N-14 8C

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 2008

SECURITIES ACT FILE NO. 333-            

INVESTMENT COMPANY ACT FILE NO. 811-21343

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-14

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

¨ Pre-effective Amendment No.                 ¨ Post-effective Amendment No.    

WESTERN ASSET EMERGING MARKETS

DEBT FUND INC.

(Exact Name of Registrant as Specified in Charter)

55 Water Street

New York, New York 10041

(Address of Principal Executive Offices: Number, Street, City, State, Zip Code)

1-800-451-2010

(Area Code and Telephone Number)

R. Jay Gerken

Legg Mason & Co., LLC

620 Eighth Avenue, 49th Floor

New York, New York 10018

(Name and Address of Agent for Services)

with copies to:

Sarah E. Cogan, Esq.	Robert I. Frenkel, Esq.
Simpson Thacher & Bartlett LLP	Legg Mason & Co., LLC
425 Lexington Avenue	300 First Stamford Place
New York, New York 10017	Stamford, Connecticut 06902

Calculation of Registration Fee under the Securities Act of 1933:

Title of Securities Being Registered	Amount Being Registered(1)	Proposed Maximum Offering Price per Unit(1)		Proposed Maximum Aggregate Offering Price(1)		Amount of Registration Fee
Common Stock ($.001 par value)	2,839,247	$	17.62	$	50,027,532	$	1,966.08	(2)

⁽¹⁾ Estimated solely for the purpose of calculating the registration fee.

⁽²⁾ Previously paid.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission acting pursuant to said section 8(a), may determine.

WESTERN ASSET EMERGING MARKETS FLOATING RATE FUND INC.

620 Eighth Avenue, 49th Floor

New York, New York 10018

                    , 2008

Dear Stockholder:

The Annual Meeting of Stockholders (the “Meeting”) of Western Asset Emerging Markets Floating Rate Fund Inc. (“EFL”) will be held at 620 Eighth Avenue, 49th Floor, New York, New York, on Monday, June 30, 2008 at 3:30 p.m., Eastern Standard Time, for the purposes of considering and voting upon the following:

1. A proposal to elect two Class I Directors to the Board of Directors of Western Asset Emerging Markets Floating Rate Fund Inc.

2. A proposal to approve the merger of Western Asset Emerging Markets Floating Rate Fund Inc. with and into Western Asset Emerging Markets Debt Fund Inc. in accordance with the Maryland General Corporation Law.

3. The transaction of such other business as may be properly presented at the Meeting or any adjournments or postponements thereof.

The close of business on April 28, 2008 has been fixed as the record date for the determination of stockholders entitled to notice of and to vote at the Meeting. In addition to a proposal to elect two Class I Directors to EFL’s Board of Directors, stockholders are being asked to consider a proposal to approve the merger of EFL with and into Western Asset Emerging Markets Debt Fund Inc. (“ESD,” and together with EFL, the “Funds”) in accordance with the Maryland General Corporation Law (the “Merger”). The attached Proxy Statement/Prospectus asks for your approval of the proposed Merger. After careful consideration, the Board of EFL recommends that you vote “FOR” the proposed Merger.

As a result of the Merger, each share of common stock of EFL would convert into an equivalent dollar amount (to the nearest $0.001) of full shares of common stock of ESD, based on the net asset value of each Fund on the date preceding the Merger. ESD will not issue fractional shares to EFL stockholders. In lieu of issuing fractional shares, ESD will pay cash to each former holder of EFL common stock in an amount equal to the value of the fractional shares of ESD common stock that the investor would otherwise have received in the Merger. The currently issued and outstanding common shares of ESD will remain issued and outstanding.

Both ESD and EFL are closed-end, non-diversified management investment companies listed on the New York Stock Exchange. EFL’s investment objective is to maintain a high level of current income by investing primarily in a portfolio of floating-rate debt securities of emerging market sovereign and corporate issuers. As a secondary objective, EFL seeks capital appreciation. In contrast, ESD’s primary investment objective is total return. High current income is a secondary investment objective of ESD. A more detailed comparison of the Funds’ investment objectives and policies appears in the attached Proxy Statement/Prospectus. The current investment objectives and policies of ESD will continue unchanged if the Merger occurs.

Recent debt issuances by emerging market issuers have been overwhelmingly fixed-rate in nature, causing Legg Mason Partners Fund Advisor, LLC, EFL’s and ESD’s investment manager, and Western Asset Management Company, EFL’s and ESD’s sub-adviser, to believe that adherence to an investment objective and investment policies that require 80% of EFL’s assets to be invested in floating-rate emerging market debt is both impractical to achieve and detrimental to EFL stockholders. In light of these developments in the markets for floating-rate emerging market debt securities, the Board of EFL believes the Merger of EFL into ESD, a Fund that invests in a much broader range of emerging market debt securities, would benefit EFL stockholders by allowing them to continue to have exposure to emerging markets through a Fund with more viable investment strategies.

Also, the Board believes that combining the two Funds could benefit EFL stockholders by providing the potential for economies of scale, a lower operating expense ratio and enhanced market liquidity.

Your vote is very important to us regardless of the number of shares you own. Whether or not you plan to attend the Meeting in person, please read the Proxy Statement/Prospectus and cast your vote promptly. To vote, simply date, sign and return the proxy card in the enclosed postage-paid envelope or follow the instructions on the proxy card for voting by touch-tone telephone or on the Internet.

If you have any questions about the proposals to be voted on, please call Computershare Fund Services at 877-225-6919.

It is important that your vote be received no later than the time of the Meeting.

Sincerely,

R. Jay Gerken

President and Chief Executive Officer

WESTERN ASSET EMERGING MARKETS FLOATING RATE FUND INC.

IMPORTANT NEWS FOR STOCKHOLDERS

The enclosed combined Proxy Statement/Prospectus describes a proposal to elect two Class I Directors to EFL’s Board of Directors and a proposal to merge Western Asset Emerging Markets Floating Rate Fund Inc. (“EFL”) with and into Western Asset Emerging Markets Debt Fund Inc. (“ESD,” and together with EFL, the “Funds”) in accordance with the Maryland General Corporation Law.

While we encourage you to read the full text of the enclosed combined Proxy Statement/Prospectus, here is a brief overview of the proposed merger. Please refer to the more complete information contained elsewhere in the combined Proxy Statement/Prospectus about the merger.

COMMON QUESTIONS ABOUT THE PROPOSED MERGER

Q. Why am I receiving the Proxy Statement/Prospectus?

A. You are being asked to vote in favor of proposals to:

1. elect two Class I Directors to the Board of Directors of Western Asset Emerging Markets Floating Rate Fund Inc.

2. approve the merger of Western Asset Emerging Markets Floating Rate Fund Inc. with and into Western Asset Emerging Markets Debt Fund Inc. in accordance with the Maryland General Corporation Law.

Q. How do the Directors suggest that I vote on the election of Directors?

A. After careful consideration, EFL’s Board of Directors unanimously recommends that you vote FOR each of the nominees for Director.

Q. How will the merger affect me?

A. If the merger is approved, EFL will be merged with and into ESD in accordance with the Maryland General Corporation Law. EFL’s assets and liabilities will be combined with the assets and liabilities of ESD, and stockholders of EFL will become stockholders of ESD.

As a result of the merger, each share of common stock of EFL would convert into an equivalent dollar amount (to the nearest $0.001) of full shares of common stock of ESD, based on the net asset value of each Fund on the date preceding the merger. ESD will not issue fractional shares to EFL stockholders. In lieu of issuing fractional shares, ESD will pay cash to each former EFL stockholder in an amount equal to the value of the fractional shares of ESD common stock that the investor would otherwise have received in the merger. The currently issued and outstanding shares of ESD common stock will remain issued and outstanding.

Q. Why is the merger being recommended?

A. Recent debt issuances by emerging market issuers have been overwhelmingly fixed-rate in nature, causing Legg Mason Partners Fund Advisor, LLC (“LMPFA” or the “Manager”), EFL’s and ESD’s investment manager, and Western Asset Management Company (“Western Asset”), EFL’s and ESD’s sub-adviser, to believe that adherence to an investment objective and investment policies that require 80% of EFL’s assets to be invested in floating-rate emerging market debt is both impractical to achieve and detrimental to EFL stockholders. In light of these developments in the markets for floating-rate emerging market debt securities and the beliefs of LMPFA and Western Asset, the Board of EFL believes the merger of EFL into ESD, a Fund that invests in a much broader range of emerging market debt securities, would benefit EFL stockholders by allowing them to continue to have exposure to emerging markets through a Fund with more viable investment strategies.

Also, the Board believes that combining the two Funds could benefit EFL stockholders by providing the potential for economies of scale, a lower operating expense ratio and enhanced market liquidity due to the increase in float of the combined Fund’s shares.

At a meeting held on February 13 and 14, 2008, the Board of Directors of each Fund, including all of the Directors who are not “interested persons” of the Funds under the Investment Company Act of 1940, as amended (the “Independent Directors”), unanimously approved an Agreement and Plan of Merger with respect to both Funds.

Q. Are ESD’s investment objectives and policies similar to those of EFL?

A. There are differences between the Funds’ investment objectives and policies.

EFL’s investment objective is to maintain a high level of current income by investing primarily in a portfolio of floating-rate debt securities of emerging market sovereign and corporate issuers. As a secondary objective, EFL seeks capital appreciation. In contrast, ESD’s primary investment objective is total return. High current income is a secondary investment objective of ESD.

Under normal conditions, EFL invests at least 80% of its net assets plus any borrowings for investment purposes in floating-rate debt securities of emerging market sovereign and corporate issuers, including fixed-rate securities with respect to which the fund has entered into interest rate swaps to effectively convert the fixed-rate interest payments received into floating-rate interest payments, as defined in EFL’s prospectus. EFL may also invest up to 20% of its total assets in a broad range of other U.S. and non-U.S. fixed income securities, including, but not limited to corporate bonds, loans, mortgage and asset backed securities, preferred stock and sovereign debt, and derivative instruments of the foregoing securities. Under normal circumstances, EFL invests in securities of issuers located in at least four countries.

In general, ESD has broader, more flexible investment policies than EFL. Under normal market conditions, ESD seeks to maximize total return and achieve high current income by primarily investing in a portfolio of debt securities of emerging market issuers. Under normal market conditions, ESD will invest at least 80% of its managed assets (as defined herein) in debt securities of emerging market issuers. ESD may invest up to 20% of its managed assets in other types of securities, including, but not limited to, equity securities. ESD has no policy providing that, under normal market conditions, it will invest in securities of issuers located in a certain number of countries.

The current investment objectives and policies of ESD will continue unchanged if the merger occurs.

Please see “Comparison of Investment Objectives, Strategies, and Principal Risks of Investing in the Funds” in the Proxy Statement/Prospectus for a more complete comparison of the Funds’ investment objectives and policies.

Q. How will the merger affect Fund fees and expenses?

A. EFL currently pays LMPFA an investment management fee, calculated daily and paid monthly, at an annual rate of 1.05% of EFL’s average weekly net assets. ESD currently pays LMPFA, which is also ESD’s investment manager, an investment management fee, calculated daily and paid monthly, at an annual rate of 0.85% of ESD’s average daily net assets plus any borrowings for its services.

In connection with its consideration of the merger, at a meeting held on February 13 and 14, 2008, the Board of ESD approved a change to the investment management fee that ESD pays LMPFA that would become effective upon the closing of the merger. As a result, after the merger, the combined Fund will pay LMPFA an investment management fee, calculated daily and paid monthly, at an annual rate of 0.85% of the combined Fund’s average daily net assets plus any borrowings for the first $700 million and 0.80% of average daily net assets plus any borrowings for amounts greater than $700 million. Thus, additional savings are possible if, after the merger, ESD’s average daily net assets plus borrowings increase to over $700 million, either as a result of an increase in net assets or an increase in leverage. As of February 29, 2008, EFL had total assets of $55 million and ESD had total assets of $602 million, including borrowings equal to approximately 5% of its total assets (including the amount borrowed), or approximately $28 million.

Because stockholders of EFL would become stockholders of ESD after the merger, the management fee as a percentage of Fund assets would fall as a result of the merger. For that reason, and because the fixed expenses of the combined Fund following the merger will be spread over a larger asset base, the per share expense ratio is expected to fall. As a result of the merger, total expenses paid by EFL stockholders are expected to decline from 1.48% (as of February 29, 2008) to approximately 1.04% (excluding interest expense) in the combined Fund, assuming ESD maintains its current amount of leverage and assuming average daily net assets plus borrowings of up to $700 million. If ESD were to increase the amount of leverage to its maximum of 33%, then the total expenses paid by EFL stockholders would be approximately 1.25% (excluding interest expense) in the combined Fund.

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Q. Will I have to pay any taxes as a result of the merger?

A. The merger is intended to qualify as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. Assuming the merger qualifies for such treatment, you generally will not recognize a gain or loss for federal income tax purposes as a result of the merger. EFL stockholders may, however, recognize gain or loss with respect to cash such stockholders receive pursuant to the merger in lieu of fractional shares. As a condition to the closing of the merger, EFL and ESD will each receive an opinion of counsel to the effect that the merger will qualify for such treatment. Opinions of counsel are not binding on the Internal Revenue Service or the courts. You should talk to your tax advisor about any state, local and other tax consequences of the merger. See “Proposal 2—Information About the Proposed Merger—Federal Income Tax Consequences.”

Q. Who will pay for the merger?

A. The costs of the merger will be split among Western Asset, ESD and EFL. Western Asset has agreed to bear 50% of the expenses incurred in connection with the merger. The remaining 50% will be borne by ESD and EFL in proportion to their respective total assets.

Q. How does the Board recommend that I vote on the merger?

A. EFL’s Board of Directors, including all of the Independent Directors, unanimously recommends that you vote FOR the merger.

Q. What will happen if the merger is not approved?

A. If the merger is not approved, EFL will continue as a separate investment company, and EFL’s Board of Directors will consider such alternatives as it determines to be in the best interests of stockholders, including re-proposing the merger.

Q. When is the merger expected to happen?

A. If EFL’s stockholders approve the merger, the merger is expected to occur on or about July 11, 2008.

Q. Will my vote make a difference?

A. Your vote is very important and can make a difference in the governance of the Fund, no matter how many shares you own. Your vote can help ensure that the proposals recommended by the Board of Directors can be implemented. We encourage all stockholders to participate in the governance of the Fund.

Q. Whom do I call if I have questions?

A. If you need more information, or have any questions about voting, please call Computershare Fund Services, the Fund’s proxy solicitor, at 877-225-6919.

Q. How do I vote my shares?

A. You can provide voting instructions by telephone by calling the toll-free number on the enclosed proxy card or electronically by going to the Internet address provided on the proxy card and following the instructions, using your proxy card as a guide. Alternatively, you can vote your shares by signing and dating the enclosed proxy card and mailing it in the enclosed postage-paid envelope.

You may also attend the Meeting and vote in person. However, even if you intend to attend the Meeting, we encourage you to provide voting instructions by one of the methods described above.

It is important that you vote promptly.

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WESTERN ASSET EMERGING MARKETS FLOATING RATE FUND INC.

620 Eighth Avenue, 49th Floor

New York, New York 10018

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

                , 2008

To the Stockholders:

The Annual Meeting of Stockholders (the “Meeting”) of Western Asset Emerging Markets Floating Rate Fund Inc. (“EFL”) will be held at 620 Eighth Avenue, 49th Floor, New York, New York, on Monday, June 30, 2008 at 3:30 p.m., Eastern Standard Time, to consider and vote on the following proposals, as more fully described in the enclosed Proxy Statement/Prospectus:

1. A proposal to elect two Class I Directors to the Board of Directors of Western Asset Emerging Markets Floating Rate Fund Inc.

2. A proposal to approve the merger of Western Asset Emerging Markets Floating Rate Fund Inc. with and into Western Asset Emerging Markets Debt Fund Inc. in accordance with the Maryland General Corporation Law.

3. The transaction of such other business as may be properly presented at the Meeting or any adjournments or postponements thereof.

The Board recommends that you vote “FOR” each Proposal upon which you are being asked to vote.

Stockholders of record at the close of business on April 28, 2008 are entitled to vote at the Meeting and at any adjournments or postponements thereof.

By order of the Board of Directors,

Robert I. Frenkel

Secretary

                , 2008

INSTRUCTIONS FOR SIGNING PROXY CARDS

The following general rules for signing proxy cards may be of assistance to you and avoid the time and expense to the Fund involved in validating your vote if you fail to sign your proxy card properly.

1. Individual Accounts: Sign your name exactly as it appears in the registration on the proxy card.

2. Joint Accounts: Either party may sign, but the name of the party signing should conform exactly to a name shown in the registration.

3. All Other Accounts: The capacity of the individual signing the proxy card should be indicated unless it is reflected in the form of registration. For example:

Registration
Corporate Accounts	Valid Signature
(1) ABC Corp.	ABC Corp. (by John Doe, Treasurer)
(2) ABC Corp.	John Doe, Treasurer
(3) ABC Corp., c/o John Doe, Treasurer	John Doe
(4) ABC Corp. Profit Sharing Plan	John Doe, Trustee
Trust Accounts
(1) ABC Trust	Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee, u/t/d 12/28/78	Jane B. Doe
Custodial or Estate Accounts
(1) John B. Smith, Cust., f/b/o John B. Smith, Jr. UGMA	John B. Smith
(2) John B. Smith	John B. Smith, Jr., Executor

II

PROXY STATEMENT/PROSPECTUS

            , 2008

PROXY STATEMENT FOR:

WESTERN ASSET EMERGING MARKETS FLOATING RATE FUND INC.

620 Eighth Avenue, 49th Floor

New York, New York 10018

800-451-2010

PROSPECTUS FOR:

WESTERN ASSET EMERGING MARKETS DEBT FUND INC.

620 Eighth Avenue, 49th Floor

New York, New York 10018

800-451-2010

This combined Proxy Statement and Prospectus (the “Proxy Statement/Prospectus”) is being furnished in connection with the solicitation of proxies by the Board of Directors (the “Board”) of Western Asset Emerging Markets Floating Rate Fund Inc. (“EFL”) for EFL’s 2008 Annual Meeting of Stockholders (the “Meeting”). The Meeting will be held on Monday, June 30, 2008 at 620 Eighth Avenue, 49th Floor, New York, New York at 3:30 p.m. Eastern Standard Time. At the Meeting, stockholders of EFL will be asked to consider and act upon the following:

1. A proposal to elect two Class I Directors to the Board of Directors of Western Asset Emerging Markets Floating Rate Fund Inc.

2. A proposal to approve the merger of Western Asset Emerging Markets Floating Rate Fund Inc. with and into Western Asset Emerging Markets Debt Fund Inc. in accordance with the Maryland General Corporation Law.

3. The transaction of such other business as may be properly presented at the Meeting or any adjournments or postponements thereof.

If Proposal 2 is approved, as a result of the merger of EFL with and into ESD (the “Merger”) in accordance with the Maryland General Corporation Law, each share of common stock, par value $0.001 per share, of EFL (the “EFL Common Shares”) would convert into an equivalent dollar amount (to the nearest $0.001) of full shares of common stock, par value $0.001 per share, of ESD (the “ESD Common Shares”), based on the net asset value of each Fund on the date preceding the Merger. ESD will not issue fractional ESD Common Shares to holders of EFL Common Shares. In lieu of issuing fractional shares, ESD will pay cash to each former holder of EFL Common Shares in an amount equal to the value of the fractional ESD Common Shares that investor would otherwise have received in the Merger. Although the ESD Common Shares received in the Merger will have the same total net asset value as the EFL Common Shares held immediately before the Merger (disregarding fractional shares), their stock price on the New York Stock Exchange (“NYSE”) may be greater or less than that of the EFL Common Shares, based on current market prices persisting at the time of the Merger. All ESD Common Shares currently issued and outstanding will remain issued and outstanding following the Merger.

Recent debt issuances by emerging market issuers have been overwhelmingly fixed-rate in nature, causing Legg Mason Partners Fund Advisor, LLC (“LMPFA” or the “Manager”), EFL’s and ESD’s investment manager, and Western Asset Management Company (“Western Asset”), EFL’s and ESD’s sub-adviser, to believe that adherence to an investment objective and investment policies that require 80% of EFL’s assets to be invested in floating-rate emerging market debt is both impractical to achieve and detrimental to EFL stockholders. In light of these developments in the markets for floating-rate emerging market debt securities and the beliefs of LMPFA and Western Asset, the Board of EFL believes the Merger of EFL into ESD, a Fund that invests in a much broader range of emerging market debt securities, would benefit EFL stockholders by allowing them to continue to have exposure to emerging markets through a Fund with viable investment strategies.

Also, the Board believes that combining the two Funds could benefit EFL stockholders by providing the potential for economies of scale, a lower operating expense ratio and enhanced market liquidity due to the increase in float of the combined Fund’s shares.

At a meeting held on February 13 and 14, 2008, the Board of Directors of each Fund, including all of the Directors who are not “interested persons” of the Funds under the Investment Company Act of 1940, as amended (the “Independent Directors”), unanimously approved an Agreement and Plan of Merger with respect to both Funds.

ESD was incorporated in Maryland on April 16, 2003; EFL was incorporated in Maryland on January 21, 1994. Both ESD and EFL are closed-end, non-diversified management investment companies listed on the NYSE.

EFL’s primary investment objective is to maintain a high level of current income by investing primarily in a portfolio of floating-rate debt securities of emerging market sovereign and corporate issuers. As a secondary objective, EFL seeks capital appreciation. In contrast, ESD’s primary investment objective is total return. High current income is a secondary investment objective of ESD. The current investment objectives and policies of ESD, which differ from those of EFL, will continue unchanged if the Merger occurs. Please see “Proposal 2—Comparison of Investment Objectives, Strategies, and Principal Risks of Investing in the Funds” in the Proxy Statement/Prospectus for a more complete comparison of the Funds’ investment objectives and policies.

The Merger will be effected pursuant to an Agreement and Plan of Merger, a form of which is attached to this Proxy Statement/Prospectus as Appendix A. The material terms and conditions of the Agreement and Plan of Merger are summarized in this Proxy Statement/Prospectus. See “Proposal 2—Information About the Proposed Merger—The Agreement and Plan of Merger.”

This Proxy Statement/Prospectus serves as a prospectus for ESD Common Shares under the Securities Act of 1933, as amended (the “Securities Act”), in connection with the issuance of ESD Common Shares in the Merger.

Assuming the holders of EFL Common Shares approve the Merger and all other conditions to the consummation of the Merger are satisfied or waived, the Funds will jointly file articles of merger (the “Articles of Merger”) with the State Department of Assessments and Taxation in Maryland (the “SDAT”). The Merger will become effective when the SDAT accepts for record the Articles of Merger or at such later time, which may not exceed 30 days after the Articles of Merger are accepted for record, as specified in the Articles of Merger. The date when the Articles of Merger are accepted for record, or the later date, is referred to in this Proxy Statement/Prospectus as the “Closing Date.” EFL, as soon as practical after the Closing Date, will withdraw its registration under the Investment Company Act of 1940, as amended (the “1940 Act”).

The Merger is being structured as a tax-free reorganization for federal income tax purposes. See “Proposal 2—Information About the Proposed Merger—Federal Income Tax Consequences.” Stockholders should consult their tax advisors to determine the actual impact of the Merger on them in light of their individual tax circumstances.

You should retain this Proxy Statement/Prospectus for future reference as it sets forth concisely information about ESD and EFL that you should know before voting on the proposed Merger described below.

A Statement of Additional Information (“SAI”) dated              , 2008, which contains additional information about the Merger and the Funds, has been filed with the Securities and Exchange Commission (“SEC”). The SAI, as well as ESD’s Annual Report to Stockholders for the Fiscal Year Ended October 31, 2007, filed with the SEC on January 4, 2008 (accession no. 0001104659-08-000632), EFL’s Annual Report to Stockholders for the Fiscal Year Ended February 28, 2007, filed with the SEC on May 7, 2007 (accession no. 0001104659-07-036293), and EFL’s Semi-Annual Report to Stockholders for the Semi-Annual Period Ended September 30, 2007, filed with the SEC on November 8, 2007 (accession no. 0001104659-07-081147), which highlight certain important information such as investment performance and expense and financial information, are incorporated by reference into this Proxy Statement/Prospectus. You may receive free of charge a copy of the SAI, or the annual report and semi-annual report for either Fund, by contacting Legg Mason Shareholder Services at 800-822-5544, by writing the Fund at the address listed above or by visiting our website at www.leggmason.com/individualinvestors.

In addition, you can copy and review this Proxy Statement/Prospectus and the complete filing on Form N-14 containing the Proxy Statement/Prospectus and any of the above-referenced documents at the SEC’s Public Reference Room in Washington, DC. You may obtain information about the operation of the Public Reference Room by calling the SEC at 202-551-8090. Reports and other information about each Fund are available on the EDGAR Database on the SEC’s Internet

ii

site at www.sec.gov. You may also obtain copies of this information, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Room, 100 F Street, N.E., Washington, DC 20549.

ESD Common Shares are listed on the NYSE under the symbol “ESD,” and EFL Common Shares are listed on the NYSE under the symbol “EFL.” After the Closing Date, ESD Common Shares will continue to be listed on the NYSE under the symbol “ESD.”

The information contained herein concerning ESD and EFL has been provided by, and is included herein in reliance upon, ESD and EFL, respectively.

The Securities and Exchange Commission has not approved or disapproved these securities nor passed upon the accuracy or adequacy of this Proxy Statement/Prospectus. Any representation to the contrary is a criminal offense.

iii

TABLE OF CONTENTS

	Page
PROPOSAL 1—TO ELECT TWO CLASS I DIRECTORS TO EFL’S BOARD OF DIRECTORS	1
BACKGROUND	1
Security Ownership of Management	3
Director Compensation	3
Responsibilities of the Board of Directors	4
Audit Committee	4
Nominating Committee	5
Officers	6
Section 16(a) Beneficial Ownership Reporting Compliance	6
Report of the Audit Committee	6
Board Recommendation and Required Vote	7
PROPOSAL 2—TO APPROVE THE MERGER OF EFL WITH AND INTO ESD IN ACCORDANCE WITH THE MARYLAND GENERAL CORPORATION LAW	8
Summary	8
Background	8
Proposed Merger	8
Comparison of Investment Objectives, Principal Investment Strategies and Principal Risks	9
Effect on Expenses	10
Fee Table and Expense Example	10
Comparison of Investment Objectives, Strategies and Principal Risks of Investing in the Funds	12
Investment Objectives	12
Principal Investment Strategies	12
Fundamental Investment Restrictions	18
Risk Factors	20
Information About the Proposed Merger	28
The Agreement and Plan of Merger	28
Reasons for the Merger and Board Considerations	29
Federal Income Tax Consequences	30
Portfolio Securities	32
Information About Management of the Funds	33
Information About Directors and Officers	33
Investment Manager and Sub-Adviser	33
Codes of Ethics	34
Proxy Voting Policies	34
Certain Legal Proceedings	35
Portfolio Managers of the Funds	35
Additional Information About the Funds	39
Financial Highlights	39
Management’s Discussion of Fund Performance	42
Net Asset Value, Market Price and Premium/Discount	44
Capitalization	45
Portfolio Composition	45
Portfolio Transactions	46
Dividends and Distributions	47
Distributions	47
Dividend Reinvestment Plan	47
Taxation	49
Federal Income Tax Matters
State and Local Tax Matters
Net Asset Value	53
Description of the Funds’ Capital Stock	54

I

	Page
FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	56
STOCKHOLDER PROPOSALS AND OTHER STOCKHOLDER COMMUNICATIONS	57
5% BENEFICIAL OWNERSHIP	58
OTHER BUSINESS	58
VOTING INFORMATION	58
Adjournments and Postponements	59
Appraisal Rights	59
EXPENSES OF PROXY SOLICITATION	59
SERVICE PROVIDERS	60
INDEX OF APPENDICES	61
Appendix A: Form of Agreement and Plan of Merger	A-1
Appendix B: Description of Moody’s and S&P Ratings	B-1
Appendix C: Legg Mason Partners Fund Advisor, LLC—Proxy Voting Policy	C-1

II

PROPOSAL 1—TO ELECT TWO CLASS I DIRECTORS TO EFL’S BOARD OF DIRECTORS

Background

In accordance with EFL’s charter, EFL’s Board of Directors is divided into three classes: Class I, Class II and Class III. The terms of office of EFL’s Class I Directors expire at the Meeting. Stockholders are being asked to elect two Class I Directors at the Meeting to hold office until the consummation of the Merger or, if EFL stockholders do not approve the Merger, until the year 2011 Annual Meeting of Stockholders, or thereafter until his successor is duly elected and qualified. The term of office of each of the remaining Class II and Class III Directors expires at the year 2009 or 2010 Annual Meeting of Stockholders, respectively, or thereafter when his or her successor is duly elected and qualified. The effect of these staggered terms is to limit the ability of other entities or persons to acquire control of the Fund by delaying the replacement of a majority of the Board of Directors.

Similarly, in accordance with ESD’s charter, ESD’s Board of Directors is also divided into three classes: Class I, Class II and Class III. The terms of office of ESD’s Class I, Class II and Class III Directors expire at ESD’s 2009, 2010 and 2011 Annual Meetings of Stockholders, respectively, or thereafter when his or her successor is duly elected and qualified. The same individuals (including the nominees for election to EFL’s Board of Directors) serve as the Directors of both ESD and EFL.

The persons named in the proxy intend to vote at the Meeting (unless directed not to vote) FOR the election of the nominees named below. Each of the nominees is currently a member of EFL’s Board of Directors and has indicated that he will serve if elected. However, if any nominee should be unable to serve, the proxy will be voted for any other person determined by the persons named in the proxy in accordance with their judgment.

The following table provides information concerning the nominees for election as Directors of EFL. These individuals are also currently Directors of ESD.

Name, Address and Age	Position(s) Held with the Funds	Length of Term Served	Principal Occupation(s) During Past 5 Years	Number of Portfolios in Fund Complex(1) Overseen by Nominee (Including the Fund)	Other Directorships Held by Nominee
NON-INTERESTED DIRECTORS
Dr. Riordan Roett c/o Chairman of the Fund 620 Eighth Avenue, 49th Floor New York, NY 10018 Birth year: 1938	Director and Member of Audit and Nominating Committees; Class III (ESD), Class I (EFL)	Since 2003 (ESD), Since 1995 (EFL)	Professor and Director, Latin American Studies Program, Paul H. Nitze School of Advanced International Studies, The Johns Hopkins University	22	None
Jeswald W. Salacuse c/o Chairman of the Fund 620 Eighth Avenue, 49th Floor New York, NY 10018 Birth year: 1938	Director and Member of Nominating and Audit Committees; Class III (ESD), Class I (EFL)	Since 2003 (ESD), Since 1994 (EFL)	Henry J. Braker Professor of Commercial Law; formerly, Dean, The Fletcher School of Law & Diplomacy, Tufts University	22	Director of two registered investment companies advised by Blackstone Asia Advisors L.L.C. (“Blackstone Advisors”)

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The following table provides information concerning the remaining Directors of ESD and EFL:

Name, Address and Age	Position(s) Held with the Funds	Length of Term Served	Principal Occupation(s) During Past 5 Years	Number of Portfolios in Fund Complex(1) Overseen by Nominee (Including the Fund)	Other Directorships Held by Nominee
NON-INTERESTED DIRECTORS
Carol L. Colman c/o Chairman of the Fund 620 Eighth Avenue, 49th Floor New York, NY 10018 Birth year: 1946	Director and Member of Audit and Nominating Committees; Class I (ESD), Class III (EFL)	Since 2003 (ESD), Since 2002 (EFL)	President, Colman Consulting Co.	22	None
Daniel P. Cronin c/o Chairman of the Fund 620 Eighth Avenue, 49th Floor New York, NY 10018 Birth year: 1946	Director and Member of Audit and Nominating Committees; Class I (ESD), Class III (EFL)	Since 2003 (ESD), Since 2002 (EFL)	Retired; formerly, Associate General Counsel, Pfizer, Inc.	22	None
Paolo M. Cucchi c/o Chairman of the Fund 620 Eighth Avenue, 49th Floor New York, NY 10018 Birth year: 1941	Director and Member of Audit and Nominating Committees: Class I (ESD), Class II (EFL)	Since 2007 (ESD) Since 2007 (EFL)	Vice President and Dean of College of Liberal Arts at Drew University	22	None
Leslie H. Gelb c/o Chairman of the Fund 620 Eighth Avenue, 49th Floor New York, NY 10018 Birth year: 1937	Director and Member of Audit and Nominating Committees; Class II (ESD), Class II (EFL)	Since 2003 (ESD), Since 1994 (EFL)	President Emeritus and Senior Board Fellow, The Council on Foreign Relations; formerly, Columnist, Deputy Editorial Page Editor and Editor, Op-Ed Page, The New York Times	22	Director of two registered investment companies advised by Blackstone Advisors
William R. Hutchinson c/o Chairman of the Fund 620 Eighth Avenue, 49th Floor New York, NY 10018 Birth year: 1942	Director and Member of Audit and Nominating Committees; Class II (ESD), Class III (EFL)	Since 2003 (ESD) Since 2003 (EFL)	President, W.R. Hutchinson & Associates Inc. (consulting); formerly, Group Vice President, Mergers and Acquisitions, BP Amoco p.l.c.	22	Director of Associated Banc-Corp.
INTERESTED DIRECTOR
R. Jay Gerken, CFA(2) Legg Mason, Inc. 620 Eighth Avenue, 49th Floor New York, NY 10018 Birth year: 1951	Chairman, CEO, President and Director; Class II (ESD), Class II (EFL)	Since 2003 (ESD) Since 2002 (EFL)	Managing Director of Legg Mason, Chairman, President and Chief Executive Officer of Smith Barney Fund Management LLC (“SBFM”) and Citi Fund Management Inc. (“CFM”); President and Chief Executive Officer of certain mutual funds associated with Legg Mason; formerly Portfolio Manager of Smith Barney Allocation Series Inc. (1996–2001) Chairman of the Board, Trustee and Director of 133 funds associated with LMPFA or its affiliates	133	Trustee, Consulting Group Capital Markets Fund

⁽¹⁾ The term “Fund Complex” means two or more registered investment companies that:

(a) Hold themselves out to investors as related companies for purposes of investment and investor services; or

(b) Have a common investment adviser or have an investment adviser that is an affiliated person of the investment adviser of any of the other registered investment companies.

⁽²⁾ Mr. Gerken is an “interested person” as defined in the Investment Company Act of 1940, as amended (the “1940 Act”), because he is an employee of Legg Mason, the parent company of the Funds’ investment adviser.

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Security Ownership of Management

The following table provides information concerning the dollar range of equity securities owned beneficially by each Director and nominee for election as Director as of December 31, 2007:

Name of Director/Nominee	Dollar Range(1) of Equity Securities in ESD	Dollar Range(1) of Equity Securities in EFL	Aggregate Dollar Range(2) of Equity Securities in all Funds Overseen by Director/Nominee in Family of  Investment Companies(2)
NON-INTERESTED DIRECTORS
Carol L. Colman	A	B	E
Daniel P. Cronin	D	C	E
Paolo M. Cucchi	A	A	C
Leslie H. Gelb	A	A	A
William R. Hutchinson	C	A	E
Dr. Riordan Roett	A	B	C
Jeswald W. Salacuse	A	A	C
INTERESTED DIRECTOR
R. Jay Gerken	C	C	E

⁽¹⁾ The dollar ranges are as follows: “A” = None; “B” = $1-$10,000; “C” = $10,001-$50,000; “D” = $50,001-$100,000; “E” = Over $100,000.

⁽²⁾ “Family of Investment Companies” means any two or more registered investment companies that share the same investment adviser or principal underwriter or hold themselves out to investors as related companies for purposes of investment and investor services.

At                , 2008, the Directors and officers of the Funds as a group beneficially owned less than 1% of the outstanding shares of each Fund’s common stock.

No Director or nominee for election as Director who is not an “interested person” of the Funds as defined in the 1940 Act, nor any immediate family members, to the best of the Funds’ knowledge, had any interest in the Funds’ investment adviser, or any person or entity (other than the Funds) directly or indirectly controlling, controlled by, or under common control with Legg Mason as of December 31, 2007.

Director Compensation

Under the federal securities laws, and in connection with the Meeting, the Fund is required to provide to stockholders in connection with the Meeting information regarding compensation paid to the Directors by the Fund, as well as by the various other investment companies advised by LMPFA. The following table provides information concerning the compensation paid to each Director by the Fund during the fiscal year ended December 31, 2007 and the total compensation paid to each Director during the calendar year ended December 31, 2007. Certain of the Directors listed below are members of the Fund’s Audit and Nominating Committees, as well as other committees of the boards of certain other investment companies advised by LMPFA. Accordingly, the amounts provided in the table include compensation for service on all such committees. The Fund does not provide any pension or retirement benefits to Directors. In addition, no remuneration was paid during the fiscal year ended December 31, 2007 by the Fund to Mr. Gerken who is an “interested person” as defined in the 1940 Act.

Name of Directors	Aggregate Compensation from ESD for Fiscal Year Ended 10/31/07		Aggregate Compensation from EFL for Fiscal Year Ended 02/29/08		Total Compensation from the Fund and Fund Complex(1) for Calendar Year Ended 12/31/07		Directorships(2)
Carol L. Colman	$	11,999.98	$	3,370.82	$	326,112.63	22
Daniel P. Cronin		11,699.71		3,234.98		192,450.00	22
Paolo M. Cucchi(3)		9,283.04		3,234.98		174,250.00	22
Leslie H. Gelb		11,879.30		3,057.73		178,250.00	22
Willian R. Hutchinson		12,654.11		3,366.96		368,239.68	22
Dr. Riordan Roett		12,330.33		3,328.79		180,250.00	22
Jeswald W. Salacuse		14,460.58		3,677.37		187,250.00	22

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⁽¹⁾ “Fund Complex” means two or more Funds (a registrant or, where the registrant is a series company, a separate portfolio of the registrant) that hold themselves out to investors as related companies for purposes of investment and investor services or have a common investment adviser or have an investment adviser that is an affiliated person of the investment adviser of any of the other Funds.

⁽²⁾ The numbers indicate the applicable number of investment companies in the Fund Complex overseen by that Director as of December 31, 2007.

⁽³⁾ Mr. Cucchi became a Director of the Funds on March 1, 2007.

Responsibilities of the Board of Directors

Each Fund’s Board of Directors is responsible for ensuring that the Fund is managed in the best interest of its stockholders. The Directors oversee the Funds’ business by, among other things, meeting with the Funds’ management and evaluating the performance of the Funds’ service providers including LMPFA, Western Asset, the Funds’ custodian and the Funds’ transfer agent. As part of this process, the Directors consult with the Funds’ independent auditors and with their own separate independent counsel.

Each Fund’s Board of Directors has four regularly scheduled meetings each year, and additional meetings are scheduled as needed. In addition, each Board has an Audit Committee and a Nominating Committee that meet periodically and whose responsibilities are described below.

During ESD’s fiscal year ended October 31, 2007, ESD’s Board of Directors held four regular meetings and one special meeting. Each Director attended at least 75% of the aggregate number of meetings of the Board and the committees for which he or she was eligible. ESD does not have a formal policy regarding attendance by Directors at annual meetings of stockholders. [Mr. Gerken attended ESD’s 2008 Annual Meeting of Stockholders.]

During EFL’s fiscal year ended February 29, 2008, EFL’s Board of Directors held four regular meetings and one special meeting. Each Director attended at least 75% of the aggregate number of meetings of the Board and the committees for which he or she was eligible. EFL does not have a formal policy regarding attendance by Directors at annual meetings of stockholders. [Mr. Gerken attended EFL’s 2007 Annual Meeting of Stockholders.]

Each Fund’s Directors review the Fund’s financial statements, performance and market price as well as the quality of the services being provided to the Fund. As part of this process, the Directors review each Fund’s fees and expenses to determine if they are reasonable and competitive in light of the services being received while also ensuring that each Fund continues to have access to high quality services in the future. Based on these reviews, the Directors periodically make suggestions to the Funds’ management and monitor to ensure that responsive action is taken. The Directors also monitor potential conflicts of interest among the Funds, LMPFA and its affiliates and other funds and clients managed by LMPFA and Western Asset to ensure that each Fund is managed in a manner which is in the best interest of the Fund’s stockholders.

Audit Committee

Each Fund’s Audit Committee is composed of all Directors of that Fund who have been determined not to be “interested persons” of the Fund, LMPFA or its affiliates within the meaning of the 1940 Act, and who are “independent” as defined in the NYSE listing standards. Currently, each Fund’s Audit Committee is composed of Ms. Colman, Messrs. Cronin, Cucchi, Gelb, Hutchinson and Salacuse and Dr. Roett. The principal functions of each Fund’s Audit Committee are: to (a) oversee the scope of the Fund’s audit, the Fund’s accounting and financial reporting policies and practices and its internal controls and enhance the quality and objectivity of the audit function; (b) approve, and recommend to the Independent Board Members (as such term is defined in the Audit Committee Charter) for their ratification, the selection, appointment, retention or termination of the Fund’s independent registered public accounting firm, as well as approving the compensation thereof; and (c) approve all audit and permissible non-audit services provided to the Fund and certain other persons by the Fund’s independent registered public accounting firm.

ESD’s Audit Committee met five times during ESD’s fiscal year ended October 31, 2007. ESD’s Board of Directors adopted an amended Audit Committee Charter at a meeting held on November 17, 2006, a copy of which was filed as Annex A to ESD’s Proxy Statement dated January 26, 2007.

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EFL’s Audit Committee met five times during EFL’s fiscal year ended February 29, 2008. EFL’s Board of Directors adopted an amended Audit Committee Charter at a meeting held on November 17, 2006, a copy of which was filed as Annex A to EFL’s Proxy Statement dated May 7, 2007.

Nominating Committee

Each Fund’s Nominating Committee, the principal function of which is to select and nominate candidates for election as Directors of the Fund, is currently composed of Ms. Colman, Messrs. Cronin, Cucchi, Gelb, Hutchinson and Salacuse and Dr. Roett. Only Directors who are not “interested persons” of the Funds as defined in the 1940 Act and who are “independent” as defined in the NYSE listing standards are members of the Funds’ Nominating Committees. Each Fund’s Nominating Committee may accept nominees recommended by the Fund’s stockholders as it deems appropriate. Stockholders of a Fund who wish to recommend a nominee should send recommendations to the Fund’s Secretary that include all information relating to such person that is required to be disclosed in solicitations of proxies for the election of Directors. A recommendation must be accompanied by a written consent of the individual to stand for election if nominated by the Board of Directors and to serve if elected by the stockholders.

ESD’s Nominating Committee met once during ESD’s fiscal year ended October 31, 2007. ESD’s Board of Directors adopted a Nominating Committee Charter at a meeting held on January 20, 2004, a copy of which was filed as Annex B to ESD’s Proxy Statement dated January 26, 2007.

EFL’s Nominating Committee met once during EFL’s fiscal year ended February 29, 2008. EFL’s Board of Directors adopted a Nominating Committee Charter at a meeting held on January 20, 2004, a copy of which was filed as Annex B to EFL’s Proxy Statement dated May 7, 2007.

Each Fund’s Nominating Committee identifies potential nominees through its network of contacts, and may also engage, if it deems appropriate, a professional search firm. Each Fund’s Nominating Committee meets to discuss and consider such candidates’ qualifications and then chooses a candidate by majority vote. Neither Fund’s Nominating Committee has specific, minimum qualifications for nominees and has not established specific qualities or skills that it regards as necessary for one or more of the Fund’s Directors to possess (other than any qualities or skills that may be required by applicable law, regulation or listing standard). However, as set forth in each Fund’s Nominating Committee Charter, in evaluating a person as a potential nominee to serve as a Director of the Fund, each Fund’s Committee may consider the following factors, among any others it may deem relevant:

• whether or not the person is an “interested person” as defined in the 1940 Act and whether the person is otherwise qualified under applicable laws and regulations to serve as a Director of the Fund;

• whether or not the person has any relationships that might impair his or her independence, such as any business, financial or family relationships with Fund management, the investment manager of the Fund, other Fund service providers or their affiliates;

• whether or not the person serves on boards of, or is otherwise affiliated with, competing financial service organizations or their related mutual fund complexes;

• whether or not the person is willing to serve, and willing and able to commit the time necessary for the performance of the duties of a Director of the Fund;

• the contribution which the person can make to the Board and the Fund (or, if the person has previously served as a Director of the Fund, the contribution which the person made to the Board during his or her previous term of service), with consideration being given to the person’s business and professional experience, education and such other factors as the Committee may consider relevant;

• the character and integrity of the person; and

• whether or not the selection and nomination of the person would be consistent with the requirements of the Fund’s retirement policies.

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Officers

Each Fund’s executive officers are chosen each year at a regular meeting of the Board of Directors of the Fund, to hold office until their respective successors are duly elected and qualified. The same individuals serve as officers of both ESD and EFL. In addition to Mr. Gerken, each Fund’s Chairman, CEO and President, the executive officers of the Funds currently are:

Name, Address and Age	Position(s) Held with Fund	Length of Time Served	Principal Occupation(s) During Past 5 Years
Kaprel Ozsolak Legg Mason 55 Water Street New York, NY 10041 Birth year: 1965	Chief Financial Officer and Treasurer	Since 2007 (ESD), Since 2007 (EFL)	Director of Legg Mason; Chief Financial Officer and Treasurer of certain mutual funds associated with Legg Mason; Formerly, Controller of certain mutual funds associated with certain predecessor firms of Legg Mason (2002–2004)
Ted P. Becker Legg Mason 620 Eighth Avenue, 49th Floor New York, NY 10018 Birth year: 1951	Chief Compliance Officer	Since 2006 (ESD), Since 2006 (EFL)	Director of Global Compliance at Legg Mason (since 2006); Managing Director of Compliance at Legg Mason, (since 2005); Chief Compliance Officer with certain mutual funds associated with Legg Mason (since 2006); Managing Director of Compliance at Legg Mason or its predecessors (2002–2005). Prior to 2002, Managing Director—Internal Audit & Risk Review at Citigroup Inc.
Robert I. Frenkel Legg Mason 300 First Stamford Place Stamford, CT 06902 Birth year: 1954	Secretary and Chief Legal Officer	Since 2003 (ESD), Since 2003 (EFL)	Managing Director and General Counsel of Global Mutual Funds for Legg Mason and its predecessor (since 1994); Secretary and Chief Legal Officer of mutual funds associated with Legg Mason (since 2003); formerly, Secretary of CFM (2001–2004)

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, and Section 30(h) of the 1940 Act in combination require each Fund’s Directors and principal officers, persons who own more than 10% of the Fund’s common stock, LMPFA and Western Asset and their respective directors and principal officers, to file reports of ownership and changes in ownership with the SEC and the NYSE. These persons and entities are required by SEC regulation to furnish each Fund with copies of all such forms they file. Based solely on a review of these forms furnished to each Fund, ESD believes that for its fiscal year ended October 31, 2007, and EFL believes that for its fiscal year ended February 29, 2008, all relevant persons have complied with applicable filing requirements, with the exception of Form 3 submissions by each of Charles J. Daley, Jr. and Rocco del Guercio, which were inadvertently not filed in a timely manner. However, these officers did not buy or sell shares of either Fund prior to the late Form 3 filings, and they have both since made the required Form 3 filings.

Report of the Audit Committee (EFL)

Pursuant to a meeting of the Audit Committee on April    , 2008, the Audit Committee reports that it has: (i) reviewed and discussed the Fund’s audited financial statements for the fiscal year ended February 29, 2008 with management; (ii) discussed with KPMG LLP (“KPMG”), the independent registered public accounting firm of the Fund, the matters required to be discussed by Statement on Auditing Standards No. 61; and (iii) previously received written confirmation from KPMG that it is independent and written disclosures regarding such independence as required by Independence Standards Board Standard No. 1, and discussed with KPMG the independent registered public accounting firm’s independence.

Pursuant to the Audit Committee Charter adopted by the Fund’s Board, the Audit Committee is responsible for conferring with the Fund’s independent registered public accounting firm, reviewing annual financial statements and recommending the selection of the Fund’s independent registered public accounting firm. The Audit Committee advises the full Board with respect to accounting, auditing and financial matters affecting the Fund. The independent registered public accounting firm is responsible for planning and carrying out the proper audits and reviews of the Fund’s financial statements and expressing an opinion as to their conformity with accounting principles generally accepted in the United States of America.

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The members of the Audit Committee are not professionally engaged in the practice of auditing or accounting and are responsible for oversight. Moreover, the Audit Committee relies on and makes no independent verification of the facts presented to it or representations made by management or the independent registered public accounting firm. Accordingly, the Audit Committee’s oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principals and policies, or internal controls and procedures, designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Audit Committee’s considerations and discussions referred to above do not provide assurance that the audit of the Fund’s financial statements has been carried out in accordance with generally accepted accounting standards or that the financial statements are presented in accordance with generally accepted accounting principles.

Based on the review and discussions referred to in items (i) through (iii) above, the Audit Committee recommended to the Board of Directors (and the Board has approved) that the audited financial statements be included in the Fund’s annual report for the Fund’s fiscal year ended February 29, 2008.

Submitted by the Audit Committee

of the Fund’s Board of Directors

Carol L. Colman

Daniel P. Cronin

Paolo M. Cucchi

Leslie H. Gelb

William R. Hutchinson

Dr. Riordan Roett

Jeswald W. Salacuse

April     , 2008

Board Recommendation and Required Vote

Directors are elected by a plurality of the votes cast by the holders of EFL Common Shares present in person or represented by proxy at a meeting at which a quorum is present. For purposes of the election of Directors, abstentions and broker non-votes will not be considered votes cast, and do not affect the plurality vote required for Directors.

EFL’s Board of Directors unanimously recommends that stockholders of EFL vote FOR each of the nominees

for Director.

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PROPOSAL 2—TO APPROVE THE MERGER OF EFL WITH AND INTO ESD IN ACCORDANCE WITH THE MARYLAND GENERAL CORPORATION LAW

SUMMARY

This summary is qualified in its entirety by reference to the additional information contained elsewhere in this Proxy Statement/Prospectus and the Agreement and Plan of Merger, a form of which is attached to this Proxy Statement/Prospectus as Appendix A.

Background

EFL’s primary investment objective is to seek to maintain a high level of current income by investing at least 80% of its net assets plus any borrowings for investment purposes in floating-rate debt securities of emerging market sovereign and corporate issuers, including fixed-rate securities with respect to which EFL has entered into interest rate swaps to effectively convert the fixed-rate interest payments received into floating-rate interest payments. As a secondary objective, EFL seeks capital appreciation.

Recent debt issuance by emerging market issuers have been overwhelmingly fixed-rate in nature. In 1994, when EFL commenced operations, 53% of the total outstanding issuance of emerging market bonds was floating-rate in nature; at that time fixed-rate bonds represented 47% of the total. In contrast, in 2007, only 2% of the total outstanding issuance of emerging market bonds was floating-rate in nature, whereas fixed-rate bonds represented 98% of the total.

In addition, the market in 1994 was dominated by Brady bonds, which were primarily floating-rate issuances. From a peak close to US$150 billion in the mid-1990s, Brady debt has been aggressively retired by nearly every country in the past ten years, with much of the financing coming from new issuance of local currency-denominated fixed-rate debt. Research by Western Asset, EFL’s and ESD’s sub-adviser, indicates that the outstanding amount of floating-rate emerging market debt is currently approximately $4.2 billion, as measured in U.S. dollars. In addition, there are no more Brady bonds left outstanding in Brazil, Argentina, Mexico or Venezuela, and the only Brady debt left, comprising the US$4.2 billion total, is a smattering of debt issued by smaller countries such as Peru. Further, Peru recently announced a plan to retire half of its outstanding Brady debt in 2008.

Accordingly, LMPFA and Western Asset each believes that adherence to an investment objective and investment policies that require 80% of EFL’s assets to be invested in floating-rate emerging market debt is both impractical to achieve and detrimental to EFL stockholders.

Proposed Merger

In light of the developments described above in the markets for floating-rate emerging market debt securities and the beliefs of LMPFA and Western Asset, the Board of EFL believes the Merger of EFL into ESD, a Fund that invests in a much broader range of emerging market debt securities, would benefit EFL stockholders by allowing them to continue to have exposure to emerging markets through a Fund with more viable investment strategies. In addition, the Board of EFL believes that combining the two Funds could benefit EFL stockholders by providing the potential for economies of scale, a lower operating expense ratio and enhanced market liquidity due to the increase in float of the combined Fund’s shares.

At a meeting held on February 13 and 14, 2008, the Boards of EFL and ESD, including all of the Independent Directors, unanimously approved the Agreement and Plan of Merger with respect to each Fund. As a result of the Merger:

• each EFL Common Share will convert into an equivalent dollar amount (to the nearest $0.001) of full ESD Common Shares, based on the net asset value per share of each Fund calculated at 4:00 p.m. on the Business Day preceding the Closing Date;

• each holder of EFL Common Shares will become a holder of ESD Common Shares and will receive, on the Closing Date, that number of ESD Common Shares having an aggregate net asset value (disregarding fractional shares) equal to the aggregate net asset value of such stockholder’s EFL Common Shares as of the close of business on the Business Day preceding the Closing Date; and

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• ESD will not issue any fractional Common Shares to its stockholders. In lieu thereof, ESD will pay cash to each former holder of EFL Common Shares in an amount equal to the value of the fractional ESD Common Shares that investor would otherwise have received in the Merger.

If the Merger is not approved, EFL will continue as a separate investment company, and the Board of EFL will consider such alternatives as it determines to be in the best interests of stockholders, including re-proposing the Merger.

For the reasons set forth below in “Information About the Proposed Merger—Reasons for the Merger and Board Considerations,” the Board of EFL, including all of the Independent Directors, has concluded that the Merger would be in the best interests of EFL, and that the interests of the holders of Common Shares of EFL would not be diluted as a result of the Merger. The Board, therefore, is hereby submitting the Merger to the holders of EFL Common Shares and recommends that stockholders of EFL vote “FOR” the Merger.

Because the Merger has been approved unanimously by EFL’s Board of Directors, including all of the Independent Directors of EFL, under EFL’s Charter, approval of the Merger requires the affirmative vote of the holders of a majority of the outstanding EFL Common Shares. See “Voting Information” below. If stockholders of EFL approve the Merger, the Closing Date of the Merger is expected to be on or about July 11, 2008. Under the Maryland General Corporation Law, the stockholders of ESD are not required to approve the Merger. Furthermore, because of the comparative sizes of ESD and EFL, NYSE rules also do not require stockholders of ESD to approve the Merger.

Prior to completion of the Merger, EFL and ESD will each have received an opinion of Simpson Thacher & Bartlett LLP to the effect that the Merger will qualify as a tax-free reorganization for federal income tax purposes. Accordingly, for federal income tax purposes, (i) no gain or loss will generally be recognized by EFL or the holders of EFL Common Shares as a result of the Merger, (ii) the aggregate tax basis of the ESD Common Shares (including holders of fractional ESD Common Shares purchased by ESD) received by the holders of EFL Common Shares will be the same as the aggregate tax basis of the holders’ EFL Common Shares and (iii) a holder’s holding period for ESD Common Shares (including that of fractional ESD Common Shares purchased by ESD) will generally be determined by including the period for which he or she held EFL Common Shares converted pursuant to the Merger, provided that such shares were held as capital assets. Holders of EFL Common Shares may, however, recognize gain or loss with respect to cash such holders receive pursuant to the Merger in lieu of fractional shares. For more information about the federal income tax consequences of the Merger, see “Information about the Proposed Merger—Federal Income Tax Consequences” below.

Comparison of Investment Objectives, Principal Investment Strategies and Principal Risks

There are several differences between the investment objectives and policies of ESD and EFL.

EFL’s primary investment objective is to maintain a high level of current income by investing primarily in a portfolio of floating-rate debt securities of emerging market sovereign and corporate issuers. As a secondary objective, EFL seeks capital appreciation. In contrast, ESD’s primary investment objective is total return. High current income is a secondary investment objective of ESD.

Under normal conditions, EFL invests at least 80% of its net assets plus any borrowings for investment purposes in floating-rate debt securities of emerging market sovereign and corporate issuers, including fixed-rate securities with respect to which the Fund has entered into interest rate swaps to effectively convert the fixed-rate interest payments received into floating-rate interest payments, as defined in EFL’s prospectus. EFL may also invest up to 20% of its total assets in a broad range of other U.S. and non-U.S. fixed income securities, including, but not limited to corporate bonds, loans, mortgage and asset backed securities, preferred stock and sovereign debt, and derivative instruments of the foregoing securities. Under normal circumstances, EFL invests in securities of issuers located in at least four countries.

In general, ESD has broader, more flexible investment policies than EFL. Under normal market conditions, ESD seeks to maximize total return and achieve high current income by primarily investing in a portfolio of debt securities of emerging market issuers. Under normal market conditions, ESD will invest at least 80% of its managed assets in debt securities of emerging market issuers. ESD may invest up to 20% of its managed assets in other types of securities, including, but not limited to, equity securities. ESD has no policy providing that, under normal market conditions, it will invest in securities of issuers located in a certain number of countries.

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The current investment objectives and policies of ESD will continue unchanged if the Merger occurs.

Neither Fund is intended to be a complete investment program, and there is no assurance that either Fund will achieve its objectives.

The preceding summary of the Funds’ investment objectives and certain policies should be considered in conjunction with the discussion below under “Comparison of Investment Objectives, Strategies and Principal Risks of Investing in the Funds—Investment Objectives,” “—Principal Investment Strategies,” “—Fundamental Investment Restrictions” and “—Risk Factors.”

Effect on Expenses

As a result of the Merger, total expenses paid by EFL stockholders are expected to decline from 1.48% (as of February 29, 2008) to approximately 1.04% (excluding interest expense) in the combined Fund, assuming ESD maintains its current amount of leverage. If ESD were to increase the amount of leverage to its maximum of 33%, then the total expenses paid by EFL stockholders would be approximately 1.25% (excluding interest expense) in the combined Fund.

Fee Table and Expense Example

The tables below (1) compare the estimated fees and expenses of each Fund, as of February 29, 2008, and (2) show the estimated fees and expenses of the combined Fund, on a pro forma basis, as if the Merger occurred on February 29, 2008. The estimates are based on the contracts and agreements in effect as of February 29, 2008 and reflect the operating expense accrual rates on that date, which are based on each Fund’s net assets as of February 29, 2008. Accordingly, the actual fees and expenses of each Fund and the combined Fund as of the Closing Date of the Merger may differ from those reflected in the tables below due to changes in net assets from those at February 29, 2008. No amount of any prior fee waiver or expense reimbursement to ESD or EFL may be recovered by any person.

At a meeting held on February 13 and 14, 2008, the Board of ESD approved a change to the investment management fee ESD pays LMPFA that would become effective upon the closing of the Merger. As a result, after the Merger, the combined Fund will pay LMPFA an investment management fee, calculated daily and paid monthly, at an annual rate of 0.85% of the combined Fund’s average daily net assets plus any borrowings for the first $700 million and 0.80% of average daily net assets plus any borrowings for amounts greater than $700 million. As of February 29, 2008, EFL had total assets of $55 million and ESD had total assets of $602 million, including borrowings equal to approximately 5% of its total assets (including the amount borrowed), or approximately $28 million. Thus, additional savings are possible if, after the Merger, ESD’s average daily net assets plus borrowings increase to over $700 million, either as a result of an increase in net assets or an increase in leverage.

Changes in net assets may result from market appreciation or depreciation and other factors occurring between February 29, 2008 and the Closing Date of the Merger. As a general matter, changes (positive or negative) in a Fund’s expense ratio resulting from fluctuations in the Fund’s net assets will be borne by the stockholders of that Fund and the combined Fund. For information concerning the net assets of each Fund as of February 29, 2008, please see “Capitalization.”

The estimated expenses of ESD and EFL as of February 29, 2008 and pro forma expenses following the proposed Merger are set forth below. The percentages in the table below are percentages of the Funds’ net assets attributable to Common Shares.

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Fee Table

	Pre-Reorganization
	EFL (Target Fund)		ESD (Acquiring Fund)		Pro Forma Combined Fund
Management Fee	1.05	%	0.89	%	0.89	%(1)
Other expenses	0.43	%	0.15	%	0.15	%
Interest expense	0.00	%	0.21	%	0.19	%
Total annual fund operating expenses excluding interest expense	1.48	%	1.04	%	1.04	%
Total annual fund operating expenses	1.48	%	1.25	%	1.23	%

⁽¹⁾ The management fee is 0.85% of the combined Fund’s average daily net assets plus any borrowings for the first $700 million and 0.80% of average daily net assets plus any borrowings for amounts greater than $700 million. The table assumes average daily net assets plus borrowings of up to $700 million. If the amount was greater than $700 million, then the total annual fund operating expenses would be lower.

Example

The following example helps you compare the costs of investing in the Funds’ Common Shares with the costs of investing in other funds. The example assumes that you invest $1,000 in Common Shares for the periods shown, that your investment has a 5% return each year, that you reinvest all distributions and dividends and that the Funds’ operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

	1 Year		3 Years		5 Years		10 Years
EFL	$	15	$	47	$	81	$	178
ESD	$	13	$	40	$	69	$	151
Pro Forma Combined Fund(1)	$	13	$	39	$	68	$	149

⁽¹⁾ Assumes average daily net assets plus any borrowings of up to $700 million.

