Franklin Mutual European Fund Class Z

Franklin Mutual European Fund Class Z Value Equity Product Profile Product Details 1 Fund Assets $2,408,348,583.42 Fund Inception Date 07/03/1996 Number of Issuers 53 NASDAQ Symbol MEURX Maximum Sales Charge Investment Style Benchmark Lipper Classification Morningstar Category Dividend Frequency Asset Allocation 2 EQUITY CASH & CASH EQUIVALENTS 8.17 Value MSCI Europe (Net Dividends) Local Index European Region Funds Europe Stock Semiannually in September and December 91.83 0% 25% 50% 75% 100% 125% Fund Description The fund seeks capital appreciation, with income as a secondary goal, by investing at least 80% of its net assets in the securities of European companies. It focuses mainly on undervalued equity securities and, to a lesser extent, distressed securities and merger arbitrage opportunities. Performance Data 3 Average Annual Total Returns 4 (%) Since Inception 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs (07/03/1996) Class Z -1.82-1.82 4.42 1.10 5.49 4.05 8.48 10.20 MSCI Europe (Net -4.35-4.35 2.00 2.91 7.67 4.62 3.91 6.66 Dividends) Local Index 20% 10% 0% -10% 4.42-1.82-1.82-4.35-4.35 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs Since Inception Class Z MSCI Europe (Net Dividends) Local Index Total Annual Operating Expenses: 1.06% 2.00 2.91 1.10 5.49 7.67 4.05 8.48 4.62 3.91 Performance data represents past performance, which does not guarantee future results. Current performance may differ from figures shown. The fund s investment return and principal value will change with market conditions, and you may have a gain or a loss when you sell your shares. Please call Franklin Templeton Investments at (800) DIAL BEN/342-5236 or visit franklintempleton.com for the most recent month-end performance. Class Z shares are only offered to certain eligible investors as stated in the prospectus. They are offered without sales charges or Rule 12b-1 fees. The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. Calendar Year Returns (%) 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Class Z 10.45 2.40 0.82-4.00 26.68 17.73-8.01 8.61 23.01-32.47 MSCI Europe (Net Dividends) Local Index 13.06 7.23 4.91 4.67 21.55 15.61-9.34 6.83 27.70-38.91 10.20 6.66 Portfolio Manager Insight 5 Market Review The MSCI Europe Index declined in the first quarter as volatility returned to financial markets. In January, a synchronized upswing in global economic growth and positive European corporate earnings overcame a rise in the euro to help drive stocks higher. Similar to other regional stock markets, European stocks declined in February due to concerns regarding higher bond yields, potential signs of increasing inflation pressures and likely interest rate hikes in the United States. A 1. All holdings are subject to change. Holdings of the same issuers have been combined. 2. Information is historical and may not reflect current or future portfolio characteristics. Percentage may not equal 100% due to rounding. All holdings are subject to change. 3. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. 4. Periods shorter than one year are shown as cumulative total returns. Not FDIC Insured May Lose Value No Bank Guarantee

spike in global equity market volatility also added to investor anxiety. European stocks dropped again in March. Fear of escalating tariffs imposed by the United States and its trade partners, including Europe, was a significant factor. Although the United States exempted the European Union (EU) from its newly implemented steel and aluminum tariffs, discussion in Europe of imposing a 3% digital tax on US companies kept investors nervous. Finally, investors appeared concerned about increasing regulatory oversight of technology companies and increased focus on consumer data privacy in the wake of the EU s implementation of General Data Protection Regulation. Within Europe, talks between Italy s populist parties about forming a coalition government raised concerns about potential changes to Italy s economic policies and its relationship with the EU. Additionally, the European Central Bank (ECB) dropped its explicit pledge to expand its bond-buying program if financial conditions worsened or inflation declined, and some ECB officials discussed the possibility of an interest hike in 2019. European economic data were generally upbeat, but showed some softening in activity late in the period. The January composite purchasing managers index (PMI), which combines the manufacturing and services sectors, hit its highest reading since June 2006, but it subsequently slipped in February and March. The eurozone unemployment for January fell to its lowest level since December 2008. Performance Review During the quarter, the fund s three most significant contributors to absolute performance were Sky, XL Group and Nokia. In late February, shares of Sky, a UK pay-tv provider, jumped when US-based cable company Comcast (not a fund holding) made a surprise bid for the company. The Comcast bid was considerably higher than that of 21st Century Fox (not a fund holding), which