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: 12/31/18

Item 1. Reports to Stockholders.

Annual Report
and Shareholder Letter   December 31, 2018

Internet Delivery of Fund Reports Unless You Request Paper Copies: Effective January 1, 2021, as permitted by the SEC, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request them from the Fund or your financial intermediary. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not signed up for electronic delivery, we would encourage you to join fellow shareholders who have. You may elect to receive shareholder reports and other communications electronically from the Fund by calling (800) 632-2301 or by contacting your financial intermediary.

You may elect to continue to receive paper copies of all your future shareholder reports free of charge by contacting your financial intermediary or, if you invest directly with a Fund, calling (800) 632-2301 to let the Fund know of your request. Your election to receive reports in paper will apply to all funds held in your account.

Franklin Templeton

Successful investing begins with ambition. And achievement only comes when you reach for it. That’s why we continually strive to deliver better outcomes for investors. No matter what your goals are, our deep, global investment expertise allows us to offer solutions that can help.

During our more than 70 years of experience, we’ve managed through all kinds of markets—up, down and those in between. We’re always preparing for what may come next. It’s because of this, combined with our strength as one of the world’s largest asset managers that we’ve earned the trust of millions of investors around the world.

Dear Franklin Mutual Beacon Fund Shareholder:

Investors started 2018 seemingly with the wind at their back. The primary tailwinds were strong corporate earnings growth in most developed markets, healthy consumer and business investment spending, and the positive effect of major U.S. tax cuts. In addition, the global economy continued its steady expansion since the financial crisis of 2008–2009. Unemployment continued to decline in the U.S. and other developed markets, while U.S. wage growth showed some signs of accelerating. As a result, equity markets reached new highs in August and September. However, volatility and market downturns soon made their mark on 2018. As measured by the Chicago Board Options Exchange Volatility Index (VIX), 2017 was the least volatile year on record for the Standard & Poor’s 500^® Index (S&P 500^®), but the VIX surged in February to its highest level since the summer of 2015 and surged again in October and December. Heightened trade tensions between the U.S. and China, geopolitical events in Europe and a growing belief that corporate earnings and economic growth will likely decelerate in 2019 hindered equity markets. A flattening U.S. Treasury yield curve, wider credit spreads and growing market concern that the U.S. Federal Reserve may raise interest rates too aggressively were also important drivers of market turbulence. For the period ended December 31, 2018, U.S. stocks, as measured by the S&P 500, had a -4.38% total return.¹ Stocks in global developed markets, as measured by the MSCI World Index, had a -8.20% total return, while investment-grade bonds, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index, posted a +0.01% total return.¹

While equity markets were broadly down for the year, there were pockets of positive performance concentrated in areas of growth and innovation, such as software, information technology services and segments of the health care sector. It is no surprise, therefore, that growth stocks managed to perform better than value stocks during the period. The Russell 1000^® Growth Index had a -1.51% total return, while the Russell 1000^® Value Index had a -8.27% total return.¹

The return of volatility is an appropriate reminder that securities markets are dynamic. We believe active, professional investment management serves investors well since market volatility is more the norm than uninterrupted positive returns. Valuation is an essential 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 a bottom-up stock-picking process that is disciplined and driven by rigorous fundamental analysis that attempts to limit downside risk. In our view, investing in underappreciated and misunderstood companies with identifiable catalysts for unlocking shareholder value can offer significant upside potential as well as a degree of downside protection.

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

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

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.

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, 2018, 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	5
Performance Summary	12
Your Fund’s Expenses	15
Financial Highlights and Statement of Investments	16
Financial Statements	27
Notes to Financial Statements	32
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 Beacon Fund

This annual report for Franklin Mutual Beacon Fund covers the fiscal year ended December 31, 2018.

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 U.S. 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 had a -8.24% cumulative total return for the 12 months ended December 31, 2018. In comparison, the Fund’s benchmark, the MSCI World Index (USD), which tracks stock performance in global developed markets, had a -8.20% 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 expanded during the 12 months under review, despite weakness in certain regions. Global developed and emerging market stocks were aided at certain points during

Geographic Composition*

Based on Total Net Assets as of 12/31/18

*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 41.0% of total net assets in foreign securities.

the period by higher crude oil prices, upbeat economic data, easing trade tensions and encouraging corporate earnings reports, as well as indications of a slower pace of interest-rate increases from the U.S. Federal Reserve (Fed).

However, various factors weighed on global markets during the period, including concerns about tighter regulation of technology companies, political uncertainties in the U.S. and the European Union, and major central banks’ interest-rate path and unwinding of monetary stimulus measures. Markets were further pressured by U.S. trade disputes with its allies and China, and their impact on global growth and corporate

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.

  franklintempleton.com   Annual Report             3

FRANKLIN MUTUAL BEACON FUND

earnings. In this environment, global stocks, as measured by the MSCI All Country World Index, had a -8.93% total return for the 12 months ended December 31, 2018.¹

The U.S. economy grew during the 12-month period. After moderating for three consecutive quarters, the economy grew faster in 2018’s second quarter, driven by consumer spending, business investment, exports and government spending. However, growth moderated in the third quarter due to declines in exports and housing investment. The unemployment rate declined from 4.1% in December 2017 to 3.9% at period-end.² Annual inflation, as measured by the Consumer Price Index, decreased from 2.1% in December 2017 to 1.9% at period-end.² The Fed raised its target range for the federal funds rate four times during the period, to 2.25%–2.50%, and continued reducing its balance sheet as part of an ongoing plan to normalize monetary policy. At its December meeting, the Fed reduced the projected 2019 rate increases to two, compared to three projected previously.

In Europe, the U.K.’s quarterly economic growth moderated in 2018’s first quarter, but accelerated in 2018’s second and third quarters. The Bank of England raised its key policy rate once during the review period. After moderating in 2018’s first quarter, the eurozone’s quarterly growth remained stable in the second quarter, but eased in the third quarter. The bloc’s annual inflation rate ended the period higher than in December 2017. The European Central Bank (ECB) kept its benchmark interest rate unchanged during the period. In December 2018, the ECB confirmed its plan to conclude its bond purchase program at the end of 2018 and reiterated it expects key interest rates to remain unchanged through the summer of 2019.

In Asia, Japan’s quarterly gross domestic product (GDP) grew in 2018’s second quarter, following a contraction in the first quarter, but contracted again in the third 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 growth remained stable in 2018’s first and second quarters, but accelerated in the third quarter. The Central Bank of Brazil lowered its benchmark interest rate twice during the period. Russia’s annual GDP growth rate accelerated in 2018’s first and second quarters, but moderated in the third quarter. After lowering its key rate twice early in the period, the Bank of Russia raised it twice in the period’s second half to curtail inflation risks. China’s annual GDP grew at a stable rate in 2018’s first

quarter, but it moderated in the second and third quarters. The People’s Bank of China left its benchmark interest rate unchanged during the period, but it took measures to improve financial liquidity to mitigate the negative effects of the U.S.-China trade dispute and support economic growth. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, had a -14.25% 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.

To a lesser extent, 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

2. Source: U.S. Bureau of Labor Statistics.

  4           Annual Report   franklintempleton.com

FRANKLIN MUTUAL BEACON FUND

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 2018, corporate profits in the U.S. and other developed markets continued their impressive year-over-year growth. In addition, labor markets showed further improvement, consumer spending was solid, and U.S. corporate tax reforms encouraged companies to buy back more stock, raise dividends and increase capital expenditures. Those positive fundamentals were periodically overshadowed by political and economic concerns, particularly in the final three months of the year.

As major U.S. equity markets established new all-time highs in 2018, overall U.S. equity market valuations (e.g., price-to-earnings, price-to-book or price-to-sales) became increasingly unattractive, in our analysis. The equity market sell-off in the fourth quarter helped to return valuations to more reasonable levels. The sell-off and rise in volatility yielded an opportunity for us to seek out stocks with strong corporate fundamentals and valuations whose risk/reward profiles seemed to us to have become more favorable.

In 2019, policy events may have considerable influence, for better or worse, on economic growth, investor sentiment and financial market performance and volatility. Markets are likely to be particularly sensitive to developments in U.S.-China trade relations, monetary policy moves by the Fed and other major central banks, oil production decisions by OPEC (The Organization of the Petroleum Exporting Countries) and other oil producing countries, the outcome of Brexit, China’s response to its slowing economy and potential political discord in Washington, D.C.

Europe’s equity market overall was trading at an attractively lower price-to-earnings multiple and higher dividend yield than the U.S. equity market at period-end. We also saw an increase in investor activism, which we viewed as encouraging. However, those favorable factors were offset in part by

Top 10 Sectors/Industries

Based on Equity Securities as of 12/31/18

	% of Total Net Assets
Pharmaceuticals		12.4%
Banks		8.8%
Media		6.1%
Oil, Gas & Consumable Fuels		5.7%
Technology Hardware, Storage & Peripherals		5.1%
Software		5.1%
Insurance		4.5%
Health Care Equipment & Supplies		4.3%
Hotels, Restaurants & Leisure		3.9%
Entertainment		3.3%

economic data, which showed increased slowing of economic activity across the region. From an investment standpoint, we are hopeful that 2019 will be a year of potential resolution and clarity. The biggest political event will likely be Brexit, as a resolution to the situation remained unclear as of period-end. The uncertainty around the terms and timing of a deal continued to undermine consumer and corporate confidence. From our perspective, we believe the European Union and the U.K. will ultimately reach an agreement that makes sense for both sides, and we believe the approval of such an agreement would likely have a significantly positive effect on investor, consumer and corporate sentiment in the U.K. We will also pay close attention to structural reform efforts in France and the political transition in Germany. In December, Chancellor Angela Merkel stepped down as leader of the Christian Democratic Union but stated her intention to remain in office for the remaining three years of her term as Chancellor.

In Asia, economic and financial market weakness in China has been brought on by multiple factors. The U.S.-China trade conflict has disrupted manufacturing activity and supply chains. As trade tensions escalated in 2018, manufacturers accelerated production to avoid upcoming tariffs. At year-end, supply chains were filled with inventory, while manufacturing activity was weak. Entering 2019, the near-term question is how long the inventory overhang will last, while the more significant question is to what extent the trade conflict will alter supply chains in the medium to long term. Amid the trade conflict, China has proven resolute in its attempt to dampen the reliance on leverage, which has weighed on economic activity as well. While the government has enacted some stimulus measures, such as tax cuts, they may be less impactful than prior stimulus through fiscal spending. Meanwhile, government social policies impacting personal freedoms have had a negative effect on consumer sentiment.

  franklintempleton.com   Annual Report             5

FRANKLIN MUTUAL BEACON FUND

Investment Spotlight

In all market environments, we seek to invest prudently in securities that we believe represent good value. We do this by seeking securities that trade at a discount to our estimate of intrinsic value, taking into account the quality of the asset, the sustainability of returns, and the growth potential of the business. We also believe the potential to deliver the best risk-adjusted return over a full market cycle requires us to be focused on applying our cross-asset approach: owning equities and debt—in certain cases multiple securities across the capital structure of a company—across geographies and sectors with an emphasis on corporate actions as catalysts. Our health care sector positions are a good example of our investment process. They have been carefully selected over a number of years, and in 2018, many of our long-standing sector investments appreciated significantly. Collectively our sector exposure outperformed the health care sector within the MSCI World Index.

Within the health care sector, our investment process has generally been focused on finding innovative companies that are market leaders and that invest substantial amounts of capital into research and development (R&D) as a means to sustain and grow market positions. In addition, many of our positions have been in diversified pharmaceutical companies that also have long-duration cash flows through their leading positions in animal health, vaccine, and over-the-counter medicine businesses. These businesses can offer downside protection in years when pharmaceutical R&D is less successful or in years when important products lose patent protection. These businesses are attractive and have been undervalued by the market. This undervaluation allowed us to build positions, and in 2018, some of this undervaluation was reversed.

Eli Lilly and Merck are quintessential examples of our investment process. They are leading innovation-driven pharmaceutical companies that invest substantial amounts of capital into R&D to develop transformative medicines. Both companies have introduced innovative new products in the past many years like Trulicity for diabetes and Keytruda for oncology that we believe will continue to offer substantial long-term revenue growth. The management teams at both companies take a long-term view and focus on enhancing their market positions through both internal and external innovation. Acquiring late stage innovation can be expensive, which is why Lilly and Merck take a prudent approach to generally focusing

on early stage assets. Competition is typically less intense for early stage assets, and they can add value through their own development process and pass along that value to shareholders. Shareholder focus also comes through at both companies by their return of excess capital to shareholders through large dividends and share buybacks.

In our view, both companies also have strong, long-duration assets. Lilly and Merck are the fourth and third largest players in animal health, respectively. In September 2018, Lilly sold some shares of Elanco³, its animal health division, through an initial public offering to create additional shareholder value, while Merck started providing segment level profit disclosures so investors could better appreciate the contribution and value of their animal health business. Merck is also the second largest player in vaccines, a highly attractive business that is underappreciated, in our opinion.

Another common feature between Lilly and Merck is their strong balance sheets. Both companies also generate substantial amounts of free cash flows, with a significant proportion returned to shareholders in the form of dividends and share buybacks. In addition, the two companies are focused on managing their business more efficiently and improving their operating margins, which we believe will lead to additional earnings growth over the next several years. The Top 10 Sectors/Industries table on page 5 lists pharmaceuticals and also other leading industries in which the Fund currently invests.

Mergers and Acquisitions

In health care and elsewhere, merger and acquisition (M&A) activity remained healthy in 2018. The market received some clarity regarding the regulatory environment when a federal judge ruled in favor of AT&T⁴ and Time Warner³, and against the U.S. Department of Justice, in its antitrust lawsuit. However, economic, financial market and geopolitical uncertainty that arose in the second half of the year caused the pace of activity to slow. In our view, it was notable that health care has become one of the busier sectors for M&A as it is relatively more insulated from economic uncertainty. The strength and path of M&A activity in 2019 will likely depend in large part on how the uncertainties carrying over from 2018 play out and how they affect equity markets. From our

3. Not a Fund holding.

4. Not held at period-end.

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

  6           Annual Report   franklintempleton.com

FRANKLIN MUTUAL BEACON FUND

experience, ups and downs in equity market performance and levels of deal activity have tended to move in a similar direction.

Credit Markets

Finding mispriced risk in credit markets was challenging in 2018. Low interest rates kept credit widely available, default rates remained at historically low levels and we continued to witness a loosening in debt covenant terms, which include restrictions on financial activities by the borrower or parameters for specific financial metrics. Liberal interpretations of credit agreements and bond indentures in order to shift valuable assets beyond the reach of creditors were an ongoing challenge. In such an environment, we found more opportunities investing in short-term mispriced risk rather than long-term restructurings.

However, we are hopeful that more opportunities may emerge in 2019, especially if we are starting to enter latter stages of the business cycle. U.S. monetary policy is becoming less accommodative, economic growth appears to be downshifting into a slower pace, earnings growth is set to slow, and geopolitical uncertainty is on the rise. These dynamics have already contributed to a general rise in financial market volatility. At the same time, the amount of lower-rated investment-grade credit stands at a historically high level on an absolute basis and relative to corporate debt markets overall. We believe default rates and the pace of corporate downgrades could begin to pick up in 2019. As a result, 2019 could bring a rise in fallen-angel opportunities (bonds downgraded from investment-grade to junk status) and idiosyncratic opportunities in out-of-favor industries. We will continue to look for opportunities across the capital structures of companies with liquidity-enhancing events, such as asset sales, the ability to issue secured debt within existing agreements, and free cash flow that could buy time for a company to weather its financial storm.

Fund Performance

Turning to Fund performance, top positive contributors included U.S.-based pharmaceutical company Eli Lilly, global research-driven pharmaceutical company Merck and U.K.-based pay-TV provider Sky⁴.

Shares of Eli Lilly were boosted in large part by a series of strong quarterly results during 2018. Attractive corporate fundamentals and fewer investor concerns regarding the direct impact on the pharmaceutical industry from the Trump administration’s efforts to lower prescription drug prices helped push the stock higher. We believe Eli Lilly continues to have a

Top 10 Equity Holdings

12/31/18

Company Sector/Industry, Country	% of Total Net Assets
Novartis AG		4.6%
Pharmaceuticals, Switzerland
Medtronic PLC		4.3%
Health Care Equipment & Supplies, U.S.
GlaxoSmithKline PLC		3.3%
Pharmaceuticals, U.K.
The Walt Disney Co.		3.3%
Entertainment, U.S.
Sensata Technologies Holding PLC		3.3%
Electrical Equipment, U.S.
Samsung Electronics Co. Ltd.		3.2%
Technology Hardware, Storage & Peripherals, South Korea
Standard Chartered PLC		3.2%
Banks, U.K.
Cognizant Technology Solutions Corp.		3.1%
IT Services, U.S.
Wells Fargo & Co.		3.0%
Banks, U.S.
British American Tobacco PLC		2.8%
Tobacco, U.K.

strong product growth story and room for further margin expansion, in addition to having solid research and development capabilities.

Merck is a global research-driven pharmaceutical company with strong market positions in oncology, diabetes, vaccines and animal health. Investors remained upbeat about its future prospects, particularly its Keytruda oncology drug. Merck released clinical trial results, which showed that for the first-line treatment of metastatic nonsquamous non-small lung cancer patients, Keytruda combined with chemotherapy substantially extended survival of patients compared with chemotherapy alone. The Keytruda results set a high bar for competition and appeared to enhance Keytruda’s prospects to gain share in the sizeable market for lung cancer treatment. Results from a competitor, Bristol-Myers Squibb³, were less compelling in a different clinical trial in lung cancer. In October 2018, Merck raised its dividend and authorized a new large share buyback plan.

In February 2018, shares of Sky jumped when U.S.-based cable company Comcast⁴ made a surprise bid for the company. The Comcast bid was considerably higher than a prior bid by Twenty-First Century Fox⁴, which already owned a substantial portion of Sky. In July 2018, Twenty-First Century Fox raised its bid for Sky, but Comcast promptly offered a higher

  franklintempleton.com   Annual Report             7

FRANKLIN MUTUAL BEACON FUND

counter-bid. The stock rose again in September 2018 when The Panel on Takeovers and Mergers in the U.K. announced that Comcast had won the mandatory auction for Sky, and Twenty-First Century Fox subsequently agreed to sell its stake of Sky to Comcast. The acquisition of Sky was officially completed in October 2018.

During the period under review, Fund investments that detracted from performance included U.K.-based British American Tobacco, U.S.-based industrials company General Electric (GE) and U.S.-based insurer American International Group (AIG). British American Tobacco is listed among the Fund’s largest positions in the Top 10 Equity Holdings table on page 7.

Shares of British American Tobacco faced downward pressure due to potential additional U.S. regulation and concerns regarding next generation products. In March 2018, the U.S. Food and Drug Administration (FDA) issued an Advance Notice of Proposed Rulemaking, which started the process of examining the possibility of regulating nicotine levels in combustible cigarettes. The process may not result in regulation, but if it does, many experts believe the review could take seven to 10 years. Meanwhile, JUUL, produced by JUUL Labs³, has emerged as a popular e-cigarette for young U.S. consumers. It is unclear to what degree JUUL is cannibalizing the combustible market, but it has hurt investor sentiment toward the industry. In November, shares of British American Tobacco and industry peers dropped, as the FDA revisited the possibility of banning menthol as a flavor in cigarettes, which would take years with many steps to complete, and in our opinion, an FDA proposal would face litigation from the industry. Industry experts have suggested that it might not survive legal challenges.

GE is a multi-industrial company with a diverse set of businesses in power generation, health care and aviation. During 2018, the stock suffered a number of setbacks starting in January with a greater-than-expected charge related to long-term care policies in its insurance subsidiary. In June, the stock was removed from the Dow Jones Industrial Average and in September, GE stated that fan blades in some of its power-plant turbines were experiencing oxidation problems. In October, S&P Global Ratings, a bond rating agency, cut GE’s debt rating, while GE cut its dividend and stated that the Securities and Exchange Commission was expanding an ongoing investigation to include an accounting write-down related to its power-generation division. Amid the negative events in 2018, management took the first steps in what amounts to a breakup of GE, announcing in May 2018 the merger of its transportation operations into Wabtec³ and plans

to spin-off its health care division and divest its stake in oil-services firm Baker Hughes³. In October 2018, GE unexpectedly replaced chief executive officer (CEO) John Flannery, who spent his entire career at GE, with Larry Culp, a former CEO of Danaher³, an industrial company. We believe Culp made some prudent initial moves, and that his plan to reduce debt and strengthen GE’s balance sheet is a step in the right direction to restoring investor confidence in the company.

Shares of AIG slipped in early 2018 as investors reacted negatively to the price AIG paid to acquire Validus Holdings³, a provider of insurance and reinsurance products. The acquisition price represented a significant premium to Validus’ stock price immediately prior to the announcement. However, we believe the acquisition made strategic sense as Validus gives AIG a complementary group of profitable insurance and reinsurance businesses. The stock price slipped further in October 2018, due to larger-than-expected catastrophe-related losses announced ahead of quarterly results. The losses were due to multiple typhoons in Japan, Hurricane Florence and wildfires in California. Investors tend to look beyond uncharacteristic weather-related losses. However, we believe AIG’s series of operating challenges and negative surprises in prior years, such as additional commercial reserves and increases in loss estimates on current business, likely factored into the stock’s significant decline.

During the period, the Fund held currency forwards and futures seeking to hedge most of the currency risk of the portfolio’s non-U.S. dollar investments. The hedges had a positive overall impact on the Fund’s performance because of the appreciation of the U.S. dollar versus the hedged currencies.

What is a currency forward?

A currency forward is a direct 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 U.S. or foreign futures exchange to buy or sell an underlying instrument or asset at a specific price on a future date.

As fellow shareholders, we found recent relative and absolute performance disappointing, but it is not uncommon for our strategy to lag the equity markets at times. We remain committed to our disciplined, value investment approach as we seek to generate attractive, long-term, risk-adjusted returns for shareholders.

  8           Annual Report   franklintempleton.com

FRANKLIN MUTUAL BEACON FUND

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 Co-Portfolio Manager

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2018, 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.

  franklintempleton.com   Annual Report             9

FRANKLIN MUTUAL BEACON FUND

Performance Summary as of December 31, 2018

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 12/31/18

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 5.50% and the minimum is 0%. Class A: 5.50% maximum initial sales charge. For other share classes, visit franklintempleton.com.

Share Class	Cumulative Total Return1	Average Annual Total Return2
Z
1-Year	-8.24%	-8.24%
5-Year	+24.81%	+4.53%
10-Year	+164.78%	+10.23%
A3
1-Year	-8.49%	-13.53%
5-Year	+23.16%	+3.08%
10-Year	+157.09%	+9.29%

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.

  10           Annual Report   franklintempleton.com

FRANKLIN MUTUAL BEACON 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 (1/1/09–12/31/18)

Class A (1/1/09–12/31/18)

See page 12 for Performance Summary footnotes.

  franklintempleton.com   Annual Report             11

FRANKLIN MUTUAL BEACON FUND

PERFORMANCE SUMMARY

Distributions (1/1/18–12/31/18)

Share Class	Net  Investment Income		Long-Term                      Capital Gain		Total
Z		$0.3098		$1.1480		$1.4578
A		$0.2717		$1.1480		$1.4197
C		$0.0151		$1.1480		$1.1631
R		$0.2313		$1.1480		$1.3793
R6		$0.3208		$1.1480		$1.4688

Total Annual Operating Expenses⁵

Share Class
Z	0.78	%
A	1.03	%

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. Prior to 9/10/18, these shares were offered at a higher initial sales charge of 5.75%, thus actual returns would have differed. Total returns with sales charges have been restated to reflect the current maximum initial sales charge of 5.50%.

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.

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.

  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 7/1/18	Ending Account Value 12/31/18	Expenses Paid During Period 7/1/18–12/31/181,2	Ending Account Value 12/31/18	Expenses Paid During Period 7/1/18–12/31/181,2	Net Annualized Expense Ratio2
Z	$1,000	$935.10	$3.80	$1,021.27	$3.97	0.78%
A	$1,000	$933.80	$5.02	$1,020.01	$5.24	1.03%
C	$1,000	$930.30	$8.66	$1,016.23	$9.05	1.78%
R	$1,000	$932.90	$6.24	$1,018.75	$6.51	1.28%
R6	$1,000	$935.10	$3.51	$1,021.58	$3.67	0.72%

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,
	2018			2017			2016			2015			2014
Class Z
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$16.61			$15.30			$14.30			$16.59			$16.91
Income from investment operationsa:
Net investment incomeb		0.29			0.29			0.37	c		0.29			0.54d
Net realized and unrealized gains (losses)		(1.68	)		1.90			1.93			(0.99	)		0.62
Total from investment operations		(1.39	)		2.19			2.30			(0.70	)		1.16
Less distributions from:
Net investment income		(0.31	)		(0.31	)		(0.37	)		(0.37	)		(0.69)
Net realized gains		(1.15	)		(0.57	)		(0.93	)		(1.22	)		(0.79)
Total distributions		(1.46	)		(0.88	)		(1.30	)		(1.59	)		(1.48)
Net asset value, end of year		$13.76			$16.61			$15.30			$14.30			$16.59
Total return		(8.24)%			14.39%			16.11%			(4.14)%			6.82%
Ratios to average net assets
Expensese,f		0.80%	g		0.78%			0.80%			0.84%	g		0.83%
Expenses incurred in connection with securities sold short		0.01%			—%			0.01%			0.04%			0.04%
Net investment income		1.77%			1.78%			2.48%	c		1.73%			3.14%d
Supplemental data
Net assets, end of year (000’s)		$2,271,217			$2,700,327			$2,564,120			$2,420,165			$2,774,929
Portfolio turnover rate		47.20%			24.80%			30.94%			35.80%			40.06%

^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%.

^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%.

  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,
	2018			2017			2016			2015			2014
Class A
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$16.47			$15.18			$14.20			$16.47			$16.80
Income from investment operationsa:
Net investment incomeb		0.25			0.25			0.33	c		0.24			0.49d
Net realized and unrealized gains (losses)		(1.67	)		1.87			1.91			(0.97	)		0.60
Total from investment operations		(1.42	)		2.12			2.24			(0.73	)		1.09
Less distributions from:
Net investment income		(0.27	)		(0.26	)		(0.33	)		(0.32	)		(0.63)
Net realized gains		(1.15	)		(0.57	)		(0.93	)		(1.22	)		(0.79)
Total distributions		(1.42	)		(0.83	)		(1.26	)		(1.54	)		(1.42)
Net asset value, end of year		$13.63			$16.47			$15.18			$14.20			$16.47
Total returne		(8.49)%			14.09%			15.80%			(4.33)%			6.48%
Ratios to average net assets
Expensesf,g		1.05%	h		1.03%			1.05%			1.12%	h		1.13%
Expenses incurred in connection with securities sold short		0.01%			—%			0.01%			0.04%			0.04%
Net investment income		1.52%			1.53%			2.23%	c		1.45%			2.84%d
Supplemental data
Net assets, end of year (000’s)		$890,294			$983,048			$992,306			$1,019,568			$1,101,706
Portfolio turnover rate		47.20%			24.80%			30.94%			35.80%			40.06%

^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.

^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 BEACON FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2018			2017			2016			2015			2014
Class C
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$16.34			$15.06			$14.10			$16.36			$16.70
Income from investment operationsa:
Net investment incomeb		0.13			0.12			0.22	c		0.12			0.37d
Net realized and unrealized gains (losses)		(1.65	)		1.86			1.88			(0.96	)		0.59
Total from investment operations		(1.52	)		1.98			2.10			(0.84	)		0.96
Less distributions from:
Net investment income		(0.02	)		(0.13	)		(0.21	)		(0.20	)		(0.51)
Net realized gains		(1.15	)		(0.57	)		(0.93	)		(1.22	)		(0.79)
Total distributions		(1.17	)		(0.70	)		(1.14	)		(1.42	)		(1.30)
Net asset value, end of year		$13.65			$16.34			$15.06			$14.10			$16.36
Total returne		(9.19)%			13.25%			14.94%			(5.06)%			5.78%
Ratios to average net assets
Expensesf,g		1.80%	h		1.78%			1.80%			1.84%	h		1.83%
Expenses incurred in connection with securities sold short		0.01%			—%			0.01%			0.04%			0.04%
Net investment income		0.77%			0.78%			1.48%	c		0.73%			2.14%d
Supplemental data
Net assets, end of year (000’s)		$59,828			$260,113			$275,138			$285,333			$320,832
Portfolio turnover rate		47.20%			24.80%			30.94%			35.80%			40.06%

^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.

^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 BEACON FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2018			2017			2016			2015			2014
Class R
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$16.28			$15.01			$14.05			$16.33			$16.68
Income from investment operationsa:
Net investment incomeb		0.20			0.21			0.30	c		0.20			0.44d
Net realized and unrealized gains (losses)		(1.64	)		1.84			1.89			(0.97	)		0.61
Total from investment operations		(1.44	)		2.05			2.19			(0.77	)		1.05
Less distributions from:
Net investment income		(0.23	)		(0.21	)		(0.30	)		(0.29	)		(0.61)
Net realized gains		(1.15	)		(0.57	)		(0.93	)		(1.22	)		(0.79)
Total distributions		(1.38	)		(0.78	)		(1.23	)		(1.51	)		(1.40)
Net asset value, end of year		$13.46			$16.28			$15.01			$14.05			$16.33
Total return		(8.65)%			13.76%			15.58%			(4.61)%			6.31%
Ratios to average net assets
Expensese,f		1.30%	g		1.28%			1.30%			1.34%	g		1.33%
Expenses incurred in connection with securities sold short		0.01%			—%			0.01%			0.04%			0.04%
Net investment income		1.27%			1.28%			1.98%	c		1.23%			2.64%d
Supplemental data
Net assets, end of year (000’s)		$1,662			$1,601			$2,035			$2,343			$2,246
Portfolio turnover rate		47.20%			24.80%			30.94%			35.80%			40.06%

^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%.

^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 BEACON FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2018			2017			2016			2015			2014
Class R6
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$16.60			$15.30			$14.30			$16.58			$16.88
Income from investment operationsa:
Net investment incomeb		0.30			0.37			0.38	c		0.30			0.56d
Net realized and unrealized gains (losses)		(1.68	)		1.82			1.93			(0.98	)		0.63
Total from investment operations		(1.38	)		2.19			2.31			(0.68	)		1.19
Less distributions from:
Net investment income		(0.32	)		(0.32	)		(0.38	)		(0.38	)		(0.70)
Net realized gains		(1.15	)		(0.57	)		(0.93	)		(1.22	)		(0.79)
Total distributions		(1.47	)		(0.89	)		(1.31	)		(1.60	)		(1.49)
Net asset value, end of year		$13.75			$16.60			$15.30			$14.30			$16.58
Total return		(8.18)%			14.42%			16.20%			(3.98)%			6.91%
Ratios to average net assets
Expenses before waiver and payments by affiliatese		0.75%			0.72%			0.71%			0.74%			0.74%
Expenses net of waiver and payments by affiliatese,f		0.73%			0.71%			0.71%			0.74%	g		0.74%
Expenses incurred in connection with securities sold short		0.01%			—%			0.01%			0.04%			0.04%
Net investment income		1.84%			1.85%			2.57%	c		1.83%			3.23%d
Supplemental data
Net assets, end of year (000’s)		$79,358			$106,845			$604			$48,844			$50,868
Portfolio turnover rate		47.20%			24.80%			30.94%			35.80%			40.06%

^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 1.90%.

^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 1.83%.

^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%.

  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, 2018

	Country		Shares/ Warrants		Value
Common Stocks and Other Equity Interests 87.3%
Aerospace & Defense 2.1%
BAE Systems PLC		United Kingdom		11,814,998	$	69,188,011
Auto Components 0.1%
a,b,c International Automotive Components Group Brazil LLC		Brazil		2,846,329		120,619
a,b,c International Automotive Components Group North America LLC		United States		22,836,904		2,722,159
						2,842,778
Banks 8.8%
JPMorgan Chase & Co.		United States		890,830		86,962,826
Standard Chartered PLC		United Kingdom		13,443,194		104,454,934
Wells Fargo & Co.		United States		2,124,250		97,885,440
						289,303,200
Biotechnology 1.1%
Shire PLC		United Kingdom		644,845		37,580,872
Chemicals 2.0%
BASF SE		Germany		956,972		66,659,457
a,b,d Dow Corning Corp., Contingent Distribution		United States		12,598,548		—
						66,659,457
Communications Equipment 1.9%
Cisco Systems Inc.		United States		1,458,142		63,181,293
Consumer Finance 2.5%
Capital One Financial Corp.		United States		1,102,998		83,375,619
Diversified Telecommunication Services 2.2%
Koninklijke KPN NV		Netherlands		24,353,643		71,435,271
Electrical Equipment 3.3%
a Sensata Technologies Holding PLC		United States		2,429,802		108,952,322
Entertainment 3.3%
The Walt Disney Co.		United States		994,700		109,068,855
Food & Staples Retailing 0.2%
a Rite Aid Corp.		United States		8,457,611		5,990,526
Health Care Equipment & Supplies 4.3%
Medtronic PLC		United States		1,576,090		143,361,146
Hotels, Restaurants & Leisure 3.9%
Accor SA		France		1,604,708		68,233,205
Sands China Ltd.		Macau		13,934,400		61,036,961
						129,270,166
Industrial Conglomerates 1.0%
General Electric Co.		United States		4,584,600		34,705,422
Insurance 4.5%
American International Group Inc.		United States		1,514,000		59,666,740
The Hartford Financial Services Group Inc.		United States		2,006,000		89,166,700
						148,833,440
Interactive Media & Services 2.5%
a Baidu Inc., ADR		China		516,947		81,987,794
IT Services 3.1%
Cognizant Technology Solutions Corp., A		United States		1,629,630		103,448,912

  franklintempleton.com   Annual Report             19

FRANKLIN MUTUAL BEACON FUND

STATEMENT OF INVESTMENTS

	Country		Shares/ Warrants		Value
Common Stocks and Other Equity Interests (continued)
Media 6.1%
a Charter Communications Inc., A		United States		312,587	$	89,077,917
a Cumulus Media Inc., A		United States		30,173		325,869
a Cumulus Media Inc., B		United States		57,236		543,742
a Cumulus Media Inc., wts., 6/04/38		United States		13,170		125,115
a Discovery Inc., C		United States		2,709,700		62,539,876
a Liberty Global PLC, C		United Kingdom		2,435,700		50,272,848
						202,885,367
Metals & Mining 0.2%
Warrior Met Coal Inc.		United States		207,416		5,000,800
Oil, Gas & Consumable Fuels 5.7%
Kinder Morgan Inc.		United States		4,414,700		67,898,086
Royal Dutch Shell PLC, A		United Kingdom		2,206,089		64,849,084
The Williams Cos. Inc.		United States		2,581,832		56,929,396
						189,676,566
Pharmaceuticals 13.3%
Eli Lilly & Co.		United States		767,312		88,793,345
GlaxoSmithKline PLC		United Kingdom		5,783,258		109,977,483
Merck & Co. Inc.		United States		1,163,977		88,939,482
Novartis AG, ADR		Switzerland		1,774,190		152,243,244
						439,953,554
Software 5.1%
a Check Point Software Technologies Ltd.		Israel		734,812		75,428,452
a Red Hat Inc.		United States		207,100		36,375,044
Symantec Corp.		United States		2,955,337		55,841,092
						167,644,588
Specialty Retail 2.0%
Dufry AG		Switzerland		708,780		67,547,069
Technology Hardware, Storage & Peripherals 1.9%
Western Digital Corp.		United States		1,676,500		61,980,205
Thrifts & Mortgage Finance 1.4%
Indiabulls Housing Finance Ltd.		India		3,646,376		44,752,884
Tobacco 2.8%
British American Tobacco PLC		United Kingdom		2,851,046		90,894,907
Wireless Telecommunication Services 2.0%
a T-Mobile U.S. Inc.		United States		1,020,000		64,882,200
Total Common Stocks and Other Equity Interests   (Cost $2,711,462,123)						2,884,403,224
Management Investment Companies (Cost $27,875,091) 0.8%
Diversified Financial Services 0.8%
a Altaba Inc.		United States		430,920		24,967,505
Preferred Stocks 5.4%
Automobiles 2.2%
e Porsche Automobil Holding SE, 3.429%, pfd.		Germany		1,225,551		72,080,616
Technology Hardware, Storage & Peripherals 3.2%
e Samsung Electronics Co. Ltd., 4.46%, pfd.		South Korea		3,738,607		106,581,401
Total Preferred Stocks (Cost $131,568,444)						178,662,017

  20           Annual Report   franklintempleton.com

FRANKLIN MUTUAL BEACON FUND

STATEMENT OF INVESTMENTS

	Country		Principal Amount		Value
Corporate Notes and Senior Floating Rate Interests 2.1%
f,g Cumulus Media New Holdings Inc., Term Loan, 7.03%, (1-month USD LIBOR + 4.50%), 5/13/22		United States	$	10,762,620	$	10,213,274
Frontier Communications Corp.,
senior note, 10.50%, 9/15/22		United States		16,691,000		11,683,700
senior note, 11.00%, 9/15/25		United States		23,907,000		15,000,447
f,g Veritas US Inc.,
Term Loan B1, 7.022%, (1-month USD LIBOR + 4.50%), 1/27/23		United States		13,060,226		11,237,241
Term Loan B1, 7.303%, (3-month USD LIBOR + 4.50%), 1/27/23		United States		4,281,659		3,684,012
h Veritas US Inc./Veritas Bermuda Ltd.,
senior note, 144A, 7.50%, 2/01/23		United States		2,766,000		2,268,120
senior note, 144A, 10.50%, 2/01/24		United States		22,708,000		15,044,050
Total Corporate Notes and Senior Floating Rate Interests   (Cost $86,351,756)						69,130,844
Corporate Notes and Senior Floating Rate Interests in   Reorganization 0.8%
b,c,i Broadband Ventures III LLC, secured promissory note, 5.00%, 2/01/12		United States		10,848		—
i iHeartCommunications Inc.,
senior secured note, first lien, 9.00%, 12/15/19		United States		18,873,000		12,739,275
f,g Tranche D Term Loan, 8.443%, (3-month USD LIBOR + 6.75%), 1/30/19		United States		15,813,483		10,696,081
f,g Tranche E Term Loan, 9.193%, (3-month USD LIBOR + 7.50%), 7/30/19		United States		5,080,935		3,435,068
Total Corporate Notes and Senior Floating Rate Interests in   Reorganization (Cost $38,808,737)						26,870,424
			Shares
Companies in Liquidation 0.0%†
a,b,d Tribune Media, Litigation Trust, Contingent Distribution		United States		502,429		—
a,d Vistra Energy Corp., Litigation Trust, Contingent Distribution		United States		46,282,735		41,654
Total Companies in Liquidation (Cost $1,582,525)						41,654
Total Investments before Short Term Investments   (Cost $2,997,648,676)						3,184,075,668
			Principal Amount
Short Term Investments 2.9%
U.S. Government and Agency Securities 2.9%
j FHLB, 1/02/19		United States	$	9,300,000		9,300,000
j U.S. Treasury Bill,
1/02/19 - 4/25/19		United States		58,700,000		58,462,883
k 1/10/19 - 6/06/19		United States		27,800,000		27,587,969
Total U.S. Government and Agency Securities
(Cost $95,347,792)						95,350,852
Total Investments (Cost $3,092,996,468) 99.3%						3,279,426,520
Securities Sold Short (1.2)%						(39,553,897	)
Other Assets, less Liabilities 1.9%						62,485,882
Net Assets 100.0%					$	3,302,358,505

  franklintempleton.com   Annual Report             21

FRANKLIN MUTUAL BEACON FUND

STATEMENT OF INVESTMENTS

	Country		Shares		Value
l Securities Sold Short (1.2)%
Common Stocks (1.2)%
Internet & Direct Marketing Retail (0.6)%
Alibaba Group Holding Ltd., ADR		China		155,131	$	(21,263,806	)
Pharmaceuticals (0.6)%
Takeda Pharmaceutical Co. Ltd.		Japan		541,051		(18,290,091	)
Total Securities Sold Short (Proceeds $ 49,678,223)					$	(39,553,897	)

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

^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(f) regarding senior floating rate interests.

^hSecurity 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, 2018, the aggregate value of these securities was $17,312,170, representing 0.5% of net assets.

ⁱSee Note 8 regarding credit risk and defaulted securities.

^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. At December 31, 2018, the aggregate value of these securities pledged amounted to $15,493,632, representing 0.5% of net assets.

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

At December 31, 2018, 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		952		$137,117,750		3/18/19		$  20,449
GBP/USD		Short		1,150		91,928,125		3/18/19		190,027
Total Futures Contracts										$210,476

*As of period end.

  22           Annual Report   franklintempleton.com

FRANKLIN MUTUAL BEACON FUND

STATEMENT OF INVESTMENTS

At December 31, 2018, 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		514,089	$	587,389		1/14/19	$	2,386	$	—
Euro		HSBK		Buy		277,777		316,930		1/14/19		1,743		—
Euro		HSBK		Sell		793,770		937,700		1/14/19		27,069		—
Euro		UBSW		Buy		1,904		2,176		1/14/19		8		—
British Pound		BOFA		Buy		207,683		263,151		1/16/19		1,919		—
British Pound		HSBK		Buy		1,659,952		2,103,056		1/16/19		15,580		—
British Pound		SSBT		Sell		22,932,950		30,563,775		1/16/19		1,293,904		—
British Pound		UBSW		Buy		496,188		627,061		1/16/19		6,236		—
British Pound		BOFA		Sell		2,400,269		3,159,408		2/14/19		91,565		—
British Pound		BONY		Sell		3,000,000		3,958,700		2/14/19		124,327		—
British Pound		HSBK		Sell		3,962,799		5,217,835		2/14/19		152,886		—
British Pound		UBSW		Sell		11,000,000		14,463,243		2/14/19		403,875		—
South Korean Won		BONY		Sell		3,620,832,500		3,272,330		2/15/19		16,280		—
South Korean Won		HSBK		Buy		10,853,517,380		9,629,812		2/15/19		130,263		—
South Korean Won		HSBK		Sell		47,975,040,092		43,220,481		2/15/19		78,714		—
South Korean Won		UBSW		Buy		4,409,345,698		3,928,540		2/15/19		36,584		—
South Korean Won		UBSW		Sell		18,391,848,448		16,565,502		2/15/19		26,551		—
South Korean Won		UBSW		Sell		19,077,483,100		16,907,841		2/15/19		—		(247,670	)
Euro		BOFA		Buy		2,600,955		2,982,914		2/20/19		10,109		—
Euro		BOFA		Sell		593,336		705,526		2/20/19		22,750		—
Euro		BONY		Buy		4,765,990		5,458,238		2/20/19		26,178		—
Euro		BONY		Sell		4,607,719		5,347,138		2/20/19		44,850		—
Euro		HSBK		Buy		978,837		1,121,202		2/20/19		5,185		—
Euro		HSBK		Sell		595,411		708,200		2/20/19		23,036		—
Euro		SSBT		Buy		704,673		806,889		2/20/19		4,007		—
Euro		SSBT		Sell		4,010,232		4,636,971		2/20/19		22,236		—
Euro		UBSW		Buy		756,243		866,106		2/20/19		4,134		—
Euro		BOFA		Buy		2,591,262		2,991,019		4/18/19		5,690		—
Euro		BOFA		Sell		173,877		202,016		4/18/19		932		—
Euro		BOFA		Sell		1,921,837		2,222,086		4/18/19		—		(457	)
Euro		BONY		Sell		175,899		204,370		4/18/19		949		—
Euro		BONY		Sell		2,025,583		2,341,270		4/18/19		—		(1,251	)
Euro		HSBK		Buy		823,233		950,173		4/18/19		1,869		—
Euro		HSBK		Sell		500,000		577,100		4/18/19		—		(1,134	)
Euro		SSBT		Sell		539,982		621,946		4/18/19		—		(2,525	)
Euro		UBSW		Buy		600,954		693,822		4/18/19		1,162		—
Euro		UBSW		Sell		317,370		367,790		4/18/19		761		—
Euro		UBSW		Sell		1,920,017		2,206,718		4/18/19		—		(13,720	)
British Pound		BONY		Sell		3,132,966		4,074,773		4/24/19		57,270		—
British Pound		UBSW		Sell		3,995,039		5,240,400		4/24/19		117,433		—
Euro		BOFA		Sell		9,189,964		10,649,835		5/07/19		4,378		—
Euro		BONY		Sell		5,200,000		5,977,390		5/07/19		—		(46,179	)
Euro		HSBK		Sell		3,316,744		3,830,296		5/07/19		—		(11,748	)
Euro		HSBK		Sell		27,571,569		32,057,463		5/07/19		119,147		—
Euro		SSBT		Sell		94,796		110,672		5/07/19		863		—
Euro		UBSW		Sell		6,554,346		7,526,900		5/07/19		—		(65,514	)
Euro		UBSW		Sell		9,892,595		11,466,388		5/07/19		7,017		—
South Korean Won		BONY		Sell		4,439,872,340		4,004,575		5/17/19		—		(3,143	)
South Korean Won		HSBK		Sell		5,943,138,476		5,353,214		5/17/19		—		(11,450	)

  franklintempleton.com   Annual Report             23

FRANKLIN MUTUAL BEACON 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)
South Korean Won		UBSW		Sell		33,206,907,922	$	29,698,043		5/17/19	$	—	$	(276,674	)
Euro		HSBK		Sell		557,670		642,759		5/21/19		—		(4,021	)
Euro		SSBT		Sell		2,500,000		2,887,650		5/21/19		—		(11,827	)
Euro		SSBT		Sell		54,672,573		63,663,478		5/21/19		254,730		—
British Pound		BOFA		Sell		36,906,347		47,733,779		5/28/19		331,731		—
British Pound		UBSW		Sell		4,176,956		5,319,984		5/28/19		—		(44,846	)
Total Forward Exchange Contracts											$	3,476,307	$	(742,159	)
Net unrealized appreciation (depreciation)											$	2,734,148

^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.    

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

FRANKLIN MUTUAL BEACON FUND

Financial Statements

Statement of Assets and Liabilities

December 31, 2018

Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	3,092,996,468
Value - Unaffiliated issuers	$	3,279,426,520
Cash		317,423
Receivables:
Investment securities sold		2,299,112
Capital shares sold		10,438,943
Dividends and interest		10,500,510
European Union tax reclaims		3,590,373
Deposits with brokers for:
Securities sold short		44,159,501
Futures contracts		5,172,350
Unrealized appreciation on OTC forward exchange contracts		3,476,307
Other assets		470
Total assets		3,359,381,509
Liabilities:
Payables:
Capital shares redeemed		11,505,343
Management fees		1,929,241
Distribution fees		505,575
Transfer agent fees		620,201
Trustees’ fees and expenses		277,183
Variation margin on futures contracts		442,675
Securities sold short, at value (proceeds $49,678,223)		39,553,897
Unrealized depreciation on OTC forward exchange contracts		742,159
Deferred tax		1,170,447
Accrued expenses and other liabilities		276,283
Total liabilities		57,023,004
Net assets, at value	$	3,302,358,505
Net assets consist of:
Paid-in capital	$	3,025,246,633
Total distributable earnings (loss)		277,111,872
Net assets, at value	$	3,302,358,505

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

FRANKLIN MUTUAL BEACON FUND

FINANCIAL STATEMENTS

Statement of Assets and Liabilities (continued)    

December 31, 2018    

Class Z:
Net assets, at value	$	2,271,216,822
Shares outstanding		165,101,679
Net asset value and maximum offering price per share		$13.76
Class A:
Net assets, at value	$	890,293,923
Shares outstanding		65,328,586
Net asset value per sharea		$13.63
Maximum offering price per share (net asset value per share ÷ 94.50%)		$14.42
Class C:
Net assets, at value	$	59,828,464
Shares outstanding		4,381,711
Net asset value and maximum offering price per sharea		$13.65
Class R:
Net assets, at value	$	1,661,537
Shares outstanding		123,410
Net asset value and maximum offering price per share		$13.46
Class R6:
Net assets, at value	$	79,357,759
Shares outstanding		5,770,966
Net asset value and maximum offering price per share		$13.75

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

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

FRANKLIN MUTUAL BEACON FUND

FINANCIAL STATEMENTS

Statement of Operations

for the year ended December 31, 2018

Investment income:
Dividends: (net of foreign taxes)*
Unaffiliated issuers	$ 86,138,340
Interest:
Unaffiliated issuers	10,609,792
Income from securities loaned:
Unaffiliated issuers (net of fees and rebates)	33,178
Non-controlled affiliates (Note 3f)	20,195
Other income (Note 1g)	1,042,396
Total investment income	97,843,901
Expenses:
Management fees (Note 3a)	25,808,103
Distribution fees: (Note 3c)
Class A	2,330,762
Class C	2,038,800
Class R	9,055
Transfer agent fees:
Class Z	2,268,365
Class A	817,109
Class C	178,772
Class R	1,587
Class R6	38,336
Custodian fees (Note 4)	202,127
Reports to shareholders	190,182
Registration and filing fees	107,687
Professional fees	112,321
Trustees’ fees and expenses	233,836
Dividends on securities sold short	245,449
Other	80,976
Total expenses	34,663,467
Expense reductions (Note 4)	(29,916	)
Expenses waived/paid by affiliates (Note 3f and 3g)	(22,860	)
Net expenses	34,610,691
Net investment income	63,233,210
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:#
Unaffiliated issuers	297,508,315
Non-controlled affiliates (Note 3f and 12)	10,196
Foreign currency transactions	(993,030	)
Forward exchange contracts	12,657,327
Futures contracts	17,946,424
Securities sold short	(1,132,196	)
Net realized gain (loss)	325,997,036
Net change in unrealized appreciation (depreciation) on:
Investments:
Unaffiliated issuers	(729,501,793	)
Translation of other assets and liabilities denominated in foreign currencies	(311,658	)
Forward exchange contracts	21,388,656
Futures contracts	4,450,073
Securities sold short	9,551,893
Change in deferred taxes on unrealized appreciation	(498,289	)
Net change in unrealized appreciation (depreciation)	(694,921,118	)
Net realized and unrealized gain (loss)	(368,924,082	)

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

FRANKLIN MUTUAL BEACON FUND

FINANCIAL STATEMENTS

Statement of Operations (continued)

for the year ended December 31, 2018

Net increase (decrease) in net assets resulting from operations		$(305,690,872	)
*Foreign taxes withheld on dividends	$	3,722,763
#Net of foreign taxes	$	155,569

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

FRANKLIN MUTUAL BEACON FUND

FINANCIAL STATEMENTS

Statements of Changes in Net Assets

	Year Ended December 31,
	2018			2017
Increase (decrease) in net assets:
Operations:
Net investment income	$	63,233,210		$	65,956,895
Net realized gain (loss)		325,997,036			183,147,634
Net change in unrealized appreciation (depreciation)		(694,921,118	)		281,136,333
Net increase (decrease) in net assets resulting from operations		(305,690,872	)		530,240,862
Distributions to shareholders: (Note 1h)
Class Z		(221,433,179	)		(139,862,559	)
Class A		(83,941,345	)		(48,591,653	)
Class C		(5,683,570	)		(11,029,993	)
Class R		(157,769	)		(88,349	)
Class R6		(7,782,384	)		(4,128,902	)
Total distributions to shareholders		(318,998,247	)		(203,701,456	)
Capital share transactions: (Note 2)
Class Z		540,717			(86,429,444	)
Class A		72,748,807			(92,158,566	)
Class C		(185,991,052	)		(38,165,096	)
Class R		390,017			(607,336	)
Class R6		(12,575,413	)		108,551,501
Total capital share transactions		(124,886,924	)		(108,808,941	)
Net increase (decrease) in net assets		(749,576,043	)		217,730,465
Net assets:
Beginning of year		4,051,934,548			3,834,204,083
End of year (Note 1h)	$	3,302,358,505		$	4,051,934,548

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

FRANKLIN MUTUAL BEACON FUND

Notes to Financial Statements

1.  Organization and Significant Accounting Policies

Franklin Mutual Series Funds (Trust) is registered under the Investment Company Act of 1940 (1940 Act) as an open-end management investment company, consisting of seven separate funds and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). Franklin Mutual Beacon Fund (Fund) is included in this report. The Fund offers five classes of shares: Class Z, Class A, Class C, Class R and Class R6. Beginning on October 19, 2018, Class C shares automatically convert to Class A shares after they have been held for 10 years. 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 each business day as of 4 p.m. Eastern time or the regularly scheduled close of the New York Stock Exchange (NYSE), whichever is earlier. 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 Fund may 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.

Investments in open-end mutual funds are valued at the closing NAV.

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 Fund 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.

  30           Annual Report   franklintempleton.com

FRANKLIN MUTUAL BEACON FUND

NOTES TO FINANCIAL STATEMENTS

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. At December 31, 2018, a market event occurred resulting in a portion of the securities held by the Fund being valued using fair value procedures.

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 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

  franklintempleton.com   Annual Report             31

FRANKLIN MUTUAL BEACON FUND

NOTES TO FINANCIAL STATEMENTS

1.  Organization and Significant Accounting Policies (continued)

c.  Derivative Financial Instruments (continued)

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, 2018, the Fund had OTC derivatives in a net liability position of $44,663.

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.

At December 31, 2018, the Fund received $3,753,889 in U.K. Treasury Bonds and U.S. Treasury Bills, Bonds and Notes as collateral for derivatives.

The Fund entered into exchange traded futures contracts primarily to manage exposure to certain foreign currencies. A futures contract is an agreement between the Fund and a counterparty to buy or sell an asset 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.  Securities Lending

The Fund participates in an agency based securities lending program to earn additional income. The Fund receives cash collateral against the loaned securities in an amount equal to at

  32           Annual Report   franklintempleton.com

FRANKLIN MUTUAL BEACON FUND

NOTES TO FINANCIAL STATEMENTS

least 102% of the fair value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the fair value of loaned securities, as determined at the close of Fund business each day; any additional collateral required due to changes in security values is delivered to the Fund on the next business day. The collateral is deposited into a joint cash account with other funds and is used to invest in a money market fund managed by Franklin Advisers, Inc., an affiliate of the Fund, and/or a joint repurchase agreement. The Fund may receive income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. Income from securities loaned, net of fees paid to the securities lending agent and/or third-party vendor, is reported separately in the Statement of Operations. The Fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the agent may default on its obligations to the Fund. If the borrower defaults on its obligation to return the securities loaned, the Fund has the right to repurchase the securities in the open market using the collateral received. The securities lending agent has agreed to indemnify the Fund in the event of default by a third party borrower. At December 31, 2018, the Fund had no securities on loan.

f.  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.

g.  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, 2018, 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.

h.  Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Dividend income and dividends declared on securities sold short are recorded on the ex-dividend date except for certain dividends from securities where the dividend rate is not

  franklintempleton.com   Annual Report             33

FRANKLIN MUTUAL BEACON FUND

NOTES TO FINANCIAL STATEMENTS

1. Organization and Significant Accounting Policies (continued)

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

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 or based on the ratio of number of shareholders of each Fund to the combined number of shareholders 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.

i.  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.

j.  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.

*Effective during the current reporting period, it is no longer required to present certain line items in the Statements of Changes in Net Assets. The below prior period amounts affected by this change are shown as they were in the prior year Statements of Changes in Net Assets.

For the year ended December 31, 2017, distributions to shareholders were as follows:

Distributions from net investment income :
Class Z	$	(48,496,718	)
Class A		(15,320,414	)
Class C		(2,055,677	)
Class R		(23,201	)
Class R6		(1,872,829	)
Distributions from net realized gains:
Class Z		(91,365,841	)
Class A		(33,271,239	)
Class C		(8,974,316	)
Class R		(65,148	)
Class R6		(2,256,073	)

For the year ended December 31, 2017, undistributed net investment income included in net assets was $1,171,624.

  34           Annual Report   franklintempleton.com

FRANKLIN MUTUAL BEACON FUND

NOTES TO FINANCIAL STATEMENTS

2. Shares of Beneficial Interest

At December 31, 2018, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2018						2017
	Shares			Amount			Shares			Amount
Class Z Shares:
Shares sold		8,257,116		$	133,575,147			12,158,938		$	199,279,041
Shares issued in reinvestment of distributions		15,183,241			206,770,472			7,927,106			130,651,385
Shares redeemed		(20,924,183	)		(339,804,902	)		(25,064,661	)		(416,359,870	)
Net increase (decrease)		2,516,174		$	540,717			(4,978,617	)	$	(86,429,444	)
Class A Shares:
Shares solda		13,762,741		$	220,038,461			5,808,494		$	94,712,185
Shares issued in reinvestment of distributions		6,066,419			81,741,950			2,889,127			47,191,652
Shares redeemed		(14,199,056	)		(229,031,604	)		(14,375,309	)		(234,062,403	)
Net increase (decrease)		5,630,104		$	72,748,807			(5,677,688	)	$	(92,158,566	)
Class C Shares:
Shares sold		777,745		$	12,227,859			1,150,062		$	18,503,214
Shares issued in reinvestment of distributions		398,415			5,563,069			672,846			10,882,501
Shares redeemeda		(12,713,218	)		(203,781,980	)		(4,170,647	)		(67,550,811	)
Net increase (decrease)		(11,537,058	)	$	(185,991,052	)		(2,347,739	)	$	(38,165,096	)
Class R Shares:
Shares sold		27,604		$	454,716			32,014		$	516,552
Shares issued in reinvestment of distributions		11,829			157,768			5,476			88,349
Shares redeemed		(14,360	)		(222,467	)		(74,775	)		(1,212,237	)
Net increase (decrease)		25,073		$	390,017			(37,285	)	$	(607,336	)
Class R6 Shares:
Shares sold		1,125,287		$	18,530,681			6,649,392		$	112,866,490
Shares issued in reinvestment of distributions		570,780			7,773,465			249,808			4,128,902
Shares redeemed		(2,360,255	)		(38,879,559	)		(503,515	)		(8,443,891	)
Net increase (decrease)		(664,188	)	$	(12,575,413	)		6,395,685		$	108,551,501

^aMay include a portion of Class C shares that were automatically converted to Class A.

3. Transactions with Affiliates

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton. 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

  franklintempleton.com   Annual Report             35

FRANKLIN MUTUAL BEACON FUND

NOTES TO FINANCIAL STATEMENTS

3.  Transactions with Affiliates (continued)

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, 2018, 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.

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	$	70,223
CDSC retained	$	9,451

Effective September 10, 2018, the Board approved changes to certain front-end sales charges and dealer commissions on Class A shares. Further details are disclosed in the Fund’s Prospectus.