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COMPARISON OF INVESTMENT OBJECTIVES, STRATEGIES AND PRINCIPAL RISKS OF INVESTING IN THE FUNDS

The following chart lists the investment objectives, principal investment policies and fundamental investment restrictions of EFL and ESD and describes the principal differences between the Funds’ respective policies. The chart provides EFL stockholders with a means of comparing the investment objectives, policies and strategies of EFL with those of ESD.

Investment Objectives

EFL (Target Fund)	ESD (Acquiring Fund)	Differences Between Funds
EFL’s investment objective is to maintain a high level of current income by investing primarily in a portfolio of floating-rate debt securities of emerging market sovereign and corporate issuers. As a secondary objective, EFL seeks capital appreciation.	ESD’s primary investment objective is total return. High current income is a secondary investment objective of ESD.	EFL emphasizes current income with a secondary emphasis on capital appreciation, and focuses on floating-rate securities; ESD emphasizes total return with a secondary emphasis on current income.

Principal Investment Strategies

EFL (Target Fund)	ESD (Acquiring Fund)	Differences Between Funds
Under normal conditions, EFL invests at least 80% of its net assets plus any borrowings for investment purposes in floating-rate debt securities of emerging market sovereign and corporate issuers, including fixed-rate securities with respect to which the fund has entered into interest rate swaps to effectively convert the fixed-rate interest payments received into floating-rate interest payments.	Under normal market conditions, ESD seeks to maximize total return and achieve high current income by primarily investing in a portfolio of debt securities of emerging market issuers. Under normal market conditions, ESD invests at least 80% of the sum of its average daily net assets plus the amount of any leverage through borrowing, including loans from certain financial institutions, the use of reverse repurchase agreements and the issuance of debt securities (collectively, “borrowings”) and assets attributable to any shares of preferred stock (“ESD Preferred Shares”) that may be outstanding (“managed assets”) in debt securities of emerging market issuers.	Both Funds require 80% of their assets to be invested in debt securities of emerging market sovereign and corporate issuers; however, EFL’s focus is on floating-rate securities that produce income whereas ESD’s focus is to maximize total return first, with income secondary, and ESD may invest in fixed- and floating-rate securities. ESD is permitted to use interest rate swaps, but may elect not to despite its investment objectives.
EFL may invest up to 20% of its total assets in a broad range of other U.S. and non-U.S. fixed income securities, including, but not limited to corporate bonds, loans, mortgage and asset backed securities, preferred stock and sovereign debt, and derivative instruments of the foregoing securities.	ESD may invest up to 20% of its managed assets in other types of securities, including, but not limited to, equity securities.	ESD may invest a portion of its assets in equity securities; otherwise these policies are effectively identical.
Under normal circumstances, EFL invests in securities of issuers located in at least four countries.	[No corresponding policy]	ESD has no explicit requirement to invest in a minimum number of countries.
EFL may invest up to 50% of its total assets in non-dollar-denominated securities.	ESD may invest in securities denominated in currencies of emerging market countries.	EFL may invest only up to 50% of its assets in non-dollar-denominated securities; ESD has no such limit.

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EFL (Target Fund)	ESD (Acquiring Fund)	Differences Between Funds
There is no minimum rating requirement for the debt securities in which EFL invests. However, EFL anticipates that under normal market conditions no more than 20% of its total assets will be rated, at the time of investment, below “B” by Moody’s Investors Service (“Moody’s”) or Standard & Poor’s Ratings Service (“S&P”), or will be unrated and of comparable quality.	ESD usually attempts to maintain a portfolio with a weighted average credit quality rated B3 or above by Moody’s or B-or above by S&P. There is no minimum rating criteria for ESD’s investments in such securities. ESD may invest substantially all of its total assets in high yield, lower quality securities.	Neither Fund has a minimum rating for portfolio securities; EFL may invest only 20% of its assets in securities rated below B, whereas ESD attempts to maintain an average credit quality of at least B3/B-.
EFL is not required to dispose of a debt security if its credit rating or credit quality declines.	ESD is not required to dispose of a debt security if its credit rating or credit quality improves or declines after purchase.	These policies are effectively identical.
EFL’s Manager is free to invest in debt securities of any maturity.	[No corresponding policy]	These policies are effectively identical; ESD has no explicit guidelines on the maturity of the securities in which is may invest.
Under market conditions prevailing at the time of EFL’s prospectus in 1994, EFL’s portfolio was expected to have an interest rate sensitivity (i.e., “duration”) of approximately one year or less.	ESD’s average portfolio duration will normally be within one to nine years based on the forecast of ESD’s Manager for interest rates.	ESD has a stated duration range of one to nine years. EFL had a stated duration of one year or less at the time of its initial offering in 1994, but has no limit on duration.
EFL’s investment in emerging market sovereign debt securities will consist of floating- or fixed-rate (i) debt securities or obligations issued or guaranteed by governments, governmental agencies or instrumentalities and political subdivisions located in emerging market countries (including participations in loans between governments and financial institutions), (ii) debt securities or obligations issued by government owned, controlled or sponsored entities located in emerging market countries, and (iii) interests in issuers organized and operated for the purpose of restructuring the investment characteristics of instruments issued by any of the entities described above. EFL’s emerging market corporate debt securities may include debt securities or obligations issued by (i) banks located in emerging market countries or by branches of emerging market country banks located outside the country or (ii) companies organized under the laws of an emerging market country.	ESD’s investments in debt securities of emerging market issuers will include dollar and non-dollar-denominated: (a) debt obligations issued or guaranteed by foreign national, provincial, state, municipal or other governments with taxing authority or by their agencies or instrumentalities, including Brady bonds; (b) debt obligations of supranational entities; (c) debt obligations and other fixed-income securities of foreign corporate issuers; (d) debt obligations of U.S. corporate issuers; (e) debt securities issued by corporations that generate significant profits from emerging market countries; and (f) structured securities, including but not limited to, warrants, options and other derivatives, whose price is directly linked to emerging market securities or indices. ESD may invest in floating- and variable-rate obligations. ESD may invest in all types of debt securities of governmental issuers in all countries, including emerging markets countries. These sovereign debt securities may include fixed income securities issued or guaranteed by governments, governmental agencies or instrumentalities and political subdivisions located in	Together with the Funds’ other policies discussed in this section, the key difference is the requirement of EFL to invest 80% of its assets in floating-rate or synthetic floating-rate securities. Also, ESD allows for investment in a broader range of emerging market debt securities. All securities in which EFL may invest are also permissible under ESD’s investment policies.

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EFL (Target Fund)	ESD (Acquiring Fund)	Differences Between Funds
	emerging market countries; fixed income securities issued by government owned, controlled or sponsored entities located in emerging market countries; interests in entities organized and operated for the purpose of restructuring the investment characteristics of instruments issued by any of the above issuers; Brady bonds, which are debt securities issued under the framework of the Brady Plan as a means for debtor nations to restructure their outstanding external indebtedness; participations in loans between emerging market governments and financial institutions; or fixed income securities issued by supranational entities such as the International Bank for Reconstruction and Development (the “World Bank”) or the European Economic Community.
[No corresponding policy]	ESD may invest up to 20% of its managed assets in all types of equity securities. Equity securities include common stocks traded on an exchange or in the over the counter market, preferred stocks, warrants, rights, convertible securities, depositary receipts, trust certificates, limited partnership interests, shares of other investment companies and REITs. Except as otherwise indicated, convertible securities are not subject to any minimum credit quality requirements.	Unlike EFL, ESD has a policy explicitly allowing it to invest a portion of its assets in equity securities. However, EFL has policies allowing for the conversion of convertible securities and for investments in warrants and certain investment companies.
In connection with the purchase of fixed-rate emerging market sovereign or corporate debt securities or fixed-rate U.S. corporate debt securities, EFL may enter into interest rate swap agreements to effectively convert the fixed-rate interest payments it received with respect to such fixed-rate debt securities it holds into floating-rate interest payments, thereby creating synthetic floating-rate instruments.	[No corresponding policy]	ESD’s investment policies allow for the creation of such synthetic floating-rate securities but, unlike EFL’s policies, do not require a certain percentage of assets to be invested in floating-rate or synthetic floating-rate securities.
EFL may invest in floating- and fixed-rate loans arranged through private negotiations between an emerging market sovereign entity and one or more financial institutions. EFL may invest in such loans in the form of participations in loans and assignments of all or a portion of loans from third parties. EFL considers these investments to be investments in emerging market sovereign debt securities for purposes of the prospectus, and based upon the current position of the staff of the SEC, EFL will treat investments in participations and assignments as illiquid for purposes of its limitation on investments in illiquid securities.	ESD may invest in fixed- and floating-rate loans issued by banks and other corporations, which investments generally will be in the form of loan participations and assignments of portions of such loans.	Both Funds may invest in loans, but EFL contemplates investing in loans involving foreign sovereigns.

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EFL (Target Fund)	ESD (Acquiring Fund)	Differences Between Funds
EFL may invest up to 15% of its total assets in zero coupon securities and pay-in-kind bonds, and a substantial portion of EFL’s sovereign debt securities may be acquired at a discount.	ESD may invest in zero-coupon bonds, step-ups and payment-in-kind securities.	EFL is subject to a 15% limit on zero-coupon securities and pay-in-kind securities; ESD has no such limits.
Included among the issuers of emerging market debt securities in which EFL may invest are entities organized and operated solely for the purpose of restructuring the investment characteristics of various securities. This type of restructuring involves the deposit with or purchase by an entity, such as a corporation or trust, of specified instruments and the issuance by that entity of one or more classes of securities backed by, or representing interest in, the underlying instruments. EFL is permitted to invest in a class of structured investments that is either subordinated or unsubordinated to the right of payment of another class.	ESD may invest in “structured” notes and other related instruments, which are privately negotiated debt obligations where the principal and/or interest is determined by reference to the performance of a benchmark asset, market or interest rate (an “embedded index”), such as selected securities, an index of securities or specified interest rates, or the differential performance of two assets or markets, such as indices reflecting bonds. Structured instruments may be issued by corporations, including banks, as well as by governmental agencies.	These policies are effectively identical.
EFL may invest in convertible securities for temporary purposes.	ESD may invest in convertible securities.	EFL may invest in convertible securities only for temporary purposes; ESD has no such restriction.
EFL may invest in warrants for equity securities that are acquired as units with debt instruments and warrants for debt securities.	ESD may invest in warrants.	No difference.
At times, EFL intends to utilize leverage by borrowing or by issuing shares of preferred stock or short-term debt securities. EFL intends to leverage in an amount up to 33 1/3% of its total assets including the amount obtained from leverage.	Under current market conditions, ESD intends to borrow or utilize leverage principally through borrowing from certain financial institutions and entering into reverse repurchase agreements in an aggregate amount of up to approximately 33% of its total assets (including the amount borrowed). In addition, ESD may engage in additional reverse repurchase agreements and similar investment management techniques which provide leverage, but which are not subject to the asset coverage requirement and 33% limitation described above by establishing a segregated account as described above.	These policies are effectively identical.
EFL may enter into reverse repurchase agreements with any member of the Federal Reserve System and any broker-dealer or any foreign bank that has been determined by EFL’s Manager to be creditworthy.	ESD may use reverse repurchase agreements as part of its investment strategy.	There are no significant differences between these policies; EFL has an explicit limit on the counterparties to eligible reverse repurchase agreements. The Manager monitors the creditworthiness of the counterparties for EFL and ESD.

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EFL (Target Fund)	ESD (Acquiring Fund)	Differences Between Funds
EFL may, in addition to engaging in the transactions described above, borrow money for temporary or emergency purposes in an amount not exceeding 5% of the value of the fund’s total assets (including the amount borrowed).	[No corresponding policy]	EFL has no such policy, but the Funds are effectively identical in this regard as EFL’s policy recites a provision of the 1940 Act, which is equally applicable to ESD.
EFL may from time to time engage in certain strategies generally for hedging or other risk management purposes or in furtherance of the fund’s investment objectives and policies. EFL may use these strategies to attempt to protect against possible changes in the market value of EFL’s portfolio resulting from fluctuations in the securities markets and changes in interest rates, to protect the fund’s unrealized gains in the value of its portfolio securities, to facilitate the sale of such securities for investment purposes, to establish a position in the securities markets as a temporary substitute for purchasing particular securities, to seek to enhance income or gain or to attempt to achieve the economic equivalent of floating-rate interest payments with respect to fixed-rate interest payments on fixed-rate debt securities it holds. As part of its strategies, EFL may purchase and sell futures contracts, it may purchase and sell exchange-listed and over-the-counter put and call options on securities, financial indices and futures contracts, it may enter into the interest rate swap transactions discussed above, purchase interest rate caps, floors and collars and sell interest rate caps, floors and collars that it has purchased, and it may enter into other similar transactions which may be developed in the future to the extent the Manager determines that they are consistent with EFL’s investment objectives and policies and applicable regulatory requirements.	ESD may use various investment strategies described below to hedge market risks (such as broad or specific market movements, interest rates and currency exchange rates), to manage the effective maturity or duration of debt instruments held by ESD, or to seek to increase the fund’s income or gain. ESD may enter into credit default swap contracts for hedging purposes or to add leverage to the portfolio. ESD may engage in currency transactions with counterparties to hedge the value of portfolio securities denominated in particular currencies against fluctuations in relative value or to generate income or gain. Currency transactions include currency forward contracts, exchange-listed currency futures contracts and options thereon, exchange-listed and OTC options on currencies and currency swaps. ESD may use a variety of derivative instruments as part of its investment strategies or for hedging or risk management purposes. Examples of derivative instruments that the fund may use include options contracts, futures contracts, options on futures contracts, credit default swaps and swap agreements. As part of its strategies, ESD may purchase and sell futures contracts, purchase and sell (or write) exchange-listed and over-the-counter put and call options on securities, financial indices and futures contracts, enter into various interest rate and currency transactions and enter into other similar transactions which may be developed in the future to the extent the Manager determines that they are consistent with the fund’s investment objectives and policies and applicable regulatory requirements. ESD may use any or all of these techniques at any time, and the use of any particular derivative transaction will depend on market conditions.	There are effectively no significant differences between these policies; both Funds may invest in a broad range of derivative instruments for hedging as well as in pursuit of their investment objectives.

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EFL (Target Fund)	ESD (Acquiring Fund)	Differences Between Funds
EFL may enter into repurchase agreements for cash management purposes.	ESD may enter into repurchase agreements for cash management purposes.	No difference.
EFL may purchase securities on a when-issued or delayed-delivery basis.	ESD may purchase securities on a firm commitment basis, including when-issued securities. The fund may also invest in delayed-delivery securities.	These policies are effectively identical.
EFL may lend portfolio securities. EFL does not currently intend to make loans of portfolio securities with a value in excess of 5% of the value of its total assets.	ESD may lend portfolio securities to brokers or dealers or other financial institutions.	EFL to date has not loaned securities up to 5% of its total assets; ESD has no such formal limit but may not lend securities in excess of approximately 33% of its assets under applicable rules and regulations. While both Funds may lend portfolio securities, neither Fund currently does nor has any intention to do so.
EFL may invest without limitation in illiquid securities. EFL may purchase certain restricted securities eligible for sale to qualified institutional buyers as contemplated by Rule 144A under the Securities Act.	ESD may invest up to 15% of its managed assets in illiquid securities, which are securities that cannot be sold within seven days at a price which the fund would determine to be fair value. ESD may purchase Rule 144A securities for which there is a secondary market of qualified institutional buyers, as defined in Rule 144A promulgated under the Securities Act. ESD may purchase securities for which there is a limited trading market or which are subject to restrictions on resale to the public.	ESD is subject to a 15% limit on investments in illiquid securities; EFL has no such limit.
EFL may invest in investment funds, other than those for which the Manager serves as investment adviser or sponsor, which invest principally in securities in which EFL is authorized to invest.	ESD may invest in REITs and other investment companies, subject to 1940 Act limitations.	ESD is explicitly able to invest in REITs; otherwise, these policies are effectively identical.
EFL may invest in dollar rolls, asset-backed securities and mortgaged-backed securities.	EFL may invest in dollar rolls, asset-backed securities and mortgage-backed securities.	No difference.
There may be times when, in the judgment of the Manager, conditions in the securities markets would make pursuing EFL’s basic investment strategy inconsistent with the best interests of EFL’s stockholders. While and for so long as such conditions prevail in the securities markets, the Manager may employ alternative strategies, including investment of up to 100% of EFL’s assets in securities rated higher than “Ba” by Moody’s or “BB” by S&P, or in unrated securities of comparable quality.	Upon the Manager’s recommendation, for temporary defensive purposes, ESD may deviate from its investment objectives and policies and invest some or all of its managed assets in investments of non-corporate issuers, including high-quality, short-term debt securities. ESD may not achieve its investment objectives when it does so. In anticipation of or in response to adverse market conditions, for cash management purposes, or for defensive purposes, ESD may invest up to 100% of its managed assets in cash equivalents and short-term fixed-income securities.	These policies are effectively identical.

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EFL (Target Fund)	ESD (Acquiring Fund)	Differences Between Funds
EFL recently removed its restrictions on portfolio turnover.	ESD may engage in active and frequent trading to achieve its principal investment strategies. This may lead to the realization and distribution to stockholders of higher capital gains, which would increase their tax liability. Frequent trading also increases transaction costs, which could detract from ESD’s performance.	There is effectively no difference between the Funds in this regard.

Fundamental Investment Restrictions

The following restrictions, along with the Funds’ investment objectives, are each Fund’s only fundamental policies—that is, policies that cannot be changed without the approval of the holders of a “1940 Act Majority” of the Fund’s outstanding voting securities. As used in this Proxy Statement/Prospectus, a “1940 Act Majority” means the lesser of (i) 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are represented or (ii) more than 50% of the outstanding shares.

With respect to each Fund, the other policies and investment restrictions referred to in this Proxy Statement/Prospectus are not fundamental polices of the Fund and may be changed by the Fund’s Board without stockholder approval. If a percentage restriction set forth below is adhered to at the time a transaction is effected, later changes in percentage resulting from any cause other than actions by the Fund will not be considered a violation.

EFL (Target Fund)	ESD (Acquiring Fund)	Differences Between Funds
EFL may not purchase any securities which would cause more than 25% of the value of its total assets at the time of such purchase to be invested in securities of one or more issuers conducting their principal business activities in the same industry, provided that there is no limitation with respect to investment in obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities or repurchase agreements collateralized by any of such obligations.	ESD may not concentrate its investments in a particular industry or group of industries, as that term is used in the 1940 Act, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time.	These restrictions are effectively identical as EFL’s restriction basically recites the understanding of concentration under the 1940 Act.
EFL may not issue senior securities or borrow money, except for (a) preferred stock and other senior securities (including borrowing money, including on margin if margin securities are owned, entering into reverse repurchase agreements and entering into similar transactions) not in excess of 33 1/3% of its total assets, and (b) borrowings up to 5% of its total assets (including for clearance of transactions, repurchase of its shares or payment of dividends), without regard to the amount of senior securities outstanding under clause (a) above; provided, however, that the Fund’s obligations under when-issued and delayed delivery transactions and similar transactions and reverse repurchase agreements are not treated as senior securities if covering assets are appropriately segregated, and the use of hedging transactions shall not be deemed to involve	ESD may not borrow money or issue any senior security, except to the extent permitted under the 1940 Act and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time.	These restrictions are effectively identical as EFL’s restriction basically recites the 1940 Act exceptions to the general restriction on borrowing.

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EFL (Target Fund)	ESD (Acquiring Fund)	Differences Between Funds
the issuance of a “senior security” or a “borrowing”; for purposes of clauses (a) and (b) above, the term “total assets” shall be calculated after giving effect to the net proceeds of senior securities issued by EFL reduced by any liabilities and indebtedness not constituting senior securities except for such liabilities and indebtedness as are excluded from treatment as senior securities by this investment restriction. EFL’s obligations under interest rate swaps are not treated as senior securities.
EFL may not purchase or sell commodities or commodity contracts, including futures contracts and options thereon, except that the fund may engage in hedging transactions.	ESD may not purchase or sell commodities, commodities contracts or oil, gas or mineral programs. This restriction shall not prohibit the Fund, subject to restrictions described in the prospectus and elsewhere in the statement of additional information, from purchasing, selling or entering into futures contracts, options on futures contracts, forward contracts, or any interest rate, securities-related or other hedging instrument, including swap agreements and other derivative instruments, subject to compliance with any applicable provisions of the federal securities or commodities laws.	These restrictions are effectively identical.
EFL may not make loans, except that EFL may (a) purchase and hold debt instruments (including commercial paper notes, bonds, debentures or other secured or unsecured obligations and certificates of deposit, bankers’ acceptances and fixed time deposits) in accordance with its investment objectives and policies; (b) invest in or purchase loans through participations and assignments; (c) enter into repurchase agreements with respect to portfolio securities; and (d) make loans of portfolio securities.	ESD may not make loans, except to the extent permitted under the 1940 Act and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time.	These restrictions are effectively identical.
EFL may not underwrite the securities of other issuers, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter.	ESD may not act as an underwriter of securities of other issuers, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under the federal securities laws.	No difference.
EFL may not purchase real estate, real estate mortgage loans or real estate limited partnership interests (other than securities secured by real estate or interests therein or securities issued by companies that invest in real estate or interests therein).	ESD may not purchase or sell real estate, although it may purchase securities secured by real estate or interests therein, or securities issued by companies which invest in real estate, or interests therein.	These restrictions are effectively identical.

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EFL (Target Fund)	ESD (Acquiring Fund)	Differences Between Funds
EFL may not purchase shares of other investment companies in an amount exceeding the limits set forth in the 1940 Act and the rules thereunder.	[No corresponding restriction]	These Funds are effectively identical in this regard as ESD, as a registered investment company, is subject to the 1940 Act’s restrictions.
EFL may not make short sales of securities or purchase securities on margin (except for delayed delivery or when-issued transactions, such short-term credits as are necessary for the clearance of transactions, and margin deposits in connection with transactions in futures contracts, options on futures contracts and options on securities and securities indices).	An additional investment restriction adopted by ESD, which is deemed non-fundamental and which may be changed by the Board of Directors without stockholder approval, provides that ESD may not make short sales of securities or purchase securities on margin (except for delayed delivery or when-issued transactions, such short-term credits as are necessary for the clearance of transactions and margin deposits in connection with transactions in futures contracts, options on futures contracts and options on securities and securities indices).	These restrictions are effectively identical except that ESD’s restriction is non-fundamental.
EFL may not invest for the purpose of exercising control over management of any company.	[No corresponding restriction]	ESD has no such restriction.
EFL may not invest directly in interests in oil, gas or other mineral exploration development programs or mineral leases.	[No corresponding restriction]	ESD has no such restriction.

Risk Factors

There is no assurance that ESD or EFL will meet its investment objectives. You may lose money on your investment in either Fund. The value of each Fund’s shares may go up or down, sometimes rapidly and unpredictably. Market conditions, financial conditions of issuers represented in each Fund’s portfolio, investment strategies, portfolio management, and other factors affect the volatility of each Fund’s shares. An investment in a Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.

The following section includes a summary of the principal risks of investing in ESD. Except as described below, your investment in EFL is subject to the same risks.

Investment Risk

An investment in ESD is subject to investment risk, including the possible loss of the entire principal amount that you invest. Your investment in ESD represents an indirect investment in the securities owned by ESD. The value of these securities may increase or decrease, at times rapidly and unexpectedly. Your investment in ESD may at any point in the future be worth less than your original investment even after taking into account the reinvestment of dividends and distributions.

Foreign (Non-U.S.) Investment Risk

Investing in foreign issuers, including emerging market issuers, may involve unique risks compared to investing in the securities of U.S. issuers. Some of these risks do not apply to issuers located in larger, more developed countries. These risks are more pronounced if ESD invests significantly in one country. Less information about non-U.S. issuers or markets may be available due to less rigorous disclosure and accounting standards or regulatory practices. Many non-U.S. markets are smaller, less liquid and more volatile than U.S. markets. In a changing market, the Manager may not be able to sell ESD’s

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portfolio securities in amounts and at prices the Manager considers reasonable. Economic, political and social developments may significantly disrupt the financial markets or interfere with ESD’s ability to enforce its rights against foreign government issuers. The value of securities denominated in foreign currencies may fluctuate based on changes in the value of those currencies relative to the U.S. dollar, and a decline in applicable foreign exchange rates could reduce the value of such securities held by ESD. Foreign settlement procedures also may involve additional risks. Foreign investment risk may be particularly high as ESD will invest in securities of emerging market issuers.

The ability of a foreign sovereign issuer, especially an emerging market country, to make timely and ultimate payments on its debt obligations will also be strongly influenced by the sovereign issuer’s balance of payments, including export performance, its access to international credits and investments, fluctuations of interest rates and the extent of its foreign reserves. A country whose exports are concentrated in a few commodities or whose economy depends on certain strategic imports could be vulnerable to fluctuations in international prices of these commodities or imports. To the extent that a country receives payment for its exports in currencies other than dollars, its ability to make debt payments denominated in dollars could be adversely affected. If a sovereign issuer cannot generate sufficient earnings from foreign trade to service its external debt, it may need to depend on continuing loans and aid from foreign governments, commercial banks and multinational organizations.

Additional factors that may influence the ability or willingness to service debt include, but are not limited to, a country’s cash flow situation, the availability of sufficient foreign exchange on the date a payment is due, the relative size of its debt service burden to the economy as a whole, and its government’s policy towards the International Monetary Fund (the “IMF”), the World Bank and other international agencies to which a government debtor may be subject. A substantial portion of ESD’s portfolio is comprised of securities issued by issuers located in countries considered to be emerging markets, and such foreign sovereign and foreign corporate debt investments are particularly speculative, as discussed below in “—Emerging Markets Risk,” “—Economic and Political Risks” and “—Investment Controls; Repatriation.” The cost of servicing external debt will also generally be adversely affected by rising international interest rates because many external debt obligations bear interest at rates which are adjusted based upon international interest rates.

Heightened risks of investing in emerging market sovereign debt include:

• Risk of default by a governmental issuer or guarantor. In the event of a default, ESD may have limited legal recourse against the issuer and/or guarantor; and

• Risk of restructuring certain debt obligations (such as Brady bonds). This may include reducing and rescheduling interest and principal payments or requiring lenders to extend additional credit, which may adversely affect the value of these investments.

There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing, and financial reporting standards and requirements comparable to or as uniform as those of U.S. companies. In addition, if a deterioration occurs in the country’s balance of payments, it could impose temporary restrictions on foreign capital remittances. Investing in local markets in foreign countries may require ESD to adopt special procedures, seek local governmental approvals or take other actions, each of which may involve additional costs to ESD. Moreover, brokerage commissions and other transaction costs on foreign securities exchanges are generally higher than in the United States.

Emerging Markets Risk

Under normal circumstances, ESD will invest at least 80% of its managed assets in debt securities of emerging market issuers. Investing in securities of emerging market issuers entails all of the risks of investing in securities of foreign issuers to a heightened degree. The heightened risks include: (i) greater risks of expropriation, confiscatory taxation, nationalization, and less social, political and economic stability; (ii) the smaller size of the market for such securities and a lower volume of trading, resulting in lack of liquidity and in price volatility; and (iii) certain national policies which may restrict ESD’s investment opportunities, including restrictions on investing in issuers or industries deemed sensitive to relevant national interests.

Economic and Political Risks

The economies of individual emerging market countries may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, currency depreciation, capital reinvestment, resource

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self-sufficiency and balance of payments position. Further, the economies of developing countries generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been and may continue to be adversely affected by economic conditions in the countries with which they trade.

With respect to any emerging market country, there is the possibility of nationalization, expropriation or confiscatory taxation, political changes, governmental regulation, social instability or diplomatic developments (including war) which could affect adversely the economies of such countries or the value of ESD’s investments in those countries.

Investment Controls; Repatriation

Foreign investment in certain emerging market issuers is restricted or controlled to varying degrees. These restrictions or controls may at times limit or preclude foreign investment in certain emerging market issuers and increase the costs and expenses of ESD. Certain emerging market countries require governmental approval prior to investments by foreign persons in a particular issuer, limit the amount of investment by foreign persons in a particular issuer, limit the investment by foreign persons only to a specific class of securities of an issuer that may have less advantageous rights than the classes available for purchase by domiciliaries of the countries and/or impose additional taxes on foreign investors. Certain emerging market countries may also restrict investment opportunities in issuers in industries deemed important to national interests.

Emerging market countries may require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if a deterioration occurs in an emerging market country’s balance of payments, the country could impose temporary restrictions on foreign capital remittances. ESD could be adversely affected by delays in, or a refusal to grant, any restrictions on investments. Investing in local markets in emerging market countries may require ESD to adopt special procedures, seek local government approvals or take other actions, each of which may involve additional costs to ESD.

Market Illiquidity

No established secondary markets may exist for many of the emerging market issuer securities in which ESD will invest. Reduced secondary market liquidity may have an adverse effect on market price and ESD’s ability to dispose of particular instruments when necessary to meet its liquidity requirements or in response to specific economic events such as a deterioration in the creditworthiness of the issuer. Reduced secondary market liquidity for certain emerging market issuer securities may also make it more difficult for ESD to obtain accurate market quotations for purposes of valuing its portfolio and calculating its net asset value. Market quotations are generally available on many emerging market issuer securities only from a limited number of dealers and may not necessarily represent firm bids of those dealers or prices for actual sales.

Currency Devaluations and Fluctuations

ESD may invest in both dollar-denominated and non-dollar-denominated investments. ESD may be limited in its ability to hedge the value of its investments against currency fluctuations. For instance, a decline in the value of currencies in which ESD’s investments are denominated against the dollar will result in a corresponding decline in the dollar value of ESD’s assets. These declines will in turn affect ESD’s income and net asset value. ESD will compute its income on the date of its receipt by ESD at the exchange rate in effect with respect to the relevant currency on that date. If the value of the currency declines relative to the dollar between the date income is accrued and the date ESD makes a distribution, the amount available for distribution to ESD’s stockholders would be reduced. If the exchange rate against the dollar of a currency in which a portfolio security of ESD is denominated declines between the time ESD accrues expenses in dollars and the time expenses are paid, the amount of the currency required to be converted into dollars in order to pay expenses in dollars will be greater than the equivalent amount in the currency of the expenses at the time they are incurred. A decline in the value of non-U.S. currencies relative to the dollar may also result in foreign currency losses that will reduce distributable net investment income. Inversely, if the dollar declines relative to other foreign currencies, investments in non-dollar-denominated currencies will be benefited.

Interest Rate Risk

Interest rates may go up, causing the prices of debt securities to decline and reducing the value of ESD’s securities investments. During periods of declining interest rates, the issuer of a security may exercise its option to prepay principal

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earlier than scheduled, forcing ESD to reinvest in lower yielding securities. This is known as call or prepayment risk. During periods of rising interest rates, the average life of certain types of securities is extended because of slower than expected principal payments. This may lock in a below market interest rate, increase the security’s duration and reduce the value of the security. This is known as extension risk. The Manager’s judgment about the attractiveness, relative value or potential appreciation of a particular security or about interest rate trends may prove to be incorrect.

ESD, unlike EFL, is not required to invest at least 80% of its assets in floating-rate securities. Because of EFL’s requirement to invest primarily in floating-rate securities, interest rate risk affects EFL somewhat differently from how that risk affects ESD. Although EFL’s investments in floating-rate debt securities should permit EFL to achieve higher yields during periods of rising interest rates, such investments will also prevent EFL from locking in higher yields during a falling interest rate environment.

Rated and Unrated Securities

At any one time, substantially all of ESD’s managed assets may be invested in instruments that are low rated or unrated. Debt securities of emerging market issuers of the type in which ESD will invest at least 80% of its managed assets are generally considered to have a credit quality rated below investment grade by internationally recognized credit rating organizations such as Moody’s and S&P. Non-investment grade securities (that is, rated Ba1 or lower by Moody’s or BB+ or lower by S&P) are commonly referred to as “junk bonds” and are regarded as predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal in accordance with the terms of the obligations and involve major risk exposure to adverse conditions. Some of the emerging market issuer securities held by ESD, which may not be paying interest currently or may be in payment default, may be comparable to securities rated as low as C by Moody’s or CCC or lower by S&P. These securities are considered to have extremely poor prospects of ever attaining any real investment standing, to have a current identifiable vulnerability to default, to be unlikely to have the capacity to pay interest and repay principal when due in the event of adverse business, financial or economic conditions and/or to be in default or not current in the payment of interest or principal.

Low rated and unrated debt instruments generally offer a higher current yield than that available from higher grade issues, but typically involve greater risk. Low rated and unrated securities are especially subject to adverse changes in general economic conditions, to changes in the financial condition of their issuers and to price fluctuation in response to changes in interest rates. During periods of economic downturn or rising interest rates, issuers of low rated and unrated instruments may experience financial stress that could adversely affect their ability to make payments of principal and interest and increase the possibility of default. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may also decrease the values and liquidity of low rated and unrated securities especially in a market characterized by a low volume of trading.

Below Investment Grade Securities (High-Yield) Risk

High yield securities, commonly referred to as “junk bonds,” are considered speculative and, compared to investment grade securities, tend to have more volatile prices and increased price sensitivity to changing interest rates and to adverse economic and business developments, a greater risk of loss due to default or declining credit quality, a greater likelihood that adverse economic or company specific events will make the issuer unable to make interest and/or principal payments, a greater susceptibility to negative market sentiments leading to depressed prices and decreased liquidity.

The market values of medium and lower-rated securities tend to be more sensitive to company-specific developments and changes in economic conditions than higher-rated securities. The companies that issue these securities often are highly leveraged, and their ability to service their debt obligations during an economic downturn or periods of rising interest rates may be impaired. In addition, these companies may not have access to more traditional methods of financing, and may be unable to repay debt at maturity by refinancing. The risk of loss due to default in payment of interest or principal by these issuers is significantly greater than with higher rated securities because medium and lower rated securities generally are unsecured and subordinated to senior debt.

Default, or the market’s perception that an issuer is likely to default, could reduce the value and liquidity of securities held by the Fund, thereby reducing the value of your investment in ESD Common Shares. In addition, default may cause ESD to incur expenses in seeking recovery of principal or interest on its portfolio holdings.

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Credit Risk and Counterparty Risk

ESD could lose money if the issuer of a debt obligation, or the counterparty to a derivatives contract, repurchase agreement, loan of portfolio securities or other obligation, is, or is perceived to be, unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The downgrade of a security may further decrease its value.

ESD will be subject to credit risk with respect to the counterparties to the derivative contracts purchased by the Fund. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, ESD may experience significant delays in obtaining any recovery under the derivative contract in a bankruptcy or other reorganization proceeding. ESD may obtain only a limited recovery or may obtain no recovery in such circumstances.

Derivatives Risk

ESD may utilize a variety of derivative instruments for investment or risk management purposes, such as options, futures contracts, swap agreements and credit default swaps. Derivatives are subject to a number of risks described elsewhere in this Proxy Statement/Prospectus, such as liquidity risk, interest rate risk, credit risk, leverage risk and management risk. They also involve the risk of mispricing or improper valuation, and the risk that changes in the value of a derivative may not correlate perfectly with an underlying asset, interest rate or index. Suitable derivative transactions may not be available in all circumstances and there can be no assurance that the Fund will engage in these transactions to reduce exposure to other risks when that would be beneficial. If ESD invests in a derivative instrument, it could lose more than the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances and there can be no assurance that ESD will engage in these transactions to reduce exposure to other risks when that would be beneficial. The use of derivatives also may increase the amount of taxes payable by stockholders. In addition to the risks applicable to derivatives generally, credit default swaps involve special risks because they are difficult to value, are highly susceptible to liquidity and credit risk, and generally pay a return to the party that has paid the premium only in the event of an actual default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty).

Smaller Company Risk

The general risks associated with income-producing securities are particularly pronounced for securities issued by companies with smaller market capitalizations. These companies may have limited product lines, markets or financial resources or they may depend on a few key employees. As a result, they may be subject to greater levels of credit, market and issuer risk. Securities of smaller companies may trade less frequently and in lesser volume than more widely held securities and their values may fluctuate more sharply than other securities. Companies with medium-sized market capitalizations may have risks similar to those of smaller companies.

Reinvestment Risk

Reinvestment risk is the risk that income from ESD’s portfolio will decline if and when ESD invests the proceeds from matured, traded or called debt obligations at market interest rates that are below the portfolio’s current earnings rate. A decline in income could affect the price of ESD Common Shares or ESD’s overall return.

Liquidity Risk

ESD may invest up to 15% of its managed assets in illiquid securities. The term illiquid securities for this purpose means securities that cannot be disposed of within seven days at a price which ESD would determine to be fair value. Illiquid securities may be subject to wide fluctuations in market value. ESD may be subject to significant delays in disposing of illiquid securities. Accordingly, ESD may be forced to sell these securities at less than fair market value or may not be able to sell them when the Manager believes it is desirable to do so. Illiquid securities also may entail registration expenses and other transaction costs that are higher than those for liquid securities. Restricted securities, i.e., securities subject to legal or contractual restrictions on resale, may be illiquid. However, some restricted securities (such as securities issued pursuant to Rule 144A under the Securities Act of 1933 and certain commercial paper) may be treated as liquid for these purposes.

Unlike ESD, EFL has no investment policy limiting its investments in illiquid securities. To the extent that EFL invests more than 15% of its assets in illiquid securities, EFL may be subject to this risk to a greater extent than ESD.

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Management Risk

ESD is subject to management risk because it is an actively managed investment portfolio. The Manager and each individual portfolio manager will apply investment techniques and risk analyses in making investment decisions for ESD, but there can be no guarantee that these will produce the desired results.

Leverage Risk

ESD is authorized to use leverage (including loans from financial institutions, the use of reverse repurchase agreements and possibly through the issuance of preferred shares or debt securities) in amounts of up to approximately 33% of its total assets immediately after such borrowing and/or issuance, and under current market conditions intends to use leverage up to such amount. Leverage may result in greater volatility of the net asset value and market price of ESD Common Shares because changes in the value of ESD’s portfolio investments, including investments purchased with the proceeds from borrowings or the issuance of ESD Preferred Shares, are borne entirely by holders of ESD Common Shares. Common Share income may fall if the interest rate on borrowings or the dividend rate on ESD Preferred Shares rises, and may fluctuate as the interest rate on borrowings or the dividend rate on ESD Preferred Shares varies. So long as ESD is able to realize a higher net return on its investment portfolio than the then-current cost of any leverage together with other related expenses, the effect of the leverage will be to cause holders of ESD Common Shares to realize higher current net investment income than if ESD were not so leveraged. On the other hand, ESD’s use of leverage will result in increased operating costs. Thus, to the extent that the then-current cost of any leverage, together with other related expenses, approaches the net return on ESD’s investment portfolio, the benefit of leverage to holders of ESD Common Shares will be reduced, and if the then-current cost of any leverage together with related expenses were to exceed the net return on ESD’s portfolio, ESD’s leveraged capital structure would result in a lower rate of return to holders of ESD Common Shares than if ESD were not so leveraged. There can be no assurance that ESD’s leveraging strategy will be successful.

The current upheaval of credit markets has negatively impacted the market for auction-rate securities, such as preferred shares of the type often issued by closed-end funds as part of their leveraging strategies. Auction-rate securities have experienced a significant reduction in liquidity, lack of investor interest and failed auctions, all of which have caused the rates paid by issuers of such securities to increase.

During periods when ESD is using leverage, the fees paid to the Manager for advisory services will be higher than if ESD did not use leverage because the fees paid will be calculated on the basis of ESD’s managed assets, which includes the amount of borrowings and assets attributable to ESD Preferred Shares.

Any decline in the net asset value of ESD will be borne entirely by holders of ESD Common Shares. Therefore, if the market value of ESD’s portfolio declines, ESD’s use of leverage will result in a greater decrease in net asset value to holders of ESD Common Shares than if ESD were not leveraged. Such greater net asset value decrease will also tend to cause a greater decline in the market price for ESD Common Shares.

Certain types of borrowings may result in ESD being subject to covenants in credit agreements relating to asset coverage or portfolio composition or otherwise. In addition, ESD may be subject to certain restrictions imposed by guidelines of one or more rating agencies which may issue ratings for commercial paper or notes issued by ESD. Such restrictions may be more stringent than those imposed by the 1940 Act. See “Use of Leverage.”

As noted above, ESD may engage in additional investment management techniques which provide leverage in much the same manner as borrowings or reverse repurchase agreements, but which are not considered to be borrowings or senior securities by the SEC, and are not subject to the foregoing 33% limitation, so long as ESD has established in a segregated account cash or other liquid securities equal to ESD’s obligations in respect of such techniques.

At present, neither EFL nor ESD has any preferred shares outstanding and does not currently plan to offer any preferred shares.

Interest Rate Transactions Risk

ESD may enter into a swap or cap transaction to attempt to protect itself from increasing interest expenses on borrowings resulting from increasing short-term interest rates or dividend expenses on any preferred shares. A decline in

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interest rates may result in a decline in net amounts receivable by the Fund from the counterparty under the swap or cap (or an increase in the net amounts payable by ESD to the counterparty under the swap), which may result in a decline in the net asset value of ESD.

Risks of Futures and Options on Futures

The use by ESD of futures contracts and options on futures contracts to hedge interest rate risks involves special considerations and risks, as described below.

• Successful use of hedging transactions depends upon the Manager’s ability to correctly predict the direction of changes in interest rates. There can be no assurance that any particular hedging strategy will succeed.

• There might be imperfect correlation, or even no correlation, between the price movements of a futures or option contract and the movements of the interest rates being hedged. Such a lack of correlation might occur due to factors unrelated to the interest rates being hedged, such as market liquidity and speculative or other pressures on the markets in which the hedging instrument is traded.

• Hedging strategies, if successful, can reduce risk of loss by wholly or partially offsetting the negative effect of unfavorable movements in the interest rates being hedged. However, hedging strategies can also reduce opportunity for gain by offsetting the positive effect of favorable movements in the hedged interest rates.

• There is no assurance that a liquid secondary market will exist for any particular futures contract or option thereon at any particular time. If ESD were unable to liquidate a futures contract or an option on a futures contract position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. ESD would continue to be subject to market risk with respect to the position.

• There is no assurance that ESD will use hedging transactions. For example, if ESD determines that the cost of hedging will exceed the potential benefit to ESD, ESD will not enter into such transactions.

Risks of Warrants and Rights

Warrants and rights are subject to the same market risks as stocks, but may be more volatile in price. Warrants and rights do not carry the right to dividends or voting rights with respect to their underlying securities, and they do not represent any rights in the assets of the issuer. An investment in warrants or rights may be considered speculative. In addition, the value of a warrant or right does not necessarily change with the value of the underlying security and a warrant or right ceases to have value if it is not exercised prior to its expiration date. The purchase of warrants or rights involves the risk that ESD could lose the purchase value of a warrant or right if the right to subscribe to additional shares is not exercised prior to the warrants’ or rights’ expiration. Also, the purchase of warrants and rights involves the risk that the effective price paid for the warrant or right added to the subscription price of the related security may exceed the value of the subscribed security’s market price such as when there is no movement in the price of the underlying security.

Equity Securities Risk

ESD, unlike EFL, may invest up to 20% of its managed assets in all types of equity securities. Equity securities include common stocks traded on an exchange or in the over the counter market, preferred stocks, warrants, rights, convertible securities, depositary receipts, trust certificates, limited partnership interests, shares of other investment companies and REITs.

The market price of equity securities may go up or down, sometimes rapidly or unpredictably. Equity securities may decline in value due to factors affecting equity securities markets generally, particular industries represented in those markets or the issuer itself, including the historical and prospective earnings of the issuer and the value of its assets. The values of equity securities may decline due to general market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. They may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities, and particularly common stocks, generally have greater price volatility than bonds and other debt securities.

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Market Price Discount from Net Asset Value

Shares of closed-end investment companies frequently trade at a discount from their net asset value. This characteristic is a risk separate and distinct from the risk that ESD’s net asset value could decrease as a result of its investment activities and may be a greater risk for investors expecting to sell their shares in a relatively short period following completion of this offering. Whether investors will realize gains or losses upon the sale of ESD Common Shares will depend not upon ESD’s net asset value but upon whether the market price of ESD Common Shares at the time of sale is above or below the investor’s purchase price for ESD Common Shares. Because the market price of ESD Common Shares will be determined by factors such as relative supply of and demand for ESD Common Shares in the market, general market and economic conditions, and other factors beyond the control of ESD, ESD cannot predict whether ESD Common Shares will trade at, below or above net asset value or at, below or above the initial public offering price.

Inflation Risk

Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of ESD Common Shares and distributions can decline. In addition, during any periods of rising inflation, dividend rates on any ESD preferred shares would likely increase, which would tend to further reduce returns to holders of ESD Common Shares.

Market Disruption and Geopolitical Risk

The war with Iraq, its aftermath and the continuing occupation of Iraq are likely to have a substantial impact on the U.S. and world economies and securities markets. The nature, scope and duration of the occupation cannot be predicted with any certainty. The war and occupation, terrorism and related geopolitical risks have led, and may in the future lead to, increased short-term market volatility and may have adverse long-term effects on the U.S. and world economies and markets generally. Those events could also have an acute effect on individual issuers or related groups of issuers. These risks could also adversely affect individual issuers and securities markets, interest rates, auctions, secondary trading, ratings, credit risk, inflation and other factors relating to ESD Common Shares.

High yield securities and securities of issuers with smaller market capitalizations tend to be more volatile than higher rated securities and securities of issuers with larger market capitalizations so that these events and any actions resulting from them may have a greater impact on the prices and volatility of high yield securities and securities of issuers with smaller market capitalizations than on higher rated securities and securities of issuers with larger market capitalizations.

Non-Diversified Status

Because ESD, like EFL, is classified as “non-diversified” under the 1940 Act, it can invest a greater portion of its assets in obligations of a single issuer than a “diversified” fund. As a result, ESD will be more susceptible than a diversified fund to being adversely affected by any single corporate, economic, political or regulatory occurrence. Moreover, ESD intends to diversify its investments to the extent necessary to maintain its status as a regulated investment company under U.S. tax laws. See “Taxation.”

Anti-Takeover Provisions

ESD’s Articles and By-Laws include provisions that could limit the ability of other entities or persons to acquire control of ESD or convert ESD to an open-end fund. These provisions could have the effect of depriving the holders of ESD Common Shares of opportunities to sell their Common Shares at a premium over the then-current market price of ESD Common Shares.

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INFORMATION ABOUT THE PROPOSED MERGER

The Agreement and Plan of Merger

The following is a summary of the material terms and conditions of the Agreement and Plan of Merger. This summary is qualified in its entirety by reference to the form of Agreement and Plan of Merger attached as Appendix A to this Proxy Statement/Prospectus. Under the Agreement and Plan of Merger, EFL will merge with and into ESD on the Closing Date. As a result of the Merger and on the Closing Date:

• EFL will no longer exist, and

• ESD will be the surviving corporation

EFL will then:

• deregister as an investment company under the 1940 Act,

• cease its separate existence under Maryland law,

• remove its Common Shares from listing on the NYSE, and

• withdraw from registration under the Securities Exchange Act of 1934, as amended.

Each outstanding EFL Common Share will be converted into an equivalent dollar amount (to the nearest one tenth of one cent) of full ESD Common Shares, based on the net asset value per share of each of the parties at 4:00 p.m. Eastern Time on the Business Day prior to the Closing Date. No fractional ESD Common Shares will be issued to the holders of EFL Common Shares. In lieu thereof, ESD will pay cash to each former holder of EFL Common Shares in an amount equal to the value of the fractional ESD Common Shares that investor would otherwise have received in the Merger.

No sales charge or fee of any kind will be charged to holders of EFL Common Shares in connection with their receipt of ESD Common Shares in the Merger.

From and after the Closing Date, ESD will possess all of the properties, assets, rights, privileges and powers and shall be subject to all of the restrictions, liabilities, obligations, disabilities and duties of EFL, all as provided under Maryland law.

Under Maryland law, stockholders of a corporation whose shares are traded publicly on a national securities exchange, such as the Funds’ Common Shares, are not entitled to demand the fair value of their shares upon a merger; therefore, the holders of the Funds’ Common Shares will be bound by the terms of the Merger, if approved. However, any holder of either Fund’s Common Shares may sell his or her Common Shares on the NYSE at any time prior to the Merger.

The Agreement and Plan of Merger may be terminated and the Merger abandoned, whether before or after approval by EFL’s stockholders, at any time prior to the Closing Date by resolution of either Fund’s Board, if circumstances should develop that, in the opinion of that Board, make proceeding with the Merger inadvisable with respect to ESD or EFL, respectively.

Prior to the Merger, EFL shall have declared and paid a dividend or dividends which, together with all such previous dividends, shall have the effect of distributing to its stockholders substantially all of its net investment income that has accrued through the Closing Date, if any, and substantially all of its net capital gain realized through the Closing Date, if any.

The Agreement and Plan of Merger provides that either Fund may waive compliance with any of the terms or conditions made therein for the benefit of that Fund, other than the requirements that: (a) the Agreement and Plan of Merger be approved by stockholders of EFL; and (b) EFL and ESD receive the opinion of Simpson Thacher & Bartlett LLP that the transactions contemplated by the Agreement and Plan of Merger will constitute a tax-free reorganization for federal income tax purposes, if, in the judgment of the Fund’s Board, after consultation with Fund counsel, such waiver will not have a material adverse effect on the benefits intended to be provided by the Merger to the stockholders of the Fund.

Under the Agreement and Plan of Merger, each Fund, out of its assets and property, will indemnify and hold harmless the other Fund and the members of the Board and officers of the other Fund from and against any and all losses, claims, damages, liabilities or expenses (including, without limitation, the payment of reasonable legal fees and reasonable costs of investigation) to which the other Fund and those board members and officers may become subject, insofar as such loss,

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claim, damage, liability or expense (or actions with respect thereto) arises out of or is based on (a) any breach by the Fund of any of its representations, warranties, covenants or agreements set forth in this Agreement or (b) any act, error, omission, neglect, misstatement, materially misleading statement, breach of duty or other act wrongfully done or attempted to be committed by the Fund or the members of the Board or officers of the Fund prior to the Closing Date, provided that such indemnification by the Fund is not (i) in violation of any applicable law or (ii) otherwise prohibited as a result of any applicable order or decree issued by any governing regulatory authority or court of competent jurisdiction. In no event will a Fund or the members of the Board or officers of a Fund be indemnified for any losses, claims, damages, liabilities or expenses arising out of or based on conduct constituting willful misfeasance, bad faith, gross negligence or the reckless disregard of duties.

The Board of each Fund, including the Independent Directors, has determined, with respect to its Fund, that the interests of the holders of that Fund’s Common Shares will not be diluted as a result of the Merger and that participation in the Merger is in the best interests of that Fund. Fifty percent of the expenses incurred in connection with the Merger will be borne by ESD and EFL in proportion to their respective total assets in the event the Merger is consummated. The other 50% of the expenses incurred in connection with the Merger will be borne by the Manager. Such expenses shall include, but not be limited to, all costs related to the preparation and distribution of this Proxy Statement/Prospectus, proxy solicitation expenses, SEC registration fees and NYSE listing fees.

Approval of the Agreement and Plan of Merger will require the affirmative vote of a majority of the outstanding EFL Common Shares. See “Voting Information” below. Because of the comparative sizes of ESD and EFL, the Maryland General Corporation Law and NYSE rules do not require stockholders of ESD to approve the Merger.

Reasons for the Merger and Board Considerations

Background

EFL’s primary investment objective is to seek to maintain a high level of current income by investing at least 80% of its net assets plus any borrowings for investment purposes in floating-rate debt securities of emerging market sovereign and corporate issuers, including fixed-rate securities with respect to which EFL has entered into interest rate swaps to effectively convert the fixed-rate interest payments received into floating-rate interest payments. As a secondary objective, EFL seeks capital appreciation.

Recent debt issuance by emerging market issuers have been overwhelmingly fixed-rate in nature. In 1994, when EFL commenced operations, 53% of the total outstanding issuance of emerging market bonds was floating-rate in nature; at that time fixed-rate bonds represented 47% of the total. In contrast, in 2007, only 2% of the total outstanding issuance of emerging market bonds was floating-rate in nature, whereas fixed-rate bonds represented 98% of the total.

In addition, the market in 1994 was dominated by Brady bonds, which were primarily floating-rate issuances. From a peak close to US$150 billion in the mid-1990s, Brady debt has been aggressively retired by nearly every country in the past ten years, with much of the financing coming from new issuance of local currency-denominated fixed-rate debt. Research by Western Asset, EFL’s and ESD’s sub-adviser, indicates that the outstanding amount of floating-rate emerging market debt is currently approximately $4.2 billion, as measured in U.S. dollars. In addition, there are no more Brady bonds left outstanding in Brazil, Argentina, Mexico or Venezuela, and the only Brady debt left, comprising the US$4.2 billion total, is a smattering of debt issued by smaller countries such as Peru. Further, Peru recently announced a plan to retire half of its outstanding Brady debt in 2008.

Accordingly, LMPFA and Western Asset each believes that adherence to an investment objective and investment policies that require 80% of EFL’s assets to be invested in floating-rate emerging market debt is both impractical to achieve and detrimental to EFL stockholders.

Board Considerations

The proposed Merger was presented to the Board of each Fund for consideration at simultaneous meetings held on February 13 and 14, 2008, and was approved by both Boards at that meeting. In considering the proposal, the Boards did not identify any single factor or piece of information as all-important or controlling, although significant weight was given to

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Western Asset’s assessment of the viability of EFL’s investment objective and restrictions in light of market developments. Following extensive discussions, based on its evaluation of all material factors to both Funds participating in the proposed Merger, including those described below, the Board of each Fund, including all of the Independent Directors, determined, with respect to its Fund, that: (1) the Merger would be in the best interests of that Fund; and (2) the Merger would not result in the dilution of the interests of the Fund or its stockholders.

In recommending the Merger, EFL’s Board, with the advice of counsel to EFL’s Independent Directors, considered a number of factors, including the following:

• the beliefs of LMPFA and Western Asset that the investment objectives and investment policies that require 80% of EFL’s assets to be invested in floating-rate emerging market debt is impractical to achieve and detrimental to EFL stockholders in light of developments in the markets for floating-rate emerging market debt securities;

• the benefits to EFL’s stockholders that are expected to be derived from the Merger;

• the fact that ESD has broader, more viable investment objectives, strategies and policies than EFL;

• the fact that ESD has a lower management fee and otherwise lower expenses than EFL, and that the expense ratio of ESD after the Merger is expected to be lower than that of EFL before the Merger assuming ESD maintains its current leverage amount;

• the fact that the combined Fund’s management fee will decrease from 0.85% to 0.80% of average daily net assets plus borrowings after the Merger if ESD’s average daily net assets plus borrowings increase to over $700 million due to breakpoints, either as a result of an increase in net assets or an increase in leverage;

• the Merger will not dilute the interests of current holders of EFL Common Shares;

• the federal tax consequences of the Merger to EFL and the holders of EFL Common Shares, including that the Merger has been structured to qualify as a tax-free reorganization for federal income tax purposes and as such would avoid the taxable gains and losses by holders of EFL Common Shares that would be realized in a liquidation of EFL;

• the benefits that may be derived by Legg Mason, Inc. (“Legg Mason”) and its affiliates as a result of the Merger as well as from various relationships with the Funds, including the potential for increased profitability of Legg Mason and its affiliates as a result of the expected decline in operational expenses for administrative, compliance and portfolio management services as a result of the Funds combining into one;

• the potential for greater economies of scale and lower expenses per Common Share resulting from a larger asset base over which to spread fixed costs; and

• enhanced liquidity in the market for ESD Common Shares following the Merger due to the increase in float of the combined Fund’s shares.

Federal Income Tax Consequences

The following is a summary of the material federal income tax consequences of the Merger applicable to a holder of EFL Common Shares that receives ESD Common Shares in the Merger. This discussion is based upon the Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations, judicial authorities, published positions of the Internal Revenue Service (the “IRS”) and other applicable authorities, all as currently in effect and all of which are subject to change or differing interpretations (possibly with retroactive effect). This discussion is limited to U.S. holders (as defined below) that hold their EFL Common Shares as capital assets for federal income tax purposes (generally, assets held for investment). This discussion does not address all of the tax consequences that may be relevant to a particular EFL stockholder or to EFL stockholders that are subject to special treatment under federal income tax laws, such as:

• stockholders that are not U.S. holders;

• financial institutions;

• insurance companies;

• tax-exempt organizations;

• dealers in securities or currencies;

• persons whose functional currency is not the U.S. dollar;

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• traders in securities that elect to use a mark-to-market method of accounting;

• persons that hold EFL Common Shares as part of a straddle, hedge, constructive sale or conversion transaction; and

• U.S. holders who acquired their EFL Common Shares through the exercise of an employee stock option or otherwise as compensation.

If a partnership or other entity taxed as a partnership holds EFL Common Shares, the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. Partnerships and partners in such a partnership should consult their tax advisors about the tax consequences of the Merger to them.

This discussion does not address the tax consequences of the Merger under state, local or foreign tax laws. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences set forth below.

Holders of EFL Common Shares are urged to consult with their own tax advisors as to the tax consequences of the Merger in their particular circumstances, including the applicability and effect of the alternative minimum tax and any state, local or foreign and other tax laws and of changes in those laws.

For purposes of this section, the term “U.S. holder” means a beneficial owner of EFL Common Shares that for federal income tax purposes is:

• a citizen or resident of the United States;

• a corporation, or other entity treated as a corporation for federal income tax purposes, created or organized in or under the laws of the United States or any State or the District of Columbia;

• an estate that is subject to federal income tax on its income regardless of its source; or

• a trust, the substantial decisions of which are controlled by one or more U.S. persons and which is subject to the primary supervision of a U.S. court, or a trust that validly has elected under applicable Treasury regulations to be treated as a U.S. person for federal income tax purposes.

Tax Consequences of the Merger Generally

EFL and ESD intend the Merger to qualify as a tax-free reorganization within the meaning of Section 368(a)(1) of the Code. The Merger is conditioned upon the receipt by both EFL and ESD of an opinion from Simpson Thacher & Bartlett LLP to the effect that, based upon certain facts, assumptions and representations of the parties, for federal income tax purposes:

(i) the Merger as provided in the Agreement and Plan of Merger will constitute a reorganization within the meaning of Section 368(a)(1) of the Code and that ESD and EFL will each be a “party to a reorganization” within the meaning of Section 368(b) of the Code;

(ii) except for consequences regularly attributable to a termination of EFL’s taxable year, no gain or loss will be recognized to EFL as a result of the Merger or upon the conversion of EFL Common Shares to ESD Common Shares;

(iii) no gain or loss will be recognized to ESD as a result of the Merger or upon the conversion of EFL Common Shares to ESD Common Shares;

(iv) no gain or loss will be recognized to the stockholders of EFL upon the conversion of their EFL Common Shares to ESD Common Shares, except to the extent such stockholders are paid cash in lieu of fractional shares of ESD Common Shares in the Merger;

(v) the tax basis of EFL assets in the hands of ESD will be the same as the tax basis of such assets in the hands of EFL immediately prior to the consummation of the Merger;

(vi) immediately after the Merger, the aggregate tax basis of the ESD Common Shares received by each holder of EFL Common Shares in the Merger (including that of fractional share interests purchased by ESD) will be equal to the aggregate tax basis of the EFL Common Shares owned by such stockholder immediately prior to the Merger;

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(viii) a stockholder’s holding period for ESD Common Shares (including that of fractional share interests purchased by ESD) will be determined by including the period for which he or she held EFL Common Shares converted pursuant to the Merger, provided that such shares of EFL Common Shares were held as capital assets;

(ix) ESD’s holding period with respect to the EFL assets transferred will include the period for which such assets were held by EFL; and

(x) the payment of cash to the holders of EFL Common Shares in lieu of fractional ESD Common Shares will be treated as though such fractional shares were distributed as part of the Merger and then redeemed by ESD with the result that the holder of EFL Common Shares will generally have a capital gain or loss to the extent the cash distribution differs from such stockholder’s basis allocable to the fractional ESD Common Shares.

Assuming that, in accordance with the opinion referred to above, the Merger qualifies as a reorganization within the meaning of Section 368(a)(1) of the Code, the Merger will result in the tax consequences described above in clauses (i) through (x).

Information Reporting and Backup Withholding

Cash payments received in the Merger by a holder of EFL Common Shares may, under certain circumstances, be subject to information reporting and backup withholding at a rate of 28% of the cash payable to the holder, unless the holder provides proof of an applicable exemption, furnishes its taxpayer identification number (in the case of individuals, their social security number) or provides a certification of foreign status on IRS Form W-8BEN or other appropriate form, and otherwise complies with all applicable requirements of the backup withholding rules. Any amounts withheld from payments to a holder under the backup withholding rules are not additional tax and will be allowed as a refund or credit against the holder’s federal income tax liability, provided the required information is timely furnished to the IRS.

Reporting Requirements

A holder of EFL Common Shares who receives ESD Common Shares as a result of the Merger will be required to retain records pertaining to the Merger. Each holder of EFL Common Shares who is required to file a U.S. tax return and who is a “significant holder” that receives ESD Common Shares in the Merger will be required to file a statement with the holder’s federal income tax return setting forth such holder’s basis in the EFL Common Shares surrendered and the fair market value of the ESD Common Shares and cash, if any, received in the Merger. A “significant holder” is a holder of EFL Common Shares who, immediately before the Merger, owned at least 5% of the outstanding stock of EFL.

