONG LIFE GOLD MINES, CANADA
- --------------------------------------------------------------------------------
Agnico-Eagle Mines Ltd. 3.5%
LONG LIFE GOLD MINES, CANADA
- --------------------------------------------------------------------------------
Meridian Gold Inc. 3.4%
LONG LIFE GOLD MINES, U.S.
- --------------------------------------------------------------------------------
value after the companies completed acquisitions. Anglo Platinum and Impala
Platinum Holdings benefited from high platinum prices and a weaker South African
rand.
Three of the Fund's holdings, Barrick Gold, Newcrest Mining and Compania de
Minas Buenaventura, contributed to the Fund's absolute returns but
underperformed the broader precious metals group and the Fund's benchmark, the
FTSE Gold Mines Index. In early 2006, Barrick's stock declined amid a takeover
attempt for Placer Dome and a disappointing output forecast, but rebounded to
finish the reporting period up about 26%. Newcrest Mining struggled with the
startup of their new Telfer mine in Western Australia. Buenaventura faced
expectations of declining production and a more challenging political
environment in Peru. Ivanhoe Mines declined in value during the period following
an unexpected windfall-profits tax on minerals by the Mongolian government.
We purchased shares of several exploration and development companies in the past
six months, as we sought to further position the Fund to benefit from new
project developments in the current high commodity price environment. New Fund
holdings included Sino Gold, Banro, NovaGold Resources, Apex Silver Mines, Great
Basin Gold and GBS Gold International.
Thank you for your participation in Franklin Gold and Precious Metals Fund. We
look forward to serving your future investment needs.
[PHOTO] /s/ Stephen M. Land
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, 2006, 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 INVESTMENT MANAGER 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.
6 | Annual Report
Performance Summary as of 7/31/06
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
that a shareholder would pay 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 7/31/06 7/31/05
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$12.86 $30.67 $17.81
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/05-7/31/06)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.1556
- ----------------------------------------------------------------------------------------------------
CLASS B (SYMBOL: FAGPX) CHANGE 7/31/06 7/31/05
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$12.38 $29.62 $17.24
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/05-7/31/06)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.0182
- ----------------------------------------------------------------------------------------------------
CLASS C (SYMBOL: FRGOX) CHANGE 7/31/06 7/31/05
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$12.50 $29.90 $17.40
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/05-7/31/06)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.0322
- ----------------------------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: FGADX) CHANGE 7/31/06 7/31/05
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$13.22 $31.50 $18.28
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/05-7/31/06)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.2001
- ----------------------------------------------------------------------------------------------------
Annual Report | 7
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. 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; ADVISOR CLASS: NO SALES CHARGE. THE FUND MAY CHARGE A
2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- -------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +73.36% +263.05% +143.68%
- -------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +63.36% +27.90% +8.67%
- -------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $16,336 $34,224 $22,973
- -------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (6/30/06) 4 +62.34% +25.95% +8.51%
- -------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 5-YEAR INCEPTION (1/1/99)
- -------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +71.95% +249.93% +301.54%
- -------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +67.95% +28.32% +20.13%
- -------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $16,795 $34,793 $40,154
- -------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (6/30/06) 4 +66.90% +26.33% +20.50%
- -------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +72.04% +250.17% +126.87%
- -------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +71.04% +28.49% +8.54%
- -------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $17,104 $35,017 $22,687
- -------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (6/30/06) 4 +69.95% +26.51% +8.37%
- -------------------------------------------------------------------------------------------------
ADVISOR CLASS 5 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +73.68% +267.83% +158.06%
- -------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +73.68% +29.76% +9.94%
- -------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $17,368 $36,783 $25,806
- -------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (6/30/06) 4 +72.57% +27.75% +9.77%
- -------------------------------------------------------------------------------------------------
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.
8 | Annual Report
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.
CLASS A (8/1/96-7/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
FRANKLIN GOLD AND PRECIOUS S&P 500 FTSE GOLD
DATE METALS FUND - CLASS A INDEX 6 MINES INDEX 6
- --------------------------------------------------------------------------------
8/1/1996 $9,427 $10,000 $10,000
8/31/1996 $9,801 $10,211 $10,179
9/30/1996 $9,215 $10,785 $9,279
10/31/1996 $9,241 $11,083 $9,409
11/30/1996 $9,170 $11,920 $9,396
12/31/1996 $9,096 $11,684 $9,137
1/31/1997 $8,691 $12,413 $8,510
2/28/1997 $9,739 $12,511 $9,558
3/31/1997 $8,671 $11,998 $8,202
4/30/1997 $8,123 $12,713 $7,359
5/31/1997 $8,541 $13,487 $7,866
6/30/1997 $8,014 $14,091 $6,979
7/31/1997 $7,876 $15,211 $7,086
8/31/1997 $7,766 $14,360 $7,075
9/30/1997 $8,117 $15,146 $7,642
10/31/1997 $6,837 $14,640 $6,221
11/30/1997 $5,707 $15,317 $4,899
12/31/1997 $5,848 $15,580 $5,302
1/31/1998 $6,173 $15,752 $5,601
2/28/1998 $6,146 $16,888 $5,397
3/31/1998 $6,513 $17,752 $5,738
4/30/1998 $6,962 $17,931 $6,506
5/31/1998 $6,000 $17,623 $5,447
6/30/1998 $5,546 $18,338 $4,980
7/31/1998 $5,212 $18,143 $4,513
8/31/1998 $4,167 $15,523 $3,515
9/30/1998 $5,825 $16,517 $5,516
10/31/1998 $5,839 $17,860 $5,577
11/30/1998 $5,727 $18,942 $5,287
12/31/1998 $5,406 $20,032 $4,682
1/31/1999 $5,392 $20,870 $4,671
2/28/1999 $5,280 $20,221 $4,366
3/31/1999 $5,378 $21,030 $4,354
4/30/1999 $6,372 $21,845 $5,101
5/31/1999 $5,560 $21,329 $4,150
6/30/1999 $5,994 $22,512 $4,435
7/31/1999 $5,812 $21,810 $4,232
8/31/1999 $6,050 $21,702 $4,500
9/30/1999 $7,142 $21,108 $5,659
10/31/1999 $6,456 $22,443 $4,909
11/30/1999 $6,561 $22,899 $4,690
12/31/1999 $6,778 $24,247 $4,651
1/31/2000 $6,314 $23,029 $4,105
2/29/2000 $6,040 $22,594 $4,234
3/31/2000 $5,864 $24,803 $3,917
4/30/2000 $5,456 $24,057 $3,790
5/31/2000 $5,646 $23,564 $3,904
6/30/2000 $5,906 $24,145 $4,046
7/31/2000 $5,555 $23,768 $3,651
8/31/2000 $6,110 $25,244 $3,697
9/30/2000 $5,674 $23,911 $3,500
10/31/2000 $5,372 $23,810 $2,968
