N-CSR

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: 12/31/17

Item 1. Reports to Stockholders.

Annual Report
and Shareholder Letter   December 31, 2017

Sign up for electronic delivery at franklintempleton.com/edelivery

Franklin Templeton Investments

Gain From Our Perspective^®

At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.

Dear Franklin Mutual Beacon Fund Shareholder:

Securities markets benefited from a confluence of positive economic, financial and political trends during 2017. The global economy entered a synchronized pace of modest and steady growth, corporate earnings strengthened in the US, Europe and Japan, and US equity market volatility remained at historically low levels. A number of political risks identified at the start of 2017, such as the success of far-right parties in Europe, Brexit negotiations and the Trump administration’s ability to enact its policy agenda, also dissipated or became less immediate for investors as the year progressed. For the year ended December 31, 2017, US stocks, as measured by the Standard & Poor’s^® 500 Index (S&P 500^®), produced a +21.83% total return.¹ Stocks in global developed markets, as measured by the MSCI World Index, returned +23.07%, and investment-grade bonds, as measured by the Bloomberg Barclays US Aggregate Bond Index, posted a +3.54% total return.¹

In many equity markets, the trend of growth stocks outpacing value stocks continued. The Russell 1000^® Growth Index returned +30.21%, while the Russell 1000^® Value Index returned +13.66%.¹ The difference in performance has been driven in large part by a rally in internet and software stocks, which dominated the S&P 500 Growth Index. In addition, the S&P 500 Value Index has components that we believe are facing disruption from new technology (e.g., the rapid market share shift to online retailing from traditional bricks and mortar retailers that are often labeled as value stocks). Exacerbating the disruption is the reality that many new technology companies are able to innovate without the need to show immediate profits.

1. Source: Morningstar. Frank Russell Company is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell^® is a trademark of Frank Russell Company.

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

We do not know how long these trends will continue, but historically, periods of strong performance by growth stocks have eventually been followed by relatively weaker performance. Given that unemployment has continued to decline in most developed markets and the US Federal Reserve has taken its first steps toward monetary normalization, value-oriented stocks may become more attractive to investors, particularly within cyclical sectors of the equity markets such as industrials, consumer discretionary and financials.

A stellar 2017 for equity markets also pushed up common valuation metrics, such as price-to-earnings. Valuation is a critical factor in our analysis and we always ask ourselves if current and potential investments represent an attractive balance of risk and reward. We remain committed to our long-term perspective and disciplined investment approach as we conduct a rigorous, fundamental analysis of securities with a regular emphasis on investment risk management.

Although the investment landscape appears favorable as we enter 2018, it is worth remembering that securities markets are dynamic and constantly evolving. Therefore, we believe active, professional investment management serves investors well. We also recognize the important role of financial advisors in today’s markets and encourage investors to continue to seek their advice. Amid changing markets and economic conditions, we are confident investors with a well-diversified portfolio and a patient, long-term outlook should be well positioned for the years ahead.

Not FDIC Insured | May Lose Value | No Bank Guarantee  

  franklintempleton.com   Not part of the annual report           1

On the following pages, the Fund’s portfolio management team reviews investment decisions that pertain to performance during the past 12 months in light of the economic environment and other factors. Please remember all securities markets fluctuate, as do mutual fund share prices.

We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to continuing to serve your investment needs in the years ahead.

Sincerely,

Peter A. Langerman

Chairman, President and Chief Executive Officer

Franklin Mutual Advisers, LLC

This letter reflects our analysis and opinions as of December 31, 2017, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.

Contents

Annual Report

Franklin Mutual Beacon Fund	3
Performance Summary	10
Your Fund’s Expenses	13
Financial Highlights and Statement of Investments	14
Financial Statements	24
Notes to Financial Statements	28
Report of Independent Registered Public Accounting Firm	40
Tax Information	41
Board Members and Officers	42
Shareholder Information	47

Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.

  2           Not part of the annual report franklintempleton.com

Annual Report

Franklin Mutual Beacon Fund

This annual report for Franklin Mutual Beacon Fund covers the fiscal year ended December 31, 2017.

Your Fund’s Goal and Main Investments

The Fund seeks capital appreciation, which may occasionally be short term, with income as a secondary goal. Under normal market conditions, the Fund invests primarily in equity securities of US and foreign companies that the investment manager believes are available at market prices less than their intrinsic value. The equity securities in which the Fund invests are primarily common stock, with a current focus on mid- and large-cap companies. To a lesser extent, the Fund also invests in merger arbitrage securities and the debt and equity of distressed companies. The Fund may invest a substantial portion, potentially up to 100% of its assets in foreign securities, which may include sovereign debt and participations in foreign government debt. The Geographic Composition bar chart on this page lists the leading countries where the Fund invests.

Performance Overview

The Fund’s Class Z shares delivered a +14.39% cumulative total return for the 12 months ended December 31, 2017. In comparison, the Fund’s benchmark, the MSCI World Index (USD), which tracks stock performance in global developed markets, generated a +23.07% total return.¹ You can find more of the Fund’s performance data in the Performance Summary beginning on page 10.

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

The global economy grew moderately during the 12-month period under review. In this environment, global developed and emerging market stocks generated a +24.62% total return, as

Geographic Composition*

Based on Total Net Assets as of 12/31/17

*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 38.5% of total net assets in foreign securities.

measured by the MSCI All Country World Index.¹ Global markets were aided by price gains in oil and other commodities, generally upbeat economic data across regions, the European Central Bank’s (ECB’s) extension of its monetary easing program, and investor optimism about pro-growth and pro-business policies in the US. The prospect for reforms in the European Union (EU) with Emmanuel Macron’s election as France’s president, encouraging corporate earnings reports and the passage of the US tax reform bill also supported global stocks.

1. Source: Morningstar.

The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. 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 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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However, global markets reflected investor concerns about the terms of the UK’s exit from the EU, political uncertainty in the US and the EU, and geopolitical tensions in the Korean peninsula and other regions. Other concerns included the health of European banks, global oil oversupply despite a pact by major oil-producing countries to extend production cuts, and comments from key central bankers around the world about potentially raising interest rates.

After strengthening in 2017’s second and third quarters, the US economy moderated in the fourth quarter. The economy grew faster in 2017 than in 2016, however, largely due to growth in consumer spending, business investment and exports. The unemployment rate decreased from 4.7% in December 2016, as reported at the beginning of the 12-month period, to 4.1% at period-end.² Annual inflation, as measured by the Consumer Price Index, was 2.1% in December 2016, as reported at the beginning of the 12-month period, and while it varied over the 12-month period, remained unchanged at period-end.² The US Federal Reserve (Fed) raised its target range for the federal funds rate 0.25% three times during the period, amid signs of a growing US economy, strengthening labor market and improving business spending. At its December meeting, the Fed confirmed that the monthly balance sheet reduction would increase from US$10 billion to US$20 billion beginning in January 2018.

In Europe, the UK’s economic growth moderated in 2017 compared to 2016, largely due to slower growth in the services sector. In November, the Bank of England raised its key policy rate 0.25%, its first increase in a decade. The eurozone’s growth accelerated in 2017’s second and third quarters, but moderated in the fourth quarter. However, the eurozone’s 2017 economic growth rate of 2.5% was the fastest in a decade.³ The bloc’s annual inflation rate, while low, ended higher than in December 2016. The ECB kept its benchmark interest rate unchanged during the period. However, at its October meeting, the ECB extended the time frame for its massive bond-buying program from December 2017 to at least September 2018, while reducing the amount of monthly bond purchases in half beginning in January 2018.

In Asia, Japan’s quarterly gross domestic product (GDP) grew for the seventh consecutive quarter, although third-quarter 2017 growth was lower than the previous quarter. The Bank of Japan left its benchmark interest rate unchanged during the period and continued its monetary stimulus measures.

In emerging markets, Brazil’s quarterly GDP grew for the third consecutive quarter, although third-quarter 2017 growth slowed from the previous quarter. The country’s central bank cut its benchmark interest rate several times during the period to spur economic growth. Russia’s GDP grew in 2017’s first three quarters compared to the prior-year periods, amid the Bank of Russia’s continued policy support. China’s GDP grew faster in 2017 than in 2016, supported by solid growth in industrial production, services, fixed-asset investment, retail sales, and imports and exports. The People’s Bank of China left its benchmark interest rate unchanged during the period. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, produced a substantial +37.75% total return during the period.¹

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 also reduces the risk of substantial declines, in our opinion. 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.

2. Source: Bureau of Labor Statistics.

3. Source: Eurostat.

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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 investment approach, we typically focus our arbitrage efforts on announced deals, and avoid 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

In 2017, an improving economic and political backdrop helped drive most equity markets higher. The positive performances were broad based, spanning across most regions and sectors, and complemented by minimal volatility. Global markets were aided by generally upbeat economic data, improved corporate earnings in the US, Europe and Japan, as well as improved industrial commodity prices, most notably crude oil. In addition, the most significant political risks identified by investors heading into 2017 failed to materialize.

In the US, markets began 2017 rallying as investors hoped that a Republican sweep of US elections in November 2016 would lead to a general loosening in regulations and tax reform, including lower corporate tax rates. Although the Trump administration’s policy agenda was hindered by political gridlock, efforts to loosen federal regulations yielded some results and tax reform legislation was finally passed in late December. Improving economic activity and corporate earnings appeared to be the most meaningful equity market catalysts during much of 2017. However, the modest level of economic growth and low interest rates pushed investors to keep favoring growth stocks. During the period, the Russell 1000^® Growth Index generated a total return of +30.21%, while the Russell

1000^® Value Index posted a total return of +13.66%.⁴ Within the Russell 1000^® Growth Index, stocks with the largest weightings were technology firms that dominated the headlines: Apple,⁵ Alphabet (a.k.a. Google),⁵ Microsoft, Amazon.com⁵ and Facebook.⁵

European equity markets started 2017 slowly, but positive political events and improved economic data fueled strong performances during the period. Elections in Europe produced outcomes generally regarded as positive economically as far-right parties largely failed to gain political power in national elections. Investors were particularly encouraged by the presidential election outcome in France. The reform-minded, centrist candidate, Emmanuel Macron, won the French presidential election in May and quickly began to push his agenda, most notably labor decrees giving employers in France greater freedom in negotiating contracts directly with workers. Amid all the positive events, the UK remained the most significant outlier. In the UK, a June 2017 snap election resulting in no party having a majority in Parliament appeared to make a “hard Brexit,” in which the UK leaves the European Union (EU) in March 2019 without a negotiated deal, even more likely than before. Although the UK and EU appeared to make some progress late in the year, the snap election results left the Conservative Party in a precarious position and with the risk of another election in the near future.

As value investors, we seek to invest prudently in securities that we believe represent good value, but adjust our views accordingly as the world around us changes. The media industry is a recent example of this approach. The Top 10 Sectors/Industries table on page 6 lists media and other leading industries in which the Fund currently invests. The media industry became a significant area of investment interest in the latter stages of the year due to significant structural changes. Since the 1980s, most Americans received their TV entertainment as part of a bundle from a cable provider. Disparate networks were combined and sold as packages, with annual price increases justified by the inclusion of more networks. Consumers rarely had the option to unbundle cable packages and most markets had no direct competition. However, the growth of fixed and mobile broadband connectivity ushered in the opportunity to bypass traditional distributors through the delivery of film and TV content over the internet and the launch of direct-to-consumer offerings by

4. Source: Morningstar. Frank Russell Company is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell^® is a trademark of Frank Russell Company.

5. Not a Fund holding.

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

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FRANKLIN MUTUAL BEACON FUND

TV networks. The growing popularity of new digital options has driven cable providers to roll out lower-priced packages with fewer channels. This evolution has begun to create winners and losers among networks and new opportunities for investors.

Pay TV subscription among US households peaked in 2009 at close to 100 million homes. Initially, the decline in subscribers was moderate, but has accelerated since 2015, reaching a pace of more than 2% per year in 2017. At first, media companies benefited from digital distribution by using it as an additional outlet for selling content. With the cannibalization of traditional platforms accelerating, media companies have begun to respond. The necessity for greater scale in content development and direct access to consumers is driving investment and merger decisions in the industry. From our standpoint, we are looking for networks with the most attractive content relative to the price they have been charging and may be able to charge in the future.

The Fund initiated a position in Walt Disney in the latter half of 2017. We believe Disney is well positioned to benefit from the evolution toward a more direct-to-consumer distribution model. In our view, Disney has one of the best intellectual property (IP) portfolios in all of media with a stable of globally recognized proprietary characters upon which to build a strong direct-to-consumer franchise. If Disney is successful in its bid to acquire the bulk of Twenty-First Century Fox’s⁵ content assets, the deal would further strengthen its IP portfolio and its content development scale. As it has done with its own IP, Disney would likely be able to leverage Fox’s content into attractions at its theme parks as well as consumer products. The acquisition would offer potential cost synergies that would likely offset some of the investments in the direct-to-consumer service. Under the leadership of chief executive officer Bob Iger, Disney has been effective in integrating acquired companies and navigating through a changing media landscape. Iger’s commitment to remain at the helm through 2021 strengthens our belief that the company should be able to execute on this opportunity.

Merger and acquisition activity remained healthy in 2017, although the pace of activity appeared to decelerate slightly compared to 2016 due to less favorable political and regulatory conditions in the US, the UK and China. In the US, several key regulatory agencies remain short of members, including the Federal Communications Commission and the Federal Trade Commission. Many large deals continued to wind their way through prolonged regulatory reviews, including Bayer’s⁵ acquisition of Monsanto, AT&T’s acquisition of Time Warner,⁵ and Twenty-First Century Fox’s⁵ offer for Sky.

Top 10 Sectors/Industries

Based on Equity Securities as of 12/31/17

	% of Total Net Assets
Media		12.1%
Pharmaceuticals		11.2%
Banks		10.6%
Software		7.6%
Oil, Gas & Consumable Fuels		5.9%
Health Care Equipment & Supplies		4.2%
Wireless Telecommunication Services		3.5%
IT Services		3.5%
Consumer Finance		3.5%
Communications Equipment		3.4%

Credit spreads narrowed in 2017 for higher quality and high yield credit, albeit with some minor bouts of volatility. The broad-based decrease in yield differentials between bonds with the same maturity but different credit quality provided the Fund with the opportunity to exit a number of opportunities that presented themselves in early 2016, including several bond offerings related to leveraged acquisitions, as prices improved, yield premium over Treasuries shrank, and the risk-adjusted returns were no longer mispriced. As the year progressed and investors became more willing buyers of credit, mispriced risk became more difficult to find, in our opinion. In times when the credit markets fluctuate and value is difficult to identify, we believe our industry specific expertise, deep fundamental analysis with a focus on cash flow, and intensive credit and covenant review combine seamlessly and provide us with different ways of looking at the same ideas others may disregard.

Fund Performance

Turning to Fund performance, top positive contributors included US-based aerospace and oilfield services provider KLX, South Korea-based Samsung Electronics and US-based multinational industrial technology company Sensata Technologies. Samsung Electronics and Sensata Technologies are listed among the Fund’s largest positions in the Top 10 Equity Holdings table on page 7.

KLX provides logistics support to aerospace and oil and gas firms. The stock price rose as market fundamentals and KLX’s operational performance remained positive. In December, KLX posted better-than-expected quarterly results and announced a new share buyback plan. Within its aerospace solutions group, KLX gained market share. Management also stated its belief that an upturn in military and business jet demand may begin in 2018, as new business jets are slated to enter the market and the

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Top 10 Equity Holdings

12/31/17

Company Sector/Industry, Country	% of Total Net Assets
Vodafone Group PLC		3.6%
Wireless Telecommunication Services, UK
Capital One Financial Corp.		3.5%
Consumer Finance, US
JPMorgan Chase & Co.		3.4%
Banks, US
Medtronic PLC		3.2%
Health Care Equipment & Supplies, US
Sensata Technologies Holding NV		3.2%
Electrical Equipment, US
Royal Dutch Shell PLC		3.2%
Oil, Gas & Consumable Fuels, UK
Novartis AG		3.2%
Pharmaceuticals, Switzerland
Koninklijke KPN NV		3.1%
Diversified Telecommunication Services, Netherlands
Samsung Electronics Co. Ltd.		3.1%
Technology Hardware, Storage & Peripherals, South Korea
Societe Generale SA		3.0%
Banks, France

US military refocuses money on its aircraft. KLX saw increased demand within its energy solutions group, while its cost cutting efforts positively impacted the operating margin. The company also announced that it retained advisers to review strategic alternatives, with a focus on maximizing shareholder value.

Samsung Electronics is a low cost provider of dynamic random-access memory and flash memory products, smartphones, consumer electronics and other goods. For investors, Samsung’s solid operating results outweighed both the conviction of Samsung vice chairman Jay Y. Lee for his involvement in a government bribery scandal and escalating tensions between North Korea and the international community. Samsung reported strong sales in its core businesses, including memory chips and OLED (organic light-emitting diode) displays. Sales of its newest generation of smartphones during 2017 exceeded market expectations. Shareholder-friendly actions also boosted shares of Samsung, including a plan to cancel existing treasury shares held by the company and the announcement of significant dividend increases in 2017 and 2018.

Sensata Technologies is a multinational industrial technology company specializing in sensors and controls. Sensata was able to improve its operational performance during the period.

Quarterly results released in July 2017 showed stronger demand from non-auto markets, such as heavy vehicles, HVAC (heating, ventilation, and air conditioning) and industrials, which boosted organic growth and contributed to an increase in the operating margin. At the same time, management raised its full-year 2017 revenue guidance. In December 2017, investors also reacted positively to management’s three-year outlook for revenues that implied a re-acceleration in Sensata’s core business and its reiteration of solid margin expansion.

During the period under review, Fund investments that detracted from performance included US-based industrials company General Electric (GE), Israel-based pharmaceutical services provider Teva Pharmaceuticals and US-based drugstore chain Rite Aid.

The stock price of GE, an industrials company with a wide range of business units, declined as investors became more discouraged about the company’s poor cash flow generation, significantly underfunded pension liability, bloated cost structure, and increased competition and overcapacity in the power market. Intensifying pressure by activist investors led to chief executive officer (CEO) Jeffrey Immelt’s resignation in June 2017 and the promotion of John Flannery to CEO. However, GE’s stock price continued to slide after the company lowered its 2017 earnings guidance in October, which heightened investor concerns about a potential dividend cut. A dividend cut of 50%, larger than most investors had speculated, was announced in November, along with the incoming CEO’s plan for portfolio optimization and significant cost reductions. These negative events have not altered our view that GE has well-positioned businesses. If GE delivers on its plan to improve free cash flow generation and reduce overhead expenses, we believe there is upside potential for its stock price.

Teva Pharmaceutical Industries experienced a challenging year. In January 2017, Teva provided lower earnings guidance and a US federal court invalidated four patents for the company’s top-selling multiple sclerosis drug Copaxone. The resignations of Teva’s chief executive officer (CEO) and chief financial officer in the first half of 2017 further hindered Teva’s stock price. In the second half of the year, weak operating results, a dividend cut and a debt rating downgrade escalated investor concerns. The company managed to ease investor anxiety later in 2017, in our view, with the appointment of Kare Schultz, a well-regarded industry veteran as the new CEO, as well as the divestiture of certain non-core assets and amendment to certain debt instruments. We were also encouraged by the details of a restructuring plan announced by the new CEO in December.

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Shares of Rite Aid steadily declined during the period as a deal to be acquired by Walgreens Boots Alliance fell apart. The transaction was mired in antitrust review by the Federal Trade Commission (FTC) and in June 2017, Walgreens terminated the merger agreement. Rite Aid subsequently agreed to sell a significant number of its stores and related distribution assets to Walgreens. The new agreement was approved by the FTC in September 2017, but investors were skeptical of Rite Aid’s ability to successfully compete against larger industry peers and potential new competitors, such as Amazon.com.

During the period, the Fund held currency forwards and futures seeking to hedge most of the currency risk of the portfolio’s non-US dollar investments. The currency forwards and futures had a negative impact on the Fund’s performance because of the depreciation of the US dollar versus the hedged currencies.

What is a currency forward?

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

What is a future?

A future is an agreement between the Fund and a counterparty made through a US 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 participation in Franklin Mutual Beacon Fund. We look forward to continuing to serve your investment needs.

	Christian Correa, CFA Co-Portfolio Manager
	Mandana Hormozi Co-Portfolio Manager
	Aman Gupta, CFA Assistant Portfolio Manager

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, 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.

CFA^® is a trademark owned by CFA Institute.

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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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FRANKLIN MUTUAL BEACON FUND

Performance Summary as of December 31, 2017

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. 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.

Performance as of 12/31/17

Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge. For other share classes, visit franklintempleton.com.

Share Class	Cumulative Total Return1	Average Annual Total Return2
Z
1-Year	+14.39%	+14.39%
5-Year	+75.60%	+11.92%
10-Year	+72.06%	+5.58%
A
1-Year	+14.09%	+7.51%
5-Year	+73.21%	+10.30%
10-Year	+67.22%	+4.66%

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.

See page 12 for Performance Summary footnotes.

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PERFORMANCE SUMMARY

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

Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged index includes reinvestment of any income or distributions. It differs from the Fund in composition and does not pay management fees or expenses. One cannot invest directly in an index.

Class Z (1/1/08–12/31/17)

Class A (1/1/08–12/31/17)

See page 12 for Performance Summary footnotes.

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PERFORMANCE SUMMARY

Distributions (1/1/17–12/31/17)

Share Class	Net Investment Income			Short-Term Capital Gain			Long-Term Capital Gain			Total
Z		$	0.3070		$	0.0463		$	0.5232		$	0.8765
A		$	0.2642		$	0.0463		$	0.5232		$	0.8337
C		$	0.1316		$	0.0463		$	0.5232		$	0.7011
R		$	0.2115		$	0.0463		$	0.5232		$	0.7810
R6		$	0.3203		$	0.0463		$	0.5232		$	0.8898

Total Annual Operating Expenses⁴

Share Class
Z	0.80%
A	1.05%

Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.

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 may invest its assets in companies in a specific region, including Europe, 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. Current political and financial uncertainty surrounding the European Union may increase market volatility and the economic risk of investing in companies in Europe. Smaller company stocks have exhibited greater price volatility than larger company stocks, particularly 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 may invest in 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.

1. Cumulative total return represents the change in value of an investment over the periods indicated.

2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Source: Morningstar. The MSCI World Index (USD) is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets.

4. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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

  12           Annual Report   franklintempleton.com

FRANKLIN MUTUAL BEACON FUND

Your Fund’s Expenses

As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) 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 table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

		Actual (actual return after expenses)		Hypothetical (5% annual return before expenses)
Share Class	Beginning Account Value 7/1/17	Ending Account Value 12/31/17	Expenses Paid During Period 7/1/17–12/31/171,2	Ending Account Value 12/31/17	Expenses Paid During Period 7/1/17–12/31/171,2	Net Annualized Expense Ratio2
Z	$1,000	$1,051.80	$4.14	$1,021.17	$4.08	0.80%
A	$1,000	$1,050.30	$5.43	$1,019.91	$5.35	1.05%
C	$1,000	$1,046.30	$9.28	$1,016.13	$9.15	1.80%
R	$1,000	$1,048.90	$6.71	$1,018.65	$6.61	1.30%
R6	$1,000	$1,051.40	$3.77	$1,021.53	$3.72	0.73%

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/365 to reflect the one-half year period.

2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.

  franklintempleton.com   Annual Report           13

FRANKLIN MUTUAL BEACON FUND

Financial Highlights

		Year Ended December 31,
	2017		2016		2015		2014		2013
Class Z
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$15.30		$14.30		$16.59		$16.91		$13.36
Income from investment operationsa:
Net investment incomeb		0.29		0.37c		0.29		0.54d		0.31
Net realized and unrealized gains (losses)		1.90		1.93		(0.99)		0.62		3.56
Total from investment operations		2.19		2.30		(0.70)		1.16		3.87
Less distributions from:
Net investment income		(0.31)		(0.37)		(0.37)		(0.69)		(0.32)
Net realized gains		(0.57)		(0.93)		(1.22)		(0.79)		—
Total distributions		(0.88)		(1.30)		(1.59)		(1.48)		(0.32)
Net asset value, end of year		$16.61		$15.30		$14.30		$16.59		$16.91
Total return		14.39%		16.11%		(4.14)%		6.82%		29.11%
Ratios to average net assets
Expensese,f		0.78%		0.80%		0.84%g		0.83%		0.80%
Expenses incurred in connection with securities sold short		—%		0.01%		0.04%		0.04%		—%h
Net investment income		1.78%		2.48%c		1.73%		3.14%d		2.02%
Supplemental data
Net assets, end of year (000’s)		$2,700,327		$2,564,120		$2,420,165		$2,774,929		$2,876,322
Portfolio turnover rate		24.80%		30.94%		35.80%		40.06%		32.95%

^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 $0.10 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 1.81%.

^dNet investment income per share includes approximately $0.24 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 1.74%.

^eBenefit of expense reduction rounds to less than 0.01%.

^fIncludes 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(d).

^gBenefit of waiver and payments by affiliates rounds to less than 0.01%.

^hRounds to less than 0.01%.

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

FRANKLIN MUTUAL BEACON FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017		2016		2015		2014		2013
Class A
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$15.18		$14.20		$16.47		$16.80		$13.28
Income from investment operationsa:
Net investment incomeb		0.25		0.33c		0.24		0.49d		0.26
Net realized and unrealized gains (losses)		1.87		1.91		(0.97)		0.60		3.54
Total from investment operations		2.12		2.24		(0.73)		1.09		3.80
Less distributions from:
Net investment income		(0.26)		(0.33)		(0.32)		(0.63)		(0.28)
Net realized gains		(0.57)		(0.93)		(1.22)		(0.79)		—
Total distributions		(0.83)		(1.26)		(1.54)		(1.42)		(0.28)
Net asset value, end of year		$16.47		$15.18		$14.20		$16.47		$16.80
Total returne		14.09%		15.80%		(4.33)%		6.48%		28.70%
Ratios to average net assets
Expensesf,g		1.03%		1.05%		1.12%h		1.13%		1.10%
Expenses incurred in connection with securities sold short		—%		0.01%		0.04%		0.04%		—%i
Net investment income		1.53%		2.23%c		1.45%		2.84%d		1.72%
Supplemental data
Net assets, end of year (000’s)		$983,048		$992,306		$1,019,568		$1,101,706		$1,148,409
Portfolio turnover rate		24.80%		30.94%		35.80%		40.06%		32.95%

^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 $0.10 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 1.56%.

^dNet investment income per share includes approximately $0.24 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 1.44%.

^eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

^fBenefit of expense reduction rounds to less than 0.01%.

^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(d).

^hBenefit of waiver and payments by affiliates rounds to less than 0.01%.

ⁱRounds to less than 0.01%.

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

FRANKLIN MUTUAL BEACON FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017		2016		2015		2014		2013
Class C
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$15.06		$14.10		$16.36		$16.70		$13.21
Income from investment operationsa:
Net investment incomeb		0.12		0.22c		0.12		0.37d		0.15
Net realized and unrealized gains (losses)		1.86		1.88		(0.96)		0.59		3.51
Total from investment operations		1.98		2.10		(0.84)		0.96		3.66
Less distributions from:
Net investment income		(0.13)		(0.21)		(0.20)		(0.51)		(0.17)
Net realized gains		(0.57)		(0.93)		(1.22)		(0.79)		—
Total distributions		(0.70)		(1.14)		(1.42)		(1.30)		(0.17)
Net asset value, end of year		$16.34		$15.06		$14.10		$16.36		$16.70
Total returne		13.25%		14.94%		(5.06)%		5.78%		27.79%
Ratios to average net assets
Expensesf,g		1.78%		1.80%		1.84%h		1.83%		1.80%
Expenses incurred in connection with securities sold short		—%		0.01%		0.04%		0.04%		—%i
Net investment income		0.78%		1.48%c		0.73%		2.14%d		1.02%
Supplemental data
Net assets, end of year (000’s)		$260,113		$275,138		$285,333		$320,832		$336,222
Portfolio turnover rate		24.80%		30.94%		35.80%		40.06%		32.95%

^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 $0.10 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 0.81%.

^dNet investment income per share includes approximately $0.24 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 0.74%.

^eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

^fBenefit of expense reduction rounds to less than 0.01%.

^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(d).

^hBenefit of waiver and payments by affiliates rounds to less than 0.01%.

ⁱRounds to less than 0.01%.

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

FRANKLIN MUTUAL BEACON FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017		2016		2015		2014		2013
Class R
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$15.01		$14.05		$16.33		$16.68		$13.19
Income from investment operationsa:
Net investment incomeb		0.21		0.30c		0.20		0.44d		0.23
Net realized and unrealized gains (losses)		1.84		1.89		(0.97)		0.61		3.50
Total from investment operations		2.05		2.19		(0.77)		1.05		3.73
Less distributions from:
Net investment income		(0.21)		(0.30)		(0.29)		(0.61)		(0.24)
Net realized gains		(0.57)		(0.93)		(1.22)		(0.79)		—
Total distributions		(0.78)		(1.23)		(1.51)		(1.40)		(0.24)
Net asset value, end of year		$16.28		$15.01		$14.05		$16.33		$16.68
Total return		13.76%		15.58%		(4.61)%		6.31%		28.34%
Ratios to average net assets
Expensese,f		1.28%		1.30%		1.34%g		1.33%		1.30%
Expenses incurred in connection with securities sold short		—%		0.01%		0.04%		0.04%		—%h
Net investment income		1.28%		1.98%c		1.23%		2.64%d		1.52%
Supplemental data
Net assets, end of year (000’s)		$1,601		$2,035		$2,343		$2,246		$1,956
Portfolio turnover rate		24.80%		30.94%		35.80%		40.06%		32.95%

^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 $0.10 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 1.31%.

^dNet investment income per share includes approximately $0.24 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 1.24%.

^eBenefit of expense reduction rounds to less than 0.01%.

^fIncludes 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(d).

^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 financial statements.  |     Annual Report               17

FRANKLIN MUTUAL BEACON FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017		2016		2015		2014		2013a
Class R6
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$15.30		$14.30		$16.58		$16.88		$14.77
Income from investment operationsb:
Net investment incomec		0.37		0.38d		0.30		0.56e		0.24
Net realized and unrealized gains (losses)		1.82		1.93		(0.98)		0.63		2.21
Total from investment operations		2.19		2.31		(0.68)		1.19		2.45
Less distributions from:
Net investment income		(0.32)		(0.38)		(0.38)		(0.70)		(0.34)
Net realized gains		(0.57)		(0.93)		(1.22)		(0.79)		—
Total distributions		(0.89)		(1.31)		(1.60)		(1.49)		(0.34)
Net asset value, end of year		$16.60		$15.30		$14.30		$16.58		$16.88
Total returnf		14.42%		16.20%		(3.98)%		6.91%		16.83%
Ratios to average net assetsg
Expenses before waiver and payments by affiliatesh		0.72%		0.71%		0.74%		0.74%		2.10%
Expenses net of waiver and payments by affiliatesh,i		0.71%		0.71%		0.74%j		0.74%		0.71%
Expenses incurred in connection with securities sold short		—%		0.01%		0.04%		0.04%		—%k
Net investment income		1.85%		2.57%d		1.83%		3.23%e		2.11%
Supplemental data
Net assets, end of year (000’s)		$106,845		$604		$48,844		$50,868		$6
Portfolio turnover rate		24.80%		30.94%		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 $0.10 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 1.90%.

^eNet investment income per share includes approximately $0.24 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 1.83%.

^fTotal return is not annualized for periods less than one year.

^gRatios are annualized for periods less than one year.

^hIncludes 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(d).

ⁱBenefit of expense reduction rounds to less than 0.01%.

^jBenefit of waiver and payments by affiliates rounds to less than 0.01%.

^kRounds to less than 0.01%.

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

FRANKLIN MUTUAL BEACON FUND

Statement of Investments, December 31, 2017

		Country		Shares		Value
	Common Stocks and Other Equity Interests 86.9%
	Aerospace & Defense 3.0%
	BAE Systems PLC		United Kingdom		95,912	$	742,175
a	KLX Inc.		United States		1,749,664		119,414,568
							120,156,743
	Auto Components 0.4%
a,b,c	International Automotive Components Group Brazil LLC		Brazil		2,846,329		97,586
a,b,c	International Automotive Components Group North America LLC		United States		22,836,904		15,044,382
							15,141,968
	Banks 10.6%
	JPMorgan Chase & Co.		United States		1,270,500		135,867,270
	Societe Generale SA		France		2,374,988		122,671,438
a	Standard Chartered PLC		United Kingdom		4,695,355		49,464,910
	Wells Fargo & Co.		United States		2,016,650		122,350,156
							430,353,774
	Chemicals 1.0%
a,b,d	Dow Corning Corp., Contingent Distribution		United States		12,598,548		—
	Monsanto Co.		United States		349,920		40,863,658
							40,863,658
	Communications Equipment 3.4%
	Cisco Systems Inc.		United States		2,338,442		89,562,329
	Nokia OYJ, ADR		Finland		10,448,063		48,687,973
							138,250,302
	Consumer Finance 3.5%
	Capital One Financial Corp.		United States		1,419,398		141,343,653
	Diversified Telecommunication Services 3.1%
	Koninklijke KPN NV		Netherlands		36,081,711		125,889,760
	Electrical Equipment 3.2%
a	Sensata Technologies Holding NV		United States		2,557,686		130,723,331
	Food & Staples Retailing 0.9%
a	Rite Aid Corp.		United States		6,467,611		12,741,194
	Walgreens Boots Alliance Inc.		United States		306,751		22,276,257
							35,017,451
	Health Care Equipment & Supplies 4.2%
	Medtronic PLC		United States		1,622,190		130,991,843
	Stryker Corp.		United States		255,186		39,513,000
							170,504,843
	Hotels, Restaurants & Leisure 2.8%
	Accor SA		France		2,090,746		107,864,519
a	Caesars Entertainment Corp.		United States		384,369		4,862,268
							112,726,787
	Independent Power & Renewable Electricity Producers 0.6%
a	Vistra Energy Corp.		United States		1,256,451		23,018,182
	Industrial Conglomerates 1.7%
	General Electric Co.		United States		4,061,400		70,871,430
	Internet Software & Services 1.3%
a	Baidu Inc., ADR		China		226,547		53,059,573

  franklintempleton.com   Annual Report           19

FRANKLIN MUTUAL BEACON FUND

STATEMENT OF INVESTMENTS

		Country		Shares		Value
	Common Stocks and Other Equity Interests (continued)
	IT Services 3.5%
	Cognizant Technology Solutions Corp., A		United States		1,437,830	$	102,114,686
	Infosys Ltd.		India		2,464,285		40,224,126
							142,338,812
	Media 12.1%
a	Charter Communications Inc., A		United States		270,187		90,772,024
	Comcast Corp., A		United States		1,983,900		79,455,195
a	DISH Network Corp., A		United States		801,941		38,292,683
	Sky PLC		United Kingdom		4,390,865		60,007,994
	Time Warner Inc.		United States		1,243,455		113,738,829
	The Walt Disney Co.		United States		994,700		106,940,197
							489,206,922
	Metals & Mining 0.2%
	Warrior Met Coal Inc.		United States		301,445		7,581,342
	Oil, Gas & Consumable Fuels 5.9%
	Royal Dutch Shell PLC, B		United Kingdom		3,819,043		129,374,048
	The Williams Cos. Inc.		United States		3,549,332		108,219,133
							237,593,181
	Pharmaceuticals 11.2%
	Eli Lilly & Co.		United States		1,203,639		101,659,350
	GlaxoSmithKline PLC		United Kingdom		4,971,907		88,796,775
	Merck & Co. Inc.		United States		1,980,177		111,424,560
	Novartis AG, ADR		Switzerland		1,534,190		128,810,592
	Teva Pharmaceutical Industries Ltd., ADR		Israel		1,165,025		22,077,224
							452,768,501
	Real Estate Management & Development 0.2%
a	VICI Properties Inc.		United States		467,797		9,589,839
	Software 7.6%
	CA Inc.		United States		1,248,866		41,562,261
a	Check Point Software Technologies Ltd.		Israel		816,412		84,596,611
	Microsoft Corp.		United States		1,172,844		100,325,076
	Symantec Corp.		United States		2,955,337		82,926,756
							309,410,704
	Tobacco 3.0%
	British American Tobacco PLC		United Kingdom		1,808,426		122,549,040
	Wireless Telecommunication Services 3.5%
	Vodafone Group PLC		United Kingdom		45,462,324		144,277,301
	Total Common Stocks and Other Equity Interests (Cost $2,701,581,590)						3,523,237,097
	Management Investment Companies (Cost $40,343,454) 1.1%
	Diversified Financial Services 1.1%
a	Altaba Inc.		United States		615,600		42,999,660
	Preferred Stocks 5.8%
	Automobiles 2.7%
e	Porsche Automobil Holding SE, 1.447%, pfd		Germany		1,324,222		110,866,579

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FRANKLIN MUTUAL BEACON FUND

STATEMENT OF INVESTMENTS

		Country		Shares		Value
	Preferred Stocks (continued)
	Technology Hardware, Storage & Peripherals 3.1%
e	Samsung Electronics Co. Ltd., 2.323%, pfd		South Korea		62,971	$	123,301,923
	Total Preferred Stocks (Cost $116,661,045)						234,168,502
				Principal Amount
	Corporate Notes and Senior Floating Rate Interests 1.8%
f,g	Cumulus Media Holdings Inc., Term Loans, 4.82%, (LIBOR + 3.25%), 12/23/20		United States	$	14,384,460		12,424,577
	Frontier Communications Corp.,
	senior note, 10.50%, 9/15/22		United States		16,691,000		12,664,296
	senior note, 11.00%, 9/15/25		United States		23,907,000		17,691,180
	iHeartCommunications Inc.,
	senior secured note, first lien, 9.00%, 12/15/19		United States		18,873,000		14,107,568
	f,g Tranche D Term Loan, 8.443%, (LIBOR + 6.75%), 1/30/19		United States		15,813,483		11,932,585
	f,g Tranche E Term Loan, 9.193%, (LIBOR + 7.50%), 7/30/19		United States		5,080,935		3,821,285
	Total Corporate Notes and Senior Floating Rate Interests   (Cost $87,470,061)						72,641,491
	Corporate Notes in Reorganization (Cost $10,848) 0.0%
b,c,h	Broadband Ventures III LLC, secured promissory note, 5.00%, 2/01/12		United States		10,848		—
				Shares
	Companies in Liquidation 0.1%
a,b,c,i	CB FIM Coinvestors LLC		United States		15,831,950		—
a,b,c	FIM Coinvestor Holdings I, LLC		United States		19,805,560		—
a,j	Lehman Brothers Holdings Inc., Bankruptcy Claim		United States		163,140,446		3,621,718
a,b,d	Tribune Media, Litigation Trust, Contingent Distribution		United States		502,320		—
a,b,d	Vistra Energy Corp., Litigation Trust, Contingent Distribution		United States		74,588,735		865,229
a	Vistra Energy Corp., Litigation Trust, TRA		United States		1,256,451		1,099,395
	Total Companies in Liquidation (Cost $16,631,637)						5,586,342
	Total Investments before Short Term Investments   (Cost $2,962,698,635)						3,878,633,092
				Principal Amount
	Short Term Investments 4.2%
	U.S. Government and Agency Securities 4.2%
k	FHLB, 1/02/18 - 1/03/18		United States	$	39,100,000		39,098,992
k	U.S. Treasury Bill,
	1/02/18 - 3/29/18		United States		56,350,000		56,337,344
	l 1/11/18 - 6/21/18		United States		73,000,000		72,768,692
	Total U.S. Government and Agency Securities   (Cost $168,207,640)						168,205,028
	Total Investments (Cost $3,130,906,275) 99.9%						4,046,838,120
	Securities Sold Short (1.1)%						(44,515,112	)
	Other Assets, less Liabilities 1.2%						49,611,540
	Net Assets 100.0%					$	4,051,934,548

  franklintempleton.com   Annual Report           21

FRANKLIN MUTUAL BEACON FUND

STATEMENT OF INVESTMENTS

		Country		Shares		Value
m	Securities Sold Short (1.1)%
	Common Stocks (1.1)%
	Diversified Telecommunication Services (0.2)%
	AT&T Inc.		United States		162,085	$	(6,301,865	)
	Internet Software & Services (0.9)%
	Alibaba Group Holding Ltd., ADR		China		221,616		(38,213,247	)
	Total Securities Sold Short (Proceeds $ 45,087,545)					$	(44,515,112	)

^aNon-income producing.

^bFair valued using significant unobservable inputs. See Note 14 regarding fair value measurements.

^cSee Note 10 regarding restricted securities.

^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.

^eVariable rate security. The rate shown represents the yield at period end.

^fThe coupon rate shown represents the rate at period end.

^gSee Note 1(e) regarding senior floating rate interests.

^hSee Note 8 regarding credit risk and defaulted securities.

ⁱSee Note 12 regarding holdings of 5% voting securities.

^jBankruptcy 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.

^kThe security was issued on a discount basis with no stated coupon rate.

^lA portion or all of the security has been segregated as collateral for securities sold short and open forward exchange contracts. At December 31, 2017, the aggregate value of these securities pledged amounted to $38,374,408, representing 0.9% of net assets.

^mSee Note 1(d) regarding securities sold short.

At December 31, 2017, the Fund had the following futures contracts outstanding. See Note 1(c).

Futures Contracts

Description	Type		Number of Contracts		Notional Amount*		Expiration Date		Value/ Unrealized Appreciation (Depreciation)
Currency Contracts
EUR/USD		Short		1,210	$	182,641,938		3/19/18	$	(3,241,837	)
GBP/USD		Short		1,648		139,637,100		3/19/18		(997,760	)
Total Futures Contracts									$	(4,239,597	)

*As of period end.

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FRANKLIN MUTUAL BEACON FUND

STATEMENT OF INVESTMENTS

At December 31, 2017, the Fund had the following forward exchange contracts outstanding. See Note 1(c).

Forward Exchange Contracts

Currency	Counterpartya		Type		Quantity		Contract Amount		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
OTC Forward Exchange Contracts
Euro		BOFA		Buy		15,334,903	$	18,127,473		1/12/18	$	287,594	$	—
Euro		BOFA		Sell		555,062		642,690		1/12/18		—		(23,862	)
Euro		HSBK		Buy		158,289		190,383		1/12/18		—		(300	)
Euro		HSBK		Buy		10,488,243		12,437,341		1/12/18		157,568		—
Euro		HSBK		Sell		29,660,238		34,145,292		1/12/18		—		(1,472,494	)
Euro		SSBT		Buy		4,847,203		5,748,523		1/12/18		72,287		—
Euro		SSBT		Sell		2,874,423		3,317,961		1/12/18		—		(133,818	)
Euro		UBSW		Buy		6,404,349		7,610,373		1/12/18		80,352		—
Euro		UBSW		Sell		30,333,798		34,910,434		1/12/18		—		(1,516,202	)
British Pound		BOFA		Sell		5,690,000		7,433,194		1/16/18		—		(255,777	)
British Pound		BONY		Sell		16,705,883		21,604,231		1/16/18		—		(970,646	)
British Pound		SSBT		Sell		269,170		351,111		1/16/18		—		(12,622	)
British Pound		UBSW		Sell		16,705,788		21,583,878		1/16/18		—		(990,871	)
Euro		HSBK		Sell		5,651,452		6,642,943		1/26/18		—		(149,658	)
Euro		UBSW		Sell		7,364,251		8,665,337		1/26/18		—		(185,913	)
South Korean Won		HSBK		Buy		12,468,258,000		11,450,474		2/09/18		238,591		—
South Korean Won		HSBK		Sell		51,774,093,481		46,125,656		2/09/18		—		(2,412,860	)
South Korean Won		UBSW		Buy		8,731,865,474		7,969,212		2/09/18		216,963		—
South Korean Won		UBSW		Sell		35,198,612,171		31,397,084		2/09/18		—		(1,601,821	)
British Pound		BOFA		Sell		1,079,352		1,434,810		2/14/18		—		(25,056	)
British Pound		HSBK		Sell		11,528,722		15,322,824		2/14/18		—		(270,221	)
Euro		BONY		Sell		20,649,603		24,404,341		2/20/18		—		(449,292	)
Euro		SSBT		Sell		20,649,603		24,399,571		2/20/18		—		(454,062	)
Euro		SSBT		Sell		82,223		97,695		4/10/18		—		(1,582	)
Euro		BOFA		Sell		19,029,546		22,702,533		4/18/18		—		(286,316	)
Euro		SSBT		Sell		19,029,545		22,701,962		4/18/18		—		(286,886	)
Euro		UBSW		Sell		19,029,545		22,705,863		4/18/18		—		(282,985	)
British Pound		BOFA		Sell		15,521,664		20,663,890		4/24/18		—		(381,179	)
British Pound		SSBT		Sell		4,643,589		6,136,574		4/24/18		—		(159,440	)
British Pound		UBSW		Sell		1,105,243		1,465,806		4/24/18		—		(32,739	)
Euro		HSBK		Sell		36,254,033		42,785,088		5/07/18		—		(1,067,683	)
Euro		UBSW		Sell		36,254,032		42,777,402		5/07/18		—		(1,075,369	)
South Korean Won		HSBK		Sell		27,279,529,318		24,327,385		5/11/18		—		(1,274,429	)
South Korean Won		UBSW		Sell		34,716,047,504		30,955,141		5/11/18		—		(1,625,839	)
Euro		BOFA		Sell		32,752,274		39,031,540		5/21/18		—		(622,670	)
Euro		SSBT		Sell		7,092,419		8,474,221		5/21/18		—		(112,794	)
Euro		UBSW		Sell		32,752,275		39,024,991		5/21/18		—		(629,221	)
British Pound		BOFA		Sell		4,804,025		6,462,929		5/24/18		—		(57,752	)
British Pound		HSBK		Sell		2,244,120		2,998,991		5/24/18		—		(47,036	)
British Pound		SSBT		Sell		35,402,352		47,217,356		5/24/18		—		(835,570	)
British Pound		UBSW		Sell		500,822		676,886		5/24/18		—		(2,898	)
Total Forward Exchange Contracts											$	1,053,355	$	(19,707,863	)
Net unrealized appreciation (depreciation)													$	(18,654,508	)

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

See Note 11 regarding other derivative information.

See Abbreviations on page 39.

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FRANKLIN MUTUAL BEACON FUND

Financial Statements

Statement of Assets and Liabilities    

December 31, 2017    

Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	3,130,906,275
Value - Unaffiliated issuers	$	4,046,838,120
Cash		431,791
Receivables:
Investment securities sold		13,131,077
Capital shares sold		1,583,232
Dividends and interest		10,998,890
European Union tax reclaims		2,670,046
Deposits with brokers for:
Securities sold short		45,564,833
Futures contracts		5,746,440
Unrealized appreciation on OTC forward exchange contracts		1,053,355
Other assets		456
Total assets		4,128,018,240
Liabilities:
Payables:
Capital shares redeemed		5,083,119
Management fees		2,303,623
Distribution fees		837,419
Transfer agent fees		536,684
Trustees’ fees and expenses		220,923
Variation margin on futures contracts		1,831,900
Securities sold short, at value (proceeds $45,087,545)		44,515,112
Unrealized depreciation on OTC forward exchange contracts		19,707,863
Deferred tax		672,158
Accrued expenses and other liabilities		374,891
Total liabilities		76,083,692
Net assets, at value	$	4,051,934,548
Net assets consist of:
Paid-in capital	$	3,118,955,229
Undistributed net investment income		1,171,624
Net unrealized appreciation (depreciation)		893,139,062
Accumulated net realized gain (loss)		38,668,633
Net assets, at value	$	4,051,934,548

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FRANKLIN MUTUAL BEACON FUND

FINANCIAL STATEMENTS

Statement of Assets and Liabilities (continued)

December 31, 2017

Class Z:
Net assets, at value	$	2,700,327,142
Shares outstanding		162,585,505
Net asset value and maximum offering price per share		$16.61
Class A:
Net assets, at value	$	983,047,774
Shares outstanding		59,698,482
Net asset value per sharea		$16.47
Maximum offering price per share (net asset value per share ÷ 94.25%)		$17.47
Class C:
Net assets, at value	$	260,113,388
Shares outstanding		15,918,769
Net asset value and maximum offering price per sharea		$16.34
Class R:
Net assets, at value	$	1,601,196
Shares outstanding		98,337
Net asset value and maximum offering price per share		$16.28
Class R6:
Net assets, at value	$	106,845,048
Shares outstanding		6,435,154
Net asset value and maximum offering price per share		$16.60

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

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FRANKLIN MUTUAL BEACON FUND

FINANCIAL STATEMENTS

Statement of Operations    

for the year ended December 31, 2017

Investment income:
Dividends: (net of foreign taxes)*
Unaffiliated issuers	$  90,600,735
Interest:
Unaffiliated issuers	11,625,187
Other income (Note 1f)	633,525
Total investment income	102,859,447
Expenses:
Management fees (Note 3a)	27,127,489
Distribution fees: (Note 3c)
Class A	2,490,203
Class C	2,726,175
Class R	10,223
Transfer agent fees: (Note 3e)
Class Z	2,303,767
Class A	841,363
Class C	230,279
Class R	1,728
Class R6	5,201
Custodian fees (Note 4)	172,078
Reports to shareholders	204,120
Registration and filing fees	137,871
Professional fees	411,173
Trustees’ fees and expenses	122,412
Other	132,743
Total expenses	36,916,825
Expense reductions (Note 4)	(11,324	)
Expenses waived/paid by affiliates (Note 3f)	(2,949	)
Net expenses	36,902,552
Net investment income	65,956,895
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffiliated issuers	232,105,445
Written options	1,995,812
Foreign currency transactions	757,843
Forward exchange contracts	(31,591,522	)
Futures contracts	(21,551,515	)
Securities sold short	1,431,571
Net realized gain (loss)	183,147,634
Net change in unrealized appreciation (depreciation) on:
Investments:
Unaffiliated issuers	332,425,939
Translation of other assets and liabilities denominated in foreign currencies	417,962
Forward exchange contracts	(41,340,957	)
Written options	(542,578	)
Futures contracts	(7,668,447	)
Securities sold short	(1,483,428	)
Change in deferred taxes on unrealized appreciation	(672,158	)
Net change in unrealized appreciation (depreciation)	281,136,333
Net realized and unrealized gain (loss)	464,283,967
Net increase (decrease) in net assets resulting from operations	$530,240,862
*Foreign taxes withheld on dividends	$    4,895,526

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FRANKLIN MUTUAL BEACON FUND

FINANCIAL STATEMENTS

Statements of Changes in Net Assets

	Year Ended December 31,
	2017			2016
Increase (decrease) in net assets:
Operations:
Net investment income	$	65,956,895		$	86,695,303
Net realized gain (loss)		183,147,634			238,903,177
Net change in unrealized appreciation (depreciation)		281,136,333			224,718,936
Net increase (decrease) in net assets resulting from operations		530,240,862			550,317,416
Distributions to shareholders from:
Net investment income:
Class Z		(48,496,718	)		(58,200,382	)
Class A		(15,320,414	)		(20,284,242	)
Class C		(2,055,677	)		(3,677,329	)
Class R		(23,201	)		(37,485	)
Class R6		(1,872,829	)		(1,152,424	)
Net realized gains:
Class Z		(91,365,841	)		(146,912,444	)
Class A		(33,271,239	)		(57,880,823	)
Class C		(8,974,316	)		(16,247,924	)
Class R		(65,148	)		(118,154	)
Class R6		(2,256,073	)		(2,834,009	)
Total distributions to shareholders		(203,701,456	)		(307,345,216	)
Capital share transactions: (Note 2)
Class Z		(86,429,444	)		(13,134,883	)
Class A		(92,158,566	)		(92,115,190	)
Class C		(38,165,096	)		(27,695,808	)
Class R		(607,336	)		(406,764	)
Class R6		108,551,501			(51,666,995	)
Total capital share transactions		(108,808,941	)		(185,019,640	)
Net increase (decrease) in net assets		217,730,465			57,952,560
Net assets:
Beginning of year		3,834,204,083			3,776,251,523
End of year	$	4,051,934,548		$	3,834,204,083
Undistributed net investment income included in net assets:
End of year	$	1,171,624		$	—
Distributions in excess of net investment income included in net assets:
End of year	$	—		$	(1,675,194)

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

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 Fund offers five classes of shares: Class Z, Class A, Class C, Class R and Class R6. Each class of shares may differ by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees 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 Committee (VC). The VC 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 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. 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.

Certain derivative financial instruments 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 VC 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 VC 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 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 VC employs various methods for calibrating these

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FRANKLIN MUTUAL BEACON FUND

NOTES TO FINANCIAL STATEMENTS

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 Fund’s business day. Occasionally, events occur between the time at which trading in a foreign security is completed and 4 p.m. Eastern time 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 4 p.m. Eastern time. In order to minimize the potential for these differences, the VC 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 Fund’s NAV is not calculated, 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 derivative financial instruments 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 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,

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1.   Organization and Significant Accounting Policies (continued)

c.   Derivative Financial Instruments (continued)

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, 2017, the Fund had OTC derivatives in a net liability position of $18,654,508 and the aggregate value of collateral pledged for such contracts was $16,110,440.

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 counterparty the next business day, or 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 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 at 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 and/or OTC 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 Note 11 regarding other derivative information.

d. 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

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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.

e.   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.

f.   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 filed additional tax reclaims for previously withheld taxes on dividends earned in those countries (EU reclaims). 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. Income recognized, if any, for EU reclaims is reflected as other income in the Statement of

Operations and any related receivable, if any, is reflected as European Union tax reclaims in the Statement of Assets and Liabilities. When uncertainty exists as to the ultimate resolution of these proceedings, the likelihood of receipt of these EU reclaims, and the potential timing of payment, no amounts are reflected in the financial statements. For U.S. income tax purposes, EU reclaims received by the Fund, if any, reduce the amounts of foreign taxes Fund shareholders can use as tax credits in their individual income tax returns.

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, 2017, 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 in future tax years). Open tax years are those that remain subject to examination and are based on the statute of limitations in each jurisdiction in which the Fund invests.

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 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. Distributable earnings are determined according to income tax regulations (tax basis) and 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.

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1. Organization and Significant Accounting Policies (continued)

g. Security Transactions, Investment Income, Expenses and Distributions (continued)

Realized and unrealized gains and losses and net investment income, excluding 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.

h. 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.

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, 2017, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2017						2016
	Shares			Amount			Shares			Amount
Class Z Shares:
Shares sold		12,158,938		$	199,279,041			9,149,715		$	140,197,196
Shares issued in reinvestment of distributions		7,927,106			130,651,385			12,432,394			192,053,179
Shares redeemed		(25,064,661	)		(416,359,870	)		(23,237,873	)		(345,385,258	)
Net increase (decrease)		(4,978,617	)	$	(86,429,444	)		(1,655,764	)	$	(13,134,883	)
Class A Shares:
Shares sold		5,808,494		$	94,712,185			5,078,134		$	75,827,729
Shares issued in reinvestment of distributions		2,889,127			47,191,652			4,985,244			76,408,846
Shares redeemed		(14,375,309	)		(234,062,403	)		(16,508,824	)		(244,351,765	)
Net increase (decrease)		(5,677,688	)	$	(92,158,566	)		(6,445,446	)	$	(92,115,190	)
Class C Shares:
Shares sold		1,150,062		$	18,503,214			884,730		$	13,160,013
Shares issued in reinvestment of distributions		672,846			10,882,501			1,245,164			18,929,994
Shares redeemed		(4,170,647	)		(67,550,811	)		(4,098,752	)		(59,785,815	)
Net increase (decrease)		(2,347,739	)	$	(38,165,096	)		(1,968,858	)	$	(27,695,808	)
Class R Shares:
Shares sold		32,014		$	516,552			29,412		$	419,666
Shares issued in reinvestment of distributions		5,476			88,349			10,270			155,639
Shares redeemed		(74,775	)		(1,212,237	)		(70,761	)		(982,069	)
Net increase (decrease)		(37,285	)	$	(607,336	)		(31,079	)	$	(406,764	)

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	Year Ended December 31,
	2017						2016
	Shares			Amount			Shares			Amount
Class R6 Shares:
Shares sold		6,649,392		$	112,866,490			618,690		$	9,392,683
Shares issued in reinvestment of distributions		249,808			4,128,902			3,324			51,412
Shares redeemed		(503,515	)		(8,443,891	)		(3,998,311	)		(61,111,090	)
Net increase (decrease)		6,395,685		$	108,551,501			(3,376,297	)	$	(51,666,995	)

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 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

For the year ended December 31, 2017, the gross effective investment management fee rate was 0.675% of the Fund’s average daily net assets.

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.

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3. Transactions with Affiliates (continued)

c. Distribution Fees (continued)

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	%

The Board has set the current rate at 0.25% per year for Class A shares until further notice and approval by the Board.

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 brokers/dealers	$	157,001
CDSC retained	$	9,728

e. Transfer Agent Fees

Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. Effective November 1, 2017, the fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. Prior to November 1, 2017, the fees were account based fees that varied based on fund or account type. In addition, each class reimburses Investor Services for out of pocket expenses incurred and, except for Class R6, reimburses shareholder 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, 2017, the Fund paid transfer agent fees of $3,382,338, of which $1,394,464 was retained by Investor Services.

f. Waiver and Expense Reimbursements

Investor Services has voluntarily agreed in advance to waive or limit its fees so that the Class R6 transfer agent fees do not exceed 0.02%. Investor Services may discontinue this waiver in the future.

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, 2017, 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.

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During the year ended December 31, 2017, the Fund’s projected benefit obligation and benefit payments under the Plan were as follows:

aProjected benefit obligation at December 31, 2017	$	220,923
bIncrease in projected benefit obligation	$	3,154
Benefit payments made to retired trustees	$	(3,931	)

^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

For tax purposes, the Fund may elect to defer any portion of a post-October capital loss to the first day of the following fiscal year. At December 31, 2017, the Fund deferred post-October capital losses of $2,417,876.

The tax character of distributions paid during the years ended December 31, 2017 and 2016, was as follows:

	2017		2016
Distributions paid from:
Ordinary income	$	78,895,649	$	128,829,823
Long term capital gain		124,805,807		178,515,393
	$	203,701,456	$	307,345,216

At December 31, 2017, 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	$	3,066,638,016
Unrealized appreciation	$	1,099,066,075
Unrealized depreciation		(186,265,154	)
Net unrealized appreciation (depreciation)	$	912,800,921
Undistributed ordinary income	$	2,125,174
Undistributed long term capital gains		20,272,368
Distributable earnings	$	22,397,542

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.

The Fund utilized a tax accounting practice to treat a portion of the proceeds from capital shares redeemed as a distribution from realized capital gains.

7. Investment Transactions

Purchases and sales of investments (excluding short term securities and securities sold short) for the year ended December 31, 2017, aggregated $946,579,875 and $1,294,619,527, respectively.

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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 could 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, 2017, the aggregate long value of distressed company securities for which interest recognition has been discontinued represents less than 0.1% of the Fund’s net assets. For information as to specific securities, see the accompanying Statement of Investments.

9.   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.

10.   Restricted Securities

The Fund invests in securities that are restricted under the Securities Act of 1933 (1933 Act). 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.

At December 31, 2017, investments in restricted securities, excluding securities exempt from registration under the 1933 Act deemed to be liquid, were as follows:

Principal Amount/ Shares		Issuer	Acquisition Date	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		97,586
	22,836,904	International Automotive Components Group North America LLC	1/12/06 - 3/18/13		18,692,218		15,044,382
		Total Restricted Securities (Value is 0.4% of Net Assets)		$	20,593,330	$	15,141,968

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11. Other Derivative Information

At December 31, 2017, 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 Hedging Instruments	Statement of Assets and Liabilities Location	Fair Value		Statement of Assets and Liabilities Location	Fair Value
Foreign exchange contracts	Variation margin on futures contracts	$	—	Variation margin on futures contracts	$	4,239,597	a
	Unrealized appreciation on OTC forward exchange contracts		1,053,355	Unrealized depreciation on OTC forward exchange contracts		19,707,863
Totals		$	1,053,355		$	23,947,460

^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, 2017, the effect of derivative contracts in the Fund’s Statement of Operations was as follows:

Derivative Contracts Not Accounted for as Hedging Instruments	Statement of Operations Location	Net Realized Gain (Loss) for the Year			Statement of Operations Location	Net Change in Unrealized Appreciation (Depreciation) for the Year
	Net realized gain (loss) from:				Net change in unrealized appreciation (depreciation) on:
Foreign exchange contracts	Forward exchange contracts		$(31,591,522	)	Forward exchange contracts		$(41,340,957	)
	Futures contracts		(21,551,515	)	Futures contracts		(7,668,447	)
Equity contracts	Written options		1,995,812		Written options		(542,578	)
Totals			$(51,147,225	)			$(49,551,982	)

For the year ended December 31, 2017, the average month end notional amount of futures contracts and options represented $295,318,652 and $210,287, respectively. The average month end contract value of forward exchange contracts was $720,385,969.

See Note 1(c) regarding derivative financial instruments.

12. 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. During the year ended December 31, 2017, investments in “affiliated companies” were as follows:

Name of Issuer	Number of Shares Held at Beginning of Year		Gross Additions		Gross Reductions		Number of Shares Held at End of Year		Value at End of Year		Dividend Income		Realized Gain (Loss)		Net Change in Unrealized Appreciation (Depreciation)
Non-Controlled Affiliates
CB FIM Coinvestors LLC (Value is —% of Net Assets)		15,831,950		—		—		15,831,950		$—		$—		$—		$—

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13. 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 9, 2018. 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 9, 2018, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 8, 2019, 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 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statement of Operations. During the year ended December 31, 2017, the Fund did not use the Global Credit Facility.

14. 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.)

• 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, 2017, 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:a
Equity Investments:b
Auto Components	$	—	$	—	$	15,141,968		$	15,141,968
All Other Equity Investments		3,785,263,291		—		—	c		3,785,263,291
Corporate Notes and Senior Floating Rate Interests		—		72,641,491		—			72,641,491
Corporate Notes in Reorganization		—		—		—	c		—
Companies in Liquidation		—		4,721,113		865,229	c		5,586,342
Short Term Investments		129,106,036		39,098,992		—			168,205,028
Total Investments in Securities	$	3,914,369,327	$	116,461,596	$	16,007,197		$	4,046,838,120
Other Financial Instruments:
Forward Exchange Contracts	$	—	$	1,053,355	$	—		$	1,053,355

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	Level 1		Level 2		Level 3		Total
Liabilities:
Other Financial Instruments:
Securities Sold Short	$	44,515,112	$	—	$	—	$	44,515,112
Futures Contracts		4,239,597		—		—		4,239,597
Forward Exchange Contracts		—		19,707,863		—		19,707,863
Total Other Financial Instruments	$	48,754,709	$	19,707,863	$	—	$	68,462,572

^aFor detailed categories, see the accompanying Statement of Investments.

^bIncludes common, preferred stocks and management investment companies as well as other equity investments.

^cIncludes securities determined to have no value at December 31, 2017.

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 beginning and/or end of the year.

15.  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
BOFA	Bank of America N.A.	EUR	Euro	ADR	American Depositary Receipt
BONY	The Bank of New York Mellon Corp.	GBP	British Pound	FHLB	Federal Home Loan Bank
HSBK	HSBC Bank PLC	USD	United States Dollar	LIBOR	London InterBank Offered Rate
SSBT	State Street Bank and Trust Co., N.A.			TRA	Tax Receivable Agreement Right
UBSW	UBS AG

  franklintempleton.com   Annual Report           39

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:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Franklin Mutual Beacon Fund (the “Fund”) (one of the funds constituting Franklin Mutual Series Funds), including the schedule of investments, as of December 31, 2017, 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, the financial highlights for each of the periods indicated therein and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements 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, 2017, 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 its financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the auditor of one or more Franklin investment companies since 1987.

Boston, MA

February 26, 2018

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FRANKLIN MUTUAL BEACON FUND

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 $136,812,624 as a long term capital gain dividend for the fiscal year ended December 31, 2017.

Under Section 871(k)(2)(C) of the Code, the Fund hereby reports the maximum amount allowable but no less than $11,109,607 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, 2017.

Under Section 854(b)(1)(A) of the Code, the Fund hereby reports 50.10% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2017.

Under Section 854(b)(1)(B) of the Code, the Fund hereby reports the maximum amount allowable but no less than $85,239,900 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended December 31, 2017. Distributions, including qualified dividend income, paid during calendar year 2017 will be reported to shareholders on Form 1099-DIV by mid-February 2018. 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 $6,728,252 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, 2017.

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FRANKLIN MUTUAL SERIES FUNDS

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 Trust, principal occupations during at least the past five years and number of US registered 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

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Edward I. Altman, Ph.D. (1941) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1987	14	None
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1995	40	Ares Capital 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), SLM Corporation (Sallie Mae) (1997-2014) and Navient Corporation (loan management, servicing and asset recovery) (2014-2016).
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee and Vice Chairman	Trustee since 2002 and Vice Chairman since 2015	14	Franklin Templeton Emerging Markets Debt Opportunities Fund PLC (1999-present) and Fiduciary International Ireland Limited (1999-2015).
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.
Jan Hopkins Trachtman (1947) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2009	14	None
Principal Occupation During at Least the Past 5 Years: President and Founder, The Jan Hopkins Group (communications and consulting firm); serves on Advisory Board of Knight Bagehot Fellowship; and formerly, President, Economic Club of New York (2007-2015); 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.
Keith Mitchell (1954) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2009	14	None
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, Putman Lovell NBF.

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FRANKLIN MUTUAL SERIES FUNDS

Independent Board Members (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
David W. Niemiec (1949) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2015	40	Hess Midstream Partners LP (oil and gas midstream infrastructure) (2017-present).
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1998	14	None
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.
Robert E. Wade (1946) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee and Chairman of the Board	Trustee since 1993 and Chairman of the Board since 2005	40	El Oro Ltd (investments) (2003-present).
Principal Occupation During at Least the Past 5 Years: Attorney at law engaged in private practice as a sole practitioner (1972-2008) and member of various boards.
Gregory H. Williams (1943) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2015	14	None
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).

Interested Board Members and Officers

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
**Gregory E. Johnson (1961) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 2007	153	None
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 43 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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee, President, and Chief Executive Officer – Investment Management	Trustee since 2007, President, and Chief Executive Officer – Investment Management since 2005	7	American International Group, Inc. (AIG) Credit Facility Trust (2010-2011).
Principal Occupation During at Least the Past 5 Years: Chairman of the Board, Chief Executive Officer and President, Franklin Mutual Advisers, LLC; President and Chief Investment Officer, Franklin Advisory Services, LLC; and officer and/or director, as the case may be, of three of the investment companies in Franklin Templeton Investments.

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FRANKLIN MUTUAL SERIES FUNDS

Interested Board Members and Officers (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Alison E. Baur (1964) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2012	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.
Philippe Brugere-Trelat (1949) 101 John F. Kennedy Parkway Short Hills NJ 07078-2789	Vice President	Since 2005	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Executive Vice President, Franklin Mutual Advisers, LLC; officer of one of the investment companies in Franklin Templeton Investments; and formerly, Portfolio Manager of Eurovest SA (French registered investment company, SICAV).
Aliya S. Gordon (1973) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2009	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Steven J. Gray (1955) One Franklin Parkway San Mateo, CA 94403-1906	Vice President and Secretary	Vice President since 2009 and Secretary since 2005	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc. and FASA, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.
Matthew T. Hinkle (1971) One Franklin Parkway San Mateo, CA 94403-1906	Chief Executive Officer – Finance and Administration	Since June 2017	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Vice President, Global Tax (2012-April 2017) and Treasurer/Assistant Treasurer, Franklin Templeton Investments (2009-2017).
Robert G. Kubilis (1973) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Chief Financial Officer, Chief Accounting Officer and Treasurer	Since 2012	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of 17 of the investment companies in Franklin Templeton Investments.
Robert Lim (1948) One Franklin Parkway San Mateo, CA 94403-1906	Vice President –AML Compliance	Since 2016	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Vice President, Franklin Templeton Companies, LLC; Chief Compliance Officer, Franklin Templeton Distributors, Inc. and Franklin Templeton Investor Services, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.

