WESTERN ASSET DIVERSIFIED INCOME FUND (WDI)

A diversified multi-sector fixed-income closed-end fund seeking high current income and capital appreciation over a 12-year term* • Diverse opportunity set: Anticipates investing in a wide range of securities,** seeking to go beyond traditional benchmarks to access a broad range of opportunities for income and capital appreciation • Income-focused: Potential access to fixed income sectors and private debt not typically available through traditional mutual funds • Flexible and dynamic: Anticipates rotating sectors and securities in response to market conditions, focusing on what we believe are undervalued securities with attractive fundamentals • Deep experience: Will draw on Western Asset’s 50 years as an active fixed income manager, with $476 billion in assets under management, including $181 billion in multi-sector strategies (as of 3/31/21)

It is anticipated that the Fund’s Common Shares will be approved for listing on the NYSE, subject to notice of issuance, under the ticker symbol “WDI.” * On the 12th anniversary of the effective date of its registration statement (the “Dissolution Date”), the Fund will dissolve (subject to the Eligible Tender Offer Feature described on page 4 of this brochure), provided that the Board may extend the Dissolution Date for up to two years. See the preliminary prospectus for more information on the limited term. ** The Fund may invest in investment-grade and high-yield corporate debt, senior loans, agency and non-agency mortgage-backed securities, commercial mortgage-backed securities, sovereign debt (including U.S. government obligations), collateralized loan obligations, asset-backed securities, private debt and mortgage whole loans. The Fund is a newly organized, diversified, limited term closed-end management investment company with no operating history. The Fund is not designed to be a complete investment program. The Fund’s portfolio may include below-investment-grade securities (commonly referred to as “high-yield” securities or “junk bonds”). An investment in the Fund involves a high degree of risk and should be considered speculative. You could lose some or all of your investment. This brochure must be accompanied by a preliminary prospectus for the Fund. The information herein and in the preliminary prospectus is not complete and may be changed. A registration statement relating to these securities has been filed with the Securities and Exchange Commission, but has not yet become effective. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This brochure and the preliminary prospectus are not an offer to sell these securities and are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. This is not an offering, which can only be made by a final prospectus. You should carefully read the preliminary prospectus, and consider the Fund’s investment objectives and policies, risks, fees and expenses carefully. Once the registration statement is effective, you should read the Fund’s final prospectus carefully before investing. For a copy of the preliminary prospectus and to arrange for a copy of the final prospectus, when available, call 1-888-777-0102. Capitalized terms not defined in this brochure have the meanings ascribed to them in the preliminary prospectus. See page 7 of this brochure for IMPORTANT INFORMATION about the Fund. NOT FDIC INSURED | MAY LOSE VALUE | NO GUARANTEE CHALLENGES AND OPPORTUNITIES IN CREDIT NOW

Rates are at historic lows, with inflation concerns rising as the momentum for economic recovery continues to grow. However, fixed income credit sectors vary considerably in their yields and duration (interest-rate risk), providing what we believe are attractive opportunities for actively managed multi- sector bond strategies to capture value through astute selection and dynamic sector rotation.

CHALLENGE: OPPORTUNITY: Bond yields at historic lows, with interest- Non-benchmark sectors may deliver rate risk elevated attractive yields for investors • We believe income investors face serious challenges now. • Western Asset believes the U.S. economy appears to be Yields are historically low; over one-quarter of the world’s recovering strongly from the damage done by COVID-19 outstanding sovereign debt has a negative yield • Actively managed bond strategies can seek to address this • 87% of the securities in the Bloomberg Barclays U.S. type of economic change by shifting allocations, focusing Aggregate Index (a commonly used benchmark for bond on sectors with the greatest potential for income and return strategies) yielded less than 2% at the beginning of 2021 • There are substantial differences in yield between • Key benchmark sectors like U.S. Treasuries and agency different bond sectors; for example, high-yield, bank loans mortgages are most exposed to inflation risk, with and structured credit can deliver yields above 3% relatively high duration (i.e., sensitivity to changes (as of 12/31/20) in interest rates)

AVERAGE YIELD AND DURATION FOR BLOOMBERG PROPORTION OF FIXED INCOME SECTORS BARCLAYS U.S. AGGREGATE INDEX YIELDING OVER 3% 88% 85% 86% 7 73% 6 5 4 35% 3 2

1 4% 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 U.S. Investment- Non-Agency EM US US Aggregate Grade Credit RMBS Corporate Credit High-Yield Bank Loans -Adjusted Duration Yield to

Source: Western Asset as of 3/31/21. Past performance is no guarantee of future return. Source: Western Asset as of 12/31/20. U.S. Aggregate refers to the Bloomberg Barclays U.S. Indexes are unmanaged and not available for direct investment. The inclusion of an index is Aggregate Bond Index. Investment-grade Credit is represented by the Bloomberg Barclays U.S. for illustrative purposes only. The performance of the Fund will differ and may vary materially Credit Index. Non-agency Residential Mortgage-backed Securities is based on reference data from that of any index. supplied by J. P. Morgan. EM Corporate Credit is represented by the J.P. Morgan CEMBI Broad Index. High Yield is represented by the Bloomberg Barclays U.S. High Yield 2% Issuer Cap Index. Bank Loans are represented by the S&P/LSTA Performing Loans Index. Past performance is no guarantee of future return. Indexes are unmanaged and not available for direct investment. The inclusion of an index is for illustrative purposes only. The performance of the Fund will differ and may vary materially from that of any index.

$9 trillion of the world’s sovereign debt now yields less than 0%; $26 trillion yields less than 1%.1

1. Calculations by Franklin Templeton’s Global Research Library with data sourced from Bloomberg, Bloomberg Barclays Indices. Important data provider notices and terms available at www.franklintempletondatasources.com as of 2/26/21.

1 Western Asset Diversified Income Fund franklintempleton.com A FLEXIBLE, OPPORTUNISTIC BOND STRATEGY

Western Asset Diversified Income Fund (WDI) is a multi-sector credit strategy that seeks income and return through changing market environments. The Fund will initially focus on shorter-duration and floating-rate securities, which have lower sensitivity to higher interest rates.