11/30/2000 $5,724 $21,934 $3,130
12/31/2000 $6,278 $22,042 $3,425
1/31/2001 $6,399 $22,823 $3,344
2/28/2001 $6,684 $20,744 $3,581
3/31/2001 $5,872 $19,430 $3,229
4/30/2001 $6,720 $20,939 $3,765
5/31/2001 $7,240 $21,079 $3,894
6/30/2001 $6,876 $20,567 $3,890
7/31/2001 $6,328 $20,364 $3,798
8/31/2001 $6,734 $19,090 $4,040
9/30/2001 $6,606 $17,549 $4,407
10/31/2001 $6,406 $17,884 $4,215
11/30/2001 $6,484 $19,255 $4,046
12/31/2001 $6,906 $19,424 $4,202
1/31/2002 $7,440 $19,141 $4,803
2/28/2002 $8,121 $18,772 $5,279
3/31/2002 $8,780 $19,478 $5,821
4/30/2002 $9,256 $18,297 $6,208
5/31/2002 $10,318 $18,163 $7,113
6/30/2002 $9,044 $16,870 $6,093
7/31/2002 $7,528 $15,555 $5,155
8/31/2002 $8,495 $15,657 $5,869
9/30/2002 $8,509 $13,957 $5,900
10/31/2002 $8,055 $15,184 $5,366
11/30/2002 $8,085 $16,077 $5,229
12/31/2002 $9,487 $15,133 $6,402
1/31/2003 $9,598 $14,737 $6,374
2/28/2003 $8,917 $14,516 $5,967
3/31/2003 $8,377 $14,655 $5,597
4/30/2003 $8,244 $15,863 $5,539
5/31/2003 $9,465 $16,698 $6,172
6/30/2003 $9,761 $16,911 $6,493
7/31/2003 $10,160 $17,210 $6,728
8/31/2003 $11,655 $17,545 $7,591
9/30/2003 $11,922 $17,359 $7,647
10/31/2003 $13,010 $18,340 $8,266
11/30/2003 $14,504 $18,501 $9,149
12/31/2003 $14,451 $19,471 $9,143
1/31/2004 $13,045 $19,828 $7,998
2/29/2004 $13,365 $20,104 $8,150
3/31/2004 $14,153 $19,801 $8,840
4/30/2004 $11,283 $19,490 $6,914
5/31/2004 $12,287 $19,757 $7,619
6/30/2004 $11,989 $20,141 $7,310
7/31/2004 $11,855 $19,475 $7,332
8/31/2004 $12,599 $19,553 $7,975
9/30/2004 $13,581 $19,765 $8,560
10/31/2004 $13,856 $20,066 $8,889
11/30/2004 $14,488 $20,878 $9,167
12/31/2004 $13,661 $21,588 $8,510
1/31/2005 $12,894 $21,062 $7,883
2/28/2005 $13,884 $21,505 $8,418
3/31/2005 $13,259 $21,125 $8,014
4/30/2005 $12,076 $20,724 $7,176
5/31/2005 $12,262 $21,383 $7,254
6/30/2005 $13,430 $21,414 $7,996
7/31/2005 $13,251 $22,210 $7,726
8/31/2005 $13,995 $22,007 $8,090
9/30/2005 $16,555 $22,185 $9,746
10/31/2005 $15,483 $21,815 $8,994
11/30/2005 $17,091 $22,640 $9,807
12/31/2005 $19,205 $22,648 $10,878
1/31/2006 $22,838 $23,247 $12,870
2/28/2006 $20,808 $23,310 $11,229
3/31/2006 $22,726 $23,600 $11,769
4/30/2006 $25,302 $23,917 $13,263
5/31/2006 $22,808 $23,229 $12,177
6/30/2006 $23,130 $23,260 $12,272
7/31/2006 $22,973 $23,404 $12,013
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------
CLASS A 7/31/06
- ----------------------------------------
1-Year +63.36%
- ----------------------------------------
5-Year +27.90%
- ----------------------------------------
10-Year +8.67%
- ----------------------------------------
CLASS B (1/1/99-7/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
FRANKLIN GOLD AND PRECIOUS S&P 500 FTSE GOLD
DATE METALS FUND - CLASS B INDEX 6 MINES INDEX 6
- --------------------------------------------------------------------------------
1/1/1999 $10,000 $10,000 $10,000
1/31/1999 $9,961 $10,418 $9,975
2/28/1999 $9,754 $10,094 $9,325
3/31/1999 $9,935 $10,498 $9,299
4/30/1999 $11,762 $10,905 $10,894
5/31/1999 $10,259 $10,647 $8,864
6/30/1999 $11,049 $11,238 $9,471
7/31/1999 $10,699 $10,887 $9,038
8/31/1999 $11,140 $10,834 $9,610
9/30/1999 $13,161 $10,537 $12,085
10/31/1999 $11,878 $11,203 $10,484
11/30/1999 $12,073 $11,431 $10,017
12/31/1999 $12,452 $12,104 $9,934
1/31/2000 $11,606 $11,496 $8,766
2/29/2000 $11,099 $11,279 $9,043
3/31/2000 $10,747 $12,381 $8,365
4/30/2000 $10,006 $12,009 $8,093
5/31/2000 $10,344 $11,763 $8,338
6/30/2000 $10,812 $12,053 $8,641
7/31/2000 $10,175 $11,865 $7,798
8/31/2000 $11,177 $12,601 $7,895
9/30/2000 $10,370 $11,936 $7,476
10/31/2000 $9,810 $11,886 $6,338
11/30/2000 $10,448 $10,949 $6,685
12/31/2000 $11,436 $11,003 $7,315
1/31/2001 $11,658 $11,393 $7,142
2/28/2001 $12,169 $10,355 $7,649
3/31/2001 $10,676 $9,699 $6,896
4/30/2001 $12,208 $10,453 $8,040
5/31/2001 $13,165 $10,523 $8,316
6/30/2001 $12,497 $10,267 $8,308
7/31/2001 $11,475 $10,166 $8,110
8/31/2001 $12,222 $9,530 $8,629
9/30/2001 $11,973 $8,760 $9,412
10/31/2001 $11,606 $8,927 $9,002
11/30/2001 $11,737 $9,612 $8,641
12/31/2001 $12,497 $9,696 $8,974
1/31/2002 $13,449 $9,555 $10,257
2/28/2002 $14,669 $9,371 $11,274
3/31/2002 $15,849 $9,723 $12,431
4/30/2002 $16,693 $9,134 $13,258
5/31/2002 $18,611 $9,067 $15,192
6/30/2002 $16,305 $8,421 $13,011
7/31/2002 $13,556 $7,765 $11,008
8/31/2002 $15,299 $7,816 $12,534
9/30/2002 $15,312 $6,967 $12,601
10/31/2002 $14,481 $7,580 $11,460
11/30/2002 $14,535 $8,025 $11,167
12/31/2002 $17,041 $7,554 $13,673
1/31/2003 $17,230 $7,357 $13,612
2/28/2003 $16,000 $7,246 $12,743
3/31/2003 $15,027 $7,316 $11,954
4/30/2003 $14,771 $7,919 $11,828
5/31/2003 $16,960 $8,335 $13,182
6/30/2003 $17,473 $8,442 $13,866
7/31/2003 $18,176 $8,591 $14,369
8/31/2003 $20,838 $8,758 $16,212
9/30/2003 $21,298 $8,665 $16,331
10/31/2003 $23,217 $9,155 $17,654
11/30/2003 $25,879 $9,236 $19,539
12/31/2003 $25,764 $9,720 $19,526
1/31/2004 $23,244 $9,898 $17,080
2/29/2004 $23,800 $10,036 $17,405
3/31/2004 $25,195 $9,884 $18,880
4/30/2004 $20,061 $9,729 $14,765
5/31/2004 $21,835 $9,863 $16,271
6/30/2004 $21,294 $10,054 $15,612
7/31/2004 $21,050 $9,722 $15,659
8/31/2004 $22,350 $9,761 $17,033
9/30/2004 $24,070 $9,866 $18,282
10/31/2004 $24,545 $10,017 $18,983
11/30/2004 $25,642 $10,422 $19,577
12/31/2004 $24,179 $10,777 $18,174
1/31/2005 $22,811 $10,514 $16,835
2/28/2005 $24,531 $10,735 $17,979
3/31/2005 $23,420 $10,545 $17,114
4/30/2005 $21,307 $10,345 $15,326
5/31/2005 $21,632 $10,674 $15,492
6/30/2005 $23,678 $10,690 $17,077
7/31/2005 $23,353 $11,087 $16,501
8/31/2005 $24,653 $10,986 $17,278
9/30/2005 $29,136 $11,075 $20,813
10/31/2005 $27,227 $10,890 $19,209
11/30/2005 $30,030 $11,301 $20,944
12/31/2005 $33,715 $11,306 $23,231
1/31/2006 $40,087 $11,605 $27,485
2/28/2006 $36,494 $11,636 $23,981
3/31/2006 $39,829 $11,781 $25,135
4/30/2006 $44,316 $11,939 $28,325
5/31/2006 $39,924 $11,596 $26,006
6/30/2006 $40,466 $11,611 $26,208
7/31/2006 $40,154 $11,683 $25,657
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------
CLASS B 7/31/06
- ----------------------------------------
1-Year +67.95%
- ----------------------------------------
5-Year +28.32%
- ----------------------------------------
Since Inception (1/1/99) +20.13%
- ----------------------------------------
Annual Report | 9
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------
CLASS C 7/31/06
- ----------------------------------------
1-Year +71.04%
- ----------------------------------------
5-Year +28.49%
- ----------------------------------------
10-Year +8.54%
- ----------------------------------------
CLASS C (8/1/96-7/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
FRANKLIN GOLD AND PRECIOUS S&P 500 FTSE GOLD
DATE METALS FUND - CLASS C INDEX 6 MINES INDEX 6
- --------------------------------------------------------------------------------
8/1/1996 $10,000 $10,000 $10,000
8/31/1996 $10,390 $10,211 $10,179
9/30/1996 $9,767 $10,785 $9,279
10/31/1996 $9,788 $11,083 $9,409
11/30/1996 $9,705 $11,920 $9,396
12/31/1996 $9,622 $11,684 $9,137
1/31/1997 $9,192 $12,413 $8,510
2/28/1997 $10,285 $12,511 $9,558
3/31/1997 $9,148 $11,998 $8,202
4/30/1997 $8,565 $12,713 $7,359
5/31/1997 $9,002 $13,487 $7,866
6/30/1997 $8,434 $14,091 $6,979
7/31/1997 $8,288 $15,211 $7,086
8/31/1997 $8,164 $14,360 $7,075
9/30/1997 $8,536 $15,146 $7,642
10/31/1997 $7,165 $14,640 $6,221
11/30/1997 $5,992 $15,317 $4,899
12/31/1997 $6,130 $15,580 $5,302
1/31/1998 $6,473 $15,752 $5,601
2/28/1998 $6,444 $16,888 $5,397
3/31/1998 $6,830 $17,752 $5,738
4/30/1998 $7,304 $17,931 $6,506
5/31/1998 $6,298 $17,623 $5,447
