n-csr_mseries1231152.htm - Generated by SEC Publisher for SEC Filing

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-05387

Franklin Mutual Series Funds

(Exact name of registrant as specified in charter)

101 John F. Kennedy Parkway, Short Hills, NJ 07078-2705

(Address of principal executive offices) (Zip code)

Craig S. Tyle, One Franklin Parkway, San Mateo, CA 94403-1906

(Name and address of agent for service)

Registrant's telephone number, including area code: (210) 912-2100

Date of fiscal year end: _12/31

Date of reporting period: 12/31/15_

Item 1. Reports to Stockholders.

Annual Report

Franklin Mutual Beacon Fund

This annual report for Franklin Mutual Beacon Fund covers the fiscal year ended December 31, 2015.

Your Fund’s Goals and Main Investments

The Fund seeks capital appreciation, which may occasionally be short term, with income as a secondary goal, by investing primarily in equity securities of companies that we believe are at prices below their intrinsic value. The Fund may invest up to 35% of its assets in foreign securities.

Performance Overview

The Fund’s Class Z shares had a -4.14% cumulative total return for the 12 months ended December 31, 2015. In comparison, the Fund’s benchmark, the Standard & Poor’s 500 Index (S&P 500^®), which is a broad measure of U.S. stock performance, posted a +1.38% total return, and the MSCI World Index, which tracks stock performance in global developed markets, had a -0.32% total return.¹You can find more of the Fund’s performance data in the Performance Summary beginning on page 8.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

Economic and Market Overview

U.S. economic growth slowed in 2015’s first quarter but strengthened in 2015’s second quarter amid healthy consumer spending. The third and fourth quarters were less robust as exports slowed and state and local governments reduced their spending. At its December meeting, the U.S. Federal Reserve (Fed) increased its target range for the federal funds rate to 0.25%–0.50%, as policymakers cited the labor market’s considerable improvement and were reasonably confident that inflation would move back to the Fed’s 2% medium-term objective. Furthermore, the Fed raised its forecast for 2016 U.S. economic growth and lowered its unemployment projection. Despite periods of volatility, the broad U.S. stock market, as measured by the S&P 500, generated a modest positive total return for 2015.

*Figures are stated as a percentage of total and may not equal 100% or may be negative due to rounding, use of any derivatives, unsettled trades or other factors. The Fund held 34.4% of total net assets in foreign securities.

1. Source: Morningstar.
The indexes are unmanaged and include reinvestment of any income or distributions. One cannot invest directly in an index, and an index is not representative of the
Fund’s portfolio.

The dollar value, number of shares or principle amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).
The SOI begins on page 20.

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raising interest rates. Toward period-end, equity markets recovered somewhat as the Fed increased its federal funds target range, alleviating some uncertainty about a change in the U.S. monetary policy. During the year, oil prices declined sharply largely due to increased global supply that exceeded demand. Gold and other commodity prices also fell. The U.S. dollar appreciated against most currencies during the period, which reduced returns of many foreign assets in U.S. dollar terms.

In Europe, U.K. economic growth gained momentum from the services sector, but the economy slowed in 2015 compared with 2014. The eurozone grew moderately and generally benefited during the year from lower oil prices, a weaker euro that supported exports, the European Central Bank’s (ECB’s) accommodative policy and expectations of further ECB stimulus. Although the eurozone’s annual inflation rate declined early in the period, it rose slightly during the rest of the period. The ECB maintained its benchmark interest rates although it reduced its bank deposit rate in December, seeking to boost the region’s slowing growth.

Japan’s economy continued to grow in 2015’s first quarter. After a decline in the second quarter of 2015, it expanded in the third quarter as capital expenditures improved. The Bank of Japan took several actions during the reporting period, including maintaining its monetary policy, lowering its economic growth and inflation forecasts, and reorganizing its stimulus program to increase exposure to long-term government bonds and exchange-traded funds.

China’s economy grew at a less robust pace in 2015 than in 2014, as strength in services and consumption was offset by weakness in fixed-asset investment, imports and exports, and manufacturing. The Chinese government’s efforts to promote stable growth supported China’s domestic stock market in 2015’s first half. However, tight liquidity conditions and uncertainties about the central bank’s monetary policy led China’s domestic market to correct from June through August, contributing to a global stock market correction. The government’s intervention to cool domestic stock market speculation and its effective currency devaluation led to a severe slump in emerging market stocks from June through August. Although equities in China and most other emerging markets gained in October after China expanded its monetary and fiscal stimulus, they generally declined for the remainder of the year amid concerns about declining commodity prices and China’s moderating economy.

Investment Strategy

At Franklin Mutual Series, we are committed to our distinctive value approach to investing, which we believe can generate above-average risk-adjusted returns over time for our shareholders. Our major investment strategy is investing in undervalued stocks. When selecting undervalued equities, we are attracted to what we believe are fundamentally strong companies with healthy balance sheets, high-quality assets, substantial free cash flow and shareholder-oriented management teams and whose stocks are trading at discounts to our assessment of the companies’ intrinsic or business value. We also look for asset-rich companies whose shares may be trading at depressed levels due to concerns over short-term earnings disappointments, litigation, management strategy or other perceived negatives. This strict value approach is not only intended to improve the likelihood of upside potential, but it is also intended to reduce the risk of substantial declines. While the vast majority of our undervalued equity investments are made in publicly traded companies globally, we may invest occasionally in privately held companies as well.

We complement this more traditional investment strategy with two others. One is distressed investing, a highly specialized field that has proven quite profitable during certain periods over the years. Distressed investing is complex and can take many forms. The most common distressed investment the Fund undertakes is the purchase of financially troubled or bankrupt companies’ debt at a substantial discount to face value. After the financially distressed company is reorganized, often in bankruptcy court, the old debt is typically replaced with new securities issued by the financially stronger company.

The other piece of our investment strategy is participating in arbitrage situations, another highly specialized field. When companies announce proposed mergers or takeovers, commonly referred to as “deals,” the target company may trade at a discount to the bid it ultimately accepts. One form of arbitrage involves purchasing the target company’s stock when it is trading below the value we believe it would receive in a deal. In keeping with our commitment to a relatively conservative


Top 10 Sectors/Industries
Based on Equity Securities as of 12/31/15
	% of Total
	Net Assets
Banks	11.0	%
Pharmaceuticals	10.9	%
Software	10.9	%
Media	9.8	%
Insurance	5.3	%
Health Care Equipment & Supplies	5.1	%
Tobacco	4.5	%
Communications Equipment	4.3	%
Diversified Telecommunication Services	3.3	%
Technology Hardware, Storage & Peripherals	3.2	%

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investment approach, we typically focus our arbitrage efforts on announced deals, and eschew rumored deals or other situations we consider relatively risky.

In addition, it is our practice to hedge the Fund’s currency exposure when we deem it advantageous for our shareholders.

What is meant by “hedge”?

To hedge an investment is to take a position intended to offset potential losses/gains that may be incurred by a companion financial instrument.

Manager’s Discussion

During the 12 months under review, stocks in most global markets declined after a three-year ascent. Globally, several major central banks became more accommodative while fiscal authorities focused on budgetary discipline. Large companies also remained disciplined about operating costs, with margins at historically high levels in many industries and countries. To drive further growth, an increasing number of companies took advantage of low interest rates to finance deals. In this environment, we saw a number of opportunities.

Equity prices are typically forward looking, reflecting investors’ beliefs about how various factors and events will play out in the future. Global equity prices at period-end were down from mid-2015 highs, reflecting increased uncertainty among global investors regarding China and other emerging markets, global commodity prices, U.S. monetary policy divergence and geopolitical events. However, with the support of global quantitative easing, many corporations have been able to build strong balance sheets, focus intensely on improving efficiency, maintain historically high margins and return a significant amount of capital to shareholders.

Merger and acquisition (M&A) activity accelerated in the past 12 months, helping to support valuations. Deal volumes reached historical highs and regulators globally increased their scrutiny of potential negative effects of high concentration. Such an environment — active M&A combined with regulatory uncertainty, greater complexity and market volatility — may provide attractive investment opportunities. We seek to use a mixture of merger arbitrage positions and investments in one or both of the companies to participate in these opportunities. The traditional merger arbitrage positions are constructed solely to benefit from deal completion, while unhedged investments in one or both companies can allow the Fund to benefit from possible value creation once the deal is completed.

Distressed debt remained a difficult market in which we could find compelling new opportunities. Low interest rates have kept credit widely available, and we felt bankruptcies were limited, except in the energy and mining sectors. Increased stress in high yield markets, particularly in energy credit, has expanded the potential opportunity set for us. For non-energy firms, costs of issuing debt are climbing and these debt securities are starting to look attractive to us. Within energy, declining commodity prices increased financial pressures for a growing number of issuers. At year-end, a record level of crude oil inventories and insistence by Saudi Ara-bia that it will not reduce production provide little reason to expect a quick recovery in crude oil prices, implying to us an increased likelihood of new investment opportunities in energy sector debt.

Turning to Fund performance, top contributors included phar-maeutical company Hospira,²telecommunications provider Koninklijke KPN and multinational software company Microsoft.

Hospira is a global pharmaceutical and medical device company specializing in injectable generic drugs and biosimilars — drugs highly similar to medications licensed by other firms. Shares rose


Top 10 Equity Holdings
12/31/15
Company	% of Total
*Sector/Industry, Country*	Net Assets
Medtronic PLC	3.6	%
Health Care Equipment & Supplies, U.S.
Microsoft Corp.	3.6	%
Software, U.S.
JPMorgan Chase & Co.	3.3	%
Banks, U.S.
Koninklijke KPN NV	3.3	%
Diversified Telecommunication Services, Netherlands
British American Tobacco PLC	3.3	%
Tobacco, U.K.
Merck & Co. Inc.	3.3	%
Pharmaceuticals, U.S.
Wells Fargo & Co.	3.2	%
Banks, U.S.
Samsung Electronics Co. Ltd.	3.2	%
Technology Hardware, Storage & Peripherals, South Korea
Vodaphone Group PLC	2.9	%
Wireless Telecommunication Services, U.K.
Symantec Corp.	2.8	%
Software, U.S.

2. Not held at period-end.

See www.franklintempletondatasources.com for additional data provider information.

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sharply in early February following the announcement that Pfizer had reached an agreement to acquire Hospira. We believed the deal, which closed in early September, made sense as Hospira offered Pfizer a strong leadership position in injectables and an attractive high-growth generics market, and the deal positioned Pfizer as a top-tier biosimilars company with a strong pipeline. This acquisition news was in line with our views on industry consolidation and more specifically on Hospira as a highly attractive asset in the generics industry.

KPN is the incumbent telecommunications operator in the Netherlands. In July, management raised 2015 earnings and free cash flow guidance while announcing a special dividend that would redistribute the substantial dividend KPN received from Telefonica Deutschland. KPN holds a stake in Telefonica Deutschland that stems from a 2014 sale of its German E-Plus unit. In April, KPN sold BASE Company, a Belgium-based mobile business, as part of an ongoing process to simplify its structure to focus on its core business and improve operating performance. We also viewed positively KPN’s selection of its new chairman in February 2015 because of his management record in the industry.

Shares of Microsoft rose as earnings improved and the company’s cloud computing services gained momentum. In April and October, Microsoft’s quarterly earnings exceeded consensus estimates despite a challenging environment for personal computer sales. Revenue outperformance and cost controls helped drive the solid results, highlighted by the strong performance of Microsoft’s cloud computing operations, which include Azure and Office365. We believe Microsoft’s cloud computing business has the potential to grow and become increasingly profitable as technology users become more comfortable relying on cloud infrastructure and applications. Supporting this belief were the company’s assertions that the growth in Office365 subscriptions began to fully offset the decline in transactional, one-time license purchases. October’s quarterly results also showed strength in the adoption of Microsoft’s new Windows 10 operating system.

During the period under review, some of the Fund’s investments that negatively affected performance were mining company Tronox, natural resources company Freeport-McMoRan and oil and gas exploration and production company Marathon Oil.

Tronox mines and processes minerals, including titanium ore, zircon and trona ore, and manufactures titanium dioxide pigments. Tronox shares declined early in 2015 as investors were disappointed in the company’s acquisition of what we viewed as the attractive but low-growth alkali chemicals business of FMC. The deal provided Tronox a tangible path to increase monetization of its substantial tax losses but leveraged the company and may have disappointed some investors who anticipated a sale of Tronox. During the year, titanium dioxide prices declined more than we anticipated, due to ongoing oversupply and demand weakness. Furthermore, unfavorable currency rates exacerbated the price slide. We believe investors have been generally overlooking the attractive and relatively stable soda ash business, underestimating potential substantial tax benefits and viewing the company’s balance sheet too negatively, where in our view the debt structure and covenants allow the company to maneuver to the benefit of shareholders, despite relatively high leverage.

Shares of Freeport McMoRan were primarily affected by steeply falling commodity prices in 2015, such as for copper, crude oil and natural gas. Investor uncertainty regarding the company’s negotiations with Indonesia’s government also hurt the stock price. The two sides agreed to a six-month export permit extension in late July, but other important matters remained outstanding at year-end, including every-other-year negotiations of a labor contract and the long-term operating rights and investment plans of the company’s Indonesia unit. The company took steps to strengthen its financial position, including a significant cut in its 2016–2017 capital investment budget, the suspension of its dividend and an agreement with creditors to ease covenants on a $4 billon term loan, announced in December.

Marathon Oil’s stock price closely followed the decline in crude oil. In October, Marathon Oil announced a dividend cut, a move that preserves capital and puts the company’s capital allocation policies more in line with its exploration and production peer group, in our analysis. We believed this move could allow for a smaller reduction in capital spending and a corresponding improvement in its production profile, which we welcomed given the returns available from the company’s resource base. The company also announced a significant reduction in its deepwater exploration program, an action we viewed favorably given the program’s lackluster returns in recent years. We continued to believe that Marathon Oil’s relatively low-cost assets would enable it to weather the current downturn with the potential to generate strong returns if the environment improves.

During the year, the Fund held currency forwards and futures to hedge the currency risk of the portfolio’s non-U.S. dollar investments. The currency forwards had a positive impact on the Fund’s performance, and currency futures had a negligible impact.

What is a currency forward contract?

A currency forward contract, or a currency forward, is an agreement between the Fund and a counterparty to buy or sell a foreign currency at a specific exchange rate on a future date.

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What is a futures contract?

A futures contract, or a future, is an agreement between the Fund and a counterparty made through a U.S. or foreign futures exchange to buy or sell an underlying instrument or asset at a specific price on a future date.

Thank you for your continued participation in Franklin Mutual Beacon Fund. We look forward to continuing to serve your investment needs.

CFA^®is a trademark owned by CFA Institute.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2015, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

Christian Correa has been portfolio manager for Franklin Mutual Beacon Fund since 2007 and a co-portfolio manager since December 2010. He joined Franklin Templeton Investments in 2003 and serves as Director of Research for Franklin Mutual Advisers. Previously, he covered merger arbitrage and special situations at Lehman Brothers Holdings Inc.

Mandana Hormozi has been a co-portfolio manager for Franklin Mutual Beacon Fund since 2010 and was assistant portfolio manager for the Fund since 2009. Before that, she was assistant portfolio manager for Franklin Mutual Global Discovery Fund since 2007. She has been an analyst for Franklin Mutual Advisers since 2003, when she joined Franklin Templeton Investments. Previously, she was a senior vice president in the equity research department at Lazard Freres. Also, she was an economic research analyst at Mitsubishi Bank.

Aman Gupta has been assistant portfolio manager for Franklin Mutual Beacon Fund since December 2013 and has been an analyst for Franklin Mutual Advisers since 2010. Previously, Mr. Gupta was a senior equity analyst and director at Evergreen Investments, where he covered the health care industry with additional responsibilities in the consumer and industrials sectors.

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Performance Summary as of December 31, 2015

Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses.


Net Asset Value

Share Class (Symbol)		12/31/15		12/31/14		Change
Z (BEGRX)	$	14.30	$	16.59	-$	2.29
A (TEBIX)	$	14.20	$	16.47	-$	2.27
C (TEMEX)	$	14.10	$	16.36	-$	2.26
R (N/A)	$	14.05	$	16.33	-$	2.28
R6 (FMBRX)	$	14.30	$	16.58	-$	2.28


Distributions¹(1/1/15–12/31/15)

		Dividend		Long-Term
Share Class		Income		Capital Gain		Total
Z	$	0.3665	$	1.2151	$	1.5816
A	$	0.3211	$	1.2151	$	1.5362
C	$	0.2005	$	1.2151	$	1.4156
R	$	0.2930	$	1.2151	$	1.5081
R6	$	0.3827	$	1.2151	$	1.5978

See page 12 for Performance Summary footnotes.

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Performance as of 12/31/15²

Cumulative total return excludes sales charges. Average annual total return and value of $10,000 investment include maximum sales charges. Class Z/R/R6: no sales charges; Class A: 5.75% maximum initial sales charge; Class C: 1% contingent deferred sales charge in first year only.


	Cumulative		Average Annual			Value of $10,000	Total Annual
Share Class	Total Return³		Total Return⁴			Investment⁵	Operating Expenses⁶
Z							0.83	%
1-Year	-4.14	%	-4.14	%	$	9,586
5-Year	+50.64	%	+8.54	%	$	15,064
10-Year	+61.47	%	+4.91	%	$	16,147
A							1.13	%
1-Year	-4.33	%	-9.80	%	$	9,020
5-Year	+48.40	%	+6.94	%	$	13,983
10-Year	+56.78	%	+3.98	%	$	14,778
C							1.83	%
1-Year	-5.06	%	-5.92	%	$	9,408
5-Year	+43.30	%	+7.46	%	$	14,330
10-Year	+46.24	%	+3.87	%	$	14,624
R							1.33	%
1-Year	-4.61	%	-4.61	%	$	9,539
5-Year	+46.85	%	+7.99	%	$	14,685
Since Inception (10/30/09)	+72.59	%	+9.25	%	$	17,259
R6							0.74	%
1-Year	-3.98	%	-3.98	%	$	9,602
Since Inception (5/1/13)	+19.94	%	+7.05	%	$	11,994

See page 12 for Performance Summary footnotes.

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PERFORMANCE SUMMARY

Total Return Index Comparison for a Hypothetical $10,000 Investment²(continued)

All investments involve risks, including possible loss of principal. Value securities may not increase in price as anticipated or may decline further in value. The Fund’s investments in smaller company stocks and foreign securities involve special risks. Smaller company stocks have exhibited greater price volatility than larger company stocks, particularly over the short term. Foreign securities risks include currency fluctuations, and economic and political uncertainties. The Fund may also invest in companies engaged in mergers, reorganizations or liquidations, which involve special risks as pending deals may not be completed on time or on favorable terms, as well as lower rated bonds, which entail higher credit risk. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

Class Z:

Class C:

Class R:

Class R6:

Shares are available to certain eligible investors as described in the prospectus.

These shares have higher annual fees and expenses than Class A shares.

Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares.

Shares are available to certain eligible investors as described in the prospectus.

1. The distribution amount is the sum of the dividend payments to shareholders for the period shown and includes only estimated tax-basis net investment income and
capital gain.
2. The Fund has a fee waiver associated with any investment in a Franklin Templeton money fund, contractually guaranteed through at least its current fiscal year-end. Fund
investment results reflect the fee waiver, to the extent applicable; without this reduction, the results would have been lower.
3. Cumulative total return represents the change in value of an investment over the periods indicated.
4. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not
been annualized.
5. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.
6. Figures are as stated in the Fund’s current prospectus. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to
become higher than the figures shown.
7. Source: Morningstar. The S&P 500 is a market capitalization-weighted index of 500 stocks designed to measure total U.S. equity market performance.
See www.franklintempletondatasources.com for additional data provider information.

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Your Fund’s Expenses

As a Fund shareholder, you can incur two types of costs:

Transaction costs, including sales charges (loads) on Fund purchases; and
Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.

Actual Fund Expenses

The first line (Actual) for each share class listed in the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of Fund expenses.

You can estimate the expenses you paid during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.

If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Expenses Paid During Period.”

If Expenses Paid During Period were $7.50, then 8.6 × $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical “Ending Account Value” is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Expenses Paid During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transaction costs, such as sales charges. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.

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YOUR FUND’S EXPENSES


		Beginning Account		Ending Account		Expenses Paid During
Share Class		Value 7/1/15		Value 12/31/15		*Period 7/1/15–12/31/15**
Z
Actual	$	1,000	$	929.50	$	4.04
Hypothetical (5% return before expenses)	$	1,000	$	1,021.02	$	4.23
A
Actual	$	1,000	$	928.50	$	5.30
Hypothetical (5% return before expenses)	$	1,000	$	1,019.71	$	5.55
C
Actual	$	1,000	$	924.60	$	8.88
Hypothetical (5% return before expenses)	$	1,000	$	1,015.98	$	9.30
R
Actual	$	1,000	$	926.70	$	6.46
Hypothetical (5% return before expenses)	$	1,000	$	1,018.50	$	6.77
R6
Actual	$	1,000	$	929.90	$	3.50
Hypothetical (5% return before expenses)	$	1,000	$	1,021.58	$	3.67

*Expenses are calculated using the most recent six-month expense ratio, net of expense waivers, annualized for each class (Z: 0.83%; A: 1.09%; C: 1.83%; R: 1.33%; and R6: 0.72%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

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Financial Highlights
					Year Ended December 31,
		2015			2014			2013			2012			2011
Class Z
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	16.59		$	16.91		$	13.36		$	11.68		$	12.32
Income from investment operations^a:
Net investment income^b		0.29			0.54	^c		0.31			0.24			0.28
Net realized and unrealized gains (losses)		(0.99	)		0.62			3.56			1.68			(0.57	)
Total from investment operations		(0.70	)		1.16			3.87			1.92			(0.29	)
Less distributions from:
Net investment income		(0.37	)		(0.69	)		(0.32	)		(0.24	)		(0.35	)
Net realized gains		(1.22	)		(0.79	)		—			—			—
Total distributions		(1.59	)		(1.48	)		(0.32	)		(0.24	)		(0.35	)
Net asset value, end of year	$	14.30		$	16.59		$	16.91		$	13.36		$	11.68

Total return		(4.14	)%		6.82	%		29.11	%		16.44	%		(2.15	)%

Ratios to average net assets
Expenses^d		0.84	%^e,f		0.83	%^e		0.80	%^e		0.84	%		0.84	%
Expenses incurred in connection with securities sold short		0.04	%		0.04	%		—%^g			0.01	%		—%^g
Net investment income		1.73	%		3.14	%^c		2.02	%		1.87	%		2.24	%

Supplemental data
Net assets, end of year (000’s)	$	2,420,165		$	2,774,929		$	2,876,322		$	2,450,546		$	2,423,177
Portfolio turnover rate		35.80	%		40.06	%		32.95	%		43.23	%		51.38	%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases
of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^bBased on average daily shares outstanding.
^cNet investment income per share includes approximately $0.24 per share received in the form of a special dividend paid in connection with certain Fund’s holdings. Excluding
this amount, the ratio of net investment income to average net assets would have been 1.74%.
^dIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(e).
^eBenefit of expense reduction rounds to less than 0.01%.
^fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
^gRounds to less than 0.01%.

franklintempleton.com The accompanying notes are an integral part of these consolidated financial statements. | Annual Report 15

FRANKLIN MUTUAL BEACON FUND
FINANCIAL H IGHLIGHTS


					Year Ended December 31,
		2015			2014			2013			2012			2011
Class A
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	16.47		$	16.80		$	13.28		$	11.61		$	12.24
Income from investment operations^a:
Net investment income^b		0.24			0.49	^c		0.26			0.20			0.24
Net realized and unrealized gains (losses)		(0.97	)		0.60			3.54			1.67			(0.56	)
Total from investment operations		(0.73	)		1.09			3.80			1.87			(0.32	)
Less distributions from:
Net investment income		(0.32	)		(0.63	)		(0.28	)		(0.20	)		(0.31	)
Net realized gains		(1.22	)		(0.79	)		—			—			—
Total distributions		(1.54	)		(1.42	)		(0.28	)		(0.20	)		(0.31	)
Net asset value, end of year	$	14.20		$	16.47		$	16.80		$	13.28		$	11.61

Total return^d		(4.33	)%		6.48	%		28.70	%		16.10	%		(2.50	)%

Ratios to average net assets
Expenses^e		1.12	%^f,g		1.13	%^f		1.10	%^f		1.14	%		1.14	%
Expenses incurred in connection with securities sold short		0.04	%		0.04	%		—%^h			0.01	%		—%^h
Net investment income		1.45	%		2.84	%^c		1.72	%		1.57	%		1.94	%

Supplemental data
Net assets, end of year (000’s)	$	1,019,568		$	1,101,706		$	1,148,409		$	983,981		$	1,062,477
Portfolio turnover rate		35.80	%		40.06	%		32.95	%		43.23	%		51.38	%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases
of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^bBased on average daily shares outstanding.
^cNet investment income per share includes approximately $0.24 per share received in the form of a special dividend paid in connection with certain Fund’s holdings. Excluding
this amount, the ratio of net investment income to average net assets would have been 1.44%.
^dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
^eIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(e).
^fBenefit of expense reduction rounds to less than 0.01%.
^gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
^hRounds to less than 0.01%.

16 Annual Report | The accompanying notes are an integral part of these consolidated financial statements. franklintempleton.com

FRANKLIN MUTUAL BEACON FUND
FINANCIAL HIGHLIGHTS


					Year Ended December 31,
		2015			2014			2013			2012			2011
Class C
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	16.36		$	16.70		$	13.21		$	11.54		$	12.16
Income from investment operations^a:
Net investment income^b		0.12			0.37	^c		0.15			0.11			0.15
Net realized and unrealized gains (losses)		(0.96	)		0.59			3.51			1.66			(0.55	)
Total from investment operations		(0.84	)		0.96			3.66			1.77			(0.40	)
Less distributions from:
Net investment income		(0.20	)		(0.51	)		(0.17	)		(0.10	)		(0.22	)
Net realized gains		(1.22	)		(0.79	)		—			—			—
Total distributions		(1.42	)		(1.30	)		(0.17	)		(0.10	)		(0.22	)
Net asset value, end of year	$	14.10		$	16.36		$	16.70		$	13.21		$	11.54

Total return^d		(5.06	)%		5.78	%		27.79	%		15.29	%		(3.15	)%

Ratios to average net assets
Expenses^e		1.84	%^f,g		1.83	%^f		1.80	%^f		1.84	%		1.84	%
Expenses incurred in connection with securities sold short		0.04	%		0.04	%		—%^h			0.01	%		—%^h
Net investment income		0.73	%		2.14	%^c		1.02	%		0.87	%		1.24	%

Supplemental data
Net assets, end of year (000’s)	$	285,333		$	320,832		$	336,222		$	295,958		$	315,390
Portfolio turnover rate		35.80	%		40.06	%		32.95	%		43.23	%		51.38	%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases
of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^bBased on average daily shares outstanding.
^cNet investment income per share includes approximately $0.24 per share received in the form of a special dividend paid in connection with certain Fund’s holdings. Excluding
this amount, the ratio of net investment income to average net assets would have been 0.74%.
^dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
^eIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(e).
^fBenefit of expense reduction rounds to less than 0.01%.
^gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
^hRounds to less than 0.01%.

franklintempleton.com The accompanying notes are an integral part of these consolidated financial statements. | Annual Report 17

FRANKLIN MUTUAL BEACON FUND
FINANCIAL H IGHLIGHTS


					Year Ended December 31,
		2015			2014			2013			2012			2011
Class R
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	16.33		$	16.68		$	13.19		$	11.52		$	12.16
Income from investment operations^a:
Net investment income^b		0.20			0.44	^c		0.23			0.18			0.21
Net realized and unrealized gains (losses)		(0.97	)		0.61			3.50			1.66			(0.55	)
Total from investment operations		(0.77	)		1.05			3.73			1.84			(0.34	)
Less distributions from:
Net investment income		(0.29	)		(0.61	)		(0.24	)		(0.17	)		(0.30	)
Net realized gains		(1.22	)		(0.79	)		—			—			—
Total distributions		(1.51	)		(1.40	)		(0.24	)		(0.17	)		(0.30	)
Net asset value, end of year	$	14.05		$	16.33		$	16.68		$	13.19		$	11.52

Total return		(4.61	)%		6.31	%		28.34	%		15.95	%		(2.69	)%

Ratios to average net assets
Expenses^d		1.34	%^e,f		1.33	%^e		1.30	%^e		1.34	%		1.34	%
Expenses incurred in connection with securities sold short		0.04	%		0.04	%		—%^g			0.01	%		—%^g
Net investment income		1.23	%		2.64	%^c		1.52	%		1.37	%		1.74	%

Supplemental data
Net assets, end of year (000’s)	$	2,343		$	2,246		$	1,956		$	1,905		$	2,039
Portfolio turnover rate		35.80	%		40.06	%		32.95	%		43.23	%		51.38	%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases
of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^bBased on average daily shares outstanding.
^cNet investment income per share includes approximately $0.24 per share received in the form of a special dividend paid in connection with certain Fund’s holdings. Excluding
this amount, the ratio of net investment income to average net assets would have been 1.24%.
^dIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(e).
^eBenefit of expense reduction rounds to less than 0.01%.
^fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
^gRounds to less than 0.01%.