Diversified approach Opportunistic Closed-end fund structure to income and return pursuit of value with a defined term

• Can invest across a broad range of • As market conditions change, the Fund • Following the Fund’s , U.S. and global fixed income, including will dynamically rotate to sectors we believe Common Shares will be freely tradeable higher-yielding sectors may offer superior risk-adjusted return on the NYSE until the end of the Fund’s 2 • Investment process utilizes cross-sector • Investment decisions will incorporate 12-year term correlations designed to optimize return Western Asset’s view of global macro • Closed-end fund structure allows for potential and diversification benefit conditions and deep research capabilities investments in less-liquid securities, within portfolio such as private debt, not typically available via traditional mutual funds

CREDIT U.S. investment-grade credit, U.S. high-yield credit and non-U.S. credit • Provides a range of risk/reward scenarios relative to U.S. Treasuries

USHY Non-U.S. USIG Credit Bank STRUCTURED CREDIT NA-RMBS Loans DURATION CREDIT Non-agency residential mortgage-backed WESTERN Floating-rate notes, bank loans, CLOs securities, commercial mortgage-backed ASSET collateralized loan obligations, CMBS securities, and asset-based securities. and short-duration high yield DIVERSIFIED FRN • Diversification through exposure INCOME • Offers less exposure to interest to real assets rate risk in general than other ABS SDHY bond sectors USD USD Sovereigns Corporate

EMERGING MARKET DEBT U.S. dollar-denominated sovereign and corporate debt • Exposure to high-growth economies with what we believe is reduced currency risk via select holdings in U.S. dollar-denominated debt

Source: Western Asset as of 3/31/21. Fixed-income securities involve interest rate, credit, inflation, and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed- income securities falls. High-yield bonds are subject to increased risk of default and greater volatility due to the lower credit quality of the issues. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Active management and diversification do not ensure a profit or protect against market loss. The chart above is presented for illustrative purposes only, as a general example of types of investments that the Fund may pursue and is not intended to represent the Fund’s investment strategies, performance or how the Fund’s portfolio will be invested or allocated at any particular time. This information should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Please see the “Important Information” section at the back of this brochure and in the Fund’s preliminary prospectus for additional risk information. 2. It is anticipated that the Fund’s Common Shares will be approved for listing on the NYSE, subject to notice of issuance, under the ticker symbol “WDI.” See “Limited Term” in Key Terms of Offering on page 4 of this brochure for further details. franklintempleton.com Western Asset Diversified Income Fund 2 WESTERN ASSET: THE EXPERIENCE OF A FIXED INCOME LEADER

Western Asset is one of the world’s leading fixed income managers, with a focus on long-term fundamental value investing that employs a top-down and bottom-up approach.

Decades of experience Active fixed income investors • Founded 1971 • Globally integrated $476 • Joined Franklin Templeton as • Team-based decision-making Specialist Investment Manager • Value orientation billion in 2020 Total AUM (assets • Integrated risk management under management)

In-depth analytical support across sectors 3 $181 Average Years Western Asset Sector Team Team Size of Experience AUM by Sector (billion)

billion Investment-Grade 27 professionals 23 years $135.4 AUM in multi-sector bond portfolios High-Yield/Bank Loans/CLOs 18 professionals 22 years $28.9

Emerging Markets 28 professionals 20 years $47.6 $8 Structured Credit 10 professionals 21 years $73.6 billion Western Asset has the depth, scale and experience to assess opportunity AUM in closed-end across the entire . funds

Western Asset Diversified Income—Portfolio Management Team For nearly 50 years, Western Asset has employed a team-based approach to navigating fixed income markets around the globe.

MICHAEL BUCHANAN S. KENNETH LEECH GREG E. HANDLER CHRISTOPHER F. KILPATRICK ANNABEL RUDEBECK CFA, Deputy Chief Chief Investment CFA, Mortgage and U.S. High Yield CFA, Head of Investment Officer Officer Consumer Credit Team Portfolio Manager Non-U.S. Credit 31 years industry 44 years industry 19 years industry 24 years industry 22 years industry experience experience experience experience experience

Source: Western Asset. All data as of 3/31/21. 3. Multi-Sector Bond Portfolios include Western Asset’s Global Multi-Sector, Multi-Asset Credit, Macro Opportunities, U.S. Core, U.S. Core Plus, Total Return Unconstrained strategies.

3 Western Asset Diversified Income Fund franklintempleton.com KEY TERMS OF OFFERING

Anticipated initial offering period May 26, 2021 to June 24, 2021 Expected trading symbol WDI4 Offering price per $20.00 (100 common shares minimum)5 Limited term The Fund intends to dissolve as of the first business day following the twelfth anniversary of the effective date of the Fund’s initial registration statement, provided that the Board may extend the Dissolution Date for up to two years.6 Anticipated first day of trading June 25, 2021 Anticipated settlement date June 29, 2021 Investment objectives The Fund’s primary investment objective is to seek high current income with capital appreciation as a secondary objective. Investment strategy Under normal circumstances, the Fund will invest across fixed income sectors and securities to deliver a well-diversified portfolio. In managing the portfolio, Western Asset will employ its top-down macro view to drive decisions on value, credit sectors, credit quality and duration, and its deep research expertise and bottom-up analysis to make sector and security selections. Western Asset will seek to dynamically rotate investments into sectors and securities that it believes to be undervalued from a fundamental perspective with an attractive return profile and away from investments that it believes to be overvalued. The Fund may invest in investment-grade and high-yield corporate debt, senior loans, agency and non-agency mortgage-backed securities, commercial mortgage-backed securities, government (i.e., sovereign) debt (including U.S. government obligations), collateralized loan obligations (“CLOs”), asset-backed securities (whose underlying asset classes include, but are not limited to, equipment leases, solar and student loans), private debt and mortgage whole loans. The Fund may invest up to 15% of its Managed Assets in securities issued by CLOs, including up to 5% of its Managed Assets in equity securities issued by CLOs (i.e., subordinated or residual of CLO securities). With respect to all of the securities in which the Fund may invest, the Fund may invest in securities rated below investment grade (that is, securities rated below the Baa/BBB categories, or, if unrated, determined to be of comparable credit quality by Western Asset). These below investment grade securities that comprise the Fund’s portfolio are commonly referred to as either “high yield” securities or “junk bonds.” The Fund may invest up to 25% of its Managed Assets in securities, including structured instruments such as mortgage backed securities and commercial mortgage backed securities, rated CCC or below (or, if unrated, determined to be of comparable credit quality by Western Asset) at the time of investment. For this purpose, if a security is rated by multiple nationally recognized statistical rating organizations (“NRSROs”) and receives different ratings, the Fund will treat the security as being rated in the highest rating category received from an NRSRO. Securities rated below investment grade are regarded as having predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. Because of the risks associated with investing in high yield securities, an investment in the Fund should be considered speculative. Some of the securities will have no credit rating at all. Under normal market circumstances, the Fund will invest at least 70% of its Managed Assets in U.S. securities and at least 80% of its Managed Assets in U.S. dollar-denominated investments. Distribution frequency The Fund intends to distribute its net investment income on a monthly basis.7 Anticipated leverage The Fund initially intends to use leverage between 20%–30% of the Fund’s Managed Assets.8 Sales charge There is no sales charge paid by the Fund.9 Organizational expenses There are no organizational expenses paid by the Fund.10 Management fee 1.10% of average daily Managed Assets. Please refer to the “Summary of Fund Expenses” section of the Fund’s preliminary prospectus for information on the fees, charges and expenses associated with investing in the Fund.

