FRANKLIN GOLD & PRECIOUS METALS FUND, 485BPOS, 2000-11-28

FRANKLIN GOLD & PRECIOUS METALS FUND
485BPOS, 2000-11-28

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As filed with the Securities and Exchange Commission on November 28, 2000

File Nos.
2-30761
811-1700
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No._______

Post-Effective Amendment No. 52 (X)
----

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 27 (X)
----

FRANKLIN GOLD AND PRECIOUS METALS FUND

(Exact Name of Registrant as Specified in Charter)

777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code (650) 312-2000

MURRAY L. SIMPSON, 777 MARINERS ISLAND BLVD. SAN MATEO, CA 94404
(Name and Address of Agent for Service of Process)

Approximate Date of Proposed Public offering:

It is proposed that this filing will become effective (check
appropriate box)

[ ] immediately upon filing pursuant to paragraph (b)
[x] on December 1, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485

If appropriate, check the following box:

[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Prospectus

Franklin Gold and
Precious Metals
Fund

CLASS A, B & C

INVESTMENT STRATEGY GROWTH

DECEMBER 1, 2000

[Insert Franklin Templeton Ben Head]

The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.

CONTENTS

THE FUND

[Begin callout]
INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]

2 Goals and Strategies

4 Main Risks

8 Performance

10 Fees and Expenses

12 Management

13 Distributions and Taxes

14 Financial Highlights

YOUR ACCOUNT

[Begin callout]
INFORMATION ABOUT SALES CHARGES, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]

16 Choosing a Share Class

21 Buying Shares

24 Investor Services

27 Selling Shares

29 Account Policies

32 Questions

FOR MORE INFORMATION

[Begin callout]
WHERE TO LEARN MORE ABOUT THE FUND
[End callout]

Back Cover

THE FUND

[Insert graphic of bullseye and arrows] GOALS AND STRATEGIES
--------------------

GOALS The Fund's principal investment goal is capital appreciation. Its
secondary goal is to provide shareholders with current income through dividends
or interest received from its investments.

MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests at
least 65% of its total assets in equity securities of companies that mine,
process, or deal in gold or other precious metals, such as silver, platinum, and
palladium, including mining finance companies as well as operating companies
with long-, medium-, or short-life mines (gold and precious metals operation
companies).

[Begin callout]
The Fund invests primarily in equity securities of gold and precious metals
operation companies.
[End callout]

The Fund may buy equity securities of gold and precious metal operation
companies located anywhere in the world and generally invests more than 50% of
its total assets in companies located outside the U.S. Although the Fund may
invest in small, medium and large capitalization companies, it expects to invest
a significant portion of its assets in companies falling within the small-cap
(market capitalization less than $1.5 billion) and medium-cap (market
capitalization of $1.5 billion to $8 billion) range.

An equity security, or stock, represents a proportionate share of the ownership
of a company; its value is based on the success of the company's business, any
income paid to stockholders, the value of its assets, and general market
conditions. Common stocks and preferred stocks are examples of equity
securities. The Fund also invests in American, Global and European Depositary
Receipts, which are certificates typically issued by a bank or trust company
that give their holders the right to receive securities issued by a foreign or
domestic corporation.

PORTFOLIO SELECTION The Fund's manager looks for companies with established
records, as well as companies having low-cost reserves to bring into production.
The manager also considers a company's potential for reserve growth and
retention and production growth.

TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unfavorable for investors, the manager may invest up to 100% of the Fund's
assets in a temporary defensive manner or hold a substantial portion of its
assets in cash, cash equivalents or other high quality short-term investments.
Temporary defensive investments generally may include money market fund shares,
money market instruments and short-term debt securities. The manager also may
invest in these types of securities or hold cash while looking for suitable
investment opportunities or to maintain liquidity. In these circumstances, the
Fund may be unable to achieve its investment goal.

[Insert graphic of chart with line going up and down] MAIN RISKS
----------

GOLD AND PRECIOUS METALS The Fund's investments are concentrated in gold and
precious metals operations companies. By concentrating in the industries in a
single sector, the Fund carries much greater risk of adverse developments
affecting these companies than a fund that invests in companies from a wide
variety of industries. The gold and precious metals sector has been experiencing
consolidation and, if this trend continues, there will be a reduced range of
investment opportunities for the Fund.

[Begin callout]
The price of gold and precious metals operations companies, and thus the value
of Fund shares, will generally move in the same direction as the price of gold
and other precious metals such as platinum, palladium and silver.
[End callout]

The price of gold and precious metals operations companies is strongly affected
by the price of gold and other precious metals such as platinum, palladium and
silver. These prices may fluctuate substantially over short periods of time, so
the Fund's share price may be more volatile than other types of investments. In
times of significant inflation or great economic uncertainty, traditional
investments such as bonds and stocks may not perform well. In such times, gold
has historically maintained its value as a hard asset, often outperforming
traditional investments. However, in times of stable economic growth,
traditional equity and debt investments could offer greater appreciation
potential.

[Begin callout]
Because the securities the Fund holds fluctuate in price, the value of your
investment in the Fund will go up and down. This means you could lose money over
short or even extended periods.
[End callout]

The price of gold and other precious metals is affected by several factors
including (1) how much of the worldwide supply is held among the major
producers, as economic, political, or other conditions affecting one of the
major sources could have a substantial effect on the world's gold and precious
metals supply in countries throughout the world; (2) environmental, labor, and
other costs in mining and production; (3) changes in laws relating to mining,
production, or sales; and (4) unpredictable monetary policies and economic and
political conditions in countries throughout the world; for example, if Russia
or another large holder decided to sell some of its gold reserves, the supply
would go up, and the price would generally go down.

In addition, changes in U.S. or foreign tax, currency or mining laws may make it
more expensive and/or more difficult to pursue the Fund's investment strategies.

FOREIGN SECURITIES Investing in foreign securities, including depositary
receipts, typically involves more risks than investing in U.S. securities.
Certain of these risks also may apply to securities of U.S. companies with
significant foreign operations. These risks can increase the potential for
losses in the Fund and affect its share price.

CURRENCY EXCHANGE RATES. Foreign securities may be issued and traded in foreign
currencies. As a result, their values may be affected by changes in exchange
rates between foreign currencies and the U.S. dollar, as well as between
currencies of countries other than the U.S. For example, if the value of the
U.S. dollar goes up compared to a foreign currency, an investment traded in that
foreign currency will go down in value because it will be worth less U.S.
dollars. The impact of the euro, a relatively new currency adopted by certain
European countries to replace their national currencies, is unclear at this
time.

POLITICAL AND ECONOMIC DEVELOPMENTS. The political, economic and social
structures of some foreign countries may be less stable and more volatile than
those in the U.S. Investments in these countries may be subject to the risks of
internal and external conflicts, currency devaluations, foreign ownership
limitations and tax increases. It is possible that a government may take over
the assets or operations of a company or impose restrictions on the exchange or
export of currency or other assets. Some countries also may have different legal
systems that may make it difficult for the Fund to vote proxies, exercise
shareholder rights, and pursue legal remedies with respect to its foreign
investments.

TRADING PRACTICES. Brokerage commissions and other fees generally are higher for
foreign securities. Government supervision and regulation of foreign stock
exchanges, currency markets, trading systems and brokers may be less than in the
U.S. The procedures and rules governing foreign transactions and custody
(holding of the Fund's assets) also may involve delays in payment, delivery or
recovery of money or investments.

AVAILABILITY OF INFORMATION. Foreign companies may not be subject to the same
disclosure, accounting, auditing and financial reporting standards and practices
as U.S. companies. Thus, there may be less information publicly available about
foreign companies than about most U.S. companies.

LIMITED MARKETS. Certain foreign securities may be less liquid (harder to sell)
and more volatile than many U.S. securities. This means the Fund may at times be
unable to sell foreign securities at favorable prices.

EMERGING MARKETS. The risks of foreign investments typically are greater in less
developed countries, sometimes referred to as emerging markets. For example,
political and economic structures in these countries may be less established and
may change rapidly. These countries also are more likely to experience high
levels of inflation, deflation or currency devaluation, which can harm their
economies and securities markets and increase volatility. In fact, short-term
volatility in these markets, and declines of 50% or more, are not uncommon.

One of the largest national producers of gold bullion and platinum is the
Republic of South Africa. Because of current conditions in South Africa, the
Fund's investments in South African companies, approximately 34.5% of the
portfolio as of July 31, 2000, may be subject to somewhat greater risk than
investments in companies of countries with more stable political profiles.
Changes in political and economic conditions affecting South Africa may have a
direct impact on its sales of gold. Under South African law, the only authorized
sales agent for gold produced in South Africa is the Reserve Bank of South
Africa, which, through its retention policies, controls the time and place of
any sale of South African bullion. The South African Ministry of Mines
determines gold mining policy. South Africa depends predominantly on gold sales
for the foreign exchange necessary to finance its imports, and its sales policy
is necessarily subject to national and international economic and political
developments.

SMALLER COMPANIES Smaller companies (both small-cap and to some extent
medium-cap companies) involve greater risks than larger, more established
companies and should be considered speculative. Historically, smaller company
securities have been more volatile in price than larger company securities,
especially over the short term. Among the reasons for the greater price
volatility are the less certain growth prospects of smaller companies, the lower
degree of liquidity in the markets for such securities and the greater
sensitivity of smaller companies to changing economic conditions.

In addition, smaller companies may lack depth of management, may be unable to
generate funds necessary for growth or development, or may be developing or
marketing new products or services for which markets are not yet established and
may never become established. Smaller companies may be particularly affected by
interest rate increases, as they may find it more difficult to borrow money to
continue or expand operations, or may have difficulty in repaying any loans
which are floating rate.

More detailed information about the Fund, its policies and risks can be found in
the Fund's Statement of Additional Information (SAI).

[Begin callout]
Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other agency of the U.S. government. Mutual
fund shares involve investment risks, including the possible loss of principal.
[End callout]

[Insert graphic of a bull and a bear] PERFORMANCE
-----------

This bar chart and table show the volatility of the Fund's returns, which is one
indicator of the risks of investing in the Fund. The bar chart shows changes in
the Fund's returns from year to year over the past 10 calendar years. The table
shows how the Fund's average annual total returns compare to those of a
broad-based securities market index. Of course, past performance cannot predict
or guarantee future results.

CLASS A ANNUAL TOTAL RETURNS/1/

[Insert bar graph]

-19.50% 5.90% -20.34% 73.72% -4.73% -1.28% 1.04% -35.70% -7.57% 25.39%
90 91 92 93 94 95 96 97 98 99
YEAR

[Begin callout]
BEST
QUARTER:
Q2 '93
27.28%

WORST
QUARTER:
Q4 '97
-27.95%
[End callout]

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999

1 YEAR 5 YEARS 10 YEARS
---------------------------------------------------------------------------------------
<S> <C> <C> <C>

Franklin Gold and Precious Metals Fund - Class A/2/ 18.20% -6.87% -2.36%
S&P 500 Index/3/ 21.04% 28.56% 18.21%
FT Gold Mines Index/4/ -0.66% -14.01% -11.32%

SINCE
INCEPTION
1 YEAR (1/1/99)
---------------------------------------------------------------------------------------
Franklin Gold and Precious Metals Fund - Class B/2/ 20.52% 20.52%
S&P 500 Index/3/ 21.04% 21.04%
FT Gold Mines Index/4/ -0.66% -0.66%

SINCE
INCEPTION
1 YEAR (5/1/95)
---------------------------------------------------------------------------------------
Franklin Gold and Precious Metals Fund - Class C/2/ 22.19% -7.06%
S&P 500 Index/3/ 21.04% 27.51%
FT Gold Mines Index/4/ -0.66% -14.47%

</TABLE>

1. Figures do not reflect sales charges. If they did, returns would be lower. As
of September 30, 2000, the Fund's year-to-date return was -16.29% for Class A.

2. Figures reflect sales charges.
All Fund performance assumes reinvestment of dividends and capital gains. May 1,
1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.

3. Source: Standard & Poor's Micropal. The S&P 500(R)Index is an unmanaged group
of widely held common stocks covering a variety of industries. It includes
reinvested dividends. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.

4. The unmanaged Financial Times (FT) Gold Mines Index(R) is a price index
intended to illustrate the trend or "mood" of this market sector, not measure
long-term performance. It does not include reinvested dividends. One cannot
invest directly in an index, nor is an index representative of the Fund's
portfolio.

[Insert graphic of percentage sign] FEES AND EXPENSES
-----------------

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

CLASS A CLASS B CLASS C
-------------------------------------------------------------------------------
Maximum sales charge (load) as a
percentage of offering price 5.75% 4.00% 1.99%
Load imposed on purchases 5.75% None 1.00%
Maximum deferred sales charge (load) None/1/ 4.00%/2/ 0.99%/3/

Please see "Choosing a Share Class" on page 16 for an explanation of how and
when these sales charges apply.

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

CLASS A CLASS B CLASS C
-------------------------------------------------------------------------------
Management fees/4/ 0.55% 0.55% 0.55%
Distribution and service (12b-1) fees 0.24% 1.00% 1.00%
Other expenses 0.56% 0.56% 0.56%
----------------------------------
Total annual Fund operating expenses/4/ 1.35% 2.11% 2.11%
==================================
Management fee waiver/4/ -0.01% -0.01% -0.01%
----------------------------------
Net annual Fund operating expenses/4/ 1.34% 2.10% 2.10%
==================================

1. Except for investments of $1 million or more (see page 16) and purchases by
certain retirement plans without an initial sales charge.
2. Declines to zero after six years.
3. This is equivalent to a charge of 1% based on net asset value.
4. The manager had agreed in advance to reduce its fee to reflect reduced
services resulting from the Fund's investment in a Franklin Templeton money
fund. With this reduction, management fees were 0.54% and total annual Fund
operating expenses were 1.34% for Class A, 2.10% for Class B and 2.10% for Class
C. This reduction is required by the Fund's Board of Trustees and an order by
the Securities and Exchange Commission.

EXAMPLE

This example can help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. It assumes:

o You invest $10,000 for the periods shown;

o Your investment has a 5% return each year; and

o The Fund's operating expenses remain the same.

Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
If you sell your shares
at the end of the period:

CLASS A $704/1/ $975 $1,267 $2,095

CLASS B $613 $958 $1,329 $2,237/2/

CLASS C $410 $751 $1,218 $2,507

If you do not sell your shares:

CLASS B $213 $658 $1,129 $2,237/2/

CLASS C $311 $751 $1,218 $2,507

1. Assumes a contingent deferred sales charge (CDSC) will not apply.
2. Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the Fund's investment manager. Together, Advisers and its affiliates
manage over $229 billion in assets.

The team responsible for the Fund's management is:

R. MARTIN WISKEMANN, EXECUTIVE VICE PRESIDENT OF ADVISERS

Mr. Wiskemann has been a manager on the Fund since 1972 and has more than 30
years' experience in the securities industry.

STEVE LAND, PORTFOLIO MANAGER OF ADVISERS

Mr. Land has been a manager of the Fund since April 1999. He joined Franklin
Templeton Investments in 1997.

The Fund pays Advisers a fee for managing the Fund's assets. For the fiscal year
ended July 31, 2000, management fees, before any advance waiver, were 0.55% of
the Fund's average monthly net assets. Under an agreement by the manager to
reduce its fees to reflect reduced services resulting from the Fund's investment
in a Franklin Templeton money fund, the Fund paid 0.54% of its average monthly
net assets to the manager for its services. This reduction is required by the
Fund's Board of Trustees and an order by the Securities and Exchange Commission.

[Insert graphic of dollar
signs and stacks of coins] DISTRIBUTIONS AND TAXES
-----------------------

INCOME AND CAPITAL GAIN DISTRIBUTIONS The Fund intends to pay a dividend at
least annually representing its net investment income and any net realized
capital gains. The amount of this dividend will vary and there is no guarantee
the Fund will pay a dividend within any calendar year.

To receive a distribution, you must be a shareholder on the record date. Please
keep in mind that if you invest in the Fund shortly before the record date of
its dividend, the dividend will lower the value of the Fund's shares by the
amount of the dividend, and you will receive some of your investment back as a
taxable distribution. If you would like information on upcoming record dates for
the Fund's annual dividend, please call 1-800/DIAL BEN(R).

TAX CONSIDERATIONS In general, the Fund's distributions are taxable to you as
either ordinary income or capital gains. This is true whether you reinvest your
distributions in additional Fund shares or receive them in cash. Any capital
gains the Fund distributes are taxable to you as long-term capital gains no
matter how long you have owned your shares.

[Begin callout]
BACKUP WITHHOLDING
By law, the Fund must withhold 31% of your taxable distributions and redemption
proceeds if you do not provide your correct social security or taxpayer
identification number and certify that you are not subject to backup
withholding, or if the IRS instructs the Fund to do so.
[End callout]

Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.

When you sell your shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your Fund shares for shares of a different Franklin
Templeton fund is the same as a sale.

Fund distributions and gains from the sale or exchange of your shares generally
will be subject to state and local taxes. Any foreign taxes the Fund pays on its
investments may be passed through to you as a foreign tax credit. Non-U.S.
investors may be subject to U.S. withholding and estate tax. You should consult
your tax advisor about the federal, state, local or foreign tax consequences of
your investment in the Fund.

[Insert graphic of a dollar bill] FINANCIAL HIGHLIGHTS
--------------------

This table presents the Fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.

CLASS A YEAR ENDED JULY 31,
------------------------------------------------------------------------------------------------------------------
2000 1999/1/ 1998 1997 1996
---------------------------------------------------- ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 8.30 7.48 11.44 14.65 15.07
------------ ----------- ------------ ----------- -----------
Net investment income/2/ .10 .07 .10 .07 .21
Net realized and unrealized gains (losses) (.46) .79 (3.96) (2.37) .01
------------ ----------- ------------ ----------- -----------
Total from investment operations (.36) .86 (3.86) (2.30) .22
------------ ----------- ------------ ----------- -----------
Dividends from net investment income
(.04) (.04) (.10) (.09) (.13)
Distributions from net realized gains - - - (.82) (.51)
------------ ----------- ------------ ----------- -----------
Total distributions (.04) (.04) (.10) (.91) (.64)
------------ ----------- ------------ ----------- -----------
Net asset value, end of year 7.90 8.30 7.48 11.44 14.65
============ =========== ============ =========== ===========
Total return (%)/3/ (4.42) 11.51 (33.83) (16.45) 1.65

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 156,236 205,889 189,591 291,544 364,032
Ratios to average net assets: (%)
Expenses 1.34 1.31 1.19 1.05 .95
Net investment income 1.17 .85 1.05 .55 .99
Portfolio turnover rate (%) 3.53 4.29 6.09 16.05 28.74

CLASS B
---------------------------------------------------- ------------ -----------
PER SHARE DATA ($)
Net asset value, beginning of year 8.26 7.72
------------ -----------
Net investment income (loss)/2/ .01 (.04)
Net realized and unrealized gains (losses)
(.41) .58
------------ -----------
Total from investment operations (.40) .54
------------ -----------
Dividends from net investment income (.04) -
------------ -----------
Net asset value, end of year 7.82 8.26
============ ===========
Total return (%)/3/ (4.90) 6.99

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 2,779 1,217
Ratios to average net assets: (%)
Expenses 2.10 2.10/4/
Net investment income (loss) .17 (.84)/4/
Portfolio turnover rate (%) 3.53 4.29

CLASS C YEAR ENDED JULY 31,
------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------- ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 8.23 7.43 11.37 14.61 15.05
------------ ----------- ------------ ----------- -----------
Net investment income (loss)/2/ .03 .01 .03 (.02) .12
Net realized and unrealized gains (losses) (.43) .80 (3.93) (2.38) (.02)
------------ ----------- ------------ ----------- -----------
Total from investment operations (.40) .81 (3.90) (2.40) .10
------------ ----------- ------------ ----------- -----------
Dividends from net investment income -/5/ (.01) (.04) (.02) (.03)
Distributions from net realized gains - - - (.82) (.51)
------------ ----------- ------------ ----------- -----------
Total distributions - (.01) (.04) (.84) (.54)
------------ ----------- ------------ ----------- -----------
Net asset value, end of year 7.83 8.23 7.43 11.37 14.61
============ =========== ============ =========== ===========
Total return (%)/3/ (4.85) 10.85 (34.35) (17.18) .81
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 20,721 23,473 20,353 20,783 12,977
Ratios to average net assets: (%)
Expenses 2.10 2.07 1.96 1.83 1.74
Net investment income (loss) .36 .08 .25 (.16) .16
Portfolio turnover rate (%) 3.53 4.29 6.09 16.05 28.74
</TABLE>

1. For the period January 1, 1999 (effective date) to July 31, 1999 for Class B.
2. Based on average shares outstanding effective year ended July 31, 1999.
3. Total return does not include sales charges, and is not annualized.
4. Annualized.
5. Includes distributions of net investment income in the amount of $.001.

YOUR ACCOUNT

[Insert graphic of pencil marking an "X"] CHOOSING A SHARE CLASS
----------------------

Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. Your investment representative
can help you decide.

