UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSRS

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-21306
---------

Franklin Mutual Recovery Fund
-----------------------------
(Exact name of registrant as specified in charter)

One Franklin Parkway, San Mateo, CA 94403-1906
(Address of principal executive offices) (Zip code)

Murray L. Simpson, One Franklin Parkway, San Mateo, CA 94403-1906
-----------------------------------------------------------------
(Name and address of agent for service)

Registrant's telephone number, including area code: (650) 312-2000
--------------

Date of fiscal year end: 3/31
----

Date of reporting period: 9/30/03
-------

Item 1. Reports to Stockholders.

SEPTEMBER 30, 2003
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[PHOTO OMITTED]

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SEMIANNUAL REPORT AND SHAREHOLDER LETTER | VALUE
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FRANKLIN
MUTUAL RECOVERY FUND

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WANT TO RECEIVE
THIS DOCUMENT
FASTER VIA EMAIL?

Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
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[LOGO OMITTED]
FRANKLIN[R] TEMPLETON[R]
INVESTMENTS

Franklin o Templeton o MUTUAL SERIES

Thank You For Your
Continued Participation

At Mutual Series, we are pleased so many investors share our long-term
investment philosophy and have remained shareholders for many years. Your
ongoing support plays a significant role in contributing to the funds' success.

SPECIALIZED EXPERTISE

Mutual Series is part of Franklin Templeton Investments, which offers the
specialized expertise of three world-class investment management groups --
Franklin, Templeton and Mutual Series. Mutual Series is dedicated to a unique
style of value investing, searching aggressively for opportunity among
undervalued stocks, arbitrage situations and distressed companies. Franklin is a
leader in tax-free fund management and an expert in U.S. equity and fixed income
investing. Templeton pioneered international investing and, with offices in over
25 countries, offers the broadest global reach in the industry.

TRUE DIVERSIFICATION

Because these management groups work independently and adhere to distinctly
different investment approaches, Franklin, Templeton and Mutual Series funds
typically have a low overlap of securities. That's why the funds can be used to
build truly diversified portfolios covering every major asset class.

RELIABILITY YOU CAN TRUST

Franklin Templeton Investments seeks to consistently provide investors with
exceptional risk-adjusted returns over the long term, as well as the reliable
account services that have helped the firm become one of the most trusted names
in financial services.

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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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[PHOTO OMITTED]

Not part of the semiannual report

Contents

SHAREHOLDER LETTER ............... 1

SEMIANNUAL REPORT

Franklin Mutual Recovery Fund .... 3

Performance Summary .............. 6

Financial Highlights and
Statement of Investments ......... 7

Financial Statements ............. 12

Notes to Financial Statements .... 15

Proxy Voting Policies and
Procedures ....................... 21

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Semiannual Report

Franklin Mutual Recovery Fund

YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Mutual Recovery Fund seeks
capital appreciation. The Fund seeks to achieve superior risk adjusted returns
with a low correlation to U.S. equity markets by investing in bankruptcy and
distressed companies, risk arbitrage and undervalued stocks. The Fund may take
long and short positions.

We are pleased to bring you Franklin Mutual Recovery Fund's semiannual report
for the four months since the Fund's inception on June 2, 2003, through
September 30, 2003.

PERFORMANCE OVERVIEW

For the period under review, Franklin Mutual Recovery Fund - Advisor Class
delivered a +6.30% cumulative total return, as shown in the Performance Summary
on page 6. The share price, as measured by net asset value, rose from $10.00 per
share on June 2, 2003, to $10.63 at period-end. The Fund had nearly $26.3
million in assets under management on September 30, 2003.

ECONOMIC AND MARKET OVERVIEW

During the period ended September 30, 2003, the U.S. economy expanded within a
relatively muted inflation environment, despite rising energy and health care
costs. Gross domestic product (GDP) grew an estimated 7.2% annualized in the
third quarter. Much of the growth resulted from surging government defense
spending and the stalwart consumer, whose steady participation in retail,
vehicle and home sales was supported by tax cuts, cash raised through aggressive
mortgage borrowing, and increasingly attractive price discounting and financing.
Indeed, consumers' contribution to economic output, which historically accounts
for about two-thirds of GDP, rose to a record 70% in 2003's second quarter.
Business spending began to pick up in 2003 as businesses sought to upgrade or
replace aging computer hardware and software. Slowly improving activity,
profitability and cash flow accompanied by substantial new tax depreciation
benefits also enticed businesses to spend more.

[SIDEBAR]

TOP 10 SECTOR/INDUSTRIES
9/30/03
- -----------------------------------------------
% OF TOTAL
NET ASSETS
- -----------------------------------------------
Multi-Utilities & Unregulated Power 23.3%
Media 13.7%
Diversified Telecommunication
Services 9.2%
Road & Rail 5.8%
Commercial Banks 4.1%
Airlines 3.0%
Communications Equipment 2.4%
Health Care Providers & Services 1.7%
Transportation Infrastructure 1.2%
Tobacco 0.9%

THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND COMPLETE LEGAL
TITLES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF
INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 8.

Semiannual Report | 3

[SIDEBAR]
TOP 10 HOLDINGS
9/30/03

- -----------------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
- -----------------------------------------------------
Adelphia Communications Corp. 8.0%
DIVERSIFIED TELECOMMUNICATION
SERVICES, U.S.

NRG Energy Inc. 5.8%
ELECTRIC UTILITIES, U.S.

Metromedia Fiber Network Inc. 5.0%
DIVERSIFIED TELECOMMUNICATION
SERVICES, U.S.

