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<SEC-DOCUMENT>0000891092-04-001953.txt : 20040427
<SEC-HEADER>0000891092-04-001953.hdr.sgml : 20040427
<ACCEPTANCE-DATETIME>20040427153406
ACCESSION NUMBER:		0000891092-04-001953
CONFORMED SUBMISSION TYPE:	N-2/A
PUBLIC DOCUMENT COUNT:		5
FILED AS OF DATE:		20040427

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			CAPITAL & INCOME STRATEGIES FUND INC
		CENTRAL INDEX KEY:			0001278895

	FILING VALUES:
		FORM TYPE:		N-2/A
		SEC ACT:		1940 Act
		SEC FILE NUMBER:	811-21506
		FILM NUMBER:		04756955

	BUSINESS ADDRESS:	
		STREET 1:		800 SCUDDERS MILL ROAD
		CITY:			PLAINSBORO
		STATE:			NJ
		ZIP:			08536
		BUSINESS PHONE:		6092822800

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			CAPITAL & INCOME STRATEGIES FUND INC
		CENTRAL INDEX KEY:			0001278895

	FILING VALUES:
		FORM TYPE:		N-2/A
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-112634
		FILM NUMBER:		04756956

	BUSINESS ADDRESS:	
		STREET 1:		800 SCUDDERS MILL ROAD
		CITY:			PLAINSBORO
		STATE:			NJ
		ZIP:			08536
		BUSINESS PHONE:		6092822800
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-2/A
<SEQUENCE>1
<FILENAME>e17503n2a.htm
<DESCRIPTION>FORM N-2/A
<TEXT>
<html>
<head>
<title> N-2/A</title>
</head>
<body>




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<p><table width=600><tr>
    <td  align=center><font size=2><B>&lt;R&gt;As filed with the Securities and
      Exchange Commission on April 27, 2004&lt;/R&gt;</B></font></td>
  </tr></table>

<table width=600><tr>
    <td align=right><font size=2><B>Securities Act File No. 333-112634 <BR>
      Investment Company Act File No. 811-21506</B></font></td></tr></table>

<TABLE WIDTH=600><TR><TD>
<HR ALIGN=LEFT WIDTH=100% SIZE=4 noshade>
<HR ALIGN=LEFT WIDTH=100% SIZE=1 noshade>
</TD></TR></TABLE>

<table width=600><tr><td  align=center><font size=4><B>SECURITIES AND EXCHANGE
COMMISSION</B></font></td></tr></table>

<table width=600><tr><td  align=center><font size=3><B>WASHINGTON, D.C. 20549</B></font></td></tr></table>

<table width=600><tr><td><hr size=1 noshade align=CENTER width=150></td></tr></table>

<table width=600>
  <tr>
    <td  align=center>&nbsp;&nbsp;&nbsp;&nbsp;</td>
    <td  align=center><font size=5><b>FORM N-2</b></font></td>
    <td  align=center><font size=5>&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
  </tr>
  <tr>
    <td  align=center>&nbsp;</td>
    <td  align=center><font size=3><b>REGISTRATION STATEMENT UNDER THE SECURITIES
      ACT OF 1933 </b></font></td>
    <td  align=center><font size="2">|X|</font></td>
  </tr>
  <tr>
    <td  align=center>&nbsp;</td>
    <td  align=center><font size=2><b>&lt;R&gt;Pre-Effective Amendment No. 2&lt;/R&gt;<br>
      Post-Effective Amendment No. <br>
      and/or</b></font></td>
    <td  align=center><font size="2">|X|<br>
      &nbsp;|_| </font></td>
  </tr>
  <tr>
    <td  align=center>&nbsp;</td>
    <td  align=center><font size=3><b>REGISTRATION STATEMENT UNDER THE <br>
      INVESTMENT COMPANY ACT OF 1940</b></font></td>
    <td  align=center><font size="2"><br>
      |X| </font></td>
  </tr>
  <tr>
    <td  align=center>&nbsp;</td>
    <td  align=center><font size=2><b>&lt;R&gt;Amendment No. 2&lt;/R&gt;</b></font></td>
    <td  align=center><font size="2">|X|</font></td>
  </tr>
</table>

<table width=600><tr><td><hr size=1 noshade align=CENTER width=150></td></tr></table>

<table width=600><tr>
    <td  align=center><font size=5><b>Capital and Income Strategies Fund, Inc.</b></font></td>
  </tr></table>

               <table width=600>
  <tr>
    <td align=center><font size=1><b>(Exact Name of Registrant as Specified in
      Charter) </b></font></td>
  </tr>
</table>
<p>
<p><table width=600><tr><td  align=center><font size=2><B>800 Scudders Mill Road<BR>
Plainsboro, New Jersey 08536</B></font></td></tr></table>

<table width=600><tr><td align=center><font size=1><B>(Address of Principal Executive
Offices)</B></font></td></tr></table>

<p><table width=600><tr><td  align=center><font size=2><B>(Registrant&#146;s Telephone Number,
including Area Code): (609) 282-2800</B></font></td></tr></table>

<table width=600><tr><td><hr size=1 noshade align=CENTER width=150></td></tr></table>

<table width=600><tr><td  align=center><font size=2><B>Terry K. Glenn  <BR>Capital and
Income Strategies Fund, Inc.  <BR>800 Scudders Mill Road, Plainsboro, New Jersey 08536
<BR>Mailing Address: P.O. Box 9011, Princeton, New Jersey 08543-9011</B></font></td></tr></table>

<table width=600><tr><td align=center><font size=1><B>(Name and Address of Agent for
Service)</B></font></td></tr></table>

<table width=600><tr><td><hr size=1 noshade align=CENTER width=150></td></tr></table>

<table width=600>
  <tr align="center" valign="top">
    <td width=193><font size="1"><b>Frank P. Bruno, Esq. <br>
      SIDLEY AUSTIN BROWN &amp; WOOD LLP <br>
      787 Seventh Avenue <br>
      New York, New York 10019-6018 </b></font></td>
    <td width=12>&nbsp;&nbsp;&nbsp;</td>
    <td width=182><font size="1"><b>Andrew J. Donohue, Esq.<br>
      FUND ASSET MANAGEMENT, L.P.<br>
      P.O. Box 9011<br>
      Princeton, New Jersey 08543-9011 </b></font></td>
    <td width=18>&nbsp;</td>
    <td width=171><font size="1"><b>Leonard B. Mackey, Jr., Esq. <br>
      CLIFFORD CHANCE US LLP <br>
      200 Park Avenue <br>
      New York, New York 10166 </b></font></td>
  </tr>
</table>

<table width=600><tr><td><hr size=1 noshade align=CENTER width=150></td></tr></table>


<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Approximate date of proposed
      public offering:</b> As soon as practicable after the effective date of
      this Registration Statement.</font></td>
  </tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If any securities being registered
      on this form are to be offered on a delayed or continuous basis in reliance
      on Rule 415 under the Securities Act of 1933, as amended (the &#147;Securities
      Act&#148;), other than securities offered in connection with dividend or
      interest reinvestment plans, check the following box.&nbsp;&nbsp;&nbsp;&nbsp;|_|</font></td>
  </tr></table>

<p><table width=600><tr>
    <td  align=center><font size=2><B>CALCULATION OF REGISTRATION FEE
      UNDER THE SECURITIES ACT</B></font></td>
  </tr></table>

<font size="2">&lt;R&gt; </font>
<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
  <TR VALIGN="BOTTOM">
    <TH COLSPAN="10">
      <hr noshade size="1">
    </TH>
  </TR>
  <TR VALIGN="BOTTOM">
    <TH COLSPAN="2"><font size="1">Title of<BR>
      Securities Being Registered</font></TH>
    <TH COLSPAN="2"><font size="1">Amount<BR>
      Being<BR>
      Registered(1)(2)</font></TH>
    <TH COLSPAN="2"><font size="1">Proposed<BR>
      Maximum<BR>
      Offering Price<BR>
      Per Unit(1)</font></TH>
    <TH COLSPAN="2"><font size="1">Proposed<BR>
      Maximum<BR>
      Aggregate<BR>
      Offering Price(1)</font></TH>
    <TH COLSPAN="2"><font size="1">Amount of<BR>
      Registration<BR>
      Fee(3)</font></TH>
  </TR>
  <TR VALIGN="BOTTOM">
    <TD ALIGN="LEFT" colspan="10">
      <hr noshade size="1">
    </TD>
  </TR>
  <TR VALIGN="BOTTOM">
    <TD ALIGN="LEFT"><font size="1">Common Stock ($.10 par value)</font></TD>
    <TD ALIGN="LEFT"><font size="1"></font></TD>
    <TD ALIGN="CENTER" colspan="2"><font size="1"> 15,000,000 shares</font><font size="1"></font></TD>
    <TD ALIGN="center" colspan="2"><font size="1">$20.00</font></TD>
    <TD ALIGN="center"><font size="1">$300,000,000</font></TD>
    <TD ALIGN="LEFT"><font size="1"></font></TD>
    <TD ALIGN="center" colspan="2"><font size="1">$38,100</font></TD>
  </TR>
  <TR VALIGN="BOTTOM">
    <TD ALIGN="LEFT" colspan="10">
      <hr noshade size="1">
    </TD>
  </TR>
</TABLE>
<table width=600><tr><td width=4% valign=top><font size="1">(1) </font></td><td width=2%><font size="1"></font></td>
    <td width=94%><font size="1"> Estimated solely for the purpose of calculating
      the registration fee. </font></td>
  </tr></table>

<table width=600><tr><td width=4% valign=top><font size="1">(2) </font></td><td width=2%><font size="1"></font></td>
    <td width=94%><font size="1"> Includes 1,956,521 shares subject to the underwriters&#146;
      overallotment option.</font></td>
  </tr></table>

<table width=600><tr><td width=4% valign=top><font size="1">(3) </font></td><td width=2%><font size="1"></font></td>
    <td width=94%><font size="1">Transmitted prior to the filing date to the designated
      lockbox of the Securities and Exchange Commission at Mellon Bank in Pittsburgh,
      PA. $14,571 was previously paid, $23,529 was transmitted in connection with
      this filing.&lt;/R&gt;</font></td>
  </tr></table>


<table width=600>
  <tr>
    <td>
      <hr align=LEFT width=100% size=1 noshade>
    </td>
  </tr>
</table>
<table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>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 or until the Registration
Statement shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.</B></FONT></td></tr></table>

<TABLE WIDTH=600><TR><TD>
<HR ALIGN=LEFT WIDTH=100% SIZE=1 noshade>
<HR ALIGN=LEFT WIDTH=100% SIZE=4 noshade>
</TD></TR></TABLE>

<p>&nbsp;
<p>&nbsp;<hr size=5 noshade width=600 align=LEFT>


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<p><table width=600><tr><td><font size=2>The information in this prospectus is not
complete and  may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an  offer to
buy these securities in any state where the offer or sale is not  permitted.</font></td></tr></table>

<p><table width=600><tr>
    <td  align=center><font size=2><B>Subject to Completion<BR>
      </B>&lt;R&gt;<B>Preliminary Prospectus dated April 27, 2004</B>&lt;/R&gt;</font></td>
  </tr></table>

<p><table width=600><tr>
    <td><font size=2><B><u>PROSPECTUS</u></B></font></td>
  </tr></table>

<p><table width=600><tr>
    <td  align=center><font size=3><B><font size="4">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares</font></B></font></td>
  </tr></table>

<p><table width=600><tr><td  align=center><FONT SIZE="5"><B>Capital and Income Strategies
Fund, Inc.</B></FONT></td></tr></table>

<p><table width=600><tr><td  align=center><font size=3><B>Common Stock</B></font></td></tr></table>


<table width=600><tr><td><hr size=1 noshade align=CENTER width=150></td></tr></table>

<table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capital and Income
Strategies Fund, Inc. is a newly organized, diversified, closed-end fund. The Fund&#146;s
investment objective is  to provide current income and capital appreciation. No assurance
can be given that the Fund&#146;s investment objective will be achieved.</font></td></tr></table>

<table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund seeks to
achieve its investment objective by investing in a  portfolio of equity and debt
securities of U.S. and foreign issuers. The Fund&#146;s  investment adviser from time to
time may vary the Fund&#146;s asset allocation based  on such factors as market and
economic conditions, fiscal and monetary policy  and the relative security valuation and
yield of the various debt and equity  asset classes. To enable the Fund to take advantage
of this flexible investment  approach, the Fund may invest without limitation in any type
of equity or debt  security, including preferred securities or debt securities that are
rated below  investment grade or, if unrated, are considered by the Fund&#146;s
investment adviser  to be of comparable quality. Securities of below investment grade
quality  (sometimes referred to as &#147;junk bonds&#148;) are regarded as having
predominantly  speculative characteristics with respect to capacity to pay interest and
dividend income and repay principal.</font></td></tr></table>

<table width=600><tr>
    <td align=right><font size=2><i>(continued on following page) </i></font></td>
  </tr></table>

<table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Investing in the
Fund&#146;s common stock may be speculative and involves a high degree of risk and
should not constitute a complete investment program. Risks are described in the &#147;Risk
Factors and Special Considerations&#148; section beginning on page 12 of this prospectus.</B></FONT></td></tr></table>


<table width=600>
  <tr>
    <td>
      <hr size=1 noshade align=CENTER width=150>
    </td>
  </tr>
</table>
<table cellspacing=0 cellpadding=0 border=0 width="600">
  <tr valign="bottom">

    <td>&nbsp; </td>

    <td align="center"> <b><font size="1">Per Share</font></b>
      <hr noshade size="1">
      </td>

    <td align="center">&nbsp;</td>

    <td align="center"> <b><font size="1">Total(3)</font></b>
      <hr noshade size="1">
      </td>
    </tr>
    <tr valign="bottom">

    <td> <font size="2">Public offering price</font></td>

    <td align="center"> <font size="2">$20.00</font></td>

    <td align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>

    <td align="center"> <font size="2">$</font></td>
    </tr>
    <tr valign="bottom">

    <td> <font size="2">Underwriting discount (1)</font></td>

    <td align="center"> <font size="2">&nbsp;&nbsp;&nbsp; $.90</font></td>

    <td align="center">&nbsp;</td>

    <td align="center"> <font size="2">$</font></td>
    </tr>
    <tr valign="bottom">

    <td> <font size="2">Proceeds, before expenses, to the Fund (2)</font></td>

    <td align="center"> <font size="2">$19.10</font></td>

    <td align="center">&nbsp;</td>

    <td align="center"> <font size="2">$</font></td>
    </tr>
  </table>

<table width=600><tr><td width=4% valign=top><font size="1">(1) </font></td><td width=2%><font size="1"></font></td>
    <td width=94%><font size="1">The Fund has agreed to pay the underwriters $.00667
      per share of common stock as a partial reimbursement of expenses incurred
      in connection with the offering. See &#147;Underwriting.&#148;&lt;R&gt;</font></td>
  </tr></table>

<table width=600><tr><td width=4% valign=top><font size="1">(2) </font></td><td width=2%><font size="1"></font></td>
    <td width=94%><font size="1">The Fund&#146;s investment adviser has agreed
      to pay all organizational expenses of the Fund. The investment adviser also
      agreed to pay the amount by which the offering costs of the Fund (other
      than the underwriting discount, but including the $.00667 per share partial
      reimbursement of expenses to the underwriters) exceeds $.04 per share of
      common stock. The estimated offering expenses to be incurred by the Fund
      are $475,000.</font></td>
  </tr></table>

<table width=600><tr><td width=4% valign=top><font size="1">(3) </font></td><td width=2%><font size="1"></font></td>
    <td width=94%><font size="1">The underwriters also may purchase up to an additional&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      shares at the public offering price, less the underwriting discount, within
      45 days from the date of this prospectus to cover overallotments. If all
      such shares are purchased, the total public offering price will be $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
      the total underwriting discount will be $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      and the total proceeds, before expenses, to the Fund will be $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.&lt;/R&gt;</font></td>
  </tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither the
Securities and Exchange Commission nor any state securities  commission has approved or
disapproved of these securities or determined if this  prospectus is truthful or
complete. Any representation to the contrary is a  criminal offense.</font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The shares will be ready for
      delivery on or about&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      , 2004.</font></td>
  </tr></table>

<table width=600>
  <tr>
    <td>
      <hr size=1 noshade align=CENTER width=150>
    </td>
  </tr>
</table>
<table border=0 cellspacing=0 cellpadding=0 width="600">
  <tr valign="bottom">
    <td width=200>
      <p>&nbsp;</p>
      </td>

    <td width=183 align="center">
      <p><font size="3"><b><font face="Times New Roman">Merrill Lynch &amp;
          Co.</font></b></font></p>
      </td>

    <td width=217>
      <p>&nbsp;</p>
      </td>
    </tr>

  <tr valign="bottom">
    <td width=200>
      <p><font size="3"><b><font face="Times New Roman">Advest, Inc.</font></b></font></p>
      </td>

    <td width=183 align="center">
      <p><font size="3"><b><font face="Times New Roman">Robert W. Baird &amp;
          Co. </font></b></font></p>
      </td>

    <td width=217 align="right">
      <p><font size="3"><b><font face="Times New Roman">BNY Capital Markets,
          Inc.</font></b></font></p>
      </td>
    </tr>

  <tr valign="bottom">
    <td width=200>
      <p><font size="3"><b><font face="Times New Roman">Legg Mason Wood Walker
          </font></b></font></p>
      </td>

    <td width=183>
      <p>&nbsp;</p>
      </td>

    <td width=217 align="right">
      <p><font size="3"><b><font face="Times New Roman">McDonald Investments
          Inc.</font></b></font></p>
      </td>
    </tr>

  <tr valign="bottom">
    <td width=200 align="center">
      <p><b><font face="Times New Roman" size="1">Incorporated</font></b></p>
      </td>

    <td width=183>
      <p>&nbsp;</p>
      </td>

    <td width=217 align="right">
      <p>&nbsp;</p>
      </td>
    </tr>

  <tr valign="bottom">
    <td width=200>
      <p><font size="3"><b><font face="Times New Roman">Oppenheimer </font></b></font></p>
      </td>

    <td width=183>
      <p>&nbsp;</p>
      </td>

    <td width=217 align="right">
      <p><font size="3"><b><font face="Times New Roman">SunTrust Robinson Humphrey</font></b></font></p>
      </td>
    </tr>
  </table>
<table width=600><tr><td><hr size=1 noshade align=CENTER width=150></td></tr></table>

<table width=600><tr>
    <td  align=center><font size=2>The date of this prospectus is&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      , 2004.</font></td>
  </tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;






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<!-- MARKER PAGE="sheet: 1; page: 1" -->



<p><table width=600><tr><td><font size=2><I>(continued from previous page)</I></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After the initial
investment period of approximately three months  following the completion of this
offering, and subject to market and economic  conditions existing at that time, it is
currently expected that initially  approximately 55% of the Fund&#146;s total assets will
be invested in common stocks,  approximately 30% of the Fund&#146;s total assets will be
invested in preferred  securities and approximately 15% of the Fund&#146;s total assets
will be invested in  debt securities.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund may
leverage its portfolio through borrowings, the issuance of  debt securities, the issuance
of preferred stock or a combination thereof. The  Fund currently intends to borrow money
in an initial amount of approximately 31%  of the Fund&#146;s total capital (including
amounts obtained from the leverage), or  approximately 45% of the Fund&#146;s common
stock equity. Following the investment of  the net proceeds of this common stock
offering, the Fund may, depending on  market and economic conditions and the relative
costs and benefits associated  with borrowings and other types of leverage, choose to
leverage its portfolio  through the issuance of preferred stock rather than through
borrowings or the  Fund may choose to leverage through a combination of borrowings and
preferred  stock. No assurance can be given that the Fund will leverage its portfolio or
that any leveraging strategy will be successful during any period in which it is  used.</font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;Because the Fund is
      newly organized, its shares of common stock have no history of public trading.
      Shares of common stock of closed-end investment companies frequently trade
      at a price lower than their net asset value. This is commonly referred to
      as &#147;trading at a discount.&#148; The risk may be greater for investors
      expecting to sell their shares in a relatively short period after completion
      of the public offering. The Fund&#146;s shares of common stock have been
      approved for listing on the New York Stock Exchange under the symbol &#147;CII,&#148;
      subject to official notice of issuance.&lt;/R&gt;</font></td>
  </tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This prospectus
contains information you should know before investing,  including information about
risks. Please read it before you invest and keep it  for future reference.</font></td></tr></table>

<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
2</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td  align=center><font size=2><B>TABLE OF CONTENTS</B></font></td></tr></table>

<P>
<table cellspacing=0 cellpadding=0 border=0 width="600">
  <tr valign="bottom">
    <td width=574><font size=2>&lt;R&gt;</font></td>
    <td align="center" width=26>&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td width=574>&nbsp; </td>
    <td align="center" width=26> <font size="1"><b>Page</b></font>
      <hr noshade size="1">
    </td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Prospectus Summary</font></td>
    <td align="right" width=26> <font size="2">5</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Risk Factors and Special Considerations</font></td>
    <td align="right" width=26> <font size="2">12</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Fee Table</font></td>
    <td align="right" width=26> <font size="2">23</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">The Fund</font></td>
    <td align="right" width=26> <font size="2">25</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Use of Proceeds</font></td>
    <td align="right" width=26> <font size="2">25</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Investment Objective and Policies</font></td>
    <td align="right" width=26> <font size="2">26</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Other Investment Policies</font></td>
    <td align="right" width=26> <font size="2">36</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Risks and Special Considerations of Leverage</font></td>
    <td align="right" width=26> <font size="2">50</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Investment Restrictions</font></td>
    <td align="right" width=26> <font size="2">53</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Directors and Officers</font></td>
    <td align="right" width=26> <font size="2">55</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Investment Advisory and Management Arrangements</font></td>
    <td align="right" width=26> <font size="2">60</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Portfolio Transactions</font></td>
    <td align="right" width=26> <font size="2">66</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Dividends and Distributions</font></td>
    <td align="right" width=26> <font size="2">68</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Taxes</font></td>
    <td align="right" width=26> <font size="2">70</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Automatic Dividend Reinvestment Plan</font></td>
    <td align="right" width=26> <font size="2">74</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Mutual Fund Investment Option</font></td>
    <td align="right" width=26> <font size="2">76</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Net Asset Value</font></td>
    <td align="right" width=26> <font size="2">76</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Description of Capital Stock</font></td>
    <td align="right" width=26> <font size="2">77</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Custodian</font></td>
    <td align="right" width=26> <font size="2">80</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Underwriting</font></td>
    <td align="right" width=26> <font size="2">81</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Transfer Agent, Dividend Disbursing Agent and
      Registrar</font></td>
    <td align="right" width=26> <font size="2">83</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Accounting Services Provider</font></td>
    <td align="right" width=26> <font size="2">83</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Legal Opinions</font></td>
    <td align="right" width=26> <font size="2">83</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Independent Auditors and Experts</font></td>
    <td align="right" width=26> <font size="2">83</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Additional Information</font></td>
    <td align="right" width=26> <font size="2">84</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Independent Auditors&#146; Report</font></td>
    <td align="right" width=26> <font size="2">85</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Statement of Assets and Liabilities</font></td>
    <td align="right" width=26> <font size="2">86</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Notes to Statement of Assets and Liabilities</font></td>
    <td align="right" width=26> <font size="2">86</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574> <font size="2">Appendix A &#151; Ratings of Securities</font></td>
    <td align="right" width=26> <font size="2">A-1</font></td>
  </tr>
  <tr valign="bottom">
    <td width=574><font size=2>&lt;/R&gt;</font></td>
    <td align="right" width=26>&nbsp;</td>
  </tr>
</table>

<table width=600><tr><td><hr size=1 noshade align=CENTER width=150></td></tr></table>


<table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Information about
the Fund can be reviewed and copied at the SEC&#146;s Public Reference Room in
Washington, D.C. Call 1-202-942-8090 for information on the operation of the public
reference room. This information is also available on the SEC&#146;s Internet site at
http://www.sec.gov and copies may be obtained upon payment of a duplicating fee by
writing the Public Reference Section of the SEC, Washington, D.C. 20549-0102.</B></FONT></td></tr></table>

<table width=600><tr><td><hr size=1 noshade align=CENTER width=150></td></tr></table>

<table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You should rely
only on the information contained in this prospectus. We  have not, and the underwriters
have not, authorized any other person to provide  you with different information. If
anyone provides you with different or  inconsistent information, you should not rely on
it. We are not, and the  underwriters are not, making an offer to sell these securities
in any  jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on  the
front cover of this prospectus. Our business, financial condition, results  of operations
and prospects may have changed since that date.</font></td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
3</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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blank)</font></td></tr></table>



<p>&nbsp;
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4</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT>
<p>&nbsp;

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<P><table border=0 cellspacing=0 cellpadding=0 width="600">
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
</table>
<table width=600><tr><td  align=center><font size=2><B>PROSPECTUS SUMMARY</B></font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>This summary is
qualified in its entirety by reference to the detailed information included in this
prospectus.</I></FONT></td></tr></table>

<P>
<table border=0 cellspacing=0 cellpadding=0 width="600">
  <tr>
    <td valign=top width=161> <b><font size="2">The Fund</font></b></td>
    <td valign=top width=439> <font size="2">Capital and Income Strategies Fund,
      Inc. is a newly organized, diversified, closed-end fund.</font></td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp;</td>
    <td valign=top width=439>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=161> <b><font size="2">The Offering</font></b></td>
    <td valign=top width=439> <font size="2">The Fund is offering &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      shares of common stock at an initial offering price of $20.00 per share
      through a group of underwriters led by Merrill Lynch, Pierce, Fenner &amp;
      Smith Incorporated. You must purchase at least 100 shares of common stock.
      The underwriters may purchase up to an additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      shares of common stock within 45 days from the date of this prospectus to
      cover overallotments, if any.</font></td>
  </tr>
  <tr>
    <td valign=top width=161> <b><font size="2">Investment Objective <BR>
      &nbsp;&nbsp;and Policies </font></b></td>
    <td valign=top width=439> <font size="2">The Fund&#146;s investment objective is
      to provide current income and capital appreciation. No assurance can be
      given that the Fund&#146;s investment objective will be achieved.</font></td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp; </td>
    <td valign=top width=439>&nbsp; </td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp; </td>
    <td valign=top width=439> <font size="2">The Fund seeks to achieve its investment
      objective by investing in a portfolio of equity securities and debt securities
      of U.S. and foreign issuers. Fund Asset Management, L.P., the Fund&#146;s investment
      adviser (the &#147;Investment Adviser&#148;), from time to time may vary the percentage
      of the Fund&#146;s assets invested in each asset category and in any particular
      type of equity or debt security based on such factors as market and economic
      conditions, fiscal and monetary policy and the relative security valuation
      and yield of the various debt and equity asset classes.&nbsp;For example,
      negative economic and market developments might cause the Investment Adviser
      to decrease exposure to common stocks and increase exposure to fixed income
      securities, while positive economic and market developments might cause
      the Investment Adviser to increase exposure to common stocks and decrease
      exposure to fixed income securities. To enable the Fund to take advantage
      of this flexible investment approach, the Fund may invest without limitation
      in any type of equity or debt security, including preferred securities or
      debt securities that are rated below investment grade or, if unrated, are
      considered by the Investment Adviser to be of comparable quality. There
      is a risk that the securities selected by the Investment Adviser will cause
      the Fund to underperform relevant market indices or other funds with a similar
      investment objective and investment strategies.</font></td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp;</td>
    <td valign=top width=439>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp; </td>
    <td valign=top width=439> <font size="2">After the initial investment period
      of approximately three months following the completion of this offering
      and subject to market and economic conditions existing at that time, it
      is currently expected that initially approximately 55% of the Fund&#146;s total
      assets will be invested in common stocks, approximately 30% of the Fund&#146;s
      total assets will be invested in preferred securities and approximately
      15% of the Fund&#146;s total assets will be invested in debt securities. As indicated
      above, the Investment Adviser may vary the Fund&#146;s asset allocation from
      time to time based on such factors as market and economic conditions, fiscal
      and monetary policy and the relative security valuation and yield of the
      various debt and equity asset classes.</font></td>
  </tr>
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
</table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
5</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT>
<p>&nbsp;

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<P>
<table border=0 cellspacing=0 cellpadding=0 width="600">
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp; </td>
    <td valign=top width=439> <font size="2">&lt;R&gt;To the extent the Fund invests
      in preferred securities and dividend paying common stocks, the Investment
      Adviser currently intends to emphasize those securities that: (i) are eligible
      to pay qualified dividend income and/or (ii) make payments that are eligible
      for the dividends received deduction allowed to corporate taxpayers (the
      &#147;Dividends Received Deduction&#148;). Recently enacted federal legislation
      reduced the individual federal income tax rate on long term capital gains
      and qualified dividend income to a maximum rate of 15%. Long term capital
      gains and qualified dividend income included in distributions of a regulated
      investment company (for which status the Fund intends to qualify) to its
      individual stockholders are generally passed through to such stockholders
      and taxed at the reduced rate. Corporations do not receive the benefit of
      the 15% maximum tax rate on long term capital gains and qualified dividend
      income but generally may claim a deduction in an amount equal to 70% of
      the dividends received on shares of the Fund&#146;s common stock that are
      designated by the Fund as qualifying for the Dividends Received Deduction.
      No assurance can be given as to what percentage of the dividends paid on
      the Fund&#146;s common stock will be eligible for: (i) the reduced federal
      income tax rate for qualified dividend income and long term capital gain
      for individuals or (ii) the Dividends Received Deduction for corporate stockholders
      of the Fund. In particular, the Fund&#146;s use of leverage through borrowings
      may limit the amount of dividends it can designate as qualifying for the
      Dividends Received Deduction in the hands of corporate stockholders. See
      &#147;Investment Objective and Policies&#148; and &#147;Taxes.&#148;&lt;/R&gt;</font></td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp;</td>
    <td valign=top width=439>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp; </td>
    <td valign=top width=439> <font size="2"><i>Common Stocks.</i>&nbsp;The Fund
      may invest without limitation in common stocks. In addition, there are no
      capitalization range limitations on the common stocks in which the Fund
      may invest. In selecting common stocks, the Investment Adviser emphasizes
      companies that it believes are undervalued. The Investment Adviser places
      particular emphasis on, among other things, companies with below average
      price/earnings ratios, below average price/book ratios, below average price/cash
      flow ratios or above average dividend yields. The Investment Adviser also
      may determine that a company is undervalued if its stock price is down because
      of temporary factors from which the Investment Adviser believes the company
      will recover. It is currently expected that the Investment Adviser will
      focus on companies with market capitalizations of over $5 billion. This
      market capitalization focus may shift in response to changing market conditions.</font></td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp;</td>
    <td valign=top width=439>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp; </td>
    <td valign=top width=439> <font size="2"><i>Preferred Securities.</i>&nbsp;The
      Fund may invest without limitation in preferred securities, including convertible
      preferred securities that may be converted into common stock or other securities
      of the same or a different issuer. Generally, preferred securities receive
      dividends in priority to distributions on common stock and usually have
      a priority of claim over common stockholders if the issuer of the stock
      is liquidated. Preferred securities have certain characteristics of both
      debt and equity securities. Like debt securities, preferred securities&#146;
      rate of income is generally contractually fixed. Like equity securities,
      preferred securities do not have rights to precipitate bankruptcy filings
      or collection activities in the event of missed payments. Furthermore, preferred
      securities are generally in a subordinated position in an issuer&#146;s capital
      structure and their values are heavily dependent on the profitability of
      the issuer rather than on any legal claims to specific assets or cash flows.</font></td>
  </tr>
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
</table>


<p>&nbsp;
<table width=600>
  <tr>
    <td width=60 align=left><font size=1>&nbsp;</font></td>
    <td width=480 align=center><font size="2"> 6</font></td>
    <td width=60 align=right><font size="1">&nbsp;</font></td>
  </tr>
</table>
<p>&nbsp;
<hr size=5 noshade width=600 align=LEFT>
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<p>
<table border=0 cellspacing=0 cellpadding=0 width="600">
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp; </td>
    <td valign=top width=439> <font size="2">&lt;R&gt;<i>Debt Securities.</i>&nbsp;The
      Fund may invest without limitation in all types of debt securities, including
      U.S. and foreign government bonds, corporate bonds, corporate loans and
      convertible bonds, mortgage and asset backed securities and emerging market
      debt. In addition, the Fund may invest without limitation in high quality
      short term U.S. dollar or non-U.S. dollar-denominated fixed income securities
      or other instruments, such as U.S. or foreign government securities, commercial
      paper and money market instruments issued by U.S. or foreign commercial
      banks or depository institutions. There are no maturity or duration limitations
      on the debt securities in which the Fund may invest.&lt;/R&gt;</font></td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp;</td>
    <td valign=top width=439>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp; </td>
    <td valign=top width=439> <font size="2"><i>High Yield Securities.</i>&nbsp;The
      Fund may invest without limitation in high yield securities, including high
      yield bonds (commonly referred to as &#147;junk&#148; bonds), preferred securities,
      corporate loans and convertible debt securities that are rated below investment
      grade by established rating services (Ba or lower by Moody&#146;s Investors Service,
      Inc. (&#147;Moody&#146;s&#148;), BB or lower by Standard &amp; Poor&#146;s (&#147;S&amp;P&#148;) or BB
      or lower by Fitch Ratings (&#147;Fitch&#148;)) or, if unrated, are considered by the
      Investment Adviser to be of comparable quality. High yield securities generally
      are regarded as having predominantly speculative characteristics with respect
      to capacity to pay interest or dividend income and to repay principal and
      involve greater volatility of price than securities in the higher rating
      categories. The Fund may not invest more than 10% of its total assets in
      distressed securities. The Fund considers distressed securities to be high
      yield securities that are the subject of bankruptcy proceedings or otherwise
      in default as to the repayment of principal or the payment of interest at
      the time of acquisition by the Fund or are rated in the lowest rating categories
      (Ca or below by Moody&#146;s, CC or below by S&amp;P or CC or below by Fitch)
      or, if unrated, are considered by the Investment Adviser to be of comparable
      quality (&#147;Distressed Securities&#148;). The Fund also may invest without limitation
      in investment grade securities.</font></td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp;</td>
    <td valign=top width=439>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp; </td>
    <td valign=top width=439> <font size="2"><i>Foreign Securities.</i>&nbsp;The
      Fund may invest without limitation in equity and debt securities of issuers
      domiciled outside the United States, including issuers located in emerging
      market countries. The Fund also may invest in securities denominated in
      currencies other than the U.S. dollar or that do not provide for payment
      to the Fund in U.S. dollars.</font></td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp;</td>
    <td valign=top width=439>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp; </td>
    <td valign=top width=439> <font size="2"><i>Portfolio Strategies.</i>&nbsp;The
      Fund may use a variety of portfolio strategies both to seek to increase
      the return of the Fund and to seek to hedge, or protect, its exposure to
      interest rate movements and movements in the securities markets. These strategies
      include the use of derivatives, such as indexed securities, inverse securities,
      interest rate transactions (including interest rate swaps), credit default
      swaps, total return swaps, options, futures, options on futures, short sales
      and foreign exchange transactions.</font></td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp;</td>
    <td valign=top width=439>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp;</td>
    <td valign=top width=439><font size="2">The Fund&#146;s hedging transactions are
      designed to reduce volatility but may come at some cost. For example, the
      Fund may try to limit its risk of loss from a decline in price of a portfolio
      security by purchasing a put option. However, the Fund must pay for the
      option, and the price of the security may not in fact drop. In large part,</font></td>
  </tr>
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
</table>


<P>&nbsp;
<table width=600>
  <tr>
    <td width=60 align=left><font size=1>&nbsp;</font></td>
    <td width=480 align=center><font size="2"> 7</font></td>
    <td width=60 align=right><font size="1">&nbsp;</font></td>
  </tr>
</table>
<p>&nbsp;
<hr size=5 noshade width=600 align=LEFT>
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<p>
<table border=0 cellspacing=0 cellpadding=0 width="600">
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp; </td>
    <td valign=top width=439> <font size="2"> the success of the Fund&#146;s hedging
      activities depends on the Investment Adviser&#146;s ability to forecast movements
      in securities prices and interest rates. The strategies the Fund uses to
      seek to enhance its return may be riskier and have more speculative aspects
      than its hedging strategies. The Fund is not required to use derivatives
      to increase return or hedge its portfolio and may choose not to do so. The
      Fund cannot guarantee that any strategies it uses will work.</font></td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp;</td>
    <td valign=top width=439>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=161> <b><font size="2">Use of Leverage by<br>
      &nbsp;&nbsp;the Fund</font></b></td>
    <td valign=top width=439> <font size="2">The Fund may leverage its portfolio
      through borrowings, the issuance of debt securities, the issuance of preferred
      stock or a combination thereof. The Fund may borrow money and issue debt
      securities in amounts up to 33<font size="1"><sup>1</sup></font>/<font size="1">3</font>%,
      and may issue shares of preferred stock in amounts up to 50%, of the value
      of its total assets to finance additional investments. The Fund currently
      intends to borrow money in an initial amount of approximately 31% of the
      Fund&#146;s total capital (including amounts obtained from the leverage),
      or approximately 45% of the Fund&#146;s common stock equity. Following the
      investment of the net proceeds of this common stock offering, the Fund may,
      depending on market and economic conditions and the relative costs and benefits
      associated with borrowings and other types of leverage, choose to leverage
      its portfolio through the issuance of preferred stock rather than through
      borrowings or the Fund may choose to leverage through a combination of borrowings
      and preferred stock. No assurance can be given that the Fund will leverage
      its portfolio or that any leveraging strategy will be successful during
      any period in which it is used.</font></td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp; </td>
    <td valign=top width=439>&nbsp; </td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp; </td>
    <td valign=top width=439> <font size="2">The Fund&#146;s use of borrowings as described
      above will result in the leveraging of its common stock. The proceeds from
      the borrowings will be invested in accordance with the investment objective
      of the Fund. The expenses of the borrowings, which will be borne by the
      Fund, will reduce the net asset value of the common stock. During periods
      when the Fund has borrowings or preferred stock outstanding, the Fund will
      pay fees to the Investment Adviser for its services that are higher than
      if the Fund did not borrow or issue preferred stock, because the fees will
      be calculated on the basis of an aggregate of (i) the Fund&#146;s average daily
      net assets, including proceeds received from the sale of any preferred stock,
      and (ii) the proceeds of any outstanding borrowings used for leverage.</font></td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp;</td>
    <td valign=top width=439>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp; </td>
    <td valign=top width=439> <font size="2"><i>Distributions.</i>&nbsp;While
      any indebtedness is outstanding, the Fund may not declare any cash dividend
      or other distribution upon any class of its capital stock, including its
      common stock, or purchase any such capital stock, unless the aggregate indebtedness
      of the Fund has, at the time of the declaration of any such dividend or
      distribution or at the time of any such purchase, an asset coverage of at
      least 300% after deducting the amount of such dividend, distribution, or
      purchase price, as the case may be.</font></td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp;</td>
    <td valign=top width=439>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp;</td>
    <td valign=top width=439><font size="2"><i>Risks of Leverage.</i>&nbsp;The
      use of leverage creates certain risks for common stockholders, including
      the greater likelihood of higher volatility of the Fund&#146;s dividend yield,
      total return, net asset value and the market price of the common stock.
      Changes in the value of the Fund&#146;s total assets will have a disproportionate</font></td>
  </tr>
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
</table>

<P>&nbsp;
<table width=600>
  <tr>
    <td width=60 align=left><font size=1>&nbsp;</font></td>
    <td width=480 align=center><font size="2"> 8</font></td>
    <td width=60 align=right><font size="1">&nbsp;</font></td>
  </tr>
</table>
<p>&nbsp;
<hr size=5 noshade width=600 align=LEFT>
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<p>
<table border=0 cellspacing=0 cellpadding=0 width="600">
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp; </td>
    <td valign=top width=439> <font size="2"> effect on the net asset value per
      share of common stock when leverage is used. For example, if the Fund were
      to use leverage equal to 50% of the Fund&#146;s common stock equity, it
      would show an approximately 1.5% increase or decline in net asset value
      for each 1% increase or decline in the value of its total assets. An additional
      risk of leverage is that the cost of the leverage plus applicable Fund expenses
      may exceed the return on the securities acquired with the proceeds of the
      leverage, thereby diminishing rather than enhancing the return to the Fund&#146;s
      common stockholders. During times of rising interest rates, the market value
      of the Fund&#146;s portfolio investments, and in particular its fixed income
      holdings, may decline, while at the same time the Fund&#146;s cost of leverage
      may increase. These risks would generally make the Fund&#146;s return to
      common stockholders more volatile if it were to use leverage. So long as
      the Fund uses leverage, it may be required to sell investments in order
      to make interest or dividend payments on borrowings or preferred stock used
      for leverage when it may be disadvantageous to do so. Finally, if the asset
      coverage for the Fund&#146;s borrowings or preferred stock declines to less
      than 300% or 200% of the Fund&#146;s total assets, respectively, or below
      asset coverage requirements established by a rating agency that rated any
      preferred stock or debt security issued by the Fund (as a result of market
      fluctuations or otherwise), the Fund may be required to sell a portion of
      its investments to repay the borrowings or redeem some or all of the preferred
      stock when it may be disadvantageous to do so. See &#147;Risk Factors and
      Special Considerations &#151; Leverage Risk.&#148;<br>
      <br>
      &lt;R&gt;Additionally, the Fund&#146;s use of leverage through borrowings may
      limit the amount of dividends it can designate as qualifying for the Dividends
      Received Deduction in the hands of corporate stockholders. See &#147;Taxes&#148;.
      &lt;/R&gt; </font></td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp;</td>
    <td valign=top width=439>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=161> <b><font size="2">Investment Adviser</font></b></td>
    <td valign=top width=439> <font size="2">Fund Asset Management, L.P., the
      Investment Adviser, provides investment advisory and administrative services
      to the Fund. For its services, the Fund pays the Investment Adviser a monthly
      fee at the annual rate of 0.85% of the aggregate of: (i) the Fund&#146;s average
      daily net assets (including proceeds from the sale of any preferred stock)
      and (ii) the proceeds of any outstanding borrowings used for leverage.</font></td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp;</td>
    <td valign=top width=439>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=161> <b><font size="2">Dividends and<br>
      &nbsp;&nbsp;Distributions</font></b></td>
    <td valign=top width=439> <font size="2">&lt;R&gt;In order to allow the Fund&#146;s
      common stockholders to realize a predictable, but not guaranteed, level
      of cash flow and some periodic liquidity on their investment without having
      to sell their shares, the Fund has adopted a policy of paying regular distributions
      on its shares of common stock (the &#147;Managed Distribution Policy&#148;).
      The Fund&#146;s Board of Directors has initially determined to pay quarterly
      distributions on each share of common stock at an annualized rate of 6%
      of the initial public offering price per share ($0.30 per share, per quarter).
      It is expected that dividends will be paid on a quarterly basis commencing
      in September 2004. The Fund&#146;s Board of Directors has determined to
      pay additional distributions on an annual basis equal to any income earned
      by the Fund in excess of the quarterly distributions as may be necessary
      to distribute substantially all of the Fund&#146;s net investment company
      taxable income for that year. See &#147;Taxes.&#148; The Fund is not required
      to maintain the Managed Distribution Policy and such policy may be modified
      or terminated by the Fund&#146;s Board of Directors at any time without
      notice.&lt;/R&gt;</font></td>
  </tr>
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
</table>

<P>&nbsp;
<table width=600>
  <tr>
    <td width=60 align=left><font size=1>&nbsp;</font></td>
    <td width=480 align=center><font size="2"> 9</font></td>
    <td width=60 align=right><font size="1">&nbsp;</font></td>
  </tr>
</table>
<p>&nbsp;
<hr size=5 noshade width=600 align=LEFT>
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<p>
<table border=0 cellspacing=0 cellpadding=0 width="600">
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp; </td>
    <td valign=top width=439> <font size="2">Under the 1940 Act and its rules,
      the Fund generally is not permitted to distribute net realized long term
      capital gains more than once per year without exemptive relief from the
      Securities and Exchange Commission (the &#147;Commission&#148;). As a result, the
      Fund and the Investment Adviser have applied to the Commission for an exemption
      that will, among other things, permit the Fund to make periodic distributions
      of realized long term capital gains to its stockholders. Until such time,
      if any, as the exemptive relief is granted by the Commission, the Fund intends
      to make distributions under the Managed Distribution Policy from its net
      investment income on a quarterly basis and from its net realized long term
      capital gains, if any,  on an annual basis. No assurance can be given that
      the Commission will grant this exemptive relief to the Fund and the Investment
      Adviser. If such exemptive relief is granted by the Commission, the Fund
      intends to make distributions under the Managed Distribution Policy from
      its net investment income and its realized long term capital gains, if any,
      on an quarterly basis. Therefore, after receipt of the above-referenced
      exemptive relief, a larger pool of capital gains should be available for
      distribution on a quarterly basis.</font></td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp;</td>
    <td valign=top width=439>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp; </td>
    <td valign=top width=439> <font size="2">If the total distributions paid by
      the Fund to its stockholders for any calendar year exceed the Fund&#146;s net
      investment company taxable income and net realized capital gain for that
      year, the excess will generally be treated as a tax-free return of capital
      up to the amount of a stockholder&#146;s tax basis in his or her stock. Any distributions
      that (based upon the Fund&#146;s full year performance) constitute tax-free return
      of capital will reduce a stockholder&#146;s tax basis in his or her stock, thereby
      increasing such stockholder&#146;s potential gain or reducing such stockholder&#146;s
      potential loss on the sale of such stock. In effect, a return of capital
      is the return of a stockholder&#146;s investment in the Fund and will result
      in a corresponding decline in the Fund&#146;s net asset value. Return of capital
      distributions also may have the effect of increasing the Fund&#146;s operating
      expense ratio. Any amounts distributed to a stockholder in excess of such
      stockholder&#146;s tax basis in his or her stock will generally be taxable to
      the stockholder as capital gain.</font></td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp;</td>
    <td valign=top width=439>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp;</td>
    <td valign=top width=439><font size="2">The Fund currently expects that the
      amount of distributions made under the Managed Distribution Policy generally
      will be independent of, and not contingent upon, the Fund&#146;s performance
      in any of the first three quarters of the Fund&#146;s fiscal year. Distribution
      rates under the Managed Distribution Policy may be increased in the Fund&#146;s
      fourth fiscal quarter in light of the Fund&#146;s performance for the fiscal
      year and to enable the Fund to comply with the distribution requirements
      applicable to regulated investment companies under the Code for that year.
      It also is currently expected that the Fund&#146;s investment portfolio initially
      will not produce sufficient dividend and interest income to fully fund distributions
      under the Managed Distribution Policy due to the expected initial composition
      of the Fund&#146;s investment portfolio. Consequently, if the Fund does not realize
      sufficient short term capital gains and long term capital gains to make
      up any shortfall, distributions to the Fund&#146;s common stockholders will include
      returns of capital. Prior to receipt of the above-referenced exemptive order,
      long term capital gains will be available to make up any shortfall in funding
      distributions only on an </font></td>
  </tr>
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
</table>


<P>&nbsp;
<table width=600>
  <tr>
    <td width=60 align=left><font size=1>&nbsp;</font></td>
    <td width=480 align=center><font size="2"> 10</font></td>
    <td width=60 align=right><font size="1">&nbsp;</font></td>
  </tr>
</table>
<p>&nbsp;
<hr size=5 noshade width=600 align=LEFT>
<p>&nbsp; <!-- *************************************************************************** -->
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<p>
<table border=0 cellspacing=0 cellpadding=0 width="600">
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp; </td>
    <td valign=top width=439> <font size="2">annual basis, thereby increasing
      the likelihood that distributions will include returns of capital to stockholders.
      In order to make distributions under the Managed Distribution Policy, the
      Fund may have to sell portfolio securities at a time when independent investment
      considerations may dictate against such action. See &#147;Risk Factors and Special
      Considerations &#151; Distribution Risk.&#148;</font></td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp;</td>
    <td valign=top width=439>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=161> <b><font size="2">Automatic Dividend<br>
      &nbsp;&nbsp;Reinvestment Plan</font></b></td>
    <td valign=top width=439> <font size="2">Dividends and capital gains distributions
      generally are used to purchase additional shares of the Fund&#146;s common stock.
      However, an investor can choose to receive dividends and distributions in
      cash. Stockholders whose shares of common stock are held in the name of
      a broker or nominee should contact the broker or nominee to confirm whether
      the broker or nominee will permit them to participate in the automatic dividend
      reinvestment plan.</font></td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp; </td>
    <td valign=top width=439>&nbsp; </td>
  </tr>
  <tr>
    <td valign=top width=161> <b><font size="2">Listing</font></b></td>
    <td valign=top width=439> <font size="2">&lt;R&gt;Currently, there is no public
      market for the Fund&#146;s common stock. However, the Fund&#146;s shares
      of common stock have been approved for listing on the New York Stock Exchange
      under the symbol &#147;CII,&#148; subject to official notice of issuance.&lt;/R&gt;</font></td>
  </tr>
  <tr>
    <td valign=top width=161>&nbsp;</td>
    <td valign=top width=439>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=161> <b><font size="2">Mutual Fund<br>
      &nbsp;&nbsp;Investment Option</font></b></td>
    <td valign=top width=439> <font size="2">Investors who purchase shares in
      this offering and later sell their shares have the option, subject to certain
      conditions, to purchase Class A shares of certain funds advised by the Investment
      Adviser or its affiliates at net asset value, without the imposition of
      the initial sales charge, with the proceeds from such sale.</font></td>
  </tr>
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
</table>

<P>&nbsp;
<table width=600>
  <tr>
    <td width=60 align=left><font size=1>&nbsp;</font></td>
    <td width=480 align=center><font size="2"> 11</font></td>
    <td width=60 align=right><font size="1">&nbsp;</font></td>
  </tr>
</table>
<p>&nbsp;
<hr size=5 noshade width=600 align=LEFT>
<p>&nbsp; <!-- *************************************************************************** -->
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<P>
<table border=0 cellspacing=0 cellpadding=0 width="600">
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
</table>
<table width=600><tr><td  align=center><font size=2><B>RISK FACTORS AND SPECIAL
CONSIDERATIONS</B></font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An investment in the Fund&#146;s
      common stock may be speculative in that it involves a high degree of risk
      and should not constitute a complete investment program.</i></font></td>
  </tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Liquidity and
Market Price of Shares.</I> The Fund is newly organized and has no operating history or
history of public trading.</FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares of
closed-end funds that trade in a secondary market frequently  trade at a market price
that is below their net asset value. This is commonly  referred to as &#147;trading at a
discount.&#148; The risk may be greater for investors  expecting to sell their shares in
a relatively short period after completion of  the public offering. Accordingly, the Fund
is designed primarily for long term  investors and should not be considered a vehicle for
trading purposes. The  Fund&#146;s total assets will be reduced following the offering by
the underwriting  discount and the amount of offering expenses paid by the Fund.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Distribution Risk.</I>
Pursuant to the Managed Distribution Policy, the Fund intends to make regular quarterly
distributions on its common stock. In order to make distributions under the Managed
Distribution Policy, the Fund may have to sell portfolio securities at a time when
independent investment considerations may dictate against such action. In addition, the
Fund&#146;s ability to distribute any net realized long term capital gains more than
once per year is subject to the Fund&#146;s receipt of exemptive relief from the
Commission, which receipt cannot be assured. If the total distributions paid by the Fund
to its stockholders for any calendar year exceed the Fund&#146;s net investment company
taxable income and net realized capital gain for that year, the excess will generally be
treated as a tax-free return of capital up to the amount of a stockholder&#146;s tax
basis in his or her stock. In effect, a return of capital is the return of a stockholder&#146;s
investment in the Fund and will result in a corresponding decline in the Fund&#146;s net
asset value. See &#147;Taxes.&#148; Return of capital distributions also may have the
effect of increasing the Fund&#146;s operating expense ratio. The Fund currently expects
that the amount of distributions made under the Managed Distribution Policy generally
will be independent of, and not contingent upon, the Fund&#146;s performance in any of
the first three quarters of the Fund&#146;s fiscal year. Distribution rates under the
Managed Distribution Policy may be increased in the Fund&#146;s fourth fiscal quarter in
light of the Fund&#146;s performance for the fiscal year and to enable the Fund to
comply with the distribution requirements applicable to regulated investment companies
under the Code for that year. It also is currently expected that the Fund&#146;s
investment portfolio initially will not produce sufficient dividend and interest income
to fully fund distributions under the Managed Distribution Policy due to the expected
initial composition of the Fund&#146;s investment portfolio. Consequently, if the Fund
does not realize sufficient short term capital gains and long term capital gains to make
up any shortfall, distributions to the Fund&#146;s common stockholders will include
returns of capital. Prior to receipt of the above-referenced exemptive order, long term
capital gains will be available to make up any shortfall in funding distributions only
on an annual basis, thereby increasing the likelihood that distributions will include
returns of capital to stockholders.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Leverage Risk</I>. The
Fund may leverage its portfolio through borrowings, the issuance of debt securities, the
issuance of preferred stock or a combination thereof. The Fund may borrow money and
issue debt securities in amounts up to 33<FONT SIZE="1"><sup>1</sup></FONT>/<FONT SIZE="1">3</FONT>%, and may issue shares of preferred stock
in amounts up to 50%, of the value of its total assets to finance additional
investments. The Fund currently intends to borrow money in an initial amount of
approximately 31% of the Fund&#146;s total capital (including amounts obtained from the
leverage), or approximately 45% of the Fund&#146;s common stock equity. Following the
investment of the net proceeds of this common stock offering, the Fund may, depending on
market and economic conditions and the relative costs and benefits</FONT> </td></tr></table>