6/30/1998 $5,815 $18,338 $4,980
7/31/1998 $5,441 $18,143 $4,513
8/31/1998 $4,350 $15,523 $3,515
9/30/1998 $6,078 $16,517 $5,516
10/31/1998 $6,093 $17,860 $5,577
11/30/1998 $5,969 $18,942 $5,287
12/31/1998 $5,636 $20,032 $4,682
1/31/1999 $5,614 $20,870 $4,671
2/28/1999 $5,497 $20,221 $4,366
3/31/1999 $5,599 $21,030 $4,354
4/30/1999 $6,633 $21,845 $5,101
5/31/1999 $5,783 $21,329 $4,150
6/30/1999 $6,230 $22,512 $4,435
7/31/1999 $6,032 $21,810 $4,232
8/31/1999 $6,281 $21,702 $4,500
9/30/1999 $7,410 $21,108 $5,659
10/31/1999 $6,691 $22,443 $4,909
11/30/1999 $6,801 $22,899 $4,690
12/31/1999 $7,015 $24,247 $4,651
1/31/2000 $6,538 $23,029 $4,105
2/29/2000 $6,252 $22,594 $4,234
3/31/2000 $6,062 $24,803 $3,917
4/30/2000 $5,637 $24,057 $3,790
5/31/2000 $5,835 $23,564 $3,904
6/30/2000 $6,098 $24,145 $4,046
7/31/2000 $5,739 $23,768 $3,651
8/31/2000 $6,304 $25,244 $3,697
9/30/2000 $5,857 $23,911 $3,500
10/31/2000 $5,534 $23,810 $2,968
11/30/2000 $5,893 $21,934 $3,130
12/31/2000 $6,457 $22,042 $3,425
1/31/2001 $6,582 $22,823 $3,344
2/28/2001 $6,869 $20,744 $3,581
3/31/2001 $6,030 $19,430 $3,229
4/30/2001 $6,899 $20,939 $3,765
5/31/2001 $7,429 $21,079 $3,894
6/30/2001 $7,053 $20,567 $3,890
7/31/2001 $6,479 $20,364 $3,798
8/31/2001 $6,899 $19,090 $4,040
9/30/2001 $6,759 $17,549 $4,407
10/31/2001 $6,553 $17,884 $4,215
11/30/2001 $6,626 $19,255 $4,046
12/31/2001 $7,050 $19,424 $4,202
1/31/2002 $7,591 $19,141 $4,803
2/28/2002 $8,283 $18,772 $5,279
3/31/2002 $8,944 $19,478 $5,821
4/30/2002 $9,425 $18,297 $6,208
5/31/2002 $10,507 $18,163 $7,113
6/30/2002 $9,199 $16,870 $6,093
7/31/2002 $7,651 $15,555 $5,155
8/31/2002 $8,636 $15,657 $5,869
9/30/2002 $8,643 $13,957 $5,900
10/31/2002 $8,177 $15,184 $5,366
11/30/2002 $8,207 $16,077 $5,229
12/31/2002 $9,623 $15,133 $6,402
1/31/2003 $9,728 $14,737 $6,374
2/28/2003 $9,033 $14,516 $5,967
3/31/2003 $8,489 $14,655 $5,597
4/30/2003 $8,345 $15,863 $5,539
5/31/2003 $9,577 $16,698 $6,172
6/30/2003 $9,872 $16,911 $6,493
7/31/2003 $10,265 $17,210 $6,728
8/31/2003 $11,769 $17,545 $7,591
9/30/2003 $12,026 $17,359 $7,647
10/31/2003 $13,107 $18,340 $8,266
11/30/2003 $14,604 $18,501 $9,149
12/31/2003 $14,543 $19,471 $9,143
1/31/2004 $13,119 $19,828 $7,998
2/29/2004 $13,437 $20,104 $8,150
3/31/2004 $14,217 $19,801 $8,840
4/30/2004 $11,324 $19,490 $6,914
5/31/2004 $12,331 $19,757 $7,619
6/30/2004 $12,021 $20,141 $7,310
7/31/2004 $11,884 $19,475 $7,332
8/31/2004 $12,619 $19,553 $7,975
9/30/2004 $13,596 $19,765 $8,560
10/31/2004 $13,854 $20,066 $8,889
11/30/2004 $14,482 $20,878 $9,167
12/31/2004 $13,649 $21,588 $8,510
1/31/2005 $12,877 $21,062 $7,883
2/28/2005 $13,854 $21,505 $8,418
3/31/2005 $13,225 $21,125 $8,014
4/30/2005 $12,028 $20,724 $7,176
5/31/2005 $12,210 $21,383 $7,254
6/30/2005 $13,369 $21,414 $7,996
7/31/2005 $13,187 $22,210 $7,726
8/31/2005 $13,914 $22,007 $8,090
9/30/2005 $16,444 $22,185 $9,746
10/31/2005 $15,376 $21,815 $8,994
11/30/2005 $16,959 $22,640 $9,807
12/31/2005 $19,039 $22,648 $10,878
1/31/2006 $22,642 $23,247 $12,870
2/28/2006 $20,609 $23,310 $11,229
3/31/2006 $22,498 $23,600 $11,769
4/30/2006 $25,031 $23,917 $13,263
5/31/2006 $22,551 $23,229 $12,177
6/30/2006 $22,854 $23,260 $12,272
7/31/2006 $22,687 $23,404 $12,013
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------
ADVISOR CLASS 5 7/31/06
- ---------------------------------------
1-Year +73.68%
- ---------------------------------------
5-Year +29.76%
- ---------------------------------------
10-Year +9.94%
- ---------------------------------------
ADVISOR CLASS (8/1/96-7/31/06) 5
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
FRANKLIN GOLD AND PRECIOUS S&P 500 FTSE GOLD
DATE METALS FUND - CLASS ADVISOR INDEX 6 MINES INDEX 6
- --------------------------------------------------------------------------------
8/1/1996 $10,000 $10,000 $10,000
8/31/1996 $10,396 $10,211 $10,179
9/30/1996 $9,775 $10,785 $9,279
10/31/1996 $9,802 $11,083 $9,409
11/30/1996 $9,727 $11,920 $9,396
12/31/1996 $9,648 $11,684 $9,137
1/31/1997 $9,339 $12,413 $8,510
2/28/1997 $10,464 $12,511 $9,558
3/31/1997 $9,317 $11,998 $8,202
4/30/1997 $8,729 $12,713 $7,359
5/31/1997 $9,184 $13,487 $7,866
6/30/1997 $8,608 $14,091 $6,979
7/31/1997 $8,467 $15,211 $7,086
8/31/1997 $8,348 $14,360 $7,075
9/30/1997 $8,734 $15,146 $7,642
10/31/1997 $7,341 $14,640 $6,221
11/30/1997 $6,149 $15,317 $4,899
12/31/1997 $6,295 $15,580 $5,302
1/31/1998 $6,653 $15,752 $5,601
2/28/1998 $6,631 $16,888 $5,397
3/31/1998 $7,025 $17,752 $5,738
4/30/1998 $7,518 $17,931 $6,506
5/31/1998 $6,489 $17,623 $5,447
6/30/1998 $5,997 $18,338 $4,980
7/31/1998 $5,719 $18,143 $4,513
8/31/1998 $4,577 $15,523 $3,515
9/30/1998 $6,403 $16,517 $5,516
10/31/1998 $6,425 $17,860 $5,577
11/30/1998 $6,298 $18,942 $5,287
12/31/1998 $5,954 $20,032 $4,682
1/31/1999 $5,938 $20,870 $4,671
2/28/1999 $5,817 $20,221 $4,366
3/31/1999 $5,930 $21,030 $4,354
4/30/1999 $7,027 $21,845 $5,101
5/31/1999 $6,135 $21,329 $4,150
6/30/1999 $6,619 $22,512 $4,435
7/31/1999 $6,422 $21,810 $4,232
8/31/1999 $6,694 $21,702 $4,500
9/30/1999 $7,905 $21,108 $5,659
10/31/1999 $7,141 $22,443 $4,909
11/30/1999 $7,269 $22,899 $4,690
12/31/1999 $7,498 $24,247 $4,651
1/31/2000 $6,989 $23,029 $4,105
2/29/2000 $6,684 $22,594 $4,234
3/31/2000 $6,487 $24,803 $3,917
4/30/2000 $6,038 $24,057 $3,790
5/31/2000 $6,251 $23,564 $3,904
6/30/2000 $6,540 $24,145 $4,046
7/31/2000 $6,152 $23,768 $3,651
8/31/2000 $6,768 $25,244 $3,697
9/30/2000 $6,289 $23,911 $3,500
10/31/2000 $5,955 $23,810 $2,968
11/30/2000 $6,342 $21,934 $3,130
12/31/2000 $6,954 $22,042 $3,425
1/31/2001 $7,093 $22,823 $3,344
2/28/2001 $7,410 $20,744 $3,581
3/31/2001 $6,506 $19,430 $3,229
4/30/2001 $7,449 $20,939 $3,765
5/31/2001 $8,036 $21,079 $3,894
6/30/2001 $7,634 $20,567 $3,890
7/31/2001 $7,015 $20,364 $3,798
8/31/2001 $7,472 $19,090 $4,040
9/30/2001 $7,332 $17,549 $4,407
10/31/2001 $7,117 $17,884 $4,215
11/30/2001 $7,202 $19,255 $4,046
12/31/2001 $7,667 $19,424 $4,202
1/31/2002 $8,264 $19,141 $4,803
2/28/2002 $9,019 $18,772 $5,279
3/31/2002 $9,751 $19,478 $5,821
4/30/2002 $10,285 $18,297 $6,208
5/31/2002 $11,470 $18,163 $7,113
6/30/2002 $10,062 $16,870 $6,093
7/31/2002 $8,376 $15,555 $5,155
8/31/2002 $9,450 $15,657 $5,869
9/30/2002 $9,473 $13,957 $5,900
10/31/2002 $8,964 $15,184 $5,366
11/30/2002 $9,003 $16,077 $5,229
12/31/2002 $10,565 $15,133 $6,402
1/31/2003 $10,694 $14,737 $6,374
2/28/2003 $9,929 $14,516 $5,967
3/31/2003 $9,341 $14,655 $5,597
4/30/2003 $9,188 $15,863 $5,539
5/31/2003 $10,557 $16,698 $6,172
6/30/2003 $10,887 $16,911 $6,493
7/31/2003 $11,338 $17,210 $6,728
8/31/2003 $13,005 $17,545 $7,591
9/30/2003 $13,303 $17,359 $7,647
10/31/2003 $14,520 $18,340 $8,266
11/30/2003 $16,186 $18,501 $9,149
12/31/2003 $16,133 $19,471 $9,143
1/31/2004 $14,569 $19,828 $7,998
2/29/2004 $14,925 $20,104 $8,150
3/31/2004 $15,816 $19,801 $8,840
4/30/2004 $12,599 $19,490 $6,914
5/31/2004 $13,734 $19,757 $7,619
6/30/2004 $13,402 $20,141 $7,310
7/31/2004 $13,256 $19,475 $7,332
8/31/2004 $14,090 $19,553 $7,975
9/30/2004 $15,193 $19,765 $8,560
10/31/2004 $15,500 $20,066 $8,889
11/30/2004 $16,206 $20,878 $9,167
12/31/2004 $15,289 $21,588 $8,510
1/31/2005 $14,437 $21,062 $7,883
2/28/2005 $15,541 $21,505 $8,418
3/31/2005 $14,851 $21,125 $8,014
4/30/2005 $13,519 $20,724 $7,176
5/31/2005 $13,737 $21,383 $7,254
6/30/2005 $15,054 $21,414 $7,996
7/31/2005 $14,859 $22,210 $7,726
8/31/2005 $15,696 $22,007 $8,090
9/30/2005 $18,563 $22,185 $9,746
10/31/2005 $17,361 $21,815 $8,994
11/30/2005 $19,164 $22,640 $9,807
12/31/2005 $21,537 $22,648 $10,878
1/31/2006 $25,625 $23,247 $12,870