  36           Annual Report   franklintempleton.com

FRANKLIN MUTUAL BEACON FUND

NOTES TO FINANCIAL STATEMENTS

e.  Transfer Agent Fees

Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. The fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. 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, 2018, the Fund paid transfer agent fees of $3,304,169, of which $1,629,059 was retained by Investor Services.

f.  Investments in Affiliated Management Investment Companies

The Fund invests in one or more affiliated management investment companies for purposes other than exercising a controlling influence over the management or policies. Management fees paid by the Fund are waived on assets invested in the affiliated management investment companies, as noted in the Statement of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by each affiliate. During the year ended December 31, 2018, the Fund held investments in affiliated management investment companies as follows:

	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		Income from securities loaned		Realized Gain (Loss)		Net Change in Unrealized Appreciation (Depreciation)
Non-Controlled Affiliates
Institutional Fiduciary Trust Money Market Portfolio, 1.99%		—		16,525,000		(16,525,000	)		—		$    —		$20,195		$    —		$    —

g.  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% based on the average net assets of the class. 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, 2018, 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, 2018, the Fund’s projected benefit obligation and benefit payments under the Plan were as follows:

  franklintempleton.com   Annual Report             37

FRANKLIN MUTUAL BEACON FUND

NOTES TO FINANCIAL STATEMENTS

5.  Independent Trustees’ Retirement Plan (continued)

aProjected benefit obligation at December 31, 2018	$	277,183
bIncrease in projected benefit obligation	$	60,374
Benefit payments made to retired trustees	$	(4,114	)

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

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

6.  Income Taxes

The tax character of distributions paid during the years ended December 31, 2018 and 2017, was as follows:

	2018		2017
Distributions paid from:
Ordinary income	$	65,063,571	$	78,895,649
Long term capital gain		253,934,676		124,805,807
	$	318,998,247	$	203,701,456

At December 31, 2018, 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	$	3,058,994,182
Unrealized appreciation	$	495,689,764
Unrealized depreciation		(311,859,312	)
Net unrealized appreciation (depreciation)	$	183,830,452
Distributable earnings:
Undistributed ordinary income	$	31,553,512
Undistributed long term capital gains		59,636,597
Total distributable earnings	$	91,190,109

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

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, 2018, aggregated $1,729,279,007 and $1,973,753,487, 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

  38           Annual Report   franklintempleton.com

FRANKLIN MUTUAL BEACON FUND

NOTES TO FINANCIAL STATEMENTS

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, 2018, the aggregate long value of distressed company securities for which interest recognition has been discontinued was $26,870,424, 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. Current political and financial uncertainty surrounding the European Union may increase market volatility and the economic risk of investing in securities in Europe. 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, 2018, 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	$	—
	2,846,329	International Automotive Components Group Brazil LLC	4/13/06 - 12/26/08		1,890,264		120,619
	22,836,904	International Automotive Components Group North America LLC	1/12/06 - 3/18/13		18,692,218		2,722,159
		Total Restricted Securities (Value is 0.1% of Net Assets)		$	20,593,330	$	2,842,778

11.  Other Derivative Information

At December 31, 2018, 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	$	210,476	a	Variation margin on futures contracts		$         —
	Unrealized appreciation on OTC forward exchange contracts		3,476,307		Unrealized depreciation on OTC forward exchange contracts		742,159
Totals		$	3,686,783				$742,159

^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.

  franklintempleton.com   Annual Report             39

FRANKLIN MUTUAL BEACON FUND

NOTES TO FINANCIAL STATEMENTS

11. Other Derivative Information (continued)

For the year ended December 31, 2018, 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		$12,657,327	Forward exchange contracts		$21,388,656
	Futures contracts		17,946,424	Futures contracts		4,450,073
Totals			$30,603,751			$25,838,729

For the year ended December 31, 2018, the average month end notional amount of futures contracts represented $298,479,662. The average month end contract value of forward exchange contracts was $615,763,216.

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, 2018, 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		15,831,950		—		(15,831,950	)a		—		$—		$—		$10,196		$—

^aGross reduction was the result of a corporate action.

13.  Credit Facility

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matured on February 8, 2019. 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 8, 2019, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 7, 2020, 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, 2018, the Fund did not use the Global Credit Facility.

  40           Annual Report   franklintempleton.com

FRANKLIN MUTUAL BEACON FUND

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.

A summary of inputs used as of December 31, 2018, 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	$	—	$	—	$	2,842,778		$	2,842,778
Automobiles		—		72,080,616		—			72,080,616
Chemicals		—		66,659,457		—	c		66,659,457
Media		202,216,510		668,857		—			202,885,367
Specialty Retail		—		67,547,069		—			67,547,069
All Other Equity Investments		2,676,017,459		—		—			2,676,017,459
Corporate Notes and Senior Floating Rate Interests		—		69,130,844		—			69,130,844
Corporate Notes and Senior Floating Rate Interests in Reorganization		—		26,870,424		—	c		26,870,424
Companies in Liquidation		—		41,654		—	c		41,654
Short Term Investments		86,050,852		9,300,000		—			95,350,852
Total Investments in Securities	$	2,964,284,821	$	312,298,921	$	2,842,778		$	3,279,426,520
Other Financial Instruments:
Futures Contracts	$	210,476	$	—	$	—		$	210,476
Forward Exchange Contracts		—		3,476,307		—			3,476,307
Total Other Financial Instruments	$	210,476	$	3,476,307	$	—		$	3,686,783
Liabilities:
Other Financial Instruments:
Securities Sold Shorta	$	39,553,897	$	—	$	—		$	39,553,897
Forward Exchange Contracts		—		742,159		—			742,159
Total Other Financial Instruments	$	39,553,897	$	742,159	$	—		$	40,296,056

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

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

^cIncludes securities determined to have no value at December 31, 2018.

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.

  franklintempleton.com   Annual Report             41

FRANKLIN MUTUAL BEACON FUND

NOTES TO FINANCIAL STATEMENTS

15.  New Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in the ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for annual reporting periods ending after December 15, 2020. Management is currently evaluating the impact, if any, of applying this provision.

16.  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 Corp.	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.
UBSW	UBS AG

  42           Annual Report   franklintempleton.com

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, 2018, 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 five years in the period then ended 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, 2018, 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 five years in the period then ended, 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, 2018, 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, Massachusetts

February 20, 2019

  franklintempleton.com   Annual Report             43

FRANKLIN MUTUAL BEACON FUND

Tax Information (unaudited)

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby reports the maximum amount allowable but no less than $285,113,004 as a long term capital gain dividend for the fiscal year ended December 31, 2018.

Under Section 854(b)(1)(A) of the Internal Revenue Code, the Fund hereby reports 52.54% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2018.

Under Section 854(b)(1)(B) of the Internal Revenue Code, the Fund hereby reports the maximum amount allowable but no less than $79,392,478 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Internal Revenue Code for the fiscal year ended December 31, 2018. Distributions, including qualified dividend income, paid during calendar year 2018 will be reported to shareholders on Form 1099-DIV by mid-February 2019. 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 Internal Revenue Code, the Fund hereby reports the maximum amount allowable but no less than $7,219,593 as interest related dividends for purposes of the tax imposed under Section 871(a)(1)(A) of the Internal Revenue Code for the fiscal year ended December 31, 2018.

  44           Annual Report   franklintempleton.com

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 U.S. 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)	Trustee	Since 1987	14	None
c/o Franklin Mutual Advisers, LLC
101 John F. Kennedy Parkway
Short Hills, NJ 07078-2716
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 07078-2716	Trustee	Since 1995	38	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 07078-2716	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 07078-2716	Trustee	Since 2009	14	FinTech Acquisition Corp. III (special purpose fintech acquisition company) (2018-present)
Principal Occupation During at Least the Past 5 Years:
President and Founder, The Jan Hopkins Group (communications consulting firm); serves on Advisory Board of Knight Bagehot Fellowship; and formerly, President, Economic Club of New York (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)	Trustee	Since 2009	14	None
c/o Franklin Mutual Advisers, LLC
101 John F. Kennedy Parkway
Short Hills, NJ 07078-2716
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.

  franklintempleton.com   Annual Report             45

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 07078-2716	Trustee	Since 2015	38	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)	Trustee	Since 1998	14	None
c/o Franklin Mutual Advisers, LLC
101 John F. Kennedy Parkway
Short Hills, NJ 07078-2716
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 07078-2716	Trustee and Chairman of the Board	Trustee since 1993 and Chairman of the Board since 2005	38	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)	Trustee	Since 2015	14	None
c/o Franklin Mutual Advisers, LLC
101 John F. Kennedy Parkway
Short Hills, NJ 07078-2716
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)	Trustee	Since 2007	150	None
One Franklin Parkway
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Chairman of the Board, Member – Office of the Chairman, Director and Chief Executive Officer, Franklin Resources, Inc.; officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 42 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 07078-2716	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.

  46           Annual Report   franklintempleton.com

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)	Vice President	Since 2012	Not Applicable	Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Deputy General Counsel, Franklin Templeton Investments; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin Templeton Investments.
Aliya S. Gordon (1973)	Vice President	Since 2009	Not Applicable	Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 44 of the investment companies in Franklin Templeton Investments.
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 44 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 2017	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Senior Vice President, Franklin Templeton Services, LLC; officer of 44 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 16 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 44 of the investment companies in Franklin Templeton Investments.
Kimberly H. Novotny (1972)	Vice President	Since 2013	Not Applicable	Not Applicable
300 S.E. 2nd Street
Fort Lauderdale, FL 33301-1923
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 44 of the investment companies in Franklin Templeton Investments.

  franklintempleton.com   Annual Report             47

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
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 44 of the investment companies in Franklin Templeton Investments; and formerly, Senior Associate General Counsel, Franklin Templeton Investments (2007-2013); and Secretary and Vice President, Templeton Group of Funds (2004-2013).
Navid J. Tofigh (1972)	Vice President	Since 2015	Not Applicable	Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Associate General Counsel, Franklin Templeton Investments; and officer of 44 of the investment companies in Franklin Templeton Investments.
Craig S. Tyle (1960)	Vice President	Since 2005	Not Applicable	Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
General Counsel and Executive Vice President, Franklin Resources, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin Templeton Investments.
Lori A. Weber (1964)	Vice President	Since 2011	Not Applicable	Not Applicable
300 S.E. 2nd Street
Fort Lauderdale, FL 33301-1923
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and Secretary, Templeton Investment Counsel, LLC; and officer of 44 of the investment companies in Franklin Templeton Investments.

  48           Annual Report   franklintempleton.com

FRANKLIN MUTUAL SERIES FUNDS

*We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment manager or affiliated investment managers.

**Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Franklin Resources, Inc. (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 Advisers, LLC, which is 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 1987. He currently serves as a Max L. Hine 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 1995. 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 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.

  franklintempleton.com   Annual Report             49

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 U.S. Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.

Quarterly Statement of Investments

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

Householding of Reports and Prospectuses

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

  50           Annual Report   franklintempleton.com

This page intentionally left blank.

This page intentionally left blank.

	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.
© 2019 Franklin Templeton Investments. All rights reserved.	476 A 02/19

Annual Report
and Shareholder Letter   December 31, 2018

Internet Delivery of Fund Reports Unless You Request Paper Copies: Effective January 1, 2021, as permitted by the SEC, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request them from the Fund or your financial intermediary. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not signed up for electronic delivery, we would encourage you to join fellow shareholders who have. You may elect to receive shareholder reports and other communications electronically from the Fund by calling (800) 632-2301 or by contacting your financial intermediary.

You may elect to continue to receive paper copies of all your future shareholder reports free of charge by contacting your financial intermediary or, if you invest directly with a Fund, calling (800) 632-2301 to let the Fund know of your request. Your election to receive reports in paper will apply to all funds held in your account.

Franklin Templeton

Successful investing begins with ambition. And achievement only comes when you reach for it. That’s why we continually strive to deliver better outcomes for investors. No matter what your goals are, our deep, global investment expertise allows us to offer solutions that can help.

During our more than 70 years of experience, we’ve managed through all kinds of markets—up, down and those in between. We’re always preparing for what may come next. It’s because of this, combined with our strength as one of the world’s largest asset managers that we’ve earned the trust of millions of investors around the world.

Dear Franklin Mutual Global Discovery Fund Shareholder:

Investors started 2018 seemingly with the wind at their back. The primary tailwinds were strong corporate earnings growth in most developed markets, healthy consumer and business investment spending, and the positive effect of major U.S. tax cuts. In addition, the global economy continued its steady expansion since the financial crisis of 2008–2009. Unemployment continued to decline in the U.S. and other developed markets, while U.S. wage growth showed some signs of accelerating. As a result, equity markets reached new highs in August and September. However, volatility and market downturns soon made their mark on 2018. As measured by the Chicago Board Options Exchange Volatility Index (VIX), 2017 was the least volatile year on record for the Standard & Poor’s 500^® Index (S&P 500^®), but the VIX surged in February 2018 and jumped again in October and December 2018. Heightened trade tensions between the U.S. and China, geopolitical events in Europe and a growing belief that corporate earnings and economic growth will likely decelerate in 2019 hindered equity markets. A flattening U.S. Treasury yield curve, wider credit spreads and growing market concern that the U.S. Federal Reserve may raise interest rates too aggressively were also important drivers of market turbulence. For the period ended December 31, 2018, U.S. stocks, as measured by the S&P 500, had a -4.38% total return.¹ Stocks in global developed markets, as measured by the MSCI World Index (USD), had a -8.20% total return.¹

While equity markets were broadly down for the year, there were pockets of positive performance concentrated in areas of growth and innovation, such as software, information technology services and

segments of the health care sector. It is no surprise, therefore, that growth stocks managed to perform better than value stocks during the period. The MSCI World Growth Index (USD) had a -6.42% total return, while the MSCI World Value Index (USD) had a -10.09% total return.¹

The return of volatility is an appropriate reminder that securities markets are dynamic. We believe active, professional investment management serves investors well since market volatility is more the norm than uninterrupted positive returns. Valuation is an essential 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 a bottom-up stock-picking process that is disciplined and driven by rigorous fundamental analysis that attempts to limit downside risk. In our view, investing in underappreciated and misunderstood companies with identifiable catalysts for unlocking shareholder value can offer significant upside potential as well as a degree of downside protection.

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

1. Source: Morningstar.

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

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, 2018, 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	26
Notes to Financial Statements	30
Report of Independent Registered Public Accounting Firm	44
Tax Information	45
Board Members and Officers	46
Shareholder Information	51

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, 2018.

Your Fund’s Goal and Main Investments

The Fund seeks capital appreciation. Under normal market conditions, the Fund invests primarily in equity securities of U.S. 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 had a -10.78% cumulative total return for the 12 months ended December 31, 2018. For comparison, the Fund’s benchmark, the MSCI World Index (USD), which tracks stock performance in global developed markets, had a -8.20% 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 expanded during the 12 months under review, despite weakness in certain regions. Global developed and emerging market stocks were aided at certain points during the period by higher crude oil prices, upbeat economic data,

Geographic Composition*

Based on Total Net Assets as of 12/31/18

*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.

easing trade tensions and encouraging corporate earnings reports, as well as indications of a slower pace of interest-rate increases from the U.S. Federal Reserve (Fed).

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.

  franklintempleton.com   Annual Report             3

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

However, various factors weighed on global markets during the period, including concerns about tighter regulation of technology companies, political uncertainties in the U.S. and the European Union, and major central banks’ interest-rate path and unwinding of monetary stimulus measures. Markets were further pressured by U.S. trade disputes with its allies and China, and their impact on global growth and corporate earnings. In this environment, global stocks, as measured by the MSCI All Country World Index, had a -8.93% total return for the 12 months ended December 31, 2018.¹

The U.S. economy grew during the 12-month period. After moderating for three consecutive quarters, the economy grew faster in 2018’s second quarter, driven by consumer spending, business investment, exports and government spending. However, growth moderated in the third quarter due to declines in exports and housing investment. The unemployment rate declined from 4.1% in December 2017 to 3.9% at period-end.² Annual inflation, as measured by the Consumer Price Index, decreased from 2.1% in December 2017 to 1.9% at period-end.² The Fed raised its target range for the federal funds rate four times during the period, to 2.25%–2.50%, and continued reducing its balance sheet as part of an ongoing plan to normalize monetary policy. At its December meeting, the Fed reduced the projected 2019 rate increases to two, compared to three projected previously.

In Europe, the U.K.’s quarterly economic growth moderated in 2018’s first quarter, but accelerated in 2018’s second and third quarters. The Bank of England raised its key policy rate once during the review period. After moderating in 2018’s first quarter, the eurozone’s quarterly growth remained stable in the second quarter, but eased in the third quarter. The bloc’s annual inflation rate ended the period higher than in December 2017. The European Central Bank (ECB) kept its benchmark interest rate unchanged during the period. In December 2018, the ECB confirmed its plan to conclude its bond purchase program at the end of 2018 and reiterated it expects key interest rates to remain unchanged through the summer of 2019.

In Asia, Japan’s quarterly gross domestic product (GDP) grew in 2018’s second quarter, following a contraction in the first quarter, but contracted again in the third 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 growth remained stable in 2018’s first and second quarters, but accelerated in the

third quarter. The Central Bank of Brazil lowered its benchmark interest rate twice during the period. Russia’s annual GDP growth rate accelerated in 2018’s first and second quarters, but moderated in the third quarter. After lowering its key rate twice early in the period, the Bank of Russia raised it twice in the period’s second half to curtail inflation risks. China’s annual GDP grew at a stable rate in 2018’s first quarter, but it moderated in the second and third quarters. The People’s Bank of China left its benchmark interest rate unchanged during the period, but it took measures to improve financial liquidity to mitigate the negative effects of the U.S.-China trade dispute and support economic growth. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, had a -14.25% 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.

To a lesser extent, 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,

2. Source: U.S. Bureau of Labor Statistics.

  4           Annual Report   franklintempleton.com

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

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 2018, corporate profits in the U.S. and other developed markets continued their impressive year-over-year growth. In addition, labor markets showed further improvement, consumer spending was solid, and U.S. corporate tax reforms encouraged companies to buy back more stock, raise dividends and increase capital expenditures. Those positive fundamentals were periodically overshadowed by political and economic concerns, particularly in the final three months of the year.

As major U.S. equity markets established new all-time highs in 2018, overall U.S. equity market valuations (e.g., price-to-earnings, price-to-book or price-to-sales) became increasingly unattractive, in our analysis. The equity market sell-off in the fourth-quarter helped to return valuations to more reasonable levels. The sell-off and rise in volatility yielded an opportunity for us to seek out stocks with strong corporate fundamentals and valuations whose risk/reward profiles seemed to us to have become more favorable.

In 2019, policy events may have considerable influence, for better or worse, on economic growth, investor sentiment and financial market performance and volatility. Markets are likely to be particularly sensitive to developments in U.S.-China trade relations, monetary policy moves by the Fed and other major central banks, oil production decisions by OPEC (The Organization of the Petroleum Exporting Countries) and other oil producing countries, the outcome of Brexit, China’s

Top 10 Sectors/Industries
Based on Equity Securities as of 12/31/18
	% of Total Net Assets
Banks		11.9%
Pharmaceuticals		9.9%
Oil, Gas & Consumable Fuels		9.8%
Insurance		9.8%
Health Care Equipment & Supplies		4.4%
Software		3.6%
Technology Hardware, Storage & Peripherals		3.6%
Media		3.3%
Automobiles		3.2%
Tobacco		2.9%

response to its slowing economy and potential political discord in Washington, D.C.

Europe’s equity market overall was trading at an attractively lower price-to-earnings multiple and higher dividend yield than the U.S. equity market at period-end. We also saw an increase in investor activism, which we viewed as encouraging. However, those favorable factors were offset in part by economic data, which showed increased slowing of economic activity across the region. From an investment standpoint, we are hopeful that 2019 will be a year of potential resolution and clarity. The biggest political event will likely be Brexit, as a resolution to the situation remained unclear as of period-end. The uncertainty around the terms and timing of a deal continued to undermine consumer and corporate confidence. From our perspective, we believe the European Union and the U.K. will ultimately reach an agreement that makes sense for both sides, and we believe the approval of such an agreement would likely have a significantly positive effect on investor, consumer and corporate sentiment in the U.K. We will also pay close attention to structural reform efforts in France and the political transition in Germany. In December, Chancellor Angela Merkel stepped down as leader of the Christian Democratic Union but stated her intention to remain in office for the remaining three years of her term as Chancellor.

In Asia, economic and financial market weakness in China has been brought on by multiple factors. The U.S.-China trade conflict has disrupted manufacturing activity and supply chains. As trade tensions escalated in 2018, manufacturers accelerated production to avoid upcoming tariffs. At year-end, supply chains were filled with inventory, while manufacturing activity was weak. Entering 2019, the near-term question is how long the inventory overhang will last, while the more significant question is to what extent the trade conflict will alter supply chains in the medium to long term. Amid the trade conflict,

  franklintempleton.com   Annual Report             5

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

China has proven resolute in its attempt to dampen the reliance on leverage, which has hindered economic activity as well. While the government has enacted some stimulus measures, such as tax cuts, they may be less impactful than prior stimulus through fiscal spending. Meanwhile, government social policies impacting personal freedoms have had a negative effect on consumer sentiment.

Investment Spotlight

In all market environments, we seek to invest prudently in securities that we believe represent good value. We do this by seeking securities that trade at a discount to our estimate of intrinsic value, taking into account the quality of the asset, the sustainability of returns, and the growth potential of the business. We also believe the potential to deliver the best risk-adjusted return over a full market cycle requires us to be focused on applying our cross-asset approach: owning equities and debt—in certain cases multiple securities across the capital structure of a company—across geographies and sectors with an emphasis on corporate actions as catalysts. Our health care sector positions are a good example of our investment process. They have been carefully selected over a number of years, and in 2018, many of our long-standing sector investments appreciated significantly. Collectively our sector exposure outperformed the health care sector within the MSCI World Index (USD).

Within the health care sector, our investment process has generally been focused on finding innovative companies that are market leaders and that invest substantial amounts of capital into research and development (R&D) as a means to sustain and grow market positions. In addition, many of our positions have been in diversified pharmaceutical companies that also have long-duration cash flows through their leading positions in animal health, vaccine, and over-the-counter medicine businesses. These businesses can offer downside protection in years when pharmaceutical R&D is less successful or in years when important products lose patent protection. These businesses are attractive and have been undervalued by the market. This undervaluation allowed us to build positions, and in 2018, some of this undervaluation was reversed.

Eli Lilly and Merck are quintessential examples of our investment process. They are leading innovation-driven pharmaceutical companies that invest substantial amounts of capital into R&D to develop transformative medicines. Both

companies have introduced innovative new products in the past many years like Trulicity for diabetes and Keytruda for oncology that we believe will continue to offer substantial long-term revenue growth. The management teams at both companies take a long-term view and focus on enhancing their market positions through both internal and external innovation. Acquiring late stage innovation can be expensive, which is why Lilly and Merck take a prudent approach to generally focusing on early stage assets. Competition is typically less intense for early stage assets, and they can add value through their own development process and pass along that value to shareholders. Shareholder focus also comes through at both companies by their return of excess capital to shareholders through large dividends and share buybacks.

In our view, both companies also have strong, long-duration assets. Lilly and Merck are the fourth and third largest players in animal health, respectively. In September 2018, Lilly sold some shares of Elanco³, its animal health division, through an initial public offering to create additional shareholder value, while Merck started providing segment level profit disclosures so investors could better appreciate the contribution and value of their animal health business. Merck is also the second largest player in vaccines, a highly attractive business that is underappreciated, in our opinion.

Another common feature between Lilly and Merck is their strong balance sheets. Both companies also generate substantial amounts of free cash flows, with a significant proportion returned to shareholders in the form of dividends and share buybacks. In addition, the two companies are focused on managing their business more efficiently and improving their operating margins, which we believe will lead to additional earnings growth over the next several years. The Top 10 Sectors/Industries table on page 5 lists pharmaceuticals and also other leading industries in which the Fund currently invests.

Mergers and Acquisitions

In health care and elsewhere, merger and acquisition (M&A) activity remained healthy in 2018. The market received some clarity regarding the regulatory environment when a federal judge ruled in favor of AT&T and Time Warner⁴, and against the U.S. Department of Justice, in its antitrust lawsuit. However, economic, financial market and geopolitical uncertainty that arose in the second half of the year caused the

3. Not a Fund holding.

4. Not held at period-end.

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

  6           Annual Report   franklintempleton.com

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

pace of activity to slow. In our view, it was notable that health care has become one of the busier sectors for M&A as it is relatively more insulated from economic uncertainty. The strength and path of M&A activity in 2019 will likely depend in large part on how the uncertainties carrying over from 2018 play out and how they affect equity markets. From our experience, ups and downs in equity market performance and levels of deal activity have tended to move in a similar direction.

Credit Markets

Finding mispriced risk in credit markets was challenging in 2018. Low interest rates kept credit widely available, default rates remained at historically low levels and we continued to witness a loosening in debt covenant terms, which include restrictions on financial activities by the borrower or parameters for specific financial metrics. Liberal interpretations of credit agreements and bond indentures in order to shift valuable assets beyond the reach of creditors were an ongoing challenge. In such an environment, we found more opportunities investing in short-term mispriced risk rather than long-term restructurings.

However, we are hopeful that more opportunities may emerge in 2019, especially if we are starting to enter latter stages of the business cycle. U.S. monetary policy is becoming less accommodative, economic growth appears to be downshifting into a slower pace, earnings growth is set to slow, and geopolitical uncertainty is on the rise. These dynamics have already contributed to a general rise in financial market volatility. At the same time, the amount of lower-rated investment-grade credit stands at a historically high level on an absolute basis and relative to corporate debt markets overall. We believe default rates and the pace of corporate downgrades could begin to pick up in 2019. As a result, 2019 could bring a rise in fallen-angel opportunities (bonds downgraded from investment-grade to junk status) and idiosyncratic opportunities in out-of-favor industries. We will continue to look for opportunities across the capital structures of companies with liquidity-enhancing events, such as asset sales, the ability to issue secured debt within existing agreements, and free cash flow that could buy time for a company to weather its financial storm.

Fund Performance

Turning to Fund performance, top positive contributors included U.S.-based pharmaceutical company Eli Lilly, global research-driven pharmaceutical company Merck and U.K.-based pay-TV provider Sky. Eli Lilly and Merck are

Top 10 Equity Holdings
12/31/18
Company Sector/Industry, Country	% of Total Net Assets
Medtronic PLC Health Care Equipment & Supplies, U.S.		3.4%
Novartis AG Pharmaceuticals, Switzerland		3.4%
The Walt Disney Co. Entertainment, U.S.		2.8%
GlaxoSmithKline PLC Pharmaceuticals, U.K.		2.5%
Royal Dutch Shell PLC Oil, Gas & Consumable Fuels, U.K.		2.4%
NN Group NV Insurance, Netherlands		2.3%
Eli Lilly & Co. Pharmaceuticals, U.S.		2.3%
Enel SpA Electric Utilities, Italy		2.2%
Merck & Co. Inc. Pharmaceuticals, U.S.		2.0%
Volkswagen AG Automobiles, Germany		2.0%

listed among the Fund’s largest positions in the Top 10 Equity Holdings table on this page.

Shares of Eli Lilly were boosted in large part by a series of strong quarterly results during 2018. Attractive corporate fundamentals and fewer investor concerns regarding the direct impact on the pharmaceutical industry from the Trump administration’s efforts to lower prescription drug prices helped push the stock higher. We believe Eli Lilly continues to have a strong product growth story and room for further margin expansion, in addition to having solid research and development capabilities.

Merck is a global research-driven pharmaceutical company with strong market positions in oncology, diabetes, vaccines and animal health. Investors remained upbeat about its future prospects, particularly its Keytruda oncology drug. Merck released clinical trial results, which showed that for the first-line treatment of metastatic nonsquamous non-small lung cancer patients, Keytruda combined with chemotherapy substantially extended survival of patients compared with chemotherapy alone. The Keytruda results set a high bar for competition and appeared to enhance Keytruda’s prospects to gain share in the sizeable market for lung cancer treatment. Results from a competitor, Bristol-Myers Squibb³, were less compelling in a different clinical trial in lung cancer. In

  franklintempleton.com   Annual Report             7

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

October 2018, Merck raised its dividend and authorized a new large share buyback plan.

In February 2018, shares of Sky jumped when U.S.-based cable company Comcast³ made a surprise bid for the company. The Comcast bid was considerably higher than a prior bid by Twenty-First Century Fox³, which already owned a substantial portion of Sky. In July 2018, Twenty-First Century Fox raised its bid for Sky, but Comcast promptly offered a higher counter-bid. The stock rose again in September 2018 when The Panel on Takeovers and Mergers in the U.K. announced that Comcast had won the mandatory auction for Sky, and Twenty-First Century Fox subsequently agreed to sell its stake of Sky to Comcast. The acquisition of Sky was officially completed in October 2018.

During the period under review, Fund investments that detracted from performance included U.K.-based British American Tobacco, U.S.-based industrials company General Electric (GE) and U.S.-based bank Citizens Financial Group.

Shares of British American Tobacco faced downward pressure due to potential additional U.S. regulation and concerns regarding next generation products. In March 2018, the U.S. Food and Drug Administration (FDA) issued an Advance Notice of Proposed Rulemaking, which started the process of examining the possibility of regulating nicotine levels in combustible cigarettes. The process may not result in regulation, but if it does, many experts believe the review could take seven to 10 years. Meanwhile, JUUL, produced by JUUL Labs³, has emerged as a popular e-cigarette for young U.S. consumers. It is unclear to what degree JUUL is cannibalizing the combustible market, but it has hurt investor sentiment toward the industry. In November, shares of British American Tobacco and industry peers dropped, as the FDA revisited the possibility of banning menthol as a flavor in cigarettes, which would take years with many steps to complete, and in our opinion, an FDA proposal would face litigation from the industry. Industry experts have suggested that it might not survive legal challenges.

GE is a multi-industrial company with a diverse set of businesses in power generation, health care and aviation. During 2018, the stock suffered a number of setbacks starting in January with a greater-than-expected charge related to long-term care policies in its insurance subsidiary. In June, the stock was removed from the Dow Jones Industrial Average and in September, GE stated that fan blades in some of its power-plant turbines were experiencing oxidation problems. In October, S&P Global Ratings, a bond rating agency, cut GE’s debt rating, while GE cut its dividend and stated that the

Securities and Exchange Commission was expanding an ongoing investigation to include an accounting write-down related to its power-generation division. Amid the negative events in 2018, management took the first steps in what amounts to a breakup of GE, announcing in May 2018 the merger of its transportation operations into Wabtec³ and plans to spin-off its health care division and divest its stake in oil-services firm Baker Hughes. In October 2018, GE unexpectedly replaced chief executive officer (CEO) John Flannery, who spent his entire career at GE, with Larry Culp, a former CEO of Danaher³, an industrial company. We believe Culp made some prudent initial moves, and that his plan to reduce debt and strengthen GE’s balance sheet is a step in the right direction to restoring investor confidence in the company.

Citizens Financial Group is a regional bank focused on the Northeastern U.S. The stock slipped in the second half of the year due to fears of slowing global economic activity negatively affecting the U.S. economy, leading to lower U.S. interest rates, rising credit costs and slower revenue and earnings growth for the industry. In addition, the U.S. Treasury yield curve flattened and inverted in the latter stages of the year and credit spreads widened. On a long-term basis, we believe Citizens remains well positioned to continue driving improved results through a combination of capital deployment, balance sheet optimization and cost controls.

During the period, the Fund held currency forwards and futures seeking to hedge most of the currency risk of the portfolio’s non-U.S. dollar investments. The hedges had a positive overall impact on the Fund’s performance because of the appreciation of the U.S. dollar versus the hedged currencies.

What is a currency forward?

A currency forward is a direct 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 U.S. or foreign futures exchange to buy or sell an underlying instrument or asset at a specific price on a future date.

As fellow shareholders, we found recent relative and absolute performance disappointing, but it is not uncommon for our strategy to lag the equity markets at times. We remain committed to our disciplined, value investment approach as we seek to generate attractive, long-term, risk-adjusted returns for shareholders.

  8           Annual Report   franklintempleton.com

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

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
	Timothy Rankin, CFA Co-Portfolio Manager
	Christian Correa, CFA Co-Portfolio Manager

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2018, 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.

  franklintempleton.com   Annual Report             9

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

Performance Summary as of December 31, 2018

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 12/31/18

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 5.50% and the minimum is 0%. Class A: 5.50% maximum initial sales charge. For other share classes, visit franklintempleton.com.

Share Class	Cumulative Total Return1	Average Annual Total Return	2
Z
1-Year	-10.78%	-10.78%
5-Year	+12.58%	+2.40%
10-Year	+111.34%	+7.77%
A3
1-Year	-10.99%	-15.89%
5-Year	+11.08%	+0.98%
10-Year	+105.44%	+6.86%

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.

  10           Annual Report   franklintempleton.com

FRANKLIN MUTUAL GLOBAL DISCOVERY 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.

See page 12 for Performance Summary footnotes.

  franklintempleton.com   Annual Report             11

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

PERFORMANCE SUMMARY

Distributions (1/1/18–12/31/18)

Share Class	Net Investment Income		Short-Term Capital Gain		Long-Term Capital Gain		Total
Z		$0.6426		$0.3064		$1.0651		$2.0141
A		$0.5640		$0.3064		$1.0651		$1.9355
C		$0.1023		$0.3064		$1.0651		$1.4738
R		$0.4668		$0.3064		$1.0651		$1.8383
R6		$0.6779		$0.3064		$1.0651		$2.0494

Total Annual Operating Expenses⁵

Share Class
Z	0.96%
A	1.21%

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. Prior to 9/10/18, these shares were offered at a higher initial sales charge of 5.75%, thus actual returns would have differed. Total returns with sales charges have been restated to reflect the current maximum initial sales charge of 5.50%.

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.

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.

  12           Annual Report   franklintempleton.com

FRANKLIN MUTUAL GLOBAL DISCOVERY 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 7/1/18	Ending Account Value 12/31/18	Expenses Paid During Period 7/1/18–12/31/181,2	Ending Account Value 12/31/18	Expenses Paid During Period 7/1/18–12/31/181,2	Net Annualized Expense Ratio2
Z	$1,000	$905.60	$4.61	$1,020.37	$4.89	0.96%
A	$1,000	$904.60	$5.81	$1,019.11	$6.16	1.21%
C	$1,000	$900.80	$9.39	$1,015.32	$9.96	1.96%
R	$1,000	$903.20	$7.00	$1,017.85	$7.43	1.46%
R6	$1,000	$906.10	$4.18	$1,020.82	$4.43	0.87%

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 GLOBAL DISCOVERY FUND

Financial Highlights

		Year Ended December 31,
	2018			2017			2016			2015			2014
Class Z
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year		$32.42			$31.12			$29.35			$33.32			$33.73
Income from investment operationsa:
Net investment incomeb		0.58			0.76	c		0.67	d		0.53			0.82	e
Net realized and unrealized gains (losses)		(4.13	)		2.29			3.08			(1.71	)		0.97
Total from investment operations		(3.55	)		3.05			3.75			(1.18	)		1.79
Less distributions from:
Net investment income		(0.64	)		(0.79	)		(0.69	)		(0.55	)		(0.82	)
Net realized gains		(1.37	)		(0.96	)		(1.29	)		(2.24	)		(1.38	)
Total distributions		(2.01	)		(1.75	)		(1.98	)		(2.79	)		(2.20	)
Net asset value, end of year		$26.86			$32.42			$31.12			$29.35			$33.32
Total return		(10.78)%			9.84%			12.86%			(3.36)%			5.33%
Ratios to average net assets
Expensesf,g		0.97%	h		0.96%			0.99%	h		0.99%	h		0.99%
Expenses incurred in connection with securities sold short		—%	i		—%			0.01%			0.02%			0.03%
Net investment income		1.82%			2.30%	c		2.27%	d		1.56%			2.38%	e
Supplemental data
Net assets, end of year (000’s)		$5,114,274			$7,175,981			$8,354,865			$9,132,752			$10,375,518
Portfolio turnover rate		14.70%			17.50%			17.01%			21.79%			23.66%

^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,
	2018			2017			2016			2015			2014
Class A
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year		$31.80			$30.57			$28.86			$32.81			$33.24
Income from investment operationsa:
Net investment incomeb		0.49			0.66	c		0.59	d		0.42			0.71	e
Net realized and unrealized gains (losses)		(4.04	)		2.25			3.01			(1.67	)		0.96
Total from investment operations		(3.55	)		2.91			3.60			(1.25	)		1.67
Less distributions from:
Net investment income		(0.56	)		(0.72	)		(0.60	)		(0.46	)		(0.72	)
Net realized gains		(1.37	)		(0.96	)		(1.29	)		(2.24	)		(1.38	)
Total distributions		(1.93	)		(1.68	)		(1.89	)		(2.70	)		(2.10	)
Net asset value, end of year		$26.32			$31.80			$30.57			$28.86			$32.81
Total returnf		(10.99)%			9.57%			12.56%			(3.63)%			5.01%
Ratios to average net assets
Expensesg,h		1.22%	i		1.21%			1.24%	i		1.27%	i		1.29%
Expenses incurred in connection with securities sold short		—%	j		—%			0.01%			0.02%			0.03%
Net investment income		1.57%			2.05%	c		2.02%	d		1.28%			2.08%	e
Supplemental data
Net assets, end of year (000’s)		$7,461,444			$9,589,033			$10,498,722			$11,274,721			$11,573,196
Portfolio turnover rate		14.70%			17.50%			17.01%			21.79%			23.66%

^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,
	2018			2017			2016			2015			2014
Class C
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year		$31.44			$30.22			$28.55			$32.49			$32.94
Income from investment operationsa:
Net investment incomeb		0.26			0.41	c		0.36	d		0.18			0.47	e
Net realized and unrealized gains (losses)		(3.98	)		2.23			2.97			(1.64	)		0.95
Total from investment operations		(3.72	)		2.64			3.33			(1.46	)		1.42
Less distributions from:
Net investment income		(0.10	)		(0.46	)		(0.37	)		(0.24	)		(0.49	)
Net realized gains		(1.37	)		(0.96	)		(1.29	)		(2.24	)		(1.38	)
Total distributions		(1.47	)		(1.42	)		(1.66	)		(2.48	)		(1.87	)
Net asset value, end of year		$26.25			$31.44			$30.22			$28.55			$32.49
Total returnf		(11.70)%			8.78%			11.70%			(4.33)%			4.28%
Ratios to average net assets
Expensesg,h		1.97%	i		1.96%			1.99%	i		1.99%	i		1.99%
Expenses incurred in connection with securities sold short		—%	j		—%			0.01%			0.02%			0.03%
Net investment income		0.82%			1.30%	c		1.27%	d		0.56%			1.38%	e
Supplemental data
Net assets, end of year (000’s)		$1,054,412			$2,438,507			$2,758,563			$2,983,216			$3,077,691
Portfolio turnover rate		14.70%			17.50%			17.01%			21.79%			23.66%

^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,
	2018			2017			2016			2015			2014
Class R
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year		$31.37			$30.17			$28.51			$32.43			$32.88
Income from investment operationsa:
Net investment incomeb		0.41			0.57	c		0.50	d		0.35			0.65	e
Net realized and unrealized gains (losses)		(3.97	)		2.22			2.98			(1.64	)		0.93
Total from investment operations		(3.56	)		2.79			3.48			(1.29	)		1.58
Less distributions from:
Net investment income		(0.47	)		(0.63	)		(0.53	)		(0.39	)		(0.65	)
Net realized gains		(1.37	)		(0.96	)		(1.29	)		(2.24	)		(1.38	)
Total distributions		(1.84	)		(1.59	)		(1.82	)		(2.63	)		(2.03	)
Net asset value, end of year		$25.97			$31.37			$30.17			$28.51			$32.43
Total return		(11.24)%			9.31%			12.28%			(3.82)%			4.77%
Ratios to average net assets
Expensesf,g		1.47%	h		1.46%			1.49%	h		1.49%	h		1.49%
Expenses incurred in connection with securities sold short		—%	i		—%			0.01%			0.02%			0.03%
Net investment income		1.32%			1.80%	c		1.77%	d		1.06%			1.88%	e
Supplemental data
Net assets, end of year (000’s)		$274,086			$398,692			$444,813			$468,425			$528,439
Portfolio turnover rate		14.70%			17.50%			17.01%			21.79%			23.66%

^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,
	2018			2017			2016			2015			2014
Class R6
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year		$32.41			$31.13			$29.35			$33.33			$33.73
Income from investment operationsa:
Net investment incomeb		0.62			0.75	c		0.61	d		0.55			0.85	e
Net realized and unrealized gains (losses)		(4.13	)		2.34			3.19			(1.69	)		1.00
Total from investment operations		(3.51	)		3.09			3.80			(1.14	)		1.85
Less distributions from:
Net investment income		(0.68	)		(0.85	)		(0.73	)		(0.60	)		(0.87	)
Net realized gains		(1.37	)		(0.96	)		(1.29	)		(2.24	)		(1.38	)
Total distributions		(2.05	)		(1.81	)		(2.02	)		(2.84	)		(2.25	)
Net asset value, end of year.		$26.85			$32.41			$31.13			$29.35			$33.33
Total return		(10.67)%			9.98%			13.02%			(3.23)%			5.46%
Ratios to average net assets
Expenses before waiver and payments by affiliatesf		0.88%			0.84%			0.85%			0.84%			0.85%
Expenses net of waiver and payments by affiliatesf,g		0.87%			0.84%			0.85%	h		0.84%	h		0.85%
Expenses incurred in connection with securities sold short		—%	i		—%			0.01%			0.02%			0.03%
Net investment income		1.92%			2.42%	c		2.41%	d		1.71%			2.52%	e
Supplemental data
Net assets, end of year (000’s)		$1,418,812			$2,221,338			$528,617			$229,765			$137,922
Portfolio turnover rate		14.70%			17.50%			17.01%			21.79%			23.66%

^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 1.80%.

^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 2.08%.

^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 1.54%.

^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%.

  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, 2018

	Country	Shares/ Units/ Warrants		Value
Common Stocks and Other Equity Interests 93.0%
Aerospace & Defense 0.8%
BAE Systems PLC	United Kingdom	21,584,405	$	126,397,148
Auto Components 0.4%
a,b,c  International Automotive Components Group Brazil LLC	Brazil	3,819,425		161,855
a,b,c,d International Automotive Components Group North America LLC	United States	35,491,081		4,230,537
Toyo Tire Corp.	Japan	4,446,741		55,787,125
				60,179,517
Automobiles 1.2%
General Motors Co.	United States	5,350,852		178,985,999
Banks 11.9%
Barclays PLC	United Kingdom	36,257,633		69,596,752
BNP Paribas SA	France	3,102,600		140,332,004
CIT Group Inc.	United States	3,769,060		144,241,926
Citigroup Inc.	United States	4,720,240		245,735,694
Citizens Financial Group Inc.	United States	9,225,010		274,259,547
First Horizon National Corp.	United States	7,743,203		101,900,552
HSBC Holdings PLC	United Kingdom	16,067,494		132,550,269
JPMorgan Chase & Co.	United States	1,959,756		191,311,381
Societe Generale SA	France	5,157,188		164,391,322
Standard Chartered PLC	United Kingdom	12,656,750		98,344,187
Wells Fargo & Co.	United States	5,713,404		263,273,656
				1,825,937,290
Biotechnology 0.6%
Shire PLC	United Kingdom	1,624,235		94,658,666
Building Products 1.2%
Johnson Controls International PLC	United States	6,119,300		181,437,245
Capital Markets 1.3%
Credit Suisse Group AG	Switzerland	6,243,791		68,288,021
Deutsche Bank AG	Germany	6,644,039		52,989,745
Guotai Junan Securities Co. Ltd.	China	41,520,689		83,990,513
				205,268,279
Chemicals 1.3%
BASF SE	Germany	2,946,786		205,263,219
a,b,e  Dow Corning Corp., Contingent Distribution	United States	11,430,153		—
				205,263,219
Communications Equipment 2.8%
Cisco Systems Inc.	United States	5,552,130		240,573,793
Nokia OYJ, A	Finland	28,555,604		164,576,619
Nokia OYJ, ADR	Finland	4,767,871		27,749,009
				432,899,421
Construction Materials 1.0%
LafargeHolcim Ltd., B	Switzerland	3,691,245		152,403,248
Consumer Finance 1.7%
Ally Financial Inc.	United States	4,094,210		92,774,799
Capital One Financial Corp.	United States	2,190,465		165,577,249
				258,352,048
Containers & Packaging 1.0%
International Paper Co.	United States	3,679,148		148,490,413

  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 0.9%
Voya Financial Inc.		United States		3,426,353	$	137,533,809
Diversified Telecommunication Services 2.6%
AT&T Inc.		United States		4,600,757		131,305,605
Koninklijke KPN NV		Netherlands		92,169,805		270,356,884
						401,662,489
Electric Utilities 2.5%
Enel SpA		Italy		57,664,238		334,308,347
a PG&E Corp.		United States		2,115,252		50,237,235
						384,545,582
Energy Equipment & Services 1.1%
Baker Hughes a GE Co., A		United States		7,502,843		161,311,125
Entertainment 2.8%
The Walt Disney Co.		United States		3,912,400		428,994,660
Food & Staples Retailing 1.3%
Walgreens Boots Alliance Inc.		United States		2,833,972		193,645,307
Health Care Equipment & Supplies 4.4%
Koninklijke Philips NV		Netherlands		4,161,597		147,485,301
Medtronic PLC		United States		5,808,484		528,339,705
						675,825,006
Health Care Providers & Services 1.3%
CVS Health Corp.		United States		3,061,866		200,613,460
Hotels, Restaurants & Leisure 2.3%
Accor SA		France		5,757,306		244,804,313
Sands China Ltd.		Macau		25,499,100		111,693,906
						356,498,219
Independent Power & Renewable Electricity Producers 0.6%
a Vistra Energy Corp.		United States		3,709,858		84,918,650
Industrial Conglomerates 0.8%
General Electric Co.		United States		16,950,050		128,311,879
Insurance 9.8%
Alleghany Corp.		United States		76,761		47,846,667
American International Group Inc.		United States		5,102,618		201,094,175
China Pacific Insurance Group Co. Ltd., H		China		44,491,587		144,034,446
Chubb Ltd.		United States		2,015,798		260,400,786
The Hartford Financial Services Group Inc.		United States		5,478,587		243,523,192
MetLife Inc.		United States		2,126,666		87,320,906
NN Group NV		Netherlands		8,886,859		354,353,178
RSA Insurance Group PLC		United Kingdom		13,308,282		87,165,038
T&D Holdings Inc.		Japan		6,611,212		77,150,914
						1,502,889,302
IT Services 1.4%
Cognizant Technology Solutions Corp., A		United States		3,420,390		217,126,357
Machinery 0.8%
CNH Industrial NV		United Kingdom		5,804,196		52,444,855
CNH Industrial NV, special voting		United Kingdom		7,338,645		66,309,644
						118,754,499

  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)
Media 3.3%
a Charter Communications Inc., A		United States		840,665	$	239,564,305
a Cumulus Media Inc., A		United States		215,987		2,332,660
a Cumulus Media Inc., B		United States		322,030		3,059,285
a Cumulus Media Inc., wts., 6/04/38		United States		243,863		2,316,698
a DISH Network Corp., A		United States		4,143,726		103,468,838
a Liberty Global PLC, C		United Kingdom		7,299,000		150,651,360
						501,393,146
Metals & Mining 0.4%
thyssenkrupp AG		Germany		1,648,271		28,315,165
Warrior Met Coal Inc.		United States		1,230,858		29,675,986
						57,991,151
Oil, Gas & Consumable Fuels 9.8%
Anadarko Petroleum Corp.		United States		1,866,600		81,831,744
BP PLC		United Kingdom		24,503,699		154,976,147
Canadian Natural Resources Ltd.		Canada		7,822,700		188,783,280
Crescent Point Energy Corp.		Canada		19,234,400		58,339,438
JXTG Holdings Inc.		Japan		14,684,167		77,266,050
Kinder Morgan Inc.		United States		15,908,858		244,678,236
Marathon Oil Corp.		United States		5,921,464		84,913,794
Plains All American Pipeline LP		United States		5,573,200		111,686,928
Royal Dutch Shell PLC, A (EUR Traded)		United Kingdom		6,246,107		183,607,424
Royal Dutch Shell PLC, A (GBP Traded)		United Kingdom		6,164,658		181,403,646
The Williams Cos. Inc.		United States		6,364,035		140,326,972
						1,507,813,659
Pharmaceuticals 10.2%
Eli Lilly & Co.		United States		3,027,417		350,332,695
GlaxoSmithKline PLC		United Kingdom		19,892,359		378,283,587
Merck & Co. Inc.		United States		4,132,828		315,789,387
Novartis AG, ADR		Switzerland		6,066,244		520,544,398
						1,564,950,067
Semiconductors & Semiconductor Equipment 0.7%
a Renesas Electronics Corp.		Japan		23,512,917		107,266,957
Software 3.6%
a Avaya Holdings Corp., wts., 12/15/22		United States		401,411		822,893
a Check Point Software Technologies Ltd.		Israel		2,703,472		277,511,401
a Red Hat Inc.		United States		505,600		88,803,584
Symantec Corp.		United States		9,568,159		180,790,364
						547,928,242
Specialty Retail 0.7%
Dufry AG		Switzerland		1,124,346		107,150,706
Technology Hardware, Storage & Peripherals 3.6%
Hewlett Packard Enterprise Co.		United States		10,039,360		132,619,946
Samsung Electronics Co. Ltd.		South Korea		8,138,650		282,807,692
Western Digital Corp.		United States		3,527,471		130,410,603
						545,838,241

  franklintempleton.com   Annual Report             21

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

STATEMENT OF INVESTMENTS

	Country		Shares/ Units/ Warrants		Value
Common Stocks and Other Equity Interests (continued)
Tobacco 2.9%
Altria Group Inc.		United States		2,606,727	$	128,746,247
British American Tobacco PLC		United Kingdom		5,783,513		184,385,616
British American Tobacco PLC, ADR		United Kingdom		2,178,905		69,419,913
Imperial Brands PLC		United Kingdom		1,937,431		58,728,748
						441,280,524
Total Common Stocks and Other Equity Interests   (Cost $13,291,976,331)						14,244,515,530
Management Investment Companies (Cost $112,851,576) 0.6%
Diversified Financial Services 0.6%
a Altaba Inc.		United States		1,722,000		99,772,680
Preferred Stocks (Cost $391,187,079) 2.0%
Automobiles 2.0%
f Volkswagen AG, 2.845%, pfd.		Germany		1,896,164		302,367,006
			Principal Amount
Corporate Notes and Senior Floating Rate Interests 1.5%
g,h Cumulus Media New Holdings Inc., Term Loan, 7.03%, (1-month USD LIBOR + 4.50%), 5/13/22		United States	$	60,554,439		57,463,619
Frontier Communications Corp.,
senior note, 10.50%, 9/15/22		United States		117,895,000		82,526,500
senior note, 11.00%, 9/15/25		United States		133,179,000		83,563,164
Total Corporate Notes and Senior Floating Rate Interests   (Cost $290,112,149)						223,553,283
Corporate Notes and Senior Floating Rate Interests in   Reorganization 1.1%
b,c,i Broadband Ventures III LLC, secured promissory note, 5.00%, 2/01/12		United States		8,893		—
i iHeartCommunications Inc.,   senior secured note, first lien, 9.00%, 12/15/19		United States		95,618,000		64,542,150
g,h Tranche D Term Loan, 8.443%, (3-month USD LIBOR + 6.75%), 1/30/19		United States		117,978,997		79,799,814
g,h Tranche E Term Loan, 9.193%, (3-month USD LIBOR + 7.50%), 7/30/19		United States		37,921,652		25,637,691
Total Corporate Notes and Senior Floating Rate Interests in   Reorganization (Cost $245,871,832)						169,979,655
			Shares
Companies in Liquidation 0.0%†
a,b,e Avaya Holdings Corp., Contingent Distribution		United States		123,916,000		—
a,b,e Avaya Inc., Contingent Distribution		United States		168,607,601		—
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		1,300,519		—
a,e Vistra Energy Corp., Litigation Trust, Contingent Distribution		United States		142,325,613		128,093
Total Companies in Liquidation (Cost $4,889,193)						128,093
Total Investments before Short Term Investments   (Cost $14,336,888,160)						15,040,316,247

  22           Annual Report   franklintempleton.com

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

STATEMENT OF INVESTMENTS

	Country		Principal Amount		Value
Short Term Investments 1.1%
U.S. Government and Agency Securities 1.1%
j U.S. Treasury Bill,
4/25/19—5/16/19		United States	$	74,000,000	$	73,391,905
k 5/30/19—6/06/19		United States		100,000,000		98,952,012
Total U.S. Government and Agency Securities
(Cost $172,335,750)						172,343,917
Total Investments (Cost $14,509,223,910) 99.3%						15,212,660,164
Securities Sold Short (0.9)%						(131,039,275	)
Other Assets, less Liabilities 1.6%						241,408,342
Net Assets 100.0%					$	15,323,029,231
			Shares
l Securities Sold Short (0.9)%
Common Stocks (0.9)%
Internet & Direct Marketing Retail (0.6)%
Alibaba Group Holding Ltd., ADR		China		619,920		(84,972,434)
Pharmaceuticals (0.3)%
Takeda Pharmaceutical Co. Ltd.		Japan		1,362,733		(46,066,841)
Total Securities Sold Short (Proceeds $165,751,941)					$	(131,039,275)

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

^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(f) regarding senior floating rate interests.

ⁱSee Note 8 regarding credit risk and defaulted securities.

^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. At December 31, 2018, the aggregate value of these securities pledged amounted to $53,244,007, representing 0.3% of net assets.

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

  franklintempleton.com   Annual Report             23

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

STATEMENT OF INVESTMENTS

At December 31, 2018, 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		7,997	$	1,151,817,906		3/18/19		$171,874
GBP/USD		Short		4,928		393,932,000		3/18/19		814,303
Total Futures Contracts										$986,177

*As of period end.

At December 31, 2018, 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		44,471,405	$	50,749,345		1/14/19	$	269,298	$	—
Euro		BONY		Sell		105,953,256		125,813,135		1/14/19		4,261,059		—
Euro		HSBK		Buy		40,549,596		46,297,602		1/14/19		221,853		—
Euro		SSBT		Buy		29,133,423		33,196,362		1/14/19		226,188		—
Euro		SSBT		Sell		131,454,469		156,121,436		1/14/19		5,313,768		—
Euro		UBSW		Buy		33,375,381		38,058,504		1/14/19		230,519		—
Swiss Franc		HSBK		Buy		1,742,861		1,762,226		1/14/19		14,612		—
Swiss Franc		UBSW		Buy		10,948,761		11,068,118		1/14/19		94,087		—
Swiss Franc		UBSW		Sell		79,630,516		79,946,304		1/14/19		—		(1,236,597	)
British Pound		BOFA		Buy		4,449,926		5,637,776		1/16/19		41,772		—
British Pound		HSBK		Buy		5,630,327		7,147,186		1/16/19		38,935		—
British Pound		SSBT		Sell		186,479,840		248,530,075		1/16/19		10,521,409		—
British Pound		UBSW		Buy		761,434		962,267		1/16/19		9,570		—
British Pound		UBSW		Sell		17,190,457		22,161,336		2/14/19		189,793		—
South Korean Won		BONY		Sell		10,580,245,000		9,561,902		2/15/19		47,570		—
South Korean Won		HSBK		Buy		19,984,836,775		17,737,019		2/15/19		234,433		—
South Korean Won		HSBK		Sell		65,325,687,402		58,845,156		2/15/19		100,742		—
South Korean Won		UBSW		Buy		17,208,605,268		15,272,517		2/15/19		202,398		—
South Korean Won		UBSW		Sell		160,512,695,008		144,573,470		2/15/19		231,718		—
Japanese Yen		HSBK		Buy		655,786,278		5,933,847		2/19/19		73,099		—
Japanese Yen		UBSW		Buy		411,120,929		3,729,696		2/19/19		36,136		—
Japanese Yen		UBSW		Sell		9,596,174,218		85,462,655		2/19/19		—		(2,437,473	)
Euro		BOFA		Sell		10,797,489		12,839,111		2/20/19		414,007		—
Euro		BONY		Sell		33,924,941		39,582,719		2/20/19		543,927		—
Euro		HSBK		Sell		17,809,661		21,234,245		2/20/19		739,953		—
Euro		SSBT		Sell		28,860,057		33,573,127		2/20/19		362,702		—
Euro		UBSW		Sell		6,263,761		7,408,589		2/20/19		200,627		—
Euro		BONY		Sell		198,604,610		231,628,585		4/10/19		2,108,222		—
Euro		SSBT		Sell		198,604,611		231,652,418		4/10/19		2,132,054		—
Euro		BOFA		Sell		1,460,577		1,688,763		4/18/19		—		(347	)
Euro		BOFA		Sell		162,868,996		191,844,318		4/18/19		3,491,603		—
Euro		BONY		Sell		1,539,423		1,779,342		4/18/19		—		(951	)

  24           Annual Report   franklintempleton.com

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)
Euro		BONY		Sell		1,867,562	$	2,169,846		4/18/19	$	10,071	$	—
Euro		HSBK		Sell		4,070,482		4,698,151		4/18/19		—		(9,230	)
Euro		HSBK		Sell		161,022,897		189,731,669		4/18/19		3,513,908		—
Euro		UBSW		Sell		4,925,892		5,661,435		4/18/19		—		(35,198	)
Euro		BOFA		Sell		6,350,792		7,258,143		5/07/19		—		(98,479	)
Euro		BOFA		Sell		109,713,348		127,141,862		5/07/19		52,265		—
Euro		HSBK		Sell		9,816,864		11,328,522		5/07/19		—		(43,122	)
Euro		HSBK		Sell		44,717,074		51,992,541		5/07/19		193,239		—
Euro		UBSW		Sell		117,577,354		136,282,120		5/07/19		83,027		—
South Korean Won		BONY		Sell		10,824,592,957		9,763,320		5/17/19		—		(7,662	)
South Korean Won		HSBK		Sell		18,991,957,143		17,106,789		5/17/19		—		(36,588	)
South Korean Won		UBSW		Sell		82,261,627,033		73,579,273		5/17/19		—		(675,429	)
Euro		BOFA		Sell		9,997,594		11,510,530		5/21/19		—		(84,588	)
Euro		HSBK		Sell		10,002,406		11,515,380		5/21/19		—		(85,319	)
Euro		SSBT		Sell		135,728,920		158,049,541		5/21/19		632,388		—
British Pound		BOFA		Sell		17,268,642		22,361,682		5/28/19		182,056		—
Total Forward Exchange Contracts											$	37,019,008	$	(4,750,983	)
Net unrealized appreciation (depreciation)											$	32,268,025

^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 43.

  franklintempleton.com   Annual Report             25

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

Financial Statements

Statement of Assets and Liabilities

December 31, 2018

Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	14,480,128,539
Cost - Non-controlled affiliates (Note 3f and 12)		29,095,371
Value - Unaffiliated issuers	$	15,208,429,627
Value - Non-controlled affiliates (Note 3f and 12)		4,230,537
Foreign currency, at value (cost $1,553,481)		1,553,117
Receivables:
Investment securities sold		78,160,888
Capital shares sold		16,971,344
Dividends and interest		49,701,036
European Union tax reclaims		8,528,146
Deposits with brokers for:
Securities sold short		144,499,743
OTC derivative contracts		2,260,000
Futures contracts		31,783,830
Unrealized appreciation on OTC forward exchange contracts		37,019,008
Other assets		43,817
Total assets		15,583,181,093
Liabilities:
Payables:
Investment securities purchased		4,769,662
Capital shares redeemed		92,197,403
Management fees		11,407,570
Distribution fees		5,616,400
Transfer agent fees		4,225,576
Trustees’ fees and expenses		1,055,082
Variation margin on futures contracts		2,239,738
Funds advanced by custodian		1,257,347
Securities sold short, at value (proceeds $165,751,941)		131,039,275
Unrealized depreciation on OTC forward exchange contracts		4,750,983
Accrued expenses and other liabilities		1,592,826
Total liabilities		260,151,862
Net assets, at value	$	15,323,029,231
Net assets consist of:
Paid-in capital	$	14,289,365,488
Total distributable earnings (loss)		1,033,663,743
Net assets, at value	$	15,323,029,231

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

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

FINANCIAL STATEMENTS

Statement of Assets and Liabilities (continued)

December 31, 2018

Class Z:
Net assets, at value	$5,114,274,406
Shares outstanding	190,373,213
Net asset value and maximum offering price per share	$26.86
Class A:
Net assets, at value	$7,461,444,275
Shares outstanding	283,469,919
Net asset value per sharea	$26.32
Maximum offering price per share (net asset value per share ÷ 94.50%)	$27.85
Class C:
Net assets, at value	$1,054,411,956
Shares outstanding	40,161,804
Net asset value and maximum offering price per sharea	$26.25
Class R:
Net assets, at value	$ 274,086,126
Shares outstanding	10,555,737
Net asset value and maximum offering price per share	$25.97
Class R6:
Net assets, at value	$1,418,812,468
Shares outstanding	52,835,647
Net asset value and maximum offering price per share	$26.85

^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             27

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

FINANCIAL STATEMENTS

Statement of Operations

for the year ended December 31, 2018

Investment income:
Dividends: (net of foreign taxes)*
Unaffiliated issuers	$	491,287,166
Interest:
Unaffiliated issuers		53,764,855
Income from securities loaned:
Unaffiliated issuers (net of fees and rebates)		121,459
Non-controlled affiliates (Note 3f)		9,364
Other income (Note 1g)		2,160,890
Total investment income		547,343,734
Expenses:
Management fees (Note 3a)		160,492,765
Distribution fees: (Note 3c)
Class A		22,005,203
Class C		20,131,008
Class R		1,744,314
Transfer agent fees: (Note 3e)
Class Z		7,896,012
Class A		10,584,220
Class C		2,421,172
Class R		420,791
Class R6		499,110
Custodian fees (Note 4)		1,051,732
Reports to shareholders		1,387,957
Registration and filing fees		253,196
Professional fees		538,024
Trustees’ fees and expenses		1,206,669
Dividends on securities sold short		878,680
Other		833,493
Total expenses		232,344,346
Expense reductions (Note 4)		(158,096	)
Expenses waived/paid by affiliates (Note 3f and 3g)		(119,926	)
Net expenses		232,066,324
Net investment income		315,277,410
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffiliated issuers		1,085,651,942
Foreign currency transactions		(4,131,595	)
Forward exchange contracts		69,523,335
Futures contracts		107,674,569
Securities sold short		4,326,934
Net realized gain (loss)		1,263,045,185
Net change in unrealized appreciation (depreciation) on:
Investments:
Unaffiliated issuers		(3,754,835,370	)
Non-controlled affiliates (Note 3f and 12)		(19,150,100	)
Translation of other assets and liabilities denominated in foreign currencies		(903,954	)
Forward exchange contracts		141,683,362
Futures contracts		29,915,219
Securities sold short		33,311,551
Net change in unrealized appreciation (depreciation)		(3,569,979,292	)
Net realized and unrealized gain (loss)		(2,306,934,107	)
Net increase (decrease) in net assets resulting from operations	$	(1,991,656,697	)
*Foreign taxes withheld on dividends	$	30,855,053

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

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

FINANCIAL STATEMENTS

Statements of Changes in Net Assets

	Year Ended December 31,
	2018			2017
Increase (decrease) in net assets:
Operations:
Net investment income	$	315,277,410		$	464,583,587
Net realized gain (loss)		1,263,045,185			665,444,446
Net change in unrealized appreciation (depreciation)		(3,569,979,292	)		940,826,950
Net increase (decrease) in net assets resulting from operations		(1,991,656,697	)		2,070,854,983
Distributions to shareholders: (Note 1h)
Class Z		(374,006,499	)		(405,979,001	)
Class A		(521,977,539	)		(496,550,626	)
Class C		(57,992,699	)		(109,241,075	)
Class R		(18,330,147	)		(19,953,815	)
Class R6		(102,685,299	)		(94,640,192	)
Total distributions to shareholders		(1,074,992,183	)		(1,126,364,709	)
Capital share transactions: (Note 2)
Class Z		(1,016,045,824	)		(1,590,803,172	)
Class A		(656,381,733	)		(1,344,720,248	)
Class C		(1,164,168,030	)		(436,509,197	)
Class R		(70,948,671	)		(64,928,952	)
Class R6		(526,328,702	)		1,730,442,445
Total capital share transactions		(3,433,872,960	)		(1,706,519,124	)
Net increase (decrease) in net assets		(6,500,521,840	)		(762,028,850	)
Net assets:
Beginning of year		21,823,551,071			22,585,579,921
End of year (Note 1h)	$	15,323,029,231		$	21,823,551,071

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

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. Beginning on October 19, 2018, Class C shares automatically convert to Class A shares after they have been held for 10 years. 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 each business day as of 4 p.m. Eastern time or the regularly scheduled close of the New York Stock Exchange (NYSE), whichever is earlier. 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 Fund may 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.