<table border=0 cellspacing=0 cellpadding=0 width="600">
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
</table>
<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
12</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p>
<table border=0 cellspacing=0 cellpadding=0 width="600">
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
</table>
<table width=600><tr><td><font size=2>associated with  borrowings and other types of
leverage, choose to leverage its portfolio through  the  issuance of preferred stock
rather than through borrowings or the Fund may  choose to  leverage through a combination
of borrowings and preferred stock. No  assurance can be  given that the Fund will
leverage its portfolio or that any  leveraging strategy will be  successful during any
period in which it is used.</font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The use of leverage creates
      certain risks for common stockholders, including the greater likelihood
      of higher volatility of the Fund&#146;s dividend yield, total return, net
      asset value and the market price of the common stock. Changes in the value
      of the Fund&#146;s total assets will have a disproportionate effect on the
      net asset value per share of common stock when leverage is used. For example,
      if the Fund were to use leverage equal to 50% of the Fund&#146;s common
      stock equity, it would show an approximately 1.5% increase or decline in
      net asset value for each 1% increase or decline in the value of its total
      assets. An additional risk of leverage is that the cost of the leverage
      plus applicable Fund expenses may exceed the return on the securities acquired
      with the proceeds of the leverage, thereby diminishing rather than enhancing
      the return to the Fund&#146;s common stockholders. During times of rising
      interest rates, the market value of the Fund&#146;s portfolio investments,
      and in particular its fixed income holdings, may decline, while at the same
      time the Fund&#146;s cost of leverage may increase. These risks would generally
      make the Fund&#146;s return to common stockholders more volatile if it were
      to use leverage. So long as the Fund uses leverage, it may be required to
      sell investments in order to make interest or dividend payments on borrowings
      or preferred stock used for leverage when it may be disadvantageous to do
      so. Finally, if the asset coverage for the Fund&#146;s borrowings or preferred
      stock declines to less than 300% or 200% of the Fund&#146;s total assets,
      respectively, or below asset coverage requirements established by a rating
      agency that rated any preferred stock or debt security issued by the Fund
      (as a result of market fluctuations or otherwise), the Fund may be required
      to sell a portion of its investments to repay the borrowings or redeem some
      or all of the preferred stock when it may be disadvantageous to do so.<br>
      <br>
      &nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;Additionally, the Fund&#146;s use of leverage
      through borrowings may limit the amount of dividends it can designate as
      qualifying for the Dividends Received Deduction in the hands of corporate
      stockholders. See &#147;Taxes&#148;. &lt;/R&gt;</font></td>
  </tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Issuer Risk;
Market Risk; Selection Risk</I>. The value of securities held by the Fund may decline for a
number of reasons that directly relate to the issuer, such as investor perception of the
issuer&#146;s financial condition, management performance, financial leverage and
reduced demand for the issuer&#146;s goods and services. Market risk is the risk that
the market will go down in value, including the possibility that the market will go down
sharply and unpredictably. Selection risk is the risk that the securities that the
Investment Adviser selects will underperform the relevant market indices or other funds
with similar investment objectives and investment strategies.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Income Risk.</I> The
income received from the Fund by common stockholders is based partially on the dividends
and interest the Fund earns from its investments and partially based on gains from the
sale of securities held by the Fund, each of which can vary widely over the short and
long term. If prevailing market interest rates drop, distribution rates of preferred and
debt securities held by the Fund could drop as well, which could adversely affect the
income available for distribution to common stockholders. The Fund&#146;s ability to pay
distributions to its common stockholders also would likely be adversely affected when
prevailing short term interest rates rise while the Fund is utilizing leverage.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Asset Value;
Interest Rate Sensitivity; Credit Quality; Other Market Conditions</I>. Generally, when
interest rates go up, the value of fixed income securities, such as preferred securities
paying fixed dividend rates and debt securities, goes down. Because market interest
rates are currently near their lowest levels in many years, there is a greater risk that
interest rates may increase in the future and cause the value of the Fund&#146;s
portfolio to decline. In addition, when market interest rates rise, not only may the Fund&#146;s
investment portfolio decline in value, but the Fund&#146;s cost of leverage may
increase. See &#147;Risk Factors and Special Considerations &#151; Leverage Risk.&#148; Therefore,
the net asset value of a fund that invests in fixed income</FONT> </td></tr></table>


<table border=0 cellspacing=0 cellpadding=0 width="600">
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
</table>
<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
13</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p>
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  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
</table>
<table width=600><tr><td><font size=2>securities changes as  interest rates fluctuate.
During periods of declining interest rates, an issuer  may  exercise its option to redeem
preferred securities or prepay principal of  debt  securities earlier than scheduled,
forcing the Fund to reinvest in lower  yielding  securities. During periods of rising
interest rates, the average life  of certain types  of securities may be extended because
of slower than expected  principal payments. This  may lock in a below market interest
rate, increase the  duration and reduce the value of  the security. A real or perceived
decline in  the credit quality or financial condition  of issuers of securities in which
the  Fund invests may result in the value of such  securities held by the Fund, the  Fund&#146;s
net asset value and potentially the market  price of the Fund&#146;s common  stock, going
down. A real or perceived serious  deterioration in the credit  quality or financial
condition of an issuer could cause a  permanent decrease in  the Fund&#146;s net asset
value. Furthermore, volatility in the  capital markets and  other adverse market
conditions may result in a decrease in the  value of the  securities held by the Fund.
Any decrease in the market value of the  securities  held by the Fund will result in a
decrease in the Fund&#146;s net asset value  and  potentially the market price of the Fund&#146;s
common stock.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Common Stocks</I>. It
is currently expected that the Fund initially will have substantial exposure to common
stocks. To the extent the Fund invests in common stocks, those investments will be
subject to special risks. Although common stocks have historically generated higher
average returns than fixed income securities over the long term, common stocks also have
experienced significantly more volatility in returns. Common stocks may be more
susceptible to adverse changes in market value due to issuer specific events or general
movements in the equities markets. A drop in the stock market may depress the price of
common stocks held by the Fund. Common stock prices fluctuate for many reasons,
including changes in investors&#146; perceptions of the financial condition of an issuer
or the general condition of the relevant stock market, or the occurrence of political or
economic events affecting issuers. For example, an adverse event, such as an unfavorable
earnings report, may depress the value of common stock in which the Fund has invested;
the price of common stock of an issuer may be particularly sensitive to general
movements in the stock market; or a drop in the stock market may depress the price of
most or all of the common stocks held by the Fund. Also, common stock of an issuer in
the Fund&#146;s portfolio may decline in price if the issuer fails to make anticipated
dividend payments because, among other reasons, the issuer of the security experiences a
decline in its financial condition. The common stocks in which the Fund will invest are
structurally subordinated to preferred securities, bonds and other debt instruments in a
company&#146;s capital structure, in terms of priority to corporate income and assets,
and therefore will be subject to greater risk than the preferred securities or debt
instruments of such issuers. In addition, common stock prices may be sensitive to rising
interest rates, as the costs of capital rise and borrowing costs increase.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Value Investing
Risk</I>. To the extent the Fund invests in common stocks, it currently intends to focus its
investments on common stocks that the Investment Adviser believes are undervalued. These
types of securities may present risks in addition to the general risks associated with
investing in common stocks. These securities generally are selected on the basis of an
issuer&#146;s fundamentals relative to current market price. Such securities are subject
to the risk that the Investment Adviser&#146;s assessment of certain fundamental factors
will be mistaken. In addition, during certain time periods, market dynamics may strongly
favor &#147;growth&#148; stocks of issuers that do not display strong fundamentals
relative to market price based upon positive price momentum and other factors.
Disciplined adherence to a &#147;value&#148; investment mandate during such periods can
result in significant underperformance for the Fund&#146;s assets invested in common
stocks relative to overall market indices and other managed investment vehicles that
pursue growth style investments and/or more flexible equity style mandates.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Small and
Medium-Sized Company Risk</I>. The Fund may invest without limitation in the common stocks
of small and medium-sized companies. Small and medium-sized companies may include
unseasoned issuers or companies that have limited product lines or markets. They may be
less financially secure than larger, more</FONT> </td></tr></table>


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<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
14</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<table width=600><tr><td><font size=2>established companies. They may depend on a
small number of key  personnel. If a product fails, or if management changes, or there
are other  adverse developments, the Fund&#146;s investment in a small or medium-sized
company  may lose substantial value. The securities of small and medium-sized companies
generally trade in lower volumes and are subject to greater and less predictable  price
changes than the securities of larger, more established companies.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Preferred
Securities</I>. It is currently expected that the Fund initially will have exposure to
preferred securities, including potentially convertible preferred securities that may be
converted into common stock or other securities of the same or a different issuer. To
the extent the Fund invests in preferred securities, those investments will be subject
to the following special risks:</FONT></td></tr></table>

<table width=600>
  <tr>
    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><FONT SIZE="2"><I>Subordination.</I>
Investments in preferred securities entail a higher level of credit risk than more
senior debt instruments, because preferred securities are subordinated to bonds and
other debt instruments in an issuer&#146;s capital structure in terms of priority to
corporate income and liquidation payments.</FONT></td></tr></table>

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    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><FONT SIZE="2"><I>Limited
Voting Rights</I>. Holders of preferred securities usually have no voting rights with
respect to the issuing company, although certain types of preferred securities provide
their holders with the right to elect directors if preferred dividends have been in
arrears for a specified number of periods. When those voting rights apply, once the
issuer pays all the arrearages, the preferred security holders no longer have voting
rights.</FONT></td></tr></table>

<table width=600>
  <tr>
    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><FONT SIZE="2"><I>Redemption
Rights</I>. Certain preferred securities may contain special redemption features that grant
the issuer of the preferred securities a right to redeem the securities prior to a
specified date. As with all call provisions, a special redemption by the issuer may
negatively impact the return of the security held by the Fund.</FONT></td></tr></table>

<table width=600>
  <tr>
    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><FONT SIZE="2"><I>Deferral.</I>
Preferred securities also may include provisions that require or permit the issuer, at
its discretion, to defer dividend distributions for a stated period or periods without
any adverse consequences to the issuer. If the Fund owns a preferred security that is
deferring its dividend distributions, the Fund may be required to report and possibly
distribute income for tax purposes although it has not yet received such income.</FONT></td></tr></table>

<table width=600>
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    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><FONT SIZE="2"><I>Liquidity.</I>
Preferred securities may be substantially less liquid than many other securities, such
as common stocks.</FONT></td></tr></table>

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  <tr>
    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><FONT SIZE="2"><I>Non-Cumulative
Preferred Securities</I>. Dividends on non-cumulative preferred securities do not accrue.
Unlike cumulative preferred securities, if a dividend on a share of non-cumulative
preferred stock is not paid on the dividend payment date, that dividend ordinarily will
never be paid.</FONT></td></tr></table>

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    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><FONT SIZE="2"><I>Auction
Rate or Remarketed Preferred Securities</I>. Auction rate or remarketed preferred securities
are adjustable preferred securities the dividends on which are determined at
periodically held auctions or through remarketings. If sufficient bids do not exist at
an auction (in case of auction rate preferred securities) or if a failed remarketing
occurs (in the case of remarketed preferred securities), the Fund may not be able to
sell all, and may not be able to sell any, of its auction rate or remarketed preferred
securities through the auction or remarketing process. As a result, the Fund&#146;s
investment in such securities may be illiquid.</FONT></td></tr></table>

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<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
15</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Debt Securities</I>.
It is currently expected that the Fund initially will have exposure to debt securities.
To the extent the Fund invests in debt securities, those investments will involve credit
risk. This is the risk that the borrower will not make timely payments of principal and
interest. The degree of credit risk depends on the issuer&#146;s financial condition and
on the terms of the debt securities. Debt securities are also subject to interest rate
risk. This is the risk that the value of the security may fall when interest rates
rise. In general, the market price of fixed rate debt securities with longer maturities
will go up or down more in response to changes in interest rates than the market price
of shorter term fixed rate securities. In addition, debt securities are subject to call
and redemption risk. This is the risk that an issuer may call a security for redemption
before it matures. If this happens to a debt security in which the Fund invests, the
Fund may lose income and may have to invest the proceeds in securities with lower
yields. See &#147;&#151; Net Asset Value; Interest Rate Sensitivity; Credit Quality;
Other Market Conditions&#148; above.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Convertible
Securities</I>. The preferred securities and debt securities in which the Fund may invest
may be convertible into the issuer&#146;s or a related party&#146;s common stock.
Convertible securities generally offer lower dividend yields or interest rates than
non-convertible securities of similar quality. As with all fixed income securities, the
market values of the fixed rate convertible securities that the Fund may invest in tend
to decline as interest rates increase and, conversely, to increase as interest rates
decline. However, when the market price of the common stock underlying a convertible
security exceeds the conversion price, the convertible security tends to reflect the
market price of the underlying common stock. As the market price of the underlying
common stock declines, the convertible security tends to trade increasingly on a yield
basis and thus may not decline in price to the same extent as the underlying common
stock. Convertible securities rank senior to common stocks in an issuer&#146;s capital
structure and consequently may entail less risk than the issuer&#146;s common stock.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>High Yield
Securities</I>. To the extent the Fund invests in a portfolio of below investment grade,
high yield securities, including high yield bonds (commonly referred to as &#147;junk&#148; bonds),
corporate loans, convertible debt securities and preferred securities, those securities
entail a higher level of credit risk (loss of income and/or principal) and a
corresponding greater risk of loss than investments in investment grade securities.
Securities rated in the lower rating categories are considered to be predominantly
speculative with respect to their capacity to pay interest and dividend income and repay
principal. Issuers of high yield securities may be highly leveraged and may not have
available to them more traditional methods of financing. New issuers also may be
inexperienced in managing their debt burden. The issuer&#146;s ability to service its
debt obligations or make dividend payments may be adversely affected by business
developments unique to the issuer, the issuer&#146;s inability to meet specific
projected business forecasts, or the inability of the issuer to obtain additional
financing.</FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other than the
distressed securities discussed below, the high yield  securities in which the Fund may
invest do not include instruments which, at the  time of investment, are in default or
the issuers of which are in bankruptcy.  However, no assurance can be given that such
events will not occur after the  Fund purchases a particular security, in which case the
Fund may experience  losses and incur costs.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;High yield
securities also tend to be more sensitive to economic  conditions than investment grade
securities. The financial condition of a high  yield issuer is usually more susceptible
to a general economic downturn or a  sustained period of rising interest rates, and high
yield issuers are more  likely than investment grade issuers to become unable to make
principal payments  and interest or dividend payments during such time periods.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Like investment
grade fixed income securities, high yield securities  generally are purchased and sold
through dealers who make a market in such  securities for their own accounts. However,
there are fewer dealers in the high  yield market, which market may be less liquid than
the market for investment  grade fixed income </font></td></tr></table>


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<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
16</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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    <td><font size=2>securities, even under normal economic conditions. Also,
      there may be significant disparities in the prices quoted for high yield
      securities by various dealers and the spread between the bid and asked price
      is generally much larger than for investment grade securities. As a result,
      the Fund may experience difficulty acquiring appropriate high yield securities
      for investment. Investments in high yield securities may, from time to time,
      and especially in declining markets, become illiquid which might impede
      the Fund&#146;s ability to dispose of a particular security, or force the
      Fund to sell a security at a price lower than if the market were more liquid.
      Prices realized upon such sales might be less than the prices used in calculating
      the Fund&#146;s net asset value. To the extent the Fund invests in high
      yield securities, the combination of price volatility and the decreased
      liquidity of high yield securities may have an adverse effect on the Fund&#146;s
      investment performance. </font></td>
  </tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;High yield
securities tend to be more volatile than investment grade fixed  income securities, so
that adverse events may have a greater impact on the  prices of high yield securities
than on investment grade fixed income  securities. To the extent the Fund invests in high
yield securities, factors  adversely affecting the market value of such securities will
adversely affect  the Fund&#146;s net asset value.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Adverse publicity
and negative investor perceptions of the high yield  market, which could last for an
extended time period also may reduce the value  and liquidity of high yield securities.
In addition, the Fund may incur  additional expenses if it is forced to seek recovery
upon a default or  restructuring of a portfolio holding.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Junk bonds are
often unsecured and subordinated to other creditors of the  issuer. In addition, junk
bonds may have call or redemption features that permit  an issuer to repurchase the
securities from the Fund. If a call were exercised  by an issuer during a period of
declining interest rates, the Fund likely would  have to replace such called securities
with lower yielding securities that would  decrease the net investment income to the Fund
and dividends to stockholders.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Distressed
Securities</I>. The Fund may invest up to 10% of its total assets in Distressed Securities.
An investment in Distressed Securities is speculative and involves significant risk in
addition to the risks discussed above in connection with investments in high yield
securities. Distressed Securities frequently do not produce income while they are
outstanding. The Fund may purchase Distressed Securities that are in default or the
issuers of which are in bankruptcy. To the extent the Fund invests in Distressed
Securities, the Fund may be required to bear certain extraordinary expenses in order to
protect and recover its investment.</FONT></td></tr></table>

<p><table width=600><tr>
    <td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;<I>Impact of Recent
      Tax Legislation</I>. Recently enacted tax legislation reduced the rate of
      taxation for individuals on qualified dividend income to a lower rate that
      is also applicable to long term capital gains. Dividends designated by the
      Fund as qualifying dividend income and long term capital gains will be eligible
      for taxation at the reduced rate. The Fund&#146;s distributions derived
      from short term capital gains and from interest income on debt securities
      and certain types of preferred securities which are treated as debt for
      federal income tax purposes, however, generally will not be eligible for
      this reduced tax rate. No assurance can be given as to what portion of the
      Fund&#146;s distributions will be eligible for this lower tax rate. The
      Fund&#146;s investments and the tax treatment of Fund distributions may
      be affected by future changes in tax laws and regulations, including changes
      as a result of the &#147;sunset&#148; provisions that currently apply to
      the reduced federal income tax rate for qualified dividend income and long
      term capital gains. The impact of such legislation on the Fund and its stockholders
      cannot be predicted.&lt;/R&gt;</FONT></td>
  </tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<i>Tax and Accounting Risk.</i>
      The Fund may invest in preferred securities or other securities the federal
      income tax treatment of which may not be clear or may be subject to recharacterization
      by the Internal Revenue Service. It could be more difficult for the Fund
      to comply with the tax requirements applicable to regulated investment companies
      if the tax characterization of the Fund&#146;s investments or the tax treatment
      of the income from such investments were successfully challenged by the
      Internal Revenue Service. Additionally, the Financial </font></td>
  </tr></table>


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<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
17</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<table width=600><tr><td><font size=2>Accounting Standards Board currently is
reviewing accounting guidelines  relating to taxable preferred securities. To the extent
that a change in the guidelines  could adversely affect the market for, and availability
of, these securities, the Fund  may be adversely affected.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Foreign Market
Risk</I>. Since the Fund may invest without limitation in equity and debt securities of
issuers domiciled outside the United States, it offers the potential for more
diversification than a fund that invests only in issuers domiciled in the United States.
This is because securities traded on foreign markets have often (though not always)
performed differently from securities traded in the United States. However, such
investments involve special risks not present in U.S. investments that can increase the
chances that the Fund will lose money. In particular, the Fund is subject to the risk
that because there are generally fewer investors on foreign exchanges and a smaller
number of shares traded each day, it may make it difficult for the Fund to buy and sell
securities on those exchanges. In addition, prices of foreign securities may go up and
down more than prices of securities traded in the United States.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Foreign Economy
Risk</I>. The economies of certain foreign markets may not compare favorably with the
economy of the United States with respect to such issues as growth of gross national
product, reinvestment of capital, resources and balance of payments position. Such
economies may rely heavily on particular industries or foreign capital and are more
vulnerable to diplomatic developments, the imposition of economic sanctions against a
particular country or countries, changes in international trading patterns, trade
barriers and other protectionist or retaliatory measures. With respect to the Fund&#146;s
investments in Europe, any adverse developments in connection with the ongoing
transition to the Economic and Monetary Union (EMU) could potentially destabilize EMU.
Such destabilization could adversely affect the Fund&#146;s European investments.</FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investments in
foreign markets also may be adversely affected by  governmental actions such as the
imposition of capital controls, nationalization  of companies or industries,
expropriation of assets or the imposition of  punitive taxes. In addition, the
governments of certain countries may prohibit  or impose substantial restrictions on
foreign investing in their capital markets  or in certain industries. Any of these
actions could severely affect security  prices, impair the Fund&#146;s ability to
purchase or sell foreign securities or  transfer the Fund&#146;s assets or income back
into the United States, or otherwise  adversely affect the Fund&#146;s operations.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other foreign
market risks include foreign exchange controls, difficulties  in pricing securities,
defaults on foreign government securities, difficulties  in enforcing favorable legal
judgments in foreign courts and political and  social instability. Legal remedies
available to investors in certain foreign  countries may be less extensive than those
available to investors in the United  States or other foreign countries.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Currency Risk</I>.
Securities and other instruments in which the Fund invests may be denominated or quoted
in currencies other than the U.S. dollar. Changes in foreign currency exchange rates
affect the value of the Fund&#146;s portfolio. Generally, when the U.S. dollar rises in
value against a foreign currency, a security denominated in that currency loses value
because the currency is worth fewer U.S. dollars. Conversely, when the U.S. dollar
decreases in value against a foreign currency, a security denominated in that currency
gains value because the currency is worth more U.S. dollars. This risk, generally known
as &#147;currency risk,&#148; means that a strong U.S. dollar will reduce returns for
U.S. investors while a weak U.S. dollar will increase those returns. See &#147;Investment
Objective and Policies &#151; Foreign Exchange Transactions&#148; below.</FONT></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<i>Governmental Supervision
      and Regulation/Accounting Standards.</i> Many foreign governments supervise
      and regulate stock exchanges, brokers and the sale of securities less than
      the United States does. Some countries may not have laws to protect investors
      the way that the U.S. securities laws do. For example, some foreign countries
      may have no laws or rules against insider trading. Insider trading occurs
      when a person buys or sells a </font></td>
  </tr></table>


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<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
18</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<table width=600><tr><td><font size=2>company&#146;s  securities based on  non-public
information about that company. Accounting standards in  other  countries are not
necessarily the same as in the United States. If the  accounting  standards in another
country do not require as much detail as U.S.  accounting standards,  it may be harder
for the Investment Adviser to completely  and accurately determine a  company&#146;s
financial condition.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Certain Risks of
Holding Fund Assets Outside the United States</I>. The Fund may hold its foreign securities
and cash in foreign banks and securities depositories. Some foreign banks and securities
depositories may be recently organized or new to the foreign custody business. In
addition there may be limited or no regulatory oversight over their operations. Also,
the laws of certain countries may put limits on the Fund&#146;s ability to recover its
assets if a foreign bank, depository or issuer of a security, or any of their agents,
goes bankrupt. In addition, it is often more expensive for the Fund to buy, sell and
hold securities in certain foreign markets than in the United States. The increased
expense of investing in foreign markets reduces the amount the Fund can earn on its
investments and typically results in a higher operating expense ratio for the Fund than
for investment companies invested only in the United States.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Settlement Risk</I>.
Settlement and clearance procedures in certain foreign markets differ significantly from
those in the United States. Foreign settlement and clearance procedures and trade
regulations also may involve certain risks (such as delays in payment for or delivery of
securities) not typically generated by the settlement of U.S. investments.
Communications between the United States and emerging market countries may be
unreliable, increasing the risk of delayed settlements or losses of security
certificates. Settlements in certain foreign countries at times have not kept pace with
the number of securities transactions; these problems may make it difficult for the Fund
to carry out transactions. If the Fund cannot settle or is delayed in settling a
purchase of securities, it may miss attractive investment opportunities and certain of
its assets may be uninvested with no return earned thereon for some period. If the Fund
cannot settle or is delayed in settling a sale of securities, it may lose money if the
value of the security then declines or, if it has contracted to sell the security to
another party, the Fund could be liable for any losses incurred.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Emerging Markets
Risk</I>. The risks of foreign investments are usually much greater for emerging markets.
Investments in emerging markets may be considered speculative. Emerging markets include
those in countries defined as emerging or developing by the World Bank, the
International Finance Corporation or the United Nations, as well as any countries,
regardless of per capita income level, that have restructured their external and local
debt. Emerging markets are riskier because they develop unevenly and may never fully
develop. They are more likely to experience hyperinflation and currency devaluations,
which adversely affect returns to U.S. investors. In addition, the securities markets in
many of these countries have far lower trading volumes and less liquidity than developed
markets. Since these markets are so small, they may be more likely to suffer sharp and
frequent price changes or long term price depression because of adverse publicity,
investor perceptions or the actions of a few large investors. In addition, traditional
measures of investment value used in the United States, such as price to earnings
ratios, may not apply to certain small markets.</FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many emerging
markets have histories of political instability and abrupt  changes in policies. As a
result, their governments are more likely to take  actions that are hostile or
detrimental to private enterprise or foreign  investment than those of more developed
countries. Certain emerging markets also  may face other significant internal or external
risks, including the risk of  war, and ethnic, religious and racial conflicts. In
addition, governments in  many emerging market countries participate to a significant
degree in their  economies and securities markets, which may impair investment and
economic  growth.</font></td></tr></table>


<table border=0 cellspacing=0 cellpadding=0 width="600">
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
</table>
<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
19</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p>
<table border=0 cellspacing=0 cellpadding=0 width="600">
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
</table>
<table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Depositary
Receipts</I>. The Fund may invest in securities of foreign issuers in the form of Depositary
Receipts or other securities that are convertible into securities of foreign issuers.
American Depositary Receipts are receipts typically issued by an American bank or trust
company that show evidence of underlying securities issued by a foreign corporation.
European Depositary Receipts (issued in Europe) and Global Depositary Receipts (issued
throughout the world) each evidence a similar ownership arrangement. The Fund also may
invest in unsponsored Depositary Receipts. The issuers of such unsponsored Depositary
Receipts are not obligated to disclose material information in the United States.
Therefore, there may be less information available regarding such issuers, and there may
not be a correlation between such information and the market value of the Depositary
Receipts. Depositary Receipts are generally subject to the same risks as the foreign
securities that they evidence or into which they may be converted.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Portfolio
Strategies</I>. The Fund may engage in various portfolio strategies both to seek to increase
the return of the Fund and to seek to hedge its portfolio against adverse effects from
movements in interest rates and in the securities markets. These strategies include the
use of derivatives, such as indexed securities, inverse securities, options, futures,
options on futures, interest rate transactions, credit default swaps, interest rate
swaps, total return swaps, short sales and foreign exchange transactions. Such
strategies subject the Fund to the risk that, if the Investment Adviser incorrectly
forecasts market values, interest rates or other applicable factors, the Fund&#146;s
performance could suffer. Certain of these strategies such as inverse securities, credit
default swaps, interest rate swaps, total return swaps and short sales may provide
investment leverage to the Fund&#146;s portfolio and result in many of the same risks of
leverage to the holders of the Fund&#146;s common stock as discussed above under &#147;&#151; Leverage.&#148; The
Fund is not required to use derivatives or other portfolio strategies to increase return
or to hedge its portfolio and may choose not to do so. No assurance can be given that
the Fund&#146;s portfolio strategies will be effective. Some of the derivative
strategies that the Fund may use to increase its return are riskier than its hedging
transactions and have speculative characteristics. Such strategies do not attempt to
limit the Fund&#146;s risk of loss.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>General Risks
Related to Derivatives</I>. Derivatives are financial contracts or instruments whose value
depends on, or is derived from, the value of an underlying asset, reference rate or
index (or relationship between two indices). The Fund may invest in a variety of
derivative instruments for hedging purposes or to seek to increase its return, such as
options, futures contracts and swap agreements, and may engage in short sales. The Fund
also may have exposure to derivatives through investment in credit linked notes, credit
or equity linked trust certificates and other securities issued by special purpose or
structured vehicles. The Fund may use derivatives as a substitute for taking a position
in an underlying security or other asset, as part of a strategy designed to reduce
exposure to other risks, such as interest rate risk. The Fund also may use derivatives
to add leverage to the portfolio. The Fund&#146;s use of derivative instruments involves
risks different from, and possibly greater than, the risks associated with investing
directly in securities and other traditional investments. Derivatives are subject to a
number of risks, such as liquidity risk, interest rate risk, credit risk, leverage risk,
the risk of ambiguous documentation and management risk. They also involve the risk of
mispricing or improper valuation and correlation risk (<I>i.e.</I>, the risk that changes in
the value of the derivative may not correlate perfectly with the underlying asset, rate
or index). If the Fund invests in a derivative instrument it could lose more than the
principal amount invested. The use of derivatives also may increase the amount of taxes
payable by stockholders. Also, suitable derivative transactions may not be available in
all circumstances and no assurance can be given that the Fund will engage in these
transactions to reduce exposure to other risks when that would be beneficial.</FONT></td></tr></table>


<table border=0 cellspacing=0 cellpadding=0 width="600">
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
</table>
<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
20</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;




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<p>
<table border=0 cellspacing=0 cellpadding=0 width="600">
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
</table>
<table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Options and
Futures Transactions</I>. Options and futures are types of derivatives. The Fund may engage
in options and futures transactions to reduce its exposure to interest rate movements or
to enhance its return. If the Fund incorrectly forecasts market values, interest rates
or other factors, the Fund&#146;s performance could suffer. The Fund also may suffer a
loss if the other party to the transaction fails to meet its obligations. The Fund is
not required to enter into options and futures transactions for hedging purposes or to
increase its return and may choose not to do so.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Swaps</I>. Swap
agreements are types of derivatives. In order to seek to hedge the value of the Fund&#146;s
portfolio, to hedge against increases in the Fund&#146;s costs associated with the
interest payments on its outstanding borrowings or the dividend payments on its
outstanding preferred stock, if any, or to seek to increase the Fund&#146;s return, the
Fund may enter into interest rate, credit default or total return swap transactions. In
interest rate swap transactions, there is a risk that yields will move in the direction
opposite of the direction anticipated by the Fund, which would cause the Fund to make
payments to its counterparty in the transaction that could adversely affect Fund
performance. In addition to the risks applicable to swaps generally, credit default swap
transactions 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). Total return swap transactions involve the risks that the counterparty will
default on its payment obligation to the Fund in the transaction and that the Fund will
not be able to meet its obligation to the counterparty in the transaction. The Fund is
not required to enter into interest rate, credit default or total return swap
transactions for hedging purposes or to increase its return and may choose not to do so.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Short Sales</I>. The
Fund may make short sales of securities. A short sale is a transaction in which the Fund
sells a security it does not own in anticipation that the market price of that security
will decline. When the Fund makes a short sale, it must borrow the security sold short
and deliver collateral to the broker dealer through which it made the short sale to
cover its obligation to deliver the borrowed security upon conclusion of the sale. The
Fund&#146;s obligation to replace the borrowed security will be secured by collateral
deposited with the broker dealer, usually cash, U.S. government securities or other
liquid securities similar to those borrowed. The Fund will also be required to
segregate similar collateral with its custodian. If the price of the security sold short
increases between the time of the short sale and the time the Fund replaces the borrowed
security, the Fund will incur a loss. The Fund also may make a short sale (&#147;against
the box&#148;) by selling a security that the Fund owns or has the right to acquire
without the payment of further consideration. The Fund&#146;s potential for loss is
greater if it does not own the security that it is short selling.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Liquidity of
Investments</I>. Certain securities in which the Fund invests may lack an established
secondary trading market or are otherwise considered illiquid. Liquidity of a security
relates to the ability to easily dispose of the security and the price to be obtained
and does not generally relate to the credit risk or likelihood of receipt of cash at
maturity. Illiquid securities may trade at a discount from comparable, more liquid
investments.</FONT></td></tr></table>

<p><table width=600><tr>
    <td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;<I>Portfolio Turnover
      Risk</I>. Generally, the Fund does not purchase securities for short term
      trading profits. However, the Fund may dispose of securities without regard
      to the time they have been held if, in its judgment, such transactions are
      advisable in light of a change in circumstances of a particular company
      or within a particular industry, a change in general market, financial or
      economic conditions, to make distributions to the Fund&#146;s common stockholders
      under the Managed Distribution Policy or for other reasons. (The portfolio
      turnover rate is calculated by dividing the lesser of purchases or sales
      of portfolio securities for the particular fiscal year by the monthly average
      of the value of the portfolio securities owned by the Fund during the</FONT>
      <font size=2>&lt;/R&gt;</font> </td>
  </tr></table>


<table border=0 cellspacing=0 cellpadding=0 width="600">
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
</table>
<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
21</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<!-- MARKER PAGE="sheet: 21; page: 21" -->






<p>
<table border=0 cellspacing=0 cellpadding=0 width="600">
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
</table>
<table width=600><tr><td><font size=2>particular  fiscal year. For  purposes of
determining this rate, all securities whose  maturities at the time of  acquisition are
one year or less are excluded.) A high  portfolio turnover rate results  in greater
transaction costs, which are borne  directly by the Fund, and also has certain  tax
consequences for stockholders.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Rating Agencies.</I>
In the event the Fund issues preferred stock, the Fund may be subject to guidelines of
one or more rating agencies that may issue ratings for such preferred stock. These
guidelines may impose asset coverage or portfolio composition requirements that are more
stringent than those imposed by the 1940 Act and may prohibit or limit the use by the
Fund of certain portfolio management techniques or investments. The Fund does not expect
these guidelines to prevent the Investment Adviser from managing the Fund&#146;s
portfolio in accordance with the Fund&#146;s investment objective and policies.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Market Disruption</I>.
The terrorist attacks in the United States on September 11, 2001 had a disruptive effect
on the securities markets, some of which were closed for a four-day period. These
terrorist attacks, and the continued threat thereof, and related events, including U.S.
military actions in Iraq and continued unrest in the Middle East, have led to increased
short term market volatility and may have long term effects on U.S. and world economies
and markets. Similar disruptions of the financial markets could adversely affect the
market prices of the Fund&#146;s portfolio securities, interest rates, auctions,
secondary trading, ratings, credit risk, inflation and other factors relating to the Fund&#146;s
common stock.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Antitakeover
Provisions</I>. The Fund&#146;s Charter, By-laws and the General Corporation Law of the
State of Maryland include provisions that could limit the ability of other entities or
persons to acquire control of the Fund, to convert the Fund to an open-end fund or to
change the composition of its Board of Directors. Such provisions could limit the
ability of stockholders to sell their shares at a premium over prevailing market prices
by discouraging a third party from seeking to obtain control of the Fund.</FONT></td></tr></table>



<table border=0 cellspacing=0 cellpadding=0 width="600">
  <tr>
    <td valign=top width=600 colspan="2">
      <hr size=1 noshade width=600 align=LEFT>
    </td>
  </tr>
</table>
<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
22</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<!-- MARKER PAGE="sheet: 22; page: 22" -->




<p><table width=600><tr>
    <td  align=center><font size=2><B>FEE TABLE</B></font></td>
  </tr></table>

<P>
<table cellspacing=0 cellpadding=0 border=0 width="600">
  <tr valign="bottom">
    <td colspan="2"><font size="2">&lt;R&gt;</font></td>
    <td width=33 align="right">&nbsp;</td>
    <td width=16 align="right">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td colspan="2"> <font size="2"><b>Stockholder Transaction Fees:</b></font>
    </td>
    <td width=33 align="right">&nbsp; </td>
    <td width=16 align="right">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td width=14>&nbsp; </td>
    <td width=537> <font size="2">Maximum Sales Load (as a percentage of offering
      price)</font></td>
    <td width=33 align="right"> <font size="2">4.50</font></td>
    <td width=16 align="left"><font size="2">%</font></td>
  </tr>
  <tr valign="bottom">
    <td width=14>&nbsp; </td>
    <td width=537> <font size="2">Offering Expenses Borne by the Fund (as a percentage
      of offering price)(a)</font></td>
    <td width=33 align="right"> <font size="2">0.20</font></td>
    <td width=16 align="left"><font size="2">%</font></td>
  </tr>
  <tr valign="bottom">
    <td width=14>&nbsp; </td>
    <td width=537> <font size="2">Dividend Reinvestment Plan Fees</font></td>
    <td width=33 align="right"> <font size="2">None</font></td>
    <td width=16 align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td colspan="2"> <font size="2"><b>Annual Expenses</b> (as a percentage of
      net assets attributable to common stock):</font> </td>
    <td width=33 align="right">&nbsp; </td>
    <td width=16 align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td width=14>&nbsp; </td>
    <td width=537> <font size="2">Investment Advisory Fee(b)(c)</font></td>
    <td width=33 align="right"> <font size="2">1.23</font></td>
    <td width=16 align="left"><font size="2">%</font></td>
  </tr>
  <tr valign="bottom">
    <td width=14>&nbsp; </td>
    <td width=537> <font size="2">Interest Payments on Borrowed Funds(c)</font></td>
    <td width=33 align="right"> <font size="2">0.69</font></td>
    <td width=16 align="left"><font size="2">%</font></td>
  </tr>
  <tr valign="bottom">
    <td width=14>&nbsp; </td>
    <td width=537> <font size="2">Other Expenses(c)</font></td>
    <td width=33 align="right"> <font size="2">0.18</font></td>
    <td width=16 align="left"><font size="2">%</font></td>
  </tr>
  <tr valign="bottom">
    <td width=14>&nbsp;</td>
    <td width=537>&nbsp;</td>
    <td align="right">
      <hr noshade size="1">
    </td>
    <td align="right">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td width=14>&nbsp; </td>
    <td width=537> <font size="2">&nbsp;&nbsp;Total Annual Expenses(c)</font></td>
    <td width=33 align="right"> <font size="2">2.10</font></td>
    <td width=16 align="left"><font size="2">%</font></td>
  </tr>
  <tr valign="bottom">
    <td width=14>&nbsp;</td>
    <td width=537>&nbsp;</td>
    <td align="right">
      <hr noshade>
    </td>
    <td align="right">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td width=551 colspan="4"><font size="2">&lt;/R&gt;</font></td>
  </tr>
</table>
<table width=600><tr><td><hr size=1 noshade align=left  width=75></td></tr></table>

<table width=600><tr><td width=4% valign=top><font size="1">(a) </font></td><td width=2%><font size="1"></font></td>
    <td width=94%><font size="1">The Investment Adviser has agreed to pay all
      of the Fund&#146;s organizational expenses. Offering costs will be paid
      by the Fund up to $.04 per share (0.20% of the offering price). The Investment
      Adviser has agreed to pay the amount by which the offering costs (other
      than the sales load, but including the $.00667 per share partial reimbursement
      of expenses to the underwriters) exceeds $.04 per share of common stock
      (0.20% of the offering price). The offering costs to be paid by the Fund
      are not included in the Total Annual Expenses shown in the table. Offering
      costs borne by common stockholders will result in a reduction of capital
      of the Fund attributable to common stock. In the event the Fund offers preferred
      stock in the future, the costs of that offering will be effectively borne
      by the common stockholders and result in a reduction of the net asset value
      of the shares of common stock.</font></td>
  </tr></table>

<table width=600><tr><td width=4% valign=top><font size="1">(b) </font></td><td width=2%><font size="1"></font></td>
    <td width=94%><font size="1">See &#147;Investment Advisory and Management
      Arrangements.&#148;</font></td>
  </tr></table>

<table width=600><tr><td width=4% valign=top><font size="1">(c) </font></td><td width=2%><font size="1"></font></td>
    <td width=94%><font size="1">Assumes leverage through borrowings in an initial
      amount of approximately 31% of the Fund&#146;s total capital (including
      amounts obtained from the leverage), or approximately 45% of the Fund&#146;s
      common stock equity, at a current estimated annual interest rate of 1.54%
      on borrowed amounts. The Fund may borrow money and issue debt securities
      in amounts up to 33<FONT SIZE="1"><sup>1</sup></FONT>/<FONT SIZE="1">3</FONT>%,
      and may issue shares of preferred stock in amounts up to 50%, of the value
      of its total assets to finance additional investments. Following the investment
      of the net proceeds of this common stock offering, the Fund may, depending
      on market and economic conditions and the relative costs and benefits associated
      with borrowings and other types of leverage, choose to leverage its portfolio
      through the issuance of preferred stock rather than through borrowings or
      the Fund may choose to leverage through a combination of borrowings and
      preferred stock. The cost of leverage may vary depending upon, among other
      factors, changes in interest rates. If the Fund does not use leverage, it
      is estimated that, as a percentage of net assets attributable to common
      stock, the Investment Advisory Fee would be 0.85%, Interest Payments on
      Borrowed Funds would be 0.00%, Other Expenses would be 0.18% and Total Annual
      Expenses would be 1.03%. No assurance can be given that the Fund will leverage
      its portfolio. See &#147;Risk Factors and Special Considerations &#151;
      Leverage Risk&#148; and &#147;Risks and Special Considerations of Leverage.&#148;</font></td>
  </tr></table>

<P>
<table cellspacing=0 cellpadding=0 border=0 width="600">
  <tr valign="bottom">
    <td colspan="2"> <font size="2"><b><u>EXAMPLE</u></b></font></td>
    <td width=30>&nbsp; </td>
    <td width=8>&nbsp;</td>
    <td width=34>&nbsp; </td>
    <td width=8>&nbsp;</td>
    <td width=34>&nbsp; </td>
    <td width=8>&nbsp;</td>
    <td width=39>&nbsp; </td>
  </tr>
  <tr valign="bottom">
    <td width=15>&nbsp; </td>
    <td width=347>&nbsp;</td>
    <td align="center" width=30> <font size="1"><b>1 Year</b></font>
      <hr noshade size="1">
    </td>
    <td align="center" width=8>&nbsp;</td>
    <td align="center" width=34> <font size="1"><b>3 Years</b></font>
      <hr noshade size="1">
    </td>
    <td align="center" width=8>&nbsp;</td>
    <td align="center" width=34> <font size="1"><b>5 Years</b></font>
      <hr noshade size="1">
    </td>
    <td align="center" width=8>&nbsp;</td>
    <td align="center" width=39> <font size="1"><b>10 Years</b></font>
      <hr noshade size="1">
    </td>
  </tr>
  <tr valign="bottom">
    <td colspan="2"><font size="2">An investor would pay the following expenses
      (including the sales </font></td>
    <td align="center" width=30>&nbsp;</td>
    <td align="center" width=8>&nbsp;</td>
    <td align="center" width=34>&nbsp;</td>
    <td align="center" width=8>&nbsp;</td>
    <td align="center" width=34>&nbsp;</td>
    <td align="center" width=8>&nbsp;</td>
    <td align="center" width=39>&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td><font size="2">load of $45 and estimated offering expenses of this offering
      of <br>
      </font> <font size="2">$2.00) on a $1,000 investment, assuming total annual
      expenses <br>
      </font> <font size="2">of 2.10% (assuming leverage through borrowings in
      an initial <br>
      </font> <font size="2">amount of approximately 31% of the Fund&#146;s total
      capital <br>
      </font> <font size="2">(including amounts obtained from the leverage) or
      approximately <br>
      </font> <font size="2">45% of the Fund&#146;s common stock equity) and a
      5% annual <br>
      </font> <font size="2">return throughout the periods.</font></td>
    <td align="center" width=30><font size="2">$67</font></td>
    <td align="center" width=8>&nbsp;</td>
    <td align="center" width=34><font size="2">$110</font></td>
    <td align="center" width=8>&nbsp;</td>
    <td align="center" width=34><font size="2">$155</font></td>
    <td align="center" width=8>&nbsp;</td>
    <td align="center" width=39><font size="2">$279</font></td>
  </tr>
  <tr valign="bottom">
    <td rowspan="8" width=362 colspan="2"> <font size="2">&lt;/R&gt;</font></td>
    <td rowspan="8" align="center" width=30>&nbsp; </td>
    <td rowspan="8" align="center" width=8>&nbsp;&nbsp;</td>
    <td rowspan="8" align="center" width=34>&nbsp; </td>
    <td rowspan="8" align="center" width=8>&nbsp;&nbsp;</td>
    <td rowspan="8" align="center" width=34>&nbsp; </td>
    <td rowspan="8" align="center" width=8>&nbsp;&nbsp;</td>
    <td rowspan="8" align="center" width=39>&nbsp; </td>
  </tr>
</table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
23</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr>
    <td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;The Fee Table is
      intended to assist investors in understanding the costs and expenses that
      a stockholder in the Fund will bear directly or indirectly. The expenses
      set forth under &#147;Other Expenses&#148; are based on estimated amounts
      through the end of the Fund&#146;s first fiscal year. The Example set forth
      above assumes reinvestment of all dividends and distributions and utilizes
      a 5% annual rate of return as mandated by Securities and Exchange Commission
      (the &#147;Commission&#148;) regulations. <B>The Example should not be considered
      a representation of future expenses or annual rate of return, and actual
      expenses, leverage amount or annual rate of return may be more or less than
      those assumed for purposes of the Example.</B>&lt;/R&gt;</FONT></td>
  </tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
24</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td  align=center><font size=2><B>THE FUND</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capital and Income
Strategies Fund, Inc. (the &#147;Fund&#148;) is a newly  organized, diversified,
closed-end management investment company. The Fund was  incorporated under the laws of
the State of Maryland on February 5, 2004, and  has registered under the Investment
Company Act of 1940, as amended (the &#147;1940  Act&#148;). The Fund&#146;s principal
office is located at 800 Scudders Mill Road,  Plainsboro, New Jersey 08536, and its
telephone number is (609) 282-2800.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund is
organized as a closed-end investment company. Closed-end  investment companies differ
from open-end investment companies (commonly  referred to as mutual funds) in that
closed-end investment companies do not  redeem their securities at the option of the
stockholder, whereas open-end  investment companies issue securities redeemable at net
asset value at any time  at the option of the stockholder and typically engage in a
continuous offering  of their shares. Accordingly, open-end investment companies are
subject to  continuous asset in-flows and out-flows that can complicate portfolio
management. However, shares of closed-end investment companies frequently trade  at a
discount from net asset value. This risk may be greater for investors  expecting to sell
their shares in a relatively short period after completion of  the public offering.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of
Directors of the Fund may at any time consider a merger,  consolidation or other form of
reorganization of the Fund with one or more other  closed-end or open-end investment
companies advised by Fund Asset Management  L.P., the Fund&#146;s investment adviser (the
&#147;Investment Adviser&#148;), with a similar  investment objective and policies as the
Fund. Any such merger, consolidation or  other form of reorganization would require the
prior approval of the Board of  Directors and the stockholders of the Fund. See &#147;Description
of Capital Stock &#151; Certain Provisions of the Charter and By-laws.&#148;</font></td></tr></table>


<p><table width=600><tr><td  align=center><font size=2><B>USE OF PROCEEDS</B></font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;The net proceeds of
      this offering will be approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      (or approximately $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;assuming
      the underwriters exercise the overallotment option in full) after payment
      of offering costs estimated to be approximately $475,000 and the deduction
      of the underwriting discount. The Investment Adviser has agreed to pay the
      amount by which the offering costs (other than the underwriting discount,
      but including the $.00667 per share partial reimbursement of expenses to
      the underwriters) exceeds $.04 per share of common stock (0.20% of the offering
      price). The Investment Adviser has agreed to pay all of the Fund&#146;s
      organizational expenses.&lt;/R&gt;</font></td>
  </tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund expects
that there will be an initial investment period of up to  approximately three months
following the completion of its common stock  offering, depending on market conditions
and the availability of appropriate  securities, before the net proceeds thereof are
invested in accordance with the  Fund&#146;s investment objective and policies. Pending
such investment, it is  anticipated that all or a portion of such proceeds will be
invested in high  grade, short term debt securities (both fixed and floating rate), money
market  funds, credit linked notes, credit or equity linked trust certificates and/or
index futures contracts or similar derivative instruments designed to give the  Fund
exposure to some of the markets in which it intends to invest while the  Investment
Adviser selects specific securities. A relatively long initial  investment period may
negatively affect the return to the Fund&#146;s stockholders  and the Fund&#146;s ability
to achieve its investment objective. See &#147;Investment  Objective and Policies.&#148;</font></td></tr></table>

<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
25</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td  align=center><font size=2><B>INVESTMENT OBJECTIVE AND
POLICIES</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund&#146;s
investment objective is to provide current income and capital  appreciation. The Fund&#146;s
investment objective is a fundamental policy and may  not be changed without the approval
of a majority of the outstanding voting  securities of the Fund (as defined in the 1940
Act). The Fund cannot guarantee  that it will achieve its investment objective.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund seeks to
achieve its investment objective by investing in a  portfolio of equity and debt
securities of U.S. and foreign issuers. The  Investment Adviser from time to time may
vary the percentage of the Fund&#146;s  assets invested in each asset category and in any
particular type of equity or  debt security based on such factors as market and economic
conditions, fiscal  and monetary policy and the relative security valuation and yield of
the various  debt and equity asset classes. For example, negative economic and market
developments might cause the Investment Adviser to decrease exposure to common  stocks
and increase exposure to fixed income securities, while positive economic  and market
developments might cause the Investment Adviser to increase exposure  to common stocks
and decrease exposure to fixed income securities. To enable the  Fund to take advantage
of this flexible investment approach, the Fund may invest  without limitation in any type
of equity security or debt security, including  preferred securities or debt securities
that are rated below investment grade  or, if unrated, are considered by the Investment
Adviser to be of comparable  quality.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After the initial
investment period of approximately three months  following the completion of this
offering, and subject to market and economic  conditions existing at that time, it is
currently expected that initially  approximately 55% of the Fund&#146;s total assets will
be invested in common stocks,  approximately 30% of the Fund&#146;s total assets will be
invested in preferred  securities, and approximately 15% of the Fund&#146;s total assets
will be invested in  debt securities. As indicated above, the Investment Adviser may vary
the Fund&#146;s  asset allocation from time to time based on such factors as market and
economic  conditions, fiscal and monetary policy and the relative security valuation and
yield of the various debt and equity asset classes.</font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;To the extent the
      Fund invests in preferred securities and dividend paying common stocks,
      the Investment Adviser currently intends to emphasize those securities that:
      (i) are eligible to pay qualified dividend income and/or (ii) make payments
      that are eligible for the dividends received deduction allowed to corporate
      taxpayers (&#147;Dividends Received Deduction&#148;) pursuant to Section
      243 of the Internal Revenue Code of 1986, as amended (the &#147;Code&#148;).
      Recently enacted federal legislation reduced the individual federal income
      tax rate on long term capital gains and qualified dividend income to a maximum
      rate of 15%. Long term capital gains and qualified dividend income included
      in distributions of a regulated investment company (a &#147;RIC&#148;) (for
      which status the Fund intends to qualify) to its individual stockholders
      are generally passed through to such stockholders and taxed at the reduced
      rates. Pursuant to Section 243 of the Code, corporations generally may deduct
      70% of the dividend income they receive from domestic corporations. Corporate
      stockholders of a RIC generally are permitted to claim a deduction with
      respect to that portion of their dividend distributions attributable to
      amounts that the RIC designates as qualifying for the Dividends Received
      Deduction. However, the Fund&#146;s use of leverage through borrowings may
      reduce the amount of dividends it can designate as qualifying for the Dividends
      Received Deduction which will, in turn, limit the tax benefit to a corporate
      stockholder of investing in the Fund. Corporate stockholders should consider
      whether an investment in the Fund is appropriate in light of the Fund&#146;s
      intent to borrow after the initial offering. No assurance can be given as
      to what percentage of the dividends paid on the Fund&#146;s common stock
      will be eligible for: (i) the reduced federal income tax rate for qualified
      dividend income and long term capital gain for individuals or (ii) the Dividends
      Received Deduction for corporate stockholders of the Fund. See &#147;Taxes.&#148;
      The 15% federal income tax rate applicable to long term capital gains and
      qualified dividend income is scheduled to expire after December 31, 2008.
      &lt;/R&gt;</font></td>
  </tr></table>

<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
26</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr>
    <td><font size=2>After this date, absent extension or modification of the
      relevant legislative provisions, long term capital gains distributions paid
      by the Fund generally will be taxable at the previously applicable maximum
      20% rate, and distributions attributable to qualified dividend income will
      be taxed to the stockholder at his or her marginal federal income tax rate
      (which generally will be higher than 15%).<br>
      <br>
      &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investment in the Fund&#146;s common stock
      offers the individual investor several potential benefits. The Fund offers
      investors the opportunity to invest in a professionally managed portfolio
      which contains common stocks, preferred securities and debt securities of
      U.S. and foreign issuers. The Investment Adviser provides professional management,
      which includes the extensive securities and credit analysis needed to invest
      in common stocks, preferred securities, foreign securities, debt securities,
      high yield securities, emerging markets debt and convertible securities.
      The Fund also relieves the investor of the burdensome administrative details
      involved in managing a portfolio of such investments. Additionally, the
      Investment Adviser may seek to increase the return of the Fund&#146;s common
      stock by leveraging the Fund&#146;s capital structure through borrowings,
      the issuance of short term debt securities, the issuance of shares of preferred
      stock or a combination thereof. These benefits are at least partially offset
      by the expenses involved in running an investment company. Such expenses
      primarily consist of advisory fees and operational costs. The use of leverage
      also involves certain expenses and risk considerations. See &#147;Risks
      and Special Considerations of Leverage &#151; Effects of Leverage.&#148;</font></td>
  </tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund may
engage in various portfolio strategies to seek to increase  its return or to hedge its
portfolio against movements in interest rates, in  currency rates and in the securities
markets through the use of derivatives,  such as indexed and inverse securities, options,
futures, options on futures,  interest rate transactions, including interest rate swaps,
total return swaps,  credit default swaps, short selling and foreign exchange
transactions. Each of  these portfolio strategies is described below. No assurance can be
given that  the Fund will employ these strategies or that, if employed, they will be
effective.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund may vary
its investment objective and policies for temporary  defensive purposes during periods in
which the Investment Adviser believes that  conditions in the securities markets or other
economic, financial or political  conditions warrant and in order to keep the Fund&#146;s
cash fully invested,  including during the periods which the net proceeds of the offering
are being  invested. Under such conditions, the Fund may invest up to 100% of its total
assets in securities issued or guaranteed by the U.S. government or its
instrumentalities or agencies, certificates of deposit, bankers&#146; acceptances and
other bank obligations, commercial paper rated in the highest category by an  established
rating service, or other debt securities deemed by the Investment  Adviser to be
consistent with a defensive posture, or may hold its assets in  cash.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund may
invest in, among other things, the types of securities and  instruments described below:</font></td></tr></table>