Other Tax Considerations

While neither ESD nor EFL is aware of any adverse state or local tax consequences of the proposed Merger, they have not requested any ruling or opinion with respect to such consequences, and stockholders should consult their own tax advisor with respect to such matters.

Immediately prior to the Closing Date, EFL, to the extent necessary, will pay a dividend or dividends, which together with all previous dividends, are intended to have the effect of distributing to its stockholders substantially all of its net investment income that has accrued through the Closing Date, if any, and substantially all of its net capital gain, if any, realized through the Closing Date. Such dividends will be included in the taxable income of the stockholders of EFL.

Information Regarding Tax Capital Loss Carryforwards

As of February 29, 2008, the Funds had no unused capital loss carryforwards.

PORTFOLIO SECURITIES

The securities in which EFL may invest are permissible for investment under ESD’s investment objectives and strategies. Management expects to dispose approximately 30% of portfolio securities of EFL in connection with the Merger. Thus, upon the Merger of ESD and EFL, approximately 3% of the total portfolio of the combined Fund would experience a turnover.

No securities of ESD need to be sold in order for ESD to comply with its investment restrictions or policies. The Funds may buy and sell securities in the normal course of their operations.

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INFORMATION ABOUT MANAGEMENT OF THE FUNDS

Information About Directors and Officers

The business and affairs of ESD and EFL are managed under the direction of each Fund’s Board of Directors. The same individuals serve as the Directors and officers of both ESD and EFL. Information pertaining to the Directors and officers of the Funds is set forth under “Proposal 1” above.

Investment Manager and Sub-Adviser

LMPFA has served as each Fund’s investment manager since August 1, 2006. LMPFA, located at 399 Park Avenue, New York, NY 10022, is a registered investment adviser that provides administrative and compliance oversight services to each Fund.

Under each Fund’s management agreement with LMPFA, subject to the supervision and direction of the Fund’s Board, LMPFA is delegated the responsibility of managing the Fund’s portfolio in accordance with the Fund’s stated investment objective and policies, making investment decisions for the Fund and placing orders to purchase and sell securities. LMPFA performs administrative and management services necessary for the operation of each Fund, such as (i) supervising the overall administration of the Fund, including negotiation of contracts and fees with and the monitoring of performance and billings of the Fund’s transfer agent, shareholder servicing agents, custodian and other independent contractors or agents; (ii) providing certain compliance, Fund accounting, regulatory reporting, and tax reporting services; (iii) preparing or participating in the preparation of Board materials, registration statements, proxy statements and reports and other communications to shareholders; (iv) maintaining the Fund’s existence, and (v) maintaining the registration and qualification of the Fund’s shares under federal and state laws.

Each Fund’s management agreement will continue in effect from year to year provided such continuance is specifically approved at least annually (a) by the Fund’s Board or by a majority of the outstanding voting securities of the Fund (as defined in the 1940 Act), and (b) in either event, by a majority of the Independent Directors with such Independent Directors casting votes in person at a meeting called for such purpose. Each Fund’s management agreement provides that LMPFA may render services to others. Each Fund’s management agreement is terminable without penalty on not more than 60 days’ nor less than 30 days’ written notice by the Fund when authorized either by a vote of holders of shares representing a majority of the voting power of the outstanding voting securities of the Fund (as defined in the 1940 Act) or by a vote of a majority of the Fund’s Directors, or by LMPFA on not less than 90 days’ written notice, and will automatically terminate in the event of its assignment. Each Fund’s management agreement provides that neither LMPFA nor its personnel shall be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution of security transactions for the Fund, except for willful misfeasance, bad faith or gross negligence or reckless disregard of its or their obligations and duties.

Other than the cash management services it provides for certain equity funds, LMPFA does not provide day-to-day portfolio management services. Rather, portfolio management for each Fund is provided by Western Asset, located at 385 East Colorado Boulevard, Pasadena, California 91101.

Western Asset provides services to each Fund pursuant to a sub-advisory agreement between LMPFA and Western Asset. Under each sub-advisory agreement, subject to the supervision and direction of each Fund’s Board and LMPFA, Western Asset will, except for the management of cash and short-term investments that is performed by LMPFA, manage the Fund’s portfolio in accordance with the Fund’s stated investment objective and policies, assist in supervising all aspects of the Fund’s operations, make investment decisions for the Fund, place orders to purchase and sell securities, and employ professional portfolio managers and securities analysts who provide research services to the Fund.

The sub-advisory agreement for each Fund will continue in effect from year to year provided such continuance is specifically approved at least annually (a) by the Board or by a majority of the outstanding voting securities of the Fund (as defined in the 1940 Act), and (b) in either event, by a majority of the Independent Directors with such Independent Directors casting votes in person at a meeting called for such purpose. The Board or a majority of the outstanding voting securities of each Fund (as defined in the 1940 Act) may terminate that Fund’s sub-advisory agreement without penalty, in each case on not more than 60 days’ nor less than 30 days’ written notice to Western Asset. Western Asset may terminate each sub-advisory agreement on 90 days’ written notice to the Fund and LMPFA. LMPFA and Western Asset may terminate each

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sub-advisory agreement upon their mutual written consent. Each sub-advisory agreement will terminate automatically in the event of assignment by Western Asset and shall not be assignable by LMPFA without the consent of Western Asset.

LMPFA and Western Asset are both wholly-owned subsidiaries of Legg Mason. Legg Mason, whose principal executive offices are at 100 Light Street, Baltimore, Maryland 21202, is a global asset management company.

EFL pays management fees to LMPFA at the rate of 1.05% of its average weekly net assets. ESD currently pays management fees to LMPFA at the rate of 0.85% of its average daily net assets plus any borrowings. At the meeting held on February 13 and 14, 2008, the Board of ESD approved a change to the investment management fee that ESD pays LMPFA that would become effective upon the closing of the Merger. As a result, after the Merger, ESD will pay LMPFA an investment management fee, calculated daily and paid monthly, at an annual rate of 0.85% of the combined Fund’s average daily net assets plus any borrowings for the first $700 million and 0.80% of average daily net assets plus any borrowings for amounts greater than $700 million.

For each Fund, LMPFA, and not the Fund, pays sub-advisory fees to Western Asset at the rate of 70% of the management fee paid to LMPFA.

During the fiscal year ended October 31, 2007, ESD paid management fees to its investment manager at the effective rate of 0.85% of its average daily net assets plus any borrowings. During the fiscal year ended February 29, 2008, EFL paid management fees to LMPFA at the effective rate of 1.05% of its average weekly net assets.

Additional information about the factors considered by the Board of ESD in approving its Investment Management Agreement and Sub-Advisory Agreement will be set forth in ESD’s Semi-Annual Report to Stockholders for the Semi-Annual Period ending April 30, 2008. Additional information about the factors considered by the Board of EFL in approving its Investment Management Agreement and Sub-Advisory Agreement will be set forth in EFL’s Annual Report to Stockholders for the Fiscal Year ended February 29, 2008.

Codes of Ethics

Pursuant to Rule 17j-1 under the 1940 Act, each Fund, LMPFA and Western Asset have each adopted codes of ethics that permit their respective personnel to invest in securities for their own accounts, including securities that may be purchased or held by the Fund. All personnel must place the interests of clients first and avoid activities, interests and relationships that might interfere with the duty to make decisions in the best interests of the clients. All personal securities transactions by employees must adhere to the requirements of the codes and must be conducted in such a manner as to avoid any actual or potential conflict of interest, the appearance of such a conflict, or the abuse of an employee’s position of trust and responsibility.

When personnel covered by either Fund’s Code of Ethics are employed by more than one of the managers affiliated with Legg Mason, those employees may be subject to such affiliate’s Code of Ethics adopted pursuant to Rule 17j-1, rather than the Fund’s Code of Ethics.

Copies of the Codes of Ethics of the Funds, LMPFA and Western Asset are on file with the SEC.

Proxy Voting Policies

Although individual Directors may not agree with particular policies or votes by LMPFA or Western Asset, each Fund’s Board has delegated proxy voting discretion to LMPFA and/or Western Asset, believing that LMPFA and/or Western Asset should be responsible for voting because it is a matter relating to the investment decision making process.

LMPFA delegates the responsibility for voting proxies for each Fund to Western Asset through its contracts with Western Asset. Western Asset will use its own proxy voting policies and procedures to vote proxies. Accordingly, LMPFA does not expect to have proxy-voting responsibility for the Funds. Should LMPFA become responsible for voting proxies for any reason, such as the inability of Western Asset to provide investment advisory services, LMPFA shall utilize the proxy voting guidelines established by the most recent subadviser to vote proxies until a new subadviser is retained. In the case of a material conflict between the interests of LMPFA (or its affiliates if such conflict is known to persons responsible for voting at LMPFA) and either Fund, the Board of Directors of LMPFA shall consider how to address the conflict and/or how to vote

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the proxies. LMPFA shall maintain records of all proxy votes in accordance with applicable securities laws and regulations, to the extent that LMPFA votes proxies. LMPFA shall be responsible for gathering relevant documents and records related to proxy voting from Western Asset and providing them to the relevant Fund as required for the Fund to comply with applicable rules under the 1940 Act.

Western Asset’s Proxy Voting Policies and Procedures govern in determining how proxies relating to each Fund’s portfolio securities are voted and are attached as Appendix C to this Proxy Statement/Prospectus. Information regarding how each Fund voted proxies (if any) relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (1) by calling 888-425-6432, (2) on the Fund’s website at http://www.leggmason.com/individualinvestors and (3) on the SEC’s website at http://www.sec.gov.

Certain Legal Proceedings

As previously disclosed, on September 16, 2005, the staff of the SEC informed Smith Barney Fund Management LLC (“SBFM”) and Salomon Brothers Asset Management Inc. (“SBAM”), that the staff was considering recommending administrative proceedings against SBFM and SBAM for alleged violations of Section 19(a) and 34(b) of the Investment Company Act (and related Rule 19a-1). On September 27, 2007, SBFM and SBAM, without admitting or denying any findings therein, consented to the entry of an order by the SEC relating to the disclosure by certain other closed-end funds of the sources of distributions paid by the funds between 2001 and 2004. Each of SBFM and SBAM agreed to pay a fine of $450,000, for which they were indemnified by Citigroup, Inc., their former parent. It is not expected that this matter will adversely impact either Fund or their current investment adviser.

Portfolio Managers of the Funds

Below is summary information for the Funds’ portfolio managers. Certain employees of Western Asset listed below are members of the portfolio management teams of both ESD and EFL; others are involved in the management of only one of the Funds.

Name and Address	Length of Time Served	Principal Occupation(s) During Last Five Years
Michael C. Buchanan Western Asset 385 East Colorado Blvd. Pasadena, CA 91101	Since 2007 (EFL) Since 2007 (ESD)	Co-portfolio manager of ESD; Managing Director and head of U.S. Credit Products from 2003–2005 at Credit Suisse Asset Management; Executive Vice President and portfolio manager for Janus Capital in 2003; Managing Director and head of High Yield Trading from 1998–2003 at Blackrock Financial Management.
Matthew C. Duda Western Asset 385 East Colorado Blvd. Pasadena, CA 91101	Since 2006 (EFL) Since 2006 (ESD)	Co-portfolio manager of EFL; Research Analyst at Western Asset Management since 2001; Vice President and Investment Strategist from 1997–2001 at Credit Suisse First Boston Corporation.
Keith J. Gardner Western Asset 385 East Colorado Blvd. Pasadena, CA 91101	Since 2006 (EFL) Since 2006 (ESD)	Co-portfolio manager of ESD and EFL; portfolio manager and research analyst at Western Asset since 1994.
S. Kenneth Leech Western Asset 385 East Colorado Blvd. Pasadena, CA 91101	Since 2006 (EFL) Since 2006 (ESD)	Co-portfolio manager of ESD and EFL; Chief Investment Officer of Western Asset since 1998.
Detlev Schlichter Western Asset Limited 10 Exchange Place London, England	Since 2007 (ESD)	Co-portfolio manager of ESD; portfolio manager at Western Asset since 2001.
Stephen A. Walsh Western Asset 385 East Colorado Blvd. Pasadena, CA 91101	Since 2006 (EFL) Since 2006 (ESD)	Co-portfolio manager of ESD and EFL; Deputy Chief Investment Officer of Western Asset since 2000.

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Other Accounts Managed by Portfolio Managers

The table below identifies the number of accounts (other than the Funds) for which the Funds’ portfolio managers have day-to-day management responsibilities and the total assets in such accounts, within each of the following categories: registered investment companies, other pooled investment vehicles and other accounts. For each category, the number of accounts and total assets in the accounts where fees are based on performance is also indicated.

Portfolio Manager	Registered Investment Companies	Other Pooled Investment Vehicles	Other Accounts
Michael C. Buchanan	14 registered investment companies with $8.1 billion in total assets under management	6 other pooled investment vehicles with $5.2 billion in assets under management	12 other accounts with $982 million in total assets under management
Matthew C. Duda	7 registered investment companies with $1.3 billion in total assets under management	6 other pooled investment vehicles with $1.4 billion in total assets under management	1 other account with $14.9 million in total assets under management(2)
Keith J. Gardner	5 registered investment Companies with $669.1 million in total assets under management	6 other pooled investment vehicles with $1.4 billion in assets under management	1 other account with $14.9 billion in total assets under management(2)
S. Kenneth Leech(1)	111 registered investment companies with $116.3 billion in total assets under management	239 other pooled investment vehicles with $221.2 billion in assets under management	1,060 other accounts with $303.2 billion in total assets under management(3)
Detlev Schlichter	2 registered investment Companies with $210.7 million in total assets under management	26 other pooled investment vehicles with $4.8 billion in assets under management	67 other accounts with $26.9 billion in total assets under management(4)
Stephen A. Walsh(1)	111 registered investment companies with $116.3 billion in total assets under management	239 other pooled investment vehicles with $221.2 billion in assets under management	1,060 other accounts with $303.2 billion in total assets under management(3)

⁽¹⁾ The numbers above reflect the overall number of portfolios managed by employees of Western Asset. Mr. Leech and Mr. Walsh are involved in the management of all the Firm’s portfolios, but they are not solely responsible for particular portfolios. Western Asset’s investment discipline emphasizes a team approach that combines the efforts of groups of specialists working in different market sectors. They are responsible for overseeing implementation of Western Asset’s overall investment ideas and coordinating the work of the various sector teams. This structure ensures that client portfolios benefit from a consensus that draws on the expertise of all team members.

⁽²⁾ Includes 1 account managed, totaling $14.9 million, for which advisory fee is performance based.

⁽³⁾ Includes 93 accounts managed, totaling $33.7 billion, for which advisory fee is performance based.

⁽⁴⁾ Includes 20 accounts managed, totaling $7.7 billion, for which advisory fee is performance based.

Portfolio Manager Compensation

With respect to the compensation of the portfolio managers, the Manager’s compensation system assigns each employee a total compensation “target” and a respective cap, which are derived from annual market surveys that benchmark each role with their job function and peer universe. This method is designed to reward employees with total compensation reflective of the external market value of their skills, experience, and ability to produce desired results.

Standard compensation includes competitive base salaries, generous employee benefits, and a retirement plan. In addition, employees are eligible for bonuses. These are structured to closely align the interests of employees with those of the

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Manager, and are determined by the professional’s job function and performance as measured by a formal review process. All bonuses are completely discretionary. One of the principal factors considered is a portfolio manager’s investment performance versus appropriate peer groups and benchmarks. Because portfolio managers are generally responsible for multiple accounts (including the Funds) with similar investment strategies, they are compensated on the performance of the aggregate group of similar accounts, rather than a specific account. A smaller portion of a bonus payment is derived from factors that include client service, business development, length of service to the Manager, management or supervisory responsibilities, contributions to developing business strategy and overall contributions to the Manager’s business.

Finally, in order to attract and retain top talent, all professionals are eligible for additional incentives in recognition of outstanding performance. These are determined based upon the factors described above and include Legg Mason stock options and long-term incentives that vest over a set period of time past the award date.

Potential Conflicts of Interest

Potential conflicts of interest may arise in connection with the management of multiple accounts (including accounts managed in a personal capacity). These could include potential conflicts of interest related to the knowledge and timing of a Fund’s trades, investment opportunities and broker selection. Portfolio managers may be privy to the size, timing and possible market impact of a Fund’s trades.

It is possible that an investment opportunity may be suitable for both a Fund and other accounts managed by a portfolio manager, but may not be available in sufficient quantities for both the Fund and the other accounts to participate fully. Similarly, there may be limited opportunity to sell an investment held by a Fund and another account. A conflict may arise where the portfolio manager may have an incentive to treat an account preferentially as compared to a Fund because the account pays a performance-based fee or the portfolio manager, the Manager or an affiliate has an interest in the account. The Manager has adopted procedures for allocation of portfolio transactions and investment opportunities across multiple client accounts on a fair and equitable basis over time. All eligible accounts that can participate in a trade share the same price on a pro-rata allocation basis in an attempt to mitigate any conflict of interest. Trades are allocated among similarly managed accounts to maintain consistency of portfolio strategy, taking into account cash availability, investment restrictions and guidelines, and portfolio composition versus strategy.

With respect to securities transactions for the Funds, the Manager determines which broker or dealer to use to execute each order, consistent with its duty to seek best execution of the transaction. However, with respect to certain other accounts (such as pooled investment vehicles that are not registered investment companies and other accounts managed for organizations and individuals), the Manager may be limited by the client with respect to the selection of brokers or dealers or may be instructed to direct trades through a particular broker or dealer. In these cases, trades for a Fund in a particular security may be placed separately from, rather than aggregated with, such other accounts. Having separate transactions with respect to a security may temporarily affect the market price of the security or the execution of the transaction, or both, to the possible detriment of a Fund or the other account(s) involved. Additionally, the management of multiple Funds and/or other accounts may result in a portfolio manager devoting unequal time and attention to the management of each Fund and/or other account.

It is theoretically possible that portfolio managers could use information to the advantage of other accounts they manage and to the possible detriment of a Fund. For example, a portfolio manager could short sell a security for an account immediately prior to a Fund’s sale of that security. To address this conflict, the Manager has adopted procedures for reviewing and comparing selected trades of alternative investment accounts (which may make directional trades such as short sales) with long only accounts (which include the Funds) for timing and pattern related issues. Trading decisions for alternative investment and long only accounts may not be identical even though the same portfolio manager may manage both types of accounts. Whether the Manager allocates a particular investment opportunity to only alternative investment accounts or to alternative investment and long only accounts will depend on the investment strategy being implemented. If, under the circumstances, an investment opportunity is appropriate for both its alternative investment and long only accounts, then it will be allocated to both on a pro-rata basis.

A portfolio manager may also face other potential conflicts of interest in managing a Fund, and the description above is not a complete description of every conflict of interest that could be deemed to exist in managing both a Fund and the other accounts listed above.

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Portfolio Manager Securities Ownership

The table below identifies the dollar range of securities beneficially owned by the portfolio managers of each Fund as of             , 2008.

Portfolio Manager	Dollar Range(1) of ESD Securities Beneficially Owned	Dollar Range(1) of EFL Securities Beneficially Owned	Aggregate Dollar Range(1) of Fund Securities Beneficially Owned
Michael C. Buchanan	A	A	A
Matthew C. Duda	A	A	A
Keith J. Gardner	A	A	A
S. Kenneth Leech	C	A	C
Detlev Schlichter	A	A	A
Stephen A. Walsh	A	A	A

⁽¹⁾ The dollar ranges are as follows: “A” = None; “B” = $1-$10,000; “C” = $10,001-$50,000; “D” = $50,001-$100,000; “E” = Over $100,000.

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ADDITIONAL INFORMATION ABOUT THE FUNDS

Legg Mason and Western Asset, an affiliate of Legg Mason, have a financial interest in the Merger because their respective fees under agreements with ESD generally increase as the amount of the assets of ESD increase, and the amount of those assets will increase as a result of the Merger (although this increase in assets is expected to be offset by the concomitant loss of EFL’s assets).

Further information about ESD is included in its Annual Report to Stockholders for the Fiscal Year Ended October 31, 2007, filed with the SEC on January 4, 2008, and further information about EFL is included in its Annual Report to Stockholders for the Fiscal Year Ended February 28, 2007, filed with the SEC on May 7, 2007, and its Semi-Annual Report to Stockholders for the Semi-Annual Period Ended September 30, 2007, filed with the SEC on November 8, 2007. Copies of these documents, the SAI related to this Proxy Statement/Prospectus and any subsequently released stockholder reports are available upon request and without charge, by writing to the Funds at 125 Broad Street, New York, New York 10022, by visiting the Funds’ website at www.leggmason.com/individualinvestors or by calling the Funds at 800-822-5544.

The Funds are subject to the informational requirements of the Securities Exchange Act of 1934 and in accordance therewith, file reports and other information including proxy material, reports and charter documents with the SEC. These reports and other information can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, NE, Washington, DC 20549. Reports and other information about each Fund are available on the Edgar Database on the SEC’s website at www.sec.gov. Copies of such material can also be obtained from the Public Reference Branch, Office of Consumer Affairs and Information Services, SEC, 100 F Street, NE, Washington, DC 20549 at prescribed rates. You may obtain information about the operation of the Public Reference Room by calling the SEC at 202-551-8090.

Financial Highlights

The financial highlights tables are intended to help you understand the performance of each Fund for the past five years. Certain information reflects financial results for a single share. Total return represents the rate that a stockholder would have earned (or lost) on a Fund share assuming reinvestment of all dividends and distributions. The information in the following tables has been derived from the Funds’ financial statements, which, for the fiscal years ended 2005, 2006 and 2007, have been audited by KPMG LLP, an independent registered public accounting firm, whose reports, along with the Funds’ financial statements, are included in the Funds’ annual reports (available upon request). Financial highlights presented for periods ended prior to July 1, 2005 have been audited by other independent registered public accountants. The financial highlights of EFL for the six-month period ended August 31, 2007 are unaudited.

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Financial Highlights for ESD (Acquiring Fund)

For a share of capital stock outstanding throughout each year ended October 31, unless otherwise noted:

	2007			2006(1)			2005(1)			2004(1)(2)
Net Asset Value, Beginning of Year	$	20.87		$	20.92		$	18.94		$	19.06	(3)
Income (Loss) From Operations:
Net investment income		1.24			1.12			1.49			1.47
Net realized and unrealized gain (loss)		0.71			1.06			2.21			(0.25	)
Total Income From Operations		1.95			2.18			3.70			1.22
Less Distributions From:
Net investment income		(1.10	)		(1.06	)		(1.72	)		(1.35	)
Net realized gains		(0.69	)		(1.18	)		—			—
Total Distributions		(1.79	)		(2.24	)		(1.72	)		(1.35	)
Increase in Net Asset Value Due to Adjustment of Initial Offering Costs		—			0.01			—			—
Increase in Net Asset Value Due to Shares Issued on Reinvestment of Distributions		—			—			—			0.01
Net Asset Value, End of Year	$	21.03		$	20.87		$	20.92		$	18.94
Market Price, End of Year	$	18.12		$	17.85		$	17.70		$	18.91
Total Return, Based on NAV(4)(5)		9.84	%		11.16	%		20.43	%		7.08	%
Total Return, Based on Market Price(5)		12.10	%		14.11	%		2.52	%		2.04	%
Net Assets, End of Year (000s)	$	588,986		$	584,437		$	586,082		$	525,375
Ratios to Average Net Assets:
Gross expenses		1.25	%(6)		1.02	%		1.81	%		1.82	%(7)
Gross expenses, excluding interest expense		1.04	(6)		0.95			1.19			1.32	(7)
Net expense		1.25	(6)(8)		1.02	(8)		1.81			1.82	(7)
Net expenses, excluding interest expense		1.04	(6)(8)		0.95	(8)		1.19			1.32	(7)
Net investment income		6.00			5.48			7.45			8.90	(7)
Portfolio Turnover Rate		85	%		72	%		84	%		94	%

⁽¹⁾ Per share amounts have been calculated using the average shares method.

⁽²⁾ For the period December 21, 2003 (inception of operations) to October 31, 2004.

⁽³⁾ Initial public offering price of $20.00 per share less offering costs and sales load totaling $0.94 per share.

⁽⁴⁾ Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized.

⁽⁵⁾ The total return calculation assumes that distributions are reinvested in accordance with the Fund’s dividend reinvestment plan. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized.

⁽⁶⁾ Included in the expense ratios are certain non-recurring restructuring (and reorganization, if applicable) fees that were incurred by the Fund during the period. Without these fees, the gross and net expense ratios would not have changed.

⁽⁷⁾ Annualized.

⁽⁸⁾ Reflects fee waivers and/or expense reimbursements.

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Financial Highlights for EFL (Target Fund)

For a share of capital stock outstanding throughout each year ended February 28, unless otherwise noted:

	2007(1)			2007			2006			2005			2004(2)			2003
Net Asset Value, Beginning of Period	$	14.19		$	15.24		$	14.18		$	13.28		$	11.23		$	12.07
Income (Loss) From Operations:
Net investment income		0.39			0.82			0.86			0.88			1.01			1.24	(4)
Net realized and unrealized gain (loss)		(0.48	)		(0.00	)(3)		0.96			0.90			2.09			(0.98	)(4)
Total Income (Loss) From Operations		(0.09	)		0.82			1.82			1.78			3.10			0.26
Less Distributions From:
Net investment income		(0.37	)		(0.63	)		(0.70	)		(0.73	)		(1.05	)		(1.09	)
Net realized gains		(0.20	)		(1.24	)		(0.06	)		(1.15	)		—			—
Return of capital		—			—			—			—			—			(0.01	)
Total Distributions		(0.57	)		(1.87	)		(0.76	)		(0.88	)		(1.05	)		(1.10	)
Net Asset Value, End of Period	$	13.53		$	14.19		$	15.24		$	14.18		$	13.28		$	11.23
Market Price, End of Period	$	12.35		$	13.62		$	13.85		$	14.02		$	13.69		$	11.30
Total Return, Based on NAV(5)		(0.72	)%		5.69	%		13.31	%		14.02	%		28.37	%		3.28	%
Total Return, Based on Market Price(6)		(5.31	)%		12.61	%		4.77	%		9.50	%		31.55	%		6.92	%
Net Assets, End of Period (000s)	$	58,238		$	61,075		$	65,579		$	61,025		$	57,143		$	48,271
Ratios to Average Net Assets:
Gross expenses		1.49	%(7)		2.52	%		3.05	%		2.40	%		2.36	%		2.65	%
Gross expenses, excluding interest expense		1.49	(7)		1.68			1.57			1.67			1.70			1.69
Net expense		1.48	(7)(8)		2.52			3.05	(8)		2.40			2.36			2.65
Net expenses, excluding interest expense		1.48	(7)(8)		1.68			1.57	(8)		1.67			1.70			1.69
Net investment income		5.48	(7)		5.28			5.98			6.57			7.93			11.64	(4)
Portfolio Turnover Rate		31	%		95	%		89	%		136	%		87	%		87	%
Supplemental Data:
Loans Outstanding, End of Period (000s)		—	(9)		—	(9)	$	15,000		$	15,000		$	15,000		$	15,000
Weighted Average Loan (000s)		—	(9)	$	14,433	(9)	$	15,000		$	15,000		$	15,000		$	15,000
Weighted Average Interest Rate on Loans		—	%(9)		5.15	%(9)		4.85	%		2.83	%		2.40	%		2.97	%

⁽¹⁾ For the six months ended August 31, 2007 (unaudited).

⁽²⁾ For the period ended February 29, 2004.

⁽³⁾ Amount represents less than $0.01 per share.

⁽⁴⁾ Certain amounts have been reclassified between net investment income and net realized gain (loss) in order to conform to the current year presentation of swap contracts. Without the effect of these reclassifications, the net investment income for the year ended February 28, 2003 would have been $1.08. Net realized and unrealized loss would have been $(0.82). In addition, the ratio of net investment income to average net assets would have been 10.16%. These reclassifications had no impact on the net asset value of the Fund or the amount and character of distributions.

⁽⁵⁾ Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized.

⁽⁶⁾ The total return calculation assumes that distributions are reinvested in accordance with the Fund’s dividend reinvestment plan. Past performance is no guarantee of future results. Total returns for periods of less than on year are not annualized.

⁽⁷⁾ Annualized.

⁽⁸⁾ Reflects fee waivers and/or expense reimbursements.

⁽⁹⁾ At August 31, 2007 and February 28, 2007, the fund did not have an outstanding loan.

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Management’s Discussion of Fund Performance

The discussion of performance for ESD is dated as of October 31, 2007 and does not reflect developments occurring after that date.

Q. What were the overall market conditions during ESD’s fiscal year 2007?

A. During the calendar year, the bond markets in both the U.S. and abroad experienced periods of increased volatility. This was often caused by changing perceptions regarding economic growth, inflation and future central bank monetary policy. After treading water during the first three months of the reporting period, the global bond markets rallied in February 2007. This was largely due to a “flight to quality” that was triggered by sharp losses in the world’s equity markets. Bond prices then reversed course and weakened in May and June 2007, when economic growth around the world was solid and inflationary pressures increased. In the U.S., the yield on 10-year U.S. Treasury notes rose to 5.26% in mid-June 2007, their highest rate in five years.

Another flight to quality then began in July 2007, when mounting troubles in the U.S. subprime mortgage market led to a severe credit crunch and caused investors to seek refuge in high quality government bonds. At the same time, increased risk aversion caused other segments of the bond market to falter. As conditions in the credit market worsened in August 2007, central banks around the world took action by injecting approximately $500 billion of liquidity into the financial system. Additionally, the Federal Reserve Board (“Fed”) aggressively lowered the discount rate and then the federal funds rate toward the end of the reporting period. These actions appeared to lessen the credit crunch and supported the overall bond market. All told, during the 12-months ended October 31, 2007, the JPMorgan Global Government Bond Market Index (Hedged) returned 4.45%. Emerging market debt performed even better, with the JPMorgan Emerging Markets Bond Index Global (“EMBI Global”) returning 8.07% over the same time frame. The emerging market debt asset class overcame a three-month period of weakness from May through July 2007 and produced solid results for the fiscal year as a whole. The balance sheets of many emerging market countries strengthened as they benefited from high commodity prices. In addition, there was generally strong demand from investors seeking to generate incremental yield.

Performance Review. For the 12 months ended October 31, 2007, ESD returned 9.84% based on its net asset value (“NAV”) and 12.10% based on its NYSE market price per share. In comparison, ESD’s unmanaged benchmark, the EMBI Global, returned 8.07% and its Lipper Emerging Markets Debt Closed-End Funds Category Average increased 9.65% over the same time frame. Please note that Lipper performance returns are based on each fund’s NAV.

During the 12-month period, ESD made distributions to shareholders totaling $1.79 per share. The performance table shows ESD 12-month total return based on its NAV and market price as of October 31, 2007. Past performance is no guarantee of future results.

Performance Snapshot as of October 31, 2007 (unaudited)

Price Per Share	12-Month Total Return
ESD
$21.03 (NAV)	9.84	%
$18.12 (Market Price)	12.10	%

All figures represent past performance and are not a guarantee of future results.

Total returns are based on changes in NAV or market price, respectively. Total returns assume the reinvestment of all distributions in additional shares.

Q. What were the most significant factors affecting performance?

What were the leading contributors to performance?

A. A significant diversification into emerging market debt denominated in local currencies had a large positive impact on performance. Many of these currencies appreciated significantly against the U.S. dollar, which has come under significant

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pressure during the last year. In particular, currencies that benefited ESD’s results included the Egyptian pound, the Brazilian real and the Turkish lira.

Elsewhere, for much of the reporting period, ESD’s emerging market corporate bonds performed well and provided more attractive yields relative to their sovereign counterparts. However, corporate bond prices reversed course and declined during the summer. This was due to spike in risk aversion associated with the subprime lending crisis in more developed economies.

What were the leading detractors from performance?

A. As discussed, emerging market corporate bonds hit a setback during the summer as a result of the accelerating credit crisis. ESD’s modest exposure to these securities, therefore, detracted from results during this period. An underweight, relative to ESD’s benchmark, to countries such as the Philippines detracted from performance as their spreads continued to contract. Elsewhere, the Funds’ overweight to Argentina was a negative contributor to performance during the year.

Q. Were there any significant changes to ESD during the reporting period?

A. Although there were no significant changes made to ESD positioning during the report period, there were changes to the non-fundamental investment policies.

On May 17, 2007, the Board of ESD approved, to be effective June 1, 2007, changes to the non-fundamental investment policy relating to the ESD’s definition of “emerging market country”. ESD changed their definition of “emerging market country” to include any country which is, at the time of investment, represented in the EMBI Global or categorized by the World Bank, in its annual categorization, as middle- or low-income.

Under the previous investment policy, ESD defined an “emerging market country” as: “any country which is considered to be an emerging country by the World Bank at the time of ESD’s investment. The countries that will not be considered emerging market countries include: Australia; Austria; Belgium; Canada; Denmark; Finland; France; Germany; Ireland; Italy; Japan; Luxembourg; the Netherlands; New Zealand; Norway; Spain; Sweden; Switzerland; the United Kingdom; and the United States.”

On August 15, 2007, the Board of ESD approved, to be effective September 17, 2007, amending the Fund’s non-fundamental investment policies, providing that ESD may, under normal market conditions, invest at least 80% of its managed assets in debt securities of issuers in emerging market countries. Under the amended policies, ESD may invest in debt securities of issuers of emerging market countries rated investment grade.

The Board of ESD also approved amended non-fundamental investment policies relating to credit quality, providing that ESD will usually attempt to maintain a portfolio with a weighted average credit rating of at least B3 by Moody’s or B– by S&P, or an equivalent rating by a nationally recognized statistical rating organization. Previously, ESD was subject to a policy requiring it to attempt to maintain a portfolio with a weighted average credit quality rated between Baa2 and B3 by Moody’s or BBB or B– by S&P or, if not rated by Moody’s and S&P, of comparable quality as determined by the ESD’s investment manager. In addition, under new non-fundamental investment policies, ESD now has the ability to invest in dollar rolls. These changes to the ESD’s non-fundamental investment policies became effective on September 17, 2007.

As a result of the amendments to ESD’s non-fundamental investment policies, ESD will be able to invest in dollar rolls as part of its investment strategies. Under a dollar roll transaction, ESD sells securities for delivery in the current month, or sells securities it has purchased on a “to-be-announced” basis, and simultaneously contracts to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, ESD forgoes principal and interest paid on the purchased securities. Dollar rolls are speculative techniques involving leverage, and are considered borrowings by ESD if ESD does not establish and maintain a segregated account. In addition, dollar rolls involve the risk that the market value of the securities ESD is obligated to repurchase may decline below the repurchase price. In the event the buyer of securities under a dollar roll files for bankruptcy or becomes insolvent, ESD’s use of proceeds may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce ESD’s obligation to repurchase the securities. Successful use of dollar rolls may depend upon the ability of ESD’s investment manager to correctly predict interest rates and prepayments. There is no assurance that dollar rolls can be successfully employed.

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These changes to ESD’s non-fundamental investment policies are intended to provide the portfolio managers with additional flexibility to meet ESD’s investment objectives and address developments in the market.

Net Asset Value, Market Price and Premium/Discount

Common shares of closed-end investment companies, such as the Funds, have frequently traded at a discount from net asset value, or in some cases trade at a premium. Shares of closed-end investment companies investing primarily in fixed income securities tend to trade on the basis of income yield on the market price of the shares and the market price may also be affected by trading volume, general market conditions and economic conditions and other factors beyond the control of the fund. As a result, the market price of each Fund’s Common Shares may be greater or less than the net asset value per share. Since the commencement of each Fund’s operations, each Fund’s Common Shares have traded in the market at prices that were generally below net asset value per share.

The following tables set forth the high and low sales prices for ESD Common Shares and EFL Common Shares on the NYSE, the net asset value per share and the discount or premium to net asset value per share represented by the quotation for each quarterly period during the last two calendar years.

ESD (Acquiring Fund)

Fiscal Year End is October 31

	Quarterly High Price						Quarterly Low Price
Quarter Ended	Net Asset Value Per Share		NYSE Price		Premium/ Discount		Net Asset Value Per Share		NYSE Price		Premium/ Discount
03/31/06	$	20.92	$	18.47	(11.711	)	$	20.50	$	17.45	(14.878	)
06/30/06		20.49		17.62	(14.007	)		19.42		16.43	(15.396	)
09/30/06		20.67		17.79	(13.933	)		19.79		16.70	(15.614	)
12/31/06		21.22		18.13	(14.562	)		20.68		17.60	(14.894	)
03/31/07		20.77		17.90	(13.818	)		20.54		17.48	(14.898	)
06/30/07		20.98		18.49	(11.868	)		20.44		17.76	(13.112	)
09/30/07		20.66		18.04	(12.682	)		19.66		15.81	(19.583	)
12/31/07		21.00		18.18	(13.429	)		20.44		17.57	(14.041	)

EFL (Target Fund)

Fiscal Year End is February 28

	Quarterly High Price						Quarterly Low Price
Quarter Ended	Net Asset Value Per Share		NYSE Price		Premium/ Discount		Net Asset Value Per Share		NYSE Price		Premium/ Discount
03/31/06	$	15.13	$	14.06	(7.072	)	$	14.84	$	12.70	(14.420	)
06/30/06		14.95		14.40	(3.679	)		14.84		12.53	(15.566	)
09/30/06		15.14		13.84	(8.587	)		14.89		12.75	(14.372	)
12/31/06		14.88		14.22	(4.435	)		14.66		13.30	(9.277	)
03/31/07		14.19		13.62	(4.017	)		14.20		13.06	(8.028	)
06/30/07		14.34		13.94	(2.789	)		14.18		12.74	(10.155	)
09/30/07		14.00		14.26	1.857			13.43		11.00	(18.094	)
12/31/07		13.67		12.74	(6.803	)		13.32		11.30	(15.165	)

On February 29, 2008, the net asset value per share of ESD was $20.49 and the closing price of ESD Common Shares on the NYSE was $18.17, meaning ESD Common Shares were trading at a 11.323% discount to ESD’s net asset value per share. Also on February 29, 2008, the net asset value per share of EFL was $12.71 and the closing price of EFL Common Shares on the NYSE was $11.74, meaning that EFL Common Shares were trading at a 7.632% discount to EFL’s net asset value per share.

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As of February 29, 2008, ESD Common Shares have been trading at a greater discount than EFL Common Shares. However, the trading discount for ESD Common Shares may change after the issuance of additional ESD Common Shares in the Merger and the resulting increase in supply of ESD Common Shares in the market.

CAPITALIZATION

The following table sets forth the unaudited capitalization of each Fund as of the date set out below, and on a pro forma basis as of that date, giving effect to the proposed acquisition of assets at net asset value. The pro forma capitalization information is for informational purposes only. No assurance can be given as to how many shares of ESD will be received by stockholders of EFL on the Closing Date, and the information should not be relied upon to reflect the number of shares of ESD that actually will be received.

The following table sets out the effect of the proposed acquisition of assets at net asset value on a pro forma basis:

Pro Forma Combined Capitalization Table

As of February 29, 2008 (Unaudited)

	ESD (Acquiring Fund)		EFL (Target Fund)		Pro Forma Adjustments			Pro Forma Combined Fund
Total Net Assets	$	573,859,486	$	54,717,690	$	(72,500	)(1)	$	628,504,676
Shares Outstanding		28,009,890		4,305,295		(1,638,014	)(2)		30,677,171
Net Asset Value	$	20.49	$	12.71		—		$	20.49

⁽¹⁾ Reflects adjustments for estimated reorganization expenses.

⁽²⁾ Reflects adjustment to the number of Common Shares outstanding due to the Reorganization.

For more information about the Funds’ capital stock, see “Description of the Funds’ Capital Stock—Common Shares”

PORTFOLIO COMPOSITION

As of December 31, 2007, approximately 99.77% of the market value of ESD’s portfolio was invested in long-term securities and approximately 0.23% was invested in short-term securities.

S&P(1)	Moody’s(1)	Number of Issues	Market Value (millions)		Percent
AAA	Aaa	16	$	18.7	3.1
AA+, AA, AA-	Aa1, Aa, Aa2, Aa3	0		0	0
A+, A, A-	A1, A, A2, A3	10	$	81.0	13.4
BBB+, BBB, BBB-	Baa1, Baa, Baa2, Baa3	28	$	170.2	28.1
Below Investment Grade	Below Investment Grade	70	$	335.6	55.4
Total		124	$	605.5	100	%

⁽¹⁾ Ratings: using the higher or S&P or Moody’s rating.

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As of December 31, 2007, approximately 69.39% of the market value of EFL’s portfolio was invested in long-term securities and approximately 30.61% was invested in short-term securities.

S&P(1)	Moody’s(1)	Number of Issues	Market Value (millions)		Percent
AAA	Aaa	0		0	0
AA+, AA, AA-	Aa1, Aa, Aa2, Aa3	0		0	0
A+, A, A-	A1, A, A2, A3	20	$	6.1	10.6
BBB+, BBB, BBB-	Baa1, Baa, Baa2, Baa3	15	$	24.2	41.9
Below Investment Grade	Below Investment Grade	38	$	27.5	47.5
Total		73	$	57.8	100%

⁽¹⁾ Ratings: using the higher or S&P or Moody’s rating.

PORTFOLIO TRANSACTIONS

Neither Fund has an obligation to deal with any brokers or dealers in the execution of transactions in portfolio securities. Subject to policy established by the Board, the Manager is responsible for each Fund’s portfolio decisions and the placing of the Fund’s portfolio transactions.

Portfolio securities normally will be purchased or sold from or to dealers serving as market makers for the securities at a net price, which may include dealer spreads and underwriting commissions. In placing orders, it is the policy of each Fund to obtain the best results taking into account the general execution and operational facilities of the broker or dealer, the type of transaction involved and other factors such as the risk of the broker or dealer in positioning the securities involved. While the Manager generally seeks the best price in placing its orders, neither Fund may necessarily be paying the lowest price available. Subject to seeking the best price and execution, securities firms which provide supplemental research to the Manager may receive orders for transactions by the Fund. Information so received will be in addition to and not in lieu of the services required to be performed by the Manager under each Fund’s management agreement, and the expenses of the Manager will not necessarily be reduced as a result of the receipt of such supplemental information.

Each Fund expects that all portfolio transactions will be effected on a principal basis and, accordingly, does not expect to pay any brokerage commissions. To the extent a Fund does effect brokerage transactions, affiliated persons (as such term is defined in the 1940 Act) of the Fund, or affiliated persons of such persons, may from time to time be selected to perform brokerage services for the Fund, subject to the considerations discussed above, but are prohibited by the 1940 Act from dealing with the Fund as principal in the purchase or sale of securities. In order for such an affiliated person to be permitted to effect any portfolio transactions for a Fund, the commissions, fees or other remuneration received by such affiliated person must be reasonable and fair compared to the commissions, fees or other remuneration received by other brokers in connection with comparable transactions involving similar securities being purchased or sold during a comparable period of time. This standard would allow such an affiliated person to receive no more than the remuneration which would be expected to be received by an unaffiliated broker in a commensurate arm’s-length transaction.

Investment decisions for each Fund are made independently from those for other funds and accounts advised or managed by the Manager. Such other funds and accounts may also invest in the same securities as the Funds. When a purchase or sale of the same security is made at substantially the same time on behalf of a Fund and another fund or account, the transaction will be averaged as to price, and available investments allocated as to amount, in a manner which the Manager believes to be equitable to the Fund and such other fund or account. In some instances, this investment procedure may adversely affect the price paid or received by a Fund or the size of the position obtained or sold by the Fund. To the extent permitted by law, the Manager may aggregate the securities to be sold or purchased for the Fund with those to be sold or purchased for other funds and accounts in order to obtain best execution.

Although neither Fund has any restrictions on portfolio turnover, it is neither Fund’s policy to engage in transactions with the objective of seeking profits from short-term trading. It is expected that the annual portfolio turnover rate of the Funds will not exceed 200%. The portfolio turnover rate is calculated by dividing the lesser of sales or purchases of portfolio securities by the average monthly value of a Fund’s portfolio securities. For purposes of this calculation, portfolio securities

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exclude all securities having a maturity when purchased of one year or less. A high rate of portfolio turnover involves correspondingly greater transaction costs than a lower rate, which costs are borne by the Funds and their stockholders.

DIVIDENDS AND DISTRIBUTIONS

Distributions

General

Each Fund intends to distribute its net investment (ordinary) income on a monthly basis. At least annually, each Fund intends to distribute all of its net long-term capital gains, if any. For each Fund, both monthly and annual distributions to holders of Common Shares will be made only after making interest and required principal payments on borrowings, if any, or paying any accrued dividends on, or redeeming or liquidating, any Fund Preferred Shares.

From time to time, each Fund may distribute less than the entire amount of net investment income earned in a particular period, which amount may be available to supplement future distributions. As a result, the distributions paid by a Fund for any particular monthly period may be more or less than the amount of net investment income actually earned by the Fund during the period and the Fund may have to sell a portion of its investment portfolio to make a distribution at a time when independent investment judgment might not dictate such action. Undistributed net investment income is included in the net asset value of a Fund’s Common Shares and, correspondingly, distributions from net investment income will reduce the Common Shares’ net asset value. In addition, the terms of any borrowings or Fund Preferred Shares (if issued) may prohibit a Fund from making distributions in the amount or at the time that it otherwise would.

Managed Distribution Policy

On August 15, 2007, each Fund’s Board of Directors adopted a managed distribution policy. Under each Fund’s managed distribution policy, the Fund seeks to maintain a consistent distribution level, stated as a fixed-rate per Common Share per month, that may be paid in part or in full from net investment income and realized capital gains, or a combination thereof. Stockholders should note, however, that if a Fund’s aggregate net investment income and net realized capital gains are less than the amount of the new distribution level, the difference will be distributed from the Fund’s assets and will constitute a return of the stockholder’s capital. A return of capital is not taxable; rather it reduces a stockholder’s tax basis in his or her shares of a Fund.

Either Fund’s Board of Directors may terminate or suspend that Fund’s managed distribution policy at any time. Any such termination or suspension could have an adverse effect on the market price of a Fund’s Common Shares.

Dividend Reinvestment Plan [ESD]

Unless you elect to receive distributions in cash, all distributions on your ESD Common Shares will be automatically reinvested by American Stock Transfer & Trust Company (“AST”), as agent for the holders of ESD Common Shares (the “Plan Agent”), in additional ESD Common Shares under the Dividend Reinvestment Plan (the “Plan”). You may elect not to participate in the Plan by contacting the Plan Agent. If you do not participate, you will receive all cash distributions paid by check mailed directly to you by AST as dividend paying agent.

If you participate in the Plan, the number of ESD Common Shares you will receive will be determined as follows:

(1) If the market price of the ESD Common Shares on the record date (or, if the record date is not a New York Stock Exchange trading day, the immediately preceding trading day) for determining stockholders eligible to receive the relevant distribution (the “determination date”) is equal to or exceeds 98% of the net asset value per share of the ESD Common Shares, the Fund will issue new ESD Common Shares at a price equal to the greater of (a) 98% of the net asset value per share at the close of trading on the Exchange on the determination date or (b) 95% of the market price per share of the ESD Common Shares on the determination date.

(2) If 98% of the net asset value per share of the ESD Common Shares exceeds the market price of the ESD Common Shares on the determination date, the Plan Agent will receive the dividend or distribution in cash and will buy ESD Common Shares in the open market, on the Exchange or elsewhere, for your account as soon as practicable commencing on the trading day following the determination date and terminating no later than the earlier of (a) 30 days after the distribution payment

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date, or (b) the record date for the next succeeding distribution to be made to the holders of ESD Common Shares; except when necessary to comply with applicable provisions of the federal securities laws. If during this period: (i) the market price rises so that it equals or exceeds 98% of the net asset value per share of the ESD Common Shares at the close of trading on the Exchange on the determination date before the Plan Agent has completed the open market purchases or (ii) if the Plan Agent is unable to invest the full amount eligible to be reinvested in open market purchases, the Plan Agent will cease purchasing ESD Common Shares in the open market and the Fund shall issue the remaining ESD Common Shares at a price per share equal to the greater of (a) 98% of the net asset value per share at the close of trading on the Exchange on the determination date or (b) 95% of the then current market price per share.

The Plan Agent maintains all participants’ accounts in the Plan and gives written confirmation of all transactions in the accounts, including information you may need for tax records. ESD Common Shares in your account will be held by the Plan Agent in non-certificated form. Any proxy you receive will include all ESD Common Shares you have received under the Plan.

You may withdraw from the Plan by notifying the Plan Agent in writing at 59 Maiden Lane, New York, New York 10038. Such withdrawal will be effective immediately if notice is received by the Plan Agent not less than ten business days prior to distribution record date; otherwise such withdrawal will be effective as soon as practicable after the Plan Agent’s investment of the most recently declared distribution on the ESD Common Shares. The Plan may be terminated by the Fund upon notice in writing mailed to holders of ESD Common Shares at least 30 days prior to the record date for the payment of any dividend or distribution by the Fund for which the termination is to be effective. Upon any termination, you will be sent a certificate or certificates for the full ESD Common Shares held for you under the Plan and cash for any fractional ESD Common Shares. You may elect to notify the Plan Agent in advance of such termination to have the Plan Agent sell part or all of your shares on your behalf. You will be charged $5.00 plus a $0.05 per ESD Common Share service charge and the Plan Agent is authorized to deduct brokerage charges actually incurred for this transaction from the proceeds.

There is no service charge for reinvestment of your distributions in ESD Common Shares. However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases. Because all distributions will be automatically reinvested in additional ESD Common Shares, this allows you to add to your investment through dollar cost averaging, which may lower the average cost of your ESD Common Shares over time.

Automatically reinvesting distributions does not mean that you do not have to pay income taxes due upon receiving distributions.

ESD reserves the right to amend or terminate the Plan if, in the judgment of the Board, the change is warranted. There is no direct service charge to participants in the Plan; however, ESD reserves the right to amend the Plan to include a service charge payable by the participants. Additional information about the Plan and your account may be obtained from the Plan Agent at 1-888-888-0151.

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TAXATION

Set forth below is a discussion of certain U.S. federal income tax aspects concerning the Funds and the acquisition, ownership and disposition of Fund shares. This discussion does not purport to be complete or to deal with all aspects of U.S. federal income taxation that may be relevant to shareholders in light of their particular circumstances. Unless otherwise noted, this discussion assumes you are a U.S. shareholder and that you hold your shares as a capital asset. This discussion is based upon present provisions of the Code, the regulations promulgated thereunder, and judicial and administrative ruling authorities, all of which are subject to change, which change may be retroactive. Prospective investors should consult their own tax advisers with regard to the U.S. federal tax consequences of the acquisition, ownership, or disposition of Fund shares, as well as the tax consequences arising under the laws of any state, foreign country or other taxing jurisdiction.

Taxation of the Funds

Each Fund has elected to be treated and intends to continue to qualify annually as a regulated investment company (“RIC”) under the Code.

To qualify for the favorable U.S. federal income tax treatment generally accorded to RICs, each Fund must, among other things: (a) derive in each taxable year at least 90% of its gross income from (1) dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of stock, securities or foreign currencies or other income (including but not limited to gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies; and (2) net income derived from interests in certain publicly traded partnerships that are treated as partnerships for federal income tax purposes and that derive less than 90% of their gross income from the items described in (1) above (each a “Qualified Publicly Traded Partnership”), (b) diversify its holdings so that, at the end of each quarter of each taxable year, (i) at least 50% of the market value of the Fund’s assets is represented by cash and cash items (including receivables), U.S. Government securities, the securities of other RICs and other securities, with such other securities of any one issuer limited for the purposes of this calculation to an amount not greater than 5% of the value of the Fund’s total assets and not greater than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities (other than U.S. Government securities or the securities of other RICs) of (I) any one issuer, (II) any two or more issuers that the Fund controls and that are determined to be engaged in the same or similar trades or businesses or related trades or businesses or (III) any one or more Qualified Publicly Traded Partnerships; and (c) distribute at least 90% of its investment company taxable income (as that term is defined in the Code, but without regard to the deduction for dividends paid) each taxable year.

As a RIC, each Fund generally will not be subject to U.S. federal income tax on its investment company taxable income and net capital gain (the excess of net long-term capital gain over net short-term capital loss), if any, that it distributes to shareholders. Each Fund intends to distribute to its shareholders, at least annually, substantially all of its investment company taxable income and net capital gain. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax. To prevent imposition of the excise tax, each Fund must distribute during each calendar year at least an amount equal to the sum of (1) 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year, (2) 98% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for the one-year period ending October 31 of the calendar year, and (3) any ordinary income and capital gains for previous years that were not distributed during those years. For these purposes, each Fund will be deemed to have distributed any income or gains on which it paid U.S. federal income tax. To prevent application of the excise tax, each Fund intends to make its distributions in accordance with the foregoing distribution requirement. A distribution will be treated as paid on December 31 of the current calendar year if it is declared by a Fund in October, November or December with a record date in such a month and paid by such Fund during January of the following calendar year. Such distributions will be taxable to shareholders in the calendar year in which the distributions are declared, rather than the calendar year in which the distributions are received.

If either Fund failed to qualify as a RIC or failed to satisfy the 90% distribution requirement in any taxable year, such Fund would be taxed as an ordinary corporation on its taxable income (including its net capital gain, and even if such income were distributed to its shareholders) and all distributions out of earnings and profits would be taxed to shareholders as ordinary income. Such distributions generally would be eligible (i) to be treated as “qualified dividend income” in the case of individual shareholders and (ii) for the dividends received deduction in the case of corporate shareholders. In addition, such Fund could be required to recognize unrealized gains, pay taxes and make distributions (which could be subject to interest charges) before requalifying for taxation as a RIC.

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Distributions

Distributions of a Fund’s investment company taxable income will generally be taxable to a shareholder as ordinary income to the extent paid out of such Fund’s earnings and profits, whether paid in cash or reinvested in additional shares. If a portion of a Fund’s income consists of dividends paid by U.S. corporations, a portion of the dividends paid by such Fund to corporate shareholders generally may be eligible for the corporate dividends received deduction. In addition, for taxable years beginning on or before December 31, 2010, distributions of net investment income that are designated by a Fund as derived from qualified dividend income are taxed to individuals at the rates applicable to long-term capital gain. Due to the nature of the Funds’ investments, neither Fund expects a significant portion of Fund distributions to be eligible for the corporate dividends received deduction or derived from qualified dividend income. Distributions of net capital gain, if any, designated as capital gain dividends are taxable to a shareholder as long-term capital gain, regardless of how long the shareholder has held Fund shares. Long-term capital gain rates for individuals have been temporarily reduced to 15% (with lower rates for individuals in the 10% and 15% rate brackets) for taxable years beginning on or before December 31, 2010. Shareholders receiving distributions in the form of additional shares, rather than cash, generally will have a cost basis for such shares equal to the amount of the cash dividend that is reinvested. A distribution of an amount in excess of a Fund’s current and accumulated earnings and profits will be treated by a shareholder as a return of capital, which is applied against and reduces the shareholder’s basis in his or her shares. To the extent that the amount of any such distribution exceeds the shareholder’s basis in his or her shares, the excess will be treated by the shareholder as gain from a sale or exchange of the shares.

Each Fund may elect to retain its net capital gain or a portion thereof for investment and be taxed at corporate rates on the amount retained. In such case, it may designate the retained amount as undistributed capital gains in a notice to its shareholders, who will be treated as if each received a distribution of his pro rata share of such gain, with the result that each shareholder will (i) be required to report his pro rata share of such gain on his tax return as long-term capital gain, (ii) receive a refundable tax credit for his pro rata share of tax paid by such Fund on the gain and (iii) increase the tax basis for his shares by an amount equal to the deemed distribution less the tax credit.

Shareholders will be notified annually as to the U.S. federal tax status of distributions, and shareholders receiving distributions in the form of additional shares will receive a report as to the net asset value of those shares.

Sale or Exchange of Fund Shares

Upon the sale or other disposition of shares of a Fund which a shareholder holds as a capital asset, such shareholder may realize a capital gain or loss in an amount equal to the difference between the amount realized and the shareholder’s adjusted tax basis in the shares sold. Such gain or loss will be long-term or short-term, depending upon the shareholder’s holding period for the shares. Generally, a shareholder’s gain or loss will be a long-term gain or loss if the shares have been held for more than one year.

Any loss realized on a sale or exchange will be disallowed to the extent that shares disposed of are replaced (including through reinvestment of dividends) within a period of 61 days beginning 30 days before and ending 30 days after disposition of the shares. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on a disposition of Fund shares held by the shareholder for six months or less will be treated as a long-term capital loss to the extent of any capital gain dividends received by the shareholder (or amounts designated as undistributed capital gains) with respect to such shares.

Treasury regulations provide that if a shareholder recognizes a loss with respect to shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder in any single taxable year (or a greater loss over a combination of years), the shareholder must file with the Internal Revenue Service a disclosure statement on IRS Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a RIC are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all RICs. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.

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Nature of Funds’ Investments

Certain of each Fund’s investment practices are subject to special and complex U.S. federal income tax provisions that may, among other things, (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (ii) convert lower taxed long-term capital gain into higher taxed short-term capital gain or ordinary income, (iii) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (iv) cause the Fund to recognize income or gain without a corresponding receipt of cash, (v) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (vi) adversely alter the characterization of certain complex financial transactions and (vii) produce income that will not qualify as good income for purposes of the 90% annual gross income requirement described above. These rules could therefore affect the character, amount and timing of distributions to shareholders. Each Fund will monitor its transactions and may make certain tax elections in order to mitigate the effect of these provisions.

Original Issue Discount Securities

Investments by a Fund in zero coupon or other discount securities will result in income to such Fund equal to a portion of the excess of the face value of the securities over their issue price (the “original issue discount”) each year that the securities are held, even though the Fund receives no cash interest payments. This income is included in determining the amount of income which such Fund must distribute to maintain its qualification for the favorable U.S. federal income tax treatment generally accorded to RICs and to avoid the payment of U.S. federal income tax and the 4% excise tax. Because such income may not be matched by a corresponding cash distribution to the Fund, the Fund may be required to borrow money or dispose of other securities to be able to make distributions to its shareholders.

Market Discount Bonds

Gain derived by a Fund from the disposition of any bonds with market discount (i.e., an amount generally equal to the excess of the stated redemption price or revised issue price of the bond over the basis of such bond immediately after it was acquired) will be taxed as ordinary income to the extent of the accrued market discount, unless such Fund makes an election to accrue market discount on a current basis. If this election is not made, all or a portion of any deduction for interest expense incurred to purchase or carry a market discount bond may be deferred until such bond is sold or otherwise disposed of.

High Yield Securities

Each Fund may invest substantially all of its assets in domestic and foreign “high yield” securities, commonly known as “junk bonds.” Investments in these types of securities may present special tax issues for such Fund. U.S. federal income tax rules are not entirely clear about issues such as when the Fund may cease to accrue interest, original issue discount or market discount, when and to what extent deductions may be taken for bad debts or worthless securities, how payments received on obligations in default should be allocated between principal and interest and whether exchanges of debt obligations in a bankruptcy or workout context are taxable. These and other issues will be addressed by each Fund, in the event it invests in such debt securities, in order to seek to ensure that it distributes sufficient income to preserve its status as a RIC and does not become subject to U.S. federal income or excise tax.

Currency Fluctuations

Under Section 988 of the Code, gains or losses attributable to fluctuations in exchange rates between the time a Fund accrues income or receivables or expenses or other liabilities denominated in a foreign currency and the time such Fund actually collects such income or receivables or pays such liabilities are generally treated as ordinary income or loss. Similarly, gains or losses on foreign currency, foreign currency forward contracts, certain foreign currency options or futures contracts and the disposition of debt securities denominated in foreign currency, to the extent attributable to fluctuations in exchange rates between the acquisition and disposition dates, are also treated as ordinary income or loss.

Foreign Taxes

Investment income that may be received by a Fund from sources within foreign countries may be subject to foreign taxes withheld at the source. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. If either Fund qualifies as a RIC, such Fund satisfies the 90% distribution requirement and more than 50% of the value of such Fund’s total assets at the close of its taxable year consists of stock or securities of foreign corporations, then such

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Fund may elect to “pass through” to its shareholders the amount of foreign taxes paid by such Fund. If a Fund so elects, each shareholder would be required to include in gross income, even though not actually received, his pro rata share of the foreign taxes paid by such Fund, but would be treated as having paid his pro rata share of such foreign taxes and would therefore be allowed to either deduct such amount in computing taxable income or use such amount (subject to various Code limitations) as a foreign tax credit against U.S. federal income tax (but not both). For purposes of the foreign tax credit limitation rules of the Code, each shareholder would treat as foreign source income his pro rata share of such foreign taxes plus the portion of dividends received from the Fund representing income derived from foreign sources. No deduction for foreign taxes could be claimed by an individual shareholder who does not itemize deductions. In certain circumstances, a shareholder that has held shares of a Fund for less than a specified minimum period during which it is not protected from risk of loss, or is obligated to make payments related to the dividends, will not be allowed a foreign tax credit for foreign taxes deemed imposed on dividends paid on such shares. Additionally, each Fund must also meet this holding period requirement with respect to its foreign stock and securities in order for “creditable” taxes to flow-through. Each shareholder should consult his own tax adviser regarding the potential application of foreign tax credits.