2/28/2006 $23,348 $23,310 $11,229
3/31/2006 $25,503 $23,600 $11,769
4/30/2006 $28,394 $23,917 $13,263
5/31/2006 $25,601 $23,229 $12,177
6/30/2006 $25,977 $23,260 $12,272
7/31/2006 $25,806 $23,404 $12,013
10 | Annual Report
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 Shares are available to certain eligible investors as described in
CLASS: the prospectus.
1. Cumulative total return represents the change in value of an investment over
the periods indicated.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
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 +167.47% and +10.81%.
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.
Annual Report | 11
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.
12 | Annual Report
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 2/1/06 VALUE 7/31/06 PERIOD* 2/1/06-7/31/06
- ---------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,005.90 $4.53
- ---------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,020.28 $4.56
- ---------------------------------------------------------------------------------------------------------------------
CLASS B
- ---------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,001.70 $8.29
- ---------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,016.51 $8.35
- ---------------------------------------------------------------------------------------------------------------------
CLASS C
- ---------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,002.00 $8.29
- ---------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,016.51 $8.35
- ---------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ---------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,007.00 $3.28
- ---------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.52 $3.31
- ---------------------------------------------------------------------------------------------------------------------
*Expenses are equal to the annualized expense ratio for each class (A: 0.91%; B:
1.67%; C: 1.67%; and Advisor: 0.66%), multiplied by the average account value
over the period, multiplied by 181/365 to reflect the one-half year period.
Annual Report | 13
Franklin Gold and Precious Metals Fund
FINANCIAL HIGHLIGHTS
------------------------------------------------------------------
YEAR ENDED JULY 31,
CLASS A 2006 2005 2004 2003 2002
------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 17.81 $ 15.94 $ 13.74 $ 10.28 $ 8.88
------------------------------------------------------------------
Income from investment operations a:
Net investment income b ............................ 0.15 0.04 0.05 0.13 0.13
Net realized and unrealized gains (losses) ......... 12.87 1.84 2.25 3.44 1.52
------------------------------------------------------------------
Total from investment operations .................... 13.02 1.88 2.30 3.57 1.65
------------------------------------------------------------------
Less distributions from net investment income ....... (0.16) (0.01) (0.10) (0.11) (0.25)
------------------------------------------------------------------
Redemption fees ..................................... -- d -- d -- d -- --
------------------------------------------------------------------
Net asset value, end of year ........................ $ 30.67 $ 17.81 $ 15.94 $ 13.74 $ 10.28
==================================================================
Total return c ...................................... 73.36% 11.78% 16.68% 34.97% 18.97%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $885,176 $439,628 $394,292 $306,283 $200,627
Ratios to average net assets:
Expenses ........................................... 0.92% e 0.96% e 0.96% e 1.09% 1.13%
Net investment income .............................. 0.57% 0.21% 0.26% 1.05% 1.18%
Portfolio turnover rate ............................. 10.96% 11.33% 8.11% 6.59% 12.77%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01.
e Benefit of expense reduction rounds to less than 0.01%.
14 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Gold and Precious Metals Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
-------------------------------------------------------------
YEAR ENDED JULY 31,
CLASS B 2006 2005 2004 2003 2002
-------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 17.24 $ 15.54 $ 13.46 $ 10.11 $ 8.76
-------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b ..................... (0.04) (0.09) (0.08) 0.02 0.01
Net realized and unrealized gains (losses) ......... 12.44 1.79 2.21 3.41 1.55
-------------------------------------------------------------
Total from investment operations .................... 12.40 1.70 2.13 3.43 1.56
-------------------------------------------------------------
Less distributions from net investment income ....... (0.02) -- (0.05) (0.08) (0.21)
-------------------------------------------------------------
Redemption fees ..................................... -- d -- d -- d -- --
-------------------------------------------------------------
Net asset value, end of year ........................ $ 29.62 $ 17.24 $ 15.54 $ 13.46 $ 10.11
=============================================================
Total return c ...................................... 71.95% 10.94% 15.81% 34.08% 18.14%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $60,423 $41,270 $37,738 $26,278 $10,964
Ratios to average net assets:
Expenses ........................................... 1.67% e 1.70% e 1.71% e 1.85% 1.89%
Net investment income (loss) ....................... (0.19)% (0.53)% (0.49)% 0.29% 0.12%
Portfolio turnover rate ............................. 10.96% 11.33% 8.11% 6.59% 12.77%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01.
e Benefit of expense reduction rounds to less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 15
Franklin Gold and Precious Metals Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
------------------------------------------------------------------
YEAR ENDED JULY 31,
CLASS C 2006 2005 2004 2003 2002
------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 17.40 $ 15.69 $ 13.59 $ 10.18 $ 8.80
------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b ..................... (0.05) (0.09) (0.09) 0.04 0.04
Net realized and unrealized gains (losses) ......... 12.58 1.80 2.23 3.43 1.53
------------------------------------------------------------------
Total from investment operations .................... 12.53 1.71 2.14 3.47 1.57
------------------------------------------------------------------
Less distributions from net investment income ....... (0.03) -- (0.04) (0.06) (0.19)
------------------------------------------------------------------
Redemption fees ..................................... -- d -- d -- d -- --
------------------------------------------------------------------
Net asset value, end of year ........................ $ 29.90 $ 17.40 $ 15.69 $ 13.59 $ 10.18
==================================================================
Total return c ...................................... 72.04% 10.96% 15.77% 34.16% 18.09%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $217,371 $114,315 $101,962 $ 65,729 $ 38,219
Ratios to average net assets:
Expenses ........................................... 1.67% e 1.71% e 1.71% e 1.82% 1.88%
Net investment income (loss) ....................... (0.19)% (0.54)% (0.49)% 0.32% 0.35%
Portfolio turnover rate ............................. 10.96% 11.33% 8.11% 6.59% 12.77%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01.
e Benefit of expense reduction rounds to less than 0.01%.