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FRANKLIN MUTUAL SERIES FUNDS

Interested Board Members and Officers (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Kimberly H. Novotny (1972) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Vice President	Since 2013	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Associate General Counsel, Franklin Templeton Investments; Vice President and Corporate Secretary, Fiduciary Trust International of the South; Vice President, Templeton Investment Counsel, LLC; Assistant Secretary, Franklin Resources, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments.
Robert C. Rosselot (1960) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Chief Compliance Officer	Since 2013	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Director, Global Compliance, Franklin Templeton Investments; Vice President, Franklin Templeton Companies, LLC; officer of 45 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) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2009	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Navid J. Tofigh (1972) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2015	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Craig S. Tyle (1960) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2005	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.
Lori A. Weber (1964) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Vice President	Since 2011	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.

*We base the number of portfolios on each separate series of the US 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. (Resources), 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 Advisors, 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 Sarbanes-Oxley Act of 2002 and Rules adopted by the U.S. Securities and Exchange Commission require the Fund to disclose whether the Fund’s Audit Committee includes at least one member who is an audit committee financial expert within the meaning of such Act and Rules. The Fund’s Board has determined that there is at least one such financial expert on the Audit Committee and has designated each of Edward I. Altman, Ph.D., Ann Torre Bates and David W. Niemiec as an audit committee financial expert. The Board believes that Messrs. Altman and Niemiec and Ms. Bates qualify as such an expert in view of their extensive business background and experience. Mr. Altman has served as a member of the Fund Audit Committee since 1996. He currently serves as a Max L. Hines Professor of Finance, Emeritus and Director of The Credit and Debt Markets Research Program, Salomon Center, Stern School of Business, New York University. Ms. Bates has served as a member of the Fund Audit Committee since 1996. She currently serves as a director of Ares Capital Corporation (2010-present) and United Natural Foods, Inc. (2013-present) and was formerly a director of Navient Corporation from 2014 to 2016, SLM Corporation from 1997 to 2014 and Allied

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FRANKLIN MUTUAL SERIES FUNDS

Interested Board Members and Officers (continued)

Capital Corporation from 2003 to 2010, Executive Vice President and Chief Financial Officer of NHP Incorporated from 1995 to 1997 and Vice President and Treasurer of US Airways, Inc. until 1995. Mr. Niemiec has served as a member of the Fund Audit Committee since 2015, currently serves as an Advisor to Saratoga Partners and was formerly its Managing Director from 1998 to 2001 and serves as a director of Hess Midstream Partners LP (2017-present). Mr. Niemiec was formerly a director of Emeritus Corporation from 1999 to 2010 and OSI Pharmaceuticals, Inc. from 2006 to 2010, Managing Director of SBC Warburg Dillon Read from 1997 to 1998, and was Vice Chairman from 1991 to 1997 and Chief Financial Officer from 1982 to 1997 of Dillon, Read & Co. Inc. As a result of such background and experience, the Board believes that Messrs. Altman and Niemiec and Ms. Bates have each acquired an understanding of generally accepted accounting principles and financial statements, the general application of such principles in connection with the accounting estimates, accruals and reserves, and analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues generally comparable to those of the Fund, as well as an understanding of internal controls and procedures for financial reporting and an understanding of audit committee functions. Messrs. Altman and Niemiec and Ms. Bates are independent Board members as that term is defined under the applicable U.S. Securities and Exchange Commission Rules and Releases.

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

  46           Annual Report   franklintempleton.com

FRANKLIN MUTUAL SERIES FUNDS

FRANKLIN MUTUAL BEACON FUND

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 US 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 Trust, on behalf of the Fund, files a complete statement of investments with the US 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.

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Annual Report and Shareholder Letter Franklin Mutual Beacon Fund   Investment Manager Franklin Mutual Advisers, LLC   Distributor Franklin Templeton Distributors, Inc. (800) DIAL BEN^® / 342-5236 franklintempleton.com   Shareholder Services (800) 632-2301 - (Class A, C, R & R6) (800) 448-FUND - (Class Z)

Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.

To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.

© 2018 Franklin Templeton Investments. All rights reserved. 476 A 02/18

Annual Report
and Shareholder Letter   December 31, 2017

Sign up for electronic delivery at franklintempleton.com/edelivery

Franklin Templeton Investments

Gain From Our Perspective^®

At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.

Dear Franklin Mutual Global Discovery Fund Shareholder:

Securities markets benefited from a confluence of positive economic, financial and political trends during 2017. The global economy entered a synchronized pace of modest and steady growth, corporate earnings strengthened in the US, Europe and Japan, and US equity market volatility remained at historically low levels. A number of political risks identified at the start of 2017, such as the success of far-right parties in Europe, Brexit negotiations and the Trump administration’s ability to enact its policy agenda, also dissipated or became less immediate for investors as the year progressed. For the year ended December 31, 2017, US stocks, as measured by the Standard & Poor’s^® 500 Index (S&P 500^®), produced a +21.83% total return.¹ Stocks in global developed markets, as measured by the MSCI World Index, returned +23.07%, and investment-grade bonds, as measured by the Bloomberg Barclays US Aggregate Bond Index, posted a +3.54% total return.¹

In many equity markets, the trend of growth stocks outpacing value stocks continued. The Russell 1000^® Growth Index returned +30.21%, while the Russell 1000^® Value Index returned +13.66%.¹ The difference in performance has been driven in large part by a rally in internet and software stocks, which dominated the S&P 500 Growth Index. In addition, the S&P 500 Value Index has components that we believe are facing disruption from new technology (e.g., the rapid market share shift to online retailing from traditional bricks and mortar retailers that are often labeled as value stocks). Exacerbating the disruption is the reality that many new technology companies are able to innovate without the need to show immediate profits.

1. Source: Morningstar. Frank Russell Company is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell^® is a trademark of Frank Russell Company.

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

We do not know how long these trends will continue, but historically, periods of strong performance by growth stocks have eventually been followed by relatively weaker performance. Given that unemployment has continued to decline in most developed markets and the US Federal Reserve has taken its first steps toward monetary normalization, value-oriented stocks may become more attractive to investors, particularly within cyclical sectors of the equity markets such as industrials, consumer discretionary and financials.

A stellar 2017 for equity markets also pushed up common valuation metrics, such as price-to-earnings. Valuation is a critical factor in our analysis and we always ask ourselves if current and potential investments represent an attractive balance of risk and reward. We remain committed to our long-term perspective and disciplined investment approach as we conduct a rigorous, fundamental analysis of securities with a regular emphasis on investment risk management.

Although the investment landscape appears favorable as we enter 2018, it is worth remembering that securities markets are dynamic and constantly evolving. Therefore, we believe active, professional investment management serves investors well. We also recognize the important role of financial advisors in today’s markets and encourage investors to continue to seek their advice. Amid changing markets and economic conditions, we are confident investors with a well-diversified portfolio and a patient, long-term outlook should be well positioned for the years ahead.

Not FDIC Insured | May Lose Value | No Bank Guarantee  

franklintempleton.com Not part of the annual report         1

On the following pages, the Fund’s portfolio management team reviews investment decisions that pertain to performance during the past 12 months in light of the economic environment and other factors. Please remember all securities markets fluctuate, as do mutual fund share prices.

We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to continuing to serve your investment needs in the years ahead.

Sincerely,

Peter A. Langerman

Chairman, President and Chief Executive Officer

Franklin Mutual Advisers, LLC

This letter reflects our analysis and opinions as of December 31, 2017, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.

Contents

Annual Report

Franklin Mutual Global Discovery Fund	3
Performance Summary	10
Your Fund’s Expenses	13
Financial Highlights and Statement of Investments	14
Financial Statements	27
Notes to Financial Statements	31
Report of Independent Registered Public Accounting Firm	43
Tax Information	44
Board Members and Officers	45
Shareholder Information	50

Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.

2         Not part of the annual report     franklintempleton.com

Annual Report

Franklin Mutual Global Discovery Fund

This annual report for Franklin Mutual Global Discovery Fund covers the fiscal year ended December 31, 2017.

Your Fund’s Goal and Main Investments

The Fund seeks capital appreciation. Under normal market conditions, the Fund invests primarily in equity securities of US and foreign companies that the investment manager believes are available at market prices less than their intrinsic value. The equity securities in which the Fund invests are primarily common stock, with a current focus on mid- and large cap companies. To a lesser extent, the Fund also invests in merger arbitrage securities and the debt and equity of distressed companies. The Fund may invest a substantial portion, potentially up to 100% of its assets in foreign securities, which may include sovereign debt and participations in foreign government debt. The Geographic Composition bar chart on this page lists the leading countries where the Fund invests.

Performance Overview

The Fund’s Class Z shares delivered a +9.84% cumulative total return for the 12 months ended December 31, 2017. For comparison, the Fund’s benchmark, the MSCI World Index (USD), which tracks stock performance in global developed markets, posted a +23.07% total return.¹ You can find more of the Fund’s performance data in the Performance Summary beginning on page 10.

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

The global economy grew moderately during the 12-month period under review. In this environment, global developed and emerging market stocks generated a +24.62% total return, as measured by the MSCI All Country World Index.¹ Global

Geographic Composition*

Based on Total Net Assets as of 12/31/17

*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.

markets were aided by price gains in oil and other commodities, generally upbeat economic data across regions, the European Central Bank’s (ECB’s) extension of its monetary

1. Source: Morningstar.

The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. 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 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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easing program, and investor optimism about pro-growth and pro-business policies in the US. The prospect for reforms in the European Union (EU) with Emmanuel Macron’s election as France’s president, encouraging corporate earnings reports and the passage of the US tax reform bill also supported global stocks.

However, global markets reflected investor concerns about the terms of the UK’s exit from the EU, political uncertainty in the US and the EU, and geopolitical tensions in the Korean peninsula and other regions. Other concerns included the health of European banks, global oil oversupply despite a pact by major oil-producing countries to extend production cuts, and comments from key central bankers around the world about potentially raising interest rates.

After strengthening in 2017’s second and third quarters, the US economy moderated in the fourth quarter. The economy grew faster in 2017 than in 2016, however, largely due to growth in consumer spending, business investment and exports. The unemployment rate decreased from 4.7% in December 2016, as reported at the beginning of the 12-month period, to 4.1% at period-end.² Annual inflation, as measured by the Consumer Price Index, was 2.1% in December 2016, as reported at the beginning of the 12-month period, and while it varied over the 12-month period, remained unchanged at period-end.² The US Federal Reserve (Fed) raised its target range for the federal funds rate 0.25% three times during the period, amid signs of a growing US economy, strengthening labor market and improving business spending. At its December meeting, the Fed confirmed that the monthly balance sheet reduction would increase from US$10 billion to US$20 billion beginning in January 2018.

In Europe, the UK’s economic growth moderated in 2017 compared to 2016, largely due to slower growth in the services sector. In November, the Bank of England raised its key policy rate 0.25%, its first increase in a decade. The eurozone’s growth accelerated in 2017’s second and third quarters, but moderated in the fourth quarter. However, the eurozone’s 2017 economic growth rate of 2.5% was the fastest in a decade.³ The bloc’s annual inflation rate, while low, ended higher than in December 2016. The ECB kept its benchmark interest rate unchanged during the period. However, at its October meeting, the ECB extended the time frame for its massive bond-buying program from December 2017 to at least September 2018,

while reducing the amount of monthly bond purchases in half beginning in January 2018.

In Asia, Japan’s quarterly gross domestic product (GDP) grew for the seventh consecutive quarter, although third-quarter 2017 growth was lower than the previous quarter. The Bank of Japan left its benchmark interest rate unchanged during the period and continued its monetary stimulus measures.

In emerging markets, Brazil’s quarterly GDP grew for the third consecutive quarter, although third-quarter 2017 growth slowed from the previous quarter. The country’s central bank cut its benchmark interest rate several times during the period to spur economic growth. Russia’s GDP grew in 2017’s first three quarters compared to the prior-year periods, amid the Bank of Russia’s continued policy support. China’s GDP grew faster in 2017 than in 2016, supported by solid growth in industrial production, services, fixed-asset investment, retail sales, and imports and exports. The People’s Bank of China left its benchmark interest rate unchanged during the period. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, produced a substantial +37.75% total return during the period.¹

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 also reduces the risk of substantial declines, in our opinion. 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

2. Source: Bureau of Labor Statistics.

3. Source: Eurostat.

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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 investment approach, we typically focus our arbitrage efforts on announced deals, and avoid 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

In 2017, an improving economic and political backdrop helped drive most equity markets higher. The positive performances were broad based, spanning across most regions and sectors, and complemented by minimal volatility. Global markets were aided by generally upbeat economic data, improved corporate earnings in the US, Europe and Japan, as well as improved industrial commodity prices, most notably crude oil. In addition, the most significant political risks identified by investors heading into 2017 failed to materialize.

In the US, markets began 2017 rallying as investors hoped that a Republican sweep of US elections in November 2016 would lead to a general loosening in regulations and tax reform, including lower corporate tax rates. Although the Trump administration’s policy agenda was hindered by political

gridlock, efforts to loosen federal regulations yielded some results and tax reform legislation was finally passed in late December. Improving economic activity and corporate earnings appeared to be the most meaningful equity market catalysts during much of 2017. However, the modest level of economic growth and low interest rates pushed investors to keep favoring growth stocks. During the period, the Russell 1000^® Growth Index generated a total return of +30.21%, while the Russell 1000^® Value Index posted a total return of +13.66%.⁴ Within the Russell 1000^® Growth Index, stocks with the largest weightings were technology firms that dominated the headlines: Apple,⁵ Alphabet (a.k.a. Google),⁵ Microsoft, Amazon.com⁵ and Facebook.⁵

European equity markets started 2017 slowly, but positive political events and improved economic data fueled strong performances during the period. Elections in Europe produced outcomes the markets viewed as generally positive, with far-right parties largely failing to gain political power in national elections. Investors were particularly encouraged by the presidential election outcome in France. The reform-minded, centrist candidate, Emmanuel Macron, won the French presidential election in May and quickly began to push his agenda, most notably labor decrees giving employers in France greater freedom in negotiating contracts directly with workers. Amid all the positive events, the UK remained the most significant outlier. In the UK, a June 2017 snap election resulting in no party having a majority in Parliament appeared to make a “hard Brexit,” in which the UK leaves the European Union (EU) in March 2019 without a negotiated deal, even more likely than before. Although the UK and EU appeared to make some progress late in the year, the snap election results left the Conservative Party in a precarious position and with the risk of another election in the near future.

As value investors, we seek to invest prudently in securities that we believe represent good value, but adjust our views accordingly as the world around us changes. The media industry is a recent example of this approach. The Top 10 Sectors/Industries table on page 6 lists media and other leading industries in which the Fund currently invests. The media industry became a significant area of investment interest in the latter stages of the year due to significant structural changes. Since the 1980s, most Americans received their TV entertainment as part of a bundle from a cable provider.

4. Source: Morningstar. Frank Russell Company is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell^® is a trademark of Frank Russell Company.

5. Not a Fund holding.

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

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Disparate networks were combined and sold as packages, with annual price increases justified by the inclusion of more networks. Consumers rarely had the option to unbundle cable packages and most markets had no direct competition. However, the growth of fixed and mobile broadband connectivity ushered in the opportunity to bypass traditional distributors through the delivery of film and TV content over the internet and the launch of direct-to-consumer offerings by TV networks. The growing popularity of new digital options has driven cable providers to roll out lower-priced packages with fewer channels. This evolution has begun to create winners and losers among networks and new opportunities for investors.

Pay TV subscription among US households peaked in 2009 at close to 100 million homes. Initially, the decline in subscribers was moderate, but has accelerated since 2015, reaching a pace of more than 2% per year in 2017. At first, media companies benefited from digital distribution by using it as an additional outlet for selling content. With the cannibalization of traditional platforms accelerating, media companies have begun to respond. The necessity for greater scale in content development and direct access to consumers is driving investment and merger decisions in the industry. From our standpoint, we are looking for networks with the most attractive content relative to the price they have been charging and may be able to charge in the future.

The Fund initiated a position in Walt Disney in the latter half of 2017. Walt Disney is listed among the Fund’s largest positions in the Top 10 Equity Holdings table on page 7. We believe Disney is well positioned to benefit from the evolution toward a more direct-to-consumer distribution model. In our view, Disney has one of the best intellectual property (IP) portfolios in all of media with a stable of globally recognized proprietary characters upon which to build a strong direct-to-consumer franchise. If Disney is successful in its bid to acquire the bulk of Twenty-First Century Fox’s⁵ content assets, the deal would further strengthen its IP portfolio and its content development scale. As it has done with its own IP, Disney would likely be able to leverage Fox’s content into attractions at its theme parks as well as consumer products. The acquisition would offer potential cost synergies that would likely offset some of the investments in the direct-to-consumer service. Under the leadership of chief executive officer Bob Iger, Disney has been effective in integrating acquired companies and navigating through a changing media landscape. Iger’s commitment to remain at the helm through 2021 strengthens our belief that the company should be able to execute on this opportunity.

Top 10 Sectors/Industries

Based on Equity Securities as of 12/31/17

	% of Total Net Assets
Banks		12.0%
Insurance		10.1%
Oil, Gas & Consumable Fuels		8.3%
Pharmaceuticals		7.9%
Media		7.4%
Software		5.4%
Health Care Equipment & Supplies		5.3%
Tobacco		3.5%
Automobiles		2.7%
Technology Hardware, Storage & Peripherals		2.5%

Merger and acquisition activity remained healthy in 2017, although the pace of activity appeared to decelerate slightly compared to 2016 due to less favorable political and regulatory conditions in the US, the UK and China. In the US, several key regulatory agencies remain short of members, including the Federal Communications Commission and the Federal Trade Commission. Many large deals continued to wind their way through prolonged regulatory reviews, including Bayer’s⁵ acquisition of Monsanto, AT&T’s acquisition of Time Warner, and Twenty-First Century Fox’s offer for Sky.

Credit spreads narrowed in 2017 for higher quality and high yield credit, albeit with some minor bouts of volatility. The broad-based decrease in yield differentials between bonds with the same maturity but different credit quality provided the Fund with the opportunity to exit a number of opportunities that presented themselves in early 2016, including several bond offerings related to leveraged acquisitions, as prices improved, yield premium over Treasuries shrank, and the risk-adjusted returns were no longer mispriced. As the year progressed and investors became more willing buyers of credit, mispriced risk became more difficult to find, in our opinion. In times when the credit markets fluctuate and value is difficult to identify, we believe our industry specific expertise, deep fundamental analysis with a focus on cash flow, and intensive credit and covenant review combine seamlessly and provide us with different ways of looking at the same ideas others may disregard.

Fund Performance

Turning to Fund performance, top positive contributors included multinational software company Microsoft, South Korea-based Samsung Electronics and construction and mining equipment manufacturer Caterpillar.

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Top 10 Equity Holdings
12/31/17
Company Sector/Industry, Country	% of Total Net Assets
Medtronic PLC		2.3%
Health Care Equipment & Supplies, US
Royal Dutch Shell PLC		2.3%
Oil, Gas & Consumable Fuels, UK
British American Tobacco PLC		2.3%
Tobacco, UK
Novartis AG		2.3%
Pharmaceuticals, Switzerland
NN Group NV		2.2%
Insurance, Netherlands
Time Warner Inc.		2.2%
Media, US
Eli Lilly & Co.		2.1%
Pharmaceuticals, US
Merck & Co. Inc.		2.0%
Pharmaceuticals, US
Koninklijke Philips NV		1.9%
Health Care Equipment & Supplies, Netherlands
The Walt Disney Co.		1.9%
Media, US

Microsoft continued to reap the rewards of its rapidly growing cloud business and from shifting Microsoft Office software clients to its subscription-based services. Microsoft reported solid quarterly results, including an improvement in operating margins and upward guidance to 2018 operating margins. Microsoft also announced a reorganization of its commercial field sales teams in July 2017 as part of its increased focus on cloud computing.

Samsung Electronics is a low cost provider of dynamic random-access memory and flash memory products, smartphones, consumer electronics and other goods. For investors, Samsung’s solid operating results outweighed both the conviction of Samsung vice chairman Jay Y. Lee for his involvement in a government bribery scandal and escalating tensions between North Korea and the international community. Samsung reported strong sales in its core businesses, including memory chips and OLED (organic light-emitting diode) displays. Sales of its newest generation of smartphones during 2017 exceeded market expectations. Shareholder-friendly actions also boosted shares of Samsung, including a plan to cancel existing treasury shares held by the company and the announcement of significant dividend increases in 2017 and 2018.

Caterpillar raised its 2017 revenue and earnings guidance on multiple occasions during the year as demand generally

improved across all of its divisions. Improved global economic conditions and a rebound in Chinese construction activity were significant catalysts for the increased demand. In September, Caterpillar’s new chief executive officer, Jim Umpleby, hosted an investor day at which he outlined his vision for the company. In particular, the company highlighted significant new growth opportunities in each of its business units, as well as margin targets that exceeded analyst expectations.

During the period under review, Fund investments that detracted from performance included US-based energy services company Baker Hughes, Israel-based pharmaceutical services provider Teva Pharmaceuticals and US-based industrials company General Electric (GE).

Baker Hughes is a US-based energy services company, majority owned by GE following the completed merger between Baker Hughes and GE’s oil-and-gas business in July 2017. Baker Hughes’ stock price slid lower in 2017 as the environment for long-cycle oil field service projects remained challenging and the newly combined company posted weaker-than-expected operating results. Toward year-end, we saw reasons for optimism as oil prices gained and Baker Hughes announced a $3 billion share repurchase program.

Teva Pharmaceutical Industries experienced a challenging year. In January 2017, Teva provided lower earnings guidance and a US federal court invalidated four patents for the company’s top-selling multiple sclerosis drug Copaxone. The resignations of Teva’s chief executive officer (CEO) and chief financial officer in the first half of 2017 further hindered Teva’s stock price. In the second half of the year, weak operating results, a dividend cut and a debt rating downgrade escalated investor concerns. The company managed to ease investor anxiety later in 2017, in our view, with the appointment of Kare Schultz, a well-regarded industry veteran as the new CEO, as well as the divestiture of certain non-core assets and amendment to certain debt instruments. We were also encouraged by the details of a restructuring plan announced by the new CEO in December.

The stock price of GE, an industrials company with a wide range of business units, declined as investors became more discouraged about the company’s poor cash flow generation, significantly underfunded pension liability, bloated cost structure, and increased competition and overcapacity in the power market. Intensifying pressure by activist investors led to chief executive officer (CEO) Jeffrey Immelt’s resignation in June 2017 and the promotion of John Flannery to CEO. However, GE’s stock price continued to slide after the company lowered its 2017 earnings guidance in October, which heightened investor concerns about a potential dividend cut. A

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dividend cut of 50%, larger than most investors had speculated, was announced in November, along with the incoming CEO’s plan for portfolio optimization and significant cost reductions. These negative events have not altered our view that GE has well-positioned businesses. If GE delivers on its plan to improve free cash flow generation and reduce overhead expenses, we believe there is upside potential for its stock price.

During the period, the Fund held currency forwards and futures seeking to hedge most of the currency risk of the portfolio’s non-US dollar investments. The currency forwards and futures had a negative impact on the Fund’s performance because of the depreciation of the US dollar versus the hedged currencies.

What is a currency forward?

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

What is a future?

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

Philippe Brugere-Trelat, Executive Vice President and Portfolio Manager with Franklin Mutual Series, has decided to retire in 2018. We are grateful for Mr. Brugere-Trelat’s many years of service to the firm. In preparation for Mr. Brugere-Trelat’s retirement, Christian Correa, director of research and portfolio manager for Franklin Mutual Advisers will be added as a co-lead portfolio manager for Franklin Mutual Global Discovery Fund effective January 1, 2018, joining current co-lead portfolio managers Peter Langerman, Timothy Rankin and Philippe Brugere-Trelat. Effective May 1, 2018, Mr. Brugere-Trelat will step down as portfolio manager and remain with the firm in a consulting capacity until later in 2018 when he will officially retire.

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

	Peter A. Langerman Co-Portfolio Manager
	Philippe Brugere-Trelat Co-Portfolio Manager
	Timothy Rankin, CFA Co-Portfolio Manager

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, 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.

CFA^® is a trademark owned by CFA Institute.

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Peter Langerman has been portfolio manager for Franklin
Mutual Global Discovery Fund since 2009. He has been
portfolio manager for Franklin Mutual Shares Fund since
2005. He joined Franklin Templeton Investments in 1996,
serving in various capacities, including President and Chief
Executive Officer of Franklin Mutual Advisers and mem
ber of the management team of the Funds, including
Franklin Mutual Shares Fund. From 2002 to 2005, he
served as director of New Jersey’s Division of Investment,
overseeing employee pension funds. Between 1986 and
1996, Mr. Langerman was employed at Heine Securities
Corporation, the Fund’s former manager.

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

Timothy Rankin rejoined the Franklin Mutual Series
investment group in 2010 and currently serves as co-
portfolio manager for Franklin Mutual Global Discovery
Fund, and as a research analyst, responsible for the analy
sis of the global energy and chemical industries.
Mr. Rankin had previously worked at Franklin Mutual
Series from 1997 through 2004. Mr. Rankin has over 20
years of experience in the investment management
industry, including over 10 years with Franklin Mutual
Series as a research analyst and portfolio manager. Most
recently, he was managing director of Blue Harbour
Group, LLC, a private investment firm focused on small-
and mid-cap North American companies. Prior to his
original employment with Franklin Mutual Series,
Mr. Rankin was an equity analyst at Glickenhaus & Co.

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Performance Summary as of December 31, 2017

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. 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.

Performance as of 12/31/17

Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge. For other share classes, visit franklintempleton.com.

Share Class	Cumulative   Total Return1	Average Annual   Total Return2
Z
1-Year	+9.84%	+9.84%
5-Year	+58.54%	+9.65%
10-Year	+73.98%	+5.69%
A
1-Year	+9.57%	+3.25%
5-Year	+56.33%	+8.06%
10-Year	+69.11%	+4.77%

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

See page 12 for Performance Summary footnotes.

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PERFORMANCE SUMMARY

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

Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged index includes reinvestment of any income or distributions. It differs from the Fund in composition and does not pay management fees or expenses. One cannot invest directly in an index.

Class Z (1/1/08–12/31/17)

Class A (1/1/08–12/31/17)

See page 12 for Performance Summary footnotes.

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PERFORMANCE SUMMARY

Distributions (1/1/17–12/31/17)

Share Class	Net Investment Income		Short-Term Capital Gain		Long-Term Capital Gain		Total
Z		$0.7946		$0.0964		$0.8664		$1.7574
A		$0.7158		$0.0964		$0.8664		$1.6786
C		$0.4552		$0.0964		$0.8664		$1.4180
R		$0.6294		$0.0964		$0.8664		$1.5922
R6		$0.8466		$0.0964		$0.8664		$1.8094

Total Annual Operating Expenses⁴

Share Class
Z	0.99%
A	1.24%

Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.

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 may invest its assets in companies in a specific region, including Europe, 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. Current political and financial uncertainty surrounding the European Union may increase market volatility and the economic risk of investing in companies in Europe. Smaller company stocks have exhibited greater price volatility than larger company stocks, particularly 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 may invest in 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.

1. Cumulative total return represents the change in value of an investment over the periods indicated.

2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Source: Morningstar. The MSCI World Index (USD) is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets.

4. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) 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 table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

		Actual (actual return after expenses)		Hypothetical (5% annual return before expenses)
Share Class	Beginning Account Value 7/1/17	Ending Account Value 12/31/17	Expenses Paid During Period 7/1/17–12/31/171	Ending Account Value 12/31/17	Expenses Paid During Period 7/1/17–12/31/171	Annualized Expense Ratio
Z	$1,000	$1,029.60	$  4.91	$1,020.37	$4.89	0.96%
A	$1,000	$1,028.10	$  6.19	$1,019.11	$6.16	1.21%
C	$1,000	$1,024.40	$10.00	$1,015.32	$9.96	1.96%
R	$1,000	$1,027.00	$  7.46	$1,017.85	$7.43	1.46%
R6	$1,000	$1,029.90	$  4.30	$1,020.97	$4.28	0.84%

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/365 to reflect the one-half year period.

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FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

Financial Highlights

					Year Ended December 31,
	2017			2016			2015			2014			2013
Class Z
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$31.12			$29.35			$33.32			$33.73			$28.65
Income from investment operationsa:
Net investment incomeb		0.76	c		0.67	d		0.53			0.82	e		0.55
Net realized and unrealized gains (losses)		2.29			3.08			(1.71	)		0.97			6.74
Total from investment operations		3.05			3.75			(1.18	)		1.79			7.29
Less distributions from:
Net investment income		(0.79	)		(0.69	)		(0.55	)		(0.82	)		(0.57	)
Net realized gains		(0.96	)		(1.29	)		(2.24	)		(1.38	)		(1.64	)
Total distributions		(1.75	)		(1.98	)		(2.79	)		(2.20	)		(2.21	)
Net asset value, end of year		$32.42			$31.12			$29.35			$33.32			$33.73
Total return		9.84%			12.86%			(3.36)%			5.33%			25.64%
Ratios to average net assets
Expensesf,g		0.96%			0.99%	h		0.99%	h		0.99%			0.98%
Expenses incurred in connection with securities sold short		—%			0.01%			0.02%			0.03%			—%	i
Net investment income		2.30%	c		2.27%	d		1.56%			2.38%	e		1.68%
Supplemental data
Net assets, end of year (000’s)		$7,175,981			$8,354,865			$9,132,752			$10,375,518			$9,529,245
Portfolio turnover rate		17.50%			17.01%			21.79%			23.66%			23.57%

^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 $0.20 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 1.68%.

^dNet investment income per share includes approximately $0.10 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 1.94%.

^eNet investment income per share includes approximately $0.34 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 1.40%.

^fIncludes 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(d).

^gBenefit of expense reduction rounds to less than 0.01%.

^hBenefit of waiver and payments by affiliates rounds to less than 0.01%.

ⁱRounds to less than 0.01%.

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

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017			2016			2015			2014			2013
Class A
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$30.57			$28.86			$32.81			$33.24			$28.27
Income from investment operationsa:
Net investment incomeb		0.66	c		0.59	d		0.42			0.71	e		0.44
Net realized and unrealized gains (losses)		2.25			3.01			(1.67	)		0.96			6.65
Total from investment operations		2.91			3.60			(1.25	)		1.67			7.09
Less distributions from:
Net investment income		(0.72	)		(0.60	)		(0.46	)		(0.72	)		(0.48	)
Net realized gains		(0.96	)		(1.29	)		(2.24	)		(1.38	)		(1.64	)
Total distributions		(1.68	)		(1.89	)		(2.70	)		(2.10	)		(2.12	)
Net asset value, end of year		$31.80			$30.57			$28.86			$32.81			$33.24
Total returnf		9.57%			12.56%			(3.63)%			5.01%			25.26%
Ratios to average net assets
Expensesg,h		1.21%			1.24%	i		1.27%	i		1.29%			1.28%
Expenses incurred in connection with securities sold short		—%			0.01%			0.02%			0.03%			—%	j
Net investment income		2.05%	c		2.02%	d		1.28%			2.08%	e		1.38%
Supplemental data
Net assets, end of year (000’s)		$9,589,033			$10,498,722			$11,274,721			$11,573,196			$10,785,375
Portfolio turnover rate		17.50%			17.01%			21.79%			23.66%			23.57%

^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 $0.20 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 1.43%.

^dNet investment income per share includes approximately $0.10 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 1.69%.

^eNet investment income per share includes approximately $0.34 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 1.10%.

^fTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

^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(d).

^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 financial statements.  |    Annual Report             15

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017			2016			2015			2014			2013
Class C
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$30.22			$28.55			$32.49			$32.94			$28.05
Income from investment operationsa:
Net investment incomeb		0.41	c		0.36	d		0.18			0.47	e		0.22
Net realized and unrealized gains (losses)		2.23			2.97			(1.64	)		0.95			6.58
Total from investment operations		2.64			3.33			(1.46	)		1.42			6.80
Less distributions from:
Net investment income		(0.46	)		(0.37	)		(0.24	)		(0.49	)		(0.27	)
Net realized gains		(0.96	)		(1.29	)		(2.24	)		(1.38	)		(1.64	)
Total distributions		(1.42	)		(1.66	)		(2.48	)		(1.87	)		(1.91	)
Net asset value, end of year		$31.44			$30.22			$28.55			$32.49			$32.94
Total returnf		8.78%			11.70%			(4.33)%			4.28%			24.39%
Ratios to average net assets
Expensesg,h		1.96%			1.99%	i		1.99%	i		1.99%			1.98%
Expenses incurred in connection with securities sold short		—%			0.01%			0.02%			0.03%			—%	j
Net investment income		1.30%	c		1.27%	d		0.56%			1.38%	e		0.68%
Supplemental data
Net assets, end of year (000’s)		$2,438,507			$2,758,563			$2,983,216			$3,077,691			$2,894,908
Portfolio turnover rate		17.50%			17.01%			21.79%			23.66%			23.57%

^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 $0.20 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 0.68%.

^dNet investment income per share includes approximately $0.10 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 0.94%.

^eNet investment income per share includes approximately $0.34 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 0.40%.

^fTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

^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(d).

^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%.

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

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017			2016			2015			2014			2013
Class R
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$30.17			$28.51			$32.43			$32.88			$27.98
Income from investment operationsa:
Net investment incomeb		0.57	c		0.50	d		0.35			0.65	e		0.37
Net realized and unrealized gains (losses)		2.22			2.98			(1.64	)		0.93			6.58
Total from investment operations		2.79			3.48			(1.29	)		1.58			6.95
Less distributions from:
Net investment income		(0.63	)		(0.53	)		(0.39	)		(0.65	)		(0.41	)
Net realized gains		(0.96	)		(1.29	)		(2.24	)		(1.38	)		(1.64	)
Total distributions		(1.59	)		(1.82	)		(2.63	)		(2.03	)		(2.05	)
Net asset value, end of year		$31.37			$30.17			$28.51			$32.43			$32.88
Total return		9.31%			12.28%			(3.82)%			4.77%			25.02%
Ratios to average net assets
Expensesf,g		1.46%			1.49%	h		1.49%h			1.49%			1.48%
Expenses incurred in connection with securities sold short		—%			0.01%			0.02%			0.03%			—%	i
Net investment income		1.80%	c		1.77%	d		1.06%			1.88%	e		1.18%
Supplemental data
Net assets, end of year (000’s)		$398,692			$444,813			$468,425			$528,439			$539,613
Portfolio turnover rate		17.50%			17.01%			21.79%			23.66%			23.57%

^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 $0.20 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 1.18%.

^dNet investment income per share includes approximately $0.10 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 1.44%.

^eNet investment income per share includes approximately $0.34 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 0.90%.

^fIncludes 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(d).

^gBenefit of expense reduction rounds to less than 0.01%.

^hBenefit of waiver and payments by affiliates rounds to less than 0.01%.

ⁱRounds to less than 0.01%.

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

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017			2016			2015			2014			2013a
Class R6
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$31.13			$29.35			$33.33			$33.73			$31.42
Income from investment operationsb:
Net investment incomec		0.75	d		0.61	e		0.55			0.85	f		0.40
Net realized and unrealized gains (losses)		2.34			3.19			(1.69	)		1.00			4.17
Total from investment operations		3.09			3.80			(1.14	)		1.85			4.57
Less distributions from:
Net investment income		(0.85	)		(0.73	)		(0.60	)		(0.87	)		(0.62	)
Net realized gains		(0.96	)		(1.29	)		(2.24	)		(1.38	)		(1.64	)
Total distributions		(1.81	)		(2.02	)		(2.84	)		(2.25	)		(2.26	)
Net asset value, end of year.		$32.41			$31.13			$29.35			$33.33			$33.73
Total returng		9.98%			13.02%			(3.23)%			5.46%			14.71%
Ratios to average net assetsh
Expensesi,j		0.84%			0.85%	k		0.84%	k		0.85%			0.84%
Expenses incurred in connection with securities sold short		—%			0.01%			0.02%			0.03%			—%	l
Net investment income		2.42%	d		2.41%	e		1.71%			2.52%	f		1.83%
Supplemental data
Net assets, end of year (000’s)		$2,221,338			$528,617			$229,765			$137,922			$10,535
Portfolio turnover rate		17.50%			17.01%			21.79%			23.66%			23.57%

^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 $0.20 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 1.80%.

^eNet investment income per share includes approximately $0.10 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 2.08%.

^fNet investment income per share includes approximately $0.34 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 1.54%.

^gTotal return is not annualized for periods less than one year.

^hRatios are annualized for periods less than one year.

ⁱIncludes 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(d).

^jBenefit of expense reduction rounds to less than 0.01%.

^kBenefit of waiver and payments by affiliates rounds to less than 0.01%.

^lRounds to less than 0.01%.

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

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

Statement of Investments, December 31, 2017

		Country		Shares/ Units/ Warrants		Value
	Common Stocks and Other Equity Interests 91.9%
	Aerospace & Defense 0.1%
	BAE Systems PLC		United Kingdom		1,590,636	$	12,308,466
	Auto Components 0.1%
a,b,c	International Automotive Components Group Brazil LLC		Brazil		3,819,425		130,949
a,b,c,d	International Automotive Components Group North America LLC		United States		35,491,081		23,380,637
							23,511,586
	Automobiles 1.0%
	General Motors Co.		United States		5,350,852		219,331,423
	Banks 12.0%
	Barclays PLC		United Kingdom		36,257,633		99,446,130
	BNP Paribas SA		France		2,309,793		172,512,789
	CIT Group Inc.		United States		3,769,060		185,550,824
	Citigroup Inc.		United States		4,720,240		351,233,058
	Citizens Financial Group Inc.		United States		9,225,010		387,265,920
	First Horizon National Corp.		United States		7,743,203		154,786,628
	HSBC Holdings PLC		United Kingdom		16,067,494		166,404,627
	JPMorgan Chase & Co.		United States		2,948,319		315,293,234
	Societe Generale SA		France		5,157,188		266,375,943
a	Standard Chartered PLC		United Kingdom		12,656,750		133,337,097
a	Unicaja Banco SA		Spain		32,636,630		51,452,864
	Wells Fargo & Co.		United States		5,713,404		346,632,221
							2,630,291,335
	Beverages 0.8%
	PepsiCo Inc.		United States		1,395,272		167,321,018
	Building Products 0.7%
	Johnson Controls International PLC		United States		4,191,600		159,741,876
	Capital Markets 0.4%
a	Guotai Junan Securities Co. Ltd.		China		41,520,689		92,470,736
	Chemicals 1.1%
a,b,e	Dow Corning Corp., Contingent Distribution		United States		11,430,153		—
	Monsanto Co.		United States		2,149,530		251,022,113
							251,022,113
	Communications Equipment 2.5%
	Cisco Systems Inc.		United States		7,416,030		284,033,949
	Nokia OYJ, A		Finland		28,555,604		133,412,395
	Nokia OYJ, ADR		Finland		25,474,246		118,709,986
							536,156,330
	Construction Materials 0.9%
	LafargeHolcim Ltd., B		Switzerland		3,691,245		208,173,565
	Consumer Finance 1.6%
	Ally Financial Inc.		United States		4,641,368		135,342,291
	Capital One Financial Corp.		United States		2,190,465		218,126,505
							353,468,796
	Containers & Packaging 0.8%
	International Paper Co.		United States		2,848,948		165,068,047

  franklintempleton.com   Annual Report           19

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

STATEMENT OF INVESTMENTS

		Country		Shares/ Units/ Warrants		Value
	Common Stocks and Other Equity Interests (continued)
	Diversified Financial Services 0.8%
a,b,c	Hightower Holding LLC, B, Series II		United States		2,491,917	$	5,927,772
	Voya Financial Inc.		United States		3,426,353		169,501,683
							175,429,455
	Diversified Telecommunication Services 2.0%
	China Telecom Corp. Ltd., H		China		229,081,897		109,074,750
	Koninklijke KPN NV		Netherlands		95,635,204		333,673,004
							442,747,754
	Electric Utilities 2.1%
	Enel SpA		Italy		57,664,238		354,921,905
	PG&E Corp.		United States		2,569,864		115,207,003
							470,128,908
	Energy Equipment & Services 0.8%
	Baker Hughes a GE Co., A		United States		5,382,143		170,291,005
	Food & Staples Retailing 2.3%
	CVS Health Corp.		United States		3,061,866		221,985,285
a	METRO AG		Germany		2,324,311		46,431,996
a	Rite Aid Corp.		United States		13,959,587		27,500,386
	Walgreens Boots Alliance Inc.		United States		2,833,972		205,803,047
							501,720,714
	Health Care Equipment & Supplies 5.3%
	Koninklijke Philips NV		Netherlands		11,117,357		420,699,622
	Medtronic PLC		United States		6,236,184		503,571,858
	Stryker Corp.		United States		1,490,802		230,835,782
							1,155,107,262
	Hotels, Restaurants & Leisure 2.4%
	Accor SA		France		7,758,692		400,281,805
a	Caesars Entertainment Corp.		United States		906,511		11,467,364
	Sands China Ltd.		Hong Kong		21,300,300		110,006,861
							521,756,030
	Independent Power & Renewable Electricity Producers 0.4%
a	Vistra Energy Corp.		United States		4,396,159		80,537,615
	Industrial Conglomerates 1.5%
	General Electric Co.		United States		18,356,200		320,315,690
	Insurance 10.1%
a	Alleghany Corp.		United States		76,761		45,756,465
	American International Group Inc.		United States		5,102,618		304,013,980
a	Brighthouse Financial Inc.		United States		349,187		20,476,326
	China Pacific Insurance Group Co. Ltd., H		China		44,491,587		213,834,784
	Chubb Ltd.		United States		1,651,098		241,274,951
	The Hartford Financial Services Group Inc.		United States		3,295,287		185,458,752
	MetLife Inc.		United States		3,841,066		194,204,297
	NN Group NV		Netherlands		11,287,329		489,156,475
	RSA Insurance Group PLC		United Kingdom		17,857,312		152,529,951
	T&D Holdings Inc.		Japan		6,611,212		113,056,800
	XL Group Ltd.		Bermuda		7,184,954		252,622,983
							2,212,385,764

  20           Annual Report   franklintempleton.com

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

STATEMENT OF INVESTMENTS

		Country		Shares/ Units/ Warrants		Value
	Common Stocks and Other Equity Interests (continued)
	IT Services 1.8%
	Cognizant Technology Solutions Corp., A		United States		4,311,090	$	306,173,612
	DXC Technology Co.		United States		862,421		81,843,753
							388,017,365
	Machinery 1.8%
	Caterpillar Inc.		United States		1,330,608		209,677,209
	CNH Industrial NV		United Kingdom		5,804,196		77,786,481
	CNH Industrial NV, special voting		United Kingdom		7,338,645		98,350,808
							385,814,498
	Media 7.4%
a	Charter Communications Inc., A		United States		840,665		282,429,813
a	DISH Network Corp., A		United States		4,143,726		197,862,917
	Sky PLC		United Kingdom		17,665,468		241,426,075
	Time Warner Inc.		United States		5,178,666		473,692,579
	The Walt Disney Co.		United States		3,912,400		420,622,124
							1,616,033,508
	Metals & Mining 1.3%
a	Freeport-McMoRan Inc.		United States		6,099,862		115,653,383
	thyssenkrupp AG		Germany		4,205,590		122,185,673
	Warrior Met Coal Inc.		United States		1,788,865		44,989,955
							282,829,011
	Multi-Utilities 0.4%
	innogy SE		Germany		2,114,859		82,909,805
	Oil, Gas & Consumable Fuels 8.3%
	Anadarko Petroleum Corp.		United States		2,074,000		111,249,360
	BP PLC		United Kingdom		30,087,550		212,382,065
	Crescent Point Energy Corp.		Canada		16,701,800		127,279,647
	JXTG Holdings Inc.		Japan		13,174,642		84,997,690
	Kinder Morgan Inc.		United States		13,160,358		237,807,669
	Marathon Oil Corp.		United States		12,762,064		216,061,744
	Plains All American Pipeline LP		United States		5,573,200		115,030,848
	Royal Dutch Shell PLC, A (EUR Traded)		United Kingdom		8,880,928		296,058,566
	Royal Dutch Shell PLC, A (GBP Traded)		United Kingdom		6,164,658		206,461,550
	The Williams Cos. Inc.		United States		6,364,035		194,039,427
							1,801,368,566
	Pharmaceuticals 7.9%
	Eli Lilly & Co.		United States		5,532,056		467,237,450
	GlaxoSmithKline PLC		United Kingdom		13,777,842		246,068,145
	Merck & Co. Inc.		United States		7,603,328		427,839,267
	Novartis AG, ADR		Switzerland		5,849,662		491,137,621
	Teva Pharmaceutical Industries Ltd., ADR		Israel		4,852,226		91,949,683
							1,724,232,166
	Real Estate Management & Development 0.1%
a	VICI Properties Inc.		United States		1,103,270		22,617,035
	Software 5.4%
a	Avaya Holdings Corp.		United States		4,558,155		79,995,620
a,b	Avaya Holdings Corp., wts., 12/15/22		United States		401,411		682,837
a	Check Point Software Technologies Ltd.		Israel		3,379,372		350,170,527
a	Dell Technologies Inc., V		United States		1,105,751		89,875,441

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FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

STATEMENT OF INVESTMENTS

		Country		Shares/ Units/ Warrants		Value
	Common Stocks and Other Equity Interests (continued)
	Software (continued)
	Microsoft Corp.		United States		4,462,975	$	381,762,881
	Symantec Corp.		United States		9,568,159		268,482,542
							1,170,969,848
	Specialty Retail 0.5%
	Kingfisher PLC		United Kingdom		24,744,829		112,848,043
	Technology Hardware, Storage & Peripherals 2.5%
	Hewlett Packard Enterprise Co.		United States		10,039,360		144,165,209
	Lenovo Group Ltd.		China		41,391,101		23,363,402
	Samsung Electronics Co. Ltd.		South Korea		162,773		388,565,972
							556,094,583
	Tobacco 3.5%
	Altria Group Inc.		United States		2,606,727		186,146,375
	British American Tobacco PLC		United Kingdom		5,233,602		354,658,085
	British American Tobacco PLC, ADR		United Kingdom		2,178,905		145,964,846
	Imperial Brands PLC		United Kingdom		1,937,431		82,835,342
							769,604,648
	Wireless Telecommunication Services 1.3%
	Vodafone Group PLC		United Kingdom		89,319,132		283,459,405
	Total Common Stocks and Other Equity Interests (Cost $15,452,032,673)						20,066,083,969
	Management Investment Companies (Cost $112,851,576) 0.6%
	Diversified Financial Services 0.6%
a	Altaba Inc.		United States		1,722,000		120,281,700
	Preferred Stocks (Cost $391,187,079) 1.7%
	Automobiles 1.7%
f	Volkswagen AG, 1.238%, pfd.		Germany		1,896,164		378,676,695
				Principal Amount
	Corporate Notes and Senior Floating Rate Interests 2.2%
g,h	Belk Inc., Closing Date Term Loan, 6.099%, (LIBOR + 4.75%), 12/12/22		United States	$	33,559,402		27,553,679
g,h	Cumulus Media Holdings Inc., Term Loans, 4.82%, (LIBOR + 3.25%), 12/23/20		United States		80,932,238		69,905,220
	Frontier Communications Corp.,
	senior note, 10.50%, 9/15/22		United States		117,895,000		89,452,831
	senior note, 11.00%, 9/15/25		United States		133,179,000		98,552,460
	iHeartCommunications Inc.,
	senior secured note, first lien, 9.00%, 12/15/19		United States		95,618,000		71,474,455
	g,h Tranche D Term Loan, 8.443%, (LIBOR + 6.75%), 1/30/19		United States		117,978,997		89,024,946
	g,h Tranche E Term Loan, 9.193%, (LIBOR + 7.50%), 7/30/19		United States		37,921,652		28,520,230
	Total Corporate Notes and Senior Floating Rate Interests (Cost $567,869,245)						474,483,821
	Corporate Notes in Reorganization (Cost $8,893) 0.0%
b,c,i	Broadband Ventures III LLC, secured promissory note, 5.00%, 2/01/12		United States		8,893		—

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FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

STATEMENT OF INVESTMENTS

		Country		Shares		Value
	Companies in Liquidation 0.1%
a,b,e	Avaya Holdings Corp., Contingent Distribution		United States		123,916,000	$	—
a,b,e	Avaya Inc., Contingent Distribution		United States		168,607,600		—
a,b,c	FIM Coinvestor Holdings I, LLC		United States		30,279,560		—
a,j	Lehman Brothers Holdings Inc., Bankruptcy Claim		United States		587,363,521		13,039,470
a,b,e	NewPage Corp., Litigation Trust, Contingent Distribution		United States		145,817,000		—
a,b,e	Tribune Media, Litigation Trust, Contingent Distribution		United States		1,300,238		—
a,b,e	Vistra Energy Corp., Litigation Trust, Contingent Distribution		United States		260,457,613		3,021,308
a	Vistra Energy Corp., Litigation Trust, TRA		United States		4,396,159		3,846,640
	Total Companies in Liquidation (Cost $58,023,230)						19,907,418
	Total Investments before Short Term Investments  (Cost $16,581,972,696)						21,059,433,603
				Principal Amount
	Short Term Investments 3.6%
	U.S. Government and Agency Securities 3.6%
k	FHLB, 1/02/18		United States	$	2,400,000		2,400,000
k	U.S. Treasury Bill,
	1/02/18 - 2/22/18		United States		620,700,000		620,449,787
	l4/05/18 - 5/10/18		United States		167,000,000		166,248,845
	Total U.S. Government and Agency Securities  (Cost $789,137,815)						789,098,632
	Total Investments (Cost $17,371,110,511) 100.1%						21,848,532,235
	Securities Sold Short (0.6)%						(136,950,389	)
	Other Assets, less Liabilities 0.5%						111,969,225
	Net Assets 100.0%					$	21,823,551,071
				Shares
m	Securities Sold Short (0.6)%
	Common Stocks (0.6)%
	Diversified Telecommunication Services (0.1)%
	AT&T Inc.		United States		773,086		(30,057,584	)
	Internet Software & Services (0.5)%
	Alibaba Group Holding Ltd., ADR		China		619,920		(106,892,805	)
	Total Securities Sold Short (Proceeds $138,351,504)					$	(136,950,389	)

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FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

STATEMENT OF INVESTMENTS

^aNon-income producing.

^bFair valued using significant unobservable inputs. See Note 14 regarding fair value measurements.

^cSee Note 10 regarding restricted securities.

^dSee Note 12 regarding holdings of 5% voting securities.

^eContingent 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.

^fVariable rate security. The rate shown represents the yield at period end.

^gThe coupon rate shown represents the rate at period end.

^hSee Note 1(e) regarding senior floating rate interests.

ⁱSee Note 8 regarding credit risk and defaulted securities.

^jBankruptcy claims represent the right to receive distribution, if any during the liquidation of the underlying pool of assets. Shares represent amount of allowed unsecured claims.

^kThe security was issued on a discount basis with no stated coupon rate.

^lA portion or all of the security has been segregated as collateral for securities sold short and open forward exchange contracts. At December 31, 2017, the aggregate value of these securities pledged amounted to $158,372,967, representing 0.7% of net assets.

^mSee Note 1(d) regarding securities sold short.

At December 31, 2017, the Fund had the following futures contracts outstanding. See Note 1(c).

Futures Contracts

Description	Type		Number of Contracts		Notional Amount*		Expiration Date		Value/ Unrealized Appreciation (Depreciation)
Currency Contracts
EUR/USD		Short		8,972		$1,354,267,325		3/19/18		$(24,144,770	)
GBP/USD		Short		9,023		764,530,069		3/19/18		(4,784,272	)
Total Futures Contracts										$(28,929,042	)

*As of period end.

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FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

STATEMENT OF INVESTMENTS

At December 31, 2017, the Fund had the following forward exchange contracts outstanding. See Note 1(c).

Forward Exchange Contracts

Currency	Counterpartya		Type	Quantity		Contract Amount		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
OTC Forward Exchange Contracts
Euro		BOFA	Sell		3,225,503	$	3,734,713		1/12/18	$	—	$	(138,663	)
Euro		HSBK	Buy		11,607,253		13,794,772		1/12/18		143,909		—
Euro		HSBK	Buy		14,813,411		17,816,889		1/12/18		—		(28,061	)
Euro		HSBK	Sell		180,066,458		207,295,336		1/12/18		—		(8,939,221	)
Euro		SSBT	Buy		28,598,259		33,879,124		1/12/18		463,376		—
Euro		SSBT	Sell		13,928,023		16,232,216		1/12/18		—		(493,386	)
Euro		UBSW	Buy		12,418,599		14,771,641		1/12/18		141,355		—
Euro		UBSW	Sell		183,610,277		211,291,512		1/12/18		—		(9,198,675	)
British Pound		BOFA	Buy		1,930,266		2,589,145		1/16/18		19,250		—
British Pound		BOFA	Buy		2,060,000		2,787,454		1/16/18		—		(3,749	)
British Pound		BOFA	Sell		22,615,685		29,592,923		1/16/18		—		(967,947	)
British Pound		BONY	Sell		146,718,967		189,738,582		1/16/18		—		(8,524,671	)
British Pound		SSBT	Buy		78,150		104,579		1/16/18		1,026		—
British Pound		SSBT	Sell		1,449,617		1,890,910		1/16/18		—		(67,977	)
British Pound		UBSW	Buy		3,399,397		4,604,337		1/16/18		—		(10,688	)
British Pound		UBSW	Buy		7,583,834		10,200,620		1/16/18		47,513		—
British Pound		UBSW	Sell		146,718,134		189,559,829		1/16/18		—		(8,702,299	)
Euro		BOFA	Sell		4,839,350		5,853,012		1/26/18		36,494		—
Euro		BONY	Sell		1,000,000		1,198,700		1/26/18		—		(3,221	)
Euro		BONY	Sell		1,000,000		1,204,025		1/26/18		2,104		—
Euro		HSBK	Sell		160,857,394		189,183,200		1/26/18		—		(4,154,720	)
Euro		SSBT	Sell		504,113		607,115		1/26/18		1,211		—
Euro		SSBT	Sell		7,382,209		8,810,639		1/26/18		—		(62,196	)
Euro		UBSW	Sell		154,120,245		181,154,672		1/26/18		—		(4,085,725	)
South Korean Won		HSBK	Buy		37,972,775,965		34,867,564		2/09/18		732,136		—
South Korean Won		HSBK	Sell		73,046,652,947		65,109,672		2/09/18		—		(3,371,992	)
South Korean Won		UBSW	Sell		190,936,125,366		170,431,255		2/09/18		—		(8,572,482	)
British Pound		BONY	Sell		93,367,335		122,083,206		2/14/18		—		(4,199,753	)
British Pound		HSBK	Sell		43,149,973		57,350,629		2/14/18		—		(1,011,391	)
British Pound		UBSW	Sell		93,367,337		122,082,928		2/14/18		—		(4,200,034	)
Euro		BONY	Sell		138,420,941		163,590,159		2/20/18		—		(3,011,749	)
Euro		SSBT	Sell		138,420,941		163,558,184		2/20/18		—		(3,043,724	)
Japanese Yen		UBSW	Sell		96,738,860		857,570		2/20/18		—		(3,115	)
Japanese Yen		UBSW	Sell		12,443,048,392		111,045,788		2/20/18		340,088		—
Euro		BOFA	Sell		3,556,440		4,263,318		4/10/18		—		(30,782	)
Euro		HSBK	Sell		185,511,145		219,789,894		4/10/18		—		(4,199,078	)
Euro		UBSW	Sell		188,928,115		223,917,290		4/10/18		—		(4,197,384	)
Euro		BOFA	Sell		138,062,118		164,710,177		4/18/18		—		(2,077,261	)
Euro		SSBT	Sell		138,062,118		164,706,036		4/18/18		—		(2,081,403	)
Euro		UBSW	Sell		138,062,118		164,734,339		4/18/18		—		(2,053,100	)
British Pound		BOFA	Sell		59,017,275		78,528,805		4/24/18		—		(1,489,839	)
British Pound		UBSW	Sell		11,352,995		15,032,841		4/24/18		—		(360,131	)
Euro		HSBK	Sell		122,952,210		145,101,682		5/07/18		—		(3,620,950	)
Euro		UBSW	Sell		122,952,209		145,075,615		5/07/18		—		(3,647,016	)
South Korean Won		HSBK	Sell		91,905,791,119		81,918,885		5/11/18		—		(4,334,617	)
South Korean Won		UBSW	Sell		94,469,602,033		84,255,871		5/11/18		—		(4,403,767	)
Euro		BOFA	Sell		72,538,066		86,561,422		5/21/18		—		(1,262,699	)
Euro		UBSW	Sell		69,388,066		82,731,764		5/21/18		—		(1,278,554	)
British Pound		BOFA	Sell		3,186,040		4,291,284		5/24/18		—		(33,244	)

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FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

STATEMENT OF INVESTMENTS

Forward Exchange Contracts (continued)

Currency	Counterpartya		Type	Quantity		Contract Amount		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
OTC Forward Exchange Contracts (continued)
British Pound		HSBK	Sell		1,619,407	$	2,200,143		5/24/18	$	2,061	$	—
British Pound		HSBK	Sell		20,675,997		27,711,095		5/24/18		—		(353,204	)
British Pound		SSBT	Sell		132,504,765		176,726,242		5/24/18		—		(3,127,392	)
Total Forward Exchange Contracts										$	1,930,523	$	(111,345,860	)
Net unrealized appreciation (depreciation)												$	(109,415,337	)

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

See Note 11 regarding other derivative information.

See Abbreviations on page 42.

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FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

Financial Statements

Statement of Assets and Liabilities
December 31, 2017
Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	17,342,015,140
Cost - Non-controlled affiliates (Note 12)		29,095,371
Value - Unaffiliated issuers	$	21,825,151,598
Value - Non-controlled affiliates (Note 12)		23,380,637
Cash		3,562,979
Foreign currency, at value (cost $22,928,206)		22,992,085
Receivables:
Investment securities sold		22,138,867
Capital shares sold		27,341,398
Dividends and interest		52,473,163
European Union tax reclaims		6,526,149
Deposits with brokers for:
Securities sold short		140,151,137
Futures contracts		36,656,640
Unrealized appreciation on OTC forward exchange contracts		1,930,523
Other assets		502,680
Total assets		22,162,807,856
Liabilities:
Payables:
Capital shares redeemed		48,821,903
Management fees		15,002,525
Distribution fees		8,446,520
Transfer agent fees		4,384,960
Trustees’ fees and expenses		778,610
Variation margin on futures contracts		12,024,913
Securities sold short, at value (proceeds $138,351,504)		136,950,389
Unrealized depreciation on OTC forward exchange contracts		111,345,860
Accrued expenses and other liabilities		1,501,105
Total liabilities		339,256,785
Net assets, at value	$	21,823,551,071
Net assets consist of:
Paid-in capital	$	17,528,395,496
Undistributed net investment income		7,087,401
Net unrealized appreciation (depreciation)		4,341,209,695
Accumulated net realized gain (loss)		(53,141,521	)
Net assets, at value	$	21,823,551,071

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FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

FINANCIAL STATEMENTS

Statement of Assets and Liabilities (continued)

December 31, 2017

Class Z:
Net assets, at value	$7,175,981,310
Shares outstanding	221,351,272
Net asset value and maximum offering price per share	$32.42
Class A:
Net assets, at value	$9,589,033,149
Shares outstanding	301,535,528
Net asset value per sharea	$31.80
Maximum offering price per share (net asset value per share ÷ 94.25%)	$33.74
Class C:
Net assets, at value	$2,438,506,635
Shares outstanding	77,570,650
Net asset value and maximum offering price per sharea	$31.44
Class R:
Net assets, at value	$  398,691,929
Shares outstanding	12,710,477
Net asset value and maximum offering price per share	$31.37
Class R6:
Net assets, at value	$2,221,338,048
Shares outstanding	68,528,721
Net asset value and maximum offering price per share	$32.41

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

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FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

FINANCIAL STATEMENTS

Statement of Operations

for the year ended December 31, 2017

Investment income:
Dividends: (net of foreign taxes)*
Unaffiliated issuers	$	644,383,143
Interest:
Unaffiliated issuers		87,280,572
Other income (Note 1f)		2,540,168
Total investment income		734,203,883
Expenses:
Management fees (Note 3a)		181,746,674
Distribution fees: (Note 3c)
Class A		25,156,234
Class C		26,285,180
Class R		2,138,351
Transfer agent fees: (Note 3e)
Class Z		11,213,906
Class A		13,297,857
Class C		3,473,850
Class R		565,903
Class R6		91,837
Custodian fees (Note 4)		1,080,186
Reports to shareholders		1,789,151
Registration and filing fees		410,362
Professional fees		1,361,644
Trustees’ fees and expenses		696,605
Other		429,545
Total expenses		269,737,285
Expense reductions (Note 4)		(116,989	)
Net expenses		269,620,296
Net investment income		464,583,587
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffiliated issuers		963,570,555
Foreign currency transactions		4,860,010
Forward exchange contracts		(145,628,588	)
Futures contracts		(155,446,868	)
Securities sold short		(1,910,663	)
Net realized gain (loss)		665,444,446
Net change in unrealized appreciation (depreciation) on:
Investments:
Unaffiliated issuers		1,295,324,981
Non-controlled affiliates (Note 12)		(3,021,178	)
Translation of other assets and liabilities denominated in foreign currencies		1,381,212
Forward exchange contracts		(303,918,308	)
Futures contracts		(49,863,315	)
Securities sold short		923,558
Net change in unrealized appreciation (depreciation)		940,826,950
Net realized and unrealized gain (loss)		1,606,271,396
Net increase (decrease) in net assets resulting from operations	$	2,070,854,983
*Foreign taxes withheld on dividends.	$	29,560,436

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FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

FINANCIAL STATEMENTS

Statements of Changes in Net Assets

	Year Ended December 31,
	2017			2016
Increase (decrease) in net assets:
Operations:
Net investment income	$	464,583,587		$	448,677,966
Net realized gain (loss)		665,444,446			976,195,241
Net change in unrealized appreciation (depreciation)		940,826,950			1,145,149,281
Net increase (decrease) in net assets resulting from operations		2,070,854,983			2,570,022,488
Distributions to shareholders from:
Net investment income:
Class Z		(172,580,188	)		(176,437,033	)
Class A		(209,942,027	)		(200,541,522	)
Class C		(34,634,111	)		(33,021,201	)
Class R		(7,828,860	)		(7,618,889	)
Class R6		(54,145,296	)		(10,674,922	)
Net realized gains:
Class Z		(233,398,813	)		(326,765,440	)
Class A		(286,608,599	)		(435,628,779	)
Class C		(74,606,964	)		(116,244,017	)
Class R		(12,124,955	)		(18,594,896	)
Class R6		(40,494,896	)		(18,722,984	)
Total distributions to shareholders		(1,126,364,709	)		(1,344,249,683	)
Capital share transactions: (Note 2)
Class Z		(1,590,803,172	)		(1,201,294,226	)
Class A		(1,344,720,248	)		(1,372,576,556	)
Class C		(436,509,197	)		(376,018,782	)
Class R		(64,928,952	)		(47,755,202	)
Class R6		1,730,442,445			268,573,248
Total capital share transactions		(1,706,519,124	)		(2,729,071,518	)
Net increase (decrease) in net assets		(762,028,850	)		(1,503,298,713	)
Net assets:
Beginning of year		22,585,579,921			24,088,878,634
End of year	$	21,823,551,071		$	22,585,579,921
Undistributed net investment income included in net assets:
End of year	$	7,087,401		$	—
Distributions in excess of net investment income included in net assets:
End of year	$	—		$	(18,974,209)

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

FRANKLIN MUTUAL GLOBAL DISCOVERY 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 Global Discovery Fund (Fund) is included in this report. The Fund offers five classes of shares: Class Z, Class A, Class C, Class R and Class R6. Each class of shares may differ by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees 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 Committee (VC). The VC 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 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. 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.

Certain derivative financial instruments 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 VC 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 VC 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 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 VC employs various methods for calibrating these

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FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

NOTES TO FINANCIAL STATEMENTS

1.  Organization and Significant Accounting Policies (continued)

a.   Financial Instrument Valuation (continued)

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 Fund’s business day. Occasionally, events occur between the time at which trading in a foreign security is completed and 4 p.m. Eastern time 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 4 p.m. Eastern time. In order to minimize the potential for these differences, the VC 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 Fund’s NAV is not calculated, 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 derivative financial instruments 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

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NOTES TO FINANCIAL STATEMENTS

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, 2017, the Fund had OTC derivatives in a net liability position of $109,415,337 and the aggregate value of collateral pledged for such contracts was $91,716,527.

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 counterparty the next business day, or 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 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 at 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.

See Note 11 regarding other derivative information.

d.   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.

e.   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

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FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

NOTES TO FINANCIAL STATEMENTS

1.   Organization and Significant Accounting Policies (continued)

e.   Senior Floating Rate Interests (continued)

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.

f.   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 filed additional tax reclaims for previously withheld taxes on dividends earned in those countries (EU reclaims). 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. Income recognized, if any, for EU reclaims is reflected as other income in the Statement of Operations and any related receivable, if any, is reflected as European Union tax reclaims in the Statement of Assets and Liabilities. When uncertainty exists as to the ultimate resolution of these proceedings, the likelihood of receipt of these EU reclaims, and the potential timing of payment, no amounts are reflected in the financial statements. For U.S. income tax purposes, EU reclaims received by the Fund, if any, reduce the amounts of foreign taxes Fund shareholders can use as tax credits in their individual income tax returns.

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, 2017, 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 in future tax years). Open tax years are those that remain subject to examination and are based on the statute of limitations in each jurisdiction in which the Fund invests.

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 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. Distributable earnings are determined according to income tax regulations (tax basis) and 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, excluding 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.

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NOTES TO FINANCIAL STATEMENTS

h.   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.

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, 2017, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2017						2016
	Shares			Amount			Shares			Amount
Class Z Shares:
Shares sold		68,835,996		$	2,244,877,670			55,397,128		$	1,662,439,998
Shares issued in reinvestment of distributions		11,449,535			372,018,771			15,044,678			468,213,378
Shares redeemed		(127,366,615	)		(4,207,699,613	)		(113,174,673	)		(3,331,947,602	)
Net increase (decrease)		(47,081,084	)	$	(1,590,803,172	)		(42,732,867	)	$	(1,201,294,226	)
Class A Shares:
Shares sold		31,207,860		$	1,003,437,365			35,127,143		$	1,014,171,059
Shares issued in reinvestment of distributions		15,223,548			484,999,519			20,440,282			624,283,614
Shares redeemed		(88,369,392	)		(2,833,157,132	)		(102,820,657	)		(3,011,031,229	)
Net increase (decrease)		(41,937,984	)	$	(1,344,720,248	)		(47,253,232	)	$	(1,372,576,556	)
Class C Shares:
Shares sold		6,673,104		$	211,439,458			7,120,197		$	203,328,360
Shares issued in reinvestment of distributions		3,370,430			105,965,772			4,628,208			139,510,899
Shares redeemed		(23,753,704	)		(753,914,427	)		(24,940,702	)		(718,858,041	)
Net increase (decrease)		(13,710,170	)	$	(436,509,197	)		(13,192,297	)	$	(376,018,782	)
Class R Shares:
Shares sold		1,801,733		$	57,024,664			1,951,411		$	55,809,510
Shares issued in reinvestment of distributions		615,390			19,331,426			844,579			25,450,207
Shares redeemed		(4,451,909	)		(141,285,042	)		(4,482,315	)		(129,014,919	)
Net increase (decrease)		(2,034,786	)	$	(64,928,952	)		(1,686,325	)	$	(47,755,202	)
Class R6 Shares:
Shares sold		54,624,980		$	1,832,959,818			11,717,779		$	343,905,697
Shares issued in reinvestment of distributions		2,637,145			85,609,397			728,048			22,663,432
Shares redeemed		(5,716,616	)		(188,126,770	)		(3,290,558	)		(97,995,881	)
Net increase (decrease)		51,545,509		$	1,730,442,445			9,155,269		$	268,573,248

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FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

NOTES TO FINANCIAL STATEMENTS

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 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 $4 billion
0.845%	Over $4 billion, up to and including $7 billion
0.825%	Over $7 billion, up to and including $10 billion
0.805%	Over $10 billion, up to and including $13 billion
0.785%	Over $13 billion, up to and including $16 billion
0.765%	Over $16 billion, up to and including $19 billion
0.745%	Over $19 billion, up to and including $22 billion
0.725%	Over $22 billion, up to and including $25 billion
0.705%	Over $25 billion, up to and including $28 billion
0.685%	In excess of $28 billion

For the year ended December 31, 2017, the gross effective investment management fee rate was 0.808% of the Fund’s average daily net assets.