CLASS A CLASS B CLASS C
----------------------------------------------------------------------------------------------------
<S> <C> <C>
o Initial sales charge of o No initial sales charge o Initial sales charge of
5.75% or less 1%

o Deferred sales charge of o Deferred sales charge of o Deferred sales charge of
1% on purchases of $1 million 4% on shares you sell within 1% on shares you sell within
or more sold within 12 months the first year, declining to 18 months
1% within six years and
eliminated after that

o Lower annual expenses than o Higher annual expenses o Higher annual expenses
Class B or C due to lower than Class A (same as Class than Class A (same as Class
distribution fees C) due to higher distribution B) due to higher distribution
fees. Automatic conversion to fees. No conversion to Class A
Class A shares after eight reducing shares, so annual
years, future annual expenses. expenses do not decrease.
</TABLE>

SALES CHARGES - CLASS A

THE SALES CHARGE
MAKES UP THIS % WHICH EQUALS THIS
WHEN YOU INVEST THIS AMOUNT THE OFFERING PRICE % OF YOUR NET INVESTMENT
------------------------------------------------------------------------------
Under $50,000 5.75 6.10
$50,000 but under $100,000 4.50 4.71
$100,000 but under $250,000 3.50 3.63
$250,000 but under $500,000 2.50 2.56
$500,000 but under $1 million 2.00 2.04

INVESTMENTS OF $1 MILLION OR MORE If you invest $1 million or more, either as a
lump sum or through our cumulative quantity discount or letter of intent
programs (see page 19), you can buy Class A shares without an initial sales
charge. However, there is a 1% contingent deferred sales charge (CDSC) on any
shares you sell within 12 months of purchase. The way we calculate the CDSC is
the same for each class (please see page 18).

DISTRIBUTION AND SERVICE (12B-1) FEES Class A has a distribution plan, sometimes
known as a Rule 12b-1 plan, that allows the Fund to pay distribution fees of up
to 0.25% per year to those who sell and distribute Class A shares and provide
other services to shareholders. Because these fees are paid out of Class A's
assets on an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.

SALES CHARGES - CLASS B

IF YOU SELL YOUR SHARES WITHIN THIS % IS DEDUCTED FROM YOUR
THIS MANY YEARS AFTER BUYING THEM PROCEEDS AS A CDSC
-------------------------------------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0

With Class B shares, there is no initial sales charge. However, there is a CDSC
if you sell your shares within six years, as described in the table above. The
way we calculate the CDSC is the same for each class (please see page 18). After
8 years, your Class B shares automatically convert to Class A shares, lowering
your annual expenses from that time on.

MAXIMUM PURCHASE AMOUNT The maximum amount you may invest in Class B shares at
one time is $249,999. We place any investment of $250,000 or more in Class A
shares, since a reduced initial sales charge is available and Class A's annual
expenses are lower.

RETIREMENT PLANS Class B shares are available to certain retirement plans,
including IRAs (of any type), Franklin Templeton Bank & Trust 403(b) plans, and
Franklin Templeton Bank & Trust qualified plans with participant or earmarked
accounts.

DISTRIBUTION AND SERVICE (12B-1) FEES Class B has a distribution plan, sometimes
known as a Rule 12b-1 plan, that allows the Fund to pay distribution and other
fees of up to 1% per year for the sale of Class B shares and for services
provided to shareholders. Because these fees are paid out of Class B's assets on
an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.

SALES CHARGES - CLASS C

THE SALES CHARGE
MAKES UP THIS % OF WHICH EQUALS THIS %
WHEN YOU INVEST THIS AMOUNT THE OFFERING PRICE OF YOUR NET INVESTMENT
-------------------------------------------------------------------------------
Under $1 million 1.00 1.01

WE PLACE ANY INVESTMENT OF $1 MILLION OR MORE IN CLASS A SHARES, SINCE THERE IS
NO INITIAL SALES CHARGE AND CLASS A'S ANNUAL EXPENSES ARE LOWER.

CDSC There is a 1% contingent deferred sales charge (CDSC) on any Class C shares
you sell within 18 months of purchase. The way we calculate the CDSC is the same
for each class (please see below).

DISTRIBUTION AND SERVICE (12B-1) FEES Class C has a distribution plan, sometimes
known as a Rule 12b-1 plan, that allows the Fund to pay distribution and other
fees of up to 1% per year for the sale of Class C shares and for services
provided to shareholders. Because these fees are paid out of Class C's assets on
an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.

CONTINGENT DEFERRED SALES CHARGE (CDSC) - CLASS A, B & C
The CDSC for each class is based on the current value of the shares being sold
or their net asset value when purchased, whichever is less. There is no CDSC on
shares you acquire by reinvesting your dividends or capital gains distributions.

[Begin callout]
The HOLDING PERIOD FOR THE CDSC begins on the day you buy your shares. Your
shares will age one month on that same date the next month and each following
month.

For example, if you buy shares on the 18th of the month, they will age one month
on the 18th day of the next month and each following month.
[End callout]

To keep your CDSC as low as possible, each time you place a request to sell
shares we will first sell any shares in your account that are not subject to a
CDSC. If there are not enough of these to meet your request, we will sell the
shares in the order they were purchased. We will use this same method if you
exchange your shares into another Franklin Templeton fund (please see page 25
for exchange information).

SALES CHARGE REDUCTIONS AND WAIVERS
If you qualify for any of the sales charge reductions or waivers below, please
let us know at the time you make your investment to help ensure you receive the
lower sales charge.

QUANTITY DISCOUNTS We offer several ways for you to combine your purchases in
Franklin Templeton funds to take advantage of the lower sales charges for large
purchases of Class A shares.

[Begin callout]
FRANKLIN TEMPLETON FUNDS include all of the U.S. registered mutual funds of
Franklin Templeton Investments, except Franklin Templeton Variable Insurance
Products Trust and Templeton Capital Accumulator Fund, Inc.
[End callout]

o CUMULATIVE QUANTITY DISCOUNT - lets you combine all of your shares in Franklin
Templeton funds for purposes of calculating the sales charge. You also may
combine the shares of your spouse, and your children or grandchildren, if
they are under the age of 21. Certain company and retirement plan accounts
also may be included.

o LETTER OF INTENT (LOI) - expresses your intent to buy a stated dollar amount
of shares over a 13-month period and lets you receive the same sales charge
as if all shares had been purchased at one time. We will reserve a portion
of your shares to cover any additional sales charge that may apply if you
do not buy the amount stated in your LOI.

TO SIGN UP FOR THESE PROGRAMS, COMPLETE THE APPROPRIATE
SECTION OF YOUR ACCOUNT APPLICATION.

REINSTATEMENT PRIVILEGE If you sell shares of a Franklin Templeton fund, you may
reinvest some or all of the proceeds within 365 days without an initial sales
charge. The proceeds must be reinvested within the same share class, except
proceeds from the sale of Class B shares will be reinvested in Class A shares.

If you paid a CDSC when you sold your Class A or C shares, we will credit your
account with the amount of the CDSC paid but a new CDSC will apply. For Class B
shares reinvested in Class A, a new CDSC will not apply, although your account
will not be credited with the amount of any CDSC paid when you sold your Class B
shares.

Proceeds immediately placed in a Franklin Bank Certificate of Deposit (CD) also
may be reinvested without an initial sales charge if you reinvest them within
365 days from the date the CD matures, including any rollover.

This privilege does not apply to shares you buy and sell under our exchange
program. Shares purchased with the proceeds from a money fund may be subject to
a sales charge.

SALES CHARGE WAIVERS Class A shares may be purchased without an initial sales
charge or CDSC by various individuals, institutions and retirement plans or by
investors who reinvest certain distributions and proceeds within 365 days.
Certain investors also may buy Class C shares without an initial sales charge.
The CDSC for each class may be waived for certain redemptions and distributions.
If you would like information about available sales charge waivers, call your
investment representative or call Shareholder Services at 1-800/632-2301. For
information about retirement plans, you may call Retirement Services at
1-800/527-2020. A list of available sales charge waivers also may be found in
the Statement of Additional Information (SAI).

GROUP INVESTMENT PROGRAM Allows established groups of 11 or more investors to
invest as a group. For sales charge purposes, the group's investments are added
together. There are certain other requirements and the group must have a purpose
other than buying Fund shares at a discount.

[Insert graphic of a paper with lines
and someone writing] BUYING SHARES
-------------

MINIMUM INVESTMENTS
-------------------------------------------------------------------------------
INITIAL ADDITIONAL
-------------------------------------------------------------------------------
Regular accounts $1,000 $50
------------------------------------------------------------------ ------------
Automatic investment plans $50 ($25 for an $50 ($25 for an
Education IRA) Education IRA)
-------------------------------------------------------------------------------
UGMA/UTMA accounts $100 $50
-------------------------------------------------------------------------------
Retirement accounts no minimum no minimum
(other than IRAs, IRA rollovers,
Education IRAs or Roth IRAs)
-------------------------------------------------------------------------------
IRAs, IRA rollovers, Education
IRAs or Roth IRAs $250 $50
-------------------------------------------------------------------------------
Broker-dealer sponsored wrap a
ccount programs $250 $50
-------------------------------------------------------------------------------
Full-time employees, officers,
trustees and directors of Franklin
Templeton entities, and their
immediate family members $100 $50
-------------------------------------------------------------------------------

PLEASE NOTE THAT YOU MAY ONLY BUY SHARES OF A FUND
ELIGIBLE FOR SALE IN YOUR STATE OR JURISDICTION.

ACCOUNT APPLICATION If you are opening a new account, please complete and sign
the enclosed account application. Make sure you indicate the share class you
have chosen. If you do not indicate a class, we will place your purchase in
Class A shares. To save time, you can sign up now for services you may want on
your account by completing the appropriate sections of the application (see
"Investor Services" on page 24). For example, if you would like to link one of
your bank accounts to your Fund account so that you may use electronic fund
transfers to and from your bank account to buy and sell shares, please complete
the bank information section of the application. We will keep your bank
information on file for future purchases and redemptions.

[Insert graphic of If you have another Before requesting a
phone] Franklin Templeton telephone purchase,
BY PHONE fund account with please make sure we
(Up to $100,000 your bank account have your bank
per day) information on file, account information
1-800/632-2301 you may open a new on file. If we do not
account by phone. have this information,
you will need to send
To make a same day written instructions with
investment, please your bank's name and
call us by 1:00 p.m. address, a voided
Pacific time or the check or savings
close of the New York account deposit slip,
Stock Exchange, and a signature
whichever is earlier. guarantee if the bank
and Fund accounts do
not have at least one
common owner.

To make a same day
investment, please
call us by 1:00 p.m.
Pacific time or the
close of the New York
Stock Exchange, whichever
is earlier.
------------------------------------------------------------------------------------
Make your check Make your check
[Insert graphic of payable to Franklin payable to Franklin
envelope] Gold and Precious Gold and Precious Metal
BY MAIL Metal Fund. Fund. Include your account
number on the check.
Mail the check and
your signed
application to Fill out the deposit
Investor Services. slip from your
account statement. If
you do not have a
slip, include a note
with your name, the
Fund name, and your
account number.

Mail the check and
deposit slip or note
to Investor Services.
-------------------------------------------------------------------------------------
[Insert graphic of Call to receive a Call to receive a
three lightning bolts] wire control number wire control number
BY WIRE and wire instructions. and wire instructions.

1-800/632-2301 Wire the funds and To make a same day
(or 1-650/312-2000 mail your signed wire investment,
collect) application to please call us by
Investor Services. 1:00 p.m. Pacific
Please include the time and make sure
wire control number your wire arrives by
or your new account 3:00 p.m.
number on the
application.

To make a same day
wire investment,
please call us by
1:00 p.m. Pacific
time and make sure
your wire arrives by
3:00 p.m.
----------------------------------------------------------------------------------
[Insert graphic of two Call Shareholder Call Shareholder
arrows pointing in Services at the Services at the
opposite directions] number below, or send number below or our
BY EXCHANGE signed written automated TeleFACTS
instructions. The system, or send
TeleFACTS(R) TeleFACTS system signed written
1-800/247-1753 cannot be used to instructions.
(around-the-clock open a new account.
access) (Please see page 25
(Please see page 25 for information on
for information on exchanges.)
exchanges.)
---------------------------------------------------------------------------------
</TABLE>

FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)

[Insert graphic of person with a headset] INVESTOR SERVICES
-----------------

AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest in
the Fund by automatically transferring money from your checking or savings
account each month to buy shares. To sign up, complete the appropriate section
of your account application and mail it to Investor Services. If you are opening
a new account, please include the minimum initial investment of $50 ($25 for an
Education IRA) with your application.

AUTOMATIC PAYROLL DEDUCTION You may invest in the Fund automatically by
transferring money from your paycheck to the Fund by electronic funds transfer.
If you are interested, indicate on your application that you would like to
receive an Automatic Payroll Deduction Program kit.

DISTRIBUTION OPTIONS You may reinvest distributions you receive from the Fund in
an existing account in the same share class* of the Fund or another Franklin
Templeton fund. Initial sales charges and CDSCs will not apply if you reinvest
your distributions within 365 days. You can also have your distributions
deposited in a bank account, or mailed by check. Deposits to a bank account may
be made by electronic funds transfer.

[Begin callout]
For Franklin Templeton Bank & Trust retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]

Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
Fund.

*Class B and C shareholders may reinvest their distributions in Class A shares
of any Franklin Templeton money fund.

RETIREMENT PLANS Franklin Templeton Investments offers a variety of retirement
plans for individuals and businesses. These plans require separate applications
and their policies and procedures may be different than those described in this
prospectus. For more information, including a free retirement plan brochure or
application, please call Retirement Services at 1-800/527-2020.

TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to information
about your account or any Franklin Templeton fund. This service is available
from touch-tone phones at 1-800/247-1753. For a free TeleFACTS brochure, call
1-800/DIAL BEN.

TELEPHONE PRIVILEGES You will automatically receive telephone privileges when
you open your account, allowing you and your investment representative to buy,
sell or exchange your shares and make certain other changes to your account by
phone.

For accounts with more than one registered owner, telephone privileges also
allow the Fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For all
other transactions and changes, all registered owners must sign the
instructions. In addition, our telephone exchange privilege allows you to
exchange shares by phone from a fund account requiring two or more signatures
into an identically registered money fund account requiring only one signature
for all transactions. This type of telephone exchange is available as long as
you have telephone exchange privileges on your account.

As long as we take certain measures to verify telephone requests, we will not be
responsible for any losses that may occur from unauthorized requests. Of course,
you can decline telephone purchase, exchange or redemption privileges on your
account application.

EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton funds
within the same class*, generally without paying any additional sales charges.
If you exchange shares held for less than six months, however, you may be
charged the difference between the initial sales charge of the two funds if the
difference is more than 0.25%. If you exchange shares from a money fund, a sales
charge may apply no matter how long you have held the shares.

[Begin callout]
An EXCHANGE is really two transactions: a sale of one fund and the purchase of
another. In general, the same policies that apply to purchases and sales apply
to exchanges, including minimum investment amounts. Exchanges also have the same
tax consequences as ordinary sales and purchases.
[End callout]

Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee. Any CDSC will
continue to be calculated from the date of your initial investment and will not
be charged at the time of the exchange. The purchase price for determining a
CDSC on exchanged shares will be the price you paid for the original shares. If
you exchange shares subject to a CDSC into a Class A money fund, the time your
shares are held in the money fund will not count towards the CDSC holding
period.

If you exchange your Class B shares for the same class of shares of another
Franklin Templeton fund, the time your shares are held in that fund will count
towards the eight year period for automatic conversion to Class A shares.

Because excessive trading can hurt fund performance, operations and
shareholders, the Fund reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges, reject any exchange, or
restrict or refuse purchases if (i) the Fund or its manager believes the Fund
would be harmed or unable to invest effectively, or (ii) the Fund receives or
anticipates simultaneous orders that may significantly affect the Fund (please
see "Market Timers" on page 30).

*Class Z shareholders of Franklin Mutual Series Fund Inc. may exchange into
Class A without any sales charge.

SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. A CDSC may apply to
withdrawals that exceed certain amounts. Certain terms and minimums apply. To
sign up, complete the appropriate section of your application.

[Insert graphic of a certificate] SELLING SHARES
--------------

You can sell your shares at any time. Please keep in mind that a contingent
deferred sales charge (CDSC) may apply.

SELLING SHARES IN WRITING Generally, requests to sell $100,000 or less can be
made over the phone or with a simple letter. Sometimes, however, to protect you
and the Fund we will need written instructions signed by all registered owners,
with a signature guarantee for each owner, if:

[Begin callout]
A SIGNATURE GUARANTEE helps protect your account against fraud. You can obtain a
signature guarantee at most banks and securities dealers.

A notary public CANNOT provide a signature guarantee.
[End callout]

o you are selling more than $100,000 worth of shares

o you want your proceeds paid to someone who is not a registered owner

o you want to send your proceeds somewhere other than the address of record, or
preauthorized bank or brokerage firm account

We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the Fund
against potential claims based on the instructions received.

SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with a
check or draft, we may delay sending you the proceeds until your check or draft
has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.

REDEMPTION PROCEEDS Your redemption check will be sent within seven days after
we receive your request in proper form. We are not able to receive or pay out
cash in the form of currency. Redemption proceeds may be delayed if we have not
yet received your signed account application.

RETIREMENT PLANS You may need to complete additional forms to sell shares in a
Franklin Templeton Bank & Trust retirement plan. For participants under age
59 1/2, tax penalties may apply. Call Retirement Services at 1-800/527-2020 for
details.

SELLING SHARES
------------------------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
------------------------------------------------------------------------------
[Insert graphic of hands shaking] Contact your investment representative
THROUGH YOUR INVESTMENT
REPRESENTATIVE
------------------------------------------------------------------------
[Insert graphic of envelope] Send written instructions and endorsed
BY MAIL share certificates (if you hold share
certificates) to Investor Services.
Corporate, partnership or trust accounts
may need to send additional documents.

Specify the Fund, the account number and
the dollar value or number of shares you
wish to sell. If you own both Class A and
B shares, also specify the class of shares,
otherwise we will sell your Class A shares
first. Be sure to include all necessary
signatures and any additional documents, as
well as signature guarantees if required.

A check will be mailed to the name(s) and
address on the account, or otherwise
according to your written instructions.
-------------------------------------------------------------------------
[Insert graphic of phone] As long as your transaction is for $100,000
BY PHONE or less, you do not hold share certificates
and you have not changed your address by
1-800/632-2301 phone within the last 15 days, you can sell
your shares by phone.

A check will be mailed to the name(s) and
address on the account. Written
instructions, with a signature guarantee,
are required to send the check to another
address or to make it payable to another
person.
-------------------------------------------------------------------------------
[Insert graphic of three You can call or write to have redemption
lightning bolts] proceeds sent to a bank account. See the
BY ELECTRONIC FUNDS TRANSFER policies above for selling shares by mail
(ACH) or phone.

Before requesting to have redemption
proceeds sent to a bank account, please
make sure we have your bank account
information on file. If we do not have this
information, you will need to send written
instructions with your bank's name and
address, a voided check or savings account
deposit slip, and a signature guarantee if
the bank and Fund accounts do not have at
least one common owner.

If we receive your request in proper form
by 1:00 p.m. Pacific time, proceeds sent by
ACH generally will be available withing two
to three business days.
-------------------------------------------------------------------------------
[Insert graphic of two arrows Obtain a current prospectus for the fund
pointing in opposite directions] you are considering.
BY EXCHANGE
Call Shareholder Services at the number
TeleFACTS(R) below or our automated TeleFACTS system, or
1-800/247-1753 send signed written instructions. See the
(around-the-clock access) policies above for selling shares by mail
or phone.

If you hold share certificates, you will
need to return them to the Fund before your
exchange can be processed.
---------------------------------------------------------------------------

[Insert graphic of paper and pen] ACCOUNT POLICIES
----------------

CALCULATING SHARE PRICE The Fund calculates the net asset value per share (NAV)
each business day at the close of trading on the New York Stock Exchange
(normally 1:00 p.m. Pacific time). Each class's NAV is calculated by dividing
its net assets by the number of its shares outstanding.

[Begin callout]
When you buy shares, you pay the offering price. The offering price is the NAV
plus any applicable sales charge.

When you sell shares, you receive the NAV minus any applicable contingent
deferred sales charge (CDSC).
[End callout]

The Fund's assets are generally valued at their market value. If market prices
are unavailable, or if an event occurs after the close of the trading market
that materially affects the values, assets may be valued at their fair value. If
the Fund holds securities listed primarily on a foreign exchange that trades on
days when the Fund is not open for business, the value of your shares may change
on days that you cannot buy or sell shares.

Requests to buy and sell shares are processed at the NAV next calculated after
we receive your request in proper form.

ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250 ($50
for employee and UGMA/UTMA accounts) because you sell some of your shares, we
may mail you a notice asking you to bring the account back up to its applicable
minimum investment amount. If you choose not to do so within 30 days, we may
close your account and mail the proceeds to the address of record. You will not
be charged a CDSC if your account is closed for this reason.

STATEMENTS AND REPORTS You will receive quarterly account statements that show
all your account transactions during the quarter. You also will receive written
notification after each transaction affecting your account (except for
distributions and transactions made through automatic investment or withdrawal
programs, which will be reported on your quarterly statement). You also will
receive the Fund's financial reports every six months. To reduce Fund expenses,
we try to identify related shareholders in a household and send only one copy of
the financial reports. If you need additional copies, please call 1-800/DIAL
BEN.

If there is a dealer or other investment representative of record on your
account, he or she also will receive copies of all notifications and statements
and other information about your account directly from the Fund.

STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have an
agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.

JOINT ACCOUNTS Unless you specify a different registration, accounts with two or
more owners are registered as "joint tenants with rights of survivorship" (shown
as "Jt Ten" on your account statement). To make any ownership changes to a joint
account, all owners must agree in writing, regardless of the law in your state.