<p><table width=600><tr><td><font size=2><B>Description of Common Stocks</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund may
invest without limitation in common stocks. In addition,  there are no capitalization
range limitations on the common stocks in which the  Fund may invest. The Fund may invest
in common stocks of both U.S. and foreign  issuers. In selecting common stocks, the
Investment Adviser emphasizes companies  that it believes are undervalued. The Investment
Adviser places particular  emphasis on, among other things, companies with below average
price/earnings  ratios, below average price/book ratios, below average price/cash flow
ratios or  above average dividend yields. The Investment Adviser also may determine that
a  company is undervalued if its stock price is down because of temporary factors  from
which the Investment Adviser believes the company will recover. It is  currently expected
that the Investment Adviser will focus on companies with  market capitalizations of over
$5 billion. This market capitalization focus may  shift in response to changing market
conditions.</font></td></tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
27</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2><B>Description of Preferred Securities</B></font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>General</I>. The Fund
may invest without limitation in preferred securities, including convertible preferred
securities that may be converted into common stock or other securities of the same or a
different issuer. The Fund may invest in preferred securities of both U.S. and foreign
issuers. The Investment Adviser currently intends to emphasize preferred securities that
are eligible to pay qualified dividend income and whose dividends are eligible for the
Dividends Received Deduction. Many preferred securities, including &#147;hybrid&#148; or
taxable preferred securities, pay dividends that do not qualify for the Dividends
Received Deduction and are not eligible for the reduced federal tax rate applicable to
qualified dividend income. Such dividend payments constitute deductible interest expense
for the issuers thereof rather than dividends eligible for the reduced federal income
tax rate applicable to qualified dividend income and/or the Dividends Received
Deduction. See &#147;Taxable Preferred Securities&#148; below.</FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally,
preferred securities receive dividends in priority to  distributions on common stock and
usually have a priority of claim over common  stockholders if the issuer of the stock is
liquidated. Preferred securities have  certain characteristics of both debt and equity
securities. Like debt  securities, preferred securities&#146; rate of income is generally
contractually  fixed. Like equity securities, preferred securities do not have rights to
precipitate bankruptcy filings or collection activities in the event of missed  payments.
Furthermore, preferred securities are generally in a subordinated  position in an issuer&#146;s
capital structure and their values are heavily dependent  on the profitability of the
issuer rather than on any legal claims to specific  assets or cash flows.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Traditional Fixed
Rate Preferred Securities</I>. Unlike taxable preferred securities described below,
traditional fixed rate preferred securities generally have fixed dividend rates for the
life of the issue and typically, unless issued by certain foreign corporations, pay
dividends eligible for the reduced tax rate applicable to qualified dividend income and,
if issued by domestic corporations, make payments that qualify for the Dividends
Received Deduction. They can be perpetual, with no mandatory redemption date, or issued
with a fixed mandatory redemption date. Certain issues of preferred securities are
convertible into other equity securities. Perpetual preferred securities provide a fixed
dividend throughout the life of the issue, with no mandatory retirement provisions, but
may be callable. Sinking fund preferred securities provide for the redemption of a
portion of the issue on a regularly scheduled basis with, in most cases, the entire
issue being retired at a future date. The value of fixed rate preferred securities can
be expected to vary inversely with interest rates. Certain fixed rate preferred
securities have features intended to provide some degree of price stability. These
features may include an auction mechanism at some specified future date. The auction
feature is normally intended to enhance the probability that a preferred securities
stockholder will be able to dispose of its holdings close to a pre-specified price,
typically equal to par or a stated value. Other price stability mechanisms include
convertibility into an amount of common equity of the same issuer at some specified
future date, typically in amounts not greater than par value of the underlying preferred
securities. Another common form of fixed rate preferred securities is the traditional
convertible preferred security, which permits the holder to convert into a specified
number of shares at the holder&#146;s option at any time prior to a specified date.
Innovative preferred securities and convertible preferred securities are less liquid
than the traditional fixed rate preferred security.</FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends on any
series of preferred securities may be cumulative or  non-cumulative. Cumulative dividends
accumulate until paid out, so if on the  dividend payment date no dividend is declared
such obligation will exist and  take precedence over any common stock dividends until
paid out. Non-cumulative  dividends do not accrue and any omitted dividends may never be
paid.</font></td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
28</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Adjustable Rate
Preferred Securities</I>. Unlike traditional fixed rate preferred securities, adjustable
rate preferred securities are preferred securities that have a dividend rate that
adjusts periodically to reflect changes in the general level of interest rates.
Adjustable rate preferred securities generally pay dividends eligible for the reduced
tax rate applicable to qualified dividend income and that qualify for the Dividends
Received Deduction, if not issued by a foreign corporation. The adjustable feature is
intended to make the market value of these securities less sensitive to changes in
interest rates than similar securities with fixed dividend rates.</FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The dividend rate
on adjustable rate preferred securities typically is  determined quarterly according to
an adjustment formula established at the time  of issuance of such securities that cannot
be changed without approval of the  holders thereof. Although adjustment formulas vary
among issues, they typically  involve a fixed relationship either to: (1) rates on
specific classes of debt  securities issued by the U.S. Treasury, such as the highest
base rate yield of  the 90-day Treasury bill, the 10-year Treasury note, or either the
20-year or  30-year Treasury bond or (2) London Interbank Offered Rate, with limits
(known  as &#147;collars&#148;) on the minimum and maximum dividend rate that may be
paid. As the  maximum dividend rate is approached, any further increase in interest rates
may  adversely affect the market value of the preferred securities. As the minimum
dividend rate is approached, any further decrease in interest rates may  positively
affect the market value of the preferred securities.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market values
of outstanding issues of adjustable rate preferred  securities may fluctuate in response
to changing market conditions. In the event  that market participants in a particular
issue demand a different yield than the  adjustment formulas produce, the market price
will change to produce the desired  yield. The dividend yield demanded by market
participants may vary with changing  perceptions of credit quality and the relative
levels of short term and long  term interest rates, as well as other factors. Most of the
adjustable rate  preferred securities currently outstanding are perpetual.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Auction Rate
Preferred Securities</I>. Auction rate preferred securities pay dividends that adjust based
upon periodic auctions. Such preferred securities are similar to short term corporate
money market instruments in that an auction rate preferred stockholder has the
opportunity to sell the preferred securities at par in an auction, through which buyers
set the dividend rate in a bidding process for the next pre-determined dividend period.
The dividend rate set in the auction depends upon market conditions and the credit
quality of the particular issuer. Typically, the auction rate preferred securities&#146; dividend
rate is limited to a specified maximum percentage of an external commercial paper index
as of the auction date. Further, the terms of auction rate preferred securities
generally provide that they are redeemable by the issuer at certain times or under
certain conditions.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Remarketed
Preferred Securities</I>. Like buyers of auction rate preferred securities, buyers of shares
of a series of remarketed preferred securities receive a uniform dividend rate. In a
remarketing, however, unlike an auction, the dividend rate and dividend period are set
by remarketing agents, taking into account sell and hold orders from existing holders,
the rates and number of shares sought by potential buyers and prevailing market
conditions. During the remarketing process, remarketing agents use their reasonable best
efforts to remarket the remarketed preferred securities tendered for sale in the
remarketing. The dividend rate for each dividend period will be the rate per annum that
the remarketing agents determine, in their sole discretion, to be the lowest rate,
giving effect to the allocation of shares of remarketed preferred stock among dividend
periods of different lengths, that will enable the remarketing agents to sell at par all
shares tendered for sale in the remarketing.</FONT></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<i>Taxable Preferred Securities</i>.
      The Fund also may invest in taxable preferred securities (often referred
      to as &#147;hybrid&#148; preferred securities), the payments on which are
      not eligible for the reduced tax rates for individual stockholders applicable
      to qualified dividend income or the Dividends Received Deduction allowed
      to corporate stockholders. Such payments constitute deductible interest
      expense for issuers thereof rather than dividends </font></td>
  </tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
29</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2>eligible for the  reduced federal income tax
rate applicable to qualified  dividend income and/or  the Dividends Received Deduction.
The taxable preferred  securities in which the  Fund may invest typically offer
additional yield spread versus  other types of  preferred securities due to the fact that
payments made with respect to  such  preferred securities do not qualify for the reduced
tax rate applicable to  qualified dividend income and/or the Dividends Received
Deduction. Taxable  preferred  securities are a comparatively new asset class.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Taxable preferred
securities include but are not limited to: trust  originated preferred securities,
monthly income preferred securities, quarterly  income bond securities, quarterly income
debt securities, quarterly income  preferred securities, corporate trust securities,
public income notes and other  trust preferred securities.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Taxable preferred
securities are typically issued by an affiliated business trust or other special purpose
entity established by an operating company, generally in the form of beneficial
interests in subordinated debentures or similarly structured securities. The taxable
preferred securities market consists of both fixed and adjustable coupon rate securities
that are either perpetual in nature or have stated maturity dates. The taxable preferred
securities market is generally divided into the &#147;$25 par&#148; and the &#147;institutional&#148; segments.
The $25 par segment is typified by securities that are listed on the New York Stock
Exchange (the &#147;NYSE&#148;), which trade and are quoted &#147;flat&#148; (<I>i.e.</I>,
without accrued dividend income that is not included in the trading price) and which are
typically callable at par value five years after their original issuance date. The
institutional segment is typified by $1,000 par value securities that are not exchange
listed, which trade and are quoted on an &#147;accrued income&#148; basis, and which
typically have a minimum of 10 years of call protection (at premium prices) from the
date of their original issuance.</FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Taxable preferred
securities normally constitute junior and fully  subordinated liabilities of an issuer or
are the beneficiary of a guarantee that  is junior and fully subordinated to the other
liabilities of the guarantor. In  addition, taxable preferred securities often permit the
issuer to defer the  payment of income for a specified period, which may be 18 months or
more,  without triggering an event of default. Because of their subordinated position  in
the capital structure of an issuer, the ability to defer payments for  extended periods
of time without adverse consequence to the issuer, and certain  other features (such as
restrictions on common dividend payments by the issuer  or ultimate guarantor when
cumulative payments on the taxable preferred  securities have not been made), issuers and
investors generally treat taxable  preferred securities as close substitutes for
traditional preferred securities.  Taxable preferred securities have many of the key
characteristics of equity due  to their subordinated position in an issuer&#146;s capital
structure and because  their quality and value are heavily dependent on the profitability
of the issuer  rather than on any legal claims to specific assets or cash flows.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Taxable preferred
securities are often issued with a final maturity date,  although some are perpetual in
nature. In certain instances, the final maturity  date may be extended and/or the final
payment of principal may be deferred at  the issuer&#146;s option for a specified time
without any adverse consequence to the  issuer. No redemption can typically take place
unless all cumulative payment  obligations have been met, although issuers may be able to
engage in open-market  repurchases without regard to any cumulative dividends payable. A
portion of the  portfolio may include investments in non-cumulative preferred securities,
whereby the issuer does not have an obligation to make up any arrearages to its
stockholders. Should an issuer default on its obligations under such a security,  the
amount of dividends the Fund pays to stockholders may be adversely affected.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many taxable
preferred securities are issued by trusts or other special  purpose entities established
by operating companies, and are not direct  obligations of the operating company. At the
time a trust or special purpose  entity sells its preferred securities to investors, the
trust or special purpose  entity purchases debt of the operating company (with terms
comparable to those  of the securities issued by the trust or special purpose entity),
which enables  the operating company to deduct for federal income tax purposes the
interest  paid on the </font></td></tr></table>




<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
30</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2>debt held by the trust or special purpose
entity. The trust or  special purpose entity is generally required to be treated as
transparent for  federal  income tax purposes such that the holders of the taxable
preferred  securities are  treated as owning beneficial interests in the underlying debt
of  the operating company.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accordingly,
dividend payments made with respect to such taxable preferred  securities are treated as
interest rather than dividends for federal income tax  purposes and, as such, are not
eligible for the Dividends Received Deduction or  the reduced tax rate applicable to
qualified dividend income. The trust or  special purpose entity in turn would be a holder
of the operating company&#146;s debt  and would have priority with respect to the
operating company&#146;s assets over the  operating company&#146;s common stockholders,
but would typically be subordinated to  other classes of the operating company&#146;s
debt. Typically a taxable preferred  security has a rating that is slightly below that of
its corresponding operating  company&#146;s senior debt securities. As a result of their
subordinated position in  an issuer&#146;s capital structure, taxable preferred
securities typically offer  investors a higher interest payment compared to the senior
debt securities of  the operating company.</font></td></tr></table>


<table width=600><tr><td><hr size=1 noshade align=CENTER width=150></td></tr></table>



<table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From time to time,
preferred securities issues have been, and may in the  future be, offered having features
other than those described herein. The Fund  reserves the right to invest in these
securities if the Investment Adviser  believes that doing so would be consistent with the
Fund&#146;s investment objective  and policies. Since the market for these instruments
would be new, the Fund may  have difficulty disposing of them at a suitable price and
time. In addition to  limited liquidity, these instruments may present other risks, such
as high price  volatility.</font></td></tr></table>


<p><table width=600><tr><td><font size=2><B>Description of Debt Securities</B></font></td></tr></table>

<p><table width=600><tr>
    <td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;<I>General</I>.
      As described below, the Fund may invest without limitation in all types
      of debt securities, including U.S. and foreign government bonds, corporate
      bonds, corporate loans and convertible bonds, mortgage and asset backed
      securities and emerging market debt. In addition, the Fund may invest without
      limitation in high quality short term U.S. dollar or non-U.S. dollar-denominated
      fixed income securities or other instruments, such as U.S. or foreign government
      securities, commercial paper and money market instruments issued by U.S.
      or foreign commercial banks or depository institutions. There are no maturity
      or duration limitations on the debt securities in which the Fund may invest.
      The Fund may invest without limitation in below investment grade, high yield
      securities, including high yield bonds (commonly referred to as &#147;junk&#148;
      bonds), preferred securities, corporate loans and convertible debt securities.
      The Fund also may invest up to 10% of its total assets in Distressed Securities.
      For a description of these high yield securities, see &#147;&#151; Description
      of High Yield Securities&#148; below. A further discussion of certain of
      these debt securities and certain related risk factors is set forth below.&lt;/R&gt;</FONT></td>
  </tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Corporate Loans</I>.
Commercial banks and other financial institutions make corporate loans to companies that
need capital to grow or restructure. Borrowers generally pay interest on corporate loans
at rates that change in response to changes in market interest rates such as the London
Interbank Offered Rate (LIBOR) or the prime rates of U.S. banks. As a result, the value
of corporate loan investments is generally less responsive to shifts in market interest
rates. Because the trading market for corporate loans may be less developed than the
secondary market for bonds and notes, the Fund may experience difficulties in selling
its corporate loans. Borrowers frequently provide collateral to secure repayment of
these obligations. Leading financial institutions often act as agent for a broader group
of lenders, generally referred to as a syndicate. The syndicate&#146;s agent arranges
the corporate loans, holds collateral and accepts payments of principal and interest on
behalf of the lender. If the agent develops financial problems, the Fund may not recover
its investment or recovery may be delayed. By investing in a corporate loan, the Fund
becomes a member of the syndicate.</FONT></td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
31</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The corporate
loans in which the Fund invests can be expected to provide  higher yields than bonds and
notes that have investment grade ratings, but may  be subject to greater risk of loss of
principal and income. Borrowers do not  always provide collateral for corporate loans, or
the value of the collateral  may not completely cover the borrower&#146;s obligations at
the time of a default. If  a borrower files for protection from its creditors under the
U.S. bankruptcy  laws, these laws may limit the Fund&#146;s rights to its collateral. In
addition, the  value of collateral may erode during a bankruptcy case. In the event of a
bankruptcy, the holder of a corporate loan may not recover its principal, may  experience
a long delay in recovering its investment and may not receive  interest during the delay.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Mortgage Backed
Securities</I>. Mortgage backed securities represent the right to receive a portion of
principal and/or interest payments made on a pool of residential or commercial mortgage
loans. When interest rates fall, borrowers may refinance or otherwise repay principal on
their mortgages earlier than scheduled. When this happens, certain types of mortgage
backed securities will be paid off more quickly than originally anticipated and the Fund
will have to invest the proceeds in securities with lower yields. This risk is known as
&#147;prepayment risk.&#148; When interest rates rise, certain types of mortgage backed
securities will be paid off more slowly than originally anticipated and the value of
these securities will fall. This risk is known as &#147;extension risk.&#148;</FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because of
prepayment risk and extension risk, mortgage backed securities  react differently to
changes in interest rates than other fixed income  securities. Small movements in
interest rates (both increases and decreases) may  quickly and significantly reduce the
value of certain mortgage backed  securities.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Asset Backed
Securities</I>. Asset backed securities are &#147;pass through&#148; securities, meaning that
principal and interest payments made by the borrower on the underlying assets (such as
credit card receivables) are passed through to the Fund. Like traditional fixed income
securities, the value of asset backed securities typically increases when interest rates
fall and decreases when interest rates rise. Certain asset backed securities also may be
subject to the risk of prepayment. In a period of declining interest rates, borrowers
may pay what they owe on the underlying assets more quickly than anticipated. Prepayment
reduces the yield to maturity and the average life of the asset backed securities. In
addition, when the Fund reinvests the proceeds of a prepayment it may receive a lower
interest rate than the rate on the security that was prepaid. This risk is known as
&#147;prepayment risk.&#148; In a period of rising interest rates, prepayments may occur
at a slower rate than expected. As a result, the average maturity of debt securities in
the Fund&#146;s portfolio will increase. The value of longer term securities generally
changes more widely in response to changes in interest rates than shorter term
securities. This risk is known as &#147;extension risk.&#148;</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sovereign Debt</I>.
The Fund may invest in sovereign debt securities. These securities are issued or
guaranteed by foreign government entities. Investments in sovereign debt are subject to
the risk that a government entity may delay or refuse to pay interest or repay principal
on its sovereign debt. Some of the reasons may include cash flow problems, insufficient
foreign currency reserves, political considerations, the relative size of the government
entity&#146;s debt position to the economy or the failure to put in place economic
reforms required by the International Monetary Fund or other multilateral agencies. If a
government entity defaults, it may ask for more time in which to pay or for further
loans. There is no legal process for collecting sovereign debts that a government does
not pay nor bankruptcy proceeding by which all or part of a sovereign debt that a
government entity has not repaid may be collected.</FONT></td></tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
32</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Emerging Markets
Debt</I>. The Fund may invest in any type of debt obligations of issuers in emerging market
countries. Emerging markets include those in countries defined as emerging or developing
by the World Bank, the International Finance Corporation or the United Nations, as well
as any countries, regardless of per capita income level, that have restructured their
external and local debt. Emerging markets debt securities are subject to the risks
associated with debt securities, high yield securities, convertible securities and
emerging markets as described under &#147;Risk Factors and Special Considerations&#148; and
as described below under &#147;&#151; Description of High Yield Securities.&#148;</FONT></td></tr></table>


<p><table width=600><tr><td><font size=2><B>Description of Convertible Securities</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund may
invest in convertible securities. A convertible security is a  bond, debenture, note or
preferred security that may be converted into or  exchanged for a prescribed amount of
common stock or other securities of the  same or a different issuer within a particular
period of time at a specified  price or formula. A convertible security entitles the
holder to receive interest  or dividends generally paid or accrued until the convertible
security matures or  is redeemed, converted or exchanged. Convertible securities,
including  convertible preferred securities, have several unique investment
characteristics  such as (i) higher yields than common stocks, but lower yields than
comparable  nonconvertible securities, (ii) a lesser degree of fluctuation in value than
the  underlying stock since they have fixed income characteristics, and (iii) the
potential for capital appreciation if the market price of the underlying common  stock
increases. Holders of convertible securities have a claim on the assets of  the issuer
prior to the common stockholders but may be subordinated to similar  non-convertible
securities of the same issuer. A convertible security may be  subject to redemption at
the option of the issuer at a price established in the  convertible security&#146;s
governing instrument. If a convertible security held by  the Fund is called for
redemption, the Fund may be required to permit the issuer  to redeem the security,
convert it into the underlying common stock or other  securities or sell it to a third
party.</font></td></tr></table>

<p><table width=600><tr><td><font size=2><B>Description of High Yield Securities</B></font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>General</I>. The Fund
may invest without limit in high yield securities, including junk bonds, preferred
securities, corporate loans and convertible debt securities that are rated below
investment grade by established rating services (Ba or lower by Moody&#146;s Investors
Service, Inc. (&#147;Moody&#146;s&#148;), BB or lower by Standard &amp; Poor&#146;s (&#147;S&amp;P&#148;)
or BB or lower by Fitch Ratings (&#147;Fitch&#148;)) or, if unrated, are considered by
the Investment Adviser to be of comparable quality. See Appendix A &#147;&#151; Ratings
of Securities&#148; for information concerning rating categories. High yield securities
generally are regarded as having predominantly speculative characteristics with respect
to capacity to pay interest or dividend income and to repay principal and involve
greater volatility of price than securities in the higher rating categories. The Fund
may not invest more than 10% of its total assets in distressed securities. The Fund
considers distressed securities to be high yield securities that are the subject of
bankruptcy proceedings or otherwise in default as to the repayment of principal or
interest at the time of acquisition by the Fund or are rated in the lowest rating
categories (Ca or below by Moody&#146;s, CC or below by S&amp;P or CC or below by Fitch)
or, if unrated, are considered by the Investment Adviser to be of comparable quality (&#147;Distressed
Securities&#148;). The Fund may continue to hold securities that are downgraded after
the Fund purchases them and will sell such securities only if, in the Investment Adviser&#146;s
judgment, it is advantageous to sell such securities. The Fund also may invest without
limitation in investment grade securities and may invest in securities of any maturity
or duration.</FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selection and
monitoring of high yield securities by the Investment  Adviser involves continuous
analysis of individual issuers, general business  conditions and other factors which may
be too time-consuming or too costly for  the average investor. The furnishing of these
services does not, of course,  guarantee successful results. The </font></td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
33</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2>Investment Adviser&#146;s  analysis of issuers
includes, among other things, historic and current financial  conditions, current  and
anticipated cash flow and borrowing requirements, value of  assets in  relation to
historical costs, strength of management, responsiveness to  business  conditions, credit
standing, and current and anticipated results of operations.  Analysis of general
conditions and other factors may include anticipated change  in  economic activity and
interest rates, the availability of new investment  opportunities  and the economic
outlook for specific industries. While the  Investment Adviser considers  as one factor
in its credit analysis the ratings  assigned by the rating services, the  Investment
Adviser performs its own  independent credit analysis of issuers and,  consequently, the
Fund may invest,  without limit, in unrated securities. As a result,  the Fund&#146;s
ability to achieve  its investment objective may depend to a greater  extent on the
Investment  Adviser&#146;s own credit analysis than investment companies  that invest
only in  investment grade securities.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investments in
high yield securities generally provide greater income and  increased opportunity for
capital appreciation than investments in investment  grade securities, but they also
typically entail greater price volatility and  principal and income risk, including the
possibility of issuer default and  bankruptcy. High yield securities are regarded as
being predominantly  speculative as to the issuer&#146;s ability to make repayments of
principal and  payments of interest. Investment in such securities involves substantial
risk.  Issuers of high yield securities may be highly leveraged and may not have
available to them more traditional methods of financing. Therefore, the risks  associated
with acquiring the securities of such issuers generally are greater  than is the case
with investment grade securities. For example, during an  economic downturn or a
sustained period of rising interest rates, issuers of  high yield securities may be more
likely to experience financial stress,  especially if such issuers are highly leveraged.
During periods of economic  downturn, such issuers may not have sufficient revenues to
meet their interest  payment obligations. The issuer&#146;s ability to service its debt
obligations also  may be adversely affected by specific issuer developments, or the issuer&#146;s
inability to meet specific projected business forecasts or the unavailability of
additional financing. Therefore, there can be no assurance that in the future  there will
not exist a higher default rate relative to the rates currently  existing in the high
yield market. If an issuer of high yield securities  defaults, in addition to risking
non-payment of all or a portion of interest and  principal, the Fund may incur additional
expenses to seek recovery. The market  prices of high yield securities structured as
zero-coupon, step-up or  payment-in-kind securities will normally be affected to a
greater extent by  interest rate changes, and therefore tend to be more volatile than the
prices of  securities that pay interest currently and in cash.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other than with
respect to Distressed Securities (which are discussed  below), the high yield securities
in which the Fund may invest do not include  securities which, at the time of investment,
are in default or the issuers of  which are in bankruptcy. However, no assurance can be
given that such events  will not occur after the Fund purchases a particular security, in
which case the  Fund may experience losses and incur costs. High yield securities tend to
be  more volatile than investment grade securities, so adverse events may have a  greater
impact on the prices of high yield securities than on investment grade  securities.
Factors adversely affecting the market value of such securities are  likely to affect
adversely the Fund&#146;s net asset value.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Like investment
grade securities, high yield securities generally are  purchased and sold through dealers
who make a market in such securities for  their own accounts. However, there are fewer
dealers in the high yield market,  which market may be less liquid than the market for
investment grade securities,  even under normal economic conditions. Also, there may be
significant  disparities in the prices quoted for high yield securities by various
dealers,  and the spread between the bid and asked price is generally much larger than
for  investment grade securities. As a result, the Fund may experience difficulty
acquiring appropriate high yield securities for investment.</font></td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
34</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Adverse conditions
and investor perceptions thereof (whether or not based  on economic fundamentals) may
impair liquidity in the high yield market and may  cause the prices the Fund receives for
its high yield securities to be reduced.  In addition, the Fund may experience difficulty
in liquidating a portion of its  portfolio when necessary to meet the Fund&#146;s
liquidity needs or in response to a  specific economic event such as a deterioration in
the creditworthiness of the  issuer. Under such conditions, judgment may play a greater
role in valuing  certain of the Fund&#146;s portfolio securities than in the case of
securities  trading in a more liquid market. In addition, the Fund may incur additional
expenses if it is forced to seek recovery upon a default of a portfolio holding  or if it
participates in the restructuring of the obligation.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The risk of loss
due to default by an issuer is significantly greater for  the holders of junk bonds
because such securities are often unsecured and  subordinated to other creditors of the
issuer. In addition, junk bonds may have  call or redemption features that permit an
issuer to repurchase the securities  from the Fund. If a call were exercised by an issuer
during a period of  declining interest rates, the Fund likely would have to replace such
called  securities with lower yielding securities, thus decreasing the net investment
income to the Fund and dividends to stockholders.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The high yield
securities in which the Fund invests may include credit  linked notes, structured notes
or other instruments evidencing interests in  special purpose vehicles or trusts that
hold interests in high yield securities.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund may
receive warrants or other non-income producing equity  securities in connection with its
investments in high yield securities,  including in unit offerings, in an exchange offer,
upon the conversion of a  convertible security, or upon the restructuring or bankruptcy
of investments  owned by the Fund. The Fund may continue to hold such securities until,
in the  Investment Adviser&#146;s judgment in light of current market conditions, it is
advantageous to effect a disposition of such securities.</font></td></tr></table>

<p><table width=600><tr>
    <td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;<I>Distressed Securities</I>.
      The Fund may invest up to 10% of its total asset in Distressed Securities.
      An investment in Distressed Securities is speculative and involves significant
      risk in addition to the risks discussed above in connection with investments
      in high yield securities. Generally, the Fund will invest in Distressed
      Securities when the Investment Adviser believes they offer significant potential
      for higher returns or can be exchanged for other securities that offer this
      potential. However, there can be no assurance that the issuer will make
      an exchange offer or adopt a plan of reorganization. The Fund will generally
      not receive interest payments on Distressed Securities and may incur costs
      to protect its investment. In addition, the Fund&#146;s principal may not
      be repaid. Distressed Securities and any securities received in an exchange
      may be difficult to sell and may be subject to restriction on resale.&lt;/R&gt;</FONT></td>
  </tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
35</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td  align=center><font size=2><B>OTHER INVESTMENT POLICIES</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund has
adopted certain other policies as set forth below:</font></td></tr></table>


<p><table width=600><tr><td><font size=2><B>Investments in Foreign Securities</B></font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>General</I>. The Fund
may invest without limitation in securities of issuers domiciled outside the United
States, including issuers located in emerging market counties. The Fund may invest
without limitation in securities denominated in currencies other than the U.S. dollar or
that do not provide for payment to the Fund in U.S. dollars. The Investment Adviser
generally considers emerging market countries to be any country that is defined as
having an emerging or developing economy by the World Bank, the International Finance
Corporation or the United Nations, as well as any countries, regardless of per capita
income level, that have restructured their external and local debt. Investments in
foreign securities involves certain risks not involved in domestic investments.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Public
Information</I>. Many of the foreign securities held by the Fund will not be registered with
the Commission nor will the issuers thereof be subject to the reporting requirements of
such agency. Accordingly, there may be less publicly available information about the
foreign issuer of such securities than about a U.S. issuer, and such foreign issuers may
not be subject to accounting, auditing and financial reporting standards and
requirements comparable to those of U.S. issuers. Traditional investment measurements,
such as price/earnings ratios, as used in the United States, may not be applicable to
such securities, particularly those issued in certain smaller, emerging foreign capital
markets. Foreign issuers, and issuers in smaller, emerging capital markets in
particular, generally are not subject to uniform accounting, auditing and financial
reporting standards or to practices and requirements comparable to those applicable to
domestic issuers.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Trading Volume,
Clearance and Settlement</I>. Foreign financial markets, while often growing in trading
volume, have, for the most part, substantially less volume than U.S. markets, and
securities of many foreign companies are less liquid and their prices may be more
volatile than securities of comparable domestic companies. Foreign markets also have
different clearance and settlement procedures, and in certain markets there have been
times when settlements have failed to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Further, satisfactory
custodial services for investment securities may not be available in some countries
having smaller, emerging capital markets, which may result in the Fund incurring
additional costs and delays in transporting and custodying such securities outside such
countries. Delays in settlement could result in periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make intended
security purchases due to settlement problems or the risk of intermediary counterparty
failures could cause the Fund to miss attractive investment opportunities. The inability
to dispose of a portfolio security due to settlement problems could result either in
losses to the Fund due to subsequent declines in the value of such portfolio security
or, if the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Government
Supervision and Regulation</I>. There generally is less governmental supervision and
regulation of exchanges, brokers and issuers in foreign countries than there is in the
United States. For example, there may be no comparable provisions under certain foreign
laws to insider trading and similar investor protection securities laws that apply with
respect to securities transactions consummated in the United States. Further, brokerage
commissions and other transaction costs on foreign securities exchanges generally are
higher than in the United States.</FONT></td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
36</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Restrictions on
Foreign Investment</I>. Some countries prohibit or impose substantial restrictions on
investments in their capital markets, particularly their equity markets, by foreign
entities such as the Fund. As illustrations, certain countries require governmental
approval prior to investments by foreign persons, or limit the amount of investment by
foreign persons in a particular company, or limit the investment by foreign persons in a
company to only a specific class of securities that may have less advantageous terms
than securities of the company available for purchase by nationals. Certain countries
may restrict investment opportunities in issuers or industries deemed important to
national interests.</FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A number of
countries have authorized the formation of closed-end  investment companies to facilitate
indirect foreign investment in their capital  markets. In accordance with the 1940 Act,
the Fund may invest up to 10% of its  total assets in securities of closed-end investment
companies, not more than 5%  of which may be invested in any one such company. This
restriction on  investments in securities of closed-end investment companies may limit
opportunities for the Fund to invest indirectly in certain smaller capital  markets.
Shares of certain closed-end investment companies may at times be  acquired only at
market prices representing premiums to their net asset values.  If the Fund acquires
shares in closed-end investment companies, stockholders  would bear both their
proportionate share of the Fund&#146;s expenses (including  investment advisory fees)
and, indirectly, the expenses of such closed-end  investment companies.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Foreign
Sub-Custodians and Securities Depositories</I>. Rules adopted under the 1940 Act permit the
Fund to maintain its foreign securities and cash in the custody of certain eligible
non-U.S. banks and securities depositories. Certain banks in foreign countries may not
be eligible sub-custodians for the Fund, in which event the Fund may be precluded from
purchasing securities in certain foreign countries in which it otherwise would invest or
the Fund may incur additional costs and delays in providing transportation and custody
services for such securities outside of such countries. The Fund may encounter
difficulties in effecting on a timely basis portfolio transactions with respect to any
securities of issuers held outside their countries. Other banks that are eligible
foreign sub-custodians may be recently organized or otherwise lack extensive operating
experience. In addition, in certain countries there may be legal restrictions or
limitations on the ability of the Fund to recover assets held in custody by foreign
sub-custodians in the event of the bankruptcy of the sub-custodian.</FONT></td></tr></table>


<p><table width=600><tr><td><font size=2><B>Indexed and Inverse Floating Obligations</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund may
invest in securities whose potential returns are directly  related to changes in an
underlying index or interest rate, known as indexed  securities. The return on indexed
securities will rise when the underlying index  or interest rate rises and fall when the
index or interest rate falls. The Fund  also may invest in securities whose return is
inversely related to changes in an  interest rate (&#147;inverse floaters&#148;). In
general, inverse floaters change in value  in a manner that is opposite to most bonds
&#151; that is, interest rates on inverse  floaters will decrease when short term rates
increase and increase when short  term rates decrease. Investments in indexed securities
and inverse floaters may  subject the Fund to the risk of reduced or eliminated interest
payments.  Investments in indexed securities also may subject the Fund to loss of
principal. In addition, certain indexed securities and inverse floaters may  increase or
decrease in value at a greater rate than the underlying interest  rate, which effectively
leverages the Fund&#146;s investment. Regardless of the  effect, inverse floaters
represent a leveraged investment. As a result, the  market value of such securities will
generally be more volatile than that of  fixed rate securities. Both indexed securities
and inverse floaters can be  derivative securities and can be considered speculative.</font></td></tr></table>



<p>&nbsp;
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37</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2><B>Interest Rate Transactions</B></font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to seek
to hedge the value of the Fund&#146;s portfolio against interest rate fluctuations, to
hedge against increases in the Fund&#146;s costs associated with the dividend payments
on its outstanding preferred stock, if any, or to seek to increase the Fund&#146;s
return, the Fund may enter into various interest rate transactions such as interest rate
swaps and the purchase or sale of interest rate caps and floors. The Fund may enter into
these transactions to seek to preserve a return or spread on a particular investment or
portion of its portfolio, to seek to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date or to seek to increase its
return. However, the Fund also may invest in interest rate swaps to seek to increase
income or to seek to increase the Fund&#146;s yield, for example, during periods of
steep interest rate yield curves (<I>i.e.</I>, wide differences between short term and long
term interest rates). The Fund is not required to pursue these portfolio strategies and
may choose not to do so. The Fund cannot guarantee that any strategies it uses will work.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In an interest
rate swap, the Fund exchanges with another party their respective commitments to pay or
receive interest (<I>e.g.</I>, an exchange of fixed rate payments for floating rate payments).
For example, if the Fund holds a debt instrument with an interest rate that is reset
only once each year, it may swap the right to receive interest at this fixed rate for
the right to receive interest at a rate that is reset every week. This would enable the
Fund to offset a decline in the value of the debt instrument due to rising interest
rates but would also limit its ability to benefit from falling interest rates.
Conversely, if the Fund holds a debt instrument with an interest rate that is reset
every week and it would like to lock in what it believes to be a high interest rate for
one year, it may swap the right to receive interest at this variable weekly rate for the
right to receive interest at a rate that is fixed for one year. Such a swap would
protect the Fund from a reduction in yield due to falling interest rates and may permit
the Fund to increase its income through the positive differential between one week and
one year interest rates, but would preclude it from taking full advantage of rising
interest rates.</FONT></td></tr></table>

<p><table width=600><tr>
    <td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;The Fund usually
      will enter into interest rate swaps on a net basis (<I>i.e.</I>, the two
      payment streams are netted out with the Fund receiving or paying, as the
      case may be, only the net amount of the two payments). The net amount of
      the excess, if any, of the Fund&#146;s obligations over its entitlements
      with respect to each interest rate swap will be accrued on a daily basis,
      and an amount of cash or liquid securities having an aggregate net asset
      value at least equal to the accrued excess will be segregated by the Fund.
      If the interest rate swap transaction is entered into on other than a net
      basis, the full amount of the Fund&#146;s obligations will be accrued on
      a daily basis, and the full amount of the Fund&#146;s obligations will be
      segregated by the Fund.&lt;/R&gt;</FONT></td>
  </tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund also may
engage in interest rate transactions in the form of purchasing or selling interest rate
caps or floors. The purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to receive payments
of interest equal to the difference of the index and the predetermined rate on a
notional principal amount (<I>i.e.</I>, the reference amount with respect to which interest
obligations are determined although no actual exchange of principal occurs) from the
party selling such interest rate cap. The purchase of an interest rate floor entitles
the purchaser, to the extent that a specified index falls below a predetermined interest
rate, to receive payments of interest at the difference of the index and the
predetermined rate on a notional principal amount from the party selling such interest
rate floor. The Fund will not enter into caps or floors if, on a net basis, the
aggregate notional principal amount with respect to such agreements exceeds the net
assets of the Fund.</FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Typically, the
parties with which the Fund will enter into interest rate  transactions will be
broker-dealers and other financial institutions. The Fund  will not enter into any
interest rate swap, cap or floor transaction unless the  unsecured senior debt or the
claims paying ability of the other party thereto is  rated investment grade quality by at
least one established rating agency at the  time of entering into such transaction or
whose creditworthiness is </font></td></tr></table>



<p>&nbsp;
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38</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;






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<p><table width=600><tr><td><font size=2>believed by  the Investment Adviser to be
equivalent to such rating. If there is a default by  the other party to such a
transaction, the Fund will have contractual remedies  pursuant to the agreements related
to the transaction. Depending on the general  state of short term interest rates and the
returns on the Fund&#146;s portfolio  securities at that point in time, a default could
negatively affect the Fund&#146;s  ability to make interest payments on its outstanding
borrowings or dividend  payments on its outstanding preferred stock used for leverage,
because it may be  obligated to make the payments that it had intended to avoid. The swap
market  has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing  standardized
swap documentation. As a result, the swap market has become  relatively liquid in
comparison with other similar instruments traded in the  interbank market. Caps and
floors, however, are more recent innovations and are  less liquid than swaps. There is
still a risk, however, that the Fund will not  be able to obtain a replacement
transaction or that the terms of the replacement  will not be as favorable as on the
expiring transaction at the time an interest  rate swap or cap transaction reaches its
scheduled termination date. If this  occurs, it could have a negative affect on the Fund&#146;s
ability to make interest  payments on its outstanding borrowings or dividend payments on
its outstanding  preferred stock used for leverage. To the extent there is a decline in
interest  rates, the value of the interest rate swap or cap could decline, resulting in a
decline in the asset coverage with respect to any outstanding borrowings or any
outstanding preferred stock used for leverage. A sudden and dramatic decline in  interest
rates may result in a significant decline in the asset coverage. If the  Fund fails to
maintain any required asset coverage with respect to any  outstanding borrowings or any
outstanding preferred stock used for leverage or  fails to comply with other covenants
relating to any outstanding borrowings or  any outstanding preferred stock used for
leverage, the Fund may be required to  prepay some or all of its outstanding borrowings
or redeem some or all of its  outstanding preferred stock used for leverage. Such
prepayment or redemption  would likely result in the Fund seeking to terminate early all
or a portion of  any swap or cap transaction. Early termination of the swap could result
in the  termination payment by or to the Fund. Early termination of a cap could result
in the termination payment to the Fund. Certain federal income tax requirements  may
limit the Fund&#146;s ability to engage in interest rate swaps. Payments from
transactions in interest rate swaps generally will be taxable to stockholders as
ordinary income that will not be eligible for the Dividends Received Deduction  or the
reduced federal income tax rate applicable to qualified dividend income.  See &#147;Taxes.&#148;</font></td></tr></table>


<p><table width=600><tr><td><font size=2><B>Credit Default Swap Agreements</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund may enter
into credit default swap agreements for hedging  purposes or to seek to increase its
returns. The credit default swap agreement  may have as reference obligations one or more
securities that are not currently  held by the Fund. The protection &#147;buyer&#148; in
a credit default contract may be  obligated to pay the protection &#147;seller&#148; an
upfront or a periodic stream of  payments over the term of the contract provided that no
credit event on a  reference obligation has occurred. If a credit event occurs, the
seller  generally must pay the buyer the &#147;par value&#148; (full notional value) of
the swap  in exchange for an equal face amount of deliverable obligations of the
reference  entity described in the swap, or the seller may be required to deliver the
related net cash amount, if the swap is cash settled. The Fund may be either the  buyer
or seller in the transaction. If the Fund is a buyer and no credit event  occurs, the
Fund may recover nothing if the swap is held through its termination  date. However, if a
credit event occurs, the buyer generally may elect to  receive the full notional value of
the swap in exchange for an equal face amount  of deliverable obligations of the
reference entity whose value may have  significantly decreased. As a seller, the Fund
generally receives an upfront  payment or a fixed rate of income throughout the term of
the swap, which  typically is between six months and five years, provided that there is
no credit  event. If a credit event occurs, generally the seller must pay the buyer the
full notional value of the swap in exchange for an equal face amount of  deliverable
obligations of the reference entity whose </font></td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
39</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT>
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  <!-- MARKER PAGE="sheet: 39; page: 39" -->
<p>&nbsp;
<table width=600>
  <tr>
    <td><font size="2">value may have significantly decreased. As the seller,
      the Fund would effectively add leverage to its portfolio because, in addition
      to its total net assets, the Fund would be subject to investment exposure
      on the notional amount of the swap. </font></td>
  </tr>
</table>
<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Credit default
swap agreements involve greater risks than if the Fund had  invested in the reference
obligation directly since, in addition to general  market risks, credit default swaps are
subject to illiquidity risk, counterparty  risk and credit risks. The Fund will enter
into credit default swap agreements  only with counterparties that are rated investment
grade quality by at least one  established rating agency at the time of entering into
such transaction or whose  creditworthiness is believed by the Investment Adviser to be
equivalent to such  rating. A buyer generally also will lose its investment and recover
nothing  should no credit event occur and the swap is held to its termination date. If a
credit event were to occur, the value of any deliverable obligation received by  the
seller, coupled with the upfront or periodic payments previously received,  may be less
than the full notional value it pays to the buyer, resulting in a  loss of value to the
seller. The Fund&#146;s obligations under a credit default swap  agreement will be
accrued daily (offset against any amounts owing to the Fund).  In connection with each
such transaction, the Fund will at all times segregate  liquid securities or cash with a
value at least equal to the Fund&#146;s exposure  (any accrued but unpaid net amounts
owed by the Fund to any counterparty), on a  marked-to-market basis (as calculated
pursuant to requirements of the  Commission). Such segregation will ensure that the Fund
has assets available to  satisfy its obligations with respect to the transaction and will
limit any  potential leveraging of the Fund&#146;s portfolio. Such segregation will not
limit  the Fund&#146;s exposure to loss.</font></td></tr></table>


<p><table width=600><tr><td><font size=2><B>Total Return Swap Agreements</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund may enter
into total return swap agreements. Total return swap  agreements are contracts in which
one party agrees to make periodic payments  based on the change in market value of the
underlying assets, which may include  a specified security, basket of securities or
securities indices during the  specified period, in return for periodic payments based on
a fixed or variable  interest rate or the total return from other underlying assets.
Total return  swap agreements may be used to obtain exposure to a security or market
without  owning or taking physical custody of such security or market. Total return swap
agreements may effectively add leverage to the Fund&#146;s portfolio because, in
addition to its total net assets, the Fund would be subject to investment  exposure on
the notional amount of the swap.</font></td></tr></table>

<p><table width=600><tr>
    <td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;Total return swap
      agreements entail the risk that a counterparty to the swap will default
      on its payment obligations to the Fund thereunder. Swap agreements also
      bear the risk that the Fund will not be able to meet its obligation to the
      counterparty. Generally, the Fund will enter into total return swaps on
      a net basis (<I>i.e.</I>, the two payment streams are netted out with the
      Fund receiving or paying, as the case may be, only the net amount of the
      two payments). The net amount of the excess, if any, of the Fund&#146;s
      obligations over its entitlements with respect to each total return swap
      will be accrued on a daily basis, and an amount of cash or liquid securities
      having an aggregate net asset value at least equal to the accrued excess
      will be segregated by the Fund. If the total return swap transaction is
      entered into on other than a net basis, the full amount of the Fund&#146;s
      obligations will be accrued on a daily basis, and the full amount of the
      Fund&#146;s obligations will be segregated by the Fund in an amount equal
      to or greater than the market value of the liabilities under the total return
      swap agreement or the amount it would have cost the Fund initially to make
      an equivalent direct investment, plus or minus any amount the Fund is obligated
      to pay or is to receive under the total return swap agreement.&lt;/R&gt;</FONT></td>
  </tr></table>


<p>&nbsp;
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40</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2><B>Credit or Equity Linked Trust Certificates</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Among the income
producing securities in which the Fund may invest are  credit or equity linked trust
certificates, which are investments in a limited  purpose trust or other vehicle which,
in turn, invests in a basket of securities  or derivative instruments, such as credit
default swaps, interest rate swaps and  other securities, in order to provide exposure to
certain equity or fixed income  markets. For instance, the Fund may invest in credit or
equity linked trust  certificates as a cash management tool in order to gain exposure to
certain  equity or fixed income markets and/or to remain fully invested when more
traditional securities are not available, including during the period when the  net
proceeds of this offering and any borrowings or offering of preferred stock  are being
invested.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Like an investment
in a bond, investments in these credit or equity linked  trust certificates represent the
right to receive periodic income payments (in  the form of distributions) and payment of
principal at the end of the term of  the certificate. However, these payments are
conditioned on the trust&#146;s receipt  of payments from, and the trust&#146;s potential
obligations to, the counterparties  to the derivative instruments and other securities in
which the trust invests.  For instance, the trust may sell one or more credit default
swaps, under which  the trust would receive a stream of payments over the term of the
swap  agreements, provided that no event of default has occurred with respect to the
referenced debt obligation upon which the swap is based. If a default occurs,  the stream
of payments may stop and the trust would be obligated to pay to the  counterparty the par
(or other agreed upon value) of the referenced obligation.  This, in turn, would reduce
the amount of income and principal that the Fund  would receive as an investor in the
trust. The Fund&#146;s investments in these  instruments are indirectly subject to the
risks associated with derivative  instruments, including, among others, credit risk,
default or similar event  risk, counterparty risk, interest rate risk, total return and
management risk.  It is also expected that the certificates will be exempt from
registration under  the Securities Act of 1933, as amended. Accordingly, there may be no
established  trading market for the certificates and they may constitute illiquid
investments.</font></td></tr></table>

<p><table width=600><tr><td><font size=2><B>Options</B></font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Call Options</I>. The
Fund may purchase call options on any of the types of securities or instruments in which
it may invest. A purchased call option gives the Fund the right to buy, and obligates
the seller to sell, the underlying security at the exercise price at any time during the
option period. The Fund also may purchase and sell call options on indices. Index
options are similar to options on securities except that, rather than taking or making
delivery of securities underlying the option at a specified price upon exercise, an
index option gives the holder the right to receive cash upon exercise of the option if
the level of the index upon which the option is based is greater than the exercise price
of the option.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund also is
authorized to write (<I>i.e</I>., sell) covered call options on the securities or instruments
in which it may invest and to enter into closing purchase transactions with respect to
certain of such options. A covered call option is an option in which the Fund, in return
for a premium, gives another party a right to buy specified securities owned by the Fund
at a specified future date and price set at the time of the contract. The principal
reason for writing call options is the attempt to realize, through the receipt of
premiums, a greater return than would be realized on the securities alone. By writing
covered call options, the Fund gives up the opportunity, while the option is in effect,
to profit from any price increase in the underlying security above the option exercise
price. In addition, the Fund&#146;s ability to sell the underlying security will be
limited while the option is in effect unless the Fund enters into a closing purchase
transaction. A closing purchase transaction cancels out the Fund&#146;s position as the
writer of an option by means of an offsetting purchase of an identical option prior to
the expiration of the option it has written. Covered call options also serve as a
partial hedge to the extent of the premium received against the price of the underlying
security declining.</FONT></td></tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
41</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<!-- MARKER PAGE="sheet: 41; page: 41" -->






<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund also is
authorized to write (<I>i.e</I>., sell) uncovered call options on securities or instruments in
which it may invest but that are not currently held by the Fund. The principal reason
for writing uncovered call options is to realize income without committing capital to
the ownership of the underlying securities or instruments. When writing uncovered call
options, the Fund must deposit and maintain sufficient margin with the broker dealer
through which it made the uncovered call option as collateral to ensure that the
securities can be purchased for delivery if and when the option is exercised. In
addition, in connection with each such transaction the Fund will segregate unencumbered
liquid securities or cash with a value at least equal to the Fund&#146;s exposure (the
difference between the unpaid amounts owed by the Fund on such transaction minus any
collateral deposited with the broker dealer), on a marked-to-market basis (as calculated
pursuant to requirements of the Commission). Such segregation will ensure that the Fund
has assets available to satisfy its obligations with respect to the transaction and will
avoid any potential leveraging of the Fund&#146;s portfolio. Such segregation will not
limit the Fund&#146;s exposure to loss. During periods of declining securities prices or
when prices are stable, writing uncovered calls can be a profitable strategy to increase
the Fund&#146;s income with minimal capital risk. Uncovered calls are riskier than
covered calls because there is no underlying security held by the Fund that can act as a
partial hedge. Uncovered calls have speculative characteristics and the potential for
loss is unlimited. When an uncovered call is exercised, the Fund must purchase the
underlying security to meet its call obligation. There is also a risk, especially with
less liquid preferred and debt securities, that the securities may not be available for
purchase. If the purchase price exceeds the exercise price, the Fund will lose the
difference.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Put Options</I>. The
Fund is authorized to purchase put options to seek to hedge against a decline in the
value of its securities or to enhance its return. By buying a put option, the Fund
acquires a right to sell such underlying securities or instruments at the exercise
price, thus limiting the Fund&#146;s risk of loss through a decline in the market value
of the securities or instruments until the put option expires. The amount of any
appreciation in the value of the underlying securities or instruments will be partially
offset by the amount of the premium paid for the put option and any related transaction
costs. Prior to its expiration, a put option may be sold in a closing sale transaction
and profit or loss from the sale will depend on whether the amount received is more or
less than the premium paid for the put option plus the related transaction costs. A
closing sale transaction cancels out the Fund&#146;s position as the purchaser of an
option by means of an offsetting sale of an identical option prior to the expiration of
the option it has purchased. The Fund also may purchase uncovered put options.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund also has
authority to write (<I>i.e.</I>, sell) put options on the types of securities or instruments
that may be held by the Fund, provided that such put options are covered, meaning that
such options are secured by segregated, liquid instruments. The Fund will receive a
premium for writing a put option, which increases the Fund&#146;s return. The Fund will
not sell puts if, as a result, more than 50% of the Fund&#146;s assets would be required
to cover its potential obligations under its hedging and other investment transactions.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund is also
authorized to write (<I>i.e.</I>, sell) uncovered put options on securities or instruments in
which it may invest but that the Fund does not currently have a corresponding short
position or has not deposited cash equal to the exercise value of the put option with
the broker dealer through which it made the uncovered put option as collateral. The
principal reason for writing uncovered put options is to receive premium income and to
acquire such securities or instruments at a net cost below the current market value. The
Fund has the obligation to buy the securities or instruments at an agreed upon price if
the securities or instruments decrease below the exercise price. If the securities or
instruments price increases during the option period, the option will expire worthless
and the Fund will retain the premium and will not have to purchase the securities or
instruments at the exercise price. In connection with such transaction, the Fund will
segregate liquid securities or cash with a value at least equal to the Fund&#146;s
exposure, on a marked-to-market basis (as calculated pursuant to requirements of the</FONT></td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
42</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2>Commission). Such segregation will  ensure that
the Fund has assets available to satisfy  its obligations with  respect to the
transaction and will avoid any potential leveraging  of the Fund&#146;s  portfolio. Such
segregation will not limit the Fund&#146;s exposure  to loss.</font></td></tr></table>

<p><table width=600><tr><td><font size=2><B>Financial Futures and Options Thereon</B></font></td></tr></table>

<p><table width=600><tr>
    <td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;The Fund is authorized
      to engage in transactions in financial futures contracts (&#147;futures
      contracts&#148;) and related options on such futures contracts either as
      a hedge against adverse changes in the market value of its portfolio securities
      or to seek to increase the Fund&#146;s return. A futures contract is an
      agreement between two parties that obligates the purchaser of the futures
      contract to buy and the seller of a futures contract to sell a security
      for a set price on a future date or, in the case of an index futures contract,
      to make and accept a cash settlement based upon the difference in value
      of the index between the time the contract was entered into and the time
      of its settlement. A majority of transactions in futures contracts, however,
      do not result in the actual delivery of the underlying instrument or cash
      settlement but are settled through liquidation (<I>i.e.</I>, by entering
      into an offsetting transaction). Futures contracts have been designed by
      boards of trade that have been designated &#147;contract markets&#148; by
      the Commodities Futures Trading Commission (the &#147;CFTC&#148;). The Fund
      may sell financial futures contracts in anticipation of an increase in the
      general level of interest rates. Generally, as interest rates rise, the
      market values of securities that may be held by the Fund will fall, thus
      reducing the net asset value of the Fund. However, as interest rates rise,
      the value of the Fund&#146;s short position in the futures contract also
      will tend to increase, thus offsetting all or a portion of the depreciation
      in the market value of the Fund&#146;s investments that are being hedged.
      While the Fund will incur commission expenses in selling and closing out
      futures positions, these commissions are generally less than the transaction
      expenses that the Fund would have incurred had the Fund sold portfolio securities
      in order to reduce its exposure to increases in interest rates. The Fund
      also may purchase financial futures contracts in anticipation of an increase
      in the value of certain securities when it is not fully invested in a particular
      market in which it intends to make investments to gain market exposure that
      may in part or entirely offset an increase in the cost of securities it
      intends to purchase. It is anticipated that, in a substantial majority of
      these transactions, the Fund will purchase securities upon termination of
      the futures contract.&lt;/R&gt;</FONT></td>
  </tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund also has
authority to purchase and write call and put options on futures contracts. Generally,
these strategies are utilized under the same market and market sector conditions (<I>i.e.</I>,
conditions relating to specific types of investments) in which the Fund enters into
futures transactions. The Fund may purchase put options or write call options on futures
contracts rather than selling the underlying futures contract in anticipation of a
decrease in the market value of securities or an increase in interest rates. Similarly,
the Fund may purchase call options, or write put options on futures contracts, as a
substitute for the purchase of such futures to hedge against the increased cost
resulting from an increase in the market value or a decline in interest rates of
securities that the Fund intends to purchase.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund may
engage in options and futures transactions on exchanges and options in the
over-the-counter markets (&#147;OTC options&#148;). In general, exchange-traded
contracts are third-party contracts (<I>i.e.</I>, performance of the parties&#146; obligation
is guaranteed by an exchange or clearing corporation) with standardized strike prices
and expiration dates. OTC options transactions are two-party contracts with price and
terms negotiated by the buyer and seller.</FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under regulations
of the CFTC, the futures trading activity described  herein will not result in the Fund
being deemed a &#147;commodity pool&#148; and the Fund  need not be operated by a person
registered with the CFTC as a &#147;commodity pool  operator.&#148;</font></td></tr></table>


<p>&nbsp;
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<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When the Fund
purchases a futures contract or writes a put option or  purchases a call option thereon,
an amount of cash or liquid instruments will be  segregated so that the amount so
segregated, plus the amount of variation margin  held in the account of its broker,
equals the market value of the futures  contract, thereby ensuring that the use of such
futures is unleveraged.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund will
engage in transactions in OTC options only with banks or  dealers that have capital of at
least $50 million or whose obligations are  guaranteed by an entity having capital of at
least $50 million. OTC options and  assets used to cover OTC options written by the Fund
are considered by the staff  of the Commission to be illiquid. The illiquidity of such
options or assets may  prevent a successful sale of such options or assets, result in a
delay of sale,  or reduce the amount of proceeds that might otherwise be realized.</font></td></tr></table>