Amerco 4.6%
CONSUMER FINANCE, U.S.

WorldCom Inc. 4.2%
DIVERSIFIED TELECOMMUNICATION
SERVICES, U.S.

AES Drax Holdings Ltd. 4.1%
ELECTRIC UTILITIES, CAYMAN ISLANDS

Telewest Communications PLC 3.8%
DIVERSIFIED TELECOMMUNICATION
SERVICES, U.K.

Reliant Resources Inc. 3.5%
ELECTRIC UTILITIES, U.S.

Aozora LLC 3.0%
BANKING, JAPAN

Air Canada Inc. 3.0%
AIRLINES, CANADA

An accommodative Federal Reserve Board, in an attempt to bolster the sluggish
economy, cut interest rates 25 basis points (0.25%) in June. Additionally, the
U.S. government injected fiscal stimulus into the economy, approving another
round of tax cuts and rebates that included dividend tax reductions. However,
with unemployment hovering above 6% and with little new job creation, continued
economic recovery was not assured.

On a brighter note, U.S. equity markets, which often serve as a leading
indicator of economic recovery, rallied from 2003's second quarter into
September. Overall, during the reporting period stock markets rose and broad
equity indexes posted double-digit gains.

INVESTMENT STRATEGY

We follow a distinctive investment approach and can seek investments in
bankruptcy and distressed companies, risk arbitrage and undervalued stocks. The
availability of investments at attractive prices in each of these categories
varies with market cycles. Therefore, the percentage of the Fund's assets
invested in each of these areas will fluctuate as we attempt to take advantage
of opportunities afforded by cyclical changes. We employ rigorous, fundamental
analysis to find compelling situations. Our approach to 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 asset value based on such
factors as book value, cash flow potential, long-term earnings and earnings
multiples. We may invest in bankruptcy or distressed companies if we believe the
market overreacted to adverse developments or failed to appreciate positive
changes.

MANAGER'S DISCUSSION

Consistent with our strategy, we sought investments in distressed securities and
risk arbitrage situations, which have the potential to provide attractive
risk-adjusted returns. As of September 30, 2003, the Fund was approximately
65.9% invested, with 63.2% of total net assets invested in positions classified
as distressed. We remained relatively light in risk arbitrage, with net exposure
of only 1.1%, due to our inability to identify attractive opportunities in that
area. The remaining 1.6% was invested in undervalued equities.

The Fund's positive performance during the period was driven by investments
classified as distressed. Securities issued by companies in several industries
that experienced distress in 2001 through 2002 strengthened. Examples include
NRG Energy, Northwestern and Reliant Resources in the utility/power generation

4 | Semiannual Report

industry, and NTL, WorldCom and Charter Communications in the
cable/telecommunications industry. We purchased unsecured debt or equity
positions in these companies based on our valuation analyses of their assets and
businesses relative to their securities' trading values. These holdings
appreciated from purchase date to period-end. Losses from our Air Canada debt
securities partially offset the aforementioned gains.

Thank you for your interest and participation in Franklin Mutual Recovery Fund.
We look forward to serving your future investment needs.

[PHOTO OMITTED]

/S/David J. Winters

David J. Winters, CFA
Portfolio Manager

[PHOTO OMITTED]

/S/Michael J. Embler

Michael J. Embler
Portfolio Manager

Franklin Mutual Recovery Fund

THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
SEPTEMBER 30, 2003, THE END OF THE REPORTING PERIOD. OUR STRATEGIES AND THE
FUND'S PORTFOLIO COMPOSITION WILL CHANGE DEPENDING ON 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 ADVISOR 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.

Semiannual Report | 5

Performance Summary as of 9/30/03

Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses. Capital
gain distributions are net profits realized from the sale of portfolio
securities. The performance table does not reflect any taxes due on Fund
dividends, capital gain distributions, if any, or any realized gains on the sale
of Fund shares. Total return reflects the Fund's dividend income, capital gain
distributions, if any, and any unrealized gains or losses.

PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------
ADVISOR CLASS CHANGE 9/30/03 6/2/03
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.63 $10.63 $10.00

PERFORMANCE
- --------------------------------------------------------------------------------
INCEPTION (6/2/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 1 6.30%
- --------------------------------------------------------------------------------
Aggregate Total Return 2 6.30%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,630

ONGOING MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE
RECENT RETURNS MAY DIFFER FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS
UP, INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS,
AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES.

FOR MORE CURRENT PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.

ENDNOTES

THE FUND IS NON-DIVERSIFIED, WHICH MEANS IT CAN BE MORE SUSCEPTIBLE TO ADVERSE
ECONOMIC, POLITICAL AND REGULATORY CHANGES. THE FUND INVESTS IN SMALLER-COMPANY
STOCKS AND FOREIGN SECURITIES. SMALLER-COMPANY STOCKS HAVE EXHIBITED GREATER
PRICE VOLATILITY THAN LARGER-COMPANY STOCKS, PARTICULARLY OVER THE SHORT TERM.
FOREIGN SECURITIES RISKS INCLUDE CURRENCY FLUCTUATIONS, AND ECONOMIC AND
POLITICAL UNCERTAINTIES. THE FUND MAY ALSO SHORT STOCKS. IT MAY NOT BE ABLE TO
COVER A SHORT POSITION AT ANY PARTICULAR TIME OR AT AN ACCEPTABLE PRICE. THE
FUND IS STRUCTURED AS A CONTINUOUSLY OFFERED, CLOSED-END FUND AND DOES NOT OFFER
DAILY REDEMPTIONS. INSTEAD, THE FUND HAS A FUNDAMENTAL POLICY TO PROVIDE
INVESTORS ACCESS TO THEIR MONEY BY MAKING QUARTERLY TENDER OFFERS FOR 5%-25% OF
THE FUND'S OUTSTANDING SHARES. HOWEVER, IN UNUSUAL CIRCUMSTANCES, THE FUND MAY
SUSPEND OR POSTPONE A TENDER OFFER SUBJECT TO APPROVAL BY THE FUND'S BOARD OF
TRUSTEES. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN
INVESTMENT RISKS.