MARKET TIMERS The Fund may restrict or refuse purchases or exchanges by Market
Timers. You may be considered a Market Timer if you have (i) requested an
exchange out of any of the Franklin Templeton funds within two weeks of an
earlier exchange request out of any fund, or (ii) exchanged shares out of any of
the Franklin Templeton funds more than twice within a rolling 90 day period, or
(iii) otherwise seem to follow a market timing pattern that may adversely affect
the Fund. Accounts under common ownership or control with an account that is
covered by (i), (ii), or (iii) are also subject to these limits.

Anyone, including the shareholder or the shareholder's agent, who is considered
to be a Market Timer by the Fund, its manager or shareholder services agent,
will be issued a written notice of their status and the Fund's policies.
Identified Market Timers will be required to register with the market timing
desk of Franklin Templeton Investor Services, Inc., and to place all purchase
and exchange trade requests through the desk. Some funds do not allow
investments by Market Timers.

ADDITIONAL POLICIES Please note that the Fund maintains additional policies and
reserves certain rights, including:

o The Fund may restrict or refuse any order to buy shares, including any
purchase under the exchange privilege.

o At any time, the Fund may change its investment minimums or waive or lower its
minimums for certain purchases.

o The Fund may modify or discontinue the exchange privilege on 60 days' notice.

o In unusual circumstances, we may temporarily suspend redemptions, or postpone
the payment of proceeds, as allowed by federal securities laws.

o For redemptions over a certain amount, the Fund reserves the right, in the
case of an emergency, to make payments in securities or other assets of the
Fund, if the payment of cash proceeds by check, wire or electronic funds
transfer would be harmful to existing shareholders.

o To permit investors to obtain the current price, dealers are responsible for
transmitting all orders to the Fund promptly.

DEALER COMPENSATION Qualifying dealers who sell Fund shares may receive sales
commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. (Distributors) from sales charges, distribution and service
(12b-1) fees and its other resources.

CLASS A CLASS B CLASS C
-------------------------------------------------------------------------------
COMMISSION (%) --- 4.00 2.00
Investment under $50,000 5.00 --- ---
$50,000 but under $100,000 3.75 --- ---
$100,000 but under $250,000 2.80 --- ---
$250,000 but under $500,000 2.00 --- ---
$500,000 but under $1 million 1.60 --- ---
$1 million or more up to 1.00/1/ --- ---
12B-1 FEE TO DEALER 0.25 0.25/2/ 1.00/3/

A dealer commission of up to 1% may be paid on Class A NAV purchases by certain
retirement plans/1/ and on Class C NAV purchases. A dealer commission of up to
0.25% may be paid on Class A NAV purchases by certain trust companies and bank
trust departments, eligible governmental authorities, and broker-dealers or
others on behalf of clients participating in comprehensive fee programs.

MARKET TIMERS. Please note that for Class A NAV purchases by market timers,
including purchases of $1 million or more, dealers are not eligible to receive
the dealer commission. Dealers, however, may be eligible to receive the 12b-1
fee from the date of purchase.

1. During the first year after purchase, dealers may not be eligible to receive
the 12b-1 fee.
2. Dealers may be eligible to receive up to 0.25% from the date of purchase.
After 8 years, Class B shares convert to Class A shares and dealers may then
receive the 12b-1 fee applicable to Class A. 3. Dealers may be eligible to
receive up to 0.25% during the first year after purchase and may be eligible to
receive the full 12b-1 fee starting in the 13th month.

[Insert graphic of question mark]QUESTIONS

If you have any questions about the Fund or your account, you can write to us at
P.O. Box 997151, Sacramento, CA 95899-9983. You also can call us at one of the
following numbers. For your protection and to help ensure we provide you with
quality service, all calls may be monitored or recorded.

<TABLE>
<CAPTION>
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m. (Saturday)
Fund Information 1-800/DIAL BEN 5:30 a.m. to 5:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Advisor Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
TeleFACTS(R)(automated) 1-800/247-1753 (around-the-clock access)
</TABLE>

FOR MORE INFORMATION

You can learn more about the Fund in the following documents:

ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS

Includes a discussion of recent market conditions and Fund strategies, financial
statements, detailed performance information, portfolio holdings and the
auditor's report.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

Contains more information about the Fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).

For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.

FRANKLIN(R)TEMPLETON(R)

1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
franklintempleton.com

You also can obtain information about the Fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-202/942-8090) or the EDGAR Database
on the SEC's Internet site at http://www.sec.gov. You can obtain copies of this
information, after paying a duplicating fee, by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102 or by electronic request at the
following E-mail address: [email protected].

Investment Company Act file #811-1700 132 P 12/00

Prospectus

Franklin Gold and
Precious Metals Fund

ADVISOR CLASS

INVESTMENT STRATEGY GROWTH

DECEMBER 1, 2000

[Insert Franklin Templeton Ben Head]

The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.

CONTENTS

THE FUND

[Begin callout]
INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]

2 Goals and Strategies

4 Main Risks

8 Performance

9 Fees and Expenses

10 Management

11 Distributions and Taxes

12 Financial Highlights

YOUR ACCOUNT

[Begin callout]
INFORMATION ABOUT QUALIFIED INVESTORS, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]

13 Qualified Investors

15 Buying Shares

17 Investor Services

20 Selling Shares

22 Account Policies

24 Questions

FOR MORE INFORMATION

[Begin callout]
WHERE TO LEARN MORE ABOUT THE FUND
[End callout]

Back Cover

THE FUND

[Insert graphic of bullseye and arrows] GOALS AND STRATEGIES
--------------------

GOALS The Fund's principal investment goal is capital appreciation. Its
secondary goal is to provide shareholders with current income through dividends
or interest received from its investments.

[Begin callout]
The Fund invests primarily in equity securities of gold and precious metals
operation companies.
[End callout]

[Insert graphic of chart with line going up and down] MAIN RISKS
----------

In addition, changes in U.S. or foreign tax, currency or mining laws may make it
more expensive and/or more difficult to pursue the Fund's investment strategies.

More detailed information about the Fund, its policies and risks can be found in
the Fund's Statement of Additional Information (SAI).

[Insert graphic of a bull and a bear] PERFORMANCE
-----------

ADVISOR CLASS ANNUAL TOTAL RETURNS/1/

[Insert bar graph]

-19.50% 5.90% -20.34% 73.72% -4.73% -1.28% 1.04% -35.54% -5.43% 25.95%
90 91 92 93 94 95 96 97 98 99
YEAR

[Begin callout]
BEST
QUARTER:
Q2 '93
27.28%

WORST
QUARTER:
Q4 '97
-27.93%
[End callout]

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999

1 YEAR 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
Franklin Gold and Precious Metals Fund -
Advisor Class/2/ 25.95% -4.96% -1.37%
S&P 500 Index/3/ 21.04% 28.56% 18.21%
FT Gold Mines Index/4/ -0.66% -14.01% -11.32%

1. As of September 30, 2000, the Fund's year-to-date return was -16.13%.

2. Performance figures reflect a "blended" figure combining the following
methods of calculation: (a) For periods before January 1, 1997, a restated
figure is used based on the Fund's Class A performance, excluding the effect of
Class A's maximum initial sales charge and including the effect of the Class A
distribution and service (12b-1) fees; and (b) for periods after January 1,
1997, an actual Advisor Class figure is used reflecting a deduction of all
applicable charges and fees for that class. This blended figure assumes
reinvestment of dividends and capital gains.

[Insert graphic of percentage sign] FEES AND EXPENSES
-----------------

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

ADVISOR CLASS
----------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases None

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

ADVISOR CLASS
------------------------------------------------------------------------------
Management fees/1/ 0.55%
Distribution and service (12b-1) fees None
Other expenses 0.56%
---------------
Total annual Fund operating expenses/1/ 1.11%
===============
Management fee waiver/1/ -0.01%
---------------
Net annual Fund operating expenses/1/ 1.10%
================

1. The manager had agreed in advance to reduce its fee to reflect reduced
services resulting from the Fund's investment in a Franklin Templeton money
fund. With this reduction, management fees were 0.54% and total annual Fund
operating expenses were 1.10%. This reduction is required by the Fund's Board of
Trustees and an order by the Securities and Exchange Commission.

EXAMPLE

This example can help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. It assumes:

o You invest $10,000 for the periods shown;

o Your investment has a 5% return each year;

o The Fund's operating expenses remain the same; and

o You sell your shares at the end of the periods shown.

Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------- ---------------- --------------- ---------------
$112 $350 $606 $1,340

[Insert graphic of briefcase] MANAGEMENT
-------------

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the Fund's investment manager. Together, Advisers and its affiliates
manage over $229 billion in assets.

The team responsible for the Fund's management is:

R. MARTIN WISKEMANN, EXECUTIVE VICE PRESIDENT OF ADVISERS
Mr. Wiskemann has been a manager on the Fund since 1972 and has more than 30
years' experience in the securities industry.

STEVE LAND, PORTFOLIO MANAGER OF ADVISERS
Mr. Land has been a manager of the Fund since April 1999. He joined Franklin
Templeton Investments in 1997.

[Insert graphic of dollar
signs and stacks of coins] DISTRIBUTIONS AND TAXES
-----------------------

When you sell your shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your Fund shares for shares of a different Franklin
Templeton fund is the same as a sale.

[Insert graphic of a dollar bill] FINANCIAL HIGHLIGHTS
--------------------

This table presents the financial performance for Advisor Class since its
inception. This information has been audited by PricewaterhouseCoopers LLP.

ADVISOR CLASS YEAR ENDED JULY 31,
--------------------------------------------------------------------------------------------------
2000 1999 1998 1997/1/
---------------------------------------------------------------------- ------------ --------------
<S> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 8.49 7.61 11.43 13.12
------------ ------------ ------------ -----------
Net investment income/2/ .11 .08 .14 .07
Net realized and unrealized gains (losses) (.46) .85 (3.84) (1.67)
------------ ------------ ------------ -----------
Total from investment operations (.35) .93 (3.70) (1.60)
------------ ------------ ------------ -----------
Dividends from net investment income (.05) (.05) (.12) (.09)
------------ ------------ ------------ -----------
Net asset value, end of year 8.09 8.49 7.61 11.43
============ ============ ============ ===========
Total return (%)/3/ (4.21) 12.30 (32.46) (12.24)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 3,715 3,204 2,207 3,211
Ratios to average net assets: (%)
Expenses 1.10 1.08 .96 .83/4/
Net investment income 1.24 .98 1.30 .80/4/
Portfolio turnover rate (%) 3.53 4.29 6.09 16.05
</TABLE>

1. For the period January 1, 1997 (effective date) to July 31, 1997.
2. Based on average shares outstanding effective year ended July 31, 1999.
3. Total return is not annualized.
4. Annualized.

YOUR ACCOUNT

[Insert graphic of pencil marking an "X"] QUALIFIED INVESTORS
-------------------

The following investors may qualify to buy Advisor Class shares of the Fund.

o Qualified registered investment advisors with clients invested in any series
of Franklin Mutual Series Fund Inc. on October 31, 1996, or who buy through
a broker-dealer or service agent who has an agreement with Franklin
Templeton Distributors, Inc. (Distributors). Minimum investments: $1,000
initial and $50 additional.

o Broker-dealers, registered investment advisors or certified financial planners
who have an agreement with Distributors for clients participating in
comprehensive fee programs. Minimum investments: $250,000 initial ($100,000
initial for an individual client) and $50 additional.

o Officers, trustees, directors and full-time employees of Franklin Templeton
Investments and their immediate family members. Minimum investments: $100
initial ($50 for accounts with an automatic investment plan) and $50
additional.

o Each series of the Franklin Templeton Fund Allocator Series. Minimum
investments: $1,000 initial and $1,000 additional.

o Governments, municipalities, and tax-exempt entities that meet the
requirements for qualification under section 501 of the Internal Revenue
Code. Minimum investments: $1 million initial investment in Advisor Class
or Class Z shares of any Franklin Templeton fund and $50 additional.

o Accounts managed by Franklin Templeton Investments. Minimum investments: No
initial minimum and $50 additional.

o The Franklin Templeton Profit Sharing 401(k) Plan. Minimum investments: No
initial or additional minimums.

o Defined contribution plans such as employer stock, bonus, pension or profit
sharing plans that meet the requirements for qualification under section
401 of the Internal Revenue Code, including salary reduction plans
qualified under section 401(k) of the Internal Revenue Code, and that are
sponsored by an employer (i) with at least 10,000 employees, or (ii) with
retirement plan assets of $100 million or more. Minimum investments: No
initial or additional minimums.

o Trust companies and bank trust departments initially investing in Franklin
Templeton funds at least $1 million of assets held in a fiduciary, agency,
advisory, custodial or similar capacity and over which the trust companies
and bank trust departments or other plan fiduciaries or participants, in
the case of certain retirement plans, have full or shared investment
discretion. Minimum investments: No initial or additional minimums.

o Individual investors. Minimum investments: $5 million initial and $50
additional. You may combine all of your shares in Franklin Templeton funds
for purposes of determining whether you meet the $5 million minimum, as
long as $1 million is in Advisor Class or Class Z shares of any Franklin
Templeton fund.

o Any other investor, including a private investment vehicle such as a family
trust or foundation, who is a member of an established group of 11 or more
investors. Minimum investments: $5 million initial and $50 additional. For
minimum investment purposes, the group's investments are added together.
The group may combine all of its shares in Franklin Templeton funds for
purposes of determining whether it meets the $5 million minimum, as long as
$1 million is in Advisor Class or Class Z shares of any Franklin Templeton
fund. There are certain other requirements and the group must have a
purpose other than buying Fund shares without a sales charge.

Please note that Advisor Class shares of the Fund generally are not available to
retirement plans through Franklin Templeton's ValuSelect(R) program. Retirement
plans in the ValuSelect program before January 1, 1998, however, may invest in
the Fund's Advisor Class shares.

[Insert graphic of a paper with lines
and someone writing] BUYING SHARES
-------------

ACCOUNT APPLICATION If you are opening a new account, please complete and sign
the enclosed account application. To save time, you can sign up now for services
you may want on your account by completing the appropriate sections of the
application (see "Investor Services" on page 17). For example, if you would like
to link one of your bank accounts to your Fund account so that you may use
electronic fund transfers to and from your bank account to buy and sell shares,
please complete the bank information section of the application. We will keep
your bank information on file for future purchases and redemptions.

BUYING SHARES
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
-----------------------------------------------------------------------------------
<S> <C> <C>
[Insert graphic of Contact your investment Contact your investment
hands shaking] THROUGH representative representative
YOUR INVESTMENT
REPRESENTATIVE
-----------------------------------------------------------------------------------
[Insert graphic of If you have another Before requesting a
phone] Franklin Templeton telephone purchase,
BY PHONE fund account with please make sure we
(Up to $100,000 your bank account have your bank
per day) information on file, account information
1-800/632-2301 you may open a new on file. If we do not
account by phone. have this information,
you will need to send
To make a same day written instructions with
investment, please your bank's name and
call us by 1:00 p.m. address, a voided
Pacific time or the check or savings
close of the New York account deposit slip,
Stock Exchange, and a signature
whichever is earlier. guarantee if the bank
and Fund accounts do
not have at least one
common owner.

To make a same day
wire investment,
please call us by
1:00 p.m. Pacific
time and make sure
your wire arrives by
3:00 p.m.
----------------------------------------------------------------------------------
[Insert graphic of two Call Shareholder Call Shareholder
arrows pointing in Services at the Services at the
opposite directions] number below, or send number below or our
BY EXCHANGE signed written automated TeleFACTS
instructions. The system, or send
TeleFACTS(R) TeleFACTS system signed written
1-800/247-1753 cannot be used to instructions.
(around-the-clock open a new account.
access) (Please see page 18
(Please see page 18 for information on
for information on exchanges.)
exchanges.)
---------------------------------------------------------------------------------
</TABLE>

Insert graphic of person with a headset] INVESTOR SERVICES
-----------------

AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest in
the Fund by automatically transferring money from your checking or savings
account each month to buy shares. To sign up, complete the appropriate section
of your account application and mail it to Investor Services. If you are opening
a new account, please include your minimum initial investment with your
application.

DISTRIBUTION OPTIONS You may reinvest distributions you receive from the Fund in
an existing account in the same share class of the Fund or in Advisor Class or
Class A shares of another Franklin Templeton fund. To reinvest your
distributions in Advisor Class shares of another Franklin Templeton fund, you
must qualify to buy that fund's Advisor Class shares. For distributions
reinvested in Class A shares of another Franklin Templeton fund, initial sales
charges and contingent deferred sales charges (CDSCs) will not apply if you
reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.

[Begin callout]
For Franklin Templeton Bank & Trust retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]

Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
Fund.

EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton funds
within the same class. You also may exchange your Advisor Class shares for Class
A shares of a fund that does not currently offer an Advisor Class (without any
sales charge)* or for Class Z shares of Franklin Mutual Series Fund Inc.

If you do not qualify to buy Advisor Class shares of Templeton Developing
Markets Trust or Templeton Foreign Fund, you also may exchange your shares for
Class A shares of those funds (without any sales charge)* or for shares of
Templeton Institutional Funds, Inc.

Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee.

*If you exchange into Class A shares and you later decide you would like to
exchange into a fund that offers an Advisor Class , you may exchange your Class
A shares for Advisor Class shares if you otherwise qualify to buy the fund's
Advisor Class shares.

SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. Certain terms and
minimums apply. To sign up, complete the appropriate section of your
application.

[Insert graphic of a certificate] SELLING SHARES
--------------

You can sell your shares at any time.

[Begin callout]
A SIGNATURE GUARANTEE helps protect your account against fraud. You can obtain a
signature guarantee at most banks and securities dealers.

A notary public CANNOT provide a signature guarantee.
[End callout]

o you are selling more than $100,000 worth of shares

o you want your proceeds paid to someone who is not a registered owner

o you want to send your proceeds somewhere other than the address of record, or
preauthorized bank or brokerage firm account

RETIREMENT PLANS You may need to complete additional forms to sell shares in a
Franklin Templeton Bank & Trust retirement plan. For participants under age
591/2, tax penalties may apply. Call Retirement Services at 1-800/527-2020 for
details.

If you hold share certificates, you will
need to return them to the Fund before your
exchange can be processed.
---------------------------------------------------------------------------

[Insert graphic of paper and pen] ACCOUNT POLICIES
----------------

CALCULATING SHARE PRICE The Fund calculates the net asset value per share (NAV)
each business day at the close of trading on the New York Stock Exchange
(normally 1:00 p.m. Pacific time). The NAV for Advisor Class is calculated by
dividing its net assets by the number of its shares outstanding.

Requests to buy and sell shares are processed at the NAV next calculated after
we receive your request in proper form.

ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250 ($50
for employee accounts) because you sell some of your shares, we may mail you a
notice asking you to bring the account back up to its applicable minimum
investment amount. If you choose not to do so within 30 days, we may close your
account and mail the proceeds to the address of record.

ADDITIONAL POLICIES Please note that the Fund maintains additional policies and
reserves certain rights, including:

o The Fund may restrict or refuse any order to buy shares, including any
purchase under the exchange privilege.

o At any time, the Fund may change its investment minimums or waive or lower its
minimums for certain purchases.

o The Fund may modify or discontinue the exchange privilege on 60 days' notice.

o You may only buy shares of a fund eligible for sale in your state or
jurisdiction.

o In unusual circumstances, we may temporarily suspend redemptions, or postpone
the payment of proceeds, as allowed by federal securities laws.

o To permit investors to obtain the current price, dealers are responsible for
transmitting all orders to the Fund promptly.

DEALER COMPENSATION Qualifying dealers who sell Advisor Class shares may receive
up to 0.25% of the amount invested. This amount is paid by Franklin Templeton
Distributors, Inc. from its own resources.

[Insert graphic of question mark] QUESTIONS
----------

HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
------------------------------------- ---------------------------- -----------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m. (Saturday)
Fund Information 1-800/DIAL BEN 5:30 a.m. to 5:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Advisor Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
TeleFACTS(R)(automated) 1-800/247-1753 (around-the-clock access)
</TABLE>

FOR MORE INFORMATION

You can learn more about the Fund in the following documents:

ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS

Includes a discussion of recent market conditions and Fund strategies, financial
statements, detailed performance information, portfolio holdings and the
auditor's report.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

Contains more information about the Fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).

For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.

FRANKLIN(R)TEMPLETON(R)

1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
franklintempleton.com

Investment Company Act file #811-1700 132 PA 12/00

FRANKLIN
GOLD AND PRECIOUS
METALS FUND

CLASS A, B & C

[INSERT FRANKLIN TEMPLETON BEN HEAD]

STATEMENT OF ADDITIONAL INFORMATION

DECEMBER 1, 2000

P.O. BOX 997151, SACRAMENTO, CA95899-9983
1-800/DIAL BEN(R)

-------------------------------------------------------------------------------

This Statement of Additional Information (SAI) is not a prospectus. It contains
information in addition to the information in the Fund's prospectus. The Fund's
prospectus, dated December 1, 2000, which we may amend from time to time,
contains the basic information you should know before investing in the Fund. You
should read this SAI together with the Fund's prospectus.

The audited financial statements and auditor's report in the Fund's Annual
Report to Shareholders, for the fiscal year ended July 31, 2000, are
incorporated by reference (are legally a part of this SAI).

For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).