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.

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NOTES TO FINANCIAL STATEMENTS

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	%

The Board has set the current rate at 0.25% per year for Class A shares until further notice and approval by the Board.

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 brokers/dealers	$	2,304,034
CDSC retained	$	141,150

e. Transfer Agent Fees

Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. Effective November 1, 2017, the fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. Prior to November 1, 2017, the fees were account based fees that varied based on fund or account type. In addition, each class reimburses Investor Services for out of pocket expenses incurred and, except for Class R6, reimburses shareholder 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, 2017, the Fund paid transfer agent fees of $28,643,353, of which $9,984,977 was retained by Investor Services.

4. Expense Offset Arrangement

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended December 31, 2017, 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, 2017, the Fund’s projected benefit obligation and benefit payments under the Plan were as follows:

aProjected benefit obligation at December 31, 2017	$	778,610
bIncrease in projected benefit obligation	$	17,318

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FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

NOTES TO FINANCIAL STATEMENTS

5. Independent Trustees’ Retirement Plan (continued)

Benefit payments made to retired trustees $ (22,171 ) 

^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

For tax purposes, the Fund may elect to defer any portion of a post-October capital loss to the first day of the following fiscal year. At December 31, 2017, the Fund deferred post-October capital losses of $145,031,524.

The tax character of distributions paid during the years ended December 31, 2017 and 2016, was as follows:

	2017		2016
Distributions paid from:
Ordinary income	$	544,846,066	$	487,383,893
Long term capital gain		581,518,643		856,865,790
	$	1,126,364,709	$	1,344,249,683

At December 31, 2017, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$	17,147,589,962
Unrealized appreciation	$	5,762,362,196
Unrealized depreciation		(1,336,651,524	)
Net unrealized appreciation (depreciation)	$	4,425,710,672
Distributable earnings - undistributed ordinary income	$	14,339,473

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.

The Fund utilized a tax accounting practice to treat a portion of the proceeds from capital shares redeemed as a distribution from realized capital gains.

7. Investment Transactions

Purchases and sales of investments (excluding short term securities and securities sold short) for the year ended December 31, 2017, aggregated $3,770,159,266 and $6,025,790,713, 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 could 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.

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NOTES TO FINANCIAL STATEMENTS

At December 31, 2017, the aggregate long value of distressed company securities for which interest recognition has been discontinued represents less than 0.1% of the Fund’s net assets. For information as to specific securities, see the accompanying Statement of Investments.

9. 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.

10. Restricted Securities

The Fund invests in securities that are restricted under the Securities Act of 1933 (1933 Act). 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.

At December 31, 2017, investments in restricted securities, excluding securities exempt from registration under the 1933 Act deemed to be liquid, were as follows:

Principal Amount/ Shares		Issuer	Acquisition Date		Cost		Value
	8,893	Broadband Ventures III LLC, secured promissory note, 5.00%, 2/01/12		7/01/10 - 11/30/12	$	8,893	$	—
	30,279,560	FIM Coinvestor Holdings I, LLC		11/20/06 - 6/02/09		—		—
	2,491,917	Hightower Holding LLC, B, Series II		6/10/10 - 5/10/12		7,620,000		5,927,772
	3,819,425	International Automotive Components Group Brazil LLC		4/13/06 - 12/26/08		2,536,498		130,949
	35,491,081	International Automotive Components Group North America LLC		1/12/06 - 3/18/13		29,095,371		23,380,637
		Total Restricted Securities (Value is 0.1% of Net Assets)			$	39,260,762	$	29,439,358

11. Other Derivative Information

At December 31, 2017, 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 Hedging Instruments	Statement of Assets and Liabilities Location	Fair Value		Statement of Assets and Liabilities Location	Fair Value
Foreign exchange contracts	Variation margin on futures contracts	$	-	Variation margin on futures contracts	$	28,929,042	a
	Unrealized appreciation on OTC forward exchange contracts		1,930,523	Unrealized depreciation on OTC forward exchange contracts		111,345,860
Totals		$	1,930,523		$	140,274,902

^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.

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FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

NOTES TO FINANCIAL STATEMENTS

11. Other Derivative Information (continued)

For the year ended December 31, 2017, the effect of derivative contracts in the Fund’s Statement of Operations was as follows:

Derivative Contracts Not Accounted for as Hedging Instruments	Statement of Operations Location	Net Realized Gain (Loss) for the Year		Statement of Operations Location	Net Change in Unrealized Appreciation (Depreciation) for the Year
	Net realized gain (loss) from:			Net change in unrealized appreciation (depreciation) on:
Foreign exchange contracts	Forward exchange contracts	$	(145,628,588)	Forward exchange contracts	$	(303,918,308)
	Futures contracts		(155,446,868)	Futures contracts		(49,863,315)
Totals		$	(301,075,456)		$	(353,781,623)

For the year ended December 31, 2017, the average month end notional amount of futures contracts represented $2,047,965,764. The average month end contract value of forward exchange contracts was $4,610,451,970.

See Note 1(c) regarding derivative financial instruments.

12. 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. During the year ended December 31, 2017, investments in “affiliated companies” were as follows:

Name of Issuer	Number of Shares Held at Beginning of Year		Gross Additions		Gross Reductions		Number of Shares Held at End of Year		Value at End of Year		Dividend Income		Realized Gain (Loss)		Net Change in Unrealized Appreciation (Depreciation)
Non-Controlled Affiliates
International Automotive Components Group North America LLC (Value is 0.1% of Net Assets)		35,491,081		—		—		35,491,081		$23,380,637		$—		$—		$(3,021,178	)

13. 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 9, 2018. 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 9, 2018, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 8, 2019, 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 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statement of Operations. During the year ended December 31, 2017, the Fund did not use the Global Credit Facility.

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NOTES TO FINANCIAL STATEMENTS

14. 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.)

• 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, 2017, 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:a
Equity Investments:
Auto Components	$	—	$	—	$	23,511,586		$	23,511,586
Diversified Financial Services		289,783,383		—		5,927,772			295,711,155
Machinery		287,463,690		98,350,808		—			385,814,498
Software		1,170,287,011		—		682,837			1,170,969,848
All Other Equity Investmentsb		18,689,035,277		—		—	c		18,689,035,277
Corporate Notes and Senior Floating Rate Interests		—		474,483,821		—			474,483,821
Corporate Notes in Reorganization		—		—		—	c		—
Companies in Liquidation		—		16,886,110		3,021,308c			19,907,418
Short Term Investments		786,698,632		2,400,000		—			789,098,632
Total Investments in Securities	$	21,223,267,993	$	592,120,739	$	33,143,503		$	21,848,532,235
Other Financial Instruments:
Forward Exchange Contracts	$	—	$	1,930,523	$	—		$	1,930,523
Liabilities:
Other Financial Instruments:
Securities Sold Short	$	136,950,389	$	—	$	—		$	136,950,389
Futures Contracts		28,929,042		—		—			28,929,042
Forward Exchange Contracts		—		111,345,860		—			111,345,860
Total Other Financial Instruments	$	165,879,431	$	111,345,860	$	—		$	277,225,291

^aFor detailed categories, see the accompanying Statement of Investments.

^bIncludes common, preferred stocks and management investment companies as well as other equity investments.

^cIncludes securities determined to have no value at December 31, 2017.

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 beginning and/or end of the year.

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FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

NOTES TO FINANCIAL STATEMENTS

15.   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
BOFA	Bank of America N.A.	EUR	Euro	ADR	American Depositary Receipt
BONY	The Bank of New York Mellon Corp.	GBP	British Pound	FHLB	Federal Home Loan Bank
HSBK	HSBC Bank PLC	USD	United States Dollar	LIBOR	London InterBank Offered Rate
SSBT	State Street Bank and Trust Co., N.A.			TRA	Tax Receivable Agreement Right
UBSW	UBS AG

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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 Global Discovery Fund:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Franklin Mutual Global Discovery Fund (the “Fund”) (one of the funds constituting Franklin Mutual Series Funds), including the schedule of investments, as of December 31, 2017, 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, the financial highlights for each of the periods indicated therein and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of Franklin Mutual Global Discovery Fund (one of the funds constituting Franklin Mutual Series Funds) at December 31, 2017, 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 its financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the auditor of one or more Franklin investment companies since 1987.

Boston, MA

February 26, 2018

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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 $684,666,052 as a long term capital gain dividend for the fiscal year ended December 31, 2017.

Under Section 871(k)(2)(C) of the Code, the Fund hereby reports the maximum amount allowable but no less than $65,715,584 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, 2017.

Under Section 854(b)(1)(A) of the Code, the Fund hereby reports 60.59% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2017.

Under Section 854(b)(1)(B) of the Code, the Fund hereby reports the maximum amount allowable but no less than $615,643,534 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended December 31, 2017. Distributions, including qualified dividend income, paid during calendar year 2017 will be reported to shareholders on Form 1099-DIV by mid-February 2018. 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 $45,041,378 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, 2017.

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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 Trust, principal occupations during at least the past five years and number of US registered 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

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Edward I. Altman, Ph.D. (1941) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1987	14	None
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1995	40	Ares Capital 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), SLM Corporation (Sallie Mae) (1997-2014) and Navient Corporation (loan management, servicing and asset recovery) (2014-2016).
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee and Vice Chairman	Trustee since 2002 and Vice Chairman since 2015	14	Franklin Templeton Emerging Markets Debt Opportunities Fund PLC (1999-present) and Fiduciary International Ireland Limited (1999-2015).
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.
Jan Hopkins Trachtman (1947) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2009	14	None
Principal Occupation During at Least the Past 5 Years: President and Founder, The Jan Hopkins Group (communications and consulting firm); serves on Advisory Board of Knight Bagehot Fellowship; and formerly, President, Economic Club of New York (2007-2015); 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.
Keith Mitchell (1954) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789.	Trustee	Since 2009	14	None
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, Putman Lovell NBF.

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Independent Board Members (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
David W. Niemiec (1949) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2015	40	Hess Midstream Partners LP (oil and gas midstream infrastructure) (2017-present).
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1998	14	None
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.
Robert E. Wade (1946) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee and Chairman of the Board	Trustee since 1993 and Chairman of the Board since 2005	40	El Oro Ltd (investments) (2003-present).
Principal Occupation During at Least the Past 5 Years: Attorney at law engaged in private practice as a sole practitioner (1972-2008) and member of various boards.
Gregory H. Williams (1943) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2015	14	None
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).
Interested Board Members and Officers
Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
**Gregory E. Johnson (1961) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 2007	153	None
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 43 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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee, President, and Chief Executive Officer – Investment Management	Trustee since 2007, President, and Chief Executive Officer – Investment Management since 2005	7	American International Group, Inc. (AIG) Credit Facility Trust (2010-2011).
Principal Occupation During at Least the Past 5 Years: Chairman of the Board, Chief Executive Officer and President, Franklin Mutual Advisers, LLC; President and Chief Investment Officer, Franklin Advisory Services, LLC; and officer and/or director, as the case may be, of three of the investment companies in Franklin Templeton Investments.

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Interested Board Members and Officers (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Alison E. Baur (1964) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2012	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.
Philippe Brugere-Trelat (1949) 101 John F. Kennedy Parkway Short Hills NJ 07078-2789	Vice President	Since 2005	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Executive Vice President, Franklin Mutual Advisers, LLC; officer of one of the investment companies in Franklin Templeton Investments; and formerly, Portfolio Manager of Eurovest SA (French registered investment company, SICAV).
Aliya S. Gordon (1973) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2009	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Steven J. Gray (1955) One Franklin Parkway San Mateo, CA 94403-1906	Vice President and Secretary	Vice President since 2009 and Secretary since 2005	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc. and FASA, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.
Matthew T. Hinkle (1971) One Franklin Parkway San Mateo, CA 94403-1906	Chief Executive Officer – Finance and Administration	Since June 2017	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Vice President, Global Tax (2012-April 2017) and Treasurer/Assistant Treasurer, Franklin Templeton Investments (2009-2017).
Robert G. Kubilis (1973) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Chief Financial Officer, Chief Accounting Officer and Treasurer	Since 2012	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of 17 of the investment companies in Franklin Templeton Investments.
Robert Lim (1948) One Franklin Parkway San Mateo, CA 94403-1906	Vice President –AML Compliance	Since 2016	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Vice President, Franklin Templeton Companies, LLC; Chief Compliance Officer, Franklin Templeton Distributors, Inc. and Franklin Templeton Investor Services, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.

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Interested Board Members and Officers (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Kimberly H. Novotny (1972) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Vice President	Since 2013	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Associate General Counsel, Franklin Templeton Investments; Vice President and Corporate Secretary, Fiduciary Trust International of the South; Vice President, Templeton Investment Counsel, LLC; Assistant Secretary, Franklin Resources, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments.
Robert C. Rosselot (1960) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Chief Compliance Officer	Since 2013	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Director, Global Compliance, Franklin Templeton Investments; Vice President, Franklin Templeton Companies, LLC; officer of 45 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) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2009	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Navid J. Tofigh (1972) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2015	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Craig S. Tyle (1960) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2005	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.
Lori A. Weber (1964) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Vice President	Since 2011	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.

*We base the number of portfolios on each separate series of the US 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. (Resources), 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 Advisors, 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 Sarbanes-Oxley Act of 2002 and Rules adopted by the U.S. Securities and Exchange Commission require the Fund to disclose whether the Fund’s Audit Committee includes at least one member who is an audit committee financial expert within the meaning of such Act and Rules. The Fund’s Board has determined that there is at least one such financial expert on the Audit Committee and has designated each of Edward I. Altman, Ph.D., Ann Torre Bates and David W. Niemiec as an audit committee financial expert. The Board believes that Messrs. Altman and Niemiec and Ms. Bates qualify as such an expert in view of their extensive business background and experience. Mr. Altman has served as a member of the Fund Audit Committee since 1996. He currently serves as a Max L. Hines Professor of Finance, Emeritus and Director of The Credit and Debt Markets Research Program, Salomon Center, Stern School of Business, New York University. Ms. Bates has served as a member of the Fund Audit Committee since 1996. She currently serves as a director of Ares Capital Corporation (2010-present) and United Natural Foods, Inc. (2013-present) and was formerly a director of Navient Corporation from 2014 to 2016, SLM Corporation from 1997 to 2014 and Allied

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Interested Board Members and Officers (continued)

Capital Corporation from 2003 to 2010, Executive Vice President and Chief Financial Officer of NHP Incorporated from 1995 to 1997 and Vice President and Treasurer of US Airways, Inc. until 1995. Mr. Niemiec has served as a member of the Fund Audit Committee since 2015, currently serves as an Advisor to Saratoga Partners and was formerly its Managing Director from 1998 to 2001 and serves as a director of Hess Midstream Partners LP (2017-present). Mr. Niemiec was formerly a director of Emeritus Corporation from 1999 to 2010 and OSI Pharmaceuticals, Inc. from 2006 to 2010, Managing Director of SBC Warburg Dillon Read from 1997 to 1998, and was Vice Chairman from 1991 to 1997 and Chief Financial Officer from 1982 to 1997 of Dillon, Read & Co. Inc. As a result of such background and experience, the Board believes that Messrs. Altman and Niemiec and Ms. Bates have each acquired an understanding of generally accepted accounting principles and financial statements, the general application of such principles in connection with the accounting estimates, accruals and reserves, and analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues generally comparable to those of the Fund, as well as an understanding of internal controls and procedures for financial reporting and an understanding of audit committee functions. Messrs. Altman and Niemiec and Ms. Bates are independent Board members as that term is defined under the applicable U.S. Securities and Exchange Commission Rules and Releases.

The Statement of Additional Information (SAI) includes additional information about the board members and is available, without charge, upon request. Shareholders may call (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 US 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 Trust, on behalf of the Fund, files a complete statement of investments with the US 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.

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Annual Report and Shareholder Letter Franklin Mutual Global Discovery Fund   Investment Manager Franklin Mutual Advisers, LLC   Distributor Franklin Templeton Distributors, Inc. (800) DIAL BEN^® / 342-5236 franklintempleton.com   Shareholder Services (800) 632-2301 - (Class A, C, R & R6) (800) 448-FUND - (Class Z)

Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.

To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.

© 2018 Franklin Templeton Investments. All rights reserved. 477 A 02/18

Annual Report
and Shareholder Letter   December 31, 2017

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Franklin Templeton Investments

Gain From Our Perspective^®

At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.

Dear Franklin Mutual European Fund Shareholder:

Securities markets benefited from a confluence of positive economic, financial and political trends during 2017. The global economy entered a synchronized pace of modest and steady growth, corporate earnings strengthened in the US, Europe and Japan, and US equity market volatility remained at historically low levels. A number of political risks identified at the start of 2017, such as the success of far-right parties in Europe, Brexit negotiations and the Trump administration’s ability to enact its policy agenda, also dissipated or became less immediate for investors as the year progressed. Stocks in global developed markets, as measured by the MSCI World Index, delivered a +23.07% total return.¹

In European equity markets, growth stocks outperformed value stocks during the period. The MSCI All Country (AC) Europe Growth Index returned +15.24% in local currency terms and +27.66% in US dollar terms, while the MSCI AC Europe Value Index returned +10.90% in local currency terms and +23.11% in US dollar terms.¹ We do not know how long these trends will continue, but historically, periods of strong performance by growth stocks have eventually been followed by relatively weaker performance. A strengthening European economy—including lower unemployment, rising wages and increased capital investment—has the potential to increase the attractiveness of more “value” oriented stocks, particularly within cyclical sectors such as industrials, consumer discretionary and financial services.

A stellar 2017 for equity markets also pushed up common valuation metrics, such as price-to-earnings. Valuation is a critical factor in our analysis and we always ask ourselves if current and potential investments represent an attractive balance of risk and reward. We remain committed to our long-term perspective and disciplined investment approach as we conduct a rigorous, fundamental analysis of securities with a regular emphasis on investment risk management.

Although the investment landscape appears favorable as we enter 2018, it is worth remembering that securities markets are dynamic and constantly evolving. Therefore, we believe active, professional investment management serves investors well. We also recognize the important role of financial advisors in today’s markets and encourage investors to continue to seek their advice. Amid changing markets and economic conditions, we are confident investors with a well-diversified portfolio and a patient, long-term outlook will be well positioned for the years ahead.

On the following pages, the Fund’s portfolio management team reviews investment decisions that pertain to performance during the past 12 months in light of the economic environment and other factors. Please remember all securities markets fluctuate, as do mutual fund share prices.

1. Source: Morningstar.

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

Not FDIC Insured | May Lose Value | No Bank Guarantee  

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We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to continuing to serve your investment needs in the years ahead.

Sincerely,

Peter A. Langerman

Chairman, President and Chief Executive Officer

Franklin Mutual Advisers, LLC

This letter reflects our analysis and opinions as of December 31, 2017, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.

Contents

Annual Report

Franklin Mutual European Fund	3
Performance Summary	9
Your Fund’s Expenses	12
Financial Highlights and Statement of Investments	13
Financial Statements	23
Notes to Financial Statements	27
Report of Independent Registered Public Accounting Firm	39
Tax Information	40
Board Members and Officers	41
Shareholder Information	46

Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.

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Annual Report

Franklin Mutual European Fund

This annual report for Franklin Mutual European Fund covers the fiscal year ended December 31, 2017.

Your Fund’s Goal 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 European companies that the investment manager believes are available at market prices less than their intrinsic value. The equity securities in which the Fund invests are primarily common stock, with a focus on mid- and large cap companies. To a lesser extent, the Fund also invests in merger arbitrage securities and the debt and equity of distressed companies. The Geographic Composition bar chart on this page lists the leading European countries where the Fund invests.

Performance Overview

The Fund’s Class Z shares generated a +10.45% cumulative total return for the 12 months ended December 31, 2017. For comparison, the Fund’s benchmark, the MSCI Europe Index, which tracks equity performance in Europe’s developed markets, produced a +13.06% total return in local currency terms.¹ Also for comparison, the MSCI Europe Index posted a +26.24% total return in US dollar terms.¹ You can find more of the Fund’s performance data in the Performance Summary beginning on page 9.

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

The global economy grew moderately during the 12-month period under review. In this environment, global developed and emerging market stocks generated a +24.62% total return, as measured by the MSCI All Country World Index.¹ Global markets were aided by price gains in oil and other

Geographic Composition*

Based on Total Net Assets as of 12/31/17

*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.

commodities, generally upbeat economic data across regions, the European Central Bank’s (ECB’s) extension of its monetary easing program, and investor optimism about pro-growth and pro-business policies in the US. The prospect for reforms in the European Union (EU) with Emmanuel Macron’s election as France’s president, encouraging corporate earnings reports and the passage of the US tax reform bill also supported global stocks.

However, global markets reflected investor concerns about the terms of the UK’s exit from the EU, political uncertainty in the US and the EU, and geopolitical tensions in the Korean peninsula and other regions. Other concerns included the health

1. Source: Morningstar.

The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. 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 principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 18.

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of European banks, global oil oversupply despite a pact by major oil-producing countries to extend production cuts, and comments from key central bankers around the world about potentially raising interest rates.

In Europe, the UK’s economic growth moderated in 2017 compared to 2016, largely due to slower growth in the services sector. In November, the Bank of England raised its key policy rate 0.25%, its first increase in a decade. The eurozone’s growth accelerated in 2017’s second and third quarters, but moderated in the fourth quarter. However, the eurozone’s 2017 economic growth rate of 2.5% was the fastest in a decade.² The bloc’s annual inflation rate, while low, ended higher than in December 2016. The ECB kept its benchmark interest rate unchanged during the period. However, at its October meeting, the ECB extended the time frame for its massive bond-buying program from December 2017 to at least September 2018, while reducing the amount of monthly bond purchases in half beginning in January 2018.

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.

Manager’s Discussion

In 2017, an improving economic and political backdrop helped drive most equity markets higher. The positive performances were broad based, spanning across most regions and sectors, and complemented by minimal volatility. Global markets were aided by generally upbeat economic data, improved corporate earnings in the US, Europe and Japan, as well as improved industrial commodity prices, most notably crude oil. In addition, the most significant political risks identified by investors heading into 2017 failed to materialize.

European equity markets started 2017 slowly, but positive political events and improved economic data fueled strong performances during the period. Elections in Europe produced outcomes generally regarded as positive economically as far-right parties largely failed to gain political power in national elections. Investors were particularly encouraged by the presidential election outcome in France. The reform-minded, centrist candidate, Emmanuel Macron, won the French presidential election in May and quickly began to push his agenda, most notably labor decrees giving employers in France greater freedom in negotiating contracts directly with workers. Amid all the positive events, the UK remained the most significant outlier. In the UK, a June 2017 snap election resulting in no party having a majority in Parliament appeared to make a “hard Brexit,” in which the UK leaves the European Union (EU) in March 2019 without a negotiated deal, even more likely than before. Although the UK and EU appeared to make some progress late in the year, the snap election results left the Conservative Party in a precarious position and with the risk of another election in the near future.

As value investors, we managed to benefit from steady economic growth despite underlying market turbulence. In all market environments, we seek to invest prudently in securities that we believe represent good value, and then we adjust our views as the world around us changes.

As the European economy grew stronger, the Fund’s exposure to the consumer discretionary sector increased as well.³ In particular, the Fund’s investments in the automotive industry grew. The Top 10 Sectors/Industries table on page 5 lists automobiles and other leading industries in which the Fund currently invests. Automobiles were a particularly attractive opportunity due to the confluence of several favorable factors: value enhancing restructuring opportunities, improving competitiveness, a strong pipeline of new products expected to

2. Source: Eurostat.

3. The consumer discretionary sector comprises auto components; automobiles; hotels, restaurants and leisure; household durables; media; and specialty retail in the SOI.

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come to market over the next several years, a consumer preference shift towards higher-margin CUVs (crossover utility vehicles), solid balance sheets, strong free-cash flow, attractive valuations and a generally positive global economic environment.

The Fund initiated a position in automaker Peugeot in the first half of 2017. Peugeot acquired General Motors’⁴ European business (Opel Vauxhall) in 2017, making Peugeot the second largest automaker in Europe. The global automotive industry has always been competitive, but accelerating innovation has increased the required research and development costs and put pressure on automakers to become ever more efficient. The scale that this combination gave Peugeot should allow it to increase margins and cash flow through improved product development, more efficient vehicle production, maximizing the value of the industrial base and better powertrain performance.

Another investment in the automotive industry was Volkswagen, the largest European automaker. The company has always possessed the necessary scale to compete globally, but it was hampered by the diesel-emissions scandal of 2015. Volkswagen showed signs of moving past the scandal, as operational results improved in 2017. Investors were particularly encouraged by the underlying improvement in free-cash flow and an ongoing cycle of new product releases. Volkswagen also moved to position itself for the future with an aggressive program of innovation in autonomous driving and electric vehicles.

Merger and acquisition (M&A) activity remained healthy in 2017, although the pace of activity appeared to decelerate slightly compared to 2016 due to less favorable political and regulatory conditions in the US, the UK and China. With a number of large cross-border deals dominating the European M&A headlines, US regulatory issues appeared to be a broader consideration. Many large deals involving European corporates continued to wind their way through prolonged regulatory reviews, including Twenty-First Century Fox’s⁴ offer for Sky.

With an improving economic backdrop and continuing low interest-rate environment in Europe, we continued to see very limited activity in the distressed debt market. As long as these conditions continue, we do not expect the investment landscape in distressed markets to change.

Top 10 Sectors/Industries

Based on Equity Securities as of 12/31/17

	% of Total Net Assets
Insurance		15.5%
Oil, Gas & Consumable Fuels		9.3%
Banks		8.0%
Pharmaceuticals		6.8%
Automobiles		5.9%
Diversified Telecommunication Services		4.8%
Auto Components		4.0%
Trading Companies & Distributors		3.9%
Electric Utilities		3.8%
Hotels, Restaurants & Leisure		3.7%

Fund Performance

Turning to Fund performance, top positive contributors included Italy-based Enel, Germany-based Volkswagen and France-based Accor. These positive contributors are listed among the Fund’s largest positions in the Top 10 Equity Holdings table on page 6.

Enel is a multinational electric and natural gas utility that has a large presence in Europe. A combination of generally positive earnings results, the announcement of a €2billion stock buyback program in March 2017 and consistent confirmation of full-year 2017 guidance helped drive the stock price higher. We believe the results show in part that Enel is successfully implementing its strategic plan, which includes cutting costs, a focused increase in capital investments in its network and renewable energy capacity, and sales of non-core assets. Shares of Enel and other European utilities received a boost from investors favoring more defensive and eurozone-oriented stocks due to a strengthening euro and the European Central Bank’s initial steps to gradually scale back its quantitative easing program.

Operational results improved in 2017 for Volkswagen, a global automaker, with investors particularly encouraged by the underlying trend in free cash flow and liquidity. In October 2017, Volkswagen raised its 2018 guidance moderately as it is in a positive new product cycle. Volkswagen’s strategy update in November 2017 provided further support to the stock price; management expressed confidence in hitting its long-term financial targets, its intention to raise the dividend payout ratio and its plan to launch 80 electrified models by 2025. We

4. Not a Fund holding.

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

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Top 10 Equity Holdings

12/31/17

Company Sector/Industry, Country	% of Total Net Assets
Enel SpA		3.8%
Electric Utilities, Italy
Royal Dutch Shell PLC		3.8%
Oil, Gas & Consumable Fuels, UK
Accor SA		3.7%
Hotels, Restaurants & Leisure, France
NN Group NV		3.6%
Insurance, Netherlands
Volkswagen AG		3.5%
Automobiles, Germany
Koninklijke Philips NV		3.5%
Health Care Equipment & Supplies, Netherlands
Novartis AG		3.4%
Pharmaceuticals, Switzerland
Vodafone Group PLC		3.2%
Wireless Telecommunication Services, UK
BP PLC		3.0%
Oil, Gas & Consumable Fuels, UK
Koninklijke KPN NV		3.0%
Diversified Telecommunication Services, Netherlands

believe Volkswagen has been taking the steps needed to move past its emissions-related transgressions.

Accor, a hotel operator, benefited from an improving European economy. The company reported generally solid demand in France and the rest of Europe, as well as improvement in revenue per available room, a key performance metric for the industry. In October, Accor agreed to acquire Mantra Group, an Australian hotel operator. In our view, the acquisition was financially and strategically attractive as it consolidated Accor’s leadership in the Australia/New Zealand market, which has seen strong tourism growth. In December, Accor’s management stated it was close to selling a stake in AccorInvest, its hotel property company. The planned sale is part of Accor’s restructuring efforts to become a predominantly assetlight hotel management company.

During the period under review, Fund investments that detracted from performance included Germany-based Kloeckner, UK-based GlaxoSmithKline and France-based Carrefour.

Kloeckner is a global multi-metal distributor. In March 2017, investors focused on Kloeckner’s updated full-year earnings guidance figures that did not match management’s prior upbeat tone. Given the positive tailwind from steel price increases in 2016 and the more favorable global economic backdrop, the guidance appeared conservative to us. The lack of an infrastructure stimulus proposal by the Trump administration may have led to additional downward pressure on shares of Kloeckner and other companies that would likely benefit from such a program. Following the company’s recent capital markets day presentation, in which the company provided an update to the market on its “Kloeckner.i” strategy, we were encouraged that its business appears to be well positioned for the digital transition in the steel distribution market.

Shares of pharmaceutical company GlaxoSmithKline dropped in the second half of the period. Glaxo reported decent quarterly results in July 2017, but investors were disappointed by management not raising its 2020 outlook and reducing its 2017 earnings growth guidance. In addition, the July 2017 strategy update by Glaxo’s new chief executive officer, Emma Walmsley, was met with some skepticism due to the company’s operating history and company culture. Shares of Glaxo fell further in October 2017 as investors became concerned about limited growth in 2018 from the effect of generic competition on its largest product Advair, and a future dividend cut given Glaxo’s potential interest in Pfizer’s⁴ consumer-health business.

Food retailer Carrefour reported positive year-over-year sales growth during 2017, but earnings and margins came under continued pressure. In August 2017, management pointed to a number of factors pressuring the company’s operating performance, most notably competition in France from low-price retailers. Additional drags on operating results included: new investments to upgrade its digital platform, an area where Carrefour has lagged peers after putting off such spending for a number of years; integration costs of acquisitions outside of France; and a slower-than-expected economic recovery in Argentina, where it has a material presence.

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During the period, the Fund held currency forwards and futures seeking to hedge most of the currency risk of the portfolio’s non-US dollar investments. The currency forwards and futures had a negative impact on the Fund’s performance because of the depreciation of the US dollar versus the hedged currencies.

What is a currency forward?

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

What is a future?

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

Philippe Brugere-Trelat, Executive Vice President and Portfolio Manager with Franklin Mutual Series, has decided to retire in 2018. We are grateful for Mr. Brugere-Trelat’s many years of service to the firm. In preparation for Mr. Brugere-Trelat’s retirement, Mandana Hormozi, portfolio manager and research analyst for Franklin Mutual Advisers will be added as a co-lead portfolio manager for Franklin Mutual European Fund effective January 1, 2018, joining current co-lead portfolio managers Katrina Dudley and Philippe Brugere-Trelat. Effective May 1, 2018, Mr. Brugere-Trelat will step down as portfolio manager and remain with the firm in a consulting capacity until later in 2018 when he will officially retire.

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

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, 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.

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.

CFA^® is a trademark owned by CFA Institute.

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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 (foreign and domestic) including transportation, manufacturers, machinery, electrical equipment and general industrial. 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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Performance Summary as of December 31, 2017

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. 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.

Performance as of 12/31/17

Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge. For other share classes, visit franklintempleton.com.

Share Class	Cumulative Total Return1	Average Annual Total Return2
Z
1-Year	+10.45%	+10.45%
5-Year	+38.67%	+6.76%
10-Year	+35.48%	+3.08%
A
1-Year	+10.14%	+3.80%
5-Year	+36.72%	+5.21%
10-Year	+31.58%	+2.18%

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.

See page 11 for Performance Summary footnotes.

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PERFORMANCE SUMMARY

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

Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.

Class Z (1/1/08–12/31/17)

Class A (1/1/08–12/31/17)

See page 11 for Performance Summary footnotes.

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PERFORMANCE SUMMARY

Distributions (1/1/17–12/31/17)

Share Class	Net Investment Income
Z		$0.2748
A		$0.2204
C		$0.0697
R		$0.1988
R6		$0.3066

Total Annual Operating Expenses⁴

Share Class
Z	1.06	%
A	1.31	%

Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.

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 may invest its assets in companies in a specific region, including Europe, 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. Current political and financial uncertainty surrounding the European Union may increase market volatility and the economic risk of investing in companies in Europe. 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 description of the main investment risks.

1. Cumulative total return represents the change in value of an investment over the periods indicated.

2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Source: Morningstar. The MSCI Europe Index (Local Currency and US Dollar) is a market capitalization-weighted index designed to measure equity market performance of developed markets in Europe.

4. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) 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 table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

			Actual (actual return after expenses)				Hypothetical (5% annual return before expenses)
Share Class	Beginning Account Value 7/1/17		Ending Account Value 12/31/17		Expenses Paid During Period 7/1/17–12/31/171		Ending Account Value 12/31/17		Expenses Paid During Period 7/1/17–12/31/171		Annualized Expense Ratio
Z		$1,000		$1,030.50		$  5.22		$1,020.06		$  5.19	1.02%
A		$1,000		$1,029.20		$  6.50		$1,018.80		$  6.46	1.27%
C		$1,000		$1,025.10		$10.31		$1,015.02		$10.26	2.02%
R		$1,000		$1,028.10		$  7.77		$1,017.54		$  7.73	1.52%
R6		$1,000		$1,031.00		$  4.56		$1,020.72		$  4.53	0.89%

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/365 to reflect the one-half year period.

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Financial Highlights

		Year Ended December 31,
	2017		2016			2015		2014		2013
Class Z
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$19.20		$19.48			$20.86		$24.76		$21.13
Income from investment operationsa:
Net investment incomeb		0.35		0.63c			0.42		0.73d		0.49
Net realized and unrealized gains (losses)		1.65		(0.17)			(0.27)		(1.73)		5.12
Total from investment operations		2.00		0.46			0.15		(1.00)		5.61
Less distributions from:
Net investment income		(0.27)		(0.47)			(0.46)		(0.67)		(0.46)
Net realized gains		—		(0.27)			(1.07)		(2.23)		(1.52)
Total distributions		(0.27)		(0.74)			(1.53)		(2.90)		(1.98)
Net asset value, end of year		$20.93		$19.20			$19.48		$20.86		$24.76
Total return		10.45%		2.40%			0.82%		(4.00)%		26.68%
Ratios to average net assets
Expensese		1.04%f		1.06%f,	g		1.05%		1.04%f		1.07%f
Expenses incurred in connection with securities sold short		—%		—%			—%h		0.01%		—%h
Net investment income		1.75%		3.42%c			1.93%		2.93%d		2.04%
Supplemental data
Net assets, end of year (000’s)		$1,328,622		$1,175,972			$1,355,780		$1,128,769		$1,399,294
Portfolio turnover rate		17.33%		16.43%			32.59%		54.05%		39.05%

^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 $0.17 per share related to a nonrecurring distribution. The amount, although initially recorded as dividend income, is subject to recharacterization once the issuer provides information regarding the actual composition of the distribution. Excluding this amount, the ratio of net investment income to average net assets would have been 2.50%.

^dNet investment income per share includes approximately $0.29 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 1.74%.

^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(d).

^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 financial statements.  |     Annual Report               13

FRANKLIN MUTUAL EUROPEAN FUND

FINANCIAL HIGHLIGHTS

		Year Ended December 31,
	2017			2016			2015			2014			2013
Class A
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$18.66			$18.95			$20.33			$24.21			$20.71
Income from investment operationsa:
Net investment incomeb		0.31			0.57	c		0.35			0.61	d		0.42
Net realized and unrealized gains (losses)		1.58			(0.18	)		(0.26	)		(1.66	)		4.99
Total from investment operations		1.89			0.39			0.09			(1.05	)		5.41
Less distributions from:
Net investment income		(0.22	)		(0.41	)		(0.40	)		(0.60	)		(0.39	)
Net realized gains		—			(0.27	)		(1.07	)		(2.23	)		(1.52	)
Total distributions		(0.22	)		(0.68	)		(1.47	)		(2.83	)		(1.91	)
Net asset value, end of year		$20.33			$18.66			$18.95			$20.33			$24.21
Total returne		10.14%			2.12%			0.57%			(4.31)%			26.30%
Ratios to average net assets
Expensesf		1.29%	g		1.31%	g,h		1.33%			1.34%	g		1.37%	g
Expenses incurred in connection with securities sold short		—%			—%			—%	i		0.01%			—%	i
Net investment income		1.50%			3.17%	c		1.65%			2.63%	d		1.74%
Supplemental data
Net assets, end of year (000’s)		$714,915			$769,297			$1,033,307			$843,836			$839,655
Portfolio turnover rate		17.33%			16.43%			32.59%			54.05%			39.05%

^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 $0.17 per share related to a nonrecurring distribution. The amount, although initially recorded as dividend income, is subject to recharacterization once the issuer provides information regarding the actual composition of the distribution. Excluding this amount, the ratio of net investment income to average net assets would have been 2.25%.

^dNet investment income per share includes approximately $0.29 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 1.44%.

^eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

^fIncludes 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(d).

^gBenefit of expense reduction rounds to less than 0.01%.

^hBenefit of waiver and payments by affiliates rounds to less than 0.01%.

ⁱRounds to less than 0.01%.

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

FRANKLIN MUTUAL EUROPEAN FUND

FINANCIAL HIGHLIGHTS

		Year Ended December 31,
	2017			2016			2015			2014			2013
Class C
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$18.70			$18.97			$20.37			$24.25			$20.79
Income from investment operationsa:
Net investment incomeb		0.15			0.44	c		0.19			0.43	d		0.24
Net realized and unrealized gains (losses)		1.60			(0.19	)		(0.25	)		(1.64	)		5.02
Total from investment operations		1.75			0.25			(0.06	)		(1.21	)		5.26
Less distributions from:
Net investment income		(0.07	)		(0.25	)		(0.27	)		(0.44	)		(0.28	)
Net realized gains		—			(0.27	)		(1.07	)		(2.23	)		(1.52	)
Total distributions		(0.07	)		(0.52	)		(1.34	)		(2.67	)		(1.80	)
Net asset value, end of year		$20.38			$18.70			$18.97			$20.37			$24.25
Total returne		9.37%			1.32%			(0.16)%			(4.97)%			25.44%
Ratios to average net assets
Expensesf		2.04%	g		2.06%	g,h		2.05%			2.04%	g		2.07%	g
Expenses incurred in connection with securities sold short		—%			—%			—%	i		0.01%			—%	i
Net investment income		0.75%			2.42%	c		0.93%			1.93%	d		1.04%
Supplemental data
Net assets, end of year (000’s)		$179,123			$209,196			$291,752			$216,258			$198,491
Portfolio turnover rate		17.33%			16.43%			32.59%			54.05%			39.05%

^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 $0.17 per share related to a nonrecurring distribution. The amount, although initially recorded as dividend income, is subject to recharacterization once the issuer provides information regarding the actual composition of the distribution. Excluding this amount, the ratio of net investment income to average net assets would have been 1.50%.

^dNet investment income per share includes approximately $0.29 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 0.74%.

^eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

^fIncludes 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(d).

^gBenefit of expense reduction rounds to less than 0.01%.

^hBenefit of waiver and payments by affiliates rounds to less than 0.01%.

ⁱRounds to less than 0.01%.

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

FRANKLIN MUTUAL EUROPEAN FUND

FINANCIAL HIGHLIGHTS

		Year Ended December 31,
	2017			2016			2015			2014			2013
Class R
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$18.35			$18.62			$20.04			$23.95			$20.55
Income from investment operationsa:
Net investment incomeb		0.22			0.52	c		0.27			0.41	d		0.31
Net realized and unrealized gains (losses)		1.60			(0.18	)		(0.23	)		(1.49	)		5.02
Total from investment operations		1.82			0.34			0.04			(1.08	)		5.33
Less distributions from:
Net investment income		(0.20	)		(0.34	)		(0.39	)		(0.60	)		(0.41	)
Net realized gains		—			(0.27	)		(1.07	)		(2.23	)		(1.52	)
Total distributions		(0.20	)		(0.61	)		(1.46	)		(2.83	)		(1.93	)
Net asset value, end of year		$19.97			$18.35			$18.62			$20.04			$23.95
Total return		9.92%			1.86%			0.37%			(4.52)%			26.05%
Ratios to average net assets
Expensese		1.54%	f		1.56%	f,g		1.55%			1.54%	f		1.57%f
Expenses incurred in connection with securities sold short		—%			—%			—%	h		0.01%			—%	h
Net investment income		1.25%			2.92%	c		1.43%			2.43%	d		1.54%
Supplemental data
Net assets, end of year (000’s)		$821			$626			$997			$421			$133
Portfolio turnover rate		17.33%			16.43%			32.59%			54.05%			39.05%

^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 $0.17 per share related to a nonrecurring distribution. The amount, although initially recorded as dividend income, is subject to recharacterization once the issuer provides information regarding the actual composition of the distribution. Excluding this amount, the ratio of net investment income to average net assets would have been 2.00%.

^dNet investment income per share includes approximately $0.29 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 1.24%.

^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(d).

^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 financial statements.   franklintempleton.com

FRANKLIN MUTUAL EUROPEAN FUND

FINANCIAL HIGHLIGHTS

		Year Ended December 31,
	2017			2016			2015			2014			2013a
Class R6
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$19.19			$19.47			$20.85			$24.75			$22.54
Income from investment operationsb:
Net investment incomec		0.41			0.66	d		0.46			0.75	e		0.28
Net realized and unrealized gains (losses)		1.62			(0.17	)		(0.28	)		(1.71	)		3.95
Total from investment operations		2.03			0.49			0.18			(0.96	)		4.23
Less distributions from:
Net investment income		(0.31	)		(0.50	)		(0.49	)		(0.71	)		(0.50	)
Net realized gains		—			(0.27	)		(1.07	)		(2.23	)		(1.52	)
Total distributions		(0.31	)		(0.77	)		(1.56	)		(2.94	)		(2.02	)
Net asset value, end of year		$20.91			$19.19			$19.47			$20.85			$24.75
Total returnf		10.63%			2.53%			0.98%			(3.88)%			18.99%
Ratios to average net assetsg
Expensesh		0.88%	i		0.89%	i,j		0.89%			0.89%i			0.90%	i
Expenses incurred in connection with securities sold short		—%			—%			—%	k		0.01%			—%	k
Net investment income		1.91%			3.59%	d		2.09%			3.08%	e		2.21%
Supplemental data
Net assets, end of year (000’s)		$294,660			$311,784			$373,904			$334,396			$317,690
Portfolio turnover rate		17.33%			16.43%			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 $0.17 per share related to a nonrecurring distribution. The amount, although initially recorded as dividend income, is subject to recharacterization once the issuer provides information regarding the actual composition of the distribution. Excluding this amount, the ratio of net investment income to average net assets would have been 2.67%.

^eNet investment income per share includes approximately $0.29 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 1.89%.

^fTotal return is not annualized for periods less than one year.

^gRatios are annualized for periods less than one year.

^hIncludes 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(d).

ⁱBenefit of expense reduction rounds to less than 0.01%.

^jBenefit of waiver and payments by affiliates rounds to less than 0.01%.

^kRounds to less than 0.01%.

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

FRANKLIN MUTUAL EUROPEAN FUND

Statement of Investments, December 31, 2017

		Country		Shares		Value
	Common Stocks 85.9%
	Auto Components 1.8%
	Cie Generale des Etablissements Michelin, B		France		314,218	$	45,070,204
	Automobiles 2.4%
	Peugeot SA		France		2,409,341		49,012,285
	Renault SA		France		108,240		10,897,086
							59,909,371
	Banks 8.0%
	AIB Group PLC		Ireland		5,022,410		33,142,383
	BNP Paribas SA		France		344,956		25,763,920
	HSBC Holdings PLC		United Kingdom		2,732,076		28,295,021
	Societe Generale SA		France		1,017,419		52,551,108
a	Standard Chartered PLC		United Kingdom		5,207,966		54,865,196
a	Unicaja Banco SA		Spain		3,808,700		6,004,558
							200,622,186
	Capital Markets 0.8%
	Credit Suisse Group AG		Switzerland		872,476		15,580,728
	Oslo Bors VPS Holding ASA		Norway		340,000		5,156,536
							20,737,264
	Commercial Services & Supplies 1.2%
	G4S PLC		United Kingdom		8,137,683		29,342,056
	Communications Equipment 2.2%
	Nokia OYJ, A		Finland		5,254,934		24,551,165
	Nokia OYJ, ADR		Finland		6,476,564		30,180,788
							54,731,953
	Construction & Engineering 0.4%
	FLSmidth & Co. AS		Denmark		193,655		11,275,995
	Construction Materials 2.9%
	HeidelbergCement AG		Germany		48,487		5,250,267
	LafargeHolcim Ltd., B		Switzerland		1,216,211		68,590,131
							73,840,398
	Diversified Telecommunication Services 4.8%
	Hellenic Telecommunications Organization SA		Greece		3,445,216		47,536,059
	Koninklijke KPN NV		Netherlands		21,300,825		74,318,975
							121,855,034
	Electric Utilities 3.8%
	Enel SpA		Italy		15,739,968		96,879,099
	Food & Staples Retailing 2.0%
	Carrefour SA		France		1,567,550		33,928,669
a	METRO AG		Germany		759,860		15,179,473
							49,108,142
	Health Care Equipment & Supplies 3.5%
	Koninklijke Philips NV		Netherlands		2,333,465		88,302,269
	Hotels, Restaurants & Leisure 3.7%
	Accor SA		France		1,810,220		93,391,789
	Household Durables 0.3%
a,b	Neinor Homes SA, 144A		Spain		334,815		7,351,312

  18           Annual Report   franklintempleton.com

FRANKLIN MUTUAL EUROPEAN FUND

STATEMENT OF INVESTMENTS

		Country		Shares		Value
	Common Stocks (continued)
	Insurance 15.5%
	Ageas		Belgium		1,192,769	$	58,266,598
	ASR Nederland NV		Netherlands		962,392		39,611,228
	Direct Line Insurance Group PLC		United Kingdom		11,324,835		58,375,762
	Lancashire Holdings Ltd.		United Kingdom		3,612,800		33,274,138
	NN Group NV		Netherlands		2,111,854		91,520,949
	RSA Insurance Group PLC		United Kingdom		8,123,460		69,387,316
	XL Group Ltd.		Bermuda		1,127,818		39,654,081
							390,090,072
	IT Services 0.4%
	Capgemini SE		France		87,396		10,369,381
	Machinery 2.9%
	CNH Industrial NV		United Kingdom		2,999,447		40,197,889
	CNH Industrial NV, special voting		United Kingdom		833,461		11,169,850
a	Vossloh AG		Germany		366,097		20,556,582
							71,924,321
	Marine 1.0%
	A.P. Moeller-Maersk AS, B		Denmark		13,740		24,003,481
	Media 1.2%
	Sky PLC		United Kingdom		2,284,938		31,227,229
	Metals & Mining 1.0%
	thyssenkrupp AG		Germany		859,109		24,959,830
	Multi-Utilities 1.0%
	innogy SE		Germany		644,199		25,254,834
	Oil, Gas & Consumable Fuels 9.3%
	BP PLC		United Kingdom		10,819,016		76,369,294
a	Cairn Energy PLC		United Kingdom		9,565,171		27,617,156
	Repsol SA		Spain		485,520		8,589,360
	Royal Dutch Shell PLC, A (EUR Traded)		United Kingdom		1,241,414		41,384,329
	Royal Dutch Shell PLC, A (GBP Traded)		United Kingdom		1,603,748		53,711,382
	Total SA		France		488,727		26,999,622
							234,671,143
	Pharmaceuticals 6.8%
	GlaxoSmithKline PLC		United Kingdom		2,554,947		45,630,591
	Novartis AG		Switzerland		1,011,384		85,531,936
	Sanofi		France		450,899		38,870,034
							170,032,561
	Road & Rail 0.0%
a,c,d,e	Euro Wagon LP		Jersey Islands		16,127,149		—
	Specialty Retail 1.5%
a	Dufry AG		Switzerland		13,909		2,068,470
	Hornbach Holding AG & Co. KGaA		Germany		213,786		18,986,164
	Kingfisher PLC		United Kingdom		3,905,428		17,810,586
							38,865,220
	Tobacco 0.4%
	Imperial Brands PLC		United Kingdom		241,805		10,338,433

  franklintempleton.com   Annual Report               19

FRANKLIN MUTUAL EUROPEAN FUND

STATEMENT OF INVESTMENTS

		Country		Shares		Value
	Common Stocks (continued)
	Trading Companies & Distributors 3.9%
	Kloeckner & Co. SE		Germany		3,031,653	$	37,428,614
	Rexel SA		France		3,311,972		60,082,408
							97,511,022
	Wireless Telecommunication Services 3.2%
	Vodafone Group PLC		United Kingdom		25,502,548		80,933,803
	Total Common Stocks (Cost $1,914,083,403)						2,162,598,402
	Preferred Stocks 5.7%
	Auto Components 2.2%
f	Schaeffler AG, 3.382%, pfd		Germany		3,156,455		55,992,494
	Automobiles 3.5%
f	Volkswagen AG, 1.238%, pfd		Germany		446,068		89,082,778
	Total Preferred Stocks (Cost $116,912,951)						145,075,272
	Total Investments before Short Term Investments   (Cost $2,030,996,354)						2,307,673,674
				Principal Amount
	Short Term Investments 8.7%
	U.S. Government and Agency Securities 8.7%
g	U.S. Treasury Bill,
	1/02/18 - 5/03/18		United States	$	185,200,000		184,826,783
	h3/15/18 - 5/10/18		United States		34,000,000		33,875,247
	Total U.S. Government and Agency Securities   (Cost $218,740,949)						218,702,030
	Total Investments (Cost $2,249,737,303) 100.3%						2,526,375,704
	Other Assets, less Liabilities (0.3)%						(8,234,993	)
	Net Assets 100.0%					$	2,518,140,711

^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.

^cSee Note 11 regarding holdings of 5% voting securities.

^dFair valued using significant unobservable inputs. See Note 13 regarding fair value measurements.

^eSee Note 9 regarding restricted securities.

^fVariable rate security. The rate shown represents the yield at period end.

^gThe security was issued on a discount basis with no stated coupon rate.

^hA portion or all of the security has been segregated as collateral for open forward exchange contracts. At December 31, 2017, the aggregate value of these securities pledged amounted to $20,421,389, representing 0.8% of net assets.

  20           Annual Report   franklintempleton.com

FRANKLIN MUTUAL EUROPEAN FUND

STATEMENT OF INVESTMENTS

At December 31, 2017, the Fund had the following futures contracts outstanding. See Note 1(c).

Futures Contracts

Description	Type		Number of Contracts		Notional Amount*		Expiration Date		Value/ Unrealized Appreciation (Depreciation)
Currency Contracts
EUR/USD		Short		3,558	$	537,057,862		3/19/18	$	(9,580,955	)
GBP/USD		Short		2,194		185,900,363		3/19/18		(1,252,672	)
Total Futures Contracts									$	(10,833,627	)

*As of period end.

At December 31, 2017, the Fund had the following forward exchange contracts outstanding. See Note 1(c).

Forward Exchange Contracts

Currency	Counterpartya		Type		Quantity		Contract Amount		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
OTC Forward Exchange Contracts
Euro		BOFA		Sell		121,706	$	140,920		1/12/18	$	—	$	(5,232	)
Euro		HSBK		Buy		2,000,657		2,377,639		1/12/18		24,870		—
Euro		HSBK		Sell		17,147,969		19,737,590		1/12/18		—		(854,715	)
Euro		SSBT		Buy		4,165,404		4,923,088		1/12/18		78,978		—
Euro		SSBT		Sell		781,615		905,595		1/12/18		—		(33,014	)
Euro		UBSW		Buy		1,099,330		1,303,907		1/12/18		16,234		—
Euro		UBSW		Sell		17,808,336		20,493,911		1/12/18		—		(891,404	)
British Pound		BOFA		Buy		205,089		273,952		1/16/18		3,187		—
British Pound		BOFA		Buy		273,135		369,588		1/16/18		—		(497	)
British Pound		BOFA		Sell		800,000		1,045,089		1/16/18		—		(35,962	)
British Pound		BONY		Sell		20,342,297		26,306,883		1/16/18		—		(1,181,929	)
British Pound		SSBT		Buy		2,476,000		3,313,351		1/16/18		32,500		—
British Pound		SSBT		Sell		472,871		618,874		1/16/18		—		(20,123	)
British Pound		UBSW		Buy		299,776		406,033		1/16/18		—		(942	)
British Pound		UBSW		Buy		836,138		1,124,646		1/16/18		5,238		—
British Pound		UBSW		Sell		20,342,182		26,282,099		1/16/18		—		(1,206,557	)
Norwegian Krone		HSBK		Sell		595,000		72,049		1/25/18		—		(495	)
Norwegian Krone		SSBT		Buy		244,399		29,566		1/25/18		232		—
Norwegian Krone		SSBT		Sell		951,320		114,661		1/25/18		—		(1,325	)
Norwegian Krone		SSBT		Sell		37,398,864		4,690,807		1/25/18		131,065		—
Norwegian Krone		UBSW		Sell		680,000		83,082		1/25/18		175		—
Norwegian Krone		UBSW		Sell		1,674,215		200,421		1/25/18		—		(3,702	)
Euro		BOFA		Sell		5,381,488		6,492,845		1/26/18		24,720		—
Euro		BONY		Sell		390,335		469,973		1/26/18		821		—
Euro		BONY		Sell		13,406,197		16,068,868		1/26/18		—		(44,325	)
Euro		HSBK		Sell		68,970,074		81,330,730		1/26/18		—		(1,565,868	)
Euro		SSBT		Sell		2,412,487		2,893,703		1/26/18		—		(5,916	)
Euro		SSBT		Sell		4,335,103		5,217,003		1/26/18		6,551		—
Euro		UBSW		Sell		57,770,074		67,898,901		1/26/18		—		(1,536,178	)
British Pound		BOFA		Sell		2,455,015		3,264,185		2/14/18		—		(56,318	)
British Pound		BONY		Sell		38,061,746		49,767,940		2/14/18		—		(1,712,054	)
British Pound		HSBK		Sell		6,473,077		8,599,960		2/14/18		—		(155,130	)

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FRANKLIN MUTUAL EUROPEAN FUND

STATEMENT OF INVESTMENTS

Forward Exchange Contracts (continued)

Currency	Counterpartya		Type		Quantity		Contract Amount		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
OTC Forward Exchange Contracts (continued)
British Pound		UBSW		Sell		38,061,745	$	49,767,825		2/14/18		$            —	$	(1,712,168	)
Euro		BONY		Sell		78,841,408		93,177,220		2/20/18		—		(1,715,423	)
Euro		SSBT		Sell		78,841,408		93,159,008		2/20/18		—		(1,733,636	)
Swiss Franc		BOFA		Sell		14,997,942		15,224,693		3/05/18		—		(239,941	)
Euro		HSBK		Sell		54,121,678		64,122,282		4/10/18		—		(1,225,054	)
Euro		UBSW		Sell		54,121,678		64,133,647		4/10/18		—		(1,213,688	)
Euro		BOFA		Sell		32,200,756		38,415,984		4/18/18		—		(484,487	)
Euro		SSBT		Sell		32,200,755		38,415,018		4/18/18		—		(485,454	)
Euro		UBSW		Sell		32,200,756		38,421,620		4/18/18		—		(478,852	)
British Pound		BOFA		Sell		40,074,643		53,087,998		4/24/18		—		(1,247,256	)
British Pound		UBSW		Sell		39,042,293		51,702,108		4/24/18		—		(1,233,432	)
Euro		HSBK		Sell		44,418,188		52,419,991		5/07/18		—		(1,308,118	)
Euro		UBSW		Sell		44,418,188		52,410,574		5/07/18		—		(1,317,535	)
Euro		BOFA		Sell		68,574,884		81,729,305		5/21/18		—		(1,296,467	)
Euro		UBSW		Sell		64,367,297		76,745,529		5/21/18		—		(1,185,986	)
British Pound		HSBK		Sell		1,548,565		2,103,896		5/24/18		1,971		—
British Pound		SSBT		Sell		10,535,860		14,052,045		5/24/18		—		(248,669	)
Total Forward Exchange Contracts												$ 326,542	$	(26,437,852	)
Net unrealized appreciation (depreciation)													$	(26,111,310	)

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

See Note 10 regarding other derivative information.

See Abbreviations on page 38.

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

FRANKLIN MUTUAL EUROPEAN FUND

Financial Statements

Statement of Assets and Liabilities

December 31, 2017

Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	2,243,454,794
Cost - Controlled affiliates (Note 11)		6,282,509
Value - Unaffiliated issuers	$	2,526,375,704
Value - Controlled affiliates (Note 11)		—
Cash		154,228
Foreign currency, at value (cost $2,993,356)		3,005,224
Receivables:
Investment securities sold		889,478
Capital shares sold		2,695,794
Dividends and interest		8,282,358
European Union tax reclaims		2,989,872
Deposits with brokers for:
Futures contracts		11,990,160
Unrealized appreciation on OTC forward exchange contracts		326,542
Other assets		287
Total assets		2,556,709,647
Liabilities:
Payables:
Investment securities purchased		343,178
Capital shares redeemed		4,314,460
Management fees		1,840,190
Distribution fees		610,049
Transfer agent fees		507,198
Trustees’ fees and expenses		94,720
Variation margin on futures contracts.		4,093,875
Unrealized depreciation on OTC forward exchange contracts		26,437,852
Accrued expenses and other liabilities		327,414
Total liabilities		38,568,936
Net assets, at value	$	2,518,140,711
Net assets consist of:
Paid-in capital	$	2,471,669,291
Undistributed net investment income		21,175,134
Net unrealized appreciation (depreciation)		240,049,804
Accumulated net realized gain (loss)		(214,753,518	)
Net assets, at value	$	2,518,140,711

  franklintempleton.com   The accompanying notes are an integral part of these financial statements.  |     Annual Report               23

FRANKLIN MUTUAL EUROPEAN FUND

FINANCIAL STATEMENTS

Statement of Assets and Liabilities (continued)

December 31, 2017

Class Z:
Net assets, at value	$1,328,621,844
Shares outstanding	63,488,937
Net asset value and maximum offering price per share	$20.93
Class A:
Net assets, at value	$   714,915,022
Shares outstanding	35,162,533
Net asset value per sharea	$20.33
Maximum offering price per share (net asset value per share ÷ 94.25%)	$21.57
Class C:
Net assets, at value	$   179,122,984
Shares outstanding	8,789,733
Net asset value and maximum offering price per sharea	$20.38
Class R:
Net assets, at value	$          820,789
Shares outstanding	41,111
Net asset value and maximum offering price per share	$19.97
Class R6:
Net assets, at value	$   294,660,072
Shares outstanding	14,091,658
Net asset value and maximum offering price per share	$20.91

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

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

FRANKLIN MUTUAL EUROPEAN FUND

FINANCIAL STATEMENTS

Statement of Operations

for the year ended December 31, 2017

Investment income:
Dividends: (net of foreign taxes)*
Unaffiliated issuers	$	68,928,653
Interest:
Unaffiliated issuers		2,381,635
Other income (Note 1e)		550,416
Total investment income		71,860,704
Expenses:
Management fees (Note 3a)		21,928,101
Distribution fees: (Note 3c)
Class A		1,868,293
Class C		1,959,571
Class R		3,383
Transfer agent fees: (Note 3e)
Class Z		2,039,253
Class A		1,172,070
Class C		307,337
Class R		1,062
Class R6		12,587
Custodian fees (Note 4)		266,926
Reports to shareholders		140,200
Registration and filing fees		114,933
Professional fees		159,195
Trustees’ fees and expenses		78,682
Other		86,674
Total expenses		30,138,267
Expense reductions (Note 4)		(31,645	)
Net expenses		30,106,622
Net investment income		41,754,082
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffiliated issuers		80,334,263
Foreign currency transactions		870,468
Forward exchange contracts		(62,447,783	)
Futures contracts		(55,698,381	)
Net realized gain (loss)		(36,941,433	)
Net change in unrealized appreciation (depreciation) on:
Investments:
Unaffiliated issuers		336,586,998
Translation of other assets and liabilities denominated in foreign currencies		916,931
Forward exchange contracts		(75,466,518	)
Futures contracts		(16,983,478	)
Net change in unrealized appreciation (depreciation)		245,053,933
Net realized and unrealized gain (loss)		208,112,500
Net increase (decrease) in net assets resulting from operations	$	249,866,582
*Foreign taxes withheld on dividends	$	7,169,851

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

FRANKLIN MUTUAL EUROPEAN FUND

FINANCIAL STATEMENTS

Statements of Changes in Net Assets

	Year Ended December 31,
	2017			2016
Increase (decrease) in net assets:
Operations:
Net investment income	$	41,754,082		$	86,670,906
Net realized gain (loss)		(36,941,433	)		(142,742,912	)
Net change in unrealized appreciation (depreciation)		245,053,933			80,746,396
Net increase (decrease) in net assets resulting from operations		249,866,582			24,674,390
Distributions to shareholders from:
Net investment income:
Class Z		(17,540,243	)		(28,255,499	)
Class A		(7,669,484	)		(16,888,293	)
Class C		(661,962	)		(2,839,954	)
Class R		(7,585	)		(11,461	)
Class R6		(4,427,392	)		(7,900,715	)
Net realized gains:
Class Z		—			(16,457,536	)
Class A		—			(12,347,412	)
Class C		—			(3,328,152	)
Class R		—			(12,030	)
Class R6		—			(4,582,657	)
Total distributions to shareholders		(30,306,666	)		(92,623,709	)
Capital share transactions: (Note 2)
Class Z		43,359,185			(153,067,905	)
Class A		(118,591,024	)		(238,121,733	)
Class C		(47,346,696	)		(74,322,720	)
Class R		141,266			(342,532	)
Class R6		(45,857,168	)		(55,061,378	)
Total capital share transactions		(168,294,437	)		(520,916,268	)
Net increase (decrease) in net assets		51,265,479			(588,865,587	)
Net assets:
Beginning of year		2,466,875,232			3,055,740,819
End of year	$	2,518,140,711		$	2,466,875,232
Undistributed net investment income included in net assets:
End of year	$	21,175,134		$	33,336,341

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

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 Fund offers five classes of shares: Class Z, Class A, Class C, Class R and Class R6. Each class of shares may differ by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees 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 Committee (VC). The VC 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 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. 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.

Certain derivative financial instruments 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 VC 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 VC 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 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 VC employs various methods for calibrating these

  franklintempleton.com   Annual Report             27

FRANKLIN MUTUAL EUROPEAN FUND

NOTES TO FINANCIAL STATEMENTS

1.  Organization and Significant Accounting Policies

(continued)

a.   Financial Instrument Valuation (continued)

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 Fund’s business day. Occasionally, events occur between the time at which trading in a foreign security is completed and 4 p.m. Eastern time 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 4 p.m. Eastern time. In order to minimize the potential for these differences, the VC 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 Fund’s NAV is not calculated, 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 derivative financial instruments 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 counter-parties. The Fund attempts to reduce its exposure to

  28           Annual Report   franklintempleton.com

FRANKLIN MUTUAL EUROPEAN FUND

NOTES TO FINANCIAL STATEMENTS

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 counterparty the next business day, or 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 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 at 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.

See Note 10 regarding other derivative information.

d.  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, 2017, the Fund had no securities sold short.

e.   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

  franklintempleton.com   Annual Report           29

FRANKLIN MUTUAL EUROPEAN FUND

NOTES TO FINANCIAL STATEMENTS

1.  Organization and Significant Accounting Policies

(continued)

e.   Income and Deferred Taxes (continued)

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 filed additional tax reclaims for previously withheld taxes on dividends earned in those countries (EU reclaims). 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. Income recognized, if any, for EU reclaims is reflected as other income in the Statement of Operations and any related receivable, if any, is reflected as European Union tax reclaims in the Statement of Assets and Liabilities. When uncertainty exists as to the ultimate resolution of these proceedings, the likelihood of receipt of these EU reclaims, and the potential timing of payment, no amounts are reflected in the financial statements. For U.S. income tax purposes, EU reclaims received by the Fund, if any, reduce the amounts of foreign taxes Fund shareholders can use as tax credits in their individual income tax returns.

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, 2017, 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 in future tax years). Open tax years are those that remain subject to examination and are based on the statute of limitations in each jurisdiction in which the Fund invests.

f.  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 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. Distributable earnings are determined according to income tax regulations (tax basis) and 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, excluding 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.

g.  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.

h.  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

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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, 2017, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2017						2016
	Shares			Amount			Shares			Amount
Class Z Shares:
Shares sold		17,236,906		$	350,944,087			15,887,532		$	289,620,406
Shares issued in reinvestment of distributions		789,963			16,435,905			2,149,123			40,692,946
Shares redeemed		(15,782,895	)		(324,020,807	)		(26,381,377	)		(483,381,257	)
Net increase (decrease)		2,243,974		$	43,359,185			(8,344,722	)	$	(153,067,905	)
Class A Shares:
Shares sold		15,602,529		$	310,200,219			8,051,045		$	142,359,812
Shares issued in reinvestment of distributions		287,521			5,802,513			1,310,378			24,063,648
Shares redeemed		(21,954,991	)		(434,593,756	)		(22,672,948	)		(404,545,193	)
Net increase (decrease)		(6,064,941	)	$	(118,591,024	)		(13,311,525	)	$	(238,121,733	)
Class C Shares:
Shares sold		1,180,124		$	23,513,530			1,157,702		$	20,444,715
Shares issued in reinvestment of distributions		32,119			639,507			316,883			5,796,600
Shares redeemed		(3,606,833	)		(71,499,733	)		(5,665,889	)		(100,564,035	)
Net increase (decrease)		(2,394,590	)	$	(47,346,696	)		(4,191,304	)	$	(74,322,720	)
Class R Shares:
Shares sold		16,679		$	329,815			8,245		$	141,919
Shares issued in reinvestment of distributions		382			7,585			1,306			23,491
Shares redeemed		(10,067	)		(196,134	)		(28,993	)		(507,942	)
Net increase (decrease)		6,994		$	141,266			(19,442	)	$	(342,532	)
Class R6 Shares:
Shares sold		3,235,565		$	65,830,080			4,455,100		$	81,890,311
Shares issued in reinvestment of distributions		185,294			3,853,120			577,663			10,934,416
Shares redeemed		(5,580,242	)		(115,540,368	)		(7,987,118	)		(147,886,105	)
Net increase (decrease)		(2,159,383	)	$	(45,857,168	)		(2,954,355	)	$	(55,061,378	)

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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 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

For the year ended December 31, 2017, the gross effective investment management fee rate was 0.852% of the Fund’s average daily net assets.

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.

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	%

The Board has set the current rate at 0.25% per year for Class A shares until further notice and approval by the Board.

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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 brokers/dealers	$	133,400
CDSC retained	$	102,489

e.  Transfer Agent Fees

Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. Effective November 1, 2017, the fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. Prior to November 1, 2017, the fees were account based fees that varied based on fund or account type. In addition, each class reimburses Investor Services for out of pocket expenses incurred and, except for Class R6, reimburses shareholder 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, 2017, the Fund paid transfer agent fees of $3,532,309, of which $1,703,684 was retained by Investor Services.

f.  Other Affiliated Transactions

At December 31, 2017, one or more of the funds in Franklin Fund Allocator Series owned 9.5% of the Fund’s outstanding shares.