Backup Withholding

Each Fund may be required to withhold U.S. federal income tax from all distributions and redemption proceeds payable to shareholders who fail to provide the Fund with their correct taxpayer identification number or to make required certifications, or who have been notified by the Internal Revenue Service that they are subject to backup withholding. The withholding percentage is 28% until 2011, when the percentage will increase to 31% absent legislative action. Corporate shareholders and certain other shareholders specified in the Code generally are exempt from such backup withholding. This withholding is not an additional tax. Any amounts withheld may be credited against the shareholder’s U.S. federal income tax liability. To avoid such withholding, foreign shareholders (as defined below) generally must provide a properly completed IRS Form W-8BEN certifying their non-United States status.

Foreign Shareholders

U.S. taxation of a shareholder who is a nonresident alien individual, a foreign trust or estate, a foreign corporation or foreign partnership (“foreign shareholder”) depends on whether the income of a Fund is “effectively connected” with a U.S. trade or business carried on by the shareholder.

If the income from a Fund is not “effectively connected” with a U.S. trade or business carried on by the foreign shareholder, distributions of investment company taxable income will be subject to a U.S. tax of 30% (or lower treaty rate), which tax is generally withheld from such distributions. In addition, with respect to taxable years of RICs beginning before January 1, 2008, U.S. source withholding taxes are not imposed on dividends paid by RICs to the extent the dividends are designated as “interest-related dividends” or “short-term capital gain dividends.” Under this exemption, interest-related dividends and short-term capital gain dividends generally represent distributions of interest or short-term capital gains that would not have been subject to U.S. withholding tax at the source if they had been received directly by a foreign person, and that satisfy certain other requirements. Legislation has recently been proposed that would extend this exemption through taxable years beginning before January 1, 2009; no assurances can be given, however, as to whether this legislation will be enacted. The Fund does not currently, and does not intend to, designate any amounts as interest related dividends or as short-term capital gain dividends for this purpose. Such a foreign shareholder would generally be exempt from U.S. federal income tax on capital gain dividends, any amounts retained by a Fund that are designated as undistributed capital gains and any gains realized upon the sale or exchange of shares of such Fund. However, a foreign shareholder who is a nonresident alien individual and is physically present in the United States for more than 182 days during the taxable year and meets certain other requirements will nevertheless be subject to a U.S. tax of 30% on such capital gain dividends, undistributed capital gains and sale or exchange gains.

If the income from a Fund is “effectively connected” with a U.S. trade or business carried on by a foreign shareholder, then distributions of investment company taxable income, any capital gain dividends, any amounts retained by such Fund that are designated as undistributed capital gains and any gains realized upon the sale or exchange of shares of such Fund will be subject to U.S. income tax at the graduated rates applicable to U.S. citizens, residents or domestic corporations. Foreign corporate shareholders may also be subject to the branch profits tax imposed by the Code.

In the case of a non-corporate foreign shareholder, a Fund may be required to withhold U.S. federal income tax from distributions that are otherwise exempt from withholding tax (or taxable at a reduced treaty rate) unless the foreign shareholder certifies his or her foreign status under penalties of perjury or otherwise establishes an exemption.

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The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may differ from those described herein. Foreign shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in a Fund.

Other Taxation

It is not expected that you will be subject to alternative minimum tax as a result of your investment in a Fund. Fund shareholders may be subject to state, local and foreign taxes on their Fund distributions. Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in a Fund.

NET ASSET VALUE

Each Fund determines the net asset value of its Common Shares on each day the NYSE is open for business, as of the close of the customary trading session (normally 4:00 p.m. Eastern time), or any earlier closing time that day. Each Fund determines the net asset value per Common Share by dividing the value of the Fund’s securities, cash and other assets (including interest accrued but not collected) less all its liabilities (including accrued expenses, the liquidation preference of any outstanding Preferred Shares and dividends payable) by the total number of Common Shares outstanding. Each Fund values portfolio securities for which market quotations are readily available at market value. Each Fund’s short-term investments are valued at amortized cost when the security has 60 days or less to maturity. Determination of the Common Shares’ net asset value is made in accordance with generally accepted accounting principles.

Each Fund values all other securities and assets at their fair value. If events occur that materially affect the value of a security between the time trading ends on the security and the close of the customary trading session of the NYSE, a Fund may value the security at its fair value as determined in good faith by or under the supervision of the Board of Directors of the Fund. The effect of using fair value pricing is that the Common Shares’ net asset value will be subject to the judgment of the Board of Directors or its designee instead of being determined by the market.

Any swap transaction that a Fund enters into may, depending on the applicable interest rate environment, have a positive or negative value for purposes of calculating net asset value. Any cap transaction that a Fund enters into may, depending on the applicable interest rate environment, have no value or a positive value. In addition, accrued payments to a Fund under such transactions will be assets of the Fund and accrued payments by the Fund will be liabilities of the Fund.

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DESCRIPTION OF THE FUNDS’ CAPITAL STOCK

The authorized capital stock of ESD is 100,000,000 shares of capital stock, par value $0.001 per share, and the authorized capital stock of EFL is 100,000,000 shares of capital stock, par value $0.001 per share. The following table presents the number of shares of (i) capital stock authorized by each Fund, and (ii) capital stock outstanding for each class of authorized shares of each Fund as of             , 2008:

Fund	Amount Authorized	Amount Outstanding as of             , 2008
ESD (Common Shares)	100,000,000	28,009,890
EFL (Common Shares)	100,000,000	4,305,295

There are no material differences between the rights of holders of ESD Common Shares and the holders of EFL Common Shares.

As described above, the authorized capital stock of ESD is 100,000,000 shares of capital stock, $0.001 par value per share, all of which have been designated as ESD Common Shares. The outstanding ESD Common Shares are, and the ESD Common Shares to be issued in the Merger will be, when issued, fully paid and nonassessable. All ESD Common Shares are equal as to dividends, distributions and voting privileges. There are no conversion, preemptive or other subscription rights. In the event of liquidation, each ESD Common Share is entitled to its proportion of ESD’s assets after debts and expenses. There are no cumulative voting rights for the election of Directors.

Also as described above, the authorized capital stock of EFL is 100,000,000 shares of capital stock, $0.001 par value per share, 99,999,100 of which have been designated EFL Common Shares. The outstanding EFL Common Shares are fully paid and nonassessable. All EFL Common Shares are equal as to dividends, distribution and voting privileges. There are no conversion, preemptive or other subscription rights. In the event of liquidation, each EFL Common Share is entitled to its proportion of EFL’s assets after debts and expenses. There are no cumulative voting rights for the election of Directors.

Neither Fund has a present intention of offering additional Common Shares to the public except to the extent that ESD intends to issue new ESD Common Shares to holders of EFL Common Shares in the Merger. Other offerings of a Fund’s Common Shares, if made, will require approval of that Fund’s Board. Any additional offering will be subject to the requirements of the 1940 Act that shares of common stock may not be sold at a price below the then current net asset value (exclusive of underwriting discounts and commissions) except in connection with an offering to existing stockholders or with the consent of a majority of the outstanding shares of common stock.

Special Voting Provisions

Each Fund has provisions in its Charter and By-Laws that could have the effect of limiting the ability of other entities or persons to acquire control of the Fund, to cause it to engage in certain transactions or to modify its structure. Each Fund’s Board is divided into three classes, each having terms of three years. At each Fund’s annual meeting of stockholders in each year, the term of one class expires and Directors are elected to serve in that class for terms of three years. This provision could delay for up to two years the replacement of a majority of the Board. A Director may be removed from office only for cause and only by a vote of the holders of at least 75% of the shares of the Fund entitled to be cast on the matter.

The affirmative vote of 75% of the entire Board of each Fund is required to authorize the conversion of the Fund from a closed-end to an open-end investment company. The conversion also requires the affirmative vote of the holders of 75% of the votes entitled to be cast thereon by holders of the outstanding voting stock of the Fund, unless it is approved by a vote of 75% of the Continuing Directors (as defined below), in which event such conversion requires the approval of the holders of a majority of the outstanding voting stock of the Fund. A “Continuing Director” is any member of the Board of a Fund who (i) is not a person or affiliate of a person who enters or proposes to enter into a Business Combination (as defined below) with the Fund (an “Interested Party”) and (ii) who has been a member of the Board since the commencement of the Fund’s operations, or is a successor of a Continuing Director who is unaffiliated with an Interested Party and is recommended to succeed a Continuing Director by a majority of the Continuing Directors then on the Board of a Fund.

The affirmative votes of 75% of the entire Board and the holders of 75% of the outstanding voting stock of either Fund are required to adopt, approve, advise or authorize any of the following transactions:

(1) merger, consolidation or statutory share exchange of the Fund with or into any other person;

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(2) issuance or transfer by the Fund (in one or a series of transactions in any 12 month period) of any securities of the Fund to any person or entity for cash, securities or other property (or combination thereof) having an aggregate fair market value of $1,000,000 or more, excluding issuances or transfers of debt securities of the Fund, sales of securities of the Fund in connection with a public offering, issuances of securities of the Fund pursuant to a dividend reinvestment plan adopted by the Fund, issuances of securities of the Fund upon the exercise of any stock subscription rights distributed by the Fund and portfolio transactions effected by the Fund in the ordinary course of its business;

(3) sale, lease, exchange, mortgage, pledge, transfer or other disposition by the Fund (in one or a series of transactions in any 12 month period) to or with any person or entity of any assets of the Fund having an aggregate fair market value of $1,000,000 or more except for portfolio transactions (including pledges of portfolio securities in connection with borrowings) effected by the Fund in the ordinary course of its business (transactions described in clauses (1), (2) and (3) above being known individually as a “Business Combination”);

(4) any proposal for the voluntary liquidation or dissolution of the Fund or an amendment to the Fund’s Charter to terminate the Fund’s existence; or

(5) unless the 1940 Act or federal law requires a lesser vote, any stockholder proposal as to specific investment decisions made or to be made with respect to the Fund’s assets as to which stockholder approval is required under federal or Maryland law.

However, the 75% stockholder vote will not be required with respect to the foregoing transactions (other than those set forth in (5) above) if they are approved by a vote of 75% of the Continuing Directors. In that case, if Maryland law requires, the affirmative vote of a majority of the votes entitled to be case shall be required.

Each Fund’s By-Laws contain provisions the effects of which are to prevent matters, including nominations of Directors, from being considered at a stockholders’ meeting where the Fund has not received notice of the matters at least 60 days prior to the meeting (or 10 days following the date notice of such meeting is given by the Fund if less than 70 days’ notice of such meeting is given by the Fund).

Board of each Fund has determined that the foregoing voting requirements, which are generally greater than the minimum requirements under Maryland law and the 1940 Act, are in the best interests of stockholders generally.

Reference is made to the Charter and By-Laws of each Fund, on file with the SEC, for the full text of these provisions. These provisions could have the effect of depriving stockholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of a Fund in a tender offer or similar transaction. In the opinion of the Manager, however, these provisions offer several possible advantages. They may require persons seeking control of a Fund to negotiate with its management regarding the price to be paid for the shares required to obtain such control, they promote continuity and stability and they enhance the Fund’s ability to pursue long-term strategies that are consistent with its investment objectives.

In any event, holders of each Fund’s Common Shares are entitled to one vote per Common Share, and each Common Share of each Fund has equal voting rights with all other outstanding Common Shares of that Fund.

Board Recommendation and Required Vote

Because the Merger in Proposal 2 has been approved by at least 75% of EFL’s “Continuing Directors,” as that term is defined in EFL’s charter, that Proposal must be approved by the holders of a majority of the outstanding EFL Common Shares. Approval of Proposal 2 will occur only if a sufficient number of votes at the Meeting are cast “FOR” that Proposal. Abstentions and broker non-votes are not considered “votes cast” and, therefore, do not constitute a vote “FOR” Proposal 2. Abstentions effectively result in a vote AGAINST Proposal 2. Any broker non-votes would effectively be treated as a vote “AGAINST” Proposal 2.

The Fund’s Board of Directors, including the Independent Directors, unanimously recommends that stockholders of the Fund vote FOR the approval of the Merger of EFL with and into ESD in accordance with the Maryland General Corporation Law.

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FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (EFL)

Audit Fees. The aggregate fees billed for professional services rendered by KPMG for the audit of EFL’s annual financial statements for the fiscal years ended February 28, 2007 and February 29, 2008, or for services that are normally provided in connection with the statutory and regulatory filings or engagements in those fiscal years, were $51,000 and $            , respectively.

Audit Related Fees. The aggregate fees billed by KPMG in connection with assurance and related services related to the annual audit of the Fund and for review of the Fund’s financial statements, other than the Audit Fees described above, for the fiscal years ended February 28, 2007 and February 29, 2008 were $12,000 and $            , respectively.

In addition, there were no Audit Related Fees billed in the year ended February 29, 2008 for assurance and related services by KPMG to LMPFA and any entity controlling, controlled by or under common control with LMPFA that provides ongoing services to the Fund (LMPFA and such other entities together, the “Service Affiliates”), that were related to the operations and financial reporting of the Fund. Accordingly, there were no such fees that required pre-approval by the Audit Committee for the period May 6, 2003 to February 29, 2008 (prior to May 6, 2003 such services provided were not subject to pre-approval requirements).

Tax Fees. The aggregate fees billed by KPMG for tax compliance, tax advice and tax planning services, which include the filing and amendment of federal, state and local income tax returns, timely regulated investment company qualification review, and tax distribution and analysis planning to the Fund for the fiscal years ended February 28, 2007 and February 29, 2008 were $5,548 and $            , respectively.

There were no fees billed by KPMG to the Service Affiliates for tax services for the period May 6, 2003 through December 31, 2007 that were required to be approved by the Fund’s Audit Committee.

All Other Fees. There were no other fees billed for other non-audit services rendered by KPMG to the Fund for the fiscal years ended February 28, 2007 and February 29, 2008.

There were no other non-audit services rendered by KPMG to the Service Affiliates requiring preapproval by the Audit Committee in the Reporting Period.

Generally, the Audit Committee must approve (a) all audit and permissible non-audit services to be provided to the Fund and (b) all permissible non-audit services to be provided to the Service Affiliates that relate directly to the operations and financial reporting of the Fund. The Audit Committee may implement policies and procedures by which such services are approved other than by the full Committee, but has not yet done so.

For the Fund the percentage of fees that were approved by the Audit Committee, with respect to: Audit-Related Fees were 100% and     % for the years ended February 28, 2007 and February 29, 2008; Tax Fees were 100% and     % for the years ended February 28, 2007 and February 29, 2008; and for Other Fees paid were 100% and     % for the years ended February 28, 2007 and February 29, 2008.

The Audit Committee shall not approve non-audit services that the Committee believes may impair the independence of the independent registered public accounting firm. As of the date of the approval of the Audit Committee Charter, permissible non-audit services include any professional services (including tax services), that are not prohibited services as described below, provided to the Fund by the independent registered public accounting firm, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible.

Pre-approval by the Audit Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund and the Service Affiliates constitutes not more than 5% of the total amount of revenues paid to the Fund’s independent registered public accounting firm during the fiscal year in which the permissible non-audit services are provided to (a) the Fund, (b) SBAM and (c) any entity controlling, controlled by

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or under common control with SBAM that provides ongoing services to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Audit Committee and approved by the Audit Committee (or its delegate(s)) prior to the completion of the audit.

The aggregate non-audit fees billed by KPMG for services rendered to the Fund and Service Affiliates for the fiscal years ended February 28, 2007 and February 29, 2008 were $0 and $            , respectively.

The Audit Committee has considered whether the provision of non-audit services to the Service Affiliates that were not pre-approved by the Audit Committee (because they did not require pre-approval) is compatible with maintaining KPMG’s independence. All services provided by KPMG to the Fund or to the Service Affiliates that were required to be approved by the Audit Committee were pre-approved.

A representative of KPMG, if requested by any stockholder, will be present via telephone at the Meeting to respond to appropriate questions from stockholders and will have an opportunity to make a statement if he or she chooses to do so.

STOCKHOLDER PROPOSALS AND OTHER STOCKHOLDER COMMUNICATIONS

All proposals by stockholders of EFL which are intended to be presented at the Fund’s 2009 Annual Meeting of Stockholders must be received by the Fund no later than            , 2008 to be included in EFL’s proxy statement relating to that meeting. Any stockholder who desires to present a proposal at the EFL’s 2009 Annual Meeting of Stockholders without including the proposal in the Fund’s proxy statement must deliver written notice of the proposal to the Chairman of EFL (addressed to c/o Legg Mason, 620 Eighth Avenue, 49th Floor, New York, NY 10018) during the period from April 1, 2009 to May 1, 2009. However, if the Fund’s 2009 Annual Meeting of Stockholders is held earlier than May 30, 2009 or later than August 29, 2009, such written notice must be delivered to the Secretary of the Fund during the period from 90 days before the date of the 2009 Annual Meeting of Stockholders to the later of 60 days prior to the date of the 2009 Annual Meeting of Stockholders or 10 days following the public announcement of the date of the 2009 Annual Meeting of Stockholders.

EFL’s Audit Committee has also established guidelines and procedures regarding the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters (collectively, “Accounting Matters”). Persons with complaints or concerns regarding Accounting Matters may submit their complaints to the Fund’s Chief Compliance Officer (“CCO”). Persons who are uncomfortable submitting complaints to the CCO, including complaints involving the CCO, may submit complaints directly to EFL’s Audit Committee Chair (together with the CCO, “Complaint Officers”). Complaints may by submitted on an anonymous basis.

The CCO may be contacted at:

Legg Mason

Compliance Department

620 Eighth Avenue, 49th Floor

New York, NY 10018

Complaints may also be submitted by telephone at 800-742-5274. Complaints submitted through this number will be received by the CCO.

EFL’s Audit Committee Chair may be contacted at:

Western Asset Emerging Markets Floating Rate Fund Inc.

Audit Committee Chair

c/o Robert K. Fulton, Esq.

Stradley Ronon Stevens & Young, LLP

2600 One Commerce Square

Philadelphia, PA 19103

Any stockholder who wishes to send any other communications to the Board of Directors should also deliver such communications to the Secretary of EFL at the address listed above. The Secretary is responsible for determining, in consultation with other officers of EFL, counsel, and other advisers as appropriate, which stockholder communications will be relayed to the Board.

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5% BENEFICIAL OWNERSHIP

At April 28, 2008, to the knowledge of management, no person owned of record or owned beneficially more than 5% of the Fund’s capital stock outstanding at that date, except that Cede & Co., a nominee for participants in Depository Trust Company, held of record shares equal to approximately             % of the Fund’s outstanding shares.

OTHER BUSINESS

The Fund’s Board of Directors does not know of any other matter that may come before the Meeting. If any other matter properly comes before the Meeting, it is the intention of the persons named in the proxy to vote the proxies in accordance with their judgment on that matter.

VOTING INFORMATION

This Proxy Statement/Prospectus is furnished in connection with a solicitation of proxies by EFL’s Board of Directors to be used at the Meeting. This Proxy Statement/Prospectus, along with the Notice of Special Meeting and a proxy card, are first being mailed to EFL stockholders on or about             , 2008 or as soon as practicable thereafter.

Only stockholders of record of EFL at the close of business on April 28, 2008 are entitled to notice of and to vote at the Meeting and at any postponement or adjournment thereof. On April 28, 2008, there were                  outstanding EFL Common Shares.

A quorum of EFL stockholders is required to take action at the Meeting. A majority of the outstanding EFL Common Shares entitled to vote at the Meeting, represented in person or by proxy, will constitute a quorum of stockholders at the Meeting.

Votes cast by proxy or in person at the Meeting will be tabulated by the inspector of election appointed for the Meeting. The inspector of election, who is an employee of the proxy solicitor engaged by EFL, will determine whether or not a quorum is present at the Meeting. The inspector of election will treat abstentions and “broker non-votes” (i.e., shares held by brokers or nominees, typically in “street name,” as to which proxies have been returned but (a) instructions have not been received from the beneficial owners or persons entitled to vote and (b) the broker or nominee does not have discretionary voting power on a particular matter) as present for purposes of determining a quorum.

If you hold shares directly (not through a broker-dealer, bank or other financial intermediary) and if you return a signed proxy card that does not specify how you wish to vote on a proposal, your shares will be voted “FOR” all nominees for Director in Proposal 1 and “FOR” Proposal 2.

Broker-dealer firms holding EFL Common Shares in “street name” for the benefit of their customers and clients will request the instructions of such customers and clients on how to vote their shares on each Proposal before the Meeting. The NYSE has taken the position that a broker-dealer that is a member of the NYSE and that has not received instructions from a customer or client prior to the date specified in the broker-dealer firm’s request for voting instructions may not vote such customer or client’s shares with respect to Proposal 2. If a service agent is not a member of the NYSE, it may be permissible for the service agent to vote shares with respect to which it has not received specific voting instructions from its customers on Proposal 2. A signed proxy card or other authorization by a beneficial owner of EFL Common Shares that does not specify how the beneficial owner’s shares should be voted on a proposal will be deemed an instruction to vote such shares in favor of the applicable proposal.

If you hold EFL Common Shares through a service agent that has entered into a service agreement with EFL, the service agent may be the record holder of your EFL Common Shares. At the Meeting, a service agent will vote shares for which it receives instructions from its customers in accordance with those instructions. A signed proxy card or other authorization by a stockholder that does not specify how the stockholder’s shares should be voted on a proposal may be deemed to authorize a service agent to vote such shares in favor of the applicable proposal. Depending on its policies, applicable law or contractual or other restrictions, a service agent may be permitted to vote shares with respect to which it has not received specific voting instructions from its customers. In those cases, the service agent may, but may not be required to, vote such shares in the same proportion as those shares for which the service agent has received voting instructions. This practice is commonly referred to as “echo voting.”

If you beneficially own shares that are held in “street name” through a broker-dealer or that are held of record by a service agent and if you do not give specific voting instructions for your shares, they may not be voted at all or, as described

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above, they may be voted in a manner that you may not intend. Therefore, you are strongly encouraged to give your broker-dealer or service agent specific instructions as to how you want your shares to be voted.

A stockholder may revoke a proxy at any time on or before the Meeting by either (1) submitting to the applicable Fund a subsequently dated proxy, (2) delivering to the applicable Fund a written notice of revocation (addressed to the Secretary at the principal executive office of the Fund at the address shown at the beginning of this Proxy Statement/Prospectus) or (3) otherwise giving notice of revocation at the Meeting, at all times prior to the exercise of the authority granted in the proxy card. Merely attending the Meeting, however, will not revoke any previously executed proxy. Unless revoked, all valid and executed proxies will be voted in accordance with the specifications thereon or, in the absence of such specifications, for approval of each Proposal.

Even if you plan to attend the Meeting, we ask that you return the enclosed proxy card or vote by telephone or through the Internet. This will help us ensure that an adequate number of shares are present for the Meeting to be held.

Photographic identification will be required for admission to the Meeting.

Proposal 1:

• Directors are elected by a plurality of the votes cast by the holders of EFL Common Shares present in person or represented by proxy at a Meeting at which a quorum is present.

• For purposes of Proposal 1, abstentions and broker non-votes will not be considered votes cast, and do not affect the plurality vote required for the election of Directors.

Proposal 2:

• Because the Merger in Proposal 2 has been approved by at least 75% of EFL’s “Continuing Directors,” as that term is defined in EFL’s charter, that Proposal must be approved by the holders of a majority of the outstanding EFL Common Shares.

• Approval of Proposal 2 will occur only if a sufficient number of votes at the Meeting are cast “FOR” that Proposal. Abstentions and broker non-votes are not considered “votes cast” and, therefore, do not constitute a vote “FOR” Proposal 2. Abstentions effectively result in a vote AGAINST Proposal 2. Any broker non-votes would effectively be treated as a vote “AGAINST” Proposal 2.

Adjournments and Postponements

If the necessary quorum to transact business or the vote required to approve one or more Proposals is not obtained at the Meeting, the chairman of the Meeting or the persons named as proxies may propose one or more adjournments or postponements of the Meeting in accordance with applicable law to permit further solicitation of proxies. If in the judgment of the chairman of the Meeting or the persons named as proxies, it is advisable to defer action on one or more Proposals, the chairman of the Meeting or the persons named as proxies may propose one or more adjournments of the Meeting with respect to such Proposal or Proposals for a reasonable period or periods. The Meeting may be adjourned up to 120 days after the original record date for the Meeting without further notice other than announcement at the Meeting.

Appraisal Rights

Under the Maryland General Corporation Law, holders of EFL Common Shares are not entitled to appraisal rights in connection with the Merger.

EXPENSES OF PROXY SOLICITATION

The costs of preparing, assembling and mailing material in connection with this solicitation of proxies will be split between Western Asset, ESD and EFL. Western Asset has agreed to bear 50% of the expenses incurred in connection with this solicitation of proxies. The remaining 50% will be borne by ESD and EFL in proportion to their respective total assets. These costs are estimated to be approximately $            . Proxies may also be solicited in-person, by telephone or by use of the mails by officers of the Fund, by regular employees of LMPFA, Western Asset or their affiliates or by other representatives of the Fund. Brokerage houses, banks and other fiduciaries may be requested to forward proxy solicitation material to their principals to obtain authorization for the execution of proxies and will be reimbursed by the Fund for such out-of-pocket expenses. In addition, the Fund has retained Computershare Fund Services Inc. (“Computershare”), 17 State Street, New York, New York 10004, a proxy solicitation firm, to assist in the solicitation of proxies. It is anticipated that Computershare will be paid approximately $             for such solicitation services (including reimbursements of out-of-pocket expenses), which costs are to be borne by LMPFA. Computershare may solicit proxies personally and by telephone.

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SERVICE PROVIDERS

State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, serves as the custodian of each Fund.

American Stock Transfer & Trust Company, 59 Maiden Lane, New York, New York 10038, serves as each Fund’s dividend disbursing and transfer agent.

KPMG LLP, 345 Park Avenue, New York, New York 10154, has been selected as each Fund’s independent registered public accounting firm to audit the Fund’s financial statements and highlights for the most recent fiscal year.

Simpson Thacher & Bartlett LLP, 425 Lexington Avenue, New York, New York 10017, serves as counsel to the Funds.

Stradley Ronon Stevens & Young, LLP, 2600 One Commerce Square, Philadelphia, PA 19103, serves as counsel to each Fund’s Independent Directors.

Certain legal matters concerning the issuance of ESD Common Shares will be passed upon by DLA Piper US LLP, 6225 Smith Avenue, Baltimore, Maryland 21209.

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INDEX OF APPENDICES

Appendix A: Form of Agreement and Plan of Merger

Appendix B: Description of Moody’s and S&P Ratings

Appendix C: Legg Mason Partners Fund Advisor, LLC—Proxy Voting Policy

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APPENDIX A

FORM OF

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (“Agreement”) is made as of this              day of             , 2008, between Western Asset Emerging Markets Floating Rate Fund Inc. (the “Acquired Fund”), a Maryland corporation with its principal place of business at 125 Broad Street, New York, New York 10004, and Western Asset Emerging Markets Debt Fund Inc. (the “Acquiring Fund”), a Maryland corporation with its principal place of business at 125 Broad Street, New York, New York 10004.

WHEREAS, each of the Acquired Fund and the Acquiring Fund is a closed-end management investment company registered pursuant to the Investment Company Act of 1940, as amended (the “1940 Act”);

WHEREAS, it is intended that, for United States federal income tax purposes (i) the transactions contemplated by this Agreement shall qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) that the Agreement shall constitute a “plan of reorganization” for purposes of the Code;

WHEREAS, the reorganization will consist of the merger of the Acquired Fund with and into the Acquiring Fund pursuant to the Maryland General Corporation Law (“MGCL”) as provided herein, and upon the terms and conditions hereinafter set forth in this Agreement;

WHEREAS, the Acquired Fund currently owns securities that are generally assets of the character in which the Acquiring Fund is permitted to invest;

WHEREAS, the Board of Directors of the Acquiring Fund (the “Acquiring Fund Board”) has determined, with respect to the Acquiring Fund, that the Merger (as hereinafter defined) is in the best interests of the Acquiring Fund and its stockholders and that the interests of the existing stockholders of the Acquiring Fund will not be diluted as a result of this transaction;

WHEREAS, the Board of Directors of the Acquired Fund (the “Acquired Fund Board”) has determined, with respect to the Acquired Fund, that the Merger (as hereinafter defined) is in the best interests of the Acquired Fund and its stockholders and that the interests of the existing stockholders of the Acquired Fund will not be diluted as a result of this transactions;

NOW, THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto agree as follows:

1. BASIC TRANSACTION

1.1 The Merger. On and subject to the terms and conditions of this Agreement, the Acquired Fund will merge with and into the Acquiring Fund (the “Merger”) at the Effective Date (as defined in paragraph 1.3 below) in accordance with the MGCL. The Acquiring Fund shall be the surviving corporation and investment company. The Acquired Fund shall cease to exist as a separate corporation and investment company.

Each outstanding share of Acquired Fund Common Stock (as defined in paragraph 2.2(o)), will be converted into an equivalent dollar amount (to the nearest one tenth of one cent) of full shares of Acquiring Fund Common Stock (as defined in paragraph 2.1(o)), based on the net asset value per share of each of the parties at 4:00 p.m. Eastern Time on the Business Day prior to the Effective Date (the “Valuation Time”). No fractional shares of Acquiring Fund Common Stock will be issued to the holders of Acquired Fund Common Stock. In lieu thereof, the Acquiring Fund will purchase all fractional shares of Acquiring Fund Common Stock at the current net asset value per share of the Acquiring Fund Common Stock for the account of all holders of fractional interests, and each such holder will receive such holder’s pro rata share of the proceeds of such purchase. The Effective Date and the Business Day prior to it must each be a day on which the New York Stock Exchange is open for trading (a “Business Day”).

From and after the Effective Date, the Acquiring Fund shall possess all of the properties, assets, rights, privileges and powers and shall be subject to all of the restrictions, liabilities, obligations, disabilities and duties of the Acquired Fund, all as provided under Maryland law.

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1.2 Actions at Closing. At the closing of the transactions contemplated by this Agreement (the “Closing”) on the date thereof (the “Closing Date”), (i) the Acquired Fund will deliver to the Acquiring Fund the various certificates and documents referred to in Article 6 below, (ii) the Acquiring Fund will deliver to the Acquired Fund the various certificates and documents referred to in Article 5 below, and (iii) the Acquired Fund and the Acquiring Fund will file jointly with the State Department of Assessments and Taxation of Maryland (the “Department”) articles of merger (the “Articles of Merger”) and make all other filings or recordings required by Maryland law in connection with the Merger.

1.3 Effect of Merger. Subject to approval by the stockholders of the Acquired Fund, and to the other terms and conditions described herein, the Merger shall become effective at such time as the Articles of Merger are accepted for record by the Department or at such later time, not to exceed 30 days after such acceptance, as is specified in the Articles of Merger (the “Effective Date”) and the separate corporate existence of the Acquired Fund shall cease. As promptly as practicable after the Merger, the Acquired Fund shall delist the Acquired Fund Common Stock from the New York Stock Exchange (“NYSE”) and its registration under the 1940 Act shall be terminated. Any reporting responsibility of the Acquired Fund is, and shall remain, the responsibility of the Acquired Fund up to and including the Effective Date.

2. REPRESENTATIONS AND WARRANTIES

2.1 Representations and Warranties of the Acquiring Fund. The Acquiring Fund represents and warrants to the Acquired Fund that the statements contained in this paragraph 2.1 are correct and complete in all material respects as of the execution of this Agreement on the date hereof. The Acquiring Fund represents and warrants to, and agrees with, the Acquired Fund that:

(a) The Acquiring Fund is a corporation duly organized, validly existing under the laws of the State of Maryland and is in good standing with the Department, and has the power to own all of its assets and to carry on its business as it is now being conducted and to carry out this Agreement.

(b) The Acquiring Fund is duly registered under the 1940 Act as a diversified, closed-end management investment company (File No. 811-21343) and such registration has not been revoked or rescinded and is in full force and effect. The Acquiring Fund has elected and qualified for the special tax treatment afforded regulated investment companies (“RICs”) under Sections 851–855 of the Code at all times since its inception. The Acquiring Fund is qualified as a foreign corporation in every jurisdiction where required, except to the extent that failure to so qualify would not have a material adverse effect on the Acquiring Fund.

(c) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Acquiring Fund of the transactions contemplated herein, except (i) such as have been obtained or applied for under the Securities Act of 1933, as amended (the “1933 Act”), the Securities Exchange Act of 1934, as amended (the “1934 Act”), and the 1940 Act, (ii) such as may be required by state securities laws and (iii) such as may be required under Maryland law for the acceptance for record of the Articles of Merger by the Department.

(d) The Acquiring Fund is not, and the execution, delivery and performance of this Agreement by the Acquiring Fund will not result, in violation of the laws of the State of Maryland or of the Articles of Incorporation, as amended (the “Acquiring Fund Charter”), or the Bylaws, as amended, of the Acquiring Fund, or of any material agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Fund is a party or by which it is bound, and the execution, delivery and performance of this Agreement by the Acquiring Fund will not result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, indenture, instrument, contract, lease, judgment or decree to which the Acquiring Fund is a party or by which it is bound.

(e) The Acquired Fund has been furnished with a statement of assets, liabilities and capital and a schedule of investments of the Acquiring Fund, each as of October 31, 2007, said financial statements having been examined by KPMG LLP, independent public accountants. These financial statements are in accordance with generally accepted accounting principles applied on a consistent basis (“GAAP”) and present fairly, in all material respects, the financial position of the Acquiring Fund as of such date in accordance with GAAP, and there are no known contingent liabilities of the Acquiring Fund required to be reflected on a balance sheet (including the notes thereto) in accordance with GAAP as of such date not disclosed therein.

(f) The Acquired Fund has been furnished with the Acquiring Fund’s Annual Report to Stockholders for the year ended October 31, 2007 and the Acquiring Fund’s Semi-Annual Report to Stockholders for the semi-annual period ended April 30, 2008.

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(g) The Acquiring Fund has full power and authority to enter into and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action of the Acquiring Fund Board, and, subject to stockholder approval, this Agreement constitutes a valid and binding contract enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws relating to or affecting creditors’ rights generally and court decisions with respect thereto.

(h) No material litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or to its knowledge threatened against the Acquiring Fund or any properties or assets held by it. The Acquiring Fund knows of no facts that might form the basis for the institution of such proceedings which would materially and adversely affect its business and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions herein contemplated.

(i) There are no material contracts outstanding to which the Acquiring Fund is a party that have not been disclosed in the Registration Statement (as defined in paragraph 2.1(m) below) or will not be otherwise disclosed to the Acquired Fund prior to the Effective Date.

(j) Since October 31, 2007, there has not been any material adverse change in the Acquiring Fund’s financial condition, assets, liabilities or business and the Acquiring Fund has no known liabilities of a material amount, contingent or otherwise, required to be disclosed in a balance sheet with GAAP other than those shown on the Acquiring Fund’s statements of assets, liabilities and capital referred to above, those incurred in the ordinary course of its business as an investment company since October 31, 2007, and those incurred in connection with the Merger. Prior to the Effective Date, the Acquiring Fund will advise the Acquired Fund in writing of all known liabilities, contingent or otherwise, whether or not incurred in the ordinary course of business, existing or accrued. For purposes of this paragraph 2.1(j), a decline in net asset value per share of the Acquiring Fund due to declines in market values of securities in the Acquiring Fund’s portfolio or the discharge of the Acquiring Fund liabilities will not constitute a material adverse change.

(k) All federal and other tax returns and information reports of the Acquiring Fund required by law to have been filed shall have been filed and are or will be correct in all material respects, and all federal and other taxes shown as due or required to be shown as due on said returns and reports shall have been paid or provision shall have been made for the payment thereof, and, to the best of the Acquiring Fund’s knowledge, no such return is currently under audit and no assessment has been asserted with respect to such returns. All tax liabilities of the Acquiring Fund have been adequately provided for on its books, and no tax deficiency or liability of the Acquiring Fund has been asserted and no question with respect thereto has been raised by the Internal Revenue Service or by any state or local tax authority for taxes in excess of those already paid, up to and including the taxable year in which the Effective Date occurs.

(l) For each taxable year of its operation, the Acquiring Fund has met the requirements of Subchapter M of the Code for qualification as a RIC and has elected to be treated as such, has been eligible to and has computed its federal income tax under Section 852 of the Code, and will have distributed substantially all of its investment company taxable income and net realized capital gain (as defined in the Code) that has accrued through the Effective Date.

(m) The registration statement filed with the Securities and Exchange Commission (the “SEC”) by the Acquiring Fund on Form N-14 relating to the Acquiring Fund Common Stock to be issued pursuant to this Agreement, and any supplement or amendment thereto or to the documents therein (as amended, the “Registration Statement”), on the effective date of the Registration Statement, at the time of the stockholders’ meeting referred to in Article 4 of this Agreement and at the Effective Date, insofar as it relates to the Acquiring Fund (i) shall have complied or will comply in all material respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder and (ii) did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and the prospectus included therein did not or will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this paragraph 2.1(m) shall not apply to statements in, or omissions from, the Registration Statement made in reliance upon and in conformity with information furnished by the Acquired Fund for use in the Registration Statement.

(n) All issued and outstanding shares of Acquiring Fund Common Stock (i) have been offered and sold in compliance in all material respects with applicable registration requirements of the 1933 Act and state securities laws,

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(ii) are, and on the Effective Date will be, duly and validly issued and outstanding, fully paid and non-assessable, and (iii) will be held at the time of the Closing by the persons and in the amounts set forth in the records of the transfer agent. The Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any shares of Acquiring Fund Common Stock, nor is there outstanding any security convertible into, or exchangeable for, any shares of Acquiring Fund Common Stock.

(o) The Acquiring Fund is authorized to issue 100,000,000 shares of capital stock, par value $0.001 per share (the “Acquiring Fund Common Stock”); each outstanding share of which is fully paid, non-assessable and has full voting rights.

(p) The offer and sale of the shares of Acquiring Fund Common Stock to be issued pursuant to this Agreement will be in compliance with all applicable federal and state securities laws.

(q) At or prior to the Effective Date, the Acquiring Fund will have obtained any and all regulatory, board and stockholder approvals necessary to issue the shares of Acquiring Fund Common Stock to be issued pursuant to this Agreement.

(r) The books and records of the Acquiring Fund made available to the Acquired Fund are substantially true and correct and contain no material misstatements or omissions with respect to the operations of the Acquiring Fund.

(s) The Acquiring Fund Board has not adopted a resolution electing to be subject to the Maryland Business Combination Act or the Maryland Control Share Acquisition Act.

2.2 Representations and Warranties of the Acquired Fund. The Acquired Fund represents and warrants to the Acquiring Fund that the statements contained in this paragraph 2.2 are correct and complete in all material respects as of the execution of this Agreement on the date hereof. The Acquired Fund represents and warrants to, and agrees with, the Acquiring Fund that:

(a) The Acquired Fund is a corporation duly organized, validly existing under the laws of the State of Maryland and is in good standing with the Department, and has the power to own all of its assets and to carry on its business as it is now being conducted and to carry out this Agreement.

(b) The Acquired Fund is duly registered under the 1940 Act as a closed-end, diversified management investment company (File No. 811-08338), and such registration has not been revoked or rescinded and is in full force and effect. The Acquired Fund has elected and qualified for the special tax treatment afforded RICs under Sections 851–855 of the Code at all times since its inception. The Acquired Fund is qualified as a foreign corporation in every jurisdiction where required, except to the extent that failure to so qualify would not have a material adverse effect on the Acquired Fund.

(c) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Acquired Fund of the transactions contemplated herein, except (i) such as have been obtained or applied for under the 1933 Act, the 1934 Act and the 1940 Act, (ii) such as may be required by state securities laws and (iii) such as may be required under Maryland law for the acceptance for record of the Articles of Merger by the Department.

(d) The Acquired Fund is not, and the execution, delivery and performance of this Agreement by the Acquired Fund will not result, in violation of the laws of the State of Maryland or of the Articles of Incorporation, as amended (the “Acquired Fund Charter”), or the Bylaws, as amended, of the Acquired Fund, or of any material agreement, indenture, instrument, contract, lease or other undertaking to which the Acquired Fund is a party or by which it is bound, and the execution, delivery and performance of this Agreement by the Acquired Fund will not result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, indenture, instrument, contract, lease, judgment or decree to which the Acquired Fund is a party or by which it is bound.

(e) The Acquiring Fund has been furnished with a statement of assets, liabilities and capital and a schedule of investments of the Acquired Fund, each as of February 28, 2008, said financial statements having been examined by KPMG LLP, independent public accountants. These financial statements are in accordance with GAAP and present fairly, in all material respects, the financial position of the Acquired Fund as of such date in accordance with GAAP, and there are no known contingent liabilities of the Acquired Fund required to be reflected on a balance sheet (including the notes thereto) in accordance with GAAP as of such date not disclosed therein.

(f) The Acquiring Fund has been furnished with the Acquired Fund’s Annual Report to Stockholders for the year ended February 28, 2008.

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(g) The Acquired Fund has full power and authority to enter into and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action of the Acquired Fund Board, and, subject to stockholder approval, this Agreement constitutes a valid and binding contract enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws relating to or affecting creditors’ rights generally and court decisions with respect thereto.

(h) No material litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending (in which service of process has been received) or to its knowledge threatened against the Acquired Fund or any properties or assets held by it. The Acquired Fund knows of no facts that might form the basis for the institution of such proceedings which would materially and adversely affect its business and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions herein contemplated.

(i) There are no material contracts outstanding to which the Acquired Fund is a party that have not been disclosed in the Registration Statement or will not be otherwise disclosed to the Acquiring Fund prior to the Effective Date.

(j) Since February 28, 2008, there has not been any material adverse change in the Acquired Fund’s financial condition, assets, liabilities or business and the Acquired Fund has no known liabilities of a material amount, contingent or otherwise, required to be disclosed in a balance sheet in accordance with GAAP other than those shown on the Acquired Fund’s statements of assets, liabilities and capital referred to above, those incurred in the ordinary course of its business as an investment company since February 28, 2008, and those incurred in connection with the Merger. Prior to the Effective Date, the Acquired Fund will advise the Acquiring Fund in writing of all known liabilities, contingent or otherwise, whether or not incurred in the ordinary course of business, existing or accrued. For purposes of this paragraph 2.2(j), a decline in net asset value per share of the Acquired Fund due to declines in market values of securities in the Acquired Fund’s portfolio or the discharge of the Acquired Fund liabilities will not constitute a material adverse change.

(k) All federal and other tax returns and information reports of the Acquired Fund required by law to have been filed shall have been filed and are or will be correct in all material respects, and all federal and other taxes shown as due or required to be shown as due on said returns and reports shall have been paid or provision shall have been made for the payment thereof, and, to the best of the Acquired Fund’s knowledge, no such return is currently under audit and no assessment has been asserted with respect to such returns. All tax liabilities of the Acquired Fund have been adequately provided for on its books, and no tax deficiency or liability of the Acquired Fund has been asserted and no question with respect thereto has been raised by the Internal Revenue Service or by any state or local tax authority for taxes in excess of those already paid, up to and including the taxable year in which the Effective Date occurs.

(l) For each taxable year of its operation (including the taxable year ending on the Effective Date), the Acquired Fund has met the requirements of Subchapter M of the Code for qualification as a RIC and has elected to be treated as such, has been eligible to and has computed its federal income tax under Section 852 of the Code, and will have distributed substantially all of its investment company taxable income and net realized capital gain (as defined in the Code) that has accrued through the Effective Date.

(m) The Registration Statement, on the effective date of the Registration Statement, at the time of the stockholders’ meetings referred to in Article 4 of this Agreement and at the Effective Date, insofar as it relates to the Acquired Fund (i) shall have complied or will comply in all material respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder and (ii) did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and the prospectus included therein did not or will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this paragraph 2.2(m) shall only apply to statements in, or omissions from, the Registration Statement made in reliance upon and in conformity with information furnished by the Acquiring Fund for use in the Registration Statement.

(n) All issued and outstanding shares of Acquired Fund Common Stock (i) have been offered and sold in compliance in all material respects with applicable registration requirements of the 1933 Act and state securities laws, (ii) are, and on the Effective Date will be, duly and validly issued and outstanding, fully paid and non-assessable, and (iii) will be held at the time of the Closing by the persons and in the amounts set forth in the records of the transfer agent as provided in paragraph 4.7. The Acquired Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any shares of Acquired Fund Common Stock, nor is there outstanding any security convertible into, or exchangeable for, any shares of Acquired Fund Common Stock.

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(o) The Acquired Fund is authorized to issue 100,000,000 shares of capital stock, par value $0.001 per share (the “Acquired Fund Common Stock”), each outstanding share of which is fully paid, non-assessable and has full voting rights.

(p) The books and records of the Acquired Fund made available to the Acquiring Fund are substantially true and correct and contain no material misstatements or omissions with respect to the operations of the Acquired Fund.

(q) The Acquired Fund Board has not adopted a resolution electing to be subject to the Maryland Business Combination Act or the Maryland Control Share Acquisition Act.

3. CONVERSION TO THE ACQUIRING FUND COMMON STOCK

3.1 Conversion.

(a) Subject to the requisite approval of the stockholders of the parties, and the other terms and conditions contained herein, at the Effective Date, each share of Acquired Fund Common Stock will be converted into an equivalent dollar amount (to the nearest one tenth of one cent) of full shares of Acquiring Fund Common Stock, computed based on the net asset value per share of each of the parties at the Valuation Time.

(b) No fractional shares of Acquiring Fund Common Stock will be issued to the holders of Acquired Fund Common Stock. In lieu thereof, the Acquiring Fund will purchase all fractional shares of Acquiring Fund Common Stock at the current net asset value per share of Acquiring Fund Common Stock for the account of all holders of fractional interests, and each such holder will receive such holder’s pro rata share of the proceeds of such purchase.

3.2 Computation of Net Asset Value. The net asset value per share of the Acquired Fund Common Stock and the Acquiring Fund Common Stock shall be determined as of the Valuation Time, and no formula will be used to adjust the net asset value per share so determined of either of the parties’ common stock to take into account differences in realized and unrealized gains and losses. The value of the assets of the Acquired Fund to be transferred to the Acquiring Fund shall be determined by the Acquiring Fund pursuant to the principles and procedures consistently utilized by the Acquiring Fund in valuing its own assets and determining its own liabilities for purposes of the Merger, which principles and procedures are substantially similar to those employed by the Acquired Fund when valuing its own assets and determining its own liabilities. Such valuation and determination shall be made by the Acquiring Fund in cooperation with the Acquired Fund and shall be confirmed in writing by the Acquiring Fund to the Acquired Fund. The net asset value per share of Acquiring Fund Common Stock shall be determined in accordance with such procedures, and the Acquiring Fund shall certify the computations involved.

3.3 Issuance of the Acquiring Fund Common Stock. The Acquiring Fund shall issue to the holders of Acquired Fund Common Stock separate certificates or share deposit receipts for Acquiring Fund Common Stock by delivering the certificates or share deposit receipts evidencing ownership of Acquiring Fund Common Stock to American Stock Transfer & Trust Company, as the transfer agent and registrar for the Acquiring Fund Common Stock.

3.4 Surrender of the Acquired Fund Stock Certificates. With respect to any holder of Acquired Fund Common Stock holding certificates representing shares of Acquired Fund Common Stock as of the Effective Date, and subject to the Acquiring Fund being informed thereof in writing by the Acquired Fund, the Acquiring Fund will not permit such stockholder to receive new certificates evidencing ownership of Acquiring Fund Common Stock until such stockholder has surrendered his or her outstanding certificates evidencing ownership of Acquired Fund Common Stock or, in the event of lost certificates, posted adequate bond. The Acquired Fund will request its stockholders to surrender their outstanding certificates representing shares of Acquired Fund Common Stock or post adequate bond therefor. Dividends payable to holders of record of shares of Acquiring Fund Common Stock as of any date after the Effective Date and prior to the exchange of certificates by any holder of Acquired Fund Common Stock shall be paid to such stockholder, without interest; however, such dividends shall not be paid unless and until such stockholder surrenders his or her certificates representing shares of Acquired Fund Common Stock for exchange.

4. COVENANTS

4.1 Operations in the Normal Course. Each party covenants to operate its business in the ordinary course between the date hereof and the Effective Date, it being understood that such ordinary course of business will include (i) the declaration and payment of customary dividends and other distributions and (ii) in the case of the Acquired Fund, preparing for its

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deregistration, except that the distribution of dividends pursuant to paragraph 6.6 of this Agreement shall not be deemed to constitute a breach of the provisions of this paragraph 4.1.

4.2 Stockholders’ Meeting.

(a) The Acquired Fund shall hold a meeting of its stockholders for the purpose of considering the Merger as described herein, which meeting has been called for June 30, 2008, and any adjournments or postponements thereof.

(b) The Acquired Fund has mailed to each of its stockholders of record entitled to vote at the meeting of stockholders at which action is to be considered regarding the Merger in sufficient time to comply with requirements as to notice thereof, a combined Proxy Statement and Prospectus which complies in all material respects with the applicable provisions of Section 14(a) of the 1934 Act and Section 20(a) of the 1940 Act, and the rules and regulations, respectively, thereunder.

4.3 Articles of Merger. The parties agree that, as soon as practicable after satisfaction of all conditions to the Merger, they will jointly file executed Articles of Merger with the Department and make all other filings or recordings required by Maryland law in connection with the Merger.

4.4 Regulatory Filings.

(a) The Acquired Fund undertakes that, if the Merger is consummated, it will file, or cause its agents to file, an application pursuant to Section 8(f) of the 1940 Act for an order declaring that the Acquired Fund has ceased to be a registered investment company.

(b) The Acquiring Fund has filed the Registration Statement with the SEC, which has become effective. The Acquired Fund agrees to cooperate fully with the Acquiring Fund, and has furnished to the Acquiring Fund the information relating to itself as set forth in the Registration Statement as required by the 1933 Act, the 1934 Act, the 1940 Act, and the rules and regulations thereunder and the state securities or blue sky laws.

4.5 Preservation of Assets. The Acquiring Fund agrees that it has no plan or intention to sell or otherwise dispose of the assets of the Acquired Fund to be acquired in the Merger, except for dispositions made in the ordinary course of business.

4.6 Tax Matters. Each of the parties agrees that by the Effective Date all of its federal and other tax returns and reports required to be filed on or before such date shall have been filed and all taxes shown as due on said returns either have been paid or adequate liability reserves have been provided for the payment of such taxes. In connection with this covenant, the parties agree to cooperate with each other in filing any tax return, amended return or claim for refund, determining a liability for taxes or a right to a refund of taxes or participating in or conducting any audit or other proceeding in respect of taxes. The Acquiring Fund agrees to retain for a period of ten (10) years following the Effective Date all returns, schedules and work papers and all material records or other documents relating to tax matters of the Acquired Fund for its final taxable year and for all prior taxable periods. Any information obtained under this paragraph 4.6 shall be kept confidential except as otherwise may be necessary in connection with the filing of returns or claims for refund or in conducting an audit or other proceeding. After the Effective Date, the Acquiring Fund shall prepare, or cause its agents to prepare, any federal, state or local tax returns, including any Forms 1099, required to be filed and provided to required persons by the Acquired Fund with respect to its final taxable years ending with the Effective Date and for any prior periods or taxable years for which the due date for such return has not passed as of the Effective Date and further shall cause such tax returns and Forms 1099 to be duly filed with the appropriate taxing authorities and provided to required persons. Notwithstanding the aforementioned provisions of this paragraph 4.6, any expenses incurred by the Acquiring Fund (other than for payment of taxes) in excess of any accrual for such expenses by the Acquired Fund in connection with the preparation and filing of said tax returns and Forms 1099 after the Effective Date shall be borne by the Acquiring Fund.

4.7 Stockholder List. Prior to the Effective Date, the Acquired Fund shall have made arrangements with its transfer agent to deliver to the Acquiring Fund a list of the names and addresses of all of the holders of record of Acquired Fund Common Stock on the Effective Date and the respective number of shares of Acquired Fund Common Stock owned by each such stockholder, certified by the Acquired Fund’s transfer agent or President to the best of their knowledge and belief.

4.8 Delisting, Termination of Registration as an Investment Company. The Acquired Fund agrees that the (i) delisting of the shares of the Acquired Fund with the NYSE and (ii) termination of its registration as a RIC will be effected in accordance with applicable law as soon as practicable following the Effective Date.

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5. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRED FUND

The obligations of the Acquired Fund to consummate the transactions provided for herein shall be subject, at the Acquired Fund’s election, to the following conditions:

5.1 Certificates and Statements by the Acquiring Fund.

(a) The Acquiring Fund shall have furnished a statement of assets, liabilities and capital, together with a schedule of investments with their respective dates of acquisition and tax costs, certified on its behalf by its President (or any Vice President) and its Treasurer, and a certificate executed by both such officers, dated the Effective Date, certifying that there has been no material adverse change in its financial position since October 31, 2007, other than changes in its portfolio securities since that date or changes in the market value of its portfolio securities.

(b) The Acquiring Fund shall have furnished to the Acquired Fund a certificate signed by its President (or any Vice President), dated the Effective Date, certifying that as of the Effective Date, all representations and warranties made by the Acquiring Fund in this Agreement are true and correct in all material respects as if made at and as of such date and that the Acquiring Fund has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied at or prior to such date.

(c) The Acquiring Fund shall have delivered to the Acquired Fund a letter from KPMG LLP, dated the Effective Date, stating that such firm has performed a limited review of the federal, state and local income tax returns for the period ended October 31, 2007, and that based on such limited review, nothing came to their attention which caused them to believe that such returns did not properly reflect, in all material respects, the federal, state and local income taxes of the Acquiring Fund for the period covered thereby; and that for the period from October 31, 2007 to and including the Effective Date, such firm has performed a limited review to ascertain the amount of such applicable federal, state and local taxes, and has determined that either such amount has been paid or reserves established for payment of such taxes, this review to be based on unaudited financial data; and that based on such limited review, nothing has come to their attention which caused them to believe that the taxes paid or reserves set aside for payment of such taxes were not adequate in all material respects for the satisfaction of federal, state and local taxes for the period from October 31, 2007, to and including the Effective Date or that the Acquiring Fund would not continue to qualify as a RIC for federal income tax purposes.

5.2 Absence of Litigation. There shall be no material litigation pending with respect to the matters contemplated by this Agreement.

5.3 Legal Opinion. The Acquired Fund shall have received an opinion of Simpson Thacher & Bartlett LLP, as counsel to the Acquiring Fund, in form and substance reasonably satisfactory to the Acquired Fund and dated the Effective Date, to the effect that:

(i) the Acquiring Fund is a corporation duly organized, validly existing under the law of the State of Maryland and in good standing with the Department;

(ii) the Acquiring Fund has the corporate power to carry on its business as a closed-end investment company registered under the 1940 Act;

(iii) the Agreement has been duly authorized, executed and delivered by the Acquiring Fund, and, assuming due authorization, execution and delivery of the Agreement by the Acquired Fund, constitutes a valid and legally binding obligation of the Acquiring Fund enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws pertaining to the enforcement of creditors’ rights generally and by equitable principles;

(iv) to such counsel’s knowledge, no consent, approval, authorization or order of any United States federal or Maryland or New York state court or governmental authority is required for the consummation by the Acquiring Fund of the Merger, except such as may be required under the 1933 Act, the 1934 Act, the 1940 Act and the published rules and regulations of the SEC thereunder and under Maryland law, New York law and such as may be required under state securities or blue sky laws;

(v) the Registration Statement has become effective under the 1933 Act and the combined Proxy Statement and Prospectus was filed on March 28, 2008 pursuant to Rule 497(c) of the rules and regulations of the SEC under the 1933 Act and, to such counsel’s knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued or proceeding for that purpose has been instituted or threatened by the SEC;

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(vi) to such counsel’s knowledge, there are no legal or governmental proceedings or contracts to which the Acquiring Fund is a party or by which it is bound required to be described in the Registration Statement which are not described therein or, if required to be filed, filed as required;

(vii) the execution and delivery of this Agreement does not, and the consummation of the Merger will not, violate any material provision of the Acquiring Fund Charter, the Bylaws, as amended, or any agreement set forth in a schedule to the opinion, which the Acquiring Fund has advised such counsel are all material contracts to which the Acquiring Fund is a party or by which it is bound, except insofar as the parties have agreed to amend such provision as a condition precedent to the Merger; and

(viii) to such counsel’s knowledge, no material suit, action or legal or administrative proceeding is pending or threatened against the Acquiring Fund.

In giving the opinion set forth above, Simpson Thacher & Bartlett LLP may state that it is relying on certificates of officers of the Acquiring Fund with regard to matters of fact and certain certificates and written statements of governmental officials with respect to the good standing of the Acquiring Fund and on the opinion of DLA Piper US LLP as to matters of Maryland law.

5.4 Auditors’ Consent and Certification. The Acquired Fund shall have received from KPMG LLP a letter to the effect that (i) they are independent public accountants with respect to the Acquiring Fund within the meaning of the 1933 Act and the applicable published rules and regulations thereunder; and (ii) in their opinion, the financial statements and supplementary information of the Acquiring Fund incorporated by reference in the Registration Statement and reported on by them comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the published rules and regulations thereunder.

5.5 Regulatory Orders. The Acquiring Fund shall have received from any relevant state securities administrator such order or orders as are reasonably necessary or desirable under the 1933 Act, the 1934 Act, the 1940 Act, and any applicable state securities or blue sky laws in connection with the transactions contemplated hereby, and that all such orders shall be in full force and effect.

5.6 Satisfaction of the Acquired Fund. All proceedings taken by the Acquiring Fund and its counsel in connection with the Merger and all documents incidental thereto shall be satisfactory in form and substance to the Acquired Fund.

6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND

The obligations of the Acquiring Fund to consummate the transactions provided for herein shall be subject, at the Acquiring Fund’s election, to the following conditions:

6.1 Certificates and Statements by the Acquired Fund.

(a) The Acquired Fund shall have furnished a statement of assets, liabilities and capital, together with a schedule of investments with their respective dates of acquisition and tax costs, certified on its behalf by its President (or any Vice President) and its Treasurer, and a certificate executed by both such officers, dated the Effective Date, certifying that there has been no material adverse change in its financial position since February 28, 2008, other than changes in its portfolio securities since that date or changes in the market value of its portfolio securities.

(b) The Acquired Fund shall have furnished to the Acquiring Fund a certificate signed by its President (or any Vice President), dated the Effective Date, certifying that as of the Effective Dates, all representations and warranties made by the Acquired Fund in this Agreement are true and correct in all material respects as if made at and as of such date and that the Acquired Fund has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied at or prior to such date.

(c) The Acquired Fund shall have delivered to the Acquiring Fund a letter from KPMG LLP, dated the Effective Date, stating that such firm has performed a limited review of the federal, state and local income tax returns for the period ended February 28, 2008, and that based on such limited review, nothing came to their attention which caused them to believe that such returns did not properly reflect, in all material respects, the federal, state and local income taxes of the Acquired Fund for the period covered thereby; and that for the period from February 28, 2008 to and including the Effective Date and for any taxable year ending upon the Effective Date, such firm has performed a limited

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review to ascertain the amount of such applicable federal, state and local taxes, and has determined that either such amount has been paid or reserves have been established for payment of such taxes, this review to be based on unaudited financial data; and that based on such limited review, nothing has come to their attention which caused them to believe that the taxes paid or reserves set aside for payment of such taxes were not adequate in all material respects for the satisfaction of federal, state and local taxes for the period from February 28, 2008, to and including the Effective Date and for any taxable year ending upon the Effective Date or that the Acquired Fund would not continue to qualify as a RIC for federal income tax purposes.

6.2 Absence of Litigation. There shall be no material litigation pending with respect to the matters contemplated by this Agreement.

6.3 Legal Opinion. The Acquiring Fund shall have received an opinion of Simpson Thacher & Bartlett LLP, as counsel to the Acquired Fund, in form and substance reasonably satisfactory to the Acquiring Fund and dated the Effective Date, to the effect that:

(i) the Acquired Fund is a corporation duly organized, validly existing under the law of the State of Maryland and in good standing with the Department;

(ii) the Acquired Fund has the corporate power to carry on its business as a closed-end investment company registered under the 1940 Act;

(iii) the Agreement has been duly authorized, executed and delivered by the Acquired Fund, and, assuming due authorization, execution and delivery of the Agreement by the Acquiring Fund, constitutes a valid and legally binding obligation of the Acquired Fund enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws pertaining to the enforcement of creditors’ rights generally and by equitable principles;

(iv) to such counsel’s knowledge, no consent, approval, authorization or order of any United States federal or Maryland or New York state court or governmental authority is required for the consummation by the Acquired Fund of the Merger, except such as may be required under the 1933 Act, the 1934 Act, the 1940 Act and the published rules and regulations of the SEC thereunder and under Maryland law, New York law and such as may be required under state securities or blue sky laws;

(v) to such counsel’s knowledge, there are no legal or governmental proceedings or contracts to which the Acquired Fund is a party or by which it is bound required to be described in the Registration Statement which are not described therein or, if required to be filed, filed as required;

(vi) the execution and delivery of this Agreement does not, and the consummation of the Merger will not, violate any material provision of the Acquired Fund Charter, the Bylaws, as amended, or any agreement set forth in a schedule to the opinion, which the Acquired Fund has advised such counsel are all material contracts to which the Acquired Fund is a party or by which it is bound, except insofar as the parties have agreed to amend such provision as a condition precedent to the Merger; and

(vii) to such counsel’s knowledge, no material suit, action or legal or administrative proceeding is pending or threatened against the Acquired Fund.

In giving the opinion set forth above, Simpson Thacher & Bartlett LLP may state that it is relying on certificates of officers of the Acquired Fund with regard to matters of fact and certain certificates and written statements of governmental officials with respect to the good standing of the Acquired Fund and on the opinion of DLA Piper US LLP, as to matters of Maryland law.