16 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Gold and Precious Metals Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
----------------------------------------------------------------
YEAR ENDED JULY 31,
ADVISOR CLASS 2006 2005 2004 2003 2002
----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 18.28 $ 16.36 $ 14.08 $ 10.53 $ 9.09
----------------------------------------------------------------
Income from investment operations a:
Net investment income b ............................ 0.22 0.08 0.08 0.09 0.15
Net realized and unrealized gains (losses) ......... 13.20 1.89 2.33 3.60 1.56
----------------------------------------------------------------
Total from investment operations .................... 13.42 1.97 2.41 3.69 1.71
----------------------------------------------------------------
Less distributions from net investment income ....... (0.20) (0.05) (0.13) (0.14) (0.27)
----------------------------------------------------------------
Redemption fees ..................................... -- c -- c -- c -- --
----------------------------------------------------------------
Net asset value, end of year ........................ $ 31.50 $ 18.28 $ 16.36 $ 14.08 $ 10.53
================================================================
Total return ........................................ 73.68% 12.09% 16.91% 35.38% 19.38%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $60,213 $34,519 $35,351 $21,223 $ 5,573
Ratios to average net assets:
Expenses ........................................... 0.67% d 0.71% d 0.71% d 0.85% 0.90%
Net investment income .............................. 0.82% 0.46% 0.51% 1.29% 1.29%
Portfolio turnover rate ............................. 10.96% 11.33% 8.11% 6.59% 12.77%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Amount rounds to less than 0.01%.
d Benefit of expense reduction rounds to less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 17
Franklin Gold and Precious Metals Fund
STATEMENT OF INVESTMENTS, JULY 31, 2006
- -----------------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES/WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 95.9%
COMMON STOCKS, WARRANTS AND MUTUAL FUNDS 95.9%
GOLD AND DIVERSIFIED RESOURCES 7.6%
Anglo American PLC ..................................................... South Africa 256,100 $ 10,692,697
Anglo American PLC, ADR ................................................ South Africa 570,958 12,024,376
Freeport-McMoRan Copper & Gold Inc., B ................................. United States 699,211 38,148,952
a Mvelaphanda Resources Ltd. ............................................. South Africa 2,250,000 11,371,490
Oxiana Ltd. ............................................................ Australia 8,882,655 20,764,738
--------------
93,002,253
--------------
GOLD EXPLORATION AND DEVELOPMENT 10.0%
a Apex Silver Mines Ltd. ................................................. Bolivia 200,000 2,922,000
a Aurizon Mines Ltd. ..................................................... Canada 1,800,000 4,502,784
a Ballarat Goldfields NL ................................................. Australia 33,000,000 6,829,069
a Banro Corp. ............................................................ Canada 350,000 3,418,633
a Bendigo Mining Ltd. .................................................... Australia 11,648,795 14,240,509
a European Minerals Corp. ................................................ Canada 1,050,000 928,136
a,b European Minerals Corp., 144A .......................................... Canada 10,600,000 9,369,752
a,b European Minerals Corp., wts., 144A, 4/11/10 ........................... Canada 5,300,000 2,201,892
a Gammon Lake Resources Inc. ............................................. Canada 1,512,100 21,011,413
a,b GBS Gold International Inc., 144A ...................................... Canada 2,000,000 3,164,501
a Great Basin Gold Ltd. .................................................. Canada 1,600,000 2,616,459
a International Minerals Corp. ........................................... Canada 700,000 3,081,411
a International Minerals Corp., wts., 5/19/08 ............................ Canada 350,000 264,519
a Ivanhoe Mines Ltd. ..................................................... Canada 810,000 4,797,136
a,b Ivanhoe Mines Ltd., 144A ............................................... Canada 918,600 5,440,308
a,b Jinshan Gold Mines Inc., 144A .......................................... Canada 3,730,000 3,824,626
a,c Jinshan Gold Mines Inc., wts., 6/06/07 ................................. Canada 1,865,000 758,331
a Metallica Resources Inc. ............................................... Canada 500,000 1,551,313
a,b Metallica Resources Inc., 144A ......................................... Canada 988,998 3,068,490
a Metallica Resources Inc., wts., 12/11/08 ............................... Canada 494,499 590,094
a Miramar Mining Corp. ................................................... Canada 1,330,000 4,890,657
a Nevsun Resources Ltd. .................................................. Canada 877,000 2,658,985
a NovaGold Resources Inc. ................................................ Canada 450,000 7,515,000
a Pan Australian Resources Ltd. .......................................... Australia 25,600,000 5,984,441
a,b Pan Australian Resources Ltd., 144A .................................... Australia 5,000,000 1,168,836
a Shore Gold Inc. ........................................................ Canada 375,000 1,604,349
a Sino Gold Ltd. ......................................................... Australia 1,100,000 4,131,165
--------------
122,534,809
--------------
LONG LIFE GOLD MINES 52.7%
Agnico-Eagle Mines Ltd. ................................................ Canada 1,200,000 42,948,000
a Alamos Gold Inc. ....................................................... Canada 696,400 5,724,848
a,b Alamos Gold Inc., 144A ................................................. Canada 400,000 3,288,252
AngloGold Ashanti Ltd. ................................................. South Africa 62,530 2,986,944
AngloGold Ashanti Ltd., ADR ............................................ South Africa 1,271,327 61,773,779
Barrick Gold Corp. ..................................................... Canada 3,506,283 107,993,516
a Centerra Gold Inc. ..................................................... Canada 350,000 3,016,441
a,b Centerra Gold Inc., 144A ............................................... Canada 1,384,800 11,934,765
Compania de Minas Buenaventura SA ...................................... Peru 100,593 2,908,676
Compania de Minas Buenaventura SA, ADR ................................. Peru 1,288,986 37,522,383
18 | Annual Report
Franklin Gold and Precious Metals Fund
STATEMENT OF INVESTMENTS, JULY 31, 2006 (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES/WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS, WARRANTS AND MUTUAL FUNDS (CONTINUED)
LONG LIFE GOLD MINES (CONTINUED)
a Glamis Gold Ltd. ....................................................... Canada 1,398,500 $ 51,478,785
Gold Fields Ltd. ....................................................... South Africa 504,999 10,406,106
Gold Fields Ltd., ADR .................................................. South Africa 854,528 17,816,909
Goldcorp Inc. .......................................................... Canada 1,290,625 37,761,591
Goldcorp Inc. (USD Traded) ............................................. Canada 287,500 8,415,125
a Goldcorp Inc., wts., 6/09/11 ........................................... Canada 9,125 137,121
a Harmony Gold Mining Co. Ltd. ........................................... South Africa 1,443,000 20,465,875
a Harmony Gold Mining Co. Ltd., ADR ...................................... South Africa 600,000 8,580,000
a Highland Gold Mining Ltd. .............................................. United Kingdom 524,000 1,771,781
a Lihir Gold Ltd. ........................................................ Papua New Guinea 8,566,841 18,187,973
a,b Lihir Gold Ltd., ADR, 144A ............................................. Papua New Guinea 50,000 2,157,500
Meridian Gold Inc. ..................................................... United States 1,006,500 27,195,630
Meridian Gold Inc. (CAD Traded) ........................................ United States 513,760 13,855,580
Newcrest Mining Ltd. ................................................... Australia 4,000,828 58,752,885
Newmont Mining Corp. ................................................... United States 720,714 36,922,178
a Randgold Resources Ltd., ADR ........................................... United Kingdom 2,127,600 47,296,548
a Western Areas Ltd. ..................................................... South Africa 522,691 3,311,505
a Western Areas Ltd., ADR ................................................ South Africa 26,430 167,447
--------------
644,778,143
--------------
MEDIUM LIFE GOLD MINES 10.4%
a Cambior Inc. ........................................................... Canada 2,130,000 6,250,862
a Eldorado Gold Corp. .................................................... Canada 2,145,000 10,124,901
a Golden Star Resources Ltd. ............................................. Canada 750,000 2,360,117
IAMGOLD Corp. .......................................................... Canada 387,400 3,605,871
Kingsgate Consolidated Ltd. ............................................ Australia 1,855,148 6,384,233
a Kinross Gold Corp. ..................................................... Canada 3,513,012 40,430,846
a Northgate Minerals Corp. ............................................... Canada 1,150,000 4,320,251
a Queenstake Resources Ltd. .............................................. Canada 7,500,000 2,519,226
a Rio Narcea Gold Mines Ltd. ............................................. Canada 2,500,000 4,706,974
a SEMAFO Inc. ............................................................ Canada 3,500,000 6,404,137
a,c SEMAFO Inc., wts., 144A, 12/18/06 ...................................... Canada 1,225,000 753,646
a Yamana Gold Inc. ....................................................... Canada 1,530,940 15,548,926
a,b Yamana Gold Inc., 144A ................................................. Canada 2,300,000 23,359,852
--------------
126,769,842
--------------
MUTUAL FUNDS 0.9%
Central Fund of Canada Ltd., A ......................................... Canada 1,255,000 10,943,600
--------------
PLATINUM & PALLADIUM 14.3%
Anglo Platinum Ltd. .................................................... South Africa 110,000 11,245,501
Anglo Platinum Ltd., ADR ............................................... South Africa 571,138 58,388,478
Impala Platinum Holdings Ltd. .......................................... South Africa 263,000 48,472,282
Impala Platinum Holdings Ltd., ADR ..................................... South Africa 771,200 35,534,053
Lonmin PLC ............................................................. United Kingdom 350,000 19,118,137
a Stillwater Mining Co. .................................................. United States 253,246 2,952,848
--------------
175,711,299
--------------
TOTAL LONG TERM INVESTMENTS (COST $592,173,292) 1,173,739,946
--------------
Annual Report | 19
Franklin Gold and Precious Metals Fund
STATEMENT OF INVESTMENTS, JULY 31, 2006 (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (COST $46,232,996) 3.8%
MONEY MARKET FUND 3.8%
d Franklin Institutional Fiduciary Trust Money Market Portfolio, 5.00% ..... United States 46,232,996 $ 46,232,996
--------------
TOTAL INVESTMENTS (COST $638,406,288) 99.7% .............................. 1,219,972,942
OTHER ASSETS, LESS LIABILITIES 0.3% ...................................... 3,210,575
--------------
NET ASSETS 100.0% ........................................................ $1,223,183,517
==============
CURRENCY ABBREVIATIONS
CAD - Canadian Dollar
USD - United States Dollar
SELECTED PORTFOLIO ABBREVIATION
ADR - American Depository Receipt
a Non-income producing for the twelve months ended July 31,2006.