4. It is anticipated that the Fund’s Common Shares will be approved for listing on the NYSE, levels. The distribution level of the Fund is subject to change based upon a number of factors, including subject to notice of issuance, under the ticker symbol “WDI.” the current and projected level of the Fund’s earnings and the relative yield of the Fund’s investments, 5. Unlike open-end funds, closed-end funds, like the Fund, generally do not continuously offer and may fluctuate over time. The Fund reserves the right to change its distribution policy and the basis shares and do not provide daily redemptions. Rather, if a shareholder determines to buy additional for establishing the rate of its monthly distributions at any time and may do so without prior notice to Common Shares or sell Common Shares already held, the shareholder may seek to do so by trading Common Shareholders. See the “Distributions” section in the preliminary prospectus. on the NYSE through a broker or otherwise. Shares of closed-end funds may frequently trade on an 8. The Fund may use leverage through borrowings, including loans from certain financial institutions exchange at prices lower than net asset value. The Fund’s Common Shares are designed primarily and/or the issuance of debt securities, (collectively, “Borrowings”), and through the issuance of for long-term investors, and investors in Common Shares should not view the Fund as a vehicle preferred shares of beneficial interest (“Preferred Shares”). The Fund may use leverage through for trading purposes. Borrowings in an aggregate amount of up to approximately 33 1/3% of the Fund’s total assets less 6. As of a date within the 6–18 months preceding the Dissolution Date (expected to occur all liabilities and indebtedness not represented by senior securities (for these purposes, “total net on about June 24, 2033), the Board may, by a Board Action Vote, cause the Fund to conduct assets”) immediately after such Borrowings. Furthermore, the Fund may use leverage through the an Eligible Tender Offer. The Board has established that the Fund must have aggregate net issuance of Preferred Shares in an aggregate amount of liquidation preference attributable to the assets at least equal to $200 million, the “Dissolution Threshold,” immediately following Preferred Shares combined with the aggregate amount of any Borrowings of up to approximately the completion of an Eligible Tender Offer to ensure the continued viability of the Fund. If 50% of the Fund’s total net assets immediately after such issuance. “Managed Assets” means an Eligible Tender Offer occurs, the Fund will offer to purchase all Common Shares held by each the net assets of the Fund plus the principal amount of any Borrownings or Preferred Shares Common Shareholder; provided that if the payment for properly tendered Common Shares would that may be outstanding, reverse repurchase agreements, dollar rolls, or similar transactions. result in the Fund having aggregate net assets below the Dissolution Threshold, the Eligible Tender The Fund may enter into reverse repurchase agreements and use similar investment management Offer will be canceled and no Common Shares will be repurchased pursuant to the Eligible Tender techniques that may provide leverage, but which are not subject to the foregoing 33 1/3% Offer. Instead, the Fund will begin (or continue) liquidating its portfolio and proceed to dissolve limitation so long as the Fund has covered its commitment with respect to such techniques by on or about the Dissolution Date. Following the completion of an Eligible Tender Offer, the Board segregating or earmarking liquid assets, entering into offsetting transactions or owning positions may, by a Board Action Vote, eliminate the Dissolution Date without shareholder approval and covering related obligations. See the “Leverage” section in the preliminary prospectus. provide for the Fund’s perpetual existence. 9. The Manager (and not the Fund) has agreed to pay, from its own assets, compensation per 7. The Fund intends to distribute its net investment income on a monthly basis and any realized common share to the Underwriters in connection with this offering. The Fund is not obligated to repay capital gains on an annual basis. Your initial distribution is expected to be declared approximately such compensation paid by the Manager. 45 days, and paid approximately 60–90 days, after the completion of this offering, depending on 10. The Manager has agreed to pay all organizational expenses of the Fund and all offering costs market conditions. Under normal market conditions, the Manager will seek to manage the Fund in associated with this offering. The Fund is not obligated to repay any such organizational expenses a manner such that the Fund’s distributions are reflective of the Fund’s current and projected earnings or offering costs paid by the Manager. franklintempleton.com Western Asset Diversified Income Fund 4 INVESTMENT PROCESS AND PHILOSOPHY

The Fund emphasizes income as its primary objective. The for returns and risks across all major asset classes also occur in Fund will seek to invest in a diversified portfolio of high-income this forum. All strategic views and portfolio positions from our generating fixed and floating-rate investments that in Western various local offices are communicated globally; this ensures Asset’s opinion offer compelling fundamental value. The portfolio that the input of Western Asset’s on-the-ground experts are construction process employs multiple diversified strategies incorporated into the investment outlook. which seeks to help mitigate the risk of any one sector or The second step in the process involves assessing the views of strategy dominating portfolio returns. Western Asset’s investment Western Asset’s Unconstrained Asset Allocation Committee. This philosophy rests on two key pillars: committee meets monthly and includes the heads of the various sector teams. They discuss the views that come from the GISC, Focusing on long-term, fundamental value: sector valuations (relative to their assessment of fair value), • Prices may sometimes deviate from fundamental fair value, technical factors and the overall risk environment, all with an eye but over time they typically adjust to reflect inflation, credit on how these variables might impact sector performance going quality fundamentals and liquidity conditions. Investing in forward. These views will help to determine an initial allocation undervalued securities has the potential to provide attractive (i.e., sector weightings) for the Fund. investment returns. Once the Fund’s sector weightings have been established, the • Western Asset’s investment process compares prices to the bottom-up process provides the basis for populating the targeted fundamental fair values estimated by its macroeconomic and weightings through individual credit selection. Security selection credit research teams around the globe, seeking to identify is primarily the responsibility of the research analysts within each and capitalize on markets and securities priced below sector team, who collectively average over 20 years of experience. fundamental fair value. The analysts conduct on-site visits, management interviews, review financial statements, attend conferences, make projections Employing multiple diversified strategies: and consult relevant reference material to aid in the fundamental • Western Asset’s objective is to meet or exceed clients’ credit research process. Armed with the results of this analysis, performance objectives within their risk tolerances. To do they make relative value recommendations to the sector head of so, Western Asset may deploy multiple diversified strategies their team. intended to benefit in different market and economic environments so that no one strategy dominates performance, These recommendations form the starting point for an iterative helping to dampen volatility. and dynamic process to implement reflect sector expertise and insights in the Fund. Looking at market technical and The investment philosophy described above is Western Asset’s relative value assessments, traders will then provide execution general approach across its products and each factor may not information—to the portfolio team, who work closely with the risk apply to all investments made by the Fund. Western Asset’s professionals on portfolio construction. overarching goal is to build robust and diversified portfolios that can deliver strong and consistent, risk-adjusted investment Western Asset’s Risk Management and Portfolio Analytics teams returns over a full investment cycle. Western Asset believes this play a key role in the Fund’s overall investment process by investment philosophy is well aligned with principles of effective assessing the risk profile of sector and issuer-level exposures investing in fixed income spread sectors as well as the Fund in in portfolios (e.g., potential concentration risk, contribution to two ways: (1) it ensures that investment ideas under consideration risk, etc.) and performing stress testing and scenario analysis to for the Fund are mainly premised on both top-down (macro) gauge the sensitivity and vulnerability of portfolios to changes and bottom-up (sector and issuer-level) fundamental factors in various risk factors (e.g., interest rates, credit risk, etc.). This rather than other more superficial factors (e.g., technical charts analysis helps the portfolio team determine final sector weights and analysis), and (2) may enable the Fund to harvest credit and position sizing. It also helps them to monitor and calibrate and liquidity premia from a number of sources creating a more portfolio diversification across sectors and sub-sectors as needed. balanced risk profile. The final result is a portfolio that seeks to incorporate Western The investment process for the Fund begins with the portfolio Asset’s best ideas in proportions that are consistent with Western team leveraging the top-down views formulated by Western Asset’s Asset’s outlook and the Fund’s risk profile and return objectives. Global Investment Strategy Committee (“GISC”). This committee meets weekly and is comprised of all the Firm’s regional and sector heads, including Western Asset’s Deputy chief investment officer and the lead portfolio manager of the Fund. They discuss and determine the outlook for global growth, inflation, interest rates, yield curves, and currency. Deliberations over the prospect