6.4 Auditor’s Consent and Certification. The Acquiring Fund shall have received from KPMG LLP a letter to the effect that (i) they are independent public accountants with respect to the Acquired Fund within the meaning of the 1933 Act and the applicable published rules and regulations thereunder; and (ii) in their opinion, the financial statements and supplementary information of the Acquired Fund included or incorporated by reference in the Registration Statement and reported on by them comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the published rules and regulations thereunder.

6.5 Satisfaction of the Acquiring Fund. All proceedings taken by the Acquired Fund and its counsel in connection with the Merger and all documents incidental thereto shall be satisfactory in form and substance to the Acquiring Fund.

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6.6 Dividends. Prior to the Effective Date, the Acquired Fund shall have declared and paid a dividend or dividends which, together with all such previous dividends, shall have the effect of distributing to its stockholders substantially all of its net investment income that has accrued through the Effective Date, if any, and substantially all of its net capital gain, if any, realized through the Effective Date.

6.7 Custodian’s Certificate. The Acquired Fund’s custodian shall have delivered to the Acquiring Fund a certificate identifying all of the assets of the Acquired Fund held or maintained by such custodian as of the Valuation Time.

6.8 Books and Records. The Acquired Fund’s transfer agent shall have provided to the Acquiring Fund (i) the originals or true copies of all of the records of the Acquired Fund in the possession of such transfer agent as of the Effective Date, (ii) a certificate setting forth the number of shares of Acquired Fund Common Stock outstanding as of the Valuation Time, and (iii) the name and address of each holder of record of any shares and the number of shares held of record by each such stockholder.

7. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRING FUND AND ACQUIRED FUND

If any of the conditions set forth below have not been satisfied on or before the Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other party to this Agreement shall be entitled, at its option, to refuse to consummate the transactions contemplated by this Agreement:

7.1 Approval of Merger. The Merger shall have been approved by the affirmative vote of the holders of a majority of the issued and outstanding shares of the Acquired Fund Common Stock entitled to vote thereon; the Acquiring Fund shall have delivered to the Acquired Fund a copy of the resolutions approving this Agreement adopted by the Acquiring Fund Board, certified by its secretary; the Acquired Fund shall have delivered to the Acquiring Fund a copy of the resolutions approving this Agreement adopted by the Acquired Fund Board and the Acquiring Fund’s stockholders, certified by its secretary.

7.2 Regulatory Filings.

(a) Any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, relating to the transactions contemplated hereby shall have expired or been terminated.

(b) The SEC shall not have issued an unfavorable advisory report under Section 25(b) of the 1940 Act, nor instituted or threatened to institute any proceeding seeking to enjoin consummation of the Merger under Section 25(c) of the 1940 Act; no other legal, administrative or other proceeding shall be instituted or threatened which would materially affect the financial condition of the Acquired Fund or would prohibit the Merger.

(c) On the Closing Date, no court or governmental agency of competent jurisdiction shall have issued any order that remains in effect and that restrains or enjoins the Acquired Fund or the Acquiring Fund from completing the transactions contemplated by this Agreement.

7.3 Consents. All consents of other parties and all other consents, orders and permits of federal, state and local regulatory authorities deemed necessary by the Acquiring Fund or the Acquired Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund, provided that either party hereto may for itself waive any of such conditions.

7.4 Registration Statement. The Registration Statement shall have become effective under the 1933 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending.

7.5 Tax Opinion. The parties shall have received the opinion of Simpson Thacher & Bartlett LLP, dated the Closing Date, substantially to the effect that, based upon certain facts, assumptions and representations made by the Acquired Fund, the Acquiring Fund and their respective authorized officers:

(i) the Merger as provided in this Agreement will constitute a reorganization within the meaning of Section 368(a)(1) of the Code and that the Acquiring Fund and the Acquired Fund will each be a “party to a reorganization” within the meaning of Section 368(b) of the Code;

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(ii) except for consequences regularly attributable to a termination of the Acquired Fund’s taxable year, no gain or loss will be recognized to the Acquired Fund as a result of the Merger or upon the conversion of shares of Acquired Fund Common Stock to shares of Acquiring Fund Common Stock;

(iii) no gain or loss will be recognized to the Acquiring Fund as a result of the Merger or upon the conversion of shares of Acquired Fund Common Stock to shares of Acquiring Fund Common Stock;

(iv) no gain or loss will be recognized to the stockholders of the Acquired Fund upon the conversion of their shares of Acquired Fund Common Stock to shares of Acquiring Fund Common Stock, except to the extent such stockholders are paid cash in lieu of fractional shares of Acquiring Fund Common Stock in the Merger;

(v) the tax basis of the Acquired Fund assets in the hands of the Acquiring Fund will be the same as the tax basis of such assets in the hands of the Acquired Fund immediately prior to the consummation of the Merger;

(vi) immediately after the Merger, the aggregate tax basis of the Acquiring Fund Common Stock received by each holder of Acquired Fund Common Stock in the Merger (including that of fractional share interests purchased by the Acquiring Fund) will be equal to the aggregate tax basis of the shares of Acquired Fund Common Stock owned by such stockholder immediately prior to the Merger;

(vii) a stockholder’s holding period for Acquiring Fund Common Stock (including that of fractional share interests purchased by the Acquiring Fund) will be determined by including the period for which he or she held shares of Acquired Fund Common Stock converted pursuant to the Merger, provided that such shares of Acquired Fund Common Stock were held as capital assets;

(ix) the Acquiring Fund’s holding period with respect to the Acquired Fund’s assets transferred will include the period for which such assets were held by the Acquired Fund; and

(x) the payment of cash to the holders of Acquired Fund Common Stock in lieu of fractional shares of Acquiring Fund Common Stock will be treated as though such fractional shares were distributed as part of the Merger and then redeemed by the Acquiring Fund with the result that the holder of Acquired Fund Common Stock will generally have a capital gain or loss to the extent the cash distribution differs from such stockholder’s basis allocable to the fractional shares of Acquiring Fund Common Stock.

The delivery of such opinion is conditioned upon the receipt by Simpson Thacher & Bartlett LLP of representations it shall request of the Acquiring Fund and the Acquired Fund. Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor the Acquired Fund may waive the condition set forth in this paragraph 7.5.

7.6 Assets and Liabilities. The assets and liabilities of the Acquired Fund to be transferred to the Acquiring Fund shall not include any assets or liabilities which the Acquiring Fund, by reason of limitations in its Registration Statement or the Acquiring Fund Charter, may not properly acquire or assume. The Acquiring Fund does not anticipate that there will be any such assets or liabilities but the Acquiring Fund will notify the Acquired Fund if any do exist and will reimburse the Acquired Fund for any reasonable transaction costs incurred by the Acquired Fund for the liquidation of such assets and liabilities.

8. INDEMNIFICATION

8.1 The Acquiring Fund. The Acquiring Fund, out of its assets and property, agrees to indemnify and hold harmless the Acquired Fund and the members of the Acquired Fund Board and its officers from and against any and all losses, claims, damages, liabilities or expenses (including, without limitation, the payment of reasonable legal fees and reasonable costs of investigation) to which the Acquired Fund and those board members and officers may become subject, insofar as such loss, claim, damage, liability or expense (or actions with respect thereto) arises out of or is based on (a) any breach by the Acquiring Fund of any of its representations, warranties, covenants or agreements set forth in this Agreement or (b) any act, error, omission, neglect, misstatement, materially misleading statement, breach of duty or other act wrongfully done or attempted to be committed by the Acquiring Fund or the members of the Acquiring Fund Board or its officers prior to the Closing Date, provided that such indemnification by the Acquiring Fund is not (i) in violation of any applicable law or (ii) otherwise prohibited as a result of any applicable order or decree issued by any governing regulatory authority or court of competent jurisdiction.

8.2 The Acquired Fund. The Acquired Fund, out of its assets and property, agrees to indemnify and hold harmless the Acquiring Fund and the members of the Acquiring Fund Board and its officers from and against any and all losses, claims,

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damages, liabilities or expenses (including, without limitation, the payment of reasonable legal fees and reasonable costs of investigation) to which the Acquiring Fund and those board members and officers may become subject, insofar as such loss, claim, damage, liability or expense (or actions with respect thereto) arises out of or is based on (a) any breach by the Acquired Fund of any of its representations, warranties, covenants or agreements set forth in this Agreement or (b) any act, error, omission, neglect, misstatement, materially misleading statement, breach of duty or other act wrongfully done or attempted to be committed by the Acquired Fund or the members of the Acquired Fund Board or its officers prior to the Closing Date, provided that such indemnification by the Acquired Fund is not (i) in violation of any applicable law or (ii) otherwise prohibited as a result of any applicable order or decree issued by any governing regulatory authority or court of competent jurisdiction.

9. BROKER FEES AND EXPENSES

9.1 No Broker Fees. The Acquiring Fund and the Acquired Fund represent and warrant to each other that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein.

9.2 Payment of Expenses. Half of all expenses incurred in connection with the Merger of the Acquiring Fund and the Acquired Fund will be borne by the Acquiring Fund and the Acquired Fund in proportion to their respective total assets in the event the Merger is consummated. The other 50% of all expenses incurred in connection with the Merger of the Acquiring Fund and the Acquired Fund will be borne by Western Asset Management Company. Such expenses shall include, but not be limited to, all costs related to the preparation and distribution of the Registration Statement, proxy solicitation expenses, SEC registration fees, and NYSE listing fees. Neither of the Acquiring Fund and the Acquired Fund owes any broker’s or finder’s fees in connection with the transactions provided for herein.

10. COOPERATION FOLLOWING EFFECTIVE DATE

In case at any time after the Effective Date any further action is necessary to carry out the purposes of this Agreement, each of the parties will take such further action (including the execution and delivery of such further instruments and documents) as the other party may reasonably request, all at the sole cost and expense of the requesting party (unless the requesting party is entitled to indemnification as described below). The Acquired Fund acknowledges and agrees that from and after the Effective Date, the Acquiring Fund shall be entitled to possession of all documents, books, records, agreements and financial data of any sort pertaining to the Acquired Fund.

11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES

11.1 Entire Agreement. The Acquiring Fund and the Acquired Fund agree that neither party has made any representation, warranty or covenant not set forth herein and that this Agreement constitutes the entire agreement between the parties.

11.2 Survival of Warranties. The covenants to be performed after the Closing by both the Acquiring Fund and the Acquired Fund, and the obligations of the Acquiring Fund in Article 8, shall survive the Closing. All other representations, warranties and covenants contained in this Agreement or in any document delivered pursuant hereto or in connection herewith shall not survive the consummation of the transactions contemplated hereunder and shall terminate on the Closing.

12. TERMINATION AND WAIVERS

12.1 Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing Date by resolution of either the Acquiring Fund Board or the Acquired Fund Board, if circumstances should develop that, in the opinion of that board, make proceeding with the Agreement inadvisable with respect to the Acquiring Fund or the Acquired Fund, respectively. Any such termination resolution to be effective shall be promptly communicated to the other party and, in any event, prior to the Closing Date. In the event of termination of this Agreement pursuant to the provisions hereof, the Agreement shall become void and have no further effect, and there shall not be any liability hereunder on the part of either of the parties or their respective board members or officers, except for any such material breach or intentional misrepresentation, as to each of which all remedies at law or in equity of the party adversely affected shall survive.

12.2 Waiver. At any time prior to the Effective Date, any of the terms or conditions of this Agreement may be waived by either the Acquired Fund Board or the Acquiring Fund Board (whichever is entitled to the benefit thereof), if, in the

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judgment of such board after consultation with its counsel, such action or waiver will not have a material adverse effect on the benefits intended in this Agreement to the stockholders of their respective fund, on behalf of which such action is taken.

13. TRANSFER RESTRICTION

Pursuant to Rule 145 under the 1933 Act, and in connection with the issuance of any shares to any person who at the time of the Merger is, to its knowledge, an affiliate of a party to the Merger pursuant to Rule 145(c), the Acquiring Fund will cause to be affixed upon the certificate(s) issued to such person (if any) a legend as follows:

THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO WESTERN ASSET EMERGING MARKETS DEBT FUND INC. (OR ITS STATUTORY SUCCESSOR) UNLESS (I) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933 OR (II) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE FUND, SUCH REGISTRATION IS NOT REQUIRED.

and, further, that stop transfer instructions will be issued to the Acquiring Fund’s transfer agent with respect to such shares. The Acquired Fund will provide the Acquiring Fund on the Effective Date with the name of any Acquired Fund Stockholder who is to the knowledge of the Acquired Fund an affiliate of it on such date.

14. MATERIAL PROVISIONS

All covenants, agreements, representations and warranties made under this Agreement and any certificates delivered pursuant to this Agreement shall be deemed to have been material and relied upon by each of the parties, notwithstanding any investigation made by them or on their behalf.

15. AMENDMENTS

This Agreement may be amended, modified or supplemented in such manner as may be deemed necessary or advisable by the authorized officers of the Acquired Fund and the Acquiring Fund; provided, however, that following the meeting of the Acquired Fund stockholders called by the Acquired Fund pursuant to paragraph 4.2 of this Agreement, no such amendment may have the effect of changing the provisions for determining the number of shares of Acquiring Fund Common Stock to be issued to the holders of Acquired Fund Common Stock under this Agreement to the detriment of such stockholders without their further approval.

16. NOTICES

Any notice, report, statement or demand required or permitted by any provisions of this Agreement shall be in writing and shall be given by facsimile, electronic delivery (i.e., e-mail), personal service or prepaid or certified mail addressed to the Acquiring Entity or the Acquired Entity, at its address set forth in the preamble to this Agreement, in each case to the attention of its President.

17. ENFORCEABILITY; HEADINGS; COUNTERPARTS; GOVERNING LAW; SEVERABILITY; ASSIGNMENT; LIMITATION OF LIABILITY

17.1 Enforceability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

17.2 Headings. The Article headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

17.3 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original.

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17.4 Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the internal laws of the State of New York.

17.5 Successors and Assigns. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement.

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by its duly authorized officer.

WESTERN ASSET EMERGING MARKETS DEBT FUND INC.		WESTERN ASSET EMERGING MARKETS FLOATING RATE FUND INC.
By:		By:
	Name:		Name:
	Title:		Title:

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APPENDIX B

DESCRIPTION OF MOODY’S AND S&P RATINGS

The definitions of the applicable rating symbols are set forth below:

Standard & Poor’s Ratings Service (“Standard & Poor’s”)—Ratings from “AA” to “CCC” may be modified by the addition of a plus (+) or minus (-) sign to show relative standings within the major rating categories.

AAA	Bonds rated “AAA” have the highest rating assigned by Standard & Poor’s. Capacity to pay interest and repay principal is extremely strong.
AA	Bonds rated “AA” have a very strong capacity to pay interest and repay principal and differ from the highest rated issues only in a small degree.
A	Bonds rated “A” have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB	Bonds rated “BBB” are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories.
BB, B, CCC, CC and C	Bonds rated “BB”, “B”, “CCC”, “CC” and “C” are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. “BB” represents the lowest degree of speculation and “C” the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.
D	Bonds rated “D” are in default and payment of interest and/or repayment of principal is in arrears.
Moody’s Investors Service (“Moody’s”)—Numerical modifiers 1, 2 and 3 may be applied to each generic rating from “Aa” to “Caa,” where 1 is the highest and 3 the lowest ranking within its generic category.
Aaa	Bonds rated “Aaa” are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as “gilt edge.” Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
Aa	Bonds rated “Aa” are judged to be of high quality by all standards. Together with the “Aaa” group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in “Aaa” securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in “Aaa” securities.
A	Bonds rated “A” possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future.
Baa	Bonds rated “Baa” are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Ba	Bonds rated “Ba” are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and therefore not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B	Bonds rated “B” generally lack characteristics of desirable investments. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.

B-1

Caa	Bonds rated “Caa” are of poor standing. These may be in default, or present elements of danger may exist with respect to principal or interest.
Ca	Bonds rated “Ca” represent obligations which are speculative in a high degree. Such issues are often in default or have other marked short-comings.
C	Bonds rated “C” are the lowest class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
NR	Indicates that the bond is not rated by Standard & Poor’s, Moody’s or Fitch Ratings Service.
Short-Term Security Ratings:
SP-1	Standard & Poor’s highest rating indicating very strong or strong capacity to pay principal and interest; those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) sign.
A-1	Standard & Poor’s highest commercial paper and variable-rate demand obligation (VRDO) rating indicating that the degree of safety regarding timely payment is either overwhelming or very strong; those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) sign.
VMIG 1	Moody’s highest rating for issues having a demand feature—VRDO.
MIG1	Moody’s highest rating for short-term municipal obligations.
P-1	Moody’s highest rating for commercial paper and for VRDO prior to the advent of the VMIG 1 rating.

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APPENDIX C

LEGG MASON PARTNERS FUND ADVISOR, LLC

Proxy Voting Policy

LMPFA delegates to each sub-adviser the responsibility for voting proxies for its funds, as applicable, to each sub-adviser through its contracts with each sub-adviser. Each sub-adviser may use its own proxy voting policies and procedures to vote proxies of the funds if the funds’ Board reviews and approves the use of those policies and procedures. Accordingly, LMPFA does not expect to have proxy-voting responsibility for any of the funds.

Should LMPFA become responsible for voting proxies for any reason, such as the inability of a sub-adviser to provide investment advisory services, LMPFA shall utilize the proxy voting guidelines established by the most recent sub-adviser to vote proxies until a new sub-adviser is retained and the use of its proxy voting policies and procedures is authorized by the Board. In the case of a material conflict between the interests of LMPFA (or its affiliates if such conflict is known to persons responsible for voting at LMPFA) and any fund, the Board of Directors of LMPFA shall consider how to address the conflict and/or how to vote the proxies. LMPFA shall maintain records of all proxy votes in accordance with applicable securities laws and regulations.

LMPFA shall be responsible for gathering relevant documents and records related to proxy voting from each sub-adviser and providing them to the funds as required for the funds to comply with applicable rules under the Investment Company Act of 1940. LMPFA shall also be responsible for coordinating the provision of information to the Board with regard to the proxy voting policies and procedures of each sub-adviser, including the actual proxy voting policies and procedures of each sub-adviser, changes to such policies and procedures, and reports on the administration of such policies and procedures.

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Western Asset Emerging Markets Debt Fund Inc.

STATEMENT OF ADDITIONAL INFORMATION

                    , 2008

This Statement of Additional Information, which is not a prospectus, supplements and should be read in conjunction with the Proxy Statement/Prospectus dated                     , 2008, relating specifically to the proposed merger of Western Asset Emerging Markets Floating Rate Fund Inc. (“EFL”) with and into Western Asset Emerging Markets Debt Fund Inc. (“ESD,” and together with EFL, the “Funds”) in accordance with the Maryland General Corporation Law (the “Merger”). You may obtain a copy of the Proxy Statement/Prospectus to by contacting Legg Mason Shareholder Services at 800-822-5544, by writing ESD at the address listed above or by visiting our website at www.leggmason.com/individualinvestors. The Merger is to occur pursuant to an Agreement and Plan of Merger. Unless otherwise indicated, capitalized terms used herein and not otherwise defined have the same meanings as are given to them in the Proxy Statement/Prospectus.

TABLE OF CONTENTS

1. General Information	S-2
2. Financial Statements and Other Incorporated Documents	S-2
3. Pro Forma Financial Statements	S-3

S-1

GENERAL INFORMATION

The 2008 Annual Meeting of Stockholders of EFL, at which EFL stockholders will consider the Merger, will be held at 620 Eighth Avenue, 49th Floor, New York, New York, on Monday, June 30, 2008 at 3:30 p.m., Eastern Standard Time. For further information about the Merger, see the Proxy Statement/Prospectus.

FINANCIAL STATEMENTS

The Statement of Additional Information related to the Proxy Statement/Prospectus dated         , 2008 consists of this cover page, the accompanying pro forma financial statements and the following documents, each of which was filed electronically with the SEC and is incorporated by reference herein:

The financial statements of each Fund as included in the Funds’ Annual Reports filed for the last-completed fiscal year, and semi-annual period, if applicable, for each Fund:

• Western Asset Emerging Markets Debt Fund Inc., Annual Report to Stockholders for the Fiscal Year Ended October 31, 2007, filed on January 4, 2008 (accession no. 0001104659-08-000632).

• Western Asset Emerging Markets Floating Rate Fund Inc., Annual Report to Stockholders for the Fiscal Year Ended February 28, 2007, filed on May 7, 2007 (accession no. 0001104659-07-036293).

• Western Asset Emerging Markets Floating Rate Fund Inc., Semi-Annual Report to Stockholders for the Semi-Annual Period Ended September 30, 2007, filed on November 8, 2007 (accession no. 0001104659-07-081147).

S-2

PRO FORMA FINANCIAL STATEMENTS

Shown below are the financial statements for each Fund and pro forma financial statements for the combined Fund, assuming the Merger was consummated as of October 31, 2007. The first table presents the Schedule of Investments for each Fund and pro forma figures for the combined Fund. The second table presents the Statements of Assets and Liabilities for each Fund and estimated pro forma figures for the combined Fund. The third table presents the Statements of Operations for each Fund and estimated pro forma figures for the combined Fund. These tables are followed by the Notes to the Pro Forma Financial Statements.

Pro Forma Combined Schedule of Investments for Western Asset Emerging Markets Debt Fund Inc. and Western Asset Emerging Markets Floating Rate Fund Inc. for the Twelve Months Ended October 31, 2007 (Unaudited)

Western Asset Emerging Markets Floating Rate Fund Inc.	Western Asset Emerging Markets Debt Fund Inc.	Pro Forma Combined Western Asset Emerging Markets Debt Fund Inc.			Western Asset Emerging Markets Floating Rate Fund Inc.		Western Asset Emerging Markets Debt Fund Inc.		Pro Forma Combined Western Asset Emerging Markets Debt Fund Inc.
Face Amount†	Face Amount†	Face Amount†	Currency	Security	Value		Value		Value
SOVEREIGN BONDS — 57.0%
Argentina — 4.0%
				Republic of Argentina:
	2,000,000	2,000,000	EUR	9.250% due 10/21/02 (a)(b)			$	911,453	$	911,453
	5,000,000	5,000,000	DEM	10.250% due 2/6/03 (a)				1,252,887		1,252,887
	1,425,000	1,425,000	EUR	9.000% due 6/20/03 (a)				670,027		670,027
	1,000,000	1,000,000	EUR	9.500% due 3/4/04 (a)				484,662		484,662
	5,000,000	5,000,000	DEM	7.000% due 3/18/04 (a)				1,211,278		1,211,278
	2,000,000	2,000,000	EUR	8.500% due 7/1/04 (a)				933,154		933,154
	2,000,000	2,000,000	EUR	10.000% due 1/7/05 (a)				983,791		983,791
	3,200,000	3,200,000	ARS	8.125% due 4/21/08 (a)				1,516,195		1,516,195
	1,200,000	1,200,000	EUR	9.000% due 7/6/10 (a)				559,893		559,893
	1,528,149	1,528,149	ARS	5.830% due 12/31/33 (c)				535,662		535,662
	5,091,891	5,091,891	ARS	Bonds, 2.000% due 1/3/10 (c)				3,289,982		3,289,982
1,174,000	3,497,000	4,671,000		Bonds, Series VII, 7.000% due 9/12/13	$	1,054,480		3,140,986		4,195,466
1,625,341		1,625,341		Discount Notes, 8.280% due 12/31/33		1,651,753				1,651,753
				GDP Linked Securities:
	4,205,000	4,205,000		0.624% due 12/15/35 (c)				578,188		578,188
	82,017,123	82,017,123	ARS	0.649% due 12/15/35 (c)				2,853,903		2,853,903
	4,825,000	4,825,000	EUR	0.662% due 12/15/35 (c)				869,081		869,081
				Medium-Term Notes:
	525,000	525,000	EUR	8.750% due 2/4/03 (a)				254,447		254,447
	5,000,000,000	5,000,000,000	ITL	7.000% due 3/18/04 (a)				1,223,517		1,223,517
	2,000,000	2,000,000	EUR	7.000% due 3/18/04 (a)(d)				947,622		947,622
	1,000,000	1,000,000	EUR	9.250% due 7/20/04 (a)				466,577		466,577
	2,000,000	2,000,000	EUR	8.125% due 10/4/04 (a)				915,070		915,070
	1,000,000	1,000,000	EUR	Series APR, 8.000% due 2/26/08 (a)				479,236		479,236
				Total Argentina		2,706,233		24,077,611		26,783,844
Brazil — 13.7%
				Brazil Nota do Tesouro Nacional:
	1,000	1,000	BRL	10.000% due 1/1/10				558		558
	77,231,000	77,231,000	BRL	10.000% due 7/1/10				42,915,749		42,915,749
	9,323,000	9,323,000	BRL	Series B, 6.000% due 5/15/45				8,494,720		8,494,720
				Federative Republic of Brazil:
3,895,000	5,120,000	9,015,000		11.000% due 8/17/40 (b)		5,235,854		6,882,560		12,118,414
				Collective Action Securities:
	6,010,000	6,010,000		8.750% due 2/4/25 (b)				7,840,045		7,840,045
	4,700,000	4,700,000		8.250% due 1/20/34 (b)				6,099,425		6,099,425
	12,063,000	12,063,000		Notes, 8.000% due 1/15/18 (b)				13,510,560		13,510,560
				Total Brazil		5,235,854		85,743,617		90,979,471

S-3

Western Asset Emerging Markets Floating Rate Fund Inc.	Western Asset Emerging Markets Debt Fund Inc.	Pro Forma Combined Western Asset Emerging Markets Debt Fund Inc.			Western Asset Emerging Markets Floating Rate Fund Inc.		Western Asset Emerging Markets Debt Fund Inc.		Pro Forma Combined Western Asset Emerging Markets Debt Fund Inc.
Face Amount†	Face Amount†	Face Amount†	Currency	Security	Value		Value		Value
Colombia — 3.0%
				Republic of Colombia:
1,500,000		1,500,000		9.244% due 3/17/13 (e)(c)	$	1,642,500			$	1,642,500
1,010,000		1,010,000		7.330% due 11/16/15 (c)		1,065,550				1,065,550
	2,465,000	2,465,000		7.375% due 1/27/17 (b)			$	2,725,674		2,725,674
	12,609,000	12,609,000		7.375% due 9/18/37 (b)				14,437,305		14,437,305
				Total Colombia		2,708,050		17,162,979		19,871,029
Ecuador — 1.3%
865,000	7,877,000	8,742,000		Republic of Ecuador, 10.000% due 8/15/30 (b)(e)		835,157		7,605,244		8,440,401
Egypt — 0.6%
	19,840,000	19,840,000	EGP	Arab Republic of Egypt, 8.750% due 7/18/12 (e)				3,703,706		3,703,706
Indonesia — 2.7%
				Republic of Indonesia:
3,745,000,000	35,693,000,000	39,438,000,000	IDR	Series FR40, 11.000% due 9/15/25		442,237		4,214,886		4,657,123
3,057,000,000	28,628,000,000	31,685,000,000	IDR	Series FR42, 10.250% due 7/15/27		338,969		3,174,353		3,513,322
4,774,000,000	45,120,000,000	49,894,000,000	IDR	Series FR43, 10.250% due 7/15/22		538,850		5,092,777		5,631,627
3,610,000,000	34,122,000,000	37,732,000,000	IDR	Series FR45, 9.750% due 5/15/37		384,544		3,634,741		4,019,285
				Total Indonesia		1,704,600		16,116,757		17,821,357
Mexico — 7.8%
				United Mexican States:
	1,395,000	1,395,000		11.375% due 9/15/16				1,993,106		1,993,106
	2,500,000	2,500,000		8.125% due 12/30/19				3,090,625		3,090,625
				Medium-Term Notes:
	1,920,000	1,920,000		8.300% due 8/15/31				2,520,000		2,520,000
	17,994,000	17,994,000		5.625% due 1/15/17				18,290,901		18,290,901
				Series A:
7,200,000		7,200,000		5.943% due 1/13/09 (b)(c)		7,259,400				7,259,400
	1,000	1,000		6.375% due 1/16/13				1,068		1,068
	3,781,000	3,781,000		6.625% due 3/3/15				4,121,290		4,121,290
	11,120,000	11,120,000		8.000% due 9/24/22				13,777,680		13,777,680
				Total Mexico		7,259,400		43,794,670		51,054,070
Panama — 4.0%
				Republic of Panama:
1,038,000	2,848,000	3,886,000		7.250% due 3/15/15		1,136,610		3,118,560		4,255,170
	6,090,000	6,090,000		9.375% due 4/1/29				8,312,850		8,312,850
647,000	12,426,000	13,073,000		6.700% due 1/26/36		689,055		13,233,690		13,922,745
				Total Panama		1,825,665		24,665,100		26,490,765
Peru — 1.4%
				Republic of Peru:
	4,402,000	4,402,000		8.750% due 11/21/33				5,887,675		5,887,675
186,000	2,846,000	3,032,000		Bonds, 6.550% due 3/14/37		195,998		2,998,972		3,194,970
				Total Peru		195,998		8,886,647		9,082,645

S-4

Western Asset Emerging Markets Floating Rate Fund Inc.	Western Asset Emerging Markets Debt Fund Inc.	Pro Forma Combined Western Asset Emerging Markets Debt Fund Inc.			Western Asset Emerging Markets Floating Rate Fund Inc.		Western Asset Emerging Markets Debt Fund Inc.		Pro Forma Combined Western Asset Emerging Markets Debt Fund Inc.
Face Amount†	Face Amount†	Face Amount†	Currency	Security	Value		Value		Value
Russia — 3.4%
				Russian Federation:
	2,175,000	2,175,000		11.000% due 7/24/18 (e)			$	3,089,859	$	3,089,859
	1,595,000	1,595,000		12.750% due 6/24/28 (e)				2,877,978		2,877,978
1,625,072		1,625,072		8.250% due 3/31/10 (e)	$	1,692,106				1,692,106
460,350	12,962,070	13,422,420		7.500% due 3/31/30 (b)(e)		519,620		14,630,937		15,150,557
				Total Russia		2,211,726		20,598,774		22,810,500
Turkey — 8.4%
				Republic of Turkey:
	8,375,000	8,375,000	TRY	14.000% due 1/19/11				6,927,346		6,927,346
	8,530,000	8,530,000		11.875% due 1/15/30				13,584,025		13,584,025
3,778,000	31,399,000	35,177,000		Notes, 6.875% due 3/17/36		3,754,387		31,202,756		34,957,143
				Total Turkey		3,754,387		51,714,127		55,468,514
Uruguay — 1.0%
	5,486,532	5,486,532		Republic of Uruguay, Benchmark Bonds, 7.875% due 1/15/33 (f)				6,261,505		6,261,505
550,134		550,134		Oriental Republic of Uruguay, Bonds, 7.625% due 3/21/36		617,525				617,525
				Total Uruguay		617,525		6,261,505		6,879,030
Venezuela — 5.7%
				Bolivarian Republic of Venezuela:
	1,959,000	1,959,000		8.500% due 10/8/14				2,016,790		2,016,790
690,000	16,913,000	17,603,000		5.750% due 2/26/16		596,850		14,629,745		15,226,595
	1,674,000	1,674,000		7.650% due 4/21/25				1,592,393		1,592,393
				Collective Action Securities:
2,780,000		2,780,000		6.180% due 4/20/11 (c)(e)		2,644,475				2,644,475
	10,661,000	10,661,000		9.375% due 1/13/34				11,759,083		11,759,083
90,442		90,442		DCB, Series DL, 6.313% due 12/18/07		90,555				90,555
	3,850,000	3,850,000		Notes, 10.750% due 9/19/13				4,319,700		4,319,700
				Total Venezuela		3,331,880		34,317,711		37,649,591
				TOTAL SOVEREIGN BONDS (Cost — $347,756,215)		32,386,475		344,648,448		377,034,923
COLLATERALIZED SENIOR LOANS — 0.0%
United States — 0.0%
				Ashmore Energy International:
17,403		17,403		Synthetic Revolving Credit Facility, 8.260% due 3/30/14 (c)		17,055				17,055
131,178		131,178		Term Loan, 8.198% due 3/30/14 (c)		128,554				128,554
				TOTAL COLLATERALIZED SENIOR LOANS (Cost — $148,238)		145,609				145,609

S-5

Western Asset Emerging Markets Floating Rate Fund Inc.	Western Asset Emerging Markets Debt Fund Inc.	Pro Forma Combined Western Asset Emerging Markets Debt Fund Inc.			Western Asset Emerging Markets Floating Rate Fund Inc.		Western Asset Emerging Markets Debt Fund Inc.		Pro Forma Combined Western Asset Emerging Markets Debt Fund Inc.
Face Amount†	Face Amount†	Face Amount†	Currency	Security	Value		Value		Value
CORPORATE BONDS & NOTES — 35.4%
Brazil — 4.6%
410,000	3,423,000	3,833,000		Globo Communicacoes e Participacoes SA, Bonds, 7.250% due 4/26/22 (b)(e)	$	407,950	$	3,405,885	$	3,813,835
299,000		299,000		GTL Trade Finance Inc., 7.250% due 10/20/17 (e)		303,342				303,342
150,000		150,000		Odebrecht Finance Ltd., 7.500% due 10/18/17 (e)		150,375				150,375
				Vale Overseas Ltd., Notes:
471,000	4,219,000	4,690,000		8.250% due 1/17/34		567,661		5,084,844		5,652,505
1,172,000	18,290,000	19,462,000		6.875% due 11/21/36		1,224,204		19,104,692		20,328,896
				Total Brazil		2,653,532		27,595,421		30,248,953
Cayman Islands — 0.2%
	1,460,000	1,460,000		Odebrecht Finance Ltd., 7.500% due 10/18/17 (e)				1,463,650		1,463,650
Chile — 0.6%
	3,678,000	3,678,000		Enersis SA, Notes, 7.375% due 1/15/14 (b)				3,911,770		3,911,770
Colombia — 0.0%
100,000		100,000		EEB International Ltd., Senior Bonds, 8.750% due 10/31/14 (e)		103,500				103,500
India — 0.2%
				ICICI Bank Ltd., Subordinated Bonds:
114,000	820,000	934,000		6.375% due 4/30/22 (c)(e)		105,738		773,316		879,054
	626,000	626,000		6.375% due 4/30/22 (c)(e)				580,632		580,632
				Total India		105,738		1,353,948		1,459,686
Kazakhstan — 1.7%
330,000	3,540,000	3,870,000		ATF Capital BV, Senior Notes, 9.250% due 2/21/14 (e)		340,725		3,655,050		3,995,775
310,000	2,780,000	3,090,000		HSBK Europe BV, 7.250% due 5/3/17 (e)		291,183		2,611,254		2,902,437
				TuranAlem Finance BV, Bonds:
1,520,000		1,520,000		6.550% due 1/22/09 (e)(c)		1,461,100				1,461,100
310,000	2,500,000	2,810,000		8.250% due 1/22/37 (e)		285,975		2,306,250		2,592,225
	400,000	400,000		8.250% due 1/22/37 (e)				363,000		363,000
				Total Kazakhstan		2,378,983		8,935,554		11,314,537
Mexico — 7.6%
				Axtel SAB de CV:
	311,000	311,000		11.000% due 12/15/13 (b)				342,100		342,100
10,000	120,000	130,000		7.625% due 2/1/17 (e)		10,125		121,500		131,625
280,000	13,660,000	13,940,000		Senior Notes, 7.625% due 2/1/17 (e)		283,500		13,830,750		14,114,250
100,000	340,000	440,000		Grupo Transportacion Ferroviaria Mexicana SA de CV, Senior Notes, 9.375% due 5/1/12		106,500		362,100		468,600
				Pemex Project Funding Master Trust:
910,000		910,000		6.994% due 6/15/10 (e)(c)		925,925				925,925
527,000		527,000		6.994% due 6/15/10 (e)(c)		538,884				538,884
	26,211,000	26,211,000		Bonds, 6.625% due 6/15/35				28,052,323		28,052,323
				Senior Notes:
3,379,000		3,379,000		6.180% due 12/3/12 (b)(e)(c)		3,389,982				3,389,982
2,110,000		2,110,000		6.180% due 12/3/12 (e)(c)		2,116,857				2,116,857
				Total Mexico		7,371,773		42,708,773		50,080,546

S-6

Western Asset Emerging Markets Floating Rate Fund Inc.	Western Asset Emerging Markets Debt Fund Inc.	Pro Forma Combined Western Asset Emerging Markets Debt Fund Inc.			Western Asset Emerging Markets Floating Rate Fund Inc.		Western Asset Emerging Markets Debt Fund Inc.		Pro Forma Combined Western Asset Emerging Markets Debt Fund Inc.
Face Amount†	Face Amount†	Face Amount†	Currency	Security	Value		Value		Value
Russia — 13.5%
	17,340,000	17,340,000		Gaz Capital SA, Notes, 8.625% due 4/28/34 (e)			$	22,080,409	$	22,080,409
				Gazprom:
				Bonds:
	343,825,000	343,825,000	RUB	6.790% due 10/29/09				13,934,426		13,934,426
	114,575,000	114,575,000	RUB	7.000% due 10/27/11				4,655,065		4,655,065
				Loan Participation Notes:
	1,810,000	1,810,000		6.212% due 11/22/16 (e)				1,789,185		1,789,185
150,000	3,951,000	4,101,000		6.510% due 3/7/22 (e)	$	147,375		3,921,214		4,068,589
	850,000	850,000		Senior Notes, 6.510% due 3/7/22 (e)				835,125		835,125
	162,014,000	162,014,000	RUB	Gazprom OAO, 6.950% due 8/6/09				6,583,318		6,583,318
				LUKOIL International Finance BV:
	1,090,000	1,090,000		6.356% due 6/7/17 (e)				1,055,992		1,055,992
150,000	3,172,000	3,322,000		6.656% due 6/7/22 (e)		145,320		3,060,980		3,206,300
2,000,000		2,000,000		Morgan Stanley Bank AG for OAO Gazprom, Loan Participation Notes, 9.625% due 3/1/13 (e)		2,316,648				2,316,648
				Russian Agricultural Bank:
	9,648,000	9,648,000		Loan Participation Notes, 6.299% due 5/15/17 (e)				9,164,635		9,164,635
	5,840,000	5,840,000		Notes, 7.175% due 5/16/13 (e)				6,037,976		6,037,976
				TNK-BP Finance SA:
490,000	5,580,000	6,070,000		7.500% due 7/18/16 (e)		478,975		5,454,450		5,933,425
	2,593,000	2,593,000		6.625% due 3/20/17 (e)				2,375,836		2,375,836
140,000	3,414,000	3,554,000		UBS Luxembourg SA for OJSC Vimpel Communications, Loan Participation Notes, 8.250% due 5/23/16 (e)		145,250		3,542,025		3,687,275
2,000,000		2,000,000		VTB Capital SA for Vneshtorgbank, Loan Participation Notes, 5.956% due 8/1/08 (e)(c)		1,983,544				1,983,544
				Total Russia		5,217,112		84,490,636		89,707,748
Thailand — 1.9%
				True Move Co., Ltd.:
570,000	6,930,000	7,500,000		10.750% due 12/16/13 (e)		584,689		7,155,225		7,739,914
550,000	4,240,000	4,790,000		10.375% due 8/1/14 (e)		567,875		4,339,640		4,907,515
				Total Thailand		1,152,564		11,494,865		12,647,429
United Kingdom — 0.4%
2,306,683		2,306,683		HSBC Bank PLC, 7.000% due 11/1/11		2,382,665				2,382,665
United States — 1.7%
	1,650,000	1,650,000		EEB International Ltd., 8.750% due 10/31/14 (b)(e)				1,707,750		1,707,750
610,000	5,380,000	5,990,000		Freeport-McMoRan Copper & Gold Inc., Senior Notes, 8.375% due 4/1/17 (b)		669,475		5,904,550		6,574,025
	2,910,000	2,910,000		GTL Trade Finance Inc., 7.250% due 10/20/17 (e)				2,952,253		2,952,253
				Total United States		669,475		10,564,553		11,234,028

S-7

Western Asset Emerging Markets Floating Rate Fund Inc.	Western Asset Emerging Markets Debt Fund Inc.	Pro Forma Combined Western Asset Emerging Markets Debt Fund Inc.			Western Asset Emerging Markets Floating Rate Fund Inc.		Western Asset Emerging Markets Debt Fund Inc.		Pro Forma Combined Western Asset Emerging Markets Debt Fund Inc.
Face Amount†	Face Amount†	Face Amount†	Currency	Security	Value		Value		Value
Venezuela — 3.0%
				Petrozuata Finance Inc.:
1,869,000	17,141,000	19,010,000		8.220% due 4/1/17 (e)	$	1,878,345	$	17,226,705	$	19,105,050
	436,000	436,000		8.220% due 4/1/17 (e)				438,180		438,180
				Total Venezuela		1,878,345		17,664,885		19,543,230
				TOTAL CORPORATE BONDS & NOTES (Cost — $228,815,106)		23,913,687		210,184,055		234,097,742
Warrants
WARRANTS — 0.0%
	11,745	11,745		Bolivarian Republic of Venezuela, Oil-linked payment obligations, Expires 4/15/20* (Cost — $364,095)				440,437		440,437
				TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENTS (Cost — $577,083,654)		56,445,771		555,272,940		611,718,711
Face Amount†	Face Amount†	Face Amount†
SHORT-TERM INVESTMENTS — 7.6%
Sovereign Bonds — 6.6%
				Bank Negara Malaysia Monetary Notes:
	23,033,000	23,033,000	MYR	Series 0207, 3.569% due 2/14/08				6,834,620		6,834,620
	21,268,000	21,268,000	MYR	Series 2307, zero coupon bond to yield 3.430% due 1/17/08				6,328,107		6,328,107
	17,330,000	17,330,000	MYR	Series 3007, zero coupon bond to yield 3.470% due 11/6/07				5,193,935		5,193,935
				Egypt Treasury Bills:
	7,075,000	7,075,000	EGP	Zero coupon bond to yield 8.830% due 11/6/07				1,280,732		1,280,732
	127,525,000	127,525,000	EGP	Zero coupon bond to yield 7.080% due 10/28/08				21,489,841		21,489,841
14,200,000		14,200,000	EGP	Series 364, zero coupon bond to yield 0.010% due 8/26/08		2,436,455				2,436,455
				Total Sovereign Bonds (Cost — $42,816,456)		2,436,455		41,127,235		43,563,690
U.S. Government Agency — 0.2%
245,000	1,150,000	1,395,000		Federal National Mortgage Association (FNMA), Discount Notes, 5.203% due 3/17/08 (Cost — $1,368,413) (g)(h)		241,080		1,131,598		1,372,678

S-8

Western Asset Emerging Markets Floating Rate Fund Inc.	Western Asset Emerging Markets Debt Fund Inc.	Pro Forma Combined Western Asset Emerging Markets Debt Fund Inc.			Western Asset Emerging Markets Floating Rate Fund Inc.		Western Asset Emerging Markets Debt Fund Inc.		Pro Forma Combined Western Asset Emerging Markets Debt Fund Inc.
Face Amount†	Face Amount†	Face Amount†	Currency	Security	Value		Value		Value
Repurchase Agreements — 0.8%
34,000	5,410,000	5,444,000		Morgan Stanley tri-party repurchase agreement dated 10/31/07, 4.800% due 11/1/07; Proceeds at maturity — $5,410,721; (Fully collateralized by U.S. government agency obligation, 0.000% due 2/4/08; Market value — $5,546,046) (Cost — $5,444,000)(a)	$	34,000	$	5,410,000	$	5,444,000
				TOTAL SHORT-TERM INVESTMENTS (Cost — $49,628,869)		2,711,535		47,668,833		50,380,368
				TOTAL INVESTMENTS — 100.0% (Cost — $626,712,523#)	$	59,157,306	$	602,941,773	$	662,099,079

† Face amount denominated in U.S. dollars, unless otherwise noted.

* Non-income producing security.

(a) Security is currently in default.

(b) All or a portion of this security is segregated for open futures contracts and reverse repurchase agreements.

(c) Variable rate security. Interest rate disclosed is that which is in effect at October 31, 2007.

(d) Illiquid security.

(e) Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Directors, unless otherwise noted.

(f) Payment-in-kind security for which part of the income earned may be paid as additional principal.

(g) Rate shown represents yield-to-maturity.

(h) All or a portion of this security is held at the broker as collateral for open futures contracts.

# Aggregate cost for federal income tax purposes is substantially the same.

Abbreviations used in this schedule:

ARS — Argentine Peso

BRL — Brazilian Real

DCB — Debt Conversion Bond

DEM — German Mark

EGP — Egyptian Pound

EUR — Euro

GDP — Gross Domestic Product

IDR — Indonesian Rupiah

ITL — Italian Lira

MYR — Malaysian Ringgit

OJSC — Open Joint Stock Company

RUB — Russian Ruble

TRY — New Turkish Lira

See Notes to Pro Forma Combined Financial Statements

S-9

Statement of Assets and Liabilities

Pro Forma Combined Statement of Assets and Liabilities for Western Asset Emerging Markets Debt Fund Inc. and Western Asset Emerging Markets Floating Rate Fund Inc. for the Twelve Months Ended October 31, 2007 (Unaudited)

	Western Asset Emerging Markets Floating Rate Fund Inc.		Western Asset Emerging Markets Debt Fund Inc.		Adjustments			Pro Forma Combined Western Asset Emerging Markets Debt Fund Inc.
ASSETS:
Investments, at cost	$	58,107,881	$	568,604,642				$	626,712,523
Foreign currency, at cost		64,782		1,392,723					1,457,505
Investments, at value	$	59,157,306	$	602,941,773				$	662,099,079
Foreign currency, at value		65,266		1470041					1,535,307
Cash		556		912					1,468
Receivable for securities sold		—		24,839,148					24,839,148
Interest receivable		741,330		10,941,251					11,682,581
Receivable from broker—variation margin on open futures contracts		93,531		283,797					377,328
Unrealized appreciation on swaps		55,864		—					55,864
Interest receivable for open swap contracts		391,070		—					391,070
Prepaid expenses		6,626		12,559					19,185
Total Assets		60,511,549		640,489,481					701,001,030
LIABILITIES:
Payable for securities purchased				21,489,840					21,489,840
Payable for open reverse repurchase agreement				29,061,442					29,061,442
Unrealized depreciation on swaps		750,822		—					750,822
Interest payable for open swap contracts		418,582		—					418,582
Investment Management fee payable		52,363		443,883					496,246
Directors’ fees payable		2,640		1,153					3,793
Excise tax payable		—		312,866					312,866
Interest payable		—		75,749					75,749
Accrued expenses		110,752		118,659		72,500	(a)		301,911
Total Liabilities		1,335,159		51,503,592		72,500			52,911,251
Total Net Assets	$	59,176,390	$	588,985,889	$	(72,500	)	$	648,089,779
NET ASSETS:
Par value	$	4,305	$	28,010	$	(1,491	)	$	30,824
Paid-in capital in excess of par value		57,152,265		533,184,329		1,491			590,338,085
Undistributed net investment income		1,221,645		6,905,628		(72,500	)(a)		8,054,773
Accumulated net realized gain on investments, futures contracts, swap contracts and foreign currency transactions		619,823		14,418,288					15,038,111
Net unrealized appreciation (depreciation) on investments, futures contracts, swap contracts and foreign currencies		178,352		34,449,634					34,627,986
Total Net Assets	$	59,176,390	$	588,985,889	$	(72,500	)	$	648,089,779
Net Assets:		59,176,390		588,985,889		(72,500	)(a)		648,089,779
Shares Outstanding:		4,305,295		28,009,890		(1,494,568	)(b)		30,820,617
Net Asset Value:	$	13.75	$	21.03				$	21.03

^(a) Reflects adjustment for estimated reorganization costs of $72,500 related to the acquired and acquiring Funds.

^(b) Reflects adjustments to the number of shares outstanding due to the Reorganization.

See Notes to Pro Forma Combined Financial Statements

S-10

Statement of Operations

Pro Forma Combined Statement of Operations for Western Asset Emerging Markets Debt Fund Inc. and Western Asset Emerging Markets Floating Rate Fund Inc. for the Twelve Months Ended October 31, 2007 (Unaudited)

	Western Asset Emerging Markets Floating Rate Fund Inc.			Western Asset Emerging Markets Debt Fund Inc.			Adjustments			Pro Forma Combined Western Asset Emerging Markets Debt Fund Inc.
INVESTMENT INCOME:
Dividends				$	70,470					$	70,470
Interest	$	4,255,802			42,024,812						46,280,614
Less: Foreign taxes withheld		(1,496	)		(39,028	)					(40,524	)
Total Investment Income		4,254,306			42,056,254						46,310,560
EXPENSES:
Management fee		639,019			5,182,614		$	(121,718	)(a)		5,699,915
Commitment fees		105,394			—			(105,394	)(b)		—
Excise tax		—			312,866						312,866
Transfer agent fees		23,898			14,593			(15,000	)(b)		23,491
Shareholder reports		60,334			78,306			(12,067	)(b)		126,573
Custody fees		10,656			188,076						198,732
Stock exchange listing fees		21,587			22,121			(18,833	)(b)		24,875
Legal fees		47,102			34,170			(42,392	)(b)		38,880
Insurance		1,591			13,275						14,866
Audit and tax		50,798			61,677			(47,562	)(b)		64,913
Directors’ fees		42,969			88,297			(2,388	)(b)		128,878
Interest Expense		35,851			1,248,471			(35,851	)(b)		1,248,471
Miscellaneous expenses		12,406			19,641			(11,165	)(b)		20,882
Total Expenses		1,051,605			7,264,107			(412,370	)		7,903,342
Less: Fee waivers and/or expenses reimbursements		—			(2,388	)		2,388	(c)		—
Net Expenses		1,051,605			7,261,719			(409,982	)		7,903,342
Net Investment Income		3,202,701			34,794,535			409,982			38,407,218
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS, SWAP CONTRACTS AND FOREIGN CURRENCIES:		—
Net Realized Gain (Loss) From:
Investments		1,407,135			24,975,072						26,382,207
Futures contracts		(153,610	)		(3,222,646	)					(3,376,256	)
Swap contracts		59,240			—						59,240
Foreign currency transactions		(2,998	)		(57,238	)					(60,236	)
Net Realized Gain		1,309,767			21,695,188						23,004,955
Change in Net Unrealized Appreciation/Depreciation From:
Investments		(1,377,830	)		(3,360,614	)					(4,738,444	)
Futures contracts		(177,089	)		1,398,690						1,221,601
Swap contracts		(384,591	)		—						(384,591	)
Foreign currencies		974			243,306						244,280
Change in Net Unrealized Appreciation/Depreciation		(1,938,536	)		(1,718,618	)					(3,657,154	)
Net Gain on Investments, Futures Contracts, Swap Contracts and Foreign Currencies		(628,769	)		19,976,570						19,347,801
Increase in Net Assets From Operations	$	2,573,932		$	54,771,105		$	409,982		$	57,755,019

(a) To adjust expenses to reflect the Combined Fund’s estimated fees and expenses based upon contractual rates in effect for the Western Asset Emerging Markets Debt Fund Inc.

(b) Reflects elimination of duplicative expenses and economies of scale achieved as a result of the proposed Reorganization.

(c) Non-recurring waiver.

See Pro Forma notes to financial statements.

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Western Asset Emerging Markets Floating Rate Fund Inc. Merger With and Into Western Asset Emerging Markets Debt Fund Inc.

Notes to Pro Forma Combined Financial Statements

(Unaudited)

1. Basis of Combination:

The accompanying unaudited Pro Forma Combined Statement of Assets and Liabilities, including the Pro Forma Combined Schedule of Investments at October 31, 2007 and the related Pro Forma Combined Statement of Operations (“Pro Forma Statements”) for the twelve months ended October 31, 2007, reflect the accounts of Western Asset Emerging Markets Floating Rate Fund Inc. (“Acquired Fund”) and Western Asset Emerging Markets Debt Fund Inc. (“Acquiring Fund”), each a “Fund.” Following the combination, the Western Asset Emerging Markets Debt Fund Inc. will be the accounting survivor.

Under the terms of the Agreement and Plan of Reorganization, the exchange of assets of the Acquired Fund for shares of the Acquiring Fund will be treated as a tax-free reorganization and accordingly, the tax-free merger will be accounted for in an “as-if” pooling of interests. The combination would be accomplished by an acquisition of the net assets of the Acquired Fund in exchange for shares of the Acquiring Fund at net asset value. The unaudited Pro Forma Combined Schedule of Investments and the unaudited Pro Forma Combined Statement of Assets and Liabilities have been prepared as though the combination had been effective on October 31, 2007. The unaudited Pro Forma Combined Statement of Operations reflects the results of the Funds for the twelve months ended October 31, 2007 as if the merger occurred on November 1, 2006. These pro forma statements have been derived from the books and records of the Funds utilized in calculating daily net asset values at the dates indicated above in conformity with U.S. generally accepted accounting principles. The historical cost of investment securities will be carried forward to the surviving entity. The fiscal year ends are February 28 for the Western Asset Emerging Markets Floating Rate Fund Inc. and October 31 for the Western Asset Emerging Markets Debt Fund.

The Pro Forma Financial Statements should be read in conjunction with the historical financial statements of each Fund, which are incorporated by reference in the Statement of Additional Information.

2. Use of Estimates:

Management has made certain estimates and assumptions relating to the reporting of assets, liabilities, income, and expenses to prepare these Pro Forma Combined Financial Statements in conformity with U.S. generally accepted accounting principles for investment companies. Actual results could differ from these estimates.

3. Investment Valuation:

Securities are valued at the mean of bid and asked prices based on market quotations for those securities, or if no quotations are available, then for securities of similar type, yield and maturity. Securities for which quotations are not readily available or where market quotations are determined not to reflect fair value, will be valued in good faith by or under the direction of the Fund’s Board of Directors. Short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates market value.

4. Capital Shares

The unaudited pro forma net asset values per share assumes additional shares of capital stock of the Acquiring Fund were issued in connection with the proposed acquisition of the Acquired Fund as of October 31, 2007. The number of additional shares issued was calculated by dividing the net asset value of the Acquired Fund by the net asset value of the Acquiring Fund.

5. Pro Forma Operations:

In the Pro Forma Combined Statement of Operations certain expenses have been adjusted to reflect the expected expenses of the combined entity. The pro forma investment management fees of the combined entity are based on the fee schedules in effect for the Acquiring Fund’s combined level of average net assets for the twelve months ended October 31, 2007.

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6. Federal and Other Taxes:

It is the policy of the Funds to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, the Funds intend to distribute substantially all of their net investment income and net realized gains on investments, if any, to their shareholders each year. Therefore, no federal income tax provision is required. However, due to the timing of when distributions are made, the Funds may be subject to an excise tax of 4% of the amount by which 98% of the Funds’ taxable income exceeds the distributions from such taxable income for the year.

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PART C

OTHER INFORMATION

Item 15. Indemnification

Reference is made to Article VII of the Registrant’s Articles of Incorporation and Article VI of the Registrant’s By-Laws.

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”) may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant understands that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The Registrant is named on a Directors & Officers Insurance Policy which covers all present and future directors and officers of Registrant against loss arising from any civil claim or claims by reason of any actual or alleged error, misstatement, misleading statement, negligent act or omission, or neglect or breach of duty committed while acting as directors or officers of the Registrant.

Item 16. Exhibits

Exhibit No.	Exhibit
1(a)	Articles of Incorporation (filed as Exhibit A to Registration Statement on Form N-2 (File Nos. 333-105190 and 811-21343) and incorporated herein by reference).
1(b)	Articles of Amendment (filed as Exhibit A(2) to Pre-Effective Amendment No. 2 to the Registration Statement on Form N-2 (File Nos. 333-105190 and 811-21343) and incorporated herein by reference).
1(c)	Articles of Amendment (filed herewith).
2	Amended and Restated By-Laws (filed as Exhibit B to Pre-Effective Amendment No. 3 to the Registration Statement on Form N-2 (File Nos. 333-105190 and 811-21343) and incorporated herein by reference).
3	Not applicable.
4	Form of Agreement and Plan of Reorganization is included in Part A of the Registration Statement on Form N-14.
5	Not applicable
6(a)	Form of Management Agreement between Registrant and Legg Mason Partners Fund Advisor, LLC, (filed herewith).
6(b)	Subadvisory Agreement between Legg Mason Partners Fund Advisor, LLC and Western Asset Management Company with respect to Registrant, dated August 1, 2006 (filed herewith).
7	Not applicable.

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Exhibit No.	Exhibit
8	Not applicable
9	Custodian Services Agreement with State Street Bank and Trust Company, dated January 1, 2007 (filed herewith).
10	Not applicable.
11	Form of Opinion and Consent of DLA Piper US LLP as to the legality of the securities being registered (filed herewith).
12	Form of Opinion of Simpson Thacher & Bartlett LLP supporting tax matters and consequences to shareholders discussed in the Proxy Statement/Prospectus (to be filed by amendment).
13	Not applicable.
14	Consent of Independent Registered Public Accounting Firm (filed herewith).
15	Not applicable.
16	Power of Attorney (filed herewith).
17(a)	Form of Proxy Card (filed herewith).
17(b)	Code of Ethics (filed herewith).
17(c)	Transfer Agency and Services Agreement with American Stock Transfer, Inc., dated March 20, 2006 (filed herewith).

Item 17. Undertakings.

(1) The undersigned registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this registration statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act [17 CFR 230.145c], the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other terms of the applicable form.

(2) The undersigned registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the registration statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them.

(3) The undersigned registrant agrees to file a post-effective amendment to this registration statement including a signed opinion of Simpson Thacher & Bartlett LLP supporting tax matters and consequences to shareholders discussed in the Proxy Statement/Prospectus.

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SIGNATURES

As required by the Securities Act of 1933, as amended, this registration statement has been signed on behalf of the Registrant, in the City of New York and State of New York, on the 28th day of March 2008.

WESTERN ASSET EMERGING MARKETS DEBT FUND INC.
By:	/s/    R. Jay Gerken
	R. Jay Gerken
	Chairman, Chief Executive Officer and President

As required by the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

	Signature	Title	Date
	/s/ R. Jay Gerken R. Jay Gerken	Chairman, Chief Executive Officer, President and Director (Principal Executive Officer)	March 28, 2008
	/s/ Kaprel Ozsolak Kaprel Ozsolak	Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer)	March 28, 2008
	/s/ Carol L. Colman* Carol L. Colman	Director	March 28, 2008
	/s/ Daniel P. Cronin* Daniel P. Cronin	Director	March 28, 2008
	/s/ Paolo M. Cucchi* Paolo M. Cucchi	Director	March 28, 2008
	/s/ Leslie H. Gelb* Leslie H. Gelb	Director	March 28, 2008
	/s/ William R. Hutchinson* William R. Hutchinson	Director	March 28, 2008
	/s/ Dr. Riordan Roett* Dr. Riordan Roett	Director	March 28, 2008
	/s/ Jeswald W. Salacuse* Jeswald W. Salacuse	Director	March 28, 2008
*By:	/s/ R. Jay Gerken R. Jay Gerken, Attorney-in-Fact

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EXHIBIT INDEX

Exhibit No.	Exhibit
1(c)	Articles of Amendment
6(a)	Form of Management Agreement between Registrant and Legg Mason Partners Fund Advisor, LLC
6(b)	Subadvisory Agreement between Legg Mason Partners Fund Advisor, LLC and Western Asset Management Company with respect to Registrant, dated August 1, 2006
9	Custodian Services Agreement with State Street Bank and Trust Company, dated January 1, 2007
11	Form of Opinion and Consent of DLA Piper US LLP as to the legality of the securities being registered
14	Consent of Independent Registered Public Accounting Firm
16	Power of Attorney
17(a)	Form of Proxy Card
17(b)	Code of Ethics
17(c)	Transfer Agency and Services Agreement with American Stock Transfer, Inc., dated March 20, 2006

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EX-99.1(C)

Exhibit (1)(C)

SALOMON BROTHERS EMERGING MARKETS DEBT FUND INC.

ARTICLES OF AMENDMENT

THIS IS TO CERTIFY THAT:

FIRST: The charter of SALOMON BROTHERS EMERGING MARKETS DEBT FUND INC., a Maryland corporation (the “Corporation”), is hereby amended by deleting existing ARTICLE II in its entirety and substituting in lieu thereof a new Article to read as follows:

“ARTICLE II

NAME

The name of the corporation (which is hereinafter called the “Corporation”) is:

“Western Asset Emerging Markets Debt Fund Inc.”

SECOND: The amendment does not increase the authorized stock of the Corporation.

THIRD: Pursuant to Section 2-605 (a) of the Maryland General Corporation Law, the amendment to the charter of the Corporation as hereinabove set forth has been duly approved by the Board of Directors of the Corporation as required by law.

FOURTH: The foregoing amendment to the charter of the Corporation shall become effective at 9:00 a.m. on October 9, 2006.

FIFTH: The undersigned Chairman and Chief Executive Officer acknowledges these Articles of Amendment to be the corporate act of the Corporation and as to all matters or facts required to be verified under oath, the undersigned Chairman and Chief Executive Officer acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.

IN WITNESS WHEREOF, the Corporation has caused these Articles to be signed in its name and on its behalf by its Chairman and Chief Executive Officer and attested to by its Assistant Secretary on this 19th day of September, 2006.