Investments in open-end mutual funds are valued at the closing NAV.

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 Fund 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.

  30           Annual Report   franklintempleton.com

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

NOTES TO FINANCIAL STATEMENTS

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. At December 31, 2018, a market event occurred resulting in a portion of the securities held by the Fund being valued using fair value procedures.

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, including but not limited to collateral requirements, events of default, or early termination. Termination events applicable to

  franklintempleton.com   Annual Report             31

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

NOTES TO FINANCIAL STATEMENTS

1. Organization and Significant Accounting Policies (continued)

c. Derivative Financial Instruments (continued)

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, 2018, the Fund had OTC derivatives in a net liability position of $3,106,822 and the aggregate value of collateral pledged for such contracts was $2,260,000.

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.

At December 31, 2018, the Fund received $39,012,714 in U.K. Treasury Bonds and U.S. Treasury Bonds and Notes as collateral for derivatives.

The Fund entered into exchange traded futures contracts primarily to manage exposure to certain foreign currencies. A futures contract is an agreement between the Fund and a counterparty to buy or sell an asset 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. Securities Lending

The Fund participates in an agency based securities lending program to earn additional income. The Fund receives cash collateral against the loaned securities in an amount equal to at

  32           Annual Report   franklintempleton.com

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

NOTES TO FINANCIAL STATEMENTS

least 102% of the fair value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the fair value of loaned securities, as determined at the close of Fund business each day; any additional collateral required due to changes in security values is delivered to the Fund on the next business day. The collateral is deposited into a joint cash account with other funds and is used to invest in a money market fund managed by Franklin Advisers, Inc., an affiliate of the Fund, and/or a joint repurchase agreement. The Fund may receive income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. Income from securities loaned, net of fees paid to the securities lending agent and/or third-party vendor, is reported separately in the Statement of Operations. The Fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the agent may default on its obligations to the Fund. If the borrower defaults on its obligation to return the securities loaned, the Fund has the right to repurchase the securities in the open market using the collateral received. The securities lending agent has agreed to indemnify the Fund in the event of default by a third party borrower. At December 31, 2018, the Fund had no securities on loan.

f.  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.

g.  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. In the event that EU reclaims received by the Fund during the fiscal year exceed foreign withholding taxes paid, and the Fund previously passed foreign tax credit on to its shareholders, the Fund may enter into a closing agreement with the Internal Revenue Service (IRS) in order to pay the associated tax liability on behalf of the Fund’s shareholders. During the fiscal year ended December 31, 2018, the Fund recorded an estimated liability of $425,500 and plans to file a closing agreement with the IRS before the filing of the tax return.

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, 2018, 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.

  franklintempleton.com   Annual Report             33

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

NOTES TO FINANCIAL STATEMENTS

1.  Organization and Significant Accounting Policies (continued)

h.  Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Dividend income and dividends declared on securities sold short are recorded on the ex-dividend date except for certain dividends from 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 or based on the ratio of number of shareholders of each Fund to the combined number of shareholders 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.

i.  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.

j.  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.

*Effective during the current reporting period, it is no longer required to present certain line items in the Statements of Changes in Net Assets. The below prior period amounts affected by this change are shown as they were in the prior year Statements of Changes in Net Assets.

For the year ended December 31, 2017, distributions to shareholders were as follows:

Distributions from net investment income :
Class Z	$	(172,580,188	)
Class A		(209,942,027	)
Class C		(34,634,111	)
Class R		(7,828,860	)
Class R6		(54,145,296	)
Distributions from net realized gains:
Class Z		(233,398,813	)
Class A		(286,608,599	)
Class C		(74,606,964	)
Class R		(12,124,955	)
Class R6		(40,494,896	)

  34           Annual Report   franklintempleton.com

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

NOTES TO FINANCIAL STATEMENTS

For the year ended December 31, 2017, undistributed net investment income included in net assets was $7,087,401.

2. Shares of Beneficial Interest

At December 31, 2018, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2018						2017
	Shares			Amount			Shares			Amount
Class Z Shares:
Shares sold		23,075,260		$	743,381,791			68,835,996		$	2,244,877,670
Shares issued in reinvestment of distributions		12,874,929			339,549,151			11,449,535			372,018,771
Shares redeemed		(66,928,248	)		(2,098,976,766	)		(127,366,615	)		(4,207,699,613	)
Net increase (decrease)		(30,978,059	)	$	(1,016,045,824	)		(47,081,084	)	$	(1,590,803,172	)
Class A Shares:
Shares solda		39,540,409		$	1,238,132,295			31,207,860		$	1,003,437,365
Shares issued in reinvestment of distributions		19,765,773			510,690,925			15,223,548			484,999,519
Shares redeemed		(77,371,791	)		(2,405,204,953	)		(88,369,392	)		(2,833,157,132	)
Net increase (decrease)		(18,065,609	)	$	(656,381,733	)		(41,937,984	)	$	(1,344,720,248	)
Class C Shares:
Shares sold		3,686,938		$	114,177,734			6,673,104		$	211,439,458
Shares issued in reinvestment of distributions		2,158,214			55,791,403			3,370,430			105,965,772
Shares redeemeda		(43,253,998	)		(1,334,137,167	)		(23,753,704	)		(753,914,427	)
Net increase (decrease)		(37,408,846	)	$	(1,164,168,030	)		(13,710,170	)	$	(436,509,197	)
Class R Shares:
Shares sold		952,638		$	29,475,566			1,801,733		$	57,024,664
Shares issued in reinvestment of distributions		699,971			17,846,355			615,390			19,331,426
Shares redeemed		(3,807,349	)		(118,270,592	)		(4,451,909	)		(141,285,042	)
Net increase (decrease)		(2,154,740	)	$	(70,948,671	)		(2,034,786	)	$	(64,928,952	)
Class R6 Shares:
Shares sold		12,000,653		$	384,806,245			54,624,980		$	1,832,959,818
Shares issued in reinvestment of distributions		3,572,465			94,139,840			2,637,145			85,609,397
Shares redeemed		(31,266,192	)		(1,005,274,787	)		(5,716,616	)		(188,126,770	)
Net increase (decrease)		(15,693,074	)	$	(526,328,702	)		51,545,509		$	1,730,442,445

^aMay include a portion of Class C shares that were automatically converted to Class A.

3. Transactions with Affiliates

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton. 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

  franklintempleton.com   Annual Report             35

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

NOTES TO FINANCIAL STATEMENTS

3.  Transactions with Affiliates (continued)

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, 2018, the gross effective investment management fee rate was 0.818% 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.

  36           Annual Report   franklintempleton.com

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

NOTES TO FINANCIAL STATEMENTS

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	$	1,186,803
CDSC retained	$	108,069

Effective September 10, 2018, the Board approved changes to certain front-end sales charges and dealer commissions on Class A shares. Further details are disclosed in the Fund’s Prospectus.

e.  Transfer Agent Fees

Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. The fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. 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, 2018, the Fund paid transfer agent fees of $21,821,305, of which $8,488,539 was retained by Investor Services.

f.  Investments in Affiliated Management Investment Companies

The Fund invests in one or more affiliated management investment companies for purposes other than exercising a controlling influence over the management or policies. Management fees paid by the Fund are waived on assets invested in the affiliated management investment companies, as noted in the Statement of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by each affiliate. During the year ended December 31, 2018, the Fund held investments in affiliated management investment companies as follows:

	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		Income from securities loaned		Realized Gain (Loss)		Net Change in Unrealized Appreciation (Depreciation)
Non-Controlled Affiliates
Institutional Fiduciary Trust Money Market Portfolio, 1.99%		—		39,234,000		(39,234,000	)		—		$    —		$9,364		$    —		$    —

g.  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% based on the average net assets of the class. 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, 2018, the custodian fees were reduced as noted in the Statement of Operations.

  franklintempleton.com   Annual Report             37

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

NOTES TO FINANCIAL STATEMENTS

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, 2018, the Fund’s projected benefit obligation and benefit payments under the Plan were as follows:

aProjected benefit obligation at December 31, 2018	$	1,055,082
bIncrease in projected benefit obligation	$	297,849
Benefit payments made to retired trustees	$	(21,377	)

^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 or late-year ordinary loss to the first day of the following fiscal year. At December 31, 2018, the Fund deferred post-October capital losses of $7,188,295.

The tax character of distributions paid during the years ended December 31, 2018 and 2017, was as follows:

	2018		2017
Distributions paid from:
Ordinary income	$	484,685,209	$	544,846,066
Long term capital gain		590,306,974		581,518,643
	$	1,074,992,183	$	1,126,364,709

At December 31, 2018, 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	$	14,415,917,874
Unrealized appreciation	$	2,901,255,712
Unrealized depreciation		(2,202,253,147	)
Net unrealized appreciation (depreciation)	$	699,002,565
Distributable earnings:
Undistributed ordinary income	$	6,657,437
Undistributed long term capital gains		328,500,105
Total distributable earnings	$	335,157,542

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.

  38           Annual Report   franklintempleton.com

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

NOTES TO FINANCIAL STATEMENTS

7.  Investment Transactions

Purchases and sales of investments (excluding short term securities and securities sold short) for the year ended December 31, 2018, aggregated $2,751,306,778 and $6,055,645,724, 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, 2018, the aggregate long value of distressed company securities for which interest recognition has been discontinued was $169,979,655, representing 1.1% 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. Current political and financial uncertainty surrounding the European Union may increase market volatility and the economic risk of investing in securities in Europe. 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, 2018, 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	$	—
	3,819,425	International Automotive Components Group Brazil LLC	4/13/06 - 12/26/08		2,536,498		161,855
	35,491,081	International Automotive Components Group North America LLC	1/12/06 - 3/18/13		29,095,371		4,230,537
		Total Restricted Securities (Value is 0.0%† of Net Assets)		$	31,640,762	$	4,392,392

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

  franklintempleton.com   Annual Report             39

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

NOTES TO FINANCIAL STATEMENTS

11.  Other Derivative Information

At December 31, 2018, 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	$	986,177	a	Variation margin on futures contracts	$	—
	Unrealized appreciation on OTC forward exchange contracts		37,019,008		Unrealized depreciation on OTC forward exchange contracts		4,750,983
Totals		$	38,005,185			$	4,750,983

^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, 2018, 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	$	69,523,335	Forward exchange contracts	$	141,683,362
	Futures contracts		107,674,569	Futures contracts		29,915,219
Totals		$	177,197,904		$	171,598,581

For the year ended December 31, 2018, the average month end notional amount of futures contracts represented $1,900,848,046. The average month end contract value of forward exchange contracts was $3,800,878,751.

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, 2018, 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 0.0%† of Net Assets)		35,491,081		—		—		35,491,081		$4,230,537		$—		$—		$(19,150,100	)

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

  40           Annual Report   franklintempleton.com

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

NOTES TO FINANCIAL STATEMENTS

13.  Credit Facility

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matured on February 8, 2019. 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 8, 2019, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 7, 2020, 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, 2018, 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.

  franklintempleton.com   Annual Report             41

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

NOTES TO FINANCIAL STATEMENTS

14.  Fair Value Measurements (continued)

A summary of inputs used as of December 31, 2018, 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	$	55,787,125	$	—	$	4,392,392		$	60,179,517
Automobiles		178,985,999		302,367,006		—			481,353,005
Capital Markets		83,990,513		121,277,766		—			205,268,279
Chemicals		—		205,263,219		—	c		205,263,219
Construction Materials		—		152,403,248		—			152,403,248
Electric Utilities		50,237,235		334,308,347		—			384,545,582
Machinery		—		118,754,499		—			118,754,499
Media		496,017,163		5,375,983		—			501,393,146
Metals & Mining		29,675,986		28,315,165		—			57,991,151
Software		547,105,349		822,893		—			547,928,242
Specialty Retail		—		107,150,706		—			107,150,706
All Other Equity Investments		11,824,424,622		—		—			11,824,424,622
Corporate Notes and Senior Floating Rate Interests		—		223,553,283		—			223,553,283
Corporate Notes and Senior Floating Rate Interests in Reorganization		—		169,979,655		—	c		169,979,655
Companies in Liquidation		—		128,093		—	c		128,093
Short Term Investments		172,343,917		—		—			172,343,917
Total Investments in Securities	$	13,438,567,909	$	1,769,699,863	$	4,392,392		$	15,212,660,164
Other Financial Instruments:
Futures Contracts	$	986,177	$	—	$	—		$	986,177
Forward Exchange Contracts		—		37,019,008		—			37,019,008
Total Other Financial Instruments	$	986,177	$	37,019,008	$	—		$	38,005,185
Liabilities:
Other Financial Instruments:
Securities Sold Shorta	$	131,039,275	$	—	$	—		$	131,039,275
Forward Exchange Contracts		—		4,750,983		—			4,750,983
Total Other Financial Instruments	$	131,039,275	$	4,750,983	$	—		$	135,790,258

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

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

^cIncludes securities determined to have no value at December 31, 2018.

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.  New Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in the ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for annual reporting periods ending after December 15, 2020. Management is currently evaluating the impact, if any, of applying this provision.

  42           Annual Report   franklintempleton.com

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

NOTES TO FINANCIAL STATEMENTS

16.  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 Corp.	EUR	Euro	ADR	American Depositary Receipt
BONY	The Bank of New York Mellon Corp.	GBP	British Pound	LIBOR	London InterBank Offered Rate
HSBK	HSBC Bank PLC	USD	United States Dollar
SSBT	State Street Bank and Trust Co., N.A.
UBSW	UBS AG

  franklintempleton.com   Annual Report             43

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

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, 2018, 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 five years in the period then ended 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, 2018, 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 five years in the period then ended, 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, 2018, 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, Massachusetts

February 20, 2019

  44           Annual Report   franklintempleton.com

FRANKLIN MUTUAL GLOBAL DISCOVERY FUND

Tax Information (unaudited)

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby reports the maximum amount allowable but no less than $785,195,960 as a long term capital gain dividend for the fiscal year ended December 31, 2018.

Under Section 871(k)(2)(C) of the Internal Revenue Code, the Fund hereby reports the maximum amount allowable but no less than $169,808,690 as a short term capital gain dividend for purposes of the tax imposed under Section 871(a)(1)(A) of the Internal Revenue Code for the fiscal year ended December 31, 2018.

Under Section 854(b)(1)(A) of the Internal Revenue Code, the Fund hereby reports 38.85% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2018.

Under Section 854(b)(1)(B) of the Internal Revenue Code, the Fund hereby reports the maximum amount allowable but no less than $466,791,035 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Internal Revenue Code for the fiscal year ended December 31, 2018. Distributions, including qualified dividend income, paid during calendar year 2018 will be reported to shareholders on Form 1099-DIV by mid-February 2019. 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 Internal Revenue Code, the Fund hereby reports the maximum amount allowable but no less than $36,247,061 as interest related dividends for purposes of the tax imposed under Section 871(a)(1)(A) of the Internal Revenue Code for the fiscal year ended December 31, 2018.

  franklintempleton.com   Annual Report             45

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 U.S. 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)	Trustee	Since 1987	14	None
c/o Franklin Mutual Advisers, LLC
101 John F. Kennedy Parkway
Short Hills, NJ 07078-2716
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 07078-2716	Trustee	Since 1995	38	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 07078-2716	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 07078-2716	Trustee	Since 2009	14	FinTech Acquisition Corp. III (special purpose fintech acquisition company) (2018-present)
Principal Occupation During at Least the Past 5 Years:
President and Founder, The Jan Hopkins Group (communications consulting firm); serves on Advisory Board of Knight Bagehot Fellowship; and formerly, President, Economic Club of New York (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)	Trustee	Since 2009	14	None
c/o Franklin Mutual Advisers, LLC
101 John F. Kennedy Parkway
Short Hills, NJ 07078-2716
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.

  46           Annual Report   franklintempleton.com

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 07078-2716	Trustee	Since 2015	38	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)	Trustee	Since 1998	14	None
c/o Franklin Mutual Advisers, LLC
101 John F. Kennedy Parkway
Short Hills, NJ 07078-2716
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 07078-2716	Trustee and Chairman of the Board	Trustee since 1993 and Chairman of the Board since 2005	38	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)	Trustee	Since 2015	14	None
c/o Franklin Mutual Advisers, LLC
101 John F. Kennedy Parkway
Short Hills, NJ 07078-2716
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)	Trustee	Since 2007	150	None
One Franklin Parkway
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Chairman of the Board, Member – Office of the Chairman, Director and Chief Executive Officer, Franklin Resources, Inc.; officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 42 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 07078-2716	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.

  franklintempleton.com   Annual Report             47

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 44 of the investment companies in Franklin Templeton Investments.
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 44 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 44 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 2017	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Senior Vice President, Franklin Templeton Services, LLC; officer of 44 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 16 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 44 of the investment companies in Franklin Templeton Investments.
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 44 of the investment companies in Franklin Templeton Investments.

  48           Annual Report   franklintempleton.com

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
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 44 of the investment companies in Franklin Templeton Investments; and formerly, Senior Associate General Counsel, Franklin Templeton Investments (2007-2013); and Secretary and Vice President, Templeton Group of Funds (2004-2013).
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 44 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 44 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 44 of the investment companies in Franklin Templeton Investments.

  franklintempleton.com   Annual Report             49

FRANKLIN MUTUAL SERIES FUNDS

*We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment manager or affiliated investment managers.

**Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Franklin Resources, Inc. (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 Advisers, LLC, which is 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 1987. He currently serves as a Max L. Hine 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 1995. 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 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.

  50           Annual Report   franklintempleton.com

FRANKLIN MUTUAL SERIES FUNDS

FRANKLIN MUTUAL GLOBAL DISCOVERY 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 U.S. Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.

Quarterly Statement of Investments

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

Householding of Reports and Prospectuses

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

  franklintempleton.com   Annual Report             51

This page intentionally left blank.

	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.
© 2019 Franklin Templeton Investments. All rights reserved.	477 A 02/19

  Annual Report
and Shareholder Letter   December 31, 2018

Internet Delivery of Fund Reports Unless You Request Paper Copies: Effective January 1, 2021, as permitted by the SEC, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request them from the Fund or your financial intermediary. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not signed up for electronic delivery, we would encourage you to join fellow shareholders who have. You may elect to receive shareholder reports and other communications electronically from the Fund by calling (800) 632-2301 or by contacting your financial intermediary.

You may elect to continue to receive paper copies of all your future shareholder reports free of charge by contacting your financial intermediary or, if you invest directly with a Fund, calling (800) 632-2301 to let the Fund know of your request. Your election to receive reports in paper will apply to all funds held in your account.

Franklin Templeton

Successful investing begins with ambition. And achievement only comes when you reach for it. That’s why we continually strive to deliver better outcomes for investors. No matter what your goals are, our deep, global investment expertise allows us to offer solutions that can help.

During our more than 70 years of experience, we’ve managed through all kinds of markets—up, down and those in between. We’re always preparing for what may come next. It’s because of this, combined with our strength as one of the world’s largest asset managers that we’ve earned the trust of millions of investors around the world.

Dear Franklin Mutual European Fund Shareholder:

Investors started 2018 seemingly with the wind at their back. The primary tailwinds were strong corporate earnings growth in most developed markets, healthy consumer and business investment spending, and the positive effect of major U.S. tax cuts. In addition, the global economy continued its steady expansion since the financial crisis of 2008–2009. Unemployment continued to decline in the U.S. and other developed markets, while U.S. wage growth showed some signs of accelerating. As a result, equity markets rose to new highs. However, volatility and market downturns soon made their mark on 2018. As measured by the EURO STOXX 50^® Volatility (VSTOXX) Index, volatility reached a record low in December 2017, but the VSTOXX surged in February 2018 to its highest level since the summer of 2016 and moved higher again in October and December. U.S. trade tensions with Europe and China, the possibility of Brexit without an agreement, Italy’s budget disagreement with the European Commission, and a growing belief that corporate earnings and economic growth will likely decelerate in 2019 hindered equity markets. Despite European central banks keeping rates low, a flattening U.S. Treasury yield curve, wider credit spreads and growing market concern that the U.S. Federal Reserve may raise interest rates too quickly were also important drivers of European market turbulence. For the period ended December 31, 2018, European stocks, as measured by the MSCI Europe (Net Dividends) Index (EURO), had a -10.57% total return.¹ Global developed markets, as measured by the MSCI World Index (USD), had a -8.20% total return, while

1. Source: Morningstar.

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

investment-grade bonds, as measured by the Bloomberg Barclays Global Aggregate Bond Index, had a -1.20% total return.¹

The return of volatility is a reminder that securities markets are dynamic. We believe active, professional investment management serves investors well since market volatility is more the norm than uninterrupted positive returns. Valuation is an essential 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 a bottom-up stock-picking process that is disciplined and driven by rigorous fundamental analysis that attempts to limit downside risk. In our view, investing in underappreciated and misunderstood companies with identifiable catalysts for unlocking shareholder value can offer significant upside potential as well as a degree of downside protection.

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

Not FDIC Insured | May Lose Value | No Bank Guarantee  

  franklintempleton.com Not part of the annual report         1

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, 2018, 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

Franklin Mutual European Fund	3
Performance Summary	8
Your Fund’s Expenses	11
Financial Highlights and Statement of Investments	12
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           Not part of the annual report franklintempleton.com

Annual Report

Franklin Mutual European Fund

This annual report for Franklin Mutual European Fund covers the fiscal year ended December 31, 2018.

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 had a -11.12% cumulative total return for the 12 months ended December 31, 2018. For comparison, the Fund’s benchmark, the MSCI Europe (Net Dividends) Index, which tracks equity performance in Europe’s developed markets, had a -10.59% total return in local currency terms.¹ Also for comparison, the MSCI Europe (Net Dividends) Index had a -14.86% total return in U.S. dollar terms.¹ You can find more of the Fund’s performance data in the Performance Summary beginning on page 8.

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

Economic and Market Overview

The global economy expanded during the 12 months under review, despite weakness in certain regions. Global developed and emerging market stocks were aided at certain points during the period by higher crude oil prices, upbeat economic data, easing trade tensions and encouraging corporate earnings

Geographic Composition*

Based on Total Net Assets as of 12/31/18

*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.

reports, as well as indications of a slower pace of interest-rate increases from the U.S. Federal Reserve (Fed).

However, various factors weighed on global markets during the period, including concerns about tighter regulation of technology companies, political uncertainties in the U.S. and the European Union, and major central banks’ interest-rate path and unwinding of monetary stimulus measures. Markets were further pressured by U.S. trade disputes with its allies and China, and their impact on global growth and corporate earnings. In this environment, global stocks, as measured by the MSCI All Country World Index, had a -8.93% total return for the 12 months ended December 31, 2018.¹

1. Source: Morningstar.

The index is unmanaged and includes reinvestment of any income or distributions (after the deduction of certain withholding taxes). 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 17.

  franklintempleton.com Annual Report         3

FRANKLIN MUTUAL EUROPEAN FUND

In Europe, the U.K.’s quarterly economic growth moderated in 2018’s first quarter, but accelerated in 2018’s second and third quarters. The Bank of England raised its key policy rate once during the review period. After moderating in 2018’s first quarter, the eurozone’s quarterly growth remained stable in the second quarter, but eased in the third quarter. The bloc’s annual inflation rate ended the period higher than in December 2017. The European Central Bank (ECB) kept its benchmark interest rate unchanged during the period. In December 2018, the ECB confirmed its plan to conclude its bond purchase program at the end of 2018 and reiterated it expects key interest rates to remain unchanged through the summer of 2019.

Investment Strategy

We follow a distinctive value investment approach that combines investments in what we believe are undervalued common stocks with, to a lesser extent, distressed debt investing and merger 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 2018, corporate profits in developed markets continued their impressive year-over-year growth. Labor markets showed further improvement, consumer spending was solid, and U.S. corporate tax reforms encouraged companies to buy back more stock, raise dividends and increase capital expenditures. Those positive fundamentals were periodically overshadowed by political and economic concerns, particularly in the final three months of the year.

With the decline in European equity markets, particularly in the fourth quarter, we have seen increasingly attractive valuations

Top 10 Sectors/Industries
Based on Equity Securities as of 12/31/18
	% of Total Net Assets
Insurance		12.4%
Banks		9.9%
Oil, Gas & Consumable Fuels		7.1%
Pharmaceuticals		6.1%
Diversified Telecommunication Services		5.5%
Construction Materials		5.0%
Trading Companies & Distributors		3.7%
Auto Components		3.7%
Automobiles		3.6%
Electric Utilities		3.5%

(e.g., price-to-earnings, price-to-book or price-to-sales) compared to U.S. equity markets, which reached historically high levels in 2018. The sell-off and rise in volatility yielded an opportunity to seek out stocks with strong corporate fundamentals and valuations whose risk/reward profiles seemed to us to have become more favorable. In addition to offering attractive valuation opportunities, Europe’s equity markets have seen an increase in investor activism, which we view as encouraging.

In 2019, policy events may have considerable influence, for better or worse, on economic growth, investor sentiment and financial market performance and volatility. Markets are likely to be particularly sensitive to developments in U.S.-China trade relations, monetary policy moves by European and other major central banks, in particular the Fed, oil production decisions by OPEC (The Organization of the Petroleum Exporting Countries) and other oil producing countries, the outcome of Brexit, China’s response to its slowing economy and potential political discord in Washington, D.C.

From an investment standpoint, we anticipate 2019 will be a year of resolution and clarity. The biggest political event will likely be Brexit. With the looming March 29, 2019 Article 50 deadline, how the situation will be resolved remained unclear. The uncertainty around the terms and timing of a deal continued to undermine consumer and corporate confidence. From our perspective, we believe the European Union and the U.K. will ultimately reach an agreement that makes sense for both sides, and we believe the approval of such an agreement would likely have a significantly positive effect on investor, consumer and corporate sentiment in the U.K. We will also pay close attention to structural reform efforts in France and the political transition in Germany. In December, Chancellor Angela Merkel stepped down as leader of the Christian

  4     Annual Report franklintempleton.com

FRANKLIN MUTUAL EUROPEAN FUND

Top 10 Equity Holdings
12/31/18
Company Sector/Industry, Country	% of Total Net Assets
Enel SpA Electric Utilities, Italy		3.5%
Accor SA Hotels, Restaurants & Leisure, France		3.5%
NN Group NV Insurance, Netherlands		3.5%
Novartis AG Pharmaceuticals, Switzerland		3.5%
LafargeHolcim Ltd. Construction Materials, Switzerland		3.2%
GlaxoSmithKline PLC Pharmaceuticals, U.K.		3.0%
Koninklijke KPN NV Diversified Telecommunication Services, Netherlands		2.9%
Hellenic Telecommunications Organization SA Diversified Telecommunication Services, Greece		2.6%
Royal Dutch Shell PLC Oil, Gas & Consumable Fuels, U.K.		2.6%
Standard Chartered PLC Banks, U.K.		2.6%

Democratic Union but stated her intention to remain in office for the remaining three years of her term as Chancellor.

In all market environments, we seek to invest prudently in securities that we believe represent good value. We do this by seeking securities that trade at a discount to our estimate of intrinsic value, taking into account the quality of the asset, the sustainability of returns, and the growth potential of the business. We also believe the potential to deliver the best risk-adjusted return over a full market cycle requires us to be focused on applying our cross-asset approach: owning equities and debt—in certain cases multiple securities across the capital structure of a company—across geographies and sectors with an emphasis on corporate actions as catalysts.

Investment Spotlight

Our insurance industry positions are a good example of our investment process. The Top 10 Sectors/Industries table on page 4 lists insurance and also other leading industries in which the Fund currently invests. The insurance industry has been an area of significant interest for Mutual Series since the Great Recession. We were able to find quality insurers trading at discounts to intrinsic value during the post-crisis period of

financial services recapitalization, followed by the restructuring of the financial services industry in Europe. During the past 10 years, insurance industry trends have provided investment opportunities for value investors. With interest rates at secular low levels, insurers have focused on operational efficiencies, cash flow from underwriting, and rational capital structures to maintain acceptable profitability. Life insurance businesses have mainly focused on improving returns through cost savings and capital rationalization, while property casualty businesses have emphasized better underwriting and capital management.

After several years of equity market outperformance, insurers were hurt by increased natural catastrophe losses around the globe in both 2017 and 2018, jitters regarding global economic growth prospects and a widening of credit spreads. Despite these headwinds, we think valuations at year-end remained attractive, and our holdings have idiosyncratic catalysts that provide attractive return potential. In addition, the large natural catastrophe losses suffered by property and casualty insurers should present an opportunity for them to increase premiums as they adjust risk profiles.

Mutual Series has owned the Netherlands-based NN Group since its 2014 initial public offering (IPO). NN Group was spun out of ING Groep² and consists of life insurance, other insurance and asset management operations in Europe and Japan. The initial investment case revolved around the rationalization of capital and cost efficiencies. In 2017, NN Group acquired Dutch insurer Delta Lloyd at an attractive internal rate of return with the potential for significant synergies from the combined company. Since the IPO, the company has returned a significant amount of capital to shareholders and lowered expenses, while maintaining one of the strongest balance sheets in the industry. We expect additional progress on the integration of Delta Lloyd to generate increased cash flow in the future. NN Group is listed among the Fund’s largest positions in the Top 10 Equity Holdings table on this page.

Mergers and Acquisitions

Elsewhere, merger and acquisition activity (M&A) remained healthy in 2018. Since many European M&A transactions involve approval from the U.S. Department of Justice (DOJ), we were encouraged by greater clarity regarding the regulatory environment when a federal judge ruled in favor of AT&T² and Time Warner², and against the DOJ, in its antitrust lawsuit. However, economic, financial market and geopolitical

2. Not a Fund holding.

  franklintempleton.com Annual Report     5

FRANKLIN MUTUAL EUROPEAN FUND

uncertainty that arose in the second half of the year caused the pace of activity to slow. In our view, it was notable that health care has become one of the busier sectors for M&A as it is relatively more insulated from economic uncertainty. The strength and path of M&A activity in 2019 will likely depend in large part on how the uncertainties carrying over from 2018 play out and how they affect equity markets. From our experience, ups and downs in equity market performance and levels of deal activity have tended to move in a similar direction.

Credit Markets

Finding mispriced risk in credit markets remains difficult as we have seen few large corporate bankruptcies in Europe and with the continued low interest-rate environment, we do not anticipate this will change in the near future.

Fund Performance

Turning to Fund performance, top positive contributors included France-based automaker Peugeot, Finland-based global communications and information technology company Nokia and U.K.-based pay-TV provider Sky³.

Shares of Peugeot rallied through the first three quarters of 2018. Positive global economic fundamentals and quarterly results which showed its restructuring of Opel Vauxhall (OV), acquired from General Motors² in 2017, was going better than investors had been expecting, helped push the stock price higher. We believe the acquisition should enable Peugeot to increase its profit margins and cash flow through additional product development improvements, greater vehicle production efficiency and the utilization of better powertrains (engine, transmission, drive shaft and differential) in its Opel and Vauxhall vehicles. However, shares of Peugeot and other major automakers retreated in the last quarter of 2018 due to signs of slower global economic growth and passenger vehicle sales, as well as U.S.-China trade tensions.

Nokia announced solid fourth-quarter and full-year 2017 results in February 2018, particularly better-than-expected profits for 2017 and significant improvement in cash flow. Management also issued a new earnings target for 2020 that was higher than many investors had anticipated. In August, Nokia announced a larger-than-expected network equipment agreement with T-Mobile² as part of T-Mobile’s effort to deploy a 5G network in the U.S. Nokia also announced a large loan from the

European Investment Bank to support research and development efforts in 5G technology. In our view, Nokia is serious about further cost cutting and cash flow improvement related to its acquisition of Alcatel in 2016, and it remains on course to reach its 2020 earnings target.

In February 2018, shares of Sky jumped when U.S.-based cable company Comcast² made a surprise bid for the company. The Comcast bid was considerably higher than a prior bid by Twenty-First Century Fox², which already owned a substantial portion of Sky. In July 2018, Twenty-First Century Fox raised its bid for Sky, but Comcast promptly offered a higher counter-bid. The stock rose again in September 2018 when The Panel on Takeovers and Mergers in the U.K. announced that Comcast had won the mandatory auction for Sky, and Twenty-First Century Fox subsequently agreed to sell its stake of Sky to Comcast. The acquisition of Sky was officially completed in October 2018.

During the period under review, Fund investments that detracted from performance included Germany-based global auto parts supplier Schaeffler, France-based electrical equipment distributor Rexel and U.K.-based global mobile telecommunications company Vodafone Group.

In January 2018, Schaeffler provided investors with an upbeat initial estimate for fourth-quarter and full-year 2017 revenues. However, final results released in February fell considerably short of its initial estimates. In addition, management downgraded its outlook for 2018, stating that increased expenses related to an acceleration of its production efficiency program would hurt 2018 earnings. In the latter stages of 2018, shares of automakers and suppliers, including Schaeffler, were hurt by signs of broad slowdown in global economic growth and passenger vehicle sales, as well as escalating trade tensions between the U.S. and China. In October, Schaeffler issued a profit warning, which cited softer auto sales in China as the primary driver. Following its missteps in early 2018, management has taken steps to repair its credibility and improve communication with investors. We also believe Schaeffler’s ongoing efficiency and investment program has been improving profitability and its positioning for increasing electric vehicle production by automakers.

Rexel is a distributor of low voltage electrical equipment headquartered in Paris. In April 2018, shares of Rexel dropped in response to slightly weaker-than-expected quarterly revenue

3. Not held at period-end.

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

  6     Annual Report franklintempleton.com

FRANKLIN MUTUAL EUROPEAN FUND

and earnings, although free cash flow showed significant improvement. In our view, the results were negatively affected by investments in digital technology and bonus accruals and other one-off factors. In September 2018, the offices of Rexel and three other electrical goods companies in France were searched by French police on suspicion of cartel pricing and corruption. All companies denied wrongdoing, and Rexel had previously stated that it relies on a legal method of obtaining price quotations from suppliers and uses the information to propose prices to final customers. In the final quarter of 2018, Rexel followed the general decline in European equity markets, driven by signs of softening global economic growth and geopolitical events in Europe. Nonetheless, we believe the positive catalysts for Rexel remain in place, as its reorganization efforts and branch openings in the U.S. have begun to produce positive results.

In May 2018, Vodafone Group provided an outlook for its fiscal year ending March 2019 that fell short of market expectations, with much of the growth forecast to come in the latter part of the year. The stock came under further downward pressure from weaker-than-expected revenue growth due in part to price cuts in Spain and a new mobile competitor in Italy. Management stated that conditions in those two markets were likely to experience further short-term deterioration, leading to uncertainty regarding Vodafone’s ability to meet its earnings growth guidance for the fiscal year. However, we balanced the negative near-term events against the positive announcements of a merger of Vodafone’s operations in India with Idea Cellular², which closed at the end of August 2018, and the August announcement of a merger and deconsolidation of its Australian subsidiary. In addition, we believed the newly appointed chief executive officer’s statements regarding the likely initial public offering of Vodafone’s New Zealand business and the announcement of a three-year net cost cutting plan and multi-brand strategy to improve competitiveness across all market segments as positive for 2019.

During the period, the Fund held currency forwards and futures seeking to hedge most of the currency risk of the portfolio’s non-U.S. dollar investments. The hedges had a positive overall impact on the Fund’s performance because of the appreciation of the U.S. dollar versus the hedged currencies.

What is a currency forward?

A currency forward is a direct 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 U.S. or foreign futures exchange to buy or sell an underlying instrument or asset at a specific price on a future date.

As fellow shareholders, we found recent relative and absolute performance disappointing, but it is not uncommon for the performance of our strategy to diverge from European equity market returns at times. We remain committed to our disciplined, value investment approach as we seek to generate attractive, long-term, risk-adjusted returns for shareholders.

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

  Katrina Dudley, CFA Co-Portfolio Manager

	Mandana Hormozi Co-Portfolio Manager

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2018, 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.

  franklintempleton.com Annual Report     7

FRANKLIN MUTUAL EUROPEAN FUND

Performance Summary as of December 31, 2018

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 12/31/18

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 5.50% and the minimum is 0%. Class A: 5.50% maximum initial sales charge. For other share classes, visit franklintempleton.com.

Share Class	Cumulative Total Return	1	Average Annual Total Return	2
Z
1-Year	-11.12%		-11.12%
5-Year	-2.70%		-0.55%
10-Year	+78.32%		+5.95%
A3
1-Year	-11.29%		-16.16%
5-Year	-3.98%		-1.92%
10-Year	+73.39%		+5.06%

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 10 for Performance Summary footnotes.

8       Annual Report franklintempleton.com

FRANKLIN MUTUAL EUROPEAN 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.

See page 10 for Performance Summary footnotes.

  franklintempleton.com Annual Report     9

FRANKLIN MUTUAL EUROPEAN FUND

PERFORMANCE SUMMARY

Distributions (1/1/18–12/31/18)

Share Class	Net Investment Income
Z		$0.7273
A		$0.6784
C		$0.3900
R		$0.6304
R6		$0.7548

Total Annual Operating Expenses⁵

Share Class
Z	1.04%
A	1.29%

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. Prior to 9/10/18, these shares were offered at a higher initial sales charge of 5.75%, thus actual returns would have differed. Total returns with sales charges have been restated to reflect the current maximum initial sales charge of 5.50%.

4. Source: Morningstar. The MSCI Europe Index (Local Currency and U.S. Dollar) is a market capitalization-weighted index designed to measure equity market performance of developed markets in Europe. The Net Dividends Index reflects the deduction of withholding taxes on reinvested dividends.

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.

  10     Annual Report franklintempleton.com

FRANKLIN MUTUAL EUROPEAN 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 7/1/18	Ending Account Value 12/31/18	Expenses Paid During Period 7/1/18–12/31/181,2	Ending Account Value 12/31/18	Expenses Paid During Period 7/1/18–12/31/181,2	Net Annualized Expense Ratio2
Z	$1,000	$904.00	$5.04	$1,019.91	$  5.35	1.05%
A	$1,000	$903.10	$6.24	$1,018.65	$  6.61	1.30%
C	$1,000	$899.90	$9.82	$1,014.87	$10.41	2.05%
R	$1,000	$902.20	$7.43	$1,017.39	$  7.88	1.55%
R6	$1,000	$905.30	$4.42	$1,020.57	$  4.69	0.92%

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     11

FRANKLIN MUTUAL EUROPEAN FUND

Financial Highlights

	Year Ended December 31,
	2018			2017			2016			2015			2014
Class Z
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year		$20.93			$19.20			$19.48			$20.86			$24.76
Income from investment operationsa:
Net investment incomeb		0.49			0.35			0.63	c		0.42			0.73	d
Net realized and unrealized gains (losses)		(2.80	)		1.65			(0.17	)		(0.27	)		(1.73	)
Total from investment operations		(2.31	)		2.00			0.46			0.15			(1.00	)
Less distributions from:
Net investment income		(0.73	)		(0.27	)		(0.47	)		(0.46	)		(0.67	)
Net realized gains		—			—			(0.27	)		(1.07	)		(2.23	)
Total distributions		(0.73	)		(0.27	)		(0.74	)		(1.53	)		(2.90	)
Net asset value, end of year		$17.89			$20.93			$19.20			$19.48			$20.86
Total return		(11.12)%			10.45%			2.40%			0.82%			(4.00)%
Ratios to average net assets
Expensese		1.04%	f,g		1.04%	f		1.06%	f,g		1.05%			1.04%	f
Expenses incurred in connection with securities sold short		—%	h		—%			—%			—%	h		0.01%
Net investment income		2.38%			1.75%			3.42%	c		1.93%			2.93%	d
Supplemental data
Net assets, end of year (000’s)		$958,149			$1,328,622			$1,175,972			$1,355,780			$1,128,769
Portfolio turnover rate		35.42%			17.33%			16.43%			32.59%			54.05%

^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%.

12       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,
	2018			2017			2016			2015			2014
Class A
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year		$20.33			$18.66			$18.95			$20.33			$24.21
Income from investment operationsa:
Net investment incomeb		0.41			0.31			0.57	c		0.35			0.61	d
Net realized and unrealized gains (losses)		(2.69	)		1.58			(0.18	)		(0.26	)		(1.66	)
Total from investment operations		(2.28	)		1.89			0.39			0.09			(1.05	)
Less distributions from:
Net investment income		(0.68	)		(0.22	)		(0.41	)		(0.40	)		(0.60	)
Net realized gains		—			—			(0.27	)		(1.07	)		(2.23	)
Total distributions		(0.68	)		(0.22	)		(0.68	)		(1.47	)		(2.83	)
Net asset value, end of year		$17.37			$20.33			$18.66			$18.95			$20.33
Total returne		(11.29)%			10.14%			2.12%			0.57%			(4.31)%
Ratios to average net assets
Expensesf		1.29%	g,h		1.29%	g		1.31%	g,h		1.33%			1.34%	g
Expenses incurred in connection with securities sold short		—%	i		—%			—%			—%	i		0.01%
Net investment income		2.13%			1.50%			3.17%	c		1.65%			2.63%	d
Supplemental data
Net assets, end of year (000’s)		$564,038			$714,915			$769,297			$1,033,307			$843,836
Portfolio turnover rate		35.42%			17.33%			16.43%			32.59%			54.05%

^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%.

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,
	2018			2017			2016			2015			2014
Class C
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year		$20.38			$18.70			$18.97			$20.37		$24.25
Income from investment operationsa:
Net investment incomeb		0.29			0.15			0.44	c		0.19		0.43d
Net realized and unrealized gains (losses)		(2.72	)		1.60			(0.19	)		(0.25	)	(1.64)
Total from investment operations		(2.43	)		1.75			0.25			(0.06	)	(1.21)
Less distributions from:
Net investment income		(0.39	)		(0.07	)		(0.25	)		(0.27	)	(0.44)
Net realized gains		—			—			(0.27	)		(1.07	)	(2.23)
Total distributions		(0.39	)		(0.07	)		(0.52	)		(1.34	)	(2.67)
Net asset value, end of year		$17.56			$20.38			$18.70			$18.97		$20.37
Total returne		(11.96)%			9.37%			1.32%			(0.16)%		(4.97)%
Ratios to average net assets
Expensesf		2.04%g,h			2.04%g			2.06%g,h			2.05%		2.04%g
Expenses incurred in connection with securities sold short		—%i			—%			—%			—%i		0.01%
Net investment income		1.38%			0.75%			2.42%c			0.93%		1.93%d
Supplemental data
Net assets, end of year (000’s)		$78,149			$179,123			$209,196			$291,752		$216,258
Portfolio turnover rate		35.42%			17.33%			16.43%			32.59%		54.05%

^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%.

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,
	2018			2017			2016			2015			2014
Class R
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year		$19.97			$18.35			$18.62			$20.04			$23.95
Income from investment operationsa:
Net investment incomeb		0.35			0.22			0.52c			0.27			0.41d
Net realized and unrealized gains (losses)		(2.64	)		1.60			(0.18	)		(0.23	)		(1.49	)
Total from investment operations		(2.29	)		1.82			0.34			0.04			(1.08	)
Less distributions from:
Net investment income		(0.63	)		(0.20	)		(0.34	)		(0.39	)		(0.60	)
Net realized gains		—			—			(0.27	)		(1.07	)		(2.23	)
Total distributions		(0.63	)		(0.20	)		(0.61	)		(1.46	)		(2.83	)
Net asset value, end of year		$17.05			$19.97			$18.35			$18.62			$20.04
Total return		(11.54)%			9.92%			1.86%			0.37%			(4.52)%
Ratios to average net assets
Expensese		1.54%	f,g		1.54%	f		1.56%	f,g		1.55%			1.54%	f
Expenses incurred in connection with securities sold short		—%	h		—%			—%			—%	h		0.01%
Net investment income		1.88%			1.25%			2.92%	c		1.43%			2.43%	d
Supplemental data
Net assets, end of year (000’s)		$731			$821			$626			$997			$421
Portfolio turnover rate		35.42%			17.33%			16.43%			32.59%			54.05%

^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%.

  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,
	2018			2017			2016			2015			2014
Class R6
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year		$20.91			$19.19			$19.47			$20.85		$24.75
Income from investment operationsa:
Net investment incomeb		0.56			0.41			0.66	c		0.46		0.75d
Net realized and unrealized gains (losses)		(2.85	)		1.62			(0.17	)		(0.28	)	(1.71)
Total from investment operations		(2.29	)		2.03			0.49			0.18		(0.96)
Less distributions from:
Net investment income		(0.75	)		(0.31	)		(0.50	)		(0.49	)	(0.71)
Net realized gains		—			—			(0.27	)		(1.07	)	(2.23)
Total distributions		(0.75	)		(0.31	)		(0.77	)		(1.56	)	(2.94)
Net asset value, end of year		$17.87			$20.91			$19.19			$19.47		$20.85
Total return		(10.94)%			10.63%			2.53%			0.98%		(3.88)%
Ratios to average net assets
Expenses before waiver and payments by affiliatese		0.92%			0.88%			0.89%			0.89%		0.89%
Expenses net of waiver and payments by affiliatese		0.91%	f		0.88%	f		0.89%	f,g		0.89%		0.89%f
Expenses incurred in connection with securities sold short		—%	h		—%			—%			—%	h	0.01%
Net investment income		2.51%			1.91%			3.59%c			2.09%		3.08%d
Supplemental data
Net assets, end of year (000’s)		$149,796			$294,660			$311,784			$373,904		$334,396
Portfolio turnover rate		35.42%			17.33%			16.43%			32.59%		54.05%

^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 2.67%.

^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 1.89%.

^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

Statement of Investments, December 31, 2018

	Country		Shares		Value
Common Stocks 91.1%
Auto Components 1.9%
Cie Generale des Etablissements Michelin SCA		France		342,111	$	33,985,600
Automobiles 1.0%
Peugeot SA		France		807,802		17,257,430
Banks 9.9%
AIB Group PLC		Ireland		6,137,609		25,801,548
Barclays PLC		United Kingdom		13,780,463		26,451,685
HSBC Holdings PLC		United Kingdom		2,444,399		20,165,294
ING Groep NV		Netherlands		2,355,324		25,395,050
Societe Generale SA		France		271,029		8,639,362
Standard Chartered PLC		United Kingdom		5,861,827		45,546,970
UniCredit SpA		Italy		1,948,691		22,073,595
						174,073,504
Biotechnology 0.9%
Shire PLC		United Kingdom		266,629		15,538,851
Capital Markets 3.2%
Credit Suisse Group AG		Switzerland		2,572,571		28,136,077
Deutsche Bank AG		Germany		3,582,241		28,570,277
						56,706,354
Chemicals 1.6%
BASF SE		Germany		407,471		28,383,062
Commercial Services & Supplies 1.2%
G4S PLC		United Kingdom		8,137,683		20,438,643
Communications Equipment 1.6%
Nokia OYJ, A		Finland		1,913,359		11,027,403
Nokia OYJ, ADR		Finland		3,051,032		17,757,006
						28,784,409
Construction Materials 5.0%
HeidelbergCement AG		Germany		500,319		30,669,794
LafargeHolcim Ltd., B		Switzerland		1,372,438		56,664,895
						87,334,689
Diversified Telecommunication Services 5.5%
Hellenic Telecommunications Organization SA		Greece		4,197,398		45,785,283
Koninklijke KPN NV		Netherlands		17,390,589		51,010,908
						96,796,191
Electric Utilities 3.5%
Enel SpA		Italy		10,642,224		61,698,280
Electrical Equipment 1.9%
Osram Licht AG		Germany		764,465		33,269,875
Health Care Equipment & Supplies 1.0%
Koninklijke Philips NV		Netherlands		488,612		17,316,210
Hotels, Restaurants & Leisure 3.5%
Accor SA		France		1,439,660		61,215,259
Household Durables 2.6%
Husqvarna AB, B		Sweden		2,085,623		15,489,208
JM AB		Sweden		1,249,153		24,477,791
a,bNeinor Homes SA, 144A		Spain		334,815		4,987,203
						44,954,202

  franklintempleton.com    Annual Report       17

FRANKLIN MUTUAL EUROPEAN FUND

STATEMENT OF INVESTMENTS

	Country		Shares		Value
Common Stocks (continued)
Insurance 12.4%
ASR Nederland NV		Netherlands		916,601	$	36,317,347
Direct Line Insurance Group PLC		United Kingdom		10,995,115		44,686,584
Lancashire Holdings Ltd.		United Kingdom		4,178,619		32,239,141
NN Group NV		Netherlands		1,526,383		60,862,748
RSA Insurance Group PLC		United Kingdom		6,461,913		42,323,486
						216,429,306
Machinery 3.4%
CNH Industrial NV, special voting		United Kingdom		833,461		7,530,886
CNH Industrial NV		United Kingdom		2,753,906		24,883,412
Vossloh AG		Germany		558,342		27,151,664
						59,565,962
Marine 1.4%
A.P. Moeller-Maersk AS, B		Denmark		19,498		24,527,891
Media 2.0%
aLiberty Global PLC, C		United Kingdom		1,675,100		34,574,064
Metals & Mining 1.1%
thyssenkrupp AG		Germany		1,110,929		19,084,324
Oil, Gas & Consumable Fuels 7.1%
BP PLC		United Kingdom		5,708,169		36,101,898
aCairn Energy PLC		United Kingdom		11,686,571		22,354,948
Royal Dutch Shell PLC, A (EUR Traded)		United Kingdom		458,553		13,479,394
Royal Dutch Shell PLC, A (GBP Traded)		United Kingdom		1,095,418		32,234,200
Saras SpA		Italy		10,256,302		19,900,372
						124,070,812
Pharmaceuticals 6.5%
GlaxoSmithKline PLC		United Kingdom		2,789,992		53,055,959
Novartis AG		Switzerland		703,087		60,251,061
						113,307,020
Road & Rail 0.0%
a,c,d,eEuro Wagon LP		Jersey Islands		16,127,149		—
Semiconductors & Semiconductor Equipment 1.8%
BE Semiconductor Industries NV		Netherlands		1,500,194		31,762,245
Software 0.8%
aAvast PLC		United Kingdom		4,021,611		14,565,108
Specialty Retail 2.5%
Dufry AG		Switzerland		347,239		33,092,041
Hornbach Holding AG & Co. KGaA		Germany		213,786		10,089,856
						43,181,897
Tobacco 1.6%
British American Tobacco PLC		United Kingdom		881,269		28,095,956
Trading Companies & Distributors 3.7%
Kloeckner & Co. SE		Germany		3,031,653		20,928,314
Rexel SA		France		4,154,655		44,271,752
						65,200,066
Wireless Telecommunication Services 2.5%
Vodafone Group PLC		United Kingdom		22,564,874		43,998,281
Total Common Stocks (Cost $1,812,156,431)						1,596,115,491

18        Annual Report franklintempleton.com

FRANKLIN MUTUAL EUROPEAN FUND

STATEMENT OF INVESTMENTS

	Country		Shares		Value
Preferred Stocks 4.4%
Auto Components 1.8%
fSchaeffler AG, 7.398%, pfd		Germany		3,633,679	$	30,954,926
Automobiles 2.6%
fVolkswagen AG, 2.845%, pfd		Germany		285,343		45,501,501
Total Preferred Stocks (Cost $90,946,579)						76,456,427
Total Investments before Short Term Investments (Cost $1,903,103,010)						1,672,571,918
			Principal Amount
Short Term Investments 2.5%
U.S. Government and Agency Securities 2.5%
gFHLB, 1/02/19		United States	$	5,500,000		5,500,000
gU.S. Treasury Bill,
1/02/19		United States		21,000,000		21,000,000
1/03/19 - 4/25/19		United States		12,500,000		12,458,805
h5/09/19		United States		5,000,000		4,956,118
Total U.S. Government and Agency Securities (Cost $43,911,304)						43,914,923
Total Investments (Cost $1,947,014,314) 98.0%						1,716,486,841
Securities Sold Short (0.4)%						(7,562,155	)
Other Assets, less Liabilities 2.4%						41,938,389
Net Assets 100.0%					$	1,750,863,075
			Shares
iSecurities Sold Short (Proceeds $9,077,678) (0.4)%
Common Stocks (0.4)%
Pharmaceuticals (0.4)%
Takeda Pharmaceutical Co. Ltd.		Japan		223,701		(7,562,155	)

^aNon-income producing.

^bSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. This security has been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At December 31, 2018, the value of this security was $4,987,203, representing 0.3% of net assets.

^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 securities sold short. At December 31, 2018, the value of this security pledged amounted to $2,250,078, representing 0.1% of net assets.

ⁱSee Note 1(d) regarding securities sold short.

  franklintempleton.com Annual Report     19

FRANKLIN MUTUAL EUROPEAN FUND

STATEMENT OF INVESTMENTS

At December 31, 2018, 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	3,017	$	434,542,281		3/18/19	$  64,851
GBP/USD	Short	1,900		151,881,250		3/18/19	313,942
Total Futures Contracts							$378,793

*As of period end.

At December 31, 2018, the Fund had the following forward exchange contracts outstanding. See Note 1(c).