is in the process of acquiring the 61% of Sky it does not own but has been stuck in a more arduous regulatory review process than anticipated. The Comcast bid could spark a bidding war. The Walt Disney Company (not a fund holding), which is attempting to purchase 21st Century Fox, views Sky as an important asset. Many investors believe Disney and Fox might join to make a counter-offer to acquire Sky if Fox receives regulatory approval by the UK government. If Fox is unable to secure regulatory approval, Disney may be willing to bid for Sky separately. Shares of XL Group, a global insurance and reinsurance company, jumped when it agreed to be acquired by French insurer AXA (not a fund holding). AXA has the resources to fully fund the acquisition from current financial resources, and we believe all regulatory approvals will be made in normal course. In late March, the US Federal Trade Commission granted antitrust clearance. Nokia, a global communications and information technology company, announced solid quarterly and better-than-expected full-year results in February, with a significant improvement in cash flow. Management also issued a new earnings target for 2020 that was higher than many investors had anticipated. The positive news alleviated lingering investor concerns from last year regarding increased cash costs associated with replacing legacy Alcatel equipment (Nokia acquired Alcatel in 2016), the related steep decline in cash on its balance sheet and weaker equipment sales. Three of the fund s most meaningful detractors were Vodafone Group, Royal KPN and Schaeffler. Vodafone Group is a global mobile telecommunications company. In February, investors were disappointed by slower quarterly growth in overall service revenues, a decline in service revenues in India and management comments on higher spending for wireless spectrum. In our view, the negative news was not as severe as the investor reaction implied. Later in the month, Vodafone confirmed that it was in talks with media company Liberty Global (not a fund holding) to acquire cable assets in Europe, and the shares declined, as investors are concerned that Vodafone may overpay for the assets, causing it to issue equity. We believe Vodafone is doing a good job of lowering costs, improving revenues and focusing on areas of the business with higher profit margins, which includes divesting non-core assets. Multiple factors hurt shares of KPN during the period. Quarterly earnings reported in January were in line with expectations, but the outlook for another year of flat earnings in 2018 was disappointing. In February the Dutch telecommunications regulator (ACM) proposed new regulations for cable operators. The proposal would not change the current regulatory framework for KPN, but it could reduce wholesale revenues. We continue to have a favorable view on KPN shares. Free cash-flow growth remains strong, and we are beginning to see a recovery in the business-to-business segment, which has been a drag on revenues and earnings. Although the ACM s proposal is disappointing, the EU has rejected prior calls by the ACM for cable regulation, and even if passed, the impact of the proposals would be modest. Schaeffler, an auto parts supplier, reported disappointing full-year 2017 results, downgraded its outlook for 2018 and frustrated investors with poor management communication. In January, Schaeffler had provided the market 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. Management also stated that increased expenses related to an acceleration of its production efficiency program would hurt 2018 earnings. We believe Schaeffler s efficiency and investment program will ultimately improve profitability and position the business well for increasing electric vehicle production. Portfolio Positioning At quarter-end, the fund s investment in equities was 91.3% while the level of cash and cash equivalents related to currency hedging was nearly 8.2%. The fund was 89.6% hedged back to the US dollar at quarter-end. We initiated a position in a global travel retailer that operates duty-free shops. The stock s risk/reward profile became increasingly attractive following a recent decline in the stock price. Two other new fund positions were a German bank and a maker of hand-finished and modern jewelry. We also used the market weakness in February to add to our position in a multinational building materials company. Compared with its benchmark, the fund s largest sector overweights were in consumer discretionary and financials, while its leading sector underweight was in consumer staples. While we have an underweight exposure to the health care sector, we have a position in Royal Philips, which is currently classified as an industrials sector constituent. However, given its recent divestitures, we believe Royal Philips is a health tech company and should be considered a health care sector constituent. The fund had about 0.5% of merger arbitrage exposure and no distressed debt holdings. Regulatory risk is likely to remain an important consideration for