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, 2017, 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, 2017, the Fund’s projected benefit obligation and benefit payments under the Plan were as follows:

aProjected benefit obligation at December 31, 2017	$	94,720
bIncrease in projected benefit obligation	$	2,070
Benefit payments made to retired trustees	$	(2,515	)

^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

For tax purposes, capital losses may be carried over to offset future capital gains, if any.

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6.  Income Taxes (continued)

At December 31, 2017, the capital loss carryforwards were as follows:

Capital loss carryforwards:
Short term	$	82,846,650
Long term		171,281,334
Total capital loss carryforwards	$	254,127,984

The tax character of distributions paid during the years ended December 31, 2017 and 2016, was as follows:

	2017		2016
Distributions paid from:
Ordinary income	$	30,306,666	$	55,897,868
Long term capital gain		—		36,725,841
	$	30,306,666	$	92,623,709

At December 31, 2017, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:

Cost of investments.	$	2,211,141,232
Unrealized appreciation	$	419,903,400
Unrealized depreciation		(141,593,701	)
Net unrealized appreciation (depreciation)	$	278,309,699
Distributable earnings - undistributed ordinary income	$	19,148,688

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) for the year ended December 31, 2017, aggregated $400,536,972 and $663,994,913, 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

The Fund invests in securities that are restricted under the Securities Act of 1933 (1933 Act). 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.

At December 31, 2017, investments in restricted securities, excluding securities exempt from registration under the 1933 Act deemed to be liquid, were as follows:

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

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10.  Other Derivative Information

At December 31, 2017, 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 Hedging Instruments	Statement of Assets and Liabilities Location	Fair Value		Statement of Assets and Liabilities Location	Fair Value
Foreign exchange contracts	Variation margin on futures contracts		$          —	Variation margin on futures contracts		$10,833,627	a
	Unrealized appreciation on OTC forward exchange contracts		326,542	Unrealized depreciation on OTC     forward exchange contracts		26,437,852
Totals			$326,542			$37,271,479
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, 2017, the effect of derivative contracts in the Fund’s Statement of Operations was as follows:
Derivative Contracts Not Accounted for as Hedging Instruments	Statement of Operations Location	Net Realized Gain (Loss) for the Year		Statement of Operations Location	Net Change in Unrealized Appreciation (Depreciation) for the Year
	Net realized gain (loss) from:			Net change in unrealized appreciation (depreciation) on:
Foreign exchange contracts	Forward exchange contracts		$  (62,447,783)	Forward exchange contracts		$(75,466,518)
	Futures contracts		(55,698,381)	Futures contracts		(16,983,478)
Totals			$(118,146,164)			$(92,449,996)

For the year ended December 31, 2017, the average month end notional amount of futures contracts represented $706,352,421. The average month end contract value of forward exchange contracts was $1,345,624,459.

At December 31, 2017, the Fund’s OTC derivative assets and liabilities are as follows:

	Gross Amounts of Assets and Liabilities Presented in the Statement of Assets and Liabilities
	Assetsa		Liabilitiesa
Derivatives
Forward exchange contracts		$326,542		$26,437,852

^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, 2017, 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 Amounts of Assets Presented in the Statement of Assets and Liabilities		Financial Instruments Available for Offset			Financial Instruments Collateral Received			Cash Collateral Received		Net Amount (Not less than zero)
Counterparty
BOFA		$  27,907		$  (27,907	)		$    —			$    —		$    —
BONY		821		(821	)		—			—		—
HSBK		26,841		(26,841	)		—			—		—
SSBT		249,326		(249,326	)		—			—		—
UBSW		21,647		(21,647	)		—			—		—
Total		$326,542		$(326,542	)		$    —			$    —		$    —
At December 31, 2017, 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 Amounts of Liabilities Presented in the Statement of Assets and Liabilities		Financial Instruments Available for Offset			Financial Instruments Collateral Pledgeda			Cash Collateral Pledged		Net Amount (Not less than zero)
Counterparty
BOFA		$  3,366,160		$  (27,907	)		$  (2,426,723	)		$    —		$   911,530
BONY		4,653,731		(821	)		(3,782,041	)		—		870,869
HSBK.		5,109,380		(26,841	)		(4,070,471	)		—		1,012,068
SSBT		2,528,137		(249,326	)		(1,570,936	)		—		707,875
UBSW		10,780,444		(21,647	)		(8,571,218	)		—		2,187,579
Total		$26,437,852		$(326,542	)		$(20,421,389	)		$    —		$5,689,921

^aSee the accompanying Statement of Investments for securities pledged as collateral for derivatives.

See Note 1(c) regarding derivative financial instruments.

See Abbreviations on page 38.

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. During the year ended December 31, 2017, investments in “affiliated companies” were as follows:

Name of Issuer	Number of Shares Held at Beginning of Year		Gross Additions		Gross Reductions		Number of Shares Held at End of Year		Value at End of Year		Dividend Income		Realized Gain (Loss)		Net Change in Unrealized Appreciation (Depreciation)
Controlled Affiliatesa
Euro Wagon LP (Value is —% of Net Assets)		16,127,149		—		—		16,127,149		$—		$—		$—		$—

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

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NOTES TO FINANCIAL STATEMENTS

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 9, 2018. 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 9, 2018, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 8, 2019, 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 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statement of Operations. During the year ended December 31, 2017, 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.)

• 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, 2017, 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:a
Equity Investments:b
Machinery	$	60,754,471	$	11,169,850	$	—		$	71,924,321
All Other Equity Investments		2,235,749,353		—		—	c		2,235,749,353
Short Term Investments		218,702,030		—		—			218,702,030
Total Investments in Securities	$	2,515,205,854	$	11,169,850	$	—		$	2,526,375,704
Other Financial Instruments:
Forward Exchange Contracts	$	—	$	326,542	$	—		$	326,542
Liabilities:
Other Financial Instruments:
Futures Contracts	$	10,833,627	$	—	$	—		$	10,833,627
Forward Exchange Contracts		—		26,437,852		—			26,437,852
Total Other Financial Instruments	$	10,833,627	$	26,437,852	$	—		$	37,271,479

^aFor detailed categories, see the accompanying Statement of Investments.

^bIncludes common and preferred stocks.

^cIncludes securities determined to have no value at December 31, 2017.

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13.  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 beginning and/or 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
BOFA	Bank of America N.A.	EUR	Euro	ADR	American Depositary Receipt
BONY	The Bank of New York Mellon Corp.	GBP	British Pound
HSBK	HSBC Bank PLC	USD	United States Dollar
SSBT	State Street Bank and Trust Co., N.A.
UBSW	UBS AG

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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:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Franklin Mutual European Fund (the “Fund”) (one of the funds constituting Franklin Mutual Series Funds), including the schedule of investments, as of December 31, 2017, 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, the financial highlights for each of the periods indicated therein and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements 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, 2017, 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 its financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the auditor of one or more Franklin investment companies since 1987.

Boston, MA

February 26, 2018

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Tax Information (unaudited)

Under Section 854(b)(1)(B) of the Internal Revenue Code (Code), the Fund hereby reports the maximum amount allowable but no less than $70,971,977 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended December 31, 2017. Distributions, including qualified dividend income, paid during calendar year 2017 will be reported to shareholders on Form 1099-DIV by mid-February 2018. 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, 2017, 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 21, 2017, to treat their proportionate share of foreign taxes paid by the Fund as having been paid directly by them. The shareholder shall consider these amounts as foreign taxes paid in the tax year in which they receive the Fund distribution.

The 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.

Class	Foreign Tax Paid Per Share	Foreign Source Income Per Share	Foreign Source Qualified Dividends Per Share
Class Z	$0.0547	$0.4131	$0.3851
Class A	$0.0547	$0.3605	$0.3360
Class C	$0.0547	$0.1971	$0.1836
Class R	$0.0547	$0.3399	$0.3169
Class R6	$0.0547	$0.4438	$0.4137

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 2018, shareholders will receive Form 1099-DIV which will include their share of taxes paid and foreign source income distributed during the calendar year 2017. 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 2017 individual income tax returns.

1. Qualified 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 Trust, principal occupations during at least the past five years and number of US registered 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

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Edward I. Altman, Ph.D. (1941) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1987	14	None
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1995	40	Ares Capital 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), SLM Corporation (Sallie Mae) (1997-2014) and Navient Corporation (loan management, servicing and asset recovery) (2014-2016).
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee and Vice Chairman	Trustee since 2002 and Vice Chairman since 2015	14	Franklin Templeton Emerging Markets Debt Opportunities Fund PLC (1999-present) and Fiduciary International Ireland Limited (1999-2015).
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.
Jan Hopkins Trachtman (1947) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2009	14	None
Principal Occupation During at Least the Past 5 Years: President and Founder, The Jan Hopkins Group (communications and consulting firm); serves on Advisory Board of Knight Bagehot Fellowship; and formerly, President, Economic Club of New York (2007-2015); 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.
Keith Mitchell (1954) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2009	14	None
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, Putman Lovell NBF.

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FRANKLIN MUTUAL SERIES FUNDS

Independent Board Members (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
David W. Niemiec (1949) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2015	40	Hess Midstream Partners LP (oil and gas midstream infrastructure) (2017-present).
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1998	14	None
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.
Robert E. Wade (1946) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee and Chairman of the Board	Trustee since 1993 and Chairman of the Board since 2005	40	El Oro Ltd (investments) (2003-present).
Principal Occupation During at Least the Past 5 Years: Attorney at law engaged in private practice as a sole practitioner (1972-2008) and member of various boards.
Gregory H. Williams (1943) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2015	14	None
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).

Interested Board Members and Officers

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
**Gregory E. Johnson (1961) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 2007	153	None
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 43 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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee, President, and Chief Executive Officer – Investment Management	Trustee since 2007, President, and Chief Executive Officer – Investment Management since 2005	7	American International Group, Inc. (AIG) Credit Facility Trust (2010-2011).
Principal Occupation During at Least the Past 5 Years: Chairman of the Board, Chief Executive Officer and President, Franklin Mutual Advisers, LLC; President and Chief Investment Officer, Franklin Advisory Services, LLC; and officer and/or director, as the case may be, of three of the investment companies in Franklin Templeton Investments.

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Interested Board Members and Officers (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Alison E. Baur (1964) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2012	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.
Philippe Brugere-Trelat (1949) 101 John F. Kennedy Parkway Short Hills NJ 07078-2789	Vice President	Since 2005	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Executive Vice President, Franklin Mutual Advisers, LLC; officer of one of the investment companies in Franklin Templeton Investments; and formerly, Portfolio Manager of Eurovest SA (French registered investment company, SICAV).
Aliya S. Gordon (1973) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2009	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Steven J. Gray (1955) One Franklin Parkway San Mateo, CA 94403-1906	Vice President and Secretary	Vice President since 2009 and Secretary since 2005	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc. and FASA, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.
Matthew T. Hinkle (1971) One Franklin Parkway San Mateo, CA 94403-1906	Chief Executive Officer – Finance and Administration	Since June 2017	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Vice President, Global Tax (2012-April 2017) and Treasurer/Assistant Treasurer, Franklin Templeton Investments (2009-2017).
Robert G. Kubilis (1973) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Chief Financial Officer, Chief Accounting Officer and Treasurer	Since 2012	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of 17 of the investment companies in Franklin Templeton Investments.
Robert Lim (1948) One Franklin Parkway San Mateo, CA 94403-1906	Vice President –AML Compliance	Since 2016	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Vice President, Franklin Templeton Companies, LLC; Chief Compliance Officer, Franklin Templeton Distributors, Inc. and Franklin Templeton Investor Services, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.

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Interested Board Members and Officers (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Kimberly H. Novotny (1972) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Vice President	Since 2013	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Associate General Counsel, Franklin Templeton Investments; Vice President and Corporate Secretary, Fiduciary Trust International of the South; Vice President, Templeton Investment Counsel, LLC; Assistant Secretary, Franklin Resources, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments.
Robert C. Rosselot (1960) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Chief Compliance Officer	Since 2013	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Director, Global Compliance, Franklin Templeton Investments; Vice President, Franklin Templeton Companies, LLC; officer of 45 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) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2009	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Navid J. Tofigh (1972) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2015	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Craig S. Tyle (1960) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2005	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.
Lori A. Weber (1964) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Vice President	Since 2011	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.

*We base the number of portfolios on each separate series of the US 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. (Resources), 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 Advisors, 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 Sarbanes-Oxley Act of 2002 and Rules adopted by the U.S. Securities and Exchange Commission require the Fund to disclose whether the Fund’s Audit Committee includes at least one member who is an audit committee financial expert within the meaning of such Act and Rules. The Fund’s Board has determined that there is at least one such financial expert on the Audit Committee and has designated each of Edward I. Altman, Ph.D., Ann Torre Bates and David W. Niemiec as an audit committee financial expert. The Board believes that Messrs. Altman and Niemiec and Ms. Bates qualify as such an expert in view of their extensive business background and experience. Mr. Altman has served as a member of the Fund Audit Committee since 1996. He currently serves as a Max L. Hines Professor of Finance, Emeritus and Director of The Credit and Debt Markets Research Program, Salomon Center, Stern School of Business, New York University. Ms. Bates has served as a member of the Fund Audit Committee since 1996. She currently serves as a director of Ares Capital Corporation (2010-present) and United Natural Foods, Inc. (2013-present) and was formerly a director of Navient Corporation from 2014 to 2016, SLM Corporation from 1997 to 2014 and Allied

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Interested Board Members and Officers (continued)

Capital Corporation from 2003 to 2010, Executive Vice President and Chief Financial Officer of NHP Incorporated from 1995 to 1997 and Vice President and Treasurer of US Airways, Inc. until 1995. Mr. Niemiec has served as a member of the Fund Audit Committee since 2015, currently serves as an Advisor to Saratoga Partners and was formerly its Managing Director from 1998 to 2001 and serves as a director of Hess Midstream Partners LP (2017-present). Mr. Niemiec was formerly a director of Emeritus Corporation from 1999 to 2010 and OSI Pharmaceuticals, Inc. from 2006 to 2010, Managing Director of SBC Warburg Dillon Read from 1997 to 1998, and was Vice Chairman from 1991 to 1997 and Chief Financial Officer from 1982 to 1997 of Dillon, Read & Co. Inc. As a result of such background and experience, the Board believes that Messrs. Altman and Niemiec and Ms. Bates have each acquired an understanding of generally accepted accounting principles and financial statements, the general application of such principles in connection with the accounting estimates, accruals and reserves, and analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues generally comparable to those of the Fund, as well as an understanding of internal controls and procedures for financial reporting and an understanding of audit committee functions. Messrs. Altman and Niemiec and Ms. Bates are independent Board members as that term is defined under the applicable U.S. Securities and Exchange Commission Rules and Releases.

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

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FRANKLIN MUTUAL EUROPEAN FUND

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 US 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 Trust, on behalf of the Fund, files a complete statement of investments with the US 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.

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Annual Report and Shareholder Letter Franklin Mutual European Fund   Investment Manager Franklin Mutual Advisers, LLC   Distributor Franklin Templeton Distributors, Inc. (800) DIAL BEN^® / 342-5236 franklintempleton.com   Shareholder Services (800) 632-2301 - (Class A, C, R & R6) (800) 448-FUND - (Class Z)

Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.

To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.

© 2018 Franklin Templeton Investments. All rights reserved. 478 A 02/18

Annual Report
and Shareholder Letter   December 31, 2017

Sign up for electronic delivery at franklintempleton.com/edelivery

Franklin Templeton Investments

Gain From Our Perspective^®

At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.

Dear Franklin Mutual Quest Fund Shareholder:

Securities markets benefited from a confluence of positive economic, financial and political trends during 2017. The global economy entered a synchronized pace of modest and steady growth, corporate earnings strengthened in the US, Europe and Japan, and US equity market volatility remained at historically low levels. A number of political risks identified at the start of 2017, such as the success of far-right parties in Europe, Brexit negotiations and the Trump administration’s ability to enact its policy agenda, also dissipated or became less immediate for investors as the year progressed. For the year ended December 31, 2017, US stocks, as measured by the Standard & Poor’s^® 500 Index (S&P 500^®), produced a +21.83% total return.¹ Stocks in global developed markets, as measured by the MSCI World Index, returned +23.07%, and investment-grade bonds, as measured by the Bloomberg Barclays US Aggregate Bond Index, posted a +3.54% total return.¹

In many equity markets, the trend of growth stocks outpacing value stocks continued. The Russell 1000^® Growth Index returned +30.21%, while the Russell 1000^® Value Index returned +13.66%.¹ The difference in performance has been driven in large part by a rally in internet and software stocks, which dominated the S&P 500 Growth Index. In addition, the S&P 500 Value Index has components that we believe are facing disruption from new technology (e.g., the rapid market share shift to online retailing from traditional bricks and mortar retailers that are often labeled as value stocks). Exacerbating the disruption is the reality that many new technology companies are able to innovate without the need to show immediate profits.

We do not know how long these trends will continue, but historically, periods of strong performance by growth stocks have eventually been followed by relatively weaker performance. Given that unemployment has continued to decline in most developed markets and the US Federal Reserve has taken its first steps toward monetary normalization, value-oriented stocks may become more attractive to investors, particularly within cyclical sectors of the equity markets such as industrials, consumer discretionary and financials.

A stellar 2017 for equity markets also pushed up common valuation metrics, such as price-to-earnings. Valuation is a critical factor in our analysis and we always ask ourselves if current and potential investments represent an attractive balance of risk and reward. We remain committed to our long-term perspective and disciplined investment approach as we conduct a rigorous, fundamental analysis of securities with a regular emphasis on investment risk management.

Although the investment landscape appears favorable as we enter 2018, it is worth remembering that securities markets are dynamic and constantly evolving. Therefore, we believe active, professional investment management serves investors well. We also recognize the important role of financial advisors in today’s markets and encourage investors to continue to seek their advice. Amid changing markets and economic conditions, we are confident investors with a well-diversified portfolio and a patient, long-term outlook should be well positioned for the years ahead.

1. Source: Morningstar. Frank Russell Company is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell^® is a trademark of Frank Russell Company.

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

Not FDIC Insured | May Lose Value | No Bank Guarantee

franklintempleton.com Not part of the annual report             1

On the following pages, the Fund’s portfolio management team reviews investment decisions that pertain to performance during the past 12 months in light of the economic environment and other factors. Please remember all securities markets fluctuate, as do mutual fund share prices.

We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to continuing to serve your investment needs in the years ahead.

Sincerely,

Peter A. Langerman

Chairman, President and Chief Executive Officer

Franklin Mutual Advisers, LLC

This letter reflects our analysis and opinions as of December 31, 2017, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.

Contents

Annual Report

Franklin Mutual Quest Fund	3
Performance Summary	10
Your Fund’s Expenses	13
Financial Highlights and Statement of Investments	14
Financial Statements	26
Notes to Financial Statements	30
Report of Independent Registered Public Accounting Firm	45
Tax Information	46
Board Members and Officers	47
Shareholder Information	52

Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.

2         Not part of the annual report     franklintempleton.com

Annual Report

Franklin Mutual Quest Fund

This annual report for Franklin Mutual Quest Fund covers the fiscal year ended December 31, 2017.

Your Fund’s Goal and Main Investments

The Fund seeks capital appreciation, which may occasionally be short term, with income as a secondary goal. Under normal market conditions, the Fund invests substantially to primarily in equity securities of US and foreign companies that the investment manager believes are available at market prices less than their intrinsic value. The equity securities in which the Fund invests are primarily common stock, with a current focus on mid- and large-cap companies. To a lesser extent, the Fund also invests in merger arbitrage securities and the debt and equity of distressed companies. The Fund may invest a substantial portion, potentially up to 100% of its assets in foreign securities, which may include sovereign debt and participations in foreign government debt. The Geographic Composition bar chart on this page lists the leading countries where the Fund invests.

Performance Overview

The Fund’s Class Z shares delivered a +7.25% cumulative total return for the 12 months ended December 31, 2017. In comparison, the Fund’s benchmark, the MSCI World Index (USD), which tracks stock performance in global developed markets, generated a total return of +23.07%.¹ Also for comparison, the Fund’s secondary benchmark, the Bloomberg Barclays US Corporate High Yield Index, which measures the US corporate market of non-investment grade, fixed-rate corporate bonds, defined as the middle or lower ratings of Moody’s, Fitch and Standard & Poor’s (Ba1/BB+/BB+), produced a +7.50% total return.¹ You can find more of the Fund’s performance data in the Performance Summary beginning on page 10.

Geographic Composition*

Based on Total Net Assets as of 12/31/17

*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.

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

The global economy grew moderately during the 12-month period under review. In this environment, global developed and emerging market stocks generated a +24.62% total return, as measured by the MSCI All Country World Index.¹ Global markets were aided by price gains in oil and other commodities, generally upbeat economic data across regions, the European Central Bank’s (ECB’s) extension of its monetary easing program, and investor optimism about pro-growth and pro-business policies in the US. The prospect for reforms in the European Union (EU) with Emmanuel Macron’s election as

1. Source: Morningstar.

The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. 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 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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France’s president, encouraging corporate earnings reports and the passage of the US tax reform bill also supported global stocks.

However, global markets reflected investor concerns about the terms of the UK’s exit from the EU, political uncertainty in the US and the EU, and geopolitical tensions in the Korean peninsula and other regions. Other concerns included the health of European banks, global oil oversupply despite a pact by major oil-producing countries to extend production cuts, and comments from key central bankers around the world about potentially raising interest rates.

After strengthening in 2017’s second and third quarters, the US economy moderated in the fourth quarter. The economy grew faster in 2017 than in 2016, however, largely due to growth in consumer spending, business investment and exports. The unemployment rate decreased from 4.7% in December 2016, as reported at the beginning of the 12-month period, to 4.1% at period-end.² Annual inflation, as measured by the Consumer Price Index, was 2.1% in December 2016, as reported at the beginning of the 12-month period, and while it varied over the 12-month period, remained unchanged at period-end.² The US Federal Reserve (Fed) raised its target range for the federal funds rate 0.25% three times during the period, amid signs of a growing US economy, strengthening labor market and improving business spending. At its December meeting, the Fed confirmed that the monthly balance sheet reduction would increase from US$10 billion to US$20 billion beginning in January 2018.

In Europe, the UK’s economic growth moderated in 2017 compared to 2016, largely due to slower growth in the services sector. In November, the Bank of England raised its key policy rate 0.25%, its first increase in a decade. The eurozone’s growth accelerated in 2017’s second and third quarters, but moderated in the fourth quarter. However, the eurozone’s 2017 economic growth rate of 2.5% was the fastest in a decade.³ The bloc’s annual inflation rate, while low, ended higher than in December 2016. The ECB kept its benchmark interest rate unchanged during the period. However, at its October meeting, the ECB extended the time frame for its massive bond-buying program from December 2017 to at least September 2018, while reducing the amount of monthly bond purchases in half beginning in January 2018.

In Asia, Japan’s quarterly gross domestic product (GDP) grew for the seventh consecutive quarter, although third-quarter 2017 growth was lower than the previous quarter. The Bank of Japan left its benchmark interest rate unchanged during the period and continued its monetary stimulus measures.

In emerging markets, Brazil’s quarterly GDP grew for the third consecutive quarter, although third-quarter 2017 growth slowed from the previous quarter. The country’s central bank cut its benchmark interest rate several times during the period to spur economic growth. Russia’s GDP grew in 2017’s first three quarters compared to the prior-year periods, amid the Bank of Russia’s continued policy support. China’s GDP grew faster in 2017 than in 2016, supported by solid growth in industrial production, services, fixed-asset investment, retail sales, and imports and exports. The People’s Bank of China left its benchmark interest rate unchanged during the period. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, produced a substantial +37.75% total return during the period.¹

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 also reduces the risk of substantial declines, in our opinion. 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

2. Source: Bureau of Labor Statistics.

3. Source: Eurostat.

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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 investment approach, we typically focus our arbitrage efforts on announced deals, and avoid rumored deals or other situations we consider relatively risky. The current percentages of the Fund’s assets devoted to these investment strategies are listed in the Asset Allocation bar chart on this page.

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

In 2017, an improving economic and political backdrop helped drive most equity markets higher. The positive performances were broad based, spanning across most regions and sectors, and complemented by minimal volatility. Global markets were aided by generally upbeat economic data, improved corporate earnings in the US, Europe and Japan, as well as improved industrial commodity prices, most notably crude oil. In addition, the most significant political risks identified by investors heading into 2017 failed to materialize.

In the US, markets began 2017 rallying as investors hoped that a Republican sweep of US elections in November 2016 would lead to a general loosening in regulations and tax reform, including lower corporate tax rates. Although the Trump administration’s policy agenda was hindered by political

Asset Allocation*

Based on Total Net Assets as of 12/31/17

*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.

gridlock, efforts to loosen federal regulations yielded some results and tax reform legislation was finally passed in late December. Improving economic activity and corporate earnings appeared to be the most meaningful equity market catalysts during much of 2017. However, the modest level of economic growth and low interest rates pushed investors to keep favoring growth stocks. During the period, the Russell 1000^® Growth Index generated a total return of +30.21%, while the Russell 1000^® Value Index posted a total return of +13.66%.⁴ Within the Russell 1000^® Growth Index, stocks with the largest weightings were technology firms that dominated the headlines: Apple,⁵ Alphabet (a.k.a. Google),⁵ Microsoft,⁵ Amazon.com⁵ and Facebook.⁵

European equity markets started 2017 slowly, but positive political events and improved economic data fueled strong performances during the period. Elections in Europe produced outcomes generally regarded as positive economically as far-right parties largely failed to gain political power in national elections. Investors were particularly encouraged by the presidential election outcome in France. The reform-minded, centrist candidate, Emmanuel Macron, won the French presidential election in May and quickly began to push his agenda, most notably labor decrees giving employers in France greater freedom in negotiating contracts directly with workers. Amid all the positive events, the UK remained the most significant outlier. In the UK, a June 2017 snap election resulting in no party having a majority in Parliament appeared to make a “hard Brexit,” in which the UK leaves the European Union (EU) in March 2019 without a negotiated deal, even more likely than before. Although the UK and EU appeared to

4. Source: Morningstar. Frank Russell Company is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell^® is a trademark of Frank Russell Company.

5. Not a Fund holding.

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

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make some progress late in the year, the snap election results left the Conservative Party in a precarious position and with the risk of another election in the near future.

As value investors, we seek to invest prudently in securities that we believe represent good value, but adjust our views accordingly as the world around us changes. The media industry is a recent example of this approach. The Top 10 Sectors/Industries table on this page lists media and other leading industries in which the Fund currently invests. The media industry became a significant area of investment interest in the latter stages of the year due to significant structural changes. Since the 1980s, most Americans received their TV entertainment as part of a bundle from a cable provider. Disparate networks were combined and sold as packages, with annual price increases justified by the inclusion of more networks. Consumers rarely had the option to unbundle cable packages and most markets had no direct competition. However, the growth of fixed and mobile broadband connectivity ushered in the opportunity to bypass traditional distributors through the delivery of film and TV content over the internet and the launch of direct-to-consumer offerings by TV networks. The growing popularity of new digital options has driven cable providers to roll out lower-priced packages with fewer channels. This evolution has begun to create winners and losers among networks and new opportunities for investors.

Pay TV subscription among US households peaked in 2009 at close to 100 million homes. Initially, the decline in subscribers was moderate, but has accelerated since 2015, reaching a pace of more than 2% per year in 2017. At first, media companies benefited from digital distribution by using it as an additional outlet for selling content. With the cannibalization of traditional platforms accelerating, media companies have begun to respond. The necessity for greater scale in content development and direct access to consumers is driving investment and merger decisions in the industry. From our standpoint, we are looking for networks with the most attractive content relative to the price they have been charging and may be able to charge in the future.

The Fund initiated a position in Walt Disney in the latter half of 2017. We believe Disney is well positioned to benefit from the evolution toward a more direct-to-consumer distribution model. In our view, Disney has one of the best intellectual property (IP) portfolios in all of media with a stable of globally recognized proprietary characters upon which to build a strong direct-to-consumer franchise. If Disney is successful in its bid to acquire the bulk of Twenty-First Century Fox’s⁵ content assets, the deal would further strengthen its IP portfolio and its

Top 10 Sectors/Industries
Based on Equity Securities as of 12/31/17
	% of Total Net Assets
Pharmaceuticals		8.0%
Media		7.9%
Oil, Gas & Consumable Fuels		6.7%
Insurance		5.1%
Banks		5.0%
Communications Equipment		3.1%
Consumer Finance		3.0%
Wireless Telecommunication Services		2.9%
Software		2.7%
Equity Real Estate Investment Trusts (REITs)		2.5%

content development scale. As it has done with its own IP, Disney would likely be able to leverage Fox’s content into attractions at its theme parks as well as consumer products. The acquisition would offer potential cost synergies that would likely offset some of the investments in the direct-to-consumer service. Under the leadership of chief executive officer Bob Iger, Disney has been effective in integrating acquired companies and navigating through a changing media landscape. Iger’s commitment to remain at the helm through 2021 strengthens our belief that the company should be able to execute on this opportunity.

Merger and acquisition activity remained healthy in 2017, although the pace of activity appeared to decelerate slightly compared to 2016 due to less favorable political and regulatory conditions in the US, the UK and China. In the US, several key regulatory agencies remain short of members, including the Federal Communications Commission and the Federal Trade Commission. Many large deals continued to wind their way through prolonged regulatory reviews, including AT&T’s⁵ acquisition of Time Warner, and Twenty-First Century Fox’s offer for Sky.

Credit spreads narrowed in 2017 for higher quality and high yield credit, albeit with some minor bouts of volatility. The broad-based decrease in yield differentials between bonds with the same maturity but different credit quality provided the Fund with the opportunity to exit a number of opportunities that presented themselves in early 2016, including several bond offerings related to leveraged acquisitions, as prices improved, yield premium over Treasuries shrank, and the risk-adjusted returns were no longer mispriced. As the year progressed and investors became more willing buyers of credit, mispriced risk became more difficult to find, in our opinion. In times when the credit markets fluctuate and value is difficult to identify, we believe our industry specific expertise, deep fundamental

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analysis with a focus on cash flow, and intensive credit and covenant review combine seamlessly and provide us with different ways of looking at the same ideas others may disregard.

Fund Performance

Turning to Fund performance, top positive contributors included US-based companies NRG Energy and Ally Financial and Netherlands-based ASR Nederland. ASR Nederland is listed among the Fund’s largest positions in the Top 10 Equity Holdings table on this page.

NRG Energy is an integrated wholesale power generation and retail electricity company that includes solar and renewable energy businesses. Shares of NRG began to rally in January 2017 after hedge fund management firm Elliott Associates and private equity firm Bluescape Energy Partners announced a combined stake in NRG. In a filing with the US Securities and Exchange Commission, the two investors stated their belief in “numerous opportunities to significantly increase shareholder value.” Shares of NRG rose further in July 2017 in reaction to the NRG Board of Directors’ transformation plan. The plan includes a reduction in debt by several billion through significant cost reduction and margin improvement goals, asset sales of up to $4 billion, including renewable energy assets and contracted power plants, and restructuring that includes the bankruptcy filing of subsidiary GenOn. If successfully executed, the transformation plan could turn NRG into a more focused energy provider with a considerably stronger balance sheet, in our view.

The stock price of Ally Financial, a US-based bank and auto finance company, rose steadily from the middle of 2017 due to improved financial performance, stable to improving auto prices, favorable decisions by the US Federal Reserve (Fed), as well as the passage of a major US tax reform bill. Ally’s quarterly results showed improved lending spreads, positive management of expenses and credit, and a good rate of deposit growth. In June, shares of Ally rose in response to the Fed’s Comprehensive Capital Analysis and Review (CCAR) results. As part of CCAR, the Fed evaluated banks’ capital distribution plans, including dividends and stock repurchases. Ally was approved to raise its dividend by more than investors had expected, as well as to increase its share buyback plan. In August, the Fed released Ally Bank from the capital, liquidity, and business plan commitments connected to its application for membership in the Federal Reserve System.

Shares of insurer ASR Nederland steadily rose during most of the period, aided by a series of solid quarterly results. Operating results were aided by ASR Nederland’s efforts to

Top 10 Equity Holdings
12/31/17
Company Sector/Industry, Country	% of Total Net Assets
Sorenson Communications LLC		3.1%
Communications Equipment, US
Vodafone Group PLC		2.9%
Wireless Telecommunication Services, UK
Royal Dutch Shell PLC		2.5%
Oil, Gas & Consumable Fuels, UK
Time Warner Inc.		2.4%
Media, US
ASR Nederland NV		2.2%
Insurance, Netherlands
Novartis AG		2.2%
Pharmaceuticals, Switzerland
CIT Group Inc.		2.0%
Banks, US
Voya Financial Inc.		1.9%
Diversified Financial Services, US
Medtronic PLC		1.9%
Health Care Equipment & Supplies, US
BP PLC		1.9%
Oil, Gas & Consumable Fuels, UK

increase the investment risk of its portfolio by shifting invested premiums from traditional fixed income securities to equities and other assets with higher historical returns. In February 2017, ASR Nederland announced it would increase its dividend and repurchase shares on offer from the Dutch government, shares the government had acquired during the 2008 financial crisis. The company announced an additional share buyback plan in May 2017. In our view, the buybacks demonstrated ASR Nederland’s strong capital position.

During the period under review, Fund investments that detracted from performance included US-based companies Eastman Kodak and Avaya and Israel-based pharmaceutical services provider Teva Pharmaceuticals.

Shares of Eastman Kodak, a digital commercial imaging company, retreated in March due to weak results, particularly lower revenues. Earnings guidance for full year 2017 was also met with disappointment as was Kodak’s announcement in April that it would not sell its inkjet business. The stock price dropped further in November on another set of disappointing quarterly results and a downward revision to 2017 earnings guidance. Eastman Kodak has been dealing with a number of challenges, including weakness in the commercial print business and problems with vendors in its film business.

Avaya is a communications company that was chiefly a hardware maker but is transitioning into a software and services

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provider. As we anticipated, the company filed for Chapter 11 bankruptcy in January 2017 to restructure and reduce its debt load. Avaya then emerged from bankruptcy in December with significantly less debt.

Teva Pharmaceutical Industries experienced a challenging year. In January 2017, Teva provided lower earnings guidance and a US federal court invalidated four patents for the company’s top-selling multiple sclerosis drug Copaxone. The resignations of Teva’s chief executive officer (CEO) and chief financial officer in the first half of 2017 further hindered Teva’s stock price. In the second half of the year, weak operating results, a dividend cut and a debt rating downgrade escalated investor concerns. The company managed to ease investor anxiety later in 2017, in our view, with the appointment of Kare Schultz, a well-regarded industry veteran as the new CEO, as well as the divestiture of certain non-core assets and amendment to certain debt instruments. We were also encouraged by the details of a restructuring plan announced by the new CEO in December.

During the period, the Fund held currency forwards and futures seeking to hedge most of the currency risk of the portfolio’s non-US dollar investments. The currency forwards and futures had a negative impact on the Fund’s performance because of the depreciation of the US dollar versus the hedged currencies.

What is a currency forward?

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

What is a future?

A future is an agreement between the Fund and a counterparty made through a US 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 participation in Franklin Mutual Quest Fund. We look forward to continuing to serve your investment needs.

	Shawn M. Tumulty Co-Portfolio Manager
	Keith Luh, CFA Co-Portfolio Manager

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, 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.

Shawn Tumulty has been a portfolio manager for Franklin Mutual Quest Fund since 2003 and a co-portfolio manager since 2010. He joined Franklin Templeton Investments in 2000. Prior to joining Franklin Templeton Investments, Mr. Tumulty was an analyst and portfolio manager at Hamilton Partners Limited.

CFA^® is a trademark owned by CFA Institute.

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Keith Luh has been a co-portfolio manager for Franklin Mutual Quest Fund since 2010. He is also head of cross asset investing for Franklin Mutual Series with a value and event-driven focus across equity and fixed income investments, globally. Prior to joining in 2005, Mr. Luh was a senior analyst in global investment research at Putnam Investments, where he also helped manage a best-ideas research fund. Previously, he worked in the investment banking group at Volpe Brown Whelan and Co., LLC, and the derivative products trading group at BNP. Mr. Luh is also Adjunct Professor in Finance and Economics at the Graduate School of Business, Columbia University.

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Performance Summary as of December 31, 2017

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. 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.

Performance as of 12/31/17

Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge. For other share classes, visit franklintempleton.com.

Share Class	Cumulative Total Return1	Average Annual Total Return2
Z
1-Year	+7.25%3	+7.25%3
5-Year	+53.46%	+8.94%
10-Year	+68.22%	+5.34%
A
1-Year	+6.95%3	+0.83%
5-Year	+51.34%	+7.36%
10-Year	+63.43%	+4.42%

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.

See page 12 for Performance Summary footnotes.

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PERFORMANCE SUMMARY

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

Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.

See page 12 for Performance Summary footnotes.

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PERFORMANCE SUMMARY

Distributions (1/1/17–12/31/17)

Share Class	Net Investment Income		Short-Term Capital Gain		Long-Term Capital Gain		Total
Z		$0.6257		$0.0961		$0.0376		$0.7594
A		$0.5843		$0.0961		$0.0376		$0.7180
C		$0.4598		$0.0961		$0.0376		$0.5935
R		$0.5688		$0.0961		$0.0376		$0.7025
R6		$0.6387		$0.0961		$0.0376		$0.7724

Total Annual Operating Expenses⁵

Share Class
Z	0.79	%
A	1.04	%

Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.

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 may invest its assets in companies in a specific region, including Europe, 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. Current political and financial uncertainty surrounding the European Union may increase market volatility and the economic risk of investing in companies in Europe. Smaller company stocks have exhibited greater price volatility than larger company stocks, particularly 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 may invest in 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.

1. Cumulative total return represents the change in value of an investment over the periods indicated.

2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Total return information is based on net asset values calculated for shareholder transactions. Certain adjustments were made to the net assets of the Fund at 12/31/17 for financial reporting purposes, and as a result, the total returns based on those net asset values differ from the adjusted total returns reported in the Financial Highlights.

4. Source: Morningstar. The MSCI World Index (USD) is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets. The Bloomberg Barclays US Corporate High Yield Index measures the US corporate market of non-investment grade, fixed-rate corporate bonds, defined as the middle or lower ratings of Moody’s, Fitch and Standard & Poor’s (Ba1/BB+/BB+).

5. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) 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 table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

		Actual (actual return after expenses)		Hypothetical (5% annual return before expenses)
Share Class	Beginning Account Value 7/1/17	Ending Account Value 12/31/17	Expenses Paid During Period 7/1/17–12/31/171	Ending Account Value 12/31/17	Expenses Paid During Period 7/1/17–12/31/171	Annualized Expense Ratio
Z	$1,000	$1,042.30	$4.12	$1,021.17	$4.08	0.80%
A	$1,000	$1,040.90	$5.40	$1,019.91	$5.35	1.05%
C	$1,000	$1,036.90	$9.24	$1,016.13	$9.15	1.80%
R	$1,000	$1,039.80	$6.68	$1,018.65	$6.61	1.30%
R6	$1,000	$1,042.50	$3.76	$1,021.53	$3.72	0.73%

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/365 to reflect the one-half year period.

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Financial Highlights

		Year Ended December 31,
	2017			2016			2015			2014			2013
Class Z
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$15.52			$14.47			$16.21			$18.18			$16.55
Income from investment operationsa:
Net investment incomeb		0.58			0.87	c		0.54			0.78	d		0.54
Net realized and unrealized gains (losses)		0.49			1.47			(1.45	)		(0.16	)		3.68
Total from investment operations		1.07			2.34			(0.91	)		0.62			4.22
Less distributions from:
Net investment income		(0.63	)		(1.01	)		(0.68	)		(0.85	)		(0.56	)
Net realized gains		(0.13	)		(0.28	)		(0.15	)		(1.74	)		(2.03	)
Total distributions		(0.76	)		(1.29	)		(0.83	)		(2.59	)		(2.59	)
Net asset value, end of year		$15.83			$15.52			$14.47			$16.21			$18.18
Total return		6.92%			16.26%			(5.55)%			3.44%			25.97%
Ratios to average net assets
Expensese,f		0.79%			0.79%	g		0.82%	g		0.81%			0.84%
Expenses incurred in connection with securities sold short		—%			0.01%			0.03%			0.04%			0.07%
Net investment income		3.65%			5.74%	c		3.35%			4.18%	d		2.93%
Supplemental data
Net assets, end of year (000’s)		$3,667,351			$3,683,095			$3,577,696			$4,116,651			$4,270,828
Portfolio turnover rate		32.90%			44.04%			30.51%			65.77%			63.41%

^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 $0.05 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 5.42%.

^dNet investment income per share includes approximately $0.27 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 2.73%.

^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(d).

^fBenefit of expense reduction rounds to less than 0.01%.

^gBenefit of waiver and payments by affiliates rounds to less than 0.01%.

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FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017			2016			2015			2014			2013
Class A
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year	$	15.32		$	14.29		$	16.02		$	18.00		$	16.41
Income from investment operationsa:
Net investment incomeb		0.53			0.83	c		0.49			0.71	d		0.48
Net realized and unrealized gains (losses)		0.46			1.45			(1.43	)		(0.15	)		3.65
Total from investment operations		0.99			2.28			(0.94	)		0.56			4.13
Less distributions from:
Net investment income		(0.58	)		(0.97	)		(0.64	)		(0.80	)		(0.51	)
Net realized gains		(0.13	)		(0.28	)		(0.15	)		(1.74	)		(2.03	)
Total distributions		(0.71	)		(1.25	)		(0.79	)		(2.54	)		(2.54	)
Net asset value, end of year	$	15.60		$	15.32		$	14.29		$	16.02		$	18.00
Total returne		6.54%			16.04%			(5.85)%			3.11%			25.61%
Ratios to average net assets
Expensesf,g		1.04%			1.04%	h		1.10%	h		1.11%			1.14%
Expenses incurred in connection with securities sold short		—%			0.01%			0.03%			0.04%			0.07%
Net investment income		3.40%			5.49%	c		3.07%			3.88%	d		2.63%
Supplemental data
Net assets, end of year (000’s)	$	1,153,870		$	1,216,085		$	1,203,508		$	1,394,138		$	1,371,789
Portfolio turnover rate		32.90%			44.04%			30.51%			65.77%			63.41%

^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 $0.05 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 5.17%.

^dNet investment income per share includes approximately $0.27 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 2.43%.

^eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

^fIncludes 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(d).

^gBenefit of expense reduction rounds to less than 0.01%.

^hBenefit of waiver and payments by affiliates rounds to less than 0.01%.

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

FRANKLIN MUTUAL QUEST FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017			2016			2015			2014			2013
Class C
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$15.06			$14.08			$15.78			$17.76			$16.24
Income from investment operationsa:
Net investment incomeb		0.41			0.70	c		0.36			0.57	d		0.35
Net realized and unrealized gains (losses)		0.47			1.41			(1.39	)		(0.14	)		3.59
Total from investment operations		0.88			2.11			(1.03	)		0.43			3.94
Less distributions from:
Net investment income		(0.46	)		(0.85	)		(0.52	)		(0.67	)		(0.39	)
Net realized gains		(0.13	)		(0.28	)		(0.15	)		(1.74	)		(2.03	)
Total distributions		(0.59	)		(1.13	)		(0.67	)		(2.41	)		(2.42	)
Net asset value, end of year		$15.35			$15.06			$14.08			$15.78			$17.76
Total returne		5.89%			15.10%			(6.49)%			2.42%			24.74%
Ratios to average net assets
Expensesf,g		1.79%			1.79%	h		1.82%	h		1.81%			1.84%
Expenses incurred in connection with securities sold short		—%			0.01%			0.03%			0.04%			0.07%
Net investment income		2.65%			4.74%	c		2.35%			3.18%	d		1.93%
Supplemental data
Net assets, end of year (000’s)		$309,160			$343,624			$337,974			$397,963			$406,304
Portfolio turnover rate		32.90%			44.04%			30.51%			65.77%			63.41%

^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 $0.05 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 4.42%.

^dNet investment income per share includes approximately $0.27 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 1.73%.

^eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

^fIncludes 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(d).

^gBenefit of expense reduction rounds to less than 0.01%.

^hBenefit of waiver and payments by affiliates rounds to less than 0.01%.

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

FRANKLIN MUTUAL QUEST FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017			2016			2015			2014			2013
Class R
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year		$15.14			$14.14			$15.87			$17.84			$16.33
Income from investment operationsa:
Net investment incomeb		0.50			0.78	c		0.44			0.65	d		0.50
Net realized and unrealized gains (losses)		0.46			1.43			(1.40	)		(0.13	)		3.56
Total from investment operations		0.96			2.21			(0.96	)		0.52			4.06
Less distributions from:
Net investment income		(0.57	)		(0.93	)		(0.62	)		(0.75	)		(0.52	)
Net realized gains		(0.13	)		(0.28	)		(0.15	)		(1.74	)		(2.03	)
Total distributions		(0.70	)		(1.21	)		(0.77	)		(2.49	)		(2.55	)
Net asset value, end of year		$15.40			$15.14			$14.14			$15.87			$17.84
Total return		6.38%			15.69%			(6.03)%			2.94%			25.34%
Ratios to average net assets
Expensese,f		1.29%			1.29%	g		1.32%	g		1.31%			1.34%
Expenses incurred in connection with securities sold short		—%			0.01%			0.03%			0.04%			0.07%
Net investment income		3.15%			5.24%	c		2.85%			3.68%	d		2.43%
Supplemental data
Net assets, end of year (000’s)		$1,774			$880			$898			$675			$853
Portfolio turnover rate		32.90%			44.04%			30.51%			65.77%			63.41%

^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 $0.05 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 4.92%.

^dNet investment income per share includes approximately $0.27 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 2.23%.

^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(d).

^fBenefit of expense reduction rounds to less than 0.01%.

^gBenefit of waiver and payments by affiliates rounds to less than 0.01%.

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

FRANKLIN MUTUAL QUEST FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017			2016			2015			2014			2013a
Class R6
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year		$15.51			$14.45			$16.19			$18.19			$18.16
Income from investment operationsb:
Net investment incomec		0.64			0.88	d		0.55			0.51	e		0.36
Net realized and unrealized gains (losses)		0.43			1.48			(1.44	)		0.10			2.28
Total from investment operations		1.07			2.36			(0.89	)		0.61			2.64
Less distributions from:
Net investment income		(0.64	)		(1.02	)		(0.70	)		(0.87	)		(0.58	)
Net realized gains		(0.13	)		(0.28	)		(0.15	)		(1.74	)		(2.03	)
Total distributions		(0.77	)		(1.30	)		(0.85	)		(2.61	)		(2.61	)
Net asset value, end of year		$15.81			$15.51			$14.45			$16.19			$18.19
Total returnf		6.94%			16.44%			(5.54)%			3.53%			14.83%
Ratios to average net assetsg
Expenses before waiver and payments by affiliatesh		0.72%			0.71%			0.74%			0.74%			2.00%
Expenses net of waiver and payments by affiliatesh,i		0.72%			0.71%	j		0.74%	j		0.74%			0.77%
Expenses incurred in connection with securities sold short		—%			0.01%			0.03%			0.04%			0.07%
Net investment income		3.72%			5.82%	d		3.43%			4.25%	e		3.00%
Supplemental data
Net assets, end of year (000’s)		$123,863			$52,277			$41,408			$44,340			$5
Portfolio turnover rate		32.90%			44.04%			30.51%			65.77%			63.41%

^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 $0.05 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 5.50%.

^eNet investment income per share includes approximately $0.27 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 2.80%.

^fTotal return is not annualized for periods less than one year.

^gRatios are annualized for periods less than one year.

^hIncludes 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(d).

ⁱBenefit of expense reduction rounds to less than 0.01%.

^jBenefit of waiver and payments by affiliates rounds to less than 0.01%.

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

FRANKLIN MUTUAL QUEST FUND

Statement of Investments, December 31, 2017

		Country		Shares/ Warrants		Value
	Common Stocks and Other Equity Interests 61.1%
	Auto Components 1.0%
	The Goodyear Tire & Rubber Co.		United States		1,291,372	$	41,724,229
a,b,c	International Automotive Components Group Brazil LLC		Brazil		2,548,299		87,369
a,b,c	International Automotive Components Group North America LLC		United States		19,924,658		13,125,867
							54,937,465
	Automobiles 1.6%
	Peugeot SA		France		4,111,080		83,630,098
	Banks 5.0%
	BB&T Corp.		United States		429,077		21,333,708
	CIT Group Inc.		United States		2,118,508		104,294,149
	Citizens Financial Group Inc.		United States		780,750		32,775,885
	Guaranty Bancorp		United States		347,127		9,598,062
	SunTrust Banks Inc.		United States		711,267		45,940,735
	Wells Fargo & Co.		United States		822,224		49,884,330
							263,826,869
	Chemicals 0.3%
d	Advanced Emissions Solutions Inc.		United States		1,724,209		16,655,859
a,b,e	Dow Corning Corp., Contingent Distribution		United States		12,089,194		—
							16,655,859
	Communications Equipment 3.1%
a,b,c	Sorenson Communications LLC, Membership Interests		United States		224,279		160,414,954
	Consumer Finance 3.0%
	Ally Financial Inc.		United States		2,646,824		77,181,388
	Capital One Financial Corp.		United States		826,100		82,263,038
							159,444,426
	Diversified Consumer Services 0.2%
a,b	Affinion Group Inc., wts., 11/10/22		United States		549,716		10,164,359
	Diversified Financial Services 1.9%
	Voya Financial Inc.		United States		2,043,200		101,077,104
	Diversified Telecommunication Services 1.8%
	Koninklijke KPN NV		Netherlands		27,104,180		94,566,988
	Electric Utilities 0.5%
	PG&E Corp.		United States		616,122		27,620,749
	Energy Equipment & Services 0.0%†
a	GulfMark Offshore Inc.		United States		158		4,501
a	GulfMark Offshore Inc., wts., 11/14/24		United States		1,712		1,233
							5,734
	Equity Real Estate Investment Trusts (REITs) 2.5%
	Forest City Realty Trust Inc., A		United States		2,481,030		59,792,823
	JBG SMITH Properties		United States		581		20,178
	Vornado Realty Trust		United States		907,163		70,922,004
							130,735,005
	Food & Staples Retailing 0.3%
a	Rite Aid Corp.		United States		8,181,200		16,116,964
	Health Care Equipment & Supplies 1.9%
	Medtronic PLC		United States		1,245,243		100,553,372
	Hotels, Restaurants & Leisure 0.1%
a	Caesars Entertainment Corp.		United States		412,211		5,214,469

  franklintempleton.com Annual Report         19

FRANKLIN MUTUAL QUEST FUND

STATEMENT OF INVESTMENTS

		Country		Shares/ Warrants		Value
	Common Stocks and Other Equity Interests (continued)
	Independent Power & Renewable Electricity Producers 1.5%
	NRG Energy Inc.		United States		1,182,781	$	33,685,603
a	Vistra Energy Corp.		United States		2,433,367		44,579,283
							78,264,886
	Industrial Conglomerates 1.2%
	General Electric Co.		United States		3,526,100		61,530,445
	Insurance 5.1%
	Ageas		Belgium		917,290		44,809,488
	American International Group Inc.		United States		395,586		23,569,014
	ASR Nederland NV		Netherlands		2,800,648		115,272,267
	The Hartford Financial Services Group Inc.		United States		1,115,390		62,774,149
	RSA Insurance Group PLC		United Kingdom		2,630,267		22,466,679
							268,891,597
	Internet Software & Services 1.1%
a	Baidu Inc., ADR		China		244,769		57,327,348
	IT Services 0.9%
	Infosys Ltd.		India		2,433,411		39,720,174
	Infosys Ltd., ADR		India		357,900		5,805,138
							45,525,312
	Media 7.9%
	Comcast Corp., A		United States		1,865,300		74,705,265
a,d	Lee Enterprises Inc./IA		United States		4,824,268		11,337,030
a,b,c,d	Lee Enterprises Inc., wts., 12/31/22		United States		1,110,000		488,722
d	New Media Investment Group Inc.		United States		4,932,482		82,767,048
	Sky PLC		United Kingdom		4,686,424		64,047,268
	Time Warner Inc.		United States		1,361,220		124,510,793
	The Walt Disney Co.		United States		543,800		58,463,938
							416,320,064
	Metals & Mining 0.2%
	Warrior Met Coal Inc.		United States		431,052		10,840,958
	Oil, Gas & Consumable Fuels 6.7%
	BP PLC		United Kingdom		13,916,288		98,232,325
	Crescent Point Energy Corp.		Canada		8,512,600		64,872,093
	JXTG Holdings Inc.		Japan		2,447,555		15,790,677
	Kinder Morgan Inc.		United States		2,458,870		44,431,781
	Royal Dutch Shell PLC, A (EUR Traded)		United Kingdom		3,899,615		129,999,300
							353,326,176
	Pharmaceuticals 7.3%
	Eli Lilly & Co.		United States		715,947		60,468,884
	GlaxoSmithKline PLC		United Kingdom		4,394,234		78,479,707
	Merck & Co. Inc.		United States		1,314,970		73,993,362
	Novartis AG, ADR		Switzerland		1,362,606		114,404,400
	Teva Pharmaceutical Industries Ltd., ADR		Israel		2,905,868		55,066,198
							382,412,551
	Real Estate Management & Development 0.2%
a	VICI Properties Inc.		United States		501,682		10,284,481

20           Annual Report franklintempleton.com

FRANKLIN MUTUAL QUEST FUND

STATEMENT OF INVESTMENTS

		Country		Shares/ Warrants		Value
	Common Stocks and Other Equity Interests (continued)
	Software 2.7%
a	Avaya Holdings Corp.		United States		1,596,593	$	28,020,207
a,b	Avaya Holdings Corp., wts., 12/15/22		United States		338,090		575,122
a	Check Point Software Technologies Ltd.		Israel		846,738		87,738,992
	Symantec Corp.		United States		861,457		24,172,483
							140,506,804
	Technology Hardware, Storage & Peripherals 0.2%
a,d	Eastman Kodak Co.		United States		2,613,836		8,102,892
a,d	Eastman Kodak Co., wts., 9/03/18		United States		48,582		340
a,d	Eastman Kodak Co., wts., 9/03/18		United States		48,582		490
							8,103,722
	Wireless Telecommunication Services 2.9%
	Vodafone Group PLC		United Kingdom		47,816,110		151,747,176
	Total Common Stocks and Other Equity Interests (Cost $2,793,515,665)						3,210,045,935
	Convertible Preferred Stocks (Cost $86,875,212) 0.7%
	Pharmaceuticals 0.7%
	Teva Pharmaceutical Industries Ltd., 7.00%, cvt. pfd		Israel		104,000		36,901,280
	Preferred Stocks 1.5%
	Automobiles 0.6%
f	Volkswagen AG, 1.238%, pfd		Germany		160,282		32,009,393
	Technology Hardware, Storage & Peripherals 0.9%
f	Samsung Electronics Co. Ltd., 2.323%, pfd		South Korea		23,596		46,202,731
	Total Preferred Stocks (Cost $44,082,899)						78,212,124
				Principal Amount*
	Corporate Bonds, Notes and Senior Floating Rate Interests 22.1%
	Affinion Group Inc.,
	g,h senior note., 144A, PIK, 14.00%, 11/10/22		United States	$	85,643,583		75,637,902
	i,j Term Loans, 9.16%, (LIBOR + 7.75%), 5/10/22		United States		74,437,500		77,042,812
j	Belk Inc.,
	i Closing Date Term Loan, 6.099%, (LIBOR + 4.75%), 12/12/22		United States		7,186,238		5,900,203
	second lien Term Loan, 10.50%, 12/12/22		United States		25,000,000		21,156,250
i,j	Bluestem Brands Inc., Initial Term Loan, 8.88% - 9.069%, (LIBOR + 7.50%), 11/09/20		United States		68,561,957		48,336,180
i,j	Cumulus Media Holdings Inc., Term Loans, 4.82%, (LIBOR + 3.25%), 12/23/20		United States		19,175,110		16,562,501
d,i,j	Eastman Kodak Co., Term Loan, 7.819%, (LIBOR + 6.25%), 9/03/19		United States		37,302,241		32,359,694
	Frontier Communications Corp.,
	senior note, 8.50%, 4/15/20		United States		59,469,000		49,507,943
	senior note, 10.50%, 9/15/22		United States		77,063,000		58,471,551
	senior note, 11.00%, 9/15/25		United States		41,812,000		30,940,880
	iHeartCommunications Inc.,
	senior secured note, first lien, 9.00%, 12/15/19		United States		72,867,000		54,468,083
	i,j Tranche D Term Loan, 8.443%, (LIBOR + 6.75%), 1/30/19		United States		46,662,631		35,210,828
	i,j Tranche E Term Loan, 9.193%, (LIBOR + 7.50%), 7/30/19		United States		14,995,598		11,277,934

  franklintempleton.com Annual Report         21

FRANKLIN MUTUAL QUEST FUND

STATEMENT OF INVESTMENTS

		Country		Principal  Amount*		Value
	Corporate Bonds, Notes and Senior Floating Rate Interests (continued)
d	Lee Enterprises Inc.,
	j Second Lien Term Loan, 12.00%, 12/15/22		United States	$	56,941,414	$	59,219,071
	g senior secured note, first lien, 144A, 9.50%, 3/15/22		United States		99,050,000		103,012,000
d,i,j	New Media Holdings II LLC, Fourth Amendment Replacement Term Loans, 7.819%, (LIBOR + 6.25%), 7/14/22		United States		111,005,571		112,046,248
g	Rite Aid Corp., senior note, 144A, 6.125%, 4/01/23		United States		75,000,000		67,968,750
	Sorenson Communications LLC,
	i,j Initial Term Loan, 8.00%, (LIBOR + 5.75%), 4/30/20		United States		140,628,141		141,682,852
	g,hsecured note, second lien, 144A, PIK, 9.00%, 10/31/20		United States		96,671,937		97,396,977
g,h	Sorenson Holdings LLC/Finance Corp., senior note, 144A, PIK, 13.85%, 10/31/21		United States		20,117,561		19,011,095
i,j	Toys R US-Delaware Inc., (DIP), 10.319%, (LIBOR + 8.75%), 1/18/19		United States		41,186,602		42,216,267
	Total Corporate Bonds, Notes and Senior Floating Rate Interests (Cost $1,208,678,943)						1,159,426,021
	Corporate Notes and Senior Floating Rate Interests in   Reorganization 0.8%
b,c,k	Broadband Ventures III LLC, secured promissory note, 5.00%, 2/01/12		United States		9,272		—
b,c,k	Sunshine Oilsands Ltd., secured note, 144A, 10.00%, 8/01/17		Canada		17,873,000		8,657,697
i,j,k	Toys R US-Delaware Inc., Term B-4 Loan, 6.125%, (LIBOR + 3.875%), 4/24/20		United States		73,423,169		36,344,469
	Total Corporate Notes and Senior Floating Rate Interests in   Reorganization (Cost $88,740,013)					45,002,166
				Shares
	Companies in Liquidation 0.3%
a,b,e	Avaya Holdings Corp., Contingent Distribution		United States		82,902,380		—
a,b,e	Avaya Inc., Contingent Distribution		United States		60,987,608		—
a,b,c	CB FIM Coinvestors LLC		United States		1,439,821		—
a,b,c	FIM Coinvestor Holdings I, LLC		United States		17,934,688		—
a,l	Lehman Brothers Holdings Inc., Bankruptcy Claim		United States		459,471,220		10,200,261
a,b,e	NewPage Corp., Litigation Trust, Contingent Distribution		United States		723,000		—
a,e	Nortel Networks Corp., Contingent Distribution		Canada		31,192,000		1,676,570
a,e	Nortel Networks Ltd., Contingent Distribution		Canada		20,912,000		575,080
a,b,e	Tribune Media, Litigation Trust, Contingent Distribution		United States		1,534,137		—
a,b,e	Vistra Energy Corp., Litigation Trust, Contingent Distribution		United States		144,840,133		1,680,146
a	Vistra Energy Corp., Litigation Trust, TRA		United States		2,433,367		2,129,196
	Total Companies in Liquidation (Cost $46,138,364)						16,261,253
		Number of Contracts		Notional  Amount*
	Options Purchased (Cost $82,287) 0.0%†
	Calls - Exchange-Traded
	Time Warner Inc., March Strike Price $92.50, Expires 3/16/18		300	$	30,000		69,000
	Total Investments before Short Term Investments (Cost $4,268,113,383)						4,545,917,779

22           Annual Report franklintempleton.com

FRANKLIN MUTUAL QUEST FUND

STATEMENT OF INVESTMENTS

		Country		Principal  Amount*		Value
	Short Term Investments 13.1%
	U.S. Government and Agency Securities 13.1%
m	FHLB, 1/02/18		United States	$	41,400,000	$	41,400,000
m	U.S. Treasury Bill,
	1/02/18		United States		59,820,000		59,820,000
	1/25/18		United States		75,000,000		74,941,302
	3/22/18		United States		66,000,000		65,804,475
	1/04/18 - 4/19/18		United States		372,300,000		371,509,013
	n 4/26/18 - 5/03/18		United States		75,000,000		74,667,262
	Total U.S. Government and Agency Securities (Cost $688,260,355)						688,142,052
	Total Investments (Cost $4,956,373,738) 99.6%						5,234,059,831
	Options Written (0.0)%†						(241,000	)
	Other Assets, less Liabilities 0.4%						22,199,370
	Net Assets 100.0%					$	5,256,018,201
		Number of Contracts		Notional  Amount*
o	Options Written (0.0)%†
	Puts - Exchange-Traded
	Time Warner Inc., January Strike Price $87.50, Expires 1/19/18		2,750	$	275,000		(33,000	)
	Time Warner Inc., June Strike Price $80, Expires 6/15/18		500		50,000		(59,000	)
	Time Warner Inc., June Strike Price $85, Expires 6/15/18		500		50,000		(138,500	)
	Time Warner Inc., March Strike Price $80, Expires 3/16/18		750		75,000		(10,500	)
	Total Options Written (Premiums Received $1,554,697)					$	(241,000	)

^†Rounds to less than 0.1% of net assets.

^*The principal/notional amount is stated in U.S. dollars unless otherwise indicated.

^aNon-income producing.

^bFair valued using significant unobservable inputs. See Note 14 regarding fair value measurements.

^cSee Note 10 regarding restricted securities.

^dSee Note 12 regarding holdings of 5% voting securities.

^eContingent 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.

^fVariable rate security. The rate shown represents the yield at period end.

^gSecurity 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, 2017, the aggregate value of these securities was $363,026,724, representing 6.9% of net assets.

^hIncome may be received in additional securities and/or cash.

^I The coupon rate shown represents the rate at period end.

^jSee Note 1(e) regarding senior floating rate interests.

^kSee Note 8 regarding credit risk and defaulted securities.

^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 was issued on a discount basis with no stated coupon rate.

ⁿA portion or all of the security has been segregated as collateral for open forward exchange contracts and open written options. At December 31, 2017, the aggregate value of these securities pledged amounted to $15,276,623, representing 0.3% of net assets.

^oSee Note 1(c) regarding written options.

  franklintempleton.com Annual Report         23

FRANKLIN MUTUAL QUEST FUND

STATEMENT OF INVESTMENTS

At December 31, 2017, the Fund had the following futures contracts outstanding. See Note 1(c).

Futures Contracts

Description	Type		Number of Contracts		Notional  Amount*		Expiration Date		Value/ Unrealized Appreciation (Depreciation)
Currency Contracts
EUR/USD		Short		814	$	122,868,212		3/19/18	$	(2,170,917	)
GBP/USD		Short		955		80,918,344		3/19/18		(327,387	)
Total Futures Contracts									$	(2,498,304	)

*As of period end.

At December 31, 2017, the Fund had the following forward exchange contracts outstanding. See Note 1(c).

Forward Exchange Contracts

Currency	Counterpartya		Type		Quantity		Contract Amount		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
OTC Forward Exchange Contracts
Euro		BOFA		Buy		1,884,427	$	2,227,007		1/12/18	$	35,925	$	—
Euro		BOFA		Sell		198,557		229,903		1/12/18		—		(8,536	)
Euro		HSBK		Buy		556,455		669,279		1/12/18		—		(1,054	)
Euro		HSBK		Buy		1,907,966		2,255,508		1/12/18		35,691		—
Euro		HSBK		Sell		16,607,635		19,116,122		1/12/18		—		(827,318	)
Euro		SSBT		Buy		962,804		1,140,323		1/12/18		15,869		—
Euro		SSBT		Sell		5,204,896		6,020,839		1/12/18		—		(229,512	)
Euro		UBSW		Buy		318,457		378,188		1/12/18		4,234		—
Euro		UBSW		Sell		24,606,115		28,342,352		1/12/18		—		(1,206,139	)
Euro		BOFA		Sell		46,889		56,539		1/26/18		183		—
Euro		BONY		Sell		1,488,213		1,778,072		1/26/18		—		(10,642	)
Euro		HSBK		Sell		10,604,296		12,483,856		1/26/18		—		(261,673	)
Euro		SSBT		Sell		590,320		707,092		1/26/18		—		(2,427	)
Euro		SSBT		Sell		723,265		871,045		1/26/18		1,738		—
Euro		UBSW		Sell		6,073,045		7,137,832		1/26/18		—		(161,490	)
South Korean Won		HSBK		Buy		5,184,995,568		4,762,323		2/09/18		98,641		—
South Korean Won		HSBK		Sell		21,315,648,512		18,981,808		2/09/18		—		(1,001,737	)
British Pound		BOFA		Sell		990,000		1,344,707		2/14/18		5,693		—
British Pound		BOFA		Sell		1,832,329		2,434,196		2/14/18		—		(44,100	)
British Pound		BONY		Sell		4,683,882		6,348,815		2/14/18		13,682		—
British Pound		BONY		Sell		4,897,483		6,403,743		2/14/18		—		(220,294	)
British Pound		HSBK		Sell		14,463,880		19,223,943		2/14/18		—		(339,019	)
British Pound		UBSW		Sell		4,897,483		6,403,728		2/14/18		—		(220,308	)
Euro		BONY		Sell		43,228,928		51,089,288		2/20/18		—		(940,571	)
Euro		HSBK		Sell		961,597		1,137,165		2/20/18		—		(20,202	)
Euro		SSBT		Sell		43,228,928		51,079,301		2/20/18		—		(950,557	)
Euro		HSBK		Sell		4,510,583		5,329,255		4/10/18		—		(116,892	)
Euro		SSBT		Sell		2,765,000		3,285,315		4/10/18		—		(53,188	)
Euro		UBSW		Sell		6,953,239		8,200,290		4/10/18		—		(195,156	)
Euro		BOFA		Sell		2,737,169		3,265,484		4/18/18		—		(41,183	)
Euro		SSBT		Sell		2,737,170		3,265,403		4/18/18		—		(41,265	)
Euro		UBSW		Sell		2,737,170		3,265,964		4/18/18		—		(40,704	)

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FRANKLIN MUTUAL QUEST FUND

STATEMENT OF INVESTMENTS

Forward Exchange Contracts (continued)

Currency	Counterpartya		Type		Quantity		Contract Amount		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
OTC Forward Exchange Contracts (continued)
British Pound		BOFA		Sell		19,885,025	$	26,458,194		4/24/18	$	—	$	(502,941	)
British Pound		SSBT		Sell		3,871,613		5,112,411		4/24/18		—		(136,919	)
British Pound		UBSW		Sell		5,153,536		6,826,504		4/24/18		—		(160,924	)
Euro		HSBK		Sell		14,888,813		17,570,988		5/07/18		—		(438,476	)
Euro		UBSW		Sell		14,888,812		17,567,830		5/07/18		—		(441,633	)
South Korean Won		HSBK		Sell		20,419,930,753		18,184,221		5/11/18		—		(979,866	)
South Korean Won		UBSW		Sell		11,325,700,303		10,101,293		5/11/18		—		(527,867	)
Euro		BOFA		Sell		10,023,949		11,945,741		5/21/18		—		(190,570	)
Euro		UBSW		Sell		10,023,949		11,943,736		5/21/18		—		(192,575	)
British Pound		BOFA		Sell		3,660,553		4,938,211		5/24/18		—		(30,395	)
British Pound		HSBK		Sell		243,409		330,698		5/24/18		310		—
British Pound		HSBK		Sell		3,090,310		4,153,326		5/24/18		—		(41,266	)
British Pound		SSBT		Sell		44,415,623		59,238,671		5/24/18		—		(1,048,302	)
Total Forward Exchange Contracts											$	211,966	$	(11,625,701	)
Net unrealized appreciation (depreciation)													$	(11,413,735	)

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

See Note 11 regarding other derivative information.