18 Annual Report | The accompanying notes are an integral part of these consolidated financial statements. franklintempleton.com

FRANKLIN MUTUAL BEACON FUND
FINANCIAL H IGHLIGHTS


		Year Ended December 31,
		2015			2014			2013	^a
Class R6
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	16.58		$	16.88		$	14.77
Income from investment operations^b:
Net investment income^c		0.30			0.56	^d		0.24
Net realized and unrealized gains (losses)		(0.98	)		0.63			2.21
Total from investment operations		(0.68	)		1.19			2.45
Less distributions from:
Net investment income		(0.38	)		(0.70	)		(0.34	)
Net realized gains		(1.22	)		(0.79	)		—
Total distributions		(1.60	)		(1.49	)		(0.34	)
Net asset value, end of year	$	14.30		$	16.58		$	16.88

Total return^e		(3.98	)%		6.91	%		16.83	%

Ratios to average net assets^f
Expenses before waiver, payments by affiliates and expense reduction^g		0.74	%		0.74	%		2.10	%
Expenses net of waiver, payments by affiliates and expense reduction^g,h		0.74	%ⁱ		0.74	%		0.71	%
Expenses incurred in connection with securities sold short		0.04	%		0.04	%		—%^j
Net investment income		1.83	%		3.23	%^d		2.11	%

Supplemental data
Net assets, end of year (000’s)	$	48,844		$	50,868		$	6
Portfolio turnover rate		35.80	%		40.06	%		32.95	%

^aFor the period May 1, 2013 (effective date) to December 31, 2013.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases
of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dNet investment income per share includes approximately $0.24 per share received in the form of a special dividend paid in connection with certain Fund’s holdings. Excluding
this amount, the ratio of net investment income to average net assets would have been 1.83%.
^eTotal return is not annualized for periods less than one year.
^fRatios are annualized for periods less than one year.
^gIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(e).
^hBenefit of expense reduction rounds to less than 0.01%.
ⁱBenefit of waiver and payments by affiliates rounds to less than 0.01%.
^jRounds to less than 0.01%.

franklintempleton.com The accompanying notes are an integral part of these consolidated financial statements. | Annual Report 19


FRANKLIN MUTUAL BEACON FUND



Statement of Investments, December 31, 2015
	Country	Shares		Value
Common Stocks and Other Equity Interests 89.3%
Aerospace & Defense 2.1%
^aKLX Inc	United States	2,576,340	$	79,325,510
Auto Components 0.3%
^a,bInternational Automotive Components Group Brazil LLC	Brazil	2,846,329		29,269
^a,b,cInternational Automotive Components Group North America LLC	United States	22,836,904		12,328,845
				12,358,114
Banks 11.0%
Barclays PLC	United Kingdom	16,380,136		52,850,122
JPMorgan Chase & Co	United States	1,911,470		126,214,364
Societe Generale SA	France	1,573,970		72,782,989
Standard Chartered PLC	United Kingdom	4,970,186		41,295,564
Wells Fargo & Co	United States	2,226,980		121,058,633
				414,201,672
Beverages 2.0%
Molson Coors Brewing Co., B	United States	243,220		22,843,222
PepsiCo Inc	United States	528,267		52,784,439
				75,627,661
Chemicals 1.1%
The Chemours Co. LLC	United States	3,571,419		19,142,806
^a,d,eDow Corning Corp., Contingent Distribution	United States	12,598,548		—
^fTronox Ltd., A	United States	5,968,680		23,337,539
				42,480,345
Communications Equipment 4.3%
Cisco Systems Inc	United States	3,011,612		81,780,324
Nokia Corp., ADR	Finland	11,395,524		79,996,578
				161,776,902
Construction & Engineering 1.3%
Sinopec Engineering Group Co. Ltd	China	58,345,700		49,837,556
Consumer Finance 2.1%
Capital One Financial Corp	United States	1,094,900		79,029,882
Diversified Telecommunication Services 3.3%
^a,d,eGlobal Crossing Holdings Ltd., Contingent Distribution	United States	60,632,757		—
Koninklijke KPN NV	Netherlands	33,100,190		125,555,143
				125,555,143
Energy Equipment & Services 2.0%
Baker Hughes Inc	United States	1,624,730		74,981,289
Food & Staples Retailing 2.7%
Walgreens Boots Alliance Inc	United States	1,177,451		100,265,840
Health Care Equipment & Supplies 5.1%
Medtronic PLC	United States	1,762,955		135,606,499
Stryker Corp	United States	611,166		56,801,768
				192,408,267
Insurance 5.3%
The Allstate Corp	United States	1,257,706		78,090,966
RSA Insurance Group PLC	United Kingdom	2,471,679		15,537,954
White Mountains Insurance Group Ltd	United States	146,141		106,216,740
				199,845,660

20 Annual Report

franklintempleton.com

FRANKLIN MUTUAL BEACON FUND
STATEMENT O F INVESTMENTS


	Country	Shares		Value
Common Stocks and Other Equity Interests (continued)
IT Services 1.5%
Xerox Corp	United States	5,412,419	$	57,534,014
Machinery 1.8%
Caterpillar Inc	United States	976,280		66,347,989
Media 9.8%
Cablevision Systems Corp., A	United States	341,765		10,902,304
^aLiberty Global PLC, C	United Kingdom	1,435,540		58,526,966
Relx PLC	United Kingdom	2,648,846		46,734,068
Time Warner Cable Inc	United States	424,034		78,696,470
Time Warner Inc	United States	1,351,872		87,425,562
Twenty-First Century Fox Inc., B	United States	3,167,258		86,244,435
				368,529,805
Metals & Mining 0.9%
Freeport-McMoRan Inc., B	United States	4,967,519		33,630,103
^a,b,fPMG LLC	United States	5,455		213,055
				33,843,158
Oil, Gas & Consumable Fuels 1.6%
Marathon Oil Corp	United States	4,867,611		61,283,222
Pharmaceuticals 10.9%
Eli Lilly & Co	United States	955,382		80,500,487
GlaxoSmithKline PLC	United Kingdom	2,531,877		51,238,437
Merck & Co. Inc	United States	2,342,630		123,737,717
Novartis AG, ADR	Switzerland	1,118,303		96,218,790
Teva Pharmaceutical Industries Ltd., ADR	Israel	934,567		61,344,978
				413,040,409
Software 10.9%
CA Inc	United States	2,175,056		62,119,599
^aCheck Point Software Technologies Ltd	Israel	613,666		49,940,139
Microsoft Corp	United States	2,444,092		135,598,224
Open Text Corp	Canada	1,158,530		55,528,343
Symantec Corp	United States	5,067,402		106,415,442
				409,601,747
Specialty Retail 0.5%
^aOffice Depot Inc	United States	3,481,770		19,637,183
Technology Hardware, Storage & Peripherals 1.4%
Samsung Electronics Co. Ltd	South Korea	49,616		53,191,209
Tobacco 4.5%
British American Tobacco PLC	United Kingdom	2,236,965		124,336,446
Reynolds American Inc	United States	1,016,111		46,893,523
				171,229,969
Wireless Telecommunication Services 2.9%
Vodafone Group PLC	United Kingdom	33,931,619		110,529,851
Total Common Stocks and Other Equity Interests
(Cost $2,935,567,509)				3,372,462,397

franklintempleton.com

Annual Report

FRANKLIN MUTUAL BEACON FUND
STATEMENT O F INVESTMENTS


	Country		Shares		Value
Preferred Stocks 4.1%
Automobiles 2.3%
Porsche Automobil Holding SE, pfd	Germany		314,400	$	17,079,265
Volkswagen AG, pfd	Germany		478,500		69,519,320
					86,598,585
Technology Hardware, Storage & Peripherals 1.8%
Samsung Electronics Co. Ltd., pfd	South Korea		72,001		66,836,061
Total Preferred Stocks (Cost $136,345,028)					153,434,646

			Principal
			Amount
Corporate Notes and Senior Floating Rate Interests 0.8%
^g,hCengage Learning Acquisitions Inc., Original Term Loans, 7.00%, 3/31/20	United States	$	1,402,571		1,364,001
iHeartCommunications Inc.,
senior secured note, first lien, 9.00%,12/15/19	United States		18,873,000		14,036,794
^g,hTranche D Term Loan, 7.174%, 1/30/19	United States		15,813,482		11,148,505
^g,hTranche E Term Loan, 7.924%, 7/30/19	United States		5,080,935		3,586,292
^g,hNGPL PipeCo LLC, Term Loan, 6.75%, 9/15/17	United States		597,591		566,217
Total Corporate Notes and Senior Floating Rate Interests
(Cost $39,651,740)					30,701,809
Corporate Bonds, Notes and Senior Floating Rate Interests
in Reorganization 1.9%
^b,iBroadband Ventures III LLC, secured promissory note, 5.00%, 2/01/12	United States		10,848		—
^g,h,iCaesars Entertainment Operating Co. Inc., 1.50%, 3/01/17,
Term B-5-B Loans	United States		7,949,777		6,916,306
Term B-6-B Loans	United States		33,533,690		29,509,648
Term B-7 Loans	United States		10,720,130		8,964,709
ⁱSamson Investment Co., senior note, 9.75%, 2/15/20	United States		14,349,000		32,285
^g,h,iTexas Competitive Electric Holdings Co. LLC, Term Loans, 4.908%, 10/10/17	United States		46,282,735		14,217,501
^i,jTexas Competitive Electric Holdings Co. LLC/Texas Competitive Electric Holdings
Finance Inc., senior secured note, first lien, 144A, 4.726%, 10/01/20	United States		28,306,000		9,482,510
ⁱWalter Energy Inc.,
^g,hB Term Loan, 5.80%, 4/02/18	United States		9,375,505		2,625,141
^jfirst lien, 144A, 6.33%, 10/15/19	United States		5,229,000		1,359,540
^j,ksecond lien, 144A, PIK, 11.50%, 4/01/20	United States		4,557,750		11,675
Total Corporate Bonds, Notes and Senior Floating Rate
Interests in Reorganization (Cost $136,708,429)					73,119,315

			Shares
Companies in Liquidation 0.3%
^aAdelphia Recovery Trust	United States		48,268,724		193,075
^a,dAdelphia Recovery Trust, Arahova Contingent Value Vehicle, Contingent
Distribution	United States		6,161,087		12,322
^a,b,c,fCB FIM Coinvestors LLC	United States		15,831,950		—
^a,d,eCentury Communications Corp., Contingent Distribution	United States		16,986,000		—
^a,bFIM Coinvestor Holdings I, LLC	United States		19,805,560		—
^a,lLehman Brothers Holdings Inc., Bankruptcy Claim	United States		163,140,446		9,176,650
^a,d,eTribune Media Litigation Trust, Contingent Distribution	United States		496,810		—
Total Companies in Liquidation (Cost $20,374,335)					9,382,047

22 Annual Report

franklintempleton.com

FRANKLIN MUTUAL BEACON FUND
STATEMENT O F INVESTMENTS


			Principal
	Country		Amount		Value
Municipal Bonds (Cost $14,874,743) 0.3%
Puerto Rico Commonwealth GO, Refunding, Series A, 8.00%, 7/01/35	United States	$	17,038,000	$	12,395,145
Total Investments before Short Term Investments
(Cost $3,283,521,784)					3,651,495,359
Short Term Investments 2.6%
U.S. Government and Agency Securities 2.6%
FHLB, 1/04/16	United States		8,200,000		8,200,000
^m,nU.S. Treasury Bill, 1/07/16 - 6/09/16	United States		91,800,000		91,768,303
Total U.S. Government and Agency Securities
(Cost $99,966,143)					99,968,303
Total Investments (Cost $3,383,487,927) 99.3%					3,751,463,662
Other Assets, less Liabilities 0.7%					24,787,861
Net Assets 100.0%				$	3,776,251,523

^aNon-income producing.
^bSee Note 9 regarding restricted securities.
^cAt December 31, 2015, pursuant to the Fund’s policies and the requirements of applicable securities law, the Fund is restricted from trading these securities at year end.
^dContingent distributions represent the right to receive additional distributions, if any, during the reorganization of the underlying company. Shares represent total underlying
principal of debt securities.
^eSecurity has been deemed illiquid because it may not be able to be sold within seven days.
^fSee Note 11 regarding holdings of 5% voting securities.
^gSee Note 1(g) regarding senior floating rate interests.
^hThe coupon rate shown represents the rate at period end.
ⁱSee Note 8 regarding credit risk and defaulted securities.
^jSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers
or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At
December 31, 2015, the aggregate value of these securities was $10,853,725, representing 0.29% of net assets.
^kIncome may be received in additional securities and/or cash.
^lBankruptcy claims represent the right to receive distributions, if any, during the liquidation of the underlying pool of assets. Shares represent amount of allowed unsecured
claims.
^mThe security is traded on a discount basis with no stated coupon rate.
ⁿA portion or all of the security has been segregated as collateral for open forward contracts. At December 31, 2015, the value of this security and/or cash pledged amounted
to $429,965, representing 0.01% of net assets.

franklintempleton.com

Annual Report

FRANKLIN MUTUAL BEACON FUND
STATEMENT O F INVESTMENTS


At December 31, 2015, the Fund had the following futures contracts outstanding. See Note 1(c).

Futures Contracts
			Number of	Notional Expiration			Unrealized		Unrealized
Description		Type	Contracts	Value	Date		Appreciation		Depreciation
Currency Contracts
EUR/USD		Short 1,123		$152,812,225	3/14/16	$	76,600	$	—
GBP/USD		Short 1,705		157,009,188	3/14/16		4,072,054		—
Total Futures Contracts						$	4,148,654	$	—
Net unrealized appreciation (depreciation)						$	4,148,654

At December 31, 2015, the Fund had the following forward exchange contracts outstanding. See Note 1(c).

Forward Exchange Contracts
				Contract	Settlement		Unrealized		Unrealized
Currency	Counterparty^a	Type	Quantity	Amount	Date		Appreciation		Depreciation
OTC Forward Exchange Contracts
Euro	BANT	Buy	2,466,077	$ 2,711,984	1/06/16	$	—	$	(32,801	)
Euro	BANT	Sell	1,002,571	1,112,862	1/06/16		23,654		—
Euro	BONY	Buy	8,969,574	9,892,029	1/06/16		—		(147,352	)
Euro	BONY	Sell	21,064,614	23,039,422	1/06/16		154,516		—
Euro	DBFX	Buy	1,772,035	1,955,239	1/06/16		—		(30,074	)
Euro	FBCO	Buy	1,476,078	1,629,171	1/06/16		—		(25,538	)
Euro	FBCO	Sell	1,253,214	1,389,819	1/06/16		28,309		—
Euro	HSBC	Buy	3,280,145	3,601,218	1/06/16		—		(37,621	)
Euro	HSBC	Sell	1,935,000	2,136,898	1/06/16		34,685		—
Euro	SSBT	Buy	1,180,146	1,298,969	1/06/16		—		(16,841	)
Euro	BANT	Buy	1,983,539	2,163,919	1/20/16		—		(8,210	)
Euro	BANT	Sell	321,537	351,716	1/20/16		2,270		—
Euro	BBU	Sell	321,537	351,925	1/20/16		2,479		—
Euro	BONY	Buy	345,071	387,000	1/20/16		—		(11,978	)
Euro	BONY	Sell	181,407	198,572	1/20/16		1,419		—
Euro	DBFX	Buy	3,107,936	3,411,697	1/20/16		—		(33,994	)
Euro	DBFX	Sell	4,622,421	5,100,995	1/20/16		77,352		—
Euro	FBCO	Buy	1,983,415	2,163,306	1/20/16		—		(7,732	)
Euro	FBCO	Sell	22,840,946	25,020,469	1/20/16		196,948		—
Euro	HSBC	Buy	2,247,808	2,454,281	1/20/16		—		(11,365	)
Euro	HSBC	Sell	23,875,920	26,140,121	1/20/16		191,791		—
Euro	SSBT	Buy	5,101,887	5,580,983	1/20/16		—		(36,257	)
Euro	SSBT	Sell	22,818,675	24,996,702	1/20/16		206,159		—
British Pound	BANT	Buy	442,795	669,758	1/21/16		—		(17,064	)
British Pound	BANT	Sell	27,551,370	43,045,921	1/21/16		2,434,268		—
British Pound	BBU	Buy	3,884,693	5,970,773	1/21/16		—		(244,604	)
British Pound	DBFX	Buy	419,000	646,048	1/21/16		—		(28,428	)
British Pound	FBCO	Buy	5,680,769	8,721,572	1/21/16		—		(347,926	)
British Pound	SSBT	Buy	73,918	111,731	1/21/16		—		(2,773	)
Euro	SSBT	Sell	12,642,864	14,368,778	1/21/16		628,524		—
British Pound	SSBT	Sell	22,738,449	35,501,540	2/12/16		1,984,296		—
South Korean Won	BANT	Buy	2,862,916,457	2,468,457	2/12/16		—		(35,466	)
South Korean Won	BANT	Sell	21,648,475,949	18,676,892	2/12/16		300,586		(21,207	)
South Korean Won	FBCO	Buy	1,239,063,331	1,047,037	2/12/16		5,956		—
South Korean Won	FBCO	Sell	19,826,913,292	17,119,183	2/12/16		270,596		(908	)
South Korean Won	HSBC	Buy	5,694,535,212	4,827,902	2/12/16		20,317		(8,835	)
British Pound	BANT	Buy	9,929,257	15,289,414	2/19/16		—		(652,797	)
British Pound	BBU	Buy	1,446,139	2,266,056	2/19/16		—		(134,318	)
British Pound	DBFX	Buy	1,418,166	2,111,692	2/19/16		—		(21,188	)
British Pound	DBFX	Sell	27,244,897	42,447,550	2/19/16		2,286,123		—
British Pound	FBCO	Buy	7,392,250	11,525,718	2/19/16		—		(628,878	)
British Pound	FBCO	Sell	33,923,701	52,758,755	2/19/16		2,752,172		—
British Pound	HSBC	Buy	11,172,020	17,227,183	2/19/16		—		(758,621	)
British Pound	SSBT	Buy	5,299,470	8,135,229	2/19/16		—		(323,335	)

24 Annual Report

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FRANKLIN MUTUAL BEACON FUND
STATEMENT O F INVESTMENTS


Forward Exchange Contracts (continued)
					Contract	Settlement		Unrealized		Unrealized
Currency	Counterparty^aType		Quantity		Amount	Date		Appreciation		Depreciation
OTC Forward Exchange Contracts (continued)
South Korean Won	HSBC	Sell	46,881,747,310	$	40,357,504	2/19/16	$	517,737	$	(1,724	)
British Pound	SSBT	Sell	5,953,488		9,101,847	2/22/16		325,871		—
Euro	BANT	Sell	1,140,791		1,284,005	2/22/16		43,145		—
Euro	BBU	Sell	77,775		87,781	2/22/16		3,184		—
Euro	DBFX	Sell	2,206,996		2,485,030	2/22/16		84,440		—
Euro	FBCO	Sell	5,242,010		5,894,886	2/22/16		193,054		—
Euro	HSBC	Sell	3,490,727		3,930,090	2/22/16		133,161		—
Euro	DBFX	Sell	3,687,171		4,223,028	4/01/16		208,118		—
Euro	HSBC	Sell	9,400,559		10,277,068	4/01/16		40,928		—
Euro	SSBT	Sell	2,876,401		3,255,305	4/01/16		126,590		—
Euro	BANT	Sell	6,037,744		6,822,129	4/18/16		244,051		—
Euro	BONY	Sell	600,428		665,965	4/18/16		11,803		—
Euro	DBFX	Sell	776,326		860,443	4/18/16		14,642		—
Euro	FBCO	Sell	3,315,750		3,672,807	4/18/16		60,322		—
Euro	HSBC	Sell	7,124,775		8,015,298	4/18/16		252,908		—
Euro	SSBT	Sell	3,687,171		4,222,991	4/18/16		208,081		—
British Pound	BANT	Sell	20,795,192		32,122,333	4/22/16		1,463,331		—
British Pound	HSBC	Sell	15,655,310		24,182,757	4/22/16		1,101,644		—
Euro	SSBT	Sell	2,817,158		3,119,311	4/22/16		50,037		—
British Pound	SSBT	Buy	8,410,000		12,919,299	5/04/16		—		(520,173	)
Euro	SSBT	Sell	29,816,546		32,064,713	5/12/16		—		(437,234	)
South Korean Won	BANT	Sell	19,782,979,060		17,202,783	5/12/16		411,623		—
South Korean Won	FBCO	Sell	20,123,513,190		17,448,638	5/12/16		368,444		—
Euro	BANT	Sell	13,371,711		14,378,480	5/18/16		—		(204,234	)
Euro	DBFX	Sell	239,767		258,477	5/18/16		—		(3,005	)
Euro	FBCO	Sell	13,291,789		14,296,169	5/18/16		—		(199,385	)
South Korean Won	HSBC	Sell	20,563,724,199		17,996,560	5/18/16		542,729		—
British Pound	FBCO	Sell	22,291,713		34,151,796	5/23/16		1,281,423		—
Euro	HSBC	Sell	239,766		258,332	5/23/16		—		(3,149	)
British Pound	HSBC	Sell	19,369,523		29,645,442	5/23/16		1,084,002		—
Total Forward Exchange Contracts							$	20,373,688	$	(4,995,015	)
Net unrealized appreciation (depreciation)							$	15,378,673

^aMay be comprised of multiple contracts with the same counterparty, currency and settlement date.

See Abbreviations on page 41.

franklintempleton.com

The accompanying notes are an integral part of these financial statements. | Annual Report 25


FRANKLIN MUTUAL BEACON FUND



Financial Statements

Statement of Assets and Liabilities
December 31, 2015

Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	3,295,341,705
Cost - Controlled affiliates (Note 11)		381,819
Cost - Non-controlled affiliates (Note 11)		87,764,403
Total cost of investments	$	3,383,487,927
Value - Unaffiliated issuers	$	3,727,913,068
Value - Controlled affiliates (Note 11)		213,055
Value - Non-controlled affiliates (Note 11)		23,337,539
Total value of investments		3,751,463,662
Cash		3,137,424
Restricted Cash (Note 1d)		2,290,000
Foreign currency, at value (cost $3,453,481)		3,401,919
Receivables:
Investment securities sold		6,894,185
Capital shares sold		1,636,048
Dividends and interest		7,869,695
Due from brokers		7,498,545
Variation margin		1,858,488
Unrealized appreciation on OTC forward exchange contracts		20,373,688
Other assets		1,897,472
Total assets		3,808,321,126
Liabilities:
Payables:
Investment securities purchased		10,217,355
Capital shares redeemed		7,380,564
Management fees		2,188,951
Distribution fees		932,046
Transfer agent fees		623,985
Trustees’ fees and expenses		223,091
Due to brokers		5,290,000
Unrealized depreciation on OTC forward exchange contracts		4,995,015
Accrued expenses and other liabilities		218,596
Total liabilities		32,069,603
Net assets, at value	$	3,776,251,523
Net assets consist of:
Paid-in capital	$	3,383,070,912
Distributions in excess of net investment income		(3,797,460	)
Net unrealized appreciation (depreciation)		387,283,793
Accumulated net realized gain (loss)		9,694,278
Net assets, at value	$	3,776,251,523

26 Annual Report | The accompanying notes are an integral part of these consolidated financial statements. franklintempleton.com

FRANKLIN MUTUAL BEACON FUND
FINANCIAL STATEMENTS


Statement of Assets and Liabilities (continued)
December 31, 2015

Class Z:
Net assets, at value	$	2,420,164,537
Shares outstanding		169,219,886
Net asset value and maximum offering price per share	$	14.30
Class A:
Net assets, at value	$	1,019,567,585
Shares outstanding		71,821,616
Net asset value per share^a	$	14.20
Maximum offering price per share (net asset value per share ÷ 94.25%)	$	15.07
Class C:
Net assets, at value	$	285,332,835
Shares outstanding		20,235,366
Net asset value and maximum offering price per share^a	$	14.10
Class R:
Net assets, at value	$	2,342,940
Shares outstanding		166,701
Net asset value and maximum offering price per share	$	14.05
Class R6:
Net assets, at value	$	48,843,626
Shares outstanding		3,415,766
Net asset value and maximum offering price per share	$	14.30

^aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.

franklintempleton.com The accompanying notes are an integral part of these consolidated financial statements. | Annual Report 27

FRANKLIN MUTUAL BEACON FUND
FINANCIAL STATEMENTS


Statement of Operations
for the year ended December 31, 2015

Investment income:
Dividends:
Unaffiliated issuers	$	90,102,939
Non-controlled affiliates (Note 11)		3,832,715
Interest		10,539,139
Income from securities loaned		969,856
Other income (Note 1h)		1,857,489
Total investment income		107,302,138
Expenses:
Management fees (Note 3a)		28,261,517
Distribution fees: (Note 3c)
Class A		3,074,421
Class C		3,174,986
Class R		12,173
Transfer agent fees: (Note 3e)
Class Z		2,595,629
Class A		1,050,069
Class C		303,406
Class R		2,327
Class R6		286
Custodian fees (Note 4)		174,625
Reports to shareholders		207,274
Registration and filing fees		111,580
Professional fees		180,362
Trustees’ fees and expenses		118,759
Dividends and/or interest on securities sold short		1,620,907
Other		124,402
Total expenses		41,012,723
Expense reductions (Note 4)		(1,312	)
Expenses waived/paid by affiliates (Note 3f)		(4,250	)
Net expenses		41,007,161
Net investment income		66,294,977
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffiliated issuers		202,475,244
Non-controlled affiliates (Note 11)		(5,570,256	)
Written options		225,175
Foreign currency transactions		71,835,874
Futures contracts		17,524,913
Securities sold short		(2,994,857	)
Net realized gain (loss)		283,496,093
Net change in unrealized appreciation (depreciation) on:
Investments		(492,330,783	)
Translation of other assets and liabilities denominated in foreign currencies		(29,121,862	)
Written options		(195,175	)
Futures contracts		1,327,853
Net change in unrealized appreciation (depreciation)		(520,319,967	)
Net realized and unrealized gain (loss)		(236,823,874	)
Net increase (decrease) in net assets resulting from operations	$	(170,528,897	)

28 Annual Report | The accompanying notes are an integral part of these consolidated financial statements. franklintempleton.com

FRANKLIN MUTUAL BEACON FUND
FINANCIAL STATEMENTS


Statements of Changes in Net Assets

		Year Ended December 31,

		2015			2014
Increase (decrease) in net assets:
Operations:
Net investment income	$	66,294,977		$	129,035,674
Net realized gain (loss)		283,496,093			342,705,241
Net change in unrealized appreciation (depreciation)		(520,319,967	)		(193,622,551	)
Net increase (decrease) in net assets resulting from operations		(170,528,897	)		278,118,364
Distributions to shareholders from:
Net investment income:
Class Z		(58,009,414	)		(108,365,306	)
Class A		(21,453,939	)		(39,939,800	)
Class C		(3,841,292	)		(9,494,293	)
Class R		(47,012	)		(76,629	)
Class R6		(1,193,201	)		(2,007,139	)
Net realized gains:
Class Z		(192,557,510	)		(124,181,438	)
Class A		(81,200,001	)		(49,595,284	)
Class C		(23,270,842	)		(14,636,661	)
Class R		(194,535	)		(101,248	)
Class R6		(3,774,972	)		(2,255,117	)
Total distributions to shareholders		(385,542,718	)		(350,652,915	)
Capital share transactions: (Note 2)
Class Z		767,996			(53,559,902	)
Class A		68,017,445			(28,560,400	)
Class C		7,516,255			(9,697,118	)
Class R		458,707			342,556
Class R6		4,982,646			51,675,095
Total capital share transactions		81,743,049			(39,799,769	)
Net increase (decrease) in net assets		(474,328,566	)		(112,334,320	)
Net assets:
Beginning of year		4,250,580,089			4,362,914,409
End of year	$	3,776,251,523		$	4,250,580,089
Undistributed net investment income (distributions in excess of net investment income) included in
net assets:
End of year	$	(3,797,460	)	$	8,140,663

franklintempleton.com The accompanying notes are an integral part of these consolidated financial statements. | Annual Report 29

FRANKLIN MUTUAL BEACON FUND

Notes to Financial Statements

1. Organization and Significant Accounting Policies

Franklin Mutual Series Funds (Trust) is registered under the Investment Company Act of 1940 (1940 Act) as an open-end management investment company, consisting of seven separate funds and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). Franklin Mutual Beacon Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. The Fund offers five classes of shares: Class Z, Class A, Class C, Class R and Class R6. Each class of shares differs by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees primarily due to differing arrangements for distribution and transfer agent fees.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Fund calculates the net asset value per share as of 4 p.m. Eastern time each day the New York Stock Exchange (NYSE) is open for trading. Under compliance policies and procedures approved by the Trust’s Board of Trustees (the Board), the Fund’s administrator has responsibility for oversight of valuation, including leading the cross-functional Valuation and Liquidity Oversight Committee (VLOC). The VLOC provides administration and oversight of the Fund’s valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities and derivative financial instruments (derivatives) listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded or as of 4 p.m. Eastern time, whichever is earlier. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at 4 p.m. Eastern time on the day that the value of the security is determined. Over-the-counter (OTC) securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities.

Debt securities generally trade in the OTC market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, credit spreads, estimated default rates, anticipated market interest rate volatility, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at 4 p.m. Eastern time on the date that the values of the foreign debt securities are determined.

Certain derivatives trade in the OTC market. The Fund’s pricing services use various techniques including industry standard option pricing models and proprietary discounted cash flow models to determine the fair value of those instruments. The Fund’s net benefit or obligation under the derivative contract, as measured by the fair value of the contract, is included in net assets.

The Fund has procedures to determine the fair value of financial instruments for which market prices are not reliable or readily available. Under these procedures, the VLOC convenes on a regular basis to review such financial instruments and considers a number of factors, including significant unobservable valuation inputs, when arriving at fair value. The VLOC primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the

30 Annual Report

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FRANKLIN MUTUAL BEACON FUND
NOTES TO FINANCIAL STATEMENTS

nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VLOC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.

Trading in securities on foreign securities stock exchanges and OTC markets may be completed before 4 p.m. Eastern time. In addition, trading in certain foreign markets may not take place on every NYSE business day. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at the close of the NYSE. In order to minimize the potential for these differences, the VLOC monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.

When the last day of the reporting period is a non-business day, certain foreign markets may be open on those days that the NYSE is closed, which could result in differences between the value of the Fund’s portfolio securities on the last business day and the last calendar day of the reporting period. Any significant security valuation changes due to an open foreign market are adjusted and reflected by the Fund for financial reporting purposes.

b. Foreign Currency Translation

Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Board.

The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments in the Statement of Operations.

Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period.

c. Derivative Financial Instruments

The Fund invested in derivatives in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown in the Statement of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Statement of Operations.

Derivative counterparty credit risk is managed through a formal evaluation of the creditworthiness of all potential counterparties. The Fund attempts to reduce its exposure to counterparty credit

franklintempleton.com

Annual Report

FRANKLIN MUTUAL BEACON FUND

NOTES TO FINANCIAL STATEMENTS

1. Organization and Significant Accounting

Policies (continued)

c. Derivative Financial Instruments (continued)

risk on OTC derivatives, whenever possible, by entering into International Swaps and Derivatives Association (ISDA) master agreements with certain counterparties. These agreements contain various provisions, including but not limited to collateral requirements, events of default, or early termination. Termination events applicable to the counterparty include certain deteriorations in the credit quality of the counterparty. Termination events applicable to the Fund include failure of the Fund to maintain certain net asset levels and/or limit the decline in net assets over various periods of time. In the event of default or early termination, the ISDA master agreement gives the non-defaulting party the right to net and close-out all transactions traded, whether or not arising under the ISDA agreement, to one net amount payable by one counterparty to the other. However, absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities. Early termination by the counterparty may result in an immediate payment by the Fund of any net liability owed to that counterparty under the ISDA agreement. At December 31, 2015, the Fund had OTC derivatives in a net liability position of $373,259 and the aggregate value of collateral pledged for such contracts was $319,974.

Collateral requirements differ by type of derivative. Collateral or initial margin requirements are set by the broker or exchange clearing house for exchange traded and centrally cleared derivatives. Initial margin deposited is held at the exchange and can be in the form of cash and/or securities. For OTC derivatives traded under an ISDA master agreement, posting of collateral is required by either the Fund or the applicable coun-terparty if the total net exposure of all OTC derivatives with the applicable counterparty exceeds the minimum transfer amount, which typically ranges from $100,000 to $250,000, and can vary depending on the counterparty and the type of the agreement. Generally, collateral is determined at the close of Fund business each day and any additional collateral required due to changes in derivative values may be delivered by the Fund or the counterparty within a few business days. Collateral pledged and/or received by the Fund for OTC derivatives, if any, is held in segregated accounts with the Fund’s custodian/counterparty broker and can be in the form of cash and/or securities. Unrestricted cash may be invested according to the Fund’s investment objectives. To the extent that the amounts due to the Fund from its counterparties are not subject to collateralization or are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance.

At December 31, 2015, the Fund received $6,507,593 in United Kingdom Treasury Bonds and U.S. Treasury Bonds and Notes as collateral for derivatives.

The Fund entered into exchange traded futures contracts primarily to manage exposure to certain foreign currencies. A futures contract is an agreement between the Fund and a counterparty to buy or sell an asset for a specified price on a future date. Required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Statement of Assets and Liabilities.

The Fund entered into OTC forward exchange contracts primarily to manage exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency at a specific exchange rate on a future date.

The Fund purchased or wrote exchange traded option contracts primarily to manage exposure to equity price risk. An option is a contract entitling the holder to purchase or sell a specific amount of shares or units of an asset or notional amount of a swap (swaption), at a specified price. When an option is purchased or written, an amount equal to the premium paid or received is recorded as an asset or liability, respectively. Upon exercise of an option, the acquisition cost or sales proceeds of the underlying investment is adjusted by any premium received or paid. Upon expiration of an option, any premium received or paid is recorded as a realized gain or loss. Upon closing an option other than through expiration or exercise, the difference between the premium received or paid and the cost to close the position is recorded as a realized gain or loss.

See Notes 7 and 10 regarding investment transactions and other derivative information, respectively.

d. Restricted Cash

At December 31, 2015, the Fund held restricted cash in connection with investments in certain derivative securities. Restricted cash is held in a segregated account with the Fund’s custodian/counterparty broker and is reflected in the Statement of Assets and Liabilities.

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NOTES TO FINANCIAL STATEMENTS

e. Securities Sold Short

The Fund is engaged in selling securities short, which obligates the Fund to replace a borrowed security with the same security at current fair value. The Fund incurs a loss if the price of the security increases between the date of the short sale and the date on which the Fund replaces the borrowed security. The Fund realizes a gain if the price of the security declines between those dates. Gains are limited to the price at which the Fund sold the security short, while losses are potentially unlimited in size.

The Fund is required to establish a margin account with the broker lending the security sold short. While the short sale is outstanding, the broker retains the proceeds of the short sale to the extent necessary to meet margin requirements until the short position is closed out. A deposit must also be maintained with the Fund’s custodian/counterparty broker consisting of cash and/ or securities having a value equal to a specified percentage of the value of the securities sold short. The Fund is obligated to pay fees for borrowing the securities sold short and is required to pay the counterparty any dividends and/or interest due on securities sold short. Such dividends and/or interest and any security borrowing fees are recorded as an expense to the Fund. At December 31, 2015, the Fund had no securities sold short.

f. Securities Lending

The Fund may receive income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. Income from securities loaned is reported separately in the Statement of Operations. The Fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the agent may default on its obligations to the Fund. If the borrower defaults on its obligation to return the securities loaned, the Fund has the right to repurchase the securities in the open market using the collateral received. The securities lending agent has agreed to indemnify the Fund in the event of default by a third party borrower. At December 31, 2015, the Fund had no securities on loan.

g. Senior Floating Rate Interests

The Fund invests in senior secured corporate loans that pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate (LIBOR). Senior secured corporate loans often require prepayment of principal from excess cash flows or at the discretion of the borrower. As a result, actual maturity may be substantially less than the stated maturity. Senior secured corporate loans in which the Fund invests are generally readily marketable, but may be subject to certain restrictions on resale.

h. Income and Deferred Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply, the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date. As a result of several court cases, in certain countries across the European Union, the Fund has filed additional tax reclaims for previously withheld taxes on dividends earned in those countries. These additional filings are subject to various administrative proceedings by the local jurisdictions’ tax authorities within the European Union, as well as a number of related judicial proceedings. During the year ended December 31, 2015, the Fund recognized $1,876,063 from Sweden for previously withheld foreign taxes and interest on such taxes. These amounts are reflected as other income and interest in the Statement of Operations. In regards to filings in other European Union countries, uncertainty exists as to the ultimate resolution of these proceedings, the likelihood of receipt of these reclaims, and the potential timing of payment, and accordingly, no amounts are reflected in the financial statements.

The Fund may recognize an income tax liability related to its uncertain tax positions under U.S. GAAP when the uncertain

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NOTES TO FINANCIAL STATEMENTS

1. Organization and Significant Accounting

Policies (continued)

h. Income and Deferred Taxes (continued)

tax position has a less than 50% probability that it will be sustained upon examination by the tax authorities based on its technical merits. As of December 31, 2015, the Fund has determined that no tax liability is required in its financial statements related to uncertain tax positions for any open tax years (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction’s statute of limitation.

i. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Dividend income and dividends declared on securities sold short are recorded on the ex-dividend date except for certain dividends from foreign securities where the dividend rate is not available. In such cases, the dividend is recorded as soon as the information is received by the Fund. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with U.S. GAAP. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

Common expenses incurred by the Trust are allocated among the funds based on the ratio of net assets of each fund to the combined net assets of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

j. Accounting Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

k. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

2. Shares of Beneficial Interest

At December 31, 2015, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:


					Year Ended December 31,
				2015					2014
	Shares				Amount		Shares			Amount
Class Z Shares:
Shares sold	6,184,343		$	103,977,966			5,229,939		$	91,015,375
Shares issued in reinvestment of distributions	16,350,016				235,028,910		12,979,886			218,311,381
Shares redeemed	(20,624,311	)			(338,238,880	)	(21,017,382	)		(362,886,658	)
Net increase (decrease)	1,910,048			$	767,996		(2,807,557	)	$	(53,559,902	)

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NOTES TO FINANCIAL STATEMENTS


					Year Ended December 31,
				2015					2014
	Shares				Amount		Shares			Amount

Class A Shares:
Shares sold	9,371,751		$	155,165,698			4,739,908		$	81,387,282
Shares issued in reinvestment of distributions	7,035,175				100,397,421		5,201,776			86,929,792
Shares redeemed	(11,467,151	)			(187,545,674	)	(11,413,516	)		(196,877,474	)
Net increase (decrease)	4,939,775			$	68,017,445		(1,471,832	)	$	(28,560,400	)

Class C Shares:
Shares sold	1,843,908			$	30,482,924		970,010		$	16,571,387
Shares issued in reinvestment of distributions	1,808,301				25,661,223		1,364,458			22,656,149
Shares redeemed	(3,024,983	)			(48,627,892	)	(2,863,231	)		(48,924,654	)
Net increase (decrease)	627,226			$	7,516,255		(528,763	)	$	(9,697,118	)

Class R Shares:
Shares sold	32,967			$	537,011		23,067		$	398,900
Shares issued in reinvestment of distributions	17,101				241,547		10,739			177,877
Shares redeemed	(20,923	)			(319,851	)	(13,549	)		(234,221	)
Net increase (decrease)	29,145			$	458,707		20,257		$	342,556

Class R6 Shares:
Shares sold	757,819			$	11,893,414		3,331,155		$	56,277,297
Shares issued in reinvestment of distributions	5,769				82,858		—			—
Shares redeemed	(415,071	)			(6,993,626	)	(264,245	)		(4,602,202	)
Net increase (decrease)	348,517			$	4,982,646		3,066,910		$	51,675,095

3. Transactions with Affiliates

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers and/or directors of the following subsidiaries:


Subsidiary	Affiliation
Franklin Mutual Advisers, LLC (Franklin Mutual)	Investment manager
Franklin Templeton Investment Management Limited (FTIML)	Investment manager
Franklin Templeton Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

a. Management Fees

The Fund pays an investment management fee to Franklin Mutual based on the average daily net assets of the Fund as follows:


Annualized Fee Rate		Net Assets
0.675	%	Up to and including $5 billion
0.645	%	Over $5 billion, up to and including $7 billion
0.625	%	Over $7 billion, up to and including $10 billion
0.615	%	In excess of $10 billion

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FRANKLIN MUTUAL BEACON FUND
NOTES TO FINANCIAL STATEMENTS

3. Transactions with Affiliates (continued)

a. Management Fees (continued)

Under a subadvisory agreement, FTIML, an affiliate of Franklin Mutual, provides subadvisory services to the Fund. The sub-advisory fee is paid by Franklin Mutual based on the Fund’s average daily net assets, and is not an additional expense of the Fund. Effective July 31, 2015, the subadvisory agreement was terminated for the Fund.

b. Administrative Fees

Under an agreement with Franklin Mutual, FT Services provides administrative services to the Fund. The fee is paid by Franklin Mutual based on the Fund’s average daily net assets, and is not an additional expense of the Fund.

c. Distribution Fees

The Board has adopted distribution plans for each share class, with the exception of Class Z and Class R6 shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s Class A reimbursement distribution plan, the Fund reimburses Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate. Under the Class A reimbursement distribution plan, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. In addition, under the Fund’s Class C and R compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate for each class. The plan year, for purposes of monitoring compliance with the maximum annual plan rates, is February 1 through January 31 for each fund.

The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:


Class A	0.35	%
Class C	1.00	%
Class R	0.50	%

Effective August 1, 2015, the Board has set the current rate at 0.25% per year for Class A shares until further notice and approval by the Board. Prior to August 1, 2015, the Board had set the rate at 0.30% per year for Class A shares.

d. Sales Charges/Underwriting Agreements

Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. These charges are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Fund of the following commission transactions related to the sales and redemptions of the Fund’s shares for the year:


Sales charges retained net of commissions paid to unaffiliated
broker/dealers	$	277,427
CDSC retained	$	6,222

e. Transfer Agent Fees

Each class of shares, except for Class R6, pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations and reimburses Investor Services for out of pocket expenses incurred, including shareholding servicing fees paid to third parties. These fees are allocated daily based upon their relative proportion of such classes’ aggregate net assets. Class R6 pays Investor Services transfer agent fees specific to that class.

For the year ended December 31, 2015, the Fund paid transfer agent fees of $3,951,717, of which $1,643,950 was retained by Investor Services.

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NOTES TO FINANCIAL STATEMENTS

f. Investments in Affiliated Management Investment Companies

The Fund invests in an affiliated management investment company for purposes other than exercising a controlling influence over the management or policies. Management fees paid by the Fund are waived on assets invested in the affiliated management investment company, as noted in the Statement of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by each affiliate.


									% of Affiliated
	Number of				Number of				Fund Shares
	Shares Held				Shares Held	Value			Outstanding
	at Beginning	Gross	Gross		at End	at End	Investment	Realized	Held at End
	of Year	Additions	Reductions		of Year	of Year	Income	Gain (Loss)	of Year
Non-Controlled Affiliates
Institutional Fiduciary
Trust Money Market
Portfolio	—	25,750,000	(25,750,000	)	—	$ —	$ —	$ —	—%

g. Waiver and Expense Reimbursements

Investor Services has contractually agreed in advance to waive or limit its fees so that the Class R6 transfer agent fees do not exceed 0.01% until April 30, 2016. There were no Class R6 transfer agent fees waived during the year ended December 31, 2015.

4. Expense Offset Arrangement

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended December 31, 2015, the custodian fees were reduced as noted in the Statement of Operations.

5. Independent Trustees’ Retirement Plan

On January 1, 1993, the Trust adopted an Independent Trustees’ Retirement Plan (Plan). The Plan is an unfunded defined benefit plan that provides benefit payments to Trustees whose length of service and retirement age meets the eligibility requirements of the Plan. Benefits under the Plan are based on years of service and fees paid to each trustee at the time of retirement. Effective in December 1996, the Plan was closed to new participants.

During the year ended December 31, 2015, the Fund’s projected benefit obligation and benefit payments under the Plan were as follows:


^aProjected benefit obligation at December 31, 2015	$	223,091
^bIncrease in projected benefit obligation	$	12,214
Benefit payments made to retired trustees	$	(3,789	)

^aThe projected benefit obligation is included in trustees’ fees and expenses in the Statement of Assets and Liabilities.
^bThe increase in projected benefit obligation is included in trustees’ fees and expenses in the Statement of Operations.

6. Income Taxes

The tax character of distributions paid during the years ended December 31, 2015 and 2014, was as follows:


		2015		2014
Distributions paid from:
Ordinary income	$	84,544,858	$	159,883,206
Long term capital gain		300,997,860		190,769,709
	$	385,542,718	$	350,652,915

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FRANKLIN MUTUAL BEACON FUND
NOTES TO FINANCIAL STATEMENTS

6. Income Taxes (continued)

At December 31, 2015, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long term capital gains for income tax purposes were as follows:


Cost of investments	$	3,397,505,649
Unrealized appreciation	$	761,692,435
Unrealized depreciation		(407,734,422	)
Net unrealized appreciation (depreciation)	$	353,958,013
Undistributed ordinary income	$	375,103
Undistributed long term capital gains		40,495,572
Distributable earnings	$	40,870,675

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatment of foreign currency transactions.

7. Investment Transactions

Purchases and sales of investments (excluding short term securities and securities sold short) for the year ended December 31, 2015, aggregated $1,422,875,028 and $1,511,941,297, respectively.

Transactions in options written during the year ended December 31, 2015, were as follows:


	Number of
	Contracts			Premiums
Options outstanding at December 31, 2014	2,000		$	225,175
Options written	—			—
Options expired	(2,000	)		(225,175	)
Options exercised	—			—
Options closed	—			—
Options outstanding at December 31, 2015	—		$	—

See Notes 1(c) and 10 regarding derivative financial instruments and other derivative information, respectively.

8. Credit Risk and Defaulted Securities

The Fund may purchase the pre-default or defaulted debt of distressed companies. Distressed companies are financially troubled and are about to be or are already involved in financial restructuring or bankruptcy. Risks associated with purchasing these securities include the possibility that the bankruptcy or other restructuring process takes longer than expected, or that distributions in restructuring are less than anticipated, either or both of which may result in unfavorable consequences to the Fund. If it becomes probable that the income on debt securities, including those of distressed companies, will not be collected, the Fund discontinues accruing income and recognizes an adjustment for uncollectible interest.

At December 31, 2015, the aggregate long value of distressed company securities for which interest recognition has been discontinued was $73,119,315, representing 1.94% of the Fund’s net assets. For information as to specific securities, see the accompanying Statement of Investments.

9. Restricted Securities

The Fund invests in securities that are restricted under the Securities Act of 1933 (1933 Act) or which are subject to legal, contractual, or other agreed upon restrictions on resale. Restricted securities are often purchased in private placement transactions, and cannot be sold without prior registration unless the sale is pursuant to an exemption under the 1933 Act. Disposal of these securities may require greater effort and expense, and prompt sale at an acceptable price may be difficult. The Fund may have registration rights for restricted securities. The issuer generally incurs all registration costs.

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NOTES TO FINANCIAL STATEMENTS

At December 31, 2015, the Fund held investments in restricted securities, excluding certain securities exempt from registration under the 1933 Act deemed to be liquid, as follows:


Principal
Amount/		Acquisition
Shares	Issuer	Dates		Cost		Value
10,848	Broadband Ventures III LLC, secured promissory note, 5.00%, 2/01/12	7/01/10 - 11/30/12	$	10,848	$	—
15,831,950	CB FIM Coinvestors LLC	1/15/09 - 6/02/09		—		—
19,805,560	FIM Coinvestor Holdings I, LLC	11/20/06 - 6/02/09		—		—
2,846,329	International Automotive Components Group Brazil LLC	4/13/06 - 12/26/08		1,890,264		29,269
22,836,904	International Automotive Components Group North America LLC	1/12/06 - 3/18/13		18,692,218		12,328,845
5,455	PMG LLC	3/22/04		381,819		213,055
	Total Restricted Securities (Value is 0.33% of Net Assets)		$	20,975,149	$	12,571,169

10. Other Derivative Information

At December 31, 2015, the Fund’s investments in derivative contracts are reflected in the Statement of Assets and Liabilities as follows:


	Asset Derivatives				Liability Derivatives

Derivative Contracts
Not Accounted for as	Statement of Assets and				Statement of Assets and
Hedging Instruments	Liabilities Location		Fair Value		Liabilities Location		Fair Value
Foreign exchange contracts	Variation margin	$	4,148,654	^a
	Unrealized appreciation on		20,373,688		Unrealized depreciation on	$	4,995,015
	OTC forward exchange				OTC forward exchange
	contracts				contracts
Totals		$	24,522,342			$	4,995,015

^aThis amount reflects the cumulative appreciation (depreciation) of futures contracts as reported in the Statement of Investments. Only the variation margin receivable/payable
at year end is separately reported within the Statement of Assets and Liabilities. Prior variation margin movements were recorded to cash upon receipt or payment.

For the year ended December 31, 2015, the effect of derivative contracts in the Fund’s Statement of Operations was as follows:


							Net Change in
							Unrealized
Derivative Contracts			Net Realized				Appreciation
Not Accounted for as	Statement of Operations		Gain (Loss)		Statement of Operations		(Depreciation)
Hedging Instruments	Locations		for the Year		Locations		for the Year
	Net realized gain (loss) from:				Net change in unrealized
					appreciation (depreciation)
					on:
Foreign exchange contracts	Foreign currency	$	72,754,959	^a	Translation of other assets	$	(28,933,016	)^a
	transactions				and liabilities
					denominated in foreign
					currencies
	Futures contracts		17,524,913		Futures contracts		1,327,853
Equity contracts	Written options		225,175		Written options		(195,175	)
Totals		$	90,505,047			$	(27,800,338	)

^aForward exchange contracts are included in net realized gain (loss) from foreign currency transactions and net change in unrealized appreciation (depreciation) on translation of other assets and liabilities denominated in foreign currencies in the Statement of Operations.

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NOTES TO FINANCIAL STATEMENTS

10. Other Derivative Information (continued)

For the year ended December 31, 2015, the average month end fair value of derivatives represented 0.85% of average month end net assets. The average month end number of open derivative contracts for the year was 175.

See Notes 1(c) and 7 regarding derivative financial instruments and investment transactions, respectively.

11. Holdings of 5% Voting Securities of Portfolio Companies

The 1940 Act defines “affiliated companies” to include investments in portfolio companies in which a fund owns 5% or more of the outstanding voting securities. Investments in “affiliated companies” for the Fund for the year ended December 31, 2015, were as shown below.


	Number of				Number of
	Shares Held				Shares Held		Value
	at Beginning	Gross	Gross		at End		at End		Investment		Realized
Name of Issuer	of Year	Additions	Reductions		of Year		of Year		Income		Gain (Loss)
Controlled Affiliates^a
PMG LLC	5,455	—	—		5,455	$	213,055	$	—	$	—
Non-Controlled Affiliates
CB FIM Coinvestors LLC	15,831,950	—	—		15,831,950	$	—	$	—	$	—
Polaris Consulting and
Services Ltd./India	6,669,381	—	(6,669,381	)	—		—		487,763		1,313,642
Tronox Ltd., A	2,187,603	4,349,644	(568,567	)	5,968,680		23,337,539		3,344,952		(6,883,898	)
Total Non-Controlled Affiliates							23,337,539		3,832,715		(5,570,256	)
Total Affiliated Securities (Value is 0.62% of Net Assets)						$	23,550,594	$	3,832,715	$	(5,570,256	)

^aIssuer in which the Fund owns 25% or more of the outstanding voting securities.

12. Credit Facility

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matured on February 12, 2016. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective February 12, 2016, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 10, 2017, for a total of $2 billion.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.07% based upon the unused portion of the Global Credit Facility. Effective February 12, 2016, the annual commitment fee is 0.15%. These fees are reflected in other expenses in the Statement of Operations. During the year ended December 31, 2015, the Fund did not use the Global Credit Facility.

13. Fair Value Measurements

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s financial instruments and are summarized in the following fair value hierarchy:

Level 1 – quoted prices in active markets for identical financial instruments
Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepayment speed, credit risk, etc.)

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Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of financial instruments)

The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

A summary of inputs used as of December 31, 2015, in valuing the Fund’s assets and liabilities carried at fair value, is as follows:


		Level 1		Level 2		Level 3			Total

Assets:
Investments in Securities:
Equity Investments:^a
Auto Components	$	—	$	—	$	12,358,114		$	12,358,114
Metals & Mining		33,630,103		—		213,055			33,843,158
All Other Equity Investments^b		3,479,695,771		—		—^c			3,479,695,771
Corporate Notes and Senior Floating Rate Interests		—		30,701,809		—			30,701,809
Corporate Bonds, Notes and Senior Floating Rate Interests in
Reorganization		—		73,107,640		11,675	^c		73,119,315
Companies in Liquidation		193,075		9,188,972		—^c			9,382,047
Municipal Bonds		—		12,395,145		—			12,395,145
Short Term Investments		91,768,303		8,200,000		—			99,968,303
Total Investments in Securities	$	3,605,287,252	$	133,593,566	$	12,582,844		$	3,751,463,662
Other Financial Instruments
Futures Contracts	$	4,148,654	$	—	$	—		$	4,148,654
Forward Exchange Contracts		—		20,373,688		—			20,373,688
Total Other Financial Instruments	$	4,148,654	$	20,373,688	$	—		$	24,522,342

Liabilities:
Other Financial Instruments
Forward Exchange Contracts	$	—	$	4,995,015	$	—		$	4,995,015

^aIncludes common and preferred stocks as well as other equity investments.
^bFor detailed categories, see the accompanying Statement of Investments.
^cIncludes securities determined to have no value at December 31, 2015.

A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 financial instruments at the end of the year.

14. Subsequent Events

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.


Abbreviations
Counterparty		Currency		Selected Portfolio
BANT	Bank of America N.A.	EUR	Euro	ADR	American Depositary Receipt
BBU	Barclays Bank PLC	GBP	British Pound	FHLB	Federal Home Loan Bank
BONY	Bank of New York Mellon	USD	United States Dollar	GO	General Obligation
DBFX	Deutsche Bank AG			PIK	Payment-In-Kind
FBCO	Credit Suisse Group AG
HSBC	HSBC Bank USA, N.A.
SSBT	State Street Bank and Trust Co., N.A.

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FRANKLIN MUTUAL BEACON FUND

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Franklin Mutual Series Funds and Shareholders of Franklin Mutual Beacon Fund:

We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Franklin Mutual Beacon Fund (the “Fund”) (one of the funds constituting Franklin Mutual Series Funds), as of December 31, 2015, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2015, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from the brokers were not received. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Franklin Mutual Beacon Fund (one of the funds constituting Franklin Mutual Series Funds) at December 31, 2015, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.

Boston, Massachusetts
February 18, 2016

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Tax Information (unaudited)

Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund hereby reports the maximum amount allowable but no less than $300,997,860 as a long term capital gain dividend for the fiscal year ended December 31, 2015.

Under Section 854(b)(1)(A) of the Code, the Fund hereby reports 56.24% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2015.

Under Section 854(b)(1)(B) of the Code, the Fund hereby reports the maximum amount allowable but no less than $82,370,451 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended December 31, 2015. Distributions, including qualified dividend income, paid during calendar year 2015 will be reported to shareholders on Form 1099-DIV by mid-February 2016. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns.

Under Section 871(k)(1)(C) of the Code, the Fund hereby reports the maximum amount allowable but no less than $6,153,993 as interest related dividends for purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal year ended December 31, 2015.

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FRANKLIN MUTUAL BEACON FUND


Board Members and Officers


The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Fund,
principal occupations during at least the past five years and number of portfolios overseen in the Franklin Templeton Investments
fund complex, are shown below. Generally, each board member serves until that person’s successor is elected and qualified.


Independent Board Members


			Number of Portfolios in
Name, Year of Birth		Length of	Fund Complex Overseen	Other Directorships Held
and Address	Position	Time Served	by Board Member*	During at Least the Past 5 Years

Edward I. Altman, Ph.D. (1941)	Trustee	Since 1987	17	None
c/o Franklin Mutual Advisers, LLC
101 John F. Kennedy Parkway
Short Hills, NJ 07078-2789
Principal Occupation During at Least the Past 5 Years:
Max L. Heine Professor of Finance, Emeritus and Director of The Credit and Debt Markets Research Program, Salomon Center, Stern School
of Business, New York University; editor and author of numerous financial publications; financial consultant; an adviser to numerous financial
and publishing organizations; and formerly, Vice Director, Salomon Center, Stern School of Business, New York University.

Ann Torre Bates (1958)	Trustee	Since 1995	41	Navient Corporation (loan
c/o Franklin Mutual Advisers, LLC				management, servicing and asset
101 John F. Kennedy Parkway				recovery) (2014-present), Ares Capital
Short Hills, NJ 07078-2789				Corporation (specialty finance
				company) (2010-present), United
				Natural Foods, Inc. (distributor of
				natural, organic and specialty foods)
				(2013-present), Allied Capital
				Corporation (financial services)
				(2003-2010) and SLM Corporation
				(Sallie Mae) (1997-2014).
Principal Occupation During at Least the Past 5 Years:
Director of various companies; and formerly, Executive Vice President and Chief Financial Officer, NHP Incorporated (manager of multifamily
housing) (1995-1997); and Vice President and Treasurer, US Airways, Inc. (until 1995).

Burton J. Greenwald (1929)	Trustee	Trustee since	17	Franklin Templeton Emerging Markets
c/o Franklin Mutual Advisers, LLC	and Vice	2002 and Vice		Debt Opportunities Fund PLC and
101 John F. Kennedy Parkway	Chairman	Chairman since		Fiduciary International Ireland Limited
Short Hills, NJ 07078-2789	of the	April 2015		(1999-2015).
	Board
Principal Occupation During at Least the Past 5 Years:
Managing Director, B.J. Greenwald Associates (management consultants to the financial services industry); and formerly, Chairman,
Fiduciary Trust International Funds; Executive Vice President, L.F. Rothschild Fund Management, Inc.; President and Director, Merit Mutual
Funds; President, Underwriting Division and Director, National Securities & Research Corporation; Governor, Investment Company Institute;
and Chairman, ICI Public Information Committee.

Keith E. Mitchell (1954)	Trustee	Since 2009	17	None
c/o Franklin Mutual Advisers, LLC
101 John F. Kennedy Parkway
Short Hills, NJ 07078-2789
Principal Occupation During at Least the Past 5 Years:
Director of various boards of asset management firms; and formerly, Managing Member, Mitchell, Hartley & Bechtel Advisers, LLC (formerly,
Mitchell Advisers, LLC) (advisory firm) (2003-2015) and Managing Director, Putnam Lovell NBF.

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Independent Board Members (continued)

				Number of Portfolios in
Name, Year of Birth		Length of		Fund Complex Overseen	Other Directorships Held
and Address	Position	Time Served		by Board Member*	During at Least the Past 5 Years

David W. Niemiec (1949)	Trustee	Since		41	Emeritus Corporation (assisted living)
One Franklin Parkway		April 2015			(1999-2010) and OSI Pharmaceuticals,
San Mateo, CA 94403-1906					Inc. (pharmaceutical products)
					(2006-2010).
Principal Occupation During at Least the Past 5 Years:
Advisor, Saratoga Partners (private equity fund); and formerly, Managing Director, Saratoga Partners (1998-2001) and SBC Warburg Dillon
Read (investment banking) (1997-1998); Vice Chairman, Dillon, Read & Co. Inc. (investment banking) (1991-1997); and Chief Financial
Officer, Dillon, Read & Co. Inc. (1982-1997).

Charles Rubens II (1930)	Trustee	Since 1998		17	None
c/o Franklin Mutual Advisers, LLC
101 John F. Kennedy Parkway
Short Hills, NJ 07078-2789
Principal Occupation During at Least the Past 5 Years:
Private investor and president of non-profit organizations; and formerly, an executive of Time, Inc.; and Trustee of Colorado College.

