Form 497 Franklin Deposit Fund

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FCF SA2 22/04






(a series of Franklin Custodian Funds)

The Supplemental Information Statement (SAI) is amended as follows:

I. The following is added to the bulleted list of investments in which the Fund may invest under the heading “Objectives, Strategies and Risks – Additional Strategies – Income Funds:”

The Fund may:

· invest in REITs

· invest in business development companies (BDC).

II. The “Objectives, strategies and risks – Glossary of investments, techniques, strategies and their risks – Securities of investment companies” section of the SAI is supplemented by:

Closed funds.
Shares of a closed-end fund are usually bought and sold on an exchange. The risks of investing in a closed-end investment company generally reflect the risk of the types of securities in which the closed-end fund invests. Closed-end funds often leverage returns by issuing debt securities, floating rate preferred securities, or reverse repurchase agreements. The Fund may invest in debt securities issued by closed-end funds, subject to any quality or other standards applicable to the Fund’s investment in debt securities. If the Fund invests in shares issued by closed-end leveraged funds, it will face certain risks associated with leveraged investments.

Investments in closed-end funds are subject to additional risks. For example, the price of publicly traded shares of the closed-end fund may not reflect the net asset value of the securities held by the closed-end fund. The premium or discount that share prices represent relative to net asset value may vary over time depending on a variety of factors, including supply and demand for shares of the closed-end fund, which are beyond the control of of the closed-end fund or are unrelated to the value of the underlying securities in the portfolio. If the Fund invests in the closed-end fund to gain exposure to the closed-end fund’s investments, the lack of correlation between the performance of the closed-end fund’s investments and the share price of the closed-end fund may compromise or eliminate such exposure.

Business Development Companies (BDC).
BDCs are a less common type of closed-end fund governed by the 1940 Act. BDCs are more like operating companies than closed-end investment companies and can use leverage . BDCs typically invest in small private companies that are growing, in financial difficulty, or other businesses that may have value that can be realized over time, often with the help of management. BDCs make an operating profit when their investments are sold and therefore maintain complex organizational, operational, tax and compliance requirements. In addition, BDC expenses are not direct expenses paid by shareholders of the fund and are not used to calculate a fund’s net asset value. However, SEC rules require that all expenses incurred by a BDC be included in a fund’s expense ratio as “Acquired Fund Expenses and Expenses”. The expense ratio of a fund that holds a BDC will therefore overestimate what the fund actually spends on portfolio management, administrative and other shareholder services by an amount equal to those fees and expenses of the acquired fund. Shareholders would also be exposed to the risks associated not only with the investments of the fund, but also with the portfolio investments of the underlying investment companies.

III. The following text is added to the “Objectives, Strategies and Risks – Glossary of Investments, Techniques, Strategies and their Risks” section of the SAI:

Real Estate Investment Trusts (REITs)

A REIT is a common investment vehicle that primarily purchases income-producing real estate or real estate-related loans or other real estate-related interests.

The pooled vehicle, usually a trust, then issues shares whose value and investment performance depend on the investment experience of the underlying real estate investments.

The Fund’s investments in real estate-related securities are subject to certain risks associated with the real estate industry in general. These risks include, among others: changes in general and local economic conditions; possible declines in the value of real estate; the possible lack of money available for loans for the purchase of real estate; overbuilding in particular areas; extended vacancies in rental properties; property taxes; changes in tax laws relating to dividends and laws relating to the use of real estate in certain areas; costs resulting from clean-up and liability to third parties resulting from environmental issues; costs related to property damage resulting from floods, earthquakes or other material disasters not covered by insurance; and limitations and variations in rents and variations in interest rates. The value of the securities of companies that serve the real estate sector will also be affected by these risks.

Additionally, equity REITs are affected by changes in the value of the underlying property held by the trusts, while mortgage REITs are affected by the quality of the properties to which they have extended credit. Stock and mortgage REITs depend on the management skills of REITs. REITs may not be diversified and are subject to project finance risks.

Please retain this supplement with your SAI for future reference.