5 Western Asset Diversified Income Fund franklintempleton.com DEFINITIONS

An asset-backed security (ABS) is a financial security backed by a loan, lease or receivables against assets other than real estate and mortgage-backed securities.

Bank loans are loans by to corporate entities whose yield may fluctuate based on a predetermined public interest rate.

The Bloomberg Barclays U.S. Aggregate Bond Index11 is an unmanaged index that measures the performance of the investment-grade universe of bonds issued in the United States. The index includes institutionally traded U.S. Treasury, government sponsored, mortgage and corporate securities.

The Bloomberg Barclays U.S. High-Yield 2% Issuer Capped Bond Index11 is a component of the U.S. Corporate High-Yield Bond Index that measures the performance of non-investment-grade corporate debt issued in developing market countries, with each issuer capped at 2% of the index.

A collateralized loan obligation (CLO) is a security backed by a pool of debt, often low-rated corporate loans.

A commercial mortgage-backed security (CMBS) is a type of mortgage-backed security that is secured by the loan on a commercial property.

Duration is a measure of an investment’s sensitivity to change in interest rates. The higher the duration number, the greater the sensitivity.

A floating-rate note (FRN) is a bond that has a variable , equal to a money market reference rate, like LIBOR or federal funds rate, plus a quoted spread, which remains constant.

High-yield bonds are bonds which are rated below investment grade (i.e. less than BBB-rated).

The JP Morgan Corporate Emerging Market Bond Broad Index (CEMBI)11 is a global, liquid corporate emerging markets index that measures the performance of U.S dollar-denominated emerging markets corporate bonds.

A mortgage-backed security (MBS) is a type of asset-backed security that is secured by a mortgage or collection of mortgages.

Mortgage whole loans are single mortgage loans extended to a specific borrower.

Net asset value per common share (NAV) is determined by dividing the value of the Fund’s securities, cash and other assets (including the value of derivatives and 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.

Non-agency residential mortgage-backed securities (NA-RMBS) are those issued by private entities and not by federal agencies (Fannie Mae, Freddie Mac and Ginnie Mae); they are also called non-conforming loans.

The S&P LSTA Performing Loan Index11 measures the performance of a broad cross-section of performing leveraged loans syndicated in the United States, including dollar-denominated loans to overseas issuers.

Structured credit includes collateralized bond obligations (CBOs), collateralized debt obligations (CDOs), syndicated loans and synthetic financial instruments.

11. An investor cannot invest directly in an index and index performance does not reflect the deduction of any fees, expenses or taxes. franklintempleton.com Western Asset Diversified Income Fund 6 cannot predict whether the Common Shares will trade at, below IMPORTANT INFORMATION or above net asset value or at, below or above the offering price. The Fund is designed primarily for long-term investors and you should not view the Fund as a vehicle for trading purposes.