Jan Hopkins Trachtman (1947)	Trustee	Since 2009		17	None
c/o Franklin Mutual Advisers, LLC
101 John F. Kennedy Parkway
Short Hills, NJ 07078-2789
Principal Occupation During at Least the Past 5 Years:
President and Founder, The Jan Hopkins Group (communications consulting firm); serves on Advisory Board of Knight Bagehot Fellowship;
and formerly, President, Economic Club of New York (2001-2015); Anchor/Correspondent, CNN Financial News (until 2003); Managing
Director and Head of Client Communications, Citigroup Private Bank (until 2005); Off-Air Reporter, ABC News’ World News Tonight; and
Editor, CBS Network News.

Robert E. Wade (1946)	Trustee	Trustee since		41	El Oro Ltd (investments)
c/o Franklin Mutual Advisers, LLC	and	1993	and		(2003-present).
101 John F. Kennedy Parkway	Chairman	Chairman
Short Hills, NJ 07078-2789	of the	of the Board
	Board	since 2005
Principal Occupation During at Least the Past 5 Years:
Attorney at law engaged in private practice (1972-2008) and member of various boards.

Gregory H. Williams (1943)	Trustee	Since		17	None
One Franklin Parkway		April 2015
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Private investor; Consultant; and formerly, President, University of Cincinnati (2009-2012); President, The City College of New York
(2001-2009); Dean, College of Law, Ohio State University (1993-2001); and Associate Vice President, Academic Affairs and Professor of Law,
University of Iowa (1977-1993).

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Interested Board Members and Officers

			Number of Portfolios in
Name, Year of Birth		Length of	Fund Complex Overseen	Other Directorships Held
and Address	Position	Time Served	by Board Member*	During at Least the Past 5 Years

**Gregory E. Johnson (1961)	Trustee	Since 2007	164	None
One Franklin Parkway
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Chairman of the Board, Member – Office of the Chairman, Director and Chief Executive Officer, Franklin Resources, Inc.; officer and/or
director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in
Franklin Templeton Investments; Vice Chairman, Investment Company Institute; and formerly, President, Franklin Resources, Inc.
(1994-2015).

**Peter A. Langerman (1955)	Trustee,	Trustee	7	American International Group, Inc.
c/o Franklin Mutual Advisers, LLC	President,	since 2007,		(AIG) Credit Facility Trust
101 John F. Kennedy Parkway	and Chief	President, and		(2010-2011).
Short Hills, NJ 07078-2702	Executive	Chief Executive
	Officer –	Officer –
	Investment	Investment
	Management	Management
		since 2005
Principal Occupation During at Least the Past 5 Years:
Chairman of the Board, Chief Executive Officer and President, Franklin Mutual Advisers, LLC; and officer and/or director, as the case may be,
of two of the investment companies in Franklin Templeton Investments.

Alison E. Baur (1964)	Vice	Since 2012	Not Applicable	Not Applicable
One Franklin Parkway	President
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Deputy General Counsel, Franklin Templeton Investments; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 44
of the investment companies in Franklin Templeton Investments.

Philippe Brugere-Trelat (1949)	Vice	Since 2005	Not Applicable	Not Applicable
101 John F. Kennedy Parkway	President
Short Hills NJ 07078-2789
Principal Occupation During at Least the Past 5 Years:
Executive Vice President, Franklin Mutual Advisers, LLC; officer of two of the investment companies in Franklin Templeton Investments; and
formerly, Portfolio Manager of Eurovest SA (French registered Investment Company, Sicav).

Laura F. Fergerson (1962)	Chief	Since 2009	Not Applicable	Not Applicable
One Franklin Parkway	Executive
San Mateo, CA 94403-1906	Officer –
	Finance and
	Administration
Principal Occupation During at Least the Past 5 Years:
Senior Vice President, Franklin Templeton Services, LLC; Vice President, Franklin Advisers, Inc. and Franklin Templeton Institutional, LLC;
and officer of 44 of the investment companies in Franklin Templeton Investments.

Aliya S. Gordon (1973)	Vice	Since 2009	Not Applicable	Not Applicable
One Franklin Parkway	President
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 44 of the investment companies in Franklin Templeton
Investments.

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Interested Board Members and Officers (continued)

			Number of Portfolios in
Name, Year of Birth		Length of	Fund Complex Overseen	Other Directorships Held
and Address	Position	Time Served	by Board Member*	During at Least the Past 5 Years

Steven J. Gray (1955)	Secretary	Secretary	Not Applicable	Not Applicable
One Franklin Parkway	and Vice	since 2005 and
San Mateo, CA 94403-1906	President	Vice President
		since 2009
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc. and Franklin
Alternative Strategies Advisers, LLC; and officer of 44 of the investment companies in Franklin Templeton Investments.

Selena L. Holmes (1965)	Vice	Since 2012	Not Applicable	Not Applicable
100 Fountain Parkway	President –
St. Petersburg, FL 33716-1205	AML
	Compliance
Principal Occupation During at Least the Past 5 Years:
Director, Global Compliance Monitoring; Chief Compliance Officer, Franklin Alternative Strategies Advisers, LLC; Vice President, Franklin
Templeton Companies, LLC; and officer of 44 of the investment companies in Franklin Templeton Investments.

Robert G. Kubilis (1973)	Treasurer,	Since 2012	Not Applicable	Not Applicable
300 S.E. 2nd Street	Chief
Fort Lauderdale, FL 33301-1923	Financial
	Officer
	and Chief
	Accounting
	Officer
Principal Occupation During at Least the Past 5 Years:
Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of four of the investment companies in Franklin
Templeton Investments.

Kimberly H. Novotny (1972)	Vice	Since 2013	Not Applicable	Not Applicable
300 S.E. 2nd Street	President
Fort Lauderdale, FL 33301-1923
Principal Occupation During at Least the Past 5 Years:
Associate General Counsel, Franklin Templeton Investments; Vice President, Fiduciary Trust International of the South and Templeton
Investment Counsel, LLC; Assistant Secretary, Franklin Resources, Inc.; and officer of 44 of the investment companies in Franklin Templeton
Investments.

Robert C. Rosselot (1960)	Chief	Since 2013	Not Applicable	Not Applicable
300 S.E. 2nd Street	Compliance
Fort Lauderdale, FL 33301-1923	Officer
Principal Occupation During at Least the Past 5 Years:
Director, Global Compliance, Franklin Templeton Investments; Vice President, Franklin Templeton Companies, LLC; officer of 44 of the
investment companies in Franklin Templeton Investments; and formerly, Senior Associate General Counsel, Franklin Templeton Investments
(2007-2013); and Secretary and Vice President, Templeton Group of Funds (2004-2013).

Karen L. Skidmore (1952)	Vice	Since 2009	Not Applicable	Not Applicable
One Franklin Parkway	President
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 44 of the investment companies in Franklin Templeton
Investments.

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Interested Board Members and Officers (continued)

			Number of Portfolios in
Name, Year of Birth		Length of	Fund Complex Overseen	Other Directorships Held
and Address	Position	Time Served	by Board Member*	During at Least the Past 5 Years

Navid Tofigh (1972)	Vice	Since	Not Applicable	Not Applicable
One Franklin Parkway	President	November 2015
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Associate General Counsel, Franklin Templeton Investments; and officer of 44 of the investment companies in Franklin Templeton
Investments.

Craig S. Tyle (1960)	Vice	Since 2005	Not Applicable	Not Applicable
One Franklin Parkway	President
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
General Counsel and Executive Vice President, Franklin Resources, Inc.; and officer of some of the other subsidiaries of Franklin Resources,
Inc. and of 44 of the investment companies in Franklin Templeton Investments.

Lori A. Weber (1964)	Vice	Since 2011	Not Applicable	Not Applicable
300 S.E. 2nd Street	President
Fort Lauderdale, FL 33301-1923

Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and
Secretary, Templeton Investment Counsel, LLC; and officer of 44 of the investment companies in Franklin Templeton Investments.

*We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These
portfolios have a common investment manager or affiliated investment managers.
**Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Franklin
Resources, Inc., which is the parent company of the Fund’s investment manager and distributor. Peter A. Langerman is considered to be an interested person of the Fund
under the federal securities laws due to his position as an officer of Franklin Mutual Advisers, LLC, which is an affiliate of the Fund’s investment manager.
Note 1: Officer information is current as of the date of this report. It is possible that after this date, information about officers may change.

The Fund’s Board has determined that certain of the members of the Audit Committee, including Ann Torre Bates, are audit committee financial experts, and
“independent,” under those provisions of the Sarbanes-Oxley Act of 2002, and the rules and form amendments adopted by the Securities and Exchange
Commission, relating to audit committee financial experts.

The Statement of Additional Information (SAI) includes additional information about the board members and is available, without charge, upon request.
Shareholders may call (800) DIAL BEN/342-5236 to request the SAI.

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Shareholder Information

Proxy Voting Policies and Procedures

The Fund’s investment manager has established Proxy Voting Policies and Procedures (Policies) that the Fund uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Fund’s complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 300 S.E. 2nd Street, Fort Lauderdale, FL 33301, Attention: Proxy Group. Copies of the Fund’s proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.

Quarterly Statement of Investments

The Fund files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission’s website at sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.

Householding of Reports and Prospectuses

You will receive the Fund’s financial reports every six months as well as an annual updated summary prospectus (prospectus available upon request). To reduce Fund expenses, we try to identify related shareholders in a household and send only one copy of the financial reports and summary prospectus. This process, called “householding,” will continue indefinitely unless you instruct us otherwise. If you prefer not to have these documents householded, please call us at (800) 632-2301. At any time you may view current prospectuses/summary prospectuses and financial reports on our website. If you choose, you may receive these documents through electronic delivery.

franklintempleton.com

Annual Report

Franklin Mutual European Fund

This annual report for Franklin Mutual European Fund covers the fiscal year ended December 31, 2015.

Your Fund’s Goals and Main Investments

The Fund seeks capital appreciation, with income as a secondary goal, by investing at least 80% of its net assets in securities of European companies that we believe are available at market prices less than their intrinsic value. The Fund defines European companies as issuers organized under the laws of, or whose principal business operations are located in, or who earn at least 50% of their revenue from, European countries, as defined in the prospectus.

Performance Overview

The Fund’s Class Z shares delivered a +0.82% cumulative total return for the 12 months under review. In comparison, the Fund’s benchmark, the MSCI Europe Index, which tracks equity performance in Europe’s developed markets, had a +4.91% total return in local currency terms.¹You can find more of the Fund’s performance data in the Performance Summary beginning on page 8.

Economic and Market Overview

The European economy expanded moderately during the 12 months under review. As measured by the MSCI Europe Index in euro and local currency terms, European equities generally rose in 2015 despite experiencing volatility, particularly in the second half of the year. The European Central Bank (ECB) initiated a significant bond-buying program in January, and eurozone economic data published during the period showed broad-based improvements such as a decrease in the number of unemployed and a small decline in the unemployment rate. Manufacturing data were generally positive, and the ECB’s quarterly bank lending surveys were also upbeat as credit conditions generally eased, particularly for businesses, and loan demand rose.

The eurozone also generally benefited from lower oil prices, a weaker euro that boosted exports, and expectations of further ECB stimulus. Slower first-quarter growth in Germany, largely due to weak exports, picked up in subsequent quarters, and growth in the U.K. remained healthy, albeit slowing. Economic expansion in France, led by higher consumer spending and

1. Source: Morningstar.
The unmanaged index is calculated in local currency and includes reinvestment of any income or distributions. One cannot invest directly in an index, and an index is not
representative of the Fund’s portfolio.
See www.franklintempletondatasources.com for additional data provider information.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).
The SOI begins on page 20.

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business investment, also contributed to regional recovery. Although the eurozone’s annual inflation rate declined early in 2015, it rose slightly during the remainder of the year.

In January, investors responded favorably to the ECB’s efforts meant to build economic momentum and boost inflation. Following market volatility in August, ECB President Mario Draghi stated that the central bank would take further action, if needed, to support the eurozone economy. Seeking to boost slowing growth, in December the ECB maintained its benchmark interest rates but announced a reduction in its deposit rate and pushed out the end date of its bond-buying program to March 2017. The moves disappointed investors, but the ECB indicated a willingness to act again if required.

Events in Greece caused volatility in European equity markets. The left-wing and anti-austerity Syriza party won Greece’s general election in January, and a July 5 referendum produced a vote against further austerity. However, Europe’s financial markets rose after negotiations produced a preliminary rescue deal and Greece’s parliament passed necessary austerity measures to secure a new bailout package. Volatility in August was driven by concerns about the potential impact of a slowdown in China’s economic growth, China’s stock market plunge, the devaluation of the yuan by the People’s Bank of China and declining commodity prices.

Investment Strategy

We follow a distinctive value investment approach that combines investments in what we believe are undervalued common stocks with distressed debt investing and risk arbitrage. Our style aims to provide our shareholders with superior risk-adjusted results over time. We employ rigorous, fundamental analysis to find compelling situations. In our opinion, successful investing is as much about assessing risk and containing losses as it is about achieving profits. In choosing investments, we look at the market price of an individual company’s securities relative to our evaluation of its intrinsic value based on factors including book value, cash flow generation, long-term earnings potential and earnings multiples. We may invest in bankrupt or distressed companies if we believe the market overreacted to adverse developments or failed to appreciate positive changes.

In addition, it is our practice to hedge the Fund’s currency exposure when we deem it advantageous for our shareholders.

What is meant by “hedge”?

To hedge an investment is to take a position intended to offset potential losses/gains that may be incurred by a companion financial instrument.


Top 10 Sectors/Industries
Based on Equity Securities as of 12/31/15
	% of Total
	Net Assets
Insurance	18.3	%
Banks	11.5	%
Diversified Telecommunication Services	7.4	%
Oil, Gas & Consumable Fuels	5.0	%
Media	4.7	%
Pharmaceuticals	4.0	%
Specialty Retail	3.7	%
Construction & Engineering	2.9	%
Metals & Mining	2.8	%
Communications Equipment	2.5	%

Manager’s Discussion

During the 12 months under review, European stock markets made gains in local currency terms. The ECB, among several other central banks, became more accommodative while fiscal authorities focused on budgetary discipline. Large companies also remained disciplined about operating costs, with margins at historically high levels in many industries and countries. To drive further growth, an increasing number of companies took advantage of low interest rates to finance deals. In this environment, we saw a number of opportunities.

We initiated a position in the U.K.-based pharmaceutical company GlaxoSmithKline in the second half of 2015. The company has missed expectations for many years and significantly underperformed its pharmaceutical industry peers. However, the drug company maintains a strong position in several important end markets and is working through a restructuring plan. In our view, continued market pessimism created an opportunity for us to buy the stock at an attractive valuation. We also initiated a position in the multinational communications and information technology company Nokia. In April, Nokia announced that it was in talks to purchase Alcatel-Lucent, a French global telecommunications equipment company. We view the potential merger as compelling. The combined company would become a much larger competitor and gain the benefits of scale in wireless access and 4G long-term evolution as well as routing and voice over Internet protocol. Overall, we view the strengths of Alcatel-Lucent as complementary to Nokia’s businesses and believe significant cost savings could be achieved.

Conversely, we exited a handful of positions during the year, including ING Groep. We sold our position in ING as the company has successfully completed the majority of its multi-year

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restructuring effort, which included spinning off its European insurance business, NN Group, and its U.S. insurance business, Voya. The company has also repaid the state aid it received from the government of the Netherlands during the financial crises. ING now has a sizable excess capital position and is able to resume dividend payments. We sold our shares in ING as the stock price reflected these positive developments and the market was paying a premium for financial stocks with strong capital positions and the potential for high dividend yields. In the first quarter of 2015, we sold our position in Marks and Spencer, the U.K.-based multinational retailer. The stock approached our sell target and we saw no new catalysts for further stock price appreciation.

Distressed debt remained a difficult market in which we could find compelling new opportunities. Low interest rates have kept credit widely available, and we felt bankruptcies were limited, except in the energy and mining sectors. Increased stress in high yield markets, particularly in energy credit, has expanded the potential opportunity set for us. For non-energy firms, costs of issuing debt are climbing and these debt securities are starting to look attractive to us. Within energy, declining commodity prices increased financial pressures for a growing number of issuers. At year-end, a record level of crude oil inventories and insistence by Saudi Arabia that it will not reduce production provide little reason to expect a quick recovery in crude oil prices, implying to us an increased likelihood of new investment opportunities in energy sector debt.

Turning to Fund performance, top contributors included insurers Direct Line Insurance Group, Ageas and NN Group.

U.K.-based Direct Line Insurance Group achieved strong cash flow generation in 2015. Amid a bottoming price environment, the company focused on disciplined underwriting and lowering expenses. Such discipline resulted in a decline in new policies written and improved profitability as evidenced by the August release of better-than-expected first-half results showing earnings across all business segments exceeded expectations. The stock had also risen in May after the announcement of a special dividend to be paid following the sale of its international division, and the dividend was paid in July 2015.

Headquartered in Belgium, Ageas is a diversified insurer with operations in Europe and Asia. The company’s stock price rose in 2015 as Ageas improved its underlying insurance results while focusing on cash generation. The company disclosed a solid capital position under new eurozone capitalization guidelines for insurers, reassuring investors. In late August, Ageas announced the sale of its Hong Kong life insurance business at a valuation that, in our view, was quite favorable.

NN Group is a Dutch insurer spun out of ING Groep. The company followed through successfully on its efforts to reduce expenses and improve return on equity, a measure of the amount earned on a company’s common stock investment. Results for several quarters were positive, and the company stated in November that it had reached its expense savings target a year early but would continue to push for further efficiencies. The company also periodically repurchased shares from ING Groep to help meet ING’s goal to fully divest its insurance and investment management holdings by the end of 2016, as required under ING’s restructuring agreement with the European Commission.

During the period under review, some of the Fund’s investments that negatively affected performance were offshore energy services company DeepOcean Group Holding, cement products and services company LafargeHolcim and broadcaster Societe Television Francaise 1.

DeepOcean provides seabed mapping and subsea services, including installation, inspection, maintenance and repairs. The ongoing decline in crude oil prices during 2015 hindered the company as many oil exploration and production companies aggressively reduced capital investment plans.

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Top 10 Equity Holdings
12/31/15
Company	% of Total
*Sector/Industry, Country*	Net Assets
NN Group NV	3.0	%
Insurance, Netherlands
Direct Line Insurance Group PLC	2.7	%
Insurance, U.K.
Ageas	2.6	%
Insurance, Belgium
Vodafone Group PLC	2.5	%
Wireless Telecommunication Services, U.K.
Koninklijke KPN NV	2.4	%
Diversified Telecommunication Services, Netherlands
Deutsche Telekom AG	2.4	%
Diversified Telecommunication Services, Germany
Enel SpA	2.4	%
Electric Utilities, Italy
Novartis AG	2.4	%
Pharmaceuticals, Switzerland
Metro AG	2.4	%
Food & Staples Retailing, Germany
Accor SA	2.4	%
Hotels, Restaurants & Leisure, France

Switzerland-based LafargeHolcim was created by the merger of Holcim and Lafarge in July 2015. Prior to the merger’s closing, each company lowered its guidance for 2015 earnings, which was followed by a November report of weaker-than-expected quarterly earnings and revenue due to slower economic growth in key emerging markets, particularly China and Brazil. Amid uncertainty in emerging markets, the company experienced selling price pressure as well as cost inflation that hindered earnings. LarfargeHolcim’s stock price decline was mitigated as investors reacted favorably to some announcements in November, including a proposed 2015 dividend increase, new targets for cumulative free cash flow and an asset sale. In its December 2015 capital markets presentation, the company also highlighted its focus on generating and returning cash to shareholders, reinforcing our belief that the market has underestimated company management’s focus on cash, costs and return on invested capital.

private broadcasters also retreated in September after the French Foreign Minister proposed lifting an advertising ban on public channels. Instead, the government increased the television license fee and a telecommunication operator tax. Although maintaining the ban was positive for private broadcasters, the serious consideration to remove it raised investors’ concerns about potential regulatory risks.

During the year, the Fund held currency forwards and futures to hedge a significant portion of the currency risk of the portfolio’s non-U.S. dollar investments. The currency forwards had a positive impact on the Fund’s performance during the period, and currency futures had a negligible impact.

What is a currency forward contract?

A currency forward contract, or a currency forward, is an agreement between the Fund and a counterparty to buy or sell a foreign currency at a specific exchange rate on a future date.

What is a futures contract?

As fellow shareholders, we found recent relative and absolute performance disappointing, but it is not uncommon for our strategy to lag the equity markets at times. We remain committed to our disciplined, value investment approach as we seek to generate attractive, long-term, risk-adjusted returns for shareholders. Thank you for your continued participation in Franklin Mutual European Fund. We look forward to continuing to serve your investment needs.

CFA^®is a trademark owned by CFA Institute.

6 Annual Report

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FRANKLIN MUTUAL EUROPEAN FUND

Philippe Brugere-Trelat has been co-portfolio manager for Franklin Mutual European Fund since 2010 and portfolio manager since 2005. He also has been portfolio manager for Franklin Mutual Global Discovery Fund since 2009. He has been a member of the management team of the Franklin Mutual Series Funds since 2004, when he rejoined Franklin Templeton Investments. Previously, he was president and portfolio manager of Eurovest. Between 1984 and 1994, Mr. Brugere-Trelat was employed at Heine Securities Corporation, the Fund’s former manager.

Katrina Dudley has been co-portfolio manager for Franklin Mutual European Fund since 2010 and was assistant portfolio manager since 2007. She follows industrial companies including transportation, manufacturers, machinery, electrical equipment and general industrial, as well as health care services companies. Prior to joining Franklin Templeton Investments in 2002, Ms. Dudley was an investment analyst at Federated Investors, Inc., responsible for the technology and health care sectors. From 1995 to 2001, Ms. Dudley was a senior manager in the corporate finance division of Ernst & Young LLP, where she specialized in valuation and litigation consulting.

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FRANKLIN MUTUAL EUROPEAN FUND

Performance Summary as of December 31, 2015


Net Asset Value

Share Class (Symbol)		12/31/15				12/31/14		Change
Z (MEURX)	$	19.48			$	20.86	-$	1.38
A (TEMIX)	$	18.95			$	20.33	-$	1.38
C (TEURX)	$	18.97			$	20.37	-$	1.40
R (n/a)	$	18.62			$	20.04	-$	1.42
R6 (FMEUX)	$	19.47			$	20.85	-$	1.38


Distributions¹(1/1/15–12/31/15)

		Dividend		Short-Term		Long-Term
Share Class		Income		Capital Gain		Capital Gain		Total
Z	$	0.4559	$	0.0975	$	0.9761	$	1.5295
A	$	0.4020	$	0.0975	$	0.9761	$	1.4756
C	$	0.2681	$	0.0975	$	0.9761	$	1.3417
R	$	0.3898	$	0.0975	$	0.9761	$	1.4634
R6	$	0.4874	$	0.0975	$	0.9761	$	1.5610

See page 12 for Performance Summary footnotes.

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FRANKLIN MUTUAL EUROPEAN FUND
PERFORMANCE SUMMARY

Performance as of 12/31/15


	Cumulative		Average Annual			Value of $10,000	Total Annual
Share Class	Total Return²		Total Return³			Investment⁴	Operating Expenses⁵
Z							1.04	%
1-Year	+0.82	%	+0.82	%	$	10,082
5-Year	+32.77	%	+5.83	%	$	13,277
10-Year	+78.64	%	+5.97	%	$	17,864
A							1.34	%
1-Year	+0.57	%	-5.21	%	$	9,479
5-Year	+30.87	%	+4.29	%	$	12,337
10-Year	+73.58	%	+5.05	%	$	16,360
C							2.04	%
1-Year	-0.16	%	-1.09	%	$	9,891
5-Year	+26.36	%	+4.79	%	$	12,636
10-Year	+61.83	%	+4.93	%	$	16,183
R							1.54	%
1-Year	+0.37	%	+0.37	%	$	10,037
5-Year	+29.57	%	+5.32	%	$	12,957
Since Inception (10/30/09)	+45.88	%	+6.31	%	$	14,588
R6							0.89	%
1-Year	+0.98	%	+0.98	%	$	10,098
Since Inception (5/1/13)	+15.49	%	+5.55	%	$	11,549

See page 12 for Performance Summary footnotes.

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FRANKLIN MUTUAL EUROPEAN FUND
PERFORMANCE SUMMARY

Total Return Index Comparison for a Hypothetical $10,000 Investment (continued)

All investments involve risks, including possible loss of principal. Value securities may not increase in price as anticipated or may decline further in value. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. Because the Fund invests its assets primarily in companies in a specific region, it is subject to greater risks of adverse developments in that region and/or the surrounding regions than a fund that is more broadly diversified geographically. Political, social or economic disruptions in the region, even in countries in which the Fund is not invested, may adversely affect the value of securities held by the Fund. The Fund’s investments in smaller company stocks carry an increased risk of price fluctuation, especially over the short term. The Fund’s investments in companies engaged in mergers, reorganizations or liquidations also involve special risks as pending deals may not be completed on time or on favorable terms. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a discussion of the main investment risks.

Class Z:

Class C:

Class R:

Class R6:

Shares are available to certain eligible investors as described in the prospectus.

These shares have higher annual fees and expenses than Class A shares.

Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares.

Shares are available to certain eligible investors as described in the prospectus.

1. The distribution amount is the sum of the dividend payments to shareholders for the period shown and includes only estimated tax-basis net investment income and
capital gain.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not
been annualized.
4. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.
5. Figures are as stated in the Fund’s current prospectus. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to
become higher than the figures shown.
6. Source: Morningstar. The MSCI Europe Index is a market capitalization-weighted index designed to measure equity market performance of developed markets in Europe.
See www.franklintempletondatasources.com for additional data provider information.

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Your Fund’s Expenses

As a Fund shareholder, you can incur two types of costs:

Transaction costs, including sales charges (loads) on Fund purchases; and
Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

Actual Fund Expenses

You can estimate the expenses you paid during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.

If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Expenses Paid During Period.”

If Expenses Paid During Period were $7.50, then 8.6 × $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

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Annual Report

FRANKLIN MUTUAL EUROPEAN FUND
YOUR FUND’S EXPENSES


		Beginning Account		Ending Account		Expenses Paid During
Share Class		Value 7/1/15		Value 12/31/15		*Period 7/1/15–12/31/15**
Z
Actual	$	1,000	$	951.60	$	5.17
Hypothetical (5% return before expenses)	$	1,000	$	1,019.91	$	5.35
A
Actual	$	1,000	$	950.60	$	6.44
Hypothetical (5% return before expenses)	$	1,000	$	1,018.60	$	6.67
C
Actual	$	1,000	$	947.30	$	10.06
Hypothetical (5% return before expenses)	$	1,000	$	1,014.87	$	10.41
R
Actual	$	1,000	$	949.60	$	7.62
Hypothetical (5% return before expenses)	$	1,000	$	1,017.39	$	7.88
R6
Actual	$	1,000	$	952.70	$	4.38
Hypothetical (5% return before expenses)	$	1,000	$	1,020.72	$	4.53

*Expenses are calculated using the most recent six-month expense ratio, annualized for each class (Z: 1.05%; A: 1.31%; C: 2.05%; R: 1.55%; and R6: 0.89%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

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Financial Highlights
					Year Ended December 31,
		2015			2014			2013			2012			2011
Class Z
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	20.86		$	24.76		$	21.13		$	18.95		$	21.47
Income from investment operations^a:
Net investment income^b		0.42			0.73	^c		0.49			0.44			0.50
Net realized and unrealized gains (losses)		(0.27	)		(1.73	)		5.12			2.89			(2.25	)
Total from investment operations		0.15			(1.00	)		5.61			3.33			(1.75	)
Less distributions from:
Net investment income		(0.46	)		(0.67	)		(0.46	)		(0.68	)		(0.77	)
Net realized gains		(1.07	)		(2.23	)		(1.52	)		(0.47	)		—
Total distributions		(1.53	)		(2.90	)		(1.98	)		(1.15	)		(0.77	)
Net asset value, end of year	$	19.48		$	20.86		$	24.76		$	21.13		$	18.95

Total return		0.82	%		(4.00	)%		26.68	%		17.73	%		(8.01	)%

Ratios to average net assets
Expenses^d		1.05	%		1.04	%^e		1.07	%^e		1.13	%		1.11	%
Expenses incurred in connection with securities sold short		—%^f			0.01	%		—%^f			—%			—%
Net investment income		1.93	%		2.93	%^c		2.04	%		2.16	%		2.43	%

Supplemental data
Net assets, end of year (000’s)	$	1,355,780		$	1,128,769		$	1,399,294		$	1,101,659		$	964,069
Portfolio turnover rate		32.59	%		54.05	%		39.05	%		41.69	%		32.60	%

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FRANKLIN MUTUAL EUROPEAN FUND
FINANCIAL H IGHLIGHTS


					Year Ended December 31,
		2015			2014			2013			2012			2011
Class A
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	20.33		$	24.21		$	20.71		$	18.59		$	21.06
Income from investment operations^a:
Net investment income^b		0.35			0.61	^c		0.42			0.37			0.44
Net realized and unrealized gains (losses)		(0.26	)		(1.66	)		4.99			2.84			(2.20	)
Total from investment operations		0.09			(1.05	)		5.41			3.21			(1.76	)
Less distributions from:
Net investment income		(0.40	)		(0.60	)		(0.39	)		(0.62	)		(0.71	)
Net realized gains		(1.07	)		(2.23	)		(1.52	)		(0.47	)		—
Total distributions		(1.47	)		(2.83	)		(1.91	)		(1.09	)		(0.71	)
Net asset value, end of year	$	18.95		$	20.33		$	24.21		$	20.71		$	18.59

Total return^d		0.57	%		(4.31	)%		26.30	%		17.37	%		(8.27	)%

Ratios to average net assets
Expenses^e		1.33	%		1.34	%^f		1.37	%^f		1.43	%		1.41	%
Expenses incurred in connection with securities sold short		—%^g			0.01	%		—%^g			—%			—%
Net investment income		1.65	%		2.63	%^c		1.74	%		1.86	%		2.13	%

Supplemental data
Net assets, end of year (000’s)	$	1,033,307		$	843,836		$	839,655		$	653,435		$	593,825
Portfolio turnover rate		32.59	%		54.05	%		39.05	%		41.69	%		32.60	%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases
of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^bBased on average daily shares outstanding.
^cNet investment income per share includes approximately $0.29 per share received in the form of a special dividend paid in connection with certain Fund’s holdings. Excluding
this amount, the ratio of net investment income to average net assets would have been 1.44%.
^dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
^eIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(e).
^fBenefit of expense reduction rounds to less than 0.01%.
^gRounds to less than 0.01%.