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 the guidelines approved
by the Fund's Board of Trustees. At July 31, 2006, the aggregate value of these
securities was $68,978,774, representing 5.64% of net assets.
c See Note 8 regarding restricted securities.
d See Note 9 regarding investments in Franklin Institutional Fiduciary Trust
Money Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
20 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Gold and Precious Metals Fund
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2006
Assets:
Investments in securities:
Cost - Unaffiliated issuers
$ 592,173,292
Cost - Sweep Money Fund (Note 9) ........................... 46,232,996
--------------
Total cost of investments .................................. $ 638,406,288
==============
Value - Unaffiliated issuers ............................... $1,173,739,946
Value - Sweep Money Fund (Note 9) .......................... 46,232,996
--------------
Total value of investments ................................. 1,219,972,942
Foreign currency, at value (cost $1,169,712) ................ 1,271,467
Receivables:
Capital shares sold ........................................ 7,966,833
Dividends .................................................. 371,527
Other receivable (Note 10) ................................. 6,212
--------------
Total assets ............................................ $1,229,588,981
--------------
Liabilities:
Payables:
Investment securities purchased ............................ $ 2,354,960
Capital shares redeemed .................................... 2,910,482
Affiliates ................................................. 994,403
Accrued expenses and other liabilities ...................... 145,619
--------------
Total liabilities ....................................... 6,405,464
--------------
Net assets, at value ................................. $1,223,183,517
==============
Net assets consist of:
Paid-in capital ............................................. $ 608,787,769
Distributions in excess of net investment income ............ (54,761)
Net unrealized appreciation (depreciation) .................. 581,668,925
Accumulated net realized gain (loss) ........................ 32,781,584
--------------
Net assets, at value ................................. $1,223,183,517
==============
Annual Report |
The accompanying notes are an integral part of these financial statements. | 21
Franklin Gold and Precious Metals Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
July 31, 2006
CLASS A:
Net assets, at value ........................................................ $885,176,431
============
Shares outstanding .......................................................... 28,861,684
============
Net asset value per share a ................................................. $ 30.67
============
Maximum offering price per share (net asset value per share / 94.25%) ....... $ 32.54
============
CLASS B:
Net assets, at value ........................................................ $ 60,423,214
============
Shares outstanding .......................................................... 2,039,661
============
Net asset value and maximum offering price per share a ...................... $ 29.62
============
CLASS C:
Net assets, at value ........................................................ $217,370,797
============
Shares outstanding .......................................................... 7,268,759
============
Net asset value and maximum offering price per share a ...................... $ 29.90
============
ADVISOR CLASS:
Net assets, at value ........................................................ $ 60,213,075
============
Shares outstanding .......................................................... 1,911,823
============
Net asset value and maximum offering price per share a ...................... $ 31.50
============
a Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.
22 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Gold and Precious Metals Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended July 31, 2006
Investment income:
Dividends (net of foreign taxes of $183,421)
Unaffiliated issuers ............................................................. $ 13,114,474
Sweep Money Fund (Note 9) ........................................................ 1,148,275
Interest .......................................................................... 19,503
Other income (Note 10) ............................................................ 6,212
------------
Total investment income .................................................... 14,288,464
------------
Expenses:
Management fees (Note 3a) ......................................................... 4,642,324
Distribution fees (Note 3c)
Class A .......................................................................... 1,704,729
Class B .......................................................................... 567,158
Class C .......................................................................... 1,824,319
Transfer agent fees (Note 3e) ..................................................... 1,324,860
Custodian fees (Note 4) ........................................................... 120,109
Reports to shareholders ........................................................... 113,245
Registration and filing fees ...................................................... 129,806
Professional fees ................................................................. 43,150
Trustees' fees and expenses ....................................................... 26,801
Other ............................................................................. 20,192
------------
Total expenses ............................................................. 10,516,693
Expense reductions (Note 4) ................................................ (150)
------------
Net expenses ............................................................ 10,516,543
------------
Net investment income .................................................. 3,771,921
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ...................................................................... 48,790,315
Foreign currency transactions .................................................... (391,285)
------------
Net realized gain (loss) ................................................... 48,399,030
------------
Net change in unrealized appreciation (depreciation) on:
Investments ...................................................................... 402,885,625
Translation of assets and liabilities denominated in foreign currencies ...... 102,271
------------
Net change in unrealized appreciation (depreciation) ............... 402,987,896
------------
Net realized and unrealized gain (loss) ............................................ 451,386,926
------------
Net increase (decrease) in net assets resulting from operations .................... $455,158,847
============
Annual Report |
The accompanying notes are an integral part of these financial statements. | 23
Franklin Gold and Precious Metals Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------
YEAR ENDED JULY 31,
2006 2005
--------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income .................................................................. $ 3,771,921 $ 270,035
Net realized gain (loss) from investments and foreign currency transactions ............ 48,399,030 16,486,556
Net change in unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in foreign currencies ......... 402,987,896 51,129,638
--------------------------------
Net increase (decrease) in net assets resulting from operations .................. 455,158,847 67,886,229
--------------------------------
Distributions to shareholders from:
Net investment income:
Class A .............................................................................. (3,754,217) (196,281)
Class B .............................................................................. (41,971) --
Class C .............................................................................. (219,065) --
Advisor Class ........................................................................ (348,876) (115,006)
--------------------------------
Total distributions to shareholders ..................................................... (4,364,129) (311,287)
--------------------------------
Capital share transactions: (Note 2)
Class A .............................................................................. 131,599,625 (3,154,226)
Class B .............................................................................. (9,105,554) (404,873)
Class C .............................................................................. 18,714,595 1,304,585
Advisor Class ........................................................................ 1,411,854 (4,939,072)
--------------------------------
Total capital share transactions ........................................................ 142,620,520 (7,193,586)
--------------------------------
Redemption fees ......................................................................... 36,012 8,647
--------------------------------
Net increase (decrease) in net assets ............................................ 593,451,250 60,390,003
Net assets:
Beginning of year ....................................................................... 629,732,267 569,342,264
--------------------------------
End of year ............................................................................. $1,223,183,517 $ 629,732,267
================================
Undistributed net investment income/distributions in excess of net investment income
included in net assets:
End of year ............................................................................. $ (54,761) $ 549,543
================================
24 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Gold and Precious Metals Fund (the Fund) is registered under the
Investment Company Act of 1940 (1940 Act) as a non-diversified, open-end
investment company. 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.
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. The investment manager monitors price movements
following the close of trading in foreign stock markets through a series of
country specific market proxies (such as baskets of American Depository
Receipts, futures contracts and exchange traded funds). These price movements
are measured against established trigger thresholds for each specific market
proxy to assist in determining if an event has occurred. 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.