The Fund’s shares do not represent a deposit or obligation of, and are Portfolio Management Risk. The value of your investment may decrease not guaranteed or endorsed by, any bank or other insured depository if the subadvisers’ judgment about the quality, relative yield, value or institution, and are not insured by the FDIC, the Federal Reserve Board market trends affecting a particular security, industry, sector or region, or any other government Agency. You may lose money by investing in the or about interest rates, is incorrect or does not produce the desired Fund. The Fund is not intended to be a complete investment program results, or if there are imperfections, errors or limitations in the models, and, due to the uncertainty inherent in all investments, there can be no tools and data used by the subadvisers. For example, high yield bonds assurance that the Fund will achieve its investment objectives. tend be more susceptible to credit downgrades and may be difficult to value, and Western Asset’s judgment about the relative yield or value of a Certain risks associated with investing in the Fund are summarized high yield security may be incorrect or subject to change. While the below. The summary is not complete and an investor should carefully subadvisers will seek to dynamically allocate the Fund’s portfolio to review more detailed risk disclosure in the “Risks” section of the Fund’s sectors and securities they consider undervalued and away from sectors preliminary prospectus for additional risk information. and securities that they consider overvalued, there is no assurance that No History of Operations. The Fund is a newly organized, diversified, such allocation will produce the desired results. In addition, the closed-end management investment company with no history of operations subadvisers’ allocation process may result in limited allocation between or public trading. Shares of closed-end investment companies frequently sectors and securities if, in the opinion of the subadvisers, any such trade at a discount from their net asset value. The risk of loss due to allocation would not produce the desired results given current market a discount may be greater for initial investors expecting to sell their conditions. In addition, the Fund’s investment strategies or policies may shares in a relatively short period after completion of the public offering. change from time to time. Those changes may not lead to the results intended by the subadvisers and could have an adverse effect on the Limited Term Risk. Unless the limited term provision of the Fund’s value or performance of the Fund. Declaration of Trust is amended by shareholders in accordance with the Declaration of Trust, or unless the Fund completes an Eligible Tender Market and Interest-Rate Risk. The market prices of the Fund’s securities Offer and converts to perpetual existence, the Fund will dissolve on or may go up or down, sometimes rapidly or unpredictably. If the market about the Dissolution Date. The Fund is not a so called “target date” or “life prices of the Fund’s securities fall, the value of your investment in the cycle” fund whose asset allocation becomes more conservative over time as fund will decline. The market price of a security may fall due to general its target date, often associated with retirement, approaches. In addition, the market conditions, such as real or perceived adverse economic or Fund is not a “target term” fund and thus does not seek to return its initial political conditions, tariffs and trade disruptions, inflation, changes in public offering price per Common Share upon dissolution. As the assets of interest or currency rates, lack of liquidity in the bond markets or adverse the Fund will be liquidated in connection with its dissolution, the Fund investor sentiment. Changes in market conditions will not typically have may be required to sell portfolio securities when it otherwise would not, the same impact on all types of securities. The market price of a security including at times when market conditions are not favorable, which may may also fall due to specific conditions that affect a particular sector of cause the Fund to lose money. In addition, as the Fund approaches the securities market or a particular issuer. The net asset value of your the Dissolution Date, the Manager may invest the proceeds of sold, Fund shares at any point in time may be worth less than what you matured or called securities in money market mutual funds, cash, cash invested, even after taking into account the reinvestment of fund equivalents, securities issued or guaranteed by the U.S. government or dividends and distributions. The market prices of securities may fluctuate its instrumentalities or agencies, high quality, short-term money market significantly when interest rates change. When interest rates rise, the instruments, short-term debt securities, certificates of deposit, bankers’ value of fixed income securities, and therefore the value of your acceptances and other bank obligations, or other investment in the Fund, generally goes down. Generally, the longer the liquid debt securities, which may adversely affect the Fund’s investment maturity or duration of a fixed income security, the greater the impact of performance. See “Risks—Limited Term Risk.” a rise in interest rates on the security’s market price. However, calculations of duration and maturity may be based on estimates and may Investment and Market Risk. An investment in the Fund is subject to not reliably predict a security’s price sensitivity to changes in interest investment risk, including the possible loss of the entire amount that rates. Moreover, securities can change in value in response to other you invest. An investment in our Common Shares is not intended to factors, such as credit risk. In addition, different interest-rate measures constitute a complete investment program and should not be viewed as (such as short- and long-term interest rates and U.S. and non-U.S. such. The value of the Fund’s portfolio securities may move up or down, interest rates), or interest rates on different types of securities or sometimes rapidly and unpredictably. At any point in time, your securities securities of different issuers, may not necessarily change in the same may be worth less than your original investment. We are primarily a long- amount or in the same direction. When interest rates go down, the Fund’s term investment vehicle and should not be used for short-term trading. yield will decline. Also, when interest rates decline, investments made by Market Price Discount from Net Asset Value Risk. Shares of closed-end the Fund may pay a lower interest rate, which would reduce the income investment companies frequently trade at a discount to their net asset received by the Fund. value. This characteristic is a risk separate and distinct from the risk Credit Risk. The value of your investment in the Fund could decline if the that the Fund’s net asset value could decrease as a result of the Fund’s issuer of a security held by the Fund or another obligor for that security investment activities and may be greater for investors expecting to sell (such as a party offering credit enhancement) fails to pay, otherwise their shares in a relatively short period following completion of any defaults, is perceived to be less creditworthy, becomes insolvent or files offering under this Prospectus. Although the value of the Fund’s net for bankruptcy. The value of your investment in the Fund could also assets is generally considered by market participants in determining decline if the credit rating of a security held by the Fund is downgraded whether to purchase or sell shares, whether investors will realize gains or the credit quality or value of any assets underlying the security or losses upon the sale of the Common Shares depends upon whether declines. If the Fund enters into financial contracts (such as certain the market price of the Common Shares at the time of sale is above or derivatives, repurchase agreements, reverse repurchase agreements, and below the investor’s purchase price for the Common Shares. Because the when-issued, delayed delivery and forward commitment transactions), the market price of the Common Shares is affected by factors such as net Fund will be subject to the credit risk presented by the counterparty. In asset value, dividend or distribution levels (which are dependent, in part, addition, the fund may incur expenses in an effort to protect the fund’s on expenses), supply of and demand for the Common Shares, stability interests or to enforce its rights against an issuer, guarantor or of distributions, trading volume of the Common Shares, general market counterparty or may be hindered or delayed in exercising those rights. and economic conditions, and other factors beyond our control, the Fund Credit risk is broadly gauged by the credit ratings of the securities in