<p><table width=600><tr><td><font size=2><B>Risk Factors in Interest Rate Transactions
and Options and Futures Transactions</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The use of
interest rate transactions is a highly specialized activity  that involves investment
techniques and risks different from those associated  with ordinary portfolio securities
transactions. Interest rate transactions  involve the risk of an imperfect correlation
between the index used in the  hedging transaction and that pertaining to the securities
that are the subject  of such transaction. If the Investment Adviser is incorrect in its
forecasts of  market values, interest rates and other applicable factors, the investment
performance of the Fund would diminish compared with what it would have been if  these
investment techniques were not used. In addition, interest rate  transactions that may be
entered into by the Fund do not involve the delivery of  securities or other underlying
assets or principal. Accordingly, the risk of  loss with respect to interest rate swaps
is limited to the net amount of  interest payments that the Fund is contractually
obligated to make. If the  security underlying an interest rate swap is prepaid and the
Fund continues to  be obligated to make payments to the other party to the swap, the Fund
would  have to make such payments from another source. If the other party to an  interest
rate swap defaults, the Fund&#146;s risk of loss consists of the net amount  of interest
payments that the Fund contractually is entitled to receive. In the  case of a purchase
by the Fund of an interest rate cap or floor, the amount of  loss is limited to the fee
paid. Since interest rate transactions are  individually negotiated, the Investment
Adviser expects to achieve an acceptable  degree of correlation between the Fund&#146;s
rights to receive interest on  securities and its rights and obligations to receive and
pay interest pursuant  to interest rate swaps.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Utilization of
options and futures transactions to hedge the portfolio  involves the risk of imperfect
correlation in movements in the price of options  and futures and movements in the prices
of the securities that are the subject  of the hedge. If the price of the options or
futures moves more or less than the  price of the subject of the hedge, the Fund will
experience a gain or loss that  will not be completely offset by movements in the price
of the subject of the  hedge. The risk particularly applies to the Fund&#146;s use of
futures and options  thereon when it uses such instruments as a so-called &#147;cross-hedge,&#148; which
means  that the security that is the subject of the futures contract is different from
the security being hedged by the contract. Utilization of options and futures  and
options thereon through uncovered call options and uncovered put options are  highly
speculative strategies. If the price of the uncovered option moves in the  direction not
anticipated by the Fund, the Fund&#146;s losses will not be limited.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to exercise
or expiration, an exchange-traded option position can  only be terminated by entering
into a closing purchase or sale transaction. This  requires a secondary market on an
exchange for call or put options of the same  series. The Fund intends to enter into
options and futures transactions, on an  exchange or in the over-the-counter market, only
if there appears to be a liquid  secondary market for such options and futures. However,
no assurance can be  given that a liquid secondary market will exist at any specific
time. Thus, it  may not be possible to close an options or futures position. The
inability to  close options and futures positions also could </font></td></tr></table>



<p>&nbsp;
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<p><table width=600><tr><td><font size=2>have an adverse impact on  the  Fund&#146;s
ability to effectively hedge its portfolio. There is also the risk of  loss by the Fund
of margin deposits or collateral in the event of bankruptcy of  a broker  with whom the
Fund has an open position in an option, a futures  contract or an option  related to a
futures contract.</font></td></tr></table>


<p><table width=600><tr><td><font size=2><B>Short Sales</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund may make
short sales of securities. A short sale is a transaction  in which the Fund sells a
security it does not own in anticipation that the  market price of that security will
decline. The Fund may make short sales both  as a form of hedging to offset potential
declines in long positions in similar  securities and in order to seek to increase return.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When the Fund
makes a short sale, it must borrow the security sold short  and deliver collateral to the
broker dealer through which it made the short sale  to cover its obligation to deliver
the borrowed security upon conclusion of the  sale. The Fund may have to pay a fee to
borrow particular securities and is  often obligated to pay over any payments received on
such borrowed securities.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund&#146;s
obligation to replace the borrowed security will be secured by  collateral deposited with
the broker dealer, usually cash, U.S. government  securities or other liquid securities
similar to those borrowed. The Fund also  will be required to segregate similar
collateral with its custodian to the  extent, if any, necessary so that the value of both
collateral amounts in the  aggregate is at all times equal to at least 100% of the
current market value of  the security sold short. Depending on arrangements made with the
broker dealer  from which it borrowed the security regarding payment over of any payments
received by the Fund on such security, the Fund may not receive any payments  (including
interest) on its collateral deposited with such broker dealer.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the price of
the security sold short increases between the time of the  short sale and the time the
Fund replaces the borrowed security, the Fund will  incur a loss. Conversely, if the
price declines, the Fund will realize a gain.  Any gain will be decreased, and any loss
increased, by the transaction costs  described above. Although the Fund&#146;s gain is
limited to the price at which it  sold the security short, its potential loss is
theoretically unlimited.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund also may
make short sales &#147;against the box.&#148; These transactions  will involve either
short sales of securities retained in the Fund&#146;s portfolio  or securities it has the
right to acquire without the payment of further  consideration.</font></td></tr></table>


<p><table width=600><tr><td><font size=2><B>Foreign Exchange Transactions</B></font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;The Fund may engage
      in spot and forward foreign exchange transactions and currency swaps, purchase
      and sell options on currencies and purchase and sell currency futures and
      related options thereon (collectively, &#147;Currency Instruments&#148;)
      for purposes of hedging against the decline in the value of currencies in
      which its portfolio holdings are denominated against the U.S. dollar or
      to seek to increase returns. Such transactions could be effected with respect
      to hedges on non-U.S. dollar-denominated securities owned by the Fund, sold
      by the Fund but not yet delivered, or committed or anticipated to be purchased
      by the Fund. As an illustration, the Fund may use such techniques to hedge
      the stated value in U.S. dollars of an investment in a yen-denominated security.
      In such circumstances, for example, the Fund may purchase a foreign currency
      put option enabling it to sell a specified amount of yen for dollars at
      a specified price by a future date. To the extent the hedge is successful,
      a loss in the value of the yen relative to the dollar will tend to be offset
      by an increase in the value of the put option. To offset, in whole or in
      part, the cost of acquiring such a put option, the Fund may also sell a
      call option which, if exercised, requires it to sell a specified amount
      of yen for dollars at a specified price by a future date (a technique called
      a &#147;straddle&#148;). By selling such a call option in this illustration,
      the Fund gives up &lt;/R&gt;</font></td>
  </tr></table>


<p>&nbsp;
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<p><table width=600><tr><td><font size=2>the opportunity to  profit without limit from
increases in the relative value of the yen to the  dollar.  &#147;Straddles&#148; of the
type that may be used by the Fund are considered to  constitute hedging transactions and
are consistent with the policies described  above.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Spot and Forward
Foreign Exchange Transactions and Swaps</I>. Forward foreign exchange transactions are OTC
contracts to purchase or sell a specified amount of a specified currency or
multinational currency unit at a price and future date set at the time of the contract.
Spot foreign exchange transactions are similar but require current, rather than future,
settlement. The Fund will enter into foreign exchange transactions for purposes of
hedging either a specific transaction or a portfolio position, or to seek to increase
returns. Forward foreign exchange transactions may allow the Fund to increase or
decrease its risk exposure more quickly and efficiently than local fixed income
instruments, and have grown to be a significant and highly liquid part of the emerging
market countries&#146; local fixed income market. Forward foreign exchange transactions
also may be more readily available and transferable for foreign investors, and may, in
many cases, provide the only investment channel for the Fund to obtain local interest
exposure. The Fund may enter into a foreign exchange transaction for purposes of hedging
a specific transaction by, for example, purchasing a currency needed to settle a
security transaction or selling a currency in which the Fund has received or anticipates
receiving a dividend or distribution. In addition, the Fund may enter into a foreign
exchange transaction for purposes of hedging a portfolio position by selling forward a
currency in which a portfolio position of the Fund is denominated or by purchasing a
currency in which the Fund anticipates acquiring a portfolio position in the near
future. The Fund may also hedge portfolio positions through currency swaps, which are
transactions in which one currency is simultaneously bought for a second currency on a
spot basis and sold for the second currency on a forward basis. Forward foreign
exchange transactions, including currency swaps, involve substantial currency risk, and
also involve credit and liquidity risk.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Currency Futures</I>.
The Fund may also seek to increase returns or hedge against the decline in the value of
a currency against the U.S. dollar through use of currency futures or options thereon.
Currency futures are similar to forward foreign exchange transactions except that
futures are standardized, exchange-traded contracts. See &#147;&#151; Financial Futures
and Options Thereon&#148; above. Currency futures involve substantial currency risk, and
also involve leverage risk.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Currency Options</I>.
The Fund may also seek to increase returns or hedge against the decline in the value of
a currency against the U.S. dollar through the use of currency options. Currency options
are similar to options on securities, but in consideration for an option premium the
writer of a currency option is obligated to sell (in the case of a call option) or
purchase (in the case of a put option) a specified amount of a specified currency on or
before the expiration date for a specified amount of another currency. The Fund may
engage in transactions in options on currencies either on exchanges or OTC markets. See
&#147;&#151; Options&#148; above. Currency options involve substantial currency risk,
and may also involve credit, leverage or liquidity risk.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Currency
Instruments</I>. The Fund may use Currency Instruments to seek to increase returns or hedge
against the decline in the value of a currency against the U.S. dollar. Accordingly, the
Fund may hedge a currency in excess of the aggregate market value of the securities
which it owns (including receivables for unsettled securities sales), or has committed
to or anticipates purchasing, which are denominated in such currency. The Fund also may
hedge a currency by entering into a transaction in a Currency Instrument denominated in
a currency other than the currency being hedged (a &#147;cross-hedge&#148;). The Fund
will only enter into a cross-hedge if the Investment Adviser believes that (i) there is
a demonstrable high correlation between the currency in which the cross-hedge is
denominated and the currency being hedged, and (ii) executing a cross-hedge through the
currency in which the cross-hedge is denominated will be significantly more
cost-effective or provide substantially greater liquidity than executing a similar
hedging transaction by means of the currency being hedged.</FONT></td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
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<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Risk Factors in
Hedging Foreign Currency Risks and Seeking to Increase Returns</I>. Hedging transactions
involving Currency Instruments involve substantial risks, including correlation risk.
While the Fund&#146;s use of Currency Instruments to effect hedging strategies is
intended to reduce the volatility of the net asset value of the Fund&#146;s shares, the
net asset value of the Fund&#146;s shares will fluctuate. Moreover, although Currency
Instruments will be used with the intention of hedging against adverse currency
movements, transactions in Currency Instruments involve the risk that anticipated
currency movements will not be accurately predicted and that the Fund&#146;s hedging
strategies will be ineffective. To the extent that the Fund hedges against anticipated
currency movements that do not occur, the Fund may realize losses and decrease its total
return as the result of its hedging transactions. Furthermore, the Fund will only engage
in hedging activities from time to time and may not be engaging in hedging activities
when movements in currency exchange rates occur.</FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with
its trading in forward foreign currency contracts, the  Fund will contract with a foreign
or domestic bank, or foreign or domestic  securities dealer, to make or take future
delivery of a specified amount of a  particular currency. There are no limitations on
daily price moves in such  forward contracts, and banks and dealers are not required to
continue to make  markets in such contracts. There have been periods during which certain
banks or  dealers have refused to quote prices for such forward contracts or have quoted
prices with an unusually wide spread between the price at which the bank or  dealer is
prepared to buy and that at which it is prepared to sell. Governmental  imposition of
credit controls might limit any such forward contract trading.  With respect to its
trading of forward contracts, if any, the Fund will be  subject to the risk of bank or
dealer failure and the inability of, or refusal  by, a bank or dealer to perform with
respect to such contracts. Any such default  would deprive the Fund of any profit
potential or force the Fund to cover its  commitments for resale, if any, at the then
market price and could result in a  loss to the Fund.</font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;Currency Instruments
      are volatile and involve significant risks typical of derivative instruments,
      including credit risk, currency risk, leverage risk and liquidity risk.
      Currency Instruments used to increase returns will expose the Fund to the
      risks described above to a greater extent than if the Currency Instruments
      are used solely for hedging purposes.&lt;/R&gt;</font></td>
  </tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It may not be
possible for the Fund to hedge against currency exchange  rate movements, even if
correctly anticipated, in the event that (i) the  currency exchange rate movement is so
generally anticipated that the Fund is not  able to enter into a hedging transaction at
an effective price, or (ii) the  currency exchange rate movement relates to a market with
respect to which  Currency Instruments are not available and it is not possible to engage
in  effective foreign currency hedging. The cost to the Fund of engaging in foreign
currency transactions varies with such factors as the currencies involved, the  length of
the contract period and the market conditions then prevailing. Since  transactions in
foreign currency exchange usually are conducted on a principal  basis, no fees or
commissions are involved.</font></td></tr></table>


<p><table width=600><tr><td><font size=2><B>Other Investment Strategies</B></font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Repurchase
Agreements and Purchase and Sale Contracts</I>. The Fund may invest in securities pursuant
to repurchase agreements and purchase and sale contracts. Repurchase agreements and
purchase and sale contracts may be entered into only with a member bank of the Federal
Reserve System or primary dealer in U.S. government securities. Under such agreements,
the bank or primary dealer agrees, upon entering into the contract, to repurchase the
security at a mutually agreed upon time and price, thereby determining the yield during
the term of the agreement. This results in a fixed rate of return insulated from market
fluctuations during such period. In the case of repurchase agreements, the prices at
which the trades are conducted do not reflect accrued interest on the underlying
obligations; whereas, in the case of purchase and sale contracts, the prices</FONT> </td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
47</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2>take into  account accrued interest. Such
agreements usually cover short  periods, such as under one  week. Repurchase agreements
may be construed to be  collateralized loans by the purchaser  to the seller secured by
the securities  transferred to the purchaser. In the case of a  repurchase agreement, the
Fund  will require the seller to provide additional collateral  if the market value of
the securities falls below the repurchase price at any time  during the term of  the
repurchase agreement; the Fund does not have the right to seek  additional  collateral in
the case of purchase and sale contracts. In the event of  default  by the seller under a
repurchase agreement construed to be a collateralized  loan, the underlying securities
are not owned by the Fund but only constitute  collateral  for the seller&#146;s
obligation to pay the repurchase price. Therefore,  the Fund may  suffer time delays and
incur costs or possible losses in connection  with the disposition  of the collateral. A
purchase and sale contract differs  from a repurchase agreement in  that the contract
arrangements stipulate that the  securities are owned by the Fund. In  the event of a
default under such a  repurchase agreement or a purchase and sale  contract, instead of
the contractual  fixed rate of return, the rate of return to the  Fund shall be dependent
upon  intervening fluctuations of the market value of such  security and the accrued
interest on the security. In such event, the Fund would have  rights against the  seller
for breach of contract with respect to any losses arising from  market  fluctuations
following the failure of the seller to perform.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Reverse Repurchase
Agreements</I>. The Fund may enter into reverse repurchase agreements with respect to its
portfolio investments subject to the investment restrictions set forth herein. Reverse
repurchase agreements involve the sale of securities held by the Fund with an agreement
by the Fund to repurchase the securities at an agreed upon price, date and interest
payment. The use by the Fund of reverse repurchase agreements involves many of the same
risks of leverage described under &#147;Risks and Special Considerations of Leverage
&#151; Effects of Leverage&#148; herein since the proceeds derived from such reverse
repurchase agreements may be invested in additional securities. At the time the Fund
enters into a reverse repurchase agreement, it may segregate liquid instruments having a
value not less than the repurchase price (including accrued interest). If the Fund
segregates such liquid instruments, a reverse repurchase agreement will not be
considered a borrowing by the Fund; however, under circumstances in which the Fund does
not segregate such liquid instruments, such reverse repurchase agreement will be
considered a borrowing for the purpose of the Fund&#146;s limitation on borrowings.
Reverse repurchase agreements involve the risk that the market value of the securities
acquired in connection with the reverse repurchase agreement may decline below the price
of the securities the Fund has sold but is obligated to repurchase. Also, reverse
repurchase agreements involve the risk that the market value of the securities retained
in lieu of sale by the Fund in connection with the reverse repurchase agreement may
decline in price. In the event the buyer of securities under a reverse repurchase
agreement files for bankruptcy or becomes insolvent, such buyer or its trustee or
receiver may receive an extension of time to determine whether to enforce the Fund&#146;s
obligation to repurchase the securities, and the Fund&#146;s use of the proceeds of the
reverse repurchase agreement may effectively be restricted pending such decision. Also,
the Fund would bear the risk of loss to the extent that the proceeds of the reverse
repurchase agreement are less than the value of the securities subject to such agreement.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Lending of
Portfolio Securities</I>. The Fund may lend securities with a value not exceeding 33
<FONT SIZE="1"><sup>1</sup></FONT>/<FONT SIZE="1">3</FONT>% of
its total assets or the limit prescribed by applicable law to banks, brokers and other
financial institutions. In return, the Fund receives collateral in cash or securities
issued or guaranteed by the U.S. government, which will be maintained at all times in an
amount equal to at least 100% of the current market value of the loaned securities. The
Fund maintains the ability to obtain the right to vote or consent on proxy proposals
involving material events affecting securities loaned. The Fund receives the income on
the loaned securities. Where the Fund receives securities as collateral, the Fund
receives a fee for its loans from the borrower and does not receive the income on the
collateral. Where the Fund receives cash collateral, it may invest such collateral and
retain the</FONT> </td></tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
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<p><table width=600><tr><td><font size=2>amount earned, net of any amount rebated to the
borrower. As a result, the Fund&#146;s yield may increase. Loans of securities are
terminable at any time and the borrower, after notice, is required to return  borrowed
securities within the standard time period for settlement of securities  transactions.
The Fund is obligated to return the collateral to the borrower at  the termination of the
loan. The Fund could suffer a loss in the event the Fund  must return the cash collateral
and there are losses on investments made with  the cash collateral. In the event the
borrower defaults on any of its  obligations with respect to a securities loan, the Fund
could suffer a loss  where there are losses on investments made with the cash collateral
or, where  the value of the securities collateral falls below the market value of the
borrowed securities. The Fund could also experience delays and costs in gaining  access
to the collateral. The Fund may pay reasonable finder&#146;s, lending agent,
administrative and custodial fees in connection with its loans. The Fund has  received an
exemptive order from the Commission permitting it to lend portfolio  securities to
Merrill Lynch, Pierce, Fenner &amp; Smith Incorporated (&#147;Merrill  Lynch&#148;) or
its affiliates and to retain an affiliate of the Fund as lending  agent. See &#147;Portfolio
Transactions.&#148;</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Illiquid
Securities</I>. The Fund may invest in securities that lack a secondary trading market or
are otherwise considered illiquid. Liquidity of a security relates to the ability to
easily dispose of the security and the price to be obtained upon disposition of the
security, which may be less than would be obtained for a comparable more liquid
security. The Fund has no limitation on the amount of its investments that are not
readily marketable or are subject to restrictions on resale. Illiquid securities may be
subject to wide fluctuations in market value. The Fund may be subject to significant
delays in disposing of certain securities. As a result, the Fund may be forced to sell
these securities at less than fair market value or may not be able to sell them when the
Investment Adviser believes that 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. Such investments may affect the Fund&#146;s ability to realize the
net asset value in the event of a voluntary or involuntary liquidation of its assets.
See &#147;Net Asset Value&#148; for information with respect to the valuation of
illiquid securities.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>When-Issued and
Forward Commitment Securities</I>. The Fund may purchase securities on a &#147;when-issued&#148; basis
and may purchase or sell securities on a &#147;forward commitment&#148; basis. When such
transactions are negotiated, the price, which generally is expressed in yield terms, is
fixed at the time the commitment is made, but delivery and payment for the securities
take place at a later date. When-issued securities and forward commitments may be sold
prior to the settlement date, but the Fund will enter into when-issued and forward
commitment transactions only with the intention of actually receiving or delivering the
securities, as the case may be. If the Fund disposes of the right to acquire a
when-issued security prior to its acquisition or disposes of its right to deliver or
receive against a forward commitment, it can incur a gain or loss. At the time the Fund
enters into a transaction on a when-issued or forward commitment basis, it will
segregate cash or other liquid instruments with a value not less than the value of the
when-issued or forward commitment securities. The value of these assets will be
monitored daily to ensure that their marked-to-market value at all times will exceed the
corresponding obligations of the Fund. There is always a risk that the securities may
not be delivered, and the Fund may incur a loss. Settlements in the ordinary course,
which may take substantially more than five business days for mortgage-related
securities, are not treated by the Fund as when-issued or forward commitment
transactions and accordingly are not subject to the foregoing restrictions.</FONT></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<i>Standby Commitment Agreements.</i>
      The Fund from time to time may enter into standby commitment agreements.
      Such agreements commit the Fund, for a stated period of time, to purchase
      a stated amount of a fixed income security that may be issued and sold to
      the Fund at the option of the issuer. The price and coupon of the security
      is fixed at the time of the commitment. At the time of entering into the
      agreement the Fund may be paid a commitment fee, regardless of whether or
      not the security ultimately is issued. The Fund will enter into </font></td>
  </tr></table>




<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
49</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2>such  agreements only for the purpose of
investing in the security underlying the  commitment at a yield and price which is
considered advantageous to the Fund.  The Fund  at all times will segregate cash or other
liquid instruments with a  value equal to the  purchase price of the securities
underlying the commitment.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No assurance can
be given that the securities subject to a standby  commitment will be issued and the
value of the security, if issued, on the  delivery date may be more or less than its
purchase price. Since the issuance of  the security underlying the commitment is at the
option of the issuer, the Fund  may bear the risk of decline in the value of such
security and may not benefit  from an appreciation in the value of the security during
the commitment period.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The purchase of a
security subject to a standby commitment agreement and  the related commitment fee will
be recorded on the date on which the security  reasonably can be expected to be issued
and the value of the security thereafter  will be reflected in the calculation of the Fund&#146;s
net asset value. The cost  basis of the security will be adjusted by the amount of the
commitment fee. In  the event the security is not issued, the commitment fee will be
recorded as  income on the expiration date of the standby commitment.</font></td></tr></table>



<table width=600><tr><td><hr size=1 noshade align=CENTER width=150></td></tr></table>



<table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund may in
the future employ new or additional investment strategies  and instruments if those
strategies and instruments are consistent with the  Fund&#146;s investment objective and
are permissible under applicable regulations  governing the Fund.</font></td></tr></table>


<p><table width=600><tr><td  align=center><font size=2><B>RISKS AND SPECIAL
CONSIDERATIONS OF LEVERAGE</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2><B>Effects of Leverage</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At times, the Fund
expects to utilize leverage through borrowings, the  issuance of short term debt
securities or the issuance of shares of preferred  stock. The Fund has the ability to
utilize leverage through borrowing or the  issuance of short term debt securities in an
amount up to 33<FONT SIZE="1"><sup>1</sup></FONT>/<FONT SIZE="1">3</FONT>% of the value of  its total assets (including the amount obtained from
such borrowings or debt  issuance). The Fund also has the ability to utilize leverage
through the  issuance of shares of preferred stock in an amount up to 50% of the value of
its  total assets (including the amount obtained from such preferred stock issuance).
The Fund currently intends to borrow money in an initial amount of approximately  31% of
the Fund&#146;s total capital (including amounts obtained from the leverage),  or
approximately 45% of the Fund&#146;s common stock equity. Following the investment  of
the net proceeds of this common stock offering, the Fund may, depending on  market and
economic conditions and the relative costs and benefits associated  with borrowings and
other types of leverage, choose to leverage its portfolio  through the issuance of
preferred stock rather than through borrowings or the  Fund may choose to leverage
through a combination of borrowings and preferred  stock. No assurance can be given that
the Fund will leverage its portfolio or  that any leveraging strategy will be successful
during any period in which it is  used.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund&#146;s
use of borrowings as described above will result in the  leveraging of its common stock.
The proceeds from the borrowings will be  invested in accordance with the investment
objective of the Fund. The expenses  of the borrowings, which will be borne by the Fund,
will reduce the net asset  value of the common stock.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As discussed under
&#147;Investment Advisory and Management Arrangements,&#148; during periods when the Fund
has outstanding borrowings for leverage or  preferred stock outstanding, the fees paid to
the Investment Adviser for  investment advisory and management services will be higher
than if the Fund did  not borrow or issue </font></td></tr></table>




<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
50</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2>preferred stock because the fees paid will be
calculated on  the basis of an aggregate of (i) the Fund&#146;s average daily net assets
(including  proceeds from the sale of preferred stock), and (ii) the proceeds of any
outstanding borrowings used for leverage. Consequently, the Fund and the  Investment
Adviser may have differing interests in determining whether to  leverage the Fund&#146;s
assets. The Board of Directors will monitor this potential  conflict.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund also may
borrow money as a temporary measure for extraordinary or  emergency purposes, including
the payment of dividends and the settlement of  securities transactions that otherwise
might require untimely dispositions of  Fund securities. The Fund at times may borrow
from affiliates of the Investment  Adviser, provided that the terms of such borrowings
are no less favorable than  those available from comparable sources of funds in the
marketplace.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The use of
leverage creates certain risks for common stockholders,  including the greater likelihood
of higher volatility of the Fund&#146;s dividend  yield, total return, net asset value
and the market price of the common stock.  Changes in the value of the Fund&#146;s total
assets will have a disproportionate  effect on the net asset value per share of common
stock when leverage is used.  For example, if the Fund were to use leverage equal to 50%
of the Fund&#146;s common  stock equity, it would show an approximately 1.5% increase or
decline in net  asset value for each 1% increase or decline in the value of its total
assets. An  additional risk of leverage is that the cost of the leverage plus applicable
Fund expenses may exceed the return on the securities acquired with the proceeds  of the
leverage, thereby diminishing rather than enhancing the return to the  Fund&#146;s common
stockholders. During times of rising interest rates, the market  value of the Fund&#146;s
portfolio investments, and in particular its fixed income  holdings, may decline, while
at the same time the Fund&#146;s cost of leverage may  increase. These risks would
generally make the Fund&#146;s return to common  stockholders more volatile if it were to
use leverage. So long as the Fund uses  leverage, it may be required to sell investments
in order to make dividend or  interest payments on preferred stock or borrowings used for
leverage when it may  be disadvantageous to do so. Finally, if the asset coverage for the
Fund&#146;s  borrowings or preferred stock declines to less than 300% or 200% of the Fund&#146;s
total assets, respectively, or below asset coverage requirements established by  a rating
agency that rated any preferred stock or debt security issued by the  Fund (as a result
of market fluctuations or otherwise), the Fund may be required  to sell a portion of its
investments to repay the borrowings or redeem some or  all of the preferred stock when it
may be disadvantageous to do so.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In an extreme
case, a decline in net asset value could affect the Fund&#146;s  ability to pay dividends
on the Fund&#146;s common stock. Failure to make such  dividend payments could adversely
affect the Fund&#146;s qualification as a regulated  investment company under the federal
tax laws. See &#147;Taxes.&#148; However, the Fund  intends to take all measures
necessary to make common stock dividend payments.  If the Fund&#146;s current investment
income is ever insufficient to meet dividend  payments on either the common stock or any
outstanding preferred stock, the Fund  may have to liquidate certain of its investments.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain types of
borrowings may result in the Fund being subject to  covenants in credit agreements,
including those relating to asset coverage,  borrowing base and portfolio composition
requirements and additional covenants  that may affect the Fund&#146;s ability to pay
dividends and distributions on the  common stock in certain instances. The Fund also may
be required to pledge its  assets to the lenders in connection with certain types of
borrowings. The Fund  also may be subject to certain restrictions on investments imposed
by guidelines  of one or more rating agencies that may issue ratings for the short term
debt  instruments or preferred stock that may be issued by the Fund. These guidelines
may impose asset coverage or portfolio composition requirements that are more  stringent
than those imposed by the 1940 Act. It is not anticipated that these  covenants or
guidelines will impede the Investment Adviser from managing the  Fund&#146;s portfolio in
accordance with the Fund&#146;s investment objective and  policies.</font></td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
51</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr>
    <td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the 1940 Act, the Fund
      is not permitted to incur indebtedness unless immediately after such incurrence
      the Fund has an asset coverage of at least 300% of the aggregate outstanding
      principal balance of indebtedness (<I>i.e.</I>, such indebtedness may not
      exceed 33<FONT SIZE="1"><sup>1</sup></FONT>/<FONT SIZE="1">3</FONT>% of
      the value of the Fund&#146;s total assets). Additionally, under the 1940
      Act, the Fund may not declare any dividend or other distribution upon any
      class of its capital stock, or purchase any such capital stock, unless the
      aggregate indebtedness of the Fund has, at the time of the declaration of
      any such dividend or distribution or at the time of any such purchase, an
      asset coverage of at least 300% after deducting the amount of such dividend,
      distribution, or purchase price, as the case may be. Under the 1940 Act,
      the Fund is not permitted to issue shares of preferred stock unless immediately
      after such issuance the net asset value of the Fund&#146;s portfolio is
      at least 200% of the liquidation value of the outstanding preferred stock
      (<I>i.e.</I>, such liquidation value may not exceed 50% of the value of
      the Fund&#146;s total assets). In addition, the Fund is not permitted to
      declare any cash dividend or other distribution on its common stock unless,
      at the time of such declaration, the net asset value of the Fund&#146;s
      portfolio (determined after deducting the amount of such dividend or distribution)
      is at least 200% of such liquidation value. In the event shares of preferred
      stock are issued, it is currently expected that the Fund generally will
      have the authority to redeem the preferred stock for any reason and may
      be required to redeem all or part of the preferred stock under the following
      circumstances: (i) if the asset coverage for the preferred stock declines
      below 200%, or (ii) in order to satisfy the asset coverage requirements
      established by any rating agency that has rated the preferred stock.<br>
      <br>
      &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;Additionally, the Fund&#146;s use of leverage
      through borrowings may limit the amount of dividends it can designate as
      qualifying for the Dividends Received Deduction in the hands of corporate
      stockholders. See &#147;Taxes&#148;. &lt;/R&gt;</FONT></td>
  </tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund&#146;s
willingness to borrow money and issue debt securities or  preferred stock for investment
purposes, and the amount it will borrow or issue,  will depend on many factors, the most
important of which are investment outlook,  market conditions and interest rates.
Successful use of a leveraging strategy  depends on the Investment Adviser&#146;s ability
to predict correctly interest rates  and market movements, and no assurance can be given
that a leveraging strategy  will be successful during any period in which it is employed.</font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;Assuming the use of
      leverage through borrowings in an initial amount of approximately 31% of
      the Fund&#146;s total capital or 45% of the Fund&#146;s common stock equity,
      and a current estimated annual interest rate of 1.54% payable on such leverage
      based on market interest rates as of the date of this prospectus, the annual
      return that the Fund&#146;s portfolio must experience (net of expenses)
      in order to cover such interest payments would be 0.48%. The cost of leverage
      may vary depending upon, among other factors, changes in interest rates.&lt;/R&gt;</font></td>
  </tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following
table is designed to illustrate the effect on the return to a holder of common stock of
the leverage obtained by  borrowings representing approximately 31% of the Fund&#146;s
total capital or approximately 45% of the Fund&#146;s common stock equity,  assuming
hypothetical annual returns on the Fund&#146;s portfolio of minus 10% to plus 10%. As the
table shows, leverage generally  increases the return to stockholders when portfolio
return is positive and decreases the return when portfolio return is negative.  The
figures appearing in the table are hypothetical and actual returns may be greater or less
than those appearing in the table.</font></td></tr></table>

<P><table cellspacing=0 cellpadding=0 border=0 width="600">
    <tr valign="bottom">
      <td width=389> <font size="2">Assumed Portfolio Return (net of expenses)</font></td>
      <td align="right" width=31> <font size="2">(10)</font></td>
      <td width=18> <font size="2">%</font></td>
      <td align="right" width=23> <font size="2">(5)</font></td>
      <td width=18> <font size="2">%</font></td>
      <td align="right" width=23> <font size="2">0</font></td>
      <td width=18> <font size="2">%</font></td>
      <td align="right" width=10> <font size="2">5</font></td>
      <td width=18> <font size="2">%</font></td>
      <td align="right" width=20> <font size="2">10</font></td>
      <td width=32> <font size="2">%</font></td>
    </tr>
    <tr valign="bottom">
      <td width=389> <font size="2">Corresponding Common Stock Return</font></td>
      <td align="right" width=31> <font size="2">(15)</font></td>
      <td width=18> <font size="2">%</font></td>
      <td align="right" width=23> <font size="2">(8)</font></td>
      <td width=18> <font size="2">%</font></td>
      <td align="right" width=23> <font size="2">(1)</font></td>
      <td width=18> <font size="2">%</font></td>
      <td align="right" width=10> <font size="2">7</font></td>
      <td width=18> <font size="2">%</font></td>
      <td align="right" width=20> <font size="2">14</font></td>
      <td width=32> <font size="2">%</font></td>
    </tr>
  </table>


<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until the Fund
borrows or issues shares of preferred stock, the Fund&#146;s  common stock will not be
leveraged and the special considerations related to  leverage described in the prospectus
will not apply. Such leveraging of the  common stock cannot be fully achieved until the
proceeds resulting from the use  of leverage have been invested in accordance with the
Fund&#146;s investment  objective and policies.</font></td></tr></table>

<p>
<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
52</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT>
<p>&nbsp; <!-- *************************************************************************** -->
  <!-- MARKER PAGE="sheet: 52; page: 52" --> <br>
  <br>

<table width=600>
  <tr>
    <td><font size=2><b>Portfolio Management and Other Considerations</b></font></td>
  </tr>
</table>
<p>
<table width=600>
  <tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If changes in market and economic
      conditions occur to the point where the Fund&#146;s leverage could adversely
      affect common stockholders as noted above (or in anticipation of such changes),
      the Fund may attempt to reduce the degree to which it is leveraged by paying
      off borrowings or redeeming or otherwise purchasing shares of the Fund&#146;s
      preferred stock, if any. Purchases and redemptions of any outstanding preferred
      stock, whether on the open market or in negotiated transactions, are subject
      to limitations under the 1940 Act. In determining whether or not it is in
      the best interest of the Fund and its stockholders to redeem or repurchase
      outstanding preferred stock, the Board of Directors will take into account
      a variety of factors, including the following:</font></td>
  </tr>
</table>
<p>
<table width=600>
  <tr>
    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><font size=2>market
and economic conditions,</font></td></tr></table>

<table width=600>
  <tr>
    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><font size=2>the
ratio of preferred stock to common stock, and</font></td></tr></table>

<table width=600>
  <tr>
    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><font size=2>the
expenses and timing associated with such redemption or repurchase.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If market and
economic conditions subsequently change, the Fund may borrow  money again, or sell
previously unissued shares of preferred stock or shares of  preferred stock that the Fund
had issued but later repurchased or redeemed. The  Fund will incur additional expenses in
connection with a subsequent registration  and sale of any preferred stock.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event the
Fund issues preferred stock, the Fund intends to apply  for ratings of the preferred
stock from one or more rating services. In order to  obtain these ratings, the Fund may
be required to maintain portfolio holdings  that meet the specified guidelines of such
organizations. These guidelines may  impose asset coverage and portfolio composition
requirements that are more  stringent than those imposed by the 1940 Act and may prohibit
or limit the use  by the Fund of certain portfolio management techniques or investments.
The Fund  does not anticipate that these guidelines will impede the Investment Adviser
from managing the Fund&#146;s portfolio in accordance with the Fund&#146;s investment
objective and policies. Ratings on any preferred stock to be issued by the Fund  in the
future should not be confused with ratings on the portfolio securities  held by the Fund.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the 1940
Act, the Fund is not permitted to issue shares of preferred  stock unless immediately
after such issuance the net asset value of the Fund&#146;s  portfolio is at least 200% of
the liquidation value of the outstanding preferred  stock (expected to equal the original
purchase price of the outstanding shares  of preferred stock plus any accumulated but
unpaid dividends thereon). In  addition, the Fund is not permitted to declare any cash
dividend or other  distribution on its common stock unless, at the time of such
declaration, the  net asset value of the Fund&#146;s portfolio (determined after
deducting the amount  of such dividend or distribution) is at least 200% of the
liquidation value of  the outstanding preferred stock.</font></td></tr></table>


<p><table width=600><tr><td  align=center><font size=2><B>INVESTMENT RESTRICTIONS</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following are
fundamental investment restrictions of the Fund and,  prior to the issuance of any
preferred stock, may not be changed without the  approval of the holders of a majority of
the Fund&#146;s outstanding shares of common  stock (which for this purpose and under the
1940 Act means the lesser of (i) 67%  of the shares of common stock represented at a
meeting at which more than 50% of  the outstanding shares of common stock are represented
or (ii) more than 50% of  the outstanding shares). Subsequent to the issuance of a class
of preferred  stock, the following investment restrictions may not be changed without the
approval of a majority of the outstanding shares of common stock and of  preferred stock,
voting together as a class, and the approval of a majority of  the outstanding shares of
preferred stock, voting separately as a class. The  Fund may not:</font></td></tr></table>

<p><table width=600>
<tr><td width=30>&nbsp;</td>
<td width=570><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.
Make any investment inconsistent with the Fund&#146;s classification as  a diversified
company under the 1940 Act.</font></td></tr></table>

<p>
<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
53</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;






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<p>
<table width=600>
  <tr>
    <td width=30>&nbsp;</td>
    <td width=570><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Make investments
      for the purpose of exercising control or management.</font></td>
  </tr>
</table>
<br>
<table width=600>
<tr><td width=30>&nbsp;</td>
<td width=570><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.
Purchase or sell real estate, commodities or commodity contracts,  except that, to the
extent permitted by applicable law, the Fund may  invest in securities directly or
indirectly secured by real estate or  interests therein or issued by entities that invest
in real estate or  interests therein, and the Fund may purchase and sell financial
futures  contracts and options thereon.</font></td></tr></table>

<p><table width=600>
<tr><td width=30>&nbsp;</td>
<td width=570><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.
Issue senior securities or borrow money except as permitted by  Section 18 of the 1940
Act or otherwise as permitted by applicable law.</font></td></tr></table>

<p><table width=600>
<tr><td width=30>&nbsp;</td>
<td width=570><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.
Underwrite securities of other issuers, except insofar as the Fund  may be deemed an
underwriter under the Securities Act of 1933, as amended,  in selling portfolio
securities.</font></td></tr></table>

<p><table width=600>
<tr><td width=30>&nbsp;</td>
<td width=570><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.
Make loans to other persons, except (i) the Fund shall not be  deemed to be making a loan
to the extent that the Fund purchases bonds,  debentures or other corporate debt
securities, preferred securities,  commercial paper, pass through instruments, bank loan
participation  interests, corporate loans, certificates of deposit, bankers&#146; acceptances,
repurchase agreements or any similar instruments and (ii) the Fund may  lend its
portfolio securities in an amount not in excess of 33<FONT SIZE="1"><sup>1</sup></FONT>/<FONT SIZE="1">3</FONT>% of its  total assets, taken at
market value, provided that such loans shall be  made in accordance with the guidelines
set forth in this prospectus.</font></td></tr></table>

<p><table width=600>
<tr><td width=30>&nbsp;</td>
<td width=570><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.
Invest more than 25% of its total assets (taken at market value at  the time of each
investment) in the securities of issuers in any one  industry; provided that this
limitation shall not apply with respect to  obligations issued or guaranteed by the U.S.
government or by its agencies  or instrumentalities.</font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;For purposes of investment
      restriction (7), the Investment Adviser uses the classifications and sub-classifications
      of Morgan Stanley Capital International to identify industries.&lt;/R&gt;</font></td>
  </tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional
investment restrictions adopted by the Fund, which may be  changed by the Board of
Directors without stockholder approval, provide that the  Fund may not:</font></td></tr></table>

<p><table width=600>
<tr><td width=30>&nbsp;</td>
<td width=570><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.
Purchase securities of other investment companies, except to the  extent that such
purchases are permitted by applicable law.</font></td></tr></table>

<p><table width=600>
<tr><td width=30>&nbsp;</td>
<td width=570><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.
Mortgage, pledge, hypothecate or in any manner transfer, as  security for indebtedness,
any securities owned or held by the Fund except  as may be necessary in connection with
borrowings mentioned in investment  restriction (4) above or except as may be necessary
in connection with  transactions described under &#147;Other Investment Policies&#148; above.</font></td></tr></table>

<p><table width=600>
<tr><td width=30>&nbsp;</td>
<td width=570><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c.
Purchase any securities on margin, except that the Fund may obtain  such short term
credit as may be necessary for the clearance of purchases  and sales of portfolio
securities (the deposit or payment by the Fund of  initial or variation margin in
connection with financial futures contracts  and options thereon is not considered the
purchase of a security on  margin).</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If a percentage
restriction on investment policies or the investment or  use of assets set forth above is
adhered to at the time a transaction is  effected, later changes in percentage resulting
from changing values will not be  considered a violation.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund
interprets its policies with respect to borrowing and lending to  permit such activities
as may be lawful for the Fund, to the full extent  permitted by the 1940 Act or by
exemption from the provisions therefrom pursuant  to exemptive order of the Commission.</font></td></tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
54</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<!-- MARKER PAGE="sheet: 54; page: 54" -->





<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Investment
Adviser of the Fund and Merrill Lynch are owned and  controlled by Merrill Lynch &amp; Co.,
Inc. (&#147;ML &amp; Co.&#148;). Because of the affiliation  of Merrill Lynch with the
Investment Adviser, the Fund is prohibited from  engaging in certain transactions
involving Merrill Lynch except pursuant to an  exemptive order or otherwise in compliance
with the provisions of the 1940 Act  and the rules and regulations thereunder. Included
among such restricted  transactions will be purchases from or sales to Merrill Lynch of
securities in  transactions in which it acts as principal. See &#147;Portfolio
Transactions.&#148;</font></td></tr></table>


<p><table width=600><tr><td  align=center><font size=2><B>DIRECTORS AND OFFICERS</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Directors of
the Fund consist of five individuals, four of whom are  not &#147;interested persons&#148; of
the Fund as defined in the 1940 Act (the  &#147;non-interested Directors&#148;). The
Directors are responsible for the overall  supervision of the operations of the Fund and
perform the various duties imposed  on the directors of investment companies by the 1940
Act.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
non-interested Director is a member of the Fund&#146;s Audit Committee  (the &#147;Committee&#148;).
The principal responsibilities of the Committee are the  appointment, compensation and
oversight of the Fund&#146;s independent accountants,  including the resolution of
disagreements regarding financial reporting between  Fund management and such independent
accountants. The Committee&#146;s  responsibilities include, without limitation, to (i)
review with the independent  accountants the arrangements for and scope of annual and
special audits and any  other services provided by the independent accountants to the
Fund; (ii) discuss  with the independent accountants certain matters relating to the Fund&#146;s
financial statements, including any adjustment to such financial statements  recommended
by such independent accountants or any other results of any audit;  (iii) ensure that the
independent accountants submit on a periodic basis a  formal written statement with
respect to their independence, discuss with the  independent accountants any
relationships or services disclosed in the statement  that may impact the objectivity and
independence of the Fund&#146;s independent  accountants and recommend that the Board of
Directors take appropriate action in  response thereto to satisfy itself of the
independent accountants&#146; independence;  and (iv) consider the comments of the
independent accountants with respect to  the quality and adequacy of the Fund&#146;s
accounting and financial reporting  policies and practices and internal controls and Fund
management&#146;s responses  thereto. The Board of Directors of the Fund has adopted a
written charter for  the Committee. The Committee has retained independent legal counsel
to assist it  in connection with these duties. Since the Fund was incorporated, the
Committee  has held one meeting.</font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;Each non-interested
      Director is also a member of the Board&#146;s Nominating Committee. The
      principal responsibilities of the Nominating Committee are to identify individuals
      qualified to serve as non-interested Directors of the Fund and to recommend
      its nominees for consideration by the full Board. While the Nominating Committee
      is solely responsible for the selection and nomination of the Fund&#146;s
      non-interested Directors, the Nominating Committee may consider nominations
      for the office of the Director made by Fund stockholders in the same manner
      as it deems appropriate. Fund stockholders who wish to recommend a nominee
      should send nominations to the Secretary of the Fund that include biographical
      information and set forth the qualifications of the proposed nominee. Since
      the Fund was incorporated, the Nominating Committee has not held any meetings.&lt;/R&gt;</font></td>
  </tr></table>

<p><table width=600><tr><td><font size=2><B>Biographical Information</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain
biographical and other information relating to the non-interested  Directors of the Fund
is set forth below, including their ages, their principal  occupations for at least the
last five years, the length of time served, the  total number of portfolios overseen in
the complex of funds advised by the  Investment Adviser and its affiliate, Merrill Lynch
Investment Managers, L.P.  (&#147;MLIM&#148;) (&#147;FAM/MLIM-advised funds&#148;) and
other public directorships.</font></td></tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
55</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT>
<p>&nbsp; <!-- *************************************************************************** -->
  <!-- MARKER PAGE="sheet: 55; page: 55" -->
<p>
<table cellspacing=0 cellpadding=0 border=0 width=600>
  <tr align="center" valign="bottom">
    <td width=94 align="left"><font size="2">&lt;R&gt;</font></td>
    <td width=10>&nbsp;</td>
    <td width=53>&nbsp;</td>
    <td width=10>&nbsp;</td>
    <td width=63>&nbsp;</td>
    <td width=10>&nbsp;</td>
    <td width=201>&nbsp;</td>
    <td width=10>&nbsp;</td>
    <td width=76>&nbsp;</td>
    <td width=10>&nbsp;</td>
    <td width=63>&nbsp;</td>
  </tr>
  <tr align="center" valign="bottom">
    <td width=94> <b><font size="1">Name,&nbsp;Address*&nbsp;and<br>
      Age&nbsp;of&nbsp;Director </font> </b>
      <hr noshade size="1">
    </td>
    <td width=10><b>&nbsp;&nbsp;</b></td>
    <td width=53> <b><font size="1">Position(s) <br>
      Held&nbsp;with<br>
      the&nbsp;Fund </font> </b>
      <hr noshade size="1">
    </td>
    <td width=10><b>&nbsp;&nbsp;</b></td>
    <td width=63> <b><font size="1">Term&nbsp;of <br>
      Office**&nbsp;and<br>
      Length&nbsp;of <br>
      Time&nbsp;Served </font> </b>
      <hr noshade size="1">
    </td>
    <td width=10><b>&nbsp;&nbsp;</b></td>
    <td width=201> <b><font size="1">Principal&nbsp;Occupation(s) <br>
      During&nbsp;Past&nbsp;Five&nbsp;Years </font> </b>
      <hr noshade size="1" width="50%">
    </td>
    <td width=10><b>&nbsp;&nbsp;</b></td>
    <td width=76> <b><font size="1">Number&nbsp;of <br>
      FAM/MLIM- <br>
      Advised&nbsp;Funds <br>
      and&nbsp;Portfolios <br>
      Overseen </font> </b>
      <hr noshade size="1">
    </td>
    <td width=10><b>&nbsp;&nbsp;</b></td>
    <td width=63> <b><font size="1">Public <br>
      Directorships </font> </b>
      <hr noshade size="1">
    </td>
  </tr>
  <tr>
    <td valign=top width=94> <font size="1">David O. Beim (63)</font></td>
    <td valign=top width=10>&nbsp;</td>
    <td valign=top width=53> <font size="1">Director</font></td>
    <td valign=top width=10>&nbsp;</td>
    <td valign=top width=63> <font size="1">Director since 2004</font></td>
    <td valign=top width=10>&nbsp;</td>
    <td valign=top width=201> <font size="1">Professor of Finance and Economics
      at the Columbia University Graduate School of Business since 1991; Chairman
      of Outward Bound U.S.A. since 1997; and Chairman of Wave Hill, Inc. since
      1980.</font></td>
    <td valign=top width=10>&nbsp;</td>
    <td valign=top width=76> <font size="1">14 registered investment companies
      consisting of 19&nbsp;portfolios</font></td>
    <td valign=top width=10>&nbsp;</td>
    <td valign=top width=63> <font size="1">None</font></td>
  </tr>
  <tr>
    <td valign=top width=94></td>
    <td valign=top width=10></td>
    <td valign=top width=53></td>
    <td valign=top width=10></td>
    <td valign=top width=63></td>
    <td valign=top width=10></td>
    <td valign=top width=201></td>
    <td valign=top width=10></td>
    <td valign=top width=76></td>
    <td valign=top width=10></td>
    <td valign=top width=63></td>
  </tr>
  <tr>
    <td valign=top width=94>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=53>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=63>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=201>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=76>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=63>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=94> <font size="1">James T. Flynn (64)</font></td>
    <td valign=top width=10></td>
    <td valign=top width=53> <font size="1">Director</font></td>
    <td valign=top width=10></td>
    <td valign=top width=63> <font size="1">Director since 2004 </font></td>
    <td valign=top width=10></td>
    <td valign=top width=201> <font size="1">Chief Financial Officer of J.P. Morgan
      &amp; Co. Inc. from 1990 to 1995 and an employee of J.P. Morgan in various
      capacities from 1967 to 1995.</font></td>
    <td valign=top width=10></td>
    <td valign=top width=76> <font size="1">14 registered investment companies
      consisting of 19&nbsp;portfolios</font></td>
    <td valign=top width=10></td>
    <td valign=top width=63> <font size="1">None</font></td>
  </tr>
  <tr>
    <td valign=top width=94></td>
    <td valign=top width=10></td>
    <td valign=top width=53></td>
    <td valign=top width=10></td>
    <td valign=top width=63></td>
    <td valign=top width=10></td>
    <td valign=top width=201></td>
    <td valign=top width=10></td>
    <td valign=top width=76></td>
    <td valign=top width=10></td>
    <td valign=top width=63></td>
  </tr>
  <tr>
    <td valign=top width=94>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=53>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=63>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=201>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=76>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=63>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=94> <font size="1">W. Carl Kester (52)</font></td>
    <td valign=top width=10></td>
    <td valign=top width=53> <font size="1">Director</font></td>
    <td valign=top width=10></td>
    <td valign=top width=63> <font size="1">Director since 2004 </font></td>
    <td valign=top width=10></td>
    <td valign=top width=201> <font size="1">Industrial Bank of Japan Professor
      of Finance, Senior Associate Dean and Chairman of the MBA Program of Harvard
      University Graduate School of Business Administration since 1999; James
      R. Williston Professor of Business Administration of Harvard University
      Graduate School of Business from 1997 to 1999; MBA Class of 1958 Professor
      of Business Administration of Harvard University Graduate School of Business
      Administration from 1981 to 1997; and Independent Consultant since 1978.</font></td>
    <td valign=top width=10></td>
    <td valign=top width=76> <font size="1">14 registered investment companies
      consisting of 19&nbsp;portfolios</font></td>
    <td valign=top width=10></td>
    <td valign=top width=63> <font size="1">None</font></td>
  </tr>
  <tr>
    <td valign=top width=94></td>
    <td valign=top width=10></td>
    <td valign=top width=53></td>
    <td valign=top width=10></td>
    <td valign=top width=63></td>
    <td valign=top width=10></td>
    <td valign=top width=201></td>
    <td valign=top width=10></td>
    <td valign=top width=76></td>
    <td valign=top width=10></td>
    <td valign=top width=63></td>
  </tr>
  <tr>
    <td valign=top width=94>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=53>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=63>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=201>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=76>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=63>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=94> <font size="1">Karen P. Robards (53)</font></td>
    <td valign=top width=10></td>
    <td valign=top width=53> <font size="1">Director</font></td>
    <td valign=top width=10></td>
    <td valign=top width=63> <font size="1">Director since 2004 </font></td>
    <td valign=top width=10></td>
    <td valign=top width=201> <font size="1">President of Robards &amp; Company,
      a financial advisory firm since 1987; formerly an investment banker with
      Morgan Stanley for more than ten years; Director of Enable Medical Corp.
      since 1996; Director of AtriCure, Inc. since 2000; Director of CineMuse
      Inc. from 1996 to 2000; and Director of the Cooke Center for Learning and
      Development, a not-for-profit organization, since 1987.</font></td>
    <td valign=top width=10></td>
    <td valign=top width=76> <font size="1">14 registered investment companies
      consisting of 19&nbsp;portfolios</font></td>
    <td valign=top width=10></td>
    <td valign=top width=63> <font size="1">None</font></td>
  </tr>
  <tr>
    <td valign=top width=94><font size="2">&lt;/R&gt;</font></td>
    <td valign=top width=10></td>
    <td valign=top width=53>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=63>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=201>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=76>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=63>&nbsp;</td>
  </tr>
</table>


<table width=600><tr><td><hr size=1 noshade align=left  width=75></td></tr></table>

<table width=600><tr><td width=4% align=right valign=top><font size="1">* </font></td><td width=2%><font size="1"></font></td><td width=94%><font size="1">The
address of each non-interested Director is P.O. Box 9095, Princeton, New Jersey
08543-9095.</font></td></tr></table>

<table width=600><tr><td width=4% align=right valign=top><font size="1">** </font></td><td width=2%><font size="1"></font></td><td width=94%><font size="1">Each
Director serves until his or her successor is elected and qualified or  until his or her
death, resignation, or removal as provided in the Fund&#146;s  By-laws, Charter or by
statute or until December 31 of the year in which he  or she turns 72.</font></td></tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
56</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<!-- MARKER PAGE="sheet: 56; page: 56" -->





<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain biographical and other
      information relating to the Director who is an &#147;interested person&#148;
      of the Fund as defined in the 1940 Act (the &#147;interested Director&#148;)
      and to the other officers of the Fund is set forth below, including their
      ages, their principal occupations for at least the last five years, the
      length of time served, the total number of portfolios overseen in FAM/MLIM-advised
      funds and public directorships held.&lt;R&gt;</font></td>
  </tr></table>