CONTENTS

Goals, Strategies and Risks 2
Officers and Trustees 10
Management and Other Services 13
Portfolio Transactions 14
Distributions and Taxes 15
Organization, Voting Rights
and Principal Holders 16
Buying and Selling Shares 17
Pricing Shares 23
The Underwriter 24
Performance 25
Miscellaneous Information 27
Description of Ratings 28

-------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:

O ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;

O ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK;

O ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
-------------------------------------------------------------------------------
132 SAI 12/00

GOALS, STRATEGIES AND RISKS
-------------------------------------------------------------------------------

Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when the Fund makes an investment. In most cases, the Fund is
not required to sell a security because circumstances change and the security no
longer meets one or more of the Fund's policies or restrictions. If a percentage
restriction or limitation is met at the time of investment, a later increase or
decrease in the percentage due to a change in the value or liquidity of
portfolio securities will not be considered a violation of the restriction or
limitation.

If a bankruptcy or other extraordinary event occurs concerning a particular
security the Fund owns, the Fund may receive stock, real estate, or other
investments that the Fund would not, or could not, buy. If this happens, the
Fund intends to sell such investments as soon as practicable while trying to
maximize the return to shareholders.

The Fund has adopted certain restrictions as fundamental and non-fundamental
policies. A policy which is identified as fundamental may only be changed if the
change is approved by (i) more than 50% of the Fund's outstanding shares or (ii)
67% or more of the Fund's shares present at a shareholder meeting if more than
50% of the Fund's outstanding shares are represented at the meeting in person or
by proxy, whichever is less. A non-fundamental policy may be changed by the
Board of Trustees without the approval of shareholders.

FUNDAMENTAL INVESTMENT POLICIES

The Fund's principal investment goal is capital appreciation. Its secondary goal
is to provide current income through the receipt of dividends or interest from
its investments.

The Fund may concentrate (invest more than 25% of total assets) in securities of
issuers engaged in mining, processing, or dealing in gold, or other precious
metals.

The Fund may not:

1. Borrow money, except that the Fund may borrow money from banks or affiliated
investment companies to the extent permitted by the 1940 Act, or any exemptions
therefrom which may be granted by the SEC, or for temporary or emergency
purposes and then in an amount not exceeding 331/3% of the value of the Fund's
total assets (including the amount borrowed).

2. Make loans to other persons except (a) through the lending of its portfolio
securities, (b) through the purchase of debt securities, loan participations
and/or engaging in direct corporate loans in accordance with its investment
objectives and policies, and (c) to the extent the entry into a repurchase
agreement is deemed to be a loan. The Fund may also make loans to affiliated
investment companies to the extent permitted by the 1940 Act or any exemptions
therefrom which may be granted by the SEC.

3. Act as an underwriter except to the extent the Fund may be deemed to be an
underwriter when disposing of securities it owns or when selling its own shares.

4. Purchase or sell real estate and commodities, except that the Fund may
purchase or sell securities of real estate investment trusts, may purchase or
sell currencies, may enter into futures contracts on securities, currencies, and
other indices or any other financial instruments, and may purchase and sell
options on such futures contracts, and may also invest in gold bullion and
foreign currency in the form of gold coins.

5. Issue securities senior to the Fund's presently authorized shares of
beneficial interest. Except that this restriction shall not be deemed to
prohibit the Fund from (a) making any permitted borrowings, loans, mortgages or
pledges, (b) entering into options, futures contracts, forward contracts,
repurchase transactions, or reverse repurchase transactions, or (c) making short
sales of securities to the extent permitted by the 1940 Act and any rule or
order thereunder, or SEC staff interpretations thereof.

NON-FUNDAMENTAL INVESTMENT POLICIES

The Fund may not:

1. Pledge, mortgage, or hypothecate its assets as security for loans, nor engage
in joint or joint and several trading accounts in securities, except that an
order to buy or sell may be combined with orders from other persons to obtain
lower brokerage commissions, and except that the Fund may participate in a joint
repurchase agreement with other funds in the Franklin Templeton Group of Funds.

2. Invest in real estate limited partnerships or in interests, other than
publicly traded equity securities, in oil, gas, or other mineral leases,
exploration, or development. Investments in marketable securities issued by real
estate investment trusts are not subject to this restriction.

3. Invest more than 5% of its net assets in warrants, other than those acquired
by the Fund as a part of a unit, valued at the lower of cost or market,
including not more than 2% that are not listed on the New York or American Stock
Exchange.

4. Invest in commodities or commodity contracts, except that the Fund may invest
up to 10% of its total assets in gold bullion and gold coins, up to 5% of its
total assets in options and futures, and more than 5% of its total assets in
options and futures for hedging purposes only or when these investments are
covered by cash or securities.

The Fund also may be subject to investment limitations imposed by foreign
jurisdictions in which the Fund sells its shares.

NON-FUNDAMENTAL INVESTMENTS, TECHNIQUES, STRATEGIES AND THEIR RISKS

The Fund tries to achieve its goal of long-term capital appreciation by
investing in equity securities with the potential to increase in value, so that
its own shares will in turn increase in value. The Fund may also consider the
payment of dividends in trying to achieve its secondary goal of current income.

In trying to achieve its investment goals, the Fund may invest in the following
types of securities or engage in the following types of transactions:

CONVERTIBLE SECURITIES A convertible security is generally a debt obligation or
preferred stock that may be converted within a specified period of time into a
certain amount of common stock of the same or a different issuer. A convertible
security provides a fixed-income stream and, through its conversion feature, the
potential for capital appreciation resulting from a market price advance in its
underlying common stock. The Fund uses the same criteria to rate convertible
debt securities that it uses to rate other debt securities.

A convertible security tends to increase in market value when interest rates
decline and decrease in value when interest rates rise. The value of a
convertible security also tends to increase as the market value of the
underlying stock rises, and it tends to decrease as the market value of the
underlying stock declines. Because both interest rate and market movements can
influence its value, a convertible security is not as sensitive to interest
rates as a similar fixed-income security, nor is it as sensitive to changes in
share price as its underlying stock.

A convertible security is usually issued either by an operating company or by an
investment bank. A convertible security issued by an operating company is
generally senior to common stock, but subordinate to other types of fixed-income
securities issued by that company. When a convertible security issued by an
operating company is "converted," the operating company often issues new stock
to the holder of the convertible security. However, if the parity price of the
convertible security is less than the call price, the operating company may pay
out cash instead of common stock. A convertible security issued by an investment
bank is an obligation of and is convertible through the issuing investment bank.
The issuer of a convertible security may be important in determining the
security's true value, because the holder of a convertible security will have
recourse only to the issuer. In addition, the issuer may redeem a convertible
security after a specified date and under circumstances established at the time
the security is issued.

A convertible preferred stock is treated like a preferred stock for the Fund's
financial reporting, credit rating, and investment limitation purposes. A
preferred stock is subordinated to the issuer's debt obligations in the event of
insolvency. An issuer's failure to make a dividend payment is generally not an
event of default entitling a preferred shareholder to take action. A preferred
stock generally has no maturity date, so that its market value is dependent on
the issuer's business prospects for an indefinite period of time. In addition,
distributions from preferred stock are dividends, rather than interest payments,
and are usually treated as such for corporate tax purposes.

DEBT SECURITIES Debt securities represent a loan of money by the purchaser of
the securities to the issuer. A debt security typically has a fixed payment
schedule that obligates the issuer to pay interest to the lender and to return
the lender's money over a certain time period. A company typically meets its
payment obligations associated with its outstanding debt securities before it
declares and pays any dividend to holders of its equity securities. Bonds,
notes, and commercial paper differ in the length of the issuer's payment
schedule, with bonds carrying the longest repayment schedule and commercial
paper the shortest.

The market value of debt securities generally varies in response to changes in
interest rates and the financial condition of each issuer. During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. These changes in market value will be reflected
in the Fund's net asset value per share.

INTEREST RATE CHANGES. To the extent the Fund invests in debt securities,
changes in interest rates in any country where the Fund is invested will affect
the value of the Fund's portfolio and, consequently, its share price. Rising
interest rates, which often occur during times of inflation or a growing
economy, are likely to cause the face value of a debt security to decrease,
having a negative effect on the value of the Fund's shares. Of course, interest
rates have increased and decreased, sometimes very dramatically, in the past.
These changes are likely to occur again in the future at unpredictable times.

LOWER-RATED SECURITIES. Independent rating organizations rate debt and
convertible securities based upon their assessment of the financial soundness of
the issuer. Generally, a lower rating indicates higher risk. The Fund may invest
in fixed-income and convertible securities rated below investment grade by
Moody's Investors Service, Inc. (Moody's) or Standard & Poor's Ratings Group
(S&P(R)), or that are unrated but considered by the manager to be of comparable
quality. Below investment grade securities are generally those rated Ba or lower
by Moody's or BB or lower by S&P. Please see the Appendix for a description of
ratings.

To the extent the Fund invests in lower-rated fixed-income securities, commonly
known as junk bonds, it will be subject to a higher degree of risk than an
investment in a Fund that invests exclusively in higher-quality securities. The
market value of these securities tends to reflect individual developments
affecting the issuer to a greater degree than the market value of higher-rated
securities, which react primarily to fluctuations in the general level of
interest rates. Prices of high-yield securities are often closely linked with
the issuer's stock price and typically will rise and fall in response to
business developments, general stock market activity, or other factors that
affect stock prices. Lower-rated securities also tend to be more sensitive to
economic conditions than higher-rated securities.

Issuers of high yield, fixed-income securities are often highly leveraged and
may not have more traditional methods of financing available to them. Therefore,
the risk associated with buying the securities of these issuers is generally
greater than the risk associated with higher-rated securities. For example,
during an economic downturn or a sustained period of rising interest rates,
issuers of lower-rated securities may experience financial stress and may not
have sufficient cash flow to make interest payments. The issuer's ability to
make timely interest and principal payments may also be adversely affected by
specific developments affecting the issuer, including the issuer's inability to
meet specific projected business forecasts or the unavailability of additional
financing.

The risk of loss due to default may also be considerably greater with
lower-rated securities because they are generally unsecured and are often
subordinated to other creditors of the issuer. If the issuer of a security in
the Fund's portfolio defaults, the Fund may have unrealized losses on the
security, which may lower the Fund's net asset value. Defaulted securities tend
to lose much of their value before they default. Thus, the Fund's net asset
value may be adversely affected before an issuer defaults. In addition, the Fund
may incur additional expenses if it must try to recover principal or interest
payments on a defaulted security.

Lower-rated, fixed-income securities may not be as liquid as higher-rated
securities. Reduced liquidity in the secondary market may have an adverse impact
on the market price of a security and on the Fund's ability to sell a security.
Reduced liquidity may also make it more difficult to obtain market quotations
based on actual trades for purposes of valuing the Fund's portfolio.

The Fund may buy high yield, fixed-income securities that are sold without
registration under the federal securities laws and therefore carry restrictions
on resale. If the Fund is required to sell restricted securities before the
securities have been registered, it may be deemed an underwriter of the
securities under the Securities Act of 1933, which entails special
responsibilities and liabilities. The Fund may also incur special costs in
disposing of restricted securities, although the Fund will generally not incur
any costs when the issuer is responsible for registering the securities.

The Fund may buy high yield, fixed-income securities during an initial
underwriting. These securities involve special risks because they are new
issues. The Fund's manager will carefully review their credit and other
characteristics. The Fund has no arrangement with its underwriter or any other
person concerning the acquisition of these securities.

Economic conditions, such as a recession, may adversely affect the value of
outstanding securities, as well as the ability of issuers of high yield
securities to make timely principal and interest payments. For example, highly
publicized defaults on some high yield securities and concerns about a sluggish
economy could depress the prices of many of these securities. While market
prices may be temporarily depressed due to these factors, the ultimate price of
any security generally reflects the true operating results of the issuer.
Factors adversely impacting the market value of high yield securities may lower
the Fund's net asset value.

The Fund relies on the manager's judgment, analysis and experience in evaluating
the creditworthiness of an issuer. In this evaluation, the manager takes into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management, and regulatory matters.

DEPOSITARY RECEIPTS American Depositary Receipts (ADRs) are typically issued by
a U.S. bank or trust company and evidence ownership of underlying securities
issued by a foreign corporation. European Depositary Receipts (EDRs) and Global
Depositary Receipts (GDRs) are typically issued by foreign banks or trust
companies, although they may be issued by U.S. banks or trust companies, and
evidence ownership of underlying securities issued by either a foreign or a U.S.
corporation. Generally, depositary receipts in registered form are designed for
use in the U.S. securities market, and depositary receipts in bearer form are
designed for use in securities markets outside the U.S. Depositary receipts may
not necessarily be denominated in the same currency as the underlying securities
into which they may be converted.

Depositary receipts may be issued pursuant to sponsored or unsponsored programs.
In sponsored programs, an issuer has made arrangements to have its securities
traded in the form of depositary receipts. In unsponsored programs, the issuer
may not be directly involved in the creation of the program. Although regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, in some cases it may be easier to obtain financial information from an
issuer that has participated in the creation of a sponsored program.
Accordingly, there may be less information available regarding issuers of
securities underlying unsponsored programs, and there may not be a correlation
between such information and the market value of the depositary receipts.

Depositary receipts also involve the risks of other investments in foreign
securities, as discussed below. For purposes of the Fund's investment policies,
the Fund will consider its investments in depositary receipts to be investments
in the underlying securities.

DERIVATIVE SECURITIES Although the Fund has no present intention of investing in
the following, it has the authority to enter into options, futures, options on
financial futures, and forward foreign currency exchange contracts, which are
generally considered "derivative securities," and may do so without prior notice
to shareholders.

The Fund may take advantage of opportunities in derivative investments that are
not presently contemplated for use by the Fund or that are not currently
available but that may be developed, to the extent these opportunities are both
consistent with the Fund's investment goals and legally permissible for the
Fund.

OPTIONS. The Fund may buy or write (sell) put and call options that trade on
securities exchanges or in the over-the-counter (OTC) market. The Fund may also
buy or write put and call options on currencies and may buy call and put options
on stock indices. The Fund may write an option only if the option is "covered."
The Fund does not currently intend to engage in options transactions, although
the Fund reserves the right to do so without prior notice to shareholders.

An option on a security or currency is a contract that gives the purchaser of
the option the right to buy (a call option) or to sell (a put option) the
security or currency from or to the writer of the option at a set price during
the term of the option.

The Fund receives a premium when it writes a call option. A decline in the price
or value of the security or currency during the option period would offset the
amount of the premium. If a call option the Fund has written is exercised, the
Fund incurs a profit or loss from the sale of the underlying security or
currency.

The Fund may generally terminate its obligation under an option by entering into
a closing transaction. When the Fund has written an option, the Fund will
realize a profit from a closing transaction if the price of the transaction is
less than the premium and will realize a loss if the price is more than the
premium.

The operation of put options, including their related risks and rewards, is
substantially identical to that of call options. The Fund will commit no more
than 5% of its assets to premiums when buying put options.

If a put option the Fund holds is not sold when it has remaining value, and if
the market price of the underlying security or currency remains equal to or
greater than the exercise price, the Fund will lose its entire investment in the
put option. In order for the purchase of a put option to be profitable, the
market price of the underlying security or currency must decline sufficiently
below the exercise price to cover the premium and transaction costs, unless the
put option is sold in a closing sale transaction.

OTC options are available for a greater variety of securities, and in a wider
range of expiration dates and exercise prices, than exchange-traded options. OTC
options, however, are arranged directly with dealers and not, as is the case
with exchange-traded options, with a clearing corporation. Thus, there is a risk
of non-performance by the dealer.

Call and put options on stock indices are similar to options on securities. An
option on a stock index gives the holder the right to receive cash if the
closing level of the underlying index is greater than (or less than, in the case
of a put option) the exercise price of the option. The amount of cash is equal
to the difference between the closing level and the exercise price, expressed in
dollars multiplied by a specified number. Gain or loss depends on price
movements in the stock market generally (or in a particular industry or segment
of the market).

FUTURES CONTRACTS. The Fund may enter into futures contracts based upon
financial indices (financial futures). Although some financial futures contracts
call for making or taking delivery or acquisition of securities, in most cases
these obligations are closed out before the settlement date by buying or selling
an identical financial futures contract. Other financial futures contracts call
for cash settlements. A stock index futures contract obligates the seller to
deliver (and the buyer to take) an amount of cash equal to a specific dollar
amount times the change in the value of a specific stock index during the term
of the contract.

The Fund will not enter into futures contracts or related options for
speculation, but only as a hedge against changes in the value of its securities,
or securities that it intends to buy, resulting from market conditions and, to
the extent consistent with this policy, to accommodate cash flows. The sum of
the Fund's initial deposits on its existing financial futures and premiums paid
on options on financial futures contracts may not exceed 5% of the market value
of the Fund's total assets.

The Fund may buy and sell call and put options on stock index futures to hedge
against risks of market-side price movements. Options on stock index futures are
similar to options on securities. An option on a stock index future gives the
holder the right to receive in cash the amount by which the market price of the
futures contract, at exercise, exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on the futures contract.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency exchange
contract (forward contract) is an obligation to purchase or sell a specific
currency for an agreed price at a future date that is individually negotiated
and privately traded by currency traders and their customers. Forward contracts
will reduce the potential gain from a positive change in the relationship
between the U.S. dollar and foreign currencies. Unanticipated changes in
currency prices may result in poorer overall performance for the Fund than if it
had not entered into these contracts. The use of forward foreign currency
contracts will not eliminate fluctuations in the underlying U.S. dollar
equivalent value of, or rates of return on, the Fund's foreign currency
denominated portfolio securities.

The matching of the increase in value of a forward contract and the decline in
the U.S. dollar equivalent value of the foreign currency denominated asset that
is the subject of the hedge generally will not be precise. In addition, the Fund
may not always be able to enter into forward foreign currency contracts at
attractive prices, and this will limit the Fund's ability to use these contracts
to hedge or cross-hedge its assets. Also, with regard to the Fund's use of
cross-hedges, there can be no assurance that historical correlations between the
movement of certain foreign currencies relative to the U.S. dollar will
continue. Thus, at any time, poor correlation may exist between movements in the
exchange rates of the foreign currencies in which the Fund's assets that are the
subject of the cross-hedges are denominated.

RISKS OF OPTIONS, FUTURES, AND OPTIONS ON FUTURES. The Fund's ability to hedge
effectively all or a portion of its securities through transactions in options,
futures, and options on futures depends on the degree to which price movements
in the underlying security, currency, or index correlate with price movements in
the relevant portion of the Fund's securities. The correlation will not be
perfect. Consequently, the Fund bears the risk that the prices of the securities
being hedged will not move in the same amount as the hedging instrument. It is
also possible that there may be a negative correlation between the index,
currency, or other securities underlying the hedging instrument and the hedged
securities that would result in a loss on both the securities and the hedging
instrument. Accordingly, successful use by the Fund of options, futures, and
options on futures will be subject to the manager's ability to predict correctly
movements in the direction of the securities or currency markets generally or of
a particular segment. This requires different skills and techniques than
predicting changes in the price of individual securities.

Positions in options, futures, and options on futures may be closed out only on
an exchange that provides a secondary market. There can be no assurance that a
liquid secondary market will exist for any particular option or futures contract
at any specific time. Thus, it may not be possible to close an option or futures
position. The inability to close an option or futures position also could have
an adverse impact on the Fund's ability to hedge its securities effectively. The
Fund will enter into an option or futures position only if there appears to be a
liquid secondary market for the option or futures contract.

The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. Due to
the possibility of distortion, a correct forecast of general market trends by
the manager may still not result in a successful transaction.

Futures contracts entail other risks as well. Although the Fund believes that
the use of these contracts will benefit the Fund, if the manager's judgment
about the general direction of the market is incorrect, the Fund's overall
performance would be poorer than if it had not entered into any futures
contract. For example, if the Fund has hedged against the possibility of an
increase in interest rates that would adversely affect the price of bonds held
in its portfolio, and interest rates decrease instead, the Fund will lose part
or all of the benefit of the increased value of its bonds that it has hedged
because it will have offsetting losses in its futures positions. In addition, if
the Fund has insufficient cash, it may have to sell securities from its
portfolio to meet daily variation margin requirements. These sales may or may
not be at increased prices that reflect the rising market. The Fund may have to
sell securities at a time when it may be disadvantageous to do so.

EQUITY SECURITIES The purchaser of an equity security typically receives an
ownership interest in the company as well as certain voting rights. The owner of
an equity security may participate in a company's success through the receipt of
dividends, which are distributions of earnings by the company to its owners.
Equity security owners may also participate in a company's success or lack of
success through increases or decreases in the value of the company's shares as
traded in the public trading market for such shares. Equity securities generally
take the form of common stock or preferred stock, as well as securities
convertible into common stocks. Preferred stockholders typically receive greater
dividends but may receive less appreciation than common stockholders and may
have different voting rights. Equity securities may also include warrants or
rights. Warrants or rights give the holder the right to buy a common stock at a
given time for a specified price.

FOREIGN SECURITIES Foreign securities are securities issued by companies
domiciled and operating outside the U.S. or securities issued by foreign
governments. Because the Fund concentrates its investments in gold and precious
metal operations companies, many of which are outside of the U.S., the Fund
invests a substantial portion of its assets in foreign securities. The Fund
presently expects that it will invest more than 50% of the value of its assets
in foreign securities. At any particular time a substantial portion of the
Fund's assets may be invested in companies domiciled or operating in one or a
very few foreign countries. The Fund may, invest some or all of its assets in
U.S. securities when the Fund's manager concludes that investments in U.S.
companies are more likely to accomplish the Fund's goals.

The Fund ordinarily buys foreign securities that are traded in the U.S., as well
as American, European, and Global Depositary Receipts. The Fund may buy foreign
securities for which there is an established public trading market directly in
foreign markets. This means that there is a sufficient number of shares traded
regularly relative to the number of shares the Fund would buy.