7 Western Asset Diversified Income Fund franklintempleton.com which the fund invests. However, ratings are only the opinions of the shareholders. The fund’s use of derivatives may also increase the amount companies issuing them and are not guarantees as to quality. Securities of taxes payable by shareholders. The U.S. government and foreign rated in the lowest category of investment grade (Baa/BBB) may possess governments are in the process of adopting and implementing regulations certain speculative characteristics. Credit risk is typically greatest for the governing derivatives markets, including mandatory clearing of certain Fund’s high-yield debt securities, which are rated below the Baa/BBB derivatives, margin, and reporting requirements. The ultimate impact of categories or unrated securities of comparable quality (“junk” bonds). the regulations remains unclear. Additional regulation of derivatives may The Fund may invest in securities which are subordinated to more senior make derivatives more costly, limit their availability or utility, otherwise securities of the issuer, or which represent interests in pools of such adversely affect their performance or disrupt markets. The fund may be subordinated securities. The Fund is more likely to suffer a credit loss exposed to additional risks as a result of the additional regulations. on subordinated securities than on non-subordinated securities of the The extent and impact of the additional regulations are not yet fully same issuer. If there is a default, bankruptcy or liquidation of the issuer, known and may not be for some time. most subordinated securities are paid only if sufficient assets remain Investments by the Fund in structured securities, a type of , after payment of the issuer’s non-subordinated securities. In addition, raise certain tax, legal, regulatory and accounting issues that may not any recovery of interest or principal may take more time. As a result, even be presented by direct investments in securities. These issues could be a perceived decline in creditworthiness of the issuer is likely to have a resolved in a manner that could hurt the performance of the Fund. greater adverse impact on subordinated securities. The SEC adopted a new rule on October 28, 2020 that mandates that High-Yield (“Junk”) Bonds Risk. High-yield bonds, often called “junk” a fund’s derivatives risk management program provide for specific items bonds, have a higher risk of issuer default or may be in default and are as required by the rule, including compliance with a VaR test. Compliance considered speculative. Changes in economic conditions or developments with these new requirements will be required after a transition period regarding the individual issuer are more likely to cause price volatility that ends on August 19, 2022. Following the compliance date, these and weaken the capacity of such securities to make principal and interest requirements may limit the ability of the Fund to use derivatives and payments than is the case for higher-grade debt securities. The value reverse repurchase agreements and similar financing transactions as of lower-quality debt securities often fluctuates in response to company, part of its investment strategies. These requirements may increase the political, or economic developments and can decline significantly over cost of the Fund’s investments in derivatives, which could adversely short as well as long periods of time or during periods of general or affect shareholders. regional economic difficulty. High-yield bonds may also have lower Leverage Risk. The Fund’s use of leverage will magnify investment, as compared to higher-rated securities, which means the fund and certain other risks. Leverage involves risks and special considerations may have difficulty selling them at times, and it may have to apply a for holders of the Common Shares including: the likelihood of greater greater degree of judgment in establishing a price for purposes of valuing volatility of net asset value and market price of the Common Shares than fund shares. High-yield bonds generally are issued by less creditworthy a comparable portfolio without leverage; the risk that fluctuations in issuers. Issuers of high-yield bonds may have a larger amount of interest rates on borrowings and short-term debt or in the dividend rates outstanding debt relative to their assets than issuers of investment-grade on any Preferred Shares that the Fund may pay will reduce the return bonds. In the event of an issuer’s bankruptcy, claims of other creditors to Common Shareholders or will result in fluctuations in the dividends may have priority over the claims of high-yield bond holders, leaving few paid on the Common Shares; the effect of leverage in a declining market, or no assets available to repay high-yield bond holders. The Fund may which is likely to cause a greater decline in the net asset value of the incur expenses to the extent necessary to seek recovery upon default or Common Shares than if the Fund were not leveraged, which may result to negotiate new terms with a defaulting issuer. High-yield bonds in a greater decline in the market price of the Common Shares; and when frequently have redemption features that permit an issuer to repurchase the Fund uses leverage, the investment advisory fee payable by the Fund the security from the Fund before it matures. If the issuer redeems to the Manager (and by the Manager to Western Asset) will be higher than high-yield bonds, the Fund may have to invest the proceeds in bonds if the Fund did not use leverage. with lower yields and may lose income. The use of borrowing, reverse repurchase agreements and derivatives, Derivatives Risk. Derivatives involve special risks and costs and may result as well as the issuance of Preferred Shares, creates leverage (i.e., in losses to the Fund, even when used for hedging purposes. Using a fund’s investment exposures exceed its net asset value). Leverage derivatives can increase losses and reduce opportunities for gains when increases a fund’s losses when the value of its investments (including market prices, interest rates, currencies, or the derivatives themselves derivatives) declines. Because many derivatives have a leverage behave in a way not anticipated by the Fund, especially in abnormal component (i.e., a notional value in excess of the assets needed to market conditions. Using derivatives also can have a leveraging effect establish or maintain the derivative position), adverse changes in the which may increase investment losses and increase the fund’s volatility, value or level of the underlying asset, rate, or index may result in which is the degree to which the fund’s share price may fluctuate within a loss substantially greater than the amount invested in the derivative a short time period. Certain derivatives have the potential for unlimited itself. In the case of swaps, the risk of loss generally is related to loss, regardless of the size of the initial investment. The other parties to a notional principal amount, even if the parties have not made any initial certain derivatives transactions present the same types of credit risk as investment. Some derivatives, similar to short sales, have the potential issuers of fixed income securities. for unlimited loss, regardless of the size of the initial investment. The Fund’s counterparty to a derivative transaction may not honor The Fund may manage some of its derivative positions by offsetting its obligations in respect to the transaction. In certain cases, the Fund derivative positions against one another or against other assets. To the may be hindered or delayed in exercising remedies against or closing extent offsetting positions do not behave in relation to one another as out derivative instruments with a counterparty, which may result in expected, the Fund may perform as if it were leveraged. The Fund may additional losses. purchase securities on margin or to sell securities short, either of which Derivatives also tend to involve greater illiquidity risk and they may creates leverage. To the extent the market prices of securities pledged be difficult to value. The Fund may be unable to terminate or sell its to counterparties to secure the Fund’s margin account or short sale derivative positions. In fact, many over-the-counter derivatives will decline, the Fund may be required to deposit additional funds with not have liquidity except through the counterparty to the instrument. the counterparty to avoid having the pledged securities liquidated to Derivatives are generally subject to the risks applicable to the assets, compensate for the decline. rates, indices or other indicators underlying the derivative. The value Valuation Risk. Many factors may influence the price at which the of a derivative may fluctuate more than the underlying assets, rates, Fund could sell any particular portfolio investment. The sales price indices or other indicators to which it relates. Use of derivatives or similar may well differ—higher or lower—from the Fund’s last valuation, and instruments may have different tax consequences for the fund than such differences could be significant, particularly for illiquid securities an investment in the underlying asset or index, and those differences and securities that trade in relatively thin markets and/or markets that may affect the amount, timing and character of income distributed to experience extreme volatility. If market conditions make it difficult to franklintempleton.com Western Asset Diversified Income Fund 8 value some investments, the Fund may value these investments using U.S. dollar or other foreign currencies. Currency exchange rates can more subjective methods, such as fair value methodologies. The value be volatile, and are affected by factors such as general economic of non-U.S. securities, certain fixed income securities and currencies, conditions, the actions of the U.S. and foreign governments or central as applicable, may be materially affected by events after the close of the banks, the imposition of currency controls and speculation. In certain markets in which they are traded, but before the Fund determines its foreign markets, settlement and clearance of trades may experience net asset value. The Fund’s ability to value its investments may also be delays in payment for or delivery of securities not typically associated impacted by technological issues and/or errors by pricing services or other with settlement and clearance of U.S. investments. Settlement of trades third party service providers. The valuation of the Fund’s investments in these markets can take longer than in other markets and the Fund involves subjective judgment. may not receive its proceeds from the sale of certain securities for an Illiquidity Risk. Illiquidity risk exists when particular investments are extended period (possibly several weeks or even longer) due to, among impossible or difficult to sell and some assets that the Fund wants to other factors, low trading volumes and volatile prices. The custody or invest in may be impossible or difficult to purchase. Markets may become holding of securities, cash and other assets by local banks, agents and illiquid when, for instance, there are few, if any, interested buyers or depositories in securities markets outside the United States may entail sellers or when dealers are unwilling or unable to make a market for additional risks. Governments or trade groups may compel local agents certain securities. As a general matter, dealers recently have been less to hold securities in designated depositories that may not be subject willing to make markets for fixed income securities. Recent federal to independent evaluation. Local agents are held only to the standards banking regulations may also cause certain dealers to reduce their of care of their local markets, and thus may be subject to limited or inventories of certain securities, which may further decrease the ability no government oversight. In extreme cases, the fund’s securities may to buy or sell such securities. When the Fund holds illiquid investments, be misappropriated or the fund may be unable to sell its securities. In the portfolio may be harder to value, especially in changing markets, general, the less developed a country’s securities market is, the greater and if the Fund is forced to sell these investments for cash needs, the the likelihood of custody problems. Fund may suffer a loss. The liquidity of certain assets, particularly of The risks of foreign investments are heightened when investing in issuers privately-issued and non-investment-grade mortgage-backed securities in emerging market countries. Emerging market countries tend to have and asset-backed securities, may be difficult to ascertain and may economic, political and legal systems that are less developed and are less change over time. Transactions in less liquid or illiquid securities may stable than those of more developed countries. They are often particularly entail transaction costs that are higher than those for transactions in sensitive to market movements because their market prices tend to liquid securities. Further, such securities, once sold, may not settle for reflect speculative expectations. Low trading volumes may result in an extended period (for example, several weeks or even longer). The Fund a lack of liquidity and in extreme price volatility. Investors should be will not receive its sales proceeds until that time, which may constrain able to tolerate sudden, sometimes substantial, fluctuations in the value the Fund’s ability to meet its obligations. of investments in emerging markets. Emerging market countries may Foreign Investment and Emerging Markets Risk. The Fund’s investments have policies that restrict investment by foreigners or that prevent foreign in securities of foreign issuers or issuers with significant exposure to investors from withdrawing their money at will. foreign markets involve additional risk as compared to investment in Mortgage-Backed and Asset-Backed Securities Risk. Mortgage-backed U.S. securities or issuers with predominantly domestic exposure, such securities are particularly susceptible to prepayment and extension risks, as less liquid, less regulated, less transparent and more volatile markets. because prepayments on the underlying mortgages tend to increase when The markets for some foreign securities are relatively new, and the rules interest rates fall and decrease when interest rates rise. Prepayments and policies relating to these markets are not fully developed and may may also occur on a scheduled basis or due to foreclosure. When market change. The value of the Fund’s investments may decline because of interest rates increase, mortgage refinancings and prepayments slow, factors affecting the particular issuer as well as foreign markets and which lengthens the effective duration of these securities. As a result, issuers generally, such as unfavorable or unsuccessful government the negative effect of the interest rate increase on the market value actions, tariffs and tax disputes, reduction of government or central of mortgage-backed securities is usually more pronounced than it is bank support, inadequate accounting standards, lack of information and for other types of fixed income securities, potentially increasing the political, economic, financial or social instability. Foreign investments volatility of the fund. Conversely, when market interest rates decline, may also be adversely affected by U.S. government or international while the value of mortgage-backed securities may increase, the rates of economic sanctions, which could eliminate the value of an investment. prepayment of the underlying mortgages tend to increase, which shortens To the extent the Fund focuses its investments in a single country or only the effective duration of these securities. Mortgage-backed securities are a few countries in a particular geographic region, economic, political, also subject to the risk that underlying borrowers will be unable to meet regulatory or other conditions affecting such country or region may have their obligations. At times, some of the mortgage-backed securities in a greater impact on Fund performance relative to a more geographically which the Fund may invest will have higher than market interest rates diversified fund. and therefore will be purchased at a premium above their . The value of the Fund’s foreign investments may also be affected by Prepayments may cause losses on securities purchased at a premium. foreign tax laws, special U.S. tax considerations and restrictions on The value of mortgage-backed securities may be affected by changes in receiving the investment proceeds from a foreign country. Dividends or credit quality or value of the mortgage loans or other assets that support interest on, or proceeds from the sale or disposition of, foreign securities the securities. In addition, for mortgage-backed securities, when market may be subject to non-U.S. withholding or other taxes. It may be difficult conditions result in an increase in the default rates on the underlying for the Fund to pursue claims against a foreign issuer or other parties mortgages and the foreclosure values of the underlying real estate are in the courts of a foreign country. Some securities issued by non-U.S. below the outstanding amount of the underlying mortgages, collection of governments or their subdivisions, agencies and instrumentalities may the full amount of accrued interest and principal on these investments not be backed by the full faith and credit of such governments. Even may be doubtful. For mortgage derivatives and structured securities that where a security is backed by the full faith and credit of a government, it have embedded leverage features, small changes in interest or prepayment may be difficult for the fund to pursue its rights against the government. rates may cause large and sudden price movements. Mortgage derivatives In the past, some non-U.S. governments have defaulted on principal and can also become illiquid and hard to value in declining markets. Asset- interest payments. In certain foreign markets, settlement and clearance backed securities are structured like mortgage-backed securities and are procedures may result in delays in payment for or delivery of securities not subject to many of the same risks. The ability of an issuer of asset-backed typically associated with settlement and clearance of U.S. investments. securities to enforce its security interest in the underlying assets or to otherwise recover from the underlying obligor may be limited. Certain If the Fund buys securities denominated in a foreign currency, receives asset-backed securities present a heightened level of risk because, in the income in foreign currencies, or holds foreign currencies from time to event of default, the liquidation value of the underlying assets may be time, the value of the Fund’s assets, as measured in U.S. dollars, can inadequate to pay any unpaid principal or interest. be affected unfavorably by changes in exchange rates relative to the