Forward Exchange Contracts

Currency	Counterparty	a	Type	Quantity		Contract Amount	Settlement Date		Unrealized Appreciation		Unrealized Depreciation
OTC Forward Exchange Contracts
Euro	BOFA		Buy	42,361,994	$	48,431,506	1/14/19	$	167,172	$	—
Euro	BOFA		Sell	4,540,537		5,400,106	1/14/19		191,095		—
Euro	BONY		Buy	4,102,879		4,674,779	1/14/19		32,140		—
Euro	BONY		Sell	51,837,542		61,553,971	1/14/19		2,084,720		—
Euro	HSBK		Buy	22,359,927		25,534,901	1/14/19		116,937		—
Euro	HSBK		Sell	2,216,504		2,622,701	1/14/19		79,875		—
Euro	SSBT		Buy	11,766,291		13,441,618	1/14/19		56,949		—
Euro	SSBT		Sell	59,058,182		70,136,344	1/14/19		2,383,404		—
Euro	UBSW		Buy	18,869,068		21,491,407	1/14/19		155,634		—
Euro	UBSW		Sell	2,275,487		2,685,490	1/14/19		74,997		—
Swiss Franc	HSBK		Buy	1,946,140		1,967,764	1/14/19		16,316		—
Swiss Franc	UBSW		Buy	19,855,463		20,124,148	1/14/19		118,393		—
Swiss Franc	UBSW		Sell	108,574,882		109,005,453	1/14/19		—		(1,686,079	)
British Pound	HSBK		Buy	1,761,152		2,225,621	1/16/19		22,180		—
British Pound	HSBK		Buy	8,411,840		10,782,456	1/16/19		—		(46,224	)
British Pound	SSBT		Sell	32,550,029		43,380,888	1/16/19		1,836,510		—
British Pound	UBSW		Buy	900,722		1,138,293	1/16/19		11,320		—
Norwegian Krone	BONY		Buy	1,150,000		136,180	1/25/19		—		(3,033	)
Norwegian Krone	BONY		Buy	37,706,435		4,326,315	1/25/19		39,327		—
Norwegian Krone	BONY		Sell	38,856,435		4,686,512	1/25/19		187,723		—
Swedish Krona	BONY		Sell	341,356,901		37,730,312	1/31/19		—		(901,645	)
Swedish Krona	SSBT		Sell	4,543,000		502,998	1/31/19		—		(11,142	)
British Pound	HSBK		Sell	2,179,786		2,889,132	2/14/19		103,094		—
British Pound	SSBT		Sell	144,969		190,294	2/14/19		5,005		—
British Pound	UBSW		Sell	77,691,822		100,145,623	2/14/19		845,809		—
Euro	BOFA		Sell	9,165,723		10,802,146	2/20/19		254,781		—
Euro	BONY		Sell	60,109,629		69,595,799	2/20/19		425,237		—
Euro	HSBK		Sell	2,435,388		2,896,724	2/20/19		94,225		—
Euro	SSBT		Sell	57,165,262		66,099,335	2/20/19		316,974		—
Euro	BONY		Sell	7,073,005		8,249,105	4/10/19		75,081		—
Euro	SSBT		Sell	7,073,005		8,249,953	4/10/19		75,930		—
Euro	BOFA		Sell	35,851,104		42,235,827	4/18/19		775,187		—

20       Annual Report franklintempleton.com

FRANKLIN MUTUAL EUROPEAN FUND

STATEMENT OF INVESTMENTS

Forward Exchange Contracts (continued)

Currency	Counterparty	a	Type	Quantity		Contract Amount	Settlement Date		Unrealized Appreciation		Unrealized Depreciation
OTC Forward Exchange Contracts (continued)
Euro	HSBK		Sell	35,851,103	$	42,242,996	4/18/19	$	782,358	$	—
Euro	UBSW		Sell	869,218		1,008,037	4/18/19		2,815		—
British Pound	BOFA		Sell	50,582		66,483	4/24/19		1,620		—
British Pound	BONY		Sell	7,854,243		10,254,967	4/24/19		183,219		—
British Pound	UBSW		Sell	62,329,683		81,655,601	4/24/19		1,728,254		—
Euro	BOFA		Sell	35,899,355		41,602,147	5/07/19		17,102		—
Euro	BONY		Sell	1,000,000		1,149,498	5/07/19		—		(8,881	)
Euro	HSBK		Sell	2,893,817		3,332,520	5/07/19		—		(19,616	)
Euro	HSBK		Sell	36,974,325		42,971,122	5/07/19		140,853		—
Euro	SSBT		Sell	164,970		192,599	5/07/19		1,501		—
Euro	UBSW		Sell	581,699		666,343	5/07/19		—		(7,484	)
Euro	UBSW		Sell	35,899,355		41,597,301	5/07/19		12,255		—
Euro	SSBT		Sell	3,171,868		3,661,811	5/21/19		—		(16,892	)
Euro	SSBT		Sell	106,744,796		124,298,977	5/21/19		497,345		—
British Pound	BOFA		Sell	323,852		413,559	5/28/19		—		(2,392	)
British Pound	BOFA		Sell	11,720,674		15,177,434	5/28/19		123,548		—
Total Forward Exchange Contracts								$	14,036,885	$	(2,703,388	)
Net unrealized appreciation (depreciation)								$	11,333,497

^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.

  franklintempleton.com The accompanying notes are an integral part of these financial statements.    |   Annual Report     21

FRANKLIN MUTUAL EUROPEAN FUND

Financial Statements

Statement of Assets and Liabilities

December 31, 2018

Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	1,940,731,805
Cost - Controlled affiliates (Note 3f and 11)		6,282,509
Value - Unaffiliated issuers	$	1,716,486,841
Value - Controlled affiliates (Note 3f and 11)		—
Cash		47,120
Receivables:
Investment securities sold		11,500,550
Capital shares sold		8,438,142
Dividends		7,359,104
European Union tax reclaims		3,609,184
Deposits with brokers for:
Securities sold short		9,155,898
Futures contracts		12,078,370
Unrealized appreciation on OTC forward exchange contracts		14,036,885
Other assets		288
Total assets		1,782,712,382
Liabilities:
Payables:
Investment securities purchased		3,396
Capital shares redeemed		18,050,113
Management fees		1,334,519
Distribution fees		398,398
Transfer agent fees		528,343
Trustees’ fees and expenses		125,786
Variation margin on futures contracts		857,738
Securities sold short, at value (proceeds $9,077,678)		7,562,155
Unrealized depreciation on OTC forward exchange contracts		2,703,388
Accrued expenses and other liabilities		285,471
Total liabilities		31,849,307
Net assets, at value	$	1,750,863,075
Net assets consist of:
Paid-in capital	$	2,011,371,699
Total distributable earnings (loss)		(260,508,624	)
Net assets, at value	$	1,750,863,075

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 (continued)

December 31, 2018

Class Z:
Net assets, at value	$958,149,478
Shares outstanding	53,549,071
Net asset value and maximum offering price per share	$17.89
Class A:
Net assets, at value	$564,038,158
Shares outstanding	32,474,018
Net asset value per sharea	$17.37
Maximum offering price per share (net asset value per share ÷ 94.50%)	$18.38
Class C:
Net assets, at value	$  78,148,610
Shares outstanding	4,449,439
Net asset value and maximum offering price per sharea	$17.56
Class R:
Net assets, at value	$       731,131
Shares outstanding	42,888
Net asset value and maximum offering price per share	$17.05
Class R6:
Net assets, at value	$149,795,698
Shares outstanding	8,381,057
Net asset value and maximum offering price per share	$17.87

^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 EUROPEAN FUND

FINANCIAL STATEMENTS

Statement of Operations

for the year ended December 31, 2018

Investment income:
Dividends: (net of foreign taxes)*
Unaffiliated issuers	$ 74,982,085
Interest:
Unaffiliated issuers	2,625,735
Income from securities loaned:
Non-controlled affiliates (Note 3f)	1,745
Other income (Note 1f)	781,233
Total investment income	78,390,798
Expenses:
Management fees (Note 3a)	19,593,157
Distribution fees: (Note 3c)
Class A	1,670,380
Class C	1,476,052
Class R	4,235
Transfer agent fees: (Note 3e)
Class Z	1,793,245
Class A	971,311
Class C	214,611
Class R	1,234
Class R6	61,123
Custodian fees (Note 4)	257,377
Reports to shareholders	132,640
Registration and filing fees	105,049
Professional fees	156,812
Trustees’ fees and expenses	141,192
Dividends on securities sold short	25,832
Other	71,516
Total expenses	26,675,766
Expense reductions (Note 4)	(19,865	)
Expenses waived/paid by affiliates (Note 3f and 3g)	(13,582	)
Net expenses	26,642,319
Net investment income	51,748,479
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffiliated issuers	83,589,320
Foreign currency transactions	769,317
Forward exchange contracts	43,649,772
Futures contracts	40,356,225
Net realized gain (loss)	168,364,634
Net change in unrealized appreciation (depreciation) on:
Investments:
Unaffiliated issuers	(507,165,874	)
Translation of other assets and liabilities denominated in foreign currencies	(541,911	)
Forward exchange contracts	37,444,807
Futures contracts	11,212,420
Securities sold short	1,515,523
Net change in unrealized appreciation (depreciation)	(457,535,035	)
Net realized and unrealized gain (loss)	(289,170,401	)
Net increase (decrease) in net assets resulting from operations	$237,421,922	)
*Foreign taxes withheld on dividends	$     8,339,541

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

FRANKLIN MUTUAL EUROPEAN FUND

FINANCIAL STATEMENTS

Statements of Changes in Net Assets

	Year Ended December 31,
	2018			2017
Increase (decrease) in net assets:
Operations:
Net investment income	$	51,748,479		$	41,754,082
Net realized gain (loss)		168,364,634			(36,941,433	)
Net change in unrealized appreciation (depreciation)		(457,535,035	)		245,053,933
Net increase (decrease) in net assets resulting from operations		(237,421,922	)		249,866,582
Distributions to shareholders: (Note 1g)
Class Z		(39,537,213	)		(17,540,243	)
Class A		(21,635,584	)		(7,669,484	)
Class C		(2,285,511	)		(661,962	)
Class R		(26,901	)		(7,585	)
Class R6		(6,073,341	)		(4,427,392	)
Total distributions to shareholders		(69,558,550	)		(30,306,666	)
Capital share transactions: (Note 2)
Class Z		(197,936,001	)		43,359,185
Class A		(56,127,793	)		(118,591,024	)
Class C		(84,206,336	)		(47,346,696	)
Class R		38,579			141,266
Class R6		(122,065,613	)		(45,857,168	)
Total capital share transactions		(460,297,164	)		(168,294,437	)
Net increase (decrease) in net assets		(767,277,636	)		51,265,479
Net assets:
Beginning of year		2,518,140,711			2,466,875,232
End of year (Note 1g)	$	1,750,863,075		$	2,518,140,711

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

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. Beginning on October 19, 2018, Class C shares automatically convert to Class A shares after they have been held for 10 years. 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 each business day as of 4 p.m. Eastern time or the regularly scheduled close of the New York Stock Exchange (NYSE), whichever is earlier. 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 Fund may 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.

Investments in open-end mutual funds are valued at the closing NAV.

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 Fund 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.

26       Annual Report franklintempleton.com

FRANKLIN MUTUAL EUROPEAN FUND

NOTES TO FINANCIAL STATEMENTS

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. At December 31, 2018, a market event occurred resulting in a portion of the securities held by the Fund being valued using fair value procedures.

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 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

  franklintempleton.com Annual Report           27

FRANKLIN MUTUAL EUROPEAN FUND

NOTES TO FINANCIAL STATEMENTS

1.   Organization and Significant Accounting

Policies (continued)

c.   Derivative Financial Instruments  (continued)

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, 2018, the Fund had no OTC derivatives in a net liability position for such contracts.

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.

At December 31, 2018, the Fund received $14,289,885 in U.K. Treasury Bonds and U.S. Treasury Bills, Bonds and Notes as collateral for derivatives.

The Fund entered into exchange traded futures contracts primarily to manage exposure to certain foreign currencies. A futures contract is an agreement between the Fund and a counterparty to buy or sell an asset 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.   Securities Lending

The Fund participates in an agency based securities lending program to earn additional income. The Fund receives cash collateral against the loaned securities in an amount equal to at

  28           Annual Report   franklintempleton.com

FRANKLIN MUTUAL EUROPEAN FUND

NOTES TO FINANCIAL STATEMENTS

least 102% of the fair value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the fair value of loaned securities, as determined at the close of Fund business each day; any additional collateral required due to changes in security values is delivered to the Fund on the next business day. The collateral is deposited into a joint cash account with other funds and is used to invest in a money market fund managed by Franklin Advisers, Inc., an affiliate of the Fund, and/or a joint repurchase agreement. The Fund may receive income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. Income from securities loaned, net of fees paid to the securities lending agent and/or third-party vendor, is reported separately in the Statement of Operations. The Fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the agent may default on its obligations to the Fund. If the borrower defaults on its obligation to return the securities loaned, the Fund has the right to repurchase the securities in the open market using the collateral received. The securities lending agent has agreed to indemnify the Fund in the event of default by a third party borrower. At December 31, 2018, the Fund had no securities on loan.

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, 2018, 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 and dividends declared on securities sold short are 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.*

  franklintempleton.com   Annual Report             29

FRANKLIN MUTUAL EUROPEAN FUND

NOTES TO FINANCIAL STATEMENTS

1.   Organization and Significant Accounting

Policies (continued)

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

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 or based on the ratio of number of shareholders of each Fund to the combined number of shareholders 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.

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.

*Effective during the current reporting period, it is no longer required to present certain line items in the Statements of Changes in Net Assets. The below prior period amounts affected by this change are shown as they were in the prior year Statements of Changes in Net Assets.

For the year ended December 31, 2017, distributions to shareholders were as follows:

Distributions from net investment income :

Class Z	$	(17,540,243	)
Class A		(7,669,484	)
Class C		(661,962	)
Class R		(7,585	)
Class R6		(4,427,392	)

For the year ended December 31, 2017, undistributed net investment income included in net assets was $21,175,134.

  30           Annual Report   franklintempleton.com

FRANKLIN MUTUAL EUROPEAN FUND

NOTES TO FINANCIAL STATEMENTS

2.  Shares of Beneficial Interest

At December 31, 2018, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2018						2017
	Shares			Amount			Shares			Amount
Class Z Shares:
Shares sold		15,870,789		$	328,884,286			17,236,906		$	350,944,087
Shares issued in reinvestment of distributions		2,023,721			37,225,839			789,963			16,435,905
Shares redeemed		(27,834,376	)		(564,046,126	)		(15,782,895	)		(324,020,807	)
Net increase (decrease)		(9,939,866	)	$	(197,936,001	)		2,243,974		$	43,359,185
Class A Shares:
Shares solda		6,861,993		$	134,662,400			15,602,529		$	310,200,219
Shares issued in reinvestment of distributions		870,701			15,538,916			287,521			5,802,513
Shares redeemed		(10,421,209	)		(206,329,109	)		(21,954,991	)		(434,593,756	)
Net increase (decrease)		(2,688,515	)	$	(56,127,793	)		(6,064,941	)	$	(118,591,024	)
Class C Shares:
Shares sold		486,940		$	9,826,395			1,180,124		$	23,513,530
Shares issued in reinvestment of distributions		117,682			2,203,229			32,119			639,507
Shares redeemeda		(4,944,916	)		(96,235,960	)		(3,606,833	)		(71,499,733	)
Net increase (decrease)		(4,340,294	)	$	(84,206,336	)		(2,394,590	)	$	(47,346,696	)
Class R Shares:
Shares sold		8,109		$	162,976			16,679		$	329,815
Shares issued in reinvestment of distributions		1,528			26,901			382			7,585
Shares redeemed		(7,860	)		(151,298	)		(10,067	)		(196,134	)
Net increase (decrease)		1,777		$	38,579			6,994		$	141,266
Class R6 Shares:
Shares sold		1,059,999		$	21,160,059			3,235,565		$	65,830,080
Shares issued in reinvestment of distributions		261,913			4,800,226			185,294			3,853,120
Shares redeemed		(7,032,513	)		(148,025,898	)		(5,580,242	)		(115,540,368	)
Net increase (decrease)		(5,710,601	)	$	(122,065,613	)		(2,159,383	)	$	(45,857,168	)

^aMay include a portion of Class C shares that were automatically converted to Class A.

3.  Transactions with Affiliates

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton. 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

franklintempleton.com   Annual Report             31

FRANKLIN MUTUAL EUROPEAN FUND

NOTES TO FINANCIAL STATEMENTS

3.  Transactions with Affiliates (continued)

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, 2018, the gross effective investment management fee rate was 0.856% 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.

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	$	48,231
CDSC retained	$	16,930

Effective September 10, 2018, the Board approved changes to certain front-end sales charges and dealer commissions on Class A shares. Further details are disclosed in the Fund’s Prospectus.

32           Annual Report franklintempleton.com

FRANKLIN MUTUAL EUROPEAN FUND

NOTES TO FINANCIAL STATEMENTS

e.  Transfer Agent Fees

Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. The fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. 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, 2018, the Fund paid transfer agent fees of $3,041,524, of which $1,097,353 was retained by Investor Services.

f.  Investments in Affiliated Management Investment Companies

The Fund invests in one or more affiliated management investment companies for purposes other than exercising a controlling influence over the management or policies. Management fees paid by the Fund are waived on assets invested in the affiliated management investment companies, as noted in the Statement of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by each affiliate. During the year ended December 31, 2018, the Fund held investments in affiliated management investment companies as follows:

	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		Income from securities loaned		Realized Gain (Loss)		Net Change in Unrealized Appreciation (Depreciation)
Non-Controlled Affiliates
Institutional Fiduciary Trust Money Market Portfolio, 1.99%		—		938,000		(938,000	)		—		$  —		$1,745		$  —		$  —

g.  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% based on the average net assets of the class. Investor Services may discontinue this waiver in the future.

h.  Other Affiliated Transactions

At December 31, 2018, one or more of the funds in Franklin Fund Allocator Series owned 6.2% of the Fund’s outstanding shares.

i.  Interfund Transactions

The Fund engaged in purchases and sales of investments with funds or other accounts that have common investment managers (or affiliated investment managers), directors, trustees or officers. During the year ended December 31, 2018, these purchase and sale transactions aggregated $1,820,107 and $—, respectively.

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, 2018, 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.

  franklintempleton.com Annual Report           33

FRANKLIN MUTUAL EUROPEAN FUND

NOTES TO FINANCIAL STATEMENTS

5.  Independent Trustees’ Retirement Plan (continued)

During the year ended December 31, 2018, the Fund’s projected benefit obligation and benefit payments under the Plan were as follows:

aProjected benefit obligation at December 31, 2018	$	125,786
bIncrease in projected benefit obligation	$	33,573
Benefit payments made to retired trustees	$	(2,507	)

^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.

At December 31, 2018, the capital loss carryforwards were as follows:

Capital loss carryforwards not subject to expiration:
Short Term	$	26,173,614
Long Term		12,955,592
Total capital loss carryforwards	$	39,129,206

During the year ended December 31, 2018, the Fund utilized $214,998,777 of capital loss carryforwards.

The tax character of distributions paid during the years ended December 31, 2018 and 2017, was as follows:

	2018		2017
Distributions paid from ordinary income	$	69,558,550	$	30,306,666

At December 31, 2018, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$	1,946,108,213
Unrealized appreciation	$	128,651,040
Unrealized depreciation		(354,105,020)
Net unrealized appreciation (depreciation)	$	(225,453,980)
Distributable earnings:
Undistributed ordinary income	$	686,227

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

7.  Investment Transactions

Purchases and sales of investments (excluding short term securities and securities sold short) for the year ended December 31, 2018, aggregated $744,776,763 and $954,906,946, respectively.

34       Annual Report franklintempleton.com

FRANKLIN MUTUAL EUROPEAN FUND

NOTES TO FINANCIAL STATEMENTS

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. Current political and financial uncertainty surrounding the European Union may increase market volatility and the economic risk of investing in securities in Europe. 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, 2018, 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		$  —

10.  Other Derivative Information

At December 31, 2018, 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	$	378,793	a	Variation margin on futures contracts	$	—
	Unrealized appreciation on OTC forward exchange contracts		14,036,885		Unrealized depreciation on OTC forward exchange contracts		2,703,388
Totals		$	14,415,678			$	2,703,388

^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, 2018, 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		$43,649,772	Forward exchange contracts		$37,444,807
	Futures contracts		40,356,225	Futures contracts		11,212,420
Totals			$84,005,997			$48,657,227

  franklintempleton.com Annual Report           35

FRANKLIN MUTUAL EUROPEAN FUND

NOTES TO FINANCIAL STATEMENTS

10.  Other Derivative Information (continued)

For the year ended December 31, 2018, the average month end notional amount of futures contracts represented $681,668,407. The average month end contract value of forward exchange contracts was $1,264,108,979.

See Note 1(c) regarding derivative financial instruments.

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, 2018, 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.

12.  Credit Facility

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matured on February 8, 2019. 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 8, 2019, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 7, 2020, 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, 2018, 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.

36       Annual Report franklintempleton.com

FRANKLIN MUTUAL EUROPEAN FUND

NOTES TO FINANCIAL STATEMENTS

A summary of inputs used as of December 31, 2018, 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	$	33,985,600	$	30,954,926	$	—		$	64,940,526
Automobiles		17,257,430		45,501,501		—			62,758,931
Banks		126,198,361		47,875,143		—			174,073,504
Capital Markets		—		56,706,354		—			56,706,354
Chemicals		—		28,383,062		—			28,383,062
Construction Materials		—		87,334,689		—			87,334,689
Electric Utilities		—		61,698,280		—			61,698,280
Electrical Equipment		—		33,269,875		—			33,269,875
Household Durables		4,987,203		39,966,999		—			44,954,202
Machinery		—		59,565,962		—			59,565,962
Marine		—		24,527,891		—			24,527,891
Metals & Mining		—		19,084,324		—			19,084,324
Oil, Gas & Consumable Fuels		104,170,440		19,900,372		—			124,070,812
Pharmaceuticals		53,055,959		60,251,061		—			113,307,020
Specialty Retail		—		43,181,897		—			43,181,897
Trading Companies & Distributors		44,271,752		20,928,314		—			65,200,066
All Other Equity Investments		609,514,523		—		—	c		609,514,523
Short Term Investments		38,414,923		5,500,000		—			43,914,923
Total Investments in Securities	$	1,031,856,191	$	684,630,650	$	—		$	1,716,486,841
Other Financial Instruments:
Futures Contracts	$	378,793	$	—	$	—		$	378,793
Forward Exchange Contracts		—		14,036,885		—			14,036,885
Total Other Financial Instruments	$	378,793	$	14,036,885	$	—		$	14,415,678
Liabilities:
Other Financial Instruments:
Securities Sold Shorta	$	7,562,155	$	—	$	—		$	7,562,155
Forward Exchange Contracts		—		2,703,388		—			2,703,388
Total Other Financial Instruments	$	7,562,155	$	2,703,388	$	—		$	10,265,543

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

^bIncludes common and preferred stocks.

^cIncludes securities determined to have no value at December 31, 2018.

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. New Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in the ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for annual reporting periods ending after December 15, 2020. Management is currently evaluating the impact, if any, of applying this provision.

  franklintempleton.com   Annual Report             37

FRANKLIN MUTUAL EUROPEAN 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 Corp.	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

38       Annual Report franklintempleton.com

FRANKLIN MUTUAL EUROPEAN FUND

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, 2018, 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 five years in the period then ended 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, 2018, 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 five years in the period then ended, 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, 2018, 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, Massachusetts

February 20, 2019

  franklintempleton.com Annual Report         39

FRANKLIN MUTUAL EUROPEAN FUND

Tax Information (unaudited)

Under Section 854(b)(1)(B) of the Internal Revenue Code, the Fund hereby reports the maximum amount allowable but no less than $76,112,927 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Internal Revenue Code for the fiscal year ended December 31, 2018. Distributions, including qualified dividend income, paid during calendar year 2018 will be reported to shareholders on Form 1099-DIV by mid-February 2019. 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, 2018, 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 Internal Revenue Code. This written statement will allow shareholders of record on December 20, 2018, 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		$0.0842		$0.6717		$0.6095
Class A		$0.0842		$0.6353		$0.5764
Class C		$0.0842		$0.4191		$0.3802
Class R		$0.0842		$0.5994		$0.5438
Class R6		$0.0842		$0.6916		$0.6274

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 2019, shareholders will receive Form 1099-DIV which will include their share of taxes paid and foreign source income distributed during the calendar year 2018. 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 2018 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.

40       Annual Report franklintempleton.com

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 U.S. 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 07078-2716	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 07078-2716	Trustee	Since 1995	38	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 07078-2716	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 07078-2716	Trustee	Since 2009	14	FinTech Acquisition Corp. III (special purpose fintech acquisition company) (2018-present)
Principal Occupation During at Least the Past 5 Years:
President and Founder, The Jan Hopkins Group (communications consulting firm); serves on Advisory Board of Knight Bagehot Fellowship; and formerly, President, Economic Club of New York (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 07078-2716	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.

  franklintempleton.com Annual Report       41

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 07078-2716	Trustee	Since 2015	38	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 07078-2716	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 07078-2716	Trustee and Chairman of the Board	Trustee since 1993 and Chairman of the Board since 2005	38	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 07078-2716	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	150	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 42 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 07078-2716	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.

42             Annual Report franklintempleton.com

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 44 of the investment companies in Franklin Templeton Investments.
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 44 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 44 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 2017	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Senior Vice President, Franklin Templeton Services, LLC; officer of 44 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 16 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 44 of the investment companies in Franklin Templeton Investments.
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 44 of the investment companies in Franklin Templeton Investments.

  franklintempleton.com Annual Report           43

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
Robert C. Rosselot (1960)	Chief	Since 2013	Not Applicable	Not Applicable
300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923	Compliance Officer
Principal Occupation During at Least the Past 5 Years:
Director, Global Compliance, Franklin Templeton Investments; Vice President, Franklin Templeton Companies, LLC; officer of 44 of the investment companies in Franklin Templeton Investments; and formerly, Senior Associate General Counsel, Franklin Templeton Investments (2007-2013); and Secretary and Vice President, Templeton Group of Funds (2004-2013).
Navid J. Tofigh (1972)	Vice President	Since 2015	Not Applicable	Not Applicable
One Franklin Parkway San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Associate General Counsel, Franklin Templeton Investments; and officer of 44 of the investment companies in Franklin Templeton Investments.
Craig S. Tyle (1960)	Vice President	Since 2005	Not Applicable	Not Applicable
One Franklin Parkway San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
General Counsel and Executive Vice President, Franklin Resources, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin Templeton Investments.
Lori A. Weber (1964)	Vice President	Since 2011	Not Applicable	Not Applicable
300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and Secretary, Templeton Investment Counsel, LLC; and officer of 44 of the investment companies in Franklin Templeton Investments.

44       Annual Report franklintempleton.com

FRANKLIN MUTUAL SERIES FUNDS

*We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment manager or affiliated investment managers.

**Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Franklin Resources, Inc. (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 Advisers, LLC, which is 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 1987. He currently serves as a Max L. Hine 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 1995. 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 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.

  franklintempleton.com Annual Report     45

FRANKLIN MUTUAL SERIES FUNDS

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 U.S. Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.

Quarterly Statement of Investments

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

Householding of Reports and Prospectuses

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

46       Annual Report franklintempleton.com

This page intentionally left blank.

This page intentionally left blank.

	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.
© 2019 Franklin Templeton Investments. All rights reserved.		478 A 02/19

Annual Report
and Shareholder Letter   December 31, 2018

Internet Delivery of Fund Reports Unless You Request Paper Copies: Effective January 1, 2021, as permitted by the SEC, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request them from the Fund or your financial intermediary. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not signed up for electronic delivery, we would encourage you to join fellow shareholders who have. You may elect to receive shareholder reports and other communications electronically from the Fund by calling (800) 632-2301 or by contacting your financial intermediary.

You may elect to continue to receive paper copies of all your future shareholder reports free of charge by contacting your financial intermediary or, if you invest directly with a Fund, calling (800) 632-2301 to let the Fund know of your request. Your election to receive reports in paper will apply to all funds held in your account.

Franklin Templeton

Successful investing begins with ambition. And achievement only comes when you reach for it. That’s why we continually strive to deliver better outcomes for investors. No matter what your goals are, our deep, global investment expertise allows us to offer solutions that can help.

During our more than 70 years of experience, we’ve managed through all kinds of markets—up, down and those in between. We’re always preparing for what may come next. It’s because of this, combined with our strength as one of the world’s largest asset managers that we’ve earned the trust of millions of investors around the world.

Dear Franklin Mutual Quest Fund Shareholder:

Investors started 2018 seemingly with the wind at their back. The primary tailwinds were strong corporate earnings growth in most developed markets, healthy consumer and business investment spending, and the positive effect of major U.S. tax cuts. In addition, the global economy continued its steady expansion since the financial crisis of 2008–2009. Unemployment continued to decline in the U.S. and other developed markets, while U.S. wage growth showed some signs of accelerating. As a result, equity markets reached new highs in August and September. However, volatility and market downturns soon made their mark on 2018. As measured by the Chicago Board Options Exchange Volatility Index (VIX), 2017 was the least volatile year on record for the Standard & Poor’s 500^® Index (S&P 500^®), but the VIX surged in February 2018 and jumped again in October and December 2018. Heightened trade tensions between the U.S. and China, geopolitical events in Europe and a growing belief that corporate earnings and economic growth will likely decelerate in 2019 hindered equity markets. A flattening U.S. Treasury yield curve, wider credit spreads and growing market concern that the U.S. Federal Reserve may raise interest rates too aggressively were also important drivers of market turbulence. For the period ended December 31, 2018, U.S. stocks, as measured by the S&P 500, had a -4.38% total return.¹ Stocks in global developed markets, as measured by the MSCI World Index (USD), had a -8.20% total return, while investment-grade bonds, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index, posted a +0.01% total return.¹

While equity markets were broadly down for the year, there were pockets of positive performance concentrated in areas of growth and innovation, such as software, information technology services and segments of the health care sector. It is no surprise, therefore, that growth stocks managed to perform better than value stocks during the period. The MSCI World Growth Index (USD) had a -6.42% total return, while the MSCI World Value Index (USD) had a -10.09% total return.¹

The return of volatility is an appropriate reminder that securities markets are dynamic. We believe active, professional investment management serves investors well since market volatility is more the norm than uninterrupted positive returns. Valuation is an essential 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 a bottom-up stock-picking process that is disciplined and driven by rigorous fundamental analysis that attempts to limit downside risk. In our view, investing in underappreciated and misunderstood companies with identifiable catalysts for unlocking shareholder value can offer significant upside potential as well as a degree of downside protection.

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

1. Source: Morningstar.

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

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.

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, 2018, 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

Franklin Mutual Quest Fund	3
Performance Summary	10
Your Fund’s Expenses	13
Financial Highlights and Statement of Investments	14
Financial Statements	27
Notes to Financial Statements	32
Report of Independent Registered Public Accounting Firm	47
Tax Information	48
Board Members and Officers	49
Shareholder Information	54

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, 2018.

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 U.S. 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 had a -7.14% cumulative total return for the 12 months ended December 31, 2018. In comparison, the Fund’s benchmark, the MSCI World Index (USD), which tracks stock performance in global developed markets, had a total return of -8.20%.¹ Also for comparison, the Fund’s secondary benchmark, the Bloomberg Barclays U.S. Corporate High Yield Index, which measures the U.S. 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, had a -2.08% 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 12/31/18

*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 expanded during the 12 months under review, despite weakness in certain regions. Global developed and emerging market stocks were aided at certain points during the period by higher crude oil prices, upbeat economic data, easing trade tensions and encouraging corporate earnings reports, as well as indications of a slower pace of interest-rate increases from the U.S. Federal Reserve (Fed).

However, various factors weighed on global markets during the period, including concerns about tighter regulation of technology companies, political uncertainties in the U.S. and the European Union, and major central banks’ interest-rate path and unwinding of monetary stimulus measures. Markets were

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.

  franklintempleton.com Annual Report           3

FRANKLIN MUTUAL QUEST FUND

further pressured by U.S. trade disputes with its allies and China, and their impact on global growth and corporate earnings. In this environment, global stocks, as measured by the MSCI All Country World Index, had a -8.93% total return for the 12 months ended December 31, 2018.¹

The U.S. economy grew during the 12-month period. After moderating for three consecutive quarters, the economy grew faster in 2018’s second quarter, driven by consumer spending, business investment, exports and government spending. However, growth moderated in the third quarter due to declines in exports and housing investment. The unemployment rate declined from 4.1% in December 2017 to 3.9% at period-end.² Annual inflation, as measured by the Consumer Price Index, decreased from 2.1% in December 2017 to 1.9% at period-end.² The Fed raised its target range for the federal funds rate four times during the period, to 2.25%–2.50%, and continued reducing its balance sheet as part of an ongoing plan to normalize monetary policy. At its December meeting, the Fed reduced the projected 2019 rate increases to two, compared to three projected previously.

In Europe, the U.K.’s quarterly economic growth moderated in 2018’s first quarter, but accelerated in 2018’s second and third quarters. The Bank of England raised its key policy rate once during the review period. After moderating in 2018’s first quarter, the eurozone’s quarterly growth remained stable in the second quarter, but eased in the third quarter. The bloc’s annual inflation rate ended the period higher than in December 2017. The European Central Bank (ECB) kept its benchmark interest rate unchanged during the period. In December 2018, the ECB confirmed its plan to conclude its bond purchase program at the end of 2018 and reiterated it expects key interest rates to remain unchanged through the summer of 2019.

In Asia, Japan’s quarterly gross domestic product (GDP) grew in 2018’s second quarter, following a contraction in the first quarter, but contracted again in the third 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 growth remained stable in 2018’s first and second quarters, but accelerated in the third quarter. The Central Bank of Brazil lowered its benchmark interest rate twice during the period. Russia’s annual GDP growth rate accelerated in 2018’s first and second quarters, but moderated in the third quarter. After lowering its key rate twice early in the period, the Bank of Russia raised it

twice in the period’s second half to curtail inflation risks. China’s annual GDP grew at a stable rate in 2018’s first quarter, but it moderated in the second and third quarters. The People’s Bank of China left its benchmark interest rate unchanged during the period, but it took measures to improve financial liquidity to mitigate the negative effects of the U.S.-China trade dispute and support economic growth. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, had a -14.25% 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.

To a lesser extent, 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,

2. Source: U.S. Bureau of Labor Statistics.

  4           Annual Report franklintempleton.com

FRANKLIN MUTUAL QUEST FUND

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 2018, corporate profits in the U.S. and other developed markets continued their impressive year-over-year growth. In addition, labor markets showed further improvement, consumer spending was solid, and U.S. corporate tax reforms encouraged companies to buy back more stock, raise dividends and increase capital expenditures. Those positive fundamentals were periodically overshadowed by political and economic concerns, particularly in the final three months of the year.

As major U.S. equity markets established new all-time highs in 2018, overall U.S. equity market valuations (e.g., price-to-earnings, price-to-book or price-to-sales) became increasingly unattractive, in our analysis. The equity market sell-off in the fourth quarter helped to return valuations to more reasonable levels. The sell-off and rise in volatility yielded an opportunity for us to seek out stocks with strong corporate fundamentals and valuations whose risk/reward profiles seemed to us to have become more favorable.

In 2019, policy events may have considerable influence, for better or worse, on economic growth, investor sentiment and financial market performance and volatility. Markets are likely to be particularly sensitive to developments in U.S.-China trade relations, monetary policy moves by the Fed and other major central banks, oil production decisions by OPEC (The Organization of the Petroleum Exporting Countries) and other oil producing countries, the outcome of Brexit, China’s response to its slowing economy and potential political discord in Washington, D.C.

Asset Allocation*

Based on Total Net Assets as of 12/31/18

*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.

Europe’s equity market overall was trading at an attractively lower price-to-earnings multiple and higher dividend yield than the U.S. equity market at period-end. We also saw an increase in investor activism, which we viewed as encouraging. However, those favorable factors were offset in part by economic data, which showed increased slowing of economic activity across the region. From an investment standpoint, we are hopeful that 2019 will be a year of potential resolution and clarity. The biggest political event will likely be Brexit, as a resolution to the situation remained unclear as of period-end. The uncertainty around the terms and timing of a deal continued to undermine consumer and corporate confidence. From our perspective, we believe the European Union and the U.K. will ultimately reach an agreement that makes sense for both sides, and we believe the approval of such an agreement would likely have a significantly positive effect on investor, consumer and corporate sentiment in the U.K. We will also pay close attention to structural reform efforts in France and the political transition in Germany. In December, Chancellor Angela Merkel stepped down as leader of the Christian Democratic Union but stated her intention to remain in office for the remaining three years of her term as Chancellor.

In Asia, economic and financial market weakness in China has been brought on by multiple factors. The U.S.-China trade conflict has disrupted manufacturing activity and supply chains. As trade tensions escalated in 2018, manufacturers accelerated production to avoid upcoming tariffs. At year-end, supply chains were filled with inventory, while manufacturing activity was weak. Entering 2019, the near-term question is how long the inventory overhang will last, while the more significant question is to what extent the trade conflict will alter supply chains in the medium to long term. Amid the trade conflict, China has proven resolute in its attempt to dampen the reliance on leverage, which has weighed on economic activity as well. While the government has enacted some stimulus measures,

franklintempleton.com   Annual Report         5

FRANKLIN MUTUAL QUEST FUND

such as tax cuts, they may be less impactful than prior stimulus through fiscal spending. Meanwhile, government social policies impacting personal freedoms have had a negative effect on consumer sentiment.

Investment Spotlight

In all market environments, we seek to invest prudently in securities that we believe represent good value. We do this by seeking securities that trade at a discount to our estimate of intrinsic value, taking into account the quality of the asset, the sustainability of returns, and the growth potential of the business. We also believe the potential to deliver the best risk-adjusted return over a full market cycle requires us to be focused on applying our cross-asset approach: owning equities and debt—in certain cases multiple securities across the capital structure of a company—across geographies and sectors with an emphasis on corporate actions as catalysts. Our health care sector positions are a good example of our investment process. They have been carefully selected over a number of years, and in 2018, many of our long-standing sector investments appreciated significantly. Collectively our sector exposure outperformed the health care sector within the MSCI World Index (USD).

Within the health care sector, our investment process has generally been focused on finding innovative companies that are market leaders and that invest substantial amounts of capital into research and development (R&D) as a means to sustain and grow market positions. In addition, many of our positions have been in diversified pharmaceutical companies that also have long-duration cash flows through their leading positions in animal health, vaccine, and over-the-counter medicine businesses. These businesses can offer downside protection in years when pharmaceutical R&D is less successful or in years when important products lose patent protection. These businesses are attractive and have been undervalued by the market. This undervaluation allowed us to build positions, and in 2018, some of this undervaluation was reversed.

Eli Lilly and Merck are quintessential examples of our investment process. They are leading innovation-driven pharmaceutical companies that invest substantial amounts of capital into R&D to develop transformative medicines. Both companies have introduced innovative new products in the past many years like Trulicity for diabetes and Keytruda for oncology that we believe will continue to offer substantial long-term revenue growth. The management teams at both

Top 10 Sectors/Industries

Based on Equity Securities as of 12/31/18

	% of Total Net Assets
Insurance		9.4%
Oil, Gas & Consumable Fuels		6.1%
Tobacco		5.9%
Media		4.9%
Banks		3.5%
Communications Equipment		3.5%
Interactive Media & Services		3.4%
Diversified Telecommunication Services		3.2%
Wireless Telecommunication Services		3.2%
Semiconductors & Semiconductor Equipment		2.7%

companies take a long-term view and focus on enhancing their market positions through both internal and external innovation. Acquiring late stage innovation can be expensive, which is why Lilly and Merck take a prudent approach to generally focusing on early stage assets. Competition is typically less intense for early stage assets, and they can add value through their own development process and pass along that value to shareholders. Shareholder focus also comes through at both companies by their return of excess capital to shareholders through large dividends and share buybacks.

In our view, both companies also have strong, long-duration assets. Lilly and Merck are the fourth and third largest players in animal health, respectively. In September 2018, Lilly sold some shares of Elanco³, its animal health division, through an initial public offering to create additional shareholder value, while Merck started providing segment level profit disclosures so investors could better appreciate the contribution and value of their animal health business. Merck is also the second largest player in vaccines, a highly attractive business that is underappreciated, in our opinion.

Another common feature between Lilly and Merck is their strong balance sheets. Both companies also generate substantial amounts of free cash flows, with a significant proportion returned to shareholders in the form of dividends and share buybacks. In addition, the two companies are focused on managing their business more efficiently and improving their operating margins, which we believe will lead to additional earnings growth over the next several years.

3. Not a Fund holding.

6           Annual Report franklintempleton.com

FRANKLIN MUTUAL QUEST FUND

Mergers and Acquisitions

In health care and elsewhere, merger and acquisition (M&A) activity remained healthy in 2018. The market received some clarity regarding the regulatory environment when a federal judge ruled in favor of AT&T and Time Warner⁴, and against the U.S. Department of Justice, in its antitrust lawsuit. However, economic, financial market and geopolitical uncertainty that arose in the second half of the year caused the pace of activity to slow. In our view, it was notable that health care has become one of the busier sectors for M&A as it is relatively more insulated from economic uncertainty. The strength and path of M&A activity in 2019 will likely depend in large part on how the uncertainties carrying over from 2018 play out and how they affect equity markets. From our experience, ups and downs in equity market performance and levels of deal activity have tended to move in a similar direction.

Credit Markets

Finding mispriced risk in credit markets was challenging in 2018. Low interest rates kept credit widely available, default rates remained at historically low levels and we continued to witness a loosening in debt covenant terms, which include restrictions on financial activities by the borrower or parameters for specific financial metrics. Liberal interpretations of credit agreements and bond indentures in order to shift valuable assets beyond the reach of creditors were an ongoing challenge. In such an environment, we found more opportunities investing in short-term mispriced risk rather than long-term restructurings.

However, we are hopeful that more opportunities may emerge in 2019, especially if we are starting to enter latter stages of the business cycle. U.S. monetary policy is becoming less accommodative, economic growth appears to be downshifting into a slower pace, earnings growth is set to slow, and geopolitical uncertainty is on the rise. These dynamics have already contributed to a general rise in financial market volatility. At the same time, the amount of lower-rated investment-grade credit stands at a historically high level on an absolute basis and relative to corporate debt markets overall. We believe default rates and the pace of corporate downgrades could begin to pick up in 2019. As a result, 2019 could bring a rise in fallen-angel opportunities (bonds downgraded from investment-grade to junk status) and idiosyncratic opportunities in out-of-favor industries. We will continue to look for

opportunities across the capital structures of companies with liquidity-enhancing events, such as asset sales, the ability to issue secured debt within existing agreements, and free cash flow that could buy time for a company to weather its financial storm.

Fund Performance

Turning to Fund performance, top positive contributors included U.K.-based pay-TV provider Sky⁴, U.S.-based pharmaceutical company Eli Lilly⁴ and France-based automaker Peugeot⁴.

In February 2018, shares of Sky jumped when U.S.-based cable company Comcast⁴ made a surprise bid for the company. The Comcast bid was considerably higher than a prior bid by Twenty-First Century Fox⁴, which already owned a substantial portion of Sky. In July 2018, Twenty-First Century Fox raised its bid for Sky, but Comcast promptly offered a higher counter-bid. The stock rose again in September 2018 when The Panel on Takeovers and Mergers in the U.K. announced that Comcast had won the mandatory auction for Sky, and Twenty-Century Fox subsequently agreed to sell its stake of Sky to Comcast. The acquisition of Sky was officially completed in October 2018. The Top 10 Sectors/Industries table on page 6 lists media and also other leading industries in which the Fund currently invests.

Shares of Eli Lilly were boosted in large part by a series of strong quarterly results during 2018. Attractive corporate fundamentals and fewer investor concerns regarding the direct impact on the pharmaceutical industry from the Trump administration’s efforts to lower prescription drug prices helped push the stock higher. We believe Eli Lilly continues to have a strong product growth story and room for further margin expansion, in addition to having solid research and development capabilities.

Shares of Peugeot rallied through the first three quarters of 2018. Positive global economic fundamentals and quarterly results which showed its restructuring of Opel Vauxhall (OV), acquired from General Motors in 2017, was going better than investors had been expecting, helped push the stock price higher. We believe the acquisition should enable Peugeot to increase its profit margins and cash flow through additional product development improvements, greater vehicle production efficiency and the utilization of better powertrains (engine, transmission, drive shaft and differential) in its Opel and

4. Not held at period-end.

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

  franklintempleton.com Annual Report         7

FRANKLIN MUTUAL QUEST FUND

Vauxhall vehicles. However, shares of Peugeot and other major automakers retreated in the last quarter of 2018 due to signs of slower global economic growth and passenger vehicle sales, as well as U.S.-China trade tensions.

During the period under review, Fund investments that detracted from performance included U.K.-based British American Tobacco, U.K.-based global mobile telecommunications company Vodafone Group and Canada-based exploration and production company Crescent Point Energy. British American Tobacco and Vodafone Group are listed among the Fund’s largest positions in the Top 10 Equity Holdings table on this page.

Shares of British American Tobacco faced downward pressure due to potential additional U.S. regulation and concerns regarding next generation products. In March 2018, the U.S. Food and Drug Administration (FDA) issued an Advance Notice of Proposed Rulemaking, which started the process of examining the possibility of regulating nicotine levels in combustible cigarettes. The process may not result in regulation, but if it does, many experts believe the review could take seven to 10 years. Meanwhile, JUUL, produced by JUUL Labs³, has emerged as a popular e-cigarette for young U.S. consumers. It is unclear to what degree JUUL is cannibalizing the combustible market, but it has hurt investor sentiment toward the industry. In November, shares of British American Tobacco and industry peers dropped, as the FDA revisited the possibility of banning menthol as a flavor in cigarettes, which would take years with many steps to complete, and in our opinion, an FDA proposal would face litigation from the industry. Industry experts have suggested that it might not survive legal challenges.

In May 2018, Vodafone Group provided an outlook for its fiscal year ending March 2019 that fell short of market expectations, with much of the growth forecast to come in the latter part of the year. The stock came under further downward pressure from weaker-than-expected revenue growth due in part to price cuts in Spain and a new mobile competitor in Italy. Management stated that conditions in those two markets were likely to experience further short-term deterioration, leading to uncertainty regarding Vodafone’s ability to meet its earnings growth guidance for the fiscal year. However, we balanced the negative near-term events against the positive announcements of a merger of Vodafone’s operations in India with Idea Cellular³, which closed at the end of August 2018, and the August announcement of a merger and deconsolidation of its Australian subsidiary. In addition, we believed the newly appointed chief executive officer’s statements regarding the likely initial public offering of Vodafone’s New Zealand

Top 10 Equity Holdings

12/31/18

Company Sector/Industry, Country	% of Total Net Assets
Sorenson Communications LLC Communications Equipment, U.S.		3.5%
British American Tobacco PLC Tobacco, U.K.		3.5%
Baidu Inc. Interactive Media & Services, China		3.4%
Vodafone Group PLC Wireless Telecommunication Services, U.K.		2.9%
The Hartford Financial Services Group Inc. Insurance, U.S.		2.8%
AT&T Inc. Diversified Telecommunication Services, U.S.		2.5%
JXTG Holdings Inc. Oil, Gas & Consumable Fuels, Japan		2.5%
Everest Re Group Ltd. Insurance, U.S.		2.1%
Imperial Brands PLC Tobacco, U.K.		2.1%
Vistra Energy Corp. Independent Power & Renewable Electricity Producers,   U.S.		2.0%

business and the announcement of a three-year net cost cutting plan and multi-brand strategy to improve competitiveness across all market segments as positive for 2019.

Crescent Point Energy has significant exposure to oil production and its shares generally followed lower oil prices during the latter stages of 2018 despite some positive changes at the company. The company hired a new chief executive officer and had some changes to the executive team and the board of directors. The new management team launched a strategic plan targeting cost reduction, asset sales, a stronger balance sheet and better capital allocation, which we believe are the right things to focus on. So far, Crescent Point’s new management team delivered solid third-quarter results with good progress on its cost reduction program, which we believe will help build credibility. If management continues to follow through on its strategic plan, we believe the stock’s deep valuation discount versus peers may narrow.

During the period, the Fund held currency forwards and futures seeking to hedge most of the currency risk of the portfolio’s non-U.S. dollar investments. The hedges had a positive overall impact on the Fund’s performance because of the appreciation of the U.S. dollar versus the hedged currencies.

As fellow shareholders, we found recent absolute performance disappointing. With that said, we take a long term investment

8           Annual Report franklintempleton.com

FRANKLIN MUTUAL QUEST FUND

What is a currency forward?

A currency forward is a direct 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 U.S. or foreign futures exchange to buy or sell an underlying instrument or asset at a specific price on a future date.

approach and treat periods of heightened volatility, such as the second half of 2018, as an invitation to upgrade the portfolio and/or deploy capital into more compelling opportunities as they are revealed in periods of uncertainty. Further, we remain committed to our disciplined, value investment approach as we seek to generate attractive, long-term, risk-adjusted returns for shareholders.

Thank you for your 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, 2018, 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.

franklintempleton.com   Annual Report         9

FRANKLIN MUTUAL QUEST FUND

Performance Summary as of December 31, 2018

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 12/31/18

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 5.50% and the minimum is 0%. Class A: 5.50% maximum initial sales charge. For other share classes, visit franklintempleton.com.

Share Class	Cumulative   Total Return1	Average Annual   Total Return2
Z
1-Year	-7.14%4	-7.14%4
5-Year	+13.13%	+2.50%
10-Year	+109.22%	+7.66%
A3
1-Year	-7.36%4	-12.45%
5-Year	+11.62%	+1.07%
10-Year	+103.37%	+6.75%

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.

10           Annual Report franklintempleton.com

FRANKLIN MUTUAL QUEST 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.

See page 12 for Performance Summary footnotes.

  franklintempleton.com   Annual Report             11

FRANKLIN MUTUAL QUEST FUND

PERFORMANCE SUMMARY

Distributions (1/1/18–12/31/18)

Share Class	Net Investment Income		Short-Term Capital Gain		Long-Term Capital Gain		Total
Z		$0.5806		$0.2336		$0.9681		$1.7823
A		$0.5441		$0.2336		$0.9681		$1.7458
C		$0.3061		$0.2336		$0.9681		$1.5078
R		$0.5203		$0.2336		$0.9681		$1.7220
R6		$0.5902		$0.2336		$0.9681		$1.7919

Total Annual Operating Expenses⁶

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. Prior to 9/10/18, these shares were offered at a higher initial sales charge of 5.75%, thus actual returns would have differed. Total returns with sales charges have been restated to reflect the current maximum initial sales charge of 5.50%.

4. 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.

5. 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 U.S. Corporate High Yield Index measures the U.S. 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+).

6. 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 QUEST 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 7/1/18	Ending Account Value 12/31/18	Expenses Paid During Period 7/1/18–12/31/181,2	Ending Account Value 12/31/18	Expenses Paid During Period 7/1/18–12/31/181,2	Net Annualized Expense Ratio2
Z	$1,000	$901.30	$3.64	$1,021.37	$3.87	0.76%
A	$1,000	$900.50	$4.84	$1,020.11	$5.14	1.01%
C	$1,000	$897.20	$8.42	$1,016.33	$8.94	1.76%
R	$1,000	$899.40	$6.03	$1,018.85	$6.41	1.26%
R6	$1,000	$901.90	$3.45	$1,021.58	$3.67	0.72%

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 QUEST FUND

Financial Highlights

	Year Ended December 31,
	2018			2017			2016			2015			2014
Class Z
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$15.83			$15.52			$14.47			$16.21			$18.18
Income from investment operationsa:
Net investment incomeb		0.48			0.58			0.87	c		0.54			0.78	d
Net realized and unrealized gains (losses)		(1.58	)		0.49			1.47			(1.45	)		(0.16	)
Total from investment operations		(1.10	)		1.07			2.34			(0.91	)		0.62
Less distributions from:
Net investment income		(0.58	)		(0.63	)		(1.01	)		(0.68	)		(0.85	)
Net realized gains		(1.20	)		(0.13	)		(0.28	)		(0.15	)		(1.74	)
Total distributions		(1.78	)		(0.76	)		(1.29	)		(0.83	)		(2.59	)
Net asset value, end of year		$12.95			$15.83			$15.52			$14.47			$16.21
Total return		(6.85)%			6.92%			16.26%			(5.55)%			3.44%
Ratios to average net assets
Expensese,f		0.78%			0.79%			0.79%	g		0.82%	g		0.81%
Expenses incurred in connection with securities sold short		—%	h		—%			0.01%			0.03%			0.04%
Net investment income		2.96%			3.65%			5.74%	c		3.35%			4.18%	d
Supplemental data
Net assets, end of year (000’s)		$3,054,792			$3,667,351			$3,683,095			$3,577,696			$4,116,651
Portfolio turnover rate		115.52%			32.90%			44.04%			30.51%			65.77%

^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(e).

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

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

^hRounds to less than 0.01%.

14       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,
	2018			2017			2016			2015			2014
Class A
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$15.60			$15.32			$14.29			$16.02			$18.00
Income from investment operationsa:
Net investment incomeb		0.43			0.53			0.83	c		0.49			0.71	d
Net realized and unrealized gains (losses)		(1.54	)		0.46			1.45			(1.43	)		(0.15	)
Total from investment operations		(1.11	)		0.99			2.28			(0.94	)		0.56
Less distributions from:
Net investment income		(0.54	)		(0.58	)		(0.97	)		(0.64	)		(0.80	)
Net realized gains		(1.20	)		(0.13	)		(0.28	)		(0.15	)		(1.74	)
Total distributions		(1.74	)		(0.71	)		(1.25	)		(0.79	)		(2.54	)
Net asset value, end of year		$12.75			$15.60			$15.32			$14.29			$16.02
Total returne		(7.00)%			6.54%			16.04%			(5.85)%			3.11%
Ratios to average net assets
Expensesf,g		1.03%			1.04%			1.04%	h		1.10%	h		1.11%
Expenses incurred in connection with securities sold short		—%	i		—%			0.01%			0.03%			0.04%
Net investment income		2.71%			3.40%			5.49%	c		3.07%			3.88%	d
Supplemental data
Net assets, end of year (000’s)		$1,067,382			$1,153,870			$1,216,085			$1,203,508			$1,394,138
Portfolio turnover rate		115.52%			32.90%			44.04%			30.51%			65.77%

^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(e).

^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 QUEST FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2018			2017			2016			2015			2014
Class C
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$15.35			$15.06			$14.08			$15.78			$17.76
Income from investment operationsa:
Net investment incomeb		0.29			0.41			0.70	c		0.36			0.57	d
Net realized and unrealized gains (losses)		(1.49	)		0.47			1.41			(1.39	)		(0.14	)
Total from investment operations		(1.20	)		0.88			2.11			(1.03	)		0.43
Less distributions from:
Net investment income		(0.31	)		(0.46	)		(0.85	)		(0.52	)		(0.67	)
Net realized gains		(1.20	)		(0.13	)		(0.28	)		(0.15	)		(1.74	)
Total distributions		(1.51	)		(0.59	)		(1.13	)		(0.67	)		(2.41	)
Net asset value, end of year		$12.64			$15.35			$15.06			$14.08			$15.78
Total returne		(7.77)%			5.89%			15.10%			(6.49)%			2.42%
Ratios to average net assets
Expensesf,g		1.78%			1.79%			1.79%	h		1.82%	h		1.81%
Expenses incurred in connection with securities sold short		—%	i		—%			0.01%			0.03%			0.04%
Net investment income		1.96%			2.65%			4.74%	c		2.35%			3.18%	d
Supplemental data
Net assets, end of year (000’s)		$141,619			$309,160			$343,624			$337,974			$397,963
Portfolio turnover rate		115.52%			32.90%			44.04%			30.51%			65.77%

^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(e).

^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 QUEST FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2018			2017			2016			2015			2014
Class R
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$15.40			$15.14			$14.14			$15.87			$17.84
Income from investment operationsa:
Net investment incomeb		0.39			0.50			0.78	c		0.44			0.65	d
Net realized and unrealized gains (losses)		(1.53	)		0.46			1.43			(1.40	)		(0.13	)
Total from investment operations		(1.14	)		0.96			2.21			(0.96	)		0.52
Less distributions from:
Net investment income		(0.52	)		(0.57	)		(0.93	)		(0.62	)		(0.75	)
Net realized gains		(1.20	)		(0.13	)		(0.28	)		(0.15	)		(1.74	)
Total distributions		(1.72	)		(0.70	)		(1.21	)		(0.77	)		(2.49	)
Net asset value, end of year		$12.54			$15.40			$15.14			$14.14			$15.87
Total return		(7.31)%			6.38%			15.69%			(6.03)%			2.94%
Ratios to average net assets
Expensese,f		1.28%			1.29%			1.29%	g		1.32%	g		1.31%
Expenses incurred in connection with securities sold short		—%	h		—%			0.01%			0.03%			0.04%
Net investment income		2.46%			3.15%			5.24%	c		2.85%			3.68%	d
Supplemental data
Net assets, end of year (000’s)		$2,929			$1,774			$880			$898			$675
Portfolio turnover rate		115.52%			32.90%			44.04%			30.51%			65.77%

^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(e).

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

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

^hRounds to less than 0.01%.

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

FRANKLIN MUTUAL QUEST FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2018			2017			2016			2015			2014
Class R6
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$15.81			$15.51			$14.45			$16.19			$18.19
Income from investment operationsa:
Net investment incomeb		0.49			0.64			0.88	c		0.55			0.51	d
Net realized and unrealized gains (losses)		(1.57	)		0.43			1.48			(1.44	)		0.10
Total from investment operations		(1.08	)		1.07			2.36			(0.89	)		0.61
Less distributions from:
Net investment income		(0.59	)		(0.64	)		(1.02	)		(0.70	)		(0.87	)
Net realized gains		(1.20	)		(0.13	)		(0.28	)		(0.15	)		(1.74	)
Total distributions		(1.79	)		(0.77	)		(1.30	)		(0.85	)		(2.61	)
Net asset value, end of year		$12.94			$15.81			$15.51			$14.45			$16.19
Total return		(6.73)%			6.94%			16.44%			(5.54)%			3.53%
Ratios to average net assets
Expenses before waiver and payments by affiliatese		0.74%			0.72%			0.71%			0.74%			0.74%
Expenses net of waiver and payments by affiliatese,f		0.72%			0.72%			0.71%	g		0.74%	g		0.74%
Expenses incurred in connection with securities sold short		—%	h		—%			0.01%			0.03%			0.04%
Net investment income		3.02%			3.72%			5.82%	c		3.43%			4.25%	d
Supplemental data
Net assets, end of year (000’s)		$116,012			$123,863			$52,277			$41,408			$44,340
Portfolio turnover rate		115.52%			32.90%			44.04%			30.51%			65.77%

^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 5.50%.

^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 2.80%.

^eIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(e).

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

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

^hRounds to less than 0.01%.