16 Annual Report | The accompanying notes are an integral part of these financial statements.

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FRANKLIN MUTUAL EUROPEAN FUND
FINANCIAL H IGHLIGHTS


					Year Ended December 31,
		2015			2014			2013			2012			2011
Class C
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	20.37		$	24.25		$	20.79		$	18.66		$	21.10
Income from investment operations^a:
Net investment income^b		0.19			0.43	^c		0.24			0.24			0.31
Net realized and unrealized gains (losses)		(0.25	)		(1.64	)		5.02			2.83			(2.20	)
Total from investment operations		(0.06	)		(1.21	)		5.26			3.07			(1.89	)
Less distributions from:
Net investment income		(0.27	)		(0.44	)		(0.28	)		(0.47	)		(0.55	)
Net realized gains		(1.07	)		(2.23	)		(1.52	)		(0.47	)		—
Total distributions		(1.34	)		(2.67	)		(1.80	)		(0.94	)		(0.55	)
Net asset value, end of year	$	18.97		$	20.37		$	24.25		$	20.79		$	18.66

Total return^d		(0.16	)%		(4.97	)%		25.44	%		16.54	%		(8.90	)%

Ratios to average net assets
Expenses^e		2.05	%		2.04	%^f		2.07	%^f		2.13	%		2.11	%
Expenses incurred in connection with securities sold short		—%^g			0.01	%		—%^g			—%			—%
Net investment income		0.93	%		1.93	%^c		1.04	%		1.16	%		1.43	%

Supplemental data
Net assets, end of year (000’s)	$	291,752		$	216,258		$	198,491		$	122,438		$	127,012
Portfolio turnover rate		32.59	%		54.05	%		39.05	%		41.69	%		32.60	%

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases
of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^bBased on average daily shares outstanding.
^cNet investment income per share includes approximately $0.29 per share received in the form of a special dividend paid in connection with certain Fund’s holdings. Excluding
this amount, the ratio of net investment income to average net assets would have been 0.74%.
^dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
^eIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(e).
^fBenefit of expense reduction rounds to less than 0.01%.
^gRounds to less than 0.01%.

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FRANKLIN MUTUAL EUROPEAN FUND
FINANCIAL H IGHLIGHTS


					Year Ended December 31,
		2015			2014			2013			2012			2011
Class R
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	20.04		$	23.95		$	20.55		$	18.47		$	21.00
Income from investment operations^a:
Net investment income^b		0.27			0.41	^c		0.31			0.33			0.16
Net realized and unrealized gains (losses)		(0.23	)		(1.49	)		5.02			2.81			(1.97	)
Total from investment operations		0.04			(1.08	)		5.33			3.14			(1.81	)
Less distributions from:
Net investment income		(0.39	)		(0.60	)		(0.41	)		(0.59	)		(0.72	)
Net realized gains		(1.07	)		(2.23	)		(1.52	)		(0.47	)		—
Total distributions		(1.46	)		(2.83	)		(1.93	)		(1.06	)		(0.72	)
Net asset value, end of year	$	18.62		$	20.04		$	23.95		$	20.55		$	18.47

Total return		0.37	%		(4.52	)%		26.05	%		17.16	%		(8.45	)%

Ratios to average net assets
Expenses^d		1.55	%		1.54	%^e		1.57	%^e		1.63	%		1.61	%
Expenses incurred in connection with securities sold short		—%^f			0.01	%		—%^f			—%			—%
Net investment income		1.43	%		2.43	%^c		1.54	%		1.66	%		1.93	%

Supplemental data
Net assets, end of year (000’s)	$	997		$	421		$	133		$	46		$	31
Portfolio turnover rate		32.59	%		54.05	%		39.05	%		41.69	%		32.60	%

18 Annual Report | The accompanying notes are an integral part of these financial statements.

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FINANCIAL H IGHLIGHTS


		Year Ended December 31,
		2015			2014			2013	^a
Class R6
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	20.85		$	24.75		$	22.54
Income from investment operations^b:
Net investment income^c		0.46			0.75	^d		0.28
Net realized and unrealized gains (losses)		(0.28	)		(1.71	)		3.95
Total from investment operations		0.18			(0.96	)		4.23
Less distributions from:
Net investment income		(0.49	)		(0.71	)		(0.50	)
Net realized gains		(1.07	)		(2.23	)		(1.52	)
Total distributions		(1.56	)		(2.94	)		(2.02	)
Net asset value, end of year	$	19.47		$	20.85		$	24.75

Total return^e		0.98	%		(3.88	)%		18.99	%

Ratios to average net assets^f
Expenses^g		0.89	%		0.89	%^h		0.90	%^h
Expenses incurred in connection with securities sold short		—%ⁱ			0.01	%		—%ⁱ
Net investment income		2.09	%		3.08	%^d		2.21	%

Supplemental data
Net assets, end of year (000’s)	$	373,904		$	334,396		$	317,690
Portfolio turnover rate		32.59	%		54.05	%		39.05	%

^aFor the period May 1, 2013 (effective date) to December 31, 2013.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases
of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dNet investment income per share includes approximately $0.29 per share received in the form of a special dividend paid in connection with certain Fund’s holdings. Excluding
this amount, the ratio of net investment income to average net assets would have been 1.89%.
^eTotal return is not annualized for periods less than one year.
^fRatios are annualized for periods less than one year.
^gIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(e).
^hBenefit of expense reduction rounds to less than 0.01%.
ⁱRounds to less than 0.01%.

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FRANKLIN MUTUAL EUROPEAN FUND



Statement of Investments, December 31, 2015
	Country	Shares		Value
Common Stocks 91.3%
Air Freight & Logistics 2.0%
Deutsche Post AG	Germany	2,182,340	$	61,528,061
Auto Components 1.6%
Cie Generale des Etablissements Michelin, B	France	515,350		49,206,326
Banks 11.5%
Barclays PLC	United Kingdom	14,226,562		45,901,665
BNP Paribas SA	France	1,059,470		60,108,858
^aCommerzbank AG	Germany	3,869,928		40,237,905
HSBC Holdings PLC	United Kingdom	5,156,850		40,756,233
^aRoyal Bank of Scotland Group PLC	United Kingdom	9,206,016		40,979,004
Societe Generale SA	France	1,426,820		65,978,528
UniCredit SpA	Italy	10,178,557		56,774,909
				350,737,102
Beverages 0.6%
SABMiller PLC	United Kingdom	287,320		17,234,141
Capital Markets 1.7%
UBS Group AG	Switzerland	2,716,984		52,929,668
Chemicals 2.2%
Arkema SA	France	864,355		60,643,913
^a,bCovestro AG, 144A	Germany	184,155		6,728,291
				67,372,204
Commercial Services & Supplies 1.1%
G4S PLC	United Kingdom	10,283,548		34,180,016
Communications Equipment 2.5%
Nokia Corp., ADR	Finland	5,416,684		38,025,122
Nokia OYJ, A	Finland	5,254,934		37,645,394
				75,670,516
Construction & Engineering 2.9%
^aBalfour Beatty PLC	United Kingdom	12,287,260		48,935,398
FLSmidth & Co. AS	Denmark	1,157,049		40,429,164
				89,364,562
Construction Materials 1.8%
^aLafargeHolcim Ltd., B	Switzerland	1,069,771		53,702,077
Diversified Financial Services 0.1%
Oslo Bors VPS Holding ASA	Norway	340,000		3,364,395
Diversified Telecommunication Services 7.4%
Deutsche Telekom AG	Germany	4,071,986		73,823,120
^aEuskaltel SA	Spain	3,553,732		44,701,595
Hellenic Telecommunications Organization SA	Greece	3,354,681		33,670,765
Koninklijke KPN NV	Netherlands	19,594,565		74,325,809
				226,521,289
Electric Utilities 2.4%
Enel SpA	Italy	17,391,006		73,523,694
Energy Equipment & Services 0.2%
^a,cDeepOcean Group Holding BV	Netherlands	915,467		5,492,802
Food & Staples Retailing 2.4%
Metro AG	Germany	2,253,361		72,354,407

20 Annual Report

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FRANKLIN MUTUAL EUROPEAN FUND
STATEMENT O F INVESTMENTS


	Country	Shares		Value
Common Stocks (continued)
Hotels, Restaurants & Leisure 2.4%
Accor SA	France	1,660,611	$	72,162,566
Industrial Conglomerates 2.3%
Koninklijke Philips NV	Netherlands	2,795,546		71,543,752
Insurance 18.3%
Ageas	Belgium	1,719,689		79,950,920
Assicurazioni Generali SpA	Italy	3,652,907		67,138,055
Direct Line Insurance Group PLC	United Kingdom	13,726,245		82,444,576
Lancashire Holdings Ltd	United Kingdom	3,635,463		33,651,320
NN Group NV	Netherlands	2,620,354		92,649,002
RSA Insurance Group PLC	United Kingdom	10,023,189		63,009,740
^aStorebrand ASA	Norway	7,001,292		27,672,308
UNIQA Insurance Group AG	Austria	5,362,759		43,835,359
XL Group PLC	Ireland	1,794,560		70,310,861
				560,662,141
Machinery 1.5%
CNH Industrial NV	United Kingdom	2,999,447		20,656,667
CNH Industrial NV, special voting	United Kingdom	833,461		5,739,900
^aVossloh AG	Germany	293,290		18,962,254
				45,358,821
Marine 1.9%
A.P. Moeller-Maersk AS, B	Denmark	43,810		57,245,254
Media 4.7%
^aLiberty Global PLC, C	United Kingdom	1,678,216		68,420,866
Relx PLC	United Kingdom	2,683,818		47,351,086
Societe Television Francaise 1	France	2,437,601		27,140,402
				142,912,354
Metals & Mining 2.8%
ThyssenKrupp AG	Germany	2,356,505		46,945,879
Voestalpine AG	Austria	1,260,959		38,824,620
				85,770,499
Oil, Gas & Consumable Fuels 5.0%
BG Group PLC	United Kingdom	3,385,143		49,146,883
BP PLC	United Kingdom	8,930,241		46,596,057
^aCairn Energy PLC	United Kingdom	12,858,240		29,887,938
Royal Dutch Shell PLC, A	United Kingdom	1,215,969		27,863,253
				153,494,131
Pharmaceuticals 4.0%
GlaxoSmithKline PLC	United Kingdom	2,372,367		48,010,380
Novartis AG	Switzerland	846,994		73,372,334
				121,382,714
Road & Rail 0.7%
^d,eEuro Wagon LP	Jersey Islands	16,127,149		20,683,866
Specialty Retail 3.7%
^aDufry AG	Switzerland	345,245		41,346,707
Hornbach Holding AG & Co. KGaA	Germany	144,613		9,621,509
Kingfisher PLC	United Kingdom	12,840,634		62,362,658
				113,330,874

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FRANKLIN MUTUAL EUROPEAN FUND
STATEMENT O F INVESTMENTS


	Country		Shares		Value
Common Stocks (continued)
Technology Hardware, Storage & Peripherals 0.3%
Wincor Nixdorf AG	Germany		191,959	$	9,669,905
Trading Companies & Distributors 0.9%
Kloeckner & Co. SE	Germany		3,031,653		26,493,255
Wireless Telecommunication Services 2.4%
Vodafone Group PLC	United Kingdom		23,038,468		75,046,181
Total Common Stocks (Cost $2,917,741,670)					2,788,937,573
Preferred Stocks 2.6%
Auto Components 0.6%
^aSchaeffler AG, pfd	Germany		992,820		17,524,824
Automobiles 2.0%
Volkswagen AG, pfd	Germany		422,568		61,393,188
Total Preferred Stocks (Cost $81,060,425)					78,918,012
Total Investments before Short Term Investments
(Cost $2,998,802,095)					2,867,855,585

			Principal
			Amount
Short Term Investments (Cost $112,732,463) 3.6%
U.S. Government and Agency Securities 3.6%
^fU.S. Treasury Bill, 1/21/16 - 5/26/16	United States	$	112,800,000		112,732,160
Total Investments (Cost $3,111,534,558) 97.5%					2,980,587,745
Other Assets, less Liabilities 2.5%					75,153,074
Net Assets 100.0%				$	3,055,740,819

^aNon-income producing.
^bSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers
or in a public offering registered under the Securities Act of 1933. This security has been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At
December 31, 2015, the value of this security was $6,728,291, representing 0.22% of net assets.
^cSecurity has been deemed illiquid because it may not be able to be sold within seven days.
^dSee Note 9 regarding restricted securities.
^eSee Note 11 regarding holdings of 5% voting securities.
^fThe security is traded on a discount basis with no stated coupon rate.

22 Annual Report

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STATEMENT O F INVESTMENTS


At December 31, 2015, the Fund had the following futures contracts outstanding. See Note 1(c).

Futures Contracts
			Number of		Notional Expiration			Unrealized		Unrealized
Description		Type	Contracts		Value	Date		Appreciation		Depreciation
Currency Contracts
CHF/USD		Short	82	$	10,282,800	3/14/16	$	134,240	$	—
EUR/USD		Short	3,635		494,632,625	3/14/16		246,914		—
GBP/USD		Short	2,019		185,924,663	3/14/16		4,793,678		—
Total Futures Contracts							$	5,174,832	$	—
Net unrealized appreciation (depreciation)							$	5,174,832

At December 31, 2015, the Fund had the following forward exchange contracts outstanding. See Note 1(c).

Forward Exchange Contracts
					Contract	Settlement		Unrealized		Unrealized
Currency	Counterparty^aType		Quantity		Amount	Date		Appreciation		Depreciation
OTC Forward Exchange Contracts
Euro	BANT	Buy	5,876,994	$	6,483,423	1/06/16	$	—	$	(98,571	)
Euro	BANT	Sell	26,033,059		28,891,489	1/06/16		608,791		—
Euro	BONY	Buy	5,335,051		5,885,627	1/06/16		—		(89,549	)
Euro	BONY	Sell	57,780,776		63,197,724	1/06/16		423,840		—
Euro	DBFX	Buy	7,055,348		7,784,772	1/06/16		—		(119,739	)
Euro	DBFX	Sell	169,226		188,018	1/06/16		4,168		—
Euro	FBCO	Buy	5,876,995		6,486,533	1/06/16		—		(101,680	)
Euro	HSBC	Buy	4,698,743		5,171,892	1/06/16		—		(67,109	)
Euro	SSBT	Buy	4,698,744		5,171,837	1/06/16		—		(67,053	)
Euro	SSBT	Sell	60,091,123		65,822,977	1/06/16		539,099		—
Euro	BANT	Buy	7,202,045		7,869,094	1/20/16		—		(41,917	)
Euro	BANT	Sell	30,347,232		33,907,218	1/20/16		925,871		—
Euro	BBU	Sell	1,148,740		1,257,307	1/20/16		8,858		—
Euro	BONY	Buy	1,816,848		1,980,575	1/20/16		—		(6,026	)
Euro	BONY	Sell	648,104		709,427	1/20/16		5,068		—
Euro	DBFX	Buy	13,529,254		14,799,713	1/20/16		644		(96,775	)
Euro	DBFX	Sell	1,013,367		1,132,706	1/20/16		31,380		—
Euro	FBCO	Buy	7,202,027		7,867,002	1/20/16		—		(39,846	)
Euro	FBCO	Sell	61,594,587		67,481,988	1/20/16		541,043		—
Euro	HSBC	Buy	8,080,671		8,831,255	1/20/16		—		(49,188	)
Euro	HSBC	Sell	54,084,611		59,220,009	1/20/16		440,898		—
Euro	SSBT	Buy	11,817,318		12,959,827	1/20/16		—		(116,776	)
Euro	SSBT	Sell	14,004,389		15,824,143	1/20/16		604,185		—
British Pound	BANT	Buy	47,283		71,519	1/21/16		—		(1,822	)
British Pound	BANT	Sell	40,869,005		63,774,702	1/21/16		3,532,405		—
British Pound	BONY	Sell	289,599		445,408	1/21/16		18,529		—
British Pound	DBFX	Buy	853,627		1,316,190	1/21/16		—		(57,915	)
British Pound	FBCO	Buy	5,236,132		8,254,574	1/21/16		—		(536,338	)
British Pound	FBCO	Sell	401,261		615,608	1/21/16		24,136		—
British Pound	SSBT	Buy	7,893		11,931	1/21/16		—		(296	)
British Pound	SSBT	Sell	38,795,630		60,513,618	1/21/16		3,327,545		—
British Pound	BANT	Buy	4,517,102		6,982,641	2/19/16		—		(324,026	)
British Pound	BANT	Sell	21,822,065		33,261,498	2/19/16		1,093,813		—
British Pound	BBU	Buy	2,982,901		4,591,474	2/19/16		—		(194,410	)
British Pound	BBU	Sell	581,708		882,783	2/19/16		25,293		—
British Pound	DBFX	Buy	1,221,418		1,849,246	2/19/16		—		(48,767	)
British Pound	DBFX	Sell	43,239,809		67,353,049	2/19/16		3,613,685		—
British Pound	FBCO	Buy	13,815,174		21,419,570	2/19/16		—		(1,054,762	)
British Pound	FBCO	Sell	47,341,151		73,723,153	2/19/16		3,938,044		—
British Pound	HSBC	Buy	9,892,123		15,517,048	2/19/16		—		(935,170	)
British Pound	SSBT	Buy	9,178,274		14,285,099	2/19/16		—		(755,498	)
British Pound	SSBT	Sell	631,728		954,086	2/19/16		22,863		—
Euro	BANT	Sell	80,475,441		90,837,553	2/22/16		3,302,919		—

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STATEMENT O F INVESTMENTS


Forward Exchange Contracts (continued)
					Contract	Settlement		Unrealized		Unrealized
Currency	Counterparty^aType		Quantity		Amount	Date		Appreciation		Depreciation
OTC Forward Exchange Contracts (continued)
Euro	BBU	Sell	748,207	$	844,469	2/22/16	$	30,630	$	—
Euro	BONY	Sell	1,046,116		1,186,306	2/22/16		48,426		—
Euro	DBFX	Sell	11,745,953		13,229,386	2/22/16		453,094		—
Euro	FBCO	Sell	11,029,062		12,469,947	2/22/16		473,431		—
Euro	HSBC	Sell	89,793,352		101,266,872	2/22/16		3,596,972		—
Euro	SSBT	Sell	14,250,329		16,093,405	2/22/16		593,057		—
Euro	DBFX	Sell	58,077,148		66,517,500	4/01/16		3,278,091		—
Euro	FBCO	Sell	2,516,754		2,713,773	4/01/16		—		(26,686	)
Euro	SSBT	Sell	58,077,147		66,516,918	4/01/16		3,277,510		—
Euro	BANT	Sell	53,468,539		61,293,330	4/18/16		3,039,745		—
Euro	BONY	Sell	2,241,505		2,486,165	4/18/16		44,062		—
Euro	DBFX	Sell	5,866,807		6,514,193	4/18/16		122,349		—
Euro	FBCO	Sell	4,483,009		4,967,062	4/18/16		82,856		—
Euro	HSBC	Sell	59,976,164		68,474,138	4/18/16		3,130,542		—
Euro	SSBT	Sell	10,571,891		11,707,038	4/18/16		189,039		—
British Pound	BANT	Sell	40,407,815		62,310,777	4/22/16		2,736,272		—
British Pound	DBFX	Sell	1,492,421		2,222,491	4/22/16		22,168		—
British Pound	HSBC	Sell	29,019,928		44,827,082	4/22/16		2,042,095		—
Euro	BANT	Sell	32,082,052		34,965,526	5/04/16		9,908		(15,876	)
Euro	FBCO	Sell	2,975,904		3,214,572	5/04/16		—		(29,354	)
Euro	HSBC	Sell	1,098,664		1,165,430	5/04/16		—		(32,184	)
Euro	SSBT	Sell	126,956,194		136,563,506	5/04/16		9,275		(1,836,165	)
Swiss Franc	BANT	Buy	2,169,035		2,186,134	5/12/16		6,614		(14,687	)
Swiss Franc	BANT	Sell	20,733,077		20,786,602	5/12/16		—		(32,751	)
Swiss Franc	BONY	Buy	3,829,668		3,821,002	5/12/16		32,124		(7,521	)
Swiss Franc	DBFX	Buy	1,212,720		1,203,333	5/12/16		14,433		—
Swiss Franc	FBCO	Buy	2,085,436		2,085,967	5/12/16		24,332		(16,185	)
Swiss Franc	HSBC	Buy	2,476,005		2,456,873	5/12/16		38,017		(8,582	)
Swiss Franc	HSBC	Sell	589,400		595,400	5/12/16		3,547		—
Swiss Franc	SSBT	Buy	4,206,908		4,217,347	5/12/16		14,767		(7,699	)
Euro	BANT	Sell	72,599,673		77,938,103	5/18/16		—		(1,236,531	)
Euro	DBFX	Sell	21,395,850		22,796,951	5/18/16		—		(536,605	)
Euro	FBCO	Sell	85,848,047		92,034,387	5/18/16		—		(1,588,454	)
Euro	HSBC	Sell	6,773,164		7,222,707	5/18/16		—		(163,865	)
Euro	SSBT	Sell	3,408,770		3,633,241	5/18/16		—		(84,243	)
British Pound	BANT	Sell	954,252		1,415,585	5/23/16		8,487		—
British Pound	BONY	Sell	1,807,204		2,700,649	5/23/16		35,827		—
British Pound	FBCO	Sell	39,438,882		60,421,945	5/23/16		2,267,117		—
British Pound	HSBC	Sell	25,268,893		38,674,546	5/23/16		1,414,157		—
Norwegian Krone	BANT	Sell	250,556,871		29,072,319	5/23/16		756,649		—
Norwegian Krone	BONY	Buy	689,513		79,672	5/23/16		—		(1,750	)
Norwegian Krone	DBFX	Buy	8,395,150		970,829	5/23/16		—		(22,086	)
Norwegian Krone	DBFX	Sell	8,904,520		1,033,519	5/23/16		27,211		—
Norwegian Krone	SSBT	Sell	20,928,442		2,401,966	5/23/16		36,823		—
Total Forward Exchange Contracts							$	50,892,704	$	(10,464,457	)
Net unrealized appreciation (depreciation)							$	40,428,247

^aMay be comprised of multiple contracts with the same counterparty, currency and settlement date.

See Abbreviations on page 41.

24 Annual Report | The accompanying notes are an integral part of these financial statements.

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Financial Statements

Statement of Assets and Liabilities
December 31, 2015

Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	3,105,252,049
Cost - Controlled affiliates (Note 11)		6,282,509
Total cost of investments	$	3,111,534,558
Value - Unaffiliated issuers	$	2,959,903,879
Value - Controlled affiliates (Note 11)		20,683,866
Total value of investments		2,980,587,745
Cash		2,179,882
Restricted Cash (Note 1d)		5,770,000
Foreign currency, at value (cost and $4,956,918)		4,922,230
Receivables:
Investment securities sold		1,926,780
Capital shares sold		17,488,546
Dividends		5,650,848
Due from brokers		17,877,295
Variation margin		4,001,163
Unrealized appreciation on OTC forward exchange contracts		50,892,704
Other assets		2,595,834
Total assets		3,093,893,027
Liabilities:
Payables:
Investment securities purchased		4,231
Capital shares redeemed		15,555,405
Management fees		2,230,477
Distribution fees		943,439
Transfer agent fees		679,086
Trustees’ fees and expenses		96,374
Due to brokers		7,910,000
Unrealized depreciation on OTC forward exchange contracts		10,464,457
Accrued expenses and other liabilities		268,739
Total liabilities		38,152,208
Net assets, at value	$	3,055,740,819
Net assets consist of:
Paid-in capital	$	3,160,884,775
Undistributed net investment income		1,503,610
Net unrealized appreciation (depreciation)		(85,750,525	)
Accumulated net realized gain (loss)		(20,897,041	)
Net assets, at value	$	3,055,740,819

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FRANKLIN MUTUAL EUROPEAN FUND
FINANCIAL STATEMENTS


Statement of Assets and Liabilities (continued)
December 31, 2015

Class Z:
Net assets, at value	$	1,355,780,265
Shares outstanding		69,589,685
Net asset value and maximum offering price per share	$	19.48
Class A:
Net assets, at value	$	1,033,307,318
Shares outstanding		54,538,999
Net asset value per share^a	$	18.95
Maximum offering price per share (net asset value per share ÷ 94.25%)	$	20.11
Class C:
Net assets, at value	$	291,751,742
Shares outstanding		15,375,627
Net asset value and maximum offering price per share^a	$	18.97
Class R:
Net assets, at value	$	997,164
Shares outstanding		53,559
Net asset value and maximum offering price per share	$	18.62
Class R6:
Net assets, at value	$	373,904,330
Shares outstanding		19,205,396
Net asset value and maximum offering price per share	$	19.47

^aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.

26 Annual Report | The accompanying notes are an integral part of these financial statements.

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FINANCIAL STATEMENTS


Statement of Operations
for the year ended December 31, 2015

Investment income:
Dividends: (net of foreign taxes of $8,150,465)
Unaffiliated issuers	$	87,042,573
Controlled affiliates (Note 11)		2,733,151
Interest		357,273
Other Income (Note 1f)		2,721,387
Total investment income		92,854,384
Expenses:
Management fees (Note 3a)		26,405,032
Distribution fees: (Note 3c)
Class A		2,898,013
Class C		2,819,629
Class R		3,795
Transfer agent fees: (Note 3e)
Class Z		2,203,402
Class A		1,631,388
Class C		441,451
Class R		1,189
Class R6		2,496
Custodian fees (Note 4)		380,161
Reports to shareholders		134,040
Registration and filing fees		178,239
Professional fees		219,443
Trustees’ fees and expenses		84,363
Dividends and/or interest on securities sold short		44,451
Other		245,685
Total expenses		37,692,777
Net investment income		55,161,607
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments		(13,490,596	)
Foreign currency transactions		164,046,357
Futures contracts		50,565,858
Securities sold short		82,534
Net realized gain (loss)		201,204,153
Net change in unrealized appreciation (depreciation) on:
Investments		(226,564,731	)
Translation of other assets and liabilities denominated in foreign currencies		(63,385,119	)
Futures contracts		(3,431,977	)
Net change in unrealized appreciation (depreciation)		(293,381,827	)
Net realized and unrealized gain (loss)		(92,177,674	)
Net increase (decrease) in net assets resulting from operations	$	(37,016,067	)

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The accompanying notes are an integral part of these financial statements. | Annual Report 27


Statements of Changes in Net Assets

		Year Ended December 31,

		2015			2014
Increase (decrease) in net assets:
Operations:
Net investment income	$	55,161,607		$	80,865,875
Net realized gain (loss)		201,204,153			170,420,243
Net change in unrealized appreciation (depreciation)		(293,381,827	)		(384,541,282	)
Net increase (decrease) in net assets resulting from operations		(37,016,067	)		(133,255,164	)
Distributions to shareholders from:
Net investment income:
Class Z		(31,114,277	)		(33,590,853	)
Class A		(21,144,357	)		(22,317,956	)
Class C		(3,964,425	)		(4,219,670	)
Class R		(19,419	)		(11,161	)
Class R6		(8,882,402	)		(10,013,981	)
Net realized gains:
Class Z		(73,683,072	)		(111,120,702	)
Class A		(56,764,217	)		(82,617,039	)
Class C		(15,827,677	)		(21,329,977	)
Class R		(50,917	)		(41,595	)
Class R6		(19,461,990	)		(31,288,445	)
Total distributions to shareholders		(230,912,753	)		(316,551,379	)
Capital share transactions: (Note 2)
Class Z		346,269,841			(63,822,544	)
Class A		283,078,189			153,553,663
Class C		102,973,077			55,952,304
Class R		682,210			356,413
Class R6		66,985,459			72,186,056
Total capital share transactions		799,988,776			218,225,892
Net increase (decrease) in net assets		532,059,956			(231,580,651	)
Net assets:
Beginning of year		2,523,680,863			2,755,261,514
End of year	$	3,055,740,819		$	2,523,680,863
Undistributed net investment income included in net assets:
End of year	$	1,503,610		$	1,915,950

28 Annual Report | The accompanying notes are an integral part of these financial statements.

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FINANCIAL STATEMENTS

FRANKLIN MUTUAL EUROPEAN FUND

Notes to Financial Statements

1. Organization and Significant Accounting Policies

Franklin Mutual Series Funds (Trust) is registered under the Investment Company Act of 1940 (1940 Act) as an open-end management investment company, consisting of seven separate funds and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). Franklin Mutual European Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. The Fund offers five classes of shares: Class Z, Class A, Class C, Class R and Class R6. Each class of shares differs by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees primarily due to differing arrangements for distribution and transfer agent fees.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Fund calculates the net asset value (NAV) per share as of 4 p.m. Eastern time each day the New York Stock Exchange (NYSE) is open for trading. Under compliance policies and procedures approved by the Trust’s Board of Trustees (the Board), the Fund’s administrator has responsibility for oversight of valuation, including leading the cross-functional Valuation and Liquidity Oversight Committee (VLOC). The VLOC provides administration and oversight of the Fund’s valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

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1. Organization and Significant Accounting

Policies (continued)

a. Financial Instrument Valuation (continued)

to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VLOC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.

b. Foreign Currency Translation

c. Derivative Financial Instruments

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unrealized appreciation and depreciation on these contracts for the period are included in the Statement of Operations.