RISKS OF INVESTING IN FOREIGN SECURITIES. The value of foreign (and U.S.)
securities is affected by general economic conditions and individual company and
industry earnings prospects. While foreign securities may offer significant
opportunities for gain, they also involve additional risks that can increase the
potential for losses in the Fund. These risks can be significantly greater for
investments in emerging markets. Investments in depositary receipts also involve
some or all of the risks described below. U.S. gold and precious metals
operations companies are likely to have a significant portion of their assets or
operations outside of the U.S. and accordingly, the risks that pertain to
foreign securities are also applicable to foreign holdings of U.S. companies.

There is the possibility of cessation of trading on national exchanges,
expropriation, nationalization of assets, confiscatory or punitive taxation,
withholding and other foreign taxes on income or other amounts, foreign exchange
controls (which may include suspension of the ability to transfer currency from
a given country), restrictions on removal of assets, political or social
instability, or diplomatic developments that could affect investments in
securities of issuers in foreign nations.

There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the U.S.
Foreign companies are not generally subject to uniform accounting or financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to U.S. companies. The Fund, therefore, may
encounter difficulty in obtaining market quotations for purposes of valuing its
portfolio and calculating its net asset value.

Certain countries' financial markets and services are less developed than those
in the U.S. or other major economies. In many foreign countries there is less
government supervision and regulation of stock exchanges, brokers, and listed
companies than in the U.S. Foreign markets have substantially less volume than
the New York Stock Exchange and securities of some foreign companies are less
liquid and more volatile than securities of comparable U.S. companies.
Commission rates in foreign countries, which are generally fixed rather than
subject to negotiation as in the U.S., are likely to be higher. Settlement
practices may be cumbersome and result in delays that may affect portfolio
liquidity. The Fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies, and obtaining judgments with
respect to foreign investments in foreign courts than with respect to domestic
issuers in U.S. courts.

The Fund's investments in foreign securities may increase the risks with respect
to the liquidity of the Fund's portfolio. This could inhibit the Fund's ability
to meet a large number of shareholder redemption requests in the event of
economic or political turmoil in a country in which the Fund has a substantial
portion of its assets invested or deterioration in relations between the U.S.
and the foreign country.

Investments in companies domiciled in developing countries may be subject to
potentially higher risks than investments in developed countries. These risks
include (i) less economic stability; (ii) political and social uncertainty (for
example, regional conflicts and risk of war); (iii) pervasiveness of corruption
and crime; (iv) the small current size of the markets for such securities and
the currently low or nonexistent volume of trading, which result in a lack of
liquidity and in greater price volatility; (v) delays in settling portfolio
transactions; (vi) risk of loss arising out of the system of share registration
and custody; (vii) certain national policies that may restrict the Fund's
investment opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests; (viii) foreign taxation; (ix)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (x)
the absence of a capital market structure or market-oriented economy; and (xi)
the possibility that recent favorable economic developments may be slowed or
reversed by unanticipated political or social events.

In addition, many countries in which the Fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency, and balance of payments position.

The Fund's management endeavors to buy and sell foreign currencies on as
favorable a basis as practicable. Some price spread in currency exchange (to
cover service charges) may be incurred, particularly when the Fund changes
investments from one country to another or when proceeds of the sale of shares
in U.S. dollars are used for the purchase of securities in foreign countries.
Some countries may adopt policies that would prevent the Fund from transferring
cash out of the country or withhold portions of interest and dividends at the
source.

The Fund may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations, by
exchange control regulations, and by indigenous economic and political
developments. Some countries in which the Fund may invest may also have fixed or
managed currencies that are not free-floating against the U.S. dollar. Certain
currencies may not be internationally traded.

Certain currencies have experienced a steady devaluation relative to the U.S.
dollar. Any devaluations in the currencies in which the Fund's portfolio
securities are denominated may have a detrimental impact on the Fund. The Fund's
manager endeavors to avoid unfavorable consequences and to take advantage of
favorable developments in particular nations where, from time to time, it places
the Fund's investments.

Any investments by the Fund in foreign securities where delivery takes place
outside the U.S. will be made in compliance with applicable U.S. and foreign
currency restrictions and other tax laws and laws limiting the amount and types
of foreign investments. Although current regulations do not, in the opinion of
the Fund's manager, limit seriously the Fund's investment activities, if they
were changed in the future they might restrict the ability of the Fund to make
its investments or tend to impair the liquidity of the Fund's investments.
Changes in governmental administrations, economic or monetary policies in the
U.S. or abroad, or circumstances in dealings between nations could result in
investment losses for the Fund and could adversely affect the Fund's operations.

EURO. On January 1, 1999, the European Economic and Monetary Union (EMU)
introduced a new single currency called the euro. By July 1, 2002, the euro,
which will be implemented in stages, will have replaced the national currencies
of the following member countries: Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

Currently, the exchange rate of the currencies of each of these countries is
fixed to the euro. The euro trades on currency exchanges and is available for
non-cash transactions. The participating countries currently issue sovereign
debt exclusively in euro. By July 1, 2002, euro-denominated bills and coins will
replace the bills and coins of the above countries.

The new European Central Bank has control over each country's monetary policies.
Therefore, the participating countries no longer control their own monetary
policies by directing independent interest rates for their currencies. The
national governments of the participating countries, however, have retained the
authority to set tax and spending policies and public debt levels.

The change to the euro as a single currency is new and untested. It is not
possible to predict the impact of the euro on currency values or on the business
or financial condition of European countries and issuers, and issuers in other
regions, whose securities the Fund may hold, or the impact, if any, on Fund
performance. In the first 18 months of the euro's existence, the exchange rates
of the euro versus many of the world's major currencies steadily declined. In
this environment, U.S. and other foreign investors experienced erosion of their
investment returns on their euro-denominated securities. The transition and the
elimination of currency risk among EMU countries may change the economic
environment and behavior of investors, particularly in European markets, but the
impact of those changes cannot be assessed at this time.

GOLD AND PRECIOUS METALS Like all investments, there are risks associated with
an investment in the Fund and its policies of investing in securities of
companies engaged in mining, processing, or dealing in gold or other precious
metals.

The price of gold has recently been subject to substantial price fluctuation
over short periods of time. It may be affected by unpredictable international
monetary and political policies, such as currency devaluations or reevaluations,
economic conditions within an individual country, trade imbalances or trade or
currency restrictions between countries, and world inflation rates and interest
rates. The price of gold, in turn, is likely to affect the market prices of
securities of companies mining, processing, or dealing in gold and, accordingly,
the value of the Fund's investments in these securities.

The following provides more detail about some of the factors that may affect the
price of gold and other precious metals:

1. TAX AND CURRENCY LAWS. Changes in the tax or currency laws of the U.S. and
foreign countries may inhibit the Fund's ability to pursue, or may increase the
cost of pursuing, its investment policies.

2. UNPREDICTABLE MONETARY POLICIES, ECONOMIC AND POLITICAL CONDITIONS. The
Fund's assets may be less liquid or the change in the value of its assets may be
more volatile (and less related to general price movements in the U.S. markets)
than investments in the securities of U.S. companies, particularly because the
price of gold and other precious metals may be affected by unpredictable
international monetary policies, economic and political considerations,
governmental controls, and conditions of scarcity, surplus, or speculation. In
addition, the use of gold or Special Drawing Rights (which are also used by
members of the International Monetary Fund for international settlements) to
settle net deficits and surpluses in trade and capital movements between nations
subjects the supply and demand, and therefore the price, of gold to a variety of
economic factors that normally would not affect other types of commodities.

3. NEW AND DEVELOPING MARKETS FOR PRIVATE GOLD OWNERSHIP. Between 1933 and
December 31, 1974, a market did not exist in the U.S. in which gold bullion
could be purchased by individuals for investment purposes. Since it became legal
to invest in gold, markets have developed in the U.S. Any large purchases or
sales of gold bullion could have an effect on the price of gold bullion.
Recently, several central banks have sold gold bullion from their reserves.
Sales by central banks and/or rumors of these sales have had a negative effect
on gold prices.

The successful management of the Fund's portfolio may be more dependent upon the
skills and expertise of the Fund's manager than is the case for most mutual
funds because of the need to evaluate the factors identified above. Moreover, in
some countries, disclosures concerning an issuer's financial condition and
results and other matters may be subject to less stringent regulatory
provisions, or may be presented on a less uniform basis than is the case for
issuers subject to U.S. securities laws. Issuers and securities exchanges in
some countries may be subject to less stringent governmental regulations than is
the case for U.S. companies.

Most gold companies engage in some form of hedging in order to create more
stable and predictable cash flows. This hedging includes, but is not limited to
forwards, options, futures contracts, and in some cases more advanced derivative
structures covering gold, other metals or currency. Although the Fund's managers
attempt to determine the impact of these financial instruments, extreme events
in the gold bullion market may result in these positions becoming financial
liabilities. The Fund continues to analyze hedging risks on a company by company
basis.

GOLD BULLION As a means of seeking its principal goal of capital appreciation
and when the Fund considers it to be appropriate as a possible hedge against
inflation, the Fund may invest a portion of its assets in gold bullion and may
hold a portion of its cash in foreign currency in the form of gold coins. The
Fund has not used these techniques recently but may use them if it determines
that they could help the Fund achieve its goals. There is, of course, no
assurance that these investments will provide capital appreciation or a hedge
against inflation.

ILLIQUID INVESTMENTS Illiquid securities are generally securities that cannot be
sold within seven days in the normal course of business at approximately the
amount at which the Fund has valued them.

The Fund does not consider securities that it acquires outside the U.S. and that
are publicly traded in the U.S. or on a foreign securities exchange or in a
foreign securities market to be illiquid investments, if (a) the Fund reasonably
believes it can readily dispose of the securities for cash in the U.S. or
foreign market, or (b) current market quotations are readily available.

LOANS OF PORTFOLIO SECURITIES To generate additional income, the Fund may lend
certain of its portfolio securities to qualified banks and broker-dealers. These
loans may not exceed 10% of the value of the Fund's total assets, measured at
the time of the most recent loan. For each loan, the borrower must maintain with
the Fund's custodian collateral (consisting of any combination of cash,
securities issued by the U.S. government and its agencies and instrumentalities,
or irrevocable letters of credit) with a value at least equal to the current
market value of the loaned securities. The Fund retains all or a portion of the
interest received on investment of the cash collateral or receives a fee from
the borrower. The Fund also continues to receive any distributions paid on the
loaned securities. The Fund may terminate a loan at any time and obtain the
return of the securities loaned within the normal settlement period for the
security involved.

Where voting rights with respect to the loaned securities pass with the lending
of the securities, the manager intends to call the loaned securities to vote
proxies, or to use other practicable and legally enforceable means to obtain
voting rights, when the manager has knowledge that, in its opinion, a material
event affecting the loaned securities will occur or the manager otherwise
believes it necessary to vote. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in collateral in the event of
default or insolvency of the borrower. The Fund will loan its securities only to
parties who meet creditworthiness standards approved by the Fund's Board of
Trustees, i.e., banks or broker-dealers that the manager has determined present
no serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the loan.

REPURCHASE AGREEMENTS The Fund generally will have a portion of its assets in
cash or cash equivalents for a variety of reasons, including waiting for a
suitable investment opportunity or taking a defensive position. To earn income
on this portion of its assets, the Fund may enter into repurchase agreements.
Under a repurchase agreement, the Fund agrees to buy securities guaranteed as to
payment of principal and interest by the U.S. government or its agencies from a
qualified bank or broker-dealer and then to sell the securities back to the bank
or broker-dealer after a short period of time (generally, less than seven days)
at a higher price. The bank or broker-dealer must transfer to the Fund's
custodian securities with an initial market value of at least 102% of the dollar
amount invested by the Fund in each repurchase agreement. The manager will
monitor the value of such securities daily to determine that the value equals or
exceeds the repurchase price.

Repurchase agreements may involve risks in the event of default or insolvency of
the bank or broker-dealer, including possible delays or restrictions upon the
Fund's ability to sell the underlying securities. The Fund will enter into
repurchase agreements only with parties who meet certain creditworthiness
standards, i.e., banks or broker-dealers that the manager has determined present
no serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the repurchase transaction.

TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unfavorable for investors, the manager may invest up to 100% of the Fund's
assets in a temporary defensive manner or hold a substantial portion of its
assets in cash, cash equivalents or other high quality short-term investments.
Unfavorable market or economic conditions may include excessive volatility or a
prolonged general decline in the securities markets, the securities in which the
Fund normally invests, or the economies of the countries where the Fund invests.

Temporary defensive investments generally may include preferred stocks, rated or
unrated debt securities, securities of the U.S. government and its agencies,
various bank debt instruments, and repurchase agreements collateralized by U.S.
government securities. The manager also may invest in these types of securities
or hold cash while looking for suitable investment opportunities or to maintain
liquidity.

TIMING OF THE FUND'S SECURITIES TRANSACTIONS Normally, the Fund will buy
securities for investment with a view to long-term appreciation. The Fund may on
occasion, however, buy securities with the expectation of realizing gains over
the short-term. Because the investment outlook of the types of securities that
the Fund may buy may change as a result of unexpected developments in national
or international securities markets, or in economic, monetary or political
relationships, the Fund will not treat its portfolio turnover as a limiting
factor. The Fund may make changes in particular portfolio holdings whenever the
Fund considers that a security no longer has optimum growth potential or has
reached its anticipated level of performance, or that another security appears
to have a relatively greater potential for capital appreciation and will make
such changes without regard to the length of time the Fund has held a security.
The Fund may consider the differences between the tax treatment of long-term
gains and short-term gains, however, in determining the timing of portfolio
transactions.

OFFICERS AND TRUSTEES
-------------------------------------------------------------------------------
The Fund has a board of trustees. The board is responsible for the overall
management of the Fund, including general supervision and review of the Fund's
investment activities. The board, in turn, elects the officers of the Fund who
are responsible for administering the Fund's day-to-day operations. The board
also monitors the Fund to ensure no material conflicts exist among share
classes. While none is expected, the board will act appropriately to resolve any
material conflict that may arise.

The name, age and address of the officers and board members, as well as their
affiliations, positions held with the Fund, and principal occupations during the
past five years are shown below.

Frank H. Abbott, III (79)
1045 Sansome Street, San Francisco, CA 94111
TRUSTEE

President and Director, Abbott Corporation (an investment company); director or
trustee, as the case may be, of 29 of the investment companies in Franklin
Templeton Investments; and FORMERLY, Director, MotherLode Gold Mines
Consolidated (gold mining) (until 1996) and Vacu-Dry Co. (food processing)
(until 1996).

Harris J. Ashton (68)
191 Clapboard Ridge Road, Greenwich, CT 06830
TRUSTEE

Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 48 of the
investment companies in Franklin Templeton Investments; and FORMERLY, President,
Chief Executive Officer and Chairman of the Board, General Host Corporation
(nursery and craft centers) (until 1998).

*Harmon E. Burns (55)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND TRUSTEE

Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources,
Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director, Franklin Investment
Advisory Services, Inc., Franklin/Templeton Investor Services, Inc. and Franklin
Templeton Services, Inc.; and officer and/or director or trustee, as the case
may be, of most of the other subsidiaries of Franklin Resources, Inc. and of 52
of the investment companies in Franklin Templeton Investments.

S. Joseph Fortunato (68)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
TRUSTEE

Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or trustee,
as the case may be, of 50 of the investment companies in Franklin Templeton
Investments.

*Charles B. Johnson (67)
777 Mariners Island Blvd., San Mateo, CA 94404
CHAIRMAN OF THE BOARD AND TRUSTEE

Chairman of the Board, Chief Executive Officer, Member - Office of the Chairman
and Director, Franklin Resources, Inc.; Vice President, Franklin Templeton
Distributors, Inc.; Director, Franklin/Templeton Investor Services, Inc. and
Franklin Templeton Services, Inc.; officer and/or director or trustee, as the
case may be, of most of the other subsidiaries of Franklin Resources, Inc. and
of 49 of the investment companies in Franklin Templeton Investments.

*Rupert H. Johnson, Jr. (60)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND TRUSTEE

Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources,
Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.;
Director, Franklin Advisers, Inc., Franklin Investment Advisory Services, Inc.
and Franklin/Templeton Investor Services, Inc.; Senior Vice President, Franklin
Advisory Services, LLC; and officer and/or director or trustee, as the case may
be, of most of the other subsidiaries of Franklin Resources, Inc. and of 52 of
the investment companies in Franklin Templeton Investments.

Frank W.T. LaHaye (71)
20833 Stevens Creek Blvd., Suite 102
Cupertino, CA 95014
TRUSTEE

Chairman, Peregrine Venture Management Company (venture capital); Director, The
California Center for Land Reclamation (redevelopment); director or trustee, as
the case may be, of 29 of the investment companies in Franklin Templeton
Investments; and FORMERLY, General Partner, Miller & LaHaye and Peregrine
Associates, the general partners of Peregrine Venture funds.

Gordon S. Macklin (72)
8212 Burning Tree Road, Bethesda, MD 20817
TRUSTEE

Director, Martek Biosciences Corporation, WorldCom, Inc. (communication
services), MedImmune, Inc. (biotechnology), Overstock.com (internet services),
White Mountains Insurance Group, Ltd. (holding company) and Spacehab, Inc.
(aerospace services); director or trustee, as the case may be, of 48 of the
investment companies in Franklin Templeton Investments; and FORMERLY, Chairman,
White River Corporation (financial services) (until 1998) and Hambrecht & Quist
Group (investment banking) (until 1992), and President, National Association of
Securities Dealers, Inc. (until 1987).

*R. Martin Wiskemann (73)
777 Mariners Island Blvd., San Mateo, CA 94404
PRESIDENT AND TRUSTEE

Executive Vice President, Portfolio Manager and Director, Franklin Advisers,
Inc.; Senior Vice President, Franklin Management, Inc.; and officer and/or
director or trustee, as the case may be, of 15 of the investment companies in
Franklin Templeton Investments; and FORMERLY, Vice President and Director, ILA
Financial Services, Inc. (until 1998).

Martin L. Flanagan (40)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER

President, Member - Office of the President, Chief Financial Officer and Chief
Operating Officer, Franklin Resources, Inc.; Executive Vice President and
Director, Franklin/Templeton Investor Services, Inc.; President and Chief
Financial Officer, Franklin Mutual Advisers, LLC; Executive Vice President,
Chief Financial Officer and Director, Templeton Worldwide, Inc.; Executive Vice
President, Chief Operating Officer and Director, Templeton Investment Counsel,
Inc.; Executive Vice President, Franklin Advisers, Inc. and Franklin Investment
Advisory Services, Inc.; Chief Financial Officer, Franklin Advisory Services,
LLC; Chairman and Director, Franklin Templeton Services, Inc.; officer and/or
director of some of the other subsidiaries of Franklin Resources, Inc.; and
officer and/or director or trustee, as the case may be, of 52 of the investment
companies in Franklin Templeton Investments.

David P. Goss (53)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

Associate General Counsel, Franklin Templeton Investments; President, Chief
Executive Officer and Director, Franklin Select Realty Trust, Property
Resources, Inc., Property Resources Equity Trust and Franklin Real Estate
Management, Inc.; President and Chief Executive Officer, Franklin Properties,
Inc.; officer of 53 of the investment companies in Franklin Templeton
Investments; and FORMERLY, President, Chief Executive Officer and Director,
Franklin Real Estate Income Fund and Franklin Advantage Real Estate Income Fund
(until 1996).

Barbara J. Green (53)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

Vice President and Deputy General Counsel, Franklin Resources, Inc.; Senior Vice
President, Templeton Worldwide, Inc.; officer of 53 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, and Judicial
Clerk, U.S. District Court (District of Massachusetts).

Edward V. McVey (63)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

Senior Vice President, Franklin Templeton Distributors, Inc.; officer of one of
the other subsidiaries of Franklin Resources, Inc. and of 30 of the investment
companies in Franklin Templeton Investments.

Kimberley Monasterio (37)
777 Mariners Island Blvd., San Mateo, CA 94404
TREASURER AND PRINCIPAL ACCOUNTING OFFICER

Senior Vice President, Franklin Templeton Services, Inc.; and officer of 34 of
the investment companies in Franklin Templeton Investments.

Murray L. Simpson (63)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND SECRETARY

Executive Vice President and General Counsel, Franklin Resources, Inc.; officer
and/or director of some of the subsidiaries of Franklin Resources, Inc.; officer
of 53 of the investment companies in Franklin Templeton Investments; and
formerly, Chief Executive Officer and Managing Director, Templeton Franklin
Investment Services (Asia) Limited (until January 2000) and Director, Templeton
Asset Management Ltd. (until 1999).

*This board member is considered an "interested person" under federal securities
laws.

Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.

The Fund pays noninterested board members $150 per month plus $150 per meeting
attended. Board members who serve on the audit committee of the Fund and other
funds in Franklin Templeton Investments receive a flat fee of $2,000 per
committee meeting attended, a portion of which is allocated to the Fund. Members
of a committee are not compensated for any committee meeting held on the day of
a board meeting. Noninterested board members also may serve as directors or
trustees of other funds in Franklin Templeton Investments and may receive fees
from these funds for their services. The fees payable to noninterested board
members by the Fund are subject to reductions resulting from fee caps limiting
the amount of fees payable to board members who serve on other boards within
Franklin Templeton Investments. The following table provides the total fees paid
to noninterested board members by the Fund and by Franklin Templeton
Investments.