Annual Report | 25
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 intends to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute to shareholders substantially all of its taxable income and net
realized gains.
Foreign securities held by the Fund may be subject to foreign taxation on
dividend and interest income received. Foreign taxes, if any, are recorded based
on the tax regulations and rates that exist in the foreign markets in which the
Fund invests.
26 | Annual Report
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 is
recorded on the ex-dividend date except that certain dividends from foreign
securities are recognized as soon as the Fund is notified of the ex-dividend
date. Distributions to shareholders are recorded on the ex-dividend date and are
determined according to income tax regulations (tax basis). Distributable
earnings determined on a tax basis may differ from earnings recorded in
accordance with accounting principles generally accepted in the United States.
These differences may be permanent or temporary. Permanent differences are
reclassified among capital accounts to reflect their tax character. These
reclassifications have no impact on net assets or the results of operations.
Temporary differences are not reclassified, as they may reverse in subsequent
periods.
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. Differences in class-level
expenses may result in payment of different per share distributions by class.
F. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.
G. REDEMPTION FEES
A short term trading redemption fee will be imposed, with some exceptions, on
any Fund shares that are redeemed or exchanged within seven calendar days
following their purchase date. The redemption fee is 2% of the amount redeemed.
Such fees are retained by the Fund and accounted for as an addition to 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.
Annual Report | 27
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At July 31, 2006, there were an unlimited number of shares authorized ($0.01 par
value). Transactions in the Fund's shares were as follows:
---------------------------------------------------------------
YEAR ENDED JULY 31,
2006 2005
---------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
CLASS A SHARES:
Shares sold ........................... 20,483,273 $ 563,514,264 11,059,746 $ 194,135,361
Shares issued in reinvestment of
distributions ........................ 141,714 3,284,924 8,786 171,070
Shares redeemed ....................... (16,446,287) (435,199,563) (11,118,040) (197,460,657)
---------------------------------------------------------------
Net increase (decrease) ............... 4,178,700 $ 131,599,625 (49,508) $ (3,154,226)
===============================================================
CLASS B SHARES:
Shares sold ........................... 387,494 $ 9,874,058 468,037 $ 8,154,926
Shares issued in reinvestment of
distributions ........................ 1,657 37,296 -- --
Shares redeemed ....................... (743,854) (19,016,908) (502,670) (8,559,799)
---------------------------------------------------------------
Net increase (decrease) ............... (354,703) $ (9,105,554) (34,633) $ (404,873)
===============================================================
CLASS C SHARES:
Shares sold ........................... 3,176,553 $ 84,980,636 1,406,424 $ 24,673,748
Shares issued in reinvestment of
distributions ........................ 7,924 180,030 -- --
Shares redeemed ....................... (2,484,486) (66,446,071) (1,337,493) (23,369,163)
---------------------------------------------------------------
Net increase (decrease) ............... 699,991 $ 18,714,595 68,931 $ 1,304,585
===============================================================
ADVISOR CLASS SHARES:
Shares sold ........................... 378,725 $ 10,812,774 482,952 $ 8,680,605
Shares issued in reinvestment of
distributions ........................ 12,611 299,758 5,639 112,495
Shares redeemed ....................... (367,540) (9,700,678) (761,539) (13,732,172)
---------------------------------------------------------------
Net increase (decrease) ............... 23,796 $ 1,411,854 (272,948) $ (4,939,072)
===============================================================
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
28 | Annual Report
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES
Effective May 1, 2006, the Fund pays an investment management fee to Advisers
based on the month-end net assets of the Fund as follows:
- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- --------------------------------------------------------------------------------
0.625% Up to and including $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million, up to and including $10 billion
0.440% Over $10 billion, up to and including $12.5 billion
0.420% Over $12.5 billion, up to and including $15 billion
0.400% In excess of $15 billion
Prior to May 1, 2006, the Fund paid fees to Advisers based on the month-end 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 Class A 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%
Annual Report | 29
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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:
Sales charges retained net of commissions paid to unaffiliated broker dealers ..... $700,523
Contingent deferred sales charges retained ........................................ $193,249
E. TRANSFER AGENT FEES
The Fund paid transfer agent fees of $1,324,860, of which $898,855 was retained
by Investor Services.
4. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the year ended July 31, 2006, the
custodian fees were reduced as noted in the Statement of Operations.
5. INCOME TAXES
During the year ended July 31, 2006, the Fund utilized $15,569,307 of capital
loss carryforwards.
For tax purposes, realized currency losses, occurring subsequent to October 31,
may be deferred and treated as occurring on the first day of the following
fiscal year. At July, 31 2006, the Fund deferred realized currency losses of
$379,189.
The tax character of distributions paid during the years ended July 31, 2006 and
2005, was as follows:
------------------------
2006 2005
------------------------
Distributions paid from:
Ordinary income ................... $4,364,129 $311,287
30 | Annual Report
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
At July 31, 2006, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:
Cost of investments ................................ $664,915,876
============
Unrealized appreciation ............................ $565,410,024
Unrealized depreciation ............................ (10,352,958)
------------
Net unrealized appreciation (depreciation) ......... $555,057,066
============
Undistributed ordinary income ...................... $ 26,394,592
Undistributed long term capital gains .............. 33,221,008
------------
Distributable earnings ............................. $ 59,615,600
============
Net investment income 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.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended July 31, 2006, aggregated $202,658,592 and $102,732,819,
respectively.
7. CONCENTRATION OF RISK
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 SECURITIES
The Fund may invest in securities that are restricted under the Securities Act
of 1933 (the 1933 Act) or which are subject to legal, contractual, or other
agreed upon restrictions on resale. Restricted securities are often purchased in
private placement transactions, and cannot be sold without prior registration
unless the sale is pursuant to an exemption under the 1933 Act. Disposal of
these securities may require greater effort and expense, and prompt sale at an
acceptable price may be difficult. The Fund has registration rights for certain
restricted securities held at period end. The issuer generally incurs all
registration costs.
Annual Report | 31
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. RESTRICTED SECURITIES (CONTINUED)
At July 31, 2006, the Fund held investments in restricted securities, excluding
144A securities deemed to be liquid, 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
- -------------------------------------------------------------------------------------------------------
1,865,000 Jinshan Gold Mines Inc., wts., 6/06/07 ...... 12/14/05 $ -- $ 758,331
1,225,000 a SEMAFO Inc., wts., 144A, 12/18/06 ........... 12/18/03 21,630 753,646
----------
TOTAL RESTRICTED SECURITIES (0.12% of Net Assets) $1,511,977
==========
a The Fund also invests in unrestricted securities of the issuer, valued at
$6,404,137 as of July 31, 2006.
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 and administrative
fees paid by the Sweep Money Fund.
10. REGULATORY MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, 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 (collectively, the "Company"), entered into
settlements with certain of those regulators.
Specifically, the Company entered into settlements with the Securities and
Exchange Commission ("SEC") concerning market timing (the "August 2, 2004 SEC
Order") and marketing support payments to securities dealers who sell fund
shares (the "December 13, 2004 SEC Order") and with the California Attorney
General's Office ("CAGO") concerning marketing support payments to securities
dealers who sell fund shares (the "CAGO Settlement"). Under the terms of the
settlements with the SEC and the CAGO, the Company retained an Independent
Distribution Consultant ("IDC") to develop separate plans for the distribution
of the respective settlement monies. The CAGO approved the distribution plan
pertaining to the distribution of the monies owed under the CAGO settlement
agreement, and in March 2005, the disbursement of monies to the relevant funds
in accordance with the terms and conditions of that settlement was completed.
On June 23, 2006, the SEC approved the IDC's proposed plan of distribution
arising from the December 13, 2004 SEC Order. The relevant funds recorded the
settlements as other income and disbursement of the settlement monies to the
designated funds in accordance with the terms and conditions of the SEC's order
and the plan will be completed in September 2006.
32 | Annual Report
Franklin Gold and Precious Metals Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. REGULATORY MATTERS (CONTINUED)
The IDC has also completed a proposed Plan of Distribution under the August 2,
2004 SEC Order resolving the SEC's market timing investigation and has submitted
that plan to the SEC staff, where it is under review. The SEC has announced the
following expected schedule with respect to the market timing Plan of
Distribution: "The SEC anticipates that Notice of the Plan will be published on
or after September 15, 2006. After publication and comment, the proposed
Distribution Plan will be submitted to the SEC for approval. When the SEC
approves the proposed Distribution Plan, with modifications as appropriate,
distributions will begin pursuant to that Plan. The SEC anticipates the
distribution will begin in the fall of 2006."
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, directors, and/or
employees, have been named in private lawsuits (styled as shareholder class
actions, or as derivative actions on behalf of either the named funds or
Franklin Resources, Inc.) relating to the industry practices referenced above,
as well as to allegedly excessive advisory fees, commissions, and/or 12b-1 fees.