Derivative counterparty credit risk is managed through a formal evaluation of the creditworthiness of all potential counter-parties. The Fund attempts to reduce its exposure to counterparty credit risk on OTC derivatives, whenever possible, by entering into International Swaps and Derivatives Association (ISDA) master agreements with certain counterparties. These agreements contain various provisions, including but not limited to collateral requirements, events of default, or early termination. Termination events applicable to the counterparty include certain deteriorations in the credit quality of the counterparty. Termination events applicable to the Fund include failure of the Fund to maintain certain net asset levels and/or limit the decline in net assets over various periods of time. In the event of default or early termination, the ISDA master agreement gives the non-defaulting party the right to net and close-out all transactions traded, whether or not arising under the ISDA agreement, to one net amount payable by one counterparty to the other. However, absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities. Early termination by the counterparty may result in an immediate payment by the Fund of any net liability owed to that counterparty under the ISDA agreement.

Collateral requirements differ by type of derivative. Collateral or initial margin requirements are set by the broker or exchange clearing house for exchange traded and centrally cleared derivatives. Initial margin deposited is held at the exchange and can be in the form of cash and/or securities. For OTC derivatives traded under an ISDA master agreement, posting of collateral is required by either the Fund or the applicable counterparty if the total net exposure of all OTC derivatives with the applicable counterparty exceeds the minimum transfer amount, which typically ranges from $100,000 to $250,000, and can vary depending on the counterparty and the type of the agreement. Generally, collateral is determined at the close of Fund business each day and any additional collateral required due to changes in derivative values may be delivered by the Fund or the counter-party within a few business days. Collateral pledged and/or received by the Fund for OTC derivatives, if any, is held in segregated accounts with the Fund’s custodian/counterparty broker and can be in the form of cash and/or securities. Unrestricted cash may be invested according to the Fund’s investment objectives. To the extent that the amounts due to the Fund from its counterparties are not subject to collateralization or are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance.

The Fund entered into exchange traded financial futures contracts primarily to manage exposure to certain foreign currencies. A futures contract is an agreement between the Fund and a counterparty to buy or sell an asset for a specified price on a future date. Required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Statement of Assets and Liabilities.

See Note 10 regarding other derivative information.

d. Restricted Cash

e. Securities Sold Short

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1. Organization and Significant Accounting

Policies (continued)

e. Securities Sold Short (continued)

borrowing fees are recorded as an expense to the Fund. At December 31, 2015, the Fund had no securities sold short.

f. Income and Deferred Taxes

The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply, the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date. As a result of several court cases, in certain countries across the European Union, the Fund has filed additional tax reclaims for previously withheld taxes on dividends earned in those countries. These additional filings are subject to various administrative proceedings by the local jurisdictions’ tax authorities within the European Union, as well as a number of related judicial proceedings. During the year ended December 31, 2015, the Fund recognized $2,748,147 from Finland and Sweden for previously withheld foreign taxes and interest on such taxes. These amounts are reflected as other income and interest in the Statement of Operations. In regards to filings in other European Union countries, uncertainty exists as to the ultimate resolution of these proceedings, the likelihood of receipt of these reclaims, and the potential timing of payment, and accordingly, no amounts are reflected in the financial statements.

The Fund may recognize an income tax liability related to its uncertain tax positions under U.S. GAAP when the uncertain tax position has a less than 50% probability that it will be sustained upon examination by the tax authorities based on its technical merits. As of December 31, 2015, the Fund has determined that no tax liability is required in its financial statements related to uncertain tax positions for any open tax years (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction’s statute of limitation.

g. Security Transactions, Investment Income, Expenses and Distributions

h. Accounting Estimates

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i. Guarantees and Indemnifications

of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

2. Shares of Beneficial Interest

At December 31, 2015, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:


					Year Ended December 31,

				2015						2014

	Shares				Amount		Shares				Amount

Class Z Shares:
Shares sold	31,157,604		$	682,962,755			19,112,824		$	467,220,561
Shares issued in reinvestment of distributions	4,845,079				94,687,945		6,540,426			135,963,256
Shares redeemed	(20,523,943	)		(431,380,859		)	(28,053,784	)		(667,006,361		)
Net increase (decrease)	15,478,740		$	346,269,841			(2,400,534	)	$	(63,822,544		)

Class A Shares:
Shares sold	24,404,654		$	524,110,675			16,444,913		$	390,643,608
Shares issued in reinvestment of distributions	3,489,444				66,343,462		4,183,197				84,743,971
Shares redeemed	(14,862,145	)			(307,375,948	)	(13,806,874	)			(321,833,916	)
Net increase (decrease)	13,031,953		$	283,078,189			6,821,236		$	153,553,663

Class C Shares:
Shares sold	6,548,213		$	141,414,212			3,504,884			$	83,819,205
Shares issued in reinvestment of distributions	960,581				18,300,147		1,147,068				23,294,092
Shares redeemed	(2,750,303	)			(56,741,282	)	(2,221,185	)			(51,160,993	)
Net increase (decrease)	4,758,491		$	102,973,077			2,430,767			$	55,952,304

Class R Shares:
Shares sold	36,230			$	764,990		15,696			$	370,698
Shares issued in reinvestment of distributions	3,771				70,336		2,643				52,756
Shares redeemed	(7,477	)			(153,116	)	(2,847	)			(67,041	)
Net increase (decrease)	32,524			$	682,210		15,492			$	356,413

Class R6 Shares:
Shares sold	3,899,003			$	85,801,878		4,003,505			$	98,368,915
Shares issued in reinvestment of distributions	1,283,929				25,056,065		1,728,585				35,897,725
Shares redeemed	(2,018,882	)			(43,872,484	)	(2,525,555	)			(62,080,584	)
Net increase (decrease)	3,164,050			$	66,985,459		3,206,535			$	72,186,056

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NOTES TO FINANCIAL STATEMENTS

3. Transactions with Affiliates


Subsidiary	Affiliation
Franklin Mutual Advisers, LLC (Franklin Mutual)	Investment manager
Franklin Templeton Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

a. Management Fees

The Fund pays an investment management fee to Franklin Mutual based on the average daily net assets of the Fund as follows:


Annualized Fee Rate		Net Assets
0.875	%	Up to and including $1 billion
0.845	%	Over $1 billion, up to and including $2 billion
0.825	%	Over $2 billion, up to and including $5 billion
0.805	%	In excess of $5 billion

b. Administrative Fees

c. Distribution Fees

The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:


Class A	0.35	%
Class C	1.00	%
Class R	0.50	%

d. Sales Charges/Underwriting Agreements


Sales charges retained net of commissions paid to unaffiliated broker/dealers	$	606,099
CDSC retained	$	74,228

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e. Transfer Agent Fees

For the year ended December 31, 2015, the Fund paid transfer agent fees of $4,279,926, of which $2,022,142 was retained by Investor Services.

f. Waiver and Expense Reimbursements

g. Other Affiliated Transactions

At December 31, 2015, one or more of the funds in Franklin Fund Allocator Series owned 8.79% of the Fund’s outstanding shares.

4. Expense Offset Arrangement

5. Independent Trustees’ Retirement Plan

During the year ended December 31, 2015, the Fund’s projected benefit obligation and benefit payments under the Plan were as follows:


^aProjected benefit obligation at December 31, 2015	$	96,374
^bIncrease in projected benefit obligation	$	9,274
Benefit payments made to retired trustees	$	(2,726	)

^aThe projected benefit obligation is included in trustees’ fees and expenses in the Statement of Assets and Liabilities. ^bThe increase in projected benefit obligation is included in trustees’ fees and expenses in the Statement of Operations.

6. Income Taxes

The tax character of distributions paid during the years ended December 31, 2015 and 2014, was as follows:


		2015		2014
Distributions paid from:
Ordinary income	$	80,260,634	$	70,154,145
Long term capital gain		150,652,119		246,397,234
	$	230,912,753	$	316,551,379

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6. Income Taxes (continued)


Cost of investments	$	3,125,879,799
Unrealized appreciation	$	194,879,577
Unrealized depreciation		(340,171,631	)
Net unrealized appreciation (depreciation)	$	(145,292,054	)
Undistributed ordinary income	$	1,451,226
Undistributed long term capital gains		36,725,841
Distributable earnings	$	38,177,067

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of foreign currency transactions.

7. Investment Transactions

Purchases and sales of investments (excluding short term securities and securities sold short) for the year ended December 31, 2015, aggregated $1,710,977,832 and $881,581,395, respectively.

8. Concentration of Risk

Investing in foreign securities may include certain risks and considerations not typically associated with investing in U.S. securities, such as fluctuating currency values and changing local and regional economic, political and social conditions, which may result in greater market volatility. In addition, certain foreign securities may not be as liquid as U.S. securities.

9. Restricted Securities

At December 31, 2015, the Fund held investments in restricted securities, excluding certain securities exempt from registration under the 1933 Act deemed to be liquid, as follows:


Shares	Issuer	Acquisition Dates		Cost		Value
16,127,149	Euro Wagon LP (Value is 0.67% of Net Assets)	12/08/05 - 1/02/08	$	6,282,509	$	20,683,866

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10. Other Derivative Information

At December 31, 2015, the Fund’s investments in derivative contracts are reflected in the Statement of Assets and Liabilities

as follows:

Asset Derivatives

Liability Derivatives

Derivative Contracts

Not Accounted for as

Statement of Assets and

Hedging Instruments

Liabilities Location

Fair Value

Liabilities Location

Fair Value

Foreign exchange contracts

Variation margin

5,174,832^aVariation margin

—

Unrealized appreciation on

50,892,704

Unrealized depreciation on

10,464,457

OTC forward exchange

contracts

Totals

56,067,536

10,464,457

^aThis amount reflects the cumulative appreciation (depreciation) of futures contracts as reported in the Statement of Investments. Only the variation margin receivable/payable

at period end is separately reported within the Statement of Assets and Liabilities. Prior variation margin movements were recorded to cash upon receipt or payment.

For the year ended December 31, 2015, the effect of derivative contracts in the Fund’s Statement of Operations was as follows:

Net Change in

Unrealized

Derivative Contracts

Net Realized

Appreciation

Not Accounted for as

Statement of Operations

Gain (Loss)

Statement of Operations

(Depreciation)

Hedging Instruments

Locations

for the Year

Locations

for the Year

Net realized gain (loss) from:

Net change in unrealized

appreciation (depreciation) on:

Foreign exchange contracts

Foreign currency transactions

166,093,431

Translation of other assets

(63,161,263

)^a

and liabilities denominated

in foreign currencies

Futures contracts

50,565,858

Futures contracts

(3,431,977

)

Totals

216,659,289

(66,593,240

)

^aForward exchange contracts are included in net realized gain (loss) from foreign currency transactions and net change in unrealized appreciation (depreciation) on translation

of other assets and liabilities denominated in foreign currencies in the Statement of Operations.

For the year ended December 31, 2015, the average month end fair value of derivatives represented 2.69% of average month end net

assets. The average month end number of open derivative contracts for the year was 219.

At December 31, 2015, the Fund’s OTC derivative assets and liabilities are as follows:

Gross and Net Amounts

of Assets and Liabilities

Presented in the

Statement of

Assets and Liabilities

Assets^a

Liabilities^a

Derivatives

Forward exchange contracts

50,892,704

10,464,457

^aAbsent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities.

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10. Other Derivative Information (continued)

At December 31, 2015, the Fund’s OTC derivative assets, which may be offset against the Fund’s OTC derivative liabilities and collateral received from the counterparty, are as follows:


				Amounts Not Offset in the
				Statement of Assets and Liabilities

		Gross and Net
		Amounts of Assets					Financial
		Presented in the		Financial			Instruments				Cash
		Statement of		Instruments			Collateral			Collateral				Net Amount (Not
		Assets and Liabilities		Available for Offset			Received^a			Received				less than zero)
Counterparty
BANT	$	16,021,474	$	(1,766,181	)	$	(10,903,659	)		$	—		$	3,351,634
BBU		64,781		(64,781	)		—				—			—
BONY		607,876		(104,846	)		—				—			503,030
DBFX		7,567,223		(881,887	)		—			(5,770,000		)		915,336
FBCO		7,350,959		(3,393,305	)		—			(2,140,000		)		1,817,654
HSBC		10,666,228		(1,256,098	)		(5,114,621	)			—			4,295,509
SSBT		8,614,163		(2,867,730	)		(3,480,852	)			—			2,265,581
Total	$	50,892,704	$	(10,334,828	)	$	(19,499,132	)	$	(7,910,000		)	$	13,148,744

^aAt December 31, 2015, the Fund received United Kingdom Treasury Bonds and U.S. Treasury Notes as collateral for derivatives.

At December 31, 2015, the Fund’s OTC derivative liabilities, which may be offset against the Fund’s OTC derivative assets and collateral pledged to the counterparty, are as follows:


				Amounts Not Offset in the
				Statement of Assets and Liabilities

		Gross and Net
		Amounts of Liabilities					Financial
		Presented in the		Financial			Instruments		Cash
		Statement of		Instruments			Collateral		Collateral		Net Amount (Not
		Assets and Liabilities		Available for Offset			Pledged		Pledged		less than zero)
Counterparty
BANT	$	1,766,181	$	(1,766,181	)	$	—	$	—	$	—
BBU		194,410		(64,781	)		—		—		129,629
BONY		104,846		(104,846	)		—		—		—
DBFX		881,887		(881,887	)		—		—		—
FBCO		3,393,305		(3,393,305	)		—		—		—
HSBC		1,256,098		(1,256,098	)		—		—		—
SSBT		2,867,730		(2,867,730	)		—		—		—
Total	$	10,464,457	$	(10,334,828	)	$	—	$	—	$	129,629


See Note 1(c) regarding derivative financial instruments.

See Abbreviations on page 41.

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11. Holdings of 5% Voting Securities of Portfolio Companies


	Number of			Number of
	Shares Held			Shares Held		Value
	at Beginning	Gross	Gross	at End		at End		Investment	Realized
Name of Issuer	of Year	Additions	Reductions	of Year		of Year		Income	Gain (Loss)
Controlled Affiliates^a
Euro Wagon LP
(Value is 0.67% of
Net Assets)	16,127,149	—	—	16,127,149	$	20,683,866	$	2,733,151	$ —

^aIssuer in which the Fund owns 25% or more of the outstanding voting securities.

12. Credit Facility

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Temple-ton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matured on February 12, 2016. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective February 12, 2016, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 10, 2017, for a total of $2 billion.

13. Fair Value Measurements

Level 1 – quoted prices in active markets for identical financial instruments
Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepayment speed, credit risk, etc.)
Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of financial instruments)

The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

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NOTES TO FINANCIAL STATEMENTS

Significant unobservable valuation inputs developed by the VLOC for material Level 3 financial instruments and impact to fair value as a result of changes in unobservable valuation inputs as of December 31, 2015, are as follows:


						Impact to Fair
		Fair Value at				Value if Input
Description		End of Year Valuation Technique	Unobservable Inputs	Amount		Increases^a

Assets:
Investments in Securities
Equity Investments:
Road & Rail		$20,683,866 Market comparables Discount for lack of marketability		15	%	Decrease^b
All Other Investments^c		5,492,802
Total	$	26,176,668

^aRepresents the directional change in the fair value of the Level 3 financial instruments that would result froma significant and reasonable increase in the corresponding input.
A significant and reasonable decrease in the input would have the opposite effect. Significant impacts, if any, to fair value and/or net assets have been indicated.
^bRepresents a significant impact to fair value but not net assets.
^cIncludes financial instruments with values derived using prior transaction prices or third party pricing information without adjustment for which such inputs are unobservable.
May also include fair value of immaterial financial instruments developed using various valuation techniques and unobservable inputs.

14. Subsequent Events


Abbreviations
Counterparty		Currency		Selected Portfolio
BANT	Bank of America N.A.	CHF	Swiss Franc	ADR American Depositary Receipt
BBU	Barclays Bank PLC	EUR	Euro
BONY	Bank of New York Mellon	GBP	British Pound
DBFX	Deutsche Bank AG	USD	United States Dollar
FBCO	Credit Suisse Group AG
HSBC	HSBC Bank USA, N.A.
SSBT	State Street Bank and Trust Co., N.A.

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Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Franklin Mutual Series Funds and Shareholders of Franklin Mutual European Fund:

We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Franklin Mutual European Fund (the “Fund”) (one of the funds constituting Franklin Mutual Series Funds) as of December 31, 2015, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Franklin Mutual European Fund (one of the funds constituting Franklin Mutual Series Funds) at December 31, 2015, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.

Boston, Massachusetts
February 18, 2016

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Tax Information (unaudited)

Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund hereby reports the maximum amount allowable but no less than $150,652,119 as a long term capital gain dividend for the fiscal year ended December 31, 2015.

Under Section 871(k)(2)(C) of the Code, the Fund hereby reports the maximum amount allowable but no less than $15,132,428 as a short term capital gain dividend for purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal year ended December 31, 2015.

Under Section 854(b)(1)(B) of the Code, the Fund hereby reports the maximum amount allowable but no less than $85,812,716 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended December 31, 2015. Distributions, including qualified dividend income, paid during calendar year 2015 will be reported to shareholders on Form 1099-DIV by mid-February 2016. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns.

At December 31, 2015, more than 50% of the Fund’s total assets were invested in securities of foreign issuers. In most instances, foreign taxes were withheld from income paid to the Fund on these investments. As shown in the table below, the Fund hereby reports to shareholders the foreign source income and foreign taxes paid, pursuant to Section 853 of the Code. This written statement will allow shareholders of record on December 17, 2015, to treat their proportionate share of foreign taxes paid by the Funds as having been paid directly by them. The shareholder shall consider these amounts as foreign taxes paid in the tax year in which they receive the Fund distribution.

The following table provides a detailed analysis of foreign tax paid, foreign source income, and foreign source qualified dividends as reported by the Fund, to Class Z, Class A, Class C, Class R and Class R6 shareholders of record.


		Foreign Tax Paid		Foreign Source		Foreign Source Qualified
Class		Per Share		Income Per Share		Dividends Per Share
Class Z	$	0.0512	$	0.4354	$	0.3867
Class A	$	0.0512	$	0.3865	$	0.3432
Class C	$	0.0512	$	0.2650	$	0.2353
Class R	$	0.0512	$	0.3755	$	0.3335
Class R6	$	0.0512	$	0.4646	$	0.4127

Foreign Tax Paid Per Share (Column 1) is the amount per share available to you, as a tax credit (assuming you held your shares in the Fund for a minimum of 16 days during the 31-day period beginning 15 days before the ex-dividend date of the Fund’s distribution to which the foreign taxes relate), or, as a tax deduction.

Foreign Source Income Per Share (Column 2) is the amount per share of income dividends attributable to foreign securities held by the Fund, plus any foreign taxes withheld on these dividends. The amounts reported include foreign source qualified dividends that have not been adjusted for the rate differential applicable to such dividend income.¹

Foreign Source Qualified Dividends Per Share (Column 3) is the amount per share of foreign source qualified dividends, plus any foreign taxes withheld on these dividends. These amounts represent the portion of the Foreign Source Income reported to you in column 2 that were derived from qualified foreign securities held by the Fund.¹

By mid-February 2016, shareholders will receive Form 1099-DIV which will include their share of taxes paid and foreign source income distributed during the calendar year 2015. The Foreign Source Income reported on Form 1099-DIV has not been adjusted for the rate differential on foreign source qualified dividend income. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their 2015 individual income tax returns.

¹Qualified dividends are taxed at reduced long term capital gains tax rates. In determining the amount of foreign tax credit that may be applied against the U.S. tax liability of
individuals receiving foreign source qualified dividends, adjustments may be required to the foreign tax credit limitation calculation to reflect the rate differential applicable to
such dividend income. The rules however permit certain individuals to elect not to apply the rate differential adjustments for capital gains and/or dividends for any taxable year.
Please consult your tax advisor and the instructions to Form 1116 for more information.

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Board Members and Officers


The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Fund,
principal occupations during at least the past five years and number of portfolios overseen in the Franklin Templeton Investments
fund complex, are shown below. Generally, each board member serves until that person’s successor is elected and qualified.


Independent Board Members

			Number of Portfolios in
Name, Year of Birth		Length of	Fund Complex Overseen	Other Directorships Held
and Address	Position	Time Served	by Board Member*	During at Least the Past 5 Years

Edward I. Altman, Ph.D. (1941)	Trustee	Since 1987	17	None
c/o Franklin Mutual Advisers, LLC
101 John F. Kennedy Parkway
Short Hills, NJ 07078-2789
Principal Occupation During at Least the Past 5 Years:
Max L. Heine Professor of Finance, Emeritus and Director of The Credit and Debt Markets Research Program, Salomon Center, Stern School
of Business, New York University; editor and author of numerous financial publications; financial consultant; an adviser to numerous financial
and publishing organizations; and formerly, Vice Director, Salomon Center, Stern School of Business, New York University.

Ann Torre Bates (1958)	Trustee	Since 1995	41	Navient Corporation (loan
c/o Franklin Mutual Advisers, LLC				management, servicing and asset
101 John F. Kennedy Parkway				recovery) (2014-present), Ares Capital
Short Hills, NJ 07078-2789				Corporation (specialty finance
				company) (2010-present), United
				Natural Foods, Inc. (distributor of
				natural, organic and specialty foods)
				(2013-present), Allied Capital
				Corporation (financial services)
				(2003-2010) and SLM Corporation
				(Sallie Mae) (1997-2014).
Principal Occupation During at Least the Past 5 Years:
Director of various companies; and formerly, Executive Vice President and Chief Financial Officer, NHP Incorporated (manager of multifamily
housing) (1995-1997); and Vice President and Treasurer, US Airways, Inc. (until 1995).

Burton J. Greenwald (1929)	Trustee	Trustee since	17	Franklin Templeton Emerging Markets
c/o Franklin Mutual Advisers, LLC	and Vice	2002 and Vice		Debt Opportunities Fund PLC and
101 John F. Kennedy Parkway	Chairman	Chairman since		Fiduciary International Ireland Limited
Short Hills, NJ 07078-2789	of the	April 2015		(1999-2015).
	Board
Principal Occupation During at Least the Past 5 Years:
Managing Director, B.J. Greenwald Associates (management consultants to the financial services industry); and formerly, Chairman,
Fiduciary Trust International Funds; Executive Vice President, L.F. Rothschild Fund Management, Inc.; President and Director, Merit Mutual
Funds; President, Underwriting Division and Director, National Securities & Research Corporation; Governor, Investment Company Institute;
and Chairman, ICI Public Information Committee.

Keith E. Mitchell (1954)	Trustee	Since 2009	17	None
c/o Franklin Mutual Advisers, LLC
101 John F. Kennedy Parkway
Short Hills, NJ 07078-2789
Principal Occupation During at Least the Past 5 Years:
Director of various boards of asset management firms; and formerly, Managing Member, Mitchell, Hartley & Bechtel Advisers, LLC (formerly,
Mitchell Advisers, LLC) (advisory firm) (2003-2015) and Managing Director, Putnam Lovell NBF.

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Independent Board Members (continued)

				Number of Portfolios in
Name, Year of Birth		Length of		Fund Complex Overseen	Other Directorships Held
and Address	Position	Time Served		by Board Member*	During at Least the Past 5 Years

David W. Niemiec (1949)	Trustee	Since April		41	Emeritus Corporation (assisted living)
One Franklin Parkway		2015			(1999-2010) and OSI Pharmaceuticals,
San Mateo, CA 94403-1906					Inc. (pharmaceutical products)
					(2006-2010).
Principal Occupation During at Least the Past 5 Years:
Advisor, Saratoga Partners (private equity fund); and formerly, Managing Director, Saratoga Partners (1998-2001) and SBC Warburg Dillon
Read (investment banking) (1997-1998); Vice Chairman, Dillon, Read & Co. Inc. (investment banking) (1991-1997); and Chief Financial
Officer, Dillon, Read & Co. Inc. (1982-1997).

Charles Rubens II (1930)	Trustee	Since 1998		17	None
c/o Franklin Mutual Advisers, LLC
101 John F. Kennedy Parkway
Short Hills, NJ 07078-2789
Principal Occupation During at Least the Past 5 Years:
Private investor and president of non-profit organizations; and formerly, an executive of Time, Inc.; and Trustee of Colorado College.

Jan Hopkins Trachtman (1947)	Trustee	Since 2009		17	None
c/o Franklin Mutual Advisers, LLC
101 John F. Kennedy Parkway
Short Hills, NJ 07078-2789
Principal Occupation During at Least the Past 5 Years:
President and Founder, The Jan Hopkins Group (communications consulting firm); serves on Advisory Board of Knight Bagehot Fellowship;
and formerly, President, Economic Club of New York (2001-2015); Anchor/Correspondent, CNN Financial News (until 2003); Managing
Director and Head of Client Communications, Citigroup Private Bank (until 2005); Off-Air Reporter, ABC News’ World News Tonight; and
Editor, CBS Network News.

Robert E. Wade (1946)	Trustee	Trustee since		41	El Oro Ltd (investments)
c/o Franklin Mutual Advisers, LLC	and	1993	and		(2003-present).
101 John F. Kennedy Parkway	Chairman	Chairman of the
Short Hills, NJ 07078-2789	of the	Board
	Board	since 2005
Principal Occupation During at Least the Past 5 Years:
Attorney at law engaged in private practice (1972-2008) and member of various boards.

Gregory H. Williams (1943)	Trustee	Since		17	None
One Franklin Parkway		April 2015
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Private investor; Consultant; and formerly, President, University of Cincinnati (2009-2012); President, The City College of New York
(2001-2009); Dean, College of Law, Ohio State University (1993-2001); and Associate Vice President, Academic Affairs and Professor of Law,
University of Iowa (1977-1993).

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Interested Board Members and Officers

			Number of Portfolios in
Name, Year of Birth		Length of	Fund Complex Overseen	Other Directorships Held
and Address	Position	Time Served	by Board Member*	During at Least the Past 5 Years

**Gregory E. Johnson (1961)	Trustee	Since 2007	164	None
One Franklin Parkway
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Chairman of the Board, Member – Office of the Chairman, Director and Chief Executive Officer, Franklin Resources, Inc.; officer and/or
director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in
Franklin Templeton Investments; Vice Chairman, Investment Company Institute; and formerly, President, Franklin Resources, Inc.
(1994-2015).

**Peter A. Langerman (1955)	Trustee,	Trustee	7	American International Group, Inc.
c/o Franklin Mutual Advisers, LLC	President,	since 2007,		(AIG) Credit Facility Trust
101 John F. Kennedy Parkway	and Chief	President, and		(2010-2011).
Short Hills, NJ 07078-2702	Executive	Chief Executive
	Officer –	Officer –
	Investment	Investment
	Management	Management
		since 2005
Principal Occupation During at Least the Past 5 Years:
Chairman of the Board, Chief Executive Officer and President, Franklin Mutual Advisers, LLC; and officer and/or director, as the case may be,
of two of the investment companies in Franklin Templeton Investments.

Alison E. Baur (1964)	Vice	Since 2012	Not Applicable	Not Applicable
One Franklin Parkway	President
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Deputy General Counsel, Franklin Templeton Investments; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 44
of the investment companies in Franklin Templeton Investments.

Philippe Brugere-Trelat (1949)	Vice	Since 2005	Not Applicable	Not Applicable
101 John F. Kennedy Parkway	President
Short Hills NJ 07078-2789
Principal Occupation During at Least the Past 5 Years:
Executive Vice President, Franklin Mutual Advisers, LLC; officer of two of the investment companies in Franklin Templeton Investments; and
formerly, Portfolio Manager of Eurovest SA (French registered Investment Company, Sicav).

Laura F. Fergerson (1962)	Chief	Since 2009	Not Applicable	Not Applicable
One Franklin Parkway	Executive
San Mateo, CA 94403-1906	Officer –
	Finance and
	Administration
Principal Occupation During at Least the Past 5 Years:
Senior Vice President, Franklin Templeton Services, LLC; Vice President, Franklin Advisers, Inc. and Franklin Templeton Institutional, LLC;
and officer of 44 of the investment companies in Franklin Templeton Investments.

Aliya S. Gordon (1973)	Vice	Since 2009	Not Applicable	Not Applicable
One Franklin Parkway	President
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 44 of the investment companies in Franklin Templeton
Investments.

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Interested Board Members and Officers (continued)

			Number of Portfolios in
Name, Year of Birth		Length of	Fund Complex Overseen	Other Directorships Held
and Address	Position	Time Served	by Board Member*	During at Least the Past 5 Years

Steven J. Gray (1955)	Secretary	Secretary	Not Applicable	Not Applicable
One Franklin Parkway	and Vice	since 2005 and
San Mateo, CA 94403-1906	President	Vice President
		since 2009
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc. and Franklin
Alternative Strategies Advisers, LLC; and officer of 44 of the investment companies in Franklin Templeton Investments.

Selena L. Holmes (1965)	Vice	Since 2012	Not Applicable	Not Applicable
100 Fountain Parkway	President –
St. Petersburg, FL 33716-1205	AML
	Compliance
Principal Occupation During at Least the Past 5 Years:
Director, Global Compliance Monitoring; Chief Compliance Officer, Franklin Alternative Strategies Advisers, LLC; Vice President, Franklin
Templeton Companies, LLC; and officer of 44 of the investment companies in Franklin Templeton Investments.

Robert G. Kubilis (1973)	Treasurer,	Since 2012	Not Applicable	Not Applicable
300 S.E. 2nd Street	Chief
Fort Lauderdale, FL 33301-1923	Financial
	Officer and
	Chief
	Accounting
	Officer
Principal Occupation During at Least the Past 5 Years:
Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of four of the investment companies in Franklin
Templeton Investments.

Kimberly H. Novotny (1972)	Vice	Since 2013	Not Applicable	Not Applicable
300 S.E. 2nd Street	President
Fort Lauderdale, FL 33301-1923
Principal Occupation During at Least the Past 5 Years:
Associate General Counsel, Franklin Templeton Investments; Vice President, Fiduciary Trust International of the South and Templeton
Investment Counsel, LLC; Assistant Secretary, Franklin Resources, Inc.; and officer of 44 of the investment companies in Franklin Templeton
Investments.