TOTAL FEES NUMBER OF
RECEIVED BOARDS IN
TOTAL FEES FROM FRANKLIN
RECIEVED FRANKLIN TEMPLETON
FROM THE TEMPLETON INVESTMENTS
FUND/1/ INVESTMENTS/2/ ON WHICH
NAME ($) ($) EACH SERVES/3/
------------------------------------------------------------------------------
<S> <C> <C> <C>
Frank H. Abbott, III 2,503 156,060 29
Harris J. Ashton 2,747 363,165 48
S. Joseph Fortunato 2,559 363,238 50
Frank W.T. LaHaye 2,653 156,060 29
Gordon S. Macklin 2,747 363,165 48
</TABLE>

1. For the fiscal year ended July 31, 2000.

2. For the calendar year ended December 31, 1999.

3. We base the number of boards on the number of registered investment companies
in Franklin Templeton Investments. This number does not include the total number
of series or funds within each investment company for which the board members
are responsible. Franklin Templeton Investments currently includes 52 registered
investment companies, with approximately 156 U.S. based funds or series.

Noninterested board members are reimbursed for expenses incurred in connection
with attending board meetings, paid pro rata by each fund in Franklin Templeton
Investments for which they serve as director or trustee. No officer or board
member received any other compensation, including pension or retirement
benefits, directly or indirectly from the Fund or other funds in Franklin
Templeton Investments. Certain officers or board members who are shareholders of
Franklin Resources, Inc. may be deemed to receive indirect remuneration by
virtue of their participation, if any, in the fees paid to its subsidiaries.

Board members historically have followed a policy of having substantial
investments in one or more of the funds in Franklin Templeton Investments, as is
consistent with their individual financial goals. In February 1998, this policy
was formalized through adoption of a requirement that each board member invest
one-third of fees received for serving as a director or trustee of a Templeton
fund in shares of one or more Templeton funds and one-third of fees received for
serving as a director or trustee of a Franklin fund in shares of one or more
Franklin funds until the value of such investments equals or exceeds five times
the annual fees paid such board member. Investments in the name of family
members or entities controlled by a board member constitute fund holdings of
such board member for purposes of this policy, and a three year phase-in period
applies to such investment requirements for newly elected board members. In
implementing such policy, a board member's fund holdings existing on February
27, 1998, are valued as of such date with subsequent investments valued at cost.

MANAGEMENT AND OTHER SERVICES
-------------------------------------------------------------------------------

MANAGER AND SERVICES PROVIDED The Fund's manager is Franklin Advisers, Inc. The
manager is a wholly owned subsidiary of Franklin Resources, Inc. (Resources), a
publicly owned company engaged in the financial services industry through its
subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are the principal
shareholders of Resources.

The manager provides investment research and portfolio management services, and
selects the securities for the Fund to buy, hold or sell. The manager also
selects the brokers who execute the Fund's portfolio transactions. The manager
provides periodic reports to the board, which reviews and supervises the
manager's investment activities. To protect the Fund, the manager and its
officers, directors and employees are covered by fidelity insurance.

The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of the
other funds it manages, or for its own account, that may differ from action
taken by the manager on behalf of the Fund. Similarly, with respect to the Fund,
the manager is not obligated to recommend, buy or sell, or to refrain from
recommending, buying or selling any security that the manager and access
persons, as defined by applicable federal securities laws, may buy or sell for
its or their own account or for the accounts of any other fund. The manager is
not obligated to refrain from investing in securities held by the Fund or other
funds it manages.

The Fund, its manager and principal underwriter have each adopted a code of
ethics, as required by federal securities laws. Under the code of ethics,
employees who are designated as access persons may engage in personal securities
transactions, including transactions involving securities that are being
considered for the Fund or that are currently held by the Fund, subject to
certain general restrictions and procedures. The personal securities
transactions of access persons of the Fund, its manager and principal
underwriter will be governed by the code of ethics. The code of ethics is on
file with, and available from, the U.S. Securities and Exchange Commission
(SEC).

MANAGEMENT FEES The Fund pays the manager a fee equal to a monthly rate of:

o 5/96 of 1% of the value of net assets up to and including $100 million;

o 1/24 of 1% of the value of net assets over $100 million and not over $250
million; and

o 9/240 of 1% of the value of net assets in excess of $250 million.

The fee is computed at the close of business on the last business day of each
month according to the terms of the management agreement. Each class of the
Fund's shares pays its proportionate share of the fee.

For the last three fiscal years ended July 31, the Fund paid the following
management fees:

MANAGEMENT
FEES PAID ($)
-----------------------------------------
2000 1,235,379

1999 1,255,216

1998 1,416,311

ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the manager to provide certain administrative
services and facilities for the Fund. FT Services is wholly owned by Resources
and is an affiliate of the Fund's manager and principal underwriter.

The administrative services FT Service provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.

ADMINISTRATION FEES The manager pays FT Services a monthly fee equal to an
annual rate of:

o 0.15% of the Fund's average daily net assets up to $200 million;

o 0.135% of average daily net assets over $200 million up to $700 million;

o 0.10% of average daily net assets over $700 million up to $1.2 billion; and

o 0.075% of average daily net assets over $1.2 billion.

During the last three fiscal years ended July 31, the manager paid FT Services
the following administration fees:

ADMINISTRATION
FEES PAID ($)
-----------------------------------------
2000 341,133

1999 337,706

1998 382,884

SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor Services,
Inc. (Investor Services) is the Fund's shareholder servicing agent and acts as
the Fund's transfer agent and dividend-paying agent. Investor Services is
located at 777 Mariners Island Blvd., San Mateo, CA 94404. Please send all
correspondence to Investor Services to P.O. Box 997151, Sacramento, CA
95899-9983.

For its services, Investor Services receives a fixed fee per account. The Fund
also will reimburse Investor Services for certain out-of-pocket expenses, which
may include payments by Investor Services to entities, including affiliated
entities, that provide sub-shareholder services, recordkeeping and/or transfer
agency services to beneficial owners of the Fund. The amount of reimbursements
for these services per benefit plan participant Fund account per year will not
exceed the per account fee payable by the Fund to Investor Services in
connection with maintaining shareholder accounts.

CUSTODIAN Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, NY 10286, acts as custodian of the Fund's securities and other assets.

AUDITOR PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, CA 94105,
is the Fund's independent auditor. The auditor gives an opinion on the financial
statements included in the Fund's Annual Report to Shareholders and reviews the
Fund's registration statement filed with the SEC.

PORTFOLIO TRANSACTIONS
-------------------------------------------------------------------------------
The manager selects brokers and dealers to execute the Fund's portfolio
transactions in accordance with criteria set forth in the management agreement
and any directions that the board may give.

When placing a portfolio transaction, the manager seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio transactions
on a securities exchange, the amount of commission paid is negotiated between
the manager and the broker executing the transaction. The determination and
evaluation of the reasonableness of the brokerage commissions paid are based to
a large degree on the professional opinions of the persons responsible for
placement and review of the transactions. These opinions are based on the
experience of these individuals in the securities industry and information
available to them about the level of commissions being paid by other
institutional investors of comparable size. The manager will ordinarily place
orders to buy and sell over-the-counter securities on a principal rather than
agency basis with a principal market maker unless, in the opinion of the
manager, a better price and execution can otherwise be obtained. Purchases of
portfolio securities from underwriters will include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers will include a
spread between the bid and ask price.

The manager may pay certain brokers commissions that are higher than those
another broker may charge, if the manager determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and research
services it receives. This may be viewed in terms of either the particular
transaction or the manager's overall responsibilities to client accounts over
which it exercises investment discretion. The services that brokers may provide
to the manager include, among others, supplying information about particular
companies, markets, countries, or local, regional, national or transnational
economies, statistical data, quotations and other securities pricing
information, and other information that provides lawful and appropriate
assistance to the manager in carrying out its investment advisory
responsibilities. These services may not always directly benefit the Fund. They
must, however, be of value to the manager in carrying out its overall
responsibilities to its clients.

It is not possible to place a dollar value on the special executions or on the
research services the manager receives from dealers effecting transactions in
portfolio securities. The allocation of transactions to obtain additional
research services allows the manager to supplement its own research and analysis
activities and to receive the views and information of individuals and research
staffs of other securities firms. As long as it is lawful and appropriate to do
so, the manager and its affiliates may use this research and data in their
investment advisory capacities with other clients. If the Fund's officers are
satisfied that the best execution is obtained, the sale of Fund shares, as well
as shares of other funds in Franklin Templeton Investments, also may be
considered a factor in the selection of broker-dealers to execute the Fund's
portfolio transactions.

Because Franklin Templeton Distributors, Inc. (Distributors) is a member of the
National Association of Securities Dealers, Inc., it may sometimes receive
certain fees when the Fund tenders portfolio securities pursuant to a
tender-offer solicitation. To recapture brokerage for the benefit of the Fund,
any portfolio securities tendered by the Fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next management
fee payable to the manager will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection with
the tender.

If purchases or sales of securities of the Fund and one or more other investment
companies or clients supervised by the manager are considered at or about the
same time, transactions in these securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by the
manager, taking into account the respective sizes of the funds and the amount of
securities to be purchased or sold. In some cases this procedure could have a
detrimental effect on the price or volume of the security so far as the Fund is
concerned. In other cases it is possible that the ability to participate in
volume transactions may improve execution and reduce transaction costs to the
Fund.

During the last three fiscal years ended July 31, the Fund paid the following
brokerage commissions:

BROKERAGE
COMMISSIONS
($)
--------------------------------------
2000 89,783

1999 102,700

1998 113,547

For the fiscal year ended July 31, 2000, the Fund did not pay brokerage
commissions to brokers who provided research services.

As of July 31, 2000, the Fund did not own securities of its regular
broker-dealers.

DISTRIBUTIONS AND TAXES
-------------------------------------------------------------------------------

The Fund calculates dividends and capital gains the same way for each class. The
amount of any income dividends per share will differ, however, generally due to
the difference in the distribution and service (Rule 12b-1) fees of each class.
Distributions are subject to approval by the board. The Fund does not pay
"interest" or guarantee any fixed rate of return on an investment in its shares.

DISTRIBUTIONS OF NET INVESTMENT INCOME The Fund receives income generally in the
form of dividends and interest on its investments. This income, less expenses
incurred in the operation of the Fund, constitutes the Fund's net investment
income from which dividends may be paid to you. Any distributions by the Fund
from such income will be taxable to you as ordinary income, whether you receive
them in cash or in additional shares.

DISTRIBUTIONS OF CAPITAL GAINS The Fund may derive capital gains and losses in
connection with sales or other dispositions of its portfolio securities.
Distributions from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be taxable
to you as long-term capital gain, regardless of how long you have held your
shares in the Fund. Any net capital gains realized by the Fund generally will be
distributed once each year, and may be distributed more frequently, if
necessary, to reduce or eliminate excise or income taxes on the Fund.

Beginning in the year 2001 for shareholders in the 15% federal income tax
bracket (or in the year 2006 for shareholders in the 28% or higher bracket),
capital gain distributions from the Fund's sale of securities held for more than
five years may be subject to a reduced tax rate.

EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gains
realized on the sale of debt securities are treated as ordinary income by the
Fund. Similarly, foreign exchange losses realized on the sale of debt securities
generally are treated as ordinary losses. These gains when distributed will be
taxable to you as ordinary income, and any losses will reduce the Fund's
ordinary income otherwise available for distribution to you. This treatment
could increase or decrease the Fund's ordinary income distributions to you.

The Fund may be subject to foreign withholding taxes on income from certain
foreign securities. This, in turn, could reduce ordinary income distributions to
you. If more than 50% of the Fund's total assets at the end of the fiscal year
are invested in securities of foreign corporations, the Fund may elect to pass
through to you your pro rata share of foreign taxes paid by the Fund. If this
election is made, the year-end statement you receive from the Fund will show
more taxable income than was actually distributed to you. However, you will be
entitled to either deduct your share of such taxes in computing your taxable
income or (subject to limitations) claim a foreign tax credit for such taxes
against your U.S. federal income tax. The Fund will provide you with the
information necessary to complete your individual income tax return if it makes
this election.

INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The Fund will inform you of
the amount of your ordinary income dividends and capital gain distributions at
the time they are paid, and will advise you of their tax status for federal
income tax purposes shortly after the close of each calendar year. If you have
not held Fund shares for a full year, the Fund may designate and distribute to
you, as ordinary income or capital gain, a percentage of income that is not
equal to the actual amount of such income earned during the period of your
investment in the Fund.

ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY The Fund has elected to
be treated as a regulated investment company under Subchapter M of the Internal
Revenue Code (the Code). The Fund has qualified as a regulated investment
company for its most recent fiscal year, and intends to continue to qualify
during the current fiscal year. As a regulated investment company, the Fund
generally pays no federal income tax on the income and gains it distributes to
you. The board reserves the right not to maintain the qualification of the Fund
as a regulated investment company if it determines such course of action to be
beneficial to shareholders. In such case, the Fund will be subject to federal,
and possibly state, corporate taxes on its taxable income and gains, and
distributions to you will be taxed as ordinary dividend income to the extent of
the Fund's earnings and profits.

EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the Code
requires the Fund to distribute to you by December 31 of each year, at a
minimum, the following amounts: 98% of its taxable ordinary income earned during
the calendar year; 98% of its capital gain net income earned during the twelve
month period ending October 31; and 100% of any undistributed amounts from the
prior year. The Fund intends to declare and pay these distributions in December
(or to pay them in January, in which case you must treat them as received in
December) but can give no assurances that its distributions will be sufficient
to eliminate all taxes.

REDEMPTION OF FUND SHARES Redemptions (including redemptions in kind) and
exchanges of Fund shares are taxable transactions for federal and state income
tax purposes. If you redeem your Fund shares, or exchange your Fund shares for
shares of a different Franklin Templeton Fund, the IRS will require that you
report any gain or loss on your redemption or exchange. If you hold your shares
as a capital asset, the gain or loss that you realize will be capital gain or
loss and will be long-term or short-term, generally depending on how long you
hold your shares.

Beginning in the year 2001 for shareholders in the 15% federal income tax
bracket (or in the year 2006 for shareholders in the 28% or higher bracket),
gain from the sale of Fund shares held for more than five years may be subject
to a reduced tax rate.

Any loss incurred on the redemption or exchange of shares held for six months or
less will be treated as a long-term capital loss to the extent of any long-term
capital gains distributed to you by the Fund on those shares. All or a portion
of any loss that you realize upon the redemption of your Fund shares will be
disallowed to the extent that you buy other shares in the Fund (through
reinvestment of dividends or otherwise) within 30 days before or after your
share redemption. Any loss disallowed under these rules will be added to your
tax basis in the new shares you buy.

DEFERRAL OF BASIS If you redeem some or all of your shares in the Fund, and then
reinvest the sales proceeds in the Fund or in another Franklin Templeton fund
within 90 days of buying the original shares, the sales charge that would
otherwise apply to your reinvestment may be reduced or eliminated. The IRS will
require you to report any gain or loss on the redemption of your original shares
in the Fund. In doing so, all or a portion of the sales charge that you paid for
your original shares in the Fund will be excluded from your tax basis in the
shares sold (for the purpose of determining gain or loss upon the sale of such
shares). The portion of the sales charge excluded will equal the amount that the
sales charge is reduced on your reinvestment. Any portion of the sales charge
excluded from your tax basis in the shares sold will be added to the tax basis
of the shares you acquire from your reinvestment.

U.S. GOVERNMENT SECURITIES States grant tax-free status to dividends paid to you
from interest earned on certain U.S. government securities, subject in some
states to minimum investment or reporting requirements that must be met by the
Fund. Investments in Government National Mortgage Association or Federal
National Mortgage Association securities, bankers' acceptances, commercial paper
and repurchase agreements collateralized by U.S. government securities generally
do not qualify for tax-free treatment. The rules on exclusion of this income are
different for corporations.

DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS If you are a corporate
shareholder, you should note 16.45% of the dividends paid by the Fund for the
most recent fiscal year qualified for the dividends-received deduction. You may
be allowed to deduct these qualified dividends, thereby reducing the tax that
you would otherwise be required to pay on these dividends. The
dividends-received deduction will be available only with respect to dividends
designated by the Fund as eligible for such treatment. All dividends (including
the deducted portion) must be included in your alternative minimum taxable
income calculation.

INVESTMENT IN COMPLEX SECURITIES The Fund may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by the Fund are
treated as ordinary income or capital gain, accelerate the recognition of income
to the Fund (possibly causing the Fund to sell securities to raise the cash for
necessary distributions) and/or defer the Fund's ability to recognize losses,
and, in limited cases, subject the Fund to U.S. federal income tax on income
from certain foreign securities. These rules may affect the amount, timing or
character of the income distributed to you by the Fund.

ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
-------------------------------------------------------------------------------

The Fund is a non-diversified, open-end management investment company, commonly
called a mutual fund. The Fund was originally organized as a California
corporation on June 20, 1968, and was reorganized as a Delaware business trust
on April 10, 2000, and is registered with the SEC.

The Fund currently offers four classes of shares, Class A, Class B, Class C and
Advisor Class. The Fund began offering Class B shares on January 1, 1999. The
Fund may offer additional classes of shares in the future. The full title of
each class is:

o Franklin Gold and Precious Metals Fund - Class A

o Franklin Gold and Precious Metals Fund - Class B

o Franklin Gold and Precious Metals Fund - Class C

o Franklin Gold and Precious Metals Fund - Advisor Class

Shares of each class represent proportionate interests in the Fund's assets. On
matters that affect the Fund as a whole, each class has the same voting and
other rights and preferences as any other class. On matters that affect only one
class, only shareholders of that class may vote. Each class votes separately on
matters affecting only that class, or expressly required to be voted on
separately by state or federal law.

The Fund has noncumulative voting rights. For board member elections, this gives
holders of more than 50% of the shares voting the ability to elect all of the
members of the board. If this happens, holders of the remaining shares voting
will not be able to elect anyone to the board.

The Fund does not intend to hold annual shareholder meetings. The Fund may hold
special meetings, however, for matters requiring shareholder approval. A meeting
may be called by the board to consider the removal of a board member if
requested in writing by shareholders holding at least 10% of the outstanding
shares. In certain circumstances, we are required to help you communicate with
other shareholders about the removal of a board member. A special meeting also
may be called by the board in its discretion.

As of November 1, 2000, the principal shareholders of the Fund, beneficial or of
record, were:

PERCENTAGE
NAME AND ADDRESS SHARE CLASS (%)
-------------------------------------------------------------------------------
Salomon Smith Barney, Inc. Class B 6.140
00186065431
333 West 34th Street - 3rd Fl
New York, NY 10001

FTV&T CUST for the IRA of Class B 5.799
James L. Kirchmann
5441 N 63rd Street
Omaha, NE 68104-1622

FTB&T TTEE for ValuSelect Advisor 34.948
Franklin Resources, Inc.
Profit Sharing Plan
P.O. Box 2438
Rancho Cordova, CA 95741-2438

Charles Schwab & Co. Inc. Advisor 23.071
101 Montgomery Street
San Francisco, CA 94104-4122

Note: Charles B. Johnson and Rupert H. Johnson, Jr., who are officers and
trustees of the Fund, serve on the administrative committee of the Franklin
Resources, Inc. Profit Sharing 401(k) Plan, which owns shares of the Fund. In
that capacity, they participate in the voting of such shares. Charles B. Johnson
and Rupert H. Johnson, Jr., disclaim beneficial ownership of any share of the
Fund owned by the Franklin Templeton Profit Sharing 401(k) Plan.

From time to time, the number of Fund shares held in the "street name" accounts
of various securities dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding.

As of November 1, 2000, the officers and board members, as a group, owned of
record and beneficially less than 1% of the outstanding shares of each class.
The board members may own shares in other funds in Franklin Templeton
Investments.

BUYING AND SELLING SHARES
-------------------------------------------------------------------------------
The Fund continuously offers its shares through securities dealers who have an
agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any financial institution that, either directly or
through affiliates, has an agreement with Distributors to handle customer orders
and accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity. Banks and financial institutions that
sell shares of the Fund may be required by state law to register as securities
dealers.

For investors outside the U.S., the offering of Fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the Fund should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to obtain
information on the rules applicable to these transactions.

All checks, drafts, wires and other payment mediums used to buy or sell shares
of the Fund must be denominated in U.S. dollars. We may, in our sole discretion,
either (a) reject any order to buy or sell shares denominated in any other
currency or (b) honor the transaction or make adjustments to your account for
the transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank. We may deduct any applicable banking charges
imposed by the bank from your account.

When you buy shares, if you submit a check or a draft that is returned unpaid to
the Fund we may impose a $10 charge against your account for each returned item.

If you buy shares through the reinvestment of dividends, the shares will be
purchased at the net asset value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The processing
date for the reinvestment of dividends may vary and does not affect the amount
or value of the shares acquired.

INITIAL SALES CHARGES The maximum initial sales charge is 5.75% for Class A and
1% for Class C. There is no initial sales charge for Class B.

The initial sales charge for Class A shares may be reduced for certain large
purchases, as described in the prospectus. We offer several ways for you to
combine your purchases in Franklin Templeton funds to take advantage of the
lower sales charges for large purchases. Franklin Templeton funds include the
U.S. registered mutual funds in Franklin Templeton Investments except Franklin
Templeton Variable Insurance Products Trust and Templeton Capital Accumulator
Fund, Inc.

CUMULATIVE QUANTITY DISCOUNT. For purposes of calculating the sales charge on
Class A shares, you may combine the amount of your current purchase with the
cost or current value, whichever is higher, of your existing shares in Franklin
Templeton funds. You also may combine the shares of your spouse, children under
the age of 21 or grandchildren under the age of 21. If you are the sole owner of
a company, you also may add any company accounts, including retirement plan
accounts. Companies with one or more retirement plans may add together the total
plan assets invested in Franklin Templeton funds to determine the sales charge
that applies.