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, 2018

		Country		Shares/ Warrants		Value
	Common Stocks and Other Equity Interests 59.9%
	Aerospace & Defense 0.5%
	BAE Systems PLC		United Kingdom		3,623,080	$	21,216,567
	Auto Components 0.3%
	Cie Generale des Etablissements Michelin SCA		France		129,718		12,886,297
a,b,c	International Automotive Components Group Brazil LLC		Brazil		2,548,299		107,989
a,b,c	International Automotive Components Group North America LLC		United States		19,924,658		2,375,020
							15,369,306
	Banks 3.5%
	AIB Group PLC		Ireland		7,170,891		30,145,304
	Barclays PLC		United Kingdom		12,877,511		24,718,464
	BNP Paribas SA		France		784,792		35,496,498
	Citigroup Inc.		United States		277,600		14,451,856
	Citizens Financial Group Inc.		United States		580,400		17,255,292
	Guaranty Bancorp		United States		347,127		7,202,885
	Societe Generale SA		France		822,896		26,230,760
							155,501,059
	Chemicals 0.8%
d	Advanced Emissions Solutions Inc.		United States		1,724,209		18,190,405
	BASF SE		Germany		215,133		14,985,442
a,b,e	Dow Corning Corp., Contingent Distribution		United States		12,089,194		—
							33,175,847
	Communications Equipment 3.5%
a,b,c	Sorenson Communications LLC, Membership Interests		United States		224,279		155,100,344
	Consumer Finance 0.4%
	Capital One Financial Corp.		United States		244,314		18,467,695
	Diversified Consumer Services 0.1%
a,b	Affinion Group Inc., wts., 11/10/22		United States		549,716		3,664,436
	Diversified Financial Services 1.4%
	Voya Financial Inc.		United States		1,492,186		59,896,346
	Diversified Telecommunication Services 3.2%
	AT&T Inc.		United States		3,873,537		110,550,746
	Koninklijke KPN NV		Netherlands		10,927,438		32,052,884
							142,603,630
	Equity Real Estate Investment Trusts (REITs) 0.3%
	Mid-America Apartment Communities Inc.		United States		43,765		4,188,310
	Vornado Realty Trust		United States		181,193		11,239,402
							15,427,712
	Food & Staples Retailing 0.3%
a	Rite Aid Corp.		United States		17,137,837		12,138,730
	Food Products 0.8%
	Bunge Ltd.		United States		699,700		37,391,968
	Health Care Equipment & Supplies 0.4%
	Medtronic PLC		United States		214,243		19,487,543
	Household Durables 0.3%
	Lennar Corp., A		United States		313,000		12,253,950
	Pandora AS		Denmark		14,596		595,898
							12,849,848

  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 2.0%
a	Vistra Energy Corp.		United States		3,858,672	$	88,325,002
	Insurance 9.4%
	ASR Nederland NV		Netherlands		857,335		33,969,124
a	Brighthouse Financial Inc.		United States		2,024,648		61,711,271
	China Pacific Insurance Group Co. Ltd., H		China		7,005,000		22,677,575
	Chubb Ltd.		United States		249,500		32,230,410
	Everest Re Group Ltd.		United States		424,666		92,475,268
	The Hartford Financial Services Group Inc.		United States		2,773,390		123,277,185
	Lancashire Holdings Ltd.		United Kingdom		3,354,996		25,884,674
	RSA Insurance Group PLC		United Kingdom		2,846,951		18,646,629
							410,872,136
	Interactive Media & Services 3.4%
a	Baidu Inc., ADR		China		936,393		148,511,930
	Machinery 1.6%
a	Navistar International Corp.		United States		2,159,525		56,039,674
	Terex Corp.		United States		495,518		13,661,431
							69,701,105
	Media 4.9%
a	Charter Communications Inc., A		United States		283,789		80,871,351
a	Cumulus Media Inc., A		United States		51,173		552,668
a	Cumulus Media Inc., B		United States		76,298		724,831
a	Cumulus Media Inc., wts., 6/04/38		United States		57,778		548,891
a	Discovery Inc., C		United States		1,129,269		26,063,529
a,d	Lee Enterprises Inc./IA		United States		4,824,268		10,179,206
a,b,c,d	Lee Enterprises Inc., wts., 12/31/22		United States		1,110,000		217,582
a	Liberty Global PLC, C		United Kingdom		2,786,789		57,519,325
d	New Media Investment Group Inc.		United States		3,205,203		37,084,199
							213,761,582
	Metals & Mining 0.2%
	Warrior Met Coal Inc.		United States		296,595		7,150,906
	Oil, Gas & Consumable Fuels 6.1%
	Canadian Natural Resources Ltd.		Canada		731,900		17,662,761
	Crescent Point Energy Corp.		Canada		14,542,753		44,109,306
	JXTG Holdings Inc.		Japan		20,923,737		110,097,802
	Kinder Morgan Inc.		United States		5,436,070		83,606,757
	The Williams Cos. Inc.		United States		492,600		10,861,830
							266,338,456
	Pharmaceuticals 2.5%
	Novartis AG, ADR		Switzerland		273,206		23,443,807
	Perrigo Co. PLC		United States		1,384,442		53,647,128
a	Teva Pharmaceutical Industries Ltd., ADR		Israel		1,978,724		30,511,924
							107,602,859
	Semiconductors & Semiconductor Equipment 2.7%
	BE Semiconductor Industries NV.		Netherlands		720,592		15,256,440
a	Micron Technology Inc.		United States		2,480,500		78,706,265
a	Renesas Electronics Corp.		Japan		5,599,714		25,546,140
							119,508,845

20           Annual Report franklintempleton.com

FRANKLIN MUTUAL QUEST FUND

STATEMENT OF INVESTMENTS

		Country		Shares/ Warrants		Value
	Common Stocks and Other Equity Interests (continued)
	Software 1.1%
a	Avaya Holdings Corp., wts., 12/15/22		United States		338,090	$	693,084
a	Check Point Software Technologies Ltd.		Israel		453,038		46,504,351
							47,197,435
	Specialty Retail 0.7%
	Dufry AG		Switzerland		333,758		31,807,295
	Technology Hardware, Storage & Peripherals 0.4%
	Western Digital Corp.		United States		452,800		16,740,016
	Tobacco 5.9%
	Altria Group Inc.		United States		219,100		10,821,349
	British American Tobacco PLC		United Kingdom		4,861,205		154,981,286
	Imperial Brands PLC		United Kingdom		3,048,037		92,394,204
							258,196,839
	Wireless Telecommunication Services 3.2%
a	T-Mobile U.S. Inc.		United States		221,200		14,070,532
	Vodafone Group PLC		United Kingdom		64,388,168		125,547,731
							139,618,263
	Total Common Stocks and Other Equity Interests (Cost $3,043,084,138)						2,627,623,700
	Management Investment Companies (Cost $18,167,507) 0.4%
	Diversified Financial Services 0.4%
a	Altaba Inc.		United States		302,900		17,550,026
	Convertible Preferred Stocks 0.7%
	Multi-Utilities 0.7%
	Sempra Energy, 6.00%, cvt. pfd., A		United States		250,200		23,796,522
	Sempra Energy, 6.75%, cvt. pfd., B		United States		51,100		4,928,084
	Total Convertible Preferred Stocks (Cost $30,306,178)						28,724,606
	Preferred Stocks 2.1%
	Auto Components 0.8%
f	Schaeffler AG, 7.398%, pfd.		Germany		3,994,296		34,026,984
	Automobiles 0.5%
f	Volkswagen AG, 2.845%, pfd.		Germany		145,960		23,275,143
	Technology Hardware, Storage & Peripherals 0.8%
f	Samsung Electronics Co. Ltd., 4.46%, pfd.		South Korea		1,162,517		33,141,405
	Total Preferred Stocks (Cost $85,220,853)						90,443,532
				Principal  Amount*
	Corporate Bonds, Notes and Senior Floating Rate Interests 22.1%
g,h	Affinion Group Inc., Term Loans, 10.39%, (3-month USD LIBOR + 7.75%), 5/10/22		United States	$	21,470,505		21,161,866
i	Banff Merger Sub Inc., senior note, 144A, 9.75%, 9/01/26		United States		50,000,000		45,875,000
i	CCO Holdings LLC/CCO Holdings Capital Corp.,
	senior bond, 144A, 5.75%, 2/15/26		United States		2,000,000		1,965,000
	senior bond, 144A, 5.50%, 5/01/26		United States		27,978,000		26,963,798

  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)
g,h	Community Health Systems Inc., 2021 Term H Loans, 5.957%, (3-month USD LIBOR + 3.25%), 1/15/21		United States	$	75,345,127	$	72,387,831
g,h	Cumulus Media New Holdings Inc., Term Loan, 7.03%, (1-month USD LIBOR + 4.50%), 5/13/22		United States		14,347,039		13,614,738
	Envision Healthcare Corp.,
	i senior note, 144A, 8.75%, 10/15/26		United States		140,000,000		121,450,000
	g,h,j Term Loan B, 6.272%, (1-month USD LIBOR + 3.75%), 10/11/25		United States		21,000,000		19,664,169
	Frontier Communications Corp.,
	senior note, 10.50%, 9/15/22		United States		77,063,000		53,944,100
	senior note, 11.00%, 9/15/25		United States		41,812,000		26,234,939
g,h,j	JC Penney Corp. Inc., Term B Loan, 6.772%, (1-month USD LIBOR + 4.25%), 6/23/23		United States		22,926,000		19,681,971
d	Lee Enterprises Inc.,
	h Second Lien Term Loan, 12.00%, 12/15/22		United States		46,754,653		47,222,199
	i senior secured note, first lien, 144A, 9.50%, 3/15/22		United States		97,050,000		99,476,250
	McDermott Technology Americas Inc.,
	i senior note, 144A, 10.625%, 5/01/24		United States		10,000,000		8,475,000
	g,h Term Loan, 7.522%, (1-month USD LIBOR + 5.00%), 5/09/25		United States		9,974,874		9,338,976
i	Navistar International Corp., senior note, 144A, 6.625%, 11/01/25		United States		39,270,000		38,091,900
	Perrigo Finance Unlimited Co., senior note, 4.375%, 3/15/26		United States		20,000,000		18,186,612
i	Rite Aid Corp., senior note, 144A, 6.125%, 4/01/23		United States		37,132,000		29,473,525
	Sorenson Communications LLC,
	g,h Initial Term Loan, 8.56%, (3-month USD LIBOR + 5.75%), 4/30/20		United States		139,170,854		138,475,000
	i,k secured note, second lien, 144A, PIK, 9.00%, 10/31/20		United States		96,671,937		94,738,498
i,k	Sorenson Holdings LLC/Finance Corp., senior note, 144A, PIK, 13.85%, 10/31/21		United States		20,117,561		20,620,500
g,h	Veritas US Inc.,
	Term Loan B1, 7.022%, (1-month USD LIBOR + 4.50%), 1/27/23		United States		17,442,455		15,007,785
	Term Loan B1, 7.303%, (3-month USD LIBOR + 4.50%), 1/27/23		United States		5,718,328		4,920,147
i	Veritas US Inc./Veritas Bermuda Ltd.,
	senior note, 144A, 7.50%, 2/01/23		United States		3,682,000		3,019,240
	senior note, 144A, 10.50%, 2/01/24		United States		30,222,000		20,022,075
	Total Corporate Bonds, Notes and Senior Floating Rate Interests (Cost $1,034,613,635)						970,011,119
	Corporate Notes and Senior Floating Rate Interests in   Reorganization 3.0%
b,c,l	Broadband Ventures III LLC, secured promissory note, 5.00%, 2/01/12		United States		9,272		—
l	iHeartCommunications Inc.,
	senior secured note, first lien, 9.00%, 12/15/19		United States		72,867,000		49,185,225
	g,h Tranche D Term Loan, 8.443%, (3-month USD LIBOR + 6.75%), 1/30/19		United States		46,662,631		31,562,137
	g,h Tranche E Term Loan, 9.193%, (3-month USD LIBOR + 7.50%), 7/30/19		United States		14,995,598		10,138,074
b,c,l	Sunshine Oilsands Ltd., secured note, 144A, 10.00%, 8/01/17		Canada		17,873,000		3,563,602
g,h,l	Toys R US-Delaware Inc., Term B-4 Loan, 10.067%, (3-month USD LIBOR + 8.75%), 4/24/20		United States		71,037,808		35,163,715
	Total Corporate Notes and Senior Floating Rate Interests in Reorganization (Cost $209,601,549)						129,612,753

22           Annual Report franklintempleton.com

FRANKLIN MUTUAL QUEST FUND

STATEMENT OF INVESTMENTS

		Country		Shares		Value
	Companies in Liquidation 0.0%†
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,e	NewPage Corp., Litigation Trust, Contingent Distribution		United States		723,000		—
a,e	Nortel Networks Corp., Contingent Distribution		Canada		31,192,000		857,780
a,e	Nortel Networks Ltd., Contingent Distribution		Canada		20,912,000		54,894
a,b,e	Tribune Media, Litigation Trust, Contingent Distribution		United States		1,514,115		—
a,e	Vistra Energy Corp., Litigation Trust, Contingent Distribution		United States		104,175,133		93,758
	Total Companies in Liquidation (Cost $10,258,499)						1,006,432
		Number of Contracts		Notional  Amount#
	Options Purchased 0.0%†
	Calls - Exchange-Traded
	Baidu Inc., ADR, January Srike Price $195, Expires 1/18/19		100		10,000		1,600
	Micron Technology Inc., January Srike Price $50, Expires 1/18/19		4,500		450,000		4,500
	Total Options Purchased (Cost $919,623)						6,100
	Total Investments before Short Term Investments (Cost $4,432,171,982)						3,864,978,268
		Country		Principal  Amount*
	Short Term Investments 11.5%
	U.S. Government and Agency Securities 11.5%
m	FHLB, 1/02/19		United States	$	16,700,000		16,700,000
m	U.S. Treasury Bill,
	1/02/19		United States		50,000,000		50,000,000
	1/08/19		United States		50,000,000		49,981,045
	1/24/19		United States		50,000,000		49,929,342
	2/14/19		United States		50,000,000		49,854,861
	1/03/19 - 4/25/19		United States		150,500,000		150,021,908
	5/09/19		United States		50,000,000		49,561,181
	n 5/16/19		United States		50,000,000		49,538,454
	n 5/30/19 - 6/13/19		United States		40,000,000		39,565,615
	Total U.S. Government and Agency Securities (Cost $505,126,276)						505,152,406
	Total Investments (Cost $4,937,298,258) 99.7%						4,370,130,674
	Options Written (0.2)%						(9,682,165	)
	Securities Sold Short (0.1)%						(5,471,761	)
	Other Assets, less Liabilities 0.6%						27,756,898
	Net Assets 100.0%					$	4,382,733,646

  franklintempleton.com Annual Report         23

FRANKLIN MUTUAL QUEST FUND

STATEMENT OF INVESTMENTS

		Number of Contracts		Notional Amount#		Value
o	Options Written (0.2)%
	Puts - Exchange-Traded
	Micron Technology Inc., January Strike Price $40, Expires 1/18/19		10,070		1,007,000	$	(8,478,940	)
	Perrigo Co. PLC, January Strike Price $75, Expires 1/18/19		5		500		(18,225	)
	PG&E Corp., January Strike Price $25, Expires 1/18/19		5,000		500,000		(1,185,000	)
	Total Options Written (Premiums Received $3,634,397)					$	(9,682,165	)
		Country		Shares
p	Securities Sold Short (0.1)%
	Common Stocks (0.1)%
	Equity Real Estate Investment Trusts (REITs) (0.1)%
	Seritage Growth Properties, A		United States		126,850		(4,101,061	)
	Internet & Direct Marketing Retail (0.0)%†
	Alibaba Group Holding Ltd., ADR		China		10,000		(1,370,700	)
	Total Securities Sold Short (Proceeds $6,812,019)					$	(5,471,761	)

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

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

^#Notional amount is the number of units specified in the contract, and can include currency units, bushels, shares, pounds barrels or other units. Currency units are 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.

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

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

ⁱSecurity 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, 2018, the aggregate value of these securities was $510,170,786, representing 11.6% of net assets.

^jA portion or all of the security purchased on a delayed delivery basis. See Note 1(c).

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

^lSee Note 8 regarding credit risk and defaulted securities.

^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 securities sold short and open written options contracts. At December 31, 2018, the aggregate value of these securities pledged amounted to $26,086,439, representing 0.6% of net assets.

^oSee Note 1(d) regarding written options.

^pSee Note 1(e) regarding securities sold short.

24           Annual Report franklintempleton.com

FRANKLIN MUTUAL QUEST FUND

STATEMENT OF INVESTMENTS

At December 31, 2018, the Fund had the following futures contracts outstanding. See Note 1(d).

Futures Contracts

Description	Type		Number of Contracts		Notional Amount*		Expiration Date		Value/ Unrealized Appreciation (Depreciation)
Currency Contracts
EUR/USD		Short		781		$112,488,406		3/18/19		$  16,770
GBP/USD		Short		815		65,149,063		3/18/19		134,639
Total Futures Contracts										$151,409

*As of period end.

At December 31, 2018, the Fund had the following forward exchange contracts outstanding. See Note 1(d).

Forward Exchange Contracts
Currency	Counterpartya		Type		Quantity		Contract Amount		Settlement Date		Unrealized Appreciation		Unrealized Depreciation
OTC Forward Exchange Contracts
Euro		BOFA		Sell		1,682,979	$	1,995,273		1/14/19	$	64,519	$	—
Euro		BONY		Buy		4,841,000		5,491,267		1/14/19		62,442		—
Euro		HSBK		Buy		3,795,592		4,359,668		1/14/19		—		(5,275	)
Euro		HSBK		Buy		7,742,730		8,828,725		1/14/19		53,917		—
Euro		SSBT		Buy		9,264,439		10,684,173		1/14/19		—		(55,789	)
Euro		SSBT		Buy		18,679,990		21,159,048		1/14/19		271,076		—
Euro		UBSW		Sell		42,640,772		49,600,057		1/14/19		681,555		—
British Pound		BOFA		Buy		2,644,232		3,350,908		1/16/19		23,989		—
British Pound		BOFA		Sell		520,961		683,386		1/16/19		18,471		—
British Pound		BONY		Buy		2,860,216		3,633,476		1/16/19		17,087		—
British Pound		HSBK		Buy		1,163,880		1,472,374		1/16/19		13,113		—
British Pound		HSBK		Buy		13,604,870		17,438,980		1/16/19		—		(74,761	)
British Pound		HSBK		Sell		849,319		1,103,446		1/16/19		19,440		—
British Pound		SSBT		Buy		958,132		1,214,499		1/16/19		8,387		—
British Pound		SSBT		Buy		2,950,000		3,780,056		1/16/19		—		(14,901	)
British Pound		SSBT		Sell		17,631,738		23,325,575		1/16/19		821,768		—
British Pound		UBSW		Buy		787,942		998,526		1/16/19		7,143		—
British Pound		UBSW		Sell		5,967,254		7,721,693		1/16/19		105,545		—
British Pound		BOFA		Sell		46,877,604		61,670,952		2/14/19		1,755,544		—
British Pound		BONY		Sell		8,915,740		11,819,215		2/14/19		423,790		—
British Pound		HSBK		Buy		3,052,513		3,863,108		2/14/19		38,384		—
British Pound		HSBK		Sell		6,174,141		7,989,530		2/14/19		98,208		—
British Pound		UBSW		Buy		2,054,105		2,599,645		2/14/19		25,757		—
British Pound		UBSW		Sell		34,486,900		44,457,800		2/14/19		379,252		—
South Korean Won		BONY		Sell		1,620,788,150		1,464,788		2/15/19		7,287		—
South Korean Won		HSBK		Buy		9,289,718,847		8,278,958		2/15/19		74,864		—
South Korean Won		HSBK		Sell		15,238,928,156		13,729,649		2/15/19		25,975		—
South Korean Won		UBSW		Buy		8,979,090,853		8,005,382		2/15/19		69,107		—
South Korean Won		UBSW		Sell		4,492,182,529		4,042,454		2/15/19		2,839		—
South Korean Won		UBSW		Sell		7,537,483,500		6,694,451		2/15/19		—		(83,665	)
Euro		BOFA		Buy		14,392,022		16,483,179		2/20/19		78,299		—
Euro		BOFA		Sell		11,922,857		14,043,347		2/20/19		323,238		—

  franklintempleton.com Annual Report       25

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)
Euro		BONY		Buy		1,080,000	$	1,231,502		2/20/19	$	11,297	$	—
Euro		BONY		Sell		39,938,511		46,219,802		2/20/19		260,954		—
Euro		HSBK		Buy		2,761,643		3,157,813		2/20/19		20,122		—
Euro		HSBK		Sell		7,171,641		8,442,384		2/20/19		189,689		—
Euro		SSBT		Buy		26,483,873		30,276,418		2/20/19		199,636		—
Euro		SSBT		Sell		43,673,972		50,687,371		2/20/19		429,980		—
Euro		UBSW		Buy		11,837,735		13,488,785		2/20/19		133,370		—
Euro		UBSW		Sell		30,621,670		36,077,114		2/20/19		839,529		—
British Pound		BOFA		Sell		20,537,861		26,994,143		4/24/19		657,787		—
British Pound		BONY		Sell		8,444,536		11,048,478		4/24/19		219,780		—
British Pound		SSBT		Sell		7,902,049		10,367,561		4/24/19		234,511		—
British Pound		UBSW		Sell		64,124,829		83,971,526		4/24/19		1,742,208		—
Euro		BONY		Sell		4,328,745		4,975,884		5/07/19		—		(38,442	)
South Korean Won		BONY		Sell		2,059,403,700		1,857,494		5/17/19		—		(1,458	)
South Korean Won		HSBK		Sell		13,624,861,962		12,272,439		5/17/19		—		(26,248	)
South Korean Won		UBSW		Sell		10,198,195,503		9,121,821		5/17/19		—		(83,735	)
Euro		HSBK		Sell		7,000,000		8,085,560		5/21/19		—		(32,976	)
Euro		UBSW		Sell		10,774,803		12,426,322		5/21/19		—		(70,196	)
British Pound		BOFA		Sell		3,100,000		3,951,446		5/28/19		—		(30,155	)
British Pound		BOFA		Sell		39,485,330		51,130,739		5/28/19		416,277		—
British Pound		UBSW		Sell		3,255,729		4,146,468		5/28/19		—		(35,148	)
Total Forward Exchange Contracts											$	10,826,136	$	(552,749	)
Net unrealized appreciation (depreciation)											$	10,273,387

^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 46.

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

FRANKLIN MUTUAL QUEST FUND

Financial Statements

Statement of Assets and Liabilities

December 31, 2018

Assets:
Investments in securities:
Cost - Unaffiliated issuers	$4,712,531,107
Cost - Non-controlled affiliates (Note 12)	224,767,151
Value - Unaffiliated issuers	$4,157,760,833
Value - Non-controlled affiliates (Note 12)	212,369,841
Cash	936,579
Foreign currency, at value (cost $4,648,014)	4,647,932
Receivables:
Investment securities sold	12,329,160
Capital shares sold	19,409,584
Dividends and interest	27,049,251
European Union tax reclaims	678,204
Deposits with brokers for:
Securities sold short	5,598,869
Futures contracts	3,805,100
Unrealized appreciation on OTC forward exchange contracts	10,826,136
Other assets	602
Total assets	4,455,412,091
Liabilities:
Payables:
Investment securities purchased	31,582,350
Capital shares redeemed	20,510,648
Management fees	2,593,424
Distribution fees	749,443
Transfer agent fees	555,671
Trustees’ fees and expenses	325,839
Variation margin on futures contracts	323,025
Options written, at value (premiums received $3,634,397)	9,682,165
Securities sold short, at value (proceeds $6,812,019)	5,471,761
Unrealized depreciation on OTC forward exchange contracts	552,749
Accrued expenses and other liabilities	331,370
Total liabilities	72,678,445
Net assets, at value	$4,382,733,646
Net assets consist of:
Paid-in capital	$5,039,901,053
Total distributable earnings (loss)	(657,167,407)
Net assets, at value	$4,382,733,646

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

FRANKLIN MUTUAL QUEST FUND

FINANCIAL STATEMENTS

Statement of Assets and Liabilities (continued)

December 31, 2018

Class Z:
Net assets, at value	$	3,054,791,977
Shares outstanding		235,860,626
Net asset value and maximum offering price per share		$12.95
Class A:
Net assets, at value	$	1,067,382,000
Shares outstanding		83,706,781
Net asset value per sharea		$12.75
Maximum offering price per share (net asset value per share ÷ 94.50%)		$13.49
Class C:
Net assets, at value	$	141,618,743
Shares outstanding		11,208,122
Net asset value and maximum offering price per sharea		$12.64
Class R:
Net assets, at value	$	2,928,533
Shares outstanding		233,513
Net asset value and maximum offering price per share		$12.54
Class R6:
Net assets, at value	$	116,012,393
Shares outstanding		8,968,411
Net asset value and maximum offering price per share		$12.94

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

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

FRANKLIN MUTUAL QUEST FUND

FINANCIAL STATEMENTS

Statement of Operations

for the year ended December 31, 2018

Investment income:
Dividends: (net of foreign taxes)*
Unaffiliated issuers	$ 70,483,620
Non-controlled affiliates (Note 12)	8,060,815
Interest:
Unaffiliated issuers	93,741,565
Non-controlled affiliates (Note 12)	16,242,426
Total investment income	188,528,426
Expenses:
Management fees (Note 3a)	34,004,202
Distribution fees: (Note 3c)
Class A	2,832,709
Class C	2,682,478
Class R	12,976
Transfer agent fees: (Note 3e)
Class Z	2,661,719
Class A	858,081
Class C	203,220
Class R	1,977
Class R6	51,462
Custodian fees (Note 4)	184,714
Reports to shareholders	257,040
Registration and filing fees	125,792
Professional fees	301,257
Trustees’ fees and expenses	307,899
Dividends on securities sold short	85,034
Other	139,093
Total expenses	44,709,653
Expense reductions (Note 4)	(53,182)
Expenses waived/paid by affiliates (Note 3f)	(26,682)
Net expenses	44,629,789
Net investment income	143,898,637
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:#
Unaffiliated issuers	351,560,640
Non-controlled affiliates (Note 12)	(37,212,425)
Written options	7,714,755
Foreign currency transactions	(2,002,644)
Forward exchange contracts	15,828,101
Futures contracts	12,355,366
Securities sold short	6,259,980
Net realized gain (loss)	354,503,773
Net change in unrealized appreciation (depreciation) on:
Investments:
Unaffiliated issuers	(879,741,850)
Non-controlled affiliates (Note 12)	34,888,173
Translation of other assets and liabilities denominated in foreign currencies	(240,598)
Forward exchange contracts	21,687,122
Written options	(7,361,465)
Futures contracts	2,649,713
Securities sold short	1,340,258
Change in deferred taxes on unrealized appreciation	680,769
Net change in unrealized appreciation (depreciation)	(826,097,878)

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

FRANKLIN MUTUAL QUEST FUND

FINANCIAL STATEMENTS

Statement of Operations (continued)

for the year ended December 31, 2018

Net realized and unrealized gain (loss)	(471,594,105)
Net increase (decrease) in net assets resulting from operations	$(327,695,468)

*Foreign taxes withheld on dividends	$	3,932,837
#Net of foreign taxes	$	541,756

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

FRANKLIN MUTUAL QUEST FUND

FINANCIAL STATEMENTS

Statements of Changes in Net Assets

	Year Ended December 31,
	2018			2017
Increase (decrease) in net assets:
Operations:
Net investment income	$	143,898,637		$	188,827,274
Net realized gain (loss)		354,503,773			37,699,757
Net change in unrealized appreciation (depreciation)		(826,097,878	)		122,317,207
Net increase (decrease) in net assets resulting from operations		(327,695,468	)		348,844,238
Distributions to shareholders: (Note 1h)
Class Z		(375,929,219	)		(172,576,004	)
Class A		(130,844,029	)		(52,162,156	)
Class C		(15,959,447	)		(11,931,942	)
Class R		(352,629	)		(74,588	)
Class R6		(14,194,157	)		(4,916,992	)
Total distributions to shareholders		(537,279,481	)		(241,661,682	)
Capital share transactions: (Note 2)
Class Z		(10,462,191	)		(94,442,773	)
Class A		126,783,503			(85,348,310	)
Class C		(141,318,519	)		(41,119,296	)
Class R		1,767,885			879,482
Class R6		14,919,716			72,905,275
Total capital share transactions		(8,309,606	)		(147,125,622	)
Net increase (decrease) in net assets		(873,284,555	)		(39,943,066	)
Net assets:
Beginning of year		5,256,018,201			5,295,961,267
End of year (Note 1h)	$	4,382,733,646		$	5,256,018,201

  franklintempleton.com The accompanying notes are an integral part of these financial statements.    |   Annual Report       31

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. Beginning on October 19, 2018, Class C shares automatically convert to Class A shares after they have been held for 10 years. 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 each business day as of 4 p.m. Eastern time or the regularly scheduled close of the New York Stock Exchange (NYSE), whichever is earlier. 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 Fund may 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 Fund 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.

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

32       Annual Report franklintempleton.com

FRANKLIN MUTUAL QUEST FUND

NOTES TO FINANCIAL STATEMENTS

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. At December 31, 2018, a market event occurred resulting in a portion of the securities held by the Fund being valued using fair value procedures.

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. Securities Purchased on a Delayed Delivery Basis

The Fund purchases securities on a delayed delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of holding the securities, it may sell the securities before the settlement date. Sufficient assets have been segregated for these securities.

d. 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

franklintempleton.com   Annual Report       33

FRANKLIN MUTUAL QUEST FUND

NOTES TO FINANCIAL STATEMENTS

1. Organization and Significant Accounting

Policies (continued)

d. Derivative Financial Instruments (continued)

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, 2018, the Fund had no OTC derivatives in a net liability position for such contracts.

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.

At December 31, 2018, the Fund received $11,910,188 in U.K. Treasury Bonds and U.S. Treasury Bills, Bonds and Notes as collateral for derivatives.

The Fund entered into exchange traded futures contracts primarily to manage exposure to certain foreign currencies. A futures contract is an agreement between the Fund and a counterparty to buy or sell an asset 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.

e. Securities Sold Short

The Fund is engaged in selling securities short, which obligates the Fund to replace a borrowed security with the same security at current fair value. The Fund incurs a loss if the price of the security increases between the date of the short sale and the date on which the Fund replaces the borrowed security. The Fund

34       Annual Report franklintempleton.com

FRANKLIN MUTUAL QUEST FUND

NOTES TO FINANCIAL STATEMENTS

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.

f. 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.

g. 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, 2018, 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.

h. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Dividend income and dividends declared on securities sold short are recorded on the ex-dividend date except for certain dividends from 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

franklintempleton.com   Annual Report       35

FRANKLIN MUTUAL QUEST FUND

NOTES TO FINANCIAL STATEMENTS

1.  Organization and Significant Accounting

Policies (continued)

h.  Security Transactions, Investment Income, Expenses

and Distributions (continued)

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 or based on the ratio of number of shareholders of each Fund to the combined number of shareholders 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.

i.  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.

j.  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.

*Effective during the current reporting period, it is no longer required to present certain line items in the Statements of Changes in Net Assets. The below prior period amounts affected by this change are shown as they were in the prior year Statements of Changes in Net Assets.

For the year ended December 31, 2017, distributions to shareholders were as follows:

Distributions from net investment income :
Class Z	$	(141,121,394	)
Class A		(42,192,676	)
Class C		(9,158,365	)
Class R		(62,381	)
Class R6		(4,613,009	)
Distributions from net realized gains:
Class Z		(31,454,610	)
Class A		(9,969,480	)
Class C		(2,773,577	)
Class R		(12,207	)
Class R6		(303,983	)

For the year ended December 31, 2017, distributions in excess of net investment income included in net assets was $(4,820,394).

36           Annual Report franklintempleton.com

FRANKLIN MUTUAL QUEST FUND

NOTES TO FINANCIAL STATEMENTS

2.  Shares of Beneficial Interest

At December 31, 2018, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2018						2017
	Shares			Amount			Shares			Amount
Class Z Shares:
Shares sold		19,486,438		$	309,433,086			27,728,870		$	439,840,070
Shares issued in reinvestment of distributions		27,534,405			355,938,444			10,319,549			163,868,714
Shares redeemed		(42,815,519	)		(675,833,721	)		(43,674,171	)		(698,151,557	)
Net increase (decrease)		4,205,324		$	(10,462,191	)		(5,625,752	)	$	(94,442,773	)
Class A Shares:
Shares solda		18,112,061		$	282,062,168			13,056,163		$	204,059,076
Shares issued in reinvestment of distributions		10,086,321			128,317,894			3,269,611			51,185,442
Shares redeemed		(18,481,020	)		(283,596,559	)		(21,720,286	)		(340,592,828	)
Net increase (decrease)		9,717,362		$	126,783,503			(5,394,512	)	$	(85,348,310	)
Class C Shares:
Shares sold		2,391,188		$	36,406,068			3,143,553		$	48,265,137
Shares issued in reinvestment of distributions		1,234,078			15,734,249			767,506			11,797,949
Shares redeemeda		(12,562,392	)		(193,458,836	)		(6,578,117	)		(101,182,382	)
Net increase (decrease)		(8,937,126	)	$	(141,318,519	)		(2,667,058	)	$	(41,119,296	)
Class R Shares:
Shares sold		121,081		$	1,898,376			93,915		$	1,451,999
Shares issued in reinvestment of distributions		28,180			352,629			4,829			74,588
Shares redeemed		(30,958	)		(483,120	)		(41,676	)		(647,105	)
Net increase (decrease)		118,303		$	1,767,885			57,068		$	879,482
Class R6 Shares:
Shares sold		2,288,195		$	36,596,048			6,529,553		$	105,932,665
Shares issued in reinvestment of distributions		1,096,020			14,150,067			310,142			4,916,992
Shares redeemed		(2,247,945	)		(35,826,399	)		(2,378,788	)		(37,944,382	)
Net increase (decrease)		1,136,270		$	14,919,716			4,460,907		$	72,905,275

^aMay include a portion of Class C shares that were automatically converted to Class A.

3.  Transactions with Affiliates

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton. 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

  franklintempleton.com   Annual Report            37

FRANKLIN MUTUAL QUEST FUND

NOTES TO FINANCIAL STATEMENTS

3.  Transactions with Affiliates (continued)

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, 2018, 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.

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	$	212,044
CDSC retained	$	15,616

Effective September 10, 2018, the Board approved changes to certain front-end sales charges and dealer commissions on Class A shares. Further details are disclosed in the Fund’s Prospectus.

  38           Annual Report   franklintempleton.com

FRANKLIN MUTUAL QUEST FUND

NOTES TO FINANCIAL STATEMENTS

e.  Transfer Agent Fees

Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. The fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. 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, 2018, the Fund paid transfer agent fees of $3,776,459, of which $2,016,676 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% based on the average net assets of the class. 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, 2018, 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, 2018, the Fund’s projected benefit obligation and benefit payments under the Plan were as follows:

aProjected benefit obligation at December 31, 2018	$	325,839
bIncrease in projected benefit obligation	$	81,688
Benefit payments made to retired trustees	$	(5,416	)

^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. At December 31, 2018, the Fund had long-term capital loss carryforwards of $5,625,011, not subject to expiration, which is from the acquired Franklin Mutual Recovery Fund, which may be carried over to offset future capital gains, subject to certain limitations.

During the year ended December 31, 2018, the Fund utilized $41,936,870 of capital loss carryforwards.

On December 31, 2018, the Fund had expired capital loss carryforwards of $18,751,585, which were reclassified to paid-in capital.

For tax purposes, the Fund may elect to defer any portion of a post-October capital loss or late-year ordinary loss to the first day of the following fiscal year. At December 31, 2018, the Fund deferred post-October capital losses of $15,196,442.

franklintempleton.com   Annual Report     39

FRANKLIN MUTUAL QUEST FUND

NOTES TO FINANCIAL STATEMENTS

6.  Income Taxes (continued)

The tax character of distributions paid during the years ended December 31, 2018 and 2017, was as follows:

	2018		2017
Distributions paid from:
Ordinary income	$	242,783,398	$	229,143,200
Long term capital gain		294,496,083		12,518,482
	$	537,279,481	$	241,661,682

At December 31, 2018, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$	5,006,291,199
Unrealized appreciation	$	248,019,542
Unrealized depreciation		(888,903,550)
Net unrealized appreciation (depreciation)	$	(640,884,008)
Distributable earnings:
Undistributed ordinary income	$	4,789,380

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

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, 2018, aggregated $4,962,627,185 and $5,068,940,096, 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, 2018, the aggregate long value of distressed company securities for which interest recognition has been discontinued was $129,612,753, representing 3.0% of the Fund’s net assets. For information as to specific securities, see the accompanying Statement of Investments.

40       Annual Report franklintempleton.com

FRANKLIN MUTUAL QUEST FUND

NOTES TO FINANCIAL STATEMENTS

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. Current political and financial uncertainty surrounding the European Union may increase market volatility and the economic risk of investing in securities in Europe. 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, 2018, 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	$	—
	2,548,299	International Automotive Components Group Brazil LLC	4/13/06 - 12/26/08		1,692,334		107,989
	19,924,658	International Automotive Components Group North America LLC	1/02/06 - 3/18/13		16,305,945		2,375,020
	1,110,000	a Lee Enterprises Inc., wts., 12/31/22	3/31/14		1,490,026		217,582
	224,279	b Sorenson Communications LLC, Membership Interests	4/30/14		—		155,100,344
	17,873,000	Sunshine Oilsands Ltd., secured note, 144A, 10.00%, 8/01/17	8/04/14		17,706,373		3,563,602
		Total Restricted Securities (Value is 3.7% of Net Assets)		$	37,203,950	$	161,364,537

^aThe Fund also invests in unrestricted securities or other investments in the issuer, valued at $156,877,655 as of December 31, 2018.

^bThe Fund also invests in unrestricted securities or other investments in the issuer, valued at $253,833,998 as of December 31, 2018.

11.  Other Derivative Information

At December 31, 2018, 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	$	151,409	a	Variation margin on futures contracts	$	—
	Unrealized appreciation on OTC forward exchange contracts		10,826,136		Unrealized depreciation on OTC forward exchange contracts		552,749
Equity contracts	Investments in securities, at value		6,100	b	Options written, at value		9,682,165
Totals		$	10,983,645			$	10,234,914

^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.

franklintempleton.com   Annual Report     41

FRANKLIN MUTUAL QUEST FUND

NOTES TO FINANCIAL STATEMENTS

11. Other Derivative Information (continued)

For the year ended December 31, 2018, 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		$15,828,101	Forward exchange contracts		$21,687,122
	Futures contracts		12,355,366	Futures contracts		2,649,713
Equity contracts	Investments		(3,532,714)a	Investments		(900,236)a
	Written options		7,714,755	Written options		(7,361,465)
Totals			$32,365,508			$16,075,134

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

For the year ended December 31, 2018, the average month end notional amount of futures contracts and options represented $198,852,455 and 1,604,208 shares, respectively. The average month end contract value of forward exchange contracts was $563,615,472.

See Note 1(d) 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, 2018, 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		$18,190,405		$1,724,209		$                 —		$  1,534,546
Eastman Kodak Co.		2,613,836		—		(2,613,836	)		—		—		—		(35,037,722)		40,973,441
Eastman Kodak Co., wts., 9/03/18		48,582		—		(48,582	)		—		—		—		(1,462,104)		1,558,221
Eastman Kodak Co., wts., 9/03/18		48,582		—		(48,582	)		—		—		—		(1,296,546)		1,379,940
Lee Enterprises Inc./IA		4,824,268		—		—			4,824,268		10,179,206		—		—		(1,157,824)
Lee Enterprises Inc., wts., 12/31/22		1,110,000		—		—			1,110,000		217,582		—		—		(271,140)
New Media Investment Group Inc.		4,932,482		811,410		(2,538,689	)		3,205,203		37,084,199		6,336,606		(550,515)		(6,336,242)
											$65,671,392		$8,060,815		$(38,346,887)		$37,680,942

42       Annual Report franklintempleton.com

FRANKLIN MUTUAL QUEST FUND

NOTES TO FINANCIAL STATEMENTS

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 (continued)
													Interest
Eastman Kodak Co., Term Loan, 7.819%, (LIBOR + 6.25%), 9/03/19		37,302,241		—		(37,302,241	)		—		$                  —		$     254,019		$     (786,094	)		$  3,495,088
Lee Enterprises Inc., Second Lien Term Loan, 12.00%, 12/15/22		56,941,414		—		(10,186,761	)		46,754,653		47,222,199		3,105,659		151,645			(2,185,128	)
Lee Enterprises Inc., senior secured note, first lien, 144A, 9.50%, 3/15/22		99,050,000		—		(2,000,000	)		97,050,000		99,476,250		9,287,556		100,000			(1,722,917	)
New Media Holdings II LLC, Fourth Amendment Replacement Term Loans, 8.127%, (LIBOR + 6.25%), 7/14/22		111,005,571		—		(111,005,571	)		—		—		3,595,192		1,668,911			(2,379,812	)
											$146,698,449		$16,242,426		$   1,134,462			$ (2,792,769	)
Total Affiliated Securities (Value is 4.8% of Net Assets)											$212,369,841		$24,303,241		$(37,212,425	)		$34,888,173

13.  Credit Facility

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matured on February 8, 2019. 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 8, 2019, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 7, 2020, 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, 2018, 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)

franklintempleton.com   Annual Report     43

FRANKLIN MUTUAL QUEST FUND

NOTES TO FINANCIAL STATEMENTS

14. Fair Value Measurements (continued)

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

A summary of inputs used as of December 31, 2018, 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	$	12,886,297	$	34,026,984	$	2,483,009		$	49,396,290
Automobiles		—		23,275,143		—			23,275,143
Banks		125,355,755		30,145,304		—			155,501,059
Chemicals		18,190,405		14,985,442		—	c		33,175,847
Communications Equipment		—		—		155,100,344			155,100,344
Diversified Consumer Services		—		—		3,664,436			3,664,436
Household Durables		12,253,950		595,898		—			12,849,848
Media		212,270,278		1,273,722		217,582			213,761,582
Software		46,504,351		693,084		—			47,197,435
Specialty Retail		—		31,807,295		—			31,807,295
All Other Equity Investments		2,038,612,585		—		—			2,038,612,585
Corporate Bonds, Notes and Senior Floating Rate Interests		—		970,011,119		—			970,011,119
Corporate Notes and Senior Floating Rate Interests in Reorganization		—		126,049,151		3,563,602	c		129,612,753
Companies in Liquidation		—		1,006,432		—	c		1,006,432
Options Purchased		6,100		—		—			6,100
Short Term Investments		488,452,406		16,700,000		—			505,152,406
Total Investments in Securities	$	2,954,532,127	$	1,250,569,574	$	165,028,973		$	4,370,130,674
Other Financial Instruments:
Futures Contracts	$	151,409	$	—	$	—		$	151,409
Forward Exchange Contracts		—		10,826,136		—			10,826,136
Total Other Financial Instruments	$	151,409	$	10,826,136	$	—		$	10,977,545
Liabilities:
Other Financial Instruments:
Options Written	$	9,682,165	$	—	$	—		$	9,682,165
Securities Sold Shorta		5,471,761		—		—			5,471,761
Forward Exchange Contracts		—		552,749		—			552,749
Total Other Financial Instruments	$	15,153,926	$	552,749	$	—		$	15,706,675

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

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

^cIncludes securities determined to have no value at December 31, 2018.

  44           Annual Report   franklintempleton.com

FRANKLIN MUTUAL QUEST FUND

NOTES TO FINANCIAL STATEMENTS

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, 2018, the reconciliation of assets is as follows:

	Balance at Beginning of Year			Purchases (Sales)		Transfer Into(Out of) Level 3a			Cost Basis Adjustmentsb			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:c
Auto Components	$	13,213,236			$—	$	—			$        —			$        —		$(10,730,227	)		$    2,483,009			$(10,730,227	)
Communications Equipment		160,414,954			—		—			—			—		(5,314,610	)		155,100,344			(5,314,610	)
Diversified Consumer Services		10,164,359			—		—			—			—		(6,499,923	)		3,664,436			(6,499,923	)
Media		488,722			—		—			—			—		(271,140	)		217,582			(271,140	)
Software		575,122			—		(1,234,029	)		—			—		658,907			—			—
Corporate Notes and Senior Floating Rate Interests in Reorganization		8,657,697	d		—		—			—			—		(5,094,095	)		3,563,602	d		(5,094,095	)
Companies in Liquidation		1,680,146	d		—		(1,738,082	)		(54,760	)		54,760		57,936			—	d		—
Total	$	195,194,236			$—	$	(2,972,111	)		$(54,760	)		$54,760		$(27,193,152	)		$165,028,973			$(27,909,995	)

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

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

^cIncludes common stocks as well as other equity investments.

^dIncludes securities determined to have no value.

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, 2018, 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:
Communications Equipment	$	155,100,344	Market transaction	Transaction price weighting		50%		Increaseb
			Market comparables	EV / EBITDA multiple		4.1x		Increaseb
All Other Investmentsc		9,928,629
Total	$	165,028,973

^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 and net assets.

^cIncludes fair value of immaterial financial instruments developed using various valuation techniques and unobservable inputs. May also include financial instruments with values derived using private transaction prices or non-public third party pricing information which is unobservable.

Abbreviations List

EBITDA	Earnings before interest, taxes, depreciation and amortization
EV	Enterprise value

  franklintempleton.com   Annual Report             45

FRANKLIN MUTUAL QUEST FUND

NOTES TO FINANCIAL STATEMENTS

15. New Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in the ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for annual reporting periods ending after December 15, 2020. Management is currently evaluating the impact, if any, of applying this provision.

16. 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 Corp.	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.			PIK	Payment-In-Kind
UBSW	UBS AG

  46           Annual Report   franklintempleton.com

FRANKLIN MUTUAL QUEST FUND

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, 2018, 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 five years in the period then ended 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, 2018, 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 five years in the period then ended, 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, 2018, 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, Massachusetts

February 20, 2019

  franklintempleton.com   Annual Report             47

FRANKLIN MUTUAL QUEST FUND

Tax Information (unaudited)

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby reports the maximum amount allowable but no less than $307,338,113 as a long term capital gain dividend for the fiscal year ended December 31, 2018.

Under Section 871(k)(2)(C) of the Internal Revenue Code, the Fund hereby reports the maximum amount allowable but no less than $71,042,189 as a short term capital gain dividend for purposes of the tax imposed under Section 871(a)(1)(A) of the Internal Revenue Code for the fiscal year ended December 31, 2018.

Under Section 854(b)(1)(A) of the Internal Revenue Code, the Fund hereby reports 6.44% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2018.

Under Section 854(b)(1)(B) of the Internal Revenue Code, the Fund hereby reports the maximum amount allowable but no less than $72,618,074 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Internal Revenue Code for the fiscal year ended December 31, 2018. Distributions, including qualified dividend income, paid during calendar year 2018 will be reported to shareholders on Form 1099-DIV by mid-February 2019. 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 Internal Revenue Code, the Fund hereby reports the maximum amount allowable but no less than $93,093,041 as interest related dividends for purposes of the tax imposed under Section 871(a)(1)(A) of the Internal Revenue Code for the fiscal year ended December 31, 2018.

  48           Annual Report   franklintempleton.com

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 U.S. 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 07078-2716	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 07078-2716	Trustee	Since 1995	38	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 07078-2716	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 07078-2716	Trustee	Since 2009	14	FinTech Acquisition Corp. III (special purpose fintech acquisition company) (2018-present)
Principal Occupation During at Least the Past 5 Years: President and Founder, The Jan Hopkins Group (communications consulting firm); serves on Advisory Board of Knight Bagehot Fellowship; and formerly, President, Economic Club of New York (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 07078-2716	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.

  franklintempleton.com Annual Report     49

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 07078-2716	Trustee	Since 2015	38	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 07078-2716	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 07078-2716	Trustee and Chairman of the Board	Trustee since 1993 and Chairman of the Board since 2005	38	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 07078-2716	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	150	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 42 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 07078-2716	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.

50       Annual Report franklintempleton.com

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 44 of the investment companies in Franklin Templeton Investments.
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 44 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 44 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 2017	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Senior Vice President, Franklin Templeton Services, LLC; officer of 44 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 16 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 44 of the investment companies in Franklin Templeton Investments.
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 44 of the investment companies in Franklin Templeton Investments.

  franklintempleton.com Annual Report     51

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
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 44 of the investment companies in Franklin Templeton Investments; and formerly, Senior Associate General Counsel, Franklin Templeton Investments (2007-2013); and Secretary and Vice President, Templeton Group of Funds (2004-2013).
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 44 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 44 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 44 of the investment companies in Franklin Templeton Investments.

52       Annual Report franklintempleton.com

FRANKLIN MUTUAL SERIES FUNDS

*We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment manager or affiliated investment managers.

**Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Franklin Resources, Inc. (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 Advisers, LLC, which is 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 1987. He currently serves as a Max L. Hine 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 1995. 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 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.

franklintempleton.com   Annual Report     53

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 U.S. Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.

Quarterly Statement of Investments

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

Householding of Reports and Prospectuses

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

  54           Annual Report   franklintempleton.com

This page intentionally left blank.

This page intentionally left blank.

	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.
© 2019 Franklin Templeton Investments. All rights reserved.	475 A 02/19

Annual Report and Shareholder Letter December 31, 2018

Internet Delivery of Fund Reports Unless You Request Paper Copies: Effective January 1, 2021, as permitted by the SEC, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request them from the Fund or your financial intermediary. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not signed up for electronic delivery, we would encourage you to join fellow shareholders who have. You may elect to receive shareholder reports and other communications electronically from the Fund by calling (800) 632-2301 or by contacting your financial intermediary.

You may elect to continue to receive paper copies of all your future shareholder reports free of charge by contacting your financial intermediary or, if you invest directly with a Fund, calling (800) 632-2301 to let the Fund know of your request. Your election to receive reports in paper will apply to all funds held in your account.

Franklin Templeton

Successful investing begins with ambition. And achievement only comes when you reach for it. That’s why we continually strive to deliver better outcomes for investors. No matter what your goals are, our deep, global investment expertise allows us to offer solutions that can help.

During our more than 70 years of experience, we’ve managed through all kinds of markets—up, down and those in between. We’re always preparing for what may come next. It’s because of this, combined with our strength as one of the world’s largest asset managers that we’ve earned the trust of millions of investors around the world.

Dear Franklin Mutual Shares Fund Shareholder:

Investors started 2018 seemingly with the wind at their back. The primary tailwinds were strong corporate earnings growth in most developed markets, healthy consumer and business investment spending, and the positive effect of major U.S. tax cuts. In addition, the global economy continued its steady expansion since the financial crisis of 2008–2009.

Unemployment continued to decline in the U.S. and other developed markets, while U.S. wage growth showed some signs of accelerating. As a result, equity markets reached new highs in August and September. However, volatility and market downturns soon made their mark on 2018. As measured by the Chicago Board Options Exchange Volatility Index (VIX), 2017 was the least volatile year on record for the Standard & Poor’s 500^® Index (S&P 500^®), but the VIX surged in February 2018 and jumped again in October and December 2018. Heightened trade tensions between the U.S. and China, growing market concern that the U.S. Federal Reserve (Fed) may raise interest rates too aggressively, geopolitical events in Europe and a growing belief that corporate earnings and economic growth will likely decelerate in 2019 hindered equity markets. A flattening U.S. Treasury yield curve and wider credit spreads were also important drivers of market turbulence. For the period ended December 31, 2018, U.S. stocks, as measured by the S&P 500, had a -4.38% total return.¹ Stocks in global developed markets, as measured by the MSCI World Index (USD), had a -8.20% total return.¹ The negative performance for the year was the result of a sharp market decline in the fourth quarter, with the S&P 500 and MSCI World Index returning -13.52% and -13.31%, respectively.¹

While equity markets were broadly down for the year, there were pockets of positive performance concentrated in areas of growth and innovation, such as software, information technology services and segments of the health care sector. It is no surprise, therefore, that growth stocks managed to perform better than value stocks during the period. The Russell 1000^® Growth Index had a -1.51% total return, while the Russell 1000^® Value Index had a -8.27% total return.¹

The return of volatility is an appropriate reminder that securities markets are dynamic. We believe active, professional investment management serves investors well since market volatility is more the norm than uninterrupted positive returns. Valuation is an essential 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 a bottom-up stock-picking process that is disciplined and driven by rigorous fundamental analysis that attempts to limit downside risk. In our view, investing in underappreciated and misunderstood companies with identifiable catalysts for unlocking shareholder value can offer significant upside potential as well as a degree of downside protection.

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.

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, 2018, 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

Franklin Mutual Shares Fund	3
Performance Summary	10
Your Fund’s Expenses	13
Financial Highlights and Statement of Investments	14
Financial Statements	26
Notes to Financial Statements	31
Report of Independent Registered
Public Accounting Firm.	44
Tax Information.	45
Board Members and Officers	46
Shareholder Information	51

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, 2018.

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 U.S. 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 had a cumulative total return of -8.95% for the 12 months ended December 31, 2018. For comparison, the Fund’s benchmark, the Standard & Poor’s 500 Index (S&P 500), which is a broad measure of U.S. stock performance, had a total return of -4.38%.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 expanded during the 12 months under review, despite weakness in certain regions. Global developed and emerging market stocks were aided at certain points during the period by higher crude oil prices, upbeat economic data, easing trade tensions and encouraging corporate earnings

Geographic Composition*

Based on Total Net Assets as of 12/31/18

*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.

reports, as well as indications of a slower pace of interest-rate increases from the U.S. Federal Reserve (Fed).

However, various factors weighed on global markets during the period, including concerns about tighter regulation of technology companies, political uncertainties in the U.S. and the European Union, and major central banks’ interest-rate path and unwinding of monetary stimulus measures. Markets were further pressured by U.S. trade disputes with its allies and China, and their impact on global growth and corporate earnings. In this environment, global stocks, as measured by the MSCI All Country World Index, had a -8.93% total return for the 12 months ended December 31, 2018.¹

The U.S. economy grew during the 12-month period. After moderating for three consecutive quarters, the economy grew faster in 2018’s second quarter, driven by consumer spending, business investment, exports and government spending. However, growth moderated in the third quarter due to declines in exports and housing investment. The unemployment rate declined from 4.1% in December 2017 to 3.9% at period-end.² Annual inflation, as measured by the Consumer Price Index, decreased from 2.1% in December 2017 to 1.9% 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.

2. Source: U.S. Bureau of Labor Statistics.

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

  franklintempleton.com   Annual Report             3

FRANKLIN MUTUAL SHARES FUND

period-end.² The Fed raised its target range for the federal funds rate four times during the period, to 2.25%–2.50%, and continued reducing its balance sheet as part of an ongoing plan to normalize monetary policy. At its December meeting, the Fed reduced the projected 2019 rate increases to two, compared to three projected previously.

In Europe, the U.K.’s quarterly economic growth moderated in 2018’s first quarter, but accelerated in 2018’s second and third quarters. The Bank of England raised its key policy rate once during the review period. After moderating in 2018’s first quarter, the eurozone’s quarterly growth remained stable in the second quarter, but eased in the third quarter. The bloc’s annual inflation rate ended the period higher than in December 2017. The European Central Bank (ECB) kept its benchmark interest rate unchanged during the period. In December 2018, the ECB confirmed its plan to conclude its bond purchase program at the end of 2018 and reiterated it expects key interest rates to remain unchanged through the summer of 2019.

In Asia, Japan’s quarterly gross domestic product (GDP) grew in 2018’s second quarter, following a contraction in the first quarter, but contracted again in the third 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 growth remained stable in 2018’s first and second quarters, but accelerated in the third quarter. The Central Bank of Brazil lowered its benchmark interest rate twice during the period. Russia’s annual GDP growth rate accelerated in 2018’s first and second quarters, but moderated in the third quarter. After lowering its key rate twice early in the period, the Bank of Russia raised it twice in the period’s second half to curtail inflation risks. China’s annual GDP grew at a stable rate in 2018’s first quarter, but it moderated in the second and third quarters. The People’s Bank of China left its benchmark interest rate unchanged during the period, but it took measures to improve financial liquidity to mitigate the negative effects of the U.S.-China trade dispute and support economic growth. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, had a -14.25% 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.

To a lesser extent, 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.

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 2018, corporate profits in the U.S. and other developed markets continued their impressive year-over-year growth. In addition, labor markets showed further improvement, consumer

  4           Annual Report   franklintempleton.com

FRANKLIN MUTUAL SHARES FUND

spending was solid, and U.S. corporate tax reforms encouraged companies to buy back stock, raise dividends and increase capital expenditures. Those positive fundamentals were periodically overshadowed by political and economic concerns, particularly in the final three months of the year.

As major U.S. equity markets established new all-time highs in 2018, overall U.S. equity market valuations (e.g., price-to-earnings, price-to-book or price-to-sales) became increasingly unattractive, in our analysis. The equity market sell-off in the fourth-quarter helped to return valuations to more reasonable levels. The sell-off and rise in volatility yielded an opportunity for us to seek out stocks with strong corporate fundamentals and valuations whose risk/reward profiles seemed to us to have become more favorable.

In 2019, policy events may have considerable influence, for better or worse, on economic growth, investor sentiment and financial market performance and volatility. Markets are likely to be particularly sensitive to developments in U.S.-China trade relations, monetary policy moves by the Fed and other major central banks, oil production decisions by OPEC (The Organization of the Petroleum Exporting Countries) and other oil producing countries, the outcome of Brexit, China’s response to its slowing economy and potential political discord in Washington, D.C.

Europe’s equity market overall was trading at an attractively lower price-to-earnings multiple and higher dividend yield than the U.S. equity market at period-end. We also saw an increase in investor activism, which we viewed as encouraging. However, those favorable factors were offset in part by economic data, which showed increased slowing of economic activity across the region. From an investment standpoint, we are hopeful that 2019 will be a year of potential resolution and clarity. The biggest political event will likely be Brexit, as a resolution to the situation remained unclear as of period-end. The uncertainty around the terms and timing of a deal continued to undermine consumer and corporate confidence. From our perspective, we believe the European Union and the U.K. will ultimately reach an agreement that makes sense for both sides, and we believe the approval of such an agreement would likely have a significantly positive effect on investor, consumer and corporate sentiment. We will also pay close attention to structural reform efforts in France and the political transition in Germany. In December, Chancellor Angela Merkel stepped down as leader of the Christian Democratic Union but stated her intention to remain in office for the remaining three years of her term as Chancellor.

Top 10 Sectors/Industries
Based on Equity Securities as of 12/31/18
	% of Total Net Assets
Banks		9.5%
Insurance		8.2%
Oil, Gas & Consumable Fuels		8.1%
Pharmaceuticals		7.1%
Media		4.8%
Health Care Equipment & Supplies		3.7%
Technology Hardware, Storage & Peripherals		3.2%
Food & Staples Retailing		2.9%
Tobacco		2.9%
Household Durables		2.6%

Developments in Asia also weighed on U.S. equity markets, as the U.S.-China trade conflict has disrupted manufacturing activity and supply chains. Amid the trade conflict, China has proven resolute in its attempt to dampen the reliance on leverage, which has hindered economic activity as well. While the government has enacted some stimulus measures, such as tax cuts, they may be less impactful than prior stimulus through fiscal spending.

Investment Spotlight

In all market environments, we seek to invest prudently in securities that we believe represent good value. We do this by seeking securities that trade at a discount to our estimate of intrinsic value, taking into account the quality of the asset, the sustainability of returns, and the growth potential of the business. We also believe the potential to deliver the best risk-adjusted return over a full market cycle requires us to be focused on applying our cross-asset approach: owning equities and debt—in certain cases multiple securities across the capital structure of a company—across geographies and sectors with an emphasis on corporate actions as catalysts. Our health care sector positions are a good example of our investment process. They have been carefully selected over a number of years, and in 2018, many of our long-standing sector investments appreciated significantly. Collectively our sector exposure outperformed the health care sector within the MSCI World Index (USD).

Within the health care sector, our investment process has generally been focused on finding innovative companies that are market leaders and that invest substantial amounts of capital into research and development (R&D) as a means to sustain and grow market positions. In addition, many of our positions have been in diversified pharmaceutical companies that also have long-duration cash flows through their leading positions

  franklintempleton.com   Annual Report             5

FRANKLIN MUTUAL SHARES FUND

in animal health, vaccine, and over-the-counter medicine businesses. These businesses can offer downside protection in years when pharmaceutical R&D is less successful or in years when important products lose patent protection. These businesses are attractive and have been undervalued by the market. This undervaluation allowed us to build positions, and in 2018, some of this undervaluation was reversed.

Eli Lilly and Merck are quintessential examples of our investment process. They are leading innovation-driven pharmaceutical companies that invest substantial amounts of capital into R&D to develop transformative medicines. Both companies have introduced innovative new products in the past many years like Trulicity for diabetes and Keytruda for oncology that we believe will continue to offer substantial long-term revenue growth. The management teams at both companies take a long-term view and focus on enhancing their market positions through both internal and external innovation. Acquiring late stage innovation can be expensive, which is why Lilly and Merck take a prudent approach to generally focusing on early stage assets. Competition is typically less intense for early stage assets, and they can add value through their own development process and pass along that value to shareholders. Shareholder focus also comes through at both companies by their return of excess capital to shareholders through large dividends and share buybacks.

In our view, both companies also have strong, long-duration assets. Lilly and Merck are the fourth and third largest players in animal health, respectively. In September 2018, Lilly sold some shares of Elanco³, its animal health division, through an initial public offering to create additional shareholder value, while Merck started providing segment level profit disclosures so investors could better appreciate the contribution and value of their animal health business. Merck is also the second largest player in vaccines, a highly attractive business that is underappreciated, in our opinion.

Another common feature between Lilly and Merck is their strong balance sheets. Both companies also generate substantial amounts of free cash flows, with a significant proportion returned to shareholders in the form of dividends and share buybacks. In addition, the two companies are focused on managing their business more efficiently and improving their operating margins, which we believe will lead to additional earnings growth over the next several years. The Top 10

Sectors/Industries table on page 5 lists pharmaceuticals and also other leading industries in which the Fund currently invests.

Mergers and Acquisitions

In health care and elsewhere, merger and acquisition (M&A) activity remained healthy in 2018. The market received some clarity regarding the regulatory environment when a federal judge ruled in favor of AT&T and Time Warner⁴, and against the U.S. Department of Justice, in its antitrust lawsuit. However, economic, financial market and geopolitical uncertainty that arose in the second half of the year caused the pace of activity to slow. In our view, it was notable that health care has become one of the busier sectors for M&A as it is relatively more insulated from economic uncertainty. The strength and path of M&A activity in 2019 will likely depend in large part on how the uncertainties carrying over from 2018 play out and how they affect equity markets. From our experience, ups and downs in equity market performance and levels of deal activity have tended to move in a similar direction.