Robert C. Rosselot (1960)	Chief	Since 2013	Not Applicable	Not Applicable
300 S.E. 2nd Street	Compliance
Fort Lauderdale, FL 33301-1923	Officer
Principal Occupation During at Least the Past 5 Years:
Director, Global Compliance, Franklin Templeton Investments; Vice President, Franklin Templeton Companies, LLC; officer of 44 of the
investment companies in Franklin Templeton Investments; and formerly, Senior Associate General Counsel, Franklin Templeton Investments
(2007-2013); and Secretary and Vice President, Templeton Group of Funds (2004-2013).

Karen L. Skidmore (1952)	Vice	Since 2009	Not Applicable	Not Applicable
One Franklin Parkway	President
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 44 of the investment companies in Franklin Templeton
Investments.

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Interested Board Members and Officers (continued)

			Number of Portfolios in
Name, Year of Birth		Length of	Fund Complex Overseen	Other Directorships Held
and Address	Position	Time Served	by Board Member*	During at Least the Past 5 Years

Navid Tofigh (1972)	Vice	Since	Not Applicable	Not Applicable
One Franklin Parkway	President	November 2015
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Associate General Counsel, Franklin Templeton Investments; and officer of 44 of the investment companies in Franklin Templeton
Investments.

Craig S. Tyle (1960)	Vice	Since 2005	Not Applicable	Not Applicable
One Franklin Parkway	President
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
General Counsel and Executive Vice President, Franklin Resources, Inc.; and officer of some of the other subsidiaries of Franklin Resources,
Inc. and of 44 of the investment companies in Franklin Templeton Investments.

Lori A. Weber (1964)	Vice	Since 2011	Not Applicable	Not Applicable
300 S.E. 2nd Street	President
Fort Lauderdale, FL 33301-1923
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and
Secretary, Templeton Investment Counsel, LLC; and officer of 44 of the investment companies in Franklin Templeton Investments.

*We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These
portfolios have a common investment manager or affiliated investment managers.
**Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Franklin
Resources, Inc., which is the parent company of the Fund’s investment manager and distributor. Peter A. Langerman is considered to be an interested person of the Fund
under the federal securities laws due to his position as an officer of Franklin Mutual Advisers, LLC, which is an affiliate of the Fund’s investment manager.
Note 1: Officer information is current as of the date of this report. It is possible that after this date, information about officers may change.

The Fund’s Board has determined that certain of the members of the Audit Committee, including Ann Torre Bates, are audit committee financial experts, and
“independent,” under those provisions of the Sarbanes-Oxley Act of 2002, and the rules and form amendments adopted by the Securities and Exchange
Commission, relating to audit committee financial experts.

The Statement of Additional Information (SAI) includes additional information about the board members and is available, without charge, upon request.
Shareholders may call (800) DIAL BEN/342-5236 to request the SAI.

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Shareholder Information

Proxy Voting Policies and Procedures

Quarterly Statement of Investments

Householding of Reports and Prospectuses

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Franklin Mutual Financial Services Fund

We are pleased to bring you Franklin Mutual Financial Services Fund’s annual report for the fiscal year ended December 31, 2015.

Your Fund’s Goals and Main Investments

The Fund seeks capital appreciation, which may occasionally be short term, with income as a secondary goal, by investing at least 80% of its net assets in securities of financial services companies that we believe are available at market prices less than their intrinsic value. The Fund concentrates its investments in securities of issuers such as banks, savings and loan organizations, credit card companies, brokerage firms, finance companies, subprime lending institutions, investment advisors, investment companies and insurance companies.

Performance Overview

The Fund’s Class Z shares delivered a cumulative total return of +8.34% for the 12 months under review. In comparison, the Fund’s narrow benchmark, the Standard & Poor’s 500 (S&P 500^®) Financials Index, which tracks financials stocks in the S&P 500 Index, had a -1.53% total return.¹For the same period, the Fund’s broad benchmark, the S&P 500 Index, which is a broad measure of U.S. stock performance, posted a +1.38% total return.¹You can find more of the Fund’s performance data in the Performance Summary beginning on page 8.

Economic and Market Overview

U.S. economic growth slowed in 2015’s first quarter but strengthened in 2015’s second quarter amid healthy consumer spending. The third and fourth quarters were less robust as exports slowed and state and local governments reduced their spending. At its December meeting, the U.S. Federal Reserve (Fed) increased its target range for the federal funds rate to 0.25%–0.50%, as policymakers cited the labor market’s considerable improvement and were reasonably confident that inflation would move back to the Fed’s 2% medium-term objective. Furthermore, the Fed raised its forecast for 2016 U.S. economic growth and lowered its unemployment projection. Despite periods of volatility, the broad U.S. stock market, as measured by the S&P 500 Index, generated a modest positive total return for 2015.

1. Source: Morningstar.
The indexes are unmanaged and include reinvestment of any income or distributions. One cannot invest directly in an index, and an index is not representative of the Fund’s
portfolio.
See www.franklintempletondatasources.com for additional data provider information.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).
The SOI begins on page 19.

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slowing economy and tumbling stock market, declining commodity prices, geopolitical tensions between Russia and Turkey, and ongoing uncertainty over the Fed’s timing for raising interest rates. Toward period-end, equity markets recovered somewhat as the Fed increased its federal funds target range, alleviating some uncertainty about a change in the U.S. monetary policy. During the year, oil prices declined sharply largely due to increased global supply that exceeded demand. Gold and other commodity prices also fell. The U.S. dollar appreciated against most currencies during the period, which reduced returns of many foreign assets in U.S. dollar terms.

Investment Strategy

We strive to provide investors with superior risk-adjusted returns over time through our distinctive, value investment style, which includes investments in undervalued common stocks, distressed debt and risk arbitrage. Rigorous fundamental analysis drives our investment process. We attempt to determine each investment’s intrinsic value as well as the price at which we would be willing to commit shareholder funds. While valuation remains our key consideration, we utilize numerous fundamental factors such as return on equity, financial leverage and long-term earnings power. We also consider factors such as management quality and competitive position. As always, our approach to investing is as much about assessing risk and containing losses as it is about achieving profits.

In addition, it is our practice to hedge the Fund’s currency exposure when we deem it advantageous for our shareholders.

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What is return on equity?

Return on equity is an amount, expressed as a percentage, earned on a company’s common stock investment for a given period. Return on equity tells common shareholders how effectually their money is being employed. Comparing percentages for current and prior periods also reveals trends, and comparison with industry composites reveals how well a company is holding its own against its competitors.

What is meant by “hedge”?

To hedge an investment is to take a position intended to offset potential losses/gains that may be incurred by a companion financial instrument.

Manager’s Discussion


Top 10 Equity Holdings
12/31/15
Company	% of Total
*Sector/Industry, Country*	Net Assets
American International Group Inc.	3.5	%
Insurance, U.S.
XL Group PLC	3.3	%
Insurance, Ireland
ACE Ltd.	3.2	%
Insurance, U.S.
CIT Group Inc.	3.2	%
Banks, U.S.
NN Group NV	2.9	%
Insurance, Netherlands
Wells Fargo & Co.	2.3	%
Banks, U.S.
Citizens Financial Group Inc.	2.2	%
Banks, U.S.
The Allstate Corp.	2.2	%
Insurance, U.S.
CNO Financial Group Inc.	2.1	%
Insurance, U.S.
SunTrust Banks Inc.	2.1	%
Banks, U.S.

Turning to Fund performance, top contributors included insurers NN Group and Ageas, as well as condominium developer Takara Leben.

NN Group is a Dutch insurer spun out of ING Groep. The company followed through successfully on its efforts to improve return on equity and reduce expenses. Results for several quarters were positive, and the company stated in November that it had reached its expense savings target a year early but would continue to push for further efficiencies. The company also periodically repurchased shares from ING Groep to help meet ING’s goal to fully divest its insurance and investment management holdings by the end of 2016, as required under ING’s restructuring agreement with the European Commission.

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guidelines for insurers, reassuring investors. In late August, Ageas announced the sale of its Hong Kong life insurance business at a valuation that, in our view, was quite favorable.

Takara Leben is a midsized condominium developer in Japan. The company rapidly expanded its solar farm capacity and expressed its intention to list its solar power assets on a proposed infrastructure market. The financial vehicle holding the solar power assets would be similar to a real estate investment trust, and the capitalization rate on similar assets in 2015 implied a higher value for the solar assets than indicated by the share price. Events in 2015 brought the company’s plan closer to fruition. After prolonged discussion, in February the Tokyo Stock Exchange (TSE) announced its planned launch of an infrastructure development market. Takara Leben became a member of the Investment Trust Association of Japan in September, as required before the company could apply for an initial public offering (IPO) of its solar assets on the proposed TSE infrastructure market. In December, Japan’s government proposed to lengthen the tax-free period from 10 to 20 years for listed renewable infrastructure securities, such as Takara Leben’s pending IPO.

During the period under review, some of the Fund’s investments that negatively affected performance were bank holding company CIT Group, investment management holding company First Pacific and China Pacific Insurance.

CIT Group is a commercial financing and leasing company that primarily serves small and midsized businesses in a variety of industries. Shares of CIT declined due to factors including lackluster performance by the company’s legacy operations, uncertainty about the potential financial gain from its July acquisition of OneWest Bank, and uncertainty regarding the valuation CIT might obtain for the planned sale or spin-off of its aircraft leasing division. Investor concerns were magnified by management changes in October, including the departure of the chief financial officer, the naming of a replacement and the announced March 2016 retirement of the chief executive officer. As of year-end, we believed CIT’s core businesses were well positioned to grow given the company’s ample capital and stable deposit funding base. We also believe the split or sale of the aircraft leasing business will allow management to focus on a simpler regional bank business model.

Hong Kong-based First Pacific manages investments primarily in telecommunications, infrastructure, consumer food products and natural resources. Shares of First Pacific were negatively impacted by weaker performance of its telecommunication asset PLDT and food group Indofood Suskes, as well as currency translation of the earnings from assets domiciled in Indonesia and the Philippines.

China Pacific Insurance is a major insurance conglomerate in mainland China, ranking among the top three in the life and property and casualty markets. Its shares were hindered from June through August by the broad-based sell-off in China’s equity markets. However, the stock recovered slightly in September, due in part to half-year results released at the end of August that exceeded investors’ expectations. Aiding the results were better-than-expected growth in the value of new business in its life insurance division and improving property and casualty underwriting results.

During the year, the Fund held currency forwards and futures to hedge a portion of the currency risk of the portfolio’s non-U.S. dollar investments. The currency forwards had a positive impact on the Fund’s performance during the period, and currency futures had a negligible impact.

What is a currency forward contract?

A currency forward contract, or a currency forward, is an agreement between the Fund and a counterparty to buy or sell a foreign currency at a specific exchange rate on a future date.

What is a futures contract?

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Thank you for your continued participation in Franklin Mutual Financial Services Fund. We look forward to continuing to serve your investment needs.

CFA^®is a trademark owned by CFA Institute.

Andrew Sleeman has been portfolio manager for Franklin Mutual Financial Services Fund since 2009. He has also been a co-portfolio manager for Franklin Mutual International Fund since 2009. Mr. Sleeman joined Franklin Templeton Investments in 2007. Previously, he was with Fox-Pitt, Kelton, a financials specialist firm, where he focused on international financial equities. Prior to that, he worked in international equities at BNP Paribas.

Mr. Sleeman also worked in Australia in the fixed income division of JP Morgan Investment Management.

Richard Cetlin has been assistant portfolio manager for Franklin Mutual Financial Services Fund since 2010 with primary coverage of European banks. Prior to joining Franklin Templeton Investments in 2010, Mr. Cetlin was a consultant for Asian Century Quest, a hedge fund focused on the Asia-Pacific region. In this role, he focused on the analysis of banking, insurance and real estate stocks in China and banking stocks in Hong Kong and Korea. Prior to that, Mr. Cetlin worked for 14 years at AllianceBernstein where he was a senior vice president and senior analyst for U.S. banking and specialty finance.

Andrew Dinnhaupt has been assistant portfolio manager for Franklin Mutual Financial Services Fund since December 2013 and has been an analyst for Franklin Mutual Advisers since 2011, specializing in the global insurance industry. Previously, Mr. Dinnhaupt was a portfolio manager and senior analyst covering the global financial services sector for RBC Capital Markets. Prior to RBC, Mr. Dinnhaupt worked at several hedge funds where he was responsible for analyzing and managing portfolios in the financial services sector. Before that, he worked at Mitchell Hutchins Asset Management where he covered the financial services industry.

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Performance Summary as of December 31, 2015


Net Asset Value

Share Class (Symbol)		12/31/15		12/31/14	Change
Z (TEFAX)	$	19.63	$	18.40	+$1.23
A (TFSIX)	$	19.69	$	18.46	+$1.23
C (TMFSX)	$	19.61	$	18.40	+$1.21
R6 (FMFVX)	$	19.76	$	18.52	+$1.24


Distributions¹(1/1/15–12/31/15)

		Dividend
Share Class		Income
Z	$	0.2984
A	$	0.2501
C	$	0.1385
R6	$	0.3245

See page 12 for Performance Summary footnotes.

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PERFORMANCE SUMMARY

Performance as of 12/31/15

Cumulative total return excludes sales charges. Average annual total return and value of $10,000 investment include maximum sales charges. Class Z/R6: no sales charges; Class A: 5.75% maximum initial sales charge; Class C: 1% contingent deferred sales charge in first year only.


	Cumulative		Average Annual			Value of $10,000	Total Annual Operating Expenses⁵
Share Class	Total Return²		Total Return³			Investment⁴	(with waiver)		(without waiver)
Z							1.14	%	1.14	%
1-Year	+8.34	%	+8.34	%	$	10,834
5-Year	+64.64	%	+10.49	%	$	16,464
10-Year	+39.71	%	+3.40	%	$	13,971
A							1.44	%	1.44	%
1-Year	+8.05	%	+1.82	%	$	10,182
5-Year	+62.20	%	+8.85	%	$	15,283
10-Year	+35.63	%	+2.49	%	$	12,782
C							2.14	%	2.14	%
1-Year	+7.30	%	+6.30	%	$	10,630
5-Year	+56.61	%	+9.39	%	$	15,661
10-Year	+26.43	%	+2.37	%	$	12,643
R6⁶							0.97	%	2.61	%
1-Year	+8.55	%	+8.55	%	$	10,855
Since Inception (5/1/13)	+38.67	%	+13.03	%	$	13,867

See page 12 for Performance Summary footnotes.

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PERFORMANCE SUMMARY

All investments involve risks, including possible loss of principal. Value securities may not increase in price as anticipated or may decline further in value. Investing in a single-sector fund involves special risks, including greater sensitivity to economic, political or regulatory developments impacting the sector. In addition, the Fund invests in foreign securities whose risks include currency fluctuations, and economic and political uncertainties. The Fund’s investments in smaller company stocks carry an increased risk of price fluctuation, particularly over the short term. The Fund may also invest in companies engaged in mergers, reorganizations or liquidations, which involve special risks as pending deals may not be completed on time or on favorable terms, as well as lower rated bonds, which entail higher credit risk. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.


Class Z:	Shares are available to certain eligible investors as described in the prospectus.
Class C:	These shares have higher annual fees and expenses than Class A shares.
Class R6:	Shares are available to certain eligible investors as described in the prospectus.

1. The distribution amount is the sum of the dividend payments to shareholders for the period shown and includes only estimated tax-basis net investment income.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not
been annualized.
4. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.
5. Figures are as stated in the Fund’s current prospectus. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to
become higher than the figures shown.
6. The transfer agent has contractually agreed to cap transfer agency fees for Class R6 shares so that transfer agency fees for that class do not exceed 0.01% until at least
4/30/16. Investment results reflect the fee cap, to the extent applicable; without this fee cap, the results would have been lower.
7. Source: Morningstar. The S&P 500 Index is a market capitalization-weighted index of 500 stocks designed to measure total U.S. equity market performance. The S&P 500
Financials Index is market capitalization weighted and consists of all financial stocks in the S&P 500 Index.
See www.franklintempletondatasources.com for additional data provider information.

12 Annual Report

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

Your Fund’s Expenses

As a Fund shareholder, you can incur two types of costs:

Transaction costs, including sales charges (loads) on Fund purchases; and
Ongoing Fund costs, including management fees, distribu- tion and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

Actual Fund Expenses

You can estimate the expenses you paid during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.

If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Expenses Paid During Period.”

If Expenses Paid During Period were $7.50, then 8.6 × $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transaction costs, such as sales charges. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.

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Annual Report

FRANKLIN MUTUAL FINANCIAL SERVICES FUND


Financial Highlights
					Year Ended December 31,
		2015			2014			2013			2012			2011
Class Z
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	18.40		$	16.90		$	13.59		$	11.53		$	13.01
Income from investment operations^a:
Net investment income^b		0.30	^c		0.25			0.24			0.20			0.28
Net realized and unrealized gains (losses)		1.23			1.62			3.24			2.09			(1.48	)
Total from investment operations		1.53			1.87			3.48			2.29			(1.20	)
Less distributions from net investment income		(0.30	)		(0.37	)		(0.17	)		(0.23	)		(0.28	)
Net asset value, end of year	$	19.63		$	18.40		$	16.90		$	13.59		$	11.53

Total return		8.34	%		11.07	%		25.67	%		19.98	%		(9.26	)%

Ratios to average net assets
Expenses		1.13	%^d		1.14	%^d		1.16	%^d		1.24	%		1.24	%
Net investment income		1.53	%^c		1.44	%		1.51	%		1.56	%		2.22	%

Supplemental data
Net assets, end of year (000’s)	$	178,157		$	112,156		$	105,279		$	86,519		$	80,105
Portfolio turnover rate		25.43	%		33.69	%		25.73	%		12.65	%		23.58	%

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The accompanying notes are an integral part of these financial statements. | Annual Report 15

FRANKLIN MUTUAL FINANCIAL SERVICES FUND
FINANCIAL H IGHLIGHTS


					Year Ended December 31,
		2015			2014			2013			2012			2011
Class A
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	18.46		$	16.96		$	13.64		$	11.57		$	13.05
Income from investment operations^a:
Net investment income^b		0.25	^c		0.20			0.19			0.16			0.25
Net realized and unrealized gains (losses)		1.23			1.61			3.26			2.10			(1.49	)
Total from investment operations		1.48			1.81			3.45			2.26			(1.24	)
Less distributions from net investment income		(0.25	)		(0.31	)		(0.13	)		(0.19	)		(0.24	)
Net asset value, end of year	$	19.69		$	18.46		$	16.96		$	13.64		$	11.57

Total return^d		8.05	%		10.71	%		25.32	%		19.55	%		(9.49	)%

Ratios to average net assets
Expenses		1.41	%^e		1.44	%^e		1.46	%^e		1.54	%		1.54	%
Net investment income		1.25	%^c		1.14	%		1.21	%		1.26	%		1.92	%

Supplemental data
Net assets, end of year (000’s)	$	360,278		$	255,242		$	240,529		$	184,681		$	173,167
Portfolio turnover rate		25.43	%		33.69	%		25.73	%		12.65	%		23.58	%

16 Annual Report | The accompanying notes are an integral part of these financial statements.

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND
FINANCIAL H IGHLIGHTS


					Year Ended December 31,
		2015			2014			2013			2012			2011
Class C
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	18.41		$	16.92		$	13.61		$	11.55		$	13.01
Income from investment operations^a:
Net investment income^b		0.10	^c		0.08			0.08			0.07			0.16
Net realized and unrealized gains (losses)		1.24			1.60			3.25			2.08			(1.48	)
Total from investment operations		1.34			1.68			3.33			2.15			(1.32	)
Less distributions from net investment income		(0.14	)		(0.19	)		(0.02	)		(0.09	)		(0.14	)
Net asset value, end of year	$	19.61		$	18.41		$	16.92		$	13.61		$	11.55

Total return^d		7.30	%		9.93	%		24.50	%		18.67	%		(10.13	)%

Ratios to average net assets
Expenses		2.13	%^e		2.14	%^e		2.16	%^e		2.24	%		2.24	%
Net investment income		0.53	%^c		0.44	%		0.51	%		0.56	%		1.22	%

Supplemental data
Net assets, end of year (000’s)	$	132,975		$	89,341		$	86,370		$	69,046		$	68,324
Portfolio turnover rate		25.43	%		33.69	%		25.73	%		12.65	%		23.58	%

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The accompanying notes are an integral part of these financial statements. | Annual Report 17

FRANKLIN MUTUAL FINANCIAL SERVICES FUND
FINANCIAL H IGHLIGHTS


		Year Ended December 31,
		2015			2014			2013	^a
Class R6
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	18.52		$	16.88		$	14.89
Income from investment operations^b:
Net investment income^c		0.07	^d		0.25			0.13
Net realized and unrealized gains (losses)		1.49			1.66			2.07
Total from investment operations		1.56			1.91			2.20
Less distributions from net investment income		(0.32	)		(0.27	)		(0.21	)
Net asset value, end of year	$	19.76		$	18.52		$	16.88

Total return^e		8.55	%		11.23	%		14.86	%

Ratios to average net assets^f
Expenses before waiver, payments by affiliates and expense reduction		1.16	%		2.61	%		2.18	%
Expenses net of waiver, payments by affiliates and expense reduction^g		0.96	%		0.97	%		0.97	%
Net investment income		1.70	%^d		1.61	%		1.70	%

Supplemental data
Net assets, end of year (000’s)	$	1,421		$	12		$	6
Portfolio turnover rate		25.43	%		33.69	%		25.73	%

^aFor the period May 1, 2013 (effective date) to December 31, 2013.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases
of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dNet investment income per share includes approximately $0.14 per share related to income received in the form of special dividends in connection with certain Fund holdings.
Excluding this amount, the ratio of net investment income to average net assets would have been 0.98%.
^eTotal return is not annualized for periods less than one year.
^fRatios are annualized for periods less than one year.
^gBenefit of expense reduction rounds to less than 0.01%.

18 Annual Report | The accompanying notes are an integral part of these financial statements.

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND


Statement of Investments, December 31, 2015

	Country	Shares/Units		Value
Common Stocks and Other Equity Interests 85.7%
Banks 27.3%
^a,bAB&T Financial Corp	United States	226,100	$	76,874
Barclays PLC	United Kingdom	1,522,675		4,912,876
BB&T Corp	United States	165,180		6,245,456
BNP Paribas SA	France	71,270		4,043,492
Capital Bank Financial Corp., A	United States	42,649		1,363,915
^cCapital Bank Financial Corp., B, 144A, non-voting	United States	153,021		4,893,611
CIT Group Inc	United States	546,680		21,703,196
Citigroup Inc	United States	83,399		4,315,898
Citizens Financial Group Inc	United States	574,836		15,054,955
Columbia Banking System Inc	United States	141,188		4,590,022
^aFCB Financial Holdings Inc., A	United States	356,409		12,755,878
Guaranty Bancorp	United States	266,761		4,412,227
HSBC Holdings PLC	United Kingdom	1,615,010		12,763,940
JPMorgan Chase & Co	United States	156,190		10,313,226
KB Financial Group Inc	South Korea	107,348		3,027,785
PNC Financial Services Group Inc	United States	94,970		9,051,591
^aRoyal Bank of Scotland Group PLC	United Kingdom	1,152,670		5,130,913
^a,cShawbrook Group PLC, 144A	United Kingdom	426,514		2,200,940
Southern National Bancorp of Virginia Inc	United States	547,560		7,151,134
Standard Chartered PLC	United Kingdom	956,190		7,944,653
State Bank Financial Corp	United States	416,160		8,751,845
SunTrust Banks Inc	United States	333,790		14,299,564
UniCredit SpA	Italy	625,394		3,488,381
Wells Fargo & Co	United States	284,820		15,482,815
				183,975,187
Capital Markets 3.3%
^aChina International Capital Corp. Ltd., H	China	4,425,001		7,205,475
Credit Suisse Group AG	Switzerland	307,290		6,651,816
UBS Group AG	Switzerland	441,330		8,597,567
				22,454,858
Consumer Finance 4.1%
Capital One Financial Corp	United States	194,100		14,010,138
^a,cHoist Finance AB, 144A	Sweden	373,060		3,909,926
Sun Hung Kai & Co. Ltd	Hong Kong	14,145,704		9,308,606
				27,228,670
Diversified Financial Services 2.1%
First Pacific Co. Ltd	Hong Kong	7,786,902		5,164,374
Oslo Bors VPS Holding ASA	Norway	911,000		9,014,600
				14,178,974
Household Durables 1.0%
^aCairn Homes PLC	Ireland	2,388,116		3,099,939
^a,cCairn Homes PLC, 144A	Ireland	2,988,749		3,879,601
				6,979,540
Insurance 41.4%
ACE Ltd	United States	185,780		21,708,393
Ageas	Belgium	256,999		11,948,269
^aAlleghany Corp	United States	18,637		8,907,181
The Allstate Corp	United States	237,086		14,720,670
American International Group Inc	United States	375,458		23,267,132
Argo Group International Holdings Ltd	United States	198,441		11,874,710

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Annual Report

FRANKLIN MUTUAL FINANCIAL SERVICES FUND
STATEMENT O F INVESTMENTS


	Country	Shares/Units		Value
Common Stocks and Other Equity Interests (continued)
Insurance (continued)
Assicurazioni Generali SpA	Italy	416,743	$	7,659,465
China Pacific Insurance (Group) Co. Ltd., H	China	2,979,740		12,245,533
CNO Financial Group Inc	United States	755,060		14,414,095
Direct Line Insurance Group PLC	United Kingdom	2,164,854		13,002,862
^aEnstar Group Ltd	United States	51,919		7,789,927
Korean Reinsurance Co	South Korea	622,180		7,490,660
Lancashire Holdings Ltd	United Kingdom	633,269		5,861,795
Maiden Holdings Ltd	United States	637,820		9,509,896
MetLife Inc	United States	272,020		13,114,084
NN Group NV	Netherlands	544,508		19,252,407
PartnerRe Ltd	United States	50,384		7,040,660
PICC Property and Casualty Co. Ltd., H	China	4,940,284		9,803,884
RSA Insurance Group PLC	United Kingdom	1,851,271		11,637,824
State National Cos. Inc	United States	373,757		3,666,556
^cState National Cos. Inc.144A	United States	350,000		3,433,500
^aStorebrand ASA	Norway	1,200,174		4,743,637
UNIQA Insurance Group AG	Austria	564,365		4,613,137
White Mountains Insurance Group Ltd	United States	12,068		8,771,143
XL Group PLC	Ireland	570,422		22,349,134
				278,826,554
Real Estate Investment Trusts (REITs) 1.4%
Hibernia REIT PLC	Ireland	6,124,132		9,366,492
Real Estate Management & Development 3.8%
Dalian Wanda Commercial Properties Co. Ltd., H	China	1,597,400		9,336,880
^aDolphin Capital Investors Ltd	Greece	3,979,650		850,542
Hang Lung Properties Ltd	Hong Kong	1,277,000		2,906,560
Takara Leben Co. Ltd	Japan	2,175,700		12,236,559
				25,330,541
Thrifts & Mortgage Finance 1.3%
Cape Bancorp Inc	United States	264,663		3,289,761
Genworth Mortgage Insurance Australia Ltd	Australia	2,553,677		5,134,576
				8,424,337
Total Common Stocks and Other Equity Interests
(Cost $520,090,724)				576,765,153
Convertible Preferred Stocks (Cost $122,400) 0.1%
Banks 0.1%
Columbia Banking System Inc., cvt. pfd., B	United States	1,224		463,818
Preferred Stocks 0.8%
Diversified Financial Services 0.8%
^a,dHightower Holding LLC, pfd., A	United States	3,000,000		3,302,700
^a,dHightower Holding LLC, pfd., A, Series 2	United States	968,000		2,298,710
Total Preferred Stocks (Cost $4,782,324)				5,601,410
Companies in Liquidation 0.1%
^a,dFIM Coinvestor Holdings I, LLC	United States	4,357,178		—
^a,eLehman Brothers Holdings Inc., Bankruptcy Claim	United States	7,766,103		436,843
Total Companies in Liquidation (Cost $765,665)				436,843
Total Investments before Short Term Investments
(Cost $525,761,113)				583,267,224

20 Annual Report

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND
STATEMENT O F INVESTMENTS


			Principal
	Country		Amount		Value
Short Term Investments 11.9%
U.S. Government and Agency Securities 11.9%
FHLB,
1/04/16	United States	$	3,200,000	$	3,200,000
^f1/05/16	United States		5,000,000		4,999,980

^fU.S. Treasury Bill,
1/07/16	United States		20,500,000		20,499,918
1/21/16	United States		16,000,000		15,999,344
1/28/16	United States		10,000,000		9,999,180
1/14/16 - 6/09/16	United States		25,700,000		25,666,987
Total U.S. Government and Agency Securities
(Cost $80,362,608)					80,365,409
Total Investments (Cost $606,123,721) 98.6%					663,632,633
Other Assets, less Liabilities 1.4%					9,198,268
Net Assets 100.0%				$	672,830,901

^aNon-income producing.
^bSee Note 10 regarding holdings of 5% voting securities.
^cSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers
or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At
December 31, 2015, the aggregate value of these securities was $18,317,578, representing 2.72% of net assets.
^dSee Note 8 regarding restricted securities.
^eBankruptcy claims represent the right to receive distributions, if any, during the liquidation of the underlying pool of assets. Shares represent amount of allowed unsecured
claims.


^fThe security is traded on a discount basis with no stated coupon rate.

At December 31, 2015, the Fund had the following futures contracts outstanding. See Note 1(c).
Futures Contracts
		Number of		Notional	Expiration		Unrealized		Unrealized
Description	Type	Contracts		Value	Date		Appreciation		Depreciation
Currency Contracts
CHF/USD	Short	1	$	125,400	3/14/16	$	1,059	$	—
EUR/USD	Short	120		16,329,000	3/14/16		7,522		—
GBP/USD	Short	149		13,721,038	3/14/16		350,747		—
Total Futures Contracts						$	359,328	$	—
Net unrealized appreciation (depreciation)						$	359,328

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Annual Report

FRANKLIN MUTUAL FINANCIAL SERVICES FUND
STATEMENT O F INVESTMENTS


At December 31, 2015, the Fund had the following forward exchange contracts outstanding. See Note 1(c).