See Abbreviations on page 44.

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FRANKLIN MUTUAL QUEST FUND

Financial Statements

Statement of Assets and Liabilities

December 31, 2017

Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	4,483,098,861
Cost - Non-controlled affiliates (Note 12)		473,274,877
Value - Unaffiliated issuers	$	4,808,070,437
Value - Non-controlled affiliates (Note 12)		425,989,394
Cash		6,968,744
Foreign currency, at value (cost $2,952,747)		2,966,476
Receivables:
Investment securities sold		7,662,837
Capital shares sold		3,904,297
Dividends and interest		23,489,531
European Union tax reclaims		732,481
Deposits with brokers for:
Futures contracts		3,500,100
Unrealized appreciation on OTC forward exchange contracts		211,966
Other assets		622
Total assets		5,283,496,885
Liabilities:
Payables:
Capital shares redeemed		8,550,861
Management fees		3,008,102
Distribution fees		1,016,539
Transfer agent fees		614,506
Trustees’ fees and expenses		249,567
Variation margin on futures contracts		1,157,463
Options written, at value (premiums received $1,554,697)		241,000
Unrealized depreciation on OTC forward exchange contracts		11,625,701
Deferred tax		680,769
Accrued expenses and other liabilities		334,176
Total liabilities		27,478,684
Net assets, at value	$	5,256,018,201
Net assets consist of:
Paid-in capital	$	5,054,329,619
Distributions in excess of net investment income		(4,820,394	)
Net unrealized appreciation (depreciation)		264,605,826
Accumulated net realized gain (loss)		(58,096,850	)
Net assets, at value	$	5,256,018,201

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FRANKLIN MUTUAL QUEST FUND

FINANCIAL STATEMENTS

Statement of Assets and Liabilities (continued)

December 31, 2017

Class Z:
Net assets, at value	$	3,667,350,701
Shares outstanding		231,655,302
Net asset value and maximum offering price per share		$15.83
Class A:
Net assets, at value	$	1,153,870,027
Shares outstanding		73,989,419
Net asset value per sharea		$15.60
Maximum offering price per share (net asset value per share ÷ 94.25%)		$16.55
Class C:
Net assets, at value	$	309,160,372
Shares outstanding		20,145,248
Net asset value and maximum offering price per sharea		$15.35
Class R:
Net assets, at value	$	1,774,482
Shares outstanding		115,210
Net asset value and maximum offering price per share		$15.40
Class R6:
Net assets, at value	$	123,862,619
Shares outstanding		7,832,141
Net asset value and maximum offering price per share		$15.81

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

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FRANKLIN MUTUAL QUEST FUND

FINANCIAL STATEMENTS

Statement of Operations

for the year ended December 31, 2017

Investment income:
Dividends: (net of foreign taxes)*
Unaffiliated issuers	$	74,819,213
Non-controlled affiliates (Note 12)		8,297,281
Interest:
Unaffiliated issuers		131,386,153
Non-controlled affiliates (Note 12)		22,730,275
Total investment income		237,232,922
Expenses:
Management fees (Note 3a)		35,964,097
Distribution fees: (Note 3c)
Class A		2,991,168
Class C		3,298,299
Class R		6,714
Transfer agent fees: (Note 3e)
Class Z		3,118,192
Class A		993,614
Class C		273,921
Class R		1,115
Class R6		7,632
Custodian fees (Note 4)		146,113
Reports to shareholders		270,101
Registration and filing fees		193,874
Professional fees		850,164
Trustees’ fees and expenses		164,116
Other		138,522
Total expenses		48,417,642
Expense reductions (Note 4)		(11,994	)
Net expenses		48,405,648
Net investment income		188,827,274
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffiliated issuers		80,951,666
Non-controlled affiliates (Note 12)		(11,433,358	)
Foreign currency transactions		894,517
Forward exchange contracts		(21,211,216	)
Futures contracts		(14,718,212	)
Securities sold short		3,216,360
Net realized gain (loss)		37,699,757
Net change in unrealized appreciation (depreciation) on:
Investments:
Unaffiliated issuers		177,917,984
Non-controlled affiliates (Note 12)		(29,950,000	)
Translation of other assets and liabilities denominated in foreign currencies		412,404
Forward exchange contracts		(18,597,720	)
Written options		1,313,697
Futures contracts		(4,474,166	)
Securities sold short		(3,624,223	)
Change in deferred taxes on unrealized appreciation		(680,769	)
Net change in unrealized appreciation (depreciation)		122,317,207
Net realized and unrealized gain (loss)		160,016,964
Net increase (decrease) in net assets resulting from operations	$	348,844,238
*Foreign taxes withheld on dividends	$	5,782,997

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FRANKLIN MUTUAL QUEST FUND

FINANCIAL STATEMENTS

Statements of Changes in Net Assets

	Year Ended December 31,
	2017			2016
Increase (decrease) in net assets:
Operations:
Net investment income	$	188,827,274		$	280,468,001
Net realized gain (loss)		37,699,757			221,052,860
Net change in unrealized appreciation (depreciation)		122,317,207			243,294,468
Net increase (decrease) in net assets resulting from operations		348,844,238			744,815,329
Distributions to shareholders from:
Net investment income:
Class Z		(141,121,394	)		(222,278,713	)
Class A		(42,192,676	)		(72,209,924	)
Class C		(9,158,365	)		(18,316,353	)
Class R		(62,381	)		(51,119	)
Class R6		(4,613,009	)		(3,177,032	)
Net realized gains:
Class Z		(31,454,610	)		(61,002,060	)
Class A		(9,969,480	)		(20,589,851	)
Class C		(2,773,577	)		(5,930,239	)
Class R		(12,207	)		(15,198	)
Class R6		(303,983	)		(865,361	)
Total distributions to shareholders		(241,661,682	)		(404,435,850	)
Capital share transactions: (Note 2)
Class Z		(94,442,773	)		(125,329,991	)
Class A		(85,348,310	)		(71,220,397	)
Class C		(41,119,296	)		(17,124,219	)
Class R		879,482			(83,695	)
Class R6		72,905,275			7,856,691
Total capital share transactions		(147,125,622	)		(205,901,611	)
Net increase (decrease) in net assets		(39,943,066	)		134,477,868
Net assets:
Beginning of year		5,295,961,267			5,161,483,399
End of year	$	5,256,018,201		$	5,295,961,267
Distributions in excess of net investment income included in net assets:
End of year	$	(4,820,394	)	$	(49,871,151	)

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

FRANKLIN MUTUAL QUEST 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 Quest Fund (Fund) is included in this report. The Fund offers five classes of shares: Class Z, Class A, Class C, Class R and Class R6. Each class of shares may differ by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees 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 Committee (VC). The VC 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 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. 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.

Certain derivative financial instruments 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 VC 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 VC 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 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 VC employs various methods for calibrating these

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FRANKLIN MUTUAL QUEST FUND

NOTES TO FINANCIAL STATEMENTS

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 Fund’s business day. Occasionally, events occur between the time at which trading in a foreign security is completed and 4 p.m. Eastern time 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 4 p.m. Eastern time. In order to minimize the potential for these differences, the VC 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 Fund’s NAV is not calculated, 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 derivative financial instruments 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 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,

  franklintempleton.com   Annual Report               31

FRANKLIN MUTUAL QUEST FUND

NOTES TO FINANCIAL STATEMENTS

1.   Organization and Significant Accounting Policies (continued)

c.   Derivative Financial Instruments (continued)

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, 2017, the Fund had OTC derivatives in a net liability position of $11,413,735 and the aggregate value of collateral pledged for such contracts was $9,377,361.

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 counterparty the next business day, or 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 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 at 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 Note 11 regarding other derivative information.

d.   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

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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, 2017, the Fund had no securities sold short.

e.   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.

f.   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 filed additional tax reclaims for previously withheld taxes on dividends earned in those countries (EU reclaims). 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. Income recognized, if any, for EU reclaims is reflected as other income in the Statement of

Operations and any related receivable, if any, is reflected as European Union tax reclaims in the Statement of Assets and Liabilities. When uncertainty exists as to the ultimate resolution of these proceedings, the likelihood of receipt of these EU reclaims, and the potential timing of payment, no amounts are reflected in the financial statements. For U.S. income tax purposes, EU reclaims received by the Fund, if any, reduce the amounts of foreign taxes Fund shareholders can use as tax credits in their individual income tax returns.

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, 2017, 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 in future tax years). Open tax years are those that remain subject to examination and are based on the statute of limitations in each jurisdiction in which the Fund invests.

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 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. Distributable earnings are determined according to income tax regulations (tax basis) and 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.

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1.  Organization and Significant Accounting Policies (continued)

g.  Security Transactions, Investment Income, Expenses and Distributions (continued)

Realized and unrealized gains and losses and net investment income, excluding 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.

h.  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.

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, 2017, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2017						2016
	Shares			Amount			Shares			Amount
Class Z Shares:
Shares sold		27,728,870		$	439,840,070			19,828,497		$	304,660,334
Shares issued in reinvestment of distributions		10,319,549			163,868,714			17,429,676			268,009,103
Shares redeemed		(43,674,171	)		(698,151,557	)		(47,272,331	)		(697,999,428	)
Net increase (decrease)		(5,625,752	)	$	(94,442,773	)		(10,014,158	)	$	(125,329,991	)
Class A Shares:
Shares sold		13,056,163		$	204,059,076			10,500,328		$	158,786,624
Shares issued in reinvestment of distributions		3,269,611			51,185,442			6,003,992			91,123,764
Shares redeemed		(21,720,286	)		(340,592,828	)		(21,323,796	)		(321,130,785	)
Net increase (decrease)		(5,394,512	)	$	(85,348,310	)		(4,819,476	)	$	(71,220,397	)
Class C Shares:
Shares sold		3,143,553		$	48,265,137			2,376,846		$	35,487,953
Shares issued in reinvestment of distributions		767,506			11,797,949			1,572,193			23,466,576
Shares redeemed		(6,578,117	)		(101,182,382	)		(5,145,604	)		(76,078,748	)
Net increase (decrease)		(2,667,058	)	$	(41,119,296	)		(1,196,565	)	$	(17,124,219	)
Class R Shares:
Shares sold		93,915		$	1,451,999			17,052		$	252,213
Shares issued in reinvestment of distributions		4,829			74,588			4,419			66,317
Shares redeemed		(41,676	)		(647,105	)		(26,855	)		(402,225	)
Net increase (decrease)		57,068		$	879,482			(5,384	)	$	(83,695	)

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	Year Ended December 31,
	2017						2016
	Shares			Amount			Shares			Amount
Class R6 Shares:
Shares sold		6,529,553		$	105,932,665			745,561		$	11,522,145
Shares issued in reinvestment of distributions		310,142			4,916,992			250,829			3,854,293
Shares redeemed		(2,378,788	)		(37,944,382	)		(490,186	)		(7,519,747	)
Net increase (decrease)		4,460,907		$	72,905,275			506,204		$	7,856,691

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 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

For the year ended December 31, 2017, the gross effective investment management fee rate was 0.673% of the Fund’s average daily net assets.

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.

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3. Transactions with Affiliates (continued)

c. Distribution Fees (continued)

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%

The Board has set the current rate at 0.25% per year for Class A shares until further notice and approval by the Board.

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 brokers/dealers	$	394,847
CDSC retained	$	25,543

e. Transfer Agent Fees

Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. Effective November 1, 2017, the fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. Prior to November 1, 2017, the fees were account based fees that varied based on fund or account type. In addition, each class reimburses Investor Services for out of pocket expenses incurred and, except for Class R6, reimburses shareholder 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, 2017, the Fund paid transfer agent fees of $4,394,474, of which $2,084,366 was retained by Investor Services.

4. Expense Offset Arrangement

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended December 31, 2017, 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, 2017, the Fund’s projected benefit obligation and benefit payments under the Plan were as follows:

^aProjected benefit obligation at December 31, 2017 $ 249,567

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bIncrease in projected benefit obligation	$	4,167
Benefit payments made to retired trustees	$	(5,253	)

^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

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, 2017, capital loss carryforwards were as follows:

Capital loss carryforwards subject to expiration:
2018	$	18,751,585
Capital loss carryforwards not subject to expiration:
Short term		9,021,376
Long term		38,510,337
Total capital loss carryforwards	$	66,283,298a

^aIncludes $21,379,658 from the acquired Franklin Mutual Recovery Fund, which may be carried over to offset future capital gains, subject to certain limitations.

On December 31, 2017, the Fund had expired capital loss carryforwards of $73,758,943, which were reclassified to paid-in-capital.

The tax character of distributions paid during the years ended December 31, 2017 and 2016, was as follows:

	2017		2016
Distributions paid from:
Ordinary income	$	229,143,200	$	355,255,859
Long term capital gain		12,518,482		49,179,991
	$	241,661,682	$	404,435,850

At December 31, 2017, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$	4,972,287,449
Unrealized appreciation	$	734,072,949
Unrealized depreciation		(486,447,358	)
Net unrealized appreciation (depreciation)	$	247,625,591
Distributable earnings - undistributed ordinary income	$	25,469,105

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, bond discounts and premiums and defaulted securities.

7. Investment Transactions

Purchases and sales of investments (excluding short term securities and securities sold short) for the year ended December 31, 2017, aggregated $1,646,337,980 and $1,442,724,176, respectively.

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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 could 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, 2017, the aggregate long value of distressed company securities for which interest recognition has been discontinued was $45,002,166, representing 0.8% of the Fund’s net assets. For information as to specific securities, see the accompanying Statement of Investments.

9. 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.

10. Restricted Securities

The Fund invests in securities that are restricted under the Securities Act of 1933 (1933 Act). 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.

At December 31, 2017, investments in restricted securities, excluding securities exempt from registration under the 1933 Act deemed to be liquid, were as follows:

Principal Amount/ Shares/ Warrants		Issuer	Acquisition Date		Cost		Value
	9,272	Broadband Ventures III LLC, secured promissory note, 5.00%,     2/01/12		7/01/10 - 11/30/12	$	9,272	$	—
	1,439,821	CB FIM Coinvestors LLC		1/15/09 - 6/02/09		—		—
	17,934,688	FIM Coinvestor Holdings I, LLC		11/20/06 - 6/02/09		—		—
	2,548,299	International Automotive Components Group Brazil LLC		4/13/06 - 12/26/08		1,692,334		87,369
	19,924,658	International Automotive Components Group North America LLC		1/02/06 - 3/18/13		16,305,945		13,125,867
	1,110,000	a Lee Enterprises Inc., wts., 12/31/22		3/31/14		1,490,026		488,722
	224,279	b Sorenson Communications LLC, Membership Interests		4/30/14		—		160,414,954
	17,873,000	Sunshine Oilsands Ltd., secured note, 144A, 10.00%, 8/01/17		8/04/14		17,706,373		8,657,697
		Total Restricted Securities (Value is 3.5% of Net Assets)			$	37,203,950	$	182,774,609

^aThe Fund also invests in unrestricted securities or other investments in the issuer, valued at $173,568,101 as of December 31, 2017.

^bThe Fund also invests in unrestricted securities or other investments in the issuer, valued at $258,090,924 as of December 31, 2017.

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11. Other Derivative Information

At December 31, 2017, 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 Hedging Instruments	Statement of Assets and Liabilities Location	Fair Value			Statement of Assets and Liabilities Location	Fair Value
Foreign exchange contracts	Variation margin on futures contracts	$	—		Variation margin on futures contracts	$	2,498,304	a
	Unrealized appreciation on OTC forward exchange contracts		211,966		Unrealized depreciation on OTC forward exchange contracts		11,625,701
Equity contracts	Investments in securities, at value		69,000	b	Options written, at value		241,000
Totals		$	280,966			$	14,365,005

^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.

^bPurchased option contracts are included in investments in securities, at value in the Statement of Assets and Liabilities.

For the year ended December 31, 2017, the effect of derivative contracts in the Fund’s Statement of Operations was as follows:

Derivative Contracts Not Accounted for as Hedging Instruments	Statement of Operations Location	Net Realized Gain (Loss) for the Year			Statement of Operations Location	Net Change in Unrealized Appreciation (Depreciation) for the Year
	Net realized gain (loss) from:				Net change in unrealized appreciation (depreciation) on:
Foreign exchange contracts	Forward exchange contracts	$	(21,211,216	)	Forward exchange contracts	$	(18,597,720	)
	Futures contracts		(14,718,212	)	Futures contracts		(4,474,166	)
Equity contracts	Investments		—		Investments		(13,287	)a
	Written options		—		Written options		1,313,697
Totals		$	(35,929,428	)		$	(21,771,476	)

^aPurchased option contracts are included in net change in unrealized appreciation (depreciation) on investments in the Statement of Operations.

For the year ended December 31, 2017, the average month end notional amount of futures contracts and options represented $193,075,647 and $71,538, respectively. The average month end contract value of forward exchange contracts was $380,722,254.

See Note 1(c) regarding derivative financial instruments.

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12. 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. During the year ended December 31, 2017, investments in “affiliated companies” were as follows:

Name of Issuer	Number of Shares/ Warrants/ Principal amount Held at Beginning of Year		Gross Additions		Gross Reductions			Number of Shares/ Warrants/ Principal amount Held at End of Year		Value at End of Year		Investment Income		Realized Gain (Loss)			Net Change in Unrealized Appreciation (Depreciation)
Non-Controlled Affiliates
													Dividends
Advanced Emissions Solutions Inc.		1,724,209		—		—			1,724,209	$	16,655,859	$	1,293,157	$	—		$	724,168
Eastman Kodak Co.		3,072,827		—		(458,991	)		2,613,836		8,102,892		—		(11,585,214	)		(26,295,520	)
Eastman Kodak Co., wts., 9/03/18		48,582		—		—			48,582		340		—		—			(189,130	)
Eastman Kodak Co., wts., 9/03/18		48,582		—		—			48,582		490		—		—			(145,255	)
Lee Enterprises Inc./IA		4,824,268		—		—			4,824,268		11,337,030		—		—			(2,653,347	)
Lee Enterprises Inc., wts., 12/31/22		1,110,000		—		—			1,110,000		488,722		—		—			(1,347,116	)
New Media Investment Group Inc.		4,660,772		271,710		—			4,932,482		82,767,048		7,004,124		—			9,873,158
										$	119,352,381	$	8,297,281	$	(11,585,214	)	$	(20,033,042	)
													Interest
Eastman Kodak Co., Term Loan, 7.819%, (LIBOR + 6.25%), 9/03/19		37,968,616		—		(666,375	)		37,302,241	$	32,359,694	$	2,402,042	$	15,131		$	(5,984,946	)
Lee Enterprises Inc., Second Lien Term Loan, 12.00%, 12/15/22		65,604,374		—		(8,662,960	)		56,941,414		59,219,071		3,819,956		122,143			(2,257,994	)
Lee Enterprises Inc., senior secured note, first lien, 144A, 9.50%, 3/15/22		99,050,000		—		—			99,050,000		103,012,000		9,383,612		—			(2,644,866	)
New Media Holdings II LLC, Fourth Amendment Replacement Term Loans, 7.819%, (LIBOR + 6.25%), 7/14/22		112,135,512		—		(1,129,941	)		111,005,571		112,046,248		7,124,665		14,582			970,848
										$	306,637,013	$	22,730,275	$	151,856		$	(9,916,958	)
Total Affiliated Securities (Value is 8.1% of Net Assets)										$	425,989,394	$	31,027,556	$	(11,433,358	)	$	(29,950,000	)

13. 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 9, 2018. 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 9, 2018, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 8, 2019, 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 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statement of Operations. During the year ended December 31, 2017, the Fund did not use the Global Credit Facility.

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NOTES TO FINANCIAL STATEMENTS

14. 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.)

• 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, 2017, 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:a
Equity Investments:b
Auto Components	$	41,724,229	$	—	$	13,213,236		$	54,937,465
Communications Equipment		—		—		160,414,954			160,414,954
Diversified Consumer Services		—		—		10,164,359			10,164,359
Media		415,831,342		—		488,722			416,320,064
Software		139,931,682		—		575,122			140,506,804
All Other Equity Investments		2,542,815,693		—		—	c		2,542,815,693
Corporate Bonds, Notes and Senior Floating Rate Interests		—		1,159,426,021		—			1,159,426,021
Corporate Notes and Senior Floating Rate Interests in Reorganization		—		36,344,469		8,657,697	c		45,002,166
Companies in Liquidation		—		14,581,107		1,680,146	c		16,261,253
Options Purchased		69,000		—		—			69,000
Short Term Investments		646,742,052		41,400,000		—			688,142,052
Total Investments in Securities	$	3,787,113,998	$	1,251,751,597	$	195,194,236		$	5,234,059,831
Other Financial Instruments:
Forward Exchange Contracts	$	—	$	211,966	$	—		$	211,966
Liabilities:
Other Financial Instruments:
Options Written	$	241,000	$	—	$	—		$	241,000
Futures Contracts		2,498,304		—		—			2,498,304
Forward Exchange Contracts		—		11,625,701		—			11,625,701
Total Other Financial Instruments	$	2,739,304	$	11,625,701	$	—		$	14,365,005

^aFor detailed categories, see the accompanying Statement of Investments.

^bIncludes common, preferred and convertible preferred stocks as well as other equity investments.

^cIncludes securities determined to have no value at December 31, 2017.

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14. 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 beginning and/or end of the year. At December 31, 2017, the reconciliation of assets, is as follows:

	Balance at Beginning of Year			Purchases		Sales			Transfer Into Level 3a		Transfer Out of Level 3b			Cost Basis Adjustmentsc			Net Realized Gain (Loss)		Net Unrealized Appreciation (Depreciation)			Balance at End of Year		Net Change in Unrealized Appreciation (Depreciation) on Assets Held at Year End
Assets:
Investments in Securities:
Equity Investments:d
Auto Components	$	14,884,656		$	–	$	–		$	–	$	–		$	–		$	–	$	(1,671,420	)	$	13,213,236	$	(1,671,420	)
Communications Equipment		150,861,922			–		–			–		–			–			–		9,553,032			160,414,954		9,553,032
Diversified Consumer Services		–			6,591,095		–			–		–			–			–		3,573,264			10,164,359		3,573,264
Media		1,835,838			–		–			–		–			–			–		(1,347,116	)		488,722		(1,347,116	)
Software		–			–		–			613,592		–			–			–		(38,470	)		575,122		(38,470	)
Oil, Gas & Consumable Fuels		15,939,950			–		–			–		(14,713,800	)		–			–		(1,226,150	)		–		–
Corporate Notes and Senior Floating Rate Interests in Reorganization		–	e		–		–			9,740,785		–			–			–		(1,083,088	)		8,657,697e		(1,083,088	)
Companies in Liquidation		1,680,146	e		–		(107	)		–		–			(282,530	)		177,890		104,747			1,680,146e		–
Total	$	185,202,512		$	6,591,095	$	(107	)	$	10,354,377	$	(14,713,800	)	$	(282,530	)	$	177,890	$	7,864,799		$	195,194,236	$	8,986,202

^aThe investments were transferred into Level 3 as a result of their value being determined using a significant unobservable valuation input. May include amounts related to a corporate action.

^bThe investments were transferred out of Level 3 as a result of the removal of a significant unobservable valuation input.

^cMay include accretion, amortization, partnership adjustments, and/or other cost basis adjustments.

^dIncludes common stocks as well as other equity investments.

^eIncludes securities determined to have no value.

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NOTES TO FINANCIAL STATEMENTS

Significant unobservable valuation inputs for material Level 3 financial instruments and impact to fair value as a result of changes in unobservable valuation inputs as of December 31, 2017, are as follows:

Description	Fair Value at End of Year		Valuation Technique	Unobservable Inputs	Amount/ Weighting		Impact to Fair Value if Input Increasesa
Assets:
Investments in Securities:
Equity Investments:
Auto			Market comparables/
Components		$13,125,867	Discounted cash flow	EV / EBITDA multiple		4.1x	Increase
				3 Yr Forward EBITDA growth rate		1.01%	Increase
				Discount for lack of marketability		10%	Decrease
				Discount rate		10%	Decreaseb
Communications Equipment		160,414,954	Market transaction	Transaction price weighting		50%	Increasec
			Market comparables	EV / EBITDA multiple		6.1x	Increaseb
				Discount for lack of marketability		15%	Decreasec
Diversified
Consumer Services		10,164,359	Market comparablesd	EV / Last 12 months EBITDA multiple		11.7x	Increasec
				EV / Last 12 months Net Sales multiple		2.4x	Increasec
				EV / Total Assets multiple		1.5x	Increasec
				Discount for lack of marketability		4.2% - 19.9%	Decreasec
Corporate Notes and Senior Floating Rate Interests in Reorganization		8,657,697	Market comparables	Discount for lack of marketability		15.5%	Decreaseb
				EV / Revenue multiple		4.0x	Increaseb
All Other Investmentse		2,831,359
Total		$195,194,236

^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 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.

^cRepresents a significant impact to fair value and net assets.

^dFair value of warrants with $0.01 strike price derived from underlying equity valuation categorized as Level 3, therefore, significant unobservable inputs presented for warrants and underlying equity.

^eIncludes fair value of immaterial financial instruments developed using various valuation techniques and unobservable inputs. May also include financial instruments with values derived using prior transaction prices or third party pricing information without adjustment for which such inputs are unobservable.

Abbreviations List

EBITDA - Earnings before interest, taxes, depreciation and amortization

EV - Enterprise value

15. 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.

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FRANKLIN MUTUAL QUEST FUND

NOTES TO FINANCIAL STATEMENTS

Abbreviations
Counterparty		Currency		Selected Portfolio
BOFA	Bank of America N.A.	EUR	Euro	ADR	American Depositary Receipt
BONY	The Bank of New York Mellon Corp.	GBP	British Pound	DIP	Debtor-In-Possession
HSBK	HSBC Bank PLC	USD	United States Dollar	FHLB	Federal Home Loan Bank
SSBT	State Street Bank and Trust Co., N.A.			LIBOR	London InterBank Offered Rate
UBSW	UBS AG			PIK	Payment-In-Kind
				TRA	Tax Receivable Agreement Right

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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 Quest Fund:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Franklin Mutual Quest Fund (the “Fund”) (one of the funds constituting Franklin Mutual Series Funds), including the schedule of investments, as of December 31, 2017, 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, the financial highlights for each of the periods indicated therein and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of Franklin Mutual Quest Fund (one of the funds constituting Franklin Mutual Series Funds) at December 31, 2017, 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 its financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the auditor of one or more Franklin investment companies since 1987.

Boston, MA

February 26, 2018

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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 $12,518,482 as a long term capital gain dividend for the fiscal year ended December 31, 2017.

Under Section 871(k)(2)(C) of the Code, the Fund hereby reports the maximum amount allowable but no less than $32,242,806 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, 2017.

Under Section 854(b)(1)(A) of the Code, the Fund hereby reports 12.77% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2017.

Under Section 854(b)(1)(B) of the Code, the Fund hereby reports the maximum amount allowable but no less than $81,414,327 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended December 31, 2017. Distributions, including qualified dividend income, paid during calendar year 2017 will be reported to shareholders on Form 1099-DIV by mid-February 2018. 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 $116,434,243 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, 2017.

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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 Trust, principal occupations during at least the past five years and number of US registered 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

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Edward I. Altman, Ph.D. (1941) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1987	14	None
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1995	40	Ares Capital 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), SLM Corporation (Sallie Mae) (1997-2014) and Navient Corporation (loan management, servicing and asset recovery) (2014-2016).
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee and Vice Chairman	Trustee since 2002 and Vice Chairman since 2015	14	Franklin Templeton Emerging Markets Debt Opportunities Fund PLC (1999-present) and Fiduciary International Ireland Limited (1999-2015).
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.
Jan Hopkins Trachtman (1947) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2009	14	None
Principal Occupation During at Least the Past 5 Years: President and Founder, The Jan Hopkins Group (communications and consulting firm); serves on Advisory Board of Knight Bagehot Fellowship; and formerly, President, Economic Club of New York (2007-2015); 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.
Keith Mitchell (1954) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2009	14	None
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, Putman Lovell NBF.

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Independent Board Members (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
David W. Niemiec (1949) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2015	40	Hess Midstream Partners LP (oil and gas midstream infrastructure) (2017-present).
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1998	14	None
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.
Robert E. Wade (1946) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee and Chairman of the Board	Trustee since 1993 and Chairman of the Board since 2005	40	El Oro Ltd (investments) (2003-present).
Principal Occupation During at Least the Past 5 Years: Attorney at law engaged in private practice as a sole practitioner (1972-2008) and member of various boards.
Gregory H. Williams (1943) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2015	14	None
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).
Interested Board Members and Officers
Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
**Gregory E. Johnson (1961) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 2007	153	None
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 43 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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee, President, and Chief Executive Officer – Investment Management	Trustee since 2007, President, and Chief Executive Officer – Investment Management since 2005	7	American International Group, Inc. (AIG) Credit Facility Trust (2010-2011).
Principal Occupation During at Least the Past 5 Years: Chairman of the Board, Chief Executive Officer and President, Franklin Mutual Advisers, LLC; President and Chief Investment Officer, Franklin Advisory Services, LLC; and officer and/or director, as the case may be, of three of the investment companies in Franklin Templeton Investments.

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Interested Board Members and Officers (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Alison E. Baur (1964) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2012	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.
Philippe Brugere-Trelat (1949) 101 John F. Kennedy Parkway Short Hills NJ 07078-2789	Vice President	Since 2005	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Executive Vice President, Franklin Mutual Advisers, LLC; officer of one of the investment companies in Franklin Templeton Investments; and formerly, Portfolio Manager of Eurovest SA (French registered investment company, SICAV).
Aliya S. Gordon (1973) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2009	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Steven J. Gray (1955) One Franklin Parkway San Mateo, CA 94403-1906	Vice President and Secretary	Vice President since 2009 and Secretary since 2005	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc. and FASA, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.
Matthew T. Hinkle (1971) One Franklin Parkway San Mateo, CA 94403-1906	Chief Executive Officer – Finance and Administration	Since June 2017	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Vice President, Global Tax (2012-April 2017) and Treasurer/Assistant Treasurer, Franklin Templeton Investments (2009-2017).
Robert G. Kubilis (1973) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Chief Financial Officer, Chief Accounting Officer and Treasurer	Since 2012	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of 17 of the investment companies in Franklin Templeton Investments.
Robert Lim (1948) One Franklin Parkway San Mateo, CA 94403-1906	Vice President – AML Compliance	Since 2016	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Vice President, Franklin Templeton Companies, LLC; Chief Compliance Officer, Franklin Templeton Distributors, Inc. and Franklin Templeton Investor Services, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.

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Interested Board Members and Officers (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Kimberly H. Novotny (1972) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Vice President	Since 2013	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Associate General Counsel, Franklin Templeton Investments; Vice President and Corporate Secretary, Fiduciary Trust International of the South; Vice President, Templeton Investment Counsel, LLC; Assistant Secretary, Franklin Resources, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments.
Robert C. Rosselot (1960) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Chief Compliance Officer	Since 2013	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Director, Global Compliance, Franklin Templeton Investments; Vice President, Franklin Templeton Companies, LLC; officer of 45 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) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2009	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Navid J. Tofigh (1972) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2015	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Craig S. Tyle (1960) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2005	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.
Lori A. Weber (1964) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Vice President	Since 2011	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.

*We base the number of portfolios on each separate series of the US 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. (Resources), 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 Advisors, 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 Sarbanes-Oxley Act of 2002 and Rules adopted by the U.S. Securities and Exchange Commission require the Fund to disclose whether the Fund’s Audit Committee includes at least one member who is an audit committee financial expert within the meaning of such Act and Rules. The Fund’s Board has determined that there is at least one such financial expert on the Audit Committee and has designated each of Edward I. Altman, Ph.D., Ann Torre Bates and David W. Niemiec as an audit committee financial expert. The Board believes that Messrs. Altman and Niemiec and Ms. Bates qualify as such an expert in view of their extensive business background and experience. Mr. Altman has served as a member of the Fund Audit Committee since 1996. He currently serves as a Max L. Hines Professor of Finance, Emeritus and Director of The Credit and Debt Markets Research Program, Salomon Center, Stern School of Business, New York University. Ms. Bates has served as a member of the Fund Audit Committee since 1996. She currently serves as a director of Ares Capital Corporation (2010-present) and United Natural Foods, Inc. (2013-present) and was formerly a director of Navient Corporation from 2014 to 2016, SLM Corporation from 1997 to 2014 and Allied

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FRANKLIN MUTUAL SERIES FUNDS

Interested Board Members and Officers (continued)

Capital Corporation from 2003 to 2010, Executive Vice President and Chief Financial Officer of NHP Incorporated from 1995 to 1997 and Vice President and Treasurer of US Airways, Inc. until 1995. Mr. Niemiec has served as a member of the Fund Audit Committee since 2015, currently serves as an Advisor to Saratoga Partners and was formerly its Managing Director from 1998 to 2001 and serves as a director of Hess Midstream Partners LP (2017-present). Mr. Niemiec was formerly a director of Emeritus Corporation from 1999 to 2010 and OSI Pharmaceuticals, Inc. from 2006 to 2010, Managing Director of SBC Warburg Dillon Read from 1997 to 1998, and was Vice Chairman from 1991 to 1997 and Chief Financial Officer from 1982 to 1997 of Dillon, Read & Co. Inc. As a result of such background and experience, the Board believes that Messrs. Altman and Niemiec and Ms. Bates have each acquired an understanding of generally accepted accounting principles and financial statements, the general application of such principles in connection with the accounting estimates, accruals and reserves, and analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues generally comparable to those of the Fund, as well as an understanding of internal controls and procedures for financial reporting and an understanding of audit committee functions. Messrs. Altman and Niemiec and Ms. Bates are independent Board members as that term is defined under the applicable U.S. Securities and Exchange Commission Rules and Releases.

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

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FRANKLIN MUTUAL SERIES FUNDS

FRANKLIN MUTUAL QUEST FUND

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 US 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 Trust, on behalf of the Fund, files a complete statement of investments with the US 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.

  52           Annual Report   franklintempleton.com

Annual Report and Shareholder Letter Franklin Mutual Quest Fund   Investment Manager Franklin Mutual Advisers, LLC   Distributor Franklin Templeton Distributors, Inc. (800) DIAL BEN^® / 342-5236 franklintempleton.com   Shareholder Services (800) 632-2301 - (Class A, C, R & R6) (800) 448-FUND - (Class Z)

Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.

To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.

© 2018 Franklin Templeton Investments. All rights reserved. 475 A 02/18

Annual Report
and Shareholder Letter   December 31, 2017

Sign up for electronic delivery at franklintempleton.com/edelivery

Franklin Templeton Investments

Gain From Our Perspective^®

At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.

Dear Franklin Mutual Shares Fund Shareholder:

Securities markets benefited from a confluence of positive economic, financial and political trends during 2017. The global economy entered a synchronized pace of modest and steady growth, corporate earnings strengthened in the US, Europe and Japan, and US equity market volatility remained at historically low levels. A number of political risks identified at the start of 2017, such as the success of far-right parties in Europe, Brexit negotiations and the Trump administration’s ability to enact its policy agenda, also dissipated or became less immediate for investors as the year progressed. For the year ended December 31, 2017, US stocks, as measured by the Standard & Poor’s^® 500 Index (S&P 500^®), produced a +21.83% total return.¹ Stocks in global developed markets, as measured by the MSCI World Index, returned +23.07%, and investment-grade bonds, as measured by the Bloomberg Barclays US Aggregate Bond Index, posted a +3.54% total return.¹

In many equity markets, the trend of growth stocks outpacing value stocks continued. The Russell 1000^® Growth Index returned +30.21%, while the Russell 1000^® Value Index returned +13.66%.¹ The difference in performance has been driven in large part by a rally in internet and software stocks, which dominated the S&P 500 Growth Index. In addition, the S&P 500 Value Index has components that we believe are facing disruption from new technology (e.g., the rapid market share shift to online retailing from traditional bricks and mortar retailers that are often labeled as value stocks). Exacerbating the disruption is the reality that many new technology companies are able to innovate without the need to show immediate profits.

We do not know how long these trends will continue, but historically, periods of strong performance by growth stocks have eventually been followed by relatively weaker performance. Given that unemployment has continued to decline in most developed markets and the US Federal Reserve has taken its first steps toward monetary normalization, value-oriented stocks may become more attractive to investors, particularly within cyclical sectors of the equity markets such as industrials, consumer discretionary and financials.

A stellar 2017 for equity markets also pushed up common valuation metrics, such as price-to-earnings. Valuation is a critical factor in our analysis and we always ask ourselves if current and potential investments represent an attractive balance of risk and reward. We remain committed to our long-term perspective and disciplined investment approach as we conduct a rigorous, fundamental analysis of securities with a regular emphasis on investment risk management.

Although the investment landscape appears favorable as we enter 2018, it is worth remembering that securities markets are dynamic and constantly evolving. Therefore, we believe active, professional investment management serves investors well. We also recognize the important role of financial advisors in today’s markets and encourage investors to continue to seek their advice. Amid changing markets and economic conditions, we are confident investors with a well-diversified portfolio and a patient, long-term outlook should be well positioned for the years ahead.

1. Source: Morningstar. Frank Russell Company is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell^® is a trademark of Frank Russell Company.

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

  Not FDIC Insured | May Lose Value | No Bank Guarantee  

  franklintempleton.com   Not part of the annual report                1

On the following pages, the Fund’s portfolio management team reviews investment decisions that pertain to performance during the past 12 months in light of the economic environment and other factors. Please remember all securities markets fluctuate, as do mutual fund share prices.

We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to continuing to serve your investment needs in the years ahead.

Sincerely,

Peter A. Langerman

Chairman, President and Chief Executive Officer

Franklin Mutual Advisers, LLC

This letter reflects our analysis and opinions as of December 31, 2017, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.

Contents

Annual Report

Franklin Mutual Shares Fund	3
Performance Summary	9
Your Fund’s Expenses	12
Financial Highlights and Statement of Investments	13
Financial Statements	25
Notes to Financial Statements	30
Report of Independent Registered Public Accounting Firm	42
Tax Information	43
Board Members and Officers	44
Shareholder Information	49

Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.

2         Not part of the annual report franklintempleton.com

Annual Report

Franklin Mutual Shares Fund

This annual report for Franklin Mutual Shares Fund covers the fiscal year ended December 31, 2017.

Your Fund’s Goal and Main Investments

The Fund seeks capital appreciation, which may occasionally be short term, with income as a secondary goal. Under normal market conditions, the Fund invests primarily in equity securities, primarily common stock, of US and foreign companies that the investment manager believes are available at market prices less than their intrinsic value. To a lesser extent, the Fund also invests in merger arbitrage securities and the debt and equity of distressed companies. The Fund may invest up to 35% of its assets in foreign securities, which may include sovereign debt and participations in foreign government debt. The Geographic Composition bar chart on this page lists the leading countries where the Fund invests.

Performance Overview

The Fund’s Class Z shares delivered a cumulative total return of +8.49% for the 12 months ended December 31, 2017. For comparison, the Fund’s benchmark, the Standard & Poor’s 500 Index (S&P 500), which is a broad measure of US stock performance, generated a total return of +21.83%.¹ You can find more of the Fund’s performance data in the Performance Summary beginning on page 9.

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

The global economy grew moderately during the 12-month period under review. In this environment, global developed and emerging market stocks generated a +24.62% total return, as measured by the MSCI All Country World Index.¹ Global markets were aided by price gains in oil and other commodities, generally upbeat economic data across regions,

Geographic Composition*

Based on Total Net Assets as of 12/31/17

*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 European Central Bank’s (ECB’s) extension of its monetary easing program, and investor optimism about pro-growth and pro-business policies in the US. The prospect for reforms in the European Union (EU) with Emmanuel Macron’s election as France’s president, encouraging corporate earnings reports and the passage of the US tax reform bill also supported global stocks.

However, global markets reflected investor concerns about the terms of the UK’s exit from the EU, political uncertainty in the US and the EU, and geopolitical tensions in the Korean peninsula and other regions. Other concerns included the health of European banks, global oil oversupply despite a pact by major oil-producing countries to extend production cuts, and comments from key central bankers around the world about potentially raising interest rates.

After strengthening in 2017’s second and third quarters, the US economy moderated in the fourth quarter. The economy grew faster in 2017 than in 2016, however, largely due to growth in consumer spending, business investment and exports. The unemployment rate decreased from 4.7% in December 2016, as reported at the beginning of the 12-month period, to 4.1% at

1. Source: Morningstar.

The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. 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 principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 18.

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period-end.² Annual inflation, as measured by the Consumer Price Index, was 2.1% in December 2016, as reported at the beginning of the 12-month period, and while it varied over the 12-month period, remained unchanged at period-end.² The US Federal Reserve (Fed) raised its target range for the federal funds rate 0.25% three times during the period, amid signs of a growing US economy, strengthening labor market and improving business spending. At its December meeting, the Fed confirmed that the monthly balance sheet reduction would increase from US$10 billion to US$20 billion beginning in January 2018.

In Europe, the UK’s economic growth moderated in 2017 compared to 2016, largely due to slower growth in the services sector. In November, the Bank of England raised its key policy rate 0.25%, its first increase in a decade. The eurozone’s growth accelerated in 2017’s second and third quarters, but moderated in the fourth quarter. However, the eurozone’s 2017 economic growth rate of 2.5% was the fastest in a decade.³ The bloc’s annual inflation rate, while low, ended higher than in December 2016. The ECB kept its benchmark interest rate unchanged during the period. However, at its October meeting, the ECB extended the time frame for its massive bond-buying program from December 2017 to at least September 2018, while reducing the amount of monthly bond purchases in half beginning in January 2018.

In Asia, Japan’s quarterly gross domestic product (GDP) grew for the seventh consecutive quarter, although third-quarter 2017 growth was lower than the previous quarter. The Bank of Japan left its benchmark interest rate unchanged during the period and continued its monetary stimulus measures.

In emerging markets, Brazil’s quarterly GDP grew for the third consecutive quarter, although third-quarter 2017 growth slowed from the previous quarter. The country’s central bank cut its benchmark interest rate several times during the period to spur economic growth. Russia’s GDP grew in 2017’s first three quarters compared to the prior-year periods, amid the Bank of Russia’s continued policy support. China’s GDP grew faster in 2017 than in 2016, supported by solid growth in industrial production, services, fixed-asset investment, retail sales, and imports and exports. The People’s Bank of China left its benchmark interest rate unchanged during the period. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, produced a substantial +37.75% total return during the period.¹

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 also reduces the risk of substantial declines, in our opinion. 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 investment approach, we typically focus our arbitrage efforts on announced deals, and avoid 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.

2. Source: Bureau of Labor Statistics.

3. Source: Eurostat.

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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

In 2017, an improving economic and political backdrop helped drive most equity markets higher. The positive performances were broad based, spanning across most regions and sectors, and complemented by minimal volatility. Global markets were aided by generally upbeat economic data, improved corporate earnings in the US, Europe and Japan, as well as improved industrial commodity prices, most notably crude oil. In addition, the most significant political risks identified by investors heading into 2017 failed to materialize.

In the US, markets began 2017 rallying as investors hoped that a Republican sweep of US elections in November 2016 would lead to a general loosening in regulations and tax reform, including lower corporate tax rates. Although the Trump administration’s policy agenda was hindered by political gridlock, efforts to loosen federal regulations yielded some results and tax reform legislation was finally passed in late December. Improving economic activity and corporate earnings appeared to be the most meaningful equity market catalysts during much of 2017. However, the modest level of economic growth and low interest rates pushed investors to keep favoring growth stocks. During the period, the Russell 1000^® Growth Index generated a total return of +30.21%, while the Russell 1000^® Value Index posted a total return of +13.66%.⁴ Within the Russell 1000^® Growth Index, stocks with the largest weightings were technology firms that dominated the headlines: Apple,⁵ Alphabet (a.k.a. Google),⁵ Microsoft, Amazon.com⁵ and Facebook.⁵

European equity markets started 2017 slowly, but positive political events and improved economic data fueled strong performances during the period. Elections in Europe produced generally positive outcomes as far-right parties largely failed to gain political power in national elections. Investors were particularly encouraged by the presidential election outcome in France. The reform-minded, centrist candidate, Emmanuel Macron, won the French presidential election in May and quickly began to push his agenda, most notably labor decrees giving employers in France greater freedom in negotiating

Top 10 Sectors/Industries

Based on Equity Securities as of 12/31/17

	% of Total Net Assets
Banks		10.2%
Oil, Gas & Consumable Fuels		8.5%
Media		7.9%
Insurance		7.8%
Pharmaceuticals		7.4%
Software		6.0%
Health Care Equipment & Supplies		4.4%
Tobacco		4.2%
Food & Staples Retailing		4.1%
Communications Equipment		2.8%

contracts directly with workers. Amid all the positive events, the UK remained the most significant outlier. In the UK, a June 2017 snap election resulting in no party having a majority in Parliament appeared to make a “hard Brexit,” in which the UK leaves the European Union (EU) in March 2019 without a negotiated deal, even more likely than before. Although the UK and EU appeared to make some progress late in the year, the snap election results left the Conservative Party in a precarious position and with the risk of another election in the near future.

As value investors, we seek to invest prudently in securities that we believe represent good value, but adjust our views accordingly as the world around us changes. The media industry is a recent example of this approach. The Top 10 Sectors/Industries table on this page lists media and other leading industries in which the Fund currently invests. The media industry became a significant area of investment interest in the latter stages of the year due to significant structural changes. Since the 1980s, most Americans received their TV entertainment as part of a bundle from a cable provider. Disparate networks were combined and sold as packages, with annual price increases justified by the inclusion of more networks. Consumers rarely had the option to unbundle cable packages and most markets had no direct competition. However, the growth of fixed and mobile broadband connectivity ushered in the opportunity to bypass traditional distributors through the delivery of film and TV content over the internet and the launch of direct-to-consumer offerings by TV networks. The growing popularity of new digital options has driven cable providers to roll out lower-priced packages

4. Source: Morningstar. Frank Russell Company is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell^® is a trademark of Frank Russell Company.

5. Not a Fund holding.

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with fewer channels. This evolution has begun to create winners and losers among networks and new opportunities for investors.

Pay TV subscription among US households peaked in 2009 at close to 100 million homes. Initially, the decline in subscribers was moderate, but has accelerated since 2015, reaching a pace of more than 2% per year in 2017. At first, media companies benefited from digital distribution by using it as an additional outlet for selling content. With the cannibalization of traditional platforms accelerating, media companies have begun to respond. The necessity for greater scale in content development and direct access to consumers is driving investment and merger decisions in the industry. From our standpoint, we are looking for networks with the most attractive content relative to the price they have been charging and may be able to charge in the future.

The Fund initiated a position in Walt Disney in the latter half of 2017. We believe Disney is well positioned to benefit from the evolution toward a more direct-to-consumer distribution model. In our view, Disney has one of the best intellectual property (IP) portfolios in all of media with a stable of globally recognized proprietary characters upon which to build a strong direct-to-consumer franchise. If Disney is successful in its bid to acquire the bulk of Twenty-First Century Fox’s⁵ content assets, the deal would further strengthen its IP portfolio and its content development scale. As it has done with its own IP, Disney would likely be able to leverage Fox’s content into attractions at its theme parks as well as consumer products. The acquisition would offer potential cost synergies that would likely offset some of the investments in the direct-to-consumer service. Under the leadership of chief executive officer Bob Iger, Disney has been effective in integrating acquired companies and navigating through a changing media landscape. Iger’s commitment to remain at the helm through 2021 strengthens our belief that the company should be able to execute on this opportunity.

Merger and acquisition activity remained healthy in 2017, although the pace of activity appeared to decelerate slightly compared to 2016 due to less favorable political and regulatory conditions in the US, the UK and China. In the US, several key regulatory agencies remain short of members, including the Federal Communications Commission and the Federal Trade Commission. Many large deals continued to wind their way through prolonged regulatory reviews, including Bayer’s⁵ acquisition of Monsanto, AT&T’s acquisition of Time Warner, and Twenty-First Century Fox’s offer for Sky.

Top 10 Equity Holdings
12/31/17
Company Sector/Industry, Country	% of Total Net Assets
Medtronic PLC		3.0%
Health Care Equipment & Supplies, US
Merck & Co. Inc.		2.8%
Pharmaceuticals, US
British American Tobacco PLC		2.6%
Tobacco, UK
Eli Lilly & Co.		2.5%
Pharmaceuticals, US
Microsoft Corp.		2.4%
Software, US
Royal Dutch Shell PLC		2.2%
Oil, Gas & Consumable Fuels, UK
Time Warner Inc.		2.2%
Media, US
Novartis AG		2.1%
Pharmaceuticals, Switzerland
Cisco Systems Inc.		2.0%
Communications Equipment, US
American International Group Inc.		2.0%
Insurance, US

Credit spreads narrowed in 2017 for higher quality and high yield credit, albeit with some minor bouts of volatility. The broad-based decrease in yield differentials between bonds with the same maturity but different credit quality provided the Fund with the opportunity to exit a number of opportunities that presented themselves in early 2016, including several bond offerings related to leveraged acquisitions, as prices improved, yield premium over Treasuries shrank, and the risk-adjusted returns were no longer mispriced. As the year progressed and investors became more willing buyers of credit, mispriced risk became more difficult to find, in our opinion. In times when the credit markets fluctuate and value is difficult to identify, we believe our industry specific expertise, deep fundamental analysis with a focus on cash flow, and intensive credit and covenant review combine seamlessly and provide us with different ways of looking at the same ideas others may disregard.

Fund Performance

Turning to Fund performance, top positive contributors included multinational software company Microsoft, construction and mining equipment manufacturer Caterpillar and South Korea-based Samsung Electronics. Microsoft is listed among the Fund’s largest positions in the Top 10 Equity Holdings table on this page.

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Microsoft continued to reap the rewards of its rapidly growing cloud business and from shifting Microsoft Office software clients to its subscription-based services. Microsoft reported solid quarterly results, including an improvement in operating margins and upward guidance to 2018 operating margins. Microsoft also announced a reorganization of its commercial field sales teams in July 2017 as part of its increased focus on cloud computing.

Caterpillar raised its 2017 revenue and earnings guidance on multiple occasions during the year as demand generally improved across all of its divisions. Improved global economic conditions and a rebound in Chinese construction activity were significant catalysts for the increased demand. In September, Caterpillar’s new chief executive officer, Jim Umpleby, hosted an investor day at which he outlined his vision for the company. In particular, the company highlighted significant new growth opportunities in each of its business units, as well as margin targets that exceeded analyst expectations.

Samsung Electronics is a low cost provider of dynamic random-access memory and flash memory products, smartphones, consumer electronics and other goods. For investors, Samsung’s solid operating results outweighed both the conviction of Samsung vice chairman Jay Y. Lee for his involvement in a government bribery scandal and escalating tensions between North Korea and the international community. Samsung reported strong sales in its core businesses, including memory chips and OLED (organic light-emitting diode) displays. Sales of its newest generation of smartphones during 2017 exceeded market expectations. Shareholder-friendly actions also boosted shares of Samsung, including a plan to cancel existing treasury shares held by the company and the announcement of significant dividend increases in 2017 and 2018.

During the period under review, Fund investments that detracted from performance included US-based energy services company Baker Hughes, Israel-based pharmaceutical services provider Teva Pharmaceuticals⁶ and US-based industrials company General Electric (GE).

Baker Hughes is an energy services company, majority owned by GE following the completed merger between Baker Hughes and GE’s oil-and-gas business in July 2017. Baker Hughes’ stock price slid lower in 2017 as the environment for long-cycle oil field service projects remained challenging and

the newly combined company posted weaker-than-expected operating results. Toward year-end, we saw reasons for optimism as oil prices gained and Baker Hughes announced a $3 billion share repurchase program.

Teva Pharmaceutical Industries experienced a challenging year. In January 2017, Teva provided lower earnings guidance and a US federal court invalidated four patents for the company’s top-selling multiple sclerosis drug Copaxone. The resignations of Teva’s chief executive officer (CEO) and chief financial officer in the first half of 2017 further hindered Teva’s stock price. In the second half of the year, weak operating results, a dividend cut and a debt rating downgrade escalated investor concerns.

The stock price of GE, an industrials company with a wide range of business units, declined as investors became more discouraged about the company’s poor cash flow generation, significantly underfunded pension liability, bloated cost structure, and increased competition and overcapacity in the power market. Intensifying pressure by activist investors led to chief executive officer (CEO) Jeffrey Immelt’s resignation in June 2017 and the promotion of John Flannery to CEO. However, GE’s stock price continued to slide after the company lowered its 2017 earnings guidance in October, which heightened investor concerns about a potential dividend cut. A dividend cut of 50%, larger than most investors had speculated, was announced in November, along with the incoming CEO’s plan for portfolio optimization and significant cost reductions. These negative events have not altered our view that GE has well-positioned businesses. If GE delivers on its plan to improve free cash flow generation and reduce overhead expenses, we believe there is upside potential for its stock price.

During the period, the Fund held currency forwards and futures seeking to hedge most of the currency risk of the portfolio’s non-US dollar investments. The currency forwards and futures had a negative impact on the Fund’s performance because of the depreciation of the US dollar versus the hedged currencies.

What is a currency forward?

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

6. Not held at period-end.

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

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FRANKLIN MUTUAL SHARES FUND

What is a future?

A future is an agreement between the Fund and a counterparty made through a US 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 participation in Franklin Mutual Shares Fund. We look forward to continuing to serve your investment needs.

	Peter A. Langerman Co-Portfolio Manager
	F. David Segal, CFA Co-Portfolio Manager
	Debbie A. Turner, CFA Assistant Portfolio Manager

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, 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.

CFA^® is a trademark owned by CFA Institute.

Peter Langerman has been portfolio manager for Franklin Mutual Shares Fund since 2005. He has been portfolio manager of Franklin Mutual Global Discovery Fund since 2009. He joined Franklin Templeton Investments in 1996, serving in various capacities, including President and Chief Executive Officer of Franklin Mutual Advisers and member of the management team of the Funds, including Franklin Mutual Shares Fund. From 2002 to 2005, he served as director of New Jersey’s Division of Investment, overseeing employee pension funds. Between 1986 and 1996, Mr. Langerman was employed at Heine Securities Corporation, the Fund’s former manager.

F. David Segal has been portfolio manager for Franklin Mutual Shares Fund since 2005. He joined Franklin Templeton Investments in 2002. Previously, he was an analyst in the Structured Finance Group of MetLife for the period 1999 to 2002.

Debbie Turner has been assistant portfolio manager for Franklin Mutual Shares Fund since 2001. She joined Franklin Templeton Investments in 1996. Between 1993 and 1996, Ms. Turner was employed at Heine Securities Corporation, the Fund’s former manager.

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FRANKLIN MUTUAL SHARES FUND

Performance Summary as of December 31, 2017

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. 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.

Performance as of 12/31/17

Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge. For other share classes, visit franklintempleton.com.

Share Class	Cumulative Total Return1	Average Annual Total Return2
Z
1-Year	+8.49%	+8.49%
5-Year	+66.69%	+10.76%
10-Year	+68.14%	+5.33%
A
1-Year	+8.21%	+1.97%
5-Year	+64.44%	+9.16%
10-Year	+63.38%	+4.41%

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.

See page 11 for Performance Summary footnotes.

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FRANKLIN MUTUAL SHARES FUND

PERFORMANCE SUMMARY

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

Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged index includes reinvestment of any income or distributions. It differs from the Fund in composition and does not pay management fees or expenses. One cannot invest directly in an index.

Class Z (1/1/08–12/31/17)

Class A (1/1/08–12/31/17)

See page 11 for Performance Summary footnotes.

  10           Annual Report   franklintempleton.com

FRANKLIN MUTUAL SHARES FUND

PERFORMANCE SUMMARY

Distributions (1/1/17–12/31/17)

Share Class	Net Investment Income		Short-Term Capital Gain		Long-Term Capital Gain		Total
Z		$0.6778		$0.0599		$1.2339		$1.9716
A		$0.6070		$0.0599		$1.2339		$1.9008
C		$0.3726		$0.0599		$1.2339		$1.6664
R		$0.5260		$0.0599		$1.2339		$1.8198
R6		$0.7183		$0.0599		$1.2339		$2.0121

Total Annual Operating Expenses⁴

Share Class
Z	0.80%
A	1.05%

Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.

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. 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 may invest in 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.

1. Cumulative total return represents the change in value of an investment over the periods indicated.

2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Source: Morningstar. The S&P 500 is a market capitalization-weighted index of 500 stocks designed to measure total US equity market performance.

4. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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

  franklintempleton.com   Annual Report               11

FRANKLIN MUTUAL SHARES FUND

Your Fund’s Expenses

As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) 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 table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

		Actual (actual return after expenses)		Hypothetical (5% annual return before expenses)
Share Class	Beginning Account Value 7/1/17	Ending Account Value 12/31/17	Expenses Paid During Period 7/1/17–12/31/171	Ending Account Value 12/31/17	Expenses Paid During Period 7/1/17–12/31/171	Annualized Expense Ratio
Z	$1,000	$1,028.80	$4.04	$1,021.22	$4.02	0.79%
A	$1,000	$1,027.30	$5.31	$1,019.96	$5.30	1.04%
C	$1,000	$1,023.40	$9.13	$1,016.18	$9.10	1.79%
R	$1,000	$1,026.10	$6.59	$1,018.70	$6.56	1.29%
R6	$1,000	$1,029.20	$3.48	$1,021.78	$3.47	0.68%

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/365 to reflect the one-half year period.

  12           Annual Report   franklintempleton.com

FRANKLIN MUTUAL SHARES FUND

Financial Highlights

		Year Ended December 31,
	2017		2016		2015		2014		2013
Class Z
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$28.22		$26.00		$29.52		$28.34		$22.48
Income from investment operationsa:
Net investment incomeb		0.65c		0.63d		0.54		0.78e		0.47
Net realized and unrealized gains (losses)		1.73		3.48		(1.71)		1.38		5.83
Total from investment operations		2.38		4.11		(1.17)		2.16		6.30
Less distributions from:
Net investment income		(0.68)		(0.64)		(0.59)		(0.98)		(0.44)
Net realized gains		(1.29)		(1.25)		(1.76)		—		—
Total distributions		(1.97)		(1.89)		(2.35)		(0.98)		(0.44)
Net asset value, end of year		$28.63		$28.22		$26.00		$29.52		$28.34
Total return		8.49%		15.88%		(3.81)%		7.60%		28.10%
Ratios to average net assets
Expensesf,g		0.78%		0.80%h		0.81%h		0.80%		0.79%
Expenses incurred in connection with securities sold short		—%		0.01%		0.02%		0.03%		—%i
Net investment income		2.23%c		2.33%d		1.82%		2.67%e		1.85%
Supplemental data
Net assets, end of year (000’s)		$6,229,996		$7,681,881		$6,770,056		$7,363,765		$7,025,908
Portfolio turnover rate		18.15%		20.56%		19.99%		19.24%		24.29%

^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 $0.16 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 1.69%.

^dNet investment income per share includes approximately $0.10 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 1.96%.

^eNet investment income per share includes approximately $0.29 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 1.66%.

^fIncludes 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(d).

^gBenefit of expense reduction rounds to less than 0.01%.

^hBenefit of waiver and payments by affiliates rounds to less than 0.01%.

ⁱRounds to less than 0.01%.

  franklintempleton.com   The accompanying notes are an integral part of these financial statements.  |     Annual Report               13

FRANKLIN MUTUAL SHARES FUND

FINANCIAL HIGHLIGHTS

		Year Ended December 31,
	2017		2016		2015		2014		2013
Class A
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$27.97		$25.78		$29.29		$28.12		$22.32
Income from investment operationsa:
Net investment incomeb		0.58c		0.56d		0.45		0.69e		0.40
Net realized and unrealized gains (losses)		1.70		3.45		(1.69)		1.37		5.76
Total from investment operations		2.28		4.01		(1.24)		2.06		6.16
Less distributions from:
Net investment income		(0.61)		(0.57)		(0.51)		(0.89)		(0.36)
Net realized gains		(1.29)		(1.25)		(1.76)		—		—
Total distributions		(1.90)		(1.82)		(2.27)		(0.89)		(0.36)
Net asset value, end of year		$28.35		$27.97		$25.78		$29.29		$28.12
Total returnf		8.21%		15.61%		(4.10)%		7.30%		27.74%
Ratios to average net assets
Expensesg,h		1.03%		1.05%i		1.09%i		1.10%		1.09%
Expenses incurred in connection with securities sold short		—%		0.01%		0.02%		0.03%		—%j
Net investment income		1.98%c		2.08%d		1.54%		2.37%e		1.55%
Supplemental data
Net assets, end of year (000’s)		$4,386,829		$4,737,576		$4,819,868		$5,392,130		$5,477,733
Portfolio turnover rate		18.15%		20.56%		19.99%		19.24%		24.29%

^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 $0.16 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 1.44%.

^dNet investment income per share includes approximately $0.10 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 1.71%.

^eNet investment income per share includes approximately $0.29 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 1.36%.

^fTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

^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(d).

^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%.

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

FRANKLIN MUTUAL SHARES FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017		2016		2015		2014		2013
Class C
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$27.68		$25.54		$29.02		$27.88		$22.13
Income from investment operationsa:
Net investment incomeb		0.35c		0.35d		0.24		0.48e		0.22
Net realized and unrealized gains (losses)		1.67		3.40		(1.67)		1.34		5.71
Total from investment operations		2.02		3.75		(1.43)		1.82		5.93
Less distributions from:
Net investment income		(0.37)		(0.36)		(0.29)		(0.68)		(0.18)
Net realized gains		(1.29)		(1.25)		(1.76)		—		—
Total distributions		(1.66)		(1.61)		(2.05)		(0.68)		(0.18)
Net asset value, end of year		$28.04		$27.68		$25.54		$29.02		$27.88
Total returnf		7.37%		14.77%		(4.79)%		6.56%		26.82%
Ratios to average net assets
Expensesg,h		1.78%		1.80%i		1.81%i		1.80%		1.79%
Expenses incurred in connection with securities sold short		—%		0.01%		0.02%		0.03%		—%j
Net investment income		1.23%c		1.33%d		0.82%		1.67%e		0.85%
Supplemental data
Net assets, end of year (000’s)		$995,665		$1,114,760		$1,101,302		$1,240,845		$1,236,603
Portfolio turnover rate		18.15%		20.56%		19.99%		19.24%		24.29%

^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 $0.16 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 0.69%.

^dNet investment income per share includes approximately $0.10 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 0.96%.

^eNet investment income per share includes approximately $0.29 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 0.66%.

^fTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

^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(d).

^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 financial statements.  |     Annual Report               15

FRANKLIN MUTUAL SHARES FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017		2016		2015		2014		2013
Class R
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$27.83		$25.66		$29.14		$27.98		$22.20
Income from investment operationsa:
Net investment incomeb		0.50c		0.49d		0.38		0.64e		0.34
Net realized and unrealized gains (losses)		1.70		3.42		(1.67)		1.34		5.73
Total from investment operations		2.20		3.91		(1.29)		1.98		6.07
Less distributions from:
Net investment income		(0.53)		(0.49)		(0.43)		(0.82)		(0.29)
Net realized gains		(1.29)		(1.25)		(1.76)		—		—
Total distributions		(1.82)		(1.74)		(2.19)		(0.82)		(0.29)
Net asset value, end of year		$28.21		$27.83		$25.66		$29.14		$27.98
Total return		7.96%		15.31%		(4.32)%		7.10%		27.47%
Ratios to average net assets
Expensesf,g		1.28%		1.30%h		1.31%h		1.30%		1.29%
Expenses incurred in connection with securities sold short		—%		0.01%		0.02%		0.03%		—%i
Net investment income		1.73%c		1.83%d		1.32%		2.17%e		1.35%
Supplemental data
Net assets, end of year (000’s)		$107,660		$123,013		$134,050		$172,938		$192,658
Portfolio turnover rate		18.15%		20.56%		19.99%		19.24%		24.29%

^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 $0.16 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 1.19%.

^dNet investment income per share includes approximately $0.10 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 1.46%.

^eNet investment income per share includes approximately $0.29 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 1.16%.

^fIncludes 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(d).

^gBenefit of expense reduction rounds to less than 0.01%.

^hBenefit of waiver and payments by affiliates rounds to less than 0.01%.

ⁱRounds to less than 0.01%.

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

FRANKLIN MUTUAL SHARES FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017		2016		2015		2014		2013a
Class R6
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$28.21		$25.98		$29.51		$28.33		$24.91
Income from investment operationsb:
Net investment incomec		0.70d		0.66e		0.57		0.82f		0.38
Net realized and unrealized gains (losses)		1.71		3.49		(1.71)		1.37		3.51
Total from investment operations		2.41		4.15		(1.14)		2.19		3.89
Less distributions from:
Net investment income		(0.72)		(0.67)		(0.63)		(1.01)		(0.47)
Net realized gains		(1.29)		(1.25)		(1.76)		—		—
Total distributions		(2.01)		(1.92)		(2.39)		(1.01)		(0.47)
Net asset value, end of year		$28.61		$28.21		$25.98		$29.51		$28.33
Total returng		8.61%		16.05%		(3.71)%		7.72%		15.70%
Ratios to average net assetsh
Expensesi,j		0.67%		0.68%k		0.69%k		0.69%		0.67%
Expenses incurred in connection with securities sold short		—%		0.01%		0.02%		0.03%		—%l
Net investment income		2.34%d		2.45%e		1.94%		2.78%f		1.97%
Supplemental data
Net assets, end of year (000’s)		$3,741,430		$1,896,497		$1,923,466		$2,249,991		$2,221,889
Portfolio turnover rate		18.15%		20.56%		19.99%		19.24%		24.29%

^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 $0.16 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 1.80%.

^eNet investment income per share includes approximately $0.10 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 2.08%.

^fNet investment income per share includes approximately $0.29 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 1.77%.

^gTotal return is not annualized for periods less than one year.

^hRatios are annualized for periods less than one year.

ⁱIncludes 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(d).

^jBenefit of expense reduction rounds to less than 0.01%.

^kBenefit of waiver and payments by affiliates rounds to less than 0.01%.

^lRounds to less than 0.01%.