ADVISOR CLASS: No initial sales charge or Rule 12b-1 fees; available only to
certain investors, as indicated in the prospectus.

1. Cumulative total return represents the change in value of an investment since
inception.
2. Aggregate total return represents the change in value of an investment since
inception. Since these shares have existed for less than one year, average
annual total returns are not provided.
3. This figure represents the value of a hypothetical $10,000 investment in the
Fund since inception.

6 | Past performance does not guarantee future results. | Semiannual Report

Franklin Mutual Recovery Fund

FINANCIAL HIGHLIGHTS

------------------
PERIOD ENDED
SEPTEMBER 30, 2003
ADVISOR CLASS (UNAUDITED) e
------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)

Net asset value, beginning of period .................................................... $10.00
------------------

Income from investment operations:

Net investment income (loss) a ......................................................... (.04)

Net realized and unrealized gains (losses) ............................................. .67
------------------
Total from investment operations ........................................................ .63
------------------
Net asset value, end of period .......................................................... $10.63
------------------

Total return b .......................................................................... 6.30%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of period (000's) ....................................................... $26,278

Ratios to average net assets:*

Expenses c ............................................................................. 3.48%d

Net investment income (loss) ........................................................... (1.02)%d

Portfolio turnover rate ................................................................. 46.53%

*Ratio to average net assets, excluding dividend expense on securities sold short:

Expenses ............................................................................... 3.46%d

<FN>
a Based on average shares outstanding.
b Total return is not annualized for periods less than one year.
c Includes dividend expense on securities sold short which varies from period to
period. See below for expense ratios that reflect consistent operating expenses.
d Annualized.
e For the period June 2, 2003 (inception date) to September 30, 2003.
</FN>

Semiannual Report | See notes to financial statements. | 7

Franklin Mutual Recovery Fund

STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2003 (UNAUDITED)

- ----------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 15.3%
COMMERCIAL BANKS 1.1%

a,bCerberus NCB Acquisition Ltd., LP .............................. Japan 282,600 $ 282,600
--------------
DIVERSIFIED FINANCIAL SERVICES .5%
aLuminent Mortgage Capital Inc. ................................. United States 9,300 139,500
Neuberger Berman Inc. .......................................... United States 100 4,187
--------------
143,687
--------------
ELECTRIC UTILITIES 5.3%
aAllegheny Energy Inc. .......................................... United States 51,200 467,968
aReliant Resources Inc. ......................................... United States 181,000 926,720
--------------
1,394,688
--------------
HEALTH CARE EQUIPMENT & SUPPLIES .5%
aCenterpulse AG ................................................. Switzerland 2,800 78,680
aCenterpulse Ltd. ADR ........................................... Switzerland 130 37,358
Instrumentarium Corp. .......................................... Finland 600 24,805
--------------
140,843
--------------
HEALTH CARE PROVIDERS & SERVICES .2%
aAdvancePCS ..................................................... United States 1,200 54,684
--------------
INTERNET SOFTWARE & SERVICES .2%
aOverture Services Inc. ......................................... United States 1,700 45,033
--------------
IT SERVICES 1.4%
aConcord EFS Inc. ............................................... United States 26,400 360,888
--------------
MEDIA 1.8%
aNTL Inc. ....................................................... United States 10,300 485,336
--------------
METALS & MINING .2%
Pechiney SA, A ................................................. France 600 33,015
Pechiney SA, A, ADR ............................................ France 900 24,615
--------------
57,630
--------------
ROAD & RAIL 1.8%
Roadway Corp. .................................................. United States 9,500 463,315
--------------
SOFTWARE .1%
aPeoplesoft Inc. ................................................ United States 800 14,552
--------------
TOBACCO .9%
Imperial Tobacco Group PLC ..................................... United Kingdom 14,612 238,152
--------------
TRANSPORTATION INFRASTRUCTURE 1.3%
aLaidlaw International Inc. ..................................... United States 33,329 328,290
--------------
TOTAL COMMON STOCKS (COST $3,638,228) .......................... 4,009,698
--------------

PREFERRED STOCKS 1.8%
ELECTRIC UTILITIES 1.4%
Calpine Capital Trust, 5.75%, cvt. pfd. ........................ United States 7,810 363,165
Montana Power Co., pfd. ........................................ United States 1,020 15,045
--------------
378,210
--------------

8 | Semiannual Report

Franklin Mutual Recovery Fund

STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2003 (UNAUDITED) (CONTINUED)

- ---------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS (CONT.)
FOOD PRODUCTS .4%

Unilever NV, pfd. .............................................. Netherlands 16,300 $ 104,592
--------------
TOTAL PREFERRED STOCKS (COST $440,714) ......................... 482,802
--------------