LETTER OF INTENT (LOI). You may buy Class A shares at a reduced sales charge by
completing the letter of intent section of your account application. A letter of
intent is a commitment by you to invest a specified dollar amount during a 13
month period. The amount you agree to invest determines the sales charge you
pay. By completing the letter of intent section of the application, you
acknowledge and agree to the following:

o You authorize Distributors to reserve 5% of your total intended purchase in
Class A shares registered in your name until you fulfill your LOI. Your periodic
statements will include the reserved shares in the total shares you own, and we
will pay or reinvest dividend and capital gain distributions on the reserved
shares according to the distribution option you have chosen.

o You give Distributors a security interest in the reserved shares and appoint
Distributors as attorney-in-fact.

o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the LOI.

o Although you may exchange your shares, you may not sell reserved shares until
you complete the LOI or pay the higher sales charge.

After you file your LOI with the Fund, you may buy Class A shares at the sales
charge applicable to the amount specified in your LOI. Sales charge reductions
based on purchases in more than one Franklin Templeton fund will be effective
only after notification to Distributors that the investment qualifies for a
discount. Any Class A purchases you made within 90 days before you filed your
LOI also may qualify for a retroactive reduction in the sales charge. If you
file your LOI with the Fund before a change in the Fund's sales charge, you may
complete the LOI at the lower of the new sales charge or the sales charge in
effect when the LOI was filed.

Your holdings in Franklin Templeton funds acquired more than 90 days before you
filed your LOI will be counted towards the completion of the LOI, but they will
not be entitled to a retroactive reduction in the sales charge. Any redemptions
you make during the 13 month period, except in the case of certain retirement
plans, will be subtracted from the amount of the purchases for purposes of
determining whether the terms of the LOI have been completed.

If the terms of your LOI are met, the reserved shares will be deposited to an
account in your name or delivered to you or as you direct. If the amount of your
total purchases, less redemptions, is more than the amount specified in your LOI
and is an amount that would qualify for a further sales charge reduction, a
retroactive price adjustment will be made by Distributors and the securities
dealer through whom purchases were made. The price adjustment will be made on
purchases made within 90 days before and on those made after you filed your LOI
and will be applied towards the purchase of additional shares at the offering
price applicable to a single purchase or the dollar amount of the total
purchases.

If the amount of your total purchases, less redemptions, is less than the amount
specified in your LOI, the sales charge will be adjusted upward, depending on
the actual amount purchased (less redemptions) during the period. You will need
to send Distributors an amount equal to the difference in the actual dollar
amount of sales charge paid and the amount of sales charge that would have
applied to the total purchases if the total of the purchases had been made at
one time. Upon payment of this amount, the reserved shares held for your account
will be deposited to an account in your name or delivered to you or as you
direct. If within 20 days after written request the difference in sales charge
is not paid, we will redeem an appropriate number of reserved shares to realize
the difference. If you redeem the total amount in your account before you
fulfill your LOI, we will deduct the additional sales charge due from the sale
proceeds and forward the balance to you.

For LOIs filed on behalf of certain retirement plans, the level and any
reduction in sales charge for these plans will be based on actual plan
participation and the projected investments in Franklin Templeton funds under
the LOI. These plans are not subject to the requirement to reserve 5% of the
total intended purchase or to the policy on upward adjustments in sales charges
described above, or to any penalty as a result of the early termination of a
plan, nor are these plans entitled to receive retroactive adjustments in price
for investments made before executing the LOI.

GROUP PURCHASES. If you are a member of a qualified group, you may buy Class A
shares at a reduced sales charge that applies to the group as a whole. The sales
charge is based on the combined dollar value of the group members' existing
investments, plus the amount of the current purchase.

A qualified group is one that:

o Was formed at least six months ago,

o Has a purpose other than buying Fund shares at a discount,

o Has more than 10 members,

o Can arrange for meetings between our representatives and group members,

o Agrees to include Franklin Templeton fund sales and other materials in
publications and mailings to its members at reduced or no cost to Distributors,

o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and

o Meets other uniform criteria that allow Distributors to achieve cost savings
in distributing shares.

A qualified group generally does not include a 403(b) plan that only allows
salary deferral contributions, although any such plan that purchased the Fund's
Class A shares at a reduced sales charge under the group purchase privilege
before February 1, 1998, may continue to do so.

WAIVERS FOR INVESTMENTS FROM CERTAIN PAYMENTS. Class A shares may be purchased
without an initial sales charge or contingent deferred sales charge (CDSC) by
investors who reinvest within 365 days:

o Dividend and capital gain distributions from any Franklin Templeton fund. The
distributions generally must be reinvested in the same share class. Certain
exceptions apply, however, to Class C shareholders who chose to reinvest their
distributions in Class A shares of the Fund before November 17, 1997, and to
Advisor Class or Class Z shareholders of a Franklin Templeton fund who may
reinvest their distributions in the Fund's Class A shares. This waiver category
also applies to Class B and C shares.

o Annuity payments received under either an annuity option or from death benefit
proceeds, if the annuity contract offers as an investment option the Franklin
Templeton Variable Insurance Products Trust. You should contact your tax advisor
for information on any tax consequences that may apply.

o Redemption proceeds from a repurchase of shares of Franklin Floating Rate
Trust, if the shares were continuously held for at least 12 months.

If you immediately placed your redemption proceeds in a Franklin Bank CD or a
Franklin Templeton money fund, you may reinvest them as described above. The
proceeds must be reinvested within 365 days from the date the CD matures,
including any rollover, or the date you redeem your money fund shares.

o Redemption proceeds from the sale of Class A shares of any of the Templeton
Global Strategy Funds if you are a qualified investor.

If you paid a CDSC when you redeemed your Class A hase of Fund shares and the
CDSC holding period will begin again. We will, how ever, credit your Fund
account with additional shares based on the CDSC you previously paid and the
amount of the redemption proceeds that you reinvest.

If you immediately placed your redemption proceeds in a Franklin Templeton money
fund, you may reinvest them as described above. The proceeds must be rein vested
within 365 days from the date they are re deemed from the money fund.

o Distributions from an existing retirement plan invested in Franklin Templeton
funds

WAIVERS FOR CERTAIN INVESTORS. Class A shares also may be purchased without an
initial sales charge or CDSC by various individuals and institutions due to
anticipated economies in sales efforts and expenses, including:

o Trust companies and bank trust departments investing assets held in a
fiduciary, agency, advisory, custodial or similar capacity and over which the
trust companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion. We may accept orders for these accounts by telephone or
other means of electronic data transfer directly from the bank or trust company,
with payment by federal funds received by the close of business on the next
business day following the order.

o Any state or local government or any instrumentality, department, authority or
agency thereof that has determined the Fund is a legally permissible investment
and that can only buy Fund shares without paying sales charges. Please consult
your legal and investment advisors to determine if an investment in the Fund is
permissible and suitable for you and the effect, if any, of payments by the Fund
on arbitrage rebate calculations.

o Broker-dealers, registered investment advisors or certified financial planners
who have entered into an agreement with Distributors for clients participating
in comprehensive fee programs

o Qualified registered investment advisors who buy through a broker-dealer or
service agent who has entered into an agreement with Distributors

o Registered securities dealers and their affiliates, for their investment
accounts only

o Current employees of securities dealers and their affiliates and their family
members, as allowed by the internal policies of their employer

o Officers, trustees, directors and full-time employees of Franklin Templeton
Investments, and their family members, consistent with our then-current policies

o Any investor who is currently a Class Z shareholder of Franklin Mutual Series
Fund Inc. (Mutual Series), or who is a former Mutual Series Class Z shareholder
who had an account in any Mutual Series fund on October 31, 1996, or who sold
his or her shares of Mutual Series Class Z within the past 365 days

o Investment companies exchanging shares or selling assets pursuant to a merger,
acquisition or exchange offer

o Accounts managed by Franklin Templeton Investments

o Certain unit investment trusts and their holders reinvesting distributions
from the trusts

o Group annuity separate accounts offered to retirement plans

o Chilean retirement plans that meet the requirements described under
"Retirement plans" below

In addition, Class C shares may be purchased without an initial sales charge by
any investor who buys Class C shares through an omnibus account with Merrill
Lynch Pierce Fenner & Smith, Inc. A CDSC may apply, however, if the shares are
sold within 18 months of purchase.

RETIREMENT PLANS. Retirement plans sponsored by an employer (i) with at least
100 employees, or (ii) with retirement plan assets of $1 million or more, or
(iii) that agrees to invest at least $500,000 in Franklin Templeton funds over a
13 month period may buy Class A shares without an initial sales charge.
Retirement plans that are not qualified retirement plans (employer sponsored
pension or profit-sharing plans that qualify under section 401 of the Internal
Revenue Code, including 401(k), money purchase pension, profit sharing and
defined benefit plans), SIMPLEs (savings incentive match plans for employees) or
SEPs (employer sponsored simplified employee pension plans established under
section 408(k) of the Internal Revenue Code) must also meet the group purchase
requirements described above to be able to buy Class A shares without an initial
sales charge. We may enter into a special arrangement with a securities dealer,
based on criteria established by the Fund, to add together certain small
qualified retirement plan accounts for the purpose of meeting these
requirements.

For retirement plan accounts opened on or after May 1, 1997, a CDSC may apply if
the retirement plan is transferred out of Franklin Templeton funds or terminated
within 365 days of the retirement plan account's initial purchase in Franklin
Templeton funds.

SALES IN TAIWAN. Under agreements with certain banks in Taiwan, Republic of
China, the Fund's shares are available to these banks' trust accounts without a
sales charge. The banks may charge service fees to their customers who
participate in the trusts. A portion of these service fees may be paid to
Distributors or one of its affiliates to help defray expenses of maintaining a
service office in Taiwan, including expenses related to local literature
fulfillment and communication facilities.

The Fund's Class A shares may be offered to investors in Taiwan through
securities advisory firms known locally as Securities Investment Consulting
Enterprises. In conformity with local business practices in Taiwan, Class A
shares may be offered with the following schedule of sales charges:

SIZE OF PURCHASE - U.S. DOLLARS SALES CHARGE (%)
-------------------------------------------------------------------------------
Under $30,000 3.0
$30,000 but less than $50,000 2.5
$50,000 but less than $100,000 2.0
$100,000 but less than $200,000 1.5
$200,000 but less than $400,000 1.0
$400,000 or more 0

DEALER COMPENSATION Securities dealers may at times receive the entire sales
charge. A securities dealer who receives 90% or more of the sales charge may be
deemed an underwriter under the Securities Act of 1933, as amended. Financial
institutions or their affiliated brokers may receive an agency transaction fee
in the percentages indicated in the dealer compensation table in the Fund's
prospectus.

Distributors may pay the following commissions, out of its own resources, to
securities dealers who initiate and are responsible for purchases of Class A
shares of $1 million or more: 1% on sales of $1 million to $2 million, plus
0.80% on sales over $2 million to $3 million, plus 0.50% on sales over $3
million to $50 million, plus 0.25% on sales over $50 million to $100 million,
plus 0.15% on sales over $100 million.

These breakpoints are reset every 12 months for purposes of additional
purchases.

Distributors or one of its affiliates may pay up to 1%, out of its own
resources, to securities dealers who initiate and are responsible for purchases
of Class A shares by certain retirement plans without an initial sales charge.
These payments may be made in the form of contingent advance payments, which may
be recovered from the securities dealer or set off against other payments due to
the dealer if shares are sold within 12 months of the calendar month of
purchase. Other conditions may apply. All terms and conditions may be imposed by
an agreement between Distributors, or one of its affiliates, and the securities
dealer.

In addition to the payments above, Distributors and/or its affiliates may
provide financial support to securities dealers that sell shares of Franklin
Templeton Investments. This support is based primarily on the amount of sales of
fund shares and/or total assets with Franklin Templeton Investments. The amount
of support may be affected by: total sales; net sales; levels of redemptions;
the proportion of a securities dealer's sales and marketing efforts in Franklin
Templeton Investments; a securities dealer's support of, and participation in,
Distributors' marketing programs; a securities dealer's compensation programs
for its registered representatives; and the extent of a securities dealer's
marketing programs relating to Franklin Templeton Investments. Financial support
to securities dealers may be made by payments from Distributors' resources, from
Distributors' retention of underwriting concessions and, in the case of funds
that have Rule 12b-1 plans, from payments to Distributors under such plans. In
addition, certain securities dealers may receive brokerage commissions generated
by fund portfolio transactions in accordance with the rules of the National
Association of Securities Dealers, Inc.

Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin Templeton
funds and are afforded the opportunity to speak with portfolio managers.
Invitation to these meetings is not conditioned on selling a specific number of
shares. Those who have shown an interest in Franklin Templeton funds, however,
are more likely to be considered. To the extent permitted by their firm's
policies and procedures, registered representatives' expenses in attending these
meetings may be covered by Distributors.

CONTINGENT DEFERRED SALES CHARGE (CDSC) If you invest $1 million or more in
Class A shares, either as a lump sum or through our cumulative quantity discount
or letter of intent programs, a CDSC may apply on any shares you sell within 12
months of purchase. For Class C shares, a CDSC may apply if you sell your shares
within 18 months of purchase. The CDSC is 1% of the value of the shares sold or
the net asset value at the time of purchase, whichever is less.

Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy Class A shares without an initial sales charge also may be
subject to a CDSC if the retirement plan is transferred out of Franklin
Templeton funds or terminated within 365 days of the account's initial purchase
in Franklin Templeton funds.

For Class B shares, there is a CDSC if you sell your shares within six years, as
described in the table below. The charge is based on the value of the shares
sold or the net asset value at the time of purchase, whichever is less.

IF YOU SELL YOUR CLASS B SHARES WITHIN THIS % IS DEDUCTED FROM
THIS MANY YEARS AFTER BUYING THEM YOUR PROCEEDS AS A CDSC
-------------------------------------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0

CDSC WAIVERS. The CDSC for any share class generally will be waived for:

o Account fees

o Sales of Class A shares purchased without an initial sales charge by certain
retirement plan accounts if (i) the account was opened before May 1, 1997, or
(ii) the securities dealer of record received a payment from Distributors of
0.25% or less, or (iii) Distributors did not make any payment in connection with
the purchase, or (iv) the securities dealer of record has entered into a
supplemental agreement with Distributors

o Redemptions of Class A shares by investors who purchased $1 million or more
without an initial sales charge if the securities dealer of record waived its
commission in connection with the purchase

o Redemptions by the Fund when an account falls below the minimum required
account size

o Redemptions following the death of the shareholder or beneficial owner

o Redemptions through a systematic withdrawal plan set up before February
1, 1995

o Redemptions through a systematic withdrawal plan set up on or after February
1, 1995, up to 1% monthly, 3% quarterly, 6% semiannually or 12% annually of your
account's net asset value depending on the frequency of your plan

o Redemptions by an employee benefit plan: (i) that is a customer of Franklin
Templeton Defined Contribution Services, and/or (ii) whose assets are held by
Franklin Templeton Bank & Trust as trustee or custodian (not applicable to Class
B)

o Distributions from individual retirement accounts (IRAs) due to death or
disability or upon periodic distributions based on life expectancy (for Class B,
this applies to all retirement plan accounts, not only IRAs)

o Returns of excess contributions (and earnings, if applicable) from retirement
plan accounts

o Participant initiated distributions from employee benefit plans or participant
initiated exchanges among investment choices in employee benefit plans (not
applicable to Class B)

EXCHANGE PRIVILEGE If you request the exchange of the total value of your
account, declared but unpaid income dividends and capital gain distributions
will be reinvested in the Fund and exchanged into the new fund at net asset
value when paid. Backup withholding and information reporting may apply.

If a substantial number of shareholders should, within a short period, sell
their Fund shares under the exchange privilege, the Fund might have to sell
portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the exchange
privilege may result in periodic large inflows of money. If this occurs, it is
the Fund's general policy to initially invest this money in short-term,
interest-bearing money market instruments, unless it is believed that attractive
investment opportunities consistent with the Fund's investment goals exist
immediately. This money will then be withdrawn from the short-term,
interest-bearing money market instruments and invested in portfolio securities
in as orderly a manner as is possible when attractive investment opportunities
arise.

The proceeds from the sale of shares of an investment company generally are not
available until the seventh day following the sale. The funds you are seeking to
exchange into may delay issuing shares pursuant to an exchange until that
seventh day. The sale of Fund shares to complete an exchange will be effected at
net asset value at the close of business on the day the request for exchange is
received in proper form.

SYSTEMATIC WITHDRAWAL PLAN Our systematic withdrawal plan allows you to sell
your shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. The value of your account must be at
least $5,000 and the minimum payment amount for each withdrawal must be at least
$50. For retirement plans subject to mandatory distribution requirements, the
$50 minimum will not apply. There are no service charges for establishing or
maintaining a systematic withdrawal plan.

Each month in which a payment is scheduled, we will redeem an equivalent amount
of shares in your account on the day of the month you have indicated on your
account application or, if no day is indicated, on the 20th day of the month. If
that day falls on a weekend or holiday, we will process the redemption on the
next business day. For plans set up before June 1, 2000, we will continue to
process redemptions on the 25th day of the month (or the next business day)
unless you instruct us to change the processing date. Available processing dates
currently are the 1st, 5th, 10th, 15th, 20th and 25th days of the month. When
you sell your shares under a systematic withdrawal plan, it is a taxable
transaction.

To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if you
plan to buy shares on a regular basis. Shares sold under the plan also may be
subject to a CDSC.

Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Because the amount
withdrawn under the plan may be more than your actual yield or income, part of
the payment may be a return of your investment.

To discontinue a systematic withdrawal plan, change the amount and schedule of
withdrawal payments, or suspend one payment, we must receive instructions from
you at least three business days before a scheduled payment. The Fund may
discontinue a systematic withdrawal plan by notifying you in writing and will
discontinue a systematic withdrawal plan automatically if all shares in your
account are withdrawn or if the Fund receives notification of the shareholder's
death or incapacity.

REDEMPTIONS IN KIND The Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the U.S. Securities and Exchange
Commission (SEC). In the case of redemption requests in excess of these amounts,
the board reserves the right to make payments in whole or in part in securities
or other assets of the Fund, in case of an emergency, or if the payment of such
a redemption in cash would be detrimental to the existing shareholders of the
Fund. In these circumstances, the securities distributed would be valued at the
price used to compute the Fund's net assets and you may incur brokerage fees in
converting the securities to cash. The Fund does not intend to redeem illiquid
securities in kind. If this happens, however, you may not be able to recover
your investment in a timely manner.

SHARE CERTIFICATES We will credit your shares to your Fund account. We do not
issue share certificates unless you specifically request them. This eliminates
the costly problem of replacing lost, stolen or destroyed certificates. If a
certificate is lost, stolen or destroyed, you may have to pay an insurance
premium of up to 2% of the value of the certificate to replace it.

Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.

GENERAL INFORMATION If dividend checks are returned to the Fund marked "unable
to forward" by the postal service, we will consider this a request by you to
change your dividend option to reinvest all distributions. The proceeds will be
reinvested in additional shares at net asset value until we receive new
instructions.

Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the Fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks. The Fund is not responsible for tracking down uncashed checks, unless a
check is returned as undeliverable.

In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to find
you from your account. These costs may include a percentage of the account when
a search company charges a percentage fee in exchange for its location services.

Sending redemption proceeds by wire or electronic funds transfer (ACH) is a
special service that we make available whenever possible. By offering this
service to you, the Fund is not bound to meet any redemption request in less
than the seven day period prescribed by law. Neither the Fund nor its agents
shall be liable to you or any other person if, for any reason, a redemption
request by wire or ACH is not processed as described in the prospectus.

Franklin Templeton Investor Services, Inc. (Investor Services) may pay certain
financial institutions that maintain omnibus accounts with the Fund on behalf of
numerous beneficial owners for recordkeeping operations performed with respect
to such owners. For each beneficial owner in the omnibus account, the Fund may
reimburse Investor Services an amount not to exceed the per account fee that the
Fund normally pays Investor Services. These financial institutions also may
charge a fee for their services directly to their clients.

There are special procedures for banks and other institutions that wish to open
multiple accounts. An institution may open a single master account by filing one
application form with the Fund, signed by personnel authorized to act for the
institution. Individual sub-accounts may be opened when the master account is
opened by listing them on the application, or by providing instructions to the
Fund at a later date. These sub-accounts may be registered either by name or
number. The Fund's investment minimums apply to each sub-account. The Fund will
send confirmation and account statements for the sub-accounts to the
institution.

If you buy or sell shares through your securities dealer, we use the net asset
value next calculated after your securities dealer receives your request, which
is promptly transmitted to the Fund. If you sell shares through your securities
dealer, it is your dealer's responsibility to transmit the order to the Fund in
a timely fashion. Your redemption proceeds will not earn interest between the
time we receive the order from your dealer and the time we receive any required
documents. Any loss to you resulting from your dealer's failure to transmit your
redemption order to the Fund in a timely fashion must be settled between you and
your securities dealer.

Certain shareholder servicing agents may be authorized to accept your
transaction request.

For institutional accounts, there may be additional methods of buying or selling
Fund shares than those described in this SAI or in the prospectus.

In the event of disputes involving multiple claims of ownership or authority to
control your account, the Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, before executing
instructions regarding the account; (b) interplead disputed funds or accounts
with a court of competent jurisdiction; or (c) surrender ownership of all or a
portion of the account to the IRS in response to a notice of levy.