<P>
<table cellspacing=0 cellpadding=0 border=0 width=600>
  <tr valign="bottom" align="center">
    <td width=91> <b><font size="1">Name,&nbsp;Address&#134; <br>
      and Age </font></b>
      <hr noshade size="1">
    </td>
    <td width=9><b>&nbsp;&nbsp;</b></td>
    <td width=54> <b><font size="1">Position(s)<br>
      Held&nbsp;with<br>
      the&nbsp;Fund </font></b>
      <hr noshade size="1">
    </td>
    <td width=9><b>&nbsp;&nbsp;</b></td>
    <td width=67> <b><font size="1">Term&nbsp;of <br>
      Office**&nbsp;and <br>
      Length&nbsp;of <br>
      Time&nbsp;Served </font></b>
      <hr noshade size="1">
      <b><font size="1"> </font></b></td>
    <td width=10><b>&nbsp;&nbsp;</b></td>
    <td width=189> <b><font size="1">Principal&nbsp;Occupation(s) <br>
      During&nbsp;Past&nbsp;Five&nbsp;Years </font></b>
      <hr noshade size="1" width="50%">
    </td>
    <td width=8><b>&nbsp;&nbsp;</b></td>
    <td width=73> <b><font size="1">Number&nbsp;of <br>
      FAM/MLIM-<br>
      Advised&nbsp;Funds <br>
      and&nbsp;Portfolios <br>
      Overseen </font></b>
      <hr noshade size="1">
    </td>
    <td width=9><b>&nbsp;&nbsp;</b></td>
    <td width=81> <b><font size="1">Public <br>
      Directorships </font></b>
      <hr noshade size="1">
    </td>
  </tr>
  <tr>
    <td valign=top width=91> <font size="1">Terry K. Glenn* (63)</font></td>
    <td valign=top width=9></td>
    <td valign=top width=54> <font size="1">President** and Director***</font></td>
    <td valign=top width=9></td>
    <td valign=top width=67> <font size="1">President and Director since 2004</font></td>
    <td valign=top width=10></td>
    <td valign=top width=189> <font size="1">President of the FAM/MLIM-advised
      funds; Chairman (Americas Region) of MLIM from 2000 to 2002; Executive Vice
      President of the FAM and MLIM (which terms as used herein include their
      corporate predecessors) from 1983 to 2002; President of FAM Distributors,
      Inc. (&#147;FAMD&#148;) from 1986 to 2002 and Director thereof from 1991
      to 2002; Executive Vice President and Director of Princeton Services, Inc.
      (&#147;Princeton Services&#148;) from 1993 to 2002; President of Princeton
      Administrators, L.P. from 1988 to 2002; and Director of Financial Data Services,
      Inc. from 1985 to 2002.</font></td>
    <td valign=top width=8></td>
    <td valign=top width=73> <font size="1">126 registered investment companies
      consisting of 161&nbsp;portfolios</font></td>
    <td valign=top width=9></td>
    <td valign=top width=81> <font size="1">None</font></td>
  </tr>
  <tr>
    <td valign=top width=91>&nbsp;</td>
    <td valign=top width=9></td>
    <td valign=top width=54>&nbsp;</td>
    <td valign=top width=9></td>
    <td valign=top width=67>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=189>&nbsp;</td>
    <td valign=top width=8></td>
    <td valign=top width=73>&nbsp;</td>
    <td valign=top width=9></td>
    <td valign=top width=81>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=91> <font size="1">Donald C. Burke (43)</font></td>
    <td valign=top width=9></td>
    <td valign=top width=54> <font size="1">Vice President and Treasurer</font></td>
    <td valign=top width=9></td>
    <td valign=top width=67> <font size="1">Vice President and Treasurer since
      2004</font></td>
    <td valign=top width=10></td>
    <td valign=top width=189> <font size="1">First Vice President of FAM and MLIM
      since 1997 and Treasurer thereof since 1999; Senior Vice President and Treasurer
      of Princeton Services since 1999; Vice President of FAMD since 1999; and
      Director of Taxation of MLIM since 1990.</font></td>
    <td valign=top width=8></td>
    <td valign=top width=73> <font size="1">125 registered investment companies
      consisting of 160&nbsp;portfolios</font></td>
    <td valign=top width=9></td>
    <td valign=top width=81> <font size="1">None</font></td>
  </tr>
  <tr>
    <td valign=top width=91></td>
    <td valign=top width=9></td>
    <td valign=top width=54></td>
    <td valign=top width=9></td>
    <td valign=top width=67></td>
    <td valign=top width=10></td>
    <td valign=top width=189></td>
    <td valign=top width=8></td>
    <td valign=top width=73></td>
    <td valign=top width=9></td>
    <td valign=top width=81></td>
  </tr>
  <tr>
    <td valign=top width=91>&nbsp;</td>
    <td valign=top width=9></td>
    <td valign=top width=54>&nbsp;</td>
    <td valign=top width=9></td>
    <td valign=top width=67>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=189>&nbsp;</td>
    <td valign=top width=8></td>
    <td valign=top width=73>&nbsp;</td>
    <td valign=top width=9></td>
    <td valign=top width=81>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=91> <font size="1">Brian Fullerton (43 )</font></td>
    <td valign=top width=9></td>
    <td valign=top width=54> <font size="1">Vice President and Co-Portfolio Manager</font></td>
    <td valign=top width=9></td>
    <td valign=top width=67> <font size="1">Vice President and Co-Portfolio Manager
      since 2004</font></td>
    <td valign=top width=10></td>
    <td valign=top width=189> <font size="1">Chief Investment Officer for MLIM
      Americas region and Head of MLIM Global Risk Management and Performance
      Measurement since 2001; and Head of Risk Management for MLIM Americas from
      1999 to 2001.</font></td>
    <td valign=top width=8></td>
    <td valign=top width=73> <font size="1">3 registered investment companies
      consisting of 2&nbsp;portfolios</font></td>
    <td valign=top width=9></td>
    <td valign=top width=81> <font size="1">None</font></td>
  </tr>
  <tr>
    <td valign=top width=91></td>
    <td valign=top width=9></td>
    <td valign=top width=54></td>
    <td valign=top width=9></td>
    <td valign=top width=67></td>
    <td valign=top width=10></td>
    <td valign=top width=189></td>
    <td valign=top width=8></td>
    <td valign=top width=73></td>
    <td valign=top width=9></td>
    <td valign=top width=81></td>
  </tr>
  <tr>
    <td valign=top width=91>&nbsp;</td>
    <td valign=top width=9></td>
    <td valign=top width=54>&nbsp;</td>
    <td valign=top width=9></td>
    <td valign=top width=67>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=189>&nbsp;</td>
    <td valign=top width=8></td>
    <td valign=top width=73>&nbsp;</td>
    <td valign=top width=9></td>
    <td valign=top width=81>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=91> <font size="1">Kevin Rendino (35)</font></td>
    <td valign=top width=9></td>
    <td valign=top width=54> <font size="1">Vice President and Co-Portfolio Manager</font></td>
    <td valign=top width=9></td>
    <td valign=top width=67> <font size="1">Vice President and Co-Portfolio Manager
      since 2004</font></td>
    <td valign=top width=10></td>
    <td valign=top width=189> <font size="1">Managing Director of MLIM since 2000;
      and Director of MLIM from 1997 to 2000.</font></td>
    <td valign=top width=8></td>
    <td valign=top width=73> <font size="1">7 registered investment companies
      consisting of 5&nbsp;portfolios</font></td>
    <td valign=top width=9></td>
    <td valign=top width=81> <font size="1">None</font></td>
  </tr>
  <tr>
    <td valign=top width=91><font size="2">&lt;/R&gt;</font></td>
    <td valign=top width=9></td>
    <td valign=top width=54>&nbsp;</td>
    <td valign=top width=9></td>
    <td valign=top width=67>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=189>&nbsp;</td>
    <td valign=top width=8></td>
    <td valign=top width=73>&nbsp;</td>
    <td valign=top width=9></td>
    <td valign=top width=81>&nbsp;</td>
  </tr>
</table>



<p><table width=600><tr>
    <td align=right><FONT SIZE="2"><I><font size="1">(footnotes on next page)</font></I></FONT>
    </td>
  </tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
57</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT>
<p>&nbsp; <!-- *************************************************************************** -->
  <!-- MARKER PAGE="sheet: 57; page: 57" -->
<p>
<table cellspacing=0 cellpadding=0 border=0 width=600>
  <tr align="center" valign="bottom">
    <td width=102 align="left"><font size="2">&lt;R&gt;</font></td>
    <td width=10>&nbsp;</td>
    <td width=61>&nbsp;</td>
    <td width=10>&nbsp;</td>
    <td width=63>&nbsp;</td>
    <td width=10>&nbsp;</td>
    <td width=186>&nbsp;</td>
    <td width=12>&nbsp;</td>
    <td width=72>&nbsp;</td>
    <td width=14>&nbsp;</td>
    <td width=60>&nbsp;</td>
  </tr>
  <tr align="center" valign="bottom">
    <td width=102> <b><font size="1">Name,&nbsp;Address&#134;<br>
      and&nbsp;Age </font> </b>
      <hr noshade size="1">
    </td>
    <td width=10><b>&nbsp;&nbsp;</b></td>
    <td width=61> <b><font size="1">Position(s) <br>
      Held&nbsp;with<br>
      the&nbsp;Fund </font> </b>
      <hr noshade size="1">
    </td>
    <td width=10><b>&nbsp;&nbsp;</b></td>
    <td width=63> <b><font size="1">Term&nbsp;of <br>
      Office**&nbsp;and <br>
      Length&nbsp;of <br>
      Time&nbsp;Served </font> </b>
      <hr noshade size="1">
    </td>
    <td width=10><b>&nbsp;&nbsp;</b></td>
    <td width=186> <b><font size="1">Principal&nbsp;Occupation(s) <br>
      During&nbsp;Past&nbsp;Five&nbsp;Years </font> </b>
      <hr noshade size="1" width="50%">
    </td>
    <td width=12><b>&nbsp;&nbsp;</b></td>
    <td width=72> <b><font size="1">Number&nbsp;of <br>
      FAM/MLIM- <br>
      Advised&nbsp;Funds<br>
      and&nbsp;Portfolios <br>
      Overseen </font> </b>
      <hr noshade size="1">
    </td>
    <td width=14><b>&nbsp;&nbsp;</b></td>
    <td width=60> <b><font size="1">Public <br>
      Directorships </font> </b>
      <hr noshade size="1">
    </td>
  </tr>
  <tr>
    <td valign=top width=102> <font size="1">Robert J. Martorelli (46)</font></td>
    <td valign=top width=10></td>
    <td valign=top width=61> <font size="1">Vice President and Co-Portfolio Manager</font></td>
    <td valign=top width=10></td>
    <td valign=top width=63> <font size="1">Vice President and Co-Portfolio Manager
      since 2004</font></td>
    <td valign=top width=10></td>
    <td valign=top width=186> <font size="1">Managing Director of MLIM since 2000;
      and Director of MLIM from 1997 to 2000.</font></td>
    <td valign=top width=12></td>
    <td valign=top width=72> <font size="1">7 registered investment companies
      consisting of 5&nbsp;portfolios</font></td>
    <td valign=top width=14></td>
    <td valign=top width=60> <font size="1">None</font></td>
  </tr>
  <tr>
    <td valign=top width=102></td>
    <td valign=top width=10></td>
    <td valign=top width=61></td>
    <td valign=top width=10></td>
    <td valign=top width=63></td>
    <td valign=top width=10></td>
    <td valign=top width=186></td>
    <td valign=top width=12></td>
    <td valign=top width=72></td>
    <td valign=top width=14></td>
    <td valign=top width=60></td>
  </tr>
  <tr>
    <td valign=top width=102>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=61>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=63>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=186>&nbsp;</td>
    <td valign=top width=12></td>
    <td valign=top width=72>&nbsp;</td>
    <td valign=top width=14></td>
    <td valign=top width=60>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=102> <font size="1">John Burger (40)</font></td>
    <td valign=top width=10></td>
    <td valign=top width=61> <font size="1">Vice President and Co-Portfolio Manager</font></td>
    <td valign=top width=10></td>
    <td valign=top width=63> <font size="1">Vice President and Co-Portfolio Manager
      since 2004</font></td>
    <td valign=top width=10></td>
    <td valign=top width=186> <font size="1">Managing Director of MLIM since 2004;
      and Director (Global Fixed Income) of MLIM from 1998 to 2004.</font></td>
    <td valign=top width=12></td>
    <td valign=top width=72> <font size="1">3 registered investment companies
      consisting of 3&nbsp;portfolios</font></td>
    <td valign=top width=14></td>
    <td valign=top width=60> <font size="1">None</font></td>
  </tr>
  <tr>
    <td valign=top width=102></td>
    <td valign=top width=10></td>
    <td valign=top width=61></td>
    <td valign=top width=10></td>
    <td valign=top width=63></td>
    <td valign=top width=10></td>
    <td valign=top width=186></td>
    <td valign=top width=12></td>
    <td valign=top width=72></td>
    <td valign=top width=14></td>
    <td valign=top width=60></td>
  </tr>
  <tr>
    <td valign=top width=102>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=61>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=63>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=186>&nbsp;</td>
    <td valign=top width=12></td>
    <td valign=top width=72>&nbsp;</td>
    <td valign=top width=14></td>
    <td valign=top width=60>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=102> <font size="1">Romualdo Roldan (53)</font></td>
    <td valign=top width=10></td>
    <td valign=top width=61> <font size="1">Vice President and Co-Portfolio Manager</font></td>
    <td valign=top width=10></td>
    <td valign=top width=63> <font size="1">Vice President and Co-Portfolio Manager
      since 2004</font></td>
    <td valign=top width=10></td>
    <td valign=top width=186> <font size="1">Vice President of MLIM since 1998;
      and Portfolio Manager of MLIM since 1999.</font></td>
    <td valign=top width=12></td>
    <td valign=top width=72> <font size="1">2 registered investment companies
      consisting of 2&nbsp;portfolios</font></td>
    <td valign=top width=14></td>
    <td valign=top width=60> <font size="1">None</font></td>
  </tr>
  <tr>
    <td valign=top width=102></td>
    <td valign=top width=10></td>
    <td valign=top width=61></td>
    <td valign=top width=10></td>
    <td valign=top width=63></td>
    <td valign=top width=10></td>
    <td valign=top width=186></td>
    <td valign=top width=12></td>
    <td valign=top width=72></td>
    <td valign=top width=14></td>
    <td valign=top width=60></td>
  </tr>
  <tr>
    <td valign=top width=102>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=61>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=63>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=186>&nbsp;</td>
    <td valign=top width=12></td>
    <td valign=top width=72>&nbsp;</td>
    <td valign=top width=14></td>
    <td valign=top width=60>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=102> <font size="1">Patrick Maldari (41)</font></td>
    <td valign=top width=10></td>
    <td valign=top width=61> <font size="1">Vice President and Co-Portfolio Manager</font></td>
    <td valign=top width=10></td>
    <td valign=top width=63> <font size="1">Vice President and Co-Portfolio Manager
      since 2004</font></td>
    <td valign=top width=10></td>
    <td valign=top width=186> <font size="1">Managing Director of MLIM since 2000;
      and Director of MLIM from 1997 to 2000.</font></td>
    <td valign=top width=12></td>
    <td valign=top width=72> <font size="1">8 registered investment companies
      consisting of 5&nbsp;portfolios</font></td>
    <td valign=top width=14></td>
    <td valign=top width=60> <font size="1">None</font></td>
  </tr>
  <tr>
    <td valign=top width=102></td>
    <td valign=top width=10></td>
    <td valign=top width=61></td>
    <td valign=top width=10></td>
    <td valign=top width=63></td>
    <td valign=top width=10></td>
    <td valign=top width=186></td>
    <td valign=top width=12></td>
    <td valign=top width=72></td>
    <td valign=top width=14></td>
    <td valign=top width=60></td>
  </tr>
  <tr>
    <td valign=top width=102>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=61>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=63>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=186>&nbsp;</td>
    <td valign=top width=12></td>
    <td valign=top width=72>&nbsp;</td>
    <td valign=top width=14></td>
    <td valign=top width=60>&nbsp;</td>
  </tr>
  <tr>
    <td valign=top width=102> <font size="1">Phillip S. Gillespie (40)</font></td>
    <td valign=top width=10></td>
    <td valign=top width=61> <font size="1">Secretary</font></td>
    <td valign=top width=10></td>
    <td valign=top width=63> <font size="1">Secretary since 2004</font></td>
    <td valign=top width=10></td>
    <td valign=top width=186> <font size="1">First Vice President of MLIM since
      2001; Director of MLIM from 2000 to 2001; Vice President of MLIM from 1999
      to 2000; and Attorney associated with MLIM since 1998.</font></td>
    <td valign=top width=12></td>
    <td valign=top width=72> <font size="1">125 registered investment companies
      consisting of 160&nbsp;portfolios</font></td>
    <td valign=top width=14></td>
    <td valign=top width=60> <font size="1">None</font></td>
  </tr>
  <tr>
    <td valign=top width=102><font size="2">&lt;/R&gt;</font></td>
    <td valign=top width=10></td>
    <td valign=top width=61>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=63>&nbsp;</td>
    <td valign=top width=10></td>
    <td valign=top width=186>&nbsp;</td>
    <td valign=top width=12></td>
    <td valign=top width=72>&nbsp;</td>
    <td valign=top width=14></td>
    <td valign=top width=60>&nbsp;</td>
  </tr>
</table>


<table width=600><tr><td><hr size=1 noshade align=left  width=75></td></tr></table>


<table width=600><tr><td width=4% align=right valign=top><font size="1">&#134; </font></td><td width=2%><font size="1"></font></td><td width=94%><font size="1"> The
address of Mr. Glenn and each officer listed is P.O. Box 9011, Princeton, New Jersey
08543-9011.</font></td></tr></table>

<table width=600><tr><td width=4% align=right valign=top><font size="1">* </font></td><td width=2%><font size="1"></font></td><td width=94%><font size="1"> Mr.
Glenn is an &#147;interested person,&#148; as defined in the 1940 Act, of the  Fund based
on his former positions with FAM, MLIM, FAMD, Princeton Services  and Princeton
Administrators, L.P.</font></td></tr></table>

<table width=600><tr><td width=4% align=right valign=top><font size="1">** </font></td><td width=2%><font size="1"></font></td><td width=94%><font size="1">Elected
by and serves at the pleasure of the Board of Directors of the Fund.</font></td></tr></table>

<table width=600><tr><td width=4% align=right valign=top><font size="1">*** </font></td><td width=2%><font size="1"></font></td><td width=94%><font size="1"> As
a Director, Mr. Glenn serves until his successor is elected and  qualified or until his
death or resignation, or removal as provided in the  Fund&#146;s By-laws or Charter or by
statute, or until December 31 of the year  in which he turns 72.</font></td></tr></table>




<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event that
the Fund issues preferred stock, holders of shares of  preferred stock, voting as a
separate class, will be entitled to elect two of  the Fund&#146;s Directors, and the
remaining Directors will be elected by all holders  of capital stock, voting as a single
class. See &#147;Description of Capital Stock.&#148;</font></td></tr></table>





<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
58</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2><B>Share Ownership</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Information
relating to each Director&#146;s share ownership in the Fund and in  all registered funds
in the Merrill Lynch family of funds that are overseen by  the respective Director (&#147;Supervised
Merrill Lynch Funds&#148;) as of December 31,  2003 is set forth in the chart below.</font></td></tr></table>

<P>
<table cellspacing=0 cellpadding=0 border=0 width=600>
  <tr valign="bottom">
    <td width=231> <font size="1"><b>Name</b></font>
      <hr noshade size="1" align="left" width="10%">
    </td>
    <td align="center" width=166> <font size="1"><b>Aggregate Dollar Range<br>
      of Equity in the Fund</b> </font>
      <hr noshade size="1" width="70%">
    </td>
    <td align="center" colspan="2"> <font size="1"><b>Aggregate Dollar Range<br>
      of Securities in<br>
      Supervised<br>
      Merrill Lynch Funds </b></font>
      <hr noshade size="1" width="55%">
    </td>
  </tr>
  <tr valign="bottom">
    <td width=231> <font size="2"><i>Interested Director:</i></font></td>
    <td width=166></td>
    <td width=58></td>
    <td width=145></td>
  </tr>
  <tr valign="bottom">
    <td width=231> <font size="2">&nbsp;&nbsp;Terry K. Glenn</font></td>
    <td align="center" width=166> <font size="2">None</font></td>
    <td align="center" width=58>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
    <td align="left" valign="bottom" width=145> <font size="2">Over $100,000</font></td>
  </tr>
  <tr valign="bottom">
    <td width=231> <font size="2"><i>Non-Interested Directors:</i></font></td>
    <td align="center" width=166></td>
    <td align="center" width=58></td>
    <td align="left" valign="bottom" width=145></td>
  </tr>
  <tr valign="bottom">
    <td width=231> <font size="2">&nbsp;&nbsp;David O Beim</font></td>
    <td align="center" width=166> <font size="2">None</font></td>
    <td align="center" width=58></td>
    <td align="left" valign="bottom" width=145> <font size="2">None</font></td>
  </tr>
  <tr valign="bottom">
    <td width=231> <font size="2">&nbsp;&nbsp;James T. Flynn</font></td>
    <td align="center" width=166> <font size="2">None</font></td>
    <td align="center" width=58></td>
    <td align="left" valign="bottom" width=145> <font size="2">Over $100,000</font></td>
  </tr>
  <tr valign="bottom">
    <td width=231> <font size="2">&nbsp;&nbsp;W. Carl Kester</font></td>
    <td align="center" width=166> <font size="2">None</font></td>
    <td align="center" width=58></td>
    <td align="left" valign="bottom" width=145> <font size="2">$10,001&#151;$50,000</font></td>
  </tr>
  <tr valign="bottom">
    <td width=231> <font size="2">&nbsp;&nbsp;Karen P. Robards*</font></td>
    <td align="center" width=166> <font size="2">None</font></td>
    <td align="center" width=58></td>
    <td align="left" valign="bottom" width=145> <font size="2">Over $100,000</font></td>
  </tr>
</table>


<table width=600><tr><td><hr size=1 noshade align=left  width=75></td></tr></table>

<table width=600><tr><td width=4% align=right valign=top><font size="1">* </font></td><td width=2%><font size="1"></font></td><td width=94%><font size="1"> Chairman
of the Audit Committee.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of the date of
this prospectus, the Investment Adviser owned all of the  outstanding shares of common
stock of the Fund; none of the Directors and  officers of the Fund owned any outstanding
shares of the Fund. As of the date of  this prospectus, none of the non-interested
Directors of the Fund or their  immediate family members owned beneficially or of record
any securities in ML &amp; Co.</font></td></tr></table>


<p><table width=600><tr><td><font size=2><B>Compensation of Directors</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to its
investment advisory agreement with the Fund (the  &#147;Investment Advisory Agreement&#148;),
the Investment Adviser pays all compensation  of officers and employees of the Fund as
well as the fees of all Directors of  the Fund who are affiliated persons of ML &amp; Co.
or its subsidiaries.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
non-interested Director receives an aggregate annual retainer of  $96,750 for his or her
services to the FAM/MLIM-advised funds, including the  Fund. The portion of the annual
retainer allocated to each FAM/MLIM-advised fund  is determined quarterly based, in
general, on the relative net assets of each  such fund. In addition, each non-interested
Director receives a fee per  in-person Board meeting attended and per in-person Committee
meeting attended.  The aggregate annual per meeting fees paid to each non-interested
Director  totals $40,000 for all the FAM/MLIM-advised funds for which that Director
serves  and are allocated equally among those funds. The Chairman of the Audit Committee
receives an additional annual retainer in the amount of $10,000, which is paid  quarterly
and allocated to each FAM/MLIM-advised fund for which such Chairman  provides services
based on the relative net assets of the fund.</font></td></tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
59</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<!-- MARKER PAGE="sheet: 59; page: 59" -->





<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following
table sets forth the estimated compensation to be paid by  the Fund to the non-interested
Directors projected through the end of the Fund&#146;s  first full fiscal year and the
aggregate compensation paid to them from all  registered FAM/MLIM-advised funds for the
calendar year ended December 31, 2003.</font></td></tr></table>

<P>
<table cellspacing=0 cellpadding=0 border=0 width=600>
  <tr valign="bottom">
    <td width=200> <b><font size="1">Name</font></b>
      <hr noshade size="1" align="left" width="15%">
    </td>
    <td align="center" width=121> <b><font size="1">Estimated<br>
      Aggregate<br>
      Compensation<br>
      from Fund </font></b>
      <hr noshade size="1" width="60%">
    </td>
    <td align="center" width=139> <b><font size="1">Pension<br>
      Retirement other<br>
      Benefits Accrued <br>
      as Part of <br>
      Fund Expense </font></b>
      <hr noshade size="1" width="55%">
    </td>
    <td align="center" width=140> <b><font size="1">Aggregate <br>
      Compensation<br>
      from Fund and<br>
      FAM/MLIM-<br>
      Advised Funds* </font></b>
      <hr noshade size="1" width="55%">
    </td>
  </tr>
  <tr valign="bottom">
    <td width=200> <font size="2">David O. Beim</font></td>
    <td align="center" width=121> <font size="2">$7,514</font></td>
    <td align="center" width=139> <font size="2">None</font></td>
    <td align="center" width=140> <font size="2">$105,000</font></td>
  </tr>
  <tr valign="bottom">
    <td width=200> <font size="2">James T. Flynn</font></td>
    <td align="center" width=121> <font size="2">$7,514</font></td>
    <td align="center" width=139> <font size="2">None</font></td>
    <td align="center" width=140> <font size="2">$105,000</font></td>
  </tr>
  <tr valign="bottom">
    <td width=200> <font size="2">W. Carl Kester</font></td>
    <td align="center" width=121> <font size="2">$7,514</font></td>
    <td align="center" width=139> <font size="2">None</font></td>
    <td align="center" width=140> <font size="2">$105,000</font></td>
  </tr>
  <tr valign="bottom">
    <td width=200> <font size="2">Karen P. Robards&#134;</font></td>
    <td align="center" width=121> <font size="2">$7,638</font></td>
    <td align="center" width=139> <font size="2">None</font></td>
    <td align="center" width=140> <font size="2">$105,000</font></td>
  </tr>
</table>

<table width=600><tr><td><hr size=1 noshade align=left  width=75></td></tr></table>


<table width=600><tr><td width=4% align=right valign=top><font size="1">* </font></td><td width=2%><font size="1"></font></td>
    <td width=94%><font size="1"> For the number of FAM/MLIM-advised funds from
      which each Director receives compensation, see the table above under <br>
      &#147;&#151;Biographical
      Information.&#148;</font></td>
  </tr></table>

<table width=600><tr><td width=4% align=right valign=top><font size="1">&#134; </font></td><td width=2%><font size="1"></font></td><td width=94%><font size="1"> Chairman
of the Audit Committee.</font></td></tr></table>

<p><table width=600><tr><td  align=center><font size=2><B>INVESTMENT ADVISORY AND
MANAGEMENT ARRANGEMENTS</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Investment
Adviser, which is owned and controlled by ML &amp; Co., a  financial services holding
company and the parent of Merrill Lynch, provides the  Fund with investment advisory and
administrative services. The Investment  Adviser acts as the investment adviser to more
than 100 registered investment  companies and offers investment advisory services to
individuals and  institutional accounts. As of January 31, 2004, the Investment Adviser
and its  affiliates, including MLIM, had a total of approximately $518.6 billion in
investment company and other portfolio assets under management. This amount  includes
assets managed by certain affiliates of the Investment Adviser. The  Investment Adviser
is a limited partnership, the partners of which are ML &amp; Co.  and Princeton Services,
Inc. The principal business address of the Investment  Adviser is 800 Scudders Mill Road,
Plainsboro, New Jersey 08536.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Investment
Advisory Agreement provides that, subject to the  supervision of the Fund&#146;s Board of
Directors, the Investment Adviser is  responsible for the actual management of the Fund&#146;s
portfolio. The  responsibility for making decisions to buy, sell or hold a particular
security  rests with the Investment Adviser, subject to review by the Board of Directors.
The Investment Adviser will also be responsible for the performance of certain
management services for the Fund.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund will be
managed by a team of investment professionals from the  Investment Adviser. The Fund&#146;s
portfolio managers will consider analyses from  various sources, make the necessary
investment decisions, and place orders for  transactions accordingly.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Brian Fullerton is
responsible for the overall asset allocation of the  Fund&#146;s portfolio. Mr. Fullerton
is responsible for determining on an ongoing  basis what percentages of the Fund&#146;s
portfolio will be invested in common  stocks, preferred securities, and debt securities,
including emerging markets  debt securities. Mr. Fullerton is Chief Investment Officer
for MLIM Americas  region and Head of MLIM Global Risk Management and Performance
Measurement.</font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;Kevin Rendino and
      Robert J. Martorelli are the co-portfolio managers responsible for the common
      stock portion of the Fund&#146;s portfolio. John Burger, Romualdo Roldan
      and Patrick Maldari are the co-portfolio managers responsible for the fixed
      income portion of the Fund&#146;s portfolio, with Mr. Burger focusing on
      preferred securities, Mr. Roldan focusing on emerging market debt securities
      and Mr. Maldari focusing on other fixed income debt securities. The Fund&#146;s
      portfolio managers described above may change from time to time and additional
      portfolio managers may be added following a change in the asset allocation
      of the Fund&#146;s portfolio to include alternative debt and equity securities.&lt;/R&gt;</font></td>
  </tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
60</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The portfolio
managers will be supported by a team of analysts, who will  independently evaluate, rate,
and monitor the portfolio securities held by the  Fund.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For its services,
the Fund pays the Investment Adviser a monthly fee at  the annual rate of 0.85% of an
aggregate of: (i) the Fund&#146;s average daily net  assets and (ii) the proceeds of any
outstanding borrowings used for leverage  (&#147;average daily net assets&#148; means the
average daily value of the total assets of  the Fund, including the amount obtained from
leverage and any proceeds from the  issuance of preferred stock, minus the sum of (i)
accrued liabilities of the  Fund, (ii) any accrued and unpaid interest on outstanding
borrowings and (iii)  accumulated dividends on shares of preferred stock). For purposes
of this  calculation, average daily net assets is determined at the end of each month on
the basis of the average net assets of the Fund for each day during the month.  The
liquidation preference of any outstanding preferred stock (other than  accumulated
dividends) is not considered a liability in determining the Fund&#146;s  average daily
net assets.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Investment
Advisory Agreement obligates the Investment Adviser to  provide investment advisory
services and to pay all compensation of and furnish  office space for officers and
employees of the Fund connected with investment  and economic research, trading and
investment management of the Fund, as well as  the compensation of all Directors of the
Fund who are affiliated persons of the  Investment Adviser or any of its affiliates. The
Fund pays all other expenses  incurred in the operation of the Fund, including, among
other things, expenses  for legal and auditing services, taxes, costs of preparing,
printing and mailing  proxies, listing fees, stock certificates and stockholder reports,
charges of  the custodian and the transfer agent, dividend disbursing agent and
registrar,  Commission fees, fees and expenses of non-interested Directors, accounting
and  pricing costs, insurance, interest, brokerage costs, litigation and other
extraordinary or non-recurring expenses, mailing and other expenses properly  payable by
the Fund. Certain accounting services are provided to the Fund by  State Street Bank and
Trust Company (&#147;State Street&#148;) pursuant to an agreement  between State Street
and the Fund. The Fund will pay the costs of these  services. In addition, the Fund will
reimburse the Investment Adviser for  certain additional accounting services.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless earlier
terminated as described below, the Investment Advisory  Agreement will remain in effect
for a period of two years from the date of  execution and will remain in effect from year
to year thereafter if approved  annually (a) by the Board of Directors of the Fund or by
a majority of the  outstanding shares of the Fund and (b) by a majority of the Directors
who are  not parties to such contract or interested persons (as defined in the 1940 Act)
of any such party. Such contract is not assignable and may be terminated without  penalty
on 60 days&#146; written notice at the option of either party thereto or by  the vote of
the stockholders of the Fund.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with
the consideration of the Investment Advisory Agreement  by the Board of Directors, the
Board compared the Fund&#146;s fee rate for advisory  and administrative services to
certain comparable funds and reviewed information  derived from a number of sources and
covering a range of issues. The Board of  Directors considered the services to be
provided to the Fund by the Investment  Adviser under the Investment Advisory Agreement,
as well as other services to be  provided by the Investment Adviser and its affiliates
under other agreements,  and the personnel who will provide these services. In addition
to investment  advisory services to be provided to the Fund, the Investment Adviser and
its  affiliates will provide administrative services, stockholder services, oversight  of
fund accounting, assistance in meeting legal and regulatory requirements, and  other
services necessary for the operation of the Fund. The Fund&#146;s Board of  Directors
also considered the potential direct and indirect benefits to the  Investment Adviser
from its relationship with the Fund. Based on their  experience as directors of other
investment companies managed by the Investment  Adviser and its affiliates, the members
of the Board of Directors concluded that  the services provided in all areas were of a
high level and that </font></td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
61</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2>the Fund would  benefit from those services. The
Board of Directors  concluded that the  investment advisory fee rate was reasonable in
relation to the  services provided  by the Investment Adviser to the Fund as well as the
anticipated costs  and  benefits to be gained by the Investment Adviser in providing such
services.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In reviewing the
Investment Advisory Agreement, the Board focused on the  experience, resources and
strengths of the Investment Adviser and its affiliates  in managing investment companies
with substantially similar investment  objectives and policies to those of the Fund and
investment companies that  utilize leverage. The Directors also focused on the services
provided by the  Investment Adviser&#146;s compliance and administrative staff to other
investment  companies managed by the Investment Adviser and its affiliates. In connection
with its consideration of the Investment Advisory Agreement, the Fund&#146;s Board of
Directors also reviewed the administrative services to be provided to the Fund  by the
Investment Adviser, including its oversight of the Fund&#146;s day to day  operations and
its oversight of Fund accounting. The Board noted that the  Investment Adviser and its
affiliates provide compliance and administrative  services to all the FAM/MLIM-advised
funds as well as to a number of third party  fund groups, and concluded, based on their
experience as directors, that,  historically, the compliance and administrative services
provided by the  Investment Adviser and its affiliates were of a high quality and that
the Fund  would benefit from these services.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In reviewing the
Investment Advisory Agreement, the Board of Directors  placed significant emphasis on the
Fund&#146;s fee rate for advisory and  administrative services as compared to certain:
(i) leveraged, closed-end funds  managed by nonaffiliated investment advisers that invest
primarily in preferred  securities and other income producing securities selected by
Lipper Inc. and  (ii) leveraged, closed-end, value funds managed by nonaffiliated
investment  advisers selected by Lipper Inc. (collectively, the &#147;comparable funds&#148;).
In  particular, the Fund&#146;s Board of Directors noted that the Fund, along with two
comparable funds, had the third lowest contractual fee rate for advisory and
administrative services out of a peer group that included the Fund and eight  comparable
funds. The Board also found that the Fund&#146;s contractual fee rate for  advisory and
administrative services was equal to the median fee rate for that  peer group. In
addition, the Fund&#146;s Board of Directors noted that the Fund had  the second lowest
fee rate for advisory and administrative services, based on  projected asset levels that
both included and excluded leverage, out of a peer  group that included the Fund and
three comparable funds. The Board also found  that the Fund&#146;s fee rate for advisory
and administrative services, based on  projected asset levels that both included and
excluded leverage, was lower than  the median fee rate for that peer group. Based in part
on these comparisons and  the Investment Adviser&#146;s experience in managing funds with
similar investment  objectives and policies and funds that utilize leverage, the Fund&#146;s
Board of  Directors concluded that the investment advisory fee rate was reasonable.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board also
considered whether there should be changes in the  investment advisory fee rate or
structure in order to enable the Fund to  participate in any economies of scale that the
Investment Adviser may experience  as a result of growth in the Fund&#146;s assets. Based
on the information reviewed  and its discussions, the Board of Directors, including a
majority of the  non-interested Directors, concluded that the advisory fee rate was
reasonable in  relation to the services to be provided to the Fund. The non-interested
Directors were represented by independent counsel who assisted them in their
deliberations. The Fund&#146;s Board of Directors reviewed materials supplied by Fund
counsel that were prepared for use by the Board in fulfilling its duties under  the 1940
Act.</font></td></tr></table>

<p><table width=600><tr><td><font size=2><B>Code of Ethics</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund&#146;s
Board of Directors approved a Code of Ethics under Rule 17j-1  of the 1940 Act that
covers the Fund and the Investment Adviser. The Code of  Ethics establishes procedures
for personal investing and restricts certain  transactions. Employees subject to the Code
of Ethics may invest in securities  for their personal investment accounts, including
securities that may be  purchased or held by the Fund.</font></td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
62</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2><B>Proxy Voting Policies and Procedures</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund&#146;s
Board of Directors has delegated to the Investment Adviser  authority to vote all proxies
relating to the Fund&#146;s portfolio securities. The  Investment Adviser has adopted
policies and procedures (&#147;Proxy Voting  Procedures&#148;) with respect to the voting
of proxies related to the portfolio  securities held in the account of one or more of its
clients, including the  Fund. Pursuant to these Proxy Voting Procedures, the Investment
Adviser&#146;s  primary objective when voting proxies is to make proxy voting decisions
solely  in the best interests of the Fund and its stockholders, and to act in a manner
that the Investment Adviser believes is most likely to enhance the economic  value of the
securities held by the Fund. The Proxy Voting Procedures are  designed to ensure that the
Investment Adviser considers the interests of its  clients, including the Fund, and not
the interests of the Investment Adviser,  when voting proxies and that real (or
perceived) material conflicts that may  arise between the Investment Adviser&#146;s
interest and those of the Investment  Adviser&#146;s clients are properly addressed and
resolved.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to
implement the Proxy Voting Procedures, the Investment Adviser  has formed a Proxy Voting
Committee (the &#147;Proxy Committee&#148;). The Proxy Committee  is comprised of the
Investment Adviser&#146;s Chief Investment Officer (the &#147;CIO&#148;),  one or more
other senior investment professionals appointed by the CIO,  portfolio managers and
investment analysts appointed by the CIO and any other  personnel the CIO deems
appropriate. The Proxy Committee will also include two  non-voting representatives from
the Investment Adviser&#146;s legal department  appointed by the Investment Adviser&#146;s
General Counsel. The Proxy Committee&#146;s  membership shall be limited to full-time
employees of the Investment Adviser. No  person with any investment banking, trading,
retail brokerage or research  responsibilities for the Investment Adviser&#146;s
affiliates may serve as a member  of the Proxy Committee or participate in its decision
making (except to the  extent such person is asked by the Proxy Committee to present
information to the  Proxy Committee, on the same basis as other interested, knowledgeable
parties  not affiliated with the Investment Adviser might be asked to do so). The Proxy
Committee determines how to vote the proxies of all clients, including the Fund,  that
have delegated proxy voting authority to the Investment Adviser and seeks  to ensure that
all votes are consistent with the best interests of those clients  and are free from
unwarranted and inappropriate influences. The Proxy Committee  establishes general proxy
voting policies for the Investment Adviser and is  responsible for determining how those
policies are applied to specific proxy  votes, in light of each issuer&#146;s unique
structure, management, strategic options  and, in certain circumstances, probable
economic and other anticipated  consequences of alternate actions. In so doing, the Proxy
Committee may  determine to vote a particular proxy in a manner contrary to its generally
stated policies. In addition, the Proxy Committee will be responsible for  ensuring that
all reporting and recordkeeping requirements related to proxy  voting are fulfilled.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Proxy
Committee may determine that the subject matter of a recurring  proxy issue is not
suitable for general voting policies and requires a  case-by-case determination. In such
cases, the Proxy Committee may elect not to  adopt a specific voting policy applicable to
that issue. The Investment Adviser  believes that certain proxy voting issues require
investment analysis &#151; such as  approval of mergers and other significant corporate
transactions &#151; akin to  investment decisions, and are, therefore, not suitable for
general guidelines.  The Proxy Committee may elect to adopt a common position for the
Investment  Adviser on certain proxy votes that are akin to investment decisions, or
determine to permit the portfolio manager to make individual decisions on how  best to
maximize economic value for the Fund (similar to normal buy/sell  investment decisions
made by such portfolio manager). While it is expected that  the Investment Adviser will
generally seek to vote proxies over which the  Investment Adviser exercises voting
authority in a uniform manner for all the  Investment Adviser&#146;s clients, the Proxy
Committee, in conjunction with the  Fund&#146;s portfolio manager, may determine that the
Fund&#146;s specific circumstances  require that its proxies be voted differently.</font></td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
63</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To assist the
Investment Adviser in voting proxies, the Proxy Committee  has retained Institutional
Shareholder Services (&#147;ISS&#148;). ISS is an independent  adviser that specializes
in providing a variety of fiduciary-level proxy-related  services to institutional
investment managers, plan sponsors, custodians,  consultants, and other institutional
investors. The services provided to the  Investment Adviser by ISS include in-depth
research, voting recommendations  (although the Investment Adviser is not obligated to
follow such  recommendations), vote execution, and recordkeeping. ISS will also assist
the  Fund in fulfilling its reporting and recordkeeping obligations under the 1940  Act.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Investment
Adviser&#146;s Proxy Voting Procedures also address special  circumstances that can arise
in connection with proxy voting. For instance,  under the Proxy Voting Procedures, the
Investment Adviser generally will not  seek to vote proxies related to portfolio
securities that are on loan, although  it may do so under certain circumstances. In
addition, the Investment Adviser  will vote proxies related to securities of foreign
issuers only on a best  efforts basis and may elect not to vote at all in certain
countries where the  Proxy Committee determines that the costs associated with voting
generally  outweigh the benefits. The Proxy Committee may at any time override these
general policies if it determines that such action is in the best interests of  the Fund.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From time to time,
the Investment Adviser may be required to vote proxies  in respect of an issuer where an
affiliate of the Investment Adviser (each, an  &#147;Affiliate&#148;), or a money
management or other client of the Investment Adviser  (each, a &#147;Client&#148;) is
involved. The Proxy Voting Procedures and the Investment  Adviser&#146;s adherence to
those procedures are designed to address such conflicts  of interest. The Proxy Committee
intends to strictly adhere to the Proxy Voting  Procedures in all proxy matters,
including matters involving Affiliates and  Clients. If, however, an issue representing a
non-routine matter that is  material to an Affiliate or a widely known Client is involved
such that the  Proxy Committee does not reasonably believe it is able to follow its
guidelines  (or if the particular proxy matter is not addressed by the guidelines) and
vote  impartially, the Proxy Committee may, in its discretion for the purposes of
ensuring that an independent determination is reached, retain an independent  fiduciary
to advise the Proxy Committee on how to vote or to cast votes on  behalf of the
Investment Adviser&#146;s clients.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event that
the Proxy Committee determines not to retain an  independent fiduciary, or it does not
follow the advice of such an independent  fiduciary, the powers of the Proxy Committee
shall pass to a subcommittee,  appointed by the CIO (with advice from the Secretary of
the Proxy Committee),  consisting solely of Proxy Committee members selected by the CIO.
The CIO shall  appoint to the subcommittee, where appropriate, only persons whose job
responsibilities do not include contact with the Client and whose job  evaluations would
not be affected by the Investment Adviser&#146;s relationship with  the Client (or
failure to retain such relationship). The subcommittee shall  determine whether and how
to vote all proxies on behalf of the Investment  Adviser&#146;s clients or, if the proxy
matter is, in their judgment, akin to an  investment decision, to defer to the applicable
portfolio manager, provided  that, if the subcommittee determines to alter the Investment
Adviser&#146;s normal  voting guidelines or, on matters where the Investment Adviser&#146;s
policy is  case-by-case, does not follow the voting recommendation of any proxy voting
service or other independent fiduciary that may be retained to provide research  or
advice to the Investment Adviser on that matter, no proxies relating to the  Client may
be voted unless the Secretary, or in the Secretary&#146;s absence, the  Assistant
Secretary of the Proxy Committee concurs that the subcommittee&#146;s  determination is
consistent with the Investment Adviser&#146;s fiduciary duties.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the
general principles outlined above, the Investment  Adviser has adopted voting guidelines
with respect to certain recurring proxy  issues that are not expected to involve unusual
circumstances. These policies  are guidelines only, and the Investment Adviser may elect
to vote differently  from the recommendation </font></td></tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
64</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2>set forth in a voting guideline if the Proxy
Committee  determines that it is in the Fund&#146;s best interest to do so. In addition,
the  guidelines may be reviewed at any time upon the request of a Proxy Committee  member
and may be amended or deleted upon the vote of a majority of Proxy  Committee members
present at a Proxy Committee meeting at which there is a  quorum.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Investment
Adviser has adopted specific voting guidelines with respect  to the following proxy
issues:</font></td></tr></table>

<table width=600>
  <tr>
    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><font size=2>Proposals
related to the composition of the Board of Directors of issuers other than investment
companies. As a general  matter, the Proxy Committee believes that a company&#146;s Board
of Directors (rather than stockholders) is most likely to have  access to important,
nonpublic information regarding a company&#146;s business and prospects, and is therefore
best-positioned  to set corporate policy and oversee management. The Proxy Committee,
therefore, believes that the foundation of good  corporate governance is the election of
qualified, independent corporate directors who are likely to diligently represent  the
interests of stockholders and oversee management of the corporation in a manner that will
seek to maximize stockholder  value over time. In individual cases, the Proxy Committee
may look at a nominee&#146;s history of representing stockholder  interests as a director
of other companies or other factors, to the extent the Proxy Committee deems relevant.</font></td></tr></table>

<table width=600>
  <tr>
    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><font size=2>Proposals
related to the selection of an issuer&#146;s independent  auditors. As a general matter,
the Proxy Committee believes that  corporate auditors have a responsibility to represent
the interests  of stockholders and provide an independent view on the propriety of
financial reporting decisions of corporate management. While the  Proxy Committee will
generally defer to a corporation&#146;s choice of  auditor, in individual cases, the
Proxy Committee may look at an  auditor&#146;s history of representing stockholder
interests as auditor of  other companies, to the extent the Proxy Committee deems
relevant.</font></td></tr></table>

<table width=600>
  <tr>
    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><font size=2>Proposals
related to management compensation and employee benefits.  As a general matter, the Proxy
Committee favors disclosure of an  issuer&#146;s compensation and benefit policies and
opposes excessive  compensation, but believes that compensation matters are normally
best determined by an issuer&#146;s board of directors, rather than  stockholders.
Proposals to &#147;micro-manage&#148; an issuer&#146;s compensation  practices or to set
arbitrary restrictions on compensation or  benefits will, therefore, generally not be
supported.</font></td></tr></table>

<table width=600>
  <tr>
    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><font size=2>Proposals
related to requests, principally from management, for  approval of amendments that would
alter an issuer&#146;s capital  structure. As a general matter, the Proxy Committee will
support  requests that enhance the rights of common stockholders and oppose  requests
that appear to be unreasonably dilutive.</font></td></tr></table>

<table width=600>
  <tr>
    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><font size=2>Proposals
related to requests for approval of amendments to an  issuer&#146;s charter or by-laws.
As a general matter, the Proxy Committee  opposes poison pill provisions.</font></td></tr></table>

<table width=600>
  <tr>
    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><font size=2>Routine
proposals related to requests regarding the formalities of  corporate meetings.</font></td></tr></table>

<table width=600>
  <tr>
    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><font size=2>Proposals
related to proxy issues associated solely with holdings of  investment company shares. As
with other types of companies, the  Proxy Committee believes that a fund&#146;s Board of
Directors (rather  than its stockholders) is best-positioned to set fund policy and
oversee management. However, the Proxy Committee opposes granting  Boards of Directors
authority over certain matters, such as changes  to a fund&#146;s investment objective,
that the 1940 Act envisions will be  approved directly by stockholders.</font></td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
65</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<P>
<table width=600>
  <tr>
    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><font size=2>Proposals
related to limiting corporate conduct in some manner that  relates to the stockholder&#146;s
environmental or social concerns. The  Proxy Committee generally believes that annual
stockholder meetings  are inappropriate forums for discussion of larger social issues,
and  opposes stockholder resolutions &#147;micromanaging&#148; corporate conduct or
requesting release of information that would not help a stockholder  evaluate an
investment in the corporation as an economic matter.  While the Proxy Committee is
generally supportive of proposals to  require corporate disclosure of matters that seem
relevant and  material to the economic interests of stockholders, the Proxy  Committee is
generally not supportive of proposals to require  disclosure of corporate matters for
other purposes.</font></td></tr></table>


<p><table width=600><tr><td  align=center><font size=2><B>PORTFOLIO TRANSACTIONS</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to
policies established by the Board of Directors, the Investment  Adviser is primarily
responsible for the execution of the Fund&#146;s portfolio  transactions and the
allocation of brokerage. The Fund has no obligation to deal  with any dealer or group of
dealers in the execution of transactions in  portfolio securities of the Fund. Where
possible, the Fund deals directly with  the dealers who make a market in the securities
involved except in those  circumstances where better prices and execution are available
elsewhere. It is  the policy of the Fund to obtain the best results in conducting
portfolio  transactions for the Fund, taking into account such factors as price
(including  the applicable dealer spread or commission), the size, type and difficulty of
the transaction involved, the firm&#146;s general execution and operations facilities
and the firm&#146;s risk in positioning the securities involved. The cost of  portfolio
securities transactions of the Fund primarily consists of dealer or  underwriter spreads
and brokerage commissions. While reasonable competitive  spreads or commissions are
sought, the Fund will not necessarily be paying the  lowest spread or commission
available.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to
obtaining the best net results, dealers who provide  supplemental investment research
(such as quantitative and modeling information  assessments and statistical data and
provide other similar services) to the  Investment Adviser 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 Investment Adviser under the Investment
Advisory Agreement  and the expense of the Investment Adviser will not necessarily be
reduced as a  result of the receipt of such supplemental information. Supplemental
investment  research obtained from such dealers might be used by the Investment Adviser
in  servicing all of its accounts and such research might not be used by the  Investment
Adviser in connection with the Fund.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the 1940
Act, persons affiliated with the Fund and persons who are  affiliated with such persons
are prohibited from dealing with the Fund as  principal in the purchase and sale of
securities unless a permissive order  allowing such transactions is obtained from the
Commission. Since transactions  in the over-the-counter market usually involve
transactions with dealers acting  as principal for their own accounts, affiliated persons
of the Fund, including  Merrill Lynch and any of its affiliates, will not serve as the
Fund&#146;s dealer in  such transactions. However, affiliated persons of the Fund may
serve as its  broker in listed or over-the-counter transactions conducted on an agency
basis  provided that, among other things, the fee or commission received by such
affiliated broker is reasonable and fair compared to the fee or commission  received by
non-affiliated brokers in connection with comparable transactions.  In addition, the Fund
may not purchase securities during the existence of any  underwriting syndicate for such
securities of which Merrill Lynch is a member or  in a private placement in which Merrill
Lynch serves as placement agent except  pursuant to procedures adopted by the Board of
Directors of the Fund that either  comply with rules adopted by the Commission or with
interpretations of the  Commission staff.</font></td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
66</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain court
decisions have raised questions as to the extent to which  investment companies should
seek exemptions under the 1940 Act in order to seek  to recapture underwriting and dealer
spreads from affiliated entities. The  Directors have considered all factors deemed
relevant and have made a  determination not to seek such recapture at this time. The
Directors will  reconsider this matter from time to time.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 11(a) of
the Securities Exchange Act of 1934 generally prohibits  members of the U.S. national
securities exchanges from executing exchange  transactions for their affiliates and
institutional accounts that they manage  unless the member (i) has obtained prior express
authorization from the account  to effect such transactions, (ii) at least annually
furnishes the account with a  statement setting forth the aggregate compensation received
by the member in  effecting such transactions, and (iii) complies with any rules the
Commission  has prescribed with respect to the requirements of clauses (i) and (ii). To
the  extent Section 11(a) would apply to Merrill Lynch acting as a broker for the  Fund
in any of its portfolio transactions executed on any such securities  exchange of which
it is a member, appropriate consents have been obtained from  the Fund and annual
statements as to aggregate compensation will be provided to  the Fund.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund has
received an exemptive order from the Commission permitting it  to lend portfolio
securities to Merrill Lynch or its affiliates. Pursuant to  that order, the Fund also has
retained an affiliated entity of the Investment  Adviser as the securities lending agent
(the &#147;lending agent&#148;) for a fee,  including a fee based on a share of the
returns on investment of cash  collateral. In connection with securities lending
activities, the lending agent  may, on behalf of the Fund, invest cash collateral
received by the Fund for such  loans in, among other things, a private investment company
managed by the  lending agent or in registered money market funds advised by the
Investment  Adviser or its affiliates. Pursuant to the same order, the Fund may invest
its  uninvested cash in registered money market funds advised by the Investment  Adviser
or its affiliates, or in a private investment company managed by the  lending agent. If
the Fund acquires shares in either the private investment  company or an affiliated money
market fund, stockholders would bear both their  proportionate share of the Fund&#146;s
expenses and, indirectly, the expenses of such  other entities. However, in accordance
with the exemptive order, the investment  adviser to the private investment company will
not charge any advisory fees with  respect to shares purchased by the Fund. Such shares
also will not be subject to  a sales load, redemption fee, distribution fee or service
fee, or, in the case  of the shares of an affiliated money market fund, the payment of
any such sales  load, redemption fee, distribution fee or service fee will be offset by
the  Investment Adviser&#146;s waiver of a portion of its advisory fee.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Securities may be
held by, or be appropriate investments for, the Fund as  well as other funds or
investment advisory clients of the Investment Adviser or  its affiliates. Because of
different investment objectives or other factors, a  particular security may be bought
for one or more clients of the Investment  Adviser or an affiliate when one or more
clients of the Investment Adviser or an  affiliate are selling the same security. If
purchases or sales of securities  arise for consideration at or about the same time that
would involve the Fund or  other clients or funds for which the Investment Adviser or an
affiliate act as  investment adviser, transactions in such securities will be made,
insofar as  feasible, for the respective funds and clients in a manner deemed equitable
to  all. To the extent that transactions on behalf of more than one client of the
Investment Adviser or an affiliate during the same period may increase the  demand for
securities being purchased or the supply of securities being sold,  there may be an
adverse effect on price.</font></td></tr></table>

<p><table width=600><tr><td><font size=2><B>Portfolio Turnover</B></font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;Generally, the Fund
      does not purchase securities for short term trading profits. However, the
      Fund may dispose of securities without regard to the time they have been
      held when such actions, for defensive or other reasons, including to make
      distributions to the Fund&#146;s common stockholders under the Managed Distribution
      &lt;/R&gt; </font></td>
  </tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
67</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr>
    <td><font size=2>&lt;R&gt;Policy, appear advisable to the Investment Adviser.
      (The portfolio turnover rate is calculated by dividing the lesser of purchases
      or sales of portfolio securities for the particular fiscal year by the monthly
      average of the value of the portfolio securities owned by the Fund during
      the particular fiscal year. For purposes of determining this rate, all securities
      whose maturities at the time of acquisition are one year or less are excluded.)
      A high portfolio turnover rate results in greater transaction costs, which
      are borne directly by the Fund and also has certain tax consequences for
      stockholders.&lt;/R&gt;</font></td>
  </tr></table>