Credit Markets

Finding mispriced risk in credit markets was challenging in 2018. Low interest rates kept credit widely available, default rates remained at historically low levels and we continued to witness a loosening in debt covenant terms, which include restrictions on financial activities by the borrower or parameters for specific financial metrics. Liberal interpretations of credit agreements and bond indentures in order to shift valuable assets beyond the reach of creditors were an ongoing challenge. In such an environment, we found more opportunities investing in short-term mispriced risk rather than long-term restructurings.

However, we are hopeful that more opportunities may emerge in 2019, especially if we are starting to enter latter stages of the business cycle. U.S. monetary policy is becoming less accommodative, economic growth appears to be downshifting into a slower pace, earnings growth is set to slow, and geopolitical uncertainty is on the rise. These dynamics have already contributed to a general rise in financial market volatility. At the same time, the amount of lower-rated investment-grade credit stands at a historically high level on an absolute basis and relative to corporate debt markets overall.

3. Not a Fund holding.

4. Not held at period-end.

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

  6           Annual Report   franklintempleton.com

FRANKLIN MUTUAL SHARES FUND

We believe default rates and the pace of corporate downgrades could begin to pick up in 2019. As a result, 2019 could bring a rise in fallen-angel opportunities (bonds downgraded from investment-grade to junk status) and idiosyncratic opportunities in out-of-favor industries. We will continue to look for opportunities across the capital structures of companies with liquidity-enhancing events, such as asset sales, the ability to issue secured debt within existing agreements, and free cash flow that could buy time for a company to weather its financial storm.

Fund Performance

Turning to Fund performance, top positive contributors included U.S.-based pharmaceutical company Eli Lilly, global research-driven pharmaceutical company Merck and multinational software company Microsoft. Eli Lilly and Merck are listed among the Fund’s largest positions in the Top 10 Equity Holdings table on this page.

Shares of Eli Lilly were boosted in large part by a series of strong quarterly results during 2018. Attractive corporate fundamentals and fewer investor concerns regarding the direct impact on the pharmaceutical industry from the Trump administration’s efforts to lower prescription drug prices helped push the stock higher. We believe Eli Lilly continues to have a strong product growth story and room for further margin expansion, in addition to having solid research and development capabilities.

Merck is a global research-driven pharmaceutical company with strong market positions in oncology, diabetes, vaccines and animal health. Investors remained upbeat about its future prospects, particularly its Keytruda oncology drug. Merck released clinical trial results, which showed that for the first-line treatment of metastatic nonsquamous non-small lung cancer patients, Keytruda combined with chemotherapy substantially extended survival of patients compared with chemotherapy alone. The Keytruda results set a high bar for competition and appeared to enhance Keytruda’s prospects to gain share in the sizeable market for lung cancer treatment. Results from a competitor, Bristol-Myers Squibb³, were less compelling in a different clinical trial in lung cancer. In October 2018, Merck raised its dividend and authorized a new large share buyback plan.

Microsoft continued to reap the rewards of its rapidly growing cloud computing business and its efforts to move Microsoft Office software clients to a subscription-based service. In 2018, Microsoft reported solid quarterly growth in revenues and earnings per share. In April 2018, it also increased its operating margin estimate for the fiscal year ended June 30, 2018. We

Top 10 Equity Holdings
12/31/18
Company Sector/Industry, Country	% of Total Net Assets
Medtronic PLC Health Care Equipment & Supplies, U.S.		3.7%
Novartis AG Pharmaceuticals, Switzerland		2.6%
Merck & Co. Inc. Pharmaceuticals, U.S.		2.5%
The Walt Disney Co. Entertainment, U.S.		2.4%
Eli Lilly & Co. Pharmaceuticals, U.S.		2.3%
JPMorgan Chase & Co. Banks, U.S.		2.2%
Cisco Systems Inc. Communications Equipment, U.S.		2.0%
Charter Communications Inc. Media, U.S.		2.0%
Royal Dutch Shell PLC Oil, Gas & Consumable Fuels, U.K.		1.9%
Wells Fargo & Co. Banks, U.S.		1.9%

believe Microsoft’s cloud computing and subscription-based services can continue to grow at a strong pace, which may likely further lift its operating margin. We exited the position as the stock price reached our estimate of fair value.

During the period under review, Fund investments that detracted from performance included U.K.-based British American Tobacco, U.S.-based insurer American International Group (AIG) and U.S.-based industrials company General Electric (GE).

Shares of British American Tobacco faced downward pressure due to potential additional U.S. regulation and concerns regarding next generation products. In March 2018, the U.S. Food and Drug Administration (FDA) issued an Advance Notice of Proposed Rulemaking, which started the process of examining the possibility of regulating nicotine levels in combustible cigarettes. The process may not result in regulation, but if it does, many experts believe the review could take seven to 10 years. Meanwhile, JUUL, produced by JUUL Labs³, has emerged as a popular e-cigarette for young U.S. consumers. It is unclear to what degree JUUL is cannibalizing the combustible market, but it has hurt investor sentiment toward the industry. In November, shares of British American Tobacco and industry peers dropped, as the FDA revisited the possibility of banning menthol as a flavor in cigarettes, which would take years with many steps to complete, and in our

  franklintempleton.com   Annual Report             7

FRANKLIN MUTUAL SHARES FUND

opinion, an FDA proposal would face litigation from the industry. Industry experts have suggested that it might not survive legal challenges.

Shares of AIG slipped in early 2018 as investors reacted negatively to the price AIG paid to acquire Validus Holdings³, a provider of insurance and reinsurance products. The acquisition price represented a significant premium to Validus’ stock price immediately prior to the announcement. However, we believe the acquisition made strategic sense as Validus gives AIG a complementary group of profitable insurance and reinsurance businesses. The stock price slipped further in October 2018, due to larger-than-expected catastrophe-related losses announced ahead of quarterly results. The losses were due to multiple typhoons in Japan, Hurricane Florence and wildfires in California. Investors tend to look beyond uncharacteristic weather-related losses. However, we believe AIG’s series of operating challenges and negative surprises in prior years, such as additional commercial reserves and increases in loss estimates on current business, likely factored into the stock’s significant decline.

GE is a multi-industrial company with a diverse set of businesses in power generation, health care and aviation. During 2018, the stock suffered a number of setbacks starting in January with a greater-than-expected charge related to long-term care policies in its insurance subsidiary. In June, the stock was removed from the Dow Jones Industrial Average and in September, GE stated that fan blades in some of its power-plant turbines were experiencing oxidation problems. In October, S&P Global Ratings, a bond rating agency, cut GE’s debt rating, while GE cut its dividend and stated that the Securities and Exchange Commission was expanding an ongoing investigation to include an accounting write-down related to its power-generation division. Amid the negative events in 2018, management took the first steps in what amounts to a breakup of GE, announcing in May 2018 the merger of its transportation operations into Wabtec³ and plans to spin-off its health care division and divest its stake in oil-services firm Baker Hughes. In October 2018, GE unexpectedly replaced chief executive officer (CEO) John Flannery, who spent his entire career at GE, with Larry Culp, a former CEO of Danaher³, an industrial company. We believe Culp made some prudent initial moves, and that his plan to reduce debt and strengthen GE’s balance sheet is a step in the right direction to restoring investor confidence in the company.

During the period, the Fund held currency forwards and futures seeking to hedge most of the currency risk of the portfolio’s non-U.S. dollar investments. The hedges had a positive overall

impact on the Fund’s performance because of the appreciation of the U.S. dollar versus the hedged currencies.

What is a currency forward?

A currency forward is a direct 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 U.S. or foreign futures exchange to buy or sell an underlying instrument or asset at a specific price on a future date.

As fellow shareholders, we found recent relative and absolute performance disappointing, but it is not uncommon for our strategy to lag the equity markets at times. We remain committed to our disciplined, value investment approach as we seek to generate attractive, long-term, risk-adjusted returns for shareholders.

  8           Annual Report   franklintempleton.com

FRANKLIN MUTUAL SHARES FUND

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, 2018, 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.

  franklintempleton.com   Annual Report             9

FRANKLIN MUTUAL SHARES FUND

Performance Summary as of December 31, 2018

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 12/31/18

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 5.50% and the minimum is 0%. Class A: 5.50% maximum initial sales charge. For other share classes, visit franklintempleton.com.

Share Class	Cumulative Total Return1	Average Annual Total Return2
Z
1-Year	-8.95%	-8.95%
5-Year	+18.48%	+3.45%
10-Year	+146.61%	+9.45%
A3
1-Year	-9.18%	-14.17%
5-Year	+16.92%	+2.01%
10-Year	+139.74%	+8.52%

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.

  10           Annual Report   franklintempleton.com

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.

See page 12 for Performance Summary footnotes.

  franklintempleton.com   Annual Report             11

FRANKLIN MUTUAL SHARES FUND

PERFORMANCE SUMMARY

Distributions (1/1/18–12/31/18)

Share Class	Net  Investment Income		Short-Term                      Capital Gain		Long-Term                      Capital Gain		Total
Z		$0.5286		$0.0583		$1.1914		$1.7783
A		$0.4610		$0.0583		$1.1914		$1.7107
C		$0.0258		$0.0583		$1.1914		$1.2755
R		$0.3605		$0.0583		$1.1914		$1.6102
R6		$0.5493		$0.0583		$1.1914		$1.7990

Total Annual Operating Expenses⁵

Share Class
Z	0.78	%
A	1.03	%

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. Prior to 9/10/18, these shares were offered at a higher initial sales charge of 5.75%, thus actual returns would have differed. Total returns with sales charges have been restated to reflect the current maximum initial sales charge of 5.50%.

4. Source: Morningstar. The S&P 500 is a market capitalization-weighted index of 500 stocks designed to measure total U.S. 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.

  12           Annual Report   franklintempleton.com

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 7/1/18	Ending Account Value 12/31/18	Expenses Paid During Period 7/1/18–12/31/181,2	Ending Account Value 12/31/18	Expenses Paid During Period 7/1/18–12/31/181,2	Net Annualized Expense Ratio2
Z	$1,000	$918.50	$3.63	$1,021.42	$3.82	0.75%
A	$1,000	$917.30	$4.83	$1,020.16	$5.09	1.00%
C	$1,000	$913.40	$8.44	$1,016.38	$8.89	1.75%
R	$1,000	$916.00	$6.04	$1,018.90	$6.36	1.25%
R6	$1,000	$918.60	$3.34	$1,021.73	$3.52	0.69%

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 SHARES FUND

Financial Highlights

		Year Ended December 31,
	2018			2017			2016			2015			2014
Class Z
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$28.63			$28.22			$26.00			$29.52			$28.34
Income from investment operationsa:
Net investment incomeb		0.51			0.65	c		0.63	d		0.54			0.78	e
Net realized and unrealized gains (losses)		(3.11	)		1.73			3.48			(1.71	)		1.38
Total from investment operations		(2.60	)		2.38			4.11			(1.17	)		2.16
Less distributions from:
Net investment income		(0.53	)		(0.68	)		(0.64	)		(0.59	)		(0.98	)
Net realized gains		(1.25	)		(1.29	)		(1.25	)		(1.76	)		—
Total distributions		(1.78	)		(1.97	)		(1.89	)		(2.35	)		(0.98	)
Net asset value, end of year.		$24.25			$28.63			$28.22			$26.00			$29.52
Total return		(8.95)%			8.49%			15.88%			(3.81)%			7.60%
Ratios to average net assets
Expensesf,g		0.76%	h		0.78%			0.80%	h		0.81%	h		0.80%
Expenses incurred in connection with securities sold short		—%	i		—%			0.01%			0.02%			0.03%
Net investment income		1.77%			2.23%	c		2.33%	d		1.82%			2.67%	e
Supplemental data
Net assets, end of year (000’s)		$5,189,476			$6,229,996			$7,681,881			$6,770,056			$7,363,765
Portfolio turnover rate		20.72%			18.15%			20.56%			19.99%			19.24%

^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%.

  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,
	2018			2017			2016			2015			2014
Class A
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$28.35			$27.97			$25.78			$29.29			$28.12
Income from investment operationsa:
Net investment incomeb		0.43			0.58	c		0.56	d		0.45			0.69	e
Net realized and unrealized gains (losses)		(3.07	)		1.70			3.45			(1.69	)		1.37
Total from investment operations		(2.64	)		2.28			4.01			(1.24	)		2.06
Less distributions from:
Net investment income		(0.46	)		(0.61	)		(0.57	)		(0.51	)		(0.89)
Net realized gains		(1.25	)		(1.29	)		(1.25	)		(1.76	)		—
Total distributions		(1.71	)		(1.90	)		(1.82	)		(2.27	)		(0.89)
Net asset value, end of year.		$24.00			$28.35			$27.97			$25.78			$29.29
Total returnf		(9.18)%			8.21%			15.61%			(4.10)%			7.30%
Ratios to average net assets
Expensesg,h		1.01%	i		1.03%			1.05%	i		1.09%	i		1.10%
Expenses incurred in connection with securities sold short		—%	j		—%			0.01%			0.02%			0.03%
Net investment income		1.52%			1.98%	c		2.08%	d		1.54%			2.37%e
Supplemental data
Net assets, end of year (000’s)		$3,852,134			$4,386,829			$4,737,576			$4,819,868			$5,392,130
Portfolio turnover rate		20.72%			18.15%			20.56%			19.99%			19.24%

^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%.

  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,
	2018			2017			2016			2015			2014
Class C
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year		$28.04			$27.68			$25.54			$29.02			$27.88
Income from investment operationsa:
Net investment incomeb		0.21			0.35	c		0.35	d		0.24			0.48	e
Net realized and unrealized gains (losses)		(3.00	)		1.67			3.40			(1.67	)		1.34
Total from investment operations		(2.79	)		2.02			3.75			(1.43	)		1.82
Less distributions from:
Net investment income		(0.03	)		(0.37	)		(0.36	)		(0.29	)		(0.68)
Net realized gains		(1.25	)		(1.29	)		(1.25	)		(1.76	)		—
Total distributions		(1.28	)		(1.66	)		(1.61	)		(2.05	)		(0.68)
Net asset value, end of year.		$23.97			$28.04			$27.68			$25.54			$29.02
Total returnf		(9.87)%			7.37%			14.77%			(4.79)%			6.56%
Ratios to average net assets
Expensesg,h		1.76%	i		1.78%			1.80%	i		1.81%	i		1.80%
Expenses incurred in connection with securities sold short		—%	j		—%			0.01%			0.02%			0.03%
Net investment income		0.77%			1.23%	c		1.33%	d		0.82%			1.67%	e
Supplemental data
Net assets, end of year (000’s)		$309,756			$995,665			$1,114,760			$1,101,302			$1,240,845
Portfolio turnover rate		20.72%			18.15%			20.56%			19.99%			19.24%

^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%.

  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,
	2018			2017			2016			2015			2014
Class R
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year		$28.21			$27.83			$25.66			$29.14			$27.98
Income from investment operationsa:
Net investment incomeb		0.36			0.50	c		0.49	d		0.38			0.64	e
Net realized and unrealized gains (losses)		(3.05	)		1.70			3.42			(1.67	)		1.34
Total from investment operations		(2.69	)		2.20			3.91			(1.29	)		1.98
Less distributions from:
Net investment income		(0.36	)		(0.53	)		(0.49	)		(0.43	)		(0.82	)
Net realized gains		(1.25	)		(1.29	)		(1.25	)		(1.76	)		—
Total distributions		(1.61	)		(1.82	)		(1.74	)		(2.19	)		(0.82	)
Net asset value, end of year.		$23.91			$28.21			$27.83			$25.66			$29.14
Total return		(9.41)%			7.96%			15.31%			(4.32)%			7.10%
Ratios to average net assets
Expensesf,g		1.26%	h		1.28%			1.30%	h		1.31%	h		1.30%
Expenses incurred in connection with securities sold short		—%	i		—%			0.01%			0.02%			0.03%
Net investment income		1.27%			1.73%	c		1.83%	d		1.32%			2.17%	e
Supplemental data
Net assets, end of year (000’s)		$74,345			$107,660			$123,013			$134,050			$172,938
Portfolio turnover rate		20.72%			18.15%			20.56%			19.99%			19.24%

^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%.

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

FRANKLIN MUTUAL SHARES FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2018			2017			2016			2015			2014
Class R6
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year		$28.61			$28.21			$25.98			$29.51			$28.33
Income from investment operationsa:
Net investment incomeb		0.53			0.70	c		0.66	d		0.57			0.82	e
Net realized and unrealized gains (losses)		(3.11	)		1.71			3.49			(1.71	)		1.37
Total from investment operations		(2.58	)		2.41			4.15			(1.14	)		2.19
Less distributions from:
Net investment income		(0.55	)		(0.72	)		(0.67	)		(0.63	)		(1.01	)
Net realized gains		(1.25	)		(1.29	)		(1.25	)		(1.76	)		—
Total distributions		(1.80	)		(2.01	)		(1.92	)		(2.39	)		(1.01	)
Net asset value, end of year.		$24.23			$28.61			$28.21			$25.98			$29.51
Total return		(8.88)%			8.61%			16.05%			(3.71)%			7.72%
Ratios to average net assets
Expensesf,g		0.69%	h		0.67%			0.68%	h		0.69%	h		0.69%
Expenses incurred in connection with securities sold short		—%	i		—%			0.01%			0.02%			0.03%
Net investment income		1.84%			2.34%	c		2.45%	d		1.94%			2.78%	e
Supplemental data
Net assets, end of year (000’s)		$3,160,186			$3,741,430			$1,896,497			$1,923,466			$2,249,991
Portfolio turnover rate		20.72%			18.15%			20.56%			19.99%			19.24%

^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 1.80%.

^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 2.08%.

^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 1.77%.

^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%.

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

ⁱRounds to less than 0.01%.

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

FRANKLIN MUTUAL SHARES FUND

Statement of Investments, December 31, 2018

	Country		Shares/ Units/ Warrants		Value
Common Stocks and Other Equity Interests 83.7%
Aerospace & Defense 0.8%
BAE Systems PLC		United Kingdom		18,114,621	$	106,078,274
Auto Components 0.5%
The Goodyear Tire & Rubber Co.		United States		2,382,274		48,622,212
a,b,c,dInternational Automotive Components Group Brazil LLC		Brazil		7,234,813		306,590
a,b,c,dInternational Automotive Components Group North America LLC		United States		63,079,866		7,519,120
						56,447,922
Automobiles 1.2%
General Motors Co.		United States		4,507,470		150,774,871
Banks 9.5%
Barclays PLC		United Kingdom		38,190,870		73,307,613
CIT Group Inc.		United States		2,759,673		105,612,686
Citigroup Inc.		United States		3,576,406		186,187,696
Citizens Financial Group Inc.		United States		6,757,671		200,905,559
Columbia Banking System Inc.		United States		88,096		3,197,004
aFCB Financial Holdings Inc., A		United States		1,647,570		55,325,401
Guaranty Bancorp		United States		1,146,366		23,787,094
JPMorgan Chase & Co.		United States		2,871,890		280,353,902
State Bank Financial Corp.		United States		1,467,000		31,672,530
Wells Fargo & Co.		United States		5,171,930		238,322,534
						1,198,672,019
Biotechnology 0.6%
Shire PLC		United Kingdom		1,258,054		73,318,032
Building Products 1.1%
Johnson Controls International PLC		United States		4,783,800		141,839,670
Chemicals 0.0%
a,c,eDow Corning Corp., Contingent Distribution		United States		12,630,547		—
Communications Equipment 2.0%
Cisco Systems Inc.		United States		5,851,060		253,526,430
Construction & Engineering 0.6%
Fluor Corp.		United States		2,399,827		77,274,429
Consumer Finance 1.7%
Ally Financial Inc.		United States		2,870,838		65,053,190
Capital One Financial Corp.		United States		2,011,505		152,049,663
						217,102,853
Containers & Packaging 1.5%
International Paper Co.		United States		3,741,837		151,020,541
WestRock Co.		United States		1,125,212		42,488,005
						193,508,546
Diversified Financial Services 1.1%
Voya Financial Inc.		United States		3,413,030		136,999,024
Diversified Telecommunication Services 1.8%
AT&T Inc.		United States		4,727,562		134,924,619
Koninklijke KPN NV		Netherlands		30,410,640		89,201,945
						224,126,564
Electric Utilities 0.3%
aPG&E Corp.		United States		1,595,750		37,899,063

  franklintempleton.com Annual Report       19

FRANKLIN MUTUAL SHARES FUND

STATEMENT OF INVESTMENTS

	Country		Shares/ Units/ Warrants		Value
Common Stocks and Other Equity Interests (continued)
Electrical Equipment 1.6%
aSensata Technologies Holding PLC		United States		4,363,870	$	195,675,931
Energy Equipment & Services 1.1%
Baker Hughes a GE Co., A		United States		5,908,552		127,033,868
aMcDermott International Inc.		United States		2,645,956		17,304,552
						144,338,420
Entertainment 2.4%
The Walt Disney Co.		United States		2,716,200		297,831,330
Equity Real Estate Investment Trusts (REITs) 1.8%
bAlexander’s Inc.		United States		326,675		99,550,939
Vornado Realty Trust		United States		2,036,522		126,325,460
						225,876,399
Food & Staples Retailing 2.9%
The Kroger Co.		United States		7,402,986		203,582,115
Walgreens Boots Alliance Inc.		United States		2,446,029		167,137,162
						370,719,277
Health Care Equipment & Supplies 3.7%
Medtronic PLC		United States		5,180,794		471,245,022
Health Care Providers & Services 1.6%
CVS Health Corp.		United States		3,015,915		197,602,751
Household Durables 2.6%
Lennar Corp., A		United States		2,378,700		93,126,105
Newell Brands Inc.		United States		8,753,495		162,727,472
Toll Brothers Inc.		United States		1,993,600		65,649,248
						321,502,825
Household Products 0.6%
Energizer Holdings Inc.		United States		1,787,933		80,725,175
Independent Power & Renewable Electricity Producers 0.6%
aVistra Energy Corp.		United States		3,124,828		71,527,313
Industrial Conglomerates 0.8%
General Electric Co.		United States		13,594,500		102,910,365
Insurance 8.2%
Alleghany Corp.		United States		377,389		235,234,111
American International Group Inc.		United States		5,664,539		223,239,482
aBrighthouse Financial Inc.		United States		2,373,200		72,335,136
Chubb Ltd.		United States		1,446,258		186,827,608
The Hartford Financial Services Group Inc.		United States		3,734,899		166,016,261
MetLife Inc.		United States		3,551,930		145,842,246
						1,029,494,844
IT Services 1.5%
Cognizant Technology Solutions Corp., A		United States		2,991,050		189,871,854
Machinery 0.7%
CNH Industrial NV		United Kingdom		4,351,332		39,317,241
CNH Industrial NV, special voting		United Kingdom		5,296,616		47,858,525
						87,175,766

20             Annual Report franklintempleton.com

FRANKLIN MUTUAL SHARES FUND

STATEMENT OF INVESTMENTS

	Country		Shares/ Units/ Warrants		Value
Common Stocks and Other Equity Interests (continued)
Media 4.8%
aCharter Communications Inc., A		United States		865,529	$	246,649,799
Comcast Corp., A		United States		5,111,400		174,043,170
aCumulus Media Inc., A		United States		151,572		1,636,978
aCumulus Media Inc., B		United States		225,990		2,146,905
aCumulus Media Inc., wts., 6/04/38		United States		171,135		1,625,782
aDiscovery Inc., C		United States		4,772,200		110,142,376
aDISH Network Corp., A		United States		2,879,437		71,899,542
						608,144,552
Metals & Mining 0.4%
thyssenkrupp AG		Germany		1,557,406		26,754,222
Warrior Met Coal Inc.		United States		795,602		19,181,964
						45,936,186
Oil, Gas & Consumable Fuels 8.1%
Anadarko Petroleum Corp.		United States		3,198,080		140,203,827
BP PLC		United Kingdom		14,266,349		90,228,981
Kinder Morgan Inc.		United States		11,533,040		177,378,156
Marathon Oil Corp.		United States		10,959,685		157,161,883
Plains All American Pipeline LP		United States		3,862,400		77,402,496
Royal Dutch Shell PLC, A (EUR Traded)		United Kingdom		4,955,823		145,678,884
Royal Dutch Shell PLC, A (GBP Traded)		United Kingdom		3,159,359		92,968,538
The Williams Cos. Inc.		United States		6,351,184		140,043,607
						1,021,066,372
Pharmaceuticals 7.4%
Eli Lilly & Co.		United States		2,539,343		293,852,772
Merck & Co. Inc.		United States		4,078,310		311,623,667
Novartis AG, ADR		Switzerland		3,798,680		325,964,731
						931,441,170
Professional Services 0.5%
RELX PLC		United Kingdom		3,153,086		64,999,025
Software 2.3%
aAvaya Holdings Corp., wts., 12/15/22		United States		276,741		567,319
aRed Hat Inc.		United States		625,300		109,827,692
Symantec Corp.		United States		9,445,251		178,468,018
						288,863,029
Technology Hardware, Storage & Peripherals 3.2%
Apple Inc.		United States		86,089		13,579,679
Hewlett Packard Enterprise Co.		United States		7,491,354		98,960,786
Samsung Electronics Co. Ltd.		South Korea		5,521,050		191,849,436
Western Digital Corp.		United States		2,716,857		100,442,203
						404,832,104
Tobacco 2.9%
Altria Group Inc.		United States		2,351,460		116,138,609
British American Tobacco PLC		United Kingdom		4,377,848		139,571,261
British American Tobacco PLC, ADR		United Kingdom		1,655,688		52,750,220
Imperial Brands PLC		United Kingdom		1,751,865		53,103,743
						361,563,833

  franklintempleton.com Annual Report       21

FRANKLIN MUTUAL SHARES FUND

STATEMENT OF INVESTMENTS

	Country		Shares/ Units/ Warrants		Value
Common Stocks and Other Equity Interests (continued)
Wireless Telecommunication Services 1.3%
aT-Mobile U.S. Inc.		United States		2,480,000	$	157,752,800
Total Common Stocks and Other Equity Interests (Cost $9,165,173,010)						10,538,664,040
Management Investment Companies (Cost $132,971,382) 1.0%
Diversified Financial Services 1.0%
aAltaba Inc.		United States		2,134,452		123,670,149
			Principal Amount
Corporate Notes and Senior Floating Rate Interests 3.0%
fBanff Merger Sub Inc., senior note, 144A, 9.75%, 9/01/26		United States	$	68,188,000		62,562,490
g,hCumulus Media New Holdings Inc., Term Loan, 7.03%, (1-month USD LIBOR + 4.50%), 5/13/22		United States		42,495,071		40,326,038
Frontier Communications Corp.,
senior note, 10.50%, 9/15/22		United States		82,365,000		57,655,500
senior note, 11.00%, 9/15/25		United States		93,006,000		58,356,615
fMcDermott Technology Americas Inc., senior note, 144A, 10.625%, 5/01/24		United States		36,543,000		30,970,192
g,hVeritas US Inc.,
Term Loan B1, 7.022%, (1-month USD LIBOR + 4.50%), 1/27/23		United States		50,611,385		43,546,896
Term Loan B1, 7.303%, (3-month USD LIBOR + 4.50%), 1/27/23		United States		16,592,417		14,276,398
fVeritas US Inc./Veritas Bermuda Ltd.,
senior note, 144A, 7.50%, 2/01/23		United States		10,656,000		8,737,920
senior note, 144A, 10.50%, 2/01/24		United States		87,705,000		58,104,562
Total Corporate Notes and Senior Floating Rate Interests (Cost $453,304,473)						374,536,611
Corporate Notes and Senior Floating Rate Interests in Reorganization 1.4%
c,d,iBroadband Ventures III LLC, secured promissory note, 5.00%, 2/01/12		United States		19,594		—
iiHeartCommunications Inc.,
senior secured note, first lien, 9.00%, 12/15/19		United States		74,295,000		50,149,125
g,hTranche D Term Loan, 8.443%, (3-month USD LIBOR + 6.75%), 1/30/19		United States		94,620,526		64,000,378
g,hTranche E Term Loan, 9.193%, (3-month USD LIBOR + 7.50%), 7/30/19		United States		30,412,812		20,561,189
g,h,iToys R US-Delaware Inc., Term B-4 Loan, 10.067%, (3-month USD LIBOR + 8.75%), 4/24/20		United States		74,685,265		36,969,206
Total Corporate Notes and Senior Floating Rate Interests in Reorganization (Cost $266,203,476)						171,679,898
			Shares
Companies in Liquidation 0.0%†
a,c,eAvaya Holdings Corp., Contingent Distribution		United States		67,859,000		—
a,c,eAvaya Inc., Contingent Distribution		United States		131,491,378		—
a,c,eTribune Media, Litigation Trust, Contingent Distribution		United States		1,007,002		—

22             Annual Report franklintempleton.com

FRANKLIN MUTUAL SHARES FUND

STATEMENT OF INVESTMENTS

	Country		Shares		Value
Companies in Liquidation (continued)
a,eVistra Energy Corp., Litigation Trust, Contingent Distribution		United States		194,177,556	$	174,760
Total Companies in Liquidation (Cost $6,601,885)						174,760
Total Investments before Short Term Investments (Cost $10,024,254,226)						11,208,725,458
			Principal Amount
Short Term Investments 10.6%
U.S. Government and Agency Securities 10.6%
jFHLB, 1/02/19		United States	$	23,600,000		23,600,000
jU.S. Treasury Bill,
1/03/19		United States		150,000,000		149,990,515
k1/24/19		United States		100,000,000		99,858,685
1/02/19 - 6/13/19		United States		1,069,000,000		1,064,131,677
Total U.S. Government and Agency Securities (Cost $1,337,501,063)						1,337,580,877
Total Investments (Cost $11,361,755,289) 99.7%						12,546,306,335
Securities Sold Short (1.2)%						(148,540,745	)
Other Assets, less Liabilities 1.5%						188,131,236
Net Assets 100.0%					$	12,585,896,826
			Shares
lSecurities Sold Short (1.2)%
Common Stocks (1.2)%
Internet & Direct Marketing Retail (0.9)%
Alibaba Group Holding Ltd., ADR		China		823,372		(112,859,600	)
Pharmaceuticals (0.3)%
Takeda Pharmaceutical Co. Ltd.		Japan		1,055,507		(35,681,145	)
Total Securities Sold Short (Proceeds $174,046,070)					$	(148,540,745	)

  franklintempleton.com Annual Report       23

FRANKLIN MUTUAL SHARES 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.

^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.

^fSecurity 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, 2018, the aggregate value of these securities was $160,375,164, representing 1.3% of net assets.

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

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

ⁱSee Note 8 regarding credit risk and defaulted securities.

^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. At December 31, 2018, the value of this security pledged amounted to $67,454,552, representing 0.5% of net assets.

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

At December 31, 2018, 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	862	$	124,154,938		3/18/19	$  18,533
GBP/USD	Short	2,702		215,991,125		3/18/19	446,480
Total Futures Contracts							$465,013

*As of period end.

24       Annual Report franklintempleton.com

FRANKLIN MUTUAL SHARES FUND

STATEMENT OF INVESTMENTS

At December 31, 2018, the Fund had the following forward exchange contracts outstanding. See Note 1(c).

Forward Exchange Contracts

Currency	Counterparty	a	Type	Quantity		Contract Amount	Settlement Date	Unrealized Appreciation	Unrealized Depreciation
OTC Forward Exchange Contracts
Euro	BOFA		Buy	22,984,735	$	26,190,537	1/14/19	$    178,092	$          —
Euro	BONY		Sell	29,029,468		34,470,752	1/14/19	1,167,461	—
Euro	HSBK		Buy	40,156,645		45,753,694	1/14/19	314,957	—
Euro	HSBK		Sell	3,184,810		3,749,741	1/14/19	96,051	—
Euro	SSBT		Buy	10,367,564		11,809,439	1/14/19	84,474	—
Euro	SSBT		Sell	50,378,205		59,842,146	1/14/19	2,047,082	—
Euro	UBSW		Buy	7,415,299		8,436,166	1/14/19	70,841	—
British Pound	BOFA		Buy	2,596,054		3,289,858	1/16/19	23,549	—
British Pound	BOFA		Sell	4,427,482		5,888,817	1/16/19	237,916	—
British Pound	HSBK		Buy	4,018,408		5,098,978	1/16/19	29,811	—
British Pound	HSBK		Sell	3,654,007		4,875,256	1/16/19	211,560	—
British Pound	UBSW		Buy	677,452		856,134	1/16/19	8,514	—
South Korean Won	BONY		Sell	7,177,365,000		6,486,548	2/15/19	32,270	—
South Korean Won	HSBK		Buy	13,557,197,210		12,032,336	2/15/19	159,034	—
South Korean Won	HSBK		Sell	71,566,552,326		64,465,326	2/15/19	108,787	—
South Korean Won	UBSW		Buy	11,673,873,446		10,360,481	2/15/19	137,302	—
South Korean Won	UBSW		Sell	38,246,441,630		34,448,495	2/15/19	55,213	—
Euro	BONY		Sell	8,405,312		9,718,222	2/20/19	45,892	—
Euro	HSBK		Sell	11,994,483		14,179,256	2/20/19	376,723	—
Euro	SSBT		Sell	9,373,805		10,874,007	2/20/19	87,193	—
Euro	BONY		Sell	5,437,745		6,341,933	4/10/19	57,723	—
Euro	SSBT		Sell	5,437,746		6,342,587	4/10/19	58,375	—
Euro	BOFA		Sell	10,516,735		12,389,660	4/18/19	227,397	—
Euro	HSBK		Sell	10,516,734		12,391,763	4/18/19	229,500	—
British Pound	UBSW		Sell	44,604,887		58,439,762	4/24/19	1,241,489	—
Euro	HSBK		Sell	6,989,274		8,126,429	5/07/19	30,203	—
South Korean Won	BONY		Sell	7,343,124,345		6,623,184	5/17/19	—	(5,198	)
South Korean Won	HSBK		Sell	56,232,780,334		50,651,036	5/17/19	—	(108,333	)
South Korean Won	UBSW		Sell	55,844,969,521		49,950,778	5/17/19	—	(458,528	)
Euro	HSBK		Sell	7,279,653		8,390,382	5/21/19	—	(52,492	)
Euro	SSBT		Sell	23,290,869		27,121,053	5/21/19	108,517	—
British Pound	BOFA		Sell	92,809,023		120,164,658	5/28/19	961,916	—
Total Forward Exchange Contracts								$  8,387,842	$  (624,551	)
Net unrealized appreciation (depreciation)								$  7,763,291

^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 43.

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

FRANKLIN MUTUAL SHARES FUND

Financial Statements

Statement of Assets and Liabilities

December 31, 2018

Assets:
Investments in securities:
Cost - Unaffiliated issuers	$11,292,576,386
Cost - Non-controlled affiliates (Note 3f and 11)	69,178,903
Value - Unaffiliated issuers	$12,438,929,686
Value - Non-controlled affiliates (Note 3f and 11)	107,376,649
Cash	1,049,841
Foreign currency, at value (cost $1,473,326)	1,473,326
Receivables:
Investment securities sold	3,735,682
Capital shares sold	15,641,423
Dividends and interest	34,842,532
European Union tax reclaims	7,177,446
Deposits with brokers for:
Securities sold short	160,083,230
Futures contracts	8,921,380
Unrealized appreciation on OTC forward exchange contracts	8,387,842
Other assets	1,788
Total assets	12,787,620,825
Liabilities:
Payables:
Investment securities purchased	12,225,832
Capital shares redeemed	26,497,982
Management fees	7,191,971
Distribution fees	2,368,070
Transfer agent fees	1,750,479
Trustees’ fees and expenses	955,705
Variation margin on futures contracts	919,800
Securities sold short, at value (proceeds $174,046,070)	148,540,745
Unrealized depreciation on OTC forward exchange contracts	624,551
Accrued expenses and other liabilities	648,864
Total liabilities	201,723,999
Net assets, at value	$12,585,896,826
Net assets consist of:
Paid-in capital	$10,995,202,122
Total distributable earnings (loss)	1,590,694,704
Net assets, at value	$12,585,896,826

26       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 (continued)

December 31, 2018

Class Z:
Net assets, at value	$5,189,476,003
Shares outstanding	214,006,966
Net asset value and maximum offering price per share	$24.25
Class A:
Net assets, at value	$3,852,134,274
Shares outstanding	160,510,109
Net asset value per sharea	$24.00
Maximum offering price per share (net asset value per share ÷ 94.50%)	$25.40
Class C:
Net assets, at value	$  309,755,931
Shares outstanding	12,923,293
Net asset value and maximum offering price per sharea	$23.97
Class R:
Net assets, at value	$    74,344,680
Shares outstanding	3,109,359
Net asset value and maximum offering price per share	$23.91
Class R6:
Net assets, at value	$3,160,185,938
Shares outstanding	130,438,414
Net asset value and maximum offering price per share	$24.23

^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           27

FRANKLIN MUTUAL SHARES FUND

FINANCIAL STATEMENTS

Statement of Operations

for the year ended December 31, 2018

Investment income:
Dividends: (net of foreign taxes)*
Unaffiliated issuers	$	304,973,581
Non-controlled affiliates (Note 3f and 11)		5,880,150
Interest:
Unaffiliated issuers		60,120,731
Income from securities loaned:
Unaffiliated issuers (net of fees and rebates)		87,926
Non-controlled affiliates (Note 3f)		2,237
Other income (Note 1g)		1,743,290
Total investment income		372,807,915
Expenses:
Management fees (Note 3a)		95,371,099
Distribution fees: (Note 3c)
Class A		10,441,697
Class C		8,070,000
Class R		476,521
Transfer agent fees: (Note 3e)
Class Z		5,437,817
Class A		3,792,749
Class C		733,080
Class R		86,939
Class R6		774,618
Custodian fees (Note 4)		419,425
Reports to shareholders		727,921
Registration and filing fees		198,616
Professional fees		384,486
Trustees’ fees and expenses		895,295
Dividends on securities sold short		632,410
Other		308,809
Total expenses		128,751,482
Expense reductions (Note 4)		(94,069	)
Expenses waived/paid by affiliates (Note 3f and 3g)		(48,100	)
Net expenses		128,609,313
Net investment income		244,198,602
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffiliated issuers		1,018,447,400
Controlled affiliates (Note 3f and 11)		27,760
Non-controlled affiliates (Note 3f and 11)		30,054
Foreign currency transactions		(2,661,002	)
Forward exchange contracts		28,266,598
Futures contracts		31,843,852
Securities sold short		3,081,811
Net realized gain (loss)		1,079,036,473
Net change in unrealized appreciation (depreciation) on:
Investments:
Unaffiliated issuers		(2,589,264,773	)
Non-controlled affiliates (Note 3f and 11)		(63,741,134	)
Translation of other assets and liabilities denominated in foreign currencies		(464,358	)
Forward exchange contracts		39,902,692
Futures contracts		6,968,472
Securities sold short		24,544,932
Net change in unrealized appreciation (depreciation)		(2,582,054,169	)
Net realized and unrealized gain (loss)		(1,503,017,696	)

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

FRANKLIN MUTUAL SHARES FUND

FINANCIAL STATEMENTS

Statement of Operations (continued)

for the year ended December 31, 2018

Net increase (decrease) in net assets resulting from operations $ (1,258,819,094 ) 

*Foreign taxes withheld on dividends $     8,272,037

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

FRANKLIN MUTUAL SHARES FUND

FINANCIAL STATEMENTS

Statements of Changes in Net Assets

	Year Ended December 31,
	2018			2017
Increase (decrease) in net assets:
Operations:
Net investment income	$	244,198,602		$	329,366,264
Net realized gain (loss)		1,079,036,473			565,295,714
Net change in unrealized appreciation (depreciation)		(2,582,054,169	)		361,422,610
Net increase (decrease) in net assets resulting from operations		(1,258,819,094	)		1,256,084,588
Distributions to shareholders: (Note 1h)
Class Z		(359,738,797	)		(440,140,182	)
Class A		(258,843,422	)		(284,207,900	)
Class C		(16,133,984	)		(57,527,176	)
Class R		(4,696,240	)		(6,815,560	)
Class R6		(218,275,931	)		(221,876,421	)
Total distributions to shareholders		(857,688,374	)		(1,010,567,239	)
Capital share transactions: (Note 2)
Class Z		(162,098,601	)		(1,618,916,627	)
Class A		114,605,103			(431,662,396	)
Class C		(631,170,380	)		(138,671,413	)
Class R		(21,048,937	)		(17,540,464	)
Class R6		(59,462,529	)		1,869,126,723
Total capital share transactions		(759,175,344	)		(337,664,177	)
Net increase (decrease) in net assets		(2,875,682,812	)		(92,146,828	)
Net assets:
Beginning of year		15,461,579,638			15,553,726,466
End of year (Note 1h)	$	12,585,896,826		$	15,461,579,638

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

FRANKLIN MUTUAL SHARES 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. Beginning on October 19, 2018, Class C shares automatically convert to Class A shares after they have been held for 10 years. 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 each business day as of 4 p.m. Eastern time or the regularly scheduled close of the New York Stock Exchange (NYSE), whichever is earlier. 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 Fund may 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.

Investments in open-end mutual funds are valued at the closing NAV.

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 Fund 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.

franklintempleton.com   Annual Report           31

FRANKLIN MUTUAL SHARES FUND

NOTES TO FINANCIAL STATEMENTS

1.  Organization and Significant Accounting

Policies (continued)

a.  Financial Instrument Valuation (continued)

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. At December 31, 2018, a market event occurred resulting in a portion of the securities held by the Fund being valued using fair value procedures.

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 counterparty credit risk on OTC derivatives, whenever possible, by entering into International Swaps and Derivatives

32       Annual Report franklintempleton.com

FRANKLIN MUTUAL SHARES FUND

NOTES TO FINANCIAL STATEMENTS

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, 2018, the Fund had no OTC derivatives in a net liability position for such contracts.

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.

At December 31, 2018, the Fund received $9,083,691 in U.K. Treasury Bonds and U.S. Treasury Bills, Bonds and Notes as collateral for derivatives.

The Fund entered into exchange traded futures contracts primarily to manage exposure to certain foreign currencies. A futures contract is an agreement between the Fund and a counterparty to buy or sell an asset 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.  Securities Lending

The Fund participates in an agency based securities lending program to earn additional income. The Fund receives cash collateral against the loaned securities in an amount equal to at

franklintempleton.com   Annual Report           33

FRANKLIN MUTUAL SHARES FUND

NOTES TO FINANCIAL STATEMENTS

1.  Organization and Significant Accounting Policies (continued)

e.  Securities Lending (continued)

least 102% of the fair value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the fair value of loaned securities, as determined at the close of Fund business each day; any additional collateral required due to changes in security values is delivered to the Fund on the next business day. The collateral is deposited into a joint cash account with other funds and is used to invest in a money market fund managed by Franklin Advisers, Inc., an affiliate of the Fund, and/or a joint repurchase agreement. The Fund may receive income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. Income from securities loaned, net of fees paid to the securities lending agent and/or third-party vendor, is reported separately in the Statement of Operations. The Fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the agent may default on its obligations to the Fund. If the borrower defaults on its obligation to return the securities loaned, the Fund has the right to repurchase the securities in the open market using the collateral received. The securities lending agent has agreed to indemnify the Fund in the event of default by a third party borrower. At December 31, 2018, the Fund had no securities on loan.

f.  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.

g.  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, 2018, 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.

34       Annual Report franklintempleton.com

FRANKLIN MUTUAL SHARES FUND

NOTES TO FINANCIAL STATEMENTS

h.  Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Dividend income and dividends declared on securities sold short are recorded on the ex-dividend date except for certain dividends from 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 or based on the ratio of number of shareholders of each Fund to the combined number of shareholders 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.

i.  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.

j.  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.

*Effective during the current reporting period, it is no longer required to present certain line items in the Statements of Changes in Net Assets. The below prior period amounts affected by this change are shown as they were in the prior year Statements of Changes in Net Assets.

For the year ended December 31, 2017, distributions to shareholders were as follows:

Distributions from net investment income :
Class Z	$(143,391,184)
Class A	(90,135,244	)
Class C	(12,762,513	)
Class R	(1,950,214	)
Class R6	(87,386,307	)
Distributions from net realized gains:
Class Z	(296,748,998	)
Class A	(194,072,656	)
Class C	(44,764,663	)
Class R	(4,865,346	)
Class R6	(134,490,114	)

For the year ended December 31, 2017, undistributed net investment income (loss) included in net assets was $2,054,424.

franklintempleton.com   Annual Report           35

FRANKLIN MUTUAL SHARES FUND

NOTES TO FINANCIAL STATEMENTS

2. Shares of Beneficial Interest

At December 31, 2018, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2018						2017
	Shares			Amount			Shares			Amount
Class Z Shares:
Shares sold		10,029,587		$	284,766,342			23,691,795		$	696,267,462
Shares issued in reinvestment of distributions		13,492,550			320,309,753			13,747,109			395,547,594
Shares redeemed		(27,123,733	)		(767,174,696	)		(92,023,346	)		(2,710,731,683	)
Net increase (decrease)		(3,601,596	)	$	(162,098,601	)		(54,584,442	)	$	(1,618,916,627	)
Class A Shares:
Shares solda		25,412,499		$	710,808,675			17,964,808		$	522,017,079
Shares issued in reinvestment of distributions		10,148,432			238,431,075			9,145,140			260,399,623
Shares redeemed		(29,787,083	)		(834,634,647	)		(41,761,357	)		(1,214,079,098	)
Net increase (decrease)		5,773,848		$	114,605,103			(14,651,409	)	$	(431,662,396	)
Class C Shares:
Shares sold		2,074,273		$	57,275,560			2,533,117		$	72,481,356
Shares issued in reinvestment of distributions		675,227			15,942,868			2,024,489			56,971,259
Shares redeemeda		(25,329,240	)		(704,388,808	)		(9,333,970	)		(268,124,028	)
Net increase (decrease)		(22,579,740	)	$	(631,170,380	)		(4,776,364	)	$	(138,671,413	)
Class R Shares:
Shares sold		347,792		$	9,776,448			622,054		$	17,981,440
Shares issued in reinvestment of distributions		199,115			4,662,921			239,266			6,777,153
Shares redeemed		(1,253,910	)		(35,488,306	)		(1,464,599	)		(42,299,057	)
Net increase (decrease)		(707,003	)	$	(21,048,937	)		(603,279	)	$	(17,540,464	)
Class R6 Shares:
Shares sold		14,420,824		$	412,295,163			63,378,950		$	1,870,087,713
Shares issued in reinvestment of distributions		9,195,249			218,103,352			7,729,991			221,874,105
Shares redeemed		(23,959,670	)		(689,861,044	)		(7,551,970	)		(222,835,095	)
Net increase (decrease)		(343,597	)	$	(59,462,529	)		63,556,971		$	1,869,126,723

^aMay include a portion of Class C shares that were automatically converted to Class A.

3. Transactions with Affiliates

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton. 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

36       Annual Report franklintempleton.com

FRANKLIN MUTUAL SHARES 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
0.675%	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, 2018, the gross effective investment management fee rate was 0.649% 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.

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	$	307,621
CDSC retained	$	22,051

  franklintempleton.com Annual Report     37

FRANKLIN MUTUAL SHARES FUND

NOTES TO FINANCIAL STATEMENTS

3. Transactions with Affiliates (continued)

d. Sales Charges/Underwriting Agreements (continued)

Effective September 10, 2018, the Board approved changes to certain front-end sales charges and dealer commissions on Class A shares. Further details are disclosed in the Fund’s Prospectus.

e. Transfer Agent Fees

Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. The fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. 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, 2018, the Fund paid transfer agent fees of $10,825,203, of which $5,695,664 was retained by Investor Services.

f. Investments in Affiliated Management Investment Companies

The Fund invests in one or more affiliated management investment companies for purposes other than exercising a controlling influence over the management or policies. Management fees paid by the Fund are waived on assets invested in the affiliated management investment companies, as noted in the Statement of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by each affiliate. During the year ended December 31, 2018, the Fund held investments in affiliated management investment companies as follows:

	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		Income from securities loaned		Realized Gain (Loss)		Net Change in Unrealized Appreciation (Depreciation)
Non-Controlled Affiliates
Institutional Fiduciary Trust Money Market Portfolio, 1.99%		—		26,728,000		(26,728,000	)		—		$    —		$2,237		$    —		$    —

g. 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% based on the average net assets of the class. Investor Services may discontinue this waiver in the future.

h. Other Affiliated Transactions

At December 31, 2018, one or more of the funds in Franklin Fund Allocator Series owned 11.3% 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, 2018, the custodian fees were reduced as noted in the Statement of Operations.

38       Annual Report franklintempleton.com

FRANKLIN MUTUAL SHARES FUND

NOTES TO FINANCIAL STATEMENTS

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, 2018, the Fund’s projected benefit obligation and benefit payments under the Plan were as follows:

aProjected benefit obligation at December 31, 2018	$	955,705
bIncrease in projected benefit obligation	$	232,125
Benefit payments made to retired trustees	$	(15,790	)

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

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

6. Income Taxes

The tax character of distributions paid during the years ended December 31, 2018 and 2017, was as follows:

	2018			2017
Distributions paid from:
Ordinary income		$	273,584,591		$	367,181,482
Long term capital gain			584,103,783			643,385,757
		$	857,688,374		$	1,010,567,239

At December 31, 2018, 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	$	11,206,385,757
Unrealized appreciation	$	2,440,010,903
Unrealized depreciation		(1,240,390,266)
Net unrealized appreciation (depreciation)	$	1,199,620,637
Distributable earnings:
Undistributed ordinary income	$	9,116,741
Undistributed long term capital gains		375,725,587
Total distributable earnings	$	384,842,328

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, 2018, aggregated $2,810,237,178 and $4,542,869,806, respectively.

  franklintempleton.com Annual Report         39

FRANKLIN MUTUAL SHARES FUND

NOTES TO FINANCIAL STATEMENTS

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, 2018, the aggregate long value of distressed company securities for which interest recognition has been discontinued was $171,679,898, representing 1.4% of the Fund’s net assets. For information as to specific securities, see the accompanying Statement of Investments.

9. Restricted Securities

The Fund invests in securities that are restricted under the Securities Act of 1933 (1933 Act). 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, 2018, 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	$	—
	7,234,813	International Automotive Components Group Brazil LLC		4/13/06 - 12/26/08		4,804,678		306,590
	63,079,866	International Automotive Components Group North America LLC		1/12/06 - 3/18/13		51,662,536		7,519,120
		Total Restricted Securities (Value is 0.1% of Net Assets)			$	56,486,808	$	7,825,710

10. Other Derivative Information

At December 31, 2018, 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	$	465,013	a	Variation margin on futures contracts	$	—
	Unrealized appreciation on OTC forward exchange contracts		8,387,842		Unrealized depreciation on OTC forward exchange contracts		624,551
Totals		$	8,852,855			$	624,551

^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.

40       Annual Report franklintempleton.com

FRANKLIN MUTUAL SHARES FUND

NOTES TO FINANCIAL STATEMENTS

For the year ended December 31, 2018, 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	$	28,266,598	Forward exchange contracts	$	39,902,692
	Futures contracts		31,843,852	Futures contracts		6,968,472
Totals		$	60,110,450		$	46,871,164

For the year ended December 31, 2018, the average month end notional amount of futures contracts represented $518,598,030. The average month end contract value of forward exchange contracts was $1,138,324,591.

See Note 1(c) regarding derivative financial instruments.

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, 2018, 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	)b		—	$	—	$	—	$	27,760		$	—
Non-Controlled Affiliates
Alexander’s Inc.		326,675		—		—			326,675	$	99,550,939	$	5,880,150	$	30,054	c	$	(29,763,360	)
International Automotive Components Group Brazil LLC		7,234,813		—		—			7,234,813		306,590		—		—			58,544
International Automotive Components Group North America LLC		63,079,866		—		—			63,079,866		7,519,120		—		—			(34,036,318	)
Total Non-Controlled Affiliates										$	107,376,649	$	5,880,150	$	30,054		$	(63,741,134	)
Total Affiliated Securities (Value is 0.9% of Net Assets)										$	107,376,649	$	5,880,150	$	57,814		$	(63,741,134	)

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

^bGross reduction was the result of a corporate action.

^cRealized gain distribution from REITs.

12. Credit Facility

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matured on February 8, 2019. 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 8, 2019, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 7, 2020, for a total of $2 billion.

  franklintempleton.com Annual Report         41

FRANKLIN MUTUAL SHARES FUND

NOTES TO FINANCIAL STATEMENTS

12. 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, 2018, 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.

A summary of inputs used as of December 31, 2018, 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	$	48,622,212	$	—	$	7,825,710		$	56,447,922
Machinery		—		87,175,766		—			87,175,766
Media		604,371,865		3,772,687		—			608,144,552
Metals & Mining		19,181,964		26,754,222		—			45,936,186
Software		288,295,710		567,319		—			288,863,029
All Other Equity Investments		9,575,766,734		—		—	c		9,575,766,734
Corporate Notes and Senior Floating Rate Interests		—		374,536,611		—			374,536,611
Corporate Notes and Senior Floating Rate Interests in Reorganization		—		171,679,898		—	c		171,679,898
Companies in Liquidation		—		174,760		—	c		174,760
Short Term Investments		1,313,980,877		23,600,000		—			1,337,580,877
Total Investments in Securities	$	11,850,219,362	$	688,261,263	$	7,825,710		$	12,546,306,335
Other Financial Instruments:
Futures Contracts	$	465,013	$	—	$	—		$	465,013
Forward Exchange Contracts		—		8,387,842		—			8,387,842
Total Other Financial Instruments	$	465,013	$	8,387,842	$	—		$	8,852,855

42       Annual Report franklintempleton.com

FRANKLIN MUTUAL SHARES FUND

NOTES TO FINANCIAL STATEMENTS

	Level 1		Level 2		Level 3		Total
Liabilities:
Other Financial Instruments:
Securities Sold Shorta	$	148,540,745	$	—	$	—	$	148,540,745
Forward Exchange Contracts		—		624,551		—		624,551
Total Other Financial Instruments	$	148,540,745	$	624,551	$	—	$	149,165,296

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

^bIncludes common stocks and management investment companies as well as other equity interests.

^cIncludes securities determined to have no value at December 31, 2018.

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. New Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in the ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for annual reporting periods ending after December 15, 2020. Management is currently evaluating the impact, if any, of applying this provision.

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 Corp.	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.
UBSW	UBS AG

  franklintempleton.com Annual Report         43

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, 2018, 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 five years in the period then ended 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, 2018, 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 five years in the period then ended, 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, 2018, by correspondence with the custodian 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, Massachusetts

February 20, 2019

44       Annual Report franklintempleton.com

FRANKLIN MUTUAL SHARES FUND

Tax Information (unaudited)

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby reports the maximum amount allowable but no less than $682,605,704 as a long term capital gain dividend for the fiscal year ended December 31, 2018.

Under Section 871(k)(2)(C) of the Internal Revenue Code, the Fund hereby reports the maximum amount allowable but no less than $28,582,586 as a short term capital gain dividend for purposes of the tax imposed under Section 871(a)(1)(A) of the Internal Revenue Code for the fiscal year ended December 31, 2018.

Under Section 854(b)(1)(A) of the Internal Revenue Code, the Fund hereby reports 70.18% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2018.

Under Section 854(b)(1)(B) of the Internal Revenue Code, the Fund hereby reports the maximum amount allowable but no less than $287,866,117 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Internal Revenue Code for the fiscal year ended December 31, 2018. Distributions, including qualified dividend income, paid during calendar year 2018 will be reported to shareholders on Form 1099-DIV by mid-February 2019. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns.

  franklintempleton.com Annual Report         45

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 U.S. 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 07078-2716	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 07078-2716	Trustee	Since 1995	38	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 07078-2716	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 07078-2716	Trustee	Since 2009	14	FinTech Acquisition Corp. III (special purpose fintech acquisition company) (2018-present)
Principal Occupation During at Least the Past 5 Years:
President and Founder, The Jan Hopkins Group (communications consulting firm); serves on Advisory Board of Knight Bagehot Fellowship; and formerly, President, Economic Club of New York (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 07078-2716	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.

46           Annual Report franklintempleton.com

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 07078-2716	Trustee	Since 2015	38	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 07078-2716 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 07078-2716 Trustee and Chairman of the Board Trustee since 1993 and Chairman of the Board since 2005 38 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 07078-2716 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	150	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 42 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 07078-2716 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.

franklintempleton.com   Annual Report           47

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 44 of the investment companies in Franklin Templeton Investments.
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 44 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 44 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 2017	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years:
Senior Vice President, Franklin Templeton Services, LLC; officer of 44 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 16 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 44 of the investment companies in Franklin Templeton Investments.
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 44 of the investment companies in Franklin Templeton Investments.

48             Annual Report franklintempleton.com

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
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 44 of the investment companies in Franklin Templeton Investments; and formerly, Senior Associate General Counsel, Franklin Templeton Investments (2007-2013); and Secretary and Vice President, Templeton Group of Funds (2004-2013).

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 44 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 44 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 44 of the investment companies in Franklin Templeton Investments.

franklintempleton.com   Annual Report           49

FRANKLIN MUTUAL SERIES FUNDS

*We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment manager or affiliated investment managers.

**Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Franklin Resources, Inc. (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 Advisers, LLC, which is 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 1987. He currently serves as a Max L. Hine 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 1995. 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 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.

50       Annual Report franklintempleton.com

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 U.S. Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.

Quarterly Statement of Investments

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

Householding of Reports and Prospectuses

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

franklintempleton.com   Annual Report           51

This page intentionally left blank.

	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.
© 2019 Franklin Templeton Investments. All rights reserved.		474 A 02/19

Annual Report
and Shareholder Letter   December 31, 2018

Internet Delivery of Fund Reports Unless You Request Paper Copies: Effective January 1, 2021, as permitted by the SEC, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request them from the Fund or your financial intermediary. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not signed up for electronic delivery, we would encourage you to join fellow shareholders who have. You may elect to receive shareholder reports and other communications electronically from the Fund by calling (800) 632-2301 or by contacting your financial intermediary.

You may elect to continue to receive paper copies of all your future shareholder reports free of charge by contacting your financial intermediary or, if you invest directly with a Fund, calling (800) 632-2301 to let the Fund know of your request. Your election to receive reports in paper will apply to all funds held in your account.

Franklin Templeton

Successful investing begins with ambition. And achievement only comes when you reach for it. That’s why we continually strive to deliver better outcomes for investors. No matter what your goals are, our deep, global investment expertise allows us to offer solutions that can help.

During our more than 70 years of experience, we’ve managed through all kinds of markets—up, down and those in between. We’re always preparing for what may come next. It’s because of this, combined with our strength as one of the world’s largest asset managers that we’ve earned the trust of millions of investors around the world.