companies contemplating merger and acquisition activity. We believe catalysts for activity include stronger global economic growth and buoyant asset markets. In the past, companies have viewed instances of strong equity markets as an opportunity to take advantage of their highly valued stock to make acquisitions, or as an opportune time to fetch a good premium for shareholders by being acquired. In addition, lower US corporate tax rates and the ability to repatriate earnings from abroad at a reduced tax rate will provide additional capital for acquisitions. We remain active in exploring merger arbitrage opportunities (an investment in one or both of the companies that is constructed solely to benefit from deal completion). Within Europe, distressed debt remains a difficult market in which to find compelling opportunities. franklintempleton.com 2

Outlook & Strategy Despite recent market volatility and escalating concerns about a trade war, fundamental investment conditions in Europe remain attractive. Europe s economic recovery has gained momentum, while political, corporate and financial conditions have improved. In our view, Europe s equity markets may offer more upside potential in the near and medium term, as the business cycle does not appear to be as far along as in some other economies, particularly the United States. Europe s improving economic backdrop increasingly feels durable. Eurozone economic growth in 2017 was the strongest since 2007, and economists expect a similar pace of growth in 2018. In our view, an easing in business surveys and purchasing managers indices in February and March were not surprising, given their prior rise to historically high levels, trade war concerns, the election results in Italy and Brexit uncertainty. Economic data still suggest the European economy is running on all cylinders. Plus, the ECB s decision to drop its bond-buying pledge is confirmation that it wants to take small steps in withdrawing its long-running quantitative easing program. Earnings remain strong, with quarterly updates announced during the period showing solid year-over-year growth overall. In addition, an improvement in the 2018 earnings outlook and broad-based declines among European stocks during the quarter mean potentially greater upside potential. More specifically, we believe domestically oriented companies may fare better, given the euro s recent appreciation against the US dollar. Stronger global economic growth and nascent signs of rising inflation may help boost revenues, while European companies in many industries continue to focus on improving operating margins in order to close the gap with their US competitors. Political risk in Europe has declined, but not disappeared. We will keep a close eye on the repercussions of Italy s national election. The 4 March result raises the risk of a hung parliament and more political uncertainty at a time when Italy s economy has shown signs of improvement. However, there are political bright spots. We are particularly hopeful that French President Emmanuel Macron will push through his agenda of economic reforms. In September, Macron signed decrees to relax France s stultifying labor code, with relatively little resistance from France s powerful unions. Subsequent business surveys showed a meaningful upturn in French companies looking to increase capital spending and hiring. If Macron can continue his reform agenda, we believe it could lower the chronically high unemployment rate, boost business and consumer spending, fuel credit growth and improve corporate profitability. If conditions keep improving in Europe, we believe some recent market trends may begin to break down as well. Europe has been mired in a low-growth, low-interest-rate environment since the global financial crisis. During that time, equity investors turned to growth stocks in the hope of greater return potential, or to defensive and high-dividend-yield stocks when volatility flared up (e.g., during the Greek debt crisis) or to reach for yield. We believe investors should look beyond these corners of the equity market. Stocks more strongly linked to economic growth prospects (e.g., industrials, materials and portions of the consumer discretionary sector) are generally trading at more attractive valuations than defensive stocks, and with the recent market correction, we expect to find opportunities in these sectors. 5. The information provided is not a complete analysis of every material fact regarding any country, market, industry, security or fund. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of the date of this material and may change without notice. A portfolio manager s assessment of a particular security, investment or strategy is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy; it is intended only to provide insight into the fund s portfolio selection process. Holdings are subject to change. Portfolio Characteristics 6,7,8 Portfolio MSCI Europe (Net Dividends) Local Index Price to Earnings (12 Month Trailing) 14.80x 17.19x Price to Book Value 1.22x 1.77x Price to Cash Flow 6.19x 9.40x Market Capitalization (Millions in USD) 52,374 64,235 6. The portfolio characteristics listed are based on the fund s underlying holdings, and do not necessarily reflect the fund s characteristics. Due to data limitations all equity holdings are assumed to be the primary equity issue (usually the ordinary or common shares) of each security s issuing company. This methodology may cause small differences between the portfolio s reported characteristics and the portfolio s actual characteristics. In practice, Franklin Templeton s portfolio managers invest in the class or type of security which they believe is most appropriate at the time of purchase. The market capitalization figures for both the portfolio and the benchmark are at the security level, not aggregated up to the main issuer. Source: Factset. Price ratio calculations for weighted average use harmonic means. Any exceptions to this are noted. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 7. Source: FactSet. Price ratio calculations for weighted average use harmonic means. Any exceptions to this are noted. 8. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. franklintempleton.com 3

Portfolio Diversification Top Ten Holdings 9 Top Holdings Sector Country % ROYAL DUTCH SHELL PLC Energy United Kingdom 3.72 KONINKLIJKE PHILIPS NV Health Care Equipment & Services Netherlands 3.72 ENEL SPA Utilities Italy 3.64 NN GROUP NV Insurance Netherlands 3.63 ACCOR SA Consumer Services France 3.47 NOVARTIS AG Pharmaceuticals, Biotechnology & Life Switzerland 3.39 Sciences VOLKSWAGEN AG Automobiles & Components Germany 3.37 BP PLC Energy United Kingdom 3.02 RSA INSURANCE GROUP PLC Insurance United Kingdom 2.97 VODAFONE GROUP PLC Telecommunication Services United Kingdom 2.89 Geographic Weightings vs. MSCI Europe (Net Dividends) Local Index 10,11 United Kingdom 26.62 27.30 France Germany 18.51 17.24 12.74 15.30 Netherlands 5.79 11.76 Switzerland 7.84 12.31 Italy Belgium Finland Greece Denmark Ireland Bermuda 3.66 3.98 2.57 1.80 2.00 1.61 1.94 1.87 2.88 1.26 0.74 0.56 Spain 0.26 5.11 Norway 0.23 1.09 Cash & Cash Equivalents 8.17 0% 25% 50% Sector Weightings vs. MSCI Europe (Net Dividends) Local Index 12,13 Financials 25.35 21.08 Consumer Discretionary 16.63 10.94 Industrials 12.77 13.16 Energy 9.29 7.41 Telecommunication Services 7.51 3.67 Health Care 7.38 12.01 Utilities 4.94 3.66 Materials 4.50 8.32 Information Technology 2.00 5.00 Consumer Staples 1.47 13.39 Real Estate 1.37 Cash & Cash Equivalents 8.17 0% 5% 10% 15% 20% 25% 30% Franklin Mutual European Fund MSCI Europe (Net Dividends) Local Index Franklin Mutual European Fund MSCI Europe (Net Dividends) Local Index 9. Holdings of the same issuers have been combined. Top ten holdings information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. The information provided is not a recommendation to purchase, sell, or hold any particular security. The portfolio manager for the fund reserves the right to withhold release of information with respect to holdings that would otherwise be included. 10,12. Information is historical and may not reflect current or future portfolio characteristics. Percentage may not equal 100% due to rounding. All holdings are subject to change. 11,13. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. franklintempleton.com 4

Largest Sector Contributors vs. MSCI Europe (Net Dividends) Local Index 14 Total Sector Effect (%) Consumer Discretionary 1.16 Financials 0.98 Information Technology 0.48 Utilities 0.45 Health Care 0.45 Contributors/detractors data shown is for the period from 01/01/2018 to 03/31/2018. Smallest Sector Contributors vs. MSCI Europe (Net Dividends) Local Index 15 Total Sector Effect (%) Telecommunication Services -0.37 Industrials -0.09 Supplemental Performance Statistics 3 Yrs 5 Yrs 10 Yrs Standard Deviation (%) 10.96 10.57 13.32 Tracking Error (%) 4.39 4.05 4.39 Information Ratio -0.41-0.54-0.13 Beta 0.94 0.94 0.87 Sharpe Ratio 0.05 0.49 0.28 Performance data represents past performance, which does not guarantee future results. Current performance may differ from figures shown. The fund s investment return and principal value will change with market conditions, and you may have a gain or a loss when you sell your shares. Please call Franklin Templeton Investments at (800) DIAL BEN/342-5236 or visit franklintempleton.com for the most recent month-end performance. Investment Philosophy and Process Bottom-Up Value Approach Franklin Mutual Series Unique Value Strategy We seek to buy companies at a significant discount to their intrinsic value. We seek to understand and limit downside risk. We think and act like owners of the business. Undervalued stocks comprise the bulk of our portfolios. We search for catalysts to unlock value: Undervalued Stocks Corporate restructuring Spin-offs Share buybacks Our own initiatives Distressed Securities Merger Arbitrage 14,15. Past performance is not an indicator or a guarantee of future performance. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. Source: FactSet. Important data provider notices and terms available at www.franklintempletondatasources.com. Total Effect represents the excess return by sector as compared to the index. Performance attribution is calculated in the base currency of the fund. 16. Beta, Information Ratio and Tracking Error information are measured against the MSCI Europe (Net Dividends) Local Index. 17. Information Ratio is a way to evaluate a manager s ability to outperform a benchmark in relation to the risk that manager is assuming, with risk defined as deviation from the benchmark. This measure is calculated by dividing the portfolio s excess return (portfolio return less the benchmark return) by the tracking error (derived by taking the standard deviation of the monthly differences between the portfolio return and the benchmark return over time). franklintempleton.com 5

Investment Team Portfolio Manager Years with Firm Years Experience Philippe Brugère-Trélat, Executive Vice President 22 34 Katrina Dudley, CFA, Portfolio Manager/Research Analyst 15 20 Mandana Hormozi, Portfolio Manager/Research Analyst 14 27 Glossary Beta: A measure of the magnitude of a portfolio s past share-price fluctuations in relation to the ups and downs of the overall market (or appropriate market index). The market (or index) is assigned a beta of 1.00, so a portfolio with a beta of 1.20 would have seen its share price rise or fall by 12% when the overall market rose or fell by 10%. Information Ratio: In investing terminology, the ratio of expected return to risk. Usually, this statistical technique is used to measure a manager s performance against a benchmark. This measure explicitly relates the degree by which an investment has beaten the benchmark to the consistency by which the investment has beaten the benchmark. Market Capitalization: A determination of a company s value, calculated by multiplying the total number of company stock shares outstanding by the price per share. Market capitalization is expressed in millions of USD. Price to Book Value: The price per share of a stock divided by its book value (i.e., net worth) per share. For a portfolio, the value represents a weighted average of the stocks it holds. Price to Cash Flow: Supplements price/earnings ratio as a measure of relative value for a stock. For a portfolio, the value represents a weighted average of the stocks it holds. Price to Earnings (12-mo Trailing): The share price of a stock, divided by its per-share earnings over the past year. For a portfolio, the value represents a weighted average of the stocks it holds. Sharpe Ratio: To calculate a Sharpe ratio, an asset s excess returns (its return in excess of the return generated by risk-free assets such as Treasury bills) are divided by the asset s standard deviation. Standard Deviation: A measure of the degree to which returns vary from the average of its previous returns. The larger the standard deviation, the greater the likelihood (and risk) that performance will fluctuate from the average return. Tracking Error: Measure of the deviation of the return of a product compared to the return of a benchmark over a fixed period of time. Expressed as a percentage. The more passively the investment is managed, the smaller the tracking error. franklintempleton.com 6

What Are The Risks? All investments involve risks, including possible loss of principal. Value securities may not increase in price as anticipated or may decline further in value. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. Because the Fund invests its assets primarily in companies in a specific region, it is subject to greater risks of adverse developments in that region and/or the surrounding regions than a fund that is more broadly diversified geographically. Political, social or economic disruptions in the region, even in countries in which the Fund is not invested, may adversely affect the value of securities held by the Fund. The Fund s investments in smaller-company stocks carry an increased risk of price fluctuation, especially over the short term. The Fund s investments in companies engaged in mergers, reorganizations or liquidations also involve special risks as pending deals may not be completed on time or on favorable terms. These and other risk considerations are discussed in the fund s prospectus. Important Legal Information Investors should carefully consider a fund s investment goals, risks, charges and expenses before investing. To obtain a summary prospectus and/or prospectus, which contains this and other information, please call Franklin Templeton Sales and Marketing Services at (800) 223-2141 or visit franklintempleton.com. Your clients or investors should carefully read the prospectus before they invest or send money. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI. Important data provider notices and terms available at: www.franklintempletondatasources.com Franklin Templeton Distributors, Inc. One Franklin Parkway San Mateo, CA 94403-1906 (800) DIAL BEN/342-5236 franklintempleton.com 2018 Franklin Templeton Investments. All rights reserved. 078 PP 03/18