CUSTODY AGREEMENT

     CUSTODY AGREEMENT (this Agreement), dated as of September [    ], 2006 by and between KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY, a company organized and existing under the laws of the State of Maryland as a non-diversified closed-end management investment company under the Investment Company Act of 1940, and which has elected to be treated as a business development company under said Act (the Company), and CUSTODIAL TRUST COMPANY, a bank organized and existing under the laws of the State of New Jersey (the Custodian).

     WHEREAS, the Company desires that the securities, funds and other assets of the Company be held and administered by Custodian pursuant to this Agreement;

     WHEREAS, Custodian represents that it is a bank having the qualifications prescribed in the 1940 Act (as hereinafter defined) to act as custodian for management investment companies registered under the 1940 Act;

     NOW, THEREFORE, in consideration of the mutual agreements herein made, the Company and Custodian hereby agree as follows:

ARTICLE I
DEFINITIONS

     Whenever used in this Agreement, the following terms, unless the context otherwise requires, shall mean:

     1.1 Authorized Person means any person authorized by resolution of the Board of Directors to give Oral Instructions and Written Instructions on behalf of the Company and identified, by name or by office, in Exhibit B hereto.

     1.2 Board of Directors means the Board of Directors of the Company or, when permitted under the 1940 Act, the Executive Committee thereof, if any.

     1.3 Book-Entry System means a book-entry system maintained by a Federal Reserve Bank for securities of the United States government or of agencies or instrumentalities thereof (including government-sponsored enterprises).

     1.4 Business Day means any day on which banks in the State of New Jersey and New York are open for business.

     1.5 Custody Account means the account in the name of the Company, which is provided for in Section 3.2 below.

     1.6 Domestic Securities Depository means The Depository Trust Company and any other clearing agency registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, which acts as a securities depository.

     1.7 Eligible Domestic Bank means a bank as defined in the 1940 Act.

     1.8 Eligible Foreign Custodian means any banking institution, trust company or other entity organized under the laws of a country other than the United States which is eligible under the 1940 Act to act as a custodian for securities and other assets of the Company held outside the United States.

     1.9 Eligible Foreign Securities Depository means an Eligible Securities Depository as defined in Rule 17f-7 under the 1940 Act.

     1.10 Foreign Assets has the same meaning as in Rule 17f-5 under the 1940 Act.

     1.11 Foreign Custody Manager has the same meaning as in Rule 17f-5 under the 1940 Act.

     1.12 Master Repurchase Agreement means the Master Repurchase Agreement of even date herewith between the Company and Bear, Stearns & Co. Inc. (Bear Stearns) as it may from time to time be amended.

     1.13 1940 Act means the Investment Company Act of 1940, as amended, and the rules and regulations thereunder.

     1.14 Oral Instructions means instructions orally transmitted to and accepted by Custodian which are (a) reasonably believed by Custodian to have been given by an Authorized Person, (b) recorded and kept among the records of Custodian made in the ordinary course of business, and (c) completed in accordance with Custodians requirements from time to time as to content of instructions and their manner and timeliness of delivery by the Company.

     1.15 Proper Instructions means Oral Instructions or Written Instructions. Proper Instructions may be continuing Written Instructions when deemed appropriate by the Company and Custodian.

     1.17 Securities Depository means any Domestic Securities Depository or Eligible Foreign Securities Depository.

     1.18 Shares means those shares in a series or class of the capital stock of the Company that represent interests in the Company.

     1.19 Written Instructions means written communications received by Custodian that are (a) reasonably believed by Custodian to have been signed or sent by an Authorized Person, (b) sent or transmitted by letter, facsimile, central processing unit connection, on-line terminal or magnetic tape, and (c) completed in accordance with Custodians requirements from time to time as to content of instructions and their manner and timeliness of delivery by the Company.

ARTICLE II
APPOINTMENT OF CUSTODIAN

     2.1 Appointment. The Company hereby appoints Custodian as custodian of all such securities, funds and other assets of the Company as may be acceptable to Custodian and from time to time delivered to it by the Company or others for the account of the Company.

     2.2 Acceptance. Custodian hereby accepts appointment as such custodian and agrees to perform the duties thereof as hereinafter set forth.

ARTICLE III
CUSTODY OF SECURITIES, FUNDS AND OTHER ASSETS

     3.1 Segregation. All securities and non-cash property of the Company in the possession of Custodian (other than securities maintained by Custodian with a sub-custodian appointed pursuant to this Agreement or in a Securities Depository or Book-Entry System) shall be physically segregated from other such securities and non-cash property in the possession of Custodian. All cash, securities and other non-cash property of the Company shall be identified as belonging to the Company and subject to this Agreement.

     3.2 Custody Account. (a) Custodian shall open and maintain in its trust department a custody account in the name of the Company, subject only to draft or order of Custodian, in which Custodian shall record and carry all securities, funds and other assets of the Company which are delivered to Custodian and accepted by it.

     (b) If Custodian at any time fails to receive any of the documents referred to in Section 3.10(a) below, then, until such time as it receives such document, it shall not be obligated to receive any securities of the Company into the Custody Account and shall be entitled to return to the Company any securities that it is holding in the Custody Account.

     3.3 Securities in Physical Form. Custodian may, but shall not be obligated to, hold securities in physical form, that are not private investment in public equity securities (PIPES).

     3.4 Disclosure to Issuers of Securities. Custodian is authorized to disclose the Companys name and address, and the securities positions in the Custody Account, to the issuers of such securities when requested by them to do so.

     3.5 Employment of Domestic Sub-Custodians. At any time and from time to time, Custodian in its discretion may appoint and employ, and may also cease to employ, any Eligible Domestic Bank as sub-custodian to hold securities and other assets of the Company that are maintained in the United States and to carry out such other provisions of this Agreement as it may determine, provided, however, that the employment of any such sub-custodian has been approved by the Company. The employment of any such sub-custodian shall be at Custodians expense and shall not relieve Custodian of any of its obligations or liabilities under this Agreement.

     3.6 Employment of Foreign Sub-Custodians. (a) Unless otherwise instructed in Written Instructions, Custodian is authorized to hold any Foreign Asset of the Company in any country in which all or a portion of the primary market for such Foreign Asset is situated.

     (b) At any time and from time to time, Custodian in its discretion may appoint and employ in accordance with the 1940 Act, and may also cease to employ, (i) any overseas branch of any Eligible Domestic Bank, or (ii) any Eligible Foreign Custodian selected by the Foreign Custody Manager, in each case as a foreign sub-custodian for Foreign Assets of the Company, provided, however, that the employment of any such overseas branch has been approved by the Company and, provided further, that, in the case of any such Eligible Foreign Custodian, the Foreign Custody Manager has approved the agreement pursuant to which Custodian employs such Eligible Foreign Custodian.

     (c) Set forth on Exhibit D hereto are the foreign sub-custodians that Custodian may employ pursuant to Section 3.6(b) above. Exhibit D shall be revised from time to time as foreign sub-custodians are added or deleted.