Dear Franklin Mutual Financial Services Fund Shareholder:

Investors started 2018 seemingly with the wind at their back. The primary tailwinds were strong corporate earnings growth in most developed markets, healthy consumer and business investment spending, and the positive effect of major U.S. tax cuts. In addition, the global economy continued its steady expansion since the financial crisis of 2008–2009. Unemployment continued to decline in the U.S. and other developed markets, while U.S. wage growth showed some signs of accelerating. As a result, equity markets reached new highs in August and September. However, volatility and market downturns soon made their mark on 2018. As measured by the Chicago Board Options Exchange Volatility Index (VIX), 2017 was the least volatile year on record for the Standard & Poor’s 500^® Index (S&P 500^®), but the VIX surged in February 2018 and jumped again in October and December 2018. Heightened trade tensions between the U.S. and China, geopolitical events in Europe and a growing belief that corporate earnings and economic growth will likely decelerate in 2019 hindered equity markets. A flattening U.S. Treasury yield curve, wider credit spreads and growing market concern that the U.S. Federal Reserve may raise interest rates too aggressively were also important drivers of market turbulence. For the period ended December 31, 2018, U.S. stocks, as measured by the S&P 500, had a -4.38% total return.¹ Stocks in global developed markets, as measured by the MSCI World Index (USD), had a -8.20% total return.¹

While equity markets were broadly down for the year, there were pockets of positive performance concentrated in areas of growth and innovation, such as software, information

1. Source: Morningstar.

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

technology services and segments of the health care sector. It is no surprise, therefore, that growth stocks managed to perform better than value stocks during the period. The MSCI World Growth Index (USD) had a -6.42% total return, while the MSCI World Value Index (USD) had a -10.09% total return.¹

The return of volatility is an appropriate reminder that securities markets are dynamic. We believe active, professional investment management serves investors well since market volatility is more the norm than uninterrupted positive returns. Valuation is an essential 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 a bottom-up stock-picking process that is disciplined and driven by rigorous fundamental analysis that attempts to limit downside risk. In our view, investing in underappreciated and misunderstood companies with identifiable catalysts for unlocking shareholder value can offer significant upside potential as well as a degree of downside protection.

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

Not FDIC Insured | May Lose Value | No Bank Guarantee  

  franklintempleton.com   Not part of the annual report             1

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, 2018, 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 Financial Services Fund	3
Performance Summary	9
Your Fund’s Expenses	12
Financial Highlights and Statement of Investments	13
Financial Statements	21
Notes to Financial Statements	25
Report of Independent Registered Public Accounting Firm	36
Tax Information	37
Board Members and Officers	38
Shareholder Information	43

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 Financial Services Fund

This annual report for Franklin Mutual Financial Services Fund covers the fiscal year ended December 31, 2018.

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 had a cumulative total return of -16.49% for the 12 months ended December 31, 2018. For comparison, the Fund’s primary benchmark, the MSCI World Financials Index (USD), which captures large and midcap representation across 23 developed markets countries, had a -16.46% 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, had a -13.03% 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 expanded during the 12 months under review, despite weakness in certain regions. Global developed and emerging market stocks were aided at certain points during

Geographic Composition*

Based on Total Net Assets as of 12/31/18

*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 period by higher crude oil prices, upbeat economic data, easing trade tensions and encouraging corporate earnings reports, as well as indications of a slower pace of interest-rate increases from the U.S. Federal Reserve (Fed).

However, various factors weighed on global markets during the period, including concerns about tighter regulation of technology companies, political uncertainties in the U.S. and the European Union, and major central banks’ interest-rate path and unwinding of monetary stimulus measures. Markets were further pressured by U.S. trade disputes with its allies and China, and their impact on global growth and corporate earnings. In this environment, global stocks, as measured by

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.

  franklintempleton.com   Annual Report             3

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

the MSCI All Country World Index, had a -8.93% total return for the 12 months ended December 31, 2018.¹

The U.S. economy grew during the 12-month period. After moderating for three consecutive quarters, the economy grew faster in 2018’s second quarter, driven by consumer spending, business investment, exports and government spending. However, growth moderated in the third quarter due to declines in exports and housing investment. The unemployment rate declined from 4.1% in December 2017 to 3.9% at period-end.² Annual inflation, as measured by the Consumer Price Index, decreased from 2.1% in December 2017 to 1.9% at period-end.² The Fed raised its target range for the federal funds rate four times during the period, to 2.25%–2.50%, and continued reducing its balance sheet as part of an ongoing plan to normalize monetary policy. At its December meeting, the Fed reduced the projected 2019 rate increases to two, compared to three projected previously.

In Europe, the U.K.’s quarterly economic growth moderated in 2018’s first quarter, but accelerated in 2018’s second and third quarters. The Bank of England raised its key policy rate once during the review period. After moderating in 2018’s first quarter, the eurozone’s quarterly growth remained stable in the second quarter, but eased in the third quarter. The bloc’s annual inflation rate ended the period higher than in December 2017. The European Central Bank (ECB) kept its benchmark interest rate unchanged during the period. In December 2018, the ECB confirmed its plan to conclude its bond purchase program at the end of 2018 and reiterated it expects key interest rates to remain unchanged through the summer of 2019.

In Asia, Japan’s quarterly gross domestic product (GDP) grew in 2018’s second quarter, following a contraction in the first quarter, but contracted again in the third 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 growth remained stable in 2018’s first and second quarters, but accelerated in the third quarter. The Central Bank of Brazil lowered its benchmark interest rate twice during the period. Russia’s annual GDP growth rate accelerated in 2018’s first and second quarters, but moderated in the third quarter. After lowering its key rate twice early in the period, the Bank of Russia raised it twice in the period’s second half to curtail inflation risks. China’s annual GDP grew at a stable rate in 2018’s first quarter, but it moderated in the second and third quarters. The

People’s Bank of China left its benchmark interest rate unchanged during the period, but it took measures to improve financial liquidity to mitigate the negative effects of the U.S.-China trade dispute and support economic growth. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, had a -14.25% 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, and to a significantly lesser extent, 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 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.

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 2018, corporate profits in the U.S. and other developed markets continued their impressive year-over-year growth. In addition, labor markets showed further improvement, consumer spending was solid, and U.S. corporate tax reforms encouraged

2. Source: U.S. Bureau of Labor Statistics.

  4           Annual Report   franklintempleton.com

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

companies to buy back more stock, raise dividends and increase capital expenditures. Those positive fundamentals were periodically overshadowed by political and economic concerns, particularly in the final three months of the year.

As major U.S. equity markets established new all-time highs in 2018, overall U.S. equity market valuations (e.g., price-to-earnings, price-to-book or price-to-sales) became increasingly unattractive, in our analysis. The equity market sell-off in the fourth-quarter helped to return valuations to more reasonable levels. The sell-off and rise in volatility yielded an opportunity for us to seek out stocks with strong corporate fundamentals and valuations whose risk/reward profiles seemed to us to have become more favorable.

In 2019, policy events may have considerable influence, for better or worse, on economic growth, investor sentiment and financial market performance and volatility. Markets are likely to be particularly sensitive to developments in U.S.-China trade relations, monetary policy moves by the Fed and other major central banks, oil production decisions by OPEC (The Organization of the Petroleum Exporting Countries) and other oil producing countries, the outcome of Brexit, China’s response to its slowing economy and potential political discord in Washington, D.C.

Europe’s equity market overall was trading at an attractively lower price-to-earnings multiple and higher dividend yield than the U.S. equity market at period-end. We also saw an increase in investor activism, which we viewed as encouraging. However, those favorable factors were offset in part by economic data, which showed increased slowing of economic activity across the region. From an investment standpoint, we are hopeful that 2019 will be a year of potential resolution and clarity. The biggest political event will likely be Brexit, as a resolution to the situation remained unclear as of period-end. The uncertainty around the terms and timing of a deal continued to undermine consumer and corporate confidence. From our perspective, we believe the European Union and the U.K. will ultimately reach an agreement that makes sense for both sides, and we believe the approval of such an agreement would likely have a significantly positive effect on investor, consumer and corporate sentiment in the U.K. We will also pay close attention to structural reform efforts in France, policy decisions from a populist coalition government in Italy and the political transition in Germany. In December, Chancellor Angela Merkel stepped down as leader of the Christian Democratic Union but stated her intention to remain in office for the remaining three years of her term as Chancellor.

Portfolio Composition*

Based on Total Net Assets as of 12/31/18

*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.

In Asia, economic and financial market weakness in China has been brought on by multiple factors. The U.S.-China trade conflict has disrupted manufacturing activity and supply chains. As trade tensions escalated in 2018, manufacturers accelerated production to avoid upcoming tariffs. At year-end, supply chains were filled with inventory, while manufacturing activity was weak. Entering 2019, the near-term question is how long the inventory overhang will last, while the more significant question is to what extent the trade conflict will alter supply chains in the medium to long term. Amid the trade conflict, China has proven resolute in its attempt to dampen the reliance on leverage, which has hindered economic activity as well. While the government has enacted some stimulus measures, such as tax cuts, they may be less impactful than prior stimulus through fiscal spending. Meanwhile, government social policies impacting personal freedoms have had a negative effect on consumer sentiment.

Investment Spotlight

The insurance industry has been an area of significant interest for Mutual Series since the Great Recession. The Portfolio Composition bar chart on this page lists insurance and also other leading industries in which the Fund currently invests. We were able to find quality insurers trading at discounts to our estimate of intrinsic value during the post-crisis period of financial services recapitalization, followed by the restructuring

  franklintempleton.com   Annual Report             5

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

of the financial services industry in Europe, and finally capital rationalization in the U.S. financials sector. During the past 10 years, insurance industry trends have provided investment opportunities for value investors. The Mutual Series investment process focuses on finding companies trading below our estimate of intrinsic value and with potential catalysts for value creation. With interest rates at secular low levels, insurers have focused on operational efficiencies, cash flow from underwriting, and rational capital structures to maintain acceptable profitability. Life insurance businesses have mainly focused on improving returns through cost savings and capital rationalization, while property casualty businesses have emphasized better underwriting and capital management.

After several years of equity market outperformance, insurers were hurt by increased natural catastrophe losses around the globe in both 2017 and 2018, jitters regarding global economic growth prospects and a widening of credit spreads. Despite these headwinds, we think valuations at year-end remained attractive, and our holdings have idiosyncratic catalysts that provide attractive return potential. In addition, the large natural catastrophe losses suffered by property and casualty insurers should present an opportunity for them to increase premiums as they adjust risk profiles.

Mutual Series has owned the Netherlands-based NN Group since its 2014 initial public offering (IPO). NN Group was spun out of ING Groep3 and consists of life insurance, other insurance and asset management operations in Europe and Japan. The initial investment case revolved around the rationalization of capital and cost efficiencies. In 2017, NN Group acquired Dutch insurer Delta Lloyd at an attractive internal rate of return with the potential for significant synergies from the combined company. Since the IPO, the company has returned a significant amount of capital to shareholders and lowered expenses, while maintaining one of the strongest balance sheets in the industry. We expect additional progress on the integration of Delta Lloyd to generate increased cash flow in the future. NN Group is listed among the Fund’s largest positions in the Top 10 Equity Holdings table on this page.

Fund Performance

Turning to Fund performance, top positive contributors included Norway-based securities trading market operator Oslo Bors, global insurer XL Group and international insurer Ageas.

Top 10 Equity Holdings

12/31/18

Company Sector/Industry, Country	% of Total Net Assets
NN Group NV		4.8%
Insurance, Netherlands
The Hartford Financial Services Group Inc.		4.0%
Insurance, U.S.
Alleghany Corp.		3.6%
Insurance, U.S.
American International Group Inc.		3.6%
Insurance, U.S.
JPMorgan Chase & Co.		3.6%
Banks, U.S.
Voya Financial Inc.		3.5%
Diversified Financial Services, U.S.
Everest Re Group Ltd.		3.4%
Insurance, U.S.
ASR Nederland NV		3.1%
Insurance, Netherlands
HSBC Holdings PLC		3.0%
Banks, U.K.
Wells Fargo & Co.		3.0%
Banks, U.S.

Oslo Bors offers the only regulated markets for securities trading in Norway. In December 2018, Euronext³, an operator of stock and derivatives markets in Europe, made an all-cash bid for Oslo Bors at a 21% premium to the stock price prior to the announcement. We believe the acquisition makes sense for both companies and see few reasons for it to face resistance from competition regulators. Subsequent to the announcement of the transaction the Fund exited the position.

Shares of XL Group, a global insurance and reinsurance company, rallied in early 2018, aided by generally upbeat quarterly results. We exited the position in March, following the announcement of XL Group’s acquisition by AXA³, another global insurer, at a substantial premium to XL Group’s closing price prior to the announcement.

Ageas is a diversified insurance company with operations in Belgium, the U.K., Portugal, Turkey and Asia. It announced a greater-than-expected dividend increase in February 2018 and solid quarterly results in May 2018, despite investor concerns about potentially higher weather-related losses. Ageas had done a good job overall with improving its cash generation, as well as increasing its regulatory capital base. In November 2018, we sold our position in Ageas, as our original investment catalysts

3. Not a Fund holding.

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

  6           Annual Report   franklintempleton.com

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

had largely played out and its reorganization plan, announced in September 2018, did not alter our investment thesis or estimate of fair value.

During the period under review, Fund investments that detracted from performance included U.S.-based insurer American International Group (AIG), U.S.-based diversified financial services company Citigroup and U.S.-based bank Citizen’s Financial Group.

Shares of AIG slipped in early 2018 as investors reacted negatively to the price AIG paid to acquire Validus Holdings³, a provider of insurance and reinsurance products. The acquisition price represented a significant premium to Validus’ stock price immediately prior to the announcement. However, we believe the acquisition made strategic sense as Validus gives AIG a complementary group of profitable insurance and reinsurance businesses. The stock price slipped further in October 2018, due to larger-than-expected catastrophe-related losses announced ahead of quarterly results. The losses were due to multiple typhoons in Japan, Hurricane Florence and wildfires in California. Investors tend to look beyond uncharacteristic weather-related losses. However, we believe AIG’s series of operating challenges and negative surprises in prior years, such as additional commercial reserves and increases in loss estimates on current business, likely factored into the stock’s significant decline.

Citigroup followed the steep decline among financials sector companies in the final quarter of 2018. Citigroup announced generally positive quarterly results throughout 2018, including October. However, mounting evidence of a global economic slowdown, a widening of credit spreads and the ongoing global trade dispute led investors to become increasingly concerned that a U.S. recession is more likely in the next two years. Additionally, some investors believe the flat or inverted yield curve, which occurred in December 2018, has historically been an early indicator of an impending economic downturn. Although we do not subscribe to the notion that a recession is imminent in the U.S., we are confident Citigroup is well positioned to weather a potential economic slowdown.

Citizens Financial Group is a regional bank focused on the Northeastern U.S. The stock slipped in the second half of the year due to fears of slowing global economic activity negatively affecting the U.S. economy, leading to lower U.S. interest rates, rising credit costs and slower revenue and earnings growth for the industry. In addition, the U.S. Treasury yield curve flattened and inverted in the latter stages of the year and credit spreads widened. On a long-term basis, we believe Citizens remains well positioned to continue driving improved

results through a combination of capital deployment, balance sheet optimization and cost controls.

During the period, the Fund held currency forwards and futures seeking to hedge most of the currency risk of the portfolio’s non-U.S. dollar investments. The hedges had a positive overall impact on the Fund’s performance because of the appreciation of the U.S. dollar versus the hedged currencies.

What is a currency forward?

A currency forward is a direct 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 U.S. or foreign futures exchange to buy or sell an underlying instrument or asset at a specific price on a future date.

As fellow shareholders, we found recent relative and absolute performance disappointing, but it is not uncommon for our strategy to lag the equity markets at times. We remain committed to our disciplined, value investment approach as we seek to generate attractive, long-term, risk-adjusted returns for shareholders.

  franklintempleton.com   Annual Report             7

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

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

	Andrew Sleeman, CFA Co-Portfolio Manager
	Andrew B. Dinnhaupt, CFA Co-Portfolio Manager

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2018, 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.

  8           Annual Report   franklintempleton.com

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

Performance Summary as of December 31, 2018

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 12/31/18

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 5.50% and the minimum is 0%. Class A: 5.50% maximum initial sales charge. For other share classes, visit franklintempleton.com.

Share Class	Cumulative Total Return	1	Average Annual           Total Return	2
Z
1-Year	-16.49%		-16.49%
5-Year	+27.80%		+5.03%
10-Year	+126.55%		+8.52%
A3
1-Year	-16.72%		-21.30%
5-Year	+26.03%		+3.55%
10-Year	+120.09%		+7.60%

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.

  franklintempleton.com   Annual Report             9

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.

See page 11 for Performance Summary footnotes.

  10           Annual Report   franklintempleton.com

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

PERFORMANCE SUMMARY

Distributions (1/1/18–12/31/18)

Share Class	Net Investment Income		Long-Term Capital Gain		Total
Z		$0.1712		$0.5183		$0.6895
A		$0.1180		$0.5183		$0.6363
C		$0.0587		$0.5183		$0.5770
R6		$0.2030		$0.5183		$0.7213

Total Annual Operating Expenses⁵

Share Class
Z	1.09%
A	1.34%

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. Prior to 9/10/18, these shares were offered at a higher initial sales charge of 5.75%, thus actual returns would have differed. Total returns with sales charges have been restated to reflect the current maximum initial sales charge of 5.50%.

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 U.S. 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 7/1/18	Ending Account Value 12/31/18	Expenses Paid During Period 7/1/18–12/31/181,2	Ending Account Value 12/31/18	Expenses Paid During Period 7/1/18–12/31/181,2	Net Annualized Expense Ratio2
Z	$ 1,000	$ 875.00	$ 5.25	$ 1,019.61	$   5.65	1.11%
A	$ 1,000	$ 873.60	$ 6.42	$ 1,018.35	$   6.92	1.36%
C	$ 1,000	$ 870.30	$ 9.95	$ 1,014.57	$ 10.71	2.11%
R6	$ 1,000	$ 875.10	$ 4.68	$ 1,020.21	$   5.04	0.99%

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,
	2018			2017			2016			2015			2014
Class Z
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$24.14			$21.65			$19.63			$18.40			$16.90
Income from investment operationsa:
Net investment incomeb		0.38	c		0.22			0.31	d		0.30	e		0.25
Net realized and unrealized gains (losses)		(4.37	)		2.76			2.00			1.23			1.62
Total from investment operations		(3.99	)		2.98			2.31			1.53			1.87
Less distributions from:
Net investment income		(0.17	)		(0.49	)		(0.29	)		(0.30	)		(0.37	)
Net realized gains		(0.52	)		—			—			—			—
Total distributions		(0.69	)		(0.49	)		(0.29	)		(0.30	)		(0.37	)
Net asset value, end of year		$19.46			$24.14			$21.65			$19.63			$18.40
Total return		(16.49)%			13.77%			11.79%			8.34%			11.07%
Ratios to average net assets
Expensesf		1.09%	g		1.09%			1.13%	g		1.13%			1.14%
Net investment income		1.61%	c		0.95%			1.64%	d		1.53%	e		1.44%
Supplemental data
Net assets, end of year (000’s)		$142,212			$210,825			$162,687			$178,157			$112,156
Portfolio turnover rate		33.11%			67.89%			34.58%			25.43%			33.69%

^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 $0.08 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 1.29%.

^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 1.38%.

^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 0.81%.

^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             13

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2018			2017			2016			2015			2014
Class A
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$24.21			$21.70			$19.69			$18.46			$16.96
Income from investment operationsa:
Net investment incomeb		0.31	c		0.16			0.26	d		0.25	e		0.20
Net realized and unrealized gains (losses)		(4.36	)		2.78			1.99			1.23			1.61
Total from investment operations		(4.05	)		2.94			2.25			1.48			1.81
Less distributions from:
Net investment income		(0.12	)		(0.43	)		(0.24	)		(0.25	)		(0.31	)
Net realized gains		(0.52	)		—			—			—			—
Total distributions		(0.64	)		(0.43	)		(0.24	)		(0.25	)		(0.31	)
Net asset value, end of year		$19.52			$24.21			$21.70			$19.69			$18.46
Total returnf		(16.72)%			13.55%			11.46%			8.05%			10.71%
Ratios to average net assets
Expensesg		1.34%	h		1.34%			1.38%	h		1.41%			1.44%
Net investment income		1.36%	c		0.70%			1.39%	d		1.25%	e		1.14%
Supplemental data
Net assets, end of year (000’s)		$298,878			$368,850			$346,008			$360,278			$255,242
Portfolio turnover rate		33.11%			67.89%			34.58%			25.43%			33.69%

^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 $0.08 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 1.04%.

^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 1.13%.

^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 0.53%.

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

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

^hBenefit 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,
	2018			2017			2016			2015			2014
Class C
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$24.08			$21.60			$19.61			$18.41			$16.92
Income from investment operationsa:
Net investment income (loss)b		0.15	c		(0.01	)		0.12	d		0.10	e		0.08
Net realized and unrealized gains (losses)		(4.33	)		2.74			1.96			1.24			1.60
Total from investment operations		(4.18	)		2.73			2.08			1.34			1.68
Less distributions from:
Net investment income		(0.06	)		(0.25	)		(0.09	)		(0.14	)		(0.19	)
Net realized gains		(0.52	)		—			—			—			—
Total distributions		(0.58	)		(0.25	)		(0.09	)		(0.14	)		(0.19	)
Net asset value, end of year		$19.32			$24.08			$21.60			$19.61			$18.41
Total returnf		(17.35)%			12.66%			10.64%			7.30%			9.93%
Ratios to average net assets
Expensesg		2.09%	h		2.09%			2.13%	h		2.13%			2.14%
Net investment income (loss)		0.61%	c		(0.05)%			0.64%	d		0.53%	e		0.44%
Supplemental data
Net assets, end of year (000’s)		$58,610			$134,117			$128,766			$132,975			$89,341
Portfolio turnover rate		33.11%			67.89%			34.58%			25.43%			33.69%

^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 $0.08 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%.

^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 0.38%.

^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 (0.19)%.

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

^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 FINANCIAL SERVICES FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2018			2017			2016			2015			2014
Class R6
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$24.30			$21.79			$19.76			$18.52			$16.88
Income from investment operationsa:
Net investment incomeb		0.41	c		0.25			0.32	d		0.07	e		0.25
Net realized and unrealized gains (losses)		(4.41	)		2.78			2.03			1.49			1.66
Total from investment operations		(4.00	)		3.03			2.35			1.56			1.91
Less distributions from:
Net investment income		(0.20	)		(0.52	)		(0.32	)		(0.32	)		(0.27	)
Net realized gains		(0.52	)		—			—			—			—
Total distributions		(0.72	)		(0.52	)		(0.32	)		(0.32	)		(0.27	)
Net asset value, end of year		$19.58			$24.30			$21.79			$19.76			$18.52
Total return		(16.41)%			13.92%			11.93%			8.55%			11.23%
Ratios to average net assets
Expenses before waiver and payments by affiliates		1.06%			0.97%			0.99%			1.16%			2.61%
Expenses net of waiver and payments by affiliatesf		0.97%			0.95%			0.96%			0.96%			0.97%
Net investment income		1.73%	c		1.09%			1.81%	d		1.70%	e		1.61%
Supplemental data
Net assets, end of year (000’s)		$3,371			$4,523			$2,601			$1,421			$12
Portfolio turnover rate		33.11%			67.89%			34.58%			25.43%			33.69%

^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 $0.08 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 1.41%.

^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%.

^fBenefit 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, 2018

	Country		Shares		Value
Common Stocks 91.1%
Banks 34.2%
a,b AB&T Financial Corp.		United States		226,100	$	126,616
AIB Group PLC		Ireland		2,267,537		9,532,370
Barclays PLC		United Kingdom		2,700,433		5,183,499
CIT Group Inc.		United States		123,611		4,730,593
Citigroup Inc.		United States		180,610		9,402,557
Citizens Financial Group Inc.		United States		487,200		14,484,456
a Credito Valtellinese SpA.		Italy		117,345,631		9,866,444
a FCB Financial Holdings Inc., A		United States		114,987		3,861,263
First Horizon National Corp.		United States		386,229		5,082,774
Guaranty Bancorp.		United States		44,161		916,341
HSBC Holdings PLC		United Kingdom		1,823,653		15,044,393
ING Groep NV		Netherlands		974,255		10,504,396
JPMorgan Chase & Co.		United States		183,680		17,930,842
Shinsei Bank Ltd.		Japan		1,134,000		13,543,850
Societe Generale SA		France		144,470		4,605,148
Southern National Bancorp of Virginia Inc.		United States		649,760		8,589,827
Standard Chartered PLC		United Kingdom		1,728,056		13,427,164
State Bank Financial Corp.		United States		63,760		1,376,578
UniCredit SpA.		Italy		404,554		4,582,543
Wells Fargo & Co.		United States		323,670		14,914,714
Yes Bank Ltd.		India		1,738,037		4,541,830
						172,248,198
Capital Markets 3.7%
Credit Suisse Group AG		Switzerland		719,393		7,867,964
Deutsche Bank AG		Germany		991,436		7,907,230
Guotai Junan Securities Co. Ltd.		China		1,396,063		2,824,039
						18,599,233
Consumer Finance 4.6%
Capital One Financial Corp.		United States		132,810		10,039,108
c Hoist Finance AB, 144A		Sweden		1,286,396		6,280,227
Sun Hung Kai & Co. Ltd.		Hong Kong		14,145,704		6,684,005
						23,003,340
Diversified Financial Services 3.5%
Voya Financial Inc.		United States		436,050		17,503,047
Household Durables 1.9%
a Cairn Homes PLC		Ireland		3,177,704		3,895,884
a,c Neinor Homes SA, 144A		Spain		380,000		5,660,252
						9,556,136
Insurance 40.9%
Alleghany Corp.		United States		29,137		18,161,675
American International Group Inc.		United States		456,658		17,996,892
ASR Nederland NV		Netherlands		397,362		15,744,183
a Brighthouse Financial Inc.		United States		152,300		4,642,104
China Life Insurance Co. Ltd., H		China		5,331,000		11,328,502
Chubb Ltd.		United States		71,050		9,178,239
Direct Line Insurance Group PLC		United Kingdom		2,400,878		9,757,700
Everest Re Group Ltd.		United States		79,900		17,399,024
The Hartford Financial Services Group Inc.		United States		458,972		20,401,305
Lancashire Holdings Ltd.		United Kingdom		1,466,448		11,314,031
MetLife Inc.		United States		339,170		13,926,320
NN Group NV		Netherlands		605,115		24,128,258

  franklintempleton.com   Annual Report             17

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

STATEMENT OF INVESTMENTS

	Country		Shares		Value
Common Stocks (continued)
Insurance (continued)
RSA Insurance Group PLC		United Kingdom		1,772,670	$	11,610,428
Sabre Insurance Group PLC		United Kingdom		3,137,265		10,922,176
T&D Holdings Inc.		Japan		812,169		9,477,775
						205,988,612
Real Estate Management & Development 0.1%
a Dolphin Capital Investors Ltd.		Greece		3,979,650		296,890
Thrifts & Mortgage Finance 2.2%
Indiabulls Housing Finance Ltd.		India		907,348		11,136,109
Total Common Stocks (Cost $521,142,563)						458,331,565
			Principal Amount
Short Term Investments 5.8%
U.S. Government and Agency Securities 5.8%
d FHLB, 1/02/19.		United States	$	5,000,000		5,000,000
d U.S. Treasury Bill,
1/02/19		United States		10,000,000		10,000,000
1/29/19 - 6/06/19		United States		14,000,000		13,902,644
Total U.S. Government and Agency Securities
(Cost $28,900,870)						28,902,644
Total Investments (Cost $550,043,433) 96.9%						487,234,209
Other Assets, less Liabilities 3.1%						15,837,505
Net Assets 100.0%					$	503,071,714

^aNon-income producing.

^bSee Note 10 regarding holdings of 5% voting securities.

^cSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At December 31, 2018, the aggregate value of these securities was $11,940,479, representing 2.4% of net assets.

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

  18           Annual Report   franklintempleton.com

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

STATEMENT OF INVESTMENTS

At December 31, 2018, 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		157	$	22,612,906		3/18/19		$  3,373
GBP/USD		Short		141		11,271,188		3/18/19		23,296
Total Futures Contracts										$26,669

*As of period end.

At December 31, 2018, 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		3,626,218	$	4,141,545		1/14/19	$	18,538	$	—
Euro		BOFA		Sell		459,463		546,444		1/14/19		19,337		—
Euro		BONY		Sell		3,545,867		4,210,504		1/14/19		142,602		—
Euro		HSBK		Buy		4,571,795		5,222,665		1/14/19		22,205		—
Euro		HSBK		Sell		1,292,738		1,516,764		1/14/19		33,704		—
Euro		SSBT		Buy		1,724,501		1,967,926		1/14/19		10,463		—
Euro		SSBT		Sell		3,545,867		4,210,603		1/14/19		142,701		—
Euro		UBSW		Buy		314,009		356,725		1/14/19		3,513		—
Euro		UBSW		Sell		1,392,588		1,634,585		1/14/19		36,975		—
Swiss Franc		HSBK		Buy		200,779		203,010		1/14/19		1,683		—
Swiss Franc		UBSW		Buy		1,261,466		1,275,210		1/14/19		10,849		—
Swiss Franc		UBSW		Sell		9,174,824		9,211,209		1/14/19		—		(142,478	)
British Pound		BOFA		Buy		441,747		559,829		1/16/19		3,983		—
British Pound		BOFA		Sell		1,463,955		1,935,567		1/16/19		67,087		—
British Pound		BONY		Sell		600,000		794,642		1/16/19		28,848		—
British Pound		HSBK		Buy		78,790		100,995		1/16/19		—		(433	)
British Pound		HSBK		Buy		922,622		1,173,068		1/16/19		4,497		—
British Pound		HSBK		Sell		603,526		794,445		1/16/19		24,151		—
British Pound		SSBT		Sell		5,657,185		7,538,884		1/16/19		318,484		—
Norwegian Krone		BONY		Buy		3,090,000		365,910		1/25/19		—		(8,150	)
Norwegian Krone		BONY		Buy		101,043,565		11,593,415		1/25/19		105,386		—
Norwegian Krone		BONY		Sell		104,133,565		12,559,556		1/25/19		502,996		—
Swedish Krona		BONY		Buy		33,196,170		3,680,481		1/31/19		76,388		—
Swedish Krona		BONY		Sell		88,751,799		9,800,680		1/31/19		—		(243,515	)
British Pound		BOFA		Sell		1,259,780		1,657,304		2/14/19		47,148		—
British Pound		UBSW		Sell		24,911,783		32,115,399		2/14/19		275,041		—
Japanese Yen		HSBK		Buy		144,449,485		1,306,994		2/19/19		16,151		—
Japanese Yen		UBSW		Buy		89,047,257		807,838		2/19/19		7,827		—
Japanese Yen		UBSW		Sell		2,763,061,303		24,607,573		2/19/19		—		(701,831	)
Euro		BOFA		Buy		865,336		992,026		2/20/19		3,751		—
Euro		BOFA		Sell		1,643,545		1,932,687		2/20/19		41,394		—
Euro		BONY		Sell		12,487,642		14,446,407		2/20/19		76,376		—

  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)
Euro	HSBK	Buy		523,180	$	598,889		2/20/19	$	3,155	$	—
Euro	HSBK	Sell		757,417		903,186		2/20/19		31,596		—
Euro	SSBT	Buy		247,468		283,459		2/20/19		1,312		—
Euro	SSBT	Sell		12,457,061		14,411,843		2/20/19		77,002		—
Euro	UBSW	Buy		686,976		786,633		2/20/19		3,899		—
Euro	UBSW	Sell		500,000		591,385		2/20/19		16,015		—
Euro	BONY	Sell		3,126,509		3,646,385		4/10/19		33,188		—
Euro	HSBK	Sell		2,176,356		2,552,953		4/10/19		37,815		—
Euro	SSBT	Sell		3,126,508		3,646,759		4/10/19		33,564		—
Euro	BOFA	Sell		2,503,362		2,949,186		4/18/19		54,129		—
Euro	HSBK	Sell		2,503,363		2,949,688		4/18/19		54,629		—
British Pound	BONY	Sell		3,269,703		4,301,888		4/24/19		109,044		—
British Pound	SSBT	Sell		1,996,353		2,648,434		4/24/19		88,446		—
Euro	BOFA	Sell		3,466,219		4,016,845		5/07/19		1,651		—
Euro	HSBK	Sell		6,031,888		7,003,436		5/07/19		16,226		—
Euro	UBSW	Sell		3,466,218		4,016,377		5/07/19		1,183		—
Euro	SSBT	Sell		11,539,429		13,437,088		5/21/19		53,764		—
British Pound	BOFA	Sell		3,084,432		3,993,632		5/28/19		32,026		—
British Pound	BOFA	Sell		3,627,432		4,632,238		5/28/19		—		(26,790	)
British Pound	HSBK	Sell		68,927		89,123		5/28/19		594		—
British Pound	UBSW	Sell		381,801		494,619		5/28/19		4,238		—
Total Forward Exchange Contracts									$	2,695,554		$ (1,123,197	)
Net unrealized appreciation (depreciation)									$	1,572,357

^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 35.

  20           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

December 31, 2018

Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	547,816,678
Cost - Non-controlled affiliates (Note 3f and 10)		2,226,755
Value - Unaffiliated issuers	$	487,107,593
Value - Non-controlled affiliates (Note 3f and 10)		126,616
Cash		31,258
Foreign currency, at value (cost $407,939)		407,939
Receivables:
Investment securities sold		15,114,002
Capital shares sold		734,369
Dividends		592,634
European Union tax reclaims		876,747
Deposits with brokers for:
Futures contracts		722,650
Unrealized appreciation on OTC forward exchange contracts		2,695,554
Other assets		852
Total assets		508,410,214
Liabilities:
Payables:
Investment securities purchased		500,999
Capital shares redeemed		2,650,490
Management fees		389,698
Distribution fees		246,350
Transfer agent fees		155,255
Trustees’ fees and expenses		32,913
Variation margin on futures contracts		57,800
Unrealized depreciation on OTC forward exchange contracts		1,123,197
Accrued expenses and other liabilities		181,798
Total liabilities		5,338,500
Net assets, at value	$	503,071,714
Net assets consist of:
Paid-in capital	$	579,912,794
Total distributable earnings (loss)		(76,841,080	)
Net assets, at value	$	503,071,714

  franklintempleton.com   The accompanying notes are an integral part of these financial statements.  |  Annual Report             21

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

FINANCIAL STATEMENTS

Statement of Assets and Liabilities (continued)

December 31, 2018

Class Z:
Net assets, at value	$	142,212,397
Shares outstanding		7,308,453
Net asset value and maximum offering price per share		$19.46
Class A:
Net assets, at value	$	298,878,050
Shares outstanding		15,314,883
Net asset value per sharea		$19.52
Maximum offering price per share (net asset value per share ÷ 94.50%)		$20.66
Class C:
Net assets, at value	$	58,610,215
Shares outstanding		3,033,375
Net asset value and maximum offering price per sharea		$19.32
Class R6:
Net assets, at value	$	3,371,052
Shares outstanding		172,132
Net asset value and maximum offering price per share		$19.58

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

  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 Operations

for the year ended December 31, 2018

Investment income:
Dividends: (net of foreign taxes)*
Unaffiliated issuers	$	17,195,830
Interest:
Unaffiliated issuers		718,243
Income from securities loaned:
Unaffiliated issuers (net of fees and rebates)		27,077
Non-controlled affiliates (Note 3f)		2,684
Total investment income		17,943,834
Expenses:
Management fees (Note 3a)		5,836,559
Distribution fees: (Note 3c)
Class A		882,004
Class C		1,149,070
Transfer agent fees: (Note 3e)
Class Z		278,529
Class A		505,167
Class C		164,556
Class R6		4,850
Custodian fees (Note 4)		93,181
Reports to shareholders		93,480
Registration and filing fees.		73,603
Professional fees		123,980
Trustees’ fees and expenses		40,590
Other		40,679
Total expenses		9,286,248
Expense reductions (Note 4)		(3,659	)
Expenses waived/paid by affiliates (Note 3f and 3g)		(4,540	)
Net expenses		9,278,049
Net investment income.		8,665,785
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffiliated issuers		(2,099,878	)
Foreign currency transactions.		(176,248	)
Forward exchange contracts.		9,416,277
Futures contracts		2,272,296
Net realized gain (loss)		9,412,447
Net change in unrealized appreciation (depreciation) on:
Investments:
Unaffiliated issuers		(134,334,117	)
Non-controlled affiliates (Note 3f and 10)		(2,261	)
Translation of other assets and liabilities denominated in foreign currencies		(26,369	)
Forward exchange contracts.		5,181,019
Futures contracts		554,851
Change in deferred taxes on unrealized appreciation.		646,818
Net change in unrealized appreciation (depreciation)		(127,980,059	)
Net realized and unrealized gain (loss)		(118,567,612	)
Net increase (decrease) in net assets resulting from operations	$	(109,901,827	)
*Foreign taxes withheld on dividends	$	1,194,166

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

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

FINANCIAL STATEMENTS

Statements of Changes in Net Assets

	Year Ended December 31,
	2018			2017
Increase (decrease) in net assets:
Operations:
Net investment income	$	8,665,785		$	4,252,474
Net realized gain (loss)		9,412,447			88,325,620
Net change in unrealized appreciation (depreciation)		(127,980,059	)		(7,117,836	)
Net increase (decrease) in net assets resulting from operations		(109,901,827	)		85,460,258
Distributions to shareholders: (Note 1f)
Class Z		(4,996,108	)		(4,211,056	)
Class A		(9,609,536	)		(6,418,111	)
Class C		(1,856,107	)		(1,393,532	)
Class R6		(115,264	)		(93,577	)
Total distributions to shareholders		(16,577,015	)		(12,116,276	)
Capital share transactions: (Note 2)
Class Z		(32,948,539	)		27,417,572
Class A		734,715			(15,335,232	)
Class C		(56,197,465	)		(8,715,929	)
Class R6		(354,486	)		1,544,299
Total capital share transactions		(88,765,775	)		4,910,710
Net increase (decrease) in net assets		(215,244,617	)		78,254,692
Net assets:
Beginning of year		718,316,331			640,061,639
End of year (Note 1f)	$	503,071,714		$	718,316,331

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

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. Beginning on October 19, 2018, Class C shares automatically convert to Class A shares after they have been held for 10 years. 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 each business day as of 4 p.m. Eastern time or the regularly scheduled close of the New York Stock Exchange (NYSE), whichever is earlier. 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 Fund may 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.

Investments in open-end mutual funds are valued at the closing NAV.

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 Fund 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.

  franklintempleton.com   Annual Report             25

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

1.  Organization and Significant Accounting

Policies (continued)

a.  Financial Instrument Valuation (continued)

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. At December 31, 2018, a market event occurred resulting in a portion of the securities held by the Fund being valued using fair value procedures.

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

  26           Annual Report   franklintempleton.com

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

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, 2018, the Fund had OTC derivatives in a net liability position of $484,769.

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.

At December 31, 2018, the Fund received $2,476,204 in U.K. Treasury Bonds and U.S. Treasury Bills, Bonds and Notes as collateral for derivatives.

The Fund entered into exchange traded futures contracts primarily to manage exposure to certain foreign currencies. A futures contract is an agreement between the Fund and a counterparty to buy or sell an asset 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 9 regarding other derivative information.

d.   Securities Lending

The Fund participates in an agency based securities lending program to earn additional income. The Fund receives cash collateral against the loaned securities in an amount equal to at least 102% of the fair value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the fair value of loaned securities, as determined at the close of Fund business each day; any additional collateral required due to changes in security values is delivered to the Fund on the next business day. The collateral is deposited into a joint cash account with other funds and is used to invest in a money market fund managed by Franklin Advisers, Inc., an affiliate of the Fund, and/or a joint repurchase agreement. The Fund may receive income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. Income from securities loaned, net of fees paid to the securities lending agent and/or third-party vendor, is reported separately in the Statement of Operations. The Fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the agent may default on its obligations to the Fund. If the borrower defaults on its obligation to return the securities loaned, the Fund has the right to repurchase the securities in the open market using the collateral received. The securities lending agent has agreed to indemnify the Fund in the event of default by a third party borrower. At December 31, 2018, the Fund had no securities on loan.

  franklintempleton.com   Annual Report             27

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

1.  Organization and Significant Accounting

Policies (continued)

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.

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, 2018, 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 or based on the ratio of number of shareholders of each Fund to the combined number of shareholders 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.

  28           Annual Report   franklintempleton.com

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

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.

*Effective during the current reporting period, it is no longer required to present certain line items in the Statements of Changes in Net Assets. The below prior period amounts affected by this change are shown as they were in the prior year Statements of Changes in Net Assets.

For the year ended December 31, 2017, distributions to shareholders were as follows:

Distributions from net investment income:
Class Z	$	(4,211,056	)
Class A		(6,418,111	)
Class C		(1,393,532	)
Class R6		(93,577	)

For the year ended December 31, 2017, distributions in excess of net investment income included in net assets was $(6,913,596).

2.  Shares of Beneficial Interest

At December 31, 2018, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2018						2017
	Shares			Amount			Shares			Amount
Class Z Shares:
Shares sold		1,795,911		$	42,587,212			2,575,987		$	58,323,294
Shares issued in reinvestment of distributions		232,915			4,484,624			156,102			3,762,873
Shares redeemed		(3,453,297	)		(80,020,375	)		(1,515,027	)		(34,668,595	)
Net increase (decrease)		(1,424,471	)	$	(32,948,539	)		1,217,062		$	27,417,572
Class A Shares:
Shares solda		3,840,652		$	88,515,496			3,502,833		$	79,651,690
Shares issued in reinvestment of distributions		483,446			9,333,950			257,411			6,217,199
Shares redeemed		(4,247,680	)		(97,114,731	)		(4,464,692	)		(101,204,121	)
Net increase (decrease)		76,418		$	734,715			(704,448	)	$	(15,335,232	)
Class C Shares:
Shares sold		619,361		$	14,593,999			998,768		$	22,519,991
Shares issued in reinvestment of distributions		92,903			1,798,559			56,775			1,357,536
Shares redeemeda		(3,248,605	)		(72,590,023	)		(1,447,619	)		(32,593,456	)
Net increase (decrease)		(2,536,341	)	$	(56,197,465	)		(392,076	)	$	(8,715,929	)

  franklintempleton.com   Annual Report             29

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

2.  Shares of Beneficial Interest (continued)

	Year Ended December 31,
	2018						2017
	Shares			Amount			Shares			Amount
Class R6 Shares:
Shares sold		79,359		$	1,851,756			109,161		$	2,521,815
Shares issued in reinvestment of distributions		5,949			115,264			3,853			93,577
Shares redeemed		(99,309	)		(2,321,506	)		(46,239	)		(1,071,093	)
Net increase (decrease)		(14,001	)	$	(354,486	)		66,775		$	1,544,299

^aMay include a portion of Class C shares that were automatically converted to Class A.

3.   Transactions with Affiliates

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton. 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, 2018, 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.

  30           Annual Report   franklintempleton.com

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

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%

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.	$	77,928
CDSC retained	$	10,781

Effective September 10, 2018, the Board approved changes to certain front-end sales charges and dealer commissions on Class A shares. Further details are disclosed in the Fund’s Prospectus.

e.  Transfer Agent Fees

Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. The fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. 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, 2018, the Fund paid transfer agent fees of $953,102, of which $447,877 was retained by Investor Services.

f.  Investments in Affiliated Management Investment Companies

The Fund invests in one or more affiliated management investment companies for purposes other than exercising a controlling influence over the management or policies. Management fees paid by the Fund are waived on assets invested in the affiliated management investment companies, as noted in the Statement of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by each affiliate. During the year ended December 31, 2018, the Fund held investments in affiliated management investment companies as follows:

	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		Income from securities loaned		Realized Gain (Loss)		Net Change in Unrealized Appreciation (Depreciation)
Non-Controlled Affiliates
Institutional Fiduciary Trust Money Market Portfolio,
1.99%		—		5,128,000		(5,128,000	)		—		$    —		$2,684		$    —		$    —

g.  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 0.03% based on the average net assets of the class. Investor Services may discontinue this waiver in the future. Prior to May 1, 2018, the Class R6 transfer agent fees were limited to 0.01%.

  franklintempleton.com   Annual Report             31

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

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, 2018, 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, 2018, the Fund’s projected benefit obligation and benefit payments under the Plan were as follows:

aProjected benefit obligation at December 31, 2018	$	32,913
bIncrease in projected benefit obligation	$	9,731
Benefit payments made to retired trustees	$	(725	)

^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

During the year ended December 31, 2018, the Fund utilized $7,872,500 of capital loss carryforwards.

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, 2018, the Fund deferred post-October capital losses of $6,531,857.

The tax character of distributions paid during the years ended December 31, 2018 and 2017, was as follows:

	2018		2017
Distributions paid from:
Ordinary income	$	3,323,724	$	12,116,276
Long term capital gain		13,253,291		—
	$	16,577,015	$	12,116,276

At December 31, 2018, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:

Cost of investments	$	556,271,534
Unrealized appreciation	$	27,254,713
Unrealized depreciation		(94,691,962	)
Net unrealized appreciation (depreciation)	$	(67,437,249	)
Distributable earnings:
Undistributed ordinary income	$	192,288

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

  32           Annual Report   franklintempleton.com

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

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) for the year ended December 31, 2018, aggregated $205,111,945 and $294,424,202, 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. Current political and financial uncertainty surrounding the European Union may increase market volatility and the economic risk of investing in securities in Europe. In addition, certain foreign securities may not be as liquid as U.S. securities.

9.  Other Derivative Information

At December 31, 2018, 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	$	26,669	a	Variation margin on futures contracts	$	—
	Unrealized appreciation on OTC forward exchange contracts		2,695,554		Unrealized depreciation on OTC forward exchange contracts		1,123,197
Totals		$	2,722,223			$	1,123,197

^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, 2018, 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		$  9,416,277	Forward exchange contracts		$5,181,019
	Futures contracts		2,272,296	Futures contracts		554,851
Totals			$11,688,573			$5,735,870

For the year ended December 31, 2018, the average month end notional amount of futures contracts represented $37,368,458. The average month end contract value of forward exchange contracts was $252,184,801.

See Note 1(c) regarding derivative financial instruments.

  franklintempleton.com   Annual Report             33

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

10.  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, 2018, 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 0.0%† of Net Assets)		226,100		—		—		226,100		$126,616		$—		$—		$(2,261	)

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

11.  Credit Facility

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matured on February 8, 2019. 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 8, 2019, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 7, 2020, 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, 2018, the Fund did not use the Global Credit Facility.

12.  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.

  34           Annual Report   franklintempleton.com

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

A summary of inputs used as of December 31, 2018, 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:
Banks	$	148,266,841	$	23,981,357	$	—	$	172,248,198
Capital Markets.		2,824,039		15,775,194		—		18,599,233
Consumer Finance		16,723,113		6,280,227		—		23,003,340
All Other Equity Investments		244,480,794		—		—		244,480,794
Short Term Investments		23,902,644		5,000,000		—		28,902,644
Total Investments in Securities	$	436,197,431	$	51,036,778	$	—	$	487,234,209
Other Financial Instruments:
Futures Contracts	$	26,669	$	—	$	—	$	26,669
Forward Exchange Contracts		—		2,695,554		—		2,695,554
Total Other Financial Instruments	$	26,669	$	2,695,554	$	—	$	2,722,223
Liabilities:
Other Financial Instruments:
Forward Exchange Contracts	$	—	$	1,123,197	$	—	$	1,123,197

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

13.   New Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in the ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for annual reporting periods ending after December 15, 2020. Management is currently evaluating the impact, if any, of applying this provision.

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 Corp.	EUR	Euro	FHLB	Federal Home Loan Bank
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

  franklintempleton.com   Annual Report             35

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, 2018, 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 five years in the period then ended 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, 2018, 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 five years in the period then ended, 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, 2018, 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, Massachusetts

February 20, 2019

  36           Annual Report   franklintempleton.com

FRANKLIN MUTUAL FINANCIAL SERVICES FUND

Tax Information (unaudited)

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby reports the maximum amount allowable but no less than $15,313,361 as a long term capital gain dividend for the fiscal year ended December 31, 2018.

Under Section 854(b)(1)(A) of the Internal Revenue Code, the Fund hereby reports 100.00% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2018.

Under Section 854(b)(1)(B) of the Internal Revenue Code, the Fund hereby reports the maximum amount allowable but no less than $15,851,747 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Internal Revenue Code for the fiscal year ended December 31, 2018. Distributions, including qualified dividend income, paid during calendar year 2018 will be reported to shareholders on Form 1099-DIV by mid-February 2019. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns.

  franklintempleton.com   Annual Report             37

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 U.S. 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 07078-2716	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 07078-2716	Trustee	Since 1995	38	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 07078-2716	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 07078-2716	Trustee	Since 2009	14	FinTech Acquisition Corp. III (special purpose fintech acquisition company) (2018-present)
Principal Occupation During at Least the Past 5 Years:
President and Founder, The Jan Hopkins Group (communications consulting firm); serves on Advisory Board of Knight Bagehot Fellowship; and formerly, President, Economic Club of New York (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 07078-2716	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.

  38           Annual Report   franklintempleton.com

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 07078-2716	Trustee	Since 2015	38	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 07078-2716	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 07078-2716	Trustee and Chairman of the Board	Trustee since 1993 and Chairman of the Board since 2005	38	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 07078-2716	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)	Trustee	Since 2007	150	None
One Franklin Parkway
San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Chairman of the Board, Member – Office of the Chairman, Director and Chief Executive Officer, Franklin Resources, Inc.; officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 42 of the investment companies in Franklin Templeton Investments; Vice Chairman, Investment Company Institute; and formerly, President, Franklin Resources, Inc. (1994-2015).
**Peter A. Langerman (1955)	Trustee,	Trustee since	7	American International Group, Inc.
c/o Franklin Mutual Advisers, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2716	President, and Chief Executive Officer – Investment Management	2007, President, and Chief Executive Officer – Investment Management since 2005		(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.

  franklintempleton.com   Annual Report             39

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)	Vice President	Since 2012	Not Applicable	Not Applicable
One Franklin Parkway San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Deputy General Counsel, Franklin Templeton Investments; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin Templeton Investments.
Aliya S. Gordon (1973)	Vice President	Since 2009	Not Applicable	Not Applicable
One Franklin Parkway San Mateo, CA 94403-1906
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 44 of the investment companies in Franklin Templeton Investments.
Steven J. Gray (1955)	Vice President	Vice President	Not Applicable	Not Applicable
One Franklin Parkway	and Secretary	since 2009 and
San Mateo, CA 94403-1906		Secretary
		since 2005
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 44 of the investment companies in Franklin Templeton Investments.
Matthew T. Hinkle (1971)	Chief Executive	Since 2017	Not Applicable	Not Applicable
One Franklin Parkway	Officer –
San Mateo, CA 94403-1906	Finance and
	Administration
Principal Occupation During at Least the Past 5 Years:
Senior Vice President, Franklin Templeton Services, LLC; officer of 44 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)	Chief Financial	Since 2012	Not Applicable	Not Applicable
300 S.E. 2nd Street	Officer,
Fort Lauderdale, FL 33301-1923	Chief
	Accounting
	Officer and
	Treasurer
Principal Occupation During at Least the Past 5 Years:
Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of 16 of the investment companies in Franklin Templeton Investments.
Robert Lim (1948)	Vice President	Since 2016	Not Applicable	Not Applicable
One Franklin Parkway	– AML
San Mateo, CA 94403-1906	Compliance
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 44 of the investment companies in Franklin Templeton Investments.
Kimberly H. Novotny (1972)	Vice President	Since 2013	Not Applicable	Not Applicable
300 S.E. 2nd Street
Fort Lauderdale, FL 33301-1923
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 44 of the investment companies in Franklin Templeton Investments.

  40           Annual Report   franklintempleton.com

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
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 44 of the investment companies in Franklin Templeton Investments; and formerly, Senior Associate General Counsel, Franklin Templeton Investments (2007-2013); and Secretary and Vice President, Templeton Group of Funds (2004-2013).
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 44 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 44 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 44 of the investment companies in Franklin Templeton Investments.

  franklintempleton.com   Annual Report             41

    FRANKLIN MUTUAL SERIES FUNDS

*We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment manager or affiliated investment managers.

**Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Franklin Resources, Inc. (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 Advisers, LLC, which is 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 1987. He currently serves as a Max L. Hine 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 1995. 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 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.

  42           Annual Report   franklintempleton.com

FRANKLIN MUTUAL SERIES FUNDS

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 U.S. Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.

Quarterly Statement of Investments

The Trust, on behalf of the Fund, files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q.

Shareholders may view the filed Form N-Q by visiting the Commission’s website at sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.

Householding of Reports and Prospectuses

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

  franklintempleton.com   Annual Report             43

This page intentionally left blank.

	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.
© 2019 Franklin Templeton Investments. All rights reserved.	479 A 02/19

Annual Report
and Shareholder Letter   December 31, 2018

Internet Delivery of Fund Reports Unless You Request Paper Copies: Effective January 1, 2021, as permitted by the SEC, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request them from the Fund or your financial intermediary. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not signed up for electronic delivery, we would encourage you to join fellow shareholders who have. You may elect to receive shareholder reports and other communications electronically from the Fund by calling (800) 632-2301 or by contacting your financial intermediary.

You may elect to continue to receive paper copies of all your future shareholder reports free of charge by contacting your financial intermediary or, if you invest directly with a Fund, calling (800) 632-2301 to let the Fund know of your request. Your election to receive reports in paper will apply to all funds held in your account.

Franklin Templeton

Successful investing begins with ambition. And achievement only comes when you reach for it. That’s why we continually strive to deliver better outcomes for investors. No matter what your goals are, our deep, global investment expertise allows us to offer solutions that can help.

During our more than 70 years of experience, we’ve managed through all kinds of markets—up, down and those in between. We’re always preparing for what may come next. It’s because of this, combined with our strength as one of the world’s largest asset managers that we’ve earned the trust of millions of investors around the world.

Dear Franklin Mutual International Fund Shareholder:

Investors started 2018 seemingly with the wind at their back. The primary tailwinds were strong corporate earnings growth in most developed markets, healthy consumer and business investment spending, and the positive effect of major U.S. tax cuts. In addition, the global economy continued its steady expansion since the financial crisis of 2008–2009. Unemployment continued to decline in the U.S. and other developed markets, while U.S. wage growth showed some signs of accelerating. As a result, equity markets reached new highs. However, volatility and market downturns soon made their mark on 2018. As measured by the EURO STOXX 50^® Volatility (VSTOXX) Index and the Chicago Board Options Exchange Volatility Index (VIX), volatility surged in February 2018 and moved higher again in October and December. U.S. trade tensions with Europe and China, a slowdown in China’s economic growth, the possibility of Brexit without an agreement and a growing belief that corporate earnings and economic growth will likely decelerate in 2019 hindered equity markets. A flattening U.S. Treasury yield curve, wider credit spreads and growing market concern that the U.S. Federal Reserve may raise interest rates too quickly were also important drivers of market turbulence. For the period ended December 31, 2018, U.S. stocks, as measured by the Standard & Poor’s^® 500 Index (S&P 500^®), had a -4.38% total return.¹ Stocks in global developed markets, as measured by the MSCI World Index (USD), had a -8.20% total return, while investment-grade bonds, as measured by the Bloomberg Barclays Global Aggregate Bond Index, had a -1.20% total return.¹

While equity markets were broadly down for the year, there were pockets of positive performance concentrated in areas of growth and innovation, such as software, information technology services and segments of the health care sector. It is no surprise, therefore, that growth stocks managed to perform better than value stocks during the period. The MSCI World Growth Index (USD) had a -6.42% total return, while the MSCI World Value Index (USD) had a -10.09% total return.¹

The return of volatility is an appropriate reminder that securities markets are dynamic. We believe active, professional investment management serves investors well since market volatility is more the norm than uninterrupted positive returns. Valuation is an essential 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 a bottom-up stock-picking process that is disciplined and driven by rigorous fundamental analysis that attempts to limit downside risk. In our view, investing in underappreciated and misunderstood companies with identifiable catalysts for unlocking shareholder value can offer meaningful upside potential as well as a degree of downside protection.

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.

1. Source: Morningstar.

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, 2018, 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	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           Not part of the annual report   franklintempleton.com

Annual Report

Franklin Mutual International Fund

This annual report for Franklin Mutual International Fund covers the fiscal year ended December 31, 2018.

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-U.S. 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 had a -17.52% cumulative total return for the 12 months ended December 31, 2018. 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, had a -10.65% total return.² Also for comparison, the Fund’s secondary benchmark, the MSCI ACWI ex USA Net Return (USD) had a -14.20% total return.² 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 expanded during the 12 months under review, despite weakness in certain regions. Global developed and emerging market stocks were aided at certain points during the period by higher crude oil prices, upbeat economic data, easing trade tensions and encouraging corporate earnings reports, as well as indications of a slower pace of interest-rate increases from the U.S. Federal Reserve (Fed).

However, various factors weighed on global markets during the period, including concerns about tighter regulation of technology companies, political uncertainties in the U.S. and the European Union, and major central banks’ interest-rate path and unwinding of monetary stimulus measures. Markets were further pressured by U.S. trade disputes with its allies and China, and their impact on global growth and corporate earnings. In this environment, global stocks, as measured by the MSCI All Country World Index (USD), had a -8.93% total return for the 12 months ended December 31, 2018.²

The U.S. economy grew during the 12-month period. After moderating for three consecutive quarters, the economy grew faster in 2018’s second quarter, driven by consumer spending, business investment, exports and government spending. However, growth moderated in the third quarter due to declines in exports and housing investment. The unemployment rate declined from 4.1% in December 2017 to 3.9% at period-end.³ Annual inflation, as measured by the Consumer Price Index, decreased from 2.1% in December 2017 to 1.9% at period-end.³ The Fed raised its target range for the federal funds rate four times during the period, to 2.25%–2.50%, and

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.

3. Source: U.S. Bureau of Labor Statistics.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 18.

  franklintempleton.com Annual Report         3

FRANKLIN  MUTUAL  INTERNATIONAL  FUND

continued reducing its balance sheet as part of an ongoing plan to normalize monetary policy. At its December meeting, the Fed reduced the projected 2019 rate increases to two, compared to three projected previously.

In Europe, the U.K.’s quarterly economic growth moderated in 2018’s first quarter, but accelerated in 2018’s second and third quarters. The Bank of England raised its key policy rate once during the review period. After moderating in 2018’s first quarter, the eurozone’s quarterly growth remained stable in the second quarter, but eased in the third quarter. The bloc’s annual inflation rate ended the period higher than in December 2017. The European Central Bank (ECB) kept its benchmark interest rate unchanged during the period. In December 2018, the ECB confirmed its plan to conclude its bond purchase program at the end of 2018 and reiterated it expects key interest rates to remain unchanged through the summer of 2019.

In Asia, Japan’s quarterly gross domestic product (GDP) grew in 2018’s second quarter, following a contraction in the first quarter, but contracted again in the third 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 growth remained stable in 2018’s first and second quarters, but accelerated in the third quarter. The Central Bank of Brazil lowered its benchmark interest rate twice during the period. Russia’s annual GDP growth rate accelerated in 2018’s first and second quarters, but moderated in the third quarter. After lowering its key rate twice early in the period, the Bank of Russia raised it twice in the period’s second half to curtail inflation risks. China’s annual GDP grew at a stable rate in 2018’s first quarter, but it moderated in the second and third quarters. The People’s Bank of China left its benchmark interest rate unchanged during the period, but it took measures to improve financial liquidity to mitigate the negative effects of the U.S.-China trade dispute and support economic growth. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, had a -14.25% total return during the period.²

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

Geographic Composition*

Based on Total Net Assets as of 12/31/18

*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.

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

  4           Annual Report   franklintempleton.com

FRANKLIN MUTUAL INTERNATIONAL FUND

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.

To a significantly lesser extent, 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 2018, corporate profits in the U.S. and other developed markets continued their impressive year-over-year growth. In addition, labor markets showed further improvement, consumer spending was solid, and U.S. corporate tax reforms encouraged companies to buy back more stock, raise dividends and increase capital expenditures. Those positive fundamentals were periodically overshadowed by political and economic concerns, particularly in the final three months of the year.