PRICING SHARES
-------------------------------------------------------------------------------
When you buy shares, you pay the offering price. The offering price is the net
asset value (NAV) per share plus any applicable sales charge, calculated to two
decimal places using standard rounding criteria. When you sell shares, you
receive the NAV minus any applicable CDSC.

The value of a mutual fund is determined by deducting the fund's liabilities
from the total assets of the portfolio. The net asset value per share is
determined by dividing the net asset value of the fund by the number of shares
outstanding.

The Fund calculates the NAV per share of each class each business day at the
close of trading on the New York Stock Exchange (normally 1:00 p.m. Pacific
time). The Fund does not calculate the NAV on days the New York Stock Exchange
(NYSE) is closed for trading, which include New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.

When determining its NAV, the Fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the Nasdaq National Market
System, the Fund values those securities at the last quoted sale price of the
day or, if there is no reported sale, within the range of the most recent quoted
bid and ask prices. The Fund values over-the-counter portfolio securities within
the range of the most recent quoted bid and ask prices. If portfolio securities
trade both in the over-the-counter market and on a stock exchange, the Fund
values them according to the broadest and most representative market as
determined by the manager.

The Fund values portfolio securities underlying actively traded call options at
their market price as determined above. The current market value of any option
the Fund holds is its last sale price on the relevant exchange before the Fund
values its assets. If there are no sales that day or if the last sale price is
outside the bid and ask prices, the Fund values options within the range of the
current closing bid and ask prices if the Fund believes the valuation fairly
reflects the contract's market value.

The Fund determines the value of a foreign security as of the close of trading
on the foreign exchange on which the security is traded or as of the close of
trading on the NYSE, if that is earlier. The value is then converted into its
U.S. dollar equivalent at the foreign exchange rate in effect at noon, New York
time, on the day the value of the foreign security is determined. If no sale is
reported at that time, the foreign security is valued within the range of the
most recent quoted bid and ask prices. Occasionally events that affect the
values of foreign securities and foreign exchange rates may occur between the
times at which they are determined and the close of the exchange and will,
therefore, not be reflected in the computation of the NAV. If events materially
affecting the values of these foreign securities occur during this period, the
securities will be valued in accordance with procedures established by the
board.

Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the close of the NYSE. The value of these securities used in computing the NAV
is determined as of such times. Occasionally, events affecting the values of
these securities may occur between the times at which they are determined and
the close of the NYSE that will not be reflected in the computation of the NAV.
If events materially affecting the values of these securities occur during this
period, the securities will be valued at their fair value as determined in good
faith by the board.

Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the board. With the approval of the board, the
Fund may use a pricing service, bank or securities dealer to perform any of the
above described functions.

THE UNDERWRITER
-------------------------------------------------------------------------------

Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the Fund's shares. Distributors
is located at 777 Mariners Island Blvd., San Mateo, CA 94404.

Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.

The table below shows the aggregate underwriting commissions Distributors
received in connection with the offering of the Fund's shares, the net
underwriting discounts and commissions Distributors retained after allowances to
dealers, and the amounts Distributors received in connection with redemptions or
repurchases of shares for the last three fiscal years ended July 31:

AMOUNT
RECEIVED IN
CONNECTION
WITH
TOTAL AMOUNT REDEMPTIONS
COMMISSIONS RETAINED BY AND
RECEIVED DISTRIBUTORS REPURCHASES
($) ($) ($)
-------------------------------------------------------------------------------
2000 544,385 65,431 41,207

1999 744,659 90,397 39,241

1998 1,307,674 130,573 24,246

Distributors may be entitled to payments from the Fund under the Rule 12b-1
plans, as discussed below. Except as noted, Distributors received no other
compensation from the Fund for acting as underwriter.

DISTRIBUTION AND SERVICE (12B-1) FEES The board has adopted a separate plan
pursuant to Rule 12b-1 for each class. Although the plans differ in some ways
for each class, each plan is designed to benefit the Fund and its shareholders.
The plans are expected to, among other things, increase advertising of the Fund,
encourage sales of the Fund and service to its shareholders, and increase or
maintain assets of the Fund so that certain fixed expenses may be spread over a
broader asset base, resulting in lower per share expense ratios. In addition, a
positive cash flow into the Fund is useful in managing the Fund because the
manager has more flexibility in taking advantage of new investment opportunities
and handling shareholder redemptions.

Under each plan, the Fund pays Distributors or others for the expenses of
activities that are primarily intended to sell shares of the class. These
expenses also may include service fees paid to securities dealers or others who
have executed a servicing agreement with the Fund, Distributors or its
affiliates and who provide service or account maintenance to shareholders
(service fees); the expenses of printing prospectuses and reports used for sales
purposes, and of preparing and distributing sales literature and advertisements;
and a prorated portion of Distributors' overhead expenses related to these
activities. Together, these expenses, including the service fees, are "eligible
expenses." The 12b-1 fees charged to each class are based only on the fees
attributable to that particular class.

THE CLASS A PLAN. The Fund may pay up to 0.25% per year of Class A's average
daily net assets. The Class A plan is a reimbursement plan. It allows the Fund
to reimburse Distributors for eligible expenses that Distributors has shown it
has incurred. The Fund will not reimburse more than the maximum amount allowed
under the plan.

For the fiscal year ended July 31, 2000, the amounts paid by the Fund pursuant
to the plan were:

($)
-------------------------------------------------------------------
Advertising 18,376
Printing and mailing prospectuses other than to
current shareholders 33,162

Payments to underwriters 10,925

Payments to broker-dealers 369,569

Other 37,261
----------
Total 469,293
==========
THE CLASS B AND C PLANS. The Fund pays Distributors up to 1% per year of the
class's average daily net assets, out of which 0.25% may be paid for services
fees to the shareholders (service fees). The Class B and C plans also may be
used to pay Distributors for advancing commissions to securities dealers with
respect to the initial sale of Class B and C shares. Class B plan fees payable
to Distributors are used by Distributors to pay third party financing entities
that have provided financing to Distributors in connection with advancing
commissions to securities dealers. Franklin Resources owns a minority interest
in one of the third party financing entities.

The Class B and C plans are compensation plans. They allow the Fund to pay a fee
to Distributors that may be more than the eligible expenses Distributors has
incurred at the time of the payment. Distributors must, however, demonstrate to
the board that it has spent or has near-term plans to spend the amount received
on eligible expenses. The Fund will not pay more than the maximum amount allowed
under the plans.

Under the Class B plan, the amounts paid by the Fund pursuant to the plan for
the fiscal year ended July 31, 2000, were:

($)
-----------------------------------------------------------------------
Advertising 352

Printing and mailing prospectuses other than to
current shareholders 102

Payments to underwriters 321

Payments to broker-dealers 27,020

Other 515
----------
Total 28,310
==========

Under the Class C plan, the amounts paid by the Fund pursuant to the plan for
the fiscal year ended July 31, 2000, were:

($)
--------------------------------------------------------------------
Advertising 4,319

Printing and mailing prospectuses other than to
current shareholders 4,945

Payments to underwriters 2,606

Payments to broker-dealers 228,775

Other 5,625
---------
Total 246,270
=========

THE CLASS A, B AND C PLANS. In addition to the payments that Distributors or
others are entitled to under each plan, each plan also provides that to the
extent the Fund, the manager or Distributors or other parties on behalf of the
Fund, the manager or Distributors make payments that are deemed to be for the
financing of any activity primarily intended to result in the sale of Fund
shares within the context of Rule 12b-1 under the Investment Company Act of
1940, as amended, then such payments shall be deemed to have been made pursuant
to the plan.

To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks may not
participate in the plans because of applicable federal law prohibiting certain
banks from engaging in the distribution of mutual fund shares. These banks,
however, are allowed to receive fees under the plans for administrative
servicing or for agency transactions.

Distributors must provide written reports to the board at least quarterly on the
amounts and purpose of any payment made under the plans and any related
agreements, and furnish the board with such other information as the board may
reasonably request to enable it to make an informed determination of whether the
plans should be continued.

Each plan has been approved according to the provisions of Rule 12b-1. The terms
and provisions of each plan also are consistent with Rule 12b-1.

PERFORMANCE
-------------------------------------------------------------------------------

Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Average annual total return quotations used by the Fund are based on the
standardized methods of computing performance mandated by the SEC. Performance
figures reflect Rule 12b-1 fees from the date of the plan's implementation. An
explanation of these and other methods used by the Fund to compute or express
performance follows. Regardless of the method used, past performance does not
guarantee future results, and is an indication of the return to shareholders
only for the limited historical period used.

AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by finding
the average annual rates of return over the periods indicated below that would
equate an initial hypothetical $1,000 investment to its ending redeemable value.
The calculation assumes the maximum initial sales charge is deducted from the
initial $1,000 purchase, and income dividends and capital gain distributions are
reinvested at net asset value. The quotation assumes the account was completely
redeemed at the end of each period and the deduction of all applicable charges
and fees. If a change is made to the sales charge structure, historical
performance information will be restated to reflect the maximum initial sales
charge currently in effect.

When considering the average annual total return quotations for Class A and C
shares, you should keep in mind that the maximum initial sales charge reflected
in each quotation is a one time fee charged on all direct purchases, which will
have its greatest impact during the early stages of your investment. This charge
will affect actual performance less the longer you retain your investment in the
Fund. The average annual total returns for the indicated periods ended July 31,
2000, were:

1 YEAR (%) 5 YEARS (%) 10 YEARS (%)
----------------------------------------------------------------
Class A -9.95 -10.81 -3.53

SINCE
INCEPTION
1 YEAR (%) (1/1/99) (%)
----------------------------------------------------------------
Class B -8.69 -1.43

SINCE
INCEPTION
1 YEAR (%) 5 YEARS (%) (5/1/95) (%)
----------------------------------------------------------------
Class C -6.71 -10.54 -9.82

The following SEC formula was used to calculate these figures:

n
P(1+T) = ERV

where:

P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of each period at the
end of each period

CUMULATIVE TOTAL RETURN Like average annual total return, cumulative total
return assumes the maximum initial sales charge is deducted from the initial
$1,000 purchase, income dividends and capital gain distributions are reinvested
at net asset value, the account was completely redeemed at the end of each
period and the deduction of all applicable charges and fees. Cumulative total
return, however, is based on the actual return for a specified period rather
than on the average return over the periods indicated above. The cumulative
total returns for the indicated periods ended July 31, 2000, were:

1 YEAR (%) 5 YEARS (%) 10 YEARS (%)
----------------------------------------------------------------
Class A -9.95 -43.55 -30.21

SINCE
INCEPTION
1 YEAR (%) (1/1/99) (%)
----------------------------------------------------------------
Class B -8.69 -2.25

SINCE
INCEPTION
1 YEARS (%) 5 YEARS (%) (5/1/95) (%)
----------------------------------------------------------------
Class C -6.71 -42.71 -41.88

VOLATILITY Occasionally statistics may be used to show the Fund's volatility or
risk. Measures of volatility or risk are generally used to compare the Fund's
net asset value or performance to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market, as
represented by an index considered representative of the types of securities in
which the fund invests. A beta of more than 1.00 indicates volatility greater
than the market and a beta of less than 1.00 indicates volatility less than the
market. Another measure of volatility or risk is standard deviation. Standard
deviation is used to measure variability of net asset value or total return
around an average over a specified period of time. The idea is that greater
volatility means greater risk undertaken in achieving performance.

OTHER PERFORMANCE QUOTATIONS The Fund also may quote the performance of shares
without a sales charge. Sales literature and advertising may quote a cumulative
total return, average annual total return and other measures of performance with
the substitution of net asset value for the public offering price.

Sales literature referring to the use of the Fund as a potential investment for
IRAs, business retirement plans, and other tax-advantaged retirement plans may
quote a total return based upon compounding of dividends on which it is presumed
no federal income tax applies.

The Fund may include in its advertising or sales material information relating
to investment goals and performance results of funds belonging to Franklin
Templeton Investments. Franklin Resources, Inc. is the parent company of the
advisors and underwriter of Franklin Templeton funds.

COMPARISONS To help you better evaluate how an investment in the Fund may
satisfy your investment goal, advertisements and other materials about the Fund
may discuss certain measures of Fund performance as reported by various
financial publications. Materials also may compare performance (as calculated
above) to performance as reported by other investments, indices, and averages.
These comparisons may include, but are not limited to, the following examples:

o Dow Jones(R) Composite Average and its component averages - a price-weighted
average of 65 stocks. The average is a combination of the Dow Jones Industrial
Average (30 blue-chip stocks that are generally leaders in their industry), the
Dow Jones Transportation Average (20 transportation stocks), and the Dow Jones
Utilities Average (15 utility stocks involved in the production of electrical
energy).

o Standard & Poor's(R) 500 Stock Index or its component indices - a
capitalization-weighted index designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries.

o The New York Stock Exchange composite or component indices - an unmanaged
index of all industrial, utilities, transportation, and finance stocks listed on
the NYSE.

o Wilshire 5000 Equity Index - represents the return on the market value of all
U.S.-headquartered equity securities for which daily pricing is available.
Comparisons of performance assume reinvestment of dividends.

o Lipper - Mutual Fund Performance Analysis and Lipper - Equity Fund Performance
Analysis - measure total return and average current yield for the mutual fund
industry and rank individual mutual fund performance over specified time
periods, assuming reinvestment of all distributions, exclusive of any applicable
sales charges.

o CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.

o Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk, and total return for mutual funds.

o Financial publications: THE WALL STREET JOURNAL, AND BUSINESS WEEK, CHANGING
TIMES, FINANCIAL WORLD, FORBES, FORTUNE, and MONEY MAGAZINES - provide
performance statistics over specified time periods.

o Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services in major expenditure groups.

o STOCKS, BONDS, BILLS, AND INFLATION, published by Ibbotson Associates -
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.

o Savings and Loan Historical Interest Rates - as published in the U.S. Savings
& Loan League Fact Book.

o Historical data supplied by the research departments of CS First Boston
Corporation, the J.P. Morgan(R) Companies, Salomon Smith Barney Inc., Merrill
Lynch, Lehman Brothers(R)and Bloomberg(R)L.P.

o Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect Morningstar's
assessment of the historical risk-adjusted performance of a fund over specified
time periods relative to other funds within its category.

o The Financial Times (FT) Gold Mines Index - a price index intended to
illustrate the trend or "mood" of this market sector, not measure long-term
performance.

From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the Fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.

Advertisements or information also may compare the Fund's performance to the
return on certificates of deposit (CDs) or other investments. You should be
aware, however, that an investment in the Fund involves the risk of fluctuation
of principal value, a risk generally not present in an investment in a CD issued
by a bank. CDs are frequently insured by an agency of the U.S. government. An
investment in the Fund is not insured by any federal, state or private entity.

In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the Fund to calculate its figures. In addition,
there can be no assurance that the Fund will continue its performance as
compared to these other averages.

MISCELLANEOUS INFORMATION
------------------------------------------------------------------------------
The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis to have a
projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
Fund cannot guarantee that these goals will be met.

The Fund is a member of Franklin Templeton Investments, one of the largest
mutual fund organizations in the U.S., and may be considered in a program for
diversification of assets. Founded in 1947, Franklin is one of the oldest mutual
fund organizations and now services approximately 3 million shareholder
accounts. In 1992, Franklin, a leader in managing fixed-income mutual funds and
an innovator in creating domestic equity funds, joined forces with Templeton, a
pioneer in international investing. The Mutual Series team, known for its
value-driven approach to domestic equity investing, became part of the
organization four years later. Together, Franklin Templeton Investments has over
$229 billion in assets under management for more than 5 million U.S. based
mutual fund shareholder and other accounts. Franklin Templeton Investments
offers 107 U.S. based open-end investment companies to the public. The Fund may
identify itself by its Nasdaq symbol or CUSIP number.

Currently, there are more mutual funds than there are stocks listed on the New
York Stock Exchange. While many of them have similar investment goals, no two
are exactly alike. Shares of the Fund are generally sold through securities
dealers, whose investment representatives are experienced professionals who can
offer advice on the type of investments suitable to your unique goals and needs,
as well as the risks associated with such investments.

DESCRIPTION OF RATINGS
-------------------------------------------------------------------------------
CORPORATE BOND RATINGS

MOODY'S INVESTORS SERVICE, INC. (MOODY'S)

INVESTMENT GRADE

Aaa: Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa: Bonds rated Aa are judged to be high quality by all standards. Together with
the Aaa group, they comprise what are generally known as high-grade bonds. They
are rated lower than the best bonds because margins of protection may not be as
large, fluctuation of protective elements may be of greater amplitude, or there
may be other elements present that make the long-term risks appear somewhat
larger.

A: Bonds rated A possess many favorable investment attributes and are considered
upper medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.

Baa: Bonds rated Baa are considered medium-grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. These
bonds lack outstanding investment characteristics and, in fact, have speculative
characteristics as well.

BELOW INVESTMENT GRADE

Ba: Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and, thereby, not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B: Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.

Caa: Bonds rated Caa are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or interest.

Ca: Bonds rated Ca represent obligations that are speculative to a high degree.
These issues are often in default or have other marked shortcomings.

C: Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.

Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.

STANDARD & POOR'S RATINGS GROUP (S&P(R))

INVESTMENT GRADE

AAA: This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.

AA: Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in a small degree.

A: Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.

BELOW INVESTMENT GRADE

BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.

C: Bonds rated C are typically subordinated debt to senior debt that is assigned
an actual or implied CCC- rating. The C rating also may reflect the filing of a
bankruptcy petition under circumstances where debt service payments are
continuing. The C1 rating is reserved for income bonds on which no interest is
being paid.

D: Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.

Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

SHORT-TERM DEBT & COMMERCIAL PAPER RATINGS

MOODY'S

Moody's short-term debt and commercial paper ratings are opinions of the ability
of issuers to repay punctually their promissory obligations not having an
original maturity in excess of nine months. Moody's employs the following
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:

P-1 (Prime-1): Superior capacity for repayment.

P-2 (Prime-2): Strong capacity for repayment.

S&P

S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:

A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.

A-2: Capacity for timely payment on issues with this designation is strong. The
relative degree of safety, however, is not as overwhelming as for issues
designated A-1.

A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.

FRANKLIN
GOLD AND PRECIOUS
METALS FUND

ADVISOR CLASS

[INSERT FRANKLIN TEMPLETON BEN HEAD]

STATEMENT OF ADDITIONAL INFORMATION

P.O. BOX 997151, SACRAMENTO, CA 95899-9983
DECEMBER 1, 2000 1-800/DIAL BEN(R)

-------------------------------------------------------------------------------

For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).

CONTENTS

Goals, Strategies and Risks 2
Officers and Trustees 10
Management and Other Services 12
Portfolio Transactions 14
Distributions and Taxes 15
Organization, Voting Rights
and Principal Holders 16
Buying and Selling Shares 17
Pricing Shares 19
The Underwriter 20
Performance 20
Miscellaneous Information 22
Description of Ratings 22

-------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:

O ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;

O ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK;

O ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

-------------------------------------------------------------------------------
132 SAIA 12/00

GOALS, STRATEGIES AND RISKS
-------------------------------------------------------------------------------
Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when the Fund makes an investment. In most cases, the Fund is
not required to sell a security because circumstances change and the security no
longer meets one or more of the Fund's policies or restrictions. If a percentage
restriction or limitation is met at the time of investment, a later increase or
decrease in the percentage due to a change in the value or liquidity of
portfolio securities will not be considered a violation of the restriction or
limitation.

FUNDAMENTAL INVESTMENT POLICIES

The Fund's principal investment goal is capital appreciation. Its secondary goal
is to provide current income through the receipt of dividends or interest from
its investments.

The Fund may concentrate (invest more than 25% of total assets) in securities of
issuers engaged in mining, processing, or dealing in gold, or other precious
metals.

The Fund may not:

1. Borrow money, except that the Fund may borrow money from banks or affiliated
investment companies to the extent permitted by the 1940 Act, or any exemptions
therefrom which may be granted by the SEC, or for temporary or emergency
purposes and then in an amount not exceeding 33 1\3% of the value of the Fund's
total assets (including the amount borrowed).

3. Act as an underwriter except to the extent the Fund may be deemed to be an
underwriter when disposing of securities it owns or when selling its own shares.

NON-FUNDAMENTAL INVESTMENT POLICIES

The Fund may not:

The Fund also may be subject to investment limitations imposed by foreign
jurisdictions in which the Fund sells its shares.

NON-FUNDAMENTAL INVESTMENTS, TECHNIQUES, STRATEGIES AND THEIR RISKS

In trying to achieve its investment goals, the Fund may invest in the following
types of securities or engage in the following types of transactions:

The following provides more detail about some of the factors that may affect the
price of gold and other precious metals:

ILLIQUID INVESTMENTS Illiquid securities are generally securities that cannot be
sold within seven days in the normal course of business at approximately the
amount at which the Fund has valued them.

TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unfavorable for investors, the manager may invest up to 100% of the Fund's
assets in a temporary defensive manner or hold a substantial portion of its
assets in cash, cash equivalents or other high quality short-term investments.
Unfavorable market or economic conditions may include excessive volatility or a
prolonged general decline in the securities markets, the securities in which the
Fund normally invests, or the economies of the countries where the Fund invests.

OFFICERS AND TRUSTEES
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The Fund has a board of trustees. The board is responsible for the overall
management of the Fund, including general supervision and review of the Fund's
investment activities. The board, in turn, elects the officers of the Fund who
are responsible for administering the Fund's day-to-day operations. The board
also monitors the Fund to ensure no material conflicts exist among share
classes. While none is expected, the board will act appropriately to resolve any
material conflict that may arise.