ATTEST:		SALOMON BROTHERS EMERGING MARKETS DEBT FUND INC.
/s/ Robert M. Nelson	By:	/s/ R. Jay Gerken
Robert M. Nelson,		R. Jay Gerken,
Assistant Secretary		Chairman and Chief Executive Officer

EX-99.6(A)

Exhibit 6(a)

MANAGEMENT AGREEMENT

Legg Mason Partners Fund Advisor, LLC

This MANAGEMENT AGREEMENT (“Agreement”) is made this     th day of             , 2008, by and between WESTERN ASSET Emerging Markets Debt Fund Inc. (the “Fund”) and Legg Mason Partners Fund Advisor, LLC, a Delaware limited liability company (the “Manager”).

WHEREAS, the Fund is registered as a management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”);

WHEREAS, the Manager is engaged primarily in rendering investment advisory, management and administrative services and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended;

WHEREAS, the Fund wishes to retain the Manager to provide investment advisory, management, and administrative services to the Fund; and

WHEREAS, the Manager is willing to furnish such services on the terms and conditions hereinafter set forth;

NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed as follows:

1. The Fund hereby appoints the Manager to act as investment adviser and administrator of the Fund for the period and on the terms set forth in this Agreement. The Manager accepts such appointment and agrees to render the services herein set forth, for the compensation herein provided.

2. The Fund shall at all times keep the Manager fully informed with regard to the securities owned by it, its funds available, or to become available, for investment, and generally as to the condition of its affairs. It shall furnish the Manager with such other documents and information with regard to its affairs as the Manager may from time to time reasonably request.

3. (a) Subject to the supervision of the Fund’s Board of Directors (the “Board”), the Manager shall regularly provide the Fund with investment research, advice, management and supervision and shall furnish a continuous investment program for the Fund’s portfolio of securities and other investments consistent with the Fund’s investment objectives, policies and restrictions, as stated in the Fund’s Prospectus and Statement of Additional Information. The Manager shall determine from time to time what securities and other investments will be purchased, retained, sold or exchanged by the Fund and what portion of the assets of the Fund’s portfolio will be held in the various securities and other investments in which the Fund invests, and shall implement those decisions, all subject to the provisions of the Fund’s Articles of Incorporation and By-Laws (collectively, the “Governing Documents”), the 1940 Act, and the applicable rules and regulations promulgated thereunder by the Securities and Exchange Commission (the “SEC”) and interpretive guidance issued thereunder by the SEC staff and any other applicable federal and state law, as well as the investment objectives, policies and restrictions of the Fund referred to above, and any other specific policies adopted by the Board and disclosed to the Manager. The Manager is authorized as the agent of the Fund to give instructions to the custodian of the Fund as to deliveries of securities and other investments and payments of cash for the account of the Fund. Subject to applicable provisions of the 1940 Act and direction from the Board, the investment program to be provided hereunder may entail the investment of all or substantially all of the assets of the Fund in one or more investment companies. The Manager will place orders pursuant to its investment determinations for the Fund either directly with the issuer or with any broker or dealer, foreign currency dealer, futures commission merchant or others selected by it. In connection with the selection of such brokers or dealers and the placing of such orders, subject to applicable law, brokers or dealers may be selected who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities

1

Exchange Act of 1934, as amended (the “Exchange Act”)) to the Fund and/or the other accounts over which the Manager or its affiliates exercise investment discretion. The Manager is authorized to pay a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction for the Fund which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the Manager determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of either that particular transaction or the overall responsibilities which the Manager and its affiliates have with respect to accounts over which they exercise investment discretion. The Board may adopt policies and procedures that modify and restrict the Manager’s authority regarding the execution of the Fund’s portfolio transactions provided herein. The Manager shall also provide advice and recommendations with respect to other aspects of the business and affairs of the Fund, shall exercise voting rights, rights to consent to corporate action and any other rights pertaining to the Fund’s portfolio securities subject to such direction as the Board may provide, and shall perform such other functions of investment management and supervision as may be directed by the Board.

(b) Subject to the direction and control of the Board, the Manager shall perform such administrative and management services as may from time to time be reasonably requested by the Fund as necessary for the operation of the Fund, such as (i) supervising the overall administration of the Fund, including negotiation of contracts and fees with and the monitoring of performance and billings of the Fund’s transfer agent, shareholder servicing agents, custodian and other independent contractors or agents, (ii) providing certain compliance, fund accounting, regulatory reporting, and tax reporting services, (iii) preparing or participating in the preparation of Board materials, registration statements, proxy statements and reports and other communications to shareholders, (iv) maintaining the Fund’s existence, and (v) during such times as shares are publicly offered, maintaining the registration and qualification of the Fund’s shares under federal and state laws. Notwithstanding the foregoing, the Manager shall not be deemed to have assumed any duties with respect to, and shall not be responsible for, the distribution of the shares of the Fund, nor shall the Manager be deemed to have assumed or have any responsibility with respect to functions specifically assumed by any transfer agent, fund accounting agent, custodian, shareholder servicing agent or other agent, in each case employed by the Fund to perform such functions.

(c) The Fund hereby authorizes any entity or person associated with the Manager which is a member of a national securities exchange to effect any transaction on the exchange for the account of the Fund which is permitted by Section 11(a) of the Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and the Fund hereby consents to the retention of compensation for such transactions in accordance with Rule 11a2-2(T)(a)(2)(iv). Notwithstanding the foregoing, the Manager agrees that it will not deal with itself, or with members of the Board or any principal underwriter of the Fund, as principals or agents in making purchases or sales of securities or other property for the account of the Fund, nor will it purchase any securities from an underwriting or selling group in which the Manager or its affiliates is participating, or arrange for purchases and sales of securities between the Fund and another account advised by the Manager or its affiliates, except in each case as permitted by the 1940 Act and in accordance with such policies and procedures as may be adopted by the Fund from time to time, and will comply with all other provisions of the Governing Documents and the Fund’s Prospectus and Statement of Additional Information relative to the Manager and its directors and officers.

4. Subject to the Board’s approval, the Manager or the Fund may enter into contracts with one or more investment subadvisers or subadministrators, including without limitation, affiliates of the Manager, in which the Manager delegates to such investment subadvisers or subadministrators any or all its duties specified hereunder, on such terms as the Manager will determine to be necessary, desirable or appropriate, provided that in each case the Manager shall supervise the activities of each such subadviser or subadministrator and further provided that such contracts impose on any investment subadviser or subadministrator bound thereby all the conditions to which the Manager is subject hereunder and that such contracts are entered into in accordance with and meet all applicable requirements of the 1940 Act.

5. (a) The Manager, at its expense, shall supply the Board and officers of the Fund with all information and reports reasonably required by them and reasonably available to the Manager and shall furnish the Fund with office facilities, including space, furniture and equipment and all personnel reasonably necessary for the operation of the Fund. The Manager shall oversee the maintenance of all books and records with respect to the Fund’s securities transactions and the keeping of the Fund’s books of account in accordance with all applicable federal and state laws and regulations. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the

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Manager hereby agrees that any records that it maintains for the Fund are the property of the Fund, and further agrees to surrender promptly to the Fund any of such records upon the Fund’s request. The Manager further agrees to arrange for the preservation of the records required to be maintained by Rule 31a-1 under the 1940 Act for the periods prescribed by Rule 31a-2 under the 1940 Act. The Manager shall authorize and permit any of its directors, officers and employees, who may be elected as Board members or officers of the Fund, to serve in the capacities in which they are elected.

(b) The Manager shall bear all expenses, and shall furnish all necessary services, facilities and personnel, in connection with its responsibilities under this Agreement. Other than as herein specifically indicated, the Manager shall not be responsible for the Fund’s expenses, including, without limitation, advisory fees; distribution fees; interest; taxes; governmental fees; voluntary assessments and other expenses incurred in connection with membership in investment company organizations; organization costs of the Fund; the cost (including brokerage commissions, transaction fees or charges, if any) in connection with the purchase or sale of the Fund’s securities and other investments and any losses in connection therewith; fees and expenses of custodians, transfer agents, registrars, independent pricing vendors or other agents; legal expenses; loan commitment fees; expenses relating to share certificates; expenses relating to the issuing and redemption or repurchase of the Fund’s shares and servicing shareholder accounts; expenses of registering and qualifying the Fund’s shares for sale under applicable federal and state law; expenses of preparing, setting in print, printing and distributing prospectuses and statements of additional information and any supplements thereto, reports, proxy statements, notices and dividends to the Fund’s shareholders; costs of stationery; website costs; costs of meetings of the Board or any committee thereof, meetings of shareholders and other meetings of the Fund; Board fees; audit fees; travel expenses of officers, members of the Board and employees of the Fund, if any; and the Fund’s pro rata portion of premiums on any fidelity bond and other insurance covering the Fund and its officers, Board members and employees; litigation expenses and any non-recurring or extraordinary expenses as may arise, including, without limitation, those relating to actions, suits or proceedings to which the Fund is a party and the legal obligation which the Fund may have to indemnify the Fund’s Board members and officers with respect thereto.

6. No member of the Board, officer or employee of the Fund shall receive from the Fund any salary or other compensation as such member of the Board, officer or employee while he is at the same time a director, officer, or employee of the Manager or any affiliated company of the Manager, except as the Board may decide. This paragraph shall not apply to Board members, executive committee members, consultants and other persons who are not regular members of the Manager’s or any affiliated company’s staff.

7. As compensation for the services performed and the facilities furnished and expenses assumed by the Manager, including the services of any consultants retained by the Manager, the Fund shall pay the Manager, as promptly as possible after the last day of each month, a fee, computed daily at an annual rate set forth on Schedule A annexed hereto, provided however, that if the Fund invests all or substantially all of its assets in another registered investment company for which the Manager or an affiliate of the Manager serves as investment adviser or investment manager, the annual fee computed as set forth on such Schedule A shall be reduced by the aggregate management fees allocated to that Fund for the Fund’s then- current fiscal year from such other registered investment company. The first payment of the fee shall be made as promptly as possible at the end of the month succeeding the effective date of this Agreement, and shall constitute a full payment of the fee due the Manager for all services prior to that date. If this Agreement is terminated as of any date not the last day of a month, such fee shall be paid as promptly as possible after such date of termination, shall be based on the average weekly net assets of the Fund in that period from the beginning of such month to such date of termination, and shall be that proportion of such average weekly net assets as the number of business days in such period bears to the number of business days in such month. The average weekly net assets of the Fund shall in all cases be based only on business days and be computed as of the time of the regular close of business of the New York Stock Exchange, or such other time as may be determined by the Board.

8. The Manager assumes no responsibility under this Agreement other than to render the services called for hereunder, in good faith, and shall not be liable for any error of judgment or mistake of law, or for any loss arising out of any investment or for any act or omission in the execution of securities transactions for the Fund, provided that nothing in this Agreement shall protect the Manager against any liability to the Fund to which the Manager would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties hereunder. As used in this Section 8, the term “Manager” shall include any affiliates of the Manager performing services for the Fund contemplated hereby and the partners, shareholders, directors, officers and employees of the Manager and such affiliates.

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9. Nothing in this Agreement shall limit or restrict the right of any director, officer, or employee of the Manager who may also be a Board member, officer, or employee of the Fund, to engage in any other business or to devote his time and attention in part to the management or other aspects of any other business, whether of a similar nature or a dissimilar nature, nor to limit or restrict the right of the Manager to engage in any other business or to render services of any kind, including investment advisory and management services, to any other fund, firm, individual or association. If the purchase or sale of securities consistent with the investment policies of the Fund or one or more other accounts of the Manager is considered at or about the same time, transactions in such securities will be allocated among the accounts in a manner deemed equitable by the Manager. Such transactions may be combined, in accordance with applicable laws and regulations, and consistent with the Manager’s policies and procedures as presented to the Board from time to time.

10. For the purposes of this Agreement, the Fund’s “net assets” shall be determined as provided in the Fund’s Prospectus and Statement of Additional Information and the terms “assignment,” “interested person,” and “majority of the outstanding voting securities” shall have the meanings given to them by Section 2(a) of the 1940 Act, subject to such exemptions as may be granted by the SEC by any rule, regulation or order.

11. This Agreement will become effective with respect to the Fund on the date set forth on Schedule A annexed hereto, provided that it shall have been approved by the Fund’s Board and by the shareholders of the Fund in accordance with the requirements of the 1940 Act and, unless sooner terminated as provided herein, will continue in effect until November 30, 2007. Thereafter, if not terminated, this Agreement shall continue in effect with respect to the Fund, so long as such continuance is specifically approved at least annually (i) by the Board or (ii) by a vote of a majority of the outstanding voting securities of the Fund, provided that in either event the continuance is also approved by a majority of the Board members who are not interested persons of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval.

12. This Agreement is terminable with respect to the Fund without penalty by the Board or by vote of a majority of the outstanding voting securities of the Fund, in each case on not more than 60 days’ nor less than 30 days’ written notice to the Manager, or by the Manager upon not less than 90 days’ written notice to the Fund, and will be terminated upon the mutual written consent of the Manager and the Fund. This Agreement shall terminate automatically in the event of its assignment by the Manager and shall not be assignable by the Fund without the consent of the Manager.

13. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no material amendment of the Agreement shall be effective until approved, if so required by the 1940 Act, by vote of the holders of a majority of the Fund’s outstanding voting securities.

14. This Agreement embodies the entire agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to the subject matter hereof. Should any part of this Agreement be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding on and shall inure to the benefit of the parties hereto and their respective successors.

15. This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of the State of New York.

[signature page to follow]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers thereunto duly authorized.

WESTERN ASSET EMERGING MARKETS DEBT FUND INC.

By:

Name:

Title:

LEGG MASON PARTNERS FUND ADVISOR, LLC

By:

Name:

Title:

5

Schedule A

Western Asset Emerging Markets Debt Fund Inc.

Date:

                , 2008

Fee:

The following percentage of the Fund’s average weekly daily assets:     %

6

EX-99.6(B)

Exhibit 6(b)

Western Asset Emerging Markets Debt Fund Inc.

SUBADVISORY AGREEMENT

This SUBADVISORY AGREEMENT (“Agreement”) is made this 1st day of August, 2006, by and between Legg Mason Partners Fund Advisor, LLC, a Delaware limited liability company (the “Manager”), and Western Asset Management Company, a California corporation (the “Subadviser”).

WHEREAS, the Manager has been retained by WESTERN ASSET Emerging Markets Debt Fund Inc. (the “Fund”), a registered management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”) to provide investment advisory, management, and administrative services to the Fund; and

WHEREAS, the Manager wishes to engage the Subadviser to provide certain investment advisory services to the Fund, and the Subadviser is willing to furnish such services on the terms and conditions hereinafter set forth;

NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed as follows:

1. In accordance with and subject to the Management Agreement between the Fund and the Manager (the “Management Agreement”), the Manager hereby appoints the Subadviser to act as Subadviser with respect to the Fund for the period and on the terms set forth in this Agreement. The Subadviser accepts such appointment and agrees to render the services herein set forth, for the compensation herein provided.

2. The Manager shall cause the Subadviser to be kept fully informed at all times with regard to the securities owned by the Fund, its funds available, or to become available, for investment, and generally as to the condition of the Fund’s affairs. Manager shall furnish the Subadviser with such other documents and information with regard to the Fund’s affairs as the Subadviser may from time to time reasonably request.

3. (a) Subject to the supervision of the Fund’s Board of Directors (the “Board”) and the Manager, Subadviser shall regularly provide the Fund with respect to such portion of the Fund’s assets as shall be allocated to the Subadviser by the Manager from time to time (the “Allocated Assets”) with investment research, advice, management and supervision and shall furnish a continuous investment program for the Allocated Assets consistent with the Fund’s investment objectives, policies and restrictions, as stated in the Fund’s Prospectus and Statement of Additional Information. The Subadviser shall, with respect to the Allocated Assets, determine from time to time what securities and other investments will be purchased (including, as permitted in accordance with this paragraph, swap agreements, options and futures), retained, sold or exchanged by the Fund and what portion of the Allocated Assets will be held in the various securities and other investments in which the Fund invests, and shall implement those decisions (including the execution of investment documentation), all subject to the provisions of the Fund’s Articles of Incorporation and By-Laws (collectively, the “Governing Documents”), the 1940 Act, and the applicable rules and regulations promulgated thereunder by the Securities and Exchange Commission (the “SEC”) and interpretive guidance issued thereunder by the SEC staff and any other applicable federal and state law, as well as the investment objectives, policies and restrictions of the Fund referred to above, and any other specific policies adopted by the Board and disclosed to the Subadviser. The Subadviser is authorized as the agent of the Fund to give instructions with respect to the Allocated Assets to the custodian of the Fund as to deliveries of securities and other investments and payments of cash for the account of the Fund. Subject to applicable provisions of the 1940 Act, the investment program to be provided hereunder may entail the investment of all or substantially all of the assets of the Fund in one or more investment companies. The Subadviser will place orders pursuant to its investment determinations for the Fund either directly with the issuer or with any broker or dealer, foreign currency dealer, futures commission merchant or others selected by it. In connection with the selection of such brokers or dealers and the placing of such orders, subject to applicable law, brokers or dealers may be selected who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) to the Fund and/or the other accounts over which the Subadviser or its affiliates exercise investment discretion. The Subadviser is authorized to pay a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction for the Fund which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the Subadviser

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determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of either that particular transaction or the overall responsibilities which the Subadviser and its affiliates have with respect to accounts over which they exercise investment discretion. The Board may adopt policies and procedures that modify and restrict the Subadviser’s authority regarding the execution of the Fund’s portfolio transactions provided herein. The Subadviser shall exercise voting rights, rights to consent to corporate action and any other rights pertaining to the Allocated Assets subject to such direction as the Board may provide, and shall perform such other functions of investment management and supervision as may be directed by the Board.

(b) The Fund hereby authorizes any entity or person associated with the Subadviser which is a member of a national securities exchange to effect any transaction on the exchange for the account of the Fund which is permitted by Section 11(a) of the Exchange Act and Rule 11a2-2(T) thereunder, and the Fund hereby consents to the retention of compensation for such transactions in accordance with Rule 11a2-2(T)(a)(2)(iv). Notwithstanding the foregoing, the Subadviser agrees that it will not deal with itself, or with members of the Board or any principal underwriter of the Fund, as principals or agents in making purchases or sales of securities or other property for the account of the Fund, nor will it purchase any securities from an underwriting or selling group in which the Subadviser or its affiliates is participating, or arrange for purchases and sales of securities between the Fund and another account advised by the Subadviser or its affiliates, except in each case as permitted by the 1940 Act and in accordance with such policies and procedures as may be adopted by the Fund from time to time, and will comply with all other provisions of the Governing Documents and the Fund’s Prospectus and Statement of Additional Information relative to the Subadviser and its directors and officers.

4. The Subadviser may delegate to any other one or more companies that the Subadviser controls, is controlled by, or is under common control with, or to specified employees of any such companies, certain of the Subadviser’s duties under this Agreement, provided in each case the Subadviser will supervise the activities of each such entity or employees thereof, that such delegation will not relieve the Subadviser of any of its duties or obligations under this Agreement and provided further that any such arrangements are entered into in accordance with all applicable requirements of the 1940 Act.

5. The Subadviser agrees that it will keep records relating to its services hereunder in accordance with all applicable laws, and in compliance with the requirements of Rule 31a-3 under the 1940 Act, the Subadviser hereby agrees that any records that it maintains for the Fund are the property of the Fund, and further agrees to surrender promptly to the Fund any of such records upon the Fund’s request. The Subadviser further agrees to arrange for the preservation of the records required to be maintained by Rule 31a-1 under the 1940 Act for the periods prescribed by Rule 31a-2 under the 1940 Act.

6. (a) The Subadviser, at its expense, shall supply the Board, the officers of the Fund, and the Manager with all information and reports reasonably required by them and reasonably available to the Subadviser relating to the services provided by the Subadviser hereunder.

(b) The Subadviser shall bear all expenses, and shall furnish all necessary services, facilities and personnel, in connection with its responsibilities under this Agreement. Other than as herein specifically indicated, the Subadviser shall not be responsible for the Fund’s expenses, including, without limitation, advisory fees; distribution fees; interest; taxes; governmental fees; voluntary assessments and other expenses incurred in connection with membership in investment company organizations; organization costs of the Fund; the cost (including brokerage commissions, transaction fees or charges, if any) in connection with the purchase or sale of the Fund’s securities and other investments and any losses in connection therewith; fees and expenses of custodians, transfer agents, registrars, independent pricing vendors or other agents; legal expenses; loan commitment fees; expenses relating to share certificates; expenses relating to the issuing and redemption or repurchase of the Fund’s shares and servicing shareholder accounts; expenses of registering and qualifying the Fund’s shares for sale under applicable federal and state law; expenses of preparing, setting in print, printing and distributing prospectuses and statements of additional information and any supplements thereto, reports, proxy statements, notices and dividends to the Fund’s shareholders; costs of stationery; website costs; costs of meetings of the Board or any committee thereof, meetings of shareholders and other meetings of the Fund; Board fees; audit fees; travel expenses of officers, members of the Board and employees of the Fund, if any; and the Fund’s pro rata portion of premiums on any fidelity bond and other insurance covering the Fund and its officers, Board members and employees; litigation

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expenses and any non-recurring or extraordinary expenses as may arise, including, without limitation, those relating to actions, suits or proceedings to which the Fund is a party and the legal obligation which the Fund may have to indemnify the Fund’s Board members and officers with respect thereto.

7. No member of the Board, officer or employee of the Fund shall receive from the Fund any salary or other compensation as such member of the Board, officer or employee while he is at the same time a director, officer, or employee of the Subadviser or any affiliated company of the Subadviser, except as the Board may decide. This paragraph shall not apply to Board members, executive committee members, consultants and other persons who are not regular members of the Subadviser’s or any affiliated company’s staff.

8. As compensation for the services performed by the Subadviser, including the services of any consultants retained by the Subadviser, the Manager shall pay the Subadviser out of the management fee it receives with respect to the Fund, and only to the extent thereof, as promptly as possible after the last day of each month, a fee, computed daily at an annual rate set forth on Schedule A annexed hereto. The first payment of the fee shall be made as promptly as possible at the end of the month succeeding the effective date of this Agreement, and shall constitute a full payment of the fee due the Subadviser for all services prior to that date. If this Agreement is terminated as of any date not the last day of a month, such fee shall be paid as promptly as possible after such date of termination, shall be based on the average daily net assets of the Fund or, if less, the portion thereof comprising the Allocated Assets in that period from the beginning of such month to such date of termination, and shall be that proportion of such average daily net assets as the number of business days in such period bears to the number of business days in such month. The average daily net assets of the Fund or the portion thereof comprising the Allocated Assets shall in all cases be based only on business days and be computed as of the time of the regular close of business of the New York Stock Exchange, or such other time as may be determined by the Board.

9. The Subadviser assumes no responsibility under this Agreement other than to render the services called for hereunder, in good faith, and shall not be liable for any error of judgment or mistake of law, or for any loss arising out of any investment or for any act or omission in the execution of securities transactions for the Fund, provided that nothing in this Agreement shall protect the Subadviser against any liability to the Manager or the Fund to which the Subadviser would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties hereunder. As used in this Section 9, the term “Subadviser” shall include any affiliates of the Subadviser performing services for the Fund contemplated hereby and the partners, shareholders, directors, officers and employees of the Subadviser and such affiliates.

10. Nothing in this Agreement shall limit or restrict the right of any director, officer, or employee of the Subadviser who may also be a Board member, officer, or employee of the Fund, to engage in any other business or to devote his time and attention in part to the management or other aspects of any other business, whether of a similar nature or a dissimilar nature, nor to limit or restrict the right of the Subadviser to engage in any other business or to render services of any kind, including investment advisory and management services, to any other fund, firm, individual or association. If the purchase or sale of securities consistent with the investment policies of the Fund or one or more other accounts of the Subadviser is considered at or about the same time, transactions in such securities will be allocated among the accounts in a manner deemed equitable by the Subadviser. Such transactions may be combined, in accordance with applicable laws and regulations, and consistent with the Subadviser’s policies and procedures as presented to the Board from time to time.

11. For the purposes of this Agreement, the Fund’s “net assets” shall be determined as provided in the Fund’s Prospectus and Statement of Additional Information and the terms “assignment,” “interested person,” and “majority of the outstanding voting securities” shall have the meanings given to them by Section 2(a) of the 1940 Act, subject to such exemptions as may be granted by the SEC by any rule, regulation or order.

12. This Agreement will become effective with respect to the Fund on the date set forth opposite the Fund’s name on Schedule A annexed hereto, provided that it shall have been approved by the Fund’s Board and, if so required by the 1940 Act, by the shareholders of the Fund in accordance with the requirements of the 1940 Act and, unless sooner terminated as provided herein, will continue in effect through November 30, 2007. Thereafter, if not terminated, this Agreement shall continue in effect with respect to the Fund, so long as such continuance is specifically approved at least annually (i) by the Board or (ii) by a vote of a majority of the outstanding voting

3

securities of the Fund, provided that in either event the continuance is also approved by a majority of the Board members who are not interested persons of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval.

13. This Agreement is terminable with respect to the Fund without penalty by the Board or by vote of a majority of the outstanding voting securities of the Fund, in each case on not more than 60 days’ nor less than 30 days’ written notice to the Subadviser, or by the Subadviser upon not less than 90 days’ written notice to the Fund and the Manager, and will be terminated upon the mutual written consent of the Manager and the Subadviser. This Agreement shall terminate automatically in the event of its assignment by the Subadviser and shall not be assignable by the Manager without the consent of the Subadviser.

14. The Subadviser agrees that for any claim by it against the Fund in connection with this Agreement or the services rendered under this Agreement, it shall look only to assets of the Fund for satisfaction and that it shall have no claim against the assets of any other portfolios of the Fund.

15. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no material amendment of the Agreement shall be effective until approved, if so required by the 1940 Act, by vote of the holders of a majority of the Fund’s outstanding voting securities.

16. This Agreement, and any supplemental terms contained on Annex I hereto, if applicable, embodies the entire agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to the subject matter hereof. Should any part of this Agreement be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding on and shall inure to the benefit of the parties hereto and their respective successors.

17. This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of the State of New York.

[signature page to follow]

4

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers thereunto duly authorized.

LEGG MASON PARTNERS FUND ADVISOR, LLC

By:

Name:

Title:

WESTERN ASSET MANAGEMENT COMPANY

By:

Name:

Title:

The foregoing is acknowledged:

The undersigned officer of the Fund has executed this Agreement not individually but in his/her capacity as an officer of the Fund. The Fund does not hereby undertake, on behalf of the Fund or otherwise, any obligation to the Subadviser.

WESTERN ASSET EMERGING MARKETS DEBT FUND INC.

By:

Name:

Title:

5

ANNEX I

Not applicable.

6

SCHEDULE A

Western Asset Emerging Markets Debt Fund Inc.

Date:

August 1, 2006

Fee:

The sub-advisory fee will be 70% of the management fee paid to the Manager, net of expense waivers and reimbursements.

7

EX-99.9

Exhibit 9

CUSTODIAN SERVICES AGREEMENT

THIS AGREEMENT is made as of January 1, 2007 by and among each management investment company registered under the 1940 Act (as defined below) identified on Exhibit A hereto (each a “Fund” and collectively the “Funds”) on behalf of each of its series or portfolios identified on Exhibit A (each a “Portfolio” and collectively the “Portfolios”) (together with each other Fund and Portfolio thereof made subject to this Agreement in accordance with Section 13(c) below, and State Street Bank and Trust Company, a Massachusetts trust company (the “Custodian”).

WHEREAS, the Custodian is a bank having at least the minimum qualifications required by Section 17(f)(1) of the 1940 Act to act as custodian of the portfolio securities and other assets of investment companies; and

WHEREAS, each of the Funds on behalf of each of its Portfolios wishes to retain the Custodian to act as custodian of its portfolio securities and other assets, and the Custodian has indicated its willingness to so act;

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, and intending to be legally bound hereby, the parties hereto agree as follows:

1. DEFINITIONS. As used in this Agreement:

“Authorized Person” means any of the persons duly authorized by the applicable Fund Board to give Proper Instructions on behalf of the Fund or its Portfolios as set forth in a certificate along with any limitations on such Persons’ scope of authority, such certificate to be executed by the Secretary or Assistant Secretary of the applicable Fund, as the same may be revised from time to time.

“Board” means the Board of Trustees or Directors of the applicable Fund.

“CEA” means the Commodities Exchange Act, as amended, and “CFTC” means the Commodity Futures Trading Commission.

“Domestic Securities” means securities and other Financial Assets or instruments and other investments of a Portfolio to be held in places within the United States.

“Federal Securities Laws” has the meaning set forth in Section (e)(1) of Rule 38a-1 promulgated under the 1940 Act.

“Financial Assets” has the meaning set forth in the Uniform Commercial Code.

“Foreign Assets” means any of the Portfolios’ investments (including foreign currencies) for which the primary market is outside the United States and such cash and cash equivalents as are reasonably necessary to effect the Portfolios’ transactions in such investments.

“Foreign Custody Manager” has the meaning set forth in Section (a)(3) of Rule 17f-5 promulgated under the 1940 Act.

“Foreign Securities” means securities and other Financial Assets of a Portfolio for which the primary market is outside the United States.

“Foreign Securities Depository” means a foreign securities clearing system qualifying as an Eligible Securities Depository (as defined in Section (b)(1) of Rule 17f-7 under the 1940 Act) that is listed on Schedule B annexed hereto, as amended from time to time pursuant to Section 4.5 hereof.

“Foreign Sub-Custodian” means a foreign banking institution qualifying as an Eligible Foreign Custodian (as defined in Section (a)(1) of Rule 17f-5 promulgated under the 1940 Act) that has been selected by the Custodian and is listed on Schedule A annexed hereto, as amended from time to time pursuant to Section 4.2 hereof.

“Governing Documents” means, with respect to each of the Portfolios, (i) the declaration of trust or other constituting document of the Fund of which the Portfolio is a series or portfolio, (ii) the currently effective prospectus under the 1933 Act, (ii) the most recent statement of additional information, and (iii) a certified copy of the Board approving the engagement of the Custodian to act as custodian of the securities and other assets of its Portfolio(s).

“NASD” means The National Association of Securities Dealers, Inc.

“1940 Act” means the Investment Company Act of 1940, as amended.

“Proper Instructions” means written instructions given by an Authorized Person to the Custodian in such form and manner as the Custodian and the Funds shall agree upon from time to time, including communications effected directly between protected electro-mechanical or electronic devices, in each case in accordance with such testing and authentication procedures as may be agreed to from time to time by the Custodian and the Funds (“Written Instructions”) and, subject to any limitations in scope of authority, may be oral instructions (“Oral Instructions”) received by the Custodian in such manner and with such testing and authentication procedures as the Custodian and the Funds shall agree upon from time to time, from a person reasonably believed by the Custodian to be an Authorized Person. It being understood that the Funds must follow security procedures, including but not limited to, those selected by the Fund via the form of Funds Transfer Addendum to this Agreement. “Special Instructions” shall be Written Instructions accompanied by a copy of a resolution by the appropriate Board authorizing the action, or, if so approved by the Board, Written Instructions given by two Authorized Persons with authority to give such Special Instructions.

“Repo Custodian” means a custodian appointed by a Fund for the purpose of engaging in repurchase agreement transactions.

“SEC” means the Securities and Exchange Commission.

“Shares” mean the shares of beneficial interest of any Portfolio.

“Transfer Agent” means, with respect to each Fund, the transfer agent appointed by its Board.

“Underlying Fund Shares” means uncertificated shares of registered “investment companies” (as defined in Section 3(a)(1) of the 1940 Act), whether in the same “group of investment companies” (as defined in Section 12(d)(1)(G)(ii)of the 1940 Act) or otherwise excluded from the restrictions imposed by Section 12(d)(1), including pursuant to Section 12(d)(1)(E) and (F), of the 1940 Act.

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“Underlying Transfer Agent” means the transfer agent with respect to Underlying Fund Shares.

“U.S. Clearing System” means a clearing agency located in the United States which is registered with the SEC as a clearing agency under Section 17A of the 1934 Act or a book-entry system authorized by the U.S. Department of the Treasury.

2. APPOINTMENT OF CUSTODIAN; GENERAL DUTIES.

2.1. Appointment.

(a) Each of the Funds hereby appoints the Custodian as the custodian of the securities and other assets of each of its Portfolios, including Domestic Securities and Foreign Securities.

(b) Each of the Funds has provided the Custodian with a copy of its Governing Documents, and will provide the Custodian with a copy of amendments, supplements and modifications thereof from time to time.

(c) The Custodian hereby accepts appointment as custodian of the securities and assets of the Portfolios of the Funds and agrees to perform the duties of such custodian in accordance with the provisions of this Agreement.

2.2. Delivery of Portfolio Assets.

(a) Each Fund, on behalf of its Portfolio(s), shall deliver to the Custodian all securities and cash of such Portfolio(s), and from time to time all payments of income, payments of principal or capital distributions received by it with respect to Portfolio securities, and the cash consideration received by it for such new or treasury Shares representing interests in its Portfolio(s) as may be issued or sold from time to time.

(b) The Custodian shall not be responsible for any property of a Portfolio which is not received by it or which is delivered out in accordance with Proper Instructions, including without limitation Portfolio property (i) held by brokers, private bankers or other entities on behalf of the Portfolio, (ii) held by a sub-custodian authorized pursuant to Section 2.6(c) hereof, (iii) held by entities which have advanced monies to or on behalf of the Portfolio and which have received Portfolio property as security for such advance(s), or (iv) delivered or otherwise removed from the custody of the Custodian in advance of payment therefor pursuant to Section 2.5(vii) hereof. With respect to Underlying Fund Shares, the holding of confirmation statements that identify the shares as being recorded in the Custodian’s name on behalf of the Portfolios will be deemed custody for purposes hereof.

2.3. Reliance on Instructions and Authority.

(a) Concurrently with the execution of this Agreement, and from time to time thereafter, as appropriate, each Fund shall deliver to the Custodian, duly certified by such Fund’s Treasurer or Secretary, a certificate setting forth: (i) the names, titles, signatures and scope of authority of all Authorized Persons who are authorized to give Proper Instructions or any other notice, request, direction, instruction, certificate or instrument on behalf of the Fund, (ii) the names, titles and signatures of those Authorized Persons, if any who are authorized to give Special Instructions, and (iii) a copy of resolutions of the Boards of the applicable Funds adopting the authorizations referred to in the preceding clauses (i) and (ii). Such certificate maybe accepted and relied upon by the Custodian as conclusive evidence of the facts set forth therein and shall be considered to be in full force and effect until receipt by the Custodian of a similar certificate to the contrary.

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(b) The Custodian will be protected in acting upon any Proper or Special Instructions which are transmitted with testing or authentication pursuant to terms and conditions agreed to by the Custodian and the Fund from time to time, provided that such instructions comply with the other provisions of this Agreement. The Funds shall promptly confirm any Oral Instructions with Written Instructions, provided that failure of such confirming Written Instructions to be received by the Custodian shall in no way invalidate the transactions or enforceability of the transactions authorized by the Oral Instructions, and provided further that if Written Instructions confirming Oral Instructions are inconsistent with such Oral Instructions, any actions of the Custodian prior to receipt of such Written Instructions shall not be invalidated and the only obligation of the Custodian in connection therewith shall be to promptly notify the Fund of such inconsistency.

(c) The Custodian may receive and accept a copy of a resolution certified by the Secretary or an Assistant Secretary of any Fund as conclusive evidence (i) of the authority of any person to act in accordance with such resolution or (ii) of any determination or of any action by the applicable Board as described in such resolution, and such resolution may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary.

2.4. Bank Accounts. The Custodian shall open and maintain a separate bank account or accounts in the United States in the name of each Portfolio of each Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Agreement, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Portfolio, other than cash maintained by the Portfolio in a bank account established and used in accordance with Rule 17f-3 under the 1940 Act. Funds held by the Custodian for a Portfolio may be deposited by it to its credit as Custodian in the banking department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the 1940 Act and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall on behalf of each applicable Portfolio be approved by vote of a majority of the Board. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity.

2.5. Payment of Fund Moneys. Upon receipt of Proper Instructions on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out monies of a Portfolio in the following cases only:

(i) Upon the purchase of domestic securities, options, futures contracts or options on futures contracts for the account of the Portfolio but only (A) against the delivery of such securities or evidence of title to such options, futures contracts or options on futures contracts to the Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the 1940 Act to act as a custodian and has been designated by the Custodian as its agent for this purpose) registered in the name of the Portfolio or in the name of a nominee of the Custodian referred to in Section 3.3 hereof or in proper form for transfer; (B) in the case of a purchase effected through a U.S. Clearing System, in accordance with the conditions set forth in Section 3.5 hereof; (C) in the case of a purchase of Underlying Shares, in accordance with the conditions set forth in Section 3.7 hereof; (D) in the case of repurchase agreements entered into between the applicable Fund on behalf of a Portfolio and a bank, or a broker-dealer which is a member of NASD, ( i ) against delivery of the securities either in certificate form or through an entry crediting the Custodian’s account at the Federal Reserve Bank with such securities or ( ii ) against delivery of the receipt

4

evidencing purchase by the Portfolio of securities owned by the Custodian along with written evidence of the agreement by the Custodian to repurchase such securities from the portfolio; or (E) for transfer to a time deposit account of the Fund in any bank; such transfer may be effected prior to receipt of a confirmation from a broker and/or the applicable bank pursuant to Proper Instructions from the Fund as defined herein.

(ii) In connection with conversion, exchange or surrender of securities owned by the Portfolio as set forth in Section 3.2(viii) hereof;

(iii) For the redemption or repurchase of Shares issued as set forth in Section 5 hereof;

(iv) For the payment of any expense or liability incurred by the Portfolio, including but not limited to the following payments for the account of the Portfolio: interest, taxes, management, accounting, transfer agent and legal fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses;

(v) For the payment of any dividends on Shares declared pursuant to the Fund’s Governing Documents;

(vi) For payment of the amount of dividends received in respect of securities sold short;

(vii) Upon the purchase of domestic investments, including without limitation repurchase agreement transactions involving delivery of Portfolio monies to a Repo Custodian, in advance of delivery of the purchased securities, in accordance with written Proper Instructions that set forth (A) the amount of such payment and (B) the person(s) to whom such payment is made; and

(viii) For any other proper purpose, but only upon receipt of Special Instructions from the Fund on behalf of the applicable Portfolio setting forth (A) the amount of such payment and (B) the person(s) to whom such payment is made.

2.6. Appointment of Agents.

(a) The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company which is itself qualified under the 1940 Act to act as a custodian, as its agent, as the Custodian may from time to time direct; provided, however, that the appointment of any agent shall not relieve the Custodian of its responsibilities or liabilities hereunder. (The Underlying Transfer Agent shall not be deemed an agent or subcustodian of the Custodian for purposes of this Section 2.6 or any other provision of this Agreement.)

(b) Upon receipt of Proper Instructions, which shall include appropriate certification as to authorization by the Board on behalf of the applicable Portfolio(s), the Custodian shall on behalf of the applicable Portfolio(s) from time to time employ one or more sub-custodians located in the United States, including without limitation any Repo Custodian or other sub-custodian appointed by a Fund for special purposes, provided that the Custodian shall have no more or less responsibility or liability to any Fund on account of any actions or omissions of any sub-custodian so employed than any such sub-custodian has to the Custodian.

(c) The Custodian may employ as sub-custodian for each Fund’s Foreign Securities on behalf of the applicable Portfolio(s) the foreign banking institutions and foreign securities depositories designated in Schedules A and B hereto, but only in accordance with the applicable provisions of Section 4 hereof.

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2.7. Actions Permitted Without Express Authority. The Custodian may in its discretion, without express authority from the applicable Fund on behalf of each applicable Portfolio:

(i) Surrender securities in temporary form for securities in definitive form;

(ii) Endorse for collection, in the name of the Portfolio, checks, drafts and other negotiable instruments; and

(iii) In general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Portfolio except as otherwise directed by the applicable Board.

2.8 Records and Reports.

(a) The Custodian shall, with respect to each Portfolio, create and maintain all records relating to its activities and obligations under this Agreement in such manner as will meet the obligations of each Fund under the 1940 Act, with particular attention to Section 31 thereof and Rules 3la-1 and 31a-2 thereunder.

(b) All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of such Fund and employees and agents of the SEC.

(c) The Custodian shall promptly provide or otherwise make available to the Funds on a daily or less frequent basis, such notifications, reports, statements, summaries, schedule, balances and trial balances, rollforwards, reconciliations and other information as may be mutually acceptable to the Funds and the Custodian, which may be included on a schedule to this Agreement.

2.9. Accountants; Compliance Matters.

(a) The Custodian shall take all reasonable action, as a Fund with respect to a Portfolio may from time to time request, to obtain from year to year favorable opinions from the Fund’s independent accountants with respect to the Custodian’s activities hereunder, in connection with the preparation of the Fund’s Form N-lA or Form N-2, as applicable, and Form N-SAR or other annual reports to the SEC and with respect to any other requirements thereof.

(b) The Custodian shall provide the applicable Fund, on behalf of each of the Portfolios at such times as such Fund may reasonably require, with reports by independent public accountants and other third parties on the accounting system, internal accounting control and procedures for safeguarding securities, futures contracts and options on futures contracts, including securities deposited and/or maintained in a U.S. Clearing System or a Foreign Securities Depository, relating to the services provided by the Custodian under this Agreement; such reports shall be of sufficient scope and in sufficient detail, as may reasonably be required by the Fund to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, the reports shall so state.

(c) The Custodian further agrees to provide such information and assistance from time to time as may be reasonably requested by any of the Funds in connection with the Custodian’s

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compliance procedures as applicable to the Funds and the Funds’ periodic compliance audits of the Custodian. Without limiting the preceding sentence, the Custodian agrees to provide: (i), in connection with the Funds’ compliance programs pursuant to Rule 38a-1 promulgated under the 1940 Act, such periodic reports, documentation and certifications as the any of the Fund or their respective compliance officers may reasonably request, and periodic notification of any Material Compliance Matter (as such term is defined in Rule 38a-1 under the 1940 Act) that comes to the attention of the Custodian; (ii) sub-certificates in connection with the certification requirements of the Sarbanes-Oxley Act of 2002 applicable to services for the Funds; and (iii) a copy of each Type II SAS 70 audit report prepared by an independent third party with respect to services hereunder.

2.10. Advances by the Custodian. The Custodian may, in its sole discretion, advance funds on behalf of any of the Portfolios to make any payment permitted by this Agreement upon receipt of any proper authorization by the applicable Fund required by this Agreement for such payments on behalf of the Portfolio. Should such a payment or payments, with advanced funds, result in an overdraft (due to insufficiencies of the Portfolio’s account with the Custodian, or for any other reason), any such overdraft or related indebtedness shall be deemed for purposes of this Agreement a loan made by the Custodian to the Fund for the account of the Portfolio payable on demand. Such overdraft shall bear interest at the current rate charged by the Custodian for such loans unless the Fund on behalf of the Portfolio shall provide the Custodian with compensating balances. Each of the Funds agrees that the Custodian shall have a continuing lien and security interest to the extent of any overdraft or indebtedness, in and to any property at any time held by the Custodian for the benefit of the applicable Portfolio or in which the applicable Portfolio has an interest and which is then in the Custodian ‘s possession or control (or in the possession or control of any third party acting on the Custodian’s behalf). Each of the Funds authorizes the Custodian, in the Custodian’s sole discretion, at any time to charge any overdraft or indebtedness, together with interest due thereon, against any balance of account standing to the credit of the applicable Portfolio on the Custodian’s books. In addition, the Custodian shall be entitled to utilize available cash and to dispose of such Portfolio’s Financial Assets and other assets to the extent necessary to obtain reimbursement; provided, however, the Custodian shall have provided the Fund three (3) days’ notice with respect thereto.

2.11. Contingency Facilities. In order to minimize the disruption of the services to be provided under this Agreement or any exhibit, schedule or annex hereto, the Custodian shall implement and maintain directly or through third parties contingency facilities and procedures reasonably designed to provide for periodic back-up of the computer files and data with respect to the Portfolios and emergency use of electronic data processing equipment to provide services under this Agreement. In the event of equipment failure, work stoppage, governmental action, communication disruption or other impossibility of performance beyond the Custodian’s control, the Custodian shall, at no additional expense to the Funds, take reasonable steps to minimize service interruptions.

3. CUSTODY WITH RESPECT TO DOMESTIC SECURITIES

3.1. Holding Domestic Securities. The Custodian shall hold and physically segregate for the account of each Portfolio all non-cash property, to be held by it in the United States, including all Domestic Securities owned by such Portfolio other than (i) securities which are maintained pursuant to Section 3.5 in a U.S. Clearing System and (ii) Underlying Fund Shares owned by each Fund which are maintained pursuant to Section 3.7 hereof in an account with the Underlying Transfer Agent.

3.2 Delivery of Securities. The Custodian shall release and deliver Domestic Securities owned by a Portfolio held by the Custodian, in a U.S. Clearing System account of the Custodian or in an account at the Underlying Transfer Agent, only upon receipt of Proper Instructions on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases:

(i) Upon sale of such securities for the account of the Portfolio and receipt of payment therefor;

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(ii) Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Portfolio;

(iii) In the case of a sale effected through a U.S. Clearing System, in accordance with the provisions of Section 3.5 hereof;

(iv) To the depository agent in connection with tender or other similar offers for securities of the Portfolio;

(v) To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian;

(vi) To the issuer thereof, or its agent, for transfer into the name of the Portfolio or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent or any sub-custodian appointed pursuant to Section 2.6; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities are to be delivered to the Custodian;

(vii) Upon the sale of such securities for the account of the Portfolio, to the broker or its clearing agent, against a receipt, for examination in accordance with “street delivery” custom; provided that in any such case, the Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Custodian’s own negligence or willful misconduct;

(viii) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian;

(ix) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian;

(x) For delivery in connection with any loans of securities made by the Portfolio (A) against receipt of collateral as agreed from time to time by the Fund on behalf of the Portfolio, except that in connection with any loans for which collateral is to be credited to the Custodian’s account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian, in its capacity as custodian hereunder, will not be held liable or responsible for the delivery of securities owned by the Portfolio prior to the receipt of such collateral or (B) to the lending agent, or the lending agent’s custodian, in accordance with written Proper Instructions (which may not provide for the receipt by the Custodian of collateral therefor) agreed upon from time to time by the Custodian and the Fund;

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(xi) For delivery as security in connection with any borrowing by a Fund on behalf of a Portfolio requiring a pledge of assets by the Fund on behalf of such Portfolio;

(xii) For delivery in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian and a broker-dealer registered under the 1934 Act and a member of the NASD, relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund on behalf of a Portfolio;

(xiii) For delivery in accordance with the provisions of any agreement among a Fund on behalf of the Portfolio, the Custodian, and a futures commission merchant registered under the CEA, relating to compliance with the rules of the CFTC and/or any contract market, or any similar organization or organizations, regarding account deposits in connection with transactions by the Fund on behalf of a Portfolio;

(xiv) Upon the sale or other delivery of such investments (including, without limitation, to one or more sub-custodians authorized pursuant to Section 2.6(b), as set forth in written Proper Instructions, provided that such Proper Instructions shall set forth (x) the securities of the Portfolio to be delivered and (y) the person(s) to whom delivery of such securities shall be made;

(xv) Upon receipt of instructions from the Fund’s Transfer Agent for delivery to such Transfer Agent or to the holders of Shares in connection with distributions in kind, as may be described from time to time in the currently effective prospectus and statement of additional information of the Fund related to the Portfolio, in satisfaction of requests by holders of Shares for repurchase or redemption;

(xvi) In the case of a sale processed through the Underlying Transfer Agent for Underlying Fund Shares, in accordance with Section 3.7 hereof; and

(xvii) For any other proper purpose, but only upon receipt of Special Instructions from the Fund on behalf of the applicable Portfolio specifying (A) the securities of the Portfolio to be delivered and (B) the person(s) to whom delivery of such securities shall be made.

3.3 Registration of Securities. Domestic Securities held by the Custodian (other than bearer securities) shall be registered in the name of the Portfolio or in the name of any nominee of a Fund on behalf of the Portfolio or of any nominee of the Custodian which nominee shall be assigned exclusively to the Portfolio, unless the Fund has authorized in writing the appointment of a nominee to be used in common with affiliated registered management investment companies, or in the name or nominee name of any agent or any sub-custodian appointed pursuant to Section 2.6. All securities accepted by the Custodian on behalf of the Portfolio under the terms of this Agreement shall be in “street name” or other good delivery form. If, however, a Fund directs the Custodian to maintain securities in “street name”, the Custodian shall utilize its best efforts only to timely collect income due the Fund on such securities and to notify the Fund on a best efforts basis only of relevant corporate actions including, without limitation, pendency of calls, maturities, tender or exchange offers.

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3.4 Collection of Income. Except with respect to Portfolio property released and delivered pursuant to Section 3.2(xiv) or purchased pursuant to Section 2.5(vii), and subject to the last sentence of Section 3.3, the Custodian shall collect on a timely basis all income and other payments with respect to registered Domestic Securities held hereunder to which each Portfolio shall be entitled either by law or pursuant to custom in the securities business, and shall collect on a timely basis all income and other payments with respect to bearer Domestic Securities if, on the date of payment by the issuer, such securities are held by the Custodian or its agent thereof and shall credit such income, as collected, to such Portfolio’s custodian account. Without limiting the generality of the foregoing, the Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held hereunder. Income due each Portfolio on securities loaned pursuant to the provisions of Section 3.2 (x) shall be the responsibility of the applicable Fund. The Custodian, in its capacity as custodian hereunder, will have no duty or responsibility in connection therewith, other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to the Custodian of the income to which the Portfolio is properly entitled.

3.5 Deposit of Fund Assets in U.S. Clearing Systems. The Custodian may deposit and/or maintain securities or other Financial Assets owned by a Portfolio in a U.S. Clearing System in compliance with the conditions of Rule 17f-4 under the 1940 Act, as amended from time to time.

3.6. Segregated Account. The Custodian shall upon receipt of Proper Instructions on behalf of each applicable Portfolio, which may be continuing instructions, establish and maintain a segregated account or accounts for and on behalf of each such Portfolio, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Section 3.5 hereof, (i) in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian and a broker-dealer registered under the Exchange Act and a member of the NASD (or any futures commission merchant registered under the CEA), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or the CFTC or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Portfolio, (ii) for purposes of segregating cash or securities in connection with options purchased, sold or written by the Portfolio or commodity futures contracts or options thereon purchased or sold by the Portfolio, (iii) for the purposes of compliance by the Portfolio with the procedures required by Investment Company Act Release No. 10666, or any subsequent release of the SEC, or interpretative opinion of the staff of the SEC, relating to the maintenance of segregated accounts by registered investment companies, and (iv) for any other purpose in accordance with Proper Instructions.

3.7 Deposit of Fund Assets with the Underlying Transfer Agent. Underlying Fund Shares shall be deposited and/or maintained in an account or accounts maintained with the Underlying Transfer Agent, provided that such securities are maintained in an account or accounts on the books and records of the Underlying Transfer Agent in the name of the Custodian as custodian for the Portfolio. The records of the Custodian with respect to Underlying Fund Shares which are maintained with the Underlying Transfer Agent shall identify by book-entry those Underlying Fund Shares belonging to each Portfolio.

3.8. Ownership Certificates for Tax Purposes. The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to Domestic Securities of each Portfolio held by it and in connection with transfers of securities.

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3.9. Voting Domestic Shares. The Custodian shall, with respect to the Domestic Securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Portfolio or a nominee of the Portfolio, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Fund such proxies, all proxy soliciting materials and all notices relating to such securities.

3.10. Communications Relating to Portfolio Securities.

(a) The Custodian shall transmit promptly to the applicable Fund for each Portfolio all written information and notices received by the Custodian from issuers with regard to the securities being held for the Portfolio and/or any corporate action by such issuer affecting such securities (including without limitation stock splits, stock dividends, reorganizations, pendency of calls and maturities of domestic securities and expirations of rights in connection therewith, notices of exercise of call and put options written by the Fund on behalf of the Portfolio and the maturity of futures contracts purchased or sold by the Fund on behalf of the Portfolio).

(b) With respect to tender or exchange offers, the Custodian shall transmit promptly to the applicable Fund all written information received by the Custodian from issuers of the securities whose tender or exchange is sought and from the party (or its agents) making the tender or exchange offer. If a Fund desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Fund shall notify the Custodian prior to the deadline established by the Custodian in its reasonable discretion as will give the Custodian (including any Foreign Sub-Custodian) sufficient time to take such action, which deadline shall in no event be longer than three (3) business days. The Custodian shall inform the Fund or its appointed investment adviser of pertinent deadlines in each case.

4. CUSTODY WITH RESPECT TO FOREIGN SECURITIES

4.1. Foreign Custody Manager.

(a) Each Fund, by resolution adopted by its Board, hereby delegates to the Custodian, subject to Section (b) of Rule 17f-5 under the 1940 Act, the responsibilities set forth in Sections 4.1 through 4.4 with respect to Foreign Assets of the Portfolios held outside the United States, and the Custodian hereby accepts such delegation as Foreign Custody Manager with respect to the Portfolios.

(b) The Foreign Custody Manager shall be responsible for performing the delegated responsibilities defined below only with respect to the countries and custody arrangements for each such country listed on Schedule A to this Agreement, which list of countries may be amended from time to time by any Fund with the consent of the Foreign Custody Manager, which consent will not be unreasonably withheld. Schedule A further lists the Foreign Sub-Custodians selected by the Foreign Custody Manager to maintain the assets of the Portfolios.

(c) Upon the receipt by the Foreign Custody Manager of Proper Instructions to open an account or to place or maintain Foreign Assets in a country listed on Schedule A, and the fulfillment by each Fund, on behalf of the applicable Portfolio(s), of the applicable account opening requirements for such country, the Foreign Custody Manager shall be deemed to have been delegated by such Fund’s Board on behalf of such Portfolio(s) responsibility as Foreign Custody Manager with respect to that country and to have accepted such delegation. Execution of this Agreement by the Fund shall, to the extent any particular Fund has or will have Foreign Assets, be deemed to be a Proper Instruction to open an account or to place or maintain Foreign Assets in each country listed on

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Schedule A in which the Custodian has previously placed or currently maintains such Fund’s Foreign Assets pursuant to the terms of the Agreement. Following the receipt of Proper Instructions directing the Foreign Custody Manager to close the account of a Portfolio with the Eligible Foreign Custodian selected by the Foreign Custody Manager in a designated country, the delegation by the Board on behalf of such Portfolio to the Custodian as Foreign Custody Manager for that country shall be deemed to have been withdrawn and the Custodian shall immediately cease to be the Foreign Custody Manager with respect to such Portfolio with respect to that country.

(d) The Foreign Custody Manager may withdraw its acceptance of delegated responsibilities with respect to a designated country upon at least 60 days (or such longer period which the parties may agree) prior written notice to the Fund.

4.2 Foreign Sub-Custodians.

(a) Subject to the provisions of this Section 4, the Foreign Custody Manager may place and maintain the Foreign Assets in the care of a Foreign Sub-Custodian in each country listed on Schedule A, as amended from time to time. In performing its delegated responsibilities as Foreign Custody Manager to place or maintain Foreign Assets with a Foreign Sub-Custodian, the Foreign Custody Manager shall determine that the Foreign Assets will be subject to reasonable care, based on the standards applicable to custodians in the country in which the Foreign Assets will be held by that Foreign Sub-Custodian, after considering all factors relevant to the safekeeping of such assets, including, without limitation the factors specified in Rule 17f-5(c)(1) under the 1940 Act.

(b) The Foreign Custody Manager shall determine that the contract governing the foreign custody arrangements with each Foreign Sub-Custodian selected by the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2).

(c) In each case in which the Foreign Custody Manager maintains Foreign Assets with a Foreign Sub-Custodian, the Foreign Custody Manager shall establish a system to monitor (i) the appropriateness of maintaining the Foreign Assets with such Foreign Sub-Custodian and (ii) the contract governing the custody arrangements established by the Foreign Custody Manager with the Foreign Sub-Custodian. In the event the Foreign Custody Manager determines that the custody arrangements with any Foreign Sub-Custodian it has selected are no longer appropriate, the Foreign Custody Manager shall notify the Board in accordance with Section 4.3 hereunder.

(d) For purposes of this Section 4, the applicable Board shall be deemed to have considered and determined, or in the event such Board shall have delegated to the applicable Adviser such duty in accordance with Rule 17f-5, such Adviser shall be deem to have considered and determined, to accept such Country Risk as is incurred by placing and maintaining the Foreign Assets in each country listed on Schedule A (for which the Custodian is serving as Foreign Custody Manager of the Portfolios). For these purposes, “Country Risk” means all factors reasonably related to the systemic risk of holding Foreign Assets in a particular country including, but not limited to, such country’s political environment, economic and financial infrastructure, (including any Foreign Securities Depositories operating in that country) prevailing or developing custody and settlement practices, and laws and regulations applicable to the safekeeping and recovery of Foreign Assets held in custody in that country.

4.3. Reporting Requirements. The Foreign Custody Manager shall report the withdrawal of the Foreign Assets from any Foreign Sub-Custodian and the placement of such Foreign Assets with another Foreign Sub-Custodian by providing the Board an amended Schedule A at the end of the calendar quarter in which an amendment to such schedule has occurred. The Foreign Custody

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Manager shall make reasonably prompt written reports to the Board of any other material change in the foreign custody arrangements of the Portfolios described in this Section 4 after the occurrence of the material change.

4.4. Representations with respect to Rule 17f-5. The Foreign Custody Manager represents to each Fund that it is a U.S. Bank as defined in Section (a)(7) of Rule 17f-5 under the 1940 Act. Each Fund represents to the Custodian that its Board has determined that it is reasonable for such Board to rely on the Custodian to perform the responsibilities delegated pursuant to this Agreement to the Custodian as the Foreign Custody Manager of the Portfolios.

4.5. Foreign Securities Depositories. The Custodian shall provide the Fund with an analysis of the custody risks associated with maintaining assets with the Foreign Securities Depositories set forth on Schedule B hereto, in accordance with Section (a)(1)(i)(A) of Rule 17f-7 under the 1940 Act. The Custodian shall monitor such risks on a continuing basis, shall promptly notify the Fund of any material change in such risks, in accordance with Section (a)(1)(i)(B) of Rule 17f-7 and the Funds shall, as soon as reasonably practicable and via Proper Instructions to the Custodian, withdraw the Fund’s assets from such Depository if such Depository no longer meets the requirements of Rule 17f-7. Schedule B shall be updated from time to time by the Custodian’s provision to the Fund of an updated Schedule B at the end of the calendar quarter in which an amendment to such schedule has occurred.

4.6. Holding Foreign Securities.

(a) The Custodian shall identify on its books as belonging to the Portfolios the Foreign Securities held by each Foreign Sub-Custodian or Foreign Securities Depository. The Custodian may hold Foreign Securities for all of its customers, including the Portfolios, with any Foreign Sub-Custodian in an account that is identified as belonging to the Custodian for the benefit of its customers, provided however, that (i) the records of the Custodian with respect to Foreign Securities of the Portfolios which are maintained in such account shall identify those securities as belonging to the Portfolios and (ii), to the extent permitted and customary in the market in which the account is maintained, the Custodian shall require that securities so held by the Foreign Sub-Custodian be held separately from any assets of such Foreign Sub-Custodian or of other customers of such Foreign Sub-Custodian.

(B) Foreign securities shall be maintained in a Foreign Securities Depository in a designated country through arrangements implemented by the Custodian or a Foreign Sub-Custodian, as applicable, in such country.

4.7. Transactions in Foreign Custody Account.

(a) The Custodian or a Foreign Sub-Custodian shall release and deliver Foreign Securities of the Portfolios held by the Custodian or such Foreign Sub-Custodian, or in a Foreign Securities Depository account, only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases:

(i) Upon the sale of such Foreign Securities for the Portfolio in accordance with market practice for institutional customers in the country where such Foreign Securities are held or traded, including, without limitation: (A) delivery against expectation of receiving later payment, provided the Custodian has advised the Fund or its duly appointed investment adviser of such practice in accordance with Section 4.7A(b) below; or (B) in the case of a sale effected through a Foreign Securities Depository, in accordance with the rules governing the operation of the Foreign Securities Depository;

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(ii) In connection with any repurchase agreement related to Foreign Securities;

(iii) To the depository agent in connection with tender or other similar offers for Foreign Securities of the Portfolios;

(iv) To the issuer thereof or its agent when such Foreign Securities are called, redeemed, retired or otherwise become payable;

(v) To the issuer thereof, or its agent, for transfer into the name of the Custodian (or the name of the respective Foreign Sub-Custodian or of any nominee of the Custodian or such Foreign Sub-Custodian) or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units;

(vi) To brokers, clearing banks or other clearing agents for examination or trade execution in accordance with market custom;

(vii) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement;

(viii) In the case of warrants, rights or similar Foreign Securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities;

(ix) For delivery as security in connection with any borrowing by a Fund on behalf of a Portfolio requiring a pledge of assets by the Fund on behalf of such Portfolio;

(x) In connection with trading in options and futures contracts, including delivery as original margin and variation margin;

(xi) Upon the sale or other delivery of such Foreign Securities (including, without limitation, to one or more Repo Custodians or other sub-custodians authorized pursuant to Section 2.6(b)) in advance of payment therefor, provided that applicable Proper Instructions shall set forth (A) the Foreign Securities to be delivered and (B) the person(s) to whom delivery shall be made;

(xii) In connection with the lending of Foreign Securities; and

(xiii) For any other purpose, but only upon receipt of Special Instructions specifying (A) the Foreign Securities to be delivered and (B) the person(s) to whom delivery of such securities shall be made.