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

FRANKLIN MUTUAL SHARES FUND

Statement of Investments, December 31, 2017

		Country		Shares/ Units/ Warrants		Value
	Common Stocks and Other Equity Interests 91.0%
	Aerospace & Defense 0.1%
	BAE Systems PLC		United Kingdom		1,122,145	$	8,683,246
	Auto Components 0.8%
	The Goodyear Tire & Rubber Co.		United States		2,382,274		76,971,273
a,b,c,d	International Automotive Components Group Brazil LLC		Brazil		7,234,813		248,046
a,b,c,d	International Automotive Components Group North America LLC		United States		63,079,866		41,555,438
							118,774,757
	Automobiles 1.2%
	General Motors Co		United States		4,507,470		184,761,195
	Banks 10.2%
	Barclays PLC		United Kingdom		38,190,870		104,748,543
	CIT Group Inc.		United States		2,759,673		135,858,702
	Citigroup Inc.		United States		3,362,406		250,196,630
	Citizens Financial Group Inc.		United States		6,757,671		283,687,029
	Columbia Banking System Inc.		United States		88,096		3,826,890
a	FCB Financial Holdings Inc., A		United States		1,647,570		83,696,556
	Guaranty Bancorp		United States		1,146,366		31,697,020
	JPMorgan Chase & Co.		United States		2,748,790		293,955,603
	PNC Financial Services Group Inc.		United States		1,361,933		196,513,312
	State Bank Financial Corp.		United States		1,467,000		43,775,280
	Wells Fargo & Co.		United States		2,531,930		153,612,193
							1,581,567,758
	Beverages 0.9%
	PepsiCo Inc.		United States		1,185,449		142,159,044
	Building Products 0.7%
	Johnson Controls International PLC		United States		2,901,100		110,560,921
	Chemicals 1.1%
a,c,e	Dow Corning Corp., Contingent Distribution		United States		12,630,547		—
	Monsanto Co.		United States		1,483,490		173,241,962
							173,241,962
	Communications Equipment 2.8%
	Cisco Systems Inc.		United States		8,126,460		311,243,418
	Nokia OYJ, A.		Finland		13,670,039		63,866,716
	Nokia OYJ, ADR		Finland		10,897,776		50,783,636
							425,893,770
	Construction & Engineering 0.6%
	Fluor Corp.		United States		1,928,727		99,618,750
	Construction Materials 0.7%
	LafargeHolcim Ltd., B.		Switzerland		1,946,175		109,757,599
	Consumer Finance 1.7%
	Ally Financial Inc.		United States		3,254,500		94,901,220
	Capital One Financial Corp.		United States		1,609,205		160,244,634
							255,145,854
	Containers & Packaging 2.2%
	International Paper Co.		United States		3,276,637		189,848,348
	WestRock Co.		United States		2,383,939		150,688,784
							340,537,132

  18           Annual Report   franklintempleton.com

FRANKLIN MUTUAL SHARES FUND

STATEMENT OF INVESTMENTS

		Country		Shares/ Units/ Warrants		Value
	Common Stocks and Other Equity Interests (continued)
	Diversified Financial Services 1.1%
	Voya Financial Inc.		United States		3,413,030	$	168,842,594
	Diversified Telecommunication Services 0.7%
	Koninklijke KPN NV		Netherlands		30,410,640		106,103,288
	Electric Utilities 0.5%
	PG&E Corp.		United States		1,822,271		81,692,409
	Electrical Equipment 1.3%
a	Sensata Technologies Holding NV		United States		4,067,870		207,908,836
	Energy Equipment & Services 0.7%
	Baker Hughes a GE Co., A		United States		3,663,252		115,905,293
a	GulfMark Offshore Inc.		United States		464		13,219
a	GulfMark Offshore Inc., wts., 11/14/24		United States		5,020		3,615
							115,922,127
	Equity Real Estate Investment Trusts (REITs) 2.0%
b	Alexander’s Inc.		United States		326,675		129,314,299
	JBG SMITH Properties.		United States		719,061		24,972,988
	Vornado Realty Trust		United States		2,036,522		159,215,290
							313,502,577
	Food & Staples Retailing 4.1%
	CVS Health Corp.		United States		3,015,915		218,653,837
	The Kroger Co.		United States		8,225,486		225,789,591
a	Rite Aid Corp.		United States		8,729,840		17,197,785
	Walgreens Boots Alliance Inc.		United States		2,283,129		165,800,828
							627,442,041
	Health Care Equipment & Supplies 4.4%
	Medtronic PLC		United States		5,756,394		464,828,815
	Stryker Corp.		United States		1,438,552		222,745,392
							687,574,207
	Hotels, Restaurants & Leisure 0.1%
a	Caesars Entertainment Corp.		United States		631,368		7,986,805
	Household Products 0.6%
	Energizer Holdings Inc.		United States		1,787,933		85,785,025
	Independent Power & Renewable Electricity Producers 0.6%
a	Vistra Energy Corp.		United States		4,927,428		90,270,481
	Industrial Conglomerates 1.4%
	General Electric Co.		United States		12,824,100		223,780,545
	Insurance 7.8%
a	Alleghany Corp.		United States		377,389		224,957,809
	American International Group Inc.		United States		5,079,039		302,609,144
a	Brighthouse Financial Inc.		United States		322,902		18,934,973
	Chubb Ltd.		United States		1,169,358		170,878,284
	The Hartford Financial Services Group Inc.		United States		2,286,099		128,661,652
	MetLife Inc.		United States		3,551,930		179,585,581
	XL Group Ltd.		Bermuda		5,164,055		181,568,174
							1,207,195,617

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FRANKLIN MUTUAL SHARES FUND

STATEMENT OF INVESTMENTS

		Country		Shares/ Units/ Warrants		Value
	Common Stocks and Other Equity Interests (continued)
	IT Services 1.8%
	Cognizant Technology Solutions Corp., A		United States		2,992,250	$	212,509,595
	DXC Technology Co.		United States		643,537		61,071,661
							273,581,256
	Machinery 1.9%
	Caterpillar Inc.		United States		1,058,961		166,871,074
	CNH Industrial NV		United Kingdom		4,351,332		58,315,537
	CNH Industrial NV, special voting		United Kingdom		5,296,616		70,984,012
							296,170,623
	Media 7.9%
a	Charter Communications Inc., A		United States		865,529		290,783,123
a	DISH Network Corp., A.		United States		2,879,437		137,493,117
	Sky PLC		United Kingdom		12,335,183		168,579,447
	Time Warner Inc.		United States		3,673,058		335,974,615
	The Walt Disney Co.		United States		2,716,200		292,018,662
							1,224,848,964
	Metals & Mining 0.9%
	thyssenkrupp AG		Germany		3,973,743		115,449,785
	Warrior Met Coal Inc.		United States		1,156,279		29,080,417
							144,530,202
	Oil, Gas & Consumable Fuels 8.5%
	Anadarko Petroleum Corp.		United States		3,948,180		211,780,375
	BP PLC.		United Kingdom		15,851,497		111,892,583
	Kinder Morgan Inc.		United States		11,533,040		208,402,033
	Marathon Oil Corp.		United States		10,059,014		170,299,107
	Plains All American Pipeline LP		United States		3,862,400		79,719,936
	Royal Dutch Shell PLC, A (EUR Traded)		United Kingdom		6,445,120		214,857,387
	Royal Dutch Shell PLC, A (GBP Traded)		United Kingdom		3,716,893		124,483,060
	The Williams Cos. Inc.		United States		6,351,184		193,647,600
							1,315,082,081
	Pharmaceuticals 7.4%
	Eli Lilly & Co.		United States		4,632,255		391,240,257
	Merck & Co. Inc.		United States		7,597,210		427,495,007
	Novartis AG, ADR		Switzerland		3,798,680		318,937,173
							1,137,672,437
	Professional Services 1.0%
	RELX PLC		United Kingdom		6,306,172		148,096,198
	Real Estate Management & Development 0.1%
a	VICI Properties Inc.		United States		768,407		15,752,343
	Software 6.0%
a	Avaya Holdings Corp.		United States		3,089,269		54,216,671
a,c	Avaya Holdings Corp., wts., 12/15/22		United States		276,741		470,762
	CA Inc.		United States		5,174,940		172,222,003
a	Dell Technologies Inc., V		United States		720,878		58,592,964
	Microsoft Corp.		United States		4,372,085		373,988,151
	Symantec Corp.		United States		9,445,251		265,033,743
							924,524,294

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FRANKLIN MUTUAL SHARES FUND

STATEMENT OF INVESTMENTS

		Country		Shares/ Units/ Warrants		Value
	Common Stocks and Other Equity Interests (continued)
	Technology Hardware, Storage & Peripherals 2.4%
	Hewlett Packard Enterprise Co.		United States		7,491,354	$	107,575,843
	Samsung Electronics Co. Ltd.		South Korea		110,421		263,593,122
							371,168,965
	Tobacco 4.2%
	Altria Group Inc.		United States		2,351,460		167,917,758
	British American Tobacco PLC		United Kingdom		4,377,848		296,667,417
	British American Tobacco PLC, ADR		United Kingdom		1,655,688		110,914,539
	Imperial Brands PLC.		United Kingdom		1,751,865		74,901,422
							650,401,136
	Wireless Telecommunication Services 0.6%
	Vodafone Group PLC		United Kingdom		29,287,025		92,944,059
	Total Common Stocks and Other Equity Interests (Cost $10,097,009,237)						14,069,481,098
	Management Investment Companies (Cost $78,163,804) 0.5%
	Diversified Financial Services 0.5%
a	Altaba Inc.		United States		1,192,700		83,310,095
				Principal Amount
	Corporate Notes and Senior Floating Rate Interests 2.5%
f,g	Belk Inc., Closing Date Term Loan, 6.099%, (LIBOR + 4.75%), 12/12/22		United States	$	20,592,390		16,907,217
f,g	Cumulus Media Holdings Inc., Term Loans, 4.82%, (LIBOR + 3.25%), 12/23/20		United States		56,795,526		49,057,136
	Frontier Communications Corp.,
	senior note, 10.50%, 9/15/22		United States		82,365,000		62,494,444
	senior note, 11.00%, 9/15/25		United States		93,006,000		68,824,440
	iHeartCommunications Inc.,
	senior secured note, first lien, 9.00%, 12/15/19		United States		74,295,000		55,535,512
	f,g Tranche D Term Loan, 8.443%, (LIBOR + 6.75%), 1/30/19		United States		94,620,527		71,399,041
	f,g Tranche E Term Loan, 9.193%, (LIBOR + 7.50%), 7/30/19		United States		30,412,812		22,872,959
f,g	Toys R US-Delaware Inc., (DIP), 10.319%, (LIBOR + 8.75%), 1/18/19		United States		42,205,955		43,261,104
	Total Corporate Notes and Senior Floating Rate Interests (Cost $459,329,743)						390,351,853
	Corporate Notes and Senior Floating Rate Interests in Reorganization 0.3%
c,d,h	Broadband Ventures III LLC, secured promissory note, 5.00%, 2/01/12		United States		19,594		—
f,g,h	Toys R US-Delaware Inc., Term B-4 Loan, 6.125%, (LIBOR + 3.875%), 4/24/20		United States		77,193,103		38,210,586
	Total Corporate Notes and Senior Floating Rate Interests in Reorganization (Cost $73,753,961)						38,210,586
				Shares
	Companies in Liquidation 0.1%
a,c,e	Avaya Holdings Corp., Contingent Distribution		United States		67,859,000		—
a,c,e	Avaya Inc., Contingent Distribution		United States		131,491,378		—
a,b,c,d	CB FIM Coinvestors LLC		United States		43,105,703		—
a,c,d	FIM Coinvestor Holdings I, LLC		United States		53,924,666		—

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FRANKLIN MUTUAL SHARES FUND

STATEMENT OF INVESTMENTS

		Country		Shares		Value
	Companies in Liquidation(continued)
a,i	Lehman Brothers Holdings Inc., Bankruptcy Claim		United States		420,480,670	$	9,334,671
a,c,e	Tribune Media, Litigation Trust, Contingent Distribution		United States		1,006,784		—
a,c,e	Vistra Energy Corp., Litigation Trust, Contingent Distribution		United States		292,849,556		3,397,055
a	Vistra Energy Corp., Litigation Trust, TRA		United States		4,927,428		4,311,499
	Total Companies in Liquidation (Cost $52,431,683)						17,043,225
	Total Investments before Short Term Investments (Cost $10,760,688,428)						14,598,396,857
				Principal Amount
	Short Term Investments 5.5%
	U.S. Government and Agency Securities 5.5%
j	FHLB, 1/02/18		United States	$	4,300,000		4,300,000
j	U.S. Treasury Bill,
	1/02/18 - 5/03/18		United States		745,530,000		744,121,767
	k4/19/18 - 5/10/18		United States		100,000,000		99,540,986
	Total U.S. Government and Agency Securities (Cost $848,114,229)						847,962,753
	Total Investments (Cost $11,608,802,657) 99.9%						15,446,359,610
	Securities Sold Short (0.6)%						(95,444,797	)
	Other Assets, less Liabilities 0.7%						110,664,825
	Net Assets 100.0%					$	15,461,579,638
				Shares
l	Securities Sold Short (0.6)%
	Common Stocks (0.6)%
	Diversified Telecommunication Services (0.1)%
	AT&T Inc.		United States		550,622		(21,408,183	)
	Internet Software & Services (0.5)%
	Alibaba Group Holding Ltd., ADR		China		429,372		(74,036,614	)
	Total Securities Sold Short (Proceeds $96,405,190)					$	(95,444,797	)

22           Annual Report franklintempleton.com

FRANKLIN MUTUAL SHARES FUND

STATEMENT OF INVESTMENTS

^aNon-income producing.

^bSee Note 11 regarding holdings of 5% voting securities.

^cFair valued using significant unobservable inputs. See Note 13 regarding fair value measurements.

^dSee Note 9 regarding restricted securities.

^eContingent 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.

^fThe coupon rate shown represents the rate at period end.

^gSee Note 1(e) regarding senior floating rate interests.

^hSee Note 8 regarding credit risk and defaulted securities.

ⁱBankruptcy claims represent the right to receive distributions, if any, during the liquidation of the underlying pool of assets. Shares represent the amount of allowed unsecured claims.

^jThe security was issued on a discount basis with no stated coupon rate.

^kA portion or all of the security has been segregated as collateral for securities sold short and open forward exchange contracts. At December 31, 2017, the aggregate value of these securities pledged amounted to $74,221,903, representing 0.5% of net assets.

^lSee Note 1(d) regarding securities sold short.

At December 31, 2017, the Fund had the following futures contracts outstanding. See Note 1(c).

Futures Contracts
Description	Type		Number of Contracts		Notional Amount*		Expiration Date		Value/ Unrealized Appreciation (Depreciation)
Currency Contracts
EUR/USD		Short		1,549		$233,811,869		3/19/18		$(4,168,699)
GBP/USD		Short		3,891		329,689,294		3/19/18		(2,334,760)
Total Futures Contracts										$(6,503,459)

*As of period end.

At December 31, 2017, the Fund had the following forward exchange contracts outstanding. See Note 1(c).

Forward Exchange Contracts
Currency	Counterpartya		Type		Quantity		Contract Amount		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
OTC Forward Exchange Contracts
Euro		BOFA		Buy		3,461,170	$	4,087,056		1/12/18	$	69,324	$	—
Euro		HSBK		Buy		4,744,587		5,608,762		1/12/18		88,822		—
Euro		HSBK		Sell		29,348,872		33,790,694		1/12/18		—		(1,453,184	)
Euro		SSBT		Sell		1,521,428		1,763,251		1/12/18		—		(63,770	)
Euro		UBSW		Sell		30,509,230		35,118,092		1/12/18		—		(1,519,214	)
British Pound		BONY		Sell		3,616,066		4,676,337		1/16/18		—		(210,101	)
British Pound		SSBT		Sell		1,787,109		2,338,893		1/16/18		—		(76,050	)
British Pound		UBSW		Sell		3,616,046		4,671,931		1/16/18		—		(214,479	)
Euro		HSBK		Sell		36,507,824		42,912,757		1/26/18		—		(966,773	)
Euro		UBSW		Sell		36,507,825		42,908,742		1/26/18		—		(970,789	)
South Korean Won		HSBK		Buy		25,759,750,664		23,653,255		2/09/18		496,661		—
South Korean Won		HSBK		Sell		76,804,255,977		68,376,863		2/09/18		—		(3,627,577	)
South Korean Won		UBSW		Sell		58,884,911,177		52,515,469		2/09/18		—		(2,689,480	)
British Pound		BONY		Sell		4,492,042		5,873,605		2/14/18		—		(202,056	)
British Pound		HSBK		Sell		23,479,061		31,206,020		2/14/18		—		(550,325	)

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FRANKLIN MUTUAL SHARES FUND

STATEMENT OF INVESTMENTS

Forward Exchange Contracts (continued)
Currency	Counterpartya		Type		Quantity		Contract Amount		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
OTC Forward Exchange Contracts (continued)
British Pound		UBSW		Sell		4,492,041	$	5,873,591		2/14/18	$	—	$	(202,070	)
Euro		BONY		Sell		19,323,179		22,836,732		2/20/18		—		(420,432	)
Euro		SSBT		Sell		19,323,179		22,832,268		2/20/18		—		(424,895	)
Euro		HSBK		Sell		17,330,559		20,532,900		4/10/18		—		(392,280	)
Euro		UBSW		Sell		17,330,559		20,536,539		4/10/18		—		(388,641	)
Euro		BOFA		Sell		9,350,050		11,154,750		4/18/18		—		(140,679	)
Euro		SSBT		Sell		9,350,050		11,154,469		4/18/18		—		(140,960	)
Euro		UBSW		Sell		9,350,050		11,156,386		4/18/18		—		(139,043	)
British Pound		BOFA		Sell		109,616,137		145,362,940		4/24/18		—		(3,260,233	)
British Pound		UBSW		Sell		80,692,824		106,848,759		4/24/18		—		(2,558,705	)
Euro		BOFA		Sell		516,406		606,129		5/07/18		—		(18,514	)
Euro		HSBK		Sell		15,677,300		18,501,519		5/07/18		—		(461,697	)
Euro		UBSW		Sell		15,677,300		18,498,195		5/07/18		—		(465,021	)
South Korean Won		HSBK		Sell		105,695,642,489		94,124,776		5/11/18		—		(5,070,490	)
South Korean Won		UBSW		Sell		64,126,544,521		57,193,331		5/11/18		—		(2,989,375	)
Euro		BOFA		Sell		31,164,010		37,138,774		5/21/18		—		(592,475	)
Euro		HSBK		Sell		1,260,000		1,527,545		5/21/18		2,023		—
Euro		UBSW		Sell		31,164,009		37,132,540		5/21/18		—		(598,708	)
British Pound		BOFA		Sell		13,051,218		17,567,462		5/24/18		—		(147,441	)
British Pound		HSBK		Sell		780,341		1,060,179		5/24/18		993		—
British Pound		HSBK		Sell		10,553,820		14,185,022		5/24/18		—		(140,069	)
British Pound		SSBT		Sell		72,099,408		96,161,503		5/24/18		—		(1,701,698	)
Total Forward Exchange Contracts											$	657,823	$	(32,797,224	)
Net unrealized appreciation (depreciation)													$	(32,139,401	)

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

See Note 10 regarding other derivative information.

See Abbreviations on page 41.

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

FRANKLIN MUTUAL SHARES FUND

Financial Statements

Statement of Assets and Liabilities

December 31, 2017

Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	11,539,623,754
Cost - Non-controlled affiliates (Note 11)		69,178,903
Value - Unaffiliated issuers	$	15,275,241,827
Value - Non-controlled affiliates (Note 11)		171,117,783
Cash		2,983,341
Foreign currency, at value (cost $7,084,718)		7,111,113
Receivables:
Investment securities sold		10,307,930
Capital shares sold		7,918,047
Dividends and interest		33,552,123
European Union tax reclaims		5,715,475
Deposits with brokers for:
Securities sold short		97,671,827
Futures contracts		10,737,480
Unrealized appreciation on OTC forward exchange contracts		657,823
Other assets		1,822
Total assets		15,623,016,591
Liabilities:
Payables:
Capital shares redeemed		14,380,239
Management fees		8,454,955
Distribution fees		3,575,944
Transfer agent fees		2,131,354
Trustees’ fees and expenses		739,370
Variation margin on futures contracts		3,213,512
Securities sold short, at value (proceeds $96,405,190)		95,444,797
Unrealized depreciation on OTC forward exchange contracts		32,797,224
Accrued expenses and other liabilities		699,558
Total liabilities		161,436,953
Net assets, at value	$	15,461,579,638
Net assets consist of:
Paid-in capital	$	11,655,882,575
Undistributed net investment income		2,054,424
Net unrealized appreciation (depreciation)		3,800,152,990
Accumulated net realized gain (loss)		3,489,649
Net assets, at value	$	15,461,579,638

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FRANKLIN MUTUAL SHARES FUND

FINANCIAL STATEMENTS

Statement of Assets and Liabilities (continued)

December 31, 2017

Class Z:
Net assets, at value	$	6,229,996,034
Shares outstanding		217,608,562
Net asset value and maximum offering price per share		$28.63
Class A:
Net assets, at value	$	4,386,829,076
Shares outstanding		154,736,261
Net asset value per sharea		$28.35
Maximum offering price per share (net asset value per share ÷ 94.25%)		$30.08
Class C:
Net assets, at value	$	995,664,589
Shares outstanding		35,503,033
Net asset value and maximum offering price per sharea		$28.04
Class R:
Net assets, at value	$	107,659,584
Shares outstanding		3,816,362
Net asset value and maximum offering price per share		$28.21
Class R6:
Net assets, at value	$	3,741,430,355
Shares outstanding		130,782,011
Net asset value and maximum offering price per share		$28.61

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

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FRANKLIN MUTUAL SHARES FUND

FINANCIAL STATEMENTS

Statement of Operations

for the year ended December 31, 2017

Investment income:
Dividends: (net of foreign taxes)*
Unaffiliated issuers	$	388,806,643
Non-controlled affiliates (Note 11)		6,528,380
Interest:
Unaffiliated issuers		75,431,662
Other income (Note 1f)		1,148,425
Total investment income		471,915,110
Expenses:
Management fees (Note 3a)		101,321,939
Distribution fees: (Note 3c)
Class A		11,498,862
Class C		10,655,171
Class R		582,910
Transfer agent fees: (Note 3e)
Class Z		8,726,204
Class A		5,196,408
Class C		1,203,857
Class R		132,036
Class R6		121,269
Custodian fees (Note 4)		396,486
Reports to shareholders		761,735
Registration and filing fees		225,457
Professional fees		969,353
Trustees’ fees and expenses		483,137
Other		307,417
Total expenses		142,582,241
Expense reductions (Note 4)		(33,395	)
Net expenses		142,548,846
Net investment income		329,366,264
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffiliated issuers		390,638,973
Non-controlled affiliates (Note 11)		247,989,930
Foreign currency transactions		2,198,840
Forward exchange contracts		(38,370,101	)
Futures contracts		(35,950,853	)
Securities sold short		(1,211,075	)
Net realized gain (loss)		565,295,714
Net change in unrealized appreciation (depreciation) on:
Investments:
Unaffiliated issuers		685,759,756
Non-controlled affiliates (Note 11)		(238,547,821	)
Translation of other assets and liabilities denominated in foreign currencies		751,000
Forward exchange contracts		(72,989,757	)
Futures contracts		(14,221,830	)
Securities sold short		671,262
Net change in unrealized appreciation (depreciation)		361,422,610
Net realized and unrealized gain (loss)		926,718,324

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FRANKLIN MUTUAL SHARES FUND

FINANCIAL STATEMENTS

Statement of Operations (continued)

for the year ended December 31, 2017

Net increase (decrease) in net assets resulting from operations $     1,256,084,588

*Foreign taxes withheld on dividends $         7,988,005

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

FRANKLIN MUTUAL SHARES FUND

FINANCIAL STATEMENTS

Statements of Changes in Net Assets

	Year Ended December 31,
	2017			2016
Increase (decrease) in net assets:
Operations:
Net investment income	$	329,366,264		$	323,716,322
Net realized gain (loss)		565,295,714			721,946,200
Net change in unrealized appreciation (depreciation)		361,422,610			1,146,276,539
Net increase (decrease) in net assets resulting from operations		1,256,084,588			2,191,939,061
Distributions to shareholders from:
Net investment income:
Class Z		(143,391,184	)		(167,480,237	)
Class A		(90,135,244	)		(92,382,149	)
Class C		(12,762,513	)		(14,151,029	)
Class R		(1,950,214	)		(2,106,830	)
Class R6		(87,386,307	)		(43,103,381	)
Net realized gains:
Class Z		(296,748,998	)		(326,344,607	)
Class A		(194,072,656	)		(206,689,642	)
Class C		(44,764,663	)		(48,998,625	)
Class R		(4,865,346	)		(5,470,579	)
Class R6		(134,490,114	)		(81,063,435	)
Total distributions to shareholders		(1,010,567,239	)		(987,790,514	)
Capital share transactions: (Note 2)
Class Z		(1,618,916,627	)		336,119,152
Class A		(431,662,396	)		(462,728,047	)
Class C		(138,671,413	)		(71,596,143	)
Class R		(17,540,464	)		(21,431,476	)
Class R6		1,869,126,723			(179,527,859	)
Total capital share transactions		(337,664,177	)		(399,164,373	)
Net increase (decrease) in net assets		(92,146,828	)		804,984,174
Net assets:
Beginning of year		15,553,726,466			14,748,742,292
End of year	$	15,461,579,638		$	15,553,726,466
Undistributed net investment income included in net assets:
End of year	$	2,054,424		$	—
Distributions in excess of net investment income included in net assets:
End of year	$	—		$	(14,961,309	)

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

FRANKLIN MUTUALSHARES 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 Shares Fund (Fund) is included in this report. The Fund offers five classes of shares: Class Z, Class A, Class C, Class R and Class R6. Each class of shares may differ by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees 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 Committee (VC). The VC 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 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. 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.

Certain derivative financial instruments 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 VC 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 VC 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 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 VC employs various methods for calibrating these

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NOTES TO FINANCIAL STATEMENTS

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 Fund’s business day. Occasionally, events occur between the time at which trading in a foreign security is completed and 4 p.m. Eastern time 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 4 p.m. Eastern time. In order to minimize the potential for these differences, the VC 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 Fund’s NAV is not calculated, 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 derivative financial instruments 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 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,

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FRANKLIN MUTUAL SHARES FUND

NOTES TO FINANCIAL STATEMENTS

1.  Organization and Significant Accounting

Policies (continued)

c.  Derivative Financial Instruments (continued)

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, 2017, the Fund had OTC derivatives in a net liability position of $32,139,401 and the aggregate value of collateral pledged for such contracts was $27,578,600.

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 counterparty the next business day, or 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 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 at 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.

See Note 10 regarding other derivative information.

d.  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.

e.  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

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FRANKLIN MUTUAL SHARES FUND

NOTES TO FINANCIAL STATEMENTS

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.

f.  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 filed additional tax reclaims for previously withheld taxes on dividends earned in those countries (EU reclaims). 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. Income recognized, if any, for EU reclaims is reflected as other income in the Statement of Operations and any related receivable, if any, is reflected as European Union tax reclaims in the Statement of Assets and Liabilities. When uncertainty exists as to the ultimate resolution of these proceedings, the likelihood of receipt of these EU reclaims, and the potential timing of payment, no amounts are reflected in the financial statements. For U.S. income tax purposes, EU reclaims received by the Fund, if any, reduce the amounts of foreign taxes Fund shareholders can use as tax credits in their individual income tax returns.

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, 2017, 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 in future tax years). Open tax years are those that remain subject to examination and are based on the statute of limitations in each jurisdiction in which the Fund invests.

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 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. Distributable earnings are determined according to income tax regulations (tax basis) and 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, excluding 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.

h.  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.

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FRANKLIN MUTUAL SHARES FUND

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, 2017, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2017						2016
	Shares			Amount			Shares			Amount
Class Z Shares:
Shares sold		23,691,795		$	696,267,462			32,376,662		$	873,776,950
Shares issued in reinvestment of distributions		13,747,109			395,547,594			15,952,237			451,923,049
Shares redeemed		(92,023,346	)		(2,710,731,683	)		(36,561,397	)		(989,580,847	)
Net increase (decrease)		(54,584,442	)	$	(1,618,916,627	)		11,767,502		$	336,119,152
Class A Shares:
Shares sold		17,964,808		$	522,017,079			11,507,397		$	308,371,612
Shares issued in reinvestment of distributions		9,145,140			260,399,623			9,838,985			276,122,225
Shares redeemed		(41,761,357	)		(1,214,079,098	)		(38,936,274	)		(1,047,221,884	)
Net increase (decrease)		(14,651,409	)	$	(431,662,396	)		(17,589,892	)	$	(462,728,047	)
Class C Shares:
Shares sold		2,533,117		$	72,481,356			2,625,989		$	69,812,879
Shares issued in reinvestment of distributions		2,024,489			56,971,259			2,168,641			60,145,452
Shares redeemed		(9,333,970	)		(268,124,028	)		(7,636,941	)		(201,554,474	)
Net increase (decrease)		(4,776,364	)	$	(138,671,413	)		(2,842,311	)	$	(71,596,143	)
Class R Shares:
Shares sold		622,054		$	17,981,440			580,804		$	15,418,202
Shares issued in reinvestment of distributions		239,266			6,777,153			270,055			7,536,986
Shares redeemed		(1,464,599	)		(42,299,057	)		(1,655,748	)		(44,386,664	)
Net increase (decrease)		(603,279	)	$	(17,540,464	)		(804,889	)	$	(21,431,476	)
Class R6 Shares:
Shares sold		63,378,950		$	1,870,087,713			430,006		$	11,589,179
Shares issued in reinvestment of distributions		7,729,991			221,874,105			4,383,823			124,166,816
Shares redeemed		(7,551,970	)		(222,835,095	)		(11,616,080	)		(315,283,854	)
Net increase (decrease)		63,556,971		$	1,869,126,723			(6,802,251	)	$	(179,527,859	)

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FRANKLIN MUTUAL SHARES FUND

NOTES TO FINANCIAL STATEMENTS

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 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 $10 billion
0.625%	Over $10 billion, up to and including $15 billion
0.595%	Over $15 billion, up to and including $20 billion
0.585%	Over $20 billion, up to and including $25 billion
0.565%	Over $25 billion, up to and including $30 billion
0.555%	Over $30 billion, up to and including $35 billion
0.545%	In excess of $35 billion

For the year ended December 31, 2017, the gross effective investment management fee rate was 0.646% of the Fund’s average daily net assets.

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.

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%

The Board has set the current rate at 0.25% per year for Class A shares until further notice and approval by the Board.

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FRANKLIN MUTUAL SHARES FUND

NOTES TO FINANCIAL STATEMENTS

3. Transactions with Affiliates (continued)

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 brokers/dealers	$	575,075
CDSC retained	$	43,139

e. Transfer Agent Fees

Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. Effective November 1, 2017, the fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. Prior to November 1, 2017, the fees were account based fees that varied based on fund or account type. In addition, each class reimburses Investor Services for out of pocket expenses incurred and, except for Class R6, reimburses shareholder 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, 2017, the Fund paid transfer agent fees of $15,379,774, of which $6,537,890 was retained by Investor Services.

f. Other Affiliated Transactions

At December 31, 2017, one or more of the funds in Franklin Fund Allocator Series owned 11.4% of the Fund’s outstanding shares.

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, 2017, 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, 2017, the Fund’s projected benefit obligation and benefit payments under the Plan were as follows:

aProjected benefit obligation at December 31, 2017	$	739,370
bIncrease in projected benefit obligation	$	12,076
Benefit payments made to retired trustees	$	(15,434	)

^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.

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FRANKLIN MUTUAL SHARES FUND

NOTES TO FINANCIAL STATEMENTS

6. Income Taxes

For tax purposes, the Fund may elect to defer any portion of a post-October capital loss to the first day of the following fiscal year. At December 31, 2017, the Fund deferred post-October capital losses of $26,175,568.

The tax character of distributions paid during the years ended December 31, 2017 and 2016, was as follows:

	2017		2016
Distributions paid from:
Ordinary income	$	367,181,482	$	432,682,240
Long term capital gain		643,385,757		555,108,274
	$	1,010,567,239	$	987,790,514

At December 31, 2017, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$	11,489,806,663
Unrealized appreciation	$	4,670,744,750
Unrealized depreciation		(848,260,376	)
Net unrealized appreciation (depreciation)	$	3,822,484,374
Distributable earnings - undistributed ordinary income	$	11,249,400

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

The Fund utilized a tax accounting practice to treat a portion of the proceeds from capital shares redeemed as a distribution from realized capital gains.

7. Investment Transactions

Purchases and sales of investments (excluding short term securities and securities sold short) for the year ended December 31, 2017, aggregated $2,629,902,593 and $3,201,641,264, 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 could 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, 2017, the aggregate long value of distressed company securities for which interest recognition has been discontinued was $38,210,586, representing 0.3% of the Fund’s net assets. For information as to specific securities, see the accompanying Statement of Investments.

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FRANKLIN MUTUAL SHARES FUND

NOTES TO FINANCIAL STATEMENTS

9. Restricted Securities

The Fund invests in securities that are restricted under the Securities Act of 1933 (1933 Act). 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.

At December 31, 2017, investments in restricted securities, excluding securities exempt from registration under the 1933 Act deemed to be liquid, were as follows:

Principal Amount/ Shares		Issuer	Acquisition Date		Cost		Value
	19,594	Broadband Ventures III LLC, secured promissory note, 5.00%, 2/01/12		7/01/10 - 11/30/12	$	19,594	$	—
	43,105,703	CB FIM Coinvestors LLC.		1/15/09 - 6/02/09		—		—
	53,924,666	FIM Coinvestor Holdings I, LLC		11/20/06 - 6/02/09		—		—
	7,234,813	International Automotive Components Group Brazil LLC		4/13/06 - 12/26/08		4,804,678		248,046
	63,079,866	International Automotive Components Group North America LLC		1/12/06 - 3/18/13		51,662,536		41,555,438
		Total Restricted Securities (Value is 0.3% of Net Assets)			$	56,486,808	$	41,803,484

10. Other Derivative Information

At December 31, 2017, 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 Hedging Instruments	Statement of Assets and Liabilities Location	Fair Value		Statement of Assets and Liabilities Location	Fair Value
Foreign exchange contracts	Variation margin on futures contracts	$	—	Variation margin on futures contracts	$	6,503,459	a
	Unrealized appreciation on OTC forward exchange contracts	$	657,823	Unrealized depreciation on OTC forward exchange contracts		32,797,224
Totals		$	657,823		$	39,300,683

^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, 2017, the effect of derivative contracts in the Fund’s Statement of Operations was as follows:

Derivative Contracts Not Accounted for as Hedging Instruments	Statement of Operations Location	Net Realized Gain (Loss) for the Year			Statement of Operations Location	Net Change in Unrealized Appreciation (Depreciation) for the Year
	Net realized gain (loss) from:				Net change in unrealized appreciation (depreciation) on:
Foreign exchange contracts	Forward exchange contracts		$(38,370,101	)	Forward exchange contracts	$	(72,989,757	)
	Futures contracts		(35,950,853	)	Futures contracts		(14,221,830	)
Totals			$(74,320,954	)		$	(87,211,587	)

For the year ended December 31, 2017, the average month end notional amount of futures contracts represented $535,703,439. The average month end contract value of forward exchange contracts was $1,163,127,706.

See Note 1(c) regarding derivative financial instruments.

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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. During the year ended December 31, 2017, investments in “affiliated companies” were as follows:

Name of Issuer	Number of Shares Held at Beginning of Year		Gross Additions		Gross Reductions			Number of Shares Held at End of Year		Value at End of Year		Dividend Income		Realized Gain (Loss)			Net Change in Unrealized Appreciation (Depreciation)
Controlled Affiliatesa
CB FIM Coinvestors LLC		43,105,703		—		—			43,105,703	$	—	$	—	$	—		$	—
Non-Controlled Affiliates
Alexander’s Inc.		326,675		—		—			326,675	$	129,314,299	$	5,553,475	$	122,830	b	$	(10,133,458	)
Federal Signal Corp		3,288,138		—		(3,288,138	)		—		—		682,944		6,918,028			8,231,206
International Automotive Components Group Brazil LLC		7,234,813		—		—			7,234,813		248,046		—		—			70,026
International Automotive Components Group North America LLC		63,079,866		—		—			63,079,866		41,555,438		—		—			(5,369,674	)
White Mountains Insurance Group Ltd.		297,806		—		(297,806	)		—		—		291,961		240,949,072			(231,345,921	)
Total Non-Controlled Affiliates										$	171,117,783	$	6,528,380	$	247,989,930		$	(238,547,821	)
Total Affiliated Securities (Value is 1.1% of Net Assets)										$	171,117,783	$	6,528,380	$	247,989,930		$	(238,547,821	)

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

^bRealized gain distributions from REITs.

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 9, 2018. 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 9, 2018, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 8, 2019, 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 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statement of Operations. During the year ended December 31, 2017, 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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13.  Fair Value Measurements (continued)

• 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, 2017, 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:a
Equity Investments:b
Auto Components	$	76,971,273	$	—	$	41,803,484	$	118,774,757
Machinery		225,186,611		70,984,012		—		296,170,623
Software		924,053,532		—		470,762		924,524,294
All Other Equity Investments		12,813,321,519		—		—c		12,813,321,519
Corporate Notes and Senior Floating Rate Interests		—		390,351,853		—		390,351,853
Corporate Notes and Senior Floating Rate Interests in Reorganization		—		38,210,586		—c		38,210,586
Companies in Liquidation		—		13,646,170		3,397,055c		17,043,225
Short Term Investments		843,662,753		4,300,000		—		847,962,753
Total Investments in Securities	$	14,883,195,688	$	517,492,621	$	45,671,301	$	15,446,359,610
Other Financial Instruments:
Forward Exchange Contracts	$	—	$	657,823	$	—	$	657,823
Liabilities:
Other Financial Instruments:
Securities Sold Short	$	95,444,797	$	—	$	—	$	95,444,797
Futures Contracts		6,503,459		—		—		6,503,459
Forward Exchange Contracts		—		32,797,224		—		32,797,224
Total Other Financial Instruments	$	101,948,256	$	32,797,224	$	—	$	134,745,480

^aFor detailed categories, see the accompanying Statement of Investments.

^bIncludes common stocks and management investment companies as well as other equity investments.

^cIncludes securities determined to have no value at December 31, 2017.

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 beginning and/or 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.

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NOTES TO FINANCIAL STATEMENTS

Abbreviations

Counterparty		Currency		Selected Portfolio
BOFA	Bank of America N.A.	EUR	Euro	ADR	American Depositary Receipt
BONY	The Bank of New York Mellon Corp.	GBP	British Pound	DIP	Debtor-In-Possession
HSBK	HSBC Bank PLC	USD	United States Dollar	FHLB	Federal Home Loan Bank
SSBT	State Street Bank and Trust Co., N.A.			LIBOR	London InterBank Offered Rate
UBSW	UBS AG			TRA	Tax Receivable Agreement Right

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FRANKLIN MUTUAL SHARES FUND

Report of Independent Registered Public Accounting Firm

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

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Franklin Mutual Shares Fund (the “Fund”) (one of the funds constituting Franklin Mutual Series Funds), including the schedule of investments, as of December 31, 2017, 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, the financial highlights for each of the periods indicated therein and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of Franklin Mutual Shares Fund (one of the funds constituting Franklin Mutual Series Funds) at December 31, 2017, 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 its financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the auditor of one or more Franklin investment companies since 1987.

Boston, MA

February 26, 2018

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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 $675,911,960 as a long term capital gain dividend for the fiscal year ended December 31, 2017.

Under Section 871(k)(2)(C) of the Code, the Fund hereby reports the maximum amount allowable but no less than $31,519,416 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, 2017.

Under Section 854(b)(1)(A) of the Code, the Fund hereby reports 75.03% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2017.

Under Section 854(b)(1)(B) of the Code, the Fund hereby reports the maximum amount allowable but no less than $374,597,076 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended December 31, 2017. Distributions, including qualified dividend income, paid during calendar year 2017 will be reported to shareholders on Form 1099-DIV by mid-February 2018. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns.

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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 Trust, principal occupations during at least the past five years and number of US registered 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

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Edward I. Altman, Ph.D. (1941) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1987	14	None
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1995	40	Ares Capital 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), SLM Corporation (Sallie Mae) (1997-2014) and Navient Corporation (loan management, servicing and asset recovery) (2014-2016).
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee and Vice Chairman	Trustee since 2002 and Vice Chairman since 2015	14	Franklin Templeton Emerging Markets Debt Opportunities Fund PLC (1999-present) and Fiduciary International Ireland Limited (1999-2015).
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.
Jan Hopkins Trachtman (1947) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2009	14	None
Principal Occupation During at Least the Past 5 Years: President and Founder, The Jan Hopkins Group (communications and consulting firm); serves on Advisory Board of Knight Bagehot Fellowship; and formerly, President, Economic Club of New York (2007-2015); 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.
Keith Mitchell (1954) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2009	14	None
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, Putman Lovell NBF.

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Independent Board Members (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
David W. Niemiec (1949) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2015	40	Hess Midstream Partners LP (oil and gas midstream infrastructure) (2017-present).
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1998	14	None
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.
Robert E. Wade (1946) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee and Chairman of the Board	Trustee since 1993 and Chairman of the Board since 2005	40	El Oro Ltd (investments) (2003-present).
Principal Occupation During at Least the Past 5 Years: Attorney at law engaged in private practice as a sole practitioner (1972-2008) and member of various boards.
Gregory H. Williams (1943) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2015	14	None
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).

Interested Board Members and Officers

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
**Gregory E. Johnson (1961) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 2007	153	None
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 43 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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee, President, and Chief Executive Officer – Investment Management	Trustee since 2007, President, and Chief Executive Officer – Investment Management since 2005	7	American International Group, Inc. (AIG) Credit Facility Trust (2010-2011).
Principal Occupation During at Least the Past 5 Years: Chairman of the Board, Chief Executive Officer and President, Franklin Mutual Advisers, LLC; President and Chief Investment Officer, Franklin Advisory Services, LLC; and officer and/or director, as the case may be, of three of the investment companies in Franklin Templeton Invstments.

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Interested Board Members and Officers (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Alison E. Baur (1964) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2012	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.
Philippe Brugere-Trelat (1949) 101 John F. Kennedy Parkway Short Hills NJ 07078-2789	Vice President	Since 2005	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Executive Vice President, Franklin Mutual Advisers, LLC; officer of one of the investment companies in Franklin Templeton Investments; and formerly, Portfolio Manager of Eurovest SA (French registered investment company, SICAV).
Aliya S. Gordon (1973) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2009	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Steven J. Gray (1955) One Franklin Parkway San Mateo, CA 94403-1906	Vice President and Secretary	Vice President since 2009 and Secretary since 2005	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc. and FASA, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.
Matthew T. Hinkle (1971) One Franklin Parkway San Mateo, CA 94403-1906	Chief Executive Officer – Finance and Administration	Since June 2017	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Vice President, Global Tax (2012-April 2017) and Treasurer/Assistant Treasurer, Franklin Templeton Investments (2009-2017).
Robert G. Kubilis (1973) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Chief Financial Officer, Chief Accounting Officer and Treasurer	Since 2012	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of 17 of the investment companies in Franklin Templeton Investments.
Robert Lim (1948) One Franklin Parkway San Mateo, CA 94403-1906	Vice President – AML Compliance	Since 2016	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Vice President, Franklin Templeton Companies, LLC; Chief Compliance Officer, Franklin Templeton Distributors, Inc. and Franklin Templeton Investor Services, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.

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Interested Board Members and Officers (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Kimberly H. Novotny (1972) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Vice President	Since 2013	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Associate General Counsel, Franklin Templeton Investments; Vice President and Corporate Secretary, Fiduciary Trust International of the South; Vice President, Templeton Investment Counsel, LLC; Assistant Secretary, Franklin Resources, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments.
Robert C. Rosselot (1960) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Chief Compliance Officer	Since 2013	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Director, Global Compliance, Franklin Templeton Investments; Vice President, Franklin Templeton Companies, LLC; officer of 45 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) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2009	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Navid J. Tofigh (1972) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2015	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Craig S. Tyle (1960) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2005	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.
Lori A. Weber (1964) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Vice President	Since 2011	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.

*We base the number of portfolios on each separate series of the US 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. (Resources), 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 Advisors, 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 Sarbanes-Oxley Act of 2002 and Rules adopted by the U.S. Securities and Exchange Commission require the Fund to disclose whether the Fund’s Audit Committee includes at least one member who is an audit committee financial expert within the meaning of such Act and Rules. The Fund’s Board has determined that there is at least one such financial expert on the Audit Committee and has designated each of Ann Torre Bates and David W. Niemiec as an audit committee financial expert. The Board believes that Ms. Bates and Mr. Niemiec qualify as such an expert in view of their extensive business background and experience. Ms. Bates has served as a member of the Fund Audit Committee since 2008. She currently serves as a director of Navient Corporation (2014-present), Ares Capital Corporation (2010-present) and United Natural Foods, Inc. (2013-present) and was formerly a director of SLM Corporation from 1997 to 2014 and Allied Capital Corporation from 2003 to 2010, Executive Vice President and Chief Financial Officer of NHP Incorporated from 1995 to 1997 and Vice President and Treasurer of US Airways, Inc. until 1995. Mr. Niemiec has served as a member of the Fund Audit Committee since 2013, currently serves as an Advisor to Saratoga Partners

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Interested Board Members and Officers (continued)

and was formerly its Managing Director from 1998 to 2001. Mr. Niemiec was formerly a director of Emeritus Corporation from 1999 to 2010 and OSI Pharmaceuticals, Inc. from 2006 to 2010, Managing Director of SBC Warburg Dillon Read from 1997 to 1998, and was Vice Chairman from 1991 to 1997 and Chief Financial Officer from 1982 to 1997 of Dillon, Read & Co. Inc. As a result of such background and experience, the Board believes that Ms. Bates and Mr. Niemiec have each acquired an understanding of generally accepted accounting principles and financial statements, the general application of such principles in connection with the accounting estimates, accruals and reserves, and analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues generally comparable to those of the Fund, as well as an understanding of internal controls and procedures for financial reporting and an understanding of audit committee functions. Ms. Bates and Mr. Niemiec are independent Board members as that term is defined under the applicable U.S. Securities and Exchange Commission Rules and Releases.

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

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FRANKLIN MUTUAL SERIES FUNDS

FRANKLIN MUTUAL SHARES FUND

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 US 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 Trust, on behalf of the Fund, files a complete statement of investments with the US 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.

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Annual Report and Shareholder Letter Franklin Mutual Shares Fund   Investment Manager Franklin Mutual Advisers, LLC   Distributor Franklin Templeton Distributors, Inc. (800) DIAL BEN^® / 342-5236 franklintempleton.com   Shareholder Services (800) 632-2301 - (Class A, C, R & R6) (800) 448-FUND - (Class Z)

Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.

To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.

© 2018 Franklin Templeton Investments. All rights reserved. 474 A 02/18

Annual Report
and Shareholder Letter   December 31, 2017

Sign up for electronic delivery at franklintempleton.com/edelivery

Franklin Templeton Investments

Gain From Our Perspective^®

At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.

Dear Franklin Mutual Financial Services Fund Shareholder:

Securities markets benefited from a confluence of positive economic, financial and political trends during 2017. The global economy entered a synchronized pace of modest and steady growth, corporate earnings strengthened in the US, Europe and Japan, and US equity market volatility remained at historically low levels. A number of political risks identified at the start of 2017, such as the success of far-right parties in Europe, Brexit negotiations and the Trump administration’s ability to enact its policy agenda, also dissipated or became less immediate for investors as the year progressed. For the year ended December 31, 2017, US stocks, as measured by the Standard & Poor’s^® 500 Index (S&P 500^®), produced a +21.83% total return.¹ Stocks in global developed markets, as measured by the MSCI World Index, returned +23.07%, and investment-grade bonds, as measured by the Bloomberg Barclays US Aggregate Bond Index, posted a +3.54% total return.¹

A stellar 2017 for equity markets also pushed up common valuation metrics, such as price-to-earnings. Valuation is a critical factor in our analysis and we always ask ourselves if current and potential investments represent an attractive balance of risk and reward. We remain committed to our long-term perspective and disciplined investment approach as we conduct a rigorous, fundamental analysis of securities with a regular emphasis on investment risk management.

Although the investment landscape appears favorable as we enter 2018, it is worth remembering that securities markets are dynamic and constantly evolving. Therefore, we believe active, professional investment management serves investors well. We also recognize the important role of financial advisors in

1. Source: Morningstar.

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

today’s markets and encourage investors to continue to seek their advice. Amid changing markets and economic conditions, we are confident investors with a well-diversified portfolio and a patient, long-term outlook should be well positioned for the years ahead.

On the following pages, the Fund’s portfolio management team reviews investment decisions that pertain to performance during the past 12 months in light of the economic environment and other factors. Please remember all securities markets fluctuate, as do mutual fund share prices.

We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to continuing to serve your investment needs in the years ahead.

Sincerely,

Peter A. Langerman

Chairman, President and Chief Executive Officer

Franklin Mutual Advisers, LLC

This letter reflects our analysis and opinions as of December 31, 2017, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.

Not FDIC Insured | May Lose Value | No Bank Guarantee  

franklintempleton.com Not part of the annual report         1

Contents

Annual Report

Franklin Mutual Financial Services Fund	3
Performance Summary	9
Your Fund’s Expenses	12
Financial Highlights and Statement of Investments	13
Financial Statements	22
Notes to Financial Statements	26
Report of Independent Registered Public Accounting Firm	39
Tax Information	40
Board Members and Officers	41
Shareholder Information	46

Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.

  2           Annual Report   franklintempleton.com

Annual Report

Franklin Mutual Financial Services Fund

This annual report for Franklin Mutual Financial Services Fund covers the fiscal year ended December 31, 2017.

Your Fund’s Goal and Main Investments

The Fund seeks capital appreciation, which may occasionally be short term, with income as a secondary goal. Under normal market conditions, the Fund invests at least 80% of its net assets in securities of financial services companies that the investment manager believes are available at market prices less than their intrinsic value. The equity securities in which the Fund invests are primarily common stock with a current focus on mid- and large cap companies. To a lesser extent, the Fund also invests in merger arbitrage securities and the debt and equity of distressed companies. The Fund may invest in foreign securities without limit. The Geographic Composition bar chart on this page lists the leading countries where the Fund invests.

Performance Overview

The Fund’s Class Z shares delivered a cumulative total return of +13.61% for the 12 months ended December 31, 2017. For comparison, the Fund’s primary benchmark, the MSCI World Financials Index (USD), which captures large and midcap representation across 23 developed markets countries, generated a +23.41% total return, while its secondary benchmark, the Standard & Poor’s 500 (S&P 500^®) Financials Index, which tracks financials stocks in the S&P 500 Index, posted a +22.18% total return.¹ You can find more of the Fund’s performance data in the Performance Summary beginning on page 9.

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

The global economy grew moderately during the 12-month period under review. In this environment, global developed and

Geographic Composition*

Based on Total Net Assets as of 12/31/17

*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.

emerging market stocks generated a +24.62% total return, as measured by the MSCI All Country World Index.¹ Global markets were aided by price gains in oil and other commodities, generally upbeat economic data across regions, the European Central Bank’s (ECB’s) extension of its monetary easing program, and investor optimism about pro-growth and pro-business policies in the US. The prospect for reforms in the European Union (EU) with Emmanuel Macron’s election as

1. Source: Morningstar.

The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. 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 principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).

The SOI begins on page 17.

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France’s president, encouraging corporate earnings reports and the passage of the US tax reform bill also supported global stocks.

However, global markets reflected investor concerns about the terms of the UK’s exit from the EU, political uncertainty in the US and the EU, and geopolitical tensions in the Korean peninsula and other regions. Other concerns included the health of European banks, global oil oversupply despite a pact by major oil-producing countries to extend production cuts, and comments from key central bankers around the world about potentially raising interest rates.

After strengthening in 2017’s second and third quarters, the US economy moderated in the fourth quarter. The economy grew faster in 2017 than in 2016, however, largely due to growth in consumer spending, business investment and exports. The unemployment rate decreased from 4.7% in December 2016, as reported at the beginning of the 12-month period, to 4.1% at period-end.² Annual inflation, as measured by the Consumer Price Index, was 2.1% in December 2016, as reported at the beginning of the 12-month period, and while it varied over the 12-month period, remained unchanged at period-end.² The US Federal Reserve (Fed) raised its target range for the federal funds rate 0.25% three times during the period, amid signs of a growing US economy, strengthening labor market and improving business spending. At its December meeting, the Fed confirmed that the monthly balance sheet reduction would increase from US$10 billion to US$20 billion beginning in January 2018.

In Europe, the UK’s economic growth moderated in 2017 compared to 2016, largely due to slower growth in the services sector. In November, the Bank of England raised its key policy rate 0.25%, its first increase in a decade. The eurozone’s growth accelerated in 2017’s second and third quarters, but moderated in the fourth quarter. However, the eurozone’s 2017 economic growth rate of 2.5% was the fastest in a decade.³ The bloc’s annual inflation rate, while low, ended higher than in December 2016. The ECB kept its benchmark interest rate unchanged during the period. However, at its October meeting, the ECB extended the time frame for its massive bond-buying program from December 2017 to at least September 2018, while reducing the amount of monthly bond purchases in half beginning in January 2018.

In Asia, Japan’s quarterly gross domestic product (GDP) grew for the seventh consecutive quarter, although third-quarter 2017 growth was lower than the previous quarter. The Bank of Japan left its benchmark interest rate unchanged during the period and continued its monetary stimulus measures.

In emerging markets, Brazil’s quarterly GDP grew for the third consecutive quarter, although third-quarter 2017 growth slowed from the previous quarter. The country’s central bank cut its benchmark interest rate several times during the period to spur economic growth. Russia’s GDP grew in 2017’s first three quarters compared to the prior-year periods, amid the Bank of Russia’s continued policy support. China’s GDP grew faster in 2017 than in 2016, supported by solid growth in industrial production, services, fixed-asset investment, retail sales, and imports and exports. The People’s Bank of China left its benchmark interest rate unchanged during the period. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, produced a substantial +37.75% total return during the period.¹

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 merger 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.

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.

2. Source: Bureau of Labor Statistics.

3. Source: Eurostat.

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FRANKLIN  MUTUAL  FINANCIAL  SERVICES  FUND

What is return on equity?

Return on equity is a measure of profitability, expressed as a percentage, calculated by dividing a company’s net income by total shareholder equity 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.

Manager’s Discussion

In 2017, an improving economic and political backdrop helped drive most equity markets higher. The positive performances were broad based, spanning across most regions and sectors, and complemented by minimal volatility. Global markets were aided by generally upbeat economic data, improved corporate earnings in the US, Europe and Japan, as well as improved industrial commodity prices, most notably crude oil. In addition, the most significant political risks identified by investors heading into 2017 failed to materialize.

In the US, markets began 2017 rallying as investors hoped that a Republican sweep of US elections in November 2016 would lead to a general loosening in regulations and tax reform, including lower corporate tax rates. Although the Trump administration’s policy agenda was hindered by political gridlock, efforts to loosen federal regulations yielded some results and tax reform legislation was finally passed in late December. Improving economic activity and corporate earnings appeared to be the most meaningful equity market catalysts during much of 2017.

European equity markets started 2017 slowly, but positive political events and improved economic data fueled strong performances during the period. Elections in Europe produced outcomes generally regarded as positive economically as far-right parties largely failed to gain political power in national elections. Investors were particularly encouraged by the presidential election outcome in France. The reform-minded, centrist candidate, Emmanuel Macron, won the French presidential election in May and quickly began to push his agenda, most notably labor decrees giving employers in France greater freedom in negotiating contracts directly with workers. Amid all the positive events, the UK remained the most significant outlier. In the UK, a June 2017 snap election resulting in no party having a majority in Parliament appeared to make a “hard Brexit,” in which the UK leaves the European

Union (EU) in March 2019 without a negotiated deal, even more likely than before. Although the UK and EU appeared to make some progress late in the year, the snap election results left the Conservative Party in a precarious position and with the risk of another election in the near future.

While inflation remains generally subdued in developed markets, economic conditions, particularly tighter labor markets, may lead to gradual price level increases, providing major central banks with justification to incrementally move away from their expansive monetary policies. We concur with the general investor view that monetary policy is not likely to change significantly when Federal Reserve (Fed) Governor Jerome Powell assumes his role as the next Fed Chair in February 2018, although some loosening in financial regulation is possible. At the same time, the ECB’s caution in scaling back its quantitative easing program means monetary policy will likely remain relatively accommodative in 2018. In Asia, we believe that the Bank of Japan has not been following through with as much quantitative easing as planned, and China has been tightening.

If the constructive backdrop as of period-end persists, it is likely to be a tailwind for equity markets. However, we are also highly cognizant of elevated levels of overall equity market valuations, such as price-to-earnings, price-to-book or price-to-sales, relative to most historical benchmarks. Elevated valuation levels may raise the overall risk profile of equity markets, particularly should the backdrop change due to some geopolitical event, greater-than-expected interest rate hikes, or other unexpected factors.

Within the US financials sector, we believe companies moved toward being fully valued in 2017, particularly regional banks.⁴ The Portfolio Composition bar chart on page 6 lists banks, insurance and other leading industries in which the Fund currently invests. At this point, we believe merger and acquisition activity will likely be an increasingly important catalyst of individual stock price performance. We also think larger banks have better operating leverage that may positively impact return metrics.

Although returns at foreign banks have been under pressure from a combination of low interest rates, anemic credit growth and greater regulatory capital and liquidity requirements, we think more investment opportunities are likely to be found abroad. We believe the regulatory and rate cycles are turning, which will likely create opportunities among European banks.

4. The financials sector comprises banks, capital markets, consumer finance, diversified financial services, insurance, and thrifts and mortgage finance in the SOI.

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Some European banks have recently adjusted their business models, a process that took place in the US more than five years ago, which gives investors greater clarity on future opportunities. However, the uncertainty of Brexit negotiations still hangs over the UK.

In China, efforts to rein in the financial system due to the rapid growth in debt and to shift the economy’s leading driver of growth from capital investment toward domestic consumption, have picked up steam. As part of the process, more bankruptcies among state-owned enterprises, local government financing vehicles and small banks are possible, in our view. Although the current environment for China’s lenders is filled with uncertainty, we believe China will be in much better shape in time. At the same time, life insurers are likely to benefit from tighter liquidity conditions which may help foster higher investment returns. Demand for life insurance has been growing at a rapid pace in China as the quality of life has been improving and consumers have been looking to create a stronger safety net given the trends in mortality and morbidity.

Although the Japanese banking industry is challenged by very low margins, the life insurance industry has survived a period of negative interest rates, and we believe would benefit meaningfully if rates at the long end of the yield curve were allowed to move higher. We see this as more likely than a move in overnight rates.

Fund Performance

Turning to Fund performance, top positive contributors included Netherlands-based insurer ASR Nederland, Japan-based real estate asset management company Kenedix and India-based Indiabulls Housing Finance. ASR Nederland is listed among the Fund’s largest positions in the Top 10 Equity Holdings table on page 7.

Shares of ASR Nederland steadily rose during most of the period, aided by a series of solid quarterly results. Operating results were aided by ASR Nederland’s efforts to increase the investment risk of its portfolio by shifting invested insurance policy premiums from traditional fixed income securities to equities and other assets with higher historical returns. In February 2017, ASR Nederland announced it would increase its dividend and repurchase shares on offer from the Dutch government, shares the government had acquired during the 2008 financial crisis. The company announced an additional

Portfolio Composition*

Based on Total Net Assets as of 12/31/17

*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.

share buyback plan in May 2017. In our view, the buybacks demonstrated ASR Nederland’s strong capital position.

The stock price of Kenedix began to rally in April 2017 on activist investor Elliott Management’s⁵ disclosure that it joined the shareholder register. The addition of Elliott Management led to a positive shift in investor perception. The real estate sector in Japan came under some temporary pressure in the middle of 2017 as Japan’s Financial Services Agency (FSA) raised concerns about whether the structure of Japanese real estate investment trust (REIT) funds served investors’ best interests.⁶ The FSA’s statements led to significant investment outflows from REIT mutual funds, which put downward pressure on shares of Kenedix and its peers. We subsequently exited the position when the stock price rallied to our target. The stock price appreciated as Japan’s property market remained healthy and Kenedix became the target of takeover speculation when ARA Asset Management⁵ acquired over 20% of the shares.

Indiabulls Housing Finance is India’s third largest mortgage financing company. We initiated a position when investors were concerned about the impact on Indiabulls of the Indian

5. Not a Fund holding.

6. The real estate sector comprises equity REITs and real estate management and development in the SOI.

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

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

Top 10 Equity Holdings
12/31/17
Company Sector/Industry, Country	% of Total Net Assets
NN Group NV		3.9%
Insurance, Netherlands
Capital One Financial Corp.		3.6%
Consumer Finance, US
Citizens Financial Group Inc.		3.5%
Banks, US
The Hartford Financial Services Group Inc.		3.4%
Insurance, US
Direct Line Insurance Group PLC		3.2%
Insurance, UK
Wells Fargo & Co.		3.2%
Banks, US
American International Group Inc.		3.1%
Insurance, US
Voya Financial Inc.		3.1%
Diversified Financial Services, US
ASR Nederland NV		3.0%
Insurance, Netherlands
SunTrust Banks Inc.		2.9%
Banks, US

government’s 2016 recall of 500- and 1,000-rupee notes, despite the company’s business being essentially cashless. Indiabulls has continued to execute well in a favorable environment as the government has created effective interest rates of well below 3% for borrowers in the affordable housing segment, the company’s area of focus. Investors also reacted positively to credit rating upgrades in 2017 as they help reduce the company’s cost of borrowing and boost profitability.

During the period under review, Fund investments that detracted from performance included Japan-based residential developer Takara Leben and China-based consumer finance companies Qudian and PPDAI Group.

Takara Leben is a midsized condominium developer in Japan that has been rapidly expanding its solar farm capacity. The stock price dropped in the first quarter of 2017 after investors reacted sharply to a small downward adjustment to fiscal year revenue guidance due to a delay in the sales of solar power plants. We believe Takara has not been utilizing its cost advantage in the residential real estate market to the fullest extent. In our view, Takara has also failed to accelerate the completion of units in a favorable market environment. Moreover, we do not believe it has been selling solar assets at full value. Consequently, we exited the position by period-end.

Qudian, China’s largest online microlender, went public in the US in October 2017. A number of subsequent events, which we

believe were misunderstood by the market, drove the share price down. China’s government suspended regulatory approvals of new internet microlending licenses, elevating a barrier to entry and improving the position of this established low cost leader, in our view. Alipay,⁵ a Chinese internet payments platform, announced an interest rate cap of 24%; the rate cap effectively takes Alipay out of the market for customers underwritten by Qudian who would not qualify for loans at 24%. Subsequently, China’s government prohibited unlicensed lending and capped borrowing costs to 36%, the same cap level implemented by Qudian in April 2017. Although it is possible Qudian could see a short-term increase in bad debts from a credit crunch in the unsecured consumer credit market, we see the regulatory changes as a long-term positive move. Qudian is among the most established microlenders with strong brand recognition and operational performance.

PPDAI Group, one of China’s largest online consumer credit platforms, went public in the US in November 2017. PPDAI facilitates person-to-person (P2P) lending between investors and borrowers, unlike online microlender Qudian that lends directly to consumers. In our view, few investors have yet made the important distinction between PPDAI and Qudian. PPDAI’s customers make P2P loans at rates above the 36% cap, requiring adjustments to comply with China’s new lending rules. Nonetheless, we view PPDAI as a well-organized, low-cost provider of consumer credit services that generates significant free cash flow. We believe it is highly likely, given its technology and industry practices, that PPDAI will be one of the P2P lending platforms given a license by the Chinese government at the beginning of 2018, which could position it well for any upcoming industry consolidation, in our view.

During the period, the Fund held currency forwards and futures seeking to hedge most of the currency risk of the portfolio’s non-US dollar investments. The currency forwards and futures had a negative impact on the Fund’s performance because of the depreciation of the US dollar versus the hedged currencies.

What is a currency forward?

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

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

What is a future?

A future is an agreement between the Fund and a counterparty made through a US 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 participation in Franklin Mutual Financial Services Fund. We look forward to continuing to serve your investment needs.

	Andrew Sleeman, CFA Portfolio Manager
	Andrew B. Dinnhaupt, CFA Assistant Portfolio Manager
	Richard Cetlin Assistant Portfolio Manager

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, 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.

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.

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.

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.

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

Performance Summary as of December 31, 2017

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. 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.

Performance as of 12/31/17

Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge. For other share classes, visit franklintempleton.com.

Share Class	Cumulative Total Return1		Average Annual Total Return2
Z
1-Year		+13.61%3		+13.61%3
5-Year		+92.33%		+13.98%
10-Year		+62.55%		+4.98%
A
1-Year		+13.35%3		+6.81%
5-Year		+89.64%		+12.32%
10-Year		+57.96%		+4.06%

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.

See page 11 for Performance Summary footnotes.

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

PERFORMANCE SUMMARY

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

Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.

Class Z (1/1/08–12/31/17)

Class A (1/1/08–12/31/17)

See page 11 for Performance Summary footnotes.

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

PERFORMANCE SUMMARY

Distributions (1/1/17–12/31/17)

Share Class	Net Investment Income
Z		$0.4891
A		$0.4284
C		$0.2514
R6		$0.5213

Total Annual Operating Expenses⁵

Share Class
Z	1.13	%
A	1.38	%

Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.

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. Investing in a single-sector fund involves special risks, including greater sensitivity to economic, political or regulatory developments impacting the sector. Because the Fund may invest its assets in companies in a specific region, including Europe, 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. Current political and financial uncertainty surrounding the European Union may increase market volatility and the economic risk of investing in companies in Europe. Smaller company stocks have exhibited greater price volatility than larger company stocks, particularly 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 may invest in 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.

1. Cumulative total return represents the change in value of an investment over the periods indicated.

2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Total return information is based on net asset values calculated for shareholder transactions. Certain adjustments were made to the net assets of the Fund at 12/31/16 for financial reporting purposes, and as a result, the total returns based on those net asset values differ from the adjusted total returns reported in the Financial Highlights.

4. Source: Morningstar. The MSCI World Financials Index (USD) captures large and midcap representation across 23 developed markets countries. The S&P 500 Financials Index is market capitalization-weighted and consists of all financial stocks in the S&P 500. The S&P 500 is a market capitalization-weighted index of 500 stocks designed to measure total US equity market performance.

5. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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

  franklintempleton.com Annual Report               11

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

Your Fund’s Expenses

As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) 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 table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

		Actual (actual return after expenses)		Hypothetical (5% annual return before expenses)
Share Class	Beginning Account Value 7/1/17	Ending Account Value 12/31/17	Expenses Paid During Period 7/1/17–12/31/171,2	Ending Account Value 12/31/17	Expenses Paid During Period 7/1/17–12/31/171,2	Net Annualized Expense Ratio2
Z	$1,000	$1,076.50	$  5.70	$1,019.71	$  5.55	1.09%
A	$1,000	$1,075.10	$  7.01	$1,018.45	$  6.82	1.34%
C	$1,000	$1,071.00	$10.91	$1,014.67	$10.61	2.09%
R6	$1,000	$1,077.40	$  5.03	$1,020.37	$  4.89	0.96%

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/365 to reflect the one-half year period.

2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.

  12           Annual Report   franklintempleton.com

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

Financial Highlights

	Year Ended December 31,
	2017			2016			2015			2014			2013
Class Z
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year		$21.65			$19.63			$18.40			$16.90			$13.59
Income from investment operationsa:
Net investment incomeb		0.22			0.31	c		0.30	d		0.25			0.24
Net realized and unrealized gains (losses)		2.76			2.00			1.23			1.62			3.24
Total from investment operations		2.98			2.31			1.53			1.87			3.48
Less distributions from net investment income		(0.49	)		(0.29	)		(0.30	)		(0.37	)		(0.17	)
Net asset value, end of year		$24.14			$21.65			$19.63			$18.40			$16.90
Total return		13.77%			11.79%			8.34%			11.07%			25.67%
Ratios to average net assets
Expensese		1.09%			1.13%	f		1.13%			1.14%			1.16%
Net investment income		0.95%			1.64%	c		1.53%	d		1.44%			1.51%
Supplemental data
Net assets, end of year (000’s)		$210,825			$162,687			$178,157			$112,156			$105,279
Portfolio turnover rate		67.89%			34.58%			25.43%			33.69%			25.73%

^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 $0.05 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 1.38%.

^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 0.81%.

^eBenefit of expense reduction rounds to less than 0.01%.

^fBenefit of waiver and payments by affiliates rounds to less than 0.01%.

  franklintempleton.com   The accompanying notes are an integral part of these financial statements.  |     Annual Report               13

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017			2016			2015			2014			2013
Class A
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year		$21.70			$19.69			$18.46			$16.96			$13.64
Income from investment operationsa:
Net investment incomeb		0.16			0.26	c		0.25	d		0.20			0.19
Net realized and unrealized gains (losses)		2.78			1.99			1.23			1.61			3.26
Total from investment operations		2.94			2.25			1.48			1.81			3.45
Less distributions from net investment income		(0.43	)		(0.24	)		(0.25	)		(0.31	)		(0.13	)
Net asset value, end of year		$24.21			$21.70			$19.69			$18.46			$16.96
Total returne		13.55%			11.46%			8.05%			10.71%			25.32%
Ratios to average net assets
Expensesf		1.34%			1.38%	g		1.41%			1.44%			1.46%
Net investment income		0.70%			1.39%	c		1.25%	d		1.14%			1.21%
Supplemental data
Net assets, end of year (000’s)		$368,850			$346,008			$360,278			$255,242			$240,529
Portfolio turnover rate		67.89%			34.58%			25.43%			33.69%			25.73%

^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 $0.05 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 1.13%.