9 Western Asset Diversified Income Fund franklintempleton.com CLOs Risk. CLOs issue securities in tranches with different payment class of changes in the value of the assets, changes in the distributions characteristics and different credit ratings. The rated tranches of on the assets, defaults and recoveries on the assets, capital gains and securities issued by CLOs are generally assigned credit ratings by one losses on the assets, prepayment on assets and availability, price and or more nationally recognized statistical rating organizations. The interest rates of assets. Finally, CLO securities are limited recourse and subordinated (or residual) tranches do not receive ratings. Below- may not be paid in full and may be subject to up to 100% loss. investment-grade tranches of CLO securities typically experience a lower FIXED INCOME SECURITIES RISK: In addition to the risks described recovery, greater risk of loss or deferral or non-payment of interest than elsewhere in this section with respect to valuations and liquidity, fixed more senior tranches of the CLO. income securities, including high-yield securities, are also subject to The riskiest portion of the capital structure of a CLO is the subordinated certain risks, including: (or residual) , which bears the bulk of defaults from the loans Issuer Risk—the value of fixed income securities may decline for in the CLO and serves to protect the other, more senior tranches from a number of reasons that directly relate to the issuer, such as default in all but the most severe circumstances. Since it is partially management performance, financial leverage and reduced demand protected from defaults, a senior tranche from a CLO typically has for the issuer’s goods and services. higher ratings and lower yields than the underlying securities, and can be rated investment grade. Despite the protection from the subordinated Reinvestment Risk—reinvestment risk is the risk that income from the tranche, CLO tranches can experience substantial losses due to actual Fund’s portfolio will decline if and when the Fund invests the proceeds defaults, increased sensitivity to defaults due to collateral default and from matured, traded or called fixed income securities at market interest disappearance of protecting tranches, market anticipation of defaults and rates that are below the portfolio’s current earnings rate. A decline in aversion to CLO securities as a class. The risks of an investment in a CLO income could affect the Fund’s Common price or its overall return. depend largely on the collateral and the tranche of the CLO in which the Market Events Risk. The market values of securities or other assets Fund invests. will fluctuate, sometimes sharply and unpredictably, due to changes The CLOs in which the Fund invests may have issued and sold debt in general market conditions, overall economic trends or events, tranches that will rank senior to the tranches in which the Fund invests. governmental actions or intervention, actions taken by the U.S. Federal By their terms, such more senior tranches may entitle the holders to Reserve or foreign central banks, market disruptions caused by trade receive payment of interest or principal on or before the dates on which disputes or other factors, political developments, investor sentiment, the Fund is entitled to receive payments with respect to the tranches the global and domestic effects of a pandemic, and other factors that in which the Fund invests. Also, in the event of insolvency, liquidation, may or may not be related to the issuer of the security or other asset. dissolution, reorganization or bankruptcy of a CLO, holders of more senior Economies and financial markets throughout the world are increasingly tranches would typically be entitled to receive payment in full before the interconnected. Economic, financial or political events, trading and Fund receives any distribution. After repaying such senior creditors, such tariff arrangements, public health events, terrorism, natural disasters CLO may not have any remaining assets to use for repaying its obligation and other circumstances in one country or region could have profound to the Fund. In the case of tranches ranking equally with the tranches in impacts on global economies or markets. As a result, whether or not which the Fund invests, the Fund would have to share on an equal basis the Fund invests in securities of issuers located in or with significant any distributions with other creditors holding such securities in the event exposure to the countries directly affected, the value and liquidity of of an insolvency, liquidation, dissolution, reorganization or bankruptcy the Fund’s investments may be negatively affected. The rapid and of the relevant CLO. Therefore, the Fund may not receive back the full global spread of a highly contagious novel coronavirus respiratory amount of its investment in a CLO. disease, designated COVID-19, first detected in in December 2019, has resulted in extreme volatility in the financial markets and The transaction documents relating to the issuance of CLO securities may severe losses; reduced liquidity of many instruments; restrictions on impose eligibility criteria on the assets of the CLO, restrict the ability of international and, in some cases, local travel, significant disruptions to the CLO’s investment manager to trade investments and impose certain business operations(including business closures); strained healthcare portfolio-wide asset quality requirements. These criteria, restrictions systems; disruptions to supply chains, consumer demand and employee and requirements may limit the ability of the CLO’s investment manager availability; and widespread uncertainty regarding the duration and to maximize returns on the CLO securities. In addition, other parties long-term effects of this pandemic. Some sectors of the economy and involved in CLOs, such as third-party credit enhancers and investors in individual issuers have experienced particularly large losses. In addition, the rated tranches, may impose requirements that have an adverse effect the COVID-19 pandemic may result in a sustained economic downturn or on the returns of the various tranches of CLO securities. Furthermore, a global recession, domestic and foreign political and social instability, CLO securities issuance transaction documents generally contain damage to diplomatic and international trade relations and increased provisions that, in the event that certain tests are not met (generally volatility and/or decreased liquidity in the securities markets. The interest coverage and over-collateralization tests at varying levels in the ultimate economic fallout from the pandemic, and the long-term impact capital structure), proceeds that would otherwise be distributed to holders on economies, markets, industries and individual issuers, are not known. of a junior tranche must be diverted to pay down the senior tranches Certain risks, such as interest-rate risk, credit risk, liquidity risk and until such tests are satisfied. Failure (or increased likelihood of failure) counterparty risk, may be heightened as a result of such market events. of a CLO to make timely payments on a particular tranche will have an The U.S. government and the Federal Reserve, as well as certain foreign adverse effect on the liquidity and market value of such tranche. governments and central banks, are taking extraordinary actions to Payments to holders of CLO securities may be subject to deferral. If support local and global economies and the financial markets in response cash flows generated by the underlying assets are insufficient to make to the COVID-19 pandemic, including by pushing interest rates to very all current and, if applicable, deferred payments on CLO securities, no low levels. This and other government intervention into the economy and other assets will be available for payment of the deficiency and, following financial markets to address the COVID-19 pandemic may not work as realization of the underlying assets, the obligations of the borrower of the intended, particularly if the efforts are perceived by investors as being related CLO securities to pay such deficiency will be extinguished. unlikely to achieve the desired results. The COVID-19 pandemic could The market value of CLO securities may be affected by, among other adversely affect the value and liquidity of the fund’s investments and things, changes in the market value of the underlying assets held by negatively impact the fund’s performance. In addition, the outbreak of the CLO, changes in the distributions on the underlying assets, defaults COVID-19, and measures taken to mitigate its effects, could result in and recoveries on the underlying assets, capital gains and losses on the disruptions to the services provided to the fund by its service providers. underlying assets, prepayments on underlying assets and the availability, prices and interest rate of underlying assets. Furthermore, the leveraged nature of each subordinated class may magnify the adverse impact on such