- ---------------------------------------------------------------------------------------------------------------------------
COUNTRY PRINCIPAL AMOUNTC VALUE
- ---------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS & NOTES 9.4%
Allegheny Energy Supply, 7.80%, 3/15/11 ........................ United States $ 10,000 8,550
bAozora LLC, FRN, 6.14%, 9/01/07 ................................ Japan 809,000 796,865
Calpine Canada Energy Finance, 8.50%, 5/01/08 .................. Canada 16,000 11,600
Calpine Construction Finance,
Term loan, 8/26/09 ........................................... United States 66,000 67,650
8.50%, 8/26/11 ............................................... United States 110,000 108,762
Calpine Corp., cvt., 4.00%, 12/26/06 ........................... United States 423,000 389,689
Healthsouth Corp.,
7.625%, 6/01/12 .............................................. United States 500,000 432,500
cvt., 3.25%, 4/01/03 ......................................... United States 35,000 31,150
Marconi PLC, 8.00%, 4/30/08 .................................... United Kingdom 230,000 224,825
Marconi Corp., 10.00%, 10/31/08 ................................ United Kingdom 374,217 406,025
--------------
TOTAL CORPORATE BONDS & NOTES (COST $2,314,440) ................ 2,477,616
--------------
BONDS & NOTES IN REORGANIZATION 42.9%
aAdelphia Communications Corp.,
9.25%, 10/01/02 .............................................. United States 2,097,000 1,446,930
8.125%, 7/15/03 .............................................. United States 950,000 655,500
9.375%, 11/15/09 ............................................. United States 13,000 9,360
aAES Drax Holdings Ltd.,
10.41%, 12/31/20 ............................................. Cayman Islands 957,000 717,750
9.07%, 12/31/25 .............................................. Cayman Islands 295,000 GBP 372,487
aAir Canada Inc.,
6.75%, 2/02/04 ............................................... Canada 5,000 CAD 1,482
zero cpn., 7/31/05 ........................................... Canada 1,363,655 504,552
9.00%, 6/01/06 ............................................... Canada 7,000 CAD 2,127
7.25%, 10/01/07 .............................................. Canada 17,000 CAD 4,567
10.25%, 3/15/11 .............................................. Canada 22,000 8,580
CAD Revolver ................................................. Canada 730,300 CAD 235,415
USD Revolver ................................................. Canada 36,000 14,760
JPY Revolver ................................................. Canada 1,176,000 JPY 4,316
aAmerco,
7.85%, 5/15/03 ............................................... United States 109,000 105,185
8.80%, 2/04/05 ............................................... United States 643,000 598,794
8.03%, 9/18/06 ............................................... United States 107,000 97,102
7.47%, 1/15/27 ............................................... United States 435,000 394,763
aMetromedia Fiber Network Inc., 14.00%, 3/15/07 ................. United States 2,387,000 1,312,850
aMirant Corp.,
Tranche C Revolver ........................................... United States 11,100 5,827
4 Year Revolver .............................................. United States 193,000 142,820
364 Day Revolver ............................................. United States 209,100 107,686

Semiannual Report | 9

Franklin Mutual Recovery Fund

STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2003 (UNAUDITED) (CONTINUED)

aMirant Mid-Atlantic LLC,
8.625%, 6/30/12 .............................................. United States $ 117,629 $ 117,115
9.125%, 6/30/17 .............................................. United States 143,124 140,351
aNRG Energy Inc.,
6.75%, 7/15/06 ............................................... United States 17,000 8,160
7.50%, 6/15/07 ............................................... United States 610,000 295,850
7.50%, 6/01/09 ............................................... United States 1,242,000 614,790
7.75%, 4/01/11 ............................................... United States 760,000 372,400
8.00%, 11/01/13 .............................................. United States 23,000 11,270
8.70%, 3/15/20 ............................................... United States 2,000 990
8.625%, 4/01/31 .............................................. United States 8,000 3,940
364 Day Revolver ............................................. United States 440,000 228,800
aNRG Northeast Generating LLC, 8.065%, 12/15/04 ................. United States 640,406 637,204
aTelewest Communications PLC, 9.875%, 2/01/10 ................... United Kingdom 1,290,000 GBP 991,236
aWorldCom Inc.,
7.875%, 5/15/03 .............................................. United States 27,000 8,978
6.40%, 8/15/05 ............................................... United States 196,000 65,170
8.25%, 5/15/31 ............................................... United States 3,105,000 1,032,413
--------------
TOTAL BONDS & NOTES IN REORGANIZATION (COST $10,762,478) ....... 11,271,520
--------------

GOVERNMENT AGENCIES 34.6%
dFederal Home Loan Bank, 1.000% to 1.022%, with
maturities to 12/05/03 ....................................... United States 7,600,000 7,595,667
U.S. Treasury Bill, 1.025%, 2/19/04 ............................ United States 1,500,000 1,494,449
--------------
TOTAL GOVERNMENT AGENCIES (COST $9,089,148) .................... 9,090,116
--------------

TOTAL INVESTMENTS (COST $26,245,008) 104.0% .................... 27,331,752
OPTIONS WRITTEN ................................................ (970)
SECURITIES SOLD SHORT (3.5)% ................................... (929,335)
NET EQUITY IN FORWARD CONTRACTS (0.2)% ......................... (39,103)
OTHER ASSETS, LESS LIABILITIES (0.3)% .......................... (84,211)
--------------
NET ASSETS 100.0% .............................................. $ 26,278,133
--------------

----------------------------------------------------
OPTIONS WRITTEN COUNTRY CONTRACTS VALUE
----------------------------------------------------
ISSUER
CALL OPTIONS
METALS & MINING
Alcan Inc., Nov. 35 Calls, 11/22/03 ............................ Canada 1 $ 400
--------------
SOFTWARE
Peoplesoft Inc., Oct. 17.5 Calls, 10/18/03 ..................... United States 6 570
--------------
TOTAL OPTIONS WRITTEN (PREMIUMS RECEIVED $700) ................. $ 970
--------------