(b) Upon receipt of Proper Instructions, which may be standing instructions when deemed appropriate by the parties, the Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the respective Foreign Securities Depository to pay out, monies of a Portfolio in the following cases only:

(i) Upon the purchase of Foreign Securities for the Portfolio in accordance with market practices for institutional customers in the country where such Foreign Securities are held or traded, unless otherwise directed by Proper Instructions, by (A) delivering money to the seller thereof or to a dealer therefor (or an agent for such seller or dealer) against expectation of receiving later delivery of such Foreign Securities provided the Custodian has advised the Fund or its duly appointed investment adviser of such practice in accordance with Section 4.7A(b) below; or (B) in the case of a purchase effected through a Foreign Securities Depository, in accordance with the rules governing the operation of such Foreign Securities Depository;

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(ii) In connection with the conversion, exchange or surrender of Foreign Securities of the Portfolio;

(iii) For the payment of any expense or liability of the Portfolio, including but not limited to the following payments: interest, taxes, investment advisory fees, transfer agency fees, fees under this Agreement, legal fees, accounting fees, and other operating expenses;

(iv) For the purchase or sale of foreign exchange or foreign exchange contracts for the Portfolio, including transactions executed with or through the Custodian or its Foreign Sub-Custodians;

(v) In connection with trading in options and futures contracts, including delivery as original margin and variation margin;

(vi) Upon the purchase of foreign investments including, without limitation, repurchase agreement transactions involving delivery of Portfolio monies to Repo Custodian(s), in advance of delivery of the purchased securities, provided that applicable Proper Instructions shall set forth (A) the amount of such payment and (B) the person(s) to whom payment shall be made;

(vii) For payment of part or all of the dividends received in respect of securities sold short;

(viii) In connection with the borrowing or lending of Foreign Securities; and

(ix) For any other proper purpose, but only upon receipt of Special Instructions specifying (A) the amount of such payment and (B) the person(s) to whom such payment is to be made.

4.7A. Market Conditions.

(a) Except as more particularly set forth in Sections 4.7(a)(i) and 4.7(b)(i), settlement and payment for Foreign Assets received for the account of the Portfolios and delivery of Foreign Assets maintained for the account of the Portfolios may be effected in accordance with the customary established securities trading or processing practices and procedures in the country or market in which the transaction occurs.

(b) The Custodian shall provide to each Board the information with respect to custody and settlement practices in countries in which the Custodian employs a Foreign Sub-Custodian described on Schedule C hereto at the time or times set forth on such Schedule. The Custodian may revise Schedule C from time to time, provided that no such revision shall result in a Board being provided with substantively less information than had been previously provided hereunder.

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4.8. Registration of Foreign Securities. The Foreign Securities maintained in the custody of a Foreign Sub-Custodian (other than bearer securities) shall be registered in the name of the applicable Portfolio or in the name of the Custodian or in the name of any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and the applicable Fund on behalf of such Portfolio agrees to hold any such nominee harmless from any liability as a holder of record of such foreign securities. The Custodian or a Foreign Sub-Custodian shall not be obligated to accept securities on behalf of a Portfolio under the terms of this Agreement unless the form of such securities and the manner in which they are delivered are in accordance with reasonable market practice.

4.9. Bank Accounts. The Custodian shall identify on its books as belonging to the applicable Fund cash (including cash denominated in foreign currencies) deposited with the Custodian. Where the Custodian is unable to maintain, or market practice does not facilitate the maintenance of, cash on the books of the Custodian, a bank account or bank accounts shall be opened and maintained outside the United States on behalf of a Portfolio with a Foreign Sub-Custodian. All accounts referred to in this Section 4.9 shall be subject only to draft or order by the Custodian (or, if applicable, such Foreign Sub-Custodian) acting pursuant to the terms of this Agreement to hold cash received by or from or for the account of the Portfolio. Cash maintained on the books of the Custodian (including its branches, subsidiaries and affiliates), regardless of currency denomination, is maintained in bank accounts established under, and subject to the laws of, the Commonwealth of Massachusetts.

4.10. Collection of income. The Custodian shall use reasonable commercial efforts to collect all income and other payments with respect to the Foreign Assets held hereunder to which the Portfolios shall be entitled and shall credit such income, as collected, to the applicable Portfolio. In the event that extraordinary measures are required to collect such income, the Fund and the Custodian shall consult as to such measures and as to the compensation and expenses of the Custodian relating to such measures.

4.11. Shareholder Voting Rights. With respect to the Foreign Securities held pursuant to this Section 4, the Custodian shall use reasonable commercial efforts to facilitate the exercise of voting and other shareholder rights, subject always to the laws, regulations and practical constraints that may exist in the country where such securities are issued. Each Fund acknowledges that local conditions, including lack of regulation, onerous procedural obligations, lack of notice and other factors may have the effect of severely limiting the ability of such Fund to exercise shareholder rights.

4.12. Communications Relating to Foreign Securities. The Custodian shall transmit promptly to the applicable Fund written information with respect to materials received by the Custodian via the Foreign Sub-Custodians from issuers of the Foreign Securities being held for the account of the Portfolios (including, without limitation, pendency of calls and maturities of foreign securities and expirations of rights in connection therewith). With respect to tender or exchange offers, the Custodian shall transmit promptly to the applicable Fund written information so received by the Custodian from issuers of the foreign securities whose tender or exchange is sought or from the party (or its agents) making the tender or exchange offer and shall promptly forward to the Foreign Sub-Custodian or the issuer, as applicable, any instructions, forms or other documents as the Custodian shall receive from the Fund in connection therewith. All primary written communications to the Funds with respect to Foreign Securities shall be in English. If a Fund desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Fund shall notify the Custodian prior to the deadline established by the Custodian in its reasonable discretion as will give the Custodian (including any Foreign Sub-Custodian) sufficient time to take such action. The Custodian shall inform the Fund or its duly appointed investment adviser of pertinent deadlines in each case.

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4.13. Liability in Respect of Foreign Assets.

(a) Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian shall meet the requirements set forth in Rule 17f-5. At a Fund’s election, the Portfolios shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a Foreign Sub-Custodian as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Portfolios have not been made whole for any such loss, damage, cost, expense, liability or claim.

(b) The Custodian shall be liable for the acts or omissions of a Foreign Sub-Custodian to the same extent as set forth with respect to sub-custodians generally in this Agreement and, regardless of whether assets are maintained in the custody of a Foreign Sub-Custodian or a Foreign Securities Depository, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism.

(c) Subject to and to the extent of receipt by the Custodian of relevant and necessary information with respect to the Funds and Portfolios that the Custodian has requested, the Custodian shall perform the following services: (i) file claims for exemptions, reductions in withholding taxes, or refunds of any tax with respect to withheld foreign (non-U.S.) taxes in instances in which such claims are appropriate; (ii) withhold appropriate amounts as required by U.S. tax laws with respect to amounts received on behalf of nonresident aliens; and (iii) provide to the Funds such information actually received by the Custodian that could, in the Custodian’s reasonable belief and sole discretion, assist any of the Funds in their submission of any reports or returns with respect to taxes, it being specifically understood and agreed that the Custodian shall not thereby or otherwise be considered any Fund’s tax advisor or tax counsel. Other than the servicing responsibilities identified herein, the Custodian shall have no responsibility or liability for any tax payment obligations now or hereafter imposed on any Fund, the Portfolios or the Custodian as custodian of the Portfolios by the tax law of the United States or of any state or political subdivision thereof. It shall be the responsibility of each Fund to notify the Custodian of the obligations imposed on such countries other than those mentioned in the above sentence, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibilities of the Custodian with regard to such tax law shall be to use reasonable efforts to effect the withholding of local taxes and related charges with regard to market entitlement/payment in accordance with local law and subject to local market practice or custom and to assist the Fund with respect to any claim for exemption or refund under the tax law of countries for which such Fund has provided such information. Except as specifically provided in this Agreement or otherwise agreed to in writing by the Custodian, the Custodian shall have no independent obligation to determine the tax obligations now or hereafter imposed on any of the Funds by any taxing authority or to obtain or provide information relating thereto, and shall have no obligation or liability with respect to such tax obligations. Each of the Funds agrees that the Custodian is authorized to deduct from any cash received or credited to the account of a Portfolio any taxes or levies required by any tax or other governmental authority having jurisdiction in respect of such Portfolio’s transactions, and that the Custodian is authorized to disclose any information required by any such tax or other governmental authority in relation to processing any claim for exemption from or reduction or refund of any taxes relating to Portfolio transactions and holdings.

5. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES.

(a) The Custodian shall receive from the distributor of the Shares or from the Transfer Agent and deposit into the account of the appropriate Portfolio such payments as are received for

17

Shares thereof issued or sold from time to time by the applicable Fund. The Custodian will provide timely notification to such Fund on behalf of each such Portfolio and the Transfer Agent of any receipt by it of payments for Shares of such Portfolio.

(b) From such funds as may be available for the purpose, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares, the Custodian is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of Shares, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by a Fund to the holder of Shares, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between such Fund and the Custodian.

6. COMPENSATION OF CUSTODIAN The Custodian shall be entitled to compensation for its services and expenses as may be agreed to from time to time in writing by the Funds and the Custodian.

7. ADDITIONAL SERVICES. The Funds engage the Custodian to provide, and the Custodian agrees to provide those additional services (if any) set forth in Exhibit C annexed hereto.

8. STANDARD OF CARE; LIMITATION OF LIABILITY; INDEMNIFICATION

(a) In performing all responsibilities delegated to it under this Agreement (including without limitation in regard to its capacity as Foreign Custody Manager), the Custodian agrees to exercise reasonable care, prudence and diligence and shall not be liable for any damages arising out of the Custodian’s performance of or failure to perform its duties under this Agreement except to the extent that such damages are reasonably foreseeable and arise directly out of the Custodian’s willful misfeasance, bad faith, negligence or otherwise from a breach of this Agreement.

(b) Without limiting the generality of the foregoing or of any other provision of this Agreement, (i) the Custodian shall not be liable so long as and to the extent that it is in the exercise of reasonable care, for any defect in the title, validity or genuineness of any property or in the evidence of title thereto received by it or delivered by it pursuant to this Agreement, (ii) the Custodian shall not be liable for losses suffered by any of the Funds due to factors beyond the Custodian’s reasonable control (including acts of civil or military authority, national emergencies, labor difficulties, fire, flood, catastrophe, acts of God, insurrection, war, riots, terrorism, nationalization or expropriation, currency restrictions, or failure of the mails, transportation, communication or power supply), provided that the Custodian has acted in accordance with the provisions of Section 2.11 above. Further, the Custodian shall not be liable for the validity or invalidity or authority or lack thereof of any Oral Instruction or Written Instruction delivered in accordance with Section 2.3(b) hereof.

(c) The Custodian shall be entitled to receive at its own expense and act upon advice of counsel on all matters, and shall not be liable for any action taken or omitted in good faith pursuant to the advice of counsel for the applicable Fund or (at the expense of the Custodian) such other counsel.

(d) The applicable Fund shall indemnify and hold harmless the Custodian and its affiliates from all taxes, charges, assessments, claims and liabilities (including, without limitation, liabilities arising under the Federal Securities Laws and any state or foreign securities and blue sky laws, and amendments thereto), and expenses, including without limitation reasonable attorneys’ fees

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and disbursements, arising directly from any action or omission to act which the Custodian or its affiliate takes in accordance with the terms of this Agreement; provided that the Custodian and its affiliates shall not be indemnified against any liability (or any expenses incident to such liability) to the extent arising out of the Custodian’s or any of its affiliates’ own willful misfeasance, bad faith, negligence or breach of this Agreement.

(e) The Custodian shall indemnify and hold harmless the Funds from all taxes, charges, assessments, claims and liabilities arising directly from the Custodian’s failure to meet its obligations pursuant to this Agreement (including, without limitation, liabilities arising under the Federal Securities Laws, and any state and foreign securities and blue sky laws, and amendments thereto) and expenses, including without limitation reasonable attorneys’ fees and disbursements, to the extent that such damages are reasonably foreseeable and arise directly out of the Custodian’s or any of its affiliates’ own willful misfeasance, bad faith, negligence or breach of this Agreement, provided that the Funds shall not be indemnified against any liability (or any expenses incident to such liability) to the extent arising out of any Fund’s own willful misfeasance, bad faith, negligence or breach of this Agreement. The Custodian agrees to provide the Funds with summaries of its insurance for errors and omissions insurance and fidelity bonds, and agrees to provide updated summaries annually or as requested by the Funds.

(f) In order that the indemnification provisions contained in this Section 5 shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party’s prior written consent.

(h) The provisions of this Section 8 shall survive termination of this Agreement.

9. DURATION AND TERMINATION.

(a) This Agreement shall be effective on the date first written above and shall continue for a period of three (3) years.

(b) Notwithstanding the preceding clause (a) of this Section 9, the Funds may terminate the services of the Custodian under this Agreement by providing thirty (30) days written notice in the event that the Custodian (i) shall fail in any material respect to perform its duties and obligations hereunder pursuant to the applicable standard of care set forth herein, the Funds shall have given written notice thereof , and such material failure shall not have been remedied to the reasonable satisfaction of the Funds within thirty (30) days after such written notice is received, or (ii) shall have ceased to be qualified as a custodian under the 1940 Act, shall be indicted for a crime, shall commence any bankruptcy or insolvency proceeding or have such a proceeding initiated against it which shall not be dismissed within 60 days, or shall suffer any other material adverse change in its condition, operations or professional reputation that is determined by the Funds in their reasonable discretion to threaten the continuing performance of services hereunder or the reputation of the Funds.

(c) Termination of this Agreement with respect to the coverage of any one particular Fund or Portfolio shall in no way affect the rights and duties under this Agreement with respect to any other Fund or Portfolio.

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(d) Upon termination of the Agreement or termination of its coverage with respect to any Fund or Portfolio, the applicable Funds shall pay to the Custodian such compensation and reimbursement of costs as may have accrued to the effective date of such termination (or with respect to the applicable Fund with respect to a coverage termination).

(e) If a successor custodian for one or more Portfolios shall be appointed by the applicable Board, the Custodian shall, upon termination and receipt of Proper Instructions, deliver to such successor custodian, duly endorsed and in the form for transfer, all securities of each applicable Portfolio then held by it hereunder and shall transfer to an account of the successor custodian all of the securities of each such Portfolio held in a Securities System or at the Underlying Transfer Agent. If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of Proper Instructions, transfer such securities, funds and other properties in accordance with such resolution. In the event that no Proper Instructions designating a successor custodian or alternative arrangements shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a “bank” as defined in the 1940 Act, doing business in Boston, Massachusetts or New York, New York, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $250,000,000, all securities, funds and other properties held by the Custodian on behalf of each applicable Portfolio and all instruments held by the Custodian relative thereto and all other property held by it under this Agreement on behalf of each applicable Portfolio, and to transfer to an account of such successor custodian all of the securities of each such Portfolio held in any Securities System or at the Underlying Transfer Agent. Thereafter, such bank or trust company shall be the successor of the Custodian under this Agreement. All expenses associated with the transfer of custody hereunder upon termination hereof shall be borne by the respective Funds (except as may be specifically agreed in writing by the parties in relation to special arrangements.

(f) In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof owing to failure of any Fund to provide Proper Instructions as aforesaid, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties and the provisions of this Agreement relating to the duties and obligations of the Custodian shall remain in full force and effect.

(g) Notwithstanding any provision of this Section 9 to the contrary, in the event that this Agreement is terminated in its entirety, the parties agree that this Agreement shall remain in full force and effect for such extended period of time, not to exceed in any event one year, as the parties mutually agree is necessary for the Custodian to deliver the books and records and any other properties of the Funds held hereunder by the Custodian to a successor custodian in an orderly manner.

(h) Any termination of services under this Agreement shall not affect the rights and obligations of the parties under Sections 8 and 10 hereof.

10. CONFIDENTIALITY.

(a) The Custodian agrees to keep confidential, and to cause its employees and agents to keep confidential, all records of the Funds and information relating to the Funds , including without limitation information as to their respective shareholders and their respective portfolio holdings, unless the release of such records or information is made in connection with the services provided under this Agreement, at the written direction of the applicable Fund or otherwise consented to, in

20

writing, by the respective Funds. The Fund agrees that such consent shall not be unreasonably withheld where the Custodian may be exposed to civil or criminal contempt proceedings or when required to divulge such information or records to duly constituted authorities. The foregoing shall not be applicable to any information that is publicly available when provided or thereafter becomes publicly available, other than through a breach of this Agreement, or that is independently derived by any party hereto without the use of any information derived in connection with the services provided under this Agreement. Notwithstanding the foregoing, the Custodian may aggregate Fund or Portfolio data with similar data of other customers of the Custodian (“Aggregated Data”) and may use Aggregated Data for purposes of constructing statistical models so long as such Aggregated Data represents such a sufficiently large sample that no Fund or Portfolio data can be identified either directly or by inference or implication.

(b) Notwithstanding any provision herein to the contrary, each party hereto agrees that any Nonpublic Personal Information, as defined under Section 248.3(t) of Regulation S-P (“Regulation S-P”), promulgated under the Gramm-Leach-Bliley Act (the “GLB Act”), disclosed or otherwise made accessible by a party hereunder is for the specific purpose of permitting the other party to perform its duties as set forth in this Agreement. Each party agrees that, with respect to such information, it will comply with Regulation S-P and the GLB Act and that it will not disclose any Nonpublic Personal Information received in connection with this Agreement to any other party, except to the extend as necessary to carry out the services set forth in this Agreement or as otherwise permitted by Regulation S-P or the GLB Act.

(c) Without limiting the generality of the preceding clause (a), the Custodian acknowledges and agrees that the Funds are prohibited by law from making selective public disclosure of information regarding portfolio holdings, that disclosure of any and all such information to the Custodian hereunder is made strictly under the conditions of confidentiality set forth in this Section 10 and solely for the purposes of the performance of custodial services hereunder, that any misuse of such information (including without limitation any disclosure to others by the Custodian or any of its employees or agents, or any trading on the basis of such information by anyone in receipt of such information) may constitute a criminal offense of trading on or tipping of material inside information regarding publicly traded securities, that access to any and all such information regarding portfolio holdings of the Funds should be restricted to those persons needing such information in the course of the performance of duties hereunder, and that the Custodian shall apprise all such persons having access of the obligation hereunder and under applicable law to prevent unauthorized disclosure of such confidential information.

(d) The Custodian acknowledges and agrees that any breach or threatened breach of this Section 10 would cause not only financial damage, but irreparable harm to the Funds; for which money damages will not provide an adequate remedy. Accordingly, in the event of a breach or threatened breach of this Section 10, the Funds shall (in addition to all other rights and remedies they may have pursuant to this Agreement, including without limitation Section 8(f), and at law and in equity) be entitled to an injunction, without the necessity of posting any bond or surety, to restrain disclosure or misuse, in whole or in part, of any Confidential Information.

11. NOTICES.

(a) All notices and other communications, excluding Written Instructions, shall be in writing or by confirming telegram, cable, telex or facsimile sending device. If notice is sent by confirming telegram, cable, telex or facsimile sending device, it shall be deemed to have been given immediately. If notice is sent by first-class mail, it shall be deemed to have been given three days after it has been mailed. If notice is sent by messenger, it shall be deemed to have been given on the day it is delivered. Notices shall be addressed,

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if to the Custodian, at:

Kevin F. Griffin, Senior Vice President

State Street Bank and Trust Company

U.S. Investor Services Division, LCC/2S

Lafayette Corporate Center

2 Avenue de Lafayette

Boston, Massachusetts 02111-1724

Tel: (617) 662-2762

Fax: (617) 662-2204

with a copy to:

Mary Moran Zeven, Senior Vice President and Senior Managing Counsel

State Street Bank and Trust Company

Legal Division, LCC/2S

Lafayette Corporate Center

2 Avenue de Lafayette

Boston, Massachusetts 02111-1724

Tel: (617) 662-1783

Fax: (617) 662-2702

if to any of the Funds, at:

Legg Mason & Co., LLC

Attn: General Counsel

300 First Stamford Pl., 4^th Fl.

Stamford, CT 06902

or at such other address as shall have been provided by like notice to the sender of any such notice or other communication by the other party.

13. FUNDS AS PARTIES; LIMITATION ON FUND LIABILITIES.

(a) The Custodian acknowledges and agrees that the obligations assumed by each of the Funds hereunder shall be limited in all cases to the assets of the Fund and that the Custodian may not seek satisfaction of any such obligation from the officers, agents, employees, trustees, directors or shareholders of the Fund. With respect to each Fund organized as a Massachusetts business trust or other business trust (or Portfolio thereof) where the trustees, officers, employees or shareholders of such business trust (or Portfolio thereof) may be held personally liable for its obligations, the Custodian acknowledges and agrees that, to the extent such trustees or officers are regarded as entering into this Agreement, they do so only as trustees or officers and not individually and that the obligations of this Agreement are not binding upon any such trustee, officer, employee or shareholder individually, but are binding only upon the assets and property of said Fund (or Portfolio thereof). The Custodian hereby agrees that such trustees, officers, employees or shareholders shall not be personally liable under this Agreement and that the Custodian shall look solely to the property of the Fund (or Portfolio thereof) for the performance of the Agreement or payment of any claim under the Agreement.

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(b) This Agreement is an agreement entered into between the Custodian and each of the Funds with respect to each Portfolio. With respect to any obligation of the Fund on behalf of any Portfolio arising out of this Agreement, the Custodian shall look for payment or satisfaction of such obligation solely to the assets of the Portfolio to which such obligation relates with the same effect as if the Custodian had separately contracted with the Fund by separate written instrument with respect to each Portfolio.

(c) Additional management investment companies (each a “New Fund”) may from time to time become parties as Funds to this Agreement by (A) delivery to the Custodian of (i) an instrument of adherence agreeing to become bound by and party to this Agreement executed by any such New Fund on behalf of each of its series or portfolios, (ii) an amendment and restatement of Exhibit A setting forth the appropriate information as to such New Fund and its series or portfolios, and (iii) copies of the New Fund’s Governing Documents and (B) the Custodian’s receipt of the foregoing documents, whereupon the Custodian, subject to satisfactory completion of its customary due diligence, may agree in writing to the addition of such New Fund and its series or portfolios, which agreement shall not be unreasonably withheld, it being understood that the Custodian shall not be deemed to be unreasonable in the event that (i) the Custodian’s ability to provide services hereunder to the New Fund is otherwise restricted by regulatory requirements or its internal risk profiles or policies, which may include consideration of material changes to the risks contemplated by the provision of the services under this Agreement to a New Fund or (ii) the Custodian does not generally offer custodial services to institutional clients regarding the particular type of fund or assets.

(d) Additional portfolios or series of existing management investment companies that are already party to this Agreement (each a “New Portfolio”) may from time to time be added to this list of series or portfolios serviced under this Agreement by (A) delivery to the Custodian of (i) an instrument of adherence agreeing to become bound by and party to this Agreement executed by the existing party Fund on behalf its New Portfolio, (ii) an amendment and restatement of Exhibit A setting forth the appropriate information as to such New Portfolio, and (iii) copies of the New Portfolio’s Governing Documents, if applicable, and (B) the Custodian’s receipt of the foregoing documents, whereupon the Custodian, subject to satisfactory completion of its customary due diligence, may agree in writing to the addition of such New Portfolio, which agreement shall not be unreasonably withheld, it being understood that the Custodian shall not be deemed to be unreasonable in the event that (i) the Custodian’s ability to provide services hereunder to the New Portfolio is otherwise restricted by regulatory requirements or its internal risk profiles or policies, which may include consideration of material changes to the risks contemplated by the provision of services under this Agreement to a New Portfolio or (ii) the Custodian does not generally offer custodial services to institutional clients regarding the particular type of fund or assets.

14. MISCELLANEOUS.

(a) This Agreement, or any term thereof, may be changed or waived only by written amendment, signed by the party against whom enforcement of such change or waiver is sought.

(b) This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. This Agreement may not be assigned by either party, nor may the duties of either party hereunder be delegated, without the prior written consent of the other party.

(c) This Agreement may be executed in two or more counterparts, each of which shall be

23

deemed an original, but all of which together shall constitute one and the same instrument. This Agreement and all exhibits, appendices, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.

(d) Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof.

(e) This Agreement embodies the entire agreement and understanding between the parties and supersedes all prior agreements and understandings relating to the subject matter hereof.

(f) The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.

(g) This Agreement shall be deemed to be a contract made in the Commonwealth of Massachusetts and governed by the laws of the Commonwealth of Massachusetts, without regard to principles of conflicts of law.

(h) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.

(i) Shareholder Communications Election. SEC Rule 14b-2 requires banks which hold securities for the account of customers to respond to requests by issuers of securities for the names, addresses and holdings of beneficial owners of securities of that issuer held by the bank unless the beneficial owner has expressly objected to disclosure of this information. In order to comply with the rule, the Custodian needs each Fund to indicate whether it authorizes the Custodian to provide such Fund’s name, address, and share position to requesting companies whose securities the Fund owns. If a Fund tells the Custodian “no,” the Custodian will not provide this information to requesting companies. If a Fund tells the Custodian “yes” or does not check either “yes” or “no” below, the Custodian is required by the rule to treat the Fund as consenting to disclosure of this information for all securities owned by the Fund or any funds or accounts established by the Fund. For a Fund’s protection, the Rule prohibits the requesting company from using the Fund’s name and address for any purpose other than corporate communications. Please indicate below whether the Fund consents or objects by checking one of the alternatives below.

YES     ¨	The Custodian is authorized to release the Fund’s name, address, and share positions.
NO     x	The Custodian is not authorized to release the Fund’s name, address, and share positions.

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IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of the date first above-written.

EACH MANAGEMENT INVESTMENT COMPANY IDENTIFIED ON EXHIBIT A HERETO
By:
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
By:
Name:	Joseph L. Hooley
Title:	Executive Vice President

List of Exhibits/Schedules

Exhibit A:	List of Funds and Portfolios
Exhibit B:	Reserved
Exhibit C:	Additional Services
Schedule A:	Foreign Sub-Custodians
Schedule B:	Foreign Securities Depositories
Schedule C:	Information Provided regarding Foreign Custody and Settlement Practices

2

EX-99.11

Exhibit (11)

DLA Piper US LLP

6225 Smith Avenue

Baltimore, Maryland 21209-3600

T 410.580.3000

F 410.580.3001

W www.dlapiper.com

    , 2008

WESTERN ASSET EMERGING MARKETS DEBT FUND INC.

125 Broad Street

New York, New York 10004

Re: Registration Statement on Form N-14

Ladies and Gentlemen:

We have acted as Maryland counsel to Western Asset Emerging Markets Debt Fund Inc., a Maryland corporation (the “Company”), in connection with the registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to a Registration Statement on Form N-14 (Registration Nos. 333-           and 811-21343) (the “Registration Statement”) as filed with the Securities and Exchange Commission (the “Commission”), including the preliminary joint proxy statement-prospectus included therein (the “Prospectus”), for the offering by the Company of the shares (the “Shares”) of Common Stock, $.001 par value per share, of the Company (“Common Stock”) to be issued pursuant to the terms of the Agreement and Plan of Merger, in the form attached as an Appendix to the Prospectus (the “Merger Agreement”), by and between the Company and Western Asset Emerging Markets Floating Rate Fund Inc., a Maryland corporation (“EFL”). This opinion is being provided at your request in connection with the filing of the Registration Statement.

In connection with our representation of the Company, and as a basis for the opinion hereinafter set forth, we have examined originals, or copies certified or otherwise identified to our satisfaction, of the following documents (collectively, the “Documents”):

1. The charter of the Company, as amended, corrected and supplemented to date (the “Charter”), certified as of a recent date by the State Department of Assessments and Taxation of Maryland (the “SDAT”);

2. The By-Laws of the Company (the “By-Laws”), certified as of the date hereof by the Secretary of the Company;

3. Resolutions of the Board of Directors of the Company (the “Board of Directors”), adopted at a meeting on February     , 2008 relating to the authorization and approval of the execution, delivery and performance by the Company of the Merger Agreement, the issuance of the Shares pursuant thereto and the filing of the Registration Statement (the “Board Resolutions”), certified as of the date hereof by the Secretary of the Company;

WESTERN ASSET EMERGING MARKETS DEBT FUND INC.

    , 2008

Page 2

4. The Merger Agreement, in the form attached to the Prospectus as an Appendix;

5. A certificate of the SDAT as to the good standing of the Company, dated as of the date hereof; and

6. A certificate executed by William J. Renahan, Assistant Secretary of the Company, dated as of the date hereof.

As used herein, the phrase “known to us” is limited to the actual knowledge, without independent investigation, of the lawyers in this firm who have provided legal services to the Company in connection with the Registration Statement.

In expressing the opinion set forth below, we have assumed the following:

1. Each individual executing any of the Documents, whether on behalf of such individual or another person, is legally competent to do so.

2. Each individual executing any of the Documents on behalf of a party (other than the Company) is duly authorized to do so.

3. Each of the parties (other than the Company) executing any of the Documents has duly and validly executed and delivered each of the Documents to which such party is a signatory, and such party’s obligations set forth therein are legal, valid and binding.

4. All Documents submitted to us as originals are authentic. All Documents submitted to us as certified or photostatic copies conform to the original documents. All signatures on all such Documents are genuine. All public records reviewed or relied upon by us or on our behalf are true and complete. All statements and information contained in the Documents are true and complete. There has been no oral or written modification or amendment to the Documents, or waiver of any provision of the Documents, by action or omission of the parties or otherwise.

5. The merger of EFL with and into the Company pursuant to the Merger Agreement will be approved by the stockholders of EFL as described in the Registration Statement. The number of Shares to be issued pursuant to the Merger Agreement at closing plus the number of shares of Common Stock issued and outstanding immediately prior to such issuance of Shares will not exceed the number of shares of Common Stock then authorized to be issued under the Charter.

WESTERN ASSET EMERGING MARKETS DEBT FUND INC.

    , 2008

Page 3

Based upon the foregoing, and subject to the assumptions, limitations and qualifications stated herein, it is our opinion that, upon issuance and delivery of the Shares as contemplated by the Merger Agreement and the Board Resolutions, the Shares will be duly authorized, validly issued, fully paid and non-assessable.

The foregoing opinion is limited to the substantive laws of the State of Maryland and we do not express any opinion herein concerning any other law. We express no opinion as to compliance with the securities (or “blue sky”) laws of the State of Maryland. The opinion expressed herein is subject to the effect of judicial decisions which may permit the introduction of parol evidence to modify the terms or the interpretation of agreements.

We assume no obligation to supplement this opinion if any applicable law changes after the date hereof or if we become aware of any fact that might change the opinion expressed herein after the date hereof. This opinion is limited to the matters set forth herein, and no other opinion should be inferred beyond the matters expressly stated.

This opinion is being furnished to you for submission to the Commission as an exhibit to the Registration Statement.

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of the name of our firm therein. In giving this consent, we do not admit that we are within the category of persons whose consent is required by Section 7 of the Securities Act.

Very truly yours,

EX-99.14

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Western Asset Emerging Markets Debt Fund Inc.

We consent to the use of our report dated December 21, 2007 for Western Asset Emerging Markets Debt Fund Inc., as of October 31, 2007, incorporated herein by reference and to the references to our firm under the headings “Proposal 1 – To Elect Two Class I Directors to EFL’s Board of Directors”, “Additional Information About the Funds”, “Fees Paid to Independent Registered Public Accounting Firm” and “Service Providers” in the Proxy Statement/Prospectus on Form N-14.

New York, New York

March 28, 2008

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Western Asset Emerging Markets Floating Rate Fund Inc.

We consent to the use of our report dated April 27, 2007 for Western Asset Emerging Markets Floating Rate Fund Inc., as of February 28, 2007, incorporated herein by reference and to the references to our firm under the headings “Proposal 1 – To Elect Two Class I Directors to EFL’s Board of Directors”, “Additonal Information About the Funds”, “Fees Paid to Independent Registered Public Accounting Firm” and “Service Providers” in the Proxy Statement/Prospectus on Form N-14.

New York, New York

March 28, 2008

EX-99.16

Exhibit 16

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby makes, constitutes and appoints each of R. Jay Gerken, Kaprel Ozsolak, Robert I. Frenkel and William Renahan with full power to act without the other, as his or her agent and attorney-in-fact for the purpose of executing in his or her name, in his or her capacity as a Director of Western Asset Emerging Markets Debt Fund Inc. (the “Company”), the registration statement on Form N-14 (including amendments thereto), to be filed with the United States Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder.

All past acts of an attorney-in-fact in furtherance of the foregoing are hereby ratified and confirmed.

This Power of Attorney may be executed in multiple counterparts, each of which shall be deemed an original, but which taken together shall constitute one instrument.

This power of attorney shall be valid from the date hereof until revoked by me.

IN WITNESS WHEREOF, I have executed this instrument as of the 13th day of February, 2008.

/s/ R. JAY GERKEN
R. Jay Gerken	Director and Chairman of the Board
/s/ CAROL L. COLMAN
Carol L. Colman	Director
/s/ DANIEL P. CRONIN
Daniel P. Cronin	Director
/s/ PAOLO M. CUCCHI
Paolo M. Cucchi	Director
/s/ LESLIE H. GELB
Leslie H. Gelb	Director
/s/ WILLIAM R. HUTCHINSON
William R. Hutchinson	Director
/s/ DR. RIORDAN ROETT
Dr. Riordan Roett	Director
/s/ JESWALD W. SALACUSE
Jeswald W. Salacuse	Director

EX-99.17(A)

Exhibit 17(a)

ANNUAL MEETING OF STOCKHOLDERS OF

WESTERN ASSET EMERGING MARKETS

FLOATING RATE FUND INC.

June 30, 2008

Please date, sign and mail

your proxy card in the

envelope provided as soon

as possible.

Please detach along perforated line and mail in the envelope provided.

PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE    x

The Board of Directors unanimously recommends a vote “FOR” each of the nominees for Director in Proposal 1 and “FOR” Proposal 2: 1. Election of Directors: Class I to serve until the 2011 Annual Meeting of Stockholders.		2. To approve the merger of Western Asset Emerging Markets Floating Rate Fund Inc. with and into Western Asset Emerging Markets Debt Fund Inc. in accordance with the Maryland General Corporation Law.
	NOMINEES:
¨        FOR ALL NOMINEES	O      Dr. Riordan Roett O      Jeswald W. Salacuse	¨        FOR
¨        WITHHOLD AUTHORITY   FOR ALL NOMINEES		¨        AGAINST
¨        FOR ALL EXCEPT   (See instructions below)		¨        ABSTAIN
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: —
3. Any other business that may properly come before the Meeting.
The persons named as proxies are authorized to vote in their discretion on any other business that may properly come before the Meeting.
Please Complete, Sign and Date hereon and Mail in Accompanying Postpaid Envelope
To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method.	¨		Please check the box to the right if you will be attending the Meeting.	¨

Signature of Stockholder Date: Signature of Stockholder Date:

Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.

WESTERN ASSET EMERGING MARKETS

FLOATING RATE FUND INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints R. Jay Gerken, Robert I. Frenkel and William J. Renahan and each of them, attorneys and proxies for the undersigned, with full power of substitution and revocation to represent the undersigned and to vote on behalf of the undersigned all shares of Western Asset Emerging Markets Floating Rate Fund Inc. (the “Fund”) which the undersigned is entitled to vote at the Annual Meeting of Stockholders of the Fund to be held at 620 Eighth Avenue, 49th Floor, New York, New York on June 30, 2008, at 3:30 p.m., Eastern Standard Time and at any adjournments thereof. The undersigned hereby acknowledges receipt of the Notice of Meeting and accompanying proxy statement and hereby instructs said attorneys and proxies to vote said shares as indicated hereon. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the Meeting. A majority of the proxies present and acting at the Meeting in person or by substitute (or, if only one shall be so present, then that one) shall have and may exercise all of the power and authority of said proxies hereunder. The undersigned hereby revokes any proxy previously given.

This proxy, if properly executed, will be voted in the manner directed by the stockholder. If no direction is made, this proxy will be voted “FOR” each of the nominees for Director in Proposal 1 and “FOR” Proposal 2.

Please refer to the proxy statement for a discussion of the Proposals.

(Continued and to be signed on the reverse side)

EX-99.17(B)

Exhibit 17(b)

LEGG MASON & CO., LLC

CODE OF ETHICS

TABLE OF CONTENTS

I.	INTRODUCTION		1
	A.	Individuals Covered by the Code	1
	B.	Standards of Business Conduct	1
	C.	Duty to Report Violations	2
II.	PERSONAL SECURITIES TRANSACTIONS		2
	A.	Prohibited Transactions in Individual Securities	2
	B.	Prohibited Transactions in Reportable Funds	3
	C.	Pre-Approval of Investments in Initial Public Offerings and Private Placements	4
	D.	Reporting and Trading Requirements	4
III.	COMPLIANCE WITH THE CODE OF ETHICS		9
	A.	Surveillance	9
	B.	Remedies	9
	C.	Exceptions to the Code	9
IV.	DEFINITIONS		10
	A.	General Defined Terms.	10
	B.	Terms Defining the Scope of a Beneficial Interest in a Security.	11
	C.	Terms Defining the Scope of a Reportable Transaction.	12

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Appendices to the Code:		Page
Appendix A	Request for Approval to Invest in an Initial Public Offering or Private Placement	A-1
Appendix B	Acknowledgment of Receipt of Code of Ethics, Personal Holdings Report and Annual Certification	B-1
Appendix C	Request for Approval of an Outside Securities Account	C-1
Appendix D	Certificate for Managed Accounts or Mutual Fund-Only Accounts	D-1
Appendix E	Form Letter to Request Duplicate Confirmations and Periodic Statements from Financial Intermediaries	E-1
Appendix F	Annual Certificate for Outside Retirement Accounts	F-1

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LEGG MASON CODE OF ETHICS

I. INTRODUCTION

A. Individuals Covered by the Code. This Code applies to all employees of Legg Mason & Co., LLC and interested directors of the Proprietary Funds who are not otherwise subject to another code of ethics adopted pursuant to either Rule 17j-1 under the Investment Company Act or Rule 204A-1 under the Investment Advisers Act (“Covered Persons”).

1. Without limiting the generality of the foregoing, this Code covers all employees of Legg Mason & Co., LLC who perform services on behalf of the Proprietary Funds as part of the following regulated entities:

a. Legg Mason Investor Services, LLC (“LMIS”)

b. Legg Mason Fund Adviser, Inc. (“LMFA”)

c. Legg Mason Partners Fund Advisor, LLC (“LMPFA”)

2. For the avoidance of doubt, each of the Legg Mason Registered Advisers (other than LMFA and LMPFA) have adopted their own codes of ethics, and employees of the Legg Mason Registered Advisers who are subject to the requirements of those codes of ethics (including any who may be registered representatives of LMIS) are not subject to the requirements of this Code.

B. Standards of Business Conduct. This Code is based on the principle that Legg Mason and its affiliates owe a fiduciary duty to Legg Mason’s clients, and that all Covered Persons must therefore avoid activities, interests and relationships that might (i) present a conflict of interest or the appearance of a conflict of interest, or (ii) otherwise interfere with Legg Mason’s ability to make decisions in the best interests of any of its clients. In particular, Covered Persons must at all times comply with the following standards of business conduct:

1. Compliance with Applicable Law. All Covered Persons must comply with the Federal Securities Laws that apply to the business of Legg Mason.

2. Clients Come First. Covered Persons must scrupulously avoid serving their personal interests ahead of the interests of clients. For example, a Covered Person may not induce or cause a client to take action, or not to take action, for the Covered Person’s personal benefit at the expense of the client’s best interests.

3. Avoid Taking Advantage. Covered Persons may not use their knowledge of the Legg Mason Registered Advisers’ investment activities or client portfolio holdings to profit by the market effect of such activities or to engage in short-term or other abusive trading in Reportable Funds.

4. Avoid Other Inappropriate Relationships or Activities. Covered Persons should avoid relationships or activities that could call into question the Covered Person’s ability to exercise independent judgment in the best interests of Legg Mason’s clients. In particular, Covered Persons should take note of the provisions of the Legg Mason, Inc. Code of Conduct and the Legg Mason, Inc. Employee Handbook that pertain to confidentiality, corporate opportunities, gifts and entertainment, insider trading and outside business activities. In addition, Covered Persons who are registered representatives of LMIS should also take note of LMIS’s policies and procedures pertaining to these activities.

5. Observe the Spirit of the Code. Doubtful situations should be resolved in favor of Legg Mason’s clients. Technical compliance with the Code’s procedures will not automatically insulate from scrutiny any personal Securities Transactions or other course of conduct that might indicate an abuse of these governing principles.

C. Duty to Report Violations. Covered Persons must promptly report all violations of this Code to the Compliance Department.

II. PERSONAL SECURITIES TRANSACTIONS

A. Prohibited Transactions in Individual Securities. Covered Persons are subject to the following restrictions on their personal trading activities in individual securities:

1. Fraudulent Transactions. In connection with the purchase or sale, directly or indirectly, by a Covered Person of (A) a Reportable Security which, within the most recent fifteen (15) calendar days, (i) is or has been held by a Legg Mason client, or (ii) is being or has been considered by a Legg Mason Registered Adviser for purchase by a client, or (B) an Equivalent Security thereof, Covered Persons are prohibited from:

a. employing any device, scheme or artifice to defraud Legg Mason’s clients,

b. making any untrue statement of a material fact or omitting to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading,

c. engaging in any act, practice or course of business that operates or would operate as a fraud or deceit on Legg Mason’s clients, or

d. engaging in any manipulative practice with respect to Legg Mason’s clients.

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2. Inside Information. Covered Persons are prohibited from engaging in any transaction in a Security (or Equivalent Security) at a time when the Covered Person is in possession of material non-public information regarding the Security or the issuer of the Security.

3. Market Manipulation. Covered Persons are prohibited from engaging in any transactions in a Security (or Equivalent Security) intended to raise, lower or maintain the price of that Security or to create a false appearance of active trading in that Security.

4. Trading on the Knowledge of Client Transactions. Covered Persons are prohibited from engaging in any transactions in a Security (or an Equivalent Security) on the basis of any information they may be in possession of to the effect that (i) a Legg Mason Registered Adviser is or may be considering an investment in or sale of such Security on behalf of its clients or (ii) has or may have an open order in such Security on behalf of its clients.

5. Legg Mason, Inc. Stock. Covered Persons are prohibited from engaging in any transaction in Legg Mason securities that is not in compliance with the “Legg Mason, Inc. Policies and Procedures Regarding Acquisitions and Dispositions of Legg Mason Securities,” as the same may be amended from time to time. A copy of this policy is available on the Legg Mason Legal and Compliance Website.

B. Prohibited Transactions in Reportable Funds.

1. Market Timing in Reportable Funds. No Covered Person may use his or her knowledge of the portfolio holdings or investment activities of a Reportable Fund to engage in any short-term or other abusive trading strategy involving such Fund that may conflict with the best interests of the Fund and its shareholders.

2. 60-Day Holding Period for Investments in Proprietary Funds. Subject to the exemptions set forth below, no Covered Person may sell (or exchange out of) shares of a Proprietary Fund in which the Covered Person has a Beneficial Interest within sixty (60) calendar days of a purchase of (or exchange into) shares of the same Proprietary Fund for the same account, including any individual retirement account or 401(k) participant account.

The following Securities Transactions involving Proprietary Funds are exempt from the 60-day minimum holding period requirement set forth in this Section II.B.2:

a. Money Market Funds and Other Short-Term Trading Vehicles. Purchases or redemptions of Proprietary Funds that are money market funds or that hold themselves out as short-term trading vehicles.

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b. Managed Accounts. Transactions in Proprietary Funds held in a Managed Account in connection with which the Covered Person is neither consulted nor advised of the trade before it is executed.

c. Systematic Investment. Purchases or redemptions of Proprietary Funds pursuant to an Automatic Investment Plan where a prescribed purchase or sale is made automatically on a regular predetermined basis without affirmative action by the Covered Person or pursuant to a similar arrangement approved by the Compliance Department (for example, automated payroll deduction investments by 401(k) participants or automatic dividend reinvestment).

d. Non-Material 401(k) Account Reallocations. Reallocations of a Covered Person’s current holdings in his or her 401(k) participant account as long as this reallocation does not materially alter (by more than $5000) the portion of the account that is invested in a particular Proprietary Fund.

C. Pre-Approval of Investments in Initial Public Offerings and Private Placements. Covered Persons are prohibited from acquiring a Beneficial Interest in a Reportable Security through an initial public offering (other than a new offering of securities issued by a registered open-end investment company) or Private Placement without the prior written approval of the Compliance Department. Requests for such approval shall be submitted to the Compliance Department through Sunguard/PTA using substantially the form of “Request for Approval to Invest in an Initial Public Offering or Private Placement” attached hereto as Appendix A.

D. Reporting and Trading Requirements.

1. Acknowledgement of Receipt; Initial and Periodic Disclosure of Personal Holdings; Annual Certification.

a. Within ten (10) calendar days of becoming a Covered Person under this Code, each Covered Person must acknowledge that he or she has received and reviewed a copy of the Code, and has disclosed all Securities holdings in which such Covered Person has a Beneficial Interest.

b. Thereafter, on an annual basis, each Covered Person shall give the same acknowledgements and, in addition, shall certify that he or she has complied with all applicable provisions of the Code.

c. Such acknowledgments and certifications shall be provided through Sunguard/PTA using substantially the form of the “Acknowledgement of Receipt of Code of Ethics, Personal Holdings Report and Annual Certification” attached hereto as Appendix B.

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2. Execution of Personal Securities Transactions.

a. Approved Accounts. Unless one of the following exceptions applies, Covered Persons must execute their personal securities transactions involving any Reportable Securities or Reportable Funds in which they have or acquire a Beneficial Interest through one of the following two types of accounts (“Approved Accounts”):

i. Approved Securities Accounts - securities accounts (including IRA accounts) with financial intermediaries that have been approved by the Compliance Department (an “Approved Securities Account”), or

ii. Approved Retirement Accounts - participant accounts in retirement plans approved by the Compliance Department on the grounds that either (i) automated feeds into Sunguard/PTA have been established, or (ii) sufficient policies and procedures are in place to protect any Reportable Funds that may be in the plan from the types of activities prohibited by Sections A and B above (an “Approved Retirement Account”).¹

b. Exceptions. The following types of accounts are exempt from the requirements of section 2.a above, subject to compliance with the conditions set forth below:

i. Mutual Fund-Only and Managed Accounts. Covered Persons may have or acquire a Beneficial Interest in Mutual Fund-Only and Managed Accounts that are not Approved Securities Accounts, provided that the requirement set forth in this Code relating to a Managed Account or Mutual Fund-Only Account, as the case may be, are satisfied. To qualify for this exemption, a Covered Person must deliver to the Compliance Department through Sunguard/PTA a certification in substantially the form of the “Certificate for Managed Accounts or Mutual Fund-Only Accounts” attached hereto as Appendix D.

ii. Outside Retirement Accounts. Covered Persons may have or acquire a Beneficial Interest in a retirement account

¹ A list of the approved financial intermediaries and retirement plans may by found on the Legal and Compliance home page on LMEX.

5

other than an Approved Retirement Account (an “Outside Retirement Account), provided that the Covered Person complies with the certification or reporting requirements set forth in Section 3.c below, and provided further that, for purposes of this Code, an IRA account shall be treated as a securities account and not as a retirement account.

iii. Dividend Reinvestment Plans. Covered Person may have or acquire a Beneficial Interest in securities held in a dividend reinvestment plan account directly with the issuer of the securities (a “Dividend Reinvestment Plan”), subject to compliance with the requirements of Section 3.a below.

c. Outside Securities Accounts. Covered Persons that have or acquire a Beneficial Interest in a securities account (including an IRA account) other than an Approved Account, Mutual Fund-Only Account, Managed Account or Outside Retirement Account (an “Outside Securities Account”) must obtain the prior written approval to maintain such account from the Compliance Department.

i. A request for such approval must be submitted to the Compliance Department through Sunguard/PTA using substantially the form of “Request for Approval for an Outside Securities Account” attached hereto as Appendix C. Such approvals will only be granted in extraordinary circumstances.

ii. If the Compliance Department does not approve such request, the Covered Person must arrange to transfer or convert such account into an Approved Account, Managed Account, Mutual Fund-Only Account or Outside Retirement Account as promptly as practicable.

3. Transaction Reporting Requirements. Covered Persons shall report all Securities Transactions in which they have a Beneficial Interest to the Compliance Department in accordance with the following provisions:

a. Approved Accounts, Managed Accounts, Mutual Fund Only and Dividend Reinvestment Plan Accounts. Covered Persons will not be required to arrange for the delivery of duplicate copies of confirmations or periodic statements for any Approved Accounts, Managed Accounts, Mutual Fund Only Accounts or Dividend Reinvestment Plans in which they have or acquire a Beneficial Interest. However, the existence of all such accounts must be disclosed to the Compliance Department pursuant to either Section II.D.1 above or II.D.4 below. In addition, copies of any statements

6

for any Managed Accounts, Mutual Fund Only Accounts or Dividend Reinvestment Plans must be made available for review at the specific request of the Compliance Department.

b. Outside Securities Accounts. For any Outside Securities Account approved by the Compliance Department, a Covered Person must arrange for the Compliance Department to receive, directly from the applicable broker-dealer, bank or other financial intermediary, duplicate copies of each confirmation and periodic statement issued by such financial intermediary in respect of such Outside Securities Account.

i. Periodic statements must be received by the Compliance Department no later than thirty (30) calendar days after the close of each calendar quarter. Confirmations must be delivered to the Compliance Department contemporaneously with delivery to the applicable Covered Person.

ii. A form of letter that may be used to request duplicate confirmations and periodic statements from financial intermediaries is attached as Appendix E. If a Covered Person is not able to arrange for duplicate confirmations and periodic statements to be sent, the Covered Person must immediately cease trading in such account and notify the Compliance Department.

iii. It shall be the Covered Person’s responsibility to promptly input into Sunguard/PTA all initially required information relating to any holdings in an Outside Securities Account and to notify the Compliance Department on the same day of any subsequent Securities Transactions in such Outside Securities Account.

c. Outside Retirement Accounts. For any Outside Retirement Account in which a Covered Person has a Beneficial Interest, such Covered Person must either:

i. Certify on an annual basis that such account does not hold any shares of a Reportable Fund or Reportable Security and that no Securities Transactions involving a Reportable Fund or Reportable Security have been executed in such account (such certifications shall be provided to the Compliance Department through Sunguard/PTA using substantially the form of the “Annual Certificate for Outside Retirement Accounts” attached hereto as Appendix F); or

7

ii. If a Covered Person is unable to provide such certification with respect to an Outside Retirement Account, the Covered Person must notify the Compliance Department and arrange for the Compliance Department to receive, directly from the applicable financial intermediary, duplicate copies of each confirmation and periodic statement issued by such financial intermediary in respect of such Outside Retirement Account.

(a) Periodic statements must be received by the Compliance Department no later than thirty (30) calendar days after the close of each calendar quarter. Confirmations must be delivered to the Compliance Department contemporaneously with delivery to the applicable Covered Person.

(b) A form of letter that may be used to request duplicate confirmations and periodic statements from financial intermediaries is attached as Appendix E. If a Covered Person is not able to arrange for duplicate confirmations and periodic statements to be sent, the Covered Person must immediately cease trading in such account and notify the Compliance Department.

(c) It shall be the Covered Person’s responsibility to promptly input into Sunguard/PTA all initially required information relating to any holdings in an Outside Retirement Account and to notify the Compliance Department on the same day of any subsequent Securities Transactions in such Outside Retirement Account.

4. New Reportable Accounts. If a Covered Person opens a new reportable account that has not previously been disclosed, the Covered Person must notify the Compliance Department in writing within ten (10) calendar days of the existence of the account and make arrangements to comply with the requirements set forth in Sections II.D.2 & 3 above.

5. Disclaimers. Any report of a Securities Transaction for the benefit of a person other than the individual in whose account the transaction is placed may contain a statement that the report should not be construed as an admission by the person making the report that he or she has any direct or indirect beneficial ownership in the Security to which the report relates.

6. Availability of Reports. All information supplied pursuant to this Code may be made available for inspection to the CCO of any affected Legg

8

Mason Registered Adviser or Reportable Fund, the board of directors of each company employing the Covered Person, the board of directors of any affected Reportable Fund, the Compliance Department, the Covered Person’s department manager (or designee), any party to which any investigation is referred by any of the foregoing, the Securities and Exchange Commission, any self-regulatory organization of which Legg Mason is a member, any state securities commission, and any attorney or agent of the foregoing or of the Reportable Funds.

III. COMPLIANCE WITH THE CODE OF ETHICS

A. Surveillance. The Compliance Department shall be responsible for maintaining a surveillance program reasonably designed to monitor the personal trading activities of all Covered Persons for compliance with the provisions of this Code and for investigating any suspected violation of the Code. Upon reaching the conclusion that a violation of the Code has occurred, the Compliance Department shall report the results of such investigation to the applicable Covered Person, the Covered Person’s department manager and to the CCOs of any affected Legg Mason Registered Adviser or Reportable Fund.

B. Remedies

1. Authority. The Compliance Department has authority to determine the remedy for any violation of the Code, including appropriate disposition of any monies forfeited pursuant to this provision. Failure to promptly comply with any sanction directive may result in the imposition of additional sanctions.

2. Sanctions. If the Compliance Department determines that a Covered Person has committed a violation of the Code, the Compliance Department may, in consultation with the Human Resources Department and the Covered Person’s supervisor, as appropriate, impose sanctions and take other actions as it deems appropriate, including a verbal warning, a letter of caution or warning, suspension of personal trading rights, suspension of employment (with or without compensation), fine, civil referral to the Securities and Exchange Commission, criminal referral, and termination of employment of the violator for cause. The Compliance Department may also require the Covered Person to reverse the transaction in question and forfeit any profit or absorb any loss associated or derived as a result. The amount of profit shall be calculated by the Compliance Department. No member of the Compliance Department may review his or her own transaction or those of his or her supervisors. If necessary, the General Counsel of Legg Mason or the CCO of the relevant Legg Mason Registered Adviser shall review these transactions.

C. Exceptions to the Code. Although exceptions to the Code will rarely be granted, the Compliance Department may grant exceptions to the requirements of the Code if the Compliance Department finds that the proposed conduct involves negligible opportunity for abuse. All such exceptions must be in writing.

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IV. DEFINITIONS

When used in the Code, the following terms have the meanings set forth below:

A. General Defined Terms.

“CCO” means the Chief Compliance Officer of any Reportable Fund, Legg Mason Registered Adviser or Legg Mason entity that is a principal underwriter of a Reportable Fund.

“Code” means this Code of Ethics, as the same may be amended from time to time.

“Compliance Department” means the Legal and Compliance Department of Legg Mason.

“Covered Person” means any employee of Legg Mason & Co., LLC who is covered by this Code in accordance with the provisions of Section I.A above.

“Federal Securities Laws” means the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the Sarbanes-Oxley Act of 2002, the Investment Company Act, the Investment Advisers Act, Title V of the Gramm-LeachBliley Act, any rules adopted by the Securities and Exchange Commission under any of these statutes, the Bank Secrecy Act as it applies to Legg Mason and any Reportable Funds, and any rule adopted thereunder by the Securities and Exchange Commission or the Department of the Treasury.

“Investment Advisers Act” means the Investment Advisers Act of 1940, as amended.

“Investment Company Act” means the Investment Company Act of 1940, as amended.

“Legg Mason” means Legg Mason, Inc. and its subsidiaries and affiliates.

“Legg Mason Registered Advisers” means those subsidiaries of Legg Mason that are registered as investment advisers under the Investment Advisers Act.

“Sunguard/PTA” means Sunguard Personal Trading Assistant, a web browser-based automated personal trading compliance platform used by the Compliance Department to administer this Code.

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B. Terms Defining the Scope of a Beneficial Interest in a Security.

“Beneficial Interest” means the opportunity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, to profit, or share in any profit derived from, a transaction in the subject Securities.

A Covered Person is deemed to have a Beneficial Interest in the following:

1. any Security owned individually by the Covered Person;

2. any Security owned jointly by the Covered Person with others (for example, joint accounts, spousal accounts, partnerships, trusts and controlling interests in corporations); and

3. any Security in which a member of the Covered Person’s Immediate Family has a Beneficial Interest if:

a. the Security is held in an account over which the Covered Person has decision making authority (for example, the Covered Person acts as trustee, executor, or guardian); or

b. the Security is held in an account for which the Covered Person acts as a broker or investment adviser representative.

A Covered Person is presumed to have a Beneficial Interest in any Security in which a member of the Covered Person’s Immediate Family has a Beneficial Interest if the Immediate Family member resides in the same household as the Covered Person.

Any uncertainty as to whether a Covered Person has a Beneficial Interest in a Security should be brought to the attention of the Compliance Department. Such questions will be resolved in accordance with, and this definition shall be subject to, the definition of “beneficial owner” found in Rules 16a-1(a) (2) and (5) promulgated under the Securities Exchange Act of 1934, as amended.

“Immediate Family” of a Covered Person means any of the following persons:

child	grandparent	son-in-law
stepchild	spouse	daughter-in-law
grandchild	sibling	brother-in-law
parent	mother-in-law	sister-in-law
stepparent	father-in-law

Immediate Family includes adoptive relationships, domestic partner relationships and other relationships (whether or not recognized by law) that the Compliance Department determines could lead to the possible conflicts of interest, diversions of corporate opportunity, or appearances of impropriety, which this Code is intended to prevent.

11

C. Terms Defining the Scope of a Reportable Transaction.

“Automatic Investment Plan” means a program in which regular periodic purchases (or withdrawals) are made automatically in or from investment accounts in accordance with a predetermined schedule and allocation. An Automatic Investment Plan includes a dividend reinvestment plan.

“Equivalent Security” means any Security issued by the same entity as the issuer of a subject Security, including options, rights, stock appreciation rights, warrants, preferred stock, restricted stock, phantom stock, bonds, and other obligations of that company or Security otherwise convertible into that Security. Options on Securities are included even if, technically, they are issued by the Options Clearing Corporation or a similar entity.

“Managed Account” means an account where a Covered Person has no knowledge of the transaction before it is completed (for example, transactions effected for a Covered Person by a trustee of a blind trust, or discretionary trades made by an investment manager retained by the Covered Person, in connection with which the Covered Person is neither consulted nor advised of the trade before it is executed).

“Mutual Fund-Only Account” means a Securities account or account held directly with a mutual fund that holds only non-Reportable Funds and in which no other type of Securities may be held. For purposes of this Code, a Mutual Fund-Only Account includes a 529 plan account that holds only non-Reportable Funds and in which no other type of Securities may be held.

“Private Placement” means a Securities offering that is exempt from registration pursuant to Section 4(2) or Section 4(6) of the Securities Act of 1933, as amended (the “Securities Act”), or pursuant to Rules 504, 505 or 506 of Regulation D under the Securities Act.

“Proprietary Fund” means an open-end investment company registered under the Investment Company Act (or any portfolio or series thereof, as the case may be) that is part of one of the fund families sponsored by Legg Mason or its affiliates, including the fund families known as the Legg Mason Partners Funds, the Legg Mason Funds, the Western Asset Funds, the Royce Funds, the Barrett Growth Fund or the Barrett Opportunity Fund.

“Reportable Fund” means (a) any fund registered under the Investment Company Act for which a Legg Mason Registered Adviser serves as an investment adviser, or (b) any fund registered under the Investment Company Act whose investment adviser or principal underwriter is controlled by or under common control with Legg Mason. For purposes of this definition, “investment adviser” has the same meaning as it does in section 2(a)(20) of the Investment Company Act, and “control” has the same meaning as it does in Section 2(a)(9) of the Investment Company Act.

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“Reportable Security” means any Security (as defined herein) other than the following types of Securities:

1. direct obligations of the Government of the United States;

2. bankers acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and

3. shares of open-end mutual funds that are not Reportable Funds.

“Securities Transaction” means a purchase or sale of Securities in which a Covered Person has or acquires a Beneficial Interest.

“Security” includes stock, notes, bonds, debentures, and other evidences of indebtedness (including loan participations and assignments), limited partnership interests, investment contracts, closed-end investment companies, and all derivative instruments of the foregoing, such as options and warrants. “Security” does not include futures or options on futures, but the purchase and sale of such instruments are nevertheless subject to the reporting requirements of the Code.

13

APPENDICES

Appendix A

REQUEST FOR APPROVAL TO INVEST IN AN

INITIAL PUBLIC OFFERING OR A PRIVATE PLACEMENT

To: Legg Mason Legal and Compliance Department

1. Pursuant to Section II.C. of the Legg Mason & Co. LLC Code of Ethics (the “Code”), I hereby request that the Compliance Department grant approval to acquire a Beneficial Interest in the following Reportable Security(ies) through an Initial Public Offering or Private Placement:

Reportable Security Name(s)

Instructions:

• Please attach a copy of the applicable prospectus, private placement memorandum or other relevant offering document.