franklintempleton.com Western Asset Diversified Income Fund 10 Contact your financial advisor to find out how Western Asset Diversified Income Fund may play a part in your overall investment portfolio, and for a final prospectus, when available.

WHAT SHOULD I KNOW BEFORE INVESTING? An investment in the Fund involves a high degree of risk. You could lose some or all of your investment. An investment in the Fund is not appropriate for all investors and is not intended to be a complete investment program. The Fund is designed as a long-term investment and is not a trading vehicle. The Fund’s investment policy of investing in a broad array of fixed-income securities, including securities of below-investment-grade quality, involves certain risks. For a summary of certain of these risks, please see pages 7–10 of this brochure and the “Risks” section of the preliminary prospectus. This brochure must be preceded or accompanied by a preliminary prospectus for the Fund. As the Fund is newly organized, its shares have no history of public trading. Closed-end funds frequently trade at a discount to their net asset value (NAV), which may increase investors’; risk of loss. The risk may be greater for investors expecting to sell their shares in a relatively short period after the completion of this initial public offering. Morgan Stanley, BofA Securities and Wells Fargo Securities are acting as lead underwriters in connection with this proposed offering. You should carefully read the preliminary prospectus, which accompanies this brochure, and consider the Fund’s investment objectives and policies, risks, fees and expenses carefully before investing. You may obtain these documents by visiting EDGAR on the SEC’s website at www.sec.gov. Alternatively, the Fund, or any underwriter or dealer participating in the offering, will arrange to send you the preliminary prospectus and, when available, the final prospectus, each free of charge, if you request by calling 1-888-777-0102. Capitalized terms not defined in this brochure have the meanings ascribed to them in the preliminary prospectus.

Legg Mason Investor Services, Inc. franklintempleton.com

© 2021 Legg Mason Investor Services, LLC, member FINRA, SIPC., Western Asset Management Company, LLC, Legg Mason Partners Fund Advisors, LLC and Legg Mason Investor Services LLC are subsidiaries of Franklin Resources, Inc. The lead underwriters (Morgan Stanley, BofA Securities, and Wells Fargo Securities, LLC) are not affi liated with Franklin Resources, Inc. © 2021 Franklin Templeton. All rights reserved. WADI B 03/21