<p><table width=600><tr><td  align=center><font size=2><B>DIVIDENDS AND DISTRIBUTIONS</B></font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;In order to allow
      the Fund&#146;s common stockholders to realize a predictable, but not guaranteed,
      level of cash flow and some periodic liquidity on their investment without
      having to sell their shares, the Fund has adopted a policy of paying regular
      distributions on its shares of common stock. The Fund&#146;s Board of Directors
      has initially determined to pay quarterly distributions on each share of
      common stock at an annualized rate of 6% of the initial public offering
      price per share ($0.30 per share, per quarter). It is expected that dividends
      will be paid on a quarterly basis commencing in September 2004. The Fund&#146;s
      Board of Directors has determined to pay additional distributions on an
      annual basis equal to any income earned by the Fund in excess of the quarterly
      distributions as may be necessary to distribute substantially all of the
      Fund&#146;s net investment company taxable income for that year. The Fund
      is not required to maintain the Managed Distribution Policy and such policy
      may be modified or terminated by the Fund&#146;s Board of Directors at any
      time without notice.&lt;/R&gt;</font></td>
  </tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Section
19(b) of the 1940 Act and Rule 19b-1 thereunder, the Fund  generally is not permitted to
distribute net realized long term capital gains  more than once per year without
exemptive relief from the Commission. As a  result, the Fund and the Investment Adviser
have applied to the Commission for  an exemption that will, among other things, permit
the Fund to make periodic  distributions of realized long term capital gains to its
stockholders. Until  such time, if any, as the exemptive relief is granted by the
Commission, the  Fund intends to make distributions under the Managed Distribution Policy
from  its net investment income on a quarterly basis and from its net realized long  term
capital gains, if any, on an annual basis. No assurance can be given that  the Commission
will grant this exemptive relief to the Fund and the Investment  Adviser. If such
exemptive relief is granted by the Commission, the Fund intends  to make distributions
under the Managed Distribution Policy from its net  investment income and its realized
long term capital gains, if any, on a  quarterly basis. Therefore, after receipt of the
above-referenced exemptive  relief, a larger pool of capital gains should be available
for distribution on a  quarterly basis.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the total
distributions paid by the Fund to its stockholders for any  calendar year exceed the Fund&#146;s
net investment company taxable income and net  realized capital gain for that year, the
excess will generally be treated as a  tax-free return of capital up to the amount of a
stockholder&#146;s tax basis in his  or her stock. Any distributions that (based upon the
Fund&#146;s full year  performance) constitute tax-free return of capital will reduce a
stockholder&#146;s  tax basis in his or her stock, thereby increasing such stockholder&#146;s
potential  gain or reducing such stockholder&#146;s potential loss on the sale of such
stock. In  effect, a return of capital is the return of a stockholder&#146;s investment
in the  Fund and will result in a corresponding decline in the Fund&#146;s net asset
value.  Return of capital distributions also may have the effect of increasing the  Fund&#146;s
operating expense ratio. Any amounts distributed to a stockholder in  excess of such
stockholder&#146;s tax basis in his or her stock will generally be  taxable to the
stockholder as capital gain.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund currently
expects that the amount of distributions made under the  Managed Distribution Policy
generally will be independent of, and not contingent  upon, the Fund&#146;s performance
in any of the first three quarters of the Fund&#146;s  fiscal year. Distribution rates
under the Managed Distribution Policy may be  increased in </font></td></tr></table>




<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
68</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2>the Fund&#146;s fourth fiscal  quarter in light
of the Fund&#146;s performance  for the fiscal year and to enable the  Fund to comply
with the distribution  requirements applicable to regulated investment  companies under
the Code for  that year. It also is currently expected that the Fund&#146;s  investment
portfolio  initially will not produce sufficient dividend and interest income  to fully
fund  distributions under the Managed Distribution Policy due to the expected  initial
composition of the Fund&#146;s investment portfolio. Consequently, if the Fund  does  not
realize sufficient short term capital gains and long term capital gains to  make up any
shortfall, distributions to the Fund&#146;s common stockholders will  include  returns of
capital. Prior to receipt of the above-referenced exemptive  order, long term  capital
gains will be available to make up any shortfall in  funding distributions only  on an
annual basis, thereby increasing the likelihood  that distributions will include  returns
of capital to stockholders. In order to  make distributions under the Managed
Distribution Policy, the Fund may have to  sell portfolio securities at a time when
independent investment considerations  may dictate against such action. See &#147;Risk
Factors and Special Considerations &#151; Distribution Risk.&#148;</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the total
distributions paid to the Fund&#146;s stockholders for any taxable  year exceed the Fund&#146;s
net investment income and net realized capital gains for  that year but do not exceed its
previously undistributed earnings and profits  from prior years, such excess generally
will be treated as a taxable dividend to  the extent of the Fund&#146;s current and
accumulated earnings and profits. Finally,  if the net investment income and net capital
gains earned or realized by the  Fund for any taxable year exceed the amounts distributed
by the Fund to its  stockholders for that year, the Fund intends to pay such excess to
its  stockholders, but may, in its discretion, retain and not distribute net long  term
capital gains to the extent of such excess. See &#147;Taxes.&#148;</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the
requirements of the 1940 Act, in the event the Fund makes  distributions from sources
other than income, a notice will accompany each  quarterly distribution with respect to
the estimated source of the distribution  made. Such notices will describe the portion,
if any, of the quarterly dividend  which, in the Fund&#146;s good faith judgment,
constitutes long term capital gain,  short term capital gain, investment company taxable
income or a return of  capital. The actual character of such dividend distributions for
federal income  tax purposes, however, will only be determined finally by the Fund at the
close  of its fiscal year, based on the Fund&#146;s full year performance and its actual
net  investment company taxable income and net capital gains for the year, which may
result in a recharacterization of amounts distributed during such fiscal year  from the
characterization in the quarterly estimates.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding
the foregoing, while any indebtedness is outstanding,  the Fund may not declare any cash
dividend or other distribution upon any class  of its capital stock, or purchase any such
capital stock, unless the aggregate  indebtedness of the Fund has, at the time of the
declaration of any such  dividend or distribution or at the time of any such purchase, an
asset coverage  of at least 300% after deducting the amount of such dividend,
distribution, or  purchase price, as the case may be. Notwithstanding the foregoing,
while any  shares of the Fund&#146;s preferred stock are outstanding, the Fund may not
declare  any cash dividend or other distribution on its common stock, or purchase any
such capital stock, unless at the time of such declaration, (1) all accumulated
preferred stock dividends have been paid and (2) the net asset value of the  Fund&#146;s
portfolio (determined after deducting the amount of such dividend or  other distribution)
is at least 200% of the liquidation value of the outstanding  preferred stock (expected
to be equal to the original purchase price per share  plus any accumulated and unpaid
dividends thereon).</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See &#147;Automatic
Dividend Reinvestment Plan&#148; for information concerning the  manner in which
dividends and distributions to common stockholders may be  automatically reinvested in
shares of common stock. Dividends and distributions  are taxable to stockholders whether
they are reinvested in shares of the Fund or  received in cash.</font></td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
69</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td  align=center><font size=2><B>TAXES</B></font></td></tr></table>


<p><table width=600><tr><td><font size=2><B>General</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund intends
to elect and to qualify for the special tax treatment  afforded RICs under the Code. As
long as it so qualifies, in any taxable year in  which it distributes at least 90% of its
income, the Fund (but not its  stockholders) will not be subject to federal income tax to
the extent that it  distributes its net investment income and net realized capital gains.
The Fund  intends to distribute substantially all of such income. If, in any taxable
year,  the Fund fails to qualify as a RIC under the Code, the Fund would be taxed in  the
same manner as an ordinary corporation and all distributions from earnings  and profits
to its stockholders would be taxable as ordinary income.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Code requires
a RIC to pay a nondeductible 4% excise tax to the extent  the RIC does not distribute,
during each calendar year, 98% of its ordinary  income, determined on a calendar year
basis, and 98% of its capital gains,  determined, in general, on an October 31 year end,
plus certain undistributed  amounts from previous years. While the Fund intends to
distribute its income and  capital gains in the manner necessary to minimize imposition
of the 4% excise  tax, no assurance can be given that sufficient amounts of the Fund&#146;s
taxable  income and capital gains will be distributed to avoid entirely the imposition of
the tax. In such event, the Fund will be liable for the tax only on the amount  by which
it does not meet the foregoing distribution requirements.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Internal
Revenue Service (the &#147;IRS&#148;) has taken the position in a  revenue ruling that if
a RIC has two classes of shares, it may designate  distributions made to each class in
any year as consisting of no more than such  class&#146; proportionate share of
particular types of income, including net long  term capital gains, dividends eligible
for the Dividends Received Deduction,  discussed below, and dividends eligible for the
reduced federal income tax rate  applicable to qualified dividend income. A class&#146;s
proportionate share of a  particular type of income is determined according to the
percentage of total  dividends paid by the RIC during such year that was paid to such
class.  Consequently, if both common stock and preferred stock are outstanding, the Fund
intends to designate distributions made to the classes as consisting of  particular types
of income in accordance with the classes&#146; proportionate shares  of such income.
Thus, capital gain dividends and any dividends eligible for the  foreign tax credit, the
Dividends Received Deduction and/or the reduced federal  income tax rate applicable to
qualified dividend income will be allocated  between the holders of common stock and any
preferred stock in proportion to the  total dividends paid to each class during the
taxable year, or otherwise as  required by applicable law.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends paid by
the Fund from its ordinary income or from an excess of  net short term capital gains over
net long term capital losses (together  referred to hereafter as &#147;ordinary income
dividends&#148;) are taxable to  stockholders as ordinary income. Distributions made from
an excess of net long  term capital gains over net short term capital losses (including
gains or losses  from certain transactions in futures and options) (&#147;capital gain
dividends&#148;) are  taxable to stockholders as long term capital gains, regardless of
the length of  time the stockholder has owned Fund shares. Any loss upon the sale or
exchange  of Fund shares held for six months or less will be treated as long term capital
loss to the extent of any capital gain dividends received by the stockholder  with
respect to those shares. Earnings and profits are treated as first being  used to pay
distributions on the Fund&#146;s preferred stock, if any, and only the  earnings and
profits remaining after the distribution preference of the Fund&#146;s  preferred stock,
if any, has been satisfied are treated as being used to pay  distributions on the Fund&#146;s
common stock. Distributions in excess of the Fund&#146;s  earnings and profits
(previously described as returns of capital) will first  reduce the adjusted tax basis of
a holder&#146;s shares and, after such adjusted tax  basis is reduced </font></td></tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
70</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2>to zero, will  constitute capital gains to such
holder (assuming  the shares are held as a capital  asset). The allocation of earnings
and profits  first to any preferred stockholders may  result in the receipt of a
disproportionate amount of taxable dividends by such  preferred stockholders and  returns
of capital to common stockholders. Generally not  later than 60 days  after the close of
its taxable year, the Fund will provide its  stockholders with  a written notice
designating the amounts of any capital gain  dividends, as well  as dividends eligible
for the foreign tax credit, Dividends Received  Deduction  and/or the reduced federal
income tax rate applicable to the qualified  dividend  income described below, if any.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends are
taxable to stockholders even though they are reinvested in  additional shares of the
Fund. If the Fund pays a dividend in January that was  declared in the previous October,
November or December to stockholders of record  on a specified date in one of such
months, then such dividend will be treated  for tax purposes as being paid by the Fund
and received by its stockholders on  December 31 of the year in which the dividend was
declared.</font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;A portion of the Fund&#146;s
      ordinary income dividends may be eligible for the Dividends Received Deduction
      allowed to corporations under the Code, if certain requirements are met.
      For this purpose, the Fund will allocate any dividends eligible for the
      Dividends Received Deduction between the holders of common stock and any
      preferred stock in proportion to the total dividends paid to each class
      during the taxable year, or otherwise as required by applicable law. The
      Fund will be able to designate dividends as qualifying for the Dividends
      Received Deduction in the hands of stockholders taxed as corporations for
      federal income tax purposes if it meets applicable holding period and taxable
      income requirements of section 246 of the Code, and is not subject to the
      &#147;debt-financed portfolio stock&#148; rules of section 246A of the Code
      with respect to its investment in common stock. A corporate stockholder
      who meets the same requirements and is otherwise entitled to the Dividends
      Received Deduction can claim a deduction in an amount equal to 70% of the
      dividends received on shares of common stock which are designated by the
      Fund as qualifying for the Dividends Received Deduction. Because the Fund
      may use leverage through borrowings, however, a significant portion of the
      Fund&#146;s dividends which would otherwise be eligible for the Dividends
      Received Deduction may be subject to the &#147;debt-financed portfolio stock&#148;
      rules of section 246A of the Code, and the Fund will not be able to designate
      such dividends as qualifying for the Dividends Received Deduction. &lt;/R&gt;</font></td>
  </tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recently enacted
legislation reduces the tax rate on qualified dividend  income and long term capital gain
applicable to individuals. Fund distributions  comprised of dividends from domestic
corporations and certain foreign  corporations (generally, corporations incorporated in a
possession of the United  States, some corporations eligible for treaty benefits under a
treaty with the  United States, and corporations whose stock is readily tradable on an
established securities market in the Unites States) are eligible for taxation at  a
maximum rate of 15%, also applicable to capital gains in the hands of  individual
shareholders. Capital gain dividends are also taxed at the reduced  rate for
non-corporate taxpayers. In order for dividends paid by the Fund to be  qualified
dividend income eligible for taxation at the reduced rate, the Fund  must meet holding
period and other requirements with respect to dividend paying  stock in its portfolio and
the individual stockholder must meet holding period  and other requirements with respect
to the Fund&#146;s shares. The reduced tax rates  are scheduled to apply through 2008. To
the extent the Fund&#146;s distributions are  derived from income on debt securities,
certain types of preferred securities  and short term capital gain, the Fund&#146;s
distributions generally will not be  eligible for this reduced dividend tax rate.</font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the Fund utilizes leverage
      through borrowings, it may be restricted by loan covenants with respect
      to the declaration and payment of dividends in certain circumstances. See
      &#147;Risks and Special Considerations of Leverage.&#148; Additionally,
      if any time when shares of preferred stock are outstanding the Fund does
      not meet the </font></td>
  </tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
71</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr>
    <td><font size=2>asset coverage requirements of the 1940 Act, the Fund will
      be required to suspend distributions to holders of common stock until the
      asset coverage is restored. See &#147;Dividends and Distributions.&#148;
      Limits on the Fund&#146;s payment of dividends may prevent the Fund from
      distributing at least 90% of its net investment income and may therefore
      jeopardize the Fund&#146;s qualification for taxation as a RIC and/or may
      subject the Fund to the 4% excise tax described above. Upon any failure
      to meet the asset coverage requirements of the 1940 Act, the Fund may, in
      its sole discretion, redeem shares of preferred stock in order to maintain
      or restore the requisite asset coverage and avoid the adverse consequences
      to the Fund and its stockholders of failing to qualify as a RIC. No assurance,
      however, can be given that any such action would achieve these objectives.
      The Fund will endeavor to avoid restriction of its dividend payments.</font></td>
  </tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As noted above,
the Fund must distribute annually at least 90% of its net  investment income. A
distribution will only be counted for this purpose if it  qualifies for the dividends
paid deduction under the Code. Some types of  preferred stock that the Fund has the
authority to issue may raise an issue as  to whether distributions on such preferred
stock are &#147;preferential&#148; under the  Code and therefore not eligible for the
dividends paid deduction. In the event  the Fund determines to issue preferred stock, the
Fund intends to issue  preferred stock that counsel advises will not result in the
payment of a  preferential dividend. If the Fund ultimately relies on a legal opinion in
the  event it issues such preferred stock, there is no assurance that the IRS would
agree that dividends on the preferred stock are not preferential. If the IRS
successfully disallowed the dividends paid deduction for dividends on the  preferred
stock, the Fund could lose the benefit of the special treatment  afforded RICs under the
Code.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon the sale or
exchange of Fund shares held as a capital asset, a  stockholder may realize a capital
gain or loss, which will be long term or short  term depending on the stockholder&#146;s
holding period for the shares. Generally,  gain or loss will be long term if the shares
have been held for more than one  year. A loss realized on a sale or exchange of shares
of the Fund will be  disallowed if other Fund shares are acquired (whether through the
automatic  reinvestment of dividends or otherwise) within a 61-day period beginning 30
days  before and ending 30 days after the date on which the shares are disposed. In  such
a case, the basis of the shares acquired will be adjusted to reflect the  disallowed loss.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under certain Code
provisions, some stockholders may be subject to a  withholding tax on ordinary income
dividends, capital gain dividends and  redemption payments (&#147;backup withholding&#148;).
Generally, stockholders subject to  backup withholding will be those for whom no
certified taxpayer identification  number is on file with the Fund or who, to the Fund&#146;s
knowledge, have furnished  an incorrect number. When establishing an account, an investor
must certify  under penalty of perjury that such number is correct and that such investor
is  not otherwise subject to backup withholding.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ordinary income
dividends paid to stockholders who are nonresident aliens  or foreign entities will be
subject to a 30% U.S. withholding tax under existing  provisions of the Code applicable
to foreign individuals and entities unless a  reduced rate of withholding or a
withholding exemption is provided under  applicable treaty law. Nonresident stockholders
are urged to consult their own  tax advisers concerning the applicability of the U.S.
withholding tax.</font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends and interest received
      by the Fund may give rise to withholding and other taxes imposed by foreign
      countries. Tax conventions between certain countries and the United States
      may reduce or eliminate such taxes. Stockholders may be able to claim U.S.
      foreign tax credits with respect to such taxes, subject to certain conditions
      and limitations contained in the Code. For example, certain retirement accounts
      cannot claim foreign tax credits on investments in foreign securities held
      in the Fund. In addition, a foreign tax credit may be claimed with respect
      to withholding tax on a dividend only if the stockholder meets certain holding
      period requirements. The Fund also must meet these holding period requirements,
      and if the Fund fails to do so, it will not be able to</font></td>
  </tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
72</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr>
    <td><font size=2> &#147;pass through&#148; to stockholders the ability to
      claim a credit or a deduction for the related foreign taxes paid by the
      Fund. If the Fund satisfies the holding period requirements and more than
      50% in value of its total assets at the close of its taxable year consists
      of securities of foreign corporations, the Fund will be eligible, and intends,
      to file an election with the IRS pursuant to which stockholders of the Fund
      will be required to include their proportionate shares of such withholding
      taxes in their U.S. income tax returns as gross income, treat such proportionate
      shares as taxes paid by them, and deduct their proportionate shares in computing
      their taxable incomes or, alternatively, use them as foreign tax credits
      against their U.S. income taxes. No deductions for foreign taxes, moreover,
      may be claimed by noncorporate stockholders who do not itemize deductions.
      A stockholder that is a nonresident alien individual or a foreign corporation
      may be subject to U.S. withholding tax on the income resulting from the
      Fund&#146;s election described in this paragraph but may not be able to
      claim a credit or deduction against such U.S. tax for the foreign taxes
      treated as having been paid by such stockholder. The Fund will report annually
      to its stockholders the amount per share of such withholding taxes and other
      information needed to claim the foreign tax credit. For this purpose, the
      Fund will allocate foreign taxes and foreign source income between common
      stock and any preferred shares according to a method similar to that described
      above for the allocation of capital gains and other types of income.</font></td>
  </tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund may
invest in debt instruments rated in the lower rating  categories of rating agencies and
in unrated securities, including high yield  bonds (commonly referred to as &#147;junk&#148; bonds).
Some of these junk bonds may be  purchased at a discount and may therefore cause the Fund
to accrue and  distribute income before amounts due under the obligations are paid. In
addition, a portion of the interest payments on such junk bonds may be treated  as
dividends for federal income tax purposes; in such case, if the issuer of the  junk bonds
is a domestic corporation, such amounts may be eligible for the  Dividends Received
Deduction to the extent of the deemed dividend portion of  such interest payments.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain
transactions of the Fund are subject to special tax rules of the Code that may, among
other things, (a) affect the character of gains and losses realized, (b) disallow,
suspend or otherwise limit the allowance of certain losses or deductions and (c)
accelerate the recognition of income without a corresponding receipt of cash (with which
to make the necessary distributions to satisfy distribution requirements applicable to
RICs). Operation of these rules could, therefore, affect the character, amount and
timing of distributions to stockholders. Special tax rules also will require the Fund to
mark-to-market certain types of positions in its portfolio (<I>i.e.</I> treat them as sold on
the last day of the taxable year) and may result in the recognition of income without a
corresponding receipt of cash. The Fund intends to monitor transactions, make
appropriate tax elections and make appropriate entries in it books and records to lessen
the effect of these tax rules and avoid any possible disqualification for the special
treatment afforded RICs under the Code.</FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further, special
tax rules are applicable to the Fund&#146;s investment in  shares of certain investment
companies (or similar entities having significant  passive income or assets) organized
under foreign law (passive foreign  investment companies or &#147;PFICs&#148;). Unless an
election is made, the rules impose  an additional tax in the nature of interest (the
&#147;interest charge&#148;) on a portion  of the distributions received by the Fund from
a PFIC and on gain from the  disposition of shares of a PFIC (collectively, &#147;excess
distributions&#148;). However,  if an election to avoid the interest charge on excess
distributions is made, the  Fund might be required to recognize income in a particular
year in excess of the  distributions it received from PFICs.</font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under recently promulgated
      Treasury Regulations, if a stockholder recognizes a loss with respect to
      shares of $2 million or more for an individual stockholder, or $10 million
      or more for a corporate stockholder, in any single taxable year (or a greater
      amount over a combination of years), the stockholder must file with the
      IRS a disclosure statement on Form 8886. Direct holders of portfolio securities
      are, in many cases, exempted from this </font></td>
  </tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
73</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr>
    <td><font size=2>reporting requirement, but under current guidance stockholders
      of regulated investment companies are not exempted. The fact that a loss
      is reportable under these regulations does not affect the legal determination
      of whether or not the taxpayer&#146;s treatment of the loss is proper. Stockholders
      should consult with their tax advisers to determine the applicability of
      these regulations in light of their individual circumstances.<br>
      <br>
      &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The foregoing is a general and abbreviated
      summary of the applicable provisions of the Code and Treasury Regulations
      presently in effect. For the complete provisions, reference should be made
      to the pertinent Code sections and the Treasury Regulations promulgated
      thereunder. The Code and the Treasury Regulations are subject to change
      by legislative, judicial or administrative action either prospectively or
      retroactively.</font></td>
  </tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ordinary income
and capital gain dividends also may be subject to state  and local taxes. Certain states
exempt from state income taxation dividends paid  by RICs that are derived from interest
on U.S. government obligations. State law  varies as to whether dividend income
attributable to U.S. government obligations  is exempt from state income tax.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stockholders are
urged to consult their own tax advisers regarding  specific questions as to federal,
foreign, state or local taxes. Foreign  investors should consider applicable foreign
taxes in their evaluation of an  investment in the Fund.</font></td></tr></table>


<p><table width=600><tr><td  align=center><font size=2><B>AUTOMATIC DIVIDEND REINVESTMENT
PLAN</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the
Fund&#146;s Automatic Dividend Reinvestment Plan (the &#147;Plan&#148;),  unless a
stockholder is ineligible or elects otherwise, all dividend and capital  gains
distributions are automatically reinvested by The Bank of New York, as  agent for
stockholders in administering the Plan (the &#147;Plan Agent&#148;), in  additional
shares of common stock of the Fund. Stockholders whose shares of  common stock are held
in the name of a broker or nominee should contact the  broker or nominee to confirm that
the broker or nominee will permit them to  participate in the Plan. Stockholders who are
not permitted to participate  through their broker or nominee or who elect not to
participate in the Plan will  receive all dividends and distributions in cash paid by
check mailed directly to  the stockholder of record (or, if the shares are held in street
or other nominee  name, then to such nominee) by The Bank of New York, as dividend paying
agent.  Such stockholders may elect not to participate in the Plan and to receive all
distributions of dividends and capital gains in cash by sending written  instructions to
The Bank of New York, as dividend paying agent, at the address  set forth below.
Participation in the Plan is completely voluntary and may be  terminated or resumed at
any time without penalty by written notice if received  by the Plan Agent not less than
ten days prior to any dividend record date;  otherwise, such termination will be
effective with respect to any subsequently  declared dividend or capital gains
distribution.</font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Whenever the Fund declares
      an ordinary income dividend or a capital gain dividend (collectively referred
      to as &#147;dividends&#148;) payable either in shares or in cash, non-participants
      in the Plan will receive cash, and participants in the Plan will receive
      the equivalent in shares of common stock. The shares are acquired by the
      Plan Agent for the participant&#146;s account, depending upon the circumstances
      described below, either (i) through receipt of additional unissued but authorized
      shares of common stock from the Fund (&#147;newly issued shares&#148;) or
      (ii) by purchase of outstanding shares of common stock on the open market
      (&#147;open-market purchases&#148;) on the NYSE or elsewhere. If, on the
      dividend payment date, the net asset value per share of the common stock
      is equal to or less than the market price per share of the common stock
      plus estimated brokerage commissions (such condition being referred to herein
      as &#147;market premium&#148;), the Plan Agent will invest the dividend
      amount in newly issued shares on behalf of the participant. The number of
      newly issued shares of common stock to be credited to the participant&#146;s
      account will be determined by dividing the dollar amount of the dividend
      by the net asset value per share on the date the shares are issued, provided
      that the maximum discount from the then current </font></td>
  </tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
74</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr>
    <td><font size=2>market price per share on the date of issuance may not exceed
      5%. If on the dividend payment date the net asset value per share is greater
      than the market value (such condition being referred to herein as &#147;market
      discount&#148;), the Plan Agent will invest the dividend amount in shares
      acquired on behalf of the participant in open-market purchases.<br>
      <br>
      &nbsp;&nbsp;&nbsp;&nbsp;In the event of a market discount on the dividend
      payment date, the Plan Agent has until the last business day before the
      next date on which the shares trade on an &#147;ex-dividend&#148; basis
      or in no event more than 30 days after the dividend payment date (the &#147;last
      purchase date&#148;) to invest the dividend amount in shares acquired in
      open-market purchases. It is contemplated that the Fund will pay monthly
      income dividends. Therefore, the period during which open-market purchases
      can be made will exist only from the payment date on the dividend through
      the date before the next &#147;ex-dividend&#148; date, which typically will
      be approximately ten days. If, before the Plan Agent has completed its open-market
      purchases, the market price of a share of common stock exceeds the net asset
      value per share, the average per share purchase price paid by the Plan Agent
      may exceed the net asset value of the Fund&#146;s shares, resulting in the
      acquisition of fewer shares than if the dividend had been paid in newly
      issued shares on the dividend payment date. Because of the foregoing difficulty
      with respect to open-market purchases, the Plan provides that if the Plan
      Agent is unable to invest the full dividend amount in open-market purchases
      during the purchase period or if the market discount shifts to a market
      premium during the purchase period, the Plan Agent will cease making open
      market purchases and will invest the uninvested portion of the dividend
      amount in newly issued shares at the close of business on the last purchase
      date.</font></td>
  </tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Plan Agent
maintains all stockholders&#146; accounts in the Plan and  furnishes written confirmation
of all transactions in the account, including  information needed by stockholders for tax
records. Shares in the account of  each Plan participant will be held by the Plan Agent
in non-certificated form in  the name of the participant, and each stockholder&#146;s
proxy will include those  shares purchased or received pursuant to the Plan. The Plan
Agent will forward  all proxy solicitation materials to participants and vote proxies for
shares  held pursuant to the Plan in accordance with the instructions of the
participants.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the case of
stockholders such as banks, brokers or nominees that hold  shares for others who are the
beneficial owners, the Plan Agent will administer  the Plan on the basis of the number of
shares certified from time to time by the  record stockholders as representing the total
amount registered in the record  stockholder&#146;s name and held for the account of
beneficial owners who are to  participate in the Plan.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There will be no
brokerage charges with respect to shares issued directly  by the Fund as a result of
dividends or capital gains distributions payable  either in shares or in cash. However,
each participant will pay a pro rata share  of brokerage commissions incurred with
respect to the Plan Agent&#146;s open market  purchases in connection with the
reinvestment of dividends.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The automatic
reinvestment of dividends and distributions will not relieve  participants of any
federal, state or local income tax that may be payable (or  required to be withheld) on
such dividends. See &#147;Taxes.&#148;</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stockholders
participating in the Plan may receive benefits not available  to stockholders not
participating in the Plan. If the market price plus  commissions of the Fund&#146;s
shares is higher than the net asset value,  participants in the Plan will receive shares
of the Fund at less than they could  otherwise purchase them and will have shares with a
cash value greater than the  value of any cash distribution they would have received on
their shares. If the  market price plus commissions is below the net asset value,
participants receive  distributions of shares with a net asset value greater than the
value of any  cash distribution they would have received on their shares. However, there
may  be insufficient shares available in the market to make distributions in shares  at
prices below the net asset value. Also, since the Fund does not redeem its  shares, the
price on resale may be more or less than the net asset value.</font></td></tr></table>

<p>
<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
75</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<br>
<table width=600>
  <tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Experience under the Plan may
      indicate that changes are desirable. Accordingly, the Fund reserves the
      right to amend or terminate the Plan. There is no direct service charge
      to participants in the Plan; however, the Fund reserves the right to amend
      the Plan to include a service charge payable by the participants.</font></td>
  </tr>
</table>
<p>
<table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All correspondence
concerning the Plan should be directed to the Plan  Agent at 101 Barclay Street, New
York, New York 10286.</font></td></tr></table>


<p><table width=600><tr><td  align=center><font size=2><B>MUTUAL FUND INVESTMENT OPTION</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchasers of
shares of common stock of the Fund in this offering will  have an investment option
consisting of the right to reinvest the net proceeds  from a sale of such shares (the
&#147;Original Shares&#148;) in Class A initial sales  charge shares of certain FAM/MLIM
advised open-end mutual funds (&#147;Eligible Class  A Shares&#148;) at their net asset
value, without the imposition of the initial sales  charge, if the conditions set forth
below are satisfied. First, the sale of Fund  shares must be made through Merrill Lynch
or another broker-dealer or other  financial intermediary (&#147;Selected Dealer&#148;)
that maintains an arrangement with  the open-end fund&#146;s distributor for the purchase
of Eligible Class A Shares, and  the net proceeds therefrom must be immediately
reinvested in Eligible Class A  Shares. Second, the Fund shares must either have been
acquired in the Fund&#146;s  initial public offering or represent dividends paid on
shares of common stock  acquired in such offering. Third, the Fund shares must have been
continuously  maintained in a securities account held at Merrill Lynch or another
Selected  Dealer. Fourth, there must be a minimum purchase of $250 to be eligible for the
investment option. The Eligible Class A Shares may be redeemed at any time at  the next
determined net asset value, subject in certain cases to a redemption  fee.</font></td></tr></table>


<p><table width=600><tr><td  align=center><font size=2><B>NET ASSET VALUE</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net asset value
per share of common stock is determined Monday through  Friday as of the close of
business on the NYSE (generally, the NYSE closes at  4:00 p.m., Eastern time), on each
business day during which the NYSE is open for  trading. For purposes of determining the
net asset value of a share of common  stock, the value of the securities held by the Fund
plus any cash or other  assets (including interest accrued but not yet received) minus
all liabilities  (including accrued expenses) and the aggregate liquidation value of any
outstanding shares of preferred stock is divided by the total number of shares  of common
stock outstanding at such time. Expenses, including the fees payable  to the Investment
Adviser, are accrued daily.</font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund makes available for
      publication the net asset value of its shares of common stock determined
      as of the last business day each week. Currently, the net asset values of
      shares of publicly traded closed-end investment companies are published
      in <i>Barron&#146;s</i>, the Monday edition of <i>The Wall Street Journal</i>
      and the Monday and Saturday editions of <i>The New York Times</i>.</font></td>
  </tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;Generally, portfolio
      securities that are traded on stock exchanges or the Nasdaq National Market
      are valued at the last sale price or official close price on the exchange
      on which such securities are traded, as of the close of business on the
      day the securities are being valued or, lacking any sales, at the last available
      bid price for long positions, and at the last available ask price for short
      positions. In cases where securities are traded on more than one exchange,
      the securities are valued on the exchange designated as the primary market
      by or under the authority of the Board of Directors. Long positions in securities
      traded in the over-the-counter (&#147;OTC&#148;) market, Nasdaq Small Cap
      or Bulletin Board are valued at the last available bid price or yield equivalent
      obtained from one or more dealers or pricing services approved by the Board
      of Directors. Short positions in securities traded in the OTC market are
      valued at the last available ask price. Portfolio securities that are traded
      in both the OTC &lt;/R&gt;</font></td>
  </tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
76</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr>
    <td><font size=2>&lt;R&gt; market and on a stock exchange are valued according
      to the broadest and most representative market. When the Fund writes an
      option, the amount of the premium received is recorded on the books of the
      Fund as an asset and an equivalent liability. The amount of the liability
      is subsequently valued to reflect the current market value of the option
      written, based upon the last sale price in the case of exchange-traded options
      or, in the case of options traded in the OTC market, the last asked price.
      Options purchased by the Fund are valued at their last sale price in the
      case of exchange-traded options or, in the case of options traded in the
      OTC market, the last bid price. The value of swaps, including interest rate
      swaps, caps and floors, will be determined by obtaining dealer quotations.
      Other investments, including futures contracts and related options, are
      stated at market value. Obligations with remaining maturities of 60 days
      or less are valued at amortized cost unless the Investment Adviser believes
      that this method no longer produces fair valuations. Repurchase agreements
      will be valued at cost plus accrued interest. The Fund employs certain pricing
      services to provide securities prices for the Fund. Securities and assets
      for which market quotations are not readily available are valued at fair
      value as determined in good faith by or under the direction of the Board
      of Directors of the Fund, including valuations furnished by the pricing
      services retained by the Fund, which may use a matrix system for valuations.
      The procedures of a pricing service and its valuations are reviewed by the
      officers of the Fund under the general supervision of the Board of Directors.
      Such valuations and procedures will be reviewed periodically by the Board
      of Directors.&lt;/R&gt;</font></td>
  </tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally trading
in non-U.S. securities, as well as mortgage-backed securities, U.S. Government
securities and money market instruments, is substantially completed each day at various
times prior to the close of business on the NYSE. The values of such securities used in
computing the net asset value of the Fund&#146;s shares are determined as of such times.
Foreign currency exchange rates are also generally determined prior to the close of
business on the NYSE. Occasionally, events affecting the values of such securities and
such exchange rates may occur between the times at which they are determined and the
close of business on the NYSE that may not be reflected in the computation of the Fund&#146;s
net asset value. If events (<I>e.g.</I>, a company announcement, market volatility or a natural
disaster) occur during such periods, that are expected to materially affect the value of
such securities, then those securities may be valued at their fair value as determined
in good faith by the Board of Directors of the Fund or by the Investment Adviser using a
pricing service and/or procedures approved by the Directors.</FONT></td></tr></table>


<p><table width=600><tr><td  align=center><font size=2><B>DESCRIPTION OF CAPITAL STOCK</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund is
authorized to issue 200,000,000 shares of capital stock, par  value $.10 per share, all
of which shares initially are classified as common  stock. The Board of Directors is
authorized, however, to classify and reclassify  any unissued shares of capital stock
into one or more additional or other  classes or series as may be established from time
to time by setting or changing  in any one or more respects the designations,
preferences, conversion or other  rights, voting powers, restrictions, limitations as to
dividends, qualifications  or terms or conditions of redemption of such shares of stock
and pursuant to  such classification or reclassification to increase or decrease the
number of  authorized shares of any existing class or series. The Fund may reclassify an
amount of unissued common stock as preferred stock and at that time offer shares  of
preferred stock. See &#147;Risks and Special Considerations of Leverage.&#148;</font></td></tr></table>


<p><table width=600><tr><td><font size=2><B>Common Stock</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares of common
stock, when issued and outstanding, will be fully paid  and non-assessable. Stockholders
are entitled to share pro rata in the net  assets of the Fund available for distribution
to stockholders upon liquidation  of the Fund. Stockholders are entitled to one vote for
each share held.</font></td></tr></table>

<p>
<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
77</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p>
<table width=600>
  <tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event that the Fund
      issues preferred stock and so long as any shares of the Fund&#146;s preferred
      stock are outstanding, holders of common stock will not be entitled to receive
      any net income of or other distributions from the Fund unless all accumulated
      dividends on preferred stock have been paid, and unless asset coverage (as
      defined in the 1940 Act) with respect to preferred stock would be at least
      200% after giving effect to such distributions. See &#147;Risks and Special
      Considerations of Leverage.&#148;</font></td>
  </tr>
</table>
<br>
<table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund will send
unaudited reports at least semi-annually and audited  annual financial statements to all
of its stockholders.</font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;The Investment Adviser
      provided the initial capital for the Fund by purchasing 5,236 shares of
      common stock of the Fund for $100,008. As of the date of this prospectus,
      the Investment Adviser owned 100% of the outstanding shares of common stock
      of the Fund. The Investment Adviser may be deemed to control the Fund until
      such time as it owns less than 25% of the outstanding shares of the Fund.&lt;/R&gt;</font></td>
  </tr></table>


<p><table width=600><tr><td><font size=2><B>Preferred Stock</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event the
Fund issues preferred stock, it is anticipated that such  preferred stock will be issued
in one or more series, with rights as determined  by the Board of Directors, by action of
the Board of Directors without the  approval of the holders of common stock. Under the
1940 Act, the Fund is  permitted to have outstanding more than one series of preferred
stock so long as  no single series has a priority over another series as to the
distribution of  assets of the Fund or the payment of dividends. Holders of common stock
will  have no preemptive right to purchase any shares of preferred stock that might be
issued. It is anticipated that the net asset value per share of any preferred  stock to
be issued by the Fund will equal its original purchase price per share  plus accumulated
dividends per share.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Liquidation
Preference</I>. In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Fund, the holders of shares of any outstanding preferred stock will be
entitled to receive a preferential liquidating distribution (expected to equal the
original purchase price per share plus an amount equal to accumulated but unpaid
dividends, whether or not earned or declared) before any distribution of assets is made
to holders of common stock. After payment of the full amount of the liquidating
distribution to which they are entitled, it is expected that preferred stockholders will
not be entitled to any further participation in any distribution of assets by the Fund.
A consolidation or merger of the Fund with or into any other corporation or corporations
or a sale of all or substantially all of the assets of the Fund will not be deemed to be
a liquidation, dissolution or winding up of the Fund.</FONT></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Voting Rights.</I>
Except as otherwise indicated in this prospectus and except as otherwise required by
applicable law, holders of shares of any outstanding preferred stock will have equal
voting rights with holders of shares of common stock (one vote per share) and will vote
together with holders of common stock as a single class. In connection with the election
of the Fund&#146;s Directors, holders of shares of any outstanding preferred stock,
voting as a separate class, will be entitled to elect two of the Fund&#146;s Directors,
and the remaining Directors will be elected by all holders of capital stock, voting as a
single class. So long as any preferred stock is outstanding, it is expected that the
Fund will have not less than five Directors. If at any time dividends on shares of any
outstanding preferred stock shall be unpaid in an amount equal to two full years&#146; dividends
thereon, the holders of all outstanding shares of preferred stock, voting as a separate
class, will be entitled to elect a majority of the Fund&#146;s Directors until all
dividends in default have been paid or declared and set apart for payment. It is
expected that the affirmative vote of the holders of a majority of the outstanding
shares of any outstanding preferred stock, voting as a separate class, will be required
to (i) authorize, create or issue any class or series of stock ranking prior to any
series of preferred stock with respect to payment of dividends or the distribution of
assets on liquidation or (ii) amend, alter or repeal the provisions of the Charter,
whether by merger, consolidation or otherwise, so as to adversely affect any of the
contract rights expressly set forth in the Charter of holders of preferred stock.</FONT></td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
78</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Redemption
Provisions</I>. It is anticipated that any outstanding shares of preferred stock will
generally be redeemable at the option of the Fund at a price equal to their liquidation
preference plus accumulated but unpaid dividends to the date of redemption plus, under
certain circumstances, a redemption premium. Shares of preferred stock will also be
subject to mandatory redemption at a price equal to their liquidation preference plus
accumulated but unpaid dividends to the date of redemption upon the occurrence of
certain specified events, such as the failure of the Fund to maintain asset coverage
requirements for the preferred stock specified by the 1940 Act and rating services that
issue ratings on the preferred stock.</FONT></td></tr></table>


<p><table width=600><tr><td><font size=2><B>Certain Provisions of the Charter and By-laws</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund&#146;s
Charter includes provisions that could have the effect of  limiting the ability of other
entities or persons to acquire control of the Fund  or to change the composition of its
Board of Directors and 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 the Fund. A Director may be removed from office
with or  without cause but only by vote of the holders of at least 66<FONT SIZE="1"><sup>2</sup></FONT>/<FONT SIZE="1">3</FONT>% of the shares
entitled to vote in an election to fill that directorship.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the
Charter requires the favorable vote of the holders of at  least 66<FONT SIZE="1"><sup>2</sup></FONT>/<FONT SIZE="1">3</FONT>% of the Fund&#146;s
shares to approve, adopt or authorize the following:</font></td></tr></table>

<table width=600>
  <tr>
    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><font size=2>a
merger or consolidation or statutory share exchange of the Fund with any other
corporation;</font></td></tr></table>

<table width=600>
  <tr>
    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><font size=2>a
sale of all or substantially all of the Fund&#146;s assets (other than in the regular
course of the Fund&#146;s investment  activities); or</font></td></tr></table>

<table width=600>
  <tr>
    <td width=3%></td>
    <td width=1% valign=top><font size=3>&#149;</font></td>
    <td width=3%></td>
    <td width=93%><font size=2>a
liquidation or dissolution of the Fund;</font></td></tr></table>


<p><table width=600><tr><td><font size=2>unless such action has been approved, adopted or
authorized by the affirmative  vote of at least two-thirds of the total number of
Directors fixed in accordance  with the By-laws, in which case the affirmative vote of a
majority of the Fund&#146;s  shares of capital stock is required. Following any issuance
of preferred stock  by the Fund, it is anticipated that the approval, adoption or
authorization of  the foregoing also would require the favorable vote of a majority of
the Fund&#146;s  shares of preferred stock then entitled to be voted, voting as a
separate class.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition,
conversion of the Fund to an open-end investment company  would require an amendment to
the Fund&#146;s Charter. The amendment would have to be  declared advisable by the Board
of Directors prior to its submission to  stockholders. Such an amendment would require
the favorable vote of the holders  of at least 66<FONT SIZE="1"><sup>2</sup></FONT>/<FONT SIZE="1">3</FONT>% of the Fund&#146;s outstanding
shares of capital stock (including  any preferred stock to be issued by the Fund)
entitled to be voted on the  matter, voting as a single class (or a majority of such
shares if the amendment  was previously approved, adopted or authorized by two-thirds of
the total number  of Directors fixed in accordance with the By-laws), and, assuming
preferred  stock is issued, the affirmative vote of a majority of outstanding shares of
such preferred stock of the Fund, voting as a separate class. Such a vote also  would
satisfy a separate requirement in the 1940 Act that the change be approved  by the
stockholders. Stockholders of an open-end investment company may require  the company to
redeem their shares of common stock at any time (except in  certain circumstances as
authorized by or under the 1940 Act) at their net asset  value, less such redemption
charge, if any, as might be in effect at the time of  a redemption. All redemptions will
be made in cash. If the Fund is converted to  an open-end investment company, it could be
required to liquidate portfolio  securities to meet requests for redemption, and the
common stock would no longer  be listed on a stock exchange.</font></td></tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
79</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<!-- MARKER PAGE="sheet: 79; page: 79" -->



<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Conversion to an
open-end investment company would also require changes in  certain of the Fund&#146;s
investment policies and restrictions, such as those  relating to the issuance of
preferred stock, the borrowing of money and the  purchase of illiquid securities.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Charter and
By-laws provide that the Board of Directors has the power,  to the exclusion of
stockholders, to make, alter or repeal any of the By-laws  (except for any By-law
specified not to be amended or repealed by the Board),  subject to the requirements of
the 1940 Act. Neither this provision of the  Charter, nor any of the foregoing provisions
of the Charter requiring the  affirmative vote of 66<FONT SIZE="1"><sup>2</sup></FONT>/<FONT SIZE="1">3</FONT>% of shares of capital stock of
the Fund, can be  amended or repealed except by the vote of such required number of
shares.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of
Directors has determined that the 66<FONT SIZE="1"><sup>2</sup></FONT>/<FONT SIZE="1">3</FONT>% voting requirements  described above, which are
greater than the minimum requirements under Maryland  law or the 1940 Act, are in the
best interests of stockholders generally.  Reference should be made to the Charter on
file with the Commission for the full  text of these provisions.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund&#146;s
By-laws generally require that advance notice be given to the  Fund in the event a
stockholder desires to nominate a person for election to the  Board of Directors or to
transact any other business at an annual meeting of  stockholders. With respect to an
annual meeting following the first annual  meeting of stockholders, notice of any such
nomination or business must be  delivered to or received at the principal executive
offices of the Fund not less  than 60 calendar days nor more than 90 calendar days prior
to the anniversary  date of the prior year&#146;s annual meeting (subject to certain
exceptions). In the  case of the first annual meeting of stockholders, the notice must be
given no  later than the tenth calendar day following the day upon which public
disclosure  of the date of the meeting is first made. Any notice by a stockholder must be
accompanied by certain information as provided in the By-laws.</font></td></tr></table>


<p><table width=600><tr><td  align=center><font size=2><B>CUSTODIAN</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund&#146;s
securities and cash are held under a custodian agreement with Brown Brothers Harriman
&amp; Co., 40 Water Street, Boston,  Massachusetts 02109.</font></td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
80</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<!-- MARKER PAGE="sheet: 80; page: 80" -->







<p><table width=600><tr><td  align=center><font size=2><B>UNDERWRITING</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund intends
to offer the shares through the underwriters. Merrill  Lynch, Pierce, Fenner &amp; Smith
Incorporated is acting as representative of the  underwriters named below. Subject to the
terms and conditions contained in a  purchase agreement between the Fund and the
Investment Adviser and the  underwriters, the Fund has agreed to sell to the
underwriters, and each  underwriter named below has severally agreed to purchase from the
Fund, the  number of shares listed opposite their names below.</font></td></tr></table>

<P>
<table cellspacing=0 cellpadding=0 border=0 width=600>
  <tr valign="bottom">
    <td align="center" width=272> <font size="1"><b><u>Underwriter</u></b></font>
      &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    </td>
    <td width=276></td>
    <td align="center" width=52> <font size="1"><b>Number of<br>
      Shares </b></font>
      <hr noshade size="1">
    </td>
  </tr>
  <tr valign="bottom">
    <td width=272> <font size="2">Merrill Lynch, Pierce, Fenner &amp; Smith</font></td>
    <td width=276></td>
    <td width=52></td>
  </tr>
  <tr valign="bottom">
    <td align="center" width=272><font size="2">Incorporated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td width=276></td>
    <td width=52></td>
  </tr>
  <tr valign="bottom">
    <td width=272> <font size="2">Advest, Inc.</font></td>
    <td width=276></td>
    <td width=52></td>
  </tr>
  <tr valign="bottom">
    <td width=272> <font size="2">Robert W. Baird &amp; Co. Incorporated </font></td>
    <td width=276></td>
    <td width=52></td>
  </tr>
  <tr valign="bottom">
    <td width=272> <font size="2">BNY Capital Markets, Inc.</font></td>
    <td width=276></td>
    <td width=52></td>
  </tr>
  <tr valign="bottom">
    <td width=272> <font size="2">Legg Mason Wood Walker, Incorporated</font></td>
    <td width=276></td>
    <td width=52></td>
  </tr>
  <tr valign="bottom">
    <td width=272> <font size="2">McDonald Investments Inc., a KeyCorp Company</font></td>
    <td width=276></td>
    <td width=52></td>
  </tr>
  <tr valign="bottom">
    <td width=272> <font size="2">Oppenheimer &amp; Co. Inc.</font></td>
    <td width=276></td>
    <td width=52></td>
  </tr>
  <tr valign="bottom">
    <td width=272> <font size="2">SunTrust Capital Markets, Inc.</font></td>
    <td width=276></td>
    <td width=52></td>
  </tr>
  <tr valign="bottom">
    <td align="center" width=272></td>
    <td width=276></td>
    <td width=52>
      <hr noshade size="1">
    </td>
  </tr>
  <tr valign="bottom">
    <td align="center" width=272><font size="2">Total</font> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
    <td width=276></td>
    <td width=52></td>
  </tr>
  <tr valign="bottom">
    <td align="center" width=272></td>
    <td width=276></td>
    <td width=52>
      <hr noshade>
    </td>
  </tr>
</table>


<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The underwriters
have agreed to purchase all of the shares sold pursuant  to the purchase agreement if any
of these shares are purchased. If an  underwriter defaults, the purchase agreement
provides that the purchase  commitments of the nondefaulting underwriters may be
increased or the purchase  agreement may be terminated.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund and the
Investment Adviser have agreed to indemnify the  underwriters against certain
liabilities, including liabilities under the  Securities Act of 1933, as amended, or to
contribute to payments the  underwriters may be required to make in respect of those
liabilities.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The underwriters
are offering the shares, subject to prior sale, when, as  and if issued to and accepted
by them, subject to approval of legal matters by  their counsel, including the validity
of the shares, and other conditions  contained in the purchase agreement, such as the
receipt by the underwriters of  officer&#146;s certificates and legal opinions. The
underwriters reserve the right to  withdraw, cancel or modify offers to the public and to
reject orders in whole or  in part.</font></td></tr></table>


<p><table width=600><tr><td><font size=2><B>Commissions and Discounts</B></font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The underwriters have advised
      the Fund that they propose initially to offer the shares to the public at
      the initial public offering price on the cover page of this prospectus and
      to dealers at that price less a concession not in excess of $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
      share. The underwriters may allow, and the dealers may reallow, a discount
      not in excess of $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
      share to other dealers. There is a sales charge or underwriting discount
      of $.90 per share, which is equal to 4.5% of the initial public offering
      price per share. After the initial public offering, the public offering
      price, concession and discount may be changed. Investors must pay for the
      shares of common stock purchased in the offering on or before&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      , 2004.</font></td>
  </tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following
table shows the public offering price, underwriting discount  and proceeds before
expenses to the Fund. The information assumes either no  exercise or full exercise by the
underwriters of their overallotment option.</font></td></tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
81</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT>
<p>&nbsp; <!-- *************************************************************************** -->
  <!-- MARKER PAGE="sheet: 81; page: 81" -->
<p><table cellspacing=0 cellpadding=0 border=0 width="600">
    <tr valign="bottom">

    <td width=323></td>

    <td align="center" width=62> <b><font size="1">Per Share </font></b>
      <hr noshade size="1">
      </td>

    <td align="center" width=18>&nbsp;</td>

    <td align="center" width=98> <b><font size="1">Without Option </font></b>
      <hr noshade size="1">
      </td>

    <td align="center" width=18>&nbsp;</td>

    <td align="center" width=81> <b><font size="1">With Option </font></b>
      <hr noshade size="1">
      </td>
    </tr>
    <tr valign="bottom">

    <td width=323> <font size="2">Public offering price</font></td>

    <td align="center" width=62> <font size="2">$20.00</font></td>

    <td align="center" width=18></td>

    <td align="center" width=98> <font size="2">$</font></td>

    <td align="center" width=18></td>

    <td align="center" width=81> <font size="2">$</font></td>
    </tr>
    <tr valign="bottom">

    <td width=323> <font size="2">Underwriting discount</font></td>

    <td align="center" width=62> <font size="2">&nbsp;&nbsp;&nbsp;&nbsp;$.90</font></td>

    <td align="center" width=18></td>

    <td align="center" width=98> <font size="2">$</font></td>

    <td align="center" width=18></td>

    <td align="center" width=81> <font size="2">$</font></td>
    </tr>
    <tr valign="bottom">

    <td width=323> <font size="2">Proceeds, before expenses, to the Fund</font></td>

    <td align="center" width=62> <font size="2">$19.10</font></td>

    <td align="center" width=18></td>

    <td align="center" width=98> <font size="2">$</font></td>

    <td align="center" width=18></td>

    <td align="center" width=81> <font size="2">$</font></td>
    </tr>
  </table>


<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;The expenses of the
      offering, excluding underwriting discount, are estimated at $475,000 and
      are payable by the Fund. The Fund has agreed to pay the underwriters $.00667
      per share of common stock as a partial reimbursement of expenses incurred
      in connection with the offering. The amount paid by the Fund as this partial
      reimbursement to the underwriters will not exceed .03335% of the total price
      to the public of the shares of common stock sold in this offering. The Fund
      has also agreed to pay certain expenses of counsel to the underwriters in
      an amount up to $7,500, which will not exceed .00250% of the total price
      to the public of the common stock sold in this offering. The Investment
      Adviser has agreed to pay the amount by which the offering costs (other
      than the underwriting discount, but including the $.00667 per share partial
      reimbursement of expenses to the underwriters) exceed $.04 per share of
      common stock (0.20% of the offering price). The Investment Adviser has agreed
      to pay all of the Fund&#146;s organizational expenses.&lt;/R&gt;</font></td>
  </tr></table>

<p><table width=600><tr><td><font size=2><B>Overallotment Option</B></font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;The Fund has granted
      the underwriters an option to purchase up to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional
      shares at the public offering price less the underwriting discount. The
      underwriters may exercise the option from time to time for 45 days from
      the date of this prospectus solely to cover any overallotments. If the underwriters
      exercise this option, each will be obligated, subject to conditions contained
      in the purchase agreement, to purchase a number of additional shares proportionate
      to that underwriter&#146;s initial amount reflected in the above table.&lt;/R&gt;</font></td>
  </tr></table>

<p><table width=600><tr><td><font size=2><B>Price Stabilization, Short Positions and
Penalty Bids</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until the
distribution of the shares is completed, Commission rules may  limit the underwriters and
selling group members from bidding for and purchasing  the Fund&#146;s shares. However,
the representative may engage in transactions that  stabilize the price of the shares,
such as bids or purchases to peg, fix or  maintain that price.</font></td></tr></table>