^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 0.53%.

^eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

^fBenefit of expense reduction rounds to less than 0.01%.

^gBenefit of waiver and payments by affiliates rounds to less than 0.01%.

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

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017			2016			2015			2014			2013
Class C
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year		$21.60			$19.61			$18.41			$16.92			$13.61
Income from investment operationsa:
Net investment income (loss)b		(0.01	)		0.12	c		0.10	d		0.08			0.08
Net realized and unrealized gains (losses)		2.74			1.96			1.24			1.60			3.25
Total from investment operations		2.73			2.08			1.34			1.68			3.33
Less distributions from net investment income		(0.25	)		(0.09	)		(0.14	)		(0.19	)		(0.02	)
Net asset value, end of year		$24.08			$21.60			$19.61			$18.41			$16.92
Total returne		12.66%			10.64%			7.30%			9.93%			24.50%
Ratios to average net assets
Expensesf		2.09%			2.13%	g		2.13%			2.14%			2.16%
Net investment income (loss)		(0.05)%			0.64%	c		0.53%	d		0.44%			0.51%
Supplemental data
Net assets, end of year (000’s)		$134,117			$128,766			$132,975			$89,341			$86,370
Portfolio turnover rate		67.89%			34.58%			25.43%			33.69%			25.73%

^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 $0.05 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 0.38%.

^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 (0.19)%.

^eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

^fBenefit of expense reduction rounds to less than 0.01%.

^gBenefit of waiver and payments by affiliates rounds to less than 0.01%.

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

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017			2016			2015			2014			2013a
Class R6
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year		$21.79			$19.76			$18.52			$16.88			$14.89
Income from investment operationsb:
Net investment incomec		0.25			0.32	d		0.07	e		0.25			0.13
Net realized and unrealized gains (losses)		2.78			2.03			1.49			1.66			2.07
Total from investment operations		3.03			2.35			1.56			1.91			2.20
Less distributions from net investment income		(0.52	)		(0.32	)		(0.32	)		(0.27	)		(0.21	)
Net asset value, end of year		$24.30			$21.79			$19.76			$18.52			$16.88
Total returnf		13.92%			11.93%			8.55%			11.23%			14.86%
Ratios to average net assetsg
Expenses before waiver and payments by affiliates		0.97%			0.99%			1.16%			2.61%			2.18%
Expenses net of waiver and payments by affiliatesh		0.95%			0.96%			0.96%			0.97%			0.97%
Net investment income		1.09%			1.81%	d		1.70%	e		1.61%			1.70%
Supplemental data
Net assets, end of year (000’s)		$4,523			$2,601			$1,421			$12			$6
Portfolio turnover rate		67.89%			34.58%			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 $0.05 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 1.55%.

^eNet 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%.

^fTotal return is not annualized for periods less than one year.

^gRatios are annualized for periods less than one year.

^hBenefit of expense reduction rounds to less than 0.01%.

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

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

Statement of Investments, December 31, 2017

		Country		Shares/ Units		Value
	Common Stocks and Other Equity Interests 95.4%
	Banks 37.5%
a,b	AB&T Financial Corp.		United States		226,100	$	128,877
	AIB Group PLC		Ireland		1,254,659		8,279,370
	Barclays PLC		United Kingdom		5,856,542		16,063,112
	BB&T Corp.		United States		144,100		7,164,652
	CIT Group Inc.		United States		419,311		20,642,680
	Citigroup Inc.		United States		243,810		18,141,902
	Citizens Financial Group Inc.		United States		600,000		25,188,000
a	FCB Financial Holdings Inc., A		United States		224,087		11,383,620
	First Horizon National Corp.		United States		425,229		8,500,328
	Guaranty Bancorp		United States		266,761		7,375,942
	HSBC Holdings PLC		United Kingdom		1,604,742		16,619,673
	JPMorgan Chase & Co.		United States		172,980		18,498,481
	Shinsei Bank Ltd.		Japan		1,134,000		19,613,666
	Societe Generale SA		France		269,809		13,936,011
	Southern National Bancorp of Virginia Inc.		United States		547,560		8,777,387
a	Standard Chartered PLC		United Kingdom		1,219,301		12,845,166
	State Bank Financial Corp.		United States		416,160		12,418,214
	SunTrust Banks Inc.		United States		325,420		21,018,878
	Wells Fargo & Co.		United States		374,670		22,731,229
							269,327,188
	Capital Markets 4.5%
	Credit Suisse Group AG		Switzerland		631,414		11,275,828
a	Guotai Junan Securities Co. Ltd.		China		3,217,063		7,164,722
	Oslo Bors VPS Holding ASA		Norway		911,000		13,816,482
							32,257,032
	Consumer Finance 8.7%
	Ally Financial Inc.		United States		265,200		7,733,232
	Capital One Financial Corp.		United States		262,010		26,090,956
c	Hoist Finance AB, 144A		Sweden		850,396		9,563,223
a	PPDAI Group Inc., ADR		China		851,710		6,055,658
a	Qudian Inc., ADR		China		340,647		4,271,714
	Sun Hung Kai & Co. Ltd.		Hong Kong		14,145,704		9,034,739
							62,749,522
	Diversified Financial Services 4.4%
	First Pacific Co. Ltd.		Hong Kong		7,786,902		5,282,398
a,d,e	Hightower Holding LLC, B, I		United States		1,815,233		2,222,571
a,d,e	Hightower Holding LLC, B, Series II		United States		791,396		1,882,573
	Voya Financial Inc.		United States		449,050		22,214,503
							31,602,045
	Equity Real Estate Investment Trusts (REITs) 1.6%
	Hibernia REIT PLC		Ireland		6,309,142		11,536,237
	Household Durables 2.3%
a	Cairn Homes PLC		Ireland		3,444,859		8,080,293
a,c	Neinor Homes SA, 144A		Spain		380,000		8,343,409
							16,423,702
	Insurance 34.9%
	Ageas		Belgium		383,978		18,757,271
a	Alleghany Corp.		United States		34,937		20,825,596
	American International Group Inc.		United States		375,458		22,369,788
	ASR Nederland NV		Netherlands		525,829		21,642,670

  franklintempleton.com   Annual Report               17

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

STATEMENT OF INVESTMENTS

		Country		Shares/ Units		Value
	Common Stocks and Other Equity Interests (continued)
	Insurance (continued)
a	Brighthouse Financial Inc.		United States		17,970	$	1,053,761
	China Pacific Insurance Group Co. Ltd., H		China		2,979,740		14,321,181
	Chubb Ltd.		United States		64,950		9,491,144
	Direct Line Insurance Group PLC		United Kingdom		4,411,555		22,740,100
	The Hartford Financial Services Group Inc.		United States		439,772		24,750,368
	Korean Reinsurance Co.		South Korea		474,730		4,892,404
	Lancashire Holdings Ltd.		United Kingdom		1,184,720		10,911,353
	MetLife Inc.		United States		197,670		9,994,195
	NN Group NV		Netherlands		643,498		27,887,130
	RSA Insurance Group PLC		United Kingdom		1,347,824		11,512,569
a	Sabre Insurance Group PLC		United Kingdom		2,280,794		8,377,867
	T&D Holdings Inc.		Japan		504,169		8,621,677
	XL Group Ltd.		Bermuda		361,012		12,693,182
							250,842,256
	Real Estate Management & Development 0.1%
a	Dolphin Capital Investors Ltd.		Greece		3,979,650		369,484
	Thrifts & Mortgage Finance 1.4%
	Indiabulls Housing Finance Ltd.		India		515,498		9,662,358
	Total Common Stocks and Other Equity Interests     (Cost $612,954,257)						684,769,824
	Companies in Liquidation 0.0%†
a,d,e	FIM Coinvestor Holdings I, LLC		United States		4,357,178		—
a,f	Lehman Brothers Holdings Inc., Bankruptcy Claim		United States		7,766,103		172,408
	Total Companies in Liquidation (Cost $455,021)						172,408
	Total Investments before Short Term Investments (Cost $613,409,278)						684,942,232
				Principal Amount
	Short Term Investments 5.0%
	U.S. Government and Agency Securities 5.0%
g	FHLB, 1/02/18		United States	$	4,500,000		4,500,000
g	U.S. Treasury Bill,     1/02/18 - 4/05/18		United States		25,610,000		25,569,136
	h4/12/18 - 4/19/18		United States		6,000,000		5,976,064
	Total U.S. Government and Agency Securities     (Cost $36,051,000)						36,045,200
	Total Investments (Cost $649,460,278) 100.4%						720,987,432
	Other Assets, less Liabilities (0.4)%						(2,671,101	)
	Net Assets 100.0%					$	718,316,331

  18           Annual Report   franklintempleton.com

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

STATEMENT OF INVESTMENTS

^†Rounds to less than 0.1% of net assets.

^aNon-income producing.

^bSee Note 11 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, 2017, the aggregate value of these securities was $17,906,632, representing 2.5% of net assets.

^dFair valued using significant unobservable inputs. See Note 13 regarding fair value measurements.

^eSee Note 9 regarding restricted securities.

^fBankruptcy 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.

^gThe security was issued on a discount basis with no stated coupon rate.

^hA portion or all of the security has been segregated as collateral for open forward exchange contracts. At December 31, 2017, the aggregate value of these securities pledged amounted to $2,626,462, representing 0.4% of net assets.

At December 31, 2017, the Fund had the following futures contracts outstanding. See Note 1(c).

Futures Contracts

Description	Type		Number of Contracts		Notional Amount*		Expiration Date		Value/ Unrealized Appreciation (Depreciation)
Currency Contracts
EUR/USD		Short		163	$	24,603,831		3/19/18	$	(436,161	)
GBP/USD		Short		166		14,065,388		3/19/18		(92,021	)
Total Futures Contracts									$	(528,182	)

*As of period end.

At December 31, 2017, the Fund had the following forward exchange contracts outstanding. See Note 1(c).

Forward Exchange Contracts

Currency	Counterpartya		Type		Quantity		Contract Amount		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
OTC Forward Exchange Contracts
Euro		BOFA		Buy		2,255,817	$	2,661,413		1/12/18	$	47,507	$	—
Euro		HSBK		Buy		560,838		674,550		1/12/18		—		(1,062	)
Euro		HSBK		Buy		742,504		882,570		1/12/18		9,072		—
Euro		HSBK		Sell		4,521,972		5,203,997		1/12/18		—		(226,256	)
Euro		SSBT		Buy		453,653		539,677		1/12/18		5,097		—
Euro		SSBT		Sell		703,213		824,157		1/12/18		—		(20,303	)
Euro		UBSW		Buy		513,386		611,526		1/12/18		4,978		—
Euro		UBSW		Sell		4,076,868		4,691,312		1/12/18		—		(204,434	)
British Pound		BOFA		Buy		44,758		59,787		1/16/18		696		—
British Pound		BOFA		Sell		1,000,000		1,292,495		1/16/18		—		(58,818	)
British Pound		BONY		Sell		2,793,255		3,612,268		1/16/18		—		(162,294	)
British Pound		SSBT		Buy		316,400		423,402		1/16/18		4,153		—
British Pound		UBSW		Sell		2,793,238		3,608,863		1/16/18		—		(165,675	)
Norwegian Krone		HSBK		Sell		1,595,000		193,140		1/25/18		—		(1,326	)
Norwegian Krone		SSBT		Buy		655,601		79,310		1/25/18		622		—
Norwegian Krone		SSBT		Sell		2,548,680		307,189		1/25/18		—		(3,551	)
Norwegian Krone		SSBT		Sell		100,208,531		12,568,800		1/25/18		351,184		—

  franklintempleton.com   Annual Report               19

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

STATEMENT OF INVESTMENTS

Forward Exchange Contracts (continued)

Currency	Counterpartya		Type		Quantity		Contract Amount		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
OTC Forward Exchange Contracts (continued)
Norwegian Krone		UBSW		Sell		1,835,000	$	224,200		1/25/18	$	473	$	—
Norwegian Krone		UBSW		Sell		4,485,390		536,948		1/25/18		—		(9,920	)
Euro		BOFA		Sell		17,140		20,321		1/26/18		—		(280	)
Euro		HSBK		Sell		4,618,125		5,436,213		1/26/18		—		(114,409	)
Euro		SSBT		Sell		329,905		397,312		1/26/18		793		—
Euro		SSBT		Sell		1,325,476		1,565,058		1/26/18		—		(28,061	)
Euro		UBSW		Sell		4,818,766		5,668,849		1/26/18		—		(122,928	)
Swedish Krona		SSBT		Buy		1,630,000		194,697		1/29/18		4,404		—
Swedish Krona		SSBT		Sell		2,056,260		244,720		1/29/18		—		(6,448	)
Swedish Krona		SSBT		Sell		2,780,000		340,290		1/29/18		719		—
Swedish Krona		UBSW		Sell		1,667,839		200,123		1/29/18		—		(3,600	)
Swedish Krona		UBSW		Sell		71,220,665		8,719,357		1/29/18		19,900		—
South Korean Won		HSBK		Buy		142,419,000		131,099		2/09/18		2,420		—
South Korean Won		HSBK		Sell		2,267,993,818		2,026,985		2/09/18		—		(99,272	)
South Korean Won		UBSW		Sell		2,201,986,346		1,966,937		2/09/18		—		(97,438	)
British Pound		BOFA		Sell		3,819,213		5,060,792		2/14/18		—		(104,841	)
British Pound		BONY		Sell		9,315,732		12,163,421		2/14/18		—		(436,469	)
British Pound		HSBK		Sell		2,517,583		3,346,120		2/14/18		—		(59,010	)
British Pound		SSBT		Sell		1,175,099		1,557,963		2/14/18		—		(31,404	)
British Pound		UBSW		Sell		7,615,732		9,957,989		2/14/18		—		(342,586	)
Euro		BOFA		Sell		19,362		23,081		2/20/18		—		(222	)
Euro		BONY		Sell		7,775,735		9,192,823		2/20/18		—		(165,966	)
Euro		HSBK		Sell		630,773		765,885		2/20/18		6,694		—
Euro		HSBK		Sell		1,488,403		1,760,156		2/20/18		—		(31,270	)
Euro		SSBT		Sell		7,599,837		8,979,967		2/20/18		—		(167,112	)
Japanese Yen		UBSW		Buy		66,304,178		590,423		2/20/18		—		(515	)
Japanese Yen		UBSW		Sell		3,248,003,841		28,986,447		2/20/18		88,983		—
Swiss Franc		UBSW		Sell		10,839,622		11,050,239		3/05/18		—		(126,681	)
Euro		HSBK		Sell		2,081,485		2,461,009		4/10/18		—		(52,207	)
Euro		SSBT		Sell		284,000		337,443		4/10/18		—		(5,463	)
Euro		UBSW		Sell		2,278,194		2,692,307		4/10/18		—		(58,418	)
Euro		BOFA		Sell		2,716,206		3,240,475		4/18/18		—		(40,868	)
Euro		SSBT		Sell		2,716,207		3,240,394		4/18/18		—		(40,949	)
Euro		UBSW		Sell		2,716,207		3,240,951		4/18/18		—		(40,392	)
British Pound		BOFA		Sell		4,631,493		6,158,644		4/24/18		—		(120,972	)
British Pound		HSBK		Sell		443,933		588,114		4/24/18		—		(13,794	)
British Pound		UBSW		Sell		385,913		511,000		4/24/18		—		(12,242	)
Euro		HSBK		Sell		4,361,103		5,145,444		5/07/18		—		(129,734	)
Euro		SSBT		Sell		1,065,617		1,252,083		5/07/18		—		(36,884	)
Euro		UBSW		Sell		3,938,972		4,647,731		5/07/18		—		(116,838	)
South Korean Won		HSBK		Sell		158,868,021		141,291		5/11/18		—		(7,806	)
South Korean Won		UBSW		Sell		640,654,815		570,282		5/11/18		—		(30,972	)
Euro		BOFA		Sell		12,463,453		14,862,024		5/21/18		—		(227,870	)
Euro		SSBT		Sell		742,329		886,955		5/21/18		—		(11,806	)
Euro		UBSW		Sell		10,383,442		12,400,335		5/21/18		—		(171,226	)
British Pound		BOFA		Sell		2,658,079		3,586,288		5/24/18		—		(21,621	)
British Pound		HSBK		Sell		229,263		308,980		5/24/18		—		(2,207	)
British Pound		HSBK		Sell		229,516		311,823		5/24/18		292		—
British Pound		SSBT		Sell		7,730,985		10,311,086		5/24/18		—		(182,468	)
British Pound		UBSW		Sell		1,356,202		1,844,640		5/24/18		3,816		—

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

STATEMENT OF INVESTMENTS

Forward Exchange Contracts (continued)

Currency	Counterpartya	Type	Quantity		Contract Amount		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
OTC Forward Exchange Contracts (continued)
British Pound	UBSW	Sell		5,616,909	$	7,580,462		5/24/18	$	—	$	(43,577	)
Total Forward Exchange Contracts									$	551,803	$	(4,160,465	)
Net unrealized appreciation (depreciation)											$	(3,608,662	)

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

See Note 10 regarding other derivative information.

See Abbreviations on page 38.

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

Financial Statements

Statement of Assets and Liabilities

December 31, 2017

Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	647,233,523
Cost - Non-controlled affiliates (Note 11)		2,226,755
Value - Unaffiliated issuers	$	720,858,555
Value - Non-controlled affiliates (Note 11)		128,877
Cash		4,514
Receivables:
Investment securities sold		843,732
Capital shares sold		1,046,147
Dividends and interest		643,030
European Union tax reclaims		946,913
Deposits with brokers for:
Futures contracts		665,880
Unrealized appreciation on OTC forward exchange contracts		551,803
Other assets		92,097
Total assets		725,781,548
Liabilities:
Payables:
Capital shares redeemed		1,206,208
Management fees		528,339
Distribution fees		370,773
Transfer agent fees		142,043
Trustees’ fees and expenses		23, 907
Variation margin on futures contracts		219,475
Unrealized depreciation on OTC forward exchange contracts		4,160,465
Deferred tax		646,818
Accrued expenses and other liabilities		167,189
Total liabilities		7,465,217
Net assets, at value	$	718,316,331
Net assets consist of:
Paid-in capital	$	666,652,909
Distributions in excess of net investment income		(6,913,596	)
Net unrealized appreciation (depreciation)		66,788,100
Accumulated net realized gain (loss)		(8,211,082	)
Net assets, at value	$	718,316,331

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

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

FINANCIAL STATEMENTS

Statement of Assets and Liabilities (continued)

December 31, 2017

Class Z:
Net assets, at value	$210,825,321
Shares outstanding	8,732,924
Net asset value and maximum offering price per share	$24.14
Class A:
Net assets, at value	$368,850,300
Shares outstanding	15,238,465
Net asset value per sharea	$24.21
Maximum offering price per share (net asset value per share ÷ 94.25%)	$25.69
Class C:
Net assets, at value	$134,117,380
Shares outstanding	5,569,716
Net asset value and maximum offering price per sharea	$24.08
Class R6:
Net assets, at value	$    4,523,330
Shares outstanding	186,133
Net asset value and maximum offering price per share	$24.30

^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 financial statements.  |     Annual Report               23

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

FINANCIAL STATEMENTS

Statement of Operations

for the year ended December 31, 2017

Investment income:
Dividends: (net of foreign taxes)*
Unaffiliated issuers	$	13,419,025
Interest:
Unaffiliated issuers		407,618
Total investment income		13,826,643
Expenses:
Management fees (Note 3a)		5,933,250
Distribution fees: (Note 3c)
Class A		880,728
Class C		1,305,562
Transfer agent fees: (Note 3e)
Class Z		288,037
Class A		528,897
Class C		196,008
Class R6		1,181
Custodian fees (Note 4)		52,487
Reports to shareholders		86,577
Registration and filing fees		82,289
Professional fees		148,629
Trustees’ fees and expenses		19,994
Other		52,693
Total expenses		9,576,332
Expense reductions (Note 4)		(1,459	)
Expenses waived/paid by affiliates (Note 3f)		(704	)
Net expenses		9,574,169
Net investment income		4,252,474
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:#
Unaffiliated issuers		96,915,069
Foreign currency transactions		(52,217	)
Forward exchange contracts		(5,884,179	)
Futures contracts		(2,653,053	)
Net realized gain (loss)		88,325,620
Net change in unrealized appreciation (depreciation) on:
Investments:
Unaffiliated issuers		4,606,745
Non-controlled affiliates (Note 11)		4,852
Translation of other assets and liabilities denominated in foreign currencies		126,774
Forward exchange contracts		(10,356,443	)
Futures contracts		(852,946	)
Change in deferred taxes on unrealized appreciation		(646,818	)
Net change in unrealized appreciation (depreciation)		(7,117,836	)
Net realized and unrealized gain (loss)		81,207,784
Net increase (decrease) in net assets resulting from operations	$	85,460,258
*Foreign taxes withheld on dividends	$	860,199
#Net of foreign taxes	$	257,560

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

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

FINANCIAL STATEMENTS

Statements of Changes in Net Assets

	Year Ended December 31,
	2017			2016
Increase (decrease) in net assets:
Operations:
Net investment income	$	4,252,474		$	7,432,945
Net realized gain (loss)		88,325,620			31,236,601
Net change in unrealized appreciation (depreciation)		(7,117,836	)		13,082,760
Net increase (decrease) in net assets resulting from operations		85,460,258			51,752,306
Distributions to shareholders from:
Net investment income:
Class Z		(4,211,056	)		(2,125,014	)
Class A		(6,418,111	)		(3,742,491	)
Class C		(1,393,532	)		(542,259	)
Class R6		(93,577	)		(37,208	)
Total distributions to shareholders		(12,116,276	)		(6,446,972	)
Capital share transactions: (Note 2)
Class Z		27,417,572			(26,302,473	)
Class A		(15,335,232	)		(38,310,153	)
Class C		(8,715,929	)		(14,415,335	)
Class R6		1,544,299			953,365
Total capital share transactions		4,910,710			(78,074,596	)
Net increase (decrease) in net assets		78,254,692			(32,769,262	)
Net assets:
Beginning of year		640,061,639			672,830,901
End of year	$	718,316,331		$	640,061,639
Distributions in excess of net investment income included in net assets:
End of year	$	(6,913,596	)	$	(198,732	)

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

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 Fund offers four classes of shares: Class Z, Class A, Class C and Class R6. Each class of shares may differ by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees 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 Committee (VC). The VC 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 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. 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.

Certain derivative financial instruments 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 VC 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 VC 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 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 VC employs various methods for calibrating these

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

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 Fund’s business day. Occasionally, events occur between the time at which trading in a foreign security is completed and 4 p.m. Eastern time 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 4 p.m. Eastern time. In order to minimize the potential for these differences, the VC 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 Fund’s NAV is not calculated, 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 derivative financial instruments 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 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,

  franklintempleton.com   Annual Report             27

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

1.  Organization and Significant Accounting Policies (continued)

c.  Derivative Financial Instruments (continued)

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 counterparty the next business day, or 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 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 at 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 OTC option contracts primarily to manage exposure to foreign exchange rate 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 Note 10 regarding other derivative information.

d.  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

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

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 filed additional tax reclaims for previously withheld taxes on dividends earned in those countries (EU reclaims). 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. Income recognized, if any, for EU reclaims is reflected as other income in the Statement of Operations and any related receivable, if any, is reflected as European Union tax reclaims in the Statement of Assets and Liabilities. When uncertainty exists as to the ultimate resolution of these proceedings, the likelihood of receipt of these EU reclaims, and the potential timing of payment, no amounts are reflected in the financial statements. For U.S. income tax purposes, EU reclaims received by the Fund, if any, reduce the amounts of foreign taxes Fund shareholders can use as tax credits in their individual income tax returns.

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, 2017, 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 in future tax years). Open tax years are those that remain subject to examination and are based on the statute of limitations in each jurisdiction in which the Fund invests.

e.   Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. 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 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. Distributable earnings are determined according to income tax regulations (tax basis) and 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, excluding 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.

f.   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.

g.   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.

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

2.  Shares of Beneficial Interest

At December 31, 2017, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2017						2016
	Shares			Amount			Shares			Amount
Class Z Shares:
Shares sold		2,575,987			$   58,323,294			1,862,217			$   35,847,321
Shares issued in reinvestment of distributions		156,102			3,762,873			90,302			1,927,186
Shares redeemed		(1,515,027	)		(34,668,595	)		(3,510,389	)		(64,076,980	)
Net increase (decrease)		1,217,062			$   27,417,572			(1,557,870	)		$  (26,302,473	)
Class A Shares:
Shares sold		3,502,833			$   79,651,690			5,020,628			$   98,395,643
Shares issued in reinvestment of distributions		257,411			6,217,199			170,054			3,626,102
Shares redeemed		(4,464,692	)		(101,204,121	)		(7,543,324	)		(140,331,898	)
Net increase (decrease)		(704,448	)		$  (15,335,232	)		(2,352,642	)		$  (38,310,153	)
Class C Shares:
Shares sold		998,768			$   22,519,991			1,138,253			$   22,312,026
Shares issued in reinvestment of distributions		56,775			1,357,536			25,584			520,576
Shares redeemed		(1,447,619	)		(32,593,456	)		(1,982,746	)		(37,247,937	)
Net increase (decrease)		(392,076	)		$    (8,715,929	)		(818,909	)		$  (14,415,335	)
Class R6 Shares:
Shares sold		109,161			$     2,521,815			72,872			$     1,425,313
Shares issued in reinvestment of distributions		3,853			93,577			1,726			37,208
Shares redeemed		(46,239	)		(1,071,093	)		(27,167	)		(509,156	)
Net increase (decrease)		66,775			$     1,544,299			47,431			$        953,365

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 Services, LLC (FT Services)	Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)	Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)	Transfer agent

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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

For the year ended December 31, 2017, the gross effective investment management fee rate was 0.875% of the Fund’s average daily net assets.

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 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.

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	%

The Board has set the current rate at 0.25% per year for Class A shares until further notice and approval by the Board.

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 brokers/dealers	$	149,336
CDSC retained	$	12,167

e.  Transfer Agent Fees

Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. Effective November 1, 2017, the fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. Prior to November 1, 2017, the fees were account based fees that varied based on fund or account type. In addition, each class reimburses Investor

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

3.  Transactions with Affiliates (continued)

e.  Distribution Fees (continued)

Services for out of pocket expenses incurred and, except for Class R6, reimburses shareholder 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, 2017, the Fund paid transfer agent fees of $1,014,123, of which $445,422 was retained by Investor Services.

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, 2018.

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, 2017, 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, 2017, the Fund’s projected benefit obligation and benefit payments under the Plan were as follows:

aProjected benefit obligation at December 31, 2017	$	23,907
bIncrease in projected benefit obligation	$	553
Benefit payments made to retired trustees	$	(655	)

^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

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, 2017, the Fund had capital loss carryforwards of $7,872,501 expiring in 2018.

During the year ended December 31, 2017, the Fund utilized $71,306,492 of capital loss carryforwards.

The tax character of distributions paid during the years ended December 31, 2017 and 2016, was as follows:

	2017		2016
Distributions paid from ordinary income	$	12,116,276	$	6,446,972

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

At December 31, 2017, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$	658,736,293
Unrealized appreciation	$	113,318,564
Unrealized depreciation		(55,203,112	)
Net unrealized appreciation (depreciation)	$	58,115,452
Distributable earnings - undistributed ordinary income	$	1,347,999

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) for the year ended December 31, 2017, aggregated $451,668,163 and $426,835,018, 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

The Fund invests in securities that are restricted under the Securities Act of 1933 (1933 Act). 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.

At December 31, 2017, investments in restricted securities, excluding securities exempt from registration under the 1933 Act deemed to be liquid, were as follows:

Shares/ Units	Issuer	Acquisition Date		Cost		Value
4,357,178	FIM Coinvestor Holdings I, LLC		11/20/06 - 6/02/09	$	—	$	—
1,815,233	Hightower Holding LLC, B, I		3/31/08 - 1/05/10		2,362,324		2,222,571
791,396	Hightower Holding LLC, B, Series II		6/10/10 - 5/10/12		2,420,000		1,882,573
	Total Restricted Securities (Value is 0.6% of Net Assets)			$	4,782,324	$	4,105,144

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

10.  Other Derivative Information

At December 31, 2017, 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 Hedging Instruments	Statement of Assets and Liabilities Location	Fair Value		Statement of Assets and Liabilities Location	Fair Value
Foreign exchange contracts	Variation margin on futures   contracts	$	—	Variation margin on futures   contracts	$	528,182	a
	Unrealized appreciation on OTC forward   exchange contracts		551,803	Unrealized depreciation on OTC   forward exchange contracts		4,160,465
Totals		$	551,803		$	4,688,647

^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, 2017, the effect of derivative contracts in the Fund’s Statement of Operations was as follows:

Derivative Contracts Not Accounted for as Hedging Instruments	Statement of Operations Location	Net Realized Gain (Loss) for the Year			Statement of Operations Location	Net Change in Unrealized Appreciation (Depreciation) for the Year
	Net realized gain (loss) from:				Net change in unrealized
					appreciation (depreciation) on:
Foreign exchange contracts	Investments		$     (85,868	)a	Investments		$                —
	Forward exchange contracts		(5,884,179	)	Forward exchange contracts		(10,356,443	)
	Futures contracts		(2,653,053	)	Futures contracts		(852,946	)
Totals			$(8,623,100	)			$(11,209,389	)

^aPurchased option contracts are included in net realized gain (loss) from investments in the Statement of Operations.

For the year ended December 31, 2017, the average month end notional amount of futures contracts and options represented $34,836,724 and $3,735,692, respectively. The average month end contract value of forward exchange contracts was $217,075,717.

At December 31, 2017, the Fund’s OTC derivative assets and liabilities are as follows:

	Gross Amounts of Assets and Liabilities Presented in the Statement of Assets and  Liabilities
	Assetsa		Liabilitiesa
Derivatives
Forward exchange contracts		$551,803		$4,160,465

^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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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

At December 31, 2017, 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 Amounts of Assets Presented in the Statement of Assets and Liabilities		Financial Instruments Available for Offset			Financial Instruments Collateral Receiveda			Cash Collateral Received		Net Amount   (Not less   than zero)
Counterparty
BOFA		$  48,203		$  (48,203	)		$  —			$  —		$  —
BONY		—		—			—			—		—
HSBK		18,478		(18,478	)		—			—		—
SSBT		366,972		(366,972	)		—			—		—
UBSW		118,150		(118,150	)		—			—		—
Total		$551,803		$(551,803	)		$  —			$  —		$  —
At December 31, 2017, 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 Amounts of Liabilities Presented in the Statement of Assets and Liabilities		Financial Instruments Available for Offset			Financial Instruments Collateral Pledgedb			Cash Collateral Pledged		Net Amount   (Not less   than zero)
Counterparty
BOFA		$   575,492		$  (48,203	)		$   (382,415	)		$  —		$144,874
BONY		764,729		—			(651,453	)		—		113,276
HSBK		738,353		(18,478	)		(608,650	)		—		111,225
SSBT		534,449		(366,972	)		—			—		167,477
UBSW		1,547,442		(118,150	)		(983,944	)		—		445,348
Total		$4,160,465		$(551,803	)		$(2,626,462	)		$  —		$982,200

^aIn some instances, the collateral amounts disclosed in the table above were adjusted due to the requirement to limit collateral amounts to avoid the effect of overcollateralization. Actual collateral received and/or pledged may be more than the amounts disclosed herein.

^bSee the accompanying Statement of Investments for securities pledged as collateral for derivatives.

See Note 1(c) regarding derivative financial instruments.

See Abbreviations on page 38.

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

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. During the year ended December 31, 2017, investments in “affiliated companies” were as follows:

Name of Issuer	Number of Shares Held at Beginning of Year		Gross Additions		Gross Reductions		Number of Shares Held at End of Year		Value at End of Year		Dividend Income		Realized Gain (Loss)		Net Change in Unrealized Appreciation (Depreciation)
Non-Controlled Affiliates
AB&T Financial Corp. (Value is —%a of Net Assets)		226,100		—		—		226,100		$128,877		$—		$—		$4,852

^aRounds to less than 0.1% of net assets.

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 9, 2018. 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 9, 2018, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 8, 2019, 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 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statement of Operations. During the year ended December 31, 2017, 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.)

• 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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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

A summary of inputs used as of December 31, 2017, 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:a
Equity Investments:b
Diversified Financial Services	$	27,496,901	$	—	$	4,105,144		$	31,602,045
All Other Equity Investments		653,167,779		—		—			653,167,779
Companies in Liquidation		—		172,408		—	c		172,408
Short Term Investments		31,545,200		4,500,000		—			36,045,200
Total Investments in Securities	$	712,209,880	$	4,672,408	$	4,105,144		$	720,987,432
Other Financial Instruments:
Forward Exchange Contracts	$	—	$	551,803	$	—		$	551,803
Liabilities:
Other Financial Instruments:
Futures Contracts	$	528,182	$	—	$	—		$	528,182
Forward Exchange Contracts		—		4,160,465		—			4,160,465
Total Other Financial Instruments	$	528,182	$	4,160,465	$	—		$	4,688,647

^aFor detailed categories, see the accompanying Statement of Investments.

^bIncludes common stocks as well as other equity investments.

^cIncludes securities determined to have no value at December 31, 2017.

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 beginning and/or end of the year. At December 31, 2017, the reconciliation of assets, is as follows:

	Balance at Beginning of Year			Purchases (Sales)		Transfer Into (Out of) Level 3		Cost Basis Adjustmentsa			Net Realized Gain (Loss)		Net Unrealized Appreciation (Depreciation)			Balance at End of Year			Net Change in Unrealized Appreciation (Depreciation) on Assets Held at Year End
Assets:
Investments in Securities:
Equity Investments:b
Diversified Financial Services		$5,615,411			$  —		$  —		$         —			$        —		$(1,510,267	)		$4,105,144			$(1,510,267	)
Companies in Liquidation		—	c		—		—		(68,325	)		68,325		—			—	c		—
Total		$5,615,411			$  —		$  —		$(68,325	)		$68,325		$(1,510,267	)		$4,105,144			$(1,510,267	)

^aMay include accretion, amortization, partnership adjustments, and/or other cost basis adjustments.

^bIncludes common stocks as well as other equity investments.

^cIncludes securities determined to have no value.

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

13.  Fair Value Measurements (continued)

Significant unobservable valuation inputs for material Level 3 financial instruments and impact to fair value as a result of changes in unobservable valuation inputs as of December 31, 2017, are as follows:

Description	Fair Value at End of Year		Valuation Technique		Unobservable Inputs		Amount		Impact to Fair Value if Input Increasesa
Assets:
Investments in Securities:
Equity Investments:
Diversified Financial Services	$	4,105,144		Market transaction		Transaction price weighting		100%		Increase
						Discount for deal uncertainty		5%		Decrease	b

^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 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.

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
BOFA	Bank of America N.A.	EUR	Euro	ADR	American Depositary Receipt
BONY	The Bank of New York Mellon Corp.	GBP	British Pound	FHLB	Federal Home Loan Bank
HSBK	HSBC Bank PLC	USD	United States Dollar
SSBT	State Street Bank and Trust Co., N.A.
UBSW	UBS AG

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

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:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Franklin Mutual Financial Services Fund (the “Fund”) (one of the funds constituting Franklin Mutual Series Funds), including the schedule of investments, as of December 31, 2017, 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, the financial highlights for each of the periods indicated therein and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements 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, 2017, 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 its financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the auditor of one or more Franklin investment companies since 1987.

Boston, MA

February 26, 2018

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

Tax Information (unaudited)

Under Section 854(b)(1)(A) of the Internal Revenue Code (Code), the Fund hereby reports 38.08% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2017.

Under Section 854(b)(1)(B) of the Code, the Fund hereby reports the maximum amount allowable but no less than $12,447,494 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended December 31, 2017. Distributions, including qualified dividend income, paid during calendar year 2017 will be reported to shareholders on Form 1099-DIV by mid-February 2018. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns.

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FRANKLIN MUTUAL SERIES FUNDS

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 Trust, principal occupations during at least the past five years and number of US registered 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

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Edward I. Altman, Ph.D. (1941) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1987	14	None
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1995	40	Ares Capital 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), SLM Corporation (Sallie Mae) (1997-2014) and Navient Corporation (loan management, servicing and asset recovery) (2014-2016).
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee and Vice Chairman	Trustee since 2002 and Vice Chairman since 2015	14	Franklin Templeton Emerging Markets Debt Opportunities Fund PLC (1999-present) and Fiduciary International Ireland Limited (1999-2015).
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.
Jan Hopkins Trachtman (1947) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2009	14	None
Principal Occupation During at Least the Past 5 Years:
President and Founder, The Jan Hopkins Group (communications and consulting firm); serves on Advisory Board of Knight Bagehot Fellowship; and formerly, President, Economic Club of New York (2007-2015); 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.
Keith Mitchell (1954) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2009	14	None
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, Putman Lovell NBF.

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FRANKLIN MUTUAL SERIES FUNDS

Independent Board Members (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
David W. Niemiec (1949) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2015	40	Hess Midstream Partners LP (oil and gas midstream infrastructure) (2017-present).
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1998	14	None
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.
Robert E. Wade (1946) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee and Chairman of the Board	Trustee since 1993 and Chairman of the Board since 2005	40	El Oro Ltd (investments) (2003-present).
Principal Occupation During at Least the Past 5 Years:
Attorney at law engaged in private practice as a sole practitioner (1972-2008) and member of various boards.
Gregory H. Williams (1943) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2015	14	None
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).

Interested Board Members and Officers

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
**Gregory E. Johnson (1961) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 2007	153	None
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 43 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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee, President, and Chief Executive Officer – Investment Management	Trustee since 2007, President, and Chief Executive Officer – Investment Management since 2005	7	American International Group, Inc. (AIG) Credit Facility Trust (2010-2011).
Principal Occupation During at Least the Past 5 Years:
Chairman of the Board, Chief Executive Officer and President, Franklin Mutual Advisers, LLC; President and Chief Investment Officer, Franklin Advisory Services, LLC; and officer and/or director, as the case may be, of three of the investment companies in Franklin Templeton Investments.

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FRANKLIN MUTUAL SERIES FUNDS

Interested Board Members and Officers (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Alison E. Baur (1964) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2012	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.
Philippe Brugere-Trelat (1949) 101 John F. Kennedy Parkway Short Hills NJ 07078-2789	Vice President	Since 2005	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Executive Vice President, Franklin Mutual Advisers, LLC; officer of one of the investment companies in Franklin Templeton Investments; and formerly, Portfolio Manager of Eurovest SA (French registered investment company, SICAV).
Aliya S. Gordon (1973) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2009	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Steven J. Gray (1955) One Franklin Parkway San Mateo, CA 94403-1906	Vice President and Secretary	Vice President since 2009 and Secretary since 2005	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc. and FASA, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.
Matthew T. Hinkle (1971) One Franklin Parkway San Mateo, CA 94403-1906	Chief Executive Officer – Finance and Administration	Since June 2017	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Vice President, Global Tax (2012-April 2017) and Treasurer/Assistant Treasurer, Franklin Templeton Investments (2009-2017).
Robert G. Kubilis (1973) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Chief Financial Officer, Chief Accounting Officer and Treasurer	Since 2012	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of 17 of the investment companies in Franklin Templeton Investments.
Robert Lim (1948) One Franklin Parkway San Mateo, CA 94403-1906	Vice President – AML Compliance	Since 2016	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Vice President, Franklin Templeton Companies, LLC; Chief Compliance Officer, Franklin Templeton Distributors, Inc. and Franklin Templeton Investor Services, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.

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Interested Board Members and Officers (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Kimberly H. Novotny (1972) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Vice President	Since 2013	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Associate General Counsel, Franklin Templeton Investments; Vice President and Corporate Secretary, Fiduciary Trust International of the South; Vice President, Templeton Investment Counsel, LLC; Assistant Secretary, Franklin Resources, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments.
Robert C. Rosselot (1960) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Chief Compliance Officer	Since 2013	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Director, Global Compliance, Franklin Templeton Investments; Vice President, Franklin Templeton Companies, LLC; officer of 45 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) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2009	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Navid J. Tofigh (1972) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2015	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Craig S. Tyle (1960) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2005	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.
Lori A. Weber (1964) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Vice President	Since 2011	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.

*We base the number of portfolios on each separate series of the US 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. (Resources), 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 Advisors, 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 Sarbanes-Oxley Act of 2002 and Rules adopted by the U.S. Securities and Exchange Commission require the Fund to disclose whether the Fund’s Audit Committee includes at least one member who is an audit committee financial expert within the meaning of such Act and Rules. The Fund’s Board has determined that there is at least one such financial expert on the Audit Committee and has designated each of Edward I. Altman, Ph.D., Ann Torre Bates and David W. Niemiec as an audit committee financial expert. The Board believes that Messrs. Altman and Niemiec and Ms. Bates qualify as such an expert in view of their extensive business background and experience. Mr. Altman has served as a member of the Fund Audit Committee since 1996. He currently serves as a Max L. Hines Professor of Finance, Emeritus and Director of The Credit and Debt Markets Research Program, Salomon Center, Stern School of Business, New York University. Ms. Bates has served as a member of the Fund Audit Committee since 1996. She currently serves as a director of Ares Capital Corporation (2010-present) and United Natural Foods, Inc. (2013-present) and was formerly a director of Navient Corporation from 2014 to 2016, SLM Corporation from 1997 to 2014 and Allied

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Interested Board Members and Officers (continued)

Capital Corporation from 2003 to 2010, Executive Vice President and Chief Financial Officer of NHP Incorporated from 1995 to 1997 and Vice President and Treasurer of US Airways, Inc. until 1995. Mr. Niemiec has served as a member of the Fund Audit Committee since 2015, currently serves as an Advisor to Saratoga Partners and was formerly its Managing Director from 1998 to 2001 and serves as a director of Hess Midstream Partners LP (2017-present). Mr. Niemiec was formerly a director of Emeritus Corporation from 1999 to 2010 and OSI Pharmaceuticals, Inc. from 2006 to 2010, Managing Director of SBC Warburg Dillon Read from 1997 to 1998, and was Vice Chairman from 1991 to 1997 and Chief Financial Officer from 1982 to 1997 of Dillon, Read & Co. Inc. As a result of such background and experience, the Board believes that Messrs. Altman and Niemiec and Ms. Bates have each acquired an understanding of generally accepted accounting principles and financial statements, the general application of such principles in connection with the accounting estimates, accruals and reserves, and analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues generally comparable to those of the Fund, as well as an understanding of internal controls and procedures for financial reporting and an understanding of audit committee functions. Messrs. Altman and Niemiec and Ms. Bates are independent Board members as that term is defined under the applicable U.S. Securities and Exchange Commission Rules and Releases.

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

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FRANKLIN MUTUAL FINANCIAL SERVICES FUND

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 US 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 Trust, on behalf of the Fund, files a complete statement of investments with the US 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.

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	Annual Report and Shareholder Letter
	Franklin Mutual Financial Services Fund
	Investment Manager
	Franklin Mutual Advisers, LLC
	Distributor
	Franklin Templeton Distributors, Inc.
	(800) DIAL BEN® / 342-5236
	franklintempleton.com
	Shareholder Services
	(800) 632-2301 - (Class A, C & R6)
	(800) 448-FUND - (Class Z)

Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.

To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.

©2018 Franklin Templeton Investments. All rights reserved. 479 A 02/18

Annual Report and Shareholder Letter   December 31, 2017

Franklin Templeton Investments

Gain From Our Perspective^®

At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.

Dear Franklin Mutual International Fund Shareholder:

Securities markets benefited from a confluence of positive economic, financial and political trends during 2017. The global economy entered a synchronized pace of modest and steady growth, corporate earnings strengthened in the US, Europe and Japan, and US equity market volatility remained at historically low levels. A number of political risks identified at the start of 2017, such as the success of far-right parties in Europe, Brexit negotiations and the Trump administration’s ability to enact its policy agenda, also dissipated or became less immediate for investors as the year progressed. For the year ended December 31, 2017, international stocks, as measured by the MSCI All Country World Index (ACWI) ex USA Net Return (Local Currency), produced a +18.24% total return.¹ Stocks in global developed markets, as measured by the MSCI World Index, returned +23.07% and investment-grade bonds, as measured by the Bloomberg Barclays US Aggregate Bond Index, posted a +3.54% total return.¹

In many equity markets, the trend of growth stocks outpacing value stocks continued. The MSCI World Growth Index returned +28.49%, while the MSCI World Value Index returned +17.95%.¹ The difference in performance was driven in part by a rally in information technology stocks. In addition, MSCI World Value Index has components that we believe are facing disruption from new technology (e.g., the rapid market share shift to online retailing from traditional bricks and mortar retailers that are often labeled as value stocks). Exacerbating the disruption is the reality that many new technology companies are able to innovate without the need to show immediate profits.

We do not know how long these trends will continue, but historically, periods of strong performance by growth stocks

1. Source: Morningstar.

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

have eventually been followed by relatively weaker performance. Given that unemployment has continued to decline in most developed markets and the US Federal Reserve has taken its first steps toward monetary normalization, value-oriented stocks may become more attractive to investors, particularly within cyclical sectors of the equity markets such as industrials, consumer discretionary and financials.

A stellar 2017 for equity markets also pushed up common valuation metrics, such as price-to-earnings. Valuation is a critical factor in our analysis and we always ask ourselves if current and potential investments represent an attractive balance of risk and reward. We remain committed to our long-term perspective and disciplined investment approach as we conduct a rigorous, fundamental analysis of securities with a regular emphasis on investment risk management.

Although the investment landscape appears favorable as we enter 2018, it is worth remembering that securities markets are dynamic and constantly evolving. Therefore, we believe active, professional investment management serves investors well. We also recognize the important role of financial advisors in today’s markets and encourage investors to continue to seek their advice. Amid changing markets and economic conditions, we are confident investors with a well-diversified portfolio and a patient, long-term outlook should be well positioned for the years ahead.

On the following pages, the Fund’s portfolio management team reviews investment decisions that pertain to performance during the past 12 months in light of the economic environment and other factors. Please remember all securities markets fluctuate, as do mutual fund share prices.

Not FDIC Insured | May Lose Value | No Bank Guarantee  

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We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to continuing to serve your investment needs in the years ahead.

Sincerely,

Peter A. Langerman

Chairman, President and Chief Executive Officer

Franklin Mutual Advisers, LLC

This letter reflects our analysis and opinions as of December 31, 2017, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.

Contents

Annual Report

Franklin Mutual International Fund	3
Performance Summary	10
Your Fund’s Expenses	13
Financial Highlights and Statement of Investments	14
Financial Statements	24
Notes to Financial Statements	28
Report of Independent Registered Public Accounting Firm	40
Tax Information	41
Board Members and Officers	42
Shareholder Information	47

Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.

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Annual Report

Franklin Mutual International Fund

This annual report for Franklin Mutual International Fund covers the fiscal year ended December 31, 2017.

Your Fund’s Goal and Main Investments

The Fund seeks capital appreciation, which may occasionally be short term, with income as a secondary goal. Under normal market conditions, the Fund invests at least 80% of its net assets in securities of non-US issuers, primarily Asian and European companies. The investment manager focuses the Fund’s investments on securities believed to be available at market prices less than their intrinsic value. The equity securities in which the Fund invests are primarily common stocks, with a current focus on mid- and large-cap companies. To a lesser extent, the Fund also invests in merger arbitrage securities and the debt and equity of distressed companies. The Geographic Composition bar chart on page 4 lists the leading countries where the Fund invests.

Performance Overview

The Fund’s Class Z shares delivered a +13.99% cumulative total return for the 12 months ended December 31, 2017. In comparison, the Fund’s benchmark, the MSCI All Country World Index (ACWI) ex USA Net Return (Local Currency), which is a free float-adjusted,¹ market capitalization-weighted index designed to measure equity market performance in global developed and emerging markets, generated a +18.24% total return.² Also for comparison, the Fund’s secondary benchmark, the MSCI ACWI ex USA Net Return (US dollar) posted a +27.19% total return.² You can find more of the Fund’s performance data in the Performance Summary beginning on page 10.

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

The global economy grew moderately during the 12-month period under review. In this environment, global developed and emerging market stocks generated a +24.62% total return, as measured by the MSCI All Country World Index.² Global markets were aided by price gains in oil and other commodities, generally upbeat economic data across regions, the European Central Bank’s (ECB’s) extension of its monetary easing program, and investor optimism about pro-growth and pro-business policies in the US. The prospect for reforms in the European Union (EU) with Emmanuel Macron’s election as France’s president, encouraging corporate earnings reports and the passage of the US tax reform bill also supported global stocks.

However, global markets reflected investor concerns about the terms of the UK’s exit from the EU, political uncertainty in the US and the EU, and geopolitical tensions in the Korean peninsula and other regions. Other concerns included the health of European banks, global oil oversupply despite a pact by major oil-producing countries to extend production cuts, and comments from key central bankers around the world about potentially raising interest rates.

After strengthening in 2017’s second and third quarters, the US economy moderated in the fourth quarter. The economy grew faster in 2017 than in 2016, however, largely due to growth in consumer spending, business investment and exports. The unemployment rate decreased from 4.7% in December 2016, as reported at the beginning of the 12-month period, to 4.1% at

1. A “free float-adjusted” index means that companies with larger proportions of their shares being actively traded, rather than being held by company insiders, governments or cross held by other companies, receive higher weightings within the index.

2. Source: Morningstar.

The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. 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 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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FRANKLIN MUTUAL INTERNATIONAL FUND

period-end.³ Annual inflation, as measured by the Consumer Price Index, was 2.1% in December 2016, as reported at the beginning of the 12-month period, and while it varied over the 12-month period, remained unchanged at period-end.³ The US Federal Reserve (Fed) raised its target range for the federal funds rate 0.25% three times during the period, amid signs of a growing US economy, strengthening labor market and improving business spending. At its December meeting, the Fed confirmed that the monthly balance sheet reduction would increase from US$10 billion to US$20 billion beginning in January 2018.

In Europe, the UK’s economic growth moderated in 2017 compared to 2016, largely due to slower growth in the services sector. In November, the Bank of England raised its key policy rate 0.25%, its first increase in a decade. The eurozone’s growth accelerated in 2017’s second and third quarters, but moderated in the fourth quarter. However, the eurozone’s 2017 economic growth rate of 2.5% was the fastest in a decade.⁴ The bloc’s annual inflation rate, while low, ended higher than in December 2016. The ECB kept its benchmark interest rate unchanged during the period. However, at its October meeting, the ECB extended the time frame for its massive bond-buying program from December 2017 to at least September 2018, while reducing the amount of monthly bond purchases in half beginning in January 2018.

In Asia, Japan’s quarterly gross domestic product (GDP) grew for the seventh consecutive quarter, although third-quarter 2017 growth was lower than the previous quarter. The Bank of Japan left its benchmark interest rate unchanged during the period and continued its monetary stimulus measures.

In emerging markets, Brazil’s quarterly GDP grew for the third consecutive quarter, although third-quarter 2017 growth slowed from the previous quarter. The country’s central bank cut its benchmark interest rate several times during the period to spur economic growth. Russia’s GDP grew in 2017’s first three quarters compared to the prior-year periods, amid the Bank of Russia’s continued policy support. China’s GDP grew faster in 2017 than in 2016, supported by solid growth in industrial production, services, fixed-asset investment, retail sales, and imports and exports. The People’s Bank of China left its benchmark interest rate unchanged during the period. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, produced a substantial +37.75% total return during the period.²

Geographic Composition*

Based on Total Net Assets as of 12/31/17

*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.

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 in Asia and Europe. We have the ability to invest in emerging markets, although this is unlikely to be a significant focus of our strategy. When selecting undervalued equities, we are attracted to what we believe are fundamentally

3. Source: Bureau of Labor Statistics.

4. Source: Eurostat.

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FRANKLIN MUTUAL INTERNATIONAL FUND

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 also reduces the risk of substantial declines, in our opinion. While the vast majority of our undervalued equity investments are made in publicly traded companies internationally, 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, 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 investment approach, we typically focus our arbitrage efforts on announced deals, and avoid 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

In 2017, an improving economic and political backdrop helped drive most equity markets higher. The positive performances were broad based, spanning across most regions and sectors, and complemented by minimal volatility. Global markets were

aided by generally upbeat economic data, improved corporate earnings in the US, Europe and Japan, as well as improved industrial commodity prices, most notably crude oil. In addition, the most significant political risks identified by investors heading into 2017 failed to materialize.

In the US, markets began 2017 rallying as investors hoped that a Republican sweep of US elections in November 2016 would lead to a general loosening in regulations and tax reform, including lower corporate tax rates. Although the Trump administration’s policy agenda was hindered by political gridlock, efforts to loosen federal regulations yielded some results and tax reform legislation was finally passed in late December. Improving economic activity and corporate earnings appeared to be the most meaningful equity market catalysts during much of 2017.

European equity markets started 2017 slowly, but positive political events and improved economic data fueled strong performances during the period. Elections in Europe produced outcomes generally regarded as positive economically as far-right parties largely failed to gain political power in national elections. Investors were particularly encouraged by the presidential election outcome in France. The reform-minded, centrist candidate, Emmanuel Macron, won the French presidential election in May and quickly began to push his agenda, most notably labor decrees giving employers in France greater freedom in negotiating contracts directly with workers. Amid all the positive events, the UK remained the most significant outlier. In the UK, a June 2017 snap election resulting in no party having a majority in Parliament appeared to make a “hard Brexit,” in which the UK leaves the European Union (EU) in March 2019 without a negotiated deal, even more likely than before. Although the UK and EU appeared to make some progress late in the year, the snap election results left the Conservative Party in a precarious position and with the risk of another election in the near future.

While inflation remains generally subdued in developed markets, economic conditions, particularly tighter labor markets, may lead to gradual price level increases, providing major central banks with justification to incrementally move away from their expansive monetary policies. We concur with the general investor view that monetary policy is not likely to change significantly when Federal Reserve (Fed) Governor Jerome Powell assumes his role as the next Fed Chair in February 2018, although some loosening in financial regulation is possible. At the same time, the ECB’s caution in scaling back its quantitative easing program means monetary policy will likely remain relatively accommodative in 2018. In Asia, we believe that the Bank of Japan has not been following through

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with as much quantitative easing as planned, and China has been tightening.

If the constructive backdrop as of period-end persists, it is likely to be a tailwind for equity markets. However, we are also highly cognizant of elevated levels of overall equity market valuations, such as price-to-earnings, price-to-book or price-to-sales, relative to most historical benchmarks. Elevated valuation levels may raise the overall risk profile of equity markets, particularly should the backdrop change due to some geopolitical event, greater-than-expected interest rate hikes, or other unexpected factors.

The Fund’s financials sector exposure increased significantly during the year, due to a combination of performance among the Fund’s sector positions and our investments in the sector.⁵ The Top Ten Sectors/Industries table on this page lists insurance, banks and other leading industries in which the Fund currently invests.

Although returns at foreign banks have been under pressure from a combination of low interest rates, anemic credit growth and greater regulatory capital and liquidity requirements, we think more investment opportunities are likely to be found abroad. We believe the regulatory and rate cycles are turning, which will likely create opportunities among European banks. Some European banks have recently adjusted their business models, a process that took place in the US more than five years ago, which gives investors greater clarity on future opportunities. However, the uncertainty of Brexit negotiations still hangs over the UK.

In China, efforts to rein in the financial system due to the rapid growth in debt and to shift the economy’s leading driver of growth from capital investment toward domestic consumption, have picked up steam. As part of the process, more bankruptcies among state-owned enterprises, local government financing vehicles and small banks are possible, in our view. Although the current environment for China’s lenders is filled with uncertainty, we believe China will be in much better shape in time. At the same time, life insurers are likely to benefit from tighter liquidity conditions which may help foster higher investment returns. Demand for life insurance has been growing at a rapid pace in China as the quality of life has been improving and consumers have been looking to create a stronger safety net given the trends in mortality and morbidity.

Although the Japanese banking industry is challenged by very low margins, the life insurance industry has survived a period

Top 10 Sectors/Industries

Based on Equity Securities as of 12/31/17

	% of Total Net Assets
Insurance		17.0	%
Banks		9.6	%
Oil, Gas & Consumable Fuels		6.5	%
Pharmaceuticals		4.8	%
Auto Components		4.6	%
Automobiles		4.3	%
Diversified Telecommunication Services		4.0	%
Hotels, Restaurants & Leisure		3.8	%
Internet Software & Services		2.9	%
IT Services		2.9	%

of negative interest rates, and we believe would benefit meaningfully if rates at the long end of the yield curve were allowed to move higher. We see this as more likely than a move in overnight rates.

Fund Performance

Turning to Fund performance, top positive contributors included Netherlands-based insurer ASR Nederland, India-based mortgage finance company Indiabulls Housing Finance and South Korea-based Samsung Electronics. ASR Nederland is listed among the Fund’s largest positions in the Top 10 Equity Holdings table on page 7.

Shares of ASR Nederland steadily rose during most of the period, aided by a series of solid quarterly results. Operating results were aided by ASR Nederland’s efforts to increase the investment risk of its portfolio by shifting invested insurance policy premiums from traditional fixed income securities to equities and other assets with higher historical returns. In February 2017, ASR Nederland announced it would increase its dividend and repurchase shares on offer from the Dutch government, shares the government had acquired during the 2008 financial crisis. The company announced an additional share buyback plan in May 2017. In our view, the buybacks demonstrated ASR Nederland’s strong capital position.

Indiabulls Housing Finance is India’s third largest mortgage financing company. We initiated a position when investors were concerned about the impact on Indiabulls of the Indian government’s 2016 recall of 500- and 1,000-rupee notes, despite the company’s business being essentially cashless. Indiabulls has continued to execute well in a favorable environment as the government has created effective interest

5. The financials sector comprises banks, capital markets, consumer finance, diversified financial services, insurance, and thrifts and mortgage finance in the SOI.

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Top 10 Equity Holdings
12/31/17
Company Sector/Industry, Country	% of Total Net Assets
China Longyuan Power Group Corp.		2.8%
Independent Power & Renewable Electricity Producers, China
Volkswagen AG		2.7%
Automobiles, Germany
Coca-Cola Bottlers Japan Holdings Inc.		2.7%
Beverages, Japan
ASR Nederland NV		2.7%
Insurance, Netherlands
Enel SpA		2.5%
Electric Utilities, Italy
Accor SA		2.5%
Hotels, Restaurants & Leisure, France
Koninklijke Philips NV		2.2%
Health Care Equipment & Supplies, Netherlands
Metro Pacific Investments Corp.		2.2%
Diversified Financial Services, Philippines
Novartis AG		2.1%
Pharmaceuticals, Switzerland
NN Group NV		2.1%
Insurance, Netherlands

rates of well below 3% for borrowers in the affordable housing segment, the company’s area of focus. Investors also reacted positively to credit rating upgrades in 2017 as they help reduce the company’s cost of borrowing and boost profitability.

Samsung Electronics is a low cost provider of dynamic random-access memory and flash memory products, smartphones, consumer electronics and other goods. For investors, Samsung’s solid operating results outweighed both the conviction of Samsung vice chairman Jay Y. Lee for his involvement in a government bribery scandal and escalating tensions between North Korea and the international community. Samsung reported strong sales in its core businesses, including memory chips and OLED (organic light-emitting diode) displays. Sales of its newest generation of smartphones during 2017 exceeded market expectations. Shareholder- friendly actions also boosted shares of Samsung, including a plan to cancel existing treasury shares held by the company and the announcement of significant dividend increases in 2017 and 2018.

During the period under review, Fund investments that detracted from performance included Israel-based

pharmaceutical services provider Teva Pharmaceuticals,⁶ Japan-based residential developer Takara Leben and China-based consumer finance company Qudian.

Teva Pharmaceutical Industries experienced a challenging year. In January 2017, Teva provided lower earnings guidance and a US federal court invalidated four patents for the company’s top-selling multiple sclerosis drug Copaxone. The resignations of Teva’s chief executive officer (CEO) and chief financial officer in the first half of 2017 further hindered Teva’s stock price. In the second half of the year, weak operating results, a dividend cut and a debt rating downgrade escalated investor concerns.

Takara Leben is a midsized condominium developer in Japan that has been rapidly expanding its solar farm capacity. The stock price dropped in the first quarter of 2017 after investors reacted sharply to a small downward adjustment to fiscal year revenue guidance due to a delay in the sales of solar power plants. We believe Takara has not been utilizing its cost advantage in the residential real estate market to the fullest extent. In our view, Takara has also failed to accelerate the completion of units in a favorable market environment. Moreover, we do not believe it has been selling solar assets at full value. Consequently, we exited the position by period-end.

Qudian, China’s largest online microlender, went public in the US in October 2017. A number of subsequent events, which we believe were misunderstood by the market, drove the share price down. China’s government suspended regulatory approvals of new internet microlending licenses, elevating a barrier to entry and improving the position of this established low cost leader, in our view. Alipay, a Chinese internet payments platform, announced an interest rate cap of 24%; the rate cap effectively takes Alipay out of the market for customers underwritten by Qudian who would not qualify for loans at 24%. Subsequently, China’s government prohibited unlicensed lending and capped borrowing costs to 36%, the same cap level implemented by Qudian in April 2017. Although it is possible Qudian could see a short-term increase in bad debts from a credit crunch in the unsecured consumer credit market, we see the regulatory changes as a long-term positive move. Qudian is among the most established microlenders with strong brand recognition and operational performance.

6. Not held at period-end.

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

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FRANKLIN MUTUAL INTERNATIONAL FUND

During the period, the Fund held currency forwards and futures seeking to hedge most of the currency risk of the portfolio’s non-US dollar investments. The currency forwards and futures had a negative impact on the Fund’s performance because of the depreciation of the US dollar versus the hedged currencies.

What is a currency forward?

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

What is a future?

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

Philippe Brugere-Trelat, Executive Vice President and Portfolio Manager with Franklin Mutual Series, has decided to retire in 2018. We are grateful for Mr. Brugere-Trelat’s many years of service to the firm. In preparation for Mr. Brugere-Trelat’s retirement, Timothy Rankin, portfolio manager and research analyst for Franklin Mutual Advisers will be added as a co-lead portfolio manager for Franklin Mutual International Fund effective January 1, 2018, joining current co-lead portfolio managers Andrew Sleeman and Philippe Brugere-Trelat. Effective May 1, 2018, Mr. Brugere-Trelat will step down as portfolio manager and remain with the firm in a consulting capacity until later in 2018 when he will officially retire.

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

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, 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.

CFA^® is a trademark owned by CFA Institute.

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FRANKLIN MUTUAL INTERNATIONAL FUND

Philippe Brugere-Trelat has been a co-portfolio manager for Franklin Mutual International Fund since 2009. Mr. Brugere-Trelat has also served as lead portfolio manager for Franklin Mutual European Fund since 2005 and as 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.

Andrew Sleeman has been a co-portfolio manager for Franklin Mutual International Fund since 2009. He has also served as lead portfolio manager for Franklin Mutual Financial Services 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.

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FRANKLIN MUTUAL INTERNATIONAL FUND

Performance Summary as of December 31, 2017

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. 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.

Performance as of 12/31/17¹

Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge. For other share classes, visit franklintempleton.com.

Share Class	Cumulative Total Return	2	Average Annual Total Return	3
Z
1-Year	+13.99%		+13.99%
5-Year	+38.91%		+6.79%
Since Inception (5/1/09)	+112.29%		+9.07%
A
1-Year	+13.67%		+7.13%
5-Year	+36.99%		+5.24%
Since Inception (5/1/09)	+107.10%		+8.02%

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.

See page 12 for Performance Summary footnotes.

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FRANKLIN MUTUAL INTERNATIONAL FUND

PERFORMANCE SUMMARY

Total Return Index Comparison for a Hypothetical $10,000 Investment¹

Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.

Class Z (5/1/09–12/31/17)

Class A (5/1/09–12/31/17)

See page 12 for Performance Summary footnotes.

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FRANKLIN MUTUAL INTERNATIONAL FUND

PERFORMANCE SUMMARY

Distributions (1/1/17–12/31/17)

Share Class	Net Investment Income
Z		$0.3501
A		$0.3059
C		$0.1892
R		$0.2940
R6		$0.3684

Total Annual Operating Expenses⁵

Share Class	With Waiver		Without Waiver
Z		0.97%		1.22%
A		1.22%		1.47%

Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.

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; investments in emerging markets involve heightened risks related to the same factors. Because the Fund may invest its assets in companies in a specific region, including Europe, 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. Current political and financial uncertainty surrounding the European Union may increase market volatility and the economic risk of investing in companies in Europe. Smaller company stocks have exhibited greater price volatility than larger company stocks, particularly 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 may invest in 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.

1. The Fund has an expense reduction contractually guaranteed through 4/30/19. Fund investment results reflect the expense reduction; without this reduction, the results would have been lower.

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. Source: Morningstar. the MSCI ACWI ex USA Net Return (Local Currency and US dollar) is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed and emerging markets.

5. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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

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FRANKLIN MUTUAL INTERNATIONAL FUND

Your Fund’s Expenses

As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) 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 table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

		Actual (actual return after expenses)		Hypothetical (5% annual return before expenses)
Share Class	Beginning Account Value 7/1/17	Ending Account Value 12/31/17	Expenses Paid During Period 7/1/17–12/31/171,2	Ending Account Value 12/31/17	Expenses Paid During Period 7/1/17–12/31/171,2	Net Annualized Expense Ratio2
Z	$1,000	$1,047.00	$  5.93	$1,019.41	$  5.85	1.15%
A	$1,000	$1,045.00	$  7.22	$1,018.15	$  7.12	1.40%
C	$1,000	$1,041.30	$11.06	$1,014.37	$10.92	2.15%
R	$1,000	$1,044.50	$  8.30	$1,017.09	$  8.19	1.61%
R6	$1,000	$1,047.40	$  5.26	$1,020.06	$  5.19	1.02%

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/365 to reflect the one-half year period.

2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.

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Financial Highlights

	Year Ended December 31,
	2017			2016			2015			2014			2013
Class Z
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$14.32			$14.17			$14.59			$15.90			$13.58
Income from investment operationsa:
Net investment incomeb		0.21			0.27	c		0.18	d		0.30	e		0.24
Net realized and unrealized gains (losses)		1.78			0.20			(0.17	)		(0.57	)		2.42
Total from investment operations		1.99			0.47			0.01			(0.27	)		2.66
Less distributions from:
Net investment income		(0.35	)		(0.27	)		(0.16	)		(0.43	)		(0.24	)
Net realized gains		—			(0.05	)		(0.27	)		(0.61	)		(0.10	)
Total distributions		(0.35	)		(0.32	)		(0.43	)		(1.04	)		(0.34	)
Net asset value, end of year.		$15.96			$14.32			$14.17			$14.59			$15.90
Total return		13.99%			3.34%			0.15%			(1.63)%			19.71%
Ratios to average net assets
Expenses before waiver and payments by affiliatesf		1.17%			1.22%			1.24%			1.39%			1.49%
Expenses net of waiver and payments by affiliatesf,g		1.16%			1.17%			1.15%			1.16%			1.17%
Expenses incurred in connection with securities sold short		—%			—%			—%			—%	h		—%
Net investment income		1.41%			2.07%	c		1.26%	d		1.78%	e		1.64%
Supplemental data
Net assets, end of year (000’s)		$86,274			$40,875			$49,963			$19,940			$14,732
Portfolio turnover rate		38.77%			24.87%			28.64%			54.78%			41.47%

^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 $0.06 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 1.63%.

^dNet investment income per share includes approximately $0.08 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 0.71%.

^eNet investment income per share includes approximately $0.08 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 1.27%.

^fIncludes 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(d).

^gBenefit of expense reduction rounds to less than 0.01%.

^hRounds to less than 0.01%.