Forward Exchange Contracts
					Contract	Settlement		Unrealized		Unrealized
Currency	Counterparty^aType		Quantity		Amount	Date		Appreciation		Depreciation
OTC Forward Exchange Contracts
Euro	BANT	Buy	179,652	$	198,190	1/06/16	$	—	$	(3,013	)
Euro	BONY	Buy	146,276		161,379	1/06/16		—		(2,462	)
Euro	BONY	Sell	2,225,248		2,433,865	1/06/16		16,323		—
Euro	DBFX	Buy	215,676		237,974	1/06/16		—		(3,660	)
Euro	FBCO	Buy	179,648		198,280	1/06/16		—		(3,108	)
Euro	HSBC	Buy	143,636		158,100	1/06/16		—		(2,051	)
Euro	SSBT	Buy	143,630		158,091	1/06/16		—		(2,050	)
Euro	SSBT	Sell	4,331,694		4,767,550	1/06/16		61,534		—
Euro	BANT	Buy	48,601		53,378	1/20/16		—		(558	)
Euro	BANT	Sell	303,242		344,499	1/20/16		14,936		—
Euro	BBU	Sell	49,467		54,142	1/20/16		381		—
Euro	BONY	Sell	44,047		48,234	1/20/16		365		—
Euro	DBFX	Buy	122,856		135,201	1/20/16		—		(1,681	)
Euro	DBFX	Sell	1,102,776		1,218,898	1/20/16		20,402		—
Euro	FBCO	Buy	48,601		53,243	1/20/16		—		(423	)
Euro	FBCO	Sell	2,124,885		2,327,679	1/20/16		18,356		—
Euro	HSBC	Buy	72,907		79,954	1/20/16		—		(719	)
Euro	HSBC	Sell	2,649,206		2,920,644	1/20/16		41,489		—
Euro	SSBT	Buy	48,601		53,428	1/20/16		—		(608	)
Euro	SSBT	Sell	1,373,666		1,530,367	1/20/16		37,469		—
British Pound	BANT	Sell	2,903,187		4,531,875	1/21/16		252,479		—
British Pound	BONY	Sell	94,214		144,903	1/21/16		6,028		—
British Pound	SSBT	Sell	2,901,539		4,530,173	1/21/16		253,206		—
Australian Dollar	HSBC	Sell	6,818,299		4,918,603	1/29/16		26		(41,310	)
South Korean Won	BANT	Buy	69,849,183		60,225	2/12/16		—		(865	)
South Korean Won	BANT	Sell	3,114,770,379		2,665,295	2/12/16		22,869		(4,597	)
South Korean Won	FBCO	Sell	264,377,211		228,788	2/12/16		4,125		(13	)
South Korean Won	HSBC	Buy	543,896,417		462,452	2/12/16		1,243		(1,476	)
South Korean Won	HSBC	Sell	4,126,119,581		3,527,790	2/12/16		21,478		(186	)
British Pound	BANT	Sell	1,218,378		1,831,369	2/19/16		35,370		—
British Pound	DBFX	Sell	3,690,812		5,750,285	2/19/16		309,697		—
British Pound	FBCO	Buy	210,494		320,117	2/19/16		—		(9,830	)
British Pound	FBCO	Sell	3,987,326		6,212,254	2/19/16		334,577		—
British Pound	HSBC	Buy	1,001,123		1,517,728	2/19/16		—		(41,982	)
British Pound	HSBC	Sell	694,257		1,036,775	2/19/16		13,378		—
Euro	BANT	Sell	1,173,558		1,326,362	2/22/16		49,861		—
Euro	BBU	Sell	22,920		25,869	2/22/16		938		—
Euro	DBFX	Sell	174,299		196,115	2/22/16		6,527		—
Euro	FBCO	Sell	245,621		278,174	2/22/16		11,008		—
Euro	HSBC	Sell	533,640		603,212	2/22/16		22,761		—
Euro	SSBT	Sell	347,494		392,381	2/22/16		14,405		—
Swedish Krona	BANT	Buy	12,790,858		1,481,544	3/29/16		37,216		—
Swedish Krona	BANT	Sell	10,716,567		1,275,121	3/29/16		2,798		(140	)
Swedish Krona	BONY	Buy	1,025,000		118,300	3/29/16		3,407		—
Swedish Krona	BONY	Sell	1,361,100		159,213	3/29/16		—		(2,401	)
Swedish Krona	DBFX	Buy	386,300		44,474	3/29/16		1,395		—
Swedish Krona	DBFX	Sell	18,855,503		2,254,394	3/29/16		19,925		(4,395	)
Swedish Krona	SSBT	Buy	1,088,308		129,285	3/29/16		270		(332	)
Swedish Krona	SSBT	Sell	16,217,555		1,921,809	3/29/16		354		(4,184	)
Euro	BANT	Sell	251,457		274,652	4/01/16		844		—
Euro	DBFX	Sell	1,805,648		2,068,063	4/01/16		101,918		—
Euro	FBCO	Sell	298,736		321,682	4/01/16		—		(3,607	)
Euro	HSBC	Sell	163,219		175,803	4/01/16		—		(1,924	)
Euro	SSBT	Sell	2,357,110		2,664,574	4/01/16		102,648		(4,698	)
Euro	BANT	Sell	2,159,431		2,467,797	4/18/16		115,112		—
Euro	BONY	Sell	127,164		141,044	4/18/16		2,500		—

22 Annual Report

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND
STATEMENT O F INVESTMENTS


Forward Exchange Contracts (continued)

					Contract	Settlement		Unrealized		Unrealized
Currency	Counterparty^aType		Quantity		Amount	Date		Appreciation		Depreciation
OTC Forward Exchange Contracts (continued)
Euro	DBFX	Sell	314,013	$	351,338	4/18/16	$	9,224	$	—
Euro	FBCO	Sell	615,076		692,389	4/18/16		22,269		—
Euro	HSBC	Sell	2,273,633		2,585,683	4/18/16		108,576		—
Euro	SSBT	Sell	596,478		660,490	4/18/16		10,632		—
British Pound	BANT	Sell	4,541,396		6,964,218	4/22/16		268,695		—
British Pound	DBFX	Sell	259,936		387,092	4/22/16		3,861		—
British Pound	HSBC	Sell	2,752,310		4,251,494	4/22/16		193,677		—
Japanese Yen	BANT	Sell	1,365,891,350		11,425,410	4/22/16		33,428		(9,181	)
Japanese Yen	BONY	Sell	117,239,448		965,184	4/22/16		—		(13,420	)
Japanese Yen	DBFX	Buy	40,261,000		328,249	4/22/16		7,811		—
Japanese Yen	DBFX	Sell	50,347,617		411,505	4/22/16		—		(8,749	)
Japanese Yen	HSBC	Buy	33,886,530		281,862	4/22/16		991		—
Japanese Yen	HSBC	Sell	19,274,835		157,651	4/22/16		—		(3,237	)
Japanese Yen	SSBT	Buy	7,832,520		65,291	4/22/16		88		—
Euro	DBFX	Sell	582,370		633,730	5/04/16		—		(1,091	)
Euro	FBCO	Sell	24,616		26,222	5/04/16		—		(611	)
Euro	SSBT	Sell	8,496,074		9,136,679	5/04/16		—		(124,588	)
South Korean Won	BANT	Sell	3,757,569,231		3,267,488	5/12/16		78,183		—
South Korean Won	FBCO	Sell	302,285,263		262,105	5/12/16		5,535		—
South Korean Won	HSBC	Sell	1,165,471,335		1,019,975	5/12/16		30,760		—
Swiss Franc	BANT	Sell	4,211,309		4,228,284	5/12/16		4,804		(5,354	)
Swiss Franc	BONY	Sell	148,960		152,390	5/12/16		2,810		—
Euro	BANT	Sell	4,206,512		4,522,257	5/18/16		—		(65,217	)
Euro	DBFX	Sell	448,390		481,069	5/18/16		—		(7,930	)
Euro	FBCO	Sell	4,068,223		4,375,445	5/18/16		—		(61,216	)
Euro	HSBC	Sell	349,118		375,582	5/18/16		—		(5,153	)
Euro	SSBT	Sell	919,642		982,572	5/18/16		—		(20,357	)
British Pound	BANT	Sell	520,748		775,791	5/23/16		7,920		—
British Pound	DBFX	Sell	417,820		620,713	5/23/16		4,614		—
British Pound	FBCO	Sell	4,606,149		7,035,196	5/23/16		243,173		—
British Pound	HSBC	Sell	1,699,545		2,594,621	5/23/16		88,547		—
British Pound	SSBT	Sell	222,772		334,788	5/23/16		6,299		—
Norwegian Krone	BANT	Sell	114,314,656		13,264,023	5/23/16		345,215		—
Norwegian Krone	DBFX	Buy	1,512,600		174,920	5/23/16		—		(3,980	)
Norwegian Krone	DBFX	Sell	3,062,505		355,455	5/23/16		9,357		—
Norwegian Krone	SSBT	Sell	2,871,911		325,733	5/23/16		1,176		—
Total Forward Exchange Contracts							$	3,447,263	$	(472,357	)
Net unrealized appreciation (depreciation)							$	2,974,906

^aMay be comprised of multiple contracts with the same counterparty, currency and settlement date.

See Abbreviations on page 39.

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND


Financial Statements

Statement of Assets and Liabilities
December 31, 2015

Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	603,896,636
Cost - Non-controlled affiliates (Note 10)		2,227,085
Total cost of investments	$	606,123,721
Value - Unaffiliated issuers	$	663,555,759
Value - Non-controlled affiliates (Note 10)		76,874
Total value of investments		663,632,633
Cash		449,368
Restricted Cash (Note 1d)		330,000
Foreign currency, at value (cost $756,690)		752,787
Receivables:
Investment securities sold		1,437,838
Capital shares sold		3,884,835
Dividends		388,357
Due from brokers		740,880
Variation margin		179,838
Unrealized appreciation on OTC forward exchange contracts		3,447,263
Other assets		1,018,186
Total assets		676,261,985
Liabilities:
Payables:
Investment securities purchased		15,277
Capital shares redeemed		1,159,339
Management fees		483,810
Distribution fees		354,417
Transfer agent fees		137,050
Trustees’ fees and expenses		24,246
Due to brokers		680,000
Unrealized depreciation on OTC forward exchange contracts		472,357
Accrued expenses and other liabilities		104,588
Total liabilities		3,431,084
Net assets, at value	$	672,830,901
Net assets consist of:
Paid-in capital	$	739,868,145
Distributions in excess of net investment income		(721,845	)
Net unrealized appreciation (depreciation)		60,823,176
Accumulated net realized gain (loss)		(127,138,575	)
Net assets, at value	$	672,830,901

24 Annual Report | The accompanying notes are an integral part of these financial statements.

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FINANCIAL STATEMENTS


Statement of Operations
for the year ended December 31, 2015

Investment income:
Dividends (net of foreign taxes of $697,683)	$	13,405,541
Interest		63,706
Income from securities loaned		6,740
Other income (Note 1f)		910,985
Total investment income		14,386,972
Expenses:
Management fees (Note 3a)		4,712,925
Distribution fees: (Note 3c)
Class A		822,531
Class C		1,051,749
Transfer agent fees: (Note 3e)
Class Z		241,171
Class A		526,460
Class C		185,898
Class R6		337
Custodian fees (Note 4)		55,841
Reports to shareholders		75,350
Registration and filing fees		82,321
Professional fees		156,657
Trustees’ fees and expenses		14,068
Other		49,124
Total expenses		7,974,432
Expense reductions (Note 4)		(432	)
Expenses waived/paid by affiliates (Note 3f)		(325	)
Net expenses		7,973,675
Net investment income		6,413,297
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments		14,897,227
Foreign currency transactions		13,537,522
Futures contracts		1,882,682
Net realized gain (loss)		30,317,431
Net change in unrealized appreciation (depreciation) on:
Investments		1,783,886
Translation of other assets and liabilities denominated in foreign currencies		(4,479,837	)
Futures contracts		16,219
Net change in unrealized appreciation (depreciation)		(2,679,732	)
Net realized and unrealized gain (loss)		27,637,699
Net increase (decrease) in net assets resulting from operations	$	34,050,996

26 Annual Report | The accompanying notes are an integral part of these financial statements.

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FINANCIAL STATEMENTS


Statements of Changes in Net Assets

		Year Ended December 31,

		2015			2014
Increase (decrease) in net assets:
Operations:
Net investment income	$	6,413,297		$	4,750,958
Net realized gain (loss)		30,317,431			55,717,443
Net change in unrealized appreciation (depreciation)		(2,679,732	)		(15,985,768	)
Net increase (decrease) in net assets resulting from operations		34,050,996			44,482,633
Distributions to shareholders from:
Net investment income:
Class Z		(2,528,422	)		(2,206,551	)
Class A		(4,347,602	)		(4,298,998	)
Class C		(866,630	)		(912,109	)
Class R6		(18,925	)		(162	)
Total distributions to shareholders		(7,761,579	)		(7,417,820	)
Capital share transactions: (Note 2)
Class Z		59,444,061			(1,989,359	)
Class A		90,685,735			(6,235,910	)
Class C		38,200,826			(4,277,422	)
Class R6		1,458,822			6,199
Total capital share transactions		189,789,444			(12,496,492	)
Net increase (decrease) in net assets		216,078,861			24,568,321
Net assets:
Beginning of year		456,752,040			432,183,719
End of year	$	672,830,901		$	456,752,040
Undistributed net investment income (distributions in excess of net investment income) included in
net assets:
End of year	$	(721,845	)	$	1,782,857

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

Notes to Financial Statements

1. Organization and Significant Accounting Policies

Franklin Mutual Series Funds (Trust) is registered under the Investment Company Act of 1940 (1940 Act) as an open-end management investment company, consisting of seven separate funds and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). Franklin Mutual Financial Services Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. The Fund offers four classes of shares: Class Z, Class A, Class C and Class R6. Each class of shares differs by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees primarily due to differing arrangements for distribution and transfer agent fees.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

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NOTES TO FINANCIAL STATEMENTS

discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VLOC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.

b. Foreign Currency Translation

exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Board.

c. Derivative Financial Instruments

Derivative counterparty credit risk is managed through a formal evaluation of the creditworthiness of all potential counterparties.

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NOTES TO FINANCIAL STATEMENTS

1. Organization and Significant Accounting

Policies (continued)

c. Derivative Financial Instruments (continued)

The Fund attempts to reduce its exposure to counterparty credit risk on OTC derivatives, whenever possible, by entering into International Swaps and Derivatives Association (ISDA) master agreements with certain counterparties. These agreements contain various provisions, including but not limited to collateral requirements, events of default, or early termination. Termination events applicable to the counterparty include certain deteriorations in the credit quality of the counterparty. Termination events applicable to the Fund include failure of the Fund to maintain certain net asset levels and/or limit the decline in net assets over various periods of time. In the event of default or early termination, the ISDA master agreement gives the non-defaulting party the right to net and close-out all transactions traded, whether or not arising under the ISDA agreement, to one net amount payable by one counterparty to the other. However, absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities. Early termination by the counterparty may result in an immediate payment by the Fund of any net liability owed to that counterparty under the ISDA agreement. At December 31, 2015, the Fund had no OTC derivatives in a net liability position for such contracts.

At December 31, 2015, the Fund received $1,141,653 in United Kingdom Treasury Bonds and U.S. Treasury, Bonds and Notes as collateral for derivatives.

See Note 9 regarding other derivative information.

d. Restricted Cash

e. Securities Lending

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NOTES TO FINANCIAL STATEMENTS

with respect to the collateral investment, securities loaned, and the risk that the agent may default on its obligations to the Fund. If the borrower defaults on its obligation to return the securities loaned, the Fund has the right to repurchase the securities in the open market using the collateral received. The securities lending agent has agreed to indemnify the Fund in the event of default by a third party borrower. At December 31, 2015, the Fund had no securities on loan.

f. Income and Deferred Taxes

The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply, the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date. As a result of several court cases, in certain countries across the European Union, the Fund has filed additional tax reclaims for previously withheld taxes on dividends earned in those countries. These additional filings are subject to various administrative proceedings by the local jurisdictions’ tax authorities within the European Union, as well as a number of related judicial proceedings. During the year ended December 31, 2015, the Fund recognized $920,095 from Swe-den for previously withheld foreign taxes and interest on such taxes. These amounts are reflected as other income and interest in the Statement of Operations. In regards to filings in other European Union countries, uncertainty exists as to the ultimate resolution of these proceedings, the likelihood of receipt of these reclaims, and the potential timing of payment, and accordingly, no amounts are reflected in the financial statements.

The Fund may recognize an income tax liability related to its uncertain tax positions under U.S. GAAP when the uncertain tax position has a less than 50% probability that it will be sustained upon examination by the tax authorities based on its technical merits. As of December 31, 2015, the Fund has determined that no tax liability is required in its Fund’s financial statements related to uncertain tax positions for any open tax years (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction’s statute of limitation.

g. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Dividend income is recorded on the ex-dividend date except for certain dividends from foreign securities where the dividend rate is not available. In such cases, the dividend is recorded as soon as the information is received by the Fund. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with U.S. GAAP. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

h. Accounting Estimates

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NOTES TO FINANCIAL STATEMENTS

1. Organization and Significant Accounting

Policies (continued)

i. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust.

Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

2. Shares of Beneficial Interest

At December 31, 2015, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:


				Year Ended December 31,

				2015					2014

	Shares			Amount		Shares				Amount

Class Z Shares:
Shares sold	4,075,813		$	80,768,459		900,157		$	15,916,337
Shares issued in reinvestment of distributions	120,121			2,312,900		108,683				1,990,815
Shares redeemed	(1,219,045	)		(23,637,298	)	(1,142,574	)			(19,896,511	)
Net increase (decrease)	2,976,889		$	59,444,061		(133,734	)		$	(1,989,359	)

Class A Shares:
Shares sold	9,859,370		$	194,934,822		3,011,856		$	53,245,431
Shares issued in reinvestment of distributions	218,808			4,214,727		226,229				4,156,062
Shares redeemed	(5,609,806	)		(108,463,814	)	(3,597,075	)			(63,637,403	)
Net increase (decrease)	4,468,372		$	90,685,735		(358,990	)		$	(6,235,910	)

Class C Shares:
Shares sold	2,695,436		$	52,859,589		675,189		$	11,864,749
Shares issued in reinvestment of distributions	43,382			824,724		47,533				870,024
Shares redeemed	(810,404	)		(15,483,487	)	(975,769	)			(17,012,195	)
Net increase (decrease)	1,928,414		$	38,200,826		(253,047	)		$	(4,277,422	)

Class R6 Shares:
Shares sold	70,704		$	1,447,899		331			$	6,129
Shares issued in reinvestment of distributions	964			18,816		4				70
Shares redeemed	(412	)		(7,893	)	—				—
Net increase (decrease)	71,256		$	1,458,822		335			$	6,199

3. Transactions with Affiliates


Subsidiary	Affiliation
Franklin Mutual Advisers, LLC (Franklin Mutual)	Investment manager
Franklin Templeton Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

32 Annual Report

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND
NOTES TO FINANCIAL STATEMENTS

a. Management Fees

The Fund pays an investment management fee to Franklin Mutual based on the average daily net assets of the Fund as follows:


Annualized Fee Rate		Net Assets
0.875	%	Up to and including $1 billion
0.845	%	Over $1 billion, up to and including $2 billion
0.825	%	Over $2 billion, up to and including $5 billion
0.805	%	In excess of $5 billion

b. Administrative Fees

c. Distribution Fees

The Board has adopted distribution plans for each share class, with the exception of Class Z and Class R6 shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s Class A reimbursement distribution plan, the Fund reimburses Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate. Under the Class A reimbursement distribution plan, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. In addition, under the Fund’s Class C compensation distribution plan, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate. The plan year, for purposes of monitoring compliance with the maximum annual plan rates, is February 1 through January 31 for each fund.

The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:


Class A	0.35	%
Class C	1.00	%

d. Sales Charges/Underwriting Agreements


Sales charges retained net of commissions paid to unaffiliated broker/dealers	$	190,563
CDSC retained	$	16,769

e. Transfer Agent Fees

For the year ended December 31, 2015, the Fund paid transfer agent fees of $953,866, of which $431,556 was retained by Investor Services.

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND
NOTES TO FINANCIAL STATEMENTS

3. Transactions with Affiliates (continued)

f. Waiver and Expense Reimbursements

Investor Services has contractually agreed in advance to waive or limit its fees so that the Class R6 transfer agent fees do not exceed 0.01% until April 30, 2016.

4. Expense Offset Arrangement

5. Independent Trustees’ Retirement Plan

During the year ended December 31, 2015, the Fund’s projected benefit obligation and benefit payments under the Plan were as follows:


^aProjected benefit obligation at December 31, 2015	$	24,246
^bIncrease in projected benefit obligation	$	1,709
Benefit payments made to retired trustees	$	(460	)

6. Income Taxes

For tax purposes, capital losses may be carried over to offset future capital gains. Capital loss carryforwards with no expiration, if any, must be fully utilized before those losses with expiration dates.


At December 31, 2015, capital loss carryforwards were as follows:

Capital loss carryforwards subject to expiration:
2016	$	20,044,095
2017		73,527,713
2018		31,091,133
Total capital loss carryforwards	$	124,662,941

During the year ended December 31, 2015, the Fund utilized $25,843,125 of capital loss carryforwards.

The tax character of distributions paid during the years ended December 31, 2015 and 2014, was as follows:


		2015		2014
Distributions paid from ordinary income	$	7,761,579	$	7,417,820

34 Annual Report

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NOTES TO FINANCIAL STATEMENTS

At December 31, 2015, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:


Cost of investments	$	608,065,092
Unrealized appreciation	$	104,041,482
Unrealized depreciation		(48,473,941	)
Net unrealized appreciation (depreciation)	$	55,567,541
Distributable earnings – undistributed ordinary income	$	1,140,220

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of foreign currency transactions and passive foreign investment company shares.

7. Investment Transactions

Purchases and sales of investments (excluding short term securities) for the year ended December 31, 2015, aggregated $281,274,875 and $120,175,363, respectively.

8. Restricted Securities

At December 31, 2015, the Fund held investments in restricted securities, excluding certain securities exempt from registration under the 1933 Act deemed to be liquid, as follows:


Shares/		Acquisition
Units	Issuer	Dates		Cost		Value
4,357,178	FIM Coinvestor Holdings I, LLC	11/20/06 - 6/02/09	$	—	$	—
3,000,000	Hightower Holding LLC, pfd., A	3/31/08 - 1/05/10		2,362,324		3,302,700
968,000	Hightower Holding LLC, pfd., A, Series 2	6/10/10 - 5/10/12		2,420,000		2,298,710
	Total Restricted Securities (Value is 0.83% of Net Assets)		$	4,782,324	$	5,601,410

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FRANKLIN MUTUAL FINANCIAL SERIES FUNDS
NOTES TO FINANCIAL STATEMENTS

9. Other Derivative Information

At December 31, 2015, the Fund’s investments in derivative contracts are reflected in the Statement of Assets and Liabilities as follows:


	Asset Derivatives				Liability Derivatives

Derivative Contracts
Not Accounted for as	Statement of Assets and				Statement of Assets and
Hedging Instruments	Liabilities Location		Fair Value		Liabilities Location		Fair Value
Foreign exchange contracts	Variation margin	$	359,328	^a
	Unrealized appreciation on		3,447,263		Unrealized depreciation on	$	472,357
	OTC forward exchange				OTC forward exchange
	contracts				contracts
Totals		$	3,806,591			$	472,357

^aThis amount reflects the cumulative appreciation (depreciation) of futures contracts as reported in the Statement of Investments. Only the variation margin receivable/payable at year end is separately reported within the Statement of Assets and Liabilities. Prior variation margin movements were recorded to cash upon receipt or payment.

For the year ended December 31, 2015, the effect of derivative contracts in the Fund’s Statement of Operations was as follows:


							Net Change in
							Unrealized
Derivative Contracts			Net Realized				Appreciation
Not Accounted for as	Statement of Operations		Gain (Loss)		Statement of Operations		(Depreciation)
Hedging Instruments	Locations		for the Year		Locations		for the Year
	Net realized gain (loss) from:				Net change in unrealized
					appreciation (depreciation) on:
Foreign exchange contracts	Foreign currency transactions	$	14,162,421	^a	Translation of other assets and	$	(4,483,487	)^a
					liabilities denominated in
					foreign currencies
	Futures contracts		1,882,682		Futures contracts		16,219
Totals		$	16,045,103			$	(4,467,268	)

For the year ended December 31, 2015, the average month end fair value of derivatives represented 1.13% of average month end net assets. The average month end number of open derivative contracts for the year was 184.

See Note 1(c) regarding derivative financial instruments.

10. Holdings of 5% Voting Securities of Portfolio Companies


	Number of			Number of
	Shares Held			Shares Held		Value
	at Beginning	Gross	Gross	at End		at End	Investment	Realized
Name of Issuer	of Year	Additions	Reductions	of Year		of Year	Income	Gain (Loss)
Non-Controlled Affiliates
AB&T Financial Corp.
(Value is 0.01% of Net
Assets)	226,100	—	—	226,100	$	76,874	$ —	$ —

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NOTES TO FINANCIAL STATEMENTS

11. Credit Facility

12. Fair Value Measurements

Level 1 – quoted prices in active markets for identical financial instruments
Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepay- ment speed, credit risk, etc.)
Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of financial instruments)

The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

A summary of inputs used as of December 31, 2015, in valuing the Fund’s assets and liabilities carried at fair value, is as follows:


			Level 1		Level 2		Level 3		Total

Assets:
Investments in Securities:
Equity Investments:^a
Banks	$	179,004,702		$	5,434,303	$	—	$	184,439,005
Diversified Financial Services		14,178,974			—		5,601,410		19,780,384
All Other Equity Investments^b		378,610,992			—		—		378,610,992
Companies in Liquidation			—		436,843		—^c		436,843
Short Term Investments		72,165,429			8,199,980		—		80,365,409
Total Investments in Securities	$	643,960,097		$	14,071,126	$	5,601,410	$	663,632,633
Other Financial Instruments
Futures Contracts		$	359,328	$	—	$	—	$	359,328
Forward Exchange Contracts			—		3,447,263		—		3,447,263
Total Other Financial Instruments		$	359,328	$	3,447,263	$	—	$	3,806,591

Liabilities:
Other Financial Instruments
Forward Exchange Contracts		$	—	$	472,357	$	—	$	472,357

^aIncludes common, convertible preferred and preferred stocks as well as other equity investments.
^bFor detailed categories, see the accompanying Statement of Investments.
^cIncludes securities determined to have no value at December 31, 2015.

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND
NOTES TO FINANCIAL STATEMENTS

12. Fair Value Measurements (continued)

A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 financial instruments at the end of the year. At December 31, 2015, the reconciliation of assets, is as follows:


																		Net Change in
																		Unrealized
																		Appreciation
		Balance at				Transfers								Net Unrealized				(Depreciation)
		Beginning		Purchases		Into (Out of)		Cost Basis			Net Realized			Appreciation		Balance at		on Assets Held
		of Year		(Sales)		Level 3		Adjustments^a			Gain (Loss)			(Depreciation)		End of Year		at Year End

Assets:
Investments in Securities:
Equity Investments:^b
Diversified Financial
Services	$	5,496,455	$	—	$	—	$	—		$	—		$	104,955	$	5,601,410	$	104,955
Insurance		—^c		—		—		(2,914	)		(695,872	)		698,786		—		—
Total Investments in
Securities	$	5,496,455	$	—	$	—	$	(2,914	)	$	(695,872	)	$	803,741	$	5,601,410	$	104,955

^aMay include accretion, amortization, partnership adjustments, and/or other cost basis adjustments.
^bIncludes common and preferred stocks.
^cIncludes securities determined to have no value.


	Fair Value				Impact to Fair
	at End of		Amount/		Value if Input
Description	Year Valuation Technique Unobservable Inputs		Range		Increases^a

Assets:
Investments in Securities:
Equity Investments:^b
Diversified Financial Services	$5,601,410 Discounted	Cost of equity	15	%	Decrease^c
	Cash Flow	Revenue growth rate	6.2% - 10.8%		Increase^c
	Model	Adjusted EBITDA margin	17.7% - 22.7%		Increase^d

^aRepresents the directional change in the fair value of the Level 3 financial instruments that would result from a significant and reasonable increase in the corresponding input.
A significant and reasonable decrease in input would have the opposite effect. Significant impacts, if any, to fair value and/or net assets have been indicated.
^bIncludes preferred stocks.
^cRepresents a significant impact to fair value and net assets.
^dRepresents a significant impact to fair value but not net assets.

Abbreviations List
EBITDA - Earnings before interest, taxes, depreciation and amortization

13. Subsequent Events

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Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Franklin Mutual Series Funds and Shareholders of Franklin Mutual Financial Services Fund:

We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Franklin Mutual Financial Services Fund (the “Fund”) (one of the funds constituting Franklin Mutual Series Funds), as of December 31, 2015, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Franklin Mutual Financial Services Fund (one of the funds constituting Franklin Mutual Series Funds) at December 31, 2015, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.

Boston, Massachusetts
February 18, 2016

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

Board Members and Officers

The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Fund, principal occupations during at least the past five years and number of portfolios overseen in the Franklin Templeton Investments fund complex, are shown below. Generally, each board member serves until that person’s successor is elected and qualified.


Independent Board Members

			Number of Portfolios in
Name, Year of Birth		Length of	Fund Complex Overseen	Other Directorships Held
and Address	Position	Time Served	by Board Member*	During at Least the Past 5 Years

Edward I. Altman, Ph.D. (1941)	Trustee	Since 1987	17	None
c/o Franklin Mutual Advisers, LLC
101 John F. Kennedy Parkway
Short Hills, NJ 07078-2789