<p><table width=600><tr>
    <td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the underwriters create
      a short position in the shares in connection with the offering, <I>i.e.</I>,
      if they sell more shares than are listed on the cover of this prospectus,
      the representative may reduce that short position by purchasing shares in
      the open market. The representative also may elect to reduce any short position
      by exercising all or part of the overallotment option described above. Purchases
      of the shares to stabilize its price or to reduce a short position may cause
      the price of the shares to be higher than it might be in the absence of
      such purchases.</FONT></td>
  </tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The representative
also may impose a penalty bid on underwriters and  selling group members. This means that
if the representative purchases shares in  the open market to reduce the underwriters&#146; short
position or to stabilize the  price of such shares, they may reclaim the amount of the
selling concession from  the underwriters and the selling group members who sold those
shares. The  imposition of a penalty bid also may affect the price of the shares in that
it  discourages resales of those shares.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither the Fund
nor any of the underwriters makes any representation or  prediction as to the direction
or magnitude of any effect that the transactions  described above may have on the price
of the shares. In addition, neither the  Fund nor any of the underwriters makes any
representation that the  representative will engage in such transactions or that such
transactions, once  commenced, will not be discontinued without notice.</font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&lt;R&gt;<B>New York Stock Exchange Listing</B></font></td>
  </tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to this offering, there
      has been no public market for the shares. The Fund&#146;s shares of common
      stock have been approved for listing on the NYSE under the symbol &#147;CII,&#148;
      subject to official notice of issuance. In order to meet the requirements
      for listing, the underwriters have undertaken to sell lots of 100 or more
      shares to a minimum of 2,000 beneficial owners.&lt;/R&gt;</font></td>
  </tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
82</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2><B>Other Relationships</B></font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;The Investment Adviser
      (and not the Fund) has agreed to pay a fee from its own resources to Merrill
      Lynch quarterly at the annual rate of .15% of the aggregate of: (i) the
      Fund&#146;s average daily net assets (including proceeds from the issuance
      of any preferred stock) and (ii) the proceeds of any outstanding borrowings
      used for leverage, during the continuance of the Investment Advisory Agreement.
      In addition to acting as lead underwriter in the initial public offering
      of the Fund&#146;s common stock, Merrill Lynch has agreed to provide, upon
      request, certain after-market services to the Investment Adviser designed
      to maintain the visibility of the Fund and to provide relevant information,
      studies or reports regarding the Fund and the closed-end investment company
      industry on an as-needed basis. The total amount of these additional payments
      to Merrill Lynch will not exceed &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
      of the total price to the public of the shares of common stock sold in this
      offering.</font></td>
  </tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The total amount of the additional
      compensation to Merrill Lynch described above, plus the amount paid by the
      Fund as the $.00667 per share partial reimbursement to the underwriters
      and as payment of certain expenses of counsel to the underwriters, will
      not exceed 4.5% of the total price to the public of the common stock sold
      in this offering. The sum total of all compensation to underwriters in connection
      with this public offering of shares of common stock, including sales load
      and all forms of additional compensation to underwriters, will be limited
      to 9.0% of the total price to the public of the shares of common stock sold
      in this offering.&lt;/R&gt;</font></td>
  </tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund
anticipates that Merrill Lynch and the other underwriters may  from time to time act as
brokers in connection with the execution of its  portfolio transactions, and after they
have ceased to be underwriters, the Fund  anticipates that underwriters other than
Merrill Lynch may from time to time act  as dealers in connection with the execution of
portfolio transactions. See  &#147;Portfolio Transactions.&#148; Merrill Lynch is an
affiliate of the Investment  Adviser.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The address of
Merrill Lynch, Pierce, Fenner &amp; Smith Incorporated is 4  World Financial Center, New
York, New York 10080.</font></td></tr></table>


<p><table width=600><tr><td  align=center><font size=2><B>TRANSFER AGENT, DIVIDEND
DISBURSING AGENT AND REGISTRAR</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The transfer
agent, dividend disbursing agent and registrar for the Fund&#146;s  shares is The Bank of
New York, 100 Church Street, New York, New York 10286.</font></td></tr></table>


<p><table width=600><tr><td  align=center><font size=2><B>ACCOUNTING SERVICES PROVIDER</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;State Street Bank
and Trust Company, 500 College Road East, Princeton, New  Jersey 08540, provides certain
accounting services for the Fund.</font></td></tr></table>


<p><table width=600><tr><td  align=center><font size=2><B>LEGAL OPINIONS</B></font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain legal
matters in connection with the shares of common stock offered hereby are passed on for
the Fund by Sidley Austin Brown &amp; Wood <FONT SIZE="1">LLP</FONT>, New York, New York. Certain legal
matters will be passed on for the underwriters by Clifford Chance US <FONT SIZE="1">LLP</FONT>, New York, New
York. Clifford Chance US <FONT SIZE="1">LLP</FONT>, New York, New York may rely on the opinion of Sidley
Austin Brown &amp; Wood <FONT SIZE="1">LLP</FONT> as to certain matters of Maryland law.</FONT></td></tr></table>


<p><table width=600><tr>
    <td  align=center><font size=2>&lt;R&gt;<B>INDEPENDENT AUDITORS AND EXPERTS</B></font></td>
  </tr></table>

<p><table width=600><tr>
    <td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This statement of assets
      and liabilities of the Fund as of April 13, 2004 included in this prospectus
      has been audited by Deloitte &amp; Touche <font size="1">LLP</font>, independent
      auditors, as stated in their report appearing herein, and is included in
      reliance upon the report of such firm given as experts in accounting and
      auditing.&lt;/R&gt;</FONT></td>
  </tr></table>




<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
83</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<!-- MARKER PAGE="sheet: 83; page: 83" -->




<p><table width=600><tr><td  align=center><font size=2><B>ADDITIONAL INFORMATION</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund is
subject to the informational requirements of the Securities  Exchange Act of 1934 and the
1940 Act and in accordance therewith is required to  file reports and other information
with the Commission. Any such reports and  other information, including the Fund&#146;s
Code of Ethics, can be inspected and  copied at the public reference facilities of the
Commission at Room 1024,  Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the  following regional offices of the Commission: Pacific Regional Office,
at 5670  Wilshire Boulevard, 11th Floor, Los Angeles, California 90036; and Midwest
Regional Office, at Northwestern Atrium Center, 500 West Madison Street, Suite  1400,
Chicago, Illinois 60661-2511. Copies of such materials can be obtained  from the public
reference section of the Commission at 450 Fifth Street, N.W.,  Washington, D.C. 20549,
at prescribed rates. The Commission maintains a Web site  at http://www.sec.gov
containing reports and information statements and other  information regarding
registrants, including the Fund, that file electronically  with the Commission. Reports,
proxy statements and other information concerning  the Fund may also be inspected at the
offices of the New York Stock Exchange, 20  Broad Street, New York, New York 10006.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional
information regarding the Fund is contained in the Registration  Statement on Form N-2,
including amendments, exhibits and schedules thereto,  relating to such shares filed by
the Fund with the Commission in Washington,  D.C. This prospectus does not contain all of
the information set forth in the  Registration Statement, including any amendments,
exhibits and schedules  thereto. For further information with respect to the Fund and the
shares offered  hereby, reference is made to the Registration Statement. Statements
contained in  this prospectus as to the contents of any contract or other document
referred to  are not necessarily complete and in each instance reference is made to the
copy  of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such  reference. A copy
of the Registration Statement may be inspected without charge  at the Commission&#146;s
principal office in Washington, D.C., and copies of all or  any part thereof may be
obtained from the Commission upon the payment of certain  fees prescribed by the
Commission.</font></td></tr></table>

<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
84</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600>
  <tr align="center">
    <td><font size=2><B>&lt;R&gt;INDEPENDENT AUDITORS&#146; REPORT </B></font></td>
  </tr></table>

<p><table width=600><tr>
    <td><font size=2>To the Stockholder and Board of Directors,<BR>
      Capital and Income Strategies Fund, Inc.</font></td>
  </tr></table>

<p><table width=600><tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have audited the accompanying
      statement of assets and liabilities of Capital and Income Strategies Fund,
      Inc. (the &#147;Fund&#148;) as of April 13, 2004. This financial statement is the
      responsibility of the Fund&#146;s management. Our responsibility is to express
      an opinion on this financial statement based on our audit. <br>
      <br>
      &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We conducted our audit in accordance with
      auditing standards generally accepted in the United States of America. Those
      standards require that we plan and perform the audit to obtain reasonable
      assurance about whether the financial statement is free of material misstatement.
      An audit includes examining, on a test basis, evidence supporting the amounts
      and disclosures in the financial statement. An audit also includes assessing
      the accounting principles used and significant estimates made by management,
      as well as evaluating the overall financial statement presentation. We believe
      that our audit provides a reasonable basis for our opinion. <br>
      <br>
      &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In our opinion, such financial statement
      referred to above presents fairly, in all material respects, the financial
      position of the Fund as of April 13, 2004, in conformity with accounting
      principles generally accepted in the United States of America. </font></td>
  </tr></table>

<p>
<p><table width=600>
  <tr align="left">
    <td><FONT SIZE="2">/s/ Deloitte &amp; Touche <FONT SIZE="1">LLP</FONT></FONT>
    </td>
  </tr></table>

<p><table width=600><tr>
    <td><font size=2>Princeton, New Jersey<BR>
      April 27, 2004&lt;/R&gt;</font></td>
  </tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
85</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td  align=center><font size=2><B>CAPITAL AND INCOME STRATEGIES
FUND, INC.</B></font></td></tr></table>


<p><table width=600><tr><td  align=center><font size=2><B>STATEMENT OF ASSETS AND
LIABILITIES</B></font></td></tr></table>


<p><table width=600><tr>
    <td  align=center><font size=2>&lt;R&gt;<B>April 13, 2004</B></font></td>
  </tr></table>

<P>
<table cellspacing=0 cellpadding=0 border=0 width=600>
  <tr valign="bottom">
    <td width=551> <font size="2"><b>ASSETS:</b></font></td>
    <td width=49 align="right"></td>
  </tr>
  <tr valign="bottom">
    <td width=551> <font size="2">&nbsp;&nbsp;Cash</font></td>
    <td width=49 align="right"> <font size="2">$100,008</font></td>
  </tr>
  <tr valign="bottom">
    <td width=551> <font size="2">&nbsp;&nbsp;Deferred offering costs (Note 1)</font></td>
    <td width=49 align="right"> <font size="2">431,346</font></td>
  </tr>
  <tr valign="bottom">
    <td width=551></td>
    <td width=49 align="right">
      <hr noshade size="1">
    </td>
  </tr>
  <tr valign="bottom">
    <td width=551> <font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total assets</font></td>
    <td width=49 align="right"> <font size="2">531,354</font></td>
  </tr>
  <tr valign="bottom">
    <td width=551>&nbsp;</td>
    <td width=49 align="right"></td>
  </tr>
  <tr valign="bottom">
    <td width=551> <font size="2"><b>LIABILITIES:</b></font></td>
    <td width=49 align="right"></td>
  </tr>
  <tr valign="bottom">
    <td width=551> <font size="2">&nbsp;&nbsp;Liabilities and accrued expenses
      (Note 1)</font></td>
    <td width=49 align="right"> <font size="2">431,346</font></td>
  </tr>
  <tr valign="bottom">
    <td width=551></td>
    <td width=49 align="right">
      <hr noshade size="1">
    </td>
  </tr>
  <tr valign="bottom">
    <td width=551> <font size="2">NET ASSETS:</font></td>
    <td width=49 align="right"> <font size="2">$100,008</font></td>
  </tr>
  <tr valign="bottom">
    <td width=551></td>
    <td width=49 align="right">
      <hr noshade>
    </td>
  </tr>
  <tr valign="bottom">
    <td width=551> <font size="2"><b>NET ASSETS CONSIST OF:</b></font></td>
    <td width=49 align="right"></td>
  </tr>
  <tr valign="bottom">
    <td width=551> <font size="2">&nbsp;&nbsp;Common Stock, par value $.10 per
      share; 200,000,000 shares authorized;</font></td>
    <td width=49 align="right"></td>
  </tr>
  <tr valign="bottom">
    <td width=551> <font size="2">&nbsp;&nbsp;&nbsp;&nbsp;5,236 issued and outstanding
      (Note 1)</font></td>
    <td width=49 align="right"> <font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;524</font></td>
  </tr>
  <tr valign="bottom">
    <td width=551> <font size="2">Paid-in Capital in excess of par</font></td>
    <td width=49 align="right"> <font size="2">99,484</font></td>
  </tr>
  <tr valign="bottom">
    <td width=551></td>
    <td width=49 align="right">
      <hr noshade size="1">
    </td>
  </tr>
  <tr valign="bottom">
    <td width=551> <font size="2">Net Assets-Equivalent to $19.10 net asset value
      per share based on</font></td>
    <td width=49 align="right"></td>
  </tr>
  <tr valign="bottom">
    <td width=551> <font size="2">&nbsp;&nbsp;5,236 shares of capital stock outstanding
      (Note 1)</font></td>
    <td width=49 align="right"> <font size="2">$100,008</font></td>
  </tr>
  <tr valign="bottom">
    <td width=551></td>
    <td width=49 align="right">
      <hr noshade>
    </td>
  </tr>
  <tr valign="bottom">
    <td width=551><font size="2">&lt;/R&gt;</font></td>
    <td width=49 align="right">&nbsp;</td>
  </tr>
</table>



<p><table width=600><tr><td  align=center><font size=2><B>NOTES TO STATEMENT OF ASSETS
AND LIABILITIES</B></font></td></tr></table>


<p><table width=600><tr><td><FONT SIZE="2"><B>Note 1. <I>Organization</I></B></FONT></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;The Fund was incorporated
      under the laws of the State of Maryland on February 5, 2004 and is registered
      under the Investment Company Act of 1940, as amended, as a closed-end, diversified
      management investment company and has had no operations other than the sale
      to Fund Asset Management, L.P. (the &#147;Investment Adviser&#148;) of an
      aggregate of 5,236 shares for $100,008 on April 13, 2004. The General Partner
      of the Investment Adviser is an indirect wholly-owned subsidiary of Merrill
      Lynch &amp; Co., Inc. Certain officers and/or directors of the Fund are
      officers of the Investment Adviser.</font></td>
  </tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Investment Adviser, on
      behalf of the Fund, will incur all organizational costs estimated at $59,500.
      The Investment Adviser also has agreed to pay the amount by which the offering
      costs of the Fund (other than the underwriting discount, but including the
      $.00667 per share partial reimbursement of expenses to the underwriters)
      exceeds $.04 per share of common stock. Direct offering costs relating to
      the public offering of the Fund&#146;s shares will be charged to capital
      at the time of issuance of shares.&lt;/R&gt;</font></td>
  </tr></table>


<p><table width=600><tr><td><FONT SIZE="2"><B>Note 2.  <I>Investment Advisory Arrangements</I></B></FONT></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;The Fund has engaged
      the Investment Adviser to provide investment advisory and management services
      to the Fund. The Investment Adviser will receive a monthly fee for advisory
      and management services at an annual rate equal to 0.85% of an aggregate
      of (i) the Fund&#146;s average daily net assets (including the proceeds
      from the issuance of any preferred stock offering), and (ii) the proceeds
      of any outstanding borrowings used for leverage.&lt;/R&gt;</font></td>
  </tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
86</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><FONT SIZE="2"><B>Note 3. <I>Federal Income Taxes</I></B></FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fund intends
to qualify as a &#147;regulated investment company&#148; and as  such (and by complying
with the applicable provisions of the Internal Revenue  Code of 1986, as amended) will
not be subject to federal income tax on taxable  income (including realized capital
gains) that is distributed to stockholders.</font></td></tr></table>


<p><table width=600><tr><td><FONT SIZE="2"><B>Note 4. <I>Accounting Principles</I></B></FONT></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&lt;R&gt;The Fund&#146;s statement
      of assets and liabilities is prepared in conformity with accounting principles
      generally accepted in the United States of America, which may require the
      use of management accruals and estimates. Actual results may differ from
      these estimates.&lt;/R&gt;</font></td>
  </tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
87</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td  align=center><font size=2>(This page intentionally left
blank)</font></td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;






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<p><table width=600><tr><td align=right><font size=2><B>APPENDIX A</B></font></td></tr></table>

<p><table width=600><tr><td  align=center><font size=2><B>RATINGS OF SECURITIES</B></font></td></tr></table>


<p><table width=600><tr><td><font size=2><B>Description of Moody&#146;s Investors
Service, Inc.&#146;s (&#147;Moody&#146;s&#148;) Long Term Ratings</B></font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">Aaa </font></td><td width=90%><font size="2"> Bonds
and preferred stock which are rated Aaa are judged to be of  the best quality. They carry
the smallest degree of investment  risk and are generally referred to as &#147;gilt edged.&#148; 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.</font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">Aa </font></td><td width=90%><font size="2"> Bonds
and preferred stock which are 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 risk
appear somewhat  larger than in Aaa securities.</font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">A </font></td><td width=90%><font size="2"> Bonds
and preferred stock which are 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 sometime in the  future.</font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">Baa </font></td><td width=90%> <FONT SIZE="2">Bonds
and preferred stock which are rated Baa are considered as medium grade obligations
(<I>i.e.</I>, 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.</FONT></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">Ba </font></td><td width=90%><font size="2"> Bonds
and preferred stock which are 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 thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position  characterizes bonds in this
class.</font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">B </font></td><td width=90%><font size="2"> Bonds
and preferred stock which are rated B generally lack  characteristics of the desirable
investment. Assurance of interest  and principal payment or of maintenance of other terms
of the  contract over any long period of time may be small.</font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">Caa </font></td><td width=90%><font size="2"> Bonds
and preferred stock which are rated Caa are of poor standing. Such issues may be in
default or there may be  present elements of danger with respect to principal or interest.</font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">Ca </font></td><td width=90%><font size="2"> Bonds
and preferred stock which are rated Ca represent obligations  which are speculative in a
high degree. Such issues are often in  default or have other marked shortcomings.</font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">C </font></td><td width=90%><font size="2"> Bonds
and preferred stock which are rated C are the lowest rated  class of bonds, and issues so
rated can be regarded as having  extremely poor prospects of ever attaining any real
investment  standing.</font></td></tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
A-1</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Moody&#146;s bond
ratings, where specified, are applicable to preferred stock,  financial contracts, senior
bank obligations and insurance company senior  policyholder and claims obligations with
an original maturity in excess of one  year. Obligations relying upon support mechanisms
such as letters-of-credit and  bonds of indemnity are excluded unless explicitly rated.
Obligations of a branch  of a bank are considered to be domiciled in the country in which
the branch is  located.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless noted as an
exception, Moody&#146;s rating on a bank&#146;s ability to repay  senior obligations
extends only to branches located in countries which carry a  Moody&#146;s Sovereign
Rating for Bank Deposits. Such branch obligations are rated at  the lower of the bank&#146;s
rating or Moody&#146;s Sovereign Rating for the Bank Deposits  for the country in which
the branch is located. When the currency in which an  obligation is denominated is not
the same as the currency of the country in  which the obligation is domiciled, Moody&#146;s
ratings do not incorporate an opinion  as to whether payment of the obligation will be
affected by the actions of the  government controlling the currency of denomination. In
addition, risk  associated with bilateral conflicts between an investor&#146;s home
country and  either the issuer&#146;s home country or the country where an issuer branch
is  located are not incorporated into Moody&#146;s ratings.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Moody&#146;s makes
no representation that rated bank obligations or insurance  company obligations are
exempt from registration under the Securities Act of  1933, as amended, or issued in
conformity with any other applicable law or  regulation. Moody&#146;s makes no
representation that any specific bank or insurance  company obligation is a legally
enforceable or a valid senior obligation of a  rated issuer.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Note:</I> Moody&#146;s
applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa
through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates a ranking in the lower end of that generic rating category.</FONT></td></tr></table>


<p><table width=600><tr><td><font size=2><B>Description of Standard &amp; Poor&#146;s (&#147;Standard
&amp; Poor&#146;s&#148;) Long Term Issue Credit Ratings</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A Standard &amp; Poor&#146;s
issue credit rating is a current opinion of the  creditworthiness of an obligor with
respect to a specific financial obligation,  a specific class of financial obligations,
or a specific financial program  (including ratings on medium term note programs and
commercial paper programs).  It takes into consideration the creditworthiness of
guarantors, insurers, or  other forms of credit enhancement on the obligation and takes
into account the  currency in which the obligation is denominated. The issue credit
rating is not  a recommendation to purchase, sell, or hold a financial obligation,
inasmuch as  it does not comment as to market price or suitability for a particular
investor.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Issue credit
ratings are based on current information furnished by the  obligors or obtained by
Standard &amp; Poor&#146;s from other sources it considers  reliable. Standard &amp; Poor&#146;s
does not perform an audit in connection with any  credit rating and may, on occasion,
rely on unaudited financial information.  Credit ratings may be changed, suspended, or
withdrawn as a result of changes  in, or unavailability of, such information, or based on
other circumstances.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Issue credit
ratings can be either long term or short term. Short term  ratings are generally assigned
to those obligations considered short term in the  relevant market. In the U.S., for
example, that means obligations with an  original maturity of no more than 365 days &#151; including
commercial paper. Short  term ratings are also used to indicate the creditworthiness of
an obligor with  respect to put features on long term obligations. The result is a dual
rating,  in which the short term rating addresses the put feature, in addition to the
usual long term rating. Medium term notes are assigned long term ratings.</font></td></tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
A-2</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT>
<p>&nbsp; <!-- *************************************************************************** -->
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  <br>

<table width=600>
  <tr>
    <td width=30>&nbsp;</td>
    <td width=570><font size=2>Issue credit ratings are based in varying degrees,
      on the following considerations:</font></td>
  </tr>
</table>
<p>
<p><table width=600>
<tr><td width=30>&nbsp;</td>
<td width=570><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.
Likelihood of payment-capacity and willingness of the obligor to  meet its financial
commitment on an obligation in accordance with the  terms of the obligation;</font></td></tr></table>

<p><table width=600>
<tr><td width=30>&nbsp;</td>
<td width=570><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.
Nature of and provisions of the obligation; and</font></td></tr></table>

<p><table width=600>
<tr><td width=30>&nbsp;</td>
<td width=570><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.
Protection afforded by, and relative position of, the obligation  in the event of
bankruptcy, reorganization, or other arrangement under the  laws of bankruptcy and other
laws affecting creditors&#146; rights.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The issue rating
definitions are expressed in terms of default risk. As  such, they pertain to senior
obligations of an entity. Junior obligations are  typically rated lower than senior
obligations, to reflect the lower priority in  bankruptcy, as noted above. (Such
differentiation applies when an entity has  both senior and subordinated obligations,
secured and unsecured obligations, or  operating company and holding company
obligations.) Accordingly, in the case of  junior debt, the rating may not conform
exactly with the category definition.</font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">AAA </font></td><td width=90%><font size="2"> An
obligation rated &#145;AAA&#146; has the highest rating assigned by  Standard &amp; Poor&#146;s.
The obligor&#146;s capacity to meet its financial  commitment on the obligation is
extremely strong.</font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">AA </font></td><td width=90%><font size="2"> An
obligation rated &#145;AA&#146; differs from the highest rated  obligations only in small
degree. The obligor&#146;s capacity to meet  its financial commitment on the obligation
is very strong.</font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">A </font></td><td width=90%><font size="2"> An
obligation rated &#145;A&#146; is somewhat more susceptible to the  adverse effects of changes
in circumstances and economic  conditions than obligations in higher rated categories.
However,  the obligor&#146;s capacity to meet its financial commitment on the  obligation
is still strong.</font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">BBB </font></td><td width=90%><font size="2"> An
obligation rated &#145;BBB&#146; exhibits adequate protection parameters.  However, adverse
economic conditions or changing circumstances are  more likely to lead to a weakened
capacity of the obligor to meet  its financial commitment on the obligation.</font></td></tr></table>

<table width=600><tr>
    <td width=10% valign=top><font size="2">BB<br>
      B<br>
      CCC <br>
      CC <br>
      C </font></td>
    <td width=90% valign="top"><font size="2">Obligations rated &#145;BB&#146;, &#145;B&#146;,
      &#145;CCC&#146;, &#145;CC&#146;, and &#145;C&#146; are regarded as having significant speculative
      B characteristics. &#145;BB&#146; indicates the least degree of speculation and
      &#145;C&#146; the highest. While such B CCC obligations will likely have some
      quality and protective characteristics, these may be CC outweighed by large
      uncertainties or major exposures to adverse conditions.</font></td>
  </tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">BB </font></td><td width=90%><font size="2"> An
obligation rated &#145;BB&#146; is less vulnerable to nonpayment than  other speculative
issues. However, it faces major ongoing  uncertainties or exposure to adverse business,
financial, or  economic conditions which could lead to the obligor&#146;s inadequate
capacity to meet its financial commitment on the obligation.</font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">B </font></td><td width=90%><font size="2"> An
obligation rated &#145;B&#146; is more vulnerable to nonpayment than  obligations rated &#145;BB&#146;,
but the obligor currently has the capacity  to meet its financial commitment on the
obligation. Adverse  business, financial, or economic conditions will likely impair the
obligor&#146;s capacity or willingness to meet its financial commitment  on the
obligation.</font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">CCC </font></td><td width=90%><font size="2"> An
obligation rated &#145;CCC&#146; is currently vulnerable to nonpayment,  and is dependent upon
favorable business, financial, and economic  conditions for the obligor to meet its
financial commitment on the  obligation. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the  capacity to meet its
financial commitment on the obligation.</font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">CC </font></td><td width=90%><font size="2">An
obligation rated &#145;CC&#146; is currently highly vulnerable to nonpayment.</font></td></tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
A-3</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<table width=600><tr><td width=10% valign=top><font size="2">C </font></td><td width=90%><font size="2"> The
&#145;C&#146; rating may be used to cover a situation where a bankruptcy  petition has been
filed or similar action has been taken, but  payments on this obligation are being
continued.</font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">D </font></td><td width=90%><font size="2"> An
obligation rated &#145;D&#146; is in payment default. The &#145;D&#146; rating category is used
when payments on an obligation are not  made on the date due even if the applicable grace
period has not expired, unless Standard &amp; Poor&#146;s believes that such  payments
will be made during such grace period. The &#145;D&#146; rating also will be used upon the
filing of a bankruptcy  petition or the taking of a similar action if payments on an
obligation are jeopardized. Such rating will also be used  upon the completion of a
tender or exchange offer, whereby some or all of an issue is either repurchased for an
amount  of cash or replaced by other securities having a total value that is clearly less
than par; or in the case of preferred  stock or deferrable payment securities, upon
non-payment of the dividend or deferral of the interest payments.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Plus</I> (+) or <I>minus</I>
(-): The ratings from &#145;AA&#146; to &#145;CCC&#146; may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.</FONT></td></tr></table>


<p><table width=600><tr><td><font size=2><B>Local Currency and Foreign Currency Risks</B></font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Country risk
considerations are a standard part of Standard &amp; Poor&#146;s  analysis for credit
ratings on any issuer or issue. Currency of repayment is a  key factor in this analysis.
An insurer&#146;s capacity to repay foreign currency  obligations may be lower than its
capacity to repay obligations in its local  currency due to the sovereign government&#146;s
own relatively lower capacity to  repay external versus domestic debt. These sovereign
risk considerations are  incorporated in the debt ratings assigned to specific issues.
Foreign currency  issuer ratings are also distinguished from local currency issuer
ratings to  identify those instances where sovereign risks make them different for the
same  issuer.</font></td></tr></table>


<p><table width=600><tr><td><font size=2><B>Description of Fitch Ratings (&#147;Fitch&#148;)
Long Term Credit Ratings</B></font></td></tr></table>


<p><table width=600><tr><td><font size=2><B>Investment Grade</B></font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">AAA </font></td><td width=90%><font size="2"> Highest
credit quality. &#145;AAA&#146; ratings denote the lowest  expectation of credit risk. They
are assigned only in case of  exceptionally strong capacity for timely payment of
financial  commitments. This capacity is highly unlikely to be adversely  affected by
foreseeable events.</font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">AA </font></td><td width=90%><font size="2"> Very
high credit quality. &#145;AA&#146; ratings denote a very low  expectation of credit risk.
They indicate very strong capacity for  timely payment of financial commitments. This
capacity is not  significantly vulnerable to foreseeable events.</font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">A </font></td><td width=90%><font size="2"> High
credit quality. &#145;A&#146; ratings denote a low expectation of  credit risk. The capacity
for timely payment of financial  commitments is considered strong. This capacity may,
nevertheless,  be more vulnerable to changes in circumstances or in economic  conditions
than is the case for higher ratings.</font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">BBB </font></td><td width=90%><font size="2"> Good
credit quality. &#145;BBB&#146; ratings indicate that there is  currently a low expectation of
credit risk. The capacity for  timely payment of financial commitments is considered
adequate,  but adverse changes in circumstances and in economic conditions  are more
likely to impair this capacity. This is the lowest  investment-grade category.</font></td></tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
A-4</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><font size=2><B>Speculative Grade</B></font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">BB </font></td><td width=90%><font size="2"> Speculative.
&#145;BB&#146; ratings indicate that there is a possibility of  credit risk developing,
particularly as the result of adverse  economic change over time; however, business or
financial  alternatives may be available to allow financial commitments to be  met.
Securities rated in this category are not investment grade.</font></td></tr></table>

<table width=600><tr><td width=10% valign=top><font size="2">B </font></td><td width=90%><font size="2"> Highly
speculative. &#145;B&#146; ratings indicate that significant credit  risk is present, but a
limited margin of safety remains. Financial  commitments are currently being met;
however, capacity for  continued payment is contingent upon a sustained, favorable
business and economic environment.</font></td></tr></table>

<table width=600><tr>
    <td width=10% valign=top><font size="2">CCC,<br>
      CC <br>
      C </font></td>
    <td width=90%><font size="2">High
default risk. Default is a real possibility. Capacity for meeting  financial commitments
is solely, reliant upon sustained, favorable business  or economic developments. A &#145;CC&#146; rating
indicates that  default of some kind  appears probable. &#145;C&#146; ratings signal imminent
default.</font></td></tr></table>



<font size="2"> </font>
<table width=600><tr>
    <td width=10% valign=top><font size="2">DDD, <br>
      DD, and<br>
      D Default</font></td>
    <td width=90%><FONT SIZE="2">The
ratings of obligations in this category are based on their prospects for achieving
partial or full, and recovery in a reorganization or liquidation of the obligor. While
expected recovery values are Default highly speculative and cannot be estimated with
any precision, the following serve as general guidelines. &#145;DDD&#146; obligations have
the highest potential for recovery, around 90%-100% of outstanding amounts and accrued
interest. &#145;DD&#146; indicates potential recoveries in the range of 50%-90%, and &#145;D&#146; the
lowest recovery potential, <I>i.e.</I>, below 50%. Entities rated in this category have
defaulted on some or all of their obligations. Entities rated &#145;DDD&#146; have the
highest prospect for resumption of performance or continued operation with or without a
formal reorganization process. Entities rated &#145;DD&#146; and &#145;D&#146; are generally
undergoing a formal reorganization or liquidation process; those rated &#145;DD&#146; are
likely to satisfy a higher portion of their outstanding obligations, while entities
rated &#145;D&#146; have a poor prospect for repaying all obligations.</FONT></td></tr></table>


 <p><table width=600><tr><td><font size=2><B>Notes to Long term ratings:</B></font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Plus</I> &#147;(+)&#148; or<I>Minus</I> &#147;(-)&#148; may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the &#145;AAA&#146; Long term rating
category, to categories below &#145;CCC&#146;, or to Short term ratings other than &#145;F1&#146;.</FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#145;NR&#146; indicates
that Fitch does not rate the issuer or issue in question.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#145;Withdrawn&#146;:
A rating is withdrawn when Fitch deems the amount of  information available to be
inadequate for rating purposes, or when an  obligation matures, is called, or refinanced.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rating Watch:
Ratings are placed on Rating Watch to notify investors that  there is a reasonable
probability of a rating change and the likely direction of  such change. These are
designated as &#147;Positive&#148;, indicating a potential upgrade,  &#147;Negative&#148;,
for a potential downgrade, or &#147;Evolving&#148;, if ratings may be raised,  lowered or
maintained. Rating Watch is typically resolved over a relatively  short period.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A Rating Outlook
indicates the direction a rating is likely to move over a  one to two year period.
Outlooks may be positive, stable, or negative. A  positive or negative Rating Outlook
does not imply a rating change is  inevitable. Similarly, ratings for which outlooks are
&#145;stable&#146; could be  downgraded before an outlook moves to positive or negative if
circumstances  warrant such an action. Occasionally, Fitch may be unable to identify the
fundamental trend. In these cases, the Rating Outlook may be described as  evolving.</font></td></tr></table>



<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
A-5</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
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<P>
<TABLE WIDTH=600><TR><TD>
<HR ALIGN=LEFT WIDTH=100% SIZE=4 noshade>
<HR ALIGN=LEFT WIDTH=100% SIZE=1 noshade>
</TD></TR></TABLE>


<table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through and including &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
      2004 (the 25th day after the date of this prospectus), all dealers effecting
      transactions in these securities, whether or not participating in this offering,
      may be required to deliver a prospectus. This is in addition to the dealers&#146;
      obligation to deliver a prospectus when acting as underwriters and with
      respect to their unsold allotments or subscriptions.</font></td>
  </tr></table>


<p><table width=600><tr>
    <td  align=center><FONT SIZE="5"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares</B></FONT></td>
  </tr></table>



<p><table width=600><tr><td  align=center><FONT SIZE="5"><B>Capital and Income Strategies
Fund, Inc.</B></FONT></td></tr></table>



<p><table width=600><tr><td  align=center><font size=3><B>Common Stock</B></font></td></tr></table>




<br>
<table width=600><tr><td><hr size=1 noshade align=CENTER width=150></td></tr></table>
<table width=600><tr><td  align=center><font size=2><B>PROSPECTUS</B></font></td></tr></table>
<table width=600><tr><td><hr size=1 noshade align=CENTER width=150></td></tr></table>


<p><table width=600>
  <tr valign="bottom">
    <td  align=center><font size=4><B>Merrill Lynch &amp; Co.<BR>
      Advest, Inc.<BR>
      Robert W. Baird &amp; Co.<BR>
      BNY Capital Markets, Inc.<BR>
      Legg Mason Wood Walker<BR>
      <font size="2">Incorporated</font><BR>
      McDonald Investments Inc.<BR>
      Oppenheimer<BR>
      SunTrust Robinson Humphrey</B></font></td>
  </tr></table>



<p>
<table width=600>
  <tr>
    <td align=right width="430"><font size=2><b>, 2004</b></font></td>
    <td align=right width="158"><font size=2>&lt;R&gt;<b>19149-0404</b>&lt;/R&gt;</font></td>
  </tr>
</table>

<TABLE WIDTH=600><TR><TD>
<HR ALIGN=LEFT WIDTH=100% SIZE=1 noshade>
<HR ALIGN=LEFT WIDTH=100% SIZE=4 noshade>
</TD></TR></TABLE>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;








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<p><table width=600><tr><td  align=center><font size=2><B>PART C. OTHER INFORMATION</B></font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2"><B>Item 24. &nbsp;&nbsp;<I>Financial Statements And Exhibits.</I></B></FONT></td></tr></table>

<P><table width=600><tr><td width=10% valign=top><font size="2">&nbsp;(1) </font></td><td width=90%><font size="2"> Financial
Statements</font></td></tr></table>

<P><table width=600>
  <tr>
    <td width=10% valign=top><font size="2">&nbsp; </font></td>
    <td width=90%><font size="2">Report
of Independent Auditors</font></td></tr></table>

<P><table width=600><tr>
    <td width=10% valign=top>&nbsp;</td>
    <td width=90%><font size="2">&lt;R&gt;&nbsp;Statement of Assets and Liabilities
      as of April 13, 2004.</font></td>
  </tr></table>

<br>
<table width=600>
  <tr valign="bottom">
    <td width=10% align=center><b><font size="1">Exhibits </font></b>
      <hr noshade size="1">
    </td>
    <td width=5% align=center>&nbsp;</td>
    <td width=85%><b><font size="1"> Description</font></b>
      <hr noshade size="1" align="left" width="10%">
    </td>
  </tr>
</table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(a)(1) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td><td width=85%><font size="2"> Articles
of Incorporation of the Registrant.(a) </font></td></tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(b) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td><td width=85%><font size="2"> By-laws
of  the Registrant.(a) </font></td></tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(c) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td><td width=85%><font size="2"> Not
applicable.</font></td></tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(d)(1) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td><td width=85%><font size="2"> Portions
of the Articles of Incorporation and By-laws of the  Registrant defining the rights of
holders of shares of common stock of  the Registrant.(b)</font></td></tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(d)(2) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td>
    <td width=85%><font size="2"> Form of specimen certificate for shares of common
      stock of the Registrant.(c) </font></td>
  </tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(e) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td>
    <td width=85%><font size="2"> Form of Automatic Dividend Reinvestment Plan.(c)
      </font></td>
  </tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(f) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td><td width=85%><font size="2"> Not
applicable.</font></td></tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(g) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td>
    <td width=85%><font size="2"> Form of Investment Advisory Agreement between
      the Registrant and Fund Asset Management, L.P. (&#147;FAM&#148; or the &#147;Investment
      Adviser&#148;).(c)</font></td>
  </tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(h)(1) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td>
    <td width=85%><font size="2"> Form of Purchase Agreement between the Registrant
      and the Investment Adviser and Merrill Lynch, Pierce, Fenner &amp; Smith
      Incorporated (&#147;Merrill Lynch&#148;).(c)</font></td>
  </tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(h)(2) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td>
    <td width=85%><font size="2"> Form of Merrill Lynch Standard Dealer Agreement.(d)
      </font></td>
  </tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(h)(3) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td>
    <td width=85%><font size="2"> Form of Master Agreement Among Underwriters.(e)</font></td>
  </tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(i) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td>
    <td width=85%><font size="2"> Not applicable.</font></td>
  </tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(j) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td>
    <td width=85%><font size="2"> Form of Custodian Agreement between the Registrant
      and Brown Brothers Harriman &amp; Co.(f) </font></td>
  </tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(k)(l) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td>
    <td width=85%><font size="2"> Form of Stock Transfer Agency Agreement between
      the Registrant and The Bank of New York.</font></td>
  </tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(k)(2) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td>
    <td width=85%><font size="2"> Form of Administrative Services Agreement between
      the Registrant and State Street.(g) </font></td>
  </tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(k)(3) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td>
    <td width=85%><font size="2"> Form of Additional Compensation Agreement between
      FAM and Merrill Lynch.(c) </font></td>
  </tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(k)(4) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td>
    <td width=85%><font size="2"> Form of Securities Lending Agency Agreement
      between the Registrant and QA Advisors LLC (now MLIM LLC) dated August 10,
      2001.(h)</font></td>
  </tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(l) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td>
    <td width=85%><font size="2"> Opinion and Consent of Sidley Austin Brown &amp;
      Wood <font size=1>LLP</font>.</font></td>
  </tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(m) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td><td width=85%><font size="2"> Not
applicable. </font></td></tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(n) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td>
    <td width=85%><font size="2"> Consent of Deloitte &amp; Touche <font size="1">LLP</font>,
      independent auditors for the Registrant.</font></td>
  </tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(o) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td><td width=85%><font size="2"> Not
applicable.</font></td></tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(p) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td>
    <td width=85%><font size="2"> Certificate of FAM.</font></td>
  </tr></table>

<table width=600><tr><td width=10% align=right valign=top><font size="2">(q) </font></td><td width=5% align=center valign=top>&#151;<font size="2"></font></td><td width=85%><font size="2"> Not
applicable. </font></td></tr></table>

<table width=600>
  <tr>
    <td width=10% align=right valign=top><font size="2">(r) </font></td>
    <td width=5% align=center valign=top>&#151;<font size="2"></font></td>
    <td width=85%><font size="2"> Code of Ethics.(i)</font></td>
  </tr>
  <tr>
    <td width=10% align=left valign=top><font size="2">&lt;/R&gt;</font></td>
    <td width=5% align=center valign=top>&nbsp;</td>
    <td width=85%>&nbsp;</td>
  </tr>
</table>

<table width=600><tr><td><hr size=1 noshade align=left  width=75></td></tr></table>

<table width=600><tr><td width=4% align=right valign=top><font size="1">(a) </font></td><td width=2%><font size="1"></font></td><td width=94%><font size="1"> Filed
on February 9, 2004 as an exhibit to the Registrant&#146;s Registration  Statement on Form N-2
(333-112634) (the &#147;Registration Statement&#148;).</font></td></tr></table>

<table width=600>
  <tr>
    <td width=4% align=right valign=top><font size="1">(b) </font></td>
    <td width=2%><font size="1"></font></td>
    <td width=94%><font size="1"> Reference is made to Article IV (sections 2,
      3, 4, 5, 6, 7 and 8), Article V (sections 3, 6 and 7), Article VI, Article
      VIII, Article IX, Article X, and Article XII of the Registrant&#146;s Articles
      of Incorporation, filed herewith; and to Article II, Article III (sections
      3.01, 3.03, 3.05 and 3.17), Article VI (section 6.02), Article VII, Article
      XII, Article XIII and Article XIV of the Registrant&#146;s By-laws, filed
      herewith.&lt;R&gt;</font></td>
  </tr>
  <tr>
    <td width=4% align=right valign=top><font size="1">(c) </font></td>
    <td width=2%><font size="1"></font></td>
    <td width=94%><font size="1">Filed on March 23, 2004 as an exhibit to the
      Registration Statement.</font></td>
  </tr>
</table>

<table width=600><tr>
    <td width=4% align=right valign=top><font size="1">(d) </font></td>
    <td width=2%><font size="1"></font></td><td width=94%><font size="1"> Incorporated
by reference to Exhibit (h)(2) to Pre-Effective Amendment No.  3 to the Registration
Statement on Form N-2 Preferred Income Strategies  Fund, Inc. (File No. 333-102712),
filed March 25, 2003 (the &#147;Preferred Fund  Registration Statement&#148;).</font></td></tr></table>

<table width=600><tr>
    <td width=4% align=right valign=top><font size="1">(e) </font></td>
    <td width=2%><font size="1"></font></td>
    <td width=94%><font size="1"> Incorporated by reference to Exhibit (h)(3)
      to the Preferred Fund Registration Statement. </font></td>
  </tr></table>

<table width=600><tr>
    <td width=4% align=right valign=top><font size="1">(f) </font></td>
    <td width=2%><font size="1"></font></td>
    <td width=94%><font size="1">Incorporated by reference to Exhibit 7 to Amendment
      No. 2 to the Registration Statement on Form N-1A of Master Large Cap Series
      Trust (File No. 811-09739), filed on January 30, 2002.&lt;/R&gt;</font></td>
  </tr></table>

<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
C-1</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT>
<p>&nbsp; <!-- *************************************************************************** -->
  <!-- MARKER PAGE="sheet: 2; page: 2" --> <br>
  <br>

<table width=600>
  <tr>
    <td width=4% align=right valign=top><font size="1">&lt;R&gt;</font></td>
    <td width=2%>&nbsp;</td>
    <td width=94%>&nbsp;</td>
  </tr>
  <tr>
    <td width=4% align=right valign=top><font size="1">(g) </font></td>
    <td width=2%><font size="1"></font></td>
    <td width=94%><font size="1"> Incorporated by reference to Exhibit 8(d) to
      Post-Effective Amendment No. 1 to the Registration Statement on Form N-1A
      of Merrill Lynch Focus Twenty Fund, Inc. (File No. 333-89775) filed on March
      20, 2001.</font></td>
  </tr>
</table>

<table width=600><tr>
    <td width=4% align=right valign=top><font size="1">(h) </font></td>
    <td width=2%><font size="1"></font></td><td width=94%><font size="1"> Incorporated
by reference to Exhibit 8(f) to Post-Effective Amendment No. 5  to the Registration
Statement on Form N-1A of Merrill Lynch Global  Technology Fund, Inc. (File No.
333-48929), filed on July 24, 2002.</font></td></tr></table>

<table width=600><tr>
    <td width=4% align=right valign=top><font size="1">(i) </font></td>
    <td width=2%><font size="1"></font></td>
    <td width=94%><font size="1"> Incorporated by reference to Exhibit 15 to Pre-Effective
      Amendment No. 1 to the Registration Statement on Form N-1A of Merrill Lynch
      Inflation Protected Fund (File No. 33-110936), filed on January 22, 2004.&lt;/R&gt;</font></td>
  </tr></table>

<p><table width=600><tr><td><FONT SIZE="2"><B>Item 25. &nbsp;&nbsp;<I>Marketing Arrangements</I>.</B></FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See Exhibits
(h)(1), (h)(2) and (h)3.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2"><B>Item 26. &nbsp;&nbsp;<I>Other Expenses of Issuance and
Distribution.</I></B></FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following
table sets forth the estimated expenses to be incurred in  connection with the offering
described in this Registration Statement:</font></td></tr></table>

<br>
<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
  <TR VALIGN="BOTTOM">
    <TH COLSPAN="2"></TH>
    <TH COLSPAN="2"></TH>
  </TR>
  <TR VALIGN="BOTTOM">
    <TD WIDTH="78%" ALIGN="LEFT"><font size="2">&lt;R&gt;</font></TD>
    <TD WIDTH="6%" ALIGN="LEFT">&nbsp;</TD>
    <TD WIDTH="9%" ALIGN="LEFT">&nbsp;</TD>
    <TD WIDTH="7%" ALIGN="LEFT">&nbsp;</TD>
  </TR>
  <TR VALIGN="BOTTOM">
    <TD WIDTH="78%" ALIGN="LEFT"><font size="2">Registration fees</font></TD>
    <TD WIDTH="6%" ALIGN="LEFT"><font size="2"></font></TD>
    <TD WIDTH="9%" ALIGN="LEFT"><font size="2">$&nbsp;&nbsp;38,100</font></TD>
    <TD WIDTH="7%" ALIGN="LEFT"><font size="2"></font></TD>
  </TR>
  <TR VALIGN="BOTTOM">
    <TD ALIGN="LEFT" width="78%"><font size="2">New York Stock Exchange listing
      fee</font></TD>
    <TD ALIGN="LEFT" width="6%"><font size="2"></font></TD>
    <TD ALIGN="LEFT" width="9%"><font size="2">$&nbsp;&nbsp;30,000</font></TD>
    <TD ALIGN="LEFT" width="7%"><font size="2"></font></TD>
  </TR>
  <TR VALIGN="BOTTOM">
    <TD ALIGN="LEFT" width="78%"><font size="2">Printing (other than stock certificates)</font></TD>
    <TD ALIGN="LEFT" width="6%"><font size="2"></font></TD>
    <TD ALIGN="LEFT" width="9%"><font size="2">$&nbsp;&nbsp;35,500</font></TD>
    <TD ALIGN="LEFT" width="7%"><font size="2"></font></TD>
  </TR>
  <TR VALIGN="BOTTOM">
    <TD ALIGN="LEFT" width="78%"><font size="2">Engraving and printing stock certificates</font></TD>
    <TD ALIGN="LEFT" width="6%"><font size="2"></font></TD>
    <TD ALIGN="LEFT" width="9%"><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;1,500</font></TD>
    <TD ALIGN="LEFT" width="7%"><font size="2"></font></TD>
  </TR>
  <TR VALIGN="BOTTOM">
    <TD ALIGN="LEFT" width="78%"><font size="2">Legal fees and expenses</font></TD>
    <TD ALIGN="LEFT" width="6%"><font size="2"></font></TD>
    <TD ALIGN="LEFT" width="9%"><font size="2">$235,000</font></TD>
    <TD ALIGN="LEFT" width="7%"><font size="2"></font></TD>
  </TR>
  <TR VALIGN="BOTTOM">
    <TD ALIGN="LEFT" width="78%"><font size="2">NASD fees</font></TD>
    <TD ALIGN="LEFT" width="6%"><font size="2"></font></TD>
    <TD ALIGN="LEFT" width="9%"><font size="2">$&nbsp;&nbsp;30,500</font></TD>
    <TD ALIGN="LEFT" width="7%"><font size="2"></font></TD>
  </TR>
  <TR VALIGN="BOTTOM">
    <TD ALIGN="LEFT" width="78%"><font size="2">Underwriters expense reimbursement</font></TD>
    <TD ALIGN="LEFT" width="6%"><font size="2"></font></TD>
    <TD ALIGN="LEFT" width="9%"><font size="2">$100,050</font></TD>
    <TD ALIGN="LEFT" width="7%"><font size="2"></font></TD>
  </TR>
  <TR VALIGN="BOTTOM">
    <TD ALIGN="LEFT" width="78%"><font size="2">Miscellaneous</font></TD>
    <TD ALIGN="LEFT" width="6%"><font size="2"></font></TD>
    <TD ALIGN="LEFT" width="9%"><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;4,350</font></TD>
    <TD ALIGN="LEFT" width="7%"><font size="2"></font></TD>
  </TR>
  <TR VALIGN="BOTTOM">
    <TD ALIGN="LEFT" width="78%">&nbsp;</TD>
    <TD ALIGN="LEFT" width="6%">&nbsp;</TD>
    <TD ALIGN="LEFT" width="9%">
      <hr noshade size="1">
    </TD>
    <TD ALIGN="LEFT" width="7%">&nbsp;</TD>
  </TR>
  <TR VALIGN="BOTTOM">
    <TD ALIGN="LEFT" width="78%"><font size="2">Total</font></TD>
    <TD ALIGN="LEFT" width="6%"><font size="2"></font></TD>
    <TD ALIGN="LEFT" width="9%"><font size="2">$475,000</font></TD>
    <TD ALIGN="LEFT" width="7%"><font size="2"></font></TD>
  </TR>
  <TR VALIGN="BOTTOM">
    <TD ALIGN="LEFT" width="78%">&nbsp;</TD>
    <TD ALIGN="LEFT" width="6%">&nbsp;</TD>
    <TD ALIGN="LEFT" width="9%">
      <hr noshade size="2">
    </TD>
    <TD ALIGN="LEFT" width="7%">&nbsp;</TD>
  </TR>
</TABLE>

<table width=600>
  <tr>
    <td> <font size="2">&lt;/R&gt;</font> </td>
  </tr>
</table>
<p><table width=600><tr><td><FONT SIZE="2"><B>Item 27. &nbsp;&nbsp;<I>Persons Controlled by or Under
Common Control with Registrant.</I></B></FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information in
the prospectus under the captions &#147;Investment  Advisory and Management
Arrangements&#148; and &#147;Description of Capital Stock &#151; Common  Stock&#148; and in
Note 1 to the Statement of Assets and Liabilities is incorporated  herein by reference.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2"><B>Item 28. &nbsp;&nbsp;<I>Number of Holders of Securities.</I></B></FONT></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There will be one
      record holder of the Common Stock, par value $0.10 per share, as of the
      effective date of this Registration Statement.</font></td>
  </tr></table>

<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
C-2</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td><FONT SIZE="2"><B>Item 29. &nbsp;&nbsp;<I>Indemnification.</I></B></FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reference is made
to Section 2-418 of the General Corporation Law of  the State of Maryland, Article V of
the Registrant&#146;s Articles of Incorporation,  Article VI of the Registrant&#146;s By-laws and
Section 6 of the Purchase Agreement,  which provide for indemnification.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Article VI of the
By-laws provides that each officer and director of  the Registrant shall be indemnified
by the Registrant to the full extent  permitted under the Maryland General Corporation
Law, except that such indemnity  shall not protect any such person against any liability
to the Registrant or any  stockholder thereof to which such person would otherwise be
subject by reason of  willful misfeasance, bad faith, gross negligence or reckless
disregard of the  duties involved in the conduct of his or her office. Absent a court
determination that an officer or director seeking indemnification was not liable  on the
merits or guilty of willful misfeasance, bad faith, gross negligence or  reckless
disregard of the duties involved in the conduct of his or her office,  the decision by
the Registrant to indemnify such person must be based upon the  reasonable determination
of independent legal counsel or the vote of a majority  of a quorum of non-party
independent directors, after review of the facts, that  such officer or director is not
guilty of willful misfeasance, bad faith, gross  negligence or reckless disregard of the
duties involved in the conduct of his or  her office.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each officer and
director of the Registrant claiming indemnification  within the scope of Article VI of
the By-laws shall be entitled to advances from  the Registrant for payment of the
reasonable expenses incurred by him or her in  connection with proceedings to which he or
she is a party in the manner and to  the full extent permitted under the Maryland General
Corporation Law; provided,  however, that the person seeking indemnification shall
provide to the Registrant  a written affirmation of his or her good faith belief that the
standard of  conduct necessary for the indemnification by the Registrant has been met and
a  written undertaking to repay any such advance, if it ultimately should be  determined
that the standard of conduct has not been met, and provided further  that at least one of
the following additional conditions is met: (i) the person  seeking indemnification shall
provide a security in form and amount acceptable  to the Registrant for his or her
undertaking; (ii) the Registrant is insured  against losses arising by reason of the
advance; or (iii) a majority of a quorum  of non-party independent directors, or
independent legal counsel in a written  opinion shall determine, based on a review of
facts readily available to the  Registrant at the time the advance is proposed to be
made, that there is reason  to believe that the person seeking indemnification will
ultimately be found to  be entitled to indemnification.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Registrant may
purchase insurance on behalf of an officer or  director protecting such person to the
full extent permitted under the Maryland  General Corporation Law from liability arising
from his or her activities as  officer or director of the Registrant. The Registrant;
however, may not purchase  insurance on behalf of any officer or director of the
Registrant that protects  or purports to protect such person from liability to the
Registrant or to its  stockholders to which such officer or director would otherwise be
subject by  reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her office.</font></td></tr></table>

<p><table width=600><tr>
    <td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In Section 6 of the
      Purchase Agreement relating to the securities being offered hereby, the
      Registrant agrees to indemnify Merrill Lynch and each person, if any, who
      controls Merrill </font></td>
  </tr></table>

<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
C-3</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<!-- MARKER PAGE="sheet: 4; page: 4" -->