10 | Semiannual Report

Franklin Mutual Recovery Fund

STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2003 (UNAUDITED) (CONTINUED)

----------------------------------------------------
SECURITIES SOLD SHORT 3.5% COUNTRY SHARES VALUE
----------------------------------------------------

ISSUER
AUTOMOBILES 0.3%
eGeneral Motors Corp. ........................................... United States 2,000 $ 81,860
--------------
CAPITAL MARKETS
eLehman Brothers Holdings Inc. .................................. United States 100 6,908
--------------
HEALTH CARE EQUIPMENT & SUPPLIES 0.3%
a,eZimmer Holdings Inc. ........................................... United States 1,478 81,438
--------------
HEALTH CARE PROVIDERS & SERVICES 0.3%
a,eCaremark RX Inc. ............................................... United States 2,700 61,020
--------------
INTERNET SOFTWARE & SERVICES 0.5%
a,eYahoo! Inc. .................................................... United States 3,900 137,982
--------------
IT SERVICES 1.6%
eFirst Data Corp. ............................................... United States 10,600 423,576
--------------
ROAD & RAIL 0.5%
a,eYellow Corp. ................................................... United States 4,570 136,551
--------------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $910,055) ................ $ 929,335
--------------

-------------------------------------------------------------
VALUE AT UNREALIZED
SYNTHETIC EQUITY SWAPS (SES) COUNTRY SHARES 9/30/03 GAIN/LOSS
-------------------------------------------------------------
ISSUER
HEALTH CARE EQUIPMENT & SUPPLIES
fSmith & Nephew PLC, ses., 3.75 GBP ...................... United Kingdom 275 $ 1,809 $ (98)
fSmith & Nephew PLC, ses., 3.78 GBP ...................... United Kingdom 100 658 (32)
----------------------------
TOTAL SYNTHETIC EQUITY SWAPS ............................ $ 2,467 $ (130)
----------------------------

<FN>
CURRENCY ABBREVIATIONS: | CAD - Canadian Dollar | GBP - British Pound | JPY - Japanese Yen

a Non-income producing.
b See Note 8 regarding restricted securities.
c The principal amount is stated in U.S. dollars unless otherwise indicated.
d See Note 1(f) regarding securities segregated with broker for securities sold
short.
e See Note 1(f) regarding securities sold short. f See Note 1(d) regarding
synthetic equity swaps.
</FN>

Semiannual Report | See notes to financial statements. | 11

Franklin Mutual Recovery Fund

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
September 30, 2003 (unaudited)

Assets:
Investments in securities:

Cost ...................................................................................................... $26,245,008
------------
Value (includes securities segregated with broker for securities sold short in the amount of $998,267) .... 27,331,752
Cash ....................................................................................................... 93,640
Foreign currency, at value (cost $309,978) ................................................................. 322,148
Receivables:
Investment securities sold ................................................................................ 609,845
Capital shares sold ....................................................................................... 5,000
Dividends and interest .................................................................................... 47,020
Unrealized gain on forward exchange contracts (Note 7) ..................................................... 243
Deposits with broker for securities sold short ............................................................. 1,937,595
Offering costs ............................................................................................. 87,031
------------
Total assets .......................................................................................... 30,434,274
------------
Liabilities:
Payables:
Investment securities purchased ........................................................................... 3,121,895
Affiliates ................................................................................................ 38,244
Options written, at value (premiums received $700) ......................................................... 970
Securities sold short, at value (proceeds $910,055) ........................................................ 929,335
Unrealized loss on forward exchange contracts (Note 7) ..................................................... 39,346
Due to broker - variation margin ........................................................................... 126
Other liabilities .......................................................................................... 26,225
------------
Total liabilities ..................................................................................... 4,156,141
------------
Net assets, at value ................................................................................. $26,278,133
------------
Net assets consist of:
Undistributed net investment loss .......................................................................... $ (69,249)
Net unrealized appreciation (depreciation) ................................................................. 1,032,549
Accumulated net realized gain (loss) ....................................................................... 366,738
Capital shares ............................................................................................. 24,948,095
------------
Net assets, at value ................................................................................. $26,278,133
------------
ADVISOR CLASS:
Net asset value and maximum offering price per share ($26,278,133 / 2,471,149 shares outstanding) .......... $10.63
------------

12 |See notes to financial statements. | Semiannual Report

Franklin Mutual Recovery Fund

FINANCIAL STATEMENTS (CONTINUED)

STATEMENT OF OPERATIONS
for the period June 2, 2003 (inception date) to September 30, 2003 (unaudited)

Investment income:
(net of foreign taxes of $203)

Dividends .................................................................................. $ 7,504
Interest ................................................................................... 159,648
-----------
Total investment income ............................................................... 167,152
Expenses:
Management fees (Note 4) ................................................................... 102,526
Administrative fees (Note 4) ............................................................... 13,670
Transfer agent fees (Note 4) ............................................................... 11,500
Custodian fees ............................................................................. 400
Reports to shareholders .................................................................... 5,600
Amortization of offering costs (Note 1k) ................................................... 34,560
Registration and filing fees ............................................................... 16,600
Professional fees .......................................................................... 48,321
Trustees' fees and expenses ................................................................ 1,000
Dividends for securities sold short ........................................................ 1,224
Other ...................................................................................... 1,000
-----------
Total expenses ........................................................................ 236,401
-----------
Net investment income (loss) ..................................................... (69,249)
-----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ............................................................................... 380,620
Written options (Note 1e) ................................................................. 3,872
Securities sold short (Note 1f) ........................................................... (6,939)
Foreign currency transactions ............................................................. (10,815)
-----------
Net realized gain (loss) .............................................................. 366,738
Net unrealized appreciation (depreciation) on:
Investments ............................................................................... 1,067,063
Translation of assets and liabilities denominated in foreign currencies ................... (34,514)
-----------
Net unrealized appreciation (depreciation) ............................................ 1,032,549
-----------
Net realized and unrealized gain (loss) ..................................................... 1,399,287
-----------
Net increase (decrease) in net assets resulting from operations ............................. $1,330,038
-----------