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FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017			2016			2015			2014			2013
Class A
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$14.25			$14.10			$14.54			$15.84			$13.54
Income from investment operationsa:
Net investment incomeb		0.18			0.24	c		0.15	d		0.26	e		0.20
Net realized and unrealized gains (losses)		1.78			0.19			(0.19	)		(0.57	)		2.41
Total from investment operations		1.96			0.43			(0.04	)		(0.31	)		2.61
Less distributions from:
Net investment income		(0.31	)		(0.23	)		(0.13	)		(0.38	)		(0.21	)
Net realized gains		—			(0.05	)		(0.27	)		(0.61	)		(0.10	)
Total distributions		(0.31	)		(0.28	)		(0.40	)		(0.99	)		(0.31	)
Net asset value, end of year		$15.90			$14.25			$14.10			$14.54			$15.84
Total returnf		13.67%			3.14%			(0.20)%			(1.89)%			19.34%
Ratios to average net assets
Expenses before waiver and payments by affiliatesg		1.42%			1.47%			1.52%			1.69%			1.79%
Expenses net of waiver and payments by affiliatesg,h		1.41%			1.42%			1.43%			1.46%			1.47%
Expenses incurred in connection with securities sold short		—%			—%			—%			—%	i		—%
Net investment income		1.16%			1.82%	c		0.98%	d		1.48%	e		1.34%
Supplemental data
Net assets, end of year (000’s)		$82,965			$82,626			$110,591			$39,810			$35,319
Portfolio turnover rate		38.77%			24.87%			28.64%			54.78%			41.47%

^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 $0.06 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 1.38%.

^dNet investment income per share includes approximately $0.08 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 0.43%.

^eNet investment income per share includes approximately $0.08 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 0.97%.

^fTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

^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(d).

^hBenefit of expense reduction rounds to less than 0.01%.

ⁱRounds to less than 0.01%.

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FRANKLIN MUTUAL INTERNATIONAL FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017			2016			2015			2014			2013
Class C
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$14.08			$13.92			$14.38			$15.68			$13.41
Income from investment operationsa:
Net investment incomeb		0.08			0.15	c		0.04	d		0.15	e		0.10
Net realized and unrealized gains (losses)		1.72			0.18			(0.18	)		(0.56	)		2.38
Total from investment operations		1.80			0.33			(0.14	)		(0.41	)		2.48
Less distributions from:
Net investment income		(0.19	)		(0.12	)		(0.05	)		(0.28	)		(0.11	)
Net realized gains		—			(0.05	)		(0.27	)		(0.61	)		(0.10	)
Total distributions		(0.19	)		(0.17	)		(0.32	)		(0.89	)		(0.21	)
Net asset value, end of year		$15.69			$14.08			$13.92			$14.38			$15.68
Total returnf		12.79%			2.44%			(0.93)%			(2.58)%			18.54%
Ratios to average net assets
Expenses before waiver and payments by affiliatesg		2.17%			2.22%			2.24%			2.39%			2.49%
Expenses net of waiver and payments by affiliatesg,h		2.16%			2.17%			2.15%			2.16%			2.17%
Expenses incurred in connection with securities sold short		—%			—%			—%			—%	i		—%
Net investment income		0.41%			1.07%	c		0.26%	d		0.78%	e		0.64%
Supplemental data
Net assets, end of year (000’s)		$29,109			$25,860			$34,611			$14,794			$14,198
Portfolio turnover rate		38.77%			24.87%			28.64%			54.78%			41.47%

^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 $0.06 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 0.63%.

^dNet investment income per share includes approximately $0.08 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 (0.29)%.

^eNet investment income per share includes approximately $0.08 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 0.27%.

^fTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

^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(d).

^hBenefit of expense reduction rounds to less than 0.01%.

ⁱRounds to less than 0.01%.

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

FRANKLIN MUTUAL INTERNATIONAL FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017			2016			2015			2014			2013
Class R
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$14.19			$14.05			$14.51			$15.83			$13.54
Income from investment operationsa:
Net investment incomeb		0.10			0.20	c		0.04	d		0.18	e		0.15
Net realized and unrealized gains (losses)		1.80			0.20			(0.10	)		(0.52	)		2.43
Total from investment operations		1.90			0.40			(0.06	)		(0.34	)		2.58
Less distributions from:
Net investment income		(0.29	)		(0.21	)		(0.13	)		(0.37	)		(0.19	)
Net realized gains		—			(0.05	)		(0.27	)		(0.61	)		(0.10	)
Total distributions		(0.29	)		(0.26	)		(0.40	)		(0.98	)		(0.29	)
Net asset value, end of year		$15.80			$14.19			$14.05			$14.51			$15.83
Total return		13.43%			2.90%			(0.38)%			(2.13)%			19.13%
Ratios to average net assets
Expenses before waiver and payments by affiliatesf		1.64%			1.72%			1.74%			1.89%			1.99%
Expenses net of waiver and payments by affiliatesf,g		1.63%			1.67%			1.65%			1.66%			1.67%
Expenses incurred in connection with securities sold short		—%			—%			—%			—%	h		—%
Net investment income		0.94%			1.57%	c		0.76%	d		1.28%	e		1.14%
Supplemental data
Net assets, end of year (000’s)		$1,867			$694			$662			$112			$90
Portfolio turnover rate		38.77%			24.87%			28.64%			54.78%			41.47%

^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 $0.06 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 1.13%.

^dNet investment income per share includes approximately $0.08 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 0.21%.

^eNet investment income per share includes approximately $0.08 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 0.77%.

^fIncludes 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(d).

^gBenefit of expense reduction rounds to less than 0.01%.

^hRounds to less than 0.01%.

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

FRANKLIN MUTUAL INTERNATIONAL FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2017			2016			2015			2014			2013a
Class R6
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$14.32			$14.17			$14.59			$15.87			$14.26
Income from investment operationsb:
Net investment incomec		0.24			0.33	d		0.22	e		—	f,g		0.15
Net realized and unrealized gains (losses)		1.78			0.17			(0.20	)		(0.22	)		1.83
Total from investment operations		2.02			0.50			0.02			(0.22	)		1.98
Less distributions from:
Net investment income		(0.37	)		(0.30	)		(0.17	)		(0.45	)		(0.27	)
Net realized gains		—			(0.05	)		(0.27	)		(0.61	)		(0.10	)
Total distributions		(0.37	)		(0.35	)		(0.44	)		(1.06	)		(0.37	)
Net asset value, end of year		$15.97			$14.32			$14.17			$14.59			$15.87
Total returnh		14.11%			3.58%			0.23%			(1.46)%			14.09%
Ratios to average net assetsi
Expenses before waiver and payments by affiliatesj		1.03%			1.06%			1.06%			1.24%			2.89%
Expenses net of waiver and payments by affiliatesj,k		1.01%			1.00%			1.02%			1.00%			1.00%
Expenses incurred in connection with securities sold short		—%			—%			—%			—%	l		—%
Net investment income		1.56%			2.24%	d		1.39%	e		1.94%	f		1.81%
Supplemental data
Net assets, end of year (000’s)		$25,697			$16,687			$23,793			$19,398			$6
Portfolio turnover rate		38.77%			24.87%			28.64%			54.78%			41.47%

^aFor the period May 1, 2013 (commencement of operations) 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 $0.06 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 1.80%.

^eNet investment income per share includes approximately $0.08 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 0.84%.

^fNet investment income per share includes approximately $0.08 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 1.42%.

^gAmount rounds to less than $0.01 per share.

^hTotal return is not annualized for periods less than one year.

ⁱRatios are annualized for periods less than one year.

^jIncludes 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(d).

^kBenefit of expense reduction rounds to less than 0.01%.

^lRounds to less than 0.01%.

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

FRANKLIN MUTUAL INTERNATIONAL FUND

Statement of Investments, December 31, 2017

	Country		Shares		Value
Common Stocks 90.8%
Auto Components 3.0%
Cie Generale des Etablissements Michelin, B		France		20,766	$	2,978,594
Toyo Tire & Rubber Co. Ltd.		Japan		189,100		3,906,685
						6,885,279
Automobiles 1.6%
Peugeot SA		France		176,908		3,598,770
Banks 9.6%
AIB Group PLC		Ireland		370,005		2,441,626
Barclays PLC		United Kingdom		1,504,914		4,127,624
HSBC Holdings PLC		United Kingdom		388,429		4,022,804
Shinsei Bank Ltd.		Japan		223,800		3,870,843
Societe Generale SA		France		65,741		3,395,614
aStandard Chartered PLC		United Kingdom		366,605		3,862,135
						21,720,646
Beverages 2.7%
Coca-Cola Bottlers Japan Holdings Inc.		Japan		165,515		6,044,232
Capital Markets 2.2%
Credit Suisse Group AG		Switzerland		171,599		3,064,425
aGuotai Junan Securities Co. Ltd.		China		852,864		1,899,414
						4,963,839
Communications Equipment 1.2%
Nokia OYJ, A		Finland		356,803		1,666,991
Nokia OYJ, ADR		Finland		227,640		1,060,803
						2,727,794
Construction Materials 1.4%
LafargeHolcim Ltd., B		Switzerland		57,170		3,224,192
Consumer Finance 2.6%
bHoist Finance AB, 144A		Sweden		240,641		2,706,155
aQudian Inc., ADR		China		110,432		1,384,817
Sun Hung Kai & Co. Ltd.		Hong Kong		2,877,748		1,837,993
						5,928,965
Diversified Financial Services 2.2%
Metro Pacific Investments Corp.		Philippines		36,164,200		4,953,059
Diversified Telecommunication Services 4.0%
China Telecom Corp. Ltd., H		China		4,038,538		1,922,904
Hellenic Telecommunications Organization SA		Greece		269,294		3,715,638
Koninklijke KPN NV		Netherlands		969,692		3,383,274
						9,021,816
Electric Utilities 2.5%
Enel SpA		Italy		931,370		5,732,558
Equity Real Estate Investment Trusts (REITs) 1.4%
Hibernia REIT PLC		Ireland		1,741,347		3,184,045
Food & Staples Retailing 0.5%
Carrefour SA		France		51,600		1,116,851
Health Care Equipment & Supplies 2.2%
Koninklijke Philips NV		Netherlands		133,508		5,052,169

  franklintempleton.com   Annual Report             19

FRANKLIN MUTUAL INTERNATIONAL FUND

STATEMENT OF INVESTMENTS

	Country		Shares		Value
Common Stocks (continued)
Hotels, Restaurants & Leisure 3.8%
Accor SA		France		110,379	$	5,694,607
Sands China Ltd.		Hong Kong		546,000		2,819,855
						8,514,462
Household Durables 2.5%
aCairn Homes PLC		Ireland		1,056,000		2,476,963
a,bNeinor Homes SA, 144A		Spain		139,204		3,056,411
						5,533,374
Independent Power & Renewable Electricity Producers 2.8%
China Longyuan Power Group Corp.		China		9,019,000		6,418,354
Insurance 17.0%
Ageas		Belgium		89,259		4,360,290
ASR Nederland NV		Netherlands		145,680		5,996,064
China Pacific Insurance Group Co. Ltd., H		China		879,045		4,224,852
Direct Line Insurance Group PLC		United Kingdom		839,181		4,325,699
Lancashire Holdings Ltd.		United Kingdom		388,658		3,579,567
NN Group NV		Netherlands		110,515		4,789,364
RSA Insurance Group PLC		United Kingdom		389,405		3,326,140
aSabre Insurance Group PLC		United Kingdom		719,206		2,641,805
T&D Holdings Inc.		Japan		162,633		2,781,149
XL Group Ltd.		Bermuda		68,774		2,418,094
						38,443,024
Internet Software & Services 2.9%
aBaidu Inc., ADR		China		13,631		3,192,516
Yahoo Japan Corp.		Japan		734,600		3,370,353
						6,562,869
IT Services 2.9%
Cognizant Technology Solutions Corp., A		United States		44,480		3,158,970
Infosys Ltd.		India		204,636		3,340,240
						6,499,210
Media 1.7%
Clear Media Ltd.		Hong Kong		2,283,000		2,270,479
Sky PLC		United Kingdom		117,011		1,599,137
						3,869,616
Metals & Mining 0.8%
thyssenkrupp AG		Germany		58,392		1,696,472
Multi-Utilities 0.8%
innogy SE		Germany		43,342		1,699,157
Oil, Gas & Consumable Fuels 6.5%
BP PLC		United Kingdom		566,355		3,997,788
Crescent Point Energy Corp.		Canada		371,100		2,828,047
JXTG Holdings Inc.		Japan		597,808		3,856,826
Royal Dutch Shell PLC, B		United Kingdom		117,500		3,980,434
						14,663,095
Pharmaceuticals 4.8%
GlaxoSmithKline PLC		United Kingdom		181,719		3,245,447
Novartis AG		Switzerland		57,144		4,832,622
Sanofi		France		31,929		2,752,460
						10,830,529

  20           Annual Report   franklintempleton.com

FRANKLIN MUTUAL INTERNATIONAL FUND

STATEMENT OF INVESTMENTS

	Country		Shares		Value
Common Stocks (continued)
Specialty Retail 1.2%
Hornbach Holding AG & Co. KGaA		Germany		31,290	$	2,778,840
Technology Hardware, Storage & Peripherals 1.5%
Samsung Electronics Co. Ltd.		South Korea		1,424		3,399,323
Thrifts & Mortgage Finance 1.2%
Indiabulls Housing Finance Ltd.		India		139,156		2,608,303
Trading Companies & Distributors 1.4%
Rexel SA		France		180,233		3,269,603
Wireless Telecommunication Services 1.9%
Vodafone Group PLC		United Kingdom		1,324,860		4,204,519
Total Common Stocks (Cost $181,732,164)						205,144,965
Preferred Stocks 4.3%
Auto Components 1.6%
c Schaeffler AG, 3.382%, pfd		Germany		195,008		3,459,255
Automobiles 2.7%
c Volkswagen AG, 1.238%, pfd		Germany		30,491		6,089,258
Total Preferred Stocks (Cost $8,031,664)						9,548,513
Total Investments before Short Term Investments (Cost $189,763,828)						214,693,478
			Principal Amount
Short Term Investments 5.8%
U.S. Government and Agency Securities 5.8%
d FHLB, 1/02/18		United States	$	2,800,000		2,800,000
d U.S. Treasury Bill,
1/04/18		United States		3,000,000		2,999,812
1/02/18 - 1/11/18		United States		2,370,000		2,369,707
1/25/18		United States		3,000,000		2,997,652
e 4/05/18 - 4/12/18		United States		2,000,000		1,992,578
Total U.S. Government and Agency Securities (Cost $13,160,130)						13,159,749
Total Investments (Cost $202,923,958) 100.9%						227,853,227
Other Assets, less Liabilities (0.9)%						(1,941,871	)
Net Assets 100.0%					$	225,911,356

^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. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At December 31, 2017, the aggregate value of these securities was $5,762,566, representing 2.6% of net assets.

^cVariable rate security. The rate shown represents the yield at period end.

^dThe security was issued on a discount basis with no stated coupon rate.

^eA portion or all of the security has been segregated as collateral for open forward exchange contracts. At December 31, 2017, the aggregate value of these securities pledged amounted to $1,742,544, representing 0.8% of net assets.

  franklintempleton.com   Annual Report             21

FRANKLIN MUTUAL INTERNATIONAL FUND

STATEMENT OF INVESTMENTS

At December 31, 2017, the Fund had the following futures contracts outstanding. See Note 1(c).

Futures Contracts

Description	Type		Number of Contracts		Notional Amount*		Expiration Date		Value/ Unrealized Appreciation (Depreciation)
Currency Contracts
EUR/USD		Short		137	$	20,679,294		3/19/18	$	(364,565	)
GBP/USD		Short		68		5,761,725		3/19/18		(17,391	)
Total Futures Contracts									$	(381,956	)

*As of period end.

At December 31, 2017, the Fund had the following forward exchange contracts outstanding. See Note 1(c).

Forward Exchange Contracts

Currency	Counterpartya		Type		Quantity		Contract Amount		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
OTC Forward Exchange Contracts
Euro		BOFA		Buy		1,047,973	$	1,236,399		1/12/18	$	22,070	$	—
Euro		HSBK		Buy		83,067		98,826		1/12/18		926		—
Euro		HSBK		Sell		11,257,885		12,957,150		1/12/18		—		(561,990	)
Euro		SSBT		Buy		724,881		857,566		1/12/18		12,914		—
Euro		UBSW		Buy		55,070		65,335		1/12/18		797		—
Euro		UBSW		Sell		11,258,190		12,952,154		1/12/18		—		(567,353	)
South Korean Won		HSBK		Buy		3,012,767,516		2,699,512		1/12/18		123,792		—
South Korean Won		HSBK		Sell		3,849,925,032		3,423,360		1/12/18		—		(184,456	)
South Korean Won		UBSW		Sell		2,770,546,484		2,466,169		1/12/18		—		(130,147	)
British Pound		BOFA		Buy		13,395		17,893		1/16/18		208		—
British Pound		BOFA		Buy		54,489		73,730		1/16/18		—		(99	)
British Pound		BOFA		Sell		2,421,419		3,172,433		1/16/18		—		(99,662	)
British Pound		BONY		Sell		1,219,618		1,577,223		1/16/18		—		(70,862	)
British Pound		SSBT		Buy		59,450		79,555		1/16/18		780		—
British Pound		SSBT		Sell		33,487		43,826		1/16/18		—		(1,425	)
British Pound		UBSW		Buy		59,797		80,992		1/16/18		—		(188	)
British Pound		UBSW		Buy		150,000		201,757		1/16/18		940		—
British Pound		UBSW		Sell		1,219,612		1,575,739		1/16/18		—		(72,339	)
Euro		BOFA		Sell		14,999		18,086		1/26/18		58		—
Euro		BOFA		Sell		5,192,849		6,105,530		1/26/18		—		(135,866	)
Euro		BONY		Sell		131,973		157,116		1/26/18		—		(1,505	)
Euro		HSBK		Sell		1,543,407		1,813,740		1/26/18		—		(41,313	)
Euro		SSBT		Sell		587,590		707,649		1/26/18		1,412		—
Euro		SSBT		Sell		730,807		872,062		1/26/18		—		(6,311	)
Euro		UBSW		Sell		1,164,457		1,368,621		1/26/18		—		(30,964	)
Swedish Krona		SSBT		Buy		461,000		55,065		1/29/18		1,246		—
Swedish Krona		SSBT		Sell		581,620		69,220		1/29/18		—		(1,825	)
Swedish Krona		SSBT		Sell		786,000		96,211		1/29/18		203		—
Swedish Krona		UBSW		Sell		863,980		103,669		1/29/18		—		(1,865	)
Swedish Krona		UBSW		Sell		19,761,661		2,419,368		1/29/18		5,522		—
Philippine Peso		BONY		Sell		8,000,000		160,578		2/08/18		488		—
Philippine Peso		BONY		Sell		232,781,028		4,581,795		2/08/18		—		(76,434	)

  22           Annual Report   franklintempleton.com

FRANKLIN MUTUAL INTERNATIONAL FUND

STATEMENT OF INVESTMENTS

Forward Exchange Contracts (continued)

Currency	Counterpartya		Type		Quantity		Contract Amount		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
OTC Forward Exchange Contracts (continued)
British Pound		BOFA		Sell		2,340,204	$	3,109,736		2/14/18	$	—	$	(55,481	)
British Pound		BONY		Sell		1,262,018		1,650,162		2/14/18		—		(56,767	)
British Pound		HSBK		Sell		1,612,704		2,143,240		2/14/18		—		(38,005	)
British Pound		SSBT		Sell		856,000		1,134,396		2/14/18		—		(23,377	)
British Pound		UBSW		Sell		1,262,017		1,650,157		2/14/18		—		(56,771	)
Euro		BONY		Sell		2,218,045		2,622,370		2/20/18		—		(47,245	)
Euro		HSBK		Sell		198,951		241,566		2/20/18		2,111		—
Euro		SSBT		Sell		2,162,566		2,555,288		2/20/18		—		(47,552	)
Japanese Yen		UBSW		Buy		15,627,122		139,157		2/20/18		—		(123	)
Japanese Yen		UBSW		Buy		22,690,584		201,296		2/20/18		582		—
Japanese Yen		UBSW		Sell		1,848,780,122		16,499,231		2/20/18		50,650		—
Swiss Franc		UBSW		Sell		2,946,040		3,006,054		3/05/18		—		(31,660	)
Euro		BOFA		Sell		723,464		859,848		4/10/18		—		(13,674	)
Euro		HSBK		Sell		338,000		400,456		4/10/18		—		(7,651	)
Euro		UBSW		Sell		338,000		400,527		4/10/18		—		(7,580	)
Euro		BOFA		Sell		34,144		40,734		4/18/18		—		(514	)
Euro		SSBT		Sell		34,144		40,733		4/18/18		—		(515	)
Euro		UBSW		Sell		34,143		40,738		4/18/18		—		(508	)
British Pound		BOFA		Sell		3,513,813		4,666,418		4/24/18		—		(97,789	)
British Pound		HSBK		Sell		2,695,364		3,570,765		4/24/18		—		(83,748	)
British Pound		UBSW		Sell		1,597,184		2,115,151		4/24/18		—		(50,392	)
Euro		HSBK		Sell		3,210,021		3,788,297		5/07/18		—		(94,535	)
Euro		UBSW		Sell		3,210,023		3,787,619		5/07/18		—		(95,216	)
Euro		BOFA		Sell		6,624,836		7,899,116		5/21/18		—		(121,782	)
Euro		SSBT		Sell		935,918		1,118,261		5/21/18		—		(14,884	)
Euro		UBSW		Sell		6,738,835		8,032,044		5/21/18		—		(126,875	)
British Pound		BOFA		Sell		477,304		643,982		5/24/18		—		(3,880	)
British Pound		HSBK		Sell		270,681		364,655		5/24/18		—		(2,750	)
British Pound		HSBK		Sell		284,308		386,264		5/24/18		362		—
British Pound		SSBT		Sell		4,390,606		5,855,904		5/24/18		—		(103,628	)
British Pound		UBSW		Sell		1,568,400		2,116,344		5/24/18		—		(12,503	)
Total Forward Exchange Contracts											$	225,061	$	(3,180,009	)
Net unrealized appreciation (depreciation)													$	(2,954,948	)

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

See Note 9 regarding other derivative information.

See Abbreviations on page 39.

  franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |   Annual Report           23

FRANKLIN MUTUAL INTERNATIONAL FUND

Financial Statements

Statement of Assets and Liabilities

December 31, 2017

Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	202,923,958
Value - Unaffiliated issuers	$	227,853,227
Cash		37,848
Foreign currency, at value (cost $701,359)		703,750
Receivables:
Investment securities sold		204,992
Capital shares sold		376,893
Dividends and interest		488,386
Deposits with brokers for:
Futures contracts		417,030
Unrealized appreciation on OTC forward exchange contracts		225,061
Other assets		20
Total assets		230,307,207
Liabilities:
Payables:
Capital shares redeemed		439,504
Management fees		166,724
Distribution fees		85,143
Transfer agent fees		39,409
Trustees’ fees and expenses		315
Variation margin on futures contracts		149,600
Unrealized depreciation on OTC forward exchange contracts		3,180,009
Deferred tax		244,572
Accrued expenses and other liabilities		90,575
Total liabilities		4,395,851
Net assets, at value	$	225,911,356
Net assets consist of:
Paid-in capital	$	217,570,664
Distributions in excess of net investment income		(2,125,110	)
Net unrealized appreciation (depreciation)		21,368,636
Accumulated net realized gain (loss)		(10,902,834	)
Net assets, at value	$	225,911,356

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

FRANKLIN MUTUAL INTERNATIONAL FUND

FINANCIAL STATEMENTS

Statement of Assets and Liabilities (continued)

December 31, 2017

Class Z:
Net assets, at value	$	86,274,337
Shares outstanding		5,404,749
Net asset value and maximum offering price per share		$15.96
Class A:
Net assets, at value	$	82,964,516
Shares outstanding		5,219,318
Net asset value per sharea		$15.90
Maximum offering price per share (net asset value per share ÷ 94.25%)		$16.87
Class C:
Net assets, at value	$	29,109,395
Shares outstanding		1,855,174
Net asset value and maximum offering price per sharea		$15.69
Class R:
Net assets, at value	$	1,866,583
Shares outstanding		118,167
Net asset value and maximum offering price per share		$15.80
Class R6:
Net assets, at value	$	25,696,525
Shares outstanding		1,608,859
Net asset value and maximum offering price per share		$15.97

^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 financial statements.    |   Annual Report           25

FRANKLIN MUTUAL INTERNATIONAL FUND

FINANCIAL STATEMENTS

Statement of Operations

for the year ended December 31, 2017

Investment income:
Dividends: (net of foreign taxes)*
Unaffiliated issuers	$	4,925,761
Interest:
Unaffiliated issuers		133,048
Total investment income		5,058,809
Expenses:
Management fees (Note 3a)		1,722,703
Distribution fees: (Note 3c)
Class A		200,344
Class C		285,261
Class R		6,820
Transfer agent fees: (Note 3e)
Class Z		106,640
Class A		128,309
Class C		45,657
Class R		2,323
Class R6		3,568
Custodian fees (Note 4)		33,867
Reports to shareholders		37,089
Registration and filing fees		84,260
Professional fees		90,239
Trustees’ fees and expenses		5,677
Other		20,804
Total expenses		2,773,561
Expense reductions (Note 4)		(595	)
Expenses waived/paid by affiliates (Note 3f)		(33,185	)
Net expenses		2,739,781
Net investment income		2,319,028
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:#
Unaffiliated issuers		3,442,564
Foreign currency transactions		17,757
Forward exchange contracts		(2,733,458	)
Futures contracts		(2,009,534	)
Net realized gain (loss)		(1,282,671	)
Net change in unrealized appreciation (depreciation) on:
Investments:
Unaffiliated issuers		30,599,277
Translation of other assets and liabilities denominated in foreign currencies		30,806
Forward exchange contracts		(7,052,674	)
Futures contracts		(553,890	)
Change in deferred taxes on unrealized appreciation		(244,572	)
Net change in unrealized appreciation (depreciation)		22,778,947
Net realized and unrealized gain (loss)		21,496,276
Net increase (decrease) in net assets resulting from operations		$23,815,304
*Foreign taxes withheld on dividends		$     461,691
#Net of foreign taxes		$       61,084

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

FRANKLIN MUTUAL INTERNATIONAL FUND

FINANCIAL STATEMENTS

Statements of Changes in Net Assets

	Year Ended December 31,
	2017			2016
Increase (decrease) in net assets:
Operations:
Net investment income	$	2,319,028		$	3,170,309
Net realized gain (loss)		(1,282,671	)		(7,943,873	)
Net change in unrealized appreciation (depreciation)		22,778,947			6,339,210
Net increase (decrease) in net assets resulting from operations		23,815,304			1,565,646
Distributions to shareholders from:
Net investment income:
Class Z		(1,857,997	)		(752,123	)
Class A		(1,574,566	)		(1,359,676	)
Class C		(348,684	)		(229,216	)
Class R		(35,346	)		(10,051	)
Class R6		(569,536	)		(334,768	)
Net realized gains:
Class Z		—			(154,704	)
Class A		—			(335,389	)
Class C		—			(106,625	)
Class R		—			(2,628	)
Class R6		—			(63,007	)
Total distributions to shareholders		(4,386,129	)		(3,348,187	)
Capital share transactions: (Note 2)
Class Z		39,322,326			(8,767,720	)
Class A		(7,963,782	)		(27,056,442	)
Class C		226,100			(8,521,550	)
Class R		1,060,015			24,758
Class R6		7,095,104			(6,772,837	)
Total capital share transactions		39,739,763			(51,093,791	)
Net increase (decrease) in net assets		59,168,938			(52,876,332	)
Net assets:
Beginning of year		166,742,418			219,618,750
End of year	$	225,911,356		$	166,742,418
Distributions in excess of net investment income included in net assets:
End of year	$	(2,125,110	)	$	(315,020	)

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

FRANKLIN MUTUAL INTERNATIONAL 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 International Fund (Fund) is included in this report. The Fund offers five classes of shares: Class Z, Class A, Class C, Class R and Class R6. Each class of shares may differ by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees 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 Committee (VC). The VC 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 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. 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.

Certain derivative financial instruments 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 VC 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 VC 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 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 VC employs various methods for calibrating these

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NOTES TO FINANCIAL STATEMENTS

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 Fund’s business day. Occasionally, events occur between the time at which trading in a foreign security is completed and 4 p.m. Eastern time 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 4 p.m. Eastern time. In order to minimize the potential for these differences, the VC 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 Fund’s NAV is not calculated, 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 derivative financial instruments 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 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,

franklintempleton.com   Annual Report         29

FRANKLIN MUTUAL INTERNATIONAL FUND

NOTES TO FINANCIAL STATEMENTS

1.  Organization and Significant Accounting

Policies (continued)

c.  Derivative Financial Instruments (continued)

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 counterparty the next business day, or 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 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 at 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 OTC option contracts primarily to manage exposure to foreign exchange rate 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 Note 9 regarding other derivative information.

d.  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

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FRANKLIN MUTUAL INTERNATIONAL FUND

NOTES TO FINANCIAL STATEMENTS

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, 2017, the Fund had no securities sold short.

e.  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.

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, 2017, 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 in future tax years). Open tax years are those that remain subject to examination and are based on the statute of limitations in each jurisdiction in which the Fund invests.

f.  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 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. Distributable earnings are determined according to income tax regulations (tax basis) and 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, excluding 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.

g.  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.

h.  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.

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FRANKLIN MUTUAL INTERNATIONAL FUND

NOTES TO FINANCIAL STATEMENTS

2.  Shares of Beneficial Interest

At December 31, 2017, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2017						2016
	Shares			Amount			Shares			Amount
Class Z Shares:
Shares sold		3,534,237		$	54,797,744			1,418,415		$	19,343,369
Shares issued in reinvestment of distributions		114,066			1,815,700			60,850			863,079
Shares redeemed		(1,098,953	)		(17,291,118	)		(2,150,864	)		(28,974,168	)
Net increase (decrease)		2,549,350		$	39,322,326			(671,599	)	$	(8,767,720	)
Class A Shares:
Shares sold		1,959,536		$	30,501,176			1,936,625		$	26,120,034
Shares issued in reinvestment of distributions		98,350			1,558,023			118,659			1,674,269
Shares redeemed		(2,635,900	)		(40,022,981	)		(4,099,974	)		(54,850,745	)
Net increase (decrease)		(578,014	)	$	(7,963,782	)		(2,044,690	)	$	(27,056,442	)
Class C Shares:
Shares sold		572,952		$	8,653,851			363,847		$	4,831,729
Shares issued in reinvestment of distributions		22,302			348,313			24,173			335,241
Shares redeemed		(577,334	)		(8,776,064	)		(1,036,433	)		(13,688,520	)
Net increase (decrease)		17,920		$	226,100			(648,413	)	$	(8,521,550	)
Class R Shares:
Shares sold		113,248		$	1,751,799			28,370		$	379,915
Shares issued in reinvestment of distributions		2,245			35,346			903			12,679
Shares redeemed		(46,246	)		(727,130	)		(27,458	)		(367,836	)
Net increase (decrease)		69,247		$	1,060,015			1,815		$	24,758
Class R6 Shares:
Shares sold		685,257		$	10,863,178			371,903		$	5,022,728
Shares issued in reinvestment of distributions		35,752			569,536			28,018			397,775
Shares redeemed		(277,679	)		(4,337,610	)		(913,622	)		(12,193,340	)
Net increase (decrease)		443,330		$	7,095,104			(513,701	)	$	(6,772,837	)

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 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 of 0.875% per year of the average daily net assets of the Fund.

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NOTES TO FINANCIAL STATEMENTS

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.

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	%

The Board has set the current rate at 0.25% per year for Class A shares until further notice and approval by the Board.

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 brokers/dealers	$	38,060
CDSC retained	$	22,947

e.  Transfer Agent Fees

Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. Effective November 1, 2017, the fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. Prior to November 1, 2017, the fees were account based fees that varied based on fund or account type. In addition, each class reimburses Investor Services for out of pocket expenses incurred and, except for Class R6, reimburses shareholder 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, 2017, the Fund paid transfer agent fees of $286,497, of which $134,543 was retained by Investor Services.

f.  Waiver and Expense Reimbursements

Franklin Mutual and Investor Services have contractually agreed in advance to waive or limit their respective fees and to assume as their own expense certain expenses otherwise payable by the Fund so that the expenses (excluding distribution fees, acquired fund fees and expenses) for each class of the Fund do not exceed 1.17% and Class R6 does not exceed 1.01% based on the average net assets of each class (other than certain non-routine expenses or costs, including those relating to litigation, indemnification,

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FRANKLIN MUTUAL INTERNATIONAL FUND

NOTES TO FINANCIAL STATEMENTS

3.  Transactions with Affiliates (continued)

f.  Waiver and Expense Reimbursements (continued)

reorganizations, and liquidations). Effective February 1, 2018, the expenses for each class of the Fund will be limited to 0.97% and Class R6 will be limited to 0.81% until April 30, 2018. Total expenses waived or paid are not subject to recapture subsequent to the Fund’s fiscal year end. Prior to May 1, 2017, expenses for Class R6 were limited to 0.99%.

g.  Other Affiliated Transactions

At December 31, 2017, one or more of the funds in Franklin Fund Allocator Series owned 7.2% of the Fund’s outstanding shares.

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, 2017, 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, 2017, the Fund’s projected benefit obligation and benefit payments under the Plan were as follows:

aProjected benefit obligation at December 31, 2017.	$	315
bIncrease in projected benefit obligation	$	179
Benefit payments made to retired trustees	$	(186	)

^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.

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NOTES TO FINANCIAL STATEMENTS

6.  Income Taxes

For tax purposes, capital losses may be carried over to offset future capital gains, if any.

At December 31, 2017, the capital loss carryforwards were as follows:

Capital loss carryforwards:
Short term	$  5,601,773
Long term	8,348,899
Total capital loss carryforwards	$13,950,672

The tax character of distributions paid during the years ended December 31, 2017 and 2016, was as follows:

	2017		2016
Distributions paid from:
Ordinary income	$	4,386,129	$	2,686,549
Long term capital gain		—		661,638
	$	4,386,129	$	3,348,187

At December 31, 2017, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$202,264,562
Unrealized appreciation	$   35,213,926
Unrealized depreciation	(12,961,440	)
Net unrealized appreciation (depreciation)	$   22,252,486
Distributable earnings - undistributed ordinary income	$        324,818

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) for the year ended December 31, 2017, aggregated $98,486,087 and $70,870,916, 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.

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FRANKLIN MUTUAL INTERNATIONAL FUND

NOTES TO FINANCIAL STATEMENTS

9.  Other Derivative Information

At December 31, 2017, 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 Hedging Instruments	Statement of Assets and Liabilities Location	Fair Value		Statement of Assets and Liabilities Location	Fair Value
Foreign exchange contracts	Variation margin on futures contracts	$	—	Variation margin on futures contracts	$	381,956	a
	Unrealized appreciation on OTC forward exchange contracts		225,061	Unrealized depreciation on OTC forward exchange contracts		3,180,009
Totals		$	225,061		$	3,561,965

^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, 2017, the effect of derivative contracts in the Fund’s Statement of Operations was as follows:

Derivative Contracts Not Accounted for as Hedging Instruments	Statement of Operations Location	Net Realized Gain (Loss) for the Year			Statement of Operations Location	Net Change in Unrealized Appreciation (Depreciation) for the Year
	Net realized gain (loss) from:				Net change in unrealized appreciation (depreciation) on:
Foreign exchange contracts	Investments		$      (22,342)	a	Investments		$                —
	Forward exchange contracts		(2,733,458)		Forward exchange contracts		(7,052,674)
	Futures contracts		(2,009,534)		Futures contracts		(553,890)
Totals			$(4,765,334)				$(7,606,564)

^aPurchased option contracts are included in net realized gain (loss) from investments in the Statement of Operations.

For the year ended December 31, 2017, the average month end notional amount of futures contracts and options represented $24,301,150, and $972,000, respectively. The average month end contract value of forward exchange contracts was $116,300,811.

At December 31, 2017, the Fund’s OTC derivative assets and liabilities are as follows:

	Gross Amounts of Assets and Liabilities Presented in the Statement of Assets and Liabilities
	Assetsa		Liabilitiesa
Derivatives
Forward exchange contracts		$225,061		$3,180,009

^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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NOTES TO FINANCIAL STATEMENTS

At December 31, 2017, 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 Amounts of Assets Presented in the Statement of Assets and Liabilities		Financial Instruments Available for Offset			Financial Instruments Collateral Received		Cash Collateral Received		Net Amount (Not less than zero)
Counterparty
BOFA		$  22,336		$  (22,336	)		$  —		$  —		$  —
BONY		488		(488	)		—		—		—
HSBK		127,191		(127,191	)		—		—		—
SSBT		16,555		(16,555	)		—		—		—
UBSW		58,491		(58,491	)		—		—		—
Total		$225,061		$(225,061	)		$  —		$  —		$  —

At December 31, 2017, 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 Amounts of Liabilities Presented in the Statement of Assets and Liabilities		Financial Instruments Available for Offset			Financial Instruments Collateral Pledgeda			Cash Collateral Pledged		Net Amount (Not less than zero)
Counterparty
BOFA		$   528,747		$  (22,336	)		$(300,864	)		$  —		$205,547
BONY.		252,813		(488	)		(128,539	)		—		123,786
HSBK		1,014,448		(127,191	)		(496,104	)		—		391,153
SSBT		199,517		(16,555	)		—			—		182,962
UBSW		1,184,484		(58,491	)		(817,037	)		—		308,956
Total		$3,180,009		$(225,061	)		$(1,742,544	)		$  —		$1,212,404

^aSee the accompanying Statement of Investments for securities pledged as collateral for derivatives.

See Note 1(c) regarding derivative financial instruments.

See Abbreviations on page 39.

10.  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 9, 2018. 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 9, 2018, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 8, 2019, for a total of $2 billion.

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FRANKLIN MUTUAL INTERNATIONAL FUND

NOTES TO FINANCIAL STATEMENTS

10.  Credit Facility (continued)

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 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statement of Operations. During the year ended December 31, 2017, the Fund did not use the Global Credit Facility.

11.  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.)

• 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, 2017, 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:a
Equity Investmentsb	$	214,693,478	$	—	$	—	$	214,693,478
Short Term Investments		10,359,749		2,800,000		—		13,159,749
Total Investments in Securities	$	225,053,227	$	2,800,000	$	—	$	227,853,227
Other Financial Instruments:
Forward Exchange Contracts	$	—	$	225,061	$	—	$	225,061
Liabilities:
Other Financial Instruments:
Futures Contracts	$	381,956	$	—	$	—	$	381,956
Forward Exchange Contracts		—		3,180,009		—		3,180,009
Total Other Financial Instruments	$	381,956	$	3,180,009	$	—	$	3,561,965

^aFor detailed categories, see the accompanying Statement of Investments.

^bIncludes common and preferred stocks.

12.  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.

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NOTES TO FINANCIAL STATEMENTS

Abbreviations

Counterparty		Currency		Selected Portfolio
BOFA	Bank of America N.A.	EUR	Euro	ADR	American Depositary Receipt
BONY	The Bank of New York Mellon Corp.	GBP	British Pound	FHLB	Federal Home Loan Bank
HSBK	HSBC Bank PLC	USD	United States Dollar	REIT	Real Estate Investment Trust
SSBT	State Street Bank and Trust Co., N.A.
UBSW	UBS AG

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FRANKLIN MUTUAL INTERNATIONAL FUND

Report of Independent Registered Public Accounting Firm

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

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Franklin Mutual International Fund (the “Fund”) (one of the funds constituting Franklin Mutual Series Funds), including the schedule of investments, as of December 31, 2017, 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, the financial highlights for each of the periods indicated therein and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of Franklin Mutual International Fund (one of the funds constituting Franklin Mutual Series Funds) at December 31, 2017, 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 its financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the auditor of one or more Franklin investment companies since 1987.

Boston, MA

February 26, 2018

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FRANKLIN MUTUAL INTERNATIONAL FUND

Tax Information (unaudited)

Under Section 854(b)(1)(B) of the Internal Revenue Code (Code), the Fund hereby reports the maximum amount allowable but no less than $4,285,106 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended December 31, 2017. Distributions, including qualified dividend income, paid during calendar year 2017 will be reported to shareholders on Form 1099-DIV by mid-February 2018. 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, 2017, 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 21, 2017, to treat their proportionate share of foreign taxes paid by the Fund as having been paid directly by them. The shareholder shall consider these amounts as foreign taxes paid in the tax year in which they receive the Fund distribution.

The 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.

Class	Foreign Tax Paid Per Share		Foreign Source Income Per Share		Foreign Source Qualified Dividends Per Share
Class Z		$0.0313		$0.2694		$0.2150
Class A		$0.0313		$0.2383		$0.1903
Class C		$0.0313		$0.1560		$0.1245
Class R		$0.0313		$0.2302		$0.1837
Class R6		$0.0313		$0.2826		$0.2255

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 2018, shareholders will receive Form 1099-DIV which will include their share of taxes paid and foreign source income distributed during the calendar year 2017. 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 2017 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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FRANKLIN MUTUAL SERIES FUNDS

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 Trust, principal occupations during at least the past five years and number of US registered 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

Name,Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Edward I. Altman, Ph.D. (1941) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1987	14	None
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1995	40	Ares Capital 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), SLM Corporation (Sallie Mae) (1997-2014) and Navient Corporation (loan management, servicing and asset recovery) (2014-2016).
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee and Vice Chairman	Trustee since 2002 and Vice Chairman since 2015	14	Franklin Templeton Emerging Markets Debt Opportunities Fund PLC (1999-present) and Fiduciary International Ireland Limited (1999-2015).
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.
Jan Hopkins Trachtman (1947) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2009	14	None
Principal Occupation During at Least the Past 5 Years:
President and Founder, The Jan Hopkins Group (communications and consulting firm); serves on Advisory Board of Knight Bagehot Fellowship; and formerly, President, Economic Club of New York (2007-2015); 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.
Keith Mitchell (1954) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2009	14	None
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, Putman Lovell NBF.

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Independent Board Members (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
David W. Niemiec (1949) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2015	40	Hess Midstream Partners LP (oil and gas midstream infrastructure) (2017-present).
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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 1998	14	None
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.
Robert E. Wade (1946) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee and Chairman of the Board	Trustee since 1993 and Chairman of the Board since 2005	40	El Oro Ltd (investments) (2003-present).
Principal Occupation During at Least the Past 5 Years:
Attorney at law engaged in private practice as a sole practitioner (1972-2008) and member of various boards.
Gregory H. Williams (1943) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee	Since 2015	14	None
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).

Interested Board Members and Officers

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
**Gregory E. Johnson (1961) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 2007	153	None
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 43 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) c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	Trustee, President, and Chief Executive Officer – Investment Management	Trustee since 2007, President, and Chief Executive Officer – Investment Management since 2005	7	American International Group, Inc. (AIG) Credit Facility Trust (2010-2011).
Principal Occupation During at Least the Past 5 Years:
Chairman of the Board, Chief Executive Officer and President, Franklin Mutual Advisers, LLC; President and Chief Investment Officer, Franklin Advisory Services, LLC; and officer and/or director, as the case may be, of three of the investment companies in Franklin Templeton Investments.

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FRANKLIN MUTUAL SERIES FUNDS

Interested Board Members and Officers (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Alison E. Baur (1964) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2012	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.
Philippe Brugere-Trelat (1949) 101 John F. Kennedy Parkway Short Hills NJ 07078-2789	Vice President	Since 2005	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Executive Vice President, Franklin Mutual Advisers, LLC; officer of one of the investment companies in Franklin Templeton Investments; and formerly, Portfolio Manager of Eurovest SA (French registered investment company, SICAV).
Aliya S. Gordon (1973) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2009	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Steven J. Gray (1955) One Franklin Parkway San Mateo, CA 94403-1906	Vice President and Secretary	Vice President since 2009 and Secretary since 2005	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc. and FASA, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.
Matthew T. Hinkle (1971) One Franklin Parkway San Mateo, CA 94403-1906	Chief Executive Officer – Finance and Administration	Since June 2017	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Vice President, Global Tax (2012-April 2017) and Treasurer/Assistant Treasurer, Franklin Templeton Investments (2009-2017).
Robert G. Kubilis (1973) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Chief Financial Officer, Chief Accounting Officer and Treasurer	Since 2012	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of 17 of the investment companies in Franklin Templeton Investments.
Robert Lim (1948) One Franklin Parkway San Mateo, CA 94403-1906	Vice President – AML Compliance	Since 2016	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Vice President, Franklin Templeton Companies, LLC; Chief Compliance Officer, Franklin Templeton Distributors, Inc. and Franklin Templeton Investor Services, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.

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FRANKLIN MUTUAL SERIES FUNDS

Interested Board Members and Officers (continued)

Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member*	Other Directorships Held During at Least the Past 5 Years
Kimberly H. Novotny (1972) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Vice President	Since 2013	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Associate General Counsel, Franklin Templeton Investments; Vice President and Corporate Secretary, Fiduciary Trust International of the South; Vice President, Templeton Investment Counsel, LLC; Assistant Secretary, Franklin Resources, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments.
Robert C. Rosselot (1960) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Chief Compliance Officer	Since 2013	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Director, Global Compliance, Franklin Templeton Investments; Vice President, Franklin Templeton Companies, LLC; officer of 45 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) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2009	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Navid J. Tofigh (1972) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2015	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Craig S. Tyle (1960) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2005	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.
Lori A. Weber (1964) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Vice President	Since 2011	Not Applicable	Not Applicable
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 45 of the investment companies in Franklin Templeton Investments.

*We base the number of portfolios on each separate series of the US 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. (Resources), 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 Advisors, 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 Sarbanes-Oxley Act of 2002 and Rules adopted by the U.S. Securities and Exchange Commission require the Fund to disclose whether the Fund’s Audit Committee includes at least one member who is an audit committee financial expert within the meaning of such Act and Rules. The Fund’s Board has determined that there is at least one such financial expert on the Audit Committee and has designated each of Edward I. Altman, Ph.D., Ann Torre Bates and David W. Niemiec as an audit committee financial expert. The Board believes that Messrs. Altman and Niemiec and Ms. Bates qualify as such an expert in view of their extensive business background and experience. Mr. Altman has served as a member of the Fund Audit Committee since 1996. He currently serves as a Max L. Hines Professor of Finance, Emeritus and Director of The Credit and Debt Markets Research Program, Salomon Center, Stern School of Business, New York University. Ms. Bates has served as a member of the Fund Audit Committee since 1996. She currently serves as a director of Ares Capital Corporation (2010-present) and United Natural Foods, Inc. (2013-present) and was formerly a director of Navient Corporation from 2014 to 2016, SLM Corporation from 1997 to 2014 and Allied

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FRANKLIN MUTUAL SERIES FUNDS

Interested Board Members and Officers (continued)

Capital Corporation from 2003 to 2010, Executive Vice President and Chief Financial Officer of NHP Incorporated from 1995 to 1997 and Vice President and Treasurer of US Airways, Inc. until 1995. Mr. Niemiec has served as a member of the Fund Audit Committee since 2015, currently serves as an Advisor to Saratoga Partners and was formerly its Managing Director from 1998 to 2001 and serves as a director of Hess Midstream Partners LP (2017-present). Mr. Niemiec was formerly a director of Emeritus Corporation from 1999 to 2010 and OSI Pharmaceuticals, Inc. from 2006 to 2010, Managing Director of SBC Warburg Dillon Read from 1997 to 1998, and was Vice Chairman from 1991 to 1997 and Chief Financial Officer from 1982 to 1997 of Dillon, Read & Co. Inc. As a result of such background and experience, the Board believes that Messrs. Altman and Niemiec and Ms. Bates have each acquired an understanding of generally accepted accounting principles and financial statements, the general application of such principles in connection with the accounting estimates, accruals and reserves, and analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues generally comparable to those of the Fund, as well as an understanding of internal controls and procedures for financial reporting and an understanding of audit committee functions. Messrs. Altman and Niemiec and Ms. Bates are independent Board members as that term is defined under the applicable U.S. Securities and Exchange Commission Rules and Releases.

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

46             Annual Report franklintempleton.com

FRANKLIN MUTUAL SERIES FUNDS

FRANKLIN MUTUAL INTERNATIONAL FUND

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 US 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 Trust, on behalf of the Fund, files a complete statement of investments with the US 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.

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Annual Report and Shareholder Letter Franklin Mutual International Fund   Investment Manager Franklin Mutual Advisers, LLC   Distributor Franklin Templeton Distributors, Inc. (800) DIAL BEN^® / 342-5236 franklintempleton.com   Shareholder Services (800) 632-2301 - (Class A, C, R & R6) (800) 448-FUND - (Class Z)

Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.

To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.

© 2018 Franklin Templeton Investments. All rights reserved. 373 A 02/18

Item 2. Code of Ethics.

(a) The Registrant has adopted a code of ethics that applies to its principal executive officers and principal financial and accounting officer.

(c) N/A

(d) N/A

(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers and principal financial and accounting officer.

Item 3. Audit Committee Financial Expert.

(a) (1) The registrant has an audit committee financial expert serving on its audit committee.

(2) The audit committee financial expert is Ann Torre Bates, and she is “independent” as defined under the relevant Securities and Exchange Commission Rules and Releases.

Item 4. Principal Accountant Fees and Services.

(a) Audit Fees

The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or for services that are normally provided by the principal accountant in connection with statutory and regulatory filings or engagements were $557,692 for the fiscal year ended December 31, 2017 and $546,756 for the fiscal year ended December 31, 2016.

(b) Audit-Related Fees

There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of Item 4.

There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant that are reasonably related to the performance of the audit of their financial statements.

(c) Tax Fees

The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant for tax compliance, tax advice and tax planning were $4,544 the fiscal year ended December 31, 2017 and $5,504 for the fiscal year ended December 31, 2016. The services for which these fees were paid included identifying passive foreign investment company to manage exposure to tax liabilities.

The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant for tax compliance, tax advice and tax planning were $70,000 for the fiscal year ended December 31, 2017 and $74,500 for the fiscal year ended December 31, 2016. The services for which these fees were paid included technical tax consultation for withholding tax report to foreign governments, application of local country tax laws and tax advice.

(d) All Other Fees

There were no fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant not reported in paragraphs (a)-(c) of Item 4.

There were no fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant other than services reported in paragraphs (a)-(c) of Item 4.

(e) (1) The registrant’s audit committee is directly responsible for approving the services to be provided by the auditors, including:

(i) pre-approval of all audit and audit related services;

(ii) pre-approval of all non-audit related services to be provided to the Fund by the auditors;

(iii) pre-approval of all non-audit related services to be provided to the registrant by the auditors to the registrant’s investment adviser or to any entity that controls, is controlled by or is under common control with the registrant’s investment adviser and that provides ongoing services to the registrant where the non-audit services relate directly to the operations or financial reporting of the registrant; and

(iv) establishment by the audit committee, if deemed necessary or appropriate, as an alternative to committee pre-approval of services to be provided by the auditors, as required by paragraphs (ii) and (iii) above, of policies and procedures to permit such services to be pre-approved by other means, such as through establishment of guidelines or by action of a designated member or members of the committee; provided the policies and procedures are detailed as to the particular service and the committee is informed of each service and such policies and procedures do not include delegation of audit committee responsibilities, as contemplated under the Securities Exchange Act of 1934, to management; subject, in the case of (ii) through (iv), to any waivers, exceptions or exemptions that may be available under applicable law or rules.

(e) (2) None of the services provided to the registrant described in paragraphs (b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of regulation S-X.

(f) No disclosures are required by this Item 4(f).

(g) The aggregate non-audit fees paid to the principal accountant for services rendered by the principal accountant to the registrant and the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant were $74,544 for the fiscal year ended December 31, 2017 and $80,004 for the fiscal year ended December 31, 2016.

(h) The registrant’s audit committee of the board has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.

Item 5. Audit Committee of Listed Registrants. N/A

Item 6. Schedule of Investments. N/A

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. N/A

Item 8. Portfolio Managers of Closed-End Management Investment Companies. N/A

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. N/A

Item 10. Submission of Matters to a Vote of Security Holders.

There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant’s board of trustees that would require disclosure herein.

Item 11. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Registrant’s filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to

allow timely decisions regarding required disclosure. The Registrant’s management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant’s management, including the Registrant’s principal executive officer and the Registrant’s principal financial officer, of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based on such evaluation, the Registrant’s principal executive officer and principal financial officer concluded that the Registrant’s disclosure controls and procedures were ineffective due to a material weakness determination for the Franklin Mutual Quest Fund as a result of inaccurate financial data contained in two valuation models used to determine the fair value of management appraised investments. The impact of these errors was immaterial to previously issued financial statements and no changes to prior year reported amounts have been recorded. After December 31, 2017 and prior to the issuance of the Franklin Mutual Quest Fund’s annual report as of and for the period then ended, the error was corrected and the Registrant’s controls were enhanced to ensure proper valuation of such financial instruments.

(b) Changes in Internal Controls. Other than the enhancements to controls noted above, there have been no changes in the Registrant’s internal controls or in other factors that could materially affect the internal controls over financial reporting subsequent to the date of their evaluation in connection with the preparation of this Shareholder Report on Form N-CSR.

Item 12. Exhibits.

(a) (1) Code of Ethics

(a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Matthew T. Hinkle, Chief Executive Officer - Finance and Administration, and Robert G. Kubilis, Chief Financial Officer and Chief Accounting Officer

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Matthew T. Hinkle, Chief Executive Officer - Finance and Administration, and Robert G. Kubilis, Chief Financial Officer and Chief Accounting Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FRANKLIN MUTUAL SERIES FUNDS

By	/s/MATTHEW T. HINKLE
	Matthew T. Hinkle
	Chief Executive Officer –
	Finance and Administration
Date	February 26, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By	/s/MATTHEW T. HINKLE
	Matthew T. Hinkle
	Chief Executive Officer –
	Finance and Administration
Date	February 26, 2018

By	/s/ROBERT G. KUBILIS
	Robert G. Kubilis
	Chief Financial Officer and
	Chief Accounting Officer
Date:	February 26, 2018

EX-99.CODE

Exhibit 12(a)(1)

CODE OF ETHICS FOR PRINCIPAL EXECUTIVES & SENIOR FINANCIAL OFFICERS

PROCEDURES    Revised December 18, 2009

FRANKLIN TEMPLETON FUNDS

CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND

SENIOR FINANCIAL OFFICERS

I. Covered Officers and Purpose of the Code

This code of ethics (the “Code”) applies to the Principal Executive Officers, Principal Financial Officer and Principal Accounting Officer (the “Covered Officers,” each of whom is set forth in Exhibit A) of each investment company advised by a Franklin Resources subsidiary and that is registered with the United States Securities & Exchange Commission (“SEC”) (collectively, “FT Funds”) for the purpose of promoting:

• Honest and ethical conduct, including the ethical resolution of actual or apparent conflicts of interest between personal and professional relationships;

• Full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the SEC and in other public communications made by or on behalf of the FT Funds;

• Compliance with applicable laws and governmental rules and regulations;

• The prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and

• Accountability for adherence to the Code.

Each Covered Officer will be expected to adhere to a high standard of business ethics and must be sensitive to situations that may give rise to actual as well as apparent conflicts of interest.

II. Other Policies and Procedures

This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder.

Franklin Resources, Inc. has separately adopted the CODE OF ETHICS AND BUSINESS CONDUCT (“Business Conduct”), which is applicable to all officers, directors and employees of Franklin Resources, Inc., including Covered Officers. It summarizes the values, principles and business practices that guide the employee’s business conduct and also provides a set of basic principles to guide officers, directors and employees regarding the minimum ethical requirements expected of them. It supplements the values, principles and business conduct identified in the Code and other existing employee policies.

Additionally, the Franklin Templeton Funds have separately adopted the CODE OF ETHICS AND POLICY STATEMENT ON INSIDER TRADING governing personal securities trading and other related matters. The Code for Insider Trading provides for separate requirements that apply to the Covered Officers and others, and therefore is not part of this Code.

Page 1

Insofar as other policies or procedures of Franklin Resources, Inc., the Funds, the Funds’ adviser, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superceded by this Code to the extent that they overlap or conflict with the provisions of this Code. Please review these other documents or consult with the Legal Department if have questions regarding the applicability of these policies to you.

III. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest

OVERVIEW. A “conflict of interest” occurs when a Covered Officer’s private interest interferes with the interests of, or his or her service to, the FT Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of apposition with the FT Funds.

Certain conflicts of interest arise out of the relationships between Covered Officers and the FT Funds and already are subject to conflict of interest provisions in the Investment Company Act of 1940 (“Investment Company Act”) and the Investment Advisers Act of 1940 (“Investment Advisers Act”). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the FT Funds because of their status as “affiliated persons” of the FT Funds. The FT Funds’ and the investment advisers’ compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code.

Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the FT Funds, the investment advisers and the fund administrator of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the FT Funds, for the adviser, the administrator, or for all three), be involved in establishing policies and implementing decisions that will have different effects on the adviser, administrator and the FT Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the FT Funds, the adviser, and the administrator and is consistent with the performance by the Covered Officers of their duties as officers of the FT Funds. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the FT Funds’ Boards of Directors (“Boards”) that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes.

Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the FT Funds.

Each Covered Officer must:

• Not use his or her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the FT Funds whereby the Covered Officer would benefit personally to the detriment of the FT Funds;

Page 2

• Not cause the FT Funds to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit the FT Funds;

• Not retaliate against any other Covered Officer or any employee of the FT Funds or their affiliated persons for reports of potential violations that are made in good faith;

• Report at least annually the following affiliations or other relationships:/1

• all directorships for public companies and all companies that are required to file reports with the SEC;

• any direct or indirect business relationship with any independent directors of the FT Funds;

• any direct or indirect business relationship with any independent public accounting firm (which are not related to the routine issues related to the firm’s service as the Covered Persons accountant); and

• any direct or indirect interest in any transaction with any FT Fund that will benefit the officer (not including benefits derived from the advisory, sub-advisory, distribution or service agreements with affiliates of Franklin Resources).

These reports will be reviewed by the Legal Department for compliance with the Code.

There are some conflict of interest situations that should always be approved in writing by Franklin Resources General Counsel or Deputy General Counsel, if material. Examples of these include/2:

• Service as a director on the board of any public or private Company;

• The receipt of any gifts in excess of $100 from any person, from any corporation or association

• The receipt of any entertainment from any Company with which the FT Funds has current or prospective business dealings unless such entertainment is business related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety. Notwithstanding the foregoing, the Covered Officers must obtain prior approval from the Franklin Resources General Counsel for any entertainment with a value in excess of $1000.

• Any ownership interest in, or any consulting or employment relationship with, any of the FT Fund’s service providers, other than an investment adviser, principal underwriter, administrator or any affiliated person thereof;

• A direct or indirect financial interest in commissions, transaction charges or spreads paid by the FT Funds for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer’s employment, such as compensation or equity ownership.

Franklin Resources General Counsel or Deputy General Counsel will provide a report to the FT Funds Audit Committee of any approvals granted at the next regularly scheduled meeting.

IV. Disclosure and Compliance

• Each Covered Officer should familiarize himself with the disclosure requirements generally applicable to the FT Funds;

Page 3

• Each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the FT Funds to others, whether within or outside the FT Funds, including to the FT Funds’ directors and auditors, and to governmental regulators and self-regulatory organizations;

• Each Covered Officer should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the FT Funds, the FT Fund’s adviser and the administrator with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the FT Funds file with, or submit to, the SEC and in other public communications made by the FT Funds; and

• It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations.

V. Reporting and Accountability

Each Covered Officer must:

• Upon becoming a covered officer affirm in writing to the Board that he or she has received, read, and understands the Code (see Exhibit B);

• Annually thereafter affirm to the Board that he has complied with the requirements of the Code; and

• Notify Franklin Resources’ General Counsel or Deputy General Counsel promptly if he or she knows of any violation of this Code. Failure to do so is itself is a violation of this Code.

Franklin Resources’ General Counsel and Deputy General Counsel are responsible for applying this Code to specific situations in which questions are presented under it and have the authority to interpret this Code in any particular situation./3 However, the Independent Directors of the respective FT Funds will consider any approvals or waivers/4 sought by any Chief Executive Officers of the Funds.

The FT Funds will follow these procedures in investigating and enforcing this Code:

• Franklin Resources General Counsel or Deputy General Counsel will take all appropriate action to investigate any potential violations reported to the Legal Department;

• If, after such investigation, the General Counsel or Deputy General Counsel believes that no violation has occurred, The General Counsel is not required to take any further action;

• Any matter that the General Counsel or Deputy General Counsel believes is a violation will be reported to the Independent Directors of the appropriate FT Fund;

• If the Independent Directors concur that a violation has occurred, it will inform and make a recommendation to the Board of the appropriate FT Fund or Funds, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer;

• The Independent Directors will be responsible for granting waivers, as appropriate; and

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• Any changes to or waivers of this Code will, to the extent required, are disclosed as provided by SEC rules./5

VI. Other Policies and Procedures

This Code shall be the sole code of ethics adopted by the FT Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the FT Funds, the FT Funds’ advisers, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The FT Code of Ethics and Policy Statement On Insider Trading, adopted by the FT Funds, FT investment advisers and FT Fund’s principal underwriter pursuant to Rule 17j-1 under the Investment Company Act, the Code of Ethics and Business Conduct and more detailed policies and procedures set forth in FT’s Employee Handbook are separate requirements applying to the Covered Officers and others, and are not part of this Code.

VII. Amendments

Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of the FT Funds’ Board including a majority of independent directors.

VIII. Confidentiality

All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the FT Funds’ Board and their counsel.

IX. Internal Use

The Code is intended solely for the internal use by the FT Funds and does not constitute an admission, by or on behalf of any FT Funds, as to any fact, circumstance, or legal conclusion.

X. Disclosure on Form N-CSR

Item 2 of Form N-CSR requires a registered management investment company to disclose annually whether, as of the end of the period covered by the report, it has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these officers are employed by the registrant or a third party. If the registrant has not adopted such a code of ethics, it must explain why it has not done so.

The registrant must also: (1) file with the SEC a copy of the code as an exhibit to its annual report; (2) post the text of the code on its Internet website and disclose, in its most recent report on Form N-CSR, its Internet address and the fact that it has posted the code on its Internet website; or (3) undertake in its most recent report on Form N-CSR to provide to any person without charge, upon request, a copy of the code and explain the manner in which such request may be made. Disclosure is also required of amendments to, or waivers (including implicit waivers) from, a provision of the code in the registrant’s annual report on Form N-CSR or on its website. If the registrant intends to satisfy the requirement to disclose amendments and waivers by posting such information on its website, it will be required to disclose its Internet address and this intention.

The Legal Department shall be responsible for ensuring that:

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• a copy of the Code is filed with the SEC as an exhibit to each Fund’s annual report; and

• any amendments to, or waivers (including implicit waivers) from, a provision of the Code is disclosed in the registrant’s annual report on Form N-CSR.

In the event that the foregoing disclosure is omitted or is determined to be incorrect, the Legal Department shall promptly file such information with the SEC as an amendment to Form N-CSR.

In such an event, the Fund Chief Compliance Officer shall review the Code and propose such changes to the Code as are necessary or appropriate to prevent reoccurrences.

EXHIBIT A

Persons Covered by the Franklin Templeton Funds

Code of Ethics

December 2013

FRANKLIN GROUP OF FUNDS
Edward B. Jamieson	President and Chief Executive Officer - Investment Management
Rupert H. Johnson, Jr.	President and Chief Executive Officer - Investment Management
William J. Lippman	President and Chief Executive Officer - Investment Management
Christopher Molumphy	President and Chief Executive Officer - Investment Management
Laura Fergerson	Chief Executive Officer - Finance and Administration
Gaston R. Gardey	Chief Financial Officer and Chief Accounting Officer
FRANKLIN MUTUAL SERIES FUNDS
Peter Langerman	Chief Executive Officer-Investment Management
Laura Fergerson	Chief Executive Officer - Finance and Administration
Robert G. Kubilis	Chief Financial Officer and Chief Accounting Officer
FRANKLIN ALTERNATIVE STRTEGIES FUNDS
William Yun	Chief Executive Officer-Investment Management
Laura Fergerson	Chief Executive Officer - Finance and Administration
Robert G. Kubilis	Chief Financial Officer and Chief Accounting Officer
TEMPLETON GROUP OF FUNDS
Mark Mobius	President and Chief Executive Officer - Investment Management
Christopher J. Molumphy	President and Chief Executive Officer - Investment Management
Norman Boersma	President and Chief Executive Officer - Investment Management
Donald F. Reed	President and Chief Executive Officer - Investment Management
Laura Fergerson	Chief Executive Officer - Finance and Administration
Mark H. Otani	Chief Financial Officer and Chief Accounting Officer

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EXHIBIT B

ACKNOWLEDGMENT FORM

DECEMBER

FRANKLIN TEMPLETON FUNDS CODE OF ETHICS

FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS

INSTRUCTIONS:

1. Complete all sections of this form.

2. Print the completed form, sign, and date.

3. Submit completed form to FT’s General Counsel c/o Code of Ethics Administration within 10 days of becoming a Covered Officer and by February 15th of each subsequent year.

INTER-OFFICE MAIL:	Code of Ethics Administration, Global Compliance SM-920/2
Fax:	(650) 312-5646
E-MAIL:	Preclear-Code of Ethics (internal address);
	lpreclear@frk.com (external address)

COVERED OFFICER’S NAME:

TITLE:

DEPARTMENT:

LOCATION:

CERTIFICATION FOR YEAR ENDING:

TO: Franklin Resources General Counsel, Legal Department

I acknowledge receiving, reading and understanding the Franklin Templeton Fund’s Code of Ethics for Principal Executive Officers and Senior Financial Officers (the “Code”). I will comply fully with all provisions of the Code to the extent they apply to me during the period of my employment. I further understand and acknowledge that any violation of the Code may subject me to disciplinary action, including termination of employment.

  Signature   Date signed

1. Reporting of these affiliations or other relationships shall be made by completing the annual Directors and Officers Questionnaire and returning the questionnaire to Franklin Resources Inc, General Counsel or Deputy General Counsel.

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2. Any activity or relationship that would present a conflict for a Covered Officer may also present a conflict for the Covered Officer if a member of the Covered Officer’s immediate family engages in such an activity or has such a relationship. The Cover Person should also obtain written approval by FT’s General Counsel in such situations.

3. Franklin Resources General Counsel and Deputy General Counsel are authorized to consult, as appropriate, with members of the Audit Committee, counsel to the FT Funds and counsel to the Independent Directors, and are encouraged to do so.

4. Item 2 of Form N-CSR defines “waiver” as “the approval by the registrant of a material departure from a provision of the code of ethics” and “implicit waiver,” which must also be disclosed, as “the registrant’s failure to take action within a reasonable period of time regarding a material departure from a provision of the code of ethics that has been made known to an executive officer” of the registrant. See Part X.

5. See Part X.

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EX-99.CERT

Exhibit 12(a)(2)

I, Matthew T. Hinkle, certify that:

1. I have reviewed this report on Form N-CSR of Franklin Mutual Series Funds;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

2/23/2018

S\MATTHEW T. HINKLE

Matthew T. Hinkle

Chief Executive Officer - Finance and Administration

Exhibit 12(a)(2)

I, Robert G. Kubilis, certify that:

1. I have reviewed this report on Form N-CSR of Franklin Mutual Series Funds;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

2/23/2018

S\ROBERT G. KUBILIS

Robert G. Kubilis

Chief Financial Officer and Chief Accounting Officer

EX-99.906CE

Exhibit 12(b)

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

I, Matthew T. Hinkle, Chief Executive Officer of the Franklin Mutual Series Funds (the “Registrant”), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

1. The periodic report on Form N-CSR of the Registrant for the period ended 12/31/2017 (the “Form N-CSR”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Dated: 2/23/2018

S\MATTHEW T. HINKLE

Matthew T. Hinkle

Chief Executive Officer - Finance and Administration

Exhibit 12(b)

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

I, Robert G. Kubilis, Chief Financial Officer of the Franklin Mutual Series Funds (the “Registrant”), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

3. The periodic report on Form N-CSR of the Registrant for the period ended 12/31/2017 (the “Form N-CSR”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

4. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Dated: 2/23/2018

S\ROBERT G. KUBILIS

Robert G. Kubilis

Chief Financial Officer and Chief Accounting Officer