As major U.S. equity markets established new all-time highs in 2018, overall U.S. equity market valuations (e.g., price-to-earnings, price-to-book or price-to-sales) became increasingly unattractive, in our analysis. The equity market

Top 10 Sectors/Industries

Based on Equity Securities as of 12/31/18

	% of Total Net Assets
Insurance		17.2%
Banks		11.6%
Oil, Gas & Consumable Fuels		9.5%
Pharmaceuticals		6.4%
Semiconductors & Semiconductor Equipment		4.1%
Automobiles		3.6%
Capital Markets		3.5%
Hotels, Restaurants & Leisure		3.5%
Interactive Media & Services		3.1%
Auto Components		2.8%

sell-off in the fourth quarter helped to return valuations to more reasonable levels. The sell-off and rise in volatility yielded an opportunity for us to seek out stocks with strong corporate fundamentals and valuations whose risk/reward profiles seemed to us to have become more favorable.

In 2019, policy events may have considerable influence, for better or worse, on economic growth, investor sentiment and financial market performance and volatility. Markets are likely to be particularly sensitive to developments in U.S.-China trade relations, monetary policy moves by the Fed and other major central banks, oil production decisions by OPEC (The Organization of the Petroleum Exporting Countries) and other oil producing countries, the outcome of Brexit, China’s response to its slowing economy and potential political discord in Washington, D.C.

Europe’s equity market overall was trading at an attractively lower price-to-earnings multiple and higher dividend yield than the U.S. equity market at period-end. We also saw an increase in investor activism, which we viewed as encouraging. However, those favorable factors were offset in part by economic data, which showed increased slowing of economic activity across the region. From an investment standpoint, we are hopeful that 2019 will be a year of potential resolution and clarity. The biggest political event will likely be Brexit, as a resolution to the situation remained unclear as of period-end. The uncertainty around the terms and timing of a deal continued to undermine consumer and corporate confidence. From our perspective, we believe the European Union and the U.K. will ultimately reach an agreement that makes sense for both sides, and we believe the approval of such an agreement would likely have a significantly positive effect on investor, consumer and corporate sentiment in the U.K. We will also pay close attention to structural reform efforts in France, policy decisions from a populist coalition government in Italy and the

  franklintempleton.com    Annual Report             5

FRANKLIN MUTUAL INTERNATIONAL FUND

political transition in Germany. In December, Chancellor Angela Merkel stepped down as leader of the Christian Democratic Union but stated her intention to remain in office for the remaining three years of her term as Chancellor.

In Asia, economic and financial market weakness in China has been brought on by multiple factors. The U.S.-China trade conflict has disrupted manufacturing activity and supply chains. As trade tensions escalated in 2018, manufacturers accelerated production in order to avoid upcoming tariffs. At year-end, supply chains were filled with inventory, while manufacturing activity was weak. Entering 2019, the near-term question is how long the inventory overhang will last, while the more significant question is to what extent the trade conflict will alter supply chains in the medium to long term. Amid the trade conflict, China has proven resolute in its attempt to dampen the reliance on leverage, which has hindered economic activity as well. While the government has enacted some stimulus measures, such as tax cuts, they may be less impactful than prior stimulus through fiscal spending. Meanwhile, government social policies impacting personal freedoms have had a negative effect on consumer sentiment.

Investment Spotlight

The insurance industry has been an area of significant interest for Mutual Series since the Great Recession. The Top 10 Sectors/Industries table on page 5 lists insurance and also other leading industries in which the Fund currently invests. We were able to find quality insurers trading at discounts to our estimate of intrinsic value during the post-crisis period of financial services recapitalization, followed by the restructuring of the financial services industry in Europe, and finally capital rationalization in the U.S. financials sector. During the past 10 years, insurance industry trends have provided investment opportunities for value investors. The Mutual Series investment process focuses on finding companies trading below our estimate of intrinsic value and with potential catalysts for value creation. With interest rates at secular low levels, insurers have focused on operational efficiencies, cash flow from underwriting, and rational capital structures to maintain acceptable profitability. Life insurance businesses have mainly focused on improving returns through cost savings and capital rationalization, while property casualty businesses have emphasized better underwriting and capital management.

After several years of equity market outperformance, insurers were hurt by increased natural catastrophe losses around the

Top 10 Equity Holdings
12/31/18
Company Sector/Industry, Country	% of Total Net Assets
Novartis AG		3.5%
Pharmaceuticals, Switzerland
NN Group NV		2.9%
Insurance, Netherlands
GlaxoSmithKline PLC		2.9%
Pharmaceuticals, U.K.
Sabre Insurance Group PLC		2.5%
Insurance, U.K.
BE Semiconductor Industries NV		2.3%
Semiconductors & Semiconductor Equipment,   Netherlands
Metro Pacific Investments Corp.		2.3%
Diversified Financial Services, Philippines
BP PLC		2.2%
Oil, Gas & Consumable Fuels, U.K.
Indiabulls Housing Finance Ltd.		2.2%
Thrifts & Mortgage Finance, India
Samsung Electronics Co. Ltd.		2.2%
Technology Hardware, Storage & Peripherals,   South Korea
Shinsei Bank Ltd.		2.2%
Banks, Japan

globe in both 2017 and 2018, jitters regarding global economic growth prospects and a widening of credit spreads. Despite these headwinds, we think valuations at year-end remained attractive, and our holdings have idiosyncratic catalysts that provide attractive return potential. In addition, the large natural catastrophe losses suffered by property and casualty insurers should present an opportunity for them to increase premiums as they adjust risk profiles.

Mutual Series has owned the Netherlands-based NN Group since its 2014 initial public offering (IPO). NN Group was spun out of ING Groep⁴ and consists of life insurance, other insurance and asset management operations in Europe and Japan. The initial investment case revolved around the rationalization of capital and cost efficiencies. In 2017, NN Group acquired Dutch insurer Delta Lloyd at an attractive internal rate of return with the potential for significant synergies from the combined company. Since the IPO, the company has returned a significant amount of capital to shareholders and lowered expenses, while maintaining one of the strongest balance sheets in the industry. We expect additional progress on the integration of Delta Lloyd to

4. Not a Fund holding.

6           Annual Report franklintempleton.com

FRANKLIN MUTUAL INTERNATIONAL FUND

generate increased cash flow in the future. NN Group is listed among the Fund’s largest positions in the Top 10 Equity Holdings table on page 6.

Fund Performance

Turning to Fund performance, top positive contributors included Japan-based petroleum refiner JXTG Holdings, Netherlands-based Royal Philips⁵ and global insurer XL Group.

JXTG Holdings, the largest refiner in Japan, benefited from refining industry consolidation in the country. Its profit significantly increased year-over-year, largely driven by a higher refining margin due to a more disciplined industry. Moreover, JXTG became more capital disciplined, and increased dividends and share buybacks. We exited the position in September 2018.

Koninklijke Philips⁵ is near the end of its restructuring efforts. In line with our initial investment thesis, the company has almost fully pivoted its business model from being an industrial conglomerate to becoming a focused health care technology company. In April 2018, Philips reported better-than-expected results, particularly strong order growth overall and sales growth within its diagnostics and treatment business. The positive results increased our confidence in management’s ability to deliver on its long-term strategy and targets.

Shares of XL Group, a global insurance and reinsurance company, rallied in early 2018, aided by generally upbeat quarterly results. We exited the position in March, following the announcement of XL Group’s acquisition by AXA⁴, another global insurer, at a substantial premium to XL Group’s closing price prior to the announcement.

During the period under review, Fund investments that detracted from performance included Japan-based semiconductor manufacturer Renesas Electronics, Canada-based exploration and production company Crescent Point Energy and U.S.-based tire company Toyo Tire.

Renesas Electronics is a Japan-based manufacturer of semiconductors for the automotive, industrial and communication markets. In 2016, an earthquake in Japan caused a chip shortage in the supply chain. Production subsequently accelerated in 2017, as customers double ordered and did not adjust quickly enough to the eventual drop off in demand, leading to excess inventories. In 2018, production and capacity utilization remained below optimal levels, as Renesas

continued to reduce inventories. In addition, investors reacted negatively to Renesas’ announced purchase of Integrated Devices Technology (IDT) at a nearly 30% premium to IDT’s price before the announcement. While the deal weakens Renesas’ balance sheet, we believed the transaction made strategic sense given IDT’s complementary product portfolio and cross-selling opportunities in the long run.

Crescent Point Energy has significant exposure to oil production and its shares generally followed lower oil prices during the latter stages of 2018 despite some positive changes at the company. The company hired a new chief executive officer and had some changes to the executive team and the board of directors. The new management team launched a strategic plan targeting cost reduction, asset sales, a stronger balance sheet and better capital allocation, which we believe are the right things to focus on. So far, Crescent Point’s new management team delivered solid third-quarter results with good progress on its cost reduction program, which we believe will help build credibility. If management continues to follow through on its strategic plan, we believe the stock’s deep valuation discount versus peers may narrow.

Toyo Tire is a niche tire company with a focus on large, specialty tires for sports utility vehicles (SUVs) and pickup trucks in the U.S. A lower share price in the first half of 2018 was driven by exchange rate headwinds, larger losses at its non-core auto parts business and investor pessimism toward the tire industry. However, Toyo’s main tire business performed satisfactorily due to its favorable exposure to specialty tires. Shares slid further in the fourth quarter, as management unexpectedly announced a private placement of 21% of new shares to Mitsubishi⁴. While management stated the deal would enable closer cooperation, we believed management did not provide concrete synergies or economic rationale to offset the substantial dilution suffered by existing shareholders. The deal also reflected poorly on corporate governance. We expressed our concerns to Toyo’s management and made our concerns public.

During the period, the Fund held currency forwards and futures seeking to hedge most of the currency risk of the portfolio’s non-U.S. dollar investments. The hedges had a positive overall impact on the Fund’s performance because of the appreciation of the U.S. dollar versus the hedged currencies.

5. Not held at period-end.

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

  franklintempleton.com Annual Report         7

FRANKLIN MUTUAL INTERNATIONAL FUND

What is a currency forward?

A currency forward is a direct 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 U.S. or foreign futures exchange to buy or sell an underlying instrument or asset at a specific price on a future date.

As fellow shareholders, we found recent relative and absolute performance disappointing, but it is not uncommon for our strategy to lag the equity markets at times. We remain committed to our disciplined, value investment approach as we seek to generate attractive, long-term, risk-adjusted returns for shareholders.

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

	Andrew Sleeman, CFA Co-Portfolio Manager

	Timothy Rankin, CFA Co-Portfolio Manager

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2018, 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.

8       Annual Report franklintempleton.com

FRANKLIN MUTUAL INTERNATIONAL FUND

Performance Summary as of December 31, 2018

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 12/31/18¹

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 5.50% and the minimum is 0%. Class A: 5.50% maximum initial sales charge. For other share classes, visit franklintempleton.com.

Share Class	Cumulative Total Return2	Average Annual Total Return	3
Z
1-Year	-17.52%	-17.52%
5-Year	-4.29%	-0.87%
Since Inception (5/1/09)	+75.09%	+5.96%
A4
1-Year	-17.73%	-22.23%
5-Year	-5.56%	-2.25%
Since Inception (5/1/09)	+70.38%	+5.05%

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.

  franklintempleton.com Annual Report     9

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.

See page 11 for Performance Summary footnotes.

10       Annual Report franklintempleton.com

FRANKLIN MUTUAL INTERNATIONAL FUND

PERFORMANCE SUMMARY

Distributions (1/1/18–12/31/18)

Share Class	Net Investment Income		Long-Term Capital Gain		Total
Z		$0.2518		$0.0922		$0.3440
A		$0.2117		$0.0922		$0.3039
C		$0.0359		$0.0922		$0.1281
R		$0.1815		$0.0922		$0.2737
R6		$0.2798		$0.0922		$0.3720

Total Annual Operating Expenses⁶

Share Class	With Fee Waiver		Without Fee Waiver
Z		0.97%		1.17%
A		1.22%		1.42%

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. Prior to 9/10/18, these shares were offered at a higher initial sales charge of 5.75%, thus actual returns would have differed. Total returns with sales charges have been restated to reflect the current maximum initial sales charge of 5.50%.

5. Source: Morningstar. the MSCI ACWI ex USA Net Return (Local Currency and U.S. dollar) is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed and emerging markets.

6. 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 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 7/1/18	Ending Account Value 12/31/18	Expenses Paid During Period 7/1/18–12/31/181,2	Ending Account Value 12/31/18	Expenses Paid During Period 7/1/18–12/31/181,2	Net Annualized Expense Ratio2
Z	$1,000	$852.00	$4.53	$1,020.32	$  4.94	0.97%
A	$1,000	$850.50	$5.69	$1,019.06	$  6.21	1.22%
C	$1,000	$847.40	$9.17	$1,015.27	$10.01	1.97%
R	$1,000	$850.00	$6.85	$1,017.80	$  7.48	1.47%
R6	$1,000	$852.70	$3.88	$1,021.02	$  4.23	0.83%

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 INTERNATIONAL FUND

Financial Highlights

	Year Ended December 31,
	2018			2017			2016			2015			2014
Class Z
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$15.96			$14.32			$14.17			$14.59			$15.90
Income from investment operationsa:
Net investment incomeb		0.31			0.21			0.27	c		0.18	d		0.30	e
Net realized and unrealized gains (losses)		(3.11	)		1.78			0.20			(0.17	)		(0.57	)
Total from investment operations		(2.80	)		1.99			0.47			0.01			(0.27	)
Less distributions from:
Net investment income		(0.25	)		(0.35	)		(0.27	)		(0.16	)		(0.43	)
Net realized gains		(0.09	)		—			(0.05	)		(0.27	)		(0.61	)
Total distributions		(0.34	)		(0.35	)		(0.32	)		(0.43	)		(1.04	)
Net asset value, end of year		$12.82			$15.96			$14.32			$14.17			$14.59
Total return		(17.52)%			13.99%			3.34%			0.15%			(1.63)%
Ratios to average net assets
Expenses before waiver and payments by affiliatesf		1.21%			1.17%			1.22%			1.24%			1.39%
Expenses net of waiver and payments by affiliatesf,g		0.99%			1.16%			1.17%			1.15%			1.16%
Expenses incurred in connection with securities sold short		—%			—%			—%			—%			—%	h
Net investment income		2.00%			1.41%			2.07%	c		1.26%	d		1.78%	e
Supplemental data
Net assets, end of year (000’s)		$52,271			$86,274			$40,875			$49,963			$19,940
Portfolio turnover rate		28.75%			38.77%			24.87%			28.64%			54.78%

^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%.

franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |   Annual Report         13

FRANKLIN MUTUAL INTERNATIONAL FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2018			2017			2016			2015			2014
Class A
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$15.90			$14.25			$14.10			$14.54			$15.84
Income from investment operationsa:
Net investment incomeb		0.27			0.18			0.24	c		0.15	d		0.26	e
Net realized and unrealized gains (losses)		(3.10	)		1.78			0.19			(0.19	)		(0.57	)
Total from investment operations		(2.83	)		1.96			0.43			(0.04	)		(0.31	)
Less distributions from:
Net investment income		(0.21	)		(0.31	)		(0.23	)		(0.13	)		(0.38	)
Net realized gains		(0.09	)		—			(0.05	)		(0.27	)		(0.61	)
Total distributions		(0.30	)		(0.31	)		(0.28	)		(0.40	)		(0.99	)
Net asset value, end of year		$12.77			$15.90			$14.25			$14.10			$14.54
Total returnf		(17.73)%			13.67%			3.14%			(0.20)%			(1.89)%
Ratios to average net assets
Expenses before waiver and payments by affiliatesg		1.46%			1.42%			1.47%			1.52%			1.69%
Expenses net of waiver and payments by affiliatesg,h		1.24%			1.41%			1.42%			1.43%			1.46%
Expenses incurred in connection with securities sold short		—%			—%			—%			—%			—%	i
Net investment income		1.75%			1.16%			1.82%	c		0.98%	d		1.48%	e
Supplemental data
Net assets, end of year (000’s)		$53,082			$82,965			$82,626			$110,591			$39,810
Portfolio turnover rate		28.75%			38.77%			24.87%			28.64%			54.78%

^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%.

14       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,
	2018			2017			2016			2015			2014
Class C
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$15.69			$14.08			$13.92			$14.38			$15.68
Income from investment operationsa:
Net investment incomeb		0.16			0.08			0.15	c		0.04	d		0.15	e
Net realized and unrealized gains (losses)		(3.04	)		1.72			0.18			(0.18	)		(0.56	)
Total from investment operations		(2.88	)		1.80			0.33			(0.14	)		(0.41	)
Less distributions from:
Net investment income		(0.04	)		(0.19	)		(0.12	)		(0.05	)		(0.28	)
Net realized gains		(0.09	)		—			(0.05	)		(0.27	)		(0.61	)
Total distributions		(0.13	)		(0.19	)		(0.17	)		(0.32	)		(0.89	)
Net asset value, end of year		$12.68			$15.69			$14.08			$13.92			$14.38
Total returnf		(18.39)%			12.79%			2.44%			(0.93)%			(2.58)%
Ratios to average net assets
Expenses before waiver and payments by affiliatesg		2.21%			2.17%			2.22%			2.24%			2.39%
Expenses net of waiver and payments by affiliatesg,h		1.99%			2.16%			2.17%			2.15%			2.16%
Expenses incurred in connection with securities sold short		—%			—%			—%			—%			—%	i
Net investment income		1.00%			0.41%			1.07%	c		0.26%	d		0.78%	e
Supplemental data
Net assets, end of year (000’s)		$13,685			$29,109			$25,860			$34,611			$14,794
Portfolio turnover rate		28.75%			38.77%			24.87%			28.64%			54.78%

^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%.

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

FRANKLIN MUTUAL INTERNATIONAL FUND

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2018			2017			2016			2015			2014
Class R
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$15.80			$14.19			$14.05			$14.51			$15.83
Income from investment operationsa:
Net investment incomeb		0.23			0.10			0.20	c		0.04	d		0.18	e
Net realized and unrealized gains (losses)		(3.07	)		1.80			0.20			(0.10	)		(0.52	)
Total from investment operations		(2.84	)		1.90			0.40			(0.06	)		(0.34	)
Less distributions from:
Net investment income		(0.18	)		(0.29	)		(0.21	)		(0.13	)		(0.37	)
Net realized gains		(0.09	)		—			(0.05	)		(0.27	)		(0.61	)
Total distributions		(0.27	)		(0.29	)		(0.26	)		(0.40	)		(0.98	)
Net asset value, end of year		$12.69			$15.80			$14.19			$14.05			$14.51
Total return		(17.96)%			13.43%			2.90%			(0.38)%			(2.13)%
Ratios to average net assets
Expenses before waiver and payments by affiliatesf		1.71%			1.64%			1.72%			1.74%			1.89%
Expenses net of waiver and payments by affiliatesf,g		1.49%			1.63%			1.67%			1.65%			1.66%
Expenses incurred in connection with securities sold short		—%			—%			—%			—%			—%	h
Net investment income		1.50%			0.94%			1.57%	c		0.76%	d		1.28%	e
Supplemental data
Net assets, end of year (000’s)		$1,673			$1,867			$694			$662			$112
Portfolio turnover rate		28.75%			38.77%			24.87%			28.64%			54.78%

^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%.

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,
	2018			2017			2016			2015			2014
Class R6
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year		$15.97			$14.32			$14.17			$14.59			$15.87
Income from investment operationsa:
Net investment incomeb		0.33			0.24			0.33	c		0.22	d		—	e,f
Net realized and unrealized gains (losses)		(3.11	)		1.78			0.17			(0.20	)		(0.22	)
Total from investment operations		(2.78	)		2.02			0.50			0.02			(0.22	)
Less distributions from:
Net investment income		(0.28	)		(0.37	)		(0.30	)		(0.17	)		(0.45	)
Net realized gains		(0.09	)		—			(0.05	)		(0.27	)		(0.61	)
Total distributions		(0.37	)		(0.37	)		(0.35	)		(0.44	)		(1.06	)
Net asset value, end of year.		$12.82			$15.97			$14.32			$14.17			$14.59
Total return		(17.40)%			14.11%			3.58%			0.23%			(1.46)%
Ratios to average net assets
Expenses before waiver and payments by affiliatesg		1.11%			1.03%			1.06%			1.06%			1.24%
Expenses net of waiver and payments by affiliatesg,h		0.85%			1.01%			1.00%			1.02%			1.00%
Expenses incurred in connection with securities sold short		—%			—%			—%			—%			—%	i
Net investment income		2.14%			1.56%			2.24%	c		1.39%	d		1.94%	e
Supplemental data
Net assets, end of year (000’s)		$20,128			$25,697			$16,687			$23,793			$19,398
Portfolio turnover rate		28.75%			38.77%			24.87%			28.64%			54.78%

^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 1.80%.

^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 0.84%.

^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 1.42%.

^fAmount rounds to less than $0.01 per share.

^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%.

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

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

FRANKLIN MUTUAL INTERNATIONAL FUND

Statement of Investments, December 31, 2018

	Country		Shares		Value
Common Stocks 90.4%
Auto Components 2.8%
Cie Generale des Etablissements Michelin SCA		France		14,989	$	1,489,020
Toyo Tire Corp.		Japan		200,351		2,513,528
						4,002,548
Automobiles 2.1%
Peugeot SA		France		138,705		2,963,216
Banks 11.6%
AIB Group PLC		Ireland		516,975		2,173,282
a Credito Valtellinese SpA		Italy		28,038,943		2,357,520
HSBC Holdings PLC		United Kingdom		338,807		2,795,019
ING Groep NV		Netherlands		176,098		1,898,685
Shinsei Bank Ltd.		Japan		255,900		3,056,324
Standard Chartered PLC		United Kingdom		366,605		2,848,557
Yes Bank Ltd.		India		493,352		1,289,225
						16,418,612
Capital Markets 3.5%
Credit Suisse Group AG		Switzerland		169,007		1,848,421
Deutsche Bank AG		Germany		288,000		2,296,953
Guotai Junan Securities Co. Ltd.		China		398,064		805,227
						4,950,601
Chemicals 1.4%
BASF SE		Germany		28,169		1,962,158
Communications Equipment 1.5%
Nokia OYJ, A		Finland		356,803		2,056,389
Construction Materials 1.7%
LafargeHolcim Ltd., B		Switzerland		57,170		2,360,421
Consumer Finance 2.4%
b Hoist Finance AB, 144A		Sweden		419,206		2,046,577
Sun Hung Kai & Co. Ltd.		Hong Kong		2,877,748		1,359,769
						3,406,346
Diversified Financial Services 2.3%
Metro Pacific Investments Corp.		Philippines		36,164,200		3,196,226
Diversified Telecommunication Services 1.5%
Koninklijke KPN NV		Netherlands		743,128		2,179,779
Hotels, Restaurants & Leisure 3.5%
Accor SA		France		51,000		2,168,553
Sands China Ltd.		Macau		624,400		2,735,064
						4,903,617
Household Durables 2.1%
a Cairn Homes PLC		Ireland		1,005,848		1,233,176
a,b Neinor Homes SA, 144A		Spain		115,583		1,721,655
						2,954,831
Independent Power & Renewable Electricity Producers 2.0%
China Longyuan Power Group Corp.		China		4,208,700		2,864,743
Insurance 17.2%
ASR Nederland NV		Netherlands		54,769		2,170,044
China Pacific Insurance Group Co. Ltd., H		China		879,045		2,845,769
Direct Line Insurance Group PLC		United Kingdom		739,157		3,004,098
Lancashire Holdings Ltd.		United Kingdom		388,658		2,998,598

18       Annual Report franklintempleton.com

FRANKLIN MUTUAL INTERNATIONAL FUND

STATEMENT OF INVESTMENTS

	Country		Shares		Value
Common Stocks (continued)
Insurance (continued)
NN Group NV		Netherlands		103,498	$	4,126,862
RSA Insurance Group PLC		United Kingdom		389,405		2,550,480
Sabre Insurance Group PLC		United Kingdom		1,028,590		3,580,966
T&D Holdings Inc.		Japan		248,433		2,899,141
						24,175,958
Interactive Media & Services 3.1%
a  Baidu Inc., ADR		China		16,131		2,558,377
Yahoo Japan Corp.		Japan		734,600		1,836,500
						4,394,877
Oil, Gas & Consumable Fuels 9.5%
BP PLC		United Kingdom		495,900		3,136,370
Canadian Natural Resources Ltd.		Canada		84,900		2,048,871
Crescent Point Energy Corp.		Canada		585,600		1,776,170
Husky Energy Inc.		Canada		190,100		1,965,135
Royal Dutch Shell PLC, B		United Kingdom		90,231		2,692,570
Saras SpA		Italy		877,091		1,701,826
						13,320,942
Pharmaceuticals 6.4%
GlaxoSmithKline PLC		United Kingdom		213,777		4,065,296
Novartis AG		Switzerland		57,144		4,896,957
						8,962,253
Semiconductors & Semiconductor Equipment 4.1%
BE Semiconductor Industries NV		Netherlands		151,191		3,201,030
a  Renesas Electronics Corp.		Japan		552,862		2,522,180
						5,723,210
Specialty Retail 2.8%
Dufry AG		Switzerland		25,336		2,414,533
Hornbach Holding AG & Co. KGaA		Germany		31,290		1,476,764
						3,891,297
Technology Hardware, Storage & Peripherals 2.2%
Samsung Electronics Co. Ltd.		South Korea		88,900		3,089,161
Thrifts & Mortgage Finance 2.2%
Indiabulls Housing Finance Ltd.		India		252,641		3,100,726
Tobacco 1.3%
British American Tobacco PLC		United Kingdom		58,254		1,857,210
Trading Companies & Distributors 1.4%
Rexel SA		France		180,233		1,920,552
Wireless Telecommunication Services 1.8%
Vodafone Group PLC		United Kingdom		1,324,860		2,583,288
Total Common Stocks (Cost $153,702,338)						127,238,961
Preferred Stocks (Cost $1,772,943) 1.5%
Automobiles 1.5%
c  Volkswagen AG, 2.845%, pfd		Germany		13,606		2,169,647
Total Investments before Short Term Investments     (Cost $155,475,281)						129,408,608

  franklintempleton.com Annual Report     19

FRANKLIN MUTUAL INTERNATIONAL FUND

STATEMENT OF INVESTMENTS

	Country		Principal Amount		Value
Short Term Investments 8.3%
U.S. Government and Agency Securities 8.3%
d  FHLB, 1/02/19		United States	$	2,700,000	$	2,700,000
d U.S. Treasury Bill,
1/02/19		United States		5,000,000		5,000,000
1/24/19		United States		2,000,000		1,997,174
5/09/19		United States		2,000,000		1,982,447
Total U.S. Government and Agency Securities     (Cost $11,678,751)						11,679,621
Total Investments (Cost $167,154,032) 100.2%						141,088,229
Other Assets, less Liabilities (0.2)%						(249,286	)
Net Assets 100.0%					$	140,838,943

^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, 2018, the aggregate value of these securities was $3,768,232, representing 2.7% 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.

At December 31, 2018, 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		135		$19,444,219		3/18/19		$  2,898
GBP/USD		Short		68		5,435,750		3/18/19		11,234
Total Futures Contracts										$14,132

*As of period end.

20       Annual Report franklintempleton.com

FRANKLIN MUTUAL INTERNATIONAL FUND

STATEMENT OF INVESTMENTS

At December 31, 2018, 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		1,451,149	$	1,655,795		1/14/19	$	8,998	$	—
Euro		BONY		Sell		3,723,755		4,421,736		1/14/19		149,756		—
Euro		HSBK		Buy		2,219,586		2,534,428		1/14/19		11,931		—
Euro		HSBK		Sell		197,620		233,836		1/14/19		7,122		—
Euro		SSBT		Buy		686,857		784,115		1/14/19		3,863		—
Euro		SSBT		Sell		13,983,121		16,613,947		1/14/19		572,181		—
Euro		UBSW		Buy		1,257,874		1,435,095		1/14/19		7,968		—
Euro		UBSW		Sell		148,209		174,110		1/14/19		4,081		—
Swiss Franc		HSBK		Buy		47,237		47,762		1/14/19		396		—
Swiss Franc		UBSW		Buy		296,258		299,486		1/14/19		2,547		—
Swiss Franc		UBSW		Sell		2,155,417		2,163,964		1/14/19		—		(33,472	)
British Pound		BOFA		Buy		528,462		669,810		1/16/19		4,679		—
British Pound		HSBK		Buy		187,094		236,744		1/16/19		2,049		—
British Pound		SSBT		Sell		2,936,461		3,913,554		1/16/19		165,679		—
British Pound		UBSW		Buy		75,334		95,204		1/16/19		947		—
South Korean Won		BONY		Sell		233,809,059		208,833		1/18/19		—		(1,213	)
South Korean Won		HSBK		Buy		406,270,942		360,096		1/18/19		4,883		—
South Korean Won		HSBK		Sell		748,940,399		668,912		1/18/19		—		(3,908	)
South Korean Won		UBSW		Sell		2,823,946,484		2,521,831		1/18/19		—		(15,095	)
Swedish Krona		BONY		Buy		10,817,845		1,199,382		1/31/19		24,893		—
Swedish Krona		BONY		Sell		28,922,111		3,193,810		1/31/19		—		(79,355	)
Philippine Peso		BONY		Sell		164,610,098		3,129,470		2/04/19		—		(3,624	)
British Pound		BOFA		Sell		300,000		397,914		2/14/19		14,477		—
British Pound		HSBK		Sell		189,744		251,491		2/14/19		8,974		—
British Pound		UBSW		Sell		5,325,697		6,865,702		2/14/19		58,799		—
Japanese Yen		HSBK		Buy		49,328,591		446,315		2/19/19		5,530		—
Japanese Yen		UBSW		Buy		29,946,527		271,675		2/19/19		2,632		—
Japanese Yen		UBSW		Sell		931,126,799		8,292,531		2/19/19		—		(236,511	)
Euro		BONY		Sell		619,305		716,040		2/20/19		3,381		—
Euro		SSBT		Sell		619,306		716,094		2/20/19		3,434		—
Euro		UBSW		Sell		117,435		134,970		4/18/19		—		(839	)
British Pound		BONY		Sell		230,531		301,302		4/24/19		5,684		—
British Pound		UBSW		Sell		3,722,872		4,877,576		4/24/19		103,619		—
Euro		HSBK		Sell		274,646		316,282		5/07/19		—		(1,862	)
Euro		HSBK		Sell		1,138,655		1,321,003		5/07/19		2,009		—
Euro		SSBT		Sell		16,109		18,807		5/07/19		147		—
Euro		SSBT		Sell		1,260,725		1,468,052		5/21/19		5,874		—
British Pound		BOFA		Sell		7,465,829		9,667,726		5/28/19		78,709		—
British Pound		HSBK		Sell		27,252		35,237		5/28/19		235		—
British Pound		SSBT		Sell		185,000		238,211		5/28/19		599		—
Total Forward Exchange Contracts											$	1,266,076	$	(375,879	)
Net unrealized appreciation (depreciation)											$	890,197

^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 38.

  franklintempleton.com   The accompanying notes are an integral part of these financial statements.  |     Annual Report               21

FRANKLIN MUTUAL INTERNATIONAL FUND

Financial Statements

Statement of Assets and Liabilities

December 31, 2018

Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	167,154,032
Value - Unaffiliated issuers	$	141,088,229
Cash		101,156
Foreign currency, at value (cost $32,830)		32,829
Receivables:
Capital shares sold		416,961
Dividends		542,509
European Union tax reclaims		48,563
Affiliates		9,339
Deposits with brokers for:
Futures contracts		481,060
Unrealized appreciation on OTC forward exchange contracts		1,266,076
Other assets		25
Total assets		143,986,747
Liabilities:
Payables:
Capital shares redeemed		2,542,406
Management fees		55,213
Distribution fees		51,922
Trustees’ fees and expenses		2,899
Variation margin on futures contracts		33,062
Unrealized depreciation on OTC forward exchange contracts		375,879
Accrued expenses and other liabilities		86,423
Total liabilities		3,147,804
Net assets, at value	$	140,838,943
Net assets consist of:
Paid-in capital	$	169,187,591
Total distributable earnings (loss)		(28,348,648	)
Net assets, at value	$	140,838,943

  22           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, 2018

Class Z:
Net assets, at value	$	52,270,864
Shares outstanding		4,077,294
Net asset value and maximum offering price per share		$12.82
Class A:
Net assets, at value	$	53,081,844
Shares outstanding		4,155,906
Net asset value per sharea		$12.77
Maximum offering price per share (net asset value per share ÷ 94.50%)		$13.51
Class C:
Net assets, at value	$	13,684,904
Shares outstanding		1,078,950
Net asset value and maximum offering price per sharea		$12.68
Class R:
Net assets, at value	$	1,673,403
Shares outstanding		131,886
Net asset value and maximum offering price per share		$12.69
Class R6:
Net assets, at value	$	20,127,928
Shares outstanding		1,570,140
Net asset value and maximum offering price per share		$12.82

^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 INTERNATIONAL FUND

FINANCIAL STATEMENTS

Statement of Operations    

for the year ended December 31, 2018    

Investment income:
Dividends: (net of foreign taxes)*
Unaffiliated issuers	$	5,582,595
Interest:
Unaffiliated issuers		207,564
Income from securities loaned:
Unaffiliated issuers (net of fees and rebates)		6,629
Non-controlled affiliates (Note 3f)		679
Other income (Note 1f)		46,160
Total investment income		5,843,627
Expenses:
Management fees (Note 3a)		1,710,684
Distribution fees: (Note 3c)
Class A		178,557
Class C		232,026
Class R		9,902
Transfer agent fees: (Note 3e)
Class Z		141,571
Class A		135,360
Class C		43,919
Class R		3,727
Class R6		19,765
Custodian fees (Note 4)		34,279
Reports to shareholders		44,465
Registration and filing fees		79,067
Professional fees		82,662
Trustees’ fees and expenses		12,042
Other		30,250
Total expenses		2,758,276
Expense reductions (Note 4)		(2,379	)
Expenses waived/paid by affiliates (Note 3f and 3g)		(440,885	)
Net expenses		2,315,012
Net investment income		3,528,615
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:#
Unaffiliated issuers		6,026,036
Foreign currency transactions		(32,809	)
Forward exchange contracts		2,367,152
Futures contracts		1,559,890
Net realized gain (loss)		9,920,269
Net change in unrealized appreciation (depreciation) on:
Investments:
Unaffiliated issuers		(50,995,072	)
Translation of other assets and liabilities denominated in foreign currencies		(18,751	)
Forward exchange contracts		3,845,145
Futures contracts		396,088
Change in deferred taxes on unrealized appreciation		244,572
Net change in unrealized appreciation (depreciation)		(46,528,018	)
Net realized and unrealized gain (loss)		(36,607,749	)
Net increase (decrease) in net assets resulting from operations		$(33,079,134	)
*Foreign taxes withheld on dividends		$ 511,074
#Net of foreign taxes		$ 119,767

24               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,
	2018			2017
Increase (decrease) in net assets:
Operations:
Net investment income	$	3,528,615		$	2,319,028
Net realized gain (loss)		9,920,269			(1,282,671	)
Net change in unrealized appreciation (depreciation)		(46,528,018	)		22,778,947
Net increase (decrease) in net assets resulting from operations		(33,079,134	)		23,815,304
Distributions to shareholders: (Note 1g)
Class Z		(1,369,385	)		(1,857,997	)
Class A		(1,270,437	)		(1,574,566	)
Class C		(150,699	)		(348,684	)
Class R		(35,634	)		(35,346	)
Class R6		(566,278	)		(569,536	)
Total distributions to shareholders		(3,392,433	)		(4,386,129	)
Capital share transactions: (Note 2)
Class Z		(20,389,727	)		39,322,326
Class A		(16,207,014	)		(7,963,782	)
Class C		(11,485,192	)		226,100
Class R		206,051			1,060,015
Class R6		(724,964	)		7,095,104
Total capital share transactions		(48,600,846	)		39,739,763
Net increase (decrease) in net assets		(85,072,413	)		59,168,938
Net assets:
Beginning of year		225,911,356			166,742,418
End of year (Note 1g)	$	140,838,943		$	225,911,356

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

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. Beginning on October 19, 2018, Class C shares automatically convert to Class A shares after they have been held for 10 years. 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 each business day as of 4 p.m. Eastern time or the regularly scheduled close of the New York Stock Exchange (NYSE), whichever is earlier. 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 Fund may 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.

Investments in open-end mutual funds are valued at the closing NAV.

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 Fund 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.

  26           Annual Report   franklintempleton.com

FRANKLIN MUTUAL INTERNATIONAL FUND

NOTES TO FINANCIAL STATEMENTS

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. At December 31, 2018, a market event occurred resulting in a portion of the securities held by the Fund being valued using fair value procedures.

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, including but not limited to collateral requirements, events of default, or early termination. Termination events applicable to

  franklintempleton.com   Annual Report             27

FRANKLIN MUTUAL INTERNATIONAL FUND

NOTES TO FINANCIAL STATEMENTS

1.  Organization and Significant Accounting Policies (continued)

c.  Derivative Financial Instruments (continued)

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 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 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, 2018, the Fund had no securities sold short.

e.  Securities Lending

The Fund participates in an agency based securities lending program to earn additional income. The Fund receives cash collateral against the loaned securities in an amount equal to at least 102% of the fair value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the fair value of loaned securities, as determined at the close of Fund business each day; any additional collateral required due to changes in security values is delivered to the Fund on the next business day. The collateral is deposited into a

  28           Annual Report   franklintempleton.com

FRANKLIN MUTUAL INTERNATIONAL FUND

NOTES TO FINANCIAL STATEMENTS

joint cash account with other funds and is used to invest in a money market fund managed by Franklin Advisers, Inc., an affiliate of the Fund, and/or a joint repurchase agreement. The Fund may receive income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. Income from securities loaned, net of fees paid to the securities lending agent and/or third-party vendor, is reported separately in the Statement of Operations. The Fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the agent may default on its obligations to the Fund. If the borrower defaults on its obligation to return the securities loaned, the Fund has the right to repurchase the securities in the open market using the collateral received. The securities lending agent has agreed to indemnify the Fund in the event of default by a third party borrower. At December 31, 2018, the Fund had no securities on loan.

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, 2018, 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 or based on the ratio of number of shareholders of each Fund to the combined number of shareholders of the Trust. Fund specific expenses are charged directly to the Fund that incurred the expense.

  franklintempleton.com   Annual Report             29

FRANKLIN MUTUAL INTERNATIONAL FUND

NOTES TO FINANCIAL STATEMENTS

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.

*Effective during the current reporting period, it is no longer required to present certain line items in the Statements of Changes in Net Assets. The below prior period amounts affected by this change are shown as they were in the prior year Statements of Changes in Net Assets.

For the year ended December 31, 2017, distributions to shareholders were as follows:

Distributions from net investment income :
Class Z	$	(1,857,997	)
Class A		(1,574,566	)
Class C		(348,684	)
Class R		(35,346	)
Class R6		(569,536	)

For the year ended December 31, 2017, distributions in excess of net investment income included in net assets was $(2,125,110).

2.  Shares of Beneficial Interest

At December 31, 2018, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:

	Year Ended December 31,
	2018						2017
	Shares			Amount			Shares			Amount
Class Z Shares:
Shares sold		2,069,714		$	29,602,759			3,534,237		$	54,797,744
Shares issued in reinvestment of distributions		104,086			1,342,966			114,066			1,815,700
Shares redeemed		(3,501,255	)		(51,335,452	)		(1,098,953	)		(17,291,118	)
Net increase (decrease)		(1,327,455	)	$	(20,389,727	)		2,549,350		$	39,322,326

  30           Annual Report   franklintempleton.com

FRANKLIN MUTUAL INTERNATIONAL FUND

NOTES TO FINANCIAL STATEMENTS

	Year Ended December 31,
	2018						2017
	Shares			Amount			Shares			Amount
Class A Shares:
Shares solda		1,021,682		$	15,233,084			1,959,536		$	30,501,176
Shares issued in reinvestment of distributions		97,868			1,258,830			98,350			1,558,023
Shares redeemed		(2,182,962	)		(32,698,928	)		(2,635,900	)		(40,022,981	)
Net increase (decrease)		(1,063,412	)	$	(16,207,014	)		(578,014	)	$	(7,963,782	)
Class C Shares:
Shares sold		222,976		$	3,422,701			572,952		$	8,653,851
Shares issued in reinvestment of distributions		11,409			150,533			22,302			348,313
Shares redeemeda		(1,010,609	)		(15,058,426	)		(577,334	)		(8,776,064	)
Net increase (decrease)		(776,224	)	$	(11,485,192	)		17,920		$	226,100
Class R Shares:
Shares sold		50,432		$	776,090			113,248		$	1,751,799
Shares issued in reinvestment of distributions		2,782			35,634			2,245			35,346
Shares redeemed		(39,495	)		(605,673	)		(46,246	)		(727,130	)
Net increase (decrease)		13,719		$	206,051			69,247		$	1,060,015
Class R6 Shares:
Shares sold		360,960		$	5,502,994			685,257		$	10,863,178
Shares issued in reinvestment of distributions		44,003			566,278			35,752			569,536
Shares redeemed		(443,682	)		(6,794,236	)		(277,679	)		(4,337,610	)
Net increase (decrease)		(38,719	)	$	(724,964	)		443,330		$	7,095,104

^aMay include a portion of Class C shares that were automatically converted to Class A.

3.  Transactions with Affiliates

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton. 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.

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.

  franklintempleton.com   Annual Report             31

FRANKLIN MUTUAL INTERNATIONAL FUND

NOTES TO FINANCIAL STATEMENTS

3.  Transactions with Affiliates (continued)

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	$	15,376
CDSC retained	$	1,741

Effective September 10, 2018, the Board approved changes to certain front-end sales charges and dealer commissions on Class A shares. Further details are disclosed in the Fund’s Prospectus.

e.  Transfer Agent Fees

Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. The fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. 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, 2018, the Fund paid transfer agent fees of $344,342, of which $165,784 was retained by Investor Services.

  32           Annual Report   franklintempleton.com

FRANKLIN MUTUAL INTERNATIONAL FUND

NOTES TO FINANCIAL STATEMENTS

f.  Investments in Affiliated Management Investment Companies

The Fund invests in one or more affiliated management investment companies for purposes other than exercising a controlling influence over the management or policies. Management fees paid by the Fund are waived on assets invested in the affiliated management investment companies, as noted in the Statement of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by each affiliate. During the year ended December 31, 2018, the Fund held investments in affiliated management investment companies as follows:

	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		Income from securities loaned		Realized Gain (Loss)		Net Change in Unrealized Appreciation (Depreciation)
Non-Controlled Affiliates
Institutional Fiduciary Trust Money Market Portfolio, 1.99%		—		1,357,000		(1,357,000	)		—	$	—		$679	$	—	$	—

g.  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 and certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) for each class of the Fund do not exceed 0.97% and Class R6 does not exceed 0.83% based on the average net assets of each class until April 30, 2019. Total expenses waived or paid are not subject to recapture subsequent to the Fund’s fiscal year end.

Prior to May 1, 2018, the expenses (excluding certain fees and expenses as previously disclosed) for Class R6 were limited to 0.81% based on the average net assets of the class.

Prior to February 1, 2018, the expenses (excluding certain fees and expenses as previously disclosed) for each class of the Fund were limited to 1.17% and expenses for Class R6 were limited to 1.01% based on the average net assets of each class.

h.  Other Affiliated Transactions

At December 31, 2018, one or more of the funds in Franklin Fund Allocator Series owned 9.4% 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, 2018, 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, 2018, the Fund’s projected benefit obligation and benefit payments under the Plan were as follows:

^aProjected benefit obligation at December 31, 2018 $ 2,899

  franklintempleton.com   Annual Report             33

FRANKLIN MUTUAL INTERNATIONAL FUND

NOTES TO FINANCIAL STATEMENTS

5.  Independent Trustees’ Retirement Plan (continued)

bIncrease in projected benefit obligation	$	2,801
Benefit payments made to retired trustees	$	(217	)

^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

During the year ended December 31, 2018 the Fund utilized $13,950,672 of capital loss carryforwards.

For tax purposes, the Fund may elect to defer any portion of a post-October capital loss or late-year ordinary loss to the first day of the following fiscal year. At December 31, 2018, the Fund deferred post-October capital losses of $1,395,980 and late-year ordinary losses of $217,602.

The tax character of distributions paid during the years ended December 31, 2018 and 2017, was as follows:

	2018		2017
Distributions paid from:
Ordinary income	$	2,390,052	$	4,386,129
Long term capital gain		1,002,381		—
	$	3,392,433	$	4,386,129

At December 31, 2018, the cost of investments, net unrealized appreciation (depreciation) and undistributed long term capital gains for income tax purposes were as follows:

Cost of investments	$	168,992,098
Unrealized appreciation	$	5,793,363
Unrealized depreciation		(32,792,185	)
Net unrealized appreciation (depreciation)	$	(26,998,822	)
Distributable earnings:
Undistributed long term capital gains	$	278,184

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

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) for the year ended December 31, 2018, aggregated $52,576,950 and $92,892,733, respectively.

  34           Annual Report   franklintempleton.com

FRANKLIN MUTUAL INTERNATIONAL FUND

NOTES TO FINANCIAL STATEMENTS

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. Current political and financial uncertainty surrounding the European Union may increase market volatility and the economic risk of investing in securities in Europe. In addition, certain foreign securities may not be as liquid as U.S. securities.

9.  Other Derivative Information

At December 31, 2018, 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	$	14,132	a	Variation margin on futures contracts		$          —
	Unrealized appreciation on OTC forward exchange contracts		1,266,076		Unrealized depreciation on OTC forward exchange contracts		375,879
Totals		$	1,280,208				$375,879

^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, 2018, 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		$2,367,152	Forward exchange contracts		$3,845,145
	Futures contracts		1,559,890	Futures contracts		396,088
Totals			$3,927,042			$4,241,233

For the year ended December 31, 2018, the average month end notional amount of futures contracts represented $25,919,681. The average month end contract value of forward exchange contracts was $122,720,122.

At December 31, 2018, 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		$1,266,076		$375,879

^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.

  franklintempleton.com   Annual Report             35

FRANKLIN MUTUAL INTERNATIONAL FUND

NOTES TO FINANCIAL STATEMENTS

9.  Other Derivative Information (continued)

At December 31, 2018, 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,b			Cash Collateral Received		Net Amount (Not less than zero)
Counterparty
BOFA		$    106,863		$            —			$(106,863	)		$    —		$        —
BONY		183,714		(84,192	)		(99,522	)		—		—
HSBK		43,129		(5,770	)		(26,251	)		—		11,108
SSBT		751,777		—			(751,777	)		—		—
UBSW		180,593		(180,593	)		—			—		—
Total		$1,266,076		$(270,555	)		$(984,413	)		$    —		$11,108

At December 31, 2018, 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 Pledged		Cash Collateral Pledged		Net Amount (Not less than zero)
Counterparty
BOFA		$          —		$            —			$    —		$    —		$            —
BONY		84,192		(84,192	)		—		—		—
HSBK		5,770		(5,770	)		—		—		—
SSBT		—		—			—		—		—
UBSW		285,917		(180,593	)		—		—		105,324
Total		$375,879		$(270,555	)		$    —		$    —		$105,324

^aAt December 31, 2018, the Fund received U.K. Treasury Bonds and U.S. Treasury Bills, Bonds and Notes as collateral for derivatives.

^bIn some instances, the collateral amounts disclosed in the table above were adjusted due to the requirement to limit the collateral amounts to avoid the effect of overcollateralization. Actual collateral received and/or pledged may be more than the amounts disclosed herein.

See Note 1(c) regarding derivative financial instruments.

See Abbreviations on page 38.

10.  Credit Facility

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matured on February 8, 2019. 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 8, 2019, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 7, 2020, for a total of $2 billion.

  36           Annual Report   franklintempleton.com

FRANKLIN MUTUAL INTERNATIONAL FUND

NOTES TO FINANCIAL STATEMENTS

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, 2018, 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.

A summary of inputs used as of December 31, 2018, 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
Automobiles	$	2,963,216	$	2,169,647	$	—	$	5,132,863
Banks		11,887,810		4,530,802		—		16,418,612
Capital Markets		805,227		4,145,374		—		4,950,601
Chemicals		—		1,962,158		—		1,962,158
Construction Materials		—		2,360,421		—		2,360,421
Consumer Finance		1,359,769		2,046,577		—		3,406,346
Oil, Gas & Consumable Fuels		11,619,116		1,701,826		—		13,320,942
Pharmaceuticals		4,065,296		4,896,957		—		8,962,253
Specialty Retail		—		3,891,297		—		3,891,297
All Other Equity Investments		69,003,115		—		—		69,003,115
Short Term Investments		8,979,621		2,700,000		—		11,679,621
Total Investments in Securities	$	110,683,170	$	30,405,059	$	—	$	141,088,229
Other Financial Instruments:
Futures Contracts	$	14,132	$	—	$	—	$	14,132
Forward Exchange Contracts		—		1,266,076		—		1,266,076
Total Other Financial Instruments	$	14,132	$	1,266,076	$	—	$	1,280,208
Liabilities:
Other Financial Instruments:
Forward Exchange Contracts	$	—	$	375,879	$	—	$	375,879

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

^bIncludes common and preferred stocks.

  franklintempleton.com   Annual Report             37

FRANKLIN MUTUAL INTERNATIONAL FUND

NOTES TO FINANCIAL STATEMENTS

12.  New Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in the ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for annual reporting periods ending after December 15, 2020. Management is currently evaluating the impact, if any, of applying this provision.

13.  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 Corp.	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

  38           Annual Report   franklintempleton.com

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, 2018, 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 five years in the period then ended 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, 2018, 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 five years in the period then ended, 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, 2018, 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, Massachusetts

February 20, 2019

  franklintempleton.com Annual Report     39

FRANKLIN MUTUAL INTERNATIONAL FUND

Tax Information (unaudited)

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby reports the maximum amount allowable but no less than $1,220,154 as a long term capital gain dividend for the fiscal year ended December 31, 2018.

Under Section 854(b)(1)(B) of the Internal Revenue Code, the Fund hereby reports the maximum amount allowable but no less than $4,887,764 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Internal Revenue Code for the fiscal year ended December 31, 2018. Distributions, including qualified dividend income, paid during calendar year 2018 will be reported to shareholders on Form 1099-DIV by mid-February 2019. 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, 2018, 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 Internal Revenue Code. This written statement will allow shareholders of record on December 20, 2018, 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		$0.0555		$0.3726		$0.2986
Class A		$0.0555		$0.3314		$0.2653
Class C		$0.0555		$0.1490		$0.1193
Class R		$0.0555		$0.3000		$0.2403
Class R6		$0.0555		$0.4013		$0.3214

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 2019, shareholders will receive Form 1099-DIV which will include their share of taxes paid and foreign source income distributed during the calendar year 2018. 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 2018 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.

  40           Annual Report   franklintempleton.com

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 U.S. 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 07078-2716	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 07078-2716	Trustee	Since 1995	38	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 07078-2716	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 07078-2716	Trustee	Since 2009	14	FinTech Acquisition Corp. III (special purpose fintech acquisition company) (2018-present)
Principal Occupation During at Least the Past 5 Years: President and Founder, The Jan Hopkins Group (communications consulting firm); serves on Advisory Board of Knight Bagehot Fellowship; and formerly, President, Economic Club of New York (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 07078-2716	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.

  franklintempleton.com   Annual Report             41

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 07078-2716	Trustee	Since 2015	38	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 07078-2716	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 07078-2716	Trustee and Chairman of the Board	Trustee since 1993 and Chairman of the Board since 2005	38	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 07078-2716	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	150	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 42 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 07078-2716	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.

  42           Annual Report   franklintempleton.com

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 44 of the investment companies in Franklin Templeton Investments.
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 44 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 44 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 2017	Not Applicable	Not Applicable
Principal Occupation During at Least the Past 5 Years: Senior Vice President, Franklin Templeton Services, LLC; officer of 44 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 16 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 44 of the investment companies in Franklin Templeton Investments.
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 44 of the investment companies in Franklin Templeton Investments.

  franklintempleton.com   Annual Report             43

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
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 44 of the investment companies in Franklin Templeton Investments; and formerly, Senior Associate General Counsel, Franklin Templeton Investments (2007-2013); and Secretary and Vice President, Templeton Group of Funds (2004-2013).
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 44 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 44 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 44 of the investment companies in Franklin Templeton Investments.

  44           Annual Report   franklintempleton.com

FRANKLIN MUTUAL SERIES FUNDS

*We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment manager or affiliated investment managers.

**Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Franklin Resources, Inc. (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 Advisers, LLC, which is 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 1987. He currently serves as a Max L. Hine 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 1995. 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 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.

  franklintempleton.com   Annual Report             45

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 U.S. Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.

Quarterly Statement of Investments

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

Householding of Reports and Prospectuses

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

  46           Annual Report   franklintempleton.com

This page intentionally left blank.

This page intentionally left blank.

	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.
© 2019 Franklin Templeton Investments. All rights reserved.	373 A 02/19

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 $457,217 for the fiscal year ended December 31, 2018 and $557,692 for the fiscal year ended December 31, 2017.

(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 $20,026 the fiscal year ended December 31, 2018 and $4,544 for the fiscal year ended December 31, 2017. The services for which these fees were paid included identifying passive foreign investment company to manage exposure to tax liabilities and India tax compliance services.

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, 2018 and $70,000 for the fiscal year ended December 31, 2017. 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

The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant not reported in paragraphs (a)-(c) of Item 4 were $25,000 for the fiscal year ended December 31, 2018 and $0 for the fiscal year ended December 31, 2017. The services for which these fees were paid included additional procedures performed as a result of a material weakness identified during the 2017 audit.

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 $115,026 for the fiscal year ended December 31, 2018 and $74,544 for the fiscal year ended December 31, 2017.

(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 provide reasonable assurance that information required to be disclosed in the Registrant’s filings under the Securities Exchange Act of 1934,

as amended, 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 not effective related to internal control over financial reporting specific to the monitoring of market events following the close of trading in foreign stock markets that assist in determining the reliability of the values of the foreign securities held by the Funds and which may require the use of fair valuation factors to account for changes in the values of those securities subsequent to the local close of the foreign market but prior to the net asset calculation of the Funds. As a result, a material weakness exists at period end for the Franklin Mutual Beacon Fund, Franklin Mutual European Fund, Franklin Mutual Financial Services Fund, Franklin Mutual Global Discovery Fund, Franklin Mutual International Fund, Franklin Mutual Quest Fund and Franklin Mutual Shares Fund. There are no misstatements to current and previously issued financial statements. However, this material weakness could result in misstatements of security values and unrealized gains or losses and associated disclosures that would result in a material misstatement of the interim or annual financial statements that would not be prevented or detected.

Effective November 1, 2018, the Registrant’s controls were enhanced through the implementation of a daily secondary review of market events following the close of trading on foreign stock markets to ensure the appropriate application of market level fair value. Registrant’s management believes this will facilitate the remediation of the control deficiency we have identified and strengthen the internal control over financial reporting. This material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

(b) Changes in Internal Controls. As described above, there have been changes in the Registrant’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or is reasonably likely to materially affect, the internal control over financial reporting. 

Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Company.

Item 13. 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, 2019

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, 2019

By	/s/ROBERT G. KUBILIS
	Robert G. Kubilis
	Chief Financial Officer and
	Chief Accounting Officer

Date February 26, 2019

EX-99.CODE

Code of Ethics for Principal Executives & Senior Financial Officers

Procedures Revised December 10, 2018  

FRANKLIN TEMPLETON FUNDS

CODE OF ETHICS FOR PRINCIPAL EXECUTIVES 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.

* Rule 38a-1 under the Investment Company Act of 1940 (“1940 Act”) and Rule 206(4)-7 under the Investment Advisers Act of 1940 (“Advisers Act”) (together the “Compliance Rule”) require registered investment companies and registered investment advisers to, among other things, adopt and implement written policies and procedures reasonably designed to prevent violations of the federal securities laws (“Compliance Rule Policies and Procedures”).

CONFIDENTIAL INFORMATION. This document is the proprietary product of Franklin Templeton Investments. It may NOT be distributed outside the company unless it is made subject to a non-disclosure agreement and/or such release receives authorization by an FTI Chief Compliance Officer. Any unauthorized use, reproduction or transfer of this document is strictly prohibited. Franklin Templeton Investments © 2014. All Rights Reserved.

FTI Compliance Procedures Standards of Business Conduct

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 FTI Personal Investments and Insider Trading Policy 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.

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

2

FTI Compliance Procedures Standards of Business Conduct

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;

• 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 include²:

• Service as a director on the board of any public or private Company.

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.

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

FTI Compliance Procedures Standards of Business Conduct

• 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;

• 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.

4

FTI Compliance Procedures Standards of Business Conduct

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 waivers⁴ 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

• 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 FTI Personal Investments and Insider Trading Policy, 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.

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.

5

FTI Compliance Procedures Standards of Business Conduct

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:

• 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.

6

FTI Compliance Procedures Standards of Business Conduct

EXHIBIT A

Persons Covered by the Franklin Templeton Funds

Code of Ethics

December 2018

FRANKLIN GROUP OF FUNDS

Edward Perks	President and Chief Executive Officer – Investment Management
Rupert H. Johnson, Jr.	Chairman of the Board and Vice President – Investment Management
Don Taylor	President and Chief Executive Officer – Investment Management
Sonal Desai)	President and Chief Executive Officer – Investment Management
Matthew Hinkle	Chief Executive Officer – Finance and Administration
Gaston R. Gardey	Chief Financial Officer and Chief Accounting Officer and Treasurer

FRANKLIN MUTUAL SERIES FUNDS

Peter Langerman	Chief Executive Officer – Investment Management
Matthew Hinkle	Chief Executive Officer – Finance and Administration
Robert G. Kubilis	Chief Financial Officer and Chief Accounting Officer

FRANKLIN ALTERNATIVE STRATEGIES FUNDS

Mat S. Gulley	Chief Executive Officer – Investment Management
Matthew Hinkle	Chief Executive Officer – Finance and Administration
Robert G. Kubilis	Chief Financial Officer and Chief Accounting Officer

TEMPLETON GROUP OF FUNDS

Manraj S. Sekhon	President and Chief Executive Officer – Investment Management
Michael Hasenstab, Ph.D.	President and Chief Executive Officer – Investment Management
Norman Boersma	President and Chief Executive Officer – Investment Management
Matthew Hinkle	Chief Executive Officer – Finance and Administration
Robert G. Kubilis	Chief Financial Officer, Chief Accounting Officer and Treasurer

7

FTI Compliance Procedures Standards of Business Conduct

Exhibit B

ACKNOWLEDGMENT FORM

Franklin Templeton Funds Code of Ethics

For Principal Executives 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:	Code of Ethics Inquiries & Requests (internal address);
	lpreclear@franklintempleton.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

8

EX-99.CERT

Exhibit 13(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.

2/26/2019

S\MATTHEW T. HINKLE

Matthew T. Hinkle

Chief Executive Officer - Finance and Administration

Exhibit 13(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.

2/26/2019

S\ROBERT G. KUBILIS

Robert G. Kubilis

Chief Financial Officer and Chief Accounting Officer

EX-99.906CE

Exhibit 13(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 12/31/2018 (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: 2/26/2019

S\MATTHEW T. HINKLE

Matthew T. Hinkle

Chief Executive Officer - Finance and Administration

Exhibit 13(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:

1. The periodic report on Form N-CSR of the Registrant for the period ended 12/31/2018 (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: 2/26/2019

S\ROBERT G. KUBILIS

Robert G. Kubilis

Chief Financial Officer and Chief Accounting Officer