<p><table width=600><tr><td><font size=2>Lynch within the meaning of the Securities  Act
of 1933 (the &#147;1933 Act&#148;) against certain types of civil liabilities arising  in
connection with the Registration Statement or Prospectus.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Insofar as
indemnification for liabilities arising under the 1933 Act  may be provided to directors,
officers and controlling persons of the Registrant  and Merrill Lynch, pursuant to the
foregoing provisions or otherwise, the  Registrant has been advised that, in the opinion
of the Securities and Exchange  Commission, such indemnification is against public policy
as expressed in the  1933 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 connection with any 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 1933 Act  and will be governed by the final adjudication of such issue.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2"><B>Item 30.&nbsp;&nbsp; <I>Business And Other Connections Of
The Investment Adviser.</I></B></FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FAM (the
&#147;Investment Adviser&#148;), acts as the investment adviser for a  number of
affiliated open-end and closed-end registered investment companies.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Merrill Lynch
Investment Managers, L.P. (&#147;MLIM&#148;), an affiliate of the  Investment Adviser,
acts as the investment adviser for a number of affiliated  open-end and closed-end
registered investment companies, and also acts as  sub-adviser to certain other
portfolios.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The address of
each of these registered investment companies is P.O.  Box 9011, Princeton, New Jersey
08543-9011, except that the address of Merrill  Lynch Funds for Institutions Series is
One Financial Center, 23rd Floor, Boston,  Massachusetts 02111-2665.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The address of the
Investment Adviser, MLIM, Princeton Services, Inc.  (&#147;Princeton Services&#148;) and
Princeton Administrators, L.P. (&#147;Princeton  Administrators&#148;) is also P.O. Box
9011, Princeton, New Jersey 08543-9011. The  address of Merrill Lynch and Merrill Lynch &amp; Co.,
Inc. (&#147;ML &amp; Co.&#148;) is World  Financial Center, North Tower, 250 Vesey Street,
New York, New York 10080. The  address of the Fund&#146;s transfer agent, Financial Data
Services, Inc. (&#147;FDS&#148;), is  4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Set forth below is
a list of each executive officer and partner of the  Investment Adviser indicating each
business, profession, vocation or employment  of a substantial nature in which each such
person or entity has been engaged for  the past two fiscal years for his, her or its own
account or in the capacity of  director, officer, employee, partner or trustee. Mr. Burke
is Vice President and  Treasurer of all or substantially all of the investment companies
advised by FAM  or its affiliates, and Mr. Doll is an officer of one or more such
companies.</font></td></tr></table>

<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
C-4</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;






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<p>
<p>
<table width=600>
  <tr valign="bottom">
    <td align=left><font size="2">&lt;R&gt;</font></td>
    <td align=center>&nbsp;</td>
    <td align=center>&nbsp;</td>
    <td align=center>&nbsp;</td>
    <td align=center>&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td align=center><font size=1><b>Name </b></font>
      <hr noshade size="1" width="30%">
    </td>
    <td align=center>&nbsp;&nbsp;</td>
    <td align=center><font size=1><b>Position(s) with FAM </b></font>
      <hr noshade size="1">
    </td>
    <td align=center>&nbsp;&nbsp;</td>
    <td align=center><font size=1><B>Other Substantial Business, <br>
      Profession, Vocation Or Employment </B></font>
      <hr noshade size="1" width="50%">
    </td>
  </tr>
  <tr valign="top" align="left">
    <td><font size="2">ML &amp; Co. </font></td>
    <td><font size="2"></font></td>
    <td><font size="2">Limited Partner </font></td>
    <td><font size="2"></font></td>
    <td><font size="2">Financial Services Holding Company; Limited Partner of
      MLIM </font></td>
  </tr>
  <tr valign="top" align="left">
    <td>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top" align="left">
    <td><font size=2>Princeton Services </font></td>
    <td>&nbsp;</td>
    <td><font size=2>General Partner </font></td>
    <td>&nbsp;</td>
    <td><font size=2>General Partner of MLIM </font></td>
  </tr>
  <tr valign="top" align="left">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top" align="left">
    <td><font size=2>Robert C. Doll, Jr. </font></td>
    <td>&nbsp;</td>
    <td><font size=2>President </font></td>
    <td>&nbsp;</td>
    <td><font size=2>President of MLIM; Co-Head (Americas Region) of MLIM from
      2000 to 2001 and Senior Vice President thereof from 1999 to 2000; Director
      of Princeton Services; Chief Investment Officer of OppenheimerFunds, Inc.
      in 1999 and Executive Vice President thereof from 1991 to 1999 </font></td>
  </tr>
  <tr valign="top" align="left">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top" align="left">
    <td><font size=2>Donald C. Burke </font></td>
    <td>&nbsp;</td>
    <td><font size=2>First Vice President and Treasurer </font></td>
    <td>&nbsp;</td>
    <td><font size=2>First Vice President, Treasurer and Director of Taxation
      of MLIM; Treasurer of Princeton Services; Senior Vice President and Treasurer
      of Princeton Services from 1997 to 2002; Vice President of FAMD; Senior
      Vice President of MLIM from 1999 to 2000; First Vice President of MLIM from
      1997 to 1999 </font></td>
  </tr>
  <tr valign="top" align="left">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top" align="left">
    <td><font size=2>Andrew J. Donohue </font></td>
    <td>&nbsp;</td>
    <td><font size=2>General Counsel </font></td>
    <td>&nbsp;</td>
    <td><font size=2>General Counsel and Senior Vice President of MLIM and Princeton
      Services </font></td>
  </tr>
  <tr valign="top" align="left">
    <td><font size="2">&lt;/R&gt;</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>


<p>
<p>
<p>
<p>
<p><table width=600><tr><td><FONT SIZE="2"><B>Item 31. &nbsp;&nbsp;<I>Location of Account and Records.</I></B></FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All accounts,
books and other documents required to be maintained by  Section 31(a) of the Investment
Company Act of 1940, as amended, and the Rules  promulgated thereunder are maintained at
the offices of the Registrant (800  Scudders Mill Road, Plainsboro, New Jersey 08536),
its investment adviser (800  Scudders Mill Road, Plainsboro, New Jersey 08536), and its
custodian and  transfer agent.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2"><B>Item 32. &nbsp;&nbsp;<I>Management Services.</I></B></FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.</font></td></tr></table>

<p><table width=600><tr><td><FONT SIZE="2"><B>Item 33. &nbsp;&nbsp;<I>Undertakings.</I></B></FONT></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The Registrant
undertakes to suspend the offering of the shares of  common stock covered hereby until it
amends its prospectus contained herein (1)  subsequent to the effective date of this
Registration Statement, its net asset  value per share of common stock declines more than
10% from its net asset value  per share of common stock as of the effective date of this
Registration  Statement, or (2) its net asset value per share of common stock increases
to an  amount greater than its net proceeds as stated in the prospectus contained  herein.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The Registrant
undertakes that:</font></td></tr></table>

<p><table width=600>
<tr><td width=30>&nbsp;</td>
<td width=570><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)
For purposes of determining any liability under the 1933  Act, the information omitted
from the form of prospectus filed as part  of this Registration Statement in reliance
upon Rule 430A and contained  in the form of prospectus filed by the registrant pursuant
to Rule  497(h) under the 1933 Act shall be deemed to be part of this  Registration
Statement as of the time it was declared effective.</font></td></tr></table>

<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
C-5</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<!-- MARKER PAGE="sheet: 6; page: 6" -->

<p><table width=600>
<tr><td width=30>&nbsp;</td>
<td width=570><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)
For the purpose of determining any liability under the  1933 Act, each post-effective
amendment that contains a form of  prospectus shall be deemed to be a new registration
statement relating  to the securities offered therein, and the offering of such
securities  at that time shall be deemed to be the initial bona fide offering  thereof.</font></td></tr></table>

<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
C-6</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;





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<p><table width=600><tr><td  align=center><font size=2><B>SIGNATURES</B></font></td></tr></table>

<p><table width=600><tr>
    <td><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>&lt;R&gt;Pursuant to the
      requirements of the Securities Act of 1933 and the Investment Company Act
      of 1940, the Registrant has duly caused this Registration Statement to be
      signed on its behalf by the undersigned, thereunto duly authorized, in the
      Township of Plainsboro, and State of New Jersey, on the 27th day of April,
      2004.&lt;/R&gt;</B></FONT></td>
  </tr></table>

<p>
<table width=600>
  <tr>
    <td width=301>&nbsp;</td>
    <td colspan="2"><font size=2>C<font size="1">APITAL AND</font> I<font size="1">NCOME</font>
      S<font size="1">TRATEGIES</font> F<font size="1">UND</font>, I<font size="1">NC</font>.
      </font></td>
  </tr>
  <tr>
    <td width=301>&nbsp;</td>
    <td colspan="2" align="center"><font size=2>(Registrant)<br>
      </font></td>
  </tr>
  <tr>
    <td width=301>&nbsp;</td>
    <td width=30 valign="top"><font size=2>By:</font></td>
    <td width=253 valign="top" align="center"> <font size=2> /s/ T<font size="1">ERRY</font>
      K. G<font size="1">LENN</font></font>
      <hr noshade size="1">
      <font size=2> <b><font size="1">(Terry K. Glenn, President)</font></b></font>
    </td>
  </tr>
</table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each person whose
signature appears below hereby authorizes Terry K.  Glenn, Donald C. Burke and Phillip S.
Gillespie, or any of them, as  attorney-in-fact, to sign on his or her behalf,
individually and in each  capacity stated below, any amendments to this Registration
Statement (including  any Post-Effective Amendments) and to file the same, with all
exhibits thereto,  with the Securities and Exchange Commission.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the
requirements of the Securities Act of 1933, this  Registration Statement has been signed
below by the following person in the  capacities and on the dates indicated.</font></td></tr></table>

<p>
<p>
<table width=600>
  <tr>
    <td align=left width="245"><font size="2"></font></td>
    <td align=center width="11">&nbsp;</td>
    <td align=center width="180">&nbsp;</td>
    <td align=center width="10">&nbsp;</td>
    <td align=center width="130">&nbsp;</td>
  </tr>
  <tr>
    <td align=center width="245"><font size=1><b>Signature </b></font>
      <hr noshade size="1" width="25%">
    </td>
    <td align=center width="11">&nbsp;&nbsp;</td>
    <td align=center width="180"><font size=1><b>Title</b></font>
      <hr noshade size="1" width="15%">
    </td>
    <td align=center width="10">&nbsp;&nbsp;</td>
    <td align=center width="130"><font size=1><B>Date</B></font>
      <hr noshade size="1" width="20%">
    </td>
  </tr>
  <tr>
    <td align=center width="245"><font size=2>/s/ T<font size="1">ERRY</font>
      K. G<font size="1">LENN</font> <br>
      </font>
      <hr noshade size="1">
      <font size=2> <font size="1"><b>(Terry K. Glenn) </b></font></font></td>
    <td align=center width="11">&nbsp;</td>
    <td align=center width="180"><font size=2>President (Principal Executive <br>
      Officer) and Director </font></td>
    <td align=center width="10">&nbsp;</td>
    <td align=center width="130"><font size=2>&lt;R&gt;April 27, 2004&lt;/R&gt;</font></td>
  </tr>
  <tr>
    <td align=center width="245">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
    <td align=center width="11">&nbsp;</td>
    <td align=center width="180">&nbsp;</td>
    <td align=center width="10">&nbsp;</td>
    <td align=center width="130">&nbsp;</td>
  </tr>
  <tr>
    <td align=center width="245"><font size=2>/s/ D<font size="1">ONALD</font>
      C. B<font size="1">URKE</font><br>
      </font>
      <hr noshade size="1">
      <font size=2> <font size="1"><b>(Donald C. Burke) </b></font></font></td>
    <td align=center width="11">&nbsp;</td>
    <td align=center width="180"><font size=2>Vice President and Treasurer<br>
      (Principal Financial and <br>
      Accounting Officer) </font></td>
    <td align=center width="10">&nbsp;</td>
    <td align=center width="130"><font size=2>&lt;R&gt;April 27, 2004&lt;/R&gt;</font></td>
  </tr>
  <tr>
    <td align=center width="245">&nbsp;</td>
    <td align=center width="11">&nbsp;</td>
    <td align=center width="180">&nbsp;</td>
    <td align=center width="10">&nbsp;</td>
    <td align=center width="130">&nbsp;</td>
  </tr>
  <tr>
    <td align=center width="245"><font size=2>/s/ D<font size="1">AVID</font>
      O. B<font size="1">EIM</font><br>
      </font>
      <hr noshade size="1">
      <font size=2> <font size="1"><b>(David O. Beim) </b></font></font></td>
    <td align=center width="11">&nbsp;</td>
    <td align=center width="180"><font size=2>Director </font></td>
    <td align=center width="10">&nbsp;</td>
    <td align=center width="130"><font size=2>&lt;R&gt;April 27, 2004&lt;/R&gt;</font></td>
  </tr>
  <tr>
    <td align=center width="245">&nbsp;</td>
    <td align=center width="11">&nbsp;</td>
    <td align=center width="180">&nbsp;</td>
    <td align=center width="10">&nbsp;</td>
    <td align=center width="130">&nbsp;</td>
  </tr>
  <tr>
    <td align=center width="245"><font size=2>/s/ J<font size="1">AMES</font>
      T. F<font size="1">LYNN</font><br>
      </font>
      <hr noshade size="1">
      <font size=2> <font size="1"><b>(James T. Flynn) </b></font></font></td>
    <td align=center width="11">&nbsp;</td>
    <td align=center width="180"><font size=2>Director </font></td>
    <td align=center width="10">&nbsp;</td>
    <td align=center width="130"><font size=2>&lt;R&gt;April 27, 2004&lt;/R&gt;</font></td>
  </tr>
  <tr>
    <td align=center width="245">&nbsp;</td>
    <td align=center width="11">&nbsp;</td>
    <td align=center width="180">&nbsp;</td>
    <td align=center width="10">&nbsp;</td>
    <td align=center width="130">&nbsp;</td>
  </tr>
  <tr>
    <td align=center width="245"><font size=2>/s/ W. C<font size="1">ARL</font>
      K<font size="1">ESTER</font><br>
      <b><font size="1"> </font></b></font>
      <hr noshade size="1">
      <font size=2><b><font size="1">(W. Carl Kester) </font></b></font></td>
    <td align=center width="11">&nbsp;</td>
    <td align=center width="180"><font size=2>Director </font></td>
    <td align=center width="10">&nbsp;</td>
    <td align=center width="130"><font size=2>&lt;R&gt;April 27, 2004&lt;/R&gt;</font></td>
  </tr>
  <tr>
    <td align=center width="245">&nbsp;</td>
    <td align=center width="11">&nbsp;</td>
    <td align=center width="180">&nbsp;</td>
    <td align=center width="10">&nbsp;</td>
    <td align=center width="130">&nbsp;</td>
  </tr>
  <tr>
    <td align=center width="245"><font size=2>/s/ K<font size="1">AREN</font>
      P. R<font size="1">OBARDS</font><br>
      </font>
      <hr noshade size="1">
      <font size=2> <font size="1"><b>(Karen P. Robards) </b></font></font></td>
    <td align=center width="11">&nbsp;</td>
    <td align=center width="180"><font size=2>Director </font></td>
    <td align=center width="10">&nbsp;</td>
    <td align=center width="130"><font size=2>&lt;R&gt;April 27, 2004&lt;/R&gt;</font></td>
  </tr>
  <tr>
    <td align=left width="245"><font size="2"></font></td>
    <td align=center width="11">&nbsp;</td>
    <td align=center width="180">&nbsp;</td>
    <td align=center width="10">&nbsp;</td>
    <td align=center width="130">&nbsp;</td>
  </tr>
</table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
C-7</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;






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<p><table width=600><tr><td  align=center><font size=2><B>EXHIBIT INDEX</B></font></td></tr></table>

<br>
<table width=600>
  <tr>
    <td width=5% align=right valign=top><font size="2">&lt;R&gt;</font></td>
    <td width=5% align=left valign=top>&nbsp;</td>
    <td width=5% align=center valign=top>&nbsp;</td>
    <td width=85%>&nbsp;</td>
  </tr>
  <tr>
    <td width=5% align=right valign=top><font size="2">(k)</font></td>
    <td width=5% align=left valign=top><font size="2">(1)</font></td>
    <td width=5% align=center valign=top>&#151;</td>
    <td width=85%><font size="2">Form of Stock Transfer Agency Agreement between
      the Registrant and The Bank of New York.</font></td>
  </tr>
  <tr>
    <td width=5% align=right valign=top><font size="2">(l)</font></td>
    <td width=5% align=left valign=top><font size="2"> </font></td>
    <td width=5% align=center valign=top>&#151;<font size="2"></font></td>
    <td width=85%><font size="2">Opinion and Consent of Sidley Austin Brown &amp;
      Wood <font size="1">LLP</font>.</font></td>
  </tr>
</table>

<table width=600>
  <tr>
    <td width=5% align=right valign=top><font size="2">(n)</font></td>
    <td width=5% align=left valign=top>&nbsp;</td>
    <td width=5% align=center valign=top>&#151;<font size="2"></font></td>
    <td width=85%><font size="2">Consent of Deloitte &amp; Touche <font size="1">LLP</font>.</font></td>
  </tr>
</table>

<table width=600>
  <tr>
    <td width=5% align=right valign=top><font size="2">(p)</font></td>
    <td width=5% align=left valign=top>&nbsp;</td>
    <td width=5% align=center valign=top>&#151;<font size="2"></font></td>
    <td width=85%><font size="2">Certificate of Fund Asset Management, L.P.&lt;/R&gt;</font></td>
  </tr>
</table>

<p>&nbsp;
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<DOCUMENT>
<TYPE>EX-99.(K)(1)
<SEQUENCE>2
<FILENAME>e17503ex99k1.txt
<DESCRIPTION>STOCK TRANSFER AGENCY AGREEMENT
<TEXT>

                                                                  EXHIBIT (K)(1)

- --------------------------------------------------------------------------------




                         STOCK TRANSFER AGENCY AGREEMENT


                                     between


                    CAPITAL AND INCOME STRATEGIES FUND, INC.


                                       and


                              THE BANK OF NEW YORK


                           Dated as of April 12, 2004





- --------------------------------------------------------------------------------


<PAGE>

                         STOCK TRANSFER AGENCY AGREEMENT

     AGREEMENT, made as of ___________ ___, ______, by and between Capital and
Income Strategies Fund, Inc., a corporation organized and existing under the
laws of the State of Maryland (hereinafter referred to as the "Customer"), and
THE BANK OF NEW YORK, a New York trust company (hereinafter referred to as the
"Bank").

                              W I T N E S S E T H:

      That for and in consideration of the mutual promises hereinafter set
forth, the parties hereto covenant and agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

      Whenever used in this Agreement, the following words and phrases shall
have the following meanings:

      1. "Business Day" shall be deemed to be each day on which the Bank is open
for business.

      2. "Certificate" shall mean any notice, instruction, or other instrument
in writing, authorized or required by this Agreement to be given to the Bank by
the Customer which is signed by any Officer, as hereinafter defined, and
actually received by the Bank.

      3. "Officer" shall be deemed to be the Customer's Chief Executive Officer,
President, any Vice President, the Secretary, the Treasurer, the Controller, any
Assistant Treasurer, and any Assistant Secretary duly authorized by the Board of
Directors of the Customer to execute any Certificate, instruction, notice or
other instrument on behalf of the Customer and named in a Certificate, as such
Certificate may be amended from time to time.

      4. "Shares" shall mean all or any part of each class of the shares of
capital stock of the Customer which from time to time are authorized and/or
issued by the Customer and identified in a Certificate of the Secretary of the
Customer under corporate seal, as such Certificate may be amended from time to
time, with respect to which the Bank is to act hereunder.

                                   ARTICLE II
                              APPOINTMENT OF BANK

      1. The Customer hereby constitutes and appoints the Bank as its agent to
perform the services described herein and as more particularly described in
Schedule I attached hereto (the


<PAGE>

                                      -2-

"Services"), and the Bank hereby accepts appointment as such agent and agrees to
perform the Services in accordance with the terms hereinafter set forth.

      2. In connection with such appointment, the Customer shall deliver the
following documents to the Bank:

      (a)   A certified copy of the Certificate of Incorporation or other
            document evidencing the Customer's form of organization (the
            "Charter") and all amendments thereto;

      (b)   A certified copy of the By-Laws of the Customer;

      (c)   A certified copy of a resolution of the Board of Directors of the
            Customer appointing the Bank to perform the Services and authorizing
            the execution and delivery of this Agreement;

      (d)   A Certificate signed by the Secretary of the Customer specifying:
            the number of authorized Shares, the number of such authorized
            Shares issued and currently outstanding, and the names and specimen
            signatures of all persons duly authorized by the Board of Directors
            of the Customer to execute any Certificate on behalf of the
            Customer, as such Certificate may be amended from time to time;

      (e)   A Specimen Share certificate for each class of Shares in the form
            approved by the Board of Directors of the Customer, together with a
            Certificate signed by the Secretary of the Customer as to such
            approval and covenanting to supply a new such Certificate and
            specimen whenever such form shall change;

      (f)   An opinion of counsel for the Customer, in a form satisfactory to
            the Bank, with respect to the validity of the authorized and
            outstanding Shares, the obtaining of all necessary governmental
            consents, whether such Shares are fully paid and non-assessable and
            the status of such Shares under the Securities Act of 1933, as
            amended, and any other applicable law or regulation (i.e., if
            subject to registration, that they have been registered and that the
            Registration Statement has become effective or, if exempt, the
            specific grounds therefor);

      (g)   A list of the name, address, social security or taxpayer
            identification number of each Shareholder, number of Shares owned,
            certificate numbers, and whether any "stops" have been placed; and


<PAGE>

                                      -3-

      (h)   An opinion of counsel for the Customer, in a form satisfactory to
            the Bank, with respect to the due authorization by the Customer and
            the validity and effectiveness of the use of facsimile signatures by
            the Bank in connection with the countersigning and registering of
            Share certificates of the Customer.

      3.    The Customer shall furnish the Bank with a sufficient supply of
            blank Share certificates and from time to time will renew such
            supply upon request of the Bank. Such blank Share certificates shall
            be properly signed, by facsimile or otherwise, by Officers of the
            Customer authorized by law or by the By-Laws to sign Share
            certificates, and, if required, shall bear the corporate seal or a
            facsimile thereof.

                                  ARTICLE III
                      AUTHORIZATION AND ISSUANCE OF SHARES

      1. The Customer shall deliver to the Bank the following documents on or
before the effective date of any increase, decrease or other change in the total
number of Shares authorized to be issued:

      (a)   A certified copy of the amendment to the Charter giving effect to
            such increase, decrease or change;

      (b)   An opinion of counsel for the Customer, in a form satisfactory to
            the Bank, with respect to the validity of the Shares, the obtaining
            of all necessary governmental consents, whether such Shares are
            fully paid and non-assessable and the status of such Shares under
            the Securities Act of 1933, as amended, and any other applicable
            federal law or regulations (i.e., if subject to registration, that
            they have been registered and that the Registration Statement has
            become effective or, if exempt, the specific grounds therefor); and

      (c)   In the case of an increase, if the appointment of the Bank was
            theretofore expressly limited, a certified copy of a resolution of
            the Board of Directors of the Customer increasing the authority of
            the Bank.

      2. Prior to the issuance of any additional Shares pursuant to stock
dividends, stock splits or otherwise, and prior to any reduction in the number
of Shares outstanding, the Customer shall deliver the following documents to the
Bank:

      (a)   A certified copy of the resolutions adopted by the Board of
            Directors and/or the shareholders of the Customer authorizing such
            issuance of additional Shares of the Customer or such reduction, as
            the case may be;


<PAGE>

                                      -4-

      (b)   A certified copy of the order or consent of each governmental or
            regulatory authority required by law as a prerequisite to the
            issuance or reduction of such Shares, as the case may be, and an
            opinion of counsel for the Customer that no other order or consent
            is required; and

      (c)   An opinion of counsel for the Customer, in a form satisfactory to
            the Bank, with respect to the validity of the Shares, the obtaining
            of all necessary governmental consents, whether such Shares are
            fully paid and non-assessable and the status of such Shares under
            the Securities Act of 1933, as amended, and any other applicable law
            or regulation (i.e., if subject to registration, that they have been
            registered and that the Registration Statement has become effective,
            or, if exempt, the specific grounds therefor).

                                   ARTICLE IV
                     RECAPITALIZATION OR CAPITAL ADJUSTMENT

      1.    In the case of any negative stock split, recapitalization or other
            capital adjustment requiring a change in the form of Share
            certificates, the Bank will issue Share certificates in the new form
            in exchange for, or upon transfer of, outstanding Share certificates
            in the old form, upon receiving:

      (a)   A Certificate authorizing the issuance of Share certificates in the
            new form;

      (b)   A certified copy of any amendment to the Charter with respect to the
            change;

      (c)   Specimen Share certificates for each class of Shares in the new form
            approved by the Board of Directors of the Customer, with a
            Certificate signed by the Secretary of the Customer as to such
            approval;

      (d)   A certified copy of the order or consent of each governmental or
            regulatory authority required by law as a prerequisite to the
            issuance of the Shares in the new form, and an opinion of counsel
            for the Customer that the order or consent of no other governmental
            or regulatory authority is required; and

      (e)   An opinion of counsel for the Customer, in a form satisfactory to
            the Bank, with respect to the validity of the Shares in the new
            form, the obtaining of all necessary governmental consents, whether
            such Shares are fully paid and non-assessable and the status of such
            Shares under the Securities Act of 1933, as amended, and any other
            applicable law or regulation


<PAGE>
                                      -5-

            (i.e., if subject to registration, that the Shares have been
            registered and that the Registration Statement has become effective
            or, if exempt, the specific grounds therefor).

      2. The Customer shall furnish the Bank with a sufficient supply of blank
Share certificates in the new form, and from time to time will replenish such
supply upon the request of the Bank. Such blank Share certificates shall be
properly signed, by facsimile or otherwise, by Officers of the Customer
authorized by law or by the By-Laws to sign Share certificates and, if required,
shall bear the corporate seal or a facsimile thereof.

                                    ARTICLE V
                         ISSUANCE AND TRANSFER OF SHARES

      1. The Bank will issue Share certificates upon receipt of a Certificate
from an Officer, but shall not be required to issue Share certificates after it
has received from an appropriate federal or state authority written notification
that the sale of Shares has been suspended or discontinued, and the Bank shall
be entitled to rely upon such written notification. The Bank shall not be
responsible for the payment of any original issue or other taxes required to be
paid by the Customer in connection with the issuance of any Shares.

      2. Shares will be transferred upon presentation to the Bank of Share
certificates in form deemed by the Bank properly endorsed for transfer,
accompanied by such documents as the Bank deems necessary to evidence the
authority of the person making such transfer, and bearing satisfactory evidence
of the payment of applicable stock transfer taxes. In the case of small estates
where no administration is contemplated, the Bank may, when furnished with an
appropriate surety bond, and without further approval of the Customer, transfer
Shares registered in the name of the decedent where the current market value of
the Shares being transferred does not exceed such amount as may from time to
time be prescribed by the various states. The Bank reserves the right to refuse
to transfer Shares until it is satisfied that the endorsements on Share
certificates are valid and genuine, and for that purpose it may require, unless
otherwise instructed by an Officer of the Customer, a guaranty of signature by
an "eligible guarantor institution" meeting the requirements of the Bank, which
requirements include membership or participation in STAMP or such other
"signature guarantee program" as may be determined by the Bank in addition to,
or in substitution for, STAMP, all in accordance with the Securities Exchange
Act of 1934, as amended. The Bank also reserves the right to refuse to transfer
Shares until it is satisfied that the requested transfer is legally authorized,
and it shall incur no liability for the refusal in good faith to make transfers
which the Bank, in its judgment, deems improper or unauthorized, or until it is
satisfied that there is no basis to any claims adverse to such transfer. The


<PAGE>
                                      -6-

Bank may, in effecting transfers of Shares, rely upon those provisions of the
Uniform Act for the Simplification of Fiduciary Security Transfers or the
Uniform Commercial Code, as the same may be amended from time to time,
applicable to the transfer of securities, and the Customer shall indemnify the
Bank for any act done or omitted by it in good faith in reliance upon such laws.

      3. All certificates representing Shares that are subject to restrictions
on transfer (e.g., securities acquired pursuant to an investment representation,
securities held by controlling persons, securities subject to stockholders'
agreement, etc.), shall be stamped with a legend describing the extent and
conditions of the restrictions or referring to the source of such restrictions.
The Bank assumes no responsibility with respect to the transfer of restricted
securities where counsel for the Customer advises that such transfer may be
properly effected.

                                   ARTICLE VI
                           DIVIDENDS AND DISTRIBUTIONS

      1. The Customer shall furnish to the Bank a copy of a resolution of its
Board of Directors, certified by the Secretary or any Assistant Secretary,
either (i) setting forth the date of the declaration of a dividend or
distribution, the date of accrual or payment, as the case may be, the record
date as of which shareholders entitled to payment, or accrual, as the case may
be, shall be determined, the amount per Share of such dividend or distribution,
the payment date on which all previously accrued and unpaid dividends are to be
paid, and the total amount, if any, payable to the Bank on such payment date, or
(ii) authorizing the declaration of dividends and distributions on a periodic
basis and authorizing the Bank to rely on a Certificate setting forth the
information described in subsection (i) of this paragraph.

      2. Prior to the payment date specified in such Certificate or resolution,
as the case may be, the Customer shall, in the case of a cash dividend or
distribution, pay to the Bank an amount of cash, sufficient for the Bank to make
the payment, specified in such Certificate or resolution, to the shareholders of
record as of such payment date. The Bank will, upon receipt of any such cash,
(i) in the case of shareholders who are participants in a dividend reinvestment
and/or cash purchase plan of the Customer, reinvest such cash dividends or
distributions in accordance with the terms of such plan, and (ii) in the case of
shareholders who are not participants in any such plan, make payment of such
cash dividends or distributions to the shareholders of record as of the record
date by mailing a check, payable to the registered shareholder, to the address
of record or dividend mailing address. The Bank shall not be liable for any
improper payment made in accordance with a Certificate or resolution described
in the preceding paragraph. If the Bank


<PAGE>
                                      -7-

shall not receive sufficient cash prior to the payment date to make payments of
any cash dividend or distribution pursuant to subsections (i) and (ii) above to
all shareholders of the Customer as of the record date, the Bank shall, upon
notifying the Customer, withhold payment to all shareholders of the Customer as
of the record date until sufficient cash is provided to the Bank.

      3. It is understood that the Bank shall in no way be responsible for the
determination of the rate or form of dividends or distributions due to the
shareholders.

      4. It is understood that the Bank shall file such appropriate information
returns concerning the payment of dividends and distributions with the proper
federal, state and local authorities as are required by law to be filed by the
Customer but shall in no way be responsible for the collection or withholding of
taxes due on such dividends or distributions due to shareholders, except and
only to the extent required of it by applicable law.

                                   ARTICLE VII
                             CONCERNING THE CUSTOMER

      1. The Customer shall promptly deliver to the Bank written notice of any
change in the Officers authorized to sign Share certificates, Certificates,
notifications or requests, together with a specimen signature of each new
Officer. In the event any Officer who shall have signed manually or whose
facsimile signature shall have been affixed to blank Share certificates shall
die, resign or be removed prior to issuance of such Share certificates, the Bank
may issue such Share certificates as the Share certificates of the Customer
notwithstanding such death, resignation or removal, and the Customer shall
promptly deliver to the Bank such approvals, adoptions or ratifications as may
be required by law.

      2. Each copy of the Charter of the Customer and copies of all amendments
thereto shall be certified by the Secretary of State (or other appropriate
official) of the state of incorporation, and if such Charter and/or amendments
are required by law also to be filed with a county or other officer or official
body, a certificate of such filing shall be filed with a certified copy
submitted to the Bank. Each copy of the By-Laws and copies of all amendments
thereto, and copies of resolutions of the Board of Directors of the Customer,
shall be certified by the Secretary or an Assistant Secretary of the Customer
under the corporate seal.

      3. Customer hereby represents and warrants:

      (a)   It is a corporation duly organized and validly existing under the
            laws of the state of Maryland.


<PAGE>
                                      -8-

      (b)   This Agreement has been duly authorized, executed and delivered on
            its behalf and constitutes the legal, valid and binding obligation
            of Customer. The execution, delivery and performance of this
            Agreement by Customer do not and will not violate any applicable law
            or regulation and do not require the consent of any governmental or
            other regulatory body except for such consents and approvals as have
            been obtained and are in full force and effect.

                                  ARTICLE VIII
                               CONCERNING THE BANK

      1. The Bank shall not be liable and shall be fully protected in acting
upon any oral instruction, writing or document reasonably believed by it to be
genuine and to have been given, signed or made by the proper person or persons
and shall not be held to have any notice of any change of authority of any
person until receipt of written notice thereof from an Officer of the Customer.
It shall also be protected in processing Share certificates which it reasonably
believes to bear the proper manual or facsimile signatures of the duly
authorized Officer or Officers of the Customer and the proper countersignature
of the Bank.

      2. The Bank may establish such additional procedures, rules and
regulations governing the transfer or registration of Share certificates as it
may deem advisable and consistent with such rules and regulations generally
adopted by bank transfer agents.

      3. The Bank may keep such records as it deems advisable but not
inconsistent with resolutions adopted by the Board of Directors of the Customer.
The Bank may deliver to the Customer from time to time at its discretion, for
safekeeping or disposition by the Customer in accordance with law, such records,
papers, Share certificates which have been cancelled in transfer or exchange and
other documents accumulated in the execution of its duties hereunder as the Bank
may deem expedient, other than those which the Bank is itself required to
maintain pursuant to applicable laws and regulations, and the Customer shall
assume all responsibility for any failure thereafter to produce any record,
paper, cancelled Share certificate or other document so returned, if and when
required. The records maintained by the Bank pursuant to this paragraph which
have not been previously delivered to the Customer pursuant to the foregoing
provisions of this paragraph shall be considered to be the property of the
Customer, shall be made available upon request for inspection by the Officers,
employees and auditors of the Customer, and shall be delivered to the Customer
upon request and in any event upon the date of termination of this Agreement, as
specified in Article IX of this Agreement, in the form and manner kept by the


<PAGE>
                                      -9-

Bank on such date of termination or such earlier date as may be requested by the
Customer.

      4. The Bank may employ agents or attorneys-in-fact at the expense of the
Customer, and shall not be liable for any loss or expense arising out of, or in
connection with, the actions or omissions to act of its agents or
attorneys-in-fact, so long as the Bank acts in good faith and without negligence
or willful misconduct in connection with the selection of such agents or
attorneys-in-fact.

      5. The Bank shall only be liable for any loss or damage arising out of its
own negligence or willful misconduct; provided, however, that the Bank shall not
be liable for any indirect, special, punitive or consequential damages.

      6. The Customer shall indemnify and hold harmless the Bank from and
against any and all claims (whether with or without basis in fact or law),
costs, demands, expenses and liabilities, including reasonable attorney's fees,
which the Bank may sustain or incur or which may be asserted against the Bank
except for any liability which the Bank has assumed pursuant to the immediately
preceding section. The Bank shall be deemed not to have acted with negligence
and not to have engaged in willful misconduct by reason of or as a result of any
action taken or omitted to be taken by the Bank without its own negligence or
willful misconduct in reliance upon (i) any provision of this Agreement, (ii)
any instrument, order or Share certificate reasonably believed by it to be
genuine and to be signed, countersigned or executed by any duly authorized
Officer of the Customer, (iii) any Certificate or other instructions of an
Officer, (iv) any opinion of legal counsel for the Customer or the Bank, or (v)
any law, act, regulation or any interpretation of the same even though such law,
act, or regulation may thereafter have been altered, changed, amended or
repealed. Nothing contained herein shall limit or in any way impair the right of
the Bank to indemnification under any other provision of this Agreement.

      7. Specifically, but not by way of limitation, the Customer shall
indemnify and hold harmless the Bank from and against any and all claims
(whether with or without basis in fact or law), costs, demands, expenses and
liabilities, including reasonable attorney's fees, of any and every nature which
the Bank may sustain or incur or which may be asserted against the Bank in
connection with the genuineness of a Share certificate, the Bank's due
authorization by the Customer to issue Shares and the form and amount of
authorized Shares.

      8. The Bank shall not incur any liability hereunder if by reason of any
act of God or war or other circumstances beyond its control, it, or its
employees, officers or directors shall be prevented, delayed or forbidden from,
or be subject to any civil or criminal penalty on account of, doing or
performing any act or


<PAGE>
                                      -10-

thing which by the terms of this Agreement it is provided shall be done or
performed or by reason of any nonperformance or delay, caused as aforesaid, in
the performance of any act or thing which by the terms of this Agreement it is
provided shall or may be done or performed.

      9. At any time the Bank may apply to an Officer of the Customer for
written instructions with respect to any matter arising in connection with the
Bank's duties and obligations under this Agreement, and the Bank shall not be
liable for any action taken or omitted to be taken by the Bank in good faith in
accordance with such instructions. Such application by the Bank for instructions
from an Officer of the Customer may, at the option of the Bank, set forth in
writing any action proposed to be taken or omitted to be taken by the Bank with
respect to its duties or obligations under this Agreement and the date on and/or
after which such action shall be taken, and the Bank shall not be liable for any
action taken or omitted to be taken in accordance with a proposal included in
any such application on or after the date specified therein unless, prior to
taking or omitting to take any such action, the Bank has received written
instructions in response to such application specifying the action to be taken
or omitted. The Bank may consult counsel to the Customer or its own counsel, at
the expense of the Customer, and shall be fully protected with respect to
anything done or omitted by it in good faith in accordance with the advice or
opinion of such counsel.

      10. When mail is used for delivery of non-negotiable Share certificates,
the value of which does not exceed the limits of the Bank's Blanket Bond, the
Bank shall send such non-negotiable Share certificates by first class mail, and
such deliveries will be covered while in transit by the Bank's Blanket Bond.
Non-negotiable Share certificates, the value of which exceed the limits of the
Bank's Blanket Bond, will be sent by insured registered mail. Negotiable Share
certificates will be sent by insured registered mail. The Bank shall advise the
Customer of any Share certificates returned as undeliverable after being mailed
as herein provided for.

      11. The Bank may issue new Share certificates in place of Share
certificates represented to have been lost, stolen or destroyed upon receiving
instructions in writing from an Officer and indemnity satisfactory to the Bank.
Such instructions from the Customer shall be in such form as approved by the
Board of Directors of the Customer in accordance with applicable law or the
By-Laws of the Customer governing such matters. If the Bank receives written
notification from the owner of the lost, stolen or destroyed Share certificate
within a reasonable time after he has notice of it, the Bank shall promptly
notify the Customer and shall act pursuant to written instructions signed by an
Officer. If the Customer receives such written notification from the owner of
the lost, stolen or destroyed Share certificate within a reasonable time after
he has notice of it, the Customer shall


<PAGE>
                                      -11-

promptly notify the Bank and the Bank shall act pursuant to written instructions
signed by an Officer. The Bank shall not be liable for any act done or omitted
by it pursuant to the written instructions described herein. The Bank may issue
new Share certificates in exchange for, and upon surrender of, mutilated Share
certificates.

      12. The Bank will issue and mail subscription warrants for Shares, Shares
representing stock dividends, exchanges or splits, or act as conversion agent
upon receiving written instructions from an Officer and such other documents as
the Bank may deem necessary.

      13. The Bank will supply shareholder lists to the Customer from time to
time upon receiving a request therefor from an Officer of the Customer.

      14. In case of any requests or demands for the inspection of the
shareholder records of the Customer, the Bank will notify the Customer and
endeavor to secure instructions from an Officer as to such inspection. The Bank
reserves the right, however, to exhibit the shareholder records to any person
whenever it is advised by its counsel that there is a reasonable likelihood that
the Bank will be held liable for the failure to exhibit the shareholder records
to such person.

      15. At the request of an Officer, the Bank will address and mail such
appropriate notices to shareholders as the Customer may direct.

      16. Notwithstanding any provisions of this Agreement to the contrary, the
Bank shall be under no duty or obligation to inquire into, and shall not be
liable for:

      (a)   The legality of the issue, sale or transfer of any Shares, the
            sufficiency of the amount to be received in connection therewith, or
            the authority of the Customer to request such issuance, sale or
            transfer;

      (b)   The legality of the purchase of any Shares, the sufficiency of the
            amount to be paid in connection therewith, or the authority of the
            Customer to request such purchase;

      (c)   The legality of the declaration of any dividend by the Customer, or
            the legality of the issue of any Shares in payment of any stock
            dividend; or

      (d)   The legality of any recapitalization or readjustment of the Shares.

      17. The Bank shall be entitled to receive and the Customer hereby agrees
to pay to the Bank for its performance hereunder


<PAGE>
                                      -12-

(i) out-of-pocket expenses (including legal expenses and attorney's fees)
incurred in connection with this Agreement and its performance hereunder, and
(ii) the compensation for services as set forth in Schedule I.

      18. The Bank shall not be responsible for any money, whether or not
represented by any check, draft or other instrument for the payment of money,
received by it on behalf of the Customer, until the Bank actually receives and
collects such funds.

      19. The Bank shall have no duties or responsibilities whatsoever except
such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied against the Bank in
connection with this Agreement.

                                   ARTICLE IX
                                   TERMINATION

      Either of the parties hereto may terminate this Agreement by giving to the
other party a notice in writing specifying the date of such termination, which
shall be not less than 60 days after the date of receipt of such notice. In the
event such notice is given by the Customer, it shall be accompanied by a copy of
a resolution of the Board of Directors of the Customer, certified by its
Secretary, electing to terminate this Agreement and designating a successor
transfer agent or transfer agents. In the event such notice is given by the
Bank, the Customer shall, on or before the termination date, deliver to the Bank
a copy of a resolution of its Board of Directors certified by its Secretary
designating a successor transfer agent or transfer agents. In the absence of
such designation by the Customer, the Bank may designate a successor transfer
agent. If the Customer fails to designate a successor transfer agent and if the
Bank is unable to find a successor transfer agent, the Customer shall, upon the
date specified in the notice of termination of this Agreement and delivery of
the records maintained hereunder, be deemed to be its own transfer agent and the
Bank shall thereafter be relieved of all duties and responsibilities hereunder.
Upon termination hereof, the Customer shall pay to the Bank such compensation as
may be due to the Bank as of the date of such termination, and shall reimburse
the Bank for any disbursements and expenses made or incurred by the Bank and
payable or reimbursable hereunder.

                                    ARTICLE X
                                  MISCELLANEOUS

      1. The indemnities contained herein shall be continuing obligations of the
Customer, its successors and assigns, notwithstanding the termination of this
Agreement.


<PAGE>
                                      -13-

      2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Customer shall be sufficiently given if
addressed to the Customer and mailed or delivered to it at 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, or at such other place as the Customer may
from time to time designate in writing.

      3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Bank shall be sufficiently given if addressed
to the Bank and mailed or delivered to it at its office at 101 Barclay Street
(22W), New York, New York 10286 or at such other place as the Bank may from time
to time designate in writing.

      4. This Agreement may not be amended or modified in any manner except by a
written agreement duly authorized and executed by both parties. Any duly
authorized Officer may amend any Certificate naming Officers authorized to
execute and deliver Certificates, instructions, notices or other instruments,
and the Secretary or any Assistant Secretary may amend any Certificate listing
the shares of capital stock of the Customer for which the Bank performs Services
hereunder.

      5. This Agreement shall extend to and shall be binding upon the parties
hereto and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable by either party without the prior written
consent of the other party, and provided, further, that any reorganization,
merger, consolidation, or sale of assets, by the Bank shall not be deemed to
constitute an assignment of this Agreement.

      6. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York. The parties agree that, all actions and
proceedings arising out of this Agreement or any of the transactions
contemplated hereby, shall be brought in the United States District Court for
the Southern District of New York or in a New York State Court in the County of
New York and that, in connection with any such action or proceeding, submit to
the jurisdiction of, and venue in, such court. Each of the parties hereto also
irrevocably waives all right to trial by jury in any action, proceeding or
counterclaim arising out of this Agreement or the transactions contemplated
hereby.

      7. This Agreement may be executed in any number of counterparts each of
which shall be deemed to be an original; but such counterparts, together, shall
constitute only one instrument.

      8. The provisions of this Agreement are intended to benefit only the Bank
and the Customer, and no rights shall be granted to any other person by virtue
of this Agreement.


<PAGE>
                                      -14-

      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officers, thereunto duly authorized and
their respective corporate seals to be hereunto affixed, as of the day and year
first above written.


Attest:                            CAPITAL AND INCOME STRATEGIES FUND, INC.


- ---------------------------        By:
Name:  Phillip S. Gillespie           --------------------------------
Title: Secretary                   Name:  Donald C. Burke
                                   Title: Vice President


Attest:                            THE BANK OF NEW YORK

- ----------------------------       By:
                                      ---------------------------------
                                   Name: Antoinette T. Meek
                                   Title: Assistant Treasurer


<PAGE>

                                   SCHEDULE I


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(L)
<SEQUENCE>3
<FILENAME>e17503ex99l.htm
<DESCRIPTION>EXHIBIT L
<TEXT>
<html>
<head>
<title> </title>
</head>
<body>





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<p><table width=600><tr><td align=right><font size=2>Exhibit (l) </font></td></tr></table>


<P>
<table width="600" border="0" cellspacing="0" cellpadding="0">
  <tr align="center" valign="bottom">
    <td width="122">&nbsp;</td>
    <td width="13">&nbsp;</td>
    <td width="312"><font size="2">S<font size="1">IDLEY</font> A<font size="1">USTIN</font>
      B<font size="1">ROWN</font> &amp; W<font size="1">OOD</font> <font size="1">LLP</font></font></td>
    <td width="10">&nbsp;</td>
    <td width="143">&nbsp;</td>
  </tr>
  <tr align="center" valign="bottom">
    <td width="122">&nbsp;</td>
    <td width="13">&nbsp;</td>
    <td width="312">&nbsp;</td>
    <td width="10">&nbsp;</td>
    <td width="143">&nbsp;</td>
  </tr>
  <tr align="center" valign="bottom">
    <td width="122">
      <p><font size="1">BEIJING</font></p>
    </td>
    <td width="13"><font size="2">&nbsp;&nbsp;</font></td>
    <td rowspan="13" valign="top" width="312"><font size="2">787 S<font size="1">EVENTH</font>
      A<font size="1">VENUE </font><br>
      N<font size="1">EW</font> Y<font size="1">ORK</font>, N<font size="1">EW</font>
      Y<font size="1">ORK</font> 10019<br>
      T<font size="1">ELEPHONE</font> 212 839 5300 <br>
      F<font size="1">ACSIMILE</font> 212 839 5599 <br>
      www.sidley.com <br>
      <br>
      F<font size="1">OUNDED</font> 1866</font></td>
    <td width="10"><font size="2">&nbsp;&nbsp;</font></td>
    <td width="143">
      <p><font size="1">LOS ANGELES</font></p>
    </td>
  </tr>
  <tr align="center" valign="bottom">
    <td width="122">
      <hr size="1" noshade width="75">
      <font size="2"></font></td>
    <td width="13"><font size="2"></font></td>
    <td width="10"><font size="2"></font></td>
    <td width="143">
      <hr size="1" noshade width="75">
    </td>
  </tr>
  <tr align="center" valign="bottom">
    <td width="122"><font size="1">BRUSSELS</font></td>
    <td width="13"><font size="2"></font></td>
    <td width="10"><font size="2"></font></td>
    <td width="143">
      <p><font size="1">NEW YORK</font></p>
    </td>
  </tr>
  <tr align="center" valign="bottom">
    <td width="122">
      <hr size="1" noshade width="75">
    </td>
    <td width="13"><font size="2"></font></td>
    <td width="10"><font size="2"></font></td>
    <td width="143">
      <hr size="1" noshade width="75">
    </td>
  </tr>
  <tr align="center" valign="bottom">
    <td width="122">
      <p><font size="1">CHICAGO</font></p>
    </td>
    <td width="13"><font size="2"></font></td>
    <td width="10"><font size="2"></font></td>
    <td width="143">
      <p><font size="1">SAN FRANCISCO</font></p>
    </td>
  </tr>
  <tr align="center" valign="bottom">
    <td width="122">
      <hr size="1" noshade width="75">
      <font size="2"></font></td>
    <td width="13"><font size="2"></font></td>
    <td width="10"><font size="2"></font></td>
    <td width="143">
      <hr size="1" noshade width="75">
    </td>
  </tr>
  <tr align="center" valign="bottom">
    <td width="122"><font size="1">DALLAS</font></td>
    <td width="13"><font size="2"></font></td>
    <td width="10"><font size="2"></font></td>
    <td width="143"><font size="1">SHANGHAI</font></td>
  </tr>
  <tr align="center" valign="bottom">
    <td width="122">
      <hr size="1" noshade width="75">
      <font size="2"></font></td>
    <td width="13"><font size="2"></font></td>
    <td width="10"><font size="2"></font></td>
    <td width="143">
      <hr size="1" noshade width="75">
    </td>
  </tr>
  <tr align="center" valign="bottom">
    <td width="122"><font size="1">GENEVA</font></td>
    <td width="13"><font size="2"></font></td>
    <td width="10"><font size="2"></font></td>
    <td width="143"><font size="1">SINGAPORE</font></td>
  </tr>
  <tr align="center" valign="bottom">
    <td width="122">
      <hr size="1" noshade width="75">
    </td>
    <td width="13"><font size="2"></font></td>
    <td width="10"><font size="2"></font></td>
    <td width="143">
      <hr size="1" noshade width="75">
    </td>
  </tr>
  <tr align="center" valign="bottom">
    <td width="122"><font size="1">HONG KONG</font></td>
    <td width="13">&nbsp;</td>
    <td width="10">&nbsp;</td>
    <td width="143"><font size="1">TOKYO</font></td>
  </tr>
  <tr align="center" valign="bottom">
    <td width="122">
      <hr size="1" noshade width="75">
      <font size="2"></font></td>
    <td width="13"><font size="2"></font></td>
    <td width="10"><font size="2"></font></td>
    <td width="143">
      <hr size="1" noshade width="75">
    </td>
  </tr>
  <tr align="center" valign="bottom">
    <td width="122"><font size="1">LONDON</font></td>
    <td width="13">&nbsp;</td>
    <td width="10">&nbsp;</td>
    <td width="143"><font size="1">WASHINGTON, D.C.</font></td>
  </tr>
</table>


<p><table width=600><tr><td align=right><font size=2>April 27, 2004 </font></td></tr></table>


<p><table width=600><tr><td><font size=2>Capital and Income Strategies Fund, Inc.  <BR>800
Scudders Mill Road  <BR>Plainsboro, New Jersey 08536</font></td></tr></table>

<p><table width=600><tr><td><font size=2>Ladies and Gentlemen:</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This opinion is
being furnished in connection with the registration by  Capital and Income Strategies
Fund, Inc., a Maryland corporation (the &quot;Fund&quot;),  of shares of common stock,
par value $.10 per share (the &quot;Shares&quot;), under the  Securities Act of 1933, as
amended (the &quot;Securities Act&quot;), pursuant to the  Fund's registration statement
on Form N-2, as amended (the &quot;Registration  Statement&quot;), under the Securities
Act, in the amount set forth under &quot;Amount  Being Registered&quot; on the facing
page of the Registration Statement.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As counsel for the
Fund, we are familiar with the proceedings taken by  the Fund in connection with the
authorization, issuance and sale of the Shares.  In addition, we have examined and are
familiar with the Charter and the By-laws  of the Fund, and such other documents as we
have deemed relevant to the matters  referred to in this opinion.</font></td></tr></table>

<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based upon the
foregoing, we are of the opinion that the Shares, upon  issuance and sale in the manner
and for the consideration referred to in the  Registration Statement, will be legally
issued, fully paid and non-assessable  shares of common stock of the Fund.</font></td></tr></table>

<p><table width=600><tr>
    <td align=center><font size=1>SIDLEY AUSTIN BROWN &amp; WOOD LLP IS A DELAWARE
      LIMITED LIABILITY PARTNERSHIP PRACTICING <br>
      IN AFFILIATION WITH OTHER SIDLEY AUSTIN BROWN &amp; WOOD PARTNERSHIPS</font></td>
  </tr></table>






<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;



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<p>
<table width=600>
  <tr>
    <td  align=left width="481"><font size="3"><b>S<font size="2">IDLEY</font>
      A<font size="2">USTIN</font> B<font size="2">ROWN</font> &amp; W<font size="2">OOD
      LLP</font></b><b> </b></font></td>
    <td  align=right width="107"><font size="3"><b>N<font size="2">EW</font> Y<font size="2">ORK</font></b></font></td>
  </tr>
</table>
<p><table width=600><tr><td><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We hereby consent
to the filing of this opinion as an exhibit to the  Registration Statement and to the use
of our name in the Prospectus constituting  a part thereof.</font></td></tr></table>

<p>
<table width=600>
  <tr>
    <td width="326">&nbsp;</td>
    <td width="262"><font size=2>Very truly yours, <br>
      <br>
      /s/ Sidley Austin Brown &amp; Wood <font size="1">LLP</font></font></td>
  </tr>
</table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
2</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;


</body>
</html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(N)
<SEQUENCE>4
<FILENAME>e17503ex99n.htm
<DESCRIPTION>CONSENT OF INDEPENDENT AUDITORS
<TEXT>
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<title> </title>
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<p><table width=600><tr><td align=right><font size=2>Exhibit (n) </font></td></tr></table>

<p><table width=600>
  <tr align="left">
    <td><font size=2><B> INDEPENDENT AUDITORS&#146; CONSENT</B></font></td>
  </tr></table>

<p><table width=600><tr>
    <td><font size="2">We consent to the use in this Pre-Effective Amendment No.
      2 to Registration Statement No. 333-112634 of Capital and Income Strategies
      Fund, Inc. (the &#147;Fund&#148;) on Form N-2 of our report dated April 27, 2004 appearing
      in the Prospectus, which is part of this Registration Statement. We also
      consent to the reference to us under the caption &#147;Independent Auditors and
      Experts&#148; in the Prospectus, which is also part of this Registration Statement.</font></td>
  </tr></table>

<p><table width=600>
  <tr align="left">
    <td><font size=2>/s/ Deloitte &amp; Touche <font size="1">LLP</font> </font></td>
  </tr></table>

<p><table width=600><tr>
    <td><font size=2>Princeton, New Jersey <BR>
      April 27, 2004</font></td>
  </tr></table>


<p>&nbsp;
<table width=600><tr><td width=60 align=left><font size=1>&nbsp;</font></td><td width=480 align=center><font size="2">
</font></td><td width=60 align=right><font size="1">&nbsp;</font></td></tr></table><p>&nbsp;<hr size=5 noshade width=600 align=LEFT><p>&nbsp;

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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(P)
<SEQUENCE>5
<FILENAME>e17503ex99p.txt
<DESCRIPTION>CERTIFICATE OF THE SOLE STOCKHOLDER
<TEXT>

                       CERTIFICATE OF THE SOLE STOCKHOLDER
                   OF CAPITAL AND INCOME STRATEGIES FUND, INC.


      Fund Asset Management, L.P. ("FAM"), the holder of 5,236 shares of common
stock, par value $0.10 per share, of Capital and Income Strategies Fund, Inc.
(the "Fund"), a Maryland corporation, does hereby confirm to the Fund its
representation that it purchased such shares for investment purposes, with no
present intention of reselling any portion thereof.


                                       FUND ASSET MANAGEMENT, L.P.


                                       By:     /s/ Donald C. Burke
                                           ----------------------------------
                                           Name: Donald C. Burke
                                           Title:   First Vice President


Dated: April 27, 2004



</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