2. In making this request of the Legal and Compliance Department, I hereby certify to the following:

a. To the best of my knowledge, if approved, my purchase will not misappropriate an investment opportunity that was or should have been first offered to any clients of Legg Mason;

b. I am not receiving a personal benefit, in the form of this opportunity to invest in this Initial Public Offering or Private Placement, for directing client business or brokerage for any Legg Mason investment advisory subsidiary, or by virtue of my position as an employee of Legg Mason, Inc. or any of its subsidiaries; and

c. I am not aware of any Legg Mason investment advisory subsidiary that intents to purchase on behalf of its clients the above-named Reportable Security in the same Initial Public Offering or Private Placement as the one in which I am investing.

3. I agree that if any of the certifications provided in this letter should change or cease to be true, I will notify you immediately.

By,
Name:
	[BENEFICIAL OWNER]

Appendix B

Covered Person Last Name	First Name	Mid Initial
Department	Phone Ext.

ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS,

PERSONAL HOLDINGS REPORT AND ANNUAL CERTIFICATION

Please specify: Initial Report (New Covered Person) or Annual Renewal (You were (previously a Covered Person)

1. Acknowledgement

I acknowledge that I have received the Legg Mason Code of Ethics, effective April 2, 2007, and I represent that:

a. I have read the Code of Ethics and I understand that it applies to me and to all Securities in which I have or acquire any Beneficial Interest. I have read the definition of “Beneficial Interest” and understand that I may be deemed to have a Beneficial Interest in Securities owned by members of my Immediate Family and that Securities Transactions effected by members of my Immediate Family may therefore be subject to the Code.

b. I agree that in case of a violation, I may be subject to various possible sanctions (pursuant to section III.B of the Code) as determined by the Compliance Department. Possible sanctions include verbal and written warnings, fines, trading suspensions, reversal of trades by which I agree to disgorge and forfeit any profits or absorb any loss on prohibited transactions, termination of employment, civil referral to the Securities and Exchange Commission, and criminal referral in accordance with the requirements of the Code.

c. I will comply with the Code of Ethics in all other respects.

2. Personal Holdings Report

The following is a list of all Securities Accounts and Reportable Securities in which I have a Beneficial Interest, and such information is current as of a date no more than 45 days prior to the date hereof.

a. Approved Securities Accounts and Retirement Accounts.

(i) Provide the information requested below for each securities account or retirement account, in which you have Beneficial Interest, with an approved financial intermediary or retirement plan sponsor. Indicate “N/A” or “None” if appropriate.

(ii) The financial intermediaries currently approved by the Compliance Department are Smith Barney, Merrill Lynch, Fidelity, Schwab, A.G. Edwards, TD Ameritrade, E*Trade, Legg Mason Investor Services (for investments in the Legg Mason and Legg Mason Partners Funds held directly with the Funds), Citibank Investor Services , the Legg Mason Employee Stock Purchase Plan and the special purpose Legg Mason stock option and restricted stock-only accounts established on behalf of Legg Mason employees at Deutsche Bank/Alex Brown.

(iii) The approved Retirement Plans are the Legg Mason 401(k) Savings Plan and the Citigroup Retirement Savings Plan.

NAME OF BROKER DEALER or RETIREMENT PLAN ACCOUNT TITLE acct holder’s name and (acct type) RELATIONSHIP if acct holder is not the Covered Person ACCOUNT NUMBER

b. Outside Securities Accounts

(i) Provide the information requested below for each Outside Securities Account, in which you have Beneficial Interest. Indicate “N/A” or “None” if appropriate.

(ii) An Outside Securities Account is any securities account in which you have a Beneficial Interest other than the securities accounts identified in your response to part 2.a above

B-2

(iii) If you have not received Compliance Department approval for an Outside Securities Account identified below, please attach a complete “Request for Approval of an Outside Securities Account (Appendix C) and contact the Compliance Department immediately.

(iv) If you have received Compliance Department approval, you agree that by submitting this Annual Certification you are reaffirming that the representations submitted by you upon which such approval was granted remain true and complete in all material respects, and that you are in compliance with any requirements established by the Compliance Department as a condition for the granting of such approval.

(v) You also agree that you have made arrangements for the Compliance Department to receive, directly from the applicable financial intermediary, duplicate copies of each confirmation and periodic statement issued by such financial intermediary in respect of such Outside Securities Account.

NAME OF BROKER
DEALER or RETIREMENT PLAN ACCOUNT TITLE acct holder’s name and (acct type) RELATIONSHIP if acct holder is not the
Covered Person ACCOUNT NUMBER APPROVED by Compliance (Y/N)

c. Outside Retirement Accounts

(i) Provide the information requested below for each Outside Retirement Account, in which you have Beneficial Interest. Indicate “N/A” or “None” if appropriate.

B-3

(ii) An Outside Retirement Account is any retirement account in which you have a Beneficial Interest other than the retirement accounts identified in your response to part 2.a above.

(iii) If applicable, please also attach a completed Annual Certificate for Outside Retirement Accounts (Appendix F).

(iv) For any Outside Retirement Account for which you are unable to submit an Annual Certificate, you agree and confirm that you have made arrangements for the Compliance Department to receive, directly from the applicable financial intermediary, duplicate copies of each confirmation and periodic statement issued by such financial intermediary in respect of such Outside Retirement Account.

NAME OF
RETIREMENT PLAN ACCOUNT TITLE acct holder’s name and (acct type) RELATIONSHIP if acct holder is not the
Covered Person ACCOUNT NUMBER ANNUAL/
QUARTERLY
CERTIFICATE
ATTACHED? (Y/N) DUPLICATE CONFIRMS
AND STATEMENTS
BEING PROVIDED TO
COMPLIANCE? (Y/N)

B-4

d. Mutual Fund Only Accounts, Managed Accounts and Dividend Reinvestment Plans.

(i) Provide the information requested below for each Mutual Fund Only Account, Managed Account or Dividend Reinvestment Plan in which you have a Beneficial Interest. Indicate “N/A” or “None” if appropriate.

(ii) If you have not delivered a completed Certificate for Managed Accounts and Mutual Fund Only Accounts (Appendix D) for each such account identified below, please attach a completed certificate and contact Compliance immediately.

(iii) If you have delivered a completed Certificate, please note that by submitting this Annual Certification you are reaffirming that the representations given by you in such Certificate remain true and complete in all material respects.

NAME OF BROKER DEALER, BANK, OR MUTUAL FUND or INVESTMENT ADVISER ACCOUNT TITLE acct holder’s name (acct type) RELATIONSHIP
if acct holder is not the
Covered Person ACCOUNT NUMBER APPROVED by Compliance? (Y/N)

e. Other Securities.

(i) If you have Beneficial Interests in any Securities that are not listed above (e.g., _,physical stock certificates or private equity investments), list them below. Indicate “N/A” or “None” if appropriate.

NAME OF SECURITY OWNER RELATIONSHIP if security owner is not the Covered Person NAME OF SECURITY NUMBER OF SHARES / PRINCIPAL AMOUNT

B-5

NAME OF SECURITY OWNER RELATIONSHIP if
security owner is not the Covered Person NAME OF SECURITY NUMBER OF SHARES / PRINCIPAL AMOUNT

B-6

3. Certification

a. [Annual Renewals Only] I hereby certify that since the date of the last Acknowledgement, Personal Holdings Report and Annual Certification executed by me in accordance with the requirements of the Code, I have fully complied with all applicable requirements of the Code. In particular, in connection with each Securities Transaction that I have engaged in since such date, I hereby certify that:

(i) I was not in possession of any material nonpublic information regarding the Security or the issuer of the Security;

(ii) I did not engage in such transaction with the intent of raising, lowering, or maintaining the price of that Security or to create a false appearance of active trading;

(iii) I was not in possession of any non-public information to the effect that (i) a Legg Mason Registered Adviser was or may have been considering an investment in or sale of such Security on behalf of their clients or (ii) had or may have had an open order in such Security on behalf of their clients;

(iv) If the transaction involved a Legg Mason security, I complied with the requirements of the “Legg Mason, Inc. Policies and Procedures Regarding Acquisitions and Dispositions of Legg Mason Securities;” and

(v) If the Security was acquired in an initial public offering or private placement, I obtained the prior written approval of the Compliance Department.

b. I further certify that the information on this form is accurate and complete in all material respects.

Covered Person’s Name
Covered Person’s Signature	Date

B-7

Appendix C

REQUEST FOR APPROVAL OF

AN OUTSIDE SECURITIES ACCOUNT

To: Legg Mason Compliance Department

1. Pursuant to Section II.D.2.c of the Legg Mason & Co. LLC Code of Ethics (the “Code”), I hereby request that the Compliance Department approve the following Outside Securities Accounts:

Account Name Account Number Firm

2. I am requesting this approval for the following reasons. I understand that the Compliance Department will only grant this approval under extraordinary circumstances:

3. I agree to arrange for the Compliance Department to receive from the applicable broker-dealer, bank or other financial intermediary, duplicate copies of each confirmation and periodic statement issued by such financial intermediary in respect of the above-named account(s) in accordance with Section II.D.3.b.i. of the Code.

4. I agree to promptly input into Sunguard/PTA all initially required information relating to any holdings in the above-mentioned account and to notify the Compliance Department on the same day of any subsequent Securities Transactions in such account in accordance with the requirements of Section II.D.3.b.iii of the Code.

5. I agree that if any of the certifications provided in this letter should change or cease to be true, I will notify you immediately.

By,
Name:
	[BENEFICIAL OWNER]

Appendix D

CERTIFICATES FOR MANAGED ACCOUNTS OR

MUTUAL-FUND ONLY ACCOUNTS

[Managed Accounts]

To: Legg Mason Compliance Department

Pursuant to Section II.D.2.b.i of the Legg Mason & Co. LLC Code of Ethics (the “Code”), I hereby certify as follows:

(1) The following securities accounts in which I have a Beneficial Interest are Managed Accounts, as such term is defined in Section IV.C. of the Code:

Account Name Account Number Firm Name

(2) I do not have or exercise any investment discretion over the investments held in the Accounts. In particular, I have no knowledge of, and am neither consulted nor advised of, any trades on my behalf in the Accounts before they are executed.

(3) I acknowledge that I will be required to disclose all Managed Accounts in which I have a Beneficial Interest to you annually, and to make statements for the Managed Accounts available for review upon your request.

(4) I agree that complete submission of this certification via Sunguard/PTA shall be binding upon me.

(5) I agree that if any of the certifications provided in this letter should change or cease to be true, I will notify you immediately.

(6) To verify the information contained in this certification, I authorize the Legg Mason Compliance Department to contact the manager of my accounts, whose name, title and contact information are as follows:

Manager Name:                                              

Firm:                                                                

Telephone Number:                                        

E-mail:                                                              

By,
Name:
	[BENEFICIAL OWNER]

[Mutual Fund Only Accounts]

To: Legg Mason Compliance Department

Pursuant to Section II.D.2.b.i of the Legg Mason & Co. LLC Code of Ethics (the “Code”):

1. I hereby certify that the following securities accounts are Mutual Funds-Only Accounts, as such term is defined in Section IV.C. of the Code:

Account Name Account Number Firm

2. I acknowledge that I will be required to disclose all Mutual Fund-Only Accounts in which I have a Beneficial Interest to you annually, and to make statements for the Mutual Fund-Only Accounts available for review upon your request.

3. I agree that complete submission of this certification via Sunguard/PTA shall be binding upon me.

4. I agree that if any of the certifications provided in this letter should change or cease to be true, I will notify you immediately.

By,
Name:
	[BENEFICIAL OWNER]

D-2

Appendix E

FORM LETTER TO REQUEST DUPLICATE CONFIRMATIONS AND

PERIODIC STATEMENTS FROM FINANCIAL INTERMEDIARIES

(Date)

(Name and

Address)

Subject:                Account #

Dear                                                                      :

My employer, Legg Mason & Co. LLC, is affiliated with a number of investment advisers that are registered under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), and with the principal underwriter to a number of investment companies registered under the Investment Company Act of 1940, as amended (the “Investment Company Act”). Pursuant to my employer’s Code of Ethics and Rules 17j-1 under the Investment Company Act and 204a-1 under the Advisers Act, lease send duplicate confirmations of individual transactions as well as duplicate periodic statements for the referenced account directly to:

(Name and Address of Individual Responsible

for Reviewing Periodic Holdings and Transaction Reports)

Thank you for your cooperation. If you have any questions, please contact me or (Name of Individual Responsible for Reviewing Periodic Holdings and Transaction Reports) at

Sincerely,

(Name of Covered Person)

Appendix F

ANNUAL CERTIFICATE FOR OUTSIDE RETIREMENT ACCOUNTS

To: Legg Mason Compliance Department

Pursuant to Section II.D.3.c of the Legg Mason & Co. LLC Code of Ethics (the “Code”), I hereby certify as follows:

1. For the following Outside Retirement Accounts identified in my response to section 2.c of my annual Personal Holding Report:

Account Name Account Number Firm

a. These Accounts hold no shares of a Reportable Fund or Reportable Security as defined in Section IV.C.

b. No Securities Transactions involving a Reportable Fund or Reportable Security has been executed in these Accounts during the previous year.

2. I acknowledge that I will be required to disclose all Accounts in which I have a Beneficial Interest to you annually, and to make statements for such Accounts available for review upon your request.

3. I agree that complete submission of this certification via Sunguard/PTA shall be binding upon me.

4. I agree that if any of the certifications provided in this letter should change or cease to be true, I will notify you immediately.

By,
Name:
	[BENEFICIAL OWNER]

EX-99.17(C)

Exhibit 17(c)

TRANSFER AGENCY AND SERVICES AGREEMENT

AGREEMENT, dated as of March 20, 2006 by and between each of the investment companies listed on Schedule A hereto, as amended from time to time (each a “Fund” and collectively the “Funds”) and each having its principal place of business at 125 Broad Street, New York, New York 10004 and American Stock Transfer, Inc. (‘Transfer Agent”), a New York corporation with principal offices at 59 Maiden Lane, New York, New York 10038.

WITNESSETH

WHEREAS, each Fund is authorized to issue Shares in one or more separate series, with each such series representing interests in a separate portfolio of securities or other assets. Each such series is identified in Schedule A, as such schedule may be amended from time to time (each a “Portfolio”).

WHEREAS, each Fund desires to appoint Transfer Agent as its transfer agent, dividend disbursing agent and shareholder servicing agent with respect to each Portfolio and Transfer Agent desires to accept such appointment;

NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth, each Fund and Transfer Agent agree as follows:

Article 1 Definitions

1.1 Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings:

(a) “Articles of Incorporation” shall mean the Articles of Incorporation, Declaration of Trust, or other similar organizational document as the case may be, of a Fund as the same may be amended from time to time.

(b) “Authorized Person” shall be deemed to include (i) any authorized officer of a Fund; (ii) or any person, whether or not such person is an officer or employee of a Fund, duly authorized to give Oral Instructions or Written Instructions on behalf of the Fund as indicated in writing to Transfer Agent from time to time.

(c) “Board Members” shall mean the Directors or Trustees of the governing body of the Fund, as the case may be.

(d) “Board of Directors” shall mean the Board of Directors or Board of Trustees of the Fund, as the case may be.

(e) “Class” shall mean a class of shares of a Fund or Portfolio.

(f) “Commission” shall mean the Securities and Exchange Commission.

(g) “Custodian” refers to any custodian or subcustodian of securities and other property which a Fund or Portfolio may from time to time deposit, or cause to be deposited or held under the name or account of such a custodian pursuant to a Custodian Agreement.

(h) “1934 Act” shall mean the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder, all as amended from time to time.

(i) “1940 Act” shall mean the Investment Company Act of 1940 and the rules and regulations promulgated thereunder, all as amended from time to time.

(j) “Oral Instructions” shall mean instructions (including via electronic mail), other than Written Instructions, received by Transfer Agent from a person reasonably believed by Transfer Agent to be an Authorized Person, with subsequent Written Instructions confirming the instructions (as described below);

(k) “Prospectus” shall mean the most recently dated Fund or Portfolio Prospectus and Statement of Additional Information, including any supplements thereto if any, which has become effective under the Securities Act of 1933 and the 1940 Act.

(I) “Shares” refers collectively to such shares of capital stock or beneficial interest, as the case may be, or class thereof, of a Fund or Portfolio as may be issued from time to time.

(m) “Shareholder” shall mean a holder of Shares of a Fund or Portfolio.

(n) “Written Instructions” shall mean (i) a written instruction signed by an Authorized Person, including manually executed originals and telefacsimile of a manually executed original or other process; and (ii) trade instructions transmitted (and received by Transfer Agent) by means of an electronic transaction reporting system access to which requires use of a password or other authorized identifier.

Article 2 Appointment of Transfer Agent

2.1 Each Fund hereby appoints and constitutes Transfer Agent as transfer agent, registrar and dividend disbursing agent for Shares of the Fund and as shareholder servicing agent for the Portfolios. Transfer Agent accepts such appointment and agrees to perform the duties hereinafter set forth.

Article 3 Duties of Transfer Agent

3.1 Transfer Agent shall be responsible for:

(a) Administering and/or performing the customary services of a transfer agent and dividend disbursing agent; acting as service agent in connection with dividend and distribution functions; and for performing shareholder account and administrative agent functions in connection with the issuance, transfer and redemption or repurchase (including coordination with the Custodian) of Shares of each Fund, as more fully described in the written schedule of Duties of Transfer Agent annexed hereto as Schedule B and incorporated herein, and in accordance with the terms of the Prospectus of each Fund, applicable law and the procedures established from time to time between the Fund and Transfer Agent.

- 2 -

(b) Recording the issuance of Shares and maintaining pursuant to Rule 17Ad-10(e) under the 1934 Act a record of the total number of Shares of each Fund which are authorized, based upon data provided to it by the Fund, and issued and outstanding. Transfer Agent shall provide each Fund on a regular basis, at such intervals as the parties hereto shall agree to from time to time, with the total number of Shares which are authorized and issued and outstanding and shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares or to take cognizance of any laws relating to the issue or sale of such Shares, which functions shall be the sole responsibility of the Fund. Transfer Agent will comply with all requirements applicable to a transfer agent for a registered investment company, under the 1934 Act, 1940 Act or other state or federal securities laws, as applicable.

(c) Upon request, Transfer Agent shall provide information or reports to a Fund or the Fund’s Chief Compliance Officer, as necessary for the Chief Compliance Officer or Fund to comply with Rule 38a-1 under the 1940 Act.

3.2 In addition, each Fund shall (i) identify to Transfer Agent in writing or by transmission those transactions and assets to be treated as exempt from blue sky reporting for each State and (ii) verify the establishment of transactions for each State on the system prior to activation and thereafter monitor the daily activity for each State. The responsibility of Transfer Agent for each Fund’s blue sky State registration status is solely limited to the initial establishment of transactions subject to blue sky compliance by the Fund and the reporting of such transactions to the Fund as provided above.

3.3 In addition to the duties set forth in Schedule B, Transfer Agent shall perform such other duties and functions, and shall be paid such amounts therefor, as may from time to time be agreed upon in writing between a Fund and the Transfer Agent. The compensation for such other duties and functions shall be reflected in a written amendment to Schedule C and the duties and functions shall be reflected in an amendment to Schedule B, both dated and signed by authorized persons of the parties hereto.

Article 4 Delegation of Responsibilities

4.1 With respect to any Fund, Transfer Agent may delegate some or all of its duties under this Agreement to other parties that after reasonable inquiry Transfer Agent

- 3 -

deems to be competent to assume such duties. In the event of any such delegation, Transfer Agent shall enter into a written agreement with the delegatee in which the delegatee will, among other things:

(a) agree to provide the services delegated to it in accordance with a written schedule of Performance Standards developed by Transfer Agent; and

(b) represent and warrant that it is duly registered as required under all federal and state securities laws.

In any such circumstance, the Transfer Agent will be responsible for the services of the delegate, as if the Transfer Agent were performing the services itself. The Transfer Agent may not delegate any services to Smith Barney Fund Management LLC, Salomon Brothers Asset Management, Inc., Citicorp Trust Bank, Citigroup Inc., Citigroup Global Markets Holdings or any of their affiliates or entities under common control with the aforementioned entities without prior written authorization from the Board of the Fund.

Article 5 Recordkeeping and Other Information

5.1 Transfer Agent shall create and maintain all records required of it pursuant to its duties hereunder and as set forth in Schedule B in accordance with all applicable laws, rules and regulations, including records required by Section 31(a) of the 1940 Act and the rules thereunder. Transfer Agent shall prepare and maintain in complete and accurate form all books and records necessary for it to serve as transfer agent, registrar, dividend disbursing agent and related services agent to each Portfolio, including (a) all those records required to be prepared and maintained by a Fund under the 1934 Act, 1940 Act, by other applicable Securities Laws, rules and regulations and by state laws and (b) such books and records as are necessary for Transfer Agent to perform all of the services it agrees to provide in this Agreement and the appendices attached hereto, including but not limited to the books and records necessary to effect the conversion of classes of shares, the calculation of any contingent deferred sales charges and the calculation of front-end sales charges.

5.2 Transfer Agent agrees that all records prepared or maintained by Transfer Agent pertaining to a Fund or relating to the services to be performed by Transfer Agent hereunder are the property of the Fund and will be preserved, maintained and made available in accordance with such section, and will be surrendered promptly to the Fund on and in accordance with the Fund’s request. Each Fund and Authorized Persons shall have access to such books and records in the possession or under control of Transfer Agent at all times during Transfer Agent’s normal business hours. Upon the reasonable request of a Fund, copies of any such books and records in the possession or under the control of Transfer Agent shall be provided by Transfer Agent to the Fund or to an Authorized Person. Upon reasonable notice by a Fund, Transfer Agent shall make available during regular business hours its facilities and premises employed in connection with its performance of this Agreement for reasonable visits by the Fund, any agent or person designated by the Fund or any regulatory agency having authority over the Fund.

- 4 -

Where applicable, such records shall be maintained by Transfer Agent for the period and in the places required by the 1940 Act and the rules thereunder or under other applicable Securities Laws.

5.3 In case of any requests or demands for the inspection of Shareholder records of a Fund, Transfer Agent will endeavor to notify the Fund of such request and secure Written Instructions as to the handling of such request. Transfer Agent reserves the right, however, to exhibit the Shareholder records to any person whenever it is advised by its counsel that it may be held liable for the failure to comply with such request.

Article 6 Fund Instructions

6.1 Transfer Agent will not be liable for its acting upon Written or Oral Instructions reasonably believed to have been executed by an Authorized Person and executed in accordance with the standard of care provided in Section 10, and Transfer Agent will not be held to have any notice of any change of authority of any person until receipt of a Written Instruction thereof from a Fund. Transfer Agent will also have no liability when processing Share certificates which it reasonably believes to bear the proper manual or facsimile signatures of the officers of a Fund and the proper countersignature of Transfer Agent.

6.2 At any time, Transfer Agent may request Written Instructions from a Fund and may seek advice from legal counsel for the Fund, or its own legal counsel, with respect to any matter arising in connection with this Agreement, and it shall not be liable for any action taken or not taken or suffered by it in good faith in accordance with such Written Instructions or in accordance with the opinion of counsel for the Fund or for Transfer Agent, provided that the Transfer Agent at its own expense communicates to the Fund such opinion of counsel to the Transfer Agent. Written Instructions requested by Transfer Agent will be provided by a Fund within a reasonable period of time.

6.3 Transfer Agent, its officers, agents or employees, shall accept Oral Instructions or Written Instructions given to them by any person representing or acting on behalf of a Fund only if said representative is an Authorized Person. Each Fund agrees that all Oral Instructions shall be followed within one business day by confirming Written Instructions.

Article 7 Compensation

7.1 Each Fund will compensate or cause Transfer Agent to be compensated for the performance of its obligations hereunder in accordance with the fees set forth in the written schedule of fees annexed hereto as Schedule C and incorporated herein. Transfer Agent will transmit an invoice to a Fund as soon as practicable after the end of each calendar month which will be detailed in accordance with Schedule C, and the Fund will pay to Transfer Agent the amount of such invoice within thirty (30) days after the Fund’s receipt of the invoice.

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7.2 In addition, each Fund agrees to pay, and will be billed separately for, reasonable out-of-pocket expenses incurred by Transfer Agent in the performance of its duties hereunder. Out-of-pocket expenses shall include, but shall not be limited to, the items specified in the written schedule of out-of-pocket charges annexed hereto as Schedule D and incorporated herein. Schedule D may be modified by written agreement between the parties. Unspecified out-of-pocket expenses shall be limited to those out-of-pocket expenses reasonably incurred by Transfer Agent in the performance of its obligations hereunder.

7.3 Any compensation agreed to hereunder may be adjusted from time to time by attaching to Schedule C, a revised fee schedule executed and dated by the parties hereto.

Article 8 Representations and Warranties

8.1 Each Fund represents and warrants to Transfer Agent that:

(a) it is duly organized, existing and in good standing under the laws of the jurisdiction in which it is organized;

(b) it is empowered under applicable laws and by its Articles of Incorporation and/or By-laws to enter into this Agreement;

(c) all corporate proceedings required by said Articles of Incorporation, By-laws and applicable laws have been taken to authorize it to enter into this Agreement;

(d) a registration statement under the Securities Act of 1933, as amended, and the 1940 Act on behalf of the Fund is currently effective and will remain effective; and

(e) all Shares hereafter shall be issued in accordance with the terms of the Fund’s organizational documents and its Prospectus, and such Shares shall be validly issued, fully paid and non-assessable.

8.2 Transfer Agent represents and warrants to each Fund that:

(a) it is duly organized, existing and in good standing under the laws of the State of New York;

(b) it is qualified to carry on its business in jurisdictions in which it is present;

(c) it is empowered under applicable laws and by its Articles of Incorporation and By-laws to enter into and perform this Agreement;

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(d) all corporate proceedings required by said Articles of Incorporation, By-laws and applicable laws have been taken to authorize it to enter into this Agreement; and

(e) it is a transfer agent fully registered as a transfer agent pursuant to Section 17A(c)(2) of the 1934 Act, and such registration will remain in effect for the duration of this Agreement; and

(f) it has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement.

Article 9 Indemnification

9.1 The Transfer Agent shall not be responsible for, and the relevant Fund shall indemnify and hold the Transfer Agent harmless from and against, any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability (collectively referred to as “Losses”) arising out of or attributable to:

(a) All actions of the Transfer Agent or its agents or delegatees required to be taken pursuant to this Agreement (including the defense of any lawsuit in which the Transfer Agent or affiliate is a named party), provided that such actions are taken in good faith and without negligence or willful misconduct and are not violations of applicable law and regulation pertaining to the manner transfer agency services are performed or not otherwise a breach of this Agreement;

(b) The reasonable reliance upon, and any subsequent use of or action taken or omitted, by the Transfer Agent or its agents or delegatees on: (i) any Written Instructions of the Fund or any of its officers; or (ii) any paper or document, reasonably believed to be genuine, authentic, or signed by the proper person or persons; unless such Losses are due to the negligence of the Transfer Agent arising out of its failure to perform in accordance with procedures established with the Fund; or

(c) The offer or sale of Shares in violation of federal or state securities laws or regulations requiring that such Shares be registered or in violation of any stop order or other determination or ruling by any federal or any state agency with respect to the offer or sale of such Shares (except to the extent that such violation resulted from the provision of information from the Transfer Agent in contravention of the standard of care provided in Article 10 or the Transfer Agent received Written Instructions notifying it of the violation or determination).

9.2 A Fund shall not be responsible for, and the Transfer Agent shall indemnify and hold each Fund harmless from and against any and all Losses arising out of or attributable to:

(a) All actions of the Transfer Agent or its agents taken outside of the scope of this Agreement or caused by the Transfer Agent’s negligence, bad faith, willful misconduct or violations of applicable law or regulation pertaining to the manner in which transfer agency services are performed or otherwise are a breach of this Agreement.

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9.3 In any case in which a party hereto (the “Indemnifying Party’) may be asked to indemnify or hold the other party (the “Indemnified Party”) harmless, the Indemnifying Party shall be promptly advised of all pertinent facts concerning the situation in question. The Indemnified Party will notify the Indemnifying Party promptly after identifying any situation which it believes presents or appears likely to present a claim for indemnification against the Indemnifying Party although the failure to do so shall not prevent recovery by the Indemnified Party. The Indemnifying Party shall keep the Indemnified Party advised with respect to all such developments concerning any claim, demand, action or suit or other proceeding (a “Claim”), which may be the subject of this indemnification. The Indemnifying Party shall have the option to participate with the Indemnified Party in defending against any Claim which may be the subject of this indemnification, and, in the event that the Indemnifying Party so elects, such defense shall be conducted by counsel chosen by the Indemnifying Party and satisfactory to the Indemnified Party, and thereupon the Indemnifying Party shall take over complete defense of the Claim and the Indemnified Party shall sustain no further legal or other expenses in respect of such Claim. The Indemnified Party will not confess any Claim or make any compromise in any case in which the Indemnifying Party will be asked to provide indemnification, except with the Indemnifying Party’s prior written consent. The obligations of the parties hereto under this Section 9 shall survive the termination of this Agreement.

9.4 Except for remedies that cannot be waived as a matter of law (and injunctive or provisional relief), the provisions of this Article 9 shall be a party’s sole and exclusive remedy for claims or other actions or proceedings to which the other party’s indemnification obligations pursuant to this Article 9 may apply.

9.5 The members of the Board of a Fund, its officers and Shareholders, or of any Portfolio thereof, shall not be liable for any obligations of the Fund, or any such Portfolio, under this Agreement, and Transfer Agent agrees that in asserting any rights or claims under this Agreement, it shall look only to the assets and property of the Fund or the particular Portfolio in settlement of such rights or claims and not to such members of the Board, its officers or Shareholders. Transfer Agent further agrees that it will look only to the assets and property of a particular Portfolio of a Fund, should the Fund have established separate series, in asserting any rights or claims under this Agreement with respect to services rendered with respect to that Portfolio and will not seek to obtain settlement of such rights or claims from the assets of any other Portfolio of the Fund.

9.6 The Transfer Agent agrees to provide each Fund with certificates of insurance for errors and omissions insurance and fidelity bonds, and agrees to provide updated certificates annually or as requested by the Fund.

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Article 10 Standard of Care

10.1 Transfer Agent shall provide its services as transfer agent in accordance with the applicable provisions of Section 17A under the 1934 Act. In performing the responsibilities delegated to it under this Agreement, Transfer Agent shall at all times act in good faith and agrees to exercise reasonable care, diligence and expertise of a professional transfer agent having responsibility for providing transfer agent services to investment companies registered under the 1940 Act, but shall not be liable for any damages arising out of Transfer Agent’s performance of or failure to perform its duties under this Agreement, except to the extent such damages arise out of Transfer Agent’s own negligence, bad faith, willful misconduct or that of its employees, agents or delegatees or violations of applicable law pertaining to the manner in which transfer agency services are to be performed by Transfer Agent or otherwise from a breach of this Agreement.

Article 11 Consequential Damages

Notwithstanding anything in this Agreement to the contrary, neither Transfer Agent nor the Fund shall be liable to the other party for any consequential, special or indirect losses or damages which the party may incur or suffer by or as a consequence of the other party’s performance of the services provided hereunder.

Article 12 Insurance

12.1 Transfer Agent shall maintain insurance of the types and in the amounts deemed by it to be appropriate. To the extent that policies of insurance may provide for coverage of claims for liability or indemnity by the parties set forth in this Agreement, the contracts of insurance shall take precedence, and no provision of this Agreement shall be construed to relieve an insurer of any obligation to pay claims to the Fund, Transfer Agent or other insured party which would otherwise be a covered claim in the absence of any provision of this Agreement.

Article 13 Security

13.1 Transfer Agent represents and warrants that, to the best of its knowledge, the various procedures and systems which Transfer Agent has implemented with regard to the safeguarding from loss or damage attributable to fire, theft or any other cause (including provision for twenty-four hours a day restricted access) of a Fund’s blank checks, records and other data and Transfer Agent’s equipment, facilities and other property used in the performance of its obligations hereunder are adequate, and that it will make such changes therein from time to time as in its judgment are required for the secure performance of its obligations hereunder. Transfer Agent shall review such systems and procedures on a periodic basis, and each Fund shall have reasonable access to review these systems and procedures.

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Article 14 Disaster Recovery

14.1 Transfer Agent shall enter into and shall maintain in effect with appropriate parties one or more agreements making reasonable provisions for periodic backup of computer files and data with respect to a Fund and emergency use of electronic data processing equipment. In the event of equipment failures, Transfer Agent shall, at no additional expense to a Fund, take reasonable steps to minimize service interruptions caused by equipment failure, provided such loss or interruption is not caused by Transfer Agent’s own willful misfeasance, bad faith, negligence or reckless disregard of its duties or obligations under this Agreement and provided further that Transfer Agent has complied with the provisions of this paragraph 14.

Article 15 Term and Termination

15.1 This Agreement shall be effective on the date first written above and shall continue until December 31, 2015, and thereafter shall automatically continue for successive annual periods ending on the anniversary of the date first written above, provided that it may be terminated by either party upon written notice given at least 90 days prior to termination.

15.2 In the event a termination notice is given by a Fund, it shall be accompanied by a resolution of the Board of Directors, certified by the Secretary of the Fund, designating a successor transfer agent or transfer agents. Upon such termination and at the expense of the Fund, Transfer Agent will deliver to such successor a certified list of shareholders of the Fund (with names and addresses), and all other relevant books, records, correspondence and other Fund records or data in the possession of Transfer Agent, and Transfer Agent will cooperate with the Fund and any successor transfer agent or agents in the substitution process.

Article 16 Confidentiality/Privacy

16.1 The parties agree that any non-public information obtained hereunder concerning the other party is confidential and may not be disclosed to any other person without the consent of the other party, except as may be required by applicable law or at the request of the Commission or other governmental agency. The parties further agree that a breach of this provision would irreparably damage the other party and accordingly agree that each of them is entitled, without bond or other security, to an injunction or injunctions to prevent breaches of this provision.

16.2 The Transfer Agent has adopted and implemented procedures to safeguard customer information and records that are reasonably designed to ensure the security and confidentiality of customer records and information in accordance with applicable state and federal standards and to ensure compliance with Regulation S-P. Information about the Fund’s customers shall not be disclosed, sold, or used in any way, except: (1) to carry out the terms of this Agreement; and (2) disclosure pursuant to law, rule, regulation or court or administrative order.

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Article 17 Force Majeure

17.1 No party shall be liable for any default or delay in the performance of its obligations under this Agreement if and to the extent such default or delay is caused, directly or indirectly, by (i) fire, flood, elements of nature or other acts of God; (ii) any outbreak or escalation of hostilities, war, riots or civil disorders in any country; (iii) any act or omission of the other party or any governmental authority; (iv) any labor disputes beyond the reasonable control of such party; or (v) nonperformance by a third party or any similar cause beyond the reasonable control of such party, including without limitation, failures or fluctuations in telecommunications or other equipment; except to the extent that the non-performing party shall have failed to use its reasonable best efforts to minimize the likelihood of occurrence of such circumstances or to mitigate any loss or damage to the other party caused by such circumstances, and, with respect to the Transfer Agent, the Transfer Agent has acted in accordance with the standard of care provided in Section 10 of this Agreement. In any such event, the non-performing party shall be excused from any further performance and observance of the obligations so affected only for as long as such circumstances prevail and such party continues to use commercially reasonable efforts to recommence performance or observance as soon as practicable.

Article 18 Assignment

18.1 This Agreement may not be assigned or otherwise transferred by Transfer Agent, without the prior written consent of a Fund, which consent shall not be unreasonably withheld; provided, however, that Transfer Agent may, in its sole discretion, assign all its right, title and interest in this Agreement to an affiliate, parent or subsidiary of Transfer Agent who is qualified to act under the 1934 Act and 1940 Act.

Article 19 Notices

19.1 Any notice or other instrument authorized or required by this Agreement to be given in writing to a Fund or Transfer Agent, shall be sufficiently given if addressed to that party and received by it at its office set forth below or at such other place as it may from time to time designate in writing.

To the Funds:

300 First Stamford Place

Stamford, CT 09602

Attn: Robert I. Frenkel, Secretary

To Transfer Agent:

59 Maiden Lane

New York, NY 10038

Attn: Michael Karfunkel, President

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Article 20 Governing Law/Venue

20.1 The laws of the State of New York, excluding the laws on conflicts of laws, shall govern the interpretation, validity, and enforcement of this agreement.

Article 21 Counterparts

21.1 This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original; but such counterparts shall, together, constitute only one instrument.

Article 22 Captions

22.1 The captions of this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.

Article 23 Publicity

23.1 Neither a Fund nor Transfer Agent shall release or publish news releases, public announcements, advertising or other publicity relating to this Agreement or to the transactions contemplated by it without the prior review and written approval of the other party; provided, however, that either party may make such disclosures as are required by legal, accounting or regulatory requirements after making reasonable efforts in the circumstances to consult in advance with the other party.

Article 24 Relationship of Parties

24.1 The parties agree that they are independent contractors and not partners or co-venturers and nothing contained herein shall be interpreted or construed otherwise.

Article 25 Entire Agreement; Severability

25.1 This Agreement, including Schedules and Exhibits hereto, constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous proposals, agreements, contracts, representations, and understandings, whether written or oral, between the parties with respect to the subject matter hereof. No change, termination, modification, or waiver of any term or condition of the Agreement shall be valid unless in writing signed by the party affected. A party’s waiver of a breach of any term or condition in the Agreement shall not be deemed a waiver of any subsequent breach of the same or another term or condition.

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25.2 The parties intend every provision of this Agreement to be severable. If a court of competent jurisdiction determines that any term or provision is illegal or invalid for any reason, the illegality or invalidity shall not affect the validity of the remainder of this Agreement. In such case, the parties shall in good faith modify or substitute such provision consistent with the original intent of the parties. Without limiting the generality of this paragraph, if a court determines that any remedy stated in this Agreement has failed of its essential purpose, then all other provisions of this Agreement, including the limitations on liability and exclusion of damages, shall remain fully effective.

Article 26 Customer Identification Program Notice

26.1 To help the U.S. government fight the funding of terrorism and money laundering activities, U.S. Federal law requires each financial institution to obtain, verify, and record certain information that identifies each person who initially opens an account with that financial institution on or after October 1, 2003. Certain of Transfer Agent’s affiliates are financial institutions, and Transfer Agent may, as a matter of policy, request (or may have already requested) the Fund’s name, address and taxpayer identification number or other government-issued identification number. Transfer Agent may also ask (and may have already asked) for additional identifying information, and Transfer Agent may take steps (and may have already taken steps) to verify the authenticity and accuracy of these data elements.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers, as of the day and year first above written.

Each of the Investment Companies Listed On Schedule A Hereto,

Each of Which Is Acting On Its Own Behalf And

Not On Behalf Of Any Other Investment Company

By:	/s/ R. Jay Gerken
	R. Jay Gerken President and Chief Executive Officer
American Stock Transfer & Trust Company
By:	/s/ Michael Karfunkel
	Michael Karfunkel
	President

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SCHEDULE A

High Income Opportunity Fund Inc.

Intermediate Muni Fund, Inc.

Managed High Income Portfolio Inc.

Managed Municipals Portfolio Inc.

Municipal High Income Fund Inc.

Real Estate Income Fund Inc.

Citigroup Investments Corporate Loan Fund Inc.

Zenix Income Fund Inc.

Salomon Brothers Emerging Markets Debt Fund Inc.

Salomon Brothers Emerging Markets Income Fund Inc.

Salomon Brothers Emerging Markets Income Fund II

Salomon Brothers Emerging Markets Floating Rate Fund Inc.

Salomon Brothers Capital & Income Fund Inc.

Salomon Brothers Global Partners Income Fund Inc.

Salomon Brothers Global High Income Fund Inc.

Salomon Brothers High Income Fund Inc

Salomon Brothers High Income Fund II Inc

Salomon Brothers Inflation Management Fund Inc.

Salomon Brothers Worldwide Income Fund Inc

Salomon Brothers 2008 Worldwide Dollar Government Term Trust Inc

Salomon Brothers Municipal Partners Fund Inc.

Salomon Brothers Municipal Partners Fund II Inc.

Salomon Brothers Variable Rate Strategic Fund Inc.

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SCHEDULE B

DUTIES OF TRANSFER AGENT

1. Shareholder Information. Transfer Agent or its agent shall maintain a record of the number of Shares held by each holder of record which shall include name, address, taxpayer identification and which shall indicate whether such Shares are held in certificates or uncertificated form.

2. Shareholder Services. Transfer Agent or its agent will investigate all inquiries from Shareholders of a Fund relating to Shareholder accounts and will respond to all communications from Shareholders and others relating to its duties hereunder and such other correspondence as may from time to time be mutually agreed upon between Transfer Agent and each Fund. Transfer Agent shall provide the Fund with reports concerning Shareholder inquires and the responses thereto by Transfer Agent, in such form and at such times as are agreed to by the Fund and Transfer Agent.

3. Share Certificates.

(a) At the expense of each Fund, Transfer Agent or its agent shall be supplied with an adequate supply of blank share certificates to meet Transfer Agent or its agent’s requirements therefor. Such Share certificates shall be properly signed by facsimile. Each Fund agrees that, notwithstanding the death, resignation, or removal of any officer of the Fund whose signature appears on such certificates, Transfer Agent or its agent may continue to countersign certificates which bear such signatures until otherwise directed by Written Instructions.

(b) With respect to each Fund, Transfer Agent or its agent shall issue replacement Share certificates in lieu of certificates which have been lost, stolen or destroyed, upon receipt by Transfer Agent or its agent of properly executed affidavits and lost certificate bonds, in form satisfactory to Transfer Agent or its agent, with the Fund and Transfer Agent or its agent as obligees under the bond.

(c) With respect to each Fund, Transfer Agent or its agent shall also maintain a record of each certificate issued, the number of Shares represented thereby and the holder of record. With respect to Shares held in open accounts or uncertificated form, i.e., no certificate being issued with respect thereto, Transfer Agent or its agent shall maintain comparable records of the record holders thereof, including their names, addresses and taxpayer identification. Transfer Agent or its agent shall further maintain a stop transfer record on lost and/or replaced certificates.

(d) Withdrawal of Shares and Cancellation of Certificates. Upon receipt of Written Instructions, Transfer Agent shall cancel outstanding certificates surrendered by a Fund to reduce the total amount of outstanding shares by the number of shares surrendered by the Fund.

4. Mailing Communications to Shareholders; Proxy Materials. Transfer Agent or its agent will address and mail to Shareholders of the Fund, as disclosed on Transfer Agent’s books and records for a Fund, all reports to Shareholders, dividend and distribution notices and proxy

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material for the Fund’s meetings of Shareholders. In connection with meetings of Shareholders, Transfer Agent or its agent will prepare Shareholder lists (of Shareholders disclosed on Transfer Agent’s books and records for the Fund), mail and certify as to the mailing of proxy materials, solicit proxies, process and tabulate returned proxy cards, report on proxies voted prior to meetings, act as inspector of election at meetings and certify Shares voted at meetings.

5. Sales of Shares

(a) Suspension of Sale of Shares. Transfer Agent or its agent shall not be required to issue any Shares of a Fund where it has received a Written Instruction from the Fund or official notice from any appropriate authority that the sale of the Shares of the Fund has been suspended or discontinued. The existence of such Written Instructions or such official notice shall be conclusive evidence of the right of Transfer Agent or its agent to rely on such Written Instructions or official notice.

(b) Returned Checks. In the event that any check or other order for the payment of money is returned unpaid for any reason, Transfer Agent or its agent will: (i) give prompt notice of such return to the relevant Fund or its designee; (ii) place a stop transfer order against all Shares issued as a result of such check or order; and (iii) take such actions as Transfer Agent may from time to time deem appropriate.

(c) Purchase of Shares. Transfer Agent shall issue and credit an account of an investor, in the manner described in a Fund’s prospectus, once it receives:

(i) A purchase order;

(ii) Proper information to establish a Shareholder account; and

(iii) Confirmation of receipt or crediting of funds for such order to the Fund’s Custodian.

6. Exchange, Transfer and Redemption

(a) Transfer Agent or its agent shall process all requests to transfer or redeem Shares in accordance with the transfer or redemption procedures set forth in each Fund’s Prospectus.

(i) Broker-Dealer Accounts.

When a broker-dealer notifies Transfer Agent of a redemption desired by a customer, and the Fund’s or Portfolio’s Custodian has provided Transfer Agent with funds, Transfer Agent shall (a) transfer by Fedwire or other agreed upon electronic means such redemption payment to the broker-dealer for the credit to, and for the benefit of, the customer’s account or (b) shall prepare and send a redemption check to the broker-dealer, made payable to the broker-dealer on behalf of its customer.

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(ii) Fund-Only Accounts.

If Shares (or appropriate instructions) are received in proper form, at a Fund’s request Shares may be redeemed before the funds are provided to Transfer Agent from the Custodian. If the recordholder has not directed that redemption proceeds be wired, when the Custodian provides Transfer Agent with funds, the redemption check shall be sent to and made payable to the recordholder, unless:

(a) the surrendered certificate is drawn to the order of an assignee or holder and transfer authorization is signed by the recordholder; or

(b) transfer authorizations are signed by the recordholder when Shares are held in book-entry form.

(b) Transfer Agent or its agent will transfer or repurchase Shares upon receipt of Oral or Written Instructions or otherwise pursuant to the Prospectus and Share certificates, if any, properly endorsed for transfer or redemption, accompanied by such documents as Transfer Agent or its agent reasonably may deem necessary.

(c) Transfer Agent or its agent reserves the right to refuse to transfer or repurchase Shares until it is satisfied that the endorsement on the instructions is valid and genuine. Transfer Agent or its agent also reserves the right to refuse to transfer or repurchase Shares until it is satisfied that the requested transfer or repurchase is legally authorized, and it shall incur no liability for the refusal, in good faith, to make transfers or repurchases which Transfer Agent or its agent, in its good judgment, deems improper or unauthorized, or until it is reasonably satisfied that there is no basis to any claims adverse to such transfer or repurchase.

(d) When Shares are redeemed, Transfer Agent or its agent shall, upon receipt of the instructions and documents in proper form, deliver to the Custodian and each Fund or its designee a notification setting forth the number of Shares to be repurchased. Such repurchased shares shall be reflected on appropriate accounts maintained by Transfer Agent or its agent reflecting outstanding Shares of each Fund and Shares attributed to individual accounts.

(e) Transfer Agent or its agent shall, upon receipt of the moneys paid to it by the Custodian for the repurchase of Shares, pay such moneys as are received from the Custodian, all in accordance with the procedures described in the written instruction received by Transfer Agent or its agent from the Fund.

(f) Transfer Agent or its agent shall not process or effect any repurchase with respect to Shares of a Fund after receipt by Transfer Agent or its agent of notification of the suspension of the determination of the net asset value of the Fund.

7. Dividends

(a) Upon the declaration of each dividend and each capital gains or other distribution by the Board of Directors of a Fund with respect to Shares of the Fund, the Fund shall

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furnish or cause to be furnished to Transfer Agent or its agent a copy of a resolution of the Fund’s Board of Directors certified by the Secretary of the Fund setting forth the date of the declaration of such dividend or distribution, the ex-dividend date, the date of payment thereof, the record date as of which Shareholders entitled to payment shall be determined, the amount payable per Share to the shareholders of record as of that date, the total amount payable to Transfer Agent or its agent on the payment date and whether such dividend or distribution is to be paid in Shares of such class at net asset value. Such payment will be made in cash or additional Shares, at the election of each Shareholder, in accordance with the Portfolio’s Prospectus.

(b) On or before the payment date specified in such resolution of the Board of Directors, a Fund will provide Transfer Agent with sufficient cash to make payment to the Shareholders of record as of such payment date.

(c) If Transfer Agent or its agent does not receive sufficient cash from a Fund to make total dividend and/or distribution payments to all Shareholders of the Fund as of the record date, Transfer Agent or its agent will, upon notifying the Fund, withhold payment to all Shareholders of record as of the record date until sufficient cash is provided to Transfer Agent or its agent.

(d) Such issuance or payment, as well as payments upon redemption as described above, shall be made after deduction and payment of the required amount of funds to be withheld in accordance with any applicable tax law or other laws, rules or regulations. Transfer Agent shall mail to a Fund’s shareholders and the IRS and other appropriate taxing authorities such tax forms, or permissible substitute forms, and other information relating to dividends and distributions paid by the Fund as are required to be filed and mailed by applicable law, rule or regulation within the time required thereby. Transfer Agent shall prepare, maintain and file with the IRS and other appropriate taxing authorities reports relating to all dividends and distributions above a stipulated amount paid by the Fund to its Shareholders as required by tax or other law, rule or regulation.

8. Cash Management Services. Funds received by Transfer Agent in the course of performing its services hereunder will be held in demand deposit bank accounts or money market fund accounts in the name of Transfer Agent (or its nominee) as agent for the Funds.

9. Lost Shareholders. Transfer Agent shall perform such services as are required in order to comply with Rules 17a-24 and 17Ad-17 of the 1934 Act (the “Lost Shareholder Rules), including, but not limited to those set forth below. Transfer Agent may, in its sole discretion, use the services of a third party to perform some or all of such services.

(a) documentation of electronic search policies and procedures;

(b) execution of required searches;

(c) creation and mailing of confirmation letters;

(d) taking receipt of returned verification forms;

(e) providing confirmed address corrections in batch via electronic media;

(f) tracking results and maintaining data sufficient to comply with the Lost Shareholder Rules; and

(g) preparation and submission of data required under the Lost Shareholder Rules.

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10. Anti-Money Laundering/OFAC/FINCEN/Customer Identification Procedures.

(a) Transfer Agent shall implement mutually agreed upon procedures in accordance with a Fund’s Anti-Money Laundering and Customer Identification Programs, and cash and cash equivalent procedures and shall check account names and addresses against those provided by the Treasury Department’s OFAC and FINCEN Departments.

(b) Transfer Agent shall perform the following key functions:

• Validating Transfer Agent’s database of Fund investor names and personal information against OFAC and FINCEN list; new accounts and accounts changes are scanned daily by a Transfer Agent compliance specialist and the entire database is scanned each time the OFAC or FINCEN list is updated.

• Verifying customer identification based on particular identifying data elements.

• Review of outgoing wire activity to detect suspicious movement of monies.

• Restrictions on payment methods accepted for purchase of fund shares (no cash or cash equivalents, third-party check restrictions, etc.).

• Review of account opening documentation and check payments for various “red flags” that are indicators of fraudulent activity.

• Review accounts for suspicious activity and provide suspicious activity reports to be filed by the Funds.

• A yearly AML training is mandatory for all Transfer Agent employees.

11. Market-Timing/Late Trading.

(a) Transfer Agent shall monitor accounts for market-timing and late trading, in violation of each Fund’s or portfolio’s prospectus.

(b) Transfer Agent shall provide each Fund and its officers with assistance in monitoring, coordinating and reporting market-timing and late trading of shares.

12. Additional Services.

(a) Services provided on an ongoing basis, if applicable.

(i) Calculate 12b-l payments to financial intermediaries, including brokers, and financial intermediary trail commissions;

(ii) Develop, monitor and maintain, in consultation with the Fund, all systems necessary to implement and operate the four-tier distribution system, including Class B conversion feature or similar

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conversion feature for other Classes, as described in the registration statement and related documents of the Fund, as they may be amended from time to time;

(iii) Calculate contingent deferred sales charge amounts and redemption fees upon redemption of Fund shares and deduct such amounts from redemption proceeds;

(iv) Calculate front-end sales load amounts at time of purchase of shares;

(v) Determine dates of Class B or similar conversion and effect the same;

(vi) Establish and maintain proper Shareholder registrations;

(vii) Review new applications and correspond with Shareholders to complete or correct information;

(viii) Issue dividend checks in accordance with agreed-upon procedures;

(ix) Direct payment processing of checks or wires in accordance with agreed-upon procedures;

(x) Provide toll-free lines for direct Shareholder use, plus customer liaison staff for on-line inquiry response;

(xi) Send duplicate confirmations to broker-dealers of their clients’ activity, whether executed through the broker-dealer or directly with Transfer Agent;

(xii) Provide periodic Shareholder lists, outstanding Share and Class calculations and related statistics to the Fund;

(xiii) Provide detailed data for underwriter/broker confirmations;

(xiv) Prepare and mail required calendar and taxable year-end tax and statement information (including forms 1099-DIV and 1099-B and accompanying statements) to Shareholder accounts disclosed on its books and records;

(xv) Notify on a daily basis the investment adviser, accounting agent, and Custodian of fund activity;

(xvi) Withholding taxes for U.S. resident and non-resident aliens, where applicable;

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(xvii) Maintain and process letters of accumulation and automatic investment plans;

(xviii) Serve as custodian and/or trustee to retirement plans, individual retirement accounts and similar accounts;

(xix) Receive information from third-party administrators to record either plan level or individual participant level information, as required, and

(xx) Perform other participating broker-dealer or Shareholder services as may be agreed upon from time to time.

(b) Services provided by Transfer Agent under Oral Instructions or Written Instructions.

(i) Accept and post daily Fund and Class purchases and redemptions; and

(ii) Accept, post and perform Shareholder transfers and exchanges.

(c) Shareholder Account Services.

(i) Transfer Agent will arrange, in accordance with the appropriate Fund’s or Portfolio’s prospectus, for issuance of Shares obtained through:

- The transfer of funds from Shareholders’ accounts at financial institutions, provided Transfer Agent received advance Oral or Written Instruction of such transfer,

- Any pre-authorized check plan; and

- Direct purchases through broker wire orders, checks and applications in accordance with agreed-upon procedures.

(ii) Transfer Agent will arrange, in accordance with the appropriate Fund’s or Portfolio’s Prospectus, for a Shareholder’s:

- Exchange of Shares for shares of another fund with which the Fund has exchange privileges;

- Automatic redemption from an account where that Shareholder participates in a systematic withdrawal plan; and/or

- Redemption of Shares from an account with a checkwriting privilege in accordance with agreed-upon procedures.

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(d) Communications to Shareholders. Upon timely Written Instructions, Transfer Agent shall mail all communications by the Fund to its Shareholders disclosed on its books and records, including:

(i) Reports to Shareholders (including annual and semi-annual reports);

(ii) Confirmations of purchases and sales of Fund shares;

(iii) Monthly or quarterly statements;

(iv) Dividend and distribution notices;

(v) Proxy material;

(vi) Tax forms (including substitute forms), accompanying information containing the information required by paragraph 7(d), and notices under Section 19 of 1940 Act;

(vii) New account information;

(viii) Change of allocation;

(ix) Prospectus fulfillment;

(x) Shareholder/information letters; and

(xi) Retirement and IRA information (including tax information).

(e) Records. Transfer Agent shall maintain those records required by the Securities Laws and any laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by Transfer Agent hereunder with respect to Shareholder accounts or by transfer agents generally, including records of the accounts for each Shareholder showing the following information:

(i) Name, address and United States Taxpayer Identification or Social Security number;

(ii) Number and class of Shares held and number and class of Shares for which certificates, if any, have been issued, including certificate numbers and denominations;

(iii) Historical information regarding the account of each Shareholder, including dividends and distributions paid, their character (e.g., ordinary income, net capital gain, exempt-interest, foreign tax-credit and dividends received deduction eligible) for federal income tax purposes and the date and price for all transactions on a Shareholder’s account;

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(iv) Any stop or restraining order placed against a Shareholder’s account;

(v) Any correspondence relating to the current maintenance of a Shareholder’s account;

(vi) Information with respect to withholdings; and

(vii) Any information required in order for the transfer agent to perform any calculations contemplated or required by this Agreement.

(f) Shareholder Inspection of Stock Records. Upon a request from any Shareholder to inspect stock records, Transfer Agent will notify the Fund, and the Fund will issue instructions granting or denying each such request. Unless Transfer Agent has acted contrary to the Fund’s instructions, the Fund agrees and does hereby release Transfer Agent from any liability for refusal of permission for a particular Shareholder to inspect the Fund’s Shareholder records.

13. Miscellaneous.

In addition to and neither in lieu nor in contravention of the services set forth above, Transfer Agent shall: (I) perform all the customary services of a transfer agent, registrar, dividend disbursing agent and agent of the dividend reinvestment and cash purchase plan as described herein consistent with those requirements set forth as at the date of this Agreement; (ii) require proper forms of instructions, signatures and signature guarantees and any necessary documents supporting the opening of Shareholder accounts, transfers and redemptions and other Shareholder account transactions, all in conformance with Transfer Agent’s present procedures with such changes or deviations therefrom as may be from time to time required or approved by a Fund, or the Fund’s counsel or Transfer Agent’s counsel and the rejection of orders or instructions not in good order in accordance with the applicable Fund prospectus; (iii) provide to the person designated by the Funds daily Blue Sky reports generated by Transfer Agent; (iv) provide to the Funds escheatment reports as reasonably requested by the Funds with respect to the status of the Funds’ accounts and outstanding checks; and (v) maintain a current, duplicate set of the Funds’ essential records at a secure separate location in a form available and usable forthwith in the event of any breakdown or disaster disruption of Transfer Agent’s main operation.

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SCHEDULE C

FEE SCHEDULE:

AS PER ATTACHED PROPOSAL DATED AUGUST 16, 2005 PLUS REIMBURSEMENT OF OUT-OF-POCKET EXPENSES

STANDARD FEES:

Fund Name	Flat Monthly Fee
2008 Term Trust	$	1,250.00
Citigroup Investments Corporate Loan Fund Inc.	$	1,250.00
Emerging Markets Floating Rate	$	1,250.00
Emerging Markets Income	$	1,250.00
Emerging Markets Income II	$	1,250.00
Global Partners Income Fund	$	1,250.00
High Income Opportunity	$	1,250.00
Intermediate Municipal	$	1,250.00
Managed High Income	$	1,250.00
Managed Muni I (one)	$	1,250.00
Muni High Income	$	1,250.00
Municipal Partners Fund Inc. II	$	1,250.00
Municipal Partners Fund Inc.	$	1,250.00
Real Estate Income Fund Inc.	$	1,250.00
Salomon Bros Capital and Income Fund	$	1,250.00
Salomon Bros Emerging Markets Debt Fund	$	1,250.00
Salomon Bros Global High Income Fund	$	1,250.00
Salomon Bros High Income Fund	$	1,250.00
Salomon Bros High Income II	$	1,250.00
Salomon Bros Inflation Management Fund	$	1,250.00
Salomon Bros Variable Rate Strategic Fund	$	1,250.00
Worldwide Income Fund	$	1,250.00
Zenix Income	$	1,250.00

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SCHEDULE D

OUT-OF-POCKET EXPENSES:

1. Out-of-Pockets. Each Fund shall reimburse Transfer Agent monthly for applicable out-of-pocket expenses, including, but not limited to the following items:

- Microfiche/microfilm production

- Magnetic media tapes and freight

- Postage - [direct pass through to the Fund]

- Telephone and telecommunication costs, including all lease, maintenance and line costs

- Proxy solicitations, mailings, tabulations and reports relating thereto

- Shipping, Certified and Overnight mail and insurance

- Terminals, communication lines, printers and other equipment and any expenses incurred in connection with such terminals and lines

- Duplicating services

- Courier services

- Federal Reserve charges for check clearance

- Overtime

- Travel, as approved in advance by the Fund

- Record retention, retrieval and destruction costs, including, but not limited to exit fees charged by third party record keeping vendors

- Such other miscellaneous expenses reasonably incurred by Transfer Agent in performing its duties and responsibilities under this Agreement.

Each Fund shall pay postage and mailing expenses on the day of or prior to mailing as agreed with Transfer Agent. In addition, each Fund will promptly reimburse Transfer Agent for any other unscheduled expenses incurred by Transfer Agent whenever the Fund and Transfer Agent mutually agree that such expenses are not otherwise properly borne by Transfer Agent as part of its duties and obligations under the Agreement.

2. Other Charges

- Pre-Printed Stock, including business forms, certificates, envelopes, checks and stationery.

- Cold Storage

- Digital Recording

- Incoming and outgoing wire charges

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COVER

SIMPSON THACHER & BARTLETT LLP

425 Lexington Avenue

New York, New York 10017

Tel: (212) 455-2000

Fax: (212) 455-2502

May 28, 2008

Securities and Exchange Commission

100 F Street, NE

Washington, DC 20549

Attn: Randy Koch, Esq.

Re: Western Asset Emerging Markets Debt Fund Inc. (811-21343)

Ladies and Gentlemen:

On behalf of Western Asset Emerging Markets Debt Fund Inc. (the “Fund”), and pursuant to the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, we submit for filing the Fund’s preliminary Registration Statement on Form N-14 by direct electronic transmission on EDGAR form type N-14 8(C).

This Registration Statement on Form N-14 is being filed in connection with the proposed merger of Western Asset Emerging Markets Floating Rate Fund Inc. with and into the Fund pursuant to the Maryland General Corporation Law.

On May 28, 2008, the Fund filed a “Request to withdraw Registration Statement on Form N-14” to the Registration Statement on Form N-14 (File Nos. 333-149963 and 811-21343) filed on March 28, 2008 because that Registration Statement was inadvertently filed as a Form N-14 file type rather than the proper Form N-14 8(C) file type. This Registration Statement is identical to the March 28, 2008 filing but for the EDGAR file type. As discussed with the staff of the Commission (the “Staff”) on May 21, 2008 the Fund will file its response to the Staff’s comments of May 20, 2008 and May 21, 2008 as a pre-effective amendment to the Registration Statement filed herewith on file type N-14-8(C).

If you have any questions in connection with this filing, please call Celine C. Hwang (212-455-7761) of this firm.

Very truly yours,

/s/ Simpson Thacher & Bartlett LLP

Simpson Thacher & Bartlett LLP