Semiannual Report | See notes to financial statements. | 13

Franklin Mutual Recovery Fund

FINANCIAL STATEMENTS (CONTINUED)

STATEMENT OF CHANGES IN NET ASSETS
for the period June 2, 2003 (inception date) to September 30, 2003 (unaudited)

------------
2003
------------
Increase (decrease) in net assets:
Operations:

Net investment loss ..................................................................................... $ (69,249)
Net realized gain (loss) from investments, written options, securities sold short, synthetic
equity swaps, and foreign currency transactions ....................................................... 366,738
Net unrealized appreciation (depreciation) on investments and translation of assets and
liabilities denominated in foreign currencies .......................................................... 1,032,549
------------
Net increase (decrease) in net assets resulting from operations 1,330,038
Capital share transactions (Note 2):
Advisor Class ........................................................................................... 24,848,095
------------
Net increase (decrease) in net assets ............................................................... 26,178,133
Net assets:
Beginning of period ...................................................................................... 100,000
------------
End of period ............................................................................................ $26,278,133
------------
Undistributed net investment loss included in net assets:
End of period ............................................................................................ $ (69,249)
------------

14 | See notes to financial statements. | Semiannual Report

Franklin Mutual Recovery Fund

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Mutual Recovery Fund (the Fund) is registered under the Investment Act
of 1940 as a non-diversified, closed-end, continuously offered investment
company. The Fund seeks to achieve superior risk adjusted returns with a low
correlation to U.S. equity markets by investing in bankruptcy and distressed
companies, risk arbitrage and undervalued stocks. The Fund may take long and
short positions. The following summarizes the Fund's significant accounting
policies.

A. SECURITY VALUATION

Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the last reported sales price. Over-the-counter securities and listed
securities for which no sale is reported are valued within the range of the
latest quoted bid and asked prices. Restricted securities and securities for
which market quotations are not readily available are valued at fair value as
determined by management in accordance with procedures established by the Board
of Directors.

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. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.

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.

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. FOREIGN CURRENCY CONTRACTS

The Fund may enter into forward exchange contracts to hedge against fluctuations
in foreign exchange rates. A forward exchange contract is an agreement between
two parties to exchange different currencies at an agreed upon exchange rate at
a future date. These contracts are valued daily and the Fund's equity therein is
included in the Statement of Assets and Liabilities. Realized and unrealized
gains and losses are included in the Statement of Operations.

When the Fund purchases or sells foreign securities it may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. Realized and unrealized gains and losses
are included in the Statement of Operations.

Semiannual Report | 15

Franklin Mutual Recovery Fund

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

C. FOREIGN CURRENCY CONTRACTS (CONTINUED)

The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts.

D. SYNTHETIC EQUITY SWAPS

The Fund may engage in synthetic equity swaps. Synthetic equity swaps are
contracts entered into between a broker and the Fund under which the parties
agree to make payments to each other so as to replicate the economic
consequences that would apply had a short sale of the underlying security taken
place. Upon entering into synthetic equity swaps, the Fund is required to pledge
the broker an amount of cash and/or other assets equal to a certain percentage
of the contract amount ("initial margin"). Subsequent payments known as
"variation margin", are made or received by the Fund periodically, depending on
fluctuations in the value of the underlying security. When the contract is
closed, the Fund records a realized gain or loss equal to the difference between
the value of the contract at the time it was opened and the value at the time it
was closed. The risks of entering into equity swaps include unfavorable price
movements in the underlying securities or the inability of the counterparties to
fulfill their obligations under the contract.

E. OPTION CONTRACTS

The Fund may purchase or write options. Options are contracts entitling the
holder to purchase or sell a specified number of shares or units of a particular
security at a specified price at any time until the contract stated expiration
date. Options purchased are recorded as investments; options written (sold) are
recorded as liabilities. When the exercise of an option results in a cash
settlement, the difference between the premium (original option value) and the
settlement proceeds is realized as a gain or loss. When securities are acquired
or delivered upon exercise of an option, the acquisition cost or sale proceeds
are adjusted by the amount of the premium. When an option is closed, the
difference between the premium and the cost to close the position is realized as
a gain or loss. When an option expires, the premium is realized as a gain for
options written or as a loss for options purchased. The risks include the
possibility there may be an illiquid options market or the inability of the
counterparties to fulfill their obligations under the contract. Writing options
involves, to varying degrees, elements of market risk in excess of the amount
recognized in the Statement of Assets and Liabilities.

F. 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 market value. The
Fund would incur 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 would realize a gain if the price of the security declines between
those dates. A gain, limited to the price at which the Fund sold the security
short, or a loss, unlimited in size, will be recognized upon the termination of
a short sale.

16 | Semiannual Report

Franklin Mutual Recovery Fund

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

F. SECURITIES SOLD SHORT (CONTINUED)

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 and the Fund must maintain a deposit for the broker
consisting of cash and securities having a value equal to a specified percentage
of the value of the securities sold short.

G. INCOME TAXES

No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its taxable income.

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.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Discounts on securities purchased are amortized over the lives of the respective
securities. Dividend income, dividends declared on securities sold short, and
distributions to shareholders are recorded on the ex-dividend date.

Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.

I. ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America 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 expense during the reporting period. Actual results could differ from those
estimates.

J. GUARANTEES AND INDEMNIFICATIONS

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

K. OFFERING COSTS

Offering costs are amortized on a straight line basis over twelve months.

Semiannual Report | 17

Franklin Mutual Recovery Fund

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. CAPITAL STOCK

The Fund offers Advisor Class shares. Effective November 3, 2003, the Fund will
begin offering three additional classes of shares: Class A, Class B, and Class C
shares. Each class of shares differs by its initial sales load, contingent
deferred sales charges, distribution fees, and voting rights on matters
affecting a single class and its exchange privilege.

At September 30, 2003, there were an unlimited number of shares authorized
($0.01 par value). Transactions in the Fund's shares were as follows:

----------------------------
PERIOD ENDED
SEPTEMBER 30, 2003*
----------------------------
SHARES AMOUNT
----------------------------
ADVISOR CLASS SHARES:
Shares sold ................................. 2,461,149 $24,848,095
----------------------------
Net increase (decrease) ..................... 2,461,149 $24,848,095
----------------------------

*For the period June 2, 2003 (inception date) to September 30, 2003.

3. TENDER OF SHARES

On a quarterly basis, the Fund may make tender offers, the amount of which is
determined by the Board of Trustees, for the repurchase of at least 5% but not
more than 25% of the shares outstanding. The repurchase price is the net asset
value on the tender offer expiration date. Pursuant to the Board of Trustees'
approval, the Fund repurchased 4,449 shares for $47,379 on October 1, 2003.

4. TRANSACTIONS WITH AFFILIATES

Certain officers of the Fund are also officers and/or directors of Franklin
Mutual Advisors, LLC (Franklin Mutual) and Franklin Templeton Services, LLC (FT
Services), the Fund's investment manager and administrative manager,
respectively. Franklin/Templeton Investor Services, LLC (Investor Services) and
Franklin/Templeton Distributors, Inc. (Distributors) are the Fund's transfer
agent and principal underwriter, respectively.

The Fund pays an investment management fee based on the annual rate of 1.50%
(the "Base Fee") of average daily net assets. After June 2, 2004, the Base Fee
will be adjusted, on a monthly basis either (i) upward at the rate of 0.01% for
each 0.05% that the investment performance of the Fund exceeds the sum of 1.00%
plus the investment record of the Bloomberg/EFFAS U.S. Government 3-5 Years
Total Return Index (the "Index") for the past 12 months, or (ii) downward at the
rate of 0.01% for each 0.05% that the record of the Index less 1.00% exceeds the
investment performance of the Fund for the past 12 months. Therefore, the
maximum annual fee payable to Franklin Mutual will be 2.50% of average daily net
assets and the minimum annual fee will be 0.50%.

18 | Semiannual Report

Franklin Mutual Recovery Fund

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

4. TRANSACTIONS WITH AFFILIATES (CONTINUED)

The Fund pays an administrative fee to FT Services of .20% per year of the
Fund's average daily net assets of the Fund.

The Fund pays a transfer agent fee to Investor Services of .15% per year of the
average daily net assets of the Fund.

5. INCOME TAXES

At September 30, 2003, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:

Cost of investments .................................... $26,253,297
------------
Unrealized appreciation ................................ 1,393,998
Unrealized depreciation ................................ (315,543)
------------
Net unrealized appreciation (depreciation) ............. $ 1,078,455
------------

Net investment income and net realized capital losses differ for financial
statement and tax purposes primarily due to differing treatments of bond
discounts and premiums, and wash sales.

6. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities and
securities sold short) for the period ended September 30, 2003, aggregated
$22,271,647 and $4,850,862, respectively.

Transactions in options written during the period ended September 30, 2003 were
as follows:

---------------------------------
NUMBER OF CONTRACTS PREMIUM
---------------------------------
Options written ...................... 105 $17,180
Options expired ...................... (30) (2,687)
Options terminated in closing
transactions ........................ (30) (7,139)
Options exercised .................... (38) (6,654)
---------------------------------
Options outstanding at
September 30, 2003 .................. 7 $ 700
---------------------------------

Semiannual Report | 19

Franklin Mutual Recovery Fund

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

7. FORWARD EXCHANGE CONTRACTS

At September 30, 2003, the Fund has outstanding forward exchange contracts as
set out below. The contracts are reported in the financial statements at the
Fund's net equity, as measured by the difference between the forward exchange
rates at the reporting date and the forward exchange rates at the day of entry
into the contracts.