The lawsuits were filed in different courts throughout the country. Many of
those suits are now pending in a multidistrict litigation in the United States
District Court for the District of Maryland.
The Company and fund management strongly believe that the claims made in each of
the private lawsuits referenced above are without merit and intend 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. 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.
11. NEW ACCOUNTING PRONOUNCEMENT
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the
accounting for uncertainty in tax positions taken or expected to be taken in a
tax return. FIN 48 provides guidance on the measurement, recognition,
classification and disclosure of tax positions, along with accounting for the
related interest and penalties. FIN 48 is effective for fiscal years beginning
after December 15, 2006, and is to be applied to all open tax years as of the
date of effectiveness. We have not yet completed our evaluation of the impact,
if any, of adopting FIN 48 on the Fund's financial statements.
Annual Report | 33
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 The Franklin Gold and Precious
Metal Fund (the "Fund") at July 31, 2006, 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 audit 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, 2006 by correspondence with the custodian
and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
September 15, 2006
34 | Annual Report
Franklin Gold and Precious Metals Fund
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund
designates the maximum amount allowable but no less than $33,221,008 as a long
term capital gain dividend for the fiscal year ended July 31, 2006.
Under Section 854(b)(2) of the Code, the Fund designates 65.60% of the ordinary
income dividends as income qualifying for the dividends received deduction for
the fiscal year ended July 31, 2006.
Under Section 854(b)(2) of the Code, the Fund designates the maximum amount
allowable but no less than $13,226,872 as qualified dividends for purposes of
the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended
July 31, 2006. In January 2007, shareholders will receive Form 1099-DIV which
will include their share of qualified dividends distributed during the calendar
year 2006. Shareholders are advised to check with their tax advisors for
information on the treatment of these amounts on their individual income tax
returns.
At July 31, 2006, 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 as allowed under
Section 853 of the Code. This election will allow shareholders of record in
December 2006, 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 2007 semiannual
report of the Fund. In addition, in January 2007, shareholders will receive Form
1099-DIV which will include their share of taxes withheld and foreign source
income distributed during the calendar year 2006.
Annual Report | 35
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
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1982 139 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 140 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 135 Director, Hess Corporation (formerly,
One Franklin Parkway Amerada Hess Corporation) (explo-
San Mateo, CA 94403-1906 ration and refining of oil and gas),
H.J. Heinz Company (processed foods
and allied products), RTI International
Metals, Inc. (manufacture and distri-
bution 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 114 Director, Center for Creative Land
One Franklin Parkway 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).
- ------------------------------------------------------------------------------------------------------------------------------------
36 | 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
- ------------------------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (1928) Trustee Since 1997 139 Director, MedImmune, Inc. (biotech-
One Franklin Parkway nology), and Overstock.com (Internet
San Mateo, CA 94403-1906 services); and FORMERLY, Director, MCI
Communication Corporation (subse-
quently known as MCI WorldCom, Inc.
and WorldCom, Inc.) (communications
services) (1988-2002), White
Mountains Insurance Group, Ltd.
(holding company) (1987-2004),
Spacehab, Inc. (aerospace services)
(1994-2003) and Martek Biosciences
Corporation (1998-2006).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; Senior Business Advisor, Martek Biosciences Corporation (research and development); 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 2005 102 Director, Hess Corporation (formerly,
One Franklin Parkway Amerada Hess Corporation) (explo-
San Mateo, CA 94403-1906 ration 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), UAL
Corporation (airlines) and White
Mountains Insurance Group, Ltd.
(holding company).
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).
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN B. WILSON (1959) Trustee Since February 38 None
One Franklin Parkway 2006
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit
boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer
and Executive Vice President - Finance Strategy, Staples, Inc. (office supplies) (1992-1996); Executive Vice President - Corporate
Planning, Northwest Airlines, Inc. (airlines) (1990-1992); Vice President and Partner, Bain & Company (1986-1990).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 37
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 21 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 45 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Trustee since 139 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 42 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (1940) Trustee, Trustee since 123 None
One Franklin Parkway President and 1982, President
San Mateo, CA 94403-1906 Chief Executive since 2001 and
Officer - Chief Executive
Investment Officer -
Management Investment
Management
since 2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Director, Franklin Advisers, Inc.; 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 45 of
the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since 2004
San Mateo, CA 94403-1906 Officer and and Vice
Vice President President - AML
- AML Compliance since
Compliance February 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of 47 of the investment companies in Franklin Templeton Investments;
and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
38 | 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
- ------------------------------------------------------------------------------------------------------------------------------------
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, Franklin Templeton Services, LLC; officer of 31 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).
- ------------------------------------------------------------------------------------------------------------------------------------
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 47 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 Templeton Investments; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; and officer of 47 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
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 47 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).
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
KAREN L. SKIDMORE (1952) Vice President Vice President Not Applicable Not Applicable
One Franklin Parkway and Secretary since March 2006
San Mateo, CA 94403-1906 and Secretary
since April 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President and Secretary, Templeton Funds Annuity Company;
and officer of 31 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since October Not Applicable Not Applicable
One Franklin Parkway 2005
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of 47 of the investment companies in Franklin
Templeton Investments; and FORMERLY, Partner, Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company
Institute (ICI) (1997-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
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 47 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc. (1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987 and
1991-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
* 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 manager or
affiliated investment managers.
** Charles B. Johnson and Rupert H. Johnson, Jr. are considered to be
interested persons of the Trust 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 investment manager and distributor. Harmon E. Burns is considered
to be an interested person of the Trust under the federal securities laws
due to his position as officer and directors of 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.
40 | Annual Report
Franklin Gold and Precious Metals Fund
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held April 18, 2006, the Board of Trustees ("Board"), including a
majority of non-interested or independent Trustees, approved renewal of the
investment management agreement 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, Inc. ("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 and its affiliates 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 management agreement 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 management agreement was in the best interests of the Fund and its
shareholders. While attention was given to all information furnished, the
following discusses some 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 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
Annual Report | 41
Franklin Gold and Precious Metals Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
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 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. Among other
factors taken into account by the Board were the Manager's best execution
trading policies, including a favorable report by an independent portfolio
trading analytical firm. 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 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 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 agreement
renewal. The Lipper report prepared for the Fund showed the investment
performance of its Class A shares during the year ended January 31, 2006, 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 universe and on an
annualized basis was in the second-highest quintile of such universe for the
previous three- and ten-year periods, and the second-lowest quintile of such
universe during the previous five-year period. The Board was satisfied with such
comparative performance.
COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the
management fees 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
42 | Annual Report
Franklin Gold and Precious Metals Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
to making such comparison, the Board relied upon a survey showing that the scope
of management advisory services covered under the Fund's investment management
agreement was similar to those provided by fund managers to other mutual fund
groups that would be used as a basis of comparison in the Lipper reports. 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 least expensive quintile of its Lipper expense group. 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 that financed 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 the Fund's independent registered public accounting firm
had been engaged by the Manager to perform certain procedures on a biennial
basis, specified and approved by the Manager and the Fund's Board solely for
their purposes and use in reference to the profitability analysis. Included in
the analysis were the revenue and related costs involved in providing services
to the Fund, as well as the Fund's relative contribution 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 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
Annual Report | 43
Franklin Gold and Precious Metals Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
improving shareholder services provided 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
its consideration of all these factors, the Board determined that the level of
profits realized by the Manager and its affiliates from providing services to
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's 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
management agreement 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 $1 billion on
December 31, 2005, and the independent Trustees discussed the prospect of adding
additional fee breakpoints with management. As a result of such discussions,
management agreed that the Fund's investment management agreement would be
amended effective May 1, 2006, to add additional breakpoints for assets in
excess of $10 billion. In considering such additional breakpoints, the Board
took into account management's position that the existing fee schedule was low
and reflected anticipated economies of scale as shown in 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 least breakpoint level does not mean that it no longer
benefits from economies of scale since the continuous growth of assets being
charged at the lowest breakpoint fee level results in a lower overall effective
management fee rate. The Board believed that to the extent any economies of
scale may be realized by the Manager and its affiliates, the schedule of fees
under the investment management agreement provides a sharing of benefits with
the Fund and its shareholders.
44 | Annual Report
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 1-954/527-7678 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.
Annual Report | 45
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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 BRIC 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 Balanced Fund
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 Global Real Estate 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
RETIREMENT TARGET FUNDS
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement 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 Michigan 6
Arizona Minnesota 6
California 7 Missouri
Colorado New Jersey
Connecticut New York 7
Florida 7 North Carolina
Georgia Ohio 6
Kentucky Oregon
Louisiana Pennsylvania
Maryland Tennessee
Massachusetts 6 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.
07/06
Not part of the annual report
[LOGO]
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
o 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 A2006 09/06
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.
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 27, 2006
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 27, 2006
By /S/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Financial Officer
Date September 27, 2006