After a dismal 1998, the performance of Franklin Templeton Group's mutual funds has bounced back -- and the cash outflows from them, massive earlier this year, have slowed.

A case in point: Franklin's famed midcap value fund, Mutual Shares. In 1998 the $8.6 billion fund delivered a measly 0.01% return and trailed its peers by 5 percentage points, according to Morningstar Inc. Investors yanked a net $653 million out of the fund last year and more than $1 billion more in the first quarter of this year, according to Financial Research Corp., Boston.

But performance has picked up -- the fund returned 13.4% this year through July. In addition, the bleeding has slowed; net outflows were $207 million in April, $87 million in May, and $62 million in June. "Franklin's performance has clearly lifted its head up,'' said Geoffrey H. Bobroff, a consultant in East Greenwich, R.I. "And their asset base has done better.''

Performance difficulties at the company, which is one of the biggest fund distributors through banks, can be explained in part by Franklin's traditional emphasis on international investing and value investing, both of which have been out of favor until recently.

Franklin's large bond funds have performed far better than its stock funds, but the bond funds are generally in line with their peers at a time when investors have been more enthusiastic about equities than fixed-income.

Overall net outflows for all the company's funds have been declining since February, when shareholders cashed out $2.7 billion more than they bought.

In June net redemptions were down to $420 million. Franklin's funds have $163 billion of assets under management -- counting such products as institutional accounts and offshore funds. Franklin had $225 billion total as of July 31, up from $207 billion a year earlier.

Though the complex's performance started to pick up around the beginning of the year, it has taken time for investors to regain confidence in the company's funds. To draw attention to their performance, Franklin's portfolio managers have made conference-call presentations to the company's biggest-producing brokerages.

And Franklin's 65 wholesalers and its portfolio managers have been working to get the word out about the improved performance, said Ed McVey, senior vice president with Franklin Templeton Distributors.

As the fund performance has turned around, so has morale among Franklin's wholesalers, who promote funds to banks, brokerages, and independent financial planners.

"They're seeing daylight after having gone through a pretty tough experience,'' Mr. McVey said. "Nineteen ninety-eight was a difficult year.'' Curt Anderson, president of the broker-dealer unit of Busey Bank in Urbana, Ill., said his operation has been getting more attention from Franklin's wholesalers recently. "I think they're very concerned with losing their piece of the pie and they are really trying to foster better relationships with the brokerage firms they work with,'' he said.

In trying to recapture those who invest through banks, Franklin wholesalers have had to concentrate more on winning over the brokers, who typically provide more guidance to investors than do brokers at wirehouses, for example. "There is a lot more dependence for advice at banks,'' Mr. McVey said.

Service and marketing innovations have been put in place that should help boost sales, he said. Telemarketing units were established last year to tout funds to brokers and answer questions about such matters as the company's outlook on interest rates.

And last year's disruptive consolidation of the company's three groups of funds -- Franklin, Templeton, and Mutual Series -- under one transfer agent is complete, Mr. McVey said.

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