30,527,750 Japanese Yen ................... U.S. $ 275,000 3/18/04 U.S. $ 243
----------- --------
Unrealized gain on forward exchange contracts $ 243
--------

- -------------------------------------------------------------------------------------------------------
IN SETTLEMENT UNREALIZED
CONTRACTS TO SELL EXCHANGE FOR DATE GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------
786,150 British Pounds ................. U.S. $ 1,264,847 10/20/03 U.S. $(39,346)
----------- --------
Unrealized loss on forward exchange contracts ................................... (39,346)
--------
Net unrealized loss on forward exchange contracts .............................. U.S. $(39,103)
--------

8. RESTRICTED SECURITIES

At September 30, 2003, investments in securities included issues that are
restricted or illiquid. Restricted securities are often purchased in private
placement transactions, are not registered under the Securities Act of 1933, may
have contractual restrictions on resale, and are valued under methods approved
by the Board of Trustees as reflecting fair value. A security may also be
considered illiquid if it lacks a readily available market or if its valuation
has not changed for a certain period of time. At September 30, 2003, the Fund
held investments in restricted and illiquid securities that were valued under
approved methods by the Trustees, as follows:

- ---------------------------------------------------------------------------------------------
NUMBER OF
SHARES OR
PRINCIPAL ACQUISITION
AMOUNT ISSUER DATE COST VALUE
- ---------------------------------------------------------------------------------------------

809,000 Aozora LLC, FRN, 6.14%, 9/01/07 ...... 8/29/03 $ 797,096 $ 796,865
282,600 Cerberus NCB Acquisition Ltd., LP .... 8/29/03 282,600 282,600
----------
TOTAL RESTRICTED SECURITIES (4.11% OF NET ASSETS) .... $1,079,465
----------

20 | Semiannual Report

Franklin Mutual Recovery Fund

PROXY VOTING POLICIES AND PROCEDURES

The Fund 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 1-954/847-2268 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention:
Proxy Group.

Semiannual Report | 21

This page intentionally left blank.

Literature Request

For a brochure and prospectus, which contains more complete information,
including charges and expenses, call Franklin Templeton Investments at
1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before
investing or sending money. To ensure the highest quality of service, telephone
calls to or from our service departments may be monitored, recorded and
accessed. These calls can be identified by the presence of a regular beeping
tone.

FRANKLIN TEMPLETON INVESTMENTS

INTERNATIONAL
Mutual European Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund

GLOBAL
Franklin Global Aggressive Growth Fund
Franklin Global Growth Fund
Mutual Discovery Fund
Templeton Capital Accumulator Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund

GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II 1

VALUE
Franklin Balance Sheet Investment Fund 2
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 3
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Shares Fund

BLEND
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund 4

SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Franklin Technology Fund
Mutual Financial Services Fund

ASSET ALLOCATION
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Corefolio Allocation Fund
Franklin Templeton Founding Funds Allocation Fund

INCOME
Franklin Adjustable U.S. Government Securities Fund 5
Franklin's AGE High Income Fund
Franklin Federal Money Fund 5, 6
Franklin Floating Rate Daily Access Fund
Franklin Floating Rate Trust 7
Franklin Income Fund
Franklin Money Fund 5, 6
Franklin Short-Intermediate
U.S. Government Securities Fund 5
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 5
Templeton Global Bond Fund

TAX-FREE INCOME8
Double Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 9
Tax-Exempt Money Fund 5, 6

STATE-SPECIFIC TAX-FREE INCOME8
Alabama
Arizona
California 10
Colorado
Connecticut
Florida 10
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 9
Michigan 9
Minnesota 9
Missouri
New Jersey
New York 10
North Carolina
Ohio 9
Oregon
Pennsylvania
Tennessee
Virginia

VARIABLE INSURANCE PRODUCTS FUNDS
Franklin Templeton Variable Insurance
Products Trust 11

1. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.

2. The fund is only open to existing shareholders as well as select retirement
plans.

3. Effective June 30, 2003, the fund reopened to all new investors.

4. Upon reaching approximately $350 million in assets, the fund will close to
all investors.

5. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.

6. No assurance exists that the fund's $1.00 per share price will be maintained.
It is possible to lose money by investing in the fund.

7. The fund is a continuously offered, closed-end fund. Shares may be purchased
daily; there is no daily redemption. However, each quarter, pending board
approval, the fund will authorize the repurchase of 5%-25% of the outstanding
number of shares. Investors may tender all or a portion of their shares during
the tender period.

8. For investors subject to the alternative minimum tax, a small portion of
these dividends may be taxable. Distributions of capital gains are generally
taxable.

9. Portfolio of insured municipal securities.

10. These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA) and
limited-term, intermediate-term and money market portfolios (CA and NY).

11. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.

09/03 Not part of the semiannual report

[LOGO]
FRANKLIN[R] TEMPLETON[R] One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906

WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
franklintempleton.com. See inside for details.

SEMIANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN MUTUAL RECOVERY FUND

CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
David J. Winters, CFA

INVESTMENT MANAGER
Franklin Mutual Advisers, LLC
51 John F. Kennedy Parkway
Short Hills, NJ 07078

DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com

SHAREHOLDER SERVICES
1-800/632-2301

This report must be preceded or accompanied by the current Franklin Mutual
Recovery Fund prospectus, which contains more complete information including
risk factors, charges and expenses.

To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.

070 S2003 11/03

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.

(d) N/A

(f) Pursuant to Item 10(a), the Registrant is attaching as an exhibit a copy of
its code of ethics that applies to its principal executive officers financial
and accounting officer.

Item 3. Audit Committee Financial Expert. N/A
Item 4. Principal Accountant Fees and Services. N/A
Item 5. Audit Committee of Listed Registrants. N/A
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. N/A

Item 9. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.

Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.

(b) Changes in Internal Controls. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.

Item 10. Exhibits.
(A) Code of Ethics for Principal Executive and Senior Financial Officers.

(B)(1) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Kimberley H. Monasterio, Chief Financial Officer

(B(2) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Kimberley H. Monasterio, Chief Financial 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 RECOVERY FUND

By ____________________
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date November 28, 2003

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 ____________________
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date November 28, 2003

By ____________________
Kimberley H. Monasterio
Chief Financial Officer